Greece Votes to Kick The Can and Accept German Money

A continuation of the discussion begun here:

https://chiefio.wordpress.com/2012/06/03/greece-redux-again/

OK, the “Big Election Day” came, and Greece stepped back from their ‘protest votes’ for Nazis and Socialists and elected the “Conservative” government.

So what does THAT mean?

The short form is that they voted to stay in the Euro Zone and accept more German money and ‘bail-outs’ rather than say “Up yours” to the EU and “Austerity”.

But they as a country still don’t make much of anything, don’t export much of anything, have a 22%+ unemployment rate, and have a large retired population on the government dole. But the good news is that they want to keep using the Euro as their currency and will accept all of them that Germany will send… if you can call that good news.

A large part of the population is still against “austerity” (meaning “live within your means” or “do not consume more than you create”). The battle between them and the folks who wish to impose such self restraint upon them is now moved about 6 months down the road. Plenty of time for more German money to be sent over.

The real drama will now move to Germany. Will they continue to fund a Greek Retirement on the beach? Will they continue to support government payments to the 22% unemployed to be well cared for while they do nothing? Germany is demanding more “integration” (mostly financial, but who knows what else) by which one can assume they mean “German Control”. Greeks are still expecting a free ride, but perhaps just a little bit of additional promises to be “good tomorrow for more money today” first…

The Socialists have already said they will not join a coalition government. It remains to be seen just what the final Greek government will be. But at least we have a goal now. That goal? “More of the same, please”. Somehow I don’t find that particularly comforting…

Financial Markets

The general narrative is that stock, commodity, and other “stuff” markets will like this news, so rise. “Fear trade” instruments like bonds (especially European Bonds) and gold will likely fall in price as money leaves them headed for “Risk On” assets like industrial metals, stocks, productive real estate, etc. Expect to see a small rise in oil, too, on the thesis that recovery is just around the corner now so oil demand is sure to rise.

I don’t expect the euphoria to last long, though.

“Kick the can” never does last long.

In the end, real wealth creation and real production of goods have moved to China. China has a merchantilist policy of protectionism and market predation. China is buying global resources and “locking them up” for China to use when it eventually decides to jack up prices (and will then say “you can always make it yourself… if only you had a factory or resources…”). As long as that game continues, the “established economies” are just warm meat for the leaches to suck more blood. One of the financial shows had a USA vs China presentation on resource consumption. We use something like 8% of global iron, China over 40%. Similar numbers for tin, copper, etc. The industrial metals plays are now a “China buys” play. Prices will depend on Chinese buying and that will depend on sales of Chinese stuff.

IFF Greece had gone to the Drachma, they could have inflated away their debt burden, paid their “benefits and pensions” in nominal terms while repudiating the value in real terms, and cut their cost basis enough to compete on the global stage for exports. As it is now, they are married to a German Hausfrau who will be demanding and nagging that they eat less, drink less, get a better job, not spend so much time at the beach, and provide more bits of gold to her liking… Time will tell if this drama ends, eventually, in divorce, or not. For me, I just don’t see where Greece has the productive capacity to cover its debts and ‘social obligations’, nor do I see how a German Boot to the neck will change that.

But for the next few weeks, expect the “honeymoon” to be a pleasant one… and expect plenty of added pleas that the USA and ROW pitch in some money to help Germany send their “partner” through rehab…

Sidebar on Germany:

How is Germany able to pay for this? Near as I can tell it is thanks to the large growth in exports of Mercedes and BMW autos to China. The New Rich there want status symbols as much as the next person, so paying extravagant prices for a German car sill has a certain charm. IF the present slowdown in China starts to dampen that market, or IF the Chinese car makers start selling a close enough knockoff: that German Exceptionalism will head down the same road as all Socialisms. BTW, the Chinese are making some pretty cool looking cars these days. It’s only a matter of time, IMHO.

But for now, the ‘paying extra to show off’ is keeping Germany afloat on a sea of high prices.

Me? I’m looking at the cost of repair parts for my old Benz and thinking that it would be cheaper to just buy a whole different car. I’d never buy a new Mercedes as this point. Just way too many very expensive things that break on the new ones.

Remember that patents only run for about 18 years. That means that anything made prior to about 1994 is free of such encumbrance. China can, if it wishes, make a 1994 Benz knockoff with mild changes of styling. Similarly Chemical Factories can be made using any patented processes who’s patents have expired even without a license. Exactly what, other than a bit of glitz, does Germany really have to sell to China to keep funding Greece?

In the end, the bulk of the global money is ending up in the pockets of China and OPEC. One for “toys” the other for fuel to run them. The Green Fantasy of “green jobs” in solar and e-Cars saving the western economies is just that, a fantasy. China dominates solar panels and can just as easily dominate any other manufacturing field ( i.e. windmills) that it so chooses. They just launched more astronauts this week (including a woman) and have plans to establish a space station (and eventual mining of asteroids and the moon). I think that pretty much shows that there isn’t a “technological advantage” in the west any more.

It will continue to take a while to reach the end game. Likely another 2 decades is my guess (though I could see it in one if things work out well for China, as they have.) About then we will get to watch as once again the German penchant to think themselves superior to the competition runs headlong into the Chinese Wall…

Oh Well. At least Russia understands the nature of the game and the issues involved. One can only hope they will rather not help to collapse the EU and USA if it enriches China too much for comfort. One can fear that they would rather it be a duel of Russia vs China and if the EU and USA are comatose then the China Income Faucet gets turned off… but I’m sure they would never think that strategically… I mean, it’s not like they are Grand Masters at Chess… /sarcoff;>

Right now in Mexico, the G20 (Group of 20 industrialized and industrializing) nations are meeting. Expect a good party, but relatively clueless 3rd world governments bickering while fully arrogant Old Fart Established EU and USA preen and powder their faces for the camera. Expect to see Russia and China quietly smiling while they say little… except, perhaps, “Would you like a fresh drink? Here, let me get one for you…”

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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54 Responses to Greece Votes to Kick The Can and Accept German Money

  1. BobN says:

    Yes, they just kicked the can, but not for long. If you look at everyone’s spending rates its only a matter of months before it blows up again. Germany can’t sustain the bailouts, it has to end soon with forced austerity when it all crashes
    The world has a China problem and they need to start addressing it. The world has handed over manufacturing to China and do little to add value. Long term, none of this is sustainable, unless we all work for china.
    We pass this crisis, Italy, Spain is on deck!

  2. omanuel says:

    Thanks for this post.

    I never had a good grasp of economics, and I certainly do not understand what is going on in the world today.

    But I have an uneasy feeling that world leaders are now as frightened as the rest of us by events that are spinning out of control.

    I suspect the current demise of society is the result of decisions made in the aftermath of the Second World War to “save the world from nuclear destruction” (a noble cause) by deceit (ignoble means) about the fountain of energy at the core of the solar system that created our elements, sustains our lives, and controls the Earth.

    http://omanuel.wordpress.com/about/#comment-132

    World leaders may now be trapped in the very web of scientific misinformation they encouraged government scientists to promote after 1945, . . . now unable to identify the factual information needed to make rational policy decisions.

    What a sad, sad state of affairs for all of us!

    With deep regrets,
    Oliver K. Manuel
    Former NASA Principal
    Investigator for Apollo
    http://www.omatumr.com

    PS – Dinesh Sabu – youngest son of the late Dr. Dwarka Das Sabu – is coming from Chicago to visit for a few days! Dinesh’s father coauthored many papers on the origin of the solar system and its elements in the 1970s.

  3. Randall says:

    Outside of the cities, China is a third world country. Even in the cities, many workers are like slave laborors. Environmental problems throughout China are massive. Eventually, China will need to solve these issues but it’s still a lot better off than it was under Mao. I wish I knew what happened next.

  4. Petrossa says:

    Boy am i glad to be old enough to have kicked the can when the shit hits the fan :(

  5. Good point Chiefio. But, I think you maybe underestimating the Chinese look at this http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita See Singapore, Macau, Hong Kong &Taiwan (all run by Chinese). Japan & South Korea are examples of progress with larger populations. The latter have progressed initially with US assistance and money but then held back by political interference.
    Have a look at this about Hyundai http://en.wikipedia.org/wiki/Hyundai_Group . They started off as a cement company (with friends of course). They had a large maintenance shop and thought they should do something with their skilled work force. Started building cars copying from the Japanese. Then they decided to get into ship building. They put in a tender to build two oil tankers of 150,000 tdwt never having built a ship. When they won they bought naval architects, engineers and equipment from Denmark and Norway. The first tanker was completed in under one year from winning the order and the second six months later. Ship building Europe has collapsed. I do not think there is any in Great Britain anymore.
    They say that the Chinese maybe 15 years behind the US in space technology but at the rate they are developing (lady in space the other day) and the reduced spending (and waste spending on climate crap) at NASA the Chinese may over take US in 5 or 7 years. Expect the Chinese to have Thorium reactors operating 5yrs.

  6. If the problems seem so obvious to us, with incomplete information, then why are the world politicians so reluctant to face the problems and fix them?

    10 years ago, when I lost my job in electronics design because the factory moved from the UK to Hungary, I couldn’t find companies who could have employed me within an hour’s drive, though at 2 hour’s drive there were some vacancies. Quite a few engineers ended up stacking shelves in the supermarkets, others (like me) took the early retirement option. One of my friends took the 2 hour’s drive option, and went through another couple of redundancies as the companies folded. Look at the jobs available for people in Europe, and you find warehousing, transport and advertising as being growth areas, whereas in general engineering and making things has shrunk – we can’t compete with cheap labour in other countries (notably China) so only the jobs that have to be local remain local. Even the customer support jobs, that should be local, are outsourced to India to a large extent. Call up British Rail to buy a ticket, and your call goes to India via the net. Ticket-offices in the stations are being closed to save costs.

    The original reason for buying German engineering was that, although it cost more to buy, over its lifetime you saved money since it didn’t often go wrong. To some extent this still applies, since although a lot of the components are now made in China the design and QA are good. The German worker still does a good job and expects to be paid well for it, though the high tax-burden in Germany means that the living-standard is not as good as it used to be.

    Looking at the trends, the quality of Chinese goods is going up, and not too long ago they had the first strike for higher pay we’ve heard about. It’s possible that in another decade or so the cost-benefit of “Made in China” will not be so compelling, and Europe and the States will find themselves having no manufacturing industry left, yet paying much higher prices for Chinese goods. It will be worth it once again to manufacture locally, but unfortunately it is much easier to destroy a factory and a skill-base than it is to build it.

    For Greece, with exports seeming to be mainly agricultural produce and no manufacturing base that I can see, this is going to be a hard time since with reduced incomes in other countries their tourism industry will take a nosedive. Germany won’t have the money to support them, so it really looks like they’ll have to leave the euro sometime in order to balance their income and expenditure.

    It really looks like the can has just been kicked a bit further down the road, since unless the underlying problems are addressed any loans to Greece look like good money after bad.

  7. BobN says:

    China’s technology is growing very fast. They produce way more engineers than the west and they have a spy system unrivaled in the world. China has a known 330k hackers that spend their time breaking into computers and stealing technology. Most corporations and the military have lost data through break ins. The plans for the F22 and F35 are known to have been breached and rumors abound about the B2 technology.
    By acquiring information in this manner as well as requiring China ownership in any company doing business in China, they pick up trade secrets very fast. Its amazing how many companies go into business with Chines partners and do a great business for a few years, only to have a competing Chines only company soon put them out of business because they have acquired the technology. The company soon fails as they can’t compete and the technology is lost to the west.

    China has slowed their population growth, so long term job creation may not be the big problem for maintaining stability. They are investing for long term and not just to satisfy inverters on a quarterly basis. They have a more capitalist system than we do at the present. Sure China has long term issues, but most wont be real issues for another 50 years. China is the manufacturer of the world, they control everything or soon will. Just look at Iron consumption. The US is a small player compared to China, its getting that way with all the metals. With our present banking structure, they will emerge as the finance for the world.
    The west needs to wake up and soon or the game is over.

  8. oldtimer says:

    A UK blog site headed its comment on the Greek election “The Euro lives on to die another day”. Sounds right to me. The pain will continue badly for Greece until it ends. I doubt that Germany will put much, if any more, money into Greece; they are more likely to accept some delays to the “reforms” demanded of Greece as a sop.

    Cementafriend above commented on how Hyundai got into the car business. Hyundai approached and recruited a man called George Turnbull in the UK to set up their car manufacturing business. I knew him well, having worked with him for a few years. He later recounted how two Koreans turned up one evening, unannounced, at his front door to persuade him to move to Korea. He was persuaded (another long story). He recruited his core team of engineers in the UK to get started. The Koreans were fast learners and worked extremely hard. The rest, as they say, is history.

    The West has become fat and, these days, not quite so happy. It will continue in relative decline; for many in the West it will probably continue to be absolute decline as observed in the USA and the UK. In the UK real incomes are down c8% since the start of the financial crisis. In the UK the government continues to spend more than its income. It does this by the Bank of England printing money (Quantitative Easing is the official term), issuing it as government debt at low rates of interest. UK debt continues to grow at an alarming rate. No doubt this is part of a scheme for further devaluation of the currency. Is this also an objective of US policy, in response to China`s reluctance to revalue its owm currency at anything more than a snail`s pace?

    I have a sneaky feeling that the AGW scare story, now being supplemented if not superceded by the global population/sustainabilirty scare story, is part of a propaganda campaign to attune people to accept harder times ahead. Some even talk of re-introducing rationing. No doubt the forthcoming Rio meeting will turn up the volume.

  9. Sera says:

    France just elected a socialist government by majority, so it looks as if they will be leading the new socialist economic block when Germany decides to leave the Euro (shortly after Greece). Hollandaise has already said that he would side with the southern nations weary of austerity, and that puts him/France in charge. It is apparent the ‘Adolf’ actually won the war by turning europe into a national socialist workers party. Who knew?

  10. Pascvaks says:

    Thoughts…

    Imagine yourself a hundred years ago having pretty much the same conversation. Not much has changed but the names. Let’s hope the 21st Century will be kinder to everyone than the 20th was.

    Remember the Lousiana Purchase? Have a ‘feeling’ Russia will be selling off everything East of the Urals to ‘They Who Must Be Obeyed’.

    Technology! Hummmmm… there’s the rub!

    Human Nature! Hummmmm… there’s another BIG Rub!

    Tea Leaves! The hardest part of reading them correctly is looking through the tea and holding the cup as steady as possible; I know some subscribe to the theory of drinking all the tea so the leaves stick to the bottom of the cup, but that’s too slow and Old Fashioned.

    India! If China is the New USA, India seems to be the New Germany, and Japan… never mind.

    If Greece was 400 acres on the edge of Detroit, and you owned it, what would you do?

    If Europe was Detroit, and you were the Mayor, what would you do?

    If the USA was Mexico, and you were the Pres,…. never mind.

  11. Richard Ilfeld says:

    Russia and China are not problem-free. They do have relatively repressive governments – currently a key to limiting the economic damage of a huge welfare class. As long as they can dump the 25% incapable of handling a technical job and too unsocialized to handle a menial one back into subsistance agriculture, and maintain third world gulags within their borders, comparative advantage is likely as you outline.

    If a lot of mini-Tigers in Asia nibble a fair amount of production from China, and the Russian prove as adept as the Soviets at handling state enterprises, the current balance may hold for more than a couple of decades. The US may creep back from statism, and find ways to compete as it’s still comparatively easy to try new things here.

    Even Europe may….oh never mind.

  12. adolfogiurfa says:

    @E.M. You are right again! about China and “Kick the can” never does last long.. …Kicking the can…until China asks for repayment, then you all will have to suddenly awake to reality.
    It is not a coincidence that a few known “elite” guys have moved to Shanghai or Beijing.

  13. adolfogiurfa says:

    The “welfare state” it is just crazy; I have just heard that in Greece being a TV presenter is considered a risk occupation so you can retire at 50 years old, the same with railway engineers, where no longer exists a supposed “carbon dust breathing” risk, retire at 50 years old too.
    As Margaret Thatcher said “Socialism lasts until it runs out of other people´s money”

    @E.M. In the end, the bulk of the global money is ending up in the pockets of China and OPEC. . But…in the next years food production will be far more important that currencies, then in which hands are these?

  14. E.M.Smith says:

    @BobN:

    Yup. But there is also a “Germany Problem”:

    http://www.tradingeconomics.com/germany/exports

    Germany Exports
    Germany exports were worth 87.1 Billion EUR in April of 2012. Historically, from 1991 until 2012, Germany Exports averaged 53.5000 Billion EUR reaching an all time high of 98.8000 Billion EUR in March of 2012 and a record low of 23.4000 Billion EUR in January of 1993. German economy is heavily export-oriented (the world’s biggest exporter), with exports accounting for more than one-third of national output. Its principal exports are: motor vehicles, machinery, chemical products, electrical devices and telecommunications technology. Most of Germany’s exports stay in Europe. Germany’s main export partners are France, United States, United Kingdom and Italy. This page includes a chart with historical data for Germany Exports.

    So Germany exports to all those places in Europe that are on the rocks, or just voted in a socialist government (France)… Now exactly how much “machinery” and “chemical products” and such are needed by Greece for their tourism industry? Think they can get them from China or Korea? Or how about petrochemicals from Saudi Arabia?

    Basically, Germany is making all the money that it is loaning to the PIIGS by selling stuff TO the PIIGS. (And France, UK and the USA). Except the USA is flat broke, running a $Trillions (hard to know how many this year…) deficit and borrowing the money from China… The UK is about flat. France, well, whatever they were doesn’t matter now that they’ve decided to follow the Socialist Agenda of demolishing business, taxing anything with money, and consuming it all on “social welfare”.

    There was an interesting note on CNBC this morning. German Bund interest rates have spiked up. Yes, from “God Awful Low” to only “very very low”… but still, folks have started to price into German Bonds that they are just the Greek and Spanish credit cards by proxy…

    Sigh.

    Sadly, I think it will take another year to sort out.

    Per China and intellectual theft / economic dominance:

    Yup. Pretty much. Worse, though, is that as manufacturing moves there, new development goes with it. The engineer trying to fix something who comes up with a new idea only happens where the problem exists. The factory floors and engineering shops are no longer in the west.

    Theft of trade secrets really just covers the gap between the patent library ( 18 years old) and the future ( that comes from where the work is done). Yeah, it helps China, but they could still win without it. Just would take about 18 years longer…

    @OManuel:

    I suspect there may have been a secondary or even tertiary impetus as well. The collapse of Breton Woods on exchange rates and the Bay of Pigs near nuclear war that ended with the assassination of President Kennedy ( likely with a nod / wink from our own intelligence agencies) caused great financial turmoil. Then the Viet Nam War with China using Viet Nam as proxy and Nixon dumping our tie to gold (then Johnson spending like crazy on Social Welfare as the fetters were off the dollar devaluation). IMHO the effective collapse of the US Dollar that engendered also caused “Leaders” around the world to be fearful of monetary policy in the hands of nation states. Thus the EMU (European Monetary Union) was born as an attempted alternative system and SDRs Special Drawing Rights from the IMF International Monetary Fund as another alternative to gold / $US for “reserves”… Things that are still resonating today as they oh so slowly fail to work…

    BTW, I’m planing an “Intro to Economics” posting that takes a lot of the Econ jargon and, frankly, crap, out of the description of “what is economics?”… If I do it right, I think you will find that you know a lot more about economics than you believe, it’s just that the economists of the world dress it up in really obscure jargon. Take “Reserves”. What it really means is “money we can trust”…. Similarly things like “Net National Debt to GDP” is really just “Now full is our national credit card compared to our income?” Greece has over one year of income on their credit card. The USA has about 80% ( IIRC) of our annual income on the credit card, but rising toward 100% very fast. Think if you made $50,000 / year that having $50,000 on the credit cards might make for a payments issue?….

    At any rate, such a posting is coming…

    @Randall:

    The bigger issue for China is The One Child Policy. That had onset at a moment in time. Right now they have an excess of workers. They have less than replacement rate of children (the purpose of the policy…) So WHEN those workers retire, who will care for them? There will be, on average, about 2 retired parents for each working child. It simply isn’t possible tor that to work.

    I’ve talked about the “Demographic Bomb” in retirement plans in the USA and EU. It will be far worse for China.

    But until that moment they will dominate global manufacturing.

    As you pointed out, China isn’t just a 3rd World economy nor is it an industrial economy. It is made up of a disjoint patchwork of stages. (That kind of thing happens when central planning drives things, and not market forces. Market forces gradually push things to natural equilibrium points and keep them more synchronized.)

    So yes, internally, China is a hack job and going to have some failures (unless they complete their transition to a free democratic republic system with markets making more decisions.) BUT, that does not prevent their decisions to subsidize manufacturing and promote a new “urban manufacturing economy” sized to supply the whole world from causing a manufacturing collapse everywhere else in the world. It is also likely that they will come out of the transition modestly OK as a nation (even as many of the people are damaged).

    In some ways it is not that much different from finding Silicon Valley all of 100 miles from some Central Valley California farm towns that are transitioning to Mexican Ghettos. More Spanish than English used and folks who pick fruits and vegetables for a living. (My home town is making that kind of transition. Why I sold the family home there. The Merchant Class has largely packed up and left town. Many family farmers too, as thing change to industrial agribusiness. The Peach Cannery that had been a kind of industrial employment has also closed. Fruit either trucked to other canneries or folks transitioning their orchards to things other than Peaches… )

    Just that our regional shifts are heading toward decline while China regional shifts are toward gains. It will take both of our countries several decades to complete the processes…

    One difference (among several) is scale:

    China has over A Billion people. Then can fund 10,000 working on a space program, for example, and never notice the cost. So China will pick technical areas that it wishes to master and simply assign a hoard of Ph.Ds to it. They have the brains, and the bodies and the cost is just not very relevant to them. As a consequence, we get the odd discontinuities of things like a Space Program headed for excellence at the same time that they have folks putting poisons in foods as ‘extenders’ to get a few extra pennies of profit. (Either from ignorance or lack of a moral compass). There was the recent discovery that a poisonous glycol was being substituted for a glycol normally used in some processed foods… for example.

    At any rate, the “China Problem” exists, and will continue to exist. Even as China internally has other problems. (For example, China is now a major importer of gold, impacting global gold prices. At the same time news flow today included a report of something like 24 out of 30 regions had declining property prices for real estate.). It helps to think about China as a Regional Union rather than a single country… Not accurate, but more useful some times.

    @Cementafriend:

    Um, I don’t think I’m underestimating China… I’ve kind of said they end up dominating the global economy and winning… It’s just that in the shorter term they have an economic downturn happening and in the longer term they have a Demographic Bomb to deal with. Neither of those prevent them from presiding over a greater destruction of wealth in the west…

    Given that the USA no longer can put people on orbit (we hitch rides from the Russians and we’re hoping that the private efforts get “man rated” soon…) the simple fact is that right now China is more capable in space than we are. Yes, we could change that rapidly, but that’s the “facts on the ground” (where we are …) today…

    BTW, Thorium fuel bundles can be run in existing light water reactors and in CANDU reactors. China (and anyone else for that matter) can have a “Thorium Reactor” any time they change fuel bundles. Thorium has been in use since some of the earliest reactors (Shippingport?) and it really isn’t any great ‘trick’ to use it. I presume you really meant Molten Salt Thorium Reactor. Yes, that’s a little bit harder, but still 50 year old technology.

    From the wiki:

    The early Aircraft Reactor Experiment (1954) was primarily motivated by the small size that the design could provide, while the Molten-Salt Reactor Experiment (1965–1969) was a prototype for a thorium fuel cycle breeder reactor nuclear power plant.

    The barriers to current use of Thorium in LWR or PWR (or most others too) and even MSR design and fabrication are largely not technical. Uranium is so cheap and plentiful that folks just haven’t had much reason to care. It’s more about cost and convenience than anything technical.

    @Petrossa:

    Well, I’m still hoping to live long enough to be a burden to my kids and watch the end of the economic collapse / recovery movie ;-)

    @Simon:

    You presume their motivation is to fix things…. “Facts not in evidence”.

    I’d even go so far as to assert that several players have a strong vested interest in breaking things. “Never let a disaster go to waste.” It is easier to look important in a disaster than when everything is working fine. Furthermore, individual gain often comes from collective loss. So, for example, GE got the cheap (18 cent) incandescent light bulb banned. Now their CFL bulbs dominate shelf space. ( Phillips, Westinghouse, and a couple of others have basically evaporated from the shelves where they had been… Sylvania is hanging in some.) Also CFL bulbs have risen by a couple of bucks each. So GE “wins”, as do the Senators / Representatives they have bought and paid for. Just everyone who wants to buy a cheap light bulb for a rarely used closet or basement looses…

    Once you start asking “Who wins if this fails?” or “Who wins if this breaks?” things make more sense… George Soros, for example, made his first $Billion by betting the UK Central Bank could be broken as they were trying to defend the Pound Stirling in the face of rising social program costs. Think he remembers that trade? Think he might be a major funder of Socialism and Social Programs Movements globally so he can ‘break the currencies’ and pick up some more $Billions?

    Never assume morality on the part of advocates, politicians, governments, etc….

    Heard on the financial news that the Greek Economy was down 16% so far and likely another 7% “soon” (this year?). So about 23% to 1/4. Now realize that there ‘debt problem’ is measured as a ratio of debt / GDP. What happens when that GDP number reduced to 75%?

    Something like 20% of the Greek economy is tourism. Who is planning trips to Greece during economic collapse and marches in the streets? August will be a big month to watch in Greece.

    @Oldtimer:

    I think you’ve pretty much covered it…

    BTW, in the ’80s one of my friends was recruited by Sony in a similar way to help them dominate semiconductor based electronic devices…

    The funny punch line to the story was they they were offering him a variety of things, including some nice female playmates… it took them a while to realize that all it really took was money. He liked to chuckle about how perplexed they where when they finally asked (a bit exasperated) “what will it take” and he said “This much money”… They basically said “Just money? That’s all it takes?”… He had a lady friend he liked rather a lot and didn’t need them buying things for him if he had the cash…

    @Sera:

    Yes, the French Development is going to be an interesting one to watch. I’m not sure how to assign it yet, though. The Germans are rather Socialist themselves. So I’ve not yet worked out how the shift in France is going to push things.

    I could see a case for “France and the Latins” with Greece as an honorary member vs “Germany and the Vikings” with a northern tier as a surviving low inflation block. Then again, that makes German ‘internal’ exporting to the southern EU member states a bit hard and threatens their dominance…

    One clear point, with France on the Socialist / Spendulous side, the German Loans With Austerity is facing a hard wall. Add that Merkel is saying “no more loans likely” and we’re setting up for a showdown in about, oh, September.

    (Why September? Well, it will take the rest of June for the G20 to get home and find out none of them rally has any money to use for more ‘stimulus’. July will be spent waiting for Greece to say “We’ve got a government and they fixed it all.” which won’t happen. Then everyone will go on vacation in August. Can’t interrupt vacations… So September is the first opportunity to actually face the fact that the basic economic facts on the ground are unchanged… and Greece is still broke.

    @Pascvaks:

    Russia will not sell bits to the Chinese…

    FWIW, for about a decade or two I’ve been telling friends that I expect a major nuclear conflict to break out on a line from Israel/ Middle east to China / N. Korea. The only hard bit was figuring out just WHICH pair would blow up first: Russia / China. China / N. Korea. N. Korea / S. Korea. China / India. India / Pakistan. Israel / (any random Arab who gets a nuke).

    Exactly which pair is the hot button in any given 5 year period changes, but they all keep ratcheting up. Right now the bet is on Iran / Israel; but I could easily see India / Pakistan or even China / India (and a remote China / Pakistan as all three claim the Kashmir area).

    But never forget that Russia has a long standing paranoia about China and will not accept a China dominated Asia without some kind of fight.

    What would I do with Greece? Make a theme park out of it… “Drachma Land”… with their own funny money and you sell tickets globally to come “Play Greeks vs Persians” and “Be On Stage in a Real Greek Drama”… I’m sure Disney could turn a profit out of the place…

    Were I the Mayor of Europe, I’d make sure my pension was portable and at the end of my term emigrate to a nice Pacific Island…

    Per the USA and Mexico: Just wait… couple of decades, max. Pretty much baked into the demographic trends. We’re already bilingual in packaging and broadcast TV and Radio are about 50 / 50. One border town has already officially changed to doing town business in Spanish as almost everyone in town spoke Spanish and it was a ‘left over’ to use English… so folks would argue in Spanish about how to record something in English in the official record… which seemed silly to them (and was.) Expect more to follow.

    @Richard Ilfeld:

    Unfortunately, the history of the world shows that repressive governments can last a very long time. More stable than most others. 1000 years or so for the Roman Empire…

    I have a bit of hope for the USA, but frankly, the folks who seem to have “got it” the most right now are the Slavic nations wedged between Western Europe and Russia…

    @Adolfo:

    Land doesn’t move. So in a true global collapse, the land in the USA, Canada, Australia and South America (food exporting regions) stays in those countries.

    The debt the USA owes is in $Dollars US. IMHO when we have a SHTF moment, it just means we print a bunch of paper and hand it over. Then walk away…

  15. BobN says:

    @EM: When I read through the comments and thought about what you were saying I kept asking what is the overall problem. Sure, over spending can be eliminated, but will it solve the problem, no its a symptom of bigger issues. To me the start of the collapse was when globalization started. Manufacturing started moving out of industrial countries to cheaper labor sources. This will continue until all countries have their manufacturing gutted and the last of the 3rd world countries achieves some degree of market success. China is the big winner right now, but over time that will change as the Vietnam and African countries steal the work. China will be just like us only with a bigger problem, as they need to keep a Billion people employed.

    The second part of the problem relates to technology. What remains in Industrial countries is the high tech end of business. The problem with this is automation allows reduced work force and puts the jobs in the hands of a shrinking skilled work force. The technology is taking away the jobs that were once plentiful and a dumbed down, high drop out rate in the education system exacerbates the problem. To solve the problem government has spawned a nanny state to take care of those who no longer can hold the jobs available. The trouble is we now have 49%, give or take a few percent, of the population not paying in, the burden on the shrinking work force is at the tipping point, the nanny state must end or it all collapses. So the big question is, what do you do with all the people and the inability to add value and make a living. Agenda 21 in the UN is an attempt to address all of this by population reduction and herding people into dense housing so they can be more efficiently managed. This whole concept is flat wrong and should never be tried, its a disaster for the human spirit. What is the answer, not a clue, but it almost seems that society would survive better if countries still had terrifs, as countries could protect their work force. I can’t believe I just said that, but drastic steps need to be taken. We are not just in a short term down cycle that will get better, what is going on is systemic and needs major changes.

  16. adolfogiurfa says:

    @E.M. This time you are wrong: Those lands (at least in my country) were subjected, during the 60´s and 70´s to “Land Reform” (then promoted by the USIS), supposedly intended (so we were told) to remove those Bad Landlords and giving their properties to the poor peasants, and nobody was authorized to own more than 250 hectares,….but, after almost 50 years you find properties of more than 20,000 hectares owned by unknown landlords, that, if you dig enough in the web…you will find them that these are owned by “off shore” companies located in tax paradises, and if you keep on digging, you will find banks as Goldman-Sachs,etc. (Clever guys…).
    Right now, in Argentina, local landlords, wheat, soybean and cattle producers, are being subjected to an indirect “Land Reform”by charging them more that 53% EXPORTS´tax, in order to bankrupt them and, afterwards, it will follow the same “blessed” consequences. Did you know that right now, “land grabbing” in Africa is real, and they are buying lands at a US$0.50 per hectare?
    And a new “Maunder Minimum” looming….
    Their only mistake, IMHO is their decision of moving to China…they just don´t know what chinese will do in the future…
    Anyway, our grandchildren will have to take some lesson of chinese language…..just in case.

  17. Mike Churchill says:

    @BobN,

    Having governments erect protectionist barriers would only make things worse for most people while at best temporarily protecting certain relatively small favored groups. Globalization was not the start of the collapse: globalization is simply a continuation of the historic trend of specialization and division of labor that has resulted in the fact that more people currently live on the planet who are better fed, better clothed, better housed, and by almost any measure better off than ever before, and that the greatest increases in personal welfare occurred during a period in which the population skyrocketed. The most rapid advances have occurred when and where people have been free to think and act–i.e., to own property, to earn profits, to innovate and to reap the rewards of innovation.

    To the extent that we are on a path to an economic collapse, we have been put there by government action. By governments preventing individuals and private enterprises from acting upon their private judgments–e.g. by preventing them from hiring and firing whom they please, making, buying and selling what they want, investing in what they want–and distorting incentives by penalizing productive activity and subsidizing unproductive industries, companies, and individuals. The economist Arnold Kling’s concept of Patterns of Sustainable Specialization and Trade (“PSST”) is very useful to keep in mind. Briefly, PSSTs are the complex webs of relationships, skills, knowledge, tools, buildings, equipment, contracts, financial instruments, other capital stock, etc., that exists at any time and place where people are engaged in profit making enterprises. (If the results are not profitable, then the patterns are not sustainable.) As a simple case, consider just the economic activity of the small town E.M. grew up in, where there was a complex web of relationships among the local farmers, the farm equipment dealer(s), the seed, fertilizer, and pesticide suppliers, the restaurant owners, the local car dealer, the hardware store owner, the local bank(s), all of their respective employees, the town whore, the local plumber, etc., as well as the enterprises outside the town that any of them bought and sold from. The operator(s) of each of those enterprises had specialized knowledge about their own operations and their relationships, the opportunities and challenges facing them, and their capabilities: information that changed over time, and information far more rich than any government planner or regulator could ever hope to have. The businesses in that town changed from year to year, employment at any particular business may have changed from month to month, etc. That town thrived for decades and is now in decline. Other small California towns have grown in to fairly large cities over the same period of time as new industries sprouted in them.

    What the government planners keep doing is destroying existing PSSTs and preventing private parties from making the adaptations to changing conditions necessary to establish new PSSTs. The Keynesian economists who dominate government circles don’t recognize the existence or importance of any of what Kling’s PSST concept covers. They call all of that “microeconomic” issues and assume it doesn’t matter. But it does. For example, in the last few years, we had a huge housing bubble caused by a combination of changes in government regulation of the banking industry and the government pumping money into the economy in ways more or less designed to increase the availability of mortgages. That bubble resulted in (or “was”) a years long malinvestment in housing: unsustainable amounts of money, construction workers, financial industry workers, land, etc., were devoted to the construction of new housing stock over several years, and now the U.S. has a whole bunch of empty houses to show for it. The Keynesians working for the government keep fruitlessly trying to “stimulate demand” to re-inflate the bubble when what needs to happen is for a whole bunch of contractors, carpenters, plumbers, electricians, mortgage brokers, real estate agents, etc. to realize that their jobs aren’t coming back and seek new jobs in other fields or other locations. Unfortunately, business owners are not creating many new jobs right now due to regime uncertainty and the ever increasing regulations and taxes at both federal and state levels, so we are enduring a period of stagnation rather than recovery.

  18. Mike Churchill says:

    I should have added to my last comment that the Keynesians don’t seem to recognize that all of those empty houses left over from the housing bubble are “capital” that is not fungible. Those houses, and the financial investment they represent cannot instantly be repurposed and invested in some other manner. As of now, the construction of many thousands of houses in California between 2001 and 2005 has resulted in a net destruction of wealth. (The construction of thousands of others that were sold and occupied created wealth, but if one analyzed the overall change in housing values over time in certain towns over the last decade I suspect that wealth destruction began in or before 2003 in many California towns.) The Keynesians just assume that “aggregate” demand is all that matters and ignore what really counts: the existence or nonexistence of PSST, which of course can’t be controlled by the government, but only destroyed.

  19. Halfwise says:

    Germany has done well at the expense of the rest of Europe because the Euro distorted the selling price of German goods. Were they still selling in D-marks all their exports would have increased in price with export surpluses and no one would be thinking Germans were economic geniuses or ultra-productive workers compared to their neighbors.

    Meanwhile the US and the EU have gummed up their economies with myths about alternate sources of energy plus bloated regulatory agencies and byzantine approval processes. Learning to be competitive is going to take a mighty external jolt because not one of these myths and mazes is going to dismantle itself.

    Meanwhile all the mountains of debt will be paid, more likely by the lender than by the borrower. Real wealth will be destroyed in the process of trying to protect the reckless from themselves.

    China will pull ahead further, and its strategy of controlling raw materials creates a sustainable advantage. India would give China a run for its money from the IP perspective based on a better legal system but I don’t think the basic education system in India turns out the bulk quality that China does so there is no big competition in know-how. When does the One Child policy blow up the Chinese demographics? That would be the earliest turning point that I would predict.

    All the derivatives and empty-promises insurance policies and pension systems still have to collapse. Either a government declares them inoperative or reality does it without regard for government. I would bet on reality since it doesn’t care how anybody votes.

    I’m not moving to Idaho packing bullion and bullets, but having a place out of the mainstream with the ability to be fairly self-sufficient seems like a nice strategy.

  20. Mark Miller says:

    I suspect Germany will hold on to Greece for as long as possible. As I think has been discussed previously here (I’ve heard this on CNBC as well), there is a plan by the elites in Europe to unite the EU nations under a stronger central government, and what’s going on now is a part of that plan. The EU was designed to go into just such a crisis, but it was anticipated that would be 20-30 years from now. It just showed up a lot earlier. So the idea is to get EU nations to give up more of their sovereignty to the EU government. That’s what they’re hoping to achieve out of it.

    There’s been talk of “fiscal union,” and so we might see moves towards that.

    I recently viewed a video, reminding me of the history of banking, and it discussed how money is created by banks in a way that I had not considered before. It said that a bank has no ability to create money but by someone qualifying and agreeing to make payment on that money, in interest. Though the Fed has the ability by buying bonds, but this only happens through bond markets, which is more niche when compared to the wider economy. What occurred to me, thinking about this, is that the value of our currency is predicated on a productive economy, where value creation is happening all the time. If that isn’t happening, then the value of our currency decreases, because the very basis used for creating it is in question. *That* was perhaps the real cause of the financial collapse in ’08, even though people would’ve had other reasons for panicking.

    Thinking of this in a historical analysis, what really happened years ago was an acknowledgement of a trend that had been going on for decades. Political and economic power was going to those involved in productive enterprises, not to those who controlled assets. Our change in monetary system reflected that. Around the same time, a new power base was asserting itself for the first time, that is based on an asset: materials for fuel. It continues to assert itself. Productive enterprises are still “at the table,” but now it’s tied to knowledge, and to prudent governance, not just manpower.

    The move towards a “green” energy economy seems to partly be based on a desire to once again remove power from those who hold on to assets. The problem with it is it’s still tied to productivity, knowledge, prudent government, and materials used for production: mining–once again, an asset, just not an energy source. We’ve lost track of that last one, thinking it “evil.”

    @Mike Churchill:

    To the extent that we are on a path to an economic collapse, we have been put there by government action. By governments preventing individuals and private enterprises from acting upon their private judgments–e.g. by preventing them from hiring and firing whom they please, making, buying and selling what they want, investing in what they want–and distorting incentives by penalizing productive activity and subsidizing unproductive industries, companies, and individuals.

    The way I see it, we’re the victims of our own angst and ignorance. It’s worried me a lot that in the process of trying to use politics to solve our economic and financial problems, we’re digging a deeper hole for ourselves without realizing it.

    Ever since the 1940s we’ve gotten it into our heads that our standard of living is supposed to increase, our incomes are supposed to go up, along with benefits.

    Over and over again I see people take what we have for granted. When that starts slipping away from them, the first response is, “That’s immoral! Hey, government. Stop this from happening!” So government, enjoying its renewed relevance, promises to prevent these things from slipping away by “punishing the greedy who are taking it away from you.” We do this rather than realize that what’s happening is a result–at its root–of us losing track of what creates value. When China takes it away from us, it’s like taking candy from a baby. They’re more conscious of this than we are, though they’ve done some pretty weird stuff, too, like building ghost towns, all shiny, modern, and new, where no one lives.

    Americans mistake income for wealth, and credentials for knowledge. These are not where wealth and knowledge come from. These are both potential by-products of real wealth and knowledge. But like a cargo cult, we feel like if we worship the right totems, real benefits will flow from them, just as it seemed they flowed from them before. Too bad a lot of people were looking at the wrong cause. Our new priesthood is all too happy to reinforce the delusion for their own benefit.

    Will people finally one day realize again what creates value? One can hope, but I think it will take a crash of the current system as a prerequisite. The current system seems to work for too many to reconsider their notions of what really works, a more sustainable economic/financial system.

  21. oldtimer says:

    Re Germany.

    If I may I will post a long comment by Allister Heath, editor of CityAM, a London publication, on the euro. His belief is that if anyone ends the euro, it will be Germany. Among other things he offers this analysis of the reasons why Germany has propsered in the eurozone:

    “…When the single currency was launched, relatively low domestic inflation compared with that seen in other Eurozone countries resulted in Germany having among the highest real interest rates in Europe – and high inflation countries enjoying the lowest real interest rates. This depressed German growth and slowly started to trigger bubbles in the likes of Spain. The German establishment soon realised that the only way to cope with such relatively high real rates was to slash costs (in the past, the Bundesbank would have cut interest rates, and this might have triggered an external devaluation via a low Mark, but with the euro and one size fits all interest rates, this was no longer possible).

    As Ryan Bourne of the Centre for Policy Studies notes, Germany’s unions decided to protect jobs through wage restraint, allowing employers to capture productivity gains. This improved the profitability of domestic production and the competitiveness of German industries in international markets. A series of dramatic changes were also introduced to the labour market. Over a period of a few years in the early noughties, Germany cut taxes on company profits and capital incomes, slashed non-wage social security costs, cut regulations on temporary, agency and part-time employment, reduced benefits to the long-term unemployed, reduced the duration of unemployment benefits for older workers, diluted unfair dismissal rules and introduced a minimum income system closely tied to a requirement to look for and find work.

    This was revolutionary stuff for a social democracy like Germany. The extent of the changes was greater than anything the UK coalition is doing today, albeit from a different starting point. The result was to pave the way for Germany’s recent export-driven renaissance, following thirty years of relative decline and several lean years after the botched reintegration of East Germany. All of this is highly relevant to the euro: the Germans went through change, they argue, so why can’t other countries? Germany may be a strong economy, but even it cannot afford to take on everybody else’s debt. The real risk to the euro is not Greece – it is Germany finally losing patience.”

    FWIW, I agree with his analysis.

  22. Pascvaks says:

    This is a great discussion! We won’t solve anything, but when the jello hits the fan we won’t be as suprised as nearly everyone else on this rock. Imagine the hand wringing, headaches, and ulcers that the gurus of finance, industry, and government are personaly privy to these days. Think about this, when things get to be too much some people ‘solve’ their problem(s), most don’t and take their lumps, and some go for the windows. Now, if that’s the way of it down here at the foot of the mountain, and it’s pretty much the way history says every bigger human system works, is there any reason in the world to assume that ‘this time’ things are going to be any different?

    There’s a point in a hurricane when you’re standing on the levy in New Orleans, that you stop shouting at your crew, tell them to shut it down, pack up, and leave the area, and you stand in the midst of the fury, shrug your sholders, hang your head, turn and walk away to a safer place to ride out the storm. Now I’m not saying that Greece, Europe, the World economy, or anything else is toast, and I’m not saying it isn’t either. I’m saying that there is a point that continuing the fight for anything can be a bad bet and knowing when to stop is more important than anything else, and I wonder, are there any ‘smart’ people up there on the top of the mountain? Or are they all Adolf’s hell bent on seeing everything destroyed and too proud to admit defeat? There doesn’t seem to be many in Greece, or Europe, willing to take it on the chin and prepare for the rebuilding after the storm? They’re still trying to plug all the leaks in the dykes and the storm is only getting stronger. They’re going full speed into an ice field; they’re going to beat Katrina come hell or high water, regardless of the cost in human and national treasure.

  23. adolfogiurfa says:

    @Mark Miller: Americans mistake income for wealth, and credentials for knowledge …and fighting and dying for the Elite to fighting and dying for America.

  24. pyromancer76 says:

    I’m still betting on Americans (and those recent immigrants who came here to get away from destructive economies/governments). I believe that Romney will win in a landslide (after persistent hard, hard electioneering work from “Americans”). Americans will punish severely the Stupids who believed that could turn this country into a totalitarian paradise. I have this sense of optimism (within a current state of “depression”) because: 1) the “Great Awakening”-like wave of dissent beginning in 2010 elections — after the 2008 landslide cleansed the former Stupids, the big-government-spending-foreign-adventurism BabyBush-type Republicans; 2) we are awash in abundant natural energy resources, the playground for American inventiveness, creativity, and entrepreneurialism — leading to prosperity and opportunity.

    I think we are moving into a new “era” and haven’t realized it yet. Let opportunity and prosperity be whiffed, sensed, and see “education” morph into something for intelligent purposes (like happened for the Chinese); see new factories with their robots and smart workers multiply. Continue on this imaginative path. For this to happen, the “owners”, those who think of themselves alone as “wealth creators” must be forbidden their huge salaries and bonuses (compared to those of their “lowly workers”) and especially denied those exceptional packages bestowed on them when they fail. This must be an All-American economic boom.

    Caveats: If the Tool (of totalitarian purposes) Obama and his cohorts have defrauded the vote too severely, or if foreign corporations, or wealthy you-know-whos, have bought up everything out from under Americans so that not even the natural energy resources are “ours” any longer (Agenda 21, Treaty of the Oceans, etc.), then all bets are off. Fundamentally, Americans are not Stupid (I hope).

  25. Mike Churchill says:

    @Pyromancer,

    I wish I shared your optimism, but Philosophy matters, and I don’t think that Romney and his cronies think significantly differently than the bastards that have gotten us onto this trajectory. I don’t see a Romney administration taking an axe to the federal octopus and significantly paring back its grasping tentacles. I predict that at best it would slightly decrease the government’s rate of growth.

    We are not to the break down yet, but I don’t see any signs that we are going to step off the path any time soon.

  26. pyromancer76 says:

    @Mike Churchill, my fear as well regarding Romney. However, given the motley crew able or willing to run for this cycles’ Republican presidential nomination — none well prepared — sorry, but most “idiots” — Romney stands head and shoulders above all. Will he be completely controlled by his elitist, big-government Republican backers? Perhaps, but there are pressures on him to be both smart and “American”. He is a place holder for the new era to get a foothold. It has a toehold in a few states today. The governors of those states must prove what investment in natural energy resources and limited government can do for everyone. They must prove their courage and teach inspirational aspirations. (Yes, I believe Scott Walker is one such.)

    If the Republicans forget to help those who will lose (public sector, education, etc.) jobs in the transformation, or refuse to design intelligent workfare for the less able, or refuse a reasonable substitute for nationalized medicine (once the Supreme Court holds Obamacare unconstitutional — hopeful, aren’t I), then we return to same old, same old. However, once the experienced governors get a handle on more than their own states, then we are off and running. (This also means President Romney must cut us loose from the UN and send its headquarters packing.) And we must not be drawn into that war E.M. sees as a likelihood.

  27. pyromancer76 says:

    One further thought about Romney, at the very least, being smart and American (and disciplined): http://www.redstate.com/california_yankee/2012/06/19/romney-refused-to-take-obamas-immigration-bait/. Doesn’t mean I am going to like his final solution, unless he (and Congress) actually closes the border and welcomes a reasonable number of immigrants.

  28. Kevinm says:

    EM … If the US and the Eurozone go into (continue) their decline, who is buying Chinese production. The economy they have built requires mass consumption of manufactured goods.

    If nobody else can buy their production, then they must do it themselves… As the USA did. Then the new economy they find will become a consuming economy, eventually.

  29. BobN says:

    I have a few fundamental questions, assuming the crash occurs where banks fail, the dollar becomes worthless and essentially the government has no power as it has no revenue. To pick up the pieces I assume we have to form a new government with a new constitution , new laws and new money. How will this be done as I’m sure the old government will assume they are still in power and will rewrite everything. This is the last thing I want to happen, there isn’t a one of them that deserves to be in charge of anything. What do we have to do to form a new government outside of the idiots who think they are still in charge.

    I just can see how the pieces will fit together again. This is something I think about, but can’t formulate a vision of how.

  30. E.M.Smith says:

    Golly… I step away for just a little while and find myself a dozen comments behind! I guess the “Greece Issue” is a hot one… OK, bear with me while I catch up and respond…

    @BobN:

    Generally, yes, you have a handle on “the problem” writ large. But it has always been this way. Even way back when wooden ships and sails carried goods. All that “globalization” has done is pick up the pace and reduce the margin the trader in the middle could grab.

    China has a major advantage over places like Africa. It has a decent work ethic and a decent education system. (Not stellar, but good enough…). Take somewhere like Nigeria, well, they are more interested in killing each other over religion than they are in productive work. Similarly, places like Somalia. So they may be “dirt cheap” labor costs, but not stable enough to get investment (unless something like Oil in Nigeria brings in an extraction effort – but even there Standard Oil put a key facility on a large barge so it could just be pulled out if things got bad.)

    Or look at Rhodesia ( Zambia / Zimbabwe). Once a major food exporter, the black attacks on whites and farm confiscation (and handing land best suited to mechanized high production to subsistence farmers with little skill) resulted in net food imports. The culture just does not exist to support “property rights” and that, then, means no support for industrial manufacture or investments (no matter what the labor cost goes to.)

    But aside from that kind of problem; yes, in essence, we have dramatically increasing productive capacity per unit of labor (be it ‘unskilled’ or highly skilled) and ever larger blocks of the global population “priced out of the labor market”.

    Nobody in the USA or EU can even begin to think of manufacturing something like pots and pans, or socks, or even TV sets without a completely automated robotic assembly. Frankly, even with that I’d put the plant elsewhere just due to tax issues.

    For a while the notion by the Powers That Be was that we would all be put into a Service Economy (i.e. we don’t all need to manufacture, we can all give each other hair cuts and horoscope readings instead… and swap Quatloos on the London Quatloo Exchange…)

    The problem with that is pretty simple: Folks in China are not in a position to import EU or USA services and don’t want to gamble on our exchanges. Part ( a modest part, less important than the CRA and mandated “loans for losers” program) was the exchange of our financial instruments around the world. That didn’t turn out so well…

    The other part of the problem is demographic. WE (the west) need services like nurses and doctors and old folks homes. Hard to buy from a Chinese or Indian on the other side of the world. The USA decided to use the H1B Visa program to ‘bring in needed computer programmers’ and as a result I’m unemployed. Not exactly a big help… But the cost of a computer programmer in Silicon Valley has dropped. Even if you can’t quite understand what they said… Then the folks using those programmers either went out of business or moved to China (and some actually moved to India). Leaving some of THEM unemployed too.

    (No slam on them. They are generally decent folks who are pretty good at what they do. A bit short on practical experience, but workable. About C+ to B- work most of the time – which is quite acceptable to most companies if cheap enough – and the occasional A+ in the mix. My only complaint, really, is that the H1B visa was supposed to be given out ONLY if no domestic labor was available and I can assure you lots of us were available; just not dirt cheap…)

    So where has the world got to?

    Low cost shipping makes it cheaper to ship Australian minerals to China and ship back tin pots and TV sets than to pay folks in Australia to make them. More folks in Australia end up on the dole, and taxes are increased on the remaining companies and workers. This makes, for example, mine pit workers expensive enough to pay for robotics. At one open pit mine there is now a completely robotic Giant Truck (about the size of a house) carting ore to the trains. There is exactly ONE worker in the pit. Running a giant shovel. That job, too, will fall to the robots. There were just more truck drivers than shovel operators. There is now also a robotic train in trials. In very short order, there will be exactly zero labor between the dirt and the loading dock into the ships to China. ( I expect dock workers unions to keep at least one guy standing around to push the ‘start’ and ‘stop’ buttons… but ‘shipping containers’ exist largely due to the union labor costs of loading and unloading ships as a bypass of that problem… so even the good returning from China have little local labor to unload them).

    In the end, Australia has farm goods to export (also being automated …) and minerals and not much else. They, like Greece, have a tourism “industry” and a Billion Chinese can likely keep it pretty busy. But enough to support all the people of Australia? Hmmm…..

    In a Nationalistic world, each nation would do things to protect its national character and security. That can be tariffs or it can be quotas or it can be things like promoting other industries. It can even be “just letting the market work”. Most often, it is letting the exchange rate float until, for example, the Aussie Dollar is cheap and those workers in China are expensive. China uses an exchange rate peg and mercantilist policies to assure that doesn’t happen…

    Most often, the end game of that is war. Sometimes it is an ‘economic war’. Others it is armed conflict. But eventually the losing society gets grumpy enough that the people demand SOMETHING be done. Liebensraum was the policy in Germany. Basically deciding to just take land and resources from the neighbors. Empire was what Britain did for a long time. Using gains from one exploitation to expand into another. In the end, the empire fell to folks desires for freedom and a Britain too weak after W.W.II to assert their dominance any longer.

    So we’re likely to see an eventual Chinese Empire, and then the eventual collapse of it; but with a few wars along the way as they gain, and then lose, turf and influence. Somewhere along the line folks in the EU / USA / etc. will decide that feeding China (food, resources, money) is A Bad Thing and will try to stop. Will it be a war? Will it be via tariffs? Will it be via endless handwringing at the UN leading to nothing? Or will it be via selling everything to the Chinese and learning Mandarin? That is “to be determined”.

    What is quite clear, as you observed, is that “The Industrial West” can not long survive if it is no longer industrial. It will not long be an “Economically Advanced” society once the money and factories have moved to China.

    Eventually China will have some major issues. For starters, it needs to transition to internal demand led growth now that parasitizing the west is playing out. It also has a large Demographic Bomb of its own to deal with. Will it be a success? Nobody knows. I hope so as I think the Chinese people have had way too much suffering over the last couple of thousand years. Eventually they must abandon the mercantilist policies and the currency peg (as the alternative is a desperate and dying EU and USA bombing them into rubble as a last act…) but don’t expect that to happen until we in The West are at the bitter end.

    FWIW, in a free market, most of these problems go away. (No, it isn’t perfect, you get other problems instead…) So, for example, we have Minimum Wage Laws. The intent is noble. Make sure everyone gets a fair minimum wage. The current version is the push for a “Living Wage”. Everyone earning a wage ought to be able to live on it. (This ignores that often the person is a kid getting a first job or a person with a retirement check looking for ‘fun money’). The problem is pretty simple: ALL Minimum Wage laws assure that folks lose jobs.

    There are lots of things that just do not make a profit if the costs are too high. Labor is a significant part of costs. Make the cost too high, either the job gets automated, it moves to a lower cost place like China, or it just doesn’t get done. “Too High” can be fairly low…

    So back at those mines… IIRC the wages of a truck driver benefits and all were somewhat near $100,000 ( don’t remember if they were US or Australian mines.. or dollars). At that price, the robot research paid off. At $10,000 / year nobody would even have bothered to look at it. At some in between point you get in between results. Giant Trucks instead of small ones and more drivers… we passed through that stage a few decades back. So in a free market, you have, generally, full employment. Just at cheap wages during recessions and with lots of turnover of folks who demand high wages being replaced by more desperate folks, then.

    The trick is to find a middle ground where you keep the employment, have SOME adjustment of wages and benefits, and stabilize the turnover during down cycles of business (but do not prevent it). Labor movements and parties and unions all push toward the high wages, stagnation of labor pool, and profit be damned point of view. The inevitable result is lower employment, higher automation, and more work flight to other countries. Capitalists always push for minimum costs, maximum ‘flexibility’ – meaning let me fire their asses and hire desperate folks on H1B visas from Guatemala and Hyderabad for nearly nothing, and work rules that let work place injuries be paid for by someone else. An ideal world balances those two against each other to a fair middle. Nobody lives in an ideal world.

    So eventually China will be “modern enough” and the price of Chinese goods will start to rise. Then the question is just “will the west still exist?” Or will we be dependent “4th world” countries asking China for some welfare loans, please? ( Rather like the USA today asks for about $Trillion from China to as to avoid dealing with our spendulus problem…)

    No, I don’t have a good answer to that. It depends on facts not yet known. Like how our political hacks will behave. In a smart USA world, we would inform China that the Currency Peg was not acceptable and that we were going to “symmetrical tariffs and rules”. They have a 20% duty on, say, car imports, we put a 20% duty on their manufactures imports. They have 51% China ownership / partnership, we mandate 51%. etc. Yes, it would be a trade war. (Remember that statement above about ‘ends in war’…) The only question, really, is WHEN we do this. While we still have some ability to survive, or after we’ve already lost? China has not responded to “moral suasion” nor any amount of hand wringing and nattering, nor will it.

    Our politicians want that $Trillion Chinese Credit Card and our companies want cheap Chinese Goods to sell. There isn’t a ‘constituency’ with the stomach to stop the rot. So it will play out to the inevitable end. Economic unsustainability and collapse. Then we will be desperate enough to do something.

    In essence: Economics is called “The Dismal Science” for a reason. It is simply the nature of it that there are choices between “Bad and Worse” as the norm. So you can have a “Living Wage” for about 1/2 the population and the other half unemployed, or you can have full employment but with about 1/2 the people in modest poverty (but with a job). Raise pay too much, and your economic base moves to a cheaper place. Raise it everywhere (or in an industry that can not leave like mining) and you get capital substitution for labor (i.e. robots and machines) and again have most folks without a job.

    So, in summary: Yes, you have identified that “it sucks”. It will continue to suck. The nature of the suckage will change and exactly who gets the worst sucky parts will change over time, and that makes it interesting to watch. There is no “everyone wins” solution save one. Oh So Slowly over time technology advances. Economic growth runs about 3% / year from that. Over time the “sucky 1/2” is raised about 3% / year. For many in the west, our “poverty level” is a rich lifestyle compared to those who did not take the technology path. So in the very long term, 3% compound growth gives us all a decent life style.

    The problem with that, of course, is that folks like the Agenda 21 folks want to stop that growth and politicians want to tax that 3% gain and spend it on consumption instead of investment. Only if the folks who do investing (be they western capitalist investors or Herr Commissar of National Investments) get to put that growth into compound growth do we advance. History shows we do that for about 50 years then have a giant war and blow it all up and get to start over. Sometimes it is even larger economic collapse caused by nature and exacerbated by governments (such as the fall of Byzantium to the Muslims as the world turned cold) that leads to the destruction.

    So if you can find a way to fix that one little problem… get politicians to be honest and moral and act in the best interest of their people; prevent competing cultures from wanting to take by war what they can not get by work; saving investment money FOR investment, not consumption: Do that, it’s not so sucky…

  31. E.M.Smith says:

    I probably ought to add to the BobN comment that an example of the same problem in the era of sailing ships was the USA vs Britain. We wanted to use our large forests to make manufactures like furniture very cheaply and sell them in Britain. ( And things like ‘pitch’ too). The British established industries didn’t want the competition. A bunch of laws against the USA were passed.

    The end game was a few wars and a revolution… and eventually collapse of the British Textile and Furniture industries (though it held on via Empire and force of arms in other places for a while – like India – where the salt and spinning revolution waited until Gandhi and the modern era. Still, a lot of lives lost there, too).

    @Adolfo:

    It is generally a Very Bad Idea to start any comment with “you are wrong”. Please re-read what I said. I’ll make it easy and quote it here:

    Land doesn’t move. So in a true global collapse, the land in the USA, Canada, Australia and South America (food exporting regions) stays in those countries.

    The debt the USA owes is in $Dollars US. IMHO when we have a SHTF moment, it just means we print a bunch of paper and hand it over. Then walk away…

    So are you saying the land DID move? That the dirt was loaded on ships and sent to China or Germany? /sarcoff;>

    In the end, the folks in a country can just repudiate debt, they can make external land ownership illegal, then can nationalize the lands, and they can simply squat on the land, ownership be damned. ALL those have happened, repeatedly, especially in Latin America.

    In a real S.Hits The Fan moment, expect any and all of them to be done. Peasants and pitchforks win over paper held by someone 6000 km away…

    Oh, and one other favorite technique: Institute a “Property Tax” of about 10% / year. Especially on foreign ownership or “non-owner occupied” lands. Basically, they can rent the land from the State for 1/10 / year AND assume full liability…

    But the land is still there. It didn’t leave. Which is what I said…

    So anyone who wants to play that kind of ‘land grab’ game is quite welcome to do so. But the simple fact is that the mass of people in a country can at any time just nullify their ownership via a dozen ways. It’s a very dangerous game. Precisely because the land MUST stay in the country and near the local people.

    @Mike Churchill:

    In general, yes. Trade and specialization means in total more for everyone. But there is a bit of devil in the details. One is that the trade must be free and fair. China has a long history of being less than fair and not very free. Take “Predatory Pricing” as just one example. First you sell cheaply enough to drive the competition out of business, THEN you raise the rates. Anyone tries to compete, you plunge prices and put them out of business.

    So in China there is a one town with a socks factory that was built with government subsidy. It was sized to produce the global supply of socks. Think you can ever compete with that? Think they will be interested in “free and fair” trade with ‘equilibrium’ prices? Or think that instead they have done predatory pricing and will then move to monopoly pricing when the time is right? Theory is one thing. Merchantilism is another. State Sponsored Enterprise based Mercantilism has nothing much at all to do with free market specialization and fair trade…

    But at least we get cheap socks. For a while…

    Then there is that problem that some of the PSST can involve folks, like China or like Standard Oil under old man Rockefeller, that distort what markets would do for optimal results in the interest of private gain. Do we REALLY want a world where the Company Store is rigged so that miners can eat just enough to go into debt more each month? And they are unable to shop anywhere other than the company store? There are Evil Bastards in both government and in industry, and letting either side have a completely free hand results in a bad outcome. (Authoritarian governments of all stripes on one side – Communism, National Socialism / Fascists, Empires, Monarchy, etc. – and Robber Barrons on the other. Or the worst mix of the two, the “Crony Capitalism” of the Socialist Market Economy.)

    Unfortunately, there is no one good answer as the slippery bastards keep finding ever newer ways to avoid the constraints – in government or out.

    So what is needed is enough stability of PSST to allow the orderly and free evolution of markets, and enough government intervention to prevent the Fattest Wallet Wins problem from setting up family dynasties that dominate everyone else in perpetuity…

    @Halfwise:

    Well said. What the EU and USA are doing to themselves is just incredibly dumb. Don’t know for sure, but looks like New Zealand and Australia too. Canada seems to have started thinking straight lately, so there’s some hope. Latin America continues to think that if they pick the pockets of enough folks with money everyone will be rich… and flirt with Socialism for the umteenth time even though it always collapses under them. Sigh. Oh Well….

    Have I mentioned lately that economics is called “The Dismal Science” for a reason?

    https://en.wikipedia.org/wiki/One-child_policy

    Started in 1978. So 60 years later you have most of the workforce as singletons supporting 2 parents each ( modulo those that die off). 2038 or so. Likely to be problematic even as the generation from the 60s is leaving the workforce. Call it about 2020.

    So I’d say they have about a decade of “lots of workers, not many kids” before they start to become “lots of old people not many workers”…

    @Mark Miller:

    An interesting idea, but a bit simple. Maybe I’ll do a posting on Fractional Reserve Banking…

    Just 2 quick points:

    The Central Bank is the only bank that has no limit on how thin it’s ‘reserves’ can be. As a consequence, it can lend any amount, on any collateral it likes, and create any quantity of “money” (common usage, not strict ‘store of value’ meaning). So you have to divide your discussion into Central Bank vs Other Banks.

    In a Fractional Reserve Bank, say I loan to you $1000. You accept my loan, but until you spend it, put it in a checking account at my bank. I can now loan out most of that money again. (The exact amount depends on the ‘fraction’ that must be held in ‘reserve’. So say it is 20% in this case. Reality is often more like 5% to 10%.) So I can now loan out $800. That can be deposited… and I can then loan out $640 .. that gets deposited… repeat…

    In the end, about $5000 is created in the form of various deposits and loans.

    Now normally that loan would be at a positive interest rate. BUT… Denmark just issued bonds today at NEGATIVE 0.8% interest rate ( it’s a long story) and The Fed is presently doing loans to other banks at 0% to 0.25% interest. So there isn’t really a requirement for a positive interest rate. Just deposits and loans.

    But to your points:

    Yes, “Fiscal Union” is being touted as the “cure”. Though it isn’t. It’s about as much a “cure” as The Fed and all the Porkulus has been a “cure” for California…

    But Germany wants to try again for a New Holy Roman Empire with it in charge. A Greater Germany with minor serfs in places like Spain and Greece. It won’t work, but that has never stopped Germany from trying… “This time for sure!”…

    They can integrate it all they want. When things stay bad (and they will – the basic economic drivers have not changed) it will just break up again. Maybe this time without a World War… and only a modest Continental War rather like the rest of the last 1000 years of history…

    IMHO the German push to Green Power is to deal with 2 problems they have:

    1) Massive issues with oil import costs. If they can eliminate that, things are better.

    2) As long as the ROW can use coal and oil, they are not competitive using things like wind and solar… so they need to hobble the rest of the global energy infrastructure to be able to sell stuff made with incredibly expensive non-oil non-coal…

    Also you need to add to your model that Socialism didn’t go away with the collapse of the USSR. Yes, we defeated the National Socialists / Fascists in W.W.II and they shut up for a few decades (and a load of them moved to Latin America taking their ideals with them… so Argentina has been an economic yo-yo ever since) but then the Cold War had things a bit stagnant for a while. Eventually the USSR imploded and China toyed with markets.

    But….

    They didn’t just give up and become market libertarians.

    They just morphed into “Market Socialists”. East Germany integrated with West and they are a “Market Socialist” country. Better run than most, but still, that’s what they are. The UK slowly sank into Socialism with a brief respite under Maggy Thacher. And a long slow push to “Socialize” the USA was begun by the Progressives (who got spanked after W.W.II, but also did not go away). So we had “Liberals” pop up as the reincarnation (stealing the word of the Classical Liberals who were NOT progressive socialists…) as they slowly pushed toward a Socialist Agenda.

    Much of what is happening today is a direct result of those Closet Socialist activities. Socialized Medicine (that’s what we’ve got now, if Obamacare is upheld). Socialized education. It’s a long list.

    So some significant part of “the problems” are a direct result of our slow drift to the Socialism Shiny Thing… One sparkling faux bauble at a time…

    More in a bit, I need to take a “spouse wants attention” break ;-)

  32. Mark Miller says:

    @pyromancer76:

    Let me put it this way. In terms of politics, I have hope for the Tea Party. I think their heart is in the right place, even though they have their moments that make me feel like “facepalm.” For example, I keep hearing that most people sympathetic with the TP don’t want Medicare cut. Well, if we’re going to reverse the course of our “debt bomb,” that’s one of the first places any rational person would look. I also got worried a couple years ago when it appeared that a significant number of TP sympathizers were distracted by the whole “birth certificate” issue re. Obama.

    @Mike Churchill:

    Agree with you re. Romney. I felt this about the whole Republican field of presidential candidates, with the exception of Ron Paul. The only one (to me) who came anywhere close to sounding like someone who had their national/international priorities straight was Santorum, but because of his religious convictions, he felt compelled to press for “social reform,” which creeped me out. None but Paul seemed to think that Priority #1 was getting the concept of federalism, that they needed to get the federal gov’t’s house in order, get it out of our lives, and leave everything else to the states.

  33. E.M.Smith says:

    @Oldtimer:

    Interesting stuff… I’d not known that Germany had done such market reality oriented changes to their Social Welfare system. That explains a lot of loose ends…

    @Pascvaks:

    Interesting perspective… I’d add to it the case of The Titanic.

    In many of these Ships Of State, IMHO, the person at the top actually believes the bullshit they have been told. That their ship is unsinkable. That they have so many isolated flood proof chambers that even if they hit an iceberg it can not sink them, that bailouts will work.

    So they are steaming “Full speed ahead” even in waters with icebergs… filled with false self confidence. Confidence that will not be shaken until well after the lights have gone out and the stern is rising as the bow slips into the water…

    It may take courage to “confront your problems” and fix them; but before that it takes humility and awareness to recognize that they exist at all…

    IMHO far too many of the Political Class have a dance card they are dancing too and simply are unaware that the dance floor and the ship it is on “have issues”….

    @Pyromancer76:

    From your keyboard to God’s eyes ;-)

    I, too, have hope in the basic fundamental Joe and Jane Sixpack nature of America to “get it right” and “get ‘r done”. But it’s just that we’ve got an ever larger Ruling Elite that are just incredibly inbread intellectually and and ever larger Government Agency Inertia. So I wonder if it hasn’t reached a point where it simply is too large to change.

    IF even one major boondoggle new agency created by any President since Kennedy was put on the chopping block wholesale and killed off, I’d have a lot more hope. Don’t care if it is Baby Bush and the Drug Plan, or Obamacare, or Tricky Dick and the EPA, or Carter and the Department of mis-Education, or …. We can live quite happy lives with any of them gone. But none ever just ends. They just pile up, deeper and more costly and slowly strangle productivity while sucking the economy dry.

    Just the fact that Nat Gas is below $1.80 / Gallon of Gas equivalent and we don’t have nat gas power being pushed all over the place and are not telling Arabs and OPEC to go pound sand is an amazement to me. We ought to be building “Gas To Liquids” plants on a “one a month” basis; instead we’re sending folks to Rio to Party Party Party… and talk dirt about nat gas and fracking. Just crazy.

    So I’m “hopeful you are right, and have a nagging doubt”…

    Then again, tonight I had “Smoked Salmon” from the smoker, using propane, not regulated electricity from my “Smart Meter” tattle tale… so maybe the average Joe will just “flow around them”…

    I would love to see us tell the UN to “stuff it”, but that’s just not going to happen. Too many vested interests and too many entanglements already. The only cure for the UN is, unfortunately IMHO, a global collapse. One in which I’d rather not participate. We’re stuck with that particular class envy and communist / socialist dominated albatross for all foreseeable future. Best we can hope for is to cut our funding to it.

    BTW, I’d say that “It is inevitable that there will be a war”… except that we’ve already got a dozen or so of them and have had for as long as I can remember… so it would be a bit self serving to use a tautology that way ;-)

    I’m pretty sure that between the Muslim World and essentially anywhere around their periphery there will be ongoing wars. I’m also pretty sure that eventually Islam vs Israel blows up into a nuclear exchange. Just a question of when both sides have nukes. It’s also pretty much “baked in the cake” that China vs “Nearby” will “have issues”, though China will likely play smart and have such overwhelming power that when it makes the move no one will risk a war with them. (Taiwan will ask to be reintegrated, and not too long from now, decade or so at most IMHO. South China Sea will be settled by a large Chinese Blue Water Navy.)

    It’s the Russia / China dynamic that is unclear in the future, and the issue of The Koreas that is most risky there.

    But it is that Pakistan / India / China interface that’s a flash point waiting for a match. WHEN Pakistan decides to embrace radical Islam openly, that’s when the SHTF moment comes. We’re rather close to that already what with the USA essentially saying to the world “They were protecting Bin Laden and are just lying about wanting to get the Taliban”. The Pakistani response being to ask us to stop going after the Taliban and being peeved at our getting Bin Laden. So watch for more rot there, leading to inflamed passions leading to conflagration…

    Unless Iran nukes Israel first…

    @Kevinm:

    That’s the “Transition to internal consumption led growth” problem.

    As China wins all the marbles, it needs to build up a large domestic consumption base to continue to produce and dominate. If they don’t do that, the system locks up and China has issues as the west slows down. We “lock up” on lack of money to buy Chinese and they lock up on lack of customers. If they can do the domestic swap, they continue to produce, but consume at home, cycling the money internally. Raise prices of external sales (now that they own all the production) and just trade a little money for resources with the higher prices for fewer exported goods covering the resources costs. Doesn’t take much iron in toasters at $30 each to buy a ton of iron ore…

    But they have to execute on that, and I think their timing is off (rather like the EU “Crisis” to force integration tighter had it’s timing off…)

    @BobN:

    There are two things mixed here. Maybe 3…

    One is just “Will a new government be needed?” I think the answer is likely to be “no”.

    Banks collapsing or even monetary collapse do not mean governments fail and cease to exist.

    Even short of that, currency degradation and “collapse” can happen without even a banking crisis. The $US today is worth about 8 cents in terms of the 1960 $US that I used then. (It was silver ;-) Did anyone really notice the near complete collapse of the $US?

    Many governments around the planet have issued whole new currencies and simply abandoned the old ones, without change of governments.

    So I think the basic premise is not shown.

    But, as an unlikely hypothetical:

    IFF The US Government failed and was to be replaced, how would it be done?

    Take a look at the Continental Congress and how it was done then. Very similar. Bunch of folks claim to be representing the people. Draft a new constitution. Get it voted and agreed to. Or take a look at Egypt doing it right now. They are having an argument as the Military say they are in charge of setting up the Constitutional committee, while The People are grumpy and saying their elected new parliament ought to do it. Eventually one side wins and they appoint the new committee to draft it. Then a vote to accept it.

    For the USA it would be even easier. As the US Federal Government is a creation of the States and all it takes is for the several States to change their mind about what government THEY want for themselves. Get a quorum ( over half? 2/3? whatever the law says) to call a Constitutional Convention and they can make whatever new government they so choose. Just draft up the constitution and have the States ratify it..

    http://www.law.cornell.edu/constitution/articlev

    Looks like it is Article V:

    The Congress, whenever two thirds of both houses shall deem it necessary, shall propose amendments to this Constitution, or, on the application of the legislatures of two thirds of the several states, shall call a convention for proposing amendments, which, in either case, shall be valid to all intents and purposes, as part of this Constitution, when ratified by the legislatures of three fourths of the several states, or by conventions in three fourths thereof, as the one or the other mode of ratification may be proposed by the Congress; provided that no amendment which may be made prior to the year one thousand eight hundred and eight shall in any manner affect the first and fourth clauses in the ninth section of the first article; and that no state, without its consent, shall be deprived of its equal suffrage in the Senate.

    So looks like get 2/3 of the State Legislatures to say “We want a new one” then get 3/4 of them to agree to the new one.

    Of course, if you are looking for some extra-legal procedure, who knows what that would be.

    For that you likely have to look at how the Confederate States structured their exit and ask if it would be legal. Then you could have a hypothetical ‘break up’ and reforming into something new in a piecemeal process.

    Don’t think that will happen though. Way long shot. Long before then most average folks would be wanting stability more than anything else.

    Hmm….

    These folks: http://www.texassecede.com/faq.htm

    do a fair job of looking at the question of “Can a State leave the Union” and I’ve got to admit, they make a good case that it is legal to do so (despite a Supreme Court case that looks to say the opposite – which they cite).

    My reading of the Constitution agrees more with theirs, too. How can a voluntary association at the Will Of The People not be dissolved by the Will Of The People?…

  34. Jason Calley says:

    @ E.M. and all the rest

    I find this to be one of the most thought provoking threads I have read in a long time. It is chock full of really deep insight and thoughtful opinions — even the ones I sort of disagree with. Thank you all! Forgive my following brevity of response, but I am under a time constrain right now and not able to write in more detail.

    “The intent is noble. Make sure everyone gets a fair minimum wage.”
    The word “fair” means one thing in common usage, but something different in political speech. There it means, “in accordance with the desires of highest paying lobbyists.”

    “Economic unsustainability and collapse. ”
    Just as with a depression, there is no cure for a collapse. On the contrary, the collapse IS the cure.

    “In the end, the folks in a country can just repudiate debt, they can make external land ownership illegal, then can nationalize the lands, and they can simply squat on the land, ownership be damned.”
    Only if the people have an army that makes fighting more expensive than the property in question.

    “How can a voluntary association at the Will Of The People not be dissolved by the Will Of The People?…”
    Lysander Spooner wrote very concisely on the subject in the 19th Century and takes it even further, down to a personal level. Recommended reading, but a bit extreme when measured by current cultural norms. http://lysanderspooner.org/node/44

  35. There are also some underlying problems in maintaining full employment. For any particular manufacturer, they can reduce costs, increase market-share and thus make more profits by either automating production or reducing the man-hours involved in making something. Even at low pay-rates, this can be an advantage, by reducing failure-rates. Businesses that do not take advantage of newer methods will go out of business. As technology advances, therefore, fewer people will be required to do the work of making things for everyone else to use. Whereas it used to be that one person could make enough “stuff” to sell to keep (normally) his family fed, now that same person can produce maybe 10 times that (insert your own figures here). How do the other 9 or so people, now out of a job, make their living? In some ways, there are new things to make/sell, so the effect is not quite as bad, but the increase in productivity must mean overall that less people are gainfully employed (producing things) and more will be employed in advertising, legal work, government work etc. that does not have a saleable (or maybe even useful) product. The taxes, both obvious and hidden, on the productive cadre must increase to spread the buying-power among the “unproductive” people. Take this to the extreme where all production is automated, and you’ll see that in that case production would be 100% taxed in fact, even though most of the taxes would be hidden. What’s left is only service industries.

    Exporting the jobs to China is simply one part of this equation – a bit like going into fully-automated production but using people somewhere else rather than machines locally. While the change is in process, people can make profits because the local citizens they are selling to have productive jobs, but once all the local productive jobs are eaten away, where’s the profit going to come? You can’t sell the product since jobless people can’t pay.

    We are currently in a transition time, but the pace of the transition is getting faster. I haven’t seen any real thinking on this, other than in sci-fi. How will the automated-production products get distributed amongst the consumers, and how are they going to pay for it if they have nothing useful to give back? Trading requires a buyer and a seller, and something of value for each party to give in exchange. Maybe I’ll give you two goats and a sheep for that Ipad. I feel that such a situation will exist within the next 50 years or so, and possibly less. This will be a major destabilisation of world and local politics. Money as we know it may well disappear, and maybe the only productive jobs left (maintaining the robots that produce things) will be fought over.

    Is Greece simply the harbinger of what’s to come to the rest of us?

  36. adolfogiurfa says:

    It´s the NOVUS ORDO SECLORUM …..the new SECULAR order…mmmmm, my guess: These guys won´t succeed, at least in third world countries, in older cultures, usually people use to cheat the cheaters….

  37. adolfogiurfa says:

    BTW: The TRADITIONAL ORDER it is printed in all our cells, even the most sophisticated and monstrously childish chip won´t change it.

  38. Pascvaks says:

    More Thoughts-

    Think about Long Island New York as just a place where some rich people like to live. What do the traditional, everyday homegrown natives do? They cator to the rich residents. Think about Greece as a place like Long Island, and the native Greeks as Long Island homegrown natives who cator to the rich residents. Now, I wonder where all those rich residents come from and how Greece and Long Island can attract some more? Without rich residents and tourists things kind’a contract and go back to nature real fast don’t they?

    How to build, or grow? That is the question!
    Tis easier to contract and build in a free society
    than to build and build and build forever.

    What makes it smart, prudent, ‘easier’ to grow than not?
    Some seem to think that it’s all about population growth.
    The more people you have the more you have
    the ability and reason to grow. I wonder?

    Need seems to inspire inovation.
    A bridge to no-where is an expensive waste.

    What are the needs of 21st Century Western economies?
    Socialized medicine? Big Brother government?
    A chicken in every pot? A Welfare Credit Card in every pocket.
    How about we all start building pyrimids to bury
    great Presidents and Prime Ministers?
    That would be something to do.

  39. Pascvaks says:

    Still more thoughts –
    I ask you to remember back to days of yore, and to correct me with your wisdom, knowledge, experience, and acquired skills:

    Remember back to small town wherever. Pretty much everything that happened was all done by locals. The Coke or Pepsi plant was local. The movie theater and newspaper were local. You didn’t have some National Giant Hardware Store Chain named Lowes and you certainly didn’t have another named HomeDepot right across the street. Pizza was local, hamburgers were local, laundromats were local, Tv and radio stations were local -if you had one. Now where is everything made? It certainly isn’t made by locals. All the locals are is spenders and shelf stockers, oh yes and cashiers; customer service is where you turn something in, you don’t get service. Gas stations were run by a guy who knew how to fix anything and maybe sold a candy bar, soda, a map, and cigerettes.

    Why do we need Walmart? Lowes? HomeDepot? A National chain of Drug Stores that don’t sell, much less know how to make a Sundae, and don’t have delivery jobs for 10 year old kids. There were plenty of jobs out there America, but we threw them away, remember? That Interstate system didn’t help. And $.02 soda bottle deposits, why did we go to stupid cans, I could live on soda bottle deposits (when I was 8)?

    Like everything else in life, things fall apart and life changes. Now were scratching our heads and wondering where all the jobs went and why everything is made in China. Seems it slipped through our fingers. Remember “Back to the Future”?

  40. Kevinm says:

    Once China sets loose internal consumption, the mercantile jig is up. A few years after exports drop 20 percent from peak, they will be a net importer. As you noted, their education system is good but not great. Their culture is also not moralistic, particularly with gambling and lies of omission. How will they behave when introduced to Visa and MasterCard en mass?

    The dictatorial, ruthless government will stop that? Not if they want internal consumption. One or the other, not both.

    You argue that by that time they will have all the marbles, and a near monopoly on production. It only took a few decades to offshore a huge percentage of US production. It will be faster to move it Elsewhere. That is a skill that un-nationalist forces have developed.

    Not saying any of that benefits the US. I just think you are giving the Chinese machine too much leeway. Though surely they are winning, and probably the world will react (or fail to react) like you describe, I believe their internal problems will be bigger and sooner than you seem to.

    Thanks for your blog, I love the articles and the comments section.

  41. Pascvaks says:

    More thoughts:
    (This probably won’t come out right, so don’t anticipate;-)
    Still thinking about small town America back in the 50’s and 60’s (yes, I know it wasn’t “The Best thing since sliced bread.”) and wondering what made it better than today as far as jobs and crime and “all that other stuff”. One aspect was local production, factories were closer. If only the Chinese have factories what good is that if you don’t live there? Seems there’s one of those “smart” limits that governments are supposed to impose on a ‘free’ system in order to check abuse and worse here. Might it be a restriction on the ‘size’ and ‘footprint’ of corporations involved in interstate commerce (and need I mention International Commerce too)? Might a limitation return jobs to this country? Might tariffs on goods actually create more jobs at home. It’s an old argument, I know, but it does seem to come up whenever Americans and whoever are out of work and going to Walmart to by Chinese, Mexican, Vietnamese, Cambodian, and India anything.

    Might we in the West have reached the point that most goods and services should be made locally, just go give folks something to do? At least it would ‘check’ and maybe ‘checkmate’ the international corporate SOB’s from ruining economies just so they can pump more into their Swiss Bank Accounts. Right? Am I making any sense? It’s a hand on the throttle kind’a thing, a ‘check’ on the riot of anarchists out to get everything they can. Maybe, once again, we’ve gone too far, too fast, and we need to step back a step or two from the ” Church of International Free Trade”?

  42. BobN says:

    Free trade is a good concept if implemented properly, everyone gets goods at reduced prices. The big problem as I see it is the US seems to always negotiate themselves a weaker trading position, that and they don’t properly enforce the terms of the trade agreements.
    Take NAFTA for example, the US made an agreement that the US could sell Chickens into Mexico without Tariffs. The big producers like Tyson were all geared up to sell their chickens into Mexico, but Mexico screamed at the last minute that the poor farmers could not compete with the low prices and the small farms would be hurt. The US waves the terms of the treaty and allows the Mexican Tariffs to stand, all for the humanity of the poor Mexican farmer. If you look at NAFTA, there are countless examples of this repeated over and over with every country we deal with. We continually allow our citizens and our business to be put at a disadvantage. We live with the terms that give the countries an edge selling to us, but we back away from enforcing the terms that helps our business. There is a big list of products from every country in NAFTA that we do the same thing with. We as citizens would be better off without the treaties the way they are presently being upheld.
    We are the only country that gives money to another country to allow them to better compete against us. We give money to Brazil to help them fund deep water oil exploration, at the same time we hold permits from being granted on our offshore. The rigs sitting idle are then sold to Brazil and Saudi Arabia. When the permits are then given, its to late the hardware is gone and no drilling will happen. We bleed jobs in manufacturing and “Rape” the taxpayer citizen for stimulus money to energize our economy. So what do we do, we take the stimulus money to help GM open a motor assembly plant in Mexico, we fund a car company in Finland (Fiscar). We outlaw incandescent lights so our factories are shut down and the new products made by GE are subsidized to open in China.
    If you step back and look at our government in action, you come to one conclusion, every one in charge is crazy. What they are doing makes no sense to a sane person. With decision making like this we have one way to go, down and we are doing that nicely!

  43. Mark Miller says:

    @Pascvaks:

    I looked back at the 50s and 60s, and the situation of the world at the time occurred to me. Think about it. Post-WW II, most of the developed world was a basket case. Europe was in shambles. The Soviet Union had been screwing itself for a long time, and it still was. China had just become a communist nation. In the 60s it was going through its cultural revolution. Japan was decimated, and going through reconstruction.

    The only developed countries that were left relatively untouched were the U.S., Canada, and Australia. Undoubtedly the rest of the world looked to these places for know-how, infrastructure, and material for their reconstruction. That must have been a boost to our economy. Once these places recovered, and started selling their own products, our competitive advantage decreased. Eventually some of them developed their own relative advantage. In Asia they developed mercantilist policies to exaggerate that advantage. It seems to be their specialty.

    I agree with BobN that we don’t press our advantages. A realization I made years ago was that we use our trade policy for political reasons, not economic reasons. Our elite got it into their heads after WW II that our trade policy fanned the flames of war such that it reached our shores. So now they use trade policy as a way to “win friends and influence people.” Plus, I think they have it in their heads that, “We’re a strong nation. We can take the hit. Yeah, some people will lose their jobs, but they can retrain for other jobs. We’re a generous country.”

    Part of the problem I see is that we make it expensive to hire people. We put requirements on employers to pay for their health insurance. We put regulations on them to govern how they treat their employees, some of which I approve of. We require them to pay unemployment insurance premiums, which have gone up a LOT in the last couple years, with the endless extensions our government has put on the program. We require them to pay workmans comp. We raise the minimum wage, etc. It’s become cheaper, particularly with our low interest rates, for business owners to buy machines to do what humans used to do, or offshore the jobs to someplace with a lower standard of living and lower regulation and taxation, just so they can avoid the overhead. Some businesses have figured out how to do that in this country. It’s called hiring illegal aliens, who will work for less than minimum wage, who are unregulated, so they don’t have to treat employees the way the government says they should, and they don’t have to pay the required fees associated with regular employees. In short we penalize business owners who hire people legitimately in this country! This is the reason we run into such resistance when it’s proposed that we secure the Mexican border, and try to force employers to verify a potential employee’s visa status. I’ve heard farmers complain that these political moves have forced them to move their farms to Mexico. They can’t afford to operate otherwise.

    We’re told by politicians that employees are being exploited, and so we should force employers to treat workers better, give them more benefits. The more we do that, the more we price ourselves out of jobs. The sad thing is we keep falling for it, though perhaps Americans are learning. I’ve been hearing lately that blue collar workers have been slowly shifting to the Republican Party over the last few decades. They’re bringing some of their old Democratic attitudes with them, which would help explain what I saw in this last primary season.

  44. adolfogiurfa says:

    @Pascvacks: Might we in the West have reached the point that most goods and services should be made locally, just go give folks something to do?
    It´s too late now. You just have signed to comply with Agenda 21 at Rio 2012 Earth Summit.
    The only way out is ” `a la South America´, a Coup d´Etat by military patriots, and that´s impossible. You are doomed to be divided and forgotten.

  45. Pascvaks says:

    @all
    As I said, I probably wouldn’t ask the question well, and this dart may still fail to hit anything: Talking about ‘practical’ limits on BIG, about restrictions on ‘stupid’ (at least as it applies to the people of your own country). If me, you, or anyone, has to buy a widget from a potential enemy, they’ve won a lot of disagreements we probably won’t have the guts to raise. Rare Earth elements anyone? No, I was talking about ‘smart v. stupid’, about practicality over ideology, about living within limits and doing things that don’t spite ourselves. About EM’s many points that stupid is as stupid does and we been mighty stupid in the last 50 years (or more). ‘Letting it be, Baby’? What we have now is not where we need to be, where we’re going, on this road, ain’t bigger and brighter either; and, the kick in the face, we done did it to ourselves. Can the US Congress or any Administration do it, no, both are too “Now!” Can I point to anything like a ‘Smart Central Committee’, no, not in the USof A, can I point to a great book written in the last 50 years that lays it all out in black and white on how to do “it”. No. Just saying, I feel and see a ‘need’; I don’t see a bright idea on how to make it happen. Might a Committee of X’s do something worthwhile? You know, X-Presidents, X-Speakers, X-Majority Leaders, X-Secretaries, and a few X-Generals and Admirals to balance the boat? Probably not. But I still see a need, a BIG one.

  46. Chuckles says:

    You might enjoy this overview, it has the benefit of being more accurate than most of the media spin.

  47. Pascvaks says:

    @all –
    Here’s a dart that might hit: “Where can we buy, get, or steal ‘wisdom’?”;-)

  48. adolfogiurfa says:

    @Pascvaks: We cannot buy or steal wisdom. As any other physical phenomena of our universe, it obeys physical laws. You wouldn´t believe in tuning a UHF station with a AM only radio receiver. This is RESONANCE, so, in order to GET (the only part of your question possible) knowledge, wisdom, which, as anything in our universe, obeys natural laws, we have to achieve resonance with such an information. Obviously it follows that the higher energetic is such an information, the higher its “pitch”, the higher our energy processes within our body must be as to attune with them. “Like attracts like”, or as alchemists used to put it: “In order to achieve gold you have to have gold”, at least a little.

    Thermodynamic laws cannot be by passed….going up is harder than going down…or falling down.

    No addition of zeroes will ever add up a single unit.

  49. P.G. Sharrow says:

    “Wisdom” is knowing the difference between reality and wishful thinking. pg

  50. Pascvaks says:

    @Adolfo & PG
    Given the wisdom I have heard expressed in your kind and thoughtful words I must, therefore, conclude that we are doomed; doomed to repeat the mistakes of the past forever and a day. “A horse! A Horse! My kingdom for a HORSE! I gotta’ get out’a this place if it’s the last thing I ever do!”;-)

    PS: In a way, this brings us to the following observation: Life is not about the big things, fortunes and nations and world war, life is about a million and one little things that only matter to us and those within our inner circle.

  51. Pascvaks says:

    Greece Exits Stage Left
    Germans Consider Return to Mark
    @DrudgeReports
    Things are popping in Europe!

  52. E.M.Smith says:

    @Pascvaks:

    Yes, a large need, but no supply in sight…

    That’s a large part of why I don’t get all that worked up about machinations of those who grasp after domination of liberty. My greatest pleasures are my kids, the backyard BBQ, my bunnies, exchanges with “internet friends”, family events. Not much can be done to damage that…

    So I ought to take a look at Drudge, eh? The link there take me to a page about Germany and football and how Germany beat somebody so Greece is out…

    Not Euro money stuff…

    Or was there some other link?

    @Chuckles:

    Always love them ;-)

    @Adolfo:

    It won’t be all that bad. We won’t be forgotten. Nobody forgets a fool ;-)

    @Mark Miller:

    The fundamental problem is that any productive enterprise has a maximum level of gain. There is some base Return On Investment. Every “take” from that slice moves that particular economic activity closer to a “no go”. At first, “social goods and taxes” can be added to some small degree and not much changes; but at each incremental increase, more “projects” get shelved.

    An example that is pretty simple is making bread. Costs me about 40 cents to 25 cents a loaf to make it at home in the bread machine. Briefly it ran up to $3 – $4 in the stores. I made more at home. I now buy bread at about $1.50 at Walmart or another discount place, but always on the edge of “DIY”. So as more Union Labor gets shoved into a loaf, and more Medical Care and more “Higher Electricity” and more High Oil Prices and more taxes over all; I buy less bread pre-made and the maker of the bread has ever less margin to make it of interest to bake bread.

    Marginal players exit the baking business.

    Eventually even that fails, and folks go back to baking bread in the backyard in a wood fueled oven…

    I also have a grain mill in the garage. If pushed, I’d dig it out and try that ‘making my own’ flour thing again.

    That is a microcosm of how an economic collapse happens. As of now, the economy is on “pause” and the powers that be are trying all sorts of “stimulus” to make it move again; but they miss that they have put too much parasitism into the system for anyone to care. The reason Obamacare causes a halt to new hires is because we are at the point where there just isn’t enough room left in the ‘economies of scale’ of businesses to support it.

    Post W.W.II, the economies of scale were large, the competitive pressures were nil, and the “take” by the government et.al. was not too large. Things boomed.

    Now the competitive pressures limit how much margin is available (for the business or for the government via taxes); while the government ‘take’ is way up and rising (all those folks wanting a fat retirement and welfare). Things are paused. Just a bit more ‘take’ and they collapse as folks toss in the towel.

    Just the way economics works…

    @BobN:

    Yes, what you said is correct. Only one exception…

    It is quite sane if you note that the folks ‘in charge’ are getting rich off the various kinds of money grab they can funnel into their friends, family, and personal investments…

    Corruption from the top down. Personal gain.

    It is only “crazy” if you expect moral decisions and selfless statesmanship…

    @Pascvaks:

    What you are noting, indirectly, is that the counter to Chinese Mercantilism is to institute counter mercantilism. Yes, we need to be more ‘protectionist’ and have ‘symmetrical rules’.

    We also need our politicians held to strict account, but I don’t think it will happen. Too much TV in the face of the voters…

    @KevinM:

    I could well be giving them a bit too much ‘benefit of the doubt’. Then again, I’ve worked with and for several folks FROM China. I know how they think and how they operate. It’s a very hard game to beat if you have asymmetrical morality… and I’m seeing no indication that we are doing what needs to be done or are even 1/2 as good in the negotiation game.

    I do expect them to have their own failure, but I think it waits for the One Child Bomb to go off.

    I could be wrong, though. Some social pressure are building internally.

    @Pascvaks:

    On the question of local production:

    There is a balance between “economies of scale” and “transportation costs”.

    As transportation costs rise, it becomes more economical to use a smaller local plant with less economies of scale.

    Unfortunately, loading on a bunch of Social Costs via taxes and regulations tilts back toward large scale enterprises and more “external production” where the transportation costs are now less than the Social Costs in the fees, taxes, and regulations.

    So we could easily go back to a world where production is local. Raise transportation costs via higher fuel costs. Put some import rules and maybe even ‘countervailing tariffs’ in place to prevent predatory pricing from abroad. Reduce the tax and regulatory burden. No problem.

    Don’t expect it to happen short of a collapse that does a reset on the Federal Government, though…

    @Simon:

    Greece is a possible model, but not the only one. Get the government “cut” down to about 10% and have a flexible exchange rate, things would recover nicely.

    @Jason:

    Thanks for the link. May take me a bit to get to read it.

    In the ex-Soviet union, many of the soldiers swapped sides with their gear… A tank can be taken out with a large chunk of wood / metal in the treads and can of gasoline.

    Good point about “fair”. I need to start keeping “2 Dictionaries” for several of those “code words” too… Sigh…

  53. Sera says:

    @ Chuckles

    Those guys are hilarious. Here is one of my favorites…

  54. Pascvaks says:

    EM-
    I was punked by the headline at Drudge and opened my fat trap before I filled my eyeballs and loaded my brain. So soddy;-)

    But there is something about the incident that reminds me of something rather human when viewed in retrospect. Things can happen quickly, can be ‘anticipated’ by some and can still surprise all. Rather than a fooseball game… etc., etc., it wouldn’t really suprise me if everything collapsed overnight, but then again it sure would. Even when we expect the worst, a lot of times we’re still knocked off our feet when it happens. The biggest ‘advantage’, maybe, that those who expect something are quicker to recover their senses than those caught flatfooted. Maybe?

    The older I get the more human I think people are. No wonder I keep getting depressed. Just imagine if the greatest and smartest people who ever lived, the Founding Fathers, had been human? I’d lose all faith in humans if that were true, I don’t think I’d feel we stood a chance, I think I’d feel like I was in an episode of The Twilight Zone. Oh well, like The Bible always says, have faith. One thing we can be sure of, the end won’t come by water. He said He wouldn’t do that again, didn’t He?

    Life’s a Beach!;-)

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