Unwinding Credit Bubble

I have here an interesting comment from one of my readers on the subject of housing options. My post on the US credit crisis is a strategy for truly ending the crisis with the resources of the Fed while simultaneously disciplining the creators of the crisis properly, but not destroying the system. I suspect such a program would turn out to be short lived since a restoration of confidence would quickly dry up the overhang in the market.

The way it is coming down now, we will keep revisiting this crisis until everyone has exhausted every option or we have a terminal insolvency situation on our hands. The problem is that the US credit system has allowed and promoted a huge mass of speculative debt that built up to the point it could no longer be sustained or spun one more time. When the music stopped, the first thing that disappeared was the banker’s reserves. Just like 1990 Japan.

The crippling of the banks means the onset of rigorous lending standards now. The destruction of individual credit is also taking place, impacting directly on sustaining housing and consumption. Without a drastic maneuver as I have suggested, this scenario will unwind over several years destroying individual fortunes faster than new individual fortunes can be created, causing a long lasting recession, perhaps to be called the Great Recession.

My proposal rapidly restores individual credit, igniting a fresh more prudent investment boom, while capitalizing the very real losses at the institutions immediately rather than hiding them. Remember that unwinding a failed mortgage is hugely damaging to both parties in a declining real estate market. There is no soft landing.

I do not concur with the idea of buildings designed to house 10,000 people, but do concur with the idea of urban nodes with a designed separation. What I have been promoting is the idea of linking the multi story condominium building directly into the local agricultural land base through a semi cooperative organization.

This emulates the natural support system associated with a village, while providing maximum flexibility and a modern living environment.

I am very conscious of the fact that the young thrive in a village social and agricultural environment were their contributions are valued. I am conscious that young adults need flexibility to earn purchasing power outside the village environment even while still residing in such a place. And I am conscious that retirees will also thrive in a village environment for the same reason as the young.

Our cities fail us because these needs are isolated from each other, putting excessive power in the hands of whoever is making money today. Rethinking the economic basis of modern city is overdue and appropriate now because all the economic reasons for the concentrated city are diminishing.

Dear Robert,

In your latest blog you go slightly off subject with an idea for getting the housing crisis out of trouble. It might work. I'm no expert, just a property speculator with houses, agricultural land, commercial land, industrial land and residential land, but only one mortgage so far. I will mortgage a second house shortly in order to finance a trees and shrubs in tubs business at a recently acquired horticultural site.

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The housing market here in the UK hasn't slipped as far as it has in the US, hardly at all in fact, but it's stopped rising and might fall back 30% or more over the next few years before increasing again, as it surely will in the next ten years or so.

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Maybe the same is true in the US, that eventually house prices will stabilize then rise again. More immigration would help. Immigration in the UK keeps house prices high through a shortage of houses.

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There are plans here to build ten green new-towns. I've not submitted my own plans yet, but I think mine would surpass any that have been submitted, though I don't have their details yet. My own engineering approach calls for nodes along a new underground transport system in which the transport system is paid for by those buying into the nodes. This is important as there is no other way to pay for it without putting up taxes.

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The nodes, (I call my design a circle city), house ten thousand people in a single building, in relative luxury. It will cost more than other housing and will attract the richest ten percent. This will benefit the other 90% in more than one way.

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Those who sell a house to move into the network of circle cities make that house available to the buyer, who in turn make their house available to another buyer. And so on down the values leaving only the worst housing unwanted. (These can be demolished to make way for more trees in urban areas) This will cause a boom in house moves but without the normal unsustainable increase in prices. In fact house prices might move down slightly and gradually.

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As houses change hands the new owners will upgrade them pumping money into the retail sector and therefore also the manufacturing sectors.

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The circle city design is extremely green, being not just carbon neutral but carbon negative on the terra preta principle, using pyrolysis on much of its organic waste and digging the biochar into the food production soils and also the forest soils. No biological waste would be wasted at all. All water would be treated and reused after capture. Crops would be mulched to save water. And on the whole the diet would be vegetable, with a possibility of wild meat but no large scale meat and dairy industry that is energy intensive, needs a lot of water and land.

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The land use ratio is very good with a 200 acre footprint for the building on a 29,000 acre site, mostly forest with the trees being sustainably harvested for fuel to augment the solar and heat storage systems.

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This would standardise housing at a very high level without wrecking the environment in the process. Not cheap but affordable, and work could be outsourced to where it's needed, on every continent so that people didn't need to become economic migrants.

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This plan has everything going for it and needs promoting while we have time. I don't think I can market it directly, I wish I could. I might have to take a different route. The route I'm planning is fairly simple. It is to get a few people into business in my area, up to 100 or so, running a necessary and viable business each, but in conjunction with each other sharing many facilities and recycling their own waste and growing their own food and so on. If it works here it should work elsewhere, especially if we help finance start-ups.

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If we can get the same thing working well in a number of areas we should at some point be taken seriously enough to attract the right level of investment to start work on our first circle city. It will be possible for the first section to be lived in whilst the building process goes on. In fact the tunnel transport system could also be started, or some temporary overground narrow gauge rail system used and several circle cities started almost simultaneously.

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This approach is almost guaranteed to cause quite a stir in the world, not least in the world of investment. There can be much in the way of spin off, industries being set up to supply this ever expanding new network. The number of new starts and general activity will be controllable and will help stabilise the world economy. Right now it could pull us out of a possible world recession. If things get really bad it might be the straw that will be eagerly clutched.

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This idea demands serious scrutiny. Don't you agree?

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Positively yours, Bob *****

The threee options for global transportation fuel

As should be now clear, mankind has three options capable of supplying transportation fuel similar to what we are used to. That is fuels that derive their energy from the burning of molecular carbon and hydrogen.

As shown yesterday, it appears likely that we can extend the usage of geological hydrocarbons for around a century or so because we are mastering the art of their extraction. This will continue to be cheapest once it is all sorted out over the next twenty years.

The second source is the two stage conversion of wood chips into firstly a bio liquid through fast pyrolysis and then into a usable fuel perhaps through several reforming technologies. Since the first stage is liquid, and the feedstock is sufficient to globally replace oil, the payoff is obvious and the research should succeed.

The third source is algae oil. Research on production is in its infancy and it is still impractical and poorly understood. Did you ever wonder how many centuries it took to master the art of making wine? Same problem. The reward however is a huge leap in productivity on a per acre basis and the ability to preferentially use deserts. And the product will need little processing to use. It is also capable of completely replacing geological oil.

Then it comes down to preferences. The best solution is to successfully harness wood chips, not because of the fuel itself but because of the secondary need to manage woodlands properly worldwide. We truly kill two birds with one stone.

This second goal must also be met if we hope to handle much larger populations. The integration of agriculture, woodland management and the human population is very necessary in order to achieve a fully energy efficient civilization.

The farm and woodland needs access to a community with available surplus labor in order to be able to maximize productivity of the resource. Ultimately that is how we prospered when the only available energy came from our backs.

One reason I totally appreciate the amazing achievement of the Amazonian Indians is the fact that they managed to create terra preta soils with a resultant high population density and a semi urban society using only their backs. If they had had to cut anything, it would never have happened. It simply would have taken too long to both cut material and to build out a proper kiln. Having a crop that could easily be pulled out of the seed bed with its soil contribution made the job possible.

Modern technology allows a small community to have all benefits of the urban world while still integrated with farm and woodland. This was not true ever. Such formal integration must now be planned for and implemented for civilization to achieve maximum energy efficiency while handling much larger populations.

Recall that five condo towers tied to one square kilometer of farm land gives us a population density of around 1000 people per square kilometer. We can all imagine that. Since around 15,000,000 square kilometers are readily available to us for human occupation in some form or the other, it becomes fairly clear that we can accommodate a population of 15 billion without becoming cheek and jowl. The real secret is to plan so energy needs are minimal and self sustaining.

It is all very possible.

As an aside, I have focused on strictly organic solutions to the transportation energy equation. Other options exist but are technically much more challenging and face the natural problem of an inability to integrate at all with the current legacy of gasoline and diesel power plants and engines.

Electrical systems require super batteries that are cheap. This research has been ongoing forever and has not changed anything that matters. And other storage systems ultimately give us the problem of traveling around with a bomb in our fuel tank. Not very likely even though I like a couple of the methods.

The New Model Farm

As my readers have likely figured out, I use thought experiments to advance new ideas. I have a lifetime of massaging other peoples doubtful business plans to inform me and I must sometimes ask the reader's forbearance when I assume he is as experienced in this process as I am.

That is usually a bad assumption and it is very easy to assume prior knowledge when it is not true. So just as a reader is welcome who brings new information, I want to welcome that reader who does not follow the argument. Ask questions! It gives me a chance to rewrite those same ideas and in the process allows a larger group of people to understand the concepts.

I use one key principle when thinking about the human aspects of any innovative protocol that I am introducing. I call it the rule of 200.

Essentially, humanity naturally organizes itself into communities whose maximum head count should never exceed 200. We have learned to create larger organizations only through the expedient of operating virtual communities within the organization and explicitly defining their bounds.

Command an control is achieved by the rule of 6 in which only six people report to any one individual. There are lots of ways to play around with this and it is never meant to be used in a rigid manner. However, anything larger tends to turn into a one way communication meeting.

Understanding this allows us to realize that our ancestors tended to naturally organize their economic life around farmland and a village of 200 or so. It is a powerful predictive tool for deciphering ancient settlement patterns.

Perhaps with that in mind, you can understand my logic in suggesting the creation of a new agricultural protocol implementing new agricultural ideas and using the modern condo tower as the central village around which community life revolves. After all, our condo delivers the entirety of the modern lifestyle in a completely financial form. No one has yet got wise to this idea and how this can solve several major problems.

1 A full community social support package can be implemented easily and internally financed.

2 A community capital base can be provided for maximum agricultural efficiency.

3 A base labor pool becomes available to the agricultural sector that opens the door for higher value custom agriculture.

4 The community is integrated into the life of the associated farm operation. Many natural recreational options open up.

5 All members of the community can access part time economic value for their effort. That particularly includes the elderly and the young. This is a major social improvement.

This is a radical change of outlook for traditional western urban and farm operators and was never quite practical in the past. The advent of the internet changes all that forever.

Of course there are plenty of aspects that need to be worked out in a protocol so revolutionary. The more I think about it however, the more comfortable I am that such a protocol can readily resolve the many conflicts that are particularly built into our urban civilization.

I am going to call it the new model farm community. I encourage comment and ideas. There is a lot of meat to put on this bone before we are finished.

Liberating human labor

In yesterday's post I presented a world in which our newly discovered mastery of the art of carbon sequestration allows us to also progressively reclaim the global deserts and wastelands and essentially build out the Garden of Eden as our human homeland. This is the great dream of the romantics.

There is only one remaining brick to put in place. It is the keystone of access to willing human labor. Agriculture needs the use of occasional hand labor and in modern industrial agriculture that has disappeared or minimized unnecessarily. And quite bluntly, illegal immigrants will not be available for much longer. At best we have a generation or two. None of them would be here if a similar job existed at home. And were are all the European immigrants to day?

Yet I grew up on a farm were in my teens there were tasks that I could do to help the farm. A lot of it was incredibly boring, but it provided exercise and consumed surplus time and energy. If an economic model had existed that gave me measurable access to some form of purchasing power, I would have been willing and enthusiastic. I have learned that this is something that every teenager wants and needs.

And I can now say that as an individual reaches an age in which the demands of the work place diminish, that he too would welcome making such a contribution. I recall my father going out every day to tend his garden, simply for the exercise and the sense of well being. How many elders out there would enjoy putting in a four hour stint of hand work in gardens and the like.

Work of this nature becomes a social system rather than solely an economic system.

I contend that we now have the tools for making this to happen properly in hand. The advent of the concrete slab condo tower creates a small footprint system that can be integrated into the agricultural system readily.

For example, if we designate a square mile of farmland as an agro-community, we can use two or three acres for building towers to hold a couple of thousand residents. The soil can readily be redistributed, and services implemented. The title would be strata title with an additional share in the capital of the farm and access to the resources.

All of a sudden it becomes possible to manage the agricultural component on the basis of both individual initiative and shared initiatives. We actually recreate the traditional village environment in a modern setting and we can make it a better social system than ever arose naturally.

That is the way ten billion people can live on earth and prosper.