Wednesday, September 05, 2007

Searching for Scapegoats

One of the things I find most interesting about economic crises is the way that the same rhetoric gets recycled in each one, as though official and unofficial media alike ran out of new ideas long ago and just repeat the same stories over again with the names changed and the old serial numbers filed off. When the mortgage bubble now deflating around us was still filling with air, media blared that a new economic model had arrived, that this particular asset class would keep appreciating forever, and that it really was different this time: all the same mantras heard back during the tech stock bubble of the late 1990s, or for that matter in every other speculative frenzy since the Dutch tulip mania of the 17th century.

Equally, once the mortgage bubble started leaking air and taking mortgage companies and hedge funds down with it, some US official or other tempted fate in a big way by proclaiming that “the fundamentals are sound.” The financial authorities said exactly the same thing in the aftermath of the 1929 stock market crash, and if there’s any phrase in economic history that translates better as “run for your lives,” I don’t know it. You’d think we would have learned from the tech stock boom and bust that it’s never different this time, and when an economy is propped up by the wishful thinking that drives all speculative frenzies, the fundamentals are never sound, and yet each bubble conjures up the same thinking and the same phrases all over again.

One song on this broken record, though, deserves special attention here. In The Great Crash 1929, one of the best (and certainly most readable) works of economic history ever written, John Kenneth Galbraith talked about “the notion that somewhere on Wall Street...there was a deus ex machina who somehow engineered the boom and bust.” His comment is apposite: “No one was responsible for the great Wall Street crash. No one engineered the speculation that preceded it. Both were the product of the free choice and decision of hundreds of thousands of individuals. The latter were not led to the slaughter. They were impelled to it by the seminal lunacy which has always seized people who are seized in turn with the notion that they can become very rich.”

Still, it’s not part of the standard rhetoric of economic crisis to encourage people to contemplate their own folly, and so we’ve already started to see claims that the great mortgage bubble and bust was deliberately engineered. There’s a twist, though, because the usual rhetoric of the past – the notion that the motive behind all this deviousness is pure greed – has been shouldered aside by the claim that the boom and bust were engineered to turn Americans into the debt slaves of a totalitarian state under the polymorphous banner of the New World Order.

That’s a claim worth noticing, not least because every significant crisis of the last dozen years or so has been interpreted by many of the same people in exactly the same way. It’s worth noticing as well because, like so much of what now passes for left-wing thought, this claim was pioneered by the John Birch Society, for many decades the cutting edge of the American extreme right. The phrase “new world order” itself was coined by the Society’s founder Robert Welch in 1972, as part of a florid system of conspiracy theory that blamed US corporations and the Trilateral Commission for everything Welch thought was wrong with the world. The ease with which these ideas of the far right were imported lock, stock and barrel by the other end of the political spectrum after the implosion of the New Left at the end of the 1960s is one of the richer ironies of recent cultural history.

Yet there’s another point worth noticing here, and that’s the extent to which the rhetoric of conspiracy has become a convenient way to evade any suggestion of personal responsibility for the consequences of one’s actions. Galbraith’s comments are relevant here. People plunged into real estate speculation because they thought they could get lots of money for nothing, and other people bought houses they couldn’t afford because they thought that, by the magic of repeated refinancing, they would never have to pay for them. Of course they were helped to embrace one or both of these delusions by the army of scam artists who always cluster around speculative bubbles, but the old maxim still holds: nobody can con you unless you first con yourself.

This habit of invoking conspiracy to dodge responsibility troubles me, not least because, as I’ve suggested in a previous post, the expansion of the industrial system over the last three hundred years or so – the Age of Exuberance, to use William Catton’s evocative phrase – resembles nothing so much as a speculative bubble on a titanic scale. We’ve seen how countless people in recent years have fondly credited their own financial brilliance for paper profits that turned out to be the product of a Ponzi scheme writ large. In the same way, the pundits and publicists of industrial society have insisted all along that our technological cleverness and creativity are responsible for a boom that, in the cold light of a deindustrial morning, will more likely be seen as the fantastically irresponsible exploitation of 500 million years’ worth of irreplaceable fossil fuels in an eyeblink of geological time.

The parallels run deep. Just as a speculative bubble lasts only so long as a steady stream of new speculators pour their money into the game and keep expanding the total amount of funds in play, the fossil fuel bubble of the last 300 years has depended on a steady stream of new energy reserves that keep expanding the total amount of cheap abundant energy available to the world’s industrial societies. Just as a speculative bubble routinely leads to extravagant misallocations of resources – the immense square footage of new home construction in the last five years or so might as well be the poster child for that just now – the fossil fuel bubble has resulted in resource allocations that our descendants will likely find at least as profoundly misguided.

Just as a speculative bubble ends in a sharp economic contraction unless some new financial gimmick can be found to reinflate the economy, finally, the most likely aftermath of the fossil fuel boom is a long and difficult contraction that will shake our societies to the core, since the likelihood that another energy source will be found in time to reinflate the fossil fuel bubble doesn’t look high just now. There’s even a parallel in the way one bubble feeds into another: just as the 1925 Florida land boom gave way to the 1927-9 stock market boom, and then to bust, and the tech stock boom of the late 1990s turned into the real estate boom now unraveling around us, the coal boom of 1725-1900 yielded to the petroleum boom of 1900-2005. If the parallel completes itself, the bust that follows will likely be on an epic scale – and it seems all too likely that this may work out in an equally massive hunt for scapegoats to blame for it all.

There’s already a substantial corner of the peak oil scene for whom discussing the end of the age of cheap abundant energy is inseparable from denouncing the current US government for an assortment of crimes, real or imagined. I’m no fan of the Bush administration – longtime readers of this blog know that I consider its energy and environmental policies disastrously misguided – but it seems to me that the effort to paint the leftover Reagan-era bureaucrats and politically naive right-wing intellectuals who run that administration as the modern liberal equivalent of Satan incarnate has less to do with their behavior than with the irruption of a frankly paranoid style of thinking into the American cultural mainstream.

Now to some extent this simply tracks the rise of a rhetoric of hatred in American politics, a process to which both parties have contributed mightily since 1970 or so. The vitriol heaped on the Bush administration by Democrats since 2001 matches with fair exactness the denunciations of the Clinton administration by Republicans in the eight years before then. Today’s claims that Bush is about to establish a dictatorship have an equally exact parallel in claims, circulated feverishly in far right circles after the 1992 election, that Clinton was about to do the same thing. Since neither party offers anything like a constructive approach to the problems besetting American society just now, it’s probably inevitable that they would both try to redirect the conversation to the supposed villainies of the other side.

Still, I’ve come to think that there’s more involved here than an escalation of partisan bickering. Like the conspiracy rhetoric beginning to circulate about the end of the housing bubble, it’s an evasion of responsibility – very few Americans, after all, had to be dragged kicking and screaming into eager participation in the fossil fuel powered orgy of consumption that peaked in the decade just past – and it’s also a way of not dealing with the hard work that has to be done if we’re to move into the end of the age of cheap abundant energy with anything worth saving still intact. On the list of work that has to be done as our society starts skidding down the far side of Hubbert’s peak, arguing over who’s most to blame may not deserve a very important place, but it’s also a good deal easier than some of the things that belong much higher up.

Finally, it may be worth thinking about where today’s search for scapegoats could lead. Imagine for a moment that the rhetoric we’re discussing succeeds in pinning the blame for peak oil on the Bush administration and American business leaders. It’s unpleasantly easy to imagine Republican politicians hanged en masse for crimes against humanity, oil executives and their families dragged from their homes and torn to pieces by screaming mobs, and the like. Such things have happened far too often in recent history to be dismissed as abstractions; they could all too readily shred what little is left of the basic civility any society needs to function at all, but they would not bring us one step closer to a meaningful response to the predicament of industrial society. I can only hope that enough people are willing to step back from today’s rhetoric of partisan hatred to make such things a little less likely, in a future that will be difficult enough without them.

53 comments:

Christine Lydon said...

Far more frightening than the thought of mobs hanging our politicians is the thought that mobs will demand the politicians drop nuclear bombs on the Iranians, Saudis, Russians, and anyone else who refuses to send their fuel to the West.

Weaseldog said...

This is good post, but it really doesn't address my points well.

To work in reverse, I see both parties working together, though their public rhetoric is different. On every important piece of legislation, the Democrats and Republicans work together as a team. They are on the same side. What differentiates them are their team colors and their rhetoric.

I never once apologized for people looking for a quick flipping houses. But when I argue that not every young couple looking for a new home is not smarter than the financial people advising them and screwing them over, I get people arguing the same thing. House flippers looking to make millions in a speculative market are exactly the same as a young couple worried about what school district their new baby will attend.

I don't buy this comparison.

I don't agree that people who aren't smart, are responsible for being born less smart than other people.

Someone decided to change the laws and rules that have protected us since the 1929 crash. And when those laws and rules were changed, some very smart people knew exactly how this would turn out.

I don't buy the notion that it was an accident that banks loan money to people who don't deserve it, then end up with deeds to property, without taking any real risks.

In the open oceans, sharks and dolphins will commonly herd smaller fish into a tight ball, then take turns swimming through it, eating the fish, until they are all gone. Each small fish, is probably better off if it just swam away. But between the deafening sonar and their fear of the big scary fish, they are outsmarted and become dinner for the more intelligent predators. Now we can blame the fish for being stupid and being outwitted by more powerful creatures that use powerful tools, strategy and an innate understanding of how to herd the smaller fish and get them to go where they want, but that I think, isn't the whole story.

In this scenario, if you remove the shark and the dolphins, then the fish ball never gets formed and the little fish never die. One could say that the dolphins and sharks play a role in this. Someone might even think they were somehow responsible for what happened. After all, didn't they begin herding the fish into a ball? Didn't they profit in the end? Don't they bear some responsibility.

You appear likewise to be arguing that the PHDs working at the Fed and the top banks, don't understand how to herd consumers. That they don't know what causes bubbles. That the results of their actions are accidental and that they accidentally rake in trillions of dollars in profits and titles to real property.

I make no apologies for the house flippers, but I can't believe that the top people in banking are so stupid, that they don't know the consequences of their actions. That they profit, because they are so stupid.

Every citizen is not a greedy house flipper, and every banker is not a saint.

If you think a bit about your argument. If you put all of the pieces together. If you and I understand the herd mentality, that some people fall for cons over and over, that bubbles will bring con artists out of the woodwork, and the mechanisms that allow bubbles to form, then don't you think that there are some other smart people who understand this too? And aren't you smart enough to see that if you had the power to drive Fed policies, then you could pick which bubble occurs next and drive at the rate you desire?

And if you could do this, couldn't you also put together policies that would reduce the bubbles, and reduce their damage? Wouldn't these policies often be the opposite of what the Fed actually does? And wouldn't such policies, enhance the real wealth of our citizens, while reducing the wealth and power of the central banks?

As to evil Republicans, both Republicans and Democrats came together for the recent revision of the FISA act, which makes it legal for the government to search our homes, record our phone calls and emails, and open our postal mail without a warrant, or notification, or even record keeping that is subject to any oversight. Further, they made it legal for private corporations to do this for the government, without fear of legal or civil recourse. AT&T can now secretly record conversations made by top
IBM executives and they are protected by this law from legal action.

The crimes committed are not imaginary. And it is not just Republicans in on it. The Democrats are working with the Republicans to overturn the US Constitution, one law at a time. This is all on the public record.

FARfetched said...

Good points, all. Unfortunately, I won't be able to contribute much for the next week or so; vacation and some neglected writing projects are claiming my attention.

I do want to say this: the smarter of the elites will simply blend into the general population at the first sign of class warfare. The less intelligent will retreat to fortresses, and the best fate they have to look forward to is imprisonment for life. But it may not come to that: the right wing owns the media and is better-armed. Chances are, they'll find a softer target: Hispanic immigrants, environmentalists, or (the old bugbear) unions come to mind.

John Michael Greer said...

Christine, either way it's the final abandonment of the social compact that once made our republic possible.

Weaseldog, yes, I've heard the claim that this whole sequence of bubbles was planned out in advance, and no, I don't buy it. The same economists who you think are smart enough to predict economic cycles decades in advance have a well-earned reputation for failing to predict the obvious, and getting swept up in the same speculative fever as everyone else. The people who have lost the most money in the current crisis so far are the very rich, the only people who can afford to invest in the hedge funds that have gone insolvent, and the banks you think are getting rich off this are taking it in the shorts; look at the way the LIBOR rate (the interest rate banks charge each other for short term credit) has gone through the roof. Yes, those banks that don't go bust will end up with a bunch of non-income-producing real estate on their balance sheets, worth a tiny fraction of the money they loaned out for it, and in a year or so, as in every previous real estate bust, they'll be desperately eager to get rid of it.

More generally, I'd encourage you to read a good deal more economic history and a good deal less conspiracy theory. Your claim that the Powers that Be are deliberately setting up an economic disaster that will hurt them worse than it will hurt the rest of us -- investment income goes down more than wage income in recessions -- is very popular, for the reasons I've suggested in my post, but it won't hold water.

Farfetched, enjoy your vacation! As for the right wing owning the media, well, they think the left wing owns it. More polarizing rhetoric...

Bill Pulliam said...

Re: the media... The Media own the Media. As corporations, their slant is the same as any other company, to market their products and lobby for their own self-interests. They'll lean the way their customers want and the way that increases their profits. You've got the mega outlets who serve the masses and lobby for support and protection from congress, and the smaller companies that serve niche markets, struggle to survive, and spend much time criticizing the big guns. Just like restaurants, computers, shoes, and lawn mowers. Nothing unusual there; nothing more or less sinister than everything else about the totality of our socioeconomic systems.

Re: "Boom and bust..." Nothing happens in a straight line or a smooth curve in the real world. Things always overshoot, overcorrect, bounce around. The "business cycle" is inevitable. No system as complex as an economy can possibly chug along steadily without peaks, troughs, and erractic actions. Dangle a bunch of kittens from bungie cords, give them balls of twine to play with, and just TRY to make them all settle down peacefully!

Weaseldog said...

"The same economists who you think are smart enough to predict economic cycles decades in advance have a well-earned reputation for failing to predict the obvious, and getting swept up in the same speculative fever as everyone else."

I don't believe that they are the same people.

I'm not sure what conspiracy theories you think I've been reading. Maybe I should look some up? :)

And no they aren't setting up a financial disaster for reasons that some might expect in a conspiracy theory.

It is instead the sort of conspiracy theory that would suggest that a CEO and executives would sell off their stock before announcing that the corporation is going bankrupt. That never happens, right?

The US economy has been shipped out for purely rational reasons. Mainly because we've exhausted the cheap and plentiful resources that made us a major industrial power. It is in the best interest of DOW Chemical, DuPont, Owens Corning and others to heed Matt Simmons advice and move operations to Asia. This was a completely predictable turn of events.

The logically outcome of most of our remaining real world industries moving to Asia, is a boom in the financial sector and an increase in the rate of inflation. In 1999, it was clear to me that declining oil production and the flight of manufacturing would lead to a lop sided economy in which financial speculation became the dominant force in our economy. During that period I wrote that as oil production declined, then the only way to keep the nation in good economic health was to raise interest rates and discourage investments in financial instruments. The idea being that investment in infrastructure and wages would then become the best way to see modest returns on investments. So long as interest is low and inflation high, investments in infrastructure will be economically unsound.

But a sound policy is bad for the banks. Maximizing cash flow, maximizes profits. High interest rates moves money into physical enterprises, but slows the money flow. It restricts inflation. It removes justification for stratospheric salaries. It encourages efficiency. It encourages healthy competition.

Low interest rates and a money supply that resembles an open fire hydrant, do the opposite.

But when oil is in decline and money is free flowing, we have ever increasing quantities of money chasing a diminishing quantity of goods and services. This cause prices of goods to rise, and applies pressure to keep labor cheap. Greenspan has publically admitted as much, just before disregarding his own advice.

Forget the economic talking heads. I have no respect for that crowd. I'm talking about the private investors in the top banks that prove that they know what trends are coming, because they keep profiting in them whether they go up or down. They know, because they drive the trends.

And if you drive the trends, you don't have to predict them.

Ten years ago, I would probably have just agreed that you're probably right. But I've worked for some of these people since then. They screw their customers with mutual fund shenanigans, letting the computers perform trades that don't quite trigger audits and they do it on purpose. They brag and laugh about it. they also laugh at the talking head economists.

I think you are oversimplifying and not seeing the opportunities to siphon billions of dollars out of the economy, when you know in advance what is coming, because you know people who decide what the interest rates are, and the lending rules, and write legislation to cover the industry.

Are there invalid conspiracy theories out there? Absolutely. But every business plan is a conspiracy theory. And board members of our major banks will tell you that it is there responsibility to maximize returns for the stock holders, meaning in double speak to justify multi-million dollars salaries. And to do so, they don't mind bending or breaking rules. If they are all honest, then why do some percentage of them get arrested on occasion?

In the end, I don't worry much about people say. What people do is what matters. The wealth is being sucked out of the economy and flowing into the accounts of wealthy internationalists. That isn't a conspiracy theory. That is what is actually happening. And these people have means, motive and opportunity. I don't believe the board members of CitiCorp are stupid, or that they get on TV and make bad predictions. They leave that to well groomed sycophants.

So when you talk about economists being unable to make predictions and I talk about economists that intentionally move markets, we're talking about two groups.

If I'm to come to your side on this, I may have to believe that the top executives in the international banking system, don't make financial decisions and don't engage in business strategy. I do not at all believe this is what you are arguing. But it seems that is where your argument leads to. The notion that these people do not move markets.

As an aside, I remember when people were laughing at the idea that someone could manipulate the silver market. Then they laughed at the idea that the Hunt Brothers could pull it off. Then they were arrested... The consensus I heard was that their mistake wasn't in manipulating the market, but in doing so that they would get caught.

bryant said...

JMG,

"The ease with which these ideas of the far right were imported lock, stock and barrel by the other end of the political spectrum after the implosion of the New Left at the end of the 1960s is one of the richer ironies of recent cultural history."

I have often thought that the way we usually portray the political spectrum is flawed.

You are old enough to remember the paper "crowns" that used to come with the Burger King Whopper, yes? These "crowns" were thin cardboard and looked something like a bell curve; there were slots and tabs out at the ends of the bell curve. When you put tab-in-slot, the bell curve connected at each end.

If you go far enough along the political spectrum you will encounter that strange tab-in-slot region where far left and far right come uneasily together. As someone who frequents this dangerous topology, I can tell you that people in this region have more in common with their proximal fellows than they do with the mainstream of their nominal political affiliation.

This bizarre "backside-of-the-bell-curve" connection also explains why so many of the Neo-conservatives were originally neo-Trotskyites.

Weaseldog said...

"More generally, I'd encourage you to read a good deal more economic history and a good deal less conspiracy theory. Your claim that the Powers that Be are deliberately setting up an economic disaster that will hurt them worse than it will hurt the rest of us -- investment income goes down more than wage income in recessions -- is very popular, for the reasons I've suggested in my post, but it won't hold water."

Your words not mine. I don't agree with your assessment of my argument. If the crash is coming anyway, then why not profit from it? Its not like these people have to live in the US. The Saudi Royals that own CitiCorp don't have to rub elbows with the likes of us. If you have billions in investments, you can live anywhere.

Investment in the US is dead. Asia is the hot market. They have lot's of natural gas left.

Joel said...

"the very rich, the only people who can afford to invest in the hedge funds"

JMG: that's the one point you've made on which we disagree.

There's a lot of money in the stock market from small-time investors. They may not make up a majority, but many pension funds invested in hedge funds. The fund managers who decided to take this risk will be hurt less than the workers whose money they managed.

Panidaho said...

Re: conspiracy theories...

If I had to choose which scenario was more likely - that people in positions of power decided to see if they could scam their respective systems, screw millions of people and get away with a ton of ill-gotten loot before it all collapsed - or - that all of these powerful individuals decided to work together on some sort of intelligent (if malevolent) master plan to benefit others of their kind as well as themselves, I'd choose the first scenario, hands down. Greed, overweening arrogance and blind stupidity explain - at least to my mind - just as much or more than any conspiracy theory I've heard so far.

Panidaho said...

There's a lot of money in the stock market from small-time investors.

The stock market in general - yes. Hedge Funds - no. Hedge funds for the most part require a very large initial investment - anywhere from 25K on the low side to over one million. The higher initial investments, from what I've seen, are more the norm. They are in general an investment for only the very wealthy few who can afford to park a lot of money in a fund that is meant to be used as a way to offset potential losses from the scads more money they have parked in more conventional funds.

Panidaho said...

They may not make up a majority, but many pension funds invested in hedge funds.

Ah, I missed this part. I wonder, though, what percentage of pension funds are invested in Hedge Funds? Do you have any idea? Guess I should go a-Googling.

John Michael Greer said...

Bill, exactly -- cyclic processes are universal in nature (including human nature). I don't imagine anybody thinks that spring and fall are caused by a conspiracy of trees.

Weaseldog, I haven't worked for the financial industry, but I've dealt with them and watched their antics in various contexts. What I've seen leads me to agree with Galbraith's assessment: they're not actually any brighter than the rest of us, and are just as subject to intellectual fads and groupthink as anybody.

Faced with the implosion of the tech stock bubble, for example, Greenspan tried the same gimmick the BOJ used when the Japanese stock bubble burst in 1980. In Japan, the result was something close to a soft landing; here, by contrast, it sparked a second bubble even bigger than the first. If Greenspan had followed your advice and raised interest rates, according to current economic theory, the most likely result would have been a severe recession. So he jumped from the frying pan into the fire. And, of course, people prone to interpret things in conspiracy terms would have blamed him either way.

Bryant, I've sometimes thought that political attitudes might best be mapped in two- or three-dimensional space, instead of the linear spectrum model we're stuck with.

Joel, close to half of Americans have no pensions at all, and most of the dollars cluster in the upper income brackets. I didn't say that the very rich are the only ones getting hit -- only that they've taken most of the damage so far.

Panidaho, no argument there. One point I'd make, though, is that the people who run the world's central banks and national treasuries are playing for political power -- a much headier coin than personal wealth. An economic slump doesn't benefit any of the mainstream parties. This is one of the reasons I find it implausible that this or any other economic downturn is the product of conspiracy.

awlknottedup said...

Economics. No matter how hard economists and politicians would like it to be, it is not a hard science. large parts of sociology, philosophy, and psychology are involved. Many people talk of it but few bother to study it even casually. So to that end let me suggest a few good books to start with.

"The Worldly Philosophers" is a very good over view of the history of economics and what the founding thinkers had to say. It is not just Adam Smith. There are several study guides that put various spin and interpretations on the book but it is a standard work and a must read. "New Ideas from Dead Economists" covers the same territory but from a more modern and conservative view. Just about anything from Galbraith is worth reading. His "Money: Whence it Came, Were it went" is an excellent treatment of the history of money. A more modern book that touches on the subject we are discussing here is Bill McKibben's "Deep Economy."

Remember, environmental collapse, peak oil, etc are all failures of economics.

awlknottedup said...

A large part of the current problem and the part that will not be fixed without some drastic changes is greed. We have raised something for nothing to a real goal with state lotteries, Indian gaming, the magic of ever increasing house prices, etc. Greed has become a driving force in many of our activities and it is not just gambling, far from it. The people who bought into the housing bubble saw a chance to get a big house, fancy car, trips to Maui, all without any real effort. Just buy the most house you can afford and soon you will have it all. I forget the numbers but in 2000 the average credit card debt was around $7000 where now it is around $9000. During that same time several hundred billion dollars of credit card debt was converted into housing debt. That is a lot of what people soon came to consider free money.

That greed was not just in home buyers. Banks joined in. Conservative bank A only made solid loans while bank B made all sorts of risky loans and sold them off to the investors and used the money to make more risky loans and huge profits. Bank A is not making nearly the money of B and its stock holders are calling lawyers and investors are chomping at the bit to buy it out. Bank A jumps on the band wagon and starts making money. Both banks are filled with MBA minted over the last 20 years who have never seen a real down market and who really want to get as rich as possible as soon as possible.

All that money floating around has to go somewhere. For the most of us what comes in goes out. Maybe a little is peeled off for a 401K and maybe some savings. But for those newly minted millionaires there are only so many houses you can buy in the Hamptons, at Vail, and Malibu so they have to put the money somewhere. So more money is available for more ways to make money and they want more money. Greed is still pumping iron so to speak.

Those new MBAs with Harvard and Stanford stamps of approval need to find places for all that money and they have been well steeped in "think out of the box" so they come up with all sorts of ways to massage their greed. More and more financial derivatives, well beyond the CBOs that make up the first tier. They invent even more tiers because each tier makes even more money that has to be put somewhere. It becomes one huge house of cards ready to blow apart at any time.

Only politicians and economists think that growth can go on forever. I believe it was Edward Abbey who said that unlimited growth is like a cancer. It is and it can kill its host.

Where are we now? I wish I knew. The end of cheap oil is breathing down on us. Climate change is breathing down on us. This huge financial house of cards is tottering. Where will it lead? I wish I knew.

Weaseldog said...

Bryant, I like that Burger King Crown symbolism. That is clever.

JMG, I don't think we can prove one theory over another. But it seems though we disagree to some degree, we are close in others.

So, faced with a choice, Greenspan chose to make a new series of bubbles after he warned against what he was about to do? Why? What do you think might have led him to make what he knew was the wrong decision?

I agree with you folks about business cycles and chaos. Still, chaos can often be directed if it is understood. Greenspan in my view understands them. He actually has told us what makes bubbles worse and what creates instability in markets. And he chose to do these things.

And yes, on the fact that tightening the money supply would have made the recession visible. It would've strained the financial sector. Their profits would have declined. Inflation would've lessened. The American worker would've increased in relative value. Lower inflation, makes investments into infrastructure and training more attractive because industry has an easier time controlling costs.

High inflation and free flowing money favors purely financial concerns. it essentially turns the financial sector into a big casino, based on self referencing debts. Infrastructure improvements can't be expected to pay off as costs for the real world keep increasing.

Cycles are normal, and we've become accustomed to business cycles with extremely wide swings. We've begun to think that huge bubbles and wealth destruction is normal.

Greenspan had a choice between a recession or a masked recession with huge inflationary swings. He chose. Why did he pick what he did? What is the result? He knew how it would turn out when he made his choice. He told us what would happen.

And what economic downturn? Are CEO salaries in decline? Thought he financial sector is getting attention over home loans, the people in charge of these corporations are still increasing their salaries.

Eventually Post Peak Oil will destroy the US economy. Why not engage in the same corporate strategies of the 1980s, but do it on a national scale? Remember when the big fad was to run a corporation into the ground, go into bankruptcy, strip the pensions, then sell off the parts for a profit? Why couldn't this tried and true business strategy work for the US like it has worked in other nations? The IMF has been doing this to entire countries for decades. Why wouldn't it work here?

I believe that we are well trained to think that the US is somehow special. That international corporations have some special love for us. But why shouldn't they view the US as they do any other country that the IMF has raped? Isn't our indebtedness, making us ripe for plunder? Why wouldn't multi-nationals covet our stuff?

What makes us so special that no one would want to steal from us?

guamanian said...

I prefer to think of my deep-seated doubts about the inherent good intentions of the ruling class as 'systemic analysis' rather than 'conspiracy theory', but in either case you raise a valid point... entrenched industrial-era political positions are not going to be particularly useful in figuring how to handle energy descent, and the search for scapegoats is an easy diversion in hard times.

As a current example: the Greek forest fire crisis has been blamed on a combination of land developers and left-wing arsonists. This unlikely cabal of scapegoats has been put forward by the current Greek government as a political diversionary tactic.

And this seems to be a common pattern... scapegoats can be presented to the people more easily 'from above' than 'from below', just because of very real power and media access differentials.

Alternately, new extremist movements often ride in on scapegoats: Milosevic on the Albanians, the BNP on immigrants... Most historical examples of scapegoating seem to me to be of one of these two fairly well-organized political types, rather than spontaneous scapegoating 'from below'.

Whatever the origins of scapegoating, though, I think your main point is still solid: We have got to rapidly create a tolerant middle ground and a resilient social fabric in order to minimize the social impacts of energy descent -- and I believe we are very ill-equipped to do so due to our current highly individualistic social structures and our atrophied sense of moderation and compromise.

Bill Pulliam said...

I think you may have really touched the point of it when you mention "evasion of responsibility." Indeed as a whole society and individuals seems to be increasingly "responsibility averse" as the decades pass (or maybe I'm just getting older and I notice it more). The notion that the "Evils of the World" (defined by each individual for him/herself) are brought about by the actions of "Them" avoids accepting that they in fact come about because of the actions of Us. I'm adding to the energy and environmetal problems by writing this comment at this very moment; that faint rumble of distant thunder off to my northeast is yet another West Virginia mountain blowing up to provide the juice for this machine. The great trends in society, for better or worse, come about because of the collective actions of we great unwashed masses. The apparent leaders are really just skilled surfers riding the waves, with enough arrogance to pretend they are actually making the waves.

As I've written elsewhere, the choices we make in our lives about how we live, what we do and do not consume, produce, waste, whether or not we breed and how many times... these have far greater and more direct impact on the world than the ballots cast by us for Our Saviors or by our ignorant deluded neighbors for the Evil Ones. They even have more impact, per capita, than the foibles of the financial markets and the machinery of war.

John Michael Greer said...

Awlknottedup, you comment:

Remember, environmental collapse, peak oil, etc are all failures of economics.

To my mind this is square on target. Neither the market nor the people who try to manipulate it are anything close to infallible.

With regard to greed, absolutely -- the fantasy that people deserve to get something for nothing is pervasive in America today, and as long as people continue to believe that, they're going to be easy marks for any con artist who comes along.

Weaseldog, economics isn't an exact science, and no two economists agree on what exactly is the "right thing." Your prescription -- raise interest rates right when the economy is contracting due to the evaporation of huge amounts of paper wealth -- would be considered hopelessly wrong-headed by many economists, and I'm not sure they're wrong; do that and you'd risk triggering a deflationary spiral.

As for why Greenspan did what he did, for heaven's sake, put it in its political context. Despite official rhetoric, the Fed is anything but apolitical. If Greenspan had raised interest rates in 2001, the economy would have tanked over the next year or two, and the GOP would have lost the White House in 2004. Of course he was going to try to reflate the economy, and the Japanese example -- which was on many people's minds just then -- gave no warning that here, it would trigger another bubble.

But I really think we're talking past one another at this point. You have your interpretation of the situation, I have mine, and I doubt either of us will change the other's mind.

Guamanian, thank you for addressing the central point of my post! Yes, I can all too easily imagine either model of scapegoating happening here -- either one of the political parties seizing the opportunity to blame the Fed and "international bankers" (am I the only one here old enough to remember when that phrase was an anti-Semitic code word for Jews?) for the greed and folly of the American people, or some group of extremists doing the same thing and riding it straight into power.

Bill, the sociologist C. Wright Mills defined "fate" as the sum total of the unintended effects of everyday actions by ordinary people. He argued that it was far and away the most powerful of all social forces. I think he's right, too.

DeadBeat Dad said...

JMG--You say

"It’s unpleasantly easy to imagine Republican politicians hanged en masse for crimes against humanity, oil executives and their families dragged from their homes and torn to pieces by screaming mobs, and the like..."

Right now we're in the calm before the storm. Unfortunately, you can't tell if it's going to be like a hurricane ( with advance winds), or like an earthquake.

But either way, it's coming. With millions having suffered incarceration, and tens of millions living in poverty, there might not be any way to avoid chaos. One can only hope that a deal can be worked out in advance, similar to the New Deal.

The Senators, judges, and billionaires have been saying 'Let them eat cake' for too long now. The government has been putting out these Orwellian stats for poverty and middle class, which bear little basis to reality. But people see right through that.

So many people today are not grounded or rooted in a community. How can you be when tens of millions of children and teenagers are not even rooted in a family? When the government begins to fail, is there going to be father or a family to protect & guide? It seems not.

Danby said...

Well, to start off, I should say that I believe that Bush & Co should be hanged, but only after a fair trial at the hands of an international court. The charge would would be the one we leveled against the Nazi leadership after WWII, the intentional making of aggressive war, which is a longer name for mass murder. I know that this is off-topic, but I thought it needed to be said.

I don't believe in any conspiracy to create an economic crash, but there has been a serious, ongoing and public conspiracy since before WWI to avoid any economic crash. The problem is that the crashes are not avoided, only postponed. And every time they are postponed, the depth and breadth of the next crash are amplified.

The mechanism the Fed uses (injecting newly created fiat money into the economy via loans) to avoid recessions has worked reasonably well in the past. The problem with this round is that there was no demand for credit to invest in capital and thereby increase productivity.

Since the new money does no good for the bankers sitting in their own accounts, they had to find someone to lend it to. Some of it went to commercial loans, credit cards, etc (ever wonder why you get so many credit card offers?) but most wound up going to the mortgage market.

When the new home market for mortgages was saturated, they went after refinance loans. When that was saturated, they went after so-called home upgrades and real estate flippers. When that market was saturated, they went after the only customers they could still find, marginal borrowers. Even today, I still hear radio ads for loans with "no income verification", "interest-only loans", and "more house than you think you can have."

The point is that the money put out by the Fed has to be loaned out in order to be effective. That's the imperative. So the money will be loaned out, no matter how low we have to set the standards, nor how much we need to bend the rules to do so.

The banks, btw, do made out like bandits. Remember, very very few banks actually carry their own paper. It is almost always sold to a quasi-federal agency (Freddie Mac, Fannie Mae, etc) or an investment group such as Countrywide. Most banks essentially make a transaction fee for generating the loan (much like a mortgage broker) and holding it for 6 months to a year. And the higher the interest rate, the greater the return on generating the loan.

So the banks have been selling these suicide loans as fast as they can because 1) they are very profitable, and 2) they don't care about what happens to the borrower or the underwriter.

To quote Heinlein's Razor, "Never attribute to malice that which can be adequately explained by stupidity." Or, we may add, greed.

John Michael Greer said...

Deadbeat Dad, it'll be interesting to see if anybody can come up with a New Deal (a Newer Deal?) that can satisfy both the American people and the demands of post-peak reality.

Dan, if Bush is tried and found guilty of a capital crime by a court of law, of course he should be hanged. It's the potential for mob violence directed at scapegoats that concerns me. Aside from that, your survey of the economic situation seems quite sound to me; since its origin in 1913, the Fed has made the pursuit of economic stability its main goal, though of course its efforts have had mixed success at best.

mc said...

JMG,
I strongly, vehemently disagree with your take on conspiracy theory. I would never discount it as a possibility. We are all responsible for our own lives, we are not all responsible in equal measure for economic collapse, war, illegal spying, or torture of others. Everybody's guilt is nobody's guilt. Was today's economic meltdown the result of a conspiracy? I think not, but certainly many who are in banking and wall street knew they were throwing out sound financial management to feed the greed. They also knew that when the music stopped, many would be left in ruins and not just the wealthiest. This has just gotten started. Where all these bad debt instruments are - no one knows.

Conspiracy Theory:a theory that explains an event as being the result of a plot by a covert group or organization; a belief that a particular unexplained event was caused by such a group.

Conspiracies exist. Having an aversion to conspiracies does not change that. Some who conspire for nefarious purpose are indeed criminals. Every event is not the result of a conspiracy, but some are and some of these events are crimes that result in death and destruction of others. Facing this is not wrong - it is necessary. Refusing to face this can lead to an inability to comprehend the massive changes occurring in our country today. Are Bush and Cheney guilty of plotting to get us into an illegal war? I think so. If that is not criminal, then what is?

What follows is from the writings of Paul Levy:
We are truly in a war. It is not the war we imagine we are in, which is the way our true adversaries want it. It is not a foreign war against a foreign enemy. It is a war on consciousness, a war on our own minds. The global war on terror that is being fought around the world is an embodied reflection in the material world of a deeper, more fundamental war that is going on in the realm of consciousness itself.

We have the most criminal regime in all of our history wreaking unspeakable horror on the entire planet, while simultaneously waging war on the consciousness of its own citizens - US. If we aren’t aware of this, we are unwittingly playing into, supporting and complicit in the evil that is being perpetrated in our name.

To that I say Amen.

Danby said...

John,
I also wanted to add one other charge the Fed has, that you alluded to in one of your other responses. Currencies naturally inflate and deflate as economic cycles come and go. One of the purposes of the Fed is to prevent price deflation at all costs. You in fact said "you'd risk triggering a deflationary spiral." as if deflation is some sort of horror to avoid.

The difficulty of a deflationary cycle (not spiral) is that it falls heavily on people, particularly business, especially corporations, that have too many loans. Imagine being in a business with (as is these days typical) 50-80% of your projected gross profits tied up in loan payments. What happens when you can't maintain your prices, and are forced by the market to reduce your revenue, and thereby your profits. Soon you find yourself unable to meet current obligations.

In a really free market, this would all hash itself out as the lenders took some losses to salvage what they can and the more heavily indebted companies go out of business. The investment community, particularly the stock market and the investment banks really hate that.

The positive side of a deflationary cycle is the effect it has for consumers, especially the poor. A general price reduction is as good as an income increase. It's also great for those who save their money, rather than borrowing other people's. Deflation constitutes a multiplier on the rate of return for them.

Properly understood, a deflationary cycle is no worse than an inflationary one. Extremes of both are bad, but moderate increases and reductions in the value of money are a natural part of the business cycle, and each actually serves the purpose of maintaining homeostasis in the markets. Our industrial finance system however, is dependent on debt and therefore inflation, so that's what we will get. Can't encourage savings on the part of the public. They should be out borrowing instead.

auntiegrav said...

"It’s unpleasantly easy to imagine Republican politicians hanged en masse for crimes against humanity, oil executives and their families dragged from their homes and torn to pieces by screaming mobs, and the like."
I think the thing that most people will fail to realize is that those doing the hangin' in the future will be the ones who claim to be humanists and liberals right now.
Also, the hangin' and fightin' is inevitable, either directly, or through the detached use of the military to 'protect American interests'.
If nothing else, passing the FairTax and putting all the cost of the killing on consumption would at least be logical, if not providence.

John Michael Greer said...

MC, well, then, we'll just have to disagree. Your claim that the current US administration is "the most criminal regime in all of our history" is frankly absurd -- the Bush administration has its share of crimes, like every other US (and other) administration, but those don't even come close to the scale of Stalin's 30+ million victims, say, or the annihilation of 1/3 of the population of Cambodia under Pol Pot. The kind of rhetoric you've used here, to be blunt, is exactly what I wrote this article to critique -- partisan hate speech without the least concern for fairness or fact.

Danby, the interesting thing there is that in the second half of the 19th century, deflation was the norm and the working class hated it -- look at the populist literature of the time, which argued in favor of moderate steady inflation via bimetallic coinage. When prices go down, so generally do wages, and easy credit has generally been of use to the working class as well as the more affluent.

Auntiegrav, well, we'll see. I'm enough of an optimist to hope that communities -- at least a few of them, here and there -- can pull themselves together and do without the dubious pleasures of partisan hatred and mutual persecution.

Asturchale y Chulo said...

I think it is simple to tell real conspiracies from delusions. The "911 an inside job" bunch, for example, have not been able even to produce a thorough theory which explains all the supposed "holes" in the official version of the events.

However, the asumption that the current crisis was engineered on purpose is not ludicrous at all. It requires neither secrecy nor a twisted plot.
The growing gap between the very rich and all the rest or, as some put it, the end of middle classes, has been unfolding for decades now, right under our noses. The elites have not bothered to conceal it: on the contrary, they relished on their victory. Barbara Ehrenreich has a worth to read piece on the subject:
http://ehrenreich.blogs.com/barbaras_blog/2007/06/banish_the_bloa.html

Being it so, the current crisis is just but one more nail in the coffin.
Now, it was the Federal Reserve who lowered the rates of interest to an all time record and then increased the money supply. They surely knew these were the ingredients of a massive credit bubble. My source this time is an almost prophetic article, written more than one year ago
http://www.counterpunch.org/whitney08302006.html
It is true that greed works just the same in the very rich and the working classes, but the responsability of current events can`t be equally divided between those who make the policies and those who strive to survive and dream about owning their homestead.

Civilizations never collapse due to one only reason - there are always several concurring factors. I think environment depletion, Oil crisis and a financial crash will simultaneously topple industrial civilization. Just as Communism did years ago, Capitalism has already reached its limits. Too much outsourcing, too low salaries, too much credit. It can`t stand any longer.

Asturchale y Chulo said...

Ah! Just one more thing. God forgives me, but the idea of Dick Cheney hanging a tree, or any of those Oil tycoons for that matter, is not exactly number 1 in my list of worst nightmares.

Bill Pulliam said...

Actually, in general the ones doing the hangin' are the ones who are in power -- either the facist state, or the recently victorious revolutionaries. I doubt that "liberals and humanists" are EVER going to be in power; if the US gov't falls it is not likely to fall to rampaging mobs of secular humanists. More likely it will just fracture gradually from within and various gangs of warlords will be hangin' each other.

As for conspiracies... Gov't corruption, self-serving corporations, fascistic policies -- these are not "plot[s] by a covert group or organization." It's just bad government. This is happening in plain sight of everyone in the general public who cares enough to look. We don't need a shadow government to explain all this; the visible gov't and economy are plenty f*cked up enough to account for everything.

BoysMom said...

There's a grid layout of politics, though somewhat simplistic, at http://www.theadvocates.org/quiz.html
I think it makes a bit more sense, but leaves out many issues. I'm pretty much North on it.

Weaseldog said...

I think MC meant that this regime is the worst in US history, not world history. And there is still a year left for Bush to work hi way up. He's killed over one million people now for greed and that alone puts him on a special list.

JMG, you keep insisting that we lump economists that are always wrong about everything in with billionaire board members to prove that everyone is wrong all of the time. That is poor logic. And it shows that you're ignoring some of most important points.

I don't give a hoot what talking head economists have to say. They are paid shills.

I'll say it again. Look at the people raking in the giant salaries. Are they wrong all of the time about everything? This seems to be the root of your argument.

The very people who hire attorneys to write and lobby for bills, set the rules for the fed and run our biggest banks are right all of the time. they prove it by being billionaires and making money no matter how the market moves.

The idea that the Fed doesn't hold private meetings, plan ahead, move markets or do things on purpose, is absurd. That is their job. And that isn't 'a conspiracy theory' as you might label it. It is a conspiracy because their deliberations are secret. But this is what everyone expects them to do.

The idea that these people do not not work for their own self interest is absurd. They don't make billions by laying around in an opium induced coma. They plan, they decide policies. They introduce bills to congress to favor their positions and lock others out of their markets. They plan, the scheme to increase their power and reduce everyone else's. What do you expect them to be doing?

As to the new bubble, sure lots of economists that get everything wrong got that wrong too. Of course they did. They are even paid to do be wrong all the time.

But what about the ones who seem to be right all of the time? Are they wrong too?

The logic that some people are wrong, proving that no one ever gets anything right, isn't a good basis for determine whether something is true or false. The Y2K hype was wrong, and people use that to say this proves that bad things can't happen. Yet they do anyway. Just because Y2K didn't live up to the hype that some were spinning, doesn't mean that car crashes don't kill people or that we have an infinite supply of oil in the Earth.

Energy drives everything we do, every breath we take. It powers all of our industry, from the food that powers our bodies to the energy in coal used to smelt iron ore. It moves electrons around in financial networks, it gets houses built.

Our entire civilization is bounded by the quantity of energy available to us. And the productivity we gain from energy follows well understood laws that we worked out in the 19th century. We can tweak specific uses, but the total energy we use, sets the parameters by which our civilization functions. The BTUs we consume, has direct relationship to our productivity.

Though economics pretends to work in a netherworld outside the bounds of space and time, it is actually bound by the same physical limits, that bind our physical existence.

This means that the limits of economics is exactly the same as the limits of energy. World energy production, sets the upper bound to what money can do.

Today, World energy production is declining. This means that the actual production capability of the entire planet is declining. As it declines, population and the aggregate money supply, continues to increase.

So the rapid increase in money supply as productivity declines, leads to severe distortions. The idea behind fiat finance, is that money is loaned with the expectation that increasing productivity will lead to repayment with interest. But in a world of declining productivity, this is impossible.

In a world of declining productivity, most loans cannot be honored. The failure of those loans, puts real property right into the hands of the banking class. This increase their physical wealth and causes job losses, while the increased money supply from unpaid loans, increases inflation.

Consider that only loans that are repaid, remove money from the system. Unpaid loans leave their money circulating forever. When most loans can't be repaid, then permanent money is added to the system faster and real inflation increases it's pace.

The deflationary spiral you fear, will happen. If we had tolerated it when its effects would've been smaller we would've been done with it by now. But the financial bloat and the riches pouring into the pockets of the wealthy would not have happened. The longer we put off this spiral, the worse things will be.

When money loses its value, the real wealth will be in physical things like real estate. And who owns the real estate when loans can't be repaid?

Consider the case of Bank of America. They arose as a powerhouse out of the Great Depression, because they kept the titles to the foreclosures they executed. When the depression was over, they owned a lot of real estate. They were able to use this physical wealth, garnered from loaning money out of thin air, into the ability to create more fiat money based on their assets.

Those that had pure financial investments, lost their shirts.

In other news...
Citigroup (A Saudi Corporation) is purchasing TXU.

Weaseldog said...

George Carlin on this...

http://tinyurl.com/33qwth

Jon said...

JMG,
I like your blog and your writings but you are wrong, 100%, about conspiracy theories (CT). What I'm going to present can be explained away as self-fulfilling CT rhetoric but I want to present it anyway...

How do you explain the formation of the Fed in 1913, created by Rothschild frontmen? Are you familiar with Wilson's quote admitting he had been duped:

http://www.wakeupfromyourslumber.com/node/3384
Here's a concise, smug, biography of the man:
http://www.lewrockwell.com/bonner/bonner87.html

A George W. Bush for his times, complete with his own version of Cheney, Col. House. However Wilson was actually intelligent, unlike Geo. W. Bush. For anyone interested in the story of the Fed's creation, read "The Creature from Jekyll Island."

In our parent's time we were warned by Eisenhower of the "military-industrial" complex. They watched JFK being shot "by a lone gunman" and his brother, RFK too. How many really believe the Warren Commission's findings? Did RFK even get a commission? I won't mention MLK.

Do you agree with the 9/11 commissions findings? Do you find it plausible that Arab terrorists armed with box cutters and rudimentary piloting skills pulled off what they pulled off that day? Google "Operation Northwoods." Catherine Fitts details not 9/11, but the environment that made 9/11 possible here:

http://www.dunwalke.com/

Her main page is:

http://www.solari.com/

Yes, you can use greed and failure of our moral compasses as explanation for much of what has happened in the 20th century and the first decade of the 21st; that a republic fueled by cheap energy, unprecedented military power, and luck has segued into an empire with all the negative connotations that word brings and you can explain it away as happenstance. As much as want to, I can't, not after 9/11. A country that facilitates the killing of its own citizens for whatever reason makes me very afraid for the future of this country.

Weaseldog, do you have a blog?

John Michael Greer said...

Yes, I thought the topic of this week's post would hit a nerve! I'd like to thank everyone for keeping the discussion on an even keel. I know feelings run strong on this subject, especially among those who believe in the sort of conspiracy thinking I'm trying to challenge here, and I appreciate the effort being made to stay reasoned and lucid.

Asturchale, widening gaps between rich and poor are common during periods of economic expansion. The last time the top 5% owned as much as they do today of America's wealth, for example, was in the 1920s just before the last big crash. During the depression, the disparity between rich and poor went down -- investment income suffers much more than wage income from economic crisis, especially when much of it is the sort of hallucinatory wealth I discussed in a previous post (as it was in the 1920s and, of course, is today). This is another reason why I find claims that the business cycle is driven by some conspiracy of the rich implausible.

Bill, if you include bad business alongside bad government I think you've basically summed it up. I've always found it amusing that Adam Smith, who today's capitalists have taken as their patron saint, argued that corporations are the worst possible way to run a business: the separation of profit from responsibility, in his view, was a guarantee of trouble.

Boysmom, thanks for the link!

Weaseldog, this is why you ought to read some economic history. It's easy for the rich to look like financial geniuses when the economy is expanding; as Galbraith pointed out in The Great Crash 1929, among the biggest casualties of the crash were the reputations of a lot of major financiers who proved to be just as fallible as everyone else. He wasn't talking about your "talking head economists," by the way, and neither am I.

Of course the Fed and a lot of other people try to manage the market; so? That doesn't prove that they have the malign intentions you insist they have, nor does it prove that their plans always succeed -- far from it. A hypercomplex system such as a global economy always suffers from the law of unintended consequences, and the claim that a cabal of financiers runs it for their personal benefit is to my mind impossible to square with the facts. But again, we're talking past one another at this point; I don't expect you to agree with me or, to be frank, to hear what I'm actually saying.

Jon, you're certainly entitled to your opinion, but I've read the conspiracy literature you cite and I find it completely unconvincing. The fantasy that behind every unwelcome historical change, there must be a pack of comic book villains, is very comforting -- it makes it easy, after all, to duck our own complicity in events -- but as a meaningful explanation, it doesn't hold water.

Bill Pulliam said...

JMG -- Well given how intimately interwoven the business community and the government are, I'd say they go hand in hand, and some other combinations of body parts, one in the other, that I'll not mention here (any rude images that flashed into your head came from YOUR mind, not mine!)

awlknottedup said...

The comments are coming hot and heavy on this one. Could it be that we may be witnessing a financial fall out on a scale that few living today can remember? As Roubini says this is the first real crisis in the new world of financial globalization and securitization. Today (9/7) the dollar is plunging against the Euro, the US stock market is falling, and gold is heading for well over $700, the Federal reserve has injected over $200B and the ECB has injected well over $500B into the economy. The first signs of employment problems are showing while consumers are unable to borrow against houses and thus are unable to spend. In my morning bycycle ride I am seeing more dried up front lawns, indicating a house in foreclosure and even one with plywood on the doors. This is a relatively upper middle class neighborhoods. I wish I knew where it was headed.

One of the reasons I posted some economic reading suggestions is that I was hoping I would get some in return. I am trying to understand what is happening and where it may lead so any information is appreciated.

Jon said...

JMG,
I'm not going to doubt you've read my links (you really doubt Fitts' veracity?). I'm not someone sitting in a bunker hoping for the end of the world. I don't want the music to stop and I like the hand I've been dealt. But unlike the Jews in post-Weimar Germany who tried to deny Hitler away, I'm not going to put my head in the sand and not believe Hitler wants my head on a stake when my gut tells me the opposite.

Heck, I've an open enough mind to pick up the Galbraith book you cite to read this weekend. But I can't believe you think 9/11 was about terrorists being lucky. Put in writing that you believe the 9/11 commission's findings.

I dare you.

David said...

Anyone here interested in scapegoating and greed and where they come from might be interested to check out Ernest Becker's "Escape from Evil". I'm reading it now, and it's eye-opening stuff. Very good and plausible radical critique of the underpinnings of social life among the humans.

The North Coast said...

Absolutely a "must read" article-one of the finest pieces of writing I have ever read, and I have read thousands of "classics" by well-regarded authors.

Your blog is beautiful and classic.

John Michael Greer said...

Bill, since this is a G-rated blog I'll save the images that come to mind for private viewing only!

Awlknottedup, no argument there -- it's anybody's guess what will come of the current mess, but the chance of a really major crash and a Great Recession isn't small. I don't have a long list of recommended reading: Kindleberger's Manias, Panics and Crashes for perspective, and contemporary accounts of any of the big bubbles of the past are invaluable to catch the psychology of boom and bust. I track a range of economic figures and social indicators -- part of the daily grind for an archdruid in the business of trying to anticipate the future -- and find that checking these against the yardstick of historical equivalents seems to yield the most data.

Jon, I'm sure Fitts believes what she's saying. I just think she's wrong. As for 9/11, I learned a long time ago that while the words "I don't know" seem to be the least popular words in the English language, they're also among the most necessary. I would also point out that the question "Who caused 9/11?" is only related to the question "Is the current real estate crash being deliberately engineered?" if you've already bought into the sort of all-purpose conspiracy fantasy I tried to dissect a while back in my post The View from the Grassy Knoll.

David, thanks for the reference; I'll give it a look.

North Coast, thank you for the vote of confidence!

John Michael Greer said...

Further on the current financial crisis -- the latest thing to run into trouble are SIVs -- that's structured investment vehicles for those who don't speak Wall Street, "innovative financial architecture" designed to allow banks to borrow money on the commercial paper market and pipe it into investments without having to put the resulting liabilities on their balance sheets. A lot of those are in trouble now, because they took out short term loans and made long term investments, assuming they could just keep rolling them over. Nobody thought the commercial paper market would freeze up the way it has -- because nobody paid attention to economic history. Borrowing short and lending long is a classic recipe for disaster in difficult financial times, and it traps financiers every time the market gets in trouble. Here are some good online articles from the financial news:
Donw the Drain
How Financiers have Missed the Latest Monster

eboy said...

J.M.G.
When you mentioned Galbraith I thought that you would quote his "if you let the horses guzzle enough oats then eventually some will get through to the sparrows" and you were going to draw a parallel between trickle down and how do you tell if you are a scapegoat?

The adage about being at a poker game and not knowing who the dupe is means that it is you. :-)

Those scapegoated are by definition unable to fend off the box that they are put into.

I would suspect that a form of 'crystal nacht' could be anticipated.
So the key is to listen to who is being demonized? (tune to c.n.n. or whatever 'bat channel' you can pull in)
Listening to the latest 'b*n L@den' release this effectively puts anyone who has a problem with the current administration as being a potential candidate for the short list. :(

I don't personally believe that 9/11 was an organized conspiracy (yes organized by B L@den).
(though I did see a web site titled 'hunt the boeing' that gave pause about the 'plane' that hit the pentagon)
Here is a conspiracy for you.
I think B. L*den has been dead for quite a while. (I don't buy that this guy would trim his beard and use hair dye to get rid of the grey)I believe that these tapes are c.i.a. and are being used to help keep americans scared in order to advance foreign policy (Haliburton's) agenda.
Any takers?)

As to the future economy stuff. My bet is that the game will play out as long as the illusion can be maintained. The real environmental costs. Say crop loss due to climate change will impose some real costs into the equation. So the phoney economy will meet up with real constraints in the real economy.

I think that those that refuse to buy into the next lie which would be offered as a remedy to keep the game going would certainly be candidates.
Awkenotedup w/r/t your observations about greed. JMG had a post in the past about the monkey traps. Or if you've seen the poster of the chimp with his hand holding an apple in a vase which he can't extract as his hand is too big certainly provides an apt metaphor
to the greed problem.

Thinking about how our desires for Gold led to paper i.o.u.'s it would seem that if people lose confidence that the art work isn't worth it. That it would be very hard to go back. (Sorry I'm not a gold bug)

Thanks all for the education. JMG can you kindly scale back the caliber of your posts. I've got too many things to do and I find this most engaging. :-)

Stephen Heyer said...

weaseldog: "The Y2K hype was wrong"

No, what happened was that a great many programmers, including myself, put in a huge amount of time and effort fixing a great deal of old code.

Unfortunately, when a number of hyped disasters (nuclear war, environmental disaster in the 1970s, Y2K) don’t happen the public becomes complacent. They then refuse to take any precautions against new looming threats no matter how plausible.

Stephen Heyer said...

john michael greer: "The fantasy that behind every unwelcome historical change, there must be a pack of comic book villains, is very comforting -- it makes it easy, after all, to duck our own complicity in events -- but as a meaningful explanation, it doesn't hold water."

But sometimes, not very often but sometimes, there really are a pack of comic book villains. Or more often, a much less structured, rather informal group of "movers and shakers" meeting at their golf club or whatever and sharing some common interests.

Been there, done that, bought the T-shirt.

Actually, put two humans in a room alone for more than ten minutes and you have a conspiracy of some sort, just about guaranteed.

What protects us most of the time is the most powerful force in the world - human stupidity and incompetence (Dogbert).

Weaseldog said...

JMG, I am reading what you write. :)

The people that set policies that led to the 1929 crash are dead.

Since then, the Fed has been able to learn from the mistakes made then. But even though they intentionally set policies, this does not make them infallible.

The downturn in 1987 led to changes in policy to make better use of computers in managing the cycles. After all, it was computers that crashed the market at that time. Automated trading and market triggers produced a cascade event that humans couldn't quickly react to.

We aren't exactly talking past each other either. There is little point in arguing over our agreements, right?

I think the part of your argument that I don't understand is why the Fed wouldn't set policies that favor them and the central banks? Why would they do things that are against their self interest? Isn't it logical that as a business, that they would make decisions that work in their interests?

I agree with you that business cycles are natural. But I don't see how this proves that they cannot be artificial.

I think your argument is essentially coming from a scientific viewpoint. That correlation does not imply causation. As we can't sit in on board meetings, we can't prove this one way or another to a scientific standard.

If this were a legal case though, then we have means, motive and opportunity. I believe there is enough evidence to obtain a warrant.

This will not be satisfied one way or another. Neither of us can prove which case is correct, because the FED deliberations are secret. Satisfying the definition of a conspiracy. :)

Jon, my blog is at:
http://weaseldog.blogspot.com/

Weaseldog said...

On the topic of Osama Bin Laden, I don't believe that there is any compelling evidence that he lived to see the year 2000.

Here is an interesting treatment on make up and costuming.
http://thewishingwellmovie.com/

John Michael Greer said...

eBoy, an excellent Galbraith quote. As for scapegoating, though, remember that it's a sport that anybody can play. For some people, the scapegoat du jour is Bush's opponents; for others, it's Bush; and both these viewpoints (and many more) have people in the political class backing them.

Stephen, there's a difference between comic book villains and a political class trying to protect its own interests. Of course we have the latter. Their interests, however, are best protected by maintaining the status quo; as I've pointed out above, an economic crash in which the value of investments drops through the floor is not in the interest of those who depend on investment income -- and the social and political chaos that a serious depression always causes is not in the interest of those who can only lose from that sort of crisis. Did the Tsar benefit from the 1917 revolution, for heaven's sake?

Weaseldog, the same argument applies. Of course the Fed is going to set policies that they think will favor their interests. Their central interest, though, is the long-term survival of the system on which their authority and wealth depend. Any Fed director could make much more money by going into the private sector; they, like their equivalents in other central banks, are paid primarily in power and influence, and their job is to maintain the economic status quo -- insofar as they're able.

That latter is the crucial point, of course. One of the things the history of economics teaches is that the same mistakes happen over and over again as economies cycle up and down. There's a good article on this on Prudent Bear today: The Galbraith Moment. Well worth reading.

mc said...

JMG,

You state:
Finally, it may be worth thinking about where today’s search for scapegoats could lead. Imagine for a moment that the rhetoric we’re discussing succeeds in pinning the blame for peak oil on the Bush administration and American business leaders. It’s unpleasantly easy to imagine Republican politicians hanged en masse for crimes against humanity, oil executives and their families dragged from their homes and torn to pieces by screaming mobs, and the like.

You may equate critical analysis of systems and individuals with scapegoating ending in vigilantism, but it can just as likely result in necessary change.

Criticism is not necessarily scapegoating. What is scapegoating?

the act or practice of assigning blame or failure to another, as to deflect attention or responsibility away from oneself.

Criticism is just that - criticism. And if we are ever going to move forward and beyond our current nightmare, we must understand how our country has gotten so lost in the wilderness. For an insightful link regarding the current financial meltdown, I recommend
http://onlinejournal.com/artman/publish/article_2396.shtml

And yes, Mr. Whitney does place the blame for our financial meltdown at the feet of the Fed Reserve and Mr. Greenspan.

Why is it important to understand and condemn the tactics of the Bush Administration? To avoid further war and stop the shredding of our Constitution. That is why - it is not partisan hate talk - I take no side with either of the big politicos -It is from what has happened to this country and the middle east since Bush came into office - "Who you gonna believe - me or your lying eyes?"

And if you could pull back from your own bugaboo about scapegoating and conspiracy theories, you might actually hear what others are saying who don't follow your own rather rigid line of thinking.

I do like your fiction.

Stephen Heyer said...

john michael greer: “Stephen, there's a difference between comic book villains and a political class trying to protect its own interests. Of course we have the latter. Their interests, however, are best protected by maintaining the status quo; as I've pointed out above, an economic crash in which the value of investments drops through the floor is not in the interest of those who depend on investment income -- and the social and political chaos that a serious depression always causes is not in the interest of those who can only lose from that sort of crisis. Did the Tsar benefit from the 1917 revolution, for heaven's sake?”

Hi John. I never for a moment suggested that any of the political/financial/business classes would deliberately engineer a serious crash, neither for that matter would even the “comic book villains”, after all, Hitler did not intent to lose WWII. You are perhaps confusing me with Weaseldog here.

What a lot of much more knowledgeable people than myself have suggested is that in following their own short-term self-interests, especially in inflating serial bubbles to avoid necessary business cycle adjustments and the resulting purging of bad investments, businesses, managers and ideas, the people running things can set up a situation where a really bad crash happens. They certainly never intend that consequence.

In different circumstances they can also do the same thing socially, environmentally, in war and about every other way. For lots of examples of worst case scenarios of this read the excellent “Collapse” by Jared Diamond, if you haven’t already.

By the way, great blog, or rather, great articles.

My lady actually found your blog and recommended it to me. Now it is required reading.

Thanks John.

John Michael Greer said...

MC, we will move forward from what you've called the current nightmare only when we stop trying to blame our government for the consequences of our own dysfunctional lifestyles. Lacking that, you can overthrow as many governments as you like and you'll just get the same thing over again. It's not, by the way, that I'm not hearing what you're saying; I've heard it and disagree with it. Enough said.

Stephen, thanks for the clarification. We're pretty much on the same page, then. I've read Diamond, of course -- his book has some problems (mostly via overgeneralizing from a handful of ecologically marginal societies) but it makes some valid points, especially about the need to take the stability of the ecosystem into account in economic and social questions.

Weaseldog said...

Oh, did I argue at some point that the Fed is engineering a crash? I didn't intend that meaning if I did.

It has been my intent to argue that they promote bubbles. Of course, bubbles produce a crash for that market, but this an unfortunate consequence, so long as they can engineer another bubble soon after one deflates, they stay in the money. A crash that doesn't lead to another bubble, will destroy them.

Now there is one critical piece of information that I don't have, that leaves me unable to prove to myself that I am correct. That is whether the Fed privately understands Peak Oil. The Federal Government is certainly aware of it and concerned with it.

If the Fed is aware of it and its consequences, then they know they will be destroyed by it. They know it will destroy the economy anyway. If true, then they don't have long term interests in the US.

And this seems to be the basis of your argument as I understand it, John. That long term interests are what matters. But if long term interests are doomed, what then? Clearly you can't rationally make long term plans for something that you expect to come to an end soon.

For instance if you have a lot of money in the market, and you know for a fact when a crash is coming, you would move your money somewhere else, right?

So the open ended question is, what does the Fed think they know about Peak Oil? Do their actions make sense in light of what we think we know?

Dwig said...

John: I track a range of economic figures and social indicators -- part of the daily grind for an archdruid in the business of trying to anticipate the future...

Now there's a subject for a post that I'd like to see. In my own haphazard fashion and minimal free time, I'm trying to do something similar, for the same purpose. You're probably way ahead of me.

On Diamond: one of my favorite lessons from his stories is the tremendous power of denial and rigid thinking, even in the face of unfolding crises; the Easter Islanders and Greenland colonists are prime examples. (An apposite quote here from Eric Hoffer: "In times of change learners inherit the earth; while the learned find themselves beautifully equipped to deal with a world that no longer exists.")

John Michael Greer said...

Weaseldog, I'm less interested in whether the Fed knows about peak oil than what they think its implications are. The current US administration clearly knows about it, but their response to it only makes sense as a short term strategy meant to bridge the gap until something else comes along. Do they, like so many peakistas, believe that innovation will take care of the problem if they can only buy enough time? Or was the plan to seize control of enough oil to manage a controlled descent while the rest of the world crashes and burns? I suppose it's an academic question at this point -- the neoconservative project has failed utterly, which is why we're seeing so many rats abandoning the sinking ship -- but it would be interesting to know.

Dwig, my strategy is fairly simple, really. The key is to start with a solid background in history, so you know what you're looking for -- the repeating patterns that shape so many human phenomena. Once you've got that, your choice of overseas news sites (US news media are beneath contempt) and skeptical financial news sites that aren't wedded to any one set of economic theories (I'm partial to Prudent Bear, but there are others) will get you data. Oh, and you'll want at least one crackpot site that covers the widest possible range of rejected-knowledge theories to keep you abreast of shifts in the collective imagination; the Jeff Rense site is a good example, but again, there are others. It's the constant crosscheck between history and current news that provides the binocular vision I'm trying to achieve.