2019: World Economy Is Reaching Growth Limits; Expect Low Oil Prices, Financial Turbulence

10 01 2019

Posted on January 9, 2019 by Gail Tverberg

Another incisive self explanatory article by Gail Tverberg explaining the recent volatility and what outcomes we can expect from that this coming year (and next) MUST READ.

Financial markets have been behaving in a very turbulent manner in the last couple of months. The issue, as I see it, is that the world economy is gradually changing from a growth mode to a mode of shrinkage. This is something like a ship changing course, from going in one direction to going in reverse. The system acts as if the brakes are being very forcefully applied, and reaction of the economy is to almost shake.

What seems to be happening is that the world economy is reaching Limits to Growth, as predicted in the computer simulations modeled in the 1972 book, The Limits to Growth. In fact, the base model of that set of simulations indicated that peak industrial output per capita might be reached right about now. Peak food per capita might be reached about the same time. I have added a dotted line to the forecast from this model, indicating where the economy seems to be in 2019, relative to the base model.

Figure 1. Base scenario from The Limits to Growth, printed using today’s graphics by Charles Hall and John Day in Revisiting Limits to Growth After Peak Oil with dotted line at 2019 added by author. The 2019 line is drawn based on where the world economy seems to be now, rather than on precisely where the base model would put the year 2019.

The economy is a self-organizing structure that operates under the laws of physics. Many people have thought that when the world economy reaches limits, the limits would be of the form of high prices and “running out” of oil. This represents an overly simple understanding of how the system works. What we should really expect, and in fact, what we are now beginning to see, is production cuts in finished goods made by the industrial system, such as cell phones and automobiles, because of affordability issues. Indirectly, these affordability issues lead to low commodity prices and low profitability for commodity producers. For example:

  • The sale of Chinese private passenger vehicles for the year of 2018 through November is down by 2.8%, with November sales off by 16.1%. Most analysts are forecasting this trend of contracting sales to continue into 2019. Lower sales seem to reflect affordability issues.
  • Saudi Arabia plans to cut oil production by 800,000 barrels per day from the November 2018 level, to try to raise oil prices. Profits are too low at current prices.
  • Coal is reported not to have an economic future in Australia, partly because of competition from subsidized renewables and partly because China and India want to prop up the prices of coal from their own coal mines.

The Significance of Trump’s Tariffs

If a person looks at history, it becomes clear that tariffs are a standard response to a problem of shrinking food or industrial output per capita. Tariffs were put in place in the 1920s in the time leading up to the Great Depression, and were investigated after the Panic of 1857, which seems to have indirectly led to the US Civil War.

Whenever an economy produces less industrial or food output per capita there is an allocation problem: who gets cut off from buying output similar to the amount that they previously purchased? Tariffs are a standard way that a relatively strong economy tries to gain an advantage over weaker economies. Tariffs are intended to help the citizens of the strong economy maintain their previous quantity of goods and services, even as other economies are forced to get along with less.

I see Trump’s trade policies primarily as evidence of an underlying problem, namely, the falling affordability of goods and services for a major segment of the population. Thus, Trump’s tariffs are one of the pieces of evidence that lead me to believe that the world economy is reaching Limits to Growth.

The Nature of World Economic Growth

Economic growth seems to require growth in three dimensions (a) Complexity, (b) Debt Bubble, and (c) Use of Resources. Today, the world economy seems to be reaching limits in all three of these dimensions (Figure 2).

Figure 2.

Complexity involves adding more technology, more international trade and more specialization. Its downside is that it indirectly tends to reduce affordability of finished end products because of growing wage disparity; many non-elite workers have wages that are too low to afford very much of the output of the economy. As more complexity is added, wage disparity tends to increase. International wage competition makes the situation worse.

growing debt bubble can help keep commodity prices up because a rising amount of debt can indirectly provide more demand for goods and services. For example, if there is growing debt, it can be used to buy homes, cars, and vacation travel, all of which require oil and other energy consumption.

If debt levels become too high, or if regulators decide to raise short-term interest rates as a method of slowing the economy, the debt bubble is in danger of collapsing. A collapsing debt bubble tends to lead to recession and falling commodity prices. Commodity prices fell dramatically in the second half of 2008. Prices now seem to be headed downward again, starting in October 2018.

Figure 3. Brent oil prices with what appear to be debt bubble collapses marked.

Figure 4. Three-month treasury secondary market rates compared to 10-year treasuries from FRED, with points where short term interest rates exceed long term rates marked by author with arrows.

Even the relatively slow recent rise in short-term interest rates (Figure 4) seems to be producing a decrease in oil prices (Figure 3) in a way that a person might expect from a debt bubble collapse. The sale of US Quantitative Easing assets at the same time that interest rates have been rising no doubt adds to the problem of falling oil prices and volatile stock markets. The gray bars in Figure 4 indicate recessions.

Growing use of resources becomes increasingly problematic for two reasons. One is population growth. As population rises, the economy needs more food to feed the growing population. This leads to the need for more complexity (irrigation, better seed, fertilizer, world trade) to feed the growing world population.

The other problem with growing use of resources is diminishing returns, leading to the rising cost of extracting commodities over time. Diminishing returns occur because producers tend to extract the cheapest to extract commodities first, leaving in place the commodities requiring deeper wells or more processing. Even water has this difficulty. At times, desalination, at very high cost, is needed to obtain sufficient fresh water for a growing population.

Why Inadequate Energy Supplies Lead to Low Oil Prices Rather than High

In the last section, I discussed the cost of producing commodities of many kinds rising because of diminishing returns. Higher costs should lead to higher prices, shouldn’t they?

Strangely enough, higher costs translate to higher prices only sometimes. When energy consumption per capita is rising rapidly (peaks of red areas on Figure 5), rising costs do seem to translate to rising prices. Spiking oil prices were experienced several times: 1917 to 1920; 1974 to 1982; 2004 to mid 2008; and 2011 to 2014. All of these high oil prices occurred toward the end of the red peaks on Figure 5. In fact, these high oil prices (as well as other high commodity prices that tend to rise at the same time as oil prices) are likely what brought growth in energy consumption down. The prices of goods and services made with these commodities became unaffordable for lower-wage workers, indirectly decreasing the growth rate in energy products consumed.

Figure 5.

The red peaks represented periods of very rapid growth, fed by growing supplies of very cheap energy: coal and hydroelectricity in the Electrification and Early Mechanization period, oil in the Postwar Boom, and coal in the China period. With low energy prices,  many countries were able to expand their economies simultaneously, keeping demand high. The Postwar Boom also reflected the addition of many women to the labor force, increasing the ability of families to afford second cars and nicer homes.

Rapidly growing energy consumption allowed per capita output of both food (with meat protein given a higher count than carbohydrates) and industrial products to grow rapidly during these peaks. The reason that output of these products could grow is because the laws of physics require energy consumption for heat, transportation, refrigeration and other processes required by industrialization and farming. In these boom periods, higher energy costs were easy to pass on. Eventually the higher energy costs “caught up with” the economy, and pushed growth in energy consumption per capita down, putting an end to the peaks.

Figure 6 shows Figure 5 with the valleys labeled, instead of the peaks.

Figure 6.

When I say that the world economy is reaching “peak industrial output per capita” and “peak food per capita,” this represents the opposite of a rapidly growing economy. In fact, if the world is reaching Limits to Growth, the situation is even worse than all of the labeled valleys on Figure 6. In such a case, energy consumption growth is likely to shrink so low that even the blue area (population growth) turns negative.

In such a situation, the big problem is “not enough to go around.” While cost increases due to diminishing returns could easily be passed along when growth in industrial and food output per capita were rapidly rising (the Figure 5 situation), this ability seems to disappear when the economy is near limits. Part of the problem is that the lower growth in per capita energy affects the kinds of jobs that are available. With low energy consumption growth, many of the jobs that are available are service jobs that do not pay well. Wage disparity becomes an increasing problem.

When wage disparity grows, the share of low wage workers rises. If businesses try to pass along their higher costs of production, they encounter market resistance because lower wage workers cannot afford the finished goods made with high cost energy products. For example, auto and iPhone sales in China decline. The lack of Chinese demand tends to lead to a drop in demand for the many commodities used in manufacturing these goods, including both energy products and metals. Because there is very little storage capacity for commodities, a small decline in demand tends to lead to quite a large decline in prices. Even a small decline in China’s demand for energy products can lead to a big decline in oil prices.

Strange as it may seem, the economy ends up with low oil prices, rather than high oil prices, being the problem. Other commodity prices tend to be low as well.

What Is Ahead, If We Are Reaching Economic Growth Limits?

1. Figure 1 at the top of this post seems to give an indication of what is ahead after 2019, but this forecast cannot be relied on. A major issue is that the limited model used at that time did not include the financial system or debt. Even if the model seems to provide a reasonably accurate estimate of when limits will hit, it won’t necessarily give a correct view of what the impact of limits will be on the rest of the economy, after limits hit. The authors, in fact, have said that the model should not be expected to provide reliable indications regarding how the economy will behave after limits have started to have an impact on economic output.

2. As indicated in the title of this post, considerable financial volatility can be expected in 2019if the economy is trying to slow itself. Stock prices will be erratic; interest rates will be erratic; currency relativities will tend to bounce around. The likelihood that derivatives will cause major problems for banks will rise because derivatives tend to assume more stability in values than now seems to be the case. Increasing problems with derivatives raises the risk of bank failure.

3. The world economy doesn’t necessarily fail all at once. Instead, pieces that are, in some sense, “less efficient” users of energy may shrink back. During the Great Recession of 2008-2009, the countries that seemed to be most affected were countries such as Greece, Spain, and Italy that depend on oil for a disproportionately large share of their total energy consumption. China and India, with energy mixes dominated by coal, were much less affected.

Figure 7. Oil consumption as a percentage of total energy consumption, based on 2018 BP Statistical Review of World Energy data.

Figure 8. Energy consumption per capita for selected areas, based on energy consumption data from 2018 BP Statistical Review of World Energy and United Nations 2017 Population Estimates by Country.

In the 2002-2008 period, oil prices were rising faster than prices of other fossil fuels. This tended to make countries using a high share of oil in their energy mix less competitive in the world market. The low labor costs of China and India gave these countries another advantage. By the end of 2007, China’s energy consumption per capita had risen to a point where it almost matched the (now lower) energy consumption of the European countries shown. China, with its low energy costs, seems to have “eaten the lunch” of some of its European competitors.

In 2019 and the years that follow, some countries may fare at least somewhat better than others. The United States, for now, seems to be faring better than many other parts of the world.

4. While we have been depending upon China to be a leader in economic growth, China’s growth is already faltering and may turn to contraction in the near future. One reason is an energy problem: China’s coal production has fallen because many of its coal mines have been closed due to lack of profitability. As a result, China’s need for imported energy (difference between black line and top of energy production stack) has been growing rapidly. China is now the largest importer of oil, coal, and natural gas in the world. It is very vulnerable to tariffs and to lack of available supplies for import.

Figure 9. China energy production by fuel plus its total energy consumption, based on BP Statistical Review of World Energy 2018 data.

A second issue is that demographics are working against China; its working-age population already seems to be shrinking. A third reason why China is vulnerable to economic difficulties is because of its growing debt level. Debt becomes difficult to repay with interest if the economy slows.

5. Oil exporters such as Venezuela, Saudi Arabia, and Nigeria have become vulnerable to government overthrow or collapse because of low world oil prices since 2014. If the central government of one or more of these exporters disappears, it is possible that the pieces of the country will struggle along, producing a lower amount of oil, as Libya has done in recent years. It is also possible that another larger country will attempt to take over the failing production of the country and secure the output for itself.

6. Epidemics become increasingly likely, especially in countries with serious financial problems, such as Yemen, Syria, and Venezuela. Historically, much of the decrease in population in countries with collapsing economies has come from epidemics. Of course, epidemics can spread across national boundaries, exporting the problems elsewhere.

7. Resource wars become increasingly likely. These can be local wars, perhaps over the availability of water. They can also be large, international wars. The timing of World War I and World War II make it seem likely that these wars were both resource wars.

Figure 10.

8. Collapsing intergovernmental agencies, such as the European Union, the World Trade Organization, and the International Monetary Fund, seem likely. The United Kingdom’s planned exit from the European Union in 2019 is a step toward dissolving the European Union.

9. Privately funded pension funds will increasingly be subject to default because of continued low interest rates. Some governments may choose to cut back the amounts they provide to pensioners because governments cannot collect adequate tax revenue for this purpose. Some countries may purposely shut down parts of their governments, in an attempt to hold down government spending.

10. A far worse and more permanent recession than that of the Great Recession seems likely because of the difficulty in repaying debt with interest in a shrinking economy. It is not clear when such a recession will start. It could start later in 2019, or perhaps it may wait until 2020. As with the Great Recession, some countries will be affected more than others. Eventually, because of the interconnected nature of financial systems, all countries are likely to be drawn in.

Summary

It is not entirely clear exactly what is ahead if we are reaching Limits to Growth. Perhaps that is for the best. If we cannot do anything about it, worrying about the many details of what is ahead is not the best for anyone’s mental health. While it is possible that this is an end point for the human race, this is not certain, by any means. There have been many amazing coincidences over the past 4 billion years that have allowed life to continue to evolve on this planet. More of these coincidences may be ahead. We also know that humans lived through past ice ages. They likely can live through other kinds of adversity, including worldwide economic collapse.





The Fertile Ground of Bewilderment

9 07 2016

Excellent article by Charles Eisenstein….. originally published at his own site.
The Fertile Ground of Bewilderment 

The other day I was speaking to a small audience at a music festival and thought to allude to Brexit to make a point. Some in the circle looked a bit mystified, so I asked, “Everyone knows what Brexit is, right?” It turned out that quite a few of them did not.

“Congratulations!” I said. “You have ignored what the media has been offering to you as important. Maybe that is because you recognize that the whole thing was a diversionary spectacle.” Apathy about “the issues” is only a bad thing if those issues are what is actually important.

When I was growing up, a responsible citizen was one who read the newspapers, held positions on the political issues in currency, and fully participated in the dominant modes of civic and political life. Today (although it may have been true then too) the choices we are offered take the rules and premises of the game for granted, and it is these, about which we are never offered a choice, that are driving the fatal decline of our society.

Beneath the frenzy, many of us sense a vacuousness in the choice of Stay or Remain, the same one that sucks the meaning out of electoral politics as well. Democrat or Republican, Christian Democrat or Socialist, even Marxist parties like Syriza – when they take office they enact the same policies as before. Their differences, while not entirely inconsequential, are mostly minute compared to the range of what is possible. Moreover, public referendum votes against establishment policies are often ignored anyway, as was the case in Greece and as may well happen in Britain too.

So it is with Brexit – almost. Something is different this time. It is significant, although not for the reasons some people (though not my festival audience) think it is.

On the left, Brexit has been framed either as a blow against neoliberalism or a victory for xenophobic right-wing nationalism. Both framings are problematic: the first is over-optimistic, and the second is invidious.

On a practical level, Brexit needn’t be more than a minor hiccup on the onward march of neoliberal globalism. Even if Britain abides by the vote and does leave the EU, perhaps after much delay, the political and financial authorities will probably cobble together a plan that preserves the freedom of capital while continuing the erosion of wages, social services, and the public sphere. Perhaps they will ride the wave of right-wing populism to enact pro-business policies and further dismantle the social welfare system by associating it with the coddling of immigrants, turning the working class against itself. Alternatively or additionally, they can ride the counter-reaction to the vote, associating opposition to free trade policies with xenophobia and racism. They can also exploit the chaos resulting from Brexit as an object-lesson in the consequences of disobeying the elites. The vote will be called “irresponsible,” and responsibility will be associated with complying with the program of the technocrats and functionaries who administer the present system.

As for the xenophobic nationalism frame, to attribute Brexit to xenophobia is to disregard the deep economic and social stressors that fuel both anti-EU sentiment and resentment toward immigrants. If you buy into that narrative, you have to believe that Britain is home to 17 million bigots, ignoramuses, and nutjobs who foolishly sabotage their own economic wellbeing for the sake of exercising their bigoted opinions. (The same, of course, applies to the X million Trump supporters, about whom the same narrative is applied.) Please take note of the tone of this narrative: patronizing and contemptuous, embodying the same rage, dehumanization, and hatred that it attributes to its enemies.

There are in fact very sound reasons to be hostile to the EU, transnational economic and political institutions, and the authorities who ordain them in the name of progress for civilization. True, the average “Leave” voter is not consciously aware of these critiques; nonetheless the critiques identify a wellspring of discontent that, while perhaps channeled through xenophobic narratives, cannot be reduced to them. How much more convenient it is to the system’s guardians, to dismiss any rejection of their plans as xenophobia and bigotry. It’s the responsible, educated people versus the yahoos.

The European Union was from the outset a deliberate instrument of globalization, deregulated markets, and transnational financial capital. It is a profoundly undemocratic institution that has accelerated trends toward centralization of power and homogenization of culture. It has been an enthusiastic partner with NATO and with US militarism in the Middle East (which, ironically enough, has generated the tsunami of immigrants that has intensified anti-EU sentiment). It has also, especially in the Eurozone, promoted austerity policies that have impoverished whole countries in order to keep debt payments flowing to international bondholders. While the EU cannot be directly blamed for Britain’s own tilt toward austerity and neoliberal economics, which dates back to the Thatcher years, both participate in the same global trend driven by the financial system. The result is familiar to everyone: rising inequality, a frayed social net, and weakening community ties as economies have become delocalized. Britain is no stranger to these trends, afflicted as it is by rising income inequality, youth unemployment, and housing costs, falling wages, falling life expectancies, and one of the highest misery indexes in the developed world.

In other words, the middle-aged white Brexit or Trump supporter has legitimate grievances that cannot be dismissed as white entitlement just because things are even worse for people of color. If they feel betrayed by the system, it is because they have been. Look around at the world. We can do much better than this. Everybody knows it. We don’t agree on what to do, but more and more of us have lost faith in the system and its stewards. When right-wing populists blame our problems on dark-skinned people or immigrants, the response they arouse draws its power from real and justifiable dissatisfaction. Racism is its symptom, not its cause.

The Brexit vote was an expression of anti-elitism, pure and simple. Leaders of the mainstream parties, business leaders, entertainment figures, J.K. Rowling, President Obama, rock stars and literati… everyone urged the public to vote Remain, to uphold the status quo. Does defiance of authority mean the defiant need to be reprimanded and put in their place, or does it mean that authority has abused its position?

The Brexit vote was supposed to be one of those inconsequential exercises that legitimize the system by lending it the appearance of real democracy. Something went wrong though – the public voted no when they were supposed to vote yes. While not quite as unexpected as a victory for Donald Trump would be, it still came as a shock to the elites, not because the damage to neoliberalism can’t be easily fixed on a technical level, but because it shows the fragility of their legitimacy. As such, it evokes a panic far beyond what technical considerations would justify.

It is not only the legitimacy of the elites that is fragile, nor just Britain’s economy; it is also the entire financial system: an overleveraged agglomeration of bubbles that will all pop when one pops. Maybe the Brexit vote induces panic because it reminds the financial markets and their administrators that they cannot hold it together much longer. They can’t even buy public allegiance in one of the world’s richest countries. Who knows, perhaps Brexit will start the bubbles popping.

The Brexit vote marks a rare moment of discontinuity, when the usual normalizing narratives falter and a society experiences a fertile and frightening moment of bewilderment. Brexit, though, is a mere foreshadowing of the vertigo that will ensue with the next economic crisis, which will dwarf that of 2008.

To prepare for it, we have to operate on a level much deeper than current politics offers. It is the tacitly assumed narratives lurking beneath conventional political discourse that need our attention. By this I do not mean merely addressing the neoliberal and imperial motives cloaked in the pro-EU language of internationalism, tolerance, and cosmopolitanism.

To illustrate, let me return to the observation I made above: that the blaming of the Leave vote (and Trump, and all the xenophobic know-nothing parties) on ignorance and unenlightened attitudes is “patronizing and contemptuous, embodying the same rage, dehumanization, and hatred that it attributes to its enemies.” Next time you read the news, especially articles enjoining us to take a conventional political position, pay attention for the subtext of “Here is whom you should hate.” The right-wing populists incite hatred and anger at the blacks, the immigrants, the Muslims, the gays, the transgender, the “libtards,” etc. The mainstream liberals stir up outrage against the bigots, the nationalists, the contemptible narrow-minded over-entitled “crazy” (a common adjective) climate-change-denying Bible-thumpers. Further left, the critics of neoliberal imperialism follow the same formula by invoking images of heartless corporate executives, greedy bankers, cowardly political elites, and drone-like bureaucrats and technocrats who should surely know better.

Herein lies a near-universal political formula: identify the enemy, arouse anger and hatred against that enemy, and then defeat the enemy. It is based on this analysis: Cause: bad people. Solution: defeat the bad people. Problem solved. The media, whether news or entertainment, has immersed us in that outlook, which informs everything from action films to the War on Terror. But I am afraid we cannot blame the media either, because it is part of a mindset that is integral to modernity and has roots going back to the first mass societies. It is fundamentally the mindset of war, in which progress consists in defeating the enemy: weeds or locusts, barbarians or communists; germs or cholesterol; gun nuts or traitors. And that mindset rests on a foundation more basic still: the Story of Separation that holds us as discrete, separate individuals in a world of other, in opposition to random forces and arbitrary events of nature, and in competition with the rest of life. Well-being comes, in this story, through domination and control: glyphosate, antibiotics, GMOs, SSRIs, surveillance systems, border fences, kill lists, prisons, curfews…

It is from this story too that neoliberal capitalism sources its power. It depends on the idealization of competition, encoded in “free markets,” as a law of nature and primary driver of progress; on the sanctity of private property (which is a primal form of domination) and, most of all, on exercising control over others through the creation and enforcement of debt. It finds a natural home within the Story of Separation; it is, perhaps, Separation’s culminating expression, threatening as it does the ecological basis of human existence. We cannot change it without letting go of that story in all its dimensions. Part of that is to let go of war mentality in politics, and replace it with compassion.

This doesn’t mean sitting in a room thinking nice thoughts about race-baiters and vulture fund managers, retreating from political engagement into a safe realm of inner work. It is to enact politics from a different place. Our political reflexes are conditioned by a story that is deeper than politics. If we want to produce something other than endless variations of the same result, we have to transcend the customary terms of discourse and examine the false truisms that become transparent only when things fall apart. I am not sure what strategies, tactics, and narratives will come from a compassion-oriented worldview, from a story that holds us as interdependent, interconnected, even inter-existent with all. Various forms of nonviolent direct action, narrative change, and solidarity movements foretell what they might look like, but I think future politics is largely unknowable at the present time when most of us are still deeply conditioned by the Story of Separation. Whatever it is, it will spring from a basic inquiry – the essence of compassion – that must be sincere: “What is it like to be you?”

The bewildering glitch in the matrix that is Brexit has prompted many in Britain to ask, perhaps with some anguish, “Who are we?” It is time to ask that in earnest, which requires stepping outside the usual polarizing discourses in which both sides play the game of find-the-enemy. To my English friends, I would ask, “What kind of England do you want?” Is it one where the forces of racism are suppressed and politically defeated? Or is it one in which the source of racism has been healed? If we want the latter, we have to recognize the conditions that cause it. What is it like to be a racist?

Ordinarily in politics, everyone pretends that they know what to do. Politicians pretend that to voters, who then inhabit and perpetuate that pretense by voting. When do you ever hear a politician, when asked about an issue, say, “I have no idea what to do about it”? Well, I don’t have any idea what to do about Brexit either, but if I have any advice to Brits (and this will apply to all of us even more when the next normal-destroying crisis hits) it would be not to rush too quickly to a position. Instead, abide for a while in a state of openness and curiosity, pursuing the question, “What is it like to be you?” The kind of socioeconomic analysis (neoliberalism etc.) I offered above might help answer that question in a general, theoretical way, but it is no substitute for actually listening to one another’s stories, temporarily free of the pressure of having to find a solution. If the Prime Minister asked my opinion (I’m still waiting for the phone call), I’d say to declare a national month of listening, in which the immigrants, the angry rural pensioners, the bureaucrats, the financial industry workers, listen to each other in small forums, and in which media publications print unslanted stories of the people they have demonized. The goal of that month would not be to figure out what to do. It would be to understand each other better. The goal of the storytelling would not be to make a point. It would be to be heard and to be known. To hear another’s story is to expand oneself. It is an act of intimacy, of connection, and it subverts the ideology that holds us separate. When we take in new stories, we change and grow.

Of course it is unrealistic to expect people to drop their hidden agendas and listen with open ears. Normally our ears are shut, because we think we know. That is why Brexit and the bigger breakdowns it foreshadows are so potent. It shows us that maybe we don’t know, after all. That moment of stumbling, of humility, is precious. It may be that the Brexit vote isn’t a big enough shock to interrupt the onrush of normative political discourse that seeks to make sense of things in familiar terms. Rest assured: bigger shocks are coming.

 

Image Credit: Flickr, Creative Commons. Copyright CMYK.





Harquebus’ latest newsletter….

30 06 2016

Howdy all.

The state and quality of main stream journalism (MSJ), including that at our own ABC and despite what they might think of themselves, has deteriorated to the point of being totally useless. Instead of news, we get stories about cats in schools, fanfares about stupid celebrities making stupid remarks and any other triviality that might distract their audiences from the real world and the little that does resemble credible news, is either government propaganda, incomplete, misleading or a combination of all three. The credibility of MSJ is now non existent.

The collapse of Venezuela, shattered climate records, the release of Arctic methane and CO2, unsustainable global debt, Bilderberg meetings and the sixth mass extinction event currently under way are never mentioned. Our environment continues to be destroyed, the oceans polluted and fished to exhaustion, finite resources are wasted on corporate profits while poverty and overcrowding due to unsustainable population growth continue unabated and the fault lies squarely with MSJ which, has failed to hold those responsible to account.
Tony Jones, Australia’s most popular TV journalist, is the worst of the lot. For decades he has reveled in his popularity while all that sustains us is destroyed in the pursuit of growth and profit. He and his MSJ peers must change or we can kiss our sorry little behinds goodbye and if they think that they and theirs are somehow going to be exempt from the bloody mess that will inevitably befall us then, they are even more stupid than the ignorant fools who govern us.
Aussie journalists are only slightly more trustworthy than the corporate bought and paid for politicians that they serve. How proud they must be.

https://au.finance.yahoo.com/news/top-10-most-untrustworthy-aussie-professions-050959497.html

“Sometimes I wonder whether the world is being run by smart people who are putting us on, or by imbeciles who really mean it.” — Mark Twain Here is my usual list of links which, also proves my point.

Cheers.

———————————

“As the economy unwinds, doctors are now stealing hospital food to feed their families.”
http://www.naturalnews.com/054383_Venezuela_starvation_food_shortage.html
“”We want food!” Looting and riots rock Venezuela daily”
http://www.reuters.com/article/us-venezuela-looting-idUSKCN0YY0IR
“With delivery trucks under constant attack, the nation’s food is now transported under armed guard. Soldiers stand watch over bakeries. The police fire rubber bullets at desperate mobs storming grocery stores, pharmacies and butcher shops. A 4-year-old girl was shot to death as street gangs fought over food.”
http://www.nytimes.com/2016/06/20/world/americas/venezuelans-ransack-stores-as-hunger-stalks-crumbling-nation.html

“Half of the world has passed the point of maximum energy consumption. This point is marked by large scale economic crisis. Asia Pacific is approaching that point now.”

http://wakeup.stubbornbull.com.au/the-environment/industrial-issues/have-we-reached-peak-oil/

Trans-Pacific Partnership will barely benefit Australia, says World Bank report”
The average Australian worker will not benefit in any way shape or form from this agreement.”
http://wakeup.stubbornbull.com.au/society/financial-system/trans-pacific-partnership-ttp-what-is-it/

“The EPA states that methane is a greenhouse gas that could have 25 times the impact of carbon dioxide over the next century.”
http://www.businessinsider.com/russian-exploding-permafrost-methane-craters-global-warming-2016-6

“The melting of the permafrost represents one of humanity’s greatest fears for it contains vast amounts of methane, a greenhouse gas much more potent than carbon dioxide.”
http://www.independent.co.uk/environment/gateway-to-the-underworld-siberia-batagaika-siberia-russia-permafrost-melting-a7063936.html
“we are now experiencing the highest level of relative and absolute global inequality at any point in human history.”
“the 21st Century will be a new dark age of luxury for a few and barbaric suffering for most. ”
http://www.greanvillepost.com/2016/06/07/planetary-crisis-we-are-not-all-in-this-together/
“the UN warns bluntly that world population, now well over seven billion ‘has reached a stage where the amount of resources needed to sustain it exceeds what is available
http://churchandstate.org.uk/2016/06/there-are-not-enough-resources-to-support-the-worlds-population/
“Mexico’s wells are running dry.
You would almost not know if you took your news from television or the mainstream media. It is like a closely guarded secret — the aunt in the attic.”
http://peaksurfer.blogspot.com.au/2016/06/the-aunt-in-attic.html

“We have forgotten the lessons of the 1760s, 1850s, and 1920s. We have let Economic Royalists hijack our democracy, and turn our economy into their money machine. Now the middle class is evaporating, infrastructure is crumbling, and pressure is reaching a breaking point. Anti-establishment candidates are on the rise, and no one knows how things will turn out.”
http://evonomics.com/trump-phenomenon-is-a-sign-of-oligarchy/

“Australian scientists report that many surviving corals affected by mass bleaching from high sea temperatures on the northern Great Barrier Reef are the sickest they have ever seen.
http://www.eurekalert.org/pub_releases/2016-06/acoe-hsc062016.php

“In 2009, Obama promised to help “rid the world of nuclear weapons” and was awarded the Nobel Peace Prize. No American president has built more nuclear warheads than Obama.”
https://newmatilda.com/2016/05/30/silencing-america-as-it-prepares-for-war-john-pilger/

“Thus, if tomorrow a war were to break out between the US and Russia, it is guaranteed that the US would be obliterated.”
“If attacked, Russia will not back down; she will retaliate, and she will utterly annihilate the United States.”
http://www.paulcraigroberts.org/2016/06/03/41522/

“Whether we believe that innovation and technology ultimately make the world better or worse, there is now overwhelming evidence that they are unsustainable in any case. Between economic over-extension, energy over-dependence, and the ruination of our atmosphere and other environments by our civilization and its technologies, it is now almost inevitable that we will soon see a collapse that will make the Great Depression, and perhaps even the five previous great extinctions of life on Earth, look like nothing.
“Modern technology requires cheap energy, and, notwithstanding the recent power games between the US and Russia temporarily and artificially driving down oil prices, we are quickly running out of it.”
http://howtosavetheworld.ca/2016/06/06/technologys-false-hope-and-the-wisdom-of-crows-repost/
“the evidence supports their theory that his death was in no possible way a suicide, as has been reported by police and the mainstream media.”
http://www.naturalnews.com/054302_Jeff_Bradstreet_murder_autism.html

“Having successfully used the EU to conquer the Greek people by turning the Greek “leftwing” government into a pawn of Germany’s banks, Germany now finds the IMF in the way of its plan to loot Greece into oblivion .”
http://www.paulcraigroberts.org/2016/05/25/we-have-entered-the-looting-stage-of-capitalism-paul-craig-roberts/

“All references to climate change’s impact on World Heritage sites in Australia have been removed from a United Nations report.”
“Australia’s Department of the Environment requested that Unesco scrub these sections from the final version.”
http://www.bbc.com/news/world-australia-36376226

Peak oil mates, peak oil. Those that deny it do not understand it.
“when oil companies (and governments) talk about oil supply, they include all sorts of things that cannot be sold as oil on the world market including biofuels, refinery gains and natural gas plant liquids as well as lease condensate.”
“If what you’re selling cannot be sold on the world market as crude oil, then it’s not crude oil.”
http://oilprice.com/Energy/Energy-General/The-Condensate-Con-How-Real-Is-The-Oil-Glut.html

“You’d think this would be pretty big news.  The Prime Minister of one of the biggest economies in the world just made a presentation saying we are on the brink of collapse not only in Japan but worldwide and it was mostly swept under the rug.
“The same globalist elites who are orchestrating the coming collapse own all the major media companies.  They don’t want Joe the Plumber and main street to get an inkling that something is wrong until it is too late… just like in 2008.”
https://www.dollarvigilante.com/blog/2016/06/01/now-japanese-prime-minister-abe-predicts-global-economic-catastrophe-imminent.html

“Neoliberalism hasn’t delivered economic growth – it has only made a few people a lot better off.”
http://www.theguardian.com/commentisfree/2016/may/31/witnessing-death-neoliberalism-imf-economists
“Ocean plastic has turned up literally everywhere. It has been found in the deep sea and buried in Arctic ice. It has been ingested with dire consequences by some 700 species of marine wildlife.”
http://news.nationalgeographic.com/news/2015/02/150212-ocean-debris-plastic-garbage-patches-science/
“inflate another bubble. In other words, do more of what failed spectacularly.
This process of doing more of what failed spectacularly appears sustainable for a time, but this superficial success masks the underlying dynamic of diminishing returns:”
http://www.oftwominds.com/blogjune16/collapse6-16.html
“If our leaders had made better decisions since the last crisis, things could have turned out differently.  But instead, they continued to conduct business as usual, and now we will reap what they have sown.”
http://theeconomiccollapseblog.com/archives/worst-jobs-report-in-nearly-6-years-102-million-working-age-americans-do-not-have-jobs

“The high-profit, low-risk nature of environmental crime is matched by the low funds and uncertain priorities given to fighting it by many decision-takers.”
http://www.theguardian.com/environment/2016/jun/03/value-eco-crimes-soars-26-with-devastating-impacts-natural-world

“That $1.3 trillion bubble was enough to bring down several major banks and cause cascading damage across the global financial system.
Today’s bubble is EIGHT TIMES the size of the last one”
https://www.sovereignman.com/trends/this-financial-bubble-is-8-times-bigger-than-the-2008-subprime-crisis-19590/

“The Arctic is on track to be free of sea ice this year or next for the first time in more than 100,000 years”
“Scientists have monitored greenhouse gas methane – once frozen on the sea bed – bubbling up to the surface at an alarming rate.”
“We’re on a runaway train, scientists are blowing the whistle, but politicians are still shovelling coal into the engine.”
http://www.independent.co.uk/environment/climate-change/arctic-could-become-ice-free-for-first-time-in-more-than-100000-years-claims-leading-scientist-a7065781.html

“A husband should be allowed to lightly beat his wife if she defies his commands and refuses to dress up as per his desires; turns down demand of intercourse without any religious excuse or does not take bath after intercourse or menstrual periods.”
http://www.shtfplan.com/headline-news/husbands-can-beat-their-wives-if-they-refuse-sex-according-to-islamic-council-of-clerics-and-scholars_06042016

“That has left economists and fund managers worried the unconventional measures are setting the stage for exactly what central banks are trying to prevent—another financial crisis.”
http://www.marketwatch.com/story/fund-managers-fear-central-banks-will-create-next-lehman-moment-2016-06-08

“Australia has amassed a huge pile of debt—over 120% of GDP—and most of it is mortgage debt on overvalued real estate. Now that Australia’s economy, which was driven by commodity exports to China, has tanked, a lot of this debt is being turned into interest-only loans, because Australians no longer have the money to repay any of the principal.”
“as conditions deteriorate further, the Australians will become unable to afford taxes and utilities.”
http://cluborlov.blogspot.com.au/2016/06/the-money-cult.html

“the internet has fallen into the hands of large corporations and governments and become the “world’s largest surveillance network”.”
http://www.theinquirer.net/inquirer/news/2460894/sir-tim-berners-lee-internet-has-become-world-s-largest-surveillance-network

“if you care to avoid vaporization and, assuming we do avoid it, live a life other than serfdom, you must wake up and realize that your most deadly enemy is Washington, not the hoax of “Russian aggression,” not the hoax of “Muslim terrorism,” not the hoax of “domestic extremism,” not the hoax of welfare bankrupting America, not the hoax of democracy voting away your wealth, which Wall Street and the corporations have already stolen and stuck in their pockets.”
http://www.paulcraigroberts.org/2016/06/09/where-do-matters-stand-paul-craig-roberts/

“We are heading into a very dark time…a time where technology will be used to enslave, not enlighten or uplift mankind.”
http://www.shtfplan.com/headline-news/economic-collapse-will-serve-one-purpose-global-governance-and-the-enslavement-of-mankind_06112016

“Its fast-growing stalk yields one of the strongest and most useful fibers known, used in superior paper, canvas, ropes, insulation, cardboard, clothing, shoes and plastic — plastic that is, by the way, biodegradable. This one plant can provide many of the products an industrial society needs, sustainably, while drastically reducing pollution, energy consumption, deforestation, fossil fuel use and providing income for millions of farmers”
“Both hemp and marijuana are cannabis plants. Hemp is cannabis sativa and marijuana is cannabis indica. So when regulators wanted to prevent people from getting high on cannabis indica, they criminalized cannabis, which included cannabis sativa, which made it illegal to use one of the most useful and sustainable crops the world has ever known.”
http://www.dailyimpact.net/2016/06/07/the-war-on-hemp/

“There is no such thing as sustainable agriculture. It does not exist.”
http://dark-mountain.net/blog/how-did-things-get-to-be-this-way/

“The economic reality, evident to anyone who isn’t a spin doctor for the Coalition or a journalist for The Australian, is that we have a weak economy, unable to finance our expected living standards.”
https://newmatilda.com/2016/06/06/australias-open-for-business-and-yet-incomes-are-down-and-were-basically-in-recession/

“The last station on Earth without a 400 parts per million (ppm) [CO2] reading has reached it.”
“That’s the first time it’s passed that level in 4 million years (no, that’s not a typo).”
“the planet as a whole has likely crossed the 400 ppm threshold permanently”
http://www.climatecentral.org/news/antarctica-co2-400-ppm-million-years-20451

“Seven climate records set so far in 2016”
https://www.theguardian.com/environment/2016/jun/17/seven-climate-records-set-so-far-in-2016

“What will corporations blame when they can’t use “tighter money supplies” as an excuse?”
http://imgur.com/bbwlZZF

———————————

Harry aka Harquebus
Salisbury North.
South Australia.
harrycebex@hotmail.com




Will it be enough….??

19 04 2015

Mark Cochrane

Mark Cochrane

Another guest post from resident climate scientist Mark Cochrane who asks “will it be enough?”

We are now in the build up period to the 21st Session of the Conference of the Parties (COP21/CMP11) to the United Nations Framework Convention on Climate Change (UNFCCC), otherwise known as “Paris 2015” from November 30th to December 11th. This conference will be critical, as it needs to achieve a new international agreement on the climate, applicable to all countries, with the aim of keeping global warming below 2°C. It follows on the debacle that was the Copenhagen Summit (COP 15) in 2009 where the whole thing dissolved in disarray when a weak statement, the “Copenhagen Accord” was rammed through by the US, China, India, Brazil and South Africa” to no effect. As weak as it was the US did not adopt it, choosing instead to officially “take note of” it, whatever that means. Courtesy of Edward Snowden, the world now knows that the US was spying on all of the other countries delegations and effectively scuttling any chance for meaningful accords arising from the Copenhagen Summit (link). To keep the public out of the debate we were treated to the fabricated spectacle of “Climategate” where hackers grabbed thousands of emails from climate researchers and selectively used bits and pieces out of context to spin the idea of a great conspiracy to mislead the public.

There have now been eight major investigations of the various allegations and published reports, finding no evidence of fraud or scientific misconduct (link) including:

House of Commons Science and Technology Committee (UK); Independent Climate Change Review (UK); International Science Assessment Panel (UK); Pennsylvania State University first panel and second panel (US); United States Environmental Protection Agency (US); Department of Commerce (US); National Science Foundation (US).

Despite this you will find the same false allegations spun by the same sources.

However, this time around there appears to be some movement toward actually attempting to reach a global accord. The world has been without such an accord since the expiration of the Kyoto Protocol in 2012, though a shadow of it has limped on until now. Started in 1997, the Kyoto Protocol languished without effect until 2002 due to the intransigence of the United States. However, in 2004, Russia ratified the agreement and the world officially overrode the United States to bring the agreement into effect. At this point, of the 196 countries/parties within the UNFCCC, 192 have ratified the Kyoto Protocol. The United States never has, Canada did, but then dropped out in 2012.

At present, the world’s countries are putting forth their Intended Nationally Determined Contributions (INDCs), with developed countries expected to lead and developing countries to follow. You can monitor the growing list of submitted INDCs here. So far they include, in order of submission, Switzerland, The European Union, Norway, Mexico, the US, Gabon, and Russia. There are a hodgepodge of commitments including:

Switzerland commits to reduce greenhouse gas (GHG) emissions 35 percent below 1990 levels by 2025, 50 percent below 1990 levels by 2030, and 70-85 percent below 1990 levels by 2050. (link)

The EU’s INDC puts forward a legally binding commitment to reduce its overall emissions at least 40 percent below 1990 levels by 2030. (link)

The submission, referred to as an Intended Nationally Determined Contribution (INDC), is a formal statement of the U.S. target, announced in China last year, to reduce our emissions by 26-28% below 2005 levels by 2025, and to make best efforts to reduce by 28%. (link)

The intent is for all of these commitments to come in to effect by 2020 as the world’s governments ratify the hoped for agreement. Assuming that all of this goes according to plan, is there any hope that these actions will limit warming of the planet to 2C or less? In a word No. No one has any illusions that they will. From the UNFCCC website:

“In October we will produce a synthesis report aggregating the effect of all the INDCs submitted. The initial INDCs will clearly not add up to the emissions reductions needed to keep the global temperature rise under 2 degrees C, which is one reason why the Paris agreement must factor in a long term emission trajectory based on science”. (link)

However, although the total commitments may be disappointing, I am encouraged that there is momentum to get something done. It is a lot easier to adjust targets over time than to create a global agreement from scratch. Regardless, any effort to actually start reducing emissions levels would buy more time to adapt to and mitigate climate change effects. Is it enough, no, but it could be a step in the right direction. Even if the agreement is made and ratified, each country would then face the challenge of determining how to implement or incentivate the results they they hope to achieve.

My personal hope is that a sea change in global commitments to actually do something with regards to climate change will provide outlets for human creativity to look for better ways of diminishing the problem rather than new ways to accelerate it.

As such, I am keeping my fingers crossed for the Paris 2015 conference producing some sort of global accord. It will undoubtedly come out weaker than hoped, take longer than expected to ratify, and disappoint on all fronts, but it would at least be something other than the vacuum that we have been inhabiting. Maybe the NSA won’t be in everybody’s conference rooms this time around, maybe another false flag disinformation campaign won’t derail the public perception of the messages coming out of the meeting, maybe, just maybe, humanity will fleetingly try to live up to our self-proclaimed name of Homo sapiens sapiens (translation being – wise wise man).

Mark





Solidarity, not Austerity

27 01 2015

https://damnthematrix.files.wordpress.com/2015/01/91395-tae2b25402betr.png

Raul and Nicole

I suppose it’s fair to assume that most of my readers already follow Nicole Foss’ old website, the Automatic Earth, which is now largely operated by as I can’t recall when was the last time Nicole wrote anything there, busy as she is speaking all over the place and moving to NZ etc….  If you’ve already read this, my apologies….. but Ilargi has written some sublime posts on the unfolding European catastrophe of late, and now that SYRIZA has in fact been elected, this gem had to be reproduced, because I see the current revolution in Greece as the very beginning of the end for the oligarchs, who apparently are even running scared about their future now!  Enjoy……

In what universe is it a good thing to have over half of the young people in entire countries without work, without prospects, without a future? And then when they stand up and complain, threaten them with worse? How can that possibly be the best we can do? And how much worse would you like to make it? If a flood of suicides and miscarriages, plummeting birth rates and doctors turning tricks is not bad enough yet, what would be?

If you live in Germany or Finland, and it were indeed true that maintaining your present lifestyle depends on squeezing the population of Greece into utter misery, what would your response be? F##k ‘em? You know what, even if that were so, your nations have entered into a union with Greece (and Spain, and Portugal et al), and that means you can’t only reap the riches on your side and leave them with the bitter fruit. That would make that union pointless, even toxic. You understand that, right?

Greece is still an utterly corrupt country. Brussels knows this, but it has kept supporting a government that supports the corrupt elite, tried to steer the Greeks away from voting SYRIZA. Why? How much does Brussels like corrupt elites, exactly? The EU, and its richer member nations, want Greece to cut even more, given the suicides, miscarriages, plummeting birth rates and doctors turning tricks. How blind is that? Again, how much worse does it have to get?

Does the EU have any moral values at all? And if not, why are you, if you live in the EU, part of it? Because you don’t have any, either? And if you do, where’s your voice? There are people suffering and dying who are part of a union that you are part of. That makes you an accomplice. You can’t hide from that just because your media choose to ignore your reality from you.

And it doesn’t stop there. It’s not just a lack of morals. The powers that be within the EU deliberately unleashed shock therapy on Greece – helped along by Goldman Sachs and the IMF, granted -. All supra-national organizations tend towards zero moral values. It’s inherent in their structures. We have NATO, IMF, World Bank, EU, and there’s many more. It’s about the lack of accountability, and the attraction that very lack has for certain characters. Flies and honey.

So that’s where I would tend to differ from people like Alexis Tsipras and Yanis Varoufakis, the man seen as SYRIZA’s new finance minister, and also the man who last night very graciously, in the midst of what must have been a wild festive night in Athens, responded to my congratulations email, saying he knows what Dr Evil Brussels is capable of. I don’t see trying to appease Brussels as a successful long term move, and I think Athens should simply say thanks, but no, thanks. But I’m a writer in a glass tower, and they have to face the music, I know.

But let’s get a proper perspective on this. And for that, first let’s get back to Steve Keen (you now he’s a personal friend of The Automatic Earth). Here’s what I think is important. His piece last week lays the foundation for SYRIZA’s negotiations with the EU better than anything could. Steve blames the EU outright for the situation Greece is in. Let’s see them break down the case he makes. And then talk.

It’s All The Greeks’ Fault

Politically paralyzed Washington talked austerity, but never actually imposed it. So who was more successful: the deliberate, policy-driven EU attempt to reduce government debt, or the “muddle through” USA? [..]muddle through was a hands-down winner: the USA’s government debt to GDP ratio has stabilized at 90% of GDP, while Spain’s has sailed past 100%. The USA’s macroeconomic performance has also been far better than Spain’s under the EU’s policy of austerity.

[..] simply on the data, the prima facie case is that all of Spain’s problems – and by inference, most of Greece’s – are due to austerity, rather than Spain’s (or Greece’s) own failings. On the data alone, the EU should “Cry Uncle”, concede Greece’s point, stop imposing austerity, and talk debt-writeoffs – especially since the Greeks can argue that at least part of its excessive public debt ratio is due to the failure of the EU’s austerity policies to reduce it.

[..] why did austerity in Europe fail to reduce the government debt ratio, while muddle-through has stabilized it in the USA? .. the key factor that I consider and mainstream economists ignore—the level and rate of change of private debt. The first clue this gives us is that the EU’s pre-crisis poster-boy, Spain, had the greatest growth in private debt of the three—far exceeding the USA’s. Its peak debt level was also much higher—225% of GDP in mid-2010 versus 170% of GDP for the USA in 2009

[..] the factor that Greece and Spain have in common is that the private sector is reducing its debt level drastically – in Spain’s case by over 20% per year. The USA, on the other hand, ended its private sector deleveraging way back in 2012. Today, Americans are increasing their private debt levels at a rate of about 5% of GDP per year—well below the peak levels prior to the crisis, but roughly in line with the rate of growth of nominal GDP.

[..] the conclusion is that Greece’s crisis is the EU’s fault, and the EU should “pay” via the debt write-offs that Syriza wants – and then some.

That’s not the attitude Berlin and Brussels go into the talks with Tsipras and Varoufakis with. They instead claim Greece owes them €240 billion, and nobody ever talks about what EU crap cost the PIIGS. But Steve is not a push-over. He made Paul Krugman look like a little girl a few years ago, when the latter chose to volunteer, and attack Steve on the issue, that – in a few words – banks have no role in credit creation.

Back to Yanis. The right wing Daily Telegraph, of all places, ran a piece today just about fully – and somewhat strangely – endorsing our left wing Greek economist. Ain’t life a party?

Yanis Varoufakis: Greece’s Future Finance Minister Is No Extremist

Syriza, a hard left party, that outrightly rejects EU-imposed austerity, has given Greek politics its greatest electoral shake-up in at least 40 years.

Hold, wait, don’t let’s ignore that 40 years ago is when Greece ended a military dictatorship. Which had been endorsed by, you know, NATO, US … So “greatest electoral shake-up” is a bit of a stretch. To say the least. There was nothing electoral about Greece pre-1975.

You might expect the frontrunner for the role of finance minister to be a radical zealot, who could throw Greece into the fire He is not. Yanis Varoufakis, the man tipped to be at the core of whatever coalition Syriza forges, is obviously a man of the left. Yet through his career, he has drawn on some of the most passionate advocates of free markets. While consulting at computer games company Valve, Mr Varoufakis cited nobel-prize winner Friedrich Hayek and classical liberal Adam Smith, in order to bring capitalism to places it had never touched.

[..] while Greece’s future minister is a fan of markets in many contexts, it is apparent that he remains a leftist, and one committed to the euro project. Speaking to the BBC on Monday, he said that it would “take an eight or nine year old” to understand the constraints which had bound Greece up since it “tragically” went bankrupt in 2010. “Europe in its infinite wisdom decided to deal with this bankruptcy by loading the largest loan in human history on the weakest of shoulders, the Greek taxpayer,” he said.

“What we’ve been having ever since is a kind of fiscal waterboarding that have turned this nation into a debt colony,” he added. Greece’s public debt to GDP now stands at an eye watering 175%, largely the result of output having fallen off a cliff in the past few years. Stringent austerity measures have not helped, but instead likely contributed.

That last line, from a right wing paper? That’s the same thing Steve Keen said. Even the Telegraph says Brussels is to blame.

It will likely be Mr Varoufakis’ job to make the best of an impossible situation. The first thing he will seek to tackle is Greece’s humanitarian crisis. “It is preposterous that in 2015 we have people that had jobs, and homes, and some of them had shops until a couple of years ago, that are now sleeping rough”, he told Channel 4. The party may now go after multinationals and wealthy individuals that it believes do not pay their way.

[..]The single currency project has fallen under heavy criticism. The economies that formed it were poorly harmonised, and no amount of cobbling together could make the end result appear coherent. Michael Cembalest, of JP Morgan, calculated in 2012 that a union made up of all countries beginning with the letter “M” would have been more workable. The same would be true of all former countries of the Ottoman Empire circa 1800, or of a reconstituted Union of Soviet Socialist Republics, he found.

That’s just brilliant, great comparisons. Got to love that. And again, it reinforces my idea that the EU should simply be demolished, and Greece should not try and stay within eurozone parameters. It may look useful now, but down the line the euro has no future. There’s too much debt to go around. But for SYRIZA, I know, that is not the most practical stance to take right now. The demise of the euro will come in and of itself, and their immediate attention needs to go to Greece, not to some toxic politics game. Good on ‘em. But the fact remains. The euro’s done. And SYRIZA, whether it likes it or not, is very much an early warning sign of that.

[..] A disorderly break up would almost certainly result in a merciless devaluation of whatever currency Greece launched, and in turn a default on debt obligations. The country would likely be locked out of the capital markets, unable to raise new funds. As an economy, Greece has only just begun to see output growth return. GDP still remains more than 26% below the country’s pre-crisis peak. A fresh default is not the lifeline that Greece needs.

Instead, it will be up to a Syriza-led government to negotiate some sort of debt relief, whether that be in the form of a restructuring, a deal to provide leeway on repayment timings, or all out forgiveness. It will be up to Mr Varoufakis – if he is selected as finance minister – and newly sworn in Prime Minister Alex Tspiras to ensure that this can be achieved without Greece getting pushed out of the currency bloc in the process.

And whaddaya know, Steve Keen finishes it off too. Complete with history lessons, a take-and-shake down of failed economic policies, and a condemnation of the neo-liberal politics that wrecked Greek society so much they voted SYRIZA. It’s not rocket politics…

Dawn Of A New Politics In Europe?

About 40 years ago, one of Maggie Thatcher’s chief advisors remarked that he wouldn’t be satisfied when the Conservative Party was in government: he would only be happy when there were two conservative parties vying for office. He got his wish of course. The UK Labour Party of the 1950s that espoused socialism gave way to Tony Blair’s New Labour, and the same shift occurred worldwide, as justified disillusionment about socialism as it was actually practised—as opposed to the fantasies about socialism dreamed up by 19th century revolutionaries—set in.

Parties to the left of the political centre—the Democrats in the USA, Labour in the UK, even the Socialist Party that currently governs France—followed essentially the same economic theories and policies as their conservative rivals.

Differences in economic policy, which were once sharp Left-anti-market/Right-pro-market divides, became shades of grey on the pro-market side. Both sides of politics accepted the empirical fact that market systems worked better than state-run systems. The differences came down to assertions over who was better at conducting a pro-market economic agenda, plus disputes over the extent of the government’s role in the cases where a market failure could be identified.

So how do we interpret the success of Syriza in the Greek elections on Sunday, when this avowedly anti-austerity, left-wing party toppled the left-Neoliberal Pasok and right-Neoliberal New Democracy parties that, between them, had ruled Greece for the previous 4 decades? Is it a return to the pro-market/anti-market divides of the 1950s? No—or rather, it doesn’t have to be.

It can instead be a realisation that, though an actual market economy is indeed superior to an actual centrally planned one, the model of the market that both sides of politics accepted was wrong. That model—known as Neoliberalism in political circles, and Neoclassical Economics in the economic ones in which I move—exalts capitalism for a range of characteristics it doesn’t actually have, while ignoring characteristics that it does have which are the real sources of both capitalism’s vitality and its problems.

Capitalism’s paramount virtues, as espoused by the Neoliberal model of capitalism, are stability and efficiency. But ironically, the real virtue of capitalism is its creative instability—and that necessarily involves waste rather than efficiency. This creative instability is the real reason it defeated socialism, while simultaneously one of the key reasons socialism failed was because of its emphasis upon stability and efficiency.

[..] real-world capitalism trounced real-world socialism because of its real-world strength—the creative instability of the market that means to survive, firms must innovate—and not because of the Neoliberal model that politicians of both the Left and the Right fell for after the collapse of socialism.

Neoliberalism prospered in politics for the next 40 years, not because of what it got right about the economy (which is very little), but because of what it ignored—the capacity of the finance sector to blow a bubble that expanded for almost 40 years, until it burst in 2007. The Neoliberal model’s emphasis on making the government sector as small as possible could work while an expanding finance sector generated the money needed to fuel economic prosperity. When that bubble burst, leaving a huge overhang of private debt in its wake, Neoliberalism led not to prosperity but to a second Great Depression.

The Greeks rejected that false model of capitalism on Sunday—not capitalism itself. The new Syriza-led Government will have to contend with countries where politicians are still beholden to that false model, which will make their task more difficult than it is already. But Syriza’s victory may show that the days of Neoliberalism are numbered. Until Sunday, any party espousing anything other than Neoliberalism as its core economic policy could be slaughtered in campaigning by pointing out that its policies were rejected by economic authorities like the IMF and the OECD.

Syriza’s opponents did precisely that in Greece—and Syriza’s lead over them increased. This is the real takeaway from the Greek elections: a new politics that supports capitalism but rejects Neoliberalism is possible.

All Europeans, and Americans too, must now support SYRIZA. It’s not only the only hope for Greece, it is that for the entire EU. SYRIZA breaks the mold. Greeks themselves would be terribly stupid to start taking their money out of their accounts and precipitating bank runs. That’s what the EU wants you to do, create mayhem and discredit the younger generation that took over this weekend.

It’s going to be a bitter fight. The entrenched powers, guaranteed, won’t give up without bloodshed. SYRIZA stands for defeating a model, not just a government. Most of Europe today is in the hands of technocrats and their ilk, it’s all technocrats and their little helpers. And it’s no just that, it’s that the neo-liberal Brussels crowd used Athens as a test case, in the exact same way Milton Friedman and his Chicago School used the likes of Videla and Pinochet to make their point, and tens of thousands got murdered in the process.

It’s important that we all, European or not, grasp how lacking in morality the entire system prevalent in the west, including the EU, has become. This shows in East Ukraine, where sheer propaganda has shaped opinions for at least a full year now. It’s not about what is real, it’s about what ‘leaders’ would like you to think and believe. And this same immorality has conquered Greece too; there may be no guns, but there are plenty victims.

The EU is a disgrace, a predatory beast unleashed upon all corners of Europe that resist central control and, well, debt slavery really, if you live on the wrong side of the tracks.

SYRIZA may be the last chance Europe has to right its wrongs, before fighting in the streets becomes an everyday reality. Before we get there, and I don’t know that we can prevent it, hear Steve Keen: it’s not the Greeks that screwed up, it’s the EU. But they would never ever admit to that.





The collapse of oil prices and energy security in Europe

17 11 2014

This is a written version of the brief talk I gave at the hearing of the EU parliament on energy security in Brussels on Nov 5, 2014. It is not a transcription, but a shortened version that tries to maintain the substance of what I said. In the picture, you can see the audience and, on the TV screen, yours truly taking the picture.

Ladies and gentlemen, first of all, let me say that it is a pleasure and an honour to be addressing this distinguished audience today. I am here as a faculty member of the University of Florence and as a member of the Club of Rome, but let me state right away that what I will tell you are my own opinions, not necessarily those of the Club of Rome or of my university.

This said, let me note that we have been discussing so far with the gas crisis and the Ukrainian situation, but I have to alert you that there is another ongoing crisis – perhaps much more worrisome – that has to do with crude oil. This crisis is being generated by the rapid fall in oil prices during the past few weeks. I have to tell you that low oil prices are NOT a good thing for the reasons that I will try to explain. In particular, low oil prices make it impossible for many oil producers to produce at a profit and that could generate big problems for the world’s economy, just as it already happened in 2008.

So, let me start with an overview of the long term trends of oil prices. Here it is, with data plotted from the BP site.

These data are corrected for inflation. You see strong oscillations, but also an evident trend of growth. Let’s zoom in, to see the past thirty years or so:

These data are not corrected for inflation, but the correction is not large in this time range. Prices are growing, but they stabilized during the past 4-5 years at somewhere around US 100 $ per barrel. Note the fall during the past month or so. I plotted these data about one week ago, today we are at even lower prices, well under 80 dollars per barrel.

The question is: what generates these trends? Obviously, there are financial factors of all kinds that tend to create fluctuations. But, in the end, what determines prices is the interplay of demand and offer. If prices are too high, people can’t afford to buy; that’s what we call “demand destruction”. If prices are too low, then it is offer that is destroyed. Simply, producers can’t sell their products at a loss; not for a long time, at least. So there is a range of prices which are possible for oil: too high, and customers can’t buy, too low, and companies can’t sell. Indeed, if you look at historical prices, you see that when they went over something like 120 $/barrel (present dollars) the result was a subsequent recession and the collapse of the economy.

Ultimately, it is the cost of production that generates the lower price limit. Here, we get into the core of the problem. As you see from the price chart above, up to about the year 2000, there was no problem for producers to make a profit selling oil at around 20 dollars per barrel. Then something changed that caused the prices to rise up. That something has a name: it is depletion.

Depletion doesn’t mean that we run out of oil. Absolutely not. There is still plenty of oil to extract in the world. Depletion means that we gradually consume our resources and – as you can imagine – we tend to extract and produce first the least expensive resources. So, as depletion gradually goes on, we are left with more expensive resources to extract. And, if extracting costs more, then the market prices must increase: as I said, nobody wants to sell at a loss. And here we have the problem. Below, you can see is a chart that shows the costs of production of oil for various regions of the world. (From an article by Hall and Murphy on The Oil Drum)

Of course, these data are to be taken with caution. But there are other, similar, estimates, including a 2012 report by Goldman and Sachs, where you can read that most recent developments need at least 120 $/barrel to be profitable. Here is a slide from that report.

So, you see that, with the present prices, a good 10% of the oil presently produced is produced at a loss. If prices were to go back to values considered “normal” just 10 years ago, around 40 $/barrel, then we would lose profitability for around half of the world’s production. Production won’t collapse overnight: a good fraction of the cost of production derives from the initial investment in an oil field. So, once the field has been developed, it keeps producing, even though the profits may not repay the investment. But, in the long run, nobody wants to invest in an enterprise at so high risks of loss. Eventually, production must go down: there will still be oil that could be, theoretically, extracted, but that we won’t be able to afford to extract. This is the essence of the concept of depletion.

The standard objection, at this point, is about technology. People say, “yes, but technology will lower costs of extraction and everything will be fine again”. Well, I am afraid that it is not so simple. There are limits to what that technology can do. Let me show you something:

That object you see at the top of the image is a chunk of shale. It is the kind of rock out of which shale oil and shale gas can be extracted. But, as you can imagine, it is not easy. You can’t pump oil out of shales; the oil is there, but it is locked into the rock. To extract it, you must break the rock down into small pieces; fracture it (this is where the term “fracking” comes from). And you see on the right an impression of the kind of equipment it takes. You can be sure that it doesn’t come cheap. And that’s not all: once you start fracking, you have to keep on fracking. The decline rate of a fracking well is very rapid; we are talking about something like a loss of 80% in three years. And that’s expensive, too. Note, by the way, that we are speaking of the cost of production. The market price is another matter and it is perfectly possible for the industry to have to produce at a loss, if they were too enthusiastic about investing in these new resources. It is what’s happening for shale gas in the US; too much enthusiasm on the part of investors has created a problem of overproduction and prices too low to repay the costs of extraction.

So, producing this kind of resources, the so called “new oil” is a complex and expensive task. Surely technology can help reduce costs, but think about that: how exactly can it reduce the energy that it takes to break a rock into fine dust? Are you going to hammer on it with a smartphone? Are you going to share a photo of it on Facebook? Are you going to run it through a 3D printer? The problem is that to break and mill a piece of rock takes energy and this energy has to come from somewhere.

Eventually, the fundamental point is that you have a balance between the energy invested and the energy returned. It takes energy to extract oil, we can say that it takes energy to produce energy. The ratio of the two energies is the “Net Energy Return” of the whole system, also known as EROI or EROEI (energy return of energy invested). Of course, you want this return to be as high as possible, but when you deal with non renewable resources, such as oil, the net energy return declines with time because of depletion. Let me show you some data.

As you see, the net energy return for crude oil (top left) declined from about 100 to around 10 over some 100 years (the value of 100 may be somewhat overestimated, but the trend remains the same). And with lower net energies, you get less and less useful energy from an oil well; as you can see in the image at the lower right. The situation is especially bad for the so called “new oil”, shale oil, biofuels, tar sands, and others. It is expected: these kinds of oil (or anyway combustible liquids) are the most expensive ones and they are being extracted today because we are running out of the cheap kinds. No wonder that prices must increase if production has to continue at the levels we are used to. Then, when the market realizes that prices are too high to be affordable, there is the opposite effect; prices go down to tell producers to stop producing a resource which is too expensive to sell.

So, we have a problem. It is a problem that appears in the form of sudden price jumps; up and down, but which is leading us gradually to a situation in which we won’t be able to produce as much oil as we are used to. The same is true for gas and I think that the present crisis in Europe, which is seen today mainly as a political one, ultimately has its origin in the gradual depletion of gas resources. We still have plenty of gas to produce, but it is becoming an expensive resource.  It is the same for coal, even though so far there we don’t see shortages; for coal, troubles come more from emissions and climate change; and that’s an even more serious problem than depletion. Coal may (perhaps) be considered abundant (or, at least, more abundant than other fossil resources) but it is not a solution to any problem.

In the end, we have problems that cannot be “solved” by trying to continue producing non renewable resources which in the long run are going to become too expensive. It is a physical problem, and cannot be solved by political or financial methods. The only possibility is to switch to resources which don’t suffer of depletion. That is, to renewable resources.

At this point, we should discuss what is the energy return of renewables and compare it to that of fossil fuels. This is a complex story and there is a lot of work being done on that. There are many uncertainties in the estimates, but I think it can be said that the “new renewables“, that is mainly photovoltaics and wind, have energy returns for the production of electrical energy which is comparable to that of the production of the same kind of energy from oil and gas. Maybe renewables still can’t match the return of fossil fuels but, while the energy return of fossil energy keeps declining, the return of renewables is increasing because of economies of scale and technological improvements. So, we are going to reach a crossing point at some moment (maybe we have already reached it) and, even in terms of market prices, the cost of renewable electric power is today already comparable to that of electric power obtained with fossil fuels.

The problem is that our society was built around the availability of cheap fossil fuels. We can’t simply switch to renewables such as photovoltaics, which can’t produce, for instance, liquid fuels for transportation. So, we need a new infrastructure to accommodate the new technologies, and that will be awfully expensive to create. We’ll have to try to do our best, but we cannot expect the energy transition – the “energiewende” – to be painless. On the other hand, if we don’t prepare for it, it will be worse.

So, to return to the subject of this hearing, we were discussing energy security for Europe. I hope I provided some data for you that show how security is ultimately related to supply and that we are having big problems with the supply of fossil energy right now. The problem can only increase in the future because of the gradual depletion of fossil resources. So, we need to think in terms of supplies which are not affected by this problem. As a consequence, it is vital for Europe’s energy security to invest in renewable energy. We shouldn’t expect miracles from renewables, but they will be immensely helpful in the difficult times ahead.

Let me summarize the points I made in this talk:

Thank you very much for your attention and if you want to know more, you can look at my website “Resource Crisis”. www.cassandralegacy.blogspot.com


Ugo Bardi teaches at the University of Florence, Italy. He is a member of the Club of Rome and the author of “Extracted, how the quest for mineral wealth is plundering the planet” (Chelsea Green 2014)