Energy Efficiency

The more we know, the more we realize how little we know.

As I am often wont to say, there are three organisations that run society; religion, corporations and government (which includes monarchy) and each has repeatedly been proven to lie, steal and cheat and operated like any ‘good business’, with the books (for tax purposes) and then there are the cooked books, which invite people to buy into what is being sold.

Long before I considered it, there were people who wanted to rule the world and when I became aware of it, I figured it couldn’t happen because in such a like minded group, you would always have those who feel they are more deserving, better suited or clinical enough to dispose of all in their path.

Problem is, who has your back when the chips are down and they know your weaknesses ? And more importantly, will those who see the ultimate slip from their grasp decided – suicide bomber like – to take everyone else with them in a all or nothing nuclear war ?

This article is not based on factual history but more on the history of human nature.  
In our times – the last 100 odd years – the Germans and Japanese tried their hand at world domination, then the Russians and Americans had a crack at it (the Americans will die trying; if not physically, definitely financially) and the Chinese probably think its their time.  Separately, in the Arab states, there is jocking for superiority; India and Pakistan are at each other’s throats, Latin America is sort of in agreement but more with the USA as the main protagonist (yet there are underlying grudges there as well) then you have Europe but more as a financial amalgamation; there is the fragmented previous USSR with more financial, environmental and identity crisis than you can poke a stick at, rife with corruption and over-populated to such a degree that life is of little value.

There are no real threats in the Australasian region purely because each country has over-extended itself by several generations; fortunately Australia is far enough away (fuel and supply support wise) to keep on the ‘country’s to do list’.

If we consider the USA as a quieter young man suddenly having responsability thrust on him, then you can perhaps understand the excesses of the country, the strong doing the grunt work and the less strong controlling the paperwork; eventually the manipulation started.  The Great Depression gave the USA a strong lesson in many areas, the need to watch the excesses of the wealthy and how corporate government was used to create a war machine to support any American company that chose to take over another country’s resources and make them their own.

Wall Street was chosen as the financial heartbeat and responsible for making the United States the wealthiest country in the world, yet, today the the USA is in debt in the trillions of dollars. How did having access to so many countries resources and having such a quality life-style result in the majority of US States becoming bankrupt … why are so many Americans losing their homes … why – in the ‘richest nation on Earth ? As in America, Australians likewise find the lower class have to work multiple jobs to feed their families and in middle class families, both parents have to work, when one parent could easily support the family fifty years ago ?

In sales, you learn that asking questions is a more dramatic way of alerting people to what they ‘lack’; so we see advertising companies used to market a corporate government philosophy and media (television stations and newspapers) collude to maintain advertising $’s rather then report real story’s; we in Australia – as in America and the USSR – need a change, a new order because the old guard have reamed us out until there is no more; just as in Latin American countries, the re-distribution of wealth has to take place; the excesses of the so called world order have had their day; what they consider a necessity, most of us consider a luxury.

If the United States is no longer the richest country in the world, shouldn’t we be choosing our own path instead of following their lead ? Australia is pretty much solvent; however, political manipulation and incuring debt with us drowning in debt like the USA is not the answer.

How America ended up down the shute is due to the very core of their banking system, headed by the Federal Reserve and cartel member Wall Street banks like JP Morgan Chase and is based on nothing but debt. The tool that America, the IMF and World Bank have long used on others has finally got them, as the saying goes ‘there are two ways to conquer and enslave a country; one is by the sword and the other by debt’.

The complex façade of high finance and current state of the US economy is that Wall Street puts people, businesses and governments in debt; no longer content to suck the lifeblood of the taxpayer, financial instutions suck the interest payer, the taxpayer and the government. The more indebted Americans and Australians are, the more short-term bonus money the banks (under whatever name they use) make. When Wall Street and the babks should otherwise have gone bankrupt from excessive debt-based profiteering, corporate government props them back up because it too is also controlled by debt.

The monopolizing by financial instutions / banks cartel only exists because of the government. Corporate government came about when senior public servants and politicians sold their services off more for personal gain, they implemented policies that helped create the cartels. The rise of the fortune of financial institutions / banks go hand in hand with the decline of America and Australia may well soon follow. Bank cartels – with government protection – adds no productive value to the economy, it merely sucks value from everything else; like a bush tick, it eventually sucks the life-blood out the host and kills it.

I read somewhere that real value comes from community relationships, effective local governments and businesses, farming, manufacturing, construction, etc; whereas the financial institutions / banks are massive mining operations that lord over people and institutions doing those activities. It is just a different version of the feudal kings of old who staked controlling claims around the world to mine people and resources.

In America, once the Federal Reserve Act created the Wall Street cartel with a permanent controlling stake over the entire system, the American republic was doomed, guaranteed to be converted into a voracious corporate empire in a matter of a couple generations.  Due to its compounding nature, having interest attached to all the money in the system creates the need for exponential growth. It must continuously expand. This is why we have seen so many developing countries conquered by debt in the last several decades.

A steady state is not possible. Neoclassical economics inexcusably ignores this by implying that our system is driven by production and money is simply a medium of exchange that facilitates it. On the contrary, the very nature of the debt-based money pumped out by Wall Street and the banking system requires growth. We see such growth in ever-expanding shopping malls, ever-decreasing quality of franchise food, ever-increasing number of manufacturers moving offshore to find lower cost labor, and many other ways. These are bad enough, but if growth is not driven by production that can maintain more stable levels of debt, how else can the system grow?

An illusion of growth can be created by simply issuing more debt or changing the value of something.  In the USA, there was a downturn of fuel consumption yet the industry showed a profit; not a real profit, but a papre profit. What they did was increase reserve holdings and slow delivery of refined oil which they then said was worth (say) USA $3 a gallon when it was actuall selling for USA $2.50 a gallon. People need to borrow more money to live and this credit inflation is for the most part, the type of growth in the Australian and US economy. Ever since 1971 when the dollar was changed to allow for infinite credit inflation, the banking system acted like a casino; credit inflation is like passing out extra free chips to everyone, which makes people think they are more wealthy. How banks in Australia and the USA did this was by over-valuing property.

Now those running the casino knew which chips were real and which ones were fake and as the real chips came across their counter, they took the real chips and sent more fake ones out. Argentina was a classic example; the IMF and World Bank colluded with the government and allowed the Peso to be pegged at the same value as the US$; when Argentineans banked US$’s that was OK but when they wanted a withdrawal, the banks would only pay in Peso’s; the switcharoo ripped billions out of the country.

Wall Street epitomises that corporate greed; the wealthy are so wealthy they control government including police forces; they extract their rigged profit from an expanded game with far more chips, but the reckoning with the truth eventually comes when everyone else tries to cash out their chips. The money will not be there. This is what the world is facing as we approach a massive deleveraging decline in the economy.

Credit inflation spirals total debt out of control because more and more must be borrowed in order to payback all the interest in the system. It is not hard to understand the problem with such a pyramid system, it must crash. Is should have crashed in the 80′s, but the financial system worked overtime to prevent it.

The USA Government changed laws in the 90′s to prevent it again by allowing Wall Street to engage in chicanery that created a near infinite amount of credit inflation; the fraudulent derivatives market.

We are now entering an era in which our choices are being limited by several immovable realities, resources available, like the easiest oil, coal and gas has already been dug up, exported and now is part of global warming and our individual ability to borrow or allocate more money to maintain a growth that was only possible by our previous ability to access said weatlh. Our economic future is more a product of the political choices and increasingly difficult; we have no good choices, we have to tighten the belt, but our whole financial structre cannot allow it; the system really only leaves a choice of bad options.

We know more about what is happening around the world and can see other countries going down the gurgler; we may feel isolated here, but just as the bird-flu affected ‘them’, so too did in affect us here; but really the human immune system is a lot better than a financial system; what is happening elsewhere will happen here.

Are you wondering how America will make Afghanistan a safe democracy (like Iraq) when its own system is in turmoil and overseas investment (thats loans the Americans are applying for and many fund managers are selling their clients out to line their own pockets in perhaps the last big payoff).

What is the EU doing / going to do Greece falling over; they have 3 choices, bail out Greece, let Greece sink (into an economic depression) or just pretend to bail out Greece. The problem is there is not enough productive activity in Europe to really support all the members of the European Union in the style they’re accustomed to, (just like in the USA and the UK)

A reformed Europe has likewise painted itself into a corner, the monetary union seemed like a great idea as long as the members appeared to play straight in the revolving credit racket; Europe had never been so peaceful and happy for so long, yet the global financial crisis has opened a yawning black hole in the operating system and into it has been sucked all the elaborately constructed abstract markers of wealth — in the form of credit-gone-bad — and now the sad truth is that there really isn’t enough wealth to go around.

Places like Greece, Portugal, Spain, and Ireland will have to return to their previous condition as economic backwaters; either that or Germans and Frenchmen have to work an extra seventeen hours a week to prop these places up, and somehow that seems unlikely to happen.  Europe has plenty of other things to worry about in the bigger picture; where are they supposing to get the oil and natural gas they need to keep things running; ?

The UK once had quite bit but wasted it on building freeways and suburbs;
Norway – with around one-twelfth the UK’s population – still has a bit of oil and gas, but not enough to keep the rest of the gang in Europe humming. Romania has bugger all left and for the moment, Europe, gets its fossil fuels from Russia.

Europe can only depend on Russia’s energy bitch for so long before it too runs out; can they compete with China, Japan, India and the USA for whatever comes out of the Middle East, Africa, and Venezuela ? Meanwhile, all the exporters see their own exports dwindling as their populations grow and grow and they pour more bunker oil into the new electric power stations, and evermore new cars leave the showrooms in Riyadh, and Hugo Chavez keeps pumping 35-cent gasoline for el gente.

So what happens if Greece leaves / is kicked out, is it too late; the UK has financial troubles; its farming is on the ropes and the population is growing; will it return to the 19th century ? The UK is out of oil, out of banking credit (which is all it had the last forty years) and out of time and all it’s bad paper (for now hidden in their bank vaults) is enough to blow the black hole even wider.

What happens to the peacefulness of contemporary Europe and the UK now that the narcotic of universal prosperity is wearing off; will the populace be too shellshocked for a while to do anything; or will old and new animosities bubble to the surface and see riots on the streets ? As one writer said ‘effete cafe layabouts will be transformed into warrior societies, whose sheer power of testosterone in idle, unemployed young men will clear the streets’.

England is desperatley looking for oil in the Falklands and Europe may well join the global contest for the world’s remaining oil resources. Germany and France will not have the luxury to drink espresso and watch Iran become a mad dog nuclear power, with missiles capable of striking Frankfort and Lyon. The USA will struggle with very similar problems of capital and economy and fall into bankruptcy; one can imagine the political mischief there and in Europe.

The financial arrangements are so intermingled that the collapse of a major bank or of a country over there is going to blow more holes through all floundering institutions; thanks to the banks and financial instutions, we are all infected with the financial equivalent of AIDS, with no treatment excpet termination of the carriers.

If we look again at Greece and how it arrived there, we have to look at the creation of the EU and the Euro. Most of the Mediterranean countries that are now in trouble were allowed into the union with an exchange rate that overvalued their currencies relative to the northern countries, but especially to Germany.

That meant that Greek consumers could then buy products and services that previously may have been out of their reach; plus with government debt at low rates, the Greek government could borrow more to finance deficit spending to appear as though it had good management (similar to Anna Bligh and Kevin Rudd). But Greece began to increase its debt with abandon and as it turns out, Greece basically lied about its finances (who would have thought that of politicans) in order to gain admission to the union; it never complied with the fiscal discipline that was required for entrance.

With the high exchange rate, however, came the consequence of higher labor costs relative to, above all, Germany. Greek workers had the second highest level of actual hours worked, but even with that, Greece was running a trade deficit that is currently 12.7% of its GDP. At the onset of the current recession, their fiscal deficit went from bad to worse; their total debt is now €254 billion and they need to finance another €64 billion this year and €30 billion of it in the next few months.

Bottom line, without some help or a bailout, they simply will not be able to borrow that money. And since a lot of that money is for “rollover” debt, that means a potential for default if they cannot borrow it.  European leaders said  Greece will not be allowed to fail, hinting of a bailout. But there are a lot of “buts” and conditions, not the least of which is where will the money come from if all economies are suppressed ?

German Chancellor Merkel has indicated a willingness to help, but the German finance minister and other politicians are suggesting German cooperation will either not be forthcoming or only be there at a very high price; and the price is a severe round of “austerity measures,” otherwise known as budget cuts. Greece is being told that it must cut its budget to an 8.7% deficit this year and down to 3% within three years.

That would mean huge cuts in entitlements, Social Security, defense, education, wages, subsidies, and on and on. The Americans tried to freeze their budget and tried to grow out of it as they did in the ’90s, or gradually cutting the budget a few hundred billion a year while raising taxes; however, tax increases and budget cuts will guarantee a recession and with high unemployment climbing higher, it translates into Depression.

Some 30% of Greece’s economy is underground, meaning it is not taxed. In a country of 10 million people, only 6 (!!!!) people filed tax returns showing in excess of €1 million in income. Yet over 50% of GDP is government spending, and Greece has one of the highest public employee levels as a percentage of population in Europe. And its unions are very powerful. Nearly all of them have gone on strike over this proposal.

If Greece bites the bullet and makes the budget cuts, that means that nominal GDP will decline by (at least) 4-5% over the next 3 years and tax revenues will also decline, even with tax increases, meaning that it will take even further cuts, over and above the ones contemplated to get to that magic 3% fiscal deficit to GDP that is required by the Maastricht Treaty will bring on a depression.

The fear is one of contagion. Some argue that Greece is only 2.7% of European GDP. But Bear Stearns held less than 2% of US banking assets, and look what happened.  The largest holders of Greek debt are French, followed by the Swiss and then the Germans. The percentage of GDP for Germany is just over 1%; off more concern is France at nearly 3% and Belgium 2.5%.

For Germany, the debts of Ireland, Portugal and Spain are much bigger problems, nearly 15 times the size of the Greek issue. The recent credit crisis was over a few trillion in bad, mostly USA mortgage debts, with most of that at US banks. Greek debt is $350 billion, with about $270 billion of that spread among just three European countries and their banks.

It could bankrupt the bulk of the European banking system, which is why it is unlikely to be allowed to happen; just as the USA Fed (under Volker!) allowed US banks to mark up Latin American debt that had defaulted to its original loan value and only slowly did they write it down; it took many years; the same thing may well happen in Europe.

Debt is a constraint on growth.

Then there is Latvia, as areas were colonized as export markets and bank markets, they were stripped of their economic surpluses, skilled labor and working-age labor generally, their real estate and buildings, and whatever was inherited from the Soviet era.  Latvia has experienced one of the world’s worst economic crises. It is not only economic, but demographic. Its 25.5% plunge in GDP over just the past two years (almost 20% in this past year alone) is already the worst two-year drop on record.

Like the USA, the Latvian government is rapidly accumulating debt, from just 7.9% of GDP in 2007, Latvia’s debt is projected to be 74% of GDP in 2010 and supposedly stabilizing at 89% in 2014 in the best-case – IMF projected – scenario, making it fall outside the debt Maastricht debt limits for adopting the Euro. Trying to enter the EU has caused Latvia’s Central Bank to implement painful austerity measures to keep its currency peg and burned through currency reserves that otherwise could have been invested in its domestic economy.

What has caused this economic plight has been Western bankers and investors who financialized these economies with the usiness friendly reforms so roundly pushed by the World Bank, Washington and Brussels; the same ‘brains’ behind the world economic collapse.

What should strike fear into every nations heart is the IMF’s suggestion that it head a new world curency.

The pattern of a ruling kleptocracy at the top and an indebted work force, non – or weakly unionized, with few workplace protections is always applauded as a business-friendly model for the rest of the world to emulate. The result has been an economic experiment seemingly gone mad, a dystopia whose victims are now being blamed. Neoliberal trickle-down ideology – apparently being prepared for application to Europe and North America with an equally optimistic rhetoric – was so economically destructive that it is almost as if these nations were invaded militarily.

So it is indeed time to start worrying about whether the Baltics may be a dress rehearsal for what we are about to see in the United States. Debt peonage has replaced outright serfdom; mortgages far in excess of actual market values ripples around the world, with Australia high on the over-valued real estate wave, ready to meet the beach of reality.  Property values have plunged by 50-70% in the past year (depending on housing type) in Latvia as well as the USA; and the volume of foreign-currency debt is far beyond what all countries can earn by exporting the products of their labor, industry, agriculture and resources.

Back in the late 70′s -as an employee of Westpac’s AGC Finance – I noticed a progresive trend towards a centralization of decision making; some three decades have passed since this centralization was introduced and the results are disastrous; even a crime against humanity (as one person suggested) The much touted economic growth has not occurred, what protection of one’s own industries did was protect domestic industry, public infrastructure spending, progressive taxation and legal prohibitions against insider dealing and looting; the new order allowed for and encouraged the Gordon Gecko free-market ideology.

This philosophy of the U.S. banking regulation in the 1930’s and which West Europe and Japan followed from the 1950s through the 1970s to promote investment in manufacturing led to today. Instead of checking the financial sector’s ability to engage in speculative excess, the USA overturned these regulations in the 1980; from a bit below 5% of total U.S. profits in 1982, the financial sector’s after-tax profits rose to an unprecedented 41% in 2007.

In effect, this zero-sum activity was an overhead tax on the economy, the buying and selling of shares, futures, currency exchanges, bonds, debentures, promissory notes, gold in hard form or certificates, anything was bought and sold even before a sod of earth was turned. The USA’s ‘no product’ financial market grew to almost 4 times the size of the USA’s GDP of actual goods and services.

People borrowed against property on top of future earnings and various tax deductions flowing on from these loans resulted in a revenue that society was supposed to collect as the tax base that invested in economic and social infrastructure to make society richer, instead became debt to the banking system. But make no mistake, this was not government being duped by corporations, this was the beginning of corporate government. One has but to look at America to see the bloated carcass that was once a justifibly proud nation

Its strange in a way to see that despite the cultural and political differences, that Latvia (once part of the USSR) and the USA have similar unemployment and both suggest that the bottom of the crisis has been reached, exports finally have begun to pick up, yet the economy is still in desperate straits. Unemployment at more than 22%, people looking to leave the country, tens of thousands more deciding not to have children; all natural responses to saddling the people of a country with billions / trillons of public and private debt.

And what of the 8th largest economy in the world … California ? JP Morgan chief
Jamie Dimon has warned that American investors should be more worried about the risk of default of the state of California than of Greece’s current debt woes.

California poses more of a risk, given the state’s $20 billion budget deficit, which Governor Arnold Schwarzenegger is desperately trying to reduce; the state’s legislature passed bills that will cut the deficit by $2.8 billion through budget cuts and other measures; however, Arnie is looking for $8.9 billion of cuts over the next 16 months and $7billion of handouts from the federal government.
Will the USA government give the money to California or Chile, or Pakistan or cut back military operations ?  Stop laughing, I’m serious (and don’t bring New Orleans into the conversation …)

Last summer, California issued $3 billion in IOU’s to creditors including residents owed tax refunds as a way of staving off a cash crisis.  Better go out and by some paper to make some classy IOU’s which might be better received than the Greenback …

Acknowledgements to Michael Hudson (Distinguished Research Professor at University of Missouri, Kansas City and president of the Institute for the Study of Long-Term Economic Trends (ISLET) for much of the data.
Micheal is the author of books including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website, mh@michael-hudson.com