Olduvaiblog: Musings on the coming collapse

Home » 2014 » March » 03

Daily Archives: March 3, 2014

Energy: Thriving On Five Percent?

Energy: Thriving On Five Percent?.

March 1, 2014

In Sharing Energy In The City, EDF and the the French National Research Agency (ANR) have challenged designers to rethink the production, harvesting, distribution, use, exchange and consumption of energy in our everyday life. They asked me to submit this text as fuel for the discussion.

3D Electric powerlines over sunrise

The modern city has been shaped by the availability of cheap oil and resources, and plentiful credit. Massive resource and energy flows have been used to build skyscrapers, heat and cool buildings, move and treat water, feed people, and move them and their goods around.

This expansion of cities involved the stupendous use of energy. Tom Murphy, a physics professor, calculates that  U.S. energy use since 1650, including wood, biomass, fossil fuels, hydro, nuclear, etc, has grown at a steady 2.9 percent. Those 360 years of more-or-less steady growth help explain why most governments and industries assume that this growth trend will continue as it has for centuries.

But will it? 10,000 years ago, a hunter-gatherer needed about 5,000 kcal per day to get by. A New Yorker today, once all the systems, networks and gadgets of modern life are factored in, needs about 300,000 kilocalories a day That’s a difference in energy needed for survival, between simple and complex lives, of 60 times – and rising. Does that sound like a resilient trend?

If you have a job, and live in a city, the signals of change be hard to see. City centers bustle, restaurants are full, and shop windows sparkle. But, like ghost images on the television, other realities impinge: Eerily empty railway stations; new-built malls that never open; well-dressed people at soup kitchens. These small signs are evidence of a system under extreme stress.

The world is not in danger of running completely out of oil. A lot of oil and gas remain in the ground and under the sea. But those reserves cannot drive growth with the same gusto as before. Today’s thermo-industrial economy grew using oil that, if it did not literally gush out of the ground, was easily extracted using oil-powered machines. In 1930, for the investment of one barrel of oil in extraction efforts, 100 barrels of surplus or net energy were obtained for economic use. Since then, that happy ratio has declined ten-fold or more.

The calamitous decline in net energy is one reason renewables are not the solution. Green energy strategies suffer from an existential flaw: They take ‘global energy needs’ as a given, calculate the quantity of renewable energy sources needed to meet them – and then ignore the fact that it takes energy to obtain energy. In Spain, for example, the Energy Return On Energy Invested (EROI) of their huge solar photovoltaic intallations is a very low 2.45 despite that country’s ideal sunny climate.

Our capacity to think clearly about energy is further handicapped by driving blind. In most economic activities, the energy that you can measure – such as the electricity used by buildings, or in an industrial process – is only one part of the picture. A new technique called Systems Energy Assessment (SEA) estimates the many energy uses, that businesses rely on, that are hidden. Phil Henshaw, who developed SEA, describes as “dark energy” the four fifths of actual energy useage that conventional metrics fail to count.

Eighty percent at five percent

When pressed, technical experts I have spoken to tell me that for our world to be ‘sustainable’ it needs to endure a ‘factor 20 reduction’ in its energy and resource metabolism – to five percent of present levels.  At first I believed, doomily, that Factor 20 was beyond reach. Then, by looking outside the industrial world’s tent, I realised that for eighty per cent of the world’s population, five per cent energy is their lived reality today – and it does not always correspond to a worse life.

Take as an example, healthcare. In Cuba, where food, petrol and oil have been scarce for of 50 years as a consequence of economic blockades, its citizens achieve the same level of health for only five per cent of the health care expenditure of Americans. In Cuba’s five percent system, health and wellbeing are the properties of social ecosystems in which relationships between people in a real-world local context are mutually supportive. Advanced medical treatments are beyond most people’s reach – but they do not suffer worse health outcomes.

Another example of five per cent systems that sustain life is food. In the industrial world, the ratio of energy inputs to the food system, relative to calories ingested, is 12:1. In cities, up to 40 percent of their ecological impact can be attributed to their food and water systems – the transportation, packaging, storage, preparation and disposal of the things we eat and drink .

In poor communities, where food is grown and eaten on the spot, the ratio is closer to 1:1.

My favourite five percent example – a recent one – concerns urban freight. In modern cities, enormous amounts of energy are wasted shipping objects from place to place. An example from The Netherlands: Of the 1,900 vans and trucks that enter the city of Breda (pop: 320,000) each day, less than ten percent of the cargo being delivered really needs to be delivered in a van or truck; 40 percent of van-based deliveries involve just one package. An EU-funded project called CycleLogistics calculates that 50 percent of all parcels delivered in EU cities could be delivered by cargo bike.

According to ExtraEnergy’s tests over several years, an average pedelec uses an average of 1kWh per 100km in electricity. Once all system costs are included, a cargo cycle can be up to 98 percent cheaper per km than four-wheeled, motorised alternatives. Some e-bikers reckon that electric bikes can have a smaller environmental footprint even than pedal-only bicycles when the energy costs of the food needed to power the rider are added.

You might also like:

  1. Energy: A Sense Of Loss Whenever electricity is transmitted from one place to another a…
  2. Design In The Light of Dark Energy [ This text is a shortened version of my talk…
  3. Could ‘green’ energy kill the desert? (Summer re-run: first published 22 February 2009) One of the…
  4. Is carbon-based energy yuppy crack? This article was written for Tornado Insider, the European business…
  5. Design and Energy: Thirteen Great Writers Including a physicist, a mathematician, an actuary, an ecologist, a…
Advertisements

Ousted Ukraine President Yanukovich Has Asked Putin To Use Military Force In Ukraine | Zero Hedge

Ousted Ukraine President Yanukovich Has Asked Putin To Use Military Force In Ukraine | Zero Hedge.

The headlines are getting hot and heavy now. Just out from Bloomberg:

  • UKRAINE CRISIS ‘BREEDING VERY SERIOUS RISKS FOR RUSSIA’:CHURKIN
  • RADICAL EXTREMISTS TRYING TO TAKE CONTROL IN UKRAINE: CHURKIN

And Reuters with the punchline from Reuters:

  • RUSSIAN U.N. ENVOY CHURKIN SAYS UKRAINE’S OUSTED PRESIDENT YANUKOVICH HAS SENT LETTER TO PUTIN ASKING HIM TO USE RUSSIAN MILITARY FORCE IN UKRAINE

What will Putin do if he still believes, as he has said, Yanukl to be the proper president of the Ukraine?

Ousted Ukraine President Yanukovich Has Asked Putin To Use Military Force In Ukraine | Zero Hedge

Ousted Ukraine President Yanukovich Has Asked Putin To Use Military Force In Ukraine | Zero Hedge.

The headlines are getting hot and heavy now. Just out from Bloomberg:

  • UKRAINE CRISIS ‘BREEDING VERY SERIOUS RISKS FOR RUSSIA’:CHURKIN
  • RADICAL EXTREMISTS TRYING TO TAKE CONTROL IN UKRAINE: CHURKIN

And Reuters with the punchline from Reuters:

  • RUSSIAN U.N. ENVOY CHURKIN SAYS UKRAINE’S OUSTED PRESIDENT YANUKOVICH HAS SENT LETTER TO PUTIN ASKING HIM TO USE RUSSIAN MILITARY FORCE IN UKRAINE

What will Putin do if he still believes, as he has said, Yanukl to be the proper president of the Ukraine?

Checking In On Peak Oil – Chapelboro.com

Checking In On Peak Oil – Chapelboro.com.

By Jeff DannerJeff has worked in both the chemical and biotech industries and is the veteran of thousands of science debates at cocktail parties and holiday dinners across the nation. In his Common Science blog, Jeff aims to make technological and scientific concepts accessible to all.
Posted March 3, 2014 at 9:23 am

In last week’s column, The Case of the Missing Propane, I explained how the widespread use of hydraulic fracturing (fracking) of shale oil deposits since 2008 has led to a 30% increase in the production of crude petroleum in the United States. While that statistic makes for snappy headlines, it is not particularly meaningful to the overall world oil supply or the phenomenon known as Peak Oil.

If you are not familiar with Peak Oil, I published a column in June of 2011 called Peak Oil in Five Paragraphs or Less. Here are the key points:

• Peak Oil refers to the time at which we reach the global maximum rate of oil production, which is followed by decades of declining rates of production.
• Due to oil’s pivotal role as a transportation fuel and (as I explained in Everything Comes from Oil) the key raw material for most consumer goods, the global economy can only grow if oil supply continues to grow.
• In order to keep producing more and more oil, you must keep discovering more and more and more. This is not possible. Eventually you are exhausting oil fields at a rate faster than the new ones can be discovered.
• The global peak for conventional oil sources occurred in approximately 2005, requiring us to turn to unconventional sources such as shale oil and oil sands. These sources are expensive to exploit and will not last for very long.
• The economic disruptions cause by the impending oil supply constraints will be very challenging for the global community.

The graph below was the key feature of Peak Oil in Five Paragraphs or Less. This graph is pivotal to understanding both the history and economics of the last century as well as the challenges coming in the next; everyone should be familiar with it. Its peaks and valleys tell stories as varied and interesting as the growth of suburbia in the U.S. and the role of Saudi Arabia in the post World War II era. But I never see this graph in the papers. It’s not hard to understand. As you can see from the bars, the peak year for global oil discovery occurred in 1965, the year before I was born, and has been generally declining ever since. Due to extraordinary efforts by the oil companies, the rate of production has yet to start declining, but as those old fields continue to be exhausted, it will.

growing_gap

Beginning in 2007, you see a small, but temporary, increase in “discoveries” which corresponds to shale oils such as the Bakken Shale in North Dakota. I put discoveries in quotations because shale oil deposits have been known about for decades but were simply not counted as petroleum reserves due to their low quality. The oil sands in Alberta, for which the Keystone XL pipeline is intended, fall into this same low-grade category.

Before I show you some additional graphs (I love graphs), we need a brief aside on definitions and sources. The data I use below is from the U.S. Energy Information Administration (EIA) and is, therefore, reliable for past data. Different sources define “oil” differently, which can cause confusion. Some, such as this column, restrict the definition of oil to crude petroleum – think gushers from old movies. Other sources add in liquids that are collected during natural gas refining – we discussed those last week – as well as biofuels, resulting in larger totals.

The graph below shows U.S. crude petroleum production in millions of barrels a day since 1980. From 1980 through 2008, there was a steady decline from 9 million to 5 million barrels a day. In 2008, fracking of shale oil began in earnest, which has increased U.S. petroleum production from a low of 5 million to 6.6 million barrels a day, an increase of 30%.

USA Oil Production

Extracting petroleum from shale formations is an expensive business. After you go through all the effort and expense to drill downward and then horizontally, and break up the rock below with high pressure fluids (fracking), the production from the well falls off by an average of 65% during the first year. Therefore, in order to keep production going, you’ve got to keep drilling and drilling and drilling. In 2011, 16,000 fracking wells were drilled in the U.S. In 2012, it was 19,000.

While doing the research for this column, I decided to have a look at the Bakken Shale Field formation, which spans the North Dakota-Montana border just south of Canada, on Google Earth. I could not get a nice looking picture for you, but it is somewhat fascinating to see. If you use the satellite map feature, follow the existing rural roads, then look for secondary dirt roads which lead to dirt rectangles. Each rectangle will contain a well with a pump on top, four tanks for collecting the oil, and some other equipment. You generally will not find any people or vehicles, because these units run automatically. As you pan around, you can find them by the hundreds.

The increase in petroleum production in the U.S. has not provided any meaningful relief from high gasoline prices, which remain steadfastly above $3.00 per gallon. There are two main reasons for this: petroleum is a global commodity (more on that below) and fracking is an expensive technique. Consider that in 2004, oil sold for about $40 per barrel. The break-even price for a barrel of oil produced from fracking is $80.

The graph below shows world crude petroleum production along with the same data I showed for the U.S. in the previous graph. As you can see, petroleum production in the U.S. is only a small fraction of the global total. Therefore, the 30% increase in U.S. production has only increased the global supply by two percent. A two percent increase in global supply, especially an expensive supply, is not sufficient to result in a reduction in U.S. fuel prices.

US and World Oil Production

So where does this leave us? Overall global supply of petroleum is being maintained near 76 million barrels a day based on the extraordinary efforts to extract unconventional oils. Sometime between now and 2025, the supply will begin to decline and cause social and economic dislocations. As we continue to exploit the unconventional sources during this time, carbon dioxide concentration in the atmosphere will grow from 400 to 450 parts per million, causing even more dramatic changes in our weather patterns and challenging our ability produce enough food for eight billion people. Dealing with these parallel challenges will be the defining features of the 21 century.

Let’s You and Him Fight | KUNSTLER

Let’s You and Him Fight | KUNSTLER.

So, now we are threatening to start World War Three because Russia is trying to control the chaos in a failed state on its border — a state that our own government spooks provoked into failure? The last time I checked, there was a list of countries that the USA had sent troops, armed ships, and aircraft into recently, and for reasons similar to Russia’s in Crimea: the former Yugoslavia, Somalia, Afghanistan, Iraq, Libya, none of them even anywhere close to American soil. I don’t remember Russia threatening confrontations with the USA over these adventures.

The phones at the White House and the congressional offices ought to be ringing off the hook with angry US citizens objecting to the posturing of our elected officials. There ought to be crowds with bobbing placards in Farragut Square reminding the occupant of 1400 Pennsylvania Avenue how ridiculous this makes us look.

The saber-rattlers at The New York Times were sounding like the promoters of a World Wrestling Federation stunt Monday morning when they said in a Page One story:

“The Russian occupation of Crimea has challenged Mr. Obama as has no other international crisis, and at its heart, the advice seemed to pose the same question: Is Mr. Obama tough enough to take on the former K.G.B. colonel in the Kremlin?”

Are they out of their chicken-hawk minds over there? It sounds like a ploy out of the old Eric Berne playbook: Let’s You and Him Fight. What the USA and its European factotums ought to do is mind their own business and stop issuing idle threats. They set the scene for the Ukrainian melt-down by trying to tilt the government their way, financing a pro-Euroland revolt, only to see their sponsored proxy dissidents give way to a claque of armed neo-Nazis, whose first official act was to outlaw the use of the Russian language in a country with millions of long-established Russian-speakers. This is apart, of course, from the fact Ukraine had been until very recently a province of Russia’s former Soviet empire.

Secretary of State John Kerry — a haircut in search of a brain — is winging to Kiev tomorrow to pretend that the USA has a direct interest in what happens there. Since US behavior is so patently hypocritical, it raises the pretty basic question: what are our motives? I don’t think they amount to anything more than international grandstanding — based on the delusion that we have the power and the right to control everything on the planet, which is based, in turn, on our current mood of extreme insecurity as our own ongoing spate of bad choices sets the table for a banquet of consequences.

America can’t even manage its own affairs. We ignore our own gathering energy crisis, telling ourselves the fairy tale that shale oil will allow us to keep driving to WalMart forever. We paper over all of our financial degeneracy and wink at financial criminals. Our infrastructure is falling apart. We’re constructing an edifice of surveillance and social control that would make the late Dr. Joseph Goebbels turn green in his grave with envy while we squander our dwindling political capital on stupid gender confusion battles.

The Russians, on the other hand, have every right to protect their interests along their own border, to protect the persons and property of Russian-speaking Ukrainians who, not long ago, were citizens of a greater Russia, to discourage neo-Nazi activity in their back-yard, and most of all to try to stabilize a region that has little history and experience with independence. They also have to contend with the bankruptcy of Ukraine, which may be the principal cause of its current crack-up. Ukraine is deep in hock to Russia, but also to a network of Western banks, and it remains to be seen whether the failure of these linked obligations will lead to contagion throughout the global financial system. It only takes one additional falling snowflake to push a snow-field into criticality.

Welcome to the era of failed states. We’ve already seen plenty of action around the world and we’re going to see more as resource and capital scarcities drive down standards of living and lower the trust horizon. The world is not going in the direction that Tom Friedman and the globalists thought. Anything organized at the giant scale is now in trouble, nation-states in particular.  The USA is not immune to this trend, whatever we imagine about ourselves for now.

Let’s You and Him Fight | KUNSTLER

Let’s You and Him Fight | KUNSTLER.

So, now we are threatening to start World War Three because Russia is trying to control the chaos in a failed state on its border — a state that our own government spooks provoked into failure? The last time I checked, there was a list of countries that the USA had sent troops, armed ships, and aircraft into recently, and for reasons similar to Russia’s in Crimea: the former Yugoslavia, Somalia, Afghanistan, Iraq, Libya, none of them even anywhere close to American soil. I don’t remember Russia threatening confrontations with the USA over these adventures.

The phones at the White House and the congressional offices ought to be ringing off the hook with angry US citizens objecting to the posturing of our elected officials. There ought to be crowds with bobbing placards in Farragut Square reminding the occupant of 1400 Pennsylvania Avenue how ridiculous this makes us look.

The saber-rattlers at The New York Times were sounding like the promoters of a World Wrestling Federation stunt Monday morning when they said in a Page One story:

“The Russian occupation of Crimea has challenged Mr. Obama as has no other international crisis, and at its heart, the advice seemed to pose the same question: Is Mr. Obama tough enough to take on the former K.G.B. colonel in the Kremlin?”

Are they out of their chicken-hawk minds over there? It sounds like a ploy out of the old Eric Berne playbook: Let’s You and Him Fight. What the USA and its European factotums ought to do is mind their own business and stop issuing idle threats. They set the scene for the Ukrainian melt-down by trying to tilt the government their way, financing a pro-Euroland revolt, only to see their sponsored proxy dissidents give way to a claque of armed neo-Nazis, whose first official act was to outlaw the use of the Russian language in a country with millions of long-established Russian-speakers. This is apart, of course, from the fact Ukraine had been until very recently a province of Russia’s former Soviet empire.

Secretary of State John Kerry — a haircut in search of a brain — is winging to Kiev tomorrow to pretend that the USA has a direct interest in what happens there. Since US behavior is so patently hypocritical, it raises the pretty basic question: what are our motives? I don’t think they amount to anything more than international grandstanding — based on the delusion that we have the power and the right to control everything on the planet, which is based, in turn, on our current mood of extreme insecurity as our own ongoing spate of bad choices sets the table for a banquet of consequences.

America can’t even manage its own affairs. We ignore our own gathering energy crisis, telling ourselves the fairy tale that shale oil will allow us to keep driving to WalMart forever. We paper over all of our financial degeneracy and wink at financial criminals. Our infrastructure is falling apart. We’re constructing an edifice of surveillance and social control that would make the late Dr. Joseph Goebbels turn green in his grave with envy while we squander our dwindling political capital on stupid gender confusion battles.

The Russians, on the other hand, have every right to protect their interests along their own border, to protect the persons and property of Russian-speaking Ukrainians who, not long ago, were citizens of a greater Russia, to discourage neo-Nazi activity in their back-yard, and most of all to try to stabilize a region that has little history and experience with independence. They also have to contend with the bankruptcy of Ukraine, which may be the principal cause of its current crack-up. Ukraine is deep in hock to Russia, but also to a network of Western banks, and it remains to be seen whether the failure of these linked obligations will lead to contagion throughout the global financial system. It only takes one additional falling snowflake to push a snow-field into criticality.

Welcome to the era of failed states. We’ve already seen plenty of action around the world and we’re going to see more as resource and capital scarcities drive down standards of living and lower the trust horizon. The world is not going in the direction that Tom Friedman and the globalists thought. Anything organized at the giant scale is now in trouble, nation-states in particular.  The USA is not immune to this trend, whatever we imagine about ourselves for now.

oftwominds-Charles Hugh Smith: Who Gets Thrown Under the Bus in the Next Financial Crisis?

oftwominds-Charles Hugh Smith: Who Gets Thrown Under the Bus in the Next Financial Crisis?.

The speculative excesses and political power of Wall Street pose a strategic threat to the Deep State, and as a result a showdown between the Deep State and the surface machinery of governance that has been captured by Wall Street is looming.

The basic idea of the Deep State is that the visible machinery of governance–electoral politics and the Federal Reserve–doesn’t set strategic policy, it ratifies and implements decisions made behind closed doors. In Mike Lofgren’s definition, the Deep State is “effectively able to govern the United States without reference to the consent of the governed as expressed through the formal political process.”

In my analysis, the Deep State is the National Security State which enables a vast Imperial structure that incorporates hard and soft power–military, diplomatic, intelligence, finance, commercial, energy, media, higher education–in a system of global domination and influence.

The Dollar and the Deep State (February 24, 2014)

Ukraine: A Deep State Analysis (February 27, 2014)

Like any other bureaucracy, the Deep State is prone to group-think, the tendency to join the prevailing “herd” in accepting a dominant paradigm and narrative that identifies key dynamics and sets priorities.

Group-think responds to both success and failure. In the case of the Deep State, key elements of the neo-conservative paradigm have been discredited. The Rise and Fall of the Failed-State Paradigm: Requiem for a Decade of Distraction (Foreign Affairs)

(Anyone seeking a public reflection of the current thinking within the Deep State would do well to read Foreign Affairs, with an emphasis on reading between the lines.)

For the sake of argument, let’s assume the leaders of the U.S. Deep State are not complete morons. Granted, that is quite a stretch, given that these are the people who gambled the lives of thousands of American troops and trillions of dollars in treasure on discretionary wars in Iraq and Afghanistan.

But it is also reasonable to assume that the neo-conservatives who naively assumed that residents of Baghdad would not only welcome their foreign liberators with baskets of flowers but would magically reconstruct the social institutions that had been systemically destroyed by Saddam over the previous 30 years–yes, those neo-con nincompoops– have been quietly put to pasture on their mini-estates in Northern Virginia.

In other words, it is reasonable to assume that the Deep State has accepted that “mistakes were made” and flushed those responsible for the previous decade’s disasters.

The Deep State undoubtedly has its own niceties and protocols, but it is by necessity ruthlessly Darwinian: failure is not only always an option, it is inevitable as a systems-level consequence of tightly connected, interactive complex systems; such failures are known as “normal accidents,” catastrophes resulting from seemingly small miscalculations and miscues that cascade into systemic crises.

As a result, incompetence cannot be rewarded lest the Deep State itself suffer the consequences.

The Deep State’s prime directive is to preserve the Deep State itself and the nation it depends on for its survival. My analysis starts by identifying the vectors of dependency. (To the best of my knowledge, I am the first to use this term in this context.) The Deep State depends on the survival of the U.S. nation-state, but the nation-state does not depend on the Deep State for its survival, despite the certainty within the Deep State that “we are the only thing keeping this thing together.”

Strategy is one thing, responding to crisis is another. The surface government (elected officials, regulatory agencies, the Federal Reserve, etc.) responds to crisis in two basic ways: it chooses whatever short-term politically expedient fix reduces the immediate political pain (also known as “kicking the can down the road”) and it sacrifices the interests of politically weak groups to protect its cronies and fiefdoms.

This crisis-response triage requires that somebody gets thrown under the bus. In the 2008 financial crisis, the Fed threw savers and the bottom 95% under the bus to funnel hundreds of billions of dollars–what was previously paid in interest–to the banks to rebuild their broken balance sheets. The Fed also provided limitless liquidity to bank trading desks and financiers to skim billions from carry trades, effectively channeling the nation’s financial resources to enrich its cronies, the top 1/10th of 1%.

The Deep State must take a longer view, and make strategic triage decisions. All sorts of people, groups and policies are routinely tossed under the bus–foreign leaders, resistance groups, civil liberties, etc.–as the Deep State adjusts to long-term developments and crises with strategic consequences.

Many Deep State decisions and policies are barely noticed, even though they are completely public. For example, the U.S. Deep State recognized that the dissolution of the Soviet Union opened an extremely dangerous door to nuclear weapons falling into non-state hands. So the U.S. spent tens of billions of dollars helping secure the thousands of Soviet nuclear weapons left in limbo after the breakup.

Though the Deep State’s institutional bias is to focus on conventional national security issues, it must also monitor potential strategic threats created by issues such as climate change, immigration and Peak Cheap Oil. The financial crisis was apparently an unexpected and unwelcome distraction from the geopolitical Great Game, and the response of the Deep State was muted.
while the surface policies of the Federal Reserve and Federal government appear to serve the interests of the financial Elites, I am beginning to discern the possibility of a strategic Deep State response to the next (and inevitable) financial crisis.

This crisis is simple to summarize: the paper claims on wealth so far exceed actual wealth that something’s gotta give. These claims include trillions of dollars in shadow-banking bets (derivatives and other leveraged claims all teetering on a tiny base of real collateral) and trillions of dollars in debt-based claims on future income.

Simply put, the vast majority of these claims will have to be zeroed out, i.e. these phantom-claim “assets” will be voided and declared worthless. This leads to the key question: who will the Deep State throw under the bus to preserve itself and the nation-state?

Once again, identifying the vectors of dependency clarifies the strategic priorities. As I pointed out in The Dollar and the Deep State, the pre-eminence of both the Deep State and the U.S. nation-state depend on the U.S. dollar remaining the key reserve currency in the global economy.

The collapse of the U.S. dollar would destroy the foundation of both the Deep State and the U.S. nation-state, hence my conclusion that the Deep State will not enable that collapse.

As for all the financial claims on real wealth that will have to go to zero value, let’s identify the operative vector of dependency with a question: which scenario most threatens the Deep State: 50 million hungry Americans taking to the streets shouting, “we’re mad as hell and we’re not going to take it any more!” or 10,000 financiers losing a couple trillion dollars in phantom wealth?

In other words, the phantom financier claims of Wall Street now pose a strategic threat to the integrity of the U.S. and its Deep State.

The Deep State needs a functioning U.S. nation-state, and a mass uprising arising from the collapse of the state cannot be suppressed with a few whiffs of grapeshot. The collapse of global pre-eminence and state financing of food stamps and other social welfare programs directly threaten the Deep State.

The collapse of financier fortunes? While that would hurt some Yalie cronies, the Deep State is not Wall Street; it attracts those who prefer power to wealth and strategy to trading. I have no doubt whatsoever that the leadership of the Deep State would have no qualms about throwing bankers and financiers under the bus once they pose a strategic threat to the U.S. dollar and other financial interests vital to the Deep State, for example, keeping 300 million Americans distracted, placated and docile.

It’s certainly not lost on the Deep State that a palpable hatred of bankers, financiers and the Federal Reserve is taking root across the land. I know this is outside the mainstream, but I think it is increasingly likely that the financial system’s skimmers and swindlers are being recognized as potential strategic threats to the Deep State.

What is essential to the Deep State’s survival and supremacy and what is not essential? Are 10,000 obscenely wealthy financiers essential? No. Between saving the U.S. dollar and making whole the $100 trillion in nominal-value bets made by financiers in offshore shadow-banking accounts–there’s no contest.

Conventional wisdom has it that Wall Street dominates the state and the Fed. To the degree that these formal surface institutions can be influenced by lobbying, campaign contributions and plum positions, this is true. But these surface institutions only ratify and implement Deep State directives.

I know this sounds “impossible” within conventional narratives, but I am increasingly confident that the financiers’ phantom claims on real wealth will be thrown under the bus in the next global financial crisis. Look at it this way: there’s essentially nothing left to stripmine from the bottom 80%; most have been reduced to neofeudal debt-serfdom. Since the survival of the nation-state depends on the 80% remaining either passive or productive, the Deep State has a vital strategic interest in both the U.S. dollar and in maintaining the social welfare programs that enable the bottom 80%’s survival.

The Three-and-a-Half Class Society (October 22, 2012)

The Deep State also needs the top 20% to remain productive to maintain U.S. soft and hard power. Transferring trillions of dollars in real wealth to make good the claims of the financier class would require the stripmining of the whatever assets the top 20% still hold. This transfer would directly threaten both the nation-state and the Deep State.

The dominance of Wall Street over the formal, visible machinery of governance has persuaded many that Wall Street is the Deep State. I believe this is a serious misread of the real Deep State. As I noted in The Dollar and the Deep State, to even discern the outlines of the Deep State requires a senior military position or national-security civilian equivalent.

Those writing knowledgeably about Wall Street and finance typically show near-zero knowledge of high-echelon U.S. military and national-security assets, policies and networks, so this blind spot is understandable.

It’s widely assumed that Wall Street rules the roost in both the mainstream financial media and in the alternative financial blogosphere. In my view, the speculative excesses and political power of Wall Street pose a strategic threat to the Deep State, and as a result a showdown between the Deep State and the surface machinery of governance that has been captured by Wall Street is looming.

Though everyone who is convinced the U.S. dollar will go to zero is confident that Wall Street will emerge victorious from the next financial crisis, I am convinced of the opposite: the Deep State will do whatever it takes to eliminate strategic threats to the integrity of the Deep State and the nation it depends on for its power and survival. In a financial crisis that threatens the dollar and the Deep State, the phantom claims of Wall Street’s financier skimmers, scammers and swindlers will be tossed under the bus with few qualms. The triage might even be performed with a certain relish.

Put another way: we’ve reached Peak Wall Street and it’s all downhill from here.

Former central banker: “[Bankers] are making it up as they go along.”

Former central banker: “[Bankers] are making it up as they go along.”.

March 3, 2014
London, England

[Editors note: Tim Price, Director of Investment at PFP Wealth Management and frequent Sovereign Man contributor is filling in for Simon today.]

A few weeks ago, William White (former economist at the Bank of England, the Bank of Canada, and Bank of International Settlements) made a frank admission.

And while we search for assets whose prices are less obviously distorted by malign government intervention, it’s refreshing to hear a mea culpa from a member of the economics “profession”.

White said:

“The analytical underpinnings of what we [mainstream economists] do are actually pretty shaky. A reflection of that fact, is that virtually every aspect you can think of with respect to monetary policy, about best practice, has changed and changed repetitively over the course of the last 50 years. So, this stuff ain’t science.

“Think about what’s happened recently. One, its completely unprecedented. People are making it up as they go along. This is hardly science – building on the pillars of the past.

“Secondly, what they’ve been making up as they go along actually differs across central banks [The Bundesbank, for example, is fighting the threat of high inflation, whereas the Fed is more concerned about the prospect of deflation]. They can’t even agree amongst themselves about what’s the best way to do things.

“I’m becoming more and more convinced that all of the models we use are basically useless.

“It’s surprising that we’ve had this huge crisis that the mainstream didn’t predict. It’s gone on for years, which the mainstream absolutely didn’t predict. I would have thought this was a basis for a fundamental rethink about what we used to think we believed. But that hasn’t happened.

“The policies that we’ve followed – on the monetary side at least – since 2007 are just more of the same demand-stimulating policies that we’ve been following, I think, erroneously, for the last 30 years.

“We’ve got the potential to do so much harm by not getting the creation of fiat credit and money right. We’ve got the capacity to do so much harm that we should be focusing much more on making sure that doesn’t happen.”

[End quote]

Doctors at least have the Hippocratic Oath: first, do no harm. If only economists and central bankers had a similar ethic.

But they don’t. So they continue ‘making it up as they go along’, as Mr. White suggests, applying failed ideas with impunity and continued authority to an unquestioning public.

Warren Buffett famously compared financial markets to the card table, observing that if you’ve been playing poker for half an hour and you still don’t know who the patsy is, then you’re the patsy. It seems we are all patsies now.

You can listen to the full interview here:

Ukraine Denies Russia's Denial, Claims Ships Threatened With Seizure | Zero Hedge

Ukraine Denies Russia’s Denial, Claims Ships Threatened With Seizure | Zero Hedge.

Minutes after Russia denied it had issued an ultimatum to the Ukraine navy, Ukraine’s acting president has just denied the denial.

  • UKRAINE’S TURCHYNOV SAYS SHIPS THREATENED IF ARMS NOT LAID DOWN
  • UKRAINE’S TURCHYNOV SAYS SHIPS THREATENED WITH SEIZURE
  • UKRAINE’S TURCHYNOV SAYS SITUATION AROUND FLEET IS DANGEROUS
  • UKRAINE’S TURCHYNOV SAYS RUSSIA INCREASING CRIMEA FORCES
  • UKRAINE’S TURCHYNOV SAYS RUSSIAN BLACK SEA FLEET HAS BLOCKED UKRAINIAN NAVY VESSELS IN SEVASTOPOL BAYS
  • TURCHYNOV SAYS SITUATION DIFFICULT IN EASTERN UKRAINE
  • TURCHYNOV CALLS ON RUSSIA TO STOP AGGRESSION

What is curious here is that while it is clear why Russia would benefit from an escalation in hostilities in the Crimea, on which it did not “start” – i.e., allowing it a clear pretext to enter the “east” and “protect” its citizens – what is becoming clear is that it is Ukraine that is desperate to raise the level of hostilities. Why – if it is to force the hand of NATO, EU or the west in providing assistance, this is a wild gambit, which will backfire massively.

Ukraine Denies Russia’s Denial, Claims Ships Threatened With Seizure | Zero Hedge

Ukraine Denies Russia’s Denial, Claims Ships Threatened With Seizure | Zero Hedge.

Minutes after Russia denied it had issued an ultimatum to the Ukraine navy, Ukraine’s acting president has just denied the denial.

  • UKRAINE’S TURCHYNOV SAYS SHIPS THREATENED IF ARMS NOT LAID DOWN
  • UKRAINE’S TURCHYNOV SAYS SHIPS THREATENED WITH SEIZURE
  • UKRAINE’S TURCHYNOV SAYS SITUATION AROUND FLEET IS DANGEROUS
  • UKRAINE’S TURCHYNOV SAYS RUSSIA INCREASING CRIMEA FORCES
  • UKRAINE’S TURCHYNOV SAYS RUSSIAN BLACK SEA FLEET HAS BLOCKED UKRAINIAN NAVY VESSELS IN SEVASTOPOL BAYS
  • TURCHYNOV SAYS SITUATION DIFFICULT IN EASTERN UKRAINE
  • TURCHYNOV CALLS ON RUSSIA TO STOP AGGRESSION

What is curious here is that while it is clear why Russia would benefit from an escalation in hostilities in the Crimea, on which it did not “start” – i.e., allowing it a clear pretext to enter the “east” and “protect” its citizens – what is becoming clear is that it is Ukraine that is desperate to raise the level of hostilities. Why – if it is to force the hand of NATO, EU or the west in providing assistance, this is a wild gambit, which will backfire massively.

%d bloggers like this: