Oops! The economy is like a self-driving car

Back in 1776, Adam Smith talked about the “invisible hand” of the economy. Investopedia explains how the invisible hand works as, “In a free market economy, self-interested individuals operate through a system of mutual interdependence to promote the general benefit of society at large.”

We talk and act today as if governments and economic policy are what make the economy behave as it does. Unfortunately, Adam Smith was right; there is an invisible hand guiding the economy. Today we know that there is a physics reason for why the economy acts as it does: the economy is a dissipative structure–something we will talk more about later.  First, let’s talk about how the economy really operates.

Our Economy Is Like a Self-Driving Car: Wages of Non-Elite Workers Are the Engine

Workers make goods and provide services. Non-elite workers–that is, workers without advanced education or supervisory responsibilities–play a special role, because there are so many of them. The economy can grow (just like a self-driving car can move forward) (1) if workers can make an increasing quantity of goods and services each year, and (2) if non-elite workers can afford to buy the goods that are being produced. If these workers find fewer jobs available, or if they don’t pay sufficiently well, it is as if the engine of the self-driving car is no longer working. The car could just as well fall apart into 1,000 pieces in the driveway.

If the wages of non-elite workers are too low, they cannot afford to pay very much in taxes, so governments are adversely affected. They also cannot afford to buy capital goods such as vehicles and homes. Thus, depressed wages of non-elite workers adversely affect both businesses and governments. If these non-elite workers are getting paid well, the “make/buy loop” is closed: the people whose labor creates fairly ordinary goods and services can also afford to buy those goods and services.

Recurring Needs of Car/Economy

The economy, like a car, has recurring needs, analogous to monthly lease payments, insurance payments, and maintenance costs. These would include payments for a variety of support services, including the following:

  • Government programs, including payments to the elderly and unemployed
  • Higher education programs
  • Healthcare

Needless to say, the above services tend to keep rising in cost, whether or not the wages of non-elite workers keep rising to keep up with these costs.

The economy also needs to purchase a portfolio of goods on a very regular basis (weekly or monthly), or it cannot operate. These include:

  • Fresh water
  • Food of many different types, including vegetables, fruits, and grains
  • Energy products of many types, such as oil, coal, natural gas, and uranium. These needs include many subtypes suited to particular refineries or electric power plants.
  • Minerals of many types, including copper, iron, lithium, and many others

Some of these goods are needed directly by the workers in the economy. Other goods are needed to make and operate the “tools” used by the workers. It is the growing use of tools that allows workers to keep becoming more productive–produce the rising quantity of goods and services that is needed to keep the economy growing. These tools are only possible through the use of energy products and other minerals of many kinds.

I have likened the necessary portfolio of goods the economy needs to ingredients in a recipe, or to chemicals needed for a particular experiment. If one of the “ingredients” is not available–probably because of prices that are too high for consumers or too low for producers–the economy needs to “make a smaller batch.” We saw this happen in the Great Recession of 2007 to 2009. Figure 1 shows that the use of several types of energy products, plus raw steel, shrank back at exactly the same time. In fact, the recent trend in coal and raw steel suggests another contraction may be ahead.

Figure 1. World Product Consumption, indexed to the year 2000, for selected products. Raw Steel based on World USGS data; other amounts based of BP Statistical Review of World Energy 2016 data.

Figure 1. World Product Consumption, indexed to the year 2000, for selected products. Raw Steel based on World USGS data; other amounts based of BP Statistical Review of World Energy 2016 data.

The Economy Re-Optimizes When Things Go Wrong 

If you have a Global Positioning System (GPS) in your car to give you driving directions, you know that whenever you make a wrong turn, it recalculates and gives you new directions to get you back on course. The economy works in much the same way. Let’s look at an example: 

Back in early 2014, I showed this graph from a presentation given by Steve Kopits. It shows that the cost of oil and gas extraction suddenly started on an upward trend, about the year 1999. Instead of costs rising at 0.9% per year, costs suddenly started to rise by an average of 10.9% per year.

Figure 1. Figure by Steve Kopits of Westwood Douglas showing trends in world oil exploration and production costs per barrel. CAGR is "Compound Annual Growth Rate."

Figure 2. Figure by Steve Kopits of Westwood Douglas showing trends in world oil exploration and production costs per barrel. CAGR is “Compound Annual Growth Rate.”

When costs were rising by only 0.9% per year, it was relatively easy for oil producers to offset the cost increases by efficiency gains. Once costs started rising much more quickly, it was a sign that we had in some sense “run out” of new fields of easy-to-extract oil and gas. Instead, oil companies were forced to start accessing fields with much more expensive-to-produce oil and gas, if they wanted to replace depleting fields with new fields. There would soon be a mismatch between wages (which generally don’t rise very much) and the cost of goods made with oil, such as food grown using oil products.

Did the invisible hand sit idly by and let business as usual continue, despite this big rise in the cost of extraction of oil from new fields? I would argue that it did not. It was clear to business people around the world that there was a large amount of coal in China and India that had been bypassed because these countries had not yet become industrialized. This coal would provide a much cheaper source of energy than the oil, especially if the cost of oil appeared likely to rise. Furthermore, wages in these countries were lower as well.

The economy took the opportunity to re-optimize. Part of this re-optimization can be seen in Figure 1, shown earlier in this post. It shows that world coal supply has grown rapidly since 2000, while oil supply has grown quite slowly.

Figure 3, below, shows a different kind of shift: a shift in the way oil supplies were distributed, after 2000. We see that China, Saudi Arabia, and India are all examples of countries with big increases in oil consumption. At the same time, many of the developed countries found their oil consumption shrinking, rather than growing.

Figure 2. Figure showing oil consumption growth since 2000 for selected countries, based on data from BP Statistical Review of World Energy 2016.

Figure 3. Figure showing oil consumption growth since 2000 for selected countries, based on data from BP Statistical Review of World Energy 2016.

A person might wonder why Saudi Arabia’s use of oil would grow rapidly after the year 2000. The answer is simple: Saudi Arabia’s oil costs are its costs as a producer. Saudi Arabia has a lot of very old wells from which oil extraction is inexpensive–perhaps $15 per barrel. When oil prices are high and the cost of production is low, the government of an  oil-exporting nation collects a huge amount of taxes. Saudi Arabia was in such a situation. As a result, it could afford to use oil for many purposes, including electricity production and increased building of highways. It was not an oil importer, so the high world oil prices did not affect the country negatively.

China’s rapid rise in oil production could take place because, even with added oil consumption, its overall cost of producing goods would remain low because of the large share of coal in its energy mix and its low wages. The huge share of coal in China’s energy mix can be seen in Figure 4, below. Figure 4 also shows the extremely rapid growth in China’s energy consumption that took place once China joined the World Trade Organization in late 2001.

Figure 3. China energy consumption by fuel, based on BP 2016 SRWE.

Figure 4. China energy consumption by fuel based on BP 2016 Statistical Review of World Energy.

India was in a similar situation to China, because it could also build its economy on cheap coal and cheap labor.

When the economy re-optimizes itself, job patterns are affected as well.  Figure 5 shows the trend in labor force participation rate in the US:

Figure 4. US Civilian labor force participation rate, based on US Bureau of Labor Statistics data, as graphed by fred.stlouisfed.org.

Figure 5. US Civilian labor force participation rate, based on US Bureau of Labor Statistics data, as graphed by fred.stlouisfed.org.

Was it simply a coincidence that the US labor force participation rate started falling about the year 2000? I don’t think so. The shift in energy consumption to countries such as China and India, as oil costs rose, could be expected to reduce job availability in the US. I know several people who were laid off from the company I worked for, as their jobs (in computer technical support) were shifted overseas. These folks were not alone in seeing their jobs shipped overseas.

The World Economy Is Like a Car that Cannot Make Sharp Turns 

The world economy cannot make very sharp turns, because there is a very long lead-time in making any change. New factories need to be built. For these factories to be used sufficiently to make economic sense, they need to be used over a long period.

At the same time, the products we desire to make more energy efficient, for example, automobiles, homes, and electricity generating plants, aren’t replaced very often. Because of the short life-time of incandescent light bulbs, it is possible to force a fairly rapid shift to more efficient types. But it is much more difficult to encourage a rapid change in high-cost items, which are typically used for many years. If a car owner has a big loan outstanding, the owner doesn’t want to hear that his car no longer has any value. How could he afford a new car, or pay back his loan?

A major limit on making any change is the amount of resources of a given type, available in a given year. These amounts tend to change relatively slowly, from year to year. (See Figure 1.) If more lithium, copper, oil, or any other type of resource is needed, new mines are needed. There needs to be an indication to producers that the price of these commodities will stay high enough, for a long enough period, to make this investment worthwhile. Low prices are a problem for many commodities today. In fact, production of many commodities may very well fall in the near future, because of continued low prices. This would collapse the economy.

The World Economy Can’t Go Very Far Backward, Without Collapsing

The 2007-2009 recession is an example of an attempt of the economy to shrink backward. (See Figure 1.) It didn’t go very far backward, and even the small amount of shrinkage that did occur was a huge problem. Many people lost their jobs, or were forced to take pay cuts. One of the big problems in going backward is the large amount of debt outstanding. This debt becomes impossible to repay, when the economy tries to shrink. Asset prices tend to fall as well.

Furthermore, while previous approaches, such as using horses instead of cars, may be appealing, they are extremely difficult to implement in practice. There are far fewer horses now, and there would not be places to “park” the horses in cities. Cleaning up after horses would be a problem, without businesses specializing in handling this problem.

What World Leaders Can Do to (Sort of) Fix the Economy

There are basically two things that governments can do, to try to make the economy (or car) go faster:

  1. They can encourage more debt. This is done in many ways, including lowering interest rates, reducing bank regulation, encouraging lower underwriting standards or longer term loans, taking out greater debt themselves, guaranteeing debt of non-creditworthy entities, and finding new markets for “recycled debt.”
  2. They can increase complexity levels. This means increasing output of goods and services through the use of more and better machines and through more training and specialization of workers. More complex businesses are likely to lead to more international businesses and longer supply chains.

Both of these actions work like turbocharging a car. They have the possibility of making the economy run faster, but they have the downside of extra cost. In the case of debt, the cost is the interest that needs to be paid; also the risk of “blow-up” if the economy slows. There is a limit on how low interest rates can go, as well. Ultimately, part of the output of the economy must go to debt holders, leaving less for workers.

In the case of complexity, the problem is that there gets to be increasing wage disparity, when some employees have wages based on special training, while others do not. Also, with capital goods, some individuals are owners of capital goods, while others are not. The arrangement creates wealth disparity, besides wage disparity.

In theory, both debt and increased complexity can help the economy grow faster. However, as I noted at the beginning, it is the wages of the non-elite workers that are especially important in allowing the economy to continue to move forward. The greater the proportion of the revenue that goes to high paid employees and to bond holders, the less that is available to non-elite workers. Also, there are diminishing returns to adding debt and complexity. At some point, the cost of each of these types of turbo-charging exceeds the benefit of the process.

Why the Economy Works Like a Self-Driving Car

The reason why the economy acts like a self-driving car is because the economy is, in physics terms, a dissipative structure. It grows and changes “on its own,” using energy sources available to it. The result is exactly the same effect that Adam Smith was observing. What makes the economy behave in this way is the fact that flows of energy are available to the economy. This happens because an economy is an open system, meaning its borders are permeable to energy flows.

When there is an abundance of energy available for use (from the sun, or from burning fossil fuels, or even from food), a variety of dissipative structures self-organize. One example is hurricanes, which self-organize over warm oceans. Another example is plants and animals, which self-organize and grow from small beginnings, if they have adequate food energy, plus other necessities of life. Another example is ecosystems, consisting of a number of different kinds of plants and animals, which interact together for the common good. Even stars, including our sun, are dissipative structures.

The economy is yet another type of a dissipative structure. This is why Adam Smith noticed the effect of the invisible hand of the economy. The energy that sustains the economy comes from a variety of sources. Humans have been able to obtain energy by burning biomass for over one million years. Other long-term energy sources include solar energy that provides heat and light for gardens, and wind energy that powers sail boats. More recently, other types of energy have been added, including fossil fuels energy.

When energy supplies are very cheap and easy to obtain, it is easy to ramp up their use. With growing supplies of energy, it is possible to keep adding more and better tools for people to work with. I use the term “tools” broadly. Besides machines to enable greater production, I include things like roads and advanced education, which also are helpful in making workers more effective. The use of growing energy supplies allows growing use of tools, and this growing use of tools increasingly leverages human labor. This is why we see growing productivity; we can expect to see falling human productivity if energy supplies should start to decline. Falling productivity will tend to push the economy toward collapse.

One problem for economies is diminishing returns of resource extraction. Diminishing returns cause the economy to become less and less efficient. Once energy extraction starts to have a significant problem with diminishing returns (such as in Figure 2), it is like losing energy resources into a sinkhole. More work is necessary, without greater output in terms of goods and services. Indirectly, economic growth must suffer. This seems to be the problem that the economy has been encountering in recent years. From the invisible hand’s point of view, $100 per barrel oil is very different from $20 per barrel oil.

One characteristic of dissipative structures is that they keep re-optimizing for the overall benefit of the dissipative structure. We saw in Figures 3 and 4 how fuel use and jobs rebalance around the world. Another example of rebalancing is the way the economy uses every part of a barrel of oil. If, for example, our only goal were to maximize the number of miles driven for automobiles, it would make sense to operate cars using diesel fuel, rather than gasoline. In fact, the energy mix available to the economy includes quite a bit of gasoline and natural gas liquids. If we need to use what is available, it makes sense to use gasoline in private passenger cars, and save diesel for commercial use.

Another characteristic of dissipative structures is that they are not permanent. They grow for a while, and then collapse. Later, new similar dissipative structures may develop and indirectly replace the ones that have collapsed. In this way, the overall system is able to evolve in a way that adapts to changing conditions.

What Are the Likely Events that Would Cause the Economy to Collapse?

I modeled the system as being like a self-driving car. The thing that keeps the system operating is the continued growth of inflation-adjusted wages of non-elite workers. This analogy was chosen because in ecosystems in general, the energy return on the labor of an animal is very important. The collapse of a population of fish, or of some other animal, tends to happen when the return on the labor of that animal falls too low.

In the case of the fish, the return on the labor of the fish falls too low when nearby supplies of food disappear, and the fish must swim too far to obtain new supplies of food. The return on human labor would seem to be the inflation-adjusted wages of non-elite workers. We know that wages for many workers have been falling in recent years, because of competition from globalization, and because of replacement of human labor by advanced machines, such as computers and robots.

Figure 6. Bottom 50% income share, from recent Piketty analysis.

Figure 6. Bottom 50% income share, from recent Piketty analysis.

Besides the problem of falling wages of non-elite workers, earlier in this post I mentioned a number of other issues that make the wages of these workers go less far. These include growing government spending, and the growing costs of education and healthcare. I also mentioned the problem of rising debt, and the increased concentration of wealth, as we try to add complexity to solve problems. All of these issues make it hard for “demand”–which might also be called “affordability”–to be sufficiently great to allow commodity prices to rise to the level producers need for profitability.

Prices Play a Very Important Role in the Economy

The pricing system is the communication system of the economy, as a dissipative structure. One use of energy is to create “information.” Prices are a high level form of information.

One big area where prices come up is with respect to the whole portfolio of products needed on a regular basis, which I mentioned earlier (water, food, energy products, and mineral products). In order for the system to continue working, the prices need to be both:

  • Affordable by consumers
  • High enough for producers to cover their costs, including a margin for taxes and reinvestment

Now, in 2017, prices are “sort of” affordable for consumers, but they are not high enough for producersOil companies will go out of business if these low prices persist.

Back in 2007 and 2008, we had the reverse problem. Prices were high enough for producers, but too high for consumers (especially non-elite workers). This is a big part of what pushed the economy into recession.

We noticed back in Figure 1 that quantities of energy products/goods tend to move up and down together. A similar phenomenon holds true for prices: commodity prices tend to rise and fall together (Figure 7).  The reason this happens is because when the world economy is moving swiftly forward (higher wages, more building activity, more debt), demand tends to be high for many different types of materials at the same time. When the economy slows, prices of all of these commodities tend to fall at the same time. Inflation tends to fall as well.

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

If prices cannot rise high enough for producers, it is likely a sign that wages of non-elite workers are already too low. The affordability loop mentioned earlier is not being closed, so prices cannot stay up at a high enough level to maintain production.

Most Modelers Overlook the Fact that the Economy Is an Open System

Most energy models are based on one of two views of the world: (1) fossil fuel energy supply will eventually run short, so we must use it as sparingly as possible; or (2) we want to reduce the use of fossil fuels as quickly as possible, because of climate change. Because of these issues, we want to leverage the fossil fuel energy we have, to as great an extent as possible, with energy that we can somehow capture from renewable sources, such as the solar energy or wind. With this view of the situation, our major objective is to create “renewables” that use fossil fuel energy as efficiently as possible. The hope is that these renewables, together with the actions of governments, will allow the economy to gradually shrink back to a level that is somehow more sustainable.

Implicit is this model is the view that the economy, and the world in general, is a closed system. Our current government and business leaders are in charge; they can make the changes they would prefer, without the invisible hand causing an unforeseen problem. Very few have realized that the economy cannot really shrink back very much; past history, as well as the nature of dissipative structures, shows that economies tend to collapse. The only economies that have at least temporarily avoided that fate have shifted toward less complexity–for example, eliminating huge government programs, such as armies–rather than yielding to the temptation to add ever more complexity, such as wind turbines and solar panels.

The real situation is that we have a here-and-now problem of too low wages for non-elite workers. Commodity prices are also too low. Intermittent renewables such as wind and solar are thought to be solutions, but it is well-known that intermittent renewables cause too-low prices for other types of electricity generation, when added to the electric grid. Thus, they are likely part of the low-price problem, not part of the solution. Temporary solutions, if there are any, are likely in the direction of cutting back on government expenditures and reducing regulation of banks. In fact, with the election of Trump and the passage of Brexit, the economy seems to again be re-optimizing.

We also know that dissipative structures do not shrink back well, at all. They tend to collapse, instead. For example, you, as a human being, are a dissipative structure. If your food intake were cut back to, say, 500 calories per day, how well would you do? If you could not get along on a very low calorie diet, how would you expect the economy to shrink back to a renewables-only level? Renewables that can be used in a shrunken economy are scarce; we don’t have a huge number of trees to cut down. We cannot maintain the electric grid without fossil fuels.

The assumption that the economy is a closed system is pretty much standard when modeling our current energy situation. This occurs because, until recently, we did not understand that the self-organizing properties of inanimate systems were as important as they are. Also, modeling of the economy as a closed system, rather than an open system, makes modeling much easier. The problem is that closed system modeling doesn’t really tell the right story. For a discussion of some of the issues associated with this mis-modeling, see the recent academic paper, Is the increased use of biofuels the road to sustainability? Consequences of the methodological approach.

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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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2,573 Responses to Oops! The economy is like a self-driving car

  1. jerry says:

    OUR ELDERS?

    THIS IS ALL TO WIERD?

    • jerry says:

      sorry should have inserted the date of all of this march 15 !!!!!!!!!!!!!!!?????????????
      https://www.henrymakow.com/2017/03/james-perloff-march-15.html

    • Fast Eddy says:

      This is worth listening to

    • Mark Fox says:

      That isn’t weird at all. On any given month, you can generate a similar list, because there are so many historic events to pick from. More importantly, this list has no significance.

      Generating these kinds of lists is called anomaly hunting. The technique is erroneously used as evidence for future events, and even the existence of a grand deity. (Gale has done something similar in a fairly recent post.) It is a fine technique to get folk to pause, notice something they normally wouldn’t, and say, “Cool.” Other than that, the technique is valueless.

      The fact that my odometer rolls over, especially given how little I drive, is noteworthy for interests’ sake, and I will subject any passengers to a loud celebration as it happens, but it is otherwise uninteresting.

    • Tim Groves says:

      March 15 is also the 2,061st anniversary of the assassination of Julius Caesar,
      blamed on Brutus and Cassius, but WE ALL KNOW who really did it.;)

      Beware the Ides of March!

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

  2. JT Roberts says:

    Hey Glenn

    Ever heard of Oil Retort in Klive Somerset UK.

    Shale oil isn’t new considering it was exploited in 1924 and turns out it was a loser. Shale was well developed before 1914. Sorry Bro. Not new not going to work. Nice try though. Maybe you should do a little more study of history.

    • Duncan Idaho says:

      The UK con men are not going to fool many.

      As for US shale, it is all up to the Permian—-
      We shall see if can get a positive cash flow with enough production to matter.
      So far, the econ hasn’t worked, but the survivors are leaner, and only going after the few sweet spots left.
      But it is just a retirement party for the few.

      On the downside of the shale oil news is a new analysis saying that the decline in Bakken shale oil production that began in 2015 is probably not reversible no matter how much effort is made in drilling new wells in the region. Over the last two years, production has declined by 285,000 b/d in the Bakken despite an increase in the number of wells which reached an all-time high of 13,520 in November. Oil well performance in the field is declining despite improvements in technology and efficiency. The increasing gas-oil ratio indicates that the Bakken is going into depletion. The water cut, which is the percent of water contained in the oil output, is increasing, another indication that decline has set in.

      Independent geologists who have looked at US shale oil production have been saying for several years that peak shale oil production in the US could come around 2020. When the prospects of finding vast quantities of shale oil in California went up in smoke a few years ago, most US shale oil could only come from the Bakken and Eagle Ford fields, and the Permian Basin. In the past year, we have heard claims that there is still much oil to be recovered from newly discovered portions of the Permian Basin, but these claims have yet to be proven.

      Whether Eagle Ford, the Bakken, and the Permian basin can grow substantially is an open question. It is too early to declare that US shale oil production will be in terminal decline around 2020, but we are starting to get indications that this could be the case. Given the significant drop in expensive offshore drilling, there is a growing case that global oil production will be unable to continue growing in the next decade.

      • Fast Eddy says:

        Meanwhile…

        80% of the world’s oil has peaked:

        View at Medium.com

        • Joel says:

          Just the 80% then, still pumping a lot today though, grateful for that. Amazing the 1947 bar was 70 years ago and now an IPO story. Oil getting cheaper too, still having trouble with the 2018 doom thing, maybe Bailout 2.0 coming? Nice pics

          • Bergen Johnson says:

            Exactly joel. Still pumping a lot today. So what we found the stuff decades ago – we’re still working our way through it.

            • Harry Gibbs says:

              Lol, Joel and Bergen. Are you being deliberately obtuse in the hope of inducing a brain aneurysm in Fast Eddy?

            • Joel says:

              That may not be the whole story, but it’s a comfort to not be at 100%, I don’t know who makes up these numbers. But the way you stated it sounds positive. Better than the impending doom of 2018… Hard for me to go full 2018, still need time to think about it.

  3. JT Roberts says:

    So Glenn

    How about you do some research on the shale play in West Somerset UK and explain to everyone here why it was abandoned. Was it uneconomical? If your answer is technology had not advanced to the right level please explain why the technology moved to the North Sea which is 1000 times more difficult. When will you finally accept that shale is a Ponzi by Wall Street. At least the Brits are bright enough not to fall for it. Shale is old news Glenn very old news built on a desperate industry financed by a desperate industry.

    • Fast Eddy says:

      A person who was of reasonable intelligence … when confronted with divergent facts and opinions regarding shale oil….

      Might consider asking the question: why is shale not being pursued anywhere outside of the USA — particularly now — when supposedly it is cheaper to extract shale than it is conventional oil.

      Glenn does not ask that question — therefore….

      • JT Roberts says:

        That’s my point the geography is the same in north east Mexico but Pemex hasn’t moved on it. I did business with them in the 2000s and it’s easy to say that they have capital constraints. But if that play was profitable they had the resources to play it. The whole conversation is a joke. Shale is a retirement party.

      • Greg Machala says:

        “Might consider asking the question: why is shale not being pursued anywhere outside of the USA — particularly now — when supposedly it is cheaper to extract shale than it is conventional oil.” – Because the other countries of the world do not have the World Reserve Currency (the US Dollar). We can print whatever we need to make believe that shale oil is economical because oil is priced in US Dollars. Other countries cannot do that. So, in the real world shale oil is uneconomic. It is a ponzi scheme of US Dollars!

      • timl2k11 says:

        Very good. And also why isn’t the increase in shale oil in the US translating into commensurate growth as it has in the past?

    • CTG says:

      I will bet you a hamburger today and pay you next Tuesday that Glenn saw this comment but did not comment because he could not find factual to comment.

      • Fast Eddy says:

        In Glenn’s World — facts exist only to be ignored and avoided.

        • Kenny Starfighter says:

          Inspired by Glenn, I’m starting a new religion. It is called “The Believers of the Empty Tank”. Our main philosophy is that we BELIEVE that if the gasoline gauge in our cars points to “E”, our cars will stop running.
          I’ve come close to the “E” many times without the car actually stopping, so it is truly just a belief at this point in time.
          Our main priest is Gary Oldman from the movie “Air Force One”, who in that said:
          ” It’s simple physics. Without fuel the plan crashes”
          We BELIEVE he was right. All hail the fuel!

    • Joel says:

      Is it possible that you guys are taking this ganging up on Glenn the new kid at school too far, never go full retard. I know it’s fun and all, but this doesn’t improve the site much IMO. I’m just learning myself and not buying the 2018 thing. Like the film There Will Be Blood, someone’s milk shake will taken…

      This phone is pissing me off, I will be back, technology is overrated!

      • Kurt says:

        Hey, I like Glenn. Glenn, for want of a better word, is good.

      • Joel says:

        That’s good to hear Kurt, Glenn does put out big posts, I know more about the shale thing then I did before just following this on going banter.

      • Fast Eddy says:

        Joel – here’s the thing…

        Glenn ignore the facts.

        We have all had plenty of experience of people ignoring facts on other sites — that is why The Core primarily participates only on FW.

        If any of these clowns show up on FW they play by our rules – facts and logic matter.

        If they refuse to play by our rules — they get this:

        • Joel says:

          Rules? I’m still thinking

        • Joel says:

          Facts are good, but sometimes tough to come by, so many opinions.

          • Fast Eddy says:

            Ignore opinions — they are baseless…

            Arguments are based on facts and logic — focus on them — notice how when confronted with facts and logic Glenn generally vanishes.

      • yorin says:

        Glenn is giving FE a run for his money. I nominate Glenn for OFW mascot.

  4. Fast Eddy says:

    Unless the Federal Reserve intends to buy up every dead and dying mall in America, this is one crisis that the Fed can’t bail out with a few digital keystrokes.

    http://charleshughsmith.blogspot.hk/2017/03/the-next-domino-to-fall-commercial-real.html

    • Fast Eddy says:

      No need to buy up the malls — just bail out the entities that are unable to make their payments — and turn the properties into ghost malls… full of hookers, crack dealers, and various assorted freaks…. they could also be useful as shelters for the homeless….

      • Kurt says:

        More storage for Amazon.

        • Tim Groves says:

          Rehire the mall sales staff as warehouse staff (at slightly lower wages) and give them all a Sedgway, just like the boss.

      • As we mentioned months ago on this very trend, the brave ones could try short REITs, but it well could be just another widow maker. The print-o-nians can have it levitate for some more years..

    • Yorchichan says:

      Did anyone say “Dead Mall”?

    • Yorchichan says:

      More news of dying malls:

      http://theeconomiccollapseblog.com/archives/a-third-of-all-u-s-shopping-malls-are-projected-to-close-as-space-available-signs-go-up-all-over-america

      Last year started off with stock markets crashing and for a while there I was worried Eddy’s “Last Christmas” might actually become reality. Then, for whatever reason (the ultra-low oil price?), the collapse seemed to be put on hold for a year. Now the bad economic data is again coming in thick and fast and it feels like pressure is building once more.

      • Fast Eddy says:

        What happened was the CB’s stopped the market crash by rolling out massive stops….

        In China the PBOC handed billions to proxies who bought the market — halted IPOs… and at the same time they threatened short sellers with prison ….

        Meanwhile globally the CBs continued to loan cash to failing companies which was used to buy back shares driving share prices higher…

        Institutional cash took one look at all of this and concluded — there is no fighting this — the CBs insist that the markets will go higher – even though earnings have been flat for years…

        So we may as well jump on the bandwagon…..

        And here we are in 2017 — everything is worse — GDP is falling — yet the markets are breaking records.

        The retail implosion that is underway is a different animal — not sure how the CBs reverse this — it all hinges on the consumer — real wages are down — inflation is climbing — interest rates are up slightly — and meanwhile most are already drowning in debt…..

        Bail out the creditors? Maybe — but that does not bring the shoppers back to the malls….

  5. Joel says:

    Just water and testing news
    Water needed in China, such a huge project! “The feasibility of such a plan is questionable, as it will involve three countries. “Technology is not a problem. Diplomatic negotiations will depend on the local government,” an expert who asked not to be named told the Global Times.
    The Russian government has not commented on the issue, but environmentalists have expressed concerns that Lake Baikal has been drying up at an alarming pace.”
    https://www.rt.com/business/379699-baikal-fresh-water-russia-china/

    China trying to keep the Peace, maybe no more testing for Kim?
    “Beijing has called on North Korea to suspend its nuclear and missile activities to avoid a “head-on collision” with the US and South Korea”
    “The two sides are like two accelerating trains coming towards each other with neither side willing to give way. The question is: Are the two sides really ready for a head-on collision? Our priority now is to flash the red light and apply the brakes on both trains,” Wang added.”
    https://www.rt.com/news/379846-china-korea-nuclear-collision/

  6. The Elders have spoken again, unexpectedly.

    Yesterday, the House of Lords (upper chamber) blocked the expedient Brexit option.
    The gov faction of TPTB affiliated to the Brexiteers wanted to simply trigger “Article 50” (EU walk away) asap, most likely on occasion of the earliest summit in Brussels, and steer it towards the strategy of defaulting into WTO level deals with future relations with Europe, i.e. need as fewer negotiations and new reworked deals with the EU as possible. Guess, what the other faction blocked it. Now it goes to the lower chamber again where the globalist will likely complicate it again..

    As a reminder, in the meanwhile the EU Comm is now busily drafting various schemes of multi speed Europe and other nonsense, so this is apparently related development how to slow the disintegration.

    • Joel says:

      Looks like the predictions of it not being allowed may come true. Hotel California song comes to mind.

    • Fast Eddy says:

      As was suggested at the time of Brexit — either the Elders do not care — or if they do care they will not allow it.

      It would appear the latter is the case…. the end of BAU will come before any non-token exits from the EU….

      Note how the Elders continue to spy on us — even though most people would like to see that stopped…..

      • The next round comes Monday in the lower chamber, if the parliament (not large majority now) doesn’t over rule the upper House of Lords, well then it will be a more serious issue. The PM can counter attack by immediately call for new elections, hoping for higher mandate and ease of rolling the Leave stuff through. However, the UK court bodies already demonstrated they don’t like the Brexit either, so there are many quasi legal ways how to drag the process down, therefore preparing space for the EU Comm to set up lotsa traps for the Brexit hopefulians to sink them during next months and years of negotiations..

        And who knows what happens in the future (alliance shifts, wars), at some juncture they could completely derail Brexit either by calling for new referendum (happened already in other countries on important EU treaties). Actually given the overall development even more likely is cordoning UK into some semi-membership status with other countries orbiting the core of the multispeed EU. So large chunk of the legislation (and yoke on the Brits) stays on.

        It’s explained here, these two shills for the global, now with straight face pretend people actually didn’t intend to vote for “hard core” Brexit in the first place..

  7. Harry Gibbs says:

    “The market for high-yield mining and energy debt is suffering from the some of the same issues that sparked the 2008 crisis as investors turn a blind eye to poor credit in their desperation for fatter returns, according to an executive with one of Canada’s largest hedge funds.

    “Fund managers are snapping up lower-quality debt in a bid to outperform their competitors and retail investors don’t understand the underlying credit risk, particularly in exchange-traded funds, said Rick Rule, chief executive officer of Sprott U.S. Holdings Inc., a subsidiary of Toronto-based Sprott Inc. with C$9.2 billion ($6.9 billion) under management.

    ““It wouldn’t take anything at all to have the same circumstance occur in mining and energy junk debt that happened in mortgage securities,” Rule said in an interview in Toronto Monday. “Remember that nothing precipitously changed in the housing market in 2008. It’s just that people began to do the arithmetic.””

    https://www.bloomberg.com/news/articles/2017-03-07/sprott-s-rule-warns-of-credit-crisis-as-managers-hunt-for-yield

    • Fast Eddy says:

      The powder is piling many times higher now …. for instance… I think it was Argentina – serial defaulter – that issued bonds a couple of years ago — the return was relatively high — the issuance was massive over-subscribed… there are loads of other examples of this…

      That is an indication that the smart money understands that this will end in total catastrophe — but in the meantime you just grab whatever you can to demonstrate to the punters in your fund that you are out-performing the index… you stuff the worst garbage into the fund — provided the yield is there.

      It allows them to dance while the music plays …

      • Duncan Idaho says:

        The Vulture Guys have already exploited this.
        As much as I detest the sociopaths and greed heads the scum are, they have brought some consequences to light.

  8. Duncan Idaho says:

    Meanwhile, Assange continues to punish the US.
    Might be time to start making a few deals.

    In Germany on Wednesday, the chief federal prosecutor’s office said that it would review the Wikileaks documents because some suggested that the CIA ran a hacking hub from the U.S. consulate in Frankfurt.

    “We’re looking at it very carefully,” a spokesman for the federal prosecutor’s office told Reuters. “We will initiate an investigation if we see evidence of concrete criminal acts or specific perpetrators.”

    Reuters could not immediately verify the contents of the published documents, but several contractors and private cyber security experts said the materials appeared to be legitimate.

    The latest revelations came days before Chancellor Angela Merkel is due to visit Washington for an initial meeting with U.S. President Donald Trump, who has sharply criticized Berlin for everything from its trade policy to what he considers inadequate levels of military spending.

    The Wikileaks documents may also complicate bilateral intelligence ties that have just begun to recover after a series of scandals, including news in 2013 that the National Security Agency had bugged Merkel’s cellphone. The consulate was already heavily investigated by German lawmakers after that incident.

    Merkel last month told lawmakers she did not know how closely Germany’s spies cooperated with their U.S. counterparts until 2015 when former NSA contractor Edward Snowden revealed the BND spy agency had for years passed on information to the NSA about European companies and politicians.

    Germany scaled back the level of cooperation with the NSA after those revelations.

    U.S. officials have acknowledged that the consulate in Frankfurt is home to a CIA base.

    • Fast Eddy says:

      Difficult for the Germans to do anything about this — because the NSA will have compromising files on anyone who attempts to do anything about this

      • Given the autumn elections in Germany and rising nationalists, they will pretend to act very bravely. They might even achieve a “small victory” by having those tech guys with diplomatic passports sent back home. While on the next airplane a new group of similar US tech spies will replace them (now without a press event). After all, Germany is just occupied territory with the privilege of keeping in check the French, Italy, Balkans, Greece and the CEE, ..

  9. Fast Eddy says:

    And we thought shale was ridiculous..

  10. jerry says:

    who is doing the lying and who is telling the truth I would really like to know? One minute Yemen has nothing and next minute she has billions of barrels that even Saudi Arabia is now apparently stealing it? What gives?????????? Newspapers and their journalists should all be fired and should go the way of the malls permanently. But where I would like to know are the facts the real facts. I’m not a world traveller but it seems to me one either has to go to Yemen and see things for oneself or talk to someone who has! This really pisses me off!!!!!!!!!!!!!!!!

    http://www.al-monitor.com/pulse/business/2012/02/the-economic-horrors-of-yemen-oi.html

    http://ahtribune.com/world/north-africa-south-west-asia/war-on-yemen/1537-saudi-arabia-yemen-oil-total.html

    • Artleads says:

      Well said!

    • Fast Eddy says:

      The ‘guy’ from the economics section of the Canadian embassy in KSA told me over coffee when I was in Yemen a few years back told me ‘there are too many people – not enough water — and the oil will be gone by 2017 — this country is f8776ed’

      I reckon that is the truth.

      He had no reason to lie to me — he was introduced by a friend of mine at the Canadian chamber in Hong Kong… who thought I should speak to him before heading into the interior of the country.

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