Michael Hudson was a recent and welcome visitor to Australia, and I helped arrange a talk by him at Customs House that many people on this blog supported financially, and quite a few attended. My own attempt to record the speech was unsuccessful–the sound quality was just too low–but another recording of the event (by Sean Reynolds from Politics in the Pub) was more successful than mine. Here it is below. My apologies for taking so long to post it, but I’ve been even busier than usual recently and I simply didn’t have the time to do so until now.
The sound quality is not great (I recommend using headphones rather than relying on your computer’s built-in speakers) and the image is low resolution, but it is a record of Michael’s speech for those who were unable to be there. The discussion chaired by Miriam Lyons from the Centre for Policy Development is also very much worth watching.
On a related note, I took part in a discussion at the “Green New Deal” conference in Melbourne last month with Greens Senator Christine Milne, and community activists Jake Wishart, Joan Staples and Hendro Sangkoyo, on the best means and methods of effecting real action on climate change.
The good people at SlowTV were there once again recording the discussion. Click below if you’d like to watch. This is a professional quality recording, so the sound and visual quality is extremely high–I wish we’d managed the same for Michael’s talk at Customs House. It shows the enduring value of professional media production over what us amateur media types can do, even with enhanced consumer level technology.
I’m in Helsinki now and have a ton of work to do this week before I can put up any new posts or particularly contribute to the discussion here. Once that work is finished, I’ll be posting several videos, including a detailed presentation of my multi-sectoral model of the economy made to the UNEP in Bangkok on last Tuesday.
November 14th, 2009 at 7:52 pm
You’re a star, Steve. Many thanks for the wonderful effort knowing your very tight schedule.
November 14th, 2009 at 10:00 pm
Thanks again Steve. I agree with Michael’s analysis that housing has become much less affordable in recent times largely because of the rising price of land on our city fringes. Government-imposed restrictions on land supplies, “development levies” to fund infrastructure and increasing layers of regulation all contribute. Planning restrictions in particular, are choking our cities and increasingly pushing up the prices in what were once the most affordable places to purchase a home. For the housing sector and related industries, higher costs mean less activity than would be the case if the laws of supply and demand were free to operate. But there is a much larger tragedy for society as a whole. The regulatory-induced price burden dashes the hopes of a great many aspiring home owners and has the potential to undermine the social cohesion and property ownership that does much to define us as a community. Reducing the regulatory imposts that are creating these conditions has to be a major priority if Rory Robertson is to walk to Mt Kosciusko some time in the next five years wearing a tee-shirt saying: “I was hopelessly wrong on home prices! Ask me how.” I wish I could be there with you in February, Steve. >RJW
November 15th, 2009 at 2:33 am
You spoke about economic growth in terms of gold, so I just did a quick calculation re: the purchasing power of gold in terms of housing.
In 1970 I purchased my home* for A$16,000 which was about 516 ounces of gold. Today, 516 ounces of gold is worth around A$619,000 which surprise, surprise is the approximate valuation for the same property.
* A modest house in the southern suburbs of Sydney.
November 15th, 2009 at 4:20 am
I have a question that is a bit off this particular post’s topic, but still within the broader discussion on debt, so I figured I might as well ask now.
I think I read/heard Steve Keen saying that a oil price shock (upward) could be a welcomed exogenous shock in view of the mountain of private debt that cripples the economy. It’s hard for me to wrap myself around this idea. Perhaps SK or, since his schedules looks awfully busy, other commentators could help clarify.
I can see that $1, valued in terms of oil barrels, each costing P and P + dP before and after the oil shock, respectively, is worth $1/P and $1/(P+dP), respectively. The same factor is applied to the nominal + interest of a bond. However, if the wealth of the issuer is measured by his/her wage, W, in relative terms, this changes from $W/P to ($W+dW)/($W+dP).
In a non-oil producing country, products and services will be more expensive as oil is an input. Even if this is ultimately reflected in a markup in wages, dW>0, overall, an oil shock is likely to cause unemployment, so dW<0 is not rule out. As I see it, the net effect is unclear. I would be more enclined to agree with his view if inflation was not imported but home grown.
November 15th, 2009 at 6:39 am
The Greens have laudable goals, but seem to be short on being practical and pragmatic.
They want to achieve their goals by making everyone sustainable in a local level, but as is pointed out in “Green Metropolis” by David Owen that the most sustainable green living in the USA is New York City, and not moving everyone into the countryside or suburbia.
If you follow an urban sustainable solution then you need a power source, but the Greens say no to nuclear even though it leaves the smallest ecological footprint as opposed to building wind and solar farms everywhere (and destroying ecosystems that we are theoretically saving – Vietnam War Syndrome: Destroy the Village in order to save it).
So your right to push technology as the way to enhance peoples lives. Better to follow a path of urbanization & technological change like:
http://thoriumenergy.blogspot.com/
and
http://www.verticalfarm.com/
And let nature’s ecosytems take over where people currently live in the unsustainable suburban and rural areas.
November 15th, 2009 at 6:50 am
I was approached by an agent for the purchase of a brand new 2 bed unit at Eastlakes in 1967 for $10,000. Now a comparable unit is asking for $350,000, so I guess a brand new one would probably fetch $400,000. If Grandpop’s $16,000 was worth about 516 ounces of gold, i.e. 1oz of gold was worth $31.01, then $10,000 would be equivalent to $310,100. Hey, that should have been a good buy.
November 15th, 2009 at 8:13 am
jeg3@5
The Greens may be laughable, but the idea of sustainable living in a local level is not. Moving the population to the country side was Khmer Rouge’s idea, and moving agricultural production closer to the population centres was mine, admittedly not an original idea. I haven’t finished watching the clip so I don’t know what the Greens’ idea is. When the housewives start talking about the share market, it’s time to sell. But when the economists start talking about technological changes, it’s time for everyone to join in and talk about technology.
November 15th, 2009 at 3:26 pm
Steve, I have played with compound factors for years and the one from the birth of Christ is one I have written about on the net over and over again for the past 9 years. I can reason that interest has been charged forever and even 1% on a dollar is more money than would be needed to buy all the assets on earth today. That is something like 2 to the 30th power. It is clear that the finance equation for valuation of assets and inflation factor for prices has collapsed over and over again. I am an unwavering deflationist due to mathematics. Either way we are looking collapse in the eye.
November 15th, 2009 at 3:32 pm
“…Greens say no to nuclear even though it leaves the smallest ecological footprint…”
As long as you ignore most of their ecological footprint.
November 15th, 2009 at 4:38 pm
[...] This post was mentioned on Twitter by greychampion and Vaidyanathan – India, John Hacking. John Hacking said: Michael Hudson Talk & Green New Deal Discussion: Michael Hudson was a recent and welcome visitor to Australia, .. http://bit.ly/2UkOxh [...]
November 15th, 2009 at 4:47 pm
What Hudson addressed near the end of his speech is what I’ve been trying to spend time pondering to figure out what to do, how to plan, etc. While I find debating investing ideas and the pure economics of it all intellectually stimulating, I think it misses this key point:
We are moving toward feudalism as we near the end of the dollar empire, as Hudson says the end of the Roman Empire likewise brought about due to its debt situation. Ok. Sobering. Yeah, I’ve been pondering this for a year. Most people call me crazy because they don’t want to face what today’s economic situation really entails for us personally. How do I want to prepare for serfdom? How can I establish my own little vassal territory that’s not going to be ruled by a psychopathic scumbag like most feudal lords are? What region in the world, if any, will do well comparatively? etc etc.
Any answers?
November 15th, 2009 at 5:28 pm
A question on unemployment numbers. I wonder if workers who are required to hold an ABN number for their employment are counted in the unemployment numbers as of late.
These workers do not appear on payroll figures as they are not staff. They are required to provide their own workcover and insurance. They are the first to be put off in a downturn and are the last to be defined as unemployed by Centrelink. Applying for unemployment benefits by ABN workers is a long, extended and protracted process.
November 15th, 2009 at 7:48 pm
mfo
Sounds a bit like sub contractors not counted as unemployed however out of work. The manipulation of these figures dosen’t get anywhere for the true economy is the spending power not whether there is so much a percentage unemployed.
November 15th, 2009 at 9:48 pm
Interesting article by gittens
http://www.smh.com.au/business/learning-from-the-great-depression-20091113-iens.html
November 16th, 2009 at 2:38 am
Hi Steve,
Loved “Anti-Ecnonomist”
November 16th, 2009 at 9:14 am
If I invested in gold I probably would not do so with an expectation that it will grow physically in volume. I was very confused by this explanation and what it implies the explanation of what growth is. So I thought, I’m a graduate from Steve Keen’s uni, what do I think growth is?
So I came up with the following scenario, which has an interesting implication.
Let’s say I live in a hypothetical economy a long time ago. In this economy the only thing produced is bread and so bread serves as a measure of economic activity and a measure of temporary wealth, you can swap bread for clothes, for example.
Now currently bread is produced very innefficiently, everyone is out collecting wild wheat and in the production process.
One day I have an idea, I get together with 9 others and say there is a better way of doing this. Instead of turning the seeds we collect into bread let’s plant it here and innovate production. We call the seeds initial capital and we have 10% stake in this new bread producing venture.
You can see where I am going here right? Through innovation the venture grows and bread output rockets. We can now support a much bigger population and my 10% stake in the venture allows me to keep a massive family which doesn’t have to do much. Additionally since less people have to produce bread, the economy expands into other areas.
The key implications are – increasing productivity and population growth are key to economic growth.
Also since it was my idea I don’t have to be productive at all. I waste more resources than anyone else without having to work for it because I am an investor with a 10% claim to the entire economy.
In fact I spend most of my productive time maintaining a small army to keep away anyway who wants to take a claim to my 10%.
November 16th, 2009 at 9:52 am
The only advantage in productivity in countries like US over China comes from better infrastructure as advances in technology spread rapidly everywhere. If we assume that there is a long-term equilibrium in the globalised world where there are no trade barriers and there is a free flow of capital – there is no reason why the purchasing power of a Chinese worker should be lower than of an American one.
Or a better example (I cannot comment on the productivity in the automotive industry in China) – why a Polish worker working in a very modern Opel (General Motors) factory should only get USD1000/month while his collegue working in a Holden or GM proper (in the US) factory earns several times more?
So this is in my opinion a symptom of inertia in the transitionary process of adjustment or an artificial distorion caused by debt-fuelled loading of demand in some Western countres. But this doesn’t work well any more.
Since there is ruthless competition between a Chinese worker and an American worker – we have 20% unemployment in the US. There are 2 options – either debase the American currency to lower the purchasing power of the Americans or to reintroduce protectionism. The Chinese will refuse to allow for a gradual readjustment of their currency. I can’t see any serious improvements in productivity in the US – even if it is still 2 times higher than in China in some industries – we are talking about for example 10 times lower wages.
The talk of gold is only in the context of speculation. If we read the markets correctly we can make money – what’s wrong with it?
I can clearly separate what I think should be implemented in the society from what I do to advance the wealth of my family. I don’t think I am obsessed with overconsumption or that I harm anyone if I buy or sell gold or whatever else.
November 16th, 2009 at 10:24 am
TITINT,
I would have thought that in an expanding economy gains in productivity are a good thing but are masked due to inefficiencies and in a contracting economy they would have the opposite effect.
As an economy expands and there are technological gains, as businesses move to implement those gains there may, depending on the industry, be a push against full implementation of those gains.
I can think of car manufacturing as an example – in the boom times it is easier to keep the workforce happy by retaining employement than fully implementing productivity improvements.
Scroll forward to a downturn, businesses move to implement productivity gains previously deferred. This leads to job losses etc. As the economy picks up an increase in productive capacity means businesses will require less staff to produce the same level as before.
In theory this should free up human capital to be redistributed to those parts of the economy where they are required.
However, if you look at the previous 2-3 recovery phases from recessions they have all been fuelled by credit growth. I am sure that this time you will have a greater level of idle human capacity as growth levels will be more subdued due to the lack of a consumer credit fuelled expansion.
I am not an economist so maybe I have missed something but that is how I think it would play out in the real world.
November 16th, 2009 at 11:14 am
Still 5% LVR from bank. It hasn’t changes at all.
http://au.biz.yahoo.com/091113/2/29q53.html
First home buyers finding it tough
Mr Rushton said tighter lending rules that require borrowers to make a savings contribution of around five per cent towards a property purchase are creating major hurdles for new buyers.
“There is a requirement around genuine savings,” he said.
November 16th, 2009 at 11:25 am
bb
That interesting article by Gittens talks about everything except private (household) debt.
These econonomic commentators can rant and rave about everything they like, ie value of the dollar, what china is and isn’t doing, fiscal policy, resources boom, etc. However the single fundamental problem in Australia is too many people have borrowed far to much and they can’t pay it back.
The tide is fast going out, most of the population is naked and Krudd is running around handing out a few loin cloths thinking that will solve the problem.
November 16th, 2009 at 11:43 am
Good morning all, we’ve been talking about gold in our responses to Prof Keen’s last post “My Per Capita Talk on Debt”, and can’t help noticing his comments on gold in this post. He stretched our imagination to visualise a gold nugget as big as the Milky Way. Well, he could have inadvertently opened up the possibility of gold mining the Milky Way, or milking gold from the universe. The proviso is that we have to start saving.
But that’s for the long term.
While Amanda Lohrey introduced Prof Steve Keen as the economist who predicted the GFC as far back as 2005, Colin Campbell was probably one of the first public figures to predict peak oil as the trigger for this global financial meltdown. He predicted peak oil back in 2003, and then he extrapolated his works on peak oil to its effects on the financial world. (see – “Colin Campbell predicts credit crunch due to peak oil 2005” –
http://www.youtube.com/watch?v=lDNMjV6sumQ )
Subsequently, Richard Heinberg predicted that people would not be talking about peak oil. He thought that the people would rather be talking about unemployment figures and high prices of food, and they would have completely lost sight of the one event that caused all these problems. (see Peak Oil Causes Global Recession, Depression –
http://www.youtube.com/watch?v=PYmnriCJ18I&feature=related )
Richard Heinberg went on to expand his research into peak coal and eventually peak everything. (see Richard Heinberg’s Peak Everything).
These top scientists are just trying to tell us that not that they haven’t tried, but there is a geological limit as to how much we can milk from mother earth.
Sure, humans have been drinking cow milk, goat milk, horse milk or powdered milk for generations but unfortunately our motor vehicles are more delicate than human in that the fuel they consume has a very strict set of specifications. For instance, they don’t run on gun powder. We have tried with varying degree of success with methanol, LPG, CNG, ethanol, even hydrogen as liquid fuel components. The problem is the scaling up the CTL or GTL operations enough to maintain the present fleet of motor vehicles.
For nuclear, solar or wind power options, the problem is scaling down. It may even be possible to build a car the size of a nuclear submarine for the really wealthy, but a lot of us would have to move out of their way when our homes are bulldozed over to make way for the 1k wide super nuclear highway.
The peak oil scientists and geologists are not talking about running out of oil per se; rather they are telling us how close the supply of liquid fuel is lowering to the critical mass which is required to maintain the minimum level of activities in the human society in its present form. Just imagine what a weak current can do to a heart-lung machine. We can do a lot of things to rectify the situation, but the last thing you would think of is to supplement the weak electric current in the electric circuit by “injecting” other sub-atomic particles. If you are already trying that, you must be really desperate.
The world is really desperate for energy and we are trying. The most ambitious energy program on earth is the ITER project. The original program targeted 50 years and they have wasted 20 years in political wrangling. And that is not even going to solve our liquid fuel problem.
Meanwhile there are a myriad of groups and companies trumpeting alternative or green energy to catch our attention and/ or venture capitals. I hope some of them really work but I seriously doubt they will save the day.
The day of awaking is behind us, we can look forward for the days of “walking”. I suppose it would be a lot easier on our feet by bringing agricultural production a bit closer to our doorsteps, meaning population centres in the capital cities viz Sydney and Melbourne, esp Sydney. That’s the best use I can think of for the remaining liquid fuel still available.
November 16th, 2009 at 2:36 pm
Further to my previous post.
I do appreciate that in the modern economy with fiat money things are very different.
I suspect though that fiat money is exactly the monetary mechanism which easily allows for unproductive ‘investors’ to keep claim to their ownership of the economy without making it tangibly obvious they are doing that. It is a mechanism which allows for pooling of the investors funds while government provides any measures of protection for those investments.
I think we, the minority of wealthy nations are through our monetary system exploiting the majority of the poor countries in this world. For example the monetary system allows me to own a part of the mining operations in country X. The profits from these operations allow me a living standard of only possible for the elite in country X. And my claim to the economy of country X is protected by the international monetary system, which under some circumstances and with historical precedence is protected via military force.
November 16th, 2009 at 4:36 pm
http://www.smh.com.au/business/world-business/bubble-trouble-looms-20091116-ihtj.html
Bubble trouble loomsNovember 16, 2009 – 3:52PM
Financial officials in Japan and China, Asia’s two largest economies, warned the US Federal Reserve’s interest-rate policy risks spurring speculative capital that may inflate asset prices and derail the global economic recovery.
Emerging economies “might overheat and experience financial turmoil,” Bank of Japan Governor Masaaki Shirakawa said in Tokyo today. Low rates and the dollar’s depreciation present “new, real and insurmountable risks to the recovery of the global economy,” Liu Mingkang, China’s top banking regulator, said yesterday.
The comments reflect concern that the Fed’s pledge to keep rates near zero for an “extended period” may lead to a repeat of the financial crisis. MSCI’s emerging-markets stock index has risen 71 per cent this year and Asian countries from Singapore to South Korea are trying to rein in surging real-estate prices.
“The continuous depreciation in the dollar, and the US government’s indication that, in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation,” Liu, chairman of the China Banking Regulatory Commission, said in Beijing yesterday.
While lower interest rates will help Americans pare debt, “there are also risks involved in continued low rates,” Shirakawa said today at a Paris Europlace Financial Forum in Tokyo. Having borrowing costs near zero may strain government finances if it spurs speculation that the dollar will continue to slide, he said, while warning that easy policy by officials globally may have repercussions in the long term.
“Monetary easing in advanced economies has stimulated capital inflows to emerging economies,” Shirakawa said. If emerging nations continue to recover at a faster pace than advanced ones, they “might overheat and experience financial turmoil, triggering a recession,” he said.
US dollar’s tumble
Low rates and the dollar’s tumble have “seriously affected global asset prices, fuelled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies,” Liu told reporters in Beijing at the International Finance Forum.
The debate over the Fed and asset prices comes years after some analysts criticized the US central bank for holding down borrowing costs for too long in 2003 and 2004. Dallas Fed President Richard Fisher is among those who have said the Fed’s actions unwittingly contributing to the housing bubble.
“I’m scared and leaders should look out,” Tsang said in Singapore Nov. 13. “America is doing exactly what Japan did last time,” he said, adding that Japan’s rates in Japan contributed to the 1997 Asian financial crisis and US mortgage meltdown.
Carry trade
Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp., said yesterday that low borrowing costs in the US have spurred a carry trade with some currencies, notably the Australian dollar after recent rate increases by that nation’s central bank.
“The carry trades will further drive down the dollar’s value and fuel commodity prices,” Zhao said. “The dollar’s depreciation has also caused excessive liquidity in the global market.”
In a currency carry trade, the investor makes money by borrowing in a country with low rates, converting the money to a currency where borrowing costs are higher, and lending the money at that higher rate.
The dollar fell against most of its major counterparts at the end of last week as a report showed the euro nations emerged from their worst recession since World War II, encouraging investors to buy higher-yielding assets.
Keep rates low
The US dollar also weakened on speculation Federal Reserve officials will today reaffirm the bank’s pledge to keep rates low to support growth.
Bernanke, a scholar of the Great Depression, has overseen a record injection of liquidity into the world’s largest economy, pledging not to make the mistake of the 1930s, when officials tightened policy.
US Treasury Secretary Timothy Geithner reiterated his commitment to a “strong” currency on a trip to Asia last week. “It’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,” he told reporters in Tokyo Nov. 11. He also underscored the US intention of reducing budget deficits.
`Biggest influence’
“The dollar’s devaluation has the biggest influence on China among emerging market economies,” China Construction Bank’s Zhao said. “China has huge amount of investments in dollar assets; their safety is threatened.”
China is the biggest foreign holder of US government debt, with almost $US800 billion of Treasuries, in part a consequence of its controls on its currency. Premier Wen Jiabao’s government has sold yuan and bought dollars to keep his nation’s currency fixed around 6.83 per dollar since July 2008. It gained 21 per cent in the previous three years.
President Barack Obama may discuss China’s currency during his visit to China, which began yesterday. Geithner said last week the region has shown a commitment to adopting “market- oriented” exchange rates.
China triggered speculation on Nov. 11 that the yuan may rise when policy makers dropped a pledge from their monetary- policy report to keep the currency “basically” stable.
November 16th, 2009 at 5:14 pm
It sounds like keeping the Yuan pegged to USD is actually artificially supporting the USD value by forcing China to buy it.
November 16th, 2009 at 7:53 pm
“The regulatory-induced price burden dashes the hopes of a great many aspiring home owners and has the potential to undermine the social cohesion and property ownership that does much to define us as a community.”
hi richard,
the bureau of stats data on housing during the late 80’s makes for interesting reading. where i live we had over building to the extent that we got nearly 2 years production in 1 year, and hence in the early 90’s house prices fell upto 30%. local government had to release the land to create such a folly .
local government has learned from the bitter experience of the late 80’s and early 90’s, lest they should be visited upon them again.
unfortunately it doesnt help the cause of affordable housing
November 17th, 2009 at 2:17 am
Hi Steve,
I am a bit surprised by what you mentioned about the real rate of growth – and what does gold have to do that anyway? One of the commenters TruthIsThereIsNoTruth also seems a bit puzzled by your statement. You have made an assumption that the price of gold grows with some kind of growth.
November 17th, 2009 at 2:30 am
No, I was trying to use a single commodity measure: you have an ounce of gold and it grows at 1% per annum. I start and end with a $ value but just to get a measure of how much physical increase–the measure of “real” growth as opposed to inflation–you would need to meet the real rate of return many people expect these days.
November 17th, 2009 at 10:43 am
soho44;
You asked earlier;
“Why then, do they continue to push the govt. rate?”
How can I put this clearly. The US Govt’s plain and crucial objective is to brainwash you the public into thinking that the economy is much better than it actually is.
Why? Because things are very bad in the US economy AND, absent massive Govt intervention in the form of stimulous from the printing and spending of new unsupportable debt, the US economy is getting worse. Witness the steady decline in employment and consumer credit along with rising foreclosures and bank failures. These statistics tell the true state of an economy. It is NOT possible for these stats to be all so bad together in a growing thriving economy. Ergo- the US economy is rather sick and getting sicker.
The Govt is both benefactor and enemy of the people.
November 17th, 2009 at 10:50 am
Your gold calculation reminded me of the following from Mark Blaug:
“If Malthus were writing today he would no doubt have cited a recent calculation showing that if the human race had sprung from a couple living in 10,000 B.C. and had grown since then, not at the maximum biological rate but only at a modest 1 per cent per annum, the earth would now be a sphere of flesh several thousand light years in diameter with a surface advancing into space at a rate many times faster than the rate at which light travels.”
That’s from 1978.
Updated, no doubt it would be a real mess.
November 17th, 2009 at 10:57 am
TTINT,
“It sounds like keeping the Yuan pegged to USD is actually artificially supporting the USD value by forcing China to buy it.”
Spot on, along with Korea, Taiwan, Japan , Saudi Arabia , Brazil, Russia etc…….all must buy dollars to hold down their stronger domestic currencies.They are all net exporters with economies structured around the export model.
Which is why the USD is always never the US’ problem.Their argument is simple- if you don’t want US dollars then don’t buy them. Whereas domestically the US will run policies (QE) that suites it’s goals within that realm.
So for the forseeable future, it is very difficult to see anything but an easy dollar environment.And that is what scares the exporters of the world. No change to the status quo means more buying of USD’s for them. To cut massive deficit spending in the US and to withdraw the steady flow of bailout cash now propping so many huge institutions would tank the economy immediately- not going to happen.
November 17th, 2009 at 11:04 am
in terms of the comments on growth, as I understand it is a measure of flow so the static size argument simply does not hold here.
How do you measure the production of a horse and cart against the production of a car, by physical volume they take up the same amount of physical space!
November 17th, 2009 at 11:29 am
Not sure if this useful, but thought I would pass it on. I flew up north last week right along the coast.
Off Mackay (Hay Point), I counted at least 30 tankers anchored – as many as another 10 to 20 were obscured by clouds.
Waiting to be loaded – thus a sign coal (and other resource?) exports going again at full tilt and held up by bottlenecks – OR waiting for orders – thus an indication of a slow down in resourced demand??
The BDI is back around 12 months highs so perhaps the former is correct.
Would be keen to hear a view from anyone with some knowledge on this.
November 17th, 2009 at 11:35 am
TITINT
The “static size” is f(t) (a function of time)
and the the “flow” is d(f(t))/dt
Now if you have d(f(t))/dt = k*f(t) the only solution is f(t) = exp(k*t)
http://en.wikipedia.org/wiki/Exponential_function
This is the description of the exponential growth Steve was referring to. Nothing in the universe (including real house prices in Sydney, number of rabbits and number of humans) can grow exponentially for an infinite period of time.
http://en.wikipedia.org/wiki/Malthusian_catastrophe
November 17th, 2009 at 11:41 am
Meredith Whitney on the market, gold, bank capital, double dip recession…
http://www.cnbc.com/id/33974782
November 17th, 2009 at 12:02 pm
ak
Thank you for the enlightment on the exponential function.
If you accept the concept of infity in saying nothing can grow exponentially until infinity then you must accept that growth to infinity is infinite under the exponential model.
I agree that wealth as a real claim on the economy does not grow infinitely, in fact it should grow together with the economy to be sustainable to the infinite limit – BUT my point is that you can’t measure this underlying measure – the economy with the same measure for an extended period of time without being able to measure the relative value of advancing technology.
Investment and economic growth must be measured in relation to something and it is important to define what your reference point is. A piece of gold, somehow expanding in volume is not exactly a good reference point and neither is an exponentially expanding population. I don’t know what a good reference point is all I am saying is that those are not good examples.
November 17th, 2009 at 12:13 pm
greetings all
thoughts still evolving on this one, but this has been an interesting journey. it almost brings a little comfort to me being somewhat (opposed to guvvy meddlin’ beyond matters of the nation state, of health and of learning – ie, the same opportunity to all citizens who care to reach out and grasp it as young adults)
when looking at the scale of the private debt problem earlier in steve’s writings when compared to the public-spending gyrations to ’solve things’.
steve, can you please elaborate, (when you have a chance of course!), on one of your comments in the panel section in the above video (towards the end) :
i can appreciate setting a hard limit on secured debt-exposure in relation to projected rental capacity
i don’t understand your call for a 25year limit to holding shares in a company, especially if these were acquired without debt using my excess capacity – surely i am entitled to hold this property for as long as i see fit
as an aside, something that stinks a little is when i can’t afford to save (as a saver) because i know that inflation will erode my spending power, yet i can’t afford to buy a house in today’s market because i am competing with people prepared to go a lot further into debt than i am
seems to me that housing debt may well be the security against which banks make larger &/ riskier loans to business – ie, my guarantee to pay a secured loan from you is something you can borrow against from somebody else
the problems seem to arise the further along the debt-chain things travel with the layers of obfuscation that are allowed or required to occur to keep the chain growing longer –
maybe the key legislation here is a limit to one layer of debt-shunting, which would allow for enough movement of $$’s to fund industry at 1 level up from the nodes, would require responsible lending because the foundations are highly visible to the rest of the structure, would limit the size of growth by these institutions to the capital they can bring under their management from the savers + the volume of debt they can convince others to lend to them based on the security they offer ???
grandpop – you might be interested in http://www.pricedingold.com – i draw your attention to the price of petrol at the bowser
November 17th, 2009 at 12:22 pm
jeg3,
Thinking long term here. Vertical building and urban farming MAY work, but I wouldn’t put all my eggs in that basket. It is definitely worth investigating what can be achieved in that direction while also trying to build up tried and tested traditional sustainable agriculture, just in case, and also to run in parallel. However, note that vertical agriculture requires massive energy inputs still. The buildings need to be constructed and maintained, these are often steel-frame buildings covered in glass – both of which require energy to mine, produce and transport. You would also need to bring in massive quantities of organic material and soil (taking away from the tried and tested traditional agriculture – which also needs these things). You need to transport these materials and the produced plants and seeds up and down the tall buildings – more energy needed for lifts etc (unless you want to cart all this stuff manually) as well as industries needed to produce and maintain the lifts and their components. The overheads quickly start to mount – all detracting from the available resources to grow the actual food. Personally I put little stock in nuclear or any alternative energies – whatever energy resources we switch to will either be insufficient to fuel our current life-styles, or quickly depleted if the world adopts them. Ultimately I believe it is inevitable that we will need to drastically reduce our energy consumption (and resource consumption in general).
Strabes,
This brings me to your point. I personally believe at some point European descendants will abandon the most arid parts of Australia. They are only marginally viable even with the cheapest ever energy the world has ever seen (helicopters to round up cattle etc) in any case the continued running of cattle etc will soon degrade the land making it even less viable. At this point the only possible existance in these areas will be nomadic tribal living as the Aborigines have done for 50 centuries. This area will be free of European influences and ideals (although that sort of life will not appeal to most coming from our background). I would expect that the more fertile areas around the coast would continue to support European style farming, along with whatever political systems are in place in Western (and/or Eastern) culture at that time.
November 17th, 2009 at 12:57 pm
TITINT,
There is no infinity in technological growth. Energy resources available to humans are limited. Human brain capacity is limited. Our consumption capacities are constrained.
Our lifespan is limited in time by inevitable death. People who think that we are not constrained are fooling themselves.
Where is the technological singularity promised to us by the false prophets of the new religion? We will reach debt singularity and the bottom of the oil barrel much sooner.
Have you read anything written by this guy? To me he was the greatest Polish writer (and philosopher in disguise) of the 20th century. In fact he was the only Polish writer whom I didn’t find profoundly boring. (Yes I was almost expelled from the school for expressing similar views loudly).
http://en.wikipedia.org/wiki/Stanislaw_Lem
I can recommend reading “Dzienniki gwiazdowe” – the ultimate consequences of implementing biotechnology are discussed there. The book was written 40 years ago – Stanislaw Lem has in fact predicted almost everything what is going on now.
November 17th, 2009 at 1:40 pm
ak,
I understand where you are coming from and I am not advocating infinite growth models.
Since you tried to formally define a pde in your previous post I can add that a formally defined pde must also have some boundary conditions including the limit to infinity.
The point is things can grow exponentially and there is mathematical and intuitive sense in continuous compounded growth but it is also necessary to define the boundary parameters for those models. What you are proposing is that the defined limit to infinity of an exponential growth model is infinity, this is an ill defined model.
So naturally population growth can grow exponentially but there are some limits there obviously which can very easily be incorporated into a model which includes BOTH the limit and the exponential growth.
November 17th, 2009 at 1:53 pm
So this is exactly the point Steve was making that any exponential growth can only go on for a while. Depending on the kind of constraints and other parameters the system then either collapses (the cycle may repeat istelf) or gets into saturation.
The boom-bust pattern which emerges from the model of the debt-driven growth is an example of a non-linear system described by differential equations of >2nd order.
November 17th, 2009 at 2:12 pm
ak
Any ideas on how to ride out the dark ages that are soon to visited upon us if that climate change hysterical madman, Kevin Rudd, has his evil way?
November 17th, 2009 at 2:28 pm
ak
ok we’re on the same page, still don’t see how the piece of gold fits in!
I don’t remember Steve’s model having >2nd order effects which in time dependant models is generally neglible I would have thought. I remember the system to be all first order.
Maybe someone with a fresher memory or Steve if not too busy can confirm.
November 17th, 2009 at 2:52 pm
TruthIsThereIsNoTruth
A model that includes both exponential growth and limits is a model of either eventual catastrophic failure or of a system which is undergoing violent oscillations.
Either of these scenarios are not desireable. What is needed is a stable system which can grow or contract as need arises with no bad affects.
The growth model is needed at present because the growth masks bad economic performance and systemic as well as institutional corruption.
The point that Steve makes with his ball of gold proposition is that continual exponential growth is just not possible. Whether it fails because it reaches limits or because of second order effects is immaterial, it simply must fail. I conclude that second order feedback affects cause the collapses but this is not the point.
November 17th, 2009 at 2:56 pm
TITINT,
You are right I should have written >= 2nd order (for linear systems). But since they are non-linear the first order will suffice to get the oscillations.
burrah,
Isn’t it all about getting the double dissolution before the next phase of the financial crisis (end of carry trade in AUD) and convincing the green voters to vote for the ALP? I think this is all irrelevant – in the end it will be the same story as with Peter Garrett approving a pulp mill.
November 17th, 2009 at 3:53 pm
soho44,
….and it is not only employment figures that the US Govt is desperately trying to spin to and brainwash it’s citizens with. Look at the detail in this rant from Denninger on the B***sh** Retail Sales methodology. A very suttle method of promoting crap to the toiling masses. Goebbels indeed;
http://market-ticker.denninger.net/archives/1628-Goebbels-Retail-Sales.html
“The number is cooked. Only same-store sale changes count and those stores that closed or were newly opened are ignored.
This implies that the report will may slightly understate results in a rapidly-expanding environment for the first month (although that understatement will be corrected via revisions in the second month) but is almost certain to grossly overstate results in a weakening consumer retail environment – and those overstatements will not be corrected.”
November 17th, 2009 at 5:26 pm
BrightSpark,
“A model that includes both exponential growth and limits is a model of either eventual catastrophic failure or of a system which is undergoing violent oscillations.”
This is a very general statement and in the financial modelling world would be called hand waving. General statements on mathematical models are very difficult to prove. Firstly you have to strictly define ‘catastrophic failure’ and ‘violent oscillations’. Then you have to prove conclusively that ‘a model that includes both exponential growth and limits’ will always behave this way. Not easy to do BrightSpark.
The type of modelling Steve does can reproduce a specific behaviour which is empirically consistent. This means it is a good reflection of a particular part of economic reality, it is a good model and insightful.
It is a good model because it reflects reality, changing the model won’t alter reality it will just make it a bad model.
My conclusion from Steve’s model is that we need to be more conservative in our lending standards. I don’t think the conclusion is to alter reality so that it fits into some hypothetically sustainable model.
I am posting a link which I think is relevant to this discussion:
http://www.wilmott.com/blogs/paul/index.cfm/2009/1/8/Financial-Modelers-Manifesto
November 17th, 2009 at 7:35 pm
There seem to be a lot of single issue fanatics posting here. Do you guys know what OT means?
November 18th, 2009 at 10:28 am
OT may refer to:
* Oakville Trafalgar High School
* Oblivious transfer
* Occupational therapy
* Occupational therapist
* Off-topic
* Offensive tackle, either of two football positions
* Old Testament
* Old Trafford
* Operación Triunfo, a Spanish reality-show talent contest
* Operating Thetan, in Scientology, a spiritual state of a being able to operate free of the encumbrances of the material universe
* Operating theatre
* Operational Transformation (OT) an optimistic concurrency control method for group editing
* Operation Transformation (TV series), a popular Gerry Ryan event
* Optimality theory
* Organisation Todt, a Third Reich civil and military engineering group
* Otago, a region of New Zealand
* O.T. Recordings, a record label
* Overtime, a designation indicating working past normal work hours
* Overtime (sports), playing a sports game past regulation because of a tie game
* The IATA airline designator for Aeropelican Air Services
* Obrn?ný Transportér, Czech for Armored Transporter
o OT-62 – Series of tracked armoured vehicles
o OT-64 – Series of 8X8 armoured vehicles
o OT-65 – Series of 4×4 Armoured Cars of Hungarian design similar to the BRDM-1
o OT-810 – Half-track infantry combat vehicle series
* Obsession Telescopes – a U.S. telescope maker
November 18th, 2009 at 10:28 am
Reference:
http://en.wikipedia.org/wiki/OT
November 18th, 2009 at 10:58 am
It has been widely tipped as being an interesting year for housing with increasing interest rates placing even more pressure in indebted households and the reduction in FHVG stimulus but what hope is there for a correction in our market when the US govt continues to pull out the stops for theirs.
http://www.cnbc.com/id/33996717
Surely there will be an equal amount of pressure from our own spruikers and politicians Australia wide to pressure Krudd to keep the scam continuing.