A Resource Ponzi Scheme

Commentary By Ron Beasley

I first suggested that Wall Street and the US economy was little more than a Ponzi Scheme almost two years ago. 

We have constantly been told that the American economy is strong. An
increasing number of Americans know this just isn't so. The problem is
that Wall Street has come to equal the economy in the minds of policy
makers. For a majority of Americans this is simply not the case. In
fact Wall Street has become part of the problem. The once noble purpose
of Wall Street has been replaced by something that more closely
resembles a Ponzi Scheme.
The value of stocks seems to have little or no relation to the economy
that most Americans experience. If you notice "stimulus" plans are
usually designed to restore confidence - keep stock prices up. Once
again the Federal Reserve is lowering the interest rates to prop stocks
up. The last time this was done it resulted in a a sub Ponzi Scheme -
the housing bubble which did what it was intended to do, run up the
market. Of course like all ponzi schemes it couldn't last for ever and
didn't.

Of course I was talking about financial resources here but Lester Brown suggests  that the entire world is a Ponzi Scheme based not on money but resources.

Our mismanaged world economy today has many of the characteristics of a
Ponzi scheme. A Ponzi scheme takes payments from a broad base of
investors and uses these to pay off returns. It creates the illusion
that it is providing a highly attractive rate of return on investment
as a result of savvy investment decisions when in fact these
irresistibly high earnings are in part the result of consuming the
asset base itself. A Ponzi scheme investment fund can last only as long
as the flow of new investments is sufficient to sustain the high rates
of return paid out to previous investors. When this is no longer
possible, the scheme collapses�just as Bernard Madoff�s $65 billion
investment fund did in December 2008.

Although the functioning
of the global economy and a Ponzi investment scheme are not entirely
analogous, there are some disturbing parallels. As recently as 1950 or
so, the world economy was living more or less within its means,
consuming only the sustainable yield, the interest of the natural
systems that support it. But then as the economy doubled, and doubled
again, and yet again, multiplying eightfold, it began to outrun
sustainable yields and to consume the asset base itself.

In a
2002 study published by the U.S. National Academy of Sciences, a team
of scientists concluded that humanity�s collective demands first
surpassed the earth�s regenerative capacity around 1980. As of 2009,
global demands on natural systems exceed their sustainable yield
capacity by nearly 30 percent. This means we are meeting current
demands in part by consuming the earth�s natural assets, setting the
stage for an eventual Ponzi-type collapse when these assets are
depleted.

As of mid-2009, nearly all the world�s major aquifers
were being overpumped. We have more irrigation water than before the
overpumping began, in true Ponzi fashion. We get the feeling that we�re
doing very well in agriculture�but the reality is that an estimated 400
million people are today being fed by overpumping, a process that is by
definition short-term. With aquifers being depleted, this water-based
food bubble is about to burst.

As I pointed out here Norman Borlaug's India is a case in point.

The
data revealed that groundwater under northern India and its
surroundings is being extracted exceptionally fast. Tiwari and
colleagues calculate that between 2002 and 2008 an average of 54 cubic
kilometres - enough to fill more than 21 million Olympic swimming pools
- was lost every year. Boreholes in the region show the water table is
dropping by around 10 centimetres a year (Geophysical Research Letters, DOI: 10.1029/2009gl039401).

Agriculture
is the primary culprit, says John Wahr of the University of Colorado at
Boulder. If the trend isn't reversed soon, the 600 million people
living in the region could face severe water shortages in the next few
years.

But it's not just water - Brown continues:

And there are more such schemes. As human and livestock populations
grow more or less apace, the rising demand for forage eventually
exceeds the sustainable yield of grasslands. As a result, the grass
deteriorates, leaving the land bare, allowing it to turn to desert. In
this Ponzi scheme, herders are forced to rely on food aid or they
migrate to cities.

Three-fourths of oceanic fisheries are now
being fished at or beyond capacity or are recovering from
overexploitation. If we continue with business as usual, many of these
fisheries will collapse. Overfishing, simply defined, means we are
taking fish from the oceans faster than they can reproduce. The cod
fishery off the coast of Newfoundland in Canada is a prime example of
what can happen. Long one of the world�s most productive fisheries, it
collapsed in the early 1990s and may never recover.

Financial Ponzi Schemes collapse suddenly - the same is true for the world wide resource Ponzi Scheme.  One day the fisherman will go to sea and come back with no catch, the wells will be dry (or filled with salt water) and there will suddenly be severe shortages of oil. 

Brown closes with this:

Today we need a realistic view about the relationship between the
economy and the environment. We also need, more than ever before,
political leaders who can see the big picture. And since the principal
advisors to government are economists, we need either economists who
can think like ecologists or more ecological advisors. Otherwise,
market behavior�including its failure to include the indirect costs of
goods and services, to value nature�s services, and to respect
sustainable-yield thresholds�will cause the destruction of the
economy�s natural support systems, and our global Ponzi scheme will
fall apart.

Brown fails to recognize that it's too late.  The world population is at least six times greater than the earth can support and the resource Ponzi Scheme will collapse soon.  Billions of people can either starve now or starve later.  The choice will be later.