Category: Economics

The blame game

A retrospective muse about the present global challenges.

A few days back I posted an article by Tom Engelhardt called The Great American Carbon Bomb.  It attracted a number of comments including a couple from Learning from Dogs supporter, Patrice Ayme.  Here is one of those comments,

Dear Paul: There is a gentleman leading the Tour de France, right now. He was not given a chance, especially in the mountains. However, he has been going day by day, and has now worn the Yellow Jersey for more than a week, supported by his inferior, but dedicated team. His philosophy: humility, and do the job day by day, trying his best, although he strongly doubts that he is up to the task.

We, as humankind, or, rather, our hubristic leaders are doing the exact opposite. We are not doing our best, and it’s precisely because those leaders are not humble and not honest, and so very sure we are going to pull out OK, because that’s what we do best, and have always done, and thus will always do.

Verily all indicators are that of an unfolding catastrophe. All signals are loud and clear that way. So it’s really not the moment to say:”Oh, BTW, we are very resilient and totally great, so it’s just a matter of time before we put it all together OK. So now let’s all pull together, and it’s fine.”

In truth we are on the verge of an irreversible situation, as the CO2 poisoning will turn, within a decade or so, into a political, and then military issue.
PA

Patrice is an angry man (not a criticism by the way – so many of us are angry!) and anger is a great reason to find someone, something, anything, to blame!  I suspect, wearing my cloak of an amateur psychologist, that a core reason why we feel anger is that, so often, the causes of our anger are our own errors.  Anger at one’s self is much more difficult to deal with!

Anyway, back to the plot.

Like Patrice I also feel badly let down by our ‘leaders’.  Especially with regard to the nightmare of economic and ecological issues fast approaching.

Then I read this in Paul Gilding’s book, The Great Disruption, that has been featured on this Blog a couple of times.

Our addiction to growth is a complex phenomenon, one that can’t be blamed on a single economic model or philosophy.  It is not the fault of capitalism or Western democracy, and it is not a conspiracy of the global corporate sector or of the rich.  It is not a bad idea that emerged in economics, and it is not the result of free market fundamentalism that emerged in the 1980s with globalization.  While each of those factors is involved, it is too simple and convenient to blame any of them as the main driver.  Growth goes to the core of the society we have built because it is the result of who we are and what we have decided to value. [Chapter 5, Addicted to Growth, p66]

That last half of that last sentence – ‘it is the result of who we are and what we have decided to value.‘  That strikes me as the core truth.  It is the reason why Patrice, and me, and countless thousands of others across the globe, are so angry.  At heart we all know that the circumstances we find ourselves in are, in great part and before we ‘saw the light’, the result of earlier personal values which we now know were not compatible with a sustainable relationship with the planet we all live on.

It is very good news.  That anger is fuelling change.  As Malcolm Gladwell writes in his book The Tipping Point societies change when something of the order of 18% of individuals emotionally commit to change.

What is it you don’t understand?

Stating the obvious.

I am about a third into Paul Gilding’s book The Great Disruption.  It’s proving to be a very-thought provoking read that I will review in more detail over the coming weeks.

However, I just wanted to quote from the start of Chapter 5, Addicted to Growth,

Indeed, as argued by economist Kenneth Boulding: “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”

Very little that can be argued about that statement.  It rather puts into context a couple of items read recently. Both from the blogsite New Economic Perspectives.  The first on June 10th by Stephanie Kelton,

Earlier this week, President Obama talked about the weakening state of the economy, telling us that he’s not worried about a double-dip recession and that the nation should “not panic.” It’s hard to imagine a more alarming assessment at this juncture.

The recovery is faltering. Our economy is growing at annual rate of just 1.8 percent. Manufacturing just grew at its slowest pace in 20 months. More than 44 million Americans – one in seven – rely on food stamps. Employers hired only 54,000 new workers in May, the lowest number in eight months. Jobless claims increased to 427,000 in the week ended June 4. The unemployment rate rose to 9.1 percent. Nearly half of all unemployed Americans have been without work for more than 6 months. About 25% of all teenagers who are looking for work are unemployed. Eight-and-a-half million Americans are underemployed – i.e. working part-time because their hours have been cut or because they can’t find full-time work. There are, on average, 4.6 unemployed people for every 1 job opening. And even if all the open positions were filled, there would still be 10.7 million people looking for work.

The second on July 8th by Marshall Auerback,

Today’s unemployment data suggests that we are experiencing something far worse than a mere “bump in the road”, as our President described it last month.  In fact, if last month was the time to panic, as Stephanie Kelton argued here, then today’s data should create real palpitations in the White House.  This isn’t just a “bump,” but a fully-fledged New York City style pot hole.

First the headline number everyone looks at: non-farm payrolls. Up 18,000 in June, the increase was 100,000 less than expectations.  In addition the prior two month payroll increases were revised down by -44,000 overall.  That’s weak – but not terrible.

Dig a bit deeper into the data and it looks absolutely awful:  The household measure of employment fell by -445,000.  Okay, it’s a noisy number. But, as Frank Veneroso has pointed out to me in an email correspondence, this measure of employment which is never revised now shows no employment growth over the last five months and very negative employment growth over the last three.

But it gets worse:  The work week was down one tenth.  Overtime was down one tenth.  The labor participation rate at 64.1% was the lowest since 1984.  The broad U6 unemployment rate rose from 15.8% to 16.2%.  In other words, as Frank suggested to me this morning, “many other employment indicators in this report confirm the deep disappointment in the payroll series and the much more negative message of the household series.”

Now here’s the latest item published by Paul Gilding in his Blog, The Cockatoo Chronicles. (I have republished it in full, hopefully without upsetting Mr. Gilding – couldn’t see advice on reproduction – but copyright remains, of course, fully with Paul Gilding.)

Like a Grenade in a Glasshouse

June 29, 2011

It’s going to hit hard and it’s going to hurt – made worse because most aren’t expecting it. They think the world is slowly returning to our modern “normal” – steadily increasing growth, with occasional annoying but manageable interruptions. After all, the global recession wasn’t so bad was it? Sure there was pain and things got shaky but Governments responded, bailed out companies, stimulated economies, got things back on track.  While it’s still a bit bumpy, Greek wobbles, US debt, extreme weather, high oil and food prices etc, it’ll work out. It always does….

If only it were so. In fact we are blindly walking towards the next in a series of inevitable system shaking and confidence sapping crises, deluded in the belief that the worst is behind us.

Each crisis will be a little worse than the last. Each one will shake our denial a little more. This is what happens when systems hit their limits. They don’t do so smoothly, but bump up against the wall, hitting hard, then bouncing off equally hard. It is the behaviour of a system trying to break through. But if the limits are solid, as is the case with our economic system hitting the limits of the planet – defined by unchangeable physical capacity and the laws of physics, chemistry and biology – then it can’t find its way through. So eventually, when the pain of hitting the wall gets too much, it stops.

Then it will hit. Like a grenade in a glasshouse, shattering denial and delusion and leaving it like a pile of broken glass on the floor of the old economic model. Then we’ll be ready for change.

I’ve been arguing the inevitability of this moment since 2005, mostly inside the business community. Before the 2008 financial crisis hit, the idea was almost universally rejected, with a belief in the indomitable power of globalised markets to overcome all challenges and keep growth on track. Most audiences believed that while markets always wobbled, they also always recovered. My suggestion, that this level of arrogance was the hallmark of empires before they fell, landed on deaf ears. They were the masters of the universe and markets and growth would always reign supreme.

Now the response is different. The financial crisis saw many break off from the pack and start to ask the difficult questions. I now find as I tour the world speaking about The Great Disruption to community gatherings, corporate executives and policy makers that minds are increasingly open. While not the dominant view, the previous confidence in the inevitably of growth has become shaky and the group asking the challenging questions is rapidly expanding.

As I argue in the book, the fundamental cause of what’s coming is resource constraint and environmental breakdown, which when combined with an overstretched financial system and high levels of debt puts unbearable tension into the global economy. While no one can know what event will pull the pin out of the grenade, the underlying pressures make that moment inevitable. Yes, the dominant commentary still blames each individual problem on unique circumstances, but the underlying systemic causes are clear for those who wish to look.

The continued level of denial still surprises me, especially given the pressures driving this are not esoteric and can be measured in clear economic indicators. A good example was recently published by one of the more interesting voices to join the growing chorus that we have a system-wide problem. The legendary contrarian and fund manager Jeremy Grantham is co-founder of the Boston based firm GMO, with over $100 billion of assets under management. So this guy is a solid capitalist and market advocate, pursuing wealth for the wealthy. But he sees the data and is raising the alarm, calling this moment “one of the giant inflection points in economic history” – referring to the end of a 100-year steady decline in commodity prices. His views were echoed by Stephen King, group chief economist at HSBC, who wrote in the FT: “After the biggest meltdown since the Great Depression, economic theory tells us that world commodity prices should not be this high. But they are and the West quickly needs to wake up to this new economic reality. Commodity prices are now permanently higher.”

Grantham provides the detail, pointing out that the 100 year trend of falling prices in the 33 most important commodities, except for oil, were wiped out with a price surge from 2002 to 2010 – a surge even greater than experienced in WW2. We have now reached what Grantham calls the Great Paradigm shift; not a price spike but a new reality. Within this new reality, Grantham says: “if we maintain our desperate focus on growth, we will run out of everything and crash.”

This is why hitting the wall is inevitable – because limits are not philosophies, they are limits. We can understand what to expect – and why the grenade will shatter the glasshouse of economic growth – by going back to how systems behave when they hit their limits. Our economic system first hit the wall in 2008 – that was when The Great Disruption began with food and oil prices hitting record highs and a credit crisis driven by reckless monetary policy pursuing growth at all costs. The resulting recession meant we backed away from those limits (bouncing off the wall), and then borrowed massive amounts of money from our children (think Greece) to try to get the economy moving again.

Now that the global economy is slowly entering a so-called “recovery”, the prices of commodities (representing our use of earth’s resources for food and materials) are on the way up, accelerated, in the case of food, by climate change. Of course if significant growth kicks in, the prices of oil, food and other commodities will surge, this timestarting from near record highs.  Then we will bounce back into recession and prices will back off again. Hit the wall, bounce off. Hit the wall, bounce off. Ouch.

By itself this would pose enough of a challenge to growth. But now we also have the debt we used to get the economy moving again. This debt can only be paid off with significant economic growth – but such significant growth is impossible as outlined above. So the debt itself becomes an enormous additional tension in the system, as argued by Richard Heinberg in his important forthcoming book The End of Growth. With the global economy and ecosystem now both burdened by unmanageable debt, effective global default is only a matter of time.

So we’re living in a glass house with the grenade sitting there for all to see. Who knows what will pull the pin. It could be Greece, a Chinese food crisis, peak oil or any number of other triggers. But it’s coming.

The question to ask yourself is simple. Are you ready?

Back to Kenneth Boulding: “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”

Precisely!

The Winston Churchill effect?

Forgive me for making this a much shorter contribution but the efforts of the previous two posts took rather a long time!

This is about the debt situation in the United States of America and, as always, Learning from Dogs trying to get to the underlying truth.

It’s from the BBC and it’s a radio programme that is included in this Post.

But why the headline referring to Churchill?  Well in the programme Justin Webb, of the BBC, reminds the world of a characteristic of the American Nation noted by Sir Winston Churchill, “Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.”  (But caution about the precise wording of that quote – see here!)

Here’s the article that accompanied the BBC broadcast, the radio programme is after this article,

Is the US in denial over its $14tn debt?

Is America in denial about the extent of its financial problems, and therefore incapable of dealing with the gravest crisis the country has ever faced?

This is a story of debt, delusion and – potentially – disaster. For America and, if you happen to think that American influence is broadly a good thing, for the world.

The debt and the delusion are both all-American: $14 trillion (£8.75tn) of debt has been amassed and there is no cogent plan to reduce it.

The figure is impossible to comprehend: easier to focus on the fact that it grows at $40,000 (£25,000) a second. Getting out of Afghanistan will help but actually only at the margins. The problem is much bigger than any one area of expenditure.

The economist Jeffrey Sachs, director of Columbia University’s Earth Institute, is no rabid fiscal conservative but on the debt he is a hawk: “I’m worried. The debt is large. It should be brought under control. The longer we wait, the longer we suffer this kind of paralysis; the more America boxes itself into a corner and the more America’s constructive leadership in the world diminishes.”

The author and economist Diane Coyle agrees. And she makes the rather alarming point that the acknowledged deficit is not the whole story.

The current $14tn debt is bad enough, she argues, but the future commitments to the baby boomers, commitments for health care and for pensions, suggest that the debt burden is part of the fabric of society:

“You have promises implicit in the structure of welfare states and aging populations that mean there is an unacknowledged debt that will have to be paid for by future taxpayers, and that could double the published figures.”

Richard Haass of the Council on Foreign Relations acknowledges that this structural commitment to future debt is not unique to the United States.  All advanced democracies have more or less the same problem, he says, “but in the case of the States the figures are absolutely enormous”.

Mr Haass, a former senior US diplomat, is leading an academic push for America’s debt to be taken seriously by Americans and noticed as well by the rest of the world.

He uses the analogy of Suez and the pressure that was put on the UK by the US to withdraw from that adventure. The pressure was not, of course, military. It was economic.

Britain needed US economic help. In the future, if China chooses to flex its muscles abroad, it may not be Chinese admirals who pose the real threat, Mr Haass tells us. “Chinese bankers could do the job.”

Because of course Chinese bankers, if they withdrew their support for the US economy and their willingness to finance America’s spending, could have an almost overnight impact on every American life, forcing interest rates to sky high levels and torpedoing the world’s largest economy.

Not everyone accepts the debt-as-disaster thesis.

David Frum is a Republican intellectual and a former speech writer to President George W Bush.

He told me the problem, and the solution, were actually rather simple: “If I tell you you have a disease that will absolutely prostrate you and it could be prevented by taking a couple of aspirin and going for a walk, well I guess the situation isn’t apocalyptic is it?

“The things that America has to do to put its fiscal house in order are not anywhere near as extreme as what Europe has to do. The debt is not a financial problem, it is a political problem.”

Mr Frum believes that a future agreement to cut spending – he thinks America spends much too big a proportion of its GDP on health – and raise taxes, could very quickly bring the debt problem down to the level of quotidian normality.

‘Organised hypocrisy’

I am not so sure. What is the root cause of America’s failure to get to grips with its debt? It can be argued that the problem is not really economic or even political; it is a cultural inability to face up to hard choices, even to acknowledge that the choices are there.

I should make it clear that my reporting of the United States, in the years I was based there for the BBC, was governed by a sense that too much foreign media coverage of America is negative and jaundiced.

The nation is staggeringly successful and gloriously attractive. But it is also deeply dysfunctional in some respects.

Take Alaska. The author and serious student of America, Anne Applebaum makes the point that, as she puts it, “Alaska is a myth!”

People who live in Alaska – and people who aspire to live in Alaska – imagine it is the last frontier, she says, “the place where rugged individuals go out and dig for oil and shoot caribou, and make money the way people did 100 years ago”.

But in reality, Alaska is the most heavily subsidised state in the union. There is more social spending in Alaska than anywhere else.

To make it a place where decent lives can be lived, there is a huge transfer of money to Alaska from the US federal government which means of course from taxpayers in New York and Los Angeles and other places where less rugged folk live. Alaska is an organised hypocrisy.

Too many Americans behave like the Alaskans: they think of themselves as rugged individualists in no need of state help, but they take the money anyway in health care and pensions and all the other areas of American life where the federal government spends its cash.

The Tea Party movement talks of cuts in spending but when it comes to it, Americans always seem to be talking about cuts in spending that affect someone else, not them – and taxes that are levied on others too.

And nobody talks about raising taxes. Jeffrey Sachs has a theory about why this is.

America’s two main political parties are so desperate to raise money for the nation’s constant elections – remember the House of Representatives is elected every two years – that they can do nothing that upsets wealthy people and wealthy companies.

So they cannot touch taxes.

In all honesty, I am torn about the conclusions to be drawn. I find it difficult to believe that a nation historically so nimble and clever and open could succumb to disaster in this way.

But America, as well as being a place of hard work and ingenuity, is also no stranger to eating competitions in which gluttony is celebrated, and wilful ignorance, for instance regarding (as many Americans do) evolution as controversial.

The debt crisis is a fascinating crisis because it is about so much more than money. It is a test of a culture.

It is about waking up, as the Americans say, and smelling the coffee. And – I am thinking Texas here – saddling up too, and riding out with purpose.

NB: Copyright BBC © 2011 The BBC is not responsible for the content of external sites. Read more.

Here’s the 30 minute broadcast under the Analysis series from Radio 4 on the BBC.(Just click on this link) analysis_20110628-1024a

Lying is OK, that’s official! Duh!

I find this utterly unacceptable – here’s the story

Jean Claude Juncker, lying for Europe!

I was talking to someone in the UK just a couple of days ago, Martin J., about investment matters and we were generally ‘slagging’ off the quality, or rather the lack of quality, of the statements of leading political persons in many fields of government.  Martin then made the statement that Jean Claude Juncker, the Prime Minister of Luxembourg, and the head of the Eurogroup council of eurozone finance ministers had recently stated that “When it becomes serious, you have to lie,”  I was staggered to hear this and asked Martin to supply the details.  Here they are.

Mr. Juncker’s remark had been widely reported and I have chosen the Wall Street Journal’s report to quote from in Learning from Dogs.

MAY 9, 2011, 10:54 AM ET

Luxembourg Lies on Secret Meeting

By Charles Forelle

Is lying considered an appropriate mode of communication for euro-zone leaders?

We have to wonder after a strange episode on Friday evening. Here’s what happened:

Just before 6 p.m., German news magazine Spiegel Online distributed a report saying that euro-zone finance ministers were convening a secret, emergency meeting in Luxembourg that evening to discuss a Greek demand to quit the euro zone.

Calls from reporters flooded in to Guy Schuller, the spokesman for Luxembourg Prime Minister Jean-Claude Juncker, the man who is the head of the Eurogroup council of euro-zone finance ministers.

In a phone call and text messages with two reporters for Dow Jones and the Wall Street Journal, Mr. Schuller repeatedly said no meeting would be held. He apparently said the same to other news outlets; at least one more moved his denials on financial newswires.

Of course, there was a meeting–although not, apparently, to talk about Greece quitting the currency, which would be an extreme step to say the least. Mr. Juncker even said a few words to reporters who had hustled to Luxembourg to stake out the gathering.

Anyway, do read the article in full here.

In that article there is a YouTube video in which Mr. Juncker says “When it becomes serious, you have to lie.”  You can hear it yourself, about 20 seconds into the video despite the sound level being a tad low.

So that’s official then!  Politicians have to lie!  Grand job.  Talking about jobs, don’t suppose Mr. Juncker will lose his.  Or that he will show that, deep down, he is an integrous man and resign his post.

Yes, of course we all understand that what high-profile people say can affect markets and that, at times, one must be careful in terms of what is said.  But lying?  Sorry, for me that will never, ever be acceptable!

What has this to do with dogs?  Simply, dogs don’t lie.

More on Bill McKibben’s book, eaarth.

Some very telling points.

I first mentioned this book on the 13th May when I was about a third of the way in.  Because I thought there might be material useful to the course that has been running here in Payson, I did skip around the book looking for ‘attention-grabbing’ points.  It wasn’t difficult to find numerous extracts.

Try this on page 214 from the Chapter Afterword.

As it turns out, however, the BP spill was not the most dangerous thing that happened in the months after this book was first published.  In fact, in the spring and summer of 2101, the list of startling events in the natural world included:

  • Nineteen nations setting new all-time high temperature records, which in itself is a record.  Some of those records were for entire regions – [then some of the details]
  • Scientists reported that the earth had just come through the warmest six months, the warmest year, and the warmest decade for which we have records; it appears 2010 will be the warmest calendar year on record.
  • The most protracted and extreme heat wave in a thousand years of Russian history (it had never before topped 100 degrees in Moscow) led to a siege of peat fires that shrouded the capital in ghostly, deadly smoke.  [Then goes on to mention the effect of this heat on global grain prices.]
  • Since warm air holds more water vapour that cold air, scientists were not surprised to see steady increases in flooding.  Still, the spring and summer of 2010 were off the charts.  We saw “thousand-year storms” across the globe [goes into details]
  • Meanwhile, in the far north, the Petermann Glacier on Greenland calved an iceberg four times the size of Manhattan.
  • And the most ominous news of all might have come from the pages of the eminent scientific journal Nature, which published an enormous study of the productivity of the earth’s seas. [More details follow – not good news!]
That last point can be read in more detail from Nature‘s website.  It’s here.
The book closes thus (referring to how the BP oil spill was, ultimately, an accident),
But the greatest danger we face, climate change, is no accident.  It’s what happens when everything goes the way it’s supposed to go.  It’s not a function of bad technology, it’s a function of a bad business model: of the fact that Exxon Mobil and BP and Peabody Coal are allowed to use the atmosphere, free of charge, as an open sewer for the inevitable waste from their products.  They’ll fight to the end to defend that business model, for it produces greater profits that any industry has ever known.  We won’t match them dollar for dollar: To fight back, we need a different currency, our bodies and our spirit and our creativity.  That’s what a movement looks like; let’s hope we can rally one in time to make a difference.
Powerful stuff from a powerful book.
Fired up?  Then go and join:  350.org

Greece, or grease?

The agony of watching a country (and a planet) slip.

Readers will be aware that I very rarely stroll through the tangled pastures of international politics and finance.  The only reason that I do so today is on the back of a very impressive letter published in the German newspaper  Handelsblatt.  That was brought to my attention by my subscription to Mike Shedlock’s (Mish) Blog Mish’s Global Economic Trend Analysis.  You will see that I muse at two levels about where we are today.

Earlier, I had read in last Saturday’s, The Economist a leader on Greece’s debt crisis, entitled Trichet the intransigent.   That started thus,

The European Central Bank’s refusal to consider a restructuring of Greek debt could wreck the euro zone
May 12th 2011 | from the print edition

IF THE stakes were not so high, Europeans’ incompetence in the euro-zone debt crisis would be comic.

and concluded thus,

It is time for the Germans and the IMF to call the ECB’s bluff. Together they should demand, and instigate, a restructuring of Greek debt. Germany should push other European governments to cough up money to support Greek banks and, if necessary, to make whole the ECB. The fund, which knows how to restructure debt, must ensure the process is run in a competent manner. The ECB will then be faced with a choice: go along with an orderly restructuring, or trigger a much greater mess by in effect forcing Greece out of the euro zone. Surely Mr Trichet does not want that to be his legacy.

So with that as background, the letter to Georgios Papandreou, Prime Minister of Greece written by Gabor Steingart is powerful and hard hitting.  Here it is in full.

Mr. Prime Minister,

Dear Mr. Papandreou,

With the greatest respect, the Western world is monitoring your efforts to master your country’s debt crisis. No other democratic country has ever managed anything like that in peacetime. You are shrinking the state apparatus; you are fighting corruption; you are teaching your fellow countrymen how to become honest tax-payers.

You are a modern hero. You are attempting the impossible. As the son of a persecuted and ostracized politician who was chased by the military junta you grew up close to danger. When the officers were looking for your father who was hiding in the attic, they threatened you by putting an unlocked pistol to your forehead and challenged you to betray your father. You denied your father’s presence until he, worried about his son’s life, left his hiding place.Later you fled with him to America where you spent your adolescence. You are alarger-than-life-character.

Preceding governments almost ruined your country. Debts amounting to 340 billion Euros are burdening the Greek state,equaling 155 times the profit of the 60 largest companies of your country and 1.5 times the amount of debts the Maastricht Treaty allows. A year ago, this newspaper, Germany’s biggest Business Daily, appealed to the public to buy Greek government bonds in order to give to the country what Greece needs just as urgently as money: confidence. We also wanted to assist in breaking through the negative spiral of growing doubt and increasing interest rates. Everyone who granted you guarantees and loans wanted it, the European Union, the International Monetary Fund, the heads of state and government.

But since then, the spiral has picked up in speed instead of slowing down. In May 2010 the interest rate at which your country was given money on a ten year basis was at eight per cent. Today, it is at 16 per cent. And in all probability, it will be going up further. The bitter truth to which you and all parties who wanted to help Greece have to admit is that the help doesn’t help. Your country is getting deeper and deeper into the mess. Debts are growing, the gross national product will decrease by at least three per cent in 2011. But it would have to grow by three per cent instead if you were to lower your debt to the allowedlimit until 2040. This is becoming more and more unrealistic. You can’t starve and build up your muscles at the same time.

The truth that Greece has to cut back and save has turned into an untruth. The right thing has turned into the wrong thing. You already cut pensions, lowered the salaries of civil servants by 30 per cent and raised the prices of gas by almost 50 per cent. You can’t restore the health of your country by saving. And the European Union can’t restore your country’s health by again and again injecting new loans.

Soon, the day will come when the tortured body will surrender. The Greek construction industry already shrank by 70 per cent. Sales of car dealers sank by half. A daily export volume of 50 million Euros Greece is achieving  far too little.  Soon the day will come which investors fear in their nightmares. Then the word “insolvency” will be on everyone’s lips.

But it is also the day when a new truth will be born: Don’t save but invest, they will tell you – so that the Greek economy will grow again. Do not service debt with debt, you then will be recommended, but spread out the debt service, cut it and maybe even completely suspend it for a while. It will be a day of impositions, especially for those who lendmoney to you and your people. Financial markets will grind to a halt in horror – and then they will turn to embrace the future. Because Argentina in 2001, Mexico at the beginning of the eighties and Germany after World War II taught us that there is a life after death – at least, in the case of highly indebted states.

Mr. Papandreou, so far, you attempted the impossible. Now you should do the possible. Just as you deceived the officers as a boy and denied to know where your father was hiding you now must repudiate the pride of the Greeks – in order to save your country. Come to meet the new uncomfortable truth before it knocks at your door. It’s already on its way.

Respectfully yours,

Gabor Steingart

The author is an award winning Journalist, the former White House Correspondent of “Der Spiegel” and now Handelsblatt’s  Editor-in-Chief.  His book “The war for wealth. The true story of globalization or while the flat world is broken” was  published in the US, GB, China and several other countries by McGraw Hill, New York, in 2008.

You may contact him at

steingart@handelsblatt.com


Powerful, as I said.

In a sense, in a very real sense, this illustration of the end game of our love affair with debt is symptomatic of the end game in terms of mankind’s love affair with, well with mankind.  The following was written by an inmate of Oklahoma Prison in 1998.

At the root of my humanity lies a potentially insatiable self-centredness.  Given its way, it can become unquenchable. Nothing, not even the richest of imagination, will put out its fire.

This ‘what’s in it for me’ mindset is at the root of all my problems and is where my fears live.  From those fears come anger, greed, intolerance, and a host of other shortcomings.

It is no accident that all religions point to the forgetting of self, because all religions know salvation lies in self-forgetting.

As we head relentlessly towards a level of 400 parts per million (PPM) of carbon dioxide in the atmosphere, 50 PPM above the highest safe limit determined by climate scientists, the time for mankind to move on from the debt-laden, over-leveraged, disconnected life from Planet Earth, is now.

That’s now!

Nature, big business and the future

Just maybe, economic activity and financial capital could align itself with the planetary demands!

A collection of items crossed my screen in the last few days that reinforced the interconnectedness of all life on Planet Earth.

First I saw an item on the BBC News website that demonstrated that climate change, global warming, or however one wants to describe man’s relationship with the planet, is not some crazy, fuzzy idea of a few liberal environmentalists.  This was a report of the significant drop in global wheat yields.

The report was entitled, Climate shifts ‘hit global wheat yields’ and was written by Mark Kinver, Science and environment reporter, BBC News.  Here’s a taste of what was written.

Shifts in the climate over the past three decades have been linked to a 5.5% decline in global wheat production, a study has suggested.

A team of US scientists assessed the impact of changes to rainfall and temperature on four major food crops: wheat, rice, corn and soybeans.

Climate trends in some countries were big enough to wipe out gains from other factors, such as technology, they said.

Professor David Lobell from Stanford University went on to say,

“In particular, you have to assume how non-linear the response will be and how different the crops of tomorrow will be from the crops of today,” he said.

He added that the study focused on historical data in order to strengthen confidence in the existing projections.

“I think it is very clear that climate is not the predominant driver of change over long periods of time in crop production.

“Across the board, you see crop yields going up over the past 30 years, but the question is how much is climate modified (and) what would have happened if the climate was not changing.

“In some countries, we see that climate has only affected things by a few percent. In other countries, we see that yields would have been rising twice as fast.

“On a global average, we see that wheat production would be about 5% higher if we had not seen the warming since 1980. We see about the same for maize or corn.

“Yet for rice and soybean, we actually find that production is about the same as if climate had not been trending.”

The report may be accessed here.

Sort of moving on, most people, when they stop and think about it, must realise that 6.9 billion people living (i.e. depending) on Planet Earth have to be causing changes.  The Inside Science News Service published a reminder from last December of a calculation that,

By Mary Caperton Morton, ISNS Contributor
Inside Science News Service

STRASBURG, Pa. — Next month, representatives from more than 190 nations will gather in Japan at the Nagoya Biodiversity Summit to develop a global strategy for staunching habitat and biodiversity loss around the world.

The statistics are sobering: Every 20 minutes a species goes extinct. At that rate — estimated to be a thousand times faster than pre-human impact background levels – in 300 years, half of all living species of mammals, birds, fish, reptiles and plants will be gone. [My italics]

This alarming decline has not gone unnoticed. In 1992, the United Nations Convention on Biological Diversity — or CBD — one of the most widely ratified treaties in the world, established lofty conservation goals to be met by 2010. But since then the decline in biodiversity has not slowed. Nearly 16,000 species are still listed as threatened, with more than 200 of them described as “possibly extinct.”

What we need, some might ask, is for big business to get behind and push!  Perhaps not so far fetched.

Last October, the British Guardian newspaper, published a very telling reminder that nothing ever in life stays the same.

The article was presented thus,

Biodiversity loss seen as greater financial risk than terrorism, says UN

Loss of ecosystems perceived by banks and insurance companies to be a greater economic risk than terrorism, finds UN report.

Written by Jonathan Watts in Nagoya.

A controlled burn of oil from the Deepwater Horizon well in the Gulf of Mexico. The report cites the Gulf of Mexico oil spill as an extreme example of the potential impact of inadequate environmental controls. Photograph: Ann Heisenfelt/EPA

The financial risks posed by the loss of species and ecosystems have risen sharply and are becoming a greater concern for businesses than international terrorism, according to a United Nations report released today.

From over-depletion of fish stocks and soil degradation caused by agricultural chemicals to water shortages and mining pollution, the paper – commissioned by the UN Environment Programme and partners – said the likelihood has climbed sharply that declines in biodiversity would have a “severe” $10bn (£6bn) to $50bn impact on business.

With the European Union and other regions increasingly holding companies liable for impacts on ecosystem services, it suggests banks, investors and insurance companies are starting to calculate the losses that could arise from diminishing supplies, tightened conservationcontrols and the reputational damage caused by involvement in an unsound project.

Achim Steiner, UN under-secretary general and Unep executive director, said: “The kinds of emerging concerns and rising perception of risks underlines a fundamental sea change in the way some financial institutions, alongside natural resource-dependent companies, are now starting to glimpse and to factor in the economic importance of biodiversity and ecosystems”.

The briefing paper cites the 55% crash of BP’s share price and the decline of its credit rating in the wake of the Gulf of Mexico oil spill as an extreme example of the potential impact of inadequate environmental controls.

Read the full article in the Guardian here.

The United Nations Environment Programme report may be found here.  The cover page says this,

“ As the global financial sector recovers and moves into the post financial crisis era,
there is one notion that crystallises before our eyes more acutely than ever: we need
to understand systemic risk in a much more holistic way. This CEO Briefing underscores
the critical natural capital that underpins our economic activity and financial capital.”
Richard Burrett, Partner in Earth Capital Partners
Co-Chair, UNEP Finance Initiative

Well put!

As I wrote at the very start, just maybe, economic activity and financial capital could align itself with the planetary demands!

Blood and Oil

Continuing the thoughts of Michael Klare.

(My apologies, this is a difficult week for me as I prepare for a course that starts on the 11th May.  So posts may be a little thinner than usual.)

Yesterday, I wrote about an article by Michael Klare on the theme of the avenging planet.  While researching for that piece, I came across a film that Klare has produced called Blood and Oil.  It seemed worth mentioning it on Learning from Dogs.

Here’s the synopsis,

The notion that oil motivates America’s military engagements in the Middle East has long been dismissed as nonsense or mere conspiracy theory. Blood and Oil, a new documentary based on the critically-acclaimed work of Nation magazine defense correspondent Michael T. Klare, challenges this conventional wisdom to correct the historical record. The film unearths declassified documents and highlights forgotten passages in prominent presidential doctrines to show how concerns about oil have been at the core of American foreign policy for more than 60 years – rendering our contemporary energy and military policies virtually indistinguishable. In the end, Blood and Oil calls for a radical re-thinking of US energy policy, warning that unless we change direction, we stand to be drawn into one oil war after another as the global hunt for diminishing world petroleum supplies accelerates.

Here’s a trailer for the film.

Who is kidding who, conclusion.

A frank and honest assessment of the reality of the present economic situation, Part Two.

Yesterday, I wrote about publishing, in two parts, a recent article from the Blogsite, Washington’s Blog.  If you missed the first part that was here.  As I wrote yesterday, it is detailed and comprehensive, which is why I think it will be more easily digested as two parts presented on Learning from Dogs over this week-end.

So on to Part Two.

The particular post that appeared on Washington’s Blog on the 28th April was entitled Gallup Poll Shows that More Americans Believe the U.S. is in a Depression than is Growing … Are They Right? You can link to it here.

Blytic calculates that the current average duration of unemployment is some 32 weeks, the median duration is around 20 weeks, and there are approximately 6 million people unemployed for 27 weeks or longer.

Moreover, employers are discriminating against job applicants who are currently unemployed, which will almost certainly prolong the duration of joblessness.

As I noted in January 2009:

In 1930, there were 123 million Americans.

At the height of the Depression in 1933, 24.9% of the total work force or 11,385,000 people, were unemployed.

Will unemployment reach 25% during this current crisis?

I don’t know. But the number of people unemployed will be higher than during the Depression.

Specifically, there are currently some 300 million Americans,154.4 million of whom are in the work force.

Unemployment is expected to exceed 10% by many economists, and Obama “has warned that the unemployment rate will explode to at least 10% in 2009”.

10 percent of 154 million is 15 million people out of work – more than during the Great Depression.

Given that the broader U-6 measure of unemployment is currently around 17% (ShadowStats.com puts the figure at 22%, and some put iteven higher), the current numbers are that much worse.

But it is important to look at some details.

For example, official Bureau of Labor Statistics numbers put U-6 above 20% in several states:

  • California: 21.9
  • Nevada: 21.5
  • Michigan 21.6
  • Oregon 20.1

In the past year, unemployment has grown the fastest in the mountain West.

And certain races and age groups have gotten hit hard.

According to Congress’ Joint Economic Committee:

By February 2010, the U-6 rate for African Americans rose to 24.9 percent.

34.5% of young African American men were unemployed in October 2009.As the Center for Immigration Studies noted last December:

Unemployment rates for less-educated and younger workers:

  • As of the third quarter of 2009, the overall unemployment rate for native-born Americans is 9.5 percent; the U-6 measure shows it as 15.9 percent.
  • The unemployment rate for natives with a high school degree or less is 13.1 percent. Their U-6 measure is 21.9 percent.
  • The unemployment rate for natives with less than a high school education is 20.5 percent. Their U-6 measure is 32.4 percent.
  • The unemployment rate for young native-born Americans (18-29) who have only a high school education is 19 percent. Their U-6 measure is 31.2 percent.
  • The unemployment rate for native-born blacks with less than a high school education is 28.8 percent. Their U-6 measure is 42.2 percent.
  • The unemployment rate for young native-born blacks (18-29) with only a high school education is 27.1 percent. Their U-6 measure is 39.8 percent.
  • The unemployment rate for native-born Hispanics with less than a high school education is 23.2 percent. Their U-6 measure is 35.6 percent.
  • The unemployment rate for young native-born Hispanics (18-29) with only a high school degree is 20.9 percent. Their U-6 measure is 33.9 percent.

No wonder Chris Tilly – director of the Institute for Research on Labor and Employment at UCLA – says that African-Americans and high school dropouts are experiencing depression-level unemployment.

And as I have previously noted, unemployment for those who earn $150,000 or more is only 3%, while unemployment for the poor is 31%.

The bottom line is that it is difficult to compare current unemployment with what occurred during the Great Depression. In some ways things seem better now. In other ways, they don’t.

Factors like where you live, race, income and age greatly effect one’s experience of the severity of unemployment in America.

In addition, wages have plummeted for those who are employed. As Pulitzer Prize-winning tax reporter David Cay Johnston notes:

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined ….

And see this, this, and this.

Food Stamps Replace Soup Kitchens

1 out of every 7 Americans now rely on food stamps.

While we don’t see soup kitchens, it may only be because so many Americans are receiving food stamps.

Indeed, despite the dramatic photographs we’ve all seen of the 1930s, the 43 million Americans relying on food stamps to get by may actually be much greater than the number who relied on soup kitchens during the Great Depression.

In addition, according to Chaz Valenza (a small business owner in New Jersey who earned his MBA from New York University’s Stern School of Business)millions of Americans are heading to foodbanks for the first time in their lives.

***

The War Isn’t Working

Given the above facts, it would seem that the government hasn’t been doingmuch. But the scary thing is that the government has done more than during the Great Depression, but the economy is still stuck a pit.

***

The amount spent in emergency bailouts, loans and subsidies during this financial crisis arguably dwarfs the amount which the government spent during the New Deal.

For example, Casey Research wrote in 2008:

Paulson and Bernanke have embarked on the largest bailout program ever conceived …. a program which so far will cost taxpayers $8.5 trillion.

[The updated, exact number can be disputed. But as shown below, the exact number of trillions of dollars is not that important.]

So how does $8.5 trillion dollars compare with the cost of some of the major conflicts and programs initiated by the US government since its inception? To try and grasp the enormity of this figure, let’s look at some other financial commitments undertaken by our government in the past:

As illustrated above, one can see that in today’s dollar, we have already committed to spending levels that surpass the cumulative cost of all of the major wars and government initiatives since the American Revolution.

Recently, the Congressional Research Service estimated the cost of all of the major wars our country has fought in 2008 dollars. The chart above shows that the entire cost of WWII over four to five years was less than half the current pledges made by Paulson and Bernanke in the last three months!

In spite of years of conflict, the Vietnam and the Iraq wars have each cost less than the bailout package that was approved by Congress in two weeks. The Civil War that devastated our country had a total price tag (for both the Union and Confederacy) of $60.4 billion, while the Revolutionary War was fought for a mere $1.8 billion.

In its fifty or so years of existence, NASA has only managed to spend $885 billion – a figure which got us to the moon and beyond.

The New Deal had a price tag of only $500 billion. The Marshall Plan that enabled the reconstruction of Europe following WWII for $13 billion, comes out to approximately $125 billion in 2008 dollars. The cost of fixing the S&L crisis was $235 billion.

CNBC confirms that the New Deal cost about $500 billion (and the S&L crisis cost around $256 billion) in inflation adjusted dollars.

So even though the government’s spending on the “war” on the economic crisis dwarfs the amount spent on the New Deal, our economy is still stuck in the mud.

Why Haven’t Things Gotten Better for the Little Guy?

Government leaders make happy talk about how things are improving, but happy talk cannot fix the economy.

Two fundamental causes of the Great Depression, and of our current economic problems, are fraud and inequality:

There are, of course, other reasons the economy is still stuck in a ditch for most Americans, such as encouraging too much leverage, bailing out the big speculators, failing to break up the mammoth banks, and failing to spend wisely, where it will do some good. See this and this. But fraud and inequality were core causes of the Depression, and our failure to address them will only prolong our misery.

Who is kidding who?

A frank and honest assessment of the reality of the present economic situation.

The next two days see me publishing, in two parts, a recent article from the Blogsite, Washington’s Blog.  Perhaps one can’t blame the efforts of so many of the western governments’ leaders to talk up the economy but at street level the vast majority of people feel pain about their circumstances.

The particular post that appeared on Washington’s Blog on the 28th April was entitled Gallup Poll Shows that More Americans Believe the U.S. is in a Depression than is Growing … Are They Right? You can link to it here. It is detailed and comprehensive, which is why I think it will be more easily digested as two parts presented on Learning from Dogs over this week-end.

Here’s the first part.

Consumer confidence is, well … in somewhat of a depression.

Reuters reports today:

The April 20-23 Gallup survey of 1,013 U.S. adults found that only 27 percent said the economy is growing. Twenty-nine percent said the economy is in a depression and 26 percent said it is in a recession, with another 16 percent saying it is “slowing down,” Gallup said.

Tyler Durden notes:

That means that more Americans think the country is in a Depression, let alone recession, than growing.

How can so many Americans believe that we’re in a depression, when the stock market and commodity prices have been booming?

As I noted last week:

Instead of directly helping the American people, the government threwtrillions at the giant banks (including foreign banks; and see this) . The big banks have – in turn – used a lot of that money to speculate in commodities, including food and other items which are now driving up the price of consumer necessities [as well as stocks]. Instead of using the money to hire Americans, they’re hiring abroad (and getting tax refunds from the government).

But don’t rising stock prices help create wealth?

Not really. As I pointed out in January:

A rising stock market doesn’t help the average American as much as you might assume.

For example, Robert Shiller noted in 2001:

We have examined the wealth effect with a cross-sectional time-series data sets that are more comprehensive than any applied to the wealth effect before and with a number of different econometric specifications. The statistical results are variable depending on econometric specification, and so any conclusion must be tentative. Nevertheless, the evidence of a stock market wealth effect is weak; the common presumption that there is strong evidence for the wealth effect is not supported in our results. However, we do find strong evidence that variations in housing market wealth have important effects upon consumption. This evidence arises consistently using panels of U.S. states and individual countries and is robust to differences in model specification. The housing market appears to be more important than the stock market in influencing consumption in developed countries.

I pointed out in March:

Even Alan Greenspan recently called the recovery “extremely unbalanced,” driven largely by high earners benefiting from recovering stock markets and large corporations.

***

As economics professor and former Secretary of Labor Robert Reichwrites today in an outstanding piece:

Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The “wealth effect” is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds.

I noted in May:

As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all stocks, bonds and mutual funds in the U.S. On the other hand, the top 1% owned owned 50.9%.

***

(Of course, the divergence between the wealthiest and the rest has only increased since 2007.)

And last month Professor G. William Domhoff updated his “Who Rules America” study, showing that the richest 10% own 98.5% of all financial securities, and that:

The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.

Indeed, most stocks are held for only a couple of moments – and aren’t held by mom and pop investors.

How Bad?

How bad are things for the little guy?

Well, as I noted in January, the housing slump is worse than during the Great Depression.

As CNN Money points out today:

Wal-Mart’s core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday.

“We’re seeing core consumers under a lot of pressure,” Duke said at an event in New York. “There’s no doubt that rising fuel prices are having an impact.”

Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in.

Lately, they’re “running out of money” at a faster clip, he said.

“Purchases are really dropping off by the end of the month even more than last year,” Duke said. “This end-of-month [purchases] cycle is growing to be a concern.

And – in case you still think that the 29% of Americans who think we’re in a depression are unduly pessimistic – take a look at what I wrote last December:

The following experts have – at some point during the last 2 years – said that the economic crisis could be worse than the Great Depression:

***

States and Cities In Worst Shape Since the Great Depression

States and cities are in dire financial straits, and many may default in 2011.

California is issuing IOUs for only the second time since the Great Depression.

Things haven’t been this bad for state and local governments since the 30s.

Loan Loss Rate Higher than During the Great Depression

In October 2009, I reported:

In May, analyst Mike Mayo predicted that the bank loan loss rate would be higher than during the Great Depression.

In a new report, Moody’s has just confirmed (as summarized by Zero Hedge):

The most recent rate of bank charge offs, which hit $45 billion in the past quarter, and have now reached a total of $116 billion, is at 3.4%, which is substantially higher than the 2.25% hit in 1932, before peaking at at 3.4% rate by 1934.

And see this.

Here’s a chart summarizing the findings:

(click here for full chart).

Indeed, top economists such as Anna Schwartz, James Galbraith, Nouriel Roubini and others have pointed out that while banks faced a liquidity crisis during the Great Depression, today they are wholly insolvent. See this, this,this and this. Insolvency is much more severe than a shortage of liquidity.
Unemployment at or Near Depression Levels

USA Today reports today:

So many Americans have been jobless for so long that the government is changing how it records long-term unemployment.

Citing what it calls “an unprecedented rise” in long-term unemployment, the federal Bureau of Labor Statistics (BLS), beginning Saturday, will raise from two years to five years the upper limit on how long someone can be listed as having been jobless.

***

The change is a sign that bureau officials “are afraid that a cap of two years may be ‘understating the true average duration’ — but they won’t know by how much until they raise the upper limit,” says Linda Barrington, an economist who directs the Institute for Compensation Studies at Cornell University’s School of Industrial and Labor Relations.

***

“The BLS doesn’t make such changes lightly,” Barrington says. Stacey Standish, a bureau assistant press officer, says the two-year limit has been used for 33 years.

***

Although “this feels like something we’ve not experienced” since the Great Depression, she says, economists need more information to be sure.

The following chart from Calculated Risk shows that this is not a normal spike in unemployment:

As does this chart from Clusterstock:


As I noted in October:

It is difficult to compare current unemployment with that during the Great Depression. In the Depression, unemployment numbers weren’t tracked very consistently, and the U-3 and U-6 statistics we use today weren’t used back then. And statistical “adjustments” such as the “birth-death model” are being used today that weren’t used in the 1930s.

But let’s discuss the facts we do know.

The Wall Street Journal noted in July 2009:

The average length of unemployment is higher than it’s been since government began tracking the data in 1948.

***

The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

The Christian Science Monitor wrote an article in June entitled, “Length of unemployment reaches Great Depression levels“.

60 Minutes – in a must-watch segment – notes that our current situation tops the Great Depression in one respect: never have we had a recession this deep with a recovery this flat. 60 Minutes points out that unemployment has been at 9.5% or above for 14 months:

Pulitzer Prize-winning historian David M. Kennedy notes in Freedom From Fear: The American People in Depression and War, 1929-1945(Oxford, 1999) that – during Herbert Hoover’s presidency, more than 13 million Americans lost their jobs. Of those, 62% found themselves out of work for longer than a year; 44% longer than two years; 24%longer than three years; and 11% longer than four years.

Part Two tomorrow.