Hello JD,

Thxs for responding. Recall Katrina + sewage, Rita + sewage, Gustav + sewage,... NYCity sewage train that practically traversed the US looking for a place to empty a few years ago...Need I go on about the need for O-NPK recycling, increasingly unaffordable I-NPK, and future energy for food at 10 energy-embedded calories/foodstuff calorie [1500 mile Caesar salad]? How about Pimental's calcs on energy-embedded per bag of I-NPK? Or is the latest UN FAO warning good enough?

The Drumbeat is precisely the place to discuss this interlocking food & energy situation, plus the possible ramifications, so that maybe we can avert the worse. I assume you have read the recent warnings by Norman Borlaug and William Doyle [POT's chief]? Happy Thxsgiving to you if you have donated some money or food to your local foodbank.

JD,

I've visited your site. It's one of the single most useless places on the internet, not for the subject matter, but because you are illogical, biased, and anything but scientific. Every time you peak out into the real world, like here, you get the crap beaten out of you (metaphorically), which is evident in your little insult above. And what better example could we hope for: don't fight with facts, but with attacks on the site you are posting at!

The irony is flowing like a newly tapped well.

Please, save it for your site.

Jeers

He was referring to their school of economics, not their nationality.

Don,

Thing is, ideally we shouldn't be here at all, an economy staggering under the collosal weight of massive mountain of highly toxic and complex debt, which has the potential to crush it flat. It's a dangerous place to be, and trying to find a way out from under the anvil on our chest isn't going to be easy or painless. All the options are variations on bad, in my opinion. And that's just the economy. Pile on the massive challenges of Peak Oil, climate change, population growth, environmental degredation and things don't look good.

I may be wrong, but I get the impression that you are substantially underestimating the problems connected to "monetization of the debt." Printing money on vast scale is perhaps the worst option to take. This might have been a way out if the US economy was fundamentally sound, only it isn't. Menetization is a very risky play. It risks destroying the value of the dollar and it's position as the world's reserve currancy, which functions almost like a US "tax" on the rest of the world and conveys many other advantages. Devaluing the dollar would require, given the US' weak economic position, the agreement of those countries that supply the US with loans, debtor nations on the US scale are prisoners of their debts and are not in a position to just demand unlimited credit from the rest of the world for ever. Somehow the US has to get back to living and spending within its means and reducing its uncontrolled borrowing or it will eventually simply go bankrupt.

Hi, Don.

There is no way to make a successful transition of any meaningful size now. An extended contraction will collapse the financial system through an endless wave of bankruptcies. We're struggling to keep it going now and the bankruptcies are just beginning when compared to the total number of businesses that will eventually default on their loans.

I think Greer is quite off if he thinks we will have a staircase down for decades. Any way I look at it, the current financial system breaks down and we're forced to local currencies or whatever we can muster together, a la Argentina but worse because it will be global.

I am quite open to being shown that it's possible to execute this staircase down (using the same currency system) but nothing I've studied thus far seems convincing to me.

Now if we expand his definition and allow for one or more alternate currency systems to arise rather quickly as the current crop disappear, we still run up against the difficulty of re-establishing the network of trust and trading mechanisms between world currencies. Trade becomes very local very quickly and it will take decades to again create an extensive global trading system, if we can.

Someone please chime in if they see another way of this playing out. Worldwide financial collapse is still the sticking point for me.

It puzzles me a lot why anybody would even want our treasury bonds. I figured they were about as valuable as a promisory note from my spendhappy neighbor who I know is so far in debt he won't be able to pay off even if he lived to the year his granchildren should live to.

Nice analogy...

Perhaps you would be more inclined to lend your spendhappy neighbor some dough if he was also your biggest customer. Not saying it would necessarily be a smart move, but the prospect of your biggest customer declaring bankrupcy, possibly putting you out of business also, might nevertheless be an additional motivation to you.

So you lend him some money which he uses to buy lots of stuff in your store, and for a while longer, everything is fine... at least on paper.

I often over-simplify because of time and space retraints. I think it's an over-simplification to just state that Keynes' theories didn't work because they weren't really tried. I'm really not sure, looked at carefully, that WW2 showed that his theories worked either. After all, I don't see that Keynes wrote anywhere that a world war was an economically effective way to get capitalism out of a long and deep depression. One could argue that this was merely jumping out of the frying pan into the fire, even if it was true.

The recipe is therefore relatively simple, it's possible to spend ones way out of recession if only the state spends enough and pumps money into the economy in a "New Deal." But is it really that simple? More to the point, will it work now in the absence of war? Or do we have to have another world war to get us out of another Great Depression? I certainly hope not!

Is the United States really in a position to spend it's way out of the crisis it's in? How much more can the US borrow? Already one is supposedly borrowing 2 billion a day and the current exspenditure on the various bailouts is in excess of 7 trillion dollars and rising. Is this level of borrowing sustainable without recourse to war, a rather drastic way to save capitalism I would contend!

Keynes' theories didn't work pre WWII because they weren't really tried. WWII showed that the theories worked because it was only then that we really did enough spending to do the trick.

I would think the undersized recovery 1933-37, as a response to an undersized stimulation would add credence to the theory. Then 38, showed what eliminating the stimulus did. Adding in 33-40 should certainly improve the statistical significance of the data, even if taken by itself it isn't wholly convincing.

Exactly Don, we are in a different set of circumstances than we were in the 1930's, especially in the United States. In many ways I think things are worse today, and we are in a far weaker position to climb out of the hole of Great Depression 2, should we be unfortunate enough to fall into it. We might never get out again. So the priority must be to do everything to avoid falling in. Unfortunately, I'm not optimistic that our current leadership is the right one to take up this enormous challenge and time is running out.

You might be interested in a poem written by Bernard de Mandeville around 1705 called "The Fable of the Bees: or, Private Vices, Publick Benefits.

"My own proposal to deal with income redistribution is the negative income tax. Those employed will hate it, because it will necessarily increase tax rates to distribute income to the unemployed. But in an environment of massive (25% to 40%) unemployment we need to decouple income from work, because with falling real GDP there just are not going to be enough productive jobs to go around."

This misses the mark a little bit. We should not resign ourselves to paying people not to work endlessly, forever. Instead we should pay them TO work. That is, instead of taxing employed people to give handouts to unemployed people with the goal of enabling them to stay unemployed forever, we should use those taxes to employ those previously unemployed people doing something productive. We need a new WPA. In the end, the ability to produce wealth in a nation is directly correlated with the percentage of its populace engaged in productive activities. Your approach would just set off a competition for avoiding work, because those who successfully avoid work still get paid. Why work and get paid when you can not work and still get paid? (This was the same problem experienced by economic systems that claimed to be based on the teachings of Marx.)

At bottom, the key to Keynesianism is not lots of spending, but getting lots of people working at productive activities. The spending is a means to that end, not an end in itself. Spending has to be done right so that it leads to the desired end of getting more people performing productive work. The current bailouts will never succeed so long as they focus on shoveling money into the non-productive sectors of the economy (FIRE: finance, insurance, real estate) and refusing to give a dime to sectors like manufacturing (e.g. auto industry).

Before the current gravitational collapse of the world economy, lots of people were working because everyone believed they could sell whatever it was they were doing (even if it was non-productive, such as shuffling debt instruments around). The economy hummed along due to self-fulfilling prophesy. When suddenly everyone stopped believing they could sell the stuff everyone was doing, suddenly lots of stuff stopped being done and lots of people lost their jobs. Again, self-fulfilling prophesy. Before the implosion, unproductive work like debt shuffling was still rewarded because those with the big bucks paid them to do it in the belief that they would get repaid with interest in the future. This belief was false, but the effect it had was to keep Keynesian-style spending going throughout the entire economy, thus keeping everyone employed doing something, and nobody starved. When the belief was changed, suddenly those with the big bucks didn't want to pay people to do stuff that was never going to generate a return for the investor.

People hate to pay other people to do nothing useful, i.e. nothing that will ever produce a return on the investment. Before the implosion, a lot of people were being paid to do useless things because those paying them *believed* they were doing useful things that would generate a return. Now, post-implosion, the rosy tinted goggles have come off and it is now starting to be realized (by everyone but those putting together government bail-out packages) that those things were in fact useless and will never generate a return. The answer is not, as you suggest, to start explicitly paying people to sit on their asses for the rest of their lives doing nothing. The answer is to start paying them to do public works. The government should not become an endless source of welfare payments that keep the nation idle, but should become the employer of last resort, paying people to do something useful. Like building wind turbines and rail lines.

(For a more tongue-in-cheek treatment of the same issue, see this posting, "Thought Experiment," actually written before the stock market implosion hit, but after the housing implosion was well underway:

http://home.comcast.net/~kevin.cherkauer/site/?/blog/view/20/
)

Utopia in Decay
http://home.comcast.net/~kevin.cherkauer/site

Kevin Cherkauer