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Putting The Cart On Top Of The Horse, Or Why Heaping Fiscal "Stimulus" Upon "Stimulus" Is Suicide For America

Tyler Durden's picture


Every time someone mentions fiscal stimulus (and specifically the failure thereof), the conversation, after repeated empirical demonstrations that said stimulus virtually always ends in tears, will veer to the Economics 101 textbook definition of the savings-investment identity, in which Investment = Private Saving + Government Saving + Current Account (the simplistic argument goes that a surge in Government Savings, i.e. austerity, means a plunge in net investment as the private sector is unable to step up), which more than anything, seeks to provide the last possible goalseeked explanation of why Keynesian assumptions still work in post-modern monetary environments, in which monetary policy has passed into the twilight zone of global central planning (i.e., money printing is rampant and thus textbook definitions of "savings" in a ZIRP environment are completely irrelevant). The irony, as so often happens, is that those who invoke this identity (which John Hussman has done a very admirable explanation of here) mix apples and oranges, and use, incorrectly, a monetary flow concept to explain what is fundamentally a production efficiency and labor (and post facto: consumption) phenomenon. That many of said proponents also make the gross mistake in assuming that in some perverse post-Keynesian universe a reserve currency issuer (however temporary, because there is no such thing as permanent reserve) can issue an infinite amount of debt, which by implication would result in the grotesque lim interest rate=0 as debt issuance ->infinity is inconsequential: this may work in a black box vacuum, but most certainly does not work in a globalized world in which currency, and yes, binary reserve status (consisting of 1s and 0s), is fungible with a keystroke (ref: the historic August 22 start of Renminbi futures trading which the CME today disclosed the margin requirements for). What this lengthy preamble tries to say is that feeding the government monster is, contrary to what Krugman and other Keynesians will tell you, in the current regime of coincident monetary irrigation, an exercise in futility. Perhaps nobody does a better job to explain said futility than Bill Buckler in his latest edition of The Privateer, which we urge everyone, and most certainly the POTUS who just requested more fiscal stimulus, to read in order to take a step back from theoretical, and wrong, textbook formulations and to see the stimulus forest for the burning trees.

Putting The Cart On Top Of The Horse:


For a human lifetime, since the 1930s in the US and across the developed world, the health and “growth” of an economy has been “measured” by how much has been consumed. Part of this consumption, it is true, is the natural result of prior production. But over the decades, an increasing proportion of it has been done by means of borrowed money. Worse still, the calculations of economic “growth”  have included consumption by government. Government, by its nature, produces NOTHING. Any government, even one which is limited to protecting life and property and issues no debt whatsoever, is a cost on the economy. The fact that this cost is necessary does not negate the fact that it is a cost.


It is one thing to measure this cost in terms of money. It is another thing entirely to measure it in terms of the real wealth which has been consumed by government. The ONLY way to increase the wealth of an individual or a nation of individuals is to produce MORE than is consumed. The difference - which is SAVINGS - can then be used to produce more real wealth with more efficient means and thus less real effort. This is the only way that an economy can genuinely “grow”. This is what transformed the US from an all but untouched potential into a continent-girdling economic powerhouse. It was not done by means of currency manipulation. It was not done by means of government borrowing. It was not done by all encompassing rules and regulations. It was done by means of political AND economic freedom.


It cannot be done in any other way. Increasing the units of the medium of exchange will NOT do it. Increasing the debt burden on generations to come will not do it. These things will do the opposite. They will and have inexorably led to capital consumption. The results of capital consumption are visible all over the world today - but in few places is the evidence more stark and obvious than it is in the US.


The century-long experiment of putting the cart on top of the horse has all but killed the horse. There is no way that the genuine productive capacity of the US economy can keep up with the government’s stampede into unrepayable debt. In reality, the US government has destroyed the productive capacity of its people. If they refuse to realise it - the economy and the markets will do it for them.


That process began on August 4 when US stock markets had their worst tumble since February 2009.

When all the wooden philosophers, tenured academics, ivy league economists and constitutional lawyers understand the message in these 5 simple paragraphs, then, and only then, can America maybe resume its way to prior greatness.

Until then, we are merely digging our way out of very deep hole, increasingly "faster" and "faster."


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Tue, 08/16/2011 - 23:03 | 1567747 pappyhlace
pappyhlace's picture

this is all a game of musical chairs

enjoy it while the music is playing

Tue, 08/16/2011 - 23:07 | 1567759 trav7777
trav7777's picture

these articles are so much mental masturbation by people unwilling to accept that the Era of Growth was ended by world Peak Oil.  None of this monetary or fiscal shit matters, because oil cannot be printed.

Dunno which is worse, the delusions that we can restart growth by fiscally stimulating or that if we just "let the debts go" that we'll achieve a new era of growth after that.  Neither side can face the hard truth.

Tue, 08/16/2011 - 23:21 | 1567789 RockyRacoon
RockyRacoon's picture

Gold cannot be "printed" either, and it was in use long before oil was a commercial good.   Posts like yours are so much mental masturbation by one who is unwilling to accept the fact that OIL is a passing energy source just like others which have dropped into obscurity or minimal use.   Peat anyone?

Tue, 08/16/2011 - 23:25 | 1567800 Mad Max
Mad Max's picture

There is some hope in Gen4 reactors and the Thorium fuel cycle.  Some.  And post-Fukushima it seems unlikely that anyone other than China, and maybe India, will continue work on nuclear power.

So yes, by all means, go back to peat.  Peat will power your central electric plants, your car, the combine, airliners, etc. etc.  I'm sure.  There can't possibly be any issues of energy density or flexibility of use.

World oil reserves were like a massive inheritance.  That inheritance is now largely consumed.  Some of it went for good use, some neutral, much ridiculously stupid, but so much is gone.

Please, tell us how whale oil will save us.  I'm sure there are a few whales left that the Japanese haven't killed.

Tue, 08/16/2011 - 23:36 | 1567829's picture

Rocky is saying that human ingenuity will find new methods of power generation. What will they be? I don't know because I'm not a 21st century James Watt. We'll have to wait for such fellows to reveal their ingenuity but if we don't stifle the market or blow ourselves up such advances are a certainty.

Rocky is not talking about looking backwards and using peat or whale  oil. Seems that you've chosen to willfully misunderstand him.

Wed, 08/17/2011 - 00:18 | 1567857 Flakmeister
Flakmeister's picture

I think you don't have clue what is Rocky really said...

If you are not the 21st century James Wattt, and dreams of such are the extent of understanding of energy, then you should really sit this one out and mentally masturbate about your free markets elsewhere. 

Wed, 08/17/2011 - 00:25 | 1567968 Terminus C
Terminus C's picture

Are you implying that you are a 21st century James Watt?  That must be the reason you 'understood' Rocky and feel that you have the ability to weigh in on this discussion.


Wed, 08/17/2011 - 00:32 | 1567980 Flakmeister
Flakmeister's picture

Unlike most here, I do know I am not the James Watt of the 21 century. But having studied things like thermodynamics, system modelling, a little petroleum engineering, and having been a close follower of the oil markets for many years certainly does allow me to chime in....

So you you want to talk about Energy? Surprise me...

Wed, 08/17/2011 - 02:47 | 1568106 RafterManFMJ
RafterManFMJ's picture

You all miss the future glory of America. We have the most disgustingly obese population on the planet, and human fat is pound for pound, as energy dense as gasoline.  The slack-jawed couch potatoes can be hunted easily or trapped using corn curls for bait.

Harvesting this resource will create many jobs, and we can export our blubber globally.  Human fat - the original biodiesel.

Wed, 08/17/2011 - 04:52 | 1568155 Coldfire
Coldfire's picture


Wed, 08/17/2011 - 09:36 | 1568624 Ident 7777 economy
Ident 7777 economy's picture



Killer punch line delivered in second paragraph!


Wed, 08/17/2011 - 08:47 | 1568422 epwpixieq-1
epwpixieq-1's picture

Studying is fine especially when is done not by the text books. Have you studied Tesla? Do you know what Electricity is? ( Careful with this one, for even Tesla noted that he did not know that force of Electricity is )

Have you BUILD something that works by TRANSFORMING energy even with small neodymium magnets?

What is the controversy that is inherited in the second law of thermodynamic?

Do you know what is the fundamental theoretical problem that plague the physics that started with the twisted and subsequently widely accepted interpretation of the Dirac equation ( otherwise an amazing human achievement )

Do you know how many physical phenomena are in head on controversy with the standard book science, starting with Faraday's basic controversial experiment ?

When you can open your mind for what Energy is, only then there is a reason to talk about Energy. Everything else is isolating your self from Nature in mathematical formulations based on personal views, egos and misunderstanding of the Natural phenomena, although expressed in a beautiful language.


Wed, 08/17/2011 - 09:19 | 1568562 Flakmeister
Flakmeister's picture

I've solved the Dirac equation....

Electricity is not a force...And please explain the "problem" with Faraday's experiment. In your own words, please.

You seem to playing word salad,...

Wed, 08/17/2011 - 09:32 | 1568609 Ident 7777 economy
Ident 7777 economy's picture


His reply:


"Umm, duh, uhhhhh, er, ummm, can I uhhhh ...




Wed, 08/17/2011 - 09:28 | 1568573 Ident 7777 economy
Ident 7777 economy's picture


by epwpixieq-1
on Wed, 08/17/2011 - 08:47

Studying is fine especially when is done not by the text books. Have you studied Tesla? Do you know what Electricity is? ( Careful with this one, for even Tesla noted that he did not know that force of Electricity is )

Have you BUILD something that works by TRANSFORMING energy even with small neodymium magnets?

- -  - -  - -  - -  - -  - -  - -  - -  - -  - -



A 'free enetgy' nut no doubt.


Also, NO PROOF. Never has been. Unless you have a 'prime mover' (steam, wind, water) that MOVES a wire thru that magnet's magnetic field ...


Otherwise "Show me your experiment" demonstrating the effect beyond doubt. So far, NO DICE.


(NOTWITHSTANDING a plethora of YouTube vids where peak power,  voltage or current are conflated for the same RMS quantities. MAKE those same tests properly iinstrumented with a scope or RMS instrumentation and get back to me.)



Wed, 08/17/2011 - 17:30 | 1570601 epwpixieq-1
epwpixieq-1's picture

Absolutely correct A 'free energy' nut.

I am not trying to convince anyone, I left this illusion of educating people a long time ago, it is difficult to "see" something when one does not have eyes for it.

Buy the way my the magnets were mentioned with conjunction with the word "even" in the meaning of a simple device.

With magnets I agree one needs a prime mover, but this is not the case when you have waves. The movement of the magnets creates nothing more but waves. It is just the most efficient rudimentary magnetic hammer humans have discovered.

In Nature Everything is based on vibrations the rest is up to the people to who CAN to create and to build. The rest are empty words.

Wed, 08/17/2011 - 17:32 | 1570605 Flakmeister
Flakmeister's picture

Hey, write a paper and submit to hep-th over at Los Alamos.... You are clearly on to something.

Wed, 08/17/2011 - 08:19 | 1568338 tinsmith
tinsmith's picture

.... i knew james watt, i respected james watt, and you sir are no james watt.   now, if you want to talk about harvesting energy, lets forget james watt and instead think of james brown.  someone works out a way to bring that man back to life and we are set.  ever seen the energy that man put out during a performance, we could measure browns instead of watts.

Wed, 08/17/2011 - 00:48 | 1567996 Oh regional Indian
Oh regional Indian's picture

Well, I am a 21st century James Watt and then some, but will nto play the game because the gate keepers are precisely people like TRAV, whose know only simple concepts like the Second Law of Thermodynamics is inviolable.


Wed, 08/17/2011 - 04:57 | 1568160 Michael
Michael's picture

The self fulling prophecy the MSM is trying to push just isn't working this time.

Statistically, Ron Paul is winning.

Besides, age isn't a problem these days since people are living a lot longer.

Wed, 08/17/2011 - 07:20 | 1568253 snowball777
snowball777's picture

If Ron Paul wins (LOL...check the 'statistical' track record of those placing well in IA straw polls), and Medicare and SS are gutted (also LOL), that whole people living longer thing will no longer apply.

Wed, 08/17/2011 - 08:38 | 1568394 Bendromeda Strain
Bendromeda Strain's picture

I only need to outlast you, Romer.

All you Berkeley types make a lot of assumptions about your own usefulness.

Let's test those assumptions already. Oh, I forgot to LOL.


Wed, 08/17/2011 - 08:34 | 1568376 g
g's picture

Assuming that some form of energy production will emerge to replace fossil fuels is naive and dangerous. We should have started contingency planning, improving efficiency, and integrating large numbers of other energy producing systems 20 years ago, to mitigate the disaster that could occur when fossil fuels run out or do not produce a gain in EROEI.


The fact the the media and the government refused to accept the peak oil concept is egregious. There may be no technological wonder, technology does not produce energy by the way, that will provide for our current energy needs. Fact is even if we could produce enough electricity for commercial, residential, and transportation systems without fossil fuels, our infrastructure could not use it, it would take a decade or more to transition the transportation infrastructure to use electricity, once again something we should have started 20 years ago.


Check out, he sums it up best, some nice statistics on the number of alternative power producing plants it takes to replace fossil fuels, mind boggling really. He also discusses the issues with converting the transportation system to use electricity. Check it out.

Tue, 08/16/2011 - 23:54 | 1567872 I think I need ...
I think I need to buy a gun's picture

oil and gold very important

go out on todays highways and by-ways it moves say that it can be replaced by just anything....i don't think so and i think we are going to find that out

Wed, 08/17/2011 - 00:29 | 1567974 TruthInSunshine
TruthInSunshine's picture


James Grant Suggests Life In Prison for Bernanke in WSJ


Jim Grant also points out that The Bernank could, slternatively, be hsnged under U.S. statute:

Ben S. Bernanke doesn't know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman's noose is another. Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud? If the U.S. Senate so determines, it may send Mr. Bernanke back home to Princeton. But not even Ron Paul, the Texas Republican sponsor of a bill to subject the Fed to periodic congressional audits, is calling for the Federal Reserve chairman's head.

Wed, 08/17/2011 - 07:24 | 1568257 snowball777
snowball777's picture

I love the paleocon view of the world, where the US was frozen in carbonite 200 years ago and none of the laws passed or SCOTUS decisions rendered in that period ever need to be taken into account. Why not keep going backward? Claim something under the Articles of Confederation or the Mayflower Compact!

Wed, 08/17/2011 - 10:02 | 1568701 Ident 7777 economy
Ident 7777 economy's picture

Truly; FREEDOM is such an over-rated concept and "created equal" is a farce.








Wed, 08/17/2011 - 08:37 | 1568395 g
g's picture

I think we would all be happy enough if the FED was abolished. I am sure there is an element that would love to see the Bernank hanged. However, just getting congressional audits of the FED would be a miracle.

Tue, 08/16/2011 - 23:21 | 1567791 Mad Max
Mad Max's picture

I am ever so slightly less pessimistic than trav, but in about 99% agreement.  Absent oil, OR some breakthrough energy source not currently in use, the current population of earth is well and truly fucked.  And Peak Oil is more of a historical fact than a theory now.

Choices are a lower standard of living, a lower population, or (ding ding ding) both.

Tue, 08/16/2011 - 23:28 | 1567805 AngryVoter
AngryVoter's picture

Maybe it was a load of crap but I remember reading that there is a massive amount of oil sands in Canada and can be extracted and profitable with oil north of $120.  Realizing that isn't cheap but it isn't doomsday.

Tue, 08/16/2011 - 23:57 | 1567863 Flakmeister
Flakmeister's picture

There is a massive amount of bitumen in Canada, you will be producing synthetic crude at ~2 mmbpd for 250 years.... The rate  cannot be scaled to replace the "easy oil" that is declining... Unless of course you have a few Trillion to drop and don't mind creating Mordor in the north...

Wed, 08/17/2011 - 00:04 | 1567907 Mad Max
Mad Max's picture

That's even a bit kind - it's already creating Mordor of the frozen north, at current rates.  Economically it's an OK energy source, but the EROEI is bad, and the environmental damage is somewhere between appalling and catastrophic, barreling towards mind-blowing.

The 250 years might be a decent estimate, but it won't happen that way... in 250 years we will either have advanced nuclear (or better) energy, or we'll be hunter-gatherers.

Wed, 08/17/2011 - 00:09 | 1567921 Flakmeister
Flakmeister's picture

No, it will be mined, too valuable a source of hydrocarbons that have many other uses besides burning. 

Wed, 08/17/2011 - 00:15 | 1567947 delacroix
delacroix's picture

that recovery, relies on cheap natural gas, and lots of it

Wed, 08/17/2011 - 00:25 | 1567963 Flakmeister
Flakmeister's picture

Yes it certainly does now, but oil is all but irreplaceable as input to too much *useful* stuff that they will find the NG.  

No need for  too many details in a quick post

Edit: IIRC, it currently using 25% of domestic production of NG in Canada... 

Tue, 08/16/2011 - 23:52 | 1567867 Terminus C
Terminus C's picture

The issue there is not so much the amount of oil in the ground but the amount of water needed to harvest it.  Northern Alberta does not have the water resources to extract all of the oil in the ground.

At the current rate of consumption it will not last that long anyway.

Wed, 08/17/2011 - 00:09 | 1567926 bid the soldier...
bid the soldiers shoot's picture

How much was a barrel of oil when you read that? That $120 could be a lot more now.

Tue, 08/16/2011 - 23:52 | 1567865 PulauHantu29
PulauHantu29's picture

Oil is way too cheap in the USA. Gas is more expensive even in China!

We need $5 to $8 gas before people get serious about driving those Mega-SUVs to hair saloons and soccer games with only 1 or 2 persons on board.

Nomura predicts oil to $220 and I suspect they will be right....event hough you can't drink oil (or eat gold either!).

Wed, 08/17/2011 - 00:17 | 1567949 Milton Waddams
Milton Waddams's picture

We need $5 to $8 gas before people get serious about driving those Mega-SUVs to hair saloons and soccer games with only 1 or 2 persons on board.

History, if it exists, will recall it as a mania on a level of Kindleberger proportions.

Wed, 08/17/2011 - 09:24 | 1568580 Ident 7777 economy
Ident 7777 economy's picture

by PulauHantu29
on Tue, 08/16/2011 - 23:52

Oil is way too cheap in the USA. Gas is more expensive even in China!

- - - - - - - - - - - - - - - - - - - - -

NO. Not historically, going back to like 1979 ...

Tue, 08/16/2011 - 23:22 | 1567793 spiral_eyes
spiral_eyes's picture

there is an equivalent to printing oil, and that is developing a meaningful alternative energy infrastructure. 

"scientists find bugs that eat waste and excrete petrol" 

the technology exists, you just need the infrastructure to harness it. all the stimuluses just went to helping the old banks, the old systems, and the old infrastructure, and that's why it sucks.  

Tue, 08/16/2011 - 23:39 | 1567837 mr. mirbach
mr. mirbach's picture

better link to biofuel:

Tue, 08/16/2011 - 23:40 | 1567802 forexskin
forexskin's picture

Dunno which is worse, the delusions that we can restart growth by fiscally stimulating or that if we just "let the debts go" that we'll achieve a new era of growth after that.  Neither side can face the hard truth.

I appreciate your point, lucid and clear. It is an interesting (to me) human trait that we all wish to have a viewpoint that encompasses or circumscribes all others, like a 'theory of everything'.

I'm aware that my limit is access to incontrovertable information. since I don't sit in on FOMC meetings or run POMO ops, or sit in on Exxon's resource reporting meetings, I conclude that my views have to be assigned probablities, and my adaptation to possible future conditions weighted accordingly.

How much skin you have in the peak oil view, and how do manage to reconcile uncertainty as to who is really pulling the strings?

"Sometimes I wonder whether the world is being run by smart people who are putting us on... or by imbeciles who really mean it." - Mark Twain

Twain got it, but apparently only as far as asking the right question...

What do you gather if peak oil is just another manipulation (while believing myself its odds are 4:1 in favor of true). If it is manipulation, what is the bigger game?

Wed, 08/17/2011 - 00:01 | 1567898 Flakmeister
Flakmeister's picture

One clue about Exxon is that even with the SEC mandating that tar mixed with sand is "oil" that Exxon was unable to replace its oil reserves over the past decade, down 5%... Buying existing oil production does not add to supply.

Net exports on the market are down ~10% since 2005, google Export Land Model, you'll get an idea how it will play out.

Wed, 08/17/2011 - 09:55 | 1568686 Ident 7777 economy
Ident 7777 economy's picture

by Flakmeister
on Wed, 08/17/2011 - 00:01

One clue about Exxon is that even with the SEC mandating that tar mixed with sand is "oil" ...

- - - - - - - - - - - - - - - - - - - - - - - -

Wow; the SEC is now involved in oil exploration geology and term definitions?


Who woulda thought ...


Tue, 08/16/2011 - 23:32 | 1567817 Dick Fitz
Dick Fitz's picture


Your moronic rants are tiring. Do you believe that all progress started once we found out how to pump oil? Can anyone be that stupid?

Even if oil ran out tomorrow, our accumulated knowledge would allow us to use alternative methods to extract solar/wind/tidal energy with barely a blip (a few decades at most) in reduction of global wealth.

The problem isn't oil/coal/shale, it's politics! There is more than enough food to make the world fat- it's the uneven distribution via politics that causes starvation.

Have you ever had a clue?

Tue, 08/16/2011 - 23:41 | 1567835 forexskin
forexskin's picture

c'mon, give trav a break. there's a really good correlation between population growth and the successful explotation of fossil fuels for the last hundred years.

i absolutely agree with your point about uneven distribution due to politics, though.

once i looked into replacement energy technologies seriously, i understood just how difficult a proposition replacement is, and given the current population, the possibility of serious dislocations exists.

take a look at 'a century of war' by william engdahl - real eye opener onto the stage of the great game around oil.

ignore kunstler, he's pitching his own shit, somewhat over the top, and not amenable to getting any smarter, apparently.

Wed, 08/17/2011 - 00:06 | 1567916 Drag Racer
Drag Racer's picture

no, don't give trav a break. he is here with an agenda to disrupt and hijack threads to throw them off the topic. he is a piece of shit waste of time to respond to.

Wed, 08/17/2011 - 00:17 | 1567934 Flakmeister
Flakmeister's picture

Trav has his views about things, but his observations on oil and energy are rarely to be disputed.

Wed, 08/17/2011 - 01:02 | 1568014 tmosley
tmosley's picture

If Trav had his way, 97% of humanity would be sterile and female geniuses would be lining up to be his fuck slaves "cause hes so smurt".  He claims that this is somehow "humane", while never mentioning the fact that his dumb ass couldn't even predict the demographic NIGHTMARE that such a policy would create (ie the offspring of 3% of humanity have to support 97% of the population, aka old people starving to death in the streets around the world).

Just because his dumbassed ideas and crappy metaphors go unopposed by you, doesn't mean they are valid.  Christ, he STILL won't accept the fact that ionic liquids extract oil from sand with very little energy input, meaning that we can extract bitumen from tar sands and restart practically every well on the planet.  He demands death for all immediately, and anything that doesn't fit with that grand proclamation of his is viciously attacked with ad hominem until everyone involved is bored to death.  Which I guess is where he wants them.  Dead.  

Wed, 08/17/2011 - 08:52 | 1568420 Flakmeister
Flakmeister's picture

tm,  you can do better than that....

The ionic liquid in question is 1-alkyl-3-methylimidazolium. I agree that it has interesting properties. I also note that related ionic liquids cost the order of $150 for 50

here is a full list


These are complex and likely expensive to produce...I also note that the exact ionic liquid used appears not to be commercially available. At least I was not able to find it.

Now, the Penn State guys are doing interesting research, but a liquid that costs ~100 times the value of the oil that it can extract is unlikely to be scalable to ~2 mmbpd....

Edit: Also note that these ionic liquids are derived from hydrocarbons....

Thu, 08/18/2011 - 10:40 | 1572919 tmosley
tmosley's picture

I deal with these types of issues all day. We make antimicrobial coatings from compounds that have to be custom synthesized. Custom synthesized compounds are EXTREMELY expensive at the lab scale. Like, $1000 a gram for ten grams. Scale up the production to 100 kilos, and the cost falls to $20 a gram. The feedstocks are not expensive, and all the price is in the labor, which decreases greatly with scale.

Economies of scale exist. But yours is a much better anti-argument than Trav's dumbshit "only one guy did it therefore it doesn't exist" line. Kudos.

Also note that the ionic liquids are 100% reusable. This makes them a CAPITAL investment rather than a MARGINAL cost.

Thu, 08/18/2011 - 11:12 | 1573086 Flakmeister
Flakmeister's picture

Lets assume that you can get it down to 0.25 per gram. The volume of ionic liquids has to at least 25% of the volume of oil to separate out.... A ton of oil is ~7 barrels, 2 million barrels of oil is 285000 tons, you need at least 70,000 tonnes of this stuff and at .25 a gram you get 6 billion dollars.... less than I expected, but I was very liberal with my cost and volume estimates.... 

From my mining experience, liquid recovery will likely top out at around 97% so there is a marginal cost factor....Given that you still have all the heavy equipment cost of mining the bitumen, oil would have be to very expensive to amortize the capital costs of the liquids....current tar sands infrastructure is ~$125,000 per bpd capacity. This adds an additional $71,000 of capital cost per bpd capacity assuming 0.25 per gram...

Wed, 08/17/2011 - 00:05 | 1567910 Flakmeister
Flakmeister's picture

You really haven't thought this through....Replacing your energy source is not plug and play...

Run some simple models, look at growth rates, replacing existing infrastructure with "whatever" etc... The capital requirements.

The world will be changing big time....

Wed, 08/17/2011 - 00:05 | 1567911 bid the soldier...
bid the soldiers shoot's picture

Why don' t you tell all of us how to pull an 18 wheeler from Los Angles to New York on alternative diesel?

The problem is oil

Wed, 08/17/2011 - 01:01 | 1568013 Lonewar
Lonewar's picture

Thorium Sand Reactors, hell of a lot of them.

Mag lev trains.

Put 18 wheeler on train, electric train goes across US

18 wheeler gets off in NY and delivers load. Fuel cost cut about 90%

Infrastructure spending, say 27.3 trillion dollars worth (The amount given out by Fraud Reserve as loans etc) would have had it up and running by now assuming that banks were allowed to fail and money was put into this project. Oh and Unemployment rate would be about 2% with a 70% workforce participation rate...

Wed, 08/17/2011 - 02:38 | 1568100 bid the soldier...
bid the soldiers shoot's picture

When you lay mag lev track do you use gandy dancers? Just asking.

Wed, 08/17/2011 - 09:00 | 1568472 Flakmeister
Flakmeister's picture

I rode a maglev prototype once.... IIRC liquid helium was used to maintain the superconduction state that was required. Look up our helium supplies.... Peak helium is passed....not to mention all the other goodies needed like rare earths....

That said, the trillions that were pissed away should have been spent on new infrastructure and electrification of the rail grid is a hell of a good idea even if maglev is a pipe dream.

Wed, 08/17/2011 - 00:24 | 1567964 Mad Max
Mad Max's picture

How does human "progress" - technology, scientific understanding, population numbers - compare for the period from 4000 BC to 1860, vs. 1860 to present?  Notice any differences?

And remember, it's not just the total energy available, it's the quality of that energy.  Oil is ultra high quality stuff, directly usable in even tiny and simple devices, and scalable from the smallest to largest uses.

Wed, 08/17/2011 - 04:33 | 1568144 Oh regional Indian
Oh regional Indian's picture

MM, oil has been the Gold of Midas's story in this last century and a half. Of course it is an amazing substance, like all of nature. But we tend to go from custodian to greedy gobbler in every case.

I think it might be the quality of energy of those that use/abuse oil that is key here.


Wed, 08/17/2011 - 06:59 | 1568225 Bobbyrib
Bobbyrib's picture

We know how to replace oil, coal, and shale with clean, renewable energy (you excluded natural gas) and the only thing holding us back is politics? One of you seems to be ignorant, but I'm not sure it is Trav.

Wed, 08/17/2011 - 08:14 | 1568325 Henry Krinkle
Henry Krinkle's picture

What is the basic input used to create those alternatives?  Oil my friend....oil.

Oil is a basic input used to create the machines that make the alternative equipment.

Oil is a basic input used to run the machines that make the alternative equipment.

It goes much deeper, but you get the point.

So with that kept in mind, can they really be called alternatives? 

Tue, 08/16/2011 - 23:39 | 1567833 dwdollar
dwdollar's picture

Somewhere a genius isn't being born to solve our dependence on oil because his mom and dad can't afford to conceive him.  The fact that corn is being burnt for fuel in yet another failed attempt at central planning, may be a contributing factor.  Kind of ironic.

Wed, 08/17/2011 - 07:02 | 1568229 Bobbyrib
Bobbyrib's picture

The ethanol subsidy may have something to do with people having less children due to higher food costs, but I doubt it is too big of a factor. Bernanke is more of a factor than the ethanol subsidy.

Tue, 08/16/2011 - 23:58 | 1567889 bid the soldier...
bid the soldiers shoot's picture

Very glad to see your comment. I have been saying the same thing elsewhere for over a year.

I am also working on the Grand Unified Theory of the Collapse of the Global Economy. I pin the tail on global peak oil, as you might imagine.

From Hubbert's accurate prediction In 1956 that America's would hit peak oil in 1970 ( which it did) to his prediction that Global Peak Oil would occur 1995 - 2000 (global oil production in 2005 remains the most ever produced).

It explains why Greenspan let things get out of control as the tech bubble and housing bubble inflated and burst. Why Bush/Greenspan went after Bernanke, the depression guy, putting him on the Board of Governors of the Fed in 2002, Chairman of the President's Economic Advisors in 2005,
and Chairman of the Federal Reserve System in 2006.

It explains why the Fed stopped publishing M3 in 2006 as that would be where the entries for QE funds would live.

It explains why sub-prime mortgage backed securities were invented and their twin sister, credit default swaps. As a means of destroying the world economy IN ORDER TO HALT AND DECREASE DEMAND FOR CRUDE

This trav is the story of the last two decades. No one will give you thanks
for telling them this. They'll think you a paranoid schizoid with a collection of tinfoil hats in your closet.

They can handle the fact that the sun will became a red giant or that Kohoutek will eventually strike the earth.

But tell them that there is not enough oil to live like they used to, and that
the military wants half of what's left and they "break just like a little girl."

Wed, 08/17/2011 - 00:17 | 1567952 Flakmeister
Flakmeister's picture

Nice rant!

Wed, 08/17/2011 - 00:45 | 1567995 DaveyJones
DaveyJones's picture


Wed, 08/17/2011 - 05:33 | 1568177 Bicycle Repairman
Bicycle Repairman's picture


Wed, 08/17/2011 - 09:01 | 1568474 Flakmeister
Flakmeister's picture

Come out of hiding, Grima?

Wed, 08/17/2011 - 09:26 | 1568584 Bicycle Repairman
Bicycle Repairman's picture

I'm not hiding, douchebag.

Wed, 08/17/2011 - 09:30 | 1568602 Flakmeister
Flakmeister's picture

No need to get snarky.... now run along..

You should really try to add something of substance to the discussions here; eg: #1568420

Wed, 08/17/2011 - 14:53 | 1569832 Bicycle Repairman
Bicycle Repairman's picture

As I've told you before, your peak oil myth is based on a fallacy.  Oil is not derived from dead dinosaurs.  All your "knowledge" is nothing more than trivia.  The myth is a syllogism.  You are nothing more than a Lysenko-esque crank.  Fortunately the world does not run on the assumption that peak oil is real, or cranks such as yourself could actually cause some damage.

Wed, 08/17/2011 - 15:00 | 1569859 Flakmeister
Flakmeister's picture

I agree that oil is not dead dinosaurs.. Anything else you wish to add?

Maybe you could explain to us all what oil is and where it comes from and why it is not a problem. Trust me, we are dying to hear your pet theories.

Wed, 08/17/2011 - 15:27 | 1569962 Bicycle Repairman
Bicycle Repairman's picture

"I agree that oil is not dead dinosaurs.. "

Well looks like you learned something new.  Did it hurt your head?  Will your buddies at the Oil Drum still talk to you?  So what is oil now?  In your opinion, I mean.

Wed, 08/17/2011 - 16:15 | 1570244 Flakmeister
Flakmeister's picture

Still evading the questions, eh? Where does oil come from?

Wed, 08/17/2011 - 16:40 | 1570386 Bicycle Repairman
Bicycle Repairman's picture

As I've already told you, abiotic oil. 

Your turn. 

Wed, 08/17/2011 - 16:43 | 1570410 Flakmeister
Flakmeister's picture

Care to explain further what the production mechanism is? Or is the earth have a creamy nougat center that the creator bestowed upon us?

I would love to hear your reconcilation of the temperature at which complex hydrocarbon dissociate with the known temperatures in the interior of the earth....

Wed, 08/17/2011 - 16:49 | 1570436 Bicycle Repairman
Bicycle Repairman's picture

Who's evading?  Your turn, punk.  And this is your last chance.

Wed, 08/17/2011 - 16:59 | 1570480 Flakmeister
Flakmeister's picture

Lay off the tough talk, it really isn't your style....

The ball is in your court, the onus is on you to overturn 100 years of petroleum geology. I have a very open mind, Surprise me.

Wed, 08/17/2011 - 17:46 | 1570650 Bicycle Repairman
Bicycle Repairman's picture

Just like the last time you're PWNED.  Go back to the Oil Drum.  Come back when you've got something.

Wed, 08/17/2011 - 17:59 | 1570689 Flakmeister
Flakmeister's picture

You really are pathetic.... I've given you every chance to make your case and yet you refuse to. I ask very simple questions of you and you balk...

I'll give you the last word, Grima, I've done with wasting my time...

Wed, 08/17/2011 - 09:49 | 1568667 Ident 7777 economy
Ident 7777 economy's picture


by bid the soldier...
on Tue, 08/16/2011 - 23:58


From Hubbert's accurate prediction In 1956 that America's would hit peak oil in 1970 ( which it did) to his prediction that Global Peak Oil would occur 1995 - 2000 (global oil production in 2005 remains the most ever produced).

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

No time to 'attack this at the base' and put it to rest (at the moment), but, you do not have a completely defensible position on this ...



Wed, 08/17/2011 - 15:52 | 1569844 bid the soldier...
bid the soldiers shoot's picture

Ident 7777

I am happy to wait until you find time.

I'll just recite this poem till I hear from you.

"My candle burns at both ends
It will not last the night;
But ah, my foes, and oh, my friends -
It gives a lovely light."

At least it used to.

Wed, 08/17/2011 - 00:08 | 1567919 Caviar Emptor
Caviar Emptor's picture

the Era of Growth was ended by world Peak Oil

The problem was compounded by economic policies that only factored in eternal growth as a baseline condition for geopolitical stability. 

Wed, 08/17/2011 - 00:33 | 1567982 bid the soldier...
bid the soldiers shoot's picture

Of course none of us will know until the fat lady sings, but was the "problem" compounded by economic policies or was the "problem" intentionally created by those policies?

Created to stifle the demand for oil and thereby prolong the amount of oil available to provide those necessities which the TPTB require for life.

Wed, 08/17/2011 - 00:42 | 1567993 Caviar Emptor
Caviar Emptor's picture

Cheap oil to burn fast was always the policy. That's why loopholes in the law were created to allow SUVs to flaunt automobile mileage requirements. That's why Mid East dictators were put in with the help of the CIA and others. Cheap oil to burn was at the root of most of US geopolitics since the turn of the 20th century.

There was no attempt to stifle demand. Rockefeller would never have gotten so rich. 

Wed, 08/17/2011 - 01:00 | 1568012 bid the soldier...
bid the soldiers shoot's picture

I don't think there was any thought about the demand for the finite supply of oil until Hubbert was right about American peak oil. But we solved that problem by importing oil from other countries. This was about the same time Nixon curtailed the balance of payments in gold.

Then we we went out prospecting for oil and that was successful but wasn't enough for what what was needed.

And it is my belief that by the end of the 90's we knew that economic growth was going to have to end and ten's of millions of citizens of all countries would have to be sacrificed for the statecraft of the 21st century.
Just as most of the passengers on the Titanic would have to go down with that unsinkable ship.

With the stifling of demand by this recession, there is probably 50 years of of the miserly use of oil left. Something miraculous may be discovered but there Is no such miracle right now.

Remember we really haven't improved on Watts steam turbine. We still boil water to make most electricity.

Wed, 08/17/2011 - 21:05 | 1571069 forexskin
forexskin's picture

I don't think there was any thought about the demand for the finite supply of oil until Hubbert was right about American peak oil.


get some history into your head. the entire 20th century was fought over a limited supply of oil, not just to have, but to deny thine enemies.

Wed, 08/17/2011 - 00:55 | 1568005 macholatte
macholatte's picture

So let me ask you guys this:

WHAT IF the administration had actually spent some of those hundreds of billions on real public works jobs, that "shovel ready" stuff, would we be better off today?

Wed, 08/17/2011 - 03:31 | 1568122 lewy14
lewy14's picture

Interesting question. I'll offer my $0.02.

Yes, I think we would - but we wouldn't be feeling the benefit yet.

I don't believe that "shovel ready" projects existed, nor did they need to.

A "sane" public infrastructure program would have been fairly long term (10 years - about the length of the hangover from deleveraging) and would have taken some time to plan, recognizing the downturn would be prolonged.

Public money would have to have been leveraged in an infrastructure bank from day 1 (not now, as Obama is proposing way too late in the game to be credible). A couple hundred billion in public money, with modest leverage from the Fed at 10 to one would have netted a trillion dollars or two to be spent over ten years or so.

That's with only pure public participation. Private funds could have also been attracted and leveraged - letting private investors in would enable a private layer of due diligence to identify those projects which really added economic benefit.

Private participation would have moved the whole endeavor from "central planning" to "government facilitated private development".

Stockpiling of key resources (like copper) could have been done while the prices were low in '09. China was smart enough to do this; the US, not so much.

Funds could have been spent to retrain people from building houses to building construction, from doing real estate and mortgage brokering to doing mid-level project management, etc.

Well planned investments in infrastructure would have yielded decent economic returns for the next thirty or forty years.

Not saying this would have been a panacea. The malinvestment and corruption would have still filled volumes. 

But the hundreds of billions of wasted stimulus, QE.n++, and the like nonsense could have been avoided, and ten years on we'd have better infrastructure. So yeah, better off - but maybe not _yet_, only three years after the crisis.

Wed, 08/17/2011 - 07:04 | 1568231 Bobbyrib
Bobbyrib's picture


Thu, 08/18/2011 - 07:28 | 1571873 tip e. canoe
tip e. canoe's picture

have you ever worked on a Government project or received a Government grant?   there's obstacles everywhere you turn, for no other reason then to give those who refuse to be "productive" shit to do.   i'm all for inefficiency sometimes, but the waste of natural resources alone is astounding and disgusting.

Wed, 08/17/2011 - 01:36 | 1568033 Dr. Acula
Dr. Acula's picture

>the Era of Growth was ended by world Peak Oil

The level of knowledge of economic science exhibited on this forum is both laughable and terrifying.

The gold/oil exchange ratio has barely changed in 60 years. And if it changes, so be it: for allocating resources rationally, there is no mechanism available to mortals that is better that the free market. If you think you possess privileged knowledge regarding the future scarcity of oil, perhaps you should seek financial gains through speculation instead of just spewing platitudes.

And FYI, EROEI is unmitigated, socialist bullshit. The objective, causal science of physics and the subjective, teleological science of economics cannot be shit packed together to yield your absurd formulae.

Wed, 08/17/2011 - 02:20 | 1568087 bid the soldier...
bid the soldiers shoot's picture

And what, pray, would be the financial gains to be garnered from knowledge of the future scarcity of oil?

The toilet of peak oil flushes everything in its vortex, including us in its thrall.

Wed, 08/17/2011 - 03:59 | 1568127 Dr. Acula
Dr. Acula's picture

>And what, pray, would be the financial gains to be garnered from knowledge of the future scarcity of oil?

If a resource is to become scarcer in the future, then investing in futures now at a low price preserves the scarce resource for a time when it is more urgently needed and when it commands a greater price. Shrewd speculation speeds the market to equilibrium, smoothing out changes over time, and produces financial rewards; incorrect speculation is punished with financial losses.

To correctly forecast the future price of oil you need to take into account many factors, such as the demand for oil, the supply of oil, the marginal costs of extraction, the availability or discovery of substitute resources and processes, and geopolitics. None of these factors are certain and the forecasting of them is an entrepeneurial function.

It is an easy thing to post glib and shrill doomsday warnings. But it is an entirely different thing to demonstrate superior forecasting ability by outperforming countless other worldwide market participants who already risking their own fortunes.

Wed, 08/17/2011 - 05:52 | 1568187 AnAnonymous
AnAnonymous's picture

Shrewd speculation speeds the market to equilibrium

Equilibrium? At best, one could speak metaequilibrium. In Smithian economics, the sought outcome is not equilibrium but imbalance.

Smithian economics is not about looking for equilibrium, it is about looking for imbalances.

Wed, 08/17/2011 - 12:09 | 1569125 bid the soldier...
bid the soldiers shoot's picture

But aren't there cases when a particular resource is so sine qua non to an economy, to the status quo, that it's scarcity becomes a game changer?

What good is financial gain from correctly predicting the future scarcity of oil when the economic and political environment is changed by the accuracy of that predictiion?

Your profits will be just as worthless in Oceania as they are in Eurasia and Eastasia.

This is not about making a fortune in PM; this is about what life will look like in 10 or 20 years.

Wed, 08/17/2011 - 21:21 | 1571099 forexskin
forexskin's picture

If a resource is to become scarcer in the future, then investing in futures now at a low price preserves the scarce resource for a time when it is more urgently needed and when it commands a greater price.


And further, the preservation (control) of oil resources will be done by concentrated wealth and power. Purpose?

Not so every billionaire can have 100 or so mega yachts to waterski behind - exactly the opposite - those resources are parked and used to leverage control over populations.

Concentration of 'wealth' is in effect rationing by another name.

Wed, 08/17/2011 - 05:47 | 1568183 AnAnonymous
AnAnonymous's picture

And FYI, EROEI is unmitigated, socialist bullshit. The objective, causal science of physics

Is EROEI useful in physics? Yes or no?

Wed, 08/17/2011 - 03:50 | 1568125 disabledvet
disabledvet's picture

i know this may appear to be news but "oil prices are collapsing." perhaps if you'd learned how to read when you were younger. anywho it doesn't really matter anyways--oil is so 20th century. Nice happy face by the way.

Wed, 08/17/2011 - 04:10 | 1568136 Dr. Acula
Dr. Acula's picture

It's true. Oil is cheaper now than 60 years ago.

Provided that you use real money and not exponentially decaying bennie confetti to express prices.

1950 - 13.55 barrels oil / ounce of gold

1970 - 10.23  barrels oil / ounce of gold

1990 - 14.08 barrels oil / ounce of gold

2010 - 15.96 barrels oil / ounce of gold

today - 18.41 barrels oil / ounce of gold


Wed, 08/17/2011 - 05:39 | 1568180 Bicycle Repairman
Bicycle Repairman's picture

You'd almost think the Peak Oil TM myth was being used to cover up some real incompetence that politicians were responsible for.


Wed, 08/17/2011 - 05:56 | 1568189 AnAnonymous
AnAnonymous's picture

It's true. Oil is cheaper now than 60 years ago.

The point is? The surprising piece of news would be that oil is not cheaper nearing the apex of an expansion trend than it is at the start of the expansion.

So what is the point?

Wed, 08/17/2011 - 10:09 | 1568720 Flakmeister
Flakmeister's picture

At the height of the supply crunch in 2008... Au/Oil  was ~7.... quit cherry picking data. BTW using WTI as a benchmark is flawed  , the ratio today is closer to 16

Wed, 08/17/2011 - 06:39 | 1568212 the tower
the tower's picture

What the fuck do we need endless growth for anyway?

We should be measuring health and happiness of the population, not health and growth of the economy. 

Humans have been demoted to consuming machines, servants of the economy...

Wed, 08/17/2011 - 07:06 | 1568233 Bobbyrib
Bobbyrib's picture

I'm surprised no one has called you a liberal or a socialist yet..


Please note: I am not.

Wed, 08/17/2011 - 09:58 | 1568694 Ident 7777 economy
Ident 7777 economy's picture

by the tower
on Wed, 08/17/2011 - 06:39

What the fuck do we need endless growth for anyway?

- - - - - - - - - - - - - - - - - - - - - - - -

We don't, not in the 'developed' countries anyway (birth rates have dropped off).

Worry for naught ...


Wed, 08/17/2011 - 08:49 | 1568267 Taint Boil
Taint Boil's picture



From Chris Martenson (not the die part):


Put only one gallon of gas in your car then drive it as far you can go. Then push the car back the same distance by hand. This is how much work a gallon of gas represents.


Think of the amount of work it represents from a farming point of view. Stop the flow of oil (or run out) and billions will die

“If kindness and comfort are, as I suspect, the results of an energy surplus, then, as the supply contracts, we could be expected to start fighting once again like cats in a sack.”

—George Monbiot



Wed, 08/17/2011 - 10:07 | 1568716 Ident 7777 economy
Ident 7777 economy's picture

Put only one gallon of gas in your car then drive it as far you can go. Then push the car back the same  distance by hand.

- - - - - - - - - - - - - - - - - - - - - - - - - -

Where are the inefficiencies of the human body as a source of locomotion* considered?

This is not a good analogy ...



* locomotion - movement or travel


Thu, 08/18/2011 - 07:22 | 1571857 tip e. canoe
tip e. canoe's picture

“If kindness and comfort are, as I suspect, the results of an energy surplus,"

actually the times where i personally have received the most kindness & comfort from random strangers were in times of either suffering or lack for both parties.

for people who wear their Heart on their sleeve, those who define themselves as Liberals sure do have a pessimistic view of human nature.    maybe George needs to get out of the Ivory Tower every once in a while and go camping in the desert with some beduoins.

Tue, 08/16/2011 - 23:23 | 1567795 deez nutz
deez nutz's picture have to dance while the music is playing. 

Tue, 08/16/2011 - 23:03 | 1567748 runlevel
runlevel's picture

i had no idea... ZH should have more articles about this stuff...   


slash S

Tue, 08/16/2011 - 23:26 | 1567797 RockyRacoon
RockyRacoon's picture

Subscribe to The Privateer.   It's 12 pages every fortnight is worth every cent.   I've been a subscriber for over 10 years and has thus stayed ahead of every turn of the inexorable wheel of debt.   The good Captain, Bill Buckler, has been an advocate of gold and was my inspiration to begin accumulating early on.   My subscription has been paid in full by fiat currency appreciation many times over.   Every issue is eye-opening.

Tue, 08/16/2011 - 23:42 | 1567848 Sancho Ponzi
Sancho Ponzi's picture

You're on a roll tonight, Rocky, and I thought you raccoons were a lazy lot.

Wed, 08/17/2011 - 03:56 | 1568128 disabledvet
disabledvet's picture

wtf are you talking about? the value of US debt is soaring while Europe is literaly getting wiped off the map. Zero Hedge has clearly risen to the level of "full fledged parody" with this one.

and now for some quality parody:

Tue, 08/16/2011 - 23:06 | 1567757 PulauHantu29
PulauHantu29's picture

TMS2 (money supply) posted a 16.1% increase in June to bring the annualized rate to 12%. Data is compiled by Micheal Pollaro. He posts every month on the money supply tabulation plus other articles.

Tue, 08/16/2011 - 23:48 | 1567858 Vint Slugs
Vint Slugs's picture

The July numbers are out in case you missed them:  one month increased from 16.1 % to 27.2%.  Annualized numbers went to 14.5% from 12%.

Tue, 08/16/2011 - 23:14 | 1567779 Wilk
Wilk's picture

The horse ain't dead yet

Continue beating...

Tue, 08/16/2011 - 23:15 | 1567782 gwar5
gwar5's picture

The only stimulus I want to see is a tax holiday that leaves money in the hands of individuals. The biggest single stimulus would be abandonment of Obamacare. 

But Paul Krugman had the keen insight on government misallocation of resources when he said this weekend that the government should stimulate the economy with spending on a military weapons build up for aliens from outer space -- and he was only half joking.  The fact that Krugman is still alive after statements like that is proof that the death penalty is a deterrent.


"Academics are at home at universities because it is the only place they can come up with theories all day long and never once have to prove that any of them actually work."

-- Thomas Sowell.




Tue, 08/16/2011 - 23:17 | 1567784 zorba THE GREEK
zorba THE GREEK's picture

I have to admit, while stimulus upon stimulus may not be good for the economy,

it sure has done wonders for all my PM's. You boys down in D.C., you keep up the

good work. 

Tue, 08/16/2011 - 23:23 | 1567794 JohnG
JohnG's picture

In a letter, Jefferson wrote that if he could make one change to the constitution, he would strike the ability of the government to borrow.

Without this flaw, we would not be here today.

Yet we are.

Tue, 08/16/2011 - 23:32 | 1567815 forexskin
forexskin's picture

there were a couple of others mentioned by Jefferson elsewhere, IIRC.

-no standing armies

-no business monopolies

Tue, 08/16/2011 - 23:47 | 1567853 sellstop
sellstop's picture

Yup. We would have had to pass on WW2.


And why not make it illegal or unfeasible for individuals to borrow? If it is morally wrong. Or financially dangerous. Actually, the govt just borrowed on the behalf of all citizens and taxpayers, we got the trickledown inflation indexed wages and now we woke up!


Tue, 08/16/2011 - 23:53 | 1567871 Vint Slugs
Vint Slugs's picture

Well, we would have had a pass on WW1 also.


But next statement, what are you talking about?  Borrowing is morally wrong; financially dangerous??

Why should individuals be constrained from doing anything that they want between/among themselves in private contracts so long as those contracts are not inimical to anyone else? 

Wed, 08/17/2011 - 06:49 | 1568219 Withdrawn Sanction
Withdrawn Sanction's picture

"In a letter, Jefferson wrote that if he could make one change to the constitution, he would strike the ability of the government to borrow."

True. And the mechanism he proposed was generational repudiation via Constitutional provision. That is, every 17 years the federal debt would be wiped out. His rationale was based on the idea that it is profoundly undemocratic for the present generation to bind future generations to a debt for which those future generations had no say (other than to be bound to its repayment).

His idea, besides being fairer to future generations, ingeniously uses the self-interest of the LENDER as a control mechanism against excessive issuance.

Tue, 08/16/2011 - 23:25 | 1567798 AngryVoter
AngryVoter's picture

It isn't that simple.  Money and the amount of money matters.  Too much money and you get inflation.  Too little money and you get deflation.  Unemployed people by definition are consuming more than they are creating adding to the problem.  Clearly we can come up with some usless doo-dad they could make that people want like a chia pet.  That is creation and it is consumption but hard to argue it has any redeeming value to society.  Money removing the need to barter for everything makes this useless exercise possible.  Clearly we can produce much more than we need to, and we can consume much more than we need to.  Hard to argue there is a real need for chia pets (save global warming).  Having a money system run by banks determining who gets to eat cake and who gets to pound sand isn't really my definition of a good solution.  But that doesn't dismiss the fact that money and the amount of money matters, and I would argue money is better than barter. 

Where I agree 100% is that there is too much debt in the system and that debt is corrosive.  Whether we reduce it with some non event way or we nuke the big banks either way we need to reduce the debt. 

Tue, 08/16/2011 - 23:34 | 1567821 Tyler Durden
Tyler Durden's picture

Another way of saying the above is that the traditional way of inflating away troubles (i.e., debt) has failed as the pushthru mechanism of record monetary and fiscal stimulus no longer has an application in reality courtesy of unprecedented excess reserves sloshing in the system, leaving the Fed with only the option to i) hyperinflate as the last bullet in the chamber. Of course, it is this, or ii) hyperdeflation, and both are suicidal. There is also a third path, one which should have been taken on September 15, 2008, and in which there would be a global prepack debt-for-equity exchange of all financials, in order to enact a marketwide writedown of impaired assets (mortgages primarily). This could have been accompanied by government rescues of critical banks which do not have the capitalization to withstand a 30-40% haircut, but that would have been a prudent use of funds as it would have eliminated impaired and very much toxic US debt, setting America on a fresh start with roughly 40% of its debt eliminated.

Ah, but the status quo equity tranche would have been wiped out as anyone who has conducted even the simplest Chapter 11 knows (and at best retained upside warrants). Which would mean that the world's wealthiest would have become the world's poorest overnight.

And that, precisely, is why the only viable option did not occur.

As a result we are now stuck with i) and ii). The good thing is that both are conducive to gold approaching infinity... on a long-enough timeline.

Tue, 08/16/2011 - 23:43 | 1567844 sellstop
sellstop's picture

When the paper fails, the economy will be chaotic. Jobless. Who will be able to buy precious metals then? What is the worth of gold and silver in the abscence of a modern economy fueled by credit? It is the rush to the gold and silver that makes it go up, but after it gets to the top, it collapses in "price" as the availability of necessities goes down due to production disruption...


Wed, 08/17/2011 - 00:20 | 1567956 Caviar Emptor
Caviar Emptor's picture

Your mind is clearly trapped within the construct known as The Matrix

Wed, 08/17/2011 - 05:35 | 1568178 Burnbright
Burnbright's picture

yep, fiat dollar matrix.


lol, "what will gold and silver be worth then"...durrrrrrrr

Why do people think purchasing an item with gold or silver is barter, that is just plain retarded.

Tue, 08/16/2011 - 23:51 | 1567862 AngryVoter
AngryVoter's picture

Couldn't agree more but would add the third option that they are really hoping for.  Stagflation, slowly rising prices with flat to declining wages (dislocated workers).  I'm not sure they can't pull it off.  I hope they fail as personally I would prefer either of the other two the third.  That may sound wierd but I have a pretty decent house payment and a great reset via hyper inflation that allowed me to pay it off in a year doesn't sound to bad.  It could have unintended consequenses but in today's world unintended consequences are a given.  Thanks for the great website, I have a lot of respect for ZeroHedge and it's readers.  By far the best on the web.

Wed, 08/17/2011 - 00:15 | 1567945 mayhem_korner
mayhem_korner's picture

The third option (half-decent Vince Flynn novel, BTW) is the gentle-sloping part of i or ii.  Stagflation metastasizes eventually.

Wed, 08/17/2011 - 00:06 | 1567876 Flakmeister
Flakmeister's picture

Very elegantly and succintly put....

I guess that is why he is Tyler and we are schlubs posting here....

Wed, 08/17/2011 - 01:25 | 1568042 slewie the pi-rat
slewie the pi-rat's picture

and bullshit does not fit well with that thesis.  ever.  it is very clean and sharp, in itself.

++tyler's distillation of it here++

and yes, it is good to to recall that we are not tyler durden

unless we are

Wed, 08/17/2011 - 05:36 | 1568179 falak pema
falak pema's picture

are you opening a church or something for all rats on the run? Sounds like an interesting congregation of pi-beta-kappa worshippers of the rising sun called ZH-TD gospel truth. 

Only kidding...I stay agnostic.

Wed, 08/17/2011 - 10:40 | 1568782 Kayman
Kayman's picture

falak pema

_I stay agnostic.

But you're sitting in the pew.

Wed, 08/17/2011 - 00:14 | 1567940 electronpaul
electronpaul's picture

what about forced mark to market with loss amortization over 10-15 years?

Wed, 08/17/2011 - 00:35 | 1567987 gwar5
gwar5's picture


Umm... I think I feel better after that, but a little hydrocodone still wouldn't hurt.

However, that is pretty much the reality I've settled on and planned for.

That's why we come here and stay up at midnight, to get the good stuff. 

Thanks, Tyler. 

Wed, 08/17/2011 - 06:59 | 1568175 falak pema
falak pema's picture

TD : Dead on. Isn't this what the Euro group should now try and achieve or is it already too late? Their act is/has been so convoluted; as they are where the title of this article says the world financial system is.

To come back to more mundane current issues : the USD stays low relative to those two "junk" currencies, the euro and the JPY. That is the goal of Bernanke/Krugman type play; let inflation "blow" mounting debt away. 

The inflation beast only adds fuel to the structural skew in the macro-world economy. "They" skew and "we" get screwed, including the poor Somalians who die of hunger... Its an untenable scenario that "they" hope they'll bungle along with for a few decades. Head in the sand play, while we flounder.

Tue, 08/16/2011 - 23:35 | 1567823 sellstop
sellstop's picture

Government PRODUCES the infrastructure of a modern economy. Not only the physical common infrastructure but the social stability that allows a modern economy to thrive. Debt is a balance sheet phenomena. ie, on the one side of the ledger is expenditures, and on the other is revenue.

And, taxes are spent almost entirely in the country. The money stays in the local economy. Government debt spending is what has enabled the fantastic business earnings growth over the last 30 years. But, the equation does not work if the govt does not have savings to spend. Unfortunately, the "free market" group has succeeded in using every slowdown over the past 30 years to push through tax cuts, and then have expected govt bailouts. The govt is out of "savings". If taxes were higher, and had been higher then the govt spending would have some effect, due to the specter of a government breakdown being out of the picture. The repubs keep saying that it is the "uncertainty" that is holding back business, but then argue for less govt. and less taxes to the govt. The stock market and the economy however, says that the economy and the markets FEAR the loss of govt. spending. And they should, because much of govt spending is indirectly an investment in the country. And I do mean SS, Medicare, pensions, etc. If they aren't there, those recipients do not have that money to spend, and have to save in its place. SS has been a huge stimulant for the past 75 years! The lack of fear on the part of individuals has allowed them to take on debt and buy and spend, and the profits are in the bank accounts of the wealthy business owners. They do owe the govt and the American people.


Tue, 08/16/2011 - 23:43 | 1567851 Vint Slugs
Vint Slugs's picture


Wed, 08/17/2011 - 00:03 | 1567904 Worker Bee
Worker Bee's picture

Government PRODUCES the infrastructure of a modern economy.Fail. Goverment produces nothing it transfers capital from one group to another.

 Not only the physical common infrastructure but the social stability that allows a modern economy to thrive.FAIL!.Are we living in the same universe? Where is this modern economy in this socialy stable fairy tale land? Last I checked our "modern" economy still was based off of usury and infinite growth on a finite sphere...not very modern really.


Tue, 08/16/2011 - 23:35 | 1567827 zorba THE GREEK
zorba THE GREEK's picture

"If the government was a family, they would be making $58,000 a year, yet they spend $75,000 a year,

and have $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their

spending to $72,000 a year. These are the actual proportions of the federal budget and debt, reduced to

a level that we can understand."     DAVE RAMSEY

Tue, 08/16/2011 - 23:54 | 1567873 sellstop
sellstop's picture

The problem with the family analogy is that the American "family" is composed of the rich and the poor. The American "family" could raise the money. It just has some powerful rich family members who refuse to ante up some money. They enjoy being part of the family, but don't want to contrubute during the hard times.


Wed, 08/17/2011 - 01:08 | 1568021 sitenine
sitenine's picture

I think you missed the point.

Wed, 08/17/2011 - 02:04 | 1568075 stirners_ghost
stirners_ghost's picture

They enjoy being part of the family

Are you sure about that?

I'm more than happy to pay market price, voluntarily, for every service that I require, or provide it myself if the price isn't to my liking.

If I can't do either of those things, I expect to just do without--not burden you with my "needs".

What I'm trying to say is, take your precious family / government / extortion racket and shove it up your asshole sideways. I don't enjoy any part of this arrangement.

If you stole from me yourself, in person, I could afford you infinitely more respect than you garner from me now, hiding behind the pretense of institutional legitimacy, a coward, fleecing me by proxy with no skin in the game--with the audacity to suggest this is somehow a profitable turn for me, to be a part of this "family".

Just show me to the exit, then.

Tue, 08/16/2011 - 23:41 | 1567840 warchopper
warchopper's picture

All Obama cares about is that there is an uptick in GDP so that he can claim victory prior to the 2012 elections. He could care less on how much money he injects into the system. To him, the end justifies the means. He's gotta be thinking, "If only I can make it another term, I can get Obama Care implemented."

He doesn't care about economic prosperity. He only cares about raising the poverty ceiling vis-a-vis more government handouts, and will do anything to accomplish this even if it means destabilizing the globe through monetary inflation (Fed is not independent...they do the administration's bidding).

He is an Epic Failure. His legacy will *not* live on.

Tue, 08/16/2011 - 23:56 | 1567879 sellstop
sellstop's picture

And Obama's challengers do all they can to keep the economy in a standstill. Hoping to oust him in the next election.


Thu, 08/18/2011 - 07:03 | 1571838 tip e. canoe
tip e. canoe's picture

it's all quite vile, isn't it?

Tue, 08/16/2011 - 23:41 | 1567842 Tyler Durden
Tyler Durden's picture

For anyone who has not seen it yet, here is Mary Meeker's must read presentation on USA, Inc., or how America would look like as a corporation.


USA Inc. - A Basic Summary of America's Financial Statements

Do NOT follow this link or you will be banned from the site!