I am presently in Europe, and short on time for posting, but I just received a timely contribution by e-mail. It is quite long, and I have only had time to skim it. Therefore, I won’t say that I agree or disagree with the details of the report; only that I see some interesting points worthy of discussion. Some of the points are sure to be controversial. I have edited some typos in the first few paragraphs, but no time right now to edit the entire essay.
The full report may be found at http://www.planck.org/.
The Credit Crisis joins the Energy Crisis: Creating the Perfect Storm
Amsterdam, October 18, 2008
Hereby I send you a copy of the first version of the Global Future Analysis report for review (as PDF attachment). It’s the version that was released September 23 in Washington. The GFA report covers the interfacing/interaction between the Energy Crisis and Credit Crisis, which both have taken the lead in the daily news worldwide.
The report analyzes/describes the causes/consequences/effects of both the Credit Crisis and the Energy Crisis and analyzes the enforcing powers (1 + 1 = 4) of both. Additionally the Water Crisis and its severe effects on food prices are analyzed.
The Global Future Analysis report has already got a load of testimonials from many economic/politic/scientific leaders around the world (some of these can be found on http://www.planck.org/testimonials).
The Energy Crisis has two huge effects: Energy will become much more expensive and no longer abundantly available. This is severe: we use energy for almost everything, so this has an effect on all facets of live. First it will give a reach/distance contraction within the economy (less transport and less mobility, due to high energy prices). Second it will (due to the fact that energy is used for everything), make everything more expensive.
The resources prices based type of inflation grows and given the fact that the economy doesn’t grow, stagflation (also called recession, but that’s the political failure word we don’t like to use) occurs. This was the trigger of the Credit Crisis: rising energy price that started to eat out the fragile payment power of households. By this the increasing home price engine stopped.
Big cars equal big gas bills. Big houses equal big heating oil bills. Big becomes more and more uneconomic. The heating bills of this winter will punch another hole in the mortgage payment capacity. Big houses give not only big mortgage payments, but also big energy bills. Our economies are built on $ 10 per barrel oil. High oil prices certainly give stagflation. We’re moving gradually to recession since the unstoppable rise of the oil price since 1991, anything since then was just built on credit.
We’re living in a decade in which 3 billion new customers with substantial purchase/payment power are entering the global resources/energy market. A never before seen event, which not only has sped up Peak Oil, but rather has given us PeakX. Resources will never become cheap again, caused by both declining supply and increasing demand. The economic effects of the Energy Crisis are severely underestimated.
The Credit Crisis has a capital contraction effect within the economy (as in: significant less market capital available). Less capital equals always less economy. So the Credit Crisis gives additional stagflation once again (added to the already by Energy Crisis caused stagflation). Additional the Credit Crisis causes a deleveraging of the money market: people/companies/investors turn their back to currencies, stocks and banks and flow to static/safe harbors like gold. The Global Future Analysis contains a lot of easy accessible/readable information and data on the Credit Crisis concerning both money creation and economic turbulence and stagnation.
The Water Crisis is still unknown in 2008. But in the Midwest of the USA, the South of Europe, China, large parts of Africa, the Caucasus and the Middle East is the Water Crisis becoming a huge facet of the economy. Water shortages in this regions certainly increase their food prices severely (Food Production = Water Irrigation), which has direct effects on the global food prices.
Robert, I give you some quotes from the first pages of this report: “It has been said that there are three types of people: Those who make things happen. Those who watch things happen. Those who wonder what happened.” – “You need to understand Currency, Credit, Minerals, Energy and Water. Watching the news without some basic knowledge of those five is useless. Knowledge of those five make History, Present and Future clear to you.” – “Food = Soil + Carbon Energy + Water. Economy = Production + (Currency * Credit) – Cost (Minerals + Energy + Water). Wealth = Economy * Geopolitics.” – “What people need to hear, loud and clear, is that we’re running out of energy in America. (George W. Bush, May 23, 2001)”.
The Global Future Analysis is very up to date. It even covers the current very dynamic credit and energy situation. Also the governmental bail-out fund of Treasury Secretary Paulson for bad bank debts that has no value any more. In this plan banks can deposit any in value declined CDO (currently only worth between 6% of their purchase value) and get paid almost the full 100% purchase value for it. Of course at expense of the value of the dollar. As in ‘bring any by your own drunk behavior crashed car to Paulson and he will give you a new one for free’. The fund is an emergency legislation and therefore without any the causes addressing regulation attached.
First deregulation was the main market signal: the government was not allowed to enforce healthy/simple/obvious financials regulations. Now the government must cover the damage caused by this lack of regulation. A strange combination of free markets ideology and governmental interfering behavior.
Don’t blame the bankers for being greedy; that’s there job/function in an economy, they need to be greedy, otherwise we would not have an economy. Blame the governments for the absence of serious/obvious/simple/tight regulations of the balance sheets, equity ratios, bonuses, auditing and rating of financials that hold other peoples (persons/households/companies/organizations) savings/pensions.
Blame the governments that were/are apparently too open for financial industry lobbyists and thereby dramatically have forsaken their duty in protecting private capital in financials. Freedom is certainly the main goal of society/economy, but the freedom to ‘can artist’ balance sheets with other people’s money don’t give freedom. Financials need regulations. Otherwise this is what happens. A sliding currency, a strong government, a weak economy, a lack of stability. Just some obvious regulation for financials ensures a stable society/economy for free.
You can’t have a well performing economy without free markets and free communication, good economies grow on these two. The 20th century has clearly shown that to the world. Governments are no markets and markets are no government. Freedom in communication gives a continuous flow of innovation, something the Staszi or its modern variant DHS can’t give at all. Repression of freedom and governments that acts as markets are the recipe for economic stagnation. Governments should protect freedom (not restrict it) and protect free markets (by fair regulation), not intervene in markets, because governments are the worst entrepreneurs ever and doing that become the worst governments ever. Governments should regulate freedom in communication and freedom/fairness of markets. Lazy regulators are heavy interveners. Double bad luck for the economy.
First the home prices had to be deflated (the CDO problem, current CDO value is B > C > A). It only enforce malfunction and fake Tire One capital statements. A governmental guarantee covered loan can be noticed as Tier One (equity) capital in balance sheets. Shareholders know this and will not stop selling bank shares and bank bonds. Bank balances sheets are cooked and will be cooked even further by this.
Giving a blank check to banks equals giving your kid your a creditcard to buy ‘something’ ‘sometimes’ in Toys”R”Us, they overdraw it severely in no time and by the blank guarantee model there is not even a meter/counter attached to it. This is no problem addressing, this is problem multiplying. Fighting fire with even more fire. Due this blank guarantee the banking crisis, now will give also a governmental crisis as bonus. One problem becomes two problems. Stop bank failures is ordering inflation. The money is already gone, that’s something governments doesn’t understand. This is just ordering total collapse of everything, the end of civilization. Collapse of a bank is just attaching balance sheets with reality. That’s something governments doesn’t understand. No value is lost in failing, that has happened earlier.
Governments certainly can regulate markets (they certainly should do concerning the balance sheets of public companies like financials), but never power markets (as the real economic power is in markets). Markets and governments are two completely different models. Mixing these two (regardless from which direction) is certainly getting low quality economic output/performance. History has proved it. Both markets and governments should (in separate functions/targets/methods) clean the economic system of bad behavior.
Urgent bad situations always lead to high speed bad legislation. That was after 9/11 the case (the Patriot Act that puts the Constitution and the Bill of Rights in the trash bin) and that’s now the case again. Due to the 9/11 caused Patriot Act there was already a big freedom deficit in the US, due this Paulson legislation a financial czarship is realized. The USSR (the government was the economy) was certainly not the best performing economy: stagnation was everyday’s reality. That’s something Paulson unfortunately apparently quite don’t understand. Congressman Burgess (R-TX) asks the Speaker of the House to post the bailout bill on the internet for at least 24 hours instead of passing the largest piece of legislation in US financial history in the “dark of night”. Unfortunately this wise RFC (Request for Comments) move isn’t been taken. Congresswoman Kaptur (D-OH) also has said some severe wise things on “in the night” forced legislation.
The Paulson Plan is an insult to the free press and journalists (ban on research). The Paulson Plan is an insult to share-owners of the financials (total legalization of complete fake balance sheet assets). The Paulson Plan is an insult to justice (total immunity, the best illustration that we’re one inch away from an authoritarian government). The Paulson Plan is a definitive goodbye to the free/open/fair and best performing market driven economic system. The Shock Doctrine of Naomi Klein is becoming a scary real facet of government.
Paulson has worked for 30 years as an executive in the financial industry (Goldman Sachs). He hardly can be called objective. Trickle ‘just’ huge loads of capital down is not the way, the capital will not reach it designed destination. A bailout is certainly not the only solution, although it’s ‘sold’ to us that way. It’s even no solution at all, it’s just a temperately bandage. It doesn’t clean out the system, doesn’t fix any courses, it extends only mal-function. The bail-out with out cleaning-out is quite an illusion, and just will maintain the problems we have. We are taking backwards the risk out of the marketplace, destroying the cleaning system of free/open market capitalism. Why was AIG saved and Lehmann not? Open fair healthy capitalism and closed selective bailouts doesn’t go well together.
It’s a total underestimation of the problem and thereby misconception that someone out of the financial industry can clean up the economic mess this industry has caused. They should choose a CEO of a production and/or energy company to do this, than they now it would be a real clean-up. Paulson fights fire with fire, only causing more fire.
An other facet of the Paulson Plan is that the government by this plan further (even more) consolidation of the financial industry stimulates, while this is just the problem. Most European countries has banks within their borders that have bigger liabilities than the GDP of their nations. We don’t need companies that are too big to fall. Big equals not good functioning, bad managed, not controllable and totally not auditable. We need a fair comparative market with thousands of market players. And if then one fails, we let that one fail and ensure the savings by the FDIC guarantee system. To big to fall institutions are a real threat to free/open market capitalism. The 21st century will say goodbye to big as the 20th century said goodbye to communism.
Of course we must guarantee the savings/pensions of households/companies who have build our economy by working really hard to earn it. Of course there was a problem with rare mortgage constructions that were only based on increasing house prices, but the problem is far beyond sub-prime. The basic problem is declining payment power in the US economy. That we must try to solve. Severe higher costs o living/production due the Energy Crisis, automatically gives a Credit Crisis. Costs/profits are the real problem, subprime was just the first weak part that came to the surface. We must reinstall payment capacity of the US households/companies. This earned money must percolate up, that’s the way. But we must not reward speculators, by bailing them out.
The real problems are both payment power and weak regulation (balance sheet, equity ratios, auditing and rating). Governments can only regulate, but never empower markets. Paulson looks too much to China. China doesn’t perform well due its strong government, but China has started to perform very well since the market was put in place as economic engine. The financial system just/only needs strong balance sheets regulations. Without simple transparent balance sheets regulations it’s one big Las Vegas industry on other peoples/companies/nations expenses.
Robert, Kerviel (the SG trader who lost $ 7 BN, what was just some months ago still a huge number, but now considered just a small amount as we have switched from billions to trillions without even knowing the beyond imagination size of a trillion) is only a small town player compare to Paulson. This big figure gambling can only lead to a disconnection with the rest of the world economy for the US, UK/Europe and Japan.
The Euro and the Yen have today the highest possible dollar reserves ever. Certainly since their massive support of the dollar of the last month. The Central Banks of Europe and Japan thought that they could fix the US problems overnight in buying lots of dollars since mid July till mid September. Quite an underestimation of the width/size/dept of the US problems and also a threat to the health of the Euro and the Yen.
Paulson just only helps his friends in Wallstreet to recover their loses in the last 100 days of this Administration and than will leave without realizing any structural change. Who ever maybe the next President, he inherits just a broke federal situation and a totally disappeared global goodwill by the lost of savings/pensions worldwide, in a by energy prices in stagflation severe down-turned economy. Only smart and honest politics can create a way out of this: building vibrant local low energy based prosperous economies with new élan. Unfortunately neither both the two candidates don’t understand both the Credit Crisis and/nor the Energy Crisis. The next President could be the last President of the USA. If he can’t solve the budget problems, the dollar will fall and federal USA will be history: all the States will become independent nations.
The US economy is for almost 35 years each years more powered by consumer spending than by production. Credit was the name of this game. Take an average of $ 10 trillion as GDP on only the last 20 years, take a minimal 10% overspending percentage. This 10% is low, in 2007 the US economy was 72% consumer driven, instead of 40% consuming and 60% producing as it should be. So the problem is 20 years long at least 10% GDP big, as in 20 * 10% * $ 10 Trillion is $ 20 Trillion. A huge problem even by taking only 20 instead of 35 years in this calculation and taking only 10% GDP too much consumption instead of the actual 30% GDP too much consumption in this calculation.
The cause of the current problems is not a load of worthless CDO assets on the balance sheets of the banks. Nor it was the fact that the house prices could not rise for ever (those who aspect this were not very intelligent), nor the non-fixed-rate interests (was guaranteed asking for problems, but was ‘covered’ by the unreal believe in never ending house prices rise).
The main cause of the Credit Crisis is not having a production based economy anymore, but a credit based economy. Too much money by too low interests in combination with too less regulation (as off balance equals off sight). A good benchmark for the depth of the problems: a nice standalone house in the USA can be bought for $ 30.000, just 2 years ago this was five till ten times more. This illustrates that CDOs that covers the area from 50% till 100% of the mortgage doesn’t have much value anymore. Payment power was based on house price rise. This ‘payment power’ is gone.
The making consumption more important than production road was not a very long lasting road. It never is. It can’t be. Someone somewhere has to pay eventually. Too less production (related to severe consumption) is the real problem of the US economy. Building short sighted economic not sustainable on credit based prosperity, that has finally found its dead ended street and crashed into a wall(street). And than the Energy Crisis came also to the surface, eating out company/governmental/household budgets/payments power severe in MainStreet by the high energy prices.
But the problems of the Credit Crisis are much, very much bigger than the limited size of the proposed Paulson Fund and also are originated much more deeper than ‘some’ huge bad CDO assets. The problem is beyond sub-prime and/or alt-a/near-prime. Paulson will go into the history books as 1) someone who don’t understand the real size and causes of the problem and 2) someone who want to be the most rogue trader ever of the biggest governmental funded hedge fund ever (Max Keiser) and 3) someone who don’t saw the effects of the Energy Crisis on the Credit Crisis (less payment power everywhere). Ronald Reagan’s favorite laugh line was telling audiences that: “The nine most terrifying words in the English language are: ‘I’m from the government, and I’m here to help.’”.
The future economic damage of the combination of both the Credit Crisis and the Energy Crisis will hit the economy even more severe. The already weak (mainly on credit based) payment power gets even worse. Due the combination of the Energy Crisis and the Credit Crisis the $ 20 Trillion damage score of the Credit Crisis gets even more.
America is not only addicted to oil (G.W. Bush in his State of the Union address in 2006), but also addicted to credit (something the next president certainly will say in his State of the Union address in 2009). It’s sad that governments doesn’t understand the huge impact of the Energy Crisis (they still plan new roads/airports/harbors, without seeing that fossil energy on which transport and mobility both depending is running out) and Credit Crisis (they don’t see the causes -consumption instead of production and more expensive energy/minerals- and thereby they don’t oversee the scale of the problem and think some buckets of water will extinguishing this massive fire they don’t overlook at all).
There are better solutions. All the options and the consequences are listed in the Global Future Analysis in the Proposal section. Solving the problems, not deepening them. Financial chaos is something almost nobody wants, because then there will be many losers and only a few winners. Any solution that doesn’t support the US her production (but deepens the US debt) is just a temperately solution: like a boomerang it will come back if the solution not the production of the US parallel will increase (which is the only real solution, not a covering bandage). The combination of solving credit problems, responding to energy problems and restoring US production are the three characteristics of the Planck Proposal: voluntary convertibility of bad debts against ‘Made in the US’ production.
Robert, only production gives real payment power, that’s something the US economy now learns the hard way. Increasing production is not easy in these new times of expensive energy, But 1 to 1 combining the bail-out with production increasing (voluntary convertibility of debt against ‘Made in the US’ production) could do the job. Otherwise it’s just more money creation and thereby oxygen for the inflation fire (that already burns very heavily due to energy/mineral price rises). Inflation is the daily silent thief in the night, the invisible tax, the savings/pension crusher, the future decliner. You don’t fight fire with fire, that’s something firefighter Paulson doesn’t understand. He makes things worse.
One huge bright spot in this all: The Energy Crisis certainly will ‘bring the jobs back home’. The on globalization based production model is designed in times of a $ 10 per barrel oil price and doesn’t work in a $ 100 or even $ 150 (or higher) per barrel oil price. Also long distance travel will decline (stimulating the national leisure industry). Air travel, air transport, road transport and commuting are the 4 facets where we will see the effects of high oil prices instantly. Local is the king of the 21st century.
The current debt/credit situation is very bad for the US position/image on the global markets. From strong, leading, free and envied by all nations, to debtful, weak and a huge debt/currency problem for all nations. From cheerleader to drop-out, in just a decade. The commentary in the overseas edition of the People’s Daily, which is the official newspaper of China’s ruling Communist Party wrote September 17, 2008: “Threatened by a ‘financial tsunami’, the world must consider building a financial order no longer dependent on the United States. The collapse of Lehman Brothers Holdings Inc may augur an even larger impending global ‘financial tsunami’.”
The debt is not good for America, nor for the Americans, it’s the end of the positive empire. The USA has had a head start never seen before in history, due the fact that the dollar was the global reserve currency and our leadership. The best example of our leadership can be found on http://exchanges.staging3.getusinfo.com/ivlp/alumni.html: we have educated 66 of the current world leaders and they understood our principles and interests. “Sixty-six (66) Chiefs of State and Current Heads of Government are International Visitor Leadership Program Alumni.”
The Western World had it very well, but it wasn’t enough, so we’ve overplayed it severely. Our not sustainable greed has undermined our long term prosperity. We had tailwind and power. Both needs wisdom, not rogue greed. When the losses of foreign banks/pensionfunds are determined by their US/UK and/or dollar/pound exposure/assets, you know the US Empire and also the UK have lost their glory.
The Western World is going literally broke in high speed. Caused by a strange combination of 30 years cheap oil (that feed long distance production) and self-over-estimation (or others-under-estimation). The neo-colonial arrogance that has feed the illusion that the ‘other’ people not only were cheap and certainly more stupid, respect for the ‘other’ people (Asia and Russia) was absent.
The West thought they had ‘a knowledge driven economy’, but this has proven to be a misconception. A late but huge price on colonial thinking. The ‘other’ people were as smart as us, worked harder than we, and were satisfied with 25% of our wages. The West for sure has lost the technology and the banking sector (ask any official of Cisco or Philips, just ask any banking official). The two pearls that made us think we’re better than ‘them’. We have hurt our current situation and our future by our arrogance. The only bright spot is our individuality. That’s an unique asset caused by the Age of Enlightenment that certainly feeds innovation. The only head start we have left. All other head starts we ruined ourselves.
There is always somewhere an end to any debt stretch capacity. And that end is a gigantic inflation that just blows-up savings, pensions and currencies. Huge debts are not solved by creating even bigger debts. Or we think that we never have to pay our debt, or we dislike our own children in giving them the burden of our spending.
Financials holds other people’s savings/pensions. If they can’t trust the reported balance sheets of financials, they’re left in de dark and abandoned by their government. The problem is a severe lack of transparent balance sheet regulation, bonus regulation and independent/objective auditing, and independent/objective rating. Banking is about mutual greed. No problem: greed is ok: it drives our economy, gives us prosperity, gives us return on our savings. Financials and their management must be greedy, that’s what drives/powers the economy. But governments must ensure balance sheets, bonuses, auditing, rating by regulation, that’s what gives economy stability. Than we have the best of both worlds: profit and stability.
The bonuses of the financial executives are a story on their own. Their current bonus structures act as a severe risk magnet. There is a need of a new bonus system with a long term (more decade than quarter based) structure. That keeps the management’s focus completely on sustainable business practices, than they don’t take risks that will harm their own payments. When Grosso as CEO of a public exchange give his self a $ 187 million bonus, we should know that the system severely was derailed. Money has less value, billions has become small numbers.
We must certainly not extent the life time of wrong systems by expensive bail-outs. Capitalism is about success and failures. Capitalism is self-cleaning. Giving failures chances is creating more failures. There is no benefit at all in keeping the problems longer alive and give them the chance of even growing bigger. We must prioritize the cleaning of the system. Than maybe we can bail-out where needed. Ensuring peoples savings/pensions is good, starting with good regulation. With out a cleaning of the system, the problems only will get bigger than they are today. Pushing the pain to tomorrow is tempting, but certainly will make the pain only bigger/longer/deeper.
By fair/open capitalism the best performers win, by closed/not-fair capitalism some white shirt can artists take the savings/pensions from the real wealth creating companies/people/households. Financials really needs fair/transparent/objective balance sheet, bonuses, auditing and rating regulation. The people who take the risk of putting their money in a financial should be protected, not reversed too late by governmental bail-outs, but just by a good (as in simple but effective) regulation.
Debt is/has no future. Debt is a failure. Debt has its price: becoming a second grade nation. Capitalism needs to revitalize itself, get out debt, not by new tricks, but by production. What is a more obvious illustration than the fact that the Communist Party of China has become the largest financer of the gigantic US debt: capitalism consumerism kept artificial alive by ‘inferior’ communism production. Just hoping/praying that China’s ruling Communist Party tomorrow will pay the bill off our consumerism focused party again: that’s the ‘power’ of US capitalism in 2008. Russia that bails out Iceland. Quite a situation and an outlook. We have faced (besides PeakEnergy, PeakX and PeakSize) PeakCredit in the Western World. A severe change of geopolitical power fields caused by debt.
We all thought that the decline of the West and the rise of the East would go gradually and would take a period of 20 years. The reality is that the Old West has celebrated a big prosperity farewell party initiated/hosted by the USA. The new (totally overlooked) global players will be India (software and officework), China (software and technology), Brazil (food), Gulf (energy) and Russia (food and energy). Real production is real/sustainable power. Credit is just short term driven policy. Credit can be used to build production, but when it’s used to consume, it’s fur sure purchasing deep trouble.
The current Chinese Government (which has funded this western economic party) severely will not survive a $ 2 trillion foreign asset meltdown. China than certainly will fall apart. Without this capital drain threat already 40% of the Chinese Nation is influenced by independent movements. The central Chinese Administration will collapse as the dollar collapses. But the Chinese Regions will survive on their own. There is no other region in the world that has such a comparative technological Research and Development power as China. China is intelligent, hard working and has lower costs. Trade in technology will survive the PeakEnergy period.
Capitalism need to catch up in real economic strength (less tricks, more production) and not go any further on this wrong debt driven way. Debts limit our future. We need production based prosperity. Inflation free prosperity. Based on the new 2008 settings of expensive energy/minerals/food due to PeakX (due to the fact that 3 billion new consumers want also prosperity). The 21st century needs new concepts, pretending we can go on this way is not only stupid, it’s simple not possible.
Capitalism in de developed world surely needs to leave the fractional banking based system of money creation. This as this system only can exist by endless growth. Fractional banking needs on macro level a continuous low of new loans to create the money to pay interest on the old loans, as the money to pay the interest on the loan is not created on the moment of loan creation. We’ve reached the limits of growth in both credit and energy/resources. Stable high wealth levels and fractional banking are mathematically not compatible. We need to learn that prosperity is not only GDP, but also has an immaterial facet. In a world with material limits, well-being will become as much important as GDP. Endless growth economics on a finite planet is not an on situation/economics reality based option. Exploring/using the potential of one finite/limited world for maximal prosperity will be the slogan of the 21st century.
It’s a pity that neither of the Presidential Candidates understands both the Credit Crisis and the Energy Crisis, nor has any clue of policy to address it. These two developments that will shape the next decade of the USA, are developing ‘in open space’ further/wider without any presidential policy/leadership.
The Global Future Analysis describes solutions for the Energy Crisis, the Credit Crisis and the Water Crisis. The current bail-out will not solve the Credit Crisis, it’s just throwing ‘a little’ good money into a huge bad money swamp. The problem is the wrong direction of the American economy, and that’s something that will not change by this bail-out, the economic health of the USA even will be worse by this bail-out. It’s giving a heavy coughing smoker just more cigarettes. It’s like paying the guys who has kicked out all the glass out of all the windows. Bail-outs without any structural change it will lead to nothing than more problems. And yes, Obama has a point when he said that mortgage bail-outs during the ’30ties has proven to be successful. But that were other days than today: Back then there was no Energy Crisis that put restrictions to growth, something we certainly has now.
The Global Future Analysis describes concerning the Credit Crisis also a final bail-out (better said: a final 21st century economic blueprint) that combines tight and transparent financial balance sheet legislation, massive FBI investigations on fraud by financials, an end to fractional based banking (as no longer valid in a world with growth limits), abandoning of the FED (as it’s just a wrong a private cartel of 12 stakeholders, that only has a federal label, but isn’t more federal than say Federal Express and never has been audited once, which has a license to create money out of nothing and lend it with interest to the government), back to full federal state owned ‘fiat based’ dollar (as the dollar already is), a yearly budget limitation amendment to Constitution, abandoning by legislation of all fancy statistics and the conversion of old foreign USA debt to actual ‘Made in the USA’ products.
On other issue is that there are too much houses anywhere in the USA. House prices are 100% connected to local market demand. So maybe some (smart/rich/hard-working) immigration will make the housing market healthy again (as it will push up the demand for houses). Towns/villages should have the right to ‘import’ the kind of inhabitants they need. Than America can have its second 1908 boosting period again. But unfortunately the image of the USA in the world is currently severe damaged.
Freedom accumulate directly innovation, it needs to be restored first in the USA. Less DHS-Big-Brother-in-the-USA, more Freedom-in-the-USA. One single act of terror can’t be the cause of state based/originated freedom-limitation. There is a brain drain out of the USA, similar as the one that happened in the ’30ties in Germany. Great brains don’t like a climate of freedom restrictions. Freedom has always attracted the great brains of the world. Freedom limitation equals economic/innovative decline. The roots of the USA are one 100% based on freedom desire.
The USA can maybe also be diagnosed as addicted to war. But war is just ‘old-school’ 20th century economics. War is only beneficial for some companies, while the rest of the nation pays the price by less exports, less tourism, inflation and blood (and as bonus: the counterparties start hating the US severely for generations to come). These war beneficiary companies have a way to huge influence on the US administrations. First making a profit in demolishing everything and than making a profit in rebuilding everything. Conducting two wars (Afghanistan and Iraq) the same time was maybe not the wisest decision of this Administration. Stopping both wars lowers the oil price instant with at least $ 15 per barrel. That’s something every American household and business profits from directly. War put upward pressure on global resources prices (the first price of war).
Destroying property (the second price of war) by expensive weapons (the third price of war) is double negative economics that tax the wealth of the world severely. The by local contractors build border control posts in Iraq are build for $ 30,000 and are all quite a time finished, the by international contractors build ones have cost $ 300,000 and are still half finished. The US administration should reconsider its war addiction and the corporate influences that stimulate this war addiction. These mainly governmental contracting focused companies are too bad in performance for functioning in a free open comparative market. These war stimulating companies are just the robbers/parasites of global prosperity/stability.
War also doesn’t give much real friends (the fourth and most severe price of war). When resources become scare and therefore the granting distribution model is put in place above the price based distribution model, the USA will need real friends. Friends by choice/heart, not friends by force/repression. Friends by force are not real friends.
Of course the biggest (fifth) price of war is that hundreds of thousands workers are redraw of our economic production. The economic effects off this are severely underestimated. And the veterans? They young guys that have gone through very impressive situations? The economic/societal price of their re-socializing to normal workers again has never been calculated (the sixth price of war). We fighting this wars on expenses of our children, that’s maybe the most wrong part of this all: the loans we take for these wars must be paid back (with yearly interest) by our children (the seventh and eighth price of war).
Offensive foreign policies (also called war) is bad economics, it only can be practiced by nations that has access to too wide credit lines. The last real big war profit in history has been made by Germany as they seized all the national reserve gold of the West European nations in WW II (which the BIS then against a margin has white-washed for them). After that event, no nation ever has made any profit on war. War is just mutual destruction of capital/prosperity. From an economist’s point off view: War without robbery just equals economic decline and waste of resources.
US economists have severely failed in just calculating the economic cost (and production lost) of conducting two expensive wars the same time. The reason? Because DHS could consider this un-patriotic research? Calculating costs is the only way to stay in business. DHS should honor the brave people who calculate economic impact of conflicts on the US. These economists would contribute huge to the economic facet of homeland security.
What about this CBS News address of Donald Rumsfeld on September 10, 2001 (the day before 9/11) where he literally said that the Pentagon has lost track of $ 2.3 Trillion (http://www.youtube.com/watch?v=AMVM5XNdYo4). This is 25% of all recent military budgets and $ 8000 for every American (without the yearly interest surplus). How long can we go on thinking money is so completely worthless and the world is willing to lend us as much as we needed? Or have we started printing money to fast and are we already heading towards Zimbabwe-like inflation? Is this over-printing of money the reason why the FED has stopped publishing the M3 (money creation) statistics in March 2006?
Conducting two wars the same time is a severe blood drain of US prosperity. No an anti-war feeling, but a severe we-go-broke feeling. Who is capable to teach our Federal Government just normal balanced economics? You can’t lower taxes, conducting two long wars and bailing out the financials the same time. Lowering taxes is right: it gives people payment power for their home/energy payments/investments. Investments in domestic decentral energy harvesting will make the US household financial healthier. But just make some simple fair regulation for the financials and stop fighting two long wars. Then America will get payment power again. National payment power is real power. National credit lines are quick sand debt based power, on a very short leash of only 3 weeks Treasury liquidity.
On Wednesday, September 24th, right in the middle of the fight over billions of taxpayer dollars slated to bail out Wall Street, the House of Representatives passed a $ 612 billion defence authorization bill for 2009 without a murmur of public protest or any meaningful press comment at all. The New York Times gave the matter only three short paragraphs buried in a story about another appropriations measure.
The Global Resources Analysis Situation 2008 (http://www.planck.org/downloads/Global-Resources-Analysis-Situation-2008.pdf) describes these developments very good. South America is a perfect example: due events that happened in the past they rather sell their energy to China than to us. The USA has lost South America as supplier of scare commodities, this is not good for our future. War addiction is a big threat to the US future. Both from budgetary and resources deficit perspective. The world approves the US war focus every year less, but on the other hand they fund it by buying Treasuries. So there are more parties to blame than just the US administration.
And of course America needs to re-think severely her energy use, which has become a too heavy economic load. As only 4% of the world population uses 25% of the world energy, this 4% better has good purchase power or cut its energy use as soon as possible very severely. As national fossil resources declined, fossil energy has become the capital drain of the USA. More energy use was equal to more prosperity. This has changed. Today less energy use equals prosperity. A structural change. Maybe capitalism doesn’t need reforms (just some financial balance-sheet, bonuses, auditing and rating regulation), but our energy use is what needs major reforms to maintain payment power (= sustainable prosperity).
We don’t need a financial focused master plan. The financials just must take a hair cut. A bank crisis we will survive, without any underestimation of the size of the problem. We need an energy generation/conservation/reduction focused master plan. Just because that without energy everything (as the whole economy at once) will stop. An energy crisis our economies will not survive.
National leaders have shown their short-sightedness once again. Laissez-faire (just let it go) of a few was considered as a bright policy in protecting huge economic interests of us all. First not regulating institutions that holds other people’s money and if these institutions fail just ad-hoc bailing them out. Just addressing that what demands attention by lobbyists instead of addressing that what needs attention. We need leaders that don’t address the storm of yesterday (the credit damage is already done), but address the storm of tomorrow (the energy damage can be prevented).
Governments in the developed world really face a turbulent period where their credibility is at stake (or poetically: unter siege). If people/companies will loose their savings/pensions due financial can artists with big bonuses, or due inflation caused by bail-outs they will absolutely loose their faith in national (as in: long distance) governments.
Energy prices, shortages and blackouts are the main thing governments should address in 2008. By a master plan, local, regional, national, continental and global. Geopolitical no need for any force, just a need for stimulation of each other. It’s time for leaders who has a helicopter view and who are not accessible for the huge forces of lobbyists and take care of the real crucial issue: energy generation/conservation/reduction. We need to address the taxation of energy on our prosperity today, not tomorrow.
Planck Foundation supports by its Analyses, Models and Facilities a massive revitalization of local economies as the valid/best solution/response to both the Energy Crisis and the Credit Crisis. A solution that mathematically certainly has the best odds in maintaining prosperity as energy becomes expensive and global credit get scares. Vibrant Local Economies. Local Prosperity will be the Economic Model for the 21st century.
The Global Future Analysis is a shortened (actualized and not illustrated) text only version of the Global Resources Analysis Situation 2008 (ISBN 978-94-6012-002-2). That forerunning report has had more than 350,000 downloads and more than 1,900,000 readers -due to third party forwarding- since April 2008. The Global Future Analysis (ISBN 978-94-6012-001-5) has also a commercial bookstore paperback version which is available globally. The name of the commercial version is ‘the Perfect Storm: when the Energy Crisis joins the Credit Crisis’. But some national publishers has named the book “The end of globalization (as we know it).” or “Blueprinting the 21st century.”.
Further build on the information/conclusions gathered for these 2 Analyses Planck Foundation is currently creating 12 Generic Models that can lead/support governments/companies in initiating the actual needed changes: These 12 Models are: the Action Model, the Communication Model, the Localization Model, the Production Model, the Mobility Model, the Transport Model, the Currency Model, the Privacy Model, the Peace Model, the Political Model, the Knowledge Model and the Finance Model.
Planck Foundation will beside these 2 Analyses and these 12 Models, also develop a wide set of digital communication based Facilities to support both the local/regional/national and the sector/technology focused Future Development initiatives. There is no doom scenario/conclusion to find in both Analyses, just realistic awaking analyses. For each recognized problem there are at least some solutions defined/researched.
Robert, Planck Foundation its final goal is the stimulation of and support for a huge/wide Global/Local Development Movement for local/city/municipal sustainable prosperity. Vibrant local prosperity is certainly the most prosperous perspective in times of expensive energy. Facilitating the businesses, inhabitants and counsels of every city/village/municipal/region/nation with these digital action/knowledge/communication Facilities. That’s our ‘Think Global, Act Local’ response to the Credit Crisis and the Energy Crisis. At Planck Foundation we have (based on the results of our energy/credit research), chosen Global/Local Development to be our main subject for the next years. Finding not difficult to realize solutions, building knowledge networks of specialists, stimulating initiatives and creating supporting digital facilities.
Planck Foundation is dedicated to support governmental/corporate/municipal strategy in a changing world. Therefore universities, economic/political/environmental organizations, companies, schools, media publishers and website publishers may run (for example in a 2 week during subject per day run) partial chapter or subject sized copies of the Global Future Analysis texts and/or distribute the PDF files without asking for approval, if the source is mentioned and texts are not changed.
More high resolution versions of both the Global Future Analysis Fall 2008 (http://www.planck.org/downloads/Global-Future-Analysis-Situation-2008.pdf) and the Global Resources Analysis Situation 2008 (http://www.planck.org/downloads/Global-Resources-Analysis-Situation-2008.pdf) can be downloaded at http://www.planck.org/.
The Global Future Analysis has a 1000 to 1 knowledge ratio: 1000 hours of research for 1 hour of writing. It also contains very actual information (as it’s kept up-to-date weekly). On http://www.planck.org/testimonials you can also find many testimonials of many quite important/impressive people and/or leave your own testimonial behind.
Due the fact that technological developments can help us all in addressing the Energy Crisis and the Water Crisis, we’re one of the founding funders of the GrowOS development. GrowOS is an open source agricultural operating system, which interfaces between greenhouse technology and greenhouse ‘crop profiles’ (the best technological settings for a crop: best farmers knowledge digitally caught in a digital settings file). GrowOS is in initial/developing phase by GrowIndus (http://www.growindus.com/). If you want I can send you a PDF describing this technology. Due to GrowOS further food production can be done local (even under cities) in a low energy, low water and low space demanding setting.
Also look into the T. Boone Pickens proposal for re-energize America: http://www.pickensplan.com/. This old style Texas oil baron understands really PeakOil/Gas/Coal, the benefits of WindEnergy and the exporting wealth facets (trade deficits and foreign policy) of oil imports. They should give him the Nobel Prize for this nation/industry/economy changing effort. On the other side of the world, the Chinese government has also made in September 2008 a definitive choice for sustainable prosperity as the most wanted/economic direction for the 21st century. Vibrant local prosperity based economies have the best energy/prosperity ratio.
Robert, if you want to distribute this mail or the Global Future Analysis and/or the Global Resources Analysis: you’re of course free to do so in any digital way, even by a simple forward action of this email to relations. Become part of the Future Movement in the economy/society. For yourself, your family, your community/city and your nation.
John La Porte
PS On January 21-22, 2009 the congress “The Permanent Oil Crisis” (challenges and opportunities of economic production in a world with tight oil supply), will be held in Amsterdam, Netherlands, with some very clever governmental/economic/industrial/scientific leaders on the podium. Maybe attending and/or exposure on this congress is a wise decision for concrete future planning (http://www.permanentoilcrisis.com/).
17 thoughts on “The Credit Crisis Joins the Energy Crisis”
Ho hum! Perhaps someone should remind the Planck Foundation about the value of conciseness.
I only had time to read the first few paragraphs but it got one think horribly wrong. Subprime mortgages had low teaser rates which later increased beyond what subprime borrowers could pay. High energy costs were a small factor relative to losing jobs and higher payments.
My comment, perhaps orthogonal to the above piece, is that it is the wrong time to look at the economy through energy goggles.
As I said in the other thread, economy and debt became more interesting to me than oil and energy, starting about 18 months or 2 years ago.
The REAL crisis ended up being financial and not Peak Oil in strong or even weak form.
Sure, the credit crisis will shape energy policy going forward, but let’s not think one kind of crisis is the other. Nor should we cater to the doomers out there who absurdly see an unrelated credit
crisis as one more sign of their apocalypse.
High energy costs were a small factor relative to losing jobs and higher payments.
Umm, yeah you need to read more as you missed the broadside of the barn !
I think the reason for the credit crunch is squarely down to the unstable mountain of risky debt that has piled up. Now like a pencil standing on it’s end, a small gust of wind will blow the pencil over. So is the cause of the collapse due the the gust of wind, or the fact that the pencil was balanced on it’s end?
BC, you can back up from the risky pile of debt to the global pool of money that was looking for returns.
If you haven’t listened to the two This American Life pieces on this, I recommend them. A fantastic use of radio to explain:
The Giant Pool of Money
Another Frightening Show About the Economy
The article starts with two enormous, unrealistic claims: that the Energy Crisis will generally and permanently make energy much less affordable and scarcer; and that the Housing Bubble was popped by energy costs.
I stopped reading right there – it clearly wasn’t worth my time to wade further into it.
Kinu: For once we agree. I hoist a beer in your direction.
What is this blabber, RR?
And if energy prices were the major driver of the recession-financial bath, then problem solved. Anybody notice where oil and other commodities are now?
Actually, I am hoping there is some good news out there.
Going forward, housing will be less expensive. Many household budgets will be loosened a little bit.
And, obviously, oil is half of its price peak, and a strong case can be made it will be years and years before another run-up.
Look at the oil price spike of 1979-80. Demand fell by 11 percent globally (there was a global slowdown), and then oil prices cratered for a decade — and ultimately hit bottom 20 years later, in 1998-9.
So, for many, housing and oil will be cheaper in next five years than last five years.
The other goods news is that the world still generates lots of capital to invest, from pension funds, insurance cos., sovereign nations, Far East and Europe.
It looks bad now — but in a year or two, money will be invested again, and there is plenty of it. Energy and alternative-energy industries will get their share. An 80-mile PHEV might become a reality.
We have been through a confidence-sapping bout known as the Bush Administration. The long national nightmare is about to end.
I think either candidate is an improvement. We will muddle through.
Whoever wrote this doesn’t have much understanding of what’s going down. He’s just so wrong about so many things. Way wrong.
“Kinu: For once we agree.”
Actually, Benny, we agree on more than I let on. But it is more interesting to challenge each other to think than to slap each other on the back.
For example, how will a period of low oil prices & excess conventional vehicle manufacturing capacity help expensive Plug-in Hybrid Electric Vehicles? Some have speculated that the ideal Saudi price profile is mostly high with occasional dips to low prices to shut down alternate energy.
And the game may change quickly. Look at the factors — low oil prices; an unusually cold upcoming winter (thanks to Anthropogenic Global Warming, of course); a probable future US President who will abandon any ally at the first sign of trouble.
We may be approaching the perfect time for Russia to make its predictable & very reasonable demand — EU governments should rebate back to Mother Russia part of the high taxes they take on products from Russian oil. Simply so that Russia can continue to invest in providing the gas & oil exports on which the Euros depend, of course.
Six months from now, the "Credit Crisis" may look like the good old days.
I don’t know if yu are still reading here as there is a new RR post, but I am also wondering if the PHEV, and especially the GM Volt, are going to get whacked hard.
We could see $1.00 gasoline again. Maybe not, but possibly.
I hope this credit crisis is easing. The interesting thing about a credit crisis, is that it is entirely a manmade problem. Crops are not failing, factories still work, our power plants are in place.
In short, we did this to ourselves somehow. That being the case, we can fix it. I hope.
Perhaps someone should remind the Planck Foundation about the value of conciseness.
Amen to that!
Never trust an analysis that sticks to the theme of the sky is falling! without acknowledging pockets of good news, in a sea of bad.
Major disconnect at the start of the write-up: if the global economy is heading for a recession (not the same as stagflation, BTW), demand for energy will be lower, and energy prices will come down – as is already happening.
Also, PeakX (like Peak Oil) is a bunch of horse manure: take Peak Water as an example. The simple solution to Peak Water: toilet-to-tap. As is already implemented in Orange County, CA, one of the more affluent parts of the country. Sure there is a yuk factor, but it is not hard to deal with: set water prices according to the free market, and watch that emotional objection wane. It would also encourage conservation.
The same model hold for any “X”: say iron – as iron become scarce, its price would increase and recycling scrap iron becomes a nice profitable business opportunity.
Energy is, of course, a bit more challenging to recycle, but a least high prices does lead to conservation, as we’ve seen.
I never trust an organization, or individual, who says: The sky is falling: You need to do excactly as I say… Ditto the Planck Foundation. There simply is no-one out there who has it all figured out, and hold all the answers. I much prefer a free market approach where some of us get it right, and some of us get it wrong. The market then proceeds to reward those who got it right.
The write-up is also full of contradictions: is China going to ride to our rescue, or get dragged down by our recession?
For all the hand wringing about the US’ loss of influence around the world: I note that there has been little talk of decoupling of late. It appears that the global economy still depends on the US for much of its health. I agree, it would be better for everybody if it was not this way, but as the last few weeks showed, that’s the way it is.
The reason? It’s the US consumer that keeps the global economy going, by buying all that *stuff* made in China. Take the US consumer away and all that production in China is not worth much. BTW, what the heck does he mean by getting out of consumption and into production? Doesn’t he understand that every producer needs a consumer, i.e. these are two sides of the same coin? Where did they get the ideal ratio of 60% production, 40% consumption? Who is going to buy the excess 20% of production? Makes no sense.
I do believe it would be much better for China in the long run, if instead of investing in US consumers, they kept more of the profits in China and increased their middle class (a.k.a. increase consumption). That would allow them to be decoupled somewhat from the US economy. It also has political ramifications, so don’t hold your breath.
I also think the Planck Institute is in for a major shock (and potentially a loss of money) if they are betting that high energy prices means the end of globalization. This local is better is romantic, but unrealistic. Take automobiles: how would you like it if Uncle Sam forced you to buy a Detroit3 (soon to be Detroit2?) car? May be great for MI, but the rest of the US loses. Car prices would surely rise dramatically. Quality? Service? Let’s not even go there.
High energy prices would certainly affect and shape globalization, but the genie is out of the bottle. It won’t be killed. And as I’ve mentioned, a global recession means we get a break on energy prices. Maybe we’re all in this together.
That’s all I can think of right now. If I read it again, I can probably add as many comments…
I don’t know if yu are still reading here as there is a new RR post, but I am also wondering if the PHEV, and especially the GM Volt, are going to get whacked hard.
The GM Volt is dead in the water, even if gas goes to $5/gal. If you care for some hard-hitting analysis, here it is.
A sampling: Editor David Sedgwick doesn’t pull any punches while slamming the Volt in a recent editorial. Sedgwick admits to “a queasy feeling that GM has painted itself into a corner by generating so much hype for a car that is too limited for most consumers,” noting that weaknesses in both price point and capabilities will limit the Volt’s effectiveness in the market. The price point issue is well documented, but the Volt’s performance is what worries Sedgwick the most. and
The post goes on to call the Volt’s iPod-ripoff interior “a little gimmicky,” and savages the Volt for not offering enough interior room for a dog. No word though on the Volt’s likely astronomical price-tag or government-subsidized production.
Bad news for Benny, RR and other lovers of EVs: Wild Ass Rumor of the Day: Tesla Dead?
Glimmer of hope? It’s still a “wild ass rumor”. FWIW.
Bad news for Benny, RR and other lovers of EVs: Wild Ass Rumor of the Day: Tesla Dead?
WHOOPS! I guess they pulled the plug on that one.
Tesla lives, for now. Stay tuned…
Here’s Thomas Friedman, of NYT fame, on the future of globalization: And, once the smoke clears, I suspect we will find ourselves living in a world of globalization on steroids — a world in which key global economies are more intimately tied together than ever before.
It will be a world in which America will not be able to scratch its ear, let alone roll over in bed, without thinking about the impact on other countries and economies. And it will be a world in which multilateral diplomacy and regulation will no longer be a choice. It will be a reality and a necessity. We are all partners now. emphasis added
Ditto for manufacturing, energy and everything else…
I liked reading it.
Maybe I will link to this on one of my pages.
Thanx for posting
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