Tower of Babel Moment

by Reverse Engineer, Doomstead Diner

Last week over in China, the Chinese had to SHUT DOWN Beijing due to SMOG problems.  This is pretty radical, since far as I know not even Los Angeles ever got shut down due to Smog, and it was pretty nasty there particularly before CA Greenies went big time into emissions restrictions on the plethora of Carz that started hitting the LA Freeways in the 60s and 70s.

From Bloomberg:

China started reopening roads and airports in Beijing and surrounding areas that were shut by heavy smog, allowing millions of travelers to return from a week-long holiday.

Air quality index readings for half of Beijing’s 12 urban areas fell below 200, the level dividing medium and heavy pollution, as of 12 p.m. today, according to data on the website of the Beijing Municipal Environmental Monitoring Center.

Tennis fans wear masks to watch the women’s semi-final match of the 2013 China Open during severe pollution at the National Tennis Center in Beijing on Oct. 5, 2013. Photographer: Feng Li/Getty Images

“Beijing will see light rain tonight, which will make it easier for air pollutants to dissipate,” Beijing Meteorological Bureau said today in its official microblog. The bureau lifted a yellow alert on smog at 8:50 a.m., predicting that visibility will improve.

The closures yesterday of six expressways and disruption at Beijing Capital International Airport underscore the severity of pollution that has become the top cause of social unrest in China. Premier Li Keqiang has pledged a cleanup that includes cutting coal consumption, shutting steel plants and controlling the number of cars.

An estimated 430 million people were expected to travel during the holiday that ends today, according to the China Tourism Academy.

“Air pollution will be an additional factor for holiday traveling that needs to be considered,” said Chen Yifeng, a Shanghai-based accountant who didn’t travel during the holiday to avoid crowds. “I won’t go to heavily polluted places like China’s north region as it’s either hazardous to your health or causes trouble when traveling.”

Roads Closed

Police closed six expressways linking the capital city to Shanghai, Tianjin and Harbin yesterday, and 47 flights at Beijing Capital International Airport were affected.

Some parts of the expressways linking Beijing to Shanghai and Tianjin were still closed as of 9:40 a.m. because of haze, according to Beijing Capital Highway Development Group Co., which operates the highways.

Flights have resumed at Beijing Capital International Airport, an official said, declining to be identified citing company policy. Air China Ltd. (753), the nation’s biggest carrier by market value, will put on additional services after the smog affected at least 47 flights yesterday, an official said.

The State Council, China’s cabinet, said last month it will cut coal consumption, close steel plants and control the number of cars on its roads to gradually eliminate heavily polluted days in as soon as a decade.

Control Pollution

China will build a nationwide network within three to five years to monitor the impact of air pollution on health, the official Xinhua News Agency reported on Oct. 5, citing the Chinese Center for Disease Control and Prevention.

A total of 43 monitoring spots will be set up in 16 provinces and municipalities frequently engulfed by smog to facilitate research on air pollutants in different regions, the impact on the health of vulnerable groups and the study of related diseases, the report said.

Separately, Typhoon Fitow, which killed two people in the eastern city of Wenzhou, led to the cancellation of 22 flights in Hangzhou today and the suspension of at least 59 bullet trains in Zhejiang province, Xinhua reported. The storm made landfall in the southeast Fujian province, according to Xinhua.

So, now the Chinese sorta realize they got a pollution problem, and will start to Monitor it more closely.  Also TALK of closing Steel Plants, shutting down Coal Fired Electric plants and Limiting the number of Carz on the road.  If implemented, all these ideas would make some dent in the currently COPIOUS quantities of Carbon, Sulfur etc being jacked into the local atmosphere, but no mention here of what this would do to the Chinese Economy, which is basically to completely destroy what they built up over the last 20 years on Debt Financing.

With the current group of countries who buy Chinese Goods in the Deep Doo-Doo and Demand dropping for their products, the general idea was the Chinese would substitute “Internal Demand” through a rising Middle Class who in theory would buy the Carz Amerikanz and Europeanz can no longer afford.  If the Chinese are going to keep selling Carz, they have to sell MORE of them to their own population, not LESS of them!  Produce less Steel, produce less Electricity, sell fewer Carz, the Chinese GDP goes DOWN, not UP!

So essentially, the Chinese DEPEND on further polluting their Environment in order to make the game work!  This is the ESSENCE of the Waste Based Economy, discussed at great length here on the Diner.  Unfortunately for the Chinese, they came in to this game a Day Late and a Yuan Short, as I like to put it.  The Industrial Economy was built up in Germany, England, Japan and the FSoA during a period in History when copious Energy came a Bubblin’ Up out of the ground practically for FREE.  In my last article View From the Bugout Machine, I Googled up what is really an ASTONISHING Graph, and not one you see put up too often.  It is however the Graph that Explains EVERYTHING!

The Flatline near ZERO from 1880 to around 1950 is what this is all about.  This is the Mispricing Phase which allowed the Industrial Economy to develop as it did.  Did this occur through “Free Market Forces”?  Of course not.  This was the period begun with John D. Rockefeller MONOPOLIZING the Energy Industry with Standard Oil.

Standard Oil began as an Ohio partnership formed by the well-known industrialist John D. Rockefeller, his brother William RockefellerHenry Flagler, chemist Samuel Andrewssilent partner Stephen V. Harkness, and Oliver Burr Jennings, who had married the sister of William Rockefeller’s wife. In 1870 Rockefeller incorporated Standard Oil in Ohio. Of the initial 10,000 shares, John D. Rockefeller received 2,667; Harkness received 1,334; William Rockefeller, Flagler, and Andrews received 1,333 each; Jennings received 1,000; and the firm of Rockefeller, Andrews & Flagler received 1,000.[7] Using highly effective tactics, later widely criticized, it absorbed or destroyed most of its competition in Cleveland in less than two months in 1872 and later throughout the northeastern United States.

In the early years, John D. Rockefeller dominated the combine; he was the single most important figure in shaping the new oil industry.[8] He quickly distributed power and the tasks of policy formation to a system of committees, but always remained the largest shareholder. Authority was centralized in the company’s main office in Cleveland, but decisions in the office were made in a cooperative way.[9]

In response to state laws trying to limit the scale of companies, Rockefeller and his associates developed innovative ways of organizing, to effectively manage their fast growing enterprise. On January 2, 1882,[10] they combined their disparate companies, spread across dozens of states, under a single group of trustees. By a secret agreement, the existing thirty-seven stockholders conveyed their shares “in trust” to nine Trustees: John and William Rockefeller, Oliver H. PayneCharles PrattHenry FlaglerJohn D. ArchboldWilliam G. WardenJabez Bostwick, and Benjamin Brewster.[11] This organization proved so successful that other giant enterprises adopted this “trust” form.

Officially, Standard Oil was dissolved in 1911 (note the very CLOSE date with the founding of the Federal Reserve Bank in 1913).  However, in no way did that dissolution stop the consolidation occurring here, which was transferred at Jekyll Island to the Federal Reserve Bank.  The Monopoly created there was in Currency Creation, and for the Banks that OWN the Federal Reserve, it has allowed them to Borrow on the Public Dime to make their own Bets through the Age of Oil, creating a nearly endless series of Bubbles everybody bet on using the currency they created.  An ENORMOUS Ponzi Scheme, where the Founders could NEVER really “Go Broke”, not as long as they always could declare bankruptcy and shift the Losses back to the Public Dime.

Steve from Virginia on Economic Undertow makes the case that our Billionaire Elite really are just the biggest debtors of them all, and this is to a large extent quite true.  If you are close enough to the center of Money Creation, you can float yourself Loans in a myriad of ways that the average J6P simply has no access to.    Create an IPO of stock offering on your company, which TBTF Banks then Borrow Money from the Federal Reserve Bank to buy!  The Hundreds of Millions of Dollars spent to buy your company never EXISTED before this! Do you really think thousands of small investors lined up to buy the Facepalm IPO?   PoopOn? The TBTF Bank borrowed the money from the Money Creator (Da Federal Reserve Bank), their Prop Desks buy the Stock, and this now goes into the system as “Equity”.  If you then hold Stock in said company, you can use this as Collateral to borrow still more.  And on and on of course.

It should be no wonder to you these two famous Quotes came from the minds of the early Ubermeisters beginning this show:

Mayer Rothschild:

“Give me control of a nation’s money and I care not who makes it’s laws” — Mayer Amschel Bauer Rothschild

Henry Ford:

Talk about two guys who were Beneficiaries of being on the Inside of this Ponzi from the early years!

How many times did Henry Ford go BK before finally getting his Production Line operational and successful selling Model T’s?  About 5 best as I can Google it up, and similarly Edison had difficulty getting an Electric Grid up and running too.  Go back to the BEGINNING of this…look at that MISpricing Chart once again here at the very beginning of it:

Notice before the long Flatline from 1880 to 1945 or so, there was quite a bit of Volatility in Energy Pricing.  On an Absolute Level of Dollar Pricing, this looks a lot smaller than the current level of Volatility, but remember here there were many FEWER dollars in circulation at that time.  Distribution of the energy was tough, even if getting it out of the ground was not at the time.  Delivering the Energy around the country was quite difficult in those years, the Pipelines simply did not exist for the most part. Energy pricing as a result was wildly volatile to begin with.  It was a Leveraging Process to consolidate and control all of it, which once accomplished made it possible to drop the cost of the energy SO LOW nothing else could compete with it.  This put Outta Biz just about every other paradigm out there.  With energy this cheap, you could run Tractors capable of doing FAR more work than Horses or Oxen, so anybody expecting to make some kind of living farming HAD to switch over.

You will I am sure bring up the Refusenik Population of Amish, who foreswore off this shit based on their Religious Principles.  However, said folks generally also had to foreswear off all the advantages the system started handing out, Plasma TVs and all that stuff.  Besides that, they in the end were dependent on this system to move the production they did make off their farms, they just did not do it themselves.  They contracted to Non-Amish who showed up with Trucks to load the farm produce onto.  So they still participated, just they took a lower level of income to do it, and did not Buy the Toys being offered over time here by an increasingly complex industrial society.

This is the HISTORY of it, bringing us to today where we are now BACK to the enormous Volatility in Pricing, which all tracks back to Credit the Banks will offer to buy anything.  The question is, WHY would you offer out Credit to buy something you no longer have in copious quantities, which just ends up being burned up and which you have no reasonable expectation you will be paid back for in the future?  It makes no sense to do that, and so at the “retail” level of Credit, TBTF banks generally are NOT making the big loans necessary to keep this economy growing.  Not unless there is HYPE that some great new Energy source is coming down the pipe, such as with “Tight” Oil, which is basically tough to get stuff at low EROEI like Shale Oil and Tar Sands. nice example of this problem would be Eike Batista, the FORMER Billionaire from Brasil who just a couple of years ago was one of the world’s Top 50 “Richest” Men.  Eike owned OGX, the second largest Oil Production company in Brasil after Petrobras, and CLAIMED to have a $TRILLION$ in Oil in the ground they were going to yank up.  On the basis of this “projection”, Eike gets $BILLIONS$ in loans, which he can then use to buy lots of other assets.  Slight problem, turns out the huge Oil reserves either are not there or cannot be brought to market at any kind of profit, so Eike’s lenders start to call in the markers.  DOWN GOES THE EMPIRE OF EIKE! Headed now for BK court, and Eike will have to make do with a few Hundred $MILLION$ he has stashed away in Swiss Bank Accounts or the Cayman Islands.  Sorta like Dick Fuld from Lehman, no longer the Big Player in the Game, but highly unlikely in the Near Term that Eike ends up living in the Favelas after the Collapse of his Energy Ponzi.

Its not just Eike Batista having this kind of Credit Problem either now, even Royal Dutch Shell is admitting their Tight Oil plays are not profitable, and they too are trying to unload their Leases on Land in the FSoA they were supposedly going to make the Fascist State Energy Independent of OPEC with.  Not just Energy Independent, but EXPORTERS! The HYPE was that we are on the road to Energy Independence, but in REALITY, the Debt to fund this shit is drying up and Globally Speaking, country after country is going into Net Energy Deficit.  In reality, this explains why all these countries have enormous Debt problems, it is NOT fundamentally related to “Goobermint Waste & Inefficiency” or even the outrageously corrupt Banksters and Pols running this show, though to be sure they exacerbated the problem tremendously as time went by here, trying to keep the system propped up and running.

Figuring out and explaining the connection between Energy Extraction, Money/Debt Production and Goobermint Economics is extraordinarily difficult.  The fundamental issue is that any issuance of Money has to be backed by some real resource that can be extracted, then the Credit issued can be used to buy said resource.  The greater the Energy content of the resource, the more Credit you can issue, because more Work can be done.  Issuing the Credit requires REAL control over the resources, which is why Monopolization is essential, and why the Credit Creation was held extra-goobermentally in Private Hands, through the Corporate Ownership system.  It is not really the People of the FSoA issuing the Dollars that buy the Oil, it is the TBTF Banks that do that.  So as long as there was still GOBS of cheap energy in the ground to be extracted, the Elite running the TBTF Banks could and did continue to extend enormous amounts of credit on this Energy source, building up the enormous Industrial Infrastructure we have today on the back of that Energy.  Those running the show collect enormous personal wealth through Management Fees and Interest charged on the Money they Loan out, which can constantly increase as long as there is constant increase in the amount of available energy.

To make it all run, a Goobermint and Legal system needs to be in place to enforce Property Laws, and this Goobermint gets funded by the Taxation system.  Da Goobermint also then increases in size and complexity because as ever more develops here, you need more and more rules to manage it, and more people to enforce those rules.  As Steve from Economic Undertow’s First Law indicates, the Management costs of Surplus rise faster than the actual Surplus does, so eventually with too much surplus and too much complexity, it costs more to manage the whole thing than it really is worth. virtually EVERY large Infrastructure arrangement built since the beginning of the Industrial Revolution has in the end gone BANKRUPT.  The Railroads all went BK.  Private Electric Companies went BK.  Telecommunications Companies went BK.  Automotive manufacturers went BK. Airlines went BK.  Dot Coms went BK. See Edison Electric, first Ford Motor Company,  Chrysler, GM, American Airlines, yadda yadda. To continue to run them, the Losses were shifted to the Public Debt, and the Profits made early on in developing them went into Private Hands.  The outcome of this is to shift most of the Assets into Private Hands, while the Debt side of this balance sheet is held by the Public at large, through Goobermint Debt.

This leads us finally to the TOWER OF BABEL MOMENT.  This is the point at which GLOBALLY there are insufficient Resources left to issue new Credit on.   Too many People in need of those Resources competing for them, and the Management Cost for running the whole system exceeding the worth of running it.  Debts at EVERY level, Personal, Corporate and Goobermint can no longer be serviced through Growth and monetary expansion, and the ISSUERS of CREDIT, the TBTF Banks are no longer predisposed to issuing it out.  There really are NO “creditworthy’ BORROWERS anymore.  Not even SOVEREIGN STATES are Credit Worthy Borrowers!  So it really does not matter if Da Fed will issue endless Credit to their Owner TBTF Banks, said Banks won’t pass that on to lower levels of Borrowers.

Cut to the CHASE here.  How does this affect the FSoA Goobermint, and WHY do we have this problem of Nincompoop CONgress Critters Grandstanding and running around like Headless Chickens unable to come up with any “Compromises” to make the system work?  Because NO COMPROMISE can work!  If you continue to issue Credit on Resources that are not THERE, you won’t get paid back.  If you STOP issuing Credit, the Monetary System COLLAPSES, likely quite rapidly also.  One side wants to keep issuing Credit regardless of resource deficiency, all that does is devalue the currency.  Other side wants to STOP issuing debt, that just Deflates the whole balloon here.  You cannot win EITHER WAY, because it is the Resource Constraint that is the Limiting Factor.  All the Debt Issued by Da Fed will not put more cheap Oil under the ground in Saudi Arabia, and these folks actually still HAVE something of a surplus.  Mexico really does not anymore, it is quite marginal there already.  They will flip from Exporter to Importer soon enough, then they go the way of Syria to Failed State status.

Maintaining this system is INSOLUBLE.  Cannot be done without CHEAP ENERGY that credit can be issued on.  The structures built on the back of that will collapse, and they include the large Nation-States and the Mechanized Military as well.  HOW it collapse, how fast and where first are interesting questions to ponder on, they certainly make a BIG difference as far as the individual is concerned, where you live and so forth makes a BIG difference in how it will play out in your neighborhood.  that it will in the end Collapse though is not an Open Question anymore.  It will, and it is well along the way to doing so in many locations already.

Locally, we watch the CONgress Critters look FOOLISH as they bicker about things completely beyond their control now.  BLAME is place by one Faction on the other, as though it would make some real DIFFERENCE here if Austrian School Gold Backed Currency would change the outcome of Keynesian Fiat Based Currency.  NEITHER will work.  There is not enough STUFF to go round, relative to the Populations size and Relative to the Complexity developed through the Age of Oil.

The system built up for 100 years based on Cheap Energy, and Cheap Energy exists no longer, though some Expensive Stuff stil does.  Issue there is, the vast majortiy of the population cannot AFFORD it, and when the Goobermints go belly up, the ability to debt finance it disappears.  This is where we are at NOW.  Where we go in the FUTURE is still an Open Question, but one can be pretty certain many fewer people will be living on what is left of the Planet in the aftermath of that.

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