The CPRS Abomination

Sometimes, you will hear the phrase "Oh Well! It's better than nothing!". Usually this is uttered by the resigned pragmatist. After all life is a series of compromises. If someone goes bankrupt and you are one of the creditors and you are offered 1 cent in the dollar, you might utter this phrase with a sigh, a philosophical shrug of the shoulders and perhaps even a despondent shake of the head.

After all, in most cases, something is better than nothing. But not it seems in Australia, when it comes to Climate Change policy. After many months of wrangling and deal-broking, the Labor government and the opposition have finally delivered a proposal which it would seem is actually "Worse than nothing". The original ETS (Emissions Trading Scheme) was seriously flawed. It is always worrying when an interviewer poses a question to a politician about some proposed legislation and they preface their reply with the phrase ...

Well ... To put it simply ...

To put it simply? I suppose that means the legislation is not simple?

Why do the proponents have to put it simply in order to explain it? Why not start just out simple? Have any of them heard of KISS? Because by the time legislation emerges from the gauntlet of political compromise and negotiation through which it must pass, even a simple proposition ends up being complex.

And in the case of the ETS, it was never simple. Even for someone well-informed and reasonably well-educated, the mechanics of the "cap and trade" scheme are difficult to grasp. It was always going to be difficult to estimate the amount of carbon emissions, difficult to regulate, and difficult to "trade" what is after-all a by-product of "living". It was bad enough in its original format. And when it is watered-down even further it became worse. Proponents have now added the farcical concession of giving away the permits in the "start-up phase".

The ETS has now become almost incomprehensible. The monstrosity that we end up with seems to be a long-winded, cumbersome pseudo market-based scheme dreamed up by the same people who gave us futures markets, derivatives, collateralized debt obligations and credit default swaps. In its original form, it was complex and convoluted. Now the legislation currently before the Senate, the CPRS (Carbon Pollution Reduction Scheme) is considerably worse. Not only will it fail to reduce emissions, for the same reasons that the original ETS would fail, but it will cost us a lot more money! Not content with giving away the permits, the targets have been watered down even further and now amazingly there is even more money being offered as compensation to high-carbon industries for not doing anything!

The proposed abomination will fail to reduce emissions. It would be a considerable burden upon taxpayers. It would, however be a benefit for bankers, stock-brokers, lawyers, bureaucrats, other participants in the unreal economy and the very people presently getting rich by burning fossil fuels.

Surely that is "worse than nothing"?

Carbon Dioxide is not really a pollutant. It is something that all of us from humans down to the humblest aerobic microbe produce when we "breathe". As a natural by-product of ecosystems, carbon dioxide forms an integral part of the carbon cycle. However another integral part of that cycle is the depositing of "fixed" carbon in soils and at the bottom of oceans and lakes. That is a process that has been going on for billions of years, or as long as there has been photosynthesis. The vast carbon cycle has been churning along since photosynthesis began and living systems have formed a type of equilibrium with the process. In the past few hundred years, a relatively short time in the overall scheme, our species has dug up some of that fossil carbon and put it back into the atmosphere,

The addition of that extra fossil carbon has created an imbalance in the carbon cycle. And that imbalance is disrupting our ocean and atmospheric environments.The disruption will probably become more intense if we persist in digging up and burning fossil carbon. The wealth accumulated by fossil carbon enterprises is now being used to lobby governments and to advocate "business as usual". And that lobbying is mainly responsible for the rise of a new breed of lemming, the climate change deniers and sceptics.

However, denial will soon be impossible. In Victoria, last summer, we experienced the worst bushfires ever. And they occurred on the hottest day ever recorded in the state, after the most severe extended heat wave ever. The once mighty river which in former times divided Victoria from New South Wales, and which once had paddle steamers, is now a rotting, muddy, saline trickle. The once green and lush dairy pastures of Victoria are now a brown tinderbox. Water supplies for Southern cities have dwindled to record lows. And more ominous for the coming summer has been record spring time temperatures in South Australia and Victoria and two (new) "catastrophic" fire alerts. The uncharacteristic November heat has been punctuated with wild almost "tropical" storms, providing an impressive demonstration that something significant is happening to the climate in this region. Australia is now a climate change basket case. It is the place where people might come to see just what the future could be for them if they don't do something soon.

Of course all of that is just anecdotal evidence! But it is one hell of an anecdote. And soon the deniers' position will become untenable.

Nevertheless it seems that a major player in the Australian political landscape, the Liberal Party, has become a refuge for deniers and sceptics. From within the upper-echelons of the Liberals, climate change deniers and sceptics having seized control of the party, have now formed an unholy alliance with pragmatists. It is true that pragmatists have genuine concerns about the potentially damaging and ineffective CPRS that has emerged from the labyrinthine negotiations between both political parties. But the sceptics are committed to a climate sceptic Jihad, and they are willing to sacrifice themselves and their party for their misplaced faith.

And so, for all the wrong reasons, there seems a chance that Australia will be spared this hideous legislation.

If that is so, it will be a good result for Australia. However it may be bad for the Liberal party. If they are foolish enough to elect a "climate change sceptic" as their leader, the party is doomed. If the Liberal Party's collective self-destruct instinct leads them to explode en masse like pack of deluded fundamentalist suicide bombers, it is to be hoped that something resembling an opposition political party will arise from the smouldering ashes to challenge the government. Or would it be too much to hope that the Greens could become an effective opposition?

In any case a viable political party in Australia will have to have a policy about climate change.

And if we are fortunate enough to escape from the hideous sucking maw of the Labor CPRS (Carbon Pollution Reduction Scheme), it is to be hoped that the government will give some serious consideration to some simple and effective measures to start re-engineering our economy to to become carbon negative.

Even though the political fortunes of the Labor party and the prime minister seem to be riding high, it is difficult to see how such an obviously flawed proposal could be presented to the public as a serious election policy, without insulting their collective intelligence. If the climate change problem is only half as serious as the prime minster says it is (and in fact it is a lot worse), Labor will have to a lot better then the half-baked, unconvincing load of old tripe presumably cooked up bankers, financiers and bureaucrats in a back-room at the turn of the century.

One very effective measure might be a "carbon tax". But it would only effective it was simple. One possible simple proposal might go as follows:

1. Applying the carbon tax to all fossil fuels in the domestic market. Despite the bullshit from the fossil lobby to the effect that we should all stop breathing and prevent our cattle from farting so that they can get on with "business as usual", it is fossil carbon that is the problem. And despite the alarm about running short of (easily accessible) oil, there is still a lot of fossil carbon that could be dug up. It should be taxed.
   
   
2. Absolutely no exemptions. Time eventually wears away all such resolutions. But if you don't start simple, you have no hope of making it more simple. It will definitely become complex. You can bank on it.
   
   
3. Structure the tax so that it raises the same revenue as the GST, which it replaces!. That would effective silence critics who say "we can't afford it", since we already pay a tax on most of our Goods and Services.
   
   
4. Modify the existing GST collection mechanism to collect and distribute revenue from the tax. That would avoid expensive and burdensome re-engineering of accounting and taxation infra-structure.
   

All of that would make an reasonable start. It would not significantly effect exports, and it would allow people to structure their spending options according to their own budgets. Of course there are all those other "nice" things to do like planting trees, discouraging cows from farting, saving water, and helping poor folks with their electricity bills. But all of that could be done in the fullness of time. If the over-all effect is the same as the GST, it is more or less revenue neutral. It would allow consumers to "focus" their spending. Best of all it offers the opportunity for a "Tax Holiday" for goods or services completely devoid of "fossil carbon".

The only people who would oppose such a policy would be the powerful vested interests who already make a lot of money out of fossil carbon.

And the only political that would propose such a change would be one that was genuinely trying to encourage re-engineering of the economy rather than "play" politics.

So I guess for those reasons we won't see anything resembling it.

In the meantime, if the Liberal party don't come to their sense, we may not be seeing them for much longer either.

Global Warming - The Elephant From Hell

I began this Elephantine Blog, after I composed a satirical post about the Peak Oil elephant in the lounge room. Since then I have I have blogged about the Peak Debt elephant, the Neo-conservative (Republican?) elephant. And I have made a few remarks about the Depression elephant, otherwise known as the GFC, which stands for Global Financial Crisis, although it is sometimes referred to as Global Fried Capitalism.

So here at last, as promised, is my post about the Global Warming elephant. Now while blogging on these weighty topics I have not hesitated to inject a little sarcasm and humour into my ruminations about the small herd of elephants in my (rather crowded) lounge room. After all if can't have a good laugh what is the point of living? Come to think of it some of the best humour is gallows humour anyway.

However, it is a bit hard to find anything humorous about the Global Warming elephant, which is a very serious and large pachyderm, and not amusing. Not at all.

And before discussing the Global Warming elephant, I will first have to mention its cousin, the Great Carbon elephant.

We humans have always been skilled at manipulating our environment. These skills have recently been greatly amplified with machinery and technology, and we have started to alter some of the great chemical pathways that help construct and maintain the biosphere, such as the phosphorus, nitrogen, sulfur and carbon cycles. In the past when we tinkered with some of the shorter, smaller pathways such as the nitrogen cycle or the sulfur cycle we caused some pollution and/or acid rain.

The carbon cycle however is a long term and massive chemical cycle. The two main components are photosynthesis which removes carbon dioxide from the atmosphere and combustion of the products of photosynthesis which puts carbon dioxide back into the atmosphere. In the past combustion was often a biological combustion, although fire and volcanoes also play a role. The two opposite processes are more or less in equilibrium. However, there is also a vast store of fossil carbon which can add to atmospheric carbon dioxide. When it does so, it disturbs the equilibrium of the carbon cycle. In the past such extraordinary combustion has usually been due to some geological event. Recently however, the extraordinary combustion of fossil carbon has been due to human activities.

The element of carbon is central to the chemistry of life and whole branches of chemistry have been devoted to it. It is like a proverbial (huge) chemical elephant deep down in the very engine room of the biosphere and we are like tiny blind fleas crawling on it's vast bulk.

I am reminded of an old Buddhist parable about elephants. It seems that there were five blind men gathered around an elephant. And when asked to describe the elephant they give different answers:

• The one holding the tail said that an elephant was like a piece of rope.
  
  
• The one holding the leg disagreed. He thought that an elephant resembled a large tree.
  
  
• The one holding the ear, believed that an elephant was like a large fan.
  
  
• But the one holding the tusk begged to differ. He stated that an elephant was more like a large spear.
  
  
• And the one holding the trunk was emphatic that an elephant was like a giant snake.

One interpretation of this old proverb is that they were all correct, in a sense. A blind man's impression of an elephant depends very much on which part of the elephant he happens to be holding.

I came to appreciate this in conversations with my father last century. He had studied geology and spent his life working in exploration geology. He seemed to cotton onto the potential threat of carbon dioxide in the atmosphere before I did. He opined that the real threat was "hydrates". If the planet warmed enough for the hydrates to be released then we would be in big trouble. He even said that "some people had suggested exploiting hydrates" (I gathered, by his tone of voice, that he thought it was not a very good idea).

At first I didn't see how this could be a problem. I had studied chemistry and mathematics, and when I head the word "hydrates", I thought "inorganic hydrates". As usual when I thought about geology, I thought about inorganic chemistry. I soon realised that the "hydrates that my father was talking about, were organic hydrates, which, these days, are more often referred to as "clathrates". These are basically pure methane enclosed in a cage of water molecules, stabilised by low temperature and/or high pressure in chilled water in oceans or in permafrost. There are vast quantities stored all around the world and if a substantial portion of them were released it could lead to a highly dangerous super greenhouse warming that would be much more severe than the present warming.

Of course I didn't appreciate this immediately. I was holding a different part of the elephant. I would have been more concerned about things like the pH of the oceans. The pH is a scale used to measure the amount of protons (or acidity) of a body of water. If something has a low pH it is said to be acidic. If something has a high pH it is said to be alkaline. I used to think that there was no danger of altering the pH of the oceans in my lifetime. Although there is a good reason to be concerned about anything that would alter the pH of the ocean even slightly.

I had thought our oceans could resist acidification because of their size. Before long (I thought), humanity will have run out of oil and if we have the common sense to refrain from burning all of the world's coal, there is a good chance that we can kick the fossil carbon habit before there is a significant fall in the pH of the oceans. Or so I used to think.

The most dangerous thing about the current global warming event is that it could trigger the release of clathrates. And if that happened, then we would be in serious trouble.

Since the turn of the century it has been confirmed that the pH of the oceans is now decreasing. And as I said this is something that should worry us greatly, because all biological systems are very sensitive to pH. For example our bodies contain their own mechanism for regulating the pH of our blood. If your body's pH should stray much from 7.4, you will get sick. Very sick! It has been postulated (with good reason) that the pH of the ocean might have been around 7.4 when our mammalian ancestors left the ocean in a previous geological era.

Similarly if the ocean's pH should change the entire planet would get very sick!

As a land based species we have a terrestrial-centric view of our ecology. However three quarters of the surface of this planet is covered by water. Life began in the oceans and the marine ecology is a major player in the carbon cycle. It is the oceans that are the greatest carbon sink (and by corollary the greatest oxygen source) and paradoxically if they break down could become a major carbon source.

Photosynthesis is carried out by small marine organisms. These either go into the food chain, or sink to the ocean floor, and would be one of the sources for the formation of clathrates, since when they decay they form methane.

It is possible to imagine how the oceans could be the driving force behind an extremely rapid global "change of state".

• Carbon dioxide causes global warming. The jury is in on this. There are still a few (so-called) sceptics. But we need to be sceptical of their motives and associations. Release of fossil carbon skews the balance of the carbon cycle and the greenhouse warming that results leads to ice packs and glaciers melting.
  
  
• Glaciers and marine ice packs reflect sun. And when the melt they expose (darker) areas of the planet that absorb heat much more rapidly. This leads to a "positive feedback loop", causing even more rapid warming and new warmer currents of water. This may be happening now. It is the most likely explanation for the melting of polar ice, which can be seen from satellite images. It is more rapid than was expected and has caught many observers by surprise.
  
  
• As the warming continues, clathrates melt. This leads to massive releases of methane, a highly potent greenhouse gas that leads to a "super greenhouse" event. This becomes a dangerous positive feedback loop, that changes the Earth's atmosphere and climate dramatically.
  
  
• Methane quickly breaks down into carbon dioxide and water. Although carbon dioxide is not so potent a greenhouse gas, the much higher concentration of carbon dioxide lowers the pH of the oceans to such an extent that marine photosynthesis slows.
  
  
• The oceans are no longer a carbon sink and are a major carbon source. Almost all marine vertebrates perish due to the deadly combination of low oxygen and low pH.
  
  
• Ninety-eight percent of all vertebrates become extinct.

One of the frightening things about the above outline is that it could happen very quickly. One year us terrestrial mammals are frolicking in our recent interglacial state, which we all know and love. Then there is sudden switch and we are in the new clathrate melting state, which we should all fear greatly. Furthermore once the change of state occurs it is almost impossible to change it back. Eventually micro-organisms will adapt to the new environment and transform the atmosphere back to another cozy interglacial state but that may be half a million years in the future. A future that our species may not be around to participate in.

This sudden change of state is what is often referred to as a tipping point. The words crisis and catastrophe are often bandied about and over-used in relation to world events. These nouns might be appropriate for something as serious as the Killer Flu Epidemic of 1917 or World War II, or even the far less serious GFC (Global Financial Crisis).

All of this may sound "alarmist". That's because it is very alarming! The scenario outlined above would be a Catastrophe with a capital "C". However the most frightening thing about it is that it might have actually happened about 250 million years ago, at the so called PT boundary event, otherwise known as the Great Permian Extinction. As you might expect with a name like Great Permian Extinction it was a rather lethal event. It was possibly the most significant mass extinction event in our geological history and it could have run the same course as outlined in the above nightmarish synopsis. There is a considerable body of evidence building that this event began with the release of fossil carbon which lead to the subsequent melting of clathrates and ended in the greatest mass extinction of all time.

The IPCC (Intergovernmental Panel on Climate Change) have tried to produce a sober thoughtful assessment of the problem of Global Warming. However, since they are a large bureaucracy and possibly due to anxiety about being labeled as "alarmist", the IPCC have been rather cautious and under-stated the risk. Their best case was a two degree rise in average global temperature. And their worst case was a six degree rise. Early signs seem to indicate that we are well on the way to the IPCC worst case. In fact it may turn out that the IPCC worst case (six degrees warming) may be the best case. The worst case is the hellish scenario above.

Considering the lengths that we go to avoid some minuscule types of risk, any risk of a clathrate super greenhouse would be unacceptable. We should desist from burning fossil carbon. However, the goal of carbon neutrality may not be sufficient. A more prudent course of action would be to make our economy carbon negative. There is plenty of "weird science" that we might try to "engineer" the climate. But some of these projects may jeopardise photosynthesis or they are themselves very energy intensive. The only guaranteed way to achieve a carbon negative economy is with photosynthesis. It is the chemical pathway that has served the earth reliably for billions of years and it runs on sunlight.

One major objection to taking action on global warming is that of "cost". This is clearly absurd. The cost of not taking action is immeasurable. Furthermore the cost of re-engineering our economy would be offset by considerable benefits including employment, training and growth in the areas of new technology. It may prove to be a stimulus that can resurrect our dying economy, poisoned as it is by excess fossil carbon.

In any case the most widely accepted strategy for dealing with climate change is "carbon trading". This was the strategy which the Australian government were proposing, until it was postponed due to the current financial crisis.

The proponents of carbon trading tell us that it will allow a "market based solution". And markets have the place. Provided that they are simple. The best type of market is one where "yer pays yer money and yer makes yer choice". Recently however market advocates have dreamed extremely complex markets. Some of them, like the still smoldering credit markets, are so complex that nobody really understands what it is they are buying and selling.

Unfortunately carbon trading markets were dreamed up by the same people who invented credit default swaps and collateralized debt obligations. You won't find a satisfactory explanation of what emissions trading is because nobody really understands what it is.

What ever approach we take to ending the burning of fossil fuel, it must be simple and direct.

One of the most difficult tasks will be achieving consensus. Companies involved with producing fossil fuel are large and influential, and the role these companies have played in the public arena has been mostly one of obstruction. Vast amounts of money have been spent on confusing, befuddling and misleading the general public and influencing policy makers to prevent them from taking any action. The contribution from these and other corporations who have a stake in the fossil fuel economy, has been quite rightly compared to that from the tobacco companies in regard to the "cancer debate" last century.

In this respect climate change deniers have played a specious role. Because of the complexity of climate systems it is impossible to predict when the "tipping point" will occur. Our ailing fossil fuel economy is driving down a road towards this tipping point which is like a sheer cliff, where the road ends. The climate change sceptics seem to argue that because of the fog of uncertainty that surrounds the cliff we don't have to worry about when to apply the brakes. In any case there are no brakes, and even if there were, the drop is not that great it is just a tiny six inch drop.

But whether it is six inches or six thousand feet, we won't know until we actually go over the cliff.

Our response to global warming should be simple risk-management.

Reference and Further Reading

• This Wikipedia article on the Intergovernmental Panel on Climate Change, gives a brief summary of the more detailed findings of the IPCC.
  
  
• The ABC Science Show, Catalyst discusses the threat that clathrates pose.
  
  
• Sea sick. Award-winning Canadian journalist Alanna Mitchell discusses her new novel.
  
  
• Wikipedia discussion of Ocean acidification.
  
  
• The Green Paper, published by the Australian Dept of Climate Change as a result of Garnaut report.
  

Neo Con Train Wreck

This morning, Malcolm Frazer, former Prime Minister of Australia, delivered a withering appraisal of the Bush administration in an opinion piece he wrote for "The Age". Malcolm Frazer, although he has been accused of harbouring and at times even expressing "leftish" views, remains a committed conservative. When I say conservative, I don't mean the phony, card-board cut-out, paper-mache and grease-paint conservative so common in America today! I mean the genuine Aussie hardwood variety of conservative.

And it seems that Colin Powell, who might resemble a solid American ash conservative, were it not for his association with the Bush Turkeys, has also endorsed Mr. Obama's candidacy.

Although, I thought Malcolm Frazer's Australian critique fundamentally cruel, but fair, I am still inclined to say to him. "Why go easy on them, Big Mal? ... Why prevaricate and pull your punches? ... Why not call it like is!". Because frankly mate, the Bush Turkeys and their neo-conservative, neo-capitalist, or neo-whatever collaborators were the most worthless bunch of ratbags, crooks and scumbags in the history of politics in the USA! In a few weeks time, thankfully, they will depart. But they will leave that unfortunate nation morally, politically and actually bankrupt! Ok, I guess he couldn't say that because he was writing for one of Australia's leading broadsheets. But I can say it. And I just did.

Earlier on last week, everyone had breathed a sigh of relief when it seemed that the skittish markets had been placated. All that was required to calm them down was huge amounts of cash. Or so it seemed! We all marveled at how smoothly and efficiently those neo-capitalist global money markets function once obliging governments had shoveled in trillions of dollars. This seemed to soothe the markets wonderfully and restore confidence. But, alas, it was only for a half a day or so ... Oh well easy come! Easy Go! As they say ... And they do say that quite often, these days.

The long term outlook for the "real economy" was not so bright either. In Australia, we were warned that there may be "tough times ahead". And as the week wore on it seemed that Wall Street and share markets around the world would continue to deliver a wild roller coaster ride (the most often used metaphor). Perhaps those temperamental markets required a little more "soothing"? Should we inject a few trillion more?

On Friday morning, President Bush addressed the US Chamber of commerce and reassured everyone that it was all under control and that taxpayers money was being used responsibly to avert a much more serious crisis.

The words had hardly left his crooked, lying lips when the stock market crashed again. Wall street investors now live in dread of seeing the chief Bush Turkey's head on their television screens. A single glimpse of his face triggers general hysteria in their ranks and drives market values, all around the world, down in another stomach churning steep dive.

It is quite amazing that there are still some politicians, such as Nicolas Sarkozy, who are happy to have their photograph taken with George Bush. One would have thought that prospect would have been about as appealing as standing next to a known carrier of "Bubonic Plague".

Curiously enough, this has not deterred the Bush Turkeys from attempting to synchronise the Dow Jones index in lock-step with the president's approval rating. And to this extent it seems to be the only project that those incompetent bunch of criminal shysters have accomplished since Bush took office. Whether this was done in order to mete out some retribution to the Wall street crowd for deserting them or as a last-ditch desperate measure to prevent Bush's popularity from actually dwindling to zero is difficult to say.

In any case, one would have to question the wisdom of spending so much money on propping up stock markets (and property markets). Central authorities have recently injected astronomical units of currency (that in the USA, at least, they didn't even have) into the finance system in order to make it function. It would have to be the most extreme money printing event in the history of economics. On previous occasions when governments printed money on an extraordinary scale, workers ended up carrying their weekly wages home in a wheel-barrow. And I should add that in such hyper-inflated basket case economies, there was lots of spending. Mainly because there was no point hanging onto the money! By the time you got the wheel-barrow back to your front porch, the money was worth only half what it was when you knocked off work. Provided of course that you were fortunate enough to actually have a job!

These days, we are being re-assured that such problems have been solved in the "modern" economy. Apparently our US-style global neo-capitalism is not susceptible to hyper-inflation! This must be because we no longer use "printing presses" to print money? And it's a good thing that we don't! If you tried to print a trillion dollars in coin of the realm, it would take an awesome amount of resources. It's been a long time since I actually saw a (US) hundred dollar note, and it may be even longer before I get to see another, but if I estimate the size at roughly 120 millimetre by 60 millimetre and one millimetre thick, I can do a quick calculation with "bc" in a Kubuntu terminal and if I did my sums right, I can guess that if you stacked a trillion dollars (in $100 notes) into tightly packed bundles of $10,000, The pile would stand about ten metres high and occupy an area of roughly 72 hectares. Not to mention the number of trees that you'd have to cut down, and the amount of ink that it would take to print all ten billion of those $100 notes.

So are we to believe that because it's all just virtual money, the hyper-inflation will be virtual also? Are we to be reassured that everything is under control, dear reader? After all, we have been assured by experts that everything is ok. The same experts that got us into this mess and are about to abscond with those hectare sized virtual suitcases full of virtual money.

As grim as all this might seem. It really is just a stroll in the park compared the threat posed by the Global Warming Elephant, also in our lounge-rooms. As I speculated in my first (satirical) blog about global warming, the pachyderm in question is more like a bloody great raging and trumpeting, woolly bull mammoth than your common garden variety teensy-weensy economic baby elephant. If you think the (developing) depression is a crisis, the environmental crisis on the horizon will seem like the mother of all crises.

The Garnaut Report was released a couple of weeks after I composed the first "Elephant Blog". I had intended to mention it, but events quickly ran ahead of me. As in the Stern Report (2006), The Garnaut Report had made it clear that the eventual cost of doing nothing would greatly outweigh any short term costs. Also as more results come in from the monitoring of global warming, the need for action seems to be becoming more urgent. Nevertheless, various parties and interest groups used the report as a political football, which sadly, has now been almost "kicked to death", with occasional citations of the Laws Of Economics. The general consensus seems to be that we cannot implement even the watered down recommendations in the Garnaut Report. It seems we just can't afford it!

I've already said often enough that I'm not an economist. I did complete a first year economics unit during my tertiary education. It was a "dumbed down" version for scientists.

And just why would you dumb it down for scientists?

Well, just as there are lots of experts on football in late September (AFL Grand Final Week) and an even greater number of equestrian experts around the second Tuesday in November (Melbourne Cup Day), so there seems to be a plethora of experts on economics during the current sub-prime crisis. This is because economics, like punting, is not a science. Despite, the pretension of many practitioners, the graphs of supply demands curves (the only thing any 1st year economic student recalls), the occasional reference to differential calculus and the statistics, there is not a single working mathematical model of a real life market.

In the real world, markets and economics that drive them are messy things. They could be influenced by politics, religion, mass media, national pessimism and/or national optimism, astrology and bio-rhythms rather than mathematical principals of crystalline and pristine purity we might use to describe predictable natural phenomena like the majestic dance of celestial bodies. And the interactions between those messy social/economic influences are complex and unpredictable. Even if there were equations to describe the behaviour of these systems, those equations would contain multiple variables and would be insoluble. And in the unlikely event that we found any simple equations, they would resemble the mathematics of chaos rather than the linear functions written on the white-boards of so many economics classes.

Nevertheless the myth that economics is a science and that there are Laws of Economics is one of the persistent fantasies preached by politicians today. Every politician who utters the phrase deserves to be pilloried and punished in the opinion polls. And since September 2008, they probably will be.

Our economic systems and the transactions of goods and services are agreements that since our neolithic past has become (or used to be) loosely governed by rules. Of course, it was recently decided to ditch many of those rules. Nevertheless the remaining rules are really just agreements which we made amongst ourselves in the interest of social cohesion, and rely largely on "trust". Those rules are nowhere near as binding as the Laws we might find in the physical sciences.

These (physical science) Laws have names like Boyle's Law, the Laws of Thermodynamics or the Laws of Gravity, etc. And they really are laws, mandatory, irrefutable and irrevocable! As far as we can tell most of them have applied without exemption throughout the entire Universe for as long as it has existed and will apply for the remaining time that The Universe continues to exist and may in fact be built into the very fabric of the Universe. And we won't be able to sooth them or buy a dispensation by shoveling lots of money in their general direction after the penalty provisions have been enforced.

The Global Warming Elephant will be governed by these type of Laws, And it won't just alarm the markets and make them nervous and cause them to be skittish. It will annihilate the markets.

And so there will be some great challenges for President Obama, should he be elected, and there seems little doubt that he will be elected. Even though I shouldn't make predictions about the outcome of the election, because I could be forced to eat large slabs of humble pie if I'm wrong, I'm still going to go out on a limb here and predict that unless the Republicans can show that George Bush was really an evil extra-terrestrial alien doppelganger in a human skin and further present us with documentary evidence that he is not, has never been and will never be associated with the Republican party in any manner, then Senator Obama can start measuring the drapes and fittings in the Whitehouse now.

And speaking of confidence, I'm going to go out on another limb and predict further that it is more than likely that there will be a surge in market confidence once George Bush's unwelcome visage is no longer visible on screens in or anywhere in the vicinity of the Wall street stock exchange. If the Bush Turkey has a place in history, it will be as the rat-cunning sleazebag who, with the help of his scumbag cronies emptied out the Fed, bankrupted the entire nation and demonstrated to the incredulous world how the USA could still lose the very same cold war that the USSR lost so spectacularly and untidily last century. And even though it has turned out to be rather sad for us all, I have to say that it couldn't have happened to a nicer political party!

Nevertheless, even though the US infrastructure is rotting and decrepit and the US political system is corrupted and ruined, the USA remains the mightiest nation-state on earth, as measured by the yardstick of economics or military power. And even though President Obama might enjoy an electoral "honeymoon". It will be one of the briefest ever. Because he will have to roll up his sleeves and get to work quickly, if he is to have a chance of putting the neo-conservative decade behind him and creating some form of green-glasnost and possibly even resurrect America, phoenix-like, from the ashes left by the neo-con disaster. as they did last century after the devastation of the Great Depression. And it is interesting to note that even though Keynes has been given credit for crafting the economic philosophy that helped America recover from that event, it was really the grand project of defeating global fascism which got America back on its feet.

In this century there is an even greater challenge, that of global warming. We can only hope that if the new president does rise to the challenge, and show some leadership as Mikhail Gorbachev tried to do last century, that he will have more success, and more co-operation from the military than Gorbachev did. Because the awful realisation is rapidly dawning on us all that if the badly listing American ship of state goes all the way down to Davey Jones' locker, she just might take many of us along with her.

Debt Junkies

This is yet another blog post about the Debt Elephant (and the Depression Elephant) Since my first post on this topic, the stock market has continued slipping, sliding, slumping, plummeting and melting down. The dreadful clamor of shrieking investors has finally ceased, and has been superseded by a grim frightened hush, punctuated by occasional sobs, sharp intakes of breath and involuntary whimpers of despair from small bedraggled knots of investors huddled miserably around screens, watching fearfully as groups of green and red digits in little boxes decrease steadily and inexorably.

Of course there will be a dead cat bounce, but the question now on so many lips is: "When will it actually reach the bottom?" News just in from Europe seems to indicate that the market may have bottomed out. We will find out tomorrow if Wall Street has also hit bedrock.

It seems that the stock market behavior can be divided into long extended periods of irrational exuberance and short but deep slumps. Since the current period of exuberance was the longest and most exuberant in living memory, it stands to reason that the slump when it came was going to be one of the deepest and steepest. That's how it is when so much energy goes into defying gravity. Gravity always prevails (unless of course you attain "escape" velocity) and depending on the effort spent in defying it, your inevitable fall is all that much harder.

Around the world central banks and governments have tried, in vain, to stem the flow. Vast amounts of money have been pumped into the banking system in an attempt to provide liquidity. Their efforts have mostly made matters worse because:

• The response from the central banks has been one of unbridled fear. And fear is contagious. Especially for Markets which are essentially irrational and emotional. Just as a panic stricken horseman cannot calm his frenzied mount, the fearful central authorities cannot calm the hysterical stock market. Their consternation makes the markets even more skittish.
  
  
• What they are doing is counterproductive. By attempting to provide more credit central banks and governments are fanning the flames and making the situation worse.

I started blogging about this topic after I read Tim Colebatch's article "Are We Scared Enough?" in The (Melbourne) Age. Since then the blogosphere, the newspapers and all electronic media have been filled with opinions about The Credit Crunch. This has been misleading. And it serves the purposes of those who made a major contribution to the problem. The current crisis is not so much one of credit as it is of debt. There is just too much debt!

Now I will admit that debt can be good. An entrepreneur can use borrowed funds to start and nurture a thriving business which contributes to society and creates employment. Debt can enable us sometimes to purchase necessary items without having to wait for our savings to accumulate.

Whiskey is good too. One glass of a good single malt whiskey can leave one relaxed and at ease with the world. A bottle of whiskey however can leave you comatose. And two bottles could kill you.

Debt, like whiskey is good in moderation and toxic in excess.

As I said, I am a systems analyst not an accountant or an economist. However I spent a lot of time writing programs for the Finance industry. And one of the things I learned was that financial systems are supposed to be governed by rules. Just as Newtons Law states that "For every action there is an equal and opposite reaction", so the accountants swear by their cannon. "For every credit there is an equal and opposite debit". Or at least there is for folks like you and me, dear reader, when we deal in amounts of hundreds and thousands.

But it seems when the deal involves trillions it is possible to make entries on one side of the ledger only. When governments and/or central banks rush to the aid of the credit market and administer a trillion dollar liquidity injection, surely this must be good? They have created a trillion dollars of credit and that's what we need. Right? Well, if they are creating a trillion dollars of credit, they creating it in the hope that banks will lend it and so create another trillion dollars worth of debt!

It is of course, hoped that the stimulus of lower interest rates and liquidity injections will grease the wheels of the credit economy. In other words, consumers will take on more debt and the economy will keep growing and property will continue to rise at the same absurd rate it has been for the past twelve years.

After the shock announcement by the Reserve Bank of Australia of a one per cent cut in the interest rate, there was widespread joy around the country. On the front page of The Age, a beaming family of "battlers" announced that now they could take on an additional 50k of debt.

Now it may be just the fault of all those people who try to live beyond their means, who borrow too much and create all that toxic debt. Just as drug problems arise because of all those naughty drug addicts. But what about the dealers, the pushers? It takes two to tango.

Ask anyone over the age of sixty what it used to be like to get a loan, and they will probably tell you that the process first involved making an appointment for an interview at the local bank. Then on the day of the interview, the applicant, dressed in a clean shirt with a tie and freshly polished shoes would be ushered into small room with a large desk, occupied by sleek, well-fed looking pin-striped suit. The interview would consist of a series of probing questions about assets, liabilities income and expenses. Since the bank already knew the applicant's bank account details fibbing generally was not an option.

After the applicant had effectively proven that he didn't really need the loan and kissed the manager's boots, he might be lucky enough to have the loan approved.

Now back in those "good old days", credit cards were a recent invention (in Australia), and if you exceeded your limit, the card would be suspended until it was back under the limit.

All of this probably sounds strange to young people today, whose credit limit is automatically raised whenever they approach it. They must wonder, "How could banks be so cruel to borrowers?" Well, in fact the banks were just being prudent. The were assessing each applicant to see if they were a potential credit risk. And if there was the slightest hint of risk, credit would be denied. All of this was considered to be due diligence by bankers.

However it all began to change late last century. The rot probably started to set in in the nineties, but the real damage happened in this decade. Credit (and Debt) came to be treated as commodities. They could be bought and sold just like any other commodity. Or so the theory went.

The people manning a counter in a modern finance shop are just salespeople. They are just selling credit (debt). They don't do diligence or risk assesment, they just try to make their quota. After all, they are just moving product, like any shop assistant. Or so the theory went.

The modern finance shop does not need to assess borrowers because all the loans are securitized, collateralized, and farmed out. Or so the theory went.

It turned out the theory was flawed. The fancy techniques of securitization were so complex that nobody understood how they worked. Central to the mechanics of this practice was the novel approach of eliminating risk by spreading it around so extensively that it ceased to be a risk, because if the mechanism failed it could bring the whole system down (And we couldn't afford to bring the whole system down - could we?). What this turned out to be was not a means of eliminating risk as much as it was a means of pretending that risk didn't exist. And then it was discovered (too late) that the risk really did exist even though so much effort had been put into pretending that it didn't.

The modern day debt junkie has lots of temptation. He/she is bombarded with advertisements for expensive boats, luxury holidays and new houses. And the debt junkies are reassured that they too can have a share of the good life and they can have it right now and pay later.

And so we find ourselves in our current situation. Our economy is very sick. Like a poor old drunk with a failing liver it has been taken to hospital with acute alcohol poisoning. The good doctors have decided that what is needed is good stiff brandy to revive the patient!

The only way out of the dilemma is for the debt junkies on both sides of the Pacific to do "Cold Turkey". And along the way, we will have to reduce asset values. In Australia, rather than flushing money down the bottomless pit of high finance, we would be better off spending it on providing low cost public housing, to provide some real competitive pressure in the property market, and so make housing more affordable.

References, Further Reading:

• Are We Scared Enough?, Tim Colebatch, September 23 2008. When I read this article, I thought "No, we aren't". And I started blogging about it. I think we are getting there though. Soon we may be scared enough.
  
  
• Taking A Long Hard Look At Greenspan, Peter S. Goodman, October 9 2008. It certainly is time to take a long hard look at him and re-evaluate his role in the current crisis of Peak Debt.
  
  
• Stocks are on track for their worst year since 1937. Look for the comment by "TexasSceptic", who sounds as if he knows what he is talking about. But can you understand his discussion of credit default swaps? It seems more complex than a proposition from Lichtenstein. I always thought credit was just a matter borrowing money and paying it back (or not - as is the present case).
  
  
• The debt clock runs out of digits. Yes it's true! A digital "debt clock" near Times square, which shows the national debt, has overflowed! They had only allowed for 13 figure numbers. Guess they assumed, "In a sane world we'd only need thirteen digits - I mean if it ever exceeded thirteen digits we'd be right up the proverbial creek!. President Bush when he heard this said, "That means we'll never owe more than that, right?"
  
  
• Alarm bells for Australia as China tries to delay iron ore shipments. Yes, the resources boom might be faltering. Which would be seriously bad news for Australia. It's a good thing us Aussies are such good swimmers, because we chopped up the lifeboats long ago in order to burn them in the boilers. And then we gave all the life jackets to our bosses, because their need was greater.
  
  
• Merchants and Bankers Listing. Dan Byrnes, Armidale historian, raconteur, webmaster and poet without a blog, comes up with the provocative metaphor, that "The USA has exported its poverty". Whatever it is they exported it seems to be particularly virulent.
  
  
• Warren Buffet On Derivatives . This PDF which is a brief extract from the Berkshire Hathaway annual report for 2002 contains what is by now one of the most famous and prescient comments ever made by Warren Buffet, namely that derivatives are Financial Weapons of Mass Destruction.

Stop Digging

Or ... It's The Debt, Stupid!

When you're in a hole, stop digging!
- Old American proverb.

Don't shit where you eat!
- Another old American proverb.

Thanks to the extraordinary success of American capitalism and the American entertainment industry, I can, like millions of other people on the planet, place my hand on my heart and say Ich bin ein New Yorker! Yes, we all are these days. America gave us Coca-cola, Marylin Monroe and the Trickle Down Economy, which doesn't really. They also gave us Hollywood and folk wisdom like the aphorisms above, which one might expect to trickle up, but they don't really.

So as expected, it seems that the US congress have rolled over and done their patriotic duty. Despite the promise of 700 billion dollars however, stock market investors, in a display of what could only be described as churlish ingratitude, have to date, failed to reciprocate. The market remains flaccid, limp, soggy, sagging, deflating, wilting, slumping and sulking in a desultory non-bullish meltdown!

Since the Secretary of the Treasury, Henry Paulson, was formerly a Chief Operating Officer of Goldman Sachs, it is only natural that he would want to look after his buddies. Certainly he and Bernanke can appreciate the stresses and hardships that Wall Street bankers and CEOs must endure in these difficult times, poised on the ledges of high precipices, burdened down with all those large, ungainly, heavy sacks of money. They will obviously need some robust, heavy-duty parachutes to slow their descent as they plummet towards the concrete pavements below.

Paulson, Bernanke, Bush et al have accepted the need to cap the (tax-payer funded) payouts. They realise they must do this, because some of the American people, consumed with envy and resentment, may not understand the need to insure that these prominent citizens have a "soft landing" on those hard New York streets hundreds of stories beneath them. And so they have (reluctantly) agreed to trim a little bit around the edge of those golden parachutes that they have been busily weaving at the Treasury. Not that they have much golden thread left in the Treasury. Such is the shortage of golden thread that some of the parachutes may have to be made out of paper!

In Europe, cold, heartless Europe, they say they will not be doing any of this! There is even talk of penalising CEOs of banks and/or financial institutes that fail. I have to say dear reader, that I wept when I heard this. I wept with compassion for those unfortunate bankers trapped in cruel, callous Europe. I must have used up at least half a box of Kleenex, wiping my leaking eyes as I wept, and contemplated the fate of those poor bankers in cruel but fair Europe!

However, as it turns out, some of the tough talk from Europe may be just talk. Without a strong central authority and some means of backing up the the tough talk with action, the International finance sector may be able to pick the nations of Europe off one by one. Already Germany has caved in and this may be the start of a collapse in Europe's resolve. Expect more bailouts!.

It seems that the Credit Crunch could have been more correctly called a Debt Crunch. However, in accounting, one person's debt is always another person's credit And credit sounds like a much nicer word, doesn't it?

But on a more serious note, dear reader, I must admit that since this crisis began I have gathered metaphors from many places and mixed them into a colourful cocktail. However the sheer scale of the incompetence of the government sponsored bailout almost leaves me lost for metaphors.

Almost but not quite. This exercise would have been the ultimate in pulling oneself up by ones own boot-laces. Like trying to put out a fire by hosing it with kerosene. One of the questions I have asked my self is did the Bush turkeys really believe they could buy up their own debt or are they just going to drain all of the blood from the soon to be lifeless corpse of the American economy like a gang of vampires? In other words are they mad or bad?

Of course even the hint that the US government was contemplating spending trillions of dollars on preventing the stock market going down, was almost guaranteeing that the market would go down like a lead zeppelin. Such is the perverse herd like and irrational nature of markets. Especially if the bailout was hastily conceived and carried out in a half-baked inconsistent manner, as this one obviously is. Such a fiasco would only add to the panic! And surely, given their pedigree, the Bush turkeys would realise this? I've come to the conclusion that my question doesn't really matter. Because stupidity on this scale is evil. On the other hand, greed and fraud of this magnitude is just well, stupid!

Most serious of all is that many economists are now saying that America has been experiencing a Technical Recession for the last couple of quarters. Now you might wonder dear reader, just what a Technical Recession is? Well, it is a period in economic history that would be considered as an official recession if it weren't for the bullshit figures that certain gatekeepers cooked up to hide the fact that it was a recession. In other words if you subtract the amount that people borrowed in order to show some economic "growth", the net result is that the USA has been going backwards. Currently most of the world is experiencing a Technical Recession, and no doubt for the next decade or so we will experience a Technical Depression until it gets sorted out.

But as I keep saying this is all small beer compared to the Global Warming Elephant, which I keep promising I will blog about. It's just that I can laugh about the Depression Elephant, as I can find some grim elements of graveyard humour in the situation. The Global Warming Elephant, on the other hand is distinctly unfunny.

And on that note, I will leave you dear reader ... One moment, something is coming in just now. Yes, yes, we are to proceed immediately to the lifeboats! Women and children first! What's that? Sorry dear reader countermand that last instruction. It seems that the lifeboats were smashed up and burned in the boilers five years ago. Better put on your life jackets. And sorry what was that? No sorry dear reader, it seems the life jackets where shredded to make parachutes for the occupants of the top deck. Sorry captain, what did you say? Deck chairs? Deck chairs!?

Please excuse me dear reader, it seems I have to go and re-arrange some deck chairs ...

21st Century Depression

In the latest developments in the looming 21st Century Depression, it seems that we were all saved! Hooray! Investors jumped up and down with joy, hugging each other and punching the sky. Then it turned out we were really doomed! Investors and bankers ran screaming for the nearest precipice, in order to hurl themselves en masse into the abyss. Ben Bernanke and his crew were lined up along the cliff top offering golden parachutes to retard the speed of their descent. Many American "Joe Six-packs" and "Hockey Mums" (I hesitate to call them "battlers"), lined up with baseball bats instead, and seemed keen to tie old washing machines filled with wet cement around their ankles, to speed the bankers' descent and make sure they stayed at the bottom of the abyss.

Politicians in America are in something of a quandary. Should they save America (and the world)? Or should they save their political arses? (or "asses" as our American cousins so often say). Many of them decided that saving their arse was more important than saving America. And they may have made the right decision. Because the sad truth is that 700 Billion Dollars just isn't enough! In fact it doesn't even come within coo-ee of being enough. No dear reader, 700 Billion dollars would barely cover the combined Wall Street and Washington annual expense accounts.

Not that I want to sound like a prophet of doom, but I have to say that stopping the Depression with a meager 700 Billion would be like a patient with a liver condition and a urinary tract infection attempting to piss into the teeth of an approaching cyclone. I'd have more chance of bailing out the Titanic with my tea cup, than the Fed would have of bailing out the American economy with a paltry 700 billion dollars. And might I remind you dear reader that the Titanic is already on the bottom of a very deep ocean and my cracked old tea mug is currently full of tea. Though not for much longer!

Currently, there are frantic negotiations underway to insure the passage of the 700 billion bailout. And the president is asking the media to please refrain from referring to it as a bailout!. No sooner had he uttered these words, then media outlets around the world adopted the term. It has now been universally accepted as the correct label for this last-ditch, desperate measure.

One of the little adjustments that was made to the bill, was providing limits on (taxpayer funded) payouts to CEOs. None of the media outlets that ran this item specified exactly what the limit was! Certainly anything greater than zero would be unacceptable!

No doubt when congress decides to "Save America" rather than their arses and the bailout has passed all the necessary legislative and political hurdles, investors and bankers will start to rejoice again. But their joy will be short lived.

<sarcasm> It's a pity that that nice Mr. Bush is going to leave office soon! No doubt he would be able to save America! He'd just exhort investors and consumers to go out and spend their way out of the crisis! Do it for America!, he'd cry. And if that clever Mr. Greenspan was still in charge of the Fed, he'd lower the interest-rate to less than zero, in order to facilitate the rescue. The Fed would actually pay people to take money off them. Not your regular folks mind you! Just those friendly bankers! And America would be saved!. </sarcasm>

I have included sarcasm tags around the last paragraph for readers who are part of the Conservapedia demographic (although it is hardly likely that they would be reading my Elephantine Blog). So for those sarcasm-challenged readers I will explain (slowly) that the Bush administration has, in fact, been catastrophic for the American economy, and have brought the US (and the world) to the brink of Depression ten years earlier than they would otherwise have done. And Greenspan is probably the worst chairman of the Fed ever.

Neverthless, the financial disaster is not really life-threatening. I expect that 98% of us will survive it. And the 2% that don't will mostly die of natural causes. We will have to face the not so difficult dilemma of choosing between the following (mutually exclusive) alternatives.

• Adjust the value of assets downwards by about 50%. Shutup and take our medicine ... or
  
  
• If the Fed keeps on printing more money we will adjust our currencies after the cost of a loaf of bread exceeds a thousand dollars.

It's really just a question of economics. And faced with such a choice, I know which option I would prefer. It's a no-brainer.

Overall there might even be a silver lining in those approaching clouds of Depression. Among them:

• We may have to find alternative ways to transfer money around the world. Perhaps we could talk to the Muslims about this? Although the collapse of the global economy will be very sad for the people who used to make fabulous profits buying and selling money. It will be at least as tragic for them as it was for philosophers several centuries ago, when they could no longer make a good living out of debating how many angels might dance on the point of a needle. No doubt they will find other employment.
  
  
• Many of us may have to find new forms of employment. This applies especially to my own profession, who have ridden the Financial gravy train for many decades. This will create opportunities in training and development of new technologies.
  
  
• There may even be some indirect health benefits. In Australia, we now have the dubious reputation of being the fattest nation on earth. All around the continent, Aussies sitting on their couches, with remote in one hand and a cold frosty in the other can cheer, One more thing we've beaten the Yanks at! With the onset of the Depression, however, we might even reduce our waistlines as well as our wealth and overall consumption.
  
  
• In the face of economic adversity we may even re-discover a sense of community that our grandparents shared. We may even re-discover the value of thrift, which was formerly considered a virtue. Although this may be a far too optimistic and rosy assessment of the human condition.

Alas, although I can face the Depression Elephant with resignation and equanimity, perhaps even a hint of schadenfreude, I cannot say the same thing about the Global Warming Elephant, which fills me with dread.

But more about that later.

References (Further Reading)

• Islamic Banking On The Rise. Strictly speaking Muslims are forbidden to charge interest. Sometimes it seems they can get up to some shenanigans of their own as this Background Briefing Report discusses. So how is the Islamic banking sector faring?
  
  
• The Masters Of The Universe Have Left New York, according to Tom Woolfe in this OP-ED in the New York Times. Were the rats deserting a sinking ship?
  

Peak Debt

Note: This post was initially created (and posted) on September 23, after reading Tim Colebatch's article "Are We Scared Enough?". While experimenting with the blogger settings I deleted it. I then posted it again (with edits) on September 27.

Not too long ago, I decided to compose a blog about the elephant in the lounge room called Peak Oil. This was in response to some gentle prodding from a poet/historian/friend in Armidale, who encouraged me to blog about the political issues that I considered important, rather than just whinge about them in emails.

After such persistent goading from my friend, Dan Byrnes, I created the elephant in the lounge room blog entry, which was my first rather clumsy attempt at satire. I have since decided that it was a mistake to put it in the (now humble) PGTS blog, which is mostly a HOWTO blog, with programming tips and hints about open source software, email, spamming and spam prevention, security, data-processing and computing. For the time being I will leave the post there. But from now on I will make this blogspot my Elephant blog. And I will henceforth put any opinions about elephants in lounge rooms or for that matter in any room in this (not so humble) blogspot.

World events have recently caused us all to focus on another elephant called Peak Debt. And this blog post is mostly about the shenanigans surrounding the Debt Crunch. It's hard to believe that we have arrived at this point in our history, arguably the most serious economic catastrophe since the Great Depression. And as it unfolds, the current crisis could prove to more serious than the Depression of the previous century, because this time we have to contend with some major environmental challenges as well as economic difficulties.

I can't help reflecting on how we got here.

On September the 11th, 2001, the world was transfixed with horror and fascination as the Twin Towers of the World Trade Centre collapsed. In the week preceding this disaster, the stock market had shown signs of volatility. The tech-heavy NASDAQ appeared to have peaked and there may have been short selling by groups associated with those who planned and financed the attack.

When the market re-opened on Monday the 17th of September, the indices went into a steep dive. The Dow-Jones dipped sharply and continued heading for the basement for the next four days. By Friday it appeared to bottom out. However, over the next six months, the Enron and the Worldcom scandals gave the Dow Jones Index a good old-fashioned American sock on the jaw each time it struggled to get off the canvas.

During this time, the Bush administration showed as much creativity in their accounting as George Bush himself had displayed during his not so illustrious career in the corporate sector. Consumers and Investors were urged to do their patriotic duty and go out and "Spend For America". And to make it easier for them, Alan Greenspan, head of the Federal Reserve, helped keep interest rates at dangerously low levels. Dubious practices such as securitization, were encouraged. This new econo-babble had been coined in the previous decade to describe the shonky mechanism of shifting debt so that it no longer appeared in the "liabilities" column of a spreadsheet. In the noughties this questionable accounting practice became one of the most popular instruments employed by financial institutes to make their books look good.

To distract the general populace from such disgraceful behaviour, the Bush administration embarked on the Iraq campaign. In so doing they failed to address the real problem of militant Islamist organisations in Afghanistan and Pakistan (a problem originally created by the USA), and proceeded to empty out the Federal Reserve's coffers in a poorly planned, ill-advised, half-baked military adventure, that became very expensive. The cost was probably inflated considerably by the dodgy business associates and cronies of the administration, who benefited from lucrative contracts that were neither managed nor scrutinised.

Levels of household debt in America (and Australia) started to soar. The US was effectively broke, largely due to the incompetence and the shonky business practices of the Federal government. The debt burden was shifted to the American consumer, who willingly took up the challenge. The level of household debt measured as a ratio of GDP soared to dizzying heights, hitherto unimagined. According to most analysts it exceeded 100 percent of GDP in 2005, and has continued rising at an alarming rate ever since.

In Australia we did our share. Household debt rose to an unprecedented level. Property values increased at almost the same rate. In many Australian cities, property was doubling in value every three years. The incredible increases were fueled by low interest rates and pressure from immigration. Thanks largely to another accounting sleight of hand, public investment in education had been replaced by private investment, by loading students up with high levels of debt. Additional funds were obtained from full-fee paying students. Unlike America, Australia had the prospect of a genuine resource boom. Much of the short-fall in labour was filled by skilled migration from overseas, which when combined with state government housing policies and low interest rates fermented into a heady but toxic brew that helped push property values to their current stratospheric levels.

Despite the record rises in assets values, official figures were concocted that showed that inflation was at an all time low. This remarkable bit of creative accounting was employed on either side of the Pacific.

In America, the problems were much worse. There was no booming resource sector and not much left of the former mighty US manufacturing industry. Apart from movies (mostly remakes) some very fine animated features for children, DU munitions and software, manufacturing in the USA had withered on the vine. Infrastructure was deteriorating as assets were being "sweated". This was more econo-babble for "no maintenance", no "research and development" and no accountability. In the noughties, the new growth economies were China and India, both of whom continue spending on education, research, high-tech manufacturing and infrastructure in general. The cost savings from cheap imported manufactured goods and services from China and India were seen as an opportunity to leverage the economies of Australia and the USA with ever increasing amounts of debt.

The next human to set foot on the moon may well be Chinese. Provided, or course that the Chinese economy doesn't also have a meltdown of its own due to environment stresses.

In 2006, Alan Greenspan, mounted on his white charger, rode off into the sunset and was hailed, mostly by friends of the Bush administration, as the greatest Chairman of the Fed ever. He left behind an economy that was crippled by an unbearable burden of debt. In fact by then it had already become apparent that the US was approaching Peak Debt.

Around about this time a new specimen of econo-babble crept into the lexicon. This was the word sub-prime. A cute little euphemism employed by bankers to describe a debt that was somewhat less than than optimal. Later on of course, these little sub-prime mis-adventures would be referred to as toxic debt.

So when does debt become toxic? When there is too much of it, obviously. But more to the point it is very toxic when it has been disguised and moved out of the side of the ledger that is usually reserved for liabilities, and dressed up as an asset.

Late in the winter of 2007 (about mid-August which would be summer for Wall Street), we had the first sub-prime panic. The stock market went into free-fall and we heard for the first time about the credit-crunch. That's more econo-babble for "no more credit, because investors don't believe the bullshit figures they've been quoted." As a result we saw the first of many liquidity injections by the Fed.

Not being an economist, I have never really understood what a liquidity injection actually is. It seems to involve large figures with at least ten digits in them, and having been administered, the stock market temporarily halts its giddy downward rush. Much as I despise hypodermics, I sometimes think I could do with one of those liquidity injections myself. But it seems the Fed will only administer them to folks who have nine figure salaries.

As part of the whole package, interest rates were lowered further.

Since then it is hard to keep track of the panics and subsequent liquidity injections. Here are some of the ones that I can remember:

• In September 2007, there was a run on the UK Northern Bank. Some months later, the bank was nationalised.
  
  
• In January 2008, possibly as a result of the bad news from the UK, the Dow Jones went into what seemed to be death-dive, or so it appeared at first to the pale-faced investors clinging with white knuckles to the rail in the front seat of the roller coaster. The index lost almost 800 points in just four days trading.
  
  
• In March 2008, there was a hiatus followed by general hysteria on the stock market floors in Wall Street. Investors ran screaming for the exits with their hair on fire. The Fed responded with massive liquidity injections. The crisis eventually ended with Bear Stearns becoming part of the JP Morgan family. The transaction was concluded unceremoniously at the business end of a shotgun held not all that steadily in the trembling hands of the chairman of the Fed.
  
  
• In August 2008, two more towers were threatening to collapse. This was a fiscal collapse rather than the more life-threatening physical variety. When the two mortgage giants, Fannie and Freddy failed to respond to liquidity injections, the Fed bought them out in early September, since they couldn't find a willing (or unwilling) purchaser anywhere else.
  
  
• In mid-September 2008, Lehman Bros qualified for entry in the Guinness book of records as the largest bankruptcy filing ever. Certainly it is the largest in the history of the United States. The size of their assets was stated at 600 billion dollars. However since a lot of those assets were sub-prime the true value was probably considerably less.
  
  
• At the same time that Lehman was going down the toilet, AIG (American International Group), was threatening to do the same. By this time the Board of the Fed were probably in as great a state as panic as Wall Street investors. They offered a massive credit-line to AIG in exchange for equity. An offer that was quickly accepted.

Which brings us more or less to the present day. Rumours abound of other US financial institutions on the brink of collapse. The current chairman of the Fed, Ben Bernanke, and the Treasury secretary Hank Paulson, have warned of serious consequences if Congress doesn't immediately give them 800 billion dollars to combat toxic debt. Among these serious consequences are:

• Credit flows will freeze. As a result the ordinary American consumer will not have access to credit.
  
  
• The collapse of asset values. As a result the savings of average Americans will be eroded.

These calls have been echoed by many bankers, CEOs, politicians and media magnates.

The so called toxic debt has come about because assets are overvalued. Stocks, shares and assets in general were already over-priced when the World Trade Centre calamity triggered a massive slide in their value back in 2001. Rather than allow the market to attain a natural level of equilibrium, the Fed and a crew of Wall Street carpet-baggers connived to artificially inflate the market. This was achieved with derivatives, futures trading, margin lending, sub-prime loans, securitization, collateralization and phony patriotism (surely the last refuge of scoundrels everywhere). The artificial over-inflation of the market continued until about 2007, when the cracks began to appear.

Some of those econo-babble terms in the above sentence might seem a little obscure, so I will now try to explain what they mean. To be quite frank, I don't really understand all the details of these complicated so-called investment instruments. But I'll let you in on a little secret. Even the people who invented then don't understand them. They are all bullshit, cleverly designed to part suckers from their earnings before they have even earned them.

What Bernanke, Paulson et al want to do is prevent the market from operating as a genuine market. The serious consequences that they warn about, and revaluation of assets and possibly the temporary freezing of credit lines would be unfortunate consequences of a necessary and long overdue market correction. The average American consumer already has access to too much credit. And assets are in many cases more than one hundred percent over-valued. Since the banks have included those same inflated assets on their books and have loaned out amounts up to 125% of their (over-valued) book value, they now have a big big problem.

Since the modern economy is so complex, I still haven't been able to figure exactly what a liquidity injection is. I do know that it involves huge sums of money and I have a strong suspicion that it is very similar to PRINTING MORE MONEY. Now as I admitted, I am a systems analyst, not an economist. I am not officially qualified to comment on economies. But I do know one thing. As far as strategies for tackling economic problems go, and also in the less specific but long sad history of bad of ideas, the idea of PRINTING MORE MONEY is probably the saddest, baddest, thoroughly discredited, most dangerous and rotten idea ever.

At present, the US federal deficit is running at half a trillion dollars per year, In other words roughly half of what Bernanke and Paulson are now asking from congress. The total public debt in the US is currently estimated at ten trillion dollars.

So things are not looking good in the public sector either. Things haven't looked good in the public sector since Bush came to power.

Apart from the fact that the US Federal government don't have 800 billion dollars, even if they did, it would be the height of folly to give it to the very people who caused the problem in the first place. And in any case 800 billion, or the slightly more modest 700 billion now being discussed, would not be enough! The financial sector has already lost huge sums of money. This may turn out to be several trillions. It was all under the table and accomplished with shonky complex accounting that if not fraudulent was certainly unethical.

When some honest accountants finally get a peek at the books hidden in the bottom drawer, we will probably discover that the current financial crash is the biggest in the entire history of economics. Bigger even than the Depression last century. If these Wall Street dickheads got their grubby hands on almost a trillion dollars of taxpayers money next week, they would piss it away in a couple of weeks. Even if they managed to keep the over-inflated market pumped up for another month or two, which they probably won't, the end result would be inflation, possibly even hyper-inflation.

The excessive stupidity and greed of the Wall Street bankers and the people running the federal agencies leads me to speculate that many of them don't actually know how many zeros there are in a trillion!. During his time in office, Bush has only ever had two remedies for the economy, and these were:

1. Reduce Taxes.
   
2. Increase Spending.

Thanks to the fear and general paranoia in the USA after the 9/11 attack there was (at first) no serious challenge to this deeply flawed, contradictory policy, which if anything serves as a clear demonstration of his (Bush's) supreme stupidity and profound ignorance of basic arithmetic.

Bush has now started to lobby congress strenuously to cough up more dough, for the Bernanke/Paulson 700 billion Wall Street cash fertilisation project.

Recently in the 7:30 report, a financial expert from Wall Street was interviewed. I have forgotten his name. But he said that the money (700 Billion) was necessary and it would be "invested in America's future not wasted on health and education". As he said this, he stared directly at the camera with soft puppy-like earnest eyes, that neither wavered nor blinked!

It seems that support for "the plan" is melting away, as fearful politicians check their opinion polls. The news from the grass roots is not good.

In the latest developments, the President of the United States has been repudiated by his own party. When negotiations failed he was heard to exclaim, "This sucker is going down!". The only truthful words to have passed his lying, crooked lips in the eight years that he has held the office.

Thanks to this incompetence and greed, we have now reached Peak Debt in the American economy. They simply can not sustain any further increase in debt. There is nothing left for Americans to do but to take their medicine. And it will be very unpleasant tasting medicine indeed!

In Australia, we also have a problem with debt and over-valued assets. We also have an ex-Treasurer, Peter Costello, bobbing up on our television screens reminding us how good things were when he was Treasurer. Someone should remind him that when the principle component of "growth" is debt then things weren't really all that good. And the record levels of household debt were attained on his (Costello's) watch.

References (further reading):

• A New Kind of Bank Run Tests Old Safeguards, by Floyd Norris, The New York Times, August 2007.
  
  
• The Economic State Of The Union -- 2008", by Charles McMillion. January, 2008.
  
  
• Peak Debt!, by Ronald M. Laszewski, July 2008. There is a brief discussion of the paper here.