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Egypt’s Warning: Are You Listening?

February 10, 2011 Leave a comment

Submitted by Chris Martenson

Egypt’s Warning: Are You Listening?

One day, a fruit and vegetable seller was arrested in Tunisia, sparking social unrest, and a few weeks later the government of Egypt was set to topple.

Such is the nature of complex, chaotic, and unpredictable systems. The stresses build for years and years, and nothing really seems to be happening, but then everything suddenly changes. Egypt is therefore emblematic of what we might expect in any complex system in which pressures are building, such as the US Treasury market.

Can events in complex systems ever be predicted? No…and yes. No, because the precise timing and details can never be predicted. Yes, because we can be certain that anything that is unsustainable will someday cease to continue and things that are horribly imbalanced will someday topple. We can also be certain that the change, when it comes, will be rather sudden and abrupt, rather than gentle and linear.

That is, we can easily predict that a complex system will shift, and that it will probably do so rapidly, but not exactly when or by how much.

How unbalanced was Egypt? Very.

Here are a few quite relevant statistics about Egypt (hat tip to an email from reader Mark O., with credit to Dr. John Coulter) to which I have added a few items:

The relentless math:

Population 1960:  27.8 million
Population 2008:  81.7 million
Current population growth rate: 2% per annum (a 35-year doubling rate)
Population in 2046 after another doubling:  164 million

Rainfall average over whole country:  ~ 2 inches per year
Highest rainfall region:  Alexandria, 7.9 inches per year
Arable land (almost entirely in the Nile Valley):  3%
Arable land per capita:  0.04 Ha (400 m2)
Arable land per capita in 2043: 0.02 Ha
Food imports: 40% of requirements
Grain imports: 60% of requirements

Net oil exports: Began falling in 1997, went negative in 2007
Oil production peaked in 1996
Cost of oil rising steeply
Cost of oil and food tightly linked

The future of Egypt will be shaped by these few biophysical facts — a relentless form of math that is hardly unique to Egypt, by the way — and it matters very little who is in power. Given the choice, I would not want to live there, nor in any other country that has fostered or permitted such reckless population growth beyond what the country itself can sustain.

The interesting part is that these facts have been in plain view for decades, building into economic and social pressures that were suddenly unleashed in a wave of social and political unrest. How was it that such obvious things escaped notice for so long before they suddenly reared up into plain view? Instead of being a surprising exception to the rule, we should instead brace ourselves against the idea that this is just the way things tend to work.

Back to the main story. Without persistent (and rising) food imports, Egypt cannot feed itself. It has managed to cover up the shortfall by having enough oil to export, but, like every country, their oil reserves are finite and eventually they’ll face a day of reckoning.

The oil situation in Egypt has only very recently become an enormous and unavoidable issue.

The monthly peak occurred in December 1996 (the yearly peak was also 1996), and oil production is now down some 30 percent since then.

While it’s good to have plenty of production, what really matters to a nation that imports so much of its basic living items are exports.

Of course, there are two things that typically chew on a nation’s oil exports: falling production and rising internal consumption. With both of these dynamics in play, Egypt’s exports have been getting mauled, not by one, but by two exponential functions:

(Source – EIA)

The green circle marks the date when Egypt hit its peak of petroleum production in 1996, and the blue circle and arrow marks when exports had fallen by 50%, just six years after peak production.

The gap between those two events, six years, is a very short amount of time to adjust to the new reality — too short, as it turns out. Such is the nature of a double exponential working against you.

[Note:  For the energy purists, this chart from the Energy Information Agency (EIA) misrepresents things somewhat. Egypt’s domestic oil consumption and production are virtually identical right now, but Egypt has the largest oil refining sector in Africa, which skews their petroleum imports to the negative side. But whether Egypt became a new petroleum importer this year or in 2007 is essentially a historical blink, and the story told by the trajectory of the chart is little changed by small matters of timing.]

Any country that has to import both oil and food is living on borrowed time. It was only a matter of time before something gave way, and apparently that time is now.

Hillary Clinton actually spoke something approximating the truth about this fact recently, although she was referring to the entire region, but nonetheless, it was an unusual moment of clarity for the US political structure:

Hillary Clinton: Middle East facing ‘perfect storm’

US Secretary of State Hillary Clinton has said the Middle East is facing a “perfect storm” of unrest and nations must embrace democratic change.

Speaking in Munich, Mrs Clinton said the status quo in the region was “simply not sustainable”. “The region is being battered by a perfect storm of powerful trends.

“This is what has driven demonstrators into the streets of Tunis, Cairo, and cities throughout the region. The status quo is simply not sustainable.”

She said that with water shortages and oil running out, governments may be able to hold back the tide of change for a short while but not for long.

Water shortages and oil running out? I’d decode those ideas for you, but they speak for themselves. Food and fuel are running out. The irony here is that she may as well have been speaking about the United States, Japan, or any number of countries across the globe, but any admission of biophysical limits is a good start, I suppose.

Editorially, it’s not at all clear to me how the poorly defined concept of ‘democratic change’ will really change the equation much, as limits are immune to which ‘ism’ you happen to be running, but I am sure there are some in Washington DC who think ideology can trump reality. Regardless, I am somewhat surprised to see such obvious truths about water and oil being spoken by a senior US representative; it was unclear to me that anyone at that level had any awareness of these subjects at all.

My intent here is not to point out the future difficulties that Egypt faces, no matter who is charge, but to use the change that happened there as emblematic of what we might expect elsewhere, especially in the financial markets.

Egypt simply reminds us that anything that is unsustainable will someday change. It is an emblem for the world.

With abundant energy and food, we are treated to expansive and stable economies in which everyone stands a chance of gaining. Not that everyone will, mind you, but the possibility is there  In an energy-constrained world, what was formerly possible is no longer do-able, things don’t work right, and there seem to be persistent shortages of everything from growth, to money, to food, to goodwill. What used to work doesn’t. It is at these points that the prior stresses and imbalances are most likely to snap and suddenly change the world.

These are the very sorts of changes that are coming to the rest of the world. Perhaps to a country or financial market near you. Are you ready?

In Part II of this report, our just-released Guide to Navigating the Coming Crisis, we analyze how the same systemic breakages in Egypt will likely manifest in the United States (and other countries). Also, for the first time ever, we have summarized the entire ‘method’ by which we make sense of the world. This method has allowed us to both grow our wealth and sleep better at night. Yes, there are troubling events afoot in the world, but an accurate diagnosis goes a very long way towards relieving the stresses that can cloud good decision-making and narrow one’s field of view. We not only give you the information you need; we give you our best tools so that you can fashion them into the right actions that make sense for you.

Click here to read the Guide to Navigating the Coming Crisis (free executive summary; enrollment required for full access).

Categories: Uncategorized

Major Danish Bank Failure

February 10, 2011 Leave a comment

Crisis and rogue waves never come from the direction and area you expect. They always comes from the fringe catching everyone off guard. While the equity and bond markets have been focused on problems with the PIIGS, Amagerbanken, a Danish bank, failed yesterday. One of the top 10 largest Danish banks, Amagerbanken had equity capital of 2.441 billion Danish Krona (approx. $440 million) as of September 30, but 4th quarter write downs wiped out the bank’s capital and forced the Danish government to seize Amagerbanken under the new European rules implemented in October of 2010.

The importance of this action is that under the new rules, which protect taxpayers in the event of a bank bailout, bondholders will face haircuts currently estimated at 41%. Depositors who hold deposits in excess of the Danish guarantee of DKK 750,000 will see those deposits become claims in bankruptcy court. As of the 3rd quarter, Amagerbanken was thought to be a healthy Danish bank that had already recognized real estate losses. If the true extent of losses is in fact much greater, then what does this say about other Danish and European banks?

The ramifications for the price of gold are enormous. For the approximately 700 Amagerbanken depositors who now become creditors and will inevitably seek legal action to try to recoup their deposits above the guarantee, how many will now seek out the safety of gold in this time of stress and uncertainty? The market ignored this news on Monday but one can be sure that this is not the only problem bank in Europe and European investors will once again turn their eyes towards gold.

Since the beginning of the year gold has been in a pullback, consolidating last year’s gains, and the daily and weekly technical indicators are beginning to turn positive. Investors would be well advised to add to their holdings on any additional pullbacks to the $1300 level and prepare themselves for a rally on increased uncertainty in the banking sector worldwide.

 

This bank passed the stress test in Europe at the end of last year,  I guess the banks in Europe are not as healthy as originally thought.  Also for the first time senior bond holders are going to take a haircut as will large depositors. Also credit default swaps are triggered by the default.  This is not good for Europe.

end

Categories: Uncategorized

A Picture Worth A Thousand Words

January 19, 2011 Leave a comment

This chart depicts the current condition of the concentrated short position for every applicable physical world commodity, in terms of days world production, from data published by the CFTC. (Chart courtesy of sharelynx.net)

There is no legitimate economic reason why silver would have such a large concentrated short position, when compared to every other physical commodity. I conclude that the abberation in silver (and, to a lesser extent, gold) can only be explained by manipulation. This is the point that the CFTC and the NYMEX continue to evade.

So – the price of Silver and gold is being fixed. How long can it be before it breaks free?


James Turk: Gold 8000, Hyperinflation sure, Prohibition possible

January 19, 2011 Leave a comment
Categories: Uncategorized

The game is going to run out…

January 16, 2011 Leave a comment

Gerard Celente’s chilling predictions for 2011

“If Nostradamus were alive today, he’d have a hard time keeping up with Gerald Celente.” – New York Post

“When CNN wants to know about the Top Trends, we ask Gerald Celente.” – CNN Headline News

“There’s not a better trend forecaster than Gerald Celente.  The man knows what he’s talking about.” – CNBC

“Those who take their predictions seriously … consider Gerald Celente and the Trends Research Institute.” – The Wall Street Journal


FOR THOSE WHO HAVE INTERESTS OVERSEAS, EITHER IN TERMS OF INVESTMENTS OR FOLKS LIVING OVERSEAS JUST READ FOR INFORMATIVE KNOWLEDGE.  DON’T BE ALARMED BY THE PREDICTIONS.  JUST BE MORE
ALERT AND CAREFUL.


The man who predicted the 1987 stock market crash and the fall of the Soviet Union is now forecasting a revolution in America, food riots and tax rebellions – all within four years, while cautioning that putting food on the table will be a more pressing concern than buying Christmas gifts by 2012.

Gerald Celente, the CEO of Trends Research Institute, is renowned for his accuracy in predicting future world and economic events, which will send a chill down your spine considering what he told Fox News this week.

Celente says that by 2012 America will become an underdeveloped nation, that there will be a revolution marked by food riots; squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.

“We’re going to see the end of the retail Christmas… we’re going to see a fundamental shift take place… putting food on the table is going to be more important than putting gifts under the Christmas tree,” said Celente, adding that the situation would be “worse than the great depression.”

“America’s going to go through a transition the likes of which no one is prepared for,” said Celente, noting that people’s refusal to acknowledge that America was even in a recession highlights how big a problem denial is in being ready for the true scale of the crisis.

Celente, who successfully predicted the 1997 Asian Currency Crisis, the sub prime mortgage collapse and the massive devaluation of the U.S. dollar, told UPI in November last year that the following year would be known as “The Panic of 2008,” adding that “giants (would) tumble to their deaths,” which is exactly what we have witnessed with the collapse of Lehman Brothers, Bear Stearns and others.

He also said that the dollar would eventually be devalued by as much as 90 percent. The consequence of what we have seen unfold this year would lead to a lowering in living standards, Celente predicted a year ago, which is also being borne out by plummeting retail sales figures.

The prospect of revolution was a concept echoed by a British Ministry of Defense report last year, which predicted that within 30 years, the growing gap between the super rich and the middle class, along with an urban underclass threatening social order would mean, “The world’s middle classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest,” and that, “The middle classes could become a revolutionary class.”

In a separate recent interview, Celente went further on the subject of revolution in America. “There will be a revolution in this country,” he said. “It ‘ s not going to come yet, but it ‘ s going to come down the line and we ‘ re going to see a third party and this was the catalyst for it: the takeover of Washington, D.C., in broad daylight by Wall Street in this bloodless coup. And it will happen as conditions continue to worsen.”

“The first thing to do is organize with tax revolts. That’s going to be the big one because people can’t afford to pay more school tax, property tax, any kind of tax. You’re going to start seeing those kinds of protests start to develop.”

“It’s going to be very bleak.  Very sad.  And there is going to be a lot of homeless, the likes of which we have never seen before. Tent cities are already sprouting up around the country and we’re going to see many more.”

“We’re going to start seeing huge areas of vacant real estate and squatters living in them as well. It’s going to be a picture the likes of which Americans are not going to be used to.  It’s going to come as a shock and with it, there’s going to be a lot of crime.  And the crime is going to be a lot worse than it was before because in the last 1929 Depression, people’s minds weren’t wrecked on all these modern drugs, over-the-counter drugs, or crystal meth or whatever it might be.  So, you have a huge underclass of very desperate people with their minds chemically blown beyond anybody’s comprehension.”
So there you have it – hardly a nut job conspiracy theorist blowhard now is he?  The price of not heeding his warnings will be far greater than the cost of preparing for the future now.

 

Categories: Uncategorized

A Global Album Of Sovereign Insolvency

January 14, 2011 Leave a comment

John Williams Eyes Gold as Insurance Against Hyper Inflation Armageddon

January 14, 2011 Leave a comment

Categories: Uncategorized