The Derivative Market Vigilantes (and why you should care!)

Okay, this is a very interesting story that's unfolding behind the scenes, but before I can really speak to it, I need to describe how financial derivatives work, and why you should care.

A derivative is a contract that guarantees that one party (the buyer) will buy some commodity or asset (called the underlying) at an agreed upon price from the other party (the seller) on some agreed upon future date. This kind of financial instrument was originally designed to protect businesses from volatility. For example, a wheat farmer could sell a wheat derivative that would mature around harvest time, and be guaranteed a satisfactory price for his wheat. This would protect him/her against wheat prices that were too low make a reasonable income from the farm. Southwest Airlines was virtually the only airline that sailed unscathed through the reign of triple-digit oil prices in 2008, because it was a buyer of long-term oil contracts through the derivates market at what ended up being prices that were much lower than maket prices. These kinds of trasactions appear to me at least to be beneficial for both parties because they provide the kind of certainty and advanced planning that allows a business to run smoothly. And this would be fine and dandy if this is what derivatives really were all about.
Instead, there is a little shortcut in this contract called an option. This bit of convenience is actually the central problem...
"A futures contract gives the holder the obligation to make or take delivery under the terms of the contract, whereas an option grants the buyer the right, but not the obligation, to establish a position previously held by the seller of the option. In other words, the owner of an options contract may exercise the contract, but both parties of a "futures contract" must fulfill the contract on the settlement date. The seller delivers the underlying asset to the buyer, or, if it is a cash-settled futures contract, then cash is transferred from the futures trader who sustained a loss to the one who made a profit" (Wikipedia)
So the option allows the buyer and seller to simply settle the monetary difference of the contract, rather than for the seller to actually sell the underlying to the buyer. For the actual farmer, this might allow him to simply sell his grain to his local distributor for $10/bushel and then (let's suppose he entered into a $15/bushel futures contract), he could collect the extra $5 from the buyer of the derivates contract. While this may be more convenient than having to deliver the physical asset to the actual buyer, it changes the real nature of the trade. Suddenly, the seller doesn't have to actually be a maker or seller of the underlying asset. The buyer doesn't have to actually take possession of the underlying asset. In this scerario, the derivative is nothing but a bet between these two parties on what the future price of that good will be. In the event that the buyer wants to take physical delivery, the seller could act as a dealer by then going on the open market, buying the underlying asset in the open market, and then selling it to the buyer at the previously-agreed-upon futures price.
Less than 1 percent of futures contracts traded today are settled through physical delivery. The rest simply cash out between the parties for the difference. Since so few of these contracts actually deal in the exhange of the underlying asset, the trade in futures contracts is not limited to size of the physical market. I've read estimates of the size of the derivatives market that range from $600 trillion to over 1 quadrillion dollars. This is somewhere between 10 and 20 times the size of world GDP. The U.S. debt clock currently pegs it at $632 trillion. So while the supposed utility of the derivative contract is to hedge against volatility and provide certainty, due to the size of the market, derivatives actually act as volatility amplifiers. Small changes in the price of underlying assets lead to huge flows of money and can wreak havoc on institutions that have made poor bets. Through the use of derivatives, things like oil, wheat, cotton, gold, etc have become nail bombs. There are even derivatives contracts on non-tangible assets like currency and interest rates. Similarly to the case of physical goods, small changes in interest rates could cause massive transfers of wealth and cause great destruction just because of all the bets outstanding on them.
Anyone can buy and sell these contracts, and the biggest buyers and sellers are the huge investment banks and hedge funds, essentially gambling in the biggest casino in the world. These entities do not want to be involved in the physical delivery.
"Buyers of commodity futures contracts are obligated to take purchase of the underlying commodity when the contract expires. This could entail paying a large sum of money, since the margin deposit was only about 10 percent of the contract value and the balance would be due when the commodity was delivered. The trader would also have to arrange for the delivery and storage of the gold, corn, orange juice or whatever commodity the contract involved. Futures traders avoid the possibility of delivery by selling an offsetting contract or rolling the contract out to a future delivery month. Futures brokers do not want to go through the delivery process, so will contact traders to make sure they do not receive an unexpected delivery. Do not go on vacation with an open futures contract in your trading account. " (ehow.com)

So essentially, Goldman Sachs does not want to be responsible for actually conducting physical trade. That involves transaction, delivery, and storage costs, and such mundane real world transactions are no where near as lucrative as the pure bets!
There is a deeper problem, however. As should be obvious from the size of the derivatives market relative to the real economy, only a small fraction of the total outstanding derivates could be settled in physical delivery given that the trade in futures contracts are typically 10 to 100 times the size of trade in the underlying asset.
Enter J.P. Morgan. According to Max Keiser, J.P. Morgan has recently been involved in naked shorting the silver market through silver futures contracts. Naked shorting is borrowing money to take a short position (or a bet that the underlying asset will drop in price). In the futures markets, taking a short position is as simple as being the seller of the contract - because if the commodity drops in price relative to the agreed-upon futures price, you make money selling it at that higher price (or cashing out, as the case may be). According to Max, the J.P. Morgan short position contracts are covering $1.5 trillion in silver - much more silver than actually exists. Max has started a campaign that has gone viral on the internet called 'Crash J.P. Morgan, Buy Silver'. The idea is that by taking physcial silver off the market (and I'm not sure if he means buy derivitives contracts and demand delivery or if taking it off the market in other ways would obtain the same result) the price will be bid up and J.P. Morgan will not be able to cover its short position. If enough silver is taken off the market, it would expose the over-leveraged nature of the derivitives market and destroy the value of all 'paper silver'.
Here's Max:



Max also interviewed Jim Willie about an attempt by so-called 'gold vigilantes' to force the hand of these big banks that were trading all-of this mega-leveraged gold that essentially only existed on the margins:



This is the same exact principle as a run on the bank, but in this case, it is an attempt by wealthy foreigners to prevent Western banks from manipulating these assets. I think this is a battle that will remain behind the scenes because of the stakes involved, unless enough people become aware of things like this viral Crash J.P. Morgan campaign. But be aware - the crisis is coming. It is a crisis of confidence that has its roots in the ridiculously over-leveraged nature of the derivatives market -a market that dwarfs all other financial and real markets. Unless this leverage can all be unwound safely - and I'm not sure it can - this derivatives market is going to throw the world into financial turmoil. And keep in mind, it already has to some extent. Mortgage backed securities, and collateralized debt obligations (the so-called toxic assets that are the reason for all of the bailouts) exploded in nail-bomb fashion in 2008 and continue to spray their shrapnel through foreclosuregate and through the backdoor purchase of this garbage by the U.S. government. The reason the world fell to its knees due to falling home prices was due to the massively leveraged bets on those home prices.
Be forewarned. The finanical crisis is far from over and the world governments are running out of tricks to convince people that everything is stable.

Britain Adopts a form of my Unemployment Solution!

Yes, it's true. I'm guessing they must have read my post!!

http://www.bbc.co.uk/news/uk-politics-11704765

A Real Solution to High Unemployment

We are three years into the contraction of the broad money supply (otherwise known as the credit crisis). The disappearance of easy money in the real economy means a persistently high unemployment rate. As of October, the official government unemployment rate remains at a stubborn 9.7%, which of course, as of the 1990's conveniently leaves out several classes of people previously categorized as unemployed. The 9.7% only counts those that the government identifies as actively looking for work. By and large, these are people who really want jobs. The current stop-gap solution for these people is to apply for emergency unemployment compensation from the federal government. Congress keeps pushing back the limit for how long people can qualify for emergency unemployment, and rightly so, because there simply aren't enough jobs out there for all the people that have bills to pay and families to support. People by and large don't have savings anymore (which is really a mathematical consequence of capital accumulation in a debt-based monetary system) and you can't just let 30 million people and their families starve to death. Democrats thus insist on extension of unemployment assistance, while republicans rail against the disincentive to work engendered by free money. Isn't there a better solution then? Yes. A version of the solution I have in mind was enacted under Franklin Roosevelt's administration. It was headed by three temporary organizations, the Work Porgram Administration, the Tennessee Valley Authority and the Civilian Conservation Corps. Unlike the idiotic 'stimulus' of the Obama era, which paid people in zombie job sectors to do work that didn't need to be done (i.e. paving over perfectly good roads) the WPA and CCC paid unemployed people a basic wage to perform vital infrastructure, energy, and conservation work - work that continues to provide value to the economy on a continuing basis to this day (think hydroelectric dams, irrigation systems, and the like).

These kinds of programs are derided by steadfast republicans, who view them as socialist - and who insist that private enterprise and free markets are best at allocating labor and resources. In most cases they are right, but in some critical cases, this notion is very wrong. To illustrate my point, think of traffic. Most major cities have some public transportation like buses and subways that are rather expensive and inconvenient, so most people end up driving to work. These cities tend to have many traffic arteries that are chronically clogged with cars. Traffic is funny. There is very little difference in commute time between a road network with very low traffic volumes and one with moderate traffic volumes. But something happens when traffic volumes increase above a critical threshold...traffic snarls to a standstill very quickly with the addition of each new car into the system. So here you have essentially a free-market system, where each participant can choose his/her method of getting to work based on transparent prices for fuel vs. commuting, and yet on the aggregate, a very suboptimal solution is achieved. Here in Portland, public transportation is heavily subsidized. It costs $4.75 to ride all the buses, light rail, and subway you want all day. Annual passes can be had for a pittance. There are stops at almost every block all over the city, and it is very fast and efficient to use. The result is that a huge number of people utilize this system, and those that do choose to commute via car benefit from the additional time afforded to them by the relatively free-flowing roads. This additional time on the aggregate has enormous value that more than makes up for the cost of the subsidy.

Beyond this example, a whole class of economics is devoted to the situations that can be classified as a 'tragedy of the commons' wherein the rational decisions by each actor in the system (decisions made in order to maximize their own well being) leads to degradation and collapse of shared resources. In these situations, a government-regulated economic management of the shared resources maximizes the system's long term prosperity. Last year's nobel prize in economics was given to Elinor Ostram who concluded that 'tragedies of the commons' are best solved by local management solutions (i.e. local government institutions), presumably because they have the best understanding of the nuances of the problem, have the most direct stake in its solution, and are best positioned to minimize administrative costs. The point I am making here is that the WPA/TVA/CCC, although perhaps not optimal economic arrangements were brilliant solutions to high unemployment because they focused the energy of people desperate for work into constructive avenues that helped to manage resources and alleviate tragedies of the commons - roles that government economic entities are uniquely suited to do.

So what would a modern day WPA look like? Well, it could take many forms, but let me lay out what's going through my mind:

1. With certain exceptions for people with disabilities, etc, direct unemployment compensation is completely eliminated. If people want money, they have to find work.

2. A website is started by the federal government, with home pages directed by state or local governments. The purpose of the webpage is to connect people with temporary work that needs to be done with people nearby who are willing to do it. The labor for this work is heavily subsidized by the government. There are certain catches however:

3. The work location must be within a few miles of the worker's residence. Part of the reason we have high unemployment is that the broad economy is constrained by oil supplies, and market forces kicking people out of jobs is a very effective way to create demand destruction in the oil markets. This new batch of labor cannot put a strain on demand for oil.

4. The work must be certified in some way as accomplishing goals in several key focus areas such as A) Creating sustained future sources of income or value. This might include building a vegetable garden, building rainwater cisterns, energy supply projects, etc. B) Putting in place infrastructure that reduces demand for energy, especially oil. This might include weatherproofing old houses, building clothes lines, simple passive solar projects, making bike trails, helping with bike repair, etc. C) reducing pollution, waste or providing ecosystem services. This might include pulling weeds at a local farm to eliminate the need for chemical herbicides, or planting flowers that attract the good insects that eat the insect pests to eliminate the need for chemical pesticides. It might include building trails, benches, etc out of recycled materials. D) Urban renewal/making urban spaces more livable. This might include painting murals over graffiti'ed walls or building a city park where an abondoned parking lot now stands.

5. Each project must be either started by a local government agency, in which case it is fully subsidized, by a private individual or non-profit group, in which it is half-subsidized, or by an existing business, in which case it is 1/4 subsidized.

What this does is organically puts people back to work and helps to retrain a workforce to do real, constructive things for the economy. It retrains the workforce to use human labor rather than oil as a substitute for labor, which reduces oil consumption, lowers the cost of that oil for the rest of the economy in the process, and thereby enables further renewal of traditional private-sector jobs as overhead is reduced.

To some extent, the cheap, subsidized labor will steal work from private businesses, but this is an unavoidable cost, and should be far-outweighed by the benefits. These are designed to be temporary jobs for the unemployed workers, so their pay is low, say $10/hour, and they should therefore have every incentive to seek out better-paying work in the broader private sector. There will also be administrative costs in setting up such a system, but if the allocation and certification of labor is done on a small, local governmental level, it should minimize these costs.

Keep in mind, we are currently paying all of these unemployed people to sit on their hands. Why not pay them instead to rebuild our dying country?

Nick

Portland!

It's been a while since I've written anything in here - and for good reason. Aisling and I have been busy setting up a new life down the Columbia from Richland on the 'wet' side of the cascades.

The moving process was a bit chaotic and disruptive, as moving processes tend to be (or at least they are for me. When I moved to Richland in February 2009, I spend every waking hour either at work or at home setting up the place and building new furniture). We moved in here nearly a month ago, and set about fast unpacking, reassembling homemade furniture, and I got to work as soon as I could building a garden. You see, it's Portland, and the winters are quite mild and wet here, so I have this idea that I can get a garden going for the winter in the yard we have here - growing crops that are cold weather resistant. More on that in a bit.

Most people back east think of Portland (and Seattle for that matter) as being coastal cities. Neither of them is. Portland is situated on the south end of the Columbia River where it is fed by the Willamette River. The Willamette cuts the city in half east-west. The east side is mostly flat, with the exception of a few odd buttes that poke up here and there. The west side, where we live, is exceptionally hilly. It contains the downtown area, which is flat on the North end, and hilly on the South end, and a mix of hills, streams, and the occasional incursion of the Tulatin Mountains, a low, mossy, forested range that leads out to the west. Portland itself is about 90 miles from the coast. Seattle is even further form the coast, especially by car.

Portland is a rainy city, to be sure. Its 40 inches of annual rainfall make it about 6 times wetter than Richland was. It's no wetter on aggregate, however, than Maryland was. The devil is in the details though. Whereas precipitation is spread out relatively evenly throughout the year in Maryland, the vast majority of it comes, in Portland late October through May (up to nearly 7 inches per month by December), as the figure below testifies. The heavy green line is rainfall and the heavy white is snowfall, compared to the similar colored dashed lines for Baltimore. The rain here is also generally lighter - falling more often as prolonged light rain and drizzle, rather than thunderstorms or downpours. The cooler half of the year, thus sees very little direct sunlight. The flip side of the coin is that the late spring through early autumn are spectacular. These times are punctuated by bright sunshine and very cool temperatures by summer standards. The temperature graph below shows that average high temperatures stay below Baltimore's highs except January-March, when they are warmer. Low temperatures likewise stay below Baltimore's lows during the summer, but are warmer than Maryland's lows from October to April. Humidity is low in the summer - the air tempered by the coolness of the Pacific. In the winter, however, the humidity is often near saturation and supports lots of moss.

As I mentioned, we moved into a place on the West side of the city, well above the downtown area, in a hilly, urban setting carved from intermittent dense forest that still clings to the sides of the roadways. There are many protected wooded parks around, providing plenty of trails for hiking and running - that is, when we're in the mood for hills, hills, and more hills.

Our house is the same square footage as our Richland townhouse, but on one story. It has three bedrooms instead of two, and we turned one into my office. I've started working from home, and am still getting used to it.

The verdict is still out on the telecomuting thing. It's the end of the fiscal year at PNNL, which means a mad scramble to finish projects and papers. When we first got here, we had to wait 10 days to get internet installed, which meant I was commuting by bike into the downtown area to work out of the conference room of the small PNNL Portland Office (not enough room for me). The house here also has an 800 square foot deck, which makes it nearly the size of the rest of the house! The bedrooms are rather small, but the living room and kitchen are quite large, compared to our old place.

The wooded nature of this area is going to make gardening a particular challenge, as only certain pats of the yard actually get much sunlight. The only good place was the side yard area. It's about 6 feet wide by 30 feet long, and slopes downhill from the main entrance of the house down to the deck. Aisling and I built a terrace system into the side yard.

This involved hours of first pulling up an anti-weed tarp that was laid down below an inch of mulch, tilling the soil and shoveling it into flat sections, building brick terrace walls, tilling some more, and mixing in peat moss and garden soil. The native soil is heavy clay, dry from the summer, and I thought it would benefit from some lightening and some nutrients to get it started. Hence the ready-bought soil and peat from Home Depot. In the beds we created, we've planted broccoli, cauliflower, lettuce, spinach, kale, arugula, carrots and swiss chard. It will be interesting to see what comes up and what survives the cold weather. Already some things have failed to come up - and this is not due (at least not yet) to the poor weather or site selection. We have some blue jays that seem to be very fond of the tiny sapling leaves of these plants (especially the broccoli and carrots). The carrots nearly all came up, but are now nearly all gone. So...we'll see. The winter crops are just an experimentation, and I'll keep in mind the bird issue for the spring planting. In the meantime, I've also started lots of clover in the beds alongside the crops. Clover is supposed to fix nitrogen into the soil (meaning that it uses the sun's energy to convert atmospheric nitrogen to nitrous compounds in the soil). Nitrogen is one of the three key plant nutrients. So the cover crop of clover provides a very valuable organic fertilizing role.

Our first weekend here we took full advantage of the city and saw The Decemberists live in concert. They're a band from Portland that I like a good deal, and have been listening a lot to recently. I wasn't a big fan of the setlist, with the exception of some of the new songs they played off of an album they're putting together right now.

The next weekend, we went touring around the nearby farms doing lots of U-pick in the middle of harvest season. All-in all, we picked about 8 different types of fruits and vegetables, and bought ready-picked versions of about 10 other types. Much of last week was spent tirelessly canning and freezing the excess. We now have 8 jars of blackberry/raspberry jam, 8 jars of kernel corn, and 14 jars of tomato sauce to last us into the fall and winter - as well as a solid cache of frozen vegetables. The coolest things we got were golden raspberries (really tasty on the vine, but boy did they soften up fast!) and elephant garlic (garlic the size of large onions). We also got the best plums Aisling and I have ever had and some really delicious asian pears!

This past weekend, we enjoyed the last free weekend before Aisling started school by doing a 65 mile bike ride - out and back to the vista house - a lookout point on one of the most scenic vantages of the Columbia Gorge. Aisling nearly died on the way trying to impersonate a frog. (Okay,what really happened was that she was pretty sure she swallowed a bee and that it stung her throat on the way down. She was afraid it might swell and constrict her airway. Paramedics arrived on the scene at the vista house, and it eventually just turned into a slightly embarrassing- for Aisling - false alarm.)

We stopped at an amazing Thai place on the way back. Nothing much from the outside, but they lead you around to the back (in the summer) where the restaurant opens up into an outdoor patio canopied by grapevines. I was able to reach up while we were waiting for our meals and pluck fresh grapes off the vine into my mouth!

School is officially in session for Aisling as of this week. The beginning of 2 years of graduate school at OHSU. On Sunday, we both attended a potluck get-together with some people from her grad program. They mostly seem like some cool people, and we both look forward to counting some of them as friends.

On the Nature of Debt: A Baited Trap

There are two excerpts I want to share about the nature of debt. Both are from my favorite site, www.theautomaticearth.blogspot.com. One is from one of the authors of the site, Nicole Foss (Stoneleigh) , and the other excerpt is written by another blogger who is quoted in one of their posts.

There are two ways to pay for expensive assets, whether you are a person, a business or a country. One way is through past earnings (savings) or through presumed future earnings (debt). Savings is tough. It requires discipline, frugality, and patience. These are real, hard won virtues. Debt requires nothing of you at the time you take it on. It's available now! Why wait! Is it any wonder that people have gravitated towards the enticing morsel on the mousetrap, rather than foraging in the wild? In a more balanced society, you might expect markets for large assets to be paid for roughly half in savings and half in debt. In our society, there are virtually no people who pay for houses with savings. Nearly everyone takes a mortgage. The coiled teeth of the trap have been hidden from our view in the past by selling us the notion that the debt is low-risk. That notion, however, is very sensitive to the assumptions that underly it. How reliable is your income, really? What emergencies might present themselves that divert the cash stream needed to pay back that loan? What happens when all you thought you knew about inflation and the change in value of your assets is thrown out the window. In these times, debt can be an extremely risky proposition. What happens if you try to buy a house out of savings, and something unexpected happens? Well, you go on renting for a while longer. What happens if you're trying to pay out of future earnings plus interest. In many cases, default - and the loss of all you thought you had. The trap is sprung, and the creditors get what they were really after.

Here's Stoneleigh: (http://theautomaticearth.blogspot.com/2009/01/january-9-2009-dr-doomlittle.html)

Bailouts are NEVER for the little guy no matter what spin their proponents use to sell them to the public (who will be paying for them through their taxes). The role of the little guy in a Ponzi scheme is to be the empty-bag holder. This is the tragedy of our times, and there's nothing anyone can do to prevent it, whether or not they might want to. The losses have already occurred, but as yet still lie out of sight in illiquid 'asset' accounts supposedly worth hundreds of trillions of dollars, but actually worth close to nothing.

A predatory lending structure has been sucking the wealth out of ordinary people through debt enslavement for a long time, by encouraging them to buy far more than they could actually afford on margin (ie with borrowed money). That is a recipe for paying far over the odds for everything, while the financiers collect the excess - an excess collected preferentially from those near the bottom of the income scale, who were most likely to carry a perpetual credit balance at a predatory rate. This is how credit bubbles form - a combination of predators and all-too-willing prey that doesn't understand the nature of the trap. Hansel and Gretel and the witch's Gingerbread House comes to mind, minus the escape at the end.

Unfortunately, it was easy to entice people into debt slavery, as the offer of access to material goods is always hard to resist, particularly when it seems like everyone else is enjoying new-found wealth. It doesn't take long to convince people that they deserve to have a large home, multiple cars and all manner of consumer goods, or to convince them that they are somehow inadequate and that their children will suffer if they don't participate in the consumer culture. The relentless marketing barrage played on our insecurities, conveying a message that happiness and social status could, and should, be bought.

A situation where ordinary people are able to buy anything on margin is historically very rare, as credit is normally only extended to those who do not need it. The last several decades have been an aberration, largely due to an increasingly reckless attitude towards risk. For ordinary people, low interest rates led them to believe that huge debt burdens could be sustained so long as the budget could be stretched to cover the monthly payment. For those higher up the financial food chain, the process of securitization created the appearance that risk could be passed on ad infinitum, until it ceased to exist. Unfortunately, low interest rates are a trap, and securitization, instead of minimizing or eliminating risk, actually magnified it into a systemic threat.

In terms of mortgages, even those that seemed conservative in recent years were not. In the latter stages of a credit bubble, even a deposit of over 50% and a monthly payment that could be covered by one of two salaries is a recipe for deep trouble. We are looking at a collapse of property prices and a huge rise in unemployment, which will combine to cause an unprecedented amount of negative equity, defaults and foreclosure, and, thanks to leverage, the resulting loses will snowball, further undercutting the supposed value of financial assets. The 'conservative' mortgagees are mostly just as trapped as those who over-extended themselves further.

Even those who own homes free and clear will find that, in a frozen property market, they can not move to where the jobs are, or to a more suitable property with some self-sufficiency potential. If they lose their jobs, they may lose their homes through being unable to pay the sky-rocketing property taxes that municipalities will introduce in a desperate attempt to fill the gaping holes in their own budgets. This is why we suggest that people generally rent rather than own (unless they own a homestead free and clear). Renting amounts to paying someone else a fee to take the property price risk for you, and that is a very good bet under today's circumstances. Rents will fall a long way in a deflation, and although landlord default is always a possibility (perhaps meaning more than one move), that risk is preferable to losing the bulk of one's assets in a property price collapse.

The middle class has been comprehensively fleeced by the debt trap, and the consequences for social stability will be extremely unpleasant once the chickens come home to roost. Except for a few of the super-rich, we will all share in the misery to come, and none of us can expect a bailout. Whether we've been gorging ourselves on the Gingerbread House or merely nibbling at it, we now find ourselves in a cage.

And here's Dan W.:

(http://theautomaticearth.blogspot.com/2009/01/january-25-2009-all-those-creeps.html)

As a little kid I was always fascinated by apparent contradictions, paradoxes and illusions. I marveled in the revelation that the only way to free oneself from a “Chinese Finger Trap” was to push one's fingers forward, toward each other, instead of pulling them apart---which of course was utterly counter-intuitive, and which also was why the trap was really so ingenious, because as people pulled harder and harder and the trap squeezed tighter and tighter and the anxiety grew and grew, finding the actual solution became a virtual impossibility. I so-enjoyed, as a stoned young schoolboy, holding a pencil loosely between my thumb and index finger and shaking my arm up and down and making the pencil look like it was wobbling and bending. I still don’t totally get how that works, and I haven’t smoked pot in decades!

Now, as an adult, my appreciation for contradictions, paradoxes and illusions has become even more profound, for I have come to believe that our ability as a species to accept truths that seem contradictory and/or paradoxical---and subsequently to choose consciously not to fight against these seeming contradictions but instead to accept them and hence use our acceptance as a route of escape from our own intransigence---may in fact save us from our ourselves.

OK, so back to the economy.

The paradox of riptides: The paradox of riptides is pretty obvious. Struggle to overcome the riptide by fighting against it and swimming directly into it and you die. Swim perpendicular to the tide, thus eventually freeing yourself from the rip current, and then with relative ease return to shore.

Our political and financial leaders believe that they can fight against the economic rip tide in which we find ourselves. They believe that our survival is predicated on the earnestness and intensity of our struggle against the current “tide”. Our leaders also think that we can return to the same shore from which we were unceremoniously dragged out to sea by the financial rip tides that we are currently experiencing. They think that a return to the beach means a return to 5% per annum growth and low single-digit unemployment and thousands of new 10,000 square foot homes and thousands of new brands of cereal on the shelves of our super-markets and 75 inch HD TVs in every home. In this way, Obama and Summers and Rubin and Frank and Dodd and Pelosi and all of the actors in Washington and New York are not only swimming against the rip currents, they are trying to swim back to a beach that simply no longer exists. That beach, the one built with trillions in debt and no capital production, is gone. It is a mirage destroyed by the mathematical realities of a world in which debt and gambling replaced production and savings, thus eroding the system to the point of complete extinction.

Remember, surviving a rip current means accepting the fact that a paradigm shift is inevitable. One cannot survive the perils of a rip current by swimming back to the same spot on the shore from which one was rent. One must swim parallel to the shore, only returning to solid ground once the rip current has relented. And so, playing out the metaphor even further, when the swimmer---the survivor---returns to the beach, it is not the same beach from which he first departed. It is a different place on the shore. Survival is predicated upon accepting the fact that a return to the same shore is simply impossible; that a new shore must be explored, and that this new shore must be accepted not for how it can be manipulated and exploited, but for what is has to offer.

In the current economic crisis, our survival intact means accepting the mathematical reality that we cannot return to the same point on the beach from whence we came. We must accept the following THREE realities in order to make it through this catastrophe at least somewhat whole:

Growth is deadThe days of 5%, even 3% GDP growth are over. In a country that produces virtually nothing, and in a country in which 72% of GDP is a measure of debt-based consumption, growth is a misnomer, a fallacy, an illusion created by those in power to perpetuate a system that makes them rich whilst simultaneously robbing the rest of us of our futures. Any attempt to “return” to the days of growth is but a lie---it is fighting against the realities of the current: sure suicide. And the choice of a few to fight against this reality eventually leads the rest of us into the waters against our will. Many of us are willing to accept smaller lifestyles, smaller homes, less in the way of uniquely American extravagances. But many are not. And of course the majority of those who are not willing to accept such new realities are the ones on Capitol Hill and on Wall Street, and they’re killing us. They are going to fight for their mansions and HD TVs and their lattes at Starbucks and their 8-cylinder sedans and their central air-conditioning , and when they eventually drown---which is mathematically inevitable---they’re going to take us down with them.

Banking is dead. Banks have been exposed to the world as usurious middlemen who play absolutely no productive role in society. In a smaller world, communities will develop their own “banking” solutions to help facilitate commercial interactions without levying useless, criminal interest rates upon participants in the system. Attempts to revive and save the global banking system will be met with violent revolution.

Money as debt is dead This is the biggie. In the same vain as #2, the system of “money as debt”, the system that has brought us to the point of societal collapse, is also dead in the water. And yet everything we hear from the powers that be is that our economic recovery is entirely based upon our ability to not only get the system of credit and lending and debt flowing again, but to find ways to expand this system so that “growth” can occur. Of course this is the penultimate delusion, as lending and debt and credit have absolutely nothing to do with growth; in fact, the current system of “money as debt” is productive of collapse rather than growth in that it is a total fallacy; growth based upon consumption of goods and services whilst simultaneously all capital is summarily destroyed.

A system based upon lending and credit and debt implies several apparent realities: (a) That the economy experiences growth, and the subsequent creation of “wealth”, based predominantly upon charging interest on the monies created and lent out, (b) that the system functions when those receiving said loans are both willing and able to service both the principle and interest of those loans, and (c) that the system perpetuates “successfully” when the exponential growth of debt can be serviced through the production of concomitant amounts of fungible capital. But as has been demonstrated on several previous occasions, the aforementioned characteristics that drive a “money-as-debt” society are fatally contradictory. Maintaining serviceable debt in an economy in which REAL growth is a fallacy is a mathematical impossibility. It is, as the metaphor demonstrates, suicidal.

How do we get our leaders to accept reality? And if our leaders continue on such a suicidal course, when does it become our legal and justifiable responsibility to remove them from their positions of power? How do we compel our leaders to recognize the changing currents, and to join us in finding peace and relative prosperity on new and pristine shores rather then fight the suicidal battle against the forces of nature?

Six Perspectives on Collapse - Part 4: Empires and Ponzi Schemes

In school and in the media, we are taught lies, half-truths and simplifications about how the world works. History is generally presented as a series of unrelated events. Foreighn world leaders are presented as good or evil, and terms like 'rebels', 'terrorists', 'drug lords', and 'guerrillas' are used to describe various groups without a true understanding of how these groups come about and what drives them to do the things they do. The U.S. and Western Europe is always presented as a force for good, while 'terrorists' are cast as comic book cartoon 'enemies of freedom'.
We are encouraged to view America's role in foreign policy as one of a benevolent police force, standing up for basic human rights and abstract concepts of democracy and freedom. This is a role that gained legitimacy from America's heroic role in defending human rights and sovereignity from the clutches of war, empire, and social Darwinism during World War I and World War II. It is a view that has been peddled by every president since that time, even as it has become less and less true. Today, it is increasingly difficult for U.S. leaders to maintain this facade. Iraq and Afghanistan have formed gaping cracks in this facade. Americans, for the first time since Vietnam are starting to see the ugliness and inconsistencies behind their country's foreign policy. Much like an iceberg, however, the visible part is only the tip. The real story goes much deeper. John Perkins' 'Confessions of an Economic Hitman (EHM)' goes a long way to illuminating the whole structure beneath.
John Perkins, through family ties to the National Security Administration was recruited into the ranks of an international consulting company called 'Chas T. Main' or MAIN for short, in the early 1960s. MAIN played a bridging role between the business and government in what Perkins refers to as the 'corporatocracy', an unholy cabal between industrialized governments, big corporations, and banks. The corporatocracy is a predatory entity that drives a new global empire. Contrary to popular notions of 'free trade' and ideals of poverty reduction and development of third world countries, the corporatocracy enforces exploitation, desperation, modern forms of enslavement, and vast transfers of real wealth from resource-rich 'developing' countries to resource-poor (in relation to demands for those resources) 'developed' countries. At heart, the reason for this exploitation is easily explained. There simply aren't enough natural resources to support first-world standards of living across the rest of the world. Our way of life relies on too much energy, mineral, and material wealth. This essentially zero-sum relationship describes the driving force behind empire-building, going back into ancient history. If one country is to prosper, it means it must co-opt the resources of other countries. In pre-industrial days, these resources were mostly in the form of human labor,food and precious metals. Today, the resources are expanded to also include oil, natural gas, water, and other minerals. In the past, the exploitation was impossible to hide, was obvious, and out in the open. Today, the exploitation is exceedingly subtle and insidious. As John Perkins describes,

"The subtelty of htis modern empire puts the Roman centurions, the Spanish conquistadors, and the eighteenth- and nineteenth- century European colonial powers to shame. We EHM's are crafty; we learned from history. Today, we do not carry swords. We do not wear armor or clothes that set us apart. In countries like Ecuador, Nigeria, and Indonesia, we dress like local schoolteachers and shop owners. In Washington and Pairs, we look like government bureaucrats and bankers. We appear humble, normal. W visit project sites and stroll through impoverished villages. We profess altruism, talk with local papers about the wonderful humanitarian things we are doing. We cover the conference tables of government committees with our spreadsheets and financial projections, and we lecture at Harvard Business School about the miracles of macroeconomics. we are on the record, in the open. Or so we portray ourselves and so are we accepted. It is how the system works. We seldom resort to anything illegal because the system itself is built on subterfuge, and the system is by definition legitimate."

Perkins was hired by Main, and due to his specific skills and vulnerabilities, he was recruited into an elite group at the firm, who understood the true machinations of the firm and its relationship the broader corporatocracy, which it supported, and which supported it. Despite only having a B.S. in business administration, Perkins soon became head economist at MAIN. Perkins' role was to come up with intentionally inflated economic projections for third world economies, should they choose to accept large loans for infrastructure projects from U.S. or international development banks, like the IMF and World Bank. As Perkins describes: "Like our counterparts in the mafia, EHMs provide favors. These take the form of loans to develop infrastructure - electric generating plants, highways, ports, airports, or industrial parks. A condition of such loans is that engineering and construction companies from our own country must build all these projects. In essence, most of the money never leaves the United States; it is simply transferred from banking offices in Washington to engineering offices in New York, Houston, or San Francisco. Despite the fact that the money is returned almost immediately to corporations that are members of the corporatocracy (the creditor), the recipient country is required to pay it all back, principal plus interest. If an EHM is completely successful, the loans are so large that the debtor is forced to default on its payments after a few years. When this happens, then like the Mafia, we demand our pound of flesh. This often includes one or more of the following: control over United Nations votes, the installation of military bases, or access to precious resources such as oil or the Panama Canal. Of course, the debtor still owes us the money, and another country is added to the global empire."

So the point is that these loans form the basis for permanent economic enslavement of the debtor nations to the creditor nation, and form the basis of negotiations for more obvious forms of imperial conquest. This doesn't mean, however, that the decision to partake in these projects (based on false premises, as they are) is subject solely to the sovereign decisions of the debtor countries. If the subject country refuses to accept such loans, the corporate global empire resorts to progressively subversive tactics. First, a coup or assassination is attempted against the 'stubborn' government. The model for first-world-directed modern coups was based on a model developed in Mossadegh's Iran in the 1950's. Basically, CIA operatives and corporations find groups within the country who are opposed to the current government, supply them with weapons, and pursue other means to foment uprisings, overthrow the 'stubborn' government, and install their own corrupt puppet government who then capitulates to the demands of the empire. If this is not an option, the same thing can be accomplished through assassinations. The more plausible deniability in these assassinations, the better. The preferred method is to have the foreign president die in a mysterious plane crash. If all this fails, the last resort is traditional war, as was the case in Panama, under the first Bush administration, and Iraq, under the second Bush administration.

Today, we can see the inevitable results of these more obvious forms of subjugation. Iraq's oil reserves were recently split up, and new oil fields are being developed all over the country by Shell, BP, Exxon and Chevron. In Afghanistan, geologists recently announced that Afghanistan has a trillion dollars worth of mineral resources (including rare-earth metals needed for renewable energy and high-tech industries) that are newly ripe for the picking. This new wave of obvious exploitation, however, belies a truth about foreign policy today: The subtle, cheap, and effective tactics of John Perkin's EHMs are becoming increasingly ineffective. There are simply not enough new, easily exploitable countries left to maintain the increasing flows of third-world wealth into the first-world. Continuation of 'growth' in the U.S. demands ever greater amounts of military spending on new wars, and continued maintenance of older, more reliable sources of subjugation. This is why, even under the new Obama administration, which promised the end to the hawkishness of the Bush Administration, military spending has continued to increase. To cut the spending, would be to forfeit these exploitive relationships and condemn the U.S. to economic contraction. The trap is set for the U.S., however, because to maintain the flows requires an ever growing slice of the nation's income be devoted to its military. This is a classic case of declining marginal returns on empire, as outlined in Part 1 of this series for the case of the Roman Empire. The hyperbolic nature of the continued drive to maintain empire is painfully obvious. The U.S. spends as much on military as the rest of the world combined. The next largest military spending (China's), is 8 times smaller than the U.S.'s.

The latter stages of empire here, represent a form of Ponzi dynamics - those that underly fraudulent pyramid schemes. Ponzi dynamics occur when the continuation of a financial or administrative structure is dependent upon the continued buy-in of larger numbers of new entrants. At first this relationship appears to be stable, but as the supply of new entrants into the scheme is finite, these structures always end in collapse. The Automatic Earth has a wonderful essay on the ponzi dynamics of empire from 2008, titled 'From the top of the Great Pyramid'. Quoting from that essay:

"Everyone has heard of pyramid, or Ponzi, schemes. In their simplest form they are short-lived deliberate frauds where a small number of existing members are paid from the buy-in of a larger number of newer members until the supply of newer members is exhausted, whereupon they collapse. Typically, the founders, and perhaps a few others who got in early and out before it was too late, end up making a lot of money at the expense of later entrants, who end up holding the empty bag. There are always many more losers than winners. What most do not realize, however, is that Ponzi dynamics are far more pervasive than people think. There are many human systems that ultimately rest on the buy-in of new entrants, and every one of them will ultimately meet the same fate, although it can take far longer for complex constructions than for simple pyramid frauds.

What allows a more complex pyramid to last for longer than a simple one is a supplementary source of funds to pay members, besides merely the buy-in of newer members. The more such sources there are, legitimate and otherwise, the more complex the pyramid can become and the longer it will last, as the apparent on-going success of early entrants will attract many more new ones. There's nothing like seeing one's friends and neighbours seemingly making a lot of easy money for a long time to eventually overcome the mental defenses of even the most skeptical.

Following the collapse of communism in Eastern Europe, there was a spate of such schemes - notably MMM in Russia, Caritas in Romania, Jugoskandic and Dafiment Bank in Serbia, TAT in Macedonia, and VEFA Holdings, Xhafferi, Populli, Gjallica and several others in Albania. They were the topic of my academic research at the time. All of these lasted for quite a long time, and some paid out spectacular returns for much of that time. For instance, the Albanian funds , or quasi-banks, began by paying out 3-5% per month over a 6 month term and were eventually paying out 10% per month (and briefly much more as an interest rate war ensued very late in the game).

They were able to do this temporarily because the income from the buy-in of new entrants was supplemented by revenue from drug smuggling, oil sanctions busting, money laundering, gun running, human trafficking and a thriving trade in car theft from across Europe. There was some revenue from legitimate business interests, but not much in a country that survived mainly on a combination of remittances and politically supported criminal activity. Ironically, Albania was the darling of the IMF at the time.

Over time, approximately 80% of the Albanian population was drawn into the pyramids, often selling their only real property in order to invest and then depending on the pyramids for all their income. When the inevitable happened, the vast majority of the population was completely dispossessed. Although many had realized that there was something too-good-to-be-true about their 'investments' they had succumbed to greed "in the belief that they were in the hands of properly structured criminality", as The Guardian newspaper put it in February 1997. The population believed, erroneously, that there was an implicit guarantee from the government, which was conspicuously and intimately entwined with the activities of the various funds.

In the developed world, there are many examples of pyramid dynamics where there is no intent to defraud at all - where even the founders really don't understand the underlying logic of their business model taken to its logical conclusion. Direct marketing, for instance, is essentially pyramid-based - depending on an ever-increasing network of sales people, each of whom receives a percentage of their income from those they can attract into the business. If these businesses can no longer grow by attracting new salespeople, then they are ultimately finished, but as they cannot grow perpetually (or eventually everyone in the country would end up making a living selling these products to each other), they are inherently self-limiting. They can last for many years thanks to legitimate business revenues, but not forever. Early entrants will always do very well, at the expense of later ones, and the last tiers will certainly lose their stake.

Large economic bubbles, typically formed in dominant economies during periods of manic optimism (see McKay's Extraordinary Public Delusions and the Madness of Crowds), have the same underlying dynamic. Without continual buy-in from new money - new investors or more money from existing investors - they cannot grow, and when they can no longer grow, they will collapse. Although grounded initially in legitimate business activity, they morph into structures where one has to question the motives and understanding of key individuals. In some cases there may be intent to defraud, but what is far more common is a characteristic recklessness as to the risks those in control are prepared to take with other people's money.

In their latter stages, such structures hollow out, feeding on their own internal substance as they lose the ability to attract new investment. In the terminal phase, there is the appearance of great wealth, but it is virtual, and therefore extremely ephemeral. The next step is implosion, as the virtual wealth disappears - where the claims to wealth generated through leverage that exceed the amount of underlying real wealth are extinguished en masse. Enron was a prime example, and on a much larger scale, so is the derivatives market. Bubbles, like all Ponzi structures, are inherently self-limiting and will always collapse in the end.

At the largest scale, empires are also grounded in pyramid dynamics, which is why they too have a limited lifespan. They grow by assuming control, either politically or economically, of new territories, positioning themselves to cream off surpluses from an ever-expanding geographical area in a form of involuntary buy-in. In the past political control through invasion or physical colonization was more common, but latterly globalization has enabled the development of a sophisticated system of economic control based on international debt slavery, supplemented with economic colonization for the purpose of resource extraction. Both resources and financial surpluses, in the form of perpetual interest payments, could be efficiently extracted from the periphery and accumulated at the centre, where they led to the development of an unprecedented level of socioeconomic complexity.

Such wealth conveyors in favour of the economic centre, at the expense of the hinterland, are the very heart of empire, but without continual expansion to feed rapidly developing central complexity, they eventually fail, leaving the centre unable to sustain its existing complexity level. As with economic bubbles, empires hollow out in the latter stages, consuming their own substance in a catabolic manner in order to compensate for the inability to strengthen wealth conveyors sufficiently quickly to keep pace with the expanding requirements of the centre.

As the hinterland is increasingly stripped of wealth and resources, and burdened with the increasing environmental impact of its own exploitation, an increasing fraction of it is left too impoverished to sustain a minimum level of internal order. In modern times we speak of failed states without realizing why many of these states are failing, or the impact that an increasing number of failed states will ultimately have on our own standard of living.

Wealth conveyors are breaking down, and no amount of financially squeezing the population in the central economies can compensate for the loss of that ability to accumulate wealth from virtually the whole world. The vast majority of the central population will be brutally squeezed as the elites try to hang on to their own privileged position, but this can only sustain a very small, and rapidly shrinking, fraction of the population, and at great cost.

We are living through the collapse of the final - and all-consuming - economic bubble at the end of the American empire."

What is the catabolic consumption, described in this essay? The global corporate empire does not explicitly serve the interests of the citizens of any given county. It is only the case, that we, in the U.S., in good times for the empire, are subject to a process whereby a rising tide lifts all boats. We benefit indirectly from the massive flows of resources to the first world from the third world. As the global corporate empire becomes stretched increasingly thin, and is more and more hard pressed to find new sources of wealth abroad, it responds by using predatory tactics to make up for the lost wealth within its own country of origin - essentially consuming itself, as it goes after the very sources of wealth that sustain its power. This takes the form of things like sub-prime mortgages and other predatory loans, other deceptive forms of business practices and marketing, bailouts, and other free sources of unearned income from the federal reserve, running the Wall Street casino that systematically funnels wealth from unwitting institutional investors to the high frequency trading arms of big banks - all transparent forms of continuing the illusion of growth, and making up, at least on paper, for the loss of other income streams. Why are these subprime mortgages and unearned income catabolic, you may ask? Well, right now, the U.S. government finds itself squarely in the very same debt trap that the third world was forced into in the past. Its debt levels have reached a point where they are unserviceable. The interest on the national debt alone will make up such an enormous chunk of the government's income stream, that it will become a ludicrous proposition to ever pay off that interest. Right now, old debt is being paid off by new debt, because that's the only way to continue the system. As more and more new debt is required, at some point, there will be no willing sources of new debt. Right now, the current big funder of our debt (besides China, as the media is so apt to point out) are our very own banks. They are sucking money out of the government to maintain their balance sheets at the cost of throwing the government into deeper and deeper stages of Ponzi-collapse. When the banks' sub-prime mortgages fail, the government steps in and bails out those same banks, and to do it requires ever more debt. We are watching the end-game of this process play out, and no amount of government insistence on things as laughable as 'sustainable recoveries' is going to change the inevitable outcome of this process.

Our Community Garden - Progress and Lessons Learned: Part 3: Fruiting and Early Harvest

It's now early August, and the garden is starting to look like a factory. The corn is the dominant feature of the plot. 25-30 tall stalks ranging from 5 to 7 feet tall are clustered around the center of the garden. I expected going in that 1 seed would yield 1 stalk that would grow 1 ear of corn. Not the case. The oldest corn plant in the garden is currently boasting 4 stalks and a total of 7 ears.

The older plants never grew as tall as the newer ones. One of the things that I think I am learning from this year is that the early plants seem to be smaller in stature. I think it must have to do with their early growth phase being slowed/interrupted by cold weather. The plants that were allowed (by virtue of warmth) to grow fast from the get-go eventually eclipsed the older plants (with the notable exception of the cauliflower, which I'll discuss later.) On the flip side, it is the older, smaller plants that are bearing fruit earlier. The two 5 foot corn plants are full of ears that are maturing rapidly, while their statuesque younger brothers have only recently sprouted some small ears that will likely be ready in a few weeks or so. I've harvested two ears so far, and the first of those two brought another lesson. It was only about 1/3 filled out with kernels, in a very scattershot manner. At first, I thought this meant that the kernels popped in sporadically (like popcorn!). Two conversations changed my mind about this and helped me to see what had probably happened. Our friend Landon mentioned that he had heard that each of the little string-like hairs that protrude from the top of the ear are connected to an individual kernal port, and if that hair isn't seeded with pollen, the kernel won't come. Our neighbor Paul, who used to be a corn farmer verified that the corn kernels come in all at once. Now this was one of the first two corn plants, and is relatively isolated in the garden. At the top of the corn stalks, a giant plant hand sprouts and eventually drops pollen.

This apparently happens in a short period of time (a few days). So this isolated plant must have dropped its pollen and only some if it made it to its target. If it had been part of a denser cluster of corn, planted all near the same time, the chances would approach 100% that each kernel would find some pollen because of the flurry of pollen activity in such a dense area.
Anyway, the second ear I picked came from the same plant, and was fully filled out. It was delicious!!

While stunted in stature, most of the tomato plants are growing green tomatoes of various sizes.

My plants aren't nearly as big or productive as James's are (James from my work is using about 20 square feet in the Northwest corner.) Despite being almost fully shaded from the sun by my enormous corn, James's tomato plants are growing along quite swimmingly. He's probably got 2-3 times the total number of tomatoes growing as I do. A persistent garden pest, old Brer Rabbit has been terrorizing the tomatos though. Have no doubt, Brer Rabbit is a spoiled bitch of a pest. He will come up and nibble a little corner of a tomato, then go over to another one and nibble a little corner of it and so in. In the process, he eats about 5% of each tomato, and leaves them all rotting on the vine. I've caught old Brer Rabbit 3 times in my garden. Each time, I hop over my fence, and he bolts like a bat out of Hellman's for the little hole he just gnawed in the fence (damn you, cheap (but free!) plastic mesh! This last time, I was fed up with his meddling, and reinforced the fence with pieces of barbed metal mesh I found lying around, concrete blocks, and clods of thorny tumbleweed. It's pretty ad hoc, but I'm hoping it will deter old Brer at least enough that he decides it's not worth the effort and munches on someone else's food instead. I'd really like to get a good harvest of tomatoes that I can make into some sauce and can it for the winter.
Another casualty of Mr. Rabbit was the cauliflower. He didn't go for the prize in the center, but he and his clan systematically ate the green leaves of the growing cauliflower, leaving it a skeleton. Only on the more mature plants did the leaves regenerate themselves enough to sustain production of a ball of vegetable. Some cauliflower plants were gnawed down to the roots and died. So it looks like we'll get two heads of cauliflower out of the garden. They are both getting rather large.

I'd pick one now if I wasn't already receiving a huge head of cauliflower every week in my CSA box. The first week after the cauliflower disappears from the box, I'm harvesting!
The big loser this year looks to be the melons. True, I do have a few tiny watermelon bulbs that have finally sprouted, but the melons were frustratingly slow in laying down vines of leaves, and never grew those leaves to full size.

While some of our neighbors and some other gardeners in the community garden have large watermelons growing by now, we've just got the little buds. I'm not holding out hope for a harvest there, but we'll see ;) I suspect that part of the problem might have been a soil that wasn't acidic enough. According to a book I just got on organic gardening, melons need a low-PH soil to flourish. I want to ask some people who have big melons what they did. I might not get a chance next year to apply the lessons, though. I'm not sure how melons will do in a cooler climate like Portland. We'll see!

Battelle Softball - End of the Regular Season

Well we finished off the regular season pretty strong. I had 12 hits in my last 14 at-bats and Aisling had 3 hits in our last two games. Despite floundering a bit in the middle of the season, we finished off the regular season by beating the league's only undefeated team by way of the mercy rule (winning by more than 10 runs after 5 innings).

Next comes the playoffs. It's a week-long double-elimination tournament the third week of August. Stay-tuned.

Six Perspectives on Collapse - Part 3: John Michael Greer's 'The Ecotechnic Future'

I've been a follower of John Michael Greer's writings for some time now. He maintains the blog 'The Archdruid Report', in which he's spent much of the past two years critiquing modern society, from the dual perspective of ecology and a compendium of modern and ancient history. In addition to being one of the prominent social critics of our time, John Michael Greer's online resume presents him as a 'futureologist.' He is the elected leader of the Ancient Order of Druids in America. while you might be tempted to think of the druids as that strange cult that built Stonehenge, their 'religion' is nothing very radical. It's a belief in the spirituality of nature and built around ecology and natural cycles. In addition to this odd role, Greer is a scholar of the occult, and has written books on magic, secret societies, and UFO's. Greer brings some of this discussion into his blog, but it always seems that the purpose of these diversions is to present rational explanations or to explain that what our culture has portrayed as something magical or mystical actually was actually very down-to-earth. Wizards, according to Greer, arose in the wake of the fall of Rome, and were really just renaissance men; engineers, ecologists and social scientists rolled into one. They were highly treasured by leaders in such dark times for their advisory role on very tough questions of the day. Superstitions, according to Greer, can be generally defined as bits of conventional wisdom that have been divorced from their original source of meaning.

'The Ecotechnic Future' presents a rather unique perspective on collapse. It begins with the assertion that human societies are ecologies. This is only really a contrarian viewpoint from the perspective of Western narratives of manifest destiny and of technology enabling us humans to rise above and to conquer nature. Greer's perspective, I would argue, however, is patently true. The fact that we have successfully managed different natural systems for our benefit in the past does not mean we are immune from the natural world or that we are not completely dependent upon natural earth systems for the maintenance of those same societies.

Greer discusses human ecologies in terms of archetypical natural ecologies that undergo periods of succession (or seres). In succession, a new ecological space is first taken up and overrun with an R-selected species. R-selected species grow very fast, use up resources very quickly, but are ultimately unsustainable. In his example of the formation of an old-growth forest, these would be the weeds and undergrowth that first fill an ecological void. As competition for resources becomes important, however, these R-selected species gradually get outcompeted by more energy-efficient K-selected species, like the tall trees, that grow very slowly, but eventually form a climax community that is long-lasting. The longevity does not imply permanency, however. Over time, changing environmental conditions may favor a new R-selected invasive species that would then take over, before the ecosystem transitioned to a new sere of entirely different K-selected species. This process typically occurs in nature on the time frame of centuries or millenia. Greer presents this same dynamic as driving the rise and fall of human ecologies. Writes Greer, "Modern industrial society is the exact equivalent of the first sere of pioneer weeds on a vacant lot - fast growing, resource hungry, inefficient, and at constant risk of replacement by a more efficient K-selected seres as the process of succession unfolds...As it exists today, modern society can best eb described as a scheme for turning resources into pollution as fast as possible. Resource depletion and pollution aren't accidental outcomes of industrialism. They are hardwired into the system: the faster resources turn into pollution , the more the industrial economy prospers, and vice versa. That forms the heart of our predicament. Peak oil is just one symptom of a wider crisis - the radical unsustainability of a severely R-selected human ecology - and trying to deal with the peak of worldwide petroleum production without dealing with the need to move to a broader sustainability will simply guarantee that other symptoms will take its place." This is Leibig's Law of the Minimum applied to industrial society. Oil is the limiting factor on the continued growth of our current society, but were we to be endowed with endless oil, another limiting factor would crop up close on its heels; fresh water, pollution, material shortages, etc. But as it is, oil is the key to understanding the unavoidable transition. Oil, as an energy form is unique and irreplacible. It exists in a concentrated and stable liquid form. It's energy density is tremendous. It can be transported very easily, and thermodynamically, speaking, all the work is already done. Relatively little energy has to be spent on converting the fuel into a useful form. Renewable fuels don't have many of these characteristics, and their much higher price tag reflects the fact that their use is not compatible with the profligate use of energy in today's industrial world. The high energy, water, and land costs, as well as the astronomically high costs of changing to new energy infrastuctures essentially dictate that they will not be used to run the same sort of society in which we currently inhabit (but may find important niches for critical uses of energy).

Greer goes on to present his own view of how the seres of human ecology will change in the near and off into the far distant future. The next sere, which we are currently moving into, according to Greer, is scarcity industrialism. It will be defined by a world still largely hanging on to its old methods of doing things, but gradually, the less productive or marginally economical uses of oil will disappear. We'll likely stop using oil to transport cheap goods around the world. People will drive smaller cars, and plane travel will revert to more of a luxury than a mainstream mode of transportation. Jobs will spring up closer to places of residence, and so forth. Worldwide decline in consumption will be forced to occur at the rate of an additional 4-5% each year, once the full force of oil decline sets in.

As oil becomes critically scarce, the world will be forced to transition to a sere that Greer calls A Salvage Society. In such a society, it won't make economic sense any longer to continue to produce new things and mine new metals. The existing, built infrastructure will then serve as a wonderful repository of raw materials and 'embodied energy' (or energy already spent on the mining, concentration, and production). Skyscrapers, for example, may become a source of salvage for new uses of metals - molded into other, more adaptive forms. Writes Greer, "In the ruins of th old Mayan city of Tikal, excavations have unearthed traces of the people who lived there after the Maya collapse. In this quiet afterword to the city's history, the palaces of the lords of Tikal became the homes of a little community of farmers and hunters who scratched out a living in the ruins of the city and made their cooking fires and their simple pottery in the midst of crumbing splendor. The same thing appears in dead civilizations around the globe. The logic behind it, though, has not often been recognized: when a civilization breaks down, the most efficient economies are most often those that use its legacies as raw material."

The ultimate end goal of these periods of sucession is, hopefully, a climax human ecosystem that Greer calls the 'ecotechnic society'. This society, Greer envisions as a completely sustainable society that uses key technical knowledge and skills to form a new sustainable society. But don't get too excited. This is envisioned to be far into the distant future, when we're all dead, and after many wrenching changes have be wrought. In the meantime, mankind will be driven economically through the other stages, and will have to go through the long processes of adapting its scale (depopulation), its cultures, and its knowledge base. Greer suggests that the best way to drive progress towards an ecotechnic future is to encourage human adaptations that follow the same process as evolution. "Some basic guidelines for adaptive approaches can be sketched out here. First, an adaptive response is scalable- it can be started and tested on a small scale, with modest resources, and scaled up from there if it proves successful. Second, an adaptive response is resilient-it remains useful under changing conditions, and can respond creatively to pressures. Third, an adaptive response is modular - it can be be separated into distinct elements, which can be replaced at different scales and technological levels. Finally, an adaptive response is open- it does not demand assent to any particular ideology or belief system, but rather works with many different ways of thought and life."

Greer identifies a problem solving approach which is most compatible with this form of organic adaptation, that he calls dissensus. Dissensus is the opposite of consensus. It is the idea that everyone should be allowed to have different ideas, implement them on their own, and let the cream rise to the top. It is counter to typical government solutions that seek consensus towards a particular solution and pursue that solution dogmatically, usually on large scales. The dissensus approach resembles commonly held notions of how private businesses should survive by creative innovation and risk. Some will survive long-term, and some will fail - that is the ideal nature of such a system. Greer's proposition then is not necessarily so novel, except that it runs counter to another commonly held ideal that is central to our culture: the worship of the archetypical tragic hero. The tragic hero in stories relies on grand plans ad ideologies, and put everything on the line for an ideal. The romanticism associated with the tragic hero underlies a lot of decisions that we collectively make as a society and is the basis for hope and grand dreams. But as Greer points out, the tragic hero always dies in the end. Greer offers the comic hero as an alternative. The comic hero muddles through life, making wrong turns, "stumbling cluelessly through situations with no grander agenda than coming out the other side with a whole skin...unlike tragic heroes, they do usually come out alive on the other side, and often bring the rest of the cast with them." Besides following a more organic approach towards problem solving, the comic hero approach is also better able to succeed because of the shifting landscapes in the future. As Greer puts it, "Those who try to plan an ecotechnic society today are in the position of a hapless engineer tasked in 1947 with drafting a plan to produce software for computers that did not exist yet."

Much of the rest of Greer's book is devoted to understanding how various aspects of out lives and societies fit into the context of the sea change ahead of us; dispelling myths, suggesting positive avenues to pursue, and suggesting which mores can be thrown out and which should be saved. This discussion is broken down into seven sections:

1. FOOD: Greer laments the fact that industrial agriculture treats soil as a barren infertile matrix, that is pumped with artificial, and unsustainable quantities of nutrients and despoiled with dangerous chemicals. The industrial approach is anathema to the natural ecosystem approach that is so central to Greer's druid beliefs. In the industrial food production model, nutrients are treated as a raw material that must be mined, and treated on the tail end as garbage to be disposed of. Sustainable food production on the other hand must close the nutrient cycle. The gist of his argument is that there are proven, safe and effective ways to turn plant waste and human and animal waste into valuable fertlilizers, restoring the nutrients lost from the agricultural process. They rely on composting and humanure techniques. I personally find the concept of humanure very intriguing. I've witnessed first-hand from the Cheapeake Bay Foundation's composting of human waste that once the composting process is complete, the remains smell very benign. Greer mentions that the harmful bacteria which make our wastes smell are destroyed in the heat given off by a proper compost pile.

Greer suggests that the organic farming revolution represents a huge step in the right direction, and one of the few movements towards sustainability that is really gaining large-scale traction.

2. HOME - A shift needs to be made from designing homes for aesthetics and uniformity to letting form follow from function. Homes need to work with natural processes and the sun to provide the right thermal conditions with a minimum of external energy input. Homes need to be designed that are responsible for producing some of their own energy. There are cheap solutions for some of these things, as Greer points out, like straw-bale walls that are stable and weatherproof, and provide 3 times the thermal insulation of typical stud walls. The unfortunate predicament that we are in is that we will be more or less stuck with much of the housing stock we currently have, as the complete replacement of much of today's cities and suburbs would be prohibitively expensive, in energy terms.

Greer insists on the importance of home economics - learning to produce valuable things for consumption by th family within the home, rather than seeking to pay for externally-created goods with earned income outside the home. We, as a society, says Greer, need to learn how to be proficient in a wide range of different skills, or else we are liable to fall into the 'specialization trap.' To illustrate the dangers of becoming overly specialized, Greer gives an example from the fall of Rome: "The pottery works at La Graufesenque in southern Gaul, for instance, shipped exquisite products throughout the western empire and beyond it. Ceramics bearing the La Graufesenque stamp have been found in Denmark and Eastern Germany, hundreds of miles past Roman frontiers. Good pottery was so cheap and widely available that even rural farm families could afford elegant tableware, sturdy cooking pots and watertight roof tiles. All this ended when Rome fell. When archaeologists opened the grave of a sixth-century Saxon king at Sutton Hoo in eastern Britain, the pottery they found told a stark tale of technological collapse. Had it been made in fourth century Britain, the Sutton Hoo pottery would have been unusually crude for a peasant farmhouse; two centuries later, it sat on the table of a king. What's more, most of it had to be imported because the potter's wheel dropped entirely out of use in Britain - one of many technologies lost in a cascading collapse that took the island down to levels of impoverishment more extreme than anything since the subsistence crises of the middle Bronze Age more than a thousand years before...Huge pottery factories like the one at La Graufesenque, which used specialist labor to turn out quality goods in volume, coud make a profit only by marketing their wares across much of a continent, using far-flung networks of transport and exchange to get products to consumers who wanted pottery and had denarii to spend...The political implosion of the Roman Empire thus turned an economic advantage into a fatal vulnerability. As transport and exchange networks came apart, the Roman economy went down with it, and that economy had relied on centralied production and specialized labor for so long that no one knew how to replace it with local resources."

So a practical solution that Greer proposes is to keep one family member employed in the home economy. When the home economy can be made productive enough, it can lessen or negate the burden caused by the lack of a second income stream. This feeds back into the dire need for better architecture. Making the home a productive place depends on having a properly sized kitchen and space for craftsmanship, room to garden, good lighting, etc.

3. WORK- Greer's views on the future of work mirror those of economist Jeff Rubin. The two factors (Economies of scale and cheap labor) that have driven globalization in the direction of fewer and fewer, larger and larger business manufacturing goods on the other side of the world will gradually be overcome by diseconomies of distance. Transport, (and I would add, especially overland transport) will become very expensive, which will spell a gradual end to cheap products made overseas. Declining fossil fuel availability will mean market-driven prioritization of what still makes sense to be made far away, and what, out of sheer necessity, must be made locally, with minimal energy inputs. An economy is a system that takes in energy, raw materials, and human labor and produces the necessities and luxuries of human existence. For much of human history, the energy input to the system existed primarily as inputs to the human labor component (i.e. food). The past 100 years has seen a sweeping change in the balance of inputs. technology, and especially cheap energy has facilitated the substitution of most of the human labor input with energy. A very many people in the past decades have worked at jobs that were purely superfluous positions designed to find additional ways in which to flounder the abundant energy at our disposal. As cheap energy becomes increasingly scarce, a balance will be restored between these three inputs. Not only will the manufacturing come home again, but labor, especially for tasks that aren't strictly necessary, or aren't done particularly efficiently by fossil-fuel powered machines will return to being performed by human labor. Here are the careers that Greer envisions will be in high demand during deindustrialization:

-local trades (he gives examples of butchers, bakers, candlestick makers, soap an beer makers)

-engineering of low-tech transportation networks, like railroads and canals

- salvage trades (demolition, recycling, small appliance repair, etc)

- ecologists (those who understand how to use natural flows and cycles to perform many of the societal functions that fossil fuels use today. For example, replacing insecticides by natural methods of attracting the predators of unwanted pests, and creating swales for flood prevention)

ENERGY- much of this section is devoted to dispelling myths about technology, energy, and progress. He discusses the innovation fallacy, common among economists that innovation can always trump resource limits. He notes that Nazi Germany had the most innovative technology on the planet, but one of the biggest factors in its defeat was a lack of oil. The Germans developed coal to liquids technology during the war to provide liquid fuel for the ongoing war. This technology actually had a negative net-energy, meaning it took more energy to mine, transport, and process the coal into liquid fuel than was avaiable in the fuel itself. The only value in this process was the form of the fuel. The airplanes required liquid fuel. The process, however, was enormously expensive in energy terms, and only made sense in a war economy. In a normal economy, the lesson is that technical feasibility is much less important in novel energy technologies than net energy is. Net energy is very strongly correlated with energy price, and for good reason. Many people advocate very strongly for nuclear energy, and forsee breeder reactors as the solution to our energy problems, and don't understand why we're not building more nuclear plants. The answer lies in its low net energy, and therefore, prohibitively high price. Next, Greer brings up the issue of infrastructure. Often new energy sources are touted that could take the place of petroleum. Such a transition runs into the paradox of produciton: "If energy prices are high because supplies are limited, the obvious solution is to increase the supply by producing more energy. At the same time, if this requires replacing one energy resource with another that cannot be produced, distributed, or consumed using the identical infrastructure, the immediate impact of such a replacement will be to raise energy prices, not lower them. The direct and indirect energy costs of building the new energy system become a source of additional demand that, intersecting with limited supply, drive prices up even further than they otherwise would rise." When energy prices are already so high that they are causing economic turmoil, this becomes quite the predicament, indeed. The only way out, is to invest first in large-scale conservation programs that can free up the required energy. The point of this whole discussion is that conservation will take a much more prominent role in the coming years than any large-scale switch to a new energy source will.

COMMUNITY - Like many other writers on peak oil, Greer stresses the need to reinvest ourselves in our communities - to develop local networks that have some reasonable level of division of labor. Greer has as much contempt for the idea that one's personal solution to peak oil should entail a flight to isolation as he does for the sprawling mega-cities of today's industrial world. Greer offers that a city of 20,000 to 200,000 people, situated in an agricultural area might provide the optimal backdrop for a post-peak world.

CULTURE - The main point to be made here is that culture IS memory. "An authentic culture roots into the collective experience of a community's past and from this source draws meaning for the present and tools for the future. Thus, culture is a constant negotiation between the living and the dead, as new conditions call for reinterpretation of past experience and redefine the meanings that are relevant and tools that are useful. When a society gives up on these negotiations and abandons the link with its past, what remains is not originality, but stasis, in which a persistent set of common assumptions and popular narratives are rediscovered and rehashed endlessly under a veneer of novelty. Even the most hackneyed notions can count on being described as new and innovative ideas unlike anything anyone has thought before...[An example] is the profusion of claims that everything will be all right if only the right people are given unchecked power. This sort of thinking has become unpleasantly common in some parts of the alternative scene...The arguments used to justify these schemes differ only in minor details from the ones used by defenders of aristocratic privelege in 19th century Europe...There is a way out of this paradox of unoriginal originality though its at least as paradoxical: the way to get genuinely new ideas is to deliberately learn and value the old ones." One of the main purposes of Greer's book is actually to promote actively passing on the valuable parts of our culture and the lessons of the past through the coming collapse of industrial society. He notes that during past collapses, it is often this kind of informaiton that is lost. We only have the knowledge of Greek philosophy because the texts of Greek scholars were transcribed and kept in monastic libraries. Otherwise, this knowledge would have never made it to the renaissance, and would not have provided the background for which the founders of our own country, like Thomas Jefferson, constructed the rules by which our society operates.