Generational Dynamics Forum - New Site

JIM RICKARDS:

The Federal Reserve actually, in some ways, already has failed.
I spoke to a member of the Board of Governors of the Federal Reserve and I said, "I think the Fed is insolvent."
This Governor first resisted and said, "No, we're not."
But, I pressed her a little bit harder and she said, "Well, maybe."
And, then, I just looked at her and she said, "Well, we are, but it doesn't matter."
In other words, here's a Governor of the Federal Reserve admitting to me, privately, that the Federal Reserve is insolvent, but said, it doesn't matter, because central banks don't need capital.
Well, I'm going to suggest that central banks do need capital.

The Fed has increased its capital; they currently have about $56 billion.
That sounds good.
You say, "gee, $56 billion is a lot of money, that's a pretty good capital base."
But that's not the whole story.
You have to compare the capital to the balance sheet.
How much in the way of assets and liabilities is that amount of capital supporting.

When you look at that it's a much scarier picture, because the actual liabilities, or debt, if you will, on the Fed's books is $4.3 trillion.
So you've got $4.3 trillion sitting on this little skinny capital base of $56 billion.
That's very unstable.
Prior to 2008, the Fed's leverage was about 22 to 1.
Meaning they had $22 in debt on their books for every $1 of capital.
Today, that leverage is 77 to 1.

So, yes, the capital has increased, but the debt and the liability has increased much more.

JOHN MICHAEL GREER:

A human society is an ecosystem. Like any other ecosystem, it depends for its existence on flows of energy, and as with any other ecosystem, the upper limit on its complexity depends ultimately on the difference in concentration between the energy that enters it and the background into which its waste heat disperses. (This last point is a corollary of White’s Law, one of the fundamental principles of human ecology, which holds that a society’s economic development is directly proportional to its consumption of energy per capita.) Until the beginning of the industrial revolution, that upper limit was not much higher than the upper limit of complexity in other ecosystems, since human ecosystems drew most of their energy from the same source as nonhuman ones: sunlight falling on green plants. As human societies figured out how to tap other flows of solar energy—windpower to drive windmills and send ships coursing over the seas, water power to turn mills, and so on—that upper limit crept higher, but not dramatically so.

The discoveries that made it possible to turn fossil fuels into mechanical energy transformed that equation completely. The geological processes that stockpiled half a billion years of sunlight into coal, oil, and natural gas boosted the concentration of the energy inputs available to industrial societies by an almost unimaginable factor, without warming the ambient temperature of the planet more than a few degrees, and the huge differentials in energy concentration that resulted drove an equally unimaginable increase in complexity. Choose any measure of complexity you wish—number of discrete occupational categories, average number of human beings involved in the production, distribution, and consumption of any given good or service, or what have you—and in the wake of the industrial revolution, it soared right off the charts. Thermodynamically, that’s exactly what you’d expect.

The difference in energy concentration between input and output, it bears repeating, defines the upper limit of complexity. Other variables determine whether or not the system in question will achieve that upper limit. In the ecosystems we call human societies, knowledge is one of those other variables. If you have a highly concentrated energy source and don’t yet know how to use it efficiently, your society isn’t going to become as complex as it otherwise could. Over the three centuries of industrialization, as a result, the production of useful knowledge was a winning strategy, since it allowed industrial societies to rise steadily toward the upper limit of complexity defined by the concentration differential. The limit was never reached—the law of diminishing returns saw to that—and so, inevitably, industrial societies ended up believing that knowledge all by itself was capable of increasing the complexity of the human ecosystem. Since there’s no upper limit to knowledge, in turn, that belief system drove what Catton called the cornucopian myth, the delusion that there would always be enough resources if only the stock of knowledge increased quickly enough.

That belief only seemed to work, though, as long as the concentration differential between energy inputs and the background remained very high. Once easily accessible fossil fuels started to become scarce, and more and more energy and other resources had to be invested in the extraction of what remained, problems started to crop up. Tar sands and oil shales in their natural form are not as concentrated an energy source as light sweet crude—once they’re refined, sure, the differences are minimal, but a whole system analysis of energy concentration has to start at the moment each energy source enters the system. Take a cubic yard of tar sand fresh from the pit mine, with the sand still in it, or a cubic yard of oil shale with the oil still trapped in the rock, and you’ve simply got less energy per unit volume than you do if you’ve got a cubic yard of light sweet crude fresh from the well, or even a cubic yard of good permeable sandstone with light sweet crude oozing out of every pore.

It’s an article of faith in contemporary culture that such differences don’t matter, but that’s just another aspect of our cornucopian myth. The energy needed to get the sand out of the tar sands or the oil out of the shale oil has to come from somewhere, and that energy, in turn, is not available for other uses. The result, however you slice it conceptually, is that the upper limit of complexity begins moving down. That sounds abstract, but it adds up to a great deal of very concrete misery, because as already noted, the complexity of a society determines such things as the number of different occupational specialties it can support, the number of employees who are involved in the production and distribution of a given good or service, and so on. There’s a useful phrase for a sustained contraction in the usual measures of complexity in a human ecosystem: “economic depression.”

The economic troubles that are shaking the industrial world more and more often these days, in other words, are symptoms of a disastrous mismatch between the level of complexity that our remaining concentration differential can support, and the level of complexity that our preferred ideologies insist we ought to have. As those two things collide, there’s no question which of them is going to win. Adding to our total stock of knowledge won’t change that result, since knowledge is a necessary condition for economic expansion but not a sufficient one: if the upper limit of complexity set by the laws of thermodynamics drops below the level that your knowledge base would otherwise support, further additions to the knowledge base simply mean that there will be a growing number of things that people know how to do in theory, but that nobody has the resources to do in practice.

Knowledge, in other words, is not a magic wand, a surrogate messiah, or a source of miracles. It can open the way to exploiting energy more efficiently than otherwise, and it can figure out how to use energy resources that were not previously being used at all, but it can’t conjure energy out of thin air. Even if the energy resources are there, for that matter, if other factors prevent them from being used, the knowledge of how they might be used offers no consolation—quite the contrary.

"We are very, very far from the end of the outbreak," Iza Ciglenecki from Doctors Without Borders told reporters at a science conference Saturday in San Jose, California. She called the ongoing outbreak so unprecedented that "it's like a Hollywood movie."

Higgenbotham wrote:Big picture items.

JIM RICKARDS:

The Federal Reserve actually, in some ways, already has failed.
I spoke to a member of the Board of Governors of the Federal Reserve and I said, "I think the Fed is insolvent."
This Governor first resisted and said, "No, we're not."
But, I pressed her a little bit harder and she said, "Well, maybe."
And, then, I just looked at her and she said, "Well, we are, but it doesn't matter."
In other words, here's a Governor of the Federal Reserve admitting to me, privately, that the Federal Reserve is insolvent, but said, it doesn't matter, because central banks don't need capital.
Well, I'm going to suggest that central banks do need capital.

The Fed has increased its capital; they currently have about $56 billion.
That sounds good.
You say, "gee, $56 billion is a lot of money, that's a pretty good capital base."
But that's not the whole story.
You have to compare the capital to the balance sheet.
How much in the way of assets and liabilities is that amount of capital supporting.
...

John wrote:

Higgenbotham wrote:Big picture items.

JIM RICKARDS:

The Federal Reserve actually, in some ways, already has failed.
I spoke to a member of the Board of Governors of the Federal Reserve and I said, "I think the Fed is insolvent."
This Governor first resisted and said, "No, we're not."
But, I pressed her a little bit harder and she said, "Well, maybe."
And, then, I just looked at her and she said, "Well, we are, but it doesn't matter."
In other words, here's a Governor of the Federal Reserve admitting to me, privately, that the Federal Reserve is insolvent, but said, it doesn't matter, because central banks don't need capital.
Well, I'm going to suggest that central banks do need capital.

The Fed has increased its capital; they currently have about $56 billion.
That sounds good.
You say, "gee, $56 billion is a lot of money, that's a pretty good capital base."
But that's not the whole story.
You have to compare the capital to the balance sheet.
How much in the way of assets and liabilities is that amount of capital supporting.
...

Since the Fed has all sorts of tools for creating money, what difference
does it make if the Fed is insolvent?

With those cautions, here’s a narrative sketch of the kind of future that waits for us.

*************************
The second wave of crisis began with the Ebola pandemic, which emerged in West Africa early in 2014. Efforts to control the outbreak in its early phases were ineffective and hopelessly underfunded. By the early months of 2015, the first cases appeared in India, Egypt, and the Caribbean, and from there the pandemic spread to much of the world. In August 2015 a vaccine passed its clinical trials, but scaling up production and distribution of the vaccine to get in front of a fast-spreading pandemic took time, and it was early 2018 before the pandemic was finally under control everywhere in the world. By then 1.6 billion people had died of the disease, and another 210 million had died as a result of the collapse of food distribution and health care across large areas of the Third World.

The struggle against Ebola was complicated by the global economic depression that got under way in 2015 as the “fracking” boom imploded and travel and tourist industries collapsed in the face of the pandemic. Financial markets were stabilized by vast infusions of government debt, as they had been in the wake of the 2008 crash, but the real economy of goods and services was not so easily manipulated; joblessness soared, tax revenues plunged, and a dozen nations defaulted on their debts. Politicians insisted, as they had done for the past decade, that giving more handouts to the rich would restore prosperity; their failure to take any constructive action set the stage for the next act in the tragedy.

These are the kinds of scenarios that spur communities to consider DPR, because they have few other options, said Guy Carpenter, PE, vice president of the Water Resources & Reuse Group at Carollo Engineers in Phoenix. "The main driver for the use of wastewater treatment plant effluent as a drinking water supply is water scarcity," Carpenter said. "For some communities in the United States, reclaimed water is the only supply of water they have or can access to meet demands, including for drinking water."

Ingesting wastewater

A recent study by the University of Arizona showed several drinking-water treatment plants in the U.S. get their influent from water sources that, under low-flow conditions, consist of 100-percent wastewater from upstream cities. In other words, the wastewater discharges from one city are not diluted at all by clean "natural" water when the next city takes it for their drinking water source.

Even under average-flow conditions, some drinking-water plants use water containing more than 20 percent wastewater. Of the 11 drinking-water plant intakes in the U.S. with the highest percentage of such de facto reuse, eight are in Texas. So, many Texans are now, probably unknown to them, ingesting water that was recently municipal wastewater. Yes, natural processes in those rivers help clean the water, but those processes are generally slow, so the natural cleanup is minimal when the travel time between cities is only days.