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    Exponential Money in a Finite World

    by Chris Martenson

    Tuesday, July 6, 2010, 4:19 AM

I’m going to repost this article for any newcomers and any old-timers because it is worth reviewing from time to time.  It’s the center of my thesis about how the world works and what’s likely to come.

Once you’ve read this, if you have not done so it’s time to either watch the 45 minute ‘short version’ of the Crash Course, or begin the Crash Course itself.

And if you happen to be brand new to the site and are wondering what it has to offer and how to navigate it, I would invite you to visit our Welcome Page.

Now, onto the article…..


Exponential Money in a Finite World

 

The greatest shortcoming of the human race is our inability to understand the exponential function.

~ Dr. Albert Bartlett

Within the next twenty years, the most profound changes in all of economic history will sweep the globe. The economic chaos and turbulence we are now experiencing are merely the opening salvos in what will prove to be a long, disruptive period of adjustment. Our choices now are to either evolve a new economic model that is compatible with limited physical resources, or to risk a catastrophic failure of our monetary system, and with it the basis for civilization as we know it today.

In order to understand why, we must start at the beginning. While it was operating well, our monetary system was a great system, one that fostered incredible technological innovation and advances in standards of living, two characteristics that I fervently wish to continue. But every system has its pros and its cons, and our monetary system has a doozy of a flaw.

It is this: Our monetary system must continually expand, forever.

The US/world monetary system was designed and implemented at a time when the earth’s resources seemed limitless, so few gave much critical thought to the implications that every single dollar in circulation was to be loaned into existence by a bank with interest. In fact, most thought it a terribly “modern” concept, and most probably still do.

But anything that is continually expanding by some percentage amount, no matter how minuscule, is said to be growing geometrically, or exponentially.

Geometric growth can be seen in this sequence of numbers (1, 2, 4, 8, 16, 32, 64), while an arithmetic growth sequence is (1, 2, 3, 4, 5, 6, 7). In 1798, Thomas Malthus postulated that the human population’s geometric growth would, at some point, exceed the arithmetic returns of the earth, principally in the arena of food. To paraphrase, he recognized that the exponential growth of human numbers would meet with the constraints imposed by a finite world. As seen in the chart below, human population is growing exponentially, and is on track to reach 9.5 billion by 2050. To put this in perspective, it was only in 1960 that the world first passed 3 billion in total population, the same amount that is projected to be added over the next 42 years. Each new person places additional demands on food, water, energy, and other finite resources.

 

In parallel with exponential population growth, our monetary system is also exhibiting exponential behavior. Consider this evidence:

1) Money supply growth (see chart above). It took us from 1620 until 1973 to create the first $1trillion of US money stock (measured by adding up every bank account, CD, money market fund, etc). Every road, factory, bridge, school, and house built, together with every war fought and every other economic transaction that ever took place over those first 350 years, resulted in the creation of $1 trillion in money stock [1]. The most recent $1 trillion? That has been created in only 4.5 months. The dotted line in the chart is an idealized exponential curve, while the solid line is actual monetary data. The fit is nearly perfect (with a correlation of 0.98, for those interested). Data from the Federal Reserve.

 

2) Household debt has doubled in only 7 years, growing from seven to fourteen trillion dollars. Think about that for a minute. It is a stunning turn of events. Have household incomes also doubled in 7 years? No, not even close; they have grown less than half as much, calling into question how these loans will be repaid, let alone doubled again. Data from the Federal Reserve.

3) Total credit market debt (that’s all debt) had finally exceeded $5 trillion by 1975, but has recently increased by $5 trillion in just the past 2 years (from 2006 – 2008), and now stands at nearly $50 trillion. In order for the next twenty years to resemble the last twenty years, debt would have to expand by another 3 to 4 times, to somewhere between $150 trillion and $200 trillion. How likely do you think this is? Data from the Federal Reserve.

How do we make sense of money numbers this large and growing this fast? Why is this happening? Could it be that the US economy is so robust that it requires monetary and credit growth to double every 6-7 years? Are US households expecting a huge surge in wages, to be able to pay off all that debt? If not, then what’s going on? The key to understanding all three of the above money and debt charts was snuck in a few paragraphs ago; every single dollar in circulation is loaned into existence by a bank, with interest.

That little statement contains the entire mystery. As improbable as it may sound to you that all money is backed by debt, it is precisely correct, and while many of you are going to struggle with the concept, you’ll be in good company. John Kenneth Galbraith, the world-famous Harvard economist, said, “The process by which banks create money is so simple that the mind is repelled.” [2]

Here’s how money (and debt) creation works: Suppose we wipe the entire system clean and start over, so that we can more easily understand the process. Say you enter the first (and only) bank and receive the very first loan for $1000. At this point the bank has an asset (your loan) on the books, and you have $1000 in cash and a $1000 liability owed to the bank. After a month passes, and the first interest accrues, we peek into the system and observe that the $1000 in money still exists, but that your debt has grown by the size of the interest (let’s call that $10). Now your total debt to the bank is $1000 plus the $10 interest or $1010 in total.

Since there’s only $1000 floating around, and that’s all there is, clearly there’s not enough money to settle the whole debt. So where will the required $10 come from? In our system it must be loaned into existence, taking the form of $10 of new money plus $10 of new debt that must also be paid back with interest.

But if our system requires new and larger loans to enable the repayment of old loans, aren’t we actually just compounding the total amount of debt (and resulting money) with every passing year? Yes, that is precisely what is happening, and the three money/debt charts supplied above all provide confirmation of that dynamic.

In other words, our monetary system, and by extension our entire economy, are textbook examples of exponential systems. Yeast in a vat of sugar water, predator-free lemming populations, and algal blooms are natural examples of exponential growth. Plotted on graph paper, the lines tracking these populations start out slowly, begin to rise more quickly, and then, suddenly, shoot almost straight up, yielding a shape that resembles a hockey stick.

The key feature of exponential functions that our species desperately needs to understand is illustrated in this next example: [3]

Suppose I had a magic eyedropper that could dispense a drop of water with a most unusual trait – it will double in size every minute – and I place a drop of water in your hand. At first you’d just have a lonely drop of water sitting in your hand, but after one minute it would double in size, and after six minutes you’d have a blob of water that could fill a thimble. Do you have a sense of that growth? Now, follow me to Fenway Park, where I am going to place a drop from my magic eye dropper on the pitcher’s mound at 12:00 pm on January 1st of 2008. To make this interesting, let’s assume that the park is water-tight, and that I’ve handcuffed you to the highest row of bleacher seats. Way down there, on the mound, I bend over and plop a magic drop of water, so small you could not possibly see it from where you are sitting, and it begins to double. My question to you is, at what date and at what time would the park be completely filled? That is, how long do you have to escape from your handcuffs? Days? Weeks? Months? Years?

The answer is this: You have until 12:49 pm, on that same day, before the park is completely filled. You have only 49 minutes to escape your handcuffs. And at what time do you suppose that the park is still 97% empty space (and how many of you will appreciate the seriousness of your predicament)? The answer is that at 12:44 pm the park is still 97% unfilled. The first 44 minutes filled just 3% of the park, while the last 5 minutes filled the remaining 97%. From all of history until 1960 to reach a population of 3 billion humans; only 42 years from now to add another 3 billion.

And that’s why we need to appreciate exponential functions. For quite a while, everything seems just fine, and a few minutes later your park is overflowing. Time runs out in a hurry towards the end of any exponential growth system, forcing hurried decisions and limited options.

So how does this pertain to our economic problems, and why should you care? The truth is, there’s nothing inherently wrong with exponential growth, as long as you have unlimited room and resources. However, there are clear signs that several key resources on our planet are in their final minutes, to use our Fenway Park example.

And none of these are more important than crude oil. “Peak oil” is the global extension of the observation that individual oil fields, without exception, produce slightly more oil each year up to a point (“the peak”), after which they produce incrementally less and less oil each year, until their economics force abandonment. It is a fact that the US hit its peak of oil production in 1970 at approximately 10 million barrels a day and now produces barely more than 5 million barrels a day. It is now widely recognized that oil is a finite resource, and another cold, hard fact is that global oil discoveries peaked some 45 years ago. Because discoveries precede production (you’ve got to find it before you can pump it), we can be certain that production will peak too. We might disagree over the timing, but not the process.

I’m focusing on oil because energy drives an economy, not the other way around. The engine of any economy is energy, while money is merely the lubricating oil. Without energy, no amount of additional money would make the slightest difference in our lives. Economists love to say that higher oil prices will stimulate new oil production, as if demand could magically create supply. (Joke: If you lock three economists in a basement they won’t worry about starving, because they know their grumbling bellies will soon cause sandwiches to appear.) But just as there is no amount of additional price hikes that will cause more cod to come from the depleted oceans, oil fields will yield their treasures in accordance to geological limits, not human desire.

And here’s where the enormous monetary design flaw comes into the story. As Meadows, et al., in The Limits to Growth (1972) brilliantly predicted, we humans are now encountering physical, resource-constrained limits to our economic and population growth. So, on the one hand we have a monetary system that, by its very design, must expand exponentially in order to merely operate, while on the other hand we live on a spherical planet with finite resource limits.

When we started our exponential monetary system, initiated by the Bank of England around 1700 but kicked into high gear in 1971 with the international abandonment of gold settlement, nobody ever thought that the day would come when we’d find our ball park filled nearly to the brim. Who ever thought that oil production would hit a limit? Who knew that every acre of arable land, and then some, would someday be put into production? How could we possibly fish the seas empty? Yet all of these things have come to pass, and our monetary system demands that even more follow.

This is clearly an unsustainable arrangement. Someday soon, it will cease to be.

Repeating an opening sentence, our choices now are to either evolve a new economic model that is compatible with limited physical resources, or risk a catastrophic failure of our monetary system, and with it the basis for civilization as we know it today. I wish this collision between a finite planet and an exponential money system was far off in the future. Alas, it is certainly within the lifetime of people alive today, and likely already upon us.

We are leaving a legacy of debt to our children, born and unborn. Just as the direct printing of money favored by Wiemar Germany in the 1920s destroyed German’s purchasing power, so, too, does America’s debt accumulation promise to ruin our economy. Thus the moral argument beneath exponential growth in a finite context is: Should one generation consume beyond its means and either expect or hope that the next generations will somehow pick up the tab?

In summary, because our economic model and our entire system of money enforce a doctrine of limitless growth, they have become anachronisms incompatible with the well-being of the planet on which we live and depend. Our global money system might be complicated, and it might be sophisticated, but it is soon to be a vestige of the past.

Your job, your savings, your investments, and your future prospects and standard of living depend on the continuation of an unsustainable system now drawing to a close. You owe it to yourself to get ahead of the immense changes that are coming like water roiling up the steps towards the bleacher seat to which you are chained.

 


[1] Having trouble picturing a trillion? Think of it this way: If you had a single thousand-dollar bill, you could have a pretty good night on the town with your friends. If you had a stack of thousand dollar bills that was 4 inches high, you’d be a millionaire. If you had a stack just 40 inches high, you would be worth ten million dollars. How high would your stack have to be in order for you to be a trillionaire? The answer is, a solid stack of thousand dollar bills 68.9 miles high.

[2] If you need more help on this concept, please visit chapters 7 & 8 of my free, on-line Crash Course at http://PeakProsperity.com/crashcourse.

[3] I gained a much deeper appreciation for the power of exponential functions from transcripts of speeches given by the mathematician Dr. Albert Bartlett. This link goes to an exceptional example of his ability to make this complex subject startlingly clear.

(Originally published in September 2008)

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175 Comments

  • Sat, Oct 17, 2009 - 11:35am

    #1
    jdownie

    jdownie

    Status Bronze Member (Offline)

    Joined: Apr 07 2008

    Posts: 27

    Re: Exponential Money in a Finite World

    Perhaps the problem is that there needs to be a proper definition of money?

    Your graph states that there is some $14 trillion in US money stock, but if you look at the balance sheet of the Federal Reserve you’ll see there isn’t literally $14 trillion of US dollars in existence.

    Maybe the money market needs to be renamed the ‘money substitutes’ market.

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  • Sat, Oct 17, 2009 - 12:02pm

    #2
    dillonlisa1

    dillonlisa1

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    Joined: Aug 12 2009

    Posts: 6

    Re: Exponential Money in a Finite World

    Hi there,

    I am a layman with no banking experience but what you say makes complete sense. It is logic.

    We have all our life savings in cash in the bank. What do you recommend Jo Blog punters like me do with our money?  I was thinking ½ into property (with manageable mortgage to take advantage of inflation if this arises) & the other ½ into gold/oil/other metals.

    Does that seem like a good idea to you? What else could we do to diversify?

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  • Sat, Oct 17, 2009 - 1:03pm

    #3

    RJE

    Status Bronze Member (Offline)

    Joined: Aug 31 2008

    Posts: 868

    Re: Exponential Money in a Finite World

    Chris, I have followed Peak Oil for some time now. All my interests, research, and analysis has rotated around this concept. It is in fact what led me to you.

    I will keep this very simple, everyone on this sight should take heed to prepare as best they can their futures without many of the things they have today. Their focus should be food, clothing, and shelter.

    This is not intended to scare anyone but to make aware that our energy is running out, and our monitary system is broken beyond repair. Energy (OIL) is the most important commodity (gift) man has, and we have not prepared this country for its inevitable decline. Fact is we are on the back end of Hubberts curve now.

    Matt Simmons, Jim Kingsdale, Cambell, Boone Pickens, and so many others have made a dent in making  us aware of this immense problem. I fear we are late to the party. I know we are.

    Our most recent shot across the bow occured last year when oil went to $147.00 a barrel. It will be $500.00 a barrel maybe as early as 2015. So if anyone needs proof just stop, take a moment and look around. STOP AND SMELL THE ROSES.

    The time to have reacted was in the Carter administration, he was spot on, and we blew it. Unfortunately a Marshall type plan will be in order to change to an electrical economy. I fear that may be difficult because of  the resourse limitations,

    WE ARE IN SERIOUS DOO-DOO!!!

    Thank you, your street level observer…Regards

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  • Sat, Oct 17, 2009 - 2:19pm

    #4

    JAG

    Status Silver Member (Offline)

    Joined: Oct 26 2008

    Posts: 240

    What Do We Do To Fix It?

    Dr.M,

    I know this post is probably directed to new members, but I’ve been around here for a year and all that reading this again has done for me personally is create more frustration. I feel the need to find answers to our problems, not rehash them over and over. Surely, since you understand the problems better than almost anyone, you are the most capable of formulating and proposing solutions.

    In regard to our monetary system, how do we “fix” it?

    Please respond to this.

    Jeff

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  • Sat, Oct 17, 2009 - 2:23pm

    #5

    Mike Pilat

    Status Silver Member (Offline)

    Joined: Sep 09 2008

    Posts: 155

    Re: Exponential Money in a Finite World

    One emerging item I’m a little curious about is natural gas. Prices were in a historic collapse a little while ago, purpotedly drive by excitement over the tight shale gases that were now feasible. I wonder if anyone has heard of news that these are playing out well or if there is another fundamental reason for the nat. gas price rebound?

    Even to the lay observer, it becomes obvious that the only way to keep oil prices under control is through recession (yummy!) But it seems natural gas might have a little more time and might be the best hope for mitigating peak oil in the short term. Perhaps Boone Pickens is on to something.

    Really, though, I think there is plenty of oil left for us to have an orderly dismantling of some of our systems. Probably the biggest challenge will be the beliefs and political whims of people themselves. That is why Chris’s message is so important.

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  • Sat, Oct 17, 2009 - 2:27pm

    #6

    Nichoman

    Status Silver Member (Offline)

    Joined: Nov 01 2008

    Posts: 140

    Re: Do "they"..."get it" yet?

    [quote=cmartenson]

    I recently attended and presented at the Association for the Study of Peak Oil (ASPO) conference in Denver.

    The entire summary of everything I heard boils down to this:  We are already past peak oil.

    [/quote]

    Chris…

    Agree.  Data and Analysis leads one to this conclusion for a while now.

    What would be revealing is how much (quickly/slowly) this realization and acceptance has spread recently from your visit throughout the whole energy community, and any progress to enlightening key players (organizations/leaders/governments)?

    Surely this must have been broached.

    My point.  If key decision makers are still unable, or unwilling to grasp…what does this say about shaping our vision of the future…

     

    Nichoman

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  • Sat, Oct 17, 2009 - 2:42pm

    #7
    ejanea

    ejanea

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    Posts: 2

    Re: Exponential Money in a Finite World

    I am aware that gas is being used to heat water to pump into tar sands and to heat shale oil… in order to retrieve those supplies of oil.   Perhaps that extra demant for gas has driven up the price.

    China is buying liquefied natural gas also.

    http://www.theaustralian.news.com.au/business/story/0,28124,25950461-5005200,00.html

    Gas is mentioned in this talk from Stanford University….

    I found it interesting.

     

    Jane

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  • Sat, Oct 17, 2009 - 2:55pm

    #8
    tekewin

    tekewin

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    Joined: Sep 20 2008

    Posts: 0

    Re: Exponential Money in a Finite World

    Chris,

    Great article. 

    I wanted to comment on loan failures a bit and how they work through the system.  What happens to a loan that can’t be repaid?  It gets written down by the bank as a loss, and the asset is destroyed on the bank balance sheet. Enough loan losses and bank becomes insolvent and is shut down by its regulator (FDIC, NCUA, OCC, or OTS). When enough banks fail, you get a credit crisis, which is what happened at the end of 2007 and we are still working through it.  A financial or credit crisis tends to last a long time, a decade or more.

    I find it helpful to think of credit as “future money”.  Banks can create it at will, and people can spend it now pulling demand forward, but always at the cost of future consumption because the debt must be repaid.  We are so overloaded with debt now that it will drag down the economy for a long time.

    As you point out, when money/credit supply is not growing, the economy is not functioning very well.  The broader measures of money (M2 and MZM) have been shrinking this year and credit has also been shrinking.  The game with fiat money can go on a long time, but ultimately they all fail.  Unfortunately, what often happens is the game is reset and started over with another fiat currency. 

    What is stark about the eventual failure of the US dollar is that it is the world reserve currency.  The origianl Bretton Woods system only lasted from 1945 to 1971, failed and was replaced with Bretton Woods II.  Now, 38 years later, we stand on the edge of the Bretton Woods II failure.  Talk from the Chinese and other emerging powers is about creating a new reserve currency based on the IMF SDR, a synthetic currency based on a basket of other fiats.  The transistion to a new world reserve currency will have a negative effect on the average US standard of living.

     

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  • Sat, Oct 17, 2009 - 3:31pm

    Reply to #2
    Sue Sullivan

    Sue Sullivan

    Status Bronze Member (Offline)

    Joined: Oct 06 2008

    Posts: 55

    Re: diversifying cash

    Chris has written a great deal about what to do to prepare and diversify, you’ll find in poking around the site.  Essentially, he recommends starting out by making sure one is prepared for economic dislocations caused by a series of oil shocks and financial crises — stock up on storable foods and other staple necessities.  The list of imported (and hence oil-dependent and oil-price-tied) necessities in our life is huge and worth considering at length.

    Only after making preparations to ensure that basic needs can be met for an extended time in the case of an economic dislocation does he recommend a portion of remaining cash be in metals under your own physical control (safe deposit box or well hidden). Buying land outright, if you’re inclined to live on it and work it, has gotten kudos from many on this site. Taking on debt is not advised — as I understand it even a small fixed-rate mortgage will represent a growing debt burden in deflationary times, though it seems like a safe option in an inflationary world, which we all seem headed to at some point.

    The real estate markets are in the middle of an unprecedented collapse right now and it may well be we come out of this realizing that we have massive oversupplies of housing and commercial RE (there was a time when generations lived together under one small roof, and pernicious un- and underemployment could well return us to that historic norm) so there may be little market for rentals. I’d be leery of buying property that needed a renter to pay the mortgage.

    I know there’s more detailed advice in the subscriber sections and throughout the site, it’s worth poking around here for a long afternoon.

    Good luck with your preparations,

    Sue

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  • Sat, Oct 17, 2009 - 3:48pm

    #9
    jackdykes

    jackdykes

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    Re: Exponential Money in a Finite World

    I’m relatively uninformed about all this,and agree with most of what you say. You did mention ,in relation to peak oil,that “some miracle energy breakthrough” might be part of what could save us.  I’ve been reading about the huge natural gas finds in the Marcellus shales and other locations. I know it’s early,but could this be the “miracle energy breakthrough”?

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  • Sat, Oct 17, 2009 - 5:08pm

    Reply to #4

    ckessel

    Status Silver Member (Offline)

    Joined: Nov 12 2008

    Posts: 170

    Re: What Do We Do To Fix It?

    [quote=JAG]

    Dr.M,

    I know this post is probably directed to new members, but I’ve been around here for a year and all that reading this again has done for me personally is create more frustration. I feel the need to find answers to our problems, not rehash them over and over. Surely, since you understand the problems better than almost anyone, you are the most capable of formulating and proposing solutions.

    In regard to our monetary system, how do we “fix” it?

    Please respond to this.

    Jeff

    [/quote]

    Hi Jeff,

    I don’t intend to speak for Chris here but I did want to offer a comment to your post since I have been dealing with similar issues. I have been delivering the Crash Course on Thursday evenings now for over five months and well over 150 people in this area have now been through it. After about the third series a number of grads began asking very similar questions to yours. My comments are basically facts that I have derived from delivering the CC and I will note my opinions which are offered from the perspective of a Martenson Brigade member.

    We have since started an “After the crash Course Group” open to any graduates that are interested. Those who attend this group are almost 100% people who understand the fundamentals of our predicament as being one where we will need to learn to survive with much much less energy and that our dependence on fossil fuels will greatly determine how our survival will play out. There is a tremendous desire for participants to want to know what the solutions are ….. what does Chris say to do.  We replay chapters 19 and 20 sometimes to restudy this issue.

    The basic point here is that those who make the jump into being able to cause something to happen rather than simply being the effect of the system note that their frustrations tend to dissappear almost one for one.These are the facts of getting into action.

    IMHO it will be the recreation of community and the working out of local solutions to the questions of currency, food, shelter, transportation and security that will “solve” the problems we are going to deal with from now on in a “speeding up” of the process of learning to live in a world with an energy source which is getting lesser. I do not see that we are going to “fix the economy”. It simply will not function where we are going.

    There is one more observation I have to post here. I have watched the CC many times now with the participants. I continue to be amazed how much I continue to learn!  Last Thursday after we watched Part One – The Fundamentals,  a fellow who decided to do the course again  came up to me after the discussion and said ……” I’m glad Chris produced a new Crash Course, this one was much easier to follow!”  I said to him that it is the exact same course. He persisted, “That is amazing, I don’t remember this information from the first course at all!”

    So I offer to all who are feeling frustrated …… take some form of action no matter how small and see if it doesn’t help the frustration.  If it persists, try delivering the CC to a small group…..you will be amazed how theraputic that can be!

    Coop

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  • Sat, Oct 17, 2009 - 5:25pm

    #10

    idoctor

    Status Bronze Member (Offline)

    Joined: Oct 05 2008

    Posts: 33

    Re: Exponential Money in a Finite World

    Chris, I have followed Peak Oil for some time now. It is in fact what led me to you.

    I know this post is probably directed to new members, but I’ve been around here for a year and all that reading this again has done for me personally is create more frustration. I feel the need to find answers to our problems, not rehash them over and over. Surely, since you understand the problems better than almost anyone, you are the most capable of formulating and proposing solutions.

    In regard to our monetary system, how do we “fix” it?

    I second this . One reason people come to these sites is to find answers from people they feel are smarter than themselves IMHO. It is great to have all the data where we can make up our own minds but it is nice to see how you are specifically preparing since you have been way ahead of this curve.

    It is starting to look to me that our financial structure may implode before peak oil which in turn strings peak oil on down the road, that & all the new Nat Gas that has been coming around.

    The oil hitting $149 a barrel plus all the BS loads that came to surface so close together really did a number on things.

    I wish you could express your near term feelings (IMHO feelings are not investment advice)about where you see oil prices going in the short term. Also wonder what thoughts you might have on the USO being a safer place to be than cash. Wouldn’t a bank holiday hurt the cash more than being in the USO? A lot of analysts (for what that is worth) feel oil is better than gold now. IMHO we need oil far more than gold.

    Thanks

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  • Sat, Oct 17, 2009 - 6:42pm

    #11

    xraymike79

    Status Platinum Member (Offline)

    Joined: Aug 25 2008

    Posts: 804

    Re: Exponential Money in a Finite World

    Chris Martenson said:

     

    …One of my central contributions centers on the idea that it is our monetary system itself that is out of step with reality.  Everything else we see around us economically is merely a symptom, while the cause of our current and future ills is the dependence of our monetary system on perpetual exponential growth.  A profound and important set of conclusions immediately result from the acceptance of this argument….

    My hope is that we can have a vigorous discussion here.  I am constantly looking for evidence to either bolster or refute this hypothesis.  Where is this wrong?  What could mitigate this argument, besides some miracle energy breakthrough?  Is there another way to view this?   Is it somehow possible for our money system to be tweaked into compliance with reality?

    As always, higher style points are offered for comments that are fact-based and logical over arguments that are grounded in beliefs and opinions.

     

    To fix any of these structural problems you speak of, we need political will. Turn on the TV and you still hear the phrase “economic growth” being spewed forth ad infinitum. That’s #1. Number 2 is a social/cultural problem — the spiritual and physical separation of the outer world, nature, from modern man.  Changes in these two major points are what is needed for a paradigm shift to save us. You can talk and rehash the problems until you are blue in the face, but until we impart a social/cultural change and a drastically different political leadership, the inevitable Orlov outcome will occur.

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  • Sat, Oct 17, 2009 - 7:49pm

    #12

    bluebird

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    Posts: 4

    Re: Exponential Money in a Finite World

     
    I think the number one issue is going to be the lack of obtaining credit. Most people on unemployment compensation probably still have a credit card to buy necessities, until it’s denied.
     
       
    At some point in the near future, I think the access to credit is going to be denied, for just about everyone, both businesses and people, until all the debts are cleared out. No credit card, no job, no income, no savings, no house, no food, no transportation of goods. Hardley anything moves in today’s world without credit.
     
       
    It isn’t so much the money system needs to be fixed, it’s going to be how to survive without having a credit card, businesses and people. Peak oil means nothing, unless you have credit to move the oil from the refinery to the suppliers to the gas station to the people.
    Perhaps when people return to bartering, trading skills for food and other things, that a new monetary system can be developed. The system we have now, has to break completely, before it can begin anew.
      
     
    Edit: Our monetary system today is based on credit. When credit goes away, there is no system. No money. Nothing.
       

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  • Sat, Oct 17, 2009 - 8:29pm

    #13

    dps

    Status Silver Member (Offline)

    Joined: Jun 27 2008

    Posts: 150

    Re: Exponential Money in a Finite World

    Suggestions on what you can do:

    Build community resilience by getting to know your neighbors and building friendships.  Learn a bit about Permaculture gardening techniques, find some land and grow a garden with your friends and neighbors.  True prosperity is eliminating dependencies.  Learning to grow your own food is one way to eliminate dependencies.  Stock staples … start thinking about those staples as your savings account.  Reduce your dependence on oil.  Get a job you can walk to if at all possible.  Or move so you can walk to work.  Get a bike, think of it as your savings account.  Change how you think about everything you see around you … think about how much oil was involved to get it there, less oil needed is more resilient.  You can find many of these ideas expanded by searching for information on Transition Towns in your area.  You will be surprised at how many other people are involved already.  People are thinking and doing things about these issues.

    Best wishes … dons

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  • Sat, Oct 17, 2009 - 8:29pm

    Reply to #12
    Gibber

    Gibber

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    Posts: 10

    Re: Exponential Money in a Finite World

    I found some information about “The Growth Lobby”.

     

    http://researchbank.swinburne.edu.au/vital/access/manager/Repository/swin:5219?start=331

    The term growth lobby describes those who want governments to increase immigrant numbers for economic reasons. Since the 1970s a number of researchers have emphasised the pivotal role of this lobby in shaping Australian immigration policy. Its core consists of business interests that profit from population growth, especially property developers and operators in the housing and construction industries.
    ..
    The growth lobby is distinctive insofar as it has a vested economic interest in immigration, and its key players are rich and powerful

    There are other industries closely associated with development and housing which also support the growth lobby. Most notably, the Australian media derive a large part of their advertising revenue from developers and real estate agents. And like the housing industry, the media have a limited capacity to export their products so an expanding domestic market suits them well. Media proprietors have supported immigration for a long time

    All of this may mean that, rather than having growth for growth’s sake, Australia has growth for the growth lobby’s sake.

     

     

    Bit of a light bulb moment. May helpt to explain why the Economic Growth Mantra has such a dominance in the MSM.   Grow the population, Grow the MSM market.

     

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  • Sat, Oct 17, 2009 - 9:15pm

    Reply to #9
    thefroggydude

    thefroggydude

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    Re: Exponential Money in a Finite World

     This post is in reply to Jackdykes’ comment:

    <quote>I’m relatively uninformed about all this,and agree with most of what you say. You did mention ,in relation to peak oil,that “some miracle energy breakthrough” might be part of what could save us.  I’ve been reading about the huge natural gas finds in the Marcellus shales and other locations. I know it’s early,but could this be the “miracle energy breakthrough”?<quote>

    I asked a specialist geologist in tight gas reservoirs this very same question.  Here is her reply:

    “The one caveat that they don’t mention is that each unconventional reservoir has its secrets that need to be unlocked. People in this industry tend to not realize that they’re not just some massive reservoir that is homogeneous throughout. Look at the Haynesville for example. It is getting a lot of press lately but it is definitely not a slam dunk. It is quite heterogeneous and therefore you can’t expect the same results everywhere. These reservoirs take a lot of sciencing and trial and error.
     
    I think it’s great that we’ve changed our perspectives of tight rock reservoirs but there needs to be caution in the thinking of how quickly we figure them out.”

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  • Sat, Oct 17, 2009 - 9:23pm

    #14
    Patz6588

    Patz6588

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    Re: Exponential Money in a Finite World

    Jack Dykes wrote: “I’m relatively uninformed about all this,and agree with most of what you say. You did mention ,in relation to peak oil,that “some miracle energy breakthrough” might be part of what could save us.  I’ve been reading about the huge natural gas finds in the Marcellus shales and other locations. I know it’s early,but could this be the “miracle energy breakthrough”?

    Jack if you read through CM’s post again you will realize there is no  “miracle cure.” Supposing some scientist figured out a way to cheaply modify a few molecules to change water—sea water even—into high grade energy. Problem solved right?! Wrong! We would then face a short upspike in population followed by a crash as a result of running into our old friend Mr. Exponential in population, food, water, garbage etc. Cheap energy like oil or natural gas aren’t the solutions now  (if they ever really were) they’re the problem. I know this must seem counter intuitive to you now but stay with the program and you’ll be as mordantly depressed as the rest of us. 

    We are headed for a population crash that may be gradual, unlikely, or it may be sudden and violent. But the best estimates of a sustainable population of the planet are 2 billion but more likely 1 billion or less. 

    Hope that’s not too much to swallow right now. 

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  • Sat, Oct 17, 2009 - 10:05pm

    Reply to #9

    Damnthematrix

    Status Diamond Member (Offline)

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    Posts: 1132

    Re: Exponential Money in a Finite World

    I don’t think so……  read this:

    http://www.odac-info.org/newsletter/2009/10/16#ar8928

     

    Mike

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  • Sat, Oct 17, 2009 - 10:20pm

    #15

    Thomas Hedin

    Status Bronze Member (Offline)

    Joined: Jan 28 2009

    Posts: 99

    Re: Exponential Money in a Finite World

    Here is some help in picturing what a trillion dollars of debt looks like.  Can someone calculate how much 1 trillion dollars of interest bearing debt adds to the cost of doing business at a mear 6%

    http://moneyaswealth.blogspot.com/2009/03/what-does-1-trillion-look-like.html

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  • Sat, Oct 17, 2009 - 10:23pm

    Reply to #10

    Damnthematrix

    Status Diamond Member (Offline)

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    Posts: 1132

    Re: Exponential Money in a Finite World

    “One reason people come to these sites is to find answers from people they feel are smarter than themselves IMHO. It is great to have all the data where we can make up our own minds but it is nice to see how you are specifically preparing since you have been way ahead of this curve.”

    I’ve been mulling over this comment, wondering how to respond…… you can be as smart as you want, but it actually makes little difference, because, I being one of the smart ones 🙂 and having started preparing six or seven years ago. now realise that it is IMPOSSIBLE, no matter how smart one is, to transform one’s lifestyle as we have, unless the new economic system Chris craves in his article comes to fruition. We did it, some of you might do it too, but it is IMPOSSIBLE for everyone to do it….

    The ONLY way people can be allowed to transition to a sustainable civilisation is by unshackling them from debt.

    People in debt MUST (usually) drive a car to work everyday (sometimes for two jobs!) entirely because they have debts to service. Believe me, once you unshackle yourself from debts, you discover a whole new world of possibilities out there you never knew existed! Today instead of standing in front of a shaving mirror, and putting a tie on to go to work in the morning, I walk down to the goats and milk them! Then I feed the ducks and change their water, and…….

    I call it abandoning the Matrix (it was interesting Chris mentioning the red pill……  TAKE THE RED PILL for goodness sake!)

    For me, the red pill is debt cancelation. Either TPTB do this in the form of a DEBT JUBILEE (google it), or we force it upon the crooks who own the banks by refusing to dervice our debts any further. Either way it will be a revolution, we do indeed live in interesting times….

    Mike

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  • Sat, Oct 17, 2009 - 10:42pm

    Reply to #12

    Damnthematrix

    Status Diamond Member (Offline)

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    Posts: 1132

    Re: Exponential Money in a Finite World

      ” I think the number one issue is going to be the lack of obtaining credit.”

    No it won’t…… the number one issue will be not being able to get food!

    In a post Matrix world, all credit issuance will be banned. That’s after all debts are canceled of course!

    Mike

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  • Sat, Oct 17, 2009 - 11:01pm

    Reply to #12

    ernie

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    Re: Exponential Money in a Finite World

    This is a very interesting interview with Morgan Downey, Author of the book “Oil 101″ from this weeks Financial Sense newshour:

    http://www.netcastdaily.com/broadcast/fsn2009-1017-2.mp3

    Well worth a listen for anyone who want’s to know what drives oil prices, production costs, and how it’s going to effect our global economic expansion in the near future. Is

    – Ernie.

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  • Sat, Oct 17, 2009 - 11:02pm

    Reply to #2

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    Re: Exponential Money in a Finite World

    You’ve got money..?  WOW!!!

    If I were in your shoes, I would do exactly what we did! Buy a property with decent soil and rainfall, not too close and not too far from the madding crowd, learn Permaculture, and practice it.

    Stop thinking of wealth as “money”, “gold”, or “oil”.

    TRUE wealth is being free of the shackles of debt, and having a roof over your head (as modest as you can make it), and a convenient and reliable supply of food and water. Everything else is a waste of wealth!

    Mike

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  • Sat, Oct 17, 2009 - 11:39pm

    #16

    bluebird

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    Posts: 4

    Re: Exponential Money in a Finite World

    Damnthematrix – Definitely people need food, and clean water. I was thinking that when credit stops, the delivery trucks won’t be able to bring food to the stores, because they wouldn’t be able to get the credit to process the food, then wouldn’t be able to get the credit to put gas in those delivery trucks. Or vice versa. Credit stops, it’s over. But first, it should be the food…Buy the seeds to grow the food, stockpile extra provisions, and have animals for milk and meat. Very true, if you plan ahead. However, most people are still clueless, and perceive there is no crisis. For them, it will be over when credit stops, as they have no food, no preparations, no stockpiles. Most likely, they have no savings and living paycheck to paycheck, if not already on unemployment.  Family and friends tell me not to worry, nothing’s going to happen, and there isn’t anything that can be done. I’m told I talk like a meteor is going to hit the world, and that is never going to happen. But I worry, and stockpile. Because the world has too much debt and toxic investments, and it’s all going to implode. Edit: we will run out of food and credit, before we ever run out of oil.

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  • Sat, Oct 17, 2009 - 11:44pm

    #17

    dps

    Status Silver Member (Offline)

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    Posts: 150

    Re: Exponential Money in a Finite World

    bluebird:  Trust yourself.  The only folks that can hear are those willing to listen.  best wishes … dons

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  • Sun, Oct 18, 2009 - 12:18am

    Reply to #4
    alcatwize

    alcatwize

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    Re: What Do We Do To Fix It?

    How do we fix it?  Well a good start would be to abolish the Federal Reserve and end fractional reserve banking.  Now would be a good time to support Ron Paul’s audit the FED bill.  http://www.ronpaul.com/on-the-issues/audit-the-federal-reserve-hr-1207/

    Why abolish the Fed?  The Fed is a private bank.  Private banks (companies) have one motive… that is to make money.  That’s it folks.  There is the priority and they have made a LOT of money for themselves and the other federal banks.  Banks are do NOT care about the economic welfare of the county as a whole.   We need to take away banks ability to create money, hence no more fractional reserve banking.  We need to put money creating back in the hands of the government, possible a fourth branch of government.  I could go on as to why this is, but one needs to really do their homework to get to this point.

    And no, the answer is not to go back to the gold standard.  The gold standard can be too easily manipulated by foreign governments (as it has been several times in the past).  Again, one must spend the time to understand why, but if you have come this far then finishing the quest is worth it.

    So the real quick summary fix is… abolish the fed.  Abolish fractional reserve banking.  Understand the money is NOT a commodity and should be a creation of law.

    Unfortunately, these things will never happen because bankers would rather be dead than give up their power, so it looks like it would take a revolution.

     

     

     

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  • Sun, Oct 18, 2009 - 1:29am

    #18
    codeblue

    codeblue

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    Re: Exponential Money in a Finite World

    I must first say that I am thankful to Dr. Martenson for enlightening me to many of the challenges that lie before us.  I will be eternally grateful.  Also much thanks to many of you for your continued insight.

    I have a question:  It seems to me that the premise of Exponential Growth is at the heart of the message of Dr. Martenson.  Meaning it is assumed that we will continue to have exponential growth regarding money, population, debt, etc.,  My question is:  why will the growth most likely be exponential?  In other words, why wouldn’t logistic growth or an S curve type growth (logistic growth has a period of exponential features, but then levels out) likely apply to the categories previously mentioned (maybe one, maybe all)?  Just as there are many examples of exponenital growth, there are just as many (if not more) examples of logistic growth that apply to the world we live in. 

    Thanks in advance for any insight.

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  • Sun, Oct 18, 2009 - 1:46am

    #19
    Ken C

    Ken C

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    Re: Exponential Money in a Finite World

    Codeblue,

    I think that whole point is that even though growth now is looking like it is exponential it cannot continue this way because it will run smack into real limits. That is like a logistic curve.

    For example as Dr. M points out our debt based money must continually grow because that is the way it was designed. However, this means that the economy must continue to grow forever – which it can’t – it will crash.

     

    Ken

     

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  • Sun, Oct 18, 2009 - 1:49am

    #20
    bluestone

    bluestone

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    Joined: Dec 29 2008

    Posts: 25

    Post peak oil

    Dr. Martenson

    I have read that truly determining we have reached peak oil can only be done 5-10 years post facto.  What was the compelling evidence presented at ASPO that we are past peak oil?  I suppose in the end the timing doesn’t matter, but personally I wouldn’t mind if we could it back another 5 years.

    Thanks

    Brian

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  • Sun, Oct 18, 2009 - 2:18am

    Reply to #4
    bluestone

    bluestone

    Status Bronze Member (Offline)

    Joined: Dec 29 2008

    Posts: 25

    Re: What Do We Do To Fix It?

    Jeff

    In a way, i think you answered your own question (Dr. Martenson IS directing his post at new members).  I think that sometimes it is easy to forget what is the purpose of the site is for Dr. Martenson.  I have followed this site for over a year now.  I have read many of your posts over the past year and realize you probably know a 100x what I know.  But how much you and I know or do is really not the problem.  We have already changed our mindset and begun preparing.  It is what the people around us are doing.  It seems to me that 99% of the people in my community still don’t have a clue whats going on.  And that is the biggest problem.  I’ve started gardening, purchasing PMs, trying to change to a sustainable lifestyle.  But so what!  None of us can live in a vacuum.   If the community at large around me is not prepared when TSHTF, I won’t be prepared…I’ll be a target. 

    So, some of Dr. Ms posts may seem repetitive or seem like rehashes… but he doesn’t need to get through to you anymore…  What we all need is to get through to that other 99% of the population.  Wouldn’t it be great if all of your neighbors figured out that it would be a good idea to start gardening.  Even a simple adjustment like that could really cushon our fall.

    Having said that Jeff, I really could use some advice on how to spread the word.  My wife and I have have told at least 100 people about the Crash Course.  I fear that only 2 or 3 people have watched the whole course and actually taken  it seriously.  a lot of people got back to me and say they made it through a few chapters, then gave up on it.  Kind of disappointing    

    Brian 

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  • Sun, Oct 18, 2009 - 2:52am

    #21
    printfaster

    printfaster

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    Re: Exponential Money in a Finite World

    What I see is quite different.

    Energy supply is being managed politically.  I had this discussion with a friend.  Basically between clathrates, primordial oil, gas and asphalt (yes primordial, where do you think the dinosaurs got their carbon? A space ship), and  deep offshore (it may be primordial, it is too deep for sedimentation), we have far too much oil.  The US is not drilling deep, the Russiand and Brazilians are.  It is just like diamonds when the Russians came up with a huge supply, DeBeers took control to manage pricing.  Same with synthetic diamonds which can be made large,and very cheaply at standard pressures using a hydrogen furnace at 600C –Rustum Roy, Penn State or Pitt, whichever.

    The people of the earth are being led like sheep to a an abattior to be killed off for the entertainment and benifit of the few.  Having too many peasants around is so, dirty, and ugly.  Global warming is a clear hoax.  It is now called climate change since temperatures are dropping.

    I refuse to be cowed by the abort now, euthansia, one child per family, to save the earth crowd.  Hey after all, the quickest way to stop “global warming” and excess CO2 is mass suicide.  Jamestown is the solution to all of society’s problems.  To me restriction in growth and limiting the future is a form of suicide.  Like being put in jail.  It is a loss of freedom to benefit others who lack imagination.

     

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  • Sun, Oct 18, 2009 - 3:05am

    #22
    TJF

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    Re: Exponential Money in a Finite World

    I think a miracle energy breakthrough is something more along the lines of nuclear fusion.  Something that can provide all the energy we need.  A new natural gas find  is not really a breakthrough, but it may delay the chaos.

    I think the hardest thing to grasp about all of this is that the timing is the most uncertain part about it.  I can find no fault with the logic and reasoning behind peak oil, our exponentially growing money supply, the exponentially growing world population all pointing to a massive disruption – a perfect storm.  But I really don’t know whether to prepare because we are on the verge of it, or if it will be upon us 20 years from now.

     

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  • Sun, Oct 18, 2009 - 4:25am

    #23
    zxcvb1234

    zxcvb1234

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    Re: Exponential Money in a Finite World

    I’m relieved that throughout my life I’ve had to deal with living with so little involvement in maintaining an unsustainable lifestyle like, investments, cars, mortgage, and credit cards, and overall not being so materialistic. Now that I’m aware of what is coming, it should be far easier for someone like me to cope with the changes on the horizon, because I have not mired myself in debt, and not by choice. With a credit rating that always came back saying “insufficient credit” was truly a blessing in disguise. I pretty much know that there will be no “miracle energy breakthrough” that will yield the same net energy that only oil can, and that may very well be a good thing, considering all the ugly things that have transpired as a result of oil, such as unprecedented fraud, greed, corruption, and aggressive warfare resulting in hundreds of millions killed, and not to mention the contamination of our planet due to strip-mining and the like, as just a few examples. 

    It will always boggle my imagination as to why anyone would even want to save such a nasty system. Are people really so brainwashed? Let this fraudulent and corrupt system fade into an ugly memory and let’s start over with something new and cleaner. It would be better for us all.

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  • Sun, Oct 18, 2009 - 4:32am

    #24
    Farmer Brown

    Farmer Brown

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    Posts: 158

    Re: Exponential Money in a Finite World

    Humans are the only species aware of their own exponential growth.  My hope is that this distinction saves us from the fate that meets other species.

    Chris, I do not think there can be an argument against growth reaching the limits that finite resources place upon it.  There can only be an argument, and a large degree of error, in the timing.  This is especially so with exponential functions, where time, from most human perspectives, is a tricky thing to, pardon the pun, time.

    Chris, if you made this argument in 1979 instead of 2009, would the graphs look any less scary?  This is an honest question – I would really like to know what they’d look like from a 1979 perspective.  30 years is a long time from a personal perspective.  It’s a grain of sand on a beach in the larger view.  Could we have another 30 years before TSHTF – what about 60 or 90?  I would really like to know.

    The margin of error inherent in all this is very important.  The more time we have, the greater the chance that a revolution in energy harvesting takes place.  I have not given up on that possibility.  I do not expect anyone to have the ability to pinpoint where we are +/- 30 years on an ideal exponential curve, much less 5, 10 or 20.  The danger is real and the possibility of us (I’m 38) living through a quantum-crash are likely.  I just wish there were a way to narrow this down.

    As far as the money argument goes, as far as I’m concerned, and after being around here almost a year, I am surprised this isn’t taught in pre-Kinder by now. I do not think it has much to do with exponential human population growth though.  Don’t get me wrong, of course I see the connection between an infinite-growth-requiring-money-supply and a finite world, but when energy supply starts crashing, I really won’t care what’s going on with money.  Money will be old news and not on my radar screen.  If money cannot buy energy, there won’t be much point in it.

    Thanks again for all the good work.

      

     

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  • Sun, Oct 18, 2009 - 5:03am

    #25
    printfaster

    printfaster

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    Re: Exponential Money in a Finite World

    Perhaps my message got a bit muddled.

    My way to resolve exponential growth is through struggle, not extinction through suicide.  Yes it is Darwinism, not control or management.

     

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  • Sun, Oct 18, 2009 - 5:43am

    Reply to #22

    ernie

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    Re: Exponential Money in a Finite World

    [quote=TJF]

    I think a miracle energy breakthrough is something more along the lines of nuclear fusion.  Something that can provide all the energy we need.  A new natural gas find  is not really a breakthrough, but it may delay the chaos.

    I think the hardest thing to grasp about all of this is that the timing is the most uncertain part about it.  I can find no fault with the logic and reasoning behind peak oil, our exponentially growing money supply, the exponentially growing world population all pointing to a massive disruption – a perfect storm.  But I really don’t know whether to prepare because we are on the verge of it, or if it will be upon us 20 years from now.

     

    [/quote] We will be out of oil to build the fusion reactors with by the time they actually get one to work. Even fission reactors will not fill the gap of oil in time at the rate they are building them. Oil is mainly used for transport. Nuclear isn’t very good at that with the exeption of big ships and the ocassional deep space satellite.

     

    – Ernei.

     

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  • Sun, Oct 18, 2009 - 6:15am

    Reply to #22
    ao

    ao

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    Posts: 943

    Re: Exponential Money in a Finite World

    Two things that could occur are (1) the development of practical thermonuclear fusion, as noted above, and (2) the development of an advanced propulsion system.  With nuclear fusion, the electrical energy could be used to hydrolyze water for hydrogen for fuel and also could be used to charge supercapacitors used to drive electric motors for transport such as cars, buses, trains, and perhaps, even certain types of aircraft.  With regards to the second topic, I had read an article approximately 5-8 years ago where the former head of the European Space Agency had gathered a team of scientists who were working on the math for understanding how intense electromagnetic fields could be used to warp gravity (yep, the mythical Star Trek warp engine).  His statement at the time was that he felt they could begin building a prototype engine within 5 years.  He predicted travel faster than the speed of light such that the travel time to the nearest star (Alpha Centuri, 4.37 light years away) would be a few months rather than years.  The article was fascinating but I have seen nothing about the concept since.  Such a breakthrough would allow to break the confines of this finite sphere and then, …. yee haaah!!!  Big breakthroughs is economic progress have typically come through energy and one particular expression of energy … transport (sailing ship, steamship, railroad, automobile, airplane, ???). 

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  • Sun, Oct 18, 2009 - 6:15am

    #26
    surfersdsb

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    Re: Exponential Money in a Finite World

    I agree with much of what Dr. M  says and I am positioned financially out of the dollar, I have a significant amount of precious metals and I have extra assets spread about in a variety of safe vehicles which are easily transferrable.

    I am also a long term wall street oil trader and one of the issues that does not ever seem to be mentioned is the effect of productivity gains on growth of the economy and growth in the supply of oil. Recent discoveries due to technology advances has doubled our domestic natural gas reserves in 24 months. The historical relationship between natural gas being close to a 7 to 1 price ratio has widen to 22 to 1. Is it possible that we will see advances in coal to liquids, natural gas powered transportation or a high price of oil which will encourage significant renewable technology advances? 

    While I believe that peak oil is a distinct possibility I would like to to see a greater discussion of the affects of technological advances which can push Dr. M’s timeline of crisis further into the future. In my 30 year experience in trading I have learned that an illogical market can last longer then one’s ability to keep a position on. For the record I am long energy at this time.

    I also believe that our current politicians are only capable of doing the wrong thing. Still the issues of productivity and the advances in technology might save us yet.

     

     

     

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  • Sun, Oct 18, 2009 - 8:21am

    Reply to #26

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    Re: Exponential Money in a Finite World

    I’m amazed that after doing the CC, anyone can still believe in “safe vehicles”…… Don’t you understand that EVERYTHING’s about to change?

    Peak Oil is no “distinct possibility”, it happened in 2005. 2005 was the year when the AVERAGE MONTHLY extraction rate (Mbbls/day) was the highest for the entire year, and there have only ever been one or two months in the 2005/8 period when extraction rates exceeded the highest month in 2008. It’s all over Rover…..

    We don’t need “significant renewable technology advances”, we knew how to do all this stuff well 20 years ago…..  our house is fully solar powered. When I found out 20 yrs ago that it was possible to “fully solar power houses”, I could not understand why nobody was doing it…. Twenty, or even better, thirty years ago, was the time to get ready for this, Jimmy Carter was right all along…. but nobody listened.

    Regarding “the effects of technological advances”, you are confusing technology with energy. Technology RELIES on energy, technology CANNOT create energy, because nothing can create energy. Technology can convert one energy source into another kind, and usually badly and inefficiently. It is BECAUSE fossil fuels are so good at generating cheap and abundant energy that we have all of today’s techy gadgets. Even this very computer I’m typing into right now requires 500 pounds of fossil fuels JUST to make it…… never mind booting it up!

    Technology will not save us, it will sink us.

    Mike.

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  • Sun, Oct 18, 2009 - 10:52am

    #27
    Psycho

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    Re: Exponential Money in a Finite World

    Dear Chris,

    Wonderful post again, youre good hearted rational analyses brings us insights in the world not 10, uhm 100 economist can give nowadays.

    I want to give you a few thoughts on the subject. Already consciousness for quite a while about both the expanding and exponentially money system, the coming end of cheap oil and the environmental destruction we enforce on this planet, my mind always ponders about solutions, implications and the like.

    In Holland, where I live, we have had political discussions about the necessity of growth and how this is opposite to environmental values. The debate was never as thorough as it can get on these sites, and because we have few minds really understanding the nature of the system, the main ‘political’ conclusion from this debate was the following. To pay for environmental care and progress, we (read: the gov.) need a growing economy. There is a strong believe in technological improvement that can save us from continuing depleting and polluting earth’ resources. The argument was centered around the concept of ‘decoupling’. The idea is: we can decouple our environmental impact from our growth system. Wonderful idea, that, when you make the right statistics, can even be strongly defended. Especially when you make stats like impact/product, impact/$ added value instead of ‘impact in total’ and do not consider the environmental impact from imported goods.

    Though I found the argument of ‘grow $ to save environment’ very bliss, there are some emprical and theoretical points that do not necessarily make this idea totally insane.

    First, wealth (for a person, company, or gov.) gives you opportunity to invest, if you do this in the right way, you can possibly reduce environmental harm or make yourself less dependable. Most important: being convinced, motivated and seeing the necessity to make such investments.

    Second, and this point focusses especially around energy, but is in fact valid for all scarce and difficult to cheaply replace resources, scarcity will induce growth and helps the moneysystem to expand! Simply put: when the same amount of people bag for a similar amount of pie, when the pie got smaller, prices rise. When costs of production stay roughly the same, profits rise and so does the return on investment in this particular sector. I’ve seen it last year when food prices rose, partly due to rising energyprices. The extra added value of food was not because food was different, but because inputs were scarcer, hence more added value, more profit to pay debt and create more debt in the future. The example is even stronger with warming your house with gas. You pay more for the same comfort; see there how extra value is added compared to last year, and money got it’s way to expansion.

    Third, the intrinsic money-expansion of the system does not necessarily implicate more resource use (theoretically). That fully depends on what people,company’s, gov’s, and other institutions find valuable! If i earn 10.000 a month, and if i spend 90 % of that on a very expansive messages by an extremely equipped person who studied this stuff his whole life and is now world famous, this hardly costs environmental resources. The same when I would consult a psychological advisor, or pay a technican to reduce the energycosts of my house. 
    Well, in this world where 1+ billion live from 1 dollar a day and are begging for a little more wealth, and more are slowly or rapidly emerging in middle and high-class households, this will not count as much as the theoretical idea.

    But, as a European, i see quite a significant group of people that are hardly interested in expanding their material wealth, but are more focused on what i could call ‘quality of life’, valuing spare time, being with their kids, valuing relationships, personal growth, improving skills. All kind of values that have far less environmental impact than buying a second car and the like.

    Last but maybe not least. The dollar and other fiat-currency expansion will, in the next 5-10-20 years, encounter strong inflation. First from crazy money printing, second from slowly collapsing currency-rates, making Yuan’s and Real’s way more expansive. Our natural cheap countries from which we import are not so cheap anymore, and substitutes for them may not so easy to take over their place (Africa?).  Ah, and third because of expansive fossil energy, of course.

    Not having a job will probably way more common than we experienced last decades, and with the inflating money, debts and monetary posessions will lose their value. I have the strong feeling that alternative currency systems can experience rapid growth in this environment. Alternative, so not dollar-based. Maybe not backed up by anything, but maybe regional and without intrinsic devaluing system (money creation). And maybe with some smart-inbuild system that makes investments valuable for the environment. Hopefully not to be forbidden by your authorities and Wall $treet bankers, it could save you (and us) a lot of future troubles, and make people more independent from central governed institutions. In Argentina alternative money system where flourising after their currency collapse.

    Till so far! Greetings,

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  • Sun, Oct 18, 2009 - 11:59am

    #28

    okubow

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    Re: Exponential Money in a Finite World

    I’ve been visiting this site pretty regularly for the last few months with breaks here and there. Based on the information Chris and others have provided, and the research I’ve done off the site, I’d say the probability that human beings are in for a painful period of readjustment is significant (this would include me, and I’m definitely not looking forward to it). The threat of large scale wars is also significant. In the words of Gerald Celente, “when people lose everything, they lose it.”

    The same can be said for world powers and world leaders watching their empires rapidly decay and their people turn to civil unrest and lawlessness. As they reach for those last few oil fields in central Asia they will be reaching with shallow gasps of desperation and with a cold sweat on their brows. If everything is on the line you might as well launch your nukes at your enemies. Why not? If it’s win or die, people will pull out all the stops and take the gloves off.

    In the end, if we can’t solve our problems, nature will solve them for us. If over population really becomes a problem expect wars, famine and pandemic disease as solutions. We won’t have to choose. The choices will be made for us (Professor Bartlett). Human beings are funny because they think they’re at the wheel and they control the planet, when the truth is they are organisms just like other mammals and plants and trees and algea and toads. On an atomic level, nothing seperates us from the earth. We are one and the same, and when we die, we return to the earth. Nothing changes this.

    Professor Bartlett also mentions that many of our technogical solutions simply breed more problems. He uses a dam in Egypt as an example of this in his video presentation on the exponential function on youtube, which you can watch here.

    Also, I’m often amazed by the new religion of “progress” and technology. Many people seem to worship growth and gadgets. Human superiority is not to to be questioned. Our greatness is unrivaled. Perhaps this is true, but let us not forget our greatness in destruction.

    I’m a big fan of Peter Schiff and I share his belief that recessions and depressions are solutions that clean out the decay of a decadent system. The only problem is Schiff applies this idea too narrowly and only focuses on the economy. In my opinion the entire debt based monetary system is a problem and its impending destruction is the cure. We need the crash and the pain so we can move on. There is a lot of decay in our minds that needs to be thoroughly purged and brought back to reality (I’m no exception, and again, I’m really not looking forward to this). In the absence of an oil substitute we will continue to head toward a great purging wether we like it or not, wether we want to believe it or not.

    This is the future I see. This should be all the more reason for each of us to talk to our friends and neighbors. Goal 1 should be to stop the train from going over a cliff. Goal 2 should be explaining why it went over the cliff after it does. If a horrible ‘everything crash’ does occur and we lose the lesson, then we’ve lost everything. At the very least, let’s try to learn our lesson.

    I think we should all try to reach as many people as we can. I teach intermediate and advanced English in Warsaw, Poland and I work aspects of the Crash Course into class discussions. Most of my students are adults with advanced degrees and high positions in the corporate world, and most of them have never even heard of peak oil. When I ask them; “are you guys interested in talking about peak oil,” they say; “what’s that?” In response I reply, “that question means you’re interested. Let’s talk about it.”

    My mom and step dad are now part of a co-housing community in Oregon. I applaud them in this. We need to band together for support as we reach out to others. Co-housing and self sufficiency are excellent ideas. Personally, I’m not directly pursing either at the present moment, but they’re on my radar screen.

    I’m sorry I can’t offer any facts to repudiate your post Dr. Martenson. I’m not aware of any at this time.

    I’ll close with the words of Ice Cube. This statement might as well being a warning to the human race . . .

    “Check yourself before you wreck yourself.”

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  • Sun, Oct 18, 2009 - 12:14pm

    #29

    bluebird

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    Re: Exponential Money in a Finite World

    Damnthematrix said  “Technology will not save us, it will sink us.”  Yes, indeed. The time to get ready was 20, 30 years ago, but nobody listened then, and very few are even listening now.  As Dr M says, the next 20 years are going to be different than the past 20 years.  Most people have no clue how different life is about to change for them. Unfortunately, nobody can predict what/when/where will trigger this life-altering era.

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  • Sun, Oct 18, 2009 - 12:20pm

    #30
    zulu

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    Re: Exponential Money in a Finite World

    Dr. M thanks as always for this discussion forum.  It’s been a full year for yours truly – hardly missed a single day of this blog.  I must admit that opening my eyes to these life-shifting topics has been simultaneously empowering and rather stressful.  But something about this particular thread has finally helped wash away some of the anxiousness.  I suddenly feel much more at peace.  Why?  Because I can answer the question posed in several different ways throughout this thread.

    Q:  “I understand that there are big problems looming ‘out there’, but what can I do to fix it?”  A:  Absolutely nothing.

    There, doesn’t that feel better?

    That is not to say the problems can’t be fixed.  They certainly can be.  All we need is a concerted, coordinated effort by most of the powerbrokers and policy makers around the world (politicians, business leaders and central bankers, to name a few) to eschew all of the current systems that have led them to their powerful and lucrative positions, and instead simutaneously begin to follow a path that leads toward sustainability without regard for personal gain.  Yep.  That’s all.

    (It goes without saying that if you believe there is even a 1% chance of this happening, I have a bridge I need to talk to you about.)

    Folks, please stop all the handwringing about how to fix these problems.  It is in all likelyhood too late to fix them, and even if it’s not too late, as a previous poster noted, the bankers will gladly accept death before unfisting a single greenback (or euro, or yen).

    Your question should be:  How do I prepare for the coming changes?  Now that’s a more manageable question.

    A:  Do whatever you need to do to ensure the safety and well-being of your family.  If you have energy left after that, try helping your neighbors and community get ready.  And then sit back and watch the show.

    z

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  • Sun, Oct 18, 2009 - 12:31pm

    #31
    r

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    Re: Exponential Money in a Finite World

    I agree with DamntheMatrix on almost all counts.

    1. Getting out of debt is the most important thing to do first.  However, my advice is to declare bankruptcy because that is the moral and legal thing to do.  And the punishment is not being able to borrow more money which I think is a fair deal.  So for most families deep in debt the first thing to do is position finances to survive bankruptcy — that is to survive having no credit.

    2. Technology — invention — uses up all available energy.  It doesn’t create it, as DamntheMatrix pointed out.  There was a chart I posted a while back that showed that even though refrigerators and air conditioners were more efficient homes in the US were using more energy — because all the other new devices were soaking up all available energy.

    3. If enough people declare bankruptcy that will bring at least part of the banking system to its knees — the part that lends money to the average consumer — Bank of America, for example.  For the system to understand it has to change the other part involved in global investments, Goldman Sachs and JP Morgan, for example, hs to be affected.  I don’t believe that part can run independently forever — companies may grow with fewer employees but they need more consumers as well.

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  • Sun, Oct 18, 2009 - 1:46pm

    Reply to #29

    okubow

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    Re: Exponential Money in a Finite World

    [quote=bluebird]

    The time to get ready was 20, 30 years ago, but nobody listened then, and very few are even listening now.

    [/quote]

    Hehe. I wasn’t even alive 30 years ago.

    Maybe we should look on the bright side here? Some are predicting that the crash could be the trigger for a great renaissance.

    In nature, natural disasters destroy, but they also bring forward new opportunities and growth (and I don’t mean growth in the narrow economic sense). A big tree may be uprooted and destroyed in a tornado or hurricane, but it creates room and light for sapplings which otherwise may not have had a chance. There’s a lot of stuff I like about modern society, like modern medicine and the internet, but I’m not that crazy about shallow pop culture/ consumerism and I wouldn’t really feel perturbed if it went by the wayside to make room for something better.

    Right now, people are mostly defined by what they buy or can buy (they’re professions are only relevant to one another in terms of the buying power they provide). In the future, we may all be defined by what we can make and produce. I find this exciting and attractive, as I feel the things that we produce are much better representations of ourselves than the things we pick out off of a shelf at the mall. We may end up mattering more to each other as human beings than we do as customers, consumers and “revenue emitters.”

    Certainly there will be some rough times, but I don’t think it will all be bad. People who are overly attached to the way things are now will have a horrible time. People who are more adaptable and less attached will still find time for fun and joy.

    Even cavemen and women and cavekids had fun sitting by the fire banging sticks together and chanting old caveman tunes. They lived hard lives, but they still managed to have some fun and enjoy some good times inspite of the hardships.

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  • Sun, Oct 18, 2009 - 1:51pm

    #32
    joemanc

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    Re: Exponential Money in a Finite World

    If there’s one issue that worries me the most, it’s energy and specifically, Peak Oil. There’s no way around it, our world is built on oil. To wean off of oil will take decades, decades that we most likely don’t have. I was too young to live through the Oil shocks of the 70’s, but having read Jimmy Carter’s speeches from that era, it makes me wonder what in the world people were thinking ignoring his advice. And it makes me even more pessimistic when I look around and see people’s attitudes towards cars and gas and energy. Some people have woken up to the realities, but it’s a shamefully low minority of the population, unfortunately.

    Sure, the economy can always be fixed by fixing the monetary system. The environment can be fixed somewhat with some regulations, say against overfishing and pollution, to name a few things. But energy is a tough one. Technology can help us, but it will not save us. With this in mind, all of my preparations and planning are centered around a Hope for the Best, Plan for the Worst scenario. I’m planning for a fire, hopefully I won’t need to use the fire insurance.

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  • Sun, Oct 18, 2009 - 2:00pm

    #33

    bluebird

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    Re: Exponential Money in a Finite World

    okubow said  “Certainly there will be some rough times, but I don’t think it will all be bad.” Probably that’s true for us who are aware and can prepare. But for the clueless majority, what’s coming is going to be a devastating shock, like in a natural disaster (hurricane Katrina). Eventually, they bring opportunities and growth, but the initial reactions are fear and panic.

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  • Sun, Oct 18, 2009 - 3:00pm

    Reply to #24
    Davos

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    Re: Exponential Money in a Finite World

    [quote=Farmer Brown]

    The more time we have, the greater the chance that a revolution in energy harvesting takes place.  I have not given up on that possibility. 

    [/quote]Hey FarmerBrown!

    In doing the car conversion and the ride on mower conversion and as a result I have done a lot of “Googling”. What I am seeing is what I saw when fax machines came out and when I first got on the “Internet” with dial up and “message boards”. I’m seeing a new trend forming in energy. I don’t know if some revolutionary energy will shape sooner as opposed to later. I certainly see the band aid taking shape though. Hopefully things like series hybrids will bridge the gap. Since all of the band aids require conservation I think that the world is in for a sustainability adjustment.

    Take care

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  • Sun, Oct 18, 2009 - 3:02pm

    #34

    Thomas Hedin

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    Re: Exponential Money in a Finite World

    Each new person places additional demands on food, water, energy, and other finite resources.

    I’m confused as to how food, water, or energy is a finite resource or am I reading into this incorrectly?

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  • Sun, Oct 18, 2009 - 4:38pm

    #35

    idoctor

    Status Bronze Member (Offline)

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    Re: Exponential Money in a Finite World

    American dreaming…

    http://www.youtube.com/watch?v=3bvHZInjqO0&feature=player_profilepage

    Green House Nightmare

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  • Sun, Oct 18, 2009 - 4:48pm

    Reply to #26

    Stan Robertson

    Status Gold Member (Offline)

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    Posts: 516

    Re: Exponential Money in a Finite World

    quote=surfersdsb]

    . Recent discoveries due to technology advances has doubled our domestic natural gas reserves in 24 months. The historical relationship between natural gas being close to a 7 to 1 price ratio has widen to 22 to 1. Is it possible that we will see advances in coal to liquids, natural gas powered transportation or a high price of oil which will encourage significant renewable technology advances? 

    While I believe that peak oil is a distinct possibility I would like to to see a greater discussion of the affects of technological advances which can push Dr. M’s timeline of crisis further into the future. In my 30 year experience in trading I have learned that an illogical market can last longer then one’s ability to keep a position on. For the record I am long energy at this time.

    I also believe that our current politicians are only capable of doing the wrong thing. Still the issues of productivity and the advances in technology might save us yet.

    [/quote]

    Before jumping to the conclusion that natural gas will be abundant and cheap, a few things need to be considered. It takes a well head price of about $6.00 / MCF to make it profitable to drill and produce shale and other tight gas formations using horizontal drilling technology. At the moment gas storage reservoirs are full, the price is well below the profitable level and drilling has virtually ceased. In the meantime, the productive capacity of the new wells that have contributed the current glut typically decline by 70 percent the first year and another 50% in the second year. They will be depleted, but no replacements available in a couple of years, thereby setting the stage for tight supplies and high prices later. The same is happening with oil, especially the initial high rate high expense deep water wells. Investment and drilling that are needed now are not being done. That will make matters worse in the near future. Investors should be able to make money by positioning themselves appropriately.

    As for the politicians, I agree that they can be relied upon to do exactly the wrong thing. Recall the natural gas shortages that were caused by price controls in the 70s? And what was the response? They created 30 different levels of price control for methane molecules, but it was the end of price controls on gas from depths below 15,000 ft that generated enough new production to end the shortages. A more recent example of stupidity is the attempt of Sens. Schumer and Casey to put an end to drilling the Marcellus shale via costly new regulations.

    Finally, recall that exponential growth of oil production ended about 1973 and was replaced with a linear growth regime averaging an additional half million barrels per day until a plateau was reached about 2004. We likely have another year or two before demand for oil exceeds supply.  At that time, it appears that we will begin a regime of chronic shortage. This will not be fun, but it need not be an immediate disaster. The obvious short term response will be conservation; whether intentional or forced upon us.  What will be sorely needed will be substantial new fuel sources for transportation. T. Boone Pickens is probably correct that compressed natural gas is our best bet, but it will take a political awakening to the problem to get anything done. We have less than a decade as I see it. The long term consequences of a world with severe oil shortages are grim. It will be hard to keep people alive in manyy places. Just my $.02.

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  • Sun, Oct 18, 2009 - 5:37pm

    Reply to #34
    Ken C

    Ken C

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    Posts: 99

    Re: Exponential Money in a Finite World

    [quote=Thomas Hedin]

    Each new person places additional demands on food, water, energy, and other finite resources.

    I’m confused as to how food, water, or energy is a finite resource or am I reading into this incorrectly?

    [/quote]

    So are you implying that you think that there is an infinite amount of food on this planet? 

    Surely you can see that it is not infinite and is therefore finite.

     

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  • Sun, Oct 18, 2009 - 6:51pm

    Reply to #34

    Thomas Hedin

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    Re: Exponential Money in a Finite World

    How can it be a finite thing when we can always grow more of it?  If food was a finite thing wouldn’t we have ran out of it a long time ago correct?

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  • Sun, Oct 18, 2009 - 7:33pm

    Reply to #34
    joemanc

    joemanc

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    Posts: 138

    Re: Exponential Money in a Finite World

    [quote=Thomas Hedin]

    How can it be a finite thing when we can always grow more of it?  If food was a finite thing wouldn’t we have ran out of it a long time ago correct?

    [/quote]

    Really? Tell that to the 1 billion humans who are suffering from hunger:

    [quote] The Food and Agriculture Organization and the World Food Program said 1.02 billion people — about 100 million people more than last year — are undernourished in 2009, the highest number in four decades. [/quote]

    http://www.reuters.com/article/newsMaps/idUSTRE59D18D20091014

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  • Sun, Oct 18, 2009 - 7:35pm

    #36

    bluebird

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    Re: Exponential Money in a Finite World

    Thomas Hedin said  “How can it be a finite thing when we can always grow more of it?” How can we grow more food without seeds? What if the seed companies can’t get credit to harvest and package the seeds? What if the farmers can’t get credit to plant the crops? How can the farmers plant the crops without gas for the tractor? What if the trucks can’t get credit to deliver the food to the stores? What if the backyard gardener has no money, no credit, no way to buy the food, even if the farmer somehow could grow it?

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  • Sun, Oct 18, 2009 - 7:48pm

    #37
    Doug

    Doug

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    Re: Exponential Money in a Finite World

    Then we will evolve to a society that doesn’t require credit to provide life’s necessities.  The businesses that adapt will survive.  The ones that don’t will be replaced by new ones that can.

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  • Sun, Oct 18, 2009 - 7:50pm

    #38
    Davos

    Davos

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    Re: Exponential Money in a Finite World

    Last I heard every species was and is in decline…save for man and because of man. Take fish, by 2050 we will have wiped them all out.

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  • Sun, Oct 18, 2009 - 7:54pm

    Reply to #34

    Damnthematrix

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    Re: Exponential Money in a Finite World

    But that’s the WHOLE POINT Thomas!  We CAN’T grow much more food, we have already in fact well and truly hit peak per capita food production. We were told we faced “the explosion bomb” back in the 60’s, and we averted that woth “hi tech” agriculture. I n just forty years, we more than doubled our population on the back of stuff (fossil fuels) that took 150 million years to produce!

    And regarding your question ” If food was a finite thing wouldn’t we have ran out of it a long time ago correct?”, NO it isn’t correct! Remember just one minutes ago, Fenway Park was only half full…… and we were using half the arable land. Now the park’s full, and ALL the arable land (and then some) is not only being used, it’s FAST DISAPPEARING as when a billion tons of Australian topsoil was blown away into the Tasman sea recently in a dust storm…… like this as seen from our back door at lunch time last month!

    Food production is finite because the planet is finite. You need soil and all the stuff that goes with it, water,  nutrients (like phosphate rock which is also fast disappearing – just google peak phosphate for fun!)and land surface area, all taken up already.

    Mike

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  • Sun, Oct 18, 2009 - 7:57pm

    #39
    VeganDB12

    VeganDB12

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    Re: Exponential Money in a Finite World

    And then factor in the “scorched earth” policies of war….deliberate starvation by governments.

    http://www.answers.com/topic/food-as-a-weapon-of-war

    It is not necessary a function of quantity of resources, but as resources become more scarce withholding food and contaminating and poisoning farmland becomes a more powerful weapon.

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  • Sun, Oct 18, 2009 - 8:52pm

    Reply to #34
    Ken C

    Ken C

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    Re: Exponential Money in a Finite World

    [quote=Thomas Hedin]

    How can it be a finite thing when we can always grow more of it?  If food was a finite thing wouldn’t we have ran out of it a long time ago correct?

    [/quote]

    Well if you wish to bring the dimension of “time” into the discussion then we can extend the time frame to time when the sun burns out, there is no more light with which to grow things and hence no more food. Ridiculous isn’t it.

     

     

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  • Sun, Oct 18, 2009 - 9:54pm

    #40

    dander2194

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    Re: Exponential Money in a Finite World

    Chris, while immaterial to the future implications, I believe it is possible the designers of our fiat monetary system where fully aware of Malthus and his arguments of sustainability. I also believe they where aware of the Triffin Paradox. Perhaps Breton Woods I and II were designed by complete genius. While the ethics behind the illusion we live in are questionable, so to are the implications of the arguments on the other side (population control, big brother). Is possible our system was designed to fail when the limits to growth were reached? Was it created by genius to protect us from ourselves and not unethical greedy monsters as is so often portrayed? Even going further, Is it possible China’s leaders understand this and have already created a society for the new world where population control and travel restrictions etc. are put into place? Is it possible that what we are discussing is well understood by the worlds order architects? I would argue it is very possible. Do you agree?

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  • Sun, Oct 18, 2009 - 9:55pm

    #41

    ByronS

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    Re: Exponential Money in a Finite World

    Yes, it is indeed well past the time for hand-wringing.

    It is completely natural to hope for a technological fix for all our problems. After all, we seem to have innovated our way out of some pretty serious jams in the past. However, the core issue of (exponentially) expanding human population coupled with rapid resource depletion will nullify any and all attempts at “fixing” the situation.

    For those you who apparently hold out hope for a happy ending, please review the complete Crash Course once again. You will not find a more concise, thoroughly researched presentation of our predicament anywhere.

    Of course the timing of this great unwinding can be debated ad infinitum, but all you really need to know is that there will be a truly epic human population crash within the lifetimes of nearly everyone able to read this blog. This is a mathematical certainty; we are not exempt from any of the physical limitations faced by all living species. When the needs of a given population exceed available resources: space, water, food, or the energy to procure them, then nature takes care of the problem in its own way.

    So please don’t be deluded into thinking that we are just one good discovery, invention, or even alien intervention away from resolving our looming day of reckoning. Make all the preparations you can for yourself and family – I have begun this process myself within the past year or so, but enjoy the benefits of this great, messy global civilization while you still can. It won’t be around in its present form much longer.

    And remember, life is too short to drink lousy beer!

    ByronS

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  • Sun, Oct 18, 2009 - 10:07pm

    #42

    straight

    Status Bronze Member (Offline)

    Joined: Aug 25 2008

    Posts: 42

    Re: Exponential Money in a Finite World

    The greatest shortcoming of the human race is our inability to understand the exponential function.  

    ~ Dr. Albert Bartlett

    I recently heard study findings [Australian] about fire-fighters and the main contributors to deaths; errors in human judgement.  You will be blown away by this, the single biggest threat to a fireman’s life [when it comes to his judgement] is his inability to deal with the exponential growth of a fire!

    A forest fire, or any fire going up hill,  spreads exponentially.  It is our inability, as humans, to accurately judge that exponential growth that leads to the most deaths

    I remain convinced that what we are fighting in the ‘three E’s’ is our inability to come to terms with our own human nature.

    IF I am right in that, then when discussing any contributing factor to the ‘three E’s’, the only starting point must be to examine what aspect of our NATURE we are in denial about. 

    again i recommend to you the writings of one Dr. Jeremy Griffiths http://www.humancondition.com/ASpeciesInDenial.html

    Stewart  Brisbane.

     

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  • Sun, Oct 18, 2009 - 10:40pm

    #43
    barney_franks

    barney_franks

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    Re: Exponential Money in a Finite World

    I agree.  Being in the oil industry myself we have been exploring and drilling in places that 10 years ago would not have been considered. 

    The oil is in remote and difficult places (Madagacsar, Mozambique, Tanzania) and often heavy oil that needs to be steamed out.  This required resources and equipment on an unimaginable scale to get the gear over the beach, up rivers and mountain passes we often need to make the infastructure to make it possible (1 monsoon season often destroys it and it need rebuilding).  

    In some locations they stop drilling (as in the states) when oil price declines. Long term is very worrying prospect for the world as a whole.  

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  • Sun, Oct 18, 2009 - 11:10pm

    #44

    Jim H

    Status Diamond Member (Offline)

    Joined: Jun 08 2009

    Posts: 1798

    Re: Exponential Money in a Finite World

    I don’t understand the luddite threads going on here… indeed, it will be cleaner energy technologies that will take over for oil in our future.  Technology is not the enemy….  we just need to not get ahead of ourselves before we understand all the implications.. which we tend to do.  For instance, we didn’t understand that using corn for alcohol is silly (from the standpoint of what it does to food pricing, and the overall balance of resources and energy) before we had created a whole industry around it.

    I make computer chips for a living, so I know what we are capable of…. increasingly efficient and cheap solar is going to play a big part.  If you think about it.. the real missing link is a convenient means to store the energy… and oil is great in this regard..   The missing link is battery technology with 10 – 100x the capacity of today.  It will come.  Someday you will drive your electric car on a long trip, and be able to exchange a standardized high capacity, precharged battery block (which was charged cheaply in the AZ desert and transported to your locale) at a “gas station”, then continue on your way.  This is not science fiction.  Last year a young Stanford researcher figured out how to make a potentially 10 times better Li-battery anode using Si nanowires… http://news-service.stanford.edu/news/2008/january9/nanowire-010908.html.. I know this because I work with one of the Stanford researcher’s Harvard classmates.  

     

    I am much more hopeful when it comes to our ability to transition our energy technology (disregarding for the moment whether this happens fast enough to keep us in front of  the global warming tipping point) than I am our ability to transition our monetary system and honestly face the pain ahead.  That’s why I am here.       

     

     

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  • Mon, Oct 19, 2009 - 2:34am

    #45

    Lbart09

    Status Member (Offline)

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    Posts: 2

    Re: Exponential Money in a Finite World

    Very interesting posts.  I don’t think that one day we will wake up and CNN will announce “the crash is now here,” I believe that things are subtly changing day by day and as the pot heats up most of we frogs aren’t aware of what ‘s happening.

    I heard a statistic recently that in the US something like 30% of kids under 30 are back living with their parents or will for some time.  My son and his girlfriend are living at her parent’s home, in a newly created room in the back yard.  While no one would call this a “crash statistic,”  if it is true it is a subtle indicator.

    We may be able to rotate crops and continually grow food infinitely, but  if our infinite water supply becomes gradually more polluted with pharmaceutical drugs, more saline due to water tables being lowered due to poor ag practices and droughts in some of our best farmland, production will surely decrease.  We’re not going to wake up one day to a “water crash,” but those of us using ground water directly for cooking and drinking are having to invest more in filtering systems and hope that the slowly increasing search for raw materials (uranium around here), doesn’t cause a spike in cancer rates and shortened life spans because our new filtering technology can’t keep up with the new levels of pollution being created by technology extracting the last micron of commercial raw material.  It’s not just oil that is being used up, but most of our resources. 

    As Orlov said in his talk on Social Collapse Best Practices, “Being poor takes practice” and I think more and more of our friends and neighbors are gradually getting that practice.  Think of all the people who can’t afford their high speed internet and lap tops any longer and who aren’t reading this information.  One of our Duke University, master level family members cannot afford cable TV any longer, and that’s in a two income family.

    Those gradually growing poorer among us aren’t advertising it, but I believe are slowly becoming use to living with less.  Just because we’re not reading about social and economic collapse in the WSJ doesn’t mean that it’s not actually happening as we respond to and read our favorite blogs.

     

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  • Mon, Oct 19, 2009 - 3:43am

    #46
    plato1965

    plato1965

    Status Bronze Member (Offline)

    Joined: Feb 18 2009

    Posts: 86

    Re: Exponential Money in a Finite World

     

    CM:  “I am constantly looking for evidence to either bolster or refute this hypothesis.  Where is this wrong?  What could mitigate this argument, besides some miracle energy breakthrough?”

     I’ve been looking for glimmers of hope too…. there are some.

     1) Conservation / demand destruction / adaptation.. *may* be able to outpace the decline in production… giving us time to transform.

      2) I’m not so arrogant as to believe that this problem has gone unnoticed by the elite.. it’s been known since the

    50’s and I expect those who have the most information and geopolitical power to have planned ahead.

     http://www.theoildrum.com/node/4394

       eg: intentionally leaving US domestic oilfields undeveloped while depleting the middle east…

      3) The unknown unknowns… human ingenuity, hidden reserves, technologies.. natural gas looking hopeful.. but there are plenty of other possibilities.

     Ok, hardly a watertight case… but certainly enough for some hope that orderly transition is possible…

     

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  • Mon, Oct 19, 2009 - 3:47am

    Reply to #46

    Stan Robertson

    Status Gold Member (Offline)

    Joined: Oct 07 2008

    Posts: 516

    Re: Exponential Money in a Finite World

    [quote=plato1965]

    …I expect those who have the most information and geopolitical power to have planned ahead.

     http://www.theoildrum.com/node/4394

       eg: intentionally leaving US domestic oilfields undeveloped while depleting the middle east…

    [/quote]

    I’ll bet that there are more tooth fairies in existence than the number of US domestic oil fields intentionally left undeveloped. Tell me where they are and we can get rich together.

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  • Mon, Oct 19, 2009 - 8:07am

    #47

    sofistek

    Status Platinum Member (Offline)

    Joined: Oct 02 2008

    Posts: 557

    Re: Exponential Money in a Finite World

    Any growth is unsustainable, whether exponential or arithmetic. It’s just that exponential growth has got us to the point where limits start to bite much sooner than would otherwise be the case. But, rest assured, even attempts to grow only arithmetically will fail.

    Why do you play down the choice? “our choices now are to either evolve a new economic model that is compatible with limited physical resources, or risk a catastrophic failure of our monetary system, and with it the basis for civilization as we know it today.” It’s not just a risk that catastrophic failure will follow the failure to evolve a new economic model, it is an absolute certainty.

    Great article, by the way, a must read. It’s pertinent that you start with a quote from Albert Bartlett; his talk about Arithmetic, Population and Energy is a real eye opener.

    Tony

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  • Mon, Oct 19, 2009 - 8:21am

    Reply to #46

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    Re: Exponential Money in a Finite World

    you beat me to it Stan……  there is NO WAY that US oil fields have been left for later, the truth is we have been using energy including oil to the limit of production forever…..

    plato’s assertion that [energy] conservation of itself could save us is wrong. Jevons Paradox (google it) occurs all the time, if people save here, they’ll expend it somewhere else, like the Swedish people who lived in experimental state of the art energy efficient houses in the 80’s, who saved so much money on their energy bills…….. they could afford to take holidays to the Bahamas!

    Mike

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  • Mon, Oct 19, 2009 - 8:34am

    Reply to #34

    Thomas Hedin

    Status Bronze Member (Offline)

    Joined: Jan 28 2009

    Posts: 99

    Re: Exponential Money in a Finite World

    Really? Tell that to the 1 billion humans who are suffering from hunger:

    The USA has 4 times the amount of tillable farm land and 1/4th the population of China.  Now let me get this right, China is able to export tons upon tons upon tons of food.

    There isn’t a shortage of food on the planet.  Clearly something else is going on.  Somebody, somewhere, must be wanting those 1 billion people to suffer from hunger.

    I hope the following article helps people understand this.

    http://www.halderman.com/china.pdf

    Comparing statistics on population and agriculture may help in understanding China’s current

    situation.

    Population: China has a population of about 1.3 billion people. That’s approximately

    4½ times the population of the United States. Because the land areas of China and

    States is 440 acres. The average farm in China is just 1.6 acres.

    the United States are essentially the same, the population difference leads to significantly

    for farming? The simple answer is that the farms are small. Average farm size in the United

    higher population density in China. Population density on China’s eastern coastline is approximately

    2,000 people per square mile. As a contrast, the most densely populated area of

    the United States – the Northeast – has about 400 people per square mile. By one measure,

    the total population of just the cities in China (390 million) is more than 30% greater than

    the total US population (295 million).

    • Land and Farms: As noted above, the total land areas of both the United States and

    China are about equal (approximately 3.65 million square miles). A key difference is the

    land suitable for farming. In the US, approximately 40% of all land is considered suitable

    for farming. In China, that percentage is only 10%. Farm numbers differ greatly as well.

    There are approximately 2.1 million farms in the United States. In China, there are over 200

    million farms. How can there be so many farms in a country with 10% of the land suitable

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  • Mon, Oct 19, 2009 - 12:27pm

    #48
    KBX

    KBX

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    Posts: 2

    Re: Exponential Money in a Finite World

    I believe we are past peak oil as well…

    A chart with Price on the y-Achsis and World oil supply on the x achsis

    shows that large price incentives do not lead to higher supply – an indication of limitations ….

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  • Mon, Oct 19, 2009 - 12:39pm

    #49
    TheRemnant

    TheRemnant

    Status Member (Offline)

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    Posts: 2

    Re: Exponential Money in a Finite World

    Hello Folks,

    This is a great post, and one that deserves attention.

    I believe a critical part of the solution the solution is to join or create a local Transition Towns (TT) intitative.  The folks that attend have one quality you will not find in mainstream culture – the will to listen.  There is no need to proselytize to others to grown the TT movement in the hopes of getting them to swallow the red pill.   Complusary knowledge takes no hold in the mind.

    With respect to our monetary system, I believe there is no chance of reform.  The Establishment is too wedded to it as they reap the benefits of its structure.   Collapse is more likely, with government continuing to act as brokers of the Money Interests, robbing the citizens to prop up those in control of it.  A central bank breaks government accountability to the people as it permits them to borrow and spend money without going to the people and asking for it in the form of brute force taxation.  It also cartelizes banking into issuing debt based fiat money.

    Another poster asks, “What can we do to fix it?”.  My belief, as I said before, is we cannot do it through the standard avenues i.e. via the political apparatus or the “red market” – the taxation/inflation matrix most of us are currently enslaved to.  The solution lay in agorism.  Agorism is not a political movement nor is it about dictating what obligations people have to each other.   It is a voluntary society, a counter-economy, or a grey market that is built within the existing system where you start off-the-books businesses and trade with each other using sound money.  All you need is 4-5 trustworthy trading partners to get started.

    Money was not initially created by government.  Money arose out of a free market by the necessity of having an intermediate medium of exchange to overcome the deficiencies of barter.   A free market money is a commodity money, not fiat the government/banking cartel creates out of thin air, backed buy debt and demanded via State violence (legal tender laws, taxation, and so forth).    Once word got out in a given market a particular form of money was being accepted, it had a spiralling upward or positive feedback loop througout the market that this particular form of money was universally demanded as a medium of exchange, be it butter, sea-shells, wampum, tobacco, yak dung, etc.   As money evolved, it eventually settled on gold, silver, and/or copper etc as these forms of commodities had a number of characteristics making it ideal as money (i.e. high value per unit of weight, portability, durability, divisibility, fungibility (interchangibility), and one of the most important characteristics of all – it cannot be created out of thin air by some privileged group -debasing/devaluing the existing money in circulation.

    Please vist the thread in my signature to read more on this topic.  I have to go to work….sigh. 😉

    Cheers.

    We maintain a space that holds the possibility of something different/new/more fulfilling & life-sustaining, makes that real through innovative local initiatives that produce results people can relate to, and a space of open invitation to join in at any point and in whatever way resonates most for them. We do not need to prostelatize to grow the movement. The dominant mechanistic industrial growth society is at greater risk and is unravelling faster than most people realize. All we need to do is nurture the seeds of the next paradigm and build connections and tangible projects at the local level so that as people realize what is happening they will know there is a viable and exciting alternative that has been building for some time, and that is eager to work with them and grow together.

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  • Mon, Oct 19, 2009 - 12:58pm

    #50

    Lbart09

    Status Member (Offline)

    Joined: Oct 06 2009

    Posts: 2

    Re: Exponential Money in a Finite World

    Hey – the calvary has arrived.  While the WSJ usually is denying that energy/capital issues exist in our country, it comes up with this article today:

     http://online.wsj.com/article/SB10001424052748703746604574461342682276898.html?mod=igoogle_wsj_gadgv1&&nbsp;

    on “Five Technologies that Could Change Everything”

    Almost makes me want to sell my property, my PMs and everything else to go put my money into the stock market and America’s future!

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  • Mon, Oct 19, 2009 - 1:12pm

    Reply to #44
    Half_Empty

    Half_Empty

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    Posts: 0

    Re: Exponential Money in a Finite World

    hanah_351 wrote:

    …indeed, it will be cleaner energy technologies that will take over for oil in our future.

    As earlier posters have pointed out, technologies are not energy sources. Doesn’t matter how brilliant one’s battery technology is, something’s still got to put juice into the cells. 

    Everything hangs on scaling up non-fossil energy production fast enough to catch up with, and then maintain, the “growth trajectory” built up by billions of humans assiduously setting fire to millions of years-worth of stored solar energy in a 300-year race up a blind alley.

    Don’t forget that this latter activity is the global economy. It is modern civiliation. The Ponzi monetary system of exponential money had to come into existence in order to enable humans to transact the “fossil bonfire” stage of  evolution. 

    The bind we are in at the moment, which I believe Chris is referring to in his article, is that people now act as if the money system controlled the energy system, not the other way round. Therefore, they believe they can afford (in time and money terms) to develop wonder batteries, etc, as a happy solution for all six, seven, eight, nine billion of us.

    Well dream on. A tiny handful of ‘priviledged’ people will get to enjoy electric cars and battey swapping stations – think of 5% of the population. Yes, the same 5% who’ve just helped themselves to 95% of the monetary wealth in many ‘advanced’ nations. 

    Battery swapping stations illustrate this paradigm perfectly. This prototype uses tons of steel backed up by hydraulic rams, sensors, actuators, solenoids, controllers etc. etc.  All to get a battery into and out of a car. Anyone with even an inkling of how future economies will work, as fewer and fewer of the “fossil fuel slave BTUs” turn up for work each day, can guess that the kind of ‘pre-peak’ thinking that lead to such concepts simply won’t happen in reality.

    What you’ll actually get is a wooden or concrete ramp and two humans with a mechanical scissor jack. 

    Don’t forget to tip, Mr Driver!

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  • Mon, Oct 19, 2009 - 1:32pm

    #51

    JAG

    Status Silver Member (Offline)

    Joined: Oct 26 2008

    Posts: 240

    Re: Exponential Money in a Finite World

    Unbelievable.

    Here “everyone”, wash that red pill down with some of this special Kool-aid.

     

    Coop and Bluestone,

    Thanks for your input, it was insightful and very much appreciated.

    Jeff

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  • Mon, Oct 19, 2009 - 3:28pm

    Reply to #51
    KBX

    KBX

    Status Member (Offline)

    Joined: Nov 09 2008

    Posts: 2

    Re: Exponential Money in a Finite World

    I believe we are past peak oil as well…

    A chart with Price on the y-Achsis and World oil supply on the x achsis shows that large price incentives do not lead to higher supply – an indication of supply shortage ….

    Concerning Money supply – this is a difficult topic – since money is NEVER created exogenously through the central bank but through the banking system it is not that easy to ´turn on the printing press and get money supply rollin – help of the banks is needed. But the banks do not loan money out without the belief to get the money paid back – this is the reason why the balance sheet of the FED has exploded but the credit supply is still contracting. This self-interest is the reason why the system is balancing itself quite well without regulation ( bubbles still happen because of blurred judgement).

    Also something not considered in the  thoughts in the article is the population of the US., which has increased pretty much in the last century – on per person basis the money supply didn´t grow that dramatically. Economic growth has also been considerable during the last century warranting higher money supply.

    The big flaw of the monetary system is that economic growth is needed – if growth falls below 0 for extended time borrowers will have a difficult time paying back their loans. And that growth on our planet has to be capped somewhere is also pretty clear. That debt poses a problem is without question (although the debt to GDP ratio has been higher after the 2nd world war ) .

     

    regards, KBX

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  • Mon, Oct 19, 2009 - 7:09pm

    #52
    mcbridek

    mcbridek

    Status Member (Offline)

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    Posts: 0

    Re: Exponential Money in a Finite World

    Which major currencies are NOT backed by debt–does anyone know, please? 

    thanks

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  • Mon, Oct 19, 2009 - 8:59pm

    #53

    xraymike79

    Status Platinum Member (Offline)

    Joined: Aug 25 2008

    Posts: 804

    Re: Exponential Money in a Finite World

    Sofistek said:
    It’s not just a risk that catastrophic failure will follow the failure to evolve a new economic model, it is an absolute certainty.

     

     

    Discussions on that here:

    https://www.peakprosperity.com/comment/54458#comment-54458

    &

    https://www.peakprosperity.com/comment/54566#comment-54566

     

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  • Mon, Oct 19, 2009 - 9:43pm

    Reply to #52
    Davos

    Davos

    Status Silver Member (Offline)

    Joined: Sep 17 2008

    Posts: 811

    Re: Exponential Money in a Finite World

    [quote=mcbridek]

    Which major currencies are NOT backed by debt–does anyone know, please? 

    thanks

    [/quote]Gold and silver, though I think only gold is taken at the currency window of a bank or exchange.

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  • Mon, Oct 19, 2009 - 10:28pm

    #54
    raptor

    raptor

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    Posts: 1

    Re: Exponential Money in a Finite World

    I just started to read the article (not finished yet), but want to express a idea/feeling I had for a long time …i.e. the reason we have and will have those boom/crash cycles is on one side human nature as the main driver and the technical reason is the fractional banking system. By this I mean charging interest on money creation and ability to leverage creates and exponential system which at the end will always collapse….

    I will share my other thoughs when i read the whole article…. 🙂

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  • Mon, Oct 19, 2009 - 11:23pm

    Reply to #4
    raptor

    raptor

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    Joined: Sep 12 2008

    Posts: 1

    Re: What Do We Do To Fix It?

    Here is my idea… I had for some time… 🙂

    After I read this http://fofoa.blogspot.com/2009/10/gold-is-money.html, let me purpose some
    may be a bit abstract core of ideas where the solution has to start.

    So here is the definition of “money” (I’ll call it super-money) :
     – Unit of account
     – Medium of exchange
     – Store of value

    What we have to do is to separate “super-money” into their 3 components, with feedback-loops.
    So here is how it goes :

    1. Unit of account – this should probably be based on a formula of a weighted currencies %, plus some gold in the mix let’s
    call it UM (Unit-of-Money). The important thing it should be reabalanced every couple of years
    depending on the participant currencies. It should be allowed to any country to participate in
    establishing the value of this Unit.
    One possible way would be the partcipant country has to deposit specific amount of gold and some
    of its own currency in some way in International body.
    Let me make one clarification this should not be a currency it should be just unit of measurment,
    so no International body or country should be able to make a loans in this UM (So SDR is not suitable at its current form).
    See it is separated of the other functions of the super-money, but have a feedback loop.
    Then the next step is that all goverments and at least International companies should do ACCOUNTING
     (balance sheets,..etc) in this UM.
    AND LET ME AGAIN POINT THE MOST IMPORTANT THING : Nobody should be able to make a loan in this UM
    It should be just a unit of measurment.
    Also probably we have to put a constrain on it so it can’t go exponential.
    May be the best idea is to allow it to float on some sort of slow wave function, contrary to the
    general trend of the world economies.
    So it is almost static in a sense, but not really static.

    2. Medium of exchange – this are the fiat currencies available today, they will be traded on the
    Forex as today and provide country soverignity. They will be used as part of calculating this UM.
    There wont be reserve currency. Every currency will be traded on the merit of the country economic
    strength or weaknes.
    May be as part of the puzzle we can use silver as universal coinage inter-country medium of exchange
    as a secondary feedback mechanism. Or may be not because at some point it will be too scarce and needed
    by the industries.
    Again the currencies provide a transactioal money and/or short term wealth storage, but that is it,
    nothing more.

    3. Store of wealth – here comes the gold, art, commodities and all type of assets like houses…etc.
    Those are mostly stuff that ppl hoard so they can store their productive labor to use later
    when they need it.

    So again in short the idea is to separate the functions of the ‘super-money’ with some sort of feedback.
    UM should be just a measuring tool, the way we use meters and lbs.

    Once we have this next step is to modify the Fractional banking system to a better system or may simultaneously….
    don’t have a clear idea yet. It should reflect the finite resources in our world.

    Please take this just as an idea of someone who is not an economist or financist 😉

    Again read the link I posted so can grasp the idea why separation of the functions of the money may the desirable outcome.

    If I have to explain it quickly it should balance the desire of the ppl to over-produce and store for later and the desire of ppl to invest (spend before save 😉 ).

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  • Tue, Oct 20, 2009 - 3:01am

    Reply to #52

    Thomas Hedin

    Status Bronze Member (Offline)

    Joined: Jan 28 2009

    Posts: 99

    Re: Exponential Money in a Finite World

    Which major currencies are NOT backed by debt–does anyone know, please?

    All of the major currencies are created out of a debt owed to the banking systems backed by a mortgage on all the property of their people.

    The question is if the system works so well here for the banking system why wouldn’t they impliment it in every country?

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  • Tue, Oct 20, 2009 - 3:38am

    Reply to #52
    Davos

    Davos

    Status Silver Member (Offline)

    Joined: Sep 17 2008

    Posts: 811

    Re: Exponential Money in a Finite World

    [quote=Thomas Hedin]

    Which major currencies are NOT backed by debt–does anyone know, please?

    All of the major currencies are created out of a debt owed to the banking systems backed by a mortgage on all the property of their people.

    The question is if the system works so well here for the banking system why wouldn’t they impliment it in every country?

    [/quote]Last I heard, gold IS considered a currecny. CM’s podcast talked about the ability to exchange it at the bank or an exchange window.

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  • Tue, Oct 20, 2009 - 4:00am

    Reply to #52

    Thomas Hedin

    Status Bronze Member (Offline)

    Joined: Jan 28 2009

    Posts: 99

    Re: Exponential Money in a Finite World

    Last I heard, gold IS considered a currecny. CM’s podcast talked about the ability to exchange it at the bank or an exchange window.

    Wouldn’t that be exchanging the gold for the currency?  Which podcast was that?  Where can I locate it?

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  • Tue, Oct 20, 2009 - 4:23am

    Reply to #52
    Davos

    Davos

    Status Silver Member (Offline)

    Joined: Sep 17 2008

    Posts: 811

    Re: Exponential Money in a Finite World

    [quote=Thomas Hedin]

    Last I heard, gold IS considered a currecny. CM’s podcast talked about the ability to exchange it at the bank or an exchange window.

    Wouldn’t that be exchanging the gold for the currency?  Which podcast was that?  Where can I locate it?

    [/quote]Any transaction with ANY currency IS an exchange.

    A Dollar for pound or several pounds for a Mac bought on eBay in the UK and then sold for several Zloty on eBay to someone in Poland. CM’s fine podcast pointed out that gold is treated as a currency and accepted by the banks and the currency exchanges. I don’t recall which one or what time point. But, the point that shouldn’t be adultered is that it is treated as a currency. 

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  • Tue, Oct 20, 2009 - 9:38am

    #55

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    Re: Exponential Money in a Finite World

    <http://www.guardian.co.uk/business/2009/oct/19/oil-prices-rise-supply-warning-r
    eport>

    Oil prices hit high but report warns of supply crunch

    • US light crude oil futures pushes above $79 a barrel
    • Report blames government for ignoring supply problem

    Oil prices have pushed above $79 a barrel, but a new report claims the
    world is facing a supply crisis. Photograph: Hasan Jamali/AP

    World oil <http://www.guardian.co.uk/business/oil> prices hit their
    highest point for a year yesterday, as a major new report urged
    governments around the world to take drastic action to head off an
    approaching oil supply crunch.

    US light crude futures pushed above $79 a barrel, supported by the view
    that a recovering world economy would raise demand for crude. Oil prices
    have more than doubled from the low point they hit in the spring, but
    are still around half the all-time high of nearly $150 a barrel they
    reached in early summer last year.

    Analysts have been surprised at the recent resilience of oil prices
    given the impact on energy
    <http://www.guardian.co.uk/environment/energy> demand of the global
    recession. In spite of this year’s volatility in the oil price, the
    underlying trend for a decade has been for it to rise steadily.

    A report from the non-governmental organisation Global Witness – famous
    for its exposé of so-called “blood diamonds” – pointed to an impending
    supply shock that could be so severe that many of the world’s poor
    countries would simply be shut off from the world of energy by sky-high
    prices.

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  • Tue, Oct 20, 2009 - 11:28am

    #56

    rheba

    Status Member (Offline)

    Joined: Apr 22 2009

    Posts: 46

    Re: Exponential Money in a Finite World

    It is very frustrating to be living in awareness of “peak everything” while “real life” appears to be normal and the MSM are chirping their happy messages. When we are frustrated we look for solutions – that is how our culture has taught us to react. I think that it was the Archdruid’s blog that first helped me to understand that we humans are faced not with a “problem” that can be “solved” but with a “predicament.” If you are in a predicament then all choices entail problems. Personally, I have given up trying to universalize my “solutions” so that they will work in an exponentially growing world. I am a mother and grandmother so I have become somewhat tribal and am trying to attend to my own family and my immediate community. Because I am in a small town and have my own home based business I am able to raise enough capital to be transitioning to a more low-energy self sufficient lifestyle. However, it is very hard and I am under no illusions that I will ever be able to guarantee a good life for my family. I do think that I can help other people to become aware and that is why I bought the Crash Course and am trying to get others to watch it. If you really want to think globally there are some who suggest that there could be a “green” currency. The Sudden Debt blog discusses that and someone has written quite a long paper. Personally, I find that interesting but not something that the powers that be will ever embrace. The other thing you could do is to stop “feeding the beast.” That is, don’t buy crap from big box stores, don’t use credit or debit cards and get your money out of predatory banks. Good luck. 

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  • Tue, Oct 20, 2009 - 12:50pm

    Reply to #56
    robie robinson

    robie robinson

    Status Gold Member (Offline)

    Joined: Aug 25 2009

    Posts: 885

    Re: Exponential Money in a Finite World

    Rheba,

     

    you’re right on,folks have to stop feeding the system. I wish my family were in a community of folks like you.

    We are diversified agriculture,homeschooling(not religious zealots,academic elitists)and havebeen doing what the

    CC advocates all our lives as a lifestyle choice(a brief few years in atlanta,memphis for grad school).

     

    robie

    husband,father,farmer,optometrist

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  • Tue, Oct 20, 2009 - 12:50pm

    Reply to #56
    robie robinson

    robie robinson

    Status Gold Member (Offline)

    Joined: Aug 25 2009

    Posts: 885

    Re: Exponential Money in a Finite World

    Rheba,

     

    you’re right on,folks have to stop feeding the system. I wish my family were in a community of folks like you.

    We are diversified agriculture,homeschooling(not religious zealots,academic elitists)and havebeen doing what the

    CC advocates all our lives as a lifestyle choice(a brief few years in atlanta,memphis for grad school).

     

    robie

    husband,father,farmer,optometrist

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  • Tue, Oct 20, 2009 - 1:41pm

    #57
    plato1965

    plato1965

    Status Bronze Member (Offline)

    Joined: Feb 18 2009

    Posts: 86

    Re: Exponential Money in a Finite World

    DTM:

     Re: conservation. I wasn’t thinking in terms of higher mpg cars.. but deliberate underproduction, (conservation at source),

     ie Jevons paradox wouldn’t apply..

     

     Opec would be doing us and themselves a service (long term) if they rationed output  keeping oil prices high,

    to encourage transition and efficiency.

     Maybe last years spike was the equivalent of a “fire drill” …

     Anthropogenic peak oil is far more manageable than laissez faire peak oil..

     

     Peak oil demands a money system that favours frugality, saving and long term investment.

     The current monetary system favours current consumption (to avoid inflation), or speculative investment.

      Something has to give… and my guess is it’s the monetary system.

     

     

     

     

     

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  • Tue, Oct 20, 2009 - 3:05pm

    #58
    wake-up-sheeple

    wake-up-sheeple

    Status Member (Offline)

    Joined: Sep 11 2009

    Posts: 0

    "Peak Oil" does not mean "lack of energy"

    Dr. Martenson,

    I’m sure you are aware of this, but for the benefit of the other readers, “Peak Oil” does not in and of itself mean “lack of energy”. Physics tells us that energy and matter can never be destroyed; they simple change forms one to another (Conservation of Mass and Energy).

    What Peak Oil does mean is that we have to find another way to access other sources of energy that are out there. One such source (there are many sources of energy in the universe) is nuclear fission. Of course we can use nuclear fission reactors but we don’t like the radioactive waste it produces.

    But, there is a simple way to convert the radioactive waste into non-radioactive materials: It is called Remediation of Nuclear Fission Waste. From what I understand, the process bombards the spent fuel from nuclear fission with gamma rays to get the radioactive spent fuel to release its stored energy thus becoming non-radioactive.

    1. “Apparatus for Direct Conversion of Radioactive Decay Energy to Electrical Energy” US Patent #4,835,433 (1989)( http://www.google.com/patents/about?id=oKM5AAAAEBAJ&dq=4,835,433 )

    2. http://www.worldnpa.org/php/DatabaseMenu.php?abstractid=4153&tab=2

     

    Unfortunately, Dr. Paul Brown (the inventor) died in a suspicious car accident in 2002:

    3. http://users.erols.com/iri/Pauleulogy.htm

     

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  • Tue, Oct 20, 2009 - 3:49pm

    Reply to #12
    eb_riesling

    eb_riesling

    Status Member (Offline)

    Joined: Oct 28 2008

    Posts: 20

    Re: Exponential Money in a Finite World

    Mike I think that our population problem supersedes the food problem.  If we solve the population problem the food problem becomes manageable as does our energy problem.

     

    E

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  • Tue, Oct 20, 2009 - 4:01pm

    Reply to #20
    1440 minutes

    1440 minutes

    Status Member (Offline)

    Joined: Dec 30 2008

    Posts: 14

    Re: Post peak oil

    [quote=bluestone]

    Dr. Martenson

    I have read that truly determining we have reached peak oil can only be done 5-10 years post facto.  What was the compelling evidence presented at ASPO that we are past peak oil?  I suppose in the end the timing doesn’t matter, but personally I wouldn’t mind if we could it back another 5 years.

    Thanks

    Brian

    [/quote]

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  • Tue, Oct 20, 2009 - 4:02pm

    Reply to #18
    eb_riesling

    eb_riesling

    Status Member (Offline)

    Joined: Oct 28 2008

    Posts: 20

    Re: Exponential Money in a Finite World

    Codeblue

     

    the simplest answer that I can give is that your examples are controlled environments with no real exogenous shocks i.e. a vat of fermenting wine must, yeast convert sugar into alcohol through a logistic curve.  If however at the apex of the exponential portion we through in a shock, cool the temp, add way tooooo much sugar or some So4 the process could well stop and crash.

     

    This is why I see our world not managing a logistic “managed” transition.  There will be a shock to the system or there is too much vested interest to stop doing what we are doing (Goldman is a poster child for this argument).  Taken one step further what happens when the world realizes we are running low on food and energy.  Do you honestly believe that the world leaders can sit in a room and divy up the remaining world supplies of resources in a fair manner or that the citizens of a country would all agree to give away any surplus resources.

     

    Sorry Codeblue but collapse or crash is the only outcome.  You should also check out a site by Jay Hanson die off dot org.

     

    Good luck in your preparations,

     

    E

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  • Tue, Oct 20, 2009 - 4:10pm

    Reply to #20
    1440 minutes

    1440 minutes

    Status Member (Offline)

    Joined: Dec 30 2008

    Posts: 14

    Re: Post peak oil

    [quote=bluestone]

    Dr. Martenson

    I have read that truly determining we have reached peak oil can only be done 5-10 years post facto.  What was the compelling evidence presented at ASPO that we are past peak oil?  I suppose in the end the timing doesn’t matter, but personally I wouldn’t mind if we could it back another 5 years.

    Thanks

    Brian

    [/quote]

    I agree that we are going to hit peak oil sooner rather than later, but when I read Dr. M’s post, I had the same question that Brian had.  I did not read all the posts in this topic.  However, I did a quick search in this thread for the terms, “peak oil,” and “evidence,” and did not find an answer to Brian’s question.  Has Dr. M. or anyone provided an answer to Brian’s question about new compelling evidence?

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  • Tue, Oct 20, 2009 - 4:12pm

    Reply to #21
    eb_riesling

    eb_riesling

    Status Member (Offline)

    Joined: Oct 28 2008

    Posts: 20

    Re: Exponential Money in a Finite World

    Printfaster,

     

    Why are you on this site?  You obviously don’t have a clue about anything of importance.  As soon as I heard primordial oil you lost all credibility.  The dinosaurs got their carbon from the same place you and I get it today.  I suggest you go back to your high school texts or perhaps take some secondary level courses.  You clearly are here to cause a stir and divide the people on this site.  From what group or to what end I can only guess?  Please keep these silly and less than useless comments to your self.

     

    E

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  • Tue, Oct 20, 2009 - 4:57pm

    #59
    eb_riesling

    eb_riesling

    Status Member (Offline)

    Joined: Oct 28 2008

    Posts: 20

    Re: Exponential Money in a Finite World

    Thomas,

     

    Try a thought experiment.  Imagine an auditorium that is closed to any outside influence and there are strategically place plants that can provide enough oxygen for 100.  If we surpass 100 occupants by 20 for say a few hours or maybe a day there would most likely be no problems but Once we start breaching 100 occupants by 50 or 100 there will come a tipping point when the auditorium’s plants will not be able to provide enough new oxygen and the volumetric capacitance of the stored oxygen can not provide a buffer and people will start to die if no new oxygen source can be piped in. 

    Note the planet is the auditorium.  and In the past we have been able to pipe in new oxygen via mechanized farming and converting oil to food.  However both oil, water and arable land is now maxed out there is no new sources just when our population is approaching 7 billion.  This would be the equivalent of 700 occupants in the auditorium.

    Feeling dizzy yet?

     

    E

     

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  • Tue, Oct 20, 2009 - 5:21pm

    #60
    matthewr99

    matthewr99

    Status Member (Offline)

    Joined: Jun 17 2009

    Posts: 0

    Re: Exponential Money in a Finite World

    Regarding upper limits that Chris says makes his hockey stick charts valid:  Please read this and tell me how anyone can begin to assign upper limits.  Why because of human innovation.  Read below:  “1% more land and 3.2x THE AMOUNT OF GRAIN!!!!”  It’s only a matter of time before more and more of us start driving around in battery powered cars recharged by nuclear and nat gas electric plants?  That can’t happen…remember you are about to hit a button that will send tiny bits of info around the world in a milosecend that is a direct result of human innovation.  I wonder how much good Chris could do if he focused his energy on a solution instead of trying predict the unpredictable…maybe someday he might have something like the below written about him.

    Dr. Borlaug began his work in increasing grain
    production back in the late 40’s and early 50’s, but the
    real effects were not felt until the early 60’s. Then, the
    world produced just a bit more than 690 million tonnes
    of grain for the 2.2 billion people inhabiting the world at
    the time. BY THE EARY 90’S FOLLOWING DR BORLAUG’S LEAD, THE WORLD WAS PRODUCING 1.9 BILLION TONNES OF GRAIN 3.2 TIMES AS MUCH! WHILE INCREASING AMOUNT OF LAND USED FOR GROWING GRAIN BY 1%!!!! I’ll let that one of millions upon millions of human innovation sink in a minute……

    …….

    Further, not only did Prof. Borlaug “engineer” grains
    that produced far more on the same land, he created
    stains of grain that were resistant to the many diseases
    that had often in the past destroyed entire crops in any
    single year. And what he did for wheat, he did for corn,
    and rice and soybeans.
    Consider how many more people would have died
    because of starvation had Prof. Borlaug not
    undertaken his studies of grain. We’d count them in the
    hundreds of millions. Or think of the huge sums of
    forested land that would have been clear cut for grain
    production had Prof. Borlaug’s programs not been put
    into effect. Or consider the costs of food had he not
    succeeded in increasing production as he has. His
    programs made Pakistan, for example, self sufficient in
    grain production; he made India… prone to famine for
    ages… effectively self sufficient in grain. He aided
    China; he made American agriculture that much better,
    and we could go on.
    Here was a giant among men, who had won the Nobel
    Peace Prize back in 1970 for his work, and yet who
    died utterly unknown to his fellow Americans. Here was
    American ingenuity at its best who knew how to use
    technology for the best of all reasons, and yet idiots
    such as those on the eco-Left take him to task for his
    modern methods of farming and the use of fertilisers to
    increase grain production. The Left sees the world as
    stagnant and prone to disaster; men like Prof. Borlaug
    see the world as a place to be made better through
    intelligence and technology. Here was a giant!

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  • Tue, Oct 20, 2009 - 6:23pm

    Reply to #60
    plato1965

    plato1965

    Status Bronze Member (Offline)

    Joined: Feb 18 2009

    Posts: 86

    Re: Exponential Money in a Finite World

     

     Either you understand the malthusian dilemma, or you don’t…

     Yeast doesn’t. Most human beings don’t..

     In a nutshell…

      “Solutions are the problem.”

     – Because our “solutions” are always of the short term, humanitarian type.. enabling a larger problem down the road…

      How much of the biosphere would like devoted to human food production ? 50% ? 99% ? And then… ?

      Long term, it’s either man made sustainability, natural (4 horsemen) sustainability,  or extinction.

     

     Those who believe in ponzi / MLM / pyramid schemes are either fraudsters or naive cornucopians. Wolves or sheep..

     The same could be said for those who don’t understand the malthusian dilemma.

     

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  • Tue, Oct 20, 2009 - 7:06pm

    #61

    Vanityfox451

    Status Gold Member (Offline)

    Joined: Dec 28 2008

    Posts: 373

    Re: Exponential Money in a Finite World

    Hi Mathew,

    have you seen this set of films? :-

    Part 1

    Part 2

    Part 3

    Part 4

    Part 5

    Part 6

    Part 7

    Part 8

    ……………………………………………

    … you could find this quite a revelation also … :-

    https://www.peakprosperity.com/martensonreport/six-stages-awareness

    The Six Stages of Awareness

    “STAGE 1:  You might begin with a series of statements to yourself, such as, “No way can this be true.  There must be alternative explanations.  This simply can’t be; I would have heard about it.”  To help speed you through this stage of denial, I offer you access to the source data so that you can check it for yourself.  Further, I only draw upon sources that I believe most reasonable people would consider to be highly credible.  If you can view all of the data that I will present and find some alternative set of explanations as to why and how all of these things will not matter, I need you to share this with me, pronto.

    STAGE 2:  Next, you might find yourself full of anger, saying to yourself (and possibly your loved ones and anybody else who will listen), “Aaaaarghh!!!  Those bastards at the Fed, in the government, in media, have been hiding things from me, lying, and serving their own interests at my expense. How dare they!!!”  While anger is a perfectly normal and even healthy stage to pass though, it is also counterproductive, in the sense that anger often serves to inhibit action…and as you’ll see later, we don’t really have a lot of time to spend in the non-solution stage. So for everybody’s sake, you need to move through this phase as rapidly as possible.  This is also why you will not find me assigning blame and pointing fingers.   Blame leads to anger and often a sense of victimization – both of which serve to inhibit taking action.  Further, the “blame game” only serves to polarize people into opposing teams – and we’re all on the same team in the end.

    STAGE 3:  The next stage is bargaining.  Here you might find yourself thinking such thoughts as, “If I simply change a few things in my life, perhaps that will be sufficient and I won’t have to really change.  I’ll use efficient light bulbs, buy a Prius, and save more each year.”  You will find yourself bargaining with the data for more time, a different outcome, perhaps for a miracle to emerge.  Perhaps some new technology will arise that will give us abundant and limitless energy, or we’ll elect a new president capable of speaking the truth and marshaling the considerable talents and energy of this country.  This, too, is a stage, and I’ve assembled a framework for understanding in such a way as to help you understand the critical difference between wishful thinking and realistic solutions.  Please understand that I am not going to purposely step on your hopes – I am as hopeful as anybody you will ever meet – it’s just that I want our collective hopes to be placed in the right places, where they can do us some good.  My hopes center on the tremendous reservoirs of talent, energy, and problem-solving that reside in this country, this community, and this room.  I am confident that we will pull through all of the problems that we are about to discuss and that we can do it with joy, verve, and excitement.  Misplaced hopes and defective strategies, on the other hand, will only let us down in the future, as they fail to deliver.

    STAGE 4:  The next stage is fear, and it can take many shapes. “I’m going to die broke.  People will come out of the cities and eat all my food and harm my family.  The future is going to be unbearably bleak.   I might die.  I might starve.   I’m not built for a world that mirrors the dystopian nightmare of Mad Max.”  It is important to name these fears and confront them directly.  Trying to ignore or stuff them away is simply a recipe to assure that they linger deep down, infecting your dreams and fostering paralysis.  Fears are debilitating.  They will prevent you from acting and they will ultimately erode your physical well-being.  Most of these fears are grounded in the knowledge that our social, energy, and food networks are, for the most part, unnecessarily complicated and often wafer-thin.  How will they operate in a more challenging environment?   We don’t really know, and it’s that uncertainty which creates a deep sense of unease.  Our food supply is both robust and fragile.  If the continuous parade of trucks ever stopped rolling, for any reason, nearly all communities would find their store shelves stripped bare within 2-3 days.  In fact, when we peel back the covers and examine each aspect of our various support systems, we find that they are nearly all built upon the implicit assumption that the future will be pretty much exactly like today.  But what if it’s not?   For myself, the only answer was to actively take steps to address each of my most basic fears.  Imagine that you live in a maze made out of some flammable material and you have a fear of being caught in a fire in the maze.   How could you reduce your fear?  One way would be to familiarize yourself with the way out.  Another might be to leave the maze and live somewhere else.  Attempting to ignore the fear is not a strategy, because you would still know, on some level, that even though you are ignoring the fear, the risk remains…and so will the fear.   The easiest way to reduce fear is to take concrete actions to reduce risk.

    STAGE 5:  The most critical stage to navigate is depression.  With a realistic assessment of our predicament, it is extremely common for people to begin to harbor such thoughts as, “Crap, we’re screwed. What’s the point?  I am powerless to do anything about this.  There’s nothing that any of us can do, anyway.”  At this stage, dark fantasies of the future begin to creep into our thoughts, and fear paralyzes our ability to think, let alone act. It is my goal to help you limit this stage to the absolute shortest possible time – perhaps we can find a way to bypass it altogether.

    STAGE 6:  The final stage is acceptance.  You will know you are here when you begin to think, “However we got here is unimportant – it is what it is.  Let’s figure out how to navigate the future with the tools and advantages we’ve got, not what we wish we had.”  With acceptance comes peace, a sense of calm, and the ability to think clearly and take actions.  However, acceptance and urgency can co-exist, and I do not mean to imply otherwise. 

    Working through these stages is not a one-way trip.  I, myself, cycle through stages #4 (fear) and #6 (acceptance) pretty routinely, but spend less and less time in #4 with every pass.  What I hope you take away from this is that wherever you happen to be in these six stages will almost certainly shift over time.  If you are uncomfortable with where you are in this process, know that it is temporary.  My audacious, gigantic goal is to enable you to move through each of the six stages faster and more smoothly than I did.

    Lastly, please remember that everybody is somewhere along this curve, and my experience is that the people who are further along tend to catch grief from the people who are not.   I ask that you be as respectful as possible of those who are in a slightly different place with all this.  Know that where they are is right where they need to be at this moment.  We can all benefit tremendously from supporting each other through this process.”

    …………………………………………

    … I can give you any number of links to films, books, articles, pdf,etc. Ask, question and I’ll happily supply, as will a number of supportive and inteligent people on this forum will do for you. Help you to gain the realization that we really can’t maintain this economic mess and ecological nightmare and are fast reaching ‘Limits To Growth’ over the next 20 years.

    This film is beautiful yet shocking by turn :-

    Home (2009) Film

    http://www.youtube.com/watch?v=jqxENMKaeCU

    If all of the above doesn’t latch, maybe this might … :-

    http://en.wikipedia.org/wiki/Thomas_malthus

    “We will suppose the means of subsistence in any country just equal to the easy support of its inhabitants. The constant effort towards population… increases the number of people before the means of subsistence are increased. The food therefore which before supported seven millions must now be divided among seven millions and a half or eight millions. The poor consequently must live much worse, and many of them be reduced to severe distress. The number of labourers also being above the proportion of the work in the market, the price of labour must tend toward a decrease, while the price of provisions would at the same time tend to rise. The labourer therefore must work harder to earn the same as he did before. During this season of distress, the discouragements to marriage, and the difficulty of rearing a family are so great that population is at a stand. In the mean time the cheapness of labour, the plenty of labourers, and the necessity of an increased industry amongst them, encourage cultivators to employ more labour upon their land, to turn up fresh soil, and to manure and improve more completely what is already in tillage, till ultimately the means of subsistence become in the same proportion to the population as at the period from which we set out. The situation of the labourer being then again tolerably comfortable, the restraints to population are in some degree loosened, and the same retrograde and progressive movements with respect to happiness are repeated.

    https://www.peakprosperity.com/crashcourse

    Best,

    Paul

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  • Tue, Oct 20, 2009 - 7:36pm

    #62
    MarkM

    MarkM

    Status Silver Member (Offline)

    Joined: Jul 22 2008

    Posts: 357

    Re: Exponential Money in a Finite World

    matthew,

    Not only are we unable to extract infinite growth from finite resouces, I would argue that without cheap oil Dr. Borlaug’s brilliant works would never have been possible.

     

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  • Tue, Oct 20, 2009 - 7:42pm

    Reply to #60

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    Re: Exponential Money in a Finite World

    “Dr. Borlaug began his work in increasing grain production back in the late 40’s and early 50’s, but the real effects were not felt until the early 60’s.”

    And EXACTLY why do you think this is so……?  OIL, that’s why!  1964 was peak discovery, and during the 60’s oil production was ramped up and used to exploit ever more land (I’d like to know where you got the 1% figure from, humanity has been expanding land use greatly…. until NOW). All that oil, and also gas that came out the same holes was used to launch the industrial chemistry industry that produces all the fertilisers, pesticides, herbicides, not to mention gigantic irrigation schemes to dam rivers and pump/channel water sometimes hundreds of miles…. We could noe exploit land which would have been totally unviable before. Give me enough free energy, and I could grow wheat on the Moon!

    We’ve got to HERE, not because of innovation (as such) but because we discovered innovative ways of using vast amounts of cheap energy/feedstock.

    On the back of this, we have more than doubled the world population, and now we can’t keep up, the pressure in the pipes is failing.

    None of Borlaug’s projects would have been possible without cheap and abundant oil……..

    Mike

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  • Wed, Oct 21, 2009 - 8:40pm

    #63
    wroth5

    wroth5

    Status Member (Offline)

    Joined: Apr 16 2008

    Posts: 21

    Re: Exponential Money in a Finite World

    Chris,

      You are way too pessimistic about peak energy. You completely discount just how ingenious we humans are. For example Ambrose Evans Pritchard recently had a post on new sources of fossil fuels that will be cheap. Necessity is the mother of invention, and boy will we invent. Ditto with food and everything else resource wise. Could anyone have forseen the green revolution before it happened? On the other hand the corruption of our governments by banks is utterly hopeless!

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  • Wed, Oct 21, 2009 - 9:49pm

    #64
    MarkM

    MarkM

    Status Silver Member (Offline)

    Joined: Jul 22 2008

    Posts: 357

    Re: Exponential Money in a Finite World

    wroth5,

    Do you have a link to that Evans-Pritchard claim on new sources of cheap fossil fuels?

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  • Thu, Oct 22, 2009 - 2:06am

    Reply to #63

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    Re: Exponential Money in a Finite World

    debunked here: https://www.peakprosperity.com/forum/energy-crisis-postponed-new-gas-rescues-world/29327

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  • Thu, Oct 22, 2009 - 2:26am

    #65
    bullionaire

    bullionaire

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    Re: Exponential Money in a Finite World

    Good blog.

    I’m not going to draw conclusions just yet on how or where we end up, tho some problems have been very clearly delineated.

    Peak oil is not simply a conceptual theory, but reality & the finiteness of the earth’s resources is fact, but as the saudi oil minister is often quoted as saying, the stone age didn’t end because a shortage of stones…

    the increasing price of oil will most certainly act as a drag on economic growth since nothing is ready to displace oil as the most important & cheapest source of energy near term, however, necessity being the mother of invention, higher oil prices will increasingly spark greater investment in alternative energy – including clean coal, nuclear, solar, wind, etc., where progress may be slow in coming at the beginning, but just as with other exponential growth series, it will gain traction & help drive down the cost of related alternative energy technology (as has been the case with other technologies).

    That said, the transition will not be smooth or without pain & likely will mean great upheavel (wars & loss of life), but ultimately, I believe new & cost effective energy sources will be discovered to displace oil’s current status.

    Regarding the exponential growth in money/debt, It is difficult if not impossible to dispute that it is not correlated to the growth in population & higher standards of living (& as a result to the growth in energy usage), however, more dollars chasing depleting resources (oil) will only drive the price higher as long as the economy continues to expand (see oil bubble that collapsed last summer after  the economy tanked).

    the price of oil will likely continue to rise despite reduced global economic activity as the finiteness of supply & increasing incremental cost (including environmental) of producing new barrels (eg. oil sands) becomes more apparent, however, higher prices should also serve as a drag on the economy (see $4US per gallon gasoline/diesel)…

    the exponential growth in money/debt (denominated in fiat currencies), which is not totally (or perhaps even primarily) correlated to increased energy use, will render those currencies worthless if inflationary forces (US fed & government intervention) win out over deflationary (i.e. market) forces (& cause oil to be priced in an even more finite resource, namely gold) or it will be priced in much more valuable dollars as debt (i.e. money supply) is destroyed.

    price of oil & gold (denominated in fiat currencies) will continue to go up. 

     

     

     

     

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  • Thu, Oct 22, 2009 - 4:13am

    Reply to #65

    Damnthematrix

    Status Diamond Member (Offline)

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    Re: Exponential Money in a Finite World

    “the saudi oil minister is often quoted as saying, the stone age didn’t end because a shortage of stones…”

    He is also quoted as saying “My grandfather rode a camel, my fathyer drove a car, I fly a private jet, but my grandson will ride a camel too….”

    “necessity being the mother of invention, higher oil prices will increasingly spark greater investment in alternative energy – including clean coal, nuclear, solar, wind…..”

    WRONG.  ALL those things UTTERLY rely on oil (and coal) for manufacture, and as long as the fossil fuels are expensive, there is little likelihood the price of renewables will appreciably come down. And there’s no such thing as clean coal, carbon sequestration is a myth perpetrated by the coal industry to keep BAU going for as long as possible.

    “where progress may be slow in coming at the beginning, but just as with other exponential growth series, it will gain traction & help drive down the cost of related alternative energy technology (as has been the case with other technologies).”

    In the past, we had cheap and abundant fossil fuels. THAT, and only that is why we have today’s technological drive.

    In my opinion, Chris’ assertions here are 100% accurate……

    Mike

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  • Thu, Oct 22, 2009 - 4:29am

    #66

    Damnthematrix

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    Posts: 1132

    presentations from the ASPO conference:

    Here are a couple of slide-show presentations from the ASPO conference:

    http://aspo-usa.com/2009proceedings/Matt_Simmons_Oct_12_2009.pdf

    (1.3Mb) Sums up the current FF situation. Worth viewing if only to recap
    and pull all the pieces together in one place. If you had to pick only
    one to view, this would be it…

    http://aspo-usa.com/2009proceedings/Gail_Tverberg_Oct_11_2009.pdf

    (403Kb) covers the two options (slow & fast decline) & indicates that
    hope for slow decline may be rooted in myth.

    http://aspo-usa.com/2009proceedings/Jason_Bradford_Oct_13_2009.pdf

    (3.5Mb) Discusses modern vs sustainable agriculture, lot of pretty
    pictures, some facts and figures of interest.

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  • Thu, Oct 22, 2009 - 1:06pm

    #67

    bluebird

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    Re: Exponential Money in a Finite World

    Damnthematrix – thanks for the ASPO presentation links.

     

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  • Thu, Oct 22, 2009 - 11:08pm

    #68

    SagerXX

    Status Gold Member (Offline)

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    Posts: 397

    Re: Exponential Money in a Finite World

    Dr. Chris:  

    Barring a some utterly “Star Trek” breakthrough (fusion power, new solar tech that’s 100 times more efficient w/batteries that give you 100 times better performance), and in the absence of some ludicrously opportune windfall (the discovery of another Ghawar or Cantarell [or three]), I do not see how the exponential effect can fail to bring about radical — and unprepared-for — changes in life on this orb of ours.  

    Viva — Sager

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  • Fri, Oct 23, 2009 - 6:20am

    Reply to #68
    cupabj

    cupabj

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    Re: Exponential Money in a Finite World

    SagerXX,

    I’ll add one more to your list: An engineering breakthrough to achieve fuel multiplication ratio of 1.4 for Fast Breeder Reactors and 1.2 for the Thorium-U233 breeder reactor. This will allow for rapid capacity expansion for nuclear reactors. Now, it’s a different matter that this will open up a new set of risks…

     

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  • Fri, Oct 23, 2009 - 4:23pm

    #69
    jmc8888

    jmc8888

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    Re: Exponential Money in a Finite World

    Hey Chris M., I just came across something that might partially change your dynamic about energy.  I hadn’t heard of these style nuclear plants before, but they could be a godsend.

    I think nuclear breeder plants might be a partial solution (at least to home/business energy) – perhaps then cars if they plug into what’s produced by nuclear feeder plants.

    In this type of nuclear plant, the intial fuel, produces more fuel by converting some of the non-fissle materials into fuel, which sustains the process. Meaning if it’s as good as it’s cracked up to be, running out of uranium on Earth, won’t be as easily possible since these power plants can continue making the fuel for nuclear reactors.  Build enough of them (which we should since we need energy) and they’ll continue to produce the fuel for even more plants, etc.

    It’s not perfect, but it might let us survive. Which is the main point.

    I found it on larouchpac.com here’s the link. 

    http://www.larouchepac.com/node/12137

    I highly suggest looking into this type of nuclear plant, because maybe it’s part of a suite of measure (or maybe the only one) that can help us bridge the gap until some major breakthrough in fusion or whatnot ocurrs.

    You called for solutions, and this might be one.  Amazing how the info happens to pop up right after you call for it.

    Here’s a quote from the page

    “The fast reactor works by using fast neutrons from the fission reaction, to convert a “blanket” of fertile (but non-fissile) material around the reactor core—uranium-238 or thorium-232—into plutonium for new fission fuel.”

    Of course nuclear isn’t perfect. But hey, if need be, we can corodon off a 100 square miles and build 1000 nuclear plants.  I’m sure we can come up with one or two locations here in the U.S. and other countries similarly that can be used like that.  Espeically if there is no other alternative.

    Just wanted to point this out, because at this point nuclear seemed the best way to go, but since we’re running out of uranium, it also seemed unfeasible in the medium-long run.  But this, could change that, so I felt compelled to let you know of its existance.

     

     

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  • Fri, Oct 23, 2009 - 6:33pm

    #70

    Vanityfox451

    Status Gold Member (Offline)

    Joined: Dec 28 2008

    Posts: 373

    Re: Exponential Money in a Finite World

    Hi jmc888,

    I don’t want to so much colour your conclusions with mine other than help you negotiate the terrain of energy. This thread I’m linking you to below is from a while ago. It makes for interesting reading :-

    https://www.peakprosperity.com/forum/and-you-thought-debt-crisis-wa-bad/9348

    Best,

    Paul

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  • Fri, Oct 23, 2009 - 6:40pm

    #71

    DrKrbyLuv

    Status Gold Member (Offline)

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    Posts: 354

    Re: Exponential Money in a Finite World

    Chris wrote:

    My hope is that we can have a vigorous discussion here. I am constantly looking for evidence to either bolster or refute this hypothesis. Where is this wrong…Is it somehow possible for our money system to be tweaked into compliance with reality?

    Thanks for the opportunity to offer a factual way to present the exponential growth of interest debt.  First let me say that peak oil and energy are bound by the laws of nature and math while our monetary system is bound by the laws (whims) of man and math.  The good thing with the monetary system is that once we understand the math, we’ll understand why the economy is failing and more important, how the laws of man may be changed to fix the problem.

    Here is anecdotal evidence in what I think is a logical progression:

    Exponential Growth of Interest Debt

    Basic fundamentals:

    In our debt based money system, all money is debt.  If we had no debt, we’d have no money.  We cannot add any money to the system without adding at least an equal amount of debt. 

    Interest is applied to the loans which means we always pay back more than we borrow.  Interest + Principal is always greater than the Principal.    

    _________________________________________________

    1)  The U.S. money supply is around $15 trillion (M3)

    2)  The total amount of U.S. credit/debt is around $50 trillion(see Chris’s article)

    3)  How do we pay back $50 trillion with a total money supply of only $15 trillion?  We are $34 trillion short.

    • Since we don’t have to pay it all now (loan durations vary) doesn’t this solve the problem?

      While we may postpone the day of reckoning, the duration doesn’t solve the problem.  There will always be more debt than money which means we must perpetually borrow more to fund the growing debt shortfall.

    • But aren’t the interest charges spent back into circulation?

      Most of the interest collected finds it’s way back into circulation.  But it is not a closed system, that is that not all of the money finds it’s way back into our circulation.  Much goes overseas through debt repayments, trade deficits, foreign aid and the costs of war.  Chris said in the article “But anything that is continually expanding by some percentage amount, no matter how minuscule, is said to be growing geometrically, or exponentially.” 

    • What if the velocity of money is increased – the same money can be used in more transaction cycles which could bridge the debt shortfall?

      When principal debt is repaid it is extinguished, the money ceases to exist.  The velocity of money may help the supply become more efficient but it cannot stop the constant elimination of money.  In a debt money system like ours, money is perishable, we do not have any permanent money.  The money supply constantly contracts which is why there is a perpetual need to expand it.

    • We don’t have to pay the principal on the national debt, can’t we just keep paying the interest while borrowing more?

      The interest payments alone are becoming an unbearable burden, so far this year, we’ve paid over $310 billion dollars in interest.  And the national debt is only around 20% of the total debt.

    • If our money were backed by gold, would that solve the problem?

      The species of money doesn’t matter in a debt based system, the problem is perpetual debt that grows exponentially.  In 1933, we were on the gold standard but like today, it was a debt based system subject to the exponential growth of interest debt.  We lost most of our gold but other than that, it made no difference.

    Hope this helps explain our dilemma and why the system is really failing.

    Larry

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  • Fri, Oct 23, 2009 - 7:39pm

    #72

    Damnthematrix

    Status Diamond Member (Offline)

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    Posts: 1132

    Giant Oil Discoveries - Going...Going...Gone?

    http://www.kitco.com/ind/Davis/oct222009.html

    Giant Oil Discoveries – Going…Going…Gone?
    By Marc Davis &#8232;Oct 22 2009 9:42AM

    Only a tiny handful of huge oil discoveries have been made worldwide in the last
    decade, which experts say is because virtually all the juiciest low-hanging
    fruit has been picked some time ago. And this new reality promises to help edge
    oil prices increasingly higher.
    The scarcity of world-class oil discoveries is already taking a toll on the oil
    industry’s bottom line. Global oil output has been dwindling by nearly 5% per
    annum since it peaked in 2001, even though oil’s spot price has more than
    tripled since then.

    An even more pronounced downward trend can be seen in North America. This is
    where output has dropped over the last decade from 17.06 million barrels in 1998
    to 10.59 million barrels in 2008.

    Part of the problem is that historically oil-rich territories like eastern
    Canada’s Abitibi Greenstone Belt and Nevada’s fabled Carlin Trend have failed to
    yield any monster oil finds in recent years, according to Mickey Fulp, a
    geologist and exploration/mining analyst who has over 30 years of oilfield
    exploration experience all over the world.

    Fulp runs the mining investment newsletter http://www.miningcompanyreport.com.
    “Geologists are running out of virgin geological terrain that is prospective for
    the discovery of giant outcropping oil bodies,” he says. “Much of the earth has
    already been trod many times by exploration geologists.”

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  • Sat, Oct 24, 2009 - 4:18am

    Reply to #60

    farmerjji

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    Re: Exponential Money in a Finite World

    a response to oil being responsible for increased grain production

    right on, and we are depleting the topsoil that has taken centuries to build

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  • Sat, Oct 24, 2009 - 4:40am

    #73

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    capitalism is out of stuff

    This just landed in my running on empty yahoogroup….. from Jay Hanson

    “if we must spend more-than-one unit of energy to produce enough goods and services to buy one unit of energy, it will be impossible for us to cover our overhead. At that point, America’s economic machine is ‘out of gas’ — forever.” http://dieoff.org/page175.htm

    Ten years later, Chris Clugston sent us a paper which shows that we are almost there!

    Only 14 non renewable natural resources (NNRs) reached their US peak production levels as recently as the year 1954. By the year 2000, only 46 years later, 48 of the 58 analyzed NNRs had reached their US peak production levels. The world is simply lagging the US by a few decades.

    American Capitalism is out of resources!  I archived Chris’ paper here: http://www.warsocialism.com/ContinuouslyLessandLess.pdf

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  • Sat, Oct 24, 2009 - 11:56pm

    #74

    DrKrbyLuv

    Status Gold Member (Offline)

    Joined: Aug 10 2008

    Posts: 354

    Re: Exponential Money in a Finite World

    Hello all,

    In my post number #116 Exponential Growth of Interest Debt, I explained the fact that our debt based system was doomed from day 1.  In such a system there will always be defaults and unemployment from the continually contracting money supply.

    So, now I will offer some NON-ORIGINAL solutions and opportunities for us to prosper again and enjoy the freedom of sovereignty:

    • The only way to make up the difference between what is owed and the existing money supply is to directly inject interest and debt free money into the economy.
    • All money is solely backed by the production of the nation and the public and private property of the U.S.

    So, who injects the money?  We are darned lucky to have this forum visited by real monetary reformists.  Isn’t it time for us to discuss initiatives like the MTA?

    Larry

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  • Sun, Oct 25, 2009 - 1:03am

    #75

    Damnthematrix

    Status Diamond Member (Offline)

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    Posts: 1132

    Re: Exponential Money in a Finite World

    http://www.independent.co.uk/news/science/double-food-output-to-stop-world-starv
    ing-say-scientists-1806260.html

    ‘Double food output to stop world starving,’ say scientists
    Royal Society wants green revolution to deal with global population rise of 3
    billion
    By Steve Connor, Science Editor

    `Global food production needs to be increased by between 50 and 100 per cent if
    widespread famine is to be avoided in the coming decades as the human population
    expands rapidly, leading scientists said.
    A second “green revolution” is needed in agriculture to feed the extra 3 billion
    people who will be added to the existing population of 6 billion by 2050.

    The experts, drawn from the Royal Society, Britain’s national academy of
    scientists, believe that a variety of short-term and longer-term measures will
    have to be adopted urgently if agricultural production is to meet the demands
    made by the growth in human numbers.

    They cite the original green revolution of the 1960s when new crop varieties,
    greater use of agro-chemicals, and a change in farming practices led to a
    dramatic increase in food production: it leapt from 1.84 billion tonnes in 1961
    to 4.38 billion tonnes in 2007. But scientists accept that this increase came at
    great environmental cost, and the Royal Society report warns that a second green
    revolution has to be based on a sustainable increase in global food production
    without a significant expansion in the area of land turned over to farming.’

    “There is insufficient water to support an increase in the cultivated areas, and
    the environmental consequences of increasing cultivated areas are undesirable.
    Additional production will have to take place without further damage to [the
    environment],” the Royal Society report says. The area of land available to
    sustain each human being is “dangerously declining” because of soil degradation,
    the report says.
    Professor Sir David Baulcombe of Cambridge University, who led the study, said
    that the Government must be prepared to pay £2bn over a period of 10 years to
    fund research into ways of boosting food production around the world. “We need
    to take action now to stave off food shortages. If we wait even five to 10
    years, it may be too late. Biological science has progressed in leaps and bounds
    in the last decade and UK scientists have been at the head of the pack when it
    comes to topics related to food crops,” Professor Baulcombe said.’

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  • Sun, Oct 25, 2009 - 11:10am

    #76

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    Address to the ASPO International Conference by Richard Heinber

    We Are the Ones Who Have Shown Up

    by Richard Heinberg

    Address to the ASPO International Conference 2009 (Denver, CO)

    Heinberg at ASPO 2009I’m happy to have the opportunity to spend the next few minutes sharing some personal thoughts on the subjects that bring us together for this excellent event—thoughts based on my experience, during the past few years, of trying to get the message of Peak Oil out to an ever-wider audience.

    First, I should mention that I didn’t come to this subject out of any interest in oil per se. I have no background in the oil industry or journalism either; indeed, I can’t claim to be anything more than an incorrigibly persistent independent writer on environmental subjects. But back in the early 1970s I was powerfully impacted by the Limits to Growth report of the Club of Rome, and, like many thousands of others, began to see the path of our growth-based industrial society as inherently unsustainable and wrong-headed. As you will recall, in the “standard run” reference scenario of that report, industrial activity stalls out sometime in the first couple of decades of the 21st century, and food production and population then go into decline.

    We were, it was suddenly evident, headed toward a cliff—but at that time the cliff was still somewhere just over the horizon.

    In 1998, I read Colin Campbell and Jean Laherrere’s crucial article in Scientific American, titled “The End of Cheap Oil.” The article stuck with me like a mind worm. I quickly realized that oil depletion was likely to be the limiting factor or trigger that would shift the world system from growth to contraction or collapse, a process that would continue until the human economy could once again fit within the constraints of the planet’s renewable productive capacities, by then severely reduced by resource depletion, soil erosion, and environmental pollution. Further, these two petroleum geologists were forecasting the peaking of oil production for a fairly proximate date: around 2010—just over a decade hence.

    Back in the last years of the 1990s, most of the discussion about Peak Oil seemed to be taking place in the Energy Resources Yahoo discussion group (which continues to this day with moderator Tom Robertson), and “Brainfood,” an
    occasional email posting from Jay Hanson, who would later go on to create the http://www.Dieoff.com website. I devoured these materials and found myself spending hours a day absorbing information about energy history, the oil industry, and oil geopolitics.

    By 2003, I had published my first book on the subject, The Party’s Over. It was well received, eventually selling over 50,000 copies in North America, with translations in six languages, and I quickly found myself in demand as a speaker. In the years since, I have given between 300 and 400 lectures on Peak Oil to audiences ranging from organic farmers to representatives of the packaging industry; from peace activists to insurance executives to high school
    students to earth-moving equipment manufacturers.

    More books followed, along with interviews with Time magazine, Good Morning America, NPR, BBC, al Jazeera, the History Channel, and on and on.

    All of this may sound like quite an accomplishment for an otherwise uncredentialed, introverted word geek, yet I assure you that on the ladder of public recognition, Richard Heinberg continues to occupy a very low and obscure
    rung—which is actually just fine by me, as the point of all this effort is not to acquire fame (which I assure you, from my limited exposure to it, is largely a nuisance), but simply to get the word out. And other more capable individuals
    are probably going to have to gain far more media prominence than I have in order to accomplish that.

    The experiences of those years, with frequent travel and contact with a wide variety of audiences, lead me now to reflect on what has worked in getting the Peak Oil warning across, and what hasn’t. Certainly I think all of us would
    agree that high oil prices create a window of opportunity, a teachable moment, while low prices and news of big new oil discoveries tend to deflate interest in our message. That being the case, it’s useful, as a presenter, to have constantly updated information, to keep presentations topical, and to anticipate likely questions and objections based on recent news stories.

    Of course, each presenter has a unique profile of strengths and weaknesses, and it’s important to know your strengths—whether they be facility with humor, experience in the industry, or skill at data analysis—and make the most of them. Further advice that I might give about how to be a successful Peak Oil communicator is likely to descend even further to the level of mere platitude, but platitudes occasionally have their place.

    Here’s one: Make definite assertions. If you’re not quotable or memorable, you will not be quoted or remembered. But back your assertions up with evidence.

    Know your audience. If you are speaking to people who have never heard of Peak Oil before, your primary objective is to be credible while raising awareness and concern. If you are speaking to an audience of the already worried, your goal may be to bring shared understanding to a new level, or to connect it with specific current events.
     
    Be prepared to answer questions. Nothing raises your credibility as much as the act of effectively and elegantly de-fusing what might initially seem to be a killer objection. In my experience, this is largely just a matter of being
    conversant with the facts, and then being sufficiently quick on your feet. The answers are there, and the objections of the Peak Oil skeptics generally fall apart quickly under even a few moments’ careful analysis.

    An example comes to mind: a few months ago I was debating a prominent oil economist before a large audience at an international business school in Madrid. This economist insisted that the world will have plenty of oil to provide for
    increasing rates of consumption until at least the middle of the century. One of his main arguments was that most of the world has been insufficiently explored: far more oil wells have been drilled in North America than elsewhere, and if
    similar drilling rates could be achieved in Africa, the Polar regions, and the vast ocean basins, we could find enormous quantities of new oil, thus rendering Peak Oil concerns pointless and even quaint. It’s easy to see how persuasive such an argument can be for a novice audience. However, as I pointed out then, North America is where the oil industry started: in the early 20th century, wildcatters were drilling scattershot, with no understanding of the geophysics of proper well spacing. Therefore far more wells were drilled on this continent than were actually needed. The rest of the world will never be drilled in the same way, and especially not now that exploratory wells can cost hundreds of millions of dollars apiece. Lower drilling rates are a reflection of better exploration technology, and also of the paucity of promising new places to drill.

    I could cite other critiques and objections from the skeptics, but few of them are much more credible than the one just mentioned.

    Parenthetically, I would suggest, as others have done before, that it might be a good idea for one of our organizations to build and maintain a robust website, or set of pages on an existing site, specifically to address each of the standard misconceptions and objections raised by the Peak Oil skeptics. This would need to be updated frequently to answer whatever fresh nonsense might be spewing from the editorial pages of, for example, the New York Times. Matt Savinar did a good initial job of this on his website http://www.lifeaftertheoilcrash.com, but that was a few years ago and it constitutes only a first draft of what’s really needed. This could be a useful area of collaboration for many of our experts and all our existing Peak Oil organizations, and many relevant articles already exist in the Oil Drum archives. With regard to the issue of climate change, the website http://www.realclimate.org already does an excellent job at debunking skeptics, and we might learn from their successes.

    But back to my chronology. By January 2008 I had moved on from my teaching job (actually, my college went broke) and was working full-time for Post Carbon Institute. And by 2009 I was also working closely with Transition US. I’ll have
    more to say about those organizations and some others in a moment.

    Meanwhile, the ground shifted beneath our feet. As we all know, the global economy began contracting last year—though that’s just a nice, abstract way to put it. Industrial production fell. Corporations downsized or disappeared. Fifty trillion dollars in global capital vaporized in stock market crashes, bankruptcies, foreclosures, and defaults. Millions of people lost employment and housing. Globalization went into reverse.

    Also, in 2008 the oil price spiked 50 percent higher, in inflation-adjusted terms, than at any point in previous history. It would be an enormous oversimplification to say that the oil price spike “caused” the world recession, but the fact that the price spike and the economic crisis occurred at the same time is hardly meaningless coincidence.

    In effect, we are seeing a vindication of what many of us have been predicting for a long time. Even if it is still technically possible in the next few years for the oil industry to exceed its July 2008 production levels, the world
    economy has entered a trap from which there is no exit. The oil price that the petroleum industry needs in order to justify developing a new marginal barrel’s worth of production capacity is now nearly as high as the price that is known, on the basis of recent history, to trigger further economic contraction. We have reached a fundamental limit to growth, and its name is Peak Oil.

    But in some ways this doesn’t feel like vindication at all. In 2008, with the oil price nudging close to $150 a barrel, the real and metaphorical phones at ASPO, Oil Drum, and Post Carbon Institute were ringing off the hook; yet today, we see op eds in prominent periodicals reassuring us that new oil discoveries in the Gulf of Mexico and Brazil make the Peak Oil argument moot. The irony could hardly be more bitter or discouraging.

    What has really happened, of course, is not that Peak Oil has been disproven or made irrelevant; but rather, that the issue has become more grave and complex.

    There is still the need on our part to convey to the general public and policy makers that the technical data support the Peak Oil, and now also, by the way, the Peak Coal, theses—that need today, in fact, is greater than ever before. But
    now there is also the requirement to connect the issue of fossil fuel depletion with climate change, the financial crisis, and a score of indices of environmental decline—the other limits to growth. We must continue seeking to influence policy makers, but we also must respond to the needs of local governments and grassroots community groups that have already come to understand the problem and want to do something about it.

    So while it’s useful to look back at what worked so far and what hasn’t, it’s probably even more important now to try to intuit the demands of circumstance in the next few months and years. We are in an entirely new economic period, and we must adapt our thinking and our messages accordingly.

    It’s in view of this new economic landscape that I would like to go back now to a discussion of the two organizations I mentioned a moment ago, with which I find myself working.

    Post Carbon Institute has gone through a process of learning and change over its short period of existence, and has arrived at a strategy that seems both reasonable and promising: We are positioning ourselves as a think tank for the
    transition. We have assembled a stable of about 30 Fellows, each with expertise in one of several relevant areas: Anthony Perl for transportation, Bill McKibben for climate change, Sandra Postel for water issues, David Fridley for renewable energy assessment, David Hughes for fossil fuel depletion, Wes Jackson and Michael Bomford in the areas of food and agriculture, Bill Ryerson on population, Josh Farley on steady-state economics—plus David Orr, Erika Allen, Gloria Flora, Chris Martenson, Majora Carter, Rob Hopkins, Tom Whipple, and others. Our goal is to provide a steady stream of communications products—papers, books, videos, and lectures—that show the links between the resource, environmental, population, and economic crises of our time, while also pointing to inspiring examples and strategies for reducing consumption, preserving biodiversity, and building community.

    The other organization I mentioned, Transition US, is the United States support hub for Transition Initiatives. Often known as Transition Towns, these phenomenal entities first sprang up in the UK, seeded by the brilliant work of
    Permaculture teacher Rob Hopkins. They are grass-roots community self-organizing efforts, and they operate from the optimistic premise that life can be better without fossil fuels. Post Carbon Institute and the Transition Initiatives are
    working in ever-closer collaboration, one organization providing communications materials, the other a method of delivery to early-adopting individuals and communities.

    So far, so good. But is this enough? What should we be trying to do? Whom should we be trying to reach? What are we up against?

    The apparent fact that the world has reached the end of economic growth as we have known it is momentous information. It needs to get to as many people as possible, and as soon as possible, if we collectively are going to be able to plan for contraction and manage the transition away from fossil fuels without succumbing to rapid, chaotic civilizational collapse. Of course, chaotic collapse may occur in any case, but it seems pointless to concede that dismal outcome before we have done all we can to preserve as much as possible of both nature and human culture, and to maximize the survival chances of both our species and the rest of the biosphere.

    But however certain we may be of the importance of what we have to communicate, that’s no guarantee that policy makers or the mainstream media will perceive our message as being relevant, interesting, or even particularly credible.

    As communicators, we have our work cut out for us. We have very limited resources in terms of funding and organizational capacity. And we haven’t much time. Now that the world economy is in an unprecedented and probably terminal phase of contraction, future events are more uncertain than ever. What will happen to the value of the US dollar if oil importing and exporting nations move to denominate their trade in a basket of currencies, or if the US tries to deal with ballooning deficits by attempting to borrow much more from its trading partners? And what will ensue from Iran’s insistence on developing nuclear power and perhaps weaponry, while other nations insist that this cannot be permitted to happen? Perhaps neither of these threats to stability will prove serious. But these are only two examples out of a dozen that could be cited, so that many credible future scenarios branching outward from current circumstances lead to deepening international chaos. That means we may have only a few years at best in which to gain significant traction. We do not have the luxury of a couple of decades or more in which to patiently build networks of the required organizations—including foundations, think tanks, schools, and media outlets. So we have to be extremely strategic with the resources that we do have

    What are those? Our organizations have received some initial funding, but as of now it is coming from only a few sources, while for the vast majority of other funders Peak Oil is hardly even a recognizable issue. We have the groups I’ve mentioned, and a few more, including Community Solutions. And there is plenty of work for all of them to do. Everyone who is concerned about the issues we discuss here should be supporting these organizations or websites, and the organizations themselves need to find ways to cooperate more and to develop coordinated strategies.

    For example, what is our collective message if the oil price spikes again—which it could do if the value of the dollar nosedives, or if NATO organizes an embargo of Iran? On the other hand, what is our message if the price of oil
    remains moderate or low—as is likely if economic activity remains so depressed as to keep oil demand falling faster than oil production capacity?

    And what would help us most to get our answers to those questions out to the media—a press office? A public relations firm? A Washington bureau?

    Most likely, we’ll need all of those and more. If we are to be successful, we will have to use every communications tool available: books, newspapers, magazines, reports, scientific papers, press releases, op-eds, how-to manuals,
    websites, social networking technologies, YouTube, documentaries, radio, and maybe even billboards. Some of these we can develop in-house, but we will also need to find increasingly effective ways of inserting our message into
    mainstream media programs, publications, and discussions. This means developing contacts in prominent media outlets, and that in turn requires public relationsskills. This is largely the province of full-time professionals, whose services we will need to engage, and that in turn will most likely translate to the need for more funding, and therefore for professional fund raisers (or “development directors,” as they’re known in the trade), who can in turn educate funders.

    In short, while we must expand our capacity quickly, we have the beginnings of the institutions we need: with The Oil Drum and Energy Bulletin, we have robust websites; with Tom Whipple’s and Steve Andrews’s “Peak Oil Review,” published by ASPO, we have amazingly concise, content-rich weekly updates that give any careful reader about as much knowledge of these issues as world leaders and market insiders have—in some cases, more. Also thanks to ASPO, and until recently also to Community Solutions, we have had yearly conferences where we can get together to learn, regroup and compare notes. With Post Carbon Institute, we have an identified cadre of experts who can be called upon to comment on developments in all aspects of the emerging world crisis, and who can point to adaptive strategies and best practices. With Community Solutions, there is a rapidly growing mine of practical information for local groups to increase energy efficiency. And with Transition Towns, we have an organizing strategy that brings together local businesses, concerned citizens, and town governments in efforts to Power Down. We have already done a lot with the resources available to us.

    Yet events will not stop to applaud us for these achievements. The emerging crisis far exceeds our current ability to respond to it. If the survivors of Hurricane Katrina required help to rebuild their homes and their lives, soon the
    inhabitants of every town and city in this nation and around the world will be in equally dire straits. Increasingly, the need will be less for technical analysis, and more for practical knowledge of how to get by when there are few
    or no jobs, when there is rampant homelessness, when the necessities of life have become unaffordable or unavailable, when banks and businesses of all kinds are failing.

    We cannot fill those needs directly. But we can help both policy makers and the general public realign their thinking. If humanity spends the next few years in failed efforts to re-start growth in the conventional sense, the prognosis is
    not good, because time and resources will be wasted in an effort to do what cannot and should not be done. In the opinion of many, this has already happened with the enormous Wall Street bailouts. And that’s what will continue to happen unless the message somehow is both transmitted and received that growth is over, and that our highly adaptable species must rapidly and cooperatively downsize nearly all its activities. Yes, we need alternative energy sources, better insulated buildings, and maybe even a few electric cars. But none of these things will enable us to cling to an expanding consumer culture serving a growing population. We have entered the century of transition, decline, contraction—choose your favorite word. It is the century of limits. And we must learn quickly to get by with less—ultimately, much less—of just about everything—in order to live within those limits.

    It is a tough message. But it’s the truth, and somebody has to utter it. I guess it’s our job, because we are the ones who have shown up.

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  • Sun, Oct 25, 2009 - 3:56pm

    #77
    Doug

    Doug

    Status Platinum Member (Offline)

    Joined: Oct 01 2008

    Posts: 1374

    Re: Exponential Money in a Finite World

    dtm

    Thanks for the Heinberg article.  His message serves as a marker in our progress toward living and thriving in a world of resource limitations and environmental dangers.  We may have reached a critical mass of people from a wide variety of disciplines and interests who have seen how they/we are all addressing essentially the same crisis.  That critical mass will need to ask a lot of very hard questions and no one will like all the answers.  It will also have to cut through the obstructionism of certain interest groups that practice deception on a large scale.  That will require people like himself who have spent a lot of time, energy and intellectual curiosity understanding the scientific and statistical underpinnings of peak oil, climate change, resource limitations, economics and ecology.  They will also need to maintain strict standards of objectivity and intellectual honesty that should mean not accepting donations from any interest group or government that would give the denialists opportunities for another round of disinformation.  If they are going to draw up a map that gets us from here to the other side of the coming crisis, they must maintain credibility.

    All that being said, I find myself quite encouraged by the prospect of an illustrious group that includes the likes of CM and Bill McKibben working on our shared problems going forward.

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  • Mon, Oct 26, 2009 - 5:54am

    Reply to #75
    cupabj

    cupabj

    Status Member (Offline)

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    Posts: 1

    Re: Exponential Money in a Finite World

    dtm,

    This is the typical way that western socities and governments think: “Increase  food output by 50 to 100% to stop the world from starving”. Here’s an alternative: Educate everyone regarding benefits of vegeterian diet to reduce meat consumption to once a week. If most of the land used for meat production is available to produce foodgrains for direct consumption, there should be no starvation. The basis for this argument is the Second Law of Thermodynamics!  I am certain that  Dr. Martenson implies such lifestyle changes when he says that the next 20 years are going to be very different. In USA, there is an increasing emphasis on Recycle but not on Reduce and Reuse. I hope that peak oil will cause a mindset change which will lead to lesser use of resources before calamities such as social unrest and economic collapse force a change.

     

     

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  • Mon, Oct 26, 2009 - 7:21am

    Reply to #75

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    Re: Exponential Money in a Finite World

    I hear your argument…… however, have you thought about how you’d fertilise the vast increase in fruit and veggie farms morphed from meat farms?

    The problem remains too many people……. when this many people want this much food, something has to give.

    We’ve reduced our meat intake comsiderably over the years, but without the chicken/duck/goat manures, our soil would now be totally depleted!

    Mike

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  • Mon, Oct 26, 2009 - 11:28am

    Reply to #75
    robie robinson

    robie robinson

    Status Gold Member (Offline)

    Joined: Aug 25 2009

    Posts: 885

    Re: Exponential Money in a Finite World

    Interestingly, and we’ve been farming for countless unbroken generations, it takes a number of animal units(1000punds of ruminant)to provide

    soil fertility for one family. NPK farming has created the population bubble. Way to go oil. Follow the Amish,read Gene Logsdon,Wendell Berry

    Charles Walters. You’ll never see vegetarian farmers who aren’t sneaking soil nutrition from critter manure, NPK or other souces off the farm,

    or the vegetarian farmer who farms an admittingly rare fertile piece of ground. It take two milk cows, 25chickens, several hogs-n-goats to keep

    our family garden fertile.

     

    robie

    husband,father,farmer,optometrist

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  • Tue, Oct 27, 2009 - 1:40pm

    #78

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    Re: Exponential Money in a Finite World

    I posted this days ago……..  and much to my astonishment, it barely raised an eyebrow it seems:

    American Capitalism is out of resources!   http://www.warsocialism.com/ContinuouslyLessandLess.pdf

    This paper is full of truly scary stuff…..:  (NNRs are “Nonrenewable Natural Resources)

    Page 29 (below table)

    While some of above listed NNRs are unfamiliar to most people, all but four—thallium, tungsten,
    strontium, and fluorspar—are essential components in the manufacture of computers,34 in the
    absence of which today’s industrialized societies could not function. America’s vulnerability to
    imminent and permanent supply shortfalls associated with these “secondary” NNRs is therefore
    significant for several reasons:
    • Cascading supply shortfalls associated with multiple secondary NNRs are sufficient to cause
    significant lifestyle disruptions or societal collapse.
    • Supply shortfalls associated with secondary NNRs can trigger or amplify shortfalls associated
    with more critical NNRs.
    • The above listed NNRs are merely precursors of things to come; the number of NNRs highly
    vulnerable to an imminent and permanent US supply shortfall will certainly increase
    dramatically in the near future.

    The following twelve NNRs are critical to the perpetuation of our American way of life; that is, they
    are indispensible in providing/enabling some or all of our societal essentials—water, food, energy,
    clothing, shelter, and other infrastructure. While their Composite Vulnerability Ratings indicate
    that they are not as susceptible to imminent and permanent supply shortfalls as the highly
    vulnerable NNRs, these critical NNRs merit close attention.
    As the following profiles demonstrate, some of the critical NNRs nearly missed a highly
    vulnerable rating, while others could experience near term US supply shortfalls if the geological
    and/or geopolitical factors that govern their availability change only slightly.

    Page 31:

    Supply shortfalls associated with a single critical NNR or a small number of secondary NNRs can
    cause significant lifestyle disruptions—or societal collapse.
    A permanent shortfall in the supply of oil alone would be sufficient to collapse American society;
    as would permanent shortfalls associated with 2-3 critical NNRs such as potassium, phosphate
    rock, and (fixed) nitrogen; as would concurrent or cascading permanent shortfalls associated with
    4-5 secondary NNRs

    America’s Fallacy
    In order to perpetuate our American way of life going forward, we require:
    • Continuous discoveries of “high ROI” NNR deposits of all types—despite the fact that such
    discoveries have long since peaked in most cases.36
    • Continuous development of new technologies that will enable us to produce ever-increasing
    NNR quantities from NNR deposits of ever-lower quality—despite the fact that such
    technological development is experiencing diminishing returns;37
    • Continuous supplies of inexpensive imported NNRs—despite ever-increasing global NNR
    scarcity and competition; and
    • Continuous access to inexpensive imported goods and services—despite our suppliers’ everincreasing
    misgivings regarding the viability of our currency the levels of our debt.
    While it is critical to American societal stability that we maintain the illusion that the above
    described scenario will come to pass and that our American way of life will flourish for centuries to
    come, the above described scenario is, in fact, physically impossible. Remaining NNR supplies
    are NOT sufficient to perpetuate our American way of life going forward; our American way of life
    is NOT sustainable—it must and will end, soon.
    America’s Conundrum
    Our only rational course of action is an impossible course of action…

    Diagram: America’s Choice (unfortunately unable to copy diagram)

    Our only solution for averting
    societal collapse, and thereby
    mitigating to some degree the
    devastating lifestyle disruptions
    that await us, is to transition
    voluntarily to a sustainable
    lifestyle paradigm—within
    which we would choose to
    utilize renewable natural
    resources exclusively.38
    Unfortunately, we will not take this course of action because we are “culturally incapable” of doing
    so.

    And so on…….

    Anyone who doesn’t believe there will be a SUDDEN contraction in our way of life MUST read this…..

    Mike

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  • Tue, Oct 27, 2009 - 10:11pm

    Reply to #2
    Don Alexander

    Don Alexander

    Status Member (Offline)

    Joined: Oct 26 2009

    Posts: 1

    Re: Exponential Money in a Finite World

    Re: what to do…   As Chris (wisely) points out in the Crash Course, the decisions depend on what you think is likely (or possible) to happen. Based on my own distrust of our banking system, and a strong belief that peak oil is going to have profound impacts, I have decided to emphasize tangible assets (especially things I’ll need anyway) as opposed to “Money in the bank.” The “Reasonable” mortgage could be a good move with strong inflation, but it won’t be a pretty situation if your cash flow disappears…  Precious metals have been good insurance for thousands of years; everyone should own some gold and silver. (Yes, they can still go a lot higher, in relation to dollars.) Food ranks high on my list, and stocking up while it is still cheap (and available) is a no-brainer. If you live outside a city, extra gasoline/diesel/propane will help you sleep a little better. Solar panels (PV and heat) are another kind of security. Adding to your personal skill set is never a bad idea — ever try gardening? (Thomas Jefferson loved it, and it takes less space than you might think!) Cultivate friends and resources near and far, but above all, DO something — don’t just daydream about it. Good luck!

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  • Wed, Oct 28, 2009 - 9:15pm

    #79

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    more signs of Limits to Growth

    Fishermen’s fears as bluefin on the brink

    By Mark Willacy for Lateline

    http://www.abc.net.au/news/stories/2009/10/28/2727019.htm?section=justin

    The tuna of northern Japan are disappearing towards the depths of extinction, prompting traditional Oma fishermen to demand stricter regulations on catch quotas.

    The Pacific bluefin tuna, known as the “black diamond” by Oma fishermen, is legendary for its rich red flesh and can sell for tens of thousands of dollars. President of the Oma Fishermen’s Co-op, Hirofumi Hamahata, has been fishing for more than 60 years and says he has noticed the tuna’s decline.

    “On both the Pacific Ocean side and the Sea of Japan side the schools of tuna have been disappearing for the last 20 years,” he said.

    “Now it’s impossible to find the tuna without sonar.”

    He says once he could catch three or four big fish a day, but now the entire Oma fleet of 40 boats is lucky to reel in half a dozen tuna.

    Mr Hamahata affectionately calls this fish “the lion of the sea” and over the decades the tuna has proven to be a formidable adversary.

    “Once I battled a big tuna for 12 hours but my arms became so tired I cut the line and let him go,” he said.

    “I lost the battle but began to think of the tuna as a living creature.”

    The fishermen of Oma are proud of the way they catch tuna – using open boats, hand-held lines, and often live bait. This is not just a contest of strength between man and fish, but also a battle of wits.

    But like many of Oma’s fishermen, Hirofumi Hamahata’s blood boils when he sees big trawlers using massive nets to sweep up everything in the ocean, including all the tuna.

    “These methods of fishing were invented by Japan but Japan is hopeless. Now Russia, China, South and North Korea use nets to trawl up everything in the sea,” he said.

    All of the tuna caught in Japan ends up in Tokyo’s Tsukiji market.

    Japan consumes 80 per cent of the world’s bluefin tuna catch and it has long resisted any push to cut quotas around the globe.

    But up north in Oma, the fishermen have decided to speak out against the official line, arguing that unless there is greater regulation of wild stocks the tuna will disappear.

    “My demand is for the Japanese Government to impose a three-year moratorium on the trawling and netting of tuna,” he said.

    “If we don’t do something these tuna will become extinct. When I think of the next generation I worry that all the fish will disappear from the sea around Japan. So that’s why we fishermen are making this appeal for change.”

    At the annual tuna festival in Oma, thousands of tourists come to sample the town’s most famous product.

    Visitors to the festival agree that there needs to be greater regulation of the catch or their favourite fish will be pushed to extinction.

    “From a Japanese point of view I’m sad that we may not be allowed to catch as much tuna as in the past,” one tourist said.

    “But I also recognise that the tuna could become extinct if nothing is done to regulate the catch.”

    “We have to accept more regulation of the tuna catch because this is a limited resource and we have to share it with the world,” said another tourist.

    Oma’s mayor Mitsuharu Kanazawa says the tuna is the only reason the town exists and if the big fish goes, so too does Oma.

    “I thing the tuna is this town’s saviour, but in the last couple of years the size of the catch has decreased dramatically, as has the size of the tuna,” he said.

    “The world must stop the excessive fishing involving trawlers and netting to save the tuna.”

    When the fishermen of Oma are returning to port, most come back empty-handed.

    A catch at 100 kilograms could net a fisherman anywhere between $3,000 and $12,000, even though the record price for an Oma tuna, set earlier this decade, is a quarter of a million.

    For the fishermen of Oma it seems the days of the big catch are long gone and soon the much-prized “black diamond” of the sea may be long gone as well.

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  • Sat, Oct 31, 2009 - 3:50pm

    #80
    BruntFCA

    BruntFCA

    Status Member (Offline)

    Joined: Oct 31 2009

    Posts: 0

    You fail to concider money circulation

    What you fail to take into account is that money circulates, that is, it’s spent.

    Say for example, someone else takes out a $10,000 dollar loan (person B). You as person A, provide services to person B worth one dollar. You can now repay your loan to the bank. Moreover, that bank pays out that 1 dollar in services (cleaning, clerical, whatever), that dollar is now *once again* available in the economy.

    Person B can earn this one dollar (twice in fact), and can eventually also pay back his loan with interest. I think your course is very good, however, since you say in your video that the whole course is predicated on “money as debt”, and the exponential growth of money, I think it would help convey your message, indeed you owe it to your listeners to go into this area in more detail. Many thanks for what you have published to date.

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  • Sat, Oct 31, 2009 - 5:14pm

    #81
    S Schauermann

    S Schauermann

    Status Member (Offline)

    Joined: Jan 22 2009

    Posts: 8

    Re: Exponential Money in a Finite World

    Two important points on the sustainable food production debate,

    1.Fossil fuels can not increase output per acre/hectare, only output per person. The most productive land on Earth is intensively manually cultivated.

    2. Leguminous hay contains 500% more nitrogen than cow manure

    Check out  “The One Straw Revolution.”

    Spencer

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  • Sat, Oct 31, 2009 - 5:30pm

    Reply to #80
    Farmer Brown

    Farmer Brown

    Status Silver Member (Offline)

    Joined: Nov 23 2008

    Posts: 158

    Re: You fail to concider money circulation

    Brunt,

    The money banks spend back into the economy (and is therefore debt-free) is tiny compared to the amount of interest they receive back from loan payments (and which therefore must be reloaned in order to keep the system working).  I agree it is an important distinction, but it is dwarfed by the enormity of the base problem.

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  • Sun, Nov 01, 2009 - 12:12pm

    #82

    Thomas Hedin

    Status Bronze Member (Offline)

    Joined: Jan 28 2009

    Posts: 99

    Re: Exponential Money in a Finite World

    The money banks spend back into the economy (and is therefore debt-free)

    All ‘money’ only comes into exsistance as an interest bearing loan.  “There is no such thing as debt free money under U.S. Law” Thomas Woodward – Congressional Research Service.  You can have no debt and have money but that means that someone else is holding the debt.

    and which therefore must be reloaned in order to keep the system working).

    Banks never ‘reloan’.  When banks make an additional loan that is all brand new credit.

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  • Sun, Nov 01, 2009 - 2:02pm

    Reply to #82

    KingofthePaupers

    Status Member (Offline)

    Joined: Oct 31 2009

    Posts: 1

    Re: Exponential Money in a Finite World

    All ‘money’ only comes into exsistance as an interest bearing loan. 

    Banks never ‘reloan’.  When banks make an additional loan that is all brand new credit.

    Jct: Right on all counts. I think you’ll enjoy my blueprint of the banking system from the

    tap to the drain with pipes at http://johnturmel.com/bankmath.htm  

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  • Sun, Nov 01, 2009 - 8:31pm

    #83
    A1B2C3D4

    A1B2C3D4

    Status Member (Offline)

    Joined: Aug 24 2009

    Posts: 3

    Re: Exponential Money in a Finite World

    I haven’t read through all the posts here so I am unaware if this has been mentioned.

    I joined the Ron Paul Campaign For Liberty pro freedom, limited govt movement just over a year ago. There were 6,000 members then and today there are 221,272. I am hoping that compounding will manifest itself in recruitment and that there might be several million in another year and tens of millions the year after that.

    Perhaps you have noticed how the politicians take an oath to uphold the Constitution and proceed to ignore it. They pass laws if they get enough votes regardless if the powers they seek are among those enumerated in Article 1 Section 8. They use sophistry to justify grasping more power. Have you ever read the Sixteenth Amendment and compared the wording there with Article 1 Section 9 where direct or capitation taxes are prohibited unless in accordance with the census and apportioned among the states.

    I find most agree the politicians pay little or no regard to the limits the Founders placed on the government and would like to see them replaced with those who will keep the oath. I believe that the problems we face as CM has pointed out would be mishandled by those in power. If the C4L succeeds and elects enough like minded people, we could at least restore our Constitutional Republic with a gold and silver backed redeemable currency and start to repeal the laws which never should have been passed in the first place

    Plenty of books to read on the http://www.campaignforliberty.com website. Also worth exploring http://www.mises.org which has a vast array of books written by the brilliant Austrian economist, Ludwig von Mises and others, e.g. Murray Rothbard, F.A. Hayek, Henry Hazlitt, most are available online.

    http://www.fff.org, http://www.fee.org, http://www.aynrand.org&nbsp;

    Once all Hell breaks loose, it will help to have a limited govt which is there to protect your individual rights.

    Ayn Rand’s Atlas Shrugged is insightful and her essays also make sense despite the attempts of the media to find fault with her: The Virtue of Selfishness, Capitalism: The Unknown Ideal, For The New Intellectual etc

    Wm

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  • Sun, Nov 01, 2009 - 9:11pm

    #84

    DrKrbyLuv

    Status Gold Member (Offline)

    Joined: Aug 10 2008

    Posts: 354

    Re: Exponential Money in a Finite World

    Hello KingofthePaupers

    The John C. Turmel essay entitled “LETS Banking Systems Engineering Math” (Banking System Blueprint) is brilliant, it made my day.  One thing early on that jumped out at me was when Turmel declares that:

    “The problem of exponential growth of debt is created within the banking system and therefore a thorough understanding of the bankingsystem is helpful.  The money system is the only mechanical system which is under the jurisdiction of economists, not engineers.

    Improvements are taking place in all system areas except the financial system.  It’s time engineers turn their attention to this errant system from which come all the financial woes of the world.”

    I had the good fortune of becoming interested in monetary systems with an engineering background (I’m a mechanical engineer) rather than an economics background.  There is no doubt that monetary systems should become an engineering science as opposed to a belief system (superstitions?) presented by Keynesian and Austrian economics.

    From an engineering perspective, you cannot accept either Keynesian nor Austrian theories while still accepting the mathematical proof that debt will grow as an exponential function. 

    And, if the truth be told, the private banking system already figured this out.  For example, Myron Scholes, the Nobel Prize-winning economist, partnered in the famous “Black–Scholes” option pricing model’s differential equation, is said to be the father of the derivatives market. 

    The equation was based on a widely used heat transfer calculation, thus an engineering approach.  Yea, derivatives are terrible from the peoples prospective, but genius for malevolent banks.  If allowed to continue, the big banks using this model will have all wealth transferred to them.

    One last comment…there is also debt that does not create money which further burdens the existing money supply.  For example, credit unions, bonds and insurance companies and there is some “leakage” that occurs through trade deficits and foreign debt.

    Anyways, great stuff…I’ll be anxious to see what Thomas Hedin has to say.

    Larry

    P.S. –  I’m not sure if you authored this piece, but I would be very interested in expanding this conversation.  I don’t want to hi-jack CM’s thread, so maybe I should begin a separate thread in the forum if that is ok?  Or e-mail?

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  • Sun, Nov 01, 2009 - 10:04pm

    Reply to #83

    Thomas Hedin

    Status Bronze Member (Offline)

    Joined: Jan 28 2009

    Posts: 99

    Re: Exponential Money in a Finite World

    Galtgulch,

    I agree with Ron Paul that the troops need to be brought home, and there is no need for us to be the policeman of the world and that we need liberty restored to America.  I agree with Ron Paul (and think that he is an honest man) on almost everything.

    But when Ron Paul was confronted with Article 1 Section 8 he simply stated that if government has anything to do with it he won’t support it.  Ron Paul is completely against having the government create our nations money even though it is clearly stated in the U.S. Constitution that the government should be the one doing it.  Ron Paul ought to answer why he feels that way or is he just picking and choosing from the constitution as most politicians do?  If the constituion states anything its that it is the government that is to create the money.

     

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  • Sun, Nov 01, 2009 - 10:38pm

    Reply to #84
    A1B2C3D4

    A1B2C3D4

    Status Member (Offline)

    Joined: Aug 24 2009

    Posts: 3

    Re: Exponential Money in a Finite World

    Larry et al,

    Please don’t lump the vastly superior Austrian school of economics, which is pro free market and sound money oriented, with the discredited Keynesian nonsense, (see a devastating critique by Henry Hazlitt and others. e.g.George Reisman’s Capitalism: A Treatise on Economics).

    I was trained as a mechanical engineer too, although I decided to pursue a career in medicine instead.

    It has been said that in the Colonial era, pre Revolution, the better minds went into politics, e.g. Jefferson, Madison, Franklin, and once they had achieved independence the better minds went into more productive business careers to this day. 

    Are you familiar with Professor Antal Fekete who is a mathematician who became interested in monetary theory, is an advocate of the redeemable gold standard and has a fascinating series of articles on his website: http://www.professorfekete.com.

    Are you aware that Ron Paul’s HR1207, The Federal Reserve Transparency Act of 2009 has over 308 cosponsors in the House and 30 in the Senate for the companion H604? Thanks in part to the efforts of members of Ron Paul’s Campaign For Liberty who gathered petitions, sent emails and letters to their Representatives whose attention has been drawn to the role of the Federal Reserve in creating the financial crisis by its inflationary policies. As CM points out, the Fed under Bernanke doubled the money supply in just four months after it took over two hundred years to create the amount of money in circulation before Bernanke and Geitner made their unconstitutional moves. (see the courageous Michele Bachmann, Congresswoman from Minnesota question Geitner , who appears to be oblivious to the role of the Constitution, on youtube:

    http://tinyurl.com/ylj2vpy

    http://www.professorfekete.com

    You will find many articles archived there under headings Popular Economics, Scholarly Economics and Money and Credit

    It also occurs to me that each of us is being called upon to look our for ourselves and our loved ones and friends. Neighbors may be on the list as well. Ethical questions certainly arise especially if we find ourselves in a situation with limited resources. Something tells me that people who find themselves in large cities which depend on distant farmers and truckers who grow, process and deliver food stuffs to markets and supermarkets may find themselves confronted with empty shelves. No matter how much canned tuna and boxed cereal you stock, what will you do once that has run out?

    I run into people all the time who are uncertain whether they even have the right to keep their distance from parents who gave them nothing but reason to feel unloved. Put another way they have a conflict because they were raised to believe that one must honor their parents despite the fact that their parents gave them reason to hate them because of the abuse they experienced at their hands.

    In this context i would recommend Nathaniel Branden’s Breaking Free etc and Ayn Rand’s The Virtue of Selfishness.

    I spent thirteen months in South Korea in the military and encountered many peasant farmers whose annual production was worth $300 counting 16 hour days in the rice patties. My home garden has never begun to approach enough produce for more than a few meals worth. My brother once lost a lifetime of fat working on someone’s dairy farm milking cows every day. 

     

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  • Sun, Nov 01, 2009 - 11:01pm

    Reply to #83
    A1B2C3D4

    A1B2C3D4

    Status Member (Offline)

    Joined: Aug 24 2009

    Posts: 3

    Re: Exponential Money in a Finite World

    Thomas Hedin,

    I also find Ron Paul to be a man of character and integrity. He has read every bill and if he believed that the Congress was seeking a power not granted in Article 1 Section 8 he voted against it, doing so as the sole “No!” vote over 300 times in his eleven terms in office as a Congressman from the 14CD in Texas. 

    I do disagree with him as he is opposed to a woman’s right to choose to terminate her pregnancy. I think the pro choice position is the pro life position. I do support him otherwise because of his positions on adherence to the Constitution and his advocacy of sound, redeemable money. Virtually all the democrats are the worst kind of politicians except perhaps some of the Blue Dogs. Most Republicans are also so ignorant of economics, history and law and irrational when it comes to foreign intervention, the “war on drugs” etc that they are unsupportable.

    Here is an article which just appeared on CNN in which Ron Paul mentions that the government should not have a monopoly on the production of money. Article 1 Section 9 says only gold and silver will be legal tender while section 8 says Congress shall have the power to coin money but does not stipulate that only the govt shall be able to do so. The Congress also was granted the power to build post offices and post roads but that shouldn’t be interpreted to mean that only the Federal government has the right to deliver mail or to build roads!

    <<<“

    Ron Paul: Let the dollar prove itself

    By Ron Paul, Special to CNN

    October 30, 2009 7:46 a.m. EDT

    story.ron.paul.gi.jpg

    STORY HIGHLIGHTS

     

        * Ron Paul maintains Federal Reserve actions delay financial recovery, weaken dollar

        * Paul says Fed needs to be subject to a strict audit of its actions

        * Paul thinks private companies should be able to mint coins to compete with the dollar

        * Says prospect of Americans not using the dollar would make government regain control of it

     

    RELATED TOPICS

     

        * Ron Paul

        * U.S. Federal Reserve

        * U.S. National Economy

        * U.S. Republican Party

     

    Editor’s note: Ron Paul is an 11-term Republican U.S. representative from Texas who made a bid for the GOP presidential nomination in 2008. His book, “End the Fed,” was recently published by Grand Central Publishing.

     

    Washington, D.C. (CNN) — A growing number of Americans are becoming aware of the Federal Reserve System, what it is, how it has precipitated our financial crisis, and how it continues to pursue policies that delay economic recovery and weaken the dollar.

     

    The Fed’s actions, combined with the federal government’s bailout bills and stimulus packages, have struck a nerve in the American people.

     

    Recent polls have shown that more than 75 percent of Americans support efforts to audit the Fed, something which my bill, HR 1207, the Federal Reserve Transparency Act, aims to do. HR 1207 has the support of 304 members of Congress, and the Senate version of the bill, S. 604, is supported by 31 U.S. senators.

     

    Fed Chairman Ben Bernanke has embarked on an ambitious program of monetary expansion, more than doubling the monetary base to almost $1.9 trillion and doubling the size of its balance sheet to over $2 trillion, placing the American economy in a precarious position.

     

    If all this excess money begins to be loaned out, the Fed risks creating a hyperinflationary crisis similar to 1920s Germany. If the Fed contracts this money, it risks harming the banks it desperately wants to see bailed out.

     

    It is imperative that the American people know what the Fed is up to, how much money it loans to banks and what types of agreements it enters into with foreign banks and governments. Just about all of this information is exempt from audit or oversight. The Fed’s actions directly affect the value of the dollar, which is coming under increasing pressure from our foreign creditors. If we do not wish to see a complete collapse of the dollar, the Fed needs to be subject to a strict audit of its actions, if not an outright abolition of its charter.

     

    While I would like nothing more than to see the Federal Reserve abolished, it is not absolutely necessary to do so with direct legislation.

     

    The Fed’s influence comes about because of its monopolization of the creation of money. If we could abolish the government monopoly on the creation of money, the Federal Reserve would be forced to clean up its act or go out of business. Economists know that monopolies lead to reduced output and higher prices, a suboptimal allocation of resources. This applies as well to the market for circulating currency as it does to markets for any other good.

     

    In the previous Congress I introduced legislation that would eliminate the three major barriers to competition in currency and break the Fed’s stranglehold on money.

     

    The first barrier: Legal tender laws, which Congress does not have the Constitutional authority to enact. Historically, legal tender laws have been used by governments to force their citizens to accept debased and devalued currency.

     

    Gresham’s Law describes this phenomenon, which can be summed up in one phrase: Bad money drives out good money. In the absence of legal tender laws, Gresham’s Law no longer holds. If people are free to reject debased currency, and instead demand sound money, sound money will gradually return to use in society.

     

    The second barrier: laws that prohibit the operation of private mints. Certain sections of U.S. code classified as anti-counterfeiting statutes were in fact intended to shut down private mints that had been operating in California. There is no reason to ban private companies from minting gold and silver coins to compete with the dollar.

     

    All currencies are based on trust, trust that the issuing authority will not debase the currency. If it becomes known that the issuer of a particular currency is minting underweight coins, people will stop accepting that currency and that company will go out of business. If someone else attempts to counterfeit that currency and pass those coins, there are sufficient counterfeiting laws on the books to prosecute those counterfeiters.

     

    Merchants and individuals are free to choose which currencies they accept, and in the absence of legal tender laws I believe that alternative currencies will gain more traction.

     

    Stores today can accept whatever currency they like. In Washington, DC a few years ago, some stores began accepting euros from international tourists. Harrod’s in London accepts pounds, euros, and dollars. There is no legal requirement in the United States for a store to accept dollars for non-debt transactions.

     

    If you walk into a 7-11 to buy a soda, the clerk doesn’t have to accept your dollars, he could demand euros, silver, or copper. But because legal tender laws backing the dollar have caused the dollar to drive other currencies out of circulation, it is easier for stores to accept dollars.

     

    However, most stores also accept credit cards, personal checks, and debit cards, none of which are legal tender. Some stores are moving to credit card-only transactions to minimize costs, which they are allowed to do.

     

    Under a system of competing currencies, it would be to the advantage of stores to accept as many currencies as they could, in order to attract a wide range of customers. Stores that only accepted one currency would see their customer base shrink. The use of credit cards could simplify things just as it does today when Americans travel to Europe. They pay in euros with their credit card, and their card company bills in dollars. The market will find a solution to any problems that might arise.

     

    The final barrier to competing currencies: Laws that assess capital gains and sales taxes on gold and silver coins. Under federal law, coins are considered collectibles, and are liable for capital gains taxes. These taxes actually tax monetary debasement. The purchasing power of gold may remain relatively constant, but as the nominal dollar value increases because of a weak dollar, the federal government considers this an increase in wealth and assesses taxes.

     

    Thus, the more the dollar is debased, the more capital gains taxes must be paid on holdings of gold and other precious metals. For individuals who may wish to use gold and silver in everyday transactions, this can quickly become a complicated and costly burden.

     

    The long-term strength of the dollar will only be weakened by maintaining the Fed’s monopoly on our monetary system. Our foreign creditors are already moving to dethrone the dollar as the world’s currency.

     

    The prospect of American citizens also turning away from the dollar toward alternate currencies should provide an impetus to the U.S. government to regain control of the dollar and halt its downward spiral. Restoring soundness to the dollar will remove the government’s ability and incentive to inflate the currency, and provide stability to the financial system. With a sound currency, everyone is better off, not just those who control the monetary system.

     

    The opinions expressed in this commentary are solely those of Rep. Ron Paul.“>>>

     

    http://www.cnn.com/2009/OPINION/10/30/ron.paul.fed/index.html

     

    http://www.campaignforliberty.com 221,275 and growing exponentially having doubled and redoubled over five times since I joined it one year ago when the membership was 6,000 (12K, 24K 48K, 96K, 192K)

     

    Join us and simply let others know the Campaign For Liberty exists and will one day replace politicians with those who understand the Constitution limits the power of the Congress and will keep the oath of office to preserve it.

     

    Wm


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  • Tue, Dec 08, 2009 - 1:22am

    Reply to #4
    Realteal

    Realteal

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    Posts: 0

    Re: What Do We Do To Fix It?

    I believe we have a way out of the debt mess.  I suggest taking a look at Stephen Zarlenga’s ‘American Monetary Act’ – currently in preparation to be legislated.  Rep Kucinich (married Stephen’s intern awhile back) is working on this.  See YouTube vid’s, and Stephen’s website http://www.monetary.org for more info, including history of it’s support by most major economists in the 30’s. Variations of this have been successful in the US during colonial and civil war eras.  His book is “The Lost Science of Money” (large, detailed, copiously footnoted).

    The solution is predicated on having the government recover it’s rightful money-making authority.  His solution is 3 part:  1) move the Federal Reserve into the Treasuryt; 2) eliminate fractional reserve banking; and spend debt-free publicly-created money into the economy via public works of all sorts, with a monetary board controlling any inflationary tendencies.   He has devised an ingenious accounting method to achieve this transition from debt money to public money practically seamlessly.

    The coming ‘catastrophe’ may be just what the doctor ordered to deal with the current financial ‘cancer’. 

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  • Tue, Jul 06, 2010 - 2:30pm

    #85
    tictac1

    tictac1

    Status Silver Member (Offline)

    Joined: Sep 25 2009

    Posts: 124

    Re: Exponential Money in a Finite World

    Dr. Bartlett’s presentation has a fatal flaw.  If you watch the whole thing, at some point, probably near the end, he boils everything down to two “choices” we as humans must make.  On one side is population control, on the other, disease and war.  He claims that over-population will force one of these two options upon us.

    Problem is, we already have war and disease.  As a matter of fact, we had both for all of recorded time.  It is irrational to assume that both of these problems will cease to exist. 

    So the choice is NOT “will you have this OR that”, but rather, “will you have this ALONG WITH that?”  Off the top of my head, I know of at least two pandemics that wiped out nearly 2/3s of the people in the world, and we’re fighting MORE wars in this century, not less.  Couple that with the technology to destroy large areas at once (nuclear weapons) and a rational person will realize it’s only a matter of time until another pandemic or war kills off a large percentage of our globe.

    Mr. Martenson’s application of the “hockey stick” to our money system is right-on, IMO…

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  • Tue, Jul 06, 2010 - 6:13pm

    Reply to #2
    joelhhurt

    joelhhurt

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    Re: Exponential Money in a Finite World

    consider checking out “Turning Inflation Into Wealth”…I just bought the books and DVD’s ($500).  I had held out for about 9 months and just perused the free readings provided (you can sign up for weekly emails that start w/ core principles that in and of themselves are very good).  
    Anyway, it does give a framework for financial planning if you believe inflation is in our future.  It also makes a very good case for a future of significant inflation.  Seems like you already have some understanding here but you might be suprised how much a fixed interest mortgage can serve as a net asset growth inflation hedge.  Good luck.

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  • Tue, Jul 06, 2010 - 9:07pm

    #86
    diarmidw

    diarmidw

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    Re: Exponential Money in a Finite World

    Say you enter the first (and only) bank and receive the very first loan for $1000. At this point the bank has an asset (your loan) on the books, and you have $1000 in cash and a $1000 liability owed to the bank. After a month passes, and the first interest accrues, we peek into the system and observe that the $1000 in money still exists, but that your debt has grown by the size of the interest (let’s call that $10). Now your total debt to the bank is $1000 plus the $10 interest or $1010 in total.

    Except that nobody borrows money just to have it sitting in a bank account – they borrow it to spend it and so it circulates, including through the bank – since the bank has to pay wages, dividends etc. If it circulates fast enough, over time the borrower will actually receive more money than they borrowed (as long as they keep spending it again). If that happens they can pay off their interest and perhaps make a profit as well.

    Not that the huge increase in financial assets isn’t a problem – but this isn’t the cause.

    I’ve explained this in more detail with diagrams at http://www.diarmidweirphotography.co.uk/wealth_without_money/2010/07/on-the-impossibility-of-paying-interest

     

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  • Tue, Jul 06, 2010 - 10:34pm

    Reply to #86

    Chris Martenson

    Status Platinum Member (Offline)

    Joined: Jun 07 2007

    Posts: 4738

    Re: Exponential Money in a Finite World

    [quote=diarmidw]

    Say you enter the first (and only) bank and receive the very first loan for $1000. At this point the bank has an asset (your loan) on the books, and you have $1000 in cash and a $1000 liability owed to the bank. After a month passes, and the first interest accrues, we peek into the system and observe that the $1000 in money still exists, but that your debt has grown by the size of the interest (let’s call that $10). Now your total debt to the bank is $1000 plus the $10 interest or $1010 in total.

    Except that nobody borrows money just to have it sitting in a bank account – they borrow it to spend it and so it circulates, including through the bank – since the bank has to pay wages, dividends etc. If it circulates fast enough, over time the borrower will actually receive more money than they borrowed (as long as they keep spending it again). If that happens they can pay off their interest and perhaps make a profit as well.

    Not that the huge increase in financial assets isn’t a problem – but this isn’t the cause.

    I’ve explained this in more detail with diagrams at http://www.diarmidweirphotography.co.uk/wealth_without_money/2010/07/on-the-impossibility-of-paying-interest

    [/quote]

    We’ve discussed this here quite a lot in the past and it’s been soundly dealt with.

    The problem with your theory is one of scale, specifically, in order for your math to work out all interest payments would need to be paid out by the bank in wages that would seamlessly circulate to all the right spots.

    Besides the fact that this is obviously as much of a problem as hoping that government borrowing could somehow replace millions of individual borrowing decisions in the economy (it can’t and that’s in large part why we have the problems we have right now even though aggregate borrowing seems “okay”), it’s ridiculous to propose that $52 trillion in debt, at ~5% net interest, is somehow flowing to and through the banking system and back out as wages in payment for services. 

    A quick check of total interest payments flowing to and through the banks reveals a number far smaller than what you propose.

    But, at the more basic level, your idea that money somehow can move through the system in such as way as to both pay off the principal and interest components and leave everybody with a bit more is flawed and easily disproven in a simple spreadsheet. 

    And from a real-world perspective, you might begin by explaining why there’s $52 trillion in debt and $14 trillion in money in the US.  Is it just that people don’t feel like paying off their debts, or is there some other explanation for this phenomenon?

    Our preference at this site is not to drop unsubstantiated claims and links back to personal websites purporting to have the answer, but to use facts and data to help elevate the discussion.  I guess I am saying you haven’t made your case.

     

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  • Tue, Jul 06, 2010 - 10:54pm

    Reply to #4

    cleo0801

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    Posts: 4

    Re: What Do We Do To Fix It?

    Jeff,

     

    The sense I get, from reading all of Chris’s material, is that this crisis in not a problem, it is a predicament.  Actually, Chris makes this clear.

     

    Problems have solutions and predicaments have outcomes.  There are no solutions.  We can prepare for the outcomes.

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  • Wed, Jul 07, 2010 - 4:06am

    Reply to #86

    rhare

    Status Silver Member (Offline)

    Joined: Mar 29 2009

    Posts: 398

    Re: Exponential Money in a Finite World

    [quote=cmartenson]

    We’ve discussed this here quite a lot in the past and it’s been soundly dealt with.

    The problem with your theory is one of scale, specifically, in order for your math to work out all interest payments would need to be paid out by the bank in wages that would seamlessly circulate to all the right spots.[/quote]

    Chris and diarmidw,

    I believe diarmidw is describing fractional reserve banking (FRB), and is essentially correct.  I also believe FRB works as he outlines.  The problem is our monetary system is not a strict FRB system.  If it was we would not have a central bank (setting interest rates, bailing out banks – ie lender of last resort) and failures would be true failures (losses to depositors).  It would also imply that interest rates were set appropriately to cover defaults.  Chris in the CC, you show that money is a claim on labor.  That means loans must be productive in the aggregate so that excess labor above basic needs adds value to the system.  This means all parties involved in the FRB system can be made whole or will loose depending on if the aggregate work improvement from all loans increase over all value in the system (all assets).  I believe this means FRB does not imply exponential growth.

    [quote=cmartenson]And from a real-world perspective, you might begin by explaining why there’s $52 trillion in debt and $14 trillion in money in the US. [/quote]

    I  believe the explanation for this is that we don’t have a true FRB system.  Instead we have this quasi government/FRB system that when relieved from the constraints of gold, has gone wildly out of control.  I also think that the money supply numbers (that $14T) is missing something and I think it may be the way T-bills are handled.  After all a T-bill is money (it can be traded and used as money).  As long as you never pay them back, it and the loan it represents are both money in the system.  I think this explains the chart found in “Inflation vs. Deflation – What comes Next? (Part I)” where you show how tightly government spending correlates with the CPI Inflation.  It works like this:

    1. US government borrows money (primarily from  foreigners).
    2. Goverment pays out entitlements, salaries, war goods, …
    3. Much of that ends up going to foreign producers of goods (trade deficit).
    4. Foreigners buy more T-bills,
    5. Repeat.

    This debt by the government effectively adds money to the system the same way QE by the Fed does, with the laborers in third world countries supporting our spending.  So I think T-bills should also be counted as money in the system (essentially adds $14T to the money supply) since it is clear we have no possibility or intention to pay them back.  I beleive this is why your CPI chart correlates so well with government spending.

    [quote=cmartenson]Is it just that people don’t feel like paying off their debts, or is there some other explanation for this phenomenon?[/quote]

    When you say people just don’t want to pay off their debts, I think this is a bit of overstatement, or at least covers up the major problem.  Most people think they are responsible and clearly most people are since default rates are only 4-10% (for mortgages, credit cards, and auto loans).  However, money via fed manipulation, is too cheap.  The interest rates should be at least as high as the default rate + amount required to keep deposits.   This has created a small part of the problem.  From personal experience I think most people are good and want to pay their bills.

    However I think the bigger problem is that citizens are not holding the federal government to the same standards.  We have been told for so long that the debt and deficits don’t matter by the govenrment and the MSM media, that most people don’t understand the implications.  We also have not seen any serious ramifications of such spending (like having a car or house repossesed).  After all we have had 2 wars, more entitlements, all kind of government give-aways with no overt negative impact (yet), it’s easy to see why most citizens don’t see this as a serious issue.

    [quote=cmartenson]But, at the more basic level, your idea that money somehow can move through the system in such as way as to both pay off the principal and interest components and leave everybody with a bit more is flawed and easily disproven in a simple spreadsheet.[/quote]

    I would actually like to see that.  Because in the CC, you imply that money is a claim on labor.  Given this, as long as the loan is applied to somethig productive, and the borrower supplies enough labor to make the asset acquired through the loan at least worth the interest rate more, then the system works.  It seems that the problem is again, not with the FRB system, but with the monetary system we actually have.

    Does this make sense?

     

     

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  • Wed, Jul 07, 2010 - 4:30am

    Reply to #86

    Tom Page

    Status Silver Member (Offline)

    Joined: Sep 26 2008

    Posts: 266

    Re: Exponential Money in a Finite World

    As I see it, we’re simply increasing the money supply faster than real value is being added by labor or resources.  Then we try to artificially inflate the system to prevent it from receding back to its true value.  And now we’ll start facing serious resource limitations like Peak OIl that will further hamper the ability to add value.  Exponential system runs into a finite world.

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  • Wed, Jul 07, 2010 - 7:47am

    #87

    Damnthematrix

    Status Diamond Member (Offline)

    Joined: Aug 09 2008

    Posts: 1132

    Re: Exponential Money in a Finite World

    Every time I read this, and I’ve read it over, and over, and……  I can only come to one inescapable conclusion: those debts will NEVER EVER be repaid.  So why mess with this…. just CANCEL THE LOT.

    End of story.

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  • Wed, Jul 07, 2010 - 12:17pm

    Reply to #86
    diarmidw

    diarmidw

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    Posts: 1

    Re: Exponential Money in a Finite World

    Thanks for responding, Chris.

    I don’t want to make too big a thing of this, because the unsustainability of our economy is a definite point of agreement. I would just rather have blame allocated where it is due – with the greed and recklessness of a wealthy elite who have captured an otherwise viable mechanism, and to see the solution as wresting back control of that mechanism rather than replacing it with something that may be no better or worse.

    I may not have made my case – but I am not sure how else I could have tried to make it. It’s a logical argument, and the purpose of the link was to expand on that rather than provide any sort of pseudo-authority. I didn’t want to clutter up your server space, when mine was available!

    Since it’s a logical argument, facts and data may of course not be relevant. If it is logically possible for a given stock of money to support a greater quantity of transactions (including interest payments) then data showing that it is not actually doing so does not refute the possibility – although of course data showing that it does, would support it.

    The problem with your theory is one of scale, specifically, in order for your math to work out all interest payments would need to be paid out by the bank in wages that would seamlessly circulate to all the right spots.

    I’m not entirely sure what you mean here, but you seem to be accepting that interest payments can re-circulate, just arguing either that they don’t or that they don’t re-circulate to debtors. Surely all cash that banks receive over and above loan repayment is revenue – and so is either paid out for costs or forms part of their profit? Since banks, like all businesses, are ultimately simply intermediaries between their customers and their shareholders thay cannot hold on to their profits forever. It follows that all interest payments are recirculated eventually.

    Of course, the payments don’t all recirculate to debtors, and that is a genuine problem. We need to explore why they don’t. Monetary Circuit Theory has a lot to say about this.

    your idea that money somehow can move through the system in such as way as to both pay off the principal and interest components and leave everybody with a bit more is flawed and easily disproven in a simple spreadsheet.

    Well, I’d be interested to see that spreadsheet – in particularly to compare it with the dynamic analysis of Steve Keen (to which I link on my site). I suspect that there is some confusion between stocks and flows in it.

    you might begin by explaining why there’s $52 trillion in debt and $14 trillion in money in the US

    I’m not familiar with the relevant US figures – I will try to have a look at them and see if I can work out what is going on! But of course, even were this true, it doesn’t affect the validity (or otherwise) of the logical point I make.

    I am however familiar with the equivalent UK figures. Outstanding UK private sector money-creating (M4) debt was £2.0 trillion at the end of 2009. The stock of M4 (deposits, notes and coin) was £2.5 trillion. There is an apparent discrepancy of £500 billion, but there are around £800 billion’s worth of UK govt bonds in existence, which we have to subtract – since they have been purchased with deposits. This actually means we have to explain a monetary surplus of £300 billion over what the banks have lent, rather than a deficit! This can, I think, mainly be accounted for by money the government has spent into the economy over the years.

    Of course the balance accounted for by government will have to be accounted for by UK output in subsequent years, but this is a physical, rather than a financial problem. And when it comes to the physical problems – I am fully in agreement with you.

     

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  • Wed, Jul 07, 2010 - 3:46pm

    Reply to #86
    diarmidw

    diarmidw

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    Posts: 1

    Re: Exponential Money in a Finite World

    Oops, sorry! I transposed UK debt and lending figures in my previous post.

    What I should have said was:

    Outstanding UK private sector money-creating (M4) debt was £2.5 trillion at the end of 2009. The stock of M4 (deposits, notes and coin) was £2.0 trillion. So there is an apparent £500 billion money shortage. But there are around £800 billion’s worth of UK govt bonds in existence, which we have to subtract – since they have been purchased with deposits. Once this is factored in we actually have to explain an apparent monetary surplus of £300 billion over what the banks have lent, rather than a deficit!

    In other words the UK evidence (and we have pretty much the same banking system as the US, as far as I am aware) does suggest that the ‘interest payment impossibility’ claim is wrong.

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  • Wed, Jul 07, 2010 - 5:39pm

    #88

    Travlin

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    Joined: Apr 15 2010

    Posts: 524

    Re: Exponential Money in a Finite World

    diarmidw, post 149

     I think I see one oversight and one error in your post in the excerpt I quote below.

     I’m not entirely sure what you mean here, but you seem to be accepting that interest payments can re-circulate, just arguing either that they don’t or that they don’t re-circulate to debtors. Surely all cash that banks receive over and above loan repayment is revenue – and so is either paid out for costs or forms part of their profit? Since banks, like all businesses, are ultimately simply intermediaries between their customers and their shareholders they cannot hold on to their profits forever. It follows that all interest payments are recirculated eventually.

    When you refer to revenue you seem to mean interest (not principle repayment) on loans, which is correct as principle payments are not profit.  But most people are not aware that interest on loans is an increasingly smaller share of bank income and profits.  Over the last 30 years they have concentrated on increasing fee income.  If I remember correctly this now comprises about 50% of gross income as an industry average.

     Banks certainly do hold a portion of their profits forever.  Every quarter they add as much as they can to their capital.  This is their net profit after paying expenses, dividends to shareholders, and adding to reserves for loan losses.  The increased capital is then leveraged up by making more loans, producing more interest income.  It also adds to their stability by giving them a bigger “rainy day” fund to draw on in bad times.  Increasing capital is the holy grail for bankers as is must grow in order to increase the size of their loan portfolio.  Profits from fee income can be added to capital as easily as loan interest income so this money gets locked away too to fund more loans.

     It would be helpful if we had some real bankers at this site (I’m not) who know how they actually work.  If you are lurking, please speak up.  We can’t actually bite you through the internet.Smile Trying to understand these things from reading books and blogs leaves a lot of holes in our knowledge and leads to fallacies in our arguments.  I applaud everyone’s efforts to learn and discuss this.  That is a good thing.  But remember that banking theories (which are not always objective) are based on very simplified generalities.  They may apply well to a small community bank, but the giant ones are in another world.  They’ve become so complex their CEOs don’t even understand them.

     

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  • Wed, Jul 07, 2010 - 5:46pm

    Reply to #86
    ashvinp

    ashvinp

    Status Bronze Member (Offline)

    Joined: Jan 21 2010

    Posts: 75

    Re: Exponential Money in a Finite World

    [quote=rhare]

    [quote=cmartenson]And from a real-world perspective, you might begin by explaining why there’s $52 trillion in debt and $14 trillion in money in the US. [/quote]

    I  believe the explanation for this is that we don’t have a true FRB system.  Instead we have this quasi government/FRB system that when relieved from the constraints of gold, has gone wildly out of control.  I also think that the money supply numbers (that $14T) is missing something and I think it may be the way T-bills are handled.  After all a T-bill is money (it can be traded and used as money).  As long as you never pay them back, it and the loan it represents are both money in the system.  I think this explains the chart found in “Inflation vs. Deflation – What comes Next? (Part I)” where you show how tightly government spending correlates with the CPI Inflation.  It works like this:

    1. US government borrows money (primarily from  foreigners).
    2. Goverment pays out entitlements, salaries, war goods, …
    3. Much of that ends up going to foreign producers of goods (trade deficit).
    4. Foreigners buy more T-bills,
    5. Repeat.

    This debt by the government effectively adds money to the system the same way QE by the Fed does, with the laborers in third world countries supporting our spending.  So I think T-bills should also be counted as money in the system (essentially adds $14T to the money supply) since it is clear we have no possibility or intention to pay them back.  I beleive this is why your CPI chart correlates so well with government spending. [/quote]

    I’ve never been convinced that T-bills are essentially debt-free money circulating through the economy. Yes, they may be used as a sort of currency within the banking system, as may other debt obligations or maybe even equities in certain cases, but this doesn’t mean they are debt free money to spent in any manner one chooses. Of course, given the size of the US economy and our reserve currency status, foreign creditors have allowed us to continuously roll over the debt and borrow even more whenever we wish to spend more, but this is by no means a process that can go on forever without our creditors ever blinking an eye. We see these strains spreading in Europe right now, and it is only a matter of time before the “bond vigilantes” come here, despite what Paul Krugman would like us to think.

    [quote=rhare]

    When you say people just don’t want to pay off their debts, I think this is a bit of overstatement, or at least covers up the major problem.  Most people think they are responsible and clearly most people are since default rates are only 4-10% (for mortgages, credit cards, and auto loans).  However, money via fed manipulation, is too cheap.  The interest rates should be at least as high as the default rate + amount required to keep deposits.   This has created a small part of the problem.  From personal experience I think most people are good and want to pay their bills. [/quote]

    It’s not necessarily true that the Fed sets interest rates, making money/debt really cheap and allowing credit bubbles to form. Interest rates are typically determined endogenously by the market, and private banks are willing to provide cheap money to unworthy borrowers for purposes of speculation which leads to asset bubbles, eventually driving interest rates up to the point where the bubble can no longer be supported. It’s true that the Fed can add fuel to this fire with loose monetary policy, but it is a fire that has already been started.

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  • Wed, Jul 07, 2010 - 6:03pm

    Reply to #86

    Travlin

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    Re: Exponential Money in a Finite World

    rhare & ashvinp

    It seem to me that Treasury Notes, Bills, and Bonds are debts.  They are a promise to pay back borrowed money with interest.  If that’s not a loan what is?  When the Fed buys them with money it produced from thin air it creates money based on the treasury debt, and  the government then spends it.  But the debt is not money its self. 

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  • Wed, Jul 07, 2010 - 6:36pm

    Reply to #86

    rhare

    Status Silver Member (Offline)

    Joined: Mar 29 2009

    Posts: 398

    Re: Exponential Money in a Finite World

    [quote=Travlin]It seem to me that Treasury Notes, Bills, and Bonds are debts.  They are a promise to pay back borrowed money with interest.  If that’s not a loan what is?  When the Fed buys them with money it produced from thin air it creates money based on the treasury debt, and  the government then spends it.  But the debt is not money its self.[/quote]

    You can trade treasury bonds for other goods or cash.  Whats the difference between that and FRNs?  The point is the t-bills are not like a mortgage that a citizen takes out.  There is an assumption that the citizen will repay the note or face some penalty like foreclosure.  However, we have a debt that can not be repaid, politicians spending like it doesn’t matter, and we keep refinancing and taking out bigger loans.  Essentially it’s like a homeowner that continuously refinances the house and spends the money on things that could not be repossed and the bank lets them do so no matter how big the loan is or how little the underlying asset is worth.  As long as this continues, T-bills are money.

    So what happens when we aren’t allowed to continue borrowing?  Either the Fed steps in and does QE and it continues for a while longer, or we begin defaulting.  At some point all these T-bills and the dollars will no longer buy stuff (ie. they cease to be money) due to loss of confidence, currency crisis, hyperinflation. BOOM!  At least that is my current belief.

    [quote=ashvinp]but this is by no means a process that can go on forever without our creditors ever blinking an eye. We see these strains spreading in Europe right now, and it is only a matter of time before the “bond vigilantes” come here, despite what Paul Krugman would like us to think.[/quote]

    I have no doubt this is true, but I don’t think it’s just going to be bond vigilantes, it’s going to be nations turning away from the dollar as a reserve currency which I think will be the far bigger problem.  What happens when you can no longer settle trades in dollars and you have to have some other currency or asset like gold? 

    [quote=ashvinp]private banks are willing to provide cheap money to unworthy borrowers for purposes of speculation[/quote]

    Only because they have nothing too loose.  If they actually had to face the loses that might result (no FDIC, angry depositors with ropes, criminal prosecution for fraud, no FED) this behavior certainly would not occur.  How many people do you lend money to because you want to let them speculate?  Even in a FRB system, if the banks can face true losses, they are a lot less likely to make poor loans.

     

     

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  • Wed, Jul 07, 2010 - 9:35pm

    Reply to #86
    ashvinp

    ashvinp

    Status Bronze Member (Offline)

    Joined: Jan 21 2010

    Posts: 75

    Re: Exponential Money in a Finite World

    [quote=rhare]

    [quote=ashvinp]but this is by no means a process that can go on forever without our creditors ever blinking an eye. We see these strains spreading in Europe right now, and it is only a matter of time before the “bond vigilantes” come here, despite what Paul Krugman would like us to think.[/quote]

    I have no doubt this is true, but I don’t think it’s just going to be bond vigilantes, it’s going to be nations turning away from the dollar as a reserve currency which I think will be the far bigger problem.  What happens when you can no longer settle trades in dollars and you have to have some other currency or asset like gold? 

    [quote=ashvinp]private banks are willing to provide cheap money to unworthy borrowers for purposes of speculation[/quote]

    Only because they have nothing too loose.  If they actually had to face the loses that might result (no FDIC, angry depositors with ropes, criminal prosecution for fraud, no FED) this behavior certainly would not occur.  How many people do you lend money to because you want to let them speculate?  Even in a FRB system, if the banks can face true losses, they are a lot less likely to make poor loans.

    [/quote]

    I think we pretty much agree, except for the fact that you want to consider treasury debt as an increase in the money supply without a corresponding increase in debt (plus interest owed on debt). Doing that subtracts from the validity of the overall point that an economic system in which money is created as debt is ultimately unsustainable, which I believe to be a valid point. As you pointed out, the US treasury is like a borrower who continuously borrows against the equity in the US economy, hoping that the underlying asset (GDP) will eventually appreciate to the point where it can pay the money back, or that it can cut its spending in some areas allowing its debt burden to become more manageable. However, as CM pointed out in his recent article, GDP growth and spending cuts have become mutually exclusive to a large degree at this stage of the game.

    Also, with regards to private banks forming asset bubbles, I tend to support Hyman Minsky’s idea that they will form in a capitalistic system with a developed financial sector even in the absence of a central banking authority. The financing decisions have more to do with an irrational speculative mania than a rational cost-benefit analysis of making loans to borrowers. That’s not to say a central bank cannot help exacerbate the bubble on the upside, and worsen the effects on the downside with its monetary policy. And taking a more cynical view of bankers and ex-banker politicians (as I do), I do agree that some banks will push the accelerator even harder during these bubbles when they know there is an explicit or implicit backstop of their risks from the government/central bank, and they may even be able to profit on the downside (see CDS) when the credit bubble inevitably implodes.

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  • Wed, Jul 07, 2010 - 10:05pm

    Reply to #86

    rhare

    Status Silver Member (Offline)

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    Posts: 398

    Re: Exponential Money in a Finite World

    [quote=ashvinp]Doing that subtracts from the validity of the overall point that an economic system in which money is created as debt is ultimately unsustainable, which I believe to be a valid point.[/quote]

    See I don’t view it as taking away the point that it is unsustainable, I think that unlimited  borrowing and treating the debt side as money shows that it is unsustainable. See I’m still not convinced that FRB can’t work, just that we don’t let it.  I think if you had that system and let a few failures occur, people would become more careful about their savings.  Most of the people I know don’t think about money, their 401Ks, their retirement.  They simply trust the system.  We need the trust to be destroyed on occasion to keep us on our toes.  I think that is why this fraud has been allowed to continue for so long, people have been lulled into a false sense of security.  Two years ago, I certainly was among the complacent.

    [quote=ashvinp]I tend to support Hyman Minsky’s idea that they will form in a capitalistic system with a developed financial sector even in the absence of a central banking authority. The financing decisions have more to do with an irrational speculative mania than a rational cost-benefit analysis of making loans to borrowers.[/quote]

    I should not have said “never would occur”.  Since clearly they can and I’m sure would, but without the central bank or backstops, they can’t get near as big.  In the end you have a failure, people learn, and it becomes less likley to occur again as people are more cautious with their savings.

    My main point however, was that this certainly explains the correlation between government spending and CPI where as money supply and inflation don’t corrrelate well.

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  • Wed, Jul 07, 2010 - 10:51pm

    Reply to #86
    ashvinp

    ashvinp

    Status Bronze Member (Offline)

    Joined: Jan 21 2010

    Posts: 75

    Re: Exponential Money in a Finite World

    [quote=rhare]

    [quote=ashvinp]I tend to support Hyman Minsky’s idea that they will form in a capitalistic system with a developed financial sector even in the absence of a central banking authority. The financing decisions have more to do with an irrational speculative mania than a rational cost-benefit analysis of making loans to borrowers.[/quote]

    I should not have said “never would occur”.  Since clearly they can and I’m sure would, but without the central bank or backstops, they can’t get near as big.  In the end you have a failure, people learn, and it becomes less likley to occur again as people are more cautious with their savings.

    My main point however, was that this certainly explains the correlation between government spending and CPI where as money supply and inflation don’t corrrelate well.

    [/quote]

    See, I’m not so confident in people’s ability to operate in a complex economic system without resorting to short-termism and reaching for yield via financial speculation, while also using financially derived wealth to over-consume vital resources in the process. My evidence would be the repeated credit bubbles we have seen over the last 100 years alone, and there are examples going back even further. I also think the process of inflating a bubble and then allowing failure through deflation is unneccesarily destructive and apt to be exploited by those with concentrated wealth, and once again I don’t see people “learning” from this process until it ultimately develops to its logical, destructive conclusion (which is unfortunately happening right now).

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  • Fri, Jul 09, 2010 - 1:30am

    Reply to #88
    diarmidw

    diarmidw

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    Re: Exponential Money in a Finite World

    Travlin

    Over the last 30 years they [the banks] have concentrated on increasing fee income.

    Very true. But this is really just another loop in the overall circulation – one that allows additional bank profit, since one bank is earning interest on the loan that created the money and then another earns a fee (in money borrowed from another bank!) for securitising some of these loans. If the securitising added value (by reducing risk, supposedly) this would be no problem…! But, in any case, it doesn’t impact on the fact that interest is a flow derived from a stock of debt, not an addition to that stock.

    Banks certainly do hold a portion of their profits forever.

    Forever is a very long time! Consider what would happen when economic activity reduces. Then loan repayments exceed new issues, and the capital requirement falls. Since in the end the capital belongs to the shareholders it’s likely to be re-distributed to them, and they will probably spend it back into circulation.

    Any unexpected holding of money at any point can have consequences for borrowers, but this doesn’t just apply to money paid to banks as interest.

     

     

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  • Fri, Jul 09, 2010 - 4:17am

    Reply to #88

    Travlin

    Status Gold Member (Offline)

    Joined: Apr 15 2010

    Posts: 524

    Re: Exponential Money in a Finite World

    Please ignore.

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  • Fri, Jul 09, 2010 - 4:24am

    Reply to #88

    Travlin

    Status Gold Member (Offline)

    Joined: Apr 15 2010

    Posts: 524

    Re: Exponential Money in a Finite World

    [quote=diarmidw]

    Travlin

    Over the last 30 years they [the banks] have concentrated on increasing fee income.

    Very true. But this is really just another loop in the overall circulation – one that allows additional bank profit, since one bank is earning interest on the loan that created the money and then another earns a fee (in money borrowed from another bank!) for securitising some of these loans. If the securitising added value (by reducing risk, supposedly) this would be no problem…! But, in any case, it doesn’t impact on the fact that interest is a flow derived from a stock of debt, not an addition to that stock.

    Banks certainly do hold a portion of their profits forever.

    Forever is a very long time! Consider what would happen when economic activity reduces. Then loan repayments exceed new issues, and the capital requirement falls. Since in the end the capital belongs to the shareholders it’s likely to be re-distributed to them, and they will probably spend it back into circulation.

    Any unexpected holding of money at any point can have consequences for borrowers, but this doesn’t just apply to money paid to banks as interest.

    [/quote]

    I don’t think you understood what I meant.  I’m talking about fees for bounced checks, closed accounts, monthly maintenance.  These fees are not loan related.  And this money can be added to capital as easily as loan interest.

    The people who actually run banks are constantly fighting to increase capital.  Here are two reasons. 

    *  If their loan growth is faster than their growth in capital the capital ratio will decline even though the dollar amount of capital is the same.  Too much decline and they have to stop lending.

    *  As a rule, they will reduce the dollar amount of capital only if they have too many bad loans and have to use capital to cover the losses.  They hate this because it reduces the amount of loans they can write and makes them look bad to the directors and share holders.

     When the economy and loan demand declines they will not reduce capital.  They will need it during the upturn as a reserve for more loans, and until then the high capital ratio looks stronger in the eyes of regulators and shareholders.  The shareholders are happy to receive the dividends.  If they wanted their capital back they would just sell their shares.

    I applaud your efforts to learn but you need to talk to people who run banks.  Theory that is not grounded by experience is always prone to error.  I  really doubt that banks are much different in the UK and the US.  With all due respect, your arguments will carry more weight if you understand how these things are really done. 

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  • Sat, Jul 10, 2010 - 4:22pm

    Reply to #88
    diarmidw

    diarmidw

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    Re: Exponential Money in a Finite World

    Travlin

    I applaud your efforts to learn but you need to talk to people who run banks. Theory that is not grounded by experience is always prone to error.  I  really doubt that banks are much different in the UK and the US.  With all due respect, your arguments will carry more weight if you understand how these things are really done.

    I’m sorry, I don’t care what someone has run – if they say something that defies logic or accounting convention, it is wrong and possibly deliberately so.

    I’m talking about fees for bounced checks, closed accounts, monthly maintenance.  These fees are not loan related.  And this money can be added to capital as easily as loan interest.

    I don’t see your point. Either these charges are paid by money the bank customer pays into his account (money derived from some other loan somewhere, including that which has recycled through other banks) in which case they form part of the bank’s revenue, or they are added to his overdraft in which case the additional interest on that overdraft forms part of the bank’s revenue. I’m not sure how that affects anything I have said.

    The people who actually run banks are constantly fighting to increase capital.

    I don’t doubt they are – because the authorities are insisting on it.

    There are many factors affecting the amount of capital a bank will choose to hold. Only one of them is the level of economic activity. You may be perfectly correct that banks currently have a bias in favour of retaining capital, but if they are holding fewer loans then ceteris paribus  they require less capital. Whether they understand this or not is not the issue. But if they persist in retaining profits (and so preventing the recirculation of money), then eventually they will find that more of their (and other banks’) borrowers will default on both their interest and capital payments. At some point their further accumulation of capital becomes irrational. In fact, we may well have already reached that point. But this is a behavioural issue – my point was a logical one refuting the claim that the money system is logically unsustainable.

    The fact that banks are currently choosing to retain a high percentage of profits does not invalidate my argument that interest charges are not logically unpayable. For a start, banks have costs. They have to pay these out of their revenue – they cannot, by accounting convention, pay them out of repaid loan capital.

     

     

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  • Sat, Jul 10, 2010 - 9:45pm

    Reply to #86
    Farmer Brown

    Farmer Brown

    Status Silver Member (Offline)

    Joined: Nov 23 2008

    Posts: 158

    Re: Exponential Money in a Finite World

    [quote=ashvinp]

    [quote=rhare]

    [quote=cmartenson]And from a real-world perspective, you might begin by explaining why there’s $52 trillion in debt and $14 trillion in money in the US. [/quote]

    I  believe the explanation for this is that we don’t have a true FRB system.  Instead we have this quasi government/FRB system that when relieved from the constraints of gold, has gone wildly out of control.  I also think that the money supply numbers (that $14T) is missing something and I think it may be the way T-bills are handled.  After all a T-bill is money (it can be traded and used as money).  As long as you never pay them back, it and the loan it represents are both money in the system.  I think this explains the chart found in “Inflation vs. Deflation – What comes Next? (Part I)” where you show how tightly government spending correlates with the CPI Inflation.  It works like this:

    1. US government borrows money (primarily from  foreigners).
    2. Goverment pays out entitlements, salaries, war goods, …
    3. Much of that ends up going to foreign producers of goods (trade deficit).
    4. Foreigners buy more T-bills,
    5. Repeat.

    This debt by the government effectively adds money to the system the same way QE by the Fed does, with the laborers in third world countries supporting our spending.  So I think T-bills should also be counted as money in the system (essentially adds $14T to the money supply) since it is clear we have no possibility or intention to pay them back.  I beleive this is why your CPI chart correlates so well with government spending. [/quote]

    I’ve never been convinced that T-bills are essentially debt-free money circulating through the economy. Yes, they may be used as a sort of currency within the banking system, as may other debt obligations or maybe even equities in certain cases, but this doesn’t mean they are debt free money to spent in any manner one chooses. Of course, given the size of the US economy and our reserve currency status, foreign creditors have allowed us to continuously roll over the debt and borrow even more whenever we wish to spend more, but this is by no means a process that can go on forever without our creditors ever blinking an eye. We see these strains spreading in Europe right now, and it is only a matter of time before the “bond vigilantes” come here, despite what Paul Krugman would like us to think.[/quote]

    T-bills cannot be counted as money because the money used to purchase them in the first place is already included in the money stock figures.  Counting T-bills as money would be double-counting.

    [quote=ashvinp]

    [quote=rhare]

    When you say people just don’t want to pay off their debts, I think this is a bit of overstatement, or at least covers up the major problem.  Most people think they are responsible and clearly most people are since default rates are only 4-10% (for mortgages, credit cards, and auto loans).  However, money via fed manipulation, is too cheap.  The interest rates should be at least as high as the default rate + amount required to keep deposits.   This has created a small part of the problem.  From personal experience I think most people are good and want to pay their bills. [/quote]

    It’s not necessarily true that the Fed sets interest rates, making money/debt really cheap and allowing credit bubbles to form. Interest rates are typically determined endogenously by the market, and private banks are willing to provide cheap money to unworthy borrowers for purposes of speculation which leads to asset bubbles, eventually driving interest rates up to the point where the bubble can no longer be supported. It’s true that the Fed can add fuel to this fire with loose monetary policy, but it is a fire that has already been started.

    [/quote]

    The notion of setting interest rates at least as high as the default rate may or may not have the effect intended.  It depends on what the reserve ratio being used by the banks is.  A default rate of 1% in a 10%-reserve system, effectively destroys 10% of the bank’s capital base.  In a 15% reserve system, it would only destroy about 6.6% of the capital base.  

    The market does determine interest rates to an extent, but it all functions upon a Fed-mandated monetary system which is always there to provide liquidity if needed.  While this is considered a “good” thing by many (especially banks), the effect is that interest rates, which would normally be governed by the supply (deposits from savers) and demand (loans for borrowers) of a fixed quantity of money, are never supply-constrained due to “big-momma- (the Fed) always being available to provide further liquidity.

    Think about what this would mean in a physical market – pick any commodity you want.  That would mean there would never be a supply-issue with oil or any other physical good.  

    Obviously, the basic laws of economics are based on scarce goods.  Goods are not scarce if they can be produced with zero effort at whatever quantity is desired.  The fact our monetary system is designed precisely so that money itself does not behave like any other economic good, says to me that ultimately, interest rates are not and cannot be set by the market, unless your definition of the “market” includes the Fed board of governors.  In that case, then by all means, interest rates are set by the market!

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  • Sat, Jul 10, 2010 - 10:18pm

    Reply to #86
    Farmer Brown

    Farmer Brown

    Status Silver Member (Offline)

    Joined: Nov 23 2008

    Posts: 158

    Re: Exponential Money in a Finite World

    [quote=rhare]

    [quote=Travlin]It seem to me that Treasury Notes, Bills, and Bonds are debts.  They are a promise to pay back borrowed money with interest.  If that’s not a loan what is?  When the Fed buys them with money it produced from thin air it creates money based on the treasury debt, and  the government then spends it.  But the debt is not money its self.[/quote]

    You can trade treasury bonds for other goods or cash.  Whats the difference between that and FRNs?  The point is the t-bills are not like a mortgage that a citizen takes out.  There is an assumption that the citizen will repay the note or face some penalty like foreclosure.  However, we have a debt that can not be repaid, politicians spending like it doesn’t matter, and we keep refinancing and taking out bigger loans.  Essentially it’s like a homeowner that continuously refinances the house and spends the money on things that could not be repossed and the bank lets them do so no matter how big the loan is or how little the underlying asset is worth.  As long as this continues, T-bills are money.[/quote]

    Treasury bonds are an asset to the borrower.  While they can be used as money, they are not money.  If you counted them as money, you’d be counting the money stock twice – once in the form of the money used to purchase the bonds, which immediately re-enters the economy, and twice if you mistakenly then count the bonds they were used to purchase as money.

    Just because bonds can act as money, that doesn’t mean they are.  They are just an asset (to the borrower) and I guess all assets can be traded for something and in effect act as money, but they are not.

    [quote=rhare]So what happens when we aren’t allowed to continue borrowing?  Either the Fed steps in and does QE and it continues for a while longer, or we begin defaulting.  At some point all these T-bills and the dollars will no longer buy stuff (ie. they cease to be money) due to loss of confidence, currency crisis, hyperinflation. BOOM!  At least that is my current belief.

    [quote=ashvinp]but this is by no means a process that can go on forever without our creditors ever blinking an eye. We see these strains spreading in Europe right now, and it is only a matter of time before the “bond vigilantes” come here, despite what Paul Krugman would like us to think.[/quote]

    I have no doubt this is true, but I don’t think it’s just going to be bond vigilantes, it’s going to be nations turning away from the dollar as a reserve currency which I think will be the far bigger problem.  What happens when you can no longer settle trades in dollars and you have to have some other currency or asset like gold? 

    [quote=ashvinp]private banks are willing to provide cheap money to unworthy borrowers for purposes of speculation[/quote]

    Only because they have nothing too loose.  If they actually had to face the loses that might result (no FDIC, angry depositors with ropes, criminal prosecution for fraud, no FED) this behavior certainly would not occur.  How many people do you lend money to because you want to let them speculate?  Even in a FRB system, if the banks can face true losses, they are a lot less likely to make poor loans.

    [/quote]

    Exactly.  Our monetary masters demand the rest of us treat monetary matters such as our debts morally, but they excuse themselves from the same standards by providing for themselves a system which provides infinite forgiveness for their transgressions, (by putting the burden of those mistake on our backs by the way) but not for ours.

     

     

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  • Sat, Jul 10, 2010 - 10:37pm

    Reply to #88
    Farmer Brown

    Farmer Brown

    Status Silver Member (Offline)

    Joined: Nov 23 2008

    Posts: 158

    Re: Exponential Money in a Finite World

    [quote=Travlin]

    [quote=diarmidw]

    Travlin

    Over the last 30 years they [the banks] have concentrated on increasing fee income.

    Very true. But this is really just another loop in the overall circulation – one that allows additional bank profit, since one bank is earning interest on the loan that created the money and then another earns a fee (in money borrowed from another bank!) for securitising some of these loans. If the securitising added value (by reducing risk, supposedly) this would be no problem…! But, in any case, it doesn’t impact on the fact that interest is a flow derived from a stock of debt, not an addition to that stock.

    Banks certainly do hold a portion of their profits forever.

    Forever is a very long time! Consider what would happen when economic activity reduces. Then loan repayments exceed new issues, and the capital requirement falls. Since in the end the capital belongs to the shareholders it’s likely to be re-distributed to them, and they will probably spend it back into circulation.

    Any unexpected holding of money at any point can have consequences for borrowers, but this doesn’t just apply to money paid to banks as interest.

    [/quote]

    I don’t think you understood what I meant.  I’m talking about fees for bounced checks, closed accounts, monthly maintenance.  These fees are not loan related.  And this money can be added to capital as easily as loan interest.[/quote]

    And this matters, why exactly?  The money earned by these fees is not extinguished since they are not loan repayments.  The money continues to exist and re-enters the economy through wages, investment, loans or dividends, just like all other revenue is, including interest.

    [quote=Travlin]

    The people who actually run banks are constantly fighting to increase capital.  Here are two reasons. 

    *  If their loan growth is faster than their growth in capital the capital ratio will decline even though the dollar amount of capital is the same.  Too much decline and they have to stop lending.

    *  As a rule, they will reduce the dollar amount of capital only if they have too many bad loans and have to use capital to cover the losses.  They hate this because it reduces the amount of loans they can write and makes them look bad to the directors and share holders.

     When the economy and loan demand declines they will not reduce capital.  They will need it during the upturn as a reserve for more loans, and until then the high capital ratio looks stronger in the eyes of regulators and shareholders.  The shareholders are happy to receive the dividends.  If they wanted their capital back they would just sell their shares.

    [/quote]

    Of course they are always trying to increase capital to increase the loan base.  That doesn’t mean they do not also pay dividends.  As for what happens when the economy shrinks, that is entirely up to the shareholders.  Maybe they will take capital out in the form of dividends, maybe they will leave them in.  “Selling” shares is not really relevant since the capital is owned by the shares and will thereby still continue to be held by the bank whether the shares are sold to someone else or not.  The new shareholder will then have their pro-rata share of authority over what to do with the bank’s capital – i.e., old boss, same as the new boss; and selling the shares is completely irrelevant to the issue you are addressing.

    [quote=Travlin]

    I applaud your efforts to learn but you need to talk to people who run banks.  Theory that is not grounded by experience is always prone to error.  I  really doubt that banks are much different in the UK and the US.  With all due respect, your arguments will carry more weight if you understand how these things are really done. 

    [/quote]

    LOL!  That is about the most condesceding thing I’ve seen around here in a while!  Then again, I’ve been away a bit. 

    I suggest it is you, Travlin, who has some learning to do.  Darmidw’s arguments are totally logical and based on accurate observations of the system or systems in question and is one of the sharpest minds to come through here in some time in my opinion.

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  • Sun, Jul 11, 2010 - 6:27am

    #89

    Travlin

    Status Gold Member (Offline)

    Joined: Apr 15 2010

    Posts: 524

    Re: Exponential Money in a Finite World

    Farmer Brown, post 164 

    Theory is an important tool, but it is valid only if it can be supported by observable facts.  It is quite possible to construct systems that are logically consistent, and might work under ideal conditions, but do not explain what happens in the real world.  Diarmidw is clearly intelligent and knowledgeable.  But so are the people who run our financial system today and their efforts leave a lot to be desired.

    The heart of Diarmidw’s argument is that the interest income banks collect goes back into the economy as expenses of various sorts, so it is not a problem in our present system.

    Diarmidw said, post 143 “Except that nobody borrows money just to have it sitting in a bank account – they borrow it to spend it and so it circulates, including through the bank – since the bank has to pay wages, dividends etc. If it circulates fast enough, over time the borrower will actually receive more money than they borrowed (as long as they keep spending it again). If that happens they can pay off their interest and perhaps make a profit as well.  Not that the huge increase in financial assets isn’t a problem – but this isn’t the cause.”  (My emphasis.)

    Diarmidw said, post 149“Surely all cash that banks receive over and above loan repayment is revenue – and so is either paid out for costs or forms part of their profit? Since banks, like all businesses, are ultimately simply intermediaries between their customers and their shareholders they cannot hold on to their profits forever. It follows that all interest payments are recirculated eventually.”  (My emphasis.)

    I say he is not observing how things are actually done.  When bank profits become capital they are effectively captured indefinitely and used as reserves to create new money for loans, the same way deposits are used to create loans.  Capital is net of all expenses, dividends, etc.

    My first example was fee income being used to increase capital.  My point is that not just interest income, but any profit can be used to increase capital and is not redistributed to the economy as expenses.

    Diarmidw said, post 158“Consider what would happen when economic activity reduces. Then loan repayments exceed new issues, and the capital requirement falls. Since in the end the capital belongs to the shareholders it’s likely to be re-distributed to them, and they will probably spend it back into circulation.”  (My emphasis.)

    Based on what I know this is a huge error.  Banks do not reduce capital unless they are forced.  Since this seems to be fundamental to Diarmidw argument I have to doubt his whole theory.  I am suspicious of any theory when the basis for it does not gibe with observable phenomena.  I’m not a banker, but I know enough about how it is done to see holes in his argument.  That’s why I suggested that Diarmidw talk with people who actually run banks.  You may not trust their motives, but their balance sheet changes are public record.  If these actions don’t comport with your theory then you’ve got a problem.

    Diarmidw said, post 161“The fact that banks are currently choosing to retain a high percentage of profits does not invalidate my argument that interest charges are not logically unpayable. For a start, banks have costs. They have to pay these out of their revenue – they cannot, by accounting convention, pay them out of repaid loan capital.”

    Then he started this thread — https://www.peakprosperity.com/forum/interest-payment-not-problem/41544 and it all goes around again.  I think Diarmidw is a smart guy who has spawned an interesting discussion.  My take from this is that he is wedded to his theory of how thinks things could be if we were all logical.  Yet in the first two quotes above he says his theory describes real events today.  I don’t think it does.  He and I seem to be talking past each other at this point so didn’t respond to his last post.

    I may not be right about these points but I haven’t received a response that is convincing.  I certainly have some learning to do.  That’s why I’m in this discussion.  Was I condescending?  Not intentionally.  Where I come from that’s just called making a polite suggestion.  My reasons why are explained above.

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  • Sun, Jul 11, 2010 - 2:12pm

    Reply to #89
    diarmidw

    diarmidw

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    Posts: 1

    Re: Exponential Money in a Finite World

    Travlin

    Where I come from that’s just called making a polite suggestion.

    And not an unreasonable one.

    You may not trust their motives, but their balance sheet changes are public record.

    And that is, indeed, the evidence I would go by –  and the statements of those who can match an understanding of the whole system with knowledge of the workings of individual banks. It is the former which you will find lacking in the statements of most actual bankers.

    Then he started this thread — https://www.peakprosperity.com/forum…. and it all goes around again.

    Well, to be fair, I started that thread first, and then responded to something on this thread – so things were sort of going on at the same time!

    So you may have my quotes slightly out of context. For example, I said that nobody borrows to have it sitting in a bank account, not that nobody acquires it for that purpose. And clearly, that all interest payments are recirculated eventually, is true over an open-ended time-scale – even if we have to go so far ahead that banks and money have been replaced by something unthinkable today. If I was making a practical point, then of course that latter statement would be ridiculous – but I was making a logical point to refute the unworkability of the existing money-system under any circumstances. Because, as far as I can understand it, that is what Chris Martenson is preaching – and I think it is wrong, and importantly so, for reasons I have given in a post on the other thread: https://www.peakprosperity.com/comment/83325#comment-83325

    Just to go back to the point about banks and profits.

    There are three possible scenarios: 1) They recirculate their profits – allowing repayment of interest from the original loan stock.  2) They retain profits as capital for more loans – allowing repayment of interest from these new loans 3) They retain profits but do not make new loans.

    The first two scenarios are sustainable for as long as they continue (not necessarily desirable, but sustainable). It is also possible to move from one scenario to the other at any time. The third scenario is not sustainable, but it is also absolute madness from the point of view of the banking system as a whole, because all banks will eventually go bust and so will the rest of the economy. And in fact, this is pretty much the scenario we were close to 12-18 months ago! So, obviously, I am not denying its possibility. What I am denying is its inevitability and its impossibilty of retrieval.

    Because clearly, given inevitability and impossibilty of retrieval some very unpleasant and very strange schemes appear more reasonable than they would otherwise do, and that I find worrying.

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  • Sun, Jul 11, 2010 - 3:36pm

    Reply to #86
    ashvinp

    ashvinp

    Status Bronze Member (Offline)

    Joined: Jan 21 2010

    Posts: 75

    Re: Exponential Money in a Finite World

    [quote=Farmer Brown]

    The market does determine interest rates to an extent, but it all functions upon a Fed-mandated monetary system which is always there to provide liquidity if needed.  While this is considered a “good” thing by many (especially banks), the effect is that interest rates, which would normally be governed by the supply (deposits from savers) and demand (loans for borrowers) of a fixed quantity of money, are never supply-constrained due to “big-momma- (the Fed) always being available to provide further liquidity.

    Think about what this would mean in a physical market – pick any commodity you want.  That would mean there would never be a supply-issue with oil or any other physical good.  

    Obviously, the basic laws of economics are based on scarce goods.  Goods are not scarce if they can be produced with zero effort at whatever quantity is desired.  The fact our monetary system is designed precisely so that money itself does not behave like any other economic good, says to me that ultimately, interest rates are not and cannot be set by the market, unless your definition of the “market” includes the Fed board of governors.  In that case, then by all means, interest rates are set by the market!

    [/quote]

    I agree with you that supply of debt-money is practically unlimited in our economic system, but this is not necessarily a function of the central bank. Steve Keen has reproduced data from others showing that private banks actually loan out money first, and then go looking for reserves later by borrowing from the Fed, getting depositors, borrowing from other institutions, etc.

    [quote=Steve Keen]

    The proposition that the money supply is determined, not solely by the conventional ‘money
    multiplier’ process, but predominantly via credit-creation decisions emanating from the
    interplay between the industrial and financial sectors of the economy, was first championed
    by the American Post Keynesian economist Basil Moore (Moore 1979, 1983, 1988, 1989,
    1994, 1995). Moore (and Minsky) argued that government money creation follows this with
    private credit creation with a lag, a proposition that found unexpected empirical support from
    Kydland and Prescott
    (1999).

    There are thus two mechanisms for money creation, and in terms of the standard quantity
    of money and money multiplier equations, the causal sequence is reversed: increases in prices
    (largely but not exclusively wages) lead to increases in credit money, which subsequently
    force changes in either reserve requirements or base money. The credit money dog therefore
    wags the fiat money tail
    , in contrast to the textbook model of a credit money system under
    the control of reserve requirements and base money injections.11 [/quote]

    http://www.eap-journal.com.au/download.php?file=688

    Therefore, interest rates are endogenously determined by financial markets and do not necessarily clear at some equilibrium of supply and demand. This is not to say that the Fed doesn’t have a significant role in creating and/or failing to mitigate asset bubbles.

     

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  • Sun, Jul 11, 2010 - 9:50pm

    #90

    Travlin

    Status Gold Member (Offline)

    Joined: Apr 15 2010

    Posts: 524

    Re: Exponential Money in a Finite World

    Hello Diarmidw

    Thanks for your reply in post 166.  I did not realize your thread preceded this one and I apologize for my error.  Let’s focus this discussion on two issues so we can keep it as simple as possible.

    My first issue  Your argument, that in theory, all interest income a bank receives could be recirculated as expenses is based on logic.  You may be right about that.  I don’t know enough to say.  In an ideal world your theory sounds plausible to me if you have a small isolated economy, if the people in power understand the necessity, and if the banks operate under strict control that forces them to do this.  For this to work though you need to explain how the banks can make a profit to stay in business.  Profit is income retained after expenses.

    My issue is that you also said this is how it works in the current system.  In my post 165 I copied and pasted two paragraphs of your own words from this thread where I think you said that.  Am I wrong?

    My second issue  If that is what you said, I disagree with your claim and cited the issue of capital retention as proof.  Regarding our current system you said, post 143 – “Except that nobody borrows money just to have it sitting in a bank account – they borrow it to spend it and so it circulates, including through the bank – since the bank has to pay wages, dividends etc. If it circulates fast enough, over time the borrower will actually receive more money than they borrowed (as long as they keep spending it again). If that happens they can pay off their interest and perhaps make a profit as well.  (My emphasis.)

    This is very vague and has a lot of “ifs”.  There is nothing solid here.  You haven’t made your case.

    In the real world banks use part of their profit to increase capital which is used as a reserve to fund more loans.  It is not used to pay expenses.  This is true even in the “non-profit” mutual savings banks and credit unions.  As you probably know these are cooperatively owned and not-for-profit.  They are designed to operate for the benefit of the people who use them, not to make profits to pay dividends to shareholders.  Since they can’t issue stock they must use retained earnings if they are to increase their capital, which they see as essential for their survival.  So even the “non-profits” retain capital.  Can you show any examples of banks that do as you say and don’t retain capital?  Not theory now.  You said this works in today’s world.

    OTHER ITEMS

    Your three scenarios  You said in post 166 – “There are three possible scenarios: 1) They recirculate their profits – allowing repayment of interest from the original loan stock.  2) They retain profits as capital for more loans – allowing repayment of interest from these new loans 3) They retain profits but do not make new loans.”

    This is a good analysis.  But in order for 1 and 2 to be sustainable as you claim, you still have to demonstrate that interest income is not locked up in capital.  You have not persuaded me that you can do that.

    Talking to bankers  You said in post 166 – “And that is, indeed, the evidence I would go by –  and the statements of those who can match an understanding of the whole system with knowledge of the workings of individual banks. It is the former which you will find lacking in the statements of most actual bankers.”

    I agree that few bankers understand money creation and fewer still understand the financial system as a whole.  They don’t need to if they follow standard practice which is based on proven principles.  That is irrelevant to my point.  I urged you to talk to them so you can study balance sheets and understand the mechanics of what they actually do.  Otherwise you are just floating on air.  You have a nice logical theory.  You said it reflects real world practices.  I don’t agree and I have given you a critical example where it doesn’t.  If you talk to a few bankers and gain a better understanding of what they actually do I think you will see this.  There is probably a credit union near you that would like to have a board member with your knowledge.

    I have enjoyed our discussion and learned from it, but I’ve pretty much said all I can on this topic.  You need to demonstrate how capital is used up by expenses in our current system before I can buy your argument.  Anything else is a side issue as far as I’m concerned.

    With regards.

    Travlin

     

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  • Tue, Jul 13, 2010 - 11:58am

    #91
    diarmidw

    diarmidw

    Status Member (Offline)

    Joined: Jul 06 2010

    Posts: 1

    Re: Exponential Money in a Finite World

    Travlin

    Thank you for your response.

    I think we are almost 100% in agreement over facts – just interpreting them slightly differently.

    My first issue  Your argument, that in theory, all interest income a bank receives could be recirculated as expenses is based on logic.  You may be right about that.  I don’t know enough to say. 

    I see no logical reason why it shouldn’t be. Any money that flows into a bank over and above that required to repay due loans is the bank’s to do with as it pleases – pay wages, purchase physical equipment and capital, pay dividends, re-invest or retain as base capital – whatever.

    In an ideal world your theory sounds plausible to me if you have a small isolated economy, if the people in power understand the necessity, and if the banks operate under strict control that forces them to do this. 

    The borrowers and lenders are taking a bet on the recirculation being enough and in the right areas, given the existing economic environment (small, large, isolated, open, etc, etc). Their bets will be different depending on this environment. Sometimes they get it right, sometimes they get it wrong. Certainly, if they all get it wrong, we are in deep doo-doo, to quote George Bush I.

    For this to work though you need to explain how the banks can make a profit to stay in business.  Profit is income retained after expenses.

    From an accounting point of view, profit is the revenue over and above expenses. Even that part of it that is not distributed to shareholders isn’t necessarily retained as ‘cash’ – it might be converted into other assets (eg corporate stocks), or even physical capital, in which cases the money revenue flow is re-circulated to whomever the bank purchases these from.

    My issue is that you also said this is how it works in the current system...This is very vague and has a lot of “ifs”.  There is nothing solid here.  You haven’t made your case.

     

    Borrowers and lenders have a choice. They aren’t forced into loan contracts. They will only responsibly do so if the odds of the ‘ifs’ are in their favour. We have seen a lot of irresponsible lending recently, but this is the fault of the humans using the system not the system itself. Sometimes it goes the other way, and even if the odds are good, loan contracts are not made. This is where Keynes’s ‘animal spirits’ come into play.

    In the real world banks use part of their profit to increase capital which is used as a reserve to fund more loans.  It is not used to pay expenses. 

    I think I confused the issue at some point by mistakenly referring to all interest revenue as profit. Clearly, only that revenue (from interest and other sources, including fees etc) additional to expenses, counts as profit. So this is quite correct.

    So even the “non-profits” retain capital.  Can you show any examples of banks that do as you say and don’t retain capital? 

    Of course they all have to have a capital reserve – but if this is adequate for their current loan book, there is no necessity to keep increasing it. On the other hand, if they are earning a profit every year, they can do if they want to. Since the decisions they make in aggregate will affect the rate at which money is re-circulated, other borrowers and lenders will have to take the actual behaviour of other financial institutions into account in their decisions.

    you still have to demonstrate that interest income is not locked up in capital.

    If interest income is locked up in capital substantially more than anticipated, then money re-circulation slows and loan repayments and interest payments become more difficult for everyone. As a result borrowers and lenders are less likely to make new loan contracts. The result –  financial gridlock and economic recession. But the current monetary system, while a necessary condition for this to happen, is not a sufficient one. It takes particular sorts of unanticipated human behaviour (in the aggregate) to cause the problem.

    You need to demonstrate how capital is used up by expenses in our current system before I can buy your argument.

    I think this misunderstanding goes back to my error in confusing profits and interest revenue. Clearly, capital is built up from what is retained once expenses (and dividends) are paid. The retention of capital slows the re-circulation of money, but it cannot prevent it – since all banks or even credit unions must have some costs.So there is always some money re-circulating through the banks, and so some sustainable level of loans.

    Banks and their borrowers attempt, individually, to judge how this translates into the success or failure of any loan contract they might consider. Since the aggregate picture only becomes clear after all these individual decisions have been taken there is a huge level of uncertainty in the process. But this uncertainty and potential for chaos is not so much due to the monetary system itself as due to the fact that the decision-making nodes in the system are human beings trying to make decisions about the future, based on limited and frequently non-existent information.

    The above analysis is a pretty good summary of that outlined by John Maynard Keynes in the General Theory and some subsequent papers (in particular this one, which unfortunately only seems available on subscription – but maybe you can access it). But I defy you to suggest any economic system that does not face the same problems – it is a question of how we manage these problems.

    Diarmid

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  • Fri, Jul 16, 2010 - 4:47am

    #92

    Travlin

    Status Gold Member (Offline)

    Joined: Apr 15 2010

    Posts: 524

    Re: Exponential Money in a Finite World

    Hello Diarmidw

    Thanks for your reply in post 169.  I’ve studied it for two days.  As I see it you are still talking theory, what you think could our should happen.  I’m a pragmatist.  Some might say I’m just dense, but I don’t think your argument comports with today’s practices.   As a theory?  Could be.  As a description of actual events?  I am not persuaded. 

    You are a good debater and you play fair so I thank you for a good discussion.  I have nothing productive to add at this point, but it  has been educational for me.

    With regards

    Travlin

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  • Fri, Jul 16, 2010 - 1:21pm

    Reply to #92
    diarmidw

    diarmidw

    Status Member (Offline)

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    Posts: 1

    Re: Exponential Money in a Finite World

    Thanks

    You seem to have an interest in looking at the issues fairly, which, sadly, isn’t always the case.

    I think what it boils down to is where you think the point of corrective action should be.

    I think a credit-money system certainly can be sustainable. I also think that its benefits can outweigh its costs, but not, I accept, as it currently operates. I don’t think that any of the proposed alternatives to a credit-money system are better (short of some sort of multilateral barter system, which may or may not be feasible with current technology).

    In any case, unless you actively outlawed it – and probably not even then, credit-money of some sort will always be used. So you would always have a choice between regulated or unregulated credit-money.

    So that makes me believe that the best immediate policy is to repair the credit-money system, not abolish it – nor indeed simply to await its collapse!

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  • Fri, Jul 16, 2010 - 9:17pm

    #93

    JAG

    Status Silver Member (Offline)

    Joined: Oct 26 2008

    Posts: 240

    Re: Exponential Money in a Finite World

    diarmidw,

    I want to thank you for your important contribution to this thread (and the other thread). I recently read Dr. Keen’s  Are We “It” Yet  paper and it confirms and explains your stated position on this subject beautifully. Kudos to you for keeping us thinking.

    Please stick around and challenge some of our other collective beliefs as I find the process very educational.

    Best….Jeff

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  • Sat, Jul 24, 2010 - 4:27pm

    #94
    sceptical-h

    sceptical-h

    Status Member (Offline)

    Joined: Mar 22 2010

    Posts: 1

    Re: Exponential Money in a Finite World

    [quote=cmartenson]

    Since there’s only $1000 floating around, and that’s all there is, clearly there’s not enough money to settle the whole debt. So where will the required $10 come from? In our system it must be loaned into existence, taking the form of $10 of new money plus $10 of new debt that must also be paid back with interest.[/quote]

    But this only applies if the bank waits until the loan is paid off before collecting its interest. Money is borrowed in order to be spent. The borrower must earn back the money spent in order to repay the loan. If the bank collects interest periodically over the course of the original loan, and respends it, then the original borrower can earn back the money paid in interest in order to pay the next tranche of interest. Once the system is up and running, with multiple loans in effect and interest being paid and spent throughout the course of each loan, then paying interest to the bank is no different from paying for sausages at the butcher’s. It’s only if the bank fails to spend the interest received that problems arise, but these are, again, no different from the problems that arise if the butcher fails to spend his takings.


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  • Sat, Jul 24, 2010 - 8:03pm

    Reply to #94
    sceptical-h

    sceptical-h

    Status Member (Offline)

    Joined: Mar 22 2010

    Posts: 1

    Re: Exponential Money in a Finite World

    oops! I stumbled in late and didn’t check what was going on before piling in. I seem to have merely reiterated what diarmidw was saying in post #143.

    [quote=Travlin (post #165)]When bank profits become capital they are effectively captured indefinitely and used as reserves to create new money for loans, the same way deposits are used to create loans. Capital is net of all expenses, dividends, etc.[/quote]

    Reserves are not unspent revenue – they are marketable securities which have been bought with money. Even banks’ reserve balances at the central bank are acquired by the sale to the central bank of marketable securities which the banks have previously purchased with money received in revenue and capital-raising operations.

    For the year ending 31 December 2009, the all-currency net incomes from all sources for UK-resident banks and building societies (savings and loans) were:

    net interest revenue        £57.3bn

    net fees received             £20.6bn

    net dividends received     £10.2bn

    net expenditure               £55.2bn (other than on interest, fees and dividends)

    total net income received £32.9bn

    (source: Bank of England http://www.bankofengland.co.uk/mfsd/iadb/index.asp)

    Total net income (profits plus new accounting reserves and provisions) is certainly a substantial sum but it is not unspent income. Net income is the amount available for purchasing financial assets and that is exactly what it is used for. It is spent on receipt, either in the bonds markets or to purchase deposits at other banks. This spending is not classified as expenditure. Except for the barest minimum of bank notes and coin, and statutory non-interest-bearing deposits at the central bank, banks do not have hoards of money lying around. It is all spent as fast as it comes in, so that others can spend it, in exchange for goods, services and income-generating securities.

    Finally, the idea that reserves and deposits are used to create loans is a quaint belief promulgated by bankers (who even seem to swallow the line themselves). Bankers say they hold a fraction of deposits in reserve and lend out the rest, but that is nonsense, as we all know. There is no logical limit to the loans banks can advance, so some arbitrary constraint has to be imposed, and a figure correlating with a percentage of deposits is a handy rule of thumb. Reserves are not held to meet requests for withdrawals (the levels held are far more than is necessary for that) but for the purpose of writing off bad loans and other losses, so that money created by the loans does not remain in circulation indefinitely. If the borrowers don’t withdraw it from circulation by repaying the loans in full, then the banks have to do it by writing down their reserves, which requires them in turn to divert more of their future revenue away from the purchase of goods and services in the real world to the purchase of securities in the financial netherworld, in order to rebuild their reserves.

     

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  • Thu, Mar 15, 2012 - 1:09pm

    #95

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    Ben explains debt.

    ‘Fisher’s idea was less influential in academic circles, though, because of the counterargument that debt-deflation represented no more than a redistribution from one group (debtors) to another (creditors). Absent implausibly large differences in marginal spending propensities among the groups, it was suggested, pure redistributions should have no significant macro-economic effects…’ (Bernanke 2000, p. 24)

    My bold.

    Getit? No money is created when a loan is made. According to Ben. The Tillerman of your destiny.

    From Prof Steve Keen’s Blog.

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