Defying the Laws of Finance and Physics

Fiscal cliffs and debt ceilings. The walls closing in. After weeks of approaching one near death experience and finally dodging the bullet, another near death experience quickly approaches for the US government. Governmental action/non-action thrillers are a steady stream of entertainment for the financial markets.

After a few of these events/non-events, the definition doesn’t seem to apply any more – it’s not really a near death experience, it’s just another hassle – something that can be dodged or delayed.  A law of finance that can be avoided.

Indebted governments are like characters in a video game, bobbing and weaving to avoid the zombies trying to grab them and suck them in.

Or like a moonshiner driving his stash of white lightning, barrelling full speed down country roads to avoid the revenuers.

That’s what it’s like when you’re a deadbeat avoiding your creditors. You become the hero in a self-delusional drama. The folks that want their money back are the villains.
Bankruptcy is both the ultimate shame and the road to salvation.

It can be exciting. Near death experiences keep us from getting bored. But after a while the adrenaline wears off, and the debts are still there.  The laws of finance remain in place and they demand consequences.

There are times when markets can avoid thinking about these debt dramas and there are times when watching governments battling to stay afloat is the only thing that matters. 

When the avoidance game is played out, the United States, like many high debt countries around the world, will have to make tough choices. Governments will have to shrink expectations and expenditures. The shrinkage will freak out many citizens and the consequences will have to be digested by the markets.

The way the world spends energy is similar to the way governments spend money. Day in, day out, we burn through fossil fuels that took millions of years to create. We do it because we are addicted and we can get away with it.

We can see that there will eventually be some negative consequences, but for now, it seems that we can use petroleum as fast as we can, go on a joy ride, and avoid the laws of physics.

We know that petroleum reserves will eventually dry up. There is a limit even with continuously advancing technology. There is only so much oil and gas available and it will be gone in a handful of generations. But like piling on debts, we figure our great grandchildren can somehow cope with that.

Many signs point to damaging climate change being the result of our overuse of hydrocarbons.  But the weather changes. One week is hot and dry and the next week it rains and cools. Like farmers we hope that drought will ease and the heat will subside, that the problems won’t get too big – that we can avoid a real reckoning.  We hope that the really nasty hurricane will hit the next state.

The flow of money to pay for our heavy use of imported petroleum creates serious geopolitical problems. We apply military solutions in attempts to solve the problems. But using the military creates even more problems, not the least of which is rapidly escalating government debts.

We can convince ourselves that the bad guy is the severe weather. In another movie, the bad guy is the Jihadist kidnapping oil workers. But these enemies are just the equivalent of bill collectors. The real problem is the crazy way we spend energy.

Eventually in this gangster flick the laws of physics kick in, like the laws of finance. The adrenaline wears off, and the hangover remains.

By. Dave Zgodzinski