It’s mad, but it’s not complicated

I imagine you’re having the same experience that I am? All around me, people are figuring out that the money situation may be mad, but it’s not complicated.
As the Big Dipper of financial bloggers, Ilargi, writes today, for example: “Stocks are plummeting once more all around the world, and if you think that trend will stop anytime soon, then you haven’t been paying attention. As long as there is maybe $1 of real money for every $25 dollars (or $100, or $200) of funny virtual money, stocks have a long way left to fall. Especially since what little real money is left tends to stay away from the crap tables. And that is what the exchanges – or make that the entire economy – have become”.
Illargi wonders, surely wisely, whether we properly understand what this means. “The funny money will disappear, no matter how hard its creators – the banks and governments operating in our societies – try to prevent that from happening. Nobody with assets that have some real value left will be willing to risk them in trades with what they know to be largely worthless counterparties. The only players staying at the table are the ones who are already broke. The only money left is the funny sort”.
This sounds depressing until you realise that you don’t need funny money to be active in the world. On the contrary, as countless social innovators already understand, the Law of Locality describes a near-infinity of opportunities to improve practical aspects of daily life. True, these opportunities exist outside the formal economy – but that’s more a problem for the formal economy than it is for human beings. Acting locally corresponds to laws of nature that don’t admit to action at a distance.

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Alternate Reality Game?

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I saw this poster outside St Etienne station. It portrays The Mongoose who is “an infamous hitman hired to carry out assassinations and other evil deeds…the cruel and cold-blooded murderer carries out his orders with eagerness and glee.” It says it’s a game, and that it’s is powered by “Unreal Engine”.
Now is it me, or…..

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Stuff-o-meter

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So what exactly, I wondered, is the Baltic Dry Index? And is it a good thing, or a bad thing, that it is plunging downwards at the fastest rate since records began etc etc?
These turn out to be two good questions.
The Baltic Dry Index (BDI), I discover, measures the freight rates of raw materials around the world. It’s therefore an important measure of material and energy intensity in the global economy.
We hardly ever see bulk carriers like the monster above, or this one below
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– still less think about them. And yet we should: Shipping’s CO2 emissions, and energy intensity, are in the same order of magnitude as those of road and rail – which move much smaller cargoes over much shorter distances.
These high levels of resource intensity place a big question mark over the long term viability of bulk trade in food and raw materials.
A briefing by Global Dashboard recently commented on the shipping industry’s own numbers including the graphs below.
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“One of the bits of data posted ” says GD, “compares the CO2 emissions from moving a ton of cargo 1 kilometre with the emissions that would result from moving it instead by rail, road or air. For shipping, the figure is 12.97 grammes of CO2 – as opposed to 17 grammes for rail, 50 for road and 552 for air.
“Presumably, the shipping companies involved think this constitutes a good argument in shipping’s favour. But in fact, the surprise is that shipping’s emissions are so high relative to the other three transport modes, rather than so low”.
This brings us to the Baltic Dry Index and its impressively plunging graphs….
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BDI rates have plunged 50 percent this year – in large part, apparently, because iron ore demand from China is plummeting.
Do we want the Baltic Dry Index to recover and shoot upwards again?
If the Berge Stahl stays dockside, and empty, it’s good for the planet – but bad for the global economy in its present form.
Clear?

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I told you so

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“We will not have any more crashes in our time.”
“There is nothing in the situation to be disturbed about.”
“… the outlook is favorable…”
I couldn’t resist reproducing this 1927-1933 Pompous Prognosticators Hall of Fame
Someone should stand by to make a similar chart plotting, against actuals, today’s confident statements that we should not worry about climate change, or peak oil, or peak protein….

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Megacities after the meltdown

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The received wisdom for a decade has been that the world will continue to urbanise, and that power and money will continue to congregate in a handful of megacity regions. The Megacities Congress in November begins to question these once-comfortable certainties. Well I will, anyway: I’m speaking on Friday 28th. The evening before (Thursday 27th) there’s a lecture by Adriaan Geuze on the Randstad, followed by a discussion that includes Ed Soja (et moi).

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City Eco Lab: on site and building…

…only we’re pouring earth not concrete See you in our little shed!

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When red is green and up is down

George Monbiot, in today’s Guardian, also links the financial crisis and the ecological crisis.”The financial crisis shows what happens when we try to make the facts fit our desires”, writes Monbiot. “The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences.The rules are the same in both cases. Ecology is the stock from which all wealth grows (but) if you extract resources at a rate beyond the level of replenishment, your stock will collapse”. Monbiot concludes, “Now we must learn to live in the real word.”
This is a good cue for me to head back to St Etienne head back to St Etienne for the coming days. I’m more convinced than ever that working at the level of the region – as we are doing there – is a better use of one’s life energies (which are also finite) than making demands of national politicians that they are in no position to meet – nor even, for the most part, to understand. As Jonathon Porritt puts it in his new book Globalism and Regionalism at least two of the basic foundations of civilised life – energy, and food – are readily and satisfyingly available at a regional level. “A watchword of sustainable economics is self-reliance. This entails combining judicious and necessary trade with other countries with an unapologetic emphasis on each country maintaining security of supply in terms of energy, food, and even manufacturing”.

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Measuring what matters

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Totally lost amongst the financial news last week was discussion of a new report on The Economics of Ecosystems and Biodiversity (Teeb).
According to this EU-commissioned study, the global economy is losing more money from the disappearance of forests than through the current banking crisis. The report puts the annual cost of forest loss at between $2 trillion and $5 trillion.
The figure comes from adding the value of the various services that forests perform, such as providing clean water and absorbing carbon dioxide.
According to Pavan Sukhdev, lead author of the report, “whereas Wall Street by various calculations has to date lost, within the financial sector, $1-$1.5 trillion, the reality is that at today’s rate we are losing natural capital at least between $2-$5 trillion every year.”
Strictly speaking, Mr Sukhdev, we are not “losing” natural capital, we are consuming it. And the superhuman efforts of politicians these days are all fixing the system so that we can carry on consuming a lot more.
As Illargiputs it today, “the intention of all these daily federal interventions is to keep the credit spigots open so Americans can go even deeper into debt to buy more stuff they can’t actually afford”. And he goes on to quote Barney Frank, chairman of the House Financial Services Committee: “We have to prop up consumption.”
Key to understanding Sukhdev’s conclusions is that as forests decline, nature stops providing services which it used to provide essentially for free. So the human economy either has to provide them instead, perhaps through building reservoirs, building facilities to sequester carbon dioxide, or farming foods that were once naturally available.
Or we have to do without them; either way, there is a financial cost.
So I have a proposal. Let’s pass a law compelling anyone in possession of an information screen describing the financial markets to split the screen, make the money chart half the size, and place it beside a real-time feed from a site opf ecosystem degradation.

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Toxic sludge machine

I was critical last week of commentators who describe the financial crisis as “psychological”.
Those who blame a “lack of transparency” are on stronger ground – although ignorance of the facts or the law is not a valid excuse in other domains of life.
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The process chart above describes something called a Financial Products Markup Language which is said (on its website) to be “the business information exchange standard for electronic dealing and processing of financial derivatives instruments”. The idea is to “streamline the process supporting trading activities in the financial derivatives domain”.
The chart looks neat and orderly – hygienic, even, with all that blue – but reflect a moment: The system has been programmed for deranged individuals who, as we now know, believe that exponential growth to eternity is a right and proper basis for the design of the world’s financial system.
GIGO – or Garbage In, Garbage Out – is a phrase used by computer programmers to remind laypeople that computers “will unquestioningly process the most nonsensical of input data and spew out mountains of erroneous information in a short time”.
Where we’re at now is that systems designed to “streamline” the market have been spewing out financial derivatives which, insofar as anyone can count them, now amount to eight hundred times global GDP.
This mass of red stuff (the red wedge on the inverted pyramid above, also known in financial circles as “toxic sludge”) has now started to leak out of the balloon. And that’s why this crisis is not psychological.
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For Dan Roberts in The Telegraph “the real mystery is how the negative feedback loop in the financial markets became so devastating. How could this domino effect happen so quickly? How could we lose control of something we designed to serve us?”.
It’s not a mystery. Think back to Three Mile island . (The photo above is of its mis-named control room.) During that calamity, within a few seconds after the physical accident at the nuclear reactor began, more than a hundred warning lights were flashing in the control room.
“I would have liked to have thrown away the alarm panel,” one of the duty operators, Craig Faust, said later. “It wasn’t giving us any useful information.” Water pumps, the turbine and the reactor had all unexpectedly shut down. But none of the blinking lights told the operators what they needed to know.
Or wanted to know.
In today’s financial discontinuity, the complexity of the information available (think of all those screens) has been compounded by two further factors: a lot of the trading is driven by powerful semi-automated systems ; and a lot of people clearly have not wanted to know what the screens were telling them.

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