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Thursday, June 19, 2008

That Tinkling Sound You Hear

Is the sound of a million price chains breaking. Well, maybe you are deaf, so let me describe the scene.

Imagine a diaphanous network of chains composed of glass and rubber links stretched like a huge, disorderly spiderweb across the globe. That is global trade. The rubber links in the chains can stretch to a certain point, but after that point the pressure is shifted to the glass links, and they begin to snap.

I have never seen anything like this. At these fuel prices, it becomes uneconomic to ship a bunch of products. What is Hawaii going to do? I have no clue!

Like the first snow of fall, shards of glass are drifting downward almost unnoticed. They will accumulate rapidly, and abruptly overages and shortages of products will appear. There will be sharp increases in the prices of some materials, as enterprises drop out after prices plummet unpredictably for a time.

The result is a massive overcapacity of production in some areas, and the need to expand capacity in others. But that is globally speaking, inefficient, and it sucks up capital. Many of the highly leveraged companies are now in deep trouble, which will show up on the spreadsheets of the financials relatively quickly. The cost of paying for budget deficits is rising sharply for many Asian countries (see Indonesia, for example), even while growth is slowing substantially.

The thing to stay away from is corporate debt unless they are bonds from a very strong company with very low leverage. Banks continue to be a no-no. The best sectors are fundamental ones that have already sold off, like some groceries.

Fund investing is awesomely dangerous at this time.

Update: And China makes its move.

Comments:
I wonder if we will see a return of the clipper ships?
 
Fred: Yes - the SkySail
 
SkySail looks pretty good for adapting current petro-based ships.

But new ones might VERY well be planned to be from-the-ground-up versions of the clipper.

It sure would make economic sense so long as sufficient controls can be automated (I am sure they can be) to avoid the need for large crews.
 
I wonder what happens if those things get tangled up in the sky?

This was incredible fun.
 
And here I always thought that Hawaii had a great climate and could grow all sorts of fruits and vegetables. Maybe they might want to think about a return to agriculture. In fact, I think a lot of places might want to think about a return to small local farmers. I read some article promoting the demise of suburbia, saying that young people prefer to live in cities where everything is in walking distance. They predicted that the suburbs would turn into low income housing. It just might make more sense to turn that land back into small farms to provide food for those cities.

In the meantime, it's going to be increasingly frustrating to deal with the constant change as we move towards whatever brave new world we are headed towards.
 
Teri - it's awfully expensive to demolish, unpave, and retopsoil a suburb. Takes a lot of diesel (to run the heavy equipment) too, at a time when energy prices are more expensive, not less. I could see some greenhouse or truck farming, perhaps, but you don't want to know how expensive food would have to be to make restoration economically feasible.
 
Suburban vegetable gardens, on the other hand, could well be significantly expanded. Remember Victory Gardens. On our 0.05 acres! we are growing peppers and herbs again this year and we have added a small experimental pea patch near the rainspout. One day I suspect our HOA will complain about us gardening in our front yard. But maybe not because our neighbors do much weirder things.
 
Joy, that sounds like some HOA!

Can gardens really be considered a pox upon the neighborhood?

Regarding the suburbs, I recently saw some story or another about people farming in the suburbs by using lawns - theirs and others. If I remember correctly, one couple had made a business of it. It worked sort of like a co-op - people allowed them to plow up their lawns in exchange for a share of the crops, and others would pay a yearly fee for a share of the veggies.
 
I think that this is what you're talking about, MoM: http://www.communityrootsboulder.com/gardens.html

I believe the lead gardener (Kipp Nash) was featured in some newspaper stories.

Dan
 
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