Definancialisation, Deglobalisation, Relocalisation

This talk was presented at The New Emergency Conference in Dublin, on June 11, 2009.


1. Good morning. The title of this talk is a bit of a mouthful, but what I want to say can be summed up in simpler words: we all have to prepare for life without much money, where imported goods are scarce, and where people have to provide for their own needs, and those of their immediate neighbours. I will take as my point of departure the unfolding collapse of the global economy, and discuss what might come next. It started with the collapse of the financial markets last year, and is now resulting in unprecedented decreases in the volumes of international trade. These developments are also starting to affect the political stability of various countries around the world. A few governments have already collapsed, others may be on their way, and before too long we may find our maps redrawn in dramatic ways.

2. "Sustainability" -- what's in a word?

In a word, unsustainable. So what does that mean, exactly? Chris Clugston has recently published a summary of his analysis of what he calls "societal over-extension" on The Oil Drum web site. Here is a summary of his summary, in round numbers. I don't want to trifle with his arithmetic, because it's the cultural assumptions behind it that I find interesting. The idea is that if we shrink our ecological footprint by an order of magnitude or so, that should make the whole arrangement sustainable once again. This is expressed in financial terms: here we are lowering the GDP of the USA from, say $100 thousand per capita per annum, to, say $10 thousand. Clugston draws a distinction between making this reduction voluntarily or involuntarily: we should make it easy on ourselves and come along quietly, so that nobody gets hurt. I find the idea that Americans will voluntarily lower their GDP by a factor of 10 rather outlandish. We keep the same system, just shut down 9/10 of it? Wouldn't that make it a completely different system? This sort of sustainability seems rather unsustainable to me.

3. My plan

I would like to offer a more realistic alternative. Everybody should have one US Dollar, for purely didactic purposes. This way, all Americans will be able to show their one dollar to their grandchildren, and say: "Can you imagine, this ugly piece of paper was once called The Almighty Dollar!" And their grandchildren will no doubt think that they are a little bit crazy, but they would probably think that anyway. But it certainly would not be helpful for them to have multiple shoe-boxes full of dollars, because then thir grandchildren would think that they are in fact senile, because no sane person would be hoarding such rubbish.

4. An unpalatable alternative

Clugston offers an alternative to the big GDP decrease: a proportionate decrease in population. In this scenario, nine out of 10 people die so that the remaining 10% can go on living comfortably on $100 thousand a year. I was happy to note that Chris did not carry the voluntary/involuntary distinction over to this part of the analysis, because I feel that this would have been in rather questionable taste. I can think of just three things to say about this particular scenario.

First, humans are not a special case when it comes to experiencing population explosions and die-offs, and the idea that human populations should increase monotonically ad infinitum is just as preposterous as the idea of infinite economic growth on a finite planet. The exponential growth of the human population has tracked the increased use of fossil fuels, and I am yet to see a compelling argument for why the population would not crash along with them.

Second, shocking though this seems, it can be observed that most societies are able to absorb sudden increases in mortality without much fuss at all. There was a huge spike in mortality in Russia following the Soviet collapse, but it was not directly observable by anyone outside of the morgues and the crematoria. After a few years people would look at an old school photograph and realise that half the people are gone! When it comes to death, most people do in fact make it easy on themselves and come along quietly. The most painful part of it is realising that something like that is happening all around you.

Third, this whole budgeting exercise for how many people we can afford to keep alive is a good way of demonstrating what monsters we have become, with our addiction to statistics and numerical abstractions. The disconnect between words and actions on the population issue is by now is almost complete. Population is very far beyond anyone's control, and this way of thinking about it takes us in the wrong direction. If we could not control it on the way up, what makes us think that we might be able to control it on the way down? If our projections look sufficiently shocking, then we might hypnotise ourselves into thinking that maintaining our artificial human life support systems at any cost is more important than considering its effect on the natural world. The question "How many will survive?" is simply not ours to answer.

5. What's actually happening


Back to what is actually happening right now. There seems to be a wide range of opinion on how to characterise it, from recession to depression to collapse. The press has recently been filled with stories about "green shoots" and the economists are discussing the exact timing of economic recovery. Mainstream opinion ranges from "later this year" to "sometime next year." None of them dares to say that global economic growth might be finished for good, or that it will be over in "the not-too-distant future" -- a vague term they seem to like a whole lot.

There does seem to be a consensus forming that last year's financial crash was precipitated by the spike in oil prices last summer, when oil briefly touched $147/bbl. Why this should have happened seems rather obvious. Since most things in a fully developed, industrialised economy run on oil, it is not an optional purchase: for a given level of economic activity, a certain level of oil consumption is required, and so one simply pays the price for as long as access to credit is maintained, and after that suddenly it's game over. François Cellier has recently published an analysis in which he shows that at roughly $600/bbl the entire world's GDP would be required to pay for oil, leaving no money for putting it to any sort of interesting use. At that price level, we can't even afford to take delivery of it. In fact, at that price level, we can't even afford to pump it out of the ground, because the tool pushers, roughnecks and roustabouts that make oil rigs work don't drink the oil, and there would no longer be room in the budget for beer.

And so, the actual limiting price, beyond which no economic activity is possible, is certainly a lot lower, and last summer we seem to have experimentally established that to be around $150/bbl. which is something like 25% of global GDP. We may never run out of oil, but we have already run out of money with which to buy it, at least once, and will most likely do so again and again, until we learn the lesson. We will run out of money to pump it out of the ground as well. There might still be a few gushers left in the world, and so there will be a little bit of oil left over for us to fashion into exotic plastic jewelry for rich people. But it won't be enough to sustain an industrial base, and so the industrial age will effectively be over, except for some residual solar panels and wind generators and hydroelectric installations.

I think that the lesson from all this is that we have to prepare for a non-industrial future while we still have some resources with which to do it. If we marshal the resources, stockpile the materials that will be of most use, and harness the heirloom technologies that can be sustained without an industrial base, then we can stretch out the transition far into the future, giving us time to adapt.

6. Key points

I know that I am running the risk of overstating these points and oversimplifying the situation, but sometimes it is helpful to ignore various complexities to move the discussion forward. I do believe that these points are all true, roughly speaking.

1. Global GDP is a function of oil consumption; as oil production goes down, so will global GDP. At some point, the inability to invest in oil production will drive it down far below what might be possible if depletion were the sole limiting factor. Efficiency, conservation, renewable sources of energy all might have some effect, but will not materially alter this relationship. Less oil means smaller global economy. No oil means a vanishingly small global economy not worthy of the name.
2. We have had a chance to observe that economies crash whenever oil expenditure approaches 1/4 of global GDP. Attempts at economic recovery will cause oil price spikes that break through this ceiling. These spikes will be followed by further financial crashes and further drops in economic activity. After each crash, the maximum level of economic activity required to trigger the next crash will be lower.
3. Financial assets are only valuable if they can be used to secure a sufficient quantity of oil to keep the economy running. They represent the ability to get work done, and since in an industrialised society the work is done by industrial machinery that runs on oil, less oil means less work. Financial assets that that are backed with industrial capacity require that industrial capacity to be maintained in working order. Once the maintenance requirements of the industrial infrastructure can no longer be met, it quickly decays and becomes worthless. To a large extent, the end of oil means the end of money.
   

Now that the reality of Peak Oil has started to sink in, one commonly hears that "The age of cheap oil is over". But does that mean that the age of expensive oil is upon us? Not necessarily. We now know (or should have learnt by now) that once oil rises to over 25% of global GDP, the world's industrial economy stalls out, and as soon as that happens, oil ceases to be particularly valuable, so much so that investment in maintaining oil production is curtailed. The next time industry tries to stage a comeback (if it ever does) it hits the wall much sooner and stalls again. I doubt that it would take more than just a couple of cycles of this market whiplash for all the participants to have two realisations: that they cannot get enough oil no matter how much they pay for it, and that nobody wants to take their money even for the oil they do have. Those who still have it will see it as too valuable to part with for mere money. On the other hand, if the energy resources needed to run an industrial economy are no longer available, then oil becomes just so much toxic waste. In any case, it is no longer about money, but direct access to resources.

7. A reasonable set of objectives

Now, I expect that a lot of people will find this view too gloomy and feel discouraged. But I feel that it is entirely compatible with a positive vision of the future, so let me try to articulate it.

First of all, we do have some control. Although we shouldn't hold out too much hope for industrial civilisation as a whole, there are certainly some bits of it that are worth salvaging. Our financial assets may not be long for this world, but in the meantime we can redeploy them to good long-term advantage.

Secondly, we can take steps to give ourselves time to make the adjustment. By knowing what to expect, we can prepare to ride it out. We can imagine which options will be foreclosed first, and create alternatives, so that we do not run out of options.

Lastly, we can concentrate on what is important: preserving a vibrant ecosphere that supports a diversity of life, our own progeny included. I can imagine few short-term prerogatives that should override this - our highest priority.

8. Managing financial risk

It will take some time for these realisations to sink in. In the meantime, we will no doubt keep hearing that we have a financial crisis on our hands. We must do something to shore up the banks, to deal with the toxic assets, to shore up our credit ratings and so forth. There are people who will tell you that this was all caused by a mistake in financial modelling, and that if we re-regulate the financial sector, this won't happen again. So, for the sake of the argument, let's take a look at all that.

Financial management is certainly not my speciality, but as far as I understand it, it is mostly about assessing risk. And to do that, financial managers make certain assumptions about the phenomena they are trying to model. One standard assumption is that the future will resemble the past. Another is that various negative events are randomly distributed. For instance, if you are selling life insurance, you can be certain that people will die based on the fact that they have been born, and you can be reasonably certain that they will not all die at once. When someone dies is unpredictable, when people in general die is random, most of the time. And so here is the problem: the world is unpredictable, but classes of small events can be treated as random, until a bigger event comes along. It may seem like an obscure point, so let me explain the difference in a graphical way.

9. This is (pseudo)random

Here is a random collection of multicoloured dots. Actually, it is pseudo-random, because it was generated by a computer, and computers are deterministic beasts incapable of true randomness. A source of true randomness is hard to come by. Even very good random noise generators can have higher-order effects. Small events are frequent, and therefore we can treat them as random, larger events are less frequent and rather unpredictable, and some of the really large events put an end to the careers of the statisticians trying to model them, and so we never find out whether they are random or not. To a layman, this is random enough, but eventually you run out of randomness and hit something very non-random.

10. This is not random but predictable

Like this. Now this is not random, even to a layman. This is like oil expenditure going to 1/4 of global GDP. That certainly wasn't random. But was it unpredictable? We had a few years of monotonically increasing oil prices, and the high prices failed to produce much of a supply response in spite of record-high drilling rates, investment in ethanol, tar sands, and so on. We also have some good geology-based models that accurately predicted oil depletion profile for separate provinces, and had a high probability of succeeding in the aggregate as well. So this is definitely not random, and it is not even unpredictable. So, at a higher level, what sort of mathematics do we need to accurately model the inability of our financial and political and other leaders and commentators to see it, or to understand it, even now? And do we really need to do that, or should we just let this nice brick wall do the work for us. Because, you know, brick walls have a lot to teach people who refuse to acknowledge their existence, and they are very patient with students who need to repeat the lesson. I am sure that the lesson will sink in eventually, but I wonder how many more full-gallop runs at the wall it will take before everyone is convinced.

11. His models mostly work

One person I would like to have a close encounter with the brick wall is this fellow, Myron Scholes, the Nobel Prise-winning co-author of the Black-Scholes method of pricing derivatives, the man behind the crash of Long Term Capital Management. He is the inspiration behind much of the current financial debacle. Recently, he has been quoted as saying the following: "Most of the time, your risk management works. With a systemic event such as the recent shocks following the collapse of Lehman Brothers, obviously the risk-management system of any one bank appears, after the fact, to be incomplete." Now, imagine a structural engineer saying something along those lines: "Most of the time our structural analysis works, but if there is a strong gust of wind, then, for any given structure, it is incomplete." Or a nuclear engineer: "Our calculations of the strength of nuclear reactor containment vessels work quite well much of the time. Of course, if there is an earthquake, then any given containment vessel might fail." In these other disciplines, if you just don't know the answer, then you just don't bother showing up for work, because what would be the point?

12. We love their lies

The point certainly wouldn't be to reassure people, to promote public confidence in bridges, buildings, and nuclear reactors. But economics and finance are different. Economics is not directly lethal, and economists never get sent to jail for criminal negligence or gross incompetence even when their theories do fail. Finance is about the promises we make to each other, and to ourselves. And if the promises turn out to be unrealistic, then economics and finance turn out to be about the lies we tell each other. We want to continue believing these lies, because there is a certain loss of face if we don't, and the economists are there to help us. We continue to listen to economists because we love their lies. Yes, of course, the economy will recover later this year, maybe the next. Yes, as soon as the economy recovers, all these toxic assets will be valuable again. Yes, this is just a financial problem; we just need to shore up the financial system by injecting taxpayer funds. These are all lies, but they make us feel all right. They are lying, and we are buying every word of it.

13. Fastest way to lose all your money

Let's face it, these are difficult times for those of us who have a lot of money. What can we do? We can entrust it to a financial institution. That tends to turn out badly. Many people in the United States have entrusted their retirement savings to financial institutions. And now they are being told that they cannot withdraw their money. All they can do is open a letter once a month, to watch their savings dwindle.

We can also invest it in some part of the global economy. I know some automotive factories you could buy. They are quite affordable right now. A lot of retired auto workers have put all of their retirement savings into General Motors stock. Maybe they know something that we don't? (Actually, that's part of a fraudulent scheme perpetrated by the Obama administration, to pay off their banker friends ahead of GM's other creditors.)

Well then, how about a nice gold brick or two? A bag of diamonds? Some classic cars? Then you could start your own personal museum of transportation. How about a beautifully restored classic luxury yacht? Then you could use the gold bricks to weigh you down if you ever decide to end it all by jumping overboard.

Here's another brilliant idea: buy green products. Whatever green thing the marketers and advertisers throw at you, buy it, toss it, and buy another one straight away. Repeat until they are out of product, you are out of money, and the landfills are full of green rubbish. That should stimulate the economy. Market research shows that there is a great reservoir of pent-up eco-guilt out there for marketers and advertisers to exploit. Industrial products that help the environment are a bit of an oxymoron. It's a bit like trying to bail out the Titanic using plastic teaspoons.

Another great marketing opportunity for our time is in survival goods. There are some web sites that push all sorts of supplies to put in your private bunker. It's a clever bit of manipulation, actually. Users log in, see that the stock market is down, oil is up, shotgun shells are on sale, so are hunting knives, and if you add a paperback on "surviving financial armageddon" to your shopping cart you qualify for free shipping. Oh and don't forget to add a large tin of dehydrated beans. Fear is a great motivator, and getting people to buy survival goods is almost a matter of operant conditioning: a marketer's dream.

If you want to help save the environment and prepare yourself for a life without access to consumer goods, then doing so by buying consumer goods doesn't seem like such a great plan. A much better thing to do is to BUY NOTHING. But that is not something you can do with money. But there are useful things to do with money, for the time being, if we hurry.

14. How to lose all your money (but have something to show for it)

Most of the wealth is in very few private hands right now. Governments and the vast majority of the people only have debt. It is important to convince people who control all this wealth that they really have two choices. They can trust their investment advisers, maintain their current portfolios, and eventually lose everything. Or they can use their wealth to reengage with people and the land in new ways, in which case they stand a chance of saving something for themselves and their children. They can build and launch lifeboats, recruit crew, and set them sailing.

Those who own a lot of industrial assets can divest before these assets lose value and invest in land resources, with the goal of preserving them, improving them over time, and using them in a sustainable manner. Since it will become difficult to get what you want by simply paying for it, it is a good idea to establish alternatives ahead of time, by making resources, such as farmland, available to those who can put them to good use, for their own benefit as well as for yours. It also makes sense to establish stockpiles of non-perishable materials that will preserve their usefulness far into the future. My favourite example is bronze nails. They last a over a hundred years in salt water, and so they are perfect for building boats. The manufacturing of bronze nails is actually a good use of the remaining fossil fuels - better than most. They are compact and easy to store.

Lastly, it makes sense to work towards orchestrating a controlled demolition of the global economy. This calls for a new financial skill set: that of a disinvestment adviser. The first step is a sort of triage; certain parts of the economy can be marked "do not resuscitate" and resources reallocated to a better task. A good example of an industry not worth resuscitating is the auto industry; we simply will not need any more cars. The ones that we already have will do nicely for as long as we'll need them. A good example of a sector definitely worth resuscitating is public health, especially prevention and infectious disease control. In all these measures, it is important to pull money out of geographically distant locations and invest it locally. This may be inefficient from a financial standpoint, but it is quite efficient from the point of view of personal and social self-preservation.

15. Beyond finance: controlling other kinds of risk

Coming back for a moment to the poor bankers and economists, it seems rather disingenuous for us to treat economics and finance as a special case of people who generate a lot of unmitigated risk. Do we have any examples of risks we understood properly and acted on in time? Are there any really serious systemic problems that we have been able to solve?... The best we seem to be able to do is buy time. In fact, that seems to be what we are good at - postponing the inevitable through diligence and hard work. None of us wants to act precipitously based on what we understand will happen eventually, because it may not happen for a while yet. And why would we want to rock the boat in the meantime? The one risk that we do seem to know how to mitigate against is the risk of not fitting in to our economic, social and cultural milieu. And what happens to us if our entire milieu finally goes over the edge? Well, the way we plan for that is by not thinking about that.

16. The biggest risk of all

The biggest risk of all, as I see it, is that the industrial economy will blunder in for a few more years, perhaps even a decade or more, leaving environmental and social devastation in its wake. Once it finally gives up the ghost, hardly anything will be left with which to start over. To mitigate against this risk, we have to create alternatives, on a small scale, that do not perpetuate this system and that can function without it.

The idea of perpetuating the status quo through alternative means is all-pervasive, because so many people in positions of power and authority wish to preserve their positions. And so just about every proposal we see involves avoiding collapse instead of focusing on what comes after it. A prime example is the push to develop alternative energy. Many of these alternatives turn out to be fossil fuel amplifiers rather than self-sufficient resources: they require fossil fuel energy as an essential input. Also, many of them require an intact industrial base, which runs on fossil fuels. There is a pervasive idea that these alternatives haven't been developed before for nefarious reasons: malfeasance on the part of the greedy oil companies and so on. The truth of the matter is that these alternatives are not as potent, physically or economically, as fossil fuels. And here is the real point worth pondering: If we can no longer afford the oil or the natural gas, what makes us think that we can afford the less potent and more expensive alternatives? And here is a follow-up question: If we can't afford to make the necessary investments to get at the remaining oil and natural gas, what makes us think that we will find the money to develop the less cost-effective alternatives?

17. How long do we have?

It would be excellent if more people had these realisations, and started making progress toward making their lives a bit more sustainable. But social inertia is quite great, and the process of adaptation takes time. And the question is, is there enough time for significant numbers of people to have these realisations and to adapt, or will they have to endure quite a lot of discomfort?

I believe that people who start the process now stand a fairly good chance of making the transition in time. But I don't think that it is too wise to wait and try to grab a few more years of comfortable living. Not only would that be a waste of time on a personal level, but we'd be squandering the resources we need to make the transition.

I concede that the choice is a difficult one: either we wait for circumstances to force our hand, at which point it is too late for us to do anything to prepare, or we bring it upon ourselves ahead of time. If we ask the question, How many people are likely to do that? - then we are asking the wrong question. A more relevant question is, Would we be doing this all alone? And I think the answer is, probably not, because there are quite a few other people who are thinking along these same lines.

18. It's always personal

I think it is very important to understand social inertia for the awesome force that it is. I have found that many people are almost genetically predisposed to not want to understand what I have been saying, and many others understand it on some level but refuse to act on it. When they are touched by collapse, they take it personally or see it as a matter of luck. They see those who prepare for collapse as eccentrics; some may even consider them to be dangerous subversives. This is especially likely to be the case for people in positions of power and authority, because they are not exactly cheered by the prospect of a future that has no place for them.

There is a certain range of personalities that are most likely to survive collapse unscathed, physically or psychologically, and adapt to the new circumstances. I have been able to spot certain common traits while researching reports of survivors of shipwrecks and other similar calamities. A certain amount of indifference or detachment is definitely helpful, including indifference to suffering. Possibly the most important characteristic of a survivor, more important than skills or preparation or even luck, is the will to survive. Next is self-reliance: the ability to persevere in spite of loneliness lack of support from anyone else. Last on the list is unreasonableness: the sheer stubborn inability to surrender in the face of seemingly insurmountable odds, opposing opinions from one's comrades, or even force.

Those who feel the need to be inclusive, accommodating, to compromise and to seek consensus, need to understand the awesome force of social inertia. It is an immovable, crushing weight. "We must take into account the interests of society as a whole." Translated, that means "We must allow ourselves to remain thwarted by people's unwillingness or inability to make drastic but necessary changes; to change who they are." Must we, really?

There are two components to human nature, the social and the solitary. The solitary is definitely the more highly evolved, and humanity has surged forward through the efforts of brilliant loners and eccentrics. Their names live on forever precisely because society was unable to extinguish their brilliance or to thwart their initiative. Our social instincts are atavistic and result far too reliably in mediocrity and conformism. We are evolved to live in small groups of a few families, and our recent experiments that have gone beyond that seem to have relied on herd instincts that may not even be specifically human. When confronted with the unfamiliar, we have a tendency to panic and stampede, and on such occasions people regularly get trampled and crushed underfoot: a pinnacle of evolution indeed! And so, in fashioning a survivable future, where do we put our emphasis: on individuals and small groups, or on larger entities - regions, nations, humanity as a whole? I believe the answer to that is obvious.

19. "Collapse" or "Transition"

It's rather difficult for most people to take any significant steps, even individually. It is even more difficult to do so as a couple. I know a lot of cases whether one person understands the picture and is prepared to make major changes in the living arrangement, but the partner or spouse is non-receptive. If they have children, then the constraints multiply, because things that may be necessary adaptations post-collapse look like substandard living conditions to a pre-collapse mindset. For instance, in many places in the United States, bringing up a child in a place that lacks electricity, central heating, or indoor plumbing may be equated with child abuse, and authorities rush in and confiscate the children. If there are grandparents involved, then misunderstandings multiply. There may be some promise to intentional communities: groups that decide to make a go of it in rural setting.

When it comes to larger groups: towns, for instance any meaningful discussion of collapse is off the table. The topics under discussion centre around finding ways to perpetuate the current system through alternative means: renewable energy, organic agriculture, starting or supporting local businesses, bicycling instead of driving, and so on. These certainly aren't bad things to talk about it, or to do, but what of the radical social simplification that will be required? And is there a reason to think that it is possible to achieve this radical simplification in a series of controlled steps? Isn't that a bit like asking a demolition crew to demolish a building brick by brick instead of what it normally does. Which is, mine it, blow it up, and bulldoze and haul away the debris?

20. Better living through bureaucracy

There are still many believers in the goodness of the system and the magic powers of policy. They believe that a really good plan can be made acceptable to all - the entire unsustainably complex international organisational pyramid, that is. They believe that they can take all these international bureaucrats by the hand, lead them to the edge of the abyss that marks the end of their bureaucratic careers, and politely ask them to jump. Now, don't get me wrong, I am not trying to stop them. Let them proceed with their brilliant schemes, by all means.

21. Simpler approaches: investment

There are far simpler approaches that are likely to be more effective. Since most wealth is in private hands, it is actually up to individuals to make very important decisions. Unlike various bureaucratic and civic bodies, which are both short of funds and mired in social inertia, they can act decisively and unilaterally. The problem is, what to do with financial assets before they lose value. The answer is to invest in things that will retain value even after all financial assets are worthless: land, ecosystems, and personal relationships. The land need not be in pristine or natural condition. After a couple of decades, any patch of land reverts to a wilderness, and unlike an urban or an industrial desert, a wilderness can sustain life, human and otherwise. It can support a population of plants an animals, wild and domesticated, and even a few humans.

The human relationships that are the most conducive to preserving ecosystems are ones that are in turn tied to a direct, permanent relationship with the land. They can be enshrined in permanent, heritable leases payable in sustainably harvested natural products. They can also be enshrined as deeded easements that provide the community with traditional hunting, gathering and fishing rights, provided human rights are not allowed to supersede those of other species. I think the lifeboat metaphor is apt here, because the moral guidance it offers is so clear. What has to happen in an overloaded lifeboat at sea when a storm blows up and it becomes necessary to lighten the load? Everyone draws lots. Such practises have been upheld by the courts, provided no-one is exempt - not the captain, not the crew, not the owner of the shipping company. If anyone is exempt, the charge becomes murder. Sustainability, which is necessary for group survival, may have to have its price in human life, but humanity has survived many such incidents before without descending into barbarism.

22. Gift-giving as an organising principle

Many people have been so brainwashed by commercial propaganda that they have trouble imagining that anything can be made to work without recourse to money, markets, the profit motive, and other capitalist props. And so it may be helpful to present some examples of very important victories that have been achieved without any of these.

In particular, Open Source software, which used to be somewhat derisively referred to as "free software" or "shareware", is a huge victory of the gift economy over the commercial economy. "Free software" is not an accurate label; nor is "free prime numbers" or "free vocabulary words". Nobody pays for these things, but some people are silly enough to pay for software. It's their loss; the "free" stuff is generally better, and if you don't like it, you can fix it. For free.

General science works on similar principles. Nobody directly profits from formulating a theory or testing a hypothesis or publishing the results. It all works in terms mutuality and prestige - same as with software.

On the other hand, wherever the pecuniary motivation rises to the top, the result is mediocre at best. And so we have expensive software that fails constantly. (I understand that the British Navy is planning to use a Microsoft operating system on their nuclear submarines; that is a frightening piece of news.) We also have oceans full of plastic trash - developing all those "products" floating in the ocean would surely have been impossible without the profit motive. And so on.

In all, the profit motive fails to motive altruistic behaviour, because it is not reciprocal. And it is altruistic behaviour that increases the social capital of society. Within a gift-giving system, we can all be in everyone's debt, but going into debt makes us all richer, not poorer.

23. Barter as an organizing principle

Gifts are wonderful, of course, but sometimes we would like something rather specific, and are willing to work with others to get it, without recourse to money, of course. This is where arrangements made on the basis of barter. In general, you barter something over which you have less choice (one of the many things you can offer) for something over which you have more choice (something you actually want).

Economists will tell you that barter is inefficient, because it requires "coincidence of wants": if A wants to barter X for Y, then he or she must find B who wants to barter Y for X. Actually, most everyone I've ever run across doesn't want to barter either X for Y, or Y for X. Rather, they want to barter whatever the can offer for any of a number of the things they want.

In the current economic scheme, we are forced to barter our freedom, in the form of the compulsory work-week, for something we don't particularly want, which is money. We have limited options for what to do with that money: pay taxes, bills, buy shoddy consumer goods, and, perhaps, a few weeks of "freedom" as tourists. But other options do exist.

One option is to organise as communities to produce certain goods that the entire community wants: food, clothing, shelter, security and entertainment. Everyone makes their contribution, in exchange for the end product, which everyone gets to share. It is also possible to organise to produce goods that can be used in trade with other communities: trade goods. Trade goods are a much better way to store wealth than money, which is, let's face it, an essentially useless substance.

24. Local/alternative currencies

There is a lot of discussion of ways to change the way money works, so that it can serve local needs instead of being one of the main tools for extracting wealth from local economies. But there is no discussion of why it is that money is generally necessary. That is simply assumed. There are communities that have little or no money, where there may be a pot of coin buried in the yard somewhere, for special occasions, but no money in daily use.

Lack of money makes certain things very difficult. Examples include gambling, loan sharking, extortion, bribery and fraud. It also makes it more difficult to hoard wealth, or to extract it out of a community and ship it somewhere else in a conveniently compact form. When we use money, we cede power to those who create money (by creating debt) and who destroy money (by cancelling debt). We also empower the ranks of people whose area of expertise is in the manipulation of arbitrary rules and arithmetic abstractions rather than in engaging directly with the physical world. This veil of metaphor allows them to mask appalling levels of violence, representing it symbolically as a mere paper-shuffling exercise. People, animals, entire ecosystems become mere numbers on a piece of paper. On the other hand, this ability to represent dissimilar objects using identical symbols causes a great deal of confusion. For instance, I have heard rather intelligent people declare that government funds, which have been allocated to making failed financial institutions look solvent, could be so much better spent feeding widows and orphans. There is no understanding that astronomical quantities of digits willed into existence and transferred between two computers (one at a central bank, another at a private bank) cannot be used to directly nourish anyone, because food cannot be willed into existence by a central banker or anyone else.

25. Belief in science and technology

One accusation I often hear is that I fail to grasp the power of technological innovation and the free market system. If I did, apparently I would have more faith in a technologically advanced future where all of our current dilemmas are swept away by a new wave of eco-friendly sustainability. My problem is that I am not an economist or a businessman: I am an engineer with a background in science. The fact that I've worked for several technology start-up companies doesn't help either.

I know roughly how long it takes to innovate: come up with the idea, convince people that it is worth trying, try it, fail a few times, eventually succeed, and then phase it in to real use. It takes decades. We do not have decades. We have already failed to innovate our way out of this.

Not only that, but in many ways technological innovation has done us a tremendous disservice. A good example is innovation in agriculture. The so-called "green revolution" has boosted crop yields using fossil fuel inputs, creating generations of agro-addicts dependent on just one or two crops. In North America, human hair samples have been used to determine that fully 69% of all the carbon came from just one plant: maize. So, what piece of technological innovation do we imagine will enable this maize-dependent population to diversify their food sources and learn to feed themselves without the use of fossil fuel inputs?

I think that what makes us likely to think that technology will save us is that we are addled by it. Efforts at creating intelligent machines have failed, because computers are far too difficult to program, but humans turn out to be easy for computers to program. Everywhere I go I see people poking away at their little mental support units. Many of them can no longer function without them: they wouldn't know where to go, who to talk to, or even where to get lunch without a little electronic box telling what to do.

These are all big successes for maize plants and for iPhones, but are they successes for humanity? Somehow I doubt it. Do we really want to eat nothing but maize and look at nothing but pixels, or should there be more to life? There are people who believe in the emergent intelligence of the networked realm - a sort of artificial intelligence utopia, where networked machines become hyperintelligent and solve all of our problems. And so our best hope is that in our hour of need machines will be nice to us and show us kindness? If that's the case, what reason would they find to respect us? Why wouldn't they just kill us instead? Or enslave us. Oh, wait, maybe they already have!

26. The need to evolve

Now, supposing all goes well, and we have a swift and decisive collapse, what should follow is an equally swift rebirth of viable localised communities and ecosystems. One concern is that the effort will be short of qualified staff.

It is an unfortunate fact that the recent centuries of settled life, and especially the last century or so of easy living based on the industrial model, has made many people too soft to endure the hardships and privations that self-sufficient living often involves. It seems quite likely that those groups that are currently marginalised, would do better, especially the ones that are found in economically underdeveloped areas and have never lost contact with nature.

And so I would not be surprised to see these marginalised groups stage a come-back. Almost every rural place has its population of people who know how to use the local resources. They are the human component of the local ecosystems, and, as such, they deserve much more respect than they have received. A lot of them can't be bothered about fine manners or about speaking English. Those who are used to thinking of them as primitive, ignorant and uneducated will be shocked to discover how much they must learn from them.

27. Beyond planning

So what are we to do in the meantime, while we wait for collapse, followed by good things? It's no use wasting your energy, running yourself ragged and ageing prematurely, so get plenty of rest, and try to live a slow and measured life. One of the ways industrial society dominates us is through the use of the factory whistle: few of us work in factories, but we are still expected to work a shift. If you can avoid doing that, you will be ahead. Maintain your freedom to decide what to do at each moment, so that you can do each thing at the most opportune time. Specifically try to give yourself as many options as you can, so that if any one thing doesn't seem to be working out, you can switch to another. The future is unpredictable, so try to plan so as to be able to change your plans at any time. Learn to ignore all the people who earn their money by telling you lies. Thanks to them, the world is full of very bad ideas that are accepted as conventional wisdom, so watch out for them and come to your own conclusions. Lastly, people who lack a sense of humour are going to be in for a very hard time, and can drag down those around them. Plus, they are just not that funny. So avoid people who aren't funny, and look for those who can laugh at the world no matter what happens.

The American Empire Is Bankrupt

This week marks the end of the dollar’s reign as the world’s reserve currency. It marks the start of a terrible period of economic and political decline in the United States. And it signals the last gasp of the American imperium. That’s over. It is not coming back. And what is to come will be very, very painful. Barack Obama, and the criminal class on Wall Street, aided by a corporate media that continues to peddle fatuous gossip and trash talk as news while we endure the greatest economic crisis in our history, may have fooled us, but the rest of the world knows we are bankrupt.

And these nations are damned if they are going to continue to prop up an inflated dollar and sustain the massive federal budget deficits, swollen to over $2 trillion, which fund America’s imperial expansion in Eurasia and our system of casino capitalism. They have us by the throat. They are about to squeeze. There are meetings being held Monday and Tuesday in Yekaterinburg, Russia, (formerly Sverdlovsk) among Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization.

The United States, which asked to attend, was denied admittance. Watch what happens there carefully. The gathering is, in the words of economist Michael Hudson, "the most important meeting of the 21st century so far." It is the first formal step by our major trading partners to replace the dollar as the world’s reserve currency. If they succeed, the dollar will dramatically plummet in value, the cost of imports, including oil, will skyrocket, interest rates will climb and jobs will hemorrhage at a rate that will make the last few months look like boom times.

State and federal services will be reduced or shut down for lack of funds. The United States will begin to resemble the Weimar Republic or Zimbabwe. Obama, endowed by many with the qualities of a savior, will suddenly look pitiful, inept and weak. And the rage that has kindled a handful of shootings and hate crimes in the past few weeks will engulf vast segments of a disenfranchised and bewildered working and middle class. The people of this class will demand vengeance, radical change, order and moral renewal, which an array of proto-fascists, from the Christian right to the goons who disseminate hate talk on Fox News, will assure the country they will impose.

I called Hudson, who has an article in Monday’s Financial Times called "The Yekaterinburg Turning Point: De-Dollarization and the Ending of America’s Financial-Military Hegemony." "Yekaterinburg," Hudson writes, "may become known not only as the death place of the czars but of the American empire as well." His article is worth reading, along with John Lanchester’s disturbing exposé of the world’s banking system, titled "It’s Finished," which appeared in the May 28 issue of the London Review of Books.

"This means the end of the dollar," Hudson told me. "It means China, Russia, India, Pakistan, Iran are forming an official financial and military area to get America out of Eurasia. The balance-of-payments deficit is mainly military in nature. Half of America’s discretionary spending is military. The deficit ends up in the hands of foreign banks, central banks. They don’t have any choice but to recycle the money to buy U.S. government debt. The Asian countries have been financing their own military encirclement. They have been forced to accept dollars that have no chance of being repaid. They are paying for America’s military aggression against them. They want to get rid of this."

China, as Hudson points out, has already struck bilateral trade deals with Brazil and Malaysia to denominate their trade in China’s yuan rather than the dollar, pound or euro. Russia promises to begin trading in the ruble and local currencies. The governor of China’s central bank has openly called for the abandonment of the dollar as reserve currency, suggesting in its place the use of the International Monetary Fund’s Special Drawing Rights.

What the new system will be remains unclear, but the flight from the dollar has clearly begun. The goal, in the words of the Russian president, is to build a "multipolar world order" which will break the economic and, by extension, military domination by the United States. China is frantically spending its dollar reserves to buy factories and property around the globe so it can unload its U.S. currency. This is why Aluminum Corp. of China made so many major concessions in the failed attempt to salvage its $19.5 billion alliance with the Rio Tinto mining concern in Australia. It desperately needs to shed its dollars.

"China is trying to get rid of all the dollars they can in a trash-for-resource deal," Hudson said. "They will give the dollars to countries willing to sell off their resources since America refuses to sell any of its high-tech industries, even Unocal, to the yellow peril. It realizes these dollars are going to be worthless pretty quickly." The architects of this new global exchange realize that if they break the dollar they also break America’s military domination. Our military spending cannot be sustained without this cycle of heavy borrowing. The official U.S. defense budget for fiscal year 2008 is $623 billion, before we add on things like nuclear research. The next closest national military budget is China’s, at $65 billion, according to the Central Intelligence Agency.

There are three categories of the balance-of-payment deficits. America imports more than it exports. This is trade. Wall Street and American corporations buy up foreign companies. This is capital movement. The third and most important balance-of-payment deficit for the past 50 years has been Pentagon spending abroad. It is primarily military spending that has been responsible for the balance-of-payments deficit for the last five decades. Look at table five in the Balance of Payments Report, published in the Survey of Current Business quarterly, and check under military spending. There you can see the deficit.

To fund our permanent war economy, we have been flooding the world with dollars. The foreign recipients turn the dollars over to their central banks for local currency. The central banks then have a problem. If a central bank does not spend the money in the United States then the exchange rate against the dollar will go up. This will penalize exporters. This has allowed America to print money without restraint to buy imports and foreign companies, fund our military expansion and ensure that foreign nations like China continue to buy our treasury bonds. This cycle appears now to be over.

Once the dollar cannot flood central banks and no one buys our treasury bonds, our empire collapses. The profligate spending on the military, some $1 trillion when everything is counted, will be unsustainable. "We will have to finance our own military spending," Hudson warned, "and the only way to do this will be to sharply cut back wage rates. The class war is back in business. Wall Street understands that. This is why it had Bush and Obama give it $10 trillion in a huge rip-off so it can have enough money to survive."

The desperate effort to borrow our way out of financial collapse has promoted a level of state intervention unseen since World War II. It has also led us into uncharted territory. "We have in effect had to declare war to get us out of the hole created by our economic system," Lanchester wrote in the London Review of Books. "There is no model or precedent for this, and no way to argue that it’s all right really, because under such-and-such a model of capitalism ... there is no such model. It isn’t supposed to work like this, and there is no road-map for what’s happened."

The cost of daily living, from buying food to getting medical care, will become difficult for all but a few as the dollar plunges. States and cities will see their pension funds drained and finally shut down. The government will be forced to sell off infrastructure, including roads and transport, to private corporations. We will be increasingly charged by privatized utilities—think Enron—for what was once regulated and subsidized. Commercial and private real estate will be worth less than half its current value. The negative equity that already plagues 25 percent of American homes will expand to include nearly all property owners. It will be difficult to borrow and impossible to sell real estate unless we accept massive losses.

There will be block after block of empty stores and boarded-up houses. Foreclosures will be epidemic. There will be long lines at soup kitchens and many, many homeless. Our corporate-controlled media, already banal and trivial, will work overtime to anesthetize us with useless gossip, spectacles, sex, gratuitous violence, fear and tawdry junk politics. America will be composed of a large dispossessed underclass and a tiny empowered oligarchy that will run a ruthless and brutal system of neo-feudalism from secure compounds. Those who resist will be silenced, many by force. We will pay a terrible price, and we will pay this price soon, for the gross malfeasance of our power elite.

Hitmen Contracts to Bust COMEX

Major dislocations are coming. Tremendous disruptions are coming. Price discontinuities are coming. Price chart patterns might be rendered useless soon. Last week, the case for a grand Paradigm Shift was made, covering many elements in order to paint a mosaic. Taken in isolation, any one point is important in its own right, but not enough to convince of a structural change. Taken in entirety, the many points create a full picture that is more easily recognized. The ruinous events of the Wall Street banks last September and October surely served as an extreme event loaded with profound disruption. The Chinese have proceeded with a transition to yuan-based domestic banking, with an installation of yuan swap facilities around the world, with an ASEAN regional fund again supplied by yuan for flexible purposes, with permission granted to two Hong Kong banks to sell yuan-based bonds, with an admitted rise in significant gold bullion reserves, and with continued verbal battles over legitimacy of the USDollar as the global reserve currency. These Chinese initiatives in recent weeks, occurring rapidly, are serving as a collective extreme event with the potential for profound disruption. A gold-backed yuan currency would surely cause massive disruption in a climax merger of events. The barter system set up between Russia and Europe will bypass the US$-based settlement system, as will the barter system set up between Russia and China. The avoidance of contract settlement in USDollars would result in extreme disruption to the global banking system. The creditor nations are plotting to organize and launch alternative currencies, maybe to fortify existing currencies (like the euro or yuan or ruble) with a gold component, maybe also with a crude oil component. A challenge to the USDollar by asset-backed currencies would result in extreme disruption to the global banking system. The hidden nitroglycerine to the disruptions is the Russian military, and any pledges of support for nations attempted to force systemic changes. These are just some important examples of change agents.

All Paradigm Shifts result in extreme disruption. That is the essence of Paradigm Shifts. The entire table changes, like its shape, its seats, its location, even who sits at the table, and in particular who sits at the head of the table. Big disruptions are to come from the COMEX pit of corruption, the central nexus for controlling illicitly the price structure for gold, the USDollar, and the USTreasury Bonds. The COMEX in all likelihood is the weakest link in the US-UK chain of corrupted financial markets. For many months my view has been that gold fights the political battles, while silver gathers more than its share of rewards and spoils. Gold has a long history of experience fighting grand battles. It can be placed in dungeons, but not for more than a couple decades. The rot in financial systems without golden foundations forces gold to the surface!

THE HITMEN COMETH

It has come to my attention that several private parties have accepted contract assignments to neuter the COMEX and London Metals Exchange, to render ruin to its gold market.

That bears repeating from the rooftops.

MUTLIPLE HIRED HITMEN HAVE ASSIGNMENTS TO KILL THE COMEX GOLD MARKET.

That is the lynchpin to control the USDollar, the USTreasurys, and the corrupt mechanisms used by the New York and London syndicates. Their clear criminal behavior is beyond the reach of law enforcement, but they are not beyond the reach of hitmen. The USDollar has been in violation of the US Constitution since 1971, perpetuated by a renegade series of administrations. The global creditors for the USTreasury Bonds are so angry at the past suffered losses, the prospect of deep future losses, and the corruption laced throughout the US financial system, that they have hired third parties to kill off the US$-gold platforms, to destroy the burdensome banking ballast dominated by protected entrenched fraud experts, to lay waste to the vehicles used by the US-UK bond trafficking syndicate totally saturated with corruption, dishonesty, and collusion, replete with greed, totally absent conscience. They have systemically been dismantling the COMEX pillars and levers over the last several months, quietly and without fanfare, surely without publicity. If gold investors knew of their actions, they would become much bolder. Some want the bankers in their gunsights not to be warned. They await their fate with the Financial Grim Reaper. Their executions will be as swift as brutal.

The HITMEN have been hired, with highly lucrative contracts and wide berth in methods to be put to use. Their assigned task is to castrate the levered family jewels from some of the major players who illegally keep the gold price and silver price artificially low. The targeted victims know their awaited fate, and are presently defecating in their skivvies. A short list of banks facing the firing squad is already known, details for Hat Trick Letter members. Some detailed speculation will be devoted to the June HTL reports, since too controversial. This will be an evolving story, with new chapters soon written. The executions will be sudden. The missing US-UK levers will be immediate. Since last autumn, the global powers have aligned against Wall Street, even if the central bankers have supported it. If one wants to destroy a building, then weaken its pillars, cut a few support beams, then rush in a crowd of people, and wait for a turbulent storm. In the case of the COMEX, the wicked players will crowd the corrupted building. They will sink into ruin and then oblivion. They might become objects of mockery when they make noises from prison. If lucky, they will join Ken Lay from Enron fame in a remote Caribbean island where other favored operators live a secluded life, but a life nonetheless, complete with plenty of sunshine, fresh air, beaches, bikinis, and sailboats, but no intrusive cameras. Please, do not disturb the quasi-dead!

The financial cartel dominated by the United States and United Kingdom is soon to suffer some serious blows. The list of their financial crimes is as magnificent as it is long. Its list of victims is as prominent as it is long. The harbored resentment is great by many global players. They waited patiently for the Obama Admin to install a new group, but the old group remains due to a revolving door from the same smoky club, dominated by Goldman Sachs once more. Their influence, if not bribery, of the USCongress is in continuation, sufficient for unwanted obsequious approval. The regulatory agencies are from the same encrusted chambers replete with stench. The Coup d'Etat of the USGovt financial offices has not changed with Obama, who sounds like a refreshing leader but who is actually a marionette under control by those who selected him, favored him with publicity, then enabled his election. Nothing has changed except the rhetoric of change and the pace on the path to bankruptcy for a few icon firms like General Motors and Chrysler, if not the desperate cries from the 50 states suffering from insolvency. More prominent failures will follow, since nothing has been remedied. The channeled funds directed to Wall Street firms continue unabated. The bread crumbs to Main Street and the people continue unabated. Even the war continues unabated. Forget not that Marie Antoinette once said "Let them eat cake" before the French Revolution and the Storming of the Bastille. Today, the Bastille is the entire USEconomy where insolvent Americans are stuck.

Some might wonder what was the turning point that resulted in hired hitmen to be under contract against certain US financial markets. Some might say the failures of Lehman Brothers, American Intl Group, and Fannie Mae. Not so! In my opinion, it was the invasion in the South Osettia region of Georgia in August 2008. The events around Georgia, with the United States Military deeply involved, along with a certain tiny mischievous ally nation, lit a fuse that set off a chain of events. In time, events led to orders given by high level powers, for the US fraud kings on Wall Street to swallow the medicine no later than first thing Monday morning on September 15th. When the Jackass inquired as to the nature of the urgency leading into that understood stated deadline date, no answer was given. The guess of the Bank For Intl Settlements was submitted by me, and it was confirmed. Other sources, the USTreasury Bond creditors, also applied the pressure, it was told. Rumor was thick that death threats had been delivered to certain Wall Street executives, such as Paulson. Thus the pressure passed on to the USCongress for passage of T.A.R.P. funds. The disbursement of those funds have not been made public partly because Wall Street (read Goldman Sachs) does not want the US people to be aware of payoffs for bond fraud under death threats. Also, the Congressional Inspector has cited a few dozen recommendations for criminal fraud investigations of the same T.A.R.P. funds. The US financial sector has become a den of vipers, no longer the bastion of gentlemen, but rather of syndicate bosses.

COMEX STRESS NEAR A BREAKING POINT

Sources from GATA (the Gold Anti-Trust Action committee) report growing distress for participants in the COMEX gold contracts, where a commercial party is very short and in deep trouble. They have sold more gold bullion than they can deliver. They are likely one of the big banks who violate the law with impunity, with USGovt sanctioned protection. By that is meant they routinely do not post 90% of the metal as collateral that they illegally sell. This is naked shorting by any other name. There are reports of grave concern over the upcoming June gold option expiration. If too many deliveries are ordered, then the commercial shorts would be under stress for exposure for naked shorting. They will eventually be caught in a bind and default on contracts. The important loaded monthly contracts are March, June, September, and December. The COMEX has tried to limit the ability of buyers to take delivery, running them around in circles, and entangling them in red tape, all clearly restraint of trade endorsed by the USGovt. Such rules are not in effect for cotton or soybeans or crude oil or pork bellies. After all, a financial crime syndicate has taken control of the USGovt, ever since Robert Rubin took charge at the USDept Treasury in 1992. His major project was to gut the nation of its gold, for the private profit of his friends. Recall Rubin came from Goldman Sachs. Rubin was the author of the Strong Dollar Policy which brought ruin to the nation. Hey, just my opinion!

Background inventory strain has come from unexpected sources. The Germans have demanded that gold bullion held in US custodial accounts be returned to their owners, with physical gold shipped back to Germany. The Dubai bankers have demanded that gold bullion held in London custodial accounts be returned to their owners, with physical gold shipped back to the United Arab Emirates. They are following the hired German counsel. In all likelihood, neither US nor London sources are in possession of all the gold held in those custodial accounts, since at least some of it probably was improperly leased. By that is meant without owner permission or knowledge. So an uproar could come soon with charges of gold bullion theft, or at least failure of fiduciary responsibility. Theft is a simpler description.

China is the biggest gold producer in the world now, but none of its output is directed to the open market. Russia is a significant gold producer also, but none of its output is directed to the open market either. A near default occurred in early April from a close call to Deutsche Bank on 850 thousand ounces of gold. The tarnished bankers at D-Bank dug up over a million ounces on the quick from the ready Euro Central Bank mine shifts in the nick of time. Never ignore the basic fact that COMEX lies through its teeth about the gold bullion in its vaults, since audits do not occur, some is leased (replaced by paper certificates), and some is committed in some fashion to very wealthy parties (unavailable). Far less gold bullion rests in COMEX vaults than is advertised. All signals point to serious strain in COMEX gold supply.

FEEDERS FOR GOLD FULLY LOADED

Two important feeder systems continue to be USDollar weakness and USTreasury Bond weakness. More important than these is the systematic ruin of the major global currencies generally, but a convenient chart is not offered to track it. Just note the near 0% official rates dictated by the failed franchised Politburos known as central banks in most countries, or the movement toward 0%. The USDollar has broken below important support at 81. Expect it to fall further after more dithering. The long-term USTreasury Note has suffered a fast rising surge in its bond yield. Its target from different perspectives is 4.1%, and right quick. These two highly favorable charts will power the gold price to new highs very soon. Nobody knows how soon, but soon. Rarely does one see both the USDollar and USTreasurys fall in value simultaneously. They are now, and will provide a jet assist to gold, which is held back only by COMEX corruption. Their illicit maneuvers are more obvious and desperate with each passing week. Someday their actions might even be on the news. The imminent Standard & Poors debt downgrade of the UKGilt (bonds from British Govt) hit the credit market last week like a bolt of lightning. My belief is that it might have short-circuited the US-UK financial foundation, and burned out some major circuit boards. The US and UK share Third World finance characteristics. If a Fourth World existed, the US would merit it.

(Click on images to enlarge)

The gold price is on the verge of a breakout to new nominal highs. The chart demands it. It needs only a trigger, in a land where potential triggers dot the charred landscape. A gold event will be unavoidable. Its chronic strain has derived from the extreme disparities between the physical market mired in shortage, versus the paper market with unlimited supply. The tail is wagging the dog here, as it has been for years, soon to end. The silver price will easily recover to the 17 level in a flash. It has already surpassed the February high. It is loading up for the next little surge to resistance that awaits at the 17-19 range. The potential sling shot momentum boost for silver will be powerful, enough to send its price to 30 with ease. Think pendulum.

NOW FACTOR IN DISRUPTIVE EVENTS, THE PRICE DISLOCATIONS, AND THE OVER-ARCHING PARADIGM SHIFT IN PROGRESS. THE GOLD PRICE COULD REACH 1300 SUDDENLY. WITH EXTREME CONTROVERSY FROM COMEX, LIKE DELIVERY DEFAULTS, PUBLICIZED CORRUPTION, AND EVEN FRAUD INDICTMENTS, THE GOLD PRICE COULD OVER-RUN THE 1300 TARGET AND HEAD FOR 1500 AND BEYOND. SILVER COULD AS A RESULT FOLLOW ITS WARRIOR BROTHER, HEAD PAST 20 IN A FLASH, AND PURSUE 30 EASILY.

Little attention has been given lately to one of the most reliable time-tested forward indicators of the gold price. The ratio of the 10-year USTreasury Note yield to the 2-year USTreasury Bill yield has always been highly reliable in predicting a move in the gold price. The simple chart of bond yields versus maturity years is known better as the Treasury Yield Curve. The ratio is more amenable to chart analysis.A breakout in the Treasury Yield Ratio is in progress. All benefits from the mid-March monetization announcement have vanished. If the 2-year bond yield remains near 1%, where it appears stuck, then the breakout target would indicate that the 10-year bond yield is heading to 4.1% at least. Yet another method targets 4.1% in the long bond yield. The presented ratio contains information on the future prospect of price inflation, in a reliable contrast of time perspectives. Knuckleheads who insist on pounding the Deflation Tables might want to check this indicator, and look at the crude oil price. It is $63 per barrel, not the $20-25 predicted by these lost troopers. Yo Mish Bro, can you spare me a deflating dime? The strict definition of money is useless anymore. The Shadow Banking system is an actual part of the real world, which you do NOT count.

To the fools, dolts, and morons out there who cling to notions of recovery and Green Shoots, bless your heart. Hope has clouded your minds. Once more you believe the liars and purveyors of propaganda, after being nearly fatally burned. You must believe in the Easter Bunny, Santa Claus, and the Tooth Fairy. You should not be in charge of investment funds, but rather of crayon supply cabinets and Beanie Baby collector items. The Case Shiller housing price index this week reported a 19.1% annual decline in 1Q2009 from Q1 last year. Foreclosures in April were up 32% over last year, as the nightmare continues. That is 1 in 374 homes with mortgages in America in some process of foreclosure. A relentless decline in home prices erases household wealth, and the source of consumer spending. Consumer confidence is ephemeral and baseless. The mortgage rate has just gone above the pre-March levels, when the USFed announced they would monetize $1050 billion in both USTreasury Bonds and USAgency Mortgage Bonds. The benefit has been erased. Today's underwater mortgage is tomorrow's foreclosure, made worse by job losses. The FDIC this week reported a 25% rise in non-current loans in 1Q2009 from Q4 of last year. Greater bank losses will come, much like floods follow hurricanes. And lastly, give credit to the USGovt statrats in their busy laboratories. They decided to ramp up the Q2 Gross Domestic Product by including all USGovt rescue funds for the big banks, including the diverse funds from the many liquidity facilities. All those funds will go directly into the GDP for Q2 as a special line item. Expect a miraculous economic recovery in the second quarter, based in vapor. The stock rally since March was based in accounting fraud. These are true American innovations, but too bad they are not exportable! They are not, since they have no value.

The Post-American Apocalypse

In Fareed Zakaria’s book, The Post American World, we find some apt criticisms of American behavior (and Western behavior in general). “In past crises,” he wrote, “the West played the part of the stern schoolteacher rebuking a wayward classroom. The lessons they imparted now seem discredited. Recall that during the Asian financial crisis the United States and other Western countries demanded that the Asians take three steps – let bad banks fail, keep spending under control, and keep interest rates high. In its own crisis, the West has done exactly the opposite on all three fronts.” Here Zakaria brilliantly exposes our unwillingness to face the music. We think somehow that we are the exception to the rule. This is because our collective character has been spoiled. It has long been my contention, that because we are “spoiled,” our culture has become a process of leveling as described in Søren Kierkegaard’s essay “The Present Age.”

The spoiled adult, like the spoiled child, doesn’t want to do the right thing. Furthermore, he hates his better, revolts against authority, and embraces the path of self-destruction. He doesn’t want the rules applied to him. Resentment, said Kierkegaard, “becomes a constituent principle of want of character, which from utter wretchedness tries to sneak itself a position, all the time safeguarding itself by conceding that it is less than nothing. The ressentiment which results from want of character can never understand that eminent distinction really is distinction.” Here is our crisis in a nutshell. We want to sneak ourselves a position. As Zakaria pointed out in his book, Americans have borrowed 80 percent of the world’s surplus savings, “using it for consumption.” In other words, he explained, “we are selling off our assets to foreigners to buy a couple more lattes a day.”

We told ourselves that because we won the Cold War we could begin a spending spree. We reached that blessed state described by Francis Fukuyama as “the end of history.” But in reality, the KGB and the Russian nuclear missiles never really went away. Zakaria recognizes the Cold War was the beginning of our arrogance, and our extreme addiction to debt, but he remains clueless about the consequences of the revival of Russian power. He does not see what is hidden beneath the surface. Communists are now nationalists – or national socialists – who have embraced capitalist means in order to achieve the end of capitalism. They do not admit to being Marxists, full of resentment against “that eminent distinction” that “really is distinction.” They call themselves democrats. They win elections under various false flags. They participate the in the process of leveling on their own terms.

I am reminded of a quote from James Burnham’s book, Suicide of the West. Burnham wrote: “I have stated as my underlying hypothesis the proposition that liberalism is the ideology of Western suicide. My Americanized procedure might suggest narrowing the proposition to: liberalism is the ideology of American suicide. On two grounds I think that the wider assertion may be retained: first because … American liberalism is only a local variety of an ideology (and historical tendency) present in … the other Western nations; and second, because Western civilization could not survive as a going concern, as more than a remnant, without the United States. I take it as too obvious to require discussion that, if the United States collapses or declines to unimportance, the collapse of the other Western nations will not be far behind….” (Italics added.)

The wisdom of Burnham is not the wisdom of Zakaria. Of course, the latter does not say that the post-American world will be a world where the United States “collapses or declines to unimportance.” He doesn’t believe that such a collapse is occurring. Zakaria’s optimism intrigues me, because it seems so utterly unrealistic – lacking in foresight. My view is closer to Burnham’s view, closer to a traditional “balance of power” view. You cannot upset the superpower balance with impunity. If today’s economics of catastrophic leverage was encouraged by the fall of the Soviet Union, it is no coincidence that the Great Crash coincides with the reemergence of the Soviet successor state. Zakaria does not see the danger in what is presently transpiring. He sees the “rise of the rest” as opposed to the “decline of the West.” This is a pleasant interpretation, and we hope it is correct. Western civilization isn’t disintegrating, he argues. The rest of the world is merely catching up. It is a positive process if we establish a cooperative spirit and the right global institutions. But is this analysis really credible? Is it not tinged with utopianism?

Nations may cooperate, may form leagues or collective security organizations, but alien civilizations and cultures aren’t going to melt into each other under the auspices of the global market. In larger historical and global terms, such a process involves conquest and war as well as market forces. Sovereign power remains something unto itself, reserved for nations and princes. So-called “democracy” has always been a precarious stand-in, replacing the feud of armed men with the feud of words and ballots (i.e., unarmed men). Here a rule-based game has replaced the old power-and-violence game. It is logical to assume, that once the rule-based game effectively nullifies itself through its own progressive and steady derangement, there necessarily occurs a reversion to the power-and-violence game.

From the warlord we derive patriarchy, monarchy and aristocracy – bringing an end to feminism, democracy and egalitarianism. This reversal of the present order seems rather inevitable to me. Does anyone really believe, given the extent of history stretched out behind us, that the tenuous experimental formations of the moment stand any chance of long-term success? In doing what we have done, we are flying blind into the future. A Great Crash is what we should expect. At present this is inconceivable because we haven’t accepted what is happening before our eyes. As Zakaria points out, we refuse to let failing banks fail, keep spending under control and interest rates high. We have not taken seriously Joseph Schumpeter’s joke that modern capitalism is merely the decaying form of Feudalism. The seeming paradox has been neglected, namely, that liberalism itself was erected on illiberal supports, and has long sought to remove those supports; in other words, to commit suicide as Burnham painstakingly outlined.

Zakaria writes of future progress beyond the nation state. He writes of international institutions carrying humanity forward without a thought for the disappearance of old-style religious belief, or old-style aristocratic culture. I cannot help seeing this “vision” of the future as a deriving from that same self-indulgence that currently props up failing banks, spends trillions in bailout packages, and drops interest rates. There can be no institution worthy of the name that can escape its fate by such methods. And furthermore, the market cannot homogenize humanity the way a dairy homogenizes milk. We are not simply economic creatures. Our identity extends to family, creed and nation. George Washington was a general, not a social democrat or a Wall Street speculator. His task was not to homogenize. It was to oppose force with force.

Think of your favorite fairy tale, with its happy ending. History is not a fairy tale. If some episode in history seems to end happily, don’t be deceived. Happiness in history is a precursor to unhappiness. Nations that achieve great victories – Rome over Carthage or Greece over Persia – experience an inward decline as they devolve into civil war. As it happens, the United States won a great victory in 1945 and achieved great prosperity. This happiness is the source of our present malaise, which must lead us to an unprecedented political crisis. Because America is a superpower an international crisis is also engendered. Sophisticated observers in Russia and China know what I’m referring to. The unraveling of a society, a nation or civilization is a periodic occurrence in history. It has happened before and will happen again. It has happened to others, and it will happen to us. As Oswald Spengler predicted, we are passing from capitalism to Caesarism. There is something natural in the logic of this passage. The reversion to the armed man as supreme arbiter is not preferable, but merely inevitable given that human nature becomes spoiled by too much success. We should be reminded that nations are born in blood and renewed in blood. We do not like this. We don’t want it. But everything we are doing plays to this tragic passage. This is not a nice thing to say, and not a pleasant thing to acknowledge, but it partakes of a more realistic sense of history than mildly embracing internationalism and vaguely suggesting a move in the direction of unilateral nuclear disarmament as Zakaria does when he suggests (on p. 241) that American “credibility” depends on such moves.

If we realize what we are against, we can mitigate the danger. If we go on dreaming of a bright future, we are going to be caught short.

(J.R. Nyquist)

Buying Brand Obama

Barack Obama is a brand. And the Obama brand is designed to make us feel good about our government while corporate overlords loot the Treasury, our elected officials continue to have their palms greased by armies of corporate lobbyists, our corporate media diverts us with gossip and trivia and our imperial wars expand in the Middle East. Brand Obama is about being happy consumers. We are entertained. We feel hopeful. We like our president. We believe he is like us. But like all branded products spun out from the manipulative world of corporate advertising, we are being duped into doing and supporting a lot of things that are not in our interest.

What, for all our faith and hope, has the Obama brand given us? His administration has spent, lent or guaranteed $12.8 trillion in taxpayer dollars to Wall Street and insolvent banks in a doomed effort to reinflate the bubble economy, a tactic that at best forestalls catastrophe and will leave us broke in a time of profound crisis. Brand Obama has allocated nearly $1 trillion in defense-related spending and the continuation of our doomed imperial projects in Iraq, where military planners now estimate that 70,000 troops will remain for the next 15 to 20 years. Brand Obama has expanded the war in Afghanistan, including the use of drones sent on cross-border bombing runs into Pakistan that have doubled the number of civilians killed over the past three months. Brand Obama has refused to ease restrictions so workers can organize and will not consider single-payer, not-for-profit health care for all Americans. And Brand Obama will not prosecute the Bush administration for war crimes, including the use of torture, and has refused to dismantle Bush’s secrecy laws or restore habeas corpus.

Brand Obama offers us an image that appears radically individualistic and new. It inoculates us from seeing that the old engines of corporate power and the vast military-industrial complex continue to plunder the country. Corporations, which control our politics, no longer produce products that are essentially different, but brands that are different. Brand Obama does not threaten the core of the corporate state any more than did Brand George W. Bush. The Bush brand collapsed. We became immune to its studied folksiness. We saw through its artifice. This is a common deflation in the world of advertising. So we have been given a new Obama brand with an exciting and faintly erotic appeal. Benetton and Calvin Klein were the precursors to the Obama brand, using ads to associate themselves with risqué art and progressive politics. It gave their products an edge. But the goal, as with all brands, was to make passive consumers mistake a brand with an experience.

"The abandonment of the radical economic foundations of the women’s and civil-rights movements by the conflation of causes that came to be called political correctness successfully trained a generation of activists in the politics of image, not action," Naomi Klein wrote in "No Logo." Obama, who has become a global celebrity, was molded easily into a brand. He had almost no experience, other than two years in the Senate, lacked any moral core and could be painted as all things to all people. His brief Senate voting record was a miserable surrender to corporate interests. He was happy to promote nuclear power as "green" energy. He voted to continue the wars in Iraq and Afghanistan. He reauthorized the Patriot Act. He would not back a bill designed to cap predatory credit card interest rates. He opposed a bill that would have reformed the notorious Mining Law of 1872. He refused to support the single-payer health care bill HR676, sponsored by Reps. Dennis Kucinich and John Conyers. He supported the death penalty. And he backed a class-action "reform" bill that was part of a large lobbying effort by financial firms. The law, known as the Class Action Fairness Act, would effectively shut down state courts as a venue to hear most class-action lawsuits and deny redress in many of the courts where these cases have a chance of defying powerful corporate challenges.

While Gaza was being bombarded and hit with airstrikes in the weeks before Obama took office, "the Obama team let it be known that it would not object to the planned resupply of ‘smart bombs’ and other hi-tech ordnance that was already flowing to Israel," according to Seymour Hersh. Even his one vaunted anti-war speech as a state senator, perhaps his single real act of defiance, was swiftly reversed. He told the Chicago Tribune on July 27, 2004, that "there’s not that much difference between my position and George Bush’s position at this stage. The difference, in my mind, is who’s in a position to execute." And unlike anti-war stalwarts like Kucinich, who gave hundreds of speeches against the war, Obama then dutifully stood silent until the Iraq war became unpopular. Obama’s campaign won the vote of hundreds of marketers, agency heads and marketing-services vendors gathered at the Association of National Advertisers’ annual conference in October. The Obama campaign was named Advertising Age’s marketer of the year for 2008 and edged out runners-up Apple and Zappos.com. Take it from the professionals. Brand Obama is a marketer’s dream. President Obama does one thing and Brand Obama gets you to believe another. This is the essence of successful advertising. You buy or do what the advertiser wants because of how they can make you feel.

Celebrity culture has leeched into every aspect of our culture, including politics, to bequeath to us what Benjamin DeMott called "junk politics." Junk politics does not demand justice or the reparation of rights. Junk politics personalizes and moralizes issues rather than clarifying them. "It’s impatient with articulated conflict, enthusiastic about America’s optimism and moral character, and heavily dependent on feel-your-pain language and gesture," DeMott noted. The result of junk politics is that nothing changes – "meaning zero interruption in the processes and practices that strengthen existing, interlocking systems of socioeconomic advantage." It redefines traditional values, tilting "courage toward braggadocio, sympathy toward mawkishness, humility toward self-disrespect, identification with ordinary citizens toward distrust of brains." Junk politics "miniaturizes large, complex problems at home while maximizing threats from abroad. It’s also given to abrupt unexplained reversals of its own public stances, often spectacularly bloating problems previously miniaturized." And finally, it "seeks at every turn to obliterate voters’ consciousness of socioeconomic and other differences in their midst."

An image-based culture, one dominated by junk politics, communicates through narratives, pictures and carefully orchestrated spectacle and manufactured pseudo-drama. Scandalous affairs, hurricanes, earthquakes, untimely deaths, lethal new viruses, train wrecks—these events play well on computer screens and television. International diplomacy, labor union negotiations and convoluted bailout packages do not yield exciting personal narratives or stimulating images. A governor who patronizes call girls becomes a huge news story. A politician who proposes serious regulatory reform, universal health care or advocates curbing wasteful spending is boring. Kings, queens and emperors once used their court conspiracies to divert their subjects. Today cinematic, political and journalistic celebrities distract us with their personal foibles and scandals. They create our public mythology. Acting, politics and sports have become, as they were during the reign of Nero, interchangeable.

In an age of images and entertainment, in an age of instant emotional gratification, we do not seek reality. Reality is complicated. Reality is boring. We are incapable or unwilling to handle its confusion. We ask to be indulged and comforted by clichés, stereotypes and inspirational messages that tell us we can be whoever we seek to be, that we live in the greatest country on Earth, that we are endowed with superior moral and physical qualities, and that our future will always be glorious and prosperous, either because of our own attributes, or our national character, or because we are blessed by God. Reality is not accepted as an impediment to our desires. Reality does not make us feel good. In his book "Public Opinion," Walter Lippmann distinguished between "the world outside and the pictures in our heads." He defined a "stereotype" as an oversimplified pattern that helps us find meaning in the world. Lippmann cited examples of the crude "stereotypes we carry about in our heads" of whole groups of people such as "Germans," "South Europeans," "Negroes," "Harvard men," "agitators" and others. These stereotypes, Lippmann noted, give a reassuring and false consistency to the chaos of existence. They offer easily grasped explanations of reality and are closer to propaganda because they simplify rather than complicate.

Pseudo-events—dramatic productions orchestrated by publicists, political machines, television, Hollywood or advertisers—however, are very different. They have, as Daniel Boorstin wrote in "The Image: A Guide to Pseudo-Events in America," the capacity to appear real even though we know they are staged. They are capable, because they can evoke a powerful emotional response, of overwhelming reality and replacing reality with a fictional narrative that often becomes accepted truth. The unmasking of a stereotype damages and often destroys its credibility. But pseudo-events, whether they show the president in an auto plant or a soup kitchen or addressing troops in Iraq, are immune to this deflation. The exposure of the elaborate mechanisms behind the pseudo-event only adds to its fascination and its power. This is the basis of the convoluted television reporting on how effectively political campaigns and politicians have been stage-managed. Reporters, especially those on television, no longer ask if the message is true but if the pseudo-event worked or did not work as political theater. Pseudo-events are judged on how effectively we have been manipulated by illusion. Those events that appear real are relished and lauded. Those that fail to create a believable illusion are deemed failures. Truth is irrelevant. Those who succeed in politics, as in most of the culture, are those who create the brands and pseudo-events that offer the most convincing fantasies. And this is the art Obama has mastered.

A public that can no longer distinguish between truth and fiction is left to interpret reality through illusion. Random facts or obscure bits of data and trivia are used to bolster illusion and give it credibility or are discarded if they interfere with the message. The worse reality becomes—the more, for example, foreclosures and unemployment skyrocket—the more people seek refuge and comfort in illusions. When opinions cannot be distinguished from facts, when there is no universal standard to determine truth in law, in science, in scholarship, or in reporting the events of the day, when the most valued skill is the ability to entertain, the world becomes a place where lies become true, where people can believe what they want to believe. This is the real danger of pseudo-events and why pseudo-events are far more pernicious than stereotypes. They do not explain reality, as stereotypes attempt to, but replace reality. Pseudo-events redefine reality by the parameters set by their creators. These creators, who make massive profits peddling these illusions, have a vested interest in maintaining the power structures they control.

The old production-oriented culture demanded what the historian Warren Susman termed character. The new consumption-oriented culture demands what he called personality. The shift in values is a shift from a fixed morality to the artifice of presentation. The old cultural values of thrift and moderation honored hard work, integrity and courage. The consumption-oriented culture honors charm, fascination and likability. "The social role demanded of all in the new culture of personality was that of a performer," Susman wrote. "Every American was to become a performing self." The junk politics practiced by Obama is a consumer fraud. It is about performance. It is about lies. It is about keeping us in a perpetual state of childishness. But the longer we live in illusion, the worse reality will be when it finally shatters our fantasies. Those who do not understand what is happening around them and who are overwhelmed by a brutal reality they did not expect or foresee search desperately for saviors. They beg demagogues to come to their rescue. This is the ultimate danger of the Obama Brand. It effectively masks the wanton internal destruction and theft being carried out by our corporate state. These corporations, once they have stolen trillions in taxpayer wealth, will leave tens of millions of Americans bereft, bewildered and yearning for even more potent and deadly illusions, ones that could swiftly snuff out what is left of our diminished open society.

The Investment Climate in 2059

While visiting the court of Attila the Hun in A.D. 448, a Roman diplomat named Priscus was greeted by a barbarian who suddenly began speaking Greek without an accent. Priscus couldn’t believe his ears. The man was dressed as a Hun, lived as a Hun and fought alongside the Huns. How could this possibly be?

The man’s story was simple: he had been born in Greece, had moved to Viminacium on the Danube, became a merchant and married a very rich wife. Then, one day the barbarians overran the frontier. They plundered the town, scattered its inhabitants, and took him into captivity. Adapting to new circumstances he worked and fought for the Huns, earned enough money to buy his freedom, married a barbarian wife, had children, and was welcome at the table of a leading barbarian chief. “He considered his new life among the [Huns] … better than his old life among the Romans,” wrote Priscus.

The Greek-turned-barbarian explained that the Huns had more leisure time than Romans, and weren’t constantly harassed by worries. In time of war, Romans were more likely to die because their safety depended on cowardly generals “who cannot support the conduct of war.” Even worse was the condition of Roman subjects in peace time, “for the exaction of taxes is very severe, and unprincipled men inflict injuries on others,” he said, using the wealth they have stolen to bribe judges and exempt themselves from legal penalties.

This reminds me of a passage in The Consolation of Philosophy, where Boethius argues that political power has a sinister aspect. It supposedly imparts dignity and importance. But there is nothing intrinsically good in this. If it was good, he noted, it would “never fall into the hands of evil men, since incompatible things do not usually associate…. There is no doubt, then, that for the most part it is evil men who hold the offices….”

“Power,” wrote Boethius, “does not make a man master of himself if he is imprisoned by the indissoluble chains of wicked lusts; and when high office is bestowed on unworthy men, so far from making them worthy, it only betrays them and reveals their unworthiness.” Such is true of individuals as well as nations. Rome’s great power over the ancient world enervated and corrupted civilization until it rotted and collapsed. And so, we should not be surprised if life under the barbarians was preferable to life under the corrupt judges and tax collectors of the late Empire.

It is interesting, in light of this, to think of our own civilization. Today’s individual enjoys wealth and power unknown to previous generations. We have the power to travel great distances in a short time. We have instantaneous communications, the accumulated learning of the centuries at our fingertips, but the scope of our thinking is narrow and our minds more ignorant than ever. The power of modern civilization has not made us better people. Instead of bestowing worthiness on us, our wealth and technology merely reveal our unworthiness.

We think that we are more sophisticated than our grandfathers. But we are less sophisticated, by far. Our descent into darkness is best demonstrated by listing old artists beside new artists; by listing old statesmen beside new statesmen; by comparing the lives of our grandparents to our own. The sociologist notices that more children are born outside of marriage, that epidemic cheating has taken our schools by the throat, that we have incompetence in business and government, that we find banality and ignorance on all sides. What conclusion can he draw? The powers and advantages of modern life haven’t made us worthy. They merely serve to amplify and accelerate our unworthiness.

I am amazed by those who think the U.S. economy is going to recover, that global peace is attainable, that American liberties are going to survive American barbarism. Look at our culture today: men are no longer men, and women are no longer women; capitalists no longer uphold free market principles; constitutional government no longer adheres to the Constitution; enemies are treated as friends. Nobody reads the signs. Nobody sees what is coming. Look at the birthrate among Europeans. Look at the abandonment of European culture. Look at the Muslim birthrate. Europe will be Islamic in fifty years. Long before that, the Russians and Chinese will achieve nuclear dominance of the globe. What do you think the investment climate will be in 2059?