Chance of Economic Chaos

SUBHEAD:Leaders in Washington DC have consistently chosen to delay climbing down the consumption mountain.

By Juan Wilson on 1 November 2010 for Island Breath -  

Image above: "Fantasy Sailing" by Timmy Wang. From (  

You may have noticed the increase in our blogs focus on the issue of economics. In time like these economics is a canary in the coalmine issue. Generally, reporting on news focuses on events that have happened - the past. Reporting on economics more often focuses on plans and events that have yet to happen - events in the future. In a coalmine the seepage of poisonous gasses will kill a canary before it kills the miners.

That's why in the old days the miners kept a canary in a cage with them and listened carefully for the bird's call. Something big in unfolding again. Here on Kauai, like in 2008 when oil was $147 a barrel we may soon feel the waves of financial instability and chaos washing across the ocean.  

Canary in a Federal Reserve Meeting
In our metaphor the canary is the U.S. Federal Reserve System. The banking consortium has reduced lending rates to its big bank partners to zero and started selling T-bonds to investors at negative interest rates (the price to guarantee protection from inflation).

Besides the Mid Term Election, tomorrow (11/2/10) will be a day that determines another important decision on the nation's fate. The Fed will meet to consider how to salvage the US economy. The Fed is likely to double-down on its $trillion bet on more debt. They will try and jumpstart America's go-go-growth economy with a mammoth purchase of debt with a computer keystroke.

The name for this operation is Quantitative Easing (QE). The QE is likely to begin with a few hundred $billion stimulus, with an option on a $trillion. But there are some critics that see this as an order of magnitude too small to get the job done. This results of this strategy could easily have more impact on Kauai than the results of tomorrow's election. QE is much like using gasoline to start a bonfire in the rain.

If you don't use enough fuel the wood gets wet and you'll never start the fire. If you use too much fuel, or the rain stops, the fire can go out of control and burn down the forest. The Fed's consideration tomorrow will be to make the QE is just right, not too big, not too small. They perceive that too big will lead to uncontrolled inflation, too small to spiraling deflation.

In either case Kauai can expect some transformations. Tomorrow's meeting may be Fed Chairman Ben Bernake's last tweet as economic canary. If the QE fails the Fed will be out of ammo. In a coalmine that means that it's time to get out.  

Mad Hatter at a Tea Party
Tomorrow we go to vote. Most polls predict the Democrats will lose control of the House and possibly even the Senate. A group of conflicted wingnuts and rapacious Republicans will be in charge. The likely leader of the Senate Majority, Mitch McConnell has promised to make priority Number One to wreck everything at hand that might be supporting Barrack Obama's presidency. You might think this would be a problem. Not so.

The Democrats, almost universally, proved to be cowardly and venal, even when leaning in the correct direction on issues. They proved unable to disengage with the old model of "wealth" building - that was growth by debt - and that has failed miserably. We have bumped the ceiling on population and resource extraction. That means we have bumped the ceiling on "useful" debt.

And that means we have climb down the mountain of consumption that has made us fat and passive. To my mind their two ways down from our high perch. One begins sooner than later. It is a gradual grade down to a lower plain where we can find shelter. The other path begins later than sooner and will result in a steep precipitous drop from grace. Economic chaos.

One thing supporters of Democrats might take comfort in is that with the Republicans in charge of Washington, the unfolding round-two of economic collapse will be on their watch. The public will see their buffoonery as reason to throw them out in 2012. The bad news is that the Tea Party will likely be short and ugly. Even after America lost leadership of the oil industry to OPEC in 1974, our leaders in Washington DC have consistently chosen to delay climbing down the consumption mountain.

We have chosen instead to hold a gun to world in order to keep "our share" of world power. That game is coming to a close and the refocus will have to be be on a ground-game at home. I recommend we all start down the mountain now. See you at the bottom.  


1 comment :

Joseph Michael Culhane said...

What a picture painted here. We are indeed in the midst of some magnificent transitions politically and especially economically(they'll go hand in hand from here I imagine).

We need to both brace for what may come with the Fed's actions and more importantly, I agree we need to start moving in the decreasing consumption direction and regain the power of localization and community cohesiveness NOW.


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