Here is another way of thinking about the overshoot analogy applied to finance:
If we are in ecological overshoot as a result of depleting a one time store of fossil fuels that took millions of years to create, is that different from depleting future accumulations of wealth by using debt to finance consumption today?
By raiding future accumulations of wealth to finance current consumption, where will future investment capital come from?
Is there an analogy in finance to negative EROI? I am thinking that there reaches a point where money can't be borrowed under any terms because there is either too little liquidity or simply no way the borrower could ever pay it back. You might say that would be a loan with a negative EROI. If that loan is what is needed to either continue servicing other debt or to fund consumption (especially of necessities), and the loan is not made, what happens? I understand that governments can step in and remedy these situations short term, but long term the only effect of repeated government intervention will be worthless currency. Alternatively, what if it is the government itself that is the borrower to whom no one will lend?
How is a commodity priced when it has a negative EROI? Does it's production cease? Should negative externalities be included in the EROI calculation? If it's not included, isn't that dangerous?
Doesn't the ability to emerge from a financial depression presuppose the ready availability of affordable raw materials?
***
[Wandering a little now]
I am just trying to visualize the financial systems' response to the following scenario: assume a population that requires 2% economic growth in order to keep up with the populations' needs, and the inputs needed for production begin declining at an accelerating rate (post peak oil, for example). What happens? Do we rely on human ingenuity to wrestle ever more value added out of fewer and fewer units of input to make up the shortfall? Doesn't this presuppose that human ingenuity is more or less infinite? Is there any historical precedent for this (i.e., has human ingenuity ever provided durable solutions to a population's needs when sources of energy were in decline, OTHER than by replacing one source of energy with another--is that really ingenuity, or is that just a parasite looking for a new host)?
Isn't something like solar energy really either: (1) a negative EROI proposition or (2) a perpetual motion machine?
So many questions. Where's MrBill? Anybody else want to take a crack?
PeakOil is You
Is Debt a Sympton of Financial Overshoot?
Re: Is Debt a Sympton of Financial Overshoot?
by patience » Tue 26 Feb 2008, 18:05:25
LoneSnark,
No, we cannot consume that which is not produced, That much is correct. Production can, however, increase, and has, producing a lot of houses and imported manufactured goods, among other things. The market has a way of supplying when demand is there. Now, that easy credit is contracting, and the housing market, and others, are contracting too.
The IT illiterate will try again here:
http://www.mercurynews.com/realestatenews/ci_8344134
This was posted in Current Energy News, Housing Collapse thread, by Schroedinger's Cat, page 238. California Jan. sales were19,145, and Jan. foreclosures were 19821. Sales were down from Dec and foreclosures were up. The link worked for me there.
No, we cannot consume that which is not produced, That much is correct. Production can, however, increase, and has, producing a lot of houses and imported manufactured goods, among other things. The market has a way of supplying when demand is there. Now, that easy credit is contracting, and the housing market, and others, are contracting too.
The IT illiterate will try again here:
http://www.mercurynews.com/realestatenews/ci_8344134
This was posted in Current Energy News, Housing Collapse thread, by Schroedinger's Cat, page 238. California Jan. sales were19,145, and Jan. foreclosures were 19821. Sales were down from Dec and foreclosures were up. The link worked for me there.
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Re: Is Debt a Sympton of Financial Overshoot?
by cube » Tue 26 Feb 2008, 18:09:00
$this->bbcode_second_pass_quote('LoneSnark', 'A')nd cube, I have told you before. China is not sitting on $1.6 trillion dollars in cash, it is sitting on only $1.6 trillion dollars worth of assets. The dollars they used to buy the assets are where you are saying they are not: in U.S. pockets chasing goods in the American economy.
a more detailed explanation:When I said the Chinese are sitting on US cash I do not mean it in a literal sense. Cash does not pay interest so it makes no sense to have a giant room with wheel barrels of US dollars sitting around doing nothing. A more accurate term is to say the Chinese are sitting on $1.6 Trillion of US bonds. However bonds can be sold/redeemed for cash + interest, hence the phrase: "The Chinese are sitting on $1.6 Trillion dollars of US cash".
$this->bbcode_second_pass_quote('LoneSnark', 'A')s such, China cannot dump the U.S. dollar, since it is not holding any.
1) China sells $1.6 Trillion US bonds for cash.
2) China uses the cash to purchase assets: companies, land, commodities, etc...
That would be called "dumping" the US dollar.
$this->bbcode_second_pass_quote('LoneSnark', 'T')hat is like me saying I am going to dump IBM stock when I don't own any to dump. China can try to liquidate its U.S. assets, but it will quickly find itself selling them for a fraction of what it paid for them.
When a nation has a foreign currency reserve it is holding onto a foreign nation's currency.
currency aka "cash"
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Re: Is Debt a Sympton of Financial Overshoot?
by LoneSnark » Tue 26 Feb 2008, 20:01:50
$this->bbcode_second_pass_quote('', 'y')es they can:
1) China sells $1.6 Trillion US bonds for cash.
2) China uses the cash to purchase assets: companies, land, commodities, etc...
That would be called "dumping" the US dollar.
1) China sells $1.6 Trillion US bonds for cash.
2) China uses the cash to purchase assets: companies, land, commodities, etc...
That would be called "dumping" the US dollar.
Cube, thank you. So many have not throught it through this far. Now, think it through to the next step. What happens when $1.6 trillion of US Bonds land on the market and it becomes clear the seller is desperate to sell. Their face value is $1.6 trillion, which is what they would pay if held through to maturity, which might be many years from now. But China is dumping them early onto secondary re-sell markets. Where are these markets going to get $1.6 trillion in cash on short notice? Not just that, but the surest way to lose your money is to proclaim to everyone that you are holding the bag and want out in a hurry. Inscrupulous bond traders will buy your bonds, but for a fraction of what they are really worth. And, whatever China decides to do with its dollars once it has them the price will shoot up. This is just how markets work: you cannot move anything around in a hurry without losing a lot of it, especially when it is $1.6 trillion and everyone is watching your every move trying to get their cut.
$this->bbcode_second_pass_quote('', ' ')By raiding future accumulations of wealth to finance current consumption, where will future investment capital come from?
Again: the future is the future, only the present is the present. You cannot raid future accumulations of wealth. All you can raid is what is currently being produced. In an economic sense, all you can do is stop directing production towards investments and instead direct it todays consumption goods. This will reduce future production, kind of like what you are talking about. But I see no hints that investment has stalled, so this tradeoff is not being made. Yes, U.S. household savings are just barely negative, but consumers savings is not a usual source of investment, almost all of which traditionally comes from corporate profits and savings (companies do our investment for us).
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