Sigh… you know, when the guys who used to look sort of bad start to talk like this about the new people in charge, you know the situation is getting pretty damned serious…

“The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices,” [Paul] Volcker [Fed chairman from 1979 to 1987] said in a speech to the Economic Club of New York.
[…]
Volcker said the modern financial system has “failed the test” of the marketplace. When asked whether he predicts a “dollar crisis,” he said, “you don’t have to predict it, you’re in it.”
bloomberg

What else is there to really say? Today was a bad day for the US and global economy in general. To put it mildly.

On the bright side, Washington Mutual got bailed out by a group of investors, cheating death, but only at the cost of screwing over their current stockholders, by diluting WaMu shares by about 30%, but personally, I don’t care what happens to any investors at all, investment never had any business in the hands of beginners, and opening up that pit just guaranteed the outcome we see today.

“While diluting returns to existing shareholders, the capital raise would significantly strengthen WaMu’s capital ratios and could prevent further downgrades on its debt to below investment grade”.
[…]
“When a firm has to double its shares outstanding and yet still be under credit-quality pressure, it’s not a particularly comforting move”
bloomberg

But that’s only the beginning of the bad news today.

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Check this one out, you hear about CO2 all the time, but since you can’t see or smell it, it’s kind of hard to visualize. This model, called Project Vulcan, really is worth a thousand words, but here’s the basic outline for Project Vulcan anyway:

The Vulcan Project is a NASA/DOE funded effort under the North American Carbon Program (NACP)to quantify North American fossil fuel carbon dioxide (CO2) emissions at space and time scales much finer than has been achieved in the past. The purpose is to aid in quantification of the North American carbon budget, to support inverse estimation of carbon sources and sinks, and to support the demands posed by the launch of the Orbital Carbon Observatory (OCO)scheduled for 2008/2009. The detail and scope of the Vulcan CO2 inventory has also made it a valuable tool for policymakers, demographers and social scientists.

Here’s a decent article about the project:

The maps and system, called Vulcan, show CO2 emissions at more than 100 times more detail than was available before. Until now, data on carbon dioxide emissions were reported, in the best cases, monthly at the level of an entire state, according to the university. The Vulcan model examines CO2 emissions at local levels on an hourly basis.

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If you are interested in starting to understand why the so called free market ideologues have almost no ground to stand on, read this great recent history of financial industry de-regulation. I found this one on theAutomaticEarth.com, which is doing a consistently high quality job tracking this finance stuff.

I’m not going to quote it at length, just a few choice pieces:

In 1980 the US had 4,600 thrifts, by 1988 mergers and bankruptcies left 3000. By the mid 1990’s less than 2000 survived.
[…]
Meanwhile, just a few years before the S&L crisis culminated in a massive U.S. taxpayer bailout, the deregulators, undeterred, had set their sight on a far bigger prize, the elimination of barriers between investment banks and commercial banks, as represented by the Glass-Steagall act, which was put in place as a response to the stock market crash of 1929 and the ensuing Great Depression.
[…]
Fresh off of this “victory”, incredulously, the man who was charged with being the banking systems chief regulator, Fed Chairman Alan Greenspan continued to lead the charge towards a completely unregulated financial system as he turned his sites towards championing the growth of unregulated derivatives.

And that takes us up to today.

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Any doubts I had about just how serious the issues facing us actually are were dissipated today in a series of new articles.

The first is from Business Week. In general, while I will use left leaning resources, I now prefer to find most stuff in the mainstream, because that shows much more clearly where awareness actually lies. It’s pretty much a given that left analysis tends to be far ahead of the times.

Rising populations. Skyrocketing commodity prices. Strains on natural resources. Is this our Malthusian moment?
[….]
The rise of the frontier economies is putting too great a strain on natural resources. The price increases we’re witnessing aren’t a temporary market dislocation, but a permanent shift into an Age of Scarcity.

Could the pessimists be right?

They have some evidence in their corner. Certainly, despite some recent declines, commodity prices are at nosebleed heights. The Rogers International Commodities Index, made up of 36 different commodities ranging from agriculture to energy to metals, is up 383% over the past 10 years. Oil prices have jumped from $23 a barrel in 2003 to around $100 currently. Part of that oil price hike could also reflect that the world is near “peak oil,” the term used to define the transformative moment when global oil production starts declining gradually over time.

Just as central, in my opinion, are these articles in Scientific American, The Economist Has No Clothes, and Brother, Can You Spare Me a Planet? (full version).

The strategy the [19th century] economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline.

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Well, after 1 year or so of heavy biofuel frenzy, the results are coming in pretty fast. Note that all of these shortages and problems have multiple causes, but the fact is, like a freeway travelling at capacity, any event, no matter how apparently trivial, pushes the freeway into a traffic jam state.

First we have some fairly predictable events. Coupled with the inevitable corruption, the recent wheat price increases, indirectly triggered by intensive corn cultivation in the USA to make the highly energy intensive corn based ethanol (intensive = expensive crop ‘inputs’), and directly by increasing global, especially Chinese, demand for wheat, and a serious drop in wheat production in Australia due to a drought, we now see the first cracks appear:

The subsidized price of a 110-pound sack of flour has been less than $3 for years; the market price reached $45 early this year and has fallen to $36 since the government intervened.
src

Even more serious, rice, the staple of much of the world’s poor, the ones, that is, who don’t rely on corn or wheat, is skyrocketing in price as well.

A global rice shortage that has seen prices of one of the world’s most important staple foods increase by 50 per cent in the past two weeks alone is triggering an international crisis, with countries banning export and threatening serious punishment for hoarders.

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