Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

[ST]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

The 1980s bubble and crash [in Japan] was also a product of U.S. policy.

I think this is reaching. For an account of just how bubble evolved and was perpetuated through Japan's deep ties between the corporate, banking and political sector read Edward Chancellors excellent chapter on Japan in Devil Take the Hindmost: A History of Financial Speculation.

[ThePythonicCow]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Here are a few mechanisms, many of which occur in localized situations but have minimal impact on the distributed food supply...

Sure, there are always many things that can fail. But in fairly simple systems with a fair bit of redundancy, such failures tend not to cascade and can be worked around. If the local Kroger markets have a massive supply disruption, we can still buy food at WalMart or Albertson's, even if we have to suffer through a few weeks of some shelves being bare. If this food is polluted, buy that food. There might not be nearly as much redundancy in the food chain as in the past, but there is still sufficient redundancy to easily survive some outages without mass starvation.

Our financial, military, legal and political systems present the systemic risks to American prosperity and freedom, not our food system. The main threat presented by the food system is too many overweight people suffering from chronic illness.

The countries that face severe food shortages are those that cannot grow nearly enough food domestically to feed their population and that risk not being able to afford food imports.

[ggirod]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Let me put this another way. To conduct useful threat analysis, one needs to identify failure mechanisms. Simply noting one risky sounding factor, without identifying mechanisms by which that factor leads to failures and estimating the likelihood of those mechanisms, can be misleading.

Here are a few mechanisms, many of which occur in localized situations but have minimal impact on the distributed food supply...

Threats:
1. Localized illness / strikes / civil unrest
2. localized lack of Electricity / lack of hydrocarbon fuels / refrigeration
3. Infestation with molds, pests, etc.
4. Terror via contamination / destruction
5. widespread contamination via mixing one contaminated product with similar products from different sources


Problems
1. Lack of competition between vendors
2. Decline of quality as high quality goods are diverted to some markets, remainder to others and no competition to stop it.
3. buyer monopoly - only one buyer for commodity > lower prices > supply destruction
4. retailer monopoly - no matter where you buy it is the same stuff at same price
5. likely confounding of product / batch traceability as product is mixed at the single point
6. scope of any sanitation / health regulation violation / process problem becomes orders of magnitude bigger.

I hope this helps.

[ThePythonicCow]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

that concentration of supply has many dangers

I am less worried about this one. Simple physical concentration does not present much additional risk in my view, except for a few threats, such as say terrorist bombings. Even that risk is minimal until we're so concentrated that taking out just two or three warehouses would be able to starve many people for a prolonged time. We're not that concentrated.

Food warehouses are simple things. A few people with modest training can get the food in and out of them with tolerable efficiency. Food warehouses are also fairly redundant and fairly adaptable. One could cover for another, and any could adapt their workload to more critical items.

Let me put this another way. To conduct useful threat analysis, one needs to identify failure mechanisms. Simply noting one risky sounding factor, without identifying mechanisms by which that factor leads to failures and estimating the likelihood of those mechanisms, can be misleading.

The risk factor that worries me the most is the government. A few stupid policy changes, such as food supply destruction as an unintended consequence of price controls, can have systemic affects on gross food supply.

[Chris Coles]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

EJ, what exactly do you define as 'food supply' and how do you qualify 'safety' in respect to said supply? What set of facts led you to such a conclusion?

The fragility of certain contemporary systems has made me critical of the sustainability of certain forms of agriculture, food processing and distribution characteristics. Does a false sense of security exist or is the 'food supply' resilient to exogenous elements (read: collapse of FIRE)?

I am open to others' opinions on this matter too.

The more food supply becomes concentrated with far fewer organisations involved, the closer we come to the point where something causing the gigantic food distribution centres involved to cease to function, the closer we are to a complete collapse of the fundamental structure we call society. In the not too distant past, we had many food distribution capabilities, but today, here in the UK for example, small retail shop outlets are declining at an alarming rate and being replaced with only five major companies. Asda, Tesco, Sainsbury's, Waitrose and Morrison; each with very large, but small in number, distribution centres. History shows, again and again, that concentration of supply has many dangers. Recently, NASA has shown the compelling danger of a potential for loss of electricity supply by a forced breakdown of the transmission infrastructure caused by a Solar storm. Again, a major pandemic might also cause that distribution system to collapse. Again, as the population inexorably increases, our dependence upon imported food also adds to that potential for instability. Take a look at any major city where the population entirely depends upon a continuance, day by day, of external food supply that cannot be replaced by internal production. IMHO sometime soon, something is going to occur that will break the distribution chain and then we may see a panic that will bring home to the city dweller just how unstable their food supply is, and, just how little could be done to bring it back online....

[tojaktoty]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Food costs less, and our food supply is far safer than it was 60 years ago, despite what you might read.

EJ, what exactly do you define as 'food supply' and how do you qualify 'safety' in respect to said supply? What set of facts led you to such a conclusion?

The fragility of certain contemporary systems has made me critical of the sustainability of certain forms of agriculture, food processing and distribution characteristics. Does a false sense of security exist or is the 'food supply' resilient to exogenous elements (read: collapse of FIRE)?

I am open to others' opinions on this matter too.

[Finster]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

By reducing the debt to GDP ratio and allowing the US to limp along for longer, so the transfer of technology to China can continue. It also assists in the long term decline of US global power, which has strategic value for China.

And by the way US leadership is conducting public policy, you'd think it had strategic value for the US...

[c1ue]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

What ... only the one? I carry 5 Maple Leafs now wherever I go Internationally. 3 years ago one our partners' appendix burst while we were in Africa. Had to use them to "convince" somebody to get us to help. It's amazing how little you value a few ounces of gold when somebody you care about is in trouble. It all worked out, and he paid me back in Platinum. Now all our senior people travel with a little metal. ;)

Were I travelling through Africa, possibly I would consider carrying more.

Not for the reason you stated although it is quite valid - but that in Africa a lot more people keep their valuables in things like jewelry and PMs. Thus a single Krugerrand might not be as exceptional as it is in the US. How many people carry a tradable gold piece in the US? Perhaps 0.01% - the doomster nut jobs like myself.

The other factor is if you carry too much, you potentially mark yourself for armed robbery. Kind of like wearing a big gold chain in a bad part of town; the gangsters have the guns to protect their bling but I don't want to be part of that game.

[Jay]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Ha, I'll have you know that I'm PILOTING the last plane (only 75 seats left). (and YES, we DO ACCEPT Krugerrand, Maples, etc.)

Where's it going, how many ounces, and can I get on the list? ;)

[vinoveri]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

...if only we print and borrow enough money to get households borrowing and buying again. The perpetuation of this delusion will end in tears.

EJ: In 2000 we did not completely accept the dedication of monetary authorities to act to halt asset price deflation in the FIRE Economy before it spills over into the Producer/Consumer Economy. We never doubted their ability, only the willingness to take it as far as they did because of the risks. To believe the Fed has limits is to not understand how modern credit and money work, or the relationship between asset prices and goods and services prices.

EJ: The Fed adds $1 trillion one side of the balance sheet and puts $1 trillion in asset-backed securities on the other. Where is the constraint? What's going to stop them? The Fed doesn’t have to back any of it with gold anymore as it did in the 1930s.

EJ: There will be a reset. You can count on that.
...
But I don’t see it happening. Where will the political will come from to do it when millions of home owners are complicit in the scheme?
Who wants to see the price of their home fall 70%? EJ: We’re sticking with our dollar 60 by 2012 forecast that we made in March 2009.

So the government subsidizes mortgages to try to re-inflate housing prices.

DN: Is it working?
EJ: How could it not work, at least in the short term? Throw enough money at anything and it will rise in price, if only for a while.

...
or the U.S. government runs out of credit and can’t continue financing the housing market.

The housing echo bubble will not last long without sustained government support or a robust improvement in jobs and incomes. We expect the reversion to the mean process to continue next year.

EJ: How? The housing bubble was financed with private credit issued by investment banks, purchased by foreign investors, and sold by unaccountable lenders, with an entire chain of craziness, from bent appraisers and real estate lawyers to over-zealous commercial banks.

This forecast is highly speculative because there is no way of knowing how the effect of the stimulus will express itself in stock prices, but I believe the principle is correct, just as the principle of debt deflation enabled us to accurately forecast the 40% decline in stock prices in 2008. But instead of two rallies we got one big one. We should have known.

Great piece! Thanks.

With respect, is it possible that your real world experience running real businesses and where p&L centers, financial statements, risk/rewards, etc., and the punishment of real failure for business mistakes are perhaps not allowing you to see that in fact another bubble can be started (and while it might not be the RE bubble of the past. asset prices can be stabilized and supported "indefinitely" (many years or even decades), in the surreal world we have woken up to.

Some of your commentary seems to allude to this uncertainty and certainly surprise as to what has gone on and continues (see above and below)

As long as the government can print, buy mortgages, equities, and whatever else it is doing behind the scenes (and the world continues to tolerate it), WHY ISN"T ANOTHER MULTI-YEAR BUBBLE LIKELY, even if it collapses the system ten-twenty years hence?

e.g.,
"we did not completely accept the dedication of monetary authorities to act to halt asset price deflation in the FIRE Economy before"
and perhaps we are underestimating their dedication and policy tools yet again?

"To believe the Fed has limits is to not understand how modern credit and money work"
if there are no limits to what the FEd can do, are there not no limits to what kind ot result can follow (including another bubble)?

"Where will the political will come from to do it when millions of home owners are complicit in the scheme?"
This is what disturbs me, b/c it is not the "citizens" against the gov and oligarchs, but rather one class of citizens, the savers, against another class ...


"Throw enough money at anything and it will rise in price, if only for a while." But maybe a long long while ... what limit would you place on "a while"?

"The housing echo bubble will not last long without sustained government support" but gov support can go on indefinitely (or at least until the authorities spot and imminent collaps, which could be another decade or 2 away)

"How? The housing bubble was financed with private credit issued by investment banks, purchased by foreign ...."
With government support that is not withdrawn

"This forecast is highly speculative because there is no way of knowing how the effect of the stimulus will express itself in stock prices,"
Agreed, no way of knowing, but can't we be fairly sure that gov printing will not result in equity asset deflation?

Thanks again for all your hard work. It is of great benefit.

[jpatter666]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

What ... only the one? I carry 5 Maple Leafs now wherever I go Internationally. 3 years ago one our partners' appendix burst while we were in Africa. Had to use them to "convince" somebody to get us to help. It's amazing how little you value a few ounces of gold when somebody you care about is in trouble. It all worked out, and he paid me back in Platinum. Now all our senior people travel with a little metal. ;)

Long pause....

My wife works for an NGO and often travels overseas to, well -- hellholes. I'd never thought of having her do this, but it makes so much sense, I think we'll start.

Thanks for the idea.

[Fiat Currency]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Carrying around the Krugerrand to be able to bribe my way onto the last plane. :eek:

What ... only the one? I carry 5 Maple Leafs now wherever I go Internationally. 3 years ago one our partners' appendix burst while we were in Africa. Had to use them to "convince" somebody to get us to help. It's amazing how little you value a few ounces of gold when somebody you care about is in trouble. It all worked out, and he paid me back in Platinum. Now all our senior people travel with a little metal. ;)

[metalman]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Ha, I'll have you know that I'm PILOTING the last plane (only 75 seats left). (and YES, we DO ACCEPT Krugerrand, Maples, etc.)

i'll pilot the remote control on the flying dildo that buzzes president wesley clark, who will be running the country at the time... to keep order... as he addresses the nation in our time of distress.



video's from russia. where else?

[jtabeb]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

In many respects I'm even more extreme than JT. He's got his gold/guns/groceries - if not the GRG55 bunker.

I, on the other hand, am already prepared to flee the country. Place to live, social circle and 1 year or more legal residency visas for 2 different nations. Carrying around the Krugerrand to be able to bribe my way onto the last plane. :eek:

Ha, I'll have you know that I'm PILOTING the last plane (only 75 seats left). (and YES, we DO ACCEPT Krugerrand, Maples, etc.)

[c1ue]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

How do you keep your visa perpetually active? I've only had to get one and it expired after 6 months.

Having a business there and/or a business that will sponsor you helps considerably.

And no, not kidding about the K. 15 years ago I'd carry a hundred dollar bill; today that Ben Franklin is about as useful as a quarter.

So why would you feel (assuming I've guessed that location correctly) that living there would be better than in the U.S.?

Russia is one, because Russia has the wonderful combination of a military that can't be messed with and a lot of oil/natural gas.

Certainly there are major structural issues with Russia's economy - the overweening bureaucracy among others - but from a safety perspective that's a good thing. If TSHTF, Russia is also probably one of the last nations on Earth that would honor US tax and extradition treaties.

This last matter is why South and Central America are right out. Simply too close and you generally have to fly through the US to get anywhere else.

The other nation is Japan. A large economy, crap military, but otherwise a pretty decent place to live.

China is right out because of the roach motel for money issue.

Europe isn't bad, but I think the economic problems are going to be severe there as well (PIIGS and Eastern Europe).

But ultimately the social circle is most important: having a group of people that like you and want you around.

Don't get me wrong - I'm not writing off the US even should TSHTF. It just may be 20 or 30 years before it is safe to return in that instance.

Think of 20 or 30 years of 70s style stagflation but without the corresponding wage inflation. Ugh.