Kelly’s Last Stand …


The universe is a monstrous thing populated by demons, where nothing perishes but everything is perpetually diminished … virtues are deceptions … honesty is a paradox … nothing is what it seems: the human enterprise labors tirelessly at its own extinction in an ironic attempt to ‘improve’ itself. (All of) this is the manifestation of the universe’s malevolent design. Our endeavors are a part of the greater whole, most of which we cannot see or hope to understand. Individuals are blind and dumb … our wit would save us but it vanishes when we need it the most …

America is clinically depressed … the holidays make people crazy. The world is crazy and sad: it is afraid, the way for humans to manage fear has always been to lie to themselves … this is what courage is, a peculiar kind of lie.

 

 

The human race is confronted with gigantic resource imbalances and excess consumption: the public ignores the problem or denies it, preferring to watch television. We don’t know how to discuss it so we don’t try:

‘Fairytale of New York’ by Jeremy Finer and Shane MacGowan

 

It was Christmas eve babe
In the drunk tank
An old man said to me: won’t see another one
And then he sang a song
The rare Old Mountain Dew

 

Honesty is found in a song imagining two pieces of human wreckage wheezing through Christmas in a drunk tank …

 

I turned my face away and dreamed about you.
Got on a lucky one
Came in eighteen to one …

 

Nobody earns a living, everyone gambles, just like on Wall Street …

 

I´ve got a feeling
This year´s for me and you.
So happy Christmas,
I love you baby
I can see a better time
Where all our dreams come true.

 

Enter the ad men …

 

They got cars big as bars
They got rivers of gold …

 

Don’t they always? Here comes the truth …

 

But the wind goes right through you
It´s no place for the old …

 

… they end up in the tank!

 

When you first took my hand on a cold Christmas eve
You promised me Broadway was waiting for me
You were handsome — you were pretty —
Queen of New York City when the band finished playing they yelled out for more,
Sinatra was swinging all the drunks they were singing.
We kissed on a corner,
Then danced through the night.

And the boys from the NYPD choir were singing Galway Bay
And the bells were ringing out for Christmas day.

 

So it goes, the improbable chemical-fueled combination of ecstasy and infatuation that lasts for an instant then vanishes forever … as rare in iron-bound Mordor as a diamond necklace in the sewer. Humans turn their entire lives for a chance at these instants, these unforeseen moments … gambling everything in the chase or in fruitless attempts to buy ecstasy in a store. By this process the world is destroyed.

 

You´re a bum you´re a punk,
— You´re an old slut on junk
Lying there almost dead on a drip in that bed …
— You scumbag you maggot
You cheap lousy faggot
Happy Christmas your arse I pray god it´s our last.

 

We can’t discuss our self-inflicted misery but we can write songs about it. How the message is delivered matters more than what it is. Shane MacGowan should write about the unraveling of the world, about climate change and Peak Oil, about financial collapse … the rest of us would sing along in bars on St. Patrick’s Day …

John Hussman discusses interest rates, debts and the insanity of it all:

 

Since 2009, both the stock market and the broad U.S. economy have been dependent on perpetual support from massive federal deficits and unprecedented money creation. Meanwhile, Wall Street is content to ignore the extent of this support, and looks on every movement of the economy as a sign of intrinsic health – which is a lot like admiring the graceful flight of a dead parrot swinging by a string from the ceiling fan.

 

Our economy is fundamentally string!

 

A quick look at how the deleveraging of the U.S. economy is going – total credit market debt has now reached $55 trillion, including government, corporate and household sectors, representing 3.5 times GDP (down only slightly from the 3.8 multiple observed at the recession trough of early 2009). To put this in perspective, every 100 basis point change in interest rates on maturing and refinanced debt now implies a redistribution of income between borrowers and lenders on the order of $500 billion annually. The Fed has worked tirelessly to ensure that borrowing is as cheap as possible – the risk being that any departure from that would give every interest rate change of one percent an annual economic effect the same size as the “fiscal cliff.”

 
TCMDO 122612
 

Figure 1: total government and private sector debt in credit market @ $55 trillion — this amount does not include off-balance sheet credit, shadow banking or forex/currency claims which are an order of magnitude greater. The Fed offers a willingness to push down credit costs … to do so it must be prepared to lend indefinitely.

This is more madness, the Fed works against itself!

Optimally: the private sector offers unsecured loans to firms as a matter of faith. The expectation is for general increase in the amount of credit/economic growth and serviceable cash flow. Growth’s ‘utility’ is the ability of the firms to borrow over time and to use these loans to refinance prior loans as they become due. Unsecured loans exceed the worth of collateral by ten-times or (much) more. The central bank does little but manage the flows of currency and foreign exchange.

Currently: the private sector has lent stupendous amounts to firms, this represents most of the blue line in the chart. Collateral is worthless or worth very little. Leverage is now 100x or more. The borrowers are unable repay because they do not earn anything and never have. The lenders are over-leveraged/insolvent and borrowers are unable to borrow any longer. There is no more growth, it was all fake anyway.

Remedy: the central bank lends to private sector banks, taking their impaired collateral onto its own balance sheet at ‘face price’ which provides the banks a temporary reprieve from insolvency. The bank bailout is done with a straight face ‘to end unemployment’! There is no economic growth because there is no credit expansion … central banks cannot expand the credit base by offering unsecured loans. This remedy has been applied in Japan since 1990 and has failed. The more central bank credit is offered, the less private sector credit … the central banks’ actions are self-defeating. The Fed lends to push down rates: the lowering of rates reduces private sector profits as well as incentives to lend! As with the petroleum biz … rates that are profitable to the bankers are unaffordable to borrowers.

The ‘More Stupid’ remedy: the central bank targets nominal GDP (NGDP), lending in excess of collateral or accepting fraudulent collateral as security for loans in an attempt to create credit expansion by itself.

Outcome of the ‘More Stupid’ remedy: the offending central bank becomes instantly insolvent just like all the private sector lenders and for the same reason. There is a ‘run on the banks’ as depositors remove deposits: currency is the only real collateral for the Mount Everest of claims laid against it.

Insanity is contagious: watch all the central banks attempt nominal GDP targeting at the same time! No central banker wants to be blamed for a recession: all the bankers are easing as much as possible.

Hussman:

 

The Federal Reserve under Bernanke is like a bad doctor facing a patient with a broken femur. Being both unable and unwilling to restructure the broken bone, he announces that he will keep shoving aspirin down the patient’s throat until the bone heals. Despite virtually no relationship between the injury and the treatment, that femur might eventually heal enough on its own to allow the patient to hobble out of bed. But by then, the patient will need to be treated for liver failure. What’s even more bizarre is that everybody quietly knows this, but as he shoves another handful of aspirin down the patient’s throat, nobody proposes restructuring the broken bone, and they instead stand around helplessly saying “well, ya gotta do somethin’ don’t ya?”

I continue to believe that most of the economic impact of policy changes in the past few years can be traced to a) the abandonment of accounting transparency by changing FASB rules, which allowed banks to suspend mark-to-market accounting and effectively relieved them of capital requirements, and; b) the U.S. guarantee of bad mortgage debt extended by Fannie and Freddie. Both of those policy changes will impose enormous costs over the long-term, but they did allow the financial system to abandon the immediate need to actually restructure bad debts.

 

He leaves out energy costs, but no matter. The central banks have to cease lending at some point … it’s pointless … the patient is dead … As Hussman suggests, the only workable remedy is for the private sector to delever/write off bad loans.

At the same time, perhaps the establishment can begin allow those at the bottom of the economic food chain to earn. This requires less credit not more. Credit allows those with access to it to pretend to outperform those without … who are consequently exposed to ruinous competition. By borrowing, the government competes with its own citizens: by doing so it gives cause to those who would purposefully become dependent upon the government and thereby destroy it …

Speaking of energy, from the New York Times, Alan Riley counts his natural gas chickens right now!

 

The shale energy revolution is likely to shift the tectonic plates of global power in ways that are largely beneficial to the West and reinforce U.S. power and influence during the first half of this century. Yet most public discussion of shale’s potential either focuses on the alleged environmental dangers of frakking or on how shale will affect the market price of natural gas. Both discussions blind policy makers to the true scale of the shale revolution.

The real impact stems from its effect on the oil market. Shale gas offers the means to vastly increase the supply of fossil fuels for transportation, which will cut into the rising demand for oil — fueled in part by China’s economic growth — that has dominated energy policy making over the last decade.

There are two major factors in play here. First, the same shale extraction technology of horizontal drilling and hydraulic fracturing can be employed whether the rocks are oil-bearing or gas-bearing. We have already seen over half a million barrels of oil a day flowing from the Bakken field in North Dakota. The recent Harvard-based Belfer Center report — “Oil: The Next Revolution” — suggests that shale oil could be providing America with as much as 6 million barrels a day by 2020. The United States imported only 11 million barrels of crude oil a day in 2011. Given the potential for offshore and conventional domestic oil production, this would suggest that by 2020 America could be near energy independence in oil.

 

Then again, perhaps not … Maugeri’s report and others- similar have been holed below the waterline in the NY Times and elsewhere. What isn’t discussed is how broke Americans are to pay for the extra billions of barrels of frakked crude. It sez here — declining real wages — they can’t.

 
Real Wages 122812
 

Figure 2: Wages have fallen in real terms for over fifty years! More costly fuel against declining wages = unaffordable. Credit flows toward the fuel extraction- and finance industries away from workers, who cannot buy products … houses, automobiles, service ‘goods’ … or the fuel needed to run them. As business operating margins shrink and the bosses take more for themselves worker pay falls further, impacting sales in a vicious cycle.

As an expedient, the government borrows in the workers’ place. Because the workers are unproductive in the sense they cannot- and will not earn, the government must borrow exponentially greater amounts, and do so indefinitely … None of the energy promoters are able to explain how energy ‘production’ without paying customers is supposed to work.

Riley:

 

The second factor is the potential to use natural gas for transportation. Some analysts suggest that this will only be a realistic prospect for fleet and long-haul road transportation. But they are overlooking the immense advantage that natural gas has as a transportation fuel in America and Europe, which have both developed a natural gas infrastructure in urban areas that takes piped natural gas into homes, offices and supermarkets. Once gas is cheap and widely available, it is possible to consider dealing with the “last mile” problem of providing home refueling kits so consumers can fill up natural-gas powered cars in their own garages.

 

Riley is a professor of energy law at The City Law School at City University London. Riley sees gas fueling the cars in the immediate future … despite uncertainties about the gas supply. Meanwhile, there is no sign of a generalized shift by the auto industry toward producing natural gas powered vehicles or the means to adapt the current fleet to natural gas use. With more than 270 million vehicles in US service alone, such a switch-over would be very costly and time consuming.

Meanwhile, there are questions about how much gas will be available over time. If fuel is affordable, there are insufficient returns for drillers. A recent New York Times article calls the natural gas frakking enterprise a “Ponzi Scheme”. Drillers cannot earn by selling fuel, they must borrow from Wall Street.

 

China has even greater incentives to develop its shale gas resources. According to the U.S. Energy Department’s Energy Information Administration, the country’s recoverable resources are larger than those of the United States at 36 trillion cubic meters. The main geostrategic reason for Beijing to develop shale gas for transportation is that the U.S. Navy controls the Pacific and most Chinese oil arrives by tanker. Large scale use of natural gas for transportation would protect China from much of the effect of a U.S. blockade.

 

It is good to learn from the Times the US is planning to blockade China … The only remedy that will actually work is to get cars off the road. They cost too much. One way or the other the cars are gone, so are the roads. Once gone we will discover we really didn’t need them, that they ruined our lives, instead.

 
Blue Triangle
 

Figure 3, from BP’s 2010 World Energy Outlook with data from the International Energy Agency: the ‘Blue Triangle of Death’, oil fields — presumably large, conventional deposits — that have not been discovered that are needed to make up for declines elsewhere. The shortfall indicated here is about 30 million barrels per day by 2035.

 
Blue Triangle 2
 

Figure 4, here is the Mother of All Oil Shortfall Graphs by EIA’s Glen Sweetnam (2009) by way of Kurt Cobb. He points out that any gains from tight oil formations will be overtaken by ongoing declines in conventional fields. Sweetnam calls for 40+ million barrel shortfall by 2030.

 
Petrobras012411
 

Figure 5: Petrobras in 2010 calculated a man-sized shortfall in production of sixty to seventy million barrels per day — or more — by 2030! The marginal increases from frakking and even Iraq will not change the outcome significantly. Says Cobb:

 

… many people will say that we already have a large new resource of tight oil (often mistakenly referred to as shale oil) which can be extracted through hydraulic fracturing or fracking. But even if the optimists are correct — and there can be no guarantee that they will be — this source of oil will only add 3 to 4 million barrels of daily production. What Sweetnam’s chart tells us is that we must find and bring into production the equivalent of five new Saudi Arabias between now and 2030 in order to meet expected demand even if the volume of tight oil reaches its maximum projected output.

 

Maybe Shane MacGowan can write a song …

“Kelly’s Last Stand” … about delusional central bankers, government officials and fracking shills looking for a miracle.

 

I could have been someone
— Well so could anyone
You took my dreams from me
When I first found you.
— I kept them with me babe
I put them with my own.
Can´t make it out alone
I´ve built my dreams around you …

And the boys of the NYPD choir’s still singing Galway Bay
And the bells are ringing out
For Christmas day.

132 thoughts on “Kelly’s Last Stand …

  1. The Dork of Cork.

    The transport company(in Mulhouse) has decided to temporarily suspend the service stops Nation and Coteaux evening from 19:30 after the incident Saturday night in the area of ​​Coteaux.
    Saturday night, a dozen people had attacked a tram train in the area of Coteaux, throwing projectiles and Molotov cocktails. Following this incident, a special meeting of the HSC Solea was organized. The decision was made ​​to stop at least until January 14, tram and bus lines in the area. Stops and stops Nation Coteaux are no longer served in the evening from 19:30. A meeting was held on Wednesday between union representatives, members of the management of the transport company and Jean Rottner, the UMP mayor of the city, trying to find solutions. But it was not successful. A new official meeting is set for Monday. Manuel Valls, the Minister of the Interior, is meanwhile expected tomorrow in Mulhouse, said Jean Rottner.

    Meanwhile Besancon tramway now state they will be operational 6 months ahead of Schedule.

    http://franche-comte.france3.fr/2013/01/08/besancon-les-travaux-du-tram-iront-plus-vites-que-prevu-176341.html

    Me thinks the system is in full scale panic mode.

  2. steve from virginia Post author

    Sorry kids, I’m sick as a dog … from my balloon head issues foul-smelling greenish slime instead of insightful, entertaining word-play.

    I hope to be feeling better next week … In the meantime I’m reading Keynes’ “Economic Consequences of Peace”, where he relates his time in Paris after World War One and the (insufficient, short-sighted) efforts that led to the Treaty of Versailles.

    http://www.gutenberg.org/files/15776/15776-h/15776-h.htm

    I read it once a long time ago, of all Keynes’ work it is the most accessible, has the least ‘economic jargon’ to it. Keynes is horrified by the politicians, particularly Clemenceau and Wilson.

    Believe it or not, many of the resource/population/real-capital/real-output issues we discuss here (and avoid discussing elsewhere) are Keynes’ peripheral subject. He wasn’t ‘rigorous’ in the sense of MIT/Club of Rome and their ‘Limits to Growth’ but the seed was there. He was observing the period of massive economic (and population) growth that occurred during the last of the 19th century and the beginning of the 20th.

    I wanted to read it after making my way through Philip Pilkingon’s (well-deserved) hit job on hack-ish Friedrich Hayek. For some reason, reading about Hayek pushed me to read Keynes instead … and take note of his ‘sensible humanity':

    http://www.nakedcapitalism.com/2013/01/philip-pilkington-the-origins-of-neoliberalism-part-i-hayeks-delusion.html/

    Institutionalized cruelty is both the foundation of modernity and its fatal flaw: business as war by other means.

    1. Phlogiston Água de Beber

      As it happens, I came to the blog immediately after watching a documentary on the Roman industrial scale abuse and slaughter of dangerous and exotic animals in their entertainment industry. Part of which was execution of defenseless criminals by big cats. But the main ‘sport’ was execution of not totally defenseless animals by Beast Fighters. Of course, the predator animals were also given opportunity to kill grazers.

      It seems that in order to qualify to be somebody in the empire, even the emperor, you had to spend enormous sums of money to put on these games. If for some reason the event had to be cancelled or proved not to be very impressive, you were on the way out.

      My point is that institutional cruelty is not just an attribute of modernity. I can’t at the moment think of any civilization that has not incorporated it in some form or other. I do agree that it is a fatal flaw. The Romans drove most of their favored animals to extinction within the boundaries of the empire and probably beyond. The animal trade reached all the way to India. The lands thus cleared of wild animals were opened to agriculture, which I think may have contributed greatly to the current desertified condition of MENA. In our own time, we seem to be set on making that a trivial loss in comparison.

      The speaking actor in the documentary quotes Seneca as having said something like “men are interested in one of two things, entertainment or philosophy.” My response is that cruelty seems to be very entertaining and apparently it is always possible to construct a philosophy that can justify it.

      Thanks, for the link to Pilkington. I think I’m going to enjoy his work.

  3. The Dork of Cork.

    Sorry its more then that………………….
    See chart 8
    German exposure to peripheral Europe
    Change from Q1 2008 to Q2 2012

    They reduced their exposure to Ireland by -82.54 billion euros
    Which is more then much larger Italy !! -71.04
    And almost as much as Spain – 92.25
    In comparison Greek exposure reduced by -23.46
    Portugal -12.32

    One thing that has been happening for some years is the reduction of claims on the periphery
    by banks in core Europe. For instance, the stock of German banks’ claims on peripheral
    Europe has fallen by roughly one half since their pre-Lehman peak, from just under €600
    billion to €300 billion.

    The Germans just love us to bits.
    http://www.bis.org/publ/work393.pdf

  4. The Dork of Cork.

    What the British based banks are up to is interesting.

    “While UK banks were cutting their exposure in the periphery in an effort to square their books
    and reduce their redenomination risk, they were increasing their net local positioning in
    Germany. In the first quarter of 2012, UK banks increased their claims on the German public
    sector, which includes both claims on the government and on the Bundesbank, by almost €100
    billion. Significantly, the claims on the German public sector were booked mostly by their
    offices in Germany. The preference for locally booked claims may reflect fears that, in any redenomination, cross-border claims might be treated differently.
    10
    UK banks stand out among
    banks from outside the euro area, as well as from within the euro area (Graph 10).
    The scale of the increase in claims on the German public sector is an order of magnitude
    larger than the scale of decrease in net local claims of UK banks in the Iberian peninsula.
    While it is instructive to think of banks in a single group reducing their net claims on Spain and
    increasing their net claims on Germany, this seems to be something else. Whatever the
    motivations of the shift of euros by UK and other banks into claims on the German public
    sector, the shift has resulted in an extraordinary development. In particular, banks in Germany,
    including offices of foreign banks, have flipped from providing euros to banks in the rest of the
    world to absorbing euros from banks in the rest of the world, as shown in Allen and Moessner
    (2012) and in Graph 11. Banks in Germany include both German-owned and foreign-owned
    banks, and the counterparties outside Germany include both affiliated and unaffiliated banks.
    11
    This is an extraordinary development for a creditor country – that its banks become net
    recipients of home-currency funding from banks in the rest of the world. While there has been
    much discussion of retail investors shifting their deposits into banks in Germany, the bank-to bank channel shows a shift of hundreds of billions of euros. “

    1. Ellen Anderson

      So sorry about your flu or whatever it is. I broke down and got a shot this year.
      Chicken soup and garlic tea for you, Steve. Put garlic in the soup too.
      The Archdruid Report is good this am – can’t say it will cheer you up though.

    1. steve from virginia Post author

      Ireland benefits from tax arbitrage w/ the rest of the Euro-zone: it’s a BAU arrangement for the Irish in the BAU endgame. An increasingly hard euro (due to deflation) means cheaper fuel for Ireland. Meanwhile, people cannot afford the euro.

      England is simply falling into the (net energy) pit.

      A cheap pound and the country won’t afford petro imports, the only export trade the Brits will have is emigrants out of the country. Maybe they can sell the Queen.

      1. The Dork of Cork.

        Blackadder (from Y2000) sums up the UKs problems

        http://www.youtube.com/watch?v=5f8MinrUTpw

        “If we are to reestablish our position in the world…………we must invade France.

        Or we could just wait for the Euro to drop some more and simply buy the place”

        Dork – but what will they do with it once its bought ?
        Drink more wine I guess.

  5. The Dork of Cork.

    The keep it simple stupid local stuff will be stripped for these high speed projects that may not reach capacity when the real shit hits the fan.

    French market towns & villages can be rail connected for a tiny fraction of the cost while employing far more people per capital unit.

    In this case 13 million~ vs the 7.8 billion ~ of the Tours Bordeaux thingy.

    http://www.rff.fr/fr/le-reseau/pres-de-chez-vous/regions/centre-limousin/actualites-948/les-travaux-principaux-de-la-ligne-du-blanc-argent-sont-temrines.

    350,000 people are carried on this little line (mainly schoolchildren) per year.

  6. The Dork of Cork.

    Stoneleigh on scale.
    http://www.theautomaticearth.com/Finance/scale-matters.html

    “Operating at a local scale to build local supply chains and resilience is far more compatible with the human psyche. At times when social organization has expanded to the point where it dwarfs individual actions, and may control them either directly or indirectly, individuals are disempowered by scale. Many feel they have no control over the critical factors of their own lives, which often leads to psychological disturbances such as depression, at present widely addressed with medication. Increasing scale can reduce both empowerment and civic engagement, as it fosters the perception that one can achieve nothing through individual action.

    The increasing complexity that accompanies scaling up also occupies time, money and individual energies, leaving little in the way of personal resources to contribute to the public sphere. Of course for the few in positions of control, scale translates into leveraging power, which can effectively become a drug in its own right, but for the masses it is much less conducive to functioning effectively and meaningfully. For a while the masses can be bought off with bread and circuses, and, for some, with aspirations to achieving a position of power and leverage themselves.”

  7. enicar666

    Imagine IF Women bought cars!

    LIFE, May 5, 1967

    Want a lift? Get a new car!

    You’ll blossom out!

    … someone forgot to tell the women that blossoming out was code for an Obesity epedemic!

    1. enicar666

      It appears that the other Nations on Earth and in the Galaxy can relax for a while as American Imperialist Expansion is thwarted:

      The White House has rejected a petition to build a Death Star – a huge battle-station armed with a superlaser as seen in the Star Wars films.

      Targeted assassinations with acceptable collateral damage using remote-control Drones is enough to satisfy the current White House occupant.

  8. enicar666

    DOC -I like this BBC stuff –

    Happy Daze are here again!!

    Cheery carmakers flock to Detroit

    Car sales are soaring, carmakers are hiring thousands of workers, and memories of the recent bankruptcies of two of Detroit’s “big three” companies already seem like distant memories – even though fewer than four years have passed since the crisis.

    Some 14.5 million cars and light trucks were sold in the US last year, a whopping 13.4% rise on 2011, and as such 2012 was the best year in terms of sales since 2007.

    GM predicts that sales will top 15 million in 2013 and perhaps even reach 15.5 million.

    Steely Dan – Josie

    1. enicar666

      This is a break through Video Straight out the Streets of Racine, Wi.

      Hogg Money Mook – Skittlez video AkA Donk Ryders

      Yeah – “Something is wrong with this picture – it’s all SWPL’s. You need to diversify!

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