Expect nothing, live frugally on surprise.

Thursday, November 13, 2008

US Economic Meltdown - Part 2 Consequences

In life there is no free lunch and as the second law of thermodynamics states entropy or disorder inexorably increases with time. Any countervailing order has to be paid for by expending energy, a part of which is inefficiently wasted by generation of heat, which is dissipated and leads to increased entropy. There is no Maxwell’s demon that can separate the high energy fast moving gas molecules from the slow moving ones without higher cost. Thus the diversion of corn harvests to fructose syrup and ethanol to mix with gasoline, rapeseed oil to artificial diesel fuel and water to clean burning hydrogen cells consumes more energy than it can generate. Not only are the costs prohibitive for a non-tropical country (Brazil can do it less inefficiently from a low input crop like sugarcane), but also as an unintended consequence, it accelerates food price inflation and shortages, as the riots and unrest in Jordan, Morocco and China prove. In nature the only free lunch is the invention of chlorophyll by primitive organisms to harness the abundance of sunlight and use it to synthesize all essential nutrients as plants do, with oxygen our lifeline as a by-product. Even this basis of our existence is not achieved energy efficiently.Ludwig Von Mises and the Austrian school of economics believe that irresponsible inflation of money supply and resultant artificially low rates of short term interest eventually lead to a collapse of bubbles and a depression like in 1929, similar to a biological phenomenon called tachyphylaxis where excessive secretion of a hormone or enzyme leads to progressive diminution of effect due to exhaustion of the substrate responsible for generating the ultimate effect and the desensitizing of the receptor mediating it. This is what America is facing. Maximum opening of the money spigot and flooding the economy with money creation is not unclogging the bottleneck of a credit crunch due to the unreliability of and increase in counter-party risk between the contracting parties (lenders and borrowers or credit default swap traders) and the shrinkage of capital base of banks due to huge write offs of imprudent loans and investments.America like Adam Smith’s proverbial butcher, baker and candlestick maker has not handed out Marshall plans, sheltered the growth of Western Europe, Japan, the Asian tigers and recently China out of benevolence, but initially for selfish motives of maintaining its supreme hegemony and more recently for lulling to distraction its naive populace with cheap bread and circuses, to surreptitiously enrich its fat cats who fund the power lust of its crooked politicians. (China is doing the same in Africa and South America currently) The result is the depreciation of the dollar from 300 to 100 yen and from the Euro’s nadir of 82 cents to 152 cents. Now the time has come to pay the piper. The sub-prime crisis is the last straw. The addiction to profligate spending has left consumers, corporations and governments, both state and federal, so burdened with debt and unfunded liabilities that mere band-aids like shenanigans of accounting fudges will not stem the bleeding from gaping wounds. Warren Buffett’s recent annual letter to shareholders highlights the blatant lies and false assumptions of pension accounting by assuming unachievable high rates of returns on pension assets to increase reported annual earnings, merely to raise share prices to cash in on huge windfalls from options by greedy unethical executives.Japan for its American nuclear umbrella, China for its hunger for technology and the desperate need to avoid unrest by its teeming masses needing employment, who may challenge the rule of its crooked and corrupt government and Europe because of its ethnic ties and gratitude for American rescue from two world wars, are accepting of America’s eroding currency and mounting debt. A limit will soon be reached as the value and purchasing power of the former two’s reserves has plummeted by nearly 50% (rise in price of gold, oil, wheat, corn, soybeans and other commodities) despite their currency manipulation and the skyrocketing Euro is decreasing Europe’s exports, reducing the growth of its economy and increasing its unemployment and budget deficits due to its gold plated safety net. China’s iron rice bowl has vanished and the crooked farmer land acquisition of its corrupt local leaders, which the equally crooked central government is unable to control, will morph into bigger problems in the future.
The problem is that to bring the global economy back into a stable state, America needs to generate trade, budget and current account surpluses. This can only occur if American consumers save instead of consuming, manufacturing returns to America and the dollar loses a further 25% of its value. This would lead to severe economic upheavals in Japan, China, the Asian tigers and even Europe which they are unwilling to tolerate. On the other hand accumulating dollars with rapidly shrinking value is equally unacceptable to them and even to the illegitimate tyrants of oil rich Middle East countries being tweaked further by Russia, Iran and Venezuela threatening to price energy resources in currencies other than the dollar.The above facts explain the desperate gamble by Cheney and his dummy Bush to take over the energy assets of Iraq, threaten Iran, malign Russia, capture Afghanistan for access to Caspian energy, cozy up to the tyrants of Uzbekistan, Turkmenistan and Kazakhstan, give independence to Kosovo to guard pipelines from the Bondsteel base, court Azerbaijan, Georgia and Turkey, strengthen Israel as the local gendarme, persecute Sudan for Darfur, foment unrest in Chad, destabilize Angola in the past, while having ignored Rwanda and Congo genocides and supported the Khmer Rouge genocide in Cambodia (as China did) and creating a new Africa centric command force by the Pentagon. The control of energy resources gives America a stranglehold on the energy needs of Japan and Europe to keep them toeing its dictates. This is why it threatened India and Japan not to have energy ties with rebellious Iran by building the IPI pipeline or developing Iran’s energy fields. America wants a fatal grip on the carotid arteries (energy) of major nations to make brain dead those countries that disobey its dictates and threaten its supremacy and hegemony (read Bush strategic doctrine and Quadrennial Defense Review of the last four years). Only China and Russia can stand up to it. Cuba, Venezuela and Iran do but they pay a formidable price. Do not expect any significant change in American foreign policy if McCain, Hillary Clinton or even Obama become the next president, though the last is least beholden to vested interests or the power elite


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