Learning from Dogs

Dogs are integrous animals. We have much to learn from them.

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Has it always been like this?

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An essay from George Monbiot that highlights a world most would rather not think about.

It was past 4pm when I realised that I didn’t have a post for tomorrow (today!).  I went through my email folder that I devote for potential blog posts and came across this recent essay from George Monbiot.  Some time ago George gave me a general permission to republish his essays here on Learning from Dogs.

As it happens, this essay from George resonated unpleasantly with an article that I read this morning on the Permaculture Research Institute website.  It was called 10 Ways to Prepare for a Post-Oil Society.  Take this extract, for example:

2. We have to produce food differently.

The Monsanto/Cargill model of industrial agribusiness is heading toward its Waterloo. As oil and gas deplete, we will be left with sterile soils and farming organized at an unworkable scale. Many lives will depend on our ability to fix this. Farming will soon return much closer to the center of American economic life. It will necessarily have to be done more locally, at a smaller-and-finer scale, and will require more human labor. The value-added activities associated with farming — e.g. making products like cheese, wine, oils — will also have to be done much more locally. This situation presents excellent business and vocational opportunities for America’s young people (if they can unplug their iPods long enough to pay attention). It also presents huge problems in land-use reform. Not to mention the fact that the knowledge and skill for doing these things has to be painstakingly retrieved from the dumpster of history. Get busy.

When I read the full piece it made me feel angry that those in power both sides of ‘The Pond’ display no focus or interest in the future of modern societies over the next 25-years; well none that I can pick up!  Yet when you speak to friends, neighbours and people one meets when out-and-about, almost without exception people are nervous about just where it’s all heading – and that’s even before Russia and the Ukraine comes up!

Read George’s essay and see what comes to your mind.  Oh, and do leave a comment!

Follow the smoke trails!

Follow the smoke trails!

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How the media gives Big Tobacco everything it wants.

By George Monbiot, published in the Guardian 18th March 2014

Almost everything is fake. The brave proverbs with which we were brought up – the truth will out, cheats never prosper, virtue will triumph – turn out to be unfounded. For the most part, our lives are run and our views are formed by chancers, cheats and charlatans. [Ed. my emphasis!]

They construct a labyrinth of falsehoods from which it is almost impossible to emerge without the help of people who devote their lives to navigating it. This is the role of the media. But the media drags us deeper into the labyrinth.

There are two kinds of corporate lobbyists in the UK. There are those who admit they are lobbyists but operate behind closed doors, and there are those who operate openly but deny they are lobbyists. Because David Cameron has broken his promise to shine “the light of transparency on lobbying in our country and … come clean about who is buying power and influence” we still “don’t know who is meeting whom. We don’t know whether any favours are being exchanged. We don’t know which outside interests are wielding unhealthy influence. … Commercial interests – not to mention government contracts – worth hundreds of billions of pounds are potentially at stake.” (All that was Cameron in 2010 by the way)(1). At the same time, the media is bustling with people working for thinktanks which refuse to say who is paying them, making arguments which favour big business and billionaires.

Perhaps the most prominent is the Institute of Economic Affairs. Like most groups of this kind, it refuses to disclose its funding. But there’s a trail of smoke. We now know that it has been taking substantial sums from British American Tobacco (BAT), Japan Tobacco International, Imperial Tobacco and Philip Morris International(2,3). BAT has funded the institute since 1963(4). By pure coincidence, the IEA has fiercely defended the tobacco companies from efforts to regulate their products.

In their indispensable new book A Quiet Word, Tamasin Cave and Andy Rowell explain why corporations want other people to front their campaigns. “The third party has the credibility of looking independent; seems to be motivated by something other than self-interest and profit; and therefore has a much greater chance of being believed. Credibility, authenticity and the impression of independence are key. It is about separating the message from the self-interested source.”(5) While many controversial companies use this tactic, it is particularly important for tobacco firms; first because no one trusts them; secondly because they are banned from seeking to influence public health policy, under the Convention on Tobacco Control, which the UK has ratified(6).

Last year a presentation made in 2012 by Philip Morris International (which sells Marlboro and other brands) was leaked(7). It explained how the company intended to fight the proposed plain packaging rules in the UK. Plain packaging is a misnomer: the packs show only horrible photographs of medical conditions caused by smoking. The evidence suggests that they’re a powerful deterrent(8). Philip Morris listed the arguments that should be made in the media to try to prevent the government from introducing plain packaging, identified the BBC as a key outlet, and named the Institute of Economic Affairs and the Tax Payers’ Alliance as potential “media messengers”(9).

So you might imagine that the media – and the BBC in particular – would exercise a certain amount of caution when interviewing think tanks funded by tobacco companies about the regulation of tobacco. Such as disclosing that they are, er, funded by tobacco companies. You would of course be wrong.

At the end of last year the BBC’s Today programme interviewed Mark Littlewood, the head of the Institute of Economic Affairs, about plain packaging(10). It failed to inform listeners that the IEA has received funding from tobacco companies. Mark Littlewood used two of the arguments recommended by Philip Morris in that leaked document: there’s no evidence that plain packaging affects the number of people who smoke, and it stimulates a black market in cigarettes.

I encouraged readers to complain, on the grounds that the BBC’s failure to disclose his interests in the issue he was discussing flatly contravenes three of its editorial guidelines. The BBC’s responses astonished me. First it claimed that it was not “appropriate or necessary” to include this information, on the grounds that the IEA doesn’t publish it(11). In other words, if you’re not candid about who funds you, you’re off the hook. Then, as the complaints continued, it maintained that “all we have to go on are newspaper reports. In the absence of any independent verification therefore, it remains an allegation”(12).

When the BBC was told that tobacco companies have admitted funding the IEA, the reasoning changed again. Now it argues that it would be wrong to assume “that an organisation adopts a particular position on an issue because it receives funding from an interested party”: it might have formed the position first and received the money as a consequence(13). That’s true, though it’s hard to see what difference it makes: if think tanks survive and prosper because their position just happens consistently to align with the grimmest of corporate interests, the politics of the relationship don’t change very much. In either case, surely listeners should be allowed to make up their own minds. Who would not wish to be told that an organisation whose spokesperson is defending Big Tobacco on the Today programme receives money from Big Tobacco? What kind of broadcaster does not see that as relevant information?

Since then, the IEA’s staff have been interviewed by the BBC about tobacco eight more times(14). In none of the interviews I have listened to are their interests declared. It’s all about to blow up again, as the government’s review of plain packaging reports at the end of this month, and the thinktanks will be trundling all over the media(15). The petition I published on change.org, calling on the BBC to disclose its contributors’ financial interests, has 11,000 signatures so far(16). If they reach 20,000, I’ll present it.

Stories like this remind me that much of life is a struggle against disappointment. Perhaps I’m an idiot, but I expected a world that was so much better. I still believe it’s possible. But getting there requires a daily struggle against those who would mislead us.

www.monbiot.com

References:

1. http://toryspeeches.files.wordpress.com/2013/11/david-cameron-rebuilding-trust-in-politics.pdf

2. http://www.theguardian.com/society/2013/jun/01/thinktanks-big-tobacco-funds-smoking

3. http://www.tobaccotactics.org/index.php/Institute_of_Economic_Affairs

4. As above.

5. Tamasin Cave and Andy Rowell, 2014. A Quiet Word: Lobbying, Crony Capitalism and
Broken Politics in Britain. Bodley Head, London.

6. Article 5.3. http://whqlibdoc.who.int/publications/2003/9241591013.pdf

7. www.tobaccotactics.org/index.php/PMI%E2%80%99s_Anti-PP_Media_Campaign

8. Crawford Moodie et al, no date give. Plain Tobacco Packaging: A Systematic Review. Report for the Department of Health by the Centre for Tobacco Control Research, University of Stirling. http://phrc.lshtm.ac.uk/papers/PHRC_006_Final_Report.pdf.

9. www.tobaccotactics.org/index.php/PMI%E2%80%99s_Anti-PP_Media_Campaign

10. Today, 28th November 2013. BBC Radio 4.

11. BBC Complaints, 4th December 2013.

12. BBC Complaints, 9th January 2014.

13. BBC Editorial Complaints Unit, 19th February 2014.

14. http://www.iea.org.uk/in-the-media/media-coverage

15. http://www.thelancet.com/journals/lancet/article/PIIS0140-6736%2814%2960480-3/fulltext?version=printerFriendly

16. https://www.change.org/en-GB/petitions/the-bbc-always-disclose-the-financial-interests-of-the-people-you-interview-in-the-issues-they-are-discussing

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Won’t be the first time, nor the last time, that I mention the need, the critical need, for human society to learn the value of integrity: the quality that we see coming from our animals day-in; day-out!

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What goes up?

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Civilizations die from suicide, not by murder. Arnold J Toynbee

I’m not sure where to start but as a result of finishing a particular book, plus a recent essay on Tom Dispatch, then another recent essay from Simon Johnson of Baseline Scenario fame, there were so many thoughts bumping around this aged brain that I had no alternative than to offer them to you, dear reader.  You should also be warned that this is going to be two posts, covering today and tomorrow.

So let’s start with the book: The United States of Fear by Tom Engelhardt.  To be brutally honest, I purchased the book more as a gesture of support to Tom who has been very supportive of Learning from Dogs, in particular allowing me permission to reproduce any essays that were published on TomDispatch, as a number have so been.  What an error of judgment!  Tom’s book provided another one of those rare but inspirational occasions where you know the world will never look quite the same again!

The back cover page of the book sets out the theme, thus,

Published 2011

In 2008, when the US National Intelligence Council issued its latest report meant for the administration of newly elected President Barack Obama, it predicted that the planet’s “sole superpower” would suffer a modest decline and a soft landing fifteen years hence. In his new book The United States of Fear, Tom Engelhardt makes clear that Americans should don their crash helmets and buckle their seat belts, because the United States is on the path to a major decline at a startling speed. Engelhardt offers a savage anatomy of how successive administrations in Washington took the “Soviet path”—pouring American treasure into the military, war, and national security—and so helped drive their country off the nearest cliff.This is the startling tale of how fear was profitably shot into the national bloodstream, how the country—gripped by terror fantasies—was locked down, and how a brain-dead Washington elite fiddled (and profited) while America quietly burned.

Think of it as the story of how the Cold War really ended, with the triumphalist “sole superpower” of 1991 heading slowly for the same exit through which the Soviet Union left the stage twenty years earlier.

One of the fascinating aspects of the book is that it was put together from 32 essays previously published online by Tom; the complete list with titles and dates is on pps. 205 & 206.  So giving you a real feel for the book is easy!  I’m going to do that by linking to one of those essays available in the archives of TomDispatch here.  That essay was called Washington’s Echo Chamber and appears in the book starting on page 170 under the sub-heading of Five Ways to Be Tone Deaf in Washington. Let me quote you a little,

So much of what Washington did imagine in these last years proved laughable, even before this moment swept it away.  Just take any old phrase from the Bush years.  How about “You’re either with us or against us”?  What’s striking is how little it means today.  Looking back on Washington’s desperately mistaken assumptions about how our globe works, this might seem like the perfect moment to show some humility in the face of what nobody could have predicted.

It would seem like a good moment for Washington — which, since September 12, 2001, has been remarkably clueless about real developments on this planet and repeatedly miscalculated the nature of global power — to step back and recalibrate.

As it happens, there’s no evidence it’s doing so.  In fact, that may be beyond Washington’s present capabilities, no matter how many billions of dollars it pours into “intelligence.”  And by “Washington,” I mean not just the Obama administration, or the Pentagon, or our military commanders, or the vast intelligence bureaucracy, but all those pundits and think-tankers who swarm the capital, and the media that reports on them all.  It’s as if the cast of characters that makes up “Washington” now lives in some kind of echo chamber in which it can only hear itself talking.

As a result, Washington still seems remarkably determined to play out the string on an era that is all too swiftly passing into the history books.  While many have noticed the Obama administration’s hapless struggle to catch up to events in the Middle East, even as it clings to a familiar coterie of grim autocrats and oil sheiks, let me illustrate this point in another area entirely — the largely forgotten war in Afghanistan.  After all, hardly noticed, buried beneath 24/7 news from Egypt, Bahrain, Libya, and elsewhere in the Middle East, that war continues on its destructive, costly course with nary a blink.

That was published by Tom a little over 18 months ago!  Seems as relevant today as then!  Let me stay with perspectives from 2011.

Chomsky, visiting Vancouver, Canada in March 2004

On the 24th August 2011 Noam Chomsky wrote an essay entitled American Decline: Causes and Consequences.  Chomsky, as Wikipedia relates, is Professor (Emeritus) in the Department of Linguistics & Philosophy at MIT, where he has worked for over 50 years.  Here is how that essay opens,

In the 2011 summer issue of the journal of the American Academy of Political Science, we read that it is “a common theme” that the United States, which “only a few years ago was hailed to stride the world as a colossus with unparalleled power and unmatched appeal — is in decline, ominously facing the prospect of its final decay.” It is indeed a common theme, widely believed, and with some reason. But an appraisal of US foreign policy and influence abroad and the strength of its domestic economy and political institutions at home suggests that a number of qualifications are in order. To begin with, the decline has in fact been proceeding since the high point of US power shortly after World War II, and the remarkable rhetoric of the several years of triumphalism in the 1990s was mostly self-delusion. Furthermore, the commonly drawn corollary — that power will shift to China and India — is highly dubious. They are poor countries with severe internal problems. The world is surely becoming more diverse, but despite America’s decline, in the foreseeable future there is no competitor for global hegemonic power.

So, according to Chomsky, it’s not as ‘black and white’ as Engelhardt sets out.  But do read the full essay.

Nevertheless, the idea that the USA is ‘fiddling while Rome burns’ is supported in an essay published by Mattea Kramer on TomDispatch on the last day of September.  I’m going to end Part One by republishing the essay in full.  (Note that this is being published here after the first ‘debate’ had taken place.)

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Tough Talk for America

A Guide to the Presidential Debates You Won’t Hear 
By Mattea Kramer

Five big things will decide what this country looks like next year and in the 20 years to follow, but here’s a guarantee for you: you’re not going to hear about them in the upcoming presidential debates. Yes, there will be questions and answers focused on deficits, taxes, Medicare, the Pentagon, and education, to which you already more or less know the responses each candidate will offer. What you won’t get from either Mitt Romney or Barack Obama is a little genuine tough talk about the actual state of reality in these United States of ours. And yet, on those five subjects, a little reality would go a long way, while too little reality (as in the debates to come) is a surefire recipe for American decline.

So here’s a brief guide to what you won’t hear this Wednesday or in the other presidential and vice-presidential debates later in the month. Think of these as five hard truths that will determine the future of this country.

1. Immediate deficit reduction will wipe out any hope of economic recovery: These days, it’s fashionable for any candidate to talk about how quickly he’ll reduce the federal budget deficit, which will total around $1.2 trillion in fiscal 2012. And you’re going to hear talk about the Simpson-Bowles deficit reduction plan and more like it on Wednesday. But the hard truth of the matter is that deep deficit reduction anytime soon will be a genuine disaster. Think of it this way: If you woke up tomorrow and learned that Washington had solved the deficit crisis and you’d lost your job, would you celebrate? Of course not. And yet, any move to immediately reduce the deficit does increase the likelihood that you will lose your job.

When the government cuts spending, it lays off workers and cancels orders for all sorts of goods and services that would generate income for companies in the private sector. Those companies, in turn, lay off workers, and the negative effects ripple through the economy. This isn’t atomic science. It’s pretty basic stuff, even if it’s evidently not suitable material for a presidential debate. The nonpartisan Congressional Research Service predicted in a September report, for example, that any significant spending cuts in the near-term would contribute to an economic contraction. In other words, slashing deficits right now will send us ever deeper into the Great Recession from which, at best, we’ve scarcely emerged.

Champions of immediate deficit reduction are likely to point out that unsustainable deficits aren’t good for the economy. And that’s true — in the long run. Washington must indeed plan for smaller deficits in the future. That will, however, be a lot easier to accomplish when the economy is healthier, since government spending declines when fewer people qualify for assistance, and tax revenues expand when the jobless go back to work. So it makes sense to fix the economy first. The necessity for near-term recovery spending paired with long-term deficit reduction gets drowned out when candidates pack punchy slogans into flashes of primetime TV.

2. Taxes are at their lowest point in more than half a century, preventing investment in and the maintenance of America’s most basic resources: Hard to believe? It’s nonetheless a fact. By now, it’s a tradition for candidates to compete on just how much further they’d lower taxes and whether they’ll lower them for everyone or just everyone but the richest of the rich. That’s a super debate to listen to, if you’re into fairy tales. It’s not as thrilling if you consider that Americans now enjoy the lightest tax burden in more than five decades, and it happens to come with a hefty price tag on an item labeled “the future.” There is no way the U.S. can maintain a world-class infrastructure — we’re talking levees, highways, bridges, you name it — and a public education system that used to be the envy of the world, plus many other key domestic priorities, on the taxes we’re now paying.

Anti-tax advocates insist that we should cut taxes even more to boost a flagging economy — an argument that hits the news cycle nearly every hour and that will shape the coming TV “debate.” As the New York Times recently noted, however, tax cuts might have been effective in giving the economy a lift decades ago when tax rates were above 70%. (And no, that’s not a typo, that’s what your parents and grandparents paid without much grumbling.) With effective tax rates around 14% for Mitt Romney and many others, further cuts won’t hasten job creation, just the hollowing out of public investment in everything from infrastructure to education. Right now, the negative effects of tax increases on the most well-off would be small — read: not a disaster for “job creators” — and those higher rates would bring in desperately-needed revenue. Tax increases for middle-class Americans should arrive when the economy is stronger.

Right now, the situation is clear: we’re simply not paying enough to fund the basic ingredients of prosperity from highways and higher education to medical research and food safety. Without those funds, this country’s future won’t be pretty.

3. Neither the status quo nor a voucher system will protect Medicare (or any other kind of health care) in the long run: When it comes to Medicare, Mitt Romney has proposed a premium-support program that would allow seniors the option of buying private insurance. President Obama wants to keep Medicare more or less as it is for retirees. Meanwhile, the ceaseless rise in health-care costs is eating up the wages of regular Americans and the federal budget. Health care now accounts for a staggering 24% of all federal spending, up from 7% less than 40 years ago. Governor Romney’s plan would shift more of those costs onto retirees, according to David Cutler, a health economist at Harvard, while President Obama says the federal government will continue to pick up the tab. Neither of them addresses the underlying problem.

Here’s reality: Medicare could be significantly protected by cutting out waste. Our health system is riddled with unnecessary tests and procedures, as well as poorly coordinated care for complex health problems. This country spent $2.6 trillion on health care in 2010, and some estimates suggest that a staggering 30% of that is wasted. Right now, our health system rewards quantity, not quality, but it doesn’t have to be that way. Instead of paying for each test and procedure, Medicare could pay for performance and give medical professionals a strong incentive to provide more efficient and coordinated care. President Obama’s health law actually pilot tests such an initiative. But that’s another taboo topic this election season, so he scarcely mentions it. Introducing such change into Medicare and the rest of our health system would save the federal government tens of billions of dollars annually. It would truly preserve Medicare for future generations, and it would improve the affordability of health coverage for everyone under 65 as well. Too bad it’s not even up for discussion.

4. The U.S. military is outrageously expensive and yet poorly tailored to the actual threats to U.S. national security: Candidates from both parties pledge to protect the Pentagon from cuts, or even, in the case of the Romney team, to increase the already staggering military budget. But in a country desperate for infrastructure, education, and other funding, funneling endless resources to the Pentagon actually weakens “national security.” Defense spending is already mind-numbingly large: if all U.S. military and security spending were its own country, it would have the 19th largest economy in the world, ahead of Saudi Arabia, Taiwan, and Switzerland. Whether you’re counting aircraft carriers, weapons systems, or total destructive power, it’s absurdly overmatched against the armed forces of the rest of the world, individually or in combination. A couple of years ago, then-Secretary of Defense Robert M. Gates gave a speech in which he detailed that overmatch. A highlight: “The U.S. operates 11 large carriers, all nuclear powered. In terms of size and striking power, no other country has even one comparable ship.” China recently acquired one carrier that won’t be fully functional for some time, if ever — while many elected officials in this country would gladly build a twelfth.

But you’ll hear none of this in the presidential debates. Perhaps the candidates will mention that obsolete, ineffective, and wildly expensive weapons systems could be cut, but that’s a no-brainer. The problem is: it wouldn’t put a real dent in national defense spending. Currently almost one-fifth of every dollar spent by the federal government goes to the military. On average, Americans, when polled, say that they would like to see military funding cut by 18%.

Instead, most elected officials vow to pour limitless resources into more weapons systems of questionable efficacy, and of which the U.S. already owns more than the rest of the world combined. Count on one thing: military spending will not go down as long as the U.S. is building up a massive force in the Persian Gulf, sending Marines to Darwin, Australia, and special ops units to Africa and the Middle East, running drones out of the Seychelles Islands, and “pivoting” to Asia. If the U.S. global mission doesn’t downsize, neither will the Pentagon budget — and that’s a hit on America’s future that no debate will take up this month.

5. The U.S. education system is what made this country prosperous in the twentieth century — but no longer: Perhaps no issue is more urgent than this, yet for all the talk of teacher’s unions and testing, real education programs, ideas that will matter, are nonexistent this election season. During the last century, the best education system in the world allowed this country to grow briskly and lift standards of living. Now, from kindergarten to college, public education is chronically underfunded. Scarcely 2% of the federal budget goes to education, and dwindling public investment means students pay higher tuitions and fall ever deeper into debt. Total student debt surpassed $1 trillion this year and it’s growing by the month, with the average debt burden for a college graduate over $24,000. That will leave many of those graduates on a treadmill of loan repayment for most or all of their adult lives.

Renewed public investment in education — from pre-kindergarten to university — would pay handsome dividends for generations. But you aren’t going to hear either candidate or their vice-presidential running mates proposing the equivalent of a GI Bill for the rest of us or even significant new investment in education. And yet that’s a recipe for and a guarantee of American decline.

Ironically, those in Washington arguing for urgent deficit reduction claim that we’ve got to do it “for the kids,” that we must stop saddling our grandchildren with mountains of federal debt. But if your child turns 18 and finds her government running a balanced budget in an America that’s hollowed out, an America where she has no chance of paying for a college education, will she celebrate? You don’t need an economist to answer that one.

Mattea Kramer is senior research analyst at National Priorities Project and a TomDispatch regular. She is lead author of the new book A People’s Guide to the Federal Budget.

Copyright 2012 Mattea Kramer

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Let me close with another quote from Arnold J. Toynbee:

Of the twenty-two civilizations that have appeared in history, nineteen of them collapsed

when they reached the moral state the United States is in now.

Part Two continues tomorrow.

Civilisations do fail!

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Any lessons for today from the Valley of the Pyramids at Tucume in Peru?

The view of Huaca Larga (Photo: Heinz Plege/PromPerú)

Let’s set the scene,

It’s amazing to think that anyone lived here, that this valley was once green. Now it is sun-blasted, scorching hot, and the only life is the circling vultures and the rainbow-colored iguanas, like something out of a desert hallucination, skittering across the rocks.

The reminders of past life rise up around me, however, eroded to look more like drip castles than the pyramids they once were. I am in Túcume, the once-grand capital of the Sican culture, Peru’s mythical Valley of the Pyramids.

I am not far from Chiclayo, and even closer to the city of Lambayeque, where the Royal Tombs of Sipán Museum serves as one of the major tourist attractions on the north coast. Here at Túcume however, there are few visitors.

It is not hard to get to the site. Combis leave regularly from Chiclayo and Lambayeque, dropping passengers in the modern village of Túcume, from which an quick mototaxi ride leads to the ruins. By car or taxi, it is about a 30 minute ride from Chiclayo.

There are two main trails marked out across the desert plain in Túcume. One leads to Cerro Purgatorio, a craggy hill overlooking the 26 pyramids that comprise the site. The trail winds across the scorched valley, between several of the pyramids, before arriving at a staircase leading to different scenic overlooks on the face of Purgatorio.

WikiPedia, too, has a short reference.

Then there’s a long and revealing article on the InkaNatura Travel Site, which I recommend you go to.

So what happened at Túcume to cause the civilisation to fail?  Maybe this 10-minute film gives the answers, but just a note to say that there are some potentially upsetting scenes for the younger or more sensitive among us.

So anyone sufficiently brave to say that history won’t repeat itself.

Wonder which would be the ‘cursed cities’?

Questions are never stupid!

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A powerful guest post from Patrice Ayme on where next for American energy.

Introduction.

I must have spent an age musing over what to call this Post.  Patrice called it simply ‘Energy Question For The USA’ and it’s a highly appropriate question.  But in the end I chose the title ‘Questions are never stupid’ because I was mindful of the well-known saying, “There is no such thing as a stupid question, only a stupid answer!

So the smart question raised by Patrice is not only very highly appropriate for 2012, it’s also a question that just has to have a smart answer.  Because we are on the brink of it being too late to be flirting with stupid answers.  What many scientists are saying, in one form or another, is that if we don’t embrace the journey of moving away from carbon-based sources of energy for society now and find those alternate sustainable sources by the end of this decade then the laws of unintended consequences will kick in with a vengeance.  The end of the decade is eight years away!

Here’s a picture of my grandson who was one-year-old just a week ago.

Trusting his elders!

That picture reminds me of the comment early on in James Hansen’s book, Storms of my Grandchildren, where he writes ‘I did not want my grandchildren, someday in the future, to look back and say, “Opa understood what was happening, but he did not make it clear.

So on to the Guest post from Patrice.  It’s not an easy, quick read but I’ll tell you what it is!  It’s the sort of ‘wake-up’ call this fine Nation and this even finer Planet should be getting from countless politicians and leaders.  So do read it and, even better, add your comments, and wonder why we seem so content on fiddling while Rome burns!

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Energy Question For The USA

THE AGE OF OIL PRODUCED THE AMERICAN CENTURY. NOW WHAT?

No Vision, No Mission, No Energy

***

Another editorial of Paul Krugman firing volleys at republican “paranoia” for accusing Obama of driving up oil prices. As he observes in “Paranoia Strikes Deeper“: …“the president of the United States doesn’t control gasoline prices, or even have much influence over those prices. Oil prices are set in a world market, and America, which accounts for only about a tenth of world production, can’t move those prices much. Indeed, the recent rise in gas prices has taken place despite rising U.S. oil production and falling imports.”

American households tend to borrow as much as they can. Thus, when oil prices increase markedly, Americans have to cut in crucial budgets, such as house payments. I said at the time that it would lead to a peak in housing prices, and it did.

Why such a drastic influence of oil prices on the economy of the USA? Because Americans, except in a few places such as New York, commute by private car to work. So Americans have to feed the car, if they want to feed themselves.

It was not this way a century ago, or so. At the time public transportation systems using electric tramways and trains were found all over, even in Los Angeles. Car companies put an end to that outrage in the late fifties by buying, and then destroying, all the public transportation system they could put their greedy hands on.  Fossil fuel plutocrats were delighted.

But let’s set aside Krugman’s fake indignation. He is smart enough to know that Romney will do what Romney needs to do to win the Obama, I mean, the election. Waxing lyrical about Romney doing as Obama, does not beat going lyrical about sunrise.

Gasoline prices in the USA are way down in real dollars to what they used to be, decades ago. And so is the gas tax. This means that, far from adapting to the gathering multiply-pronged world ecological and energy crisis, the USA has gone the other way, denying there is any crisis. “What? Me worry?” That’s got to be anti-American indeed.  No, real blooded Americans are all into strip searches and the death panel at the White House.

In Europe, gas prices are more than twice that of the USA, thanks to heavy taxes (stations in France have sported two euros a liter, that is 8 euros per gallon, or more than $10.50). [UK unleaded petrol price, as of today, is the equivalent of $8.70 per gallon, Ed.]

This means that far from being down and out, Europe is efficient enough to operate at that high price level. It also means that Europe is much more motivated than the USA to get much more efficient. In other words, high gasoline prices in Europe are a safety margin. The high prices force the European free market to adapt to a situation that the free market of the USA will encounter someday. Adaptation takes decades: new energies take on the average, historically speaking, 50 years to become dominant. Same, one would guess, for energy efficiencies.

Basically, if oil prices doubled from here, gasoline prices would double in the USA. Whereas, even if the Europeans decided to keep the same high taxes, gasoline prices would only augment by 50%. And, in the much more efficient European economy, with plenty of public electric transportation available, the noxious effects on the European economy would be much less than one would expect from a 50% oil price rise.

The world gets 55 × 1018 joules of useful energy from 475 × 1018 joules of primary energy produced by fossil fuels, biomass and nuclear power plants. That tremendous inefficiency (less than 13%!)  needs to be corrected. It will be, if, and only if, prices are kept high. Thus energy taxes are necessary to adapt to the looming penury.

Why looming penury? Because the reserves of other fossil fuels may have been vastly overestimated (by a factor of 5 in the case of coal). Various fossil fuel lobbies have an interest to over-estimate the reserves (because it keeps the world addicted, as they present their industry as a long range solution, which it is not).

Looking at the raw production numbers, as exhibited below in the graphs, paints a completely different story: production from existing fields is going down dramatically (at 5% rate, per year).  In other words we are in the treachorous waters between the catastrophe of CO2 poisoning and the disaster of running out of energy to burn.

The unavoidable rise of fuel prices will be less grave in Europe than in the USA, because many Europeans would opt for the available electric-based public transportation system (the combination of much more efficient electric motors and central generation is much more efficient than distributing oil to put in SUVs all over, as done in the USA; SUVs, because there are too many holes in the asphalt. A problem partly related to high oil prices!).

Yet, the increase of the cost of imported oil corresponds exactly to the Italian deficit ($55 billion). Although that deficit increase had many causes, oil price increase was by far the most important. And the same for other Southern European countries. So the rise of oil prices was the barrel that broke the back of European debt.

In the USA, ten out of 11 post WWII recessions were followed by oil price spikes. Why are American minds so closed up to the looming strangulation of their economy by oil? Because the fossil fuel plutocracy is on a rampage in the USA. It uses a red hot propaganda to persuade the vast American public of undifferentiated sheep that there is no CO2 ecological crisis, and no energy crisis. (Although the latest polls indicate that two thirds of the public, in a splendid turn-around, believe that there is indeed a man-made climate change crisis; never mind that the New York Times had the latest tornado rampage, with 40 dead, presented as discreetly as possible.)

Why are the fossil plutocrats hysterical? Well we are past Peak Cheap Oil. Moreover, the “majors“, the world’s largest oil companies, have been pushed out of more and more countries, and replaced by national oil companies. Desperate, the majors have gone for riskier and riskier drilling in the deep ocean. Now Chevron, and Transocean, after a 4-day leak off Brazil, see prosecutors asking for lengthy prison sentences and enormous fines.

Most of these oil companies are American, so they have pushed forfracking (destroying the underground with poisons to extract fossil fuels). Superficially, it works: USA imports of fossil fuels went quickly from 60% down to 40%.

However, that did not make a dent in the world price situation, because the demand keeps rising, but the world, overall, is PAST PEAK OIL (as I have long argued and the Nature article alluded to below confirmed, using the obvious argument found in the graphs).

So, basically, American fracking finances Chinese oil consumption. Here are some graphs extracted from Nature and the USA government:

When the horrid sun of diminishing resources rises over the parched American oil desert, while fracking reveals itself to be an unfathomable catastrophe, the howling is going to be very great, and one more reason for a depression will blossom.

Much of the USA’s superiority, in the last 150 years, has come from abundant and cheap oil. First in the North-East, then down to Oklahoma, Texas, Colorado, California. Compare with Western Europe, which had basically no oil.

Oil was not just a question of cheap, convenient energy. Oil has, short of nuclear energy, the highest energy density of any material (OK, nuclear energy is millions of time more energy dense).

Oil gave the USA enormous diplomatic and conspiratorial leverage. American oil plutocrats helped Lenin and Stalin develop their colossal fields in the Caucasus and Caspian. One of those plutocrats, Harriman, son of a railroad magnate, and brother of another Harriman, was one of the main operators of the democratic party. Let alone banker to Hitler. He was decorated both by Stalin, and by Hitler. He then went on as U.S. ambassador to major European capitals, and stayed one the main operators of the government of the USA for decades. “Democrats” have long been impure.

Interestingly, I searched the Internet for a document mentioning Harriman’s Stalino-Hitlerian decorations, but could not find it (I have seen the pictures in the past). All I could read is how much Harriman resisted Stalin each time they met, and that was all the time (a total lie that Harriman resisted Hitler, or Stalin: Harriman was an accomplice of Stalin, and helped give him half of Europe, in exchange for manganese and other stuff. But now Internet agents are obviously paid to reconstruct a truth where American plutocrats look good,  knights in shining armor, fighting Stalin or Hitler, each time they met for tea, dinner, lunch, breakfast, and interminable conferences, for years on end, decade after decade).

A famous example of the clout oil provided the USA with: Texaco fueled Hitler’s conquest of the Spanish republic (this one is hard to hide, because the U.S. Congress slapped Texaco with a symbolic fine, well after the deed was done). That used to amuse Hitler a lot (Hitler gave elaborated reasons to his worried supporters for being in bed with American plutocrats; as the Nazi Party was officially socialist, and anti-plutocratic, that awkward situation may have led him to declare war to the USA on December 11, 1941, to ward off the German generals’ argument that he was just a little corporal in above his head).

Another example: Mussolini was hanged from an American gas station in Milan. Italian communists hanged him from his sponsors’ works.

The fueling of the fascists by American fossil fuel companies helped bring the American Century to the world in general, and Europe in particular. Without Stalin and American plutocratic oil, Hitler’s Panzers could not have moved in 1939 or 1940.

The dignified Elie Wiesel, instead of crying crocodiles tears, wondering how such a thing as Auschwitz was possible, should ask how and why the Nazi extermination machine was fuelled by American plutocrats, and how come he, himself, never talks about that.

Wiesel got the Nobel Peace Prize, just as Jimmy Carter (who launched the American attack on Afghanistan). Was it for disinformation? (And how come waging war in Afghanistan is a big plus for the Peace Prize? Is it related to the same mood which made Sweden help Hitler before and during WWII, and never having a serious look at that, ever since? I know the prize is ostensibly given by Norwegians.)

Wikipedia is big on the notion of “weasel words“, and rightly so. Deeper than that is what I would call weasel logic. And ever deeper, weasel worlds. To talk about Hitler without ever wondering who his sponsors were, and what they were after, is to live in a weasel world.

I like Elie Wiesel personally. Yet, just as I like Krugman, Obama, and countless others, such as the infamous Jean-Paul Sartre, he likes power even more than truth. OK, It is unfair to put Sartre, who really espoused the most abject terrorism, with the others… As long as individuals prefer power to truth, the spontaneous generation of infamy is insured.

Total oil sales, per day are about 100 million barrels (in truth the cap is lower, see graph above), at, say $100, so ten billion dollars a day, 3.6 trillion a year. The USA uses about 25% of that. Some have incorporated the price of the part of the gigantic American war machine and (what are truly) bribes to feudal warlords insuring Western access to the oil fields, and found a much higher cost up to $11 a gallon.

Ultimately, and pretty soon, in 2016, specialists expect oil prices to explode up, from the exhaustion of the existing oil fields. Then what?

Moreover, in 2016, the dependence upon OPEC, or, more exactly Arab regimes, is going to become much greater than now. What’s the plan of the USA? Extend ever more the security state, and go occupy the Middle East with a one million men army? To occupy, or not to occupy, that is the question.

Is it time for a better plan? And yes, any better plan will require consumers to pay higher energy prices. As consumers apparently want the army to procure the oil, they ought to pay for it.

***

Patrice Ayme

***

Note 1: Flying cost at least ten times more in CO2 creation than taking a train. And jet fuel is not taxed, at least until the carbon plan of the European Union starts charging next year, in 2013. In spite of the screaming from the USA and its proxies: it’s funny how attached to subsidies American society can be.

Note 2: Refusing to pay for necessary military expenses through taxation and mobilization, was a big factor in the downfall of the Roman Principate.

The Principate then tried to accomplish defense on the cheap, by using more and more mercenaries. Many of these mercenaries or their children and descendants were poorly integrated in Roman republican culture (say emperors Diocletian or Constantine, let alone Stilicho the Vandal, a century later), so they established theDominate, itself a negation of the Roman republic. Amusingly the Western Franks, those salt water (“Salian“) Franks remembered the Roman republic better than all these imports from the savage East… who could not remember it, they, and their ancestors, having never known it.

Guess what? The USA’s army presently employs 300,000 “private contractors” (aka, mercenaries). Curiously, in that case, it’s not so much to save money, than to extract more money from the system (but that’s another story). Still, it will have the same effect.

oooOOOooo

The Greatest Crash – footnote

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The story that could run for an awfully long time!

I rather revealed my newness as a US resident by posting my review of David Kauders’ book The Greatest Crash over 2 days last week,  one of them being Thanksgiving Day.  Despite that 1,895 people viewed my review which was entitled The end of an era.

A week has now passed since that review.  I was curious to see what sorts of headlines had been making the news in the last 7 days.  It’s just a random trawl through those items that have captured my attention.

Let’s start with the Financial Times, November 27th,

The eurozone really has only days to avoid collapse

By Wolfgang Münchau

In virtually all the debates about the eurozone I have been engaged in, someone usually makes the point that it is only when things get bad enough, the politicians finally act – eurobond, debt monetisation, quantitative easing, whatever. I am not so sure. The argument ignores the problem of acute collective action.

Last week, the crisis reached a new qualitative stage. With the spectacular flop of the German bond auction and the alarming rise in short-term rates in Spain and Italy, the government bond market across the eurozone has ceased to function.

Wolfgang concludes his article thus,

Italy’s disastrous bond auction on Friday tells us time is running out. The eurozone has 10 days at most.

Then my print copy of The Economist that arrived on the 26th had this lurid cover page,

Unless Germany and the ECB move quickly, the single currency’s collapse is looming

The leader article contains this paragraph,

Past financial crises show that this downward spiral can be arrested only by bold policies to regain market confidence. But Europe’s policymakers seem unable or unwilling to be bold enough. The much-ballyhooed leveraging of the euro-zone rescue fund agreed on in October is going nowhere. Euro-zone leaders have become adept at talking up grand long-term plans to safeguard their currency—more intrusive fiscal supervision, new treaties to advance political integration. But they offer almost no ideas for containing today’s conflagration.

and a few paragraphs later, this,

This cannot go on for much longer. Without a dramatic change of heart by the ECB and by European leaders, the single currency could break up within weeks. Any number of events, from the failure of a big bank to the collapse of a government to more dud bond auctions, could cause its demise. In the last week of January, Italy must refinance more than €30 billion ($40 billion) of bonds. If the markets balk, and the ECB refuses to blink, the world’s third-biggest sovereign borrower could be pushed into default.

Then on Sunday, 27th, MISH’s Trend Analysis blogsite reveals,

ICAP Plc, the world’s largest inter-dealer broker (one that carries out transactions for financial institutions rather than private individuals), is now Testing Trades In Greek Drachma Against Dollar, Euro

ICAP Plc is preparing its electronic trading platforms for Greece’s potential exit from the euro and a return to the drachma, senior executives at the inter-dealer broker said Sunday.

ICAP is the latest firm to disclose such preparations, joining the growing ranks of banks, governments and other key players in the global financial system whose officials are worried enough about the stability of the common currency to be making contingency plans for a possible break-up.

Then Bloomberg published an article by Peter Boone and Simon Johnson, the latter of Baseline Scenario fame, that opened as follows,

Investors sent Europe’s politicians a painful message last week whenGermany had a seriously disappointing government bond auction. It was unable to sell more than a third of the benchmark 10-year bonds it had sought to auction off on Nov. 23, and interest rates on 30-year German debt rose from 2.61 percent to 2.83 percent. The message? Germany is no longer a safe haven.

and concluded,

Ultimately, an integrated currency area may remain in Europe, albeit with fewer countries and more fiscal centralization. The Germans will force the weaker countries out of the euro area or, more likely, Germany and some others will leave the euro to form their own currency. The euro zone could be expanded again later, but only after much deeper political, economic and fiscal integration.

Tragedy awaits. European politicians are likely to stall until markets force a chaotic end upon them. Let’s hope they are planning quietly to keep disorder from turning into chaos.

Finally, on the 29th the BBC News website carried details of the Autumn Statement made by British Chancellor, George Osborne, to Parliament.

Osborne confirms pay and jobs pain as growth slows

Chancellor George Osborne has said public sector pay rises will be capped at 1% for two years, as he lowered growth forecasts for the UK economy.

The number of public sector jobs set to be lost by 2017 has also been revised up from 400,000 to 710,000.

Borrowing and unemployment are set to be higher than forecast and spending cuts to carry on to 2017, he admitted.

Just look at that figure of public sector job losses – 710,000!

Well that’s more than enough from me but it does surely endorse the opening views that David Kauders expounded in his book, as carried in my review, and reproduced here,

Starting with the first sentence, David sets out the core problem;

This book argues that it is impossible to expand the financial system much further.

expanding this a few paragraphs later,

This is the financial system limit: lack of new borrowing plus excessive weight of debt obligations from past borrowing combine to slow economies down. This is the barrier whichever way policy makers turn. It is like the lid on a boiling kettle. Enough steam can lift it for a while but it always snaps back into place. The financial system limit is a roadblock preventing growth.

A few pages later in this opening chapter ‘The roadblock preventing growth‘ this limit is explained thus,

Policy contradictions also show us that the financial system has reached a roadblock. The glaring conflict between bailout and austerity is at the core. Each bailout or stimulus requires creation of more credit, leading to false financial speculation, and for a short while markets recover their poise. The threat of inflation returns. Later, bad debts rise, the markets tumble again and a new crisis emerges. Austerity, the alternative policy, cuts spending thereby cutting the immediate level of economic activity and bringing economic decline more quickly than the stimulus alternative. Whichever way they turn, the authorities are damned.

You can understand why I called this Post a ‘footnote’ not an endnote.

The end of an era, part two.

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A review of David Kauder’s recently published book, The Greatest Crash.

Details of the availability of the book are included at the end of the review.

Extracts from the book included are with grateful thanks to Sparkling Books.

Part One of this review was published yesterday which needs to be read before Part Two.

——————-

Chapter 5 continues by examining the over-bearing consequences of excessive public spending, excessive Government regulations, substitute taxation, weakness of Treasury forecasts, and so on. While these are UK issues, there is no doubt that similar restraints of free enterprise exist in many other western nations.

In Chapter 6, ‘Group Think‘, David looks at the strange ways in which we form opinions.  It’s a topic that has been discussed and written about widely but the point behind this chapter is that people have in great part lost the ability to discern truth from fiction, with terrible implications when it comes to understanding how individuals are affected by government and bureaucratic institutions.

The chapter closes;

One of the remarkable points that I have found in writing this book is that many of the detailed errors, incorrect policies et al, have already been amply documented by others. But we never learn. The delegated society, the strength of lobby groups and vulnerability of our political system to pressure, the sheer volume of noise in the media and on the Internet, the immediacy of the demands of daily life, all combine to make our collective memory rather short.

Amen to that!

Chapter 7, ‘Academic differences of opinion‘, was surprisingly short at just 6 1/2 pages. One would have thought the subject worthy of a much longer review especially as David was exploring the fundamental differences between Keynesian and Ricardian economic theories and opportunities for alternative theories. Must say that that I laughed out loud (David’s book is a little short on humour!) at the sentence on p.127 that ran, “One correspondent writing to the Financial Times proposed that economics should be declared a failing discipline, economists as not fit for purpose, and a physicist put in charge of sorting their theories out.

Chapter 8, ‘The dark side of capital markets‘, is the penultimate chapter and quite a technical one at that. But David manages to trip through esoteric aspects, well esoteric to the lay reader, in a manner that keeps one involved.   Here’s an example from early on in the chapter.

Capital markets follow a long cycle beyond the experience of most practitioners, detectable only by understanding history and then applying this understanding to contemporary conditions.

It didn’t mean much to me. Then the next sentence;

The principles are identical for any market where prices depend on the supply of credit: equities, bonds, property and commodities are all markets where the prices must relate to the availability of credit.

That, at least, was understood but still the penny hadn’t dropped. Then came;

Bond prices prosper when credit is lacking while the other three prosper when credit is abundant.

That then made sense to me but still only at some academic level. David then followed those sentences with these two paragraphs;

The whole market cycle consists of bull market followed by bear market, as surely as night follows day. The bull market in assets is driven by an increasing supply of credit and economic expansion, since more credit leads to higher prices. The bear market in assets is driven by less credit and economic contraction; there is no purchasing power to keep asset prices high. Only fixed interest bonds are contra-cyclical, declining in price as credit expands and rising in price as credit sinks.

There are two useful theories for analysing the whole market cycle: conversion flow and Dow theory.

So in half-a-page of text, the book effectively educated me and then showed the relevance of that learning to the world I was living in. Cleverly done!

Chapter 9, ‘The attitude change‘, is, without doubt, a clincher of a close to this fascinating book. The sentiments conveyed in this chapter are so unexpected that, forgive me, it would be wrong to explicitly refer to them.  Buy the book!

Let me just say that the last chapter fully endorsed me calling this review The End of an Era.

Overall conclusions

This is an important book from a writer who has both the academic and professional experience to enable him to form the views that he expresses. Only time will tell if the whole scenario that is envisaged by Mr. Kauders will play out as he expects. My personal view is that it will.

For individuals and business alike, reading The Greatest Crash will inform you in a manner that I would argue is critical when one notes the precarious and potentially unstable period we are living through. The decisions readers make after reading the book are beyond the remit of this review and, of course, David Kauders, but, at least, read the book!

Prof. Myddelton in the book’s introduction wrote, “But one of the things we need now is new thinking on the fundamentals.” Perhaps not new thinking on fundamentals, as the Prof. puts it, but a reinstatement of core fundamental values.

I am not alone from sensing that the world, especially the western world, is transitioning from an era of greed and materialism, seeing a world of unlimited resources, to a different societal relationship with planet Earth, the only planet we have. A transition across all layers of society towards the values of truth, integrity and compassion; values whose day has come.

The Greatest Crash reinforces immensely my notion that this truly is the end of an era.

——————

Want to buy The Greatest Crash?  The ebook was published in October worldwide, the  paperback published in the UK on the 1st November UK, the hardcover being released any day now in the UK.  For North America both the paperback and hardcover versions are being published on 1st February, 2012.

Full details from the Sparkling Books webpage here.

Copyright © 2011 Paul Handover

The end of an era, part one.

with one comment

A review of David Kauder’s recently published book, The Greatest Crash.

Details of the availability of the book are included at the end of both parts of my review, part two is published tomorrow.

Extracts from the book included are with grateful thanks to Sparkling Books.

Personal introduction.

Back in the late 90s, when I was living in England, I attempted to bolster my self-employed income by investing and trading in equities. It was a frustrating game, game being the right word! One day I was lamenting this to a close friend and he gave me the name of David Kauders at Kauders Portfolio Management and suggested I might like to contact him.

I followed my friend’s recommendation and met with David. What he outlined at that meeting all those years ago was mind-blowing, no other way of putting it. Essentially, David predicted a financial and economic crisis of huge proportions. He convinced me of the likelihood of that crisis and in November 2001 I became a fee-paying client. As the world now knows that prediction came to fruition. My anticipated residency in the USA meant continuing to be a client was not possible, and I ceased being a client of Kauders Portfolio Management in June 2010.

Thus not only am I deeply indebted to my friend for referring me to David but also unable to write this review from an unprejudiced point of view.

The Greatest Crash

The book, released in paperback in England in October 2011, published by Sparkling Books, is subtitled ‘How contradictory policies are sinking the global economy‘. Frankly, that subtitle doesn’t do much for me. A clearer message that comes from the book is this: the economic world has reached a ‘systems limit’. Indeed, the term systems limit is used widely throughout the book.

In his introduction to the book, Professor D. R. Myddelton, Chairman of the Institute of Economic Affairs, writes,

Adam Smith said ‘There’s a deal of ruin in a nation’, and it would be a mistake to despair. But one of the things we need now is new thinking on the fundamentals. That is what David Kauders provides in his book ‘The Greatest Crash’.

Without doubt, David achieves that.

Starting with the first sentence, David sets out the core problem;

This book argues that it is impossible to expand the financial system much further.

expanding this a few paragraphs later,

This is the financial system limit: lack of new borrowing plus excessive weight of debt obligations from past borrowing combine to slow economies down. This is the barrier whichever way policy makers turn. It is like the lid on a boiling kettle. Enough steam can lift it for a while but it always snaps back into place. The financial system limit is a roadblock preventing growth.

A few pages later in this opening chapter ‘The roadblock preventing growth‘ this limit is explained thus,

Policy contradictions also show us that the financial system has reached a roadblock. The glaring conflict between bailout and austerity is at the core. Each bailout or stimulus requires creation of more credit, leading to false financial speculation, and for a short while markets recover their poise. The threat of inflation returns. Later, bad debts rise, the markets tumble again and a new crisis emerges. Austerity, the alternative policy, cuts spending thereby cutting the immediate level of economic activity and bringing economic decline more quickly than the stimulus alternative. Whichever way they turn, the authorities are damned.

In the next chapter, ‘Evolution by trial and error‘, David writes about economic cycles and reminds his readers that the long economic cycle is often “beyond the practical experiences of our working lifetimes“.  Then later suggesting that because we have seen the greatest period of inflation ever since the end of World War Two, ergo “the unwelcome lesson from history is that the greatest deflation should follow.

In Chapter 4, ‘An Era of Wishful Thinking‘, the spotlight is put on the horrific policy errors that have been made for decades, try these three examples (there is a longer list in the book),

  • Policy makers believed that debt could expand indefinitely, at no cost.
  • Nobody realised that interest rate rises would make existing borrowing unaffordable and cause a wave of defaults.
  • The world was swamped with so many detailed requirements and standards that nobody could understand how they all fitted together. It was assumed that ‘transparency’, i.e. extensive detail, would solve the inability to comprehend how the parts made the whole.

Part Two of the review, continuing with Chapter 5 is tomorrow.

Want to buy The Greatest Crash?  The ebook was published in October worldwide, the  paperback published in the UK on the 1st November UK, the hardcover being released any day now in the UK.  For North America both the paperback and hardcover versions are being published on 1st February, 2012.

Full details from the Sparkling Books webpage here.

Copyright © 2011 Paul Handover

Government Taxation Departments, don’t you just love them!

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Sent in by John Lewis, an old (English) friend of this Blog.

Apparently this is a real reply from the (UK) Inland Revenue. The Guardian newspaper had to ask for special permission to print it.

Dear Mr Addison,

I am writing to you to express our thanks for your more than prompt reply to our latest communication, and also to answer some of the points you raise.   I will address them, as ever, in order.

Firstly, I must take issue with your description of our last as a “begging letter”.    It might perhaps more properly be referred to as a “tax demand”.    This is how we at the Inland Revenue have always,  for reasons of accuracy,  traditionally referred to such documents.

Secondly, your frustration at our adding to the “endless stream of crapulent whining and panhandling vomited daily through the letterbox on to the doormat” has been noted.    However, whilst I have naturally not seen the other letters to which you refer I would cautiously suggest that their being from “pauper councils, Lombardy pirate banking houses and pissant gas-mongerers”  might indicate that your decision to  “file them next to the toilet in case of emergencies”  is at best a little ill-advised.    In common with my own organisation,  it is unlikely that the senders of these letters do see you as a “lackwit bumpkin” or, come to that, a “sodding charity”.    More likely they see you as a citizen of Great Britain , with a responsibility to contribute to the upkeep of the nation as a whole.

Which brings me to my next point.   Whilst there may be some spirit of truth in your assertion that the taxes you pay  “go to shore up the canker-blighted, toppling folly that is the Public Services”,  a moment’s rudimentary calculation ought to disabuse you of the notion that the government in any way expects you to “stump up for the whole damned party”  yourself.    The estimates you provide for the Chancellor’s disbursement of the funds levied by taxation,  whilst colourful,  are,  in fairness,  a little off the mark.     Less than you seem to imagine is spent on “junkets for Bunterish lickspittles”  and  “dancing whores”  whilst far more than you have accounted for is allocated to,  for example,  “that box-ticking facade of a university system.”

A couple of technical points arising from direct queries:

1. The reason we don’t simply write  “Muggins” on the envelope has to do with the vagaries of the postal system;

2. You can rest assured that  “sucking the very marrow of those with nothing else to give”  has never been considered as a practice because even if the Personal Allowance didn’t render it irrelevant,  the sheer medical logistics involved would make it financially unviable.

I trust this has helped.   In the meantime,  whilst I would not in any way wish to influence your decision one way or the other,  I ought to point out that even if you did choose to  “give the whole foul jamboree up and go and live in India ”  you would still owe us the money.

Please send it to us by Friday.

Yours sincerely,
H J Lee
Customer Relations
Inland Revenue

Written by Paul Handover

February 26, 2011 at 00:00

Should you invest in U.S. bonds? Part 4

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This is the concluding part four of a multipart series on the factors that drive U.S. and foreign bond prices and yields.

[Part One is here, Part Two here, Part Three here Ed.]

Bond’s in a weak or faltering economy will generate a lower return to lenders than bonds in a strong economy, absent inflation or any other material changes in the purchasing power of the currency.  Weak demand for goods and services means weak demand for financial capital which means low rates of return on financial capital.

The policies of the government can increase the borrowing costs of private industry.  Fiscal policy that increases taxes reduces the profitability of projects and undermines the ability of companies to pay coupons and repay principal.  Monetary policy that increases the money supply may lead to inflation, which also increases the cost of borrowing and reduces economic activity.

Lastly, and of the greatest concern of late, is the level of borrowing by the U.S. government.   Debt levels are at record highs, with no relief in sight. The AAA rating of U.S. debt is reportedly in jeopardy (Chicago Tribune editorial).

Moody's Corporate Logo

Both existing and new lenders worry about the ability of the U.S. government to repay. Yes, the can simply roll over existing debt by raising taxes or creating money to retire old debt and replace it with new, but the interest rate required by new lenders goes up as the ability of the private economy to sustain tax revenues falls and the risk of inflation rises (Moody’s explains U.S. bond ratings).

Both factors are in play now: an anemic economy with little hope that this administration will undertake policies that support business, and a ballooning money supply and weak dollar that undermine the purchasing power of the returns to lenders.  The returns to U.S. debt may still be healthy relative to those one can earn in other countries, but the spread is shrinking. The private economy remains fundamentally strong, thanks to the work ethic of the American people and the profit motive of the capitalistic system, but the policies of the U.S. government are straining those resources.

By Sherry Jarrell

Should you invest in U.S. bonds? Part 3

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This is part three of a multipart series on the factors that drive U.S. and foreign bond prices and yields.

[Part One is here, Part Two here, Ed.]

The yield on a bond is made up of several components. Some think of the return on a bond as the sum of the risk-free rate of interest (how impatient we are to get our money back, or how much we need to be compensated to delay consumption) and a risk premium (the additional return we require to compensate us for the risk of default, the risk the bond will be called, the risk of inflation reducing the purchase power of the repaid dollars, and many other sources of risk as outlined in the most recent article in this series).

Another useful way of thinking of the return on a bond is as the sum of the real rate of interest and the expected rate of inflation.  But what is the real rate of interest?  We never actually observe that rate, unless of course the inflation rate is zero and then the real rate is just the nominal rate set in the market.

It is useful, however, to think about what drives the ability of a company to generate a real rate of return to lenders, for this is essence of capitalism and risk-taking and creating economic value and growth.

Bond traders

A firm’s asset cash flows support the real returns to its lenders – all kinds of lenders (debt, equity, hybrid, and derivative security holders). A firm will want to borrow more, and is willing to pay a higher interest rate for those funds, the more profitable are the projects they want to undertake, or the greater the number of profitable projects. Profitability, in turn, is determined by the relationship between demand and supply:  how much does society value a good or service, and how many resources does the business use in producing the good or service.  As the marginal productivity or efficiency of a business goes up, it can afford to profitably fund more projects.  So the core driver of the real return on bonds is the strength of the underlying economic activity of the private economy.

Or, when viewed from the investor’s side, note that an investor will purchase a bond, or lend money to a company, if they expect to earn a return sufficient to compensate them, first, for delaying consumption and, second, for bearing the various sources of risk or uncertainty associated with the bond’s cash flows or return.

By Sherry Jarrell

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