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Regularly Scheduled Programming

2012/12/31 2 comments

by Dmitry Orlov

Club Orlov (December 18 2012)

Regular readers of this blog must have noticed by now that for the past few weeks we have been off on a bit of a tangent from the usual fare of collapse-related social and economic commentary. There are several reasons for this.

One is that I have recently finished the manuscript for the Five Stages of Collapse, having worked on it more or less continuously for half a year, and editing hasn’t started yet. At the moment the topic of collapse has worn some grooves in my brain, making me want to think about something else for a while. And so I devoted a few weeks to an exercise in applied anarchy, which was to define an alternative way of writing English, one that follows the phonological form of the language and replaces spelling (an entirely artificial and useless skill) with elocution (which is quite useful). Several people have pledged their support to this project, which is quite far along already, and is now going to be taking shape at unspell.blogspot.com, so please direct any additional comments you have on it there, not here. A lot of people are in favor of providing a way to read English that is more like listening and less like deciphering oddly garbled strings of symbols that bear minimal relationship to the actual sounds of the language. And a lot of non-native speakers of English would appreciate it if some of the native speakers learned some elocution and became easier to understand. That project will get interesting once the software to do mass conversion of English text is in place and the entire Project Gutenberg is unspelled.

Another reason for my desire to temporarily stay off the topic of collapse is that I am spending the lengthy Russian holiday season with my family in Russia (where Christmas through mid-January is one continuous country-wide federal holiday). Russia is definitely not collapsing; it is getting stronger and richer. If you listen to the paranoid ramblings of Secretary of State Clinton, it is also getting bigger, by absorbing several resource-rich former-Soviet tin pot dictatorships to the south which the Americans erroneously thought might be their cold war prize.

Saint Petersburg, where I am spending the winter, is still dark and snowy – it is currently minus fifteen degrees Celsius (five degrees Fahrenheit) and promising to head lower – but it is now also full of luxury cars, swank boutiques, gourmet shops and restaurants (the place has gone sushi-mad). There are now cafes with free WiFi that are open 24/7. Everywhere, even in the government offices, the service is now prompt and courteous. There is simply a ridiculous amount of culture going on – opera, concerts, theater, art exhibits, and so on. It is one thing to keep up a stream of collapse-related commentary from a place that’s collapsing; it is quite another to try to do the same from a place that’s experiencing a rather remarkable rebirth.

In one sense the rebirth is quite literal: Russian birth rates now exceed death rates and the population is once again growing. The low birth rates were partly the legacy of the Soviet era, where cramped living conditions often limited the size of families, and partly a cultural change that made having just one child socially acceptable. That the trend toward falling birthrates has been reversed is a major feat, accomplished through many different means, among them vastly improved, free prenatal and postnatal care, financial aid to families with young children and a large cash award given to women who have more than one child. All of this has resulted in a baby boom: there are children and baby carriages everywhere and all the better nurseries have waiting lists.

Another transformation taking place is the conversion of Russia from a lawless bandit-state run by oligarchs and the mafia to a law-abiding society. This process began just a dozen years ago and is by no means complete. An overhang of that lawless time, and of the Soviet legacy before that, is Russia’s very high prison population. While not as high, per capita, as that of the United States, which is the shame of the world, it is still quite shameful. With Putin’s pronouncement, around 2000, of “dictatorship of the law” the emphasis was given to shutting down protection rackets and mopping up all the petty crime that erupted as a result of professional thugs suddenly becoming unemployed. Now the emphasis seems to be shifting to shutting down corruption at higher levels. The recent corruption-related dismissal of Defense Minister Anatoly Serdyukov was highly publicized even in the West. A more obscure corruption scandal, but one involving similar amounts of money (around 100 million USD), recently erupted right here in Saint Petersburg: Vladislav Petrov, the person in charge of the city’s steam mains, is being questioned (Saint Petersburg is heated using cooling water discharged from power plants, which is distributed throughout the city via buried pipelines). Petrov oversaw a scheme in which some 600 kilometers of large-diameter steam pipe was replaced using substandard, salvaged gas pipe which was purchased from Gazprom. The inspection certificates were forged, and the difference in price was pocketed. This came to light when, with the start of the heating season, geysers of steam erupted in various parts of the city, requiring emergency repairs and shutting down traffic. These are by no means isolated cases: it is impossible to keep corruption entirely under control in a suddenly wealthy, rapidly transforming country that had only recently lived through a bout of almost complete lawlessness.

But what is most stunning is the pace of economic development: Russia seems to be developing into the United States of the 1990s, while the US seems to be developing into a vast wasteland of boarded-up strip malls and suburban slums surrounding abandoned downtowns. That this is not a good development model should be obvious to all and does not bear repeating here. A lot of the new development here is car-centric; Russia has recently surpassed Germany in car sales, with Lexus and Infiniti leading among the newly popular brands. Big box stores are erupting everywhere, and the arrival of the global consumer culture is quickly making Russia just like any other prosperous place on earth, with the same global brands on sale as anywhere else. I can only hope that this trend does not run to completion, as it has in the US, with its deadweight of underwater suburbs, ridiculously overbuilt retail space, and very little else. But from what I have observed, Russia is quite capable of making rapid changes in direction. Also, although private cars and big box stores are all the rage now, they have not shut down public transportation or local shops, so that, when this development model is discovered to be a dead end, there will be a path back.

Of the two largest (and related) problems affecting the planet as a whole – national resource depletion, oil and gas in particular, and global warming – Russia seems to be spared. (I tend to discount all of the recent nonsense about fracking; it seems to be a scheme to defraud investors, with gas and oil only figuring as dirty, overpriced byproducts of this process. I also tend to discount the efforts to control climate change; the recent fiasco of a conference at Doha is a case in point.) Russia has seventy years of natural gas left at current production rates from already developed sources, and probably somewhat less oil. There may be much more of each to be found in the rapidly thawing Russian arctic. With regard to global warming, the UN climate change effect maps I have looked at show the US and Europe as major losers with regard to their ability to feed themselves, while Russia appears to be the greatest benefactor, with longer growing seasons and more plentiful rainfall. And while many coastlines in the world are under threat from rising oceans (the Eastern Seaboard in the US a prime example, with the recent damage from Hurricane Sandy in New York and New Jersey just a small taste of things to come) Russia’s population centers are mostly inland. Saint Petersburg, the second-largest Russian city, is on the water, but is on the far side of the Baltic, does not have tides, has built a dam to shield it from storm surges, and is not forecast to experience significantly higher water levels any time this century.

If there is one thing that Russia should be doing but isn’t it’s this: Russia should stop helping sanitize US government debt. In this, it should not do it alone but join other countries and stop buying US debt. Currently, when Russia exports products, it then uses a share of the revenues to buy up US debt, in the form of US Treasury paper. That paper then sits at the central bank, accruing approximately zero percent interest (always far below inflation, which Americans systematically underestimate) and eventually dwindles to nothing as the USD loses virtually all of its value over time. Why subsidize American defense and other government spending when this money can be invested productively? For instance, it can be distributed as loans to Russian-owned businesses that have a good business plan for replacing imports with domestic production.

In a couple of months I’ll be heading back to the US, and back to collapse. The book will be out in May, and I will be traveling and talking about it both before and after that. No doubt people will ask me: “What about Russia?” You see, I have compared the USA to the USSR, showing that the USA is not as well-prepared for its inevitable collapse as the USSR was. I did not compare the USA to Russia. Although some Americans continue to use USSR and Russia as synonyms, they really should make an effort and try to sound a bit more intelligent. The USSR is dead, and modern Russia came after it died. What will come once the USA is also dead is anyone’s guess.

http://cluborlov.blogspot.jp/2012/12/regularly-scheduled-programming.html

Categories: Uncategorized

Say Goodbye to the Good Life

by Michael

The Economic Collapse (December 24 2012)

Will this be the last normal holiday season that Americans ever experience?  To many Americans, such a notion would be absolutely inconceivable.  After all, in the affluent areas of the country restaurants and malls are absolutely packed.  Beautiful holiday decorations are seemingly everywhere this time of the year and children all over the United States are breathlessly awaiting the arrival of Santa Claus.  Even though poverty is exploding to unprecedented levels, most families will still have mountains of presents under their Christmas trees.  Of course a whole lot of those presents were purchased with credit cards, but people don’t like to talk about that.  It kind of spoils the illusion.  Sadly, the truth is that our entire economy is a giant illusion.  The extreme prosperity that we have been enjoying has been fueled by debt, and any future prosperity that we will experience is completely dependent on our ability to go into even more debt.  The total amount of debt in our economy is almost ten times larger than it was just thirty years ago, but we don’t like to think about that too much.  Most Americans are way too busy living the good life to be bothered with “doom and gloom”.  Well, get ready to say goodbye to normal.  As history has shown us, no financial bubble lasts forever, and time is rapidly running out for us.

You know that the hour is late when even mainstream news sources start publishing articles with titles such as this: “Will 2013 Mark the Beginning of American Decline?”

That article appeared on Bloomberg.com the other day, and it was written by Simon Johnson, a former chief economist at the International Monetary Fund.  He is convinced that a day of reckoning is coming for US government finances, and he seems resigned to the fact that we will not be ready when that day arrives …

Sooner or later, it will be America’s turn to fall out of favor with investors and to see its own interest rates rise. It is hard to know when that day will come, or precisely what pressures the country will face.

Let me only venture one forecast: We will not be ready.

Other analysts are far more pessimistic.  For example, the following is what Gerald Celente said about the “bond bubble” during a recent interview with King World News

Eric King: “Gerald, I wanted to take a look at this upcoming issue you have coming out. (In here it says,) ‘Bonds Away! The bond bomb is ready to explode … threatening to make the real estate and dot-com bubbles, and even the Great Recession, look like market corrections’. Can you talk about that?”

Celente: “Yes. This piece is being penned by Dr Paul Craig Roberts, the former Assistant Treasury Secretary under Ronald Reagan. And he is convinced that the bond bubble is about to burst. This cannot continue to go on the way it is. Everyone knows that the whole game is rigged, and so is this …

“The whole game is rigged. It’s ready to go down, and Dr Paul Craig Roberts believes it’s ‘Bonds Away’ in 2013 as the bond bubble explodes and brings about a financial disaster even worse than the Great Depression.”

Eric King: “He’s saying here it’s a road to financial collapse that we are going to head down when this thing bursts”.

Celente: “It is. Because the whole world is being propped up by these phony bonds and it’s going to collapse. It has to happen. Interest rates are going to start going up, and when they do the bond bubble explodes. You cannot keep interest rates at zero for this amount of time and expect anything other than disaster to follow.”

For much more on all this, you can listen to another excellent interview with Gerald Celente right here {1}.

Our politicians just assume that we will be able to borrow trillions upon trillions of dollars far into the future at super low interest rates, but that is a very dangerous assumption.

As I noted the other day, the average rate of interest on US government debt was 2.534 percent at the end of November.  If that number just rose to where it was about a decade earlier we would be in a massive amount of trouble.

Back in the year 2000, the average rate of interest on US government debt was 6.638 percent.  If we were at that level today, the US government would be paying out more than a trillion dollars a year just in interest on the national debt.

But our politicians just keep borrowing and spending as if we could do this forever.

From the time that George Washington was inaugurated (1789) to the time that George W Bush was inaugurated (2001), the US government accumulated about 5.7 trillion dollars of debt.

During the first four years of the Obama administration, the US government accumulated about 5.7 trillion dollars of debt.

How can anyone support this kind of insanity?

You can see an excellent video demonstrating the vastness of our national debt right here {2}.  In the end, all of this debt will absolutely destroy the US dollar, our economic system and the bright futures that our children and our grandchildren were supposed to have.

As if all of that was not enough to be concerned about, there is also the threat that Wall Street could implode at any time.  Most Americans have no idea that Wall Street has been transformed into the largest casino in the history of the world.  The “too big to fail” banks are the ringleaders, and the derivatives bubble hangs over our financial system like a “sword of Damocles” that could fall at virtually any moment.

Everything will remain fine as long as the spiral of derivatives that our bankers have constructed remains perfectly balanced.  But if something happens and it becomes unbalanced and starts to collapse, the consequences could be unlike anything we have ever seen before.

A recent Zero Hedge article entitled “1000x Systemic Leverage: $600 Trillion In Gross Derivatives ‘Backed’ By $600 Billion In Collateral” detailed how there is barely any collateral backing up the hundreds of trillions of dollars of derivatives that are out there …

But a bigger question is what is the actual collateral backing this gargantuan market which is about ten times greater than the world’s combined GDP, because as the “derivative” name implies all this exposure is backed on some dedicated, real assets, somewhere. Luckily, the IMF recently released a discussion note titled “Shadow Banking: Economics and Policy” where quietly hidden in one of the appendices it answers precisely this critical question. The bottom line: $600 trillion in gross notional derivatives backed by a tiny $600 billion in real assets: a whopping 0.1% margin requirement! Surely nothing can possibly go wrong with this amount of unprecedented 1000x systemic leverage.

Our entire economy has become a giant pyramid of debt, risk and leverage.  At some point there is going to be a giant crash.  When that happens, people are going to become very desperate.

When people become very desperate, they often accept “solutions” that they were not willing to consider previously.

We need to learn some lessons from history.  This is exactly the kind of thing that happened back in the 1930s.

For example, an elderly woman named Kitty Werthmann is telling audiences what life was like in Austria back in the late 1930s …

In 1938, Austria was in deep Depression. Nearly one-third of our workforce was unemployed. We had 25 percent inflation and 25 percent bank loan interest rates.

Farmers and business people were declaring bankruptcy daily. Young people were going from house to house begging for food. Not that they didn’t want to work; there simply weren’t any jobs.

The Austrian people were really hurting and they were desperate for answers.  When Hitler came to them with “solutions”, they were ready to embrace him with open arms…

“We looked to our neighbor on the north, Germany, where Hitler had been in power since 1933”, she recalls. “We had been told that they didn’t have unemployment or crime, and they had a high standard of living”.

Nothing was ever said about persecution of any group – Jewish or otherwise. We were led to believe that everyone in Germany was happy. We wanted the same way of life in Austria. We were promised that a vote for Hitler would mean the end of unemployment and help for the family. Hitler also said that businesses would be assisted, and farmers would get their farms back. Ninety-eight percent of the population voted to annex Austria to Germany and have Hitler for our ruler.

“We were overjoyed”, remembers Kitty, “and for three days we danced in the streets and had candlelight parades. The new government opened up big field kitchens and everyone was fed.”

Sadly, America is already starting to go down the same path in many ways.  If you doubt this, you can read the rest of her account right here {3}.

Right now, things are still relatively good in America.  Yes, there are a whole host of economic numbers that look really bad, but what we are experiencing right now is nothing compared to the horrific economic pain that is coming.

When our economy finally crashes, nobody is going to be able to press a button and restore things to how they were previously.  We will be told that we have to “adjust” and consider “new solutions” to our “new challenges”.  Someday we will look back on the good life that we were enjoying in 2010, 2011 and 2012 and wish that we could go back to those days.

So enjoy the relative peacefulness and prosperity of these times while you still can.  A horrific economic collapse is on the way, and once it strikes none of our lives will ever be the same.

 

_____

 

Santa Claus – A Symbol Of Our Materialism
http://theeconomiccollapseblog.com/wp-content/uploads/2012/12/Santa-Claus-A-Symbol-Of-Our-Materialism-425×514.jpg

Links:

{1} http://www.youtube.com/watch?feature=player_embedded&v=csqlGjJa5nM

{2} http://www.youtube.com/watch?v=iTBODoBaCns&feature=player_embedded

{3} http://blog.beliefnet.com/on_the_front_lines_of_the_culture_wars/2011/04/she-survived-hitler-and-wants-to-warn-america.html#ixzz2Fk96t15L

The original version of this article, at the URL below, contains several other links to further information not included here.

http://theeconomiccollapseblog.com/archives/say-goodbye-to-the-good-life

Categories: Uncategorized

FDA Quietly Pushes Through Genetically Modified Salmon Over Christmas Break

by Anthony Gucciardi

Natural Society (December 27 2012)

While you were likely resting or enjoying time with friends and family over the Christmas break, the United States Food and Drug Administration was hard at work ramming through genetically modified salmon towards the final acceptance process. Despite the frankenfish actually being blocked by Congress last year over serious health and environmental concerns, the FDA is making a massive push to release the genetically modified salmon into the world as the FDA-backed biotech giant and creator of the fish AquaAdvantage screams for profits.

Link to petition to stop GM salmon here:
http://salsa3.salsalabs.com/o/50865/p/dia/action3/common/public/?action_KEY=9142

These fish of course threaten the very genetic integrity of the food chain when considering the fact that they will ultimately be unleashed into waters with other salmon and likely even the ocean at large. The AquaAdvantage genetically modified salmon have been engineered through genetic manipulation to grow double the size and weight of the average salmon. Hitting 24 inches instead of thirteen and weighing in at 6.6 pounds instead of 2.8, the GM fish contains both a gene from another salmon known as the  Pacific Chinook as well as an eel-like fish.

This unnatural genetic infusion allows the fish to generate a growth hormone 24/7, making it a massively mutated ball of growth hormones and disease.

Genetically Modified Salmon Threaten Genetic Stability of Food Chain

In the event that awareness is not spread and Congress allows the FDA to approve AquaAdvantage’ GM salmon, it will become the first approved GM animal for growth and human consumption.

Modified salmon will mate with regular breeds, creating hybrid mutations that may likely never be tracked. Hybrid families that may continue to repopulate for generations, all containing modified genes. After being consumed by predators like sharks or others, the sharks are then affected by the genetically modified fish through the development of various health conditions conditions. In mice trials alone it was found that eating GMOs triggered mass tumors and early death in the animals – and that’s just crops. Genetically modified crops are concerning enough, but are much less complex than animals.

The fact of the matter is that no one truly knows the long term effects of GM crops, let alone GM animals. But hey, why not test it out on the public? After all, who cares? It’s not like the FDA will do anything to Monsanto despite the numerous studies linking GMOs to disease. Instead, they just say it’s pseudo science and that only FDA-backed ‘science’ is worth anything. Forget the fact that the only lifelong rat study done on GMOs found it led to tumor development.

So what can we do?

There are a number of methods here, but first and foremost the word needs to be spread far and wide that genetically modified salmon is being pushed through by the FDA. People despise GM products on average, with ninety plus percent in favor of at least labeling. In addition, there is a petition going around to send to politicians to ask them to stop this approval as they did in 2011.

Link to petition to stop GM salmon here
http://salsa3.salsalabs.com/o/50865/p/dia/action3/common/public/?action_KEY=9142

Ultimately, it comes down to opposition. If enough people know this is coming and are very upset about it, they will have trouble ramming it through. That’s why they announce these things over Christmas weekend. They don’t want anyone to even hear about it – they want to make it harder to popularize since hardly anyone saw it.

We can beat this as we did back in 2011, and the FDA knows it. Their dirty tactics are not effective in the technological age in which the transfer of information is more powerful than ever. Share this news and spread the word. Block genetically modified salmon from getting put on your dinner table without any labels.

_____

Anthony Gucciardi is an accomplished investigative journalist whose articles have appeared on top news sites and have been read by millions worldwide. Anthony’s articles have been featured on top health & political websites read by millions worldwide such as Reuters, Yahoo News, MSNBC, and Bloomberg. Anthony is also a founding member of Natural Attitude, a leading developer of super high quality spagyric formulations.

http://naturalsociety.com/fda-pushes-genetically-modified-salmon-over-holiday-break/

Categories: Uncategorized

The Beginning of the World

by John Michael Greer

The Archdruid Report (December 26 2012)

Last Friday was, as I’m sure most of my readers noticed, an ordinary day. Here in the north central Appalachians, it was chilly but not unseasonably so, with high gray clouds overhead and a lively wind setting the dead leaves aswirl; wrens and sparrows hopped here and there in my garden, poking among the recently turned soil of the beds. No cataclysmic earth changes, alien landings, returning messiahs, or vast leaps of consciousness disturbed their foraging. They neither knew nor cared that one of the great apocalyptic delusions of modern times was reaching its inevitable end around them.

The inimitable Dr Rita Louise, on whose radio talk show I spent a couple of hours {1} on Friday, may have summed it up best when she wished her listeners a happy Mayan Fools Day.  Not that the ancient Mayans themselves were fools, far from it, but then they had precisely nothing to do with the competing fantasies of doom and universal enlightenment that spent the last decade and more buzzing like flies around last Friday’s date.

It’s worth taking a look back over the genesis of the 2012 hysteria, if only because we’re certain to see plenty of reruns in the years ahead. In the first half of the 20th century, as archeologists learned to read dates in the Mayan Long Count calendar, it became clear that one of the major cycles of the old Mayan timekeeping system would roll over on that day.  By the 1970s, that detail found its way into alternative culture in the United States, setting off the first tentative speculations about a 2012 apocalypse, notably drug guru Terence McKenna’s quirky “Timewave Zero” theory.

It was the late New Age promoter Jose Arguelles, though, who launched the 2012 fad on its way with his 1984 book The Mayan Factor and a series of sequels, proclaiming that the rollover of the Mayan calendar in 2012 marked the imminent transformation of human consciousness that the New Age movement was predicting so enthusiastically back then.  The exactness of the date made an intriguing contrast with the vagueness of Arguelles’ predictions about it, and this contrast left ample room for other authors in the same field to jump on the bandwagon and redefine the prophecy to fit whatever their own eschatological preferences happened to be.  This they promptly did.

Early on, 2012 faced plenty of competition from alternative dates for the great transformation.  The year 2000 had been a great favorite for a century, and became 2012’s most important rival, but it came and went without bringing anything more interesting than another round of sordid business as usual.  Thereafter, 2012 reigned supreme, and became the center of a frenzy of anticipation that was at least as much about marketing as anything else.  I can testify from my own experience that for a while there, late in the last decade, if you wanted to write a book about anything even vaguely tangential to New Age subjects and couldn’t give it a 2012 spin, many publishers simply weren’t interested.

So the predictions piled up.  The fact that no two of them predicted the same thing did nothing to weaken the mass appeal of the date.  Neither did the fact, which became increasingly clear as the last months of 2012 approached, that a great many people who talked endlessly about the wonderful or terrible things that were about to happen weren’t acting as though they believed a word of it.  That was by and large as true of the New Age writers and pundits who fed the hysteria as it was of their readers and audiences; I long ago lost track of the number of 2012 prophets who, aside from scheduling a holiday trip to the Yucatan or some other fashionable spot for the big day, acted in all respects as though they expected the world to keep going in its current manner straight into 2013 and beyond.

That came as a surprise to me.  Regular readers may recall my earlier speculation that 2012 would see scenes reminiscent of the “Great Disappointment” of 1844, with crowds of true believers standing on hilltops waiting for their first glimpse of alien spacecraft descending from heaven or what have you. Instead, in the last months of this year, some of the writers and pundits most deeply involved in the 2012 hysteria started claiming that, well, actually, December 21st wasn’t going to be the day everything changed; it would, ahem, usher in a period of transition of undefined length during which everything would sooner or later get around to changing.  The closer last Friday came, the more evasive the predictions became, and Mayan Fools Day and its aftermath were notable for the near-total silence that spread across the apocalyptic end of the blogosphere. Say what you will about Harold Camping, at least he had the courage to go on the air after his May prophecy flopped and admit that he must have gotten his math wrong somewhere.

Now of course Camping went on at once to propose a new date for the Rapture, which flopped with equal inevitability a few months later.  It’s a foregone conclusion that some of the 2012 prophets will do the same thing shortly, if only to kick the apocalypse marketing machine back into gear.  It’s entirely possible that they’ll succeed in setting off a new frenzy for some other date, because the social forces that make apocalyptic fantasies so tempting to believe just now have not lost any of their potency.

The most important of those forces, as I’ve argued in previous posts, is the widening mismatch between the fantasy of entitlement that has metastasized through contemporary American society, on the one hand, and the ending of an age of fossil-fueled imperial extravagance on the other. As the United States goes bankrupt trying to maintain its global empire, and industrial civilization as a whole slides down the far side of a dizzying range of depletion curves, it’s becoming harder by the day for Americans to make believe that the old saws of upward mobility and an ever brighter future have any relevance to their own lives – and yet those beliefs are central to the psychology, the self-image, and the worldview of most Americans.  The resulting cognitive dissonance is hard to bear, and apocalyptic fantasies offer a convenient way out.  They promise that the world will change, so that the believers don’t have to.

That same frantic desire to ignore the arrival of inescapable change pervades today’s cultural scene, even in those subcultures that insist most loudly that change is what they want.  In recent months, to cite only one example, nearly every person who’s mentioned to me the claim that climate change could make the Earth uninhabitable has gone on to ask, often in so many words, “So why should I consume less now?”  The overt logic here is usually that individual action can’t possibly be enough.  Whether or not that’s true is anyone’s guess, but cutting your own carbon footprint actually does something, which is more than can be said for sitting around enjoying a standard industrial world lifestyle while waiting for that imaginary Kum Ba Ya moment when everyone else in the world will embrace limits not even the most ardent climate change activists are willing to accept themselves.

Another example? Consider the rhetoric of elite privilege that clusters around the otherwise inoffensive label “one percent”.  That rhetoric plays plenty of roles in today’s society, but one of them pops up reliably any time I talk about using less.  Why, people ask me in angry tones, should they give up their cars when the absurdly rich are enjoying gigantic luxury yachts?  Now of course we could have a conversation about the total contribution to global warming of cars owned by people who aren’t rich, compared to that of the fairly small number of top-end luxury yachts that usually figure in such arguments, but there’s another point that needs to be raised. None of the people who make this argument to me have any control over whether rich people have luxury yachts. All of them have a great deal of control over whether and how often they themselves use cars. Blaming the global ecological crisis on the very rich thus functions, in practice, as one more way to evade the necessity of unwelcome change.

Along these same lines, dear reader, as you surf the peak oil and climate change blogosphere and read the various opinions on display there, I’d encourage you to ask yourself what those opinions amount to in actual practice.  A remarkably large fraction of them, straight across the political landscape from furthest left to furthest right and including all stops in between, add up to demands that somebody else, somewhere else, do something. Since the people making such demands rarely do anything to pressure, or even to encourage, those other people elsewhere to do whatever it is they’re supposed to do, it’s not exactly hard to do the math and recognize that here again, these opinions amount to so many ways of insisting that the people holding them don’t have to give up the extravagant and unsustainable lifestyles most people in the industrial world think of as normal and justifiable.

There’s another way to make the same point, which is that most of what you’ll see being proposed in the peak oil and climate change blogosphere has been proposed over and over and over again already, without the least impact on our predicament. From the protest marches and the petitions, through the latest round of grand plans for energy futures destined to sit on the shelves cheek by jowl with the last round, right up to this week’s flurry of buoyantly optimistic blog posts lauding any technofix you care to name from cold fusion and algal biodiesel to shale gas and drill-baby-drill:  been there, done that, used the T-shirt to wipe another dozen endangered species off the face of the planet, and we’re still stuck in the same place.  The one thing next to nobody wants to talk about is the one thing that distinguished the largely successful environmental movement of the 1960s and 1970s from the largely futile environmental movement since that time, which is that activists in the earlier movement were willing to start the ball rolling by making the necessary changes in their own lives first.

The difficulty, of course, is that making these changes is precisely what many of today’s green activists are desperately trying to avoid. That’s understandable, since transitioning to a lifestyle that’s actually sustainable involves giving up many of the comforts, perks, and privileges central to the psychology and identity of people in modern industrial societies.  In today’s world of accelerating downward mobility, especially, the thought of taking any action that might result in being mistaken for the poor is something most Americans in particular can’t bear to contemplate – even when those same Americans recognize on some level that sooner or later, like it or not, they’re going to end up poor anyway.

Those of my readers who would like to see this last bit of irony focused to incandescence need only get some comfortably middle class eco-liberal to start waxing lyrical about life in the sustainable world of the future, when we’ll all have to get by on a small fraction of our current resource base.  This is rarely difficult; I field such comments quite often, sketching out a rose-colored contrast between today’s comfortable but unsatisfying lifestyles and the more meaningful and fulfilling existence that will be ours in a future of honest hard work in harmony with nature.  Wait until your target is in full spate, and then point out that he could embrace that more meaningful and fulfilling lifestyle right now by the simple expedient of discarding the comforts and privileges that stand in the way.  You’ll get to watch backpedaling on a heroic scale, accompanied by a flurry of excuses meant to justify your target’s continued dependence on the very comforts and privileges he was belittling a few moments before.

What makes the irony perfect is that, by and large, the people whom you’ll hear criticizing the modern lifestyles they themselves aren’t willing to renounce aren’t just mouthing verbal noises. They realize, many of them, that the lifestyles that industrial societies provide even to their more privileged inmates are barren of meaning and value, that the pursuit and consumption of an endless series of increasingly shoddy manufactured products is a very poor substitute for a life well lived, and that stepping outside the narrowing walls of a world defined by the perks of the consumer economy is the first step toward a more meaningful existence.  They know this; what they lack, by and large, is the courage to act on that knowledge, and so they wander the beach like J Alfred Prufrock in Eliot’s poem, letting the very last inch or so of the waves splash over their feet – the bottoms of their trousers rolled up carefully, to be sure, to keep them from getting wet – when they know that a running leap into the green and foaming water is the one thing that can save them. Thus it’s not surprising that their daydreams cluster around imaginary tidal waves that will come rolling in from the deep ocean to sweep them away and make the whole question moot.

This is why it’s as certain as anything can be that within a year or so at most, a good many of the people who spent the last decade or so talking endlessly about last Friday will have some other date lined up for the end of the world, and will talk about it just as incessantly.  It’s that or face up to the fact that the only way to live up to the ideals they think they espouse is to walk straight toward the thing they most fear, which is the loss of the perks and privileges and comforts that define their identity – an identity many of them hate, but still can’t imagine doing without.

Meanwhile, of course, the economy, the infrastructure, and the resource flows that make those perks and privileges and comforts possible are coming apart around them.  There’s a great deal of wry amusement to be gained from watching one imaginary cataclysm after another seize the imagination of the peak oil scene or society as a whole, while the thing people think they’re talking about – the collapse of industrial civilization – has been unfolding all around them for several years now, in exactly the way that real collapses of real civilizations happen in the real world.

Look around you, dear reader, as the economy stumbles through another round of contraction papered over with increasingly desperate fiscal gimmicks, the political system of your country moves ever deeper into dysfunction, jobs and livelihoods go away forever, whatever social safety net you’re used to having comes apart, towns and neighborhoods devastated by natural disasters are abandoned rather than being rebuilt, and the basic services that once defined a modern society stop being available to a larger and larger fraction of the people of the industrial world.  This is what collapse looks like.  This is what people in the crumbling Roman Empire and all those other extinct civilizations saw when they looked out the window.  To those in the middle of the process, as I’ve discussed in previous posts, it seems slow, but future generations with the benefit of hindsight will shake their heads in wonder at how fast industrial civilization went to pieces.

I commented in a post at the start of this year {2} that the then-current round of fast-collapse predictions – the same predictions, mind you, that had been retailed at the start of the year before, the year before that, and so on – were not only wrong, as of course they turned out to be, but missed the collapse that was already under way. The same point holds good for the identical predictions that will no doubt be retailed over the next few weeks, insisting that this is the year when the stock market will plunge to zero, the dollar and/or the Euro will lose all their value, the economy will seize up completely and leave the grocery shelves bare, and so on endlessly; or, for that matter, that this is the year when cold fusion or algal biodiesel or some other vaporware technology will save us, or the climate change Kum Ba Ya moment I mentioned earlier will get around to happening, or what have you.

It’s as safe as a bet can be that none of these things will happen in 2013, either.  Here again, though, the prophecies in question are not so much wrong as irrelevant.  If you’re on a sinking ocean liner and the water’s rising fast belowdecks, it’s not exactly useful to get into heated debates with your fellow passengers about whether the ship is most likely to be vaporized by aliens or eaten by Godzilla.  In the same way, it’s a bit late to speculate about how industrial civilization will collapse, or how to prevent it from collapsing, when the collapse is already well under way.  What matters at that stage in the game is getting some sense of how the process will unfold, not in some abstract sense but in the uncomfortably specific sense of where you are, with what you have, in the days and weeks and months and years immediately ahead of you; that, and then deciding what you are going to do about it.

With that in mind, dear reader, I’d like to ask you to do something right now, before going on to the paragraph after this one.  If you’re in the temperate or subarctic regions of the northern hemisphere, and you’re someplace where you can adjust the temperature, get up and go turn the thermostat down three degrees; if that makes the place too chilly for your tastes, take another moment or two to put on a sweater.  If you’re in a different place or a different situation, do something else simple to decrease the amount of energy you’re using at this moment.  Go ahead, do it now; I’ll wait for you here.

Have you done it?  If so, you’ve just accomplished something that all the apocalyptic fantasies, internet debates, and protest marches of the last two decades haven’t:  you’ve decreased, by however little, the amount of carbon dioxide going into the atmosphere. That sweater, or rather the act of putting it on instead of turning up the heat, has also made you just a little less dependent on fossil fuels. In both cases, to be sure, the change you’ve made is very small, but a small change is better than no change at all – and a small change that can be repeated, expanded, and turned into a stepping stone on the way to  bigger changes, is infinitely better than any amount of grand plans and words and handwaving that never quite manage to accomplish anything in the real world.

Turning down your thermostat, it’s been said repeatedly, isn’t going to save the world.  That’s quite true, though it’s equally true that the actions that have been pursued by climate change and peak oil activists to date don’t look particularly likely to save the world, either, and let’s not even talk about what wasn’t accomplished by all the wasted breath over last Friday’s nonevent.  That being the case, taking even the smallest practical steps in your own life and then proceeding from there will take you a good deal further than waiting for the mass movements that never happen, the new technologies that never pan out, or for that matter the next deus ex machina some canny marketer happens to pin onto another arbitrary date in the future, as a launching pad for the next round of apocalyptic hysteria.

Meanwhile, a world is ending.  The promoters of the 2012 industry got that right, though they missed just about everything else; the process has been under way for some years now, and it won’t reach its conclusion in our lifetimes, but what we may as well call the modern world is coming to an end around us.  The ancient Mayans knew, however, that the end of one world is always the beginning of another, and it’s an interesting detail of all the old Mesoamerican cosmological myths that the replacement for the old world doesn’t just pop into being.  Somebody has to take action to make the world begin.

It’s a valid point, and one that can be applied to our present situation, when so many people are sitting around waiting for the end and so few seem to be willing to kickstart the beginning in the only way that matters – that is, by making actual changes in their own lives.  The deindustrial world of the future is poised to begin, but someone has to begin it.  Shall we?
_____

John Michael Greer is the Grand Archdruid of the Ancient Order of Druids in America {4} and the author of more than twenty books on a wide range of subjects, including The Long Descent: A User’s Guide to the End of the Industrial Age (2008), The Ecotechnic Future: Exploring a Post-Peak World (2009), and The Wealth of Nature: Economics As If Survival Mattered (2011). He lives in Cumberland, Maryland, an old red brick mill town in the north central Appalachians, with his wife Sara.

If you enjoy reading this blog, you might want to check out Star’s Reach {5}, his blog/novel of the deindustrial future. Set four centuries after the decline and fall of our civilization, it uses the tools of narrative fiction to explore the future our choices today are shaping for our descendants tomorrow.

Links:

{1} http://irnfiles.com/audio/JustEnergyRadio_JohnMichaelGreer.mp3

{2} http://thearchdruidreport.blogspot.com/2012/01/waiting-for-great-pumpkin.html

{3} http://www.vivaeditions.com/book_page.php?book_id=25

{4} http://www.aoda.org/

{5} http://starsreach.blogspot.com/

http://thearchdruidreport.blogspot.jp/2012/12/the-beginning-of-world.html

Categories: Uncategorized

It’s Not a “Fiscal Cliff” …

2012/12/29 1 comment

It’s the Descent into Lawlessness

by George Washingon

WashingtonsBlog (December 22 2012)

It’s Not a Tax or Spending Problem … It’s a Devolution Into Lawlessness

The “fiscal cliff” is a myth.

Instead, what we are facing is a descent into lawlessness.

Wikipedia notes:

In many situations, austerity programs are imposed on countries that were previously under dictatorial regimes, leading to criticism that populations are forced to repay the debts of their oppressors.

Indeed, the IMF has already performed a complete audit of the whole US financial system, something which they have only previously done to broke third world nations.

Economist Marc Faber calls the US a “failed state”. Indeed, we no longer have a free market economy … we have fascism, communist style socialism, kleptocracy, oligarchy or banana republic style corruption.

Let’s look at some specific examples of our descent into lawlessness.

Lawless Looting and Redistribution of Wealth

The central banks’ central bank – the Bank for International Settlements – warned in 2008 that bailouts of the big banks would create sovereign debt crises … which could bankrupt nations.

That is exactly what has happened.

The big banks went bust, and so did the debtors. But the government chose to save the big banks instead of the little guy, thus allowing the banks to continue to try to wring every penny of debt out of debtors.

Treasury Secretary Paulson shoved bailouts down Congress’ throat by threatening martial law if the bailouts weren’t passed. And the bailouts are now perpetual.

Moreover, the bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:

* Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes

* A lot of the bailout money is going to the failing companies’ shareholders

* Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”

* The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)

And as the New York Times notes,

Tens of billions of [bailout] dollars have merely passed through AIG to its derivatives trading partners.

In other words, through a little game-playing by the Fed, taxpayer money is going straight into the pockets of investors in AIG’s credit default swaps and is not even really stabilizing AIG.

Moreover, a large percentage of the bailouts went to foreign banks. And so did a huge portion of the money from quantitative easing. Indeed, the Fed bailed out Gaddafi’s Bank of Libya, hedge fund billionaires, and big companies, but turned its back on the little guy.

A study of 124 banking crises by the International Monetary Fund found that propping up banks which are only pretending to be solvent often leads to austerity:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.

All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.

In other words, the “stimulus” to the banks blows up the budget, “squeezing” public services through austerity.

Numerous top economists say that the bank bailouts are the largest robbery and redistribution of wealth in history.

Why was this illegal? Well, the top white collar fraud expert in the country says that the Bush and Obama administrations broke the law by failing to break up insolvent banks … instead of propping them up by bailing them out.

And the Special Inspector General of the Tarp bailout program said that the Treasury Secretary lied to Congress regarding some fundamental aspects of Tarp – like pretending that the banks were healthy, when they were totally insolvent. The Secretary also falsely told Congress that the bailouts would be used to dispose of toxic assets … but then used the money for something else entirely. Making false statements to a federal official is illegal, pursuant to Section 1001 of Title 18 of the United States Code.

So breaking the rules to bail out the big, insolvent banks, is destroying our prosperity.

Lawless Justice System

A strong rule of law is essential for a prosperous and stable economy, yet the government made it official policy not to prosecute fraud, even though [the] main business model adopted by the biggest financial crime in world history, the largest insider trading scandal of all time, illegal raiding of customer accounts and blatant financing of drug cartels and terrorists have all gotten away scot-free without any jail time.

There are two systems of justice in America … one for the big banks and other fatcats, and one for everyone else.

While Iceland prosecuted its top criminal bankers, and thus quickly got through its financial problems and now has a vibrant economy, the American government has done everything it can to cover up fraud, and has been actively encouraging criminal fraud and attacking those trying to blow the whistle.

The rule of law is now as weak in the US and UK as many countries which we would consider “rogue nations”.

This is a sudden change. As famed Peruvian economist Hernando de Soto notes:

In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.

Moreover, US government personnel are on the take. They have become so corrupt that regulators are literally sleeping with industry prostitutes … while they pimp out the American people.

The corruption of government officials is staggering, and the system of government-sponsored rating agencies had at its core a model of bribery.

We’ve gone from a nation of laws to a nation of powerful men making one-sided laws to protect their own interests … in secret. Government folks are using laws to crush dissent. It’s gotten so bad that even US Supreme Court justices are saying that we are descending into tyranny.

It’s not a “fiscal cliff” … it’s an attempt to rape America … just like Greece and Ireland have been plundered.

Economics professor Randall Wray writes:

Thieves … took over the whole economy and the political system lock, stock, and barrel. They didn’t just blow up finance, they oversaw the swiftest transfer of wealth to the very top the world has ever seen. They screwed workers out of their jobs, they screwed homeowners out of their houses, they screwed retirees out of their pensions, and they screwed municipalities out of their revenues and assets.

Financiers are forcing schools, parks, pools, fire departments, senior citizen centers, and libraries to shut down. They are forcing national governments to auction off their cultural heritage to the highest bidder. Everything must go in firesales at prices rigged by twenty-something traders at the biggest and most corrupt institutions the world has ever known.

Economics professor Michael Hudson agrees … saying that the banks are trying to roll back all modern laws and make us all serfs.

Professor Hudson explained in 2008:

You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They’re not trying to make the economy more equal, and they’re not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards, it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite.

Indeed, Foreign Policy magazine ran an article entitled “The Next Big Thing: Neomedievalism”, arguing that the power of nations is declining, and being replaced by corporations, wealthy individuals, the sovereign wealth funds of monarchs, and city-regions.

Indeed, this isn’t the “Great Recession”, it’s the Great Bank Robbery. The big banks have pillaged and looted the rest of the world.

A lawless justice system is ruining the economy.

Lawless Central Bank

The non-partisan Government Accountability Office calls the Fed corrupt and riddled with conflicts of interest. Nobel Prize-Winning Economist George Stiglitz says the World Bank would view any country which had a banking structure like the Fed as being corrupt and untrustworthy. The former vice president at the Federal Reserve Bank of Dallas said said he worried that the failure of the government to provide more information about its rescue spending could signal corruption.

“Non-transparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here”, he said.

Moreover, the Fed has broken the law by withholding information from Congress, letting unemployment rise in order to keep inflation low, and otherwise exceeding its authority under the Federal Reserve Act.

Our central bank’s lawless and unaccountable actions are hurting the economy.

Lawless Attack on Democracy

The ability of the people to participate in their government’s decision-making is vital for a nation’s prosperity. But we no longer have democracy or a republican form of government in America.

The big banks own Washington DC politicians, lock stock and barrel. Two leading IMF officials, the former Vice President of the Dallas Federal Reserve, the head of the Federal Reserve Bank of Kansas City, Moody’s chief economist and many others have all said that the United States is controlled by an “oligarchy” or “oligopoly”, and the big banks and giant financial institutions are key players in that oligarchy.

Laws are being passed in secret, and not even Congress knows what’s going on.

In other words, not only the justice system, but the entire system of American representation has been corrupted, thus harming the economy.

Lawless Infringement of Freedom

Personal freedom and liberty – and freedom from the arbitrary exercise of government power – are strongly correlated with a healthy economy, but America is descending into tyranny.

Authoritarian actions by the government interfere with the free market, and thus harm prosperity.

US News and World Report notes:

The Fraser Institute’s latest Economic Freedom of the World Annual Report is out, and the news is not good for the United States. Ranked among the five freest countries in the world from 1975 through 2002, the United States has since dropped to eighteenth place.

The Cato institute notes:

The United States has plummeted to eighteenth place in the ranked list, trailing such countries as Estonia, Taiwan, and Qatar.

Actually, the decline began under President George W Bush. For twenty years the US had consistently ranked as one of the world’s three freest economies, along with Hong Kong and Singapore. By the end of the Bush presidency, we were barely in the top ten.

And, as with so many disastrous legacies of the Bush era, Barack Obama took a bad thing and made it worse.

But the American government has shredded the constitution, by subjecting us to indefinite detention, taking away our due process rights, deploying drones above our heads, spying on all Americans, and otherwise attacking our freedoms.

Indeed, rights won in 1215 – in the Magna Carta – are being repealed.

Economic historian Niall Ferguson notes, draconian national security laws are one of the main things undermining the rule of law:

We must pose the familiar question about how far our civil liberties have been eroded by the national security state – a process that in fact dates back almost a hundred years to the outbreak of the First World War and the passage of the 1914 Defence of the Realm Act. Recent debates about the protracted detention of terrorist suspects are in no way new. Somehow it’s always a choice between habeas corpus and hundreds of corpses.

Of course, many of this decades’ national security measures have not been taken to keep us safe in the “post-9/11 world” … indeed, many of them started before 9/11.

And America has been in a continuous declared state of national emergency since 9/11, and we are in a literally never-ending state of perpetual war.

In fact, government has blown terrorism fears way out of proportion for political purposes, and “national security” powers have been used in many ways to exempt big Wall Street players from the rule of law rather than to do anything to protect us.

So lawless infringement of our liberty is destroying our prosperity.

Lawless Initiation and Prosecution of War

It is well-documented that war destroys the economy.

Top US government employees lied us into war, and used illegal torture, assassinations and other crimes of war in prosecuting the wars they unnecessarily started. They were – at a minimum – criminally negligent for failing to stop 9/11.

In the name of fighting our enemies – the US has directly been supporting Al Qaeda and other terrorist groups for the last decade.

Our use of torture has also created many more terrorists than it has prevented.

Security experts – including both conservatives and liberals – agree that waging war in the Middle East weakens national security and increases terrorism.

Indefinite detention, drone-strikes on innocent civilians, occupation of foreign countries, and most of America’s other tactics in the “war on terror” increase terrorism.

Terrorism feeds the cycle of war … and is thus harming our economy. (And because terrorism spooks people, they spend less, which further harms the economy).

So lawlessness in starting and prosecuting war is destroying our prosperity.

Postscript: We’re not facing a “fiscal cliff”. We’re facing a descent into lawlessness. Stopping the fraudulent schemes, endless bailouts and imperial adventures is the place to start.

http://www.washingtonsblog.com/2012/12/its-not-a-fiscal-cliff-its-the-descent-into-lawless-anarchy.html

Categories: Uncategorized

Will 2013 Mark the Beginning of American Decline?

2012/12/29 1 comment

by Simon Johnson

bloomberg.com (December 23 2012)

“A modest man”, Winston Churchill supposedly quipped about Clement Attlee, his successor as prime minister, “but then he has so much to be modest about”. We should say the same about economists, particularly their ability to forecast anything in a useful and timely manner.

Those predicting an imminent American economic decline have usually been no exception. This time, though, they may be on to something.

Prevailing arguments about when the era of US dominance would end, and which country would supplant it, have been wildly and consistently wrong for half a century. In the 1950s, Soviet leader Nikita Khrushchev was taken seriously when he told Western ambassadors “We will bury you”. Today, his country no longer exists. In the 1980s, Japan was supposedly going to be Number One; now the question is whether the precipitous decline in its working-age population will generate a fiscal crisis.

The Germans – or Europeans more broadly – were thought to be on the brink of elbowing aside the US several times, including in the run-up to the global financial crisis in 2008, when the euro seemed to threaten the dollar’s role as the pre- eminent reserve currency. Remember when Brazilian model Gisele Bundchen was quoted as saying she preferred to be paid in euros? Now the euro-area economy looks very sick indeed, and Ms Bundchen is apparently long American icons (she married football player Tom Brady).

Three Questions

Becoming the world’s top economic dog isn’t easy. That’s because any contender – China or anyone else – needs to answer three tough questions.

First, do they have secure property rights for individuals? Who would trust their rainy-day funds or their most innovative ideas in a country where, when the going gets tough, the state gets your stuff? China has a big current-account surplus and lots of foreign-exchange reserves. They also have a 2,000-year tradition of putting the government before the individual. Think about all the ways this went wrong for the Soviet Union.

Second, is the financial system viable in its current form? Japan had a great economic-transformation story – and an even greater debt-fueled asset-price bubble when its banks went mad in the mid-1980s. How confident are you that China, Brazil or other emerging markets aren’t headed down the same road?

Third, is debt – both public and private – on an unsustainable path? Mismanaged debt has brought Europe to its current low point, both in the form of direct public borrowing (see Greece) and in the equally painful form of private-sector borrowing that goes bad, with nasty implications for the government’s balance sheet (ask the Irish and Spanish about this).

Even so, the US has serious economic, social and political problems. Just look at the current budget debacle. Democrats and Republicans are at each other’s throats, struggling theatrically, rather like Holmes and Moriarty above Reichenbach Falls. If they get a fiscal deal done in the next few weeks, do you really think it will result in a sensible tax system, or bring long-term health-care spending under control? Are we going to invest more in education? Will we really have a frank discussion about what kind of social-insurance programs we want, and how to pay for them?

I’m also well aware that incentives to take excessive risk remain at the heart of Wall Street. The Dodd-Frank financial reforms contain some useful measures but do too little to significantly alter the balance of power between global megabanks and the rest of us. The Federal Reserve seems to be edging in the right direction on regulation but it is moving too slowly to make any difference for the next cycle.

And the US is now entering perhaps the most dangerous phase of its long-standing tax revolt, in which Republicans insist on holding down federal revenue while the population is aging, but they won’t propose specific cuts in social programs, precisely because they know that Medicare and Social Security remain immensely popular.

More Borrowing

As a result, the political logic of the moment leads to continued increases in US government borrowing, about half of which is financed, for now, by international savings at low interest rates. Our post-crisis monetary policy is contriving to keep those rates very low for a long time, presumably setting the table for a further round of mismanaged risk taking in the financial sector (just as it did after 2001).

So while no country will rise up to take America’s place as the world’s leading economy, its global position is indeed threatened – by its own reluctance to have an honest conversation about the federal budget and by the unwillingness of its political leadership to confront powerful interests on Wall Street.

Sooner or later, it will be America’s turn to fall out of favor with investors and to see its own interest rates rise. It is hard to know when that day will come, or precisely what pressures the country will face.

Let me only venture one forecast: We will not be ready.

_____

Simon Johnson is a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. He is co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You (2012). The opinions expressed are his own.)

To contact the writer of this article: Simon Johnson at sjohnson@mit.edu.

To contact the editor responsible for this article: Timothy Lavin at tlavin1@bloomberg.net.

(R) 2012 BLOOMBERG LP. ALL RIGHTS RESERVED.

http://www.bloomberg.com/news/2012-12-23/will-2013-mark-the-beginning-of-american-decline-.html

Categories: Uncategorized

The Fiscal Cliff is a Diversion

The Derivatives Tsunami and the Dollar Bubble

by Paul Craig Roberts

Institute for Political Economy (December 17 2012)

The “fiscal cliff” is another hoax designed to shift the attention of policymakers, the media, and the attentive public, if any, from huge problems to small ones.

The fiscal cliff is automatic spending cuts and tax increases in order to reduce the deficit by an insignificant amount over ten years if Congress takes no action itself to cut spending and to raise taxes. In other words, the “fiscal cliff” is going to happen either way.

The problem from the standpoint of conventional economics with the fiscal cliff is that it amounts to a double-barrel dose of austerity delivered to a faltering and recessionary economy. Ever since John Maynard Keynes, most economists have understood that austerity is not the answer to recession or depression.

Regardless, the fiscal cliff is about small numbers compared to the Derivatives Tsunami or to bond market and dollar market bubbles.

The fiscal cliff requires that the federal government cut spending by $1.3 trillion over ten years. The Guardian reports that means the federal deficit has to be reduced about $109 billion per year or three percent of the current budget. {1}  More simply, just divide $1.3 trillion by ten and it comes to $130 billion per year. This can be done by simply taking a three month vacation each year from Washington’s wars.

The Derivatives Tsunami and the bond and dollar bubbles are of a different magnitude.

Last June 5 in “Collapse At Hand” {2} I pointed out that according to the Office of the Comptroller of the Currency’s fourth quarter report for 2011, about 95% of the $230 trillion in US derivative exposure was held by four US financial institutions: JP Morgan Chase Bank, Bank of America, Citibank, and Goldman Sachs.

Prior to financial deregulation, essentially the repeal of the Glass-Steagall Act and the non-regulation of derivatives – a joint achievement of the Clinton administration and the Republican Party – Chase, Bank of America, and Citibank were commercial banks that took depositors’ deposits and made loans to businesses and consumers and purchased Treasury bonds with any extra reserves.

With the repeal of Glass-Steagall these honest commercial banks became gambling casinos, like the investment bank, Goldman Sachs, betting not only their own money but also depositors money on uncovered bets on interest rates, currency exchange rates, mortgages, and prices of commodities and equities.

These bets soon exceeded many times not only US GDP but world GDP. Indeed, the gambling bets of JP Morgan Chase Bank alone are equal to world Gross Domestic Product.

According to the first quarter 2012 report from the Comptroller of the Currency, total derivative exposure of US banks has fallen insignificantly from the previous quarter to $227 trillion. The exposure of the four US banks accounts for almost of all of the exposure and is many multiples of their assets or of their risk capital.

The Derivatives Tsunami is the result of the handful of fools and corrupt public officials who deregulated the US financial system. Today merely four US banks have derivative exposure equal to 3.3 times world Gross Domestic Product. When I was a US Treasury official, such a possibility would have been considered beyond science fiction.

Hopefully, much of the derivative exposure somehow nets out so that the net exposure, while still larger than many countries’ GDPs, is not in the hundreds of trillions of dollars. Still, the situation is so worrying to the Federal Reserve that after announcing a third round of quantitative easing, that is, printing money to buy bonds – both US Treasuries and the banks’ bad assets – the Fed has just announced that it is doubling its QE 3 purchases.

In other words, the entire economic policy of the United States is dedicated to saving four banks that are too large to fail. The banks are too large to fail only because deregulation permitted financial concentration, as if the Anti-Trust Act did not exist.

The purpose of QE is to keep the prices of debt, which supports the banks’ bets, high. The Federal Reserve claims that the purpose of its massive monetization of debt is to help the economy with low interest rates and increased home sales. But the Fed’s policy is hurting the economy by depriving savers, especially the retired, of interest income, forcing them to draw down their savings. Real interest rates paid on CDs, money market funds, and bonds are lower than the rate of inflation.

Moreover, the money that the Fed is creating in order to bail out the four banks is making holders of dollars, both at home and abroad, nervous. If investors desert the dollar and its exchange value falls, the price of the financial instruments that the Fed’s purchases are supporting will also fall, and interest rates will rise. The only way the Fed could support the dollar would be to raise interest rates. In that event, bond holders would be wiped out, and the interest charges on the government’s debt would explode.

With such a catastrophe following the previous stock and real estate collapses, the remains of people’s wealth would be wiped out. Investors have been deserting equities for “safe” US Treasuries. This is why the Fed can keep bond prices so high that the real interest rate is negative.

The hyped threat of the fiscal cliff is immaterial compared to the threat of the derivatives overhang and the threat to the US dollar and bond market of the Federal Reserve’s commitment to save four US banks.

Once again, the media and its master, the US government, hide the real issues behind a fake one. The fiscal cliff has become the way for the Republicans to save the country from bankruptcy by destroying the social safety net put in place during the 1930s, supplemented by Lyndon Johnson’s “Great Society” in the mid-1960s.

Now that there are no jobs, now that real family incomes have been stagnant or declining for decades, and now that wealth and income have been concentrated in few hands is the time, Republicans say, to destroy the social safety net so that we don’t fall over the fiscal cliff.

In human history, such a policy usually produces revolt and revolution, which is what the US so desperately needs.

Perhaps our stupid and corrupt policymakers are doing us a favor after all.

_____

Links:

{1} http://www.guardian.co.uk/world/2012/nov/27/fiscal-cliff-explained-spending-cuts-tax-hikes

{2} http://www.paulcraigroberts.org/2012/06/05/collapse-at-hand/

Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following.

http://www.paulcraigroberts.org/2012/12/17/the-fiscal-cliff-is-a-diversion-the-derivatives-tsunami-and-the-dollar-bubble/

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