Yes...but!

July 21 2008

Home > Columns >Yes...But! Year 8-37

“The March of Folly”, the title of that famous book by Barbara Tuchman, is a most apt description of our current economic system. Our wheelers and dealers merrily march on as if everything is honky-dory, as if the regular rising of the sun and the waxing and waning of the moon signal that life of industry and commerce has retained that same rhythm. Banks especially are banking on ‘business as usual’ conditions: they keep on lending out more than they have on deposit, trusting that tomorrow’s growth would cover today’s shortfall. But that’s no longer true. Now that oil and gas are peaking we witness a turning point of unparalleled magnitude.

Until the Industrial Revolution land ownership was the true measure of wealth. In the early 19th Century coal changed all this. Peasants became industrial workers, and power shifted from the landed gentry to a new managerial and financial elite. This process accelerated after World War II from which the USA emerged as the world’s dominating nation, thanks to abundant Texas oil. Consequently America built its entire infrastructure on the assumption that domestic oil and later cheap Middle East sources would last forever.

Globalization, too, was based on the premise of inexpensive transportation, and made transferring manufacturing to low cost countries with lax environmental laws the ‘economical’ thing to do, while the high end jobs remained on Wall Street and the City part of London.

The End of Oil is fundamentally transforming this scenario. Every “March of Folly” eventually ends in disaster, says Barbara Tuchman in her book by that name. “Why,” she wondered, “Why does American business insist on ‘growth’ when it is demonstrably using up the three basics of life on our planet – land, water and unpolluted air?” That question is now being put to the test.

Just as in 1840 Ireland was devastated when the potato crop failed we are now in the stage where the false God of Money is failing us.

Money is the Great Destroyer. Money is behind the Mortgage Meltdown in the USA, Great Britain, Ireland and Spain. Columbus, upon arrival in the Americas sucked out a thousand years of gold in two or three years and then extinguished all its human life. Now woods are paved, mountains mined, seas eaten, species eliminated because of money. Now all the large land and sea animal of the earth, and most of the birds, are under sentence of extinction because of money.

Today the failure of money is literally hitting home. The men and women who bamboozled borrowers by loaning buckets of money on bubble-bloated real estate, now are in the process to destroy both the lives of these homeowners as well as their own lucrative careers.

We instinctively know that perpetual growth is impossible in a finite world. We now are on the verge of running out of stuff and as a consequence the ever scarcer commodities go to the highest bidder.

Every nation is competing for the last available oil and gold and uranium and natural gas. We have entered the phase where money is worth less and less as prices keep on escalating, until the balloon bursts.

Big news last week: the USA Consumer Price Index shot up to 5 percent. That’s the official figure. It’s also way off base. Over the past 30 years, major changes have been made to the calculation of the CPI both in Canada and the States, due to "re-selection and reclassification of areas, items and outlets, [and] to the development of new systems for data collection and processing," according to the US Bureau of Labor Statistics. If you eliminate those adjustments and calculate CPI as it was done in 1980, inflation would be 12 percent today.

Governments have a vested interest in low inflation because wages and pensions are indexed so the lower inflation is, the less the financial obligations.

In their wisdom food and energy were excluded from the core rate, which means that as long as we eat nothing and stay in bed, in the dark, inflation will not affect us. This artificial low rate also keeps interest rates low, another advantage for both governments, because much higher interest on close to US $10 Trillion of debt would break its bank.

In reality interest rates should be around 15 percent – based on inflation plus a low service charge plus a 2 percent real return.

Sooner or later we all will be victims of The March of Folly that is ruining our way of life.