Oil & The Economy Collide

“There are too many ugly balance sheets,” warns one energy industry analyst, adding simply that “the group is not positioned for this downturn.” While the mainstream media continues to chant the happy-clappy side of lower oil prices, spewing various statistics about how the down-side of low oil prices is contained and the huge colossal massive tax cut means everything is awesome for America, the data – and now actions – do not bear this out.” – Zero Hedge

We all knew oil was an Achilles Hell. We all knew the economy was an Achilles Heel. Funny how we now see the two colliding. The currency war is really starting to come out of the shadows now.

China Overtakes U.S. As World’s Largest Economy

Chris Giles at the Financial Times flagged up the change. He also alerted us in April that it was all about to happen. Basically, the method used by the IMF adjusts for purchasing power parity, explained here.” – Business Insider

The rise of China was bound to happen. No amount of progress on built on debt can ever surpass indefinitely the potential for progress built on production. It’s simple math.

Now we wait and watch for the official news that the Petrodollar is declared dead. It may take weeks or months, but it will happen. What is unknown is wether the PetroYuan will replace it – or if bilateral trading will take over leaving no reserve currency in the Dollar’s place.


Houston Chronicle: Why global turmoil hasn’t sunk US markets. Yet.

NEW YORK AP — Europe appears on the brink of another recession. Islamic militants have seized Iraqi territory. Russian troops have massed on the Ukraine border, and the resulting sanctions are disrupting trade. An Ebola outbreak in Africa and Israels war in Gaza are contributing to the gloom…

We’re in a much better place psychologically,” says Mark Zandi, chief economist at Moodys Analytics. “And it’s allowing us to weather the geopolitical threats much more gracefully.” – Houston Chronicle.

This is hilarious… in other words, the vast majority of Americans haven’t figured it out yet – so the American Dollar casinos stay open for global gamblers.

A more poignant question to ask is… what happens if the global gamblers at American casinos decide to move their money to the BRICS?

Putin said the following mid-July:

“The international monetary system … depends a lot on the U.S. dollar, or, to be precise, on the monetary and financial policy of the U.S. authorities. The BRICS countries want to change this.” (source)

I don’t think Putin wants war, but these are the kinds of threats the western powers appear to take very seriously. Clearly the formation of the New Development Bank catalyzed the latest round of chess moves by global leaders.

What’s next is the big question. How far can this go?

This question is what has me blogging on these topics again. Many parts of the world are on fire, but here in sunny California you’d never know it. People are out shopping, playing, BBQing, and swimming in their backyard pools. I see many new cars on the roads, and folks seem genuinely happy, and perfectly content to ignore the fires burning elsewhere. The summer wildfires and drought don’t even seem to be bothering anyone.

So if the trouble comes here, aren’t people going to freak? I also just don’t get why folks seem happy to ignore it all. Where does this apathy come from? Why are they so content to let the central powers run things?

All I can figure is that most folks do sense something is very wrong, but the truth of what’s on the table is so ugly that they purposely ignore as a survival tactic. The other piece might be that folks are so busy acquiring more More MORE, that they just don’t have time to worry about the big picture and how it might affect them. Or maybe folks just figure they can’t do anything more than they are already doing?

I could also be imagining that anything bad could come to America… that would be nice… but I’m afraid it’s more like I’m an early riser.

Photo by Occupy Wall Street.

QE3 Strengthens Yuan While Devaluing Dollar

Just to recap, the Federal Reserve is now pumping cash into the money supply at a rate of $40,000,000,000 a month (that’s forty billion) and buying mortgage-backed securities with the fresh cash. These are derivatives (bets) on home mortgage packages.

So in other words these potentially toxic assets (underwater mortgages) are being bought up by the Fed to strengthen the value of mortgages. In other words if the mortgage derivative market collapsed it would likely collapse the value of homes. You might also think of it as the powers-that-be directly protecting and extending our current way of life.

But pumping cash into the U.S. Dollar is the definition of inflation, which can also be described as devaluing the dollar. Understanding this is as simple as understanding supply and demand… the more rare a desirable thing the more it’s value increases. So as the money supply increases the more the buying power of each dollar decreases.

So while the dollar declines the Yuan appears to climb in value, improving the prospects of the Chinese currency becoming a de facto reserve currency. This would crush the U.S. Economy.

China’s yuan climbed Friday to its highest level against the U.S. dollar since the currency was revaluated in July of 2005, buoyed by the U.S. Federal Reserve’s recent QE3 program as well as data this week showing that the People’s Bank of China injected a record amount of cash into the financial system, according to analysts. – MarketWatch.

So on one hand, Washington D.C. is seemingly trying to protect the world’s reserve currency status of the U.S. Dollar by attacking any nation (next up, Iran) that trades for oil with something other than the petrodollar – and on the other hand they print U.S. Dollars wildly, forcing the value of the Dollar down and weakening it’s desirability as a reserve currency.

Why? I don’t now. I won’t go there.

What I do know is that these policies are doing two things that can’t be obscured.

  1. We’re being led to war with Iran and possibly China and/or Russia. Yes a world war.
  2. The U.S. Dollar is at risk of becoming worthless. Why? Paper (fiat) currencies are only valuable because people agree they have value and use them for trade for things that have real value like commodities (food, water, shelter, security, etc). If people (or markets) decided that a currency has low or no value then the commodities themselves would likely become the new preferred form of trade. Gold and silver would also rise in value exponentially in this scenario.

Since I have no idea why the powers-that-be would risk these two things, I simply have to assume that these outcomes are not only on-the-table but increasing in risk daily as the war drums beat in Washington D.C. and the Fed’s presses roll.

QE3 – Bernanke Throws Gasoline on the Fire!

So here we are, QE3. Many of us watching this slow motion train wreck have been wondering when this big milestone would be reached.

“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40bn per month.” – Fed launches QE3: the full statement – Telegraph.

I’m a bit surprised that the freshly printed money is being used to buy mortgage-backed securities. Tossing more money at these derivatives just seems like throwing gasoline on a fire to me – a very bad sign me thinks.

By the way, I really love this photo of Bernanke! It really shows his mad-scientist side well.


David Stockman Offers an Honest Look at the Economy

Between January 21, 1981 and August 1, 1985, David Stockman was Ronald Reagan’s Director of the Office of Management and Budget. He also served in congress between January 3, 1977 to January 21, 1981.

If you’ve been looking for a better understanding of what’s really happening in the economy and what to expect in the next few years, listen to this interview. It’s an alternative view to what you might hear in the main stream media and sounds much more realistic and reasonable.

He has some very hard words for the keynesians (economic philosophy of current powers-that-be) in this interview saying that we’ve been riding an economic bubble inflated by debt creation for the last 30 years. At some point he expects ‘the great margin call in the sky to come down’ and crash the markets when the speculation and borrowing is forced to stop.

His advice is simple, take the manipulation out of the markets and preserve your own wealth by staying out of the markets. He doesn’t expect hyperinflation but he does suggest holding cash and precious metals.

My Home’s Value is Dropping Again

I was listening to Kunstler’s podcast (#122) tonight and he gave a fairly good explanation of how parts of the financial world work; including the reality that many financial institutions could be holding toxic assets. The truth is that an asset is only toxic if it brings the show to an end.

Take my mortgage for example. My home’s value has been fairly stable for about a year, bouncing along the bottom. I’ve been hoping it would creep back up and meet me half way so I can refinance or sell. I’m an optimist.

But sadly it just took another downturn. I suspect it’s partially due to the the time of year and all the talk in the media about the possibility of a double-dip recession. Who knows what the cause is, but it definitely gives me a moment of pause but doesn’t change my plan.

I’ll keep paying this mortgage until I can’t. I’ll also keep noodling over low-cost simple housing options and looking for ways to move in the right direction. Tiny houses are great therapy for that.

The other thing I take solace in is that while nobody can predict the future, we can all tell when we’re walking on thin ice if we’re paying attention. So I’ll take each step with care and keep that rope tied tightly to my belt. I might take a dip in the ice-cold water but I’ll always be able to pull myself to shore.

Less is More Sustainable

On my blog, TinyHouseDesign.com, I use the tagline Less is More Sustainable. While this probably makes a lot of literal sense for a blog about tiny houses, but I hope people read more into this statement.

I also noticed that Seth Godin recently wrote a post called, Carrying capacity, that sends a similar message; although I suspect he’d say that there’s a sweet spot of sustainability for everything. If so I’d have to agree with him… I’d just add that the sweet spot doesn’t loose track of the human scale.

The only case where more is more sustainable happens when we’re taking about the diversity of all living things that make up the fabric of life on Earth. In other words, more diversity is more sustainable and less impact, risk, rapid growth is more sustainable. Here are a few examples:

Sustainable Ecosystem

Nature teaches us again and again that when a natural ecosystem is thrown out of balance the inevitable consequence is a rebalancing. This might come in the form of a collapse but  collapse can also be looked at as the end of one cycle and the beginning of another. Life is hard to keep down for long.

So if all lifeforms in an ecosystem stay in balance (zero rapid growth) then the system continues to thrive and provide support for every life form in the system.

Our Homes

The smaller our homes, the easier they are to heat, cool, repair, clean, purchase, furnish, and so on. In other words the smaller our homes, the fewer inputs they require to maintain which allows them to give us back time for ourselves.

Small homes also make us less susceptible to economic hard times because few inputs are needed naturally lowering risk. Living within our means and taking on less risk (debt, expenses, responsibilities) also adds to the sustainability of our lives.

Economic Systems

In business we see that rapid growth is only possible if the right inputs are added into the mix. This is usually capital and the right human resources. So one could surmise that more inputs mean more economic growth.This is true. The only trouble is when the inputs become unavailable or too costly growth slows, stops, or reverses.

An excellent example of this was clearly visible at the beginning of the last recession. Credit dried up and many businesses reliant on credit failed. Those left standing were those that ran their businesses on less risk or were big enough to be able to ride through the storm.


As governments grow past their ability to serve its citizens and maintain central control they fail. Decentralized control, like a healthy democracy, lasts much longer because the entire system is not reliant on the same central supports.

The Bottom Line

Slow steady growth and living simply is more sustainable because the margins of risk are wider. Zero growth is probably indefinitely sustainable.

For example, for the first 190,000 years[1] anatomically modern humans walked around on earth not getting much done; but I suspect they were in a near perfect balance with their surroundings like the other critters around them. Life was not luxurious or terribly comfortable for them but it was certainly sustainable, after all their descendants are still here.

For the last 10,000[2] most humans have been busy focused on progress. We’ve had a few setbacks as different civilizations collapsed under their own weight or corruption but for the most part we’ve been much more productive.

In the last 150 years, supercharged by fossil fuels, we’ve done amazing things and have been incredibly productive. In fact it seems like more people these days are now convinced that more is more sustainable because we’ve gotten so clever at making progress.

But if we take a big step back and look at the foundation we’ve built I think we’d see a delicate framework.

I’m not suggesting that we pull the plug on the whole deal and go back to living in caves for the next 190,000 years. I am suggesting that we get smarter and find a way to have our cake and eat it too. I think we are clever enough to find a sustainable way to keep most things running and moving smoothly but it’s going to take switching to a different pace and refocusing diversity and a sustainable scale.

The Real Problem with Greenwashed Marketing

I got into a little bit of a row recently with the guy that runs Holy Cow Products. We had a little back and forth in the comments section of a greenwash of the week post on The Good Human.

The interaction itself and the little bit of product research I did on green cleaning products started me noodling over the real problem with greenwashing; which is that most people make product decisions based on product packaging and marketers know it. It’s a marketers job to do everything they can to sell products and build positive brand reputations. So it is a natural step for some folks to skirt the edge of what is legal and ethical especially during hard economic times.

I realize that most folks are just trying to realize their own dreams. In many ways I respect this kind of entrepreneurial spirit. The problem is that unsubstantiated product claims and product design mislead people and will eventually cause the business failure as the truth emerges. Failure is not inevitable because guys like me and David (The Good Human) that point out the truth. Failure is inevitable the moment the decision is made to market the product as something it is not.

Choosing to put people and the planet before profit is a more sustainable business model. As the internet and social media become more popular business ventures that don’t adopt a high level of ethics will fail faster simply because the truth will always surface.

I hope more business folks realize that by taking the high road they are choosing to make more money over a longer period of time. If you make a product or are working to build a brand put a focus on ethics, people, and the planet, and your profits will be longer lasting. Social media is here to stay… well at least until the power goes out permanently.