Economy

video

You are missing some Flash content that should appear here! Perhaps your browser cannot display it, or maybe it did not initialize correctly.

In the next section, we will discuss the intersection between Energy and the Economy, and I will make the point that it was no accident that our exponential, debt-based money system grew up at precisely the same moment that a new source of high quality energy was discovered that proved capable of increasing exponentially right alongside it.

Now we embark on the precise line of thinking that completely dominates my investing and purchasing habits. I call it energy economics.

With sufficient surplus energy, humans can construct remarkably complex creations in short order. Social complexity relies on surplus energy. Societies that unwillingly lose complexity are notoriously unpleasant places to live. Given this, shouldn’t we pay close attention to how much surplus energy we’ve got and where it comes from?

video

You are missing some Flash content that should appear here! Perhaps your browser cannot display it, or maybe it did not initialize correctly.

Energy is the lifeblood of any economy. But when an economy is based on an exponential debt-based money system that is itself based on exponentially increasing energy supplies, the supply of that energy deserves our very highest attention.

Oil is a miracle, working tirelessly in the background to make our lives easy beyond historical measure. Oil represents over 50% of US total yearly energy use, while oil and natural gas together represent over 75%. How easily could we replace the role of oil in our style of consumer-led, growth based economy? Not very.

Peak Oil is simply a fact. Peak Oil is NOT synonymous with “running out of oil.” But the most urgent issue before us does not lie with identifying the precise moment of Peak Oil. What we need to be most concerned with is the day that world petroleum demand outstrips available supply. It is at that moment that the oil markets will change forever - and probably quite suddenly.

video

You are missing some Flash content that should appear here! Perhaps your browser cannot display it, or maybe it did not initialize correctly.

In this Crash Course video chapter called Fuzzy Numbers, you will learn how our official economic statistics are based on deeply misleading, if not provably false, data. Our economic recession, and possibly depression, can be partially explained by the extent to which we have chosen to provide ourselves with misleading economic data. Certainly if you share my concerns over stocks, bonds, and 401K holdings, or are a serious investor of any sort, you owe it to yourself to listen to this explanation of how wrong our measures of inflation and GDP really are.

In Fuzzy Numbers, we will examine the ways that our measures of inflation and Gross Domestic Product, or GDP, are flawed, using charts of inflation and GDP as well as other easy-to-understand graphics. This chapter will help you understand inflation and GDP and how our national obsession with misrepresenting them to ourselves has led us to the edge of a recession and possibly depression.

video

You are missing some Flash content that should appear here! Perhaps your browser cannot display it, or maybe it did not initialize correctly.

Now we enter Part Two of the Crash Course. With the background you’ve received thus far, you are now positioned to understand how the Three “E”s - the Economy, Energy, and the Environment - intersect and seemingly converge on a very narrow window of the future - the Twenty-Teens. The next twenty years are going to be completely unlike the last twenty years.

For you and me, there are only two ways to settle a debt: 1) Pay it off or 2) default on it. If you have a printing press like the government does, a third option exists: 3) Printing money to pay for the debt. So what is debt, really? Debt represents future consumption taken today.

Our entire economic system, and by extension our way of life, is founded on debt, and debt is founded on the assumption that the future will always be bigger than the past. Therefore it is utterly vital that we examine this assumption closely, because if this assumption is false, so are a lot of other critical things that we may be taking for granted.

video

You are missing some Flash content that should appear here! Perhaps your browser cannot display it, or maybe it did not initialize correctly.

During the Crash Course, you will often encounter numbers that are expressed intrillions. How much is a trillion?

A trillion is a very, very big number, and I think it would be worth spending a couple of minutes trying to get our arms around the concept.

Make no mistake, we should not be lulled into complacency simply because it is too big to really get our minds around.

Keep this lesson in mind as we discuss the total accumulated debts and liabilities of the US, which are many tens of trillions of dollars.

video

You are missing some Flash content that should appear here! Perhaps your browser cannot display it, or maybe it did not initialize correctly.

Most of us think of inflation as rising prices, but that’s not quite right. Inflation is not caused by rising prices. Rising prices are a symptom of inflation. Inflation is caused by the presence of too much money in relation to goods and services. What we experience is things going up in price, but in fact, inflation is really the value of your money going down, simply because there’s too much of it around. Inflation is, everywhere and always, a monetary phenomenon.

From 1665 to 1776 there was absolutely no inflation. For 111 years, a dollar saved was, well, a dollar saved. Can you imagine what it would be like to live in a world where you could earn a thousand dollars, put it in a coffee can in the backyard, and your great- great grandchildren could dig it up and enjoy the same benefits from that thousand dollars as you would have 111 years previously? This was reality in the US at one time.

What does it mean to live in a world where your money loses value exponentially?

video

You are missing some Flash content that should appear here! Perhaps your browser cannot display it, or maybe it did not initialize correctly.

The purpose of this section is to show you that the US government has radically shifted the rules during times of emergency and that our monetary system is really a lot younger than you might think.

In 1933, newly-elected President Franklin D. Roosevelt decided to counter the falling money supply in a most drastic manner. To accomplish this he confiscated all privately-held gold and immediately devalued the US dollar. This goes to show how governments, in a period of emergency, can change rules and break their own laws.

Fast forward to 1971, when President Nixon “slammed the gold window,” ending its dollar convertibility. Without a gold backing, there was no hard, physical limit to how many paper dollars could be issued.

What will it be like to live here when our nation is creating a trillion dollars every four weeks? How about every four days?

video

You are missing some Flash content that should appear here! Perhaps your browser cannot display it, or maybe it did not initialize correctly.

Here’s a quote from a Federal Reserve publication entitled “Putting it Simply”: When you or I write a check, there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.

Wow. That is an extraordinary power. Whereas you or I need to work to obtain money, and place it at risk to have it grow, the Federal Reserve simply prints up as much as it wishes, whenever it wants, and then loans it to us via the US government, with interest.

All dollars are backed by debt. There are two kinds of money out there. At the local bank level, all new money is loaned into existence. At the Federal Reserve level, money is simply manufactured out of thin air and then exchanged for interest-paying government debt. And perpetual expansion is a requirement of modern banking.

video

You are missing some Flash content that should appear here! Perhaps your browser cannot display it, or maybe it did not initialize correctly.

Here we will explore the process by which money is created. In order to appreciate the implications of our massive levels of debt, you have to understand how the debt came into being.

John Kenneth Galbraith once famously said, “The process by which money is created is so simple that the mind is repelled.” We’re about to discuss that very thing. Money creation is a bizarre thing to ponder. It is actually a very simple process, but it’s really difficult to accept.

Money is loaned into existence. Conversely, when loans are paid back, money ‘disappears.’

There is a federal rule that allows banks to loan out a proportion, a fraction, of the money they have on deposit to others. In theory, banks are allowed to loan out up to 90% of what people have on deposit with them. Because banks retain only a fraction of their deposits in reserve, the term for this process is “fractional reserve banking.”

video

You are missing some Flash content that should appear here! Perhaps your browser cannot display it, or maybe it did not initialize correctly.

Massive change is upon us. To understand the nature of this change, we need to understand the three “E”s – the Economy, Energy, and the Environment - which is where we’ll spend the rest of our time in the Crash Course.

The first “E” is the economy, which is the lens through which the Crash Course looks at everything, specifically exponential money, the first-ever collapse of a global credit binge, an aging population, and a national failure to save.

The second “E” is energy. We will explore what Peak Oil implies for an economic system that is based on continual expansion.

The third “E”, the environment, will be exerting its own unknowable but certainly significant economic burdens due to shrinking resources and other systemic pressures while the other two “E”s are clamoring for your money and attention.