Debt-O-Nomics Part Two …


Marcello Paternostro /AFP/Getty, ‘Truck Driver Strike in Italy’

 

In the first part we briefly examined some of the effect of universal credit on prices. Because of our long experience with inflation we assume prices will increase because they always have. This subtle bias carries forward, we generally expect social and political changes to result in higher prices.

Now prices are beginning to decline because of deleveraging which in turn diminishes support for higher goods prices including that of petroleum.

There are multiple, important, somewhat conflicting dynamics underway right now:

– Debtonomics: credit amplifying or triggering price changes.

– Debtonomics: the dollar/crude trade which determines the worth of both.

– Creeping dollar preference and amplified deflation.

– Debtonomics: ongoing collapse of the euro currency as a ‘going concern’.

– Bilateral international trade deals involving crude production that exclude the dollar.

– Debtonomics: all of the above taking place in a world economic context of distrust and failing institutions.

Times change, it’s adapt or die! Here is Economic Undertow from just last January:

 

The five or six people who read this blog know there are two simultaneously operating economies in the US and world, the real economy of production and labor, resources and capital with an abstract and parasitic finance economy attached where the real cannot reach to remove it.

The tapeworm economy is in the spasm of hyperinflation as credit is formed by finance firms with the moral hazard- encouragement of central banks and governments. Finance lends itself trillions so as to bid up assets and create a wealth ‘effect’ for itself. Ongoing real economy difficulties have so far not been allowed to spoil the wealth creation party. The tapeworm seeks to feed off the real economy more or less permanently rather than kill it outright.

The real economy is deflating, burdened by real costs for inputs alongside the excess debt service that the tapeworm economy refuses or is unable to lighten. The ‘container’ for both of these economies is a culture that holds out a (so- far false) material utopia of inevitable, endless progress. Advertising which is the lever of culture is a ‘diktat’: it is not just television or mobility that is demanded and promised but only acceptable types of flat screen televisions and SUV mobility.

 

Yes and no, that model is not quite correct. It doesn’t account for debtonomics.

We now understand that fuel by itself is worth more than the real-world enterprises that waste it regardless of what means are used to adjust the price. Enterprises earn nothing on their own and are essentially worthless. They exist solely to borrow, either on their own accounts, against those of their customers or against public accounts. Industrial enterprises produce credit as their primary product: other goods and services are intended to justify credit issuance in ever-increasing amounts. Part of this stream becomes the property of well-positioned ‘entrepreneurs’: enormous unearned borrowed profits are what drives the system. When debt = wealth, there is an incentive to take on as much debt as possible, keep what you can for yourself and to shift the burdens onto others.

Economies carry vast debts that cannot be retired or serviced by economies’ customers, system managers are wary of monetizing because the (debt) costs of doing so are even greater than the debts themselves.

Management is paralyzed by the internal contradictions of the debtonomy. We cannot get rid of (some of) the debt without getting rid of (all of) the wealth. We cannot get rid of the debt because we would need to take on even more ruinous debts immediately afterward. If we get rid of the debts the prices will fall leaving debt-tending establishments without capital. Our debts cannot be rationalized, the absence of debts cannot be tolerated. The debt system is rule-bound. Debts that were increased because of favorable rules face annihilation because of the same rules, changing the rules threatens debt elsewhere. Nowhere are there real returns to service the debts much less retire them. Nothing remains but the arm-waving of central bankers. If the banks create more debt against their own accounts, their efforts are felt at the gasoline pump which adversely effects debt service.

The debtonomy is Gresham’s Law applied (on purpose?) to goods and services; the bad drives out the good, the worst drives out everything else. The ‘bad’ enterprises which groan under massive obligations possess a competitive advantage over the virtuous ones that earn without taking any debts on. Debts are artificial earnings which are used to price the good companies out of business then engulf their markets. The final step is for the debt-gorged monstrosities to fall bankrupt due to their massive size, these are then bailed out by the even-more bankrupt sovereigns.

 

J. S. G. Boggs ‘Five Hundred Dollars’ (Pen and ink, click on for big.)
 

Obviously, if we don’t have debtonomics we will all wind up living in caves.

Chris Cook uses the term ‘Upper Bound’ to describe the fuel price level that constrains economic activity. The price rise can be caused by increases in the money supply or by a decrease in the amount of available fuel relative to the current money supply.

What happens at the other end of the bound? If the upper is tough to deal with the lower is good, right?

It goes without saying that the crude is vital. The ‘Business of debtonomy is debt’ but the presumption is of fuel waste for a ‘higher purpose’ which is embodied within our precious progress narrative. Without continuous waste debt becomes an unsupportable dead weight on all enterprises. Here is the confusion over the effects of fuel shortages on economies: ending waste is thrift, it is economical. Ending waste is fatal to debtonomy which needs the waste to justify its existence: economic thrift is an un-debtonomic catastrophe.

It is different this time: the decline of the fuel price means there is less fuel made available to waste, that the high cost variety is off the market. Low priced fuel means there are no businesses with credit. Lower price fuel is worth more than any enterprise that uses it, the lowest possible price means the industrial scale fuel waste enterprises are ruined, both producers and consumers.

So much for innovation.

The decrease in the dollar price of crude is ipso facto the market repricing more valuable dollars.’ The lower bound is where dollars become a proxy for crude and are hoarded. At that point all things are discounted to the dollar because the dollar traded for crude is more favorable than a trade of anything else for crude, that includes dollar-denominated credit.

Just like the upper bound where a dollar is worth less with each increase in fuel price, the lower bound represents a dollar that is worth more because of its price in crude. A low crude price has a dollar that is worth too much to be used for carry trades or interest rate arbitrage which is the primary business activity within the debtonomy.

The lower bound is reached when currencies are discounted to dollars. A reason for this is the universality of the dollar. Because the US has been for so long the world’s consumer of last resort, goods that were sold for dollars in the US are tradeable elsewhere for the same dollars. The dollar purchases of the past and dollars in circulation now are the purchasing power of the future.

The dollar is also the world’s reserve currency, dollars settle trade accounts. The trade of goods between countries whose currencies are illiquid may have foreign exchange risks that exceed the worth of the goods trade. The exchange of the currencies for dollars bypasses the risks because the universal dollar is a liquid substitute for third-party currencies. Reserve status of the dollar and its universality provide leverage that other currencies do not possess.

The trade of dollars for crude sets the worth of the dollars rather than do the central bank(s), this trade takes place millions of time a day at gasoline stations all over the world.

Motorists determine the worth of money, central banks are irrelevant. In their futile attempts to assert some sort of relevance the central bankers and policy makers set money rates to zero, they ignore moral hazard and bail out their clients. They seek to reduce the worth of money relative to other money. In doing so the bank surrenders what small fragments of policy-making ability which remain to it. Bankers can set interest rates to zero but no further, can whitewash the accumulation of risk but cannot set the money worth of petroleum except to make it unaffordable which precipitates the catastrophe the bankers are desperate to prevent.

The catastrophe the bankers are desperate to prevent is the destruction of demand, where fuel falls into strong hands and dollars are hoarded because they are proxies for scarce petroleum, energy in-hand.

 

 

Because of the widespread propaganda that crude is plentiful there is little incentive to ‘reserve’ it by gaining and hoarding dollars. People believe in inflation and the magic of central bankers. As the perception of fuel scarcity takes hold access to fuel is gained by way of holding currency. The scarcity of funds lowers the fuel price, increasing currency worth which in turn provides even greater incentive to hoard it.

Extreme revaluation is preference for the dollar above other currencies including those of producer countries. The dollar holders buy fuel by purchasing fuel producers’ currencies in foreign exchange markets. if currencies are swept from F/X markets the discount against the dollar is taken in producers’ home markets. This particular dynamic may not be underway in Iran but the discounting rials for dollars is.

Extreme revaluation is preference over producer currencies: consumer goods are available for sale in dollars rather than in the local currencies. Consequently, dollars are bid for strongly in native currencies as is underway in Iran.

Inflation in non-dollar currencies is a consequence of dollar preference. Producers reject third-party currencies that do not trade in international currency markets or are volatile or illiquid. The freely-traded dollar is always available, the fuel purchaser trades his currency at a rapidly expanding discount to dollars.

The third-party euro is not in short supply within the reserve accounts of the European Central Bank! Mario Draghi doesn’t buy fuel with the spare change, those who would buy fuel with the euros have no access to them. The market shrinks along with the ability to pay, the result is strikes by truck drivers in Greece and Italy: conservation by currency means.

A preference is for cash over credit because the cost of credit even with negative real interest rates is greater than the cost of holding cash: this is deflation.

Dollars are preferred over euros if for no other reason than the questions about whether there will be a euro.

Dollar preference also takes hold when fuel subsidies in local currency are eliminated, the price of fuel in dollars is a better deal for consumers than in local currency. As monetary authorities react the result is more local currency in circulation and hyperinflation. Remember, inflation is always a currency arbitrage, to sell the currency you are stuck with to gain the currency you need.

Dollar preference is when a local currency vanishes from circulation such as the euro in Greece. A dollar black market will give the Greeks cheap fuel and penniless Greeks or hyperinflated fuel prices that Greeks cannot afford fuel with inflated wages. Here is the arbitrage again: either the drachma against the euro or drachma against the dollar.

Dollar preference effects net energy which is consumption taking place in energy producing countries. This consumption is entirely dependent upon consumer goods that are affordable because of high fuel prices. Iranians produce automobiles and other Iranians buy them because the national oil company is able to sell its product for $110 per barrel. The price subsidizes both Iran’s debts and her energy waste. Ditto for the energy consumption of Saudi Arabia, Russia, Kuwait, Iraq and all the rest. When energy prices fall so will energy consumption in producer countries if only because lower priced oil production will be too scarce to waste.

At $10 per barrel, Iran will produce very little fuel, only from the cheapest and easiest to produce fields and will trade it for hard currency only. Domestic sales will take place in black markets for dollars or gold, few Iranians will have dollars and those that do will hold onto them for emergencies. Hard currency earned by the export of crude will be used to buy food and medicine, not luxury automobiles and television sets.

Diminishing net exports depends on high prices which are in turn dependent upon constantly expanding credit. When cash is preferred over credit there is nothing to support the high prices or fuel waste. Cash is hoarded and credit is evaporated.

The end-game of dollar preference is crude-driven dollar deflation as took place in the US in 1933. Dollars were held as ‘gold in hand’ and business in the country was the buying and selling of currency to obtain gold. The deflationary impulse was ended when the world’s governments ended specie and fixed convertibility, cutting the currency links to gold. The need will be for the US to end the dollar’s convertibility to crude, to go ‘off crude’ as countries went ‘off gold’. The alternative is for dollars to vanish from circulation and cease to be a medium of exchange. Local currencies emerging in the dollar’s place will be of little use in the obtain of fuel imports, the country will be limited to the petroleum that can be sustainably produced on its own soil.

Dollar preference is self-limiting. Dollar preference in 2012 is the demise of the euro, its unraveling illuminates euro mismanagement. Doubts about currency regimes take root. The differences between the euro, yen, sterling, yuan and dollar currencies are minuscule. Euro debts are no different from the debts of the others, European waste is no different from the waste of others. There is nothing special about the dollar other than a military machine that is debt-dependent and failure-prone. Dollar preference condemns the euro which starts the clock on the ultimate death of the dollar.

38 thoughts on “Debt-O-Nomics Part Two …

  1. Pingback: Debt-O-Nomics | Economic Undertow

  2. James

    The energy waste truly is outrageous but who could do it better than a fantasizing ape. In searching around various websites I found the following ballpark figures:

    1 barrel of crude = 13 years of human labor, 8 hours a day.
    1 barrel of crude = 13 gallons of gasoline.
    1 gallon of gasoline = 1 year of human labor, 8 hours a day.

    Driving a ton and a half of steel to the grocery to get poochie some scooby snacks uses one gallon of gasoline or the equivalent of one year’s worth of human labor.

    Gasoline selling for $3.50 a gallon is phenomenally inexpensive. Why not take $100.00 of daily pay and buy a barrel of oil, thereby getting 13 years of human labor for one days work, just don’t waste it in a car. If I were an oil producer, I certainly wouldn’t be selling 13 years worth of human labor for $100.00. a barrel, unless my customer could trade something of equal value. Perhaps military protection is worth the price, in which case we are all beneficiaries of our extravagant military expenditures. It keeps the oil flowing. Much of the labor value represented by the oil is siphoned off into protection.

    I suppose the producers know oil’s true value, but they also know that in a world of hungry beasts it cannot be hoarded, only sold for a fraction of its true worth to keep the oil-thirsty demons from their throats. In the end, if oil does not help transition to a more long-lasting energy regime, it will have been a total waste and will have wasted much of the planet.

    1. steve from virginia Post author

      It may have been on Tom Dispatch or another anti-war site where a writer added oil field costs to those of the latest oil wars, the $1 trillion in Iraq and $0.5 trillion in Afghanistan. It’s a more honest accounting, it also leaves out the other subsidies such as mortgage interest tax deduction, direct payouts for new/expanded highways and bridges, accelerated depreciation and tax credits for manufacturers AND their customers, oil depletion allowance, the GM/Mopar bails, and all the rest that don’t need elaborating. Very expensive oil indeed.

      Here’s another ‘hidden’ cost: every year since 1930 except during the war years (’42-’45) there have been 30,000+ deaths on US highways. Some years over @ 50k. Add a million per death cost to the overall economy and compare this to the worth of new cars put onto the road during each year. The death ‘costs’ are $33 bn last year (33k total deaths).

      Meanwhile, the cars’ worth (@ 13 million units @ $45k per unit at showroom price, off the top of my head) is $45 bn from which are paid all wage/’profit’ returns to manufacturers and sales. This is net $10-15bn and excludes all injury costs which are no doubt higher than death costs because of 10X the number of injured. The economy as a whole bears the burden of the $33 bn as a subsidy paid to the industry (all borrowed money, of course.)

      The mechanism to hold the price low is interesting and complex (and opaque). It arrived at the dawn of the petro industry by way of John D. Rockefeller/Standard Oil monopoly. It is a price strategy that reinforces current practices and excludes everything else. Crude as a loss-leader for the auto-, highway construction-, ‘home-building-‘, office construction-, insurance-, finance-, etc. industries.

  3. Da55id

    I always enjoy the posts here – very provacative and illuminating. My two cents:

    We are in the midst of a hockey stick transition from petrochemical speeds to light speeds. This light speed transition is further exponentiated via folding of speed/logic channels via MEST Compression (John Smart: Matter, Energy, Space, expended Time). Examples of MEST Compression are Moore’s Law/Metcalfe’s Laws being reduced into 3d circuitry, dense fiber nets and now biomedical chips. This several orders of magnitude change are the cause of the obviation/nullification of vast swaths of the current economic milieux. As more and more segments of the econocosm approach effective light speed, the underpinnings of petrochemical based institutional dissipative structures (Illy Prigogine – Nobel Prz) such as post offices, auto manufacturers, logistics chains (3d printers) become sheared away in the same way that the front of an object gets torn away from the back end as it accelerates into a black hole. Welcome to the event horizon.

    For context, the parallel issue of petro waste based debtonomics (nice neologism there) is cost avoidance. The reaction to avoid/reduce/replace/obviate costs is implosively destroying the current paradigm. It would be the same as if a chemical rocket ship were attempting to accelerate away from a black hole…what happens to gravity if you shove burnt rocket fuel mass into a black hole? If sucks harder/faster.

    The real solution is to accelerate TOWARD the singularity at a slight offset angle. Economically you’d do this by accelerating the birthing of entirely new industries/ecocosms that create NEW activity that is not shupeterian in nature.

    1. James

      Organic evolution has been slow and steady, bounded by life cycles, competition and especially solar energy flow. Technological evolution has been much faster, only bounded by the amount of energy, education systems and infrastructure we could create and improve upon. The amount of energy we’ve run through the system in the past 100 years has been tremendous and has allowed complexity to flourish, at the expense of the natural environment. But complexity is never an adequate test of resilience. Growth and complexity must feed itself or dissipate and that is where we have dropped the ball. We strive for miniaturization and efficiency but this additional complexity fails to counter the rate of energy decline. Perhaps we could manipulate human DNA and breed ant-sized humans to engage the new paradigm. Perhaps the technological information processor of the future will, in its all-seeing analog mind of energy and matter, tell us that there is no other way for humans to survive long-term than by being hunter-gatherers.

      The waste of capitalism is the waste of passing ever greater resources and energy through manufacturing processes to satisfy the most ridiculous whims and desires of humans. To generate profit, more and more and more must be processed so that the capitalist can skim some small percentage of profit from the operation. Energy and resources are used as fast as possible to deliver that profit, even thought the waste is almost unfathomable. Humans may be capable of enabling technological evolution, but they are literally children playing with fire, and because they are unable to resist the ancient evolved dopaminergic rewards that evolved within their brains, they will push the technological and ecosystem into a singular collapse.

      1. Da55id

        James, you said “The waste of capitalism is the waste of passing ever greater resources and energy through manufacturing processes to satisfy the most ridiculous whims and desires of humans. To generate profit, more and more and more must be processed so that the capitalist can skim some small percentage of profit from the operation.interesting”

        This is precisely what Illya Prigogine won his Nobel prize for. The concept that a “dissipative structure” has input-process-output flows where the process creates value-add in the output. His observation was that over time the Process section grows to absorb/capture more and more of the inputs leading to a collapse of the overall structure. In our current case, it seems clear that the neoplastic Financialized economy has lead to the near death of value added output…by near total consumption and waste of valuable inputs – such as energy and intellect (what if all those finance quants were working on real problems and solutions in the real/physical world for instance)

      2. steve from virginia Post author

        Da55id, I don’t want you to get the idea I’m beating up on you.

        I’m very wary of technology because it is a form of spam.

        Technology is the means by which the producer borrows his profits. He borrows from those who believe in technology’s future returns but who gain nothing concrete in the present. A cellphone is a phone: “sometimes a cigar is just a cigar”.

        Who makes money from driving a car? A taxi driver, a delivery man, a courier, a contractor who needs a vehicle. To the rest a car is simply a toy. It’s technology to no purpose.

        Technology-of-the-moment promises the inexhaustible resource, there is no such thing.

        Technology destroys the resource base so that technologies’ owners can borrow their profits. More technology destroys resources faster, this is an observable trend. It also allows great borrowed profits at the expense of everything and everyone else.

        Technology is a word like ‘virginity’. Technological enterprises are subsidy dependent — subsidy being a form of credit. Enterprises cannot exist without subsidies. These false promises are themselves the collateral for what turn out to be bad loans.

        Economies are not failing because of a technology shortage but because of too much, it cannot pay its own way.

      3. Da55id

        No worries! My comments are simply observational . Not all technology is bad or useless. While I’d prefer my ears to revert to the perfect hearing of my youth, I am very happy that fully-in-the-canal aid-zinc nano-fuel-cell powered hearing aids exist to allow me to hear the whispers of my daughter and the singing of birds once again (Lyric Hearing aids). As to my private life, I telework and have a 15 year old car that goes 2500 miles a year. One effect of speed of light “transportation” is the implosion in value of all sorts of commercial real estate…as minds/consciousness (teleconf) are transported instead of butts in seats – for shopping, business etc.

        For my part, even if the Chevy Volt were $10,000 it would make no sense for me to buy it because I hardly need to drive anymore. I’ve already traveled to England, Spain, Brussels, California, NY, DC, and who knows where else this morning – via the internet reading news and sending email and shopping. try doing that with petrochemicals! They are simply growing increasingly uncompetitive. I argue that this phenom is an additional component on your correct debt0nomics thesis (note the zero 😉

        cheers

    2. different clue

      Umm..err.. will we be growing food at the speed of light or shipping food from field to eater at the speed of light?

      1. Da55id

        You are making the point. Look at the economy as a whole organism…most elements were coordinatedly moving at the speed of petro fuels and then – within one or two decades – 75% or more of it accelerates to light speed you get massive shearing forces. It IS this SHEARING force caused by the petro (carz, food et al) vs light speed that is doing the fractal damage.

  4. p01

    Driving a ton and a half of steel to the grocery to get poochie some scooby snacks uses one gallon of gasoline or the equivalent of one year’s worth of human labor.

    Therein lies the problem. The solution, however, will not be implemented, because the love of carz is already the universal rule of the land. This species would rather die inside the steel trap at the wheel and risk a future in which all their children and grandchildren are either cannibals or cannibal victims (because this is what all this inaction and human domestication/estrangement-from-nature/lost-natural-skills is inevitably speeding towards), than break free from the kingdom of carz.

  5. Reverse Engineer

    The end result here still seems to be conservation, since in Greece and Italy and Spain the consumers just don’t have Dollars to trade for Oil, and even here at home there are fewer people all the time with access to enough Dollars to buy the Energy in a Bottle. The market for new Carz has to shrink since so few people have access to enough Gas at nearly any price to make them very useful. Just keep the Old Clunker going to make the once a week trip to Walmart to buy your Groceries on the SNAP card.

    So you get the Carz Free economy you are looking for here either way the currency collapse falls, inflation or deflation. The problem remains of how to reboot an economy that is Carz-Free when the whole infrastructure has been built around them. Greece remains an interesting Laboratory Experiment here, given they are the first economy mostly converted to Industrial Debt-o-nomics that is being forced out of said economy. Clearly so far, this doesn’t appear to be going too smoothly for the Greeks. Anecdotally at least, we hear that many are Abandoning Ship. What happens when Spics and Ities also start to abandon ship? Where will they all GO in the game of Musical Chairs?

    Even so, Europe seems to be better positioned for a Carz-Free economy as much of the infrastructure was built before they arrived full tilt on the scene. However, they no longer even HAVE the prior technology that infrastructure functioned with available to access, that being Animal Labor. There just aren’t that many Horses and Oxen around anymore, and it will take a couple of generations at least to breed them up. I suppose Greeks on Bicycles could be tethered together to pull wagons of Olives from the Farms to Athens, but that’s only if they have enough Bicycles to do that.

    Difficult as it is getting of the Debt Merry Go Round, getting off the Carz Economy once you have become dependent on it is more difficult still. This is why nobody willingly does it. There is no ready made substitute to take its place in the same time-frame that the Carz will disappear or become too expensive to run anymore. So the game is to Extend and pretend just as long as you possibly can.

    For the Greeks though, they appear to be at the Buzzer here. Time’s UP for them. How long this takes to spin outward from Greece through all the rest of the Developed world remains a very difficult question to answer though.

    RE

  6. Ross

    Every economic activity can be defined by one question: Does this activity support or sustain the production of life support?

    The new industries we need to develop are industry that support the production of life support on a redefined net energy basis. Specifically, we need an agricultural transition that accounts for the 13 years of human labor in one barrel of oil.

    95% of economic activity is superfluous to life support. Oh you’re a marketeer, financier, real estate agent, concierge, masseuse, prostitute… You better trade those “goods” to someone producing life support who wants what you’re selling.

    Otherwise, what fucking good are you anyway? Just another eater, another breeder with zip, zero, nada to offer me.

    1. Mr. Roboto

      Seems like the call-girls and -boys would have the inside track. It *is* the Oldest Profession, after all!

  7. dolph

    I do not disagree with Ross’s premise, but the problem is that once you have the mechanized world, virtually everybody within it is superfluous. This is the fatal flaw of Keynesianism. Debt is never discharged; it artifically represents the fact that the real economy can no longer pay its own way, that it’s becoming redundant.

    Modernization makes all of us redundant, leading to an “either or” scenario where we either infinitely create debt, or we are all reduced to penury, or worse, go up in flames as the bombs are dropped.

    It now becomes clear why the “developed” world has the debts. Diminishing marginal returns prove it. That subsistence farmer in the third world country is actually, in the end, more productive than a computer engineer or auto designer or ICU physician or big bank financier.

    This is a troubling thing to admit for people raised within Western civilization, which is now more properly global industrial civilization. Almost nothing has been left untouched. We are reaching it’s endpoint, it’s slow yet historically fast collapse, and nothing less than collapse will bring about the revolution in thought needed to actually save the human species, and quite possibly the planet itself.

    1. steve from virginia Post author

      The collapse we want is not going to be the collapse we need.

      Getting rid of the bankers would be ideal but more likely is getting rid of the farmers ‘by accident’. It’s easy to see the fishermen getting rid of themselves so farmers doing the same is not far-fetched.

      It will be an interesting television program titled, “Now what?” or ‘Blundering into Extinction’.

      1. Reverse Engineer

        To paraphrase an old Soap Opera, “Like Sands through the Hourglass, these are the Extinctions of our Lives”.

        I still rank the Extinction Level Event here fairly low in probability. With 7B people, you could take a 99.999% Hit here and still have plenty of genetic diversity for a Reboot.

        Far as the mess left behind goes, Mother Nature is pretty resilient. After a few score of millenia, I think even all the long lived radioisotopes will be sufficiently diluted and rinsed out not to be causing too much problem.

        Near term doesn’t look too good though.

        RE

  8. James

    All of the profit and savings denominated in paper will be squeezed into smaller and smaller pools of real resources and functional infrastructure. Everything in our technological environment will wear out and be discarded as the energy gradients that allowed their manufacture are forever lost in an orgy of consumption and diffusion. At some point all of this will become obvious and the paper wealth will try to latch onto what remains worth having. But by that time, autocratic government will likely have taken wealth that has not hidden in order to nurse a dying patient into the annals of history. The propaganda will be over the top as politicians promise again and again that new sources of energy and economic recovery are just around the corner, even as conditions continue to deteriorate. The corner will never be turned. Of course, the great beyond will continue to be marketed as the eternal paradise that could not be created on earth with the greatest consumption of energy within a short span of time by any species ever, with the added benefit of rapid evolution supposedly geared to meet our needs and desires.

    Lucky investors will surround themselves with a natural environment that runs on solar and is always refreshing. Many others will remain in cities where fossil fuel life support slowly wanes and deterioration overcomes maintenance in an energy starved environment.

  9. Sandor

    Steve, w/r/t technology as ‘spam’ – (re) read Heidegger’s ‘ The Question Concerning Technology.’ http://www.wright.edu/cola/Dept/PHL/Class/P.Internet/PITexts/QCT.html

    “In a similar way the unconcealment in accordance with which nature presents itself as a calculable complex of the effects of forces can indeed permit correct determinations; but precisely through these successes the danger may remain that in the midst of all that is correct the true will withdraw.

    The destining of revealing is in itself not just any danger, but the danger.

    Yet when destining reigns in the mode of enframing, it is the supreme danger. This danger attests itself to us in two ways. As soon as what is unconcealed no longer concerns man even as object, but exclusively as standing-reserve, and man in the midst of objectlessness is nothing but the orderer of the standing-reserve, then he comes to the very brink of a precipitous fall; that is, he comes to the point where he himself will have to be taken as standing-reserve. Meanwhile, man, precisely as the one so threatened, exalts himself and postures as lord of the earth. In this way the illusion comes to prevail that everything man encounters exists only insofar as it is his construct. This illusion gives rise in turn to one final delusion: it seems as though man everywhere and always encounters only himself. Heisenberg has with complete correctness pointed out that the actual must present itself to contemporary man in this way. In truth, however, precisely nowhere does man today any longer encounter himself, i.e., his essence. Man stands so decisively in subservience to on the challenging-forth of enframing that he does not grasp enframing as a claim, that he fails to see himself as the one spoken to, and hence also fails in every way to hear in what respect he ek-sists, in terms of his essence, in a realm where he is addressed, so that he can never encounter only himself.

    But enframing does not simply endanger man in his relationship to himself and to everything that is. As a destining, it banishes man into the kind of revealing that is an ordering. Where this ordering holds sway, it drives out every other possibility of revealing. Above all, enframing conceals that revealing which, in the sense of poiesis, lets what presences come forth into appearance. As compared with that other revealing, the setting-upon that challenges forth thrusts man into a relation to whatever is that is at once antithetical and rigorously ordered. Where enframing holds sway, regulating and securing of the standing-reserve mark all revealing. They no longer even let their own fundamental characteristic appear, namely, this revealing as such…”

    1. rcg1950

      I always have found Heidegger to be almost impenetrable. Here’s what I think is a more accessible ‘translation’ of a very similar analysis by Heidegger’s Spanish contemporary … Ortega y Gasset:

      “To me reason,in the true and rigorous sense of the word, is every such act of the intellect as brings us into contact with reality, every act by means of which we come upon the transcendent. The rest is nothing but … intellect, a mere homely exercise leading nowhere, that first amuses, then depraves, and finally causes man to despair and to despise himself.

      Hence the necessity in the present state of humanity to leave behind, as archaic fauna, the so-called “intellectuals” and to set our course anew toward the man of reason, of revelation.

      Man has need of a new revelation. He loses himself in the infinite arbitrariness of his inner cabalism when he cannot essay this and discipline it in the impact with something that smacks of authentic, relentless reality. Reality is man’s only true pedagogue and ruler. Without its inexorable and sensitive presence culture, seriously speaking, does not exist, the state doesn’t exist, even – and this is the most terrible of all – reality in his own personal life does not exist. When man is left, or believes himself left, alone with no reality other than his ideas to impose its stern limits on him, he loses the sensation of his own reality, he becomes to himself an imaginary, spectral, phantasmagoric entity. It is only under the formidable pressure of something transcendent that our person becomes compact and solid and we are enabled to discriminate between what, in effect we are and what we merely imagine ourselves to be.

      Now, physical reason by its very evolution, by its changes and vicissitudes, is come to a point where it recognizes itself as being mere intellect, if indeed as the highest form of this. Today we are beginning to see that physics is a mental combination and nothing more. Physicists themselves have discovered the merely symbolic, that is to say, domestic, immanent, intrahuman, character of their knowledge. In natural science these or those mutations may come about, Einstein’s physics may give way to another, the quantum theory be followed by other theories, the electron conception of the structure of matter by other conceptions: no one looks for these modifications and advances ever to leap beyond their symbolic horizons. Physics brings us into contact with no transcendence. So-called nature, at least what the physicist examines under this name, turns out to be an apparatus of his own manufacture that he interposes between authentic reality and himself. And, correlatively,the physical world appears not as a reality but as a great machine ready to man’s hand for him to manage and exploit. The faith that still attaches to physics today comes down to faith in the uses to which it can be put. What is real in it – and not mere idea — is only its utility. That is why we have lost our fear of physics, and with fear our respect, and with respect our enthusiasm.” [from History as a System]

  10. Sandor

    And Heidegger’s proposed ‘solution’? Art:

    “The poetical brings the true into the splendor of what Plato in the Phaedrus calls to ekphanestaton, that which shines forth most purely. The poetical thoroughly pervades every art, every revealing of essential unfolding into the beautiful.

    Could it be that the fine arts are called to poetic revealing? Could it be that revealing lays claim to the arts most primally, so that they for their part may expressly foster the growth of the saving power, may awaken and found anew our vision of, and trust in, that which grants?

    Whether art may be granted this highest possibility of its essence in the midst of the extreme danger, no one can tell. Yet we can be astounded. Before what? Before this other possibility: that the frenziedness of technology may entrench itself everywhere to such an extent that someday, throughout everything technological, the essence of technology may unfold essentially in the propriative event of truth.

    Because the essence of technology is nothing technological, essential reflection upon technology and decisive confrontation with it must happen in a realm that is, on the one hand, akin to the essence of technology and, on the other, fundamentally different from it.

    Such a realm is art. But certainly only if reflection upon art, for its part, does not shut its eyes to the constellation of truth, concerning which we are questioning.

    Thus questioning, we bear witness to the crisis that in our sheer preoccupation with technology we do not yet experience the essential unfolding of technology, that in our sheer aesthetic-mindedness we no longer guard and preserve the essential unfolding of art…”

    In other words, we are lost to ourselves until we are committed to our role as the guardian of truth. Ironically, this only occurs within the provenance of a techne that allows us both to order the natural world to our purposes, and that allows us to bring forth that which reveals itself as beauty or truth. Whether or not we are ‘wasting’ our time on earth is a question of what kinds of revelations of truth and beauty are presented through the arts and sciences, and what value such revelations have. Is genetic engineering valuable? Is mapping the universe valuable? Is a Van Gogh painting worthwhile? In your critique of waste-based modernity and its industrial credit social ordering system, you ultimately pose a philosophical question of value. How do we circumscribe the appropriate bounds for human activity which harbor, rather than obscure and profane truth and beauty? Can these values alone anchor human culture? Do we need to keep burning coal, oil, and wood in order to?

    1. rcg1950

      And Ortega’s proposed solution?

      “But whence, then, can there come to us this new revelation of which man stands in need?

      Every disillusionment consequent on depriving man of faith in some reality on which he had set store brings into the foreground and permits the discovery of the reality of what remains to him, a reality that had previously escaped his attention. So the loss of faith in God leaves man alone with nature, with what he has. Of this nature the intellect forms a part, and man, obliged to have recourse to it forges for himself his faith in physico-mathematical reason. Now, having lost his faith—in the manner here described—in that reason also, man finds himself compelled to take his stand in the only thing still left to him, his disillusioned life. …

      Man asks himself: what is this solitary thing that remains to me—my life, my disillusioned life? How has it come to being nothing but this? And the answer is the discovery of man’s trajectory, of the dialectical series of his experiences, which, I repeat, though it might have been different, has been what it has been. And which must be known because it is … the transcendent reality. Man set outside himself is brought up against himself as reality, as history. And, for the first time, he sees himself forced to a concern with his past, not from curiosity nor in the search for examples which may serve as norms, but because it is all he has. Things are never done seriously until the lack of them has been seriously felt. For this reason the present hour is the appointed time for history to establish itself as historical reason.

      Until now history has been the contrary of reason. In Greece the two terms “reason” and “history” were opposed. And it is in fact the case that scarcely anyone up till now has set himself to seek in history for its rational substance. At most, attempts have been made to impose on it a reason not its own, as when Hegel injected into history the formalism of his logic or Buckle his physiological and physical reason. My purpose is the exact reverse: to discover in history itself its original, autochthonous reason. Hence the expression “historical reason” must be understood in all the rigor of the term: not an extrahistorical reason which appears fulfilled in history, but, literally, a substantive reason constituted by what has happened to man, the revelation of a reality transcending man’s theories and which is himself, the self underlying his theories.

      1. steve from virginia Post author

        I keep putting up long comments and the Internet keeps eating them up.

        Later …

      2. steve from virginia Post author

        Try one more time (then get something to eat) …

        The serious thinkers were part of the art-school experience. Heidegger was impenetrable. There were fanboys but mostly sculptors. It’s hard to describe ‘fake’, the usual approach is relational (compared to ‘real’ whatever that is).

        So … you had surrealists (me) w/ Lacan and Baudrillard, these were the neo-Marxists, remember this was early 1970s: Marcuse (who is good), Derrida, Ezra Pound, Proust. Various girlfriends causing commotion, etc.

        Then, there were the Freudians, these were the girlfriends.

        http://www.youtube.com/watch?v=YjFL02NmBrc

        Baudrillard comes closest to what you find over here:

        “Baudrillard is against any thinker whose ideas he takes seriously,'”

        “Beyond the Vanishing Point of Art,” trans. Paul Foss, in Paul Taylor, ed., Post-Pop Art (Cambridge: MIT, 1987, 1989)

        “Art” disappears as society thrashes in reproducible “culture”: “The logic of the disappearance of art is, precisely, inversely proportional to that of the production of culture. The ‘xerox-degree’ of culture in a state of absolute proliferation corresponds to the zero-degree of art: one is the other’s vanishing point, and absolute simulation … from this a direct line links Baudelaire to Andy Warhol, under the sign of ‘absolute merchandise,'”. “But this disappearance [of art] is not negative or depressing — no more than merchandise is. In the mind of Baudelaire, it is an object of enthusiasm: there is a modern enchantment of merchandise, just as there is an enchantment in the disappearance of art. Of course, it is a matter of knowing how to disappear. The whole disappearance of art, hence its modernity, is the art of disappearance,”. Art as simulacra erases history — “Art no longer has a link with history and continuity, but is caught in a chain reaction, that of simulacra and simulation, which is exactly parallel and isomorphous with the potential nuclear chain reaction. The chain reaction of Hiroshima put an end to history. The chain reaction of simulacra put an end to art.”

        All of these are translations which means things are lost … On Heidegger:

        “Condemning Heidegger and Nietzsche as Nazis is silly because “One day we shall ask ourselves if Heidegger himself really existed”. History has become myth and we look for scapegoats; before such a crime as the Holocaust becomes myth “the crime has first to be divested of its historical reality.”

        Cool stuff: http://www.csun.edu/~hfspc002/baud/

        Of course Wendell Berry (for common sense purposes only).

        Somebody here prompted Ivan Illich, was that you? That’s a good catch. http://en.wikipedia.org/wiki/Ivan_Illich

        This is a big subject, more later …

  11. James

    The idea that God miraculously created man and that man, progeny of God, miraculously created technology should be put to rest. No God, as we generally perceive them, would create either humans or technology. These ideas put us on a pedestal as exceptional, when the precedent of technology was set long ago in the molecular realm. This narrative is broken and damaging. Many would say that God is “in control” of our destinies and that man is equally in control of his technologies. Maybe consciously or otherwise we fear that there is no control, that the investors that worship in the cathedral of 8% return are simply automatons fulfilling their duty as dissipative structures to acquire energy and resources, process it, and return waste to the environment. Perhaps we’re all afraid that finding the truth, that we are largely greedy psychopaths in our desire for continuous growth, enrichment, and stimulation and behave no differently than common microbes. After all, we are walking sacks of highly organized and differentiated microbes, but this rarely enters the minds of humans who perceive themselves and others as undifferentiated, whole beings with a detachable spiritual dimension.

    1. Sandor

      We are not all ‘greedy psychopaths’. There are other types of human ‘dissipative structures’ such as shamans or yogis who essentially spend their lives modifying the relative significance of physical constraints and impulses. Random genetic diversity? Even if we simplify the description of humans in the biosphere as cancer cells, we are cancer cells that ask questions. Given that the ‘God narrative’ and the ‘progress narrative’ are both ‘broken and damaging’ – what then? Why fear the truth? Why the need for ‘authority’ or some grand narrative to justify modernity or any human activity for that matter? Why the species-wide self-loathing? How can that be explained through the lens of genetics/virals?

      I am straining the limits of my capacity for reason. I don’t think a culture based on hedonism and better living through chemistry and electrons provides any better replies than one based on state/church/team dogma. But I still care about truth and beauty, and I still think that value can be salvaged from a technology-obsessed culture. There is ‘something’ in the process of perception that affords the possibility of opening a space for experience of joy. I will argue that it is important for humans to cultivate and protect this space. Innocence is necessary for human beings to remain psychologically healthy.

      1. James

        Most of the cigar chomping bastards that run the show on this planet have little empathy for their innocent underlings and even less for the natural habitats they destroy. They have one concern, to make a buck and do it better and faster than the son-of-a-bitch making a deal down the street. Their purchase of art is a pretense of higher intelligence of which most are deficient. Sometimes its just another deal or investment. Hang it in the cathedral of 8% returns. I know them, I’ve been with them. Their minions tune into CNBC every day to recieve their guidance in squeezing a little additonal blood from the planet.

        Once they’ve used our labor and appetites to amass their fortunes, they will enjoy watching us writhe in the agony of poverty from distant safe harbors and consign us to the heavenly afterlife we have so slavishly earned.

        But, as high noon passes on fossil fuels day, we occupy the thrones of kings, worry not tiny feet to burn on hell’s steps, Lucifer’s appetite be served.

        There’s a nice essay/book review up over at George Mobus’ site “Question Everything”. Everyone might want to read it.
        http://questioneverything.typepad.com/question_everything/#tp

      2. Ross

        “Art” completely sterilized from social commentary and alternative politics.

        “Art” that has been completely severed from reality-based observations of society and culture.

        “Art” that has been neutered of all cultural critique.

        That, my friend, is not fucking Art.

        What the Rich, as you describe them, are buying are merely fetish objects.

        Real Art belongs to everyone and no one. It evokes passion and a new way of seeing the world.

        Some chopped and screwed London telephone booth has little to offer as a social commentary except for the absurd, over-dramatized spectacle of the guffawing crowds. Ah….

  12. Tom

    Would you all believe it if I told you that there is a man I know who writes international paper with astronomical figures on some of the bonds..let’s see, sometimes 9 figures. Yes, 9 figures. Over one hundred million dollars. And these bonds trade internationally and are fractionalized beyond belief. I have seen a few of the CUSIPs on the BBerg terminal and it really makes you stop and wonder exactly what in the hell is going on out there…apparently he says his name was turned into a corporation with unlimited commercial liability by the US and he uses this to pay off basically everything you could imagine through the Dept of Treasury. Has anyone ever heard of anything like this? I know it is true, this man is a total straight shooter and basically does nothing but help people out who are in financial or civil trouble.

    1. steve from virginia Post author

      Without more info it is hard to say what ‘the racket’ is. I know there are free-money deals to be had but you have to be ‘inside’ the system and know people as with Warren Mosler or Gerald Celente.

      Celente had a ‘free silver/gold’ trade set up at the Comex, but the door closes on these kinds of things (as everyone finds out about them and tries to do the same thing.) It’s musical chairs you never know when the room the chairs are going to be closed.

      Any commercial corporation in the US limits liability of officers (and to some degree employees). Because there is more case law and more experienced litigants in Delaware, corporations (larger ones, anyway) tend to be domiciled in De. They can then operate anywhere in the world and use the De corp as a holding company. In this way, nobody outside of the company bookkeeper knows who and what is really about.

      As for low-cost insider borrowing (that can be re-leveraged) see the Federal Financing Bank: Bruce Krasting follows it, he’s a multi-decade bond/currency dealer so he knows what he’s talking about:

      http://brucekrasting.blogspot.com/2012/01/tax-payers-bank-ramps-assets-up-at-18.html

      1. Tom

        From what I gleaned, US citizens all have a corporate vessel which does the actual interfacing with any commercial dealings. Apparently he established through IRS and Dept of Tsy some status as a foreign individual which grants him the benefit of writing Int’l Bills of Exchg against this vessel, basically there is a separation which allows him to leverage virtually unlimited quantities of dollar credits. He is a licensed securities broker, highest level. And it sounds like anyone with the appropriate knowledge and connections can pull this off, but I this is the first time something like this has come to my knowledge and it seems rather shocking but made sense when he broke it down.

      2. steve from virginia Post author

        I hope you didn’t invest any real money it this. It sounds like a scam. I get emails from Nigeria offering “International bills of exchange” among other things.

        :>)

        What you describe is similar to what appeared upon the pages of Businessweek or some other (electronic) rag right after the ‘recovery’ in 2010. Henry Blodget drew this up so it’s real analysis not a joke.

        You start by having a number of persons create a bank (by writing checks to each other). The ‘bank’ would use this fictitious capital to lever Fed cash @ -1% then lend it back to the Treasury @ +3% which gives up the spread.

        http://thesituationreport.tumblr.com/post/10183998353/how-to-make-the-worlds-easiest-1-billion

        His article was a satire but not far removed from the operations of the bailed out banks, that could be profitable b/c of the very wide spread at the time. At the same time the banks could produce their own collateral the way Euro-banks are doing by way of LTRO, btw …

        This was Econundertow cocktail chatter for a while back in 2010 or so (I couldn’t find any investors)

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