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>The Imminent Crash Of The Oil Supply

>What Is Going To Happen And Why Weren’t We Forewarned?

by Nicholas C Arguimbau

Information Clearing House (April 23 2010)

Look at this graph {1} and be afraid. It does not come from Earth First. It does not come from the Sierra Club. It was not drawn by Socialists or Nazis or Osama Bin Laden or anyone from Goldman-Sachs. If you are a Republican Tea-Partier, rest assured it does not come from a progressive Democrat. And vice versa. It was drawn by the United States Department of Energy, and the United States military’s Joint Forces Command concurs with the overall picture.

What does it imply? The supply of the world’s most essential energy source is going off a cliff. Not in the distant future, but in a year and a half. Production of all liquid fuels, including oil, will drop within twenty years to half what it is today. And the difference needs to be made up with “unidentified projects”, which one of the world’s leading petroleum geologists says is just a “euphemism for rank shortage”, and the world’s foremost oil industry banker says is “faith based”.

This graph was prepared for a US Department of Energy [DOE] meeting in spring, 2009. Take a good look at what it says, assuming it to be correct:

1. Conventional oil will be almost all gone in twenty years, and there is nothing known to replace it.

2. Production of petroleum from existing conventional sources has been dropping at a rate slightly over four percent per year for at least a year and will continue to do so for the indefinite future.

3. The graph implies that we are past the peak of production and that there are 750 billion barrels of conventional oil left (the areas under the “conventional” portion of the graph, extrapolated to the right as an exponential). Assuming that the remaining reserves were 900 billion or more at the halfway point, then we are at least 150 billion barrels, or five years, past the midpoint.

4. Total petroleum production from all presently known sources, conventional and unconventional, will remain “flat” at approximately 83 million barrels per day for the next two years and then will proceed to drop for the foreseeable future, at first slowly but by four percent per year after 2015.

5. Demand will begin to outstrip supply in 2012, and will already be ten million barrels per day above supply in only five years. The United States Joint Forces Command concurs with these specific findings {2 at 31}. Ten million barrels per day (bpd) is equivalent to half the United States’ entire consumption. To make up the difference, the world would have to find another Saudi Arabia and get it into full production in five years, an impossibility. See The Oil Drum {3}.

5. The production from presently existing conventional sources will plummet from its present 81 million barrels per day (mbpd) to thirty mbpd by 2030, a 63% drop in a twenty-year period.

6. Meeting demand requires discovering, developing, and bringing to full production sixty mbpd (105-45) of “unidentified projects” in the eighteen-year period of 2012 to 2030 and approximately 25 mbpd of such projects by 2020, on the basis of a very conservative estimate of only one percent annual growth in demand. The independent Oxford Institute of Energy Studies has estimated a possible development of 6.5 mbpd of such projects, including the Canadian tar sands, implying a deficit of eighteen to nineteen mbpd as compared to demand, and an approximate fourteen mbpd drop in total liquid fuels production relative to 2012, a sixteen percent drop in eight years.

7. The curve is virtually identical to one produced by geologists Colin Campbell and Jean Laherrere and published in “The End of Cheap Oil”, in Scientific American, March 1998, twelve years ago. They projected that production of petroleum from conventional sources would drop from 74 mbpd in 2003 (as compared to 84 mbpd in 2008 in the DOE graph) and drop to 39 mbpd by 2030 (as compared to 39 mbpd by 2030 in the DOE graph!) {4}. Campbell and Laherrere predicted a 2003 “peak”, and the above graph implies a “peak” (not necessarily the actual peak, but the midpoint of production of 2005 or before.

So here we are, if the graph is right, on the edge of a precipice, with no prior warning from either the industry, which knows what it possesses, or the collective governments, which ostensibly protect the public interest. As Colin Campbell, a research geologist who has worked for many large oil companies and studied oil depletion extensively {5} says, “The warning signals have been flying for a long time. They have been plain to see, but the world turned a blind eye, and failed to read the message” {6}. The world was completely transformed by oil for the duration of the twentieth century, but if the graph is right, within twenty years it will be virtually gone but our dependence upon it will not. Instead, we have

* zero time to plan how to replace cars in our lives

* zero time to plan how to manufacture and install millions of furnaces to replace home oil furnaces, and zero time to produce the infrastructure necessary to carry out that task

* zero time to retool suburbia so it can function without gasoline

* zero time to plan for replacement of the largest military establishment in history, almost completely dependent upon oil

* zero time to plan to support nine billion peolple without the “green revolution”, a creation of the age of oil

* zero time to plan to replace oil as an essential fuel in electricity production

* zero time to plan for preserving millions of miles of roads without asphalt.

* zero time to plan for the replacement of oil in its essential role in EVERY industry.

* zero time to plan for replacement of oil in its exclusive role of transporting people, agricultural produce, manufactured goods. In a world without oil that appears only twenty years away, there will be no oil-burning ships transporting US grain to other countries, there will be no oil-burning airlines linking the world’s major cities, there will be no oil-burning ships transporting Chinese manufactured goods to the billions now dependent on them.

* zero time to plan for the survival of the billions of new people expected by 2050 in the aftermath of “peak everything”.

* zero capital, because of failing banks ansd public and private debt, to address these issues.

Why zero time?

Because if we at any time use more oil than allowed by the graph, we will have even less later.

Because we are already committed to supporting 2.5 billion more people on what we have.

Because every day we continue upward in our oil consumption, even though we continue to have more people who need it and billions who deserve to rise from abject poverty, we are making the future supply shortage worse.

If you believe the graph, demand will outstrip supply starting at the end of 2011, and severely outstrip supply in five years. What are we going to do, and how are we going to do it? We have no time to decide.

IS THE GRAPH RIGHT?

It is very unlikely that things can be better than the graph indicates. Why?

* The great majority of authorities believe there is little more than one trillion barrels of conventional oil left. You can make a simple calculation from that: At the present rate of thirty billion barrels per year, 82 million barrels per day, it will all be gone in 33 years, and consumption has been rapidly increasing, not decreasing, so if anything it will all be gone sooner.

* A closer look at the graph reveals that it was drawn on the assumption that the world’s existing conventional fields contain only 750,000 barrels at this time, enough to keep us going only 25 years.

* The graph assumes a decline rate of four percent per year. As long as the estimates of remaining reserves are right, that can’t be far off. In fact, four percent is a relatively low decline rate compared to what has been observed in oil fields generally. Hold on, it’s going to be a fast ride down!

* The major oil companies, which presumably know better than we do how much oil is in their possession, “conspicuously fail to invest in new refining capacity, which would surely be needed if production were set to rise” {7}. The excess of refining capacity over demand remained close to ten million bpd during the nineties, but dropped to almost nothing in the last decade as a result of failure to build new capacity {8}. The United States Joint Forces Command has also reported the failure of the oil industry to invest in the refining capacity necessary to permit expanded production, and that “Even were a concerted effort begun today to repair that shortage, it would be ten years before production could catch up with expected demand” {2 at 26}.

* The most frequently discussed significant source of unexploited petroleum is the tar sands of Alberta, Canada. Because a high percentage of the energy value of the tar sands has to be expended in their extraction, the reported quantity of reserves is misleading, and two independent researchers have estimated respectively that production from the tar sands by 2020 may be expected of 3.3 million bpd and four million bpd. Consequently, the likelihood of the tar sands making a significant contribution to the world’s petroleum demand in the foreseeable future is low. {9}

* The shortfall, labeled “unidentified projects”, that needs to be filled in twenty years is an unprecedented sixty million barrels per day, equivalent to 3/4ths of today’s total production. We have never in history done anything comparable to that. Although there are large deposits of “unconventional” oil such as the Canadian tar sands, most are making only slow progress at development and consume as much or more energy in their production as they can generate. The independent Oxford Institute of Energy Studies has estimated a possible development of 6.5 mbpd of such projects, when we’ll need more than that every two years just to keep our place. So the likelihood of anything at all making a significant dent in the shortfall is small. Indeed, the “unidentified projects” can be perceived as just a “euphemism for rank shortage” {10}. The United States Joint Forces Command has come to the similar conclusion: that of all potential future energy sources, “None of these provide much reason for optimism” {11}. Petroleum industry investment banker Matt Simmons calls them “faith-based” {12 at 4}.

* The “Hubbert Peak” theory of oil field depreciation, which predicted the peak and subsequent demise of the US oil industry fifteen years in advance and within two years of its occurence, says that with normal production methods, a country reaches peak production in its oil fields when they are fifty percent depleted, with the production curve being bell-shaped {13}. The peak can be postponed with innovative extraction techniques, but this only causes subsequent more rapid decline of the deposits and total extraction if anything decreasing. The world reached the midpoint of its reserves in the last decade, so the 2005 “peak” implied by the above graph is very close to what would be expected.

* Astonishingly, Dr Hubbert in the same 1956 paper predicted, based upon records of only ninety billion barrels of oil having been recovered worldwide, that the peak of world petroleum production would be approximately the year 2000; this apparently quite accurate prediction by Hubbert has largely been forgotten {14}. One is tempted to ask why, if one man could predict the timing of the peak 44 years before it occurred, the United States Department of Energy is incapable of recognizing it after it occurred.

* There’s a common feeling that just becase we don’t know where the oil is, doesn’t mean the Mother Lode isn’t right around the corner. But if you’ve looked everywhere, the chances are a lot slimmer. The lag time between discovery and bringing to full production of a field is thirty to forty years, which means that even the virtually impossible discovery of another Saudi Arabia would barely change the graph above, of production between now and 2030. But no such discoveries are left to be made. The rate of discovery of new conventional oil has been steadily dropping now for FORTY years despite ever-more searching with ever-more-sophisticated technology. There have been two pivotal events: the peak of discovery around 1968, and the day in 1981 when discovery of new oil deposits no longer kept up with production. There is nothing complicated about this. As Campbell says, the warning sign there for anyone to see –

“simply recognized two undeniable facts”:

— You have to find oil before you can produce it

— Production has to mirror discovery after a time lag

“Discovery reached a peak in the 1960s – despite all the technology we hear so much about, and a worldwide search for the best prospects. It should surprise no one that the corresponding peak of production is now upon us.” Indeed, Campbell’s second point means that the inevitable peaking of oil production in the early 21st century, should have been clear for all to see since the peaking of discovery in the late sixties.

Campbell does not stand alone. As the US Joint Forces Command observes, “The discovery rate for new oil and gas fields over the last two decades (with the possible exception of Brazil) provides little reason for optimism that future efforts will find major new fields” {2 at 31}.

* Saudi Arabia’s largest field, the Ghawar, is now in decline and it appears that the country has nothing to offset that decline. That has led many to conclude that “Peak Oil is a Done Deal” {15}.

IF IT’S A “DONE DEAL”, WHY DID IT TAKE UNTIL THE LAST MINUTE TO GET HERE?

“We can wish it, we can dream it, but it will never be, oil is not renewable, and therefore in time it must be realized that THERE WILL BE NO OIL”.

— ENO Petroleum Corporation, “Peak Oil – The Global Oil Crisis” {16}.

It is hard to conceive of an act or omission causing more pain to more people and creatures than the failure of “those in charge” to announce with reasonable forewarning that the oil supply was going to crash. But it is upon us with no forewarning to the general public at all.

The government planning agencies charged with helping the public survive the end of oil could not have performed worse than by recognizing peak oil only after it has happened. Like anthropogenic global warming (“AGW”), “peak oil” has been the subject of decades of denial. Notwithstanding Hubbert’s famous coup in pinpointing the peak of US oil production through the simple observation that production naturally peaks when the supply is half gone, few would listen that because the worldwide supply of conventional oil would reach the halfway point in the first decade of this century, trouble was right around the corner. The fact is, coming to that point meant we were in trouble regardless, because the early stages of development of an oil field (like the early stages of growth of virtually anything else) follow an exponential growth curve, and the world’s growth addicts love exponential curves, but once you get beyond the halfway point, it is a mathematical certainty that the longer you attempt to conform the field to a pattern of exponential growth, the more the end is going to be precipitous. If you don’t decelerate rapidly, that is precisely what has to happen – the decline after the halfway point can only be more rapid than the rise beforehand.

What Hubbert observed with respect to the US oil reserves has an intuitive sense to it – as the amount of oil in the field drops, its pressure drops, so the flow begins to slow down – the gusher goes down to a trickle. But if the owner of the field doesn’t make full disclosure of what’s there, outsiders can only make educated guesses from general geological principles and what the owner is selling, as to what the future holds. And as we all know, full disclosure is not the name of the game in the oil business.

If the field is just allowed to release its liquid gold at its natural rate, that’s not too bad, because observations like the Hubbert Peak can be applied. But as technology improves and well pressure can be jacked up to compensate for declining reserves (for instance by pumping water into the wells), the outside observer loses certainty. There remains information about the company’s reserves, but the accuracy of that information is seriously open to question. Within OPEC, which allows its members to market in accordance with the amount of their reserves {17}, there are great temptations to fudge. Outside observers can follow a country’s reports on its reserves, but those reports are highly suspect. They will remain constant for years while the country is pumping great amounts of oil without reporting any new discoveries, and indeed they can take sudden leaps upward also without reports of new discoveries. Such “records” lead to the inevitable conclusion that many OPEC reserves reports are fictional. If you would like to see charts of OPEC oil reserves mysteriously contorting themselves, you are invited to take a look at Hart’s essay. So if you thought the experts had it all in hand and would reliably warn us when trouble was a’brewin’, think again. Not only do OPEC members have internal business reasons to exaggerate their reserves, but companies on the public stock market want to satisfy their stockholders of their long-term viability, and all oil producers want to make their customers confident that they can rely on oil for the long haul. By concealing their future from homeowners, oil companies have made trillions for the real estate business and the banks at the expense of those who chose urban sprawl over dense “near-in” housing, and the companies themselves will make trillions in the near future selling to consumers trapped into oil addiction, who might have sought alternatives more vigorously had they known how close the crash was.

Matt Simmons, the banker who has spent his post-Harvard-Business School career advising oil companies and saving as peak oil advisor to the last Presidential administration and specifically to President Bush, ought to know. And what he says is that Western oil companies like ExxonMobil would be strongly opposed to the idea of transparent data because it would reveal “how crappy and old their fields really are” {18}. According to EnergyStocks.com, Simmons has warned that “the failure of Saudi Arabia and other major oil producers to provide transparent production data has left the world in a lurch, unable to know whether it can maintain an adequate supply of oil in the face of burgeoning demand. Such uncertainty has led to indecision about whether the world should invest the huge sums of money necessary to develop alternative transportation fuel sources.”

Just how bad the published reserve figures for the major oil-producing nations are, has long been understood. We like to say that what goes up, must come down, but not OPEC member-nation oil reserves. Their allowed production quotas depend upon their reserves, so there is a built-in temptation to overstate reserves and never reflect in reduiced reserve figures, what they have pumped out. In 1988, the OPEC oil reserves “magically and miraculously increased twofold”, without any corresponding discovery of new fields. The officially reported reserves follow graphs that would be comical were it not for the fact that 6.8 billion people, and counting, depend upon the real numbers. {19}

Now we are facing the consequences of the major oil producers “leaving the world in a lurch”: almost complete inability to cope with the severe difficulties we face in transporting, feeding, housing, and keeping warm the burgeoning billions of our numbers. It is hard to conceive of how any private entity could impose so much pain on so many. It didn’t need to be that way. The US Government and its cohorts around the world could have imposed transparency on the oil companies as to their true reserves, and we would have had fair warning and the possibility of coping. Yes, and the moon could be made of green cheese.

Of course, as noted, it is possible to produce a graph roughly like the one above with nothing more than production data and reserves data. The former are public, and the latter are known to a limited extent. It has been the consensus of decisionmakers for many years that the world had a total (both produced and still in the ground) of approximately two trillion barrels of conventional oil, and as pointed out by Campbell, four decades of dwindling discoveries have left us with an absolute inability to increase available reserves in a timely manner to mitigate the looming shortfall. The two trillion barrel figure was absolutely critical for doing what planning could be done, but at the beginning of the last decade, the US broke ranks with the consensus of the rest of the world, declared through the historically-reliable US Geological Survey (USGS) that world reserves of conventional oil (both consumed and yet-to-be-consumed) were in fact in the neighborhood of three trillion barrels rather than two, a claim which if true immediately provided the world by sleight of hand with an extra thirty years’ supply at present consumption rates. To be sure, USGS former employees disputed its estimates as relying “heavily on guesses to calculate new oil discoveries”, and on doubling the usual thirty percent recovery rate from reserves “with no technology in mind capable of doing that”. {20} The concerns about overestimation of discoveries proved correct: they continued on their downward track. This alone created a discrepancy between the USGS projections and reality of approximately 900 billion barrels. At the same time, the production data appeared to peak in 2005, prominent Princeton University petroleum geologist Kenneth Deffeyes predicted that 2005 was the year {21}, and Simmons suggested similar concerns {22}. Nonetheless, based upon the USGS wishful thinking, during the Bush Administration, the Department of Energy was forecasting a “production peak somewhere between 2021 and the start of the next century, with 2037 the most likely date” {23}. Not to worry.

With the peak imminent in reality, like the global warming “scientific skeptics”, industry in 2006 came up with a “theory” published in a non-peer-reviewed report, that “peak oil” was in its totality a false concept, and that the true behavior of an oil field or conglomeration thereof was a peak followed by an “undulating plateau” and then a gentle decline by around two percent per year, years, perhaps decades later. According to Cambridge Energy Research Associates (CERA), “It is likely that the situation will unfold in slow motion and that there are a number of decades to prepare for the start of the undulating plateau. This means that there is time to consider the best way to develop viable energy alternatives that would eventually provide the bulk of our transport energy needs.” {24} Not to worry.

CERA faulted the “peak oil” proponents with failure to take into acount the facts that reserve estimates evolve with time and that so does the technology used in extracting oil. The criticism is disingenuous given that the industry refuses to disclose either the technology it is using at any one time or its true reserves, and the reserve estimates evolve with time more for political reasons than geological ones. The facts the proponents of “peak oil” fail to take into account are facts that the industry will not disclose. As Simmons has pointed out, “With solid global field-by-field production data, Peak Oil timing could be proved“. And, or course, if the “undulating plateau” theory is correct, all the industry has to do is to disclose their true facts to prove it, but they won’t. Regardless, average decline rates of an oil supply are dictated by only two numbers: how fast we are now using the oil, and how much is left. Lower decline rates now mean higher decline rates later. Those are immutable facts even if the “undulating plateau” is correct. So to avoid a rapid decline in available oil, we must discover and bring to production staggeringly large new supplies, right now today. Nonetheless, the CERA “theory” has sufficiently intimidated the bureaucrats that DOE’s official position at the moment, as expressed to Le Monde, notwithstanding the graph, is that we are “entering a plateau” {25}.

At the same time all of this was happening, the UN, the US Congress, the Obama Administration and the oil industry were negotiating over goals for global warming legislation. Miraculously, although arguably coincidentally, the percentage-reduction goals agreed to fit quite precisely the percentage reductions in oil consumption that will be physically forced upon us all if you believe the above graph: an eighteen percent drop from 2005 by 2020, and an 85% drop from 2005 by 2050. (It is possible to extrapolate the graph, which assumes exponentially dropping levels of existing reserves at a four percent per year rate.) This compares to reductions of carbon dioxide emissions seventeen percent from 2005 in 2020 and eighty percent from 2005 in 2050 in the bill. So it would appear that the legislative goals have been set, for whatever reason, so that the oil industry will have to do little if anything it won’t have to do in any event because of dwindling reserves. {26} It is hard to see how the negotiators could have come up with such correspondence if they had not all been aware of the impending crash of production and the expected decline rate. Coincidence? Maybe, but somehow it seems unlikely. Whether or not by intent, the goals fit the needs of the oil companies rather than the needs calculated by the scientists.

In short, with all the evidence available, it is hard to see how the industry and the Department of Energy could have failed to see this coming. Their failure to warn the public, given the consequences, verges on the criminal. And if somehow they can claim innocence, then we still have to ask why they did not heed the warning of Matt Simmons, advisor on peak oil to the Bush administration, as to the importance of transparency. But they did not, and here we are.

CONCLUSIONS

We are on our own. We are rapidly going to have to deal with less and less oil, since there has been no forewarning and no planning. It is a time for communities to prepare for community energy independence, because only that way will be safe. This means relying on the sun and wind and water that have always been with us. It means cooperation with each other to get through seriously difficult times. It means finding alternatives to oil throughout our lives as quickly as possible – the oil that runs our cars, the oil that heats our houses, the oil that runs generators for our electricity, the oil from which chemical fertilizers and insecticides and plastics and polyester are made, the oil that brings countless manufactured goods to us from overseas, the oil on which farmers depend for irrigation pumps, for transporting produce to market, for working the soil to bring us food. If you believe the graph, it will almost all be gone in twenty years. And the progressives and Tea-Partyers must remember that the people who brought this calamity to us are not our friends but are people we trusted and they trusted, so we must work together to cope with the mess that is upon us, and “to throw the rascals out”.

NOTES AND LINKS:

{1} http://www.informationclearinghouse.info/eia1.jpg

{2} http://www.jfcom.mil/newslink/storyarchive/2010/JOE_2010_o.pdf

{3} http://www.theoildrum.com/node/5154

{4} http://www.jala.com/energy1.php

{5} http://www.peakoil.net/about-aspo/dr-colin-campbell

{6} http://www.greatchange.org/ov-campbell,outlook.html

{7} http://www.greatchange.org/ov-campbell,outlook.html

{8} http://www.imf.org/external/pubs/ft/weo/2006/01/chp1pdf/fig1_21.pdf

{9} http://www.energybulletin.net/node/30537

{10} http://www.greatchange.org/ov-campbell,outlook.html

{11} http://www.jfcom.mil/newslink/storyarchive/2010/JOE_2010_o.pdf

{12} http://www.simmonsco-intl.com/files/Northern%20Trust%20Bank.pdf

{13} http://www.hubbertpeak.com/hubbert/1956/1956.pdf

{14} http://www.hubbertpeak.com/hubbert/1956/1956.pdf

{15} http://www.energybulletin.net/node/45940

{16} http://www.enopetroleum.com/opecoilreservers.html

{17} Hart, “Introduction to Peak Oil”, www.philhart.com/content/introduction-peak-oil

{18} EnergyTechStocks.com, “Meeting the Challenge Matt Simmons: Force All Oil Producers to Give Transparent Data”.

{19} http://www.enopetroleum.com/opecoilreservers.html

{20} Gordon, “Worries Swelling Over Oil Shortage”, Energy Bulletin March 20 2005.

{21} http://www.energybulletin.net/node/4835

{22} http://www.simmonsco-intl.com/files/Northern%20Trust%20Bank.pdf (page 31)

{23} http://www.energybulletin.net/node/4835

{24} www.cera.com/aspx/cda/public1/about/about.aspx

{25} petrole.blog.lemonde.fr:80/2010/03/25/washington-considers-a-decline-of-world-oil-production-as-of-2011/

{26} http://ecoglobe.ch/energy/e/peak9423.htm

_____

The author, Nicholas C Arguimbau, is an appellate and environmental lawyer licensed in California and residing in Western Massachusetts. He may be contacted at narguimbau@earthlink.net.

In accordance with Title 17 USC Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Information Clearing House has no affiliation whatsoever with the originator of this article nor is Information Clearing House endorsed or sponsored by the originator.

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http://www.informationclearinghouse.info/article25306.htm

Bill Totten http://www.ashisuto.co.jp/english/index.html

Categories: Uncategorized

>Obama’s phony banking "reform"

>by Barry Grey

wsws.org (April 27 2010)

Debate on the Senate version of the Obama administration’s bank regulatory overhaul is expected to begin shortly. The House of Representatives passed its banking bill last December.

Neither bill does anything to curb the power of the banks or limit their parasitic and socially destructive activities. What the media is calling the “most sweeping overhaul” of the banking system since the Great Depression in reality sanctions the ever greater monopolization of the financial system by a handful of Wall Street giants, imposes no limits on executive pay, and allows the banks and hedge funds to continue gambling on exotic and largely unregulated securities such as collateralized debt obligations and credit default swaps.

The so-called bank “reform” is an exercise in mass deception – an attempt to placate popular hostility to the banks and provide the government with political cover while it continues to do the bidding of Wall Street.

The bills have been drawn up in the closest consultation with bankers and bank lobbyists. This collusion has been widely reported in the press and presented as a perfectly normal and acceptable fact of political life. The front-page lead article in Monday’s Wall Street Journal describes the intensive lobbying being carried out by billionaire investor Warren Buffett to alter the Senate bill’s provisions on derivatives.

Buffett, an Obama supporter, wants to exempt existing derivatives deals from collateral requirements in the current language of the bill – a change that would save him billions on his $63 billion derivatives portfolio. Both senators from his home state of Nebraska, one Democrat and one Republican, are championing his cause.

This is just one example of the web of corruption and bribery that extends from Wall Street to the White House and Capitol Hill. The banks have thus far spent $455 million lobbying Congress on the overhaul and handed out $34 million in 2010 election campaign donations, most of it to Democrats.

The circle of corruption includes the ratings companies such as Moody’s and Standard & Poor’s, which blessed toxic subprime mortgage-backed securities with triple-A ratings in return for fees from the banks they were rating, and government regulators who move seamlessly from regulatory offices to lucrative posts at the banks they were supposedly overseeing.

The colossuses of Wall Street amass their huge profits by means of fraud and swindling. Over the past few weeks systematic accounting fraud at Lehman Brothers has been exposed and the Securities and Exchange Commission has indicted Goldman Sachs for defrauding its clients in the run-up to the subprime mortgage crash. This is only the tip of the iceberg.

Obama’s so-called reform will do nothing to hold accountable the criminals at the head of the banks and hedge funds or break up the financial behemoths that exert a stranglehold on the economy. Instead, it will set up a mechanism to institutionalize government rescue operations of big financial firms to protect the interests of bank executives, shareholders and creditors, ultimately at public expense.

The lawless and reckless actions of Wall Street CEOs have had devastating consequences for tens of millions of people in the US and around the world. The wreckage left in the wake of the financial tsunami of 2008 is registered in millions of lost jobs, home foreclosures, utility shutoffs, and rising hunger, disease and poverty.

With the help of trillions of dollars in taxpayer bailouts, the bankers are making more money today than ever, even as schools are closed, libraries disappear and museums and opera houses are shuttered. There is, the people are told, “no money” for jobs or basic social services.

There is plenty of money. The problem is that it is concentrated in the hands of a financial aristocracy. The immense concentration of wealth among these individuals is not only morally repugnant, it is a menace to society. It is the result of the plundering of the social wealth to feed criminal appetites, at the direct cost of the productive forces.

During the rise of American capitalism as an industrial power, the vast fortunes of the corporate elite, while achieved through ruthless exploitation of the working class, were associated with the expansion of industry and the production of useful products. That is not the case with today’s financial elite. Its wealth is amassed on the basis of financial manipulation and outright fraud, linked to the destruction of the social infrastructure and industry.

The Socialist Equality Party advocates a policy that proceeds from the needs of the people and society as a whole, not the personal fortunes of the bankers and big investors. We call for:

* The criminal prosecution of bankers and speculators whose illegal actions contributed to the deepest economic crisis since the Great Depression. They must be held legally accountable and given appropriate sentences to prevent a recurrence of such practices.

* The expropriation of the wealth of the top bankers, hedge fund managers, traders and speculators. This would immediately free up several trillion dollars, money that could go to a public works program to provide jobs and rebuild the social infrastructure – schools, housing, clinics, libraries, cultural facilities, the energy system. This money could also be used to help provide relief to the victims of the economic crisis – to maintain full wages for those laid off, put a stop to foreclosures and utility shutoffs, provide full medical coverage.

* The nationalization of the banks and major financial institutions and their transformation into public utilities under the democratic control of the working population. This is a prerequisite for the rational and planned development of the economy and the allocation of resources to rebuild the social infrastructure, end poverty, raise living standards and overcome social inequality.

Only such a socialist program can break the grip of the financial aristocracy and liberate the productive forces for the benefit of society as a whole. It can be achieved only through the independent political mobilization of the working class against Obama, the two parties and big business, and the capitalist system that they defend.

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Bill Totten http://www.ashisuto.co.jp/english/index.html

Categories: Uncategorized

>Tipping Point (Part Three)

2010/04/28 1 comment

>Near-Term Systemic Implications of a Peak in Global Oil Production – Collapse Dynamics

Posted by Gail the Actuary

theoildrum.com (April 14 2010)

Recently, a 55 page paper called Tipping Point: Near-Term Implications of a Peak in Global Oil Production was published as the joint effort of two organizations, Feasta and The Risk/Resilience Network, with lead author David Korowicz:
http://www.theoildrum.com/files/Tipping%20Point.pdf

We have recently published two excerpts from that paper, which can be found at this link: http://www.theoildrum.com/tag/tipping_point_paper

This is a third excerpt.

4. Collapse Dynamics

4.1 The Dynamical State of Globalised Civilisation

The period since the end of the last ice age provided the large-scale stability in which human civilisation emerged. Climatic stability provided the opportunity for diverse human settlements to ‘bed’ down over generations. This formed the basis upon which knowledge, cultures, institutions, and infrastructures could build complexity and capability over generations without, by and large, having it shattered by extreme drought or flooding outside their capacity to adapt.

Within this macro-climatic stability, is the medium-term stability that we referred to above, the period of globalising economic growth over the last century and a half. We tend to see the growth of this economy in terms of change. We can observe it through increasing energy and resource flows, population, material wealth, and as a general proxy, GWP [Gross World Product]. We could view this from another angle. We could say that the globalizing growth economy for the last one hundred and fifty years has been remarkably stable. It could have grown linearly by any percentage rate, declined exponentially, oscillated periodically, or swung chaotically, for example. What we see is a tendency to compound growth of a few percent per annum. And at this growth rate the system could evolve, unsurprisingly, at a rate we could adapt to.

This does not mean that there is not unpredictable fluctuations in the economy. However, the fluctuations are around a small additional percentage on the previous year’s gross output. By magnitude we are roughly referring to change in GWP divided by GWP. Angus Maddison has estimated that GWP grew 0.32% per annum between 1500 and 1820; 0.94% between 1820 and 1870; 2.12% between 1870 and 1913; 1.82% between 1913 and 1950; 4.9% between 1950 and 1973 3.17% between 1973 and 2003; and 2.25% betwee 1820 and 2003 {i}. Even through two world wars and the Great Depression in the most economically developed countries growth betweem 1913 and 1950 remained positive and in a relatively narrow band. Figure 4 shows growth rates of the global economy in frequency bands over the last four decades, again the narrow band indicates system stability. Of course small differences in aggregate exponential growth can have major effects over time, but here we are concentrating upon the stability issue only.

Figure 4: Real GWP percentage change year on year 1961-2008. Source: Based upon World Bank data. See http://www.theoildrum.com/node/6360

Governments and populations are highly sensitive to even minor negative changes in growth. The constraints felt by governments and society in general arising from only a very small change in GDP growth should emphasize to us that our systems have adapted to this narrow range of stability, and the impact of moving outside it can provoke major stresses.

4.2 Tipping Points in Complex Systems

Despite the diversity of complex systems, from markets to ecosystems to crowd behavior, there are remarkable similarities. For most of the time such systems are stable. However, many complex systems have critical thresholds, called tipping points, when the system shifts abruptly from one state to another. This has been studied in many systems including market crashes, abrupt climate change, fisheries collapse, and asthma attacks. Despite the complexity and number of parameters within such systems, the meta-state of the system may often be dependent on just one or two key state variables {ii}.

Recent research has indicated that as systems approach a tipping point they begin to share common behavioral features, irrespective of the particular type of system {iii}. This unity between the dynamics of disparate systems gives us a formalism through which to describe the dynamical state of globalised civilisation, via its proxy measure of GWP, and its major state variable, energy flow.

We are particularly interested in the class of transitions called catastrophic bifurcations where once the tipping point has been passed, a series of positive feedbacks drive the system to a contrasting state. Such ideas have become popularised in discussions of climate change. For example, as the climate warms it drives up emissions of methane from the arctic tundra, which drives further climate change, which leads to further exponential growth in emissions. This could trigger other tipping points such as a die-off in the Amazon, itself driving further emissions. Such positive feedbacks could mean that whatever humanity does would no longer matter as its impact would be swamped by the acceleration of much larger scale processes.

Figure 5 shows how the system state responds to a change in conditions. The state of a system could represent the size of a fish population, or the level of biodiversity in a forest, while the conditions could represent nutrient loading or temperature (both effectively energy vectors). The continuous line represents a stable equilibrium, the dotted one an unstable one. In a stable equilibrium, the state of the system can be maintained once the condition is maintained. In Figures a) and b) we see two different responses of a stable system under changing conditions. In the first, a given change in conditions has a proportional effect on the system state; in the latter, the state is highly sensitive to a change in conditions. In c) and d) the system is said to be close to a catastrophic bifurcation. In both of these cases there is an unstable region, where there is a range of system states that cannot be maintained. If a system state is in an unstable regime, it is dynamically driven to another available stable state. If one is close to a tipping point at a catastrophic bifurcation, the slightest change in the condition can cause a collapse to a new state as in c), or a small perturbation can drive the system over the boundary as in d).

Figure 5: The state of a system responds to a change in conditions. The continuous line represents a stable equilibria. In a) a change in conditions drives an approximately linear response in the systems state, unlike b) where a threshold is crossed and the relationship becomes very sensitive. The fold bifurcation (c, d) has three equliibra for the same condition, but one represented by the dotted line is unstable. That means that there is a range of system states which are dynamically unstable to any condition {iv}. See http://www.theoildrum.com/node/6360

5. Three Peak Energy-Economy Models

5.1 Introduction

While discussions of peak oil have begun to enter the policy arena, and while it is generally acknowledged that it would have a major impact upon the economy, the discussion is often fragmented and lacking in a broad system synthesis. In general, discussion tends to focus on the direct uses of oil, and sometimes its effect on a country’s balance of payments. Where economic impact studies of peak oil have been done, they are based upon the direct decline curve assumption such as the 4see model by Arup for the UK Peak Oil Task Force Report {v}. Nel and Cooper have used the decline curve assumption and accounted for EROI and peak coal and gas to look at the economic implications {vi}. The latter authors show a smooth decline in GDP but acknowledge that their modelling assumptions include that the financial markets must remain functional, state legitimacy remains intact, and international law prevails.

In most cases there is an intuitive assumption or mental model of what the effects of peaking oil production will mean economically and socially. In order to clarify our discussion, and introduce some working concepts, we will look at three models.

These should not be considered in isolation. In a very broad and general fashion we might consider that the linear decline model is valid for small energy constraints that have a very small effect on the overall magnitude of real GWP and level of complexity. This merges into a oscillating decline phase which cause larger perturbations in GWP/Complexity level. Finally, tipping points are crossed that rapidly cause a severe collapse in GWP/Complexity.

Finally, we note that what we are trying to do is clarify peak energy-civilisation dynamics and identify the major structural drivers in the process. The real world is more unknowable than can ever be engaged with here.

5.2 Linear Decline

Intuitively we tend to assume that most phenomena respond proportionately to some causation. This is mostly true. A change in price proportionately changes demand; an increase in population proportionately increases food demand; and increase in cars leads to a proportional increase in emissions.

Most commonly, there are two associated assumptions relating to the energy-economy relationship post-peak. The first is the Decline Curve Assumption. Thus oil production is withdrawn from the economy at between two and three percent per annum. The second element is that there is an approximately linear relationship between the oil production decline and economic decline. The combination of these assumptions is that the global economy declines in the form of the slope of the downward projection curve.

Thus we see the price of oil rise as oil becomes scarcer. Having less energy constrains economic activity. Bit by bit we become poorer; there is less and less discretionary consumption. The rising prices force more localized production and consumption, and there is growing de-globalisation. Jobs lost in the areas serving today’s discretionary needs are over time deployed in food and agriculture, producing with more direct human effort and skill many of the essentials of life.

In such a case a longish period of adaptation is assumed in which gradually declining oil production and resulting oil price increases cause recession, hardship and cause some shocks, but also initiate a major move into renewable energy, efficiency investments, and societal adaptation. New energy production that was once too expensive becomes viable. The general operability of familiar systems and institutions is assumed, or they change slowly.

Even where the linear decline model is valid, it would be difficult to adapt. Consider a country’s budget in energy terms, with some amount for health, business operations, agriculture, operations, education, and investment. As total energy available declined, less and less energy would be available in each sector. Because we discount the future (we favour short-term benefits), and the discount rate rises in economic stress, the ability to maintain investment in renewable energy would become increasingly difficult. In essence, there would be a choice between keeping some functionality in a crumbling health service, and stalling rising employment a little; or accepting job losses and a health crisis in return for a small energy return per annum in the future.

5.3 Oscillating Decline

In this model, constrained or declining oil production leads to an escalation in oil (plus other energy and food) prices. But economies cannot pay this price for a number of reasons. Firstly, it adds to energy and food price inflation, which are the most non-discretionary purchases. This means discretionary spending declines, from which follows job losses, business closures, and reduced purchasing power. The decline in economic activity leads to a fall in energy demand and a fall in its price. Secondly, for a country that is a net importer of energy, the money sent abroad to pay for energy is lost to the economy, unless that country exports goods of equivalent value. This will drive deflation, cut production, and reduce energy demand and prices. Thirdly, it would increase the trade deficits of a country already struggling with growing indebtedness, and add to the cost of new debt and debt servicing.

Falling and volatile energy prices mean new production is harder to bring on stream, while the marginal cost of new energy rises and credit financing becomes more difficult. It would also mean that the cost of maintaining existing energy infrastructure (gas pipelines, refineries, et cetera) would be higher, thus laying the foundations for further reductions in production capability.

In such an energy constrained environment, one would also expect a rise in geo-political risks to supply. This could be bi-lateral arrangements between countries to secure oil (or food). Such agreements would tend to reduce the amount of oil available on the open market. Energy constraints would also increase the inherent vulnerability to highly asymmetric price/supply shocks from state or non-state military action, extreme weather events, or other so-called black swan events.

When oil prices fall below what can be supplied above the marginal cost of production and delivery, and oil price is what can be afforded in the context of decreased purchasing power, then energy for growth is again available. Of course local and national differences (for example energy import dependence, export of key production such as food) can be expected to shift how regions fare in the recession and in their general ability to pick up again. Growth then might be assumed to kick off again, focusing maybe on more ‘sustainable’ production and consumption.

However, as growth returns, the purchasing power of the economy will not be able to return to where it was before. Oil production will be limited by natural decline and lack of investment, and entropic decay of infrastructure will reduce the supply-demand price point further. Again higher oil, food and energy prices would then drive another recession.

In the oscillating decline model: economic activity increases –> energy prices rise –> a recession occurs –> energy prices fall –> economic activity picks up again but to a lower bound set by declining oil production. In this model the economy oscillates to a lower and lower level of activity. From our discussion about the origins of the current recession, we see this process has already begun.

5.4 Systemic Collapse

This model draws on ideas from the general dynamics of complex systems and networks, and tends to see our civilisation as a single complex adaptive system by virtue of its connectedness and integration. Indeed the concept of globalization is about integration with a common singular network.

We associate systemic collapse of civilisation with a catastrophic bifurcation. The state of civilisation at a time is by necessity dependent upon the state of the globalised economy. The state of the global economy is dependent on the infrastructure that integrates the operational fabric. The state of the globalised economy may be parameterized by GWP, which implies a level of complexity. And GWP (and complexity) is absolutely dependent upon energy flows.

To argue that civilisation is on the cusp of a collapse, we need to be able to show that there are tipping points that, once passed, drive the system rapidly towards another contrasting state through a process of positive feedback that may in turn drive other feedback processes. We need to also demonstrate that it is a catastrophic bifurcation in which the state of the globalised economy is driven through an unstable regime where the strength of the feedback processes is greater than any stabilizing process. It acknowledges that there may be an early period of oscillating decline, but that once major structural components (international finance, techno-sphere) drop or ‘freeze’ out, irreversible collapse must occur.

In the new post-collapse equilibrium state we would expect a collapse in material wealth and productivity, enforced localization aka de-globalisation, and collapse in the complexity as compared with before, as an expression of the reduced energy flows.

The collapses in the Roman Empire occurred over centuries; collapse of the Greenland Viking settlements in decades. We suggest a hypothesis here that the speed of collapse is a function of the level of integration, coupling, and the key operational speeds of the systems that support the stability of the pre-collapse state. For us, that includes the behavioral change in financial markets, food flow rates, and replacement lifetime of key components in infrastructure. In discussing the feedback processes in the next chapter we will see processes are indeed fast.

References

{i} Maddison A (2007). Contours of the World Economy 1-2030AD. Page 81, Oxford University Press.

{ii} Scheffer M (2009). Critical Transitions in Nature and Society. Princeton University Press.

{iii} Scheffer M, et al (2009). Early-warning signals for critical transitions. Nature Volume 461 3 September.

{iv} http://www.stockholmresilience.org/download/18.1fe8f33123572b59ab8000166…

{v} The Oil Crunch: A Wake-up Call for the UK Economy (2010). Second Report of the UK Industry Taskforce on Peak Oil and Energy Security. http://peakoiltaskforce.net/wp-content/uploads/2010/02/final-report-uk-i…

{vi} Nel W and Cooper C (2009). Implications of Fossil Fuel Constraints on Economic Growth and Global Warming. Energy Policy 37 166-180.

http://www.theoildrum.com/node/6360

Bill Totten http://www.ashisuto.co.jp/english/index.html

Categories: Uncategorized

>The Financial Terrorists Who Destroyed Our Economy …

>Will Pay Zero in Taxes – and Get $33 Billion in Refunds

by David DeGraw, Amped Status

AlterNet (April 18 2010)

Journalist David DeGraw has put together a devastating report {1} detailing how Wall Street continues to pillage the economy with the government’s help. “The staggering level of theft continues unabated”, writes DeGraw. “Our future is going up in flames and our government isn’t even making the slightest effort to put out the fire. In fact, they are purposely pouring gasoline all over it.” DeGraw’s investigation {2} is a follow up to his previous report The Economic Elite vs The People of the United States of America – check that one out to get caught up {3}. AlterNet will run in a series of articles based on DeGraw’s investigation. Here is part one.

The first thing people need to understand is that the economic crash wasn’t a crash for the people who caused it. In fact, these financial terrorists are now doing better than ever. In a recent report, titled “Social Inequality in America: Widening Income Disparities” {4}, more evidence of the unprecedented transfer of wealth was revealed:

As of late 2009, the number of billionaires soared from 793 to 1,011, and their total fortunes from $2.4 trillion to $3.6 trillion … Despite the crisis, the list of billionaires has grown by 218 people and their aggregate capital has expanded by fifty percent. This may seem paradoxical, but only at first glance. This result was predictable, if we recall how governments all over the world have dealt with the economic crisis.

The inequality of wealth in the United States between the economic top 0.5% and the remaining 99.5% of the population is now at an all-time high {5}. The economic top one percent of the population now controls a record seventy percent of all financial assets {6}. The point here is that while the economic crisis has been devastating for 99% of America, the Wall Street elite are awash in record breaking profits. The most profitable firm in Wall Street history, Goldman Sachs, just had their most profitable quarter in their 140-year history and Wall Street firms issued an all-time record breaking amount in bonuses.

All of this is occurring after giving these firms $14 TRILLION {7} in taxpayer support – that works out to be $46,662 of your hard-earned money. That’s $46,662 for every man, woman and child in this country. If you have a family of four, sorry, your future just got robbed and you and your children just lost $186,648!

So what are all these firms doing with these record-breaking profits? Are they returning them into the tax system in which they came from, the tax system that was looted just to keep their scam running?

No!

Let’s start with Wells Fargo. After being bailed out with our money in 2008, their top five executives DOUBLED their compensation and each one of them made over $11 million in 2009. Wells Fargo CEO John Stumpf made off with a cool $21.3 million last year {8}.

And now comes news that Bank of America and Wells Fargo will pay zero, yes ZERO in federal taxes for 2009 {9}. Bank of America will net a $3.6 BILLION benefit from the federal government in 2009. Wells Fargo, after $8 BILLION in earnings for 2009, will net $4 BILLION from the federal government.

So you and I are working our asses off just to make ends meet, paying thirty percent of our limited income in taxes, and gizillionaire John Stumpf’s company is paying ZERO in taxes so that he can personally swipe another $21.3 million of tax payer funds.

Al Capone is a dime store thief compared to this guy!

Well, to be fair, Mr Stumpf is just a small-timer himself in this all-time greatest heist.

JP Morgan Chase made $12 BILLION in profit in 2009, as a direct result of our tax money – yes, I need to keep repeating this fact. These are profits that would not exist if it weren’t for our tax dollars.

It’s also important to point out that this is just the level of theft that has already occurred. However, as I also can’t stress enough, the theft still continues without any let-up.

Now comes news that JP Morgan is on the verge of getting a $1.4 BILLION tax refund! Yes, you heard me right, a $1.4 BILLION TAX REFUND {10}. But JP is not alone in this latest theft. In total, the financial terrorists are due to receive $33 BILLION IN TAX REFUNDS! {10}

Do you comprehend how depraved it is to give these people another $33 billion in tax refunds? I assume that they’re thinking that after stealing $14 TRILLION, another $33 billion really isn’t all that much. After all, last year, Goldman Sachs, the most profitable firm Wall Street history, only paid one percent in taxes, so what’s another $33 billion kickback among friends?

Let’s be clear about this latest $33 billion of which the US tax system is being robbed. What could we do with $33 billion?

For one, we could put over one million unemployed people back to work and pay them the average national median wage for the next year. Add the record-breaking $150 billion in bonuses (our tax money) that Wall Street handed out this past year to the $33 billion and guess what? We can now put over six million people back to work making the average annual wage! Do you think that would stimulate the economy? Green shots galore.

But why do that? Jamie Dimon needs another new 40,000 square foot mansion and Goldman Sachs needs to upgrade their fleet of luxury jets filled with the finest wine, champagne, cigars and hot tubs.

Maybe we could use that $33 billion to save some of the hundreds of schools that are being forced to close this year due to devastating State budget deficits. Or maybe pay the thousands of teachers who just found out that their jobs have been cut. How about using that money to feed the fifty percent of US children {11] who need to use food stamps during their childhood to eat? How about using it to give a raise to the fifteen million US workers who work forty hours or more a week and still fall below the poverty line {12}.

Wait, I know, how about helping the millions of Americans who have been foreclosed upon due to JP Morgan’s predatory lending schemes and illegal subprime “liar’s loans”.

And don’t even get me started again on how we can better use the $14 TRILLION that Wall Street made off with {13}.

People of the United States to Obama: Hello! This is happening on your watch!

Change We Can Believe In!

Oh, but wait … it gets even better. This just in from the Roosevelt Institute:

De facto bailout for Freddie and Frannie

Did the Fed and the Treasury orchestrate a de facto bailout of Fannie Mae and Freddie Mac – at public expense and sans Congressional approval? John Hussman thinks so. He provides a detailed account of just how 1.5 trillion dollars got diverted to Freddie and Fannie – money that we can all kiss goodbye. American taxpayers, it seems, have gotten the middle finger once again. {14}

And then in comes this little known, highly underreported news item: US Taxpayers on Hook for $5 Trillion of Fannie, Freddie Debt

After years of winks and nods, there’s no doubt that Fannie and Freddie now enjoy an explicit guarantee, according to most observers. The US government placed Fannie Mae and Freddie Mac in conservatorship in September 2008: ‘This means that the US Taxpayer now stands behind $5 trillion of GSE debt’. according to the Congressional Research Service. {15}

Hank “Pentagon-Sachs” Paulson’s right-hand man Tim Geithner, now Obama’s hand-picked Treasury Secretary and point man for the continued looting, recently assured his friends {16} on the Financial Services Committee: “We will do everything necessary to ensure these institutions have the capital they need to meet their commitments”. Geithner then acknowledged that US taxpayers will take “very substantial” losses on this bailout.

Yep, Obama’s Chief-of-Theft, Rahm “Freddie Mac Daddy” Emanuel’s former company now has unlimited ability to rob taxpayer money and is making off with $5 TRILLION. And I thought Cheney’s Halliburton was as bad as it could get.

Yes We Can … Get Robbed Even More!

But don’t worry, if you thought the past two years were bad, the history books will recall them as a walk in the park compared to what is coming our way. You don’t have trillions looted from the economy and continue to just keep going about your life business as usual. I wish I was wrong, and I wish this was just my opinion, but facts are facts and every societal and economic indicator says things are going to get worse, MUCH WORSE.

Links:

{1} http://ampedstatus.com/is-it-time-for-law-abiding-american-citizens-to-stop-paying-their-taxes-and-start-a-new-government

{2} http://ampedstatus.com/is-it-time-for-law-abiding-american-citizens-to-stop-paying-their-taxes-and-start-a-new-government

{3} http://ampedstatus.com/full-report-the-economic-elite-vs-the-people-of-the-united-states-of-america

{4} http://www.globalresearch.ca/index.php?context=va&aid=18281

{5} http://ampedstatus.com/part-ii-the-rise-of-the-economic-elite-economic-elite-vs-the-people

{6} http://www.commondreams.org/view/2010/01/17

{7} http://motherjones.com/politics/2009/12/behind-real-size-bailout?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+motherjones%2Fmain+(MotherJones.com+Main+Article+Feed)

{8} http://www.wsws.org/articles/2010/mar2010/comp-m11.shtml

{9} http://www.mcclatchydc.com/2010/03/26/91119/bank-of-america-wells-fargo-might.html

{10} http://www.npr.org/blogs/money/2010/03/33_billion_corporate_tax_looph.html

{11} http://www.google.com/hostednews/afp/article/ALeqM5huS1aDImykHCJxUuyNW-fbMSAbMA

{12} http://ampedstatus.com/the-economic-elite-vs-the-people-of-the-united-states-of-america-part-i

{13} http://ampedstatus.com/part-ii-the-rise-of-the-economic-elite-economic-elite-vs-the-people

{14} http://www.newdeal20.org/2010/03/15/de-facto-bailout-for-freddie-and-frannie-8948/

{15} http://finance.yahoo.com/tech-ticker/u.s.-taxpayers-on-the-hook-for-$5t-of-fannie,-freddie-debt-%E2%80%A6-no-matter-what-barney-frank-says-yftt_438124.html

{16} http://www.huffingtonpost.com/2010/03/23/geithner-fannie-and-fredd_n_510438.html

(c) 2010 Amped Status All rights reserved.

http://www.alternet.org/story/146509/

Bill Totten http://www.ashisuto.co.jp/english/index.html

Categories: Uncategorized

>A Still Moment

2010/04/27 2 comments

>Clusterfuck Nation

by James Howard Kunstler

Comment on current events by the author of
The Long Emergency
(2005)

www.kunstler.com (April 25 2010)

George W Bush was onto something in the fall of 2008 when he remarked apropos of the Lehman collapse: “… this sucker could go down”.

It’s my serene conviction, by the way, that this sucker actually is going down, right now, even as I clatter away at the keys – perhaps in slow motion, so that not many other bystanders have noticed yet, and the few who have noticed are mostly too crosseyed with nausea to speak.

It’s perhaps useful to define even what we mean when we say “this sucker”. Everybody knows what a sucker is, of course – say, a Midwestern public employees’ union pension fund snookered into buying a fat slice of equity tranche in a Goldman Sachs-engineered CDO. But “this sucker” is something else: a rather large cargo of commercial relations, entailed obligations, hopes, expectations, habits of daily life – indeed millions of whole lives – loaded onto the rather creaky vessel we call modern civilization. “This sucker” was such an apt term coming from someone whose understanding of civilization was like unto that of a boy who found a PlayStation under the Christmas tree.

It’s also perhaps useful to define what we mean by “going down”. To my mind it means an awful lot of money disappears and nobody can pay for anything and an awful of things that have kept going on promises to pay and to get paid will stop keeping going. I don’t think that the idea of money disappears – that is, paper certificates representing claims on future work – but there will be a lot less of it to go around. Eventually the idea of money could go, too, at least in its current form as Federal Reserve notes. But mostly for some years it will just be a lot of people, companies, and governments who are broke.

“Going down” will mean a society with no money and an infrastructure for daily life that requires gobs of money to run, and a populace too dazed, confused, and inflamed to do anything useful in the way of organizing new infrastructures for daily life for their new circumstances. In retrospect, the Great Depression of the 1930s will look like “The Philadelphia Story” compared to what we wake up to ten years from now.

President Obama’s speech at Cooper Union last week was a remarkable performance. It managed to appear forceful and serious without containing any really serious or forceful proposals to discipline a banking system that is running a hostage-and-ransom racket on civilization. If this is finally what the Obama Experience is all about than his detractors have been right all along: he is a tool. Finance reform aside, there are still plenty of laws left on the statute books that could be applied to the frauds and rackets that ran absolutely amok on Wall Street the past few years. I would still like to know why buying CDS “insurance” against your own issue of bonds deliberately engineered to default is NOT a form of insider trading, to put it as simply as possible.

The SEC action against Goldman Sachs is likely to open a Pandora’s box of troubles for that company, and perhaps all of the Too Big To Fail banks. But even so, I believe this sucker is going down before 99.9 percent of it is sorted out. Anyway, there was a lot about the SEC action that seemed curious, to put it mildly, from the timing of it, to the brevity of the document, to the strange fact that it emerged at all from an agency whose principal activity the past few years has been the viewing of internet porn, and which has otherwise behaved so indifferently in the face of numberless offenses to common decency, not to mention the public interest, that it might as well have been staffed by a thousand head of Holstein cows rather than licensed attorneys and graduates of accredited colleges.

This sucker is going down because the train of bankruptcies underway has a remorseless self-reinforcing power to provoke more and more bankruptcies at every stop along the line as every promise to pay is welshed on. The mortgages will not be paid and securities will not pay their investors and the banks will choke on the bad paper promises in their vaults and the pension funds will not pay their beneficiaries and the states and counties and municipalities will go broke and not pay their employees and creditors, and the federal government will not be able to “print” new money in sufficient quantities fast enough to compensate for all the money not being paid up-and-down the line … and one morning we will wake up and discover that all those promises to pay were sham promises based on no productive activity whatsoever … and that will be a sad day. Perhaps the Dow Jones Industrial Average will hit 35,000 on that day.

Nothing can stop this chain of bankruptcy. It’s already baked in the cake. There is probably some wish on the part of those in charge, like Mr Obama, to try everything possible to postpone it. And there is likewise surely a huge effort underway in the banking sector right now to cream off as much cash as possible so that when this sucker does go down they will bethink themselves better positioned to survive the consequences.

Personally, I believe that the damage was mostly done during the tenure of poor dim George W Bush, and his predecessor Bill Clinton. I suspect that Mr Obama learned at the height of 2008 election campaign – during those days of the Lehman collapse and the TARP – just how completely the government – and the people of the USA – were in fact hostage to the banking system, and that it has been his unfortunate role to pretend that there is some other fate to bargain for besides this sucker going down. It is probably why he continues to smoke so much. He must be lighting one Marlboro off the tip of another, one after another, in whatever inner sanctum he repairs to when the midnight chimes toll around the White House. It’s sad to think of this graceful, still rather young man going down in history as the chump-of-the-century, a reincarnation of Herbert Hoover on steroids, with sugar on top.

Animosities brewing as they are among the white trash elements of the country, I just hope this sucker doesn’t resolve into an ugly bout of attempted ethnic cleansing. Certainly Obama’s racial make-up has inspired a revival of the Ku Klux spirit around the Nascar ovals. I’m sincerely worried that the misdeeds of people name Blankfein, Rubin, and Madoff could provoke a red-white-and-blue pogrom.

The big mystery for the moment is how come a few good men of stature in important places have not stepped forward to say the right thing or do the right deed. How come no US congressperson challenged the knavish behavior of Republicans who condone malicious idiocy that they know to be false like the so-called “birther” activity. How come no putative “progressive” has called the Democrats on their disingenuous failure to call illegal immigrants what they are. How come no state attorney general has filed charges against TBTF bank misconduct even if the US attorney general lies in state over at the US DOJ. How come no political figure of any stripe has called for the resignation of Summers, Rubin, Gensler and other Goldman Sachs “sleepers” infesting high levels of government. How come Dylan Ratigan is the only visible figure in any major newsroom willing to identify the precise nature of the meta-swindle.

When this sucker goes down, our primary task will be reorganizing American life on a much more local and de-complexified basis. It’s a very big assignment and especially daunting against a possible background of political disorder. The losses will be epic and the changes severe, but it doesn’t have to mean the end of recognizably American culture. There will be very little money around, and it may end up being a certificate backed by gold issued by a bank other than the Federal Reserve. Or maybe we’ll just be swapping stuff for the makings of dinner.

So many forces are roiling around ‘out there’ now that it’s hard to believe that the authorities in government and banking can keep the illusion of normality going a whole lot longer. The possible litigation against Goldman Sachs-style frauds by a thousand aggrieved victims is enough to paralyze the system. Meanwhile, trillions in credit default swaps are ticking away like dirty bombs. Greece is going down, with Portugal, Spain, Ireland, and the UK standing by to go next. Nobody can pay their bills. Before long, the old folks won’t get their checks. Then the poor folks. Lately, I wonder if there will even be an election six months from now.

_____

A sequel to my 2008 novel of post-oil America, World Made By Hand, will be published in September 2010 by The Atlantic Monthly Press. The title is The Witch of Hebron.

http://kunstler.com/blog/2010/04/a-still-moment.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

Categories: Uncategorized

>Economic Superstitions

>by John Michael Greer

The Archdruid Report (April 21 2010)

Druid perspectives on nature, culture, and the future of industrial society

It has been an interesting week for connoisseurs of decline and fall. As I’m sure all my readers are aware by now, a small volcano in Iceland managed to chuck a sizable monkey wrench into the gears of business as usual across Europe by filling the upper atmosphere with a massive plume of what amounts to finely ground glass: just the thing you want to put into the intake of your favorite jet engine.

Most volcanic eruptions don’t do this, but Eyjafjallajokull – say that three times very fast – happens to be under a glacier. (It is located in a country called Iceland, after all.) Or, rather, it used to be under a glacier; bring molten lava into contact with a glacier and you don’t have a glacier for long. What you have instead is what volcanologists call a phreatic eruption and the rest of us call a steam explosion. Rinse (with lava) and repeat, and you get two things. The first is a stratosphere full of fine sandpaper grit; the second is most of a continent flailing helplessly as one of its transportation networks shuts down for several days.

The human reaction was instructive. One of my regular readers commented that his wife, who works in the travel industry, has been deluged by calls from irate travelers who seem convinced that she can make the ash go away with a couple of phone calls. An EU commissioner was caught in public saying that long distance tourism was an inalienable human right, while airlines demanded that governments compensate them for the closure of the skies; at least they had the grace not to demand the money from Iceland. Meanwhile Great Britain, which gets most of its fruit and much of its vegetables from the Third World by air, was facing the prospect of bare shelves in the grocery stores for the first time since the aftermath of the Second World War.

It’s been a while since we’ve had so clear a reminder that the intricate and fragile clockwork of industrial society depends so completely on Nature’s whims, but as usual, most people managed not to get the memo. Me, I didn’t give it much thought, since I was reading a different and more familiar memo, the one brought every spring by lengthening days and the waning risk of frost. I was out in the garden planting bush beans, dwarf peas, and Danvers carrots, since the weather was warm and the Moon was in a fertile sign.

Yes, I plant by the signs. I originally learned that habit out in the Pacific Northwest, where very few people do it, and it’s ironic that I ended up moving to the Appalachians, where most gardeners keep an eye on the almanac when choosing planting dates. Do I think it works? A lot depends on what’s meant by that rather facile question. It certainly doesn’t do any harm; my gardens get good results at least as reliably as those of my neighbors, and it’s no particular inconvenience to check the signs when deciding when to plant the next round of seeds. I don’t know for a fact that it helps, but then the same thing could be said for many other things I do in the garden. (I’m more interesting in growing vegetables than in proving a point, so I don’t deprive part of my garden of compost, say, to find out whether putting my kitchen wastes in the compost bin rather than a landfill makes as much difference as it seems.) Besides, planting by the signs has entertainment value: I’ve come to enjoy the theatrics the habit attracts from rationalists who get incensed by anything they consider superstitious.

Of course they’re quite correct that planting by the signs is a superstition, but that word has a subtler meaning than most people remember these days. A superstition is literally something “standing over” (in Latin, super stitio) from a previous age; more precisely, it’s an observance that has become detached from its meaning over time. A great many of today’s superstitions thus descend from the religious observances of archaic faiths. When my wife’s Welsh grandmother set a dish of milk outside the back door for luck, for example, she likely had no idea that her pagan ancestors did the same thing as an offering to the local tutelary spirits.

Yet there’s often a remarkable substrate of ecological common sense interwoven with such rites. If your livelihood depends on the fields around your hut, for example, and rodents are among the major threats you face, a ritual that will attract cats and other small predators to the vicinity of your back door night after night is not exactly foolish. The Japanese country folk who consider foxes the messengers of Inari the rice god, and put out offerings of fried tofu to attract them, are mixing agricultural ecology with folk religion in exactly the same way.

There’s a lot of this sort of thing in the world of superstition. I have long since lost the reference, but many years ago I read an ecological study of human hunting practices, which pointed out that nearly all cultures that get much of their food from the hunt use divination to decide where to hunt on any given day. The authors pointed out that according to game theory, the best strategy in any competition has to include a random element in order to keep the other side guessing. Most prey animals are quite clever enough to figure out a nonrandom pattern of hunting – there’s a reason why deer across America head into suburbs and towns, where hunting isn’t allowed, as soon as hunting season opens each year – so inserting a random factor into hunting strategy will pay off in increased kills over time. As far as we know, humans are the only animals that make decisions with the aid of horoscopes, tarot cards, yarrow stalks and the like, and it’s intriguing to think that this habit may have had a significant role in our evolutionary success.

Is this all there is to the practice of superstition? It’s a good question, and one that’s effectively impossible to answer. For all I know, all those ancient civilizations that built vast piles of stone to the honor of their gods may have been right to say that Marduk, Osiris, Kukulcan, et al were well pleased by having big temples erected in their honor, and reciprocated by granting peace and prosperity to their worshippers. It may just be a coincidence that channeling the boisterous energy of young men into some channel more constructive than civil war is a significant social problem in most civilizations, and giving them big blocks of stone to haul around in teams, in hot competition with other teams, seems to do the trick; it may also be a coincidence that convincing the very rich to spend their wealth employing huge numbers of laborers on vanity buildings provides a steady boost to even the simplest urban economy. Maybe this is how Kukulcan shows that he’s well pleased.

Still, there’s a wild card in the deck, because it’s possible for even the most useful superstition to become a major source of problems when conditions change. When the Mayan civilization overshot the carrying capacity of its fragile environment, the Mayan elite responded to the rising spiral of crisis by building more and bigger temples. That had worked in the past, but it failed to work this time, because the situation was different; the problem had stopped being one of managing social stresses within Mayan society, and turned into one of managing the collapsing relationship between Mayan society and the natural systems that supported it. This turned what had been an adaptive strategy into a disastrously maladaptive one, as resources and labor that might have been put to use in the struggle to maintain a failing agricultural system went instead to a final spasm of massive construction projects. This time, Kukulcan was not pleased, and Mayan civilization came apart in a rolling collapse that turned a proud civilization into crumbling ruins.

Rationalists might suggest that this is what happens to a civilization that tries to manage its economic affairs by means of superstitions. That may be so, but the habit in question didn’t die out with the classic Mayan civilization; it’s alive and well today, with a slight difference. Ancient cultures built huge pyramids of stone; we build even vaster pyramids of money.

In Cardano’s Cosmos (2000), a thoughtful study of the life and times of the great Renaissance astrologer Girolamo Cardano, historian Anthony Grafton tried to explain the role of astrologers as advisers to Renaissance governments by comparing them to economists in today’s world. Plausible as this comparison may seem at first glance, I have to say that it is deeply unfair to astrologers. Whether or not astrology works as advertised – a question I don’t propose to address here – no competent astrologer claims that the Sun will rise in the west or that Jupiter will swing between the Earth and the Moon. By contrast, it’s not hard to find economists blithely insisting, as many did during the recent housing bubble, that a speculative frenzy can keep on inflating forever, or claiming, as many are doing right now, that a nation can make itself prosperous by running up mountains of debt.

Economics is our modern superstition – well, one of them, at any rate, and one of the most popular among the political class of today’s industrial societies. Like any other superstition, it has a core of pragmatic wisdom to it, but that core has been overlaid with a great deal of somewhat questionable logic. My wife’s Welsh ancestors believed that the bowl of milk on the back stoop pleased the fairies, and that’s why the rats stayed away from the kitchen garden; the economists of the twentieth century believed that expanding the money supply pleased – well, the prosperity fairies, or something not too dissimilar – and that’s why depressions stayed away from the United States.

In both cases it’s arguable that something very different was going on. The gargantuan economic boom that made America the world’s largest economy had plenty of causes; the accident of political geography that kept its industrial hinterlands from becoming war zones, while most other industrial nations got the stuffing pounded out of them, had more than a little to do with the matter; but the crucial point, one too often neglected in studies of twentieth century history, was the simple fact that the United States at midcentury produced more petroleum than all the other countries on Earth put together. The oceans of black gold on which the US floated to victory in two world wars defined the economic reality of an epoch. As a result, most of what passed for economic policy in the last sixty years or so amounted to attempts to figure out how to make use of unparalleled abundance.

That’s still what today’s economists are trying to do, using pretty much the same habits they adopted during the zenith of the age of oil. The problem is that this is no longer what economists need to be doing. With the coming of peak oil and the first slow slippages in worldwide conventional petroleum production, the challenge facing today’s industrial societies is managing the end of abundance. The age of cheap abundant energy now ending was a dramatic anomaly in historical terms, though not quite unprecedented; every so often, but rarely, it happens that a human society finds itself free from natural limits to prosperity and expansion – for a time. That time always ends, and the society has to relearn the lessons of more normal and less genial times. This is what we need to do now.

This is exactly what today’s economics is unprepared to do, however. Like the Mayan elite at the beginning of what archeologists call the Terminal Classic period, our political classes are trying to meet unfamiliar problems with overfamiliar solutions. The results have not been good. Repeated attempts to overcome economic stagnation by expanding access to credit have produced a series of destructive speculative bubbles and crashes, and efforts to maintain an inflated standard of living in the face of a slowly contracting real economy have heaped up gargantuan debts. These measures haven’t worked; the one significant attempt to do something different, the neoconservative project to invade Iraq and put its oil reserves in American hands, was even less successful; and at this point fingerpointing and frantic pedaling in place seems to have replaced any more constructive response to a situation that is becoming more dangerous by the day.

Are there constructive things that could be done? Of course, but every one of them flies in the face of the currently accepted economic superstitions, and most of them also involve requiring the people who benefit disproportionately from the current state of things to give up some of their perquisites – not exactly a winning bet at a time when political power has become so diffuse in most industrial nations that some pressure group or other can be counted on to veto any attempt at systemic change. I’ve already suggested several possible steps in this blog – replacing income and sales taxes with resource and interest taxes; making corporations subject to nonfinancial penalties for criminal acts; reinventing urban and suburban agriculture; tilting tax policy to encourage single-income families; rebuilding the household economy, and more – but I’ve done so in the full awareness that none of these things are going to be discussed in the corridors of government any time soon. Those that will happen at all, will happen because they can be set in motion by individuals, families, and local communities; those that can’t be pursued on that level – well, let’s just say I’m not holding my breath.

The act of faith that leads policy makers today to think that policies that failed last year will succeed next year is only part of the problem, of course. The superstitions that lead so many intelligent people to think that our problems can be solved by pursuing a flotilla of new and expensive technological projects are another part. There are technologies that can help us right now, granted, but they’re on the other end of the spectrum from the fusion reactors and solar satellites and plans to turn all of Nevada into one big algae farm that get so much attention today. Local, resilient, sustainable, and cheap: those should be our keywords just now; there are plenty of technological solutions that answer to that description, but again, our superstitions stand in the way.

The widespread reaction to the Eyjafjallajokull eruption, for that matter, points up what may just be the most deeply rooted of our superstitions, the belief that Nature can be ignored with impunity. It’s only fair to point out that for most people in the industrial world, for most of a century now, this has been true more often than not; the same exuberant abundance that produced ski slopes in Dubai and fresh strawberries in British supermarkets in January made it reasonable, for a while, to act as though whatever Nature tossed our way could be brushed aside. In the emerging postabundance age, though, this may be the most dangerous superstition of all. The tide of cheap abundant energy that has defined our attitudes as much as our technologies is ebbing now, and we are rapidly losing the margin of error that made our former arrogance possible.

As that change unfolds, it might be worth suggesting that it’s time to discard our current superstitions concerning economics, energy, and nature, and replace them with some more functional approach to these things. A superstition, once again, is an observance that has become detached from its meaning, and one of the more drastic ways this detachment can take place is a change in the circumstances that make that meaning relevant. This has arguably happened to our economic convictions, and to a great many more of the commonplaces of modern thought; and it’s simply our bad luck, so to speak, that the consequences of pursuing those superstitions in the emerging world of scarcity and contraction are likely to be considerably more destructive than those of planting by the signs or leaving a dish of milk on the back step.

_____

John Michael Greer, The Grand Archdruid of the Ancient Order of Druids in America (AODA), has been active in the alternative spirituality movement for more than 25 years, and is the author of more than twenty books, including The Druidry Handbook (Weiser, 2006) and The Long Descent: A User’s Guide to the End of the Industrial Age (New Society, 2008). He lives in Cumberland, Maryland.

http://thearchdruidreport.blogspot.com/2010/04/economic-superstitions.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

Categories: Uncategorized

>Graceful Decline

>The end of Pax Americana

by Christopher Layne

The American Conservative (May 01 2010 issue)

The United States emerged from World War Two in a position of global dominance. From this unparalleled military and economic power came a Pax Americana that has endured for more than six decades. It seemed the sun would never set on the US empire.

But America is increasingly unable to play the hegemon’s assigned role. Militarily, a hegemon is responsible for stabilizing key regions and guarding the global commons. Economically, it offers public goods by opening its domestic market to other states, supplying liquidity for the world economy, and providing the reserve currency. A hegemon is supposed to solve international crises, not cause them. It is supposed to be the lender of last resort, not the biggest borrower. Faced with wars it cannot win or quit and an economy begging rescue, the United States no longer fits the part.

Still, many in the mainstream foreign-policy community see these as temporary setbacks and believe that US primacy will endure for years to come. The American people are awakening to a new reality more quickly than the academy. According to a December 2009 Pew survey, 41 percent of the public believes that the US plays a less important and powerful role as a world leader than it did a decade ago.

The epoch of American dominance is drawing to a close, and international politics is entering a period of transition: no longer unipolar but not yet fully multipolar. President Barack Obama’s November 2009 trip to China provided both substantive and emblematic evidence of the shift. As the Financial Times observed, “Coming at a moment when Chinese prestige is growing and the US is facing enormous difficulties, Mr Obama’s trip has symbolized the advent of a more multi-polar world where US leadership has to co-exist with several rising powers, most notably China”. In the same Pew study, 44 percent of Americans polled said that China was the leading economic power; just 27 percent chose the United States.

Much of America’s decline can be attributed to its own self-defeating policies, but as the US stumbles, others – notably China, India, and Russia – are rising. This shift in the global balance of power will dramatically affect international politics: the likelihood of intense great-power security competitions – and even war – will increase; the current era of globalization will end; and the post-1945 Pax Americana will be replaced by an international order that reflects the interests, values, and norms of emerging powers.

China’s economy has been growing much more rapidly than the United States’ over the last two decades and continues to do so, maintaining audacious eight percent growth projections in the midst of a global recession. Leading economic forecasters predict that it will overtake the US as the world’s largest economy, measured by overall GDP, sometime around 2020. Already in 2008, China passed the US as the world’s leading manufacturing nation – a title the United States had enjoyed for over a century – and this year China will displace Japan as the world’s second-largest economy. Everything we know about the trajectories of rising great powers tells us that China will use its increasing wealth to build formidable military power and that it will seek to become the dominant power in East Asia.

Optimists contend that once the US recovers from what historian Niall Ferguson calls the “Great Repression” – not quite a depression but more than a recession – we’ll be able to answer the Chinese challenge. The country, they remind us, faced a larger debt-GDP ratio after World War Two yet embarked on an era of sustained growth. They forget that the postwar era was a golden age of US industrial and financial dominance, trade surpluses, and persistent high growth rates. Those days are gone. The United States of 2010 and the world in which it lives are far different from those of 1945.

Weaknesses in the fundamentals of the American economy have been accumulating for more than three decades. In the 1980s, these problems were acutely diagnosed by a number of writers – notably David Calleo, Paul Kennedy, Robert Gilpin, Samuel Huntington, and James Chace – who predicted that these structural ills would ultimately erode the economic foundations of America’s global preeminence. A spirited late-1980s debate was cut short, when, in quick succession, the Soviet Union collapsed, Japan’s economic bubble burst, and the US experienced an apparent economic revival during the Clinton administration. Now the delayed day of reckoning is fast approaching.

Even in the best case, the United States will emerge from the current crisis with fundamental handicaps. The Federal Reserve and Treasury have pumped massive amounts of dollars into circulation in hope of reviving the economy. Add to that the $1 trillion-plus budget deficits that the Congressional Budget Office (CBO) predicts the United States will incur for at least a decade. When the projected deficits are bundled with the persistent US current-account deficit, the entitlements overhang (the unfunded future liabilities of Medicare and Social Security), and the cost of the ongoing wars in Iraq and Afghanistan, there is reason to worry about the United States’ fiscal stability. As the CBO says, “Even if the recovery occurs as projected and the stimulus bill is allowed to expire, the country will face the highest debt/GDP ratio in fifty years and an increasingly unsustainable and urgent fiscal problem”.

The dollar’s vulnerability is the United States’ geopolitical Achilles’ heel. Its role as the international economy’s reserve currency ensures American preeminence, and if it loses that status, hegemony will be literally unaffordable. As Cornell professor Jonathan Kirshner observes, the dollar’s vulnerability “presents potentially significant and underappreciated restraints upon contemporary American political and military predominance”.

Fears for the dollar’s long-term health predated the current financial and economic crisis. The meltdown has amplified them and highlighted two new factors that bode ill for continuing reserve-currency status. First, the other big financial players in the international economy are either military rivals (China) or ambiguous allies (Europe) that have their own ambitions and no longer require US protection from the Soviet threat. Second, the dollar faces an uncertain future because of concerns that its value will diminish over time. Indeed, China, which has holdings estimated at nearly $2 trillion, is worried that America will leave it with huge piles of depreciated dollars. China’s vote of no confidence is reflected in its recent calls to create a new reserve currency.

In coming years, the US will be under increasing pressure to defend the dollar by preventing runaway inflation. This will require it to impose fiscal self-discipline through some combination of budget cuts, tax increases, and interest-rate hikes. Given that the last two options could choke off renewed growth, there is likely to be strong pressure to slash the federal budget.

But it will be almost impossible to make meaningful cuts in federal spending without deep reductions in defense expenditures. Discretionary non-defense domestic spending accounts for only about twenty percent of annual federal outlays. So the United States will face obvious “guns or butter” choices. As Kirshner puts it, the absolute size of US defense expenditures are “more likely to be decisive in the future when the US is under pressure to make real choices about taxes and spending. When borrowing becomes more difficult, and adjustment more difficult to postpone, choices must be made between raising taxes, cutting non-defense spending, and cutting defense spending.” Faced with these hard decisions, Americans will find themselves afflicted with hegemony fatigue.

The United States will be compelled to overhaul its strategy dramatically, and rather than having this adjustment forced upon it suddenly by a major crisis, the US should get ahead of the curve by shifting its position in a gradual, orderly fashion. A new American global posture would involve strategic retrenchment, burden-shifting, and abandonment of the so-called “global counterinsurgency” being waged in Afghanistan and Iraq.

As a first step, the US will need to pull back from its current security commitments to NATO, Japan, and South Korea. This is not isolationism. The United States undertook the defense of these regions under conditions very different from those prevailing today. In the late 1940s, all were threatened by the Soviet Union – in the case of South Korea and Japan, by China as well – and were too weak to defend themselves. The US did the right thing by extending its security umbrella and “drawing a line in the sand” to contain the Soviet Union. But these commitments were never intended to be permanent. They were meant as a temporary shield to enable Western Europe, Japan, and South Korea to build up their own economic and military strength and assume responsibility for defending themselves.

There are several explanations for why the US did not follow through with this policy. Fundamentally, during the Pax Americana there was no need. As the US declines, however, it will be compelled to return to its original intent. If we remember that an eventual pullback was the goal of US policy, strategic retrenchment in the early 21st century looks less like a radical break than a fulfillment of strategic goals adopted in the late 1940s.

Burden-shifting – not burden-sharing – is the obvious corollary of strategic retrenchment. American policy should seek to compel our allies to assume responsibility for their own security and take the lead role in providing security in their regions. To implement this strategic devolution, the US should disengage gradually from its current commitments in order to give an adequate transition period for its allies to step up to the plate. It should facilitate this transition by providing advanced weapons and military technology to friendly states in Europe and Asia.

With respect to Islamic terrorism, we need to keep our priorities straight. Terrorism is not the most pressing national-security threat facing the United States. Great powers can be defeated only by other great powers – not by nonstate terrorists or by minor powers. The US needs to be careful not to pay more attention to Islamic terrorists than to emerging great powers. Here the Obama administration and Defense Secretary Robert M Gates are getting it wrong.

Although many in the US foreign-policy community – especially the counterinsurgency lobby, based at the Center for a New American Security, and the American Enterprise Institute – call for the US to “win” the war on terror, there can be no decisive victory over terrorism. The trick is finding the right strategy to minimize its effects on American security. The strategy of the Bush and Obama administrations – invading and occupying Iraq and Afghanistan – is exactly the wrong approach. The US is bad at counterinsurgency. Foreign occupying powers seldom are good at it, which is the main reason big powers usually lose these kinds of small wars. The US also is not good at nation-building. Rather than quelling terrorism, a long-term foreign military presence in places like Iraq and Afghanistan inflames nationalism and anti-Americanism.

The Nobel Prize-winning Columbia University economist Joseph Stiglitz and his co-author Linda Bilmes have estimated that the direct and indirect costs of the Iraq War will exceed $3 trillion. No similar projection of the Afghanistan war’s costs exists. But the Obama administration’s fall 2009 internal debate about whether to increase troop levels in Afghanistan offered a preview of coming attractions. During these deliberations, some officials argued that the US needed to limit its commitment because the cost of the war effort has serious budgetary implications. According to the New York Times, when presented with an OMB projection that showed existing troop deployments and nation-building expenses combined with the cost of sending an additional 40,000 troops to Afghanistan for a decade would total $1 trillion, “the president seemed in sticker shock, watching his domestic agenda vanishing in front of him”.

That the United States needs a post-Pax Americana foreign policy should be obvious. But there is no guarantee that the US will adjust to a transforming world. Even as the globe is being turned upside down by material factors, the foreign policies of individual states are shaped by the ideas leaders hold about their own nations’ identity and place in world politics. More than most, America’s foreign policy is the product of such ideas, and US foreign-policy elites have constructed their own myths of empire to justify the United States’ hegemonic role. To move successfully to a post-Pax Americana foreign policy, Americans will need to move beyond these myths.

The foundational American myth of empire is exceptionalism, the belief, dating back to the Puritans, that the US is different, better, and morally superior to the rest of the world. Americans have always looked at the outside world suspiciously and viewed it as a source of contagion: war, imperialism, militarism, religious intolerance, non-democratic forms of governance, and latterly totalitarianism, genocide, and terrorism. All these bad things, we believe, come from “over there”.

We have long thought that we cannot live safely in a world of such imperfections and that it is therefore our national duty to cure these ills by using American power to construct a world order based on our values. US foreign-policy elites have extrapolated from our national experience and concluded, as Edmund Stillman and William Pfaff wrote some 45 years ago, that the United States is a model for the world and “America’s wants and values are universal” – a point George W Bush made repeatedly in justifying his policy of exporting democracy at the point of a bayonet. Americans believe that our political and economic systems provide “a prototypical solution for the world’s disorders”. If we could just give the rest of the world a makeover so it looked like the United States, all would be well.

These assumptions invest American foreign policy with a tendency to see the world in terms of good versus evil. And because the US looks through this prism, it believes it has the obligation to prevail in this global struggle. America’s security and way of life are purportedly endangered by the existence of hostile ideologies anywhere in the world because peace and freedom are allegedly indivisible. Intervention is thus the United States’ default in foreign policy.

We attempt to tame the world by exporting democracy because – we are told – democracies do not fight each other. We export our model of free-market capitalism because – we are told – states that are economically interdependent do not fight each other. We work multilaterally through international institutions because – we are told – these promote cooperation and trust among states. None of these propositions is self-evident. Indeed, there is overwhelming evidence that they are wrong. But they are illusions that “express the deepest beliefs which Americans, as a nation, hold about the world”. So we cling to the idea that our hegemony is necessary for our own and everyone else’s security. The consequence has been to contribute to the very imperial overstretch that is accelerating the United States’ decline.

Because that US enjoyed such vast superiority for such a long time, it had the luxury of acting on its delusions without paying too high a price. (That is, if you discount the 58,000 names on the Vietnam Memorial or the tens of thousands of US military personnel who have suffered disfiguring wounds or been killed in Iraq and Afghanistan.) But as my graduate school mentor, Kenneth Waltz, one of the towering figures in the study of international politics, used to tell us about American foreign policy, “When you are big, strong, and powerful, you can afford to make the same dumb mistakes over and over again. But when your power declines, you begin to pay a price for repeating your mistakes.”

US decline means that in the 21st century, the United States will pay a high price if it endlessly repeats its mistakes. To change our foreign policy – to come to grips with the end of the Pax Americana – we first need to change the way we see the world.

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Christopher Layne is Professor and Robert M Gates Chair in National Security at Texas A&M’s George H W Bush School of Government & Public Service. He is author of The Peace of Illusions: American Grand Strategy from 1940 to the Present (2006) and, with Bradley A Thayer, American Empire: A Debate (2006).

http://amconmag.com/article/2010/may/01/00030/

Bill Totten http://www.ashisuto.co.jp/english/index.html

Categories: Uncategorized