A Perfect Storm Cometh: Of Crashes, Failures and Bailouts

Tuesday, September 30, 2008

Of Crashes, Failures and Bailouts

It is important not to stop applying pressure now. Paulson, Bernanke and BuCheney WILL be trying again. Personally, I'd let the chips fall where they may, but I know that scares the bejeezus out of everyone, and likely won't allow rationality to overcome fear. So, if you must support a plan, please look at Karl Denninger's plan linked below and here for your convenience.

If you really are not up on any of this stuff, and I know most if us are not (I have slowly become generally aware only over the last 18 months. It is still dense stuff and I only understand enough to get the gist and have a fairly clear sense of the implications), do yourself a favor and go to YouTube or any video site and/or google Peter Schiff, Karl Denninger, Nouriel Rubini, Dennis Kucinich and Ron Paul. See what they have to say. Of course, there are links to some of them below, but I am talking about really educating yourself. You should/can also visit The Automatic Earth and The Oil Drum, both linked to the right.

Cheers

The following are two e-mails I sent out to family and friends regarding the Monday Sept. 30, 2008, vote in the House of Representatives on the King Henry Paulson Bailout, Socialism and Welfare for Bankers and Financiers Act.

Hello,

Sorry to contact you like this, but this is vital. This morning, everything changes one way or another.

We must stop this bailout. Our "leaders" are acting in a way that Mussolini would be proud of. It was he who defined Fascism as the partnership of business and government. How amazing, in the most horrible sense, that the United States government is now exactly what Mussolini considered to be the ideal?

Worst of all, this "bail out" (better stated as welfare and socialism for the rich - didn't they just make it nearly impossible for us to declare bankruptcy?) is nothing but 1. a huge transfer of wealth to the richest and 2. the bankrupting of America. Were the scumbags who created this held to account, not one penny of taxpayer money would go this. And not one penny should.

1. The larger banks are and will be buying the smaller banks. More and more money in fewer and fewer hands. Then, they keep all the profits they've gotten up to now AND all future profits and give the debt... to you and I. Literally. Over and over. This will not stop at $500,000,000,000 or $700,000,000,000. It won't stop till it is many times that much. Because it can't. There is too much debt out there. The debt in these damned "vehicles" alone is hundreds of trillions. That's right HUNDREDS of TRILLIONS. And housing? Did you know there are additional resets coming in the next three years? We haven't even hit the peak. So, if this bailout is supposed to save us from the abyss, why doesn't it deal with those? Those resets means the banks are going to be right back with their hands out for another $700,000,000,000 over and over and over.

2. The US debt can never be repaid already, and here we are getting ready to double it, triple it... Do you really believe the people holding our debt will just sit on it forever? They will not.

You worry not bailing out the obscenely wealthy and the non-taxes-paying corporations will mean depression. It will. But to bail them out will equal depression and collapse because there will be too little left in the hands of you and me. The government will be so burdened it will have zero chance of dealing with the additional time bombs of energy decline and climate change, let alone have any hope of pursuing public works projects and such to pull us out of the depression.

You must understand that to allow this will mean the destruction of the economic and political system of the US. Too much power already rests with the Executive Branch, and now we are to have them holding our mortgages and having carte blanche over our financial systems? God help us...

Please view all of the following, then contact your representatives and senators. Tell them they will never get your vote again. Tell them a vote against this is a vote for the Constitution, while a vote for is a vote for the final corporate overthrow of our financial and political systems.

http://market-ticker.denninger.net/archives/594-MAKE-THIS-VIRAL-STOP-THE-BAILOUT!-SAVE-AMERICA!.html

Here is a plan for Main Street and America, not Wall Street:

http://market-ticker.denninger.net/archives/593-CONGRESS-STOP-AND-THINK!.html

Here's an analysis of the final bill before Congress:

http://www.youtube.com/watch?v=Z8tTVA5EXag

Here's Dennis Kucinich on the bail out:

http://www.youtube.com/watch?v=Feyu2Db2QuU

http://www.youtube.com/watch?v=lJ2gnXu7ezA

There's much more, but let me leave you with this: Did you know they had been planning this for MONTHS?

http://www.youtube.com/watch?v=JjRiEVuzTYw

Please, act. NOW.

The second e-mail:

If you don't know who Nouriel Roubini is, you should: he's one of the many who have been predicting a crash for years. (That's right, this is a surprise only to those not paying attention... some of them intentionally...)

http://www.rgemonitor.com/roubini-monitor/253801/the_us_and_global_financial_crisis_is_becoming_much_more_severe_in_spite_of_the_treasury_rescue_plan_the_risk_of_a_total_systemic_meltdown_is_now_as_high_as_ever

...if this run accelerates - as it may now - a total meltdown of the US financial 0system could occur. We are thus now in a generalized panic mode and back to the risk of a systemic meltdown of the entire financial system. And US and foreign policy authorities seem to be clueless about what needs to be done next.
Before that he said:

http://www.rgemonitor.com/roubini-monitor/253783/is_purchasing_700_billion_of_toxic_assets_the_best_way_to_recapitalize_the_financial_system_no_it_is_rather_a_disgrace_and_rip-off_benefitting_only_the_shareholders_and_unsecured_creditors_of_banks
...the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown. It is pathetic that Congress did not consult any of the many professional economists that have presented - many on the RGE Monitor Finance blog forum - alternative plans that were more fair and efficient and less costly ways to resolve this crisis. This is again a case of privatizing the gains and socializing the losses; a bailout and socialism for the rich, the well-connected and Wall Street. And it is a scandal that even Congressional Democrats have fallen for this Treasury scam that does little to resolve the debt burden of millions of distressed home owners.
And another who has been predicting this collapse is Peter Schiff. Here he is in 2006:

http://www.youtube.com/watch?v=LfascZSTU4o
Q: Just how bad do you think [the recession] is going to be?

PS: I think it's going to be pretty bad. ...whether it starts in '07 or '08 is immaterial, and I also think it's going to last not just for quarters, but for years...

Peter Schiff on 9/26/08:
http://www.europac.net/externalframeset.asp?from=home&id=14136

Sadly, Americans now appear willing to abandon their economic heritage at the first sting of financial pain.

Although passage does seem inevitable, it is nevertheless the wrong thing to do...

The bottom line is that there is no way to resolve our economic problems without a severe recession, and our politicians need to level with the public. As a nation, we gambled on the alluring riches of real estate and we lost. The price must be paid. Contrary to the Bush Administration rhetoric, the fundamentals of our economy are not sound. If they were, we would not be in this mess. Recessions are meant to restore balance, purge excess, and liquidate mal-investments. On that score we have a lot of work to do...

In the end it is impossible for the American economy to be rebuilt on a sounder foundation of savings and production without a lot of economic pain. Government efforts to reinforce the shaky foundation of borrowing and consuming will result in the entire structure falling down around us.

It may be too late, but contact your reps/senators. If they vote for this, vote them out. It's time we had 535 Mr. Smith's (Mr Smith Goes to Washington) on Capitol Hill.

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Cheers

Where We Stand

Economic Crisis

Peak Oil
* Peak production appears to have occurred in 2005 or 2008. Certainly, production has been on a plateau since 2004-5. The recession and the high prices from last year caused falling demand. This is brought on lower prices. That caused new production projects to be slowed, delayed or stopped. Because starting up projects takes much longer than shutting them down, this will likely lead to oil shortages if the economy and demand rebound, certainly by 2012 or so.

UPDATE Nov. '09: The new IEA World Energy Outlook revised **downward** to 105 million barrels a day it's projections for future oil production. What they are saying is, over the next 20 years, we won't be finding much oil. Whistle blowers, one still employed, one not, say even this is wishful thinking. We agree. We have thought so for two or three years. They also say the decline rate is higher than admitted - and it was already 4.2%!!! This means we are looking at, what? Six percent? Eight? At six percent we lose the equivalent of Saudi Arabia every two years. Of course, we aren't finding that much new, recoverable oil each year and haven't for decades. Where's the extra coming from?

** Peak occurred from 2005 to 2008. It is slightly possible we could exceed past production in the next two years *if* there is economic growth as there is some spare capacity and some new spare capacity came on this year. There appears to be just enough new oil coming online - or there would have been if projects hadn't been shut in due to the economic crash - the next two years to barely stay even. After that, decline will have eaten away two Saudi Arabias and it will be impossible to reach a new high.

* Production surpasses new oil discoveries by a margin of 3 :1 or 4:1. This is unsustainable.

*The global economic downturn may decrease these numbers, which would help slow the fall down the back slope of the decline curve.

* The "Export Land" Model (.pdf) shows increased consumption in oil exporting nations leads to decreasing exports. Exports dropped by 3% in 2006. For oil importing nations, this means oil availability falls 2x to 3x the global decline rate.

* Current prices make some alternative energy projects economically infeasible. While oil is depleting and declining, the low prices and economic crash are impacting our ability to ramp up renewables to replace fossil fuel-based energy.

* OPEC has announced (1/2/08) future production is in peril. Many believe OPEC cannot raise their current production by more than 3 million barrels a day. Ever. Or can do so only at the cost of future production. I.e., they must choose between their own citizens and the rest of the world.

* A nice, but older, overview (.pdf). Its age, 2005, makes the time lines a little longer than seems probable. Still, excellent forecasting.

People & Power - Peaked - 06 Jan 08 - Part 1.
(Part 2 can be found on youtube.)
An excellent overview of Peak Oil right now.

Climate Change
* James Hansen, et al., published some very important papers (article) this year. Conclusions are thus:

1. The world is at @ 392 ppm CO2, but irreversible climate change happens at just 350, which we passed decades ago. This is why time is shorter than it seems.

2. The goal now is to stop warming at only 2 degrees C. This will still mean seas rising a meter or more and climate change globally, but we may be able to stabilize there. It also means reducing carbon emissions by 90% by 2100. That's creating an entirely new energy system in less than a century. We did that already, but that was when there was virtually no infrastructure in place.

3. Action must be taken in a very short time period. Waiting ten years is almost certainly too long. The silver lining that comes with Peak Oil? It may give us no choice but to act sooner rather than later. The solutions for Peak Oil and Climate Change are the same (except for bio-fuels.) This situation is unprecedented in human history.

* The Arctic melted to an extraordinary degree in 2007 and nearly as much in 2008 - despite perfect conditions for 2008. This is THE canary in the coal mine. Back in February, when the first of three IPCC (Those rock-n-rollers of recent Nobel fame.) reports came out and didn't include ice melt in their projections, I was stunned. Various scientists, also. I knew viscerally that change was coming faster than they stated. Much faster. The summer melt validated that view. Hold on to your hats. f you know anything of Chaos, bifurcations, tipping points and non-linear systems, you're probably as scared as I am.

* New findings of methane being released from the Arctic permafrost and sea floor, along with increased atmospheric methane are ominous signs we may be well past key tipping points. There have been massive, abrupt climate changes in the past due to the release of methan clathrates from the sea floor.

The Big Melt - Arctic ice melt accelerates by 20+%.

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