The first person who says to me "but nobody said that fossil fuels would run out" gets a biff on the nose.

To be fair I've already had someone say that they didn't really believe me when I said there was a peak around the corner (said in 2001), but when they saw $100 they remembered my prediction. It seemed so remote then.

Also got 9/11 ahead of time and a number of others. No pandemic yet and no impact of the demographic timebomb being noticed either. The dissolution of US is still on track.

They always say, "Nobody saw it coming."

Yesterday I stumbled upon a paper published by a couple of PIMCO executives back in April of 2006. It illustrates that "they" certainly did know it was coming, or at least were forewarned, but nevertheless chose to throw caution to the wind:

http://www.pimco.com/LeftNav/PIMCO+Spotlight/2006/Spotlight+Dialynas+Par...

(This is pretty wonkish stuff and, for someone like me who is not trained in economics, it took hours to wade through this short 11-page paper.)

If one can look past their recommended preventative policy prescriptions (which at this late stage are worthless--the patient is already on the emergency room table suffering from a heart attack, eminent kidney failure and lung disease) and focus upon the assesment of the economic situation at the time the paper was published back in 2006, one is struck by the prescience of the authors of the paper. The paper also helps one to frame current economic events in a much larger, global framework, giving one a more universal understanding of just what in the Sam Hill is going on. Their warning was this:

...it must be a national priority to substantilly reduce both the fiscal and current account deficits without inducing a recession in the US. Failure to implement policies that alter the otherwise inevitable expansion of these deficits will result in a very bad outcome--one whose form is impossible to predict.

The paper is chock full of wonderful information and insights, all fascinating and worthwhile, but I want to focus on just two.

To begin with, the authors observe that the foreign governments who hold massive and ever-increasing US dollar reserves "may, among many choices, decide to:

1.  Consume US goods in exchange for their exports
2.  Consume commodities and raw materials for internal infrastructure
3.  Invest their reserves in productive US assets
4.  Lend the reserves back to US borrowers, which include
     • The US government ($7.5 trillion, including state & local)
     • US corporations ($10.9 trillion, including all business loans)
     • US households, divided into
           a.  Homebuyers ($10.6 trillion)
           b.  Consumers ($2.6 trillion)

I have inserted in parentheses the dollar amounts for each of the debt entries. These were the amounts outstanding at the end of Q2-2008 and come from the Federal Reserve:

http://www.federalreserve.gov/releases/z1/Current/z1r-2.pdf

My concern is that, after the reshuffling of the debt chairs announced by our government last night, with its implication that the US government is to become guarantor of all US debt, that the new configuration will look like this:

1.  Consume US goods in exchange for their exports
2.  Consume commodities and raw materials for internal infrastructure
3.  Invest their reserves in productive US assets
4.  Lend the reserves back to US borrowers, which include
     • The US government ($31.6 trillion)
     

I think the quandry/sentiments/concern of just about everyone this morning were expressed by Yves over at Naked Capitalism:

Oh boy, bye bye the US AAA rating (at some point, not due specifically to this move, but from the philosophy it represents) and the dollar. The financial markets are simply too large for the US taxpayer to stand behind them all, but that isn't going to prevent the authorities from trying.

To put the enormity of the problem in perspective, consider that there are 116 million households in the United States. If we divy up that $32.4 trillion in debt amongst those households, the average debt burden per household is about $280,000. Given that the median US household income is only about $48,000 per year...

http://www.census.gov/prod/2007pubs/p60-233.pdf

...it's easy to see there's a problem here. The plan announced this morning comes straight out of the Hoover economic playbook. But, just like the Hoover administration's economic prescriptions, it fails miserably to deal with the underlying problem--a debt burden that is just too great to be borne by America's households and businesses. Regardless of how they shuffle the chairs, the debt burden is still too high. Some of the debt chairs will eventually have to be thrown overboard by default, or shrunk in size by inflation. And to make the problem even worse, our policy makers seem to labor under the delusion that we can not only keep all the debt chairs on board, but keep adding more.

The second point the paper makes that I want to emphasize is this:

[Princeton economist Frank D. Graham] understood that poorly crafted sets of economic policies and rules in a global economy would lead to great imbalances that threaten stability and freedom.

The authors make the case that the global fiscal and trade imbalances that have existed for the last thirty years are similar to those that existed in the 1920s that caused the Great Depression, the subsequent rise of fascism and ultimately World War II.

Of course back then the U.S. was a creditor nation. Germany was a debtor nation. However, I will leave you with this one final thought from the authors:

The global economy is going through a similar upheaval today and the growing imbalances will ultimately lead to extreme global economic hardship over the next two decades if not corrected. History suggests that this hardship will be concentrated in debtor nations, however creditor nations dependent on debtor-nation aggregate demand will suffer just the same. The U.S. is the world’s largest debtor nation today, with China the world’s largest creditor.

PIMCO published a follow-up paper in September 2007. It deals a lot more specifically with energy issues and how they integrate into the larger economic picture. I am still wading through it, but am very interested to learn their thoughts on energy.

They always say, "Nobody saw it coming." When in fact, some people did see it coming, and were ignored. Even people as influential as Warren Buffet.

What's ironic is the date... Check out the copyright date in the right side...

And for some much needed levity, here's Jon Stewart's take on the financial crisis:

http://www.comedycentral.com/videos/index.jhtml?videoId=185175

So you're telling me Ebola has escaped from the lab. I feel calmer already.

like hearing that the Ebola virus has escaped the lab

Wow that reassures me.

The following link is now "Not found" (because of their quest to update pages it says on the homepage) but here's what was in Google's cache yesterday - just checked still seems to be cached.

UTMB opens bio terror defense lab

GALVESTON ­- UT System leaders broke ground for a bio-terror and infectious disease defense laboratory at UT Medical Branch Galveston on Wednesday, and were joined by U.S. Sen. Kay Bailey Hutchison, R-Texas, and House Majority Leader Tom DeLay, R-Sugarland, who stressed the importance of the Galveston National Laboratory in the post-Sept. 11 world.

The midday event was a break from the first executive session of the Board of Regents, which is meeting over two days at UTMB-Galveston.

Research conducted at the lab, expected to be built by June 2008 at a cost of $167 million, will be dedicated to developing vaccines and diagnostic tests for diseases and pathogens such as anthrax, bubonic plague, Ebola, West Nile virus and drug-resistant tuberculosis.

Lucky the storm hit 1 week before the lab was stocked up wasn't it?

Ike renews fears for biodefense lab on Galveston

AUSTIN – Hurricane Ike's timing – just a week before the opening of Galveston's massive national biodefense lab – is raising new questions about the prudence of housing deadly pathogens on a disaster-prone island.

...UTMB officials have worked for years to convince local residents that the new lab – and the existing ones – are foolproof. Their facilities are built to withstand tornadoes, which can have stronger winds than many hurricanes. And dangerous agents are stored in powerful industrial refrigerators, with chemicals that can keep them cool for at least three weeks.

University spokeswoman Chris Comer said the national lab, which is not yet open for research or specimens, withstood this weekend's storm well. At the campus' other high-security labs, there was some minor flooding in an unused basement, and a couple of generators failed, she said, but nothing endangered any research.

But accidents do happen – and UTMB isn't immune to them.

I love these ridiculous articles. They always start the same-it is all so complicated that no one can understand what is going on. What an incredible load of BS. Mangement of financial companies have engaged in both widespread fraud and widespread reckless behaviour. They are being bailed out with giant sums of taxpayer money so that they can continue with the same garbage. Trillions of dollars transferred from the productive economy into the rathole, never to return. As I type this the MSM is still incredibly spinning the yarn that mass derivatives "efficiently reduce risk". I guess they rightfully assume that any population that would accept Sarah Palin as a VP candidate would accept anything.

Lookin forward to it.