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Monday's Top 10 with NZ Mint: An impending bond crash; QE raises interest rates; deficit denial; junk is back; the latest Japanese quake; addicted to crisis; Dilbert, and more

Posted in Opinion

Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.

Bernard is on his summer break and will be back on January 22, 2013, from Wellington.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

See all previous Top 10s here.

1. On guard against a bond fall 
The preconditions for the mother-of-all bond market reckonings are sliding into place, says Christopher Joye in the AFR.

To properly understand the significant risks market insiders are seeing, you need to appreciate how extraordinary current circumstances are. When doing so, it helps to keep in mind a key principle: bonds that pay fixed, as opposed to variable, rates have prices that are inversely related to external interest rates. When interest rates go up, bondholders will see the face value of their investment fall.

Many are now saying that with a US and China-led global recovery now more likely, goverments will move to end QE and promote inflation as a way of managing the huge debt obligations they built up. Interest rate rises are now a significant risk. And it will be bondholders who take the losses. To see how this will play out, we only need look back to the last Great Bond Crash in 1994.

Indeed, there is "a significant chance safe-haven demand for bonds [will] evaporate". We could find ourselves in a position where Government overseas borrowing costs much more and refinancing the $49 billion we currently have becomes much harder.

2. Expectations. It's all about expectations
Quantitative easing doesn't lower interest rates. It raises them. Or so says Matthew O'Brien at The Atlantic.

"You can see that plainly enough in the chart below. It looks at the yield on 10-year Treasury bonds the past few years, and annotates it with a guide of the Fed's unconventional policies. Borrowing costs rise almost every time the Fed buys bonds, and fall almost every time it stops."

Welcome to the other side of the looking glass. Things will begin to make more sense once you realize monetary policy is more about expectations than interest rates. The latter just tell us about the former, especially when it comes to quantitative easing. Remember, buying bonds should lower interest rates, but it doesn't when it's the Fed doing the buying. It doesn't because the Fed isn't really buying bonds as much as it's sending a message that it wants more growth. That makes bonds less attractive - who wants a fixed return when business is booming? - and pushes up borrowing costs more than buying bonds pushes them down. In other words, the expectation of lower interest rates leads to higher interest rates.

 

3. Keynsian stimulus = supply-side economics = deficit denial
Anatole Kaletsky thinks that US politicians are actually very close to agreeing a bipartisan approach to their problems - the ultimate fantasy.

But suppose the president were to explain to voters that there is no real fiscal crisis and add that the extra revenues raised in this week’s deal make the long-term budgetary position even more secure. The threat of a confrontation over the Treasury debt limit would quickly vanish. With this threat averted, business and consumer confidence would improve, economic growth would accelerate, and government deficits would shrink rapidly, without any further major tax hikes or spending cuts.

In short, suppose President Obama decided to become a “deficit denier,” as described in this column last year. Liberals, such as Paul Krugman and Joe Stiglitz, could explain this denial as Keynesian stimulus. Conservatives could call it supply-side economics, as they did under President Ronald Reagan. Either way, deficit denial could help to avert future budget crises and accelerate economic growth.

If Barack Obama could make deficit denial a respectable position again for American politicians, as it was under Reagan, the success of his presidency would be assured.

​​

4. Today's raw market data ...
A quick holiday update:

as at 11:10am Today
9:00 am
Friday Four
weeks ago
One
year ago
         
NZ$1 = US$ 0.8316 0.8284 0.8322 0.7794
NZ$1 = AU$ 0.7940 0.7909 0.7934 0.7638
TWI 74.99 74.58 74.54 69.92
         
Gold, US$/oz 1,648 1,680 1,713 1,617
Dow 13,414 13,384 13,174 12,363
Copper, US$/tonne 8,026 8,140 8,112 7,515
Volatility Index 13.83

14.56

16.05 20.63

5. Junk is back
US corporate debt that is not investment grade has seen yields fall below 6% for the first time ever. In fact, the unabated demand for junk debt is also an indication of investors’ growing comfort with companies with lower credit quality, and also with the riskier lending practices that were common during the credit boom.

Irresponsible exhuberance has returned, fed by a chase for yield. Unlikely to end well. Plan to get out before the music stops (again). More from the FT:

Companies took notice of the demand and sold a record amount of junk bonds in 2012, with the sales of triple-C rated paper – deep in junk territory – climbing 63 per cent, according to Dealogic.

The Federal Reserve’s launch of another round of quantitative easing in late September provided an extra incentive to junk-rated companies to come to market to refinance or lock in new funding at low interest rates.

For 2013, sales of junk debt are expected to remain strong, even after minutes of the Fed’s December meeting released on Thursday hinted at a potential end of asset purchases.

“If the Fed had come and unambiguously announced the end of QE3, then we could see a bigger impact on high yield,” said Ben Burton, managing director in leveraged finance syndicate at Barclays. “But the indication is that the central bank will continue to stay behind markets for now.

Barclays estimates total sales of high-yield debt in the US may reach $300bn this year.

“Average high yields below 6 per cent is something these markets have never seen,” Mr Burton said. “Issuers are going to take advantage of that. The environment is very favourable to them.”

​​

6. Japanese earthquake
Here's some big news you may have missed. The new Japanese government is determined to get some inflation into its economy. It needs that because its debt is so large it can't be repaid. But when QE fails, what do you do next? Apparently what you do is you buy up the country's industrial infrastructure directly. More from Ambrose Evans-Pritchard at the British Telegraph.

Premier Shenzo Abe is to spend up to one trillion yen (NZ$13.8 bln) buying plant in the electronics, equipment, and carbon fibre industries to force the pace of investment, according to Nikkei news. The disclosure came just a day after Mr Abe vowed to revive Japan's nuclear industry with a fresh generation of reactors, insisting that they would be "completely different" from the Fukishima Daiichi technology.

The industrial shake–up shows the ferment of fresh thinking in the third–largest economy after years of paralysis.

But not everyone thinks this is a good idea. The risks are enormous.

Japan was playing with fire by trying to reflate, warning that this could decimate the bond portfolio of Japanese lenders and set off a banking crisis. The banks hold government bonds worth 900pc of their Tier 1 capital. Mr Jen said the country would be the focus of attention this year as political fireworks shifted from the US and Europe to Asia. "There will be dramatic events in Japan," he said.

7. The platinum coin solution
The weird idea we pointed to a few weeks back is now being talked about in polite company in the US. Is this solution any weirder than endlessly running deficits? Monetising deficits through direct presidential control of the currency, in lieu of borrowing, is also no way to run a country. It's silly, and it's perfectly legal. Agreeing not to do so is therefore the ideal "concession" for Obama to offer in return for Republicans agreeing to end the threat of a debt-default crisis.

I'm glad to see Representative Jerrold Nadler lending his support to the idea that President Barack Obama should avert a debt-limit crisis by issuing large-denomination platinum coins, as permitted by 31 USC § 5112.

In case you're not familiar with this idea: In general, the Treasury Department is not allowed to just print money if it feels like it. It must defer to the Federal Reserve's control of the money supply. But there is an exception: Platinum coins may be struck with whatever specifications the Treasury secretary sees fit, including denomination.

This law was intended to allow the production of commemorative coins for collectors. But it can also be used to create large-denomination coins that Treasury can deposit with the Fed to finance payment of the government's bills, in lieu of issuing debt.

What the law should say is that the executive branch may borrow to pay whatever obligations the federal government has, but may not print. Unfortunately, when we hit the debt ceiling, the situation will be backwards: The administration will not be allowed to borrow, but it can print in unlimited quantities. This points toward an interesting solution.

If Republicans start issuing a list of demands that must be met before they will raise the debt ceiling, Obama should simply say that he will issue platinum coins as necessary to pay government bills if he cannot borrow. But, to avoid causing long-term inflation expectations to skyrocket, he should pledge that he will have the Treasury issue enough bonds to buy back all the newly issued currency as soon as it is allowed to do so.

And then he should offer to sign a bill revoking his authority to issue platinum coins - so long as that bill also abolishes the debt ceiling. The executive branch will give up its unwarranted power to print if the legislative branch will give up its unwarranted restriction on borrowing to cover already appropriated obligations.

8. Addicted to crisis
Zachary Karabell is an 'edgy optimist' and this is his take on the fiscal cliff crisis.

You might think that news of the deal – however imperfect (and let it be stipulated that, indeed, it is that) – would be greeted with a measure of relief and a degree of satisfaction that worst-case fears did not come to pass. But no. Instead, we get a chorus of criticisms combined with darker intonations that even worse lies ahead, with the looming debt ceiling debate in Congress, austerity in the form of new taxes, and general economic malaise being unaddressed.

A vibrant, outspoken and self-critical citizenry is a necessary and vital element of a thriving democracy. But when the public conversation becomes so relentlessly fixated on the disaster porn of political and economic challenges, an invisible but significant line has been crossed. Myopic focus on the next crisis and the battles that loom ahead with nary a sense of balance isn’t a recipe for collective action; it’s a formula for collective paralysis.

Our craving will be amply supplied in the coming weeks, with the debt ceiling debate and economic data that will likely remain less robust than we hope or need. The crisis maw will be fed.

But until we start putting our travails in perspective, until we start nourishing the better angels of our nature and recognizing what is working alongside what is not, we will remain stuck in place, unaware of our self-fulfilling prophecies, still wondering how things can ever change.

9. Signs of life?
Manufacturers around the world reported strong gains in new orders for much of 2011, but those gains slowed in 2012 and by Q3 many were saying that orders were shrinking. Orders improved late in the year in some countries, although not in most euro zone countries. We have added New Zealand to this NY Times graphic. Where would you rather be a manufacturer?

10. Today's quote
"Finance is the art of passing money from hand to hand until it finally disappears." - Robert W. Sarnoff

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

51 Comments

"Some of Christchurch's

"Some of Christchurch's biggest employers are calling for more unskilled immigrants to be allowed into New Zealand to fill job vacancies.

While the city calls for tradesmen, engineers and management-level workers as the rebuild gets into full swing, some businesses say there is a similar need for those willing to do low-paid, unskilled work."
http://www.stuff.co.nz/the-press/news/8148490/Desperate-need-for-unskilled-workers

And no wonder they want cheap immigrant labour...there are so few Kiwi unskilled unemployed and unemployable these days....aint that right! ........

Cheap is relative. So if

Cheap is relative. So if because of local conditions, you need to pay more, do so and stop moaning about it.

All comments from people who

All comments from people who have no clue how it is down here...as usual.Well something has to change as the low skilled  do not apply for jobs down here.

 We are not talking low relative wages either, no where near min-wage. Have several cleints screaming for low-skilled employees.

Speckles, Where will they

Speckles,

Where will they live? https://www.youtube.com/watch?v=Xe1a1wHxTyo

The cartel pricing your

The cartel pricing your friend discovered around EQ direct work does exist however that does not reflect the wider economy entirely.

There are listed properties you can buy, the spec market has slowed down so that is an option.

Rental market is tight if you want the best areas only. Go east initially and work from there.

Otherwise the flexible poeple will go into the work camps...

It is not like there are no options...seriously.

 

Gosh and golly speckles...why

Gosh and golly speckles...why are the low skilled not applying for jobs down your way?

Good question...agree to a

Good question...agree to a degree... however many live with mum and dad down here already....

I'm not so sure about that

I'm not so sure about that Speckles. Last year I reponded to a ChCh Adecco Ad for truck drivers (in another life I drove logging trucks and have class 4-5) as I have time to spare, they just sent me a standard flick-off email a few days later. I did not use me moniker either!

Ergophobia   

Yes, crazy....the last thing

Yes, crazy....the last thing we need is more un-skilled ppl.  If they are moving for 50cents an hour more well employers have to match it to retain.

Hopefully it will never happen.

regards

Wolly, My brother, a highly

Wolly,

My brother, a highly skilled excavator operator, just got back from Christchurch. Most of the best tradies that are mobile, not tidied down with obligations finacial or family, have left. Accommodation is ruinously expensive and the labour supply is such that skilled operators and tradies are not being offered decent wages and conditions, ie wages which will cover the cost of accommodation for a family.

 

Regards

Crikey Bruce..sounds like he

Crikey Bruce..sounds like he had to dig his way out!

Yeap Wolly, there is now a

Yeap Wolly, there is now a great big new irrigation channel from the Avon to the Waimatuku!

Bruce H - so that's your

Bruce H - so that's your patch? My dad grew up in the wee house on the intersection (with the macro's behind). Great uncle ran the store, and the PO. Erroldale was the original family hacienda...

 

That would explain why your thinking is 30 years adrft......     :)

PDK, Kinda, that's where the

PDK, Kinda, that's where the parental units are.

My thinking is not thirty years adrift, it is just thinking. Intellectual ideas, or memes self replicating little sods that they are, have trends and bubbles much like a market. Contrarian thinking will always be a nessacary tool to pull out the meme-weeds that infect my mind-garden.

You believe the eco-hype, I do not. Contary to the eco-hype of my youth the world has not ran out of oil, sea levels have not flooded costal cities, etc etc.

Being trained in post-modern thought I see little difference between it and the solopsim of the greeks thousands of years ago, except era. Nore do I see any difference between the eco-hype and the South Seas Bubble.

Still nice to run into a fellow southerner.

Regards,

Dad remembers travelling into

Dad remembers travelling into school in Riverton with one of your surname. Would be in his 80's ?

 

Sorry, but the rest of your comment is silly. The SS bubble happened when there were less than 2 billion on the planet, and had nothing to do with resources or energy.

 

That 'running out' - it was never that, nor was it immediate. Why do so many not get that? Are they the same bunch who don't get exponential math too? It was always peak/crash about 2030-50, and oil was always peak (not running out, peak - do you get the difference?) around 2000. I picked 2000-10, back in the mid-80's. Prof Deffeyes correctly picked late 2005, and did so in '98. Peak is not running out, but growth needs growth in energy-supply, minus efficiencies. Beyond peak, growth is in trouble.

 

Can you have unlimited wealth wothout our finite planet underwriting it? The National Govty obviously thinks not - it wants to dig/farm/use everything So it's a matter of counting backwards in terms of 'doubling time' - you do know about doubling-time?

I think the SS bubble is a

I think the SS bubble is a good analogue for climate change. One supposed expert, J. Hansen, who did predict catastrophic sea level rises by now, gets the ear of governments with his crazy, yet very lucrative, scheme. Dissenters are not listened to and everyone buys into the hype to their detriment.

I've heard that the 'scientific community ' is so brainwashed by so called climate science that the former head of NIWA, an agency currently in court for allegedly faking data, was sacking for daring to question the anthropogenic nature of climate change. Hardly an attitude of open inquiry and criticism.

I'm very well aware of resource peaks and exponential growth. It's very simple math. I learnt about logarithmic growth in primary school from prosper penguin. There's a very good Youtube video about exponential growth with a rather excited professor too.

Xt = Xo(1+R)t, the day half the petridish is covered is one day before it is fully covered where doubling time is one day. I'm over neo-mathuasilism, it's just so 1970's, when are you going to let go of your outdated model PDK?

Changing resources, hydrogen from sunlight & water anyone?, recycling, preferably by local machines rather than poor old Chinese who inhale poison all day & live to maybe 30 while we feel virtuous for recycling, design for repair rather than redundancy etc can solve many of these problems.

I'm also very aware of how much money is being made out of selling 'peak everything' and carbon trading. Are you?

Bruce - with respect, no, you

Bruce - with respect, no, you don't think.

 

We've donr this one to death here before your arrival, but there have been others who have suggested that 'because it hasn't happened yet, it won't.

 

You want to apply that to your own mortality, and work back from there?

 

I pointed out the flaw in your climate change argument - but you go right on. 'I have heard' is known in legal circles as heresay, and for good reason. You seem to think that numbers of believers denote a truth too, no guarantee, sorry.

 

Those who realise where things are going, and who understand what 'wealth' is, aren't 'making money', they're busy getting wealthy. I don't 'make money', but I consider myself wealthy, in that I'm self-sufficient in food, water and energy.

. Carbon trading wasn't going to have any impact - wealth is only underwritten if energy is expended, sequestration of the energy we use would take so much of the 'wealth' away (needs energy to effect sequestration) that the current fiscal system would crash. There is also not enough land area to do said sequestration, and burial is currently a dream.

 

Hence the need to believe climate change is not a problem - the basis of the belief is in the reliance of the believer on the existing system.

You can get away from the

You can get away from the cartel. Know a client who wanted to start up on his own..is is a good builder and would not take on the Flecture/EQC pricing. Helped finance and manage his start up. Built and sold 27 homes in the past year..if there is a will thre is a way.

most I know who are really

most I know who are really good are here and making serious money. 

#1, the monday laugh? Really

#1, the monday laugh?

Really I think the financial sector is dis-connected from the real economy.  When we start to see un-employment fall, then yes sure inflation is probable, in the mean time and I mean years I cant see it.  Before that we almost certianly have to stagger through a continued risk of a depression and deflation...a long way to go IMHO.

regards

looks like the laugh is on

looks like the laugh is on you....you can have inflation while unemployment doesn't fall and we have that currently although still in a relatively mild form. Stagflation not possible in your world? Doesn't dimish the contiinued risks you mention.

Laugh, well we'll get to see

Laugh, well we'll get to see whos right wont we, Ive stated my case, significant deflation and a long depression.  Sure stagflation certainly is possible and yes thats sort of where we are at. Sure, yes we can have 6% inflation in some areas (rates) while with high un-employment and no wages increases means no more money in the pocket, which means other areas must be struggling to give an overall of 0.8%  Throw in manufacturers trying to make processed food in smaller packages but charge the same to compensate plus use cheaper ingrediants and that all says there is a huge squeeze going on.   At xmas I noticed 1.5ltre "good quality" pop going for little more than the cheap house brands...Ive never seen that before. I know ppl at Bunnings and they are saying the last year has been quieter than even the last 3. Milke solids are at best stagnant as well...so many things just not showing inflation let alone roaring. Sure housing is crazy in some areas...thats bubbles for you, which pop....see my first line.

All this says to me there is no real excess money sloshing about in the system to trigger inflation, exces debt sure in some sectors...which of couse has to be paid back in the future...

regards

 

 

steven .. disconnected .. yes

steven .. disconnected .. yes .. so true  .. have you ever read the "Parable of the Ox"

http://www.johnkay.com/2012/07/25/the-parable-of-the-ox says it all

LOL....nice I kind of guessed

LOL....nice I kind of guessed the end result...

I would take the ox as the economy and fosil fuel as is food...

regards

7) in more detailed

7) in more detailed discussion of the Platinum coin theory, the is discussion about if this is a decision Congress can constitutionally delegate, making the 1996 law unconstitutional due to giving the Treasury secretary all the power but it no one may have he standing to sue to find out (you need to be able to show direct injury). I am amused that a Republican bill from the 90s to let the government (and commerative coin industry) profit more by issuing whatever commemorative coins took their fancy has come back to bite them.

There is however another law, already on the books that avoids the possibly unconstitutional abrogation of powers of the 1996 one, to quote from the Washington Post blog:

"The American Eagle Palladium Bullion Coin Act of 2010, proposed by then-Rep. Denny Rehberg (R-MT) and signed into law by President Obama on Dec. 14, 2010, authorizes the Treasury secretary to mint $25 palladium coins “in such quantities as the Secretary may determine to be appropriate to meet demand.” So theoretically, Geithner could issue 80 billion $25 palladium coins, collectively worth $2 trillion, and deposit them in a similar manner."

There is clear historical precedent that if congress passes conflicting legislation (and spend money on these programs but we will not raise taxes or permit borrowing to fund them is a pretty clear conflict) the President can resolve this conflict as he sees fit. However, this would require a president inclined to go his own way (FDR was the last to take advantage of this in a big way) than the centrist, conciliatory Obama.

10) While the BBC podcast "more or less" is required listening for fact checking numbers in the media the latest episode contains a 15 minute "fable of the finance markets" at the start. I think this would make a a good basis for yr10 classes exploring the relationship between sectors of the economy.

http://downloads.bbc.co.uk/podcasts/radio4/moreorless/moreorless_2013010...

Indeed, there is "a

Indeed, there is "a significant chance safe-haven demand for bonds [will] evaporate". We could find ourselves in a position where Government overseas borrowing costs much more and refinancing the $49 billion we currently have becomes much harder.

 

David, let's not be shy about that which will need refinancing - the whole NZD 76.134 billion will re-price if interest rates change, not just the foreign ownership portion.  

Indeed Stephen H.  I have

Indeed Stephen H.  I have been frantic to reduce debt for some time and successfully done so.   Sometimes that seems unnecessary with the historically low interest rates.  But with potential for high rates coming it means I do sleep at night.  Might not happen - but could.

#7.  Platinum etc.  Talk of

#7.  Platinum etc.  Talk of being out of touch.  These complex discussions are self delusion of the first order.  When the real problem needs a real solution.    There is no better description of this than the old cliche.  "Rearranging the deckchairs on the Titanic"

There are plenty of people

There are plenty of people doing nothing, 7.3% unemployment.  There are also heaps of people underemployed and doing little of real value.  Our low productivity is testiment to this.

Tele marketers; Central and local body bureaucrats; The finance sector; Over serviced retail sector; Communications consultants and experts; Property speculators, landlords etc; .....we seem to be overloaded with them.  Look at any situations vaccant and count the unproductive positions offered compared with those where something is actually produced.  The sorts of jobs that people are leaving to go to Australia for, appear to be more involved with actually producing something or providing a meaningful service.  If we had an even half sorted out ecconomy then maybe we could afford to pay wages sufficient to retain our own good tradesmen instead of resorting to inferior workers from third world ecconomies.

 

Chris, Unemployment figures

Chris,

Unemployment figures are so easily fudged they are meaningless. Here for example they do not count non job seekers as unemployed so the headline rate stays nice and low.

On the old US calculations their rate is around 24% not 9% as the post Clinton fudging shows for headline unemployment.

Employment rate is more reilable because it is less known so less open to political meddling.

From the Department of Labour 2012 November quarter summary;

"The employment rate fell by 0.4 percentage points to 63.4 percent.
The main contributor to the fall in employment this quarter was a fall in selfemployment of 4.4 percent or 10,500 (seasonally adjusted by the Ministry). At September 2012, self-employment was 10.3 percent of total employment, a level not seen since the first quarter of 2010, and then twenty years previously."

Regards,

Hi Bruce So are you saying

Hi Bruce

So are you saying that there are even more people un/underemployed and there is even less reason to bring in immigrants to do the work that we are so hopless that we cannot reorganise ourselves to do?

Heya Chris,   I'm saying

Heya Chris,

 

I'm saying terminally misgudied policy and market conditions being what they are in Chur-Chur is allowing massive rent seeking.

I'm also saying that the first, terminally misgudied policy is killing independant small firms and sole traders across the country by bogging them down in massive redtape, stupid OSH standards, log spliters that only do one foot every 30 seconds anyone?, as well as a trading cross with most of our partners currencies which is making life rather painful.

I might invest in some firewood early this year because if that real regulation is enforced the lost productivity to wood splitters will cause a massive price surge, or it could just drive them out of business as the cost of production rises above price of demand to the point where firewood becomes a luxury good.

 

Regards,

Thanks Wellington seat polishers, nice one mate!

.. terminally

.. terminally misguided..

Yes.  I wonder when and how it is going to terminate.  The way we are going it wont be long.

Good long form Salon article

Good long form Salon article on how people get numbers wrong (a reprint of a section of the book "Naked Statistics")

http://www.salon.com/2013/01/06/help_us_nate_silver/

Wow...hot hot hot...45

Wow...hot hot hot...45 degrees in NSW tomorrow...anyone like a nice cold beer!

Already got it covered Wally,

Already got it covered Wally, I'll be in my pool with the missus on hand to get me a fresh one...

Your a hard bugger flux..how

Your a hard bugger flux..how you expect the missus to mow the weeds if she's gotta mind the fridge full of beer!

weeds? we have lush green

weeds? we have lush green grass covering our place (of the plastic variety), nothing grows over here in summer...

Switching back to dark beer

Switching back to dark beer and hot fires down here today. A very chily 15 C which is supposed to feel like 8C but really feels like 4C after the beautiful weekend we had.

He'll start a war if he does

He'll start a war if he does that.

Seems to me the vast central

Seems to me the vast central bank printing going on will keep asset prices up; which will spur some investment and consumption, and so largely achieve the opposite of what you predict. There may be some other nasties thrown in; savers continue to be ignored, unless they have diversified their assets. The money printing is a massive grab for market share of capital, production and,separately, of wealth. Sadly New Zealand seems determined to stay on the sidelines and lose in this market share grab; but our asset prices will likely stay up, and I suspect even unemployment will edge down. We just won't own much of the prduction or assets, and long term real wage growth won't be all that flash.

Whether significant inflation also comes along is moot; at some stage the sea of cash must have some inflationary impact. 

Would be interested in PDK's

Would be interested in PDK's take on the nuclear move into Thorium. See Ambrose Evans Pritchard explain it here:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/978404...

If anything close to a valid technology, then it seems to me it could help solve "peak energy". If so, that would seem to challenge PDK's view of future economics.

We all would have electric cars in 20 years or less; and many other things would run electrically as well; albeit the oil industry would not suddenly collapse, it seems to me. The coal industry might, though.  Yet another reason not to sell our power companies perhaps. 

It's all probably a bit too good to be true, so interested, as I say, in PDK's view.

Yes, you might come up with a

Yes, you might come up with a source of energy which is (a) everlasting and (b) abundant. I guess you could argue that the Julian Simon nonsense (that there is a copper molecile every x metres in something like basalt, therefore we won't run out) might become a reality if there was unlimited energy to extract said sparsely-populated copper.

 

In reality, we are already stuffing the planet, and such an approach would need a much greater maturity across-the-board than we're showing now. We'd need to do the 'precautionary' thing every time, and we don't seem to be able to do that.

 

Nuclear only does electricity. The conductors, insulators, infrastructure, still need to be found (80% of the copper ever dug up is still in circulation, for instance) and much of it is fossil-based. Unlimited energy applied to recycling? Maybe. We're past peak gold, near-or-at peak copper, my Physics Prof has a whole list of them.

 

Then you'd only have to address climate change, sea-level issues, aquifer depletion, desertification, degradation, calcification-via-irrigation, electric tractors..... all simultaneously.

 

All that while running a fiscal system based on 'growth' (which is telling anyone who can think, that there's no growth left as of now, and the top-of-the-heap are hoovering what's left of the rest.

 

So the fiscal system has to / is morphing to zero interest/growth, and will go below. How will you 'finance' these things? Has to be - given the increasing lack of profit - a command structure, and has to be all-hands-to-the-pumps altruism.

http://www.si.edu/consortia/limitstogrowth2012

If we'd addressed it when we had a chance (see Bruces silly comment about 'running out of oil' above, a classic example of not listening/thinking to what was being said) then maybe we had a chance. Not now - the wave is breaking right over you. What amazes me, is that even now, folk think in terms of keeping their middle-class lives going, rather than addressing the rather bigger problem. (electric cars is such a thought).

 

 

 

 

 

Around one hundred years ago

Around one hundred years ago we still relied on horses, bullocks and wind for transport. Wireless power is now a reality.

A source of energy which is near everlasting and abundant?  Try gold nano-particles + sunlight = hydrogen gas.

In the 1970's we panicked about a little ice age and peak oil. Now it's sea levels rising and desertification and peak oil.

Aquifer depletion is a non issue if we have enough energy, simply take the salt out of sea water and pump it to crops.

Desertification is largely caused by human ignorance cf Ethiopia, once a bread bowl, now a starvation zone via bad policy decisions. Or over irrigation as in Israel and South Australia, this can be fixed.

Electric tractors? Agriculture is rapidly heading towards full mechanisation of the robotic vairity. Power source is largely irrelevant. Argri-robots will be more efficient and allow greater reserve area for other species and associated natural services. Maybe they'll be good enough to even be profitable, unlike 2,200 dairy farmers here and now.

As for command structure, just keep on panicking the herd PDK and you'll have a command structure that would make Orwell scared and more importantly, only known of by a very few people.

Oh and FYI, I've never had a middle-class life, more a breadline existance.

Bruce systems tend to grow

Bruce systems tend to grow until they can't, this included biological systems. The effect was noted by Seneca and some modern proponents have mis applied this effect to business and called it the Sigmoid Effect. Sigmoid Effect theory (paradox) is that the time to change is when growth is at its peak but that humans based systems tend to wait until they are in decline to react, or the inflection point on the downhill side instead of the uphill side.

 

If you take the time to look at human population growth, and in particular the inflection point in 1961, then you will see your optimism is wildly misplaced. The rate of growth has been in decline for 50 years, the numbers say you are horribly wrong and that we are in overshoot territory.

The thing is to think....you

The thing is to think....you are not in this instance IMHO.  maybe because Im a B Eng and you are a BA (I assume) so my degree is highly orientated to energy and materials, so I appreciate them far more I suspect.

regartds

Ambrose is worth a read

Ambrose is worth a read financially but not scientifically. If anything he actually comes across as desperate and I'd use the word clueless...but I suspect it isnt that simple.

The problem is it isnt a peak energy problem especiall. In fact its , interesting that you use "peak energy" and not peak oil....its not the same thing.

Much of the oil we extract goes on transport energy and then feed stock into plastics etc....clean and cheap thorium does not solve that.

We can liken this to NZ, we hae a huge potential for renewable energy, that still isnt very portable.

Now we can do some things like electric trolley buses and even electrify main lines....just who's investing in it though?.

Few see it, indeed hugh (there is no problem...la...la...la) P is banging his drum on yet more housing spread.

Electric cars need complex materials and their life is significantly less than an equiv petrol car.  Take the MiEV, its $65k and has about a 10 to 12 year life span, its petrol equiv would last 20+ years...and costs $20k. Do the math on that.

How many ppl can afford a new $20k car let alone a $65k car?

2 billion of the present 7billion are well off, another 2 billion at least are set to join us....so the energy demand wants to go up significantly...it cant

So as is, is not going to continue.

regards