DOWN WE WILL GO AGAIN.
Abstract: When the Titanic zooms and scraps among icebergs, those who steer the ship ought to be replaced. And also the philosophy of zooming and scrapping among icebergs. But nothing of the kind, so far.
A free market does not make a free country. Bankers can’t steer ships with the proficiency required.
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In his blog, June 10, 2009, Paul Krugman observes that:”has the economic news started to darken again? Up through about March, every report was worse than you expected, often worse than you could have imagined. Since then, most reports — although continuing to be bad in an absolute sense — have “surprised on the upside.” But my sense is that in the last few days we’ve been getting reports — Korean trade, Japanese orders, German exports — that are once again surprising on the downside.This thing ain’t over yet.”
How could the crisis be over? American bankers, private individuals in charge of allocating the public money supply, while driven by their own personal profit, a conflict of interest if there ever was one, are back in charge. Representative Collins Peterson said, speaking of Congress, alluding to the bankers: “They run the place”. (June 6, 2009.)
The USA has such powerful bankers banking, that is is, indeed, banking, instead of having a massive, long term industrial policy. It has an industrial policy only for the military-industrial complex (which does careful long term planing, hence produces the best tools and weapons in the world in its specialty).
Bankers have small financial minds, focused on what they know, usury and leverage (to describe it parodically). Seriously, they live off credit, and, if one left it to them, everybody would be indebted to them as much as possible. This is the sense of the subprime crisis, this is also why the USA is a credit country: everybody is owned by banks. Pushed to the max, one would go back to serfdom, with the lords, the bankers, owning everything. It seems they own already the political process, in the USA.
Bankers cannot deploy any investment that does not provide them with short term profit. The smarties in the Obama administration said they will try to encourage rewards for longer term profits. The fact is, though, that we are still talking financial profits, and the basic profits of civilization are not financial, but provided by the State (example of these profits that cannot be monetized: security, democracy, a healthy environment, a legal system). By having only the financially obsessed ones steering the country, they steer it off civilization, by confusing the superficial for the fundamental.
Obama said that one should steer away from a cliff, if one is driving towards one. But, so far, he has just stepped on the gas. Total liabilities of the USA is over 100 trillion dollars, whereas the GDP is no more than 14 trillion, and the U.S. federal tax revenue is 2.4 trillion. (See A. Laffer, Wall Street Journal June 10, 2009.) The only way out will be a massive default, if one is not very, very careful (to avoid this, that is why the ECB plans to rise interest rates next year).
How course there is a stimulus. And, if well done, the stimulus could provide with a way out. But, so far, it has been mostly to compensate for the catastrophic collapse in states’ spending. Obama speaks renewables, but the investments in renewables have collapsed. One of the reasons is that renewable energy produced in the desert or geothermally has to be transported. But the electric grid is hopeless. It needs 300 billion dollars right away, way more than anything Obama dreamed of. The “smart grid” in the stimulus is getting 4.3 billion dollars, 295 billions short. Is that smart?
A 3,500 Megawatts (2 large EPR nuclear reactors worth) geothermal plant is ready to go by the Sutton sea, but the tini tiny line there could never transport the power to LA.
An example of long term lunacy of the USA is the dearth of financing of advanced civilian nuclear power. It should be financed enough to produce a profitable, full scale fourth or fifth generation nuclear reactor in a private-public partnership (it is one of the sectors where the USA is still ahead). Such reactors basically solve the waste problem, and can be made completely safe. The reason they have existed only in baby form so far has been that technological progress, especially in high temperature materials, has to be made, to get large scale profitability.
But this does not interest the Obama administration: too intellectual, too much oriented towards hard science? Although it is clear that such reactors are necessary. Be it only to get rid of the 60,000 tons of piled up wasted, barely used nuclear fuel that constitute most of the waste of the U.S. open nuclear cycle in the last 65 years, or be it only to provide with a clean base load capability. Coal is extremely dangerous. It is not just the CO2. Coal officially kills 24,000 people a year, in the USA, and apparently around as many miners a year in China. Chinese coal releases many extremely toxic substances, including plenty of mercury to poison the Pacific ocean with. Pollution from nuclear fuel is much easier to control, because the quantities of material involved are much smaller by orders of magnitude.
Many other countries are not that stupid and arrogantly leaving their destiny to the money manipulators. To stick to the nuclear example, several countries have advanced programs (even Iran knows it needs nuclear). Without mentioning France and its deployment of advanced reactors, India has embarked on a very sophisticated program with three types of interlocking reactors using thorium (because India has little uranium, but a lot of thorium).
Meanwhile, the aerospace industry threatens to follow the car industry. A lot, actually most, of the future, mythical “Dreamliner”, Boeing’s 787, is made and conceived overseas, including some of its most crucial parts (wings, fuselage, landing gear). The Computer Assisted Design, for the entire plane is the, worldwide ubiquitous in aerospace, CATIA, made by Dassault Systemes S.A.. Not to say it is not smart to collaborate with European powers (it is, because it’s the exact same democratic, republican civilization, joined at the brain). What is not smart is to depend upon non democratic powers. What is not smart is to leave financial vultures in charge of an entire gigantic country. That, in turn, drains the entire world economy down.
Indeed the money (coming from, say, China) goes to support American plutocracy (which produces nothing valuable to civilization at large), instead of American civilization (which, say, is just what some non democratic regimes would like)
The way it’s supposed to be right now is this, according to the free market mantra: American bankers will extent credit to worthy American projects. In truth, they cannot take the initiative on the most worthy projects, they are out of their depth.
Obama has the correct impulse here, and a little plan, but it’s, so far, too modest (not personally his fault, obviously, he is pretty much alone with the correct ideas, surrounded by plutocratic wolves). The plan of reindustrialization of the USA needs to get much more ambitious, following a bit what is done in the military.
Feynman said about the space shuttle Challenger disaster: “For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled.”
Well, Nature should take precedence over the bankers themselves, and the old fashion economic theory itself. Indeed, the economy is completely technological. Even, and especially, agriculture.
This civilization is a giant technological artifact, so Feynman’s observation should be front and center at all times, when trying to steer civilization, which is what Mr. Obama and various other leaders are trying to do. In general, economy should switch from the “invisible hand” (Hedge funds? SIVs? CDSs, “Private Equity” from borrowing public funds?) to the visible laws of physics.
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Patrice Ayme
http://patriceayme.com/
http://tyranosopher.blogspot.com/
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P/S: The USA electric grid needs are for investing 300 billion dollars, as I said above. The Obama plan has set aside 4.3 billion dollars. Another detail: ever since they existed, grids had to be smart, to avoid overloads.
June 10, 2009 at 9:47 pm |
“The only way out will be a massive default, if one is not very, very careful (to avoid this, that is why the ECB plans to rise interest rates next year). ”
Can you please expand on that? Why must interest rates go up to prevent default? Thank you.
June 12, 2009 at 8:57 pm |
Baz: Good question. By rising interest rates the European Central Bank will rise the interest there is to have savings, hence rise the deposits in the banks. Those, in turn, through the multiplier effect, will provide people with an income of money, through interest.
So, instead of using the government to give, or lend money to banks (TARP style) or to states (roughly half of the stimulus plan, as states’ spending has collapsed), as is presently done in the USA by borrowing money (a lot of it from China), the ECB wants to try to stick to conventional economics, where the people inside the country support the country’s own investing through their own savings (and not that of China).
Example: although the French government is running big deficits (although less than half of that of the USA, in terms of GDP), French savers are running a vast excedent. But they would stop doing so, if they got too low an interest from their deposits inside the banks. The head of the ECB, Trichet, is of French origin, and France has known for centuries the importance of savings (this is a case where the Germans have adopted a French tradition, consecutively to the disastrous German hyperinflation of the 1920s).
Argentina collapsed, nearly a century ago, because it found itself in the present situation of the USA: borrowing from abroad for daily expenses. So far, the USA has been saved by the special status of the US Dollar (slipped secretly in the final document, to escape Keynes’ censorship; Keynes was the president of the monetary group at Bretton Woods, and the Americans basically cheated, after being stopped by Keynes already once!). But this cannot last, because the Euro’s stature is ever growing, and we are going to end up with a world currency, de facto an average of the big currencies (the IMF drawing rights are akin to it).
I hope this answers your question.
June 11, 2009 at 1:04 am |
Your “intelligence” seems to of the basically intelligent variety, but might I suggest to give your postings a little more credibility that humble thing called a spell-checker? Seems to be that one piece of technology so many bloggers/writers forget nowadays.
June 12, 2009 at 8:27 pm |
John: I am surprised. But admit often the first version out has serious typos (although I try my best). I do use several spell checkers (up to three in series). Paradoxically, spellcheckers (esp. with WORD, can create mistakes, as they automatically correct what they viewed as erroneous, sometimes, well, erroneously!)
I would be most grateful if you occasionally pointed out mispellings. I try my best, but there is only one of me, and it’s indeed amazing how mistakes can slip through. Also: earlier versions of posts have more mistakes, because I reread them later, in a different mood, and then I spot some mistakes.
PA
July 26, 2009 at 11:26 pm |
However, John is right. Some of the words etiher do not exist, or are so rare as to not communicate. In addition, there are some places where words are obviously mussing from the text. Otherwise, excellent reasoning and historical acumen.
July 27, 2009 at 10:25 pm |
Sorry about the typos, etc., but there is just one of me, and I do spend already a lot of time weeding those out. If you see something that really is dramatic, please do not hesitate to tell me. Sometimes the spellcheckers introduce automatic mistakes, and there are problems with updates, but I am trying to learn. I am letting myself being a bit less systematically explicit as I used to be. As I see it, I do not want to bore readers too much by being too plodding… Although one essay cannot explain all, with hundreds of essays out there, they create a context…
PA