AA & Jardine,
When you were arguing I could not be bothered to wade through all your
posts. However I have just read something by Gail Tveberg that I am
sure will interest you both as it makes both your arguments redundant.
It is about how the economy is winding down and how it is being driven
by the cost of energy.

http://tinyurl.com/bn89p29

Thanks Bazz, for a very interesting post. It looks like the middle east dominoes are getting ready to fall. Egypt of course has a trump card in the Suez Canal, and are looking to use it to blackmail the U.S. and EU to bail them out, plus courting other Arab countries in the region so as to put even greater pressure on their Western Friends to come to the party.

Egypt clearly demonstrates the folly of a state-wide social welfare system subsidizing basic commodities, bread and fuel, while the state lives on borrowings and delayed-payment accommodations. It looks like Hosni Mubarak's government held off reducing fuel subsidies once Egypt's own oil production started to decline, probably to retain power. A fool's paradise. Subsidizing food must also be a prime indicator of a failing state.

Lessons not learned, responsible responsive action forestalled, producing an economic basket case, and resulting in revolution when essential corrective action is proposed. So now, Egypt gravitates towards becoming a sectarian Islamic state (though its government protests otherwise), and a contest looms between the West, trying to stave off such an eventuality, and Arab states which may have an interest in the formation of a major Islamic coalition - potentially to restrict oil flow to the West and to embark on evolutionary, and long-overdue development of Arab nations towards much greater self-reliance and stability. Iraq, Libya, Egypt, Qatar - so far.
May religious differences (Sunni/Shia) be set aside in the interest of an Arab/Islamic conglomerate with power to stick it to the West, at long last?
Egypt has been Western-friendly, attracting aid and military support, probably based on Suez staying open to unhindered trade, but will this stand up against the perceived objectives of a Muslim Brotherhood?

U.S. and EU overstretched financially and militarily, limiting capacity to respond to Egypt's current plight. Troubled sailing ahead.

Yes, I think that Egypt will be the next domino.
If the canal is closed it may well be cheaper to subsidise ships to go
via the Cape than subsidise Egypt.
From China and Australia it might be cheaper via Panama.

The Arabs generally do not understand how precarious is their situation.
At present some Gulf countries are supporting Egypt by selling them
cheap fuel or just giving them money, but that cannot go on forever.
Eventually they have to support themselves and as they cannot grow
enough food in the Nile Valley for their population they must earn it
some other way.
Tourism is finished for now anyway but more troubles seem certain.
They either have to reduce their population or standard of living or both.
This a microcosm of what Ludwig was been warning on OLO.

Bazz
You are contradicting yourself, and obviously don’t understand the arguments.

> JKJ: Bazz, Energy prices are rising. So what?

>>Bazz: See, missed the point, has not twigged that it is not about money.

You then link to an article whose main point is: “In my view, the danger is quite different: The real danger is financial collapse, coming much earlier than a decline in oil supply.”

Therefore even you think it is about the money, and nothing you have said gives any reason for thinking that the government can magically create wealth out of forced redistributions of money substitutes, which is what Alan is claiming, and I have just comprehensively disproved.

Saltpetre
“Lessons not learned, responsible responsive action forestalled…”

And the solution is what? More monopoly government manipulation of the money supply?

All
What is happening in Cyprus is just more of the unravelling of the unsustainable fraud of fractional reserve banking around the world. Bazz and Saltpetre can see it's fraud. But that's not good enough. You have to understand that the pretext for its existence is the Keynesian nonsense that Alan has just demonstrated cannot be defended rationally or ethically. While ever you persist in thinking that government creates benefits by manipulating interest rates, or that the problem is being caused by declining supplies of energy, it means you're confused. It may be that energy supplies are an issue, but that's not what's causing the economic ructions and shenanigans in Cyprus - government control of the money supply is!

No Jardine, you missed the point again.
It is about what happens to the economy as a *result* of the geology.
It forces money into irrelevance.

The money is like a plane that runs out of fuel.
There wasn't anything the pilot could do, printing more planes won't help.
Trying to use less fuel (money) won't help either.

At this stage it does not matter a tinkers damn what you do with the money.
That is why many economists say nothing is working.
They tried wearing out the printing machines and they tried locking
the vaults and that didn't work either.

What Gail was saying is that it is the loss of energy that causes the
economy to fall over and that hides what is happening below the money.
Everyone thinks the money is being applied to the job but it is irrelevant.

JKJ,

>that's not what's causing the economic ructions and shenanigans in Cyprus - government control of the money supply is!<

Or, is it lack of government control/regulation of money and the banking system?

>And the solution is what? More monopoly government manipulation of the money supply?<

No, the dilution or removal of subsidies on fuel - scaled-in as soon as it becomes clear that it is a no-win situation (ie when the cost of the subsidies cannot be sustained, or justified, by related government revenues and returns).

Welfare and unregulated banking run rampant, as seems clear in Greece and Cyprus (and probably also in Italy, Spain, Egypt, and perhaps even Libya), is a recipe for disaster. Scaled welfare, designed to assist people over a temporary hump before getting back into productive employment (or to sustain the frail and disabled) is a fine measure - as long as it is scaled to the capacity of the economy.

With everyone pointing to the affluent and the wealthy, and aspiring to a similar life-style, the world is being led down a one-way track to exponential non-sustainability - with huge brass knobs on!

Government may be a necessary evil, but how can anyone expect things to be other than far worse without government regulation and fiscal management? How else public infrastructure and essential services? Without government, only those with means could afford any reasonable quality of life; a lord/serf system would prevail; the 'work-house', beggars, and the insanely poor would be commonplace; law enforcement would be impossible; dog-eat-dog.
Even with reasonable governance the world is clearly in a mess.
Surely the answer is better governance and more effective regulation, not less, including a complete revamping of global monetary, finance, banking, and fiscal systems/arrangements.
People, left to their own devices, simply cannot be trusted in the main to always be fair, ethical or honest. Hence, law and order needs to be universally balanced and universally applied, without fear or favour - in respect of individuals and governments.
Can it be? Maybe in a future, universally inclusive, and far more humble world.