It should be obvious by now that I am a fan of the haunting photographs of Dorthea Lange who chronicled the people of the Great Depression. I have spent the past week researching the causes of the previous depressions and panics looking for patterns that might offer clues and perhaps help in dealing with the economic calamity unfolding all around us. I have derived some insights which I would like to share with my readers. I have some tentative conclusions although “conclusion” may be a bit too strong a word. Conclusions imply a measure of certainty which I lack. I am on a journey of discovery. My conclusions thus far are 1. Most people are clueless as to how we arrived to this predicament and I include most of the financial media, our governmental and corporate leaders and most economic thinkers. 2. Most of the solutions proposed are likely to aggravate, delay and ultimately worsen the crisis. I include in this all measures exchanging something of value, ie., treasury securities for trash eg., toxic mortgage debt, CDS, CDOs and a host of other derivatives. The ultimate payoff for us and our children is likely to be prolonged and sustained inflation and ultimately failure and collapse of our government and our economy. I have scoured the library and the Internet researching panics and depressions going back to 1837 and looking for patterns of similarity and dissimilarity to today’s panic which I shall hereafter refer to as “The Panic of 2008.” In the blogs to follow, I will attempt to analyze some of the features common to these previous depressions with the conditions we are experiencing today. Writing about an issue enhances my understanding of the issue and I hope my analysis will shed some light on a very dismal subject.
Meanwhile over in Iceland life goes on. The IMF might, just might offer a loan of $5 or $6 billion in aid and the UK has tentatively offered a loan of $3 billion to Iceland to try to repay some of the UK savers and municipalities who deposited pounds in Icesave accounts. It’s a peculiar offer as I see it. The UK prints up $3 billion in paper with a picture of the Queen and gives them to UKers and then sends the bill to Reykjavik. I have no idea of the terms and I can only assume this offer if that is what you call it, will go over like a a lead haddock. It hearkens back to the cod wars. I haven’t seen anything on what the Rooskies are up to. I have been reading as I said previously, online publications and interesting blogs posted in English.Reykjavik Harbor Watch by ECS is thoughtful and my latest discovery is Jessica B. Her URL is:
http://jrbowe.blogspot.com/. She writes in an entertaining fashion and the human aspects of the problem are everywhere in evidence. One final article is rather long and deals in exquisite detail
about what it is like to fall into poverty. It is poignant. It is written by John Dolan and is entitled: “5 pieces of advice for the new paupers. The URL:
Today is UN World Food Day and my thoughts have drifted to concern about food availability and production amidst the world financial nightmare swirling around us. Yesterday I happened to be doing some necessary but distasteful deferred maintenance on my septic system and yet another metaphor came to mind of the offal and scat being flushed into my tank from the mouths of our contemptible leaders, no…….our handlers who daily deceive us and obfuscate the real issues facing our nation. Hank Paulson , the current leader of the pack told us today that hedge funds wont “initially” get federal aid. That’s reasuring. Are the unregulated hedge funds whose leveraged largely untaxed trading strategies contributed to the current collapse in equities and the oil futures going to be feeding at the bailout trough too? What planet am I on? Is there no stopping this corporate juggernaut to re- inflate a debt-bloated failed market? They persist in telling us it is a liquidity squeeze, a credit crisis, but anyone with the brain of a prairie dog knows that it is in fact A DEBT CRISIS. We are daily informed by all manner of bankers, CEOs, and politicians that we “must” take these measures to save our economies. It is obvious that they are doing it to save their power and their wealth which their greed has destroyed. And the partial nationalization of the banks has done little to change their business model of privatizing the profits and socializing the risk. If this Republican administration is going to socialize the risks, it can darn well socialize the profits, if there ever are to be any. And “Plumber Joe” from last nights presidential debate was unhappy with Obama’s tax plan which seemed to him “socialist.” Joe! Wake up! The cowboy capitalists are taking the lowing herd of Americans from unregulated capitalism to unregulated socialism right under your nose. If they can’t fuel their greed one way, they’ll try another. Here in the Dammerung of our American Dream, a story from Bloomberg about a lap dancer fallen on hard times in Las Vegas added a surreal touch:
Good luck baby as you face a diminishing supply of laps in your desert paradise. Meanwhile back in Reykjavik, nothing catastrophic to relate. Icelandreview.com continues to run columns from worried islanders who are angry at billionaire bankers and Gordon Brown except that the prime minister Geir H. Haarde is thinking about filling a law suit against Gordon Brown since Gordon is suing Iceland. Geir also urged his countrymen to cope by going fishing. Our leader told us to go shopping. Iceland is looking better and better. ECS’s blog Reykjavik Harbor Watch has posted a huge collection of her photographs on her blog site in an older post which soothed the turmoil in my brain this morning as I listened to the most beautiful operatic duet ever created: Jussi Bjorling singing “Au Fond du Temple Saint” from Bizet’s Opera Le Pecheur de perles, the so called pearl fisher duet. If there is a better duet in the world, I’d sure like to hear it. Happy World Food Day. Dorthea Lange’s haunting photographs from the Depression may become regular images on this blog.
The market opened today finally in Reykjavik and it was a road runner moment….down 77%. In the Hekla auto showroom, the nation’s largest, not a car to be seen. The Central Bank lowered interest rates, it’s so called policy rate from 15.5 to 12%. That should give a boost to the currency which still isn’t being traded except under unusual circumstance. I read that income taxes will likely be raised. The young lady to the right is in the country’s famous Blue Lagoon, a giant hot spring.The vapor over her head is the Icelandic Krona evaporating. I have been scouring the internet for online communique’s from the beautiful country and some of the posts are almost heartrending even amid the banking delamination. Icelandonline and http://reykjavikharbor.blogspot.com/ are two samples of what is really going on away from the national media. As you would expect, folks are pretty sore but as befits a country of stoic sturdy souls, no one is in a panic. The poor folks who took out car and house mortgages in Euros because the interest rates were lower are looking at huge resets on their payments and barring a miracle, many expect to lose their homes and cars. Many have lost all their savings. Their prime minister on TV seems stolid and calm, a far cry from the jerky A.D.D spectacle of bush every time he steps up to the mike. ECS, a blogger in Reykjavik of course voices the common metaphor of Iceland being a canary in a coal mine, showing the rest of the world its possible future. It does look like Hungary, Ukraine and some of the former Soviet Republics may be facing a similar fate. The S&P is down 6.5% as I speak and oil is off as well which means we can now go out and fire up our Hummer again for a trip to the convenience mart for a pack of Camels. The bad news is that we just moved up Peak Oil a little closer. I have faith that the Icelanders will get through this. I don’t have the same faith in my countrymen.
The concept of Peak Oil is one of the core subjects of this blog and it is high time to introduce the Father of Peak oil to my reader(s) along with a simplified curve of
domestic oil production. World oil production curves are widely available from the internet although they are often laden with data and may be hard to read to a new observer. Wikipedia is a good place to start. If you are a mexican peasant, your home would likely have a picture of Jesus Christ prominently displayed . If you are a recent convert to peak oil, you need M King on your wall. He be the man. He was a Shell geologist who in 1957 at a petroleum meeting in Texas showed a curve of oil exploration and production which he had derived using statistical methodology which purported to show that oil was a soon to be depleting resource. He predicted US production would peak in 1970 and world production would peak in the first decade of the 21st century. He was vilified, criticized and largely ignored not only by oil companies but by federal agencies and world governments. But his predictions have been uncannily accurate. In fact US production of oil DID peak in 1970 and has steadily fallen even despite the discovery of the huge field in Prudoe Bay. This month US crude oil production will fall below 5 million barrels per day(mbpd) for the first time since the late 1940’s. Some of the recent decline is due to shut in production from the Gulf of Mexico platforms but the number is stunning never the less. US consumption has fallen a bit over 1 mbpd from last year due to slackening demand but we are still at about 20 mbpd.(http://www.eia.doe.gov/basics/quickoil.html). Transportation accounts for 70% of this number. Enough figures. The reason I gave this history is to provide background for my next subject. How will the reality of Peak Oil change and be changed by the current world turmoil in the financial markets? My thesis is that if the peak oil depletion curve is accurate, governments and people will need time to make adjustments to their economies and their lives. If the production/depletion curve is steep on the backside, time will be limited to make needed changes. If the curve is more gradual as Daniel Yergin of CERA in Massachusetts contends, we may have some time. And here you run into a swamp of facts and opinions. Oil reserves are there. They’re not there. Reserves are understated. They’re overstated. High prices will result in increased production. High prices won’t make any difference. Yesterday Richard Leary in the Huffingtonpost wrote an article on the cost of Saudi(KSA) oil production. Saudi minister Ali al-Nasimi said in 1999 that the all inclusive cost was less than $1.50. What is the figure now? Who knows. The Ghawar field, the world’s largest has been producing more than 5 mbpd and is now allegedly is in decline with its output supported by expensive injection of pressurized salt water and the KSA does not allow auditing of its reserves or its production figures. Leary stated KSA deliberately understates its reserves. Matt Simmons in Texas who is a world’s expert in oil reserves and production thinks the opposite. Who to believe? There is no way to know. What is known is that there are very few producing countries who are increasing production and for the United States our main suppliers have been Canada, Mexico, Venezuela, and the middle east, chiefly KSA. Cantarell, the huge field in Mexico is in steep decline and Mexico could become an importer of oil in as soon as 3 or 4 years. Canada has been our leading supplier and has ample reserves of bitumen in its Athabaskan Tar Sands but net energy factors necessitate a price north of $80/barrel to be marginally economical. Venezuela and the US have had terrible diplomatic relations in the bush administration and now Hugo Chavez has been striking up exclusive arrangements with China and that source could dry up quickly.New suppliers such as Brazil may step up to the plate but now I must move to the central thrust of this post. How will the recession and credit contraction affect oil production? On the one hand reduced demand here and abroad would seem to ease what was becoming a supply demand squeeze. There may be enough oil to go around, maybe even a good surplus. That could be bearish for oil prices and in fact it already has been. But reduced demand and slumping prices mean less incentive to drill and explore and refine so there is less urgency to increase supply and that is already starting to occur. in a variety of locations for a variety of reasons. The biggest problem is that new oil tends to be a lot more expensive to find and produce and low oil prices mean we will be using up the old and cheap to produce oil. There is no reason a country will sell oil at $80 if their marginal cost of a new barrel is $80. These countries have gotten addicted to oil revenues to fund their domestic consumption and it stands to reason that they will want to keep oil as high as they can and they have the ability to do just that. The world will need oil, recession or not but the OPEC producers will also have to belt tighten and where is the logical place to do that? Delay new projects which will delay new production but meanwhile the old fields will continue to deplete. If and when oil demand picks up, new production may lag and prices will go through the roof as oil consumers scramble for supply. This may have the effect of making the curve of depletion more steep and consequences for economies more severe. My conclusion is that Peak Oil meant that oil production would at some point go into terminal decline but that the credit and financial collapse may mean that it may come sooner than expected and be far worse for the US than anyone expected. If the US deficit soars, inflation is sure to follow, the dollar may collapse and with it the incentive of our chief trading partners to fund these soaring deficits by purchasing our agency debt and treasury securities. The American people do not get it, clearly McCain does not get it and I do not know if Obama gets it. Much of the congress mirrors America generally, so they don’t get it. Eventually they will when they realize that our gigantic debt has hemmed us in and constrained our options. Some people like Jim Kunstler(kunstler.com) predict social unrest and regional collapse as our happy motoring and suburban sprawl model collapses along with the economy. We have seen in this election the intolerant Fascist underbelly of this country at Sara Palin and McCain rallies and a mob can quickly get out of hand. The American people are armed like Yemeni and their economic suffering could turn vengeful They may direct their anger at bankers, politicians and corporate crooks or they may lynch minorities and illegal aliens. If it ever comes to this our streets may fill up with National Guard and Army checkpoints and curfews and start to look like Baghdad. One of the reasons I spend so much time talking about Iceland is that I think it may be a model of what may happen elsewhere, and perhaps even here. We will pick up their story tomorrow perhaps.
I am a volunteer weather observer for the cocorahs network. We picked up 6.5″ here last night and the highest total amount our local Wyoming stations seems to be 15″ in Thermopolis and Absarokee. Billings MT had 22″. Still snowing with a winter storm warning still in effect. I thought the image of a guillotine seemed appropriate to the punishment we would like to mete out to the rogues gallery of incompetents, neocons and financial physicists who have brought us to this point. I would like to include a link to a wonderfully bright and compassionate blogger who has composed a fairy tale of the past financial events which is probably an instant classic. He is Timothy Kailing and he has some experience wring children’s stories:http://seekingalpha.com/author/timothy-d-kailing. Scroll to “A grimm bedtime story.” Mike Fitzsimmons who is a fellow climber and writes with clarity that few can emulate has a recent summary of shrub and the fallacy of the conservative republican neocon mantra. He of course concludes that it is a betrayal of conservatism. It is something perilously close to Fascism. I urge all of you to read this recent blog.
I did this post partly in response to a request from my brother who wanted names, places and dates. He is not happy.
The blogosphere is aflame with opinion as the server farms add backup cooling to cope with the workload. Up in Canada Stoneleigh and her fellow blogger Illargi on Automaticearth have some sensible perspective on where we go from here. And if you still have time, Jeremy Grantham and Nouriel Roubini give more scholarly background which has been entirely accurate for some years on what would happen. As for me, I have been consumed by the drama going on in Iceland as you know. I have been listening to the receiva.com radio portal(37 stations), the public radio station in Reykjavik and streaming web TV when it is broadcasting. Google appropriately if you are interested. You will need to be fluent in Icelandic of course which I am not but the emotion in their voices can be stirring. They have some great radio stations which stoop to english on occasion. The streaming TV from Europe Scandinavia and Ireland especially is great. I did hear that there will be a huge jump in homes with negative equity there. No surprise. When the krona starts trading again it will be interesting how it trades with the Euro. With all the turmoil in European Banking markets I sold my euro positions and I think the jury is out on whether European Unity can survive this Tsunami. I’m only somewhat confident in the Swiss Franc, the Yen and temporarily at least the dollar. We still don’t know any specifics from the G-6 + Italy meeting here this weekend and the keystone cops will move their jalopy over to the continent next week. I am guardedly pessimistic so far. So far the so called solutions have involved attempted bailouts and partial nationalization of the banks and financial institutions and the rest of the plutocracy that got us here in the first place. They are clinging to their wealth and power with the strength in their fingernails but I fear in the end it will be to no avail. Of course the bulk of the blame goes to the Republican Party and shrub and the gang who destroyed America and the pusilanimous, pathetic dems who signed off whining all the way. The attempt to restore the status quo by trying to return debt and credit is doomed in the long term although it may temporarily get our debt junkie economy back on its feet. Bush exhorted us to spend and consume after 911 just as Barney “google” Frank, Schumer and the rest of these criminals are frantically trying to get us back on our consumption treadmill. But it wont work. At some point our overseas trading partners will realize that the gig is up and stop buying TBill s and agency debt. If and when that happens, only then you will know that the Party is over and we will have to go back to square one and rebuild our banks and our economy. We will have to start saving as Americans to fund what we need to sustain a semblance of a future. We will become more local as James Taylor says in a recent Rolling Stone interview. We will consume less, much less. We will travel much less as Peak Oil issues become dominant in how we consume energy. The drop in worldwide and national oil consumption may buy us some time on the backside of Hubbert’s Curve
perhaps providing some attenuation to the looming supply demand issues but there may be delay and cancellation of projects which will reduce and delay supply and negate that attenuation. There may be bankruptcy of producers and suppliers as their credit dries up. My real fear beyond the world walking away from funding our deficit is the return of the brownshirts and the sound of jackboots in the streets. If you heard Sarah Palins inciting of the mob the other day, you heard some in the audience yelling “traitor!” and “kill them!” “Kill him” referring to Barak Obama. Dupont and JP Morgan attempted to try to raise an army in the 30’s and depose FDR which failed when an army general revealed the plot to FDR. The same could happen here if the rage in the unwashed uneducated hating masses builds. I fear for our immigrants, legal and illegal as they will be blamed and I pray that they will return to their countrries while they still can. YOYO and stay tuned.
Well, the G-7 is meeting in DC with shrub and the rest of the cops. The G-7 are ministers from the US, Japan, Canada, Germany, France, Britain and……….Italy? Are you kidding me. How did they get in there? While the world is holding their breath, they are putting out announcements that they will do what’s necessary to save the world from this financial death asteroid. Like what, for example? Details are sketchy but Paulson and the shrub have just about shot their wad nationalizing everything in sight.It’s gotten so bad that Hugo of the jungle and his press are calling bush “Comrade Bush,” and holding their tummies rolling in the aisles but they might want to keep an eye on their national coffers with oil falling through the floor. The time to enjoy their Schadenfreude may be short lived. Ditto Judo instructor Putin. The markets are signaling their lack of confidence with Washington selling everything in sight. Monday on the trading floors should be interesting. I’ll tell you what my level of confidence is. My wife and I are taking a trip to the grocer to stock up on 3 months of staples. We are at the tail end of the supply chain here in this high alpine valley and if the grocer’s credit dries up I don’t think I could stomach Meals ready to eat brought in by my our Wyoming national guard who is over in Iraq anyway. Gordon Brown has seized Iceland’s financial assets in England using a statute designed for terrorists. That is new way to think of bankers. Probably very accurate. You can imagine how that went over in Reykjavik. We’re under a winter storm warning. The wind is howling and the snow is flying with 2 to 3 feet predicted over our neighboring Wind River and Gros Ventre Mountains. Quite a metaphor for what’s going on in DC and New York.
This is the captain speaking! Everybody to the poop deck where the band has assembled. They would like to play for you a few songs. Apparently we have hit something. Maestro: Auld Lang Syne!
And What a voyage this has been.. Reminds me of the old road runner cartoons where he runs off the cliff but doesn’t drop until he looks down, and then he drops. The dow was down 5% right after the bell this morning in a good road runner impersonation. Meanwhile back in Reykjavik…………..
The Prime Minisher Geir Harde addressed the nation a few days ago and warned of national bankruptcy. Their on again off again purchase of the banks is definitely on. The biggest bank Kaupthing has been nationalized and the Chairman of Kaupthing Sigudur Einarsson(great names!) is really pissed. Yesterday he accused the government of ruining the country’s financial system. Now all three banks, Kaupthing, Glitnir and Landsbanki are owned by the guvment. I checked on some numbers. The liability of Iceland’s banks is $61 billion. There are about 310,000 Icelanders give or take a few blondes. Let’s do the math. $61 bil divided by 310,000 blondes is $196,774 owed by every man, woman and munchkin.Whoa!
One of the reasons I am so fascinated by Iceland’s story is that I happen to be reading Jared Diamond’s book “Collapse” in which he in very long winded fashion is writing about the fall of different world civilizations and he has been championing Iceland’s fascinating history of near collapse to top of the heap as measured by per capita income and “livability”,whatever that means.. The book was written in 2005. It’s a great story and I can’t wait for the DVD. In Reykjavik the blondes are crying in their cafe’ but over in another Celtic stronghold, tonyblairland, people are fuming. It seems that Kaupthing Bank had been paying high interest on savings accounts and a lot of brits had put their savings in these ICESAVE accounts including some local governments in England and Wales. http://www.moneyweek.com/personal-finance/which-bank-will-give-you-52-on-your-savings.aspx
As I write, a lot of these authorities are on their way to Reykjavik to kick some butt. And the ironies just keep rolling in. Iceland was one of the founding members of NATO and where have they been begging? Yup. Putinland. Old Black belt himself. I will continue to cover this compelling story because it’s on a scale I can understand, real Shakespearean tragicomedy.
Over on the continent The ECB has been firing up helicopters and Volvo front end loaders dumping Euros into banks, $50 Billion euros 2 days ago and $100 Billion yesterday. Nada.
And in bushville the Keytone Cops are still running around madly trying one so far futile solution after the other. The banks are all in free fall, Insurance got hit yesterday big time and with everybody lining up at the federal trough the deficit could hit $2 trillion by early next year or sooner. Some of those insurance companies have big medical insurance arms. What happens when the health insurance business starts to sink beneath the waves? MY son who works for Dell got a 150% premium increase yesterday from Blue Cross. Hmmmm….. I’m not an economist but the whole process seems so puzzling.It seems some companies have lots of cash on hand. They make payroll, buy what they need to keep afloat with no problem. Companies like Microsoft, Exxon, Wallmart. And others have to pay all their bills with the commercial paper market which as you know is “frozen.” No credit. So the guvment needs to unfreeze it. So it gives money from Bernanke’s Chinook helicopter to the banks and the commercial paper market and nothing happens. The bankers rush back to their Manhattan apartments and stuff it under the mattress. Now what? I think it might be a good time to bring back some of those nice 19 year old national guard troops from Iraq and march them up to Goldman Sachs and JP Morgan and point their laser sighted rifles at the bankers and say”Lend!”
But I have a wee little voice that is whispering in my ear which is saying…”Let see. All this lending and credit is what got us to this point in the first place. So the solution is more lending and more credit?….. How does that work? Isn’t that like going out to the poor junkie in the street who has been days without his fix and giving him a packet of white powder and saying “Here. Take this junk. You’ll feel a lot better.” As I say. I’m not an economist.
I see this morning that this market plunge is the biggest year to date drop in the history of the S&P. Bigger than the 1930’s, bigger than 1974 and 1987 and 2002. And the bobbleheads keep insisting that all this depression talk is nonsense. Even plump avuncular Alan Sloan of Fortune who I really like with his goofy crackly voice told Suzy Garob on Nightly Business Report that there was no chance of a depression. This is the same Suzy who has to ask every single guest if we are having a recession. Bobble bobble, gobble, gobble.
I have another economic author to introduce. He is Paul Kedrosky who has an impressive resume who writes clearly and concisely. He has a post on the seeking alpha investment website which I urge readers to examine. He is recapitulating much of what I have written in past posts regarding the debt to GDP issue. It is Thursday morning and it looks like snow here in Jackson Hole with a winter storm warning tonight. The storm going on over in Iceland continues to worsen and its leaders are frantically passing the hat to anyone who will listen including the IMF and Russia. Trading in the Icelandic Krona has ceased. Icelands equity markets are closed until at least next week. Things are not much better over in Putinland. Their equity markets seem to also have been closed more often than they have been open and though the oil boom has given them a half of trillion in foreign currency reserves they are falling with the rest of us and now a report on Bloomberg this morning on Siberian grain production falling and debt problems in their agricultural sector is alarming. The suddenness and rapidity of this economic asteroid could only have occurred with the aid of computers and the internet and meanwhile the keystone cops over in bushville race around crashing into each other with firehoses against a backdrop of the resurgent SNL and the amazing Tina Fey. Interesting times here at what is looking like the end of empire. Here is Paul’s article in seekingalpha:
I guess I will keep doing daily posts as long as this financial hurricane continues on its relentless path into, through and over our lives. The presidential debates were of low import with McCain wanted to Federalize bad mortgages of all stripes which would be trillions not billions and he will apparently do that by cutting taxes. Obama gave me a glimmer of hope when he listed energy as a top priority. The markets are still tanking everywhere and now a moment of silence for poor Iceland, the land of geothermal city heat, pretty women and volcanoes. Their debt to GDP ratio of 12:1 exceeds the current runner up, good ole US of A at only 3.5:1. Either the country of some or all of its banks may default as early as this week. So it’s time for a cheery link from the LA Times:Cargobikes! Where can I get one? YOYO
Professor Herman Daly is a well known economist who wrote a recent post on theoildrum.com dealing with among other things steady state economics, a concept of real wealth and the unfolding disaster in our financial system. He is a former senior economist at the World Bank and he wrote a seminal book on the emerging field of ecological economics entitled “Steady State Economics”. I think his post in the oil drum is excellent and I will provide the link here:http://www.theoildrum.com/node/4617#more.
I wrote a comment to his article in response to a comment by Gail the Actuary who is one of the fine staff members on the Oil Drum in which she mused on possible consequences of Daly’s ideas. My response follows.
Gail points to some consequences of Herman’s ideas. It does seem obvious that there will be less credit but it will take VASTLY less credit and debt to bring the system back toward a steady state. It is the sheer huge size of our combined government, corporate and individual debt about $50+ trillion vs our GDP $13 or $14 trillion) that daunts me.That is a ratio of over 3.5 to 1. At the nadir of the Great D that ratio had soared to only 2.5 to 1. Most TOD ers believe that cheap energy has allowed the kind of productivity that has converted that oil drum into a drum of something more valuable but if that cheap drum of oil isn’t replaced with another cheap drum of a different energy, then where will the productivity emanate from? If growth slows or stops or becomes negative, that debt will never be repaid unless the currency is expanded, ie inflation. I think we have here not a problem but a “predicament” as JM Greer has pointed out in his latest book,”The Long Descent.” Greer points out that problems may have solutions but predicaments do not.We know what expanded debt and credit did to the economy when the expansion was out of phase with real wealth creation and we fear what the consequences of pulling the plug on debt and credit might be, but what other choices are there? The huge majority of the nation opposed the banking bailout by a treasury secretary who was a Goldman Sachs former CEO. The problems were created and advanced by investment banks and bankers such as Paulson and his tribe so here we had the ludicrous spectacle of a banker bailing out himself paid by us using a hurry up offense. He promoted the banking bailout to prevent something worse.But he advanced no evidence to support his assertions that something worse might happen. Something worse may happen anyway but at least his former bank and his former tribal members are sleeping better.The morons and crooks who devised and promoted this debacle are not being punished but most of their employees are, as well as most of the country. The wall street banking industry owned the government and now the positions are reversed. They have the cash and we have the trash. As to How Prof Daly would handle a transition……well how can we transition from a situation of debt and credit created wealth to wealth? We can’t. There is no easy way to erase wealth. Most of our wealth was chimera. It was never there anyway. Should we punish the banking axis of evil? Of course. Would it yield much money? of course not but sending a horde of these bankers and buffoons to the guillotine would send a message.This hurried and poorly thought out propping up of a failed financial system just delays the inevitable collapse. The investment banks should have been allowed to fail. There would have been huge financial harm to all manner of people and not just the investment banks who were leveraging and trading their own securities but innocents like the Norwegian Teacher’s union and pensioners in Japan and Korea and other banks and insurance and pension funds and even governments worldwide. But they bought those securities. I didn’t nor did 99% of my citizens. You choose. You lose. Will the world ever trust the US financial system again? Not in my lifetime, with or without a bailout. Daly points out the obvious that for wealth to be real, it has to be real. Real wealth is created by people doing real work not pushing paper oops! I mean hitting a keyboard to create a CDS to insure against a default which the bogus insurer can’t pay anyway. GDP will fall and fall hard. There will be no way to balance a trade deficit that is 70% due to our purchase of imported oil any more than we can have energy independence by drilling off Virginia or California. YOYO folks. You’re on your own. Hugh in Jackson Hole.