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Guest Post: The Breakdown Draws Near
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Submitted by Chris Martenson
The Breakdown Draws Near
Things are certainly speeding up, and it is my conclusion that we are not more than a year away from the next major financial and economic disruption.
Alas, predictions are tricky, especially about the future (credit: Yogi Berra), but here's why I am convinced that the next big break is drawing near.
In order for the financial system to operate, it needs continual debt expansion and servicing. Both are important. If either is missing, then catastrophe can strike at any time. And by 'catastrophe' I mean big institutions and countries transiting from a state of insolvency into outright bankruptcy.
In a recent article, I noted that the IMF had added up the financing needs of the advanced economies and come to the startling conclusion that the combination of maturing and new debt issuances came to more than a quarter of their combined economies over the next year. A quarter!
I also noted that this was just the sovereign debt, and that state, personal, and corporate debt were additive to the overall amount of financing needed this next year. Adding another dab of color to the picture, the IMF has now added bank refinancing to the tableau, and it's an unhealthy shade of red:
Banks face $3.6 trillion "wall" of maturing debt: IMF
(Reuters) - The world's banks face a $3.6 trillion "wall of maturing debt" in the next two years and must compete with debt-laden governments to secure financing, the IMF warned on Wednesday.
Many European banks need bigger capital cushions to restore market confidence and assure they can borrow, and some weak players will need to be closed, the International Monetary Fund said in its Global Financial Stability Report.
The debt rollover requirements are most acute for Irish and German banks, with as much as half of their outstanding debt coming due over the next two years, the fund said.
"These bank funding needs coincide with higher sovereign refinancing requirements, heightening competition for scarce funding resources," the IMF said.
When both big banks and sovereign entities are simultaneously facing twin walls of maturing debt, it is reasonable to ask exactly who will be doing all the buying of that debt? Especially at the ridiculously low, and negative I might add, interest rates that the central banks have engineered in their quest to bail out the big banks.
Greek T-Bill Sale Fails to Allay Fear
Greece's Public Debt Management Agency paid a high price to sell €1.625 billion of 13-week Treasury bills at an auction Tuesday, amid persistent speculation that the country will have to restructure its debt.
The 4.1% yield paid by Greece, which means it now pays more for 13-week money than the 3.8% Germany currently pays on its 30-year bond, is likely to increase concern over the sustainability of Greece's debt-servicing costs.
Greek debt came under heavy selling pressure Monday after it emerged that the country had proposed extending repayments on its debt, pushing yields to euro-era highs.
Greek two-year bonds now yield more than 19.3%, up from 15.44% at the end of March.
With Greek 2-year bonds now yielding over 19%, the situation is out of control and clearly a catastrophe. When sovereign debt carries a rate of interest higher than nominal GDP growth, all that can ever happen is for the debts to pile up faster and faster, clearly the very last thing that one would like to see if avoiding an outright default is the desired outcome. How does more debt at higher rates help Greece?
It doesn't, and default (termed "restructuring" by the spinsters in charge of everything...it sounds so much nicer) is clearly in the cards. The main question to be resolved is who is going to eat the losses -- the banks and other major holders of the failed debt, or the public? I think we all know the most likely answer to that one.
"Contagion" is the fear here. With Ireland and Portugal already well down the path towards their own defaults, it is Spain that represents a much larger risk because of the scale of the debt involved. Spain is now officially on the bailout watch list, because it has denied needing a bailout, which means it does.
Spain is now at the 'grasping at straws' phase as it pins its hopes on China riding to the rescue:
European officials are hoping that the bailout for Portugal will be the last one, and debt markets have broadly shown both Spain and Italy appear to be succeeding in keeping investors' faith.
Madrid is hoping for support from China for its efforts to recapitalize a struggling banking sector and there were also brighter signs in data showing its banks borrowed less in March from the European Central Bank than at any point in the past three years.
(Source)
If Spain is hoping for a rescue by China, it had better get their cash, and soon. As noted here five weeks ago in "Warning Signs From China," a slump in sales of homes in Beijing in February was certain to be followed by a crash in prices. I just didn't expect things to be this severe only one month later:
Beijing March New House Prices Plunge 26.7% M/M
BEIJING (MNI) - Prices of new homes in China's capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city's Housing and Urban-Rural Development Commission.
Average prices of newly-built houses in March fell 10.9% over the same month last year to CNY19,679 per square meter, marking the first year-on-year decline since September 2009.
Home purchases fell 50.9% y/y and 41.5% m/m, the newspaper said, citing an unidentified official from the Housing Commission as saying the falls point to the government's crackdown on speculation in the real estate market.
March Home Transactions in 30 Major Cities Fall 40.5% Y-o-Y
Housing transactions in major Chinese cities monitored by the China Index Research Institute (CIRI) dropped 40.5% year-on-year on average in March, a month when home buying typically enters a seasonal boom period.
Transactions rose month-on-month in 70% of the cities monitored, including five cities where transactions were up by more than 100% on a month earlier, secutimes.com reported on Wednesday, citing statistics from the CIRI. [CM note: month-on-month not useful for transactions as volumes have pronounced seasonality]
Beijing posted a decrease of 48% from a year earlier; cities including Haikou, Chengdu, Tianjin and Hangzhou saw drops in their transaction volumes month-on-month, according to the statistics.
Meanwhile, land sales fell 21% quarter-on-quarter to 4,372 plots in 120 cities in the first quarter of 2011; 1,473 plots were for residential projects, the statistics showed.
The average price of floor area per square meter in the 120 cities dropped to RMB 1,225, down 15% m-o-m, according to the statistics.
Real estate is easy to track because it always follows the same progression. Sales volumes slow down, and people attribute it to the 'market taking a breather.' Then sales slump, but people say "prices are still firm," trying to console themselves with what good news they can find in the situation. Then sales really drop off, and prices begin to move down. That's where China currently is. What happens next is also easy to 'predict' (not really a prediction because it always happens), and that is mortgage defaults and banking losses, which compound the misery cycle by drying up lending and dumping cheap(er) properties back on the market.
In that report back in March, I also wrote this:
If China enters a full-fledged housing crash, then it will have some very serious problems on its hands.
A collapse in GDP would surely follow, and all the things that China currently imports by the cargo-shipload would certainly slump in concert.
This is another possible risk to the global growth story that deserves our close attention. How this will impact things in the West remains unclear, but we might predict that China would cut way back on its Treasury purchases if it suddenly needed those funds back home to soften the blow of an epic housing bust.
If a more normal ratio for a healthy housing market is in the vicinity of 3x to 4x income, then China's national housing market is overpriced by some 60% and certain major markets are overpriced by 80%.
Which means that the entire banking sector in China is significantly exposed.
(...)
The reason we care if China experiences a housing bust is the turmoil that will result in the global commodity and financial markets as a result. Everything is tuned to a smooth continuation of present trends, and China experiencing a housing bust would be quite disruptive.
If Spain is hoping for a big cash infusion from China and/or Chinese banks, it had better get its hands on that money quick. China is barreling toward its own full-fledged real estate crisis, which will drain its domestic liquidity just as surely as it did for the Western system, and probably even more quickly, given the stunning drop-offs in volumes in prices.
However, I should note that the United States housing market hit its peak (according to the Case-Shiller index) in July of 2006, and it was a year and a month before the first cracks appeared in the financial system, so perhaps there's some time yet for Spain to cling to its hopes.
The larger story here is how a real estate slump in China will impact global growth, which absolutely must continue if the debt charade is to continue.
Who Will Buy All the Bonds?
With Japan now focusing on rebuilding itself, and China seemingly now in the grips of a housing bust that could prove to be one for the record books, given the enormous price-to-income gap that was allowed to develop, it would seem that the financing needs of the West will not be met by the East.
One important way to track how this story is unfolding is via the Treasury International Capital (TIC) report that comes out every month. The most recent one came out on April 15th and was quite robust, with a very large $97.7 billion inflow reported for February (the report lags by a month and a half).
On the surface things look 'okay,' although not especially stellar, given a combined US fiscal and trade deficit that is roughly twice as high as the February inflow. But digging into the report a bit, we find some early warning signs that perhaps all is not quite right:
Net foreign purchases of long-term securities totaled a lower-than-trend $26.9 billion in February, reflecting $32.4 billion of foreign purchases offset by $5.5 billion of domestic purchases of foreign securities. Inflows slowed for both Treasuries and equities with government agency bonds and corporate bonds posting outflows.
When including short-term securities, the February data tell a different story with a very large $97.7 billion inflow. Country data show little change in Chinese holdings of U.S. Treasuries, at $1.15 trillion, and a slight gain for Japanese holdings at $890 billion. It will be interesting to watch for change in Japanese Treasury holdings as rebuilding takes hold.
(Source)
Only $26.9 billion, or 28%, of that $97.7 billion, was in long-term securities, reflecting a trend first outlined for us in our recent podcast interview with Paul Tustain of BullionVault whereby fewer and fewer participants are willing to lend long. Everybody is piling into the short end of things, not trusting the future. The concern here is that when interest rates begin to rise, financing costs will immediately skyrocket, because too much of the debt is piled up on the short end.
Also in the TIC data cited above, we need to reiterate that it is for February, and the Japanese earthquake hit on March 11. The next TIC report will be somewhat more telling, but even then only partially, and so it is the report for April (due to be released on June 15) that we're really going to examine closely. Our prediction is for a rather large dropoff due to Japan's withdrawal of funds.
With the Fed potentially backing away from the quantitative easing (QE) programs in June, the US government will need someone to buy roughly $130 billion of new bonds each month for the next year. So the question is, "Who will buy them all?"
Right now, that is entirely unclear.
Budget Fiasco
Sadly, the budget 'cuts' proposed so far in Washington DC are too miniscule to assist in any credible way, and they practically represent a rounding error, given the numbers involved. The Obama administration has proposed $38 billion in spending reductions. (I hesitate to call them 'cuts' because in many cases they are merely lesser increases than previously proposed).
Congress OKs big budget cuts — bigger fights await
April 14, 2011
WASHINGTON – Congress sent President Barack Obama hard-fought legislation cutting a record $38 billion from federal spending on Thursday, bestowing bipartisan support on the first major compromise between the White House and newly empowered Republicans in Congress.
The Environmental Protection Agency, one of the Republicans' favorite targets, took a $1.6 billion cut. Spending for community health centers was reduced by $600 million, and the Community Development Block Grant program favored by mayors by $950 million more.
The bipartisan drive to cut federal spending reached into every corner of the government's sprawl of domestic programs. Money to renovate the Commerce Department building in Washington was cut by $8 million. The Appalachian Regional Commission, a New Deal-era program, was nicked for another $8 million and the National Park Service by $127 million more.
For the record, these 'cuts' work out to ~$3 billion less in spending each month, or less than the amount the Fed has been pouring into the Treasury market each business day for the past five months.
The fact that a major write-up on the budget finds it meaningful to tell us about specific $8 million cuts (that's million with an "m") tells us that we are not yet at the serious stage in these conversations. After all, $8 million is only 0.0005% of the 2011 deficit, and even the entire $38 billion is just 2.3% of the deficit and slightly under 1% of the total 2011 budget.
How much is $38 billion?
- Less than 2 weeks of new debt accumulation (on average)
- About 2 weeks of Fed thin-air money printing, a.k.a. QE II
In other words, it's a drop in the ocean.
It is this lack of seriousness that is driving the dollar down and oil, gold, silver, and other commodities up. It is the reason we will be watching the TIC report for clues that foreign buyers and holders of dollars are getting nervous about storing their wealth with a country that is increasingly seen as unable or unwilling to live within its means. It explains why the IMF has been finger-wagging so much of late.
Somehow the US federal government managed to increase its expenditures by 30% from 2008 to 2011, but is now struggling to reduce the total amount by just 1%.
That, my friends, is an out-of-control process, and the 1% in 'cuts' is simply not a credible response to a very large problem.
Conclusion
There are two entirely, completely, utterly different narratives at play here. One of them is that the economy is recovering, policies are working, and the vaunted consumer is either back in the game or close to it. The other is that the world is saturated with debt, there's no realistic or practical model of growth that could promise its repayment, and the level of austerity required to balance the books is so far beyond the political will of the Western powers that it borders on fantasy to ponder that outcome.
If we believe the first story, we play the game and continue to store all of our wealth in fiat money. If we believe the second, we take our money out of the system and place it into 'hard' assets like gold and silver because the most likely event is a massive financial-currency-debt crisis.
The IMF, the World Bank, the BIS, and numerous other institutions with access to $2 calculators have finally arrived at the conclusion that there's still 'too much debt' and that it cannot all be paid back. And they are now alert to the idea that the predicament only has two outcomes: either the living standards of over-indebted countries will be allowed to fall, or the global fiat regime will suffer a catastrophic failure.
China is unlikely to ride to the rescue of the West, although it may have some time yet to help out a few of the smaller and mid-sized players, such as Spain.
In Part II of this report, How This Will Play Out, we explore in detail the likely triggers for a financial breakdown, what market signals to watch for, and what individuals can do to defend themselves against such a collapse. The risks are now higher than at any time since I began analyzing this predicament. I invite you to plan accordingly.
Click here to access Part II (free executive summary; paid enrollment required to access).
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Yes it does.
Exponential debt! Exponential debt for everyone!!
Spaniards look down on the chinese with contempt.
Yet they are praying for the chinese to save them.
China should show them the middle finger.
Yup, they should. But I have yet to be impressed by the Middle Kingdom. I'm not sure how the country is still standing with their primary customers on the ropes. I'm positive they are just as broke as everyone else.
If it were announced tommorrow China was flat broke, busted with a triple Z credit rating I doubt many would be that surprised.
I completely agree re China. They havee a loooooonnnnggg history of messing up when on the cusp of greatness.
Gold, silver, lead (& lead delivery devices), medical goods, food & water...
Electrons and paper are not good places to be folks.
Unfortunately, when everyone goes broke and there are so many moths to feed on so few resources, the only option the world is likely to see is fighting.
Just how many moths are we talking about here?
all ur wool sweaters are belong to us now. make ur time.
A few trillion would do it. They are nasty little buggers when there is light around.
Exactly... I'll be damned if a moth ever takes food from me. thought my daughter loves butterflies... and to be honest, I've got a bit of a soft-spot.
Maybe these are the moths he's thinking of:
http://en.wikipedia.org/wiki/Silk_worm
They have a long history of being messed up by others, you mean. A la the Opium Wars. I know someone who recently returned from a trip to the Middle Kingdom. They indicated apparent wealth was everywhere they turned, at least among all the people they visited. People are buying gold as fast as they can, in 10-ounce lots [the minimum allowed], and would buy silver but NONE IS AVAILABLE. Sorry. Didn't mean to shout. Just slipped out. Chinese banks are selling every sliver of silver they can find, and are making silver sales for delivery months out. China has become a black hole for silver. It will be interesting to see next month's import figures for silver, into China. I will wager it will be another record number. I'm also beginning to suspect that there are a number of attitude massagers on this site who are actually Chicom psyops trying to talk folks into selling silver because there is a "big correction" on the way. Mmmmm.... we'll see.
Kitco just posted silver as bid at $43.99 per ounce.
You do understand that 10 TOZ cost $14,000 FRN $100 ago. Yep, I'm sure everyone in China is running around purchasing $14K as fast as they can. Right. Do you even have any concept of how poor the average Chinese is?
I am sure there are rich people in China purchasing gold, and some in large quantities. After all, somebody is selling the poison Sheetrock, milk, toys etc. Somebody is making money. Everybody? Please, try to contain yourself.
Just curious, when was the last time the People's Republic of China on the cusp of greatness?
It was back in the day. I had to walk twenty miles in the snow to school and back, it was all uphill. Both ways.
I guess you went to the same school as my mother - lol
Exactly.
@mad cow
It may depend.
Greatness is in the eye of the beholder.
The middle kingdom is four thousand six hundred years old, as is Afghanistan and also Persia (Iran).
And how old, exactly, is the pathetic criminal enterprise you call amerika?
Answer, round eye!
Oh I'm sorry, I assumed the guy I replied to was talking about China as a country, as in the PRC, and not a race of people. So when you talk about "Amerika" I see you're referring to "round eye." I get it now. Thanks for not answering my question though.
Americans look down on the chinese with contempt.
Yet they are praying for the chinese to save them.
China should show them the middle finger.
Fixed that for you.
Every market crash begins with tech & high flying tech. NASDAQ typically implodes at the speed of light, dragging other indexes down the black hole.
Apple just sounded the alarms with not only a 'whisper' of weak iPad sales, but 'extremely weak' ones at that. The whisper is that iPad sales could have missed by as much as 50% -
iPad is food now, as an inflationary substitute, so this is even more worrisome than it typically would be.
With enough chocolate hardshell sauce, everything is edible!
Apple released the iPad 2 too early. The first version came out only a year ago, and I'm still happy with my iPad 1. Why would I pay $600 for a small upgrade?
Also, I'm too smart to spend large amounts of money on useless electronics now. There are more important things in life, like pure water, food that is not radioactive, and silver.
All the surplus electronic gear resellers are loaded with iPad 1s and other 'last gen' new Apple gear. Smells like new pushed out old before old was sold. Could lead to more suicides at Foxconn right after they get done purchasing 10 TOZ lots of Gold, as much as they can find.
Good fix.
Cept 'Merica has enough guns to blow that little brown finger right the fuck off. Spain, not so much.
If they give them the middle finger, they would pass up a chance to enslave a European nation. It doesn't matter that you're just as broke as your slave, if nobody says anything. Remember the immortal words of George Costanza; It's not a lie, if you believe it.
Gold & Reactor One in Meltup mode:
http://www.fairewinds.com/
It always comes back to the 'elements.'
iodine falling from the sky, #4. like ben's bucks. just falling out of the sky, gravity is a bitch†
I am counting on a deflationary scare in the next couple of months.
I agree with you. The equity market collapsing will take care of a lot of these inflation issues. Speculative money is going to run for the hills.
Or just vaporize entirely, trouble with speculation plays is they always involve leverage against the assets of the holder. Any leverage used in a trade play is always promised a leveraged decay bite.
Speculators as the MSM frame them aren't taking their capital holdings against the market, they are more likely taking the capital plus the credit plus the interest against the market. Throw in things like exchange rates and it's a great recipe to flatten the books of guys like JPM and GS to zero and negatives pretty quickly.
Deflation is a low amount of money chasing too many goods. That is not the scenario we are facing. If speculators run for the hills, where are they going to go? Cash? Treasuries?
The next collapse will take money markets and treasuries down with it. Look what happened yesterday when the market opened down 200. Treasuries DID NOT rally this time.
I get sick of hearing this deflation argument. When the Fed talks about being worried about deflation, they are talking about one thing-HOUSING. So yes, in the housing market, there is a low amount of money available and too many houses (supply). The Fed is not talking about food, gas, clothing, precious metals, etc.
Deflation is a bad word for banks. Not us.
Yup...glut of practically everything, including people.
http://www.youtube.com/watch?v=ClqUcScwnn8
David Rockefeller speaks about population control.
Another super rich SOB, talking population control.
I vote, he like all other Left Wing Liberal pond scum, raise their hand FIRST, to volunteer to check out.
Then, come and talk about population control.
These frigging Progressive Socialist assholes have killed this country.
Yet, they get to make the rules on who gets to live ?
My Ass. I vote him first.
Eugenics loving biatch.
There is no need to explicitly declare who should live or die. That would be very crude and offensive.
Socialism will kill people at the margin, whether they are disposed of via starvation, disease, or other means. Iatrogenic causes of death befall untold numbers in our socialized hospitals. Our socialist roads kill people every day.
Socialism kills in a way that is hard for the ignorant to discern. Policies that are ostensibly good for "society" can be harmful to individuals. People are not born knowing how to theorize about human action. Policies that sound good in theory can lead to warped incentives and disastrous outcomes.
So if you really want to murder more people, and not be detected or blamed, it is sufficient to just increase the level of socialism.
"So if you really want to murder more people, and not be detected or blamed, it is sufficient to just increase the level of socialism."
I disagree. Capitalism will murder more people. Capitalism concentrates wealth at the top, forcing productive labor to work for less and less money, eventually destroying both the labor force and consumerism.
Capitalism is the parasite that kills the host.
Very well said...
We are most certainly overpopulated...
We had better figure out a way to fix the problem of too many people on the planet voluntarily....or we will have a solution forced upon us (call it...."nature's austerity plan")
Seriously....6 or 7 or 8 or 9 billion people living on this planet as FARMERS woudl be one thing...but having that many wanting to drive cars, and have electric and live the glamourous lives of a "consumer" is not only non-sustainable...it is completely assinine.
Our entire economic model that we live under DEMANDS perpetual, endless and infinte growth....but we live on a FINITE planet. Right?
I read somewhere that we will have approx 9 billion people on this planet around 2050. (Humans cannot understand exponential growth...but it is happening as we speak...in both our population and out debt!!)
Although our economic problems are going to be very trying and will most likely cause much strife and turmoil on the earth...The real problems are coming ....most do not seen them yet...but rest assured...they will be here sooner rather than later.
relax... it's self-correcting. water seeks it's own level. Or, if you prefer "Go back in there, chill them niggaz out and wait for the Wolf who should be coming directly".
Nonsense. This is exactly the control-freak globalist's sentiment and the excuse behind their God-complex. You said one thing that is absolutely spot on:
One of two choices here, buddy. Abet the control freaks, OOOOOOOOR, change the freaking economic model: the Growth for Shareholders dogma must and will end. Put farming back in the hands of the people, ending corporate mega-farms. Sustainability (food and energy) MUST be taken out of the hands of the elite.
Bravo!
"finance", energy and food are controlled by same banksters. They just don't want civilization to grow free of their tentacles.
Drug trafficking banksters own the "federal reserve" dollar, bitchez!
"the Growth for Shareholders dogma must and will end."
If growth for shareholders ceases, then shareholders have no reason to invest. Shareholders will divest themselves of the factors of production. There will be no shareholders. There will be no companies and no accumulated capital. Having no reason to keep capital, we will consume it. We will go back to living in caves and picking berries like our ancestors. 6.9 billion people shall die.
"Put farming back in the hands of the people, ending corporate mega-farms."
If you think you can do a better job of farming and you deserve the responsibility of owning the farms, then prove it. Compete with the "elites" on the free market and prove your worth. If consumers prefer your products, you will be rewarded with financial gains. If consumers dislike your products, you will be punished with financial losses.
Remember circa 1950's, when the U.S. alone produced enough food to feed the world's population? No small task.....and no corporate cornering of the food production market. This feat was accomplished by the private farming sector - which should particularly tickle your inner Ayn Rand.
re: growth... What has growth been? Think about it in terms of years of tour de force reserve currency and how that forced 'unnatural, unsustainable' growth, and shipped countless jobs overseas. THAT is the growth paradigm I'm talking about that needs ending - I would have thought it was rather apparent to most people..
You glibly ignore the vast bureaucratic and regulatory impediments increasingly placed on ANY small business in the USA today, particularly in the field of agriculture, and the vast subsidies, tax breaks, etc. which the mega-corporations use hand-in-hand with the power of the federal goverment to drive out competition and entrench their corporate allies in a blatantly fascistic system. Go to Hell with your disingenuous nostrums and platitudes about "free and fair competition"!
>We are most certainly overpopulated...
Nonsense! Earth is grossly underpopulated! Massive amounts of land and space and resources sit unused. Machines sit idly all the time. The Earth captures a negligible percentage of the vast energy the sun continuously throws out into emtpy space. There are far too few people, and far too many wasted opportunities for transforming the material factors of production.
>We had better figure out a way to fix the problem
Who is "we"? Are you a socialist? If you can't afford children, don't have them. And if your life is so bad due to "overpopulation", then end it. The fact is that people living in the most populated cities are the wealthiest (no doubt due to the increased division of labor) and healthiest (best access to medical care).
>or we will have a solution forced upon us (call it...."nature's austerity plan")
So which group of people should be murdered first?
>have electric and live the glamourous lives of a "consumer" is not only non-sustainable...it is completely assinine.
"Non-sustainable" - really? Which part isn't sustainable? If we are running out of some irreplaceable resource, then feel free to put your money where your mouth is and buy futures, to help raise the price and preserve that precious resource. Otherwise you are just spewing BS. The fact is that many resources move in lockstep with gold, for example the oil/gold ratio has been stable for decades, and we don't appear to be running out of anything.
And "assinine" is just your subjective opinion. Feel free to live as a Luddite if you wish.
>we live on a FINITE planet. Right?
No. There is no known physical limit on how beautiful the music or artwork someone creates can be, or how delicious the food that some produces can be, or how cleverly designed a CPU circuit can be, or how inspiring church services can be. And ALL of these are economic goods.
I shake my head at your blinkered ignorance.
The field of economics does not recognize physical limits to growth --- reality, however, is another story.
It is commonly accepted by most ecologists that the long-term carrying capacity of the Earth is probably between one and two billion people. As much as you will vainly try to deny it, there ARE physical limits to growth, such as depleting topsoil which takes many centuries or millenia to renew, for just one example. Sure, you might hypothetically be able to cram ten or twenty billion people on the earth --- but how are you going to FEED that many, long term? Simple: you aren't.
And of course, there is Peak Oil as another example of a physical limit to endless economic growth.
If you do not believe that there are or can be physical limits to growth, just go ask the Classical Maya, or the Cahokians, or the Nabateans.
>It is commonly accepted by most ecologists that the long-term carrying capacity of the Earth is probably between one and two billion people.
Whatever Malthus, the 1700's are calling, they want their theories back. Unfortunately for the ecologists, people do not root around in the dirt like animals but instead create things like fusion reactors and the Internet and they travel to the moon.
>depleting topsoil which takes many centuries or millenia to renew
More like a decade. 'Twas the Dirty Thirties, not the Dirty 1900's. But since you want to talk about physics, note that the atoms depleted from the topsoil do not vanish from the Earth, but rather remain on it. And since you are worried about precious topsoil, how many futures have you purchased? How much profit have you made preserving this scarce resource, dirt?
The wise farmer concerned with the long-term value of his estate and whose property rights are intact will not let his topsoil be so damaged but will let fields go fallow. Farm owners who cannot do this will fail and will be put in a position where they can't hurt any one with their bad decisions.
The wise family farmer has been replaced by the mega-agro-corporation which has a short-term focus and is much more motivated by short-term profits than Farmer Brown of a century ago. Government backstops will tend to do that.
And to even suggest that topsoil replenishment rates --- I'm not talking fertility here, but the actual physical topsoil --- is only a decade is to just demonstrate your profound ignorance of basic ecology.
You conveniently neglected to address Peak Oil --- or do you believe that the earth contains within it a wormhole to a parellel dimension where space-time consists of aliphatic hydrocarbons?
And what about those Mayans, and Nabateans, and Cahokians, or Great Zimbabweans?
Finally, for those center-thinkers who refuse to remain blind to the physical limits to growth, I have the final damning example: Easter Island. Go refute THAT with your blinkered economics of no limits!
>The wise family farmer has been replaced by the mega-agro-corporation which has a short-term focus
I doubt this. I know Weyerhauser plants innumerable tree to maintain its long-term value. I don't see why agricultural megacorps would be any less prudent. If they are imprudent, then they will no doubt lose their capital and responsiblities to wiser competitors.
>You conveniently neglected to address Peak Oil
Compared to gold, oil has remained at a stable price for the last 60 years or so. The only "peaking" I see is being done by fiat currency. Or are you really that much smarter regarding the scarcity of oil than a multitude of experienced speculators who put their own fortunes on the line?
>And what about those...Great Zimbabweans?
Huh? They collapsed their economy with shoddy economic policies. There is nothing in the science of economics that says people have to, or even should, heed it. Science is wertfrei (value-free).
>Easter Island. Go refute THAT
I agree, civilizations have collapsed throughout history for different reasons. If they consume so much of a scarce resource that it causes them to collapse, then it is probably due to lack of a free market in which there are incentives to conserve such resources (e.g. through raised prices, conservation efforts, search for alternatives, etc.). If property rights are not respected, then I can see the resource being depleted in short time.
Speciuos and irrelevant --- as we have also reached peak gold. Priced in almost anything else (except silver!), oil is more expensive today that at any time other than perhaps the peak of the oil crisis in 1979, and much more expensive than it was for most of the last century in real terms.
Bravo Dr. Acula.
The free market will save us all. Hooray!
Whatever Malthus, the 1700's are calling, they want their theories back. Unfortunately for the ecologists, people do not root around in the dirt like animals but instead create things like fusion reactors and the Internet and they travel to the moon.
We don't root around in the dirt? What the fuck do you call the mining and resource extraction industries, and the agriculture sector? You know, all the basic things like metals, energy and other resources that make up the reactors and the internets? Do you know how much power a server farm eats up? Where does that energy come from?
Calm down. I meant this meaning of root:
to turn up the soil with the snout, as swine.
Good job Dr., however, they cannot be saved, for they cannot see the forest for the server farms. Any fool who flys in a plane across the continental United States and thinks we are overcrowed should commit suicide right now, foxconn, bitchez. Even worse is a fool who follows the pearls of wisdom from the new Priests of Green [Watermelons], aka 'Ecologists' and 'Climate Scientists'. At least my God lives in Heaven, not some giant hillbilly shack on a lake in Tenn with a houseboat.
That is a specious and profoundly ignorant statement.
Fundamental limits to growth are not about mere standing room, but the resources, fuel, topsoil, fertilizers, and everything else that supports a population. The USA does indeed produce more food than our population today requires, but only at a vast cost in petroleum to plant, fertilize, harvest, store, and transport all that food. In a very real way, we eat petroleum today; when that petroleum costs two or five or ten times what it does today (in real terms, not ridiculous nominal dollar figures), ask yourself how all those hundreds of millions around the world who directly or indirectly rely on that relatively cheap food going to support their eating habit? And how are they going to survive when we continue to lose significant topsoil and arable land, in most cases for hundreds if not thousands of years (i.e. forever), not just in this country but around the world?
I really don't understand the limited, blinkered mentality of those who try to deny that our economy, and our population, can NOT continue to grow forever. The only thing in nature that grows indefinitely, without inherent limit, is cancer --- is THAT truly the model you would like to see our civilization follow?
Yes, we may run out of oil. Human ingenuity for extracting it and finding substitutes may fail. People may refuse to stop consuming oil; they may refuse to telecommute or to eat food grown locally. Speculators may fail to anticipate the depletion and fail to raise the price sufficiently quickly, resulting in an unexpected and abrupt economic collapse.
Or the sun may stop shining tomorrow. Perhaps a black hole traveling at near the speed of light impinges upon it and collapses it, wiping out human civilization.
I'm sorry, but unless you have a crystal ball then you have the same way to manage economic risks that the rest of us do, viz. speculation. Prove your belief in peak oil and do us a favor by buying up cheap oil, so it can be preserved for truly urgently uses in the future. If you've judged wrongly, then you will be punished with financial losses.
>The only thing in nature that grows indefinitely, without inherent limit, is cancer
I guess if I viewed humans as cancer cells, rather than people I want to befriend and do business with, then I too wouldn't want them to multiply.
You are basing your argument on theories and appeals to authority... a waste of your time.
Take a drive across the US, or Canada, or France for that matter. There is SOOO much empty land - good empty land.
Reality is more important than theories -- and as for "ecologists'... gag me.
Yes, especially Canada has an enormous land mass relative to its population size. If one day the artificial governments and artifical borders are dissolved and people become free to breath, travel, work, and live where they choose, then migration there will be possible and that land could be fully used in service of humanity instead of sitting idly and being guarded by a violent gang of organized criminals.
And so what if land runs out? You do not even need land to farm! Ever hear of offshore farming? Me neither, I just thought it up and googled it and found this:
http://www.ecofriend.com/entry/equinox-a-carbon-neutral-self-sufficient-offshore-farming-platform/
I have no idea if this is economic viable, or some kind of trick to entice government bureaucrats and eco-freaks. But it COULD be economically viable, especially if food prices rose due to dire scarcity. Despite what ecologists may think, people are not simply animals. You will find people will do a lot of clever things to cope with adversity and to seek profits!
most ecologists or most economists-
Bullshit from people who live off others.
Playing devil advocate Dr Acula? that is the only way something so pollyannaish could be posted with a straight face......or, were you laughing as you typed.........aaaah, ok then.
Which part were you rebutting?
If I sound like a "Polyanna", do you take the opposite view? Would you step into a time machine to transport yourself back hundreds of years where the population is significantly lower, the division of labor is significantly reduced, and the standard of living correspondingly much worse? At least you will find a lot of raw resources waiting to be transformed.
Great suffering awaits us. It will be caused not by scarcity, but by abundance: an abundance of fiat currency, corruption, crackpot political and economic theories, and ignorance.
Bravo Dr. Acula! shoo groundlings!
Dr. Acula ... if it's dark there, try pulling your head out of your a$$
This should help any who really want to understand.
http://www.youtube.com/results?search_query=the+most+important+video+you%27ll+ever+see&aq=0&oq=the+most+important+vi
FED is worried about 'deflation' in THEIR assets, which are worthless houses and stocks and bonds.
The next collapse will take money markets and treasuries down with it. Look what happened yesterday when the market opened down 200. Treasuries DID NOT rally this time.
Stocks will be the among the first and hardest class of assets to face liquidation for a variety of reasons. It's always been this way, and absent a completely new financial structure, will continue to be so. Money markets will see an influx of cash, much of it from equity liquidation, in the approaching crash.
Money markets will see an influx of cash, much of it from equity liquidation, in the approaching crash.
And, then the Govt will seize control, of them, and all pension plans, IRA's, CD's, and 401k's.To fund SS/MC/MA.........
Anyone with their fiat still n 401k's esp is asking for a 100% loss of control.Same w/IRA's.
Yep. Over the last 2 years I've been taking early withdrawal from my IRAs, paid the 10% penalty and buying physical silver and gold. It feels damn good.
Huh?
2, 5, 7, 10 year notes DID rally......this time.
They all closed UP for the day, as predicted.
I Agree completely, we will see deflation on items which are not necessary like TV, DVD players.. But Inflation will kill us on Gas, Food, Energy, Cars.. Anything that really means anything.
The problem is, are Americans going to be able to take the swings.
Go search: Layoffs 2011
That doesn't print a very pretty picture for anyone. Don't say oh its ok, check it out then come back and give a reasonable response.
In summer of 2008, oil was over $140 a barrel. By December 2008, it was at $37. What is different this time? Serious question. I have a hard time grasping why commodities aren't going to fall hard this time.
Commodities like Gold and Silver will continue their rise. Inflation and the purchasing power of the dollar has decreased. Oil goes up and down according to what they determine. Supply and Demand has very little impact on the price. You can only break the americans one way, hit them at the main resource that is required by everyone.
Hope you're right about gold & silver. But, I wonder how much speculative money has rushed into it also, and what will be sold due to margin calls.
Save hope for Obama. In this game you have to educate yourself. Start with Bill Bonner and Addison Wiggin's Financial Reckoning Day. Once you know who John Law was, it will start to come together.
there is a change so far in 2011
there is a HUGE bid under silver
China? maybe so, I'm not smart enough to know
I just see what I see from a multi year perspective
There may be some deflation on the horizon... but be sure Capt. Bernank will fly in with helicopters full of fiat to drop on the people.
If PM's take a hit... I'll be backing up the truck and buying more!
The difference is that in '08 there was a certain amount of 'faith' in the gov't by the people for "change you can believe in". The USD rallied when TSHTF.
Now, neither treasuries nor the USD rally when news breaks of something. No doubt we will see corrections as this market gyrates, but PM's will likely be the beneficiary of those movements, not the USD.
So it is not quite accurate to lump ALL commodities under the umbrella of speculation.
The drop in the price of oil in 2008 was intentional. It's up to you to find out why.
Checked the prices of DVD's, Flatscreens, and electronics lately?.
Same exact models of several items I looked at prior to Xmas, are up an average of 17%.
Non essentials...........inflation reigns.
And it's just started.
The situation is hard to predict, although volatility is probably a safe guess.
The money printed by the Bernanke so far is miniscule compared to the total money supply, including readily accessible credit.
In theory, the Fed could continue to print money without causing huge inflation if they could only manage to collapse credit at the same rate, with the end result being a static money supply.
As has been pointed out by many commenters, the Fed's influence on interest rates is not the tool to use to accomplish this statis. They will have to use some other device, one which won't bankrupt the US government.
The logical solution is selective bank failures. Right now, a fairly steady number of small banks fail every month. Their failure is hardly noticed in the larger financial community, but it still represents a contraction in the money supply. I don't have the time right now, and have no idea even where to begin, but I would be curious to see how the total losses attributable to these bank failures measure up against the total Fed stimulus. That would probably require some assumptions as to how much fractional reserve lending these failed banks would have pumped into the system, so accurate stats might be impossible to compile, anyway.
If necessary, the politicos will offer up another sacred cow on the alter of QE. Maybe BoA or Citi. That would be tricky, though, since you are trying to extract a card from that worldwide financial house of cards. A miscalculation might mean financial collapse and intense deflation. Failure to act might mean hyperinflation. To the extent the Fed is buying up the bad assets of bad banks, think of that policy as an effort to unwind the house of cards to the degree that the extraction of one of them might not cause a collapse of many of them.
Even assuming good faith efforts to save the Western world, I have grave doubts, to say the least, that the Fed can pull this off. Even if they could, it is not likely to be a smooth transition.
It also pisses me off that the Fed have become unelected, secret, worldwide central economic planners.
The day of reckoning approaches.
"Alas, predictions are tricky, especially about the future (credit: Yogi Berra), but here's why I am convinced that the next big break is drawing near."
Wasn't it Yogi Berra that said "when you get to the end of the road, stick a fork in it..." or something like that?
Ahh, Yogi Berra. Love the guy.
He would be able to totally relate to the wisdom and logic that shapes the essence of The Bernank:
"that's the shit" -collection by chair creature The Bernank. And somehow that guy is still in the office doing his magic...
My favorite quotes by "Bubbles" Bernanke! They just give me goosebumps (of dread) every time! Thanks for the recap!
We're toast!
It would be interesting to watch Ron Paul read that list to BB. I wonder if he would wear the same bored superior smirk.
I think it was "when you come to a fork in the road.....take it"
@ treemagnet / Logans_Run
treemagnet is correct. I saw an interview with Yogi several years back and, funny thing is, his home is on a loop, so when he gave directions to his house, he said it that way because you get there either way. Confucious had nothing on Yogi.
Yeah I was just having some fun with Yogi's quote because my "derived" version seems appropo for today.
What Yogi said was "When you come to a fork in the road, take it."
"when you come to a fork in the road, take it!" YB
To my knowledge, the quote is attributed to Niels Bohr, a danish physicist and nobel price winner.
http://www.brainyquote.com/quotes/quotes/n/nielsbohr130288.html
I am unfamiliar with the source, by posting it here I am hoping for confirmation or discrediting:
If true, it's chilling.
Our friend at
http://ex-skf.blogspot.com/2011/04/fukushima-i-nuke-plant-is-polluting.h...
knows they (and we) are being lied to. If independent journalists get cut off, we won't have a clue as to what is really happening.
Begin excerpt--
Rafael said...
Thanks for all your information.
Do you have any idea of what is really happening with Fukushima?
I also have heard many rumors and don't know which source we should believe in.
Is the situation really bad as Michio Kaku said?
April 18, 2011 8:40 PM
arevamirpal::laprimavera said...
What's really happening? No one knows, or people who must know are not telling. They may be telling us the true situation one month or one year from now, just like that bureaucrat at NISA said it was a core melt after one full month and that PM assistant said they didn't feel like announcing that a month ago.
What was considered a "lie" or "rumor" has turned out to be either true or understatement of the situation. Like Fukushima was level 7. It was level 7 within few hours of Reactor 1 explosion.
Nuclear researchers, other than government shills, in Japan seem divided; many now think there will be no more dramatic events like explosion, but some still think explosions could happen. But none of them has the solid, detailed data other than what's been disclosed by TEPCO. Flying blind.
Michio Kaku may not necessarily know the true situation, but that goes the same with just about anybody. I think he's right in saying that slight disturbance could set off a full-scale meltdown, and that only the military can bring an end to the crisis.
April 18, 2011 10:30 PM
If true, it's chilling.
Our friend at http://ex-skf.blogspot.com/2011/04/fukushima-i-nuke-plant-is-polluting.h... knows they (and we) are being lied to. If independent journalists get cut off, we won't have a clue as to what is really happening.
Begin excerpt from comments section--
Amazing how fast fascism rears it's ugly head when the truth shines forth, eh?.
black friday april 29 bitchez.
explain.
*whinny*
World, we have a one helluva problem!
....idea here..... let's elect a real estate guy as POTUS next time so he can BK the USA out of this shit...someone with experience.
My fellow Americans: although I have no track record in this regard, I am confident that I can get results. Rest assured that my reign of terror against TPTB will take a page from Pol Pot's play book.
Not a problem! Every so often there is this call for debt roll over crisis! Guess what - if you did not default then you just be able to borrow from the same people you just returned current principal to. Net net - just keep paying interest on an extended maturity bond! Possibly at lower interests than 5 years ago thanks to 0% from the FED.
Yep, that will work fine. Until the day it doesn't.
The word "crisis" has lost its meaning in the banking sector. The only question is the timing of the rollovers. Bailout mechanisms have been institutionalized around the world to prevent panics and keep the players gainfully employed.
Except now they want to roll the long bonds into short. Can you blame them. The turnover cycle gets shorter and shorter.
You trade or speculate...
POMO stop, dollar up, yuan free, cup of tea
Speak to you in Ten
Predictions ARE tricky, especially those about the future. Word.
It'a Deja Vu all over again! -Yogi Berra
If by "breakdown" you mean "The End of The Great Keynesian Experiment", I concur.
By the way, today is my One Year ZH Anniversary!!!
Happy Anniversary to me, Happy Anniversary to me. I look like a turd and smell like one, too.
Happy Anniversary to you TF!
One of our best re precious metals.
happy anniversary man, glad you are here.
Happy anniversary
Happy anniversary
Happy anniversary
HAPPY ANNIVERSARY
sung by Fred, Wilma, Barney and Betty to the tune "Happy Anniversary"
With those lyrics, the tune's name does make sense . . .
My anniversary too - congrats to you! Seems longer than a year though - I've learnt so much on this site
Turdites(as we are known), are glad to have your expertise available.Follow the Turd, he won't shit ya.(;
Many have profited off of your due diligence and learning.
Congrats and thanks for being here.
That goes for all the other brilliant minds who put up with we peons.(if you fall in that group), LOL.
Is it not in the chinese interest to bail out the west? isn't that the idea to have the person you are trading with feel like they owe you one? i mean i've only seen layer cake a couple times but i thought that was the point...
It is in the interest of China to neuter the West.
Hey great article and all, lots of high finance talk about bonds and whatnot, but dont forget food is about to rape upwards in price and yesterdays story about Saudis cutting oil production which virtually assures $5 gas by summer.
We already have $5 gas in Canada and food prices are hiking up quickly:
http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/rising-food-prices-its-no-small-potatoes/article1990922/
I noticed it the other day when I picked up a few items - one large grocery bag and nothing extravagant - $45!
it's just a matter of time before this pops. This is the strangest economic scenario and times in my life.
So much coverage of the Fed - it is becoming harder and harder for the Fed is cover up its charade.
The Fed is a money cartel owned by the banksters under the guise of a "federal" institution.
JP Morgan (the real person, not the business enterprise) really did a number on the sheople of America last century.
Gold and silver gives me some reassurance, but not nearly as much as my HK-G3.
who needs gold and silver when you've got a rifle and a reloader.
BTFD.
As Yogi Berra said, since it is hard to predict the future, I would own gold & silver as well as your firearms.
@augie: Unless you're talking about using that firearm purely for hunting, you better hope you don't run across more prepared folks! Some of us have PMs as well as lead, brass, and multiples of rifles, as well as food, water, meds, etc, etc, etc.
Perhaps in some areas it would be easy for an armed person to relieve an unarmed person of their supplies, but that can and will go horribly wrong at some point.
Hope for the best, plan for the worst...
No offense Tx as you are most certainly a man of god, but principles don't put meat on the table. Planning for the worst mandates hopeing for the worst.
SheepDog, I know there are more appropriate places to discuss this, and to each his own based on the anticipated threat and environment, but I'm surprised at your selection of 'ol reliable. I'm also concerned the ZH members waking up to the possible need for protection might be influenced by your choice (since you brought it up). So, I hope they will educate themselves on the range of alternatives and the factors that should influence their choice(s).
Well youre free to buy many lesser firearms than the HK, fine.
I'm hoping my AR-15 will be enough.
Im sure it will be!
You could do the poor man's G3 and buy a Cetme... 500.00 at J&G sales, bitches.
A .22 LR or WMR will make virtually all non-zombie types turn back after the first hit, and you can buy 5k rounds of the good LR stuff for about $350.
No offense - even if you can drive tacks with it, its still not enough gun.
WMR is a better choice than a .32 auto, but I agree with you fully tree... if your ass is gonna be hanging from it, better a rope than a thread.
If you want cheap, buy a ROMAK in 7.62x39... they're all around 400.00 now and there's no semi auto with that kind of proven reliability or forgiveness built in.
G3, mmmmm, likey - penetration x2
Yeah. When did the financial news become totally dominated by what the government does?
It wasn't always like that.
JP Morgan (the real person, not the business enterprise) really did a number on the sheople of America last century.
Yes he did, he saved the country.(for real)
And he, and his offspring have more than made up for saving the US, by multiples of 1000's.
Anyone have the guts to make some paper speculative plays in something like TBT or UDN?
ONLY if I can be fully margined!!
Not enough to jab it in, you have to twist it and snap it off too, eh?
Absolutely. But put in trailing stops that keep your profits, and, when they get triggered, flip to TLT/UUP. And put in trailing stops that keep your profits, and, when they get triggered, flip to physical.
Hussman cautioned yesterday that the *dollar* value of PMs may be stagnating soon. It sounds like he is beginning to fade PMs and replace it with foreign currencies.
It sounds like he is beginning to fade PMs and replace it with foreign currencies.
A man of Hussmans stature, and wealth, surely must know there will be NO CURRENCIES to go into that are not a major risk in themselves.
thanks mr m for the nibble good if troubling to read still i wonder what the 99% of consumers who arent plugged into this oncoming maelstrom will do when the fan blades get 'soiled'
. . .some folk'll never eat a skunk, but then a again some folk'll . . .
I suspect many many more will be pushed into that mode.
Denzel Washington ate cat in The Book of Eli. I think I can handle cat.
"I love cats. They taste just like chicken."
End the IMF