"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Wednesday, March 16, 2011

The Heroes of Fukushima

I wanted to write about something that doesn't deal with economics today.  But I didn't just want to focus on the tragedy unfolding in Japan.  Yes, it is a human catastrophe, and could get even worse at any moment.  While people are leaving Tokyo and other areas of Japan, in all that chaos, there is a team of people that are working in the midst of a nuclear plant that could meltdown at any moment.

Just imagine what is going on in their minds.  The weight of the world lies on their shoulders. They are fighting to save millions of lives, people they will never know, all the while knowing that they could die at any minute.

They are the remaining workers at the Fukushima Nuclear Plant that decided to stay and finish the job. From CBS Evening News:
Since the disaster struck in Japan, about 800 workers have been evacuated from the damaged nuclear complex in Fukushima. The radiation danger is that great. 
However, CBS News correspondent Jim Axelrod reports that a handful have stayed on the job, risking their lives, to try to save the lives of countless people they don't even know. The exact number of workers is unclear and has been reported to be anywhere from 50 to 180. 
Although communication with the workers inside the nuclear plant is nearly impossible, a CBS News consultant spoke to a Japanese official who made contact with one of the workers inside the control center. 
The official said that his friend told him that he was not afraid to die, that that was his job.
Cham Dallas, who led teams responding to the Chernobyl disaster, said that kind of response is not out of the normal for some workers in the nuclear energy sector.
"(In) my experience of people in the action area of nuclear power is much like that," Dallas said. 
The workers are doing so amid decreasing but still dangerously high levels of radiation. On Wednesday, Japanese officials raised the legal limit on radiation for the workers from 100 millisieverts to 250. 
"The longer they stay the more dangerous it becomes for them," said expert Margaret Harding. "I think it is a testament to their guts for them to say, 'We'll stay and if that means we go, we go.'"
Full article HERE

I think it is important that more people are aware of these heroic individuals.  My thoughts are with the Japanese people, and especially this handful of individuals that are knowingly placing themselves in danger so that others may be saved.  

May they succeed and be unharmed.


OKL said...

my sentiments exactly.

i just hope we have more of such people in their respective professions... unfortunately, the problem with the FIRE industry is that their objective is to make money.

Misthos said...

Good to hear from you again OKL.

I was thinking the same thing when I wrote this post. If these guys fail despite their heroic efforts and sense of duty to stay there, they may die. When a Bank CEO fails, he gets a golden parachute of millions.

OKL said...

don't worry, i'm always reading ur posts. just didnt't have time since I got my new job 6wks ago, unfortunately the buggers asked me to resign after my first mistake... bummer really.

anyway, lots of stuff going on out there now;

- EU fiscal instability
- Middle East political changes (Iran must be laughing at all of these)
- Japan earthquake-tsunami-meltdown combo
- China slowing down
- US severe politicking
- rampant inflation
- widening income gap

interesting times indeed. it just suddenly hit me that with this disaster in Japan, it might open up space for China to expand their military influence in the East-South China Sea region; I wonder what the US response will be.

OKL said...

here goes NATO on Ghadafi... maybe we need a reminder of why we think we are right;


I guess there's a fine line between "You have to believe in the product in order to sell it," and "Don't believe your own bullshit."


Misthos said...


Sorry to hear about the job. Been busy recently but will be posting again soon.

Lot's of crises converging, and I will try to tie everything together.

Jim Slip said...

Misthos, agree about Fukushima.

But I want to say something about the gold-standard, which you consider to be a solution, and why I don't think it's going to be a solution to the current mess.

Case in point, the Eurozone. Like you have said, the Eurozone acts as a gold-standard of sorts:
governments that don't issue the currency have to go the markets to borrow if they have an account deficit. It worked for a while, now it doesn't work anymore, for whatever reasons. So now the solution is for Eurozone countries to export themselves out of the crisis, or simply get poorer. And that's how the gold-standard works in a nutshell.


Is it really feasible in the current globalized environment?

Let's check out Greece. Export it's way out of the crisis, how? Is somebody going to bring factories to Greece to produce cars, or electronic gadgets? Are tourists (Greece's only realistic option) gonna flood the Greek islands with the Euro being so expensive?


So even with a virtual gold-standard (the Eurozone system), things don't really work.

What works?


C'mon, it's the only realistic way to bring down trade deficits, rebuild manufacturing sectors and reduce unemployment.

I mean, who came up with this ridiculous idea anyway (globalization)? I am old enough to remember an era in Greece when we still had industry and it was a much better era, even if we didn't have gadgets, mobile phones, so many cars, etc etc etc.

So imo, it's not about the monetary system. It's about globalization.

Misthos said...


The seeds of the problem with the EU were sown before the crisis. No one followed the Maastricht guidelines, as arbitrary as they are. So, the EU self imposed a gold standard of sorts, didn't follow it - most lied about their numbers - the credit bubble pops, and now they are making matters worse with austerity.

The same can be said with the US 1930s Great depression. Many blame the gold standard, but what is ignored is that the Fed a decade earlier ignored the credit expansion that produced a fractional gold standard. Things don't collapse into a Depression without massive credit expansion occurring first.

To blame gold in the 1930s, or EU austerity now as a gold standard of sorts ignores the irresponsible credit (money) creation that preceded the crisis. Cause and effect.

Depressions occur because of malinvestments and the irresponsible expansion of credit.

Austerity is not the answer. It is too late. I think the EU should print just as the US is doing. But honestly, that is not a long term solution either, in my opinion. I believe that you play the game as it is. If everyone else is printing, you should too. Why be the sucker? I believe that it will collapse anyway. But why be the first to collapse with self imposed austerity?

You bring up a good point about globalization. I agree that one way or another, there will be a reversal.

As for Greece, I have been visiting Greece for over 30 years. I have seen the drachma days. You know the difference between the drachma and the Euro?

Credit expansion under the Euro turned Greece into an insolvent country that now faces default or austerity or both. It can't pay back its debts in a currency it controls.

Under the drachma, the costs of government overspending materialized in the inflationary environment. The drachma was inflated away.

So, under the Euro - you have a massive credit expansion with low interest rates - which to me was illusory wealth anyway. And now that government has to pay back high interest that its gdp can't keep up with.

And under the Drachma, you didn't have credit expansion, but the costs of excessive government spending were socialized differently - those costs became inflation. Prices rose. Everybody paid that cost whenever they bought food. But you know what else? Interest rates were also high and a lot of money poured into Greece chasing those returns.

The drachma gets blamed for things unfairly, while the Euro gets credit for things that were fake (credit bubble wealth).

OKL said...

aren't we already seeing a backlash against globalization since ~2007?

the main issue is the rising income gap in most countries... even more personal is the rising cost of living resulting in birth rates dropping across developed countries.

it's a really big, interconnected problem... i mean, after all the sadness over Japan dies down, we'll be ranting and raving over the rise in prices of electronic products because as John Mauldin highlights in his latest letter, Japan accounts for 30% of global flash memory, 20% of semi-conductors and 40% of electronic components.

and if instability in the Middle continues to keep oil prices high and mother nature does what she thinks is necessary- readjusting, but unfortunately destroying crops and livestock- how might the people respond?

i need a drink.

oh and as a tongue in cheek sort of thing, greece also has Olive Oil... =D

Jim Slip said...

Misthos, two things.

Even in the gold-standard governments can borrow and get big public debts.

Also, about the Eurozone. Only Greece (and maybe Italy) had a public debt problem. Everybody else pretty much followed the Maastricht rules.

Ireland had public surpluses, but apparently they had a private debt problem. Afaik the Maastricht treaty doesn't say anything about private debt, and I still don't see private debt being mentioned in Mrs. Merkel's brand new competitiveness pact.

And still to me the big problem is economies that have lost their productive capacity and manufacturing sectors thanks to globalization.

Misthos said...

I'll be the first to admit it, a gold standard is not a panacea. But it is a large stumbling block that slows down imbalances. And I also am saying that a gold standard will not be implemented unless the current system breaks down. And I believe it will break down.

You're right about private debt. Actually, Greece and Italy have the least private debt to gdp.

As for Maastricht guidelines:


Globalization allowed capital to chase cheap labor. But in that process, many western nations' industrial capacity was diminished. It lasts so long as the de-industrialized economies had a pyramid scheme/ponzi economy that allowed them to consume. But those days will end, too. Bernanke is trying to keep the game from ending naturally, and in the process, I think we will have a bigger collapse.

Misthos said...


I just saw a report on Bloomberg that described exactly what you wrote about Japan's tech exports. It didn't occur to me.

Globalization allowed the world to optimize efficiency, but in the process, the world became less robust. Whereas an engineer designs a system to be redundant, the global economy sees redundancies as a waste of money. That's the system we have.

OKL said...

that's right Misthos; we've all become so obsessed with "just in time" production that we forgot why mother nature/god gave us the ability to breath through our nose and mouth, why we have 2 kidneys, 2 legs, 2 arms, 2 eyes... a backup system!


Jim Slip said...

Hey, c'mon, you're posting stats circa 2009, when deficits exploded because of the crisis, and because the automatic stabilizers kicked in. Before that most countries were well within the Maastricht rules (60% debt, 3% deficit). Most had public surpluses.

So the virtual gold-standard system of the Eurozone failed, and it wasn't because of lack of discipline, unless you include the private sector.

So, the real issue here is the account balance, which derives from trade imbalances, but strangely enough I don't see the Eurozone talking about this. Nor do I see the Eurozone talking about private debt, which played such a crucial role in this crisis.

In fact, the only person I noticed that actually suggested something meaningful, was Timothy Geithner, who in the last G20 meeting proposed trade deficits shouldn't exceed 3-4%, but of course the suggestion was rejected by the surplus nations.

Misthos said...

Yes, deficits increased, but the full effects on government debt didn't rise as fast as budget deficits. There's a difference between adhering to the 3% budget deficit and the 60% government debt to gdp.

Here's another source showing total EU debt to EU gdp from 2006:


Furthermore, the "gold standard" system under Maastricht of the EU did not measure money supply, but measured government spending and government debts.

The private banking system in Europe got out of control, with German banks being the most leveraged. This contributed to the contagion. No one was looking at private credit growth, just as private credit growth was ignored in the 1920s by the Federal Reserve.

Misthos said...

Timothy Geithner's suggestion is faulty in that how does one measure gdp? That metric is always manipulated by governments. You think China gives us real numbers? And so that 3-4% requirement would be easily manipulated anyway.

I know gold has its limitations, but in international trade, imbalances don't grow as fast or as bad under a gold standard as they do under a fiat debt system of trade.

Jim Slip said...

From a quick look at the PDF, it looks as if most countries in 2006 had either small deficits or surpluses, and debt levels were below 60% of GDP, as per the Maastricht treaty.

Anyway, my point is: can Greece export it's way out of the crisis within this emulation of the gold-standard (admittedly it can't devalue properly)? And my view is: no unless it resorts to relative protectionism, like in the good old days when we actually had industry. But then, if countries resort to protectionism to halt unemployment, then gold-standard or fiat, it doesn't really matter.

About Geithner's proposal, I like it. It's the closest anybody came at addressing the actual problem and not proxy problems.

I mean, what is easier? China buying some American products and Germany buying some Greek products, or impoverishing whole populations out of some perverted sense of economical virtue, which will eventually hurt everyone?

PS - I just read the new agreement on the European Stability Mechanism. From a quick look, in typical Eurozone fashion, it looks like it doesn't solve anything, and the terms are quite punitive.

Jim Slip said...

Misthos, do you think Greece should leave the Eurozone?

Misthos said...


Correct me if I'm wrong, but I think you once wrote that you visit Kesarios' Market-Talk blog, and that's how you found this site.

I post there occasionally. My name there is GusK. I posted my views on that question today.

Greece needs to seriously consider this as an option. There are no easy solutions. Greece needs to decide between two extremely painful scenarios.

Unfortunately, whichever option it takes, the pain of the other option will never be felt, so there will always be second guessing or regrets. Most people don't understand what is happening and why.

Jim Slip said...

Yeah, I haven't visited there recently because the quality of the articles has been very uneven.

I suspected you were GusK. There aren't a lot of users posting there in English. -)

The only good thing I see about this new ESM is the option to buy bonds, although everything is vague at the moment.

Take a look at this article:


The ECB has been buying sovereign bonds and then sterilizing it's purchases, resulting to an increase in the cost of money.

I love the writer's comment:

"The constituent rules of the eurozone appear to be based on the bizarre idea that sovereign debt is toxic until such time as it has been sanitized by going through the bid-offer spread of a major investment bank, while privately-issued covered bonds are pristine, even at issue."


Misthos said...

But the ESM is pointless if what they are doing now is making the Greek economy commit economic suicide.

This whole issue of buying bonds is really a bondholder bailout. They're keeping the debt ponzi game going, as the Greek economy implodes.

Here's a good article I found recently via the blog naked capitalism:


OKL said...

it might sound a little lame; but a thought came to me last night... and I wondered if the whole issue is really about interest...

after all, if there were only 2ppl in the economy and i lent Misthos $100 at 3% interest/yr, where is Misthos going to get the money to pay the interest?

question 2; if the money supply were fixed, wouldn't it mean that anyone charging interest, if they were smart enough long enough, would eventually hold all the money?

question 3; if interest rates are to be held at 0% like all the MMTers say in order for the state to better control the money supply through taxation and deficit spending, wouldn't wealth be subject to the whims and fancies of politicians?

question 4; since democracy and capitalism has never succeeded in history through all the civilizations, could it be that what we're experiencing now is just temporary? like "soup of the day" or "flavor of the month"?

Misthos said...

I think interest is a huge component. All monetary systems, to varying degrees, are credit based. And so, money needs to expand or it contracts. It's a rare situation where it stays static.

It's often said that only gold truly extinguishes debt. That is, gold has no counterparty, whereas credit money needs to constantly be created to service prior debts, which is a feedback loop that grows.

But even under a gold standard there was fractional reserve lending.

At the end of the day, I think all systems fail - they all have a life cycle. The issue is, how hard is their fall?

I agree with you regarding MMT - the potential for malinvestment is huge. The Wall Street bailouts were a prime example of how easily created money is distributed by the sovereign.

I remember seeing an interview with Michael Hudson once, where he addressed the problem of compounding interest in an economy. The issue is not new, he said. The Ancient Sumerians and Babylonians understood the mathematics of it, so in the beginning of a new King's reign, a debt jubilee was held to wipe the slate clean, so to speak. But back then, there was little, if any private banking system, so it was easy for the sovereign to decree a debt wipeout. The sovereign was both the lender and the tax collector.

The ancients understood debt collapse very well - debt jubilees, religious decrees against usury (interest) all have their roots, I would say, in past credit meltdowns. Those ancient credit crises must have been very destructive for high priests to have gotten involved!

What's the saying? "They're nothing new under the sun?"


And so history repeats...

Jim Slip said...

Misthos, I was more of thinking whether the ESM would buy soverign bonds to directly support a nation's fiscal policy, but I guess that will never happen in the Eurozone because, well, it's the Eurozone.

In the meantime, just from the Financial Times:

"Sócrates quits as Portuguese PM. Resignation follows party’s loss in key austerity vote"


"Italy increases drive against foreign takeovers. Moves come amid a backlash against French deals."

Planet Earth to Angela Merkel, Planet Earth to Angela Merkel, helloooooooooo?