Our oceans have been the victims of a giant Ponzi scheme, waged with Bernie Madoff–like callousness by the world’s fisheries. Beginning in the 1950s, as their operations became increasingly industrialized--with onboard refrigeration, acoustic fish-finders, and, later, GPS--they first depleted stocks of cod, hake, flounder, sole, and halibut in the Northern Hemisphere. As those stocks disappeared, the fleets moved southward, to the coasts of developing nations and, ultimately, all the way to the shores of Antarctica, searching for icefishes and rockcods, and, more recently, for small, shrimplike krill. As the bounty of coastal waters dropped, fisheries moved further offshore, to deeper waters. And, finally, as the larger fish began to disappear, boats began to catch fish that were smaller and uglier--fish never before considered fit for human consumption. Many were renamed so that they could be marketed: The suspicious slimehead became the delicious orange roughy, while the worrisome Patagonian toothfish became the wholesome Chilean seabass. Others, like the homely hoki, were cut up so they could be sold sight-unseen as fish sticks and filets in fast-food restaurants and the frozen-food aisle.
The scheme was carried out by nothing less than a fishing-industrial complex--an alliance of corporate fishing fleets, lobbyists, parliamentary representatives, and fisheries economists. By hiding behind the romantic image of the small-scale, independent fisherman, they secured political influence and government subsidies far in excess of what would be expected, given their minuscule contribution to the GDP of advanced economies--in the United States, even less than that of the hair salon industry. In Japan, for example, huge, vertically integrated conglomerates, such as Taiyo or the better-known Mitsubishi, lobby their friends in the Japanese Fisheries Agency and the Ministry of Foreign Affairs to help them gain access to the few remaining plentiful stocks of tuna, like those in the waters surrounding South Pacific countries. Beginning in the early 1980s, the United States, which had not traditionally been much of a fishing country, began heavily subsidizing U.S. fleets, producing its own fishing-industrial complex, dominated by large processors and retail chains. Today, governments provide nearly $30 billion in subsidies each year--about one-third of the value of the global catch--that keep fisheries going, even when they have overexploited their resource base. As a result, there are between two and four times as many boats as the annual catch requires, and yet, the funds to "build capacity" keep coming.
The jig, however, is nearly up. In 1950, the newly constituted Food and Agriculture Organization (FAO) of the United Nations estimated that, globally, we were catching about 20 million metric tons of fish (cod, mackerel, tuna, etc.) and invertebrates (lobster, squid, clams, etc.). That catch peaked at 90 million tons per year in the late 1980s, and it has been declining ever since. Much like Madoff’s infamous operation, which required a constant influx of new investments to generate "revenue" for past investors, the global fishing-industrial complex has required a constant influx of new stocks to continue operation. Instead of restricting its catches so that fish can reproduce and maintain their populations, the industry has simply fished until a stock is depleted and then moved on to new or deeper waters, and to smaller and stranger fish. And, just as a Ponzi scheme will collapse once the pool of potential investors has been drained, so too will the fishing industry collapse as the oceans are drained of life.
Unfortunately, it is not just the future of the fishing industry that is at stake, but also the continued health of the world’s largest ecosystem. While the climate crisis gathers front-page attention on a regular basis, people--even those who profess great environmental consciousness--continue to eat fish as if it were a sustainable practice. But eating a tuna roll at a sushi restaurant should be considered no more environmentally benign than driving a Hummer or harpooning a manatee. In the past 50 years, we have reduced the populations of large commercial fish, such as bluefin tuna, cod, and other favorites, by a staggering 90 percent. One study, published in the prestigious journal Science, forecast that, by 2048, all commercial fish stocks will have "collapsed," meaning that they will be generating 10 percent or less of their peak catches. Whether or not that particular year, or even decade, is correct, one thing is clear: Fish are in dire peril, and, if they are, then so are we.
The extent of the fisheries’ Ponzi scheme eluded government scientists for many years. They had long studied the health of fish populations, of course, but typically, laboratories would focus only on the species in their nation’s waters. And those studying a particular species in one country would communicate only with those studying that same species in another. Thus, they failed to notice an important pattern: Popular species were sequentially replacing each other in the catches that fisheries were reporting, and, when a species faded, scientific attention shifted to the replacement species. At any given moment, scientists might acknowledge that one-half or two-thirds of fisheries were being overfished, but, when the stock of a particular fish was used up, it was simply removed from the denominator of the fraction. For example, the Hudson River sturgeon wasn’t counted as an overfished stock once it disappeared from New York waters; it simply became an anecdote in the historical record. The baselines just kept shifting, allowing us to continue blithely damaging marine ecosystems.
It was not until the 1990s that a series of high-profile scientific papers demonstrated that we needed to study, and mitigate, fish depletions at the global level. They showed that phenomena previously observed at local levels--for example, the disappearance of large species from fisheries’ catches and their replacement by smaller species--were also occurring globally. It was a realization akin to understanding that the financial meltdown was due not to the failure of a single bank, but, rather, to the failure of the entire banking system--and it drew a lot of controversy.
The notion that fish are globally imperiled has been challenged in many ways--perhaps most notably by fisheries biologists, who have questioned the facts, the tone, and even the integrity of those making such allegations. Fisheries biologists are different than marine ecologists like myself. Marine ecologists are concerned mainly with threats to the diversity of the ecosystems that they study, and so, they frequently work in concert with environmental NGOs and are often funded by philanthropic foundations. By contrast, fisheries biologists traditionally work for government agencies, like the National Marine Fisheries Service at the Commerce Department, or as consultants to the fishing industry, and their chief goal is to protect fisheries and the fishermen they employ. I myself was trained as a fisheries biologist in Germany, and, while they would dispute this, the agencies for which many of my former classmates work clearly have been captured by the industry they are supposed to regulate. Thus, there are fisheries scientists who, for example, write that cod have "recovered" or even "doubled" their numbers when, in fact, they have increased merely from 1 percent to 2 percent of their original abundance in the 1950s.
Yet, despite their different interests and priorities--and despite their disagreements on the "end of fish"--marine ecologists and fisheries scientists both want there to be more fish in the oceans. Partly, this is because both are scientists, who are expected to concede when confronted with strong evidence. And, in the case of fisheries, as with global warming, the evidence is overwhelming: Stocks are declining in most parts of the world. And, ultimately, the important rift is not between these two groups of scientists, but between the public, which owns the sea’s resources, and the fishing-industrial complex, which needs fresh capital for its Ponzi scheme. The difficulty lies in forcing the fishing-industrial complex to catch fewer fish so that populations can rebuild.
It is essential that we do so as quickly as possible because the consequences of an end to fish are frightful. To some Western nations, an end to fish might simply seem like a culinary catastrophe, but for 400 million people in developing nations, particularly in poor African and South Asian countries, fish are the main source of animal protein. What’s more, fisheries are a major source of livelihood for hundreds of million of people. A recent World Bank report found that the income of the world’s 30 million small-scale fisheries is shrinking. The decrease in catch has also dealt a blow to a prime source of foreign-exchange earnings, on which impoverished countries, ranging from Senegal in West Africa to the Solomon Islands in the South Pacific, rely to support their imports of staples such as rice.
And, of course, the end of fish would disrupt marine ecosystems to an extent that we are only now beginning to appreciate. Thus, the removal of small fish in the Mediterranean to fatten bluefin tuna in pens is causing the "common" dolphin to become exceedingly rare in some areas, with local extinction probable. Other marine mammals and seabirds are similarly affected in various parts of the world. Moreover, the removal of top predators from marine ecosystems has effects that cascade down, leading to the increase of jellyfish and other gelatinous zooplankton and to the gradual erosion of the food web within which fish populations are embedded. This is what happened off the coast of southwestern Africa, where an upwelling ecosystem similar to that off California, previously dominated by fish such as hake and sardines, has become overrun by millions of tons of jellyfish.
Jellyfish population outbursts are also becoming more frequent in the northern Gulf of Mexico, where the fertilizer-laden runoff from the Mississippi River fuels uncontrolled algae blooms. The dead algae then fall to a sea bottom from which shrimp trawling has raked all animals capable of feeding on them, and so they rot, causing Massachusetts-sized "dead zones." Similar phenomena--which only jellyfish seem to enjoy--are occurring throughout the world, from the Baltic Sea to the Chesapeake Bay, and from the Black Sea in southeastern Europe to the Bohai Sea in northeastern China. Our oceans, having nourished us since the beginning of the human species some 150,000 years ago, are now turning against us, becoming angry opponents.
That dynamic will only grow more antagonistic as the oceans become warmer and more acidic because of climate change. Fish are expected to suffer mightily from global warming, making it essential that we preserve as great a number of fish and of fish species as possible, so that those which are able to adapt are around to evolve and propagate the next incarnations of marine life. In fact, new evidence tentatively suggests that large quantities of fish biomass could actually help attenuate ocean acidification. In other words, fish could help save us from the worst consequences of our own folly--yet we are killing them off. The jellyfish-ridden waters we’re seeing now may be only the first scene in a watery horror show.
To halt this slide toward a marine dystopia, government intervention is required. Regulatory agencies must impose quotas on the amount of fish caught in any given year, and the way they structure such quotas is very important. For example, simply permitting all fisheries to catch a given aggregate number of fish annually results in a wasteful build-up of fleets and vessels as fisheries race to grab as large a share of the quota as possible before their competitors do. Such a system may protect the fish, but it is economically disastrous: The entire annual quota is usually landed in a short period, leading to temporary oversupply, which, in turn, leads to low prices. The alternative is to limit the number of fishermen, with those retaining "access privileges" being able to catch their assigned fraction of the overall quota whenever they want, without competing against other fishermen. Such individual quotas lead to less overall fishing effort and, hence, bigger profit in the fishery.
Unfortunately, most fisheries economists, fixated solely on corporate short-term profits, argue that, for such a system to work, access privileges must (a) be handed out for free, (b) be held in perpetuity, and (c) be transferrable (i.e., sellable and buyable like any other commodity). They call this construct "fishing rights" or "individual transferable quotas." However, there is no reason why a government should not auction off quotas with access privileges. The highest bidder would secure the right to a certain percentage of the quota, with society as a whole benefiting from providing private access to a public resource. This would be similar to ranchers paying--as they do--for the privilege to graze their cattle on federal lands. Grazing "rights" on the other hand, would simply give ownership of public land to ranchers, which is something few would consider.
Some Pollyannas believe that aquaculture, or fish farming, can ensure the health of stocks without government action--a notion supposedly buttressed by FAO statistics showing such rapid growth in aquaculture that more than 40 percent of all "seafood" consumed now comes from farms. The problem with this argument is that China reports about 68 percent of the world’s aquaculture production, and the FAO, which has been burned by inflated Chinese statistics before, expresses doubt about its stated production and growth rates. Outside of China--where most farmed fish are freshwater vegetarians, such as carp--aquaculture produces predominately carnivorous marine fish, like salmon, which are fed not only vegetal ingredients, but also fishmeal and fish oil, which are obtained by grinding up herring, mackerel, and sardines caught by "reduction fisheries." Carnivore farming, which requires three to four pounds of smaller fish to produce one pound of a larger one, thus robs Peter to pay Paul. Aquaculture in the West produces a luxury product in global terms. To expect aquaculture to ensure that fish remain available--or, at least, to expect carnivore farming to solve the problem posed by diminishing catches from fisheries--would be akin to expecting that Enzo Ferrari’s cars can solve gridlock in Los Angeles.
Others believe that fish populations can be rebuilt through consumer awareness campaigns that encourage buyers to make prudent choices. One such approach is to label seafood from fisheries deemed sustainable. In Europe, for example, consumers can look for the logo of the Marine Stewardship Council (MSC), a nonprofit started by the World Wildlife Fund and Unilever, which has a large fish-trading division. At first, the MSC certified only small-scale fisheries, but lately, it has given its seal of approval to large, controversial companies. Indeed, it has begun to measure its success by the percentage of the world catch that it certifies. Encouraged by a Walton Foundation grant and Wal-Mart’s goal of selling only certified fish, the MSC is actually considering certifying reduction fisheries, with the consequence that Wal-Mart, for example, will be able to sell farmed salmon shining with the ersatz glow of sustainability. (Given the devastating pollution, diseases, and parasite infestations that have plagued salmon farms in Chile, Canada, and other countries, this "Wal-Mart strategy" will, in the long term, make the MSC complicit to a giant scam.)
The other market-based initiative, prevalent in the United States, distributes wallet-size cards designed to steer consumers toward fish that the group issuing the cards deems to have been caught sustainably. Their success is considerable if measured by the millions of cards given away, for example, by the Monterey Bay Aquarium, but assessing the impact on the fisheries is difficult. For one thing, the multitude of such cards leads to contradictions and confusion, as the same fish are assessed differently by different organizations. For example, ahi tuna is rated as "safe," "questionable," and "avoid" on the wallet cards issued by three U.S. nonprofits. A bigger issue, however, is that these cards generate only "horizontal" pressure--that is, a group of restaurant-goers might chide each other for ordering the cod filet or might ask the overworked student who served them where the fish came from, but this pressure does not reach wholesalers, fleet operators, or supermarket chains. "Vertical" pressure exerted by environmental NGOs on such decision-makers is far more effective. But, if that’s true, why not directly pressure the government and legislators, since they are the ones who regulate the fisheries?
The truth is that governments are the only entities that can prevent the end of fish. For one thing, once freed from their allegiance to the fishing-industrial complex, they are the ones with the research infrastructure capable of prudently managing fisheries. For another, it is they who provide the billions of dollars in annual subsidies that allow the fisheries to persist despite the lousy economics of the industry. Reducing these subsidies would allow fish populations to rebuild, and nearly all fisheries scientists agree that the billions of dollars in harmful, capacityenhancing subsidies must be phased out. Finally, only governments can zone the marine environment, identifying certain areas where fishing will be tolerated and others where it will not. In fact, all maritime countries will have to regulate their exclusive economic zones (the 200-mile boundary areas established by the U.N. Law of the Sea Treaty within which a nation has the sole right to fish). The United States has the largest exclusive economic zone in the world, and it has taken important first steps in protecting its resources, notably in the northwest Hawaiian islands. Creating, or re-creating, un-fished areas within which fish populations can regenerate is the only opportunity we have to repair the damage done to them.
There is no need for an end to fish, or to fishing for that matter. But there is an urgent need for governments to free themselves from the fishing-industrial complex and its Ponzi scheme, to stop subsidizing the fishing-industrial complex and awarding it fishing rights, when it should in fact pay for the privilege to fish. If we can do this, then we will have fish forever.
vrijdag 9 oktober 2009
donderdag 8 oktober 2009
woensdag 7 oktober 2009
World War Three Anybody?
When Alan Greenspan predicted three percent economic growth showing up in the reported figures for the third quarter of 2009, did he mean executive compensation packages? Maybe the lesson here is: don't ask a crackhead to predict the future supply of crack. Greenspan's greatest success may be to drive economics into such disrepute that it will be cut loose from the universities and only be taught by mail order or internet subscription from the same outfits that offer PhD's in astrology. That is, before the universities themselves go broke.
The predicament that the USA finds itself will not be "solved" at the scale of operation that we're accustomed to, and we should just stop wasting precious time and dwindling resources in the idle hope that it will be. The failure to recognize this dynamic is the most impressive part of the meltdown. The only thing that the federal government is likely to prove in the process is the ineffectiveness of its actions as applied to any of the raging current problems from the killing burden of hyper-debt to the brushfires of geopolitics. Congress will only make the health care system more complex. Both congress and President Obama will do everything possible to keep housing prices unaffordable -- in a quixotic effort to protect the collateral of the big banks. Capital will continue to vanish in the black hole of default.
Something's got to give in the remaining three months of 2009. My guess is that attention will shift overseas for a while. This will not be due, as many probably think, to a cynical effort by the government to divert attention from the financial fiasco, but because the intrinsic tensions in the Middle East are reaching the snapping point. Iran is being called out on its nuclear program. If, from the start, it had just maintained the need for electric generating power in the face of dwindling fossil fuel reserves, they might have gone unchallenged. As it happened, though, the elected leader of Iran made too many intemperate remarks about wiping other nations off the face of the earth, and this has only prompted the leaders of other nations to take his remarks at face value and presume that Iran's nuclear program was devoted to armaments, not electric power generation.
So, now the USA has picked up the gauntlet. If Iran doesn't act to demonstrate the de-activation of its bomb-making capacity, then the USA will try to impose sanctions depriving Iran of necessary imported supplies. (Iran actually imports gasoline, due to inadequate refineries.) For sanctions to be effective, support will be required by other nations, including Iran's chief gasoline supplier, China. What a delicate calculus this will be! I rather imagine that China would not like to see the Middle East blow up. I'm not so sure about the nations of the Middle East though, or at least major parties in certain nations. The rulers of Saudi Arabia would probably enjoy seeing Iran get into big trouble, since Iran is Saudi Arabia's most active antagonist, working tirelessly to destabilize the Kingdom. Al Qaeda interests dispersed in many nations would certainly cheer any mayhem. The Taliban would love anything that takes the spotlight off them in Afghanistan. The Russians are conflicted between the wish to enhance their own leverage in world affairs and their need to discipline Islamic maniacs along their own borders. Europe is probably scared to death of anything that might threaten their energy lifeline. Pakistan is too tormented to have a position, but its radical Islamist factions are probably on the side of disorder -- as the best remedy for the status quo. If any of that spills over on India, as in the Mumbai bombing, then that flashpoint could turn to conflagration very quickly. We forget about Turkey, which was the hegemonic player in the region for centuries until its swift decline after 1914, but it has potent military capability and very mixed feelings about the the Jihad to ruin the West (since it is partly of the West). And finally there is Israel, the object of Iran's intemperate public statements.
This is a dangerous situation. I'm not so sure that Israel could launch an effective attack on Iran's nuclear infrastructure, but it might try anyway, especially if a US-backed sanctions effort fails to coalesce quickly. I'm not sure Israel would seek permission from the US to do this, though the US would certainly be tasked with defending the shipping lanes in the Persian Gulf. Iran might succeed in sinking more than a couple of US ships-of-the-line with sunburn missles and other toys, and this would lead to the bigger danger of oil supplies being choked off to the rest of the world. The US air response would be impressive, but possibly not effective against hardened targets. The leaders of Iran might exult even if the Iranian people were swept into a maelstrom. I imagine that what followed would be a very extravagant military frenzy amounting to World War Three, with European air forces and navies dragged in, with Hezbollah and Syria striking back at Israel, India and Pakistan possibly incinerating each other, and mayhem galore among the bystanders in Iraq, Egypt, Saudi Arabia, and Afghanistan. There could easily be internal mischief in the UK, France, and Germany from angry immigrant populations, and "sleepers" could work some overdue hoodoo in the USA. I don't know what Turkey would do, but it could be the biggest beneficiary of a bad regional meltdown, providing the only effective governance what remains in the region. China and Japan would probably just gape at the spectacle in wonder and nausea from the sidelines as they saw their energy supplies for years-to-come go up in flames.
The G-20 nations would be crippled as global oil supplies were choked off indefinitely. And if anyone -- Iran, or its friends inside the Kingdom -- managed to pull off a stunt such as blowing up the Ras Tanura oil terminal -- then a darkness will spread across places that were used to being lighted and they will stay dark a long time.
I don't know if any of this will come to pass, but as I said, tensions have reached a breaking point, including the greater tensions of history, which seem to require periodic release no matter how poignant the Pete Seegar songs are. It is perhaps, just another prime symptom of "overshoot," the world's way of shedding some of the toxic organisms that are making it so unhappy -- Gaia in a really bad mood.
If nothing develops along these lines on the geopolitical scene, the USA is still stuck in its predicament of trying desperately to maintain an overscaled living arrangement, with no coherent public discussion of downscaling, re-scaling, or re-arranging things. My guess is that this kind of restructuring only occurs when all other options have been exhausted. The last time the USA found itself in an intractable economic morass, World War Two came along and it made things all better here (after considerable sacrifice for us and catastrophe elsewhere). After World War Two, we ruled the world for a couple of generations. The outcome of World War Three would not be so favorable for us. At the very least, it would leave us attempting to run things on about one-quarter of the oil we're used to. That does not suggest a seamless transition between how we behave now and how the future will require us to behave differently.
- J. Kunstler
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Elephant anyone?
- J. Kunstler
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Elephant anyone?
Marketing in a Small Town
Interview with D. Orlov:
DD: In the American (and not just American) media, one can periodically read about the barbaric Sharia law, according to which women can be stoned to death. Or about an eight-year-old Saudi girl who was sold into marriage to settle her family's debts. There are entire Web sites devoted to "stupid laws", especially in the southern states, according to which, for instance, it is illegal to have sex completely naked. However, few can see the absurdity and the barbarous nature of many U.S. laws on intellectual property, according to which one can be fined ten thousand dollars for downloading a song or a movie from a torrent (China, Russia and the Ukraine, where piracy flourishes, are considered uncivilized and legally underdeveloped). You once said (albeit in a different context), that those who pay for software are fools. It would be nice to know your opinion of the system of intellectual rights specifically and the U.S. legal system in general. Does it do more harm or good, and why are you convinced that the "legal-police-prison" complex will be one of the first victims of collapse?
DO: One of the main foundational insights of the Anglo-Saxon civilization (if can be honored by the use of such a bombastic term) is that unenlightened people are easier to control than enlightened ones. The effects of this can be seen in the fact that in all English-speaking countries there is a very stable layer of low-class people (the so called "underclass") and, except for a bit of lip service, it does not occur to anyone to remedy this situation. It can also be seen in the eagerness of the elites to impersonate British aristocracy by copying their strange habits and customs, as well as in the worship of the British throne by members of the general public, even in countries which shed considerable blood to win their independence from the empire. This can also be seen in the education system, which, except for the most privileged, strives to teach a trade, rules of conduct and obedience, rather than to expand the mental horizon. Not long ago, the acquisition of certain "dangerous" kinds of knowledge was even banned: for example, sailors on British vessels were forbidden to study navigation, and only officers were allowed to know how to chart a course or to pilot a vessel into a harbor. The same tendency can be observed in the Anglo-Saxon system of justice: the language of lawyers bears little resemblance to normal English, and everything is done to ensure that members of the public are not in a position to understand the meaning of not just the laws, but even of the contracts and agreements which they are forced to sign in order to gain access to employment, housing or medical care. Inconvenient laws are studiously ignored. For example, in the US court system, a jury has the right of nullification: they have the right to reject any law as invalid and to acquit the defendant regardless of his "guilt" under a law they see as unjust. So here's a proven method: If you are summoned as a juror, and you do not wish to serve, all you need to do is write the words "I believe in jury nullification" on the form, and the court will send you home at once! In the area of intellectual property rights, although the original copyright system protected the rights of inventors and authors, now it has become a way to ration access to information depending on one's ability to pay. All countries have to participate in this system to some extent in order to be able to defend and protect their own interests, but they should not be too zealous in the implementation of these laws, which are often inconsistent with the public interest. In the current situation, any attempt by the United States to enforce their system of intellectual property rights against citizens of other countries can be successfully ignored, if correctly assisted by the local governments. As for the legal-police-prison complex in the U.S., there is no longer any need to make predictions: the gaps in the budgets of many states are such that they are forced to prematurely release hundreds of thousands of prisoners. Already in several of the most depressed cities in the U.S. murders are not prosecuted due to lack of police resources. All of this is all starting to look more like ordinary lawlessness than like a system of legal terror.
DD: Recently on CNN there was a report about the U.S. mission to the moon. The Indians are planning to land there in 2020, the Russians and Americans in 2025, and the Chinese in 2030. I think that the popularity of conspiracy theories about the staging of those events is that we find it hard to imagine that we can not repeat the achievements of three decades ago without a huge effort. Meanwhile, examples similar to the lunar program are starting to occur more and more frequently. Experts say that Russia has lost the ability to produce modern weapons on a large scale for quite trivial reasons, such as lack of sufficiently skilled metalworkers, because the system of training them has collapsed. How justified are we in fearing that we (the world in general, not just Russia) are starting to slip back in time in terms of technology?
DO: In the end, the history of human trips to space will engender new myths: the primitive idols of the future will not be winged, but will sit astride rockets dressed in spacesuits. These trips were only possible thanks to large-scale industrial systems based on the use of fossil hydrocarbons, reserves which have already been exhausted, on average, about half. It will not be possible to exhaust them completely: the technological rollback has already started. It starts long before a particular resource is completely exhausted. To maintain homeostatic equilibrium, an industrial system requires a continuous flow of investment, and in order for this to happen capital must continually be created. If, say, the profitability of a coal mine is inversely proportional to shaft depth, it is enough to get to a depth at which the income is not sufficient to continue to update equipment, and the mine will close, regardless of how much coal there is left in it. But such a rational approach is rarely taken. Rather than make a difficult but timely decision, everyone begins to economize on safety, defer repairs, take on debt and so on. Periodically, the idea comes up that the situation can be improved if only everyone would show more zeal or ingenuity. We certainly all need some level of technology, and we all ought to stop to think hard which technologies can be sustained at a continually decreasing level of extraction of various natural resources. Instantly the thought occurs that aerospace technologies will not make it onto this list.
DD: How important are science and technology in modern society, as an ideology, or, if you like, a religion? Why do people prefer to believe that the problem will be solved by hanging solar panels on the roof and buying an electric car, although obviously a more simple solution would be to change the lifestyle so that one's dependence on the car is minimal?
DO: I have thought about this long and hard, and came to the conclusion that it all comes down to a very basic question: "How to please a girl?" After all, any modern, progressive, educated and attractive person begins to scoff if you take away her flush toilet and substitute a bucket, or if she has to go shopping leading a donkey, or if, instead of a shower, she is invited to go and stoke a sauna. From time immemorial status in society has been determined by access to luxury goods. As society becomes richer, luxuries turn into necessities. And when society starts to grow poorer again, it turns out that there is no going back. That is, there is a way back, but it is blocked by the innate tendencies of our clever species. My wife and I spent two years living aboard a very attractive and practical yacht slightly less than 10 meters in length at the waterline, and although the wife understands everything very well, even she cannot stop herself from casting a sideways glance when a yacht like Abramovich's walks past us, and from making some comment, like "Oh, now this I understand, this is the real thing!" And there is no point in explaining to her that what we have here on board is a very high level of civilization, while Abramovich is just an ordinary consumer. It is very hard, gentlemen, to change the lifestyle, but not change the woman! If someone succeeds in this, then he is a hero and a genius, and we should all learn from him. In the meantime, we are going to live in an apartment, and put the boat on the hard, and install all sorts of solar panels, water heaters, and other technological junk.
DD: There are quite a number of people who view the current crisis not as financial or economic, but as a moral crisis and a crisis of rationality. We have developed an entire system, or even multiple systems, that require you to constantly lie and deceive in order to make it into the upper middle class. I mean all of these brokers, bankers, brand managers and so on. This same "plague" has afflicted the academic community, where economic theories are completely independent of reality and common sense. Even in everyday life there is a huge rollback of rationality - otherwise a film like "The Secret", Tony Robbins, "positive thinking" and training for "personal growth" would never have become so popular. What's next - a new renaissance or a new Dark Age? How strong is the relationship between the crisis and questions of world-view, faith and culture?
DO: I do not see a fundamental difference between lying in financial and economic realms and lying as a moral and rational matter. Financial and economic lies are that you can endlessly stimulate economic growth, despite the fact that the natural resources and the soil are wearing out, that forests are being cut down, that the environment and the climate have been disrupted, and that investments in high technology do not pay. The moral and rational lies are that economic growth is a good thing, indeed, a necessary thing, otherwise all will be very bad. In the West these lies are taught well at prestigious universities like Harvard, and countries wishing to participate in the global economy have to recruit their graduates to help their central banks and finance ministries to lie on their behalf. Putting it politely, the ability to lie is the ability to pretend. And now our credentialed liars are all pretending that the crisis has ended. Has it really, or is this just the end of the first turn of the crisis spiral, with no end in sight? After all, whether or not you lie, you cannot run away from reality. I do not know whether the coming age will be Dark Age, but I am sure that it will be rather dim. After all, the art of lying has displaced a lot of useful knowledge.
DD: In Ireland, you talked about the fact that modern methods of warfare are economically inefficient. That is, you can equip twenty thousand rebels with Kalashnikov rifles (AK-47) and grenades, and they will successfully resist a army that uses tanks and aircraft, that cost tens of millions of dollars. However, guerrilla actions are effective only for defensive purposes, and not conquest. Theoretically, the crisis could lead to Americans being forced to curtail their activities in Iraq and Afghanistan. The US really are the main aggressors in the world now, but I have major doubts that, as soon as the aircraft carriers are mothballed, we will live in peace and harmony, all will lay down their arms and begin to "work the earth."
DO: People fight for all sorts of reasons, and I am sure that military actions in some parts of the world will continue after the disappearance of US from the global battlefield. There is no doubt that Kalashnikovs and grenades have given the poor throughout the world to the ability to bravely defend themselves against the most technologically equipped army. Wars either pay off or the aggressor goes bankrupt, and wars against today's poor but very successful guerrillas pay off much worse than wars against rich, peaceful and defenseless nations (of which there are none left). Americans are still fighting, because they are fighting on credit, but when at last their funding runs out, I suspect that this whole style of war will finally recede into the past. Certainly, there will be plenty of small and large-scale slaughter, particularly in heavily overpopulated and impoverished countries, but for this even Kalashnikovs are not needed. For example, in Rwanda the Hutu tribe did an excellent job with machetes, while the Khmer Rouge in Cambodia quite successfully strangled a lot of people with plastic bags. I do not know how many more countries will follow such a path, but in general I think that, thanks to the successes of modern guerrilla practice, the profitability of military action will continue to decrease.
DD: In the American (and not just American) media, one can periodically read about the barbaric Sharia law, according to which women can be stoned to death. Or about an eight-year-old Saudi girl who was sold into marriage to settle her family's debts. There are entire Web sites devoted to "stupid laws", especially in the southern states, according to which, for instance, it is illegal to have sex completely naked. However, few can see the absurdity and the barbarous nature of many U.S. laws on intellectual property, according to which one can be fined ten thousand dollars for downloading a song or a movie from a torrent (China, Russia and the Ukraine, where piracy flourishes, are considered uncivilized and legally underdeveloped). You once said (albeit in a different context), that those who pay for software are fools. It would be nice to know your opinion of the system of intellectual rights specifically and the U.S. legal system in general. Does it do more harm or good, and why are you convinced that the "legal-police-prison" complex will be one of the first victims of collapse?
DO: One of the main foundational insights of the Anglo-Saxon civilization (if can be honored by the use of such a bombastic term) is that unenlightened people are easier to control than enlightened ones. The effects of this can be seen in the fact that in all English-speaking countries there is a very stable layer of low-class people (the so called "underclass") and, except for a bit of lip service, it does not occur to anyone to remedy this situation. It can also be seen in the eagerness of the elites to impersonate British aristocracy by copying their strange habits and customs, as well as in the worship of the British throne by members of the general public, even in countries which shed considerable blood to win their independence from the empire. This can also be seen in the education system, which, except for the most privileged, strives to teach a trade, rules of conduct and obedience, rather than to expand the mental horizon. Not long ago, the acquisition of certain "dangerous" kinds of knowledge was even banned: for example, sailors on British vessels were forbidden to study navigation, and only officers were allowed to know how to chart a course or to pilot a vessel into a harbor. The same tendency can be observed in the Anglo-Saxon system of justice: the language of lawyers bears little resemblance to normal English, and everything is done to ensure that members of the public are not in a position to understand the meaning of not just the laws, but even of the contracts and agreements which they are forced to sign in order to gain access to employment, housing or medical care. Inconvenient laws are studiously ignored. For example, in the US court system, a jury has the right of nullification: they have the right to reject any law as invalid and to acquit the defendant regardless of his "guilt" under a law they see as unjust. So here's a proven method: If you are summoned as a juror, and you do not wish to serve, all you need to do is write the words "I believe in jury nullification" on the form, and the court will send you home at once! In the area of intellectual property rights, although the original copyright system protected the rights of inventors and authors, now it has become a way to ration access to information depending on one's ability to pay. All countries have to participate in this system to some extent in order to be able to defend and protect their own interests, but they should not be too zealous in the implementation of these laws, which are often inconsistent with the public interest. In the current situation, any attempt by the United States to enforce their system of intellectual property rights against citizens of other countries can be successfully ignored, if correctly assisted by the local governments. As for the legal-police-prison complex in the U.S., there is no longer any need to make predictions: the gaps in the budgets of many states are such that they are forced to prematurely release hundreds of thousands of prisoners. Already in several of the most depressed cities in the U.S. murders are not prosecuted due to lack of police resources. All of this is all starting to look more like ordinary lawlessness than like a system of legal terror.
DD: Recently on CNN there was a report about the U.S. mission to the moon. The Indians are planning to land there in 2020, the Russians and Americans in 2025, and the Chinese in 2030. I think that the popularity of conspiracy theories about the staging of those events is that we find it hard to imagine that we can not repeat the achievements of three decades ago without a huge effort. Meanwhile, examples similar to the lunar program are starting to occur more and more frequently. Experts say that Russia has lost the ability to produce modern weapons on a large scale for quite trivial reasons, such as lack of sufficiently skilled metalworkers, because the system of training them has collapsed. How justified are we in fearing that we (the world in general, not just Russia) are starting to slip back in time in terms of technology?
DO: In the end, the history of human trips to space will engender new myths: the primitive idols of the future will not be winged, but will sit astride rockets dressed in spacesuits. These trips were only possible thanks to large-scale industrial systems based on the use of fossil hydrocarbons, reserves which have already been exhausted, on average, about half. It will not be possible to exhaust them completely: the technological rollback has already started. It starts long before a particular resource is completely exhausted. To maintain homeostatic equilibrium, an industrial system requires a continuous flow of investment, and in order for this to happen capital must continually be created. If, say, the profitability of a coal mine is inversely proportional to shaft depth, it is enough to get to a depth at which the income is not sufficient to continue to update equipment, and the mine will close, regardless of how much coal there is left in it. But such a rational approach is rarely taken. Rather than make a difficult but timely decision, everyone begins to economize on safety, defer repairs, take on debt and so on. Periodically, the idea comes up that the situation can be improved if only everyone would show more zeal or ingenuity. We certainly all need some level of technology, and we all ought to stop to think hard which technologies can be sustained at a continually decreasing level of extraction of various natural resources. Instantly the thought occurs that aerospace technologies will not make it onto this list.
DD: How important are science and technology in modern society, as an ideology, or, if you like, a religion? Why do people prefer to believe that the problem will be solved by hanging solar panels on the roof and buying an electric car, although obviously a more simple solution would be to change the lifestyle so that one's dependence on the car is minimal?
DO: I have thought about this long and hard, and came to the conclusion that it all comes down to a very basic question: "How to please a girl?" After all, any modern, progressive, educated and attractive person begins to scoff if you take away her flush toilet and substitute a bucket, or if she has to go shopping leading a donkey, or if, instead of a shower, she is invited to go and stoke a sauna. From time immemorial status in society has been determined by access to luxury goods. As society becomes richer, luxuries turn into necessities. And when society starts to grow poorer again, it turns out that there is no going back. That is, there is a way back, but it is blocked by the innate tendencies of our clever species. My wife and I spent two years living aboard a very attractive and practical yacht slightly less than 10 meters in length at the waterline, and although the wife understands everything very well, even she cannot stop herself from casting a sideways glance when a yacht like Abramovich's walks past us, and from making some comment, like "Oh, now this I understand, this is the real thing!" And there is no point in explaining to her that what we have here on board is a very high level of civilization, while Abramovich is just an ordinary consumer. It is very hard, gentlemen, to change the lifestyle, but not change the woman! If someone succeeds in this, then he is a hero and a genius, and we should all learn from him. In the meantime, we are going to live in an apartment, and put the boat on the hard, and install all sorts of solar panels, water heaters, and other technological junk.
DD: There are quite a number of people who view the current crisis not as financial or economic, but as a moral crisis and a crisis of rationality. We have developed an entire system, or even multiple systems, that require you to constantly lie and deceive in order to make it into the upper middle class. I mean all of these brokers, bankers, brand managers and so on. This same "plague" has afflicted the academic community, where economic theories are completely independent of reality and common sense. Even in everyday life there is a huge rollback of rationality - otherwise a film like "The Secret", Tony Robbins, "positive thinking" and training for "personal growth" would never have become so popular. What's next - a new renaissance or a new Dark Age? How strong is the relationship between the crisis and questions of world-view, faith and culture?
DO: I do not see a fundamental difference between lying in financial and economic realms and lying as a moral and rational matter. Financial and economic lies are that you can endlessly stimulate economic growth, despite the fact that the natural resources and the soil are wearing out, that forests are being cut down, that the environment and the climate have been disrupted, and that investments in high technology do not pay. The moral and rational lies are that economic growth is a good thing, indeed, a necessary thing, otherwise all will be very bad. In the West these lies are taught well at prestigious universities like Harvard, and countries wishing to participate in the global economy have to recruit their graduates to help their central banks and finance ministries to lie on their behalf. Putting it politely, the ability to lie is the ability to pretend. And now our credentialed liars are all pretending that the crisis has ended. Has it really, or is this just the end of the first turn of the crisis spiral, with no end in sight? After all, whether or not you lie, you cannot run away from reality. I do not know whether the coming age will be Dark Age, but I am sure that it will be rather dim. After all, the art of lying has displaced a lot of useful knowledge.
DD: In Ireland, you talked about the fact that modern methods of warfare are economically inefficient. That is, you can equip twenty thousand rebels with Kalashnikov rifles (AK-47) and grenades, and they will successfully resist a army that uses tanks and aircraft, that cost tens of millions of dollars. However, guerrilla actions are effective only for defensive purposes, and not conquest. Theoretically, the crisis could lead to Americans being forced to curtail their activities in Iraq and Afghanistan. The US really are the main aggressors in the world now, but I have major doubts that, as soon as the aircraft carriers are mothballed, we will live in peace and harmony, all will lay down their arms and begin to "work the earth."
DO: People fight for all sorts of reasons, and I am sure that military actions in some parts of the world will continue after the disappearance of US from the global battlefield. There is no doubt that Kalashnikovs and grenades have given the poor throughout the world to the ability to bravely defend themselves against the most technologically equipped army. Wars either pay off or the aggressor goes bankrupt, and wars against today's poor but very successful guerrillas pay off much worse than wars against rich, peaceful and defenseless nations (of which there are none left). Americans are still fighting, because they are fighting on credit, but when at last their funding runs out, I suspect that this whole style of war will finally recede into the past. Certainly, there will be plenty of small and large-scale slaughter, particularly in heavily overpopulated and impoverished countries, but for this even Kalashnikovs are not needed. For example, in Rwanda the Hutu tribe did an excellent job with machetes, while the Khmer Rouge in Cambodia quite successfully strangled a lot of people with plastic bags. I do not know how many more countries will follow such a path, but in general I think that, thanks to the successes of modern guerrilla practice, the profitability of military action will continue to decrease.
dinsdag 6 oktober 2009
The demise of the dollar
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."
This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.
The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.
Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.
China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.
Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.
Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.
The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."
Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.
The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.
"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."
Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.
- The Independent
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."
This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.
The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.
Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.
China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.
Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.
Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.
The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."
Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.
The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.
"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."
Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.
- The Independent
vrijdag 18 september 2009
Global systemic crisis: In pursuit of the impossible recovery
Before this summer, LEAP/E2020's team announced that there would be no recovery in sight in September 2009, and not until summer 2010 in any event. Well indeed, contrary to the claims of the media, and financial and political circles, we confirm our anticipation.
The slowdown in the speed of collapse of the global economy, at the origin of all the « good news » (1), is only due to the world's enormous public financial effort of the last twelve months (2). But the « time saved » using taxpayers' money around the world should have been dedicated to redesigning the international monetary system at the heart of the current systemic crisis (3). Yet, besides a few cosmetic considerations (4) and huge gifts to US and European banks, nothing serious has been undertaken, and, when it comes to the future, the « every man for himself » rule prevails (5).
Now, as summer 2009 comes to a close, and as the three rogue waves start impacting the global economy hard (unemployment (6), bankruptcies (7) and monetary shocks (8)), the time to mend the system, or to prepare for a soft transition towards a new global system, is over (9). The first signs of a major decoupling (10) are beginning to appear: the rest of the world is rapidly moving away from the Dollar zone. As shown by the chart below, there is a 95 percent chance that 1,000 billion new USDs will be printed in a very near future... not very attractive for the Dollar zone.
The slowdown in the speed of collapse of the global economy, at the origin of all the « good news » (1), is only due to the world's enormous public financial effort of the last twelve months (2). But the « time saved » using taxpayers' money around the world should have been dedicated to redesigning the international monetary system at the heart of the current systemic crisis (3). Yet, besides a few cosmetic considerations (4) and huge gifts to US and European banks, nothing serious has been undertaken, and, when it comes to the future, the « every man for himself » rule prevails (5).
Now, as summer 2009 comes to a close, and as the three rogue waves start impacting the global economy hard (unemployment (6), bankruptcies (7) and monetary shocks (8)), the time to mend the system, or to prepare for a soft transition towards a new global system, is over (9). The first signs of a major decoupling (10) are beginning to appear: the rest of the world is rapidly moving away from the Dollar zone. As shown by the chart below, there is a 95 percent chance that 1,000 billion new USDs will be printed in a very near future... not very attractive for the Dollar zone.
Inconsistent statistics reflect a chaotic world economy
We are heading straight to the phase of geopolitical dislocation expected to begin in the fourth quarter of 2009 (11). In this issue of the GEAB, our team analyses the trends at work (real estate market, srategic issues…) within the current chaos resulting from a flood of unchecked public expenditure and a persistently uncontrolled financial system in a context of growingly inconsistent statistics. Paradoxically, dislocation has become, according to our researchers, the only way to economic recovery (a recovery that will take place around a global architecture and interaction between economic, social and financial spheres profoundly different from anything we knew in past decades. Our team believes that the first features of the “post-crisis world” should begin to appear by summer 2010 and, in the coming months, they will dedicate themselves to their identification.
Meanwhile, as anticipated in the previous editions of the GEAB, no one can now construct a true picture of today’s global economic situation as macroeconomic figures are more and more contradictory or simply absurd (12). Measurement data and instruments have been so manipulated (13) and limited to a volatile US Dollar as sole benchmark (14), that no government, international organisation or bank (15) can now tell in which direction the global system is heading. The media reflect this chaos and contribute to their readers’/auditors’/viewers’ bewilderment: depending on the day, or even the hour, that they give contradictory news on finance, economy or currency. Policy makers, entrepreneurs, employees,… economists or analysts… are reduced to Pascal’s wager (16) to assess what will happen in future months.
Meanwhile, as anticipated in the previous editions of the GEAB, no one can now construct a true picture of today’s global economic situation as macroeconomic figures are more and more contradictory or simply absurd (12). Measurement data and instruments have been so manipulated (13) and limited to a volatile US Dollar as sole benchmark (14), that no government, international organisation or bank (15) can now tell in which direction the global system is heading. The media reflect this chaos and contribute to their readers’/auditors’/viewers’ bewilderment: depending on the day, or even the hour, that they give contradictory news on finance, economy or currency. Policy makers, entrepreneurs, employees,… economists or analysts… are reduced to Pascal’s wager (16) to assess what will happen in future months.
Global output, trade and consumer prices (2000 – 2009) – Source: BRI, 2009
According to LEAP/E2020, the chart above tells about facts that cannot be ignored: the global economic, financial and monetary system is drifting at an increasing rate, its weakness is reaching unequalled lows in modern history, and the slightest shock (financial, geopolitical or even natural) can now break it apart (17). The States’ breathtaking plunge into bottomless public debt (18) (governments feel that, without the support of public money, world economies would soon resume their collapse) is creating a literally explosive situation, conveying massive tax increase in Japan, Europe, the US… If there is any recovery in sight, it is that of tax. As a matter of fact, confronted to historic unemployment rates and a free-falling economy, Japanese voters decided to dismiss their decade-old leaders: they have probably inaugurated the great political upheaval of the next phase of the crisis (19). This summer, the Obama administration was also surprised to discover the importance of the popular anger which focused on his health system reform programme (though a much needed one).
Charter rates for container ships (in USD/day) – Showing the decline between the two first quarters of 2008 and 2009 - Source: Spiegel / ISL Port Monitor
Here is a very illustrative analogy of the crisis today that imposed itself on our researchers: a rubber ball in a staircase. It seems to rebound on every step (then giving the impression that the fall has stopped) but it falls even lower on the next step, “resuming” its collapse.
“Disoriented” economic players and policy-makers
Of course, all this doesn’t create a favourable investment climate for business. Production capacity is under-used everywhere in historic proportions. Stocks are only renewed at a drip-feed rate (eliminating any hope of a recovery based on their replacement). Consumers have become realistic economically: no money, no purchase. Their salaries fall when they haven’t simply been lost through job losses, the banks don’t lend any more because they know that they themselves are still insolvent (despite the “golden” powder thrown in the eyes of public opinion these last months) (21). The state itself, on its own, cannot substitute itself for the frenetic consumerism of the past. In the US, a return to the previous state would require about USD 2,500 billion pumped into the economy each year. Barak Obama’s stimulus package, less than USD 400 billion a year over two years is far from the amount needed if he has to replace the non-spending of households and businesses. The problem is that this is exactly the present situation of the US economy.
US retail sales during recent recessions (Rebased to 100 at recession inception, duration in months) - Source: Financial Sense, 2009
But the US are not alone in this regard. Asia and Europe are also confronted with a drastic unemployment surge that statistical manipulation (22) cannot hide beyond this summer: jobless no longer entitled to unemployment benefits, youngsters placed in waiting internships or jobless recruited for short-term public construction projects, lay-offs postponed by means of short-time allowance measures, plants artificially maintained in activity thanks to public funds,… from Beijing to Paris, in Washington, Berlin, London or Tokyo, every trick is being used to hide the situation as long as possible… until the recovery arrives. Unfortunately, the recovery will not arrive in time. It’s Blücher instead of Grouchy (23). Instead of a recovery in September, the world is suffering the impact of this summer’s three rogue waves:
. massive unemployment, for people soon to be excluded from further benefits in particular, and its disastrous consequences for nations’ political and social stability, are beginning to appear
. the number of bankruptcies (companies, municipalities,…) and deficits of all sorts, are exploding
. and, of course, the impact of all this on the US Dollar, Treasuries (and the UK, suffering collateral damage) .
The first wave already reached the shore at the end of summer 2009. The second one is coming up. And the third is beginning to appear on the horizon.
In any event, if the Eurozone and Asia are in a better situation to face up to the impact of these waves (as already analyzed in GEAB N°28 of last October), their situation is not so good that they can expect a recovery yet. It is however on the US, the Dollar and US Treasuries on the one hand, and on the UK and the Pound on the other , that the consequences of the three waves will be harder. Mid-summer night dreams also have an end!
But for those who still have enough money to travel, the holidays can go on as hotels, airline companies, holiday resorts… are giving discounts at prices never seen before. Another sign that the recovery is here!
. massive unemployment, for people soon to be excluded from further benefits in particular, and its disastrous consequences for nations’ political and social stability, are beginning to appear
. the number of bankruptcies (companies, municipalities,…) and deficits of all sorts, are exploding
. and, of course, the impact of all this on the US Dollar, Treasuries (and the UK, suffering collateral damage) .
The first wave already reached the shore at the end of summer 2009. The second one is coming up. And the third is beginning to appear on the horizon.
In any event, if the Eurozone and Asia are in a better situation to face up to the impact of these waves (as already analyzed in GEAB N°28 of last October), their situation is not so good that they can expect a recovery yet. It is however on the US, the Dollar and US Treasuries on the one hand, and on the UK and the Pound on the other , that the consequences of the three waves will be harder. Mid-summer night dreams also have an end!
But for those who still have enough money to travel, the holidays can go on as hotels, airline companies, holiday resorts… are giving discounts at prices never seen before. Another sign that the recovery is here!
----------
Notes:
(1) For example, the fact of talking in percentage points is part of this summer's « euphoria » operation. Indeed, many banks, whose stock price was close to zero could claim « rebounds » of +200 percent, +300 percent or +500 percent. Taking a look at Natixis, Citi or Royal Bank of Scotland stock prices helps to understand the trap: regaining 500 percent when the stock fell down to 1, that makes 5... which would leave you holding a loss of 40 if you bought 2 years ago (or if you borrowed money in exchange of this security).
(2) This is illustrated by France's recent announcement that the state wishes to continue to support the banking system until the end of 2010. Source: Reuters, 09/13/2009
(3) See LEAP open letter to the G20 published last April in the Financial Times on the eve of London's G20 summit.
(4) The great « traders' bonus hunt » is morally praiseworthy. However it should not make us forget that traders are nothing but the « privateers » of the banks hiring them and of the financial centres hosting the latter. These employers and their hosts give them their « letters of marque » (or should we say « of bonus »?) authorizing them to buccaneer the seas of global finance. Limiting their bonuses to their total salary would compel banks to hire them as master mariners instead of filibusters.
(5) Source: Times, 09/02/2009
(6) In the United States, the real rate of unemployment growth remains between 600,000 and 1 million new jobless every month, if we include those who decide to stop searching for a job (source: CNBC/New York Times, 09/07/2009). To get an idea of the socially explosive wave currently hitting the US economy, in California, since September 1st, 143,000 new jobless are no longer entitled to insurance benefits (including their families, that makes an extra 1 million people in distress... just for this month) – source : MyBudget360, 09/02/2009. In Europe, Asia, … everywhere, unemployment rates are almost the highest in modern history (at 5.7 percent, Japan already reached its historic high in July – source : Japan Times, 09/08/2009) ... despite all sorts of manipulation to reduce the figures.
(7) As an anecdote, there have been more bankruptcies in the US between GEAB N°36 (June 16, 2009) and GEAB N°37 (September 16, 2009) than during the whole of 2008, including two of the most important bankruptcies of the year. But, of course, the media cannot make their headlines on both swine fever and bankruptcies. The same goes for the rate of US corporate bankruptcies which has reached a 12.2 percent all-time high (source: Yahoo, 09/09/2009). In Spain, the number of bankruptcies in the first semester of 2009 is three times the number in 2008 (source: Spanish News, 08/06/2009). In France, employers expect 70,000 corporate bankruptcies by the end of this year (source: Capital, 09/02/2009).
(8) The accelerating pace of the weakening of the US Dollar is creating new monetary stress worldwide and the upcoming request, by the Obama administration, to increase the authorized US federal debt ceiling by USD 1,500-billion is not likely to slow down the selling of the US currency. Indeed the USD 12,000-billion debt ceiling is about to be reached. Sources: Wall Street Journal, 09/12/09; Bloomberg, 09/08/2009; Wall Street Journal, 09/12/09
(9) As we said, such a « window of opportunity » existed between spring and summer 2009. This window is now closed.
(10) See GEAB N°22, 02/2008
(11) See GEAB N°32, 02/2009.
(12) For example, US and French unemployment rate reductions at the beginning of this summer, or the growth in Chinese output. Sources: New York Times, 08/10/2009; Expansion, 07/27/2009; Wall Street Journal, 05/25/2009
(13) It is worth reading Marion Selz’s paper entitled « Statistics, a public service twisted » introducing a recently published book written anonymously by a group of French statisticians with the evocative title « The great fiddle: How the government manipulates statistics». Obviously, in these times of global crisis, the information revealed in this book applies to almost all governments. Source: La vie des idées, 09/02/2009
(14) When, in February 2008 in GEAB N°22, we anticipated that the world was heading to a « Dollar carry-trade », not many people believed us. However this is now exactly what is happening on currency markets. Source: Le Monde, 09/12/2009
(15) Banks which, in April 2009, were eager to get the right to return to the « fair value » system (I estimate my asset is worth 100) (source: Bloomberg, 04/02/2009) instead of valuing their assets at “market value” (on the market, your asset is worth 10). Thus they persist in keeping assets in their balance sheets which they cannot realistically value; precisely because they suspect these assets to be worth 10 or 20 percent of their ‘fair value. The countryside and cities of the US, UK, Spain, Latvia, Japan, China, and other countries are full of houses, flats and buildings that no one buys because their prices are artificially maintained high above the market price so that banks’ balances sheets do not show that they are in fact insolvent because almost all their assets are “rotten”. Bankers too are trying to save time, in the hope of a return to yesterday’s world. Are they old children nostalgic of their golden age or big offenders endangering society? The future will soon tell us as the next phase of global geopolitical dislocation will develop.
(16) Refering to Blaise Pascal’s argument to convince miscreants to believe in God: wager as though God exists because if it is so, paradise is the reward, and otherwise, it simply doesn’t matter; while the contrary wager might take you to hell.
(17) In the next GEAB, the October issue N°38, we shall update our country- and big region-based anticipations, including of course an assessment of the situation regarding US and UK defaults.
(18) With a record-high debt issuance in Europe (EUR 1,100-billion in 2009, and more than EUR 250-billion for the UK only), and with USD 9,000-billion federal deficit over the next ten years, there is no doubt on the fact that the situation is uncontrollable. Source: Yahoo/Reuters, 09/04/2009; CBS, 08/25/2009
(19) In the US, in Europe and in China too. Sources: Reuters, 09/08/2009; Financial Times, 09/06/2009; BBC, 07/26/2009.
(20) On the subject of banks, our team strongly recommends reading the excellent article by Matt Taibbi, “Inside the great American bubble machine” which appeared in Rollingstones on 07/02/2009. It sets out the history of Goldman Sachs and throws essential light on its financial practices and central role in the current financial crisis. In the way of deceased India companies, or the knights templars, it is likely that in five to a maximum of ten years from now, American political power, in the face of a socio-economic collapse and under public pressure, will be obliged to tear apart this institution which interferes in all levels of government activity.
(21) In the end, all these indicators depend on the US Dollar as a measure of value. But if Dollar volatility were to be transferred to a compass, we would see the needle swing between North, South, East and West every month. No wonder then that political, economic and financial leaders are so « disoriented »!
(22) Napoleon too, during the battle of Waterloo, firmly believed th at luck was still on his side and that reinforcements (Grouchy) would materialize at the decisive moment of the battle. Alas, the long awaited troops, whose dust showed their rapid progress, happened to be the enemy’s reinforcements (Blücher). We know what happened next… and we cannot bet that the G20 leaders are strategists as experienced as Napoleon was.
(23) The crisis has somewhat « British humour » and proves that we are far from having seen all its consequences. Indeed, London is now expecting to have to pay a heavy bill in order to rescue its little network of tax havens. The Cayman Islands, for instance, can no longer pay their civil servants. No doubt British taxpayers will be very happy with this perspective! Otherwise, these islands could also resort to a simple idea: create taxes. Source: Guardian, 09/13/2009
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Notes:
(1) For example, the fact of talking in percentage points is part of this summer's « euphoria » operation. Indeed, many banks, whose stock price was close to zero could claim « rebounds » of +200 percent, +300 percent or +500 percent. Taking a look at Natixis, Citi or Royal Bank of Scotland stock prices helps to understand the trap: regaining 500 percent when the stock fell down to 1, that makes 5... which would leave you holding a loss of 40 if you bought 2 years ago (or if you borrowed money in exchange of this security).
(2) This is illustrated by France's recent announcement that the state wishes to continue to support the banking system until the end of 2010. Source: Reuters, 09/13/2009
(3) See LEAP open letter to the G20 published last April in the Financial Times on the eve of London's G20 summit.
(4) The great « traders' bonus hunt » is morally praiseworthy. However it should not make us forget that traders are nothing but the « privateers » of the banks hiring them and of the financial centres hosting the latter. These employers and their hosts give them their « letters of marque » (or should we say « of bonus »?) authorizing them to buccaneer the seas of global finance. Limiting their bonuses to their total salary would compel banks to hire them as master mariners instead of filibusters.
(5) Source: Times, 09/02/2009
(6) In the United States, the real rate of unemployment growth remains between 600,000 and 1 million new jobless every month, if we include those who decide to stop searching for a job (source: CNBC/New York Times, 09/07/2009). To get an idea of the socially explosive wave currently hitting the US economy, in California, since September 1st, 143,000 new jobless are no longer entitled to insurance benefits (including their families, that makes an extra 1 million people in distress... just for this month) – source : MyBudget360, 09/02/2009. In Europe, Asia, … everywhere, unemployment rates are almost the highest in modern history (at 5.7 percent, Japan already reached its historic high in July – source : Japan Times, 09/08/2009) ... despite all sorts of manipulation to reduce the figures.
(7) As an anecdote, there have been more bankruptcies in the US between GEAB N°36 (June 16, 2009) and GEAB N°37 (September 16, 2009) than during the whole of 2008, including two of the most important bankruptcies of the year. But, of course, the media cannot make their headlines on both swine fever and bankruptcies. The same goes for the rate of US corporate bankruptcies which has reached a 12.2 percent all-time high (source: Yahoo, 09/09/2009). In Spain, the number of bankruptcies in the first semester of 2009 is three times the number in 2008 (source: Spanish News, 08/06/2009). In France, employers expect 70,000 corporate bankruptcies by the end of this year (source: Capital, 09/02/2009).
(8) The accelerating pace of the weakening of the US Dollar is creating new monetary stress worldwide and the upcoming request, by the Obama administration, to increase the authorized US federal debt ceiling by USD 1,500-billion is not likely to slow down the selling of the US currency. Indeed the USD 12,000-billion debt ceiling is about to be reached. Sources: Wall Street Journal, 09/12/09; Bloomberg, 09/08/2009; Wall Street Journal, 09/12/09
(9) As we said, such a « window of opportunity » existed between spring and summer 2009. This window is now closed.
(10) See GEAB N°22, 02/2008
(11) See GEAB N°32, 02/2009.
(12) For example, US and French unemployment rate reductions at the beginning of this summer, or the growth in Chinese output. Sources: New York Times, 08/10/2009; Expansion, 07/27/2009; Wall Street Journal, 05/25/2009
(13) It is worth reading Marion Selz’s paper entitled « Statistics, a public service twisted » introducing a recently published book written anonymously by a group of French statisticians with the evocative title « The great fiddle: How the government manipulates statistics». Obviously, in these times of global crisis, the information revealed in this book applies to almost all governments. Source: La vie des idées, 09/02/2009
(14) When, in February 2008 in GEAB N°22, we anticipated that the world was heading to a « Dollar carry-trade », not many people believed us. However this is now exactly what is happening on currency markets. Source: Le Monde, 09/12/2009
(15) Banks which, in April 2009, were eager to get the right to return to the « fair value » system (I estimate my asset is worth 100) (source: Bloomberg, 04/02/2009) instead of valuing their assets at “market value” (on the market, your asset is worth 10). Thus they persist in keeping assets in their balance sheets which they cannot realistically value; precisely because they suspect these assets to be worth 10 or 20 percent of their ‘fair value. The countryside and cities of the US, UK, Spain, Latvia, Japan, China, and other countries are full of houses, flats and buildings that no one buys because their prices are artificially maintained high above the market price so that banks’ balances sheets do not show that they are in fact insolvent because almost all their assets are “rotten”. Bankers too are trying to save time, in the hope of a return to yesterday’s world. Are they old children nostalgic of their golden age or big offenders endangering society? The future will soon tell us as the next phase of global geopolitical dislocation will develop.
(16) Refering to Blaise Pascal’s argument to convince miscreants to believe in God: wager as though God exists because if it is so, paradise is the reward, and otherwise, it simply doesn’t matter; while the contrary wager might take you to hell.
(17) In the next GEAB, the October issue N°38, we shall update our country- and big region-based anticipations, including of course an assessment of the situation regarding US and UK defaults.
(18) With a record-high debt issuance in Europe (EUR 1,100-billion in 2009, and more than EUR 250-billion for the UK only), and with USD 9,000-billion federal deficit over the next ten years, there is no doubt on the fact that the situation is uncontrollable. Source: Yahoo/Reuters, 09/04/2009; CBS, 08/25/2009
(19) In the US, in Europe and in China too. Sources: Reuters, 09/08/2009; Financial Times, 09/06/2009; BBC, 07/26/2009.
(20) On the subject of banks, our team strongly recommends reading the excellent article by Matt Taibbi, “Inside the great American bubble machine” which appeared in Rollingstones on 07/02/2009. It sets out the history of Goldman Sachs and throws essential light on its financial practices and central role in the current financial crisis. In the way of deceased India companies, or the knights templars, it is likely that in five to a maximum of ten years from now, American political power, in the face of a socio-economic collapse and under public pressure, will be obliged to tear apart this institution which interferes in all levels of government activity.
(21) In the end, all these indicators depend on the US Dollar as a measure of value. But if Dollar volatility were to be transferred to a compass, we would see the needle swing between North, South, East and West every month. No wonder then that political, economic and financial leaders are so « disoriented »!
(22) Napoleon too, during the battle of Waterloo, firmly believed th at luck was still on his side and that reinforcements (Grouchy) would materialize at the decisive moment of the battle. Alas, the long awaited troops, whose dust showed their rapid progress, happened to be the enemy’s reinforcements (Blücher). We know what happened next… and we cannot bet that the G20 leaders are strategists as experienced as Napoleon was.
(23) The crisis has somewhat « British humour » and proves that we are far from having seen all its consequences. Indeed, London is now expecting to have to pay a heavy bill in order to rescue its little network of tax havens. The Cayman Islands, for instance, can no longer pay their civil servants. No doubt British taxpayers will be very happy with this perspective! Otherwise, these islands could also resort to a simple idea: create taxes. Source: Guardian, 09/13/2009
--
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