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Guest Post: The War Between Credit And Resources

Tyler Durden's picture





 

Submitted by Gregor McDonald via Peak Prosperity,

The Federal Reserve is probably not ready to take the aggressive plunge into Nominal GDP Targeting, but it likely will.

Such a policy, which received wider attention during Ben Bernanke's Congressional questioning last year and was also highlighted this year in a paper delivered at the Jackson Hole conference (Woodford, opens to PDF), has not caught any visible traction with Washington policy makers possibly because it’s seen as either too radical, or simply too new.

However, after four years of broad reflationary policy (and another year to come) failing to meaningfully spur U.S. employment growth, the Fed may be willing to try such measures by late next year, 2013.

Indeed, given the Fed’s recent announcement of open-ended quantitative easing (QE), one can already anticipate the incremental move towards Nominal Gross Domestic Product (NGDP) Targeting, which has as its central belief that an aggressive and open-ended promise to pursue growth at the expense of inflation is the booster required to push a structurally broken economy back to normal trend. Moreover, in contrast to Bernanke’s swift rejection last year of NGDP on a conceptual basis, Bernanke discussed the idea in friendlier terms during his post-Federal Open Market Committee (FOMC) news conference.

What’s 'exciting' about the emergence of NGDP Targeting into mainstream economic thinking is that, once implemented, it will provide a real-world test of reflationary policy’s final effort to combat the forces that have led to the end of strong, economic growth. The appearance of the Woodford paper (link above) further highlights the reality that endless amounts of cheap capital will be provided to restart economies, now that we are in energy transition, with the world having lost its cheap oil. The battle between credit and natural resources will be renewed.

What will be the effect on global natural resource extraction in an era of NGDP Targeting?

Simple.  All of the remaining fossil-fuel BTUs will be extracted on an accelerated basis, and governments will race to provide the capital to do so.

The Post-Abundance Era

It makes sense that just as the era of abundance is coming to an end – an era which dominated developed world economies over the past 250 years – an enthusiastic, vestigial embrace of Abundance would pour forth from culture. Books such as Abundance: The Future is Better Than You Think and also The Coming Prosperity have appeared in a flourish, all in the past year.

Is it not telling that this outpouring has occurred just as it has become crystal clear that prices of resources were not – even in the post-2008 era – returning to levels of the prior decade?

It is either lurid or tragic that assertions of abundance would flower after energy prices endured a price revolution, agriculture prices did the same, and purchasing power and incomes in the developed world entered decline. The repricing of the planet is a super-trend that has endured for more than 10 years now, and it has wreaked havoc on just about every asset class from stocks to housing. While observers currently cheer stabilization in such prices, it's worth noting that the S&P 500 first reached current levels more than 12 years ago. Therefore, each unit of the stock market buys less of everything. So much for abundance.

It is additionally rather galling to be harangued by Abundance Theorists at a time when OECD economies have essentially failed, both in their financial systems and their ability to produce jobs, and are instead now producers of poverty. As purchasing power declines in the West against energy and food, what can Abundance Theorists possibly be thinking? It is not as if the industrial revolution in the Non-OECD is producing higher quality lives either, as countries like China convert themselves into waste dumps of coal-fired and chemical pollution, and India sees pluralities of its population continue to go without electricity or a reliable water supply.

Abundance would mean that globally, energy is so plentiful that it would be too cheap to meter. On the contrary, global energy prices – and in particular, food prices (which are strongly linked to energy prices) – have completely broken out of long-term trend lines to the upside.

There is no better measure of the aggregate loss of purchasing power against resources than the advance that poverty has made in the past 10 years, especially in the United States. While it’s true that various policy choices have exacerbated income inequality in the West for over thirty years, such explanations were more satisfying from 1975-2000, during a long period of efficiency gains in the economy. As it happens, the U.S. Census Bureau has just released fresh data on U.S. poverty, and while not a surprise, it does not make for pleasant reading. U.S. poverty is at its highest levels since 1993, but the current level -- 15% -- is very near the highs of the last 40 years:

Number in Poverty and Poverty Rate: 1959-2011

(Source - The U.S. Census Bureau)

Some observers have commented that the U.S. poverty rate is actually “not as bad as it seems” because of food stamps, various state and federal assistance programs, unemployment insurance, and other financial aid that the government now provides to the poor. These are collectively known as "transfer payments." However, the income bracket requirements to be placed in the poverty category have such a low ceiling that it seems likely that U.S. poverty remains undercounted. From recent news coverage of the poverty figures at the San Jose Mercury News:

Although the poverty rate didn't rise, the median household income for all Americans declined 1.5 percent to $50,100 in 2011. That was an 8.1 percent decline from 2007, before the recession began, and 8.9 percent lower than the 1999 peak. To be classified as poor in 2011, a family of two adults and two children would have had to make less than $22,811. Some economists had predicted Wednesday's annual report would show the poverty rate hitting its highest level since 1965, when President Lyndon Johnson announced his war on poverty. The fact that the numbers instead leveled off after three consecutive years of increase was a relief to some. Still, the persistent poverty is troubling: the 15 percent poverty rate ties with 2010 as the highest since 1993 and one of the highest since the government began measuring poverty.

(Source)

There is a certain unreality to a measurement that deems a family of four with an income above $22,811 to not be in poverty. How, exactly, could one live as a family of four in these United States with an income of $24,000 or even $26,000 and not be in poverty? For such a household, energy and food prices alone would dictate either a very poor diet, or the need for government assistance in utility and transport costs, or both. Indeed, a new unreality in our accounting now marks many areas of economic life in the U.S. in the post-Abundance era.

Unreality in Energy Costs: The Ethanol Example

Analysts have pointed out for years that a significant portion of the military budget is devoted to the safety of global oil supply, and thus each barrel of oil has “external” costs that the user does not pay at the pump, but instead pays as a taxpayer. This is undoubtedly true.

So what policy has the U.S. pursued in an era when military costs and the price of oil are even more onerous? The policy of mandated ethanol.

Mandated ethanol in the U.S. has done nothing to lower gasoline prices (which are, of course, driven entirely by oil prices) regardless of ethanol content. Moreover, the energy content of all organic material, in this case corn, is so low that by the time the process of converting corn to a liquid is complete, so many other energy inputs have been required that the net energy pick-up is incredibly small. In order to escape the reality of structurally higher oil prices, the U.S. has diverted enormous capital and other resources to a program that is largely symbolic. But billions in tax credits have been devoted to grow and support an industry that could simply not make it without such support, primarily for two reasons: one, because the low energy content of corn does not provide enough profit to pay all entities in the production chain; and two, because ethanol makers are essentially refiners and do not ultimately control the cost of their feedstock (corn).

Ethanol policy has been underway since 2006, when the price of oil had started its price revolution. And aggressive reflationary policy in the US has actually been underway for 12 years, not just the past four years, when the near-zero interest rate policy was first employed (1.00% interest rates). These two policies are an example of how institutions and economies will grapple with both the loss of cheap energy and the tremors such a loss sends out through an economy. Trying to battle, hold back, and generally thwart secular changes in prices and carrying capacity with patchwork solutions not only is destined to fail, but brings with it myriad other consequences.

For example, because the economy was already experiencing energy limits in the early part of last decade, instead of spurring organic growth, reflationary policy simply distributed into the fixed assets of housing. That was confirmation that other barriers to growth were already becoming embedded.

Reflationary policy produced a greater quantity of resources, nor cheaper resources.

Similarly, in ethanol policy, instead of reconfiguring transportation systems or investing in rail, the U.S. foolishly wasted billions trying to produce more liquids when the real problem was the quickly escalating cost of oil supply. As we now understand, agricultural production is not free, but instead tied very much to fossil fuel costs. So the dream of escaping from high oil prices by running large-scale food-to-fuel programs is destined to fail.

No Carbon or Green Solutions at Sufficient Scale Coming

But if you think these measures are desperate, we have only just begun to push energy and financial systems beyond their capability.

The launch of QE3 (and similar measures by the European central bank (ECB) in Europe) is like the crack! of a starting-gun to human psychology that carries the following, urgent message: Hey, humans go get those resources quickly, before someone else does! Indeed, the most powerful lever for monetary policy remains our capacity for social competition. The open-ended promise to pursue a faster rate of growth at the expense of inflation, mal-investment, bubbles, and the environment places a new and fast pressure on human economies to perform.

Those who are concerned about the environment and climate change should also read the onset of QE3 and the inevitability of NGDP Targeting as the start of the next big leg of resource extraction. And, accordingly, of CO2 production.

While the dream of a green energy transition persists, however, no such transition from fossil fuels to renewable energy is taking place at sufficient scale or speed to effectively shift human economies to new energy architectures. We already have sufficient and clear data in our possession to know with some degree of certainty how energy transition is currently proceeding. In short, while wind and solar resources are growing at near-exponential rates, they remain such a small portion of the global energy mix that even in the best case scenario just 15% of the global powergrid will be free of fossil fuels roughly 20 years from now.

Displacing that much of the powergrid with renewables will indeed be an achievement, but unfortunately, the recoverable reserves of natural gas and especially coal are sufficient to fund incremental growth for at least another 20 years. Even if we project a mostly flat global economy for the next two decades, the energy-funding requirements to run a flat global economy will still necessitate that we extract enormous volumes of fossil fuels each year. And that is precisely what will happen as long as aggressive reflationary policy is pursued.

Accordingly, any global effort to place carbon taxes on economies or to agree to other climate treaties will largely be token and symbolic. In Part II: What Happens Once We've Burned All the Resources?, we will take a look at the remaining reserves of natural gas and coal, and roughly model the composition of energy inputs to the global powergrid as economies transition increasingly away from oil. Also, now that it’s clear that this reflationary policy will carry on for years and years to come, we will take a look at a rough calendar as new programs roll out in Japan, the EU, and the U.S. Those who predicted Infinite QE have now been proven correct.

Click here to read Part II of this report (free executive summary; paid enrollment required for full access).

 


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Thu, 10/04/2012 - 22:43 | Link to Comment Yen Cross
Yen Cross's picture

I tore both of those poverty charts apart. They both converge, for 1 reason.  Growth is (in) fact contracting.

  Coming from a "Free Market" trading weave, it's clear that natural resources need to be used in a more "judicious" way.

  RESPECTFUL inquiries only, please.

Thu, 10/04/2012 - 23:14 | Link to Comment sunaJ
sunaJ's picture

Our children, and theirs, are so fucked...so that we can each drive a 2 ton car 30 miles to work each day. I thought it would be a conservative view to look at lessening our reliance on burning down the forest as we go, but the REpublicans say it's not, so I guess it isn't.

Thu, 10/04/2012 - 23:15 | Link to Comment fourchan
fourchan's picture

my cayenne tt gets 10mpg but i dont have kids sooooo...

Thu, 10/04/2012 - 23:18 | Link to Comment AldousHuxley
AldousHuxley's picture

You think rothschilds came out of the woodworks in 1980s to get back into banking for fun?

 

 

Fri, 10/05/2012 - 06:15 | Link to Comment Seize Mars
Seize Mars's picture

Aldous: is there a backstory I'm not aware of? Can you clue me in please? Thanks

Thu, 10/04/2012 - 22:40 | Link to Comment zorba THE GREEK
zorba THE GREEK's picture

"WHAT HAPPENS AFTER WE'VE BURNED ALL OF OUR RESOURCES?" 

ANSWER: SOILENT GREEN.

Thu, 10/04/2012 - 22:49 | Link to Comment palmereldritch
palmereldritch's picture

Somebody read the last chapter of Agenda 21

Thu, 10/04/2012 - 23:28 | Link to Comment AldousHuxley
AldousHuxley's picture

only if people are worthwhile.

 

but me thinks reality is more like Idiocracy

 

 

Thu, 10/04/2012 - 23:50 | Link to Comment palmereldritch
palmereldritch's picture

It always pays to look at the labels, at least in a Zombieocracy

http://1.bp.blogspot.com/-KdHqHW_jKeA/TX4UKqFGVAI/AAAAAAAAA9k/2Z_9Nq6Oa2...

Thu, 10/04/2012 - 23:15 | Link to Comment fourchan
fourchan's picture

this is a fantastic article/post the problem of exponentiality is not ignored but exposed fully.

Thu, 10/04/2012 - 22:47 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Let me start by saying this: You're the muppet. 

Gasoline is hitting new highs not just on the West coast. On every coast. 

 

Thu, 10/04/2012 - 23:25 | Link to Comment AldousHuxley
AldousHuxley's picture

gas is hitting highs or dollar hitting lows?

 

Arabs are not getting richer, Americans are getting poorer...but the truth is America IS a poor country.

Thu, 10/04/2012 - 22:52 | Link to Comment zorba THE GREEK
zorba THE GREEK's picture

It looks like defending $1780 on gold is getting tough for 'the manipulators'.

They may drop back and defend $1800. They will probably pull out all the stops

and go for broke [ which is what I'm hoping happens to these SOBs ] because

after $1800, there is only weak resistance at $1900 and then it's to the moon,

Alice.

Thu, 10/04/2012 - 22:55 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Lunar Gold

Thu, 10/04/2012 - 23:04 | Link to Comment JohnG
JohnG's picture

Patience Grasssopper.  Be right and sit tight.

Thu, 10/04/2012 - 23:25 | Link to Comment AldousHuxley
AldousHuxley's picture

Independent consultant working from home = unemployed liquidating assets on ebay

Thu, 10/04/2012 - 23:26 | Link to Comment Go Tribe
Go Tribe's picture

Gotta love the part about this making Obama a job creator. The mackdaddy shills know no bounds.

Thu, 10/04/2012 - 23:24 | Link to Comment AurorusBorealus
AurorusBorealus's picture

The race for resources, especially energy resources, has been going on for some time, back to the late 19th century at least.  For a few years, after the fall of the Soviet Union, the West had its way, and the race for global resources was carried out largely in terms of the global financial system that America had established (and modified / reneged on) post World War II.

Now, however, with the financial system teetering on the brink of chaos, the West is effectively offering made-up printed money for real-world, finite resource in their attempt to allocate global resources to themselves.  This is not going to result in some "rise" in commodity prices, some slow decline into poverty for billions of people, some muddle-through-slow-growth recovery, or some Japanese-like economic malaise for decades.  Oh, no.  This is going to result in war... just as the race for new world gold did in the 17th century, just as the race for resources did in 1914, in the 1930s (Italian wars of expansion, Japanese wars of expansion), in 1939, in the Pacific in 1941, the American invasions of the Middle East.

There is only one outcome to this situation, and that outcome is war... full-blown, all-out, global conflict over resources, especially energy resources.  Do not think for one minute that this is going to end any other way.

Fri, 10/05/2012 - 00:12 | Link to Comment blunderdog
blunderdog's picture

   There is only one outcome to this situation, and that outcome is war... full-blown, all-out, global conflict over resources, especially energy resources.  Do not think for one minute that this is going to end any other way.

I think you're basically right, but it won't be full deployment by the nation-states.

I'm thinking distribution networks will decay faster than "central power" can manipulate remote resources.  Long-term relatively low-intensity regional skirmish.

Everyone on Earth can easily get a rifle, but there are still only a few thousand entities who can employ "world-class" mass-death technology.

Ten hyenas against a million rats.

Fri, 10/05/2012 - 06:42 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Yes. Supply chains will crack first. Already seeing a rise in defaults on contracts to deliver in the agriculture sector. Shit gets real when the food stop showing up, not before.

Fri, 10/05/2012 - 00:40 | Link to Comment Radical Marijuana
Radical Marijuana's picture

The best thing about his article is the title! That encapsulates the problem very well! It reminds me of the description of the struggle between the savers and speculators, with the speculators obviously winning, because their advantage is based on fiat money, being made out of nothing. Similarly, credit is created out of nothing, as a claim on real resources. The real resources obey the laws of nature, which primarily say that there is no free lunch, and no free waste disposal. I.e., nothing can be created out of nothing, and nothing can be sent to nothing.

If one believes in those ideas, as the basic, best first approximation of our current understanding the laws of nature, then the conservation of energy rules all, including that the transformations of energy are directed by itself, in ways that also follow the principle of the conservation of energy. If one believes in the conservation of energy, and matter, and the preservation of information, in as much as information is tied to any energy, then fiat money is obviously fraud, backed by force.

Privatized fiat money is a crazy cult, that became our state religion, because it was backed up by the power of the assertions of  sovereign governments. I.e., one must obey the law by paying one's taxes in legal tender. Thereby, counterfeiting was legalized, and the power to do that was delivered to private banks. Therefore, the entirety of our credit system is the struggle of money backed by murder, to command natural resources.

There is still a vast, vast natural abundance, but ONLY if we adapt our human ecology and industrial ecology to operate within, and according to, the ways that natural ecologies have evolved. ... We are, sort of, doing that. However, the "sort of" is due to the difficulties that our murder system depends on deceits, and thus, our money system has been able to become runaway frauds, without effective checks and balances.

The degree to which bullshit reigns totally supreme is the degree to which all of us are in deep shit!!! The degree to which impossible ideals, and false fundamental dichotomies, are able to dominate the political process is  the degree to which we are controlled by HUGE LIES.

Since our money system is fundamentally fraudulent (but the overwhelming majority of us refuse to face the fact that the only way to fix it requires simultaneously changing the murder system too) EVERYTHING directed by that monetary system is like building something using a bent rubber ruler, on top of an eroding foundation of sand!

We make an apparently endless series of incredibly stupid decisions, like to now subsidize ethanol production. Of course, it fits that, historically, when that mattered more, and might have made sense, alcohol prohibition was implemented to criminalize and stop that from happening. Historical research indicates that the women's temperance movement was massively funded by the big oil interest of that time, and the same group of plutocrats, back then, were also overwhelmingly dominating the funding of all the rest of the politics. Thus, we are now swinging, like an insane pendulum being pumped, from the absurdity of criminalizing ethanol, to subsidizing ethanol.

As an aside, the same argument can be made about criminalizing cannabis. It was BECAUSE hemp is the single best plant on the planet for people, for food, fiber, fun and medicine, that the law became based on a propaganda campaign that "marijuana is almost as bad as murder."  Therefore, one of the better possible renewable resources was criminally suppressed, and still is! Again, follow the money through the funding of politics to understand how and why it happened that the drug war is 75% against marijuana.

MY POINT is that that can still be understood through the energy laws, and general systems theory. However, it MEANS that human societies end up being controlled by their biggest bullies, who get to promote their bullshit as the dominant social stories, which thereby control that society.

Therefore, our decisions are NOT based on any overall rational assessment of what would be best for the most people, for the longest time. They ARE based on who is the best, in the short-term, at being dishonest, and backing that up with violence. I.e., our real decisions are made inside the context of higher order, non-linear functions whereby energy is conserved, directing its own transformations. through a combined money/murder system.

WE COULD scale up green solutions enough, IF we integrated them into a system of alternatives. However, the keystone to such a system of alternatives would have to be alternative death controls. It is absolutely impossible to sustain endless exponential growth of anything, unless the basic laws of nature could be repealed.

What we empirically observe, and always experience, is that is NOT possible. Instead, what actually evolves are dynamic equilibria, in the form of ecologies, which provide checks and balances to stabilize what is sustainable, over the longer term. Of course, that is precarious!!!

Anyway, I liked this article, for all the points which it actually did make. However, as usually the case, my critiques are based upon where it stopped, and therefore, upon what it did not say ...

Fri, 10/05/2012 - 00:55 | Link to Comment Radical Marijuana
Radical Marijuana's picture

P.S.

This article indicates how insanely evil ethanol production has become on the global level:

http://www.guardian.co.uk/global-development/2012/oct/04/land-deals-preventing-food-production

... Analysis by Oxfam of several thousand land deals completed in the last decade shows that an area eight times the size of the UK has been left idle by speculators or is being used largely to grow biofuels for US or European vehicles. In a report, published on Thursday, Oxfam says the global land rush is out of control and urges the World Bank to freeze its investments in large-scale land acquisitions to send a strong signal to global investors to stop "land grabs". "More than 60% of investments in agricultural land by foreign investors between 2000 and 2010 were in developing countries with serious hunger problems. But two-thirds of those investors plan to export everything they produce on the land. Nearly 60% of the deals have been to grow crops that can be used for biofuels," says the report. ...

Fri, 10/05/2012 - 07:15 | Link to Comment BigDuke6
BigDuke6's picture

Listen to ya boy.

LInking the goddam guardian - what are ya boy a goddam hophead who's been at an orgy all his life?.... probably badmouthin' ya country on a daily basis.

ach who i'm trying to kid - i'm with you on hemp.

all the way with LBJ!

 

Fri, 10/05/2012 - 08:59 | Link to Comment ZeroAvatar
ZeroAvatar's picture

" It was BECAUSE hemp is the single best plant on the planet for people, for food, fiber, fun and medicine,"

 

You should have seen my 'neighbor' last week.  He grows dope in a barn.  He's constantly stoned.

 

Anyway, I saw him with gauze bandages wrapped around his arms, with bandages on his neck and face.

 

He woke up at 2:00 A.M., was cold, and poured rubbing alcohol into his wood-burning stove, and lit it.

 

The resulting explosion left chunks of flesh hanging from his face, neck, and arms.

 

You talk about 'ZOMBIES'.......wow,   smoke some more, DUDE!  WHAT FUN!

Sat, 10/06/2012 - 04:23 | Link to Comment Radical Marijuana
Radical Marijuana's picture

There are NO chemical substances that cure stupidity! However, it is plainly obvious that alcohol makes people become far more stupid than hemp does. It is clear that alcohol prohibition backfired badly, and that pot prohibition is backfiring badly. The question is not whether consuming cannabis makes an individual more or less stupid, the question is whether criminalizing cannabis is a stupid idea!

Cannabis has diffuse effects throughout the body. It tends to be a general amplifier. If you were stupid before you chronically consume cannabis, you will probably become chronically stupider. If you were creative before you occasionally consume cannabis, then you will occasionally become more creative. If you hate doing something before you consume cannabis, you will probably hate doing it more after you consume. If you like something before you consume cannabis, you will probably like it more, after you consume. It depends on you as an individual, and your individual situation, inside of a complex risk/benefit comparison, where the balancing of the risks and benefit is severely skewed by the criminalization.

Your argument from anecdote has no merit. The FACTS are: Hemp seeds are the single best plant source for protein and oil for human nutrition, as well as most other animals. Hemp plants are a source of high quality fiber and biomass, which have many agricultural advantages. Before cannabis was criminalized, it was one of the most widely cultivated crops, for a long, long time, because it was useful. Indeed, the Latin words Cannabis sativa translate into English as useful hemp. One property of consuming the psychoactive resin on the flowers is it often produces euphoria. It feels like fun. Finally, the value of medical marijuana is beyond reasonable doubt.

Research on the history of pot prohibition in light of those facts demonstrates that the domination of the funding of the political processes by a fraction of 1% of the population were the reasons why it was possible for huge lies that "marijuana is almost as bad as murder" to become the basis for the laws, despite the fact that marijuana has never killed anyone. (Although, I will concede that stupidity has killed a lot of people.)

I stand by my assertion that it was BECAUSE hemp is the single best plant for people, that it was criminalized, in order to put hemp industries out of business, so that they could not compete with other industries. That was done by the people who benefited from profiting from their inferior products, which otherwise would not have been as profitable. Criminalizing cannabis was the single simplest symbol, and the most extreme example, of the general pattern of SOCIAL FACTS, that our society is controlled by huge lies, backed by lots of violence, which is designed to benefit the few people at the top of the social pyramid system that deliberately made and maintained that system. Those pyramidion people were primarily the international bankers, who benefited the most, all the way around from criminalizing cannabis. The biggest banks benefit by skimming the cream of the profits off of the illegal drug business, by laundering the drug money. The fascist plutocracy in general benefits from having more excuses to build a fascist police state to protect itself from the people, while that fascist plutocracy advances its overall agenda, against the interests of the vast majority of the people.

75% of the war on drugs is the war against marijuana. The war on drugs segued from slavery and racism, and still primarily accomplishes the same objectives, through coded language that enables the drug war to primarily become a war on visible racial minorities, and poor young people in general. The war on drugs was a special case of the overall social system: DEBT SLAVERY, BACKED BY WARS BASED ON DECEITS.

Of course, the "truth" makes no difference to systems based on lies backed by violence, therefore, whether or not what I say is correct and can be proven tends to be irrelevant. Our society generally maintains deliberate ignorance and wilful blindness, which is the most evil form of stupidity. There may be irony that there is no other group which is rendered more stupid by marijuana than the government, except if one perceives that the best organized gang of criminals, the biggest gangsters, the banksters, actually control our government. From that perspective, pot prohibition is a great success for them! Just not for anybody else but them, and the people who work for them, that are paid with the money those banksters make out of nothing, as public debts, to pay for the war on drugs, and all the other insane wars.

Fri, 10/05/2012 - 05:53 | Link to Comment Urban Redneck
Urban Redneck's picture

The article brings to mind Ben's response to Ron Paul as to the nature of gold ("tradition" vs money). I don't think Ben was necessarily lying when he said he doesn't think gold is money. Money is something that Ben can print at will, gold is not. If he lied in his response to Rep. Paul's question it would be when he stated that Treasury bills are not money, since they are the primary currency used between central banks for non-overnight transactions (f/x reserves). However, in fairness to Ben's sense of self importance the creation of Tbills is done at the will of the State's Treasury, not its Central Bank. Central Bankers are nothing more than hired help to those who direct the State. To quote J.P. Morgan, "I don't know as I want a lawyer to tell me what I cannot do. I hire him to tell how to do what I want to do." To promote the phrase to the level of TPTB, "I don't know as I want a central banker to tell me what I cannot finance. I hire him to tell how to finance what I want to do." Gold is a relic of a barbarous age when TPTB had to find some suckers to loan them gold to finance their acquisition of other (non-gold) resources . In this more "sophisticated" age TPTB simply order their Central Bankers to print the money, which is seamlessly passed on to their muppets through decreased purchasing power.  The new suckers are built into the system and do not have to be found or convinced to participate.  

The war between credit and resources. The war between money and wealth. It's a matter of persecutive. Credit and money are the opposite faces of the heads-I-win, tales-you-lose trick of the central banks to support the State's ambitions. If Money (or credit) was wealth to TPTB then there would be fewer wars, as TPTB could simply have their Central Bankers and Treasurers print wealth or issue credit. TPTB measure wealth (and power) in terms of the means of production (raw materials, factories, infrastructure, muppets, and energy resources). Muppets, however, measure wealth (and power) in terms of money. Gold (and precious metals generally) are the overlap of the two measuring systems (lead and brass also overlap but my time is short today).

Fri, 10/05/2012 - 09:17 | Link to Comment American Sucker
American Sucker's picture

If you build your society around a resource that you think will be cheap, and it's not cheap, it doesn't matter what you use for money.  You're screwed.  Economics is religion; geology and biology are not.

Fri, 10/05/2012 - 06:05 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

but...but...but...I thought the Debt Brother lifted all his people out of poverty, already?

Fri, 10/05/2012 - 06:09 | Link to Comment AynRandFan
AynRandFan's picture

Funny how this article took off on a tangent about energy, when it could have looked more in general at consumer behavior.
Can the Fed force consumers to spend by devaluing their savings? I think it is more likely to drive consumers to ramp up their savings efforts while also decreasing their standard of living through higher costs for food and fuel.

Fri, 10/05/2012 - 08:40 | Link to Comment tradewithdave
tradewithdave's picture

Question.  Is the war for value creation being waged between on-the-groundn scarce resources vs. full (as in unlimited) faith and credit monetization... as measured within a consciousness of confidence or has the nature vs. nurture argument finally been settled in the back of your brain?  

 

http://tradewithdave.com/?p=12538

http://tradewithdave.com/?p=12601

Fri, 10/05/2012 - 09:28 | Link to Comment dizzyfingers
dizzyfingers's picture
Have A Money Market Fund? Geithner Has You In His Sights!   ‎Sunday, ‎September ‎30, ‎2012, ‏‎12:29:02 PM | Contributor

Contributed by Blankfiend, of Fibs and Waves. Treasury Secretary Geithner thinks of your money as a first-loss buffer for the financial system. He counts on you being too involved with your iPhone to notice. In 2009, he launched PPIP to revive the MBS market - using your money as a first loss buffer. On Christmas Eve 2009, he opened your wallets to cover unlimited amounts of GSE losses. Well, he is at it again.

Fri, 10/05/2012 - 21:53 | Link to Comment steve from virginia
steve from virginia's picture

 

 

Gregor sez:

 

... the energy-funding requirements to run a flat global economy will still necessitate that we extract enormous volumes of fossil fuels each year. And that is precisely what will happen as long as aggressive reflationary policy is pursued.

 

The assumption is that the 'aggressive reflationary policies' are going to work. Right now, the central bankers are 'pissing in the wind'. NGDP targeting is a mirage, the promoters don't have any idea how central banks work -- or don't.

 

To increase NGDP, central banks must offer offer unsecured loans: 'new money' to create inflation. Central banks are collateral constrained: if a central bank offers unsecured loans under current conditions (insolvent banking systems) they don't create inflation, they become insolvent themselves ... just like their banking clients and for the exact same reason! In the place of 'reflation' there are depositor runs (underway). This is because there are no real lenders of last resort, only a constellation of banks destroyed by leverage. Carried forward, there are runs out of the currency and system collapse (see 'euro').

 

The economists are either fools or greater fools, they could see the truth if they bothered to look out their windows!

 

If they saw the truth they would have to acknowledge peak oil which puts paid to all their fantastic nonsense. Reflation is a certain-to-fail attempt to regain vanished capital. We've gained nothing of value for it, what remains is largely inaccessible: what Gregor and NGDP economists suggest is that expanding central bank balance sheets will make vanished capital magically appear.

 

Not only is the capital gone, the needed 'new credit' does not exist. Tomorrow's central bank credit is yesterday's private sector credit. There is nothing new under the sun, nothing but a conjurers trick to pull a rabbit out of a hat.

 

Vanishing resources does not allow for them to be depleted faster. This is the 'rising prices creates reserves' argument that is facially defective. Easy to extract resources are already gone -- this is why there is a crisis in the first place, why prices are higher (scarcity premium = rationing by price). Meanwhile, consumption infrastructure is also stranded by same high prices. This in turn  unravels the credit that supports the high prices (as is underway in Europe).

 

Not only do high prices strand but so do low prices. High prices adversely effect consumption. Low prices adversely effect extraction. At some point both prices are the same ... then it's game over, bitchez.

 

Either rationing by price works or it doesn't. The point of Gregor's article is that rationing by price exists ... either price rationing works or it doesn't. If it does then fuel prices must decline (rationing cuts demand). If it doesn't the outcome is physical shortages (resources out of reach). These shortages are permanent, by the way (bitchez).

 

In Europe, China and elsewhere, property speculators are going bankrupt: real estate is a fuel consumption enterprise. We witness the death ride of the automobile industry. Enough of world's demand is collapsing right this minute to knock $10 a barrel from the crude price even after 'easing-nonsense' by all central bankers.

 

Rabbit out of a hat, indeed. Get rid of the cars, bitchez!

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