Economic Undertow

Next goes Europe, itself. The Greek default closes the book on Europe in its current form, which is a lost cause. It is the end of the beginning: there is not going to be any ‘recovery’ or way back from the abyss that is now engulfing the continent. Some fragments here and there might save themselves for a little while, then like sparks from a bonfire be swept away by the wind. The crisis must now burn itself out: Europeans, look to yourselves and may your turkey-God have mercy on your souls. (From ‘God, Peak Oil and Turkeys’)

What is interesting about this time of year besides having to deal with the tax man (“Render unto Caesar that which is Caesar’s) is the opportunity to gorge on Titanic-mania. With the famous sinking taken place 100 years to-the-day yesterday, the Titanic-mania is set to overload. Titanic and hockey playoffs are almost enough to compel a trip to the local ‘Best Buy’ for a 53-incher. Add pizza and life in the gibbering madhouse called the U. S. of A. becomes entertaining!

Watch that ocean liner filled with arrogant, rich morons hitting an iceberg over and over again, what’s there not to like?

Reformers could manage the same thing today: load a giant cruise ship with ‘entrepreneurs’, bankers, auto company executives; innovators, politicians and hedge fund managers and send it out with Captain Jack Sparrow looking for an ice field. Sorry, five life boats. If no ice is to be found after a day or two (climate change) the Navy can fire a missile into the ship and the Iranians can be blamed. Any ‘complications’ and the lawyers would be loaded onto a giant cruise ship … etc.

Fixing what’s wrong with America is remarkably easy, if you put your mind to it.

There are many reasons why the Titanic is the perfect metaphor for our times: the enterprise was (and is) gigantic, hubristic and overdone. The managers were (and are) greedy and stupid, the end had (has) the quest for the ultimate in luxury and decadence blowing up in everyone’s faces.

Here are some Titanic factoids:

– The Titanic was one of three more-or-less identical sister ships built by the Belfast shipyard Harland and Wolff for the White Star Line’s transatlantic trade starting in 1909.

– The White Star Line was owned by banker J.P. Morgan within a trust called ‘International Mercantile Marine Company’ which also owned a number of other international passenger shipping companies. This made the Titanic an American-owned ship. Morgan was booked to travel on his new toy but took ill and remained in England chickened out at the last minute.

– Surprisingly, neither Morgan nor the shipyard nor White Star Lines’ manager J. Bruce Ismay, or the line itself were brought to account for the disaster: Morgan and others for negligence, the yard nor its suppliers for defective or sub-standard materials. It is hard to see such a disaster taking place today without legal complications and billions in lawsuits.

– White Star manager Ismay was pilloried in the Hearst press for not going down with his ship, he was publicly scorned as a coward for the rest of his life. Today, the managers and owners of sinking ships are expected to be in the first lifeboats after having hurled all the women and children first over the side (which is where that term ‘women and children first’ originates).

– The Titanic was the second of the three ships: the Olympic was first, the Titanic second, the third was to be named ‘Gigantic’ but the name changed after the sinking of Titanic to Britannic. The Olympic had a long 25 year-career as a transatlantic liner, the Britannic was sunk during World War One and was never in paying passenger service.

Unknown photographer, Shipbuilder Magazine, 1911, ‘Grand staircase on RMS Titanic’. Note the clock at the center of the landing: even in the middle of the ocean among the super-rich there is no escape from the tyranny of the clock.

– The Titanic was altered during construction to be slightly larger than the Olympic. There were other cosmetic changes made between the ships but all were designed to be floating luxury hotels with elaborate public spaces within the ship. The Britannic was not fitted out when World War One began, after a short layup it was converted to a floating hospital. Consequently, many of its first-class amenities were not installed.

– The three ships were developed to compete for the transatlantic trade with Cunard’s Lusitania and Mauritania as well as the Hamburg-America Line’s SS Deutschland and North German Lloyd’s SS Kaiser Wilhelm der Grosse. The largest part of the trade was the ferrying of European immigrants to the United States. At the same time, ships were the only means of travel between continents and competition for the first-class customers was intense.

– The three ships were not designed to be the fastest ships but rather the most comfortable, even for third-class passengers, who had access to good food and hot-and-cold running water, for instance. It was supposed that the first time many of the third-class passengers saw a toilet was on board the Titanic.

– The officers on board the ship during her maiden voyage were veterans of ocean liner crossings. The captain, Edward John Smith, was a mariner for his entire 38 year career, 25 years as master on White Star passenger ships. As Commodore or senior captain, Smith had earned the right to command new White Star ships on their maiden voyages. Captain Smith was something of an ocean liner klutz: he was involved with several close calls with collisions including a near-miss with another iceberg in 1902. During the port-out of Southampton on the way to Cherbourg the prop-wash of the rapidly-moving Titanic pulled another, smaller ship, the SS New York, from her moorings almost causing a collision in the port which would have ended the voyage. Tugs were able to pull the New York away from the Titanic at the last minute.

– The Titanic was a technological marvel of her age, a self-contained floating city: considered to be unsinkable due to her sixteen watertight compartments, telegraph wireless communications, internal telephone system, hot and cold water throughout the ship, electric heating and lighting for the passengers all on a ship as large as an eighty-story skyscraper laid on-end, one that could move across the ocean at 28 miles per hour.

– The ship was at the bleeding edge of what shipyards of the time could produce. Titanic’s hull was assembled out of hundreds of one inch thick steel plates sized approximately 6 feet by 20 feet. These plates were overlapped and riveted together and onto the ship’s frames. The hull areas in the center of the ship where the boilers and engines were located were given triple-rows of steel rivets, the ends of the hull were given double rows of cheaper iron rivets. Both the steel and iron rivets were found later to be defective, of low-quality material. Likewise, the steel plates were determined to become brittle when chilled. It is likely that both rivets and the plating cracked during the collision. The ship was divided into watertight compartments with the bulkheads given automatic doors that could be operated from controls on the bridge. What the Titanic lacked was high-volume pumps that could keep up with flooding within the compartments. There was certainly steam power available to drive large pumps that could have kept the ship afloat longer and under less strain even if she could not have been saved.

– The German and Cunard ships were faster but the White Star giants were more efficient: Titanic’s power plant required 650 tons of hand-shoveled coal be fed into its boilers every day, 350 tons less than its older counterparts.

– There were reports of a smoldering coal bunker fire aboard Titanic’s number six hold that the stokers were hoping to put to use in the boilers which might have been a reason for the ship’s high rate of speed through the ice field.

Everyone knows what happened on the evening of April 14th, 1912: the ship hit the iceberg in the North Atlantic a glancing blow, the first six watertight compartments were breached and the ship slowly sank taking the lives of over 1,500 passengers and crew.

Fast-forward to the present and there is the ‘Titanicaca’ which has all of the hubristic characteristics of the previous version with none of the grace and style. It’s made of cardboard and duct tape wadded together with false promises. It looks great on the outside but the inside is an unimaginable mess. It’s too large to control properly underway, it does not have pumps needed to manage liquidity. Like the first version, the passenger list includes feckless elites who cannot be bothered, unscrupulous ‘fixers’ and racketeers with the third-class sections filled with always credulous ‘television believers’.

As was the case with the original Titanic, the current version has struck a submerged object and the first five watertight compartments are flooded. The analysts have rushed below to inspect the damage and make assessments; the ship is doomed, sinking is assured it is only a matter of time. How much time? It could be tomorrow or next year but likely sooner (Bloomberg):

Energy

Watch those oil prices dive, last week the Brent price was over $125 per barrel. There are no more Saudi Arabias to offer crude, only demand that has bellied-up and sunk.

Up on the bridge of the Titanicaca, the EU, ECB and IMF managers have completely lost their grip on reality. The multiple captains have ordered staff to go below and steal all of the passengers’ property that isn’t bolted down. Someone asks where the staff is going to put the property on the ship where will be safe? The captain standing in the corner does not answer but stares off into the distance muttering ‘Ice … I hate ice …” The officer returns: stealing turns out to be impossible because all of the property is underwater. Next, the officers order seamen to scurry below and cut off the flooded compartments labeled P.I.I.G. and S. with hacksaws. The idea is the ship without a bow will reach its ‘destination’ much faster than it would, otherwise.

Meanwhile, the ECB officer is bailing out the various compartments with a bucket running from one to the other and back frantically. The water hurled from the bucket flows right back into the Titanicaca. Of course there aren’t enough lifeboats: the various upper classes of passengers are taking what they can carry and battling their way into the boats. One is named ‘Swiss franc’; another is named ‘yen’ and another, ‘Singapore dollar’; others are, ‘US dollar’, ‘Treasury securities and equities’, some are named ‘gold’ and ‘silver’. Not everyone is going to make it: those missing the boats are putting on life-jackets made out of lead weights: ‘real estate’ and ‘EU sovereign debt’.

Meanwhile, the third class passengers are locked up in the hold. The captain has ordered then to suck the water out the ship, the tools assigned to them are soda straws stamped ‘Made in China’. The straws must be bought and paid for before use but the Chinese are willing to extend credit if good collateral is offered.

What to do?

Are the lower class passengers ready to mutiny and put the officers off the ship or do they desire to take the first-class passengers’ place, so as to better rearrange the deck chairs? Since they are the only ones able to fix the ship’s problems it is really up to them to decide what to do. If they behave as the first class has done the ship will sink. If they attempt to make things right the ship might sink but they also might succeed. If they do nothing there is certain failure. Here is a dilemma that the passengers are ill-equipped to cope with. The passengers must not only act outside their narrow personal interests but also against how class interests as these are ordinarily defined as gains excluded from others. It is also outside decades of ‘television training’ which demands that individuals serve the system in order to be rewarded for their efforts at some unspecified point in the future (never).

When an ocean liner starts taking on water, what governs whether it’s “women and children first” or “every man for himself”? According to a report in the Proceedings of the National Academy of Sciences lead author Benno Torgler, men’s altruistic versus self-serving behavior depends on how quickly the ship sinks.

How quickly the ship sinks, indeed …

Potential Black Swan events are myriad – ranging
from an attack on Iran to an overthrow of
the Saudi government to increased belligerence
from the new regime in Pyongyang, multiple
sovereign downgrades or an oil shock.

Coordinated recessions in the US and the Eurozone
can’t be ruled out and nor can a collapse
of the dollar, civil unrest in Russia or more geological
events such as those seen in Fukushima
last March…. in short, the list is long …

Grant Williams

100 years ago today, one of history’s most (in)famous swans took flight: on April 10, 1912 the RMS Titanic departed White Star Line’s Southampton dock, toward Cherbourg then Queenstown, Ireland. A mere five days later the ship joined tens of thousands of other wrecks strewn across the bottom of the world’s oceans.

 
The gap between what an enterprise ‘earns’ (zero) and what it must pay for inputs becomes unbridgeable. That is, the cost of credit needed to make these enterprises ‘profitable’ is too high. This is why the world’s industrial economies are collapsing with nothing at all to be done to stop them.
 

Nobody could have seen it coming. The Titanic was unsinkable. It was commanded by the line’s most experienced Captain. The crossing between Ireland and New York was routine. There was no expectation of bad weather. The only issue was a coal-miners’ strike in England that did not allow the Titanic to take on as many passengers as she was designed to carry.

There were problems, of course, there always are. One thing leads to another, there is the cascading series of small failures that — by themselves — would not cause the swan to take a nose-dive, taken together were fatal. The entire Titanic enterprise was constructed upon a foundation of false- or not-quite-true assumptions. Captain Smith did not order the ship to slow as it approached the ice-field. Smith believed his ship to be unsinkable and assumed that any encounter between Titanic and ice would be of no consequence. The ship’s duty officer gave the incorrect order to reverse engines as the ship approached the iceberg. This rendered the ship unresponsive to the helm. He had only been on the ship for a few days and could not know how the ship would respond to orders from the bridge. He assumed the Titanic would maneuver the same as other, similar White Star ships.

The flight officer of Air France flight 447 performed an improper maneuver to correct the slight roll his aircraft after airspeed indicators caused the flight-control computer to switch itself off. The officer over-reacted to the changing attitude of the aircraft inadvertently pulling the nose of the aircraft up. The outcome of his error — the result of icing pitot tubes — was a high-altitude stall and uncontrollable descent of the airplane.

The operators of the Three Mile Island Number Two nuclear power station did not realize that the pilot-operated relief valve PORV indicator was giving irrelevant information: that the primary circuit relieve valve solenoid was not energized. It wasn’t but it didn’t matter, the valve itself was stuck open. A gauge that indicated the temperature downstream of the valve was not visible and the operators were not trained to look for it. By the time the error was realized — by a new shift of control room operators hours later — most of the cooling water in the reactor pressure vessel had been blown through the open valve onto the floor of the reactor containment by steam pressure. The outcome was the release of radiation into the environment and the loss of a multi-billion dollar reactor.

– An incestuous financial and regulatory relationship between the reactor operator Tepco and the Japanese government,

– A fundamentally unsafe reactor design,

– Cheaply built reactors too near the sea level so as to save relatively small amounts of money,

– Crews made up largely of poorly trained, poorly paid ‘contract’ workers often press-ganged into reactor service by Japanese Yakuza gangsters,

– No operating manual on site, no rigorous emergency training for critical staff,

– Inadequate safety equipment: missing or non-existent dosimeters, hazmat suits, respirators, even flashlights at site,

– Insufficient battery backup for emergency cooling systems,

– staff who ‘forgot’ spent fuel pool in reactor building number four, who ‘forgot’ 10,000+ tons of lightly radioactive water in waste-handling building that could have been used to cool the reactors rather than seawater,

– Unclear chain of command and confusion over roles immediately after the earthquake,

– Inoperable reactor vents which resulted in no cooling for reactor cores for extended periods (and probably resulted in steam pressure pushing water out of the cores). The result of these little failures — add a massive earthquake and tsunami — is the ongoing calamity at Fukushima.

Finance failure is little different from others: there is a chain of false assumptions that, by themselves are insignificant, but together lead to disaster. One assumption is that credit and business have a tendency toward expansion. This is silly because thermodynamics insists otherwise. Our strategy to overcome natural physical laws in 2012 is for central banks to recycle credit and pray.

The central banks are the last line of defense for finance’s Titanic. Water leaks in faster so the bankers can bail. The strategy is to keep bailing, to keep lending more and more credit, which is what the ship does not need. Every bucket bailed by the bankers winds up somewhere else inside the ship.

Put a dirty car through the car wash what comes out the business end isn’t a new car, it’s the same old jalopy with the dirt scrubbed off. Meanwhile, every trip through the wash adds the cost of a new car to the bill that must be paid sometime in the future. The harmless assumption is that the washing process will end soon and that the bill will be paid by magic as it has always been paid in the past. That there will be a general increase in the amount of available credit on private debt markets.

A tiny problem is that industrial enterprise does not pay for itself. Except for taxi drivers and deliverymen, driving a car and all the trillions invested in the ‘experience’ around the world does not produce a return. It is pure waste for its own sake that must be propped up with bottomless debt- and energy subsidies. This is the reason for the tens- of trillions of dollars worth of debt taken on in the first place. If industry could pay for itself it would have! There would be no debt because returns earned by industry would have retired it!

The outcome of subsidized waste over the term of decades is repricing of inputs due to decreasing rate of supply relative to the scalding increase in demand. The gap between what an enterprise ‘earns’ (zero) and what it must pay for inputs becomes unbridgeable. That is, the cost of credit needed to make these enterprises ‘profitable’ is too high. This is why the world’s industrial economies are collapsing with nothing at all to be done to stop them.

Central banks provide credit against collateral. Their efforts fail because of the waste-based economic system that falsely labels non-remunerative activities as ‘production’.

Since industrial enterprises cannot pay their own way there is no relevance to central banks’ strategy. Because industry cannot earn, all industrial collateral is worthless.

Central bankers swap impaired assets for ‘new’ assets, the swapped assets are buried on the central banks’ balance sheets. The impairment has been temporarily shifted from one account to another, not eliminated. The expansion of the central bankers’ balance sheets accompanies the shrinkage of private sheets elsewhere. Meanwhile, more finance assets become impaired because the central bank swaps do not represent either new business or new credit, only buckets of liquidity sloshed from one part of the Titanic to another.

A problem is the slowdown in the expansion of private credit, much of which is unsecured. What is called a ‘boom’ is an expansion of un-collateralized or under-collateralized credit. This includes credit cards, student loans, HELOCs and poorly/fraudulently underwritten mortgage/business loans as well as loans within (shadow) banking secured against phantom/re-hypothecated collateral. There is no business activity that provides a return except for Hyman Minsky’s Ponzi finance schemes. Loans must be retired with new loans. Meanwhile, collateral worth shrinks across the board.

Central banks are collateral constrained, that is the nature of central banking. A bank making unsecured loans cannot be the central bank. Otherwise, collateral would be of indeterminable worth: all banking would eventually cease because there would be no unambiguously worthwhile collateral or ‘risk-free assets’.

The purpose of the central bank is to defend the worth of collateral. It takes onto its own balance sheet collateral that the market refuses. By doing so it insures there is always a bid for it in the marketplace. This is a form of institutionalized moral hazard: because the central bank takes on collateral at par the other banks are given the incentive to do the same. Banks become secure enough in the quality of the collateral offered … to lend against it, at least that is the desire.

There are two basic money systems in this world: the debt money system and fiat money. The term ‘money’ includes both currency and credit. Both systems are binary: the debt system binary is ‘asset = liability’, the fiat binary is ‘issue = tax’.

In the debt-money system the central banks don’t ‘print money’: currency increases as government securities are exchanged for at-par loans from the bank. The loan from the bank becomes currency in the hands of the government. In a fiat money system the government issues currency without offering security or borrowing. Because the government is the issuer, security is presumed: consider Abraham Lincoln and the ‘Greenbackers’. Unfortunately, governments choose not to issue fiat currencies. Otherwise the massive overhang of dead-money debt could be swiftly reduced, there would be no generalized increase in the money supply (inflation) as applying currency to existing debt would extinguish both.

Dead-money liabilities that exist on ledgers are phantoms: taken on as collateral they do not exist in any meaningful form. Companies borrow trillions to buy hydrocarbons. Where are these hydrocarbons so that they might be repossessed by the lenders? In the atmosphere in the form of CO2 and nitrous oxides. Let the bankers repossess these gases. More accurate liability is the damage CO2 does to the atmosphere and the life support system, let the bankers possess these liabilities as well.

Any banker stupid enough to make pointless and destructive loans is well deserving of ruin and much worse.

The bankers would see this as a form of repudiation as it indeed would be. Issued currency would be no different from the loans themselves, created with a push of a button on a keyboard: printed money for printed loans! It is the force of the lenders’ habitual oppression combined with reflexive cowardice on the part of governments that sanctifies the bankers and their ‘money’ over everything else.

Here is more from Modern Monetary Theory and Philip Pilkington:

MMTers make the claim – following in the footsteps of Abba Lerner – that the government budget should not be subject to any sort of arbitrary balancing constraint. Instead Lerner and the MMTers advocate that the government budget balance should be conceived of strictly from the point-of-view of real economic variables. Thus, if there is unemployment the budget should be unbalanced, while if there is high inflation due to output capacity being outpaced by demand the budget should be moved closer to balance or even, in certain cases, into surplus. Lerner referred to this approach as ‘functional finance’.

The reason that both Lerner and the MMTers feel confident in making this case is because they hold that a government that issues its own currency and allows their exchange rate to float is not subject to any budgetary constraints. They can essentially issue new money – together with government bonds, if they so wish – until they begin to see inflation. Inflation, then, is the only real constraint to a government that issues its own currency and maintains a floating exchange rate.

If the government issues currency, why would it issue new bonds? To provide a risk-free asset that can ‘finance’ activities (healthcare and pensions) that would be otherwise costly to fund directly. The economy would escape the ZIRP trap: the central bank would have no need to defend ultra-low interest rates as the demand for near-money would keep excess currency from entering the economy.

However, if a developing country tries to spend up to the point of full employment while maintaining a floating exchange rate they are, as stated above, likely to see devaluation and inflation take place as the weakened currency chases more and more imported goods that the country’s own domestic industry cannot produce.

Agreed …

As incomes rise through government spending programs (and potential rises in real wages) people will be more inclined to seek out goods and services that were previously thought of as only available to a small stratum of the population. Devaluation and inflation are then almost inevitable.

Subsidizing waste as resources shrink is bankruptcy in a can. Analysts are stuck with the assumption of credit-stifled demand for consumer goods such as cars and tract houses. The problem is insufficient supply of the inputs needed to run that demand.

When the market-driven price for energy inputs decline it is because demand has been bankrupted somewhere within the system. In the ‘good old days’ of the early oughts, the demand was local, now the destroyed demand is entire countries, swept away in the matter of weeks.

The high-priced crude strands economies and trillions of (borrowed) ‘investments’ that were made assuming $20 crude in perpetuity. The higher the crude price is over $20, the longer this price holds, the more destructive the outcome is.

At the same time, a price low enough to allow increased demand on the waste side is too low to bring new oil to the marketplace.

But think about this for a moment; if we adhere to a purely functional view of finance then we have far more options available than might appear at first glance. We can actually use government fiscal policy to guide domestic investment decisions and ensure that the goods and services people desire as their incomes rise are produced at home rather than abroad.

There is but a slim chance to use finance to move away from consumption/waste and to restructure. The race is on between ourselves and the efficiency of our machines now set on ‘swan dive’.

Dear Sir and Madam,

My name is Jurre Hermans. I am 10 years old and live in the Netherlands. I am quite worried about the eurocrisis and look at the TV news daily. The eurocrisis is a big problem. I think about solutions. Since I read in the newspaper about your price, I thought that I would like to submit my idea. The idea might fit. So here it is:

I made a picture of my solution and I will explain it to you.

The situation in Europe has reached the point of embarrassment, when a 10-year old boy has as good a strategy for dealing with Eurofailure as the professionals. Says Jurre:

The Bank gives all these euro’s to the Greek Government (see topleft on my picture). All these euros together form a pancake or a pizza(see on top in the picture). Now the Greek government can start to pay back all their debts, everyone who has a debt gets a slice of the pizza …

We can call this the ‘Pizza Policy’. The Greek’s creditors get the (theoretical) pizza, the Greeks get ‘unhappiness’, worthless drachmas and a kick in the pants.

Youngest entrant

An eleven year old boy from the Netherlands has received a special mention from the judging panel of the Wolfson Economics Prize for his application to the prize.

Jurre Hermans, a school boy from Breedenbroek in Gelderland Achterhoek, was the youngest entrant to the Wolfson Economics Prize. He decided to enter the prize after watching Jeugdjournaal, and because of his concern about the Eurozone crisis. Jurre’s paper, complete with diagram, proposes that Greece should leave the euro. Greek citizens would exchange their euros for drachmas and anyone caught moving euros abroad would be penalised financially.

He will receive an €100 gift voucher for his efforts.

€100 gift voucher, good at any McDonald’s. Jurre’s platform is shockingly similar to German Finance Minister Wolfgang Schäuble’s: knock those Greeks down then beat them with clubs with nails sticking out. Jurre certainly has a job waiting for him at Goldman-Sachs or at the US Treasury as the euro will certainly be long gone by the time he comes of-age.

The only hole in the Jurre-Schäuble argument is the Greeks lack the euros to repay anything in meaningful amounts. This shortage of euros IS the credit crisis not the outcome of it. The absence of euros feeds on itself: the shortage multiplies demand for available euros and their cost in credit markets. Euros are hoarded or removed from the marketplace which pushes credit costs higher still. This isn’t debt-deflation so much as it is a deliberate policy of credit strangulation.

Keep in mind, the ECB with its LTRO- and the discount window operations cannot create new credit only recycle or re-allocate what already exists. Its balance sheet expands because private-sector balance sheets shrink by equal amounts elsewhere. What economists ignore is central banks are collateral constrained: they can accept zero-quality collateral but cannot lend against zero collateral, otherwise there is no central bank.

What would end the rationing scheme and the credit crisis would be the addition of more euros or any other form of liquidity. Since credit isn’t a natural resource and can be created in virtually unlimited quantities, shortages of credit are matters of policy or corruption. In the Eurozone, the absence of liquidity is the small matter of an absent fiscal structure. There is no European ‘federal government’ to provide euros. Only the national governments and the private sector can create credit: the private sector refuses and precious rules inhibit the nations themselves from doing so themselves.

In credit economies, access to credit rations access to resources as well as other goods. Shortages that take place are blamed upon ‘deadbeats’ who ‘purposefully choose’ not to meet their obligations. As credit vanishes, demand for it increases to infinity. Credit demand becomes impossible to satisfy, this leaves demand for the goods to be exported to the creditors who gain the ‘moral claim’ to consume in the borrowers’ place.

The borrowers fail to make good because of the denial of credit on the part of private creditors with interests to promote. Out of this failure the creditors’ claim against the borrower becomes perpetual. The only means by which the borrower can make good is now possessed by the creditor who refuses to release it. Because funds are borrowed in order to waste resources, debts cannot be satisfied unless the borrower is able to waste more which requires more borrowing.

Here is where the edifice of so-called capitalist economics collapses under its own weight: waste as the center of industrial activity is presumed to be ‘productive’ even as the wasting- borrowing process bankrupts the entire enterprise. The leverage regime acts against itself as agents borrow themselves into ever-deeper holes that they can only pray to be allowed to borrow their way out of … which of course, they cannot do.

From this particular vantage point, the euro becomes the instrument of bait-and-switch credit fraud like a sub-prime mortgage. Policy failure on the part of the European Union is to not have a lender of last resort: the fact of such an absence after ten years of euro speaks for itself.

The cost of credit scales inversely to the amount of debt an enterprise can take on. Inversely scaled credit cost is the competitive advantage the ‘too bigs’ possess over the ‘not quite so bigs’ who must pay more to borrow. Sovereign debtors are expected to outlive (or to execute) their creditors even as economic ‘growth’ (inflation) reduces the real amounts debtors must retire or service. Because sovereigns are the largest debtors they claim extraordinary privilege … of not having to repay debts but to infinitely roll over and monetize them. Because sovereigns are the ultimate consumers of credit, national debts are too great for any economy to repay even when it has gone far down the road to Ponzi financing. At some distant point in time both the borrower and the lender have been migrated to the (sovereign) balance sheet which allows the loan to be extinguished. Alternatively, debts are repudiated.

The sovereign is vulnerable: the borrower must take on debt denominated in the country’s native currency. Otherwise, all of his debts are external, at the pleasure of repayment on the lenders’ terms in the lenders’ currency! Here is the set trap at the center of the eurozone: no country within the Eurozone who carefully follows its rules has the use of its own currency. The euro is no-nation’s currency and all debts denominated in euros are external debts. Each Eurozone country is held hostage to private lenders: in a practical sense every European country is a colony of the finance industry.

It is that industry that sets money rates at any given time because there is no public competition, no alternative bid. Governments lack the structural means to control their own destinies. If ‘investors’ collude so as to refuse to lend for any reason at all … there is no agency to lend in their place and compel a bid.

Because there is a bid, the Japanese can borrow at low rates with debt/GDP ratio of 204%. Because there is no European bid, the political economists Reinhart and Rogoff can effectively pronounce a death sentence on Greece’s debt to GDP ratio of 130% even though such a thing is irrelevant to a sovereign. Nevertheless, the Greeks are are cut off from private credit. Had Europe a real lender of last resort rather than the current fake, there would always be a bid for the national debts and there would be no debt crisis to speak of.

What the foregoing insists is that European nations cannot survive their human or corporate creditors … which is astonishing and suggestive. The demand is exercised that Greece in a multi-year recession must repay finance-level debts that are beyond the ability of any economy to retire and to do so at once without any support. This indicates that Greece is expected to expire: there is no other possible explanation.

At the same time, private lenders are in extremis because of habitual poor credit underwriting both within Eurozone and elsewhere. Add the strains of unrequited repayment demands made upon Greece and the others credit spreads have deteriorated and risk has increased making all lending unprofitable.

The financiers and core states of the Eurozone have changed the rules in the middle of the game, from allowing Greece and the other peripherals to roll over maturing debts at reasonable rates of interest to cutting off credit and calling outstanding loans. Here is Greek default, imposed upon it by the rest of the Eurozone.

Greece has been a nation for thousands of years, certainly a ‘modern’ Greece would be expected to survive long enough to manage its debts. It could do so if it could access credit at Germany’s rates of interest.

If Greece had a government worthy of the name, the Greek treasury would issue fiat euros and use them to put citizens back to work. A government worthy of the name would dare the financiers in Frankfurt, London and Wall Street to do anything about it as there is nothing that they could do.

Wolfson Prize, you ask?

About the Wolfson Economics Prize

The Wolfson Economics Prize will be awarded to the person who is able to articulate how best to manage the orderly exit of one of more member states from the European Monetary Union.

There is now a real possibility that political or economic pressure may force one or more states to leave the Euro. If the process is managed badly it would threaten European savings, employment and the stability of the international banking system. The Wolfson Economics Prize aims to ensure that high quality economic thought is given to how the Euro might be restructured into more stable currencies.

The Wolfson Economics Prize, worth £250,000 (€286,000), is the second biggest cash prize to be awarded to an academic after the Nobel Prize. Deadline for submissions will be January 31st 2012.

Who is Wolfson?

Simon Wolfson, Baron Wolfson of Aspley Guise (born 27 October 1967) is a British businessman and currently chief executive of the clothing retailer Next and a Conservative life peer …

As if there is any other kind of life peer … Here is a sampling of entries:

Roger Boodle, A Practical Guide To Leaving The Euro:

Secrecy versus openness

In theory, keeping a country‘s planned exit secret for as long as possible would help that country to minimise – or at least delay – the disruptive effects likely to be caused by the disclosure of its plans to leave.

Such effects might include: large capital outflows from the country as international investors and domestic residents withdrew their funds; associated falls in asset prices and increases in bond yields; runs (i.e. large and rapid deposit withdrawals) on banks in the country, perhaps causing a banking crisis; and negative effects on consumer and business confidence.

Thousands of words from Mr. Boodle but not one mention of energy in his entire proposal.

If we assume the costs caused by the additional legal uncertainties are equivalent to just 10% of annual external trade in goods and services, a typical euro-zone country might face an additional hit of 4% of GDP. But the disruption in the immediate aftermath of an unanticipated exit from the euro could be much greater.

There is as much or more secrecy to propositions as there is to nuclear power … and for the same reason. The truth would have persons running for their lives. It is far better, as our 11-year old economist suggests, to force or mislead people into serving the interests of moneylenders. This will not work if people discover their ‘destiny’ as economic fodder ahead of time. Here is another secrecy pimp, Not Really Niel Record:

If member states leave the Economic and Monetary Union, what is the
best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?

[Author’s Name withheld]

I make six practical recommendations in the essay:

Recommendation 1: Germany (possibly together with France) establishes a secret Task Force, with a Charter to design proposals for planning and managing possible Eurozone Exit. Ideally France would join to give legitimacy – but secrecy and speed is essential, so only a token joint operation may be possible.

Recommendation 2: Whatever the results of the Task Force’s deliberations, firm plans and proposals should be in place by 30 April 2012, or as soon thereafter as is practicable using all means at the Task Force’s disposal.

Recommendation 3: The Task Force would propose to the Council of Ministers that the Euro should cease to exist on the day of the Exit announcement, to be replaced by new National Currencies.

Recommendation 4: The ECB would be closed and its functions terminated with immediate effect. All its functions to be transferred to the relevant National Central Banks (NCBs). Its balance sheet to be shared out pro-rata to NCBs by reference to the ECB shareholding proportions and (for banknotes), NCB banknote issue …

Notice how utopia arrives tomorrow … as soon as the monarchy has, “managed to provide the soundest foundation for the future growth and prosperity of the current membership.” What must come first is the tonic: robbery. As long as the boarded up nuclear reactors don’t melt down, all is good … until tomorrow!

Adjusting finance so that failure is not self-induced is necessary. Doing so now will buy valuable time: Europe and the rest of the world are gripped in an energy crisis. By not coming to terms, the economics profession marginalizes itself. This is understandable to some degree: the greatest of all human enterprises, the culmination of millions of years of evolution is to take good capital and throw it into the fire. The few managing the fire reward themselves for their cunning. The economists’ job is to rationalize this monstrosity: to convince the public that two-plus-two equals twenty-two. That they succeed is unsurprising, the world seeks to be deceived. After all, success and prosperity are sure to come … tomorrow.

Figure 1: EU auto registrations for the past year (from ACEA). It is possible that registrations might recover, but hardly likely when consuming countries such as Spain and Italy are now on the euro credit stringency chopping block. The demand for fuel in peripheral countries is removed. This is done by creditors cutting off peripheral access to euro-denominated credit. Those remaining with credit have the means to then ‘import’ Spanish- and Italian domestic fuel demand for themselves without any monetary or credit penalties.

It’s cars versus jobs and people. Car is winning today but will ultimately lose.

Purposeful deflation is energy conservation by other means.

This is not completely arbitrary as the conservation impulse is not optional. It will be enforced by events or otherwise. There is nothing that can be done to stop or slow conservation. It is driven by entropy which is a physical law.

Instead of jettisoning car industry and keeping the EU, the union jettisons Greece to keep the car industry. The EU stupidly thinks the crisis is ‘fixed’. At some point Germany exits the EU which is then destroyed: at the end of the day there is no EU and no car industry, either.

Greece failed rapidly, the other EU states will collapse even faster, so will the UK which must import fuel. This is the crisis, Europe must import almost all of its fuel and has borrowed heavily to do so. There is no return on the burning of the fuel, the outcome of this dynamic is bankruptcy and national economic collapse.

Once countries start failing there will be full-on finance crisis. There will be fuel shortages as are appearing now.

Fuel shortages will be permanent. The cost of fuel will be greater than the return on wasting it or the cost of borrowing to waste it.

European economic reforms:

– Energy conservation shall be the centerpiece of policy aims everywhere on the European continent,

– Shared sacrifice: industries will bear accrued costs of waste instead of countries and citizens. The ongoing strategy sacrifices countries for the temporary benefit of banking and motor vehicle-related industries. This shall be reversed: to save the people, jettison the machines.

– Any and all monetary tactics that come to hand shall maintain necessary services: food, clothing, shelter, useful — not wasteful — activities. This includes but is not limited to forensic analysis of the outstanding debts followed by restructuring, finance transaction taxes, punitive tariffs and exclusion of Chinese and petroleum imports, consumption taxes, common bonds, demurrage money, fiat national currencies with the euro as a continent-wide reserve currency and more.

– Break the waste-debt cycle: debts are to be taken on only to promote conservation. To discourage waste, all legacy dead-money debts shall be written off and creditors bankrupted without exception. Those who lend to promote and enable waste must be made example of. Otherwise, new forms of credit subsidies for similar enterprises will emerge as tomorrow’s waste will be justified by the debt-residue from yesterday’s waste.

For those who might think the third and fourth propositions are at odds, the vital services would reflect payments to those who do not waste: payments made to those who don’t have automobiles, who do not make use of health ‘services’, who do not have children, who do not consume. These payments are investments that provide real returns: petroleum that is not burned today is made available for higher-value use in the future.

The weakness in the markets started late last night when Australia posted a surprising second consecutive deficit of $480 million on expectations of a $1.1 billion surplus (with the previous deficit revised even higher). This is obviously quite troubling because as we pointed out 3 weeks ago when recounting the biggest Chinese trade deficit since 1989 we asked readers to “observe the following sequence of very recent headlines: “Japan trade deficit hits record”, “Australia Records First Trade Deficit in 11 Months on 8% Plunge in Exports”, “Brazil Posts First Monthly Trade Deficit in 12 Months,” then of course this: “[US] Trade deficit hits 3-year record imbalance”, and finally, as of late last night, we get the following stunning headline: “China Has Biggest Trade Shortfall Since 1989 on Europe Turmoil.” So who is exporting? Nobody knows …

How about Saudi Arabia, analytical dudes?

Europe’s problem is a waste-based economy not currency imbalance. No amount of tinkering adjustments will fix Europe without stringent energy conservation. The cost of borrowing to buy fuel thence burned up for nothing has destroyed Europe. What is left is the post-mortem.

Analysts and managers discuss credit problems in the Eurozone. They pretend/hope the economies are fixed and that growth will start soon. The same analysts and managers discuss crude oil prices and make excuses. There is no chance of the managers connecting the credit problems-crude oil dots. The blame for crude prices is fixed on central banks, the same central banks that have presumably ‘solved’ the European economic problems.

It may be that the recent petroleum mini-spike is starting to wind down. There have been a series of these small spikes then retreats since the ‘Big One’ in 2008. The premise here is that prices rise due to supply constraints then fall as the customers sit on their wallets … or go out of business. Unlike the ‘Brand X’ analysts, it says here the tie that binds economies to oil prices is the bank, not the gas pump.

Figure 1: Brent crude front month by way of TFC Charts: The market is really at a crossroads, here. If funds can be found to push the price higher, it would signal a trend change. Right now, the current spike has not exceeded last year’s high price of $128/barrel. It may never arrive: most of the world is facing financial difficulty … broke!

A trend change would indicate new credit/more credit. What is the collateral, the crude itself or the instrument by which it is destroyed? Where is the capital? The central banks can push out credit but their expanding balance sheets correspond to shrinking balance sheets elsewhere. The banks cannot create new capital only additional claims against what meager capital remains. New credit emerges from impaired banking. Smaller banks are either careful and unwilling to make risky investments or are capital constrained which is a reason why they are small. There are few endeavors that are investment-worthy: certainly nothing that wastes as the costs are too high at today’s prices. Waste-cost-revulsion is a simple dynamic but has overtaken the world’s economies. Central banks and governments cannot induce businesses to lose money which is what waste does today.

The price in euros is higher today than it was in 2008: the 2013 euro futures contract is the same price as the current month, how could it be otherwise? Would anyone hold euros if the currency futures were in backwardation?

Figure 2: Crude priced in euros: ‘It’s a Boy!’. Chart by EIA: the oil producers seem to have differing opinions about the euro and the dollar. this may reflect oil producers’ opinion on what the euro is worth today compared to what it might be (or not) worth tomorrow. Whether or how they might be hedging is impossible to say: this would effect the current price in euros to some degree. There has to be some realization that the risk of a vanishing euro is more than insignificant.

The oil producers might be simply charging the Europeans more for their oil than they are charging Americans.

A purpose for the euro was to give ordinary Europeans (Greeks, Spanish, etc.) an organic, hard currency alternative to the dollar. It gave them brain-damage instead: with either a euro shortage or a potential defunct euro, the crude market is poised to take a massive hit. If the euro fails, much of Europe’s bid will simply vanish. Survivors with little to sell will have to buy dollars in brutal currency markets. With Irving Fisher-esque intentional debt-deflation currently underway, the outcome is European states having to rent euros in brutal credit markets.

This becomes a distinction without difference: there will either be no more euros at all or too few euros in circulation except within banking. This potential absence may be why crude markets are looking soft. As with the other mini-spikes, the declines that follow are signs of demand unraveling and bankruptcies rather than increased petroleum supply pushing prices down.

Despite the deflation the flood of euros into crude is obvious. It may be that China is swapping its euro cache for crude. The worst-case scenario for China would be for its banks to be caught holding hundreds of billions of worthless euros. What we may be seeing is ‘currency hot potato’ with China trying to exit a massive currency position, dumping euros at a discount. China would put oil into strategic reserves just as it stockpiles copper and zinc. The China-euro dumping would explain the price push we have seen. The Chinese are careful: too much euro dumping would be suggestive of a dead euro. China can’t buy enough crude to make up for the loss of European crude customers and precipitating a run out of euros would be self-defeating. A slowdown in euro sales may be what we are seeing reflected in the softening price.

How many euros does the Federal Reserve hold as a consequence of its ongoing swap operations? Probably a lot but not enough to move any of the markets. The US isn’t buying crude with euros. It is hard to say what the US refiners are ‘buying’ with the Brent/WTI spread at nearly $20 per barrel.

Figure 3: Silver has been extremely volatile, it has also exhibited some ‘bubble’ characteristics. Keep in mind, in debtonomics there are no such things as bubbles, only periods when credit expands faster or slower along with short periods of credit shrinkage. Asset prices follow credit availability so price increases depend on whether the finance sector believes silver is a good hedge against something or other.

Silver was hammered by selling as industrial users’ customers sat out the market and monetary longs were faced with margin calls. A credit shrinkage scenario following a petroleum price decline/crash would have silver near $20 an ounce.

Silver will be worth something because it is ‘portable wealth’ that does not rot, burn or crinkle. Silver-the-metal is resistant to ‘computer error’. It is hard to see silver at $50 again any time soon. More likely are margin calls and bank failures in countries as the euro unravels even as citizens rush buy physical silver as a hedge against … euro unraveling. If/when the euro turns to dust, there will be a myriad of currencies arising to take its place. First among them will be the national currencies as well as the dollar. Second will be various local currencies, scrip and older silver and base-metal coins. Unofficial exchanges will emerge with rates for the coins based on metal content.

To provide the illusion of ‘stability’ there might be gold backing of national currencies but this is likely to be a form of public relations. That is, any convertibility will be strictly limited. It is far more likely that the new currencies will be wildly inflationary: existing external euro debts will be repudiated (see ‘Greece’). Internal euro debts will be re-denominated into the new currencies then repaid (overnight?) with newly issued national currencies. The aim will be to cram down debts to a manageable level (zero). There will also be float problems. Countries won’t have enough currency in circulation because citizens will be buying hard currency such as the dollar with the national varieties. This trade will take place in black markets: the hard currencies will be in increasing demand. The worth of the new currencies will decline accordingly as issuers put more new bills onto the streets.

Forget about credit, the only source of credit will be citizens who will have just been robbed and the IMF. The only banks to survive will be those that have good relationships with both depositors and borrowers. With currency upheaval even the best-managed banks may find themselves without the tools to work with.

European nations will counterfeit their neighbors’ currencies. The combination of currency arbitrage and the absence of restraint will generate massive amounts of inflation. Europe is likely to experience a lawless period. The establishment has failed and left a gaping leadership gap, it’s also a criminal enterprise. There will have to be a reckoning from which a new establishment to emerge. The outcome will be a conservation economy whether it is desired or not. Couple the lack of useful or worthwhile currencies, the shortage of ‘hard’ currencies and an accompanying desire to hoard them, low producer prices will ‘shut in’ crude at the wellhead. There will be shortages. Instead of rationing fuel by way of credit, the fuel will be physically rationed, instead.

From this time forward the important outcome to be aware of is any oil consumption ‘problems’ with credit or foreign exchange will ricochet through the economy to remove support for new petroleum prices and supply. What supports prices supports the means to meet them.

The European management has been able to white-wash the Greek collapse and pretend business as usual. Absent from the discussion is energy constraints and Peak Oil, the other Mediterranean nations are quavering, there will be no hiding the truth.

NOTE: Massive contretemps online between Paul Krugman, Randall Wray, Steve Keen and Scott Fullwiler. The argument started with a bit of bloggy nonsense from Krugman about Hyman Minsky. This led to Krugman’s description of banking and creation of assets/loans … a description of lending that made sense in the 1800s. This fits into our ongoing discussion over here @ Debtonomics. Links are here or can be found at Fullwiler’s article.

The economists really don’t have a clue. Not one mention of peak oil anywhere …

Eduard Manet ‘Monet Painting in his Floating Studio’. Those living in the 19th century before the widespread use of petroleum fuels certainly had it short, brutish and nasty. The painter Monet actually had to row himself and his wife by hand to where he would spend the day painting and being entertained. It is hard to imagine how difficult and unpleasant life was before unleaded gasoline, how far Americans in particular have advanced since 1874. Note the factories belching coal smoke in the background: a shorter, nastier, more brutal ‘lifestyle’ for tens of millions — World War One — was only forty years away.

It’s clear what is taking place both in the United States and elsewhere is a sea-change or more accurately, THE sea-change, the ‘Great Slide’. The ancient virtues of unlimited free parking and quaint segregation of work away from leisure are useful only when petroleum is worth very little more than what can be gained by its waste. This narrow difference can then be made up with inexpensive debt: as the margin widens debt becomes unaffordably costly. Debt becomes unable to bridge the ‘waste gap’ between what fuel costs and what the waste of the fuel returns.

The system as designed: cheap inputs + cheap credit = marginal system returns.

This leaves out the returns to ‘entrepreneurs’ that are independent of marginal system returns to a large degree.

Now: expensive inputs + expensive credit = negative system returns.

Negative real returns here weigh down the entire interconnected system. Increasing the amount of credit within the system increases both input- and credit costs. Credit does not exist (or is allowed to exist) outside the system: the expansion of debt cannot outrun increased input costs — which are a feedback outcome of debt expansion. There are obvious limits to credit forcing, beyond these limits system returns are unaffected.

Debt itself has become the obsession du jour: the problem is not the sufficiency of debt or even its costs but the defective structure within which debt subsidizes profitless waste. We love our waste, it makes us feel human: right now the world’s economies are at the point where debt can just barely stretch to fill the waste gap. We can just barely afford the costs of the debt, provided we put to use every sort of extraordinary tactic to manage them. We add more debt, we borrow our way out of it, we shuffle it around: running faster and faster to remain in one place.

Debts can be managed this way only because the state can always run faster: as long as there is a marginal return somewhere within the debt-y universe the system will continue to lend to itself ever-larger nominal amounts. Unfortunately, the real capital that the debt is supposed to represent diminishes while the claims made against capital increase. The efforts to manage debt by ‘renewing’ it become counterproductive. Adding debt becomes another form of waste with costs that cannot be met.

A decline in nominal price of petroleum is no cure: temporary declines allow price-thwarted demand to rush back into the markets and push up the price. This decline-push dynamic remains in force until the ability of customers to meet the high price price is exhausted, when the credit runs out. The producers must then lower the price to meet a diminishing cash market. What supports a price also supports the ability to meet it, the waste gap persists and continues to expand. Marginal costs swell to become the entire costs. Before that point is reached the system stops working as inputs cannot be had at prices users are able to afford.

Demand shifts from the purchase of goods to the purchase of fuel to support legacy ‘investments’. Demand destruction takes place first within the goods-producing sectors rather than in energy sectors, it takes place even as fuel prices decline. Demand declines faster because the fuel-waste goods production is a dependency upon low priced fuel. At current prices, the entire consumption infrastructure — built assuming $20 crude in perpetuity — is underwater.

In 2008 the WTI price spiked then collapsed. The fuel price could have been supported at very high levels for a long time, but not all prices across the entire economy. Fuel prices undermined marginal businesses particularly those related to automobiles, real estate and off-balance sheet financing. To satisfy demand represented by the existing auto fleet, funds were shifted away from the purchase of new cars and houses in far-distant suburbs. Fuel not purchased in exurbia was purchased instead in China and India.

Right now the price for fuel is still high even as the economy unsurprisingly displays signs of a severe slowdown within China and its dependencies, the European Union, Japan and the United States. Cannibalism works that way: the cannibal gets fat at the expense of his ‘lunch’. Given the choice between driving a car and having a functioning economy (that depends to a large degree on driving) the choice is made to drive.

The current regime runs aground on its costs. These are increased by (driving-created) scarcity and over-reliance upon credit to keep driving more. We allocate ourselves into a sinkhole. Wherever one takes the time or pleasure to look, the cost of driving exceeds what the customer is able to pay doing everything else. Having emptied our accounts at the gasoline pump, the returns on our non-driving endeavors are insufficient to service the debt needed to drive … or do much else.

What is underway is a margin call against the entire unproductive enterprise.

James Jacques Tissot ‘Seaside (Portrait of Kathleen Newton)’. The largest real improvements to take place during the middle-19th century and afterward were sanitation and clean water supplies in cities and better understanding of disease. Tissot’s mistress Kathleen Newton died by her own hand in 1882 at the age of twenty-eight, the consequence of her tuberculosis infection. Tuberculosis also claimed Monet’s wife Camille at the age of thirty-two.

Tuberculosis is an illness that is largely treated today with antibiotics. Unfortunately, the widespread recent use of the same antibiotics as additives to animal feed along with the improper (placebo) medicinal use has allowed antibiotic-resistant superbugs to evolve. There are now forms of tuberculosis that are unaffected by any drug. The end result is to undo the entire improvement, to bring conditions outside to the point where they were before antibiotics appeared.

This sort of dynamic takes place across the entire economy: we uncover or create an ‘improvement’ with one hand and mismanage its use with the other. We constantly act at cross-purposes to ourselves.

As the system winds down, what next? Everyone is looking for a way to manage future risks while being completely in the dark as to what forms the risks will take.

Unknown photographer, ‘Street in Uzès, France’ (New World Economics). The pre-petroleum Neanderthals of the 16th century and earlier certainly knew how to build beautiful towns.

Energy waste for its own sake pushes aside everything unrelated to itself. This consigns all but a few fragments such as the occasional Uzès to the ash-heap of progress. We frame the fragments even as doing so puts them out of context. While the markets attempt to make measure, the markets themselves fail apart. Everything we rely upon to do our critical thinking for us is resource-dependent and undone by negative real returns.

Richard Duncan’s original, 1995 conceptualization of the rise and fall of industrialization. We are what we consume per-capita sez Richard. This is completely paradoxical: we have created for ourselves a petroleum-driven dark age that we have but the smallest chance of escaping! The problem isn’t the primitive, it is our mis-managed progress. Propaganda pimps modernity as the race toward a scarcely-to-be-believed wonderland of Chinese made crap consumer goods sure to arrive tomorrow. The record of one industrial failure after another speaks for itself: if we are done in it will be on account of our stupendous successes revealed as the follies they turned out to be.

The entire Futurama concept runs aground on its own absurdity. How is sitting stalled in traffic or not stalled within an environment created specifically for machines progress? How is sitting behind a wheel for three hours any different from sitting behind a sewing machine in a sweatshop? The answer is the sewing machine produces a (small) return for the sewer while the wheel is a privilege purchased at an unaffordable price.

Any sort of civilization beyond what is unraveling around us — or any higher form elsewhere — would certainly be driven by inner resources rather than what can be bought in a store.

Any higher intelligence in the universe would be unrecognizable to moderns who can only consider civilization within the context of self-destructive industrialization: weapons and conquest, machine exploitation and lazy transformation of resources into waste for no purpose other than to make someone ‘rich’ who is a bit greedier than the others … The artifact of any civilization more advanced than ‘ours’ would be the rendering of the universe devoid of life or even the possibility for life to exist. How, in fact, we now perceive the universe to be: an enormous vacuum buzzing with radiation and the occasional black hole.

Those searching the radio spectrum for signs of intelligence in the universe peer under the wrong rocks: ‘Advanced civilization’ would manifest itself as a bizarre negative space-like non-space guarded by silent well-cloaked microorganismic killing machines. Perhaps this is what our precious God concept represents when distilled to its essence: the conquest of life by death (machines) out of envy.

Our God tricks us: everything and everyone else within modernity lies, why not God?

The belching factories and a handful of billionaires put twelve Americans on the moon, after the same factories and billionaires killed tens of millions in a world war. The astronauts drove a car in circles and hit a couple of golf balls. They didn’t even play a legitimate game of golf: the entire enterprise was a pointless cold-war finger to the rest of the ‘undeveloped’ world. “We can put a man on the Moon but …” We can’t think to do anything else because our empty anticulture does not allow anyone to come up with something better. An actual civilization would have sent Monet on the moon in a floating studio, but our gulag-on-wheels stuffs nascent Monets into investment banking instead, ‘greeding them down’.

Modernity’s first demand is the annihilation of art as being subversively human and anti-modern. So far that strategy has been a resounding success …

Our space adventures enabled bigger rockets upon which our wonderful entrepreneurs mounted larger numbers of more accurate thermonuclear warheads. Add to that the incurable illnesses and multiple total wars, the cannibalizing the natural world in the chase for resources and much more of such progress will be the end of us. The sooner we use up our energy supplies the better.

The waste gap widens: the USA has ‘invested’ trillions into guaranteed capital losses. Notice that the Chinese have followed. The Soviets bankrupting themselves trying to outspend the US on military hardware. The Chinese bankrupt themselves outspending on autos and high-rise office buildings.

The entire system requires restructuring, not just bits and pieces.

The emerging system: valuable inputs = zero-risk use.

Expensive credit = narrowly distributed returns

Inputs would be so valuable that the entire enterprise would be designed around managing the risks associated with their possible economic loss. Better uses would be found for resources or they would remain unaffordable in the ground. There would be no ‘consumption’ of non-renewable resources, only non-consumption uses would provide sufficient returns to meet the high costs of accessing them. The implication is an economy that is more wealthy rather than less wealthy: an economy which carefully husbands rather than squanders capital and makes highest and best use of it.

What will be required is a return on resource use rather than subsidized waste.

Credit would be tasked with amplifying the increase in capital by any means necessary. This might mean borrowing to pay individuals not to waste or to not generate certain kinds of demand. This also suggests an economy that becomes wealthier over time allowing even high-cost credit to pay for itself.

At the end of the Age of Waste it must be noted that all of the materials considered to be in dire short supply will still exist but not in ‘industrial quantities’ or in concentrations that are economical for industry to waste. It will simply not be possible for billions of people to waste resources for negative real returns. The absence of industrial inputs does not mean the absence of inputs. Even after a century- and a half of waste, over half of all the discovered fossil fuel will remain in the ground, along with gold and silver, potash and phosphorus, rare-earth metals: there will be topsoil and water too, and much more besides.

Easy resources are transformed: into both ‘by-products’ and life-lessons: whoever uses resources in the future will have to bring more to the table besides carelessness and the ability to wheedle his friends into lending to him. Any material use will have to pay for itself on its own account. No more grand delusions about risk-free growth paid for by ‘nobody in particular’ because the structures to support such nonsense will be impossible.