The Problem With Artificially Low Interest Rates

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If a shift from low volatility to high volatility signals a change for the worse in the macroeconomic outlook, then the collapse in the yield of short term US Treasury securities is a symptom of the current credit crisis, which has infected all the sectors of the credit market save the highest quality credits.

At the same time, the sharp decline in the yield of ten- and 30-year Treasury bonds and the collapse of lower-quality bond prices seem to indicate that a bad deterioration in US and world economic conditions is about to occur. Since, according to Philip Isherwood, equities tend to perform poorly when volatility is high, cash and bonds would seem to be a good alternative. But, stating his case in favour of US equities on CNBC, a US money manager made the comment that “money in cash is also at risk”. This is certainly true for bank deposits, CDs all structured products, and even money market funds, because the return of capital is uncertain. In the case of Treasury securities, “money is also at risk” but for different reasons.

In the case of Treasuries, the return of capital won’t be a problem for now, but I suppose that with a yield of less than 2% on two-year, 3.7% on ten year, and 4.5% on 30-year Treasury securities, the risk is that inflation (not that published by the government, but the cost of living increase for the median household), which is already higher than these yields, will over time completely eat away the purchasing power of the principal, including the interest.

I hope my readers understand the problem of interest rates, which are artificially low and below the rate of inflation. This forces investors, including individuals, institutional investors, and state and private pension funds, into risky investments, which as we have now seen can also lead to widespread losses. In fact, the losses are now so large that they threaten the entire financial system. I estimate that, when all is said and done, the losses experienced by the financial sector and investors brought about by Mr. Greenspan’s and Mr. Bernanke’s irresponsible monetary policies will exceed several trillion US dollars if we add up the combined capital losses on homes, nongovernment bonds, and equities.

Expressed in Euros or gold, the total wealth of the US has already shrunk by at least 40-50% since 2000. I don’t have a high regard for any government (except, possibly, that of Singapore), but the most destructive course a society can embark upon is to appoint academics to positions of responsibility. A problem of artificially low interest rates that is seldom discussed is that many individuals depend on interest income in order to meet their living expenses. Equally, pension funds depend on a certain annual income to meet their present and future liabilities. Moreover, high interest rates provide investors with a cash flow, which can cushion downturns in asset values. Say, an individual or a pension fund owns a balanced portfolio: 50% in equities and 50% in fixed income securities of various maturities. Let’s assume that, in a given year, the stock portfolio declines by 20%. If interest rates average 10% on the fixed income portfolio, the total loss on the portfolio will “only” be around 10%.

Moreover, the cash flow from the fixed income portfolio can be reinvested in equities. But what if the yield on the fixed income portfolio averages only 3%? Obviously, the opportunity to make up for the losses on the stock portfolio by investing the cash flow and averaging down diminishes. And what if the annual cost-of-living increases average 5% or more? In this case, the purchasing power of money will rapidly vanish. Moreover, because of negative real interest rates, consumer price inflation will accelerate, as was the case in the 1970s. At the same time, the “real” spending power of households whose income depends on fixed interest securities will be cut and their standards of living will decline.

My friend David R. Kotok, chairman and chief investment officer of Cumberland Advisors, writes regular insightful comments on the US financial market. Recently he stated: “We still have to deal with dysfunctional credit markets. The Fed must persist in their work of creating liquidity. Only time and transparency will relieve the problem of insolvency. That process is working, too. It takes time and it does and will succeed. Remember, there are no examples of Depression in economic history where stimulus was applied and where the inflation-adjusted interest rate was brought to zero by the central bank. That is the condition in the US today. In sum, stimulus works.”

Well, David, on this one I must disagree with you. I know many economies where monetary and fiscal stimulus was applied and yet they still went into depression. In all these economies, the inflation-adjusted interest rates were not only brought down to zero but, in fact, significantly below zero. The failed experiment by John Law with paper money in France at the beginning of the 18th century ended with a depression, and money printing in Germany between 1918 and 1923 brought about total impoverishment of the German working and middle class. Latin America went through extremely poor economic conditions in the 1980s. (In Argentina, car sales declined by more than 50% between 1980 and 1988.)

However, in all these instances, the depression wasn’t accompanied by nominal price declines but by hyperinflation and collapsing asset prices, GDP, and standards of living in real terms. In fact, I know of two little empires that, as a result of excessive monetary and fiscal stimulus, went bankrupt and ceased to exist: the Roman and Spanish empires.

Admittedly, these empires’ rulers weren’t as smart as our present-day leaders of Western democracies… .

Also, I was pleased to hear that Robert Mugabe (another academic with several degrees from Oxford and an honorary degree bestowed on him by China’s Hu Jintao “for his brilliant contribution to international diplomacy and peace”) has offered Mr. Bernanke a teaching job at the University of Harare. This will provide him with a first-hand opportunity to study the devastating impact of excessive monetary and fiscal stimulus on a society.

So, to a large extent, I agree that “money in cash is also at risk”, because there is the risk either of default or that money’s purchasing power will decline. Also, I am beginning to wonder for how much longer buyers of ten- and 20-year Treasury bonds will accept their low yields, which are now below the cost-of-living increases and below nominal GDP. The poorly delivered, contradictory, and incoherent statements made by Mr. Paulson and Mr. Bernanke at a recent Senate hearing didn’t provide much comfort to holders of US fixed interest securities. Not surprisingly, gold has more than doubled since Bernanke was appointed Fed chairman, while the yield on 30-year US government bonds is higher now than before the January 125 basis points Fed fund rate cuts.

Surely, the Fed can cut the Fed fund rate to zero. But this doesn’t mean that longer-dated bonds will rally. If inflation were to accelerate further, rate cuts would inevitably lead to higher long-term rates and capital losses on long-term bonds – particularly if the dollar weakens further! In other words, the Fed can bring down short-term interest rates, but it has little power over the longterm bond market. I may add that one of the problems of hyperinflating economies is that the long-term fixed rate bond market ceases to exist.

I should like to introduce one more thought. Throughout most of the 1970s interest rates were below the rate of nominal GDP growth and negative in real terms. So, what happened? Inflation accelerated, bond yields soared from 6% in 1970 to above 15% in 1981, and the US dollar tanked. After 1981, we had for most of the following 20 years bond yields that were above both nominal GDP growth and the rate of inflation (positive real interest rates).

What happened? We had a lengthy period of disinflation. Also, because real interest rates were particularly high in the early 1980s, we had a huge US dollar rally between 1980 and 1985. After 2001, we again had interest rates that were below both nominal GDP growth and cost-of-living increases, which led to the unprecedented credit inflation we experienced between 2001 and 2007 and the subsequent historic bust.

Now, let us assume that market participants begin to believe in the nonsense Mr. Bernanke has been coming out with concerning “money printing” and “dropping dollar bills from helicopters” in order to stabilize asset markets and avoid economic downturns. They will begin to realize that he is the messiah of the gold bulls and the arch-enemy of sound money.

What will investors do? They will dump bonds and the US dollar en masse. In this context, it is interesting to note that recently, on very poor economic statistics, bonds didn’t rally but sold off. The Institute for Supply Management’s non-manufacturing index, which is representative of almost 90% of the US economy, fell in January from 54.4% to 41.9%. (A reading of 50 is the dividing line between growth and contraction, and the index has averaged 57.6% since its inception in 1997.) January retail sales – closely scrutinised – were a disaster and confirmed my view that US economic statistics published by the government misinform the public about the true state of the economy.

How can January auto retail sales increase by 0.6% when volume sales were down 6% month-on-month? According to David Rosenberg, in addition to declining sales at department stores (down in three of the last four months), sporting goods and book stores, furniture and building materials stores, sales at electronic stores were down 1% in January on top of a 2.5% slide in December, which represents the worst back-to-back performance since the 1990 recession. According to Rosenberg, the “bottom line is that the cyclical components of retail sales – autos + clothing + furniture + electronics + sporting goods + building materials + department stores – were down 0.1% in January.

By way of comparison, spending on gasoline, food and health care rose 1.1% collectively for the month.”

The poor state of the economy is reflected by the collapse of the ABC News/ Washington Post Consumer Comfort Index and its various components. The personal finance component is now lower than it was in 2002. Also, the University of Michigan index of consumer sentiment collapsed in January to its lowest level since 1992. According to Rosenberg, “consumer sentiment is now at a level that is telling us that we are not on the eve of a recession but are rather already several months into the downturn”.

As I have noted in earlier reports, the US economy is already in recession in real terms, but this fact is obscured by the government’s grossly understating price increases throughout the economy. Despite, in my opinion, horrible economic statistics (in real terms), the Fed needs to be very careful not to disturb bond holders by “printing too much money” (electronically), which – aside from the collapse in lowerquality bonds that had already occurred – would also lead to a rout in long-term government bond prices. At the same time, the US must be increasingly careful about its budget deficits and about bailing out the entire financial sector, which is loaded with crappy paper.

Otherwise, Treasury securities will reach “junk status” sooner than I had expected. But I can very confidently predict that, in the long term, US debt will become “junk”!

So, whereas under a sound monetary regime high-quality bonds would be – like utilities – a candidate to outperform, under a central bank that lacks any monetary discipline they are a rather dangerous investment. But this isn’t to say that, at some point in the current downturn, distressed lower-quality bonds won’t provide a great buying opportunity.

Regards,

Dr. Marc Faber
for The Daily Reckoning Australia

Marc Faber
Dr. Marc Faber is the editor of The Gloom, Boom and Doom Report and author of Tomorrow's Gold, one of the best investment books on the market. Headquartered in Hong Kong for 20 years and now based in northern Thailand, Dr. Faber has long specialized in Asian markets and advised major clients seeking bargains with hidden value, unknown to the average investing public.
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Justin Towner
Guest

I watched that senate hearing referred to,Paulson and Bernanke were green around the gills and squirmed in their seats,as they spluttered and squealed.

I’m sure a studier of body language would tell you they were distressed in their attempt to avoid telling the truth.

But the distress on their faces betrayed them,I felt extremely uneasy watching them.

Paul Douglas Renselle
Guest

I too watched Bernanke speak recently and prior. I agree with Justin’s remarks.

Few realize this, but USA (I am a citizen by birthright in 1942.) is already bankrupt. Roughly, our deficits, debts and unfunded liabilities exceed $75Trillion! Even Joe Lieberman has written WSJournal columns about this. The Chronicle (US tertiary, post tertiary academic rag) has published at least one article about this.

Faber is in my opinion telling it “like it is.”

USA, from my perspective, is becoming…rapidly…a banana republic.

Dr. Faber, thank you for your excellent article.

Doug Renselle
In Quantonics
Carmel, INdiana USA
1-317-THOUGHT

mike
Guest

…oh…kay…stately naked oak…art thou in default, yet again….thy prodigious bole encrowned with heaps of mildewed debt and withered stalk…their phantom bonds released….

jwcarpenter
Guest
Faber is difficult to swallow since his advice always is historically removed from the current problem. The debt problem in the USA, and elsewhere as well, is the step child of liberalism which depends on one believing 6 impossible things before breakfast. Of course none of the things are workable over the long run and ultimately things go down hill. That is where we are today in history, beliefs are out of whack with reality. The return to self sufficiency, hard currencies, and modest roles in government, etc., will require the pain of a global crash. We are not there… Read more »
Melanie Purcell
Guest
The system of economic currency is an artificial system as all of us know. It currency is as powerful as electricity, and emerged on the same principles, potential -> actual, and hence the nature of human will is integral to the system working. The circularity of the system that is in place which has granted anarchic freedoms for the business sector, has throughout history steered the direction of science and education, in order to defend the empirical mindset, resulting in an economy that serves defence, and hence a science that has been conditioned and funded to create more powerful means… Read more »
Rod Grant
Guest

Melanie Purcell PhD,
I think too much learning has made you mad.

Melanie Purcell
Guest
If you are suggest that too much learning has made me angry, then yes, you would be quite correct. It seems to me that there is a propensity for those who contain themselves by the boundaries and constraints of a single discipline, in this case economic theory, which is spoon fed from above by other disciplines considered higher in the linear hierarchy of knowledge, then it would be likely that you are either unaware of the wars that rage in nearly all disciplines, and that science itself is not by any means impervious to the agglomeration of crises in the… Read more »
Smithy
Guest

Wow Melanie,sock it to ’em. I bet you’re beautiful as well. Keep writing, we need to lift the level.

kage
Guest

A conspiracy theory, but a very well dressed one. You really need to be specific, but that would require some empirical conclusions, arrived at via a formal analysis, which you seem to deny yourself. Those “egocentric power hungry men” are now fully supportive of climate change and the need to “do something” about it. The ‘solution’ will kill us more comprehensively than the current regime.

James Bond
Guest
Kage Yo said to Melanie Purcell: “A conspiracy theory, but a very well dressed one. You really need to be specific, but that would require some empirical conclusions, arrived at via a formal analysis”. The theory of the fascists being in control of things is true. Just look at a couple of things Marc Faber said: “inflation (not that published by the government, but the cost of living increase for the median household)” “I don’t have a high regard for any government (except, possibly, that of Singapore)” It’s common knowledge that most of the data used to compile a formal… Read more »
kage
Guest
James, Such lengthy comments like Melanie’s that lack some sort of data (disputed or otherwise) leave me a little bit high and dry. I guess we all sense the need to make sense of our world, but to distrust every datum arriving at your point of cognition is not very constructive. Yes, data needs to be assessed for its own integrity, but to write off the idea of actually analysing what is going on around you (because you found some faulty data) is somewhat apathetic and sells you short as a human being. One of the major social trends is… Read more »
Panskeptic
Guest

I think J. W. Carpenter’s attempt to blame our economic distress on liberalism is pathetic. Mr. Greenspan and Mr. Bernanke are conservative Republicans.

As we know conservatives are unable to process information that disagrees with previously held ideology. And so they ignore six possible things before breakfast, congratulating themselves all the while on their clear-sightedness. Pathetic.

Melanie
Guest
It interesting to see that in a google search for my name, the first entry that comes forward is accompanied by Rod Grant’s comment alone. In terms of negating communication about complex issues, using comments as Grant has done, seems like a tactic and trap often used by pathological sceptics (as opposed to healthy scepticism), that serve simply and superficially to discredit a person like myself, whose interests are NOT in conspiracy theories, but in working through ridiculous either/or prejudices that arise from over simplified discourse. The split between oppositional sides of an argument perpetuate conflict, and negates the fact… Read more »
mitchell porter
Guest
Melanie, after a quick study of your website, I offer these thoughts: 1) You offer a false vision of life and the cosmos as benign until human beings screw it up. No doubt the human race makes things worse for itself in many ways, but we are born ignorant, not knowing, and nature is a torturer and mass murderer to a degree that human beings could not even approach until recent centuries. To the extent that you offer a vision which denies this, you falsify reality just as much as those you criticize. And to the extent that you affirm… Read more »
justin
Guest

I didn’t read much of Melanie’s diatribe because it is unreadable, but the last line says it all.

What’s the matter Melanie, aren’t you getting any?

beyondtool
Guest
Whoa heavy for this early in the week. I followed Melanies comments with interest, and surprisingly follow much of her argument. For a dumbed down version, perhaps the film “Zeitgeist” would suffice (on google video). However, I think the world’s problems are caused by far more than just a handful of greedy men pulling the wool. If that were the case than it would be simple to undo the damage and move forward. The problem is we like our current lifestyles too much, and in order to continue will require genocide and war on an epic scale (people>resources). All for… Read more »
John
Guest

“I think J. W. Carpenter’s attempt to blame our economic distress on liberalism is pathetic. Mr. Greenspan and Mr. Bernanke are conservative Republicans. ”

Price-fixing the cost of money and credit, aka setting interest rates, is not economically conservative, but liberal (in the modern definition of the term). Just because the people doing it might label themselves conservative is a fallacy of association; the act itself is economically liberal, and thus liberalism is to blame.

Melanie
Guest
I was going to respond with respect to the discourse, however I see that there is no point. You have no interest in finding any solutions, nor in engaging in the more complex issues that run behind the current situation. Your propensity to discredit an individual through the use of derogatory terms or making reference to their private life is indicative of the level of intelligence or education that is apparent here. I certainly would not want any advice from you guys, you are all either wet behind the ears, puppets, or are doing your nation a service by serving… Read more »
Pete
Guest

You are a tad extreme Melanie. Idealism is all nice and well, but doesn’t work unless it is sound, practical and will continue to work even if some fight against it – which I think yours will not.

If you are above all of this, then why argue?

I do not doubt that you have strong literary ability, but for anyone to suggest that the ideas of others are not worth hearing is just ignorant. Are you sure you aren’t part of a cult?

Best wishes to you

Melanie
Guest
I am neither above nor below anything, nor am I left or right, in front or behind. I am neither an idealist, nor a materialist, nor an antirealist, but believe in realism from a non-dual-dual perspective, which is really simply being a philosophical monist, if the meaning of “substance” was qualified as signifying the particle/wave or matter/energy dualism inherent in the electromagnetic spectrum, which used to be the basis of physics. I do not believe that I ever said the ideas of others were not worth hearing, however I consider personal attacks to be not worth entertaining. I have not… Read more »
Pete
Guest

Simplicity is the ultimate sophistication.
– Leonardo da Vinci

kage
Guest

Melanie is an expert. She will make it all better. Woe betide any who don’t coordinate their uniformity with her views. It’s a pity this site has become her psychic toilet. Saving the world through the comments section of a blog, sheesh.

mitchell porter
Guest
Melanie, if you actually want to make an intellectual contribution to a better world, you have a ton of self-criticism to perform. Speaking completely frankly, I have to regard you as someone whose intellectual life has become pathological, exactly as Rod said. Whatever valid scholarship and thinking may be contained in your thesis is hard to discern amidst pseudoscience, spurious connections, and outright paranoia (illustrated above with your intimations that Google may be part of the conspiracy to pillory your work, just because it has indexed this page already). Here are a few of the assertions in your thesis or… Read more »
kage
Guest

Please. Doesn’t Melanie have a comments section on her website ?

Melanie
Guest
Enough Boys, you can go on with your daily reckoning as usual. It is obvious that even the simplicity of Leonardo, that is both remarkably complex and yet appears so simple, exemplifies a sheer delight of the harmonic ratio of natural form, growth and process. While appearing simple, this “code” has still in its complexity baffled scientists who have spent generations on refining the potential to reverse engineer the muse (human) as machine (robot), to the point that it is more than a mere sex toy, and has intelligence. But then who would want to create an intelligent sex toy… Read more »
Paul Douglas Renselle
Guest
Melanie, Your Venn overlaps ours significantly. Our Gestalts are similar, except for your apparently dialectical usage of terms like monism, simplicity, and semantic. Faber’s article is a critique. For me, it is about what USA needs to do to improve fiscally as a nation? For me, you and one or two others got closer when you suggested a meme of individual responsibility. (You have boundless energy and use it to exercise your individual responsibility. Thank you.) Classical societies, in my view, are losing their grip. They have had a quasi-sovereign grip on individuals for millennia, and that is changing and… Read more »
Melanie
Guest
Thanks Doug, and yes, this could be a good blog, and yes, I think you are quite right concerning classical societies. What business leaders are scared of, is loosing their control. They believe, in their naivety, and like Emerson, Russell, and most other supremacists, that managing the resources, and that includes the labour force, is like running a well greased machine, and partly this is true, as the economy is an artifice and modelled on mechanical systems. Understanding mechanical systems and their aetiological roots is not that difficult, however one has to understand what they are built on, and that… Read more »
Diggin it!
Guest

Melanie, congratulations now you know what it takes to make capitalism [controlling the masses] work! What now?

Unpopular Truth
Guest
Wow, that’s a lot of waffle Mel. Argue this then.. is life better now or worse than centuries ago? This machine of corruption you’re painting obviously has some beneficial side effects. Progress either occurs because of, or despite what you’re saying above, but regardless we’ve survived and flourished as a species to the point where we live longer and better than ever, and are on the cusp of a lifestyle only dreamed of in ages past. And you can thank the capitalist machine for accelerating this process in the last few centuries. Without it, we’d likely all be still sitting… Read more »
Wingnut
Guest
Hi trenchers! Ya know, Justin & John, I’m glad you suggested I side-slide over here to see Melanie’s writings. Yep, he/she and I are definitely on the same frequency. And although he/she is substantially smarter than I and writes so, I like what is being said. I have “answer-up” and other ponderings to do over-in the thread I commandeered from Bill Bonner… but if I may make a general comment to an incorrectness I see here and elseblog… One cannot predict how less or more the world would be technologically advanced… had we used a commune the whole time… instead… Read more »
mike
Guest

..before melanie takes off her clothes here at the daily reckoning yet again…..someone should proof read her extravagrant sentences…sort of an alchemist who can make common sense out of our ramblin’ rose……”Research gives your articles credibility, supports your arguments, and can serve to make your articles longer, more detailed, higher quality. Therefore, they can command higher prices….”….

John
Guest

Melanie,

I do have one question, and would appreciate an answer that doesn’t go off on a ramble, if possible.

How can you be so sure that human-caused CO2 emissions are harming this planet? Since you seem so persistently skeptical, what makes you a believer in this case? And is there not more political motivation to promote such an idea even if it were not true, at least from the liberal point of view? It seems fiction wins Nobel Prizes now-a-days…

Paul Douglas Renselle
Guest
All, This is just awesome! If we could answer a fraction of all questions asked here, our world would be a better place! Melanie, again, your writings are well th~ought. Excellence! But as you read some of our responses, some of us males do not whole(ly) grasp your essence. Doug too. What chance is there that Daily Reckoning might set up a separate blog to allow this to attempt an effort at ‘at least’ partial fruition? Mayhaps it should just continue here… Help? Melanie has a site. Doug has a site. They are almost all-consuming. But there IS something GOOD… Read more »
The Daily Reckoning
Guest

Hi all… you can continue here or if you want to take it over to the Daily Reckoning message board that might be more conducive to ongoing discussion.

http://www.dailyreckoning.com.au/talk/

The Daily Reckoning

Paul Douglas Renselle
Guest
John, Since Melanie didn’t respond to your query on CO2, allow me. We need to di(omni)stinguish a sceptic from “absolute scepticism.” Latter is absolute uncertainty. (See Cratylus and David Hume. Heraclitus is more quantum than either of those classicists.) Reality isn’t like that. Reality is “partially uncertain,” and all of reality is to some degree uncertain. People who say CO2 is anthropogenic, in my view, are wrong based on quantum~macroscopic~uncertainty. To believe what those folk say means that classical determinism (absolute absence of uncertainty) is in- ‘effect’ “real.” Quantum reality is non classically determinate, due its implicit (intrinsic?) uncertainty. Classical… Read more »
Paul Douglas Renselle
Guest

Daily Reckoning people,

This is my first experience with DR.

It has, for me, been a great journey.

Thanks to you for offering top notch materials for omniscussion.

Doug.

John
Guest

Doug,

I understand what you’re saying.

Nothing is absolutely certain, thus those of us who understand that have to be by defition skeptics of literally everything, or else we must establish an artificial threshold of what defines “real” based on observation, inuition, and logic.

The question was a bit more rhetorical though, personally at Melanie, because she chooses to be skeptical of virtually everything, yet stands firm in the belief of this global warming bs. It’s inconsistent at best.

Melanie
Guest
when judging something, there is a tendancy to look purely for local causes. Like on a table of billiard balls, a person hits a ball with a stick and that ball hits another, and so on, in a simple process that is linear and can be tracked as such. a->b->c. This is simple causation. It is real, it is true. It is local. Is this the whole picture though? Isolating the local events makes it more simple to map relationships between things. Reducing causal relationships to mechanical and local effects however, while making it easier to understand the immediate situation,… Read more »
Paul Douglas Renselle
Guest
John, I think scepticism as say, “moderate uncertainty,” is good. I think those who do that are doing what Paul Pietsch in his Shufflebrain meant by “Indeterminacy is a principal feature of intelligence.” I do not know Melanie’s detail position on ‘global warming.’ Global warming is a quantum~complement of global cooling. They are ‘not’ classical ‘opposites.’ Earth has been in an ice age for a long time. But in 20th century we entered a warming period which lasted until about 1998. Earth has been cooling since 1998. My own view is that Earth’s poles started switching about 150 years ago.… Read more »
Melanie
Guest
hi, global warming is extremely complex, and as I have said there are natural fluctuations, cosmic forces, and yes I agree with doug about the magnetic switching. These things are indicators of an extremely complex system. It can only be likened to other copmplex natural systems, and the human body and mind complex is one that reveals all the elements of a complex living system. It is true too that we cannot really control things. However there are those who cannot stop trying to control everything. It is as if they are the wizard of oz, and they keep wanting… Read more »
Melanie
Guest
hello again, and thanks for keeping this conversation going, it is always rather sad that so many people are uninterested in the details, and prefer to run with superficial arguments. about the carbon cycle. First, carbon is one of the four most common elements, helium oxygen nitrogen and carbon and constitutes the major element in living bodies. Carbon is peat,coal,graphite,and diamond. It is most interesting. As coal it is a random and chaotic little mess of structurless structure ;-) and yet as diamond it is the hardest and structurally a most ordered crystal, that can be burned under certain conditions.… Read more »
John
Guest
Melanie, You still haven’t answered the question. No one is denying that we are responsible for releasing some CO2 in the atmosphere, and that there may have been alternatives. But how can you blindly believe that we are actually altering the long-term temperature of the planet? Or that it is changing at all? There is so much controversial data and politically-motivated “science”, it strikes me as quite odd that you accept it as true. And you know better than to ask me for proof, the default position requires no proof, as it is not asserting anything new. The burden of… Read more »
Paul Douglas Renselle
Guest
All, I just want to take a single word and enlarge its con(m)text a tad: consistency. Are any of you familiar with Kurt Gödel? In 1931 he wrote a paper on his notions of what he called “incompleteness.” That paper has since been labeled, coarsely, “Gödel’s Incompleteness theorems.” Some claim there is one, some claim two (Doug), some claim three incompleteness theorems. Doug Hofstadter in his GEB summarized singularly, “All consistent axioms in number theory include undecidable propositions.” Doug would add an ellipsis to that: …in a single global context. For maths to work “context freely” their context must be… Read more »
John
Guest

Well, Doug, if I understand you correctly, all you said was that Melanie can’t be both classically consistent and complete, so I don’t see a conflict unless you assume that she is complete.

John
Guest

Wow impressive – this article now officially has the most comments out of any article on the DR. Take that Ron Paul! (he got knocked down to second :P)

Paul Douglas Renselle
Guest
John, Classically, I agree with your assessment. However, if reality is changing, evolving, and like gravity, all is in reality and reality is in all…we must learn to see consistency as change. Classical consistency depends upon absence of change to retain stability. Quantum reality IS change and thus incapable of classical notions of stability. (This is what Pirsig meant when he said “Classical thinking suffers a mental defect in reasoning.”) I would say that if one currently supports global warming, in order to be consistent one would have to say, “Earth classically-unpredictably warms and earth classically-unpredictably cools,” in order to… Read more »
John
Guest
Doug, If I recall correctly, quantum wave probabilities collapse on the macro level into a more predictable reality (although I’m sure you know more about it than myself). Either way, it seems to me that this long tangent conversation about “consistency” has turned into a semantics discussion, as we all knew what I meant by “consistency” to begin with. While agreeing on a specific term in the English language might not be your prefence, it does make conversation easier, would you not agree? For example, I could say you consistently talk about quantum mechanics, and we would all know what… Read more »
Paul Douglas Renselle
Guest
John, You appear to be saying, “I like being a classicist. I like status quo.” At least it is my perspective from your last comment. Classical consistency is wrong! Why? Dialectic is wrong! By comparison quantum~consistency is better: it’s based upon perpetual change where classical consistency is based upon classical ‘state.’ Do you want to thing-k ‘state?’ Would you rather think change? I (Doug) am trying to help you see that. For example, it is a classical view that we can only thing-k about reality as objectively stopped (possibly linear-motion stoppable). What I am attempting to do is show you… Read more »
John
Guest
Doug, Let’s leave what I’d “like” to think or what I’d “prefer” out of this, since it is irrelevant. I have always been open-minded to science, regardless of whether I “like” the results or not. What I’m saying is that, while quantum mechanics provides a better understanding of the physical world, it averages out on the macro level to the point where it is insignificant. To use your pendulum analogy, the pendulum will keep swinging consistently (classically) regadless of what happens at the quantum level. While the pendulum is still made up of an uncountable number of particles, they lose… Read more »
The Daily Reckoning
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Hi all… as much as we are enjoying this thread, any chance you could continue it over on the message board? http://www.dailyreckoning.com.au/talk/

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