6 December 2011
Norman Pagett writes:
The global financial system is in a process of self-reinforcing disintegration…George Soros 5 12 2011
The present reaction of banks to adverse financial forces is the ultimate display of panic when faced with the inevitable: drowning people grab at each other to stay afloat.
For two centuries, world banks have watched their assets grow exponentially, congratulating themselves on their expertise, enjoying the delusion that it could go on forever.
But now it is time to face up to the fact that we do not owe our recent prosperity to the collective genius of our finance houses. By sheer chance they found themselves able to capitalise on the geological anomaly of fossil fuel energy, and use the colossal power it unleashed to amass great fortunes. Despite appearances of diversity, that wealth is still dependent on a constantly increasing output of oilwells, gasfields and coalmines. We do not live in a money based economy; we live in an energy-based economy. Our financial system is a money = energy equation.
Put in terms that governments dare not utter, without that energy input we do not have a working economy and we revert to an existence reliant on muscle power alone.
We have experienced a unique century of wealth; it is our normality, and our buildings, cars, and entire infrastructure depend on it. If oil weren’t available to supply 99% of our food, we would literally starve to death.
But the cost of oil has risen tenfold in a decade, and no financial/social system can support that kind of increase. Current intervention by banks trying to save one another may follow the rules of banking and finance, but it ignores the rules of reality. Passing money around does not create wealth.
Our leaders are fully aware of that, but you won’t find them expressing it in any of their stirring speeches. It must remain unsaid, but when the truth dawns that our social system is collapsing because of declining energy input and rising cost, the panic will be global and catastrophic.
Clinging to a jointly owned piece of wreckage will not rebuild it into an ocean-going liner.
Recent news accounts have implied that the quantities of untapped methane gas rival or exceed original petroleum reserves. Many vehicles now run on natural gas. The supply in the Russian tundra is so great that the thaw there threatens a vast explosion, and gas on the surface can be easily ignited. Can we turn to methane at this point?
This appears horribly over simplified. Would recommend the following for historical updating as to how Glass Steagall was systematically disassembled so that a series of de-regulation/no-oversight occurred starting in the 1980′s which eventually lead up to 2008 with the derivatives/credit default swap banking collapses (to the tune of ~16 trillion bailouts). Also since congress permanently prevented the CFTC from even looking at the scope of derivatives (at the request of Greenspan), maybe worse to come.
http://en.wikipedia.org/wiki/Inside_Job_(film)
http://www.pbs.org/wgbh/pages/frontline/warning/view/
http://www.pbs.org/wgbh/pages/frontline/warning/interviews/born.html
http://www.forbes.com/sites/traceygreenstein/2011/09/20/the-feds-16-trillion-bailouts-under-reported/
http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act
The concept seems so difficult to understand that ultra-simplification was essential. The value of money is entirely dependent on the amount of energy available to drive our commercial system.
Our ‘wealth’ is a function of excess energy, ie: when the energy in 1 barrel of oil delivered 99 barrels of oil, we had that 99 barrels of ‘excess energy’ available for our collective use. Hence gasoline was $1 a gallon or less
now the return is around 17:1, or in the case of say, Alberta tarsands, about 4:1.
The banking collapse was ultimately due to the collapse of our cheap energy based industrial system.
As oil supplies get tighter, you will find the financial system falling further and prosperity vanishing like the illusion it always was, because you cannot borrow your way out of debt because debts have to be repaid out of future prosperity.
We only have one source of prosperity: hydrocarbon energy.
Norman Pagett