Oops! Low oil prices are related to a debt bubble

Why is the price of oil so low now? In fact, why are all commodity prices so low? I see the problem as being an affordability issue that has been hidden by a growing debt bubble. As this debt bubble has expanded, it has kept the sales prices of commodities up with the cost of extraction (Figure 1), even though wages have not been rising as fast as commodity prices since about the year 2000. Now many countries are cutting back on the rate of debt growth because debt/GDP ratios are becoming unreasonably high, and because the productivity of additional debt is falling.

If wages are stagnating, and debt is not growing very rapidly, the price of commodities tends to fall back to what is affordable by consumers. This is the problem we are experiencing now (Figure 1). 

Figure 1. Author's illustration of problem we are now encountering.

Figure 1. Author’s illustration of problem we are now encountering.

I will explain the situation more fully in the form of a presentation. It can be downloaded in PDF form: Oops! The world economy depends on an energy-related debt bubble. Let’s start with the first slide, after the title slide.

Slide 2

Slide 2

Growth is incredibly important to the economy (Slide 2). If the economy is growing, we keep needing to build more buildings, vehicles, and roads, leading to more jobs. Existing businesses find demand for their products rising. Because of this rising demand, profits of many businesses can be expected to rise over time, thanks to economies of scale.

Something that is not as obvious is that a growing economy enables much greater use of debt than would otherwise be the case. When an economy is growing, as illustrated by the ever-increasing sizes of circles, it is possible to “borrow from the future.” This act of borrowing gives consumers the ability to buy more things now than they would otherwise would be able to afford–more “demand” in the language of economists. Customers can thus afford cars and homes, and businesses can afford factories. Companies issuing stock can expect that price of shares will most likely rise in the future.

Without economic growth, it would be very hard to have the financial system that we have today, with its stable banks, insurance companies, and pension plans. The pattern of economic growth makes interest and dividend payments easier to make, and reduces the likelihood of debt default. It allows financial planners to set up savings plans for retirement, and gives people confidence that the system will “be there” when it is needed. Without economic growth, debt is more of a last resort–something that might land a person in debtors’ prison if things go wrong.

Slide 3

Slide 3

It should be obvious that the economic growth story cannot be true indefinitely. We would run short of resources, and population would grow too dense. Pollution, including CO2 pollution, would become an increasing problem.

Slide 4

Slide 4

The question without an obvious answer is “When does the endless economic growth story become untrue?” If we listen to the television, the answer would seem to be somewhere in the distant future, if a slowdown in economic growth happens at all.

Most of us who read financial newspapers are aware that more debt and lower interest rates are the types of stimulus provided to the economy, to try to help it grow faster. Our current “run up” in debt seems to have started about the time of World War II. This growing debt allows “demand” for goods like houses, cars, and factories to be higher. Because of this higher demand, commodity prices can be higher than they otherwise would be.

Thus, if debt is growing quickly enough, it allows the sales price of energy products and other commodities to stay as high as their cost of extraction. The problem is that debt/GDP ratios can’t rise endlessly. Once debt/GDP ratios stop rising quickly enough, commodity prices are likely to fall. In fact, the run-up in debt is a bubble, which is itself in danger of collapsing, because of too many debt defaults.

Slide 5

Slide 5

The economy is made up of many parts, including businesses and consumers. The consumers have a second role as well–many of them are workers, and thus get their wages from the system. Governments have many roles, including providing financial systems, building roads, and providing laws and regulations. The economy gradually grows and changes over time, as new businesses are added, and others leave, and as laws change. Consumers make their decisions based on available products in the marketplace and they amount they have to spend. Thus, the economy is a self-organized networked system–see my post Why Standard Economic Models Don’t Work–Our Economy is a Network.

One key feature of a self-organized networked system is that it tends to grow over time, as more energy becomes available. As its grows, it changes in ways that make it difficult to shrink back. For example, once cars became the predominant method of transportation, cities changed in ways that made it difficult to go back to using horses for transportation. There are now not enough horses available for this purpose, and there are no facilities for “parking” horses in cities when they are not needed. And, of course, we don’t have services in place for cleaning up the messes that horses leave.

Slide 6

Slide 6

When businesses start, they need capital. Very often they sell shares of stock, and they may get loans from banks. As companies grow and expand, they typically need to buy more land, buildings and equipment. Very often loans are used for this purpose.

As the economy grows, the amount of loans outstanding and the number of shares of stock outstanding tends to grow.

Slide 7

Slide 7

Businesses compete by trying to make goods and services more efficiently than the competition. Human labor tends to be expensive. For example, a sweater knit by hand by someone earning $10 per hour will be very expensive; a sweater knit on a machine will be much less expensive. If a company can add machines to leverage human labor, the workers using those machines become more productive. Wages rise, to reflect the greater productivity of workers, using the machines.

We often think of the technology behind the machines as being important, but technology is only part of the story. Machines reflecting the latest in technology are made using energy products (such as coal, diesel and electricity) and operated using energy products. Without the availability of affordable energy products, ideas for inventions would remain just that–simply ideas.

The other thing that is needed to make technology widely available is some form of financing–debt or equity financing. So a three-way partnership is needed for economic growth: (1) ideas for inventions, (2) inexpensive energy products and other resources to make them happen, and (3) some sort of financing (debt/equity) for the undertaking. 

Workers play two roles in the economy; besides making products and services, they are also consumers. If their wages are rising fast enough, thanks to growing efficiency feeding back as higher wages, they can buy increasing amounts of goods and services. The whole system tends to grow. I think of this as the normal “growth pump” in the economy.

If the “worker” growth pump isn’t working well enough, it can be supplemented for a time by a “more debt” growth pump. This is why debt-based stimulus tends to work, at least for a while.

Slide 8

Slide 8

There are really two keys to economic growth–besides technology, which many people assume is primary. One key is the rising availability of cheap energy. When cheap energy is available, businesses find it affordable to add machines and equipment such as trucks to allow workers to be more productive, and thus start the economic growth cycle.

The other key is availability of debt, to finance the operation. Businesses use debt, in combination with equity financing, to add new plants and equipment. Customers find long-term debt helpful in financing big-ticket items such as homes and cars. Governments use debt for many purposes, including “stimulating the economy”–trying to get economic growth to speed up.

Slide 9

Slide 9

Slide 9 illustrates how workers play a key role in the economy. If businesses can create jobs with rising wages for workers, these workers can in turn use these rising wages to buy an increasing quantity of goods and services.

It is the ability of workers to afford goods like homes, cars, motorcycles, and boats that helps the economy to grow. It also helps to keep the price of commodities up, because making these goods uses commodities like iron, steel, copper, oil, and coal.

Slide 10

Slide 10

In the 1900 to 1998 period, the price of electricity production fell (shown by the falling purple, red, and green lines) as the production of electricity became more efficient. At the same time, the economy used an increasing quantity of electricity (shown by the rising black line). The reason that electricity use could grow was because electricity became more affordable. This allowed businesses to use more of it to leverage human labor. Consumers could use more electricity as well, so that they could finish tasks at home more quickly, such as washing clothes, leaving more time to work outside the home.

Slide 11

Slide 11

If we compare (1) the amount of energy consumed worldwide (all types added together) with (2) the world GDP in inflation-adjusted dollars, we find a very high correlation.

Slide 12

Slide 12

In Slide 12, GDP (represented by the top line on the chart–the sum of the red and the blue areas) was growing very slowly back in the 1820 to 1870 period, at less than 1% per year. This growth rate increased to a little under 2% a year in the 1870 to 1900 and 1900 to 1950 periods. The big spurt in growth of nearly 5% per year came in the 1950 to 1965 period. After that, the GDP growth rate has gradually slowed.

On Slide 12, the blue area represents the growth rate in energy products. We can calculate this, based on the amount of energy products used. Growth in energy usage (blue) tends to be close to the total GDP growth rate (sum of red and blue), suggesting that most economic growth comes from increased energy use. The red area, which corresponds to “efficiency/technology,” is calculated by subtraction. The period of time when the efficiency/technology portion was greatest was between 1975 and 1995. This was the period when we were making major changes in the automobile fleet to make cars more fuel efficient, and we were converting home heating to more fuel-efficient heating, not using oil.

Slide 13

Slide 13

If we look at economic growth rates and the growth in energy use over shorter periods, we see a similar pattern. The growth in GDP is a little higher than the growth in energy consumption, similar to the pattern we saw on Slide 12.

If we look carefully at Slide 13, we see that changes in the growth rate for energy (blue line) tends to happen first and is followed by changes in the GDP growth rate (red line). This pattern of energy changes occurring first suggests that growth in the use of energy is a cause of economic growth. It also suggests that lack of growth in the use of energy is a reason for world recessions. Recently, the rate of growth in the world’s consumption of energy has dropped (Slide 13), suggesting that the world economy is heading into a new recession.

Slide 14

Slide 14

There is nearly always an investment of time and resources, in order to make something happen–anything from the growing of food to the mining of coal. Very often, it takes more than one person to undertake the initial steps; there needs to be a way to pay the other investors. Another issue is the guarantee of payment for resources gathered from a distance.

Slide 15

Slide 15

We rarely think about how all-pervasive promises are. Many customs of early tribes seem to reflect informal rules regarding the sharing of goods and services, and penalties if these rules are not followed.

Now, financial promises have to some extent replaced informal customs. The thing that we sometimes forget is that the bonds companies offer for sale, and the stock that companies issue, have no value unless the company issuing the stock or bonds is actually successful.  As a result, the many promises that are made are, in a sense, contingent promises: the bond will be repaid, if the company is still in business (or if the company is dissolved, if the amount received from the sale of assets is great enough). The future value of a company’s stock also depends on the success of the company.

Slide 16

Slide 16

Governments become an important part of the web of promises. Governments collect their assessments through taxes. As an economy grows, the amount of government services tends to increase, and taxes tend to increase.

The roles of governments and businesses vary somewhat depending on the type of economy of a country. In a sense, this type of variation is not important. It is the functioning of the overall networked system that is important.

Slide 17

Slide 17

There was a very large run up in US debt about the time of World War II, not just in the US, but also in the other countries involved in World War II.

Adding the debt for World War II helped pull the US out of the lingering effects of the Depression. Many women started working outside the home for the first time. There was a ramp-up of production, aimed especially at the war effort.

What does a country do when a war is over? Send the soldiers back home again, without jobs, and the women who had been working to support the war effort back home again, also without jobs? This was a time period when non-government debt ramped up in the US. In fact, it seems to have ramped up elsewhere around the world as well. The new debt helped support many growing industries at the time–helping rebuild Europe, and helping build homes and cars for citizens in the US. As noted previously, both energy use and GDP soared during this time period.

Slide 19

Slide 19

I haven’t found very good records of debt going back very far, but what I can piece together suggests that the rate of debt growth (total debt, including both government and private debt) was similar to the rate of growth of GDP, up until about 1975. Then, debt began growing much more rapidly than GDP.

Slide 20

Slide 20

The big issue that led to a big increase in the need for debt in the early 1970s was an increase in the price of oil. Oil is the single largest source of energy. It is used in many important ways, including making food, transporting coal, and extracting metals. Thus, when the price of oil rises, so does the price of many other goods.

As we noted on Slides 11, 12, and 13, it is the growing quantity of energy consumption that is important in providing economic growth. The natural tendency with high energy prices is to cut back on energy-related consumption. Increasing debt, if it is at a sufficiently low interest rate, helps counteract this natural tendency toward less energy usage. For example, the availability of debt at a low interest makes it possible for more consumers to purchase big-ticket items like houses, cars, and motorcycles. These products indirectly lead to the growing consumption of energy products, because energy is used in making these big-ticket items and because they use energy in their continuing operation.

Slide 21

Slide 21

Many people have been concerned about what they call “peak oil”–the idea that oil supply would suddenly drop because we reach geological limits. I think that this is a backward analysis regarding how the system works. There is plenty of oil available, if only the price would rise high enough and stay high for long enough.

Much of this oil is non-conventional oil–oil that cannot be extracted using the inexpensive approaches we used in the early days of oil production. In some cases, non-conventional oil is so viscous it needs to be melted with steam, before it will flow freely. Some of the unconventional oil can only be extracted by “fracking.” Some of the unconventional oil is very deep under the ocean. Near Brazil, this oil is under a layer of salt. If prices would remain high enough, for long enough, we could get this oil out.

The problem is that in order to get this unconventional oil out, costs are higher. These higher costs are sometimes described as reflecting diminishing returns–more capital goods are needed, as are more resources and human labor, to produce additional barrels of oil. The situation is equivalent to the system of oil extraction becoming less and less efficient, because we need to add more steps to the operation, raising the cost of producing finished oil products. The higher price of oil products spills over to a higher cost for producing food, because oil is used in operating farm equipment and transporting food to market. The higher cost of oil also spills over to the cost of almost anything that is shipped long distance, because oil is used as a transportation fuel.

You will remember that increased efficiency is what makes an economy grow faster (Slide 7, also Slide 37). Diminishing returns is the opposite of increased efficiency, so it tends to push the economy toward contraction. We are running into many other forms of increased inefficiency. One such type of inefficiency involves adding devices to reduce pollution, for example in electricity production. Another type of inefficiency involves switching to higher-cost methods of generation, such as solar panels and offshore wind, to reduce pollution. No matter how beneficial these techniques may be from some perspectives, from the perspective of economic growth, they are a problem. They tend to make the economy grow more slowly, rather than faster.

The standard workaround for slow economic growth is more debt. If the interest rate is low enough and the length of the loan is long enough, consumers can “sort of” afford increasingly expensive cars and homes. Young people with barely adequate high school grades can “sort of” afford higher education. With cheap debt, businesses can afford to buy back company stock, making reported earnings per share rise–even though after the buy-back, the actual investment used to generate future earnings is lower. With sufficient cheap debt, shale companies can create models showing that even if their cash flow is negative at $100 per barrel oil prices ($2 out for $1 in) and even more negative at $50 per barrel ($4 out for $1 in), somehow, the companies will be profitable in the very long run.

The technique of adding more debt doesn’t fix the underlying problem of growing inefficiency, instead of growing efficiency. Instead, as more debt is added, the additional debt becomes increasingly unproductive. It mostly provides a temporary cover-up for economic growth problems, rather than fixing them.

Slide 22

Slide 22

A common belief has been that as we reach limits of a finite world, oil prices and perhaps other prices will spike. In my view, this is a wrong understanding of how things work.

What we have is a combination of rising costs of production for many kinds of goods at the same time that wages are not rising very quickly.  This problem can be temporarily hidden by a rising amount of debt at ever-lower interest rates, but this is not a long-term solution.

We end up with a conflict between the prices businesses need and the prices that workers can afford. For a while, this conflict can be resolved by a spike in prices, as we experienced in the 2005-2008 period. These spikes tend to lead to recession, for reasons shown on the next slide. Recession tends to lead to lower prices again.

Slide 26

Slide 26

The image on Slide 26 shows an exaggeration to make clear the shift that takes place, if the price of oil spikes. When the price of one necessary part of consumers’ budgets increases–namely the food and gasoline segment–there is a problem. Debt payments already committed to, such as those on homes and automobiles, remain constant. Consumers find that they must cut back on discretionary spending–in other words, “Everything else,” shown in green. This tends to lead to recession.

Slide 27

Slide 27

If we look at oil prices since 2000, we see that the period is marked by steep rises and falls in oil prices. In Slides 27 – 29, we will see that changes in the price of oil tend to correspond to changes in debt availability and cost.

In 2008, oil prices rose to a peak in July, and then dropped precipitously to under $40 per barrel in December of the same year. Slide 27 shows that the United States began its program of Quantitative Easing (QE) in late 2008. This helped to lower interest rates, especially longer-term interest rates. China and a number of other countries also raised their debt levels during this period. We would expect greater debt and lower interest rates to increase demand for commodities, and thus raise their prices, and in fact, this is what happened between December 2008 and 2011.

The drop in prices in 2014 corresponds to the time that the US phased out its program of QE, and China cut back on debt availability. Here, the economy is encountering less cheap debt availability, and the impact is in the direction expected–a drop in prices.

If we go back to the steep drop in oil prices in July 2008, we find that the timing of the drop in prices matches the timing when US non-governmental debt started falling. In my academic article, Oil Supply Limits and the Continuing Financial Crisis, I show that this drop in debt outstanding takes place for both mortgages and credit card debt.

Slide 29

Slide 29

The US government, as well as other governments around the world, responded by sharply increasing their debt levels. This increase in governmental debt (known as sovereign debt) is part of what helped oil and other commodity prices to rise again after 2008.

Slide 30

Slide 30

We often hear about the drop in oil prices, but the drop in prices is far more widespread. Nearly all commodities have dropped in price since 2011. Today’s commodity price levels are below the cost of production for many producers, for all of these types of commodities. In fact, for oil, there is hardly any country that can produce at today’s price level, even Saudi Arabia and Iraq, when needed tax levels by governments are considered as well.

Producers don’t go out of business immediately. Instead, they tend to “hold on” as best they can, deferring new investment and trying to generate as much cash flow as possible. Because most of them have no alternative way of making a living, they often continue producing, as best they can, even with low prices, deferring the day of bankruptcy as long as possible. Thus, the glut of supply doesn’t go away quickly. Instead, low prices tend to get worse, and low prices tend to persist for a very long period.

Slide 31

Slide 31

In 2008, we had an illustration of what can go wrong when the economy runs into too many headwinds. In that situation, the price of oil and other commodities dropped dramatically.

Now we have a somewhat different set of headwinds, but the impact is the same–the price of commodities has dropped dramatically. Wages are not rising much, so they are not providing the necessary uplift to the economy. Without wage growth, the only other approach to growing the economy is debt, but this reaches limits as well. See my post, Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.)

There is some evidence that the Great Depression in the 1930s involved the collapse of a debt bubble. It seems to me that it may very well have also involved wages that were falling in inflation-adjusted terms for a significant number of wage-earners. I say this, because farmers were moving to the city in the early 1900s, as mechanization led to lower prices for food and less need for farmers. I haven’t seen figures on incomes of farmers, but I wouldn’t be surprised if they were dropping as well, especially for the many farmers who couldn’t afford mechanization. Wages for those who wanted to work as laborers on farms were likely also dropping, since they now needed to compete with mechanization.

In many ways, the situation that led up to the Great Depression appears to be not too different from our situation today. In the early 1900s, many farmers were being displaced by changes to agriculture. Now, wages for many are depressed, as workers in developed economies increasingly compete with workers in historically low-wage countries. Additional mechanization of manufacturing also plays a role in reducing job opportunities.

If my conjecture is right, the Great Depression may have been caused by problems similar to what we are seeing today–wages that were too low for a large segment of the economy, thus reducing economic growth, and a temporary debt bubble that tended to cover up the wage problem. Once the debt bubble collapsed, demand for commodities of all types collapsed, and prices collapsed. This problem was very difficult to fix.

Slide 32

Slide 32

When we add more debt to the economy, users of debt-financing find that more of their future income goes toward repaying that debt, cutting off the ability to buy other goods. For example, a young person with a large balance of student loans is unlikely to be able to afford buying a house as well.

A way of somewhat mitigating the problem of too much income going toward debt repayment is lowering interest rates. In fact, in quite a few countries, the interest rates governments pay on debt are now negative.

Slide 33

Slide 33

If the cost of producing commodities continues to rise, but the price that consumers can afford to pay does not rise sufficiently, at some point there is a problem. Instead of continuing to rise, prices start to fall below their cost of production. This drop can be very sharp, as it was in 2008.

The falling price of commodities is the same situation we encountered in 2008 (Slide 27); it is the same situation we reached at the beginning of the Great Depression back in 1929. It seems to happen when wage growth is inadequate, and the debt level is not growing fast enough to hide the inadequate wage growth. This time around, we are also challenged by the cost of producing commodities rising, something that was not a problem at the time of the Great Depression.

Slide 34

Slide 34

If we think about the situation, having prices fall behind the cost of production is a disaster. We can’t get oil out of the ground, if prices are too low. Farmers can’t afford to grow food commercially, if prices remain too low.

Prices of assets such as the value of farmland, the value of oil held by leases, and the value of metal ores in mines will fall. Assets such as these secure many loans. If an oil company has a loan secured by the value of oil held by lease, and this value falls permanently, there is a significant chance that the oil company will default on the loan.

The usual belief is, “The cure for low prices is low prices.” In other words, the situation will fix itself. What really happens, though, is that everyone is so afraid of a big crash that all parties make extreme efforts to avoid a crash. In fact, there is evidence today that banks are “looking the other way,” rather than taking steps to cut off lending to shale drillers, when current operations are clearly unprofitable.

By the time the crash does come around, it is likely to be a huge one, affecting many segments of the economy at once. Oil exporters and exporters of other commodities will be especially affected. Some of them, such as Venezuela, Yemen, and even Iraq may collapse. Financial institutions are likely to find themselves burdened with many “underwater loans.” The usual technique of lowering interest rates to try to aid the economy doesn’t look like it would work this time, because rates are already so low. Governments are not in sufficiently good financial condition to be able to bail out all of the banks and others needing assistance. In fact, governments may fail. The fall of the former Soviet Union occurred when oil prices were low.

Once there are major debt defaults, lenders will want to wait to see that prices will stay consistently high for a period (say, two or three years) before extending credit again. Thus, even if commodity prices should bounce back in 2017, it is doubtful that producers will be able to find financing at a reasonable interest rate until, say, 2020. By that time, depletion will have taken its toll. It will be impossible to make up for the many years of low investment at that time. Production is likely to continue falling, even if prices do rise.

The indirect impact of low oil and other commodity prices is likely to be a collapse in our current debt bubble. This collapsing bubble may lead to the failures of banks and even governments. It seems quite possible that these indirect impacts will affect us most, even more than the direct loss of commodities. These impacts could come quite quickly–in the next few months, in some cases.

Slide 35

Slide 35

Stocks, bonds, pension programs, insurance programs, bank accounts, and many other things of a financial nature seem to be very “solid” things–things that we can expect to be here and grow, for many years to come. Yet these things, directly and indirectly, depend on the ability of our system to produce goods and services. If something goes terribly wrong, we may find that financial assets have little more value than the pieces of paper that represent them.

Slide 36

Slide 36

I won’t try to explain Slide 36 further.

Slide 37

Slide 37

Slide 37 illustrates the principle of increased efficiency. If a smaller amount of resources and human labor can be used to create a larger amount of end product, this is growing efficiency. If more and more resources and labor are used to produce a smaller amount of end product, this is growing inefficiency.

The other part of the story is that simply automating processes is not enough. Instead, the economy must also produce a sufficiently large number of jobs, and these jobs must pay high enough wages that the workers can afford to buy the output of the economy. It is really the health of the whole interconnected system that is important.

Slide 38

Slide 38

Our low price problems are here now. That is why we need very cheap non-polluting energy products now, in large quantity, if there is any chance of fixing the system. These energy products must work in today’s devices, so we aren’t faced with the cost and delay involved with changing to new devices, such as cars and trucks that use a different fuel than petroleum.

Slide 39

Slide 39

Regarding Slides 39 and 40, we are sitting on the edge, waiting to see what will happen next.

The US economy temporarily seems to be in somewhat of a bubble, now that it does not have QE, while several other countries still do. This bubble is related to a “flight to quality,” and leads to a higher dollar, relative to other currencies. It also leads to high stock market valuations. As a result, the US economy seems to be doing better than much of the rest of the world.

Regardless of how well the US economy seems to be doing, the underlying problems of rising costs of producing commodities and prices that lag below the cost of production are still present, making the situation unstable. Wages continue to lag behind as well. We should not be too surprised if the economy starts taking major downward steps in the next few months.

Slide 40

Slide 40

1,595 thoughts on “Oops! Low oil prices are related to a debt bubble

  1. Won’t be a very merry christmas… apparently:

    “This market is looking like a disaster and the rates are a reflection of that,” warns one of the world’s largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines – having collapsed to all-time record lows this week – it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before… 2008! “It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”


    • Thanks Don,
      worth reading entirely, but let me paste here the first 2 paragraphs:

      “And Indonesia keeps on burning…
      In 2015, about 100,000 forest and peat fires were started in Indonesia to clear land for oil palm plantations. Palm oil is a valuable commodity used as an automotive fuel, for cooking, in shampoos, creams, lipsticks, mascaras, ice cream, chocolate, and so on. We consume ever more palm oil.

      The Indonesian fires blanketed the entire region with haze and emitted more carbon dioxide than the U.S. Here is a good summary. I know you are busy and you probably will not devote 31 minutes of your time to watching something that might impact negatively your country and you. Please look at least at the first 10 minutes of this hard-hitting Coconut TV program. At nine minutes and 41 seconds you will hear about personal threats and thugs sent to dissuade activists from ever mentioning the criminals who run the largest Indonesian racket and pay off the government officials. These criminals work for several large corporations controlled by other nations, mostly rich Western democracies. In many ways, they represent you and me, and our pension plans. And so it goes…”

      Consider that TPP, TTIP and other Intl trade-agreements are aiming to render big corporations allmighty (hurray for freedom in the -global- market!!) and you’ll realize that the pace of destruction is about to increase exponentially.

      Ah, also like the conclusion:
      “China’s experiment in exchanging their environment for cities and money is sputtering out as I am writing these words. In their zeal to pursue unchecked capitalism, Chinese rulers forgot that first people breathe, drink, and eat, and only then they watch TV or buy things on the internet. In other words, we are a part of the environment, not the other way around, as our insane current narrative would have it. An unhealthy damaged environment means no highly organized humans societies, just roaming gangs and warlords. Please look at the broader Middle East after 4000 years of agricultural civilizations. But that’s a completely different story…Or is it?”






    • Very nice essay. It seems like folks focus on one preferred indicator (number of jobs created, EROEI, amount of CO2 emissions saved) and use that to justify almost anything at all, including wide spread burning of forests for palm oil.

  2. A little Koombaya to start the morning —- see the video at the bottom (love the music!) http://kootsecovillage.com/vision/alternative-currency/

    Eco villages… I’ve looked at these … and my take on them is …. their goal is to find a group of yuppies who haven’t got the slightest clue … who shop at Wholefoods and who drive a Prius … sell them land … and set up a commune type gig …

    It all sounds wonderful (it really does)… except that they haven’t got a clue … and commune type gigs do not work.

    If this is the path that appeals — why not move into a community of people who do have a clue?

    A community where most of the people have lived their lives farming — hunting — fishing — who know that you need to cooperate with neighbours …. who know how to handle weapons when the bad guys come so at least there is at least a small chance of survival…. then it doesn’t matter if you haven’t got a clue …. you can learn from these people….

    • I like Charles Eisenstein – he´s so.. Koombaya.. I cant´t get any more depth from him, then money and economics can be looked at from another point of view, any real world alternatives, nope, but, ah, such nice dozes of hopium certainly.

      I get more depth from Noah Smith http://www.bloombergview.com/contributors/noah-smith from time to time, he has some brilliant observations.

      Another I enjoy reading is Umair Haque, he also has some interesting insights from time to time http://umairhaque.com/project-type/essays/ https://hbr.org/search?term=umair+haque

      But the master of describing the culture around us would have to be Chris Hedges https://www.youtube.com/watch?v=EfmiCLYweTQ

      • I used to really like Chris Hedges… (even though he is a minister…)

        I used to read the New York Times and thought that was great…

        But then I had to reconsider all of the above when I realized that a) Hedges doesn’t get it and b) the NYT is pravda — a very effective pravda because it mixes in a few exposes that make people then believe all the propaganda they pump out must be credible as well…

        Then there was the moment of epiphany (re-posting for new visitors — if only someone had given this to me when I was 15… hopefully people find it useful)

        The Way the World Works:

        – The luckiest, fittest, smartest, with the capability for ruthlessness survive – always have – always will

        – Resources are finite and therefore ownership is a zero sum game

        – The strong always take from the weak – if they do not then that is a sign of weakness and a competitor will take from the weak and will usurp the formerly strong dropping them into weakling status

        – Humans tend to group by clan or on a broader basis by nationality (strength in numbers bonded by culture) and they compete with others for resources

        – Competition always exist (I want it all!) but it becomes fiercer when resources are not sufficient to support competing clans or nations

        – Tribal societies understand these dynamics because they cannot go to the grocery store for their food – so they are intimately aware of the daily battle to feed themselves and the competition for scare land and resources

        – Modern affluent societies do not recognize this dynamic because for them resources are not scarce – they have more than enough.

        – One of the main reasons that resources are not scarce in affluent societies is because they won the battle of the fittest (I would argue that luck is the precursor to all other advantages – affluent societies did not get that way because they started out smarter — rather they were lucky – and they parlayed that luck into advances in technology… including better war machines)

        – As we have observed throughout history the strong always trample the weak. Always. History has always been a battle to take more in the zero sum game. The goal is to take all if possible (if you end up in the gutter eating grass the response has been – better you than me – because I know you’d do the same to me)

        – And history demonstrates that the weak – given the opportunity – would turn the tables on the strong in a heartbeat. If they could they would beat the strong into submission and leave them bleeding in the streets and starving. As we see empire after empire after empire gets overthrown and a new power takes over. Was the US happy to share with Russia and vice versa? What about France and England? Nope. They wanted it all.

        – Many of us (including me) in the cushy western world appear not to understand what a villager in Somalia does – that our cushy lives are only possible because our leaders have recognized that the world is not a fair place — Koobaya Syndrome has no place in this world — Koombaya will get you a bullet in the back — or a one way trip to the slum.

        – Religious movements have attempted to change the course of human nature — telling us to share and get along — they have failed 100% – as expected. By rights we should be living in communes — Jesus was a communist was he not? We all know that this would never work. Because we want more. We want it all.

        – But in spite of our hypocrisy, we still have this mythical belief that mankind is capable of good – that we make mistakes along the way (a few genocides here, a few there… in order to steal the resources of an entire content so we can live the lives we live) — ultimately we believe we are flawed but decent. We are not. Absolutely not.

        – But our leaders — who see through this matrix of bullshit — realize that our cushy lives are based on us getting as much of the zero sum game as possible. That if they gave in to this wishy washy Koombaya BS we would all be living like Somalians.

        – Of course they cannot tell us what I am explaining here — that we must act ruthlessly because if we don’t someone else will — and that will be the end of our cushy lives. Because we are ‘moral’ — we believe we are decent – that if we could all get along and share and sing Koombaya the world would be wonderful. We do not accept their evil premises.

        – So they must lie to us. They must use propaganda to get us onside when they commit their acts of ruthlessness.

        – They cannot say: we are going to invade Iraq to ensure their oil is available so as to keep BAU operating (BAU which is our platform for global domination). The masses would rise against that making things difficult for the PTB who are only trying their best to ensure the hypocrites have their cushy lives and 3 buck gas (and of course so that the PTB continue to be able to afford their caviar and champagne) …. Because they know if the hypocrites had to pay more or took at lifestyle hit – they’d be seriously pissed off (and nobody wants to be a Somalian)

        – Which raises the question — are we fools for attacking the PTB when they attempt to throw out Putin and put in a stooge who will be willing to screw the Russian people so that we can continue to live large? When we know full well that Putin would do the same to us — and if not him someone more ruthless would come along and we’d be Somalians.

        – Should we be protesting and making it more difficult for our leaders to make sure we get to continue to lead our cushy lives? Or should we be following the example of the Spartans https://www.youtube.com/watch?v=eZeYVIWz99I

        – In a nutshell are our interests as part of the western culture not completely in line with those of our leaders – i.e. if they fail we fail – if they succeed we succeed.

        – Lee Kuan Yew is famous for saying ‘yes I will eat very well but if I do so will you’ Why bite the hand that whips the weak to make sure you eat well…. If you bite it too hard it cannot whip the weak — making you the weak — meaning you get to feel the whip….

        – Nation… clan … individual…. The zero sum game plays out amongst nations first … but as resources become more scarce the battle comes closer to home with clans battling for what remains…. Eventually it is brother against brother ….

        – As the PTB run out of outsiders to whip and rob…. They turn on their own…. As we are seeing they have no problem with destroying the middle class because it means more for them… and when the weak rise against them they have no problem at all deploying the violent tactics that they have used against the weak across the world who have attempted to resist them

        – Eventually of course they will turn against each other…. Henry Kissinger and Maddy Albright bashing each other over the head with hammers fighting over a can of spam – how precious!

        • Your view is Darwinian and in natural systems cooperation is displayed equally in interaction among species.

          • Humans cooperate — we formed tribes from the very beginning —- for the purposes of security from other marauding tribes — and for pillaging the resources and land of other tribes.

            We are still doing that. We will ALWAYS do that.

            Because we live in a Finite World – the fight over the limited resources is a zero sum game

            People like Chris Hedges are fools.

            He is part of the dominant tribe — he is on the winning team — he is living large off of the spoils — and he is in effect cheering for the other tribes to win the battle — even worse, he is trying to help them win the battle… one might call him a traitor.

            What goes on in his mind?

            Does he think that if the Russian tribe — or the Chinese tribe — wins the battle they will create a more equitable world?

            Of course they won’t — they will put the boot on his neck — just as the winning tribes have always done from the Romans to the Ottomans to the Brits to the Americans — and they will take the resources of the vanquished — and the new king and his followers will live large.

            This song is dedicated to Chris Hedges – and all those liberals out there who believe we can all live in peace and harmony ….

        • Should I support the folks that “turn on their own…. As we are seeing they have no problem with destroying the middle class because it means more for them”? Well, I ask what’s in it for me?

          • You get the crumbs that they sweep off the table onto the floor after a meal…

            The only way to get more is to get a position as a servant — waiter, cook, house keeper… (lawyer, banker, business person…)

    • “… people have lived their lives farming — hunting — fishing … ”

      Fast Eddie, sometimes you show your citified roots. I have spent a good deal of my life hunting and fishing much less lately. I can tell you that when there is a real need to hunt and/or fish to get food, that there will be no game. It is very simple.

      It would take me about an hour to kill an elk if I was of a mind (and I’m not even dressed). That elk would last me about 3 months. Problem is, i am considered a poor hunter by the hunters that I know, and they are correct. If the only food was in the wild when I went out originally, the good hunters would have slaughtered them all by the time I needed to go out again.

      • I’ve not always lived in a city….I was born in northern Canada in a rural area — I have hunted and fished a bit…

        I am not taking the position that this is survivable — the more I grind away in our large garden here in New Zealand the more it occurs to me just how difficult post BAU will be — how many things could go wrong — how grim life will be….

        And I am in one of the better places in the world… a place where there are massive numbers of deer and wild pigs — and not many people…. so I don’t think the wild life will easily be hunted to extinction on the south island of NZ… yet still — any sort of existence — compared to life with BAU — will be a brutal grind….

        I guess my point is to show how totally futile these eco villages are… that there are better options if one is looking to hang around post Apocalypse… nothing more…

        • Yes, there are more important things, and New Zealand is voting for a new flag and by implication a glorious new future. Which flag design are YOU voting for?

          • Jeremy

            Oh, but flags are so important: with them we cover our lies, and shield our eyes from what is really happening……

            • The other day some twat I met started to pontificate about getting rid of the queen as head of state. I said, what difference does it make once the grid goes down and everyone is starving to death after a few weeks? You should have seen the look on her face.

  3. Well dolph, if FE is right and the people will die in three weeks either because the system collapses or because of a virus that was deliberatley put on the human population, how do you collect the 500 Mio People that you want to rescue for your underground Bunker? Gas will be rationed, people will be shooting in the cities. You take a scientist out of the house and he will be maimed by a 14 year old with a gun ? Dolph, I really do not see that there is a remote possibility to get “the right people” out of chaos in the time required. It is too risky to start that scenario in the first place.
    The second thing is, you can not go to all the places you want to get Germanium for example if you need some for your anticipated DNA modification which is another of your dreams. You need a batallion of army availyble 24/7 to gard at least some 6 months of operating a mine until the rfeind product.
    When the warlords will smell what you do, they will all come up and ask for ransom. Then the mine is only one step as usually the refining of the ore is done on the other side of the planet.
    Not all people will die but the people left will be the most ruthless, that is for shure.
    I bet that your scenario has been simulated and it does not work. It would have had to be done at least in 2009 when for example climate change was quite low. To start it now with all militaries in the world at high alert becaus of the terrorism threat will not work. The russians will check where all the helicopters with scientists go and send some KT there. On the other hand, the virus CAN of course easily be pinpointed to the terrorists. There will be no questioning about it.
    As well with QE, you say, QE can solve all issues and we get inflation. QE is running at full throttle for 7 years now worldwide and the oil price has just crashed this year. The evidence points to the fact that your scenario is not “beeing run”…

    • Alright, the board is set, the pieces are moving. We have barely begun this collapse, it is definitely starting in earnest now. We have the facts, the graphs, the knowledge, we’ve been studying this for years. Let’s proceed to see how things play out, how people actually respond.

      Don’t get me wrong, my vision of the future is extremely grim, too grim to even contemplate for 99.9% of people. It’s just that it’s, well, slow in our terms. But in historical terms, fast.

      20 years. That’s how long our system has. That’s nothing! When I say our system I don’t mean growth, or profits. I mean the continuation of the American empire and the dollar as world reserve currency, and everything that flows from that.

      In case anybody doubts my personal commitment, I have quit my job, am planning a career change and relocation, and have broken off contact with most of my family and friends. I would prefer not to but none of them is even remotely interested in doom, which makes them unreliable. My discretionary spending is cut by some 75% and I have consciously, thus far, made the decision not to have children.

      What do you do differently, are you preparing at all?

        • There is the known stuff like peak crude oil (perhaps even +condensate) per capita already happened, the same applies as per energy per capita. This plateauing effect since late 1960s has been masked by efficiencies and substitution in consumer behaviour. Plus the effect of debt orgies which just reached in some countries 600% (public and private), so could it go 1000-5000%, who can realiably deny it? The unknown known is the duration of this process till we hit the real physical wall. It could be under 5yrs or in 20yrs or even more into future.

          In hindsight it would have been childs play to earn billions from “zero capital” only from those recent three markets upswings and three downswings of past two decades. But only percentiles of population were cunning-insiders greedy enough to do it. By now you could have a nice estate in the southern hemisphere including nuclear proof bunker large enough to house cattle, horses, trees etc. and be under “99.9% insurance policy” against these odds both of human and universe origin.

          So the moral of the story is we just don’t know the future, meanigfull “all spectrum” preparation is futile and/or beyond expensive, so ordinary people should stick to “limited spectrum” preparation against low impact risks such few years of bad harvest, economic reset/pensions blowout, various civil disorders but always keep in mind it’s covering just a fraction of likely outcomes, so don’t despair you will likely loose this fight anyway.

          • “So the moral of the story is we just don’t know the future…”. We may not know every twist and turn, and what fun would that be anyway? But the ultimate trajectory is without a doubt. Between now and 2050 we will need to burn as much energy as was done since man discovered fire, which is utterly absurd. Thus, Judgment Day has been ordained for a day between now and then.

          • Quite right that one could have made a fortune from speculation.

            Some of the rich are doing very well just that way even now: I know of a former hedge fund partner who – after the fund collapsed in 2008 – has since made some £20 million from property speculation in Europe. (A most unpleasant person).

            From his perspective, BAU is paying off very well.

      • I have been preparing for several years. I believe the right knowledge and good and skilled friends are important.The difficult thing is finding skilled friends. Most people nowdays like watching sports and other kinds of amusments which are useless outside of BAU. I’ve been studying and practising forestry and small scale farming. I think it’s good to know some traditional crafts as well like woodcraft and traditional housebuilding using wood and clay. Handling a scythe and sharpening tools is also good to know. Looking back and studying the tradition is probably useful since they had to do things without fossil fuels back in the old days. The kind of solutions used in the past can be a good thing to start from if you want to build a new house or producing food.

        I am educated physicist and are interested in radiotechnology and power engineering. I have some hope it could be useful but maybe it will be knowledge just as useless as soccer. I am planning to relocate to the countrieside. My parents think I am crazy to leave a well paid job (as an actuary) in the city.

        • Hi Christopher, ah we are both educated as physicists. 🙂 My recommendation to you is stay an extra two years to save up some more money. It is virtually impossible to go back after you step out.

          A farm in the Swedish countryside will be beautiful. When you buy please post pictures.

          • Hi, physics is a good subject. I belive this background has helped me a lot when studying other things like forestry and house construction. I have decided to buy a good farm when I find it.

            I’ll post a picture. I would have prefered North america or New Zealand. When I looked into this some years ago I found out that New Zealand was the best place in which to relocate. Good climate, low population density, good for farming and you are likely to be left alone and not dragged into the turmoil of the overpopulated continents.

        • Are you going to be unemployed? I’m starting to believe living inland in a modest house, income from a-kassa, spending the days hunting, growing potatoes and playing with the snowscooter isn’t such a bad idea. Compared to paying 73% of margin income in taxes and living in a modest house bought for 8 years net income.

          • If there’s no engineering jobs I’ll try to get a teaching job in physics and math.

            You are right. The funny thing is that everyone wants to be that guy “paying 73% of margin income in taxes and living in a modest house bought for 8 years net income”. It will soon be much more that 8 years of net income. I believe that now is a time for doing the opposite of what the great human herd does.

            Maybe not much playing with the snowscooter. I am looking for a farm in the southern parts.

  4. Dear Finite Worlders

    Some data points from Albert Bates relative to climate change, extinction of mammals, and the potential to roll back carbon with several demonstrated agricultural and building methods.


    The post begins with a discussion of a natural building symposium in a blessed place in southern New Mexico (where I will pretty soon celebrate our 50th wedding anniversary). Albert’s main purpose at the symposium was to promote the use of biochar in the buildings. As charcoal, biochar offers many ecological services to a building….which are not described in any detail in this particular post.

    About half-way down the discussion shifts to the sequestration of carbon in the soil. Carbon rich soil both greatly increases the productivity of soil and also has the potential to sequester more carbon than we are emitting by burning fossil fuels.

    You wil note that there are three pools of carbon in the soil. The first is the labile carbon, such as when a farmer or gardener simply turns the plant residue or a cover crop under and lets the residue be food for the soil microbes. This carbon does good work, but it is recycled back into carbon dioxide pretty rapidly as it does its work. The second pool consists of carbon which is in something like compost, which is resistant to microbes. It is resistant mostly because in the process of composting the microbes have vigorously attacked (and generated heat from) the compost pile. What remains is low energy density, which is not the favorite food of microbes. According to Albert, the low energy density carbon recycles back into carbon dioxide over decades. So we do have the potential to keep a lot of carbon dioxide out of the air and in the soil for the next few decades. An important consideration. (I also know some people who think compost carbon is sequestered for longer periods…I am not an authority.)

    The final pool is recalcitrant carbon, which is in something like biochar. Biochar serves as a wonderful physical structure in which soil microbes can flourish…but they don’t eat it at all. Consequently, it can remain in the soil for a thousand years or so.

    You will note the offhand comment from Albert that he is no longer concerned about feeding the world…there CAN BE plenty of food. He has virtually stopped eating meat and dairy, which contributes to his optimism in terms of calculating whether permaculture type agriculture really can feed the world. In another forum, Albert has said that planned grazing (a la Alan Savory) may be a critical component promoting carbon sequestration in grasslands. So I suppose Albert’s plan involves the restriction of beef and dairy cattle to grazing grass and the elimination of feeding grains to cows. That would cut beef and dairy production quite a lot.

    For those of you who view the upcoming holidays as a time for giving rather than receiving, consider buying a bag of biochar and giving it to a small farmer near you.

    Don Stewart

    • Monbiot (again) says:
      “There is enough to meet everyone’s need, even in a world of 10 billion people.
      There is not enough to meet everyone’s greed, even in a world of 2 billion people.”

      My own view on it is that, even if the 1st part of the sentence were true (ie feed 10B, which I doubt), it’s out of reach because it would involve big scale structural changes that are not possible without collapsing current BAU. Unfortunately.
      OTOH, I totally agree with the 2nd part of the sentence.

      • “There is enough to meet everyone’s need, even in a world of 10 billion people.
        There is not enough to meet everyone’s greed, even in a world of 2 billion people.”

        Is that taken from a new Joan Baez song?

        There is plenty to feed 10B — provided the supply of cheap to extract oil were infinite and we could continue to convert oil to food at the current 10:1 ratio.

        Unfortunately with the cost of oil production over $100 per barrel — the formula is about to snap…

        Someone needs to suggest George read FW.

        Didn’t The Guardian recently have a massive campaign on their site urging the world to convert to solar energy? Monbiat writes for that paper no? Koombaya George… Koombaya….

  5. Dear Finite Worlders
    For all of you who are looking for certainty about the future, I am here to show you how a person can become certain, when the real world is perhaps more complicated than the person’s model of reality.

    My exhibit is this exchange on Peak Oil, concerning the question of whether the banks and the accounting profession will shut down oil companies which are losing money:

    “Short, but don’t accounting firms that work for the banks that are lending money to the oil firms have something to say about this, as to protect banks?”

    If shale is any indication of what will happen, the banks will try to keep these outfits in business for as long as possible. They definitely don’t want to own, and have to operate an oil company. They don’t know how, and they know that they don’t. Also, these firms aren’t doing anything illegal (as of yet). The IRS allows them to carry losses forward for seven years. They don’t have to write them off immediately. The world is still hoping, and praying that prices will go back up; we are saying that they can’t go up enough to bail out the industry. This is charms, amulets against evil, and spells vs physics. We have found that the spells usually don’t work very well!

    Back to me.
    Shortonoil (BW Hill) has a model which tells him that the thermodynamics of the situation say that the price of oil cannot exceed 66 dollars in 2016 and that the maximum price will continue to decline steadily over the next half decade or so. Meanwhile, the cost of producing oil (including the cost of running the society which produces and uses the oil) will inexorably increase. Thus, any new oil production which comes on line to offset the decline from legacy fields will, on average, lose money.

    Hill is quite confident of his model, and tends to describe it as ‘the laws of physics’.

    A mathematical model with just a few variables, as Hill has constructed, has a lot going for it. Consider the IPCC models which seem to have been constructed to mystify. Albert Bates, instead, refers to simple models which relate historical CO2 levels to global temperatures…James Hansen has constructed similar models and used similar reasoning. Tim Garrett greatly simplified the IPCC models by showing that, if we can predict the energy consumption of the global economy, we can predict CO2 emissions. If you are like me, you tend to go with the simpler models.

    Hill has constructed a sophisticated, but simple, model. Since he first put the two pieces of the model together (production cost and ability to pay), he has also gotten the powerful feedback that the price of oil has declined sharply and global economic growth is anemic or negative. So far, he is batting 1000. It took him a couple of months to figure out the financial angles which keep oil from rising to the 66 dollars in his model (see the exchange which I started with), he now has all the players in their understandable positions. Everyone is behaving more or less rationally, if you grant that many of them are deluded and don’t understand the thermodynamics, to give a result which is not rational.

    The question I want to pose is this: Is it possible to fall in love with an elegant model which seems to be giving good results, so that one overlooks some flaws? The answer, in my case, is ‘definitely’…I fall in love regularly with simple, elegant models. I am not trying to persuade anyone that Hill’s model has flaws, or that one should cast aspersions on it, merely to indicate some reasons for caution.

    Hill’s model is NOT an EROI model. He can calculate EROI, as he defines that term, from his model, but the model is not built up from EROI calculations. Gail’s objection that ‘EROI has no clear definition’ is not an objection to EROI the way Hill simply uses it as an output from his model. The way Hill calculates EROI, I believe it is around 9 at the present time. If you want to argue that it is really 15 or 5, go right ahead but it doesn’t change anything in Hill’s model.

    Hill uses both what we may call ‘oil field costs’ and also ‘societal costs’ in his model. The ‘oil field costs’ have been exhaustively discussed in tens of thousands of peak oil articles. But the big dollars are in that ‘societal costs’ bucket. Briefly, he finds that the ability of our global economy to turn a barrel of oil into something useful enough to not only pay for producing the barrel but also to generate a surplus has been declining. In fact, he believes that the break-even point happened in 2012, and we are now 3 years into ‘subsidizing oil’ by cannibalizing the rest of the economy. For example, he states that our society has invested a trillion dollars in shale, which will never be repaid. The trillion could have, perhaps, been put to some good use, but we frittered it away.

    Which brings us down to the nagging question: Could we, at this late date, change society enough to make a difference in the effectiveness with which we use oil? Could we, for example, realize that fighting wars over oil will never pay for themselves, and stop the wars? Hill has stated that bringing about such a realization is one reason he persists in his lonely mission of trying to persuade people that oil is never going to be 70 dollars again, and that the Age of Oil is rapidly drawing to a close.

    If you ask me to make a list of all the ways our society (particularly in the US) wastes oil, I could give you a long one. I won’t bother you with my list. Granted that the change would be wrenching, but if we really believed Hill’s model, what choice do we have?

    Again, while I love elegant mathematical models which are also simple, Einstein warned us against ‘too simple’. I suggest that you keep my nagging question somewhere in the back of your mind.

    Don Stewart

  6. Zinc producers keep on cutting back and yet prices keep on falling.

    After Glencore Plc cut a third of its supply last month to combat a rout, the price rallied 10 percent and the gains lasted a month. When producers in China did the same on Friday, the jump was smaller and got rolled back after a day.

    “The benefit of previous such announcements have been fleeting, and we are not expecting this occasion to be any different,” Australia & New Zealand Banking Group Ltd. analyst Daniel Hynes said in a note on Monday. “The market is intently focused on slowing growth in manufacturing activity in China.”

    The rapid rollback of zinc’s bounce, which followed the announcement by China suppliers of output cuts for 2016, signals supply curtailments by producers probably won’t be sufficient on their own to change the course of the rout in base metals. That tallies with the view from Goldman Sachs Group Inc., which said in a note this month recent output cuts aren’t large enough to rescue prices, and that will require a substantial rise in Chinese demand. In addition to zinc, producers have also announced reductions in copper and aluminum.



    Or as Chauncey the Gardener might say… the garden is dying…

Comments are closed.