The Great Depression 2008 - It can't happen to us....can it?”

Nancy Pelosi is not part of the solution, she is part of the problem.

She's a traitor to the people of this country and sleeps in the same bed with the Bush Crime Cartel.

Why do you suppose impeachment is off the table…

Big difference between 1928 and 2008 is that on the eve of the Great Depression the US Government wasn't already Trillions of dollars in debt to China and Japan. When this debt gets "monetized" - paid off by printing money - inflation will result. So we are looking at a weird scenario where deflating home prices are temporary, but the foreclosures that result will eventually force hyperinflation to set in.

The validity of this argument can be validated or dismissed by gathering a few vital numbers reflecting the current state of the national economy and doing a little addition and subtraction.

It ain't rocket science and numbers don't lie. It's coming, baby. The only real choice is to either remain in denial or try to prepare for something that will make the "Great Depression" look like a garden party.

Mr. Andy Sutton, I enjoyed reading your article that is now posted on our site at

When will high oil prices ( an oil crisis ) trigger a depression in most industrialised Eurasian, North American, and Oceanian countries?

First, a depression generally follows a period of recession.

An overview of the features of a steadily deepening recession has already been given.

Briefly, recession is caused by business slowdown as the much higher prices of oil feed into the industrialised economies. Businesses lose confidence, retrench, lay off staff, and reduce investment in new plant and machinery; retailers see less consumer spending; inflation reduces spending power; interest rates rise. This will cause recession, but not a deep recession.

For there to be a deep recession, there first has to be a credit bubble - a high level of personal indebtedness in the community. This certainly exists in 2007.

Will the collapse of the housing bubble trigger a depression?

Most industrialised countries have seen a huge speculative real estate frenzy by 'mom and pop' investors. Overvalued properties have been bought with loans by banks that cover almost the entire purchase price. The banks have been thrusting money into peoples hands on a rising property market, willfully ignoring prudence and history. Interest rates have been artificially low, driven by the insatiable USA need to sell its federal junk bonds in order to finance oil imports and massive military liabilities.

The stage is set. When interest rates rise, mortgage repayments far exceed the wage earners ability to meet the monthly loan installment. People default. Houses are sold in mortgagee sales for lower values. The inflated house prices collapse. People hold mortgages costing more than the new, more realistic, resale value of their house. Many chose bankruptcy to clear debt.

Collapse of the housing bubble is enough to trigger a deep recession. But it is not enough to trigger a depression.

More is required.

Share value collapses combined with banking collapses and a 'run' on cash, if sufficiently global, will trigger depression.

But local banking collapses and local sharemarket collapses won't.

Will bad loans held by banks trigger a depression?

Are today's banks for practical 'everyday' purposes sound? Yes.

Banks will hold large amounts of 'unrecoverable' debt following the inevitable property bubble collapse. They will hold large amounts of unrecoverable debt from loans to some businesses that fail when consumer spending drops and unemployment rises. But much bank lent money is essentially a 'fiction', and is book entry 'notional' funds lent far in excess of existing real-money deposits (usually ten times the amount of actual deposits is 'available' for lending). Unlike previous crashes, their 'real-money' deposit equity today far exceed the banks true 'real-money' liability. 'Losses' from bad loans are essentially 'book-entry' losses from 'book-entry' created money.

Bad loans - even brief 'runs' on deposits - will not trigger a depression.

Will a huge fall in the sharemarket trigger a depression?

What about the world sharemarkets? Could they implode and trigger a depression?

No.

The sharemarket crash of 1929 was a vast 'speculative bubble' founded on buying and selling companies that were often producing little more than self promotional hot air. Much of the money for the speculation was 'ponzi' loan credit created by out-of-control banks. Today's sharemarkets are constantly re-adjusting and re-valuing companies. Some companies are valued for earning streams, and some companies are valued because they are believed to be growing in size and assets. In a deep recession some will rightly reach 'junk' status because their business is a fading star. Others, even with a reduced earning stream, will retain a reduced but real value (a select few will even rise as investors 're-weight' their choice of company sectors to invest in). Most importantly, there is no culture of 'mom and pop' ignorant speculation in what are little more than shell companies (except in the highly distorted Chinese share market).

Will rising oil prices trigger a depression?

Yes.

When will high oil prices cause a depression?

At some point in the duration of a deep recession.

When might a deep recession start?

First, the credit bubble has to collapse. Next, oil has to become structurally expensive. A reasoned guess post-credit-collapse would be when oil both reaches and maintains a price of close to $US80 a barrel. Temporary spikes to around $US100 a barrel don't indicate depressionary conditions. At the point of oil settling at or over $80 for a year or longer there is likely to be structural (oil component of goods price adjustment) inflation of 10% - 20%. At this point, if price movements in 2005 are a guide, petrol may reach close to $US4 a gallon at the pump. This will make petrol effectively unaffordable for many low income people who have no other transport options (chiefly a USA condition).

New refinery capacity for heavy oil has kept pace with increased reliance on heavy oil as light oil supplies diminish. Mildly recessionary conditions in late 2006 caused demand to fall and reduced prices. A pumping capacity bottleneck, mainly from Saudi and Mexican megafields has already been masked by reduced demand (mainly in Asia) following oil spiking to $US77 a barrel in July 2006.

Business nervousness, changing consumer behaviour, and seasonal slacking of oil demand will likely make any spike temporary, should it occur. Increased bilateral trading in oil (direct from producer to consumer) outside the betting floor of the futures traders has increased, meaning price is more stable. Whether it stabilises at a higher or a lower level depends on the USA economy and on whether Mexico, Venezuela, and Saudi Arabia are able to forego production in the interests of holding prices up. Their domestic situations may force them to sell at a lower price than they would like.

A credit bubble collapse will likely be triggered by rises in USA treasury interest rates. Higher interest rates will likely combine with oil price inflation to remove a larger percentage of tax-paid disposable income from circulation in the economy. Considering the vast USA government debt, the on-going dollar cost of seizing and guarding Iraqi oil ($US5 billion a month by december 2005), and the beginning of a move away from the essentially valueless USA dollar as a currency of international settlement, then the USA Federal reserve will probably need to move within the next few years to make it's bonds more attractive.

The mechanism is to increase interest rates payable on the bonds. (The US could of course back the dollar with oil by seizing all Iraqi oil revenue as 'spoils of invasion'.) Oil prices might reach or exceed the historic oil price high reached in 1980 by mid 2008, driven mainly by decline in mega fields, but tempered by price driven demand reduction. Winter fuel oil shortages 2007/2008 and large hike in natural gas prices - and therefore electricity prices - in USA will add to economic slowdown.

Recession beginning by the end of 2008 is somewhat likely, and USA treasury bonds lose their attractiveness as a consequence. Yet the USA will need to finance an even larger government deficit as structural inflation raises all governance costs, and as unemployment costs rise. US interest rates must then be raised by the end of 2009, no matter how unwilling the government may be to do so. The only alternative is massive government spending cuts, on a scale never before seen. These cuts are extremely unlikely.

The 'structural' pumping capacity bottleneck will likely occur in december 2008 or 2009, cause a spike to $US90 a barrel (unless new Saudi 'sweet oil' fields do come on stream as promised). It is uncertain whether or not oil might remain at or around the $80 per barrel level thereafter. It depends on the price-driven change in consumer behaviour in how much petrol and diesel consumers choose to burn, against how much they are forced to burn in the essentials of living. It depends on what degrees of freedom consumers have to buy smaller cars or motorbikes, to live closer to work, to substitute public transport. It depends on whether consumers believe oil shortage is a temporary blip, or a long term trend. The conditions should be clearer in 2008/9. Recessionary conditions will be apparent by then anyway.

Recession in itself reduces demand. Oil consumption drops. Reduced demand weakens oil prices. However, at some point, the year on year reducing production from large high-volume oilfields (that have passed their peak of production) reduces global supply until it matches the reduced global annual demand. From then on, as pumpable supply drops below even new reduced global demand levels, prices once more increase. The best guess for this point is around 2015.

Deep recession may start before 2015. It may be triggered 'early' if any of the major Saudi or Mexican fields collapse, or if climate causes electrical energy supply shortfall, water shortage, significant crop failure, and if resultant socially hysterical hyper-reaction causes a precipitous collapse in business confidence and employment.

How many months or years will a deep recession last before it becomes a depression?

At the point at which 25% to 30% of the population are unemployed, many more part-time and on-call workers have less work than they want, when there are few business start-ups, when the tax take of government is insufficient to meet its expenditure, food prices have doubled, and when the trend is for no improvement in these conditions.

What is a reasonable guess at the timing of the start of depression?

A depression is more or less a recession that doesn't end. It doesn't come as a single dramatic event, easily identified and widely reported in the news. A 'depression' exists in deeply recessionary times when things have been bad for so long without significant recovery that people start saying we are slipping into a depression. Most people are generally optimistic, and are unwilling to assume the worst simply because business, employment, and spending power conditions are tough. But people will know when they are living in a depression, they won't have to hear about it on the radio. It will be self evident. Even so, before then, we do worry, and psychologically need to 'know' the signs of the 'worst case', the signs indicating the possible 'start' of a depression.

We could possibly use the point at which oil is so expensive that most low income earners cannot afford to run a car, and food and retail prices in general have increased by 20%.

At this point, the cost of getting to work may use up a huge portion of the wages earned. Countries such as USA with relatively sprawling towns and suburbs with poor public transport would be worst hit. Older European cities with residency and work embedded within densely populated cities, and excellent public transport, fare better. At this point, it is impossible that only low income workers are affected. Whereas past depressions have been characterised by an initial imprudent credit hyper-expansion followed by huge and prolonged lack of business and consumer confidence - even in the face of sufficient energy and sufficient capital to keep business growing and employment and money circulating - this 'depression' may be fundamentally different.

The never-before-seen factor this time is that insufficient energy supply limits the possibility of recovery. This time, business and consumers are better informed and more confident due to better education and information sharing, and a fairly good social security 'safety net'. We should be far better equipped to intelligently face economic downturns. But the various 'traditional' cures for dips in economic activity - increasing government spending, decreasing business tax, slashing government services, 'fixing' interest rates to a very low level, subsidising domestic industries, removing subsidies from industries to re-orient them, subsidising raw materials, subsidising the shift of production bases to low wage-low care countries - no longer work. Why?

Because the game has changed.

Up until now, economists have never had to weight the cost of energy heavily in their models of how economies work. Energy has always been cheap and abundant. The economists tools in an era of cheap energy - 'tweaking' of government policies, taxes, and laws - now have minimal effect. These economic devices are not new energy sources. In an age of astonishing new technologies economists expect 'more investment' in energy technology to substitute for energy shortage.

Lets be clear. Technology is not an energy source. True, both government policy tweaking and technology can help efficiently use existing energy sources, and thus reduce costs, but this effect is marginal in the bigger picture of reducing global supply of cheap energy.

Previous depressions were not limited by energy - they were limited by confidence and government competence. An 'energy constraint' depression is a physical-constraint depression, not a psychological-constraint depression, and is fundamentally different.

Don't look to history for guidance. While this 'limit to energy factor' has never been seen before in the history of modern democratic industrialised nations, its trajectory can at least be broadly understood and predicted. How? By the trajectory of oil, gas, and coal depletion.

But there are many other factors - chiefly climatic, economic and political that could (and probably will) - make nonsense of this guess. These influences are far more difficult to predict and therefore take into account.

Depression in the USA

The USA is the most heavily car dependent nation on earth, has low population densities in cities, relatively rapidly growing population numbers, relatively poor public transport, is coming up to shortages in natural gas for electricity generation, already has a large number of impoverished people, has no saved reserves to pay for social security, has a private credit bubble, has many industries distorted by taxpayer subsidies, has a government living on overseas credit, and is in the unique position of having most of the worlds banks using the USA currency as a default international standard currency of value.

"The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost."

Unabashed comment of former Fed employee Ben S. Bernanke in a speech in 2002 . Half of what he said is true.

Loss of faith in the currency will make it of low value. The backing for the dollar is oil. Oil backing is almost the sole reason banks have faith in the currency.

The dollar has oil backing for two reasons-

1. Historically the feudal Saudi 'royal family' was elevated to power by the USA in return for it accepting only US dollars for oil sales.

2. USA has captured the Iraqi oil fields.

Deep recession in the USA will in theory fairly certainly tip into depression in 20 years time (2025) when light oil production naturally fades to about that of the late 1960's.

Even if the USA invaded Iran, Saudi Arabia, Venezuela and Nigeria and seized their oil for the exclusive use of the USA, almost all the light sweet crude in these countries would be used up by about 2040.

This is, of course, an absurd notion, but it illustrates the point that even expanded theft and sequestration cannot save the most powerful nation on earth from the inevitability of depression.

But we must consider one fundamental factor unique to USA - the dollar is the de facto global reserve currency, and has been since 1973 when banks stopped backing their currency with gold. But, in spite of the huge USA internal economy, the dollar is fundamentally unsound. The world banking system has historically been manipulated by the USA into using the dollar as reserve currency. This has easily been achieved - trading in oil has been in dollars, an arrangement cemented decades ago with the Saudi dictatorship. All countries want to buy oil. All countries must buy USA dollars to pay for oil. In this way, the USA has been able to print money to pay for its budget and trade deficits. It is virtually the only country in the world that has been able to export its domestic inflation. Banks around the world have large accumulations of dollars as a result.

The USA currency can only retain its 'acquired' value so long as oil producing nations insist on dollars as payment for their oil. While USA is regarded as a very, very, good friend indeed of the Saudi regime, it is not well liked in the other major middle eastern countries (and especially Iran and Iraq). Then why does the Middle East support the USA dollar by insisting on payment in the greenback?

In fact, most would slash their dollar holdings - punish USA - tomorrow. But the international oil exchange bourses in New York and London have called the shots on payment for oil until now. Recently, Iran has made some sales directly to adjacent European countries and to India and China, and insisted on payment in euros and other regional currencies. This must worry the presidential/business/military complex in power in USA.

Saudi Arabia has relatively recently repatriated many USA investments back to the kingdom and re-invested in the region. Saudi has re-invigorated its interest in gold. Since the end of World War II, an ounce of gold has fairly constantly been worth 15 barrels of oil. The ratio has been disconnected over the last four years, and an ounce of gold buys only 7 barrels of oil. Whatever the underlaying reason, gold in the bank or oil in the ground may be the best long term stores of value. In the first quarter of 2005, 20% more gold was sold than the same period last year. While Saudi has not yet asked for payment in gold, it has mooted accepting payment for oil in a basket of regional currencies as well as the dollar.

Iran plans to open an international oil trading bourse over the internet in mid 2007. Payment to be in the currency of your choice. Iran already supplies large quantities of oil and gas across the border to Europe.

Russia also trades gas and oil heavily into Europe - around half its production. In 2004, it, too, mooted payment in euros.

Venuezuela, heavily exposed to the USA economy through large oil exports to that market, is looking to diversify its crude oil sales, including selling directly to China.

The trend may be unstoppable. When a certain portion of the world trade in oil is in a mix of currencies (and in gold), with the dollar simply one part of the mix, central banks may become very nervous. They would be negligent if they did not diversify and rebalance their various currency holdings away from heavy overweighting in the USA dollar - and also re-invest in some gold.

Central bank sell downs will tend to drive down the value of the dollar.

The effect could be a cascade - a lower value dollar causes those who have overaccumulated the dollar to quit a large part of their holdings before the value falls even further. This drives the dollar down in a self ratcheting fashion. What is the end result?

A dollar then won't buy as much oil as it did previously. The cost of oil and oil products within USA becomes higher. With the USA having to buy a far greater portion of its oil needs on the international market, it needs to spend more devalued dollars to buy it. But these dollars are largely 'printing press' fictitious dollars backed by USA treasury bonds. With the dollar not attracting a lot of interest, bond yields must be racked up by increasing the interest rate payable on them. Higher interest rates on federal bonds leads to higher interest rates on mortgages.

Higher mortgages leads to homeowners being unable to pay, mortgage defaults, and then higher costs to the federal mortgage guarantee system. All this may happen at a time when stocks are sliding as investor confidence slides. (Some claim that there is evidence the USA government has from time to time recently been 'insider trading' with selected brokers to keep stocks values high and confidence in place. A similar claim is made the USA government has been trading to artificially lower gold prices.) Of course, many small businesses in the service industries and allied discretionary spending would fail as more and more of the family budget goes on higher petrol, gas, electricity, and winter fuel oil costs. These are deeply recessionary conditions.

So the artifice by which the USA has manouvered its currency as the currency of oil trade in order to vastly overspend its productive capacity may ultimately be exposed as based soley on confidence. If confidence is lost, it may fall like a pack of cards.

In this scenario, the USA may slip into a depression suprisingly quickly - far more quickly and dramatically than current base-line conditions would predict. The advent of depression may be sooner in USA than the rest of the industrialised world. But not much sooner. Ultimately, there are no exemptions from depression for any country.

Can the USA prevent the cascade? Yes, it can. It can hold a gun to the head of every major oil producing nation and say "you will only accept US dollars for oil - or else." This may be the only credible explanation for the propoganda demonisation of Iran in january 2006, and again in january 2007. It may be planning a demonstration of power - destruction of key elements of military and domestic infrastructure as a warning of the consequences of non-compliance with the US arrangement for marketing oil.

Iran, in spite of its florid hyperbolous rhetoric, is about as likely to use a nuclear weapon as any other regional state, such as Pakistan or India. that is, even if Iran acquired nuclear weapons, it dare not use them. The result of use of a nuclear weapon by Iran would be an almost instant cremation of the greater part of the population.

In contrast, North Korea, as unstable a country as is possible to find - and quite likely to be crazy enough to use them regardless of consequences - is making nuclear weapons without a murmur from USA. Where a nuclear strike from Iran is extremely unlikely, a much more likely scenario would be for North Korea to be hired by virtually any country or group (with North Korean contacts) as a 'willing agent' to smuggle remote-detonated neutron bombs (made in China or Russia, and either corruptedly obtained or willingly supplied) into USA or west Eurasian cities. If Iran with nuclear missiles might one day be a threat to West Eurasia or USA oil interests, bombing its nuclear facilities to remove real or fictitious weapons research capacity does not remove the threat. Iran - or any country or terrorist group - could contract out the 'hits'.

Nuclear conflagration aside, the stakes are very high for the USA 'dollar based' economic system. It seems increasingly likely that USA will use a show of force to enforce the 'dollars for oil' rule. This will only delay depression in the short run. In the end, geological reality trumps guns. In the medium to long run oil will be priced in other currencies (almost) no matter what the USA does, and countries will increasingly peg their currency to national reserves of gold.

The joker in the pack for this last scenario is climate variation. USA is one of the few countries able to grow surplus grain. In a time of climate-caused grain shortage in an era of a heavily devalued dollar, it would be very profitable to turn grain into oil. A carbohydrate into a hydrocarbon. The reason is that a devalued dollar would make USA grain exports cheap. And an oil-rich region with a burgeoning population can't eat oil.

“Agripower has to be more important than petropower."

Secretary of Agriculture Butz, referring to using food as a weapon, post the first oil shock.

It is possible the USA may be able to make a 'managed landing' of the overvalued USA dollar on the back of its rich black prairie loams. An oil for grain strategy will not prevent depression in the longer run - it might initially delay it. It might change a cliff into a slope.

Depression in industrialised Eurasia and Oceania

These other countries are usually less car dependent, have higher population densities in cities, stabilised populations, usually excellent public transport, are also facing shortages of natural gas for electricity generation, have a smaller number of impoverished people, have some reserves for social security, have a smaller private credit bubble, have more people renting rather than mortgaged, have higher per person savings as a result, have industries distorted by taxpayer subsidies in Eurasia (less so or not at all in industrialised Oceania), have governments owing relatively little or no overseas debt, and whose banks using the USA currency as reserves but which are also weighted toward the euro. The backing for the euro is trade. Trade - financial soundness and prudence of governments - is almost the sole reason banks have faith in the currency. The euro has very little oil backing right now. (But that may be changing.)

Deep recession in many (but not all) industrialised Eurasian and Oceanian countries will in theory also fairly certainly tip into depression in 20 years time (2025) when light oil production naturally fades to about that of the late 1960's. Compact countries such as Switzerland that have already invested heavily in energy efficiency, renewable energy, public transport, and sustainable land use may not experience depression conditions until some years into a broader Eurasian depression. China, as a recently industrialising country, still has most of its population living as low income, poorly educated (or uneducated) peasants on small farms. This rural diaspora provides a 'sponge' to soak up the jobless from the cities - a circumstance unique to China.

In general, the only difference between Eurasia (and Canada) and the United States is that there is a bigger societal and governmental buffer to take the initial impact of depression.

It is extremely unlikely that any Eurasian country - including China - would attempt to seize any significant sized oil fields in another country.

Depression later than 2025 - other factors

Equating the onset of depression solely by the onset of geologically determined fade-off of oil pumping capacity of a reserve known to be finite is simplistic. The 'classic' bell curve will only happen if oil is pumped out as if demand is constant, no matter how high the price.

Obviously, as the oil supply becomes less than the amount the market demands, that oil-dependent market is disrupted. People become unemployed and consume less. People adjust their driving habits. People buy motorbikes and small cars that use less petrol. People stop buying frivolous junk. Cheap plastic junk becomes expensive plastic junk. Businesses fail, and the oil demand of that business becomes zero. At a certain point of economic slow-down, demand falls off. The price of oil falls with it.

Therefore, once recession has bitten deep, slackened demand flattens out the slope of the oil depletion curve.

As a result, oil consumption fall enough to delay depression. For how long? It is impossible to know, because it is measured against a theoretical 'event' - an earlier depression - that didn't happen. But even halving consumption rates will not double the time until depression, as the peak of production and subsequent decline of the mega fields is the major factor in an oil dependent global economy. Most mega fields have either peaked, or will peak in the next few years. Most are already being pressurised, so the 'truth' of the decline is obscured. As a result, at a certain point, most mega fields will decline steeply rather than fade off gracefully. The decline rate may not be 3% or so a year. These mega fields may decline by closer to 13% a year.

Shall we say depression might be staved off by a decade if prolonged deep recession, coupled with massive government investment in coal gasification, conserves petrol globally, and thus oil demand? It is an unreasoned guess. Reduced crude demand from virtuous countries practising intensive conservation might be greedily snapped up and stored by a less virtuous countries. The tragedy of the commons. There is no global regulator to ensure fair share. Or define what 'fair' is. The message for all countries remains - if you don't grab it, another country will. Global oil supplies will not be conserved, they will not be 'eked out' for future generations.

Depression earlier than 2025 - other factors.

US dollar collapse

The USA has sold an enormous numbers of Treasury Bonds - creating a huge expansion of money supply and enormous US government debt. This vast US credit bubble is kept inflated by faith in the dollar, supported by oil denominated in dollars. As USA faces massive oil costs with oil bottlenecks and a hugely oil dependant economy, it is only a matter of time before those holding dollars start nervously watching other dollar debt holders to see who will move to sell first.

First movers will 'capture' the greatest return, as the dollar will initially be relatively strong. Countries with large dollar reserves could quietly quit them in fear of an ultimate US dollar value collapse. This could trigger automated 'sell' orders from currency speculators, creating a 'selling climate' and a fear of being left with the 'hot potato'- in turn leading to a massive dollar sell-down. While this would be very good for US exports, it would remove the USA's main source of government income - sale of US treasury bonds. Pensions and other social security payments would be at risk, but worst of all, either funding for the military would have to be slashed, or medical and education budgets would have to be gutted.

In this scenario, a sudden and dramatic early onset of depression may be largely localised to USA (and probably Japan and China).

Drought and water shortages

Prolonged drought affecting wheat and maize production in USA, Australia and China might cause a grain shortfall sufficient to evaporate surplus supplies from the world market. If Thailand, the worlds major rice exporter, also co-incidentally has a smaller harvest, there could be insufficient grain to feed the Middle East. Food riots in the huge and already disaffected local populations could lead to disruption or damage to major Middle East oil fields, triggering a temporary but dramatic cut in world supply and pushing deep recession into depression in many countries.

Other factors

Some might argue religious fundamentalism might get 'out of hand' in Saudi Arabia, leading to overthrow of the current regime and restrictions on supplies to the west. This is very unlikely, as Saudi Arabia enters into boom times, with hugely increased revenues, historically low government debt, and strong local private sector investment in local business and economic activity.

Others argue war may break out in the Middle East, disrupting supply. This is highly improbable. The Americans have replaced their puppet Saddam Hussein and his thugs with a democratically elected government. That government is now entering close co-operation with Iran, a country that Husseins regime had previously attacked in 1980. American military based in Iraq ensures Saudi Arabia, Kuwait, and the other minor Gulf states are safe from invasion from anyone. While America may destroy Iran's nuclear facilities (via its only reliable arab ally, Israel) it cannot in any sense afford a full-scale invasion of an additional country, no matter how oil-rich; albeit a strike may shore up the dollar system for a time.

Conclusion

High oil prices have already set recessionary conditions in train to greater or lesser extent. (Unemployment, business failure and reduced business investment are the most obvious indicators.)

The most likely scenario is for the deeply indebted USA to raise interest rates by the end of 2008 (or soon after), which is likely to co-incide with a spike in oil prices to $US90 due to pumping constraints.

A combination of increased unemployment flowing from oil-price structural inflation of 10%-20% and mortgage defaults due to unmeetable monthly repayments collapses the credit bubble.

Weakened demand due to recession combines with temporary surges in new sweet crude supply. Oil prices fall, but natural decline in world oil pumping capacity sinks under even a reduced demand by about 2015.

Recession slips into deep recession by somewhere around the end of 2014. (There is a long odds chance the USA dollar will lose its position as the currency of oil and set off a dramatic confidence cascade into full-on depression in USA by 2010.)

Deeply recessionary conditions drag on until conditions slowly slip into depression, some time after 2015 but before 2026.

Climatic, economic or political events in the intervening period may act to hasten or delay the onset of depression.

From about 2026 onward, depression becomes a long drawn out adjustment, an adjustment made easier - but not easy - by strong democracy.

Undemocratic and weakly democratic countries may ultimately fail to adjust, and the population becomes subjected to terrorist violence from thugs and gangsters employed and manipulated by powerful ideologues and demagogues.

Note

The projections for fading oil supply on the 'down' side of the Hubbert curve are based on presentation chart 43 from a Presentation at the Technical University of Clausthal, Germany, by petroleum geologist Colin J. Campbell in december 2000. There are more up-to-date projections, but the 2000 projections are only trivially out of date.

http://www.geologie.tu-clausthal.de/Campbell/lecture.html

One minute I am reading about this Great Depression that shall befall us, and then I am reading this which is talking about 2015 and 2026. Hey, the way things are going it seems to me we may perhaps on longer be around. With things changing so rapidly who the heck can worry about 2025. We have the illegal immigration problem, terrorism, oh, forget it!!

Hi, I'm doing a research abot the American economy throughout the 20th century. Does anyone know a good website for facts and statistics with regards to the dollar value (compared with other countries)?

The 50 states should no longer be united...

Remove the federal government.

Let the continent be self sustatined through trade.

Coastal states trade foreign goods, the midwest produces food.

But how do you stop 300 million Americans clinging to materialism and an image centric society?

Exactly... everyone wants Blu-ray and xbox 360's & iphones without having to pay out of their pocket.

Basically, we just need to get invaded by a communist country... which will probably happen by the country that bought some of our debt.

Our only way out of this in a fast way... is colonizing Iraq, taking ownership of the oil, and starting world war three. Before Iran gets the nuke.

Better yet, let's divide the US into regions. It's impossible to govern a country this big and this diverse anyway. Split it into the Northwest, Southwest, Northeast, Southeast. Then Alaska, and Hawaii, etc are separate. Have Regional Governors, in addition to State Governors.

It would be easier to get a National Healthcare System in place by regions. Perhaps shipping by rail would be more efficient, taxes would work differently.

I feel kinda bad for all those folks living in places where the are required to drive miles to a grocery store, being suckered into that kind of lifestyle.

Mass transit needs an overhaul everywhere aside from large cities. Shuttles that are run by the workplace (for larger companies) are a good idea.

It's a shame that the oil industry tore up all the rail lines in favor of cars way back when. We could sure use them now.

The End Of History

The End Point and The End Game

With the fall of the Soviet Union it was widely believed that we had witness the end of history, the end of the historical war between democracy and Marxism. But with the rise of communist China, we are again faced with the historical question: who will be left standing at the end of history?

This time around it looks like the final battle. And the news from the front isn’t good. Communist China, simply by opening its trade door to the world’s capitalists has pretty much captured the means of production along with the technology and the wealth and so the wherewithal to build up its military strength. Does this mean that Marxism is set to dominate the world? Not quite. It is not the rise of worldwide communism that China has in mind, but “socialism with Chinese characteristics.” It is China that has captured the means of production and it is China that seeks to dominate the world. And they intend to do so not by military dominance, but by waging total economic war. A war we are on the verge of losing. And as we lose it, so goes the world. This is China’s end point and end game.

So, before they succeed, we have to get in the game. Not only do we need a vision that pulls our economy out of recession, we also need one that will win the ideological war. That is, we need an end point and end game of our own.

But first, it is necessary to put China’s end game in perspective. To do so, however, we have to take communist/imperialist China temporarily off the board and view them as just another global player.

To begin we have to go back to 1976. That’s the year the United States began running a continuous and mounting trade deficit (a continuous rise in global unemployment). It began as Japan and Germany rebuilt their economies and emerged as formidable competitors, followed by the Asian tigers and then the Asian tyrannosaurus-rex—China. According to economists, however, this should not be a problem. America's trade deficit would be brought into balance as a weakening dollar gives the U.S. a competitive edge, regardless of their technological and low-wage comparative advantages, and bring our current account into balance. In lay terms this would be called a teeter-totter global economy—an up and down game that keeps the global economy balanced. But some players are unwilling to play. As evidenced by China as it pegged its currency to the dollar. If it had not done so their economy would have stagnated as its exchange rate rose to a point where it lost its competitive edge and the global economy would have lost a significant trading partner.

Now, however, since it has become the factory to the world, it has been pressured to reevaluate the yuan and has modestly relented. But since China has become the factory to the world, the benefits are doubtful. As the yuan strengthens, the costs of their exports rise, which translates into fewer exports, and a rise in domestic unemployment. For us it means they export inflation while we export more dollars. So, pursuing this line of thinking could push the global economy into a recession—the seesaw is broke in the middle.

Then there is this: In the real world our competitors distort the currency markets by purchasing dollars (one aspect of pegging) to keep their currencies competitive that become part of their dollar reserves. To date Japan and China have both stashed a trillion dollars under their mattresses.

And it’s just not here that there is a problem. Japan holds approximately 600 billion dollars in Treasury securities while China holds nearly 400 billion dollars. This is not altruism. The investment angle aside, they are simply pursuing their own self-interest. By investing in government bonds they further prop up the dollar and in so doing protect their economies while allowing the United States to remain a significant export market.

Yet despite all this the dollar remains weak. And so there is a rise in our exports—but not enough to keep our trade deficit from widening. So how long does the U.S. have to sit at the top while others sit meekly at the bottom? That’s the wrong question. The right question is: How much longer will other nations prop up the dollar and our financial house while allowing us to keep bellying up to the pot while putting less in as we continue to export more dollars?

China and Japan are our major competitors and it’s not necessary to go on down the list, the point is they reflect the world at large—a global economy not only out of balance, but unlikely to be balanced. The reason that it has yet to reach a tipping point is that while they shored up their economies by propping up our financial house, we became a nation of rampant speculators and unrestrained shoppers. Hype in the stock markets over dot.com ventures led to a rapid expansion of paper wealth that fueled an economic boom as well as a boon in capital gains taxes that not only contributed significantly to budget surpluses, but had economists forecasting that they would continue far into the future and within ten years our national debt would be zero. It was the age of irrational exuberance. And when the bubble burst, budget surpluses evaporated, fell into deficit, and the economy itself, in 2001, slipped into recession.

Not so much in response, but for disparate reasons, the nation’s fiscal and monetary arsenal was pretty much deployed. Massive tax cuts (mostly for the wealthy) and massive pork barrel spending by a Republican Congress (trading principle for power) and a maximum cut in interest rates, by a sober Federal Reserve, to rock bottom quickly brought the economy out of recession. But rock bottom interest rates quickly led to a housing boom and a frenzy of speculation in the housing markets and a windfall for homeowners who refinanced and cashed out on their inflated equity and went on a spending spree buying SUV,s, remodeling their homes or moving up, buying high end televisions or whatever their hearts desired. But eventually reality checked in as rising prices soared out of reach for prospective buyers and the bubble collapsed.

Now the economy again is slipping—despite a weak dollar and a rise in exports—into recession (this time with no bubbles in sight). So, again, the Fed is pushing interest rates to rock bottom at the same time providing greater liquidity to the financial markets while the President and Congress throws out a stimulus package of rebates for individuals and tax incentives for businesses. But given that America is an upside down nation facing a credit crunch, rising food and oil prices, and in the midst of a severely slumping housing market, they will not have a sustainable effect.

So here the problem isn't simply with China, nations regardless of ideology seek, or attempt to seek, their own self-interest, and in so doing play a dangerous zero-sum game. A game where economists have no viable answers, other than pursuing more trade agreements, as such politicians are at a lost. We are out of the game.

That said, communist China is very much in the game; their end game is to win the zero-sum game. The backbone of Marxism is that capitalism has gone down a path that ultimately leads to its collapse. For the “bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the whole relations of society… The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere… All established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilized nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones… In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal interdependence of nations… The bourgeoisie, by the rapid improvement of production, by the immensely facilitated means of communication, draws all even the most barbarian nations into civilization… The cheap prices of its commodities are the heavy artillery with which batters down all Chinese walls, with which forces the barbarians’ intensely obstinate hatred of foreigners to capitulate… The bourgeoisie has subjected the country to the rule of towns. Has greatly increased the urban population…It is enough to mention the commercial crises that by their periodical return put on trial, each time more threateningly, the existence of the entire bourgeois society… In these crises there breaks out an epidemic that, in all earlier epochs, would seemed an absurdity—the epidemic of overproduction… society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence, industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, to much industry, too much commerce… And here it becomes evident that the bourgeoisie is unfit to be the ruling class in society… It is unfit to rule, because it is incompetent to assure an existence to its slave within this slavery, because it cannot help letting him sink into such a state that it has to feed, instead of being fed by him.”

So said, worldwide unemployment reaches a critical mass, and capitalism collapses. As it does, the workers rise en masse, overthrow the existing order, take control of the means of production, and establish a “dictatorship of the proletariat” that oversees the shift from socialism to communism.

Well, as we know, history didn’t go according to Marx. Lenin and Mao became impatient vultures—instead of waiting for the death of capitalism, they became birds of prey, they wanted to kill now. And to achieve the means to their end, command economies that would bury capitalism, they started on their own people.

So today we are faced with communist China (and to some extent Russia—their favorite monkey). And while their end point hasn’t changed, their end game has. Faced with the concrete reality that centrally planned economies have failed, China opted for the capitalist road and in so doing are now in a position to accelerate the collapse of capitalism. And they have targeted the United States as the first domino. While we shipped them our manufacturing jobs, they gave us the trade finger (say unfair trade practices doesn’t quite cut it). They knew full well that their peg was a cannon in their arsenal. So, together with our loss of jobs we are being pushed to the brink.

There is no real surprise here. But there is tremendous anxiety and an acute sense of danger. We are in a recession, a recession that feeds on itself as unemployment begets more unemployment and recession turns into a great depression; as such, we are faced with the very real prospect of economic collapse that precludes any revolution—China has already captured the means of production. Even so, does this mean that Marx was right?

If so, China has played the game well. Opening their door to the world’s capitalists set off a race to the bottom—the constant search for cheaper wages, lower taxes and weaker environmental and other regulations by capitalists who in the end produce a downward spiral in socio-economic conditions in the United States and other industrial countries—as their respective Atlases shrugged and beat feet to China.

The underlying rationalization, other than exploiting a vast and untapped market (that would benefit America), was that as communist China shifted to free markets, with a rising middle class, there would an inexorable shift to democracy. Anyone that believes that today is wearing some serious rose-tinted glasses.

Meanwhile China got a firm grip on the Shruggers’ financial balls, and as they lobbied Washington—don’t offend them, don’t make them squeeze—their hearts and minds soon followed. The appeasement by previous administrations is now firmly locked into the present administration. And looking over the horizon there is no would-be president that even dares to step out on the yellow brick road.

That said, China, in their quest, was never going to risk a nuclear war (and if they did, did they consider the China syndrome. A doomsday scenario where the U.S.’s thirty-five nuclear power plants melt down and spread nuclear radiation around the world to China). They were never going to risk the means of production. Their end game is total economic war. It is The Art of War: “To subdue the enemy without fighting is the acme of skill.” And while its author, Sun Tzu, lived in 6th century B.C. imperialist China, his ideas are alive today. And their skill is still paramount. Fools still rush in—or are they fellow travelers or just anti-America? It’s hard to tell.

But it is easy to see that the President and would-be presidents, other than the occasional complaining about unfair trade practices and meaningless sanctions by Congress, do not want to offend our “ banker”. Better to focus on NAFTA, North Korea, Iraq, Iran, al qaeda, and illegal aliens—anything but saying these are Marxists whose intentions are to “overthrow the existing order.” As such, it seems like we have pretty much surrendered.

Even so, rumor has it that after the Munich games, China will deploy the nuclear option under the guise: it only makes financial sense to shift from the dollar, from treasuries, and invest in a basket of currencies—is this de-pegging, they are only giving us what we want? Whatever, it is only the senseless that will not see this as an overt act of unrestricted warfare against the democracies of the world. And while China threatens foreclosure, we are working against ourselves, as politicians cannot agree on a plan that forestalls home foreclosures that must include mandating a freeze on the resetting of adjustable rate mortgages.

In the meantime Taiwan has become less of an issue and more of a deception. They too joined the race to bottom and invested heavily in China while approximately one million Taiwanese moved to China to live and work. So at home, Taiwan is paying the price, unemployment is becoming an issue. As such they have already been conquered. And we too are about to be conquered.

They’ve have propped up our economy so they could suck out our jobs, our technology (by hook or crook), our resources, until finally they’ve sucked out our last economic breath. And even if they hold on to their dollars and U.S. bonds, it was a good investment. So what if they lose trillions of dollars, they will suffer no casualties. As our economy heads deeper into recession our credibility in the world’s financial markets wanes, especially as the Fed drops interest to rock bottom. So along with a financial meltdown, the dollar crashes and is no longer accepted in the world’s oil markets. Without imported oil, a sound economy, our military becomes a wounded paper tiger—limping its way back home. When that day comes, China will be in control of the world.

As the U.S. economy falls deeper into a depression, the price of raw resources will plummet in the world's commodity markets, notably oil—and those exporting nations will lose significant revenues. To maintain their economies, they are going to have to sell more for less. And as they do, they will have little choice, they will have to turn to China—who will demand long-term contracts. But in the not so long term, China’s voracious consumption, its need to build so-called modern cities for the remaining four hundred million or so Chinese living in rural poverty, will draw down their oil reserves. And as they continue to put away their bicycles and put a billion cars on the road they will drain their reserves and as they decline, so does their economy. Then what? In a post-American world China is free to do whatever it wants—take whatever it needs.

So Russia and Iran what do you think about that? And how about Bin Laden, what does he think happens as a godless ideology dominates the world (mess with them and they will mess with Mecca—turn yourself in or else)? China is at war with the world. And they are close to achieving their end point--the end of history: the final battle for the survival of the fittest.

Even so, this is risky business. Having gone down the capitalist road, they too may have gone down a road of no return. With the fall of the United States, Japan, Germany, India, and other industrial economies immediately go into decline; aided by a falling dollar and a concurrent rise in their currencies and China, despite its peg to dollar, can’t help but follow. Their zero-sum game ultimately threatens their economy.

While the irony for capitalism is that it provided the shovel that will bury us, the irony for China is that its reserve army of unemployed becomes so large that they will rise up and attempt to overthrow the existing order. But revolution, in Marxist theory, is no longer possible (unless the dogs of war cut their leashes and join the revolution). In Marx’s day it was muskets and cannons that revolutionaries faced—today, as we know, it is at least tanks and machine guns. If the Chinese communists have to slaughter millions of Chinese, so be it—what’s another few million more (when your goal is power for the sake of power)? So, in the end, if they do rule the world they will be a country that continues to live in fear of its Orwellian rulers.

Of course China intends on applying the Marxist end point maxim: “From each according to his ability, to each according to his needs.” Some work and some don’t? Whatever, how this plays out is a moot question. The game is not over. Here is where it gets risky.

Bush’s invasion of Iraq was about oil. But it only makes sense (it wasn’t going to be our oil) if it was about keeping China out. They were in the midst of a securing a long-term oil contract with Hussein—no more Saddam, no more pending deal. But today China again is pursuing the same deal. And while it’s not a done deal, yet you have wonder is China influencing Iraqi politicians (the Shiites) to push America out? And once out, they renegotiate all oil contracts in favor of China? The recent move by Iraq to accept no-bid service contracts for existing fields from western oil companies does not mean that they will not do business with China for the development of new fields.

Whatever. Oil is the life-blood of all industrial nations. The ideological struggle between China and the U.S. becomes second fiddle to the battle for peak oil—a war that could bring on the end of all history. Before any of this happens, we have to get in the game.

So what is our end point? The ideological battle began with the industrial revolution and it will end when it comes to a sustainable end—so whither the industrial revolution? Here’s the vision: The lights out factory. Lights out because there are no workers. It is robots with the smarts, dexterity, tactile reflex, and the eye-hand coordination (O.K, some lights) that will assemble (and disassemble for recycling) the components already pretty much produced by machines. Now picture a factory where robots shift from assembling toasters to assembling computers. Here, potentially all various brands of consumer goods (here meant to mean the basic necessities) can be produced and assembled in one factory (scaled to meet local or regional needs)—here we have the ultimate in productivity and efficiency. So as these factories rise throughout the world, the industrial revolution comes to a peaceful end.

Of course the problem is that human slaves are much cheaper than robots. But once the race to the bottom flattens out, hits the bottom of the barrel, there will be a race to the top, a race for full automation.

The problem is that right now is that the free market, driven by pure self-interest continues to produce more unemployment. That has to end before our economy collapses.

Our first move is shift from an economy that is unsustainable to one that is. The second is to put aside the issues and vitriol (at all levels) that divide us and focus on the challenges that are threatening us all. It’s time for a change. It’s time to realize what empowers our marketplace—and so our democracy—is a collective free market will where self-interest rightly understood is that it is in all our best interest to insure the integrity of whole. So there is no point in bemoaning what got us into this mess. The point is we have to shape up and stand together to meet the challenge.

And as we make these key moves, we pull our economy out of recession and away from the specter of collapse—it’s what economists (forget Marx) call creative destruction—in other words, out with the old and in with the new. The lights in the global economy are dimming and we have to get ahead of the curve. We have to get our heads out of the short-term box and start thinking about how we become more self-reliant and more creative. This is our end game.

But before we go there we have to understand the crisis that threatens us all. Total economic war means not only a run on the dollar, our banks and stock markets, but also a run on our supermarkets.

Here, there is a two-edged sword. The skyrocketing in oil prices is impacting food prices (compounded by the absurdity of trading food for fuel). And while high prices will impact the head of the food chain, the conventional farms, and trickle down to the consumer, rising fuel prices can crush the tail of distribution. Our supermarkets are replenished every day. What happens if truckers are priced out of the market and our stores not restocked for a couple of days? Actually, this is a cart before the horse question. Rising oil prices is reducing the purchasing power of consumers producing a tailwind that is driving our economy deeper into recession.

Here’s where we get cut to the bone. What happens when rising unemployment pushes our economy into a depression and impacts those unable to afford food? In a free market when demand goes down production is cut back. In the case of rising oil prices, the weak are priced out the market, and resort to bicycles, or walking, or whatever. And as they do prices go down to the point where they can enter the market again. But in the case of factory farming the unit price goes up and the weak are priced out of the supermarket (soup lines and food stamps are not going to cut it). But they are not about to roll over and die. They will resort to stealing. And when stealing becomes endemic, people panic and hording becomes widespread. And when they go back for more they find the food markets under new management—Old Mother Hubbard standing at the door with her arms crossed; no more food for you. And so as people turn away from supermarkets, they turn on each other, “a war of all against all.” This is the art of war. Let the enemy destroy themselves.

And second as our economy slips deeper into recession it falls into what is known, in economic jargon, as a liquidity trap. As the Fed pushes interest rates to rock bottom and flood the banks with cash it just sets there, as recession forces consumers to cut back on spending and so firms cut back on production, investment and workers. As they do the opportunity for investments dim and venture capitalists cut back and sit on their hands and the economy freefalls.

The usual economic remedy is to resort to what is called in the trade: helicopter money—throwing out a hundred and sixty billion dollars in tax rebates and tax incentives into the wind in the vain hope that our economy will step over the trap.

The usual isn’t working. We have to put our economy on a war footing. And as we engage in economic war we set off an investment and spending multiplier effect—a ripple effect that creates new jobs and hence more spending and more investment. And as it does the Fed does what it can to provide the necessary liquidity—without any fear of long-term inflation. Scarcity is the source of inflation—it is the economic problem, and sustainable development is the answer.

On the energy front our end game will depend on stable oil prices. Yet, oil has, or will shortly reach peak production; reflected by the canaries in the futures markets reading the handwriting on the wall (and as the economy heads into recession they will reverse their bets). And even if oil hasn’t reach peak, the buffer of excess capacity is thin, and any disruption in production sends prices skyrocketing. Even so, when oil does reach peak, there is a plateau of production—how wide depends how fast we shift to renewable sustainable energy and sustainable development.

Peak oil is an historical turning point just as threatening as the rise of communist China. We have to understand that it is in our national interest to dramatically reduce our consumption of oil (even as prices drop). Our national security depends on it, as well as our international credibility. The United States, with five percent of world’s population, consumes one-quarter of the world’s supply of oil—more than China, India, Japan and Germany combined. If the rest of the world is to prosper, if our nation is to survive, we are going to have to take the lead--we have to be the agent of change. We have a narrow window of opportunity and the sash cord of rising oil prices if not arrested, will slam it shut.

Of course change is underway. Airlines, struggling to survive, are grounding planes. And drivers are restricting and altering driving habits, shifting to public transportation and turning to rail for their commutes. But unless others, those that don’t care or the affluent who remain aloof to the crisis, don’t curtail their consumption, and limit their driving and flying to essential trips, we’ll lose the war before we even get into battle.

A unfortunate, but unavoidable outcome is that cutting back on travel means some businesses, large and small, may suffer, and some workers will lose jobs, but it is a small sacrifice as we invest in sustainable enterprises that puts us on a path to economic recovery. And while for some, as they shift professions, they’ll see in a decline in their life styles, but they’ll have a job, so while they may move down, many more will move up to better jobs with better pay.

That said our first line of defense is energy. While coal provides 50 percent of our electricity its costs are rising along with those of natural gas. To fight this war we are going to need to rely on new stocks of sustainable electricity, stabilizing the price of coal and natural gas (we are at war, and if coal and natural gas industries seek to defend their self interest they serve only to weaken the war effort). This is the path to energy independence, and it’s going to require immediate and significant investment—we can’t think in terms of ten years down the road, we have to accomplish energy independence within five years. And that may be too long. But shifting to electricity means nothing unless the automakers quickly shift to producing inexpensive A to B electric cars. Or consider Air Cars that run on compressed air (if proven to be viable). If not, there is no path to energy independence and we’ll remain on the oil track—heading us away from the front lines.

To fortify our energy line we have to invest in those technologies that can be quickly be developed and deployed. On the energy front we have a choice of windmills, photovoltaic solar thermal power, deep geothermal, and so on. While not eliminating the development of any, still, we should focus on those that are the most viable and the most promising.

While it makes sense to immediately begin installing solar arrays on homes that use natural gas or oil—financed by loans or second mortgages whose monthly payment matches or reduces their monthly energy bill—it also makes sense to focus on solar thermal technology at the same time.

For example: Ausra, an up and coming entrant into the renewable energy field, have embraced the technology that has significantly reduced the costs of bringing on line base load (day and night) solar thermal energy to the point where it is becoming competitive with coal-fired and nuclear power plants. Currently they have completed an automated factory in Las Vegas that produces the necessary components for their domestic power plants—and eventually, as they spread throughout the country these components can be produced for export. The problem is that the proof is in the pudding. Yet, we have to believe in something, do something, before our economy turns to mush.

Whatever it takes, our goal is energy independence and without a sustainable supply of energy, any vision is powerless.

So said, on the consumer front we can invest in factories today where various brands share the same assembly line of robots and workers—from breakfast cereals (packaged in reusable plastic containers) to toasters, microwaves, refrigerators, computers, and so on—bringing down unit costs. And as we as do, we take it upon ourselves to produce untainted and cradle to cradle products. And while it may be improbable to compete with worker’s that barely have subsistence incomes, nonetheless, we just have to cut back on superfluous spending. Think of it in terms of organic food, you may pay more, but our nation becomes healthier (and this applies also to domestically produced steel). Here’s how we wean ourselves from China while creating new jobs.

On the agriculture front there is controlled-environmental (indoor) farms that can provide cities with a local sustainable food supply while playing a significant part in meeting the challenges of severe droughts and weather (that appears to worsening on both fronts), looming worldwide water shortages, along with rising oil costs and rising food prices.

While there are variations of CEF's, they all are pretty much based on hydroponics and tout the same economic efficiencies. They all can be located within cities or neighborhoods. They all run on electricity, require no pesticides, herbicides nor conventional fertilizers (all derived from fossil fuels). They produce crops year around, and depending on the technology, use from one-tenth to one-twentieth the water of conventional farms. They not only use less water, they can use recycled water from the surrounding communities.

One up and running venture was the phytofarm (re: Discover magazine December 1988, The Green Machine: Indoor Farming). This is a fully enclosed farm fed by artificial lighting where one acre can produce 100 times the yield of conventional farms (in the dead of winter). And while it was geared (literally) to produce leafy greens and herbs, there is practically nothing that cannot be grown indoors—albeit it would require a shift to growing some food in composted earth pots. Yet, while the project had a successful run for a number of years, in the end it lost out due to high-energy costs and closed its doors in the early 1990s. But with rising fuel costs, it becomes competitive, and we can open its doors again.

In the meantime greenhouses are up and running. And they are in the process of literally reaching new heights. Visionaries are proposing vertical farms—high rises with greenhouses stacked on one another (check out the technology on the internet). Yet they have not gotten off the ground, and so their technology remains unproven. But as venture capitalists get off their hands and get to work, this could quickly change.

And it has to change quickly. Without indoor farming the only choice for a world increasing in population while running out of oil and fresh water, is famine and death.

Here, we have to take the lead, and as we Johnny Appleseed these farms throughout the country, or economy grows as well as our confidence while taking the pressure off of conventional farms—that we’ll depend on well into the future. And consider this: While it’s O.K. to throw out money from helicopters to the people, imagine, instead of throwing billions into the wind, those tax rebates were invested in sustainable enterprises. A hundred billion dollars could have immediately funded the construction of three hundred and thirty vertical farms at a cost, at the high end, of three hundred million per building.

But investing in sustainable energy and sustainable agriculture is not going to be enough. We need a major construction boom. And it is not going to happen within the confines of urban sprawl. Nor should it. We are not addicted to oil, but to a pattern of development that is unsustainable.

To live here, cars and light trucks are a necessary fact of life. Not only a fact but are a status symbol (the bigger the better), but a fact and status that reflects our decline. Today owners of SUV’s and their light (heavy weight) truck cousins are feeling the pain at the pump and are not only upside in their loans, but are finding that their resale value have significantly dropped—they are stuck with a dinosaur or at best a lawn ornament.

But as some grieve their demise, understand they played a significant role in the depletion of our oil reserves, and now as we turn to the world for more, they are a major factor in driving up world prices, slowing down the global economy, pushing up our trade deficits while pushing the dollar to the edge of credibility. And in their production and use they produce air pollution as well as heat—pollutants that contribute significantly to global warming. And too, as they roll off of assembly lines they demand too much energy and resources for their infrastructure—and there are never enough highways. So there is a constant need to tear down homes and businesses to expand their capacity. And even as we enter and exit them, our roads are clogged. And just consider the costs of traffic lights. At the top end they cost $250,000 per intersection to regulate their flow—so, if we don’t find ourselves inching our way to work on our super-highways, we find ourselves idling away our time and our gasoline at intersections.

Sprawl is a phenomenon that survives by feeding on itself as it adds on more suburbs (and longer commutes). But since the housing crisis is in play, as we drift towards a depression few will be buying existing homes no matter if their prices do bottom out. More people will rent houses, move into smaller apartments, or move in with family and friends or rent rooms. The only new home construction here will be that of cardboard boxes (made in China) as more people lose their jobs.

Productivity is the hallmark of capitalism and the source of our prosperity. But in the case or urban sprawl prices and taxes go up while efficiency goes down. Meanwhile, as it grows, it reaches out for more water, food, energy and land. But it is the demand for land that is the primary threat as it bids up the price of real estate. The thing is, as the price of real estate went up, so did the sale price of everything, and to keep up to it was necessary for wages to go up—setting off a price/wage spiral that in itself is unsustainable. Nonetheless economists have always viewed homes and high-rises as assets—good investments. In reality they are a source of inflation driven by sprawl. And eventually, regardless of the current housing crisis, stagnating and declining wages would have brought on a similar crisis.

While economists refuse to believe that cities and their sprawling suburbs are a source of inflation, nonetheless the marketplace has been signaling all along, with high prices, for a better product. And while some cities proudly wear the sustainable label, they are among the most expensive places to live and do business. So even as they embrace indoor farming, they need to embrace the idea of competition to stabilize their cost of living.

It’s time to move beyond sprawl and shift our growing population to new cities. This isn’t to say we shouldn’t revitalize those cities on the edge, but with an expected seventy million per year population increase, we are going need a lot more cities. Cities that not only work hand in hand with nature, but do more with less. So out with old and in with the new. To do so, enlightened planners, politicians and investors are going to have to take the lead. And to a small to degree, they already have under the rubric of new urbanism. They have taken an old idea and made it new (check out Garden Cities of Tomorrow on the internet—here you will find the seeds for sustainable cities). Their plan is to reshape sprawl by building urban centers where homes and businesses are mixed within a short walk and travel is shifted to public transportation. But from here it is a short step to begin to build whole new cities (connected by railroads carrying passengers, cars, trucks, construction equipment and freight)—whose construction will ripple throughout the economy revitalizing our industrial, service, and tourist sectors (where taking the train is part of the package—while our auto infrastructure needs investment, more so does our railroad industry). Here, in the new cities, while some workers will be sending money back to their families, others become would-be homebuyers and lenders can feel confident in providing them with mortgage loans that will help finance their development. Here too there is a safe haven for those displaced by wildfires, droughts, floods, hurricanes, and tornadoes.

So first these investors and developers survey our regions, our nation for a sustainable niche and inexpensive land (owned entirely by the developers—no speculators here) and begin building new cities. And as they come up on exceeding the limits of the region, we move on and build new cities in other regions. This is a long neglected vision put forward by enlightened urban planners. We can neglect it no more.

And while there are many willing architects with their plans for cities (especially those who have gone to China to show them—instead of aping and outdoing the car-choked ego-centric cities of the west, look at us we are more stupid than you—this is how cities should be built) what’s one more model?

First, however, these are sustainable city planners and the first thing they plan for is either to eliminate cars, or greatly reduce their number. And second, these architects fully embrace green building and innovative technologies.

That said, this is how I see it: clusters of neighborhoods (linked by elevated transportation arteries shared by electric vehicles, bikes, pedestrians and rapid transit systems) will form the city. These neighborhoods are large terraced multi-storied structure sheltering thousands. Here their terraces are reserved for greenhouses and homes and their centers for fully controlled-environment farms, factories, convention centers and stadiums.

So, as you walk out into your neighborhood you encounter not hallways, but wide walkways, allies and breezeways lined with schools, libraries, theaters, businesses, shops, and restaurants—all within walking distance. And when you go to the first floor, at ground level you find barns (for pigs, beef and dairy cows, and chickens that are butchered—harvested next door) opening onto natural habitant mixed with organic farms, orchards, parks, playgrounds, and golf courses.

Here, instead of sending our table and produce straps, our unwanted leftovers, dry bread, spoiled fruit to landfills, we recycled them to neighborhood barnyards or to community organic orchards and gardens.

In their development, in the short-term they create hundreds of thousand jobs as we prepare for their building, and as they rise they will provide a steady stream of employment. And as they rise, existing cities will benefit as they provide the logistical support. And as the economy reboots people again can afford vacations, venture capitalists and locals can confidently invest in local sustainable enterprises (we have more than enough casinos and theme parks) further bootstrapping their economies. So as cities rise and sprawl stabilizes those homebuilders and high-rise developers can finish their projects and become part of the solution.

Not only do sustainable cities provide a sustainable stable source of energy, food and sustainable products, not only do they more with less, not only promote the rebuilding of our industrial base but they provide the economic benefit of lower taxes (since the infrastructure is fixed, so then are taxes), lower prices and greater efficiency. And as these cities rise they provide shelter from extreme weather and as they rise worldwide they become the long-term solution to global warming. So, altogether our economy becomes more efficient and robust and the world becomes a better place for all its inhabitants.

And as it does, as we channel investments into IPO’S for those enterprises, those entrepreneurs who rise to meet the sustainable challenge, the stock markets too becomes robust and produce their most important product—taxes on capital gains. So along with ending the tax cuts for the wealthy and a cut in military spending as the world shifts from conflict to cooperation, we pay down our debt, and eventual surpluses can be used to underwrite health care and the social security system. In the long term, when cities are fully sustainable, and stock markets stabilize and decline, they will provide their citizens with health care and provide for the social security of the elderly.

Cities are also the key to stabilizing global population growth. As nations modernize and urbanize their citizens have fewer children that fall below the replacement rate. As such their populations stabilize and then somewhat decline in the long term. There is, however a problem in the short-term. As countries modernize and urbanize they create what economists term mature economies, that is, along with a decline in population there is a decline in home construction and infrastructure and so a decline in economic growth and tax revenues threatening their entitlement packages. So most industrial nations turn to immigration as an answer to maintain their economies, to keep their population stable and the social fabric tightly knit. But immigrants do not easily assimilate and have more children exceeding the replacement rate and in so doing create social stress. Especially in the United States where immigration goes beyond what is necessary to maintain a stable population—it’s betting on growth to sustain its economy. Nonetheless, immigration will remain a fact of life in the short term. In the long term, as new cities rise in their homelands, immigration will decline.

Meanwhile, the U.S. is being invaded by millions of illegal immigrants. This is a problem because politicians haven’t come up with a simple guest worker program. There’s no point in sending them back. Have them provide the necessary information, give them a work card, and let them find jobs on their own. Putting up a border fence is not the answer. What we should be doing is mending fences—on both sides. If our economy is going recover, if we are going to pursue sustainable projects, we are going to need those workers from Mexico.

And as far as closing the borders to drug dealers, it is no time (is there a right time?) to be getting high, sober up, take that money and invest in the defense of your nation. And as to terrorists, no trespassing signs, no matter how high or wide, are going to keep them out.

In the meantime, we’ll work together with our neighbors Canada and Mexico in the development of sustainable cities—utilizing our workers, our resources, and our will to provide prosperity for all North Americans.

And what works for us, can work throughout the world. The industrialized nations should form an economic coalition (the moral equivalent to war) to assist the Palestinians, the nations of Afghanistan and Pakistan (first developing sustainable food and energy projects), and other nations, in the development of new cities that in turn sustain the economies of those participating countries. And Iraq should consider forming a coalition government, take its oil wealth, while it can, build up its infrastructure and begin the construction of their new cities (separating the factions or not).

Regardless what criticism may arise, this is a war economy, and it is how we win the ideological battle--it is how we fight World War III. A war that will be led by our captains of industry—those who contribute positively to the economy in contrast to the robber barons that simply take. This is not to say that the President, Congress, the Federal Reserve, governments at all levels and the people will not have a significant role to play—it means that if our corporate CEO,s, those who focus on the bottom line and their personal wealth and those geniuses who focus on exploiting currency and financial markets don’t step up, they put the war effort at risk.

There is also something that all nations should consider: that it is in their best interest to shift to a global economy where trade is no longer a zero-sum game, but a sustainable end game where everyone wins--it's about cooperation and balancing trade. There is a huge amount of work to make the transition to would-be sustainable cities and that requires that nations with a trade surplus, who are shifting their economies (their workers) to the development of new cities, turn to those nations with a trade imbalance--an imbalance in employment--take their foreign reserves and invest in or directly trade for whatever is necessary to facilitate and expedite the building of their cities.

Certainly, development cannot exceed available resources, but given a sustainable agenda and paced development (and perhaps a simplified city design that reflects the realities of available resources) there are no market uncertainties and investors and producers can feel confident in bringing the necessary commodities to market. While the people of developing nations can feel confident that their leaders will channel their resource revenues into the development of new cities--as a condition imposed by those enlightened countries that import those resources.

Now, those jobs going to China, India and elsewhere is a good thing. Instead of a zero-sum game, instead of a world teetering on the abyss of nuclear war, we now have a global alliance for peace and sustainability.

Humankind was conceived in ignorance. What is done is done. There’s no going back. If we remain ignorant, if we seek revenge for past injustices, if we don’t seek redemption for past transgressions—well, we are just too stupid to live. Freedom, rightly understood is that it is the spirit of the mind, the advance of knowledge that allows us to hurdle the obstacles that we created in our infancy. And as we put away our childish ways, we allow history to continue and so allow the truth, the underlying of reality of everything, to will out. This is God’s will.

Webster's defines complacency as “1.satisfaction or contentment 2. smug self-satisfaction” There is probably not a better word to describe the current state of perception with regard to economic and financial malady. I had an interesting conversation the other night about exactly this topic and the individual I was speaking with had an overriding belief that we cannot suffer economically simply because the current generation is not prepared to deal with it. While I certainly agree with the latter assertion, the former continues to baffle me. I am certainly not prepared to deal with a lengthy hospital stay as the result of a horrific car crash, but that alone doesn't cloak me in immunity from having an accident. The reasoning is so broken and flawed, yet it is often all we get in terms of a perception of what is going on.

This disconnect begets a discussion of why exactly it is that society has chosen to believe itself to be immune from bad things. It is odd in itself that when you talk to individuals, they seem to be acutely aware of many of the challenges facing us, but when you put all the individuals together and create a society, we act as though the party will indeed last forever. We are certainly dealing with a situation in which the intelligence of the whole is by far less than the sum of all its parts. Here's a little bit of déjà vu for you, compliments of Wikipedia:

“ In the 1920s, Americans consumers and businesses relied on cheap credit, the former to purchase consumer goods such as automobiles and furniture and the later for capital investment to increase production. This fueled strong short-term growth but created consumer and commercial debt. People and businesses who were deeply in debt when price deflation occurred or demand for their product decreased often risked default. Many drastically cut current spending to keep up time payments, thus lowering demand for new products. Businesses began to fail as construction work and factory orders plunged.”

Sound familiar anyone? See any price deflation going on? The Wilshire 5000 has only lost about 2.5 TRILLION dollars in value in the last two months or so. What about the loss in home equity? Another trillion or two? Who knows, but I think you get the point. We are seeing almost to the final utterance the same play we saw unfold in 1929. Were those folks any more prepared for the Great Depression than we are today? I'd argue that while they were perhaps a bit better equipped to provide for their own sustenance that American society in the 1920's was as complacent as we are today. When the realization of history's coup de grace hits, we will be caught as unaware as our ancestors were back in 1929.

Here are some other examples of what Alan Greenspan likes to call ‘irrational exuberance' in the 1920's:

"We will not have any more crashes in our time."

John Maynard Keynes in 1927 (The authenticity of this one is a little suspect) DOW ~ 175

"There will be no interruption of our permanent prosperity."

Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928 – DOW ~ 200

"There may be a recession in stock prices, but not anything in the nature of a crash." - Irving Fisher, leading U.S. economist, New York Times, Sept. 5, 1929 – DOW ~ 375

"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S." - President F.D. Roosevelt, 1933 – DOW ~ 65

Tuesday morning we received news that according to the Institute of Supply Management, the service portion of our economy underwent a significant contraction during the month of December. This is alarming given the fact that December is normally one of the busiest times of the year. Even still, a trip past the local mall provides a busy scene. People are streaming in and out, carrying boxes and bags of imported trinkets to their imported cars. They will then use imported gasoline to drive to their home, the mortgage of which is likely to be owned by a foreign investor. Yet the average American citizen sees nothing wrong with this picture. Or could it be that they don't even see the picture at all? The media has certainly been playing the role of absentee informant in recent years, choosing to focus on such insipid topics as Britney Spears' latest rehab stint rather than the important business at hand.

Here now, are some quotes from this generation's 1929..in 2007 and 2008:

“It is encouraging that inflation expectations appear to be contained,” Fed Chairman Ben S. Bernanke – Testimony to Congress – March 28 th , 2007 – DOW ~ 12,500, Headline CPI-U ~ 2.8% Y/Y

"As I think you know, I believe very strongly that a strong dollar is in our nation's interest, and I'm a big believer in currencies being set in a competitive, open marketplace," - Henry Paulson – Secretary of the Treasury – USDX ~ 81.50

““We are making history. What has passed the Congress in record time is a gift to the middle class and those who aspire to it in our country.” House Speaker Nancy Pelosi on the $168 Billion tax ‘rebate' while the middle class is spending their Wal-Mart Christmas gift cards on food and other necessities.

They're making history all right. Too bad it will end up being the WRONG kind. How can we ever hope to focus the population on the urgency of our current predicament when our leaders are willing to make it worse by handing our freebies, bailing out those who willingly make poor investment choices and telling us everything can be ‘free' if we'll only pull their lever on election day?

Or am I putting the cart in front of the horse? Perhaps a contrarian opinion might be that our leaders are giving the public exactly what it wants. In either case, I am quite certain that our state of unpreparedness will not constitute a free pass from the negative effects of a recession or a retraction of any of the financial excesses we've enjoyed over the past few decades.

By Andy Sutton

http://www.my2centsonline.com

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit www.suttonfinance.net

Of course the depression is coming.

It's obvious, it's releveant, & it's here.

As the above people have stated, look at history, look at now, and there you go!

The media, our leaders, & our fore fathers all were aware, are aware, and are hiding our fate!

Everything you don't want to happen will, & very soon!

OMG this is one of the truest things ive ever read thanks a million i liked it so much we read it to our whole agriculture class thak you sooo much it had such a great impact to everyone

Thank you,

Alan Ritchie