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Destined to Fail – Magical Thinking at the G20

Sunday, June 27, 2010, 9:45 AM

The G20 meeting has revealed two important things that tell us something about our combined economic future.  First we learned that the US lost the battle to try to get everyone back on the Keynesian print-a-thon bandwagon.  This tells us something about US leadership in these troubled times.  Once upon a time, the US could dictate such things, but those days are apparently over (which deserves to be noted.)

I am a supporter of austerity as the least worst of two paths which I will outline below (the other being printing), but I want to be sure to give the global rejection of the US position on stimulus the proper attention it merits.  Here’s the relevant information:

TORONTO — Despite President Obama’s pitch at the summit meeting for developed nations here for continued stimulus measures to prevent another global economic downturn, the United States will go along with other leaders who are more concerned about rising debt and join in a commitment to cut their governments’ deficits in half by 2013, administration officials said on Saturday.

(Source – NYT – all quotes below from same article)

In the lead-up to the G20, the US was lobbying heavily for a very different outcome. The US wanted continued stimulus and thin-air money printing and made its plea for this policy stance very publicly in the days and weeks leading up to the G20 meeting.

The reasons for this stance are numerous and complex, but one stands out prominently:  Elections are coming up.  If you are an incumbent, now is not the time to cut off the stimulus efforts.

The story here is that the US wants to stay on the path of printing, borrowing, and government stimulus, but a significant portion of the rest of the developed world has decided this is not a direction that makes sense.  Such fundamental splits in philosophy are what great historical turning points are made of.

The second thing we learned is that, despite these differences in how to fund future growth, there is nothing yet to indicate that any the world leaders are aware that the very concept of perpetual growth is an unworkable fallacy.  It’s obvious, hopefully to even the most casual of thinkers, that someday, sooner or later, whatever growth one is engaged in will have to stop.  Nothing grows forever; everything has a limit.

But apparently the concept of limits is not part of the magical framework of modern economic thinking (emphasis mine):

Mr. Cameron and Mr. Obama, in their first private meeting since Mr. Cameron took office, acknowledged their different approaches toward balancing the need to promote greater economic growth and job creation in the short term with the long-term desire to reduce national debts, which reached dangerous heights during the downturn. But they played down those differences.

It’s funny how these things are always expressed as a “need.”  We “need” economic growth and job creation.  Have you ever wondered why this is?  Why is it that we “need” either?  Needs are not negotiable; wants are. How sure are we that job creation and economic growth are actually needs?

Well, we need job growth because there are more and more people entering the work force each year due to population growth.  If there were no population growth and everybody already had a job, then there would be no “need” to create jobs.  Zero percent job growth is the right amount for a stable population.  No growth = no need for new jobs.

So we can therefore reduce the politicians' statements about the need for jobs to its more basic level and discover that they are really saying we “need” population growth.  It's certainly been a very real and dominant factor for a very long time, but it is not a need.  There are many who would even say it shouldn't even be considered a “want.”  We can trace an enormous number of the problems or predicaments we face to overpopulation or to the strain that results from accommodating the needs of a growing population.

It seems to me that if job creation is a ‘need,’ then we’d do well to ask ourselves if we’d prefer to spend our time trying to figure out how to create an ever-larger number of jobs in perpetuity or if we’d like to spend our time figuring out how to create a stable population.  While this may be an uncomfortable topic for some, it also happens to be reality.  

Since it’s logically true that eventually population growth will have to stop, it’s entirely probable that we’d gain more bang for our buck if we expended our efforts towards creating a stable population than trying to build a perpetual-motion job creation machine.

And what about the “need” to grow the economy?  Where does that come from?

If you’ve watched the Crash Course, you know that this imperative for economic growth comes from the money system itself.  Debt-based money requires growth.  If we had a stable population engaged in stable and sustainable activities using non debt-based money as their freely circulating medium of exchange, then there would be no “need” for economic growth.  Zero percent economic growth would work just fine.

But we’ve got a growing population, and we’ve got debt-based money, and that’s the long and the short of it.  Hence, we are stuck with the political reality that we “need” growth in the economy and job creation, even though these “needs’ are self-inflicted by our decisions, not due to some fundamental law of the universe like gravity.

Knowing that something is wrong with this perpetual growth narrative, we've taken to adding a few comforting words around ‘growth’ to make it seem as if our thinking is actually very clever and mature:

“But we are aiming at the same direction, which is long-term sustainable growth that puts people to work,” Mr. Obama said.

“Long-term sustainable growth” that “puts people to work.”  Sounds good, doesn’t it?  Who could be against that? 

The problem is that the first part of the statement is an oxymoron.  There’s no such thing as “long-term sustainable growth.”  Heck, in the long run, there’s no such thing as “sustainable growth.”

Sooner or later, whether its bacteria in a Petri dish, mice in the pantry, or humans on a globe, growth stops.  The only question is whether you cease that growth by design on your own terms, or by disaster on some other terms.

Whenever you hear the words “sustainable growth,” I invite you to recall this line of thinking and ask yourself if such a thing as sustainable growth is even possible.  If it is, I have certainly never seen any workable plan, not even sketched onto a napkin in crayon, that explains how growth can be sustainable.  Growth always ceases; the only question is when and under what terms.

Some more quotes from the G20:

Mr. Cameron added, “Those countries that have big deficit problems like ours have to take action in order to keep that level of confidence in the economy which is absolutely vital to growth.”

(...)

The Obama administration did have allies at the meeting in opposing rapid moves to withdraw governments’ stimulus measures. The Brazilian finance minister, Guido Mantega, told reporters that the debt-reduction targets could compromise economic growth

(...)

Trying to bridge the differences among leaders here, [Timothy Geithner] said: “Our challenge, as the G-20, is to act together to strengthen the prospects for growth. This will require different strategies in different countries. We are coming out of the crisis at different speeds.”

(...)

The setback underscored the difficulty Mr. Obama has had in making the case for stimulus. At home as abroad, Mr. Obama is confronting the limits of the consensus that took hold after the economic crisis began in 2008, which favored bigger deficits to spur job creation. At stake, as the administration sees it, is continued global recovery or a relapse into another recession.

Recovery, growth, and jobs.  This is what the world in unison seems to want, and this is something we can easily understand and appreciate, given the fact that all the world’s leaders were born and raised during a period without limits.  

Now that we can clearly see a wall of limits right in front of us, the question remains as to which countries will be able to navigate the treacherous shoals of change as we try to find a different set of understandings upon which to build a new world that can offer prosperity without growth.

It’s a big challenge.  I am keeping my fingers crossed that somehow we’ll manage to figure out that our current trajectory is unsustainable and that we need entirely new thinking, centered on reality, to enter our global discourse.  The alternative is to default into the comforting arms of growth, only to discover, much to our dismay, that it was prosperity that we wanted after all.  Growth and prosperity are very different things.  In a world of limits, one steals from the other.  My preference would be to have prosperity be the thief and growth the victim, but our leaders seek the opposite.

This theme of what we might expect in a world of limits is a dominant portion of the analysis that I perform for my enrolled members.  We live in a world where things will not suddenly run out, but over time, there will be less and less that must be shared by more and more people, and there will be more and more debt.

Running an analysis of all three E’s - the Economy, Energy, and the Environment - and tying these to personal actions and financial implications is one unique service I that I provide.  The other is being your information scout.

The Challenge For The US

Now, back to the more immediate challenge for the US:

Yet even within Mr. Obama’s administration there are fault lines on how much additional stimulus is desirable.

Some news reports in recent days suggested that Peter R. Orszag, the budget director who recently announced that he would be leaving in late July, was resigning partly out of frustration that he had lost the argument for deeper and quicker reductions in projected deficits.

The apparent rift here is between Orszag, who wants the US to begin to live within its economic means, and the staunch Keynesians Geithner and Summers, who want to print and spend to achieve political aims.  As a card-carrying member of the green eyeshade club, Mr. Orszag knows that their path represents the eventual and probably catastrophic bankruptcy of the US.

Rather than continuing to duke it out with the “print now, pay later” club, Orszag has opted to leave for greener and friendlier climes.  In full disclosure, Larry Summers is among my least favorite people on the planet.  I cannot figure out how he manages to get to such prominent positions, given the fact that his track record is a nearly unblemished trail of poor decisions and economic ruin.  Everything in his record suggests that his only form of competency is political ambition, yet somehow he keeps getting his ideas enacted.  It’s a real mystery, and not the good kind (like where that extra $20 in your pocket came from).  In my view, Summers is a gigantic liability for this country and the current administration, and the sooner he is sent packing, the better.  Geithner, too, for that matter.

At any rate, the G20 plan calls for the US to cut its existing budget deficit to only 3% of GDP by 2013.  For the US, this would represent a decline from a $1.4 trillion deficit to a roughly $420 billion deficit, or ~$1 trillion in cuts in just three years.

Without getting too technical, this is just not going to happen.  Cutting a trillion in federal spending would cut 7% from the GDP.

And even if we were willing to undertake a 7% hit to GDP, where would the trillion come from?  It turns out that much of the US deficit is now structural, meaning that it sits in the “mandatory” column, as opposed to the “discretionary” column.  To help frame the predicament, I’ll note that Obama recently proposed a three-year freeze on all non-defense discretionary budget spending, which – drum roll please – constitutes only $447 billion out of a $3.5 trillion budget.

In other words, finding a trillion is simply out of the question, if the only part of the budget that can be controlled right now (because it is both discretionary and politically viable in an election year) is only $447 billion.  You can’t squeeze blood from a stone, and you can't save a trillion from a budget of less than half a trillion.  And that’s only part of the problem.

One path to getting the deficit to 3% from its current 10% of GDP is to cut spending.  However, this path carries the seeds of its own failure. Government spending is a big part of GDP, so cutting spending shrinks the GDP.  The more spending is cut, the more GDP shrinks, which makes the deficit ratio less favorable.  Adding insult to injury, government revenues expand and shrink in proportion to GDP, so cutting spending actually leads to reduced revenues, which leads to higher deficits, which lead to more cutting, which results in an endless spiral into the dumpster.

The other path consists of elevated government borrowing and spending, done with the hope that eventually GDP will climb up over time, thereby reducing the deficit-to-GDP ratio. The US sees this as the only viable option, but Europe has figured out that this path, too, has its own ‘endgame,’ which is the eventual collapse of sovereign debt and the high likelihood of associated political and social chaos.

Neither option is really attractive at this point, and that is the definition of a predicament.

My final analysis is that because we have such political animals as Summers driving the ship of state, the US will tell the G20 that it agrees to the plan, but it will not honor those words.  At least not during this election year.  And probably not next year, either, because it will be inconvenient then, too, for some reason or another.  And probably not ever, unless forced by external circumstances, because the political class in the US seems unable to confront the idea that limits apply.

And so the US, and its ever-compliant side-kick Japan, will continue to spend wildly, even as Europe dutifully wrestles with the new reality.  At first it will seem like the US is the place to invest, because its ‘growth prospects’ will appear stronger.  But someday, not too terribly far in the future, it will dawn on the financial markets that the US is a hopeless basket case, saturated with debts that cannot ever be paid back under current terms. This is already true, but for some reason financial markets seem ignorant of this reality.  Someday there will be a sudden revolt in the Treasury markets, a new equilibrium will be found, and vast quantities of wealth, as well as our national standards of living, will disappear seemingly overnight.

And that’s only if those other two E’s don’t thunder out of the chute and into the arena for all to see.  Then all bets are off.

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102 Comments

pinecarr's picture
pinecarr
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Re: Destined to Fail – Magical Thinking at the G20

Thanks for the great report, Chris!  I was wondering what was going on at the G-20, and appreciate being able to read your insight into how it is playing out!

machinehead's picture
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Re: Destined to Fail – Magical Thinking at the G20

'You can’t squeeze blood from a stone and you can ---> CAN'T save a trillion from a budget of less than half a trillion.'

It's not a typo -- you were only channeling the magical beliefs of the average KongressKlown. Laughing

Speaking of predicaments, what is actually going to happen when the irresistible force of fiscal austerity crashes headlong into the immovable object of popular fury over a stagnant economy?

Fiscal policy, I would say, has more inertia than monetary policy. Budgeting is an annual exercise, and it has to go through the byzantine gates and wickets of the parliamentary process. 'Mid-course corrections' are possible -- we've seen plenty for supplemental war spending and extensions of unemployment benefits -- but rarely amount to more than a fractional percentage of GDP.

Monetary policy, by contrast, is set by a committee of central bankers, who aren't democratically accountable. Overnight, they can reset policy interest rates, change reserve ratios, and buy securities in open-market operations. So monetary policy, I claim, has less temporal and institutional inertia than fiscal budgeting.

In another thread, I posted a chart showing the recent -5.7% y-o-y decline in the ECRI leading economic indicator, which correlates (based on past experience) to probable GDP growth of only +0.8% in the second half of 2010. If such stagnation comes to pass, unemployment will stay high. Deficit-slashing attempts could easily push the economy over the edge into double-dip recession.

'Helo Ben' Bernanke is not unmindful of these downside risks, as the FOMC's latest announcement hinted. He can't cut the policy interest rate, since it's already flatlined at zero. What he can do is 'hail Mary' coupon passes -- scarfing up another trillion or two of notes and bonds, which could temporarily shove the T-note yield back down to 2.5%, and maybe shrink mortgage rates, which key off the T-note yield, into the high 3's.

Some would denounce this as 'pushing on a string,' and it might be. But a Fed chair who fancies himself a student of Depression I is not going to stand idly by as contractionary fiscal policy sends the economy spiraling back down into shrinkage. Something has to give, and the Fed is the weakest link -- a thin reed to lean on, to be sure.

Even as parliamentarians impose austerity, they will fecklessly castigate central bankers for the parlous state of the economy, and threaten to horn in on their lucrative seignorage racket. Central bankers, backs to the wall, will buy, buy, buy. After all, with unlimited thin-air money at their disposal, they face no fiscal constraint. Thus central banks, reacting with greater alacrity than parliamentarians, will renew their desperate attempts to reinflate via 'unconventional measures.'

How will we know? If this view is correct, gold will keep climbing to fresh records, in tandem with the monetary base bloating sublimely to rival the Magellanic clouds. 'We are the Universe,' so to speak. Ommmmmm ...

machinehead's picture
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Re: Destined to Fail – Magical Thinking at the G20

[deleted double post]

LogansRun's picture
LogansRun
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Re: Destined to Fail – Magical Thinking at the G20

"The apparent rift here is between Orszag, who wants the US to begin to live within its economic means, and the staunch Keynesians Geithner and Summers who want to print and spend to achieve political aims. As a card-carrying member of the green eyeshade club, Mr. Orszag knows that their path represents the eventual and probably catastrophic bankruptcy of the US."

And again it comes down to, who's in charge of this country and their ultimate goal.  This is why one particular topic that continues to get taken for CT, needs to be added to any real discussions concerning all 3 E's.  

No one in their right minds would think that the current path that our Federal Reserve and Treasury have put us upon, will work.  No one.  So there has to be an ulterior motive.  Anyone?

LogansRun's picture
LogansRun
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Re: Destined to Fail – Magical Thinking at the G20

"In full disclosure, Larry Summers is among my least favorite people on the planet. I cannot figure out how he manages to get to such prominent positions given the fact that his track record is a nearly unblemished trail of poor decisions and economic ruin. Everything in his record suggests that his only form of competency is political ambition, yet somehow he keeps getting his ideas enacted.  It’s a real mystery and not the good kind, like where that extra $20 in your pocket came from. In my view Summers is a gigantic liability for this country and the current administration and the sooner he is sent packing the better.  Geithner too for that matter."

Not a mystery to me!

AGAIN, who does he work for and who has benefited the most from his being in these positions????????????  Connect the dots!  It's not that difficult!  But because so many have decided to close their eyes to the TRUTH that's right there, they dismiss it!  Sort of like the JFK assassination, where's the magic bullet? 

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Re: Destined to Fail – Magical Thinking at the G20

machinehead wrote:

'You can’t squeeze blood from a stone and you can ---> CAN'T save a trillion from a budget of less than half a trillion.'

It's not a typo -- you were only channeling the magical beliefs of the average KongressKlown. Laughing

Thank you.  Fixed.

Even as parliamentarians impose austerity, they will fecklessly castigate central bankers for the parlous state of the economy, and threaten to horn in on their lucrative seignorage racket. Central bankers, backs to the wall, will buy, buy, buy. After all, with unlimited thin-air money at their disposal, they face no fiscal constraint. Thus central banks, reacting with greater alacrity than parliamentarians, will renew their desperate attempts to reinflate via 'unconventional measures.'

You and I are in complete agreement on this front.  Austerity represents pain now.  Printing represents pain later.  Humans are hard-wired for immediate gratification.  This is why I lean strongly into the camp that is anticipating more printing as the most probable future outcome. That and a lot of history.

I had been thinking that another business cycle stood between us and the next serious downleg which might activate your banker-politician split scenario, but I've recently revised my view.  I now think that all we're going to get for our trillions of stimulus monies  is merely this temporary abeyance we've been enjoying.

Maybe more will do the trick?  If we fail here,perhaps it's only because we didn't try hard enough?  That's what Krugman recently argued, he a past recipient of the no-bell prize.  If we can't rely upon such luminaries to guide the way, who can we trust?

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Re: Destined to Fail – Magical Thinking at the G20

Another excellent report Chris.  I particularly like the way you analyze current events through the lens of your long-term thesis.  This explains what is really happening now and reinforces the soundness of your thesis and what it predicts.

Update - Machinehead posted about the typo while I was still composing.  I can see where he got his name.  I liked his comments too. 

pinecarr's picture
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Re: Destined to Fail – Magical Thinking at the G20

cmartenson wrote:

I had been thinking that another business cycle stood between us and the next serious downleg which might activate your banker-politician split scenario, but I've recently revised my view.  I now think that all we're going to get for our trillions of stimulus monies  is merely this temporary abeyance we've been enjoying.

Ouch!  Chris, any expounding on the shift you see in the potential timeline on the next serious downleg would be of great interest!  I know that predicting the timing of events is hard and is not necessarily accurate (easier to predict the trend than the timing of the trend).  But still, any insight into what you are perceiving -with whatever caveats you feel are necessary given the uncertainy of the situation -would be greatly appreciated be me, and I am sure by others on the site!

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Re: Destined to Fail – Magical Thinking at the G20

cmartenson wrote:

I had been thinking that another business cycle stood between us and the next serious downleg which might activate your banker-politician split scenario, but I've recently revised my view.  I now think that all we're going to get for our trillions of stimulus monies  is merely this temporary abeyance we've been enjoying.

In other words --

My parents spent $10 trillion on their Wall Street holiday

AND ALL I GOT WAS THIS CRAPPY T-SHIRT???

CoolLaughingSurprised

Sadly, hopeful programs like these will be the first to be cut in the budget-slashing zeal --

http://www.stumbleupon.com/su/1OcBCe/digitalartempire.com/2010/04/209-stunning-and-hilarious-illustrator-designs-by-glenn-jones/

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Re: Destined to Fail – Magical Thinking at the G20

Good write on sustainability and growth. Thank you!

As for us: We are scr#wed or we are scr#wed. The deficit is there, will remain there and will only grow. If Bernanke doesn't QE the difference between falling revenues and what the rest of the world is stupid enough to loan us to what we pay out each month it's game over. If he does it's game over. Default or hyperinflation: Which bullet do you want to get whacked by?

The only irony is we have a moron in the White House who has the motto let no crisis go to waste. They could have turned a lot of bad with this crisis into good (figured out what to use energy on, created massive Manhattan Project for sustainable living and other energies.) Instead the brightest thing they can try is to re-inflate the housing bubble, which will NEVER happen because the chunk that drove demand insane was created by fraud (read: millions of new buyers who should have remained renters were added to the market and now we have lost good buyers also with the ensuing collateral damage.)

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Re: Destined to Fail – Magical Thinking at the G20

LogansRun, I am with you.  Call it conspiracy theory or truth, I've read enough to convince myself that these puppets are only the front group for the real controllers.

Ed:  Deleted website link.  Completely inappropriate.

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Re: Destined to Fail – Magical Thinking at the G20

Oh, have no fear, I'm certain population control will come the second we are faced with gas rationing. I have no false delusions that an arrogant empire won't hesitate to wipe another population off a continent. PO & Peak every other resource solved (the wrong way).  

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Re: Destined to Fail – Magical Thinking at the G20

Chris,

It sounds like the only way out of the predicament is a new monetary system to replace the current debt based system in place now - a new system that favors prosperity over growth.

By the way, I especially enjoyed the Q&A following the presentation of the short version of the Crash Course at Yahoo!  One comment - you mention that the only way to pay off the difference between total debt ($87? trillion) and total money ($14? trillion) is to borrow the equivalent.  While true, isn't it also possible for the debts to be extinguished with assets to be exchanged for the debt?  I'm not suggesting this as a course of action - just an observation of the current system.  I believe the whole system is a Ponzi scheme, and therefore a fraud, so foreclosing on collective assets is illegitimate. 

While I'm comfortable that expanding awareness is the order of the day (followed by understanding and then solutions) it really would be great if we could have our sights set on some sort of solution (i.e. how a new monetary system could work to usher in a world of prosperity).  I know that there are lots of really smart people that could devise something once they set their minds to it (right now they are just busy working on other projects in the work/personal lives unaware of the challenge facing us).  However should hyperinflation come to pass there will be so much firefighting that getting a new system up and running will be overwhelming to say the least.  I suppose getting to work on complementary currencies now is something to ease the transition.

Perhaps we'll just look to Europe who are seeing issues with the Euro, choosing austerity, will likely see this not work out too well, and bring along a new monetary system that the rest of the world can adopt as and when the time comes.

Cheers,

James

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Re: Destined to Fail – Magical Thinking at the G20

chameleon wrote:
It's pretty disappointing to me to see hints that we 'need' some type of population stabilization / control method in this article.

I am very disappointed at Chris for hinting at population control, which has resulted in brutal and inhumane policies or consequences, as anyone can see in China or in Europe.  For someone who's avowed to be neutral, Chris' subscription to regarding human life as a disease is beyond disappointing, but appalling.

Ed: Rest deleted for lack of apropriateness, usefullness, clues.

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Re: Destined to Fail – Magical Thinking at the G20

Logans Run

I wish more people would take your comments seriously. If you are to be believed ( which I do) you have dealt with these people closely for a number of years. It is no mystery to you how people like Summers and Geithner get to play god.

Nor it is any mystery to Damon Vrabel who worked in the money pit.

The continued reference to these people as morons is not only absurd but it is distracting from possible solutions. People like Summers, Bernanke, Geithner , Bush, Cheney , Obama etc. are not stupid by any stretch of the imagination. We here talk about preparations for what is likely to transpire. We talk about permaculture, communities, gold, and guns etc. These people talk about how to extract more time , energy and wealth from us. Who is stupid?

They are doing their own preparations. They own the gold, they own the guns, they have estates in places like Paraguay, Argentina, etc. They are paying peasants there with money they extracted from peasants here to plant fruit trees, gardens , raise animals and build their compounds .

The biggest preparation is the monopolization of water. He who controls water controls all of life on this planet. This is the silent preparation very few are aware of.

These people are not morons. They are sociopaths. The sooner we realize this fact the sooner solutions will be forthcoming. If you don't realize this then there is a real possibility that you are the moron.

In 2008 Bill Clinton was on Larry King right after the bailout fiasco. Larry started to say how bad things were and in a rare moment of honesty Clinton told him " Larry you and I are going to be fine , none of this is going to affect us". According to the late Aaron Russo Nicholas Rockefeller said to him " Why are you worried about all of these other people? Just take care of your own family" This sums up their thinking very nicely.

We were warned about foreign entanglements by our founding fathers. Yet here we are 234 years later with the idea that  a group called the G 20 should determine our economic future. I am looking forward to the 4th of July so I can fantasize about the 15 seconds before the ink dried on the Constitution.

V

PS Logans Run I for one would love to sit over a cup of coffee sometime and here some of the stuff that does not get posted here. 

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Re: Destined to Fail – Magical Thinking at the G20

Augustine wrote:

chameleon wrote:
It's pretty disappointing to me to see hints that we 'need' some type of population stabilization / control method in this article. http://somewhackysite.com/

I am very disappointed at Chris for hinting at population control, which has resulted in brutal and inhumane policies or consequences, as anyone can see in China or in Europe.  For someone who's avowed to be neutral, Chris' subscription to regarding human life as a disease is beyond disappointing, but appalling.

I'm going to leave this comment up as an example of exactly the sort of behavior we do not seek to attract around here.  Full of assumptions, projections, beliefs and degrading verbiage, this type of commentary is neither helpful nor appreciated.

If you would prefer to bring out some facts, then your views and comments will, of course, be welcome.

Facts like these:

  • Human population has doubled in the past 40 years and is still growing rapidly.
  • in 2007 more babies were born on US soil than in any other year in its history, including the infamous peak of the baby boomer years.

We really don't have time around here, or anywhere, to engage with simplistic, ill-though out, belief-oriented material.  There are lots of sites where you can waste yours and everybody's time with pseudo-arguments, but this isn't one of them.

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Re: Destined to Fail – Magical Thinking at the G20

pinecarr wrote:

cmartenson wrote:

I had been thinking that another business cycle stood between us and the next serious downleg which might activate your banker-politician split scenario, but I've recently revised my view.  I now think that all we're going to get for our trillions of stimulus monies  is merely this temporary abeyance we've been enjoying.

Ouch!  Chris, any expounding on the shift you see in the potential timeline on the next serious downleg would be of great interest!  I know that predicting the timing of events is hard and is not necessarily accurate (easier to predict the trend than the timing of the trend).  But still, any insight into what you are perceiving -with whatever caveats you feel are necessary given the uncertainy of the situation -would be greatly appreciated be me, and I am sure by others on the site!

Pinecarr - you caught my sneak preview for a Martenson Report that is coming out on Monday.  Enrolled members will get to hear lots more about my thinking here. 

The timeline is something that I did not commit to the report, but I would be happy to discuss in the comments below after it comes out.

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Re: Destined to Fail – Magical Thinking at the G20

The continued reference to these people as morons is not only absurd but it is distracting from possible solutions. People like Summers, Bernanke, Geithner , Bush, Cheney , Obama etc. are not stupid by any stretch of the imagination. We here talk about preparations for what is likely to transpire. We talk about permaculture, communities, gold, and guns etc. These people talk about how to extract more time , energy and wealth from us. Who is stupid?

This is exactly why they are stupid....they are missing the bigger picture of prosperity & sustainability. Where they are taking us is going to be destructive for all.

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Re: Destined to Fail – Magical Thinking at the G20

Augustine-

Where did Chris say anything about 'population control'?  All that I found was him drawing a connection between population growth and economic growth, and that the latter relied on the former.  He's making a statement of fact.  Whatever is making you uncomfortable lies predominantly in your own mind, not in his words.  Are we not even allowed to mention the problems and consequences that result from growing or shrinking populations?  These kind of slippery-slope accusations don't help or accomplish anything.

- Nick

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Re: Destined to Fail – Magical Thinking at the G20

Perhaps I can offer some sanity into the discussion of population here.( Boy are we in trouble if I am the one to inject some sanity into any discussion)

There have been many discussions here on population and its affects and possible remedies. In my experience it does not call for immoral or draconian measures to accomplish and it would actually lead to what I consider to be a better world.

The answer is simple. EDUCATION. Specifically education of women. In countries where women are educated the birthrate is 2 or less in countries where they are not it is 6 plus. Education does many things, not the least of which is finding new ways of doing things. Educating women gives them control over their reproductive systems.

It might be worthwhile to restart a rational discussion of population in regards to the three E's that would be helpful and solution oriented.

V

PS I hope this does not derail this thread. It was not my intention Idoctor perhaps instead of a drive by you could tell me just exactly the bigger picture is.

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Re: Destined to Fail – Magical Thinking at the G20

Or at least distract it ... Cool

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Re: Destined to Fail – Magical Thinking at the G20

idoctor wrote:

The continued reference to these people as morons is not only absurd but it is distracting from possible solutions. People like Summers, Bernanke, Geithner , Bush, Cheney , Obama etc. are not stupid by any stretch of the imagination. We here talk about preparations for what is likely to transpire. We talk about permaculture, communities, gold, and guns etc. These people talk about how to extract more time , energy and wealth from us. Who is stupid?

This is exactly why they are stupid....they are missing the bigger picture of prosperity & sustainability. Where they are taking us is going to be destructive for all.

+1. Utter and absolute $%*##%& MORONS!

Sociopaths are the byproducts corporatocracy.

Documentary: The Corporation (all about corporatocracy.)

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Re: Destined to Fail – Magical Thinking at the G20

Augustine wrote:

chameleon wrote:
It's pretty disappointing to me to see hints that we 'need' some type of population stabilization / control method in this article. someinappropriate site.com/

I am very disappointed at Chris for hinting at population control, which has resulted in brutal and inhumane policies or consequences, as anyone can see in China or in Europe.  For someone who's avowed to be neutral, Chris' subscription to regarding human life as a disease is beyond disappointing, but appalling.

These issues do not have to be approached in an all-or-none fashion.  Population control does not necessarily mean implementation of abortion, imprisonment, killing, or any other form of brutality and inhumanity.  It can simply mean education, encouragement, temperance, implementation of self discipline and self control, etc..  I don't think anyone here is advocating population control that would involve human pain and suffering or the absence of children.  No one, by any stretch of the imagination, is advocating the termination of children and the young.  One can simply make the decision to simply reproduce and replace themselves in society but no more.  Taken to an extreme, if the entire human race started reproducing with wild abandon, sooner or later, there would be "population control" of sorts through famine, war, pestilence, etc.  There is after all a limited carrying capacity on this planet.  I, for one, would rather not bump up against it and see what happens.  I'd rather do it as a family under safe and controlled circumstances than have nature or politics thrust it upon me in a harsh and violent fashion.  

Just for the record, I am not ashamed to say that I am not a supporter of Planned Parenthood and I am against abortion but I also recognize the realities, practicalities, and limitations of indefinitely unrestricted population growth.

I've said it before and I've said it again, whether the issue is debt, sovereign money, or population control, the solution(s) will ultimately be spiritual not political.  A person who does not think primarily of themselves but thinks about their children, future generations, other human beings, the universe that sustains us, and most of all, the One who made us, will consider that they have an obligation to continue the human race but not to run it and the planet it lives on into the ground.  Love for one's fellow man and wisdom in one's actions will save the day.  Foolishness will lead to destruction.

BTW, I really appreciate the clarity of your thinking, Chris.  Thank you for openly expressing and sharing what can be controversial thoughts and putting yourself at risk for potential criticism.  Your wisdom and courage are evident.

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Re: Destined to Fail – Magical Thinking at the G20

V wrote:

Logans Run

I wish more people would take your comments seriously.

Some of us do, having received our education from George Carlin who in the great tradition of court jesters was able to speak the truth about the King. But what is to be done about it? Perhaps the states will wake up and start to issue their own IOUs that will circulate as currency.

James Wandler wrote:
 While true, isn't it also possible for the debts to be extinguished with assets to be exchanged for the debt?

Yes, "Bankers own the Earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough money to buy it back again…" - – Sir Josiah Stamp Director Bank of England 1928-1941.

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Re: Destined to Fail – Magical Thinking at the G20

nickbert wrote:
Where did Chris say anything about 'population control'?

How about when Chris said: "gain more bang for our buck if we expended our efforts towards creating a stable population."  If this isn't hinting (the word I used) at population control, what is it?  How else can a stable population be "created"?  This is not a statement of fact, but a proposed course of action.

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Re: Destined to Fail – Magical Thinking at the G20

cmartenson wrote:
If you would prefer to bring out some facts, then your views and comments will, of course, be welcome.

With all due respect, Chris, you cannot suggest a course of action and treat it as a cold, hard fact.  Moveover, you make value judgments on the fact that population has changed ("bad") and therefore it has to be stable ("action").  You cannot deny that you use your beliefs when judging the value of facts or which course of actions to take in response to them.

Facts do not come imbued with a face value or with instructions in case of emergency.  They are the objects of subjects, so your analysis is objective only to the point of describing the facts.  When if comes to proposing routes of action, your analysis is subjective, if not necessarily, as a matter of fact.

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Re: Destined to Fail – Magical Thinking at the G20

ao wrote:
Population control does not necessarily mean implementation of abortion, imprisonment, killing, or any other form of brutality and inhumanity.

I disagree.  Hostility towards future generations brings about a societal malaise that's better described by German hotels not accepting guests with children but accepting guests with pets.  This is the kind of "soft" inhumanity that such hostility raises.

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Re: Destined to Fail – Magical Thinking at the G20

Augustine wrote:

nickbert wrote:
Where did Chris say anything about 'population control'?

How about when Chris said: "gain more bang for our buck if we expended our efforts towards creating a stable population."  If this isn't hinting (the word I used) at population control, what is it?  How else can a stable population be "created"?  This is not a statement of fact, but a proposed course of action.

I really don't want to turn this into a platform for your religious and/or parnoid views.  Linking to a pro-life website as a preferred soruce for your "information" was way out of line for this site, and you've been warned.

To continue in this line of fact-free, speculation-only inquiry is to invite simply being banned.  Since you seem unable to envision any possible ways that humans could willfully and carefully control their popualtion without delving into the darkest tendencies and corners of human behavior indicates to me that you lack the necessary world view to add anything useful to the conversation.

I am banning you from further conversation on this topic.  Feel free to otherwise engage, but this one is off-limits.

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Re: Destined to Fail – Magical Thinking at the G20

Augustine-

Where did Chris say anything about 'population control'?  All that I found was him drawing a connection between population growth and economic growth, and that the latter relied on the former.  He's making a statement of fact.  Whatever is making you uncomfortable lies predominantly in your own mind, not in his words.  Are we not even allowed to mention the problems and consequences that result from growing or shrinking populations?  These kind of slippery-slope accusations don't help or accomplish anything.

- Nick

Nick,

My problem is Chris's claim that, "We can trace an enormous number of the problems or predicaments we face to over-population or to the strain that results from accomodating the needs of a growing population."    I don't think you can assert that as fact.  Give me the evidence to support that claim. 

Bruce

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Re: Destined to Fail – Magical Thinking at the G20

Augustine:  i don't presume to know who you are or what you believe, but you are doing a fine job of muddying the waters for those who might have similar concerns but who are more than willing to give the benefit of the doubt to the creator and host of this site.  Your concern for the lives of the people who have invested their time and effort in the search for truth through this forum is evident in your approach.  If your attitude is the byproduct of your beliefs, then I have no interest in your information.

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Re: Destined to Fail – Magical Thinking at the G20

James Wandler wrote:

Chris,

It sounds like the only way out of the predicament is a new monetary system to replace the current debt based system in place now - a new system that favors prosperity over growth.

By the way, I especially enjoyed the Q&A following the presentation of the short version of the Crash Course at Yahoo!  One comment - you mention that the only way to pay off the difference between total debt ($87? trillion) and total money ($14? trillion) is to borrow the equivalent.  While true, isn't it also possible for the debts to be extinguished with assets to be exchanged for the debt?  I'm not suggesting this as a course of action - just an observation of the current system.  I believe the whole system is a Ponzi scheme, and therefore a fraud, so foreclosing on collective assets is illegitimate. 

While I'm comfortable that expanding awareness is the order of the day (followed by understanding and then solutions) it really would be great if we could have our sights set on some sort of solution (i.e. how a new monetary system could work to usher in a world of prosperity).  I know that there are lots of really smart people that could devise something once they set their minds to it (right now they are just busy working on other projects in the work/personal lives unaware of the challenge facing us).  However should hyperinflation come to pass there will be so much firefighting that getting a new system up and running will be overwhelming to say the least.  I suppose getting to work on complementary currencies now is something to ease the transition.

Perhaps we'll just look to Europe who are seeing issues with the Euro, choosing austerity, will likely see this not work out too well, and bring along a new monetary system that the rest of the world can adopt as and when the time comes.

Cheers,

James

Hey James,

You're understanding the big picture pretty accurately for the most part. The monetary system MUST change if we are to see any benefical and meaningful changes. Check out SwarmUSA.com to see what a bright group of people have come up with for changing our monetary system and for handling the transition.

In regards to your comments on paying off debt with assets...
Most loan agreements specify the manner and method of repayment. ie, must be paid in US dollars, etc. Ellen brown has thoroughly explained the next step in "Web of Debt." This next step is where the debts are renegotiated, usually by the IMF, in the form of a "bailout" where the repayment must be made in terms of natural resources. That's the ultimate goal of this debt based money. That is to be "legally entitled" to extract the natural resources of others. Debt based money is doomed to fail because of the math. It's convoluted just enough that the average citizen doesn't understand the larger picture.

Glad to see another person waking up to the fact that the monetary system is the crux of our problems. Keep learning.

Dan

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Re: Destined to Fail – Magical Thinking at the G20

James Wandler - Toucan  

There may be a possible solution to our current economic problems/situation and that would be the implementation of  a State owned and operated Banking System. N Dakota established one in the early 1900’s right after the Federal Reserve was established for obvious reasons and it is still in operation in good standings today.

Farid Khavari economist [PhD] and currently running for Governor of Florida recently announced plans to, if elected, establish a State Bank for the State of Florida.

“The Khavari Economic Plan is targeted to make the state of Florida “recession-proof by creating over one-million well-paid, private sector jobs in the state Florida without subsidies. The cornerstone of the Khavari Economic Plan is to create a state chartered bank, The Bank of the State of Florida (BSF). He first mentioned this concept in his publication, Zero-Cost Economy written in November 2008. Since then, many states across the country are now picking up on the idea, including—California, Connecticut, Michigan, New Mexico, Oregon, Tennessee, Vermont and Virginia.  Recently the office of the speaker of the senate of New Mexico contacted Dr. Khavari to consult on how to implement and create its own charter for the state owned bank of New Mexico. Khavari Economic Plan has also received great reception in Germany, Russia, Finland, India and The Netherlands.”

For detailed look at the plan check out Khavari’s Zero Cost Economy website - http://www.zerocosteconomy.com/

There is a 96page economic blueprint pdf that can be downloaded - http://www.zerocosteconomy.com/download.php

Also for additional information the Khavari for of Governor site - http://www.khavariforgovernor.com/about/

It seems to me that if  State Banks were set up on a nationwide basis on the state and federal level a total financial meltdown of the US economy could be averted. It would also put our economy back in the hands of the people instead of Wall Street, The Federal Reserve, IMF, and the financially elite.

Chris if you have some spare the on your hands could you have a look at this as a possible valid economic solution.

Thanks jhart5

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Re: Destined to Fail – Magical Thinking at the G20

On the touchy subject of curbing exponential population growth, I have to agree with V that the key to making progress is education. About ten years ago I was first introduced to the facts concerning the finite size of our planet and the exponential growth story of human beings. This formed my opinion concerning how many children I would consider having. It was always very awkward explaining to family, well there are already too many people running around and the Earth is only so big. Additionally the concept of growth vs. prosperity was at work knowing that only having one child would ensure a secure future for my daughter instead of throwing her out to fend for herself in this less than perfect world. When I get a comment these days about more kids, I just ask for the estimated 250K to raise a kid...... up front.

One should really think about the (long term) historic relationship of humans with the rest of the planet's inhabitants. After that, it should be fairly simple to see that fossil fuel powered modern agriculture has in many ways broken the cyclic link between us and the remaining species on "the" not "our" planet. Human population at some point will overshoot without an epiphany concerning true sustainability from the human race. The growth vs. prosperity story from the Crash Course is based in fact rather than opinion. Thank you for another article that ties present news to your work Dr. M. As you stated, the change must come from the outside-in.

Cheers, TJ

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Re: Destined to Fail – Magical Thinking at the G20

Davos wrote:

Oh, have no fear, I'm certain population control will come the second we are faced with gas rationing. I have no false delusions that an arrogant empire won't hesitate to wipe another population off a continent. PO & Peak every other resource solved (the wrong way).  

You darn well know many people saw this coming for a long time .  They  trained up midwives,  had home births , opt out of the  *social * security system, did not claim the children on their taxes, and now many have businesses that deal in cash only   .   It will take a lot of  social workers  to smoke them all out .     They are not the ones consuming all the oil  ....do not hop on planes ,  buy things from Timbuktu , take vacations ,....  BUT   , Davos,  you are so right the PC will come as one of the freedoms we give up.

FM

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Re: Destined to Fail – Magical Thinking at the G20

Don't have a lot of time as the kids are in a mode but.................Thank you!  I appreciate the kind words and trust. 

I pray that people decide to awaken, but I don't have much faith. When I have time later or early in the morning I'll chat a bit on this subject, but right now...the kids call! 

Thank you again, and any time you want to head up here, the door is always open.  Ask my neighbors...ughCry I don't travel as much as I used to (Thank Goodness!), but if I get down south any time in the future, I'll let you know.  It may actually happen sooner rather than later as I'm anxious to see what's happening down there with the spill.

Best!

Logans Run

I wish more people would take your comments seriously. If you are to be believed ( which I do) you have dealt with these people closely for a number of years. It is no mystery to you how people like Summers and Geithner get to play god.

PS Logans Run I for one would love to sit over a cup of coffee sometime and here some of the stuff that does not get posted here. 

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Re: Destined to Fail – Magical Thinking at the G20

James Wandler wrote:

While I'm comfortable that expanding awareness is the order of the day (followed by understanding and then solutions) it really would be great if we could have our sights set on some sort of solution (i.e. how a new monetary system could work to usher in a world of prosperity).  I know that there are lots of really smart people that could devise something once they set their minds to it (right now they are just busy working on other projects in the work/personal lives unaware of the challenge facing us).  However should hyperinflation come to pass there will be so much firefighting that getting a new system up and running will be overwhelming to say the least.  I suppose getting to work on complementary currencies now is something to ease the transition.

Cheers,

James

The people at Swarm USA have a pretty straightforward, simple plan for transitioning away from the debt-backed money system:

1. End the practice of debt backed money at the federal level, returning the power of money creation to the people via Congress as the U.S. Constitution dictates.

2. Clear out excessive debt and derivatives from the entire financial system, thus repairing balance sheets and producing workable debt to income ratios. The following will be accomplished:

a. People's balance sheets will be repaired by returning tax dollars to the people to be used to directly pay down existing debt.

b. All banks and financial businesses are run through a special bankruptcy procedure to cleanse away unserviceable debt and derivatives. All banks will survive this process and will exit with 10 to 1 fractional reserve ability, a level of leverage that is safe and will be capped by law.

c. State balance sheets will be repaired and all states will create State Chartered Banks based on the successful model of the Bank of North Dakota. Additionally, these banks will assume the roles and functions formerly held by the 12 "Federal" Reserve banks, thus decentralizing control but in a coordinated manner where all states are benefitting equally.

3. Ensure the quantity of money remains under control in the long term by:

a. Ensuring accurate and unbiased economic measurements and reporting. This is easily achieved with 100% transparency in all data gathering and statistical methods, allowing the market to 'police' the government.

b. Create controls that tie overall money quantity to PRICE of ALL asset classes. Target ZERO price inflation and adjust quantity of money spent into existence without debt. Interest rates are set by the free market. This means no more long term inflation or deflation.

c. Separate special interest money from politics. This targeted political reform is necessary to keep the political system functioning for those who it is supposed to serve. Without this piece history proves that the other pieces will not last long, as those with large reservoirs of money will eventually co-opt the system for themselves.

http://www.swarmusa.com/vb4/

Although, I'm not sure it would be as smooth a process as they make it out to be and of course it does not directly address the problem of peak cheap energy/resources, but it definitely seems like a good start to me. If only we hadn't waited so long and let the current system become so entrenched before we pushed for ideas such as this one.

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Re: Destined to Fail – Magical Thinking at the G20

Jack Hanna's perspective on over population implies it may already be too late.  But he remains an optimist.

http://www.smartplanet.com/people/blog/pure-genius/jack-hanna-on-the-one...

Jack Hanna wrote:

The biggest problem is one word no one wants to talk about, for religious regions or political reasons: overpopulation. As a person who has traveled the world, every continent, many times, I see that it’s overpopulation. We can come up with green stuff, replant trees, create windmills, but we’ll never solve the problem and we’ll never catch up. It’s many steps ahead of us now. The world keeps overpopulating. You have countries that have 6 million people that can only take care of 3 or 4 million. In Rwanda they’re educating people about birth control. It has 8 million people and is the size of Vermont, which has 750,000. You can’t sustain that kind of life.

Why do we have global warming? We have too many people with too many cars. Who creates the problems? It’s the human beings, not the animals. Is it not obvious or what? I tell people what happens to our resources—water, air, trees– will eventually happen to animal life and will eventually happen to human life. I’ve seen this in country after country.

Yet you’re optimistic.

I’m optimistic. I’m not Mr. Doom and Gloom—that doesn’t win anything in the world. We know what the problem is; if you don’t, you’ve had your head in a cave. But if you’re a young person watching the TV news every night, it’s like coming out for a football game being 0-12 for the season and the coach saying, “OK, let’s go out and play. We’re gonna lose.” So I’m real positive. I don’t tell kids everything’s going to pot. I want to leave them with some hope and tell them what we can do.

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Re: Destined to Fail – Magical Thinking at the G20

brosswurm wrote:

Nick,

My problem is Chris's claim that, "We can trace an enormous number of the problems or predicaments we face to over-population or to the strain that results from accomodating the needs of a growing population."    I don't think you can assert that as fact.  Give me the evidence to support that claim. 

Bruce

Interesting first post 'brosswurm.'

Actually, the burden is not on us to verify anything that is based on a super-basic level of knowledge.  I truly wish we had the time to start at square zero with everybody who demands it of us, but it's not possible.

So let me turn it around.  How about instead that it's up to you to provide any facts you can to support your implied claim that climbing population levels have not created any problems or predicaments?  Perhaps in the interest of simplicity you could start with:

  • Energy use (in aggregate, across oil and coal just to keep it simple).  How is it that you think that more people do not use more energy?  Given peak oil, how is this not a predicament?   Please be specific and use actual data.
  • Fresh water use and availability.  Again, to keep it simple, how about we constrain this conversation to the American southwest and the use of aquifers? Pick Phoenix and project their issues for the next two decades just for fun.
  • The impact of populations on local resource utilization including water, water treatment, road congestion, school crowding, land use and parking space availability, etc.,etc.,etc.  If you manage to find a way that increasing population does not create additional strains on local resources please PM me immediately as I know of 12,543 local planning boards that need to consult with you pronto.

Honestly, anybody who cannot intuitively and immediately understand the linear and direct connection between population growth and problems that need solving is going to have a hard time at a site where we try and grok the subtleties of living in a non-linear, complex and even chaotic world.

Even more honestly I cannot fathom how somebody could move through life without noting the exceptional levels of dedicated hard work that growth requires and imposes. 

At any rate, our style here is not to place our burdens on others (this site has a strong undercurrent of personal responsibility) so I would ask that anybody seeking to challenge something do so in the form of presenting countervailing evidence, not open-ended questions easily addressed on their own time. 

Thanks in advance.

Chris M.

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Re: Destined to Fail – Magical Thinking at the G20

Mr. Martenson,

You list only 2 methods of deficit reduction;

One path to getting the deficit to 3% from its current 10% of GDP is to cut spending.

...

The other path consists of elevated government borrowing and spending done with the hope that eventually GDP climbs up over time thereby reducing the deficit to GDP ratio.

But of course, there's another method, raising taxes.

Given that total personal income in the U.S. was $12 trillion last year, it would only require about a 12% increase in personal taxes, or an equivalent (VAT?) to eliminate the deficit.  Simply returning to 1960's tax rates would quickly achieve this goal.  An increase in taxes combined with across the board (including social security and Medicare) austerity could bring the budget into balance with minimal pain.  I won't accept raising taxes will slow growth when the government will simply be spending the money instead of individuals.

Also, I would favor deficit spending if it is invested in getting us quickly to ALT-E and off fossil fuels.  But if it's wasted, like the 1st stimulus, then we should go down the raising taxes and austerity path.

$.02

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Re: Destined to Fail – Magical Thinking at the G20

we_are_toast wrote:
it would only require about a 12% increase in personal taxes, or an equivalent (VAT?) to eliminate the deficit.

Only 12%?  How many people do you think this would cause to go bankrupt?  How many people can't afford this extra 12%.  I think you really underestimate the size of increase you are proposing.

we_are_toast wrote:
I won't accept raising taxes will slow growth when the government will simply be spending the money instead of individuals.

You really miss the point, it's not a substitution from personal to government spending.  It's a loss of that spending on the personal side.  The government is already doing that spending via borrowing.  So yes, a 12% tax increase given to the govnernment who will "supposedly" stop borrowing because they have the money in taxes, will be a 12% reduction in total spending.  So 12% down in spending, means 12% down in tax collection, which means taxes have to go up even more, ....

Also, why do you think the government versus citizens should spend?  Are you and the rest who think this way just too stupid to be trusted with the fruits of your labor and need someone to be your mommy?  How about instead we have a 50% reduction in government spending  and let the citizens use their own money and be responsible for their own lives....

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Re: Destined to Fail – Magical Thinking at the G20

we_are_toast wrote:

Mr. Martenson,

You list only 2 methods of deficit reduction;

One path to getting the deficit to 3% from its current 10% of GDP is to cut spending.

...

The other path consists of elevated government borrowing and spending done with the hope that eventually GDP climbs up over time thereby reducing the deficit to GDP ratio.

But of course, there's another method, raising taxes.

Given that total personal income in the U.S. was $12 trillion last year, it would only require about a 12% increase in personal taxes, or an equivalent (VAT?) to eliminate the deficit.  Simply returning to 1960's tax rates would quickly achieve this goal.  An increase in taxes combined with across the board (including social security and Medicare) austerity could bring the budget into balance with minimal pain.  I won't accept raising taxes will slow growth when the government will simply be spending the money instead of individuals.

Also, I would favor deficit spending if it is invested in getting us quickly to ALT-E and off fossil fuels.  But if it's wasted, like the 1st stimulus, then we should go down the raising taxes and austerity path.

$.02

A 12% increase in taxes would most certainly exact an enormous burden on a population that is already struggling to make ends meet, where at least 20% of them are unemployed or underemployed and 1.3 million people are about to lose their jobless benefits, with that number almost certain to increase over time (http://www.zerohedge.com/article/13-million-americans-are-about-lose-their-jobless-benefits-week-unemployment-rate-will-surge). There is also the question of who we are going to raise taxes on and if we can even accomplish your 12% increase. It would seem the best people to tax are the rich who stil have some level of disposable income left, but that may be harder than it sounds. This article by Charles Hugh Smith does a good job explaining the structural reasons why taxes can never rise above 20% of GDP  - http://www.zerohedge.com/article/13-million-americans-are-about-lose-their-jobless-benefits-week-unemployment-rate-will-surge

A few of the reasons taxing the rich may not work are the following:

Quote:

1. High wage earners tend to be smart people, and they are adept at "gaming the system" to lower their taxes.

2. At some point, high wage earners are incentivized to opt out of higher tax rates by voluntarily reducing their taxable earnings and/or moving their income offshore to nations with lower effective rates such as Switzerland.

3. The super-wealthy simply "buy" tax credits or loopholes via millions of dollars in campaign contributions.

http://www.oftwominds.com/blogmay10/tax-the-rich05-10.html

I also don't think we can say that economic growth will remain as long as the government spends the tax dollars instead of individuals, especially considering the things our government spends money on (direct and indirect bailouts of financial institutions, useless wars, etc.) which do little to contribute to economic growth. I'm not saying any tax increase is necessarily a bad idea, but I think it's a far cry from a solution to cutting our enormous deficits and debt.

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JAG
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Man in the Mirror

In regard to reducing the government's debt, I think it might be useful to step back and take a look at the larger picture. I think we all agree that the government needs to reduce its spending, but I'm not sure many fully understand how they personally factor into the equation. What equation am I referring to?

Private Sector Spending/Saving + Government Spending/Saving + Trade Deficit/Surplus = 0

This equation implies that if we want to reduce government spending, there is only one realistic solution; we must reduce the trade deficit. The only other option is to increase private sector spending, which is not a viable option because the private sector (households and businesses) is in the middle (or beginning) of a deleveraging/saving cycle. 

So how do we reduce the trade deficit?

  1. We spend our money locally.
  2. We invest our money locally.
  3. We significantly reduce how much oil we use.
  4. We boycott the Walmart Global Business Model and establish a demand for products and services produced in the USA, and especially those products and services produced locally.

By doing this we support the local economy (jobs), maintain our ability to save and reduce personal/business debt, and reduce the need for government spending. Obviously this implies personal sacrifices to our lifestyle, but those sacrifices are just around the corner for each of us anyways. We might as well use this time to make these changes with a more comfortable learning curve.

Don't waste your time looking for change from the politicians, look for change in the mirror.

Best....Jeff

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SagerXX
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Re: Destined to Fail – Magical Thinking at the G20

rhare wrote:

we_are_toast wrote:
it would only require about a 12% increase in personal taxes, or an equivalent (VAT?) to eliminate the deficit.

Only 12%?  How many people do you think this would cause to go bankrupt?  How many people can't afford this extra 12%.  I think you really underestimate the size of increase you are proposing.

Totally beat me to it, rhare.  

Toast:  

Dr. Chris wrote:

One path to getting the deficit to 3% from its current 10% of GDP is to cut spending. However, this path carries the seeds of its own failure. Government spending is a big part of GDP so cutting spending shrinks the GDP. The more spending is cut the more GDP shrinks which makes the deficit ratio less favorable. Adding insult to injury, government revenues expand and shrink in proportion to GDP so cutting spending actually leads to reduced revenues which leads to higher deficits which lead to more cutting which results in an endless spiral into the dumpster.

Raising taxes will create the same sort of chase-your-tail-down-the-toilet cycle as above.  More taxes paid by citizens = less to spend = less revenues into (heavily consumer-spending-oriented) economy = less corporate taxes paid = less revenue for gov...and so forth.  

There's not clean and simple solution.  Which is why it's a predicament.  Not a problem.

Viva -- Sager

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Re: Destined to Fail – Magical Thinking at the G20

we_are_toast wrote:

Mr. Martenson,

You list only 2 methods of deficit reduction;

One path to getting the deficit to 3% from its current 10% of GDP is to cut spending.

...

The other path consists of elevated government borrowing and spending done with the hope that eventually GDP climbs up over time thereby reducing the deficit to GDP ratio.

But of course, there's another method, raising taxes.

$.02

Well, I don't have excellent data to either confirm or refute your point but the general rule of thumb is that if the government taxes an additional percent, that represents a percent that is not available for the private sector to spend on the economy.  Again, rule of thumb time, a percent increase in taxes = a percent reduction in GDP.

So I consider that a wash to the deficit to GDP ratio.  Yes the deficit fell by a percent, but so did the GDP. 

Obviously there's a lot of wiggle room in there and innumerable details, but on the larger stage, it's a wash.  The most important detail to remember is that with very, very few exceptions (DARPA and the internet being one)  the government does not create wealth, it only distributes it.  So while it may seem like the government taxing and spending a percent of GDP is neutral, it is not.  It is GDP-destructive because, by and large, government spending is only distributive and, as is true for any engine, there is heat loss in the transfer of power (wealth).

The more devilish construct is that after a certain point, say a 5% or 8% hike in taxes, the GDP falls off even more than the taxed 5% or 8% due to the pernicious effect of over taxation.  This raises the infamous "Laffer Curve" for which there is, actually, quite a bit of evidence in support of its reality but I think simple common sense bears it out. 

At 100% taxation, people will do no (identifiable and/or taxable) work. 

By the time the government had imposed a 12% of GDP tax hike, my best guess would be that GDP would decline by something close to, if not more than that amount.  Just a guess, but one that I can imagine easily based on historical and (other) country data.

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Re: Destined to Fail – Magical Thinking at the G20

ashvinp wrote:

we_are_toast wrote:

Mr. Martenson,

You list only 2 methods of deficit reduction;

One path to getting the deficit to 3% from its current 10% of GDP is to cut spending.

...

The other path consists of elevated government borrowing and spending done with the hope that eventually GDP climbs up over time thereby reducing the deficit to GDP ratio.

But of course, there's another method, raising taxes.

Given that total personal income in the U.S. was $12 trillion last year, it would only require about a 12% increase in personal taxes, or an equivalent (VAT?) to eliminate the deficit.  Simply returning to 1960's tax rates would quickly achieve this goal.  An increase in taxes combined with across the board (including social security and Medicare) austerity could bring the budget into balance with minimal pain.  I won't accept raising taxes will slow growth when the government will simply be spending the money instead of individuals.

Also, I would favor deficit spending if it is invested in getting us quickly to ALT-E and off fossil fuels.  But if it's wasted, like the 1st stimulus, then we should go down the raising taxes and austerity path.

$.02

A 12% increase in taxes would most certainly exact an enormous burden on a population that is already struggling to make ends meet, where at least 20% of them are unemployed or underemployed and 1.3 million people are about to lose their jobless benefits, with that number almost certain to increase over time (http://www.zerohedge.com/article/13-million-americans-are-about-lose-their-jobless-benefits-week-unemployment-rate-will-surge). There is also the question of who we are going to raise taxes on and if we can even accomplish your 12% increase. It would seem the best people to tax are the rich who stil have some level of disposable income left, but that may be harder than it sounds. This article by Charles Hugh Smith does a good job explaining the structural reasons why taxes can never rise above 20% of GDP  - http://www.zerohedge.com/article/13-million-americans-are-about-lose-their-jobless-benefits-week-unemployment-rate-will-surge

A few of the reasons taxing the rich may not work are the following:

Quote:

1. High wage earners tend to be smart people, and they are adept at "gaming the system" to lower their taxes.

2. At some point, high wage earners are incentivized to opt out of higher tax rates by voluntarily reducing their taxable earnings and/or moving their income offshore to nations with lower effective rates such as Switzerland.

3. The super-wealthy simply "buy" tax credits or loopholes via millions of dollars in campaign contributions.

http://www.oftwominds.com/blogmay10/tax-the-rich05-10.html

I also don't think we can say that economic growth will remain as long as the government spends the tax dollars instead of individuals, especially considering the things our government spends money on (direct and indirect bailouts of financial institutions, useless wars, etc.) which do little to contribute to economic growth. I'm not saying any tax increase is necessarily a bad idea, but I think it's a far cry from a solution to cutting our enormous deficits and debt.

I will disagree that a 12% increase in taxes would be an enormous burden.  Of course the unemployed make no income, so an increase in income taxes would have no effect on them.  It would mean about $4,000 additional taxes for someone with a median income of about $45,000.  If someone with an income of $45,000/yr can't stay afloat with an additional $4,000 taxes, I would argue that this person has not learned the lessons of the last couple of years and will eventually go under anyway.

I view this as a national emergency every bit as large a threat as WWII and an equivalent sacrifice would be called for by anyone who truly understands the consequences.  A 12% tax increase is more like a major annoyance than a nation saving sacrifice.

Mr Martenson is absolutely correct that it isn't possible to eliminate the deficit through spending cuts alone, or through borrowing and spending with the hopes of growing enough, especially in a world of diminishing natural resources.  But the Math is clearly there to solve the problem with tax increases and some austerity.

But without population reduction, none of the above matters.

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Re: Destined to Fail – Magical Thinking at the G20

There's been a lot written on the various factors that have led up to our current economic problems, but one thing that seems to get overlooked much of the time is the fact of an ever-increasing life expectancy.  Life expectancy has increased about 50% since 1900 (from 48 years to 75 years for males, and 51 years to 81 years for females).  This gain is extremely costly on society, but somehow this enormous cost is rarely talked about.  It's daunting to think that in the whole history of the world this is a relatively brand new problem.   Governments around the world have continually underestimated these costs.  This is one force that has led up to the giant ponzi scheme we currently have.  It's not just governments that are the problem.  Citizens increasingly try to dodge paying for the care of their elder relatives.  It's much more fun to pay for a trip to the beach or buy a new boat than it is to pay a medical or nursing home bill.  I'm a physician & every single day I see thousands & thousands of dollars being spent on elderly patients that have essentially no quality of life.  Our profession gives everyone the "full workup" because of the fear of getting sued, and because few families have realistic expectations regarding life, and the sustainability of our current society.  The phrase "this is completely unsustainable" goes through my mind countless times every day I work.  I wish there was an unlimited supply of resources to give everyone in this world and the most pleasant & happy life possible.  Unfortunately as we all know, resources are limited & magical thinking doesn't solve problems.  There are clearly no easy answers, but I suspect these problems will never be addressed until the bottom completely falls out.  It's too bad.  As a physician I know that confronting difficult situations early & directly often prevents much worse problems later.

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Re: Destined to Fail – Magical Thinking at the G20

Dryam,

That is a difficult subject but you're right. There seems to be a huge amount of resources employed in ensuring people live for as long as humanly possible, regardless of the quality of that life. Unfortunately, I don't have hard figures for how this issue affects our resources but I sometimes wonder if the only medical help we should provide, apart from some basic stuff like splints to help nature heal in a more useful way, is pain relief.

Tony

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brosswurm
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Posts: 3
Re: Destined to Fail – Magical Thinking at the G20

Interesting first post 'brosswurm.'

Actually, the burden is not on us to verify anything that is based on a super-basic level of knowledge.  I truly wish we had the time to start at square zero with everybody who demands it of us, but it's not possible.

So let me turn it around.  How about instead that it's up to you to provide any facts you can to support your implied claim that climbing population levels have not created any problems or predicaments?  Perhaps in the interest of simplicity you could start with:

  • Energy use (in aggregate, across oil and coal just to keep it simple).  How is it that you think that more people do not use more energy?  Given peak oil, how is this not a predicament?   Please be specific and use actual data.
  • Fresh water use and availability.  Again, to keep it simple, how about we constrain this conversation to the American southwest and the use of aquifers? Pick Phoenix and project their issues for the next two decades just for fun.
  • The impact of populations on local resource utilization including water, water treatment, road congestion, school crowding, land use and parking space availability, etc.,etc.,etc.  If you manage to find a way that increasing population does not create additional strains on local resources please PM me immediately as I know of 12,543 local planning boards that need to consult with you pronto.

Honestly, anybody who cannot intuitively and immediately understand the linear and direct connection between population growth and problems that need solving is going to have a hard time at a site where we try and grok the subtleties of living in a non-linear, complex and even chaotic world.

Even more honestly I cannot fathom how somebody could move through life without noting the exceptional levels of dedicated hard work that growth requires and imposes. 

At any rate, our style here is not to place our burdens on others (this site has a strong undercurrent of personal responsibility) so I would ask that anybody seeking to challenge something do so in the form of presenting countervailing evidence, not open-ended questions easily addressed on their own time. 

Thanks in advance.

Chris M.

Hi Chris,

First let me say this.  I have the highest respect for you and what you are doing on this website.  Big troubles are coming and I thank you for helping thousands to prepare for it!  You are doing a great job!  It is not my intention to cause any trouble on your blogs or talk forums. 

And I probably should not have posted what I did, because it only detracts from what the mission is on your website.  Now in saying all that the reason why I posted what I did, is because I think the evidence doesn't support the theory that over population is a problem.  And since you asked me to respond I would like to.  Please give me some time to present it.  And also when I am ready to present it, where should I post it so that it doesn't take away from the main goal of your website?  So please understand I am not a person posting trying to make trouble.  I have learned much from your crash course and website.  Thank you.

Bruce

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sofistek
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Posts: 644
Re: Destined to Fail – Magical Thinking at the G20

Great article, Chris.

One could break down that need for more jobs in another way. If the population is growing and/or not everyone who wants a job has one, then more jobs are needed. However, you're right that population growth must end and we need to figure out how to end it before nature does it for us. It seems as though no-one wants to address the issue and everyone is keeping their fingers crossed that population growth will end through demographics, leveling out somewhere north of 9 billion in the second half of the century. They are also keeping their fingers crossed that 9-10 billion people can be safely accommodated without trashing the planet.

I'm so glad you stated explicitly that "sustainable growth" is an oxymoron. However, amazingly, some people, even some who otherwise appear to understand our predicament, think growth can go on forever. Some posit the idea of a small amount of growth (a small fraction of a percent, say). I know, it's incredible. Some posit the idea of efficiency fuelling growth. That's incredible too - just improve efficiency by x% per year and the economy can grow by some proportional amount. Bizarre thinking, but common. Just like another thought that scarce resources can always be substituted for.

I'd like to see this message emphasised more here: growth is unsustainable. Clearly we have a need for zero growth (probably after a period of contraction) but have you given any thought to what society might look like with zero growth? This is something I haven't quite managed to get my head around. Would a zero growth economy have any similarity to today's growth based economy? How would communities be organised, would businesses be recognisable (profits seem to be incompatible with zero growth). Why would a business start up, if it can't grow itself or grow the market? What businesses make no sense in a zero-growth world? And so on. Are you planning any articles that address these things?

Tony

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idoctor
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Posts: 1731
Re: Destined to Fail – Magical Thinking at the G20

I will disagree that a 12% increase in taxes would be an enormous burden.  Of course the unemployed make no income, so an increase in income taxes would have no effect on them.  It would mean about $4,000 additional taxes for someone with a median income of about $45,000.  If someone with an income of $45,000/yr can't stay afloat with an additional $4,000 taxes, I would argue that this person has not learned the lessons of the last couple of years and will eventually go under anyway.

Wow LOL......raise my taxes 12% & I will have 3 new people that work for me signing up for unemployment tomorrow.....

Thinking like Gubermant causes real proplems LOL.

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