Podcast

Mapping The Fugly Future with David Collum

Thursday, February 17, 2011, 9:17 PM

In the course of his info-scouting, Chris has conversations with many different thinkers. Some are well-known to you; others perhaps less so. An important objective of our podcast interview series is to expose our listeners to the variety of voices and points of view that Chris considers when developing the perspective that he brings to his reporting.

David Collum may be a new voice to many of you. Like Chris, David came to the field of macroeconomic study from a scientific background. Again like Chris, his published observations and predictions have begun to amass a readership built on respect for his emprical approach to projecting the future. For those of you unfamilar with David's work, we think you'll enjoy having this insider's ear to his recent recorded discussion with Chris, which covers a wide range of topics.

In short, David sees a world where market risk has been removed (through misguided government intervention), leading to perverse behavior. In many ways, we are repeating the sins of past empires - and he warns us that history has a much higher incident rate of soverign insolvency than we may want to believe.

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In this podcast, David and Chris discuss: 


How our financial system has stopped pricing risk, creating dangerous asset bubbles and  bad incentives, and resulting in truly detrimental decision-making.


    We're not yet taking the rational steps to correct the system.

    As with our recent interviews with Joe SaluzziJim RogersMarc Faber, and Bill Fleckenstein, David ends the interview with a look forward: History is repeating itself, and we are approaching an inflection point that will be forced on us by economic & natural limits. Real risks are increasing; the most concerning are a bond market revolt, resource shortages. and social unrest. Rampant inflation and taxation will likely define the next decade. At our current trajectory, if we don't take great steps to change our behavior, things have a high probability of ending poorly. 


    David B. Collum is a professor of Chemistry and Chemical Biology at Cornell University. In addition to his academic interests, Dan authors an annual macroeconomic assessment. He recently published his 2010 Year In Review: Fugly Gives Way To Muddling.

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    28 Comments

    idoctor's picture
    idoctor
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    Re: Mapping The Fugly Future with David Collum

    Wow what a great interview & content. Interesting only a 20% chance of a currency crises in the next 10 years if I heard this right? Guess a betting person would be wiser to go with the higher odds of 80% of it not happening.

    ebsmythe's picture
    ebsmythe
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    Re: Mapping The Fugly Future with David Collum.

    Another reinforcing voice to what we all see.  Thank you Chris for introducing David to your followers.  Let us all  know the answer on whether the energy component  increase of other goods is taken out to calculate CPI .  

    We admire what you are doing.  We follow you daily along with a host of others, and as Canadians we keep asking when will Americans say " Enough!".  The blatant corruption in the system is astounding.  I agree with David that this kind of self aggrandizement has been seen throughout history - but sooner or later others caught in the behavior try to eliminate it. Sadly this universal story of human being's  self interest is being played out on a grand scale this time around, affecting us all no matter where we live. 

    rmurfster's picture
    rmurfster
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    Re: Mapping The Fugly Future with David Collum

    "Fugly"??   Is that a technical term?Sealed

    Nate's picture
    Nate
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    Re: Mapping The Fugly Future with David Collum

    This past week has been difficult for me.  Didn't know why until I read the summary of the interview:

    The odd state of seeing reality through a different lens than the majority. How does one tell when the minority opinion is actually the more accurate one?

    About 10 individuals I deal with are on board.  Everyone else thinks I am nuts.  The minority opinion is more accurate.  Period

    dps's picture
    dps
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    Re: Mapping The Fugly Future with David Collum

    Nate,

    We have all gone through that issue and we will all probably continue to go through that for some time to come.

    You are not alone.

    Yes, it is hard.

    Much evidence of crumbling is building now.  In some wierd sense, it's encouraging.

    Hugs ... dons

    danroot's picture
    danroot
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    Re: Mapping The Fugly Future with David Collum

    In the interview David noted that he was hedging his bets with regards to protecting his assets.  He noted physical metals, as one venue, but hinted at others that he would not mention. 

    Without divulging what he is doing and assuming that we do not know, does anyone have any insight as to what other mechanisms there are out there to keep one's assets out of the hands of over reaching and very hungary government?

    dps's picture
    dps
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    Re: Mapping The Fugly Future with David Collum

    You will find numerous ideas about "assets" and "true prosperity" in the "what should I do" series.

    plato1965's picture
    plato1965
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    Re: Mapping The Fugly Future with David Collum

    Hugely enjoyable and informative interview... loved the humour !

    I find it interesting that a hard science background seems compatible with accurately seeing the fundamentals of a situation as opposed, to say the blinkered, professional orthodox, modern economist..  (notable exceptions - eg Steve Keen)..

    SagerXX's picture
    SagerXX
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    Re: Mapping The Fugly Future with David Collum

    Nate wrote:

    This past week has been difficult for me.  Didn't know why until I read the summary of the interview:

    The odd state of seeing reality through a different lens than the majority. How does one tell when the minority opinion is actually the more accurate one?

    About 10 individuals I deal with are on board.  Everyone else thinks I am nuts.  The minority opinion is more accurate.  Period

    The hardest part for me (as I'm fortunate enough to have a certain critical mass of people in my life who Get It -- enough to keep me from wondering if I'm raving nutters) is to look the people who think *I'm* nuts in the eye and feel compassion.  Not an easy thing to do.

    Thomas's picture
    Thomas
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    Re: Mapping The Fugly Future with David Collum

    Thomas is my pseudonym. I am the guy in the interview (Dave). With that out of the way, I have found that personality type dictates people's receptivity to new (sometimes disturbing) ideas. I seem to be prone to embrace them (possibly to a fault). Others will embrace ideas that challenge their notions of the world with difficulty at best (especially when it requires declaring that one or more experts must be dead wrong). Often we feel a missionary zeal to share our new-found epiphanies with others who do not wish to hear them. CM was so moved that he created the Crash Course. Wow! Many of us just become tedious to friends and family is my guess. 

    britinbe's picture
    britinbe
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    Re: Mapping The Fugly Future with David Collum

    the best one yet.  It really drew me in, it was if I was there enjoying a coffee or a beer. 

    More please!!

    britinbe's picture
    britinbe
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    Re: Mapping The Fugly Future with David Collum

    Nate wrote:

    This past week has been difficult for me.  Didn't know why until I read the summary of the interview:

    The odd state of seeing reality through a different lens than the majority. How does one tell when the minority opinion is actually the more accurate one?

    About 10 individuals I deal with are on board.  Everyone else thinks I am nuts.  The minority opinion is more accurate.  Period

    Many on this board and similar boards will feel the same way.  I just want to shout at people to wake the F*** up and take a look around.  I do talk about this stuff from an economical/business stand point and when people do talk about this stuff to me, I relate the government finance to their own personal checking/current account and ask them what would ahppen if they ran a deficit of 50 euros every month.  The aways conclude that they would ultimately have a issue, my response is then, how can the governement be different from you or me if they keep having to borrow?

    I've pricked a few peoples interest by talking about gold, silver and oil prices over the last few years, their interest has been triggered by basic greed, sorry, I mean investment realisation.  They ask how did I know which then takes me back to the checking/current account conversation with the added fiscal stimulus stuff.

    In a conversation with a work colleague I made the point to her that what she saw as being blindly obvious, others were simply blind to!  I think the point fits for many many people

    Travlin's picture
    Travlin
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    Re: Mapping The Fugly Future with David Collum

    This was a wonderful podcast.  I was listening to a conversation between two very knowledgeable people, and not an interview.  It was very refreshing to get such good information in a pleasant way

    Here is the link to David's report that Chris posted previously.  http://www.peakprosperity.com/forum/david-b-collums-2010-year-review/50352

    Travlin 

    Mirv's picture
    Mirv
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    Re: Mapping The Fugly Future with David Collum

    This was an absolutely wonderful interview. 

    Listening to two scientific thinkers discuss reality and the defects in economic thinking by the (non-science non-reality thinking)  money marketers, provided stark contrast that illuminated an important difference which indicates the problem we face and  the solution. 

    On one side are the educated scientist and technologist, who approach the world fundamentally via constant reality checks that are honored and obeyed.  The other side are marketers, who make up stories, believe those made up stories, then become excellent (and wealthy) in sales.  Wall street lacks reality checks.  The money marketing people there contrive their own reality which is tested by how much money they skim from us.  

    Our basic problem is that decision makers and managers are dreaming (not trained in science or technology: the business of understanding and manipulating reality) but are divorced from physical reality.  In the case of economics, that means real wealth.  Every economic decision must be predicated and must honor and have a goal to create or  preserve real wealth.  Economics is not a science.  (where would it fit? between chemistry and physics? or perhaps it fits more easily between chess and the game Monopoly by Parker Brothers?) It is a discipline with a purpose to create wealth. It relies on physics, chemistry, and mathematics and has some logic, which some point to as evidence of "science."   Scientists on the other hand are trained to pay attention to wealth that is seen touchable, etc. as facts, which cannot be disobeyed.  We need this reality, or science perspective by all politicians and all economists. That is the fundamental problem and also the reason why  Chris and David easily can see the problem  where others cannot.  Every discussion and every decision  should concern real wealth and should have as a goal the creation and conservation of real wealth.  Energy, food, clothing, shelter, creation of free time, safety etc is the business of civilization and also is the purpose of economics.  Anyone (politician, banker etc) who cannot follow this true meaning of economics should be removed somehow.  The solution to our problem is how to remove these people from controlling our world and to put the engineer, farmers etc back in charge.

    When looking at the history of science, (the progress of civilization) the same problem has always been the key obstacle.  The scientist perspective has been a check on the leaders who take wealth and power from others but cannot understand or dont care about the creation of real wealth by others. Almost all of our wealth and quality of life has come from science and technology development that opposed the status quo.  Scientists  (Chris and David) always end up challenging this status quo. Perhaps the new role of scientists in our future is to provide this  focus on reality and to train others to focus on the real world, a world of objective observation of physical reality. Money only has meaning and is secondary to this primary work.  According to this view, economists  are running around chasing dreams (and taking our money and wealth), while the scientists and engineers are focused on what is important.  There must be a way to get the country focused on reality (creation/preservation of real wealth) again.  I note in this context that the managers of China today are engineers, and not "economists"or political organizers (our country) who are living in a dream world.  We need engineers and other science trained people to run our system.  That is the basic problem.  That is the solution. I cannot help but notice this while listening to the two scientists' discussion of the problem.

    Thomas's picture
    Thomas
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    Re: Mapping The Fugly Future with David Collum

    Motsy:

    Wall Street is loaded with scientists. I think the problem when you compensate these folks in a way that rewards gaming the system you simply have created a gigantic rat experiment in which they are conditioned to press the bar and get the reward. The fact that Wall Street makes the bulk of its money by trading against its own clients certainly doesn't help. I personally believe it traces back to the Federal Reserve and the current structure of the credit system.

    Dave

    corbly's picture
    corbly
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    Surviving Crisis in Cuba: The Second Agrarian Reform and Sustain

    Surviving Crisis in Cuba: The Second Agrarian Reform and Sustainable Agriculture

    September 20, 2005

    When trade relations with the Soviet Bloc crumbled in late 1989 and 1990, and the US tightened the trade embargo, Cuba was plunged into economic crisis. In 1991 the government declared the “Special Period in Peacetime,” which basically put the country on a wartime economy-style austerity program. An immediate 53 percent reduction in oil imports not only affected fuel availability for the economy, but also reduced to zero the foreign exchange that Cuba had formerly obtained via the re-export of petroleum. Imports of wheat and other grains for human consumption dropped by more than 50 percent, while other foodstuffs declined even more. Cuban agriculture was faced with an initial drop of about 70 percent in the availability of fertilizers and pesticides, and more than 50 percent in fuel and other energy sources produced by petroleum.

    http://www.landaction.org/display.php?article=337

    plato1965's picture
    plato1965
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    I have found that

    I have found that personality type dictates people's receptivity to new (sometimes disturbing) ideas. I seem to be prone to embrace them (possibly to a fault). Others will embrace ideas that challenge their notions of the world with difficulty at best (especially when it requires declaring that one or more experts must be dead wrong).

    Yup.. the old Milgram Experiment.. or as my old Physics prof put it.. "Conform, or think ?"

    http://www.blackwellpublishing.com/products/journals/aag/AAG_Oct04/aag_45508.htm

    Fairly obvious which route Chuck Prince took.... Money mouth (dance stopping ? - "not my department says Werner Von Braun..."  )

    Thanks for the pointer to Mark Gilbert btw.. ! He's good..

    http://www.bloomberg.com/opinion/gilbert/

    Thomas's picture
    Thomas
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    Prince

    I recall when Prince assured the world that Citigroup was "fully hedged". My first thought was "by whom? The Klingon Empire?"

    cmorrow's picture
    cmorrow
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    Help with somethin I didn't understand

    On page 15 of the pdf version of his blog post David says this:

    "If Rogoff and Reinhart are correct, we will default on our obligations aborad using deflation - the eat and dash model - and default on domestic obligations through inflation."

    Can someone explain how we can do both at the same time?

    Thanks

    By the way, it is worth reading the blog post even if you listened to the podcast...

    Bruce C.'s picture
    Bruce C.
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    20% within 10 years? So what data are you not looking at?

    I liked your interview with David Collum.

    I was surprised to hear, however, that you think there is only a 1-in-5 chance of there being a pretty significant fiscal crisis in the United States within the next ten years. Just as you’re surprised that some (most?) people who look at the same data that you do and conclude that such a thing will never happen, I think it is inevitable and will happen much sooner than most people can seriously believe, like within this year.  

    Bernanke, et al may think that core inflation in the US is still benign, but he does not deny that food and energy prices are up both here and all over the world. (By the way, the “energy component” of the core-CPI elements are not stripped out.) He just doesn’t care, and also hopes that they will revalue their currencies to deal with it (e.g., China’s yuan). One reason that all the QE and government stimuli is not working as planned, or at least as quickly, is because there are so many deflationary forces in play simultaneously that tend to counter the inflationary force of the central banks’ efforts. Enormous distrortions are being created that are still being masked. Egypt blew up becuase of food prices and a poor economy, not for the desire of democracy, as I’m sure you know. But Egypt is not that unique so I expect more uprisings happening all over the world soon. Starvation occurs in a matter of weeks so this isn’t a situation that can simply fester. Egypt’s government reduced its food subsidies, which exacerbated the situation, but other countries’ efforts to subsidize food costs are contributing to rising interest rates. A bond crisis is very possible this year.  Let’s see how the Treasury auctions go this week ($99 billion in 2 to 7 year bonds will be sold ). Given the rates almost everywhere else in the world, I suspect the Fed is going to have to suck up most of them to keep our rates down. But the world needs to roll-over $4 T worth this year alone, so I think the CB’s will be overwhlemed and rates are going up, even if it’s just due to speculation and inflation expectations.  These are only two of many examples I could give. I see no way for the US, Japan, the UK, and Europe to continue much longer. Would you buy any of those countries bonds now at these rates? China is only buying PIIG debt to maintain the Eurozone market and for strategic advantages. And, if things get out of hand in the middle east, and/or if oil goes up more than $150/B then I think the petro-dollar agreement, and therefore the US dollar itself, is toast.

    I’d like to say more, but I gotta go.  Thanks again.

    evohep's picture
    evohep
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    David Collum Interview

    Exceptional interview.

    Chris and David Collum, many thanks.

    Reality is an ‘Agreed Upon Opinion’

    Reality... Currently, only available to the human consciousness.

    Well. The reality is sinking in.

    Kind Regards

    Please, Chris, keep up your great work.

    Kind Regards.

    Thomas's picture
    Thomas
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    Combo default

    cmorrow wrote:

    On page 15 of the pdf version of his blog post David says this:

    "If Rogoff and Reinhart are correct, we will default on our obligations aborad using deflation - the eat and dash model - and default on domestic obligations through inflation."

    Can someone explain how we can do both at the same time?

    It's a little loose in concept, but I have no trouble imagining efforts to keep the locals whole by various bailouts of pension funds while destroying the currency and defaulting on other obligations. We could also agree to provide government subsidy for human services while defaulting on pure financial obligations (especially munis, for example.) Not all defaults have equivalent national and international impact. With that said, the point of your question is well taken. 

    cmartenson's picture
    cmartenson
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    20% within 10 years? So what data are you not looking at?

    Bruce C. wrote:

    I liked your interview with David Collum.

    I was surprised to hear, however, that you think there is only a 1-in-5 chance of there being a pretty significant fiscal crisis in the United States within the next ten years.

    The "1 in 5 in 10" is just for framing purposes.  I think most people can grasp that as reasonable if not wildly conservative.  Given that, how would your behavior change once you accept that premise?  My hope is that most people would decide that some form(s) of insuance against that possibility would be a very good idea.

    My actual assessment of the risk is 100% that some form of default is on the way for the US government.  Be that a default via inflation or deflation is the open question for the dollar and debts, although I lean very heavily (and moreso every day) towards inflation.

    As well there will be some active defaults meaning a reduction in the promised payouts for pensioners and retirees, if not outright cancellation for some.

    How can I be 100% certain?  Easy.  Anything that cannot be paid back, won't.  The $100 trillion +++ NPV shortfall of the US government cannot bepaid back with current dollars.  They will need to use some heavily debased form of future dollars, massive defaults, or more likely some combination of both.

    The bottom line is a lower standard of living for the masses.  

    The writing is on the wall, the only question is how we will each individually and more collectively prepare ourselves for that future here and now.

    Okay, so since I am 100% certain, the next question is about the "ten years" part.  Ah, timing is everything.  Suffice it to say that this is a moving target that I adjust based on what sorts of dots I am connecting and that this is the main service I perform for enrolled members, which is how this site suports itself and can offer so much for free.

    KugsCheese's picture
    KugsCheese
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    So can you short banks...

    or can you not fight the monster?

    guardia's picture
    guardia
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    Re: So can you short banks...

    KugsCheese wrote:

    or can you not fight the monster?

    The trick is all in building local communities, trading inside that community, or outside, but not relying as much as possible on the dollar to do it...

    Samuel

    KugsCheese's picture
    KugsCheese
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    Re: So can you short banks...

    guardia wrote:

    KugsCheese wrote:

    or can you not fight the monster?

    The trick is all in building local communities, trading inside that community, or outside, but not relying as much as possible on the dollar to do it...

    Samuel

    Well, I am in the USA so how do I divest from the dollar when the counter-party has to hold the dollar assets and might go under or not pay up full?  Move out of the USA?

    guardia's picture
    guardia
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    Re: So can you short banks...

    KugsCheese wrote:

    Well, I am in the USA so how do I divest from the dollar when the counter-party has to hold the dollar assets and might go under or not pay up full?  Move out of the USA?

    No, no need for that. Check the excellent "What Should I Do?" series of articles from Chris for a start.. There are many ways to get by without dollars: barter, time banks, silver and gold coins, etc. We have to figure out what works for each one of us in our own situations... Moving out of the dollar is not a choice, it's a necessity. It will be worthless at some point in the future, it's only a matter of time.

    Samuel

    Hambone's picture
    Hambone
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    Reality...but whose?

    "The waiting is the hardest part"...or so the song goes.  Reality is what it is until it is something else.  Steping in front of the national or financial paradigm can be a very difficult experience.  I thought a telling experience was David Einhorns short of Netflix which cost him dearly and just as he relents and takes his lose...Netflix is suddenly undercut and shown as an inferior business model it was all along.  Not a discussion of the merits of Netflixs but the pain of seeing the next crash and then dying by degrees as every possible countermeasure to delay  collapse is undertaken. 

    This last(?) great bubble has every political, financial, governmental, international, etc. rationale to avoid it's collapse.  Thus it seems likely "this" will be extended beyond belief, beyond despair, beyond revolution, beyond chaos...because the only counter option is honesty, humiliation of those that led us into this (and humiliation for adults (Americans) who believed fairy tales), and a shared sacrifice to our standard of living.  That would be the deflationary bust.

    On the other hand, inflation is the skewed sacrifice hurting the least among us the worst, both globally and nationally...it is the palatable elixir of the .1% of elites of the world (and their vast minions).  Plus as noted by so many, it is so easy to play inflation  off to increased demand, decreased supply, any exogenous input that somehow doesn't include TPTB.

    BTW - I really don't see this last burst or bust as the "opportunity" that the previous crashes were.  I agree w/ Chris M's excellent diagnosis of the 3E's and peak everything converging to create a situation that is to be endured until a "new normal" is established and then hopefully you have the tools to be successful.  Inflation, deflation, taxation, starvation, privation, conflagration, humilation, extortion, cofusion...lots of "shunnnn" to be avoided and Chris' video series offers the best  bet to skirt this for those you love; recognition.

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