1965

1965

In 1965 Colorado Fuel and Iron (CF&I), the largest steel company west of the Mississippi, was still blowing and going: coke, fence, nails, pig, pipe, tube, sheet, shapes, strip… if it was steel, or steel related, they made it.

In 1955 most of the Mesabi Range had been depleted of high grade ore.  However, the steel industry was able to improve intermediate grade ore though processes such as sintering and pelletizing.  Ore was shipped from Argentina, as well.  The steel business would last forever.  Aluminum could never become a cost-effective competitor.

By 1975 it was almost all gone.  J&L folded and survives in part in the form of Republic Engineered Steel (RES).  I don’t remember the exact date that CF&I folded: they made a minor comeback later… nothing like 1965.  Today, steel exists mostly in the form of re-melted and remanufactured scrap.  Big steel mills are a ghost of the past.  Most steel is produced in mini-mills.

We could never run out of raw ore, could we?  Yet, we mined enough ore to change the direction of magnetic north by a significant amount.  Most of the intermediate grade ore is seriously depleted.  Nobody ever figured out a practical way to make steel out of iron pyrites… the sulfur eats the furnace brick.

Today, crude oil is for all intents and purposes, gone.  Fracking hides the depletion.  That being said, fracking releases lite-tight oil, not crude.  After that there is shale-oil.  The anti-coal fraternity hates “dirty” fuels; just wait until they see shale-oil: shale-oil makes coal look clean.  It remains to be seen if shale-oil can be forced to produce in-situ.

The oil business will last forever, won’t it?  Good luck with that.

The greater reality is that we need greater development of solar cells.  Wind farms are a risk to aircraft, to wildlife, and require the continuation of expensive infrastructure to exist.  Solar cells are capable of eliminating the expensive and massive electrical transmission infrastructure, putting electricity production into the reach of every homeowner.  Improved electrical storage devices would eliminate the current limiting factors: solar cells only produce when the sun shines.  The discovery of a direct production method of electricity into combustible liquid would ensure that we have cars to drive for the indefinite future.

Otherwise, we are on the cusp of returning to the horse economy of 1880; it creates a certain amount of noxious gasses: but, it is, otherwise, environmentally friendly… and it will make your garden grow… although, the housefly population will return in massive numbers.

In psychology, this is known as denial.  In government, this is called business as usual.  Everybody believes that a growth economy is possible and sustainable.  The raw harsh math of the exponential equation proves to us, the deadly cold fact that a growth economy is neither possible nor sustainable: yet, here we sit, in denial, doing nothing.

This is the road to disaster, famine, and the return of plague.

This is not a Steel problem.  This is not an Oil problem.  This is not even a renewable energy resources problem.  This is an economics problem.  The facts of exponential equations apply to your business, your industry, your property, your retirement, your savings; your children, your family... without exception.  Indefinitely sustained growth is simply not possible.  The fact that you did or did not come through the recent tragic years with your retirement intact is irrelevant to the overall facts.  The United States as a whole, as a measurable central financial tendency has crashed repeatedly since 1965.  If you escaped the plight of the herd, you were just lucky... the rest of us are lemmings.

1955

1955

In 1955 Jones and Laughlin[i] was a vibrant player in the steel industry.  A short time later J&L borrowed money[ii] from the Carnegie Mellon Bank[iii].  Had we truly though ahead on all the ramifications of exponential equations we might have predicted what would come next.  It world remain another decade for Al Bartlett[iv] to explain these to us in clear understandable ways.

This transfer of massive amounts of money did far more than shift ownership from a Steel Man to a Banker.  What Bartlett might have warned us, had he been two or three decades earlier, was the inevitable headship of major corporations by accountants[v], followed by lawyers[vi].  Any sensible person knows that growth is mathematically unsustainable, initially undetectable, and chronologically overwhelming, the clock is ticking.  This is why accountants would take over to manage the money growth; as well as why lawyers would be necessary to sort out the legal battles when it became clear that growth was unsustainable and collapsing under its own weight.

In spite of these preposterous impossibilities, nearly all business and government models are based on growth.  Federal budgets might range between 2 to 5% growth in conservative years, and even higher in progressive years.  This means that we can expect the economy to crash within fourteen to thirty-five years or sooner: it was planned that way.  In actual fact, the federal bailouts seem to be following election cycles, crashing roughly every eight years.

Still, around 1955, most of us understood business models in terms of agricultural[vii] cycles.  Those were heady times: The Great Depression (1929-39) and WWII (1939-45) were past; After the Stock Market Crash of 1929, Wall Street was not widely trusted[viii]; The Chevy short-block was starting to take over the drag strip, and men could feel the flow of power return to their muscles.  Big Steel would surely last forever.

Eventually, leverage[ix], would far outstrip the pittance J&L borrowed post-55.  Leverages of 90% would not be unheard-of.  The shift in ownership changed much more than ownership.

†       Banks now owned the corporations.
†       Steel Men ceased to run the Steel business.
†       The business emphasis shifted from making Steel to making Money.
†       Money shifted the value of hard capital to mythical paper and electronic treasures.
†       Usury soon made money outweigh real capital values by many magnitudes.
†       While money was growing due to usury, real capital was declining due to age related decay.
†       Money made business appear to be growing in a true downturn economy; so, market corrections became less and less obvious, less and less automatic.
†       The ability to offset downturns with money, made the eventual downturns larger and more disastrous; instead of annual corrections, decade corrections were put into play.

Business collapse still wiped out the “old” owner, but he was no longer relevant; the true owner was the “new” owner, the Bank.  The Bank didn’t get wiped out.  Why?

†       The true profits had been milked off through usury.  Having made and pocketed billions, a few million here and there is an affordable statistical loss, a cost of doing business: this is no different than a casino facing a big payout to a bid winner… and that can be managed too.
†       In contrast to the pseudo-capital gains created by usury, the hard capital losses are now insignificant.
†       The paper losses are now a tax-deductible line item; the Bank does not suffer: the tax paying public foots the bill.
†       While hard capital losses are also tax-deductible they are still a real business downturn: the stockholders foot the bill.
†       If paper losses spin out of control, as they eventually must, a federal bailout picks up the tab: again, the tax paying public foots the bill.
†       The true owners, the Banks, are rewarded with executive bonuses and raises.

As long as the federal government is committed to spinning off all down turn losses on the general public, on the backs of the hard-working poor, there is no true business risk to the true owners, the Banks: everybody else faces big risks and losses.

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[i] https://en.wikipedia.org/wiki/Jones_and_Laughlin_Steel_Company

https://en.wikipedia.org/wiki/NLRB_v._Jones_%26_Laughlin_Steel_Corp.

[ii] Around 21% of its gross worth, as I recall… the exact numbers don’t matter.

[iii] Today Mellon HQ’s from NYC; but as I recall, around 1955 it was Carnegie Mellon Bank of Pittsburgh, Carnegie Steel, Carnegie Mellon University… you get the connections.

[iv] University of Colorado, Boulder, Dept. of Physics, circa 1965 or later

http://www.albartlett.org/presentations/arithmetic_population_energy_video1.html
https://www.albartlett.org/presentations/arithmetic_population_energy.html

https://en.wikipedia.org/wiki/Albert_Allen_Bartlett

[v] 1975, to pull a number out of thin air.  Business historians could greatly sharpen these numbers for us: but, we’re simply trying to recapture a very general picture from memory.  If we err, you’ll forgive us: for, we’re merely painting, where neither memory, nor oil on canvas permit great precision… only, Monet like, in broad brush strokes….

[vi] 1985, in keeping with the theme of decades.  These are not real dates, just general tendencies… the tendencies are real enough: major business magazines of the era were filled with the discussions.

[vii] Agriculture is now defined as, “turning oil into food”.

We remember that in an agricultural economy, that the amazing growth of summer, must face the winter downturn, and begin again from zero, next spring.  Unlimited and unrestrained growth, year after year, was and still is a physical impossibility.  The lessons of “The Ant and the Grasshopper” were still in play; saving for winter and other future needs were still necessary.  “Waste not, want not.”  The bitter stings of the Stock Market crash (1929), reminded us all that conservation was essential to life.

[viii] In 1929, many corrupt and dangerous practices, such as churning money were still legal.  Even today, churning is still practiced, albeit secretly.  Few people realize that money is made by shorting in a Bear Market.  Insider trading is still legal for members of federal government.  There are many more ways to make money than in a Bull Market.  Churning is still possible through the manipulation of large volumes of commodities.  The digital age has reduced real money to split-second decisions.  The rest of us are happy to check our balances once a month.

[ix] Leverage is the practice of borrowing money to accelerate business.  When money is under limited supply, such as in a gold or silver economy, leverage is also limited, borrowing is a zero-sum game.  But under a paper or digital electronic economy, money is in unlimited supply: leverage has no boundaries… just print or digitize more.