Welcome to the age of diminishing returns

Wednesday, November 30, 2011

Waiting for the big wave

Guest post by Antonio Turiel


Cassandra's legacy publishes this post by Antonio Turiel that appeared first on Nov 18, 2011 on "The Oil Crash" blog (in Spanish). Here, Turiel examines the Spanish situation, seen a few days before the recent elections that saw the victory of the right wing "Partido Popular". In this lucid analysis, Turiel compares the present situation of Spain - and of the other states in trouble in Europe - to the apparent calm that arrives just before the great tsunami hits. (translation from Spanish by Ugo Bardi)





By Antonio Turiel, 18 Nov, 2011

"People willing to trade their freedom for temporary security deserve neither". Benjamín Franklin.


Dear readers

among the most interesting phenomena that are part of the fields of oceanography and geology, there are tsunamis. A sudden vertical displacement of a fault at the bottom of the sea, by the enormous energy it releases, can displace all the mass of water above it for a not too big height, maybe 50 centimeters, maybe one meter. The problem is that the displacement affects the whole water column, which may be four or more kilometers of height. The wave generated simply by gravity propagates at speeds of hundreds of kilometers per hour; in some cases - if the earthquake takes place in very deep waters - it may arrive to supersonic speeds. When the wave gets close to the coast, the slope of the sea floor creates an effect known as shoaling. 

The solitonic wave breaks up and decomposes in several packets which propagate at much lower speeds (some km/h) but, because of the accumulation of water, their height grows and grows. Because of this, it is much safer to wait for the tsunami at sea, where the wave, of some centimeters, will pass without generating major damage; but its height on the coast will arrive to several meters; in some case as much as 15 (there are documented historical cases of monster tsunamis of almost 50 meters of height) and able to penetrate inland for several kilometers, razing to the ground everything with their enormous power and pressure. Just before the first wave of a tsunami arrives to the coast, the sea retires rapidly of several kilometers; revealing a rocky seafloor of unreal aspect. Some people are fascinated by the phenomenon and find themselves looking at it, captivated, without understanding that, if in that moment they had started running inland, perhaps they will be able to get far enough, or reach a ground sufficiently high, to survive. It is a question of a few crucial minutes; those few vital minutes before the arrival of the first wave. Another fact that people often ignore is that the first wave is almost never the largest one; and sometimes it happens, as in the case of the  tsunami in Hawaii of April 1st 1946 (day of the innocents),  that people go to the beach to see what had happened during the half hour that separates the first and the second wave, horribly increasing human losses when the second wave, usually is larger, unleashes all of its violence over the unfortunates.

Yesterday, the spread of the Spanish treasure bonds with respect to the German ones arrived, according to what we are told, to about 500 basic points. That means that the yield given to these debt issues is about 5% larger than that of equivalent German titles. As the information given by the media is always brutally incomplete and antiquated, I never know for sure to what it is referred to: whether we are speaking of one year bonds, or five or ten, or all together. I understand, anyway, that this spread with respect to German titles is being observed in the secondary market - that means, the individuals who possess Spanish debt are selling it to other individuals with a certain discount (because, obviously, they couldn't renegotiate the conditions expressed on the bond issue). That, if you think about it a little, is even more serious than if it were Spain to sell its debt with a larger kind of interest (which happens, because the debt issue usually follows the secondary market: Spain cannot obtain cheaper money than what the market perceives). It is more serious because, in summary, those people who keep Spanish money and are selling it are accepting a certain percentage of loss (perhaps no real losses, but surely on their expectations of gain) and that means in the end that the credibility of Spain as a trustworthy debtor state is falling.

But, in the end, this is not a blog dedicated to the economy and there is no need to spend time on these questions. The interesting part of what we observe is that the Spanish debt is arriving to levels that have motivated the "rescue" of Greece and which forced a "change of government" in Italy, last week. Here in Spain, we are just two days before the general elections which all polls indicate will be won by the conservative Partido Popular with a large majority. The party's leader, Mariano Rajoy, has already anticipated that they will take appropriate measures to try to heal the Spanish accounts, hinting that we'll see more reduction in the social services and salaries than anything that was seen in the past year. In addition we could say, as a matter of coherency, that for being an amateur in applying these measures, the Italian prime minister, Silvio Berlusconi, was shot down by the entity that the media sometimes call the "European Troika."

We are facing, then, general elections which will radically change the orientation of the governing party, from socialist to conservative, in a country were the perception is that the right is a better manager and that, as a consequence, will be able to ride out better the difficult economic situation. In reality, the result will be the same, because after having seen what has happened to the fatuously democratic European union during the past few week, with Greece and Italy, it is clear that decisions are not taken in single countries and much less reside with the people: our new leaders will do what they are told to do - full stop. This situation will lead to a growing disillusion of the Spanish people; a disillusion that will turn into rage when the new recession which we are starting to see will increase the jobless level from the present 21,5% to 25 o 26% in a couple of years. And, no doubt, the only thing that we are doing is to follow a known path: collapse. It is sure that, about collapse, Dimitri Orlov recently revised his model of the five phases of collapse (financial, commercial, of the state, of the community and of the family) and his conclusion can't be more disheartening; according to him, it seems that the great effort of states to stave off financial collapse - which should have occurred in its full magnitude during the past 2-3 years - will cause the real financial collapse to arrive at the same time as the commercial one and, eventually, that of the state - this latter entity being dragged in by the giant weight of the debt incurred with the financial rescue. In summary, Orlov's model was too gradual and suave when compared with the abrupt road where the BAU (Business as Usual) is dragging us. It is another piece of evidence of the fact that the descent along the right side of  the Hubbert curve will be dominated by non linear effects. And the present events in Greece indicate that, indeed, the financial collapse will take place at the same moment as the commercial one. Greece had no choice but turn to Iran as its major supplier of oil (thanks to Ángel, for the reference), since the other countries don't trust the Greek solvency. The descent that us, the Spanish, are starting, following the same path of Greeks, Irish, Portuguese and Italians, will take us from our pretended "First World" condition, where arrogantly we believe to belong because of our merits, to the Second or the Third in which we are being pushed down without the rest of the planet giving a damn; and it will help us little that until a couple of years ago we considered ourselves to be with the rich and the powerful; they have their own concerns and right now we are just a hindrance for them.

These days before the elections are like the sea which retires before the first tsunami wave. There is a strange and unreal calm while a vague and ominous shade is appearing at the horizon. In reality, if we know a little of history and how economy has been practised in the 20th century, we know what it is going to pass in Spain. Starting with Monday, they'll start saying that now it is the time to keep quiet, that it is urgent to find the means to contain the damage, that it is intolerable that the Spanish deficit doesn't stay within the established bounds (fixed by the government for this year at 6%, which could reach 8%). It is possible that the socialist government, in function until January, will be forced to take already some drastic measures; measures that in any case will be adopted by the Partido Popular when it will take charge: immediately lowering the salary of public workers - once more; perhaps 10% in this occasion - cutting even more health services, education, and, ouch, public works, because Germany and France are very sensitive about those multi-million airports without passengers and other stupid infrastructures build during the golden age of concrete. There will be, possibly, an increase in the VAT and surely a generalized reduction of the subsidies and help (that is affecting me, research grants and projects). All that will bring a larger economic contraction and more unemployment, with the result of lower tax revenues and there will be a general tendency to pay more in subsidies - at some moment there will be talk of reducing the unemployment subsidy and the minimum salary. All that in a context where basic goods will see an increase in price while the non basic ones will become cheaper while stocks are being liquidated, to return to high prices, later on. In the end, we'll become poorer, much poorer....


The sun is darkening, the wave is obscuring it, it is here already. I wanted to write somewhere a number of truths in the midst of so many lies as we are being told now. What is being done to countries are not "rescues", they are liquidations; they are not "changes in government for technocratic governments", they are coups that give control of the state to our creditors; it is not austerity, it is increasing financial ruin; it is not order, but repression, it is not for the common interest, but for the private one; it is not returning to growth, but it is the road to poverty; there is no growth, but the end of growth. We are left only with the poor satisfaction that these waves will arrive, eventually, also to Berlin and to New York.

The water is arriving already.

Greetings

AMT

Postscript: This post is not about energy, indeed, but I wanted to write it.

6 comments:

  1. A beautifully written piece

    Your quote reminded me of another one:

    [Of ancient Athens] "In the end, more than freedom, they wanted security. They wanted a comfortable life, and they lost it all -- security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility then Athens ceased to be free and was never free again." [Edward Gibbon Decline & Fall]

    What should we be doing? Those of us who have some savings? Keep it in the bank? Buy gold coins? Buy a piece of land? Head for the hills?

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  2. Good questions. When a water tsunami arrives; you know which way to run. But for a financial tsunami???? Which way do you run?

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  3. Great post, I especially like the clear and abdrupt subjects switchings a lot, somehow taking the reader by the throat.
    And clearly the financio-technocrats haven't understood a single thing yet, if the truth can be of any help in this mess, but let's still suppose it can only be that, cannot be the reverse for sure.

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  4. things are getting pretty bad in the uk, with the biggest strike for decades yesterday over pension cuts for public sector workers.

    clearly nobody striking has a clue about peak oil or limits to growth. probably very few have ever pondered the strangeness of 20 years idleness at the end of their 'working' life.

    our crackpot media is certainly not going to tell the people anything they need to know.

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  5. In regard to PS's question: gold has served as money for many thousands of years. While it's value in fiat currency may rise or fall in the near term, it's difficult to imagine that gold will not once again play the part of a stable currency ay some point in the not too distant future. It's just got a strong history, and is recognized world wide as 'money' and it fits all the criteria for a good medium of exchange (see wikipedia for more: http://en.wikipedia.org/wiki/Medium_of_exchange).

    Buying gold is not an investment, mind you - it's more of an insurance policy against fiat currency collapse. And I would also say I don't see buying gold as necessarily a 'great option' - I would rather characterize it as 'probably the least bad option among a field of very bad options'.

    Whatever you decide, I would say that keeping money in a bank is about the highest risk action one could take in this environment. It's almost all downside with almost no upside. The entire financial system is well past insolvency - it's merely a matter of time before reality catches up, at which point massive bank failures will ensue - this could be very soon (if the euro-crisis triggers a global collapse), or years off (if extend and pretend someone keeps things afloat for a while longer). And given the paltry amount of interest bank accounts are paying - even CDs - I see no good reason to keep any more money in the bank than the amount needed to pay bills on a monthly basis. Staying in cash (or in gold which can be easily sold for cash), you can deposit enough in the bank each month for payments you cannot make with cash or money orders. It's not hard to get used to.

    For my part, I cashed out into gold a couple of years ago, have transitioned to a cash economy (all you sacrifice is some convenience - small price to pay), and am hoping to be able to buy some land in a year or two with the proceeds (believing that land values will continue to plummet). Whether that will work out or not is anyone's guess, of course. If folks like Orlov are correct, then we may not even have reliable land titling or title recording services available for very much longer after the financial system goes kablooey. Or, the government may outlaw private ownership of gold like FDR did back in the 30s (though this would only make gold more valuable longer term). The question is: which risk allows you to sleep most easily?

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  6. Good points, gwizard. One comment: it is unlikely that the government will repeat today what Roosvelt did in the 1930s. It is because we are past the Bretton Woods agreements and money is now "fiat" currency, not linked to gold. At the time of Roosvelt, it made perfect sense for the government to "buy" (well, confiscate) gold from citizens, giving them paper money in exchange. It was a way to inject currency in the economic system. But, today, what would the government do with the gold confiscated from citizens? They couldn't use it to back the national currency, they could only sell it back to someone else - but to whom? In short, we don't have to fear in this sense.

    What might happen is that we see the development of a parallel currency not linked to fiat money but on gold. After all, after the Roman empire fell, Roman gold coins continued to be used as currency throughout the Middle Ages in Europe. Just the least bad option, yes, but an option!

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Who

Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014)