Coming soon to a country near you?

From Jim Rickards‘ @jamesgrickards Currency Wars: The Making of the Next Global Crisis. #currencywars

Rickards is speaking here about alternatives to Keynesian economic theory.

The most promising new school is complexity theory. Despite the name, complexity theory rests on straightforward foundations. The first is that complex systems are not designed from the top down. Complex systems design themselves through evolution or the interaction of myriad autonomous parts. [Explaining why restricting autonomy is the favored approach for administrative government mavens, AKA “Czars.”]

The second principle is that complex systems have emergent properties, which is a technical way of saying the whole is greater than the sum of its parts — the entire system will behave in ways that cannot be inferred from looking at the the pieces. The third principle is that complex systems run on exponentially greater amounts of energy. This energy can take many forms, but the point is that when you increase the system scale by a factor of ten, you increase the energy requirements by a factor of a thousand, and so on. The fourth principle is that complex systems are prone to catastrophic collapse. The third and fourth principles are related. When the system reaches a certain scale, the energy inputs dry up because the exponential relationship between scale and inputs exhausts the available resources. In a nutshell, complex systems arise spontaneously, behave unpredictably, exhaust resources and collapse catastrophically. When you apply this paradigm to finance, you begin to see where currency wars are headed.

On March 20 Greece has a bond payment of 14.5 billion euros ($18 billion) due. Close enough to the Ides of March for government work.

“[E]xponentially greater amounts of energy.”

Source: PBOC, ECB, FED, BoJ (via Things That Make You Go Hmmm…)

Iceberg ahead, Sir! Steady as she goes, Helmsman.

Nancy Pelosi is being coy about her support for the Government bailout of the Government. Congressional Liberals are whinging about ‘Satan Sandwiches.’ The statist street is suggesting Obama has betrayed them – again. The Vice President called the tea party “terrorists.” “Hostage takers,” is the Progressive phrase of the day. If the hard left doesn’t like it, it must be good, right? After all, the Wall Street Journal is calling the debt deal a ‘big win’ for the tea party, though continuing to criticize those who were elected for keeping their campaign promises.

It’s a set up. All this angst is to reinforce the idea that the tea party philosophy is rigid and unreasonable. It is not rigid, it is principled. It is not the least unreasonable. Still, in the next round we’re going to hear, “You terrorist cretins refused to compromise last time, and THIS TIME you’re not getting your way.”

Here’s the terrible thing those moronic Hobbits wrought:

  • $9 trillion Baseline increase over ten years
  • $0.917 trillion spending reduction
  • For a $8.083 trillion Baseline increase over ten years

  • Add to that a $1.5 trillion Budget Act Super Committee tax increase, (my prediction) and you get… a $9.583 baseline spending increase over ten years.

And that’s if future Congresses don’t go back on the promises of the current pirates, and the largest tax increase in American history is enacted by letting the Bush tax cuts expire.

Oh, and we get to have a fantasy vote on a Balanced Budget Amendment in the Senate.

Status quo on the debt trajectory. Size and scope of government unchanged. Summary: We avoid a liquidity crisis by increasing the ongoing solvency crisis.

Here are two examples of what the debt ceiling deal means will continue.

Graphs courtesy Zero Hedge.

You decide if that represents an immediate, existential threat to the United States.

If the tea party are Hobbits, John McCain is Boromir

Nominations for Grima Wormtongue are open.

John McCain quoted the Wall Street Journal the other day to the effect that tea party aspirations for an end to fiscal insanity resemble a J. R. R. Tolkien fantasy.

…[T]he tea-party Hobbits could return to Middle Earth having defeated Mordor.

Yesterday, the Journal found it expedient to explain the obvious:

These columns drew much notice after John McCain quoted our July 27 “tea party hobbits” line on the Senate floor. Senator (sic) Sharron Angle responded that “it is the hobbits who are the heroes and save the land.” Well, okay, but our point was that there’s no such thing as a hobbit.

Serious debt reduction achieved in a bi-partisan kumbaya outbreak is a fantasy. It’s right up there with belief in the Tooth Fairy and the Social Security ‘Trust’ fund. And it will forever be a fantasy, absent some major shake-up. The Journal’s core assumption is that not raising the debt limit is the worst thing that could happen. Perhaps not.

As to fantasy, the same could reasonably have been said, and was, of the Declaration of Independence. The difference between the Revolution and the debt ceiling question is the immediacy and level of perceived risk.

If you do not think resolution of the Federal spending question involves an imminent, existential threat to the Republic, why would you think Hobbits are imaginary?

If you assume we will return to fiscal sanity at some later date – savings and investments intact, ‘social compact’ reformed – because the GOP will fix it all when they take the Senate and Presidency in the next election: You may be indulging in a fantasy. As Senator McCain has demonstrated, we wouldn’t even be having the debate if we hadn’t elected the Hobbits.

If you assume the Democrats will seriously address spending, or even co-operate in so doing, you are beyond fantasy.

The WSJ‘s analogy could be extended. The Hobbits didn’t want to take on Sauron, they were forced to. They got little aid and no little betrayal from a corrupt establishment. They won, despite terrific odds which would only have become worse had they decided the problem could wait for an election in Mordor.

Twenty Two and Sixty

Who voted for a “voluntary abandonment of further credit expansion:”

Justin Amash (Mich.)
Michele Bachmann (Minn.)
Chip Cravaack (Minn.)
Jason Chaffetz (Utah)
Scott Desjarlais (Tenn.)
Tom Graves (Ga.)
Tim Huelskamp (Kans.)
Steve King (Iowa)
Tim Johnson (Ill.)
Tom McClintock (Calif.)
Mick Mulvaney (S.C.)
Ron Paul (Texas)
Connie Mack (Fla.)
Jim Jordan (Ohio)
Tim Scott (S.C.)
Paul Broun (Ga.)
Tom Latham (Iowa)
Jeff Duncan (S.C.)
Trey Gowdy (S.C.)
Steve Southerland (Fla.)
Joe Walsh (Ill.)
Joe Wilson (S.C.)

Tim Walberg and Thaddeus McCotter (Mich.) are notably absent.

Now Senator McConnell needs to stick to 60.

The United States has already defaulted

There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.
– Ludwig von Mises

The tea party movement is aptly named, and those elected in its name should remember the will and motivation of the extremists who stormed British ships in 1773.

The “debt-ceiling” debate is such a revolutionary moment, and compromise with fools, charlatans and self-absorbed milquetoasts is out of order. Raising the debt ceiling while pretending we will voluntarily cut spending at some future date is insane. It’s doing the same thing over and over and expecting different results. It guarantees catastrophe.

I, for one, would rather see the real deer-in-the-headlights expressions of John Boehner and Harry Reid than put up with one more shell game. Let August 2nd come and go with no more spending. On August 3rd we can all celebrate the president’s 50th birthday and offer prayers that wisdom will come with it. On August 4th, after counting the proceeds of his birthday fundraisers, the president can tell us what he thinks we should do.

If nothing is done before August 2nd, the US need not, and will not, officially default. The debt interest will be paid. Social Security and Medicare can be paid. Our troops can be paid. Comments to the contrary are fear mongering. The rest of our obligations matter less than the principle of correcting our fiscal course. Trouble now, or catastrophe later?

I agree with Michele Bachmann and those tea party stalwarts who insist on doing something real. Theirs’ is the compassionate position:

I refuse to be a party to deceiving the American people yet again.
– Michele Bachmann

A vote for “voluntary abandonment of further credit expansion” is a vote for the poor, the middle class and the rich. In that order.

Absent immediate cuts and a balanced budget Amendment, the one thing that should NOT be negotiable is the length of time any increase in the debt ceiling covers. We are told we can’t interrupt Christmas. We are told this debate is divisive and should not play a part in the 2012 presidential election. Really? What do the politicians think we pay them for except to practice politics? The most important political question the United States faces is the long term viability of our financial system. The president talks about it now using class warfare rhetoric. He otherwise refuses to reveal any specific aspect of his plans. And he doesn’t want to talk about it before he runs again for office? He is a charlatan who thinks you are a fool.

Update 6:23
Default Now, or Suffer a More Expensive Crisis Later: Ron Paul

Necessary, but hardly sufficient

Joe Nocera, writing in the New York Times yesterday, explains why Wall Street is to blame for the financial crisis: A Wall Street Invention Let the Crisis Mutate

Every time you pick up another rock along the winding path that led to the financial crisis, something else crawls out. Subprime mortgages were sold as a way to give low-income people a chance at homeownership and the American Dream. Instead, the mortgages turned out to be an excuse for predatory lending and fraud, enriching the lenders and Wall Street at the expense of subprime borrowers, many of whom ended up in foreclosure.

The ratings agencies, which rated the complex investments that were built with subprime mortgages, turned out to be only too happy to be gamed by firms that paid their fees — slapping AAA ratings on mortgage bonds doomed to fail. Lehman Brothers turned out to be disguising the full reality of its horrid balance sheet by playing accounting games. All over Wall Street, firms pushed mortgage originators to churn out more loans that were doomed the moment they were made.

In the immediate aftermath, the conventional wisdom was that Wall Street had simply lost its head. It was terrible, to be sure, but on some level understandable: Dutch tulips, the South Sea bubble, that sort of thing.

“…that sort of thing.” Mr. Nocera must think the Dutch government was subsidizing tulip buyers who couldn’t afford the flowers, because one sort of thing he fails to mention is government regulation. It’s the main “sort of thing,” and I do not mean there was too little. Without the government policies structured to punish banks if they did not lend to people who could not pay, synthetic C.D.O.’s would never have existed. Compounding that was the direct Federal intervention via Fannie and Freddie, as well as the lying about their stability:

“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
-Rep. Barney Frank, D-MA

When Mr. Frank said this, George Bush was President. Frank was the ranking Democrat on the Financial Services Committee. He was not alone in defending the sub-prime debacle.

“I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing.”
-Rep. Melvin Watt, D-NC

Mr. Watt was reacting to a Bush Administration proposal to increase oversight on Fannie & Freddie. It might well have affected the “ability” of some to buy houses they couldn’t afford and which have been repossessed since.

It wasn’t just Wall Street urging the Fed to keep the housing bubble going, either:

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

The corporatist whores and the vote buyers all asked for Federal intervention on top of Federal intervention – and they got it. Mr. Nocera could have written a complete article if he had acknowledged this.