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Hell in a Hand Basket and Why We’re Going There, Guaranteed (sort of)

Tulum, Mexico. 1986.

Tulum, Mexico. 1986.

[My love of music has me suggesting that a song be played in the background while you’re reading this. There are a couple I’d like to suggest: Talking Heads-Nothing but Flowers; Blue Rodeo-Lost Together (must have some Canadian content); or, given the Ukraine/Syria/Iran/North Korea/Venezuela/Congo African Republic/Senkaku-Daiyou Islands/etc. situations, Frankie Goes to Hollywood-Two Tribes. Enjoy:)]

The ebb and flow of societies is well documented by historians and archaeologists. It seems every society rises in complexity to a zenith of some kind and then falls. There are an increasing number of people who contend that this sociopolitical transformation is fast-approaching for our globalised, industrial civilization, and of those some believe that this shift will be a long drawn out affair of slow decline[i], while others suggest it may be more of a sudden shift[ii], or collapse[iii].

Whether this change takes generations or is much more sudden and dramatic matters not (unless you’re living through the latter one, I suppose); one’s perception of this depends upon the temporal perspective taken. For example, let’s assume, for the sake of argument, that the oil-dependent, industrialized society of humans lasts 400 years, 200 years up and 200 years down (I think I’m being overly generous here on the demise side).

A 200-year decline may, given normalcy bias, not be perceived as a significant shift at all by those experiencing it. However, if we can step back and view this rise and fall in larger historical terms, say on a 10,000-year basis, this ascent/descent scenario may be perceived as quick and calamitous. I think perspective is everything here. (Note that I’ll continue to refer to the impending change as ‘collapse’ because I tend to believe the change will come quickly, especially once the power grid fails.)

That being said, the antecedents of such collapse are varied and complex. They range from declining marginal returns[iv] to environmental collapse[v] to psychological shifts[vi] to overshooting local carrying capacity[vii] to Peak Oil[viii] to population growth[ix]. Humans don’t require artificial intelligence that perceives us as a threat, a viral pandemic leading to a zombie apocalypse, or an alien invasion for our resources to push us over the cliff; we don’t even need a nuclear war. We have our own non-military, sociocultural peculiarities to accomplish it.

As with any complex, dynamical system, the variables that lead to collapse interact in ways both knowable and surprising (such are the emergent phenomenon that arise from complex systems). Feedback that might provide clues to the coming demise tends to be ignored, delayed, or misinterpreted, resulting in dismissal of clear signals. In fact, oftentimes, the actions taken by players can expedite the process of collapse. To this end, I believe that our economic system, with globalisation efforts and its underlying foundation of infinite growth, may be the catalyst that pushes our industrial civilisation over the impending cliff of collapse. But, who really knows? My guess is about as good as anybody else’s[x].

What are some of the components contributing to this collapse endgame? I offer a few: exponential growth of population; dependency on fossil fuels; human hubris; economic credit/debt obligations; climate change; peak resources (especially oil and water); delayed feedback; corrupt political/economic systems; misperceptions; accumulation of toxins/pollutants; misleading information; and just plain, old ignorance (some purposeful I believe). And, don’t forget the black swans.

To me, population growth seems to be the factor that we have pushed in the wrong direction but the underlying variable to this is energy. Populations do not grow if there is not enough energy to support such growth. This energy may take the form of domesticated animal and plant life, or long-stored, concentrated energy (i.e. fossil fuels), but at its base is solar energy and how it is exploited. For tens of thousands of years human population was held in check by limited energy exploitation. The ‘Agricultural Revolution’ certainly gave a boost to human population, especially within new villages, towns, and cities erupting all over the globe. However, once fossil fuels began to be exploited our population took off in a global, exponential explosion. It is this exponential growth of human population that has put us in this bind we are in.

To better understand what is happening, I believe one of the fundamental pieces of information to get a grip on is, in fact, exponential growth. Exponential growth is a concept well-known (think compound interest) but whose consequence has been lost on many. The late Dr. Albert Bartlett was perhaps one of the leading authorities on the implications of such growth and spent much of his professional career attempting to educate people about it. In a presentation he gave thousands of times and was viewed many more times on youtube (viewed more than 1/4 million times; not bad for an old guy lecturing about mathemtics) he outlines the importance of it and its consequences.

Entitled ‘Arithmetic, Population, and Energy’[xi], Bartlett argues, among other things, that zero population growth will happen whether we wish it to or not, it is a mathematical certainty. In the words of others, if something cannot grow forever, it won’t. However, as Bartlett points out, we hold near and dear to our hearts many things that are contributing to overpopulation: education, healthcare, immigration, sanitation, law and order. On the other side of the ledger, however, are forces that counter these: war, famine, disease, accidents, murder, abortion, and infanticide. His point is that we can either deal with the issue of overpopulation by changing our behaviours (and attitudes) or nature will do it for us; the choice is ours (or is it?).

_______________________

…here we can see the human dilemma—everything we regard as good makes the population problem worse, everything we regard as bad helps solve the problem. There is a dilemma if ever there was one.
Dr. Albert Bartlett

_______________________

A burgeoning population and its implications for human sustainability on a finite planet has been around for some time. Thomas Malthus’s treatise on the subject in 1798 being perhaps one of the most well known. Had Malthus known of the incredible boost to global carrying capacity that was about to be unleashed by the exploitation of a one-time windfall of concentrated and easily-transportable energy, petroleum, he may not have been so adamant in his conclusion that the end of growth was near-at-hand. But such are the chances when one attempts to foretell the future.

My own biases, prejudices, predilections, observations, and experiences, suggest this human experiment we are a part of will not end well[xii]. I believe that there is too much momentum, too many people with a sense of entitlement, too many sociocultural myths, too many elite protecting the status quo, and far too much ignorance for us to avoid a global collapse. Unless, of course, Zemphram Cochrane’s trans-warp engine test on April 4, 2063 at 11:15 am, after the Third World War (aka Eugenics Wars), is seen by a Vulcan survey expedition and makes First Contact, saving us from ourselves[xiii].

What typically follows social, political, economic collapse is a ‘dark age’ of some kind and is perhaps best known (at least within Western history) by the years that followed the collapse of the Roman Empire. But more on this in another post.

Despite all of the above, there are a variety of other variables that could push a teetering globe into a collapse scenario, particularly geopolitics or a natural disaster. No one knows. Prediction of the future is for meteorologists and economists, neither of which is very good beyond a couple of days for the former, and much less for the latter. I must admit, however, that Marion King Hubbert’s prediction of the coming demise of industrial civilization[xiv], along with the seminal text, The Limits to Growth[xv], are pretty good guesses in my books.

The one thing I am sure of, the more I learn, the more I am finding that I am ignorant of. Although I spent a career as an educator[xvi], I continue to be a student…and perhaps this diatribe is all just an elongated justification of my belief system, “a tale told by an idiot, full of sound and fury, signifying nothing”[xvii]

Olduvai (aka Steve Bull)


[i] Greer, J.M.. The Long Descent: A User’s Guide to the End of the Industrial Age. New Society Publishers, 2008. (ISBN 978-0-86571-609-4)
Kunstler, J. H.. The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century. Grove Press, 2009/2006/2005. (ISBN 978-0-8021-4249-8)
[ii] Diamond, J.. Collapse: How Societies Choose to Fail or Succeed. Penguin Books, 2005/2011. (ISBN 978-0-14-311700-1)
Orlov, D.. The Five Stages of Collapse: Survivor’s Toolkit. New Society Publishers, 2013. (ISBN 978-0-86571-736-7)
Ruppert, M.. Confronting Collapse: The Crisis of Energy and Money in a Post Oil World. Chelsea Green Publishing, 2009.  (ISBN 978-1-60358-164-3)
[iii] I use the following definition of collapse, as proposed by Joseph Tainter (see footnote below): “[It] is fundamentally a matter of the sociopolitical sphere. A society has collapsed when it displays a rapid, significant loss of an established level of sociopolitical complexity….To qualify as an instance of collapse a society must  have been at, or developing toward, a level of complexity for more than one or two generations…The collapse in turn must be rapid—taking no more than a few decades—and must entail a substantial loss of sociopolitical structure. Losses that are less severe, or take longer to occur, are to be considered cases of weakness and decline.” (p. 4)
[iv] Tainter, J.A.. The Collapse of Complex Societies. Cambridge University Press, 1988. (ISBN 978-0-521-38673-9)
[v] Diamond, J.. Ibid.
[vi] Orlov, D.. Ibid.
[vii] Catton, Jr., W.R.. Overshoot: The Ecological Basis of Revolutionary Change. University of Illinois Press, 1982. (ISBN 978-0-252-09988-4)
[viii] Ruppert, M.. Ibid.
[ix] Malthus, T.. An Essay on the Principle of Population as it Affects the Future Improvement of Society. J. Johnson, 1798.
[x] Take a good, long critical look at the world and its leaders. Do you have faith, enough faith that you would risk your own life and that of your family, in the leaders of this world to be capable of circumnavigating successfully the various crises that are erupting with greater magnitude and frequency, from climate change to geopolitical stresses to resource depletion to economic collapse? If you have that much faith in them, well good luck to you. Quite simply, I don’t. I believe they are incapable of managing these dilemmas and cascading failures of the various systems of industrialised civilisation will occur some time in our future. NO, I have no idea when.
[xi] Bartlett, A.. Arithmetic, Energy, and Population. (Transcript: http://www.albartlett.org/presentations/arithmetic_population_energy_transcript_english.html).
[xii] I must admit that my particular pessimistic perspective makes for an interesting dynamic between my spouse and I, for she is the eternal optimist who, as a practising educator, believes in the successful implementation of social engineering to prevent many of the negative consequences (I’ve just retired from the profession but have always been a ‘little’ critical of it, and authority; the latter, in no small part, likely the result of being the child of a police officer).
[xiii] Star Trek, First Contact. See http://en.wikipedia.org/wiki/Star_Trek:_First_Contact
[xiv] Hubbert, M.K.. Energy from fossil fuels. Science, Feburary 4, 1949. v.109, pp. 103-109.
[xv] Meadows, D., J. Randers, & D. Meadows. Limits to Growth: The 30-Year Update. Chelsea Green Publishing Company, 2004. (ISBN 978-1-931498-58-6)
[xvi] 9 years as a classroom teacher (grades 6-8), 13 as an administrator (K-8 school).
[xvii] Shakespeare. Macbeth (Act 5, Scene 5, lines 26-28)

 

Hell in a Hand Basket and Why We're Going There, Guaranteed (sort of)

Tulum, Mexico. 1986.

Tulum, Mexico. 1986.

[My love of music has me suggesting that a song be played in the background while you’re reading this. There are a couple I’d like to suggest: Talking Heads-Nothing but Flowers; Blue Rodeo-Lost Together (must have some Canadian content); or, given the Ukraine/Syria/Iran/North Korea/Venezuela/Congo African Republic/Senkaku-Daiyou Islands/etc. situations, Frankie Goes to Hollywood-Two Tribes. Enjoy:)]

The ebb and flow of societies is well documented by historians and archaeologists. It seems every society rises in complexity to a zenith of some kind and then falls. There are an increasing number of people who contend that this sociopolitical transformation is fast-approaching for our globalised, industrial civilization, and of those some believe that this shift will be a long drawn out affair of slow decline[i], while others suggest it may be more of a sudden shift[ii], or collapse[iii].

Whether this change takes generations or is much more sudden and dramatic matters not (unless you’re living through the latter one, I suppose); one’s perception of this depends upon the temporal perspective taken. For example, let’s assume, for the sake of argument, that the oil-dependent, industrialized society of humans lasts 400 years, 200 years up and 200 years down (I think I’m being overly generous here on the demise side).

A 200-year decline may, given normalcy bias, not be perceived as a significant shift at all by those experiencing it. However, if we can step back and view this rise and fall in larger historical terms, say on a 10,000-year basis, this ascent/descent scenario may be perceived as quick and calamitous. I think perspective is everything here. (Note that I’ll continue to refer to the impending change as ‘collapse’ because I tend to believe the change will come quickly, especially once the power grid fails.)

That being said, the antecedents of such collapse are varied and complex. They range from declining marginal returns[iv] to environmental collapse[v] to psychological shifts[vi] to overshooting local carrying capacity[vii] to Peak Oil[viii] to population growth[ix]. Humans don’t require artificial intelligence that perceives us as a threat, a viral pandemic leading to a zombie apocalypse, or an alien invasion for our resources to push us over the cliff; we don’t even need a nuclear war. We have our own non-military, sociocultural peculiarities to accomplish it.

As with any complex, dynamical system, the variables that lead to collapse interact in ways both knowable and surprising (such are the emergent phenomenon that arise from complex systems). Feedback that might provide clues to the coming demise tends to be ignored, delayed, or misinterpreted, resulting in dismissal of clear signals. In fact, oftentimes, the actions taken by players can expedite the process of collapse. To this end, I believe that our economic system, with globalisation efforts and its underlying foundation of infinite growth, may be the catalyst that pushes our industrial civilisation over the impending cliff of collapse. But, who really knows? My guess is about as good as anybody else’s[x].

What are some of the components contributing to this collapse endgame? I offer a few: exponential growth of population; dependency on fossil fuels; human hubris; economic credit/debt obligations; climate change; peak resources (especially oil and water); delayed feedback; corrupt political/economic systems; misperceptions; accumulation of toxins/pollutants; misleading information; and just plain, old ignorance (some purposeful I believe). And, don’t forget the black swans.

To me, population growth seems to be the factor that we have pushed in the wrong direction but the underlying variable to this is energy. Populations do not grow if there is not enough energy to support such growth. This energy may take the form of domesticated animal and plant life, or long-stored, concentrated energy (i.e. fossil fuels), but at its base is solar energy and how it is exploited. For tens of thousands of years human population was held in check by limited energy exploitation. The ‘Agricultural Revolution’ certainly gave a boost to human population, especially within new villages, towns, and cities erupting all over the globe. However, once fossil fuels began to be exploited our population took off in a global, exponential explosion. It is this exponential growth of human population that has put us in this bind we are in.

To better understand what is happening, I believe one of the fundamental pieces of information to get a grip on is, in fact, exponential growth. Exponential growth is a concept well-known (think compound interest) but whose consequence has been lost on many. The late Dr. Albert Bartlett was perhaps one of the leading authorities on the implications of such growth and spent much of his professional career attempting to educate people about it. In a presentation he gave thousands of times and was viewed many more times on youtube (viewed more than 1/4 million times; not bad for an old guy lecturing about mathemtics) he outlines the importance of it and its consequences.

Entitled ‘Arithmetic, Population, and Energy’[xi], Bartlett argues, among other things, that zero population growth will happen whether we wish it to or not, it is a mathematical certainty. In the words of others, if something cannot grow forever, it won’t. However, as Bartlett points out, we hold near and dear to our hearts many things that are contributing to overpopulation: education, healthcare, immigration, sanitation, law and order. On the other side of the ledger, however, are forces that counter these: war, famine, disease, accidents, murder, abortion, and infanticide. His point is that we can either deal with the issue of overpopulation by changing our behaviours (and attitudes) or nature will do it for us; the choice is ours (or is it?).

_______________________

…here we can see the human dilemma—everything we regard as good makes the population problem worse, everything we regard as bad helps solve the problem. There is a dilemma if ever there was one.
Dr. Albert Bartlett

_______________________

A burgeoning population and its implications for human sustainability on a finite planet has been around for some time. Thomas Malthus’s treatise on the subject in 1798 being perhaps one of the most well known. Had Malthus known of the incredible boost to global carrying capacity that was about to be unleashed by the exploitation of a one-time windfall of concentrated and easily-transportable energy, petroleum, he may not have been so adamant in his conclusion that the end of growth was near-at-hand. But such are the chances when one attempts to foretell the future.

My own biases, prejudices, predilections, observations, and experiences, suggest this human experiment we are a part of will not end well[xii]. I believe that there is too much momentum, too many people with a sense of entitlement, too many sociocultural myths, too many elite protecting the status quo, and far too much ignorance for us to avoid a global collapse. Unless, of course, Zemphram Cochrane’s trans-warp engine test on April 4, 2063 at 11:15 am, after the Third World War (aka Eugenics Wars), is seen by a Vulcan survey expedition and makes First Contact, saving us from ourselves[xiii].

What typically follows social, political, economic collapse is a ‘dark age’ of some kind and is perhaps best known (at least within Western history) by the years that followed the collapse of the Roman Empire. But more on this in another post.

Despite all of the above, there are a variety of other variables that could push a teetering globe into a collapse scenario, particularly geopolitics or a natural disaster. No one knows. Prediction of the future is for meteorologists and economists, neither of which is very good beyond a couple of days for the former, and much less for the latter. I must admit, however, that Marion King Hubbert’s prediction of the coming demise of industrial civilization[xiv], along with the seminal text, The Limits to Growth[xv], are pretty good guesses in my books.

The one thing I am sure of, the more I learn, the more I am finding that I am ignorant of. Although I spent a career as an educator[xvi], I continue to be a student…and perhaps this diatribe is all just an elongated justification of my belief system, “a tale told by an idiot, full of sound and fury, signifying nothing”[xvii]

Olduvai (aka Steve Bull)


[i] Greer, J.M.. The Long Descent: A User’s Guide to the End of the Industrial Age. New Society Publishers, 2008. (ISBN 978-0-86571-609-4)
Kunstler, J. H.. The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century. Grove Press, 2009/2006/2005. (ISBN 978-0-8021-4249-8)
[ii] Diamond, J.. Collapse: How Societies Choose to Fail or Succeed. Penguin Books, 2005/2011. (ISBN 978-0-14-311700-1)
Orlov, D.. The Five Stages of Collapse: Survivor’s Toolkit. New Society Publishers, 2013. (ISBN 978-0-86571-736-7)
Ruppert, M.. Confronting Collapse: The Crisis of Energy and Money in a Post Oil World. Chelsea Green Publishing, 2009.  (ISBN 978-1-60358-164-3)
[iii] I use the following definition of collapse, as proposed by Joseph Tainter (see footnote below): “[It] is fundamentally a matter of the sociopolitical sphere. A society has collapsed when it displays a rapid, significant loss of an established level of sociopolitical complexity….To qualify as an instance of collapse a society must  have been at, or developing toward, a level of complexity for more than one or two generations…The collapse in turn must be rapid—taking no more than a few decades—and must entail a substantial loss of sociopolitical structure. Losses that are less severe, or take longer to occur, are to be considered cases of weakness and decline.” (p. 4)
[iv] Tainter, J.A.. The Collapse of Complex Societies. Cambridge University Press, 1988. (ISBN 978-0-521-38673-9)
[v] Diamond, J.. Ibid.
[vi] Orlov, D.. Ibid.
[vii] Catton, Jr., W.R.. Overshoot: The Ecological Basis of Revolutionary Change. University of Illinois Press, 1982. (ISBN 978-0-252-09988-4)
[viii] Ruppert, M.. Ibid.
[ix] Malthus, T.. An Essay on the Principle of Population as it Affects the Future Improvement of Society. J. Johnson, 1798.
[x] Take a good, long critical look at the world and its leaders. Do you have faith, enough faith that you would risk your own life and that of your family, in the leaders of this world to be capable of circumnavigating successfully the various crises that are erupting with greater magnitude and frequency, from climate change to geopolitical stresses to resource depletion to economic collapse? If you have that much faith in them, well good luck to you. Quite simply, I don’t. I believe they are incapable of managing these dilemmas and cascading failures of the various systems of industrialised civilisation will occur some time in our future. NO, I have no idea when.
[xi] Bartlett, A.. Arithmetic, Energy, and Population. (Transcript: http://www.albartlett.org/presentations/arithmetic_population_energy_transcript_english.html).
[xii] I must admit that my particular pessimistic perspective makes for an interesting dynamic between my spouse and I, for she is the eternal optimist who, as a practising educator, believes in the successful implementation of social engineering to prevent many of the negative consequences (I’ve just retired from the profession but have always been a ‘little’ critical of it, and authority; the latter, in no small part, likely the result of being the child of a police officer).
[xiii] Star Trek, First Contact. See http://en.wikipedia.org/wiki/Star_Trek:_First_Contact
[xiv] Hubbert, M.K.. Energy from fossil fuels. Science, Feburary 4, 1949. v.109, pp. 103-109.
[xv] Meadows, D., J. Randers, & D. Meadows. Limits to Growth: The 30-Year Update. Chelsea Green Publishing Company, 2004. (ISBN 978-1-931498-58-6)
[xvi] 9 years as a classroom teacher (grades 6-8), 13 as an administrator (K-8 school).
[xvii] Shakespeare. Macbeth (Act 5, Scene 5, lines 26-28)

 

charles hugh smith-Certainty, Complex Systems, and Unintended Consequences

charles hugh smith-Certainty, Complex Systems, and Unintended Consequences.

(February 14, 2014)

When it comes to complex systems and unintended consequences, the key phrase is “be careful what you wish for.”

A lot of people are remarkably certain that their understanding of how systems will respond in the future is correct. Alan Greenspan was certain there was no housing bubble in 2007, for example (or he did a great job acting certain). There is no shortage of people who are certain the U.S. dollar is doomed to collapse, but only after losing the reserve currency status.

Other people are certain China can launch a gold-backed currency that will replace the dollar as the world’s reserve currency.

Some are certain the U.S. stock market is going to crash this year, while others are equally certain that stocks will continue lofting higher on central bank tailwinds.

Being wrong about the way systems responded in the past doesn’t seem to deter people from being certain about the future. Those who were certain there was no bubble in 2007-8 were wrong, and those (myself included) who saw the can being kicked down the road were wrong in not anticipating that global stocks would not just recover their pre-crash heights but go on to new nominal highs, based on the excellence of the can-kicking skills of central states and banks.

Complex systems don’t act in the linear way our minds tend to work. Humans are built to distill a chaotic array of sensory data into a narrative that simplifies decision-making and risk assessment (for example, “us good, them bad”). We prefer our chains of causality to have a few big links we can follow without difficulty. We find systems with multitudes of ambiguous inputs tiresome and so we invent ideologies (“us good, them bad”) and very occasionally, elegant mathematical statements that reduce the chaos of data to predictable causal chains.

We are built to cling very stubbornly to certainty once we reach a conclusion, because ambiguity and having to constantly change our assessments of inputs and causality are big drains on our energy and mental capabilities. It’s “cheaper” in terms of energy and anxiety to just stick with the story we grew up with or the one we chose after a bit of looking at what our mates think/believe/claim is true.

Certainty has another advantage: it’s more persuasive than hedged hesitancy.Leadership tends to fall to those without hesitation, the bold ones with the powerful rhetoric of certainty, confidence and optimism. We don’t want the narrative muddled with hedges–maybe “them” are not necessarily evil, dangerous enemies, etc.–and so we shout down, ridicule or ignore those who are circumspect about how systems will respond in the future.

Politicians have of course mastered the art of distilling narratives to the desired state of certainty, confidence and optimism, and in repeating the story often enough that mere repetition lends it credence.

The problem is simplistic, linear narratives don’t map complex systems. All sorts of unexpected and unintended things happen in complex systems when you change the inputs and try to control the output.

We have a name for systems where the inputs are all tightly controlled to yield a simplistic desired output: they’re called monocultures, and monocultures are exquisitely vulnerable to unintended consequences and “leaks” from the outside world. Though monocultures look robust, they are actually quite fragile, because the natural feedbacks and redundancies of natural systems have been eradicated to make the desired yield the primary output.

This is why politicians cannot deal with either complex systems or unintended consequences. As a result, they have to act as if complex systems and unintended consequences don’t exist.

Thus Federal Reserve Chair Janet Yellen sticks to the simplistic narrative that the economy is flourishing and so the Fed can “taper” its money-creation/asset-buying operation, but she is careful not to mention the unintended consequences of the Fed’s monoculture: to mention just one, that since the Federal deficits are shrinking rapidly, if the Fed didn’t reduce its $1 trillion a year program, it would soon end up owning the entire Treasury market.

Since there could be unintended consequences of that, the Fed chair doesn’t mention the topic.

The narrative that printing money destroys the currency being printed is appealing on many levels. It makes sense, and history is replete with examples of just this narrative.

But the system isn’t quite as linear as we might wish. If $10 trillion in dollar-denominated value is wiped out in write-downs triggered by marking phantom assets to market, and $1 trillion is printed, the system still lost $9 trillion. As correspondent David C. observed:

Destruction of dollar *value* means that surviving dollars become more *valuable.*

If stocks, bond, real estate, Beanie Babies, etc. decline in VALUE, it means they are worth fewer dollars-per-unit. This means that dollars are, by definition, rising in value per unit, and this absolutely confounds those who believe the next big thing is inflation/hyperinflation.

They simply can’t see that if people become poorer (as their stocks, bonds, homes, etc. fall in value), and especially if the banks begin to fail in a wave too large to bail and take deposits into monetary nothingness, the most likely outcome is that those who retain access to dollars will see their dollars rises dramatically in purchasing power, the exact opposite of the last 82 years of experience.

I’ve encountered few people who can accept this paradoxical analysis.

Our fully fiat-money system enabled the embrace of illusions so pervasive that people simply can’t see how much “value” today rests on cross-linked IOU’s. When those IOU-dollars begin to evaporate in earnest, desperation for the underlying “asset” (a dollar, as perverse as that seems given that the dollar is backed by nothing and preceded by no production of value) should skyrocket.”

As for China launching a gold-backed currency that acts as the reserve currency–it isn’t quite as simple and tidy as it appears. Triffin’s Paradox is based on a peculiar characteristic of a reserve currency: it serves both a domestic market and a global market, and the two have different dynamics.

A reserve currency must be available in size in global markets, which means the issuing nation must export its currency in size so others have enough of it to fill their reserves and grease their trade exchanges. The issuing nation can simply helicopter drop the equivalent of several trillion dollars of currency into other nations (something that hasn’t been tried), or it has to run trade deficits, i.e. it buys more goods and services from other nations than it exports to them, and so it exports its currency to other nations to use as a reserve currency.

This means nations that run enormous trade surpluses can’t issue a reserve currency, because they’re not exporting currency, they’re importing other nations’ currency and having to “sterilize” it into their own domestic economy or buy something denominated in the imported currency.

There’s another paradox. Let’s say China became a net importer on a grand enough scale to issue a reserve currency. The one example we have of a nation issuing gold-backed currency that was also the reserve currency based on that nation running large trade deficits is the U.S. in the late 1960s. What happens in this circumstance is those holding the gold-backed currency decide to trade the currency for gold, and the issuing nation soon runs out of gold.

This sets up a paradox: net exporting nations cannot issue a reserve currency, fiat or gold-backed, for the simple reason they are importing currency, not exporting it for others to use as a reserve currency.

Any nation that does run a trade deficit large enough to enable a reserve currency and backs that currency with gold will see its gold reserves vanish as holders of their currency trade its currency for gold.

I have addressed a few of the complexities of reserve currencies and trade before:

The Impossibility of China Issuing a Reserve Currency (October 14, 2013)

Why the Shrinking Trade Deficit Will Choke U.S. Corporate Profits (August 8, 2013)

Understanding the “Exorbitant Privilege” of the U.S. Dollar (November 19, 2012)

When it comes to complex systems and unintended consequences, the key phrase is “be careful what you wish for.”

The World Complex: A system doomed to fail

The World Complex: A system doomed to fail.

A system doomed to fail

In the broadest sense, there are three types of systems in the world.The first are simple systems which are characterized by only a few variables or agents, and which can be described by perhaps a handful of equations (or even one).

The second are systems which are characterized by disorganized complexity. These may consist of huge numbers of agents or variables, and their interactions cannot be described by simple equations; yet the overall system is well-described statistically through averages and can be described as being stochastic. Such systems are typically characterized by a stable equilibrium, provided there are no external shocks to the system. They are incapable of generating internal shocks or surprises. For example, you might consider the distribution of air molecules in a room. You may not be able to predict the motion of any particular air molecule, but you can be reasonable certain that the global population won’t do anything unexpected (like all move into one side of the room leaving a vacuum on the other side).

The third type of system is characterized by organized complexity. As the systems above, one may consist of many variables or agents, each of which is simple, but the system’s behaviour does not lend itself to statistical description because instead of the activities of each component dissolving into a background equilibrium, large-scale (even global scale) structure “emerges” instead of seething chaos. Along with these “emergent properties”, common features of such a system include multiple equilibria, adaptive behaviour, and feedbacks. There is no simple way to describe its behaviour, as much of the system’s history is bound up in its behaviour (what economists call “long memory”).

Complex systems, for all their unpredictability are remarkably resilient. The resilience arises from the way in which this type of system interacts with its environment–through the individual actions of its simple components, the system is able to gather information about its environment and modify its operations to adapt. Yet this adaptation and evolution all occur in the absence of central control.

The above descriptions–and characterizations of three types of systems–go back to 1948. Unfortunately it appears that Dr. Weaver was too optimistic when he recommended science develop an understanding of the third type of system “over the next 50 years”. Here we are 65 years later and we have made only basic improvements in our understanding of such systems.

What has gone wrong? I think it is partly due to the limitations of the Newtonian paradigm on which science has rested over the past few hundred years.

Back to Weaver. He asks,

How can currency be wisely and effectively stabilized? To what extent is it safe to depend on the free interplay of such forces as supply and demand? To what extent must systems of economic control be employed to prevent the wide swings from prosperity to depression? These are also obviously complex problems, and they too involve analyzing systems which are organic wholes, with their parts in close interrelation.

The Fed has answered.

Sixty-five years ago, economics was known to be a complex, organized system. Yet today, the Fed continues to set policy as if the economy were a stochastic system that could be sledgehammered into whatever equilibrium state is deemed politically expedient. I would further argue that the Fed has not managed to succeed even in hammering the economy into a desirable equilibrium, but rather has mastered the ability to create artificial statistics to “justify” its actions.

The system is doomed to fail, because the resilience of natural complex systems requires freedom of action for its individual components. We do not observe resilient complex systems with central control. Yet central control is the dominant ideology of our present political and economic systems. Total control, with a vanishingly thin veneer of democracy, ephemeral as the morning dew.

Over-financialisation – the Casino Metaphor

Over-financialisation – the Casino Metaphor.

The casino metaphor has been widely used as a part-description of the phenomenon of over-financialisation. It’s a handy pejorative tag but can it give us any real insights? This article pursues the metaphor to extremes so that we can file & forget/get back to the football or possibly graduate to next level thinking.

What is the Financialised Economy (FE) and how big is it?

The FE can be loosely described as ‘making money out of money’ as opposed to making money out of something; or ‘profiting without producing’ [1]. Its primacy derives largely from two sources – the ability of the commercial banks to create credit out of thin air and then lend it and charge and retain interest; and their ability to direct the first use of capital created in this fashion to friends of the casino as opposed to investing it in real economy (RE) businesses. So the FE has the ability to create money and direct where it is used. Given those powers it is perhaps unsurprising that it chooses to feed itself before it feeds the RE. The FE’s key legitimate roles – in insurance and banking services – have morphed into a self-serving parasite. The tail is wagging the dog.

The FE’s power over the allocation of capital has been re-exposed, for those who were perhaps unaware of it, as we see the massive liquidity injected by the central banks via QE disappearing into the depths of bank balance sheets and inflated asset values leaving mid/small RE businesses gasping for liquidity.

By giving preferential access to any capital allocated to the RE to its big business buddies the FE enables those companies to take out better run smaller competitors via leveraged buy outs. By ‘investing’ in regulators and politicians via revolving doors and backhanders, it captures the legislative process and effectively writes its own rule book.

Five years after the 2008 crisis hit, as carefully catalogued by FinanceWatch [2], economies are more financialised than ever. If the politicians and regulators ever had any balls they have been amputated by the casino managers, under the anaesthesis of perceived self-interest. They have become the casino eunuchs. An apparent early consensus on the systemic problems of over financialisation has melted away into a misconceived search for ‘business as usual’.

Derivatives

Derivatives are one of the most popular games in the casino.

Over the counter derivatives, which are essentially bets on the performance of asset prices, stocks, indices or interest rates, have a nominal value (as of December 2012 [2]) of USD 632 trillion – 6% up from 2007 levels – and 9 times world GDP. If the world decided to stop living and buy back derivatives instead of food, energy, shelter and all the stuff we currently consume, it would take nine years to spend this amount.

OK – it’s a nominal value. Many observers believe (even hope) that its real value is a minute fraction of this, but the only way we will ever find out is if the derivative contracts unwind. That is, prompted presumably by some form of crisis, parties progressively withdraw from the contracts or fold. The regulators (and the FE itself of course) will do everything they can to prevent this from happening, including grinding the population into the dust via austerity, because while no-one knows who precisely holds the unwound risk, most will certainly belong to the FE’s top tier.

Many of these derivatives started life as sensible financial products. Businesses need to insure against an uncertain harvest, or hedge against uncertain currency movements. But only a small proportion of current holders now have an insurable risk. So whereas in the past you could say we insured against our own house burning down, now they bet on their neighbour’s house burning; whereas in the past we bet on our own life expectancy, they now bet on the deaths of others; whereas in the past we insured against currency losses we experienced in our own business transactions, now they bet on currency movements in general. What might be expected when there are incentives to burn your neighbour’s house down? Organisations have even purposely set up junk asset classes, had them AAA rated, sold them to outsiders and then bet on their failure.

Government & Politicians

Politics operates as a debating society in a rented corner of the casino. The rent is high but largely invisible to the populace. The debaters are themselves well off, at least in the U.S. they are [3].

Now the strange thing is that the government actually owns the casino, but they have forgotten this. For the last 40 years or so, they have asked the casino managers to issue all the chips. The government use the same chips to spend on public services, and require us all to pay taxes in those chips. Mostly they don’t have enough chips for all the services they provide, so they ask the casino managers for loans. The casino managers are happy with this, provided the government pay interest on the loan of chips. This hidden subsidy effectively funds the casino. It’s perverse because the government pays interest on money they could issue themselves debt-free.

It’s not entirely clear why the government thinks the casino managers are better at managing chips than they would be. Arguably the government is elected to carry out a programme and they should be the arbiters of the country’s strategic priorities, so there should be some strategic guidance over the way the chips are spent.

But the government is only here for five years, and the casino managers are here permanently. So perhaps they think it’s safer just to trust the casino managers to get on with it. When asked, the casino managers explain that they allocate chips according to ‘what the market needs’ and no-one quite understands why that doesn’t seem to include much real investment. In any case the government have forgotten that they could issue the chips themselves, and although prompted (e.g. [4]), have failed to show any interest in reclaiming that power. Occasionally they create a whole new batch of chips themselves (QE) – if they think the tables are quiet – but give them straight back to the casino managers. Maybe it’s too complicated for politicians. Many of them haven’t had proper jobs. There are a few civil servants who understand what’s happening, but most of them don’t want to rock the boat – they are here permanently too and have good pensions. They research for the debaters and have lunch with the casino managers. That keeps them quite busy enough, thank you.

The Real Economy

The Real Economy also operates from a corner of the casino. It’s hard to put an exact figure on it, but perhaps 3-5% of the overall floor space depending how you measure.

It’s a very important corner of the casino, but not for the reasons it should be. It should be important because it’s the place where food is grown, houses are built, energy for warmth and work is created and so on. But these precious things are taken for granted by the casino managers. They have always had enough chips to buy whatever they need – they issue them for God’s sake – and they think food, shelter and energy will always be available to them. Crucially though, they have also managed to financialise this remaining RE corner, and this ‘support’ is trotted out as a continuing justification for the FE’s central importance .

The RE corner has always included important social and cultural, non-GDP activities. The enormous real value of these activities is now being properly articulated and is spawning citizen-led initiatives (e.g. sharing economy approaches, basic unconditional income) but they are often presented as beggars who annoyingly keep petitioning for their ‘entitlements’ and generally clutter up this remote corner of the casino.

On the finance side, individuals and businesses are exploring ways of funding their future activity without going cap-in-hand to the casino managers. They are exploring peer-to-peer finance, crowdfunding, prepayment instruments and so on. What these initiatives have in common is the disintermediation of the casino. They provide ways for people to invest more directly and take more control over their savings and investments. Of course a new breed of intermediary is surfacing to broker and risk-insure these new models, and these new intermediaries can also be captured.

With transparency and short-circuit communication via social media though, there is definitely scope to do things differently. We must hope for progress because the casino managers have little interest in what’s going on outside.

The Planet – outside the casino

The planet outside is used by the casino in two ways – as a source of materials and as a dumping ground for waste.

The materials are not essential to the core FE which is all about making money out of money and needs nothing but ideas, a few arcane mathematical models to give spurious gravitas, and credulous or naive investors. But RE activity performs a valuable role for the casino managers – it provides them with an endless stream of innovative ways of using chips. The shale gas bonanza for example is apparently grounded in the real world need for energy, and is presented as such. Its significance to the FE is as another bubble based partly at least on land-lease ‘flipping’ [5].

Without an RE-related rationale/narrative, the FE might disappear up its own waste pipe as it re-invested/sliced-and-diced/marketised its own products to itself. So materials from outside the casino are important for the managers’ big corporate proxies in the RE.

FE-favoured RE activities also create lots of waste, some of which is toxic, and may eventually prove terminal, as it builds up. This fact is of little interest to the casino managers. There is a minor interest in waste-related financialised vehicles – carbon markets for example are a relatively new casino game – and in the slight impact on some of the FE’s RE-friends like big energy companies. But mostly the casino managers are too busy with their games and their chips. Occasionally a manager will wake up to the dangers and defect to the real world where they, somewhat perversely, carry more credibility because of their casino experience. A small minority of managers stay within the casino and try to gently modify its behaviour. This is portrayed as a healthy sign of openness; the casino is secure in the knowledge that their ways cannot easily be re-engineered.

Combating the casino’s influence

Essentially there would appear to be three possible lines of response for those who believe there should be more to life than casino capitalism. Marginalise, convert or destroy……

These approaches map on to the three ‘broad strategies of emancipatory transformation’ suggested by sociologist Erik Olin Wright [6] – interstitial, symbiotic and ruptural. I have a fourth suggestion/ variation of which more in a moment.

The challenge for interstitial initiatives is the sheer pervasiveness of the FE. There are few spaces left where the effects of the FE can be ignored. They may not be well understood, but whenever we pursue dreams, they pop up in front of us, usually as obstacles. Developments that are most heavily attacked by the FE establishment perhaps merit the most attention – community scale renewable energy, crypto currencies, co-ops, the sharing economy, and so on. The more these alternative directions are attacked as utopian or uneconomic the more we can be sure they offer promising interstitial opportunities.

Symbiotic opportunities may represent the triumph of hope over experience. Armed with the power of ideas, we back our ability to persuade policy makers and business leaders to change the game. The main challenges here are the arrogance of the powerful and the danger of being captured by supping with the devil. Vested interests generally feel secure enough that they don’t need to negotiate or even to spend brain power on listening and evaluating alternatives. If enough interest is manifested that symbiotic trial projects are begun, their champions can be captured by being made comfortable.

Ruptural alternatives come in a spectrum from those that would destroy business models to those that would destroy societies. They probably share the above analysis but differ in their degree of radicalism and disconnection from the main. The impact of FE-driven globalisation is beyond the scope of this article, save to note that its effects have unnecessarily radicalised whole populations making more measured responses more difficult to promote than they might have been.

The role of the internet and social media in progressing both interstitial and ruptural initiatives is significant. Most of the space to develop and assemble communities of interest and mission-partners is here, explaining why both are likely to experience increasingly determined attempts to capture.

The nature of one’s chosen response will be a matter of personal choice. We should not be judgemental of those who don’t have the will, energy or resourcefulness to play a more active role. We all suffer from our subservience to a dysfunctional system, some much more than others. The fourth response? Perhaps there’s some mileage in judo principles [7].

References

[1]: http://rikowski.wordpress.com/2013/12/12/profiting-without-producing-how-finance-exploits-u s-all/
[2]: http://www.finance-watch.org/
[3]: http://www.bbc.co.uk/news/world-us-canada-25691066
[4]: http://www.positivemoney.org/
[5]: “It seems fairly clear at this time that the land is the play, and not the gas. The extremely high prices for land in all of these plays has produced a commodity market more attractive than the natural gas produced.” Art Berman quoted athttp://theautomaticearth.blogspot.ie/2011/07/july-8-2011-get-ready-for-north.html
[6]: http://realutopias.org/
[7]: http://judoinfo.com/unbalance.htm

Featured image: Luxor, Las Vegas. Author: David Marshall jr. Source: http://www.sxc.hu/browse.phtml?f=view&id=90604

Activist Post: Keiser Report: Capitalism 2.0

Activist Post: Keiser Report: Capitalism 2.0.

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California declares drought emergency – World – CBC News

California declares drought emergency – World – CBC News.

Sprinklers water an orchard along Highway 32 east of Chico, Calif.Sprinklers water an orchard along Highway 32 east of Chico, Calif. (Jason Halley/Chico Enterprise-Record/Associated Press)

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California Governor Jerry Brown declared a drought emergency on Friday, a move that will allow the parched state to seek federal aid as it grapples with what could turn out to be the driest year in recorded state history for many areas.

The dry year California experienced in 2013 has left fresh water reservoirs with a fraction of their normal reserves and slowed the normally full American River so dramatically that brush and dry riverbed are showing through in areas normally teeming with fish.

“We can’t make it rain, but we can be much better prepared for the terrible consequences that California’s drought now threatens, including dramatically less water for our farms and communities and increased fires in both urban and rural areas,” Brown said in a statement.

“I’ve declared this emergency and I’m calling all Californians to conserve water in every way possible,” he said, in a move that will allow him to call for conservation measures and provide flexibility in deciding state water priorities.

Speaking at a news conference in San Francisco, he said the drought threatens to leave farms and communities with dramatically less water and increases the risk of fires in both urban and rural areas.

On Friday, a fire burned out of control in the dry brush of the Angeles National Forest in Los Angeles County. And last year, the Rim Fire burned 402 square miles in and around Yosemite National Park, causing $127 million US in damage as of late October, according to the most recent data available from the U.S. Forest Service.

He appealed to residents to keep a lid on water use with the aim of reducing overall consumption by 20 percent, telling them that “this takes everybody pitching in.” He warned that mandatory conservation programs may be initiated down the road.

Reservoirs at lowest levels in years

In a sign of the severity of the drought, some of the state’s reservoirs are at their lowest levels in years. The Folsom Reservoir near Sacramento is so low that the remains of a Gold Rush-era ghost town — flooded to create the lake in the 1950s — are visible for the first time in years.

The state’s mountain ranges, where runoff from melting snow provides much of the water for California’s thirsty cities and farms, have just 20 per cent of the snow they normally have at this time of year, officials noted.

Lake Shasta, the largest reservoir in California, is down from its historical average by nearly half.

Other sources of water, including the massive Sacramento-San Joaquin Delta, are also affected, prompting cities to dip into reserves and forcing farmers to scramble. Some public agencies may be able to purchase just 5 per cent of the water that they contracted to buy from the state.

Adding to concerns, January and February are usually the wettest months in much of the state, but 2014 has so far been mostly dry, with little precipitation expected, according to the National Weather Service.

Federal funds sought

In declaring a drought emergency, Brown said he did not know if he would be successful in persuading the federal government to free up funds for drought relief but he would try his best.

“It’s important, first of all, to awaken all Californians to the serious matter of drought,” he said, also warning of upcoming “conflicts and different perceptions on how water is to be allocated.”

Water has long been a contentious issue in California, where it has been diverted from mountain lakes and streams to irrigate farms and slake the thirst of metropolitan areas.

Many of the state’s efforts to deal with the problem are controversial, including a $25 billion plan to divert water from above the delta by sending it through a pair of huge tunnels.

For many in the state’s $44.7 billion agriculture business, water scarcity is a problem made worse by a recent switch to orchard-style crops such as almonds and olives. Unlike vegetables or cotton, which grow in fields that can be left fallow in dry years, the trees need water every year.

The state’s wine-growing regions have had just 23 percent of the rainfall they normally get by this time of year, said Patsy McGaughy, communications director for the wine industry group Napa Valley Vintners, which represents about 500 wineries.

Last year brought enough water that grape-growers were not yet feeling the pinch, she said, but a prolonged drought could affect future crops, if only by making the water scarce that growers use during cold snaps to warm up their plants.

Already, there were signs of competing priorities among groups that contend for water and will be closely watching how state officials use their new flexibility in allocating it.

Assemblywoman Connie Conway, the leader of the Republican minority in the state Assembly who represents a heavily agricultural area in central California, expressed hope that with the declaration more water could go toward “Valley farmers and workers who depend on water to feed the world.”

John McManus, executive director of the Golden Gate Salmon Association, said his group’s concern was for the health of salmon and a fishing industry that supports tens of thousands of jobs in California and Oregon.

“If the drought declaration results in more attention to saving the salmon that are in the Sacramento Valley rivers, and which are in dire need of attention, then that is good thing,” he said.

Making a case against fracking

Opponents of the water-intensive practice known as fracking, used to extract oil and gas from rock formations deep in the earth, have seized on California’s dry conditions, hoping it will put pressure to halt the controversial practice.

“As we see other sectors, like agriculture, struggling, what water rights do oil companies have to engage in fracking? The case can be made to place a moratorium on fracking just in the interests of conserving water,” said California Assembly member Mark Levine.

“Water is our most precious commodity, not oil,” he said.

There is also concern among power companies that use dams and other technology to create hydroelectric power from churning rivers.

The Sacramento Municipal Utility District, which provides power to the Sacramento area, relies on hydroelectric resources for about a quarter of the electricity it supplies, said Jim Tracy, the utility’s chief financial officer.

The utility can purchase power from other sources if hydroelectric power is not available, but if dry conditions persist for several years, consumers’ bills may increase, he said.

Doug Obegi, an attorney at the Natural Resources Defense Council, said California has a complex system that allocates water to areas that laid claim to it first – often over 100 years ago — and which many view the system as unfair.

“Because it’s so contentious, there are times when it’s hard to make progress,” Obegi said.

But in some ways the state has done well. Over the last 40 years, the state’s agriculture industry has doubled the revenue per drop of water used, largely from improved efficiency and changes in the plants grown, Obegi said.

Falling loonie tied to underperforming economy – Business – CBC News

Falling loonie tied to underperforming economy – Business – CBC News.

The Conference Board of Canada is calling the decline in the Canadian dollar the economic story of the year so far, predicting further declines as the Canadian economy underperforms.

The loonie began the day stronger on Thursday, rising to 91.48 US in early trading, up from its close of 91.37 US yesterday. It closed up 0.16 of a cent to 91.53 cents US.

The Canadian currency fell 6.6 per cent in 2013, after trading at par with the greenback in February, and is down more than three per cent since the beginning of the year.

‘Markets are betting that the Canadian economy will continue to underperform’– Glen Hodgson, Conference Board

The Conference Board, an economic and policy think tank, said the falling dollar is a sign of lack of confidence in Canadian growth prospects.

“Arguably more important than the value of the loonie is the signal it sends about the Canadian economy. Markets are betting that the Canadian economy will continue to underperform,” chief economist Glen Hodgson said in a report released today.

Loonie 20140109The Canadian dollar is trading at its lowest levels since 2009, after falling from par in February 2013. (Paul Chiasson/Canadian Press)

“This assessment is consistent with our own forecast, which calls for U.S. gross domestic product to grow by 3.1 per cent in 2014, much better than Canadian growth of 2.3 per cent,” he continued.

Hodgson is not the only economist predicting Canada’s GDP growth will underperform the U.S. Towers Watson’s annual survey of Canada’s top economists and analysts found most believe Canada will lag the U.S. in both economic activity and job creation over the next few years.

Too many plant closures

“With a lower Canadian dollar, there is hope that manufacturing businesses, and certainly the export sector of the economy, can contribute to reducing the unemployment rate in the next few years,” said Janet Rabovsky, Towers Watson director of investment consulting.

“That being said, recent announcements about industrial plant closures in Ontario would indicate that the cycle has not yet turned.”

Hodgson agreed that it is not clear if Canadian exporters will be able to fully capitalize on a weaker dollar because of the loss of capacity in the manufacturing sector since 2008.

There have been deep slashes in export-dependent industries — such as autos and parts — and a shift of much U.S. production to the southern states, so Canadian suppliers may not benefit as quickly as in the past from the U.S. recovery, he said.

He also points to the hit consumers may take from higher prices.

TD chief economist Craig Alexander said the U.S. Fed’s “decision to taper asset purchases has greased the skids under an already depreciating loonie.”

Traders rush back to U.S. dollar

The Fed decided in December to taper its U.S. bond-buying program to $75 billion US a month and as good economic news out of the U.S. continues to roll in, it is expected to continue tapering.

But that has encouraged traders to buy the U.S. dollar, leading to a rush away from the Canadian dollar.

“However, the fundamentals are not Canadian-dollar positive either, and the loonie likely has further to fall,” Alexander said in a research note.

BMO chief economist Doug Porter predicts a falling dollar will actually help boost Canadian GDP in the long-term – as much as 1.5 percentage points over the next two years if the loonie falls to 90 cents or lower.

“There are definitely losers, such as consumers, travellers, utilities, broadcasters, sports teams. But there are also lots of winners. The beleaguered manufacturing and domestic tourism sectors will find the biggest relief from the weaker currency. Even some retailers will be breathing a tad easier, as the loud siren call of cross-border shopping fades for consumers with each tick down in the currency,” he said.

The Level Of Economic Freedom In The United States Is At An All-Time Low

The Level Of Economic Freedom In The United States Is At An All-Time Low.

Photo by U.S. Senator Mike LeeAmericans have never had less economic freedom than they do right now.  The 2014 Index of Economic Freedom has just been released, and it turns out that the level of economic freedom in the United States has now fallen for seven consecutive years.  But of course none of us need a report or a survey to tell us that.  All we have to do is open our eyes and look around.  At this point our entire society is completely dominated by control freaks and bureaucrats.  Our economy is literally being suffocated to death by millions of laws, rules and regulations and each year brings a fresh tsunami of red tape.  As you will see below, the U.S. government issued more than 80,000 pages of brand new rules and regulations last year on top of what we already had.  Even if we didn’t have all of the other monumental economic problems that we are currently facing, all of this bureaucracy alone would be enough to kill our economy.

Yes, every society needs a few basic rules.  We would have total chaos if we did not have any laws at all.  But in general, when there is more economic freedom there tends to be more economic prosperity.  In fact, the greatest period of economic growth in U.S. history was during a time when the federal government was much smaller, there was no Federal Reserve and there was no income tax.  Most Americans do not know this.

Those that founded this nation intended for it to be a place where freedom was maximized and government intrusion into our lives was minimized.

If they were still alive today, they would be absolutely horrified.  We are literally drowning in red tape.

The photo posted below was shared by U.S. Senator Mike Lee on his Facebook page.  Study it carefully…

Photo by U.S. Senator Mike Lee

The following is what he had to say about this photo

“Behold my display of the 2013 Federal Register. It contains over 80,000 pages of new rules, regulations, and notices all written and passed by unelected bureaucrats. The small stack of papers on top of the display are the laws passed by elected members of Congress and signed into law by the president.”

I didn’t even see the small stack of paper at the top of the cabinet until I read his explanation.  Most of the time everyone is so focused on what Congress is doing, but the truth is that the real oppression is happening behind the scenes as unelected federal bureaucrats pump out millions upon millions of useless regulations that are systematically killing our economic freedom.

On Tuesday, an article about the 2014 Index of Economic Freedom was published by the Wall Street Journal.  As I mentioned above, the United States has fallen for seven years in a row

World economic freedom has reached record levels, according to the 2014 Index of Economic Freedom, released Tuesday by the Heritage Foundation and The Wall Street Journal. But after seven straight years of decline, the U.S. has dropped out of the top 10 most economically free countries.

That same article mentioned some of the reasons why the United States is falling…

It’s not hard to see why the U.S. is losing ground. Even marginal tax rates exceeding 43% cannot finance runaway government spending, which has caused the national debt to skyrocket. The Obama administration continues to shackle entire sectors of the economy with regulation, including health care, finance and energy. The intervention impedes both personal freedom and national prosperity.

And of course the results are predictable.  Our economy has been steadily declining for many years, and that decline appears to be ready to start picking up speed once again.  The following is an excerpt from a recent article by Dave in Denver

In the latest retail sales report for December, auto sales were nailed – down 1.8%. The only reason overall retail sales from November to December showed a slight “gain” that November’s number was revised lower. Electronics fell off of a cliff. The housing market is about to get crushed. Feedback I’m getting from my Seeking Alpha articles and blog posts on housing from housing market professionals all around the country tells me that the housing market hit a wall at the end of 2013, as I have been forecasting.

What he said about the housing market is definitely true.  In recent months, mortgage originations have been falling like a rock.  Just check out this chart.

And as I wrote about the other day, there has been absolutely no employment recovery since the end of the last recession.  In fact,1,687,000 fewer Americans have jobs today compared to exactly six years ago even though the population has grown significantly since then.

Unfortunately, these are not just “cyclical problems”.  Long ago we abandoned the fundamental principles that once made our economy great, and now we are paying a tremendous price for that.

Posted below is a story that has been circulating all over the Internet for quite some time.  It is a fake story.  Once again, let me repeat that.  This is a fake story.  But I think that it does a great job of illustrating what is happening to America as we march toward full-fledged socialism…

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, “OK, we will have an experiment in this class on Obama’s plan”.. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A…. (substituting grades for dollars – something closer to home and more readily understood by all).

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

The second test average was a D! No one was happy. When the 3rd test rolled around, the average was an F. As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. Could not be any simpler than that.

But of course it would be disingenuous to pin all of the blame for this just on Obama.  The truth is that our nation has continued to march toward socialism no matter who has been in the White House and no matter who has been in control of Congress.  So if you want to place some of the blame on a “Bush” or a “Clinton” or a “Boehner” or a “Pelosi” please feel free.

And the American people are getting sick and tired of this one party system that has two heads.  According to a recent Gallup survey, only29 percent of all Americans consider themselves to be Democrats right now.  And the news was even worse for Republicans.  According to that survey, only 24 percent of all Americans consider themselves to be Republicans at this point.

A staggering 45 percent of all Americans now consider themselves to be Independents.  Deep down, most Americans know that something is seriously wrong with our nation and that they are being lied to be our politicians and the mainstream media.

Unfortunately, there is very little agreement about how to fix things because Americans do not have a set of shared values that we all agree on anymore.

World Bank Raises Growth Forecasts as Richest Nations Strengthen – Bloomberg

World Bank Raises Growth Forecasts as Richest Nations Strengthen – Bloomberg.

The World Bank raised its global growth forecasts as the easing of austerity policies in advanced economies supports their recovery, boosting prospects for developing markets’ exports.

The Washington-based lender sees the world economy expanding 3.2 percent this year, compared with a June projection of 3 percent and up from 2.4 percent in 2013. The forecast for the richest nations was raised to 2.2 percent from 2 percent. Part of the increase reflects improvement in the 18-country euro area, with the U.S. ahead of developed peers, growing twice as fast as Japan.

The report by the institution that’s trying to eradicate extreme poverty by 2030 indicates a near-doubling of the growth in world trade this year from 2012, as developed economies lift export-reliant emerging nations. At the same time, the withdrawal of monetary stimulus in the U.S. may raise market interest rates, hurting poorer countries as investors return to assets such as Treasuries, according to the bank.

“This strengthening of output among high-income countries marks a significant shift from recent years when developing countriesalone pulled the global economy forward,” the bank said yesterday in its Global Economic Prospects report published twice a year. Import demand from the richest nations “should help compensate for the inevitable tightening of global financial conditions that will arise as monetary policy in high-income economies is normalized.”

Photographer: Brent Lewin/Bloomberg

Produce is sold at a market in Kolkata. Growth in developing countries will accelerate… Read More

Fed Tapering

The bank’s forecasts hinge on the orderly unwinding of Federal Reserve stimulus, which is starting this month with the trimming of monthly bond purchases to $75 billion from $85 billion. If investors react abruptly in coming months, as they did in May when the central bank mentioned the possibility of tapering, capital inflows to developing economies could drop again, according to the report.

“To date, the gradual withdrawal of quantitative easing has gone smoothly,” Andrew Burns, the report’s lead author, said in a statement. “If interest rates rise too rapidly, capital flows to developing countries could fall by 50 percent or more for several months — potentially provoking a crisis in some of the more vulnerable economies.”

The bank sees a global expansion of 3.4 percent in 2015, compared with 3.3 percent predicted in June.

In the U.S., where growth is seen accelerating to 2.8 percent this year, unchanged from the outlook in June, the recent budget compromise in Congress will ease spending cuts previously in place and boost confidence from households and businesses, the bank said.

Japan’s Outlook

The bank held its forecast this year for Japan at 1.4 percent, while cautioning that the reforms of the economy promised by the government “have disappointed thus far, raising doubts about whether the improvement in economic performance can be sustained over the medium to longer term.”

It raised its prediction for the euro region to 1.1 percent for this year from 0.9 percent in June as the monetary union comes out of it debt crisis, propelled by Germany and showing improvement in fragile economies including Spain and Italy.

“The euro area is where the U.S. was a year and a half or two years ago, where growth is starting to go positive but it’s still hesitant,” Burns, also the bank’s manager of global macroeconomics, said in a phone interview. “We’re not going to be totally convinced until this gathers a little more steam.”

The bank estimates that investors withdrew $64 billion from developing-country mutual funds between June and August, with the impact most pronounced on middle-income countries includingBrazilIndia and Turkey. Not all economies were hit the same way, as China or Mexico were less affected because of stronger economic fundamentals, the bank said.

Developing World

The 2014 forecast for developing markets was cut to 5.3 percent from 5.6 percent.

The bank lowered its forecast for China this year to 7.7 percent from 8 percent, saying the world’s second-largest economy is shifting “to slower but more sustainable consumption-led growth.”

It cut projections for Brazil to 2.4 percent from 4 percent, for Mexico to 3.4 percent from 3.9 percent and for India to 6.2 percent from 6.5 percent.

Growth in developing countries will accelerate “modestly” between 2013 an 2016, at a pace about 2.2 percentage points below that of the years preceding the global crisis, according to the bank’s report.

“The slower growth is not cause for concern,” according to the report. “More than two-thirds of the slowdown reflects a decline in the cyclical component of growth and less than one-third is due to slower potential growth.”

Still, not all countries are well placed to respond to capital outflows and higher interest rates, according to the bank, which urged policy makers to prepare now for such an outcome.

To contact the reporter on this story: Sandrine Rastello in Washington atsrastello@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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