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Stability begets instability: The challenges of the post-2008 world

Stability begets instability: The challenges of the post-2008 world

Most people value stability in their lives. And, this makes perfect sense. Stability usually means an adequate, secure income; an established group of friends and family members with whom we are close; an identity in our communities based on our jobs, community involvement, and personal networks; physical safety in our daily lives, that is, no war or extreme violence where we live; and relative psychological calm that reflects that stability.

But humans value other things such as variety and novelty. In short, we can get bored. And, in order to address our boredom, we must actually seek out instability in our lives. We proceed to upset the very stability which we believe makes us comfortable and safe by engaging in activities that subject us to physical, financial and emotional risk such as sports, gambling or new relationships.

There is, of course, the disruption of our routine that comes from external events, from things that we do not necessarily choose: the loss of a job, a divorce, the death of a loved one, or injury due to accident. External events can also be positive: an unsolicited job offer, an unexpected romance, or the miraculous recovery of a loved one.

As it is with individuals, so it is with nations and complex social systems such as corporations and markets which reflect these same seemingly contradictory desires for stability, but also variety and novelty. It seems the social mood cannot go long without experiencing some interesting disruption: a war, an economic boom or a bust, a change of political parties, a change in fashion, a disruptive technology.

As moderns we are taught that constant change is good and a sign of progress. It should not seem strange that all this change can undermine our personal stability.

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Counterintuitive: (Some) volatility is good for you, stability not so much

Counterintuitive: (Some) volatility is good for you, stability not so much

With stock markets around the world plunging and commodity prices in free fall, it seems appropriate to return to a theme which I’ve taken up previously: That a certain amount of volatility is good for humans and the systems they build, and that attempts to stifle the natural and healthy volatility of a system can lead to greater and even catastrophic volatility in the end.

All of this runs counter to the propaganda with which we are regaled on a daily basis. For example, investors are told that the lower the volatility of their portfolios, the lower the risk. But, in 2008 that turned out not to be true. More recently, as volatility in the widely watched S&P 500 settled down to historic lows this year, investors believed that the magic of low volatility was here to stay. Central banks–through their periodic interventions when markets began to fall–had somehow engineered a no-lose situation for investors. It was going to be clear sailing ahead for…well, forever if you listen to Wall Street.

The history of volatility in markets and in life suggests that high volatility lies just around the bend after a prolonged period of low volatility. It is impossible to say what would trigger the kind of crash we saw in 2008. For now, the Chinese stock market crash and recent negative economic news in China and the United States have unnerved many investors. The Chinese stock market is now more than halfway to a 2008-style meltdown. Stocks in Europe and the United States have finally started to fall in earnest after holding up and even advancing in the face ofmajor declines in emerging markets such as Brazil, Indonesia, Malaysia, and Turkey. Money rushed from the emerging markets to major developed economies looking for–you guessed it–stability.

 

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What’s Scarce Geopolitically: Stability, Ways to Get Ahead and Innovation

What’s Scarce Geopolitically: Stability, Ways to Get Ahead and Innovation

Conserving what is failing is not a path to stability.

What’s in demand but scarce is valuable. This is one of those scale-invariant principles: businesses large and small want what’s scarce and in demand, because that’s what generates profits.

What’s abundant but not in demand is cheap. What’s scarce but not in demand is ignored. Capital, talent and profits flow to whatever is scarce and valued as an engine of wealth creation.

Geopolitically speaking, tangible assets have self-evident value: seas between your borders and potential enemies, a wealth of natural resources, and so on. But equally important are intangible assets: the human, social and symbolic capital of the people, culture and institutions of the nation.

What seems scarce in the world is not just a specific tangible asset or intangible form of capital, but a mix that provides stability, ways for average citizens to get ahead and fosters innovations that can quickly spread through the society and economy.

We could say engines of wealth creation are scarce, but if the wealth isn’t distributed somewhat broadly, or the source of the wealth is not innovation but extraction of resources, any stability is temporary or illusory: resources run out, and wealth inequality fuels social and political instability.

What’s exceptional is a mix of assets and attributes that yield the stability needed for for people to get ahead, a playing field that’s level enough for people to get ahead, and a culture of innovation, because ultimately only innovation increases productivity, and increasing productivity is the only sustainable source of wealth.

For example, cheap energy is a gift to its owners and consumers; but eventually cheap energy is consumed and what’s left becomes expensive. Innovation is needed to extract more work from the remaining energy.

 

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Plenty of trouble: Feeding a climate changed world after peak oil

Plenty of trouble: Feeding a climate changed world after peak oil

Nothing is more precious than balance, stability, and sustainability. Today, we’re hanging by our fingernails to a skyrocket of intense insane change, and it’s the only way of life we’ve ever known.  Joel Bourne has spent his life riding the rocket.  He grew up on a farm, and studied agronomy at college. But sharp changes were causing many farmers to go bankrupt and taking over the family farm would have been extremely risky, so he became a writer for farm magazines.  Later, he was hired by National Geographic, where he has spent most of his career.

In 2008, he was assigned to cover the global food crisis, and this project hurled him into full awareness of the big picture.  The Green Revolution caused food production to skyrocket, and world population doubled in just 40 years.  Then, the revolution fizzled out, whilst population continued to soar.  Demographers have told us to expect another two or three billion for dinner in 2050.  Obviously, this had the makings of an excellent book, so Bourne sat down and wrote The End of Plenty.

The subtitle of his book is “The Race to Feed a Crowded World,” not “The Race to Tackle Overpopulation.”  A growing population thrills the greed community, and a diminishing herd does not. Overpopulation is a problem that can be solved, and will be, either by enlightened self-restraint, by compulsory restraint, or, most likely, by the vigorous housekeeping of Big Mama Nature.  Feeding the current population is thrashing the planet, and feeding even more will worsen everything, but this is our primary objective.  We are, after all, civilized people, and enlightened self-restraint is for primitive savages who live sustainably in roadless paradises.

– See more at: http://transitionvoice.com/2015/06/plenty-of-trouble-feeding-a-climate-changed-world-after-peak-oil/#sthash.8vamboU4.dpuf

 

QE Breeds Instability

QE Breeds Instability

Central bankers have promised ad nauseum to keep rates low for long periods of time. And they have delivered. Their claim is that this helps the economy recover, but that is just a silly idea.

What it does do is help create the illusion of a recovering economy. But that is mostly achieved by making price discovery impossible, not by increasing productivity or wages or innovation or anything like that. What we have is the financial system posing as the economy. And a vast majority of people falling for that sleight of hand.

Now the central bankers come face to face with Hyman Minsky’s credo that ‘Stability Breeds Instability’. Ultra low rates (ZIRP) are not a natural phenomenon, and that must of necessity mean that they distort economies in ways that are inherently unpredictable. For central bankers, investors, politicians, everyone.

That is the essence of what is being consistently denied, all the time. That is why QE policies, certainly in the theater they’re presently being executed in, will always fail. That is why they should never have been considered to begin with. The entire premise is false.

Ultra low rates are today starting to bite central bankers in the ass. The illusion of control is not the same as control. But Mario and Janet and Haruhiko, like their predecessors before them, are way past even contemplating the limits of their powers. They think pulling levers and and turning switches is enough to make economies do what they want.

Nobody talks anymore about how guys like Bernanke stated when the crisis truly hit that they were entering ‘uncharted territory’. That’s intriguing, if only because they’re way deeper into that territory now than they were back then. Presumably, that may have something to do with the perception that there actually is a recovery ongoing.

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4 Factors Signaling Volatility Will Return With A Vengeance

4 Factors Signaling Volatility Will Return With A Vengeance

Buckle up. It’s going to get bumpy.

No one could have predicted the sheer scope of global monetary policy bolstering the private banking and trading system. Yet, here we were – ensconced in the seventh year of capital markets being buoyed by coordinated government and central bank strategies. It’s Keynesianism for Wall Street. The unprecedented nature of this international effort has provided an illusion of stability, albeit reliant on artificial stimulus to the private sector in the form of cheap money, tempered currency rates (except the dollar – so far) and multi-trillion dollar bond buying programs. It is the most expensive, blatant aid for major financial players ever conceived and executed. But the facade is fading. Even those sustaining this madness, like the IMF, are issuing warnings about increasing volatility.

We are repeatedly told these tactics benefit broader populations and economies. Yet by design, they encourage hoarding, or more crafty speculative behavior, on the part of big financial firms (in the guise of obeying slightly adjusted capital rules) and their corporate clients (that largely use cheap funds to buy their own stock.) While politicians, central banks and multinational government-funded entities opine on “remaining” structural weaknesses of certain individual countries, they congratulate themselves on having staved off more acute crises.  All without exhibiting the slightest bit of irony.

When cheap funds stop flowing, and “hot” money shifts its attentions, as it invariably and inevitably does, volatility escalates as it is doing now. This usually signals a downturn, but not before nail-biting ups and downs in the process.

These four risk factors individually, or collectively, drive rapid price fluctuations. Individually, they fuel market volatility. Concurrently, they can wreak far greater havoc:

  1. Central Bank Policies
  2. Credit Default Risk
  3. Geo-Political Maneuvering
  4. Financial Industry Manipulation And Crime

 

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Olduvai IV: Courage
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Olduvai II: Exodus
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