Changing the Current Corporate Paradigm Will Help America Thrive

The corporation is an artificial construct originated centuries ago to give investors and workers legal protections that balanced risk taking with entrepreneurial rewards. This construct propelled national economies to new heights, which would not otherwise have been achieved. Corporations and derivatives such as LLCs to this day provide America with the best balance for entrepreneurial growth. Yet, with the creation of the corporation, a new life form began that has now evolved to test the very nations that gave it life. Like Frankenstein, the corporation has loosened its legal bindings at the economic frontier and now has the potential to become the corporate-state master of its nation-state creator.

This imposition by corporate-states upon nation-states is appalling. Our government institutions have been rotted from the inside to their skin and their innards have been replaced with government zombies that dutifully perform functions set upon them by their corporate masters. It is a ghastly phenomenon centuries in the making, visible to the naked eye for at least a hundred years, formed from the initial character of corporations. Yet, we humans are caught in our original paradigm of corporations as servants of the nation and are unable to see a new corporate threat evolving.

We call the newest corporate form transnational or multinational. Yet these terms merely define the world’s current paradigm of the frontier edge of corporatism. They name this static moment in the development of the corporation, and not what it is becoming. “Anational” refers to the transforming paradigm of the corporation that has loosened its host nation’s bindings and that is no longer attracted to any nation except in terms of what it might gain from that nation, similarly to how the term “asexual” refers to a human that is not attracted to any gender sexually except for how that contact might produce its offspring.

We mistakenly attempt to label anationals’ evolving perverse power as having a human form, AKA Citizens United. Yet the only way we can continue to call corporations people having citizen power is to also label their behavior humanly perverse, almost psychopathic. Our problem is that we attempt to give human characteristics to all life forms. We would rather call a great white shark a man-eating monster than to swim in its skin, defining its repeatable patterns meant to enhance its sustainability on this planet. If instead of calling corporations people, we could understand how corporate-states consistently act to sustain their lives, we would not have to denigrate corporate existence with human behavioral terms but rather celebrate corporate life form, as we should any other on this planet.

Celebrating a life form does not mean approaching it cavalierly. At their evolving frontier boundary, corporations are gaining enormous capacity to bend nations to their will, in ways that do not help our citizens. In an effort to stave off the inevitable, scholars like Michael Porter write of co-opting corporations toward patriotism, citizenship, or perhaps more precisely corporate responsibility to host nations, or at least including nation states in the list of corporate stakeholders. Yet these attempts to persuade corporations to take on human characteristics are only stop gaps to the evolving threat.

Just as the U.S. can coax China to participate as partners at this stage of our empire’s shifting power sharing, the U.S. can still coerce corporations to participate as national citizens to some extent, even those as powerful as corporate-states. Yet, just as the power struggle between China and the U.S. will ultimately intensify, our ability to co-opt the growing power of corporate states is also waning.

The time will come when corporate states gain a plurality of world power and work together for the betterment of the metropolis of corporate states. By then, nation states by necessity will also have evolved to retain our maximum power. We will then no longer see corporations as people with the rights of citizens. Instead they will finally be correctly defined from the nation-state perspective as a means to an end and will be measured and rewarded for what they can add to the nation-state.

The idea that corporations are people with citizens’ rights will be replaced by the idea that corporations are self-sustaining life forms that live amongst us just as bacteria and bears do. We will acknowledge that corporations perform vital functions in the advancement of humanity but that they can kill us if we do not respect their limitations. Nations will pursue the harnessing of anationals’ positive aspects and will intensify efforts to corral their negative ones. We will understand that corporations are not wild horses that can be contained in national regulatory pens and ridden rodeo style.

Most nations today are nowhere near large enough to contain anationals’ eventual strengths with only national regulatory and legal tools. Nations will by necessity have to cooperatively combine efforts. Unfortunately, the world will also destabilize as smaller nations attempt to consume one another to find scale large enough to survive the next millennium. The very existence of corporate-states will cause tribes to devalue regional differences that have defined current national boundaries formed to combat external threats. China is not a single tribe nor is India or the United States. Others will follow.

Some might label my corporate musings as conspiratorial paranoia. Yet conspiracy is simply another human trait that would attempt to contain the evolution of anationals within our human boundaries. Conspiracy by definition suggests that anationals are somehow more aware of the global shift taking place than nation-states and thus are light years ahead in their planning and efforts. Along the bell curve, some nations such as China are able by their historical circumstances to have a much longer planning horizon than others. Similarly, some anationals are much more aware of their future posterity than others and are acutely acting on their global economic advantages. As a whole however, nation-states and corporate-states are adrift in this sea of evolution, making short-term sustenance moves, as they are able.

Great white sharks instinctively know that they must sometimes migrate throughout the entirety of the ocean, but like humans they give their greatest weight of thought to their next meal rather than where they will be during mating season. Yet, somehow the world aligns to bring them home again, and it will also align to reposition the power of anationals higher in the hierarchy of states. Thought to how nation-states must react to this realignment is warranted.

What this realignment means for humanity is unclear. The role of the nation-state to serve its people, economically and otherwise, providing a balance along the life wheel of work and play, protection and freedom, stability and exploration, sustenance and opportunity is becoming increasingly threatened. People’s allegiances to corporate-states will strengthen as realignment intensifies, threatening national allegiances and humanity’s balance further unless we learn to coexist. Shifting our current paradigm of the corporation will serve us well in that effort.

Are We to Rest by the Side of the Road as China Pedals Away on the Surrey Bike?

Imagine China right now is a surrey bike built for four people, with China as the driver and other Asian countries of the region filling the three remaining seats, all pedaling together to make the bike go. Imagine that at first the path forward is a bit steep and that the surrey bike needs some help pushing it up hill. So China bargains with Uncle Sam, “If you will push the surrey bike from behind, I will feed you corn for free as you push.” Uncle Sam thinks it a great deal and begins to thrust China and the other Asian countries forward as they pedal in front together on that surrey bike.

After a while, the bike begins to pick up speed and Uncle Sam has to push a little faster, almost jogging a bit to keep up with the surrey. Uncle Sam clamors for a bit more corn because the exercise of keeping up with the accelerating surrey is a chore. As China shoves more and more corn into his chubby little mouth, Uncle Sam begins to puff under the weight of his effort, and tire from the speed at which the surrey bike is now travelling. Finally, Uncle Sam gives out from the strain, having given all he had to helping that surrey bike begin its journey.

As China and the others speed away pedaling in unison down the path to the future in their region’s surrey bike, Uncle Sam falls over along the side of the road from exhaustion for he is no longer needed. He forlornly looks at the distant spoons that no longer will point his way but will only feed those that are on the bike together. On the back of the bike is a bag filled to overflowing with words stenciled on the back, “U.S. Seed Corn.”

The Gingerbread Corporate Man (A Bedtime Story)

After having travelled across the Atlantic Ocean to build their little stone baking mill, an elderly American couple wished for a son. Knowing that America considers corporations to be citizens, they decided to bake a gingerbread corporate man. They added equal amounts of capital, toil, and love to bake their son. Upon coming out of the oven, he immediately began to delight his parents.

He worked side by side bringing them prosperity and joy. However, as he grew older and collected more capital unto himself, he grew haughty and began to think, “Why do I toil for the benefits of my parents. I am the capital of flour and sugar, and they are but mere laborers.” So one day to his parents’ horror, he ran down the dirt road for other worlds singing, “Run, run as fast as you can, you can’t catch me, I’m the gingerbread corporate man.”

As he ran down the path, he happened upon the mayor of the town who asked, “May I take but an arm or a leg to help feed the townspeople?” The gingerbread corporate man would have none of it, running away shouting, “Run, run as fast as you can, you can’t catch me, I’m the gingerbread corporate man!”

A little further down the road he met a tree hugging, spotted owl who exclaimed, “Slow down your development! I want to eat you.” But sidestepping the owl’s advances, he ran away shouting, “Run, run as fast as you can, you can’t catch me, I’m the gingerbread corporate man!”

Over the Wall, he dropped to the street finding a gaggle of banker geese honking, “Don’t stop! We will collect all of the flour and sugar in America and give it to you for your journey.” The gingerbread corporate man, thought a moment and asked, “You don’t want to eat me?” “No”, they cackled. “We want to eat a bit of every bag of flour and sugar we take from the little old ladies of America and give the rest to you so that you grow big.” “You’ve got yourselves a deal!” shouted the gingerbread corporate man as he ran down the street.

As he neared the seashore, he came upon a bevy of bakers from the baker’s union who shouted, “Stop, you have all our flour and we will be without a livelihood if you run away.” “Will you bake until the midnight hours toiling in heat?” asked the gingerbread corporate man. “No, will you let us eat you?” retorted the baking guild. Instead, he ran down to the sea shouting, “Run, run as fast as you can, you can’t catch me, I’m the gingerbread corporate man!”

As he reached the shore looking back toward the mayor, spotted owl, gaggle of geese, and bakers all running after him, the gingerbread corporate man shouted, “Oh no! They will catch me. How can I cross this deep ocean?” At that moment, he came upon a crafty Huli Jing, a Chinese fox lingering at the shore. The fox exclaimed, “Climb upon my tail and I will swim across the Pacific.” “You won’t eat me?” asked the Gingerbread corporate man. “Of course not”, said the Chinese fox, “I want to help you.”

As the gingerbread man climbed aboard, he brought the huge bags of flour and sugar that weighed down the fox. The fox said, “Climb upon my back so you won’t get wet.” As they swam closer and closer to China, the gingerbread man added more and more of the capital onto himself, making him bigger and bigger, weighing down the sly fox further.

When China appeared on the horizon, the fox said, “You are much too big and powerful for my back and I am tired. If you want to enter China, you must bring all your fast ideas with you and hop upon my nose to keep dry.” Wanting to escape the Americans who wanted to eat him, the gingerbread corporate man did as he was told.

As soon as they reached the Eastern shore, the Huli Jing tossed the gingerbread corporate man into the air, opened his mouth, and snap, that was the end of the Gingerbread Corporate man!

Globalization Transfers a Nation’s 70 Year Depression Cycle to the Entire World

The Great Depression of 1929, more than any of America’s depressions before it, showed that although capitalism is the world’s greatest engine of economic progress with no better alternative, it does contain a great flaw that periodically destabilizes the capitalist economy. As each business cycle progresses, wealth and commercial power concentrates in the hands of a few, limiting competition and consumer demand to the extent that the economy and the money supply collapses through nested debt defaults. When this occurs, the overhanging debt and undervalued assets cause a commercial vacuum that is hard to correct.

After, the Great Depression, America instituted controls intended to limit the flaw of capitalism, attempting to limit the concentration of market power in oligarchies and the concentration of wealth in the capitalists, hoping to create a more sustainable balance in the economy. Over time, America’s politicians were lobbied successfully to remove these limiting regulations so that once again concentration was permitted to flourish. However, different from every other concentration cycle, this time concentration was able to effectively cross international borders through globalization.

Having accumulated a concentration of wealth and commercial power needed to seed expansion into globalization, during the last thirty years American businesses have run headlong into the greatest transfer of wealth and capital across international borders ever known. With globalization, America’s nation state has lost much of her ability to regulate what have become multinational corporations for the good of her people.

The result of this loss of power is that similarly to how capitalism’s flaw allows a periodic transfer of wealth from a nation’s workers to its capitalists, indebting the working class until it no longer can support an increase in the economy while servicing its debt, ultimately resulting in the collapse of the nation state’s money volume into 60 to 80 year cyclic depressions, globalization’s flaw will also ultimately prove similar but on a world wide scale. The expansion of the multinational corporation will allow a periodic transfer of the entire world’s wealth from nation states to corporate states ending in a disproportion of wealth that ultimately will cause a worldwide monetary and fiscal collapse.

Prior to the rise of globalization, corporations existed within the laws, regulations, and taxation of single nation-states. They depended on the customer base of single nations and the stability of their nation’s business environment. They also depended on their host country’s mercantilism and military strengths for their relative worldwide trading power. With a prevalence of dependence on their nation states, they negotiated with their stakeholders from a position of relative weakness.

After the Great Depression through the 1970s, corporations contended with the growth of collective bargaining, socialism, environmental regulations, and antitrust interference in their oligarchic profit strategies. With such a lopsided negotiating power structure, corporations were relegated to lobbying behind the scenes for needed legislative and regulatory support as a means to balance their unequal negotiation positions.

Throughout this period, America’s focus on defeating communism through overwhelming military strength had two unintended effects. First, America’s burgeoning military allowed American businesses to expand unopposed into world markets through the bully pulpit of the U.S. military. Second, with the winning of the cold war, the emergence of Eastern markets, and the opening of China creating such immense business opportunity for American businesses, they could now use their legislative relationships they had developed in earlier years to support their participation in the modern gold rush.

American businesses sprinted to these new profit fields in an effort to gain a stake before foreign competitors. To do so, they needed availability of low cost loans and a commitment to open access of American consumer markets. To gain open access to American markets, businesses needed the support of politicians to sell the argument that open trade was a net benefit to the American consumer and that it was essential to America’s success. Winning this public argument then provided cover for politicians, who were beholden to the multinationals and associated banks for campaign funds, to vote for opening America’s markets to foreign manufacturing facilities. This was the beginning of America’s job emigration. We let the job killing Mongols over the wall.

With (a) the debate about open trade behind them, (b) China eager to accept their hard assets and intellectual capital into her country, and (c) banks having maneuvered financial deregulation to extract American capital from consumers, American multinational businesses were now free to expand their direct foreign investments exponentially. As they did, their corporate structures became ever more multinational and their negotiation position with nation-states strengthened considerably.

China, for one, represented negotiations with corporations as between equals. Initial negotiations were win-win and entrepreneurial because expanding corporations and emerging nations wanted separate assets which they valued differently from each other. Corporations wanted and received low cost inputs to production, low cost educated labor, minimal environmental costs, and loose business regulations. China gained access to hard assets, America’s consumer market, trade deficits, American corporate processes and intellectual capital.

Intellectual capital was most important to China so that she could leap frog American know how by creating entire cities to manufacture single products, and providing America’s intellectual capital and business knowhow to the city so that geographically concentrated Americanized core skills could develop. Yet for American multinationals, they valued China’s market potential much more than their own intellectual capital which they believed china could otherwise reverse engineer. They also discounted China’s ability to compete, and felt they could mitigate giving China their secrets by keeping research in America and innovating more rapidly than China.

Once established across multiple countries, multinational corporations now had strengths they never had before. While nation states were able to impose the same wage restrictions, regulations, and taxation as before, multinationals now had mobility to transfer labor, production, distribution, and profits across national borders. Corporations no longer negotiated labor rules and wages from weakness but could now set world wage rates. Through the likes of tiered corporate structures, offshore subsidiaries, multinational accounting, and transfer pricing, corporations could now dictate effective world tax rates. And through multinational diversification, corporations were no longer constrained in size by the whims of any one country’s antitrust laws but were now free to grow unrestrained.

Through globalization, nation states lost the majority of negotiation power they once had. They could no longer command the supply side. Labor could migrate to the nations with lowest overall cost of production and distribution including taxation. Nation states were also forced into political decisions regarding protection of domestic producers that could not compete with foreign costs. And the politicians that would have to enact laws to make domestic goods more attractive could not risk offending their benefactors, the foreign direct investment owners of foreign factories. Nation states could no longer command the demand side either. Their citizens, having tasted the benefits of low cost consumer goods, would not sit idly while prices were increased through substantial tariffs.

With such strengthened negotiating power, multinational corporations ascended to new ranks in the world economy as virtual corporate states, similar in power to nation states yet without the incumbent obligations to citizens’ social welfare. Having loosened the limiting bonds of national antitrust laws, Multinationals could now increase their size without bounds and, as a result, grew to have “economies” that rose above those of most nation states.

The world has yet to fully understand the power of the corporate states, but emerging nation states are embracing multinationals’ newfound power as a means to gain arbitrage power from industrial states. In doing so, they feed and strengthen corporate state power sending the world toward unsustainable wealth concentration. Industrial states have not reacted by collectively attempting to regain a foothold to create regional political regulations but instead are slowly acquiescing to a concentration of corporate state power as all have been left impotent at the direction of their elected officials.

Yet concern for multinational corporation concentration of power is rising amongst western industrial states as all are affected by the corporate state induced economic crisis. Cries for isolationalism, protectionism, and proactive job creation legislation have surfaced once again amongst labor unions and domestic businesses as unemployment has risen, yet their cries come too late for America, having already lost 40,000 factories, 8 million jobs, and trillions of dollars of intellectual capital, core skills, and future development that will never be as a result of these transfers.

The premise of free trade has proven a fallacy. Yet now that globalization is upon us, no country has the power to reverse it. Without collective action to globally regulate multinational corporations, individual industrial nation states will eventually attempt to thrust kamikaze assaults on the power, finance, and asset transfers that have already reduced the future of industrial countries in favor of emerging ones and emerging countries will abandon old world colonialism in favor of new world corporate subjugation. And we will all live through the first experiment of global concentration of wealth and power that promises eventual world collapse. If national capitalism collapse takes 60 years, how long does globalism collapse take?

Will We Let Free Trade Finish Its Gutting of America?

Tariffs have long been both the nemesis and the whipping boy of the advocates of free trade. Whenever America falls into recession, advocates of jobs tout tariffs yet free traders nonetheless target them as enemies of consumers. They point to low cost goods that have helped American consumers during our recessions as a universal benefit. What they cannot show is whether the benefit of low cost goods offsets the millions of American jobs that have been lost as a result of free trade. But if free trade with the East has severely harmed America, free traders have somehow thus far escaped the scathe of America for having put free trade in motion and having failed to reverse direction when their message was proven hurtful to our national security.

A disciplined look at the use of tariffs would show that win-win free trading between nations of equals is indeed helpful to both nations and requires no tariffs. However, that same objective review would show that free trade between dissimilarly wealthy nations allows the less wealthy nation to extract the wealth and jobs of its trading “partner” and when this principle is put on steroids, the less wealthy nation can collapse the wealthier nation.

In the case of America, a lack of tariffs allowed China to create a lending practice of “live filleting”. She stripped the meat of America‘s economy right from our bones without even using western anesthesia. Instead she fed us our own dollars as loans to keep our interest rates down while artificially suppressing her currency to keep her product prices low for our consumers, a unique kind of Eastern financial acupuncture.

She is now setting about to pull the free trade needles from the pressure points of America’s political nervous system, having instructed her credit agency Dagong to start this credit downgrading slippery slope. When she does, we will all feel the stinging pain of a raw economy stripped bare of its future. The higher prices of American goods that we thought we escaped through our addiction to China’s low priced goods were just temporarily delayed through borrowing three billion dollars of debt from China. The price we will now pay for decades of higher interest rates as we struggle to rebuild our economy will more than offset the folly of our “free market” dalliances.

Could American’s rights to own property have combined with free trade to allow China’s gutting of our country? Property rights were as an essential capitalist core of our Constitution as they were for the ancient civilization of Rome. Property rights are critical for the creation of elite’s wealth and without them capitalism cannot exist, globalization cannot thrive, and a nation’s elite cannot transfer the wealth of their country to other nations for personal gain. Therefore property rights allow gutting.

How so? People that own the value of a country, let’s say U.S. capitalists, transplant that value as factories to another country, China, who uses them to create goods for the U.S.. That transplanting of capital transfers competitive advantage to China so that American jobs are lost and America’s middle class loses purchasing power. To buy China’s goods, Americans then borrow dollars from international banks and exchange the dollars for the goods created in China. Because jobs are lost, America’s government loses tax revenue and borrows dollars from China who then loans some of those dollars back to the people through their government. The U.S. government then gives the dollars to government employees who buy more Chinese goods.

Some of the dollars that are given to China are given back to the capitalist who then borrows more dollars from international banks who create those dollars from thin air. The capitalist then uses both the dollars given by China and those created by the banks to transfer them back to China as more factories which displace more American workers.

As this cycle repeats over and over, 40,000 factories are transplanted, 8 million workers are displaced, $3 trillion dollars are borrowed from China by the U.S. government, and $8 trillion dollars are borrowed by the American people from international banks who multiply this $8 trillion into $45 trillion of credit default swaps to extract even more capital from the capitalists to invest even more into factories in China.

In the end, China has a bunch of factories to make goods for their 1.3 billion internal customers and has hegemonic relationships with the world’s commodity suppliers because America no longer has factories that need them. China raises her currency’s value because she now needs her citizens to buy her factory goods and she stops funding America’s deficits so that our interest rates rise. The American government and American middle class are indebted to China and now must pay more interest.

The American capitalist has his net worth sitting along China’s shore in danger of being nationalized when China’s currency raises to the point that American people can no longer afford to buy China’s goods. The international banks have a good amount of value invested in these dangerously leveraged Chinese factories and their financial assets, loans to America’s middle class, are stretched wafer thin by Americans who borrowed more than they could afford and by corporate credit default swaps that also rest on a house of cards of American middle class debt.

Middle America’s debt is in danger of default as it is supported less and less by jobs that are pouring one by one as sand granules through the neck of an hour glass to China. When the last grain of sand needed to keep the cycle going slips through the neck, the Western financial system collapses, China retains the factories with over a billion internal customers, and America’s elite and middle class are left to fight over who will continue to pay the debt and who will escape financial calamity through default.

So when we talk of property rights, we are talking about the rights of a country’s elite and international bankers to create massive capital flow engines to drain the wealth of one civilization to another. Absent government intervention of tariffs and other financial tools or ultimately of war, when wealth differentials exist between civilizations, property rights and banking create the opportunity for wealth differential arbitrage. When nations of relatively equal wealth trade or exchange value through direct foreign investment, free trade creates a marriage of sorts. However, when wealth differential exists, arbitrage can destroy the value of the wealthier nation in favor of the emerging one.

This is the awesome power and the fatal flaw of capitalism when combined with international property rights. In 1871, Europe’s power was transferred to America through this frenzied flaw and they were left with a 20 year depression before recovering. Now it is America’s turn to suffer the flaw of property rights that were cemented in our rule of law by the Supreme Court of the United States. Most of the horses are already out of the barn. That does not mean we shouldn’t dust off a modern version of tariffs to reverse what outward flow remains.

Ironically, Trickle Down Economics Trickled Down America’s Future

America is a land of irony. We are filled with capitalists whose intent is to accumulate all the wealth the world has to offer, and at the same time, we also have an altruistic nature that tears at our capitalistic infrastructure. We defend our great society and fund outreach to other nations through our tax dollars. We support our dreams of a united earth through a funding of the United Nations and fund our version of world peace through 1,000 military bases dispersed throughout the world. To grow our middle class, for the past thirty years we have supplied enrichment to our upper class to have it trickle down.

Supply side economics is an irony of political invention as well. Its invention of thought intended to provide extra capital to America’s private sector, the sector that creates taxpaying, productive jobs that extends America’s know how, innovation, skills, and gross domestic product. In our world’s current economic system, when a venture is started, some seed capital that has been accumulated by the world’s elite is then combined with borrowed money created from thin air by banks through the venture’s promise to repay. This devised modern structure of government and banking thus provides the investment needed to fund the venture’s infrastructure and start up expenses, including the financial support for job creation.

The wealthier of our country are those that have traditionally been able to accumulate more money than they need to fund their daily expenses, and thus they have provided the seed capital for ventures through their investments. Instead of the entrepreneurs that risk all to build real wealth and create the jobs, Supply Side economics instead provides tax incentives to the wealthy, ironically giving credit to the capital providers for producing America’s jobs. However, capitalism knows no patriotic allegiance. Investment capital will flow to the highest risk adjusted returns regardless of national borders.

After America’s obsessive military buildup made international investments safer, international business became safer investments in the sixties. Opportunities grew wildly after China opened its borders to investment in 1978, creating a gold rush that attracted loose investment capital from the entire world, building tens of thousands of factories that enriched international investors dearly.

So when Reagan Supply Sider legislators passed tax breaks to the “rich”, their trickledown theory wasn’t wrong, it was just decades late in adjusting to the realities of risk adjusted investment opportunity. Ironically, instead of trickle down, America’s tax policy resulted in pouring out, not a trickle but a fire hose gushing toward foreign shores. Trillions of dollars, created by burdening our middle class with excessive debt, left our economy and were converted into factories and other infrastructure such as roadways, bridges, and cargo ships to enhance China’s economy and to increase their employment base.

It appeared at least temporarily that America profited from our supply side doctrine. An entire industry was born to find ways to collect the extra capital and distribute it to the East. America surely got interim jobs in the financial sector to support this fire hose of foreign directed money flow. Yet, decreasing taxes for the “rich” created much fewer permanent jobs in America than it could have, passing the greater load of jobs to the East. It provided America interim financial and deal flow processing while accomplishing the opposite effect than was hoped for to America’s real economic future.

Ironically, Trickle Down Economics Trickled Down America’s Future…page 2 of 2….Worse, when those permanent jobs left our shores, so did decades of investment in our schools and education that every American has paid for through our contract with America. Each of us has voted to contribute thousands of dollars to our school systems to educate our youth. We do not publicly fund our educational system out of altruism. Americans understand that in educating our youth, they will learn the lessons provided by educated Americans before them. They will carry forward the knowledge that grows in our businesses to learn new theories and methods and to discover new scientific breakthroughs that will extend American technical capabilities. We invest in our children to grow our country’s GDP and to support both those that have come before in their turn at retirement and those that will come after who will raise their families in freedom and who will extend our great country’s experiment in democracy.

Ironically, beyond those trade secrets and innovations that are deemed highly responsible for national security, America does not have a policy about those innovations created in America that have been funded by at least 12 years of public schooling if not more through Pell grants, student loans, state school subsidies and other methods. America has an equity stake in every innovation created by Americans and yet we let them go as freely as we let our commodities be dug up from our patch of earth and be sold out from under us through private, foreign country based businesses operating mines on our public lands today.

However, the greatest irony is yet to come. In letting our capital be funneled to China, in letting our jobs transfer to her, in freely handing over our trade secrets, our innovations, and our scientific breakthroughs, we have transferred decades of core skill and national wealth building capability that will now build in China and not in America. The tax base that would have supported our great society social needs will now support those of China. The extra funds that could have supported our government’s international outreach will now support hers. Our altruistic capability will diminish purely from our trickle down tax policies.

And the great investments that our capitalists hope will provide gold rush returns from the trillions of dollars of investment extracted from the debts of all Americans, turns out they may be the greatest Ponzi of the 20th century. Those trillions of dollars now rest on China’s soil as hard assets. They cannot be dug up from the earth and planted back in America. The financial returns that investors hope for count on China remaining strong to honor her commitments. If China defaults, no one will travel to China and take a piece of the infrastructure back home. There is no international bankruptcy court that can enforce repossessment or repayment.

China’s ability to produce repayments of direct foreign investments depends on America’s ability to stay solvent and to continue buying Chinese goods, yet our solvency rests close to the precipice. If our current economic crisis is thrust off the cliff by short sided, self seeking politicians, America’s default will lead to China’s default and all the profits that our investors dreamed of receiving will disappear in the crash. The underlying assets and intellectual capital that transferred to China in the 20th century gold rush will remain there for China’s eventual rapid recovery while the trickle down and fire hosed out financial capital that left America’s shores will have ironically vanished with our gold strike dreams.

Kyoto Protocols Would Have Accelerated China’s Plan to Reverse-Exploit EurAmerica

In 1978, the year China emerged onto the world stage with its four modernizations, China, a country with four times the population of the United States, had a paltry gross domestic product of $216 billion, less than eight percent of the United States. China exposed her strategy of four modernizations to the world as if to say,”Please invest in China and we will ensure that our workforce is educated, and that our business infrastructure is stable for your investment.” Yet, this openly expressed strategy, that may have seemed to the rest of the world as a difficult but noble goal for China to achieve, was only the tip of China’s Grand Plan, and only the part she wanted the world to see.

EurAmerica’s history with China was one of gunboat diplomacy, exploitation, and forced trading. When China opened her borders again in 1979, EurAmerica’s merchants were enthusiastic to exploit an opportunity once again. Yet, China had not forgotten EurAmerica’s role in the Opium War, the Sino-Japanese War, and the Boxer Rebellion. China would never open her border again to be exploited. When she finally opened her border in 1979, it was from a position of power, deep strategy, and long lived planning that suggested EurAmerica was finally ripe for reverse exploitation. China’s grand plan was to emerge as the 21st century world power.

What boldness of purpose China must have felt as she aligned her nation’s efforts to that decade’s long task. Looking back today on her impossible achievements, one must give pause to the monumental economic goal she set for herself in 1978, indeed greater than America’s technical goal of landing on the moon early in 1961. Yet, with such a miniscule $216 billion GDP and few material assets how could China possibly build her empire to surpass that of the United States?

Through a hybrid statist-capitalist political structure, China would create a conduit through which American businesses would willingly draw down the wealth of Europe and America and transfer it to China in order to share in the prosperity of that wealth transfer. Through the centralized imposition of forced savings on its people, China would provide low cost labor to sell goods at low enough prices to cause EurAmerica to look the other way as their neighbors’ jobs went to China. Through low interest loans, China would entice EurAmerican politicians to spend beyond their means to temporarily ease the pain of EurAmerica as China’s sucked away their life force. These were the basis of her strategy.

Similarly to how a business cycle contains early adopters and late stage laggards, China planned a capital extraction cycle for EurAmerica, in which China would extract capital in multiple phases, each phase having an optimal extraction strategy. First extraction would be through the early adopter “gold rush” investors rushing into China to stake a claim. China would also plan for early majority, late majority and laggard’s capital extraction.

In 1978, China assessed America’s assets:
• America’s most valuable assets were intellectual capital that resulted from 200 years of publicly funded primary and publicly subsidized secondary education
• America’s physical assets included business assets, commercial, and residential real estate worth $7 trillion in addition to public assets of land, buildings, and infrastructure
• America produced 26% of the world’s GDP at $2.8 trillion and consumed a quarter of the world’s goods
• America’s debt was as low as it had been since WWII as a percentage of GDP and its 110 million workers were capable of doubling their loans to provide China more capital
• America’s Baby boomers were entering a peak spending phase followed by peak saving
• America’s constitutional republic allowed a relative few capitalists to control the direction of her economy

By 1978, multinational corporations had steadily grown in number and size for two decades. China’s success depended on corralling MNCs through direct foreign investment to create massive inflows of capital quickly monetized as hard assets and infrastructure.

China would entice merchants to invest by offering access to the future potential purchasing power of its people. However, given China’s low household incomes, market penetration would be low to start. Therefore, to entice the early adopters, China would create special economic zones that provided the perfect investment opportunity of cheap educated labor, loose regulation, low taxation, strengthened business law, and enhanced infrastructure and transportation, in which businesses could produce goods at very low arbitrage costs to sell back to their home countries for high margins.

With low cost of goods from special economic zones, early adopter businesses were highly profitable and banks poured investment into China as a result. But, China could not complete her Grand Plan to multiply her GDP 50 times by enticing early adopter investors alone. She had to implement a plan timed to extract maximum dollars from EurAmerica at each phase of her exponential growth.

During the next stage, the early majority stage, China manipulated baby boomers’ peak spending phase:
• China’s low prices secured America’s baby boomers as loyal customers
• Prior to America noticing a substantial loss of jobs, China secured free trade agreements, and mined American businesses for their intellectual capital.
• She reinvested profits back into America’s debt to keep America’s interest rates artificially low in order to spur on higher levels of consumer spending and government borrowing.
• China supported lobbying of America’s mass investment vehicles to fund MNCs. 401Ks and IRAs, created in ‘80and ’81, funneled money through the stock market into MNCs for investment into China.

Then, America was drawn into the late majority stage as America’s baby boomers entered their peak saving years. 401Ks and IRAs artificially fed the stock market frenzy. Baby boomers sensed they knew how to invest in a bubble market that kept rising. With access to low interest rate loans kept low by China’s reinvestment, speculators borrowed money to bet on the rising stock market. America ultimately increased its debt to pump up stock values to build more Chinese factories.

Inevitably, the stock market bubble burst, leaving America’s baby boomers with lower retirement savings. The stock market that seemed destined to go up forever finally reversed rapidly decreasing valuations. However, the debt that had funded its escalation remained.

During the late majority phase:
• More businesses began to invest in China just to remain competitive with businesses that had moved offshore earlier.
• Tens of thousands of businesses transferred factories to China to obtain low cost labor
• Millions of Americans lost jobs
• With a generation of education completed, China now was able to take more advanced jobs as well as factory jobs. America’s bastion of protected, more technically competent jobs was not a bastion after all.
• American retail outlets for Chinese goods grew exponentially
• China continued to loan its excess profits back to the American government to keep interest rates low.
After having lived through the weakness of the stock market, real estate appeared to be the baby boomers’ best retirement savings alternative. In the early stages of the Great Ponsi, housing prices went steadily up. With low interest rates, Americans could now borrow on the value of their homes to continue funding China’s growth. China’s final stages of extraction saw the housing bubble increase beyond what had ever been experienced before.

Even though American jobs were increasingly being driven offshore, the frenzy of increased housing prices allowed additional borrowing from Americans, feeding the China gold rush further. This behavior was not unexpected, following a pattern of historical boom-bust cycles and was part of China’s planning. As a result of the stock bubble and the housing bubble, America’s total debt had risen to over $55 trillion. With such exuberance in the housing market, secondary debt markets participated in credit default swaps to the tune of an additional $42 trillion. China now had extracted close to the maximum of America’s value, leaving America with the corresponding debt.

So China extracted maximum value, first in trade secrets and early adoptive money, then by IRAs and 401Ks, then by stock market and home equity loans, then by 2nd mortgages and housing speculation. China monetized the massive cash flows as quickly as possible, building infrastructure and excess manufacturing capacity, while leaving America holding debt in exchange.

Without any other rising asset values to borrow from, America has tapped out its debt. Having maxed its debt, America can only print money to finance its trade deficits. Without further real debt derived money extraction to give China for infrastructure investment and without a real ability to pay for low cost Chinese goods, America is fast losing her worth to China as an infrastructure vehicle. Recognizing that maximized extraction and rapid monetization of America’s wealth is nearing its end, China is now finalizing the implementation of her strategy, that of pulling out of American debt before other countries that maintain reserve currencies create a run on the dollar.

In thirty short years, China was able to accelerate her GDP from $216 billion to $11 trillion. She amassed reserve capital of $3 trillion. She reversed America’s fortunes from the greatest creditor nation to the greatest debtor nation. She gutted America’s factories while creating the world’s largest manufacturing base in her own country. A measure of output that highly correlates to GDP is energy consumption. In June of this year, 2011, China surpassed the United States as the largest consumer of energy on the planet. While the U.S consumes 19 percent of the world’s energy, China consumes 20.3 percent.

In 1992, the world came together to discuss the impact of climate change resulting from energy consumption. The talks resulted in Kyoto protocols being initially adopted in 1997 that attempted to create a framework for reducing greenhouse emissions. The protocols called for 33 industrialized nations to reduce their greenhouse gases to 1990 levels and then to maintain emissions at those levels. Although it called for emerging countries like China to voluntarily lower levels, it did not require them to be mandated.

Of course, all of the countries who had no requirements to reduce their emissions signed the agreement. The United States, under scrutiny from environmentalists and others did not sign. China did sign. This was an additional strategy perhaps not envisioned in 1978 that nonetheless would have assisted in accelerating America’s slide had we signed.

GDP highly correlates to energy usage. In 1990, America’s real GDP was about $8 trillion as compared to $14 trillion in 2011. Kyoto would have caused America to either:
• Invest billions in the attempt to lower our energy usage per dollar of GDP
• Pay billions to other countries to have them produce less so that we could grow our GDP from $8 to $14 trillion
• Or, maintain our GDP at 8 trillion

In the meantime, China’s GDP in 1990 was $1.3 trillion and has since grown to over $10 trillion. China’s energy use has correspondingly grown as well until the point that this month, she overtook America as the greatest polluter. Kyoto was a grand idea that was doomed from the start because of the flaw that allowed the now greatest polluter to play by different rules. It attempted to cap the economic growth of America while allowing other countries to grow unfettered.

China had a Grand Plan that has been executed with the finesse expected of a centrally planned economy. Kyoto added nicely to that plan. America has been thwarted by China’s plan but now has the ability to reverse course. Given China’s size and growth rate, she will pass us soon if she has not already and her stride will be too great for us to catch her. However, by avoiding traps like Kyoto, and understanding that economic gamesmanship can accomplish a much greater destruction of a nation’s wealth than warfare ever could, perhaps America can once again right its course.

The Rise of the Industrial State – The Fall of the Nation State

Up until modern times, individual greed suited the village, the city-state, the feudal system, the nation. Each nation provided for the betterment of its people, through internal and international trade, war, and mercantilism. The greatest of history’s ancient capitalists were the nation builders who attempted domination of their known worlds through conquest. All failed prior to the industrial age because the energy required to capitalize the value of their worldwide sphere of influence was greater than could be compiled by the organization of vast armies. Worldwide domination could not be accomplished by 1,000,000 or so manpower.

The captains of industry that emerged from the industrial era did what no other capitalist had done since the dawn of time. They controlled not only the energies of man, both bodily and intellectually, but enslaved energy from the bowels of the earth to multiply man’s productivity a thousand fold. Through industry, they could grow industrial empires to eventually harness not only the energies of their nations but of the entire world.

Early in the industrial revolution, this power was contained within the geographies of the nation states. Prior to WWI, colonization fed raw materials from other nations through machinery contained within industrialized nations. Wealth was dispersed to machinery workers and taxed for the benefit of the nations to support their under classes. While the enslaved hydrocarbonic energy of industry had the power to grow exponentially to dominate the world, its time had not yet come. First, hydrocarbons had to be tested by the unbridled desires for nation building that had dominated the centuries before.

Captains of statism still controlled the lives of mankind. These leaders of nations did not yet understand the ultimate power of industry. They thought it could be transformed to once and for all dominate the path to world economic power that had been unsuccessfully attempted by all the previous conquerors in history. This newfound harnessed energy that multiplied man’s output could perhaps be used to capitalize the world’s value through worldwide domination using energy to multiply the power of assembled armies to more than 1,000,000,000 or so hydrocarbon energy enhanced manpower of warfare. Theirs was the grotesque hydrocarbon experiment that had to be played out in the early 20th century.

Great energy driven wars were wrought to subdue the world’s geography. In the end of two great wars, 80 million people had been killed and twice as many maimed in the attempt to control the world’s economies through hydrocarbonized warfare. The captains of statism had assembled great armies accompanied by war machines that directed hydrocarbonic killing contraptions of historic proportions. Modern warfare had ironically made massive armies obsolete, and had castrated the world conquest dreams of most of the statist capitalists.

Yet one nation state above all others, the United States, capitalized energy driven warfare for the benefits of its citizens, dominating the transitional era from that of the nation state to that of the industrial state. Through its obsessive militarized harnessing of the power of hydrocarbonic war, America subdued all other nations within its desired sphere of influence. The demolishment of human capital by the end of WWII and America’s monopoly of the military complex gave way to the transition of the rise of industrial states.

The error of the America’s strategy was that industrial capitalism could not be bound by the geographies of state. Although isolated pockets of multinational corporatism had existed prior to WWII, especially in the oil industry, from the 1960s to the present, multinational corporations expanded exponentially. As they did, corporate taxes that nation states had previously counted on to sustain the needs of their under classes, could not be as easily derived as MNCs, these growing industrial states, expanded across geographic borders.

Commerce is driven by profit motive. Profits had served capitalistic nation states well for centuries because growing wealth of industry could be harnessed through taxation to serve the needs of a nation’s people. However, as industrial states began to cross geographical borders, the ability of nation states to feed off their profits was diminished. And as world-wide military subjugation of “rogue” nation states continued, and threats to world commerce was subdued, ironically industrial states began to value the protection of nation states less.

By the 1960s, all that was to be done to mop up the world’s major commercial threats was to subdue the soviets across the world chess board while isolating other non-capitalist nations from participation in growing capitalist trade. While this decade’s long tactic was completed, great expanses of geography were tamed for commerce. Trade grew exponentially between participating industrial nation states, supported by their satellite commodity colonies and post colonial commodity hegemonies.

The 1960s and’70s saw exponential growth of both the size and number of multinational corporations. The largest multinational corporation in 1970 was GM with revenues of 24 billion. Yet it was the opening of China in 1978 that provided the fuel for worldwide domination of the industrial states. By 1990, GM still dominated, now with revenues of 126 billion. By 2000, six of the top 10 world corporations were banks. By 2007, Wal-Mart was the world’s dominant leader with $348 billion in sales.

Certainly, even in 2011, with its ability to obtain through taxation $2.6 trillion dollars in revenue, the United States is still a much greater economic power in terms of consumption than Walmart is in terms of productive value. Yet with deficits over a trillion dollars compared to Walmart’s profits of $13 billion, America’s ability to sustain itself grows ever more fragile.

The United States’ deficits are predicted to remain above a trillion dollars for the remainder of the century as multinational corporations grow in their ability to exploit the geographical limits of its taxing reach. The United States has exercised only limited power to corral any employment benefits from the expansive growth of multinational corporations, leaving its citizens enduring unemployment and underemployment approaching 20 percent. And the United States is not alone. With cross border monetary resources at their disposal, multinational corporations are able to thwart efforts to align their profit motives with taxation and employment motives of industrialized nations throughout the world.

The transition of power from nation states to industrial states is nearing a maturing phase in which the state authority will reach maximum impotence. America’s strategy of dominating hydrocarbonic warfare has already reached the peak of its impact and is waning. In this maturing environment, China may be the one country that has envisioned a strategy that can harness multinational corporate energy within its borders. As a result, it may ride the rising tide of multinational corporate waves to the domination of all other nation states. China’s power to sustain itself during the peak world domination phase of the multinational corporation, however, has yet to be tested.

A Triumphant Cake for the Return of China’s Empire

When making a cake for a great celebration, the baker uses the same ingredients as when baking a small 10” diameter cake, he just uses a lot more. When the world first saw China stirring up batter, they thought somehow this poor country surely was beginning to make a little 10 “ diameter cake. Now that they see the size of China’s great celebratory cake, some view it as so great that it could feed all of their cake eaters back home five times over. Surely this cake must be too big and therefore China’s baker must be on the verge of closing shop for having so foolishly made such a big cake. For those that still think China’s cake is too big, they just haven’t yet grasped the size of her guest invitation list.

When China began implementing her modernization plans in 1978, she hadn’t planned a 10” diameter cake. She planned a cake for the size of China. And it wasn’t one of those cheap, store bought cakes that we would have expected her to bake given her finances in 1978. It was one fit for a triumphant party celebrating the Empire’s return. In fact, the cake would be so big and would use so many ingredients that parties back home would have to shrink their party plans. The world’s storehouse would not have enough ingredients to throw elaborate parties for both China’s guests and the world’s.

No matter, if there was one thing China learned over 5,000 years, it was how to plan a celebration. China planned her strategy to ensure that on the day of the big celebration, she would have enough ingredients. This certainly meant she would have to manage party conflicts with those back here at home at some point. However, if parties back home didn’t have cake factories to make their cakes, they wouldn’t be able to compete at the appointed hour of China’s celebration, and if they didn’t have cake factories they surely wouldn’t be competing for ingredients at the appointed hour. China would implement her plan to ensure her guests would have their cake. But, she needed to implement first things first.

Reviewing her strengths, China noted she had plenty of baker’s assistants. They simply needed to be trained. She would definitely need more factory space to make the cake and more roads to get the supplies to the factory. And because she didn’t have all needed ingredients in-house, she would have to make arrangements with cake ingredient suppliers to ensure that she would get the ingredients even if others competed for them. Critical to her success, China needed baker’s secrets to make such a great cake. Most importantly, because China had many more bakers than she needed but not enough money or know-how, she would need to trade her strengths for the others.

With strategies set, China set out to implement her plans. She first told all comers that they could build a cake factory in her special cake factory zones, and that they could bake cakes for all of China’s people. With the announcement of this cake bonanza, Bakers came from all over the world for the chance to make cake for China. When asked how big to make the factories, China said to make them ten times larger than they first imagined. The bakers would need access to money and lots of it.

Oddly, While China had such big plans for cake factories, no one in China could afford to buy such magnificent cakes, and no one in China knew how to make them. So if the baker wanted to make cakes in China, the baker would have to teach Chinese baker assistants the secrets to baking a cake. The baker would also have to go back home for bank funding and for free markets to sell the cakes made in China back at home.

Of course, when presented with such a sweet deal, the banker could not pass it up. Together, the baker and the banker convinced everyone back home of the sweet deal from China. China would sell the cake for half the price of home prices so that everyone would be happy. The baker could get a great factory, at least one in China, and had the hope of selling cake to the Chinese some day. The people back home could get a cake that tasted just as good because the baker used his secrets in China to make the cake. Of course the financier back home was happy. Increasingly, cake factories back home seemed to be having trouble selling cakes at twice the price of Chinese cakes, and with cheaper prices and free markets, China cake factories promised great banking returns. The only people that seemed upset were the baker’s old assistants back home who no longer were employed to bake cakes, but no matter, everyone else was happy.

China was happy that her plan was progressing. She would get a grand cake factory that could be used for the great celebration. China could also begin to build relationships with all the worldwide cake ingredient suppliers. She now needed to spread the icing for the next layer of the plan. The baker assistants back home were the ones buying the cakes made by the cake factories in China. If they didn’t have a way to pay for the cakes, all would be lost.

China knew, when planning for her modernization party, that in order to make a cake big enough for the triumphant celebration, she would need so many factories, roads, ingredients, and educated cake bakers that it would take all the expendable money in Europe and America combined to build them. In fact, it would take much of the world’s stock market value and even the equity in people’s homes if she were to be able to throw a truly triumphant party. She needed the baker assistants back home to borrow from their savings, their homes, and their future earnings if the plan was to succeed.

No worries, China had studied capitalist boom-bust cycles of the past. She knew it was very possible for bankers to create the boom once again, in the exact same manner as Europe and America had fallen prey to many times before, and that during the short boom, she could fund her party. Given the opportunity to fund all the cakes in China, bankers back home repeated their very sins of the past. Their patterns had remained predictable for centuries, reacting in a frenzy every time a cake bonanza presented itself. This time they dropped interest rates, made crazy loans, created IRAs and 401 Ks, and escalated not one but three bubbles to draw out as much money as they could to fund as many cake factories as they could in as short a time as they could.

The feeding frenzy occurs because there is only so much time the batter can rise before it falls. When the bubbles finally popped, China had her cake factories, all the baker assistants back home had borrowed more than they could ever pay back, and all the bankers back home had made enough money to live happily ever after.

Now came the appointed hour of the triumphant party for the return of the Empire. By this time, China had been building ingredient relationships unabated, because the bakers back here at home no longer bought baking ingredients. China had built the world’s fastest, largest most efficient ships to bring all the needed ingredients to her shore. She had built massive highways to transport the ingredients to her impressive, massive, modern cake factories. She had educated all her people to fill the ranks of cake bakers. She had saved historic amounts of money from the cheap baked goods she sold to the baking assistants back home and now could buy all the ingredients she needed.

But wait, what about the party back home? Now that it was time for her great celebration, China bought up all the ingredients that were supposed to be for the party back home. The baker’s assistants back home no longer had money to buy cakes, so the Chinese cake factories now could turn their focus inward on their country to bake for the celebration. But really, Chinese cake factories hadn’t any competition for ingredients. The baker’s assistants back home had long lost their knowledge of cake baking. The cake factories had long fallen into disrepair and could no longer be used to make cake. The roads back home were in disrepair. The cake baking schools back home had fallen behind without local businesses to spur them to excellence. The ingredient suppliers had long ago built relationships with China’s bakers and knew where their bread was buttered.

As the triumphant party was being held in China and the great cake was being presented to her party guests, back home all that anyone could do was watch from afar. The bakers had lost their market for cakes back home. Without demand, they could not make the payments on the bank loans and they defaulted. Without sufficient buyers, they turned over their factories to the Chinese. Without customers back home and without money or credit to pay for new cake factories back home, the bakers now became unemployed themselves. The bankers, now without payments on their loans, well they closed up shop as well.

Can the Coming World Depression Learn anything From the Great Blackout of 1965?

Does the 1871 interaction between Europe and America predict a great monetary blackout from which the world may need to borrow from the electric industry’s grid model to recover? 1871 suggests that because of some trigger, like perhaps Greece defaults on the world’s CDSs that are lined up like dominos stretching ten times around the world anxious for someone to ignorantly tilt the first one over, America will draw the rest of the world into depression.

In 1871, Europe drew America into a long depression from which America recovered first after four years, our longest down cycle, but we went on to prosper until our capitalist model once again created a housing and stock bubble that popped at the end of the 20’s. Europe, however, took 20 years to recover from the 1871 depression.

This time, it may be the entire world that goes down and stays down for the Greatest Depression. Unlike 1871, national economies may not be able to recover, if we attempt as a globally connected economic system to recover together. Somewhere in the world, a country will have to have a strong enough economic engine to restart an isolated region of the world in trade. That region will be the basis of a new money system. I expect that country, with its newfound infrastructure, commodity partners and internal demand, will be China.

East of the Mississippi River, all power plants in North America are connected to one electric grid. Amazingly, all their turbines spin in unison at 60 cycles per second give or take. As power needs come online, electricity is drawn from the grid affecting the spinning momentum of every turbine connected. One day in the fall of 1965, all of New York, New England, and Eastern Canada suddenly plunged into darkness when the entire electric grid system in the region quit. For over 24 hours, subways stopped, refrigerators thawed, and clocks remained still.

After six days of looking for the cause of the region’s blackout, the Federal Power Commission investigators found that one small faulty relay at the Sir Adam Beck Station no. 2 in Ontario, Canada (a fault of the size of a potential Greece default on a CDS obligation compared to the size of all CDS obligations if you will) caused a key transmission line to disconnect from the grid. This small failure triggered a domino effect of line overloads that quickly raced down the main trunk lines of the grid disconnecting more plants from cities and weakening the entire system with each subsequent break. As town after town went dark throughout the region, within 15 minutes the entire CANUSE area went into the dark ages.

Because so large a region was affected, the entire Northeastern grid had to disconnect into manageable grid pockets that could be restarted by individual power plants coming online. Then, gradually, pocket by pocket was re-synced to the rest of the grid after stabilizing individual pocket electricity demands. Without disconnecting into pockets, any attempt to feed the entire system would have sucked the life out of any plant trying to restart. Shortly after attempting to revive the grid, millions of homes demanding electricity would have absorbed any power it tried to create (similarly to how the whole world is sponging the comparatively minuscule effect of QE2).

If our monetary grid goes down, as it seems it may, any attempts to revive the world by barely functioning regional centers of commerce will draw them down similarly to sucking the life out of a single power plant on a massive electric grid. The monetary grid will have to disconnect. Individual financial and economic centers will have to attempt to revive pockets of commerce that function separately and little by little reconnect through safe trades supported by a new monetary system.

It took America four years under the then existing monetary system to recover after the start of the Long Depression of 1871. How long will it take China to recover with a new system? How soon will the Asian market adapt? How soon as a major commodity supplier to China will Australia reconnect to the Asian monetary grid?

They called the grid malfunction the Great Blackout of ’65. How will we restart the monetary grid after the Great Monetary Blackout of 2012? The world should get ahead of this very possible Great Monetary Blackout with a “Preparatory Bretton Woods” similarly to how the free world met even as WWII was being waged toward its inevitable military blackout.