ZOMBIE END GAME - The financial undead continue to drag us down.

The disjointed musings of the financial media support groups and the politicians desperation to patch up the emperor's new clothes again, serve notice that the final act has begun.

The banks have sucked the blood from their governments through a series of bailouts.
The governments have sucked away the lives of their peoples through ongoing and expanding programs of austerity.
They have stolen from multiple generations of the unborn through bond issuance and leveraging so called "stability funds".
Financial institutions are stealing from their depositors as they begin to panic at the glimmer of the bottom of the shiny trough.

The managed retreat has begun.
Treaties are hastily being re-written. Doubtless constitutions, bills of rights and human rights legislations will go a similar way.

All areas of the economy have been fatally wounded. And even the most optimistic commentators are now describing the future misery in terms of decades.

It's a zombie paradise.

CROSSING THE RUBICON - A Paradigm Shift and The Engineer in Me.

Here are a few reasons as to why the world might be entering a permanent new economic reality that will not be pretty.

1. Up until sometime around the year 1800, all species (particularly ours) had little margin for error. Like all other animals we lived up to the limit of the food supply. The populations ebbed and flowed following simple differential equations bounded by the limits of supply of food and numbers of humans.

2. From around the year 1800, fossil fuel exploitation enabled us to rig the market through advances in mechanisation, production and fertilisation. This positive trend could only ever be a temporary one. It was inevitable that the population would increase to exploit this step change in maximum demand possibilities. All that has happened is that the ebbing and flowing wave has a higher amplitude and a shorter wavelength. In other words, things just happen harder and faster. Markets are exaggerated and rich/poor disparities are exacerbated to insane and ugly degrees.

3. Since around the year 1800, the population has increased from 0.8 billion to nearly 8.0 billion.

4. The high demands of 2 centuries of wealthy countries exploitative folly and the recent extraordinary demands of large, fast developing countries have applied a number of ramping functions and a number of extreme pulses to the system. Anybody who knows anything about control systems design or mathematical modelling fears such pulses.

5. Since 1960 the annualised growth in crop yields has fallen from 3.5% per year to 1.2% per year despite the use of oil based fertilisers having been increased significantly. All of this intense farming is clearly destroying the land's potential to re-mineralise itself through natural irrigation and precipitation processes.

6. Politicians and money-markets will never face up to any of the above truths.

7. From now on, price pressures and resource shortages will be a permanent feature of our lives.


All of the above contributed to the financial crisis of 2008 and the subsequent spikes in commodity prices like oil, energy, metals and foods.

Add the following list of potential tipping points to this and we could be looking at the perfect storm.


1. Events in Syria could be the most likely scenario to inflame a full scale war against Israel, in turn, dragging the whole of the middle east into turmoil.

2. It is highly likely that Israel or the USA will wage a war against Iran if Iran escalates its nuclear program.

3. Libya. Does it need an explaination?

4. As the weather warms in other middle eastern countries, more tensions, protests and revolutions are bound to occur. The tipping points have been attributed to democratic awakenings by western media groups. It is more likely to have manifested itself due to spikes in food prices. Spending on food in second and third world counties forms a much more significant share of a family's budget.

5. The tragic events in Japan and subsequent annihilation of the Fukushima nuclear industry has changed world energy policy forever. The abandoning of existing and future fission projects will add massively to the demand for hydrocarbon based fuels for energy conversion needs. The impact on one of the worlds largest economies is sending out financial shock waves across the globe. Economists will un-forget about peak-oil once more.

6. Energy expenditure in the USA has just exceeded 9% of GDP for the second time. The first time was in the summer of 2008, just before the 'global financial crisis'.

7. Austerity programs (you ain't seen nothin' yet) around the globe both nationally and locally are beginning to impact on the jobs economy. This will accelerate as the story unfolds.

8. The much talked about sovereign debt crisis is about to materialise in spectacular fashion. Who will be the first 'fall guy'? Almost certainly Greece, but much bigger names will be in the frame soon after. A tower of cards teetering. The fallout will be truly shocking.

9. The demise of the U.S dollar seems unlikely to most people but watch this space. China bought massive amounts of US treasuries over the last decade. It is now trying to dump these investments on unsuspecting world bond markets at a faster rate than it accumulated them and that was pretty damn quick.


The next few years (or months even) will be very interesting to say the least.

See you all on the other side.

ROLLING BACK THE LANGUAGE OF ECONOMICS - Part 1 : INTEREST

This post will be the first in a series of posts that looks at how the use and perception of economic and political language have been changed over time.

INTEREST is a concept that we are all familiar with. Usually because we have to pay interest to banks, credit card companies, shops etc. Sometimes we receive interest on savings or other investments. The word interest comes from the notion that if you borrow for, say a house, your lender will charge you interest in order that you get to buy a house and the lender makes a profit. The lender also has an interest in your property. That is to say that he is interested because if you fail to complete the transaction at any point, that property may be sold. It may be sold for less than the outstanding value of the loan in which case the lender would make a loss. So it is no surprise that he is interested.

Compound interest means that interest is applied on an ongoing basis with respect to time. This causes problems for entities like governments where situations can occur such that the amount repaid in a given year is less than the interest due. In this case the interest will not only apply to the original debt, but it will also be applied to the interest too. Interest on interest.

Compound interest looks like this. If left unchecked, it runs away very quickly. This is due to the effect that compound interest has a mathematical function known as positive feedback.

It works in the same way as acoustic feedback. For instance if a microphone is placed too close to a speaker, the sound from the speaker goes back into the microphone, gets amplified and then comes out of the speaker a little louder. This new louder sound, goes back into the microphone and is amplified again and comes out of the speaker even louder. Effectively the amplifier adds compound interest to the sound each time. After a period if these repetitions, the noise becomes so chaotic and unbearable at which point somebody usually cuts the power to the system.

Another natural phenomenon that follows the same mathematical principle is sickness (i.e. diseases like cancers and viral infections).

As all financial services rely on the concept of interest to make profits, it is advisable to remember the analogies above.

Who's interested now?

It is interesting to note that the texts of the Christian, Jewish and Islamic faiths all expressly forbid the use of interest as the concept is seen as a levy on God's time. However, over time these ideas have been relaxed through a series of reinterpretations.

Nobody can be free of paying interest even if you save up for things before you buy them. Currently, due to the way interest has permeated through all aspects of the world economy via credit markets and commodities markets, about 45% of the price of all goods is used to service the interest on debt held in the supply chain.

Because of the invisible interest that has attached itself to the sales price of everything, most people are nett interest payers. In fact 85% of people are nett interest payers, about 5% of people are interest neutral and about 10% of people are nett interest receivers. In other words 10% of the people receive 90% of the interest that everyone else pays. Doesn't that sound like another more well known statistic. Yes, it is interest that is entirely responsible for the massively uneven distribution of wealth. How can you become a nett interest receiver. Well you just need to have a spare £500,000 hanging around that you don't need but you could invest.

Notwithstanding all of the above, the whole notion of interest is totally flawed. As an example, say that Jesus had deposited 1 penny into a bank account in the year 32AD with an account that would yield a typical long term interest rate of 5% per year. If he had returned in the year 2011 and gone to the bank to withdraw all of his money with interest, that amount would be

£8,582,678,794,222,570,000,000,000,000,000,000,000,000

That amount is difficult to imagine. However if the bank paid out in gold balls at today's gold value, it would amount to 44 trillion gold balls. Each gold ball would be the same weight as planet earth.

A great investment? Yes, but this financial model (INTEREST) cannot work in the long term.

FOOD FOR THOUGHT - The commodity conundrum

Data just released by the World Bank shows that 44 million more people in developing countries have been pushed into extreme poverty in the 8 months since June 2010. They say that food commodity prices have hit 'dangerous' levels.

Reasons why global food prices are heading out of control.

Droughts, storms and fires - These have impacted on rising food prices. However, these events happen every year and are not responsible for the current spikes in commodity prices.

Emerging markets - Rapidly developing central Asian countries are seeing phenomenal economic growth activity. Corporations are exploiting their rising disposable incomes and these countries are now sucking in a diversification of 'en vogue' agricultural products. These are being sourced on the world commodity exchanges and driving prices higher.

Bio fuels - Developed countries, particularly those who have signed up for multinational climate change mitigation agreements, are chasing every megawatt from every possible area. Vast tracts of land have been turned over to produce bio crops. This leaves a significant reduction in the available acreage required to produce sugar and cereals in these cash crop producing regions. Lack of supply pushes prices higher.

Commodity speculation - Investment bankers have switched their strategies in light of the financial crisis and the post crisis equity fear expeienced in dealing rooms around the world. Commodities and complex commodity derivatives are now being transacted with the fury once reserved for stocks, shares, options and futures. With all of these new middle men taking their cut, offloading prices have soared.

Globalisation - This has facilitated a tsunami of commodity exchange possibilities. These new 'panaceas' will realise themselves as speculative bubbles followed by spectacular and chaotic collapses.

Currency wars - Because of the financial crisis and the subsequent debt hangover and austerity programs, Governments around the world are doing their damnedest to reduce the value of their fiat currencies in order to inflate away their structural sovereign debts. This only facilitates a race to the bottom. The result of low currency values is higher import prices.

Crude oil price - For a whole raft of reasons previously discussed, crude oil prices will only be heading in one direction and that is not down. Many pesticides, animal feeds and crop fertilisers are derived from oil based products. Most commodities also attract vast fuel miles and transportation costs.


The Tunisian, Egyptian and future middle eastern, central Asian and African stories all have rising food prices as a catalysing process. In the short term a welcome regime change may come. However it is unlikely that regime changes will curtail the longer term future of escalating food prices.

FOOD DEMAND = FOOD PRICES = FOOD RIOTS = CHAOS

Food prices and other commodity values have been rising considerably during the last few years and particularly since the 2008 global financial crisis.


There are several structural reasons for this which have been discussed in earlier blogs.

While in the West, we find these inflationary food prices annoying or worrying or stressful (depending on which social level you exist), it is becoming a far more desperate story for others around the world.

Here in the UK, an individuals food budget is not too significant, and we can always cut down on other things, shop around, find offers and bargains etc.

When food begins to take significant proportions of a family's budget, people begin to attach a political dimension to their concerns and this may result in protests, riots and even regime change.

Here is a list of 25 countries that like Egypt and Tunisia are finding that their food budget is getting out of control. The list shows the percentage of household income that is spent on food:

Venezuela 32.6 %
Lebanon 34.1 %
Latvia 34.3 %
Tunisia 36.0 %
Libya 37.2 %
Dominican Republic 38.3 %
Sri Lanka 39.6 %
China 39.8 %

Romania 45.4 %
Philippines 45.6 %
Kenya 45.8 %
Angola 46.1 %
Pakistan 47.6 %
Egypt 48.1 %
India 49.5 %
Bulgaria 49.5 %
Vietnam 50.7 %
Sudan 52.9 %
Algeria 53.0 %
Bangladesh 53.8%
Azerbaijan 60.2 %
Ukraine 61.0 %
Morocco 63.0 %
Nigeria 73.0 %

It's not just armies that march on their stomachs.