ROLLING BACK THE LANGUAGE OF ECONOMICS - Part 2 : STIMULUS

Various Western governments have introduced stimulus plans. These measures have also been called 'quantitative easing' (QE) among other things but basically they amount to printing money.

The mirage created with QE is that the central banks created electronic money out of thin air and used that to buy their own government's bonds. These bonds are basically IOUs and in time the governments will have to repay those debts to the central banks with interest. When the payments are recovered the central banks will then electronically destroy the imaginary money.

This process of printing money causes a devaluation of the 'fiat currency' due to the laws of supply and demand. If you make more of it, each piece of it is worth less.

As the majority of all money 'exists' only in a digital form, it can also be argued that what is actually being printed is digital debt.

The problem with introducing a stimulus is that you have to maintain that stimulus for a significant period as global markets take time to react to the change in the economic system. By maintaining that stimulus, the system can become dependent on it. This happens when a sick person is treated with stimulus drugs. They can soon become addicted to the stimulus and side effects appear. The side effects can be harmful. Even more harmful than the original disease.

These unorthodox processes are hitherto untried and untested, and it is only because it is mathematicians offering these 'solutions' to governments and banks that any credibility at all can be given to the process.

WARNING !!! These are the same breed of mathematicians that sold the financial services industry the ideas of complex derivatives including 'securitization of mortgages' and 'credit default swaps'. Watch out for Global Banking Crisis II, coming to a town near you soon.

FOOD MADNESS - Counting the calories

Chasing the calorie trail.

It takes 10 fossil fuel calories to produce 1 food calorie on a first world table.

An oil burning machine is used to plough a field.
That ploughing machine and all of the raw materials in that machine were manufactured using oil, gas and coal based energies.

An oil burning machine is used to plant seeds.



That seed drilling machine and all of the raw materials in that machine were manufactured using oil, gas and coal based energies.



The seeds are treated in a factory with germination products derived from oil.
The factory uses oil, coal and gas based energies to run.

The factory uses oil burning machines to bring raw materials to it and oil burning machines to deliver seeds to distribution centres.

These distribution centres consume oil, gas and coal based energies.


They use oil burning machines to transport their seed products to farms.

An oil burning machine is used to apply a high yielding fertiliser.



That fertiliser is derived from oil.


That fertiliser is produced in a factory that uses oil, gas and coal based energy sources.
That factory uses transportation methods and energy sources to distribute its product as the seed company.

The farms often rely on irrigated water systems.
Oil, gas and coal based energies are used to extract water from aquifers and pumped large distances using pumps that consume oil, gas and coal based energy sources.
Pesticides are used throughout the growing period.
These pesticides are derived from oil.
Like the seeds and the fertilisers, these pesticides are made in factories using oil, gas and coal based energies and are transported and distributed using oil burning machines.

The crops are harvested using a multitude of oil burning machines.

The crops are transported to distribution centres using oil burning machines.

The distribution centres use oil, gas and coal based energies.

The goods are packaged in plastics and cardboard.

The plastics are oil derived products.
Cardboard use huge amounts of oil, gas and coal based energies for their extraction, production, transportation and distribution needs.
These packaged products are transported to distribution centres using oil burning machines.
They are then redistributed to supermarkets using oil burning machines.
Millions of people collect their food from supermarkets each day using oil burning machines.














To reiterate then. For each calorie of food on a first world table, another 10 calories of fossil fuel derived energy has been used to put it there.

And finally to put this in perspective.

Each person requires around 2000 food based calories per day to maintain themselves. In power terms this equates to 2.326 KWh; about the same as an electric kettle running for 1 hour or 15 TV sets running for an hour. And given that it takes 10 calories of fossil fuel to produce and transport 1 calorie of food to your table, each person uses the equivalent of 23.26 KWh of fossil fuel energy per day. That is about twice the amount of fossil fuel energy that the average family uses each day for their domestic electricity requirements.

OIL IS THE KEY.

EVERYTHING DEPENDS ON IT AND IT'S RUNNING OUT FAST.

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.

GLOBALISATION - Chickens coming home to roost - ( FROM CLUCK TO FUCK! )

Globalisation has had many critics over the years.

Arguments against the concept include inequality, environmental impact, sweatshops, cultural normalisation, dumbing down through uniformity etc....

However for the majority first world perspective, it has facilitated a perceived rise in standard of living, choice, cheap food, goods and services. All this has become possible through communication advances in interconnectivity across the globe. The whole ponzi scheme is clearly based on convincing people to buy loads of tat that nobody really needs and only really want on the basis of its easy availability, brand marketing brainwashing techniques, availability of cheap credit etc.....

During the 'good times', this interconnectivity offers a dumbed down feeling of well being; an increased happiness quotient and an illusion of being able to buy freedom.

This model is so new that it has never been tested during the bad times.

What could happen if things went bad in the Global Village ? :

Firstly the connectedness of world financial markets means that if an economic boom or bubble emerged, the whole connected world would feed this bubble. This bubble would become bigger than any bubble experienced in the post industrial revolution period.

This bubble could for instance be cheap credit.

The banks may push the envelope by lending to riskier borrowers. They might even lend large sums to people who would have no means to repay.

The bubble might only stretch so far due to finite limits.

A nervousness might set in.

Banks might feel twitchy about the amounts on the wrong side of their balance sheets.

As if by magic the debt has moved from personal loans to private company debt.

They might stop lending to each other.

Credit availability may stall.

Some banks might fail.

Governments might have to rescue banks using hundreds of billions of taxpayers monies. Government might be forced to nationalise banks. In other words Governments would be nationalising debt and privatising profit.

As if by magic the debt has been moved again. From private companies to the public purse.

This might be called sovereign debt.

Interest rates may have to be slashed.

This could cause cash flow problems further down the food chain.

Businesses, large and small, could fail because their creditors refuse to supply goods and services on existing credit length terms.

Unemployment could rise.

Government spending could rise due to increases in benefits, lower taxation revenues, bank bail-outs.

Banks could restrict mortgage lending.

House prices could fall.

Economic growth might fall.

There could be a recession.

Entire countries could get nervous. They might feel that other countries may default on their debts.

They might buy the debt in form of government bonds at higher interest rates.

Their debt to earnings ratios might rise.

Their bond yield spreads might rise.

They might have to print more money.

Their currency may have to be devalued if it has its own fiat currency.

Other countries may drive down the value of their own currencies in order to maintain an export trade advantage.

A currency war could cause uncertainty in equity markets.

Financiers might switch to gold, looking for a perceived safe haven.

A secondary gold market may emerge. There could be high street gold buying shops. There may even be TV ad campaigns asking people to send their jewellery in the post in exchange for cash.

Gold prices could rise five fold or ten fold or ......

A secondary commodities bubble could emerge.

Agricultural commodities could get caught up in this speculative market. As could fossil fuel commodities.

Food and energy prices could be driven higher.

Governments may feel pressurised to accept rescue monies from other countries. There may be strings attached.

Those strings might be an austerity program.

That program may be painful to everyone living in that country.

They may have to take pay cuts.

They may have to cut millions of jobs in the economy.

There could be civil unrest, demonstrations, protests and even riots.

The government's revenues might fall again due to even lower tax revenues.

Economic growth may fall again.

Other countries may begin to falter.

The contagion could spread like a fire.

Firstly it could just be a few kindling republics and small countries.

Then maybe some larger countries may be affected due to their trading reliance with that failed country.

Recessions could turn into depressions.

And then..................................Protectionism.... Hyperinflation.........Nationalism.........War

Sound familiar ?

GLOBALISATION ! Forget the old arguments. THINGS HAVE MOVED ON !