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London G20 Meeting: The Last Chance?
Posted by Luis de Sousa on April 2, 2009 - 9:42am in The Oil Drum: Europe
As the G20 meeting that is supposed to “rebuild the Global Economy” begins, this post presents a few reflections on the likely major problem the world leaders face today: the damaged state of the world reserve currency system.
On the 24th of March, Frank Biancheri, head of the European think tank LEAP2020, published in the Financial Times the following open letter directed to the G20 leaders gathering in London on the 2nd of April:
Ladies and Gentlemen, Your next summit takes place in a few days in London; but are you aware that you have less than half a year to prevent the world from plunging into a crisis that will take at least a decade to resolve, accompanied by a whole series of tragedies and ferment? Therefore, this open letter by LEAP/E2020, who saw the arrival of a « global systemic crisis » as early as three years ago, intends to briefly explain why it happened and how to limit further damage. […]
An audio version of this post can be downloaded here.
Until now you have merely been concerned with the symptoms and secondary effects of this crisis because, unfortunately, nothing prepared you to face a crisis of such a historic scale. You thought that adding more oil to the global engine would be enough, unaware of the fact that the engine was broken, with no hope of repair. In fact, a new engine must be built, and time is running out, as the international system deteriorates further each month.
[…]
LEAP'S THREE STRATEGIC RECOMMENDATIONS
1. The key to solving the crisis lies in creating a new international reserve currency!
The first recommendation is a very simple idea: reform the international monetary system inherited post-WWII and create a new international reserve currency. The US Dollar and economy are no longer capable of supporting the current global economic, financial and monetary order. As long as this strategic problem is not directly addressed and solved, the crisis will grow. Indeed it is at the heart of the crises of derivative financial products, banks, energy prices... and of their consequences in terms of mass unemployment and collapsing living standards. It is therefore of vital importance that this issue should be the main subject of the G20 summit, and that the first steps towards a solution are initiated. In fact, the solution to this problem is well-known, it is about creating an international reserve currency (which could be called the « Global ») based on a basket of currencies corresponding to the world’s largest economies, i.e. US dollar, Euro, Yen, Yuan, Khaleeji (common currency of oil-producing Gulf states, to be launched in January 2010), Ruble, Real..., managed by a « World Monetary Institute » whose Board will reflect the respective weight of the economies whose currencies comprise the « Global ». You must ask the IMF and concerned central banks to prepare this plan for June 2009, with an implementation date of January 1st, 2010. This is the only way for you to regain some control over currently unwinding events, and this is the only way for you to bring about shared global management, based on a shared currency located at the centre of economic and financial activity. According to LEAP/E2020, if this alternative to the currently collapsing system has not been initiated by this summer 2009, proving that there is another solution than the « every man for himself » approach, today’s international system will not survive this summer.
If some of the G20 states think that it is better to maintain the privileges related to the « status quo » as long as possible, they should meditate on the fact that, if today they can still significantly influence the future shape of this new global monetary system, once the phase of global geopolitical dislocation has started they will lose any capacity to do so.
[...]
Further detail of LEAP2020's analysis was given by Frank in an interview to the Guns and Butter radio show.
There will be other issues discussed at the meeting: tax heavens, shadow accounting practices, reserve requirements, but the global reserve currency system (that, as was known during at least the last 40 years, seems to have ceased to exist) is the most important of all.
How did the monetary system get here
The first attempt to reach a global monetary system was held at Bretton Woods in the US in the summer of 1944, with the end of the Second World War in sight. An agreement was reached between 44 nations on the Allies' side, that enacted the IMF, the prototype of the World Bank and a new monetary system for commercial relations. This system (named Bretton Woods) established fixed exchange rates between currencies, defining narrow fluctuations of paper currencies against gold.
This Bretton Woods system lasted for more than two decades during which countries kept on increasing paper currency supply, but managed to maintain gold prices under control by injecting reserves into the market. The system began to fail in May of 1968 when world wide panic closed down most gold trading markets. Investors had lost faith in central banks' ability to redeem the fiat currency they had issued. In the Summer of 1971, bending on the weight of increasing energy imports and the Vietnam war, the US was forced to pull out of the Bretton Woods system, abandoning the direct convertibility of the US dollar into gold.
During the following months, with the dollar losing half of its value against gold, most other countries abandoned fixed exchange rates against the dollar. A new system emerged, with major currencies that were used in international trade adopting floating exchange rates.
Next came a period of about ten years between the first oil shock and the peak of the early 1980s recession, when currencies slowly depreciated without much economic growth happening in the western world. During this time, the foundations of the present system were launched. Perhaps the most important action towards it was the birth of the Carter Doctrine. As the economic crisis was overcome, a symbiotic relationship developed between the Middle East and the West. In exchange for military protection (maintaining the ruling elites), oil producers provided easy oil that fostered economic growth that in turn reinforced the military power. Oil producing countries stored their wealth in US Treasury bonds and other debt instruments becoming creditors of the military power that kept them safe; the flow of cheap oil allowed the economic growth that justified the faith on the US currency. This was the Petro-dollar system.
In a different way, US allies who were members of NATO (also Japan and Oceania) ended up also benefiting from this new system. They couldn't export debt as the US did, but benefited both from the flow of cheap oil and of the rising protective military power at the western side of the Atlantic. Two decades of unprecedented economic stability and growth unfolded.
But history marches on. By the mid 1980s, this system was being used chiefly in the Atlantic – Middle East trade, with the USSR and its allies still in place, and in a trade environment much narrower than today. As oil prices collapsed in 1985, events were set in motion that brought down the USSR in political, military and economic terms; in 1989 the Berlin wall fell and in 1991 Russia detached from the former republics of the Warsaw Pact. In 1992 the Maastricht Treaty created a new international market; in 1999 the Euro was born; and in 2001 China joined the WTO, paving the way far a major, now liberalized, economy entering the world market. At the same time other important players emerged, with Russia becoming again the world's largest oil producer and a major energy exporter, and countries like Brazil and India playing major roles as well.
What started as an agreement between two regions became the system that prices global trade today. Not only did the use of the US dollar as a reserve currency become global, it also became much more extensively used because of the growth in imports and exports in the last 20 years. This arrangement resulted in the US Federal Reserve setting monetary policy for the whole world, while in fact its targets and gauges were solely based on the US economy.
Recent years
After 2000 the US embarked on a monetary and fiscal policy expansion with little parallel in history: interest rates were brought down to a very low level; the monetary supply grew in excess of 10% annually; an expansionary budget stimulated demand for goods and services, many of them imported from countries that accumulated US bonds and other forms of fiat currency. From 2002 to 2007, reserve currency held by central banks grew in excess of 20% annually. In parallel, lax financial regulations and reserve requirements helped create a pile of invisible debt (off balance sheet) reflecting that expanding demand and monetary supply, according to some amounting today to more than the world's annual GDP.
Did this incredible expansion end because oil production plateaued? That's an interpretation, although other views are possible. Oil prices started rising in 2004. In 2005, raw material prices began to rise, and in 2006 food prices. No matter what the underlying reason, the supply side stopped following the demand expansion. When Ben Bernanke became chairman of the US Federal Reserve and tried to change course by raising interest rates, so that at least some limitation would come to the monetary expansion, it was already too late: the US economy couldn't expand any more in order to generate the wealth promised by all the debt issued in previous years.
Without that physical growth, the result was simply default on debt. Without the proper leadership from either the US government or the Federal Reserve, panic took over last September. During the next two months, the world experienced one of the sharpest demand retractions in history. The problem of the moment is that in order to stimulate demand once more, the prescription of the US seems to be an expansionary budget and monetary policy. And here's the main problem: this policy threatens the value of US dollar reserves held abroad.
There is another side to the present crisis worth observing: countries that followed monetary policies most unlike those set by the Fed seem to be suffering the most. Those that opted for high interest rates in order to prevent price inflation and/or excess demand enjoyed an influx of foreign investment, seeking easy profits. When the crisis hit, that investment simply vanished--examples were Iceland, and Russia to some extent. At the other extreme were countries like Japan, that during this decade had been battling problems of employment or lack of internal demand, employing expansionist measures even sharper than the US; they are now facing an influx of currency that threatens to engulf demand (raise prices) and massively destroy employment.
In conclusion: a regional currency running world trade had two main negative effects: (1) it impaired specific monetary policies in other regions, forcing them to conform to the policy of the issuing region, and (2) it pegged the stored wealth to the economic health of a single region: the issuer. Exacerbating these problems is the hegemonic position the currency issuer gets, allowing it to live beyond its means - what Frank Biancheri calls the reserve currency curse – the budget and trade deficits can apparently be expanded without limit. But at some point it makes foreigners wonder, and when that time comes the issuing region is engulfed in debt. A global economy running on a regional currency seems almost like a scheme designed to self destruct.
Confidence wanes
The policies needed to bring the US economy back into contact with reality have thus the parallel effect of reducing the wealth stored by those economies that grew on exports during the past few years: be it expensive lasting goods (e.g. Germany, Japan), consumer goods (e.g. China) or energy (e.g. Middle East, Russia). The confidence on the US dollar as a reserve currency is severely damaged and as the LEAP2020 implies, it will probably never come back. No wonder then that China is openly calling for a new reserve currency system:
Zhou Xiaochuan, governor of China's central bank, has proposed to create a super-sovereign reserve currency as part of reform in the international monetary system.
The desirable goal of the international monetary system is to "create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies," he said.
Zhou said the Special Drawing Right (SDR) of the International Monetary Fund (IMF) has the potential to act as a super-sovereign reserve currency in a signed article posted on the website of the People's Bank of China Monday.
This reinforces earlier calls from another major holder of reserve currency, Russia, that seems to be heading a group of nations with the same intent:
China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday. Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions, among other measures in the text of its proposals to the April G20 summit published last Monday.
[…]
Russia met representatives of China, India and Brazil ahead of the G20 finance ministers meeting last week, as the big emerging powers seek to increase their influence on decision making globally. Their first ever joint communique did not mention a new currency but the source said the issue was discussed.
"They (China) did not formally put forward their position for the G20 summit but unofficially they had distributed their paper regarding the same ideas (the need for the new currency)," the source told Reuters, speaking on condition of anonymity.
But China has not stuck solely to articles in the western press and meetings with other reserve currency holders. Ever since the country announced its intention to make the Yuan a reserve currency, several currency swaps have been announced with its main commercial partners, Argentina being the last of a list that includes South Korea, Malaysia, Hong Kong and Belarus.
What could happen then if a new coordinated reserve currency fails to emerge? The answer is simple: the US dollar will stop being the world trading benchmark. A period will then unfold during which trading nations won't have a clear worldwide unit to value their goods, much less to store value for future trading. Possibly, some regional currencies might be tried on a limited geographical basis. Another alternative might emerge, using a currency for which there isn't much policy required: gold. The consequences of such a transition will be immense; a Hungarian mathematician called Antal Fekete, claims to already be getting signals that this is the case, with gold futures entering backwardation late last year. This is a rather technical issue, way beyond the aims of this simple essay, but with or without backwardation, it is important to know what Fekete foresees [pdf!] in case the present system ceases to exist without a clear replacement:
I have to go back to the collapse of the Western Roman Empire after the abdication of the emperor Romulus Augustus on September 4, 476 A.D. It was followed by the Dark Ages when the rule of law, personal security, trade of goods against payment in gold and silver could no longer be taken for granted. Gold and silver went into hiding, never to re-emerge during the lifetime of the original holders. It is plausible to see a causal relationship between the fading of the rule of law and the complete disappearance of gold and silver from trade. Virtually all observers say that the first event caused the second.
I may be in a minority of one to say that causation goes in the opposite direction. The disappearance of gold and silver coins as a means of exchange was a long-drawn-out, cumulative event. In the end, no one was willing to exchange gold and silver coins for the debased coinage of the empire. At that point, the empire was bankrupt; it could no longer pay the troops that defended its boundaries against the barbarians threatening with invasion. This is not to say that the empire did not have other weaknesses. It did, plenty of it. But the overriding weakness was the monetary weakness. Centuries after centuries the Mint of the empire could attract less and less gold and silver. Because of this, the empire was forced to debase its coinage and the deterioration continued until the bitter end, when the gold flow to the Mint completely dried up.
[…]
The history of the monetary system of the United States [and of the World] shows an ominous parallel to that of the Western Roman Empire. As long as gold and silver was still used in trade at least to some extent, the Western Roman Empire was limping along. The modern equivalent of the disappearance of gold and silver is epitomized by the progressive vanishing of the gold basis [meaning the vanishing confidence in the US dollar as an effective long term wealth storage medium].
Coming from a different perspective, this scenario ends up remarkably close to what Frank Biancheri calls “every man for himself”: the break down of global commercial bonds, a drastic reduction in global trade and the emergence of several regions of influence deploying different economic and monetary policies, in a world resembling Europe in 1914.
A small but important sign of this emerging change of the world's monetary system is the recent news that the US State of Montana is considering a return to gold and silver as means of payment and state accounting units.
Europe
Europe has possibly the most complex stake in this meeting. On one hand, it is home to about one-third of the world's reserve currency, having to some extent benefited from the advantages of being a reserve currency issuer (although in its case the reserve currency issued is a relatively small fraction of total currency in circulation). On the other hand, it holds the third largest foreign currency reserve in the world, being a major creditor of the US.
Two other issues are worth nothing in Europe's stake. First, it is heavily dependent on energy imports, thus being highly vulnerable to world trade disturbances, and more so when its major fossil fuel suppliers are entering terminal decline: Norway, in the case of oil and gas, and Russia in the case of oil. Another important point is that about half of the world's reserve gold is in Europe, including considerable sums in privately owned bullion and monetary jewelry.
All things considered, Europe is possibly the region having most to benefit (or the most to lose in the opposite case) from a new reserve currency system which does not rely on a single regional issuer. Most importantly, such a new reserve currency system would prevent serious impact on world trade and the possible consequent disruption of energy imports. Furthermore, it would prevent the Euro from somehow becoming a substitute for the dollar, shifting the “reserve currency curse” to the eastern side of the Atlantic.
Enter the Khaleeji
There is still another possibility that might unfold if a new reserve currency system isn't put in place. After several years of talks and on/off reports in the press about its arrival, the Gulf Cooperation Council states decided in the wake of the present crisis to create its own common currency, the Khaleeji. This is another sign of the break-down in confidence in the US dollar as a reserve currency, from countries that thus far have had their currencies pegged to it. It is shaping up to be something like the Euro, governed by a Middle East Central Bank. Interestingly, there's only one country from this block attending the G20 meeting, Saudi Arabia.
Speculation has come about regarding this new currency being backed by a physical entity, in contrast with the other fiat currencies of the main world trading blocks. Gold is the usual suspect, but that's unlikely, for the region doesn't hold much gold (compared to Europe) and a good part of what it has is non-monetary jewelry.
The important thing about the Khaleeji is that it will be backed by the economic health of countries whose main economic activity is energy production and export. This makes it a real improvement over the US dollar, the Yuan or the Euro, and a potentially emerging reserve currency in case an agreement fails at the G20.
Beyond a new reserve currency system
The last paragraph contains an obvious caveat: if the Khaleeji comes to be a fiat currency, its backing by energy is purely abstract, shakily built on confidence. And that is the main problem world leaders face today, regardless of what role energy prices have had on the crisis unfolding, one thing is certain: if the energy flow to the world economy can't grow anymore, then all abstract currencies are condemned as long term wealth storage media.
Without economic growth to support their expansion, abstract currencies lose their main advantage over commodities: a supply totally detached from economic activity allowing for monetary policies supporting employment, wealth or international relations. As expansionary measures are put forward to revive an economic growth that might no longer be possible, paper currencies will rapidly deteriorate in value, reducing public confidence invested on them.
A new world reserve currency, resembling the old Ecu for instance, could indeed reinstate balance in world trade, but it won't be in any way a solution for the declining value of abstract currencies and the policies founded on them. But it would at least bind international players together to finding a way forward.
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I had an article in Asia Times in January about an Energy Standard
Gulf Takes Wrong Currency Path
which was also published in the Iranian press to coincide with this high-level presentation in Teheran
Introducing the Petro
Big fan of your work Chris.
Getting any traction?
Cheers!
Thanks.
Well, I've got pretty well connected into at least some of the right people. I've met ministers, heads of state corporations, the chair of the Majlis Energy Commission (very switched on guy), even had a couple of hours with a leading cleric in Qom, who said that the Sharia'h compliance of the model is "self evident".
A deputy minister called me the other day just before they all went off for the Nowrouz holiday (I was still in bed - they ignore the time difference...) and said that he wanted a workshop for the ECO group of nations, mainly around the Caspian Sea
http://www.ecosecretariat.org/
Anybody's guess as to if and when that happens, bearing in mind there's a Presidential election in Iran in June, and most top appointments in Iran (particularly in the oil ministry - which is where the money is) are deeply political.
It sounds like you have some good ideas. If you would be interested in writing a post on the subject, send me an e-mail at GailTverberg at comcast dot net.
An energy standard is the right direction. But it cannot be just raw oil as a basis for currency. After all, the oil is going to run out one day. Nor can it be raw energy of any kind (a conclusion reached by Vacliv Smil for example).
The basis for ALL economic activity is the net energy available (from all sources) to do useful work, or exergy. This measure of energy value takes into account the conversion of a raw source (or concentration of diffuse sources) into usable form, e.g. electricity, and its coupling with prime movers and heaters. Exergy from food is just the usable calories (other nutrition issues aside for the moment). Exergy takes into account the energy return on investment. A currency standard based on exergy will carry real physically meaningful value (as in you can't eat oil or gold).
I've been blogging on this issue for some time now and have mentioned it here on occassion. For a sample see: Adopt A New Kind of Money Based On Energy.
One great advantage to this approach is that it would not rely on any one sovereignty to 'back' the currency via its lock on a specific kind of energy source.
George
If you have a look at my presentation upthread you will see (as I recall) that raw oil is not mentioned.
My starting point is energy, and fuel use of energy vectors, particularly hydrocarbon.
In fact while energy use is pretty pervasive, it is only one basis of economic value IMHO, the others being location/land and knowledge.
So I advocate an energy standard, and by extension, the energy accounting advocated by Technocrats such as Hubbert...and maybe your good self?
Where Technocrats go wrong IMHO is that they discount other forms of value in the same way that most schools of Economics discount everything other than "Labour" value.
I submit that Energy is not the basis for economic activity: it is a basis.
Exactly. To see more clearly, consider the paths a developing nation might consider to improve its economy under a new "exergy only" based regime. Iran, or N Korea, for example, might decide they wish to improve their economy by increasing the amount of reserve currency they hold. How? Simply construct a large number of new nuclear reactors! By doing so, they've essentially "mined a lot of new gold", to parallel a gold-backed reserve currency, and can now access a great amount of new internation trading credits, though they may be doing nothing productive with the energy from the reactors. What's the point in that? A petroleum-backed reserve currency is obviously flawed, in fact worse than gold. Not only is the unit of currency unchanging depending on international circumstances (eg gold), it is in fact depleting, a ridiculous situation. Eventually there is to be no more reserve currency when petroleum runs out? Come on.
I'm not entirely clear on what the solution is, but it is clearly not an exergy-only backed unit of international exchange. More appropriate may be a "productive assets" backed currency? Hmmm... Where does that leave say Tahiti, whose primary asset is beachfronts? Of course Tahiti has no gold or oil either... Some combination of productive assets + person-years of education? I like that. Increase your internationally recognized assets by educating your population! Problem then is some countries would simple give away degrees to all citizens, thus debasing the "currency".
A tough nut.
How do you conclude it is clear that exergy is not the way to back currency?
In the example you gave you started out assuming that these countries would just build their reactors. In fact that is a very energy intensive activity to start with. Also they would have to build out the electricity grids and prime movers to make it all work and be worth doing.
What is clear to me is that the energy and financial problems are global. We need to be united as a globe to face them. But our world is fractionated and driven by ignorant political/ideological agendas. Only if we ever get beyond the inequities of wealth distribution (some self-imposed as in the case on N. Korea) will we be able to have a rational basis for monetary representation of true wealth. To me that is the problem.
Chris,
I did read the article. Sorry if I misinterpreted your meaning, but I got the strong impression you were talking about petrodollars as backed by oil-based energy.
In any case two points:
First, I am not talking about just 'energy' as it is commonly used. I don't know what your technical (i.e. physics) expertise might be so apologies if you already know what the difference between energy and exergy is. You mention the Technocrats, so I assume you do have some exposure to exergy and emergy, etc. But the total amount of exergy is determined by both the total net energy (after EROI) and the capacity for that energy to do useful, i.e., non-energy extractive, work in the economy. There are even more technical details on the word 'useful' (e.g. is building an SUV useful?) but the general idea of economic work will suffice.
Second, your reference to other economic factors, while valid, and necessary, is not sufficient. The way to handle the value of land and other resources is to recognize their energy equivalence. For example in the case of location/land one can value a particular piece by noting what amount of energy would be needed to make the land productive and to transport output to its destination or inputs to that location. Similarly, water value can be ascertained in terms of how much energy would be needed to pump the water from its source to the point of use. Every material input has a work equivalent valuation depending on its location and quality (entropic level). So exergy, again, becomes the common currency.
As for knowledge, its value depends on how much work had to be accomplished to obtain it. Not an easy thing to account for perhaps, but not terribly difficult to estimate. The problem with knowledge is proprietorship. Rents charged for usage are problematic (an alternative approach is embodied in the open source movement). On the other hand, an energy price might be set based on how much work the organization desiring the knowledge in order to, in turn, do useful work with it, is willing to do to avoid the IP issue.
There is simply nothing that you can imagine as having economic value that isn't, at base, the result of physical work. Brains do electrochemical work in producing knowledge, both in the initial learning of principles and the production of new concepts. And while the beauty of brains thinking is the tremendous amplification of information it is not inconsequential that energy is consumed to support that brain.
In reality I think that this approach to valuation based on energy (embodied exergy) is really what we do now. Our business and personal consumption decisions are often against a background of how hard does one have to work to obtain a resource and is it worth having (what economists called utility). We already think this way intuitively. And original monetary systems largely just facilitated this thinking. But today, products and services, and the work processes that produce them, are so complex that money no longer couples with the work measures involved. No one can make a reasonably accurate decision when so much information about work is lost in the fog of complexity. Add to that the devaluation of currency units due to debt instruments and fractional reserve banking and you have a completely untenable means of effecting trade and valuing savings.
It seems we both agree that something real and meaningful needs to back the currency. And we might quibble at the fringes about where to draw the line (in accounting) or what else to include or leave out. But it seems there is basic agreement that energy in some form has got to play a role.
"water value can be ascertained in terms of how much energy would be needed to pump the water from its source to the point of use."
"It seems we both agree that something real and meaningful needs to back the currency."
This is indeed the crux. If we choose something abstract like energy (or exergy...), we are back to the problem that this can be calculated in any number of ways. Look at how contentious the issues of EROEI are of various fuels even here among those most enlightened on such matters. What do you count toward the energy invested? What should be counted toward (useful) energy returned? The main problem with fiat currency is exactly this kind of abstraction--it "fiat-ness."
The attraction to gold or silver is their physical reality, but the world seems to have gone beyond the point that these could be a universal basis for currency.
Should water itself be what backs the currency? It is certainly real and meaningful. But this would essentially doom the poor to death by thirst.
Knowledge is certainly valuable, but part of the reason that it even comes up in this discussion is because, even with all the ways that institutions of learning have been compromised, there is still a perception that learning is still widely understood to be an area that represents a value system with its own legitimacy, related to but still somewhat independent of the current market system. IMO, the last traces of this legitimacy will quickly be lost if it becomes the basis of currency (though it is rapidly losing any legitimacy in any case).
I applaud efforts to ground currency in real, meaningful value, but ultimately this sets us back to fundamentaly questions of what is of real and meaningful value, and how can such value be measured and distributed...
I actually think that grounding currency in a depleting resource like oil (maybe even light sweet crude which is most clearly past peak) has advantages. We need to base world economy on something rapidly depleting. Ideally this would be the world ecological systems, but that again is too complex. So oil may be the next best thing. It is real and valuable (to industrial economies at least).
But such a move would doubtless plunge us even faster into international war. Instead, we will doubtless continue with some form of fiat currency and continue our geocidal war on all the earths resources and eco0systems.
Some of us don't think of this as a set back. Indeed we do need to ask these fundamental questions. The beauty of an energy basis is that we are talking about something that is not at all abstract. It is, in fact, quite amenable to measurement. And the laws of thermo provide us with rules for accounting. This is not a problem it is an opportunity.
I don't get this. Why do you make this claim? If you mean that we need to contract the money supply to reflect the reality of decline in net free energy then we're back to basing money on energy. If you have some other rationale in mind I would like to know what it is.
I do not claim that we need to contract or expand the money supply except in relation to the availability of exergy. If we are expanding raw energy supply or increasing EROEI then the money supply should reflect that fact. If, as is the case now, we are experiencing a reduction in net energy due to plateauing of oil production combined with steadily decreasing EROEI (suggested in Luis' post) then the money supply should contract in accordance. Since there is less energy to do economic work there will be fewer goods and services produced - an economic slump - and a constant money supply would lead to inflation, too much paper chasing too few goods. If, eventually, alternative energy sources can produce enough exergy to expand its supply, then the money supply should expand accordingly. This is, of course, irrespective of other biophysical economic considerations such as material resource depletion or pollution.
So your energy (or exergy) as a currency idea holds some water, but I have a couple questions:
How do you decide people's pay? Does a man who cuts trees earn more than an engineer because he must expend more energy?
How much energy does a politician get paid? Does he get paid to not harness the energy stored in bombs?
"If, as is the case now, we are experiencing a reduction in net energy due to plateauing of oil production combined with steadily decreasing EROEI (suggested in Luis' post) then the money supply should contract in accordance."
Yes, this is exactly one reason we need a contracting currency--to match the contraction going on in energy and other sections. If we get more energy, we still won't have expansion in other areas, especially in the long-term viability of the earth.
Another problem with durable currency is that it allows and even encourages hording. If people know they will lose the value of their currency if they don't spend it within some reasonable time frame, they are likely to spend it--to keep it flowing in the economic "current."
But "energy" (or exergy, or whatever) still strikes me as an abstraction, open to all sorts of different interpretations and debates--how usable is it? for what uses? what is counted in EROEI? how do you count energy saving devices?.......
Probably we should/will revert to a food-based system. The ancient Sanskrit term for a rich man was "bahu vrihi" literally "lot's a rice" in stead of "money bags." Rice and other grains can, of course, be stored, but it is susceptible to rot and so its safest to "spend" it rather than to hoard it over long periods of time.
What we really need to do is to banish the concept of zero. This simple but subtle sign allowed us to imagine and manipulate values far beyond what our limited world could handle before we had the wisdom to limit ourselves. But that cat is already out of the bag. Thanks a lot, Fibonacci (or what ever Arab or Indian mathematician you want to point to).
Fundamental flaw in your argument:
If we have a contracting money supply, then people will be encouraged to hoard because their money will be worth more tomorrow. This can lead to deflation, the dreaded "D" of economics. It has been coincident with depressions and long term under-sized economic growth, not the kind of things that breed stable geopolitics.
On a more general note to the whole discussion of labor/energy money: the whole concept of linking monetary value to economic value on a 1:1 basis will result, in your humble opinions, in a currency which cannot be "debased," aka "inflated." Is this really what you want? Let me let you in on a little secret: steady, low level inflation is GOOD. Yes, that is an ideological opinion counter to many of those who read and comment and write on this site. But it is also the opinion of "mainstream" "economists" in this "country" and around the "world."
Here is the problem with linking a currency to any one good or service, or even a small basket: If some external shock occurs to the supply of that good, say, peak oil, or some other form of natural upper bound, everyone will run around like chickens with their heads cut off, much like the end of the Roman Empire. They will have no idea how to exchange value fairly one with another. This is called price level volatility, or if you prefer, the "no one is in charge of keeping prices relatively predictable" scenario.
What about energy as money? Energy (or exergy or whatever measure you want to use), according to some, cannot be debased like gold or other goods because it is part of every economic activity, and there is a steady, predictable supply from the sun. Stored energy's value will determine the efficiency of all economic activity. Stores of energy (petros or charged batteries or whatever you like) have the most value during boom years, during which time the "money supply" will automatically contract because people will be using it up. This is a perfectly counter-cyclical monetary policy, one our central bank should investigate carefully.
The flaw with this possibility is that the new "central bankers" of the world economy would be the oil sheiks, the oil politburo and, to a lesser extent, the oil revolutionaries. The unfortunate reality of energy as currency is that some governments control more than their fair share of scarce resources. Same holds for all stored values of energy, including Uranium, although the U.S. is still a major player in Uranium production. In an energy monetized economy, governments will still enact monetary policy, it just won't be the U.S. government. Whatever government holds the most ability to produce and store usable energy can then set "monetary" policy for the world.
Frankly, all this talk about what should be the next global currency after the dollar is ideological, dependent on who you think has the best interests of the world at heart. Remember that China, the instigator of this new talk on global currency, is still communist. My guess is that the U.S. is still looked at as the best hope for honest leadership of the world economy. The fact that people all over the world listen to the U.S. president for economic leadership is a necessary condition for the U.S. dollar to remain the world's reserve currency. The sufficient condition is that most people agree with him.
The labor theory of value is held to by Marxists (including me), but it shunned by mainstream economists.
I won't go on long, but merely point out that were oil gushing out of the ground everywhere, it would have no value. It has value because we have to expend labor in getting it, and in constructing the tools we use to get it, and in finding it, and in constructing the the tools we use to find it, and so on.
I strongly recommend Marx's Capital, especially the first volume, and especially the early chapters on value, money and commodities.
BTW, Marx did not originate the the labor theory of value. I believe Marx attributes that to Ricardo.* But Marx developed his theory of surplus value (profit) from it, and that pretty much turned mainstream economists away from it (the labor theory of value).
*One poster said a few weeks ago it was Adam Smith. I need to look it up at some point.
It was a combination of ideas and people that Marx uses to define his concept of Labor Value.
I also recommend the reading of Capital, and especially the first chapter of volume 1.
Ricardo dealt mainly with rent, but discussed labor value also.
I disagree.
The value lies IMHO in the relationship between "labour" and oil. Labour has use value, and oil has use value which is independent of labour.
But what is "labour"?
I distinguish between pure physical manpower (which Keynes referred to as unqualified labour) - which is essentially energy - and the accumulated knowledge, training and experience the individual has in deploying that energy. This is what I think of as an individual's "Intellectual Capital" and it has a value in use which dies with the individual.
My time and your time spent pushing a broom around may be "worth" the exact same amount of $10.00 per hour. But my time as a dentist incorporates maybe 10 years training and experience and huge investment by society and myself, and the additional $90 per hour I can command for my time as a dentist is essentially the use value of my "Intellectual Capital". The use value of my equipment and my surgery also has to be paid for..
There is also the objectified knowledge encapsulated in the concept of "Intellectual Property". This again has a value in use, but does NOT die with the originator.
The traditionally recognized characteristics of sound money are, portability, easy recognition, durability, divisibility, and high value in relation to weight/volume. Gold has met these standards more so than any thing else historically tried. It is a stable money supply because supply from mines is extremely small in any one year as compared to the existing stocks which means that the supply cannot be easily inflated.
The use of some other standard such as "energy" hardly would qualify. For one thing, energy is needed for purposes other than money. To use it as money, you would need to set it aside in some sort of storage to back the paper or electronic certificates which it backs; if you don't have it set aside, then there is no backing for your circulating certificates, and you just have bank debt instead of money. If you use it as energy, then the money supply goes down as it would not be available in storage to back certificates.
If you wanted your money in your hands because you had no faith in financial institutions then what would you carry out of the bank in redemption of the paper or electronic certificate you previously held. In your system what backs the money is not portable, it does not have high value in relation to volume, it is not easily recognizable, and it is not durable. It would be impossible to avoid counter party risk by removing banks or warehouses as an intermediary between you and tangible money.
All in all I would classify such a proposal as doomed to failure.
What is money, really?
My blogs cover a whole lot of ground and many aspects of this idea. But the above is just in response to your a priori assumptions about definitions.
"If you wanted your money in your hands because you had no faith in financial institutions then what would you carry out of the bank in redemption of the paper or electronic certificate you previously held. In your system what backs the money is not portable, it does not have high value in relation to volume, it is not easily recognizable, and it is not durable."
Oil is in fact protable, it has high value in relation to volume (look what you can do with a gallon of gasoline efficiently used!), it is recognizable, and that it is not durable (beyond a few weeks or months) would be one of its main advantages, IMO.
So true! (Even though in theory energy can't be destroyed). In a recent episode of Channel 4's Time Team, they uncovered a Gold Noble from around c1415, which had been lying in mud in a moat for around 600 years. It was as good as the day it was made. Incredible.
Luis,
You really did a nice job on this! This is important information understand, as the G20 representatives begin their meeting. Thanks for all your work!
It seems to me that if a currency with a fixed base is used (gold or a basket of commodities), the amount of money will become much more fixed. Because the currency amount will be fixed, when debt is paid back with interest, the interest will take a real "bite" out of the economy. This will drive down the amount of debt that can be held without greatly affecting cash flow, and likely cause default by debtor nations. Thus, replacement of the current system by a gold based system (or other fixed system) is likely to cause defaults within a few years.
So while a new fixed currency like gold might fix international trade, it doesn't seem like it will fix the debt problem. To keep the current debt-based system going, the world needs some rapidly inflating currency (which only makes sense if underlying resources are inflating as well).
This brings me back to what I have been saying all along: if economies are not growing, we will need to cut back greatly on long-term debt. If this is done, the system would match up much better with a currency system with a fixed base, such as gold.
It might be an interesting moment... still, just changing currencies does not look like a solution to world's ills. It may create some short-time winners and losers, might even buy us some time until the "systemic breakdown" that GEAB calls for, but it merely alleviates the symptoms.
Even with a fixed monetary base, like in the case of a gold standard, we would still die the slow death of inflation, as the energy base is declining. Somehow we need a currency for which the monetary base is smaller every year. Not very much like what is happening arround the world, no?
Anyway, whatever the decision of the summit are, I can't but hope they are based on a sound enough analysis (they certainly have the information), so that the worst-case scenario of a rerun of the Dark Ages is avoided.
There's a proposal for an international currency called the Ebcu, which stands for Emissions-backed currency unit. The number of Ebcus would decline each year as targets for greenhouse gas emissions are set. Something similar could be tied to quantities of fossil fuels consumed directly, as in an oil depletion protocol. For more info see: www.feasta.org
Jason,
I'd be interested in hearing your thoughts on the relationship between local currencies as proposed in the Transition movement, your recent post on food-based currency, and a proposed "global" currency, especially as these relate to town-to-town trade (internal markets) and transnational trade as globalization contracts and converges.
shrimppop@greenerminds.com
What planet is the G20 from? The resource in the shortest supply is paying customers. Don't believe me, look outside! With the G20 it's; 'I don't like the color of the G 20 building, it should be repainted a new color since the old color caused all the banks in Iceland and Latvia to fail ...'
I can't blame the author of this post, but it's almost impossible to respond to wishful thinking and mind- boggling institutional self- interest manifest here. Almost everything expressed is complete nonsense. Clearly, a think tank can be found that will come up with any sort of crap as long as someone pays for it! A new reserve currency will not solve anything but make matters worse by adding layers of corrupt, unaccountable bankers and corrupt, unaccountable bureaucrats.
The dollar reserve system isn't a system at all. The outcome of the non- system is set to institutionalize trade advantages at different levels for producer countries- as- proxies for US business interests @ the expense of US wage earners. US wage earners have been the only people who had any wealth; they were the targets of this process; certainly not the low- paid scut- workers in producer countries. These trade advantages were not limited to Japan/US trade or Korea/US trade or China/US trade or SW Asia/US trade or Middle East/US but also Eurozone/US and Germany/US and Mexice/US and Canada/US trade. The US has provided paying customers first with cash and then with flows of vendor debt from producer countries even while US productive capacity has been racing out the back door as part of this process. During Bretton Woods, the US had 90% of the world's productive capacity. What does the US have now, 20%? Who will buy Chinese crap? The Korean crap? The world is in massive, parallel overcapacity in just about every industry! Can the Chinese buy their own products? Don't make me laugh! The Chinese are at the beginnning of a business cycle recession with the world- wide deflation ripping alongside as well as through their trading partners.
Just like in the U. S. A. !!! Where are the customers? Broke! Growing vegetables in order to feed their families!
The US has appointed itself the lender of last resort for most of the world at this point and the US is doing all the heavy lifting as far as creating new money is concerned. The US is wrong, but at least they are trying. Where are the Eurozone initiatives? According to the IMF and the CIA factbook, the Eurozone GDP is greater than the US's; it is nevertheless content to let the IMF bail out the Euro's next- door neighbors in Eastern Europe with laundered US Dollars. What leadership is that?
What country is the lender of last resort to the Euro? USA is the correct answer.
The Russians are a bunch of crooks that make the Machiavellian Geithner and the bumbling Bernanke look like 'The Mothers Teresa'. The Russians want a new reserve currency .. that will let them conceal then hand- off their losses to any available sucker since the speculators have taken all their 'hot money' capital away. Russians blame this on the dollar, but their oil gave them more reserves than did their bank holdings; what did they do with their 'hard' capital reserves? Burned them up, that's what! Just like England did with its 'North Sea National Oil Bank' reserves.
The British sold their national gold reserves at the lowest possible price, they sold their North Sea crude at the lowest possible price and abandoned their manufacturing capacity. The question 'du jour' is can British agriculture feed the country? What is the basis for the UK economy? The answer is speculation in financial securities and marketing Wall Street derivatives. At least it was before the bottom dropped out. Was this a dollar problem?
I am only programmed to laugh at stupidity.
The Japanese economy is shattered - too dependent upon exports but the BOJ is following the 'Black Hole Fed' lead w/ quantitative easing and ZIRP (Zero- Percent Interest Rates). This strategy kept Japan from a serious depression in the 1990's but this time IS different; there are no Dollar inflows this time. With all central banks holding to a ZIRP, there is no Yen carry trade, either.
The Chinese have absolutely no credibility on this issue at all. First of all, ALL currency values are determined by trading them in the open currency markets; there is no connection between a country's currency value and the relative strength of their economy. China does not trade its currency - except with Belarus and Argentina ... that's impressive!
Why won't they trade their currency?
Because of the resulting speculative attacks on it; China would exhaust its dollar/Treasury holdings trying to defend the Yuan or its dollar peg the same way the Russians are burning through dollar reserves trying to support the Rouble. Both countries have more bad debts than reserves and neither can withstand speculative pressure. Believe me, Pimco and Black Rock can take all their money, they practice on the quivering Geithner.
As far as Chinese economic productivity; they are simply lying rat bastards! They have two advantages and two only; 'Cheap' and 'Labor'. The Chinese represent everything that is wrong with capitalism; corrupt management, exploitation of labor, exploitation of natural resources, degradation of the environment, no legal system, no meaningful contracts, rampant thievery, piracy, thuggery against political complaints, ugly buildings, graft at every level both government and private. Of course the Chinese have been 'successful' ... so were Jesse James and Al Capone! The Chinese are an 'economy- like substance' laid- over a mafia- like system.
The Chinese whine because they want to have their TAKE and eat it too! They don't want to spend reserves on petroleum and they hate buying dollars to buy commodities; that is what this 'Dollar in Drag' IMF currency scheme is all about. This propaganda is similar to that of the Wall Street types who drag out the American Working Man when their bonuses are in jeopardy. The Chinese complain about poor countries when they themselves have to spend some of their own money. Make no mistake about it, China is just another crooked Wall Street firm, just one with more employees.
The Dollar Seigniorage Tax is one reason oil prices are relatively low. Non- USA refiners (that's who buys crude) have buy dollars before they can buy the crude. These dollars are simply issued by the Treasury @ the click of a mouse. The cost to the Treasury; nil; whatever is denomination value is cost to the 'borrower' of it; it is a form of tax to those who have to buy it. The cost to the refiners is whatever the exchange rate is between dollars and the currency in question' mostly Yen, Yuan and Euro. This means the producers have to lower their prices to keep product available to refiners other than Exxon- Mobil and Valero, etc. who do not pay this tax. The producers don't like this since they would like to have all buyers first buy a currency to level the playing field or to buy THEIR currency and collect the seigniorage tax themselves.
The real problem isn't the color of the money it is the lack of it where it matters, in the pockets of those who create wealth in the first place. Not one country, one organization, one business is addressing this problem, which is getting worse by the day and will eventually bring down all the countries, organizations and businesses. The corollary of overcapacity and persistent surpluses is not even a consideration!
Shows what can be accomplished when experienced teams of plutocrats can be unleashed on a problem.
I've written more about this and there is more to say, but the best thing the G20 could do is dissolve themselves, permanently.
Paul Krugman's take:
China’s Dollar Trap
http://www.nytimes.com/2009/04/03/opinion/03krugman.html?hp
Rant off?
.
Count me in with the ranter(s) please. Quite what difference does any sort of new currency (or any other g20 measures) make to the facts that:
-the population has far overshot the carrying capacity;
-growth is no longer possible so the credit system on which corporate/globalised capitalism depends can no longer continue;
-many key things can no longer be afforded, a sharp contraction of human existence is now about to be forced on the species, with interesting implications for the growth-based life-support system;
-hyperinflation is already fast approaching and we have never yet seen a hyperglobalised, hypercommercialised society survive hyperinflation;
-etc.?
Nothing wrong with a good rant, milquetoast.
`What country is the lender of last resort to the Euro? USA is the correct answer.`
Nonsense, we have our own printing presses.
Good piece man.
THE GREATEST ECONOMIC UPHEAVAL
Gail's right, it is a good essay, and even if flawed in places, it takes a broad and expansive view and attempts to deal with a lot of variables. Luis deserves credit for the rational writing and thought provoking ideas he puts in writing, even if they are not perfect...we can't let the perfect be the enemy of the good, we have to try to think and reason our way forward in the hope of being able to plan with at least some success.
Let me pose a few thoughts that I am not sure I was able to extract from the essay:
(a) Timetable. What is the percieved or projected timetable for the events discussed above? One year? Five? Twenty Five? In individual planning as well as national planning, being wrong in timing is as deadly to success (however we may choose to measure it) as being wrong in fact. Many careers, lives and nations have been broken not because factual reality was mis-understood, but simply because the person or party was too far ahead or behind of their times. What time frame are we talking about here?
(b)Demographics. This issue is so important that I am going to do something I seldom do here on TOD and that is to plead with the reader to consider what I am about to say:
Other than energy, I take the position that the biggest driver of change, both negative and positive in the world today is demographics.
We should all be aware of the the population oddity known as the "baby boom" an oddity unlike any in known world demographic history. The "baby boom" is not only an American phenomena, but a major factor throughout the Western world and all OECD nations The skewed demographic of an increasing percentage of the population being elderly retired is even more pronounced in Europe and Japan than in the U.S., a fact which is unknown to many Americans and shocking to them.
Please bear with me for a few sentences, I will try to be brief, but there are things that are hard to explain in bumper sticker length fragments, and what I am about to talk about is so crucial in considering the future, a future as certain as death itself. The issues discussed will also provide an almost assured time frame for events, something hard to come by in so much current conjecture:
When we refer to a "lack of confidence" undermining the world's currency and economy, we simply cannot be referring to a lack of confidence on the part of the average middle class citizen of an OECD nation. The individual can lose all the confidence he or she has and it will have no real effect on the world economy. We as individuals are simply too small as investor, buyer or deciding voice to make any noticable difference.
Can the average middle class American abandon the dollar? Can the average middle class German, Dutch, or Italian abandon the Euro? Of course not. Can the average small investor hurl billions of dollars about in one massive purchase or sale of stocks or bonds? Can the average consumer change buying patterns or afford to take the chance of completely abandoning his or her 401K plan or pension fund? All the penalties would keep him or her from it even if the individual had the courage to do so. The forces at work here are much larger than the individual who lives a relatively brief time upon the Earth.
The claimed advantage of corporations is that they are "living beings", legal organizations recognized as individuals by law that can outlive any human individual. Corporations are theoretically the first immortal beings on Earth.
Being such, these organizations must plan MUCH further into the future. Organizations such as the insurance companies holding pension funds, insurance policies on newborn babies, and annuities giving assured benefits for life must plan 70 to 90 years and more into the future. We have seen some of these names in the news recently, such as AIG, GE Capital, MetLife, Prudential, The Hartford and others.
These are very old companies, the Hartford being founded in 1810, and very wealthy and powerful companies, with MetLife holding 3.3 trillion dollars in life insurance to give an example of the scale of the firms. These firms think in very long terms and on a very large scale. The most venerable of them have survived through civil wars, revolutions, World Wars, currency collapses, depressions, the nuclear age, the cold war, and still they continue on.
What these firms KNOW they will face soon is what we can call "peak death", because we absolutely know there will is a big dieoff coming.
This is not the dieoff that peak oil advocates like to predict, but the one that is built into the natural clock of the postwar boomers and it will occur all over the world.
This will be the biggest demographic shift in world population since the baby boom itself, which was the driving engine of the postwar world war Western prosperity, and it concerns the huge old banks and insurance companies FAR MORE than peak oil even could, whether we accept that peak oil is due to happen soon or has even already occured or not. What the giant financial and insurance firms know is that PEAK DEATH IS CERTAIN, and certainly to occur beginning about now and onward throughout the first half of this century.
It is this coming demographic change that the financial community is trying to grasp and respond to, a decline in a wealthy population worldwide that has not been seen since the Black Death struck Europe. Note that we are talking about the death of the most prosperous generation in world history in every one of the currently most prosperous nations on Earth.
I beg the reader to consider the implications of what the banks and large financial institutions KNOW with absolute certainty is coming over the next 50 years, which for them is a very short window of time.
It has been argued that the financial crisis in real estate and housing has been driven as much by the aging population as by the so called credit crisis. I would argue that the demographic shift has been the much larger and more powerful driver of the so called "housing collapse".
I have seen this in my own family, as members of the "greatest generation" of WWII survivors either died or sold large homes to move to the city, and even to communal housing in elderly apartment communities. What we are seeing now is merely a foretaste of what is coming as the Western world empties out. Given the "birth dearth" that occured in later baby boomers and Gen X'ers, the replacement generation simply will not occur in the OECD nations.
Most of the boomers will not live to see it, but after the brutal dislocation caused by the dying of two large generations to be replaced by one small one, the OECD nations will be the inheriters of a mountain of wealth, land, resources, and wide open spaces, but then must try to defend them from the much more rapidly increasing populations of the developing and third world. The soon to die boomers are living on the cusp of one of the greatest demographic upheavals in history, and the effects are already being felt.
The large financial firms are showing that they are indeed losing confidence in their own ability to manage the coming upheaval, because there is simply nothing they can do to stop it or change it, all they can do is adapt to it. The problem is that the adaption almost surely be downward. Due to the declining population of the richest most consumptive population in world history, all the oil and all the money and all the technology in the world cannot overcome the "backside" of peak death. It is more certain, more disruptive and the outcome less able to be altered by "silver bullets" or technology than even peak oil, and it will occur well within the planning window of current large and powerful financial institutions.
Please join me in studying what will be the biggest event in world population history and the event that will decide the financial future of the Western world for the rest of our lives if we are a baby boomer (and I am). The children born today will see a world completely unlike ours and completely impossible to predict, a world unimaginable to any baby boomer, who grew up in a crowded world of growth. Growth of children, growth of companies to service the desires of all the new citizens, parents, high school kids, college kids, middle agers and then the elderly.
I will pose to you the most heretical idea imaginable to the partisans of Peak Oil: Population did not grow because there was energy to consume. Energy consumed grew because the population grew.
Picture this world in reverse, in contraction (peak oil or not, it simply doesn't matter, the contraction WILL come), with houses and spaces emptying out all over the Western world, with the young poor and rich alike from all over the developing and third world attempting to flood in and fill the gaps. It is already happening.
I will stop here, I have given you more than enough to think about and to begin to grasp and plan for. Please join me in considering the economic future we must all attempt to adjust to, as I will certainly write more on this subject, not only on TOD but in other places. I am involved in market and media research for a living, so this topic is very important to me in my primary occupation. I feel it is imperative for our nation and the nations of the OECD to know what is coming (and demographics is one of the most certain and predictable forces in the world) so we will know how to plan for the changing times and unexpected contingencies ahead.
(Edit: Most of this article was constructed for a job related discussion and amended for The Oil Drum, and did not consider the currency issue per se, but the implications of what is said should be obvious: Changing currencies will do absolutely NOTHING to change the driving engine of depopulation by aging of the Westen world. It has that in common with peak oil (although the causes and outcomes are completely different) in that the driving engine of the economic change is built into the world and will have to be adjusted to and cannot be changed)
Thank you.
Roger Conner Jr.
Very interesting Roger. More than enough to think about indeed.
Agree that Luis does write cogently and is attempting a very broad view of a set of complex issues here (for which he should be commended), but I found this essay to have some serious flaws, some of which arise out of the sources. Namely, using WorldNutDaily as a source (though I suspect WND is useful for reinforcing certain stereotypes Europeans have of the US). More importantly, is the extensive use of Biancheri who, from my reading of his websites, I surmise as a wanna-be George Washington, i.e., the hoped-for father of a bigger and better (more democratic) European Union. Especially upon listening to his latest KPFA interview where at approx :45 into the interview he goes off on the all the guns in a America while mentioning kalashnikovs, as if Americans are just waiting to use their AK-47's on their neighbors, Biancheri comes off as just another Euro-elitist. Not to mention the gold-bugs at GATA....
However, as you said:
To which I agree.
Which brings us to your peak death concept. It brings to mind the ecology-view that Nate and some others have been raising for awhile, that we should view the human + petroleum system in a larger context, looking at man as a species in a large system of living organisms and how our energy use will be tied to the inherent efficiencies of the energy gathering processes. Add to that the peaking of local populations (as you mentioned, Japan and selected European locales), the soon peaking of annual deaths in those places, one can see a potent mix of population decline and EROEI decline working together to magnify the diminishing of what we once thought as the "first" world.
The US still has enough of a population growth (both births and immigrating young people) that the peak death could still be years off here. For Japan, many European nations, then maybe Korea, Taiwan, and various small island nations that time will be sooner. IMO, North America and South America will continue to grow until we see some serious decline in EROEI. That however may not be enough to help some of those large financial institutions of which you have written.
This keypost seems ripe for a strenuous discussion between gold-bugs and one-world-ers... May I suggest that what Biancheri fears (regional currencies) may indeed be the best compromise in a world where declining EROEI will drive localization to ascend over inter-continental trade. (How many people here believe Kunstler's claim that the world will get bigger soon?) The rise of an Amero, or an Asian-basket currency, may be just the thing in a world with less air travel, fewer COSCO containers in Long Beach, and less exports of oil.
Rogers: Your comments re the advanced long term planning of large financial corporations are extremely outdated, so much so that I wonder if you are aware of current events at all. Many of these firms would not exist without continued inflows of taxpayer money, mainly because they are no longer being run like they once were (with prudence and an eye toward the future). Scores of individuals have become some of the wealthiest humans on the planet through their actions to destroy long established firms. What you are describing is a TV commercial for one of these firms aired a few weeks before they need to be rescued.
Roger: Hopefully you have 12.8 trillion because the American public and their economy certainly doesn't-I wonder what the results would be if these firms didn't have such stellar management-by the way, you can read Denninger today to understand why the Chosen One isn't obliged to let GM have a few crumbs that fall off this table http://www.bloomberg.com/apps/news?pid=20601087&sid=armOzfkwtCA4&refer=w...
Yeah, one would have hoped that they would have been managed with a planning horizon of up to a century into the future. It is now becoming clear that even the insurance companies were being run with absolutely no thought being given to anything beyond the next quarterly report and next bonus check - and maybe not even beyond the next day. Not really all that different from junkies, who cannot see beyond getting their next fix. No wonder the system is collapsing.
I agree with WNC Observer's observation.
BrianT,
Your point is indeed well taken. Anyone who has happened to read my prior posts on TOD knows that my distrust and even disdain for the management of the financial firms runs deep and wide. So much so that for some time I attributed a very large portion of the economic problems we are facing to the corruption and mismanagement of the financial firms.
I still feel the the mismanagement of these firms is a huge factor, but that doesn't change a central fact: Whether or not the insurance firms, banking firms and other financial long term big players are planning for the long haul they are obligating themselves and their bond and shareholders for the long haul. If they do not plan well or waste away their assets it simply means tha the demographic wave already underway will wipe them out sooner.
The term "fiat money" is often used on TOD. If the insurance firms are being very poorly managed, can there be a greater example of absolute fiat money than the bonds, insurance policies and annuities of these firms, which amount to trillions of dollars of unfunded liabilities extending into most of the rest of the century?
This money is being counted on by millions of people from the large insurers and financial houses all over the world, and soon will begin to be called in ever larger amounts. It will be the longest "bank run" in history, not brought on by a lack of confidence in the bank (which may or may not be warrented by the way) but by an absolutely unstoppable force: The death of millions and millions of the "greatest generation" of WWII survivors followed by the death of even far greater volumes of baby boomers, with an ever smaller follow on generation to fund the liabilities. It is the unstoppable demographics force that will suck cash right out of what many here call the "ponzi scheme" of debt and growth. And the insurers and financial houses, who are at least good actuaries if nothing else, know it. That is the crisis in confidence.
RC
True enough-these Ponzi schemes aren't too pretty on the way down. Personally, I am quite surprised that the USA has not aggressively courted immigrants with money-Madoff knew that to keep the Ponzi going requires fresh capital-even as a fallback, USA green cards would fetch a very pretty penny on the open market if they were sold aggressively-I know the USA realtors' association is pushing for a modified retiree immigrant program along these lines (RE purchase as residency ticket).
This may be true for the world but not me, I am an OECD boomer retired early because of the predictable unpleasant clustered effects of peak oil, peak death, unsustainable fiat monetary systems, exponential world population growth etc etc.
In my case (and I suspect most OECD boomers) I use more energy than my parents because of affordable technology introduced in my lifetime ... like cars, planes, central heating, large comfortable housing, food from faraway places etc, not because I have huge numbers of children (I just have one son).
Roger,
The timeframe that Luís is talking about is very short--the next six months, based on the LEAP2020 open letter. That is reason for "Last Chance" in the title.
The LEAP stuff is interesting, but it's hard for me to take their timing seriously, because they've been so wrong in the past. Way over the top. They may be right in the long run, but so far, the markets are remaining irrational for a lot longer than their schedule imagines.
So far, the euro isn't looking like a safe haven vs. the dollar. No hyperinflation. No dollar collapse, no US defaulting on its debt.
"the amount of money will become much more fixed." this is precisely why governments moved away from gold backed currencies, they severely limited their abilities to make promises to the voteriat and fund their own gravy train. Since we the voteriat are susceptible to bribery or short termism, e.g. unlimited health care, unemployment benefits... the politicans always want to be able to promise more.
The total amount of gold is in practical terms fixed so it is a good choice as the backing for a currency unlike say a basket of commodities which can fluctuate year on year depending on harvests or demand (copper price). The current debt problems will be inflated away one way or another.
Interest or the provision of funding by middlemen will always take a bite out of the economy and we need to rein the banking sector back to its traditional much smaller share of GDP.
Just a couple of loose thoughts:
One of the problems of using a good which is relatively fixed in quantity like gold as the base of a currency is that as the population increases the per capita "wealth" (if gold=wealth) decreases. Conversely, if a disease wipes out half your population the surivors are now twice as rich. A good which is declining in quantity such as oil or any other FF complicates it even more. Although humanity in essence uses balance sheet items (non-renewables) to create income (consumables)using a stable or declining balance sheet item as the basis of a currency seems to make no sense.
Additionally, there is a big difference between Value in Exchange and Value in Use. For example, oxygen. You can obtain it at zero cost but the value in use is incalculable. Hold your breath for a minute and you'll know what I mean.
Lastly,I think it's important to keep the difference between the wealth of individuals and that of a country/world separate.
For example, if a the GDP of a country increases by 5% but the population increases by 10% on an individual level people are worse off, but the country as a whole can buy more aircraft carriers - there may be different measures of wealth on different levels of aggregation, and that makes the connection between currency and wealth potentially more complex
Rgds
WeekendPeak
I feel like I am at McDonalds. "Would you like to supersize your banking system sir?"
If the Federal Reserve Bank, acting as an engine of "money" expansion in the US, finally is near collapse for the pyramid scam that it is, do you honestly believe that creating an international pyramid scam to replace or supplement it would have any different result.
This Leap2020 crowd and the monetary philosophy they espouse, I find laughable; no contemptible. They might as well have said we are going to cure your 5cm cancerous tumor by removing it and replacing it with a 10cm cancerous tumor.
The real cure to the monetary collapse is to let it collapse. It is nothing more than a house of cards, where virtually all the money supply is bank debt, and most of the bank assets are the debts you, businesses and governments agreed to pay when the banks created money out of thin air and loaned it out at interest. Debts pyramided on debts until it all fails of its own weight.
The chains of debt slavery finally became too heavy for the American consumers to carry when the high energy costs associated with the end of the oil age were stacked on top of debt burden. Honest money that cannot be printed and pyramided is the cure for the monetary system; gold, silver and 100% reserves for commercial banks. The cure is not just changing the name of the currency and the bank that print it up and loans it out, which is what the proposed new scam essentially is.
This G20 meeting is just a political battle about who is in the catbird seat to control and benefit most from this scam, the US, the EU, or China and Russia. They have no intention of opting for a sound monetary system; plunder and control is the name of the game.
I suppose we are indeed in trouble when simple counterfeiting is accepted and openly advocated as a monetary system.
Henry, I agree a currency should be based on physical assets, not a basket of currencies. Possibly the Leap2020 crowd sees the basket of currencies as the only viable alternative that can be implemented on short notice. IOW they are trying to be realistic.
Not that I think something substantial will come out of the G20 summit. As the Leap2020 crowd saw the entire crisis coming, I think it's better to understand that what we are facing is the end of the monetary system as we know it, globalisation, and possibly civic society. TSHTF.
I keep saying we are going to have to start over with a new financial system that is not tied to debt. This will likely be a system tied to an asset such as gold or basket of commodities.
The existing debt will need to collapse, and not be replaced. This could be a very bad period, because there will be too many people fighting over a relatively small amount of assets. It is not clear that governments will continue as they are today. Even country boundaries may change, as monetary systems change.
I really don't see replacing US currency as the reserve currency with a global inflating currency dependent on the dollar, Euros, and other currencies as doing anything at all, other than prolonging the problem. Soon there will be even more promises that can't be repaid.
I mostly agree with what you say on this topic, and have greatly appreciated your many insightful posts.
On the "gold or basket of commodities" as a base for a monetary system, I do have some reservations about what would be in the basket. Stability of the monetary base is important, otherwise the economy would be subject to wild swings from great expansion and then contraction of money. For example, if we used agricultural commodities, the vagaries of crop production could lead to wild swings in supply, resulting in the economy becoming a "basket case", if you will excuse my play on words. This is why gold, which is difficult to increase or decrease in supply, has gained acceptance over human history as the premier medium to use as money. Actually, when you think about it, we do have a commodity in the monetary "basket" now, if you view paper as a commodity, but the results clearly are detrimental to the lives of billions.
I think many young people forget that gold and silver coins circulated as money in the US for much of its history. Indeed, Article I, Section 10 of the US Constitution states, "No state shall ... make anything but gold and silver coin a tender in payment of debts...." which requirement cannot be complied with now because the federal government has withdrawn gold and silver coins (or receipts for them - gold certificates and silver certificates) from circulation as a means of circumventing the Constitution.
Historically, when we got in monetary trouble it was because banks expanded credit using fractional reserves, so they had insufficient gold to meet demands for withdrawals in times of financial stress, but until the 1930's the reserves were at least something tangible (gold or silver). The absurdity of the current monetary system is that there is no actual money, just circulating bills of credit (currency), checking accounts and savings accounts, all of which are liabilities of banks. You can't even have a good run on the banks to get your "money" as a means to discipline banks, because there is no money, just bank debts masquerading as money.
My take on it is that domestic currencies will in future be based on the value of land rentals. It is land rental value which in fact underpins almost two thirds of money created, which came about as interest-bearing mortgage loans. ie most of our present money is deficit-based but land-backed.
Units of land rental value would of course only be redeemable in the country of issue, although they could be acceptable anywhere depending on the counterparty.
Global trading will IMHO take place by reference to an energy standard (unit of measure), using currencies consisting of units redeemable in energy which are issued by energy producers. ie an International Energy Clearing Union. The difference with land rental value is that energy value may cross borders either in cables, or by way of energy vectors such as hydrocarbons.
Re property this lecture went down well in Dublin, where I met the energy minister briefly.
Equity Shares: a Solution to the Credit Crash
The second half - outlining Unitisation - is also on YouTube here
Equity Shares Lecture
I also made a presentation to the Bath-based Claverton Group of renewable energy experts re energy unitisation here
Energy Financing: beyond Peak Credit
It's only the second half that differs: the first half diagnosis of the Credit Crunch is the same.
All of this would take place within a "framework of trust" - a "Guarantee Society" if you will - whereby both sellers and buyers on trade credit terms make provisions into a "pool" to back the guarantee and to pay service-providers-formerly-known-as-banks to manage the system.
The other source of credit is of course humans, either individually or collectively - within legal protocols such as partnerships, Companies, etc etc
Doesn't the value of land rental value depend on a lot of things?
For example, we are using some land for agriculture, but pumping out the water in the aquifer underneath it. The value of the land is pretty low once the water for agriculture is gone. Similarly, if there are minerals or oil on the property, the value of the land is much higher before those items are removed. If the soil is fertile, the land is worth more than if it is not--and this can change, depending on the care taken of the land. If transportation to town in available, the land is worth more than if none is available. If someone decides the land is good for a wind turbine, the land suddenly has more value than it did in the absence of a useful purpose.
There's a difference between the pure location value of land and the money's worth either invested in it (eg in the form of energy such as fertiliser, or cement), or extractable from it.
Location value may rise for reasons which have nothing to do with any effort on the part of the owner eg a new school, or Metro, which are the result of public investment. I agree with Henry George that those who have the privilege of exclusive use of the Commons of land/ location should compensate those they exclude, who in the aggregate give them the privilege,and in this way we may capture some of the unearned windfalls from privilege
So I would impose a levy on location value, and a similar levy on the privilege of the exclusive use of the Commons of non-renewables ie a Carbon levy. I would also apply a levy on the gross revenues of Corporations by way of compensation for the privilege of investors of Limited Liability.
The simplicity and unavoidability of such levies would not only get rid of massive collection costs, both public and private, but also the revenues would enable the abolition of most other taxes.
Disclaimer: I do have a mortgage...
My take on it is that we are going to have some very bloody die offs as long as humans disagree on the basics of this issue...I'll admit to a bit of schadenfreude if the heads that roll are those of bankers, economists, lawyers and politicians who continue to push the status quo of the current system. Unfortunately I doubt that they will be the first to suffer. Hopefully they won't be immune to disease and pestilence inside their walled fortresses.
http://www.n55.dk/MANUALS/DISCUSSIONS/N55_TEXTS/AB_LAND.html
Thanks all for the great, thorough post and commentary.
I'm currently reading Polanyi's The Great Transformation, wherein he reasons unequivocally that what marks our time (as of 1945) as different from every other historical period is the fantastical idea that society can be organized according to the market mechanism. He points out the fundamental contradiction that land (and I would include here natural resources in general), labor (people IOW) and money must be treated like commodities by the market system, when they are profoundly not commodities in any sense of the word. So what commodity basket could a currency be based on? I get the feeling the discussion, though broad, isn't nearly broad enough.
He also shows that the gold standard was the last pillar of nineteenth century civilization to fall in the lead up to WWII. The rise of many forms of socialism, including National Socialism, were entirely predictable reactions (the double movement) to the massive dislocations attendant upon the commodification of people, money and nature via the market system. I think these problems and contradictions bear on the discussion but I'm not sure how.
Thinking out loud...
I have a simple problem with assigning gold as THE currency of exchange worldwide, which is it entrenches the status quo ante of the day the declaration occurs. eg. no present third-world economy can significantly improve its share of world economic activity simply by educating its people, implementing intelligent development strategies designed to bring it's citizens out of poverty etc. without going and buying up additional gold from wealthy nations. It imposes a straightjacket on poor nations.
You are falling for the old trick of corrupt government.
Poverty, has almost nothing to do with money.
Well,,,,, Try reversing your hypothesis. People with lots of money to spare are still poor? You'll find a lot of disagreement with that in the favellas of Brazil or the poorer sections of Mumbai.
Being poor, (in terms of wealth) and being in poverty are two, very different things. You can be one or the other, or both at the same time, but they are truly different.
I have been both, now I am neither.
There, fixed, that's where their priorities should be. As for the new "Global" it's just another gigantic ponzi scheme. They should let Bernie Madoff out of jail and invite him to be the architect and grand wizard of this idea, it's right up his alley!
BTW "Eco" comes from the ancient Greek word "oikos" (house)and "Nomos" which means rules or natural laws. So it's way past time for the vodoo priests of economics to get with the program and start getting their house, the ecosystems of our planet, in order (note the prefix "Eco" in ecosystem).
It is becoming increasingly obvious Quigley was right when he wrote this:
This appears to be the final consolidation that will grant the financiers the complete centralization of global economic control.
This is just another contrived crisis in a long list that follows a Hegelian formula of Problem, Reaction, Solution.
There is a long range agenda here and each "crisis" causes a reaction from the people [save us] while the financiers offer a solution that could never have been achieved without the initial crisis. It is obvious that ever effort was made to make sure the debt bubble reached this critical level. Now that they have created a global crisis they are finally able to offer global "solutions".
Global central bank, Global currency, Global carbon credit/cap laws etc etc If you can't see what is at play here take your blinders off.
If you own a productive farm and your available energy resources become limited there is only one logical solution to the problem: lead the excess cattle to slaughter:
http://www.youtube.com/watch?v=P772Eb63qIY
My fellow cattle, our owners are consolidating the farm. Good luck...
==AC
“A crucial point in that earlier history occurred when men and women of good will turned aside from the task of shoring up the Roman imperium and ceased to identify the continuation of civility and moral community with the maintenance of that imperium. What they set themselves to achieve instead was the construction of new forms of community within which the moral life could be sustained so that both morality and civility might survive the coming ages of barbarism and darkness. If my account of our moral condition is correct, we ought also to conclude that for some time now we have reached that turning-point. What matters at this stage is the construction of local forms of community within which civility and the intellectual moral life can be sustained through the new dark ages which are already upon us.
This time, however, the Barbarians are not waiting beyond the frontiers; they have already been governing us for quite some time. And it is our lack of consciousness of this that constitutes part of our predicament.”
~Alasdair MacIntyre, After Virtue : A Study in Moral Theory
yes i smell a rat too, it all seems orchestrated. I wonder what the next move is. The issues of peak oil ,pop.overshoot ext. may not be in MSM but im sure the oligarchs are aware and have a plan. I shudder to think what it might be. nice video, free range surfs indeed.
Angry Chimp -- fine comments and quotes! Thanks for taking time to post these.
I feel much the way that you do. However, I do think that part of the problem is that many in power do not think through the whole Global Crisis at all -- only bits of it, and only to achieve advantage for themselves and/or those who pay them.
In this way the project of civilization disintegrates in confusion as competing interests fight for control over variously mis-perceived dimensions of the problem. Finance, oil, water, population overshoot, military power -- no one holds an ace.
We are at a critical point in the final war, and all are absolutely vulnerable. There is no strategy or refuge or alliance that will ensure survival of individuals or collective groups of any size.
Bio-regions will be remade abruptly by Climate Change, the fallout of warfare and the various consequences of habitat degradation.
Those who do plan to dominate or survive will be the most surprised by the negative impacts of the infinite tangles and twists of fate.
If any humans survive this Great Bottleneck or this Sixth Great Extinction it will be against such odds as to constitute a miracle or and act of God, Goddess, the Universe, the Great Inscrutable Mystery, and Whatever.
Meanwhile, benighted leaders of our messy little civilization continue to weave together Golden Solutions made of straw.
The vital questions -- those that must be asked and answered -- are not even within the realm of thought for these who strive to find advantage among the the throngs of humans as our habitat crumbles away from us.
The United States economy is in competition with all other industrial societies and the emerging world. This is not a political contest; it is a cut-throat global contest.
For example, health care in all other industrial countries that manufacture automobiles and trucks have some form of universal health care. Our auto industry is heavily burned by a lack of universal health care.
The top ten economic interrelated issues in the United States are listed below.
1 Energy & Minerals
2 Population & Aging
3 Education Standards
4 Manufacturing vs. Service
5 Health Care
6 Growth & Lending
7 Immigration Unchecked
8 Sustainability
9 War & World Police
10 Debt & Fiat Currency
This country is overpopulated with technically under-educated people compared to other industrialized countries. We are turning out 40% less science and engineering students than Europe in a rapidly expanding technological world. Some of this is cultural and some is cost.
The United States must import one-half to two-thirds of its energy and minerals because it cannot sustain itself with the exception of farm grains. This results in debt and a flight of capital to other countries.
We are no longer supporting a strong manufacturing base due to cheap labor in emerging countries and free trade agreements.
Globalization, transportation and free trade agreements have brought this country to its knees. We have become a bifurcated nation with a few haves and and an increasing number of have-nots. We must strive for balance points rather than push more tipping points.
Fiat currency is printed money based upon nothing but ink, paper and hope. It ruined many societies including the Roman Empire. It is now the currency of the world.
We are living in a brand new overpopulated oil and gas world and still utilizing a monetary and cultural philosophy that evolved out of the chaos of World War II. We must debate and change to compete.
11. Impacts of extreme weather events
Agreed, but just as in the past, the economy is sustained by attracting the finest brainpower from all over the world to the research universities. And by US global corps. controlling the value of intellectual properties produced elsewhere.
Yeah -- that sounds good until the companies decided they can even save a lot more money by moving the whole operation to Chindia -- Microsoft now has development center in India and Intel has development center in China. I am not saying that engineers do not come here -- but overall the trend is for companies to move over there. The problem of turn out "40% less scientists or engineers" is then still a huge problem.
Somehow, as the US economy is becoming more "service" economy (and financial is a huge service component), I feel we are losing it. When you look at the trade imbalance, you wonder how long can the outflow of capital can continue. This trade imbalance is a "debt" of sort for the US consumers.
It's not a debt "of sorts", its a specific debt with specific repayment term, as many other countries have found to their chagrin, eg. Sweden in the 1990's, Indonesia, Argentina, Brazil. If the international lenders ever loose faith in the US ability o willingness to re-pay, you'll very quickly find out what the word nasty means. I've a friend who lived through the comparable situation in Indonesia in the 1990's and the stories are hair-raising.
"A new world reserve currency, resembling the old Ecu for instance..."
The Ecu was created because the countries involved were looking for "deeper and wider union", or some such high-sounding verbiage. Its successor, the Euro, seems to be bursting at the seams because the countries that use it need different fiscal policies and can't pursue them.
Most countries in the world are not seeking deeper union or anything remotely of the kind - indeed, there's lots of opposition now to globalism. And, as with the Euro, there's no way to know whether the new currency would work in the longer term.
So why bother? Countries can hold whatever basket of currencies they choose without inserting an artificial global intermediary. Since they're not looking for union - quite the opposite - what does a new currency provide that they can't already obtain unilaterally? Or is this proposal just reflecting a delusion that Europeans aren't in as bad or worse shape as the USA, so that all will be well and jolly if they can somehow become the world's boss?
The problem there is no different than presently exists in any federation, ie. Canada where in 2007 Alberta was way overheated and needed higher interest rates, but Nova Scotia and New Brunswick were in a doldrums and needed stimulus. It is a problem which will never be resolved entirely, and is best handled by means other than financial / monetary policy. Canada deals with it very well using a system of higher taxation on individual incomes which finance transfer payments designed to alleviate the worst of the regional differencs. USA simply ignores the issue, demanding instead "citizen mobility", but pays a high price for that in abandoned infrastructure etc. in poorer areas, eg. see any cityscape in the US rustbelt and overheated development in hotspots, southeast ten yrs ago, southwest recently.
The 21st century's commodities bonanza skewered the fiscal transfer system in Canada beyond anything recognizable even twenty years ago. Alberta's wealth was in a class by itself. Meanwhile, the traditional poorer cousins of Nova Scotia and Newfoundland suddenly found themselves contributing handsomely to the pot b/c of off-shore petroleum royalties (and their negotiations to retain some of the transfers became a hot political issue) while the financial/manufacturing engine of Ontario sputtered into the receiving end of the equation.
The advantage of using monetary policy as the key tool for fiscal transfers is that it leaves unpalatable decisions to some anonymous central bank bureaucrat who can give the illusion of political neutrality.
"The problem there is no different than presently exists in any federation..."
Well, yes indeed - those who are already in federations and want to stay in them will presumably need to put up with the problem. No question about that.
But on the global scale (and setting aside the parochial interests of LEAP2020 et. al.) the countries involved are not federated and seem to have no interest in it; quite the opposite. So there's no reason for them to put up with the problems caused by a common currency. Furthermore, each is already free to hold whatever basket of reserves it chooses. So the question remains, why bother about a global currency? What benefit could it possibly add?
The point is, a global currency is a requirement, th smaller the nation's own economy the greater the requirement. In the event of no specific provision, the job of the reserve currency falls by default to the currency largest economy, which then confers significant unfair trading advantages to that economy (setting monetary policy for many people outside its borders, unusually easy borrowing, no need for fiscal probity etc. etc.) These advantages should be fairly shared worldwide, rather than accruing only to the world's most wealthy minority.
Absolutely I'm a peak oilist, but I've seen many articles on this website lately that are drawing conclusions about the demise of the world economy, that in my opinion are extremely presumptious.
The downturn was mainly due to the deregulation of finances in 1999, regulations that had been established in 1933 after the last depression. People forget, or thought those regulations were obsolete and ushered in a new era of blazingly hot, unregulated lending that led to our current situation. Sure, high energy prices didn't help, but the crux of the situation was deregulation.
Fact is, OPEC has been reducing output to help raise prices, so supply is not a problem, at least not yet.
Once the toxic assets are handled in a manner that allows for normal, regulated lending to get moving again, the world economy will once again flourish. Enough already with the economic doomsayer bit. Oildrum.com should stick with what it does best and that is conjecture on oil data and projections.
It would be nice if the oil supply had no impact on the financial system, but that simply isn't the case. If you want to ignore the issue, fine. But this site is about energy and our future, and more and more it is looking like it is the limiting factor on the financial system is growth, and that is to a significant extent determined by the availability of cheap energy. Ignoring the issue won't make it go away.
I second the motion...Enough of the whole doomer scenario. There are enough other places dealing with doom and gloom, not just economic.
The old Adam Smith theory of specialization.
If everyone sticks to their own knitting, then the invisible appendage will make sure it all turns out happy, wealthy and wise for each of us.
Why am I having a hard time believing in that fairy tale?
A number of people have called BS on the latest Mearns post but only a couple did here. So here you are: this poorly-researched article amounts to little more than wishful thinking.
Dear TOD, please check your sources. The Guns and Butter radio show featured Webster Tarpley and David R. Griffin twice this year. Chussodvsky managed to appear three times. If you don't recognize the names, these people are 911 truthers, Milosevic apologists and so on.
And please lay off the monetary nonsense. This is not what TOD was supposed to be about. Unreconstructed monetary cranks come with some strings attached. There are more sinister cranks at the other end.
I like free speech and I even like good conspiracy theories (FNORD!)... but is this really the place?
EDIT: I don't want to sound entierly negative. The 1968 magazine article was cool.
I don't see any conspiracy theory here.
We get insights where we can. Paying for oil, and maintaining foreign trade, is a major issue. If you don't like the subject matter, read a different post.
I can't say what TOD is supposed to be about, but the usual mode of operation has been to point out the specific points you think in error rather than simply hurling ad hominems. If a particular post does not in your opinion deserve that, then, as Gail points, simply move on to something that does. It's a matter of keeping the heat to light ratio low.
While I believe that the dollar and the empire are in rapid decline, I think the logic of energy decline says the issue of world reserve currency is not key. The energy decline means the wind down of industrialism and global trade, at least on anything like its present scale. There will be a lesser need for a world reserve currency. Barter is already taking place in many areas, certainly in Latin America (oil for doctors, etc.) Even the China-Argentine currency swap is a form of barter (well sort of).
Huge debts have accumulated between and within countries. The largest part of them will never ever be repaid. You refer to the Western Empire and its collapse. Something similar (or analogous) will occur. The issue is whether it occurs in a better or worse way. A return to the soil and simpler living is inevitable. But it does not have to be uncivilized if we prepare for it. Nor does it need to be feudal. Feudal agriculture was an improvement over the Roman latifundia, but it is far from what will be needed for a comfortable transition from modern industrial agriculture. The new agriculture will require scientifically literate practitioners, not serfs.
While a world currency is not so important, global communcation and collaboration is. What kills me is that all sides of the G20 debate seem to be avoiding the issue of physical resources. All eyes are focused on money, reviving growth. There's just a pervasive and total evasion of physical reality and the need to take it into account and to adjust to it.
Chiming in a bit late, I realize, but maybe having any single basis for currency is a bad idea. See the abstract below for a different take:
Hornborg, A. 2007. Learning from the Tiv: Why a Sustainable Economy Would Have to Be "Multicentric". Culture & Agriculture 29:63-69.
I could very well have missed something in this long thread, but when discussing any currency link to energy (or exergy), has anyone discussed how much an exergy source would be discounted, based along the entire trajectory of its acquisition, transportation and usage, on its carbon dioxide emission potential?
Looking at it another way; if, for example (using a quasi-steady-state approximation) some company were to attach a technology (plant) to an existing power station emitting carbon dioxide, and by doing so could maintain the electricity production while cutting carbon dioxide emissions by, say, one-third, how much "wealth" (and in what denomination) should accrue to this company as a result of its investment to achieve this end?