Why Big Ag Has No Future

I blog when I have something useful to say. For that reason I sometimes go long periods of no posts. Here is a stunning picture of a topic near and dear to my heart. The picture c/o National Geographic and the website on sustainable AG says it all. It shows in pictorial form the amount of energy used from fossil sources to produce a given amount of beef flesh for human consumption. AS the website states, the fossil energy comes from many sources, not just oil and so oil was chosen as the proxy for the sources. The article states that 26 units of fossil energy is needed to produce one unit of “beef” energy. I would like to source this research to verify these numbers as the previous data I have in hand states the ratio more like 7 or 8 to one. A graph from the site is included sowing the correlation from IEA and other sources of the correlation of food to oil price which I have long suspected but never have previously seen in such graphic form. It is obvious that this has societal, financial and ethical implications. I suspect this graph would only be valid in an energy profligate big ag type of agriculture but perhaps not. The website is here. Click on the images to enlarge them.

Davos 2011 vs the SOTU

Now that America's  annual irrelevant recitation of platitudes and clichés in the SOTU is over in DC, I need to clue you in on where the real party  is jumping. I am referring to the World Economic Forum being held high in the Swiss Alps in a secure berg/sometime ski area by the name of Davos.  I long ago gave up on the political circus of the State of the Union(SOTU) years ago in which nothing of substance is ever said interrupted by loud applause from the dominant party de jour. I do confess I generally read a transcript of  what the president says but ESPN college basketball and the Australian Open was far more compelling boob tube fare than watching the  latest lesser of 2 evils political leader spouting cornpone shibboleths, half lies and sheer nonsense.
     Davos  is where it's happening. It is the annual by invitation only FORUM   to  the 2500 masters of the Universe, the people who actually rule the world, the  echte ruling classes to engage in deal making, kibitzing and partying and receiving the latest in financial and economic wisdom handed down from the various think tanks associated with the WEF. I will report on one of those economic reports in a bit but let's take a look at who the WEF really is. Their slick website is here:http://www.weforum.org/. The featured face that popped up when I clicked the link was the famous bankster Jamie Dimon so I knew what I was in for even before I did my due diligence research. First some background. The WEF was founded by a German businessman named Klaus Schwab in 1971. It is structured as a NGO non profit organization but it appears to be  well funded from the profits of its members. Here is a citation from Wikipedia of who pays to play:

Membership

The foundation is funded by its 1,000-member companies, the typical company being a global enterprise with more than five billion dollars in turnover, although the latter can vary by industry and region. In addition, these enterprises rank among the top companies within their industry and/or country and play a leading role in shaping the future of their industry and/or region. As of 2005, each member company pays a basic annual membership fee of CHF 42,500 and a CHF 18,000 annual-meeting fee which covers the participation of its chief executive officer at the annual meeting. Industry Partners and Strategic Partners pay CHF 250,000 and CHF 500,000, respectively, allowing them to play a greater role in the foundation's initiatives.^[11][12].

Organization

Headquartered in Cologny, the foundation opened, in 2006, regional offices in Beijing, China; and New York City, New York, United States. It strives to be impartial, and is not tied to any political, partisan or national interests. The foundation is "committed to improving the State of the World",^[9] and has observer status with the United Nations Economic and Social Council, and is under the supervision of the Swiss Federal Council. The foundation's highest governance body is the Foundation Board consisting of 22 members.
So we are told that it is an impartial organization funded by more than 1000 global corporations who do at least $5 Billion per annum with a nice sliding scale allowing more play to those that pay. I did look up  some of the  members of that highest governing board which consists of some curious souls like George Bush lapdog Tony Blair and Queen Rania of Jordan? Who woulda thunk it?  You may remember her when she was a bank executive working in Jordan for Citibank.  I enclose a passport size picture for your viewing pleasure. But I digress…..Naturally every TBTF bank on the globe is a member and the members list is thick with unindicted banksters as well as the uberwealthy oligarchs from industry and technology like Bill Gates as well as every hedge fund you can think of. Some impartiality there. I see George Soros gave a speech there the other day  castigating the world’s central banks for being asleep at the switch. His harsh remarks did hurt some feelings.  It does appear that some of the talks and seminars purport to have  lofty goals but the nature of the participants being the Kings( and queens) of Globalization does trigger a blip in my cynical BS meter. Unfortunately for the world, the members list includes an assortment of discredited Sorcerers, excuse me, I mean Economists  drawn from Ivory towers as well as the expected economic Think Tanks. And that brings me to my next topic.
Here is the headline in The Telegraph. I’d say the headline speaks for how the WEF thinks:

World needs $100 trillion more credit, says World Economic Forum

The world's expected economic growth will have to be supported by an extra $100 trillion (£63 trillion) in credit over the next decade, according to the World Economic Forum.

By Emma Rowley 8:49PM GMT 18 Jan 2011
Here is a clip from Emma Rowley’s article:
This doubling of existing credit levels could be achieved without increasing the risk of a major crisis, said the report from the WEF ahead of its high-profile annual meeting in Davos.
But researchers warned that leaders must be wary of new credit "hotspots", where too much lending takes place, as the world emerges from a financial catastrophe blamed in large part "to the failure of the financial system to detect and constrain" these areas of unsustainable debt.
"Pockets of credit grew rapidly to excess – and brought the entire financial system to the brink of collapse," said the report, written in conjunction with consulting firm McKinsey. "Yet, credit is the lifeblood of the economy, and much more of it will be needed to sustain the recovery and enable the developing world to achieve its growth potential."
The global credit stock has already doubled in recent years, from $57 trillion to $109 trillion between 2000 and 2009, according to the report.
The WEF said the continued demand for credit could be met "responsibly, sustainably – and with fewer crises". However, it cautioned that to achieve this goal, financial institutions, regulators, and policy makers need more robust indicators of unsustainable lending,
I really don’t know where to start. It is simply baffling to me that there are people who actually draw a salary to write this stuff.  By way of background, world GDP is somewhere in the vicinity of $60 Trillion. We see that debt doubled in the last decade. Most of the world banking system is now holding that debt not marked to market as we say in the economic blogosphere.  If it were held at what the market would pay, most of the banks would be bankrupt. Instead this debt is held at what the bank says it is worth, which in most cases is the amount that was lent out with interest. Much of that debt went to fund  a massive worldwide building expansion which became a bubble and is beginning to pop everywhere.  All these banks are pretending that the money they lent to belly up developers will be coming back to the banks with interest. But of course it isn’t and in most cases it wont. This is capital, credit, debt, money, or whatever you choose to call it, that is going poof. Of course the banks and central banks have had a solution: Hit the taxpayers up for the bank’s mistakes and this has been the solution not only here in the US but all over the world where this banking model of loaning money to anyone with a pulse was the modus operandi. In a few cases, namely Iceland, the people said Hell NO and told their government that they the people, were in no way responsible for their bank’s mistakes. This sort of behavior terrifies the types of Oligarchs who are partying in Davos. God forbid. What would happen to them if the serfs of the world refuse to pay for the crimes of these plutocrats. WE need austerity! More austerity!  So the solution to all this bad debt is GOOD DEBT, like maybe another $100 trillion or so. These sorcerer economists assure us the demand for credit can be met sustainably and responsibly with fewer crises.   The kind of people that could write such a paper are living in a parallel universe. a never never land in which debt doesn’t matter, jobs can arbitraged to the lowest bidder nation, economic growth can grow to the sky even as the population soars, world energy supplies are in decline and pollution fills the skies, the rivers and the oceans. I have some friends who cry out “When will  we be free of these Bozos?”, My guess is no time soon.

Latest News from the Auld Sod

     I generally only blog when events merit and on January 18, we had one of those events. The news  from Ireland was simply stunning.  It seems that the building pictured above which looks more like a parking garage than the Irish Central Bank had done the unthinkable. It had printed $51 Billion Euros out of thin air, with no backing whatever and handed them over to the insolvent Irish Banks who were  continuing to suffer from an ongoing bank run. Many banks around the world are insolvent and the Irish Banks are among the worst in that respect. To my knowledge this money printing  is unique in the history of the Euro. The early reports were not clear to me whether the money was the result of a keystroke transfer to the Irish banking system or was in fact euro printing. In fact it may have been both but I did discover(Wikipedia) that Euro notes have country codes on them listing which commercial or national printing press did the printing. Euros with the letter “T” are Irish euros . What this central bank did presumably with the permission of the European Central Bank is pure and simple money printing exactly as done by Zimbabwe and the 1920’s Wiemar Republic. What stunned me even more was the deafening silence in the European Press. I would have assumed that the German Public would have rioted in the streets. If one country in the Euro community can print money without issuing debt, why can’t they all do the same ? I guess the Irish decided that if Ben Bernanke can employ QE to feed to America’s TBTF banks, then so can they. The process is fundamentally the same in both countries but the Irish did it baldly and directly. Who will be next? Greece obviously along with Portugal, Spain, Italy. It is amazing to me what the banks of the world will do to save their fat asses and how little the world notices. People! This is a big deal. German People! French People! It is time to march on your central bank and demand and explanation and reversal of this  crime against your currency. IF this act is not reversed, I cannot imagine how the Euro can survive.

Beware the Parabola

 This overlong post has been churning in my Kitchenaid brain machine for some time and I couldn't find my way clear to post it as a series because I feel the interrelatedness of the concepts demanded a coherent single post. Blogs shouldn't be this long. If  it seems to long to bother with, my apologies. Just like the Irish cop I will say:" Comon folks. Move along. It's all  over."                                                                                                                                                         I  I have used this graph before  and it remains extremely worrisome:(click to enlarge)

The rise in debt is parabolic and only goes through 2006. The past 5 years have only steepened the curve.This curve is just official debt and doesn't include other unfunded mandates like  public sector pensions, Medicare promises, hidden military debt and future losses for example in commercial and residential real estate. Nor does it include all the casino gambling debt of the major banks with their derivative exposure and toxic  mispriced assets hidden on falsified fraudulent bank balance sheets. Also keep in mind that this debt/gdp graph has similar morphology  across a variety of European countries, most notably the PIGS countries. And yet astoundingly, those governments as well as ours continue to add to the debt as they extend and pretend  with their deliberate lying statistics of a turn in unemployment and job statistics, manufacturing, housing and the economy returning to normal . This deliberate structured propaganda originates from government economic channels reporting to formerly trustworthy mainstream media as well as the thousands of economists working at the major banks and investment houses and hedge funds who themselves are victims of crowd psychology and flawed econometric models. Dick Cheney mouthed their cherished beliefs when he said "Debt doesn't matter."  My contention is that debt matters a great deal and the assumption of more debt is riding the tail end of Joseph Tainters curve of diminishing marginal returns. I think I will venture a prediction: this will all end very badly. Our industrial society is driven and formed by debt and this debt bubble will eventually collapse as do all phenomena characterized and described by a parabolic  or exponential curve. This curve of debt is indistinguishable from other financial bubbles and manias as far back as the South Sea bubble and the Tulip Bubble. The only way to put this debt laden economy on a secure footing is to extinguish this debt by either paying down the debt through a prolonged period of austerity or defaulting on the debt by outright default or by inflating it away. Again: this will all end very badly.It cannot help but end badly. What form this bubble collapse will take is subject to debate and educated and uneducated guessing but it will likely include deflationary price collapse early on if debt is defaulted on. Credit will become extinguished as well . Imagine an economy where as debt and credit disappears, so does in effect, money. Money in our society is primarily a function of debt and credit.  Money is debt and credit in my opinion.Money is brought into being as part of a fractional reserve model in which a unit of money loaned out again and again from one financial institution to another which has the effect of multiplying the original  issued amount by a factor or 10-40 times .  If the loaned out money can't be paid back with interest, it wont be loaned out, debt will not be assumed and as a consequence, credit collapses, and in more than just a theoretical sense, money disappears.

     The next important trend is the role of energy in supporting and maintaining this debt and credit based economy. This  next graph displays the world's consumption of energy from the dawn of the industrial age to the present in a convenient unit  of derived  work called exjaoule which is 10 to the 18th joules. A joule as you may recall from high school physics is one watt over a period of one sec. joules can be described in electrical terms as well but I digress.… The dashed line represents  real GDP in 1990 dollars.  The world used 474 exjoules in 2008. Wikipedia mentions that the world in the last 20 years has used up over half of the energy consumed in the last 200 years. In this graph there is an obvious relation between world GDP and energy production. In the last graph we saw a debt parabola. I posit that there is a direct relation of energy use and economic output. It takes work and energy to produce stuff . And you can produce a lot more stuff if you can use machines running on  energy provided by the amazing concentrated power contained in fossil energy.  Under the right economic conditions you can make one heck of a lot of stuff using a credit and debt based system leveraging this energy availability to make your stuff. More debt using More energy=more jobs=more stuff=more GDP.  A powerful and parabolic positive feedback loop.The converse applies as well. If energy availability diminishes or its cost goes up, one could suppose that the dashed GDP line would turn down. A Panglossian neo classical economist would dispute my conclusion. He would say energy is external and substitutable to the production process. If fossil energy became scarce,then the market would substitute another form of energy and that dashed line could resume its parabolic ascent. This is where I part company  with  the Panglossians and the cornucopians who loudly assert that there is plenty of oil and gas and coal, algae, cow farts, hummingbird wings and unharnessed dark energy. With the right technology, the dream can go on, the future is unbounded. I acknowledge that there is a possibility that some new cheap form of energy could be found which  could keep that graph of GDP parabolic or exponential.   But parabolic curves make me very nervous. Parabolic curves describe bubbles, unstable finite systems, immanent collapse. If I were sharing a cabin on the Titanic with a Panglossian after the iceberg incident, my conclusion just like George Bush would be to shout “This sucker is going down,” and head for the lifeboat deck.. Msr Pangloss would hopefully assert that “there ought to be some way, some technology to get the water out of this tub.”  Peut-etre monsieur but once that curve goes parabolic it is time to get worried. So let’s pull all this together. It looks like we have parabolic debt, parabolic energy use, parabolic world GDP rise, parabolic population increases. I mean, what could go wrong? The key driver is cheap energy and cheap credit. Pull out cheap energy and I hazard that the parabola will collapse as all parabolas  describing biologic  or economic systems eventually do.

     There are optimistic voices in the environmental let’s save the world community who offer what is to them the obvious solution. They see that energy and peak oil may be a real threat and suggest a shift to renewables, renewable energy. Of course in an absolute sense they are right. We need to return to a world which can exist on the energy availability of sun, wind and water and with a little luck and hard work, we will. But dig a little deeper and you will hear that they don’t want a return to a pre industrial, pre oil and coal past. They want to keep the existing party going on renewable energy with a little conservation thrown in, of course. They see electric cars powered by Li Ion batteries made from lithium mined in Afghanistan and Chile.  But to my mind, it doesn’t compute, it doesn’t scale. Unless the society is willing to subsidize renewable energy on a massive scale the way we subsidize corn ethanol, the whole concept is flawed on many levels but cost alone is a deal breaker, especially in a country that is functionally bankrupt. Let’s use the example of wind as our renewable energy source as it is widely regarded as the cheapest renewable. Our earnest and well meaning lefties point to success stories like Denmark which gets 70% of its power from wind. What they omit to mention is Denmark is a tiny densely populated country, wealthy and with a lot of wind. They also omit to mention that Demark has the world highest electricity rates at 36 cents per kilowatt hour. It is also true that some areas of the United States have undeniable wind potential which given subsidies could compete with 3 cent/kw coal and 5 cent natural gas. My home state of Wyoming is awash with wind almost every dusty day but nobody lives here and our wind resource is a long way from the metro centers who could use it. Wyoming is also the country’s largest producer of that 3 cent/kw coal produced electricity.  The coal and gas and oil lobby in Wyoming has formidable political power as do the globalized oil and gas companies . Their lobbyists own Congress. Do you still think you’ll get your subsidy?   They have their subsidies and definitely don’t want to share. There are a myriad of other issues. Electric cars have the same range as they did in 1910 and building a nationwide network of battery or CNG stations would take decades and cost $trillions. That Chevy Volt is $40,000. The Toyota Prius hybrid is over half that and gets about 50 mpg with complex electronics and an expensive battery pack and a wimpy gas engine. I have a Toyota Corolla which gets up to 50 mpg which is a brutally simple manual transmission plain jane  econobox  with  a 100 hp engine, and its operating cost per mile is far less than a Prius with much less complexity. Currently most hybrids are charged from Coal or gas power plants which would have to be massively increased to generate enough electricity to fuel a hybrid fleet.  Keep in mind  also that the wind towers were built using electricity generated not by wind but from coal and gas . They were transported vast distances by oil powered ships  and on huge trucks running  on asphalt  roadbeds capable of heavy loads, hoisted into place with huge  diesel powered cranes . The service life of the towers transmissions and blades is short compared to other energy plants
and most of these wind towers were manufactured in China and Europe. There is a place for wind power in some regions but intermittent wind still needs fossil  or nuke or hydro backup. Water and wave energy has obvious potential but only in coastal regions. One could imagine San Francisco running entirely on wind and water with its fierce tidal currents and reliable afternoon breezes but all I hear from there is a deafening silence.  Energy nerds know that I am talking about and around the crucial concept of EROEI, acronym for energy return on energy invested, or just Net Energy.  As the resource diminishes, the cost to discover and process the resource increases. It takes energy to get energy. If it takes as much energy to acquire it as you receive, you are out of business.  EROEI is normally expressed as a ratio of energy consumed to energy obtained and realistically depending on the type of equipment in use, distance to transport, wages paid and so forth, once you get to about 3:1 with oil for example using one unit of oil to get 3 units of oil, you are perilously close to shutting down. Germany in WW2 had minimal access to oil and used a coal to oil conversion which used an awful lot of coal to get a little diesel oil and their inability to seize and hold oil fields and refineries is one of the factors that finished them. They were defeated by the US with access to vast reserves of oil with EROEI ratios exceeding 100:1. Had Germany had the same reserves  of cheap energy when the war began, we might all be speaking English with a German accent.
        Now I will give you yet another crucially important graph illustrating what I have just explained, entitled the Net Energy Cliff and it is all about EROEI ratios:

You will note that the author used the ratio of 8:1 as the minimum ratio needed to just maintain our extravagant lifestyle. There are many ways to calculate EROEI ratios and the reader will note differences depending upon who is crunching the numbers but the general concept is the important thing. For example, absent a $.50/ gallon subsidy for corn ethanol combined with tariffs on Brazilian sugar cane bagasse ethanol from our percipient congress, there wouldn’t be any corn ethanol which is said to have a EROEI just above or below 1:1. Corn ethanol exists as a gift to the Industrial corn producers who wrote the legislation. Canadian tar sands are said to be in a 3:1 EROEI range which would using my methodology, be uneconomical to produce but tar bitumen production is still economical because it is an energy arbitrage using very cheap(at the moment)  Canadian natural gas as the primary energy source to heat and remove the thick bitumen from the sand. If and when the energy or BTU content of oil and gas reach parity, you can say bye bye to the tar sands in Canada which just so happens to be our largest source of imported oil. You will also note the general shape of the net energy cliff curve resembles an exponential or parabolic curve. The conclusion I draw from the curve is that once energy starts to be withdrawn from society, things happen in a big hurry. It is not an arithmetic decay curve where the resource diminishes gradually.  When it begins to bite, it will bite you hard and fast, with precious little time to react.
       And that brings me to my summary phase. Systems characterized or described by parabolic or exponential growth phases are inherently unstable. I am characterizing our national debt as a bubble, as is 200 years increasing use of fossil energy, growth of GDP, and population growth. These are all systems characterized by some factor increasing at an increasing rate and if uncontrolled or ungoverned, collapse eventually ensues which is by definition the pop of a bubble, an uncontrolled collapse. Up to a certain point if the growth curve can be moderated , modulated or reduced to growth at a sustainable rate, the bubble can be deflated and a descent to sustainability can be slow and controlled. There is a period or window within which it is still possible to avert a collapse or uncontrolled chaotic descent to the abyss. But because we are talking about complex adaptive or maladaptive systems on a globalized scale, knowing where the point of no return is, is  probably an unknowable situation. For example we almost certainly have a debt bubble in the United States but the bubble is not just conventional debt but bets on the debt and bets on bets  using derivatives which leverage the debt into the stratosphere. Since the possibility or probability of a bubble or multiple simultaneous bubble collapses may not be knowable or predictable, the only strategy for the individual whether contemplating financial or personal survival is to prepare and think of actions to mitigate personal, familial and social pain. Clearly an obvious strategy is to put some distance between yourself and the bubble. If your existence is tied to the bubble, you will pop along with the bubble.  My conclusion is that lack or scarcity or simply high cost of  energy will be the impetus to a financial collapse. A financial collapse doesn’t necessarily imply a societal or cultural or political collapse. Russia experienced a political and financial as well as a regime collapse twenty years ago and they recovered amazingly well for many reasons not the least of which includes their vast energy resources and relative lack of globalized interconnectedness in their financial system. WE in the United States do not have those advantages. We have other advantages but there is no way of knowing whether we could quickly recover as Russia did. Ancient Rome made several recoveries in the waning centuries of its existence and it was able to maintain its power and wealth by expanding and stealing the wealth and energy of its neighbors. Once that wealth extraction hit a point of diminishing returns, Rome was finished, and really finished. 1200 years after Rome's collapse, only livestock were grazing on the Palatine Hill above the Roman Forum and the Circus Maximus.

Abandon hope all ye who enter here

This of course is the inscription for all who are entering hell in Dante's Divine Comedy. But there is nothing comical about President  Obama's deliberations over who should replace Larry "Lucifer" Summers as White House Director of the Council of Economic Sorcers. Multiple news orgaizations are naming the sorcerers under consideration to replace larry who could one day be remembered as one of the most economically destructive devils ever to bend the ear of a national leader. A number of economic commentators from Paul Krugman to Jim Kunstler have tried to cut our community organizer slack as he tries to learn the job blundering from one compromise to another with the ruling class of Wall Street Corporate and Finance Oligarchs.
       Among the men(not women ) under consideration is former JP Morgan executive William Daley and Gene Sperling, close compadre of Tim Geithner, and Roger Altman, who founded  investment bank Evercore Partners all of whom who have worked closely with Summers to perpetuate and protect and conceal  the mounting  losses and influence of the Wall Street banking establishment from from the American People. So Obama will make no mid course correction to resist the pernicious influence of the Federal banking Cartel. Wall street banksters have been enscounced in the past three administrations and they are maintaining their stranglehold on what passes for the tattered democracy of the United States. These men, the creators  who  invented toxic securitization of mortgages, nationalized Ponzi finance, free money to the investment casino banks and finally backstopping of their enormous losses by forcing them on helpless taxpayers remain in plac and in power. Obama could have demanded  Eric Holder at the justice department to prosecute the criminal TBTF bank executives for fraud in mortgage securitization and Mexican money laudering to just name a few possible avenues of inquiry. But why shoud Eric get off of his FA to investigate the very folks who own him and the legislative and executive branch. The corporate takeover of government was complete more than a decade ago and wishin' and hopin' that the corrupt military corpocracy will investigate itself is delusional thinking.
      Rep Joe Wilson shouted down Obama last year yelling "You Lie!". Change you can believe in, has been Obama's big lie.Abandon hope, all ye who live here.

Oh Canada

Today being Boxing day, it seemed fitting to start off this post with an example of the coinage being offered to our friends north of the border. That is a Canadian quarter my wife is holding with her magnetic bracelet. And yes, that spanking new Canadian quarter is magnetic. It contains iron. This recalls the debasement of the denarius in the latter days of the Roman empire where each successive emperor seemed to remove more and more silver from the coin of the realm from about 92% silver with Nero(60AD) to 43- 58% with Septimius Severus (200 AD). The same thing has of course happened in the declining empire south of Canada, which itself has a multitude of almost exact parallels with the decline and fall of the Western Roman empire. Like Rome, the military is the single largest item in the budget. Joseph Tainter writes: "At all times the single largest expense was the military, although the Roman dole was not inconsequential.". Sound familiar? Of course the difference in the US is that we put TBTF banks on the dole instead of citizens. The official pentagon budget is said to be in the $700 billion range but Mish of Globaleconomicanalysis.com reports that it is certainly twice that with the hidden costs, secret off budget costs associated with a bloated military with over 1000 bases and outposts scattered throughout the galaxy. And like the Roman Emperors, our emperors court the military even going so far as to dress up in military flight jackets and strut around aircraft flight decks schmoozing with the troops thanking them for their service defending the nation when they are offensive military actions defending the corporate military state back home with expenditures bankrupting the country as a whole. here is our putative budget which is fraudulently reported as I have stated:

The true red line would extend to the edge of the page. You will observe that our offense budget is larger than the rest of the world combined. When you combine military expenditures with the massive unfunded pension and health care costs of the states from bloated public sector pensions and health care costs combined with underfunded SS and health costs of the rest of us, the country is indeed without a doubt BROKE. And the politicians who goose step ahead of the corporate ruling military class just keep adding shamelessly to the nations debt with QE from the banking cartel to stimulus plans from Iraq Obama and his congressional and senate pals. But not to worry. The selfsame corporate mainstream media including  Fox and NPR(National Pentagon Radio) dispense reassuring propaganda of the return to growth and mindless consumption as our economy turns the corner back to prosperity, conveniently omitting that in America, we make nothing and consume everything. The longer this flawed model is drawn out the bigger and more sudden the crash. The crash is likely to be triggered by events almost anywhere as the world Bond market finally loses patience with political morons everywhere and demand risk premiums commensurate with the sovereign default risk profiles of the bankrupt countries whose debt they hold.

Time for a Haircut

Tis the season to be jolly but the recent cascade of  not so jolly events suggests that financial delamination not to mention social delamination is starting to take hold. The past 4 months have seen most the action in Europe with multiple attempts by the ECB and IMF to plug holes in the dike by saddling the PIGS with more debt than can ever be paid back. These bailouts are more of the same manure being shoveled out of Europe's money barn purportedly to bail out nations but as anyone with an IQ over 81 knows are bailouts of imprudent and insolvent bankers.  It is the system that is imploding as it tries to save itself and all the big players. The world bond markets are starting to get a wee bit restive. The financial markets are awash with rumors and statements from a variety of corners. Angela Merkel says that it may be time in a year or two for senior bondholders taking on a little more risk and that is angrily denounced by ECB finance ministers and  outcry from the other usual suspects denouncing such heresy. The fact of the matter from my unsophisticated perspective is that forcing insolvent countries to borrow their way out of debt is foolish and pointless and does nothing to start to solve the European and worldwide financial crisis. The situation is bankers trying to save bankers and banks by forcing debt onto citizens.  Citizens can and should push back against the austerity measures imposed by legislators owned lock stock and barrel by their financial cartels.  What needs to be done is for citizens to either vote to denounce and remove these governments or find other ways to bring down the governments. There is no way to begin to solve  these debt issues without rescheduling or repudiating the debt and that means telling senior bondholders they will not be getting 100 cents on the dollar which is what AIG and Goldman Sachs and a multitude of other European banks received from the US taxpayer not so long ago.  These bondholders do not intend to see this happen but unless and until they are taken down and given marine corps haircuts, there will be no way to even begin to rebuild the world economy. Some countries like Greece are skating perilously close to the edge and the riots are ratcheting up in severity with Molotov cocktails being thrown. The next riot may involve real bloodshed which will either result in bringing down the government or the government imposing a police state.
     The situation is Ireland is hardly less dire as Mr Lenihan keeps insisting that the Irish have an agreement to pay back bank debt and those bondholders and that anyone who thinks that not paying the bondholders 100 cents on the dollar "is living in a fantasy world." The elections coming up in Dublin in the next few months may determine who is living in a fantasy world.As I have written repeatedly, the Irish citizenry should throw out the bums and tell the European banking establishment that they will not pay.  It worked in Iceland. If they do, there will be a lot of unhappy banks. Look at the different country exposure to PIGS debt which I pulled from Mish's website:

Exposure to Spain
Germany - $216.6 billion
France - $201.3 billion
Great Britain - $136.5 billion
US - $172.8 billion

Exposure to Ireland
Germany - $186.4 billion
France - $77.3 billion
Great Britain - $187.5 billion
US - $108.3 billion
Spain - $17.7 billion

Exposure to Portugal
Germany - $44.3 billion
France - $48.5 billion
US - $35.6 billion
Spain - $98.3 billion

Exposure to Greece
Germany - $65.4 billion
France - $83.1 billion
US - $36.2 billion

Germany's exposure is over half a trillion and what I found surprising was that US bank exposure was around $350 billion. IF Ireland defaults, a lot of rich people will be less rich  and the Euro will be endangered and almost certainly lose value. I have a feeling that the impact of these events will hit the US pretty hard as well.
Bumbling Ben is under assault from all sides for continuing the tradition established by his predecessor of clueless incompetence. Bernanke  has no idea what is going on or what to do but his imprudent actions are destroying the currency and world wide confidence in the US dollar. My best trade in the markets has been shorting  treasuries. My double short has been twice as good. The yield on the 10 year treasury is up 1% in the last month or so. Muni bonds are in free fall and the traitor Iraq Obama has joined the Republican Party .
    If you look at economic historical events and the time frame within which significant events occur, what you see time after time is how long things lurch and limp along until WHAM-O!!. The manure hits the fan and chaos ensues. Bond market, step right up. It's time for your haircut.