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BillyTG (29.75)

A Couple Reasons Why The US Is Not Recovering

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October 26, 2010 – Comments (22)

TMFKopp wrote a TMF article called "A U.S. Collapse? Don't Make Me Laugh."  I disagreed with a lot of what he wrote and, as usual, found myself writing more than I should for a comment.  So here it is in blog form.

 

Matt, I'm not selling anything and I believe the US is in an indefinite imperial decline.

I've been blogging about it all month, so I won't state all the details---about ubiquitous and unprosecuted corporate and political fraud at levels never before seen, housing consolidation among the poor and unemployed, net job losses every week and a 22.5% unemployed/underemployed rate (I wouldn't call this a "sticky problem" when the Great Depression peak rate was 25%), the most manipulated stock market we've had in our lifetimes, declining wages, cheaper workers available overseas, and looming global agricultural and water problems---but I will throw a couple thoughts your way.

Maybe you'll modify your thinking that the US is not business as usual, and everything will not return to normal again. Maybe you'll see that some trends really do show a decline, and revise your "I'll just say that it's all absolute poppycock" statement.

FIRST, Peak oil. We are there. Our entire economy is based on carbon fuels. Everything you eat, wear, talk on, type on, drive, or do involves oil to transport and most likely to produce. The US, about 5% of the world's population, consumes 25% of oil produced. Most of our oil is imported. Most of the "easy," cheaply produced oil has been had. The demand for oil is growing like crazy. We have militarized control of the last gigantic oil region left. Others will want it. Prices will skyrocket, and wars will be fought. They already have and are. Pinch supply a little harder and the economy as we know it slows greatly or even halts. There is no replacement energy on the horizon.

SECOND, every company you mention is a multinational. I agree that they are great companies. They will survive and most likely thrive no matter what happens domestically. Do you not believe it possible for the US to be in a decline while transnational US companies record record earnings? Believe it---that is what is happening! Your statements on the economy, however, seem to focus on corporate earnings and not AMERICAN PEOPLE. This is a big difference that many on MF can't see for some reason. US global corporations can no longer be seen as strongly representing the US economy in my opinion, as they have an increasingly diverging correlation. These companies are American In Name Only (AINO---I just invented that! haha). Recent headlines show how Google paid ~2.4% taxes because they funnel money through Ireland then through the Netherlands and finally to the US. Americans are prohibited by law from doing such a thing.  Yet that represents a perfect example of how disconnected these major companies are from the average American.

Our economy is unsustainable on many levels and your focus, like many, is on individual stock picking. It completely neglects the foundational drivers, like the energy needed to make it all happen and like global labor wage inequalities that make US companies able to profit in domestic downturns.

Thank you for mentioning psychology, the recency effect. We neglect the psychology behind our own leanings too often.  Confirmation bias is something similar and I know I'm vulnerable to them both, but I keep them in mind to criticize my own thoughts (which is better than those who are so stubborn they don't know of such vulnerabilities!). I'll one up you, though, and say that surely there is a psychology term that describes an everything-will-be-okay-and-never-change attitude (which is actually quite healthy, even if not realistic).

22 Comments – Post Your Own

#1) On October 26, 2010 at 3:43 PM, alstry (35.03) wrote:

Some people believe you can borrow your way to properity....until you can't borrow anymore...

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#2) On October 26, 2010 at 4:11 PM, mtf00l (43.58) wrote:

Bernanke?!

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#3) On October 26, 2010 at 4:18 PM, mtf00l (43.58) wrote:

I can't help except to think the next energy technology is "on the shelf" just waiting to squeeze the last profits out of the current technology (oil).

Additionally, AINO, (good one by the way), is not to far from relocating to other bases of operation.

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#4) On October 26, 2010 at 4:19 PM, vriguy (78.46) wrote:

You are both right, in some sense. An imperial decline is inevitable. All empires decline.

That said, I do not see us collapse.  The gap between rich and poor countries will decrease because all rich countries will become relatively poorer. The average American (or European)worker is simply not 50 times as productive as the average Indian worker, or 20 times as productive as a Chinese worker, so their wages must decrease to reflect their real productivity.  But, I do not expect the gap to close entirely - we have lots of productive land, water, mineral wealth, and a highly entrepreneurial culture. 

Our decline will be to a position of merely the first among equals.  I'd argue we're already there in some sense - no longer the sole superpower.

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#5) On October 26, 2010 at 4:32 PM, Dow3000 (< 20) wrote:

Would like to add debt levels MUCH greater than in the 30s and a completely insolvent and fraudulent banking system.

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#6) On October 26, 2010 at 4:56 PM, loverandfighter8 (< 20) wrote:

Excellent observations, BillyTG.  Peak oil is a subject that's not addressed often enough if you ask me.  As far as the big, multi-national corporations go, you are right, they'll move on and continue to prosper.  They do not represent the American people and are loyal only to profits, not the U.S.; even if they were created in this country. 

When you look at the coming collapse, it sort of looks like we'll be hit by a perfect storm.  You've got the destruction of the U.S. Dollar along with a sovereign debt crisis, peak oil, an aging population and the rise of former third-world countries that will begin to seriously compete against us for resources, all happening at the same time!  The years and decades ahead will indeed be very, very interesting to say the least.

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#7) On October 26, 2010 at 5:22 PM, Valyooo (99.63) wrote:

So what is your solution?  Was society a waste of time? Should we have just stayed in the stone ages?

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#8) On October 26, 2010 at 5:46 PM, mtf00l (43.58) wrote:

Luckily, the fraudulent banking system is global.

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#9) On October 26, 2010 at 6:44 PM, BillyTG (29.75) wrote:

vriguy, your thoughts sound completely reasonable to me.  I like your assessment and forecast.

 

Valyooo, no solutions this post.  People discovered resources, used the resources, built incredible things and lived lives of comfort and amazement. We live in the most incredible era of all human existence, and in the most incredible country, in my opinion. I'm happy to be a part of it, and am excited to see what the future holds.  But it will be a different life, different type of society. It has to be. I think there will be very rough roads ahead, a transition period, but I agree with others that the entreprenuerial and innovative spirit will bring new technologies and ideas. 

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#10) On October 26, 2010 at 8:41 PM, OneLegged (< 20) wrote:

The Finns might not be so appreciative of your "AINO".  (Its a name)

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#11) On October 26, 2010 at 9:45 PM, topsecret10 (22.02) wrote:

BillyTG  wrote:   There is no replacement energy on the horizon.    There are MANY replacement fuels and technologies on the horizon,and those Investors that have the foresight to pick and ride the right companies will be VERY richly rewarded. I do agree with you however that our country Is basically at a tipping point. The reasons are many,but our main problem Is our own government,and how our government Interacts with the federal reserve.Also, congress has stopped listening to the will of "the people",and Instead has decided to make all of the Important decisions that affect American Citizens without regard to how we feel on Issue after Issue. The federal reserve Is In the process of creating another "BUST CYCLE" just like they always do. Boom-bust-Boom-bust...  repeat after me....   This time though, the "BUST" could be the biggest ever !  I have been at this game a very long time,I have seen this before. Except this time after the "smoke and mirrors boom cycle" has concluded,and we run out of ways to Inflate stock prices,the "BUST" will be long and hard.... I remember not long ago when one of the most Important Indicators of our economic health was the {BALTIC DRY INDEX} Why Is It that no one even mentions It anymore ? It's a neutral Index that has ALWAYS been a great predictor of future economic growth.  http://www.bloomberg.com/apps/quote?ticker=BDIY:IND  One thing that I will note too Is that for the time being,OIL will be In short supply and could very well go much higher In the near to Intermediate term,while companies work towards an economically feasable solution. This Is one BIG reason that the economy could easily double -dip,because ever higher fuel prices will cause EVERYTHING to become more expensive,and the all Important consumer will go Into complete hybernation. With real unemployment (G6) over 20%, the FED continuing to print money,and a staggering national debt,we will eventually have to pay the piper,and It won't be pretty.....   :)    TS

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#12) On October 26, 2010 at 11:45 PM, BillyTG (29.75) wrote:

TS,

let me revise my statement to say that the horizon might be years (10+) away and that there will certainly be a drop in total energy available to the world as oil supply decreases and alternative energies rush to fill the gap. 

What do we have to bridge the gap?  That leaves a transition period of several years to decades when Americans and other consumptive westernized nations will have to deal with less mobility and fewer of our modern comforts and luxuries.  When we finally do ramp up the replacement energy, it will be in different form and our lives and society will forever be changed, hopefully for the better, and hopefully with renewables that won't require as much corruption and killing. 

And I definitely agree that energy is the ticket to rich returns (both with the dissolving nonrenewables like oil, and with the replacements like solar).

While finding accurate, credible data is tough, I personally find it easier to look at behavior.  What I see is positioning around resources by the pwerful countries (not that that's anything new).  Follow the US military's most concentrated locations and you see where our interests are.  I think the Middle East is our most important front, and our last big push to continue our unsustainable way of life. 

Unfortunately, that same area is not so friendly with us and doesn't really want to give up their resources without lots of dollars and military equipment.  Other countries want the energy we want and are forming stronger alliances (Russia-Iran-Venezuela-China).  Mix in some erratic leaders, some nuclear material, cyber and economic warfar, and we have a situation ripe for major conflict (which will further reduce what oil is left), World War E (energy?). We have set ourselves up, with military infrastructure all over the area.  In how many ME countries do we have a major military footprint? Saudi Arabia, Afghanistan, Iraq, Turkey, Israel, UAE, Qatar, Azerbaijan, Tajikistan, some other 'Stans, and more.  It's funny to see all these countries and how the US public thinks we are there to fight Al Queda! And it's funny how nobody, includng the President, is able to truthfully define our military goal in the region. lol

The country that controls the oil wins the conventional war.  No oil means no tanks, no planes, no production.  The best way to ensure energy for war is to build a base right on top of it!  People say we are in the Mid East for oil.  I say we are in the Middle East to control energy, which means getting what we want and limiting or cutting off other countries when we want.  By controlling energy and controlling money, we control other countries.  Our money situation is in perile.  Our energy situation is not pretty.  Put them together and we have a problem. 

So, yeah, I'm not exactly convinced that replacement energies are ready to replace oil now or in the forseeable future.  Obviously, the highest levels of government agree and have pre-maneuvered us for a standoff.

Thanks for introducing me to the Baltic Dry Index! It looks like we're at a "normal" level right now?

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#13) On October 27, 2010 at 12:04 AM, topsecret10 (22.02) wrote:

Baltic Dry Index - BDIWhat Does Baltic Dry Index - BDI Mean?
A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed). 

The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) - Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index's composite measurement.

It is also known as the "Dry Bulk Index".
Investopedia explains Baltic Dry Index - BDI
Changes in the Baltic Dry Index can give investors insight into global supply and demand trends. This change is often considered a leading indicator of future economic growth (if the index is rising) or contraction (index is falling) because the goods shipped are raw, pre-production material, which is typically an area with very low levels of speculation.  

Because the supply of large carriers tends to remain very tight, with long lead times and high production costs, the index can experience high levels of volatility if global demand increases or drops off suddenly. The Baltic Exchange also operates as a maker of markets in freight derivatives, a type of forward contract known as FFAs (forward freight agreements) that are traded over-the-counter.        http://www.tbsship.com/   :) 

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#14) On October 27, 2010 at 1:02 AM, Starfirenv (< 20) wrote:

 BillyTG-
From Kopp's piece-
" Our current sticky unemployment problem could cause problems for the domestic side of U.S. businesses."
  Oh, so when unemployment cuts in to Corporate profits, it becomes a "sticky problem". Now I get it. TOOL!
   Billy, as to "peak oil",  if a viable alternative were to become available, do you really think it would ever get "off the shelf"?
  
topsecret10- I know you want to believe in next gen alt fuels, but I pose the same Q to you.

  This held much promise but fell off the face of theEarth. POOF! Gone. Imagine that: http://www.rexresearch.com/gunnrman/gunnrman.htm

 I saw it, toured the facility and rode the bus (out of wonder). It's easy to posit how it oughta be but as the old saying goes " it may not be right but that's how it is".
  Regards.

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#15) On October 27, 2010 at 2:07 AM, BillyTG (29.75) wrote:

I'm not an expert in economics or energy or any of this stuff. I just try to sort through the mass of information out there and piece together the puzzle that is our world.  From what I understand about the REnewable energies out there, wind sucks and can never be a major contributor, and solar is awesome.  Others like bio, hydrogen, and water energies I don't know much about, but obviously they aren't major contributors either, relative to fossil fuels. So by that deeply analytical argument, solar will be the future.  But how many years will it be until we can better harness the sun and produce a solar (or other type of energy) infrastructure?

So, would new alternatives get off the shelf? HELL YES!  Wait until the oil supply drops enough that a gallon of gas is more expensive than a gallon of Cristal champagne, and you'll see all kinds of new technologies and products coming out of the woodwork. People always find ways to make life better---That doesn't change because oil is gone.

We will still have roads, nice buildings and houses, other oil-constructed infrastructure (but their maintenance will drop and they'll deteriorate over a long time).  We have incredible communications technologies like the internet and fancy radios.  These things won't just suddenly disappear.  Best of all, we have KNOWLEDGE.  The population will most likely shrink as agriculture and medicine will be hit very hard by production and transportation declines (which is partly why Jim Rogers and others are telling everybody to buy farm land!).  You won't be able to fly all over the place because cost will be way too high.

Short of nuclear/biological/chemical war, however, I don't think things will be that bad for those who survive the transition/energy gap.  You might get a chance to grow your own healthy food, exercise, lose weight, spend more time with family, and live a simpler life. Is that really so bad?  The Amish have been doing it forever.  Most of the world live like that now. Americans take vacations to Costa Rica for the chance to stay in a beach hut! Now, you might get a chance to build your own hut as the shingles on your house break down! lol

Maybe we'll have a nice soft landing, a slow transition out of oil dependence, and maybe it will be conflict free, and we'll look back on the TMF blogs and call alstry a crazy guy and laugh at his far-fetched predictions!  I'm worried, though, that a violent, drastic change will happen.  To me, everything looks like it is snowballing and bad news is accelerating.  The US has a strong history of being proactive in our interests.  We aren't going down without an epic battle for every last barrel of resources.

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#16) On October 27, 2010 at 2:43 AM, BillyTG (29.75) wrote:

Here ya go. Here's a good little read about oil-free modern agriculture.  Our friendly little neighbor Cuba went through a transition when their cheap-oil supply was stopped from bankrupt USSR.

As long as war doesn't get in the way, we should be able to do something similar to Cuba.


In some respects the most relevant example is that of Cuba’s Special Period. In the early 1990s, with the collapse of the Soviet Union, Cuba lost its source of cheap oil. Its industrialized agricultural system, which was heavily fuel-dependent, immediately faltered. Very quickly, Cuban leaders abandoned the Soviet industrial model of production, changing from a fuel- and petrochemical-intensive farming method to a more localized, labor-intensive, organic mode of production.

How they did this is itself an interesting story. Eco-agronomists at Cuban universities had already been advocating a transition somewhat along these lines. However, they were making little or no headway. When the crisis hit, they were given free rein to, in effect, redesign the entire Cuban food system. Had these academics not had a planwaiting in the wings, the nation’s fate might have been sealed.

Heeding their advice, the Cuban government broke up large, state-owned farms and introduced private farms, farmer co-ops, and farmer markets. Cuban farmers began breeding oxen for animal traction. The Cuban people adopted a mainly vegetarian diet, mostly involuntarily (Meat eating went from twice a day to twice a week). They increased their intake of vegetable sources of protein and farmers decreased the growing of wheat and rice (Green Revolution crops that required too many inputs). Urban gardens (including rooftop gardens) were encouraged, and today they produce 50 to 80 percent of vegetables consumed in cities.

Early on, it was realized that more farmers were needed, and that this would require education. All of the nation’s colleges and universities quickly added courses on agronomy. At the same time, wages for farmers were raised to be at parity with those for engineers and doctors. Many people moved from the cities to the country; in some cases there were incentives, in others the move was forced.

The result was survival. The average Cuban lost 20 pounds of body weight, but in the long run the overall health of the nation’s people actually improved as a consequence. Today, Cuba has a stable, slowly growing economy. There are few if any luxuries, but everyone has enough to eat. Having seen the benefit of smaller-scale organic production, Cuba’s leaders have decided that even if they find another source of cheap oil, they will maintain a commitment to their new, decentralized, low-energy methods.

I don’t want to give the impression that Cubans sailed through the Special Period unscathed. Cuba was a grim place during these years, and to this day food is far from plentiful there by American standards. My point is not that Cuba is some sort of paradise, but simply that matters could have been far worse.

It could be objected that Cuba’s experience holds few lessons for our own nation. Since Cuba has a very different government and climate, we might question whether its experience can be extrapolated to the U.S.

Let us, then, consider an indigenous historical example. During both World Wars, Americans planted Victory Gardens. During both periods, gardening became a sort of spontaneous popular movement, which (at least during World War II) the USDA initially tried to suppress, believing that it would compromise the industrialization of agriculture. It wasn’t until Eleanor Roosevelt planted a Victory Garden in the White House lawn that agriculture secretary Claude Wickard relented; his agency then began to promote Victory Gardens and to take credit for them. At the height of the movement, Victory Gardens were producing roughly 40 percent of America’s vegetables, an extraordinary achievement in so short a time.

In addition to these historical precedents, we have new techniques developed with the coming agricultural crisis in mind; two of the most significant are Permaculture and Biointensive farming (there are others—such as efforts by Wes Jackson of The Land Institute to breed perennial grain crops—but limitations of time and space require me to pick and choose).

 

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#17) On October 27, 2010 at 4:08 AM, ChrisFs (34.73) wrote:

The economy is not recovering because US copanies are hoarding about $1 trillion of cash. This is a record amount of cash on hand  and is almost akin to holding the economy hostage.If they spent even a small part of this excess cash on expanding their business and hiring new employees, it would be a pihs to get the economy going again, but it seems they prefer to keep a $1 trillion in cash and short term investments.  

http://news.yahoo.com/s/nm/20101027/bs_nm/us_corporates_cash_moodys

 

 

 

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#18) On October 27, 2010 at 5:18 AM, Chromantix (98.16) wrote:

ChrisFs,

Your tone seems to imply it's the companies to blame (because they can fix it).  I ask you to take it one step further: why are the companies preserving capital?

Probably because they're afraid government will interfere (as it's been want to do).

Atlas may yet shrug, but it behooves us to ask: "why?"

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#19) On October 27, 2010 at 12:22 PM, miteycasey (35.10) wrote:

I don't see oil as a problem. We already have 'electric' engines that could easily be pushed into production as oil prices rise. As oil rises electric cars become more competatively priced. 

We have an abundance of natural gas that could be turned into electricity for this and nuclear plants could be built as well.

I'm not worried about oil production becuase there are alternatives already available. It's just that oil, at today's prices, is cheaper to use.

 

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#20) On October 27, 2010 at 12:33 PM, BillyTG (29.75) wrote:

miteycasey, haha

I'm glad you don't see it as a problem.  If we had you and others with that same opinion running the system right now, there would be far fewer people being killed today.

Oil is the foundation of our economy and society.  Everything you eat today, wear today, talk on today, use to move around today is because of oil. EVERYTHING.  

No offense, but your comments sound a little naive, like if the oil tap were turned off, there is some switch to flip right over to NG/nuclear plants.  Do you realize how many YEARS it takes to build nuclear plants and how many YEARS it would take to build a NG infrastructure.  Those sources, too, are nonrenewable by the way. And oil isn't just a little cheaper to use, but A LOT CHEAPER.  Enough that by some estimates we are right now paying over $200/barrel when Middle East military costs are factored in, and enough that we aren't leaving the ME until every last drop is sucked out.

http://www.lifeaftertheoilcrash.net/

A Crude Awakening

Crossing The Rubicon

 

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#21) On October 27, 2010 at 9:06 PM, russiangambit (29.49) wrote:

> ChrisFs,

Your tone seems to imply it's the companies to blame (because they can fix it).  I ask you to take it one step further: why are the companies preserving capital?

-----------------------------------

I can tell you why - because this is offshore capital. They can't bring it onshore because they don't want to ay 35% tax on it. They are waiting for a tax holiday from republicans.

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#22) On October 29, 2010 at 5:33 PM, mtf00l (43.58) wrote:

russiangambit,

Comming right up... =)

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