Monday, November 29, 2010
While Americans were stuffing their Type 2 faces with turkey flavored tryptophan-laced fixins’, the hard drinking tag team of Cowen and Lenihan were meeting behind (very) closed doors with the bond thug representatives of the IMF and the Eurozone to traitorously sell out an entire nation of 4.5 million people. I am talking about Ireland.
This sellout which would burden the Irish state with somewhere between $89 and $113 Billion depending on which news source you believe. If I am doing my math right, that is saddling every single Irish soul with a debt(plus interest!) of over $25,000. I would remind the Irish people
how the people of Iceland reacted when a similar absurd sellout into debt slavery was proposed early this year that would have saddled every Icelandic citizen with over $17,000 in debt. This so called oxymoronically labeled Icesave legislation was resoundingly defeated by over 90%. of Icelanders. Iceland is a remarkable place, a little island of democracy where the people stood up to Dutch and UK bondholders who were demanding that Icelandic citizens make good on the gambling activities of their unregulated banking system. The situation in Ireland is eerily similar to Iceland and for that matter to the US where the bondholders of AIG were bailed out by a corrupt American political system owned lock, stock and barrel by the bond market. As you may recall, that bailout went not just to the Blood Squid Goldman Sachs in New York but to European and Asian bondholders, all of it paid with borrowed money from our American children’s futures.
But wait, there is more. The dipsomaniac Cowen agreed to a raid of the Irish pension system to the tune of $17.5 Billion. This has been done and tried in other nations, Argentina among them, to try to bail out the nations banks at the expense of the citizens of Ireland who had no direct role in the collapse of banks in Ireland, most notably the Anglo-Irish bank. Do you notice the name? The Irish serfs, which is what they will soon become, are being forced to bail out not just Irish banks but US,UK, German, French, and other European bondholders. The worldwide bond market has been getting away with jamming it’s blood funnel into the citizens of the world to cover its bad bets. Is it possible that the Irish people do not see that they are being asked to bail out international banks ? This loan is to save not the the Irish state, or Irish banks. This loan is to try to save bondholders in the globalized banking system at the expense of the Irish citizens. It is simply outrageous. When the Iceland Parliament was debating whether to sellout the Icelandic citizens this spring, Icelanders showed up in a vast mob banging on pans and demanding justice. And it worked. It can also work in Ireland but the Irish people are going to have to get serious. They had a march a few days ago which was supposed to be a “family friendly” rally of about 100,000 well behaved people. Well, family friendly didn’t cut it and when it is so painfully apparent that the bond market owns the Irish politicians, the next rally will need serious teeth and I am not suggesting that Cowen and Lenihan and Peter Sutherland, the former AG of Ireland now in the pay of Goldman Sachs should be dragged out of their comfy offices and placed in stocks in the town square. Violence also doesn’t cut it. A French Revolution style protest would be internecine . I would suggest a lot of pots and pans and true to Irish tradition, perhaps armed with thousands of PVC or ABS potato guns, open fire on Cowen’s bunker and demand the immediate resignation of the whole pusillanimous pack of cowards. The Irish people need to demand that default is the only option.
Would default endanger economic stability in the Eurozone? Of course. Would an Irish default endanger the Euro? Perhaps. Would default stick it to the bondholders? Obviously. The banks and bondholders hold vast amounts of not only Irish but Greek, Portuguese, Spanish, and Italian debt. But should the citizens of these countries bail out these banks? Obviously not. The misnamed “bailout” of Ireland is just more can kicking and the first and only rule of thumb when you have dug yourself into a hole is to what? STOP DIGGING! If it is debt that caused the failure, then how will taking on more debt fix it?! Even Paul Krugman of the NY Times is having second thoughts about borrowing and throwing money at the Irish problem. If Ireland defaults, what who will be next? Portugal, Spain? Italy, Greece? California? Probably. Will the EEU fail? Perhaps. But these solutions by the bond market gangsters solve nothing. The mountain of debt is not being restructured or reduced because the bond market just hates losing money. Eventually this mountain of debt will hit it’s angle of criticality and implode in a disorganized fashion. A scheduled, organized, orderly default is the only solution. I would suggest that the Irish Parliament book a flight on Aer Lingus to Stockholm and ask the Swedes for their recipe of bank restructuring which they employed in the 1990’s to take care of their bank default. There simply is no other option.
Wednesday, November 17, 2010
My point is that the Chinese by dint of hard work and strategic cooperation would have risen in the world economy but someone over there in the secret councils in Beijing decided that the old state run model of centralized production wasn't paying the bills and needed a kick start. And what a kick start it was and has been. And the model was this: Open up China to the wonders of comparative advantage, let the yellowhairs come and build their factories with tax advantages galore and a starving population from the country willing to work at slave labor wages, sell salad shooters to Americans and take the enormous profit generated to buy treasuries. But here is where the Chinese were crucially foxy and the US government was criminally insane. The Chinese said we will build your salad shooters but we want you to send over the machinery and the technology to build those shooters. Of course it didn't stop with salad shooters. It soon began to include machine tools, building materials, computers,textiles,solar and wind technology and now aircraft manufacturing. They made transfer of the technology and the machines a precondition of the deals and our government was stupid and greedy enough to permit and encourage the destruction of the American economy. The Chinese didn't destroy and take over our economy, we actively encouraged it.
Now again, this is no conspiracy. If you recall at the time in the 1980's when the Chinese ascent began, we had an imbecile running the Federal Reserve and a demented retired actor running the country who told us we were a nation of ideas, and would not miss these dirty manufacturing jobs. This was the dawn of the computer age and consumerism, cheap gasoline, the toppling of the Berlin Wall and the Soviet Union dissolving before our eyes. And so began globalization, shutting down American Plants who paid living wage jobs to uneducated folks who could afford to buy American cars, shoes, clothes and tools and appliances and live in their slab boxes in the suburbs. I guess you could call it some early post industrial version of the American Dream. What we have here then is analogous to a war and it is hard to argue that America has won any battles and if we don't start winning a few pretty soon, it will be all over.
The Chinese are sitting on cash, a pile of treasuries,and agency debt. They have not come by this cash hoard by sheer hard work. They have ignored patents, intellectual property laws and have stolen machinery outright as well as engaging in cyber theft and espionage. They are just doing what a lot of countries have done but on a huge scale, What I find most ominous is that the Chinese have been making big energy deals with any country willing to sign an exclusive contract with them and of late they are using those treasuries to buy up mines and mining companies all over the world supplying only China. They are willing now to retaliate against anyone who crosses them. When a Chinese trawler strayed into disputed waters last month near Japan and banged into a Japanese Coast Guard vessel, the skipper and ship were impounded and the Chinese immediately cut off deliveries of crucial metals and rare earths to Japan. For a country like Japan which relies on these metals for export, that was big deal. Whatever. Maybe it was payback for the Rape of Nanking but it got the world's attention. The Chinese play for keeps. They are spending money like a drunken sailor buying up every crucial asset in sight. But remember this: It was money that we gave to them and if we keep giving it to them, in time, they will own us. What we can do about winning a skirmish or two in this war will be the subject of an upcoming blog. Now a disclaimer:A few years back our family hosted a choir from the University of Nanjing and it was an eye opening experience to meet such fine and warm people. I became an instant fan of the Chinese people and their rich and varied culture and history. I think we have more to learn from them that they from us.
Tuesday, November 16, 2010
I follow the periodic reports from the International Energy Agency(IEA) and our own domestic equivalent the EIA. World supply and demand figures form a big part of the reports out of the Paris based IEA and this recent report seemed benign and banal enough until I had some time to study the graphs and contrast them with the text. For many years, the IEA has been predicting world oil demand and expected production with figures that seemed chimerical to me and increasing every year. Their production forecasts always kept up with world demand out many decades to come and were in line with our domestic think tanks like like Daniel Yergin at Cambridge Energy Research Associates(CERA). CERA and the IEA debunked Peak Oil as an immediate or even near term issue. IEA years back predicted world production into the distant future of up to 120 MBD but in the past few years that number has been ratcheted back to 105 MBD, then to the mid 90’s. Here is the graph I saw yesterday oil global oil production and you tell me what you see:
Click to this link if you want a enlarged look also at this graph and others :http://www.worldenergyoutlook.org/docs/weo2010/key_graphs.pdf. This link will also get you to the 2010 Annual Report which is 63 pages and well worth a critical read.A whole lot of very percipient authors starting with M King Hubbert in 1956 have predicted an imminent peak to first domestic then world oil production. They have included many distinguished petroleum geologists like Ken Defeyes, Colin Campbell as well as CEO’s of various energy and energy financing companies like Matt Simmons and a whole raft of authors such as Richard Heinberg, Jim Kunstler, James Michael Greer and others. The fact and the reality of Peak Oil as it was then called was certainly known in high political circles but was systematically concealed from the public. The super secret energy conferences at the beginning of the Bush administration almost certainly discussed this reality as the invasion of Iraq and Afghanistan and the isolation of Iran virtually prove. The invasion of these middle east countries were no more about democracy than cow pies are about pie. Dick Cheney and his oil goons knew the US was 30 years past our peak and those wars were about access to oil and nothing else. Of course, if a few of our mercenary forces could nail a few jihadists, so much the better. It made good press and concealed the real purpose of the mission which was to secure oil access corridors. There are 28 members of the IEA and most are also OECD countries. Chile, Iceland, Mexico and Slovenia are OECD Member countries but currently not IEA Member countries. You will note some rather curious countries in the mix many of whom have no significant petroleum resources. In fact none of them have significant petroleum resources except the US, Canada and perhaps England. These countries are a curious collection of countries that just need petroleum even though a few like Iceland, Greece and Ireland are virtually bankrupt. What is also obvious is that none of the petro powers are members. Curioser and curioser. This motley membership list is just one of the odd things about the IEA. What is also apparent if you are used to reading the much vaunted IEA reports is that the IEA is primarily a political organization putting out often unverifiable energy data for the consumption of its members. Now to get back to the graph, if you look at the navy blue portion, you see that peak oil is staring you in the face. For the time being look only at the blue portion of the graph. That is conventional oil. Forget the unconventionals, biofuels, tarsands, ethanol, propane and so forth. Most of the non oils are subsidized or of lower btu content. To repeat, look at just crude oil. That is the real story, the only important story. The other "fuels" are fog and mirrors, fluff, fog, and mud thrown into your face hoping you don't notice the blue portion of the graph. In fact we hit it in 2005 and have been clattering along on the summit ridge for 5 years or so but until this years report which made Peak Oil impossible to ignore. Another oddity:The IEA with this graph has announced in effect , all is well. Just look at our graph. It slopes up(Yea!) and only minimally in the report is there a mention of EROEI, the net energy required to produce this petroleum to the right of the vertical line marking 2009. The really REALLY important thing to take away from this graph is that it takes vast and increasing amounts of energy, usually oil, to be able to produce the new oil. The old oil was cheap to produce. The new oil will be expensive.Once you reach the point where it takes one gallon of oil to produce one gallon of oil, you are out of business. In fact by the time you get to say 3 gallons to get one,according to some experts, you are toast. Lets look at some of those other colors which are supposed to save us..Unconventionals are things like oil sands and shales, biofuels, coal to liquids(CTLs). They are almost entirely subsidized fuels. In the case of the Canadian oil sands, the extraction is subsidized by tax policy,governments and mostly by the rock bottom cost of natural gas which is far below the cost of oil on a btu basis. Remove the subsidies and the sands are dead or nearly dead as their EROEI ration is approaching 3:1. The subsidiers will argue that it is much higher of course because they are on the receiving end of that tit. Forget oil shales and CTLs most especially. Germany lost the war because it’s distillates for its war machine relied upon CTLs with low net energy. Once they failed to hold oil fields and refineries, they were toast. Biofuels have very low net energy unless they use non petroleum energy or are used on site. They are kept alive by subsidies, currently $.45/gallon for ethanol in the US. Remove the subsidies and they are toast. Natural gas liquids are compounds like propane, butane,ethane, , natural gasoline and a few others that come out of oil wells as well as the gas wells. The predominant component of gas wells is CH4, methane, but it is mixed in with these other gasses along with nitrogen, SO2 and water vapor. It’s production stays constant out to 2035 . The obvious implication is that NGL’s will be coming in vast quantities from gas wells, not oil wells. NGl’s have a market value currently of about 35% of what oil goes for, about $30/barrel. Methane doesn’t go for much these days so my gut tells me that just going after NGL’s will not be cost effective as net energy costs rise. The next color, the light blue just has to be total guesswork. It implies there is a lot of new oil to be found, a dubious assumption. Certainly there is likely that amount of oil to be found but it will be expensive hard to produce oil in dangerous and distant places. It will likely have a high EROEI, or net energy. The gray is perhaps a bit more reliable with fields to be developed. Some will be very expensive oil, most offshore and most in politically unstable areas like Iraq. Will peace break out and the Shiites shake hands with the Kurds and Sunnis? I would say unless that happens or Iraq is partitioned into 3 countries, that graph could get pretty slender. Now there is one other graph of vital interest which is Pg 5 on the IEA report which is rarely mentioned. Oil demand in the future will be driven not by OECD countries who don’t have much oil, but by countries like the Persian Gulf, Russia, and Brazil who do. Curiously, the graph shows declining consumption of fossil energy in the richer nations and increasing consumption in the poorer nations. So if I am reading this correctly, the more scarce and expensive these fuels become, only the poor nations will be able to afford them. This is patent nonsense. The poorer nations will soon be priced out of the market, outbid by the richer nations.The poorer nations have been late to the industrial party and just as they are beginning to taste the dubious fruits of industrialization, the rising cost and scarcity of energy will cut them off at the knees. The richer Western nations got to the cheap energy first and partied like there was no tomorrow at the expense of the third world nations.. The Persian Gulf exporters will party on for a while longer surrounded by highly militarized nations running on fumes. It doesn't take an Einstein to figure out the next step. Many of the Gulf nations are incapable of making anything. The Saudi terrorists who caused 911 had to use imported box cutters to break into the cockpits. Many of the desert exporters grow very little of their own food from their harsh desert landscape and are buying up rich farmland in distant poor lands to feed their people. Imagine the thoughts going through the mind of a starving native watching convoys of food passing through his impoverished village on the way to Riyadh. These long complicated food supply chains carry obvious seeds of their own destruction.But I digress. There is a so called Land Export Model which states that as oil consumption in he exporting lands increase, oil will go to the producers first and the rest of us get what’s left. Mexico, for example is fast approaching this point when they will have only enough oil for Mexicans. So not only does net energy shrink the IEA graph(imagine it made of wool and then put it through a hot wash and a hot drier), but the availability of that oil reduces what’s left for the largely white, post colonial members of the IEA. Hey you say, What about China? That will be the subject of an upcoming post.
Monday, November 15, 2010
Saturday, November 6, 2010
The reason the system doesn't work is obvious. You are voting on the posturing puppets in the political class and not the ruling and ownership class. If you want fairness and change you have to be able to vote on whether to keep the Federal Reserve banking cartel, hedge funds banks, a million secret LLC's and transnational banks and corporations and all the other bond market participants who really call the shots. But they are beyond reach and unaccountable. So again, why is it you think you should vote? We are beyond the point where voting has efficacy. The capital controlling ruling class holds all the cards. They made some stupid greedy bets which could have cost them their beloved capital and in an act of self preservation shifted the losses to the slobs down the hill in the slave quarters. This process is by no means confined to the United States. An example of their current scam mediated by the IMF, World Bank, the ECB and the other banking cartels is to impose austerity on the slaves. Mr Blankfein, over at your local Irish branch of Goldman Sachs is now doing doing his covert best to make those hapless potato pickers pay Mr Legree's bondholders in the Anglo Irish Bank taken over by the Irish Government. What is interesting and not surprising is that the Head of Goldman Sachs in Europe is Peter Sutherland who has been meeting behind closed doors with Brian Lenahan, the current finance minister of Ireland. Peter Sutherland of GS was(surprise surprise) the former recent Attorney General of Ireland.!! What these Legrees are doing exactly mirrors what happened in the US under the inspired leadership of Hank Paulson and the whole rogues gallery who preceded and followed him. Their goal was and is to force the responsibility of their bad bets onto the backs of the laboring slaves. Ditto in Greece, Portugal and who knows how many other countries at Europe's periphery. The slaveholders made the mistakes and the slaves must pay. What the Simon Legrees have not counted on is a good old fashioned slave rebellion and my bet is that it could easily happen in Greece or Ireland. While the capital holding class is the defacto ruling class, in fact they have no authority over the slaves. The US dominated IMF has no authority over slaves in Iceland, Ireland, or Greece and if the slaves figure that out, we could have a real game changer. The capital owning giant squid are sitting on vast bags of debt they have foisted on the world assuming that the hapless slaves will just keep picking cotton ad infinitum paying off bad debts.
The Industrial West is staring into the abyss of perhaps the greatest depression it has ever seen and the debt has not been repudiated and until the debt is shifted to the shoulders of the bondholders, and the wealthy capital owning class who by any standard of fairness should be shouldering the burden, there will be no end to the looming deflationary depression. So far this battle has been waged in secret councils and banking , corporate and legislative conference rooms far from the prying eyes and ears of the slaves. The world now awaits the arrival of a modern day Spartacus.
Wednesday, November 3, 2010
Stoneleigh and her associate Illargi post their blogs at http://theautomaticearth.blogspot.com/. The blog deals with concepts of peak oil, finance, politics and economics . Their blog is a detailed exhaustive look at how the darker aspects of these disciplines could interact and contribute to a depression that would be long, deep and severe. The blog is well organized and contains primers on finance and economics and a variety of other useful informative links, and I would urge the reader to examine it in detail. The single best way to grasp her message is to purchase a professionally produced video from the website entitled "A Century of Challenges." which mirrors her current lecture.
Stoneleigh is currently on a world tour which has aspects of a circuit rider, a Chautauqua and the ride of Paul Revere. She accepts invitations from interested groups and gives her lecture at no charge but is willing to pass the hat at the conclusion of her talks to which the audience is welcome to donate to if they derive value from the presentation.She often stays in the homes of her sponsors to keep her costs down.
I agree and understand most of the concepts and opinions promoted by Stoneleigh which I might attempt to summarize (at my peril!) here for folks not familiar with the website. She and Illargi believe that what we are experiencing worldwide and most particularly here in the US is the early stages of a deflationary depression the root cause of which has been the largest expansion of debt and credit in world history. One of the biggest problems is that this credit has many claimants to the same pie making it impossible to satisfy these multiple claims in a collapse scenario unless of course you have as your ally the political class who is willing to borrow trillions from future generations to attempt to pay off current claims. Stoneleigh contends that the money supply is composed not only of cash in circulation but credit, with credit comprising 95 % of what we call money. Hence when the value of the items financed on credit plummet, credit collapses which has the effect of contracting the money supply which Stoneleigh contends is the very essence of deflation. Although I did not hear Stoneleigh explicitly say this, if she is correct, I would conclude that Federal Chairman Bernanke's feeble last ditch attempts at quantitative easing which amounts to money printing to inflate the money supply with many billions could be foolish and fruitless trying to fight deflation which could be in the many trillions. Another important feature she related is that subsidized fossil energy has fueled this worldwide economic expansion on the way up but it will be the collapse of finance and credit on the downside that will lead to the greatest depression. She also said that hope and greed drive markets on the ascent but fear drives them on the descent. Hope and greed can exist for a long time as markets rise but fear is a far more powerful factor, and fear can destroy markets far faster than greed can build them. The next big dip in the markets could occur with the speed of a New York minute, a gnat's eyelash. It is not surprising that Stoneleigh and Illargi are adamantly opposed to taking on any debt and holding most equities. They stand squarely in the Cash is King crowd and Stoneleigh even believes that the US dollar is the currency of choice to hold in the near term. I'm not sure I would I am totally comfortable with that choice.
One of the most remarkable features of this woman and her financial partner is that they are not Amuricans!! Both hold European passports. Their knowledge of American economic and financial history both current and distant is remarkable.Neither of them in fact has any formal training in finance or economics which probably contributes to their big picture view of the trends driving the sputtering corporate industrial economy.
The final factor which will likely impact this deleveraging deflationary depression is simply a matter of bad timing as the world has hit the peak of cheap oil and in the near future will be riding down the backside of the so called Hubbert Curve in which energy will get ever more scarce and expensive.