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John Rubino: Out of Good Options

We've borrowed too much for too long
Saturday, October 26, 2013, 2:43 PM

In this week's podcast John Rubino provides an excellent explanation of why governing has become such hard sledding of late for our politicians. Since they have enjoyed an ever-expanding pie so far in their careers, they don't have any professional experience of prioritizing spending, which the sluggish economy is now demanding of them. They are, simply put, the wrong people for the job:

Once you borrow more money than you can ever hope to pay back, the system becomes ungovernable. You cannot do the things you used to be able to do, which is to basically buy votes with new money, because you are out of money. And that is what is happening to the U.S. right now. So we have a whole generation of politicians who have never had to stiff major constituency. They have always been able to find the money to keep the people who put them in office happy. But suddenly, with these debt ceiling things and QE maybe being scaled back, etc., etc., the amount of money that is available is no longer sufficient to keep everybody happy.

It used to be that the Democrats and Republicans would basically cut deals in which the Republicans got an expanded global military empire and the Democrats got an expanded entitlement state. And they were both more or less happy. But now there is not enough money for both of those objectives to be satisfied.

Now they are at the point where the money is not sufficient to satisfy both of those objectives. And so somebody has to lose. And these politicians have never had to do this in their careers. They have never had to stand before an audience and tell hard truths. And they do not have those skills. The system has not been selecting for blunt honesty in the political system right now. So you have got John Boehner and Nancy Pelosi who have never had to do this before.

And yet they have to find a way to do it, or they have to convince the Federal Reserve to continue to print new money into the horizon, and get the political system to raise or just suspend the debt limit, and then just cut loose – at that point there is not even any pretense of fiscal sanity in the system. And I think we are heading to that point right now because the alternative is to tell the truth, make constituencies mad, and risk the stock market tanking, and all the things that started to happen when Ben Bernanke intimated that QE might at some obscure time in the future be scaled back by 5% or 10% and the stock market started to collapse.

So, we are reaching the point where we basically just give up in the political system and say look, we cannot stop the spending from growing. We cannot stop the deficit from expanding. So we are just going to have to finance it. We are going to have to put the pressure on the dollar in the system as the safety valve. So we are going to depreciate the currency, and we are just going to let it run from there.

And at that point, everything changes.

Because right now, people do not really know what the future of government policy is going to be because you've got all these cross-currents. But once they give it up, once they completely suspend the debt limit and don't even attempt to scale back the entitlement state and the global military empire, and it becomes clear to everybody that that is policy going forward forever, then I think things get really interesting. And we can talk about what specific markets would be most hurt and most benefited by this. But I think it becomes a really fascinating market, with some analogs in the past that are both interesting and scary, like Weimar, Germany, and Zimbabwe.

Click the play button below to listen to Chris Martenson's interview with John Rubino (49m:41s):

Transcript: 

Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson. And quantitative easing (QE) is progressing apace, with recent job market weakness leading to speculation that perhaps the so-called ‘tapering’ will not begin now until March of 2014. Of course, the equity bulls love that idea. And on the political front, the government has kicked the can down the road for a bit longer with a continuing resolution that also allows the President to unilaterally lift the debt ceiling. And with that power, we can be pretty certain that no meaningful political dogfights over the debt ceiling will ever happen again. The President will simply lift the ceiling, and off we go.

So how are QE and debt limits related? Both have at their core the idea that we cannot tolerate limits, neither monetarily nor fiscally. Both the Fed and D.C. are now solidly centered on the practices of always promising and delivering more. But can they?

To help us make sense of this today, we have the pleasure of speaking with John Rubino, publisher of www.DollarCollapse.com, a popular online hub for news impacting the economy. John is the author of several well-received books foretelling years in advance the collapse of the housing market and the decline of the U.S. dollar. I hear he has got another book on the way, and I’m looking forward to that. Before starting his website, John was a featured columnist with TheStreet.com, Individual Investor, and a number of other influential financial publications. His perspective on Wall Street and the currency markets is shaped by his past roles as a eurodollar trader, equity analyst, and junk bond analyst in the late 1980s. So that sets him apart from anybody at the Fed with zero trading experience. John, welcome.

Excellent. So you recently wrote a piece – here is where I want to start – a really interesting piece entitled, Welcome to the Third World, Part 10: Suddenly, Being a Politician is Hard. Let’s start there. What is the central thesis of that piece?

John Rubino: The central thesis, the overarching thesis of that series (because that is the tenth in the series), is that once you borrow more money than you can ever hope to pay back, the system becomes ungovernable. You cannot do the things you used to be able to do, which is to basically buy votes with new money, because you are out of money. And that is what is happening to the U.S. right now. So we have a whole generation of politicians who have never had stiff a major constituency. They have always been able to find the money to keep the people who put them in office happy. But suddenly, with these debt ceiling things and QE maybe being scaled back, etc., etc., the amount of money that is available is no longer sufficient to keep everybody happy.

It used to be that the Democrats and Republicans would basically cut deals in which the Republicans got an expanded global military empire and the Democrats got an expanded entitlement state. And they were both more or less happy. But now there is not enough money for both of those objectives to be satisfied.

Now they are at the point where the money is not sufficient to satisfy both of those objectives. And so somebody has to lose. And these politicians have never had to do this in their careers. They have never had to stand before an audience and tell hard truths. And they do not have those skills. The system has not been selecting for blunt honesty in the political system right now. So you have got John Boehner and Nancy Pelosi who have never had to do this before.

And yet they have to find a way to do it, or they have to convince the Federal Reserve to continue to print new money to the horizon and just get the political system to raise the debt limit or just suspend the debt limit, and then just cut – at that point there is not even any pretense of fiscal sanity in the system. And I think we are heading to that point right now because the alternative is to tell the truth, make constituencies made, and risk the stock market tanking, and all the things that started to happen when Ben Bernanke intimated that QE might at some obscure time in the future be scaled back by five or ten percent and the stock market started to collapse.

So we are reaching the point where we basically just give up in the political system and say look, we cannot stop spending from growing. We cannot stop the deficit from expanding. So we are just going to have to finance it. We are going to have to put the pressure on the dollar in the system as the safety valve. So we are going to depreciate the currency, and we are just going to let it run from there.

And at that point, everything changes.

Because right now, people do not really know what the future of government policy is going to be. You have got all these cross-currents. But once they give it up, once they completely suspend the debt limit and do not even attempt to scale back the entitlement state and the global military empire, and it becomes clear to everybody that that is policy going forward forever, then I think things get really interesting. And we can talk about what specific markets would be most hurt and most benefited by this if we have time. But I think it becomes a really fascinating market, with some analogs in the past that are both interesting and scary, like Weimar, Germany, and Zimbabwe, and places like that.

Chris Martenson: You covered a lot of excellent territory there, and that part I really want to focus on first is this idea that managing for expansion is a very different skill set than managing for, let us call it, stasis. The pie is no longer expanding. It is just sort of hovering in place, which is certainly true no matter how we measure it. Even if we take the GDP, which I think is overstated, it is still showing basically stall speed. And there is not really enough left to go around. And the context for this that is really important to me is to understand if you take – and I have done this, I just did this yesterday, so I have the numbers very fresh – total credit market debt, which is everything, right? That is, state, federal, households, corporate; everything, private and public.

You can imagine that is real debt – not liabilities, just debt. And you look at the time series of that, from 1980 to current, the average across all thirty years, there is 8% compounded annually. And so that is the world that the Fed knows, and that is the world that DC knows, which is the world where you can constantly expand debts faster and underline GDP growth, which was fraction of that; it was about half that. So this idea that you can constantly expand debts faster than income is something that we have lived for so long, in your thesis, that we have raised an entire generation of “leaders” who do not actually have any context for understanding the alternative world, which is, you cannot do that.

So in the alternative parallel world you have to live within your means. And you are saying that we have got basically no muscle memory, no institutional memory, no mentoring. They do not have the skills here.

John Rubino: Yes. To run a government with a fiat currency during credit bubble is one of the nicest jobs in the world, because you can find the money to make everybody happy. And so, basically, your job is to look generous. You create bills, and you work them through the legislative system that gives stuff to people. And so everybody is happy, and you have incredible status in society, and everybody loves you.

And that is the way it has been for the last thirty or forty years for U.S. politicians. They have had no real limits. No need to prioritize. No necessity to sit down with people and say look, we cannot have… They just did not have to do that. And so they had the easiest job in the world, without realizing it. I think they are just now realizing how hard politics actually is in normal times, in times, as you said, of limited resources that have to allocated through the political process. That is not something they have ever had to deal with.

And so I think they are not happy anymore. I think we will probably see a wave or retirements of these old-style, logrolling, back-scratching career politicians, because suddenly their career is not fun anymore. And so who comes along to replace them remains to be seen. And it will probably be Chris Christie types, in general, and Tea Party types, also although in more rare cases, because that is a more specific taste for a congressional district. But I think we will see people come in who at least give lip service to telling hard truths.

But the process as it goes on will have a mix of people who still do not want to tell the hard truth. Like the guys who dominate Congress and Senate today. And then people who come in and want to draw a red line and just not vote for things that raise the debt limit or unbalanced budgets or whatever.

So you will get the kind of gridlock that we saw in the last few weeks, where a small group of people just do not want to raise the debt limit. And they will make up excuses like Obamacare, or whatever, to avoid having to sign off on something that they find abhorrent. And within the Republican Party, I think there will be a kind of civil war. I think it has already started between ideologically driven people who were elected with Tea Party support who are like Ron Paul. They just do not believe in balanced budgets. They do not believe the government should be able to declare war or the President should be able to just invade other countries without Congressional backing.

And they just are not going to vote for these things. And if the government shuts down because of it, that is the government’s fault. That is not irresponsibility on their part. They just do not believe these things are right, and they want to stop them immediately. So you get within the Republican Party the battle between the majority, who are basically career politicians who want to cut deals and keep their nice jobs, and people who do not care about any of that. And so either the Republican Party collapses into a civil war in which you have these really hard-fought primary campaigns that hobble whoever wins the general election, and the Democrats are the majority party for a decade, or you have the Libertarian branch of the Republican Party splitting off and becoming a third party that actually gets ten to fifteen percent of the vote in elections which will also guarantee the Democrats get to be the majority party for the foreseeable future.

And if that happens, then basically the government is cut loose. There are no limits on what we are going to spend going forward. And there is absolutely no limit on the amount of money that will be created to finance it. So that to me looks like the end stage of this process, when the final political barriers to just letting it all hang out financially are taken away, and then we just really go for it. We become the Roman Empire in 300 AD, or Weimar, Germany, or whatever. And that seems to me to be just a couple of elections away. The next Presidential election is when it can start.

Chris Martenson: Well, there is a lot of competing ideas there. I think the central thesis of it all for me is this idea that something has really shifted in this story. If we constrain ourselves to the economic side of the story, it could just be the Japanese story, which is, once you pass a certain level of debt and indebtedness, there is really no amount of monetary policy that can really fix that. Bernanke swooped into office a long time ago claiming that he could avoid Japan. We have not avoided Japan. We are exactly Japan at this point in time: low growth, stubbornly high unemployment, and monetary policy that seems stuck at a zero pound on the interest-rate level, with no traction and exploding government deficits. I think that about encapsulates the Japanese experience. So we are recreating it.

And we wander over to the energy side of the story, and we see oil safely over or around $100 a barrel on the world stage for a couple years now. And that is a new fly in the ointment. And my thesis is that there is nobody in the Fed who really truly understands where we are in the story right now. They are trying some really old story stuff.

And by the way, it fits into the political story that I normally steer very wide of politics and partisanism almost entirely. But politics because it is usually not necessary, to know where we are going. But I think it is helpful here, if you have leaders who do not understand the dimensions of the predicament we are in, and they do not quite have the muscle memory or the institutional experience to know what to do next, and then we combine that with the sense that our monetary masters are also going to try some things that are going to be politically expedient.

Everybody who is currently in power and has their hands on the levers of power loves quantitative easing because they are getting rich like crazy. You look at all the data right now on CEO pay, or who is really taking it home in the 0.1% and who is really not taking it home. There is a very, very large, very profound story here that has sociological implications, political implications, has all kinds of implications. The one dialogue I did not see happen even once even on the budget side, even from the most die-hard, smallest splinter faction of the GOP, I did not see anybody really talk about this idea that we are going to have start fundamentally living within some very real limits or that something has really changed in this story. And the chief critique I have is, really, we have been doing quantitative easing for what, six years now? Can’t we at least hold up a placard and say that unless you count the rich getting richer, it is not really working? And there is something else at play here, and that is the dialogue I do not see happening.

So it feels to me like politics is gridlocked – kind of stuck in its competing ideologies, which sort of guarantee some institutional sclerosis on that front. The Fed is still sort of groping around trying stuff and basically committing to flying by the seat of their pants, as the data suggests. They will tell us how much more they are going to print, or less. But really, there has not been that fundamental backing up and saying whoa, whoa, whoa, what happens if we get all this wrong? What happens if the Fed is not successful in engineering an economic lift-off? What happens next?

And I will tell you, from my standpoint (and I would love to get your views on this, John), when you look at the equities markets worldwide – I mean, the Greek stock market is up even though they are utterly collapsing, economically and politically; their German DAX hit an all-time new high; S&P is at an all-time new high right now – are those good things, or do you smell a bubble again?

John Rubino: Well, we are back in a lot of ways to 2006, where the stock market is hitting record – the last time the stock market was at this level was right before the crash in the housing market that sent stocks down by 50%. And the time before that when it was at this level was 1999, early 2000, when the tech-stock bubble was in full swing and about to pop. So stocks hitting these levels is actually a very scary indicator, because the last two times they have been here, it has preceded a massive, world-shaking crash. And just about every other indicator of financial trouble, specifically debt levels around the world, are also back up there.

So it would not be at all a surprise to see a really serious turn in the tone of all the financial markets in the near future, just because whenever they get here, they seem to do that. So that would not be a big surprise. On the other hand, it is true that in past periods of extreme monetary ease, you see the real economy kind of tanking, but you see the financial markets continuing to look healthy in nominal terms. The stock market in Zimbabwe went through the roof when they were hyperinflating. And like you said, Greece is collapsing, yet their stock market is way up.

So it is possible that if we really let things slide here – monetarily, fiscally – pretty soon that will be reflected in the equity markets continuing to go up beyond levels that we think is reasonable by any kind of rational analysis. But they will do that, because money has to go somewhere. And it is not going to go into the real economy, because the real economy is moribund. But the financial markets are liquid and easy to invest in, and you have got this money, and where can you put it? You put it in Treasurys and you put it in stocks. And they continue to go up for a while. That could happen. But it is not a sign of health.

And by the way you mentioned earlier that monetary policy cannot fix excessive debt, and that is absolutely right. We are finding that out with QE-to-Infinity not really working with the economy slowing down. But it is also true that fiscal policy cannot fix this, either, because the fiscal policy fix of scaling back spending and try to live within your means gives you Greek style austerity. So we are at the point where we do not have a painless option. We only have a choice of what are looking now like catastrophes. We have very serious pain coming.

And then the question is, how are we going to engineer it? What emphasis are we going to place on what part of the financial system to try to get out of it, and then fail, and what will be the outcome? But if we try to force the dollar down in value, then we will have a currency crisis. If we try to scale back our spending and live within our means, we will have a flat-out 1930s-style economic crisis, where people start going bankrupt and unemployment is even beyond where it is now. And we start looking at a deflationary depression.

And that is it. We have borrowed so much money that we really do not have any other choice. And so the history of the last ten years and probably the next few is us coming to grips with this and deciding what kind of poison we are going to take going forward. And I think we are definitely leaning towards monetary ease. And whether that works or not we will see. But it is definitely the policy option that we seem to have chosen.

Chris Martenson: I think you have got it exactly right. I like that framing, which is, listen, you cannot ‘austere’ your way out of a hold this deep. So then what do you do? Well, you can try and print your way out. That does not really work. Really, there is a third option, which you and I might assign a fairly narrow possibility of happening, but that is to grow your way out of it. Of course, I think that is what the Fed in its heart of hearts was really double-fingers-crossed hoping for, and obviously politicians are hoping for it, which is a rapid resumption of economic growth.

And that was, of course, the whole story behind the Greek rescue packages when I was looking at those in 2008, 2009, 2010, when all that was being developed. By now, Greece was supposed to be back at 6% GDP growth. And, of course, they have kind of inverted that number, put a negative sign in front of it, and that is where they “happen” to be instead. And so growth is really always the bugaboo that is sitting there. As long as we get growth, we can get our way out from under this. And that is what I am cueing in on here, the point that it is not here.

And in order to think that we are going to double GDP growth going forward, you have to – I do not understand the basis of that story. What is the story? Where does it come from? Is there a new technological revolution we do not understand, or is there – where is the organic growth of that? Because in times past, when you have come out of a recessionary period, you have had a couple of things going for you. You have had a massive deleveraging happening. So people had walked all of their debts down, particularly at the household level, so they are ready to releverage.

Bernanke certainly primed the pump. We could releverage in a skinny minute if banks had people they wanted to lend to, right? They have got excess reserves just coming out their ears at this point in time. But the lending is not happening, because the willing borrowers are not there and also the willing lenders are not there, so there is that sort of stalemate happening. The fuel for this growth has just been piled up so insanely high, it is like they built a twenty-story funeral pyre for a gerbil.

And so now, if there are no painless options left, how do you see this playing out? Which pain are we going to choose here? And what does that unfold like?

John Rubino: Well, on your growth idea, Chris, the traditional Keynesian tools for generating growth have been cutting interest rates and running deficits. And that puts money into the hands of people who then spend it. And then the businesses that are getting that new money coming in hire people, etc., etc. And the idea is that that generates growth and tax revenues and you go back to being healthy. But after a certain point, when you owe so much money that people cannot borrow anymore – as you said, banks have these reserves that are just sitting there that they cannot figure out what to do with because households are already heavily indebted. Now we have replaced credit-card debt with student loan debt, basically and have not improved otherwise. So we owe a ton of money. We do not want to borrow more money, as individuals, mostly. And banks do not see any really attractive borrowers coming through the door. So the system does not work with these old tools anymore.

So if you wanted to try to generate growth and have an actual chance of doing it you have to attack the structural problems in the system. We have to lower the barriers to risk taking and capital formation and stuff like that. But that is ideologically unpalatable to the people who are running the show now. Because that means immediately putting money into the hands of the 1% who already have plenty of money. And so that is not going to fly. And so even though we are trying for growth right now – that is the idea – we are not going to generate it.

As you said, the economy is not growing even after five years of absolutely insane money creation and the lowest rates that we have ever seen for loans. And part of that, by the way, is that we are – as we are giving money to borrowers with lower interest rates we are sucking money out of the accounts of savers.

So everybody that lives on a fixed income is being crushed by this policy and that kind of offsets the benefits of slightly cheaper mortgage rates and stuff like that. So I do not think with the tools that we have on hand we can generate growth. And that is being borne out by the last few years of no growth. So at some point we are just going to double down because that is all that is left. These guys only understand what they have seen work in the past. And what they have seen work in the past is aggressive monetary policy; big government deficits; lots of spending on the social side of the economy that puts money directly into the hands of consumers. And so we will do that again.

I mean, if the economy starts to slow down from here and rift into a recession (which it easily could, based on the momentum of a lot of indicators), and especially if we have a stock-market correction right now (which we should just for technical reasons, even leaving everything else aside), then we would see the government respond, as it always has, with even more monetary ease. And even bigger deficits. And we just get more of the same.

So I do not see a way out of this. I think there are going to be lots of theories tossed around, but none of them – none of the ones that have any chance of working – will be politically palatable. So we rely on the stuff that we have done in the past that we thought worked back then, and so we will just do more of the same. And we will get more of the same. And at some point, the system spins out of control. So it becomes a matter of timing. Does it happen this year, next year, five years from now? That is the thing that is hard to call.

Chris Martenson: Well, John, I was listening to Jim Rickards recently at the Casey Summit. And he was saying that he had this whole list of things that he had written a book about a couple years back that the Fed was going to try. And with basically fourteen things on the list, thirteen had checkmarks next to them, and number fourteen on the list is giving everybody an actual tax cut, a big one, like some kind of check back or something like that. So you run a giant fiscal deficit on the basis of that, with the Fed handshake and a wink, saying do not worry about it, we will monetize whatever that pain is right there. And it would have to be fairly meaningful. Some big giant number, hundreds and hundreds of billions of tax credits flowing back into people’s pockets. So that would be a bypass mechanism. Do you think that is a possibility, in your view?

John Rubino: Well, that is a variation of the debt jubilee idea, where we just print a lot of money and give it to people to pay off their debts with the idea that that restarts the system. People do not owe as much, so they can borrow more. And the normal life can return. And I think that would give us a burst of consumer spending, but I do not think it would translate into anything, because the government will have had to borrow that money. So that is functionally the same as the government borrowing more money and creating more currency out of thin air and then spending it on stuff. And we have been doing that.

So in effect, we run an extra $500 billion dollar a year deficit. And something has to give somewhere, if that is what we do. Maybe the dollar gets weaker because of that, or maybe the bond market starts to behave badly, or whatever. Or we create asset bubbles where energy prices spike and houses go up to the point that they are not affordable for regular people anymore. We cannot do this expecting a free lunch. For every action in the world of money and fiscal policy, there is some kind of a reaction. And so the question with a policy like that is, what other part of the economy will it distort? And will that distortion be enough to offset the benefits of people having extra money in their pocket?

And my guess is that it will be, because it has tended to be in the past, and that we are reaching the point where we cannot control these distortions anymore because the numbers are just too big. So we will definitely try something like that. That is one of the things that the government will go for, especially in an election year when a recession is looming. But my sense is that it will not work any better than the other stuff that they have tried, just because the big looming problem, too much debt, at government and individual and business levels throughout the society is not going to be fixed by this. It is just going to be shuffling debt from one account – the individual’s account – to the government’s account. And that does not solve any of our problems.

Chris Martenson: Here we are, all the way out, deep in 2013. I have been very, very cautious and preaching caution for a long time in the markets, because this does smell to me exactly like 2007, 2007, also 1999. And it is very, very easy to be early in calling a bubble. It is very hard to persist through it. And I am sure that of the few financial managers out there who are being very prudent and understanding the risks, I am sure they are experiencing all kinds of career risk and pain at this point in time, because they are trying to do right by their clients. And I am sure people just want in on this. That is one of the natures of a bubble. And you always know you are getting to the end stage of a bubble when you suck in the last few people, because, of course, it takes more and more fuel to keep the rocket perched at that height.

I mean, think about somebody who suddenly wants to get into Google. Well, that is going to cost you at least a thousand dollars a share today, so that is big money. And so the higher things go, the more money it takes to lure in those new entrants. But really, I think that is one of the defining features of a bubble, when they have got the last person on board, pretty much, who is going to get on board.

How have you been managing talking about markets to people who are looking for your perspective on these things? And are you telling people to stay in/stay out, or what would you advise at this point in time?

John Rubino: When someone asks me what I think is going to happen in the next year, I just say I was wrong for the last two years. I thought this thing was going to end in 2010, give or take, and that we just could not keep going and doing what we are doing. And so my credibility for short term predictions is basically zero right now. But having said that, all the imbalances that we are building up over the last thirty years are bigger now. And so if debt was the problem in 2008, and stock valuations were the problem in 2000, we have got both of those back. We have got all the technical and structural and fundamental reasons for hard times in the near future. And so we should probably be preparing for that.

However, since this has gone for at least two years longer than I thought it would, there is no reason why it cannot go on for a few more years. So we just cannot know about the timing. This thing does not have to revert to reality in 2014, necessarily, because a printing press is just a phenomenal tool for fooling people. And we have the biggest best printing press that has ever existed. But the turn is coming, and when it comes, it is going to be really dramatic. When people finally figure out that this is really a charade, none of it is based on reality, and the actual reality under the surface is really horrendously bad, then we will see a mass change in crowd psychology in the markets. And everything that seems fine right now will disappear. And the general consensus will be that we have lost control and things are spinning out of control and we had better protect ourselves. So that day is coming. It is just a question of when.

Chris Martenson: Yes, well, so I have been wrong for a while as well. Here was my organizing framework: First of all, I noted that bubbles usually are separated by about a generation, because the pain of the prior bubble takes a little while to wear off. And typically, everybody who lost money in the first bubble has to die so people can completely forget what happened and go through it again. It is astonishing to me that we have been through not one, not two, but we are in our third bubble now within a fifteen-year span. And that is just astonishing, historically. So it really speaks to a couple of things. One is the power of the printing press. I think there are other tools at their disposal, not the least of which is a very, very compliant press, and can I call it a propaganda machine?

Because it is really – the shaping of opinions is really quite elegant. Actually, golf claps. I mean, I am really impressed with how well opinions are managed. I believe the stock market is largely a signaling mechanism. It is one of the reasons I think it remains so elevated. It is too important to let it go down. And so really, as you mentioned, though, it is the word illusion that is the capturing phrase there for me, because this is all illusory. It is, we have got the best stage-managed recovery that money can buy. But when you peel back the covers and you really look at what is going on, in truth, what has made this country of the United States an economic powerhouse and most of Europe and Japan was actually having a solid middle class. And every single statistic speaks to a hollowing out of that class.

And so the larger narrative I have running now is one of this is kind of a dark one, but it is, the parasite does not know how much it can take from the host. And so Wall Street is used to its cuts, which is a very, very large portion. The financial companies as a percentage of overall profits are very, very high. And they feel entitled to those cuts. And the problem is, when the pie is no longer expanding, those cuts suddenly become larger and larger and larger proportionally, and it leaves less and less and less to go back.

And it is not that different from what happens when you start drilling for more and more and more expensive energy. There is just less surplus left available to go floating back into the rest of society. So if we wander over to the rest of society and look at what is going on, when you look at food stamp usage, you look at real median wages, you look at things that indicate whether economic health or stress within the middle class, it is pretty profound that this has been actually one of the most startling ten-year periods of reformation in the overall balance of the society. It has been absolutely startling.

The mysterious part, to tie it all the way back to the political side, is, I am just astonished that nobody is capitalizing on that politically. It seems easy. It seems populist. It seems like there should be just a groundswell there. You mentioned maybe a Libertarian or some other party could come along and just simply articulate the plight of the masses in a meaningful way. They would make just massive amounts of hay. Why aren’t they doing that?

John Rubino: Well, part of the problem is that the policies that are causing this are sold as being aimed at helping the people who would populate that kind of a party – in other words, big social programs and easy money and low interest rates. These are all designed to help working people get jobs on the surface. That is how they are sold. So it looks like the government is actually out there trying to help you. If you are somebody working at a $10-an-hour job and desperately trying to support a family, the guys in charge right now are the ones who are speaking your language. So the fact that under the surface there is a lot of data that points to them not actually helping you, them actually funneling tons of money to the richest 1%, banks – that is not as clear as the idea that hey, we are expanding this new program that gives your kid daycare. And we are giving you more money for food stamps. And we are fighting those Republicans for good jobs here in the United States.

And so you are voting for the people who you think they are going to help you because they are saying that they are. But the policies that they are actually pursuing are actually a globalist set of policies, where they encourage companies to move jobs overseas and hollow out the factory jobs we used to have here and replace them with part-time jobs. If you look at the details of the jobs statistics that are coming out lately, it looks like more people are working. But more people are working in part-time jobs. The number of full-time jobs has not gone up in the last five years in the United States. So the decrease in unemployment is pretty much completely due to people getting jobs for twenty-nine hours a week for $11 an hour and being counted as employed.

But you cannot live on that kind of money. So we are creating this whole generation of people who are even more dependent on the government than the most dependent people were ten or fifteen years ago. And there is really no solution in the short run for this, because technology is changing in a way that makes it harder for good full-time jobs for, say, a high-school graduate to come back, because we have got a revolution going on in robotics right now that is going to replace Chinese workers in China with roboticized factories in the United States that do not really need many people but bring the production back here. So the manufacturing side of the economy is going to come back, but manufacturing employment is not.

So it is really not clear what the solution is, and it is not clear how you get there politically. Because what policies do you put into place once you start battling the 1%? If you raise taxes at the high ends, dramatically, like in France, would that work? Probably not. Do you cut government spending to bring the deficit down? That is instant austerity. That is not good for working people. Do you scale back the global military part? That probably would be relatively good, but it would also give us five million unemployed soldiers the next two years if we closed all our military bases and brought them home, and then a whole bunch of defense contractors laying off people. So would not help the working class very much, either. So it is really not clear how you translate disgust at what is happening into a political movement right now.

Chris Martenson: It is interesting that when I talk to younger people – so under the age of thirty, but particularly under the age of twenty-five – they have sussed all this out, and many of them have pretty well opted out of the whole system. They have looked at it and said listen, I understand that the bargain you are trying to sell me up there you boomers is just help us maintain the status quo, it is in everybody’s interest. But younger people have said I do not see my compelling interest in that story. And so, truthfully, younger people really have nothing to gain by preserving the status quo. They have everything to gain by busting it open and trying something new, some sort of jubilee writ large across things besides economics, some reset button.

What I am getting from what you are saying is, there is no way we are going to tweak out way out of this with current policies, current leaders, current thinking. There is really no easy way to sort of vote this, tweak that, drop this, lift that, to get ourselves back into shape. But that there is some reset, even, that is going to be required.

John Rubino: Yes, and it cannot happen through the political system, because the people that are in charge now are so entrenched. I mean, the baby boomers just – we still run things. We are running it for our own self-interest.

Chris Martenson: Of course.

John Rubino: As we always have. And so a few million college kids go to Ron Paul speeches and chant End the Fed! Stuff like that is very hopeful for the future, but not for the immediate future. They cannot affect things decisively in Washington right now because the guys in charge are just too big and too powerful and too able to co-op enough of them to stop any kind of a movement from becoming decisive. So there will be a reset, but it will be driven by the market. Some aspect of our financial system is going to fail at some point. My guess is that it is the dollar, because that is what we are targeting. We are fighting a currency war, and we are trying to force down the value of the dollar to gain all the benefits from a cheap currency at the expense of our trading partners.

And we do not seem to realize that so many dollars, so many dollar-denominated assets, are owned by the rest of the world that if they decide that that is our policy going forward, why would they hold Treasury bonds? And why wouldn’t they just dump them on the market? It would cause them some short-term pain, but it would protect their investments. And I think that China and Russia and Brazil and India are all looking for ways to do this as non-disruptively as possible.

And so it is very possible that we see the dollar just being bypassed in global trade to a greater and greater extent in the near future, which means fewer dollars are needed in the central bank reserves of other countries, which means a lot of selling pressure on the Treasury and a lot of pressure on the dollar in general. And that could be the thing that causes us to stop in our tracks and have to reevaluate our policies and have to reset the system.

But it will not happen painlessly. A big drop in the value of the dollar would cause all kinds of disruption in all kinds of domestic markets and give us a decade of really chaotic pains that we have to figure out a way to get through. But that is when the political argument gets interesting, because that is when it is meaningful. There is actually the possibility of setting up new structures and maybe going back to the original idea of sound money and individual freedom and a constitutionally limited government. That would be my choice of outcomes here. But there are a lot of other choices. The Big Brother 1984 dystopia is probably more likely than a return to Jeffersonian constitutionally limited government. But at that point at least there will be a chance of winning that argument. And so in that sense, the world will be a horrendous place for a while, but it will be interesting from a political standpoint, because there would be the possibility of actually winning and setting up something that is sustainable.

Chris Martenson: And so this idea, then, of the reset is that we are making claims against stuff. And those claims are in the forms of dollars. They are in the forms of debt which is denominated in dollars. It is derivatives. It is all the claims. It is all the paper articulations. We are just increasing those like crazy. The stuff is not increasing nearly as crazily or as quickly. And so there has to be a rebalancing that has to happen at some point. And guess what? Stuff does not actually rebalance. It is always the currency. That story has been written so many times historically, and it always comes with one of the most extraordinary wealth transfers. And so I think we are talking about different phases of this. I submit we are already in Phase One of it.

Phase One, we already had a stealth transfer. You can already see it showing up in the 0.1%’s take-home pay. The transfer has been from savers to debtors – but primarily, it has been from savers to the banking system, if you want to be really clear about where the bulk of it went. That is Part One. And then Part Two is when the currency itself or the claims against real stuff has to be reset against the amount of real stuff that exactly exists out there. Painful process; very turbulent. When the dust settles, it could be months, could be years, you find out that pretty much everybody is impoverished to some extent, but not everybody.

Because guess what? The real stuff did not go anywhere. And so there will be a relatively few holders of that at the end, if history is any guide. And so that is really what is being obscured, I think, in all of the dialogue and diatribes that I am hearing and reading about at these points. Because nobody really wants to talk about the fact that we are in – in a zero sum game, there are winners and losers. That is what happens when you hit that sort of top-of-the-rocket launch, and it does not have fuel to go further, and then it comes back down again.

There is just a massive, massive transfer of wealth that happens. It is already happening. And unfortunately, it is happening from savers and old people, people on fixed incomes, to some fairly already well-off folks. And then what you are talking about is some final moment that comes along, who knows when, unpredictable, chaotic systems, depends on a lot of variables, none of which are remotely predictable. And then there will be a fairly robust wealth transfer, and your prediction is, it is going to happen quickly. Why is that?

John Rubino: Well, in Austrian economics, they call that the ‘crack-up boom.’ That is the point when a tipping point occurs when a critical mass of people figure out that inflation, the depreciation of the currency that they have in their pockets, in their bank accounts, is government policy. And that it is not going to end any time soon. So they lose faith in the currency, and they all bail at the same time. They bail by buying real stuff for currency at basically any price. They just want to get rid of the dollars or the euros or the yen that they have. And so that causes the price of things to go through the roof. But it is not an inflation in the sense of a sudden increase in supply of currency. It is a collapse of trust in the currency. So nobody wants to hold any. So the same supply of currency, even if the supply of dollars stops going up, the dollar still tanks, because nobody wants to hold it anymore.

And that happens very, very quickly. In a famous quote from Ludwig von Mises, he says it happens in a period of days or weeks. And that is the way it was in Weimar, Germany. You had a fairly normal currency, and then three or four years later it is gone. It just vaporized. Ceased to function. And most of the vaporization happened in the last couple of months. So that is the really scary possibility out there, where things are going along and they are not great and they are not bad. They are okay. And then one day, it all just changes. Everybody just figures it out, or enough people figure it out, and then they sell or they dump their dollars in return for real stuff, and the system just stops functioning. So that is the end-game here. And they have been able to keep this going a lot longer than seems reasonable, and they have been able to build up imbalances that just did not look possible.

Of course, if you and I talked about today’s numbers ten years ago, I think we both would have agreed that that is crazy; this cannot happen. But it has happened. So the fact that it has happened means that it could go on for longer than we expect, because these guys seem to have the ability to fool us in a really profound way using a lot of different tools, and to keep us in the dark longer than we should be in the dark. And so maybe they keep at it for a little while longer, but at some point the imbalances get so big that something blows up. And my guess is that it is an Austrian style crack-up boom and that the dollar is the focus.

Chris Martenson: John, you are absolutely right. Ten years ago you could not have dropped me into this seat and convinced me that we are where we are. But here we are. And I am ambivalent about all of this, because on the one hand, I actually have enjoyed this extra respite in time, because I have been getting myself prepared in a variety of ways physically, emotionally, financially, just getting ready. I think the crack-up part is going to be relatively disruptive, if not painful, for a lot of people. And so I want myself to be as well prepared as I can be. And Ron Paul recently said, I saw an interview with him just a couple days ago where he said, the longer QE goes on, the worse it is going to be when we try and get out of it.

And so that idea of storing up this potential energy is what you are talking about as well as something I ascribe to. It is this idea that the longer this goes on, the more fuel we have sort of put into the situation. But when people suddenly turn, and they will – for some unknowable reason, just like that silent dog whistle that gets blown that only dogs and investors can hear – and bang! they are out, and off they go. And it is a very, very rapid, very chaotic event. Of course, we are computerized today, so things can possibly go a little faster than they ever have before. And so that leads me all the way back to my motto, which is, I would rather be a year early than day late. But I guess have to amend that. I guess I would rather be two or three years early than a day late, because I have been a little early on this one as well.

All the signs are there. And for people who are paying attention, it is just deja vu all over again. So here we are.

Do you have any interest in talking about your upcoming book, which I hope is going to deal with this and help people navigate this crack-up period?

John Rubino: Yes, this is going to be another one co-written with James Turk of www.GoldMoney.com. And we did a book called The Collapse of the Dollar ten years ago, and a lot of the predictions in that book turned out to be true, because we said short the big banks and go long gold for the next… – well, after a couple years of being too early, then it all worked out. Except for the collapse of the dollar part. The title of the book was a prediction that did not turn out to be true. So, so much has happened in the last ten years that we are doing a similar book that brings everything up to date and makes a lot of the same predictions, because we basically reset the clock in the last five or six years to where now it is a great time to go long precious metals again. It is probably a good time to be shorting the big banks.

And so we set the stage for that, with the story of the past five or six years and the rationale for basically betting against the system. And if we get this thing written and published the way we hope to, we will have it out before Christmas. So it will be a Christmas present for people who have friends and relatives who really want to understand this stuff.

Chris Martenson: Well, fantastic. I am really looking forward to it. The Collapse of the Dollar is a great book, and James Turk is somebody I admire tremendously, as I do you.

We have been talking with John Rubino. You can find more about him at www.DollarCollapse.com. Of course, this upcoming book – look out for that as well. We’d love to have you on when that book comes out so we can talk about that, too. John, thank you so much for your time today.

About the guest

John Rubino

John Rubino is the manager of DollarCollapse.com and co-author, with GoldMoney’s James Turk, of The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a Eurodollar trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.

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35 Comments

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Ruminations.

Thank you for that talk.I appreciate the honesty, it is essential for rational decisions. (Love that spelling checker- did I mention that?)

I disagree with John that a debt Jubilee would not work because (If I understand his argument correctly), the money would have to be borrowed. I cannot see why that is the case. It could just be printed-which would be a tax on all wealth as it depreciates All currency.

Ah! I becomes clear to me now. It would depreciate the wealth of the Uber Wealthy and transfer it to the proletariat. Seeing that the Uber wealthy are writing the rules right now this is not going to happen.

The other point I picked up on was this notion of paying off debts. Since when? If moral justification can be found to bomb kids in the East and the delightfully amusing double tap drone strikes, then where is the problem telling the creditors to lower their expectations? Ah Yes. More clarity- who are the holders of this debt? The same people who are writing the rules- the Uber Wealthy.

Money is ultimately an illusion. Those folding bits of paper are valuable because we all agree that they are valuable- until we don't.

On Robots- I have no problem having a robot go out to work instead of me, so long as I get the money. Robots will destroy the concept of money- if we can find the energy to build and run them.

Edit: Where is the fun of being Uber Wealthy when money has lost its meaning? More clarity.

gbcm's picture
gbcm
Status: Bronze Member (Offline)
Joined: Sep 3 2009
Posts: 36
I'm confused

Hi Chris,

 Your conversation with John Rubino, is yet another dialogue between 'like minds' --- and many of the doomster's and inflationist's arguments ( which are intellectually appealing to me) are well stated, and in contrast with this theme, is the latest broadcast from Jim Puplava's Financial Sense this weekend.   Earlier in the year you predicted a 40% correction in the stockmarket, which is now likely to finish on an all time high, while gold will probably confirm that is range bound in a bear market, at values not far removed from average AISC's (all in sustaining costs) of gold production. Hope springs eternal in gold bug's heart.   You now have made a partial admission in that you and JR have got your timing wrong (LOL)

 Jim, who has been stating for 3-4 years that the market is in a new bull phase, and was an early convert to the idea that the gold market peaked in 2011, and, gold remains in a bear market , albeit with an impressive bear rally going for the last 2 weeks. Problem is for gold as JP sees it is there is no real lasting stimulus for gold, and there are better sectors for investment. He says all bull markets begin with a wall of worry, and doubt, but eventually FOMO (fear of missing out) takes hold and fund managers and retail investors capitulate , as the bond market goes into a bear phase, with the possibility of a bond market collapse.

 Heres where Jim loses me. He rationalizes further stockmarket gains on PE expansion, which is plausible if interest rates remain ultra low --- but will not be the case if the bond market collapses , which means higher interest rates --- see why I'm confused ?

 Jim is adamant that the Fed has no choice but to continue QE indefinitely, to keep the stock market and other markets 'stable' but mainly to keep interest rates low , so that the interest rate payments for government debt doesn't consume all tax revenue, if interest rates ' normalise '.                                      Now in Australia, those who have preached and practiced " Don't Fight the Fed " have been very successful, and just today,  point out that the US government debt as a proportion of GDP is falling, and remains a lot less than Japan, and is very sustainable for years to come. (yes I hear you say, what about all those unpaid entitlements and the Detroit-isation the IOUSA heartland --- ah the joys of bankruptcy - only the innocent , naive and unprotected are hurt - capitalism in its most creative destructive mode ! ) .

 Also, the IOUSA QE is not occurring in isolation - the Japanese, Chinese, the UK, the EU and Australia ---- all those that matter and control the world economy, which means that " Austrian Economic theories" using examples like Weimar Germany, Zimbabwe, Argentina  etc just don't apply. The idea that China's economy can become independent of the IOUSA is too ridiculous for words -- ditto Japan, India and Europe - the manufactured mini crisis surrounding the bugging of Angela Merkel's phone  just shows how deeply entrenched and pervasive US power is , and how contemptuous they are of even their closest allies --- Obama promised that it wont happen again, by which he means, the US will make sure such things are either undetected or unreported.  

 Now Doug Casey's endless self serving, trite Roman history lessons, need to be given just one bit of credence - the Roman empire lived beyond its means for hundreds of years before it collapsed, and the Romans didn't have a fraction of the economic, industrial or military power of the IOUSA. Simply put, the all powerful US is an uncertain, duplicitous 'friend' ,  and the worst of enemies.

' Allies ' are subject to economic colonialism & manipulation , as practiced by US firms, which specialise in paying no tax , not even to the US treasury, and US entities such as hedge funds can borrow QE money at near zero interest rates and buy up assets in foreign countries, fueling asset bubbles and endless currency speculation - with friends like the US who needs enemies ?

 Conversely, if a country is declared " an enemy of the God's own country " then they can expect economic and military drone warfare. Intermittent inconsistencies like supporting Al Qaeda in Syria are answered by manufactured moral outrage against chemical weapons , which kill far less people than other weapon systems especially the 'bunker busters' the Israeli's use on stone throwers in Gaza, and the US uses on wedding parties in Pakistan --- sorry , I digress.

 Chris and JR have now admitted that they have been wrong up till now but a crisis is still coming , but it may take a decade to arrive --- exactly !!!  Chris has restated his favourite dictum that " he'd rather be several years early than a day late, which implies collapse will occur virtually overnight -- very unlikely to happen --- the 2008 collapse took over 6 - 9 months --- need I say any more ?

 Now we are all going to die someday, and many an atheist has a deathbed conversion, but does it make sense for a sane young person to become monastic ? Investors and savers have a similar dilemma .     Are they to go to cash, store gold, guns and food, and retire to high ground, to watch all those other fools continue to make money in the stockmarket and real estate , hoping the economic tsunami will come sooner than later ?  Keynes said the market can remain irrational a lot longer than most can remain solvent , and in the end we are all dead. 

 "My enemies enemy is my friend", and the enemy of all major powers is a world depression driven by a collapse of economic activity.  Maybe this time it is different - maybe QE can go on much longer than anyone previously thought possible and that while there will be semblance's  of currency wars , intermittent precious metals mania's and real estate bubbles, the system will just keep morphing from one form to the next, and the main casualties of this will be the usual victims - the poor especially in the 3rd world and the environment. There is nothing so unpredictable as the future , and not living in the moment is the greatest mistake one can make with our limited lifespan's -- this doesn't mean I'm advocating mindless hedonism --- like the internet, TV, most Hollywood movies or various drug fantasies be it boutique beer, wine appreciation or ritualized sacramental marijuana use. 

 Reluctantly I have to admit that peak oil has been pushed into the distant future, and the only restraint on endless exploitation the massive undeveloped carbon sinks like shale oil and tars sands are economic and environmental > Just a small fraction of known coal, gas and oil reserves is enough to cause the CO2 concentration in the atmosphere to go over 550ppm and then its game over for the habitability of the planet. 

 So, Chris , if you so believe your argument, why don't you have a robust debate with Jim Puplava and his ilk, instead of the polite , non controversial , cautious , friendly conversations that you've had in the past. Call him out, and while your at it, challenge him on why he refuses to accept the overwhelming opinion of the world's scientific community on global warming. Remind him that global warming is an insurance issue -- its a very real possibility, and the consequences of being wrong are toooo catastrophic to be ignored. Besides, investing in high tech solutions will be good for jobs and the market ( the latter is likely to get his attention) and saving some for future generations is surely a very acceptable concept for a professed fellow Christian ??

 The best information comes from a rigorous, in depth debate -- where evidence and argument can be subject to the scientific method - validate the data , then validate interpretation of the data -- all else is cant.

Cheers, GB.

 

 

 

 

 

 

 

bowskill's picture
bowskill
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Posts: 78
Good questions GB

I also find it very interesting comparing Jim Puplava and Chris M - both great resources but totally different styles and different angles on the worlds predicaments.

While JP does interview a wide variety of "experts" I don't hear him really challenge those with differing views from his own. Neither he nor Chris are confrontational shock jocks. His interest (JP's) is in a shorter time horizon than Chris's. JP has indeed stated that financial collapse is highly probable but just in a longer time frame than a typical investment time horizon. And as Erik Townsend once said, his actions are more influenced by what he thinks WILL happen rather than what SHOULD happen. In other words I think of JP as illuminating a much shorter path ahead than Chris and JP's angle is very much investment focused rather than whole of lifestyle or holistic like Chris.

Anyway I sense you GB are caught like most of us in a kind of no-mans-land. Perhaps asset markets do have a way to go even further up before they crash. Sitting on the side lines getting out of debt too early we are missing out. 

Then again, I just watched this video on Australias ABC. From an outsiders perspective, collapse is already a reality for average workers in the USA.

http://www.abc.net.au/iview/?series=2298893#/view/47286

Mark_BC's picture
Mark_BC
Status: Gold Member (Offline)
Joined: Apr 30 2010
Posts: 429
That's a very insightful post

That's a very insightful post GB. A few comments:

I agree that we may be missing out on life by preparing for armageddon. How long could this go on for? I have to admit, the 2 year decrease in gold price has stymied my plans for the future and I'm sitting, waiting, for something to happen.

From listening to gold industry insiders like Maguire and Sprott's math though, it seems like the physical gold market is on fire and that the only place that tonnage can be coming from is western vaults. What happens when it runs out? How do they hide that fact? What will gold price do when you can't buy physical anymore? What will a skyrocketing gold price to to the rest of the financial system? Will that happen slow or fast? I believe that China is very interested in keeping BAU alive for as along as it can because it wants to scoop up all the physical gold it can at cheap prices ... until there's none left. And the treasonous leadership of the US is facilitating it.

I tend to think that these sorts of shifts happen very quickly, especially since TPTB want to retain as much control as possible. They aren't going to give anyone the opportunity to get out of harm's way when they see it coming. I don't think it's exactly correct to compare the US to Rome in terms of the length of time it will take the empire to collapse. They didn't have technology back then and this computer-dependent, imbalanced ponzi scheme has reached heights that would never have been remotely possible back then. The US should have begun its decline 40 years ago when it hit Peak Oil but the use of the US military and US dollar as the world's reserve currency, and increasingly now, computers to pump up the financial system, plus the media to dupe everyone into servitude, has allowed it to go on for longer than traditional economic analysis would suggest. I am critical of many things coming from Austrian Economics, but their assessment of the pure imbalanced system that the ponzi scheme is supporting is valid, and the more unbalanced it gets, the faster and harder it will fall when it des fall (the day after gold runs out?)

The economic charts, even those produced by the Fed, are now going exponential. Look at M2 and other such things. I don't see how those could level off and when they're exponential it won't take long for a major resolution to occur.

I don't agree that Peak Oil as been pushed into the future. We seem to be at it right now -- global production rates haven't increased in 8 years despite prices basically tripling. What the latest statistics are, I'm not sure since I haven't been following since The Oil Drum shut down. I'd argue that in reality we should have hit Peak Oil 10 years ago, but the money printing and low interest rates supporting the last 10 years of the Ponzi scheme have enabled US tight oil production to ramp up at prices that would not otherwise be economic. In a normal interest rate environment, that oil would not be profitable to extract until say prices hit $200. But with low interest rate Ponzi schemes it becomes profitable at $100, in effect pulling future oil production back in time. Therefore, when normal interest rates return, oil production will tank even further than it would otherwise, because that tight oil will be gone even at $200, and we'll probably drop to production rates that we would have seen today had we hit the expected peak 10 years ago.

Oil shale is not being produced commercially. I'd argue that it never will be, since if they can't turn a profit today with 0% interest and practically free natural gas inputs, they never will. Regarding oil sand, the entire recoverable Alberta deposit represents 10 years of global oil production. and it is slow to ramp up due to its low EROEI and the fact that each deposit needs a factory built overtop of it just to extract and turn it into something similar to what used to squirt out of the ground by itself.

I also expect we'll hit Peak Natural Gas in the near future; its potential has been overplayed like everything else. Coal, however, remains a big question mark. It seems there may be a lot of coal left and that may represent our energy future. But we have no facilities yet that convert coal to oil on any meaningful scale so that too will be a slow and costly process -- in other words, it means we are at Peak Oil today no matter what we do.

Edit: Just one more point. If and when the rest of the world allies against the US, and when the US trade deficit is no longer supported after the dollar is abandoned, the US military will be crippled and the bully will become increasingly impotent. This process could potentially get ugly (an attempted WW3?)  but America could not possibly win a sustained world war, it simply doesn't have the resources or manufacturing capability or even the technical know-how to support itself independently of the rest of the world. Without the trade deficit, the middle class would be destroyed and along with this, the tax base supporting the military. Therefore they'd have to print money to fund the war .. certain hyperinflation. How do you fund a military with a hyperinflated currency? The military would collapse. It's basically game over.

ndagris's picture
ndagris
Status: Member (Offline)
Joined: Dec 29 2011
Posts: 1
WHO is really in charge? The US Pres? The Fed? The Jesuits?

World Bank Whistleblower Karen Hudes Reveals How The Global Elite Rule The World

http://southweb.org/lifewise/world-bank-whistleblower-karen-hudes-reveals-how-the-global-elite-rule-the-world/

Currency Wars leading to Military Wars. 'State Capture' via debt. New Currency backed by gold? Politicians are 'paid for' or blackmailed.

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1756
Karen Hudes, Who (Is Trying To) Run the World?

ndagris,

Thanks for mentioning Karen Hudes, the former Chief Counsel for the Bank of International Settlements.  Her reports, as a 20 year insider of the BIS legal department, has really added weight to the view that there is a powerful group of insiders that are ORGANIZED and consciously re-engineering the worlds social and economic systems for their own benefit.

"Karen Hudes is a graduate of Yale Law School and she worked in the legal department of the World Bank for more than 20 years.  In fact, when she was fired for blowing the whistle on corruption inside the World Bank, she held the position of Senior Counsel.  She was in a unique position to see exactly how the global elite rule the world, and the information that she is now revealing to the public is absolutely stunning.  According to Hudes, the elite use a very tight core of financial institutions and mega-corporations to dominate the planet.  The goal is control.  They want all of us enslaved to debt, they want all of our governments enslaved to debt, and they want all of our politicians addicted to the huge financial contributions that they funnel into their campaigns.  Since the elite also own all of the big media companies, the mainstream media never lets us in on the secret that there is something fundamentally wrong with the way that our system works.

Remember, this is not some "conspiracy theorist" that is saying these things.  This is a Yale-educated attorney that worked inside the World Bank for more than two decades  [and held the position of Chief Counsel, the head of the legal department]."

(source: Michael Snyder, Economic Collapse Blog)

If this is true, we all need to know about it.  If it is not true, we need to know that, too, so we can stop "imagining things."

Explanation of this subject heavily cite an academic study published in PLOS ONE in 2011 by a Zurich Team of systems analysts who looked at the control of the world's Trans-National Corporations (TNCs).

From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company's operating revenues, to map the structure of economic power.

Abstract

We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.

 

Introduction

A common intuition among scholars and in the media sees the global economy as being dominated by a handful of powerful transnational corporations (TNCs). However, this has not been confirmed or rejected with explicit numbers. A quantitative investigation is not a trivial task because firms may exert control over other firms via a web of direct and indirect ownership relations which extends over many countries. Therefore, a complex network analysis [1] is needed in order to uncover the structure of control and its implications

Findings

[N]early 4/10 of the control over the economic value of TNCs in the world is held, via a complicated web of ownership relations, by a group of 147 TNCs in the core, which has almost full control over itself. [mh-the center of the bow tie diagram, above.]  The top holders within the core can thus be thought of as an economic “super-entity” in the global network of corporations. A relevant additional fact at this point is that 3/4 of the core are financial intermediaries.

And in fact, a listing of the main "financial intermediaries" make up the list of the worlds largest banks. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

One level of analysis that was not addressed in this study is how many actual PEOPLE control those 147 TNCs.  For example, I have heard (but cant find the reference) that David Rockefeller owns more than a 5% share of 105 of the worlds largest 125 corporations.

The lure of ruling the world has captured the imaginations of many throughout history.  And many of the greatest atrocities and injustices in history have been committed by apparently civilized and cultured men in the pursuit of world domination.  

Is this happening here again?

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Arthur Robey
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Nice find Sand Puppy.

That is precisely what I meant when I spoke of a world government being an emergent property due to the Speed of Communications on the planet.

Welcome to the Borg.

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westcoastjan
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the fallacy of predictions

It seems to me that the uncertainty that exists in our society has the effect of a taunt, begging for clarity and explanation. The public demands it - we are not good at handling uncertainty. Some individuals, like CM and the multitude of other people involved in the crystal ball gazing industry cannot resist the temptation here and there to make specific (often highly educated) guesses. Trying to predict timing is nigh impossible, but the allure of getting it right is strong, for the rewards are great. Perhaps we should name this phenomena intellectual gambling.

As we all know, the downside of any kind of gambling is huge, with the house winning most of the time. In so far as the predictions game goes the biggest downside is the potential loss of credibility for the predictor. It is for this reason that I wish CM would not make predictions at all, but instead focus on what he does best, which is educating and informing on the 3E's. That is why I am here. I know a while back that this site was voted one of the top 100 financial blogs. I don't consider this a financial blog. I consider it a lifestyle blog, my go to place intelligent discussion on a multitude of subjects, as well as a fabulous resource for learning how to prepare for the kind of lifestyle that a societal breakdown will demand. This is where I want the focus to remain. But it seems some times that there is an overweight to the financial stuff, at the expense of the other stuff - the stuff we can actually control and do something about.

I would like to see less featured guests and articles on financial topics on which we have little to no control over and which can be depressing, and more on subject matter that is directly useful to me and therefore inspiring to me. If we don't get a healthy dose of inspirational material to balance all the negative crap, we will all succumb to prediction fatigue and overdoses of doom and gloom causing us to start to tune out. I feel myself heading in that direction now.

As many of the posts have said, we get it and we believe it and we continue to prepare. Preparing gives me a great deal of personal confidence. To find my own balance in all of the doom and gloom I am reading more of the how to prep wikis and less of the interviews and commentary. It helps me stay on a more even keel.

Jan

 

 

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jtwalsh
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Surprise

I have been completely surprised at how long TPTB have been able to keep things rolling along.  I know that inertia is a tremendously powerful force and I subliminally realize the enormity of the wealth and power controlled by the governments and big banks.  After 2008 I truthfully thought we would go only a year or two before a new crisis would emerge.  Lately I have had to admit to myself that the folks in control are tougher (and probably smarter, although the verdict is still out on that) than I would have ever believed.

Like Jan, I have been concentrating on lifestyle changes and lately have been reading more about sustainability than about economic collapse.  The past few months I have actually begun to appreciate that things are not happening.  I have come to see every day without a crisis as one more day to get ready.  One more day to do something to make a difference.  I have also come to view personal sustainability as the way I want to direct my life, regardless of what the economy or the rest of the population decide to do.  In that respect crisis, no crisis, becomes a less critical focus point.

Unlike Jan however, I do still want to hear about what is happening in the economy and hear the predictions.  I find that if I do not have a little fear to motivate me, my personal inertia can take over quickly. In my mind, one more day to prepare evolves into, let’s put it off until tomorrow.  So from my perspective a little prognostication is a good thing, even if it turns out to be incorrect or premature.

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We_Have_An_Anomaly
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Too much ideology

This rubino guy seems to believe that 100% of the problems we are now facing are the fault of the democrats. If a commentator can't put aside their personal ideological extremism to look objectively at an issue, they aren't worth listening to.

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marky
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Regarding predictions, I

Regarding predictions, I agree mostly with what Jan says, and what several others have said in recent comment strings.  It is very hard to predict when some big crack-up is likely to occur, so let's not keeping doing it. I have crash fatigue already.  And keeping the system going come-what-may at the moment seems to be the official policy and preference of those who control the system, so it seems hard to generate and useful historical data to provide insight on when or why that might change.  So prediction must include a lot of future mind-reading, a neat trick if it could be done.  Sure, things will change at some point but who knows when?  And in the meantime, we prepare, or rather we all have more time to learn how to live life differently.

But here's the thing, I still have bills to pay and kids to educate and all that stuff. I look back on how I've spent the last few years in terms of increasing my own resilience, and I'm really happy and surprised with how much I've been able to do.  The cellar is stocked, wood is stacked, beer is brewed, compost is down and we're ready for winter.  Which is all good and makes me happy in of itself. But it would still be nice to get some insight on what-to-do-with-my-savings in the short term, rather than focusing just on how to avoid a meltdown which has no predictable date.  I don't doubt the meltdown will arrive, and I'll be happy to deploy my new skills, deep pantry and hard goods when it does.  But in the meantime, some insight on what might be sensible financial things to do with my limited savings would be welcome in the context of the current financial environment, as rigged as it is.  After all, it takes $$ to keep me in a life of rustic poverty :-)

 

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westcoastjan
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good point Marky

with regard to what to do with short-term $$$.

Perhaps I should clarify something with regard to my earlier post - I think we should stop the "hard" predicting e.g. there will be a market correction on yymm. I think we benefit from general trend predictions that help us with our decision making e.g. food inflation and the whys behind it, such as increasing use of crops for biofuels. These are the kind of predictions that help us connect the dots.

I would hate to see CM lose credibility because he makes too many hard call predictions that do not come true. This would tend to overshadow his otherwise great work in helping people to see the light re what is coming down the pipeline. The last thing we need is a guy like CM to be discredited.

Jan 

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jcat3022
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Really?

Didn't the commentator bring up the uncomfortable climate all politicians are in, Boehner's lack of political will, the cost of military industrial complex, Chris Christie types who stand fir nothing,  etc. a few times during the interview? I'll go back and listen, but I don't recall a partisan viewpoint to his perspective.  Both parties are to blame for the fiscal mess & lack of understanding on how to fix things.  For whatever reason liberals always seem to be more sensitive when their core ideology is called into question.

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ferralhen
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things seem to circle and

things seem to circle and recycle alot around here...a question gets asked and then answered and then ask again and again and again. i know it's hard to grasp the unthinkable but its here.

i think chris and others have pretty well made a case that the money is worthless....and so far useful in and as long as this economy keeps working.so short term strategy for $$ is to have some.for this day to day economy. there is no good place to store and protect our wealth. period. they(tptb) have already taken it by devaluing it. we are already holding moldy bread, and people are still asking how to keep it fresh and how to save it.. 

the preps are for the next economy when the above one collapses completely.and for now....it's already collapsing/devaluing big time.i use my preps daily right now..today.i have very low utility bills, and lots of my own healthy food.i don't have to watch the news so much and therefore i benefit greatly from that..

nice trick of the ptb to get all eys to "look over there" at a huge arrmagedon type collapse.and miss the collape that is currently occuring. while QE's are robbbing us all of our stored labor ie savings..

the fatique sets in because people have been waiting and looking in the wrong direction.

 

 

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marky
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Paying for a slow collapse

Ferralhen,

Agree completely about the slow collapse.  It's happening now, has been for a while. And of course it's going to continue happening for a while as well, during which I still need $$ to function in the current world.  I agree also that at some point these dollars will be worthless, but right now they are quite handy for paying for some major changes in my lifestyle. The less income on savings I have, the more I have to work in an office typing stuff into computers, with less time available to work on practical projects at home.  It's not a huge problem in the scheme of things, but it's still something I have to factor in.

Best

Mark

 

ferralhen's picture
ferralhen
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mark i guess i would add the

mark

i guess i would add the distinction that i see the money as worthless now...it's just not marked to market yet. i see that as fragile and it not taking much to bring the true value into view. so i see a fairly rapid decline ongoing now  of the value(buying power of money) with the possibility of a quick(nanosecond) crash of trust at any time now going forward. just my guess and nothing more.it's how i see the roulette wheel

the main economy is not the only one running right now...many underground economies in operation...i think they may help lessen the impact...but savings on a sheet of paper as we know it are worthless in the truest sense.that is why i busted my fancy to get things in place while the money was still reckoned as having value. what i have left can help me day to day but i'm not counting on it to ease my pain in the future, that is what the homestead is for....i'm expecting the pain. just being pragmatic.

in summary pointing out a rapid ongoing decline(the slow decline in the 80's, it's picking up speed) with enough fragility to expect a rapid crash.

Doug's picture
Doug
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worthless money

Whenever I hear someone claim our money is worthless, I urge them to send me theirs.  I'll pay the postage.  I have this discussion with my wife from time to time.  It's important to remember that currently our daily lives are largely fueled by the USD and that doesn't seem to be changing very quickly.

The point is, it isn't worthless yet and it may be a long time before it is.  We have one big advantage propping up the USD, we are still the largest economy on earth by a considerable margin.  In fact, the current dollar value (compared to other currencies) is about in the middle of the range it has been in since about 2006, and except for a brief spike in 2001-2, not much below the range going back 25 years:

http://www.barchart.com/chart.php?sym=$DXY&t=BAR&size=M&v=0&g=1&p=MO&d=X&qb=1&style=technical&template=

9d0a8912ed5a56d235706f9d48533f10.png

As has already been pointed out, don't be too anxious for the USD's demise, it may be a long time coming.  OTOH, it's prudent to have inflation insurance.

Doug

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ferralhen
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i believe i qualified my

i believe i qualified my statement with it's just not marked to market yet. the fact that people ascribe it a value and believe it to be so doesn't mean it has any value.a lot of people thought the emperor had new clothes on but he didn't.

i also mentioned that i was using it now.

i think you might be hearing more of a black/white issue than i was saying.

 

 

treebeard's picture
treebeard
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Are we preparing or transforming ourselves?

Preparing is something that you do for an event of short duration, a wedding, a funeral, a storm, a vacation, a speech.  The world is asking something very different from us.  After the "collapse" will things  go back to "normal"?  Is this the kind of thing that some solar panels, cans of food and a few bars of gold can solve? We've done a little preping and are now standing around waiting for something else to happen?  The way we live now is destroying the world, have we given up on that, are we on to something else now?

Do we need to see "markets" collapse to understand that things have collapsed.  A young man from an affluent family and town walks into a elementary school and slaughters little children, we have collapsed.  Mega banks launder money from Mexican drug cartels and receive no civil penalties or retribution from the culture at large, we have collapsed.  Veterans come home from foreign wars and wind up living on benches in the NYC subway system, we have collapsed.  Bees that pollinate our farms have died off in record numbers and we still can seem to admit that the way we are growing our food is killing them, we have collapsed. A private cartel of banks has captured our political and regulatory system rendering them impotent, we have collapsed.  1.2 billion people don't have enough daily food, clean drinking water or any form of transport besides walking, we have collapsed.  The average age of a fast food worker is 29 years and they are making just over $8 an hour in the wealthiest country in the world, not enough to live on, we have collapsed.  Central banks are printing billions of dollars every month to try and blow bubbles in equity and asset markets, we have collapsed.  Environmental degradation is no longer an abstract concept, but is starting to fundamentally destroy our global economies and we act powerless to do anything about it, we have collapsed.

Are we waiting around to see mangled dead bodies?  There is a whole world to be transformed, there is enough to do to keep us all busy for a few lifetimes.  This not the liberal inclination to run around fixing somebody else's problem, its ourselves that we need to change.  The way we think about each other, the way we think about the natural world, our local and national government, our relationship with "things" and money, everything needs to change. Can we leave our fear centers and move into our heart centers and transform ourselves and then the world.  Can we loose ourselves so that we can finally find ourselves?

ferralhen's picture
ferralhen
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treebeard ,you are preaching

treebeard ,you are preaching .....to the choir here....there are many many people that need to get the message...i'm not a preacher...i've done what i think i can do and i continue to do it. i live it...philisophical speakings...don't change things for me

changing does. i do the changing because i saw it and i wanted to change. i'm odd man out unfortunately.

not to sound hard, i'm not at all...and i agree with what you say...it's just i have seen when i speak as you have , that it doesn't do anything, so i focused on doing what i could for my own life...other's perhaps you, have a different calling.

i just understand that one heart felt rant doesn't guarentee much...sad..yes...but true.

i do want you to know that i have done much preparation of my heart and soul for these times...i do not take lightly suffering coming...i personally have known great suffering...and from that i prepared to have as little in the future as i can possibly have...but i also realistically know i am not able to change others and i am not responsible for what they choose to do or not do.

many times in the face of great suffering i have thrown up my hands to heaven and said good g-d, can this be happening...only to hear the still small voice that says......yes it is happening.

i'mnot waiting to see mangled bodies..i've been one....and even if i wasn't, i'm not waiting in expectation for anything...

i am alive and living each day as it comes . i am not in the wreckage of the future, however i am doing what i can to prepare for what makes certain sense to me.

peace, pax shalom

treebeard's picture
treebeard
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Power

We all have it right now, we have everything we need to change the world now. Everything you say and do does make a difference. We are not helpless. I know that sounds trite and overused, but I do believe that it is true.  The biggest lie that we have all been told is that were are helpless, powerless incapable of change.

When you say that despite your own personal difficulties, that you are continuing to do what you can to change the world in positive way, that gives me a little more strength and courage to do what I need to do in my life.  That you have taken the time to share your perspective, means something and has value.  We don't need to convert anybody, supporting each other is enough.  Thank you.

Ultimately I agree that it is about how we do live our lives, what we do means much more than what we say.  In this form we are limited to a degree in our expression due to the nature of electronic communication.  The post was a bit of a rant, but there is a part of all this financial analysis that strikes me as a bit off.  I understand the frustration of those who have played by the rules and feel cheated by what is going on and want to protect what they feel they have rightfully earned, but there is something a bit mercenary about it all.

Isn't everything we have in life a gift?  Does the world really owe us anything?  Why are we here and what is our role in the transformation that is going on?  Are those savvy enough to see what is going on that are focused on the preservation of there own personal wealth wasting their talents when they have such great gifts to give to the world.  Do we have any right to comment, I don't know.  I do believe that we should all put out there what is in our hearts with honesty and openness and see what comes back.  If we are off, we will learn something.  If not, then maybe some good will come of it.

 

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LesPhelps
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Doug wrote: We have one big
Doug wrote:

We have one big advantage propping up the USD, we are still the largest economy on earth by a considerable margin.

As has already been pointed out, don't be too anxious for the USD's demise, it may be a long time coming.

We are also the world reserve currency, otherwise there is a very good chance the dollar would already be toast.  But don't forget, our economy is not as large as reported.  When the US government under reports inflation, they automatically over report GDP growth.  They also fudge GDP with a variety of seriously questionable adjustments, just like reported inflation and unemployment.  We may be the largest economy, but I doubt the gap is a considerable as you think.  

Don't forget that, when, not if, hyper inflation hits, things can go very quickly.  We don't have to shave coins, like Rome did when they reached this point.  We can and do print $2,000,000 per minute without wasting an ounce of ink or sheet of paper.

Chris always says he'd rather be a year to early than an hour too late.  That perspective makes a lot of sense to me even if it's several year rather than a year.

LesPhelps's picture
LesPhelps
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Ideology is better than more of the same

The democrats are definitely part of the problem.  The republicans are part of the problem.

Personally, I don't think we should send anyone back to Washington for a second term until they start addressing the real issues.

We need new blood in Washington, blood with ideology.

I really liked the end of Michael Crichton's "State of Fear."  He proposes that organizations like the Sierra Club or Greenpeace start out as effective motivators for social change, but after 10 or 20 years, they become part of the establishment and thus, part of the problem.  The idea makes a lot of sense and applies even more to congress and the entire government.  

During my undergraduate years in accounting, I was taught about the economies of scale that apply as small entities grow.  I was also taught that when entities get very large, diseconomies of scale become the rule.

In my opinion, the major world governments and large corporations are seriously into the diseconomies of scale size range.  The more they try to take on, the less effective they become at anything.

Time to get rid of republicans, democrats, lobbyists and Fed... the list is long.

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gillbilly
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Not Preaching, but...

here's a part of the well-known "Serenity Prayer" that is helpful to me to say once a day:

"Serenity Prayer" written by Reinhold Niebuhr (1892-1971)

Grant me the serenity
to accept the things
I cannot change,

Courage to change the
things I can, and the
wisdom to know the difference.

Living one day at a time;
Enjoying one moment at a time;
Accepting hardship as the
pathway to peace.

Just read an article about preparing for death. Isn't that the only real preparing we should do?...a spiritual/mind/body preparing, instead of trying to prepare for surviving an event that may or may not come? Death absolutely will come to all of us. Not trying to be morbid, just pointing out the only certainty we know will happen in the future. There in lies transformation for me.

Peace!

 

Doug's picture
Doug
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I get it, but...

The US gdp in 2012 was $15.684 trillion, nearly twice China's. 

http://www.tradingeconomics.com/united-states/gdp

The collective EU gdp was $16.566 trillion.

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

China had a 2012 gdp of $8.23 trillion.

http://www.tradingeconomics.com/china/gdp

Now, the gaps between Chinese and the western gdps are shrinking rather rapidly and China is no doubt trying to close the gap and end the USD's primacy as the world's reserve currency.  But still, the portion of USDs in the world's foreign exchange reserves is over 60% and, in second place, the Euro's share is in the mid 20%s.  The Japanese Yen makes up maybe 5%.  The Chinese Yuan isn't yet a significant reserve currency for a variety of reasons, mostly political.  The SDR strikes me as a wild card, but I don't think it has much international support yet.

http://www.forbes.com/sites/billconerly/2013/10/25/future-of-the-dollar-...

All of this gives the USD's reserve currency status considerable inertia.  What currency has a realistic shot at replacing it within the next decade or so?  Five years ago when I started paying attention to this stuff I was expecting hyperinflation right around the corner.  Five years later it hasn't happened despite the Fed's profligacy and the continued inflation of our debt bubble.  I am not willing to bet that it will happen in the next five or ten years, or ever.  Maybe high inflation, but I doubt we will see hyperinflation within any time frame that would affect my planning.  Nonetheless, as I said in the above post, having some insurance against inflation is prudent.

I reserve the right to be wrong. ;^)

Doug

EDIT:

I may be wrong about the SDR:

http://www.zerohedge.com/contributed/2013-10-29/dollar-really-losing-its...

Oliveoilguy's picture
Oliveoilguy
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The spiritualism of Prepping
gillbilly wrote:

here's a part of the well-known "Serenity Prayer" that is helpful to me to say once a day:

"Serenity Prayer" written by Reinhold Niebuhr (1892-1971)

Grant me the serenity
to accept the things
I cannot change,

Courage to change the
things I can, and the
wisdom to know the difference.

Living one day at a time;
Enjoying one moment at a time;
Accepting hardship as the
pathway to peace.

Just read an article about preparing for death. Isn't that the only real preparing we should do?...a spiritual/mind/body preparing, instead of trying to prepare for surviving an event that may or may not come? Death absolutely will come to all of us. Not trying to be morbid, just pointing out the only certainty we know will happen in the future. There in lies transformation for me.

Peace!

 

I'm ever cognizant of how brief my stay on earth will be, and in that regard, I think that the best use of my time is to build an ark so that my children, friends, and community members can view an attempt at navigating this new world we are entering.  Going back to the land; growing plants; and building sustainable structures and bio-systems ( prepping?) has a deeply spiritual element, especially when it can be a model to reduce world hunger and suffering. 

I have never truly thought that a monastic "leave the world" type of spiritualism, is as effective as a spiritualism that inhabits every core of our society.

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charleshughsmith
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predicting the future, continued

Very interesting discussion here on the difficulty of predicting the future and the tenacity of the current model.  As someone who has made a fair number of predictions here and elsewhere (USD won't collapse but will strengthen for some significant period of time, real estate was in a bubble and would roll over, etc.) and therefore often been wrong, I thought I'd make a few comments.

1.  Self-referential systems with numerous feedbacks are inherently difficult to predict because the forces we extrapolate into the future are adapting under various selective pressures that feed back into each other. Innovations that seem small can trigger outsized consequences (for example, the web, fracking, etc.) I recall an anecdote about Bertrand Russell.  A young critic detailed a previous position Russell had taken and noted an inconsistency with his current position. Russell declared, "Young man, I changed my mind."  We're allowed to do that as new dynamics emerge and what we extrapolated as critical turns out to be less critical than some other factor we dismissed as minor.

2.  Systems feed on the herd instinct of humanity. Real estate was visibly in a bubble in 2004, at least in key markets, yet the bubble continued expanding for 3 more years as the herd drew in skeptics.  Those of us who declared the bubble in 2004 were wrong for 3 long years.  The dynamics of the herd overpowered rationality and prudence.  Humans will thunder over the cliff just like other herding animals. Just keeping the ability to make independent judgments and sort data without ideological filters should be a key goal. It's OK to be wrong, but maintain an independent ability to analyze and adapt.

3. There is a body of sociological study that looks at how what we perceive as risks defines our ideological/sociological world view.  Risk assessment by groupthink is very powerful: we are moved by what we perceive to threaten our world view.  Hierarchical types see different risks than egalitarian types, for example. Being aware of this bias helps us strip it out of our analysis. 

4. Adding up the first 3 points, the status quo is a dynamic system with many players. As I have often noted, just for one example, the US military/national security state does not necessarily share the same world view and priorities as other chunks of the empire. Various conspiracy theories neatly tie up the entire system with a bow, but I don't think it's that static and simple. If it was, it would be easier to predict.  If we look at systems with few feedbacks, we find systems like the former USSR.  It imploded because it lacked the intrinsic ability to reform/adapt for systemic reasons.

Everyone in the status quo has a stake in its survival. Every one of us wants to get our social security, our disability, maintain the freedom of a personal vehicle, have access to clean water and all the other goodies, and those becoming (or maintaining) wealthy and powerful in the current system want to retain their wealth and power.  There are titanic forces that will bend whatever needs to be bent to keep their share of the swag flowing to them. This is just as true of the welfare recipient as it is the global corporation or politico. We shouldn't underestimate the power of this desire to maintain the status quo and bend perceptions to make that appear as if it is not just possible but inevitable.

5. As a result of #4, alternative systems have very little leverage. Why bust our behinds getting a local farmer's market going when every supermarket is bulging with produce and products engineered to satisfy our reward centers?  Everything is an uphill battle to reach the critical 4% threshold of influence in terms of establishing alternative systems.  Our own personal resilience only goes so far, but getting people to invest in systems beyond themselves is difficult for any number of reasons, including active suppression by those benefiting from the status quo.  The need for real alternatives just isn't strong enough to change world views.

These systems are still nascent. We're still feeling our way forward in revolutionary alternatives (such as "accredit yourself" as an alternative to $100K college degrees in theater studies).

6. Nobody fully understands these complex systems such as the reserve currency, even though the systems have been functioning for decades. If we add up certain dynamics, we would feel very confident in saying this system should not exist--it should implode right now. Yet it continues on year after year. It is not just being perverse--it's very difficult to understand these systems because of the self-referential feedbacks and the motivations of the players to keep it going by whatever means are at hand. I have been looking at the USD reserve currency for years and am humbled to realize nobody really has a firm grasp of its basic dynamics.  (At least I haven't found any such source.)  There are widely disparate descriptions of its mechanisms and costs/problems, none of which totally accounts for its continued resilience.

7. I tend to think John Michael Greer's concept of catabolic collapse is likely to be the most correct in terms of predicting future dynamics.  Things keep following the same vectors for all the reasons stated above until something gives and they reset at a lower level of complexity/energy consumption. Everyone with a stake in the current system takes a hit to their desires but they still retain some share of the swag. This can continue for quite some time, Rome being a pretty good example and various corporate/nation-state failures being more recent examples.

8. I think it is fairly self-evident that we are in an unprecedented era--just looking at energy, debt and the internet is enough to reach that conclusion.  This means the past is not a very reliable guide. As a result, many people look to  behavioral models of economics etc. to explain everything in terms of human emotions. This also has limits, as systems have dynamics that may originate in human psychology but human psychology alone does not explain their dynamics.  

New models of doing things are emergent, but that is not a passive process. Some individuals actually have to make this happen by thinking things out, proposing systems, setting up a network of like-minded people, etc. etc. etc.  I think our goal here is to build that structure at least conceptually so people who are completely wedded to the status quo have some alternative framework to grasp when the stairstep down finally breaches their confidence/faith that the system is eternally sustainable as-is.

 

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charleshughsmith
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predicting the future, continued #2

Forgot to mention that all this has led me to issue fewer predictions about anything.

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Doug
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Good summation Charles

I agree with the concept of catabolic collapse.  We have seen a steady deterioration in our economic well-being for 40 years and that trend does not appear to be changing much.  What we do about it is the big question.  That breaks down into two parallel tracks imho.  First, building personal resilience.  In terms of personal finances that means getting out of debt and acquiring tangible assets.  This site is devoted to those actions.

The second track, however, is much more difficult.  Somehow we must significantly change our whole economic structure.  This video does as good a job as anything I've seen in tracing our deterioration from a manufacturing economy post WWII to the financialized economy we have today and does not have an optimistic outlook for improvement absent massive political change.

https://archive.org/details/scm-215026-randymandellfinancializingame

The point is that the 1% (simplified jargon) is in firm control and profiting mightily from the current system.  Our entire governmental structure is beholden to the 1%.  Nothing fundamental is going to change in such a regime.  Therefore, it strikes me that it is time to begin a discussion in forums such at this to really take on the question of political change, i.e., take over by the 99%.  This is not a left-right, Republican-Democrat issue.  It is an up-down issue and will not be adequately addressed until we confront that ugly reality.

The question is can we do it by the ballot box or will it require some other kinds of action?  The bottom line is that no matter what course we take, massive education of the 99% as to the economic realities has to be accomplished.

Doug

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charleshughsmith
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emergent alternatives

Taking back the govt at the ballot box is one possibility, but the Powers That Be seem so entrenched and the public so cowed/catatonic that political reform seems unlikely. The alternative is more people edging out of the status quo and developing parallel systems that still rely on basic infrastructure (the Internet, for example) but not on debt/financialization or govt control/funding.

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gillbilly
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Self-referential systems and Emergences

CHS, what a great post! Thanks for taking the time to write it. A couple of comments and questions...

You wrote: I recall an anecdote about Bertrand Russell.  A young critic detailed a previous position Russell had taken and noted an inconsistency with his current position. Russell declared, "Young man, I changed my mind."  We're allowed to do that as new dynamics emerge and what we extrapolated as critical turns out to be less critical than some other factor we dismissed as minor.

I wonder if this was in response to Godel's theorem? For those who don't know, Godel's theorem brought Russell's Principia Matematicus (his life's work) down in one stroke. Russell was gracious enough to accept defeat. How humbling.

You wrote: There is a body of sociological study that looks at how what we perceive as risks defines our ideological/sociological world view.  Risk assessment by groupthink is very powerful: we are moved by what we perceive to threaten our world view.  Hierarchical types see different risks than egalitarian types, for example. Being aware of this bias helps us strip it out of our analysis.

Are you referring to Kahneman's research? I found his work fascinating and would be interested in reading other perspectives if you have any recommendations.

Your 6th bullet point on the reserve currency is very interesting and I would love to see an article on that very subject!

Finally, Arthur continues to beat McGillchrist's drum of left/right brain thinking and the concept of modeling, with which I agree. Have you read his "Master and His Emissary?" If so, I'm curious as to your thoughts.

I've come to the conclusion that for us to be open to the emergence of new models, it seems to me those emergences will come from outside of our self-referential systems, but maybe not, who knows. Recently I've been researching how Google's search engine works and what I'm beginning to see is that the internet network (as Arthur pointed out awhile back) is beginning to look like the neural network of the brain, which we access by way of search-engines. The problem I see is that search-engine access is constructed in a left-hemispheric approach (i.e. self referential). My notes on this are too long to post, but here are a couple of the sites I've read recently on the subject:

http://www.google.com/insidesearch/howsearchworks/thestory/

http://infolab.stanford.edu/~backrub/google.html

I've found the algorithms used in search engines leave a lot to be desired and often push what I call right-brain connected SERPs (search engine result pages) to the back of searches (i.e. SERPs might equal 45,000 results, and what I consider right-brain SERPs only begin to appear sporadically in the 500 to 1000 range of how the search engine ranks SERPs in regard to quality and freshness). This is similar to how McGillchrist describes the left hemisphere inhibiting the right hemisphere.

How many people spend the time going through the layers of search pages to get to those more distantly connected type SERPs?

Google writes in regard to their algorithms for indexing (using string theory) - Algorithms – “We” write programs and formulas to deliver the “best” results possible.

I question the "best" results possible now that I've taken the plunge into this research, especially in light of the SEO (search-engine optimization) companies that game the system (turns out quality/rank can be manipulated by money - surprise to anyone?):

http://rankingloophole.com/

I'm finding this rabbit hole interesting, and thought it ties into what your post discusses. Again, GREAT post, and I hope you find some of what put forth of interest. Thank you!

 

 

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charleshughsmith
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wow

Wow, Gillbilly, you are a polymath!  

1.  I don't think Russell's comment was in reference to Principia--but I can't recall the context.  Russell advanced all sorts of unpopular ideas, and one of his essay collections is titled "Unpopular Essays."

2.  I think Kahneman's work on our difficulty at deliberation is relevant, but the concept of risk assessment as critical comes from Dan Kahan and others: "cultural cognition of risk" is the fancy name for the idea.

3. Your wish is my command--I will propose the reserve currency as my next topic on PP.com.

4. I have long been interested in left-right brain issues, going back to "Broca's Brain" of the 70s. I haven't read "Master and His Emissary" but am familiar with the basic thesis.  One might as well mention the three other layers of the brain, reptilian, mammalian and frontal cortex, each of which generates risk assessment and responses that can be wildly at odds with rationality or deliberation.

5. Your research on search engines is new to me and I have no useful response at this point.  As for where alternatives arise, I suspect cross-disciplinary people are the primary source, i.e. those who take some insights in one field and apply them to some other field.  Then there is capitalism's core, which is seeing an opportunity to reap big profits from some innovation. Hey, it worked for the guy who started AirBNB, which is saving millions of people major money while distributing their vacation rental fees directly to households....

We might also look to the desire to fix a problem as intrinsically, not to mention ethically, interesting, regardless of the profit (or lack thereof).  Perhaps Linus Torvald's Linux is an example of this.

Thank you for the thought-provoking commentary.

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Grover
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Reserve Currency
charleshughsmith wrote:

3. Your wish is my command--I will propose the reserve currency as my next topic on PP.com.

Charles,

I hope you do tackle the concept of reserve currency. Reserve currency is a concept that only makes sense in a fiat based system. In the past, gold was the ultimate reserve. Is it still?

As you analyze the pros and cons of the reserve currency over time, I hope that you include some value judgments. Is it a curse or a blessing to have the reserve currency? How has this changed with time? Can there be another reserve currency if/when the dollar based system fails? Where to from here?

Thanks,

Grover

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gillbilly
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Posts: 423
Thank you CHS

Thank you for your reply(s). The dynamics of the reserve currency is an enigma for me. I understand the fundamentals of international exchange markets and the role of the reserve currency, but the overarching dynamics of the/a reserve currency is difficult for me to grasp. It's easy to understand how it benefits the issuer of the currency, but are there varying degrees of benefits after that and how how are they determined? How has Triffin's paradox evolved over the past 50 years? Is it even relevant?  Would SDRs (as originally was promoted by the IMF) or gold be a better or more practical reserve. I also second Grover's requests. I look forward to your insights. Thanks again!

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ferralhen
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Joined: Oct 14 2009
Posts: 151
the middle class doesn't have

the middle class doesn't have a clue how to work under the table, in the under ground economy...so how is that realistic? i know you play with that...but others grasping that?

most people on this site can't even give up a shower, or heat for a day, or electicity..are we not our own problem.?

and then to think the internet will remain there in place for us? our celll phones...?

rules are changing and changing fast...

the public  ie us is cowed...you are so right about that.

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