Posted by: graemebird | October 4, 2008

Commodities Are Stored Wealth And The Only Fundamental Insurance: Helium 3 Example.

I was going to say stored labour but that would produce a gotcha moment and wouldn’t be exact. And I could have said stored labour, capital and energy. But in any case we can get a bit flippant about how much stored activity purified commodities can represent because we forget the decades of effort that went into building up the capital stock that enables us to get this stuff out of the ground relatively cheaply.

So I thought it might be useful to look into the distant future and try and project what a helium 3 industry would take in order to show the natural insurance that the monetization of commodities represents. Because when we think of gold we imagine a very high price for it, we discount its industrial uses and we have a tendency to see it as really a bit of frippery and almost as faith-based money like the horrid paper effrontery. We shouldn’t see it as such. And one suspects that gold will become the number one money for large purchases again. But I really want most of the burden of replacing the force-and-faith-based money with full commodity-backing to be taken up by a variety of other commodities so that the main standard money (presumably gold) doesn’t get blown out in price.

Now it might be objected that this is a hell of a lot of social insurance to be having. To be had tied up in large stocks of silver, copper, platinum, liquified-coal, stored yellowcake, titanium, and pretty much anything we can stadardize, digitize and store.  And I will get to some of those objections. But one reason we need more of such stocks is that the dissapearance of fractional reserve will make something closer to Just-In-time manufacturing far more viable. And this will lead to vastly less warehoused goods and work-in-progress. With such an efficient and streamlined production system you really do need more of a buffer.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

The helium 3 industry. Think of what stored activity it would mean to have tanks of compressed pure helium 3. To have them set aside as a monetary commodity.

 “The National Helium Reserve, also known as the Helium Reserve, is a strategic reserve of the United States holding over a billion cubic feet of helium gas. The helium is stored at the Cliffside Storage Facility about 12 miles (19 km) northwest of Amarillo, Texas in a natural geologic gas storage formation.”

I’d suspect that helium 3 would require far more expensive storage facilities since its so inherently valuable.

But to even get there you would have to have decades of investment before we had even a thousand tons of this stuff in storage and monetized. You would need a whole generation of robotics. A whole industry of people trained to set things up via robots operated via satelite. You’d need an international industry of space-going vehicles with much greater lift. To deliver far higher payloads more economically…

To get to this point this implies a great renaissance in nuclear energy, to even so much as have the fuel to make these massive vehicles to lift a lot of cargo into space and take it to the moon. We are probably talking a multi-phase deal where truly giant vehicles carry very large vehicles up to the required altitude and velocity before a second-stage lift-off.

Probably this all implies the exploitation of those abundant methyl-clathrates at the bottom of the ocean. 

From there we need mining colonies on the moon. And since we cannot expect that delivering a lot of cargo to the moon can ever be a cheap thing these colonies will have to include a whole lot of subsidiary industries to service the mining towns with their refining capacity.

Its pretty easy to see that there will need to be large structures on the moon for all this work to be done. And that those large structures will need to be made at least 95% with local materials. This means moon rocks to make buildings. Which means pyramids. I’m afraid so. There is no way of getting around it. Moon rock for building materials implies pyramids.

So when you finally get to where you have a lot of monetized helium 3 this is clearly stored activity. It is clearly a societal insurance buffer to have a lot of these various commodities, including the literal-energy-imbedded commodities (uranium, liquified-coal, helium 3) as the 100% backing for you cash.

Now this shake-down we are having now. We want it to end in such a way that we are in good shape for extended non-inflationary growth. This implies high cash balances, low-or-no ponzi-money, low debt, trade surpluses in persistent debtor nations,  lower asset prices in relation to consumer prices, and far higher savings rates. Far higher reinvestment rates in business…. This is the mix.

But with the higher cash balances that the market would give us this in no way respresents the same insurance buffer as cash balances backed by 100% commodities. In fact extra government cash is just squandered government spending when all is said and done.

So the high cash balances are hollow and an inflation risk. The 100% backing, what with all that cash around, is also an inflation risk.

What I’m trying to say is that neither ponzi-money nor fiat cash money can ever perform the societal insurance role that 100% backing can.  An individual with high cash balances ought not see his luck run out. But with everyone with high cash balances, when there is a problem, there can be inflation. The problem isn’t solved on a societal basis with the higher cash balances. Not at least if there is a serious crisis. And thats when you need the insurance that high cash balances represent.

Not long ago at the Cato institute these guys were arguing that they ought to get rid of the strategic oil reserve. One argument was that the derivative markets could handle the situation. Well I hope this fella has woken up to the silliness of this. Whereas one firm in good times can hedge against the risk of fuel prices going up, if everyone does it, and if that doesn’t increase stored real commodities, than there is only the illusion of insurance and not the insurance itself.

The companies writing the insurance or the derivatives to be used as a hedge will themselves go broke. And then they’ll steal billions in broad daylight. And where is the insurance in that?

It is true that we need to go to higher cash balances and less ponzi-money (less debt, trade surpluses) to beat this new financial crisis. But high FIAT cash balances aren’t the ultimate answer. And derivatives are ANTI-INSURANCE. They are actually what will drive this American financial collapse onwards until well past the point where there has been a decision to change their ways.

Now back to the massive decades of investment going into our hypothetical monetized Helium 3. Surely we can see that the same thing applies, and going decades back, to the wealth implied by monetized gold, platinum, silver, copper, liquified coal and so forth. You’ve seen the big vehicles with the wheels alone standing twice as high as a man. All that tunnelling equipment. Thousands of man-hours of surveying and prospecting.  All that activity from the past wrapped up in the value of monetized commodities.

If the private money suppliers just have enough tax incentive to replace a small percentage of the ponzi-money and the fiat-money every year they will buy into the dips. They will not blow out necessarily the price of these commodities. Rather they will simply stop the prices of commodities from falling to low levels that would geopardise some mining activities. The input of the money-providers will keep the capital goods involved in these ventures ticking over. The money providers will help us avoid energy shortages. Get our guys investing ahead in the extraction industries. Keep the extraction industries ahead of the game and avoid any boom bust cycle in these industries.

Contrast that to the where the faith-based money has lead us. The perceived insurance has blown up. The derivatives are all sitting there ready to collapse the system. Meanwhile in a time of desperately low oil inventories the rigs are all thirty years old. The equipment that is needed for all the deep-sea drilling is decades away. I’m talking about Antarctica all the time and I’m being laughed at. Why worry about getting your resources there? After all we can hedge against higher fuel prices………. not.

The liquified-coal production is just barely going ahead. The nuclear industry didn’t get rejuvinated in advance of problems in the oil industry.  It is the fiat money that has largely brought us to this impasse where it is being put about that the free market cannot think ahead. What free market? Not only do the regulations, and the environmentalists get in the way. But the force-based-cash has robbed us of thinking we need to carry large commodity inventories.  The Americans stocks of gasoline are down to virtually crisis levels at the moment. Which is bizzare and not something that you’d expect from a free market, given that the price has recently gone down.

You see we all thought that we didn’t need the commodity standard. We thought that the fiat would be fine if only we got the money supply right. But the money supply ought to be stored commodity supply. Or you and me hoarding cash winds up being a negative sum game if everyone does it and we go to spend it that is inflation right there. And if no-one keeps high cash balances and we instead rely on insurance in all its many forms, that insurance too winds up being an illusion… JUST AT THE TIME WE REALLY NEED IT.

A commodity standard with a few commodities, and at least one serious energy-commodity, means that you taking out insurance in the form of high cash balances is also SOCIETAL insurance for others as well. It helps the entire society all the way around for any calamities that befall us.

Whereas any other type of insurance turns out to be an illusion just at the time that everyone needs it.

And the derivative market even seems to have interferred with the normal functioning of the price system and actually hindered the production of commodities. Actually undervalued their price.

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Responses

  1. Graeme:

    A comment from a layman who has a very simple, common-sense view of economics and related subjects:

    When you mentioned Helium3, the first thing that crossed my mind was Tritium …. never mind, it will serve as an example of what could be done ….

    When you mentioned Just-In-Time, I nearly freaked out. Just-In-Time works only in fine weather with a light south-easterly breeze during months with a “Q” or a “K’ in the name; in other conditions JIT is a bloody disaster. Great idea, pity about its ability to destroy small firms.

    Pyramids? Did I miss something?

    IMHO, if you are going to have a commodity standard, you’ll need a wide variety of commodities, not just a few.

    Anyway, it’s good to see that at least one person is thinking outside-the-square in Australia at this time of outright piracy, daylight robbery of the citizenry and financial turmoil.

    Had our economics gurus and whizz-kids not been afflicted by group-think, we might have avoided a lot of suffering, loss and grief …. and, maybe, even profited mightily from the distress of the foolish, the gullible and the stupidly greedy elsewhere in the world.

  2. Tritium is hydrogen 3. The Chinese and others are looking seriously into getting helium 3 from the Moon. That really seems to be the driving force behind their Moon program. I would say its a century premature. I would think that the private sector wouldn’t be going after this sort of thing right now since uranium is pretty cheap.

    I think you are right about just-in-time. I think too many problems arise when you try it on. But I think its like an ideal of efficiency that you try to get closer to without putting yourself in the shit.

    “But one reason we need more of such stocks is that the dissapearance of fractional reserve will make something closer to Just-In-time manufacturing far more viable.”

    Notice the wording there. I said “something closer to just-in-time”. One doesn’t want to be extremist about it. Elsewhere I’ve called it “just ahead of time…” But in any case less of this fractional ponzi-money will mean more effective distribution and less work-in progress in the system.

    “IMHO, if you are going to have a commodity standard, you’ll need a wide variety of commodities, not just a few.”

    It would be interesting to see. To me it would be a bit of a shame if we just went for gold and silver and blew their price right out. So my idea would be to simply have the tax exemptions that allow for 100% backed loan contracts to be tax-free. And for revenues from 100% backed money provision to be tax-free. And for the costs associated with the provision of fiat-money to be charged and recovered in some way as to make it blatantly user-pays.

    Now what would come out of this? I don’t know. If people were using money that was backed by stored gasoline out in the bush I’d be fine with that as long as people weren’t cheating. It would have to definitely be stored gear of some sort. And not just people pyramiding on top of the stored gear.

    In reality I think it would wind up being just a few commodities. You can see if the government was the provider they simply wouldn’t be able to keep costs down. When it came down to it I suggest that it would only be a few goods used. I’d like it to be as wide a range as possible but I suggest that it would come down to a few. My only concern would be that there was at least one blatantly energy-imbedded commodity. I think we would end up THINKING in gold and silver. Even if we had several accounts with different commodities represented in them.

    Now the thing is when you are looking for a needle in a haystack you are going to find a lot of interesting hay. I don’t want these monetary commodities to spiral up in price. Rather I think the idea is that they would accumulate as monetary commodities during the dips or the pull-backs. Perhaps you would buy them for this purpose when they had dropped more than 10% below their recent high. More than 20% perhaps.

    But suppose they end up carrying a substantial premium? Suppose they carry such a premium that they divert a lot of activity to these monetary commodities? Well thats not such a bad thing. Because when looking for platinum, uranium, copper, gold, silver, and just a few others, than you will scope out a lot of other gear. Gear that you can come back for when the prices of the monetary gear is falling. So its still represents a lot of work in advance. Its still keeping your capital goods in good working order. Your extraction industries ahead of the game.

    The pyramids deal goes like this: Suppose if there was no government involvement in mining Helium 3 from the moon. And supposing we had this monetary system. It follows that many years prior to us finding that uranium was hard to get to monetization of uranium would lead to huge stockpiles of it. Since the knowledge would be that it would hold its value, that means the monetization would see use recognizing scarcity decades prior to the mining of it becoming difficult.

    So it would be expensive. Nonetheless we could borrow some of the stockpiles in order to develop the project to go get the helium 3. Now I’m assuming that this is maybe a couple of centuries from now and no government involvement.

    And so we have to consider that such a project, to go get helium 3 from the Moon, would have to be profit-making. Hence any way we can cut costs would be important.

    What would happen is we would quickly find in such a moon project that we had abundant local energy, yet we would be always facing a lack of capital goods and a lack of labour. We couldn’t be lifting all this cargo to the moon all the time. And we would need a great deal of local production. Local production of food. Local production of building materials.

    Also on the moon we face problems with being exposed to cosmic rays and we have to have really very ponderous buildings to be able to filter them out. We need huge buildings to smooth out the difference in heat between night and day. To hold in an artificial atmosphere.

    On the moon we face one sixth the gravity that we do on earth. But like I said we would be short on people and capital. And yet we would have energy and not much gravity.

    Another factor to consider is that an efficient local economy would mean a “lengthening of the structure of production” as the Austrians say. To have a full-blown moon economy this would imply very large buildings. Bearing in mind that all this must be done at a profit.

    Now what we find is that given that the local building material is simply rock, and given all of the above, in my view it is just absolutely inescapable that a cost-effective moon economy under capitalism implies arrays of very large pyramids.

    It may seem like a kooky idea but to my mind its very hard to get around this.

    You need to be exporting helium 3 and some incidental precious metals perhaps. And you need to be importing expensive capital goods. You cannot be importing all that much in terms of finished foods and all types of groceries and things. You would always have some of that gear but the whole viability of the project would be reliant on reducing the amount of cargo that needed to be dragged too and fro.

  3. Assalamualikum Mr Bird

    Your pyramid theories are most interesting. As a proud Egyptian and amateur anthropologist I have been developing the theory for years that we Egyptians were actually the first true capitalist libertarian society. Part of my researches have led me to the idea that the pyramids are proof of this since as you say they are the most cost effective building structures possible. It stands to reason that only in a super-capitalist free market economy with constant competitive pressures that the architecture would be characterised by pyramids. i would appreciate your further thoughts on this matter, insha’allah

  4. Pyramids wouldn’t be the least bit cost effective on earth.

    We are talking about a moon colony that is still dependent on a fertile planet.

    However if you look at the designs for really big buildings, one day we might have these squashed-cone buildings around on earth. Its a bit like the triumphant return of the pup-tent or the tee-pee.

    http://www.tdrinc.com/ultima.html

    Goodness knows what those gypos were up to. It strikes me that their pyramids were anything but economic. I have to assume thats a big co-incidence. But its just hard to imagine a profit-based moon-mining operation not to have as its major structure a series of very large pyramids.

  5. http://www.skyscrapercity.com/showthread.php?p=18304155

    Here’s what a lot of buildings might look like on earth if we ever go in for really big buildings here. Which we might wind up going for if we have an extended period of capitalist money along with the end of all zoning.

    Its this squashed-cone shape again. But on the moon we would want to be whacking up pyramids more or less straight away.

    Not that the Chinese government is going to see it that way if they are trying to mine helium 3 one or two decades from now. But I think any such socialist program is doomed to failure, cost overuns and abandonment. I hope they go after this program and I wish them well in it.

  6. DIM BULB CITY.

    Notice that these conclusions…. almost impossible to escape in my view, have produced the same stupid reactions from people incapable of any real thought at all:

    “JC. Says:
    October 6th, 2008 at 12:19 pm
    Crikey: He’s now introducing Austrian economics to the moon economy? Sure enough pyramids are too far behind.”

    This shows what a dim bulb Cambria is. Obviously if you are going to the moon for a profit-making venture than economic realities apply. That one just a little bit too hard for that little mind of Cambrias.

    And here is Soon’s reasoning-free-zone

    “Jason Soon Says:
    October 6th, 2008 at 12:14 pm
    Bird’s second public breakdown over pyramids…”

    It shows I was always dealing with dim bulbs. Note that these two were the first to jump onto the the bank bailout.

    Consider travelling long distances on the moon. The cost of it would be terrible because you’d need protective equipment the whole time. So while you can imagine working in very large mining vehicles that were so protected there is no way we can imagine suburbs and towns where material was transported back and forth large distances.

    It becomes obvious then that we want large structures for the economy that would support our mining industry. And to get these large structures we wouldn’t find it cost effective to airlift all this stuff up from the earth.

    So what the fuck are those idiots Soon and Cambria on about? How the fuck do they imagine that this sort of operation would be carried out? Are they fucking contesting me or are they merely showing their idiocy.

    It just shows their total non-comprehension of what wealth production is about. One fellow imagines we can outsource all our manufacturing to poor countries and another imagines that his trading in intangibles, really a glorified bookie operation, is a wealth-producing activity.

    Imagine bringing an elevator to the moon and installing it? The cost of all that? Imagine that? It costs as much to put an industrial elevator in a building as it does to buy a house. It would cost one hundred times as much, one would imagine, to airlift the fucking materials up there and install it.

    Plus industrial elevators are always breaking down. So you need all the gear and people devoted to fixing them up on call. What I’m saying here is that a lunar outpost would have a very crude economy based around penny-pinching and working in all cases not to have to airlift huge amounts of gear up from the earth. Hence the building of truly large buildings 95 or 99% from local materials is inevitable. And what will these buildings be like? Well clearly if they are carved out of rock we would expect them mostly to be of a pyramid shape. You would want to lock in your artificial atmosphere. And so you would want these very large buildings, easy to make with few people and capital but with a lot of available energy.

    So where are these dim bulbs coming from? You see they simply have no understanding of the wealth creation process that supports them.

    They take a faith-based approach to all things.

  7. Assalamualikum Mr Bird

    Thanking you for your response I think but I would appreciate that you not refer to my people as gypos. We are most proud of our heritage and i assure you Egyptian civilisation was most high and mighty and an early form of capitalism. You might want to reexamine your assumptions. The pyramid is a most excellent form whether for the earth or the moon.

    As for this Soon it is most strange Mr Bird. I detect he is an infidel unlike yourself who has a spiritual side. Your condemnations of banking and usury are most welcome to this believer’s ears.

    may God progress your objectives

    Mustafa

  8. Assalamualikum Mr Bird

    If you please I am also most interested in how to promote capitalism in my country and other countries in the region? And what to do about the Israel problem? The Zionist Socialists have been creating discord in my region for ages. How to return to the capitalist Prophet Mohammad’s ways?

    may God progress your objectives

    Mustafa

  9. The Ongoing saga of the stupidity of Joe Cambria. Here Cambria susses it out that the same people who have manifestly screwed up and now want to be bailed out were quality people and their pay was determined objectively by the scarcity of their needed skills. Joe Cambria on the financial crisis:

    “He will cause the light to go out, David. After this mess is out of the way, Firm will gradually get privatized limiting the variety of stocks available to Ozzi investors. They will not be able to limit executive compensation as it’s no one’s concern other than the management and the stockholders. The reason why comp is so high is that good executives are in real short supply.

    Comment by jc | October 6, 2008”

    Oh my god how mighty and productive these bankers are hey? These are just quality people and how wonderful Hank Paulson is.

    What a fuckwit. Squealing to have these guys bailed out and still thinking they are high quality people who did a magnificent job.

    I guess thats why Jamie Gorelick pulled in about 27 millions for her efforts in the financial sector. Since she was just so smart and such a magnificent banking executive.

    “Bird: thinks think the moon should be a free market in the context of what HE thinks a free market should be.”

    The horror. The horror. Actually I’m blaming alzheimers. The moon exploited under free enterprise. Lord help us. Notice that I was discussing what I imagine to be the distant future. But the idea that it could be a free enterprise operation is just a little to much for that dummy Cambria to deal with.

    The guys a fucking idiot. He has to team me up with Lambert in order to try and make any criticisms. How is that for leftist projection. The brazen crony-communist who has not backed down on his support of the government bailout ought to be teaming himself up with the left from here on in.

  10. Here is a tape which shows Americans and Russians determined to exploit lunar Helium 3 by 2020. I myself think this is a bit premature. But I want to emphasise the blockheadedness of Soon and Cambria and their small-minded thinking on these matters.

  11. Graeme:

    Thanks a lot for the clarifications; it will take me a while to go through it all ; [one of the social myths is that pensioners have all the spare time in the world; quite the contrary, have to keep myself very busy to avoid falling from poverty into abject poverty].

  12. Yeah that would be right. Just weeks ago Soon was dirty on giving pensioners a bit of a raise that would cost a paultry billion. But 780 billion to bail out banks….. no problem.

    “Graham Bell Says:
    October 6th, 2008 at 6:50 pm
    Adrienswords [349]

    Strictly speaking, you’re right.

    I was searching for a word that spoke of arrogant stupidity and criminality, of the squandering of a nation’s treasure on baubles and on silly pseudo-luxury, of repeated failure without any penalties at all, of inflicting completely unnecessary suffering on the subject peoples.”

    I assume you are talking about the bankers right? I was a banker. But I got out.

  13. Mustafa al-Arbib bin-Hammam:

    You Misr..able bugger. 🙂 L-O-L

    Graeme:

    Still mulling. Might be a few days before I comment. The older I gets; the slower I thinks.

    Forgiveness and redemption are corner-stones of our way of life. If you were a banker and got out. Good on you. Your sins will surely be forgiven.

    Actually, giving a straight cash rise to pensioners might not be the optimal thing to do …. BUT reducing the cost of living by innovative means might well be.

  14. Bird:

    banking a great job. If you were younger I would highly recommend it. The work isn’t hard although mentally taxing at times and the pay rates are to die for.

    Now if you think traders are over compensated let me suggest you try this thought experiment. Put a couple of screens in front of you with lots of number changing along with a phone and try to make money. let’s see how you do.

  15. Commodities Are Stored Wealth And The Only Fundamental Insurance: Helium 3 Example.

    Bird you idiot. Commodities have been the worst performing sector in he past 100 years. A long term investment in commodities would have sent a rich person to the poor house, you dopey idiot.

  16. You really have no idea at all do you.

  17. The compensation is ” to die for” because its a counterfeiting racket. So its just basically stealing. It would be impossible for these charlatans to make that sort of money if they weren’t thieves and welfare queens.

    Imagine a complete knobhead like Paulson making half a billion dollars under 100% backing? Its just inconceivable. Hence one of the reasons we need 100% backing is to stop non-entities and complete idiots like this from stealing off us.

  18. JC:

    We will always need bankers.

    People who help us store our wealth. People who arrange for the swift[?] and accurate payment of goods and services. People who stabilize currency. People who seek out investment opportunities. People who have to make weighty decisions about what funds, if any, are allocated for the well-considered use of governments, corporations, institutions and individuals. People who are rewarded for honestly and diligently providing a vital service.

    Trouble is …. nowadays, banking has been degraded itself into machinery that merely churns out destructive “complex instruments” and cancerous “credit”[w.t.f.??].

    Hate to sound unkind …. but how much of what pops up on computer screens, remote from what is really happening out in the real world, is actually banking …. and how much is very busy cult activity and even, as is now coming to light, outright criminality?

    What worries me is that those who want banking completely abolished have now been given magazines full of ammunition to do just that.

    Without banking, we would be in a new Dark Ages.

  19. These guys have actually got instruments now that get in the way of real world pricing. If they run a bookie operation on the price of commodities, the paper trading can subvert authentic free market pricing.

    So we note that lately the price of gasoline has been falling in the states yet the inventories are at record low level. We note that gold and silver are down from their highs. Yet you might have to wait a couple of months before you can take delivery of the real thing.

    So fractional reserve appears to have exploded in all directions. Now when you buy gold and don’t take delivery, you are not buying gold at all. You are buying into a bookie operation. Therefore these things are being UNDERPRICED. And the incentive to invest in the provision of these commodities simply won’t be there until we get to dangerously low levels and then there will be an outrageous price surge.

    Hence the financial community is now actively sabotaging the functioning of the price system.


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