Musings #9
(3/05/11) from oftwominds.com
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Themes of this
Week's Musings
Longtime correspondent Ray W. recently
penned a
line that I have been pondering:
"It is axiomatic that failing systems work the
best just
before they fail catastrophically."
I have never seen this concept
before--but the
entire Global Financial Meltdown and Housing Bubble both seem
to support
it, for indeed, the financial system never worked better (in terms of
profits,
taxes paid and volume of business) than it did when it was churning out
toxic
mortgages and mortgage-backed derivatives by the boatload.
If this is axiomatic, then we are
forced to
wonder if the global energy complex is also working so well that its
proximity
to a precipice is effectively masked. A reader who worked in the
gasoline
distribution system (tanker trucks) as a dispatcher once wrote me that
the
gasoline distribution system was often on the edge of leaving gas
stations
without fuel. The very reliability of the system masks this
vulnerability to minor disruption to those of us on the
outside.
This other quote I came across seems to
speak to
the "other side" of the vulnerabilities in the current status
quo:
"We are continually faced with
a series of
great opportunities brilliantly disguised as insoluble
problems."
(John W. Gardner)
I was instantly struck by the truth of
this
statement, and its universality. That is, it applies equally well to
individuals, marriages, families, communities, enterprises and
governments. In many cases, we are stuck and unable to progress
until
reality convinces us that we are facing an insoluble dilemma or problem.
Only at
the point of accepting the futility of our Status Quo "solutions" can we
let go
of failed models, analogies and habits.
This ties in with my conclusion in
today's blog
entry: "Continuous failure doesn't draw attention; only sudden
failure
attracts a crowd. That's the U.S. Status Quo in a
nutshell."
This is also true of individuals--my
continual
low-grade failure doesn't attract my problem-solving attention, or even
my
recognition. It's only when failure is sudden and dramatic that it
breaks
through habit and our human tendency to habituation--getting used to the
status
quo.
Healthcare offers numerous quantifiable
"lines in
the sand" that act as "sudden realizations" of danger or failure.
To
recount an example from my own life: last September, a routine
cholesterol test
showed that I had stepped over the "line in the sand" for recommended
cholesterol levels: my reading was 206, above the 200 line in the
sand.
This "sudden failure" and my doctor's
recommendation of statin medications shook me from the "continuous
failure" I'd
habituated to. Rather than concede to the statins, I cleaned up my
diet,
ate less simple carbs and more of the good stuff--flax seed,
almonds, green
vegetables, oatmeal, apples, etc. and simply ate less while kicking my
exercise
regime up a notch.
As a result of these modest
modifications, I lost
10 pounds of flab and my cholesterol dropped 26 points to
180.
This is a small example of modest
changes which we
can pursue diligently, but usually only after being awakened to the fact
that
our status quo is failing us in a profound way.
It seems "obvious" that our Status Quo
systems are
also failing--our machinery of governance, our financial
system,
our energy system, our educational
system,
etc.--but they are failing in a continuous, steady-decline fashion
that
masks the true state of the Status Quo's unsustainability and
overlapping
vulnerabilities. Oil may offer the best example of a system perched on
the edge
of a disruption few seem willing to see as a distinct
possibility.
Item #1: Oil: the difference
between
exports and production
The level of complacency surrounding
global oil
supplies is truly remarkable. Just today in the Wall Street
Journal, their
"investing" columnist opined that it was foolish to buy more oil stocks,
because
once this kerfuffle in Libya blew over, then oil would quickly plummet
in
price.
Even more astonishing is the financial
media's
complete tone deafness to the possibility that air travel and air cargo
might be
especially vulnerable to price and supply dislocations. Instead,
we are
treated to breathless accounts of "new airport-centered cities" arising
around
the globe:
BusinessWeek published an article a few
months ago
claiming that there would be a shortage of pilots to crew the thousands
of
additional airliners that would be serving Asia in the coming
decade.
One wonders what fuel these thousands
of aircraft
will be consuming:
"There Are No Good Outcomes (for
oil)"
In the real world, a global shortfall
between
available supply and rising demand is already baked in:
The key point that many have made but
which has yet
to sink into the public awareness is the difference between oil
production and
exports. The U.S. is an oil producing nation: indeed, according to
the
Dept. of Energy's Energy Information Administration (EIA), the U.S.
still
produces about 9.1 million barrels of oil a day. But since we consume
18.8 MBD
then we export no significant amounts of oil. Nations such as Mexico,
Venezuela,
Egypt, Iran, etc. which have been exporting great quantities of oil have
experienced huge increases in population in the past 20 years.
Coupled
with generous subsidies for domestic use (gasoline costs less than a
dollar in
Iran and Venezuela, for example), their domestic consumption has
exploded higher
even as their reserves and daily production are declining.
That means there is less oil available
to
export.
This sets up a double-bind
dynamic: if these
nations trim domestic consumption and/or raise prices, they risk
domestic
political turmoil/overthrow. But if they let domestic consumption
eat into
their exports, then they lose the export revenues which they depend
on.
That is most certainly a great
opportunity
brilliantly disguised as an insoluble problem, not just
for the
exporting nations but also for the importing countries like the
U.S.
Unfortunately, it will probably take a
systemic
failure/collapse to get people to accept that their status quo habits
and
"solutions" no longer work and cannot work in the future.
Item #2: China's prosperity is
not widely
distributed.
Item #3: the economics of a
backyard
orchard
Longtime contributor Bart D. recently
submitted
this account of an "alternative investment" far from the muck and lies
of Wall
Street:
"A point of interest perhaps
for people
wanting to invest in the real world:
ROI (return on investment) for a back-yard Apricot
Tree in a
Californian type climate : (based on what I pay here in Australia
admittedly ...
but with dollar parity still relevant)
Tree purchase
$30
3 years
of irrigation to develop the tree $36 (I do it for free with re-used
shower/washing machine water)
3 years of fertilizer to develop the
tree
$15
3 years of protective chemical (copper) $3
Total
Establishment Cost $84
Current Annual cost of
maintenance
$21
Annual return this year 18kg of fruit @ $9 kg
retail price
$162 (a mature tree pruned to arm picking height will yield 30 to
40kg)
The 'profit' to our family is $141 this year from
this tree
... and our fruit tastes better as it is allowed to ripen on the tree
... and we
know exactly what chemicals etc. have been applied to our
food.
The
Lesson here : For a low income investor, growing some of your own food
gives
substantially more return on investment than a purely 'financial'
investment of
any kind."
Thank you, Bart, for detailing what an investment in ourselves and
our own
land (however small it might be in area) returns for a very modest
investment of
cash.
Quote of the
week:
A stubborn person sails in a clay boat.
(Haya
Proverb)
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Thanks for reading--
charles hugh
smith
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