Friday, April 9, 2010

The Catch-22 of a Yuan Revaluation

The stage has been set for a play of the utmost irony, coupled to an acceleration in the decline of the fundamental U.S. economy. Members of the U.S. Congress have recently urged the Treasury Department to declare China a "currency manipulator," thus implicitly threatening China with punitive measures if it does not allow the value of its currency to rise against the dollar. Needless to say, politicians in general clearly have no understanding whatsoever of the circular dynamics of economics nor, in particular, of China's primary motivation in this regard for buying U.S. Treasury bonds in the first place; that is, as a means to absorb the flood of dollars it obtains by buying Treasuries in order to maintain some semblance of balance in its current account.

Beware of what you wish for. So what will happen if Congress & co. ultimately gets its wish? There are two immediate consequences, neither of which are subtle in their effects:

First, the price of every Chinese import (think Wal Mart) will immediately and proportionately increase, manifesting as a round of high --though not yet hyper-- inflation. This will in turn serve to further reduce whatever is left of the U.S. consumers' discretionary budget, and thus push another unknown percentage of homeowners over the edge into further mortgage defaults and late credit card payments; items which, sad to say, U.S. Banksters are still allowed to point to as the initial cause for the on-going global crisis. After all, it's not their fault: they didn't see it coming.

The second consequence is, of course, that China itself will then obtain fewer dollars from trade --not only due to the numerical revaluation of its currency, but because consumers who buy in dollars will simply not be able to afford as many Chinese products. However, fewer dollars for the Chinese thus also directly reduces any commensurate need to buy U.S. Treasuries --even aside from the fact that they have already started withdrawing from that market, and may even be net sellers already. All this merely serves to exacerbate an already extent process of negative feedback: The less the demand for Treasuries, the lower the bidding price and the higher their yields become. The government is then forced to borrow money at a higher rate of interest, which increases the risk of buying Treasuries in the first place, which lowers the demand, which increases the interest. Where does this interest payment come from? Declining tax revenues! --which is, no doubt, the very reason why certain congressional members want China to revalue the yuan relative to the dollar: i.e. in order to increase the "competitiveness" of U.S. exports! Funny, no?

Want to hear something even funnier? The greater bulk of Chinese imports are really coming from U.S. corporations, who have merely outsourced their labor pools to increase their profit margins by selling to whomever is still employed. All of this is commonly known, but corporate self-interest is a sacred cow. Here is Congress, attempting to force Chinese monetary policy in order to protect ourselves from the depredations of American corporate culture. How ironic is that!? One might hope that our politicians could connect at least two of the most obvious dots, and thus begin to suspect that real solutions might just lie much closer to home than Beijing.

So why did Tim Geithner make a sudden trip to China yesterday? Many seem to presume that it was to offer some kind of olive branch, though in truth, no details of discussions have yet been released; however, the most logical inference we can make is that he was, and is now, highly motivated to plead with the Chinese not to revalue their currency, for the very reasons just discussed. Maybe the gods just love a good comedy in which the antagonist is quickly hoisted on his own petard; because if the Chinese ever do accede to official Congressional demands, it will primarily be only because it suits their own purposes. In any event, the U.S. economy --which is already coming apart at the seams-- will continue to unravel at an increasingly accelerated pace. Besides, the Chinese already have reasons of their own to begin a controlled rise in the relative value of the yuan, since it should be apparent to all that they are attempting to position the yuan to become the global alternative to the dollar as the reserve currency of choice.

When all is said and done, the continual economic deterioration of the U.S. is now unavoidable, primarily because its guiding lights are trapped in illusory catch-22's of their own making. For the underlying physical economy of main street is entire comprised of physical energy sources and processes. One can of course, symbolically misrepresent this basic reality with all the paper one cares to print, but the paper economy --the fiat "monetary" system, which appears so wonderfully flexible to the crackpot economists of the present day-- is, in reality, rigidly tied to the underlying energy flow that comprises the physical economy, in precisely the same sense that the symbolic representations of mathematics cannot be arbitrarily divorced from the dynamics of any given physical process to which they are applied.

The alleged "recovery" is thus nothing more than an illusion generated by an official distortion of the true facts and figures. Like the financial industry itself, the economic structure of the country is already a brittle hollow shell, and currently sustained by nothing more than a highly sophisticated, but symbolically fraudulent system of arithmetical smoke and mirrors. Timmy G. is merely a mouse at the base of an avalanche of pending effects, scurrying about in pathetic desperation. But there is simply no real room left for maneuvering. The Treasury market is already showing signs of severe stress, and beneath the public radar, the forces of decline continue to accumulate. The world is gagging on the vast sums of government bonds being printed and offered up worldwide. You can therefore be absolutely certain that interest rates will continue to be forced upward by the underlying market, regardless of every effort by Government Sachs to prevent it.

The lesson in all this is really quite simple. Ignorance with respect to the underlying physical nature of economic systems is utterly incapable of formulating any appropriate response to states of economic decline. To the clueless clutch of congressmen, modern economists and financial 'geniuses' currently in charge, it thus seems entirely reasonable to expect that an economic crisis can thus be addressed with methods of accounting. These people are neither capable of independent thought nor of understanding the very events in which they are immersed in terms of physics. They haven't the slightest notion that their economic "theory" is simply a futile attempt to exempt themselves --with nothing more in hand than a symbolic currency system-- from the inescapable grasp of E= MC2. Thus, every action they now take will simply boomerang around to strike them on the back of the head with a force in direct proportion to the depth of decline. We may in fact, expect them to continue until they simply pound their faces (and us with them) into the ground. Not, of course, that the little bottom-feeders would ever notice.


  1. Interesting observation ---
    "Needless to say, politicians in general clearly have no understanding whatsoever of the circular dynamics of economics ..."

    So what advice do you have for Governor Pawlenty when he makes his September trip to China ... and then to Japan. And does it mean anything that Pawlenty first goes to China ?

  2. My best response to this is unlikely to be well received prior to a more extensive dialogue, primarily because the things I have to relate concern the deep foundation principles of two, very different economic systems: first, the debt-based fiat money system currently in vogue and, secondly, the energy-based economics native to reality itself.

    With that understanding, I will jump immediately into the fray anyway. Very few understand at the moment that the current system cannot be revived. Globalization is dead, but like light from a distant star, the reasons have not yet fully dawned. Speaking as an engineer, there are truly systemic reasons for this and not merely a matter of opinion. The shelf-life of the U.S. dollar is quickly approaching its expiration date.

    I want to show you two things at this point: the origin and the terminus of the Federal Reserve Note that were baked into the cake from the very beginning. First, its point of origin: Go to this site: Now click on the left hand video (Addendum) and move the cursor up to roughly 4 min. 20 sec. Watch the next 15 minutes or so.

    Now go to this site and ponder the chart at the core of the article:

    Each of these items succinctly depict the underlying structural forces that are now in full play. In spite of all the frantic political rhetoric, posturing and propaganda issued by the present powers that be, the system was never intended to last forever in the first place. Its growth has always been premised entirely on -and a measure of-- a proportional expansion of debt. For example, according the the Basel Bank of Settlements last year, the total overburden of derivatives --credit default swaps, interest defaults swaps, mortgage securities, etc.-- had reached --as of a year ago-- a mind numbing $1.2 QUADRILLION.

    So what advice do I have for the governor? I would first attempt to help him understand that for now, "globalization" is a completely dead issue, primarily because the relentless economic collapse in local, State and national government revenues cannot be stopped until all this debt has completely deleveraged.

    I thus suggest that the time has come for an utterly thorough re-evaluation of priorities. Naturally, this entails the establishment of an energy-based economic system amid the smoking ruins of tomorrow.


In the Beginning, there were Consumers and Food...


WAKE UP! It's an ENERGY System --Not a Money System!

"Energy is also measured in joules. In many ways it resembles money: it is a currency in which all processes in nature must be paid for. Just as money can come in dollars, pesos, yen, rubles or liras, so energy can come in many forms--electricity, heat, light, sound, [kinetic], [mechanical], chemical, nuclear."

Mankind as a whole is profoundly muddled concerning the nature of economics. The most prominent symptom of this is represented by the common euphemistic assertion that economics is an extremely ‘complex’ phenomena, first of all because it appears ‘inarguably’ comprised of a vast host of distinctly different physical “factors,” but whose ultimate impact is also determined by the vagaries of human psychology.

This would be laughable if it did not also reflect an essentially universal consensus. There is scarcely a soul on the planet that does not accept this state of affairs as an inevitable fact of nature. So instead of laughing, I –who may be the ultimate contrarian— am forced to feeling far more appalled and saddened than entertained by mankind’s general incapacity for critical thinking.

Even our scientists don’t question the most basic premises of modern economics. Why? Apparently, the reason is because it’s not a field of science –an observation that of course, merely points to the reason behind the reason: that they are themselves generally incapable of recognizing their own immersion in a cultural cul-de-sac of circular reasoning.

Here is what I mean. I have yet to meet anyone who doesn’t automatically accept it as a fact that economics is something that originated with barter and trade. The moment once accepts this premise as a fundamental principle of economics however, is precisely the very same moment in which one stumbles blindly into a labyrinth of unintegrated ideas and circular logic, because the act of trade presupposes a far more fundamental and energetic set of principles.

For the sake of what brevity is possible at this point, I will state the reality more succinctly. Life is subject to the phenomenon of economics for the simple reason that it gets hungry. This is why food is ultimately the most basic of economic necessities, but even this is merely a foreground expression for the reality –entirely provable—that “economics” is grounded in pure physics, because life itself is nothing more or less than the biological manifestation of a circular, feedback energy process.

Make no mistake. There are no other principles, and the only reason you believe otherwise is because you have been deeply immersed in the concepts and trade language of money since you were in diapers. But “economics” is pure physics, and I can say this without equivocation, exemption or caveats of any kind, because I have developed a completely integrated and internally consistent explanation, made possible only because I began by identifying the actual origin of the economic process. From that point on, a process of enlightenment unfolds, being hinged simply on an observation with respect to how the principles of energy in various states of feedback have manifested through the agency of various representative forms, such as food, tools and money. The result is a seamless overview that is particularly applicable towards a complete understanding of the phenomenon of economic decline.

Do you remember any of your high school science classes? You were clearly told that every thing and every event could be described in terms of energy. Everything! This, of course, is what E= MC2 means. And yet, as you grew into adulthood, you quickly adopted the prevailing notion that the ‘value’ of money was really just an ‘abstract concept’ and therefore something best left in the hands of people who really understood money ... bankers. Don’t even bother wondering how they managed to take over the world. And don’t scratch your head over why the monetary systems are now collapsing. Nature hates a vacuum; so it hates the financial sector most of all.

So in order to avoid the implosion of our own skulls, let’s all take a fresh look at reality. In seventh grade, you were also told that every form of energy could be converted into every other form. Therefore, take a moment to consider all of the various forms of energy that comprise the phenomenon of economics today: Food (energy source); human and animal labor (energy sources); the entire spectrum of technologies, all based on --take a note!-- the physics of fundamental forces, forces that serve to provide either a direct source of energy, or as a means to effectively amplify the effective energy of every consumer organism (can-openers; telephones; cars, etc.); and fuels (food for technology) of a chemical or atomic nature.

Think now. Many times a thing is more obviously recognized by its absence than its presence. Therefore, if we conceptually remove all of the above categories from the economic process, what remains? Money –which all of our banker friends would have you believe comprises the very essence of the economic process.

But what does money represent? It represents “value,” but this really just begs the question. We have to go just a tad deeper. For example, one can buy food with given quantity of money, because money is supposed to accurately reflect the relative ”value” of food? And what comprises the essence of this ”value.” In the most fundamental sense, the value of food essentially lies in some given quantity of energy. In this case, as in all others, we can clearly see that, at the most basic levels, the term “value” is really just an unrecognized synonym for “energy.” In other words, if one removes all of the energy from food (fuels) –or tools, then one also automatically removes their very purpose and meaning as well.

Everything about economics can therefore be transcribed in terms of energy and understood in terms of pure physics. After all, while physics can most assuredly be described in the symbolic terms of numbers, this obviously does not mean that the dynamics of physical systems are based on abstract concepts.

In other words, money is far from fundamental to the phenomenon of economics and can, in fact, be completely replaced in terms of energy.

Gold is an implicit energy standard

And this finally brings me to a final and brief discussion of the gold standard. At this moment in time, I am, myself admittedly a gold bug. But this is merely as a practical matter, because I know that the true attraction of gold as money stems from its virtue as an implicit energy standard.

You see, while the ”value” of gold is often alleged to reside in its relative rarity –and therefore uncommon and “precious” by definition— the term “rarity” is really just shorthand for “requiring a great deal of energy to obtain.”

For example, Earth probably has a blob of gold the size of Texas floating at its core. Go ahead, pick a number; but the point is, what would be its “value” as a currency if every particle of gold in the planet were to somehow vibrate its way to the surface one fine day? Under these remarkably horrifying circumstances, it is likely that the entire surface of the globe would become covered with gold to the depth of several inches at the very least.

What would be its “value”? It would not be absolutely zero, because gold does indeed provide significant technological advantages in terms of current flow over many other elements. However, this value would essentially be determined by how much energy it would take to bend over …and pick it up…

As fate and nature would have it though, gold remains the ultimate fallback currency --to this point anyway-- because the cost in energy to obtain it has remained largely consistent over the centuries. There are more industrial methods of extraction since the days of the Roman Empire, but the quantitative demand and the “cost” of energy itself is greater (“cost”: i.e. takes more energy to produce energy).

Gold is therefore necessarily the default currency towards which the world is inevitably gravitating in its spontaneous search for stability. Gold secretly represents a relatively consistent quantity of energy, and thus provides a relatively stable benchmark for the underlying value of everything else.

Parallel reality: a Post Paradox world

Beyond gold and fiat currencies and currencies based on multiple-commodity standards lies a whole new set of potentials. This is a stage at which the underlying reality and the true principles of principles emerge into the light of day. “Economics” is transforms into a field of science, and the implications are such that economic systems can then be literally engineered to produce states of permanent and universal prosperity, and all the paradoxes and economic conundrums and shortages characteristic of the current regime are automatically nullified.

NESTED LOOPS: The Economic Process As Experienced By Every Consumer Organism at Any Given Level:

NESTED LOOPS: The Economic Process As Experienced By Every Consumer Organism at Any Given Level:
The "Single-Celled" Economic Template: Every single-celled creature represents a complete economic system comprised of electrical, mechanical and chemical forces whose fundamental natures are not separate, but merely represent translational stages, stages in which energy is merely transferred from one state or level into another. Ultimately therefore, they cannot be parsed, so from the position of a comprehensive overview, as in the case of a fully integrated theory, complete understanding depends on perceiving the state of the whole as a reflection of a single entity: "energy." Itemization in this instance is entirely counter productive. (It is, in fact, the very approach that has prevented the world from achieving any true understanding of the nature of economics.)

For example, the flow of electrochemical or electromagnetic energies throughout a nervous system is projected into the "economic" environment by means of the mechanical force of contracting muscle tissue. For eons, the job of obtaining food --which, like currencies today represented an acquisition of greatest "value." That is, food has always been valuable because food represents energy. Therefore, the feedback loop of the internal economic system of each consumer organism--that is, the neural and metabolic continuum of energy that comprises Life--
cannot be distinguished as separate from the economics of its life as an externalized system.

Precisely this same pattern is observed at every level of scale. Beginning with single consumers (regardless of their evolutionary standing), the pattern repeats in the form of collectives of consumers (sponges to corporations, etc.); and manifests simultaneously at the level of collectives of collectives of consumers (i.e. nations, etc.). In brief, as seen from the most fundamental perspective, the internal and "external" economics of any given nation is absolutely identical in essence to that of a microscopic protozoa.

And if you think that the economic forces of a nation are 'more complex' than those of a single cell, then you haven't looked closely enough...

If Economics is Physics, then why does consumer psychology play such a large role; or rather, why is "value" also appear to be a merely subjective phenomenon? Rethink everything. There is really no contradiction. Remember, the economic process is ultimately just an extension of the feedback dynamics of life itself. The core loop entails the aquisition of the energy represented by food, which after ingestion, then in turn becomes incorporated into the nervous system as the energy of sensation. This itself is an example of pure physics, but when couched in terms of sensation, we must say that the search for, and digestion of food is itself merely an expression of sensory feedback and motor control. This is why economics appears so "subjective," and yet at the same time, we can also describe it entirely in the "objective" terms of physics.

In short, the internal economic process is ultimately projected into the environment and "objectified" in terms of tools and money, to produce the economic process that we conventionally observe. And yet the underlying principles and process remain utterly one and the same.

As always, all confusion is eliminated through the total unification of concept and sense, and the destabilizing and volatile effects of "subjective" phenomenon cease to be an issue.

In fact, the engineering principles for a truly integrated economic system could well be said to reflect the fundamental physics of sensation.

Think about that for awhile...

Why is this theory referred to as "Post Paradox"?
Nature is constructed in such a way that any dynamic continuum without perceivable roots becomes a chicken-and-egg problem. Today, the worlds' monetary systems have been cut loose from physical reality primarily because modern economists have never realized that the term "value" is always and everywhere merely an unrecognized code word for "energy."

(For example: What is the "value" (meaning) of food?) Consequently, because the meaning of meaning, of value has never been fully digested, modern logic --which starts somewhere in the middle with "barter" and "trade"-- automatically defaulted to the notion that "value" must therefore be just an abstract concept. However, this is precisely why economics is still plagued today with an aura of metaphysics, rather than imbued with the simple clarity of physics.

The world community of economists doesn't realize that it is dealing with a pure energy system, so it is essentially characterized and trapped within this following vicious circle of reason: To "control" inflation, the authorities raise interest rates in order to reduce the flow of money. Unfortunately, this increases the rate of unemployment; however, they only way they know to decrease the rate of unemployment is to increase the flow of money. Now "obviously," the only way to do this is to decrease the prime interest rate, so they naturally feel compelled to lower interest rates... And around and around we go...

So, what if both inflation and unemployment are already high and on the increase? What if an economy is in a state of "stagflation"? What can anyone do? Well, if one is in charge of the money system, nothing at all --because you are trapped, by definition, in a paradox created by a faith in the sequential logic of cause-and-effect.

When faced with a continuum however, linear logic produces only vicious circles; so the primary strategies of the money-centric mind really merely define a balloon-squeezers' strategy to make the balloon bigger --but if a balloon is shrinking, it will continue to shrink no matter which end is manipulated.

In short, the only way to reverse the progressive decay of an economy in decline is to fully integrate the Money System with the far more fundamental principles of the underlying Energy System.

The term 'Post Paradox' thus signifies a point of view that transcends the vicious circles of reason that are inadvertently generated by modern thought processes, because from our new perspective, economies can be engineered to render permanent and stable states of prosperity.