The Next Ten Years – Part I: There will be blood - Eric Janszen

[gnk]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

I don't think it's about democracy. It's about maintaining economic growth to support a debt-based ever-expanding monetary system. The US has just over 300 million people that consume over 20% of the world's energy. China? They have about 300 million people living an industrialized lifestyle, and another 1 BILLION waiting in line to get their taste of the modern lifestyle.

Not enough energy to go around... someone's economy is going to take a hit. The question is, how will that choice be made? Who loses, or more likely, we all "lose?"

[touchring]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

I don't think it's about democracy. It's about maintaining economic growth to support a debt-based ever-expanding monetary system. The US has just over 300 million people that consume over 20% of the world's energy. China? They have about 300 million people living an industrialized lifestyle, and another 1 BILLION waiting in line to get their taste of the modern lifestyle.

Not enough energy to go around... someone's economy is going to take a hit. The question is, how will that choice be made? Who loses, or more likely, we all "lose?"

I don't know about the US, but China is definitely going to add at least 150 million cars over the next 10 years or so. An additional 10 million barrels a day is needed. Assuming that oil production can rise 5 million barrels - to hell with peak oil, then the other 5 million barrels must come from elsewhere.

[KGW]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

Barely off topic, but a few days ago I found a book that I had ordered some time ago. I think it was recommended by E.J. as a basic source. . ."A Bubble That Broke The World," by Garet Garrett, Cosimo Classics, 2005. Originally published in 1932, it examines the egregious selling of bonds that lead to the Great Depression and WW2.

[LazyBoy]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

"Revolution" in the US will be due to economic tensions: the blue collar worker feeling (and rightly so) betrayed by the white collar management. The technical white collar workers feeling betrayed by the white collar banksters. The general populace feeling betrayed by its regulatory captured politicians. The heavily indebted and unemployed youth feeling betrayed by the entire system. etc etc.

There weren't many distractions in 1848. I imagine that after a long day's work, the only thing to talk about at the pub was the state of the state. Today, I almost never have a serious political discussion except on the internet.

I think we're too fat and happy in the US for a revolution. I feel "betrayed", but not enough to do much except worry. As long as the middle class has enough TV, they won't get off their butts. At most we get riled up enough to vote for "change" -- from one of the two remarkably similar political parties. As long as various social programs keep handing out dollars -- even increasingly worthless ones -- the poor can be managed. Then we can all blame the economy (or those damn teachers!!) instead of the government. I can see a carefully managed lowering of US standards without any significant "revolution".

Seriously, what would it take to get a % of US citizens to stand up to the US military? What would it take to get people to vote in significantly different political leaders?

[c1ue]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

Seriously, what would it take to get a % of US citizens to stand up to the US military? What would it take to get people to vote in significantly different political leaders?

I have yet to see any examples of mass repression of US citizens by the US military.

It is one thing to shoot up a bunch of Pashtuns, another to fire on your fellow citizens.

As for what it would take - the reality is that we aren't that far in yet.

My long term forecast has always been for a minimum 30% drop in average American standard of living.

By my calculations, we're only 20% (6% drop or so average) of the way there. The second half will occur pretty much overnight, if history is any indication.

My view is we'll start seeing some serious action at the 20% level - that was when in the '70s you started seeing things like the SLA, as well as the series of attempted assassinations of Presidents from Ford through to Reagan.

[gnk]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

I don't know about the US, but China is definitely going to add at least 150 million cars over the next 10 years or so. An additional 10 million barrels a day is needed. Assuming that oil production can rise 5 million barrels - to hell with peak oil, then the other 5 million barrels must come from elsewhere.

H regarding China's future energy needs, here's an excellent presentation (it's long, but it is broken up in parts/topics) by David Fridley - who has consulted in China and has worked for current Energy Secretary Steven Chu:

http://fora.tv/2009/06/23/Energy_Mar..._Pacific_Basin

More direct link to Fridley's presentation:

http://fora.tv/2009/06/23/Energy_Mar...in#fullprogram note: focuses more so on coal

[bart]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

...
Seriously, what would it take to get a % of US citizens to stand up to the US military?
...

There's another side too:


"We had been told, on leaving our native soil, that we were going to defend the sacred rights conferred on us by so many of our citizens [and to aid] populations in need of our assistance and our civilization." For such a cause, he and his comrades had willingly offered to "shed our quota of blood, to sacrifice our youth and our hopes."
"Make haste to reassure us that you at home support and love us as we obey and love you, for if we find that you have sent us to leave our bleached bones in these desert sands for nothing, beware the fury of the legions."
-- Marcus Flavius, a Roman centurion of the 4th Century

(emphasis mine)

[flintlock]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

There weren't many distractions in 1848. I imagine that after a long day's work, the only thing to talk about at the pub was the state of the state. Today, I almost never have a serious political discussion except on the internet.

I think we're too fat and happy in the US for a revolution. I feel "betrayed", but not enough to do much except worry. As long as the middle class has enough TV, they won't get off their butts. At most we get riled up enough to vote for "change" -- from one of the two remarkably similar political parties. As long as various social programs keep handing out dollars -- even increasingly worthless ones -- the poor can be managed. Then we can all blame the economy (or those damn teachers!!) instead of the government. I can see a carefully managed lowering of US standards without any significant "revolution".

Seriously, what would it take to get a % of US citizens to stand up to the US military? What would it take to get people to vote in significantly different political leaders?

Excellent point. People back then had nothing else to do at times but drink and get mad at the state. I've been on a medieval England reading jag lately. I'm amazed at how many uprisings they had back then. They were almost constant. Either Nobles, merchants, or peasants. Despite some pretty serious repercussions. Challenging the King was almost a sport among the nobility. Raise taxes without the permission of Parliment? Forget about it.

Hard to imagine anything like it today.

http://en.wikipedia.org/wiki/Hanged,..._and_quartered

[quigleydoor]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

EJ,

I noticed your unemployment duration charts are showing the mean duration. In previous reports, you used the median duration. I was really struck by how effective the median duration was, as a leading indicator of the downturn in 2007. It was one of my first experiences realizing that there is so much more data out there, revealing a clearer picture than what the MSM gives us.

So now I'm curious, why did you switch from median to mean duration of unemployment?

Two rounds of quantitative easing and multiple government stimulus programs prolonged the rebound, such as it is, but unemployment remains over 9%, far higher than two years into previous recoveries. By the official count, 14 million Americans are still unemployed, up by seven million and only 11% fewer than at the peak of 15.6 million. But these employment statistics are rosy compared to the picture of long-term unemployment, the hallmark of a persistent output gap.

The old BLS charts that we have been using on iTulip since 1999 had to be modified because the BLS old upper limit on mean duration of unemployment was 26 weeks -- half a year. The worst previous record was 21 weeks in 1983. Mean duration of unemployment reached 40 weeks in May.

[Serge_Tomiko]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

THE sector to invest if there is a major war, in my opinion, is anti-depressants.

When it becomes unfeasible to enforce prohibition, I think people will just revert to the old time remedies. Opium and its derivatives still has a far higher success rate than every anti-depressant developed since the 1950s.

[Serge_Tomiko]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

Today we do not have these types of tensions. Europe has many problems but neither internal militarism nor the WWI/WWII types of tension exists.

Anglo-American imperialism is waning, certainly, but the cultural reasons for World War II still exist. If anything, Germany and Japan have become the countries their various ideologies were trying to prevent, and the decadence, depravity, and nihilism that defines them is something worth fighting to stop.

The cultural cancer of liberal values is dependent upon the kinds of international systems we currently have in place, and that can't survive into the future. We have to transition back to some kind of framework of traditional culture and shared community values. The goal is to figure out a way to do that without the bloodshed and violence, but it is still a grave danger. When the porn and video games stop, you're going to have a lot of very unhappy people for whom fighting is going to be naturally a more enjoyable game.

[EJ]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

that such is possible, none can deny. the same was said to be possible, and of course it was, throughout the course of the long cold-war between the ussr and usa. however, to say it is possible is not to say it is inevitable. i tend to agree with ash that restraint will continue to apply, and direct, open, conflict between superpowers will likely be avoided. the history of the cuban missile crisis shows that we came very close to nuclear war, and similar confrontations may happen in the future which trigger unimaginable consequences. but i don't think so. i'm shocked that you, ej, have moved to a more extreme position on the "doomer" scale than i occupy myself. and my respect for you means i want to think a lot more about this.

meanwhile, ash's picture of regional chaos seems likely to me as the "global policeman" goes into retirement.

i think the end of the us-ussr cold war to the some point in the near future will be viewed as analogous to the interwar period between wwi and wwii. the 1920's and, now, the 1930's offer important parallels to roughly the last couple of decades.

from an email i wrote in '07:
i think we are in the midst of geopolitical shift comparable to the one in which the u.s. achieved predominance in place of the u.k. the u.k. was the global hegemon from the end of the napoleonic wars until the interwar period of the 1920's and 1930's or so. the 2 world wars of the early 20th century and their intervening years, including the great depression, can be viewed as part of the process of transition from one global system to another. [i suppose the napoleonic wars, french revolution, etc are part of the prior transition and so on- with commercial leadership going from spain in the 16th century to the netherlands to the u.k.- but let's stick with the 19th century to the present.] the cold war, with its nuclear stand-off, froze the international system in place. the collapse of the soviet union led to the the emergence of the u.s. as the sole superpower, but it also actually unfroze the system and allowed it evolve to its current state of crisis.

i think that the u.k. to u.s. handoff, involving 2 bloody wars and a depression, was nonetheless in some ways easier than the transition we are entering. i say this because of the similar political, social and legal cultures of the 2 states involved.

the first phase, where we are now, is the process of going from the one overarching superpower to a truly multipolar world. meanwhile, there is a shift of dynamism and, eventually i believe, leadership to the asian nations. it remains to be seen whether major military conflicts can be avoided during this process. the world wars, the first perhaps even more than the second, drained england and thus facilitated the power shift. the u.s emerged as the sole industrial power, its homeland unscathed, after wwii. the soviets created a bipolar world by focusing resources on the military and creating a nuclear threat.

the hollowing out of the u.s. economy may be serving the function of ww i. i really see the u.s. as a society in decline. perhaps this decline is reversible; i don't know. but in my imagination it feels like the later days of the roman empire. when i heard about, e.g., tyco's dennis kozlowski throwing his wife a multimillion dollar birthday party, disguised as and paid for as a corporate meeting, on sardinia with an ice sculpture of david urinating stolichnaya vodka, all i could think about was fellini's satyricon.

a factor that might make a significant difference in this process is the emergence of multinational corporations. perhaps it would be more accurate to say "transnational." their stocks may be listed on a national exchange, but they really have no nationality. they may serve to moderate the system, making it less stark, less clear where all the power lies.

I have read several responses here along the lines of "China and the US won't engage in direct military confrontation because there is no way for either to prevail over the other." To my way of thinking, US and Chinese leadership have made in one miscalculation after another for decades and are painting themselves into a corner with only one way out.

Consider the About page of iTulip from March 2006 when I re-launched the site:

Fast forward to March 2006. The NASDAQ has mostly stayed in the dumper, with various dot com stinkers sinking and disappearing into the history books, again, predictably. The DJIA, by a combination of a re-constitution of the easily manipulated 30 stock index -- throwing out some losers and adding in some winners -- and inflation has fought its way back to where it was six years ago – flat. Except that, adjusted for inflation, it is down at about 20%. But that hasn't kept Cramer from returning to CNBC to rant and throw chairs around while touting the latest "can't lose" stocks. Not coincidentally, gold has gone up, as we forecast in 2001 when gold was trading near 20 year lows and widely derided as a loser investment class. But what really kept the U.S. out of poorhouse, if only until now, was the housing bubble. But not only did we fail to predict the housing bubble in 2001 as the Fed's answer to the stock market bubble collapse, we argued that the Fed would never allow one to develop.

Wrong.

Our thinking was that in the past the Fed has been very quick to stop speculation in real estate, much more quickly than stock market speculation. Why? Real estate involves the banking system much more than the stock market bubble did and looking after the banking system is Job One for the Fed. Letting millions of homeowners buy real estate they can't afford with mortgages they can never pay back is a surefire road to mass defaults that can cripple the banking system. When a relatively normal housing cycle boom ended in the early 1990s, the U.S. banking system seized up. That response to the downside of that minor real estate cycle was a gran mal seizure compared to the massive stoke that the banking system is likely to suffer on the back end of this real estate freak show. More importantly, the political aftermath of a real estate bubble is the macro economic devastation of the host country's economy. Lots of unemployment and negative wealth effects that keep consumers home sulking and saving, not out at the mall buying goods from Asia that keep Asian central banks inspired to lend, and the virtuous circle of lending, borrowing, importing and exporting going, in our case leading to recessionary, inflationary and other re-election sensitive negative economic conditions. So why take the chance? Because it looked better, at the time, than the obvious alternative: a hugerecession and unemployment before the 2008 elections – never good for anyone's re-election bid.

If we'd been listening more carefully, we would have heard Greenspan noting in public hearings in 1999, when one senator wondered aloud if Big Al was worried about the inevitable collapse of the stock market bubble, and he replied that only a small percentage of U.S. households own stocks whereas 70% of household wealth is tied up in real estate. Don't worry about it. We got a plan.

Alas, we at iTulip.com missed the cue. What we didn't understand was that the Fed convinced themselves at the time, and may still believe today, that by the magic of securitization, the risk of defaults on all those mortgage loans that can never be repaid with current dollars is spread so far and wide around the planet that the aftermath of a housing bubble won't be anything the Fed can't deal with. Not so, and we'll explain over the next several months just how and why, and what that's going to mean to you.

So we got the housing bubble prediction wrong in 2000. We didn't understand that the Fed could be so short sighted and politically motivated to make policy decisions that might doom the nation to a decade or more of bad economic times, and all that implies socially, politically, and militarily. But the Clinton/Greenspan regime and the Bush/Greenspan regime that followed turned out in retrospect to be classic Nixon/Burns president/central banker pals. Except that rather than inflation in goods and services as a consequence of the deal cut to maintain the economy through the next election, not to mention an unpopular war, we got inflation in assets that makes nearly everyone happy, as long as the asset prices stay that way.

The entire March 2006 iTulip.com About page presumed the outcome we got in 2008 and 2009, a series of events that in 2010 was considered an act of genius to foresee. To me it appeared obvious, as it must have to readers who have been following along here since 1998. If you allow a housing bubble to develop it will collapse and bring down the financial system, the banking system, and the economy, exposing it to the kind of prolonged economic crisis I explain in my output gap trap analysis.

The economy is now on a course to regress to 1980s living standards for many Americans. While that is still far better than the living standards of most of the world's people, it is far below what most Americans expect and less than the perpetual improvement they have been promised by their political leaders.

I learned my lesson from the Housing Bubble episode. No policy is too stupid and short-sighted for these guys. Setting us up for a major war then taking us into it represents a continuation of a series of mistakes, consistent with a pattern of errors driven by a set of operands. I will not spell out what the operands are as that is part of the secret sauce of my ten year forecast, but suffice it to say that they are not thinking several moves ahead but only about how to take the piece in front of them.

Our leadership over the past 30 years did not intentionally choose policies that resulted in the current economic crisis. They acted in their perceived self-interest.

There are two kinds of self-interest. Intelligent self-interest that improves your world and self-destructive self-interest that sets it back. Theirs is the latter kind.

The same self-destructive, self-interested leadership that brought you the credit bubble and that spawned the FIRE Economy, are now, via pursuit of disastrously flawed economic recovery policies, in the process of drawing you, your children, and your grandchildren into the next great war. War is the inevitable consequence of the eventual failure of these policies.

They will cause the US to enter a new recession before the output gap created by the last recession closes. The Great Recession will then become a kind of Great Depression II with many of the social stresses and political change that implies.

But The Great Depression didn't cause WWII. It was a catalyst for war.

Several of you have pointed out that the political antecedents for WWII do not exist today. I agree. However, I don't expect a repeat of WWII. I expect a completely different kind of war, just as WWII was a new kind of war.

The antecedent this time is oil supply scarcity. The catalyst will be The Great Depression II and a 20% to 40% decline in US living standards.

There are two dozen factors that will give the great war its unique qualities but consider one in particular that did not exist during WWII: image driven electronic media.

Image driven electronic media is the most efficient machine of mass belief shaping in human history. It will be used by the state to erase old beliefs and create new ones in a matter of days if not hours.

The Chinese system of mass belief formation already in place erased all awareness of the Tienanmen Square massacre. It will be deployed to help China's leadership externalize China's future economic crisis. China's leadership will blame the US for its crisis once its state finance capital based prosperity ends.

Anyone who thinks that China and the US cannot engage in warfare, consider the instances when China and the US recently engaged militarily. Arms and tactics will be unconventional at the outset and confrontations will evolve in unexpected ways.

To sum up my argument: Leadership that is stupid and short sighted enough to let the tech bubble run to its disastrous conclusion, stupid and short sighted enough to let the housing bubble develop to bale the economy out of the tech bubble crash, and then let the housing bubble run to its disastrous conclusion, stupid and short sighted enough to try to restart the FIRE Economy and drive the economy toward a mid-gap recession, at which point a new round of layoffs pushes unemployment to 12% and higher and crushes consumer spending -- such leadership is stupid and short sighted enough to finish the course, to lead the US into wars it cannot win.

[c1ue]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

To sum up my argument: Leadership that is stupid and short sighted enough to let the tech bubble run to its disastrous conclusion, stupid and short sighted enough to let the housing bubble develop to bale the economy out of the tech bubble crash, and then let the housing bubble run to its disastrous conclusion, stupid and short sighted enough to try to restart the FIRE Economy and drive the economy toward a mid-gap recession, at which point a new round of layoffs pushes unemployment to 12% and higher and crushes consumer spending -- such leadership is stupid and short sighted enough to finish the course, to lead the US into wars it cannot win.

In short - I agree with this sentiment. In fact one of my first posts on iTulip (in early 2007) was that it isn't that the US is in a position of irreversible decline, it was that the people in power - whether corporate or government - were not in the least bit interested in righting the path and that the inevitable result would be negative.

However, all of the points above (past bubbles/policies) are all largely restricted to internal US effects. Certainly the ROW participated to various degrees but all of those policies could be promulgated by the largest economy in the world with the world reserve currency.

A war, on the other hand, requires two to tango.

While I do agree China has the ability to motivate its population, equally I do not believe the Chinese leadership is similarly blinkered as to not understand what it has to lose.

My view is that China will defend itself - and in ways which make clear even to the most MSM-oriented American numbskull - that a conflict with China is not a winning proposition in any way.

This is what I mean by a US-China war being one which both will lose.

[Scot]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

Image driven electronic media is the most efficient machine of mass belief shaping in human history. It will be used by the state to erase old beliefs and create new ones in a matter of days if not hours.

The Chinese system of mass belief formation already in place erased all awareness of the Tienanmen Square massacre. It will be deployed to help China's leadership externalize China's future economic crisis. China's leadership will blame the US for its crisis once its state finance capital based prosperity ends.

I've never been terrified after visiting iTulip until reading the above today. It's frightening to think we're going to have an additional 1.6 billion people believing that the USA is responsible for their misery.

[EJ]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

EJ,

I noticed your unemployment duration charts are showing the mean duration. In previous reports, you used the median duration. I was really struck by how effective the median duration was, as a leading indicator of the downturn in 2007. It was one of my first experiences realizing that there is so much more data out there, revealing a clearer picture than what the MSM gives us.

So now I'm curious, why did you switch from median to mean duration of unemployment?

In this case the Mean Duration of Unemployment is interesting because it has never been higher and is still rising.

Which method most accurately identifies the trend?

Let's use an example I found on the web. It uses company valuations data as an example.

Definitions:

Median: The middle value of a set of values.

Mean: The arithmetic average, computed by adding up a collection of numbers and dividing by their count.

Assume the below list is the result of a search and analysis of guideline companies.

Price/Sales Valuation Multiple
(sorted from lowest to highest)
0.45
0.47
0.49
0.49
0.52
0.55
0.55
0.60
0.61 Middle of sorted sample set
0.62
0.70
0.74
0.76
0.80
0.91
5.30
10.40

Median: 0.61
Mean (Average): 1.47

In the above example, one can see that the Median is much more representative of the central tendency of the sample set. Outliers (5.30 and 10.40) can dramatically impact the mean (average), whereas the median is less affected.

I find the mean duration of unemployment data interesting because it shows that a large increase in the number of long-term unemployed outliers and fewer short-term unemployed is responsible for the difference between the steady high level of the median and the still rising level of the average.