I think this is the beginnings of an economy based on perpetual growth and fossil fuel energy running headlong into geological energy constraints. Basically I see an undulatory downward path for the rest of my life. From here out, I think any rallies in our economic condition are going to be met with spiking commodity prices that knock us right back down.
Joined: Apr 12, 2007 Posts: 1185 Location: Central NC
Posted: Tue Jul 22, 2008 7:37 am Post subject: Re: The Economist: America may default on it's debt
Chrissakes you guys are childish. Do you act this way in real life?
Explain to me how this is moving the topic forward? _________________ "The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences…"
Sir Winston Churchill
Posted: Tue Jul 22, 2008 8:55 am Post subject: Re: The Economist: America may default on it's debt
Homesteader, this all may seem childish, but it's not.
Mr. Bill is attempting to rewrite history.
Gideon's main problem with Mr. Bill, and I remember Gideon posting on this several times, was that Mr. Bill always used lots of fancy language, frequently mentioned his credentials as a trader, and always took the position of being the economic expert.
Gideon also pointed out that people were very much enraptured by Mr. Bill.
You know, throw in sufficient references to "forward looking indices", 5 week moving "LIBOR", and gain the respect of the ignorant.
But Mr. Bill missed the big one. I mean the BIG ONE.
And even though several people have now come out in this thread to state the true PO.com history, Mr. Bill, as always, has such a hard time admitting he's wrong, he's choking on the historical truth. _________________ Massive Human Dieoff must occur as a result of Peak Oil. Many more than half will die. It will occur everywhere, including where you live. If you fail to recognize this, then your odds of living move toward the "going to die" group.
Posted: Tue Jul 22, 2008 9:01 am Post subject: Re: The Economist: America may default on it's debt
The global economy is at the point of maximum danger
Quote:
By Ambrose Evans- Pritchard
Last Updated: 6:53am BST 21/07/2008
It feels like the summer of 1931. The world's two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution.
The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7pc to 4.1pc growth, whilst warning of a "chance of a global recession". Plainly, the IMF cannot or will not offer any useful insights.
Its "mean-reversion" model misses the entire point of this crisis, which is that central banks have pushed debt to fatal levels by holding interest too low for a generation, and now the chickens have come home to roost. True "mean-reversion" would imply debt deflation on such a scale that would, if abrupt, threaten democracy.
Retailers having a harder time getting credit indicates there is concern about the strength and/or sustainability of retail spending. Also note that Wal-Maryt -- the largest retailer in the world -- had to agree to tighter lending controls. This is a company with 378 billion in revenue last year. They have to agree to stricter lending standards.
This is why last week's euphoria regarding the financial sector was so completely overblown. Everyone was thrilled because several banks reported losses that weren't as large as feared. That was the good news -- banks didn't lose as much money as projected. Yet they still lost lots of money and wrote down lots of debt. And all of those writedowns are starting to crimp lending.
Much of the decline in outstanding credit has been due to banks sharply reducing the amount of bonds and other debt securities held on their books, but the slowdown is apparent across all forms of lending. The heavy losses banks have taken on mortgage-related securities are forcing them raise cash levels, leading to tighter lending. Because they can't know what other problems might be lurking on their balance sheets, they are being especially cautious.
None of this should be surprising to anyone. We have seen over $400 billion dollars in writedowns. We have seen 266 mortgage lenders shut their doors. All of this is bound to have an impact -- which it has in the discount spread
Joined: Mar 12, 2007 Posts: 1008 Location: As close as I can get to the beginning of the pipe.
Posted: Tue Jul 22, 2008 9:06 am Post subject: Re: The Economist: America may default on it's debt
Homesteader wrote:
Chrissakes you guys are childish. Do you act this way in real life?
Explain to me how this is moving the topic forward?
Homesteader, the problem is that this thread is about the flaghead of the world's Economics profession getting it wrong. Continually. Economists are cheerleaders for growth capitalism and are the antithesis of what a lot of folks here at PO.com represent--a functional descent from overshoot.
With the reshuffling of the forums, those who care to discuss economics from an ecological perspective are now thrown together with those who care to discuss it from a mainstream traditional neoclassical economic perspective. So we are back to territorial skirmishes. Bill the banker, like Monte, works hard at protecting what he views as his territory. It can get in the way of discussions, sometimes.
This thread is symbolic of the Economics profession missing the boat for the past four decades or so. In our interactions with each other, we are only mirroring real life, as usual. _________________ "When fascism comes to America it will be wrapped in a flag and carrying a cross." --Sinclair Lewis
Posted: Tue Jul 22, 2008 10:22 am Post subject: Re: The Economist: America may default on it's debt
Iaato said:
Quote:
Homesteader, the problem is that this thread is about the flaghead of the world's Economics profession getting it wrong. Continually. Economists are cheerleaders for growth capitalism and are the antithesis of what a lot of folks here at PO.com represent--a functional descent from overshoot.
According to neo-classical economics as price goes up, demand goes down. Oil has increased in price 465% in six years, and yet, the demand has only increased. Of course, they feel that their territory is being assaulted. They are under siege and it is becoming evident that their battlements are failing.
Posted: Tue Jul 22, 2008 3:24 pm Post subject: Re: The Economist: America may default on it's debt
shortonoil wrote:
According to neo-classical economics as price goes up, demand goes down. Oil has increased in price 465% in six years, and yet, the demand has only increased. Of course, they feel that their territory is being assaulted. They are under siege and it is becoming evident that their battlements are failing.
This may just be a time lag introduced by savings and credit lines, which one would expect to be directed towards an inelastic commodity. This 'phoney war' has the potential to be a protracted affair without violating economic orthodoxy. _________________ Volatility. When life isn't exciting enough.
Posted: Tue Jul 22, 2008 4:35 pm Post subject: Re: The Economist: America may default on it's debt
MrBill wrote:
threadbear wrote:
Bas, A number of us have been taken out to the woodshed, called Communists, tin foil hat nutters, etc...by Mr.Bill. Why would you interfere with us lunching on revenge? With the aid of the search function, it's best served cold, with a glass of chianti.
Threadbear, you may think this, but simply is not true. For one, I have never used the words 'tin foil hat nutters' or called anyone (other than eastbay) a communist! ; - )
This is a forum to discuss issues related to post peak oil resource depletion, and that is my only interest. I have zero interest to get into a pissing match with anyone. So I apologize if I have ever lost my head or said things in the heat of an exchange that you felt were unfair.
Posted: Tue Jul 22, 2008 5:15 pm Post subject: Re: The Economist: America may default on it's debt
Iaato wrote:
Homesteader wrote:
Chrissakes you guys are childish. Do you act this way in real life?
Explain to me how this is moving the topic forward?
Homesteader, the problem is that this thread is about the flaghead of the world's Economics profession getting it wrong. Continually. Economists are cheerleaders for growth capitalism and are the antithesis of what a lot of folks here at PO.com represent--a functional descent from overshoot.
With the reshuffling of the forums, those who care to discuss economics from an ecological perspective are now thrown together with those who care to discuss it from a mainstream traditional neoclassical economic perspective. So we are back to territorial skirmishes. Bill the banker, like Monte, works hard at protecting what he views as his territory. It can get in the way of discussions, sometimes.
This thread is symbolic of the Economics profession missing the boat for the past four decades or so. In our interactions with each other, we are only mirroring real life, as usual.
I don't think anyone is realistically expecting everything MrBill says to be accurate all the time. In the cases where he has been shown to be wrong it appears that he has apologized, and in the cases where he was referring to an explicit subject made that clear in the post as well as in recent references to said post. In this case, stating...
MrBill wrote:
What I meant is that 25 basis points in comparison with many previous crises, where I have made markets in, is a blip on the screen. I have seen concerted central bank intervention before.
I have also seen capital controls imposed, overnight rates hiked to 100 percent p.a. , and a blip in overnight funds of 25 bps does not disconcert me. I bought Ukraine tbills at 2000 percent p.a.
I immediately qualified that opinion by saying, this does not mean that future developments would not be more serious.
In other words, in that specific case, it was not in Mr. Bill's opinion indicative of a unprecedented crisis, with the disclaimer that future developments could be serious, which they have been. In the past, when MrBill has been wrong, he will apologize, unlike MonteQuest who will insult others and attempt to change the topic for whatever reason. While I have seen MrBill apologize to posters, including myself, if they post something inaccurate, I have never seen MonteQuest do that. In short, I think that comparisons between MrBill and MonteQuest are disingenuous in this instance, and as for MrBill getting it wrong, there really wasn't much to get wrong. It seems that his opinion was that a specific action alone wasn't indicative of a unprecedented financial crisis, but that in the future that may change given other developments. _________________
Posted: Tue Jul 22, 2008 5:30 pm Post subject: Re: The Economist: America may default on it's debt
shortonoil wrote:
According to neo-classical economics as price goes up, demand goes down. Oil has increased in price 465% in six years, and yet, the demand has only increased. Of course, they feel that their territory is being assaulted. They are under siege and it is becoming evident that their battlements are failing.
According to neo-classical economics there are also different elasticities depending on income and price, which depends on regional policies, both in the short and long run that influence demand. In fact, given the rate of growth since 2004, the last time oil was ~$25/bbl, the increase to ~$130/bbl has lead to a significant drop in growth and demand compared to when oil was ~$25/bbl. In other words, we don't need to see a reduction in consumption to see a reduction in demand, especially in the short run when oil consumption was climbing at ~2.5-3mbpd. That being said, if oil prices remain high odds are demand will continue to drop over the next decade and instead of simply reducing demand enough to reduce growth, oil prices will likely reduce demand enough to create negative growth, and reduce consumption year on year. _________________
Posted: Wed Jul 23, 2008 12:58 am Post subject: Re: The Economist: America may default on it's debt
Thanks yesplease! ; - ))
Political interference in the market trumps economics in the short-run.
The IEA estimates that three-fifths of the doubling in the price of crude in the past year has been absorbed by governments mainly in the developing world shielding their consumers from the full-effects of higher prices.
That means those higher prices are not effectively limiting demand because the consumers are not getting the signal. Where governments have tried to raise prices there has been social unrest and riots.
However, now due to budget constraints/deficits (economics catching-up to political interference in the economy) countries like Pakistan, Malaysia, India, Indonesia, etc. are having to close the gap between the world price and where they subsidize their consumers. Perhaps why we are starting to see crude prices come down on the back of lower demand forecasts due to a slowing global economy.
Should China start to phase out its subsidies then we would see more rapid demand destruction. Note as an economist I attach no subjective value to the term demand destruction. It is an objective term. Actual demand can never exceed available supply. So high prices destroy potential demand. Due to our legacy investments oil consumption may be inelastic, so it may take time to destroy potential demand, but actual demand can still never exceed available supply. That is an iron-clad law and I dare anyone to disprove that classical economic theory?
Also, as we (collectively) pay 'only' about $4 trillion per year on crude oil (before refining and distribution of petroleum products) to run a $55 trillion global economy (using our current energy mix) we can see that the marginal value of petroluem products can still rise a long way until its marginal cost exceeds its marginal economical benefit. Therefore, we would see steepening demand destruction the closer marginal cost gets to its marginal benefit as more and more lower value-added goods and services are eliminated by the higher cost of petroluem.
In the context of the USA going bankrupt there are simply two dynamics at work, and they both work against one another. One is that the USA has run up unsustainable current account deficits and unfunded future liabilities, so a great deal of future spending (wealth creation) will go to servicing debt. Secondly, whatever wealth goes to servicing debt cannot be used to pay for petroleum imports that are getting more expensive due to scarcity and competition from other oil importing nations that do not have the US' current account deficits. And probably thirdly, that wealth transfer from oil importers to oil producers will spur economic growth in those producing countries, so creating more potential demand and greater competition for a finite resource.
I would sure appreciate it if someone would please tell me how my analysis is somehow divorced from reality? Or is this a case of shooting the messenger? _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Wed Jul 23, 2008 1:44 am Post subject: Re: The Economist: America may default on it's debt
MrBill wrote:
...
And probably thirdly, that wealth transfer from oil importers to oil producers will spur economic growth in those producing countries, so creating more potential demand and greater competition for a finite resource.
...
Time for a rebuttal!
Does rising oil prices simply mean a wealth transfer from importers to producers? ---> yes and no
I think it depends.
If the run up in prices is purely due to "the market" then I would say yes.
however....
If the reason for the increase in prices is due to (geological factors) meaning the quality of the resource has diminished the answer is no.
This requires greater resource inputs for extraction and thus there will be an overall loss of wealth.
for example:
Suppose a high quality oil field requires 100 engineers to develop.
As time passes pressure drops and the quality of the oil field diminishes. It may require increased water injection, more sophisticated computer imaging, and lateral drilling. These more complex technologies naturally demand the attention of more engineers. Maybe it now takes 300 engineers to pump the same amount of oil that 100 could do before!
yikes that means the world just "lost" 200 engineers.
That's 200 less engineers that could be doing other more "fun" things for the world like invent a cell phone with more ring tones or maybe the next generation apple iPod or whatever it is that engineers do.
This example can also be applied to commodities in general whether it's growing bushels of corn, mining iron ore, etc... I may have been making a joke by mentioning iPods but this is serious. A lot of people think the run up in oil prices simply means some undeserving rich person in the Middle East who goes by the name of Muhammad is making more money, well yes but that's not the whole story. If it takes 3 units of human labor input to produce the same amount of production that 1 unit used to do before then that of course leads to a loss of wealth.
Posted: Wed Jul 23, 2008 2:31 am Post subject: Re: The Economist: America may default on it's debt
Cube, your example is not besides the point, but it misses the point that wealth transfers from oil consuming nations to oil producing nations are still a wealth transfer.
What you're talking about is a shrinking economic pie where food and fuel costs rise, so more wealth is transfered, and less wealth is generated overall, as core living costs rise leaving less disposable income to buy discretionary items like iPods or ring tones.
That is arguably worse. Transfering $4 trillion to oil producers when the global GDP is $55 trillion is better than transfering $8 trillion in a $51 trillion economy*. The final tipping point comes when we are collectively spending $22.5 trillion to generate $22.5 trillion in economic output including food and fuel as well as core living costs leaving no room for other discretionary spending. Literally working to live and living to work.
Obviously that wealth transfer is still creating winner and losers. More losers than winners. But you are correct in that oil producers cannot earn more for their oil than the GDP generated by the rest of the world in order to pay for it.
*At least on a macro level assuming those dollar amounts are constant and not the product of inflation or dollar devalution. Think of them in a currency basket context if it helps.
UPDATE: God damn the pusher man
Quote:
According to Harvard Professor Elizabeth Warren, incomes -- in inflation-adjusted terms -- have been declining since 2007. This is particularly clear in the middle- and lower- income groups.
"For many families in America, the recession did not begin in the past six months. The real recession began several years ago," Warren said.
Measured in inflation-adjusted dollars, incomes declined while basic expenses increased sharply, namely energy, housing and food.
(continued)
Overall, she estimates that the average family is spending nearly $5,000 more than in 2000 for a handful of basic expenses like food, health care, energy and housing.
"It is no surprise that millions of families have turned to debt to try and bridge the gap between their incomes and their expenses. Debt of every kind has increased sharply," Warren said.
But yet the issuers of credit cards have profited.
In 2007, all-purpose credit cards generated revenues of $117 billion, up from $115 billion in 2006, Warren said.
At the same time, about 43.5 percent of all households in the United States carry a balance on their credit cards,
"Credit card debt now consumes a sizable portion of a family's income, leaving families with less to spend elsewhere," she said. "In effect, a huge wealth transfer is taking place."
Ben Bernanke is indeed the last wall before the largest US currency and asset owners become fully aware of the fact that Washington no longer has the means of its monetary policy. What used to be a deliberate policy of currency drop (when it was decided to stop publishing M3 in March 2006, as announced by LEAP/E2020) in order to reduce the country's trade deficits and the real value (for themselves) of the their debt (labelled in Dollar), turned against its perpetrators entailing a major outflow (capital outflow, steadiness of trade deficits, soaring inflation...). The « Bernanke » card is the last « psychological » card Washington can play. The fact of using it proves that US leaders have reached the last limits of what they can do to hold back their partners into the system founded after 1945 and based on the US economy and currency (3).
In a few weeks time (after the next G8- and other organisations-meetings have taken place), when it will be confirmed that there is no way to stabilise the US currency (not to mention the eccentric idea of pushing it up) because the US economy is sinking always deeper into the recession and because the world is already filled with US Dollars no one knows what to do with, then the global financial system will burst out in various sub-systems trying to survive as much as they can before a new global financial equilibrium is found (4). As he is embarking on this road to nowhere, consciously or not, voluntarily or not, Ben Bernanke is signing the end of the current financial system. The return to a “strong Dollar” is a bit like the « liberation of Iraq » : wishful thinking turning into a nightmare.
Joined: Mar 09, 2006 Posts: 539 Location: Al-Mariyya, Al-Andalus
Posted: Wed Jul 23, 2008 10:40 am Post subject: Re: The Economist: America may default on it's debt
Can't resist another quote (the writers may not be the best in the English Language, but they have their heads screwed on right ...)
Quote:
As a matter of fact, if Washington really intended to stabilise the Dollar or, more ambitiously, to push it up against the other currencies, there would only be one way (5),
--------
Notes: (5) We will disregard the other option consisting in bombing the ECB, the Bank of China and the Bank of Japan.
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