Decline of the Empire

A Flatland View of The Human Future

In an article published last year in Scientific American, Caleb Sharf, the director of Columbia University's Astrobiology Center, talks about The Unstoppable Extinction And Fermi’s Paradox.

There has been a lot of discussion recently about the evidence that we are currently within a period of mass extinction, the kind of event that will show up in the fossil record a few million years from now as a clear discontinuity, a radical change in the diversity of life on the planet. This Holocene extinction (or sixth extinction) seems to have started around 10,000 years ago with the disappearance of mammalian megafauna, and appears to be continuing - or restarting - in modern times, with theoretical estimates of as many as 140,000 species currently going extinct per year.

That this all coincides with the 'rise' of modern humans and our measurable impact on the planet - from rapid climate change, to our severe re-sculpting of the physical, chemical, and biological structure of the planetary surface - strongly suggests that this extinction event is causally related to our activities.

It's sobering, guilt inducing, and rather depressing. But it also brings into focus some rather profound questions about the nature of the survival of a species, and the notion of preserving or maintaining the 'natural' status quo...

So far, so good! Unfortunately...

Archimedes' Lever

Give me a lever long enough and a fulcrum on which to place it, and I shall move the world
   — Archimedes

I went to my local bar last night with a blank piece of paper and a pen. I jotted down some notes.

ultra-social monkeys telling often self-serving stories

highly defended against threatening realities, including of course realities which reflect badly on them

since these monkeys are such fuck-ups, there's no end to painful, disgraceful realities that have to filtered, covered up, or distorted beyond all recognition

And so on. Then I got drunk. I really should finish that 4th Flatland essay. In that draft I call those self-serving stories humans tell themselves congruent outputs.

When I got up this morning, reluctantly, I saw that the Yale economist Robert Shiller had an interesting piece in the Times about humans telling themselves self-serving stories. It's called Rising Anxiety That Stocks Are Overpriced. 

The average CAPE ratio [in the U.S. stock market] between 1881 and 2015 in the United States is 17; in July, it reached 27. Levels higher than that have occurred very few times, including the years surrounding the stock market peaks of 1929, 2000 and 2007. In all three of these instances, the stock market eventually collapsed.

Yes, there's a bubble in the stock market. In previous instances, which are rare, the stock market eventually collapsed. Two of those collapses occurred within the last 15 years. And yet, Americans have convinced themselves that this Fed-created "new normal" is a really good idea.

What did Jesus do? He wept.

If you want more details about Shiller's CAPE ratio and history, read his editorial. Those are the facts, but Shiller wants to talk about the psychology of what's going on in 2015. And of course that's exactly what we should be focused on.

The U.S. Economy Sucks, So Don't Raise Interest Rates

There's been an interesting development these last few weeks. The Fed has threatened to start normalizing monetary policy, hinting that they might raise short-term rates by 25 basis points (1/4 of 1%). Some normalization!

But normalizing monetary policy in our abnormal "new normal" scares the bejesus out of lots of people who have benefited from the current arrangement, or those who believe Fed policy has provided substantial benefits to the broader U.S. economy (i.e., the official jobless rate). Among the latter, a contradiction arises because these people are now forced to argue that the U.S. economy actually sucks, meaning that if the Fed "tightens" now, our lousy economy will be put at further risk. But if Fed policy has actually substantially benefited the broader economy, why does the U.S. economy still suck?

I assume you see the contradiction, although with so many humans being so utterly incompetent to understand anything about themselves or others, I should not assume anything.

Before I quote Larry Summers, who has lately been the most vocal of those urging the Fed to hold fast, let's make sure we all understand the bottom line.

The U.S. economy has sucked since 2008 and will continue to suck if the Fed does nothing.

If the Fed boosts short-term rates by an insignificant percentage, the U.S. economy may suck more than it already sucks.

That's what this rate hike debate is all about. Summers explains why the U.S. economy may suck more if the Fed boosts rates.

The "New Normal" Was Never Normal

There is chaos in global markets. I may post everyday because finally something is happening. Something any reasonable person expected to happen. The only mystery is why it took so long. I never thought this central bank reflation nonsense was going to work, and it's imploding right now all over the world. Mighty China is leading the way down.

The nitwits on NPR were talking about "learning lessons" today as they urged people not to panic and stay in the market. They were so desperate to prop up the status quo that they started talking about how loss aversion causes people to panic & sell (as the VIX goes off the chart).

There's only one lesson to be learned in August, 2015:

Humans came to believe that the "new normal" was normal.

Which comes as no surprise at all. The "new normal" was never normal. And now there's even more panic because the Fed may raise interest rates by a whopping 25 basis points! (That's 1/4 of 1 percent.)

I couldn't stop laughing reading David Stockman today. 

The Global Minsky Moment — A Longer View

U.S. stocks rallied today, which was not a surprise The S&P 500 finished the day down 1.4%. A trader named "Fly" takes a longer view.

Futures are lifting off and all is well in China, following a clown-car like -5.5% open. Right after those communist bastards (extra Red Scare) fixed their markets higher, Japan followed suit. Commodities are up and all is well again [oil prices here].

Here is what I am wrestling with now.

This feels different. Previous market dramas were caused by superfluous events: Greek-German comedies, Federal Reserve maladies and a series of stupid things purported by Congress and let’s not forget the end of the world as we knew it: Ebola. All of those, sans the end of the world zombie causing virus, were fixable, short term events. But this is permanent: Chinese fuckery, largess, slowing the growth engine of the world.

If the China [growth] story is truly dead, I’m afraid today’s “drop” will look like child’s play 1 year from today...

Exactly. And I believe China's phenomenal growth story is truly dead. I used to write posts about China's comeuppance, but got tired of waiting for it. It's impossible to time this stuff. Even now I'm going out on a limb.

Say Hello To My Little Friend

The bloodbath "correction" in global markets continues today. The Shanghai Composite? Forgettabout it!  American stocks? Flirting with disaster!

All weekend long we were assured that "corrections" are normal and there's no need for panic. I agree. Words like "pop", "burst", "meltdown" or "collapse" have lost their force in the 20th year of the Bubble Era. Surely we are used to such "volatility" by now. Surely we know that what goes up must come down.

Never forget that these events have lots of Entertainment Value.

I invite central bank-inspired gamblers investors all over the world to say hello to my little friend 

Do a line for me, Tony!

Christiana's Dream And Kolbert's Failure

Elizabeth Kolbert's The Weight of the World, subtitled Can Christiana Figueres persuade humanity to save itself?, starts off like this.

The United Nations Framework Convention on Climate Change, or U.N.F.C.C.C., has by now been ratified by a hundred and ninety-five countries, which, depending on how you count, represents either all the countries in the world or all the countries and then some. Every year, the treaty stipulates, the signatories have to hold a meeting—a gathering that’s known as a COP, short for Conference of the Parties.

The third COP produced the Kyoto Protocol, which, in turn, gave rise to another mandatory gathering, a MOP, or Meeting of the Parties. The seventeenth COP, which coincided with the seventh MOP, took place in South Africa. There it was decided that the work of previous COPs and MOPs had been inadequate, and a new group was formed—the Ad Hoc Working Group on the Durban Platform for Enhanced Action, usually referred to as the A.D.P.

The A.D.P. subsequently split into A.D.P.-1 and A.D.P.-2, each of which held meetings of its own. The purpose of the U.N.F.C.C.C. and of the many negotiating sessions and working groups and protocols it has spun off over the years is to prevent “dangerous anthropogenic interference with the climate system.” In climate circles, this is usually shortened to D.A.I. In plain English, it means global collapse.

The Framework Convention on Climate Change is overseen by an organization known as the Secretariat, which is led by a Costa Rican named Christiana Figueres...

Here's a new acronym for you — another failure of the parties, or FLOP 

Climate-Centrism

I became more and more pissed off as I read Brian Merchant's By 2100, Earth Will Have an Entirely Different Ocean (Vice, August 13, 2015).

It’s not just that the ocean is absorbing more heat than at any point over the last 10,000 years, and that its levels are rising. It’s also becoming more acidic. Its very chemical composition is changing. Ecosystems will be reordered, currents altered. To the billions who live closest to it, it will be more hostile. Coastal flooding will threaten cities, Arctic passageways will open new trade routes, and fishermen who depend on the seas will scramble to keep up with the shifting aquatic biomes.

“In a worst case scenario, i.e. one in which we pursue business-as-usual through the end of the century,” the climatologist Michael Mann tells me, “the oceans will look something out of a post-apocalyptic Hollywood flick. We are talking about the depletion of fish populations by overfishing, the massive die-off of much other sea life due to water pollution and ocean acidification, the destruction of coral reefs by the twin impacts of ocean acidification and bleaching by increasingly warm ocean waters.”

So why is Brian Merchant quoting climatologist Michael Mann about the future ocean? Later he quotes climate modeler Gavin Schmidt (of realclimate.org). Neither of these guys makes a living studying the effects of warming and acidification on marine ecosystems, though both seemed happy to pose as "experts" on what the ocean may look like 85 years from now. 

If you want to learn about the oceans, past, present or future, why don't you fucking interview somebody who studies the oceans and marine life? Where are the quotes from Jeremy Jackson? Where are the quotes from Callum Roberts? Where are the quotes from Lisa-ann Gershwin? Where are the quotes from Daniel Pauly and his British Columbia colleagues? Where are the quotes from Woods Hole? And so on.

Very High Quality Bullshit

Over at the Huffington Post I saw a sarcastic headline: Breaking News: The Rich Discover Inequality. I had to take a look. The article was by Jeff Faux, author of The Servant Economy (2012). This is great stuff.

After forty years of rising income and wealth inequality, some of America's rich seem worried that maybe things have gone too far. In a recent New York Times Op Ed (August 9), for example, Peter Georgescu, CEO emeritus of the multinational public relations firm, Young and Rubicon, wrote that he is "scared" of a backlash that might lead to social unrest or "oppressive taxes."

The Times was so impressed with such enlightened views from this prominent capitalist that a few days later they devoted another long article with his answers to questions submitted by readers.

We should, I suppose, be grateful that Georgescu seems to understand that the gap between the rising value of what American workers produce and the stagnation of their wages has channeled the benefits of economic growth to shareholders (and, he might have added, but didn't, corporate CEOs).

But if you are waiting for him and other members of his class to get serious about the problem, don't hold your breath.

We won't, Jeff.

A Global Minsky Moment?

Pardon this interruption, but has anybody noticed that the global economy is going down the tubes? There doesn't seem to be anybody looking at the global economy as a whole. 

This post is not about Donald Trump.

There is some focus, and appropriately so, on China's Long Minsky Moment (The New Yorker, August 14, 2015). China is in big trouble. John Cassidy's article is quoted beneath the fold. The Minksy moment is

that dreaded moment, named after the late post-Keynesian economist, when euphoria is replaced by pessimism, asset prices start to plummet, lenders discover that their creditors can’t repay their loans, and an economic downturn begin.

Certainly China has been the global engine of growth in the post-meltdown period, but there are troubling signs all over the world. China's exports fell 8.3% in July. That's not a good sign. And as Cassidy points out, China's official growth numbers are fabricated bullshit.

Oil prices are at at six-year low. That's not a good sign. 

Growth is anemic in the United States. Brazil is in recession. Russia is in recession. Canada seems to be going into recession. Europe is ... Europe (sucks). Japan is  ... Japan (sucks). South Korea is losing its lustre. If we include China, I've covered most of global GDP in this paragraph. And none of the news is good.

The only "bright spot" I can find is India.

I'm not saying there's going to be a rapid meltdown of the global economy, despite ongoing currency wars, but if China is having a long Minsky moment, so is the world.

All of these developments are a predictable result of the reflation of the global economy after the 2007-09 fiasco. Such developments take time, but it looks like some global unraveling has finally arrived.