Exponential Growth Cannot Last
To make this more vivid and memorable, imagine the following as an animated cartoon. For the first 99 hours the bacteria are just partying and congratulating themselves on how smart and successful they are. It’s party hats and noisemakers, Conga lines and champagne, the bacterial Dow Jones going through the roof. Woo hoo! No limits! After 99 hours, some of the bacteria start to worry, but the rest party on — after all, the dish is only half full. Plenty of room left, plenty of nutrients. The first half lasted 99 hours, and there's another whole half to go! Sure, somebody’s gonna have to figure something out eventually, but meanwhile life is good, and nonstop growth will only make it better! An hour later — the world ends.
When growth is exponential, limits are sudden.
January 5, 2009
2009: China's Year of Rising Opportunities, and Challenges
There is no doubt that China's growth is speeding up.
I don't know about you, but I have had and continue to have some serious doubts. Using hindsight, it was one of my better pre-crash heckles.
November 6, 2007
Savvy Chinese Know Exactly When Bubble Will Burst!
I'd also like to point out that much of our manufacturing base is apparently in China these days. Therefore, if manufacturing plummets, it isn't even our problem. It is their problem. Hurray!
January 5, 2009
A darker view of the Chinese economic 'miracle'
Huang marshals a vast array of statistics to buttress his claim that the welfare of ordinary Chinese did not keep pace with economic growth under the state-directed capitalism of the 1990s.
What an amazing coincidence that is. The ordinary American did not keep up with economic growth under our state-directed capitalism of the 2000s. The ordinary American did not keep up with economic growth heading into the Great Depression either.
But hey, what do I know? I'm just one scared bacterium in the petri dish. I sold my party hat in 2004 and used some of the proceeds to buy the relative safety of extra toilet paper. Call me a believer in the darker view.
I'm still an optimist though! I think I can even prove it. Things are much worse than I thought they would be. I had unrealistic expectations that things would only be very bad. If I had known for sure that things would have turned out THIS bad, I would have made money shorting the entire US Banking System. I also would have sold my house at the peak and become a renter. I just wasn't THAT sure. Hindsight sure is 20/20 though.
Now let's talk of the recovery under a system in which exponential growth must eventually fail.
January 5, 2009
China Accelerates Filling Up Its Oil Reserves
On Friday, the U.S. Department of Energy said that amid low oil prices, it aims to fill the country's Strategic Petroleum Reserve to capacity this year.
It makes me think of a locust eyeing that last piece of food. That leaves me with two predictions for 2009.
1. IF we have a strong global recovery AND we can somehow miraculously get a billion Chinese to start driving cars in the name of apparently much needed continued exponential growth, THEN I would expect to see a much, much higher price of oil.
2. IF unemployment continues to rise thanks to our amazing ability to automate and outsource our jobs to the poorest nations on earth, THEN I would NOT expect to see a much, much higher price of oil.
Hey, what more do you want from me? You already know I'm not a big risk taker. I'm sticking with the sure things! In either event, toilet paper still seems like a decent investment. D'oh! ;)
This post inspired by a comment MAB left for me.
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9 comments:
Stag,
When growth is exponential, limits are sudden.
http://research.stlouisfed.org/fred2/series/CMDEBT
The above graph shows a sudden stop in household debt growth.
I tend to think the American consumer has reached super saturation in terms of debt. But who knows for sure? Maybe the fed can lower the aggregate interest rate on the debt and keep the game going a while longer.
Regardless, I don't believe the next twelve years will create actual output above and beyond all previous output. And I sure hope we don't create $60 trillion in credit for the sake of it (the sacred 6% nominal growth over the next 12 years).
There is just something about a vertical money curve that my mind won't accept.
One more thought. What if.... No. It's too scary.
The graph reminds me to call this the "parabolic decade", hard to find a commodity or asset class that hasn't exhibited parabolic behavior during our bubble years.
Parabolic debt how American.
mab,
One more thought. What if.... No. It's too scary.
Oh oh. I've seen this behavior before. Once you realize what is REALLY going on that's when the black helicopters come for...
*gunshots*
Um, what I mean to say is that's when the black helicopters come to drop freshly printed money. Yeah, that's what they do. What was I thinking? Sounds like a really good idea! Never meant to imply any differently. There's nothing more to see here. Please disperse.
lineup32,
The graph reminds me to call this the "parabolic decade", hard to find a commodity or asset class that hasn't exhibited parabolic behavior during our bubble years.
Toilet paper! Let's hope it stays that way. None of us wants to see parabolic toilet paper prices. Well, most of us don't anyway. Hmm, maybe only some of us don't. Surely there must be someone other than me who doesn't want to see a toilet paper bubble, right?
Those heavily in debt are rooting for a toilet paper bubble of course (as long as wages also rise massively and they can somehow keep their jobs during a hyperinflation). Can you imagine owing a million dollars but getting paid one billion dollars an hour flipping burgers? Some can and imagine it frequently no doubt. Sigh.
Hey StagMark is back! Woo hoo! I used to click on my Illusion of Prosperity shortcut every day hoping you'd reconsider, and just as I doubted you and almost gave up, you reappear!
Always of fan of yours on Calculated Risk, and a fellow pacific northwesterner... keep it up, we're only in the, what, 4th inning?
In Britain in the 70s toilet paper (= loo rolls) did have a period of short supply. So did sugar. Come to that, so did electricity. And this time it's all going to be much worse. Still, let a thousand Chinas bloom.
Stag,
http://www.atimes.com/atimes/Global_Economy/KA06Dj04.html
Yeah, Bernanke is competent.
Keynesianism is a con for the benefit of finance and goverment spending.
Bellinghamster,
...and just as I doubted you and almost gave up, you reappear!
I was stuck in the hamster tubing, but I'm okay now. ;)
dearieme,
Still, let a thousand Chinas bloom.
If one China makes me cringe, I think it is safe to say I'm now kilocringing.
mab,
Fed monetary policy created false prosperity with excess money supply to fund debt manipulation and simultaneously to support income disparity as a source for capital formation to exacerbate overcapacity amid demand weakness.
Illusory economic growth
Thus far in this financial crisis, the Bernanke Fed has sown the seeds not for a quick recovery but for a decade or more of stagflation for the US and the global economy.
Good grief! I resemble these comments!
Stag,
This fund is quite large and has a good 10 year track record.
http://cxa.marketwatch.com/finra/MutualFundCenter/Snapshot.aspx?symb=VEIEX
So you would figure that investors have made money. Not so on a weighted basis. The early investors have done fine assuming they didn't keep adding money every year. The newer investors have been hammered.
The fund was small up until 3 years ago. And, as is always the case, once the majority pile in, poor returns or even big losses become extremely likely.
I spent some time reviewing the returns of thousands of mutual funds on FINRA's site. In general, the returns have been stunningly bad.
Average is not average.
MAB,
The fund was small up until 3 years ago. And, as is always the case, once the majority pile in, poor returns or even big losses become extremely likely.
Pile in? Pile up? It's all the same in the end.
http://bohemica.com/czechupdate/2008/mar/3037
From the link within...
Helicopters assisted on the spot...
No doubt. We can always count on the helicopters.
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