Of Crashes, Failures and Bailouts - Round VI

This video speaks for itself. Who got bailed out? Not you and not me. We are the proud owners of all the debt created by federal policies, deregulation, and outright fraud.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Elizabeth Warren would be an excellent choice to replace Tim Geithner, Larry Summers or Ben Bernanke. In case you distrust Warren as an insider, you should also watch the following (it will help you understand why Americans are so leveraged in debt, why a two-income household is required, and why we've nothing left for Wall Street and the government to drain from us, and so why they are now pawning off their debt on our children... and their children... and their children...)

Of Crashes, Failures and Bailouts - Round V: Blacker Than Ever

THIS POST IS no longer IN PROGRESS. LAST UPDATE AT 1:31 PM EDT 4/15/09

The following is excerpted from an interview in Barron's (click the title to go to the original) of William Black by Jack Willoughby. What Black says isn't so amazing. Others have said it, and far earlier. I have previously posted comments and links to The Automatic Earth (which is where I found the original article from Barron's), Karl Denninger, Peter Schiff and others saying essentially all the same things. It's that he's the one saying it. William Black has gravitas. He has the pedigree. Those who would dismiss, and have dismissed, the voices in the wilderness noted above, can't so easily do the same to William Black.

There's not really anything new here that wasn't in Of Crashes, Failures and Bailouts - Round IV, but it's all worth repeating just for emphasis.

My comments below the interview.

Barron's: Just how serious is this credit crisis? What is at stake here for the American taxpayer?

Black: ...The scale of fraud is immense...

So you are saying Democrats as well as Republicans share the blame? No one can claim the high ground?

We have failed bankers giving advice to failed regulators on how to deal with failed assets. How can it result in anything but failure? ...Tim Geithner, the current Secretary of the Treasury, and Larry Summers, chairman of the National Economic Council, were important architects of the problems...

So you aren't a fan of the recently announced plan for the government to back private purchases of the toxic assets?

It is worse than a lie. Geithner... is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians. The current law mandates prompt corrective action, which means speedy resolution of insolvencies. He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent...

...It is like Gresham's law: Bad money drives out the good. Well, bad behavior drives out good behavior, without good enforcement.

...By promoting this notion of too-big-to-fail, we are allowing a pernicious influence to remain in Washington...

Summarize the problem as best you can for Barron's readers.

With most of America's biggest banks insolvent, you have, in essence, a multitrillion dollar cover-up by publicly traded entities, which amounts to felony securities fraud on a massive scale.

These firms will ultimately have to be forced into receivership, the management and boards stripped of office, title, and compensation. First... a Pecora-style fact-finding mission conducted without fear or favor... Then... pursue criminal cases...

What, then, is staying the federal government's hand? Have the banks become too difficult or complex to regulate?

...to do so would force it to put some of America's biggest financial institutions into receivership... these banks are some of the most well-connected in Washington...

Can you explain your idea of control fraud, and how it applies to the current banking and the earlier thrift crisis?

Control fraud is when a seemingly legitimate corporation uses its power as a weapon to defraud or take something of value through deceit.

...These accounting frauds create huge bubbles...

Why then is there so much smoke and so little action?

...The reason we don't see it -- aren't told about it -- is that if they were honest, prompt corrective action would kick in...

You say the evidence of a breakdown in the regulatory structure comes from the fact that America avoided an earlier subprime crisis in the 1990s.

Exactly. Why had no one heard of the subprime crisis back in 1991? Because America's regulators also faced down the crisis early... the problem didn't spread -- because regulators intervened.

What needs to be done?

Well, these international behemoths need to be broken down into smaller units... And a new seriousness must be put into regulation... We just need folks who can enforce the ones already on the books.

The bank-compensation system also creates an environment that leads to mismanagement and fraud... the top 20% get the bulk of the benefits and the bottom 10% get fired... Compensation systems... discourage whistleblowing -- the most common way that frauds are found in America -- because the system draws upon the cooperation of everyone.

This whole thing isn't over. Those in government or the financial industry saying we are past the bottom and will be coming out of recession within months, or maybe the end of the year, are liars or fools. The proof is in the pudding.

Question: How can the recession end when loan defaults - of all kinds and all sectors of the economy - are still raging? Take a look at this Mortgage Reset Chart. We are currently at a lull in resets. They surge again through 2010-2011.

Which brings us to inventory. John Mauldin at Minyanville observes:

No Housing Recovery Lurks in Shadow Inventory
- The Shadow Inventory of Homes

...a strange thing is happening: We're seeing what's being called a "shadow inventory" of foreclosed homes.

The San Francisco Chronicle reports:"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac...

A RealtyTrac survey found that only 30% of foreclosures were listed for sale in real-estate listings, like the MLS (Multiple Listing Service). Add in homes that people would like to sell but simply can't find buyers for and must either hold or rent, and the unsold inventory numbers that are public are likely far below actual available homes.

Might some homes in foreclosure be held off the market because banks eventually want to negotiate with the homeowner? Possibly. But other surveys show that anywhere from 30%-40% of homes in the foreclosure process in many areas are actually already vacant. There's no one with whom to negotiate...

...Normally there are about 160,000 homes a year in foreclosure sales. We're now seeing 80,000 a month, or 6 times normal levels, and rising.

Second, lenders could be deferring sales to put off having to acknowledge the actual extent of their losses. "With banks in the stress they're in, I don't think they're anxious to show losses in assets on their balance sheets," one observer said.

Finally, banks may not want to flood the market with foreclosures, driving prices down even more...

But it gets worse.

And it does. He goes on to list some of the things I'm already writing here, and more. You should read the article.

And what about commercial real estate? Prices are crashing and defaults rising as we speak. Credit card debt? Credit lines are being canceled or slashed as banks look to control losses or costs. Being a good risk is now a liability: they earn no interest and/or fees from you if you don't carry a balance, yet have money out to you. Liquidity is at issue. Every bank and financial entity wants cash. They need cash. You lose.

More importantly, as Meredith Whitney has pointed out, credit cards and credit lines have been what enabled many families the flexibility to manage tricky finances. As more restrictions are placed on personal credit, the more families that will be forced into default.

Few doubt the importance of consumer spending to the U.S. economy and its multiplier effect on the global economy, but what is underappreciated is the role of credit-card availability in that spending. Currently, there is roughly $5 trillion in credit-card lines outstanding in the U.S., and a little more than $800 billion is currently drawn upon. While those numbers look small relative to total mortgage debt of over $10.5 trillion, credit-card debt is revolving and accordingly being paid off and drawn down over and over, creating a critical role in commerce in America.

Just six months ago, I estimated that at least $2 trillion of available credit-card lines would be expunged from the system by the end of 2010. However, today, that estimate now looks optimistic, as available lines were reduced by nearly $500 billion in the fourth quarter of 2008 alone. My revised estimates are that over $2 trillion of credit-card lines will be cut inside of 2009, and $2.7 trillion by the end of 2010.

Where is the recovery?

Global trade is still falling as can be seen in import and export numbers around the globe, which also reflects in shipping. Manufacturing - JOBS - will continue to fall in lockstep. Unemployment continues to rise even as extended benefits are running out for those early in the unemployment line. Real unemployment is now just below 20%.

Where is the recovery?

The financial sector is insolvent, but won't admit it. Housing and commercial real estate are so overbuilt squatters are taking over homes everywhere. Where the hell is the recovery supposed to come from? Foreign companies? Foreign countries? The U.S. is the consumption engine of the world. It is 20% or more of the global economy and 70% of that is consumerism. Service industries. In other words, pointless, useless and producing almost zero infrastructure/real capital. Do the math. That's 14% of the global economy that is kitsch and junk. Price/Earnings ratios are shot.

Et-flippin'-cetera.

Where is the recovery?

I call this blog A Perfect Storm Cometh. The financial unwind is only one part. Let's say we do go into recovery within the next six-to-eight months. Growth takes energy. Cheap energy. The densest energy we currently can tap cheaply and easily is oil. However, oil production is falling due to both above ground (non-geological) and below ground (geological) reasons.

The natural decline rate of crude oil production is at over 9% per year. That's over 6.5 million barrels a day. New production each year brings that number down to 6+% or 4.5 to 5 million barrels a day lost each year. Let's put that in perspective. That's a full Saudi Arabia every two years. We aren't finding anywhere near that much oil and haven't for decades. For now, the drop in production because of recession is masking the drop in production due to Peak Oil. Keeping this in mind, the recession **helps** with Peak Oil in the immediate future, but not in the longer term.

The problem is that the recession is not only reducing oil consumption, thus production, as a result of lowered demand, it is cutting future production. New wells aren't being drilled as fast. Old wells aren't being improved with technology. Expensive wells are being shut down while waiting for higher prices. IF a recovery started, it would run into the brick wall of slow-to-recover production and decline. The longer the recession (PC talk for depression, it seems) goes on, the more likely no new peak in production can be hit. The reason is simple: we have produced about half of all oil we can reasonably get to for reasonable prices. The rest is in smaller fields that are harder to reach. Consider my modified haystack analogy.

Imagine a giant haystack. Rather than the proverbial needle, in the hay are ten basketballs, 100 tennis balls and 1000 marbles. (Imagine our magic haystack keeps all objects suspended so they don't all fall to the floor.) The result?

• We will absolutely find all of the ten basketballs before we find all 100 tennis balls. Or even a majority.
• We will absolutely find all the tennis balls before we find all the marbles.
• We will find some of each from the very start.
• We will find all the basketballs in the early part of our search, say the first 25 - 40% of total time spent looking.
• The basketballs will equal a majority of all balls/marbles by volume.
  (Take a look at the Discovery/Production graph at the bottom of the blog.)

We've already found all the basketballs and a bunch of the tennis balls. We're down a few tennis balls and a bunch of marbles. Regarding production, the basketballs are going seriously flat and a bunch of tennis balls are getting flat or are empty. There's a lot of oil, but it's just not going to be possible to increase how fast we can get at it.

Where is the recovery?

Economic impacts? In the two large recessions of the 70's, GDP and oil production reflected one another, falling by similar percentages. In historical terms economic growth, food production and population have all tracked along with oil production. Both GDP and oil production are falling at this time. Again, by similar amounts. (See graphs at the bottom of this blog.)

The historic interplay of oil and economy is also seen in oil prices and recessions. Check out the graph at the beginning of the post below.

Oil Addiction and Recession

Vulnerability to oil prices helped cause this collapse

Poorly regulated real-estate lending wasn’t the only cause of the economic meltdown now gripping the industrial economies. Oil addiction also contributed.

The extraordinary rise in oil prices since 2003 has sucked hundreds of billions of dollars out of the US economy (and the Cascadian economy).High oil prices have been a contributing cause of most recessions: Since 1948, “all large oil price increases but two have been followed by recessions,” as Andrew Hoerner and Nia Robinson of Redefining Progress (RP) write (pdf). “Four of the five recessions since 1970 . . . were preceded by big jumps in oil prices.”

Oil prices are now down 4 - 6%. Fourth quarter '08 GDP was falling at an annual rate of around 6%. Coincidence? These two posts discuss the connections between oil prices and the economy.

The oil shock and recession of 2008: Part 1
The oil shock and recession of 2008: Part 2

When, not if (barring a Dark Ages-level global collapse), production declines overtake falling demand, the prices will rocket upward. Again. Price volatility should be the norm, as it has been, now and in the future.

Where is the recovery?

The third part of the Perfect Storm is Anthropogenically-driven Climate Change (ACC.).

Without going into it too far, all of the above have a negative impact on ACC. Obviously, economic limits will affect the building of "green" infrastructure as credit is tight and resources are dwindling. It is important that governments understand that the long term health and safety of their nation and people depends on not losing sight of what happens if we don't successfully transition to sustainable energies and sustainable societies.

It has been reported that climate scientists are privately far more pessimistic about the future than they are letting on. Public pronouncements parrot the 2C warming locked in even if we successfully manage Green House Gas (GHG) emissions this century. Privately, there is talk that 3C or 4C is more likely. This is very bad news, of course, which illustrates that action can't wait, but with the economy crashing and energy decline likely to keep it crashing for the next 5 to 10 years (if renewables don't ramp up, it could last decades), how are we supposed to manage the transition to a low- or no-carbon society?

The answers might be simpler - though not necessarily easy - than one might think: Just say no.

More on that later.

Cheers

Political Will, Political Won't (or Boy Are We In Deep Doo-doo)

This piece by Paul Chefurka gives an excellent overview of where we've been, where we are, and what we need to do. I don't need to add to it. I have reformatted to fit this space.

The article is reprinted whole with permission of the writer. (See permissions at the end of the article.)

Political Will, Political Won't
Introduction
Today's environmental reform movement is founded on two core assumptions. The first is that most of the technical solutions we need to address the world's various crises are available, or at least could be swiftly developed by sufficiently intelligent, hard-working people. The second assumption is that all that's lacking for a successful outcome is the political will to put these technical solutions into effect.

Whether we're talking about replacing coal-fired power plants with wind turbines and using electric cars instead of SUVs, converting industrial agriculture to organic permaculture, or reversing the decline of ocean life though international regulations, it is an article of faith in the reformist environmental movement that we know what we need to do and all that's lacking is a sufficiently visionary leader to put more planet-friendly solutions in place.

Unfortunately, both those assumptions ignore significant aspects of the situation that considerably diminish the prospects that the reforms will succeed. This article examines those assumptions and uncovers the confounding issues.

Global Problems

Wicked Problems
The amount of carbon dioxide in the atmosphere is approaching 400 parts per million.

World oil production is on a 4 year plateau.

Ice caps and glaciers are disintegrating.

In the oceans the coral reefs are dying, dead zones are expanding, and predatory fish species (the ones we eat) have declined by 90% in the last 50 years.

The estimated extinction rate of plants and animals is at least 75 species per day.

Over 75,000 square miles of arable land is lost each year to urbanization and desertification.

A billion people in over 110 countries are affected by desertification.

On the American Great Plains, half the topsoil has been lost in the last hundred years, and the Ogallala aquifer is being drained up to 100 times faster than it is being refilled.

Indian farmers have drilled over 21 million water wells using oil-well technology. They take 200 billion tonnes of water out of the earth each year for irrigation.

We have eaten more grain than we have grown in 7 of the last 8 years, while world carry-over grain stocks declined from 130 days of consumption in 1986 to 53 days today.

The price of fertilizer is rising exponentially.

Climate change may cut African food production in half by 2020.

The cost of food is skyrocketing. Some countries have banned exports of wheat or rice.

We are in the beginning stages of a global financial crisis that could result in either a deflationary or hyper-inflationary depression lasting for a decade or more.

As the list of negative trends to the right clearly illustrates, the scale and diversity of the problems we face are significant. These sorts of problems are known as wicked problems: they are messy, circular, aggressive and interlinked, so that trying to solve one may worsen others. In some cases the trends have been visible for centuries (for example the loss of arable land and desertification), sometimes for decades (as with the loss of aquatic biomass), and some like Peak Oil for a scant few years. In all cases the global trends show no signs of reversing, however much effort has been expended to alter their local or regional trajectories . As their effects become more pronounced, it becomes easier to see their potential to hit our globalized industrial civilization like a planet-sized version of Hurricane Katrina.

As daunting as the individual problems are, the linkages between them are even more important. In many cases, trying to solve one problem can inadvertently make others worse. One prominent example is the attempt to address global warming through the use of ethanol as a vehicle fuel. While there may have been some merit to that primary intention, the secondary effects – increasing dead zones in the oceans due to fertilizer runoff, and rising food prices due to the use of food crops as fuel – eliminated the overall benefit of the effort, and even created a net negative outcome. One dark quip that addresses this sort of backfire is, "Around every silver lining there is a cloud."

It is obvious that dealing with the panoply of problems besetting our world involves considerably more than just knocking them down one at a time. If we don't apply holistic, system-level thinking to the converging crisis, our well-meaning efforts stand an excellent chance of making the situation worse. It is a mistake to think of "solving" these problems in any global or final sense. Some of them may be improved regionally, especially if they are not in conflict with other local problems. The logical corollary is that there will be other regions where those same problems cannot be solved, due to different local circumstances.

The big concerns, however, are those problems do not respect national or regional boundaries. Global warming and the death of ocean life affect us all, and failing to address these problems in any region can make the situation worse for everyone. In these cases, it's obvious that a collective global response is called for – a response that brings together the political, economic, industrial and opinion-making institutions of our world. If these institutions acted together they might have a chance of implementing the deep and wide-ranging changes the situation calls for.

Unfortunately, we have seen precious little evidence of such a collective response. For example, we have repeatedly seen climate change conferences break down or issue watered-down statements that fail to address the scale of the accelerating crisis. While individuals, citizens' groups and even some governments are obviously aware of the urgency, collective action repeatedly fails to gain the required global traction.

This state of affairs is no accident. This is not because of some dark and sinister cabal or conspiracy to hold back change in the name of personal profit, though there probably are some instances of that. The real reasons are at once more banal and more worrisome than the Bilderberg watchers assume.

In the next section we will begin to examine the reasons for this sorry situation.

Our Origins

Hunter-Gatherers
There have been some remarkable recent discoveries about the quality of life in the times before modern civilization. We have always known that society back then consisted of hunter-gatherers, organized as tribes. The classical impression was that their lives were, in the words of Thomas Hobbes, "solitary, poor, nasty, brutish and short".

Recent research has shown that in fact hunter-gatherer societies enjoyed a remarkable quality of life characterized by low levels of effort, plenty of leisure time, good nutrition, low levels of disease, egalitarianism, very low levels of suicide, homicide and warfare, a high degree of personal autonomy and close-knit communities. In the words of anthropologist Marshall Sahlins, hunter-gatherers were "the original affluent society."

In one of our more damaging semantic restatements we have defined "subsistence" living as bad and "sustainable" living as good – even though in the context of a hunter-gatherer society, they mean exactly the same thing.

In order to understand the role that politics plays in our collective failure to address our predicament we need to examine the nature of modern civilization.

Now, when I use the term "modern civilization" I’m not just talking about the growth of industrialism over the last two hundred years or even the growth of Western culture over the last two thousand years. What we usually think of as modern civilization is the development, refinement and culmination of cultural changes that began ten thousand years ago. To understand who we have become we need to look back at who we were before we became "modern and civilized" and what happened to push us across that threshold.

Human beings have been around in one form or another for over two million years, first as Homo habilis, then as Homo erectus, and finally as Homo sapiens. For virtually all of those two million years, we lived in harmony with our environment. While it may not always have been a comfortable life (how could it have been, without color cable television or cars?), we were nonetheless perfectly adapted to our habitat. This statement is supported by two facts: over most of that period our presence caused little or no damage to the planetary biosphere; and during that time the human population was essentially stable, growing to only about five million in two million years – a net addition of a scant two people per year.

So here we have a species that was exquisitely adapted to its environment, living an affluent yet sustainable life, treading lightly on the earth, never outgrowing or overrunning its habitat, at least in terms of the species as a whole. We lived in harmony with our world for two million years, for 99.5% of the time we have been on the planet. Then suddenly, in the last ten thousand years – a mere 0.5% eye blink of time – our population increased over 1000 times, we decimated the earth's stocks of non-renewable resources, we cut down 90% of the planet's forests, we fished her oceans to the edge of extinction, and we live in a near-constant state of conflict with each other. In this grievously short time we have brought about all the wicked problems listed above.

So what the hell happened?

What Changed Us?
In a word, it was agriculture.

About 10,000 years ago humanity developed organized, settled agriculture. Starting from a small area in the Middle East, over the next few thousand years the world's predominant social model gradually changed as the new agricultural societies replaced hunter-gatherer or horticultural societies by means of displacement, absorption or genocide. We settled down (as one has to, to raise monoculture crops), and started to form larger social structures – villages, towns and cities. Nobody is precisely sure why we developed monocrop agriculture – after all, our previous ways of life had been perfectly satisfactory for millions of years. It may have been precipitated by climate changes, or growing populations in some areas, or it may have been just one of those things. Whatever the trigger was, the threshold of radical human change is clearly demarcated by fields of grain.

Humans and Resources
The most far-reaching change that came out of our development of agriculture was a heady awareness of our ability to control the world. For the first time in our two million year history we did not have to simply take whatever Mother Nature offered. We suddenly realized that we could control her bounty, we could coax, cajole and coerce her into providing what we wanted.

As we planted the seeds of millet and maize in the earth, we planted a very different seed within ourselves – the seed of a new idea about our relationship with the earth. We now saw our ability to control the earth's produce as a sign of our mastery, our ownership, our dominion. No longer would we need to be just another nexus in the web of life, now the web belonged to us. And just like any other possession it was ours to do with as we saw fit.

We came to the profound conclusion that the world consisted of only two broad classes of things: human beings and resources.

The Growth of Hierarchy
The shift to settled cultivation entrained a host of other changes. Our diet was dramatically impoverished. Levels of chronic disease and malnutrition increased. Levels of social violence escalated. And we witnessed the appearance of hierarchies that had not previously existed in our tribal social systems.

Anthropologists are still debating why the development of agriculture resulted in the simultaneous growth of social hierarchies. In my opinion it happened because the risk to farming communities from crop failures was very high. If the crops failed, these communities contained too many people to survive on local foraging or hunting – both because population densities were so high and because the habitat destruction caused by farming had reduced the amount of local wild food. There was also no way to bring in enough food from other unaffected regions. Therefore the risk of crop failures had to be mitigated. This mitigation involved many activities. For example, local hunting kept larger crop-eating pests at bay, irrigation helped in times of drought, and shamanic intercession took care of storms and blights.

Each of these activities of hunter, irrigation engineer and shaman was highly specialized in comparison to the more generic farming skills required for planting and harvesting. This specialization conferred power on the holders of those skills. This was especially true in the case of shamans, whose power could not be entirely learned, but was said to emanate from a mysterious connection with the supernatural. Their attempt to exercise control over nature gave the shamans the real ability to exercise control over other people ("Obey me or the gods will frown on us, and the crop failure will be your fault!"), and the first power hierarchies were born.

The Effects of Surplus
Centralizing the production of food and managing its distribution introduced new elements to the growing hierarchies. Since some of the food was needed by people who had no direct hand in producing it (such as weavers, shamans and granary guards), some means had to be found to give them equitable access to it. This meant we had to come up with a way of defining the relative values of different kinds of work, and to establish a medium of exchange so that people could obtain the amount of food their work was deemed to be worth. In one stroke the concepts of money and wages appeared. This of course transferred a lot of of power to those who established the value of work and controlled the money supply.

Yet another major impact of organized agriculture was the psychological effect of reliable food surpluses. For the previous two million years, our existence had been shaped by sustainable subsistence – our wants had been satisfied by the concept of "enough". People worked until they had enough, then they stopped. Now there was almost always "more than enough". This awareness caused yet another radical change in how we looked at the world.

The combination of food surpluses and a medium of exchange made trade for non-food goods possible. This trade enabled a continuous growth in the material comfort of peoples' lives, and it did not take long for them to become accustomed to this new state of affairs. As memories of the past faded over just a few generations, the new conditions of growing abundance were rapidly accepted as the "natural" order of things.

The Roots of Modern Civilization
We now had the three critical preconditions for "modern civilization": the belief that humans owned the world and all its products; the belief that continuous growth in material prosperity is the natural order of the universe and the birthright of humanity; and the belief that hierarchy is essential to manage the rapidly growing complexity of civilization.

Guardian Institutions
As always happens with hierarchies, power flows uphill. Along with it go the perquisites of power, the most important being the right to higher levels of material abundance than those lower in the pecking order. To ensure that this comfortable situation is maintained, part of the accumulated social power is used to protect the situation. This is done by strongly defending the three preconditions set out above. The people to whom this power flowed quickly realized that the status quo is most easily maintained if the rest of the community sees this situation as the only possible way life can work, and any suggestions to the contrary are the result of either some nefarious agenda or outright insanity.

Over time an interlocking system of guardian institutions grew up to protect and defend the three key ideas of ownership, growth and hierarchy:

• Economic and financial institutions cooperate with business and industry to set the value of work and control the money supply (thereby controlling access to food). In this role it doesn't make any difference whether an economy is capitalist, socialist or communist. The core beliefs it guards are always the same: ownership and growth.
• Educational institutions teach successive generations how the system works, giving them the tools to integrate into it and manipulate it, while at the same time training them to see this as the only possible way the world can work.
• Communications media reinforce this message by enlisting people in the growth paradigm. They do this both through overt messages like advertising and covert messages embedded in the story lines of entertainment.
• Religious institutions (as distinct from the religions they purport to enshrine) are primarily normative social structures. Many incorporate an overt message that we should be content with things as they are. There are often injunctions against questioning authority, as all authority is seen to devolve from the supernatural – just as it did for the shamans of the early agricultural era.
• Legal institutions enforce the norms of ownership and hierarchy in ways too numerous to count. These range from the protection of privilege (one law for the rich, one for the poor) to the preferential defense of property rights over human rights.
• Political institutions sit at the tip of the pyramid. Political institutions encode, enshrine and manage the application of social power. Politics is the institution that legitimizes all the others. Because of its unique ability to make laws and its access to legalized violence to defend those laws, politics is the fullest expression of the power hierarchy of modern civilization.

At the base of the hierarchy, supporting it all, are an ever-diminishing number of farmers who apply ever-increasing amounts of knowledge, technology and petroleum to ensure an ever-expanding supply of food. Because at the core it is their food that makes the whole edifice possible.

So where does this put us in relation to the array of wicked problems we listed at the beginning? Simply put, every one of those problems is the result of unbridled growth. They are the logical results of the continual exercise of the first two preconditions of modern civilization, the twin drummers of ownership and growth we have been marching to for ten thousand years since the invention of agriculture.

Politics is the problem, not the solution
In light of this analysis it is obvious why we are repeatedly failing to address any of these wicked problems. The only permanent "solution" to any of them is the secession of growth and the relinquishment of ownership. That idea is anathema to our guardian institutions. And as the occupants of the pinnacle of power, our politicians have every reason to derail efforts in that direction, no matter how small.

Politics, regardless of party or ideology, is part of the problem and can never be part of the solution. While it may be easier for the average person to live under the rule of a more humane parcel of rogues, at its heart politics is the primary guardian institution of modern civilization. The role of all politics is to manage power, and power is always managed for the benefit of the holders of power. It doesn't matter whether the power managers are Democrats, Republicans, Tories, Grits, Social Democrats, Communists or a military junta. They all fulfill the same role in service of the same beneficiaries.

In order to fulfill that role they unite with the other guardian institutions – the economic, industrial, legal, religious, educational and communications organizations. Together they create, maintain and guard a noetic milieu (a globalized intuitive, non-rational consciousness) in which any values that challenge the two fundamental preconditions to modern civilization are seen as incomprehensible, self-evidently absurd, dangerous or even insane. Since the primary value system these guardians protect is the paradigm of continuous material growth, the most dangerous of all radical ideas are any proposals to limit, halt or reverse that growth.

The guardian institutions are so firmly embedded in our global culture that it is ultimately fruitless to try and remove them from power by either direct or indirect confrontation. The penalties for trying this are severe and ruthlessly applied.

Conclusion
In light of this rather dismal assessment, is there any hope for a return to a sustainable, egalitarian, interconnected, considerate and just civilization? I strongly believe that there is, but getting there will be neither sure nor easy.

The institutions that stand between us and such a future are trapped by their dependence on the very paradigm they are sworn to protect. They defend the belief that permanent material growth is natural, possible and inevitable. While they defend that belief with laws, guns and television, ultimately their power comes from people who accept that premise. If people stop believing that such growth is possible the institutions' power declines, no matter how many defense mechanisms they engage. If growth falters, the people lose faith and the institutions crack and crumble.

Look back at the list of wicked problems. Every single one of them is the result of our growth encountering limits. While we may be able to figure out ways to temporarily circumvent some of these limits, the pattern is now clear. The growth of modern civilization is slowing down, and is even showing evidence of coming to a halt. For the guardian institutions that depend on growth for their very survival, this is like a diagnosis of terminal cancer.

What that means is that our guardian institutions will inevitably start losing their monolithic top-down power. This dis-integration will leave "cracks in the sidewalk of civilization". And just as grass grows through cracks in real concrete, small communities and individuals will start to appear through the metaphorical concrete of our industrial civilization.

No one can predict when, where or how the dis-integration will appear. It will take different forms in different places. The response of the guardians will probably be violently draconian in most cases. But there are places where communities have already formed in anticipation of such an opportunity. Like "Gaia's antibodies" they will work to heal the wounds, widen the cracks, and let the sunshine and fresh air revitalize the hidden earth. As the seed stock of the next phase of civilization they will spread their values on the wind.

The next cycle of human experience on this planet will be very different from any that has gone before. We will have fewer resources, but more knowledge. We will have to deal with toxic landscapes, a warming climate, shifting rainfall patterns and the emergence of new diseases. To balance that we will have better communications and longer memories than any civilization that has gone before us. We will not fall back into the stone age, but neither will we motor off happily into the sunset in our electric cars. There will be hardship and misery, but there will also be joy – the joy that comes from looking forward, from participating in our communities, from the love of those around us.

Above all, there will be the future.

Acknowledgments
I'm indebted to the writing of Daniel Quinn and John Zerzan, as well as to Riane Eisler for her book "The Chalice and the Blade". I'd also like to acknowledge the philosophy of Anarcho-Primitivism for its critique of civilization (though perhaps not for its suggested solutions).

September 3, 2008

© Copyright 2008, Paul Chefurka
This article may be reproduced in whole or in part for the purpose of research, education or other fair use, provided the nature and character of the work is maintained and credit is given to the author by the inclusion in the reproduction of his name and/or an electronic link to the article on the author's web site. The right of commercial reproduction is reserved.

Hat tip to a commenter at Climate Progress for his inappropriately long comment.

Money, Debt, the Fed and Usury

If you don't understand the Federal Reserve, you don't understand the world you live in. Draw your own conclusions...

This is the best presentation I've ever seen on the Federal Reserve. It is made to be understood by anyone, regardless of knowledge of The Fed.

Money as Debt 1
Money as Debt 2
Money as Debt 3
Money as Debt 4
Money as Debt 5

Another take:
Federal Reserve Part 1
Federal Reserve Part 2
Federal Reserve Part 3
Federal Reserve Part 4
Federal Reserve Part 5

A Cliff's Notes-type version:

A History of Money and Banking Secrets That Banks Dont Want Published A History of Money and Trade
To start with a history of money and debt, we must go back many years ago when people used to trade their wares for the things they wanted and needed.In place of money or Federal Reserve Notes, you could trade a well made pistol for a cow, which you could eat or trade a remainder of for other items like clothing.It didn't take long for people to realize there needed to be a more efficient means of trade. If you were a farmer, it was too difficult to carry baskets of fresh corn around to trade for a new horse. And, the person selling the horse might not want any corn at all.

A History of Money and Gold
So, people used gold for cash money, which always had a stable value, to trade for the items they wanted and needed... Gold was very heavy to carry and hard to conceal. In the beginning of our banking history what people would do is leave their gold with a goldsmith.The goldsmith would then give them a note, or paper money, that stated how much gold they had on deposit with the goldsmith (bank).The farmer could then take this paper money note... ...the note would continue to trade hands and very few people would ever go redeem it for the gold it was backed by.It didn't take long for the goldsmith to understand this reality. So, here he is storing all of this gold for other people. Let's give it a value to make this next principle clear.Let's say the gold he is storing is valued at $1,000 and there are $1,000 in real cash money notes backed by this real gold being circulated.

A History of Money and Loans
When many people wanted a loan for say a total of $1,000, he decided no one would notice and it would be real easy to lend them someone else's gold... And, he'd only charge 10% interest... ...why not lend out to anyone who looks like they can repay? And, that year he lent out a total of $10,000 worth of newly created or you could say counterfeit, funny money notes.

A History of Money and Inflation
...There is now ten times as much currency/notes floating around then there is real gold to back it. This causes the value of the original $1,000 to loose 90% of its value...Everyone now has way more money then they did the year before, they feel rich...This means there is still $1,000 of real cash money notes backed by REAL gold. $9,000 in funny money loans outstanding, $9,000 in total notes circulating and the goldsmith has pocketed $2,000.So, the goldsmith is now up $2,000 out of thin air...

A History of Money and Recession
People tighten up their spending for no apparent reason, but it is soley because there are less notes in circulation. So, prices start to fall... RECESSION...Year five, the borrowers paid back $1,400 worth of principal and $600 in interest. There is still only $1,000 in gold. $4,000 in loans outstanding, $1,000 in total notes circulating and the goldsmith has pocketed another $2,000, totaling $10,000 thus far, but $4,000 is still owed.With only $1,000 in total notes circulating, people obviously cannot continue to pay, so there is one thing left and that is the confiscation of their assets, and the remaining $1,000 in total notes circulating. Can you say BANKRUPTCY...

A History of Money and the FED
Oh, I know says the goldsmith, I'll just have to keep lending this counterfeit money backed by nothing so they can work hard for me for free, and I will own every asset on this planet for free. So the goldsmith starts to lend out money again and lends out $10,000 the first year which again causes the BOOM. And, on and on it goes....the goldsmith's are now called the Federal Reserve System and the funny money counterfeit notes are called Federal Reserve Notes. In the 1930's there was roughly $30 Billion in gold at Fort Knox, and now we owe $7,937,046,735,823.So, then I ask you fellow American, is this a history of money and debt that you thought was going on when you borrowed from Capital One or Providian?...