2017: The Year When the World Economy Starts Coming Apart

Some people would argue that 2016 was the year that the world economy started to come apart, with the passage of Brexit and the election of Donald Trump. Whether or not the “coming apart” process started in 2016, in my opinion we are going to see many more steps in this direction in 2017. Let me explain a few of the things I see.

[1] Many economies have collapsed in the past. The world economy is very close to the turning point where collapse starts in earnest.  

Figure 1

Figure 1

The history of previous civilizations rising and eventually collapsing is well documented.(See, for example, Secular Cycles.)

To start a new cycle, a group of people would find a new way of doing things that allowed more food and energy production (for instance, they might add irrigation, or cut down trees for more land for agriculture). For a while, the economy would expand, but eventually a mismatch would arise between resources and population. Either resources would fall too low (perhaps because of erosion or salt deposits in the soil), or population would rise too high relative to resources, or both.

Even as resources per capita began falling, economies would continue to have overhead expenses, such as the need to pay high-level officials and to fund armies. These overhead costs could not easily be reduced, and might, in fact, grow as the government attempted to work around problems. Collapse occurred because, as resources per capita fell (for example, farms shrank in size), the earnings of workers tended to fall. At the same time, the need for taxes to cover what I am calling overhead expenses tended to grow. Tax rates became too high for workers to earn an adequate living, net of taxes. In some cases, workers succumbed to epidemics because of poor diets. Or governments would collapse, from lack of adequate tax revenue to support them.

Our current economy seems to be following a similar pattern. We first used fossil fuels to allow the population to expand, starting about 1800. Things went fairly well until the 1970s, when oil prices started to spike. Several workarounds (globalization, lower interest rates, and more use of debt) allowed the economy to continue to grow. The period since 1970 might be considered a period of “stagflation.” Now the world economy is growing especially slowly. At the same time, we find ourselves with “overhead” that continues to grow (for example, payments to retirees, and repayment of debt with interest). The pattern of past civilizations suggests that our civilization could also collapse.

Historically, economies have taken many years to collapse; I show a range of 20 to 50 years in Figure 1. We really don’t know if collapse would take that long now. Today, we are dependent on an international financial system, an international trade system, electricity, and the availability of oil to make our vehicles operate. It would seem as if this time collapse could come much more quickly.

With the world economy this close to collapse, some individual countries are even closer to collapse. This is why we can expect to see sharp downturns in the fortunes of some countries. If contagion is not too much of a problem, other countries may continue to do fairly well, even as individual small countries fail.

[2] Figures to be released in 2017 and future years are likely to show that the peak in world coal consumption occurred in 2014. This is important, because it means that countries that depend heavily on coal, such as China and India, can expect to see much slower economic growth, and more financial difficulties.

While reports of international coal production for 2016 are not yet available, news articles and individual country data strongly suggest that world coal production is past its peak. The IEA also reports a substantial drop in coal production for 2016.

Figure 2. World coal consumption. Information through 2015 based on BP 2016 Statistical Review of World Energy data. Estimates for China, US, and India are based on partial year data and news reports. 2016 amount for "other" estimated based on recent trends.

Figure 2. World coal consumption. Information through 2015 based on BP 2016 Statistical Review of World Energy data. Estimates for China, US, and India are based on partial year data and news reports. 2016 amount for “other” estimated based on recent trends.

The reason why coal production is dropping is because of low prices, low profitability for producers, and gluts indicating oversupply. Also, comparisons of coal prices with natural gas prices are inducing switching from coal to natural gas. The problem, as we will see later, is that natural gas prices are also artificially low, compared to the cost of production, So the switch is being made to a different type of fossil fuel, also with an unsustainably low price.

Prices for coal in China have recently risen again, thanks to the closing of a large number of unprofitable coal mines, and a mandatory reduction in hours for other coal mines. Even though prices have risen, production may not rise to match the new prices. One article reports:

. . . coal companies are reportedly reluctant to increase output as a majority of the country’s mines are still losing money and it will take time to recoup losses incurred in recent years.

Also, a person can imagine that it might be difficult to obtain financing, if coal prices have only “sort of” recovered.

I wrote last year about the possibility that coal production was peaking. This is one chart I showed, with data through 2015. Coal is the second most utilized fuel in the world. If its production begins declining, it will be difficult to offset the loss of its use with increased use of other types of fuels.

Figure 3. World per capita energy consumption by fuel, based on BP 2016 SRWE.

Figure 3. World per capita energy consumption by fuel, based on BP 2016 SRWE.

[3] If we assume that coal supplies will continue to shrink, and other production will grow moderately, we can expect total energy consumption to be approximately flat in 2017. 

Figure 5. World energy consumption forecast, based on BP Statistical Review of World Energy data through 2015, and author's estimates for 2016 and 2017.

Figure 4. World energy consumption forecast, based on BP Statistical Review of World Energy data through 2015, and author’s estimates for 2016 and 2017.

In a way, this is an optimistic assessment, because we know that efforts are underway to reduce oil production, in order to prop up prices. We are, in effect, assuming either that (a) oil prices won’t really rise, so that oil consumption will grow at a rate similar to that in the recent past or (b) while oil prices will rise significantly to help producers, consumers won’t cut back on their consumption in response to the higher prices.

[4] Because world population is rising, the forecast in Figure 4 suggests that per capita energy consumption is likely to shrink. Shrinking energy consumption per capita puts the world (or individual countries in the world) at the risk of recession.

Figure 5 shows indicated per capita energy consumption, based on Figure 4. It is clear that energy consumption per capita has already started shrinking, and is expected to shrink further. The last time that happened was in the Great Recession of 2007-2009.

Figure 5. World energy consumption per capita based on energy consumption estimates in Figure 4 and UN 2015 Medium Population Growth Forecast.

Figure 5. World energy consumption per capita based on energy consumption estimates in Figure 4 and UN 2015 Medium Population Growth Forecast.

There tends to be a strong correlation between world economic growth and world energy consumption, because energy is required to transform materials into new forms, and to transport goods from one place to another.

In the recent past, the growth in GDP has tended to be a little higher than the growth in the use of energy products. One reason why GDP growth has been a percentage point or two higher than energy consumption growth is because, as economies become richer, citizens can afford to add more services to the mix of goods and services that they purchase (fancier hair cuts and more piano lessons, for example). Production of services tends to use proportionately less energy than creating goods does; as a result, a shift toward a heavier mix of services tends to lead to GDP growth rates that are somewhat higher than the growth in energy consumption.

A second reason why GDP growth has tended to be a little higher than growth in energy consumption is because devices (such as cars, trucks, air conditioners, furnaces, factory machinery) are becoming more efficient. Growth in efficiency occurs if consumers replace old inefficient devices with new more efficient devices. If consumers become less wealthy, they are likely to replace devices less frequently, leading to slower growth in efficiency. Also, as we will discuss later in this  post, recently there has been a tendency for fossil fuel prices to remain artificially low. With low prices, there is little financial incentive to replace an old inefficient device with a new, more efficient device. As a result, new purchases may be bigger, offsetting the benefit of efficiency gains (purchasing an SUV to replace a car, for example).

Thus, we cannot expect that the past pattern of GDP growing a little faster than energy consumption will continue. In fact, it is even possible that the leveraging effect will start working the “wrong” way, as low fossil fuel prices induce more fuel use, not less. Perhaps the safest assumption we can make is that GDP growth and energy consumption growth will be equal. In other words, if world energy consumption growth is 0% (as in Figure 4), world GDP growth will also be 0%. This is not something that world leaders would like at all.

The situation we are encountering today seems to be very similar to the falling resources per capita problem that seemed to push early economies toward collapse in [1]. Figure 5 above suggests that, on average, the paychecks of workers in 2017 will tend to purchase fewer goods and services than they did in 2016 and 2015. If governments need higher taxes to fund rising retiree costs and rising subsidies for “renewables,” the loss in the after-tax purchasing power of workers will be even greater than Figure 5 suggests.

[5] Because many countries are in this precarious position of falling resources per capita, we should expect to see a rise in protectionism, and the addition of new tariffs.

Clearly, governments do not want the problem of falling wages (or rather, falling goods that wages can buy) impacting their countries. So the new game becomes, “Push the problem elsewhere.”

In economic language, the world economy is becoming a “Zero-sum” game. Any gain in the production of goods and services by one country is a loss to another country. Thus, it is in each country’s interest to look out for itself. This is a major change from the shift toward globalization we have experienced in recent years. China, as a major exporter of goods, can expect to be especially affected by this changing view.

[6] China can no longer be expected to pull the world economy forward.

China’s economic growth rate is likely to be lower, for many reasons. One reason is the financial problems of coal mines, and the tendency of coal production to continue to shrink, once it starts shrinking. This happens for many reasons, one of them being the difficulty in obtaining loans for expansion, when prices still seem to be somewhat low, and the outlook for the further increases does not appear to be very good.

Another reason why China’s economic growth rate can be expected to fall is the current overbuilt situation with respect to apartment buildings, shopping malls, factories, and coal mines. As a result, there seems to be little need for new buildings and operations of these types. Another reason for slower economic growth is the growing protectionist stance of trade partners. A fourth reason is the fact that many potential buyers of the goods that China is producing are not doing very well economically (with the US being a major exception). These buyers cannot afford to increase their purchases of imports from China.

With these growing headwinds, it is quite possible that China’s total energy consumption in 2017 will shrink. If this happens, there will be downward pressure on world fossil fuel prices. Oil prices may fall, despite production cuts by OPEC and other countries.

China’s slowing economic growth is likely to make its debt problem harder to solve. We should not be too surprised if debt defaults become a more significant problem, or if the yuan falls relative to other currencies.

India, with its recent recall of high denomination currency, as well as its problems with low coal demand, is not likely to be a great deal of help aiding the world economy to grow, either. India is also a much smaller economy than China.

[7] While Item [2] talked about peak coal, there is a very significant chance that we will be hitting peak oil and peak natural gas in 2017 or 2018, as well.  

If we look at historical prices, we see that the prices of oil, coal and natural gas tend to rise and fall together.

Figure 6. Prices of oil, call and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

Figure 6. Prices of oil, coal and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

The reason that fossil fuel prices tend to rise and fall together is because these prices are tied to “demand” for goods and services in general, such as for new homes, cars, and factories. If wages are rising rapidly, and debt is rising rapidly, it becomes easier for consumers to buy goods such as homes and cars. When this happens, there is more “demand” for the commodities used to make and operate homes and cars. Prices for commodities of many types, including fossil fuels, tend to rise, to enable more production of these items.

Of course, the reverse happens as well. If workers become poorer, or debt levels shrink, it becomes harder to buy homes and cars. In this case, commodity prices, including fossil fuel prices, tend to fall.  Thus, the problem we saw above in [2] for coal would be likely to happen for oil and natural gas, as well, because the prices of all of the fossil fuels tend to move together. In fact, we know that current oil prices are too low for oil producers. This is the reason why OPEC and other oil producers have cut back on production. Thus, the problem with overproduction for oil seems to be similar to the overproduction problem for coal, just a bit delayed in timing.

In fact, we also know that US natural gas prices have been very low for several years, suggesting another similar problem. The United States is the single largest producer of natural gas in the world. Its natural gas production hit a peak in mid 2015, and production has since begun to decline. The decline comes as a response to chronically low prices, which make it unprofitable to extract natural gas. This response sounds similar to China’s attempted solution to low coal prices.

Figure 7. US Natural Gas production based on EIA data.

Figure 7. US Natural Gas production based on EIA data.

The problem is fundamentally the fact that consumers cannot afford goods made using fossil fuels of any type, if prices actually rise to the level producers need, which tends to be at least five times the 1999 price level. (Note peak price levels compared to 1999 level on Figure 6.) Wages have not risen by a factor of five since 1999, so paying the prices that fossil fuel producers need for profitability and growing production is out of the question. No amount of added debt can hide this problem. (While this reference is to 1999 prices, the issue really goes back much farther, to prices before the price spikes of the 1970s.)

US natural gas producers also have plans to export natural gas to Europe and elsewhere, as liquefied natural gas (LNG). The hope, of course, is that a large amount of exports will raise US natural gas prices. Also, the hope is that Europeans will be able to afford the high-priced natural gas shipped to them. Unless someone can raise the wages of both Europeans and Americans, I would not count on LNG prices actually rising to the level needed for profitability, and staying at such a high level. Instead, they are likely to bounce up, and quickly drop back again.

[8] Unless oil prices rise very substantially, oil exporters will find themselves exhausting their financial reserves in a very short time (perhaps a year or two). Unfortunately, oil importers cannot withstand higher prices, without going into recession. 

We have a no win situation, no matter what happens. This is true with all fossil fuels, but especially with oil, because of its high cost and thus necessarily high price. If oil prices stay at the same level or go down, oil exporters cannot get enough tax revenue, and oil companies in general cannot obtain enough funds to finance the development of new wells and payment of dividends to shareholders. If oil prices do rise by a very large amount for very long, we are likely headed into another major recession, with many debt defaults.

[9] US interest rates are likely to rise in the next year or two, whether or not this result is intended by the Federal reserve.

This issue here is somewhat obscure. The issue has to do with whether the United States can find foreign buyers for its debt, often called US Treasuries, and the interest rates that the US needs to pay on this debt. If buyers are very plentiful, the interest rates paid by he US government can be quite low; if few buyers are available, interest rates must be higher.

Back when Saudi Arabia and other oil exporters were doing well financially, they often bought US Treasuries, as a way to retain the benefit of their new-found wealth, which they did not want to spend immediately. Similarly, when China was doing well as an exporter, it often bought US Treasuries, as a way retaining the wealth it gained from exports, but didn’t yet need for purchases.

When these countries bought US Treasuries, there were several beneficial results:

  • Interest rates on US Treasuries tended to stay artificially low, because there was a ready market for its debt.
  • The US could afford to import high-priced oil, because the additional debt needed to buy the oil could easily be sold (to Saudi Arabia and other oil producing nations, no less).
  • The US dollar tended to stay lower relative to other currencies, making oil more affordable to other countries than it otherwise might be.
  • Investment in countries outside the US was encouraged, because debt issued by these other countries tended to bear higher interest rates than US debt. Also, relatively low oil prices in these countries (because of the low level of the dollar) tended to make investment profitable in these countries.

The effect of these changes was somewhat similar to the US having its own special Quantitative Easing (QE) program, paid for by some of the counties with trade surpluses, instead of by its central bank. This QE substitute tended to encourage world economic growth, for the reasons mentioned above.

Once the fortunes of the countries that used to buy US Treasuries changes, the pattern of buying of US Treasuries tends to change to selling of US Treasuries. Even not purchasing the same quantity of US Treasuries as in the past becomes an adverse change, if the US has a need to keep issuing US Treasuries as in the past, or if it wants to keep rates low.

Unfortunately, losing this QE substitute tends to reverse the favorable effects noted above. One effect is that the dollar tends to ride higher relative to other currencies, making the US look richer, and other countries poorer. The “catch” is that as the other countries become poorer, it becomes harder for them to repay the debt that they took out earlier, which was denominated in US dollars.

Another problem, as this strange type of QE disappears, is that the interest rates that the US government needs to pay in order to issue new debt start rising. These higher rates tend to affect other rates as well, such as mortgage rates. These higher interest rates act as a drag on the economy, tending to push it toward recession.

Higher interest rates also tend to decrease the value of assets, such as homes, farms, outstanding bonds, and shares of stock. This occurs because fewer buyers can afford to buy these goods, with the new higher interest rates. As a result, stock prices can be expected to fall. Prices of homes and of commercial buildings can also be expected to fall. The value of bonds held by insurance companies and banks becomes lower, if they choose to sell these securities before maturity.

Of course, as interest rates fell after 1981, we received the benefit of falling interest rates, in the form of rising asset prices. No one ever stopped to think about how much of the gains in share prices and property values came from falling interest rates.

Figure 8. Ten year treasury interest rates, based on St. Louis Fed data.

Figure 8. Ten year treasury interest rates, based on St. Louis Fed data.

Now, as interest rates rise, we can expect asset prices of many types to start falling, because of lower affordability when monthly payments are based on higher interest rates. This situation presents another “drag” on the economy.

In Conclusion

The situation is indeed very concerning. Many things could set off a crisis:

  • Rising energy prices of any kind (hurting energy importers), or energy prices that don’t rise (leading to financial problems or collapse of exporters)
  • Rising interest rates.
  • Defaulting debt, indirectly the result of slow/negative economic growth and rising interest rates.
  • International organizations with less and less influence, or that fall apart completely.
  • Fast changes in relativities of currencies, leading to defaults on derivatives.
  • Collapsing banks, as debt defaults rise.
  • Falling asset prices (homes, farms, commercial buildings, stocks and bonds) as interest rates rise, leading to many debt defaults.

Things don’t look too bad right now, but the underlying problems are sufficiently severe that we seem to be headed for a crisis far worse than 2008. The timing is not clear. Things could start falling apart badly in 2017, or alternatively, major problems may be delayed until 2018 or 2019. I hope political leaders can find ways to keep problems away as long as possible, perhaps with more rounds of QE. Our fundamental problem is the fact that neither high nor low energy prices are now able to keep the world economy operating as we would like it to operate. Increased debt can’t seem to fix the problem either.

The laws of physics seem to be behind economic growth. From a physics point of view, our economy is a dissipative structure. Such structures form in “open systems.” In such systems, flows of energy allow structures to temporarily self-organize and grow. Other examples of dissipative structures include ecosystems, all plants and animals, stars, and hurricanes. All of these structures constantly “dissipate” energy. They have finite life spans, before they eventually collapse. Often, new dissipative systems form, to replace previous ones that have collapsed.

The one thing that gives me hope is the fact that there seems to be some type of a guiding supernatural force behind the whole system that allows so much growth. Some would say that this supernatural force is “only” the laws of physics (and biology and chemistry). To me, the fact that so many structures can self-organize and grow is miraculous, and perhaps evidence of a guiding force behind the whole universe.

I don’t know precisely what is next, but it seems quite possible that there is a longer-term plan for humans that we are not aware of. Some of the religions of the world may have insights on what this plan might be. It is even possible that there may be divine intervention of some type that allows a change in the path that we seem to be on today.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
This entry was posted in Financial Implications and tagged , , , , , . Bookmark the permalink.

1,607 Responses to 2017: The Year When the World Economy Starts Coming Apart

  1. adonis says:

    http://kingworldnews.com/multi-billionaire-hugo-salinas-price-i-have-serious-doubts-about-the-survival-of-our-civilization/ just been reading some of this guys stuff Hugo Salinas Price he seems to know quite a few details of how this will all play out very enlightening stuff it just goes to show that we are not alone their are others who know the truth

    • The truth? Here is some truth for you: if it weren’t for the nukes we’d be in the middle of World War Three right now. You’d be dead, me too most likely. All your leaders (and me) are psychopaths, there, that’s the truth.

      Russia and China signed mutual defense pacts; it’s said they promised the US that they’d launch a combined counter-force strike if either of them got hit with a First Strike. That changed the calculus for some powerful Families based in New York; but the Rockefeller ‘Network’ is still smarting they lost the Oval Office. That’s why things seem a little different these days.

    • Greg Machala says:

      The biggest failure of the human race is not the inability to understand the exponential function, it is the ability to think critically.

  2. Thomas Malthus says:

    Chopping off hands to get rubber sap in one of the most remote places on the planet….. now imagine what men will do to get food ….

    Doomsday Preppers —- grab a seat and a bucket of popcorn…. and enjoy….

    • ARBP says:

      “Look, Ma! No hands!”

      Sorry, couldn’t resist.

      I suppose atrocities like have continued to this day. As long as people demand nice things and other people to provide those nice things to them, someone will be motivated to do “whatever it takes.”

      When the veil of civilization is lifted those who survive will be more likely to commit atrocities themselves to get what they want. There won’t be a 1% or military or explorers to outsource their greed to.

  3. Thomas Malthus says:

    Dow Companies Report Worst Revenues since 2010, Dow Rises to 20,000 (LOL?)

    Wall Street hocus-pocus has done an awesome job.

    The Dow-20,000 hats have come out of the drawer after an agonizingly long wait that had commenced in early December with the Dow Jones Industrial Average tantalizingly close to the sacred number before the selling started all over again.

    What a ride it has been. From the beginning of 2011 through January 27, 2017, so a little more than six years, the DJIA has soared 73%, from 11,577 to 20,094. Glorious!!

    But when it comes to revenues of the 30 Dow component companies – a reality that is harder to doctor than ex-bad-items adjusted earnings-per-share hyped by Wall Street – the picture turns morose.

    The 30 Dow component companies represent the leaders of their industries. They’re among the largest, most valuable, most iconic American companies. And they’re periodically booted out to accommodate a changed world. For example, in March 2015, AT&T was booted out of the Dow, and Apple was inducted into it, as its ubiquitous iPhone had become the modern face of telecommunications. New blood with booming revenues replaces the stodgy old companies. In aggregate, revenues should therefore rise, right?

    And there has been a huge binge of acquisitions, from mega-deals such as Verizon’s $130-billion acquisition of Vodafone in 2013, to the many dozens of smaller companies that Apple, Cisco, IBM, and others have bought. These mergers bring the revenues of the acquired companies into the revenues of the Dow components. And in aggregate, revenues of the Dow companies would therefore soar, right?

    But the other day, I was asked about the revenues of all Dow components, after having lambasted the revenue debacles of two, IBM [Big Shrink to “Hire” 25,000 in the US, as Layoffs Pile Up] and Cisco [Cisco Buys 45th Company in 5 Years, Revenues Still Stagnate].

    So here we go. Fasten your seatbelt.

    The chart below shows total aggregate revenues as reported under GAAP by the 30 companies that are today in the DJIA. This includes Apple, for example, though it only joined in 2015; and it no longer includes AT&T. For 2016, these 30 companies reported aggregate revenues of $2.69 trillion. That’s down 4.4% from 2011 and the worst year since 2010:

    More http://wolfstreet.com/2017/01/29/dow-component-companies-report-lowest-revenues-since-2010/

    We are here:

  4. Tim Groves says:

    For those who are following the endless arguments over whether photovoltaics are a net benefit or a net loss to the system, this article from The Energy Skeptic is filled with claim and counter-claim. It’s part 2 of a series taking along at the situation in Spain.


    • Greg Machala says:

      If photovoltaics really were a net benefit, there would be no debate.

      • Well, the issue is as always that PV is just a tool for specific conditions only.
        For example if you daisy chain geothermal heat pump and PV solar, you are achieving unbelievable high leverage in energy gain, basically you are taping into both our nearest star and the still active earth core reactor at the same time, very cool stuff..

        However, such hitech setup will work only at quite limited conditions, specific place of high insolation and other natural conditions must be present, if you ran out of luck and or spare parts, ~20yrs lifespan seems like maximum for this gear.

        So, true we can’t suddenly “change horses” from centuries of legacy fossil infrastructure and run overpopulated, centralized, urban civilization like that on science toyz.

  5. Tim Groves says:

    Over the weekend I reread Thomas Malthus Snr.’s “An Essay on he Principle of Population”, which he composed mainly as a reply to the philosopher WIlliam Goodwin, a friend of his father’s who speculated optimistically about the improvement and ultimate perfectibility of man and of society upon the bounteous Earth. Apparently, just like our latter-day Thomas Malthus, the Reverend was so irritated by the DelusiSTANIs of his day—led by utopians such as Rousseau and Condorcet—that he was forced to put pen to paper. And much of what he wrote sounds eminently sensible.

    Malthus didn’t actually go as far as calling them DelusiSTANIs, it is clear to the reader he is restrained only out of respect for politeness and 18th century gentlemanly manners.

    I cannot doubt the talents of such men as Godwin and Condorcet. I am unwilling to doubt their candour. To my understanding, and probably to that of most others, the difficulty appears insurmountable. Yet these men of acknowledged ability and penetration, scarcely deign to notice it, and hold it on their course in such speculations, with unabated ardour, and undiminished confidence. I have certainly no right to say that they purposely shut their eyes to such arguments. I ought rater to doubt the validity of them, when neglected by such men, however forcibly their truth may strike my own mind. Yet in this respect it must be acknowledged that we are all of us too prone to err. If I saw a glass of wine repeatedly presented to a man, and he took no notice of it, I should be apt to think that he was blind or uncivil. A juster philosophy might teach me rather to think that m eyes deceived me, and that the offer was not really what I conceived it to be.

    Malthus is famous for noting that “the power of population is infinitely greater than the power in the Earth to produce subsistence for man.” Being as he was a Latin scholar, he based this assertion on two postula, namely:

    First, That food is necessary to the existence of man.

    Secondly, That the passion between the sexes is necessary, and will remain nearly in its present state.

    He considered that population was capable of rising geometrically (citing the fact that the US population had doubled over the course of 25 years) while the expansion and improvement of agriculture over time could at most hope to achieve a linear increase in food production.

    Of course, Malthus could not have been expected to have foreseen what the age of oil, industrialized agriculture, globalized distribution and the Green Revolution, let alone the wonders of Roundup, could do for food production. But although he is often derided for being wrong, the above developments, which have produced previously unimagined bountiful harvests, and the response of the human population to this surplus of sustenance, have partially confirmed his theory. Where sustenance is available, population takes up the slack unless something else intervenes. And as Malthus knew, something always does.

    By that law of our nature which makes food necessary to the life of man, the effects of these two unequal powers must be kept equal.

    This implies a strong and constantly operating check on population from the difficult of sustenance. This difficulty must fall some where; and must necessarily be severely felt by large portion of mankind. ….

    Amon plants and animals, its effects are waste of seed, sickness, and premature death. Among mankind, misery and vice. The former, misery, is an absolutely necessary consequence of it. VIce is a highly probable consequence, and we therefore see it abundantly prevail…. The ordeal of virtue is to resist all temptation to evil.

    No wonder they call economics “the dismal science.”

    • Nicely put, thanks.
      Lets remember, man and his times, the mood of the late baroque and from mid 18th century onward was already on the trajectory of rapid progress, as the healing of the wounds from 17th century wars concluded as well as the effect of new colonial leverage allowed the sciences to growth, even penetrate halls of power. Only because of this formative age the next levels were possible, namely the experiment in the American colonies parting ways, technocratic purge by Napoleon, the coal – steam industries in the UK, etc.

      So, when feudalism as per biz definition definitely died before 1850s around continental Europe, the scene was primed for another mega boom phase, the modern global capitalism was born. Therefore the school of though, which puts the beginning of the stagnation phase at early 1970s, can perform easy subtraction, which totals ~125yrs of major growth up to that point, then plateauing till today for another ~45yrs. From our present point today, lets add some decades of turbulence and possibility of fast decay, and the probabilities starts to shape up rather strongly that something must really happen badly before we clock ~225yrs (aka +90% historical probability of at least partial collapse), i.e. between now and ~2070. Obviously, we here at the watchful club put stress even on the earliest point of the continuum, i.e. before ~2030.

      • the first nation founded on the principles of democracy and equality for all was the USA, 1776

        the first truly viable steam engine was patented by James Watt in 1776

        These events may appear disparate, but they are not.

        Without the bonds of (surplus) oil coal and gas, the USA would never have coalesced into a single nation, and as those energy forces deplete, the American nation will break up. As that breakup continues, democracy will dissolve because common prosperity will dissolve.

        It was the power of the steam engine that created the power of the United States (and Europe, particularly the UK), because it introduced the age of “unlimited” fuelburning, which in turn allowed the creation of “unlimited” debt. (by constantly increasing production of fossil fuels, and burning them in heat engines).
        The process of burning fuel created employment, wages and sustainable prosperity. It also created global capitalism in its modern form, which is in turn sustained by infinite rolling debt, which was sustainable as long as input of energy into the system was rising faster than we burned it.

        Now energy input into the industrial system is falling, which means that our rolling debt can never be repaid, because the population created by rising fuel input now has less work to do.
        But for the moment, people as a majority are still prosperous, political stability is assured, and democracies survive.
        So BAU continues, and people expect it to go on forever, and believe political promises that it will. It is human nature to vote for the most convincing liar.

        Only OFW doomsters say otherwise.

        Common prosperity has been on the wane since 1970, the year the USA went into oil deficit…that explains why there has been no real rise in the standard of living since then.
        The depletion of living standards will continue, until we reach a tipping point where the lifestyle of the majority collapses.
        At that point civil disorder is inevitable, because our industrial Ponzi scheme enters its rapid collapse phase. (Anyone anticipating a gentle downslide should study Ponzi collapses. They happen in hours or minutes)

        Thus the democratic existence of the USA was and is entirely dependent on ongoing prosperity for all, because all employment in the modern context depends on fuel consumption. That critical date of 1970 was the year that the USA passed into a state of oil deficit. Which explains why the majority have not seen a rise in real wages since then.
        The nation has been freewheeling on debt

        So collapse is inevitable

  6. Good stuff as always, new one today:


    ps there were interesting grid spikes, non base load portion sloshing up/down ~30GWe daily for Germany and it’s interconnected colonies throughout the bad weather of Dec2016-Jan2017, occasionally even no wind nor sun for consecutive dayz, what a strange concept, lolz..

    • Greg Machala says:

      Grasping at straws.

    • ItBegins says:

      Don’t worry, crisis averted! Well as soon as they figure out how to cut the cost in half, anyway. I’m not sure if they are counting operation costs, or just construction costs? But in any event, just add a few dozen of these “battery peaker” plants, problem solved! What could go wrong? Besides going broke building them I guess…


      • Don’t worry, citizen of the world. Debt and tax increases can fix any financial hurdles that may materialize.

        Remember: lithium batteries are non-polluting. This fact does not apply to Big Bad Fossil Fuels.

        -Progressively Yours
        Fighting Fossil Fuel Oppression since 2009!

        • Greg Machala says:

          “Remember: lithium batteries are non-polluting. This fact does not apply to Big Bad Fossil Fuels” – First, without fossil fuels there would be no lithium ion batteries. Second, the vast majority of lithium ion batteries are recharged using heat energy from burning coal and natural gas. Third, the devices that use lithium ion batteries are made from burning fossil fuels. Just having a lithium ion battery doesn’t mean anything at all without the fossil fuel infrastructure.

          • Thomas Malthus says:

            Do you want cancer with that battery?

            Recently, the Environmental Protection Agency and the U.S. Department of Energy undertook a study to look at the environmental impact of lithium-ion batteries for EVs. The study showed that batteries that use cathodes with nickel and cobalt, as well as solvent-based electrode processing, have the highest potential for environmental impacts, including resource depletion, global warming, ecological toxicity, and human health. The largest contributing processes include those associated with the production, processing, and use of cobalt and nickel metal compounds, which may cause adverse respiratory, pulmonary, and neurological effects in those exposed.

            In other words, li-ion batteries that contain nickel and cobalt have a significant effect on health and the environment. More specifically, this includes Panasonic’s automotive grade li-ion batteries, which contain lithium, nickel, cobalt , and aluminum, and a proprietary cathode geometry developed jointly by Panasonic and Tesla — and are currently used in the Model S.

            Exchanging one energy dependency for another
            The above sounds bad, right? It gets worse. One of the big pushes behind “green” vehicles is the goal of reducing the country’s energy dependence. Consequently, when considering battery-powered vehicles that rely on lithium, it’s important to ask where the lithium comes from.

            The answer? Not America. That’s not to say America doesn’t have lithium, it does, but most of the lithium that America uses is imported from other countries. Precisely, according to the 2013 U.S. Geological Survey, from 2008-2011 America’s import sources were: Argentina, 52%; Chile, 44%; and China, 3%. This necessarily leads to the next question, “Why does America prefer to rely on imported lithium?”

            Simply put, lithium, in its pure form, doesn’t occur naturally on Earth. So in order to obtain it, it must be mined through hard rock or salar brines. More importantly, salar brines — the most economical and popular way of obtaining lithium — destroy the environment. Friends of the Earth, Europe states:

            The extraction of lithium has significant environmental and social impacts, especially due to water pollution and depletion. In addition, toxic chemicals are needed to process lithium. The release of such chemicals through leaching, spills or air emissions can harm communities, ecosystems and food production. Moreover, lithium extraction inevitably harms the soil and also causes air contamination.

            And, the European Commission on Science for Environmental Policy states that “[lithium’s] continued use needs to be monitored, especially as lithium mining’s toxicity and location in places of natural beauty can cause significant environmental, health, and social impacts.”

            More http://www.fool.com/investing/general/2014/01/19/tesla-motors-dirty-little-secret-is-a-major-proble.aspx

            • Greg Machala says:

              Most of the elements of the periodic table are polluting to obtain in their elemental (purified) states. Good ole entropy.

            • Greg Machala says:

              ++++ Ahh FE putting the belt to the offenders, how sweet it is.

          • psile says:

            This is what happens when privileged folks (if you’re connected to the internet, yes you’re privileged asshole) run their mouths off without thinking.

            Lithium Operation in Nevada

            All mining is a disaster though, not just of lithium. Take gold for instance, http://www.smithsonianmag.com/science-nature/environmental-disaster-gold-industry-180949762/

  7. Stilgar Wilcox says:


    Article about recent huge oil discoveries by Exxon & some last paragraph info. about their profitability problems due to low oil price.

    • Yes, it’s going to be fun for some time into the near / mid term future, Russians burning their gigantic shale plays with domestic nuclear/natgas steam, thanks to little help from Exxon.. The only question remains, how fractured the global markets are going to get, how fast? Russians, remember now confined to way smaller area in comparison to USSR as well as czarist times, wisely decided about priorities, as they can get ample consumer trinkets from Asia and keep the precious human capital pool tied in selected hitec, chiefly related to mil-industrial/space and energy complex. They don’t need to compete with dozens of shiny car brands or mountain of designer fridges. Well, but that’s not good message for the Europeans, good quality, luxury staff oriented, that can still run for a while as niche, however no way they can continue (pretend) employing/feeding ~500M population like that in the coming global consumer squeeze..

      And the Chinese are angry, because now they realized, they won’t get any more free pass of few more trouble free decades to finally leap frog everyone from their partially advanced industrialization-modernization.

      Hm, shapes up as several unhappy parties around (not even naming the loosing former hegemon), broken dreams, promises, ambitions, .., smells like war not far away..

  8. Thomas Malthus says:

    ECB Assets Rise Above 36% Of Eurozone GDP; Draghi Now Owns 10.2% Of European Corporate Bonds

    The ECB’s nationalization of the European corporate bond sector continues. In the ECB’s latest update, the six central banks acting on behalf of the Euro system provided an update on the list of corporate bonds they bought. They bought into 810 issuances with a total of €573bn in amount outstanding.

    For the week ending 27th January, the bond purchases stood at €1.9bn across sectors. This increases the number of securities held by the ECB to 813, and lift the ECB’s total corporate bond holdings to €58.82b, which means that as of the latest weekly data, the ECB now owns 10.2% of the total €575.42BN in European corporate debt outstanding.

    Since one month ago, the ECB owned 9.2% of the corporate bond market, the rate of nationalization of the private, outstanding corporate bonds is roughly 1% per month. Tangentially, 52 or 6.4% of the 813 securities held by the ECB are negative yielding.

    Which corporate bonds did Mario Draghi generously subsidize this week? According to the ECB’s holdings, utilities remain the largest industry group with 215 securities, while according to Bloomberg, in the latest week the ECB bought bonds issued by Atlantia, BASF, Carmila, Enel, Fresenius, Italgas, LEG Immobilien, Linde, Legrand, RTE, Snam and Telefonica Emisiones. The complete list of ECB holdings by ISINs can be found here.

    While there was some market concern in December that the ECB may be tapering its CSPP program, when it purchased just €4 billion in corporate bonds in the month, less than half the recent runrate from the September-November period, this appears to have been calendar driven, as in January the ECB is back to its aggressively purchases and through the last week, it purchased €7.8 billion in corporate bonds for January, nearly a 100% increase from the prior month.

    More http://www.zerohedge.com/news/2017-01-30/ecb-assets-rise-above-36-eurozone-gdp-draghi-owns-102-european-corporate-bond-market

    Interpretation: This is a massive bailout of failing companies — these failing companies load up on ZIRP cash to buy back shares… pay dividends…. cover operational costs….

    Without ECB free cash — they would crash and burn.

    BUT … this is great for the stock market!!!!

    Tick tock….

    • Although the rate of nationalization of the private, outstanding corporate bonds roughly 1% per month is a bit on the higher speed, chill out. This will be phased in in steps, we are still in the mode of pretending free capital formation as cohabiting the universe with gov an CB’s action. Only in future steps they will have to openly and directly nationalize-socialize, restructure/regroup core of some of the former titans just to keep the lights on. We are not there yet.

    • psile says:

      This is how CAT, amongst others is still standing despite 4 straight years in the red.

      The CB’s can probably keep doing this scam for some time longer, but it’s the ordinary schmuck, who is not lucky enough to benefit from ongoing bailouts, and whose meagre contribution actually makes the real economy tick, that is buckling under the strain of it all.

    • If they can keep things going for a little longer, it does keep the economy going. So we shouldn’t object too much.

  9. Christian says:

    Peak complexity is expected to happen… eleven hours ago:


    • I think you may be right. Trump’s order to requiring that for each new government regulation being enacted, two need to be revoked, is definitely in the direction of reduced complexity.

      One thing all of the current regulations do is make the situation very difficult for small businesses. Overhead of trying to follow all of the rules is terribly high. If enough rules got rolled back, we would not have a situation where huge businesses have a distinct advantage over small businesses. Only huge businesses can afford all of the experts needed to follow what these rules are.

Comments are closed.