World GDP in current US dollars seems to have peaked; this is a problem

World GDP in current US dollars is in some sense the simplest world GDP calculation that a person might make. It is calculated by taking the GDP for each year for each country in the local currency (for example, yen) and converting these GDP amounts to US dollars using the then-current relativity between the local currency and the US dollar.

To get a world total, all a person needs to do is add together the GDP amounts for all of the individual countries. There is no inflation adjustment, so comparing GDP growth amounts calculated on this basis gives an indication regarding how the world economy is growing, inclusive of inflation. Calculation of GDP on this basis is also inclusive of changes in relativities to the US dollar.

What has been concerning for the last couple of years is that World GDP on this basis is no longer growing robustly. In fact, it may even have started shrinking, with 2014 being the peak year. Figure 1 shows world GDP on a current US dollar basis, in a chart produced by the World Bank.

Figure 1. World GDP in “Current US Dollars,” in chart from World Bank website.

Since the concept of GDP in current US dollars is not a topic that most of us are very familiar with, this post, in part, is an exploration of how GDP and inflation calculations on this basis fit in with other concepts we are more familiar with.

As I look at the data, it becomes clear that the reason for the downturn in Current US$ GDP is very much related to topics that I have been writing about. In particular, it is related to the fall in oil prices since mid-2014 and to the problems that oil producers have been having since that time, earning too little profit on the oil they sell. A similar problem is affecting natural gas and coal, as well as some other commodities. These low prices, and the deflation that they are causing, seem to be flowing through to cause low world GDP in current US dollars.

Figure 2. Average per capita wages computed by dividing total “Wages and Salaries” as reported by US BEA by total US population, and adjusting to 2016 price level using CPI-Urban. Average inflation adjusted oil price is based primarily on Brent oil historical oil price as reported by BP, also adjusted by CPI-urban to 2016 price level.

While energy products seem to be relatively small compared to world GDP, in fact, they play an outsized role. This is the case partly because the use of energy products makes GDP growth possible (energy provides heat and movement needed for industrial processes), and partly because an increase in the price of energy products indirectly causes an increase in the price of other goods and services. This growth in prices makes it possible to use debt to finance goods and services of all types.

A decrease in the price of energy products has both positive and negative impacts. The major favorable effect is that the lower prices allow the GDPs of oil importers, such as the United States, European Union, Japan, and China, to grow more rapidly. This is the effect that has predominated so far.

The negative impacts appear more slowly, so we have seen less of them so far. One such negative impact is the fact that these lower prices tend to produce deflation rather than inflation, making debt harder to repay. Another negative impact is that lower prices (slowly) push companies producing energy products toward bankruptcy, disrupting debt in a different way. A third negative impact is layoffs in affected industries. A fourth negative impact is lower tax revenue, particularly for oil exporting countries. This lower revenue tends to lead to cutbacks in governmental programs and to disruptions similar to those seen in Venezuela.

In this post, I try to connect what I am seeing in the new data (GDP in current US$) with issues I have been writing about in previous posts. It seems to me that there is no way that oil and other energy prices can be brought to an adequate price level because we are reaching an affordability limit with respect to energy products. Thus, world GDP in current dollars can be expected to stay low, and eventually decline to a lower level. Thus, we seem to be encountering peak GDP in current dollars.

Furthermore, in the years ahead the negative impacts of lower oil and other energy prices can be expected to start predominating over the positive impacts. This change can be expected to lead to debt-related financial problems, instability of governments of oil exporters, and falling energy consumption of all kinds.

Peak Per Capita Energy Consumption Is Part of the Problem, Too

One problem that makes our current situation much worse than it might otherwise be is the fact that world per capita energy consumption seems to have hit a maximum in 2013 (Figure 3).

World daily per capita energy consumption

Figure 3. World Daily Per Capita Energy Consumption, based on primary energy consumption from BP Statistical Review of World Energy and 2017 United Nations population estimates.

Surprisingly, this peak in consumption occurred before oil and other energy prices collapsed, starting in mid-2014. At these lower prices, a person would think that consumers could afford to buy more energy goods per person, not fewer.

Per capita energy consumption should be rising with lower prices, unless the reason for the fall in prices is an affordability problem. If the drop in prices reflects an affordability problem (wages of most workers are not high enough to buy the goods and services made with energy products, such as homes and cars), then we would expect the pattern we are seeing today–low oil and other energy prices, together with falling per capita consumption. If the reason for falling per capita energy consumption is an affordability problem, then there is little hope that prices will rise sufficiently to fix our current problem.

One consideration supporting the hypothesis that we are really facing an affordability problem is the fact that in recent years, energy prices have been too low for companies producing oil and other energy products. Since 2015, hundreds of oil, natural gas, and coal companies have gone bankrupt. Saudi Arabia has had to borrow large amounts of money to fund its budget, because at current prices, tax revenues are too low to fund it. In the United States, investors are cutting back on their support for oil investment, because of the continued financial losses of the companies and evidence that approaches for mitigating these losses are not really working.

Which Countries Are Suffering Falling GDP in Current US Dollars?

With lower oil prices, Saudi Arabia is one of the countries with falling GDP in Current US$.

Figure 4. Increase in GDP since 1990 for Saudi Arabia in current US dollars, based on World Bank Data.

Saudi Arabia pegs its currency to the dollar, so its lower GDP is not because its currency has fallen relative to the US dollar; instead, it reflects a situation in which fewer goods and services of all kinds are being produced, as measured in US dollars. GDP calculations do not consider debt, so Figure 4 indicates that even with all of Saudi Arabia’s borrowing to offset falling oil revenue, the quantity of goods and services it was able to produce fell in both 2015 and 2016.

Other oil-producing countries are clearly having problems as well, but data is often missing from the World Bank database for these countries. For example, Venezuela is clearly having problems with low oil prices, but GDP amounts for the country are missing for 2014, 2015, and 2016. (Somehow, world totals seem to include estimates of the total omitted amounts, however.)

Figure 5 shows similar ratios to Figure 4 for a number of other commodity producing countries.

Figure 5. GDP patterns, in US current dollars, for selected resource exporting countries, based on World Bank data.

A comparison of Figures 4 and 5 shows that the GDP patterns for these countries are similar to that of Saudi Arabia. Because resources (including oil) do not account for as large a share of GDP for these countries as for Saudi Arabia, the peak as a percentage of 1990 GDP isn’t quite as high as for Saudi Arabia. But the trend is still downward, with 2014 typically the peak year.

We can also look at similar information for the historically big consumers of oil, coal and natural gas, namely the United States, the European Union, and Japan.

Figure 6. Increase in GDP since 1990 for the United States, the European Union, and Japan, in current US dollars, based on World Bank data.

Here, we find the growth trend is much more subdued than for the countries shown in the previous two charts. I have purposely put the upper limit of the scale of this chart at 6 times the 1990 GDP level. This limit is similar to the upper limit on earlier charts, to emphasize how much more slowly these countries have been growing, compared to the countries shown in Figures 4 and 5.

In fact, for the European Union and Japan, GDP in current US$ is now lower than it has been in recent years. Figure 6 is telling us that the goods and services produced in these countries are now lower in US dollar value than they were a few years ago. Since part of the cost of goods and services is used to pay wages, this lower relativity indirectly implies that the wages of workers in the EU and Japan are falling, relative to the cost of buying goods and services priced in US dollars. Thus, even apart from taxes added by these countries, consumers in the EU and Japan have been falling behind in their ability to buy energy products priced in US dollars.

Figure 6 indicates that the United States has been doing relatively better than the European Union and Japan, in terms of the value of goods and services produced each year continuing to grow. If we look back at Figure 2, however, we see that even in the US, wage growth has lagged far behind oil price increases. Thus, the US was also likely headed toward an affordability problem relating to goods and services made with oil.

The Asian exporting nations have been doing relatively better in keeping their economies growing, despite the downward pressure on energy prices.

Figure 7. Increase in GDP since 1990 for selected rapidly growing Asian exporting countries in current US dollars, based on World Bank data.

The two most rapidly growing countries are China and Vietnam. There seems to be a recent slowing of their growth rates, but no actual downturn.

India, Pakistan, and the Philippines are growing less rapidly. They do not seem to be experiencing any downturn at all.

Considering the indications of Figure 4 through 7, it appears that only a relatively small share of countries have experienced rising GDP in current US dollars. Although we have not looked at all possible groupings, the countries that seem to be doing best in terms of rising current US$ GDP are countries that are exporters of manufactured goods, including the Asian countries shown. Countries that derive significant GDP from producing energy products and other commodities seem to be experiencing falling GDP in current US dollars.

To fix the problems shown here, we would need to get prices of oil and other energy products back up again. This would indirectly raise prices of many other products as well, including food, new vehicles, and new homes. With lagging wages in many countries, this would seem to be virtually impossible to accomplish.

The Wide Range of GDP Indications We See 

In this post, I am talking about GDP of various countries, converted to a US$ basis. This is not quite the same as the GDP that we normally read about. It is not until a person starts working with world data that a person appreciates how different the various GDP and inflation calculations are.

GDP in US dollars is very important because energy products, including oil, are generally priced in US$. This seems to be true, whether or not the currency used in the actual transaction is US$. See Appendix A for charts showing the close connection between these two items.

The type of GDP is generally reported is inflation-adjusted (also called “real”) GDP. The assumption is made that no one will care (very much) about inflation rates. In general, inflation-adjusted GDP figures are much more stable than those in Current US$. This can be seen by comparing world GDP in Figure 8 with that shown in Figure 1.

Figure 8. GDP in 2010 US dollars, for the world and for the United States, based on World Bank data.

Using inflation-adjusted world GDP data, there doesn’t seem to be any kind of crisis ahead. The last major problem was in the 2008-2009 period. Even the impact of this crisis appears to be fairly small. The 2008-2009 crisis shows up more distinctly in the Current US$ amounts plotted in Figure 1.

World GDP growth figures that are published by the World Bank and others combine country by country data using some type of weighting approach. Economists tend to use an approach called Purchasing Power Parity (PPP). This approach gives a great deal more weight to developing nations than the US dollar weighted approach used elsewhere in this post. For example, under the PPP approach, China seems to get a weighting of about 1.9 times its GDP in US$; India seems to get a weighting of about 3.8 times its GDP in US$. The United States gets a weight of 1.0 times its GDP in US$, and the weights for developed nations tend to be fairly close to 1.0 times their GDP in US$. The world GDP we see published regularly should be called “inflation-adjusted world GDP, calculated with PPP weights.”

The relationship among the three types of GDP can be seen in Figure 9. It is clear that GDP growth in Current US$ is far more variable than the inflation-adjusted growth rate (in 2010 US$). PPP inflation-adjusted GDP growth is consistently higher than GDP growth with US dollar weighting.

Figure 9. World GDP Growth in three alternative measures: Current dollars, Inflation-adjusted GDP is in 2010 US$ and adjusted to purchasing power parity (PPP).

It is also clear from Figure 9 that there is also a big “Whoops” in the most recent years. Economic growth is at a record low level, as calculated in Current US$.

World “Inflation” Indications

The typical way of calculating inflation is by looking at prices of a basket of goods in a particular currency, such as the yen, and seeing how the prices change over a period of time. To get an inflation rate for a group of countries (such as the G-20), inflation rates of various countries are weighted together using some set of weights. My guess is that these weights might be the PPP weights used in calculating world GDP.

In Figure 10, I calculate implied world inflation using a different approach. Since the World Bank publishes World GDP both in 2010 US$ and in Current US$, I calculate the implied world inflation rate by comparing these two sets of values. (Some people might call what I am calculating the implicit price deflator for GDP, rather than an inflation rate.) I use three-year averages to smooth out year-to-year variability in these amounts.

Figure 10. World inflation rate calculated by comparing reported World GDP in Current US$ to reported World GDP in 2010 US$. Both of these amounts are available at the World Bank website.

The implied world inflation rates using this approach are fairly different from published inflation rates. In part, this is because the calculations take into account changing relativities of currencies. There may be other factors as well, such as the inclusion of countries that would not normally be included in aggregations. Inflation rates tend to be high when demand for energy products is high, and low when demand for energy products is low.

Figure 10 shows that, on a world basis, there have been negative inflation rates three times since 1963–in approximately 1983-1984; in the late 1990s to early 2000s; and since about 2014. If we compare these dates to the oil price and energy consumption data on Figures 2 and 3, we see that these time periods are ones that are marked by falling per capita energy consumption and by low oil prices. In some sense, these are the time periods when the economy is/was trying to stall, for lack of adequate demand for oil.

The workaround used to “fix” the lack of demand in the late 1990s to early 2000s seems to have been an increased focus on globalization. China’s growth in particular was very important, because it added both a rapidly growing supply of cheap energy from coal and a great deal of demand for energy products. The addition of coal effectively lowered the average price of energy products so that they were again affordable by a large share of the world population. The availability of debt to pull the Chinese and other Asian economies forward was no doubt of importance as well.

The United States has been fairly protected from much of what has happened because its currency, the US Dollar, is the world’s reserve currency. If we look at the inflation rate of the United States using data of the US Bureau of Economic Analysis, the last time the United States had a substantial period of contracting prices was in the US Depression of the 1930s. It is quite possible that such a situation existed worldwide, but I do not have world data for that period.

Figure 11. US inflation rate (really “GDP Deflator”) obtained by comparing US GDP in 2009 US$ to GDP in Current US $, based on US Bureau of Economic Analysis data.

It was during the Depression of the 1930s that debt defaults became widespread. It was only through deficit spending, including the significant debt-based funding for World War II, that the problem of inadequate demand for goods and services was completely eliminated.

How Do We Solve Our World Deflation Crisis This Time 

There seem to be three ways of creating demand for goods and services.

[1] A growing supply of cheap-to-produce energy products is really the basic way of increasing demand through economic growth.

If there are cheap-to-produce energy products available, a growing supply of these energy products can be used to increasingly leverage human labor, through the use of more and better “tools” for the workers. When workers become increasingly more productive, their wages naturally rise. It is this growing productivity of human labor that generally produces the rising demand needed to maintain the economic growth cycle.

As growth in energy consumption slows and then declines (Figure 3), this productivity growth tends to disappear. This seems to be part of today’s problem.

[2] Increasing the amount of debt outstanding can work to make the energy extraction system work more effectively, by raising the price that consumers can afford to pay for high-priced goods.

This increasing ability to pay for high-priced goods seems to come in two ways:

(a) The debt itself can be used to pay for goods, making these goods more affordable on a month-to-month or year-to-year basis.

(b) Increased debt can lead to increased wages for wage earners, because some of the increased debt ultimately goes to create new jobs and to pay workers. Figure 12 shows the positive association that increasing debt seems to have with inflation-adjusted wages in the United States.

Figure 12. Growth in US Wages vs. Growth in Non-Financial Debt. Wages from US Bureau of Economics “Wages and Salaries.” Non-Financial Debt is discontinued series from St. Louis Federal Reserve. (Note chart does not show a value for 2016.) Both sets of numbers have been adjusted for growth in US population and for growth in CPI Urban.

Debt is, in effect, the promise of future goods and services made with energy products. These promises are often helpful in allowing an economy to expand. For example, businesses can issue bonds to provide funds to expand their operations. Selling shares of stock acts in a manner similar to adding debt, with repayment coming from future operations. In both cases, the payback can occur, if energy consumption is in fact growing, allowing the output of the business to expand as planned.

Once world leaders decide that debt levels are too high, or need to be controlled better, we are likely headed for trouble, because debt can be very helpful in “pulling the economy forward.” This is especially the case if productivity growth is low because per capita energy consumption is falling.

[3] Rebalancing of currency relativities to the US dollar.

Rebalancing currencies to different levels relative to the dollar seems to play a major role in determining the “inflation rate” calculated in Figure 10. Currency rebalancing also plays a major role in determining the shape of the GDP graph in current US$, as shown in Figure 1. In general, the higher the average relativity of other currencies to the US$, the higher the demand for goods and services of all kinds, and thus the higher the demand for energy products.

One problem in recent years is that, in some sense, the average relativity of other currencies to the US dollar has fallen too low. The fall in relativities took place when the US discontinued its use of Quantitative Easing in late 2014.

Figure 13. Monthly Brent oil prices with dates of US beginning and ending QE.

The price of oil and of other energy products dropped steeply at that time. In fact, in inflation-adjusted terms, oil prices had been falling even prior to the end of QE. (See Figure 2, above.) The shift in the currency relativities made oil and other energy products more expensive for citizens of the European Union, Japan, and most of the commodity producing countries shown in Figures 4 and 5.

The ultimate problem underlying this fall in average relativities to the US dollar is that there is now a disparity between the prices that consumers around the world can afford to pay for energy products, and the prices that businesses producing energy products really need. I have written about this problem in the past, for example in Why Energy-Economy Models Produce Overly Optimistic Indications.

At this point, none of the three approaches for solving the world’s deflation problem seem to be working:

[1] Increasing the supply of oil and other energy products is not working well, because diminishing returns has led to a situation where if prices are high enough for producers, they are too high for consumers to afford the finished goods made with the energy products.

[2] World leaders have decided that we have too much debt and, indeed, debt levels are very high. In fact, if energy prices continue to be low, a significant amount of debt currently outstanding will probably be defaulted on.

[3] Countries generally don’t want to raise the exchange rates of their currencies to the dollar, because lower exchange rates tend to encourage exports. If the United States raises its interest rates, either directly or by selling its QE bonds, the level of the US dollar can be expected to rise relative to other currencies. Thus, other currencies are likely to fall even lower than they are today, relative to the US dollar. This will tend to make the problem with low oil prices (and other energy prices) even worse than today.

Thus, there seems to be no way out of our current predicament.

Conclusion

The world economy is in a very precarious situation. Many of the world’s economies have found that, measured in current US$, the goods and services they are producing are less valuable than they were in 2013 and 2014. In particular, all of the oil exporting nations have this problem. Many other countries that are producing commodities have the same problem.

Governments around the world do not seem to understand the situation we are facing. In large part, this is happening because economists have built models based on their view of how the world works. Their models tend to leave out the important role energy plays. GDP growth and inflation estimates based on PPP calculations give a misleading view of how the economy is actually operating.

We seem to be sleepwalking into an even worse version of the Depression of the 1930s. Even if economists were able to figure out what is happening, it is not clear that there would be a good way out. Higher energy prices would aid energy producers, but would push energy importing nations into recession. We seem to be facing a predicament with no solution.

Appendix 

Growing Inflation-Adjusted GDP Comes From Growing Energy Consumption

We often hear that GDP no longer depends on energy consumption, but this simply is not true. Energy consumption is needed for practically every industrial process, because energy causes the physical transformations that are need (including heat, light, and movement). Even services that only require a lighted, air-conditioned office and the use of computers require energy consumption of some type.

An industrialized country can outsource manufacturing of many of its goods to other countries, but the need for energy products goes with this outsourcing. The transfer of manufacturing to lesser developed countries tends to stimulate building in these countries. As a result, on a world basis, the amount of energy consumed tends to remain close to unchanged.

Using data for 1965 through 2016, we find the following relationship between inflation-adjusted world GDP and world energy consumption:

Figure A1. World growth in energy consumption vs. world GDP growth. Energy consumption from BP Statistical Review of World Energy, 2017. World GDP is GDP in US 2010$, as compiled by World Bank.

Another way of displaying the same data is as an X, Y graph. A very high long-term correlation can be observed on this basis.

Figure A2. X-Y graph of world energy consumption (from BP Statistical Review of World Energy, 2017) versus world GDP in 2010 US$, from World Bank.

This high level of correlation can be seen for other groupings as well. For example, for the grouping Middle East and North Africa, there is a high level of correlation between energy consumption and GDP.

Figure A3. X-Y graph showing correlation between energy consumption and GDP in the Middle East and North Africa.

If a person calculates the implications of this fitted line, energy consumption for these oil-producing countries is actually growing faster than inflation-adjusted GDP for these countries. This type of trend is to be expected if oil-producing countries are in some sense becoming less efficient in producing oil. This could happen for a number of reasons. One is that the easiest to extract oil is extracted first, leaving the more expensive to extract oil to be extracted later. Another possible reason for this trend is rising human populations in oil producing countries. These people drive cars and live in air conditioned buildings, driving up energy consumption for these countries. Whatever the cause, this loss of efficiency in oil production can be expected to at least partially offset growing efficiencies elsewhere in the system.

 

 

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.
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2,988 Responses to World GDP in current US dollars seems to have peaked; this is a problem

  1. adonis says:

    https://www.youtube.com/watch?v=SYPsygSHnAs this short video explains the next system which the elites believe will keep ‘BAU’ going

    • adonis says:

      once this new system is established I am not sure how long “BAU” will hold up it could go on for a lot longer than anyone thinks is possible

    • Fast Eddy says:

      Forgive me for not watching….

      I am operating under the assumption that if I were a member of the global elite… we would not be telling anyone about our Plan B… and we certainly would not be dropping details onto a short video on Youtube.

      Give your head a shake.

      Here’s Plan B – although nobody will admit that

      • Greg Machala says:

        No doubt “plan B” is bunkers. Otherwise, there is no real plan. I think Central Bankers are just throwing crap around to see what sticks in a vain hope to keep BAU alive another day. When the time comes, “plan B” is to run for the hills.

      • These folks have not figured out that we have a debt based economy, and that flows will tend to decrease over time. They are sort of confused. If they think this will save us, they don’t understand how the system works.

        Also, all currencies are linked to the SDR currency, presumably by a fairly fixed ratio. Doesn’t that give us the problems we had with Greece and the Euro, fairly quickly?

    • Very interesting! Thanks for sharing this.

      I can imagine people are saying to themselves–“The next crisis is going to be a whole lot worse. We need to figure out a new currency.” The Special Drawing Rights of the IMF was the thing that they came up with.

      Instead of the system being debt-based, they want the system to be asset based. I am very doubtful this will work. One of the things flashed up on the screen was “Nodes are limited/resources are unlimited.” They need to read OurFiniteWorld.com. I am afraid resources are limited. We operate on flows, which are disappearing. Trying to substitute assets won’t work. The value of the assets will disappear as well.

      • adonis says:

        thanks for looking into it Gail fresh eyes revealed that statement of unlimited resources which I did not see so it sounds like a flawed plan but we shall see if they proceed with it I think BAU may be extended but who knows for how long perhaps a decade if were lucky

    • Third World person says:

      btw mg how much food in Slovakia is come from other countries

    • Reportedly in post Soviet block area ~150M people were knocked down from *middle class status since 1990s sweeping wave of Democracy etc. It was a nice boost for extend a pretend in the West. Basically, the outsourcing bound to Asia and hostile take over of CEE, contributed mightily in giving the West few more decades of comfy living. History is simple, you trust us, you loose your shirt, although the Asians are bit smarter as there might be a payback time, actually it has already happened in certain sense..

      *meaning by human development index (schools-hospitals-education-happiness-free/family time), not measured by “luxury items” specimen penetration per capita..

      • MG says:

        Why takeover of CEE? The Soviet bloc was no charity: when the Soviet Union bankrupted, it fell apart. In the same way, when the so called West (or China or whatever business partner) goes bankrupt, the desintegration ensues.

        The standard of living in the Soviet bloc was not very high in all aspects and in all countries. It is thanks to the higher debt, that the CEE countries continue to function, the Russia continues to function, the West or China continues to function…

        Such views of the world like “takeover” are ridiculous old-fashioned imperialistic views that have nothing to the with the reality: Russia still supplies a lot of energy (like oil and natural gas) to CEE and the West…

        • Apparently, you don’t get the message of my post above. The CEE being taken over, simply depicts today’s reality, where their national product moved into the West, as they are not largely working for their own betterment but as ~1/5th wage near slaves condition in companies, which they don’t own, legally not control (EU shared legality mirage), spiking debts, no nothing.. Only Russia and few of their closest -stans allies were able at least partly rectify it, so to speak turn tables on the situation of past ~3decades.

          • MG says:

            The Soviet Union was not able to pay for the products from CEE, so CEE turned to the West. Moreover, the products from CEE were less competitive, the lack of investment into the new technologies (like robots and sophisticated machines, computers) made the products from CEE unsaleable.

            The imperialist view is really ridiculous. The West is totally dependent on the workforce infusion from other countries, including CEE.

            Furthemore, the higher wages and lack of workforce make the production move from CEE to other parts of the world. You can not force somebody to accept low wages, when these wages are not sustainable. The production simply stops.

            Accepting low wages is a temporary phenomenon, which, finally, leads to the end of the production. When you have cheap local workforce, you can produce there. But when there is no more indispensable (cheap) workforce, then the system collapses, including the so called imperialists…

            • I’m afraid you don’t grasp the point of the post.
              The convergence of purchasing power and other top metrics of CEE towards West have been on purpose stalled (while productivity clearly risen), only tiny and delayed increments have been allowed, on purpose. There is giant sucking sound and that’s the suction of profits, return on capital, which the 1/3-1/5th wage earners of the CEE are sending back to the W center. This redistribution effect have mightily contributed to prolongation of the lifespan and level of prosperity of the W.Europe in its current form, along side money printing etc. As always in history it’s a con game dropped on beyond gullible “cattle like” public and its masters, aka just another human farm manifestation.

              Even the Reich ver3.0 paid higher wages throughout CEE, than Reich ver4.0 (EU), at least for the time being early war stage, before the whole European continent was out of then exploitable resources by 1943-44 and it went into severe rationing..

            • MG says:

              “have been on purpose stalled” – that is a conspirational view of the world. The population did not want to work for the Soviet Union and the population turned to the West as a better option: they got at least something in comparison to the bankrupted Soviet Union.

              Slovakia decided to be isolated in the 90s and this lack of the foreign investment had sever economic impact on the standard of living of its population.

              You always choose from the options that are at the disposal – like Germany hugely exporting to China which was ready to absorb their machines after 2001.

            • MG says:

              Why Germany Slips When China Swoons

              “The German export machine has been fueled by the growth of emerging markets. As developing countries like China now pull back, it is leaving Germany more vulnerable, and by extension Europe.”

            • So pure capitalist and hegemonic logic exercised clearly by West over most of the CEE quasi colonies is now conspirational view? Sorry, you are providing beyond gullible type of thinking here..

    • If it is easy to import food, what is the point to maintaining a country’s own production–or so the thinking goes.

  2. Fast Eddy says:

    ‘Deep’ Subprime Car Loans Hit Crisis-Era Milestone

    Recent deep subprime car-loan performance ‘awful’: Equifax
    Growing delinquencies coincide with increase in competition

    “We’re seeing an increase in delinquencies across all credit scores, but in the highest credit quality, it’s just a basis point or two,” Chief Economist Amy Crews Cutts said in an email Tuesday. “In deep subprime, the rise is more substantial.

    What stood out to me was the issuers. Those that have been doing this for a decade or more were showing the ‘better’ performance, while those that were relative newcomers were in the ‘worse’ category.”

    The reason for the increase, she posited, is that lenders have loosened underwriting requirements as more firms tap into a declining market for car loans, not that there are more customers with worsening credit profiles.

    “It isn’t a case of chasing a larger subprime share,” Cutts said in an email Tuesday. There’s been “almost no change in median credit scores. That means they are letting other underwriting characteristics slide,” she said, referring to the lenders that issue the bulk of subprime loans — so-called monolines that specialize in one area of the credit market and dealer-finance companies that work specifically with car sellers.

    https://www.bloomberg.com/news/articles/2017-08-15/-deep-subprime-car-loans-hit-crisis-era-milestone-as-woes-mount

    So…. as auto sales continue to plunge…. the reaction is …. make even dodgier loans…. to try to boost sales numbers….

  3. There is a very simple solution to many of our present ills. It starts with the recognition of one simple fact: that government does not fund government, that its deficit is the whole of its expenditures.

    After that comes a revolution. The reign of big government and its enslavement of the taxapayer ends and the reign of the public banker begins. $10,000CDN for the flaw in our idea.

    https://mbparty.ca/10000-public-finance-challenge/

    • Fast Eddy says:

      Look — a refugee from DelusiSTAN has washed up on FW….

      Gary … here’s a towel… and a bowl of soup…. now I strongly suggest you read through the archived articles on this site.

      The problem we are facing is related to the fact that we are out of cheap to extract oil and other resources.

      No government – no person — no policy — can fix that.

      • Gary Marshall says:

        I have heard this before, back in the 1800’s I believe. Energy is getting cheaper all the time save when government steps in to mess it all up.

        Now stop reading 19th century ideas and get with the modern era unless of course you are the obstinate sort, which no government – no person – no policy can fix.

        • Ken Barrows says:

          The question is whether, over time, it takes more joules to extract each barrel of oil or million BTU. Just about all here would say, of course. You beg to differ but I suspect you really haven’t considered it in energy terms.

          • in the 1800s, energy got cheaper because they found a way of pumping water out of deeper coalmines. (it really was that simple)

            then they dug canals/ built railways to shift it around

          • All costs indirectly end up being energy costs, including lease costs and interest payments, because these costs need to be paid with oil revenue. Even taxes need to be paid with oil revenue.

    • Tim Groves says:

      While oil was cheap and plentiful, government was exceedingly generous to the plebs, and look where that got us.

    • These folks have a problem. Our financial system is a way of dividing up goods and services. Price signals give suppliers of energy products, metals, and other goods an indication of how much of these goods how much they can spend to create them, and still make a profit. More debt adds more wages, and also directly adds demand for these goods, so helps pump up demand.

      Adding more debt in theory gets more resources from the world supply, except that this approach also pushes the currency down relative to other currencies.

  4. Fast Eddy says:

    I don’t have pets, but last night one of gods creations, a fly, flew into my apartment. I named him Oscar. He has been walking up and down on my arm. I think he is feeding off me. After a shower he lost interest in me and started to examine my apartment. I usually don’t … Continue reading Researchers have been underestimating the cost of wind and solar

    you should leave some food out for him.

    after the fly lays its eggs on the food and they hatch, you will have a bunch of little Oskars which are called maggots.

    then you can name them.

    ATTENTION DOOMY PREPPERS!

    Food is going to be a challenge in your little house on the prairie world …. the above discussion got me thinking of an idea that you surely will find very helpful….

    All you need is a handful of rat guts…. so don’t eat those when you roast your sewer rats! — leave it outside for a few hours and let flies deposit their eggs into the meat….

    Then all you have to do is wait for the eggs to hatch into maggots… scrape them into a pot — and you’ve got yourself a tasty meal….

    You can continue to reuse your meat in the same manner until it rots so badly even the flies won’t touch it.

    Don’t forget to say Thank you Fast Eddy for the wonderful idea

  5. Fast Eddy says:

    Marcus T. Monihan : Yeah, but if enough PV panels are erected and connected to the grid, then at some point renewables will power the production of renewables.

    What are the choices? Try to make the transition to renewables or throw up our hands in defeat, because as of now there are no other viable solutions. Fusion is still years away – FF burning is causing GW – nuclear is unsafe (see Fukushima & Chernobyl), so the only option is to get busy deploying as much of this stuff as we can and figure out the problems associated with it as we go along.

    Not gonna happen Marcus:

    Replacement of oil by alternative sources

    While oil has many other important uses (lubrication, plastics, roadways, roofing) this section considers only its use as an energy source. The CMO is a powerful means of understanding the difficulty of replacing oil energy by other sources. SRI International chemist Ripudaman Malhotra, working with Crane and colleague Ed Kinderman, used it to describe the looming energy crisis in sobering terms.[13] Malhotra illustrates the problem of producing one CMO energy that we currently derive from oil each year from five different alternative sources. Installing capacity to produce 1 CMO per year requires long and significant development.

    Allowing fifty years to develop the requisite capacity, 1 CMO of energy per year could be produced by any one of these developments:

    4 Three Gorges Dams,[14] developed each year for 50 years, or
    52 nuclear power plants,[15] developed each year for 50 years, or
    104 coal-fired power plants,[16] developed each year for 50 years, or
    32,850 wind turbines,[17][18] developed each year for 50 years, or
    91,250,000 rooftop solar photovoltaic panels[19] developed each year for 50 years

    The world consumes approximately 3 CMO annually from all sources. The table [10] shows the small contribution from alternative energies in 2006.

    http://en.wikipedia.org/wiki/Cubic_mile_of_oil

    • Harry Gibbs says:

      “The assumption that technology, market mechanisms or shale gas will save the day is made so often, with such confidence and is backed by so little actual knowledge and expertise, that it leads one to suspect that the interlocutors are expressing a cultural mythology rather than offering a reasoned analysis. In addition, we are quite at a loss with respect to timing. These [biophysical] constraints are emerging now. More grandiose plans, more targets or investment in breakthrough technology, more well-meaning chatter about a green New Deal mostly miss the point, firstly, because imagining is really not a substitute for reality, and secondly, because in all probability, it’s too late.”

      David Korowicz – ‘Trade Off’.

      • Fast Eddy says:

        Economically shale makes zero sense — however you would be hard pressed to find anyone who did not believe shale is totally awesome — look at the hundreds of billions if not trillions being poured into this by believers who think they are going to get rich…

        Just because most people believe something … does not make it true.

    • Greg Machala says:

      “Yeah, but if enough PV panels are erected and connected to the grid, then at some point renewables will power the production of renewables.” – I’ll fix it for you: If enough PV panels are erected and connected to the grid, then at some point the grid will collapse from the extremes of intermittency that cannot be throttled.

    • Not really. If we count the stuff right, there is either no net energy gain out of the stuff, or practically no net energy gain.

      Euan Means has a good article about renewables. Worldwide investment in renewable energy reaches US$ 4 trillion – with little to show for it.

  6. Fast Eddy says:

    Name commented on Researchers have been underestimating the cost of wind and solar.

    in response to Fast Eddy:

    Re MSM…. Remember way back when if you read a propaganda pieces in the MSM … well actually it is redundant to use the term propaganda piece… but anyways…. When you read one of the endless lies that pervades the MSM… And you used to be able to comment on the slop? And then in … Continue reading Researchers have been underestimating the cost of wind and solar

    GW is a science thing, not MSM thing.

    Just like solar is a science … and not something the MSM tells us that we should believe in.

    Right?

    • name says:

      Solar is a political thing. Are there science publications that wind and solar can power economy?

      • Greg Machala says:

        Solar panels and wind turbines could power the economy. They could create jobs building and maintaining them. Sure thing. IF, IFFFF, IFFF OHHH-NLY we had the cheap energy to do it. And that cheap energy has traditionally come from fossil fuels. Unless another cheap liquid fuel pops up solar panels and wind turbines will have to wait. Oh, but then why would we need solar panels and wind turbines!

      • There are a lot of arguments on the subject. Jacobson and Delluchi are best known for their argument that a 100% Wind, Water, and Solar powered grid is possible. This is one version of their proposal.

        There have been various articles debunking the idea (including my 2009 Oil Drum article, about an earlier version of the proposal)

        A recent debunking that is good is http://www.pnas.org/content/early/2017/06/16/1610381114.full.pdf
        Evaluation of a proposal for reliable low-cost grid power with 100% wind, water, and solar
        by Christopher T. M. Clack, Staffan A. Qvist, Adam R. Brandt

        Excerpts

        The system in ref. 11 assumes the availability of multiweek energy storage systems that are not yet proven at scale and deploys them at a capacity twice that of the entire United States’ generating and storage capacity today. There would be underground thermal energy storage (UTES) systems deployed in nearly every community to provide services for every home, business, office building, hospital, school, and factory in the United States. However, the analysis does not include an accounting of the costs of the physical infrastructure (pipes and distribution lines) to support these systems. An analysis of district heating showed that having existing infrastructure is key to effective deployment, because the high upfront costs of the infrastructure are prohibitive.

        The energy storage capacity consists almost entirely of two technologies that remain unproven at any scale: 514.6 TWh of UTES (the largest UTES facility today is 0.0041 TWh) (additional discussion is in SI Appendix, section S2.1) and 13.26 TWh of phase change materials (PCMs; effectively in research and demonstration phase) (additional discussion is in SI Appendix, section S2.2) coupled to concentrating solar thermal power (CSP). To give an idea of scale, the 100% wind, solar, and hydroelectric power system proposed in ref. 11 envisions UTES systems deployed in nearly every community for nearly every home, business, office building, hospital, school, and factory in the United States, although only a handful exist today.

        • Artleads says:

          I guess realistic new energy storage and transmission infrastructure has to function like spider webs. They just stick on to what exists already.

      • Fast Eddy says:

        Al Gore … Inconvenient Truth — not political?

        Here’s my version of An Inconvenient Truth… the world runs on fossil fuels — the cheap stuff is finite — there are no alternatives — you will soon be dead.

        Don’t imagine primary teachers would be downloading my version for the kiddies to watch …

        Every single year since that movie — we have burned more fossil fuels than the last…. EVERY SINGLE YEAR.

        Because if we don’t we die. Every bloody economist on the planet would acknowledge that inconvenient truth

        So pray tell why did Al make that movie — when we know – and the commanders know — god damn well that my version is the correct one?

        Create a fake problem — create fake solutions.

        It takes their mind off of the Truth that I have laid out — and with peak conventional hitting the sheeple needed something to distract them from the reality ….

        Look at the Mars story — how the f&*( does something so ridiculous get the front page? It belongs in The Onion … but hope — I saw MIT scientists discussing how to go about it on Bloomberg some months ago — top scientists discussing utter nonsense as if it was reality.

        You are being played — it is so obvious

  7. Fast Eddy says:

    Lensman commented on Researchers have been underestimating the cost of wind and solar.

    in response to Fast Eddy:

    Shouldn’t you have to pay a fee to be able to view Fast Eddy’s posts? Kinda like you have to pay to watch a boxing match — surely it is worth something to watch Fast Eddy beat the daylights out of DelusiSTANIS.

    Everything you have ever said is derivative. Nothing original.

    No Nobel for FE.

    Hang on …. Orlov was the first to mention the issue of nuclear power stations being a problem post BAU….

    However he was wrong. It would be a relatively simple matter to shift all hot fuel out of the power stations into fuel ponds in the days prior to the collapse of BAU….

    The real issue — which he failed to recognize — is that the fuel ponds are many thousands of times more dangerous than a reactor…

    In fact they represent extinction

    I will take my Doomsday Award for that original contribution to the discussion

    • louiswu says:

      “However he was wrong. It would be a relatively simple matter to shift all hot fuel out of the power stations into fuel ponds in the days prior to the collapse of BAU”
      Someone seriously believes this? Maybe a slim chance if everyone first admits that the collapse of BAU is inevitable and the process was started probably 20 years ago and it wouldn’t be simple no matter when it was done.

      • Fast Eddy says:

        It could be done — and it would be done — if the commanders thought it would help humans survive (after all – they do not want to emerge from their bunkers to be met with a mouthful of radiation)

        But it won’t be done — because the people with the power to make it happen — understand that is solves nothing…

        The spent fuel ponds are the extinction event — shuttering the plants is pointless….

        • doomphd says:

          as I’ve said before, why not make borate shakes in those ponds? do we have enough borate to make them? i think the water won’t have to circulate, if you add lots of borate, a major neutron absorber. it does stop the rod load/unload cycle, and it is an admission of societal failure. ah, there’s the rub.

          but, that’s what the Russians did at Chernobyl. pour lots of boron on the hot pile via choppers and then cover with concrete. let it sit for a few thousand years. meanwhile, observe interesting two, three-headed deer and bears evolve in area, like in that movie, the Island of Dr. Morreau.

          • Fast Eddy says:

            I dunno — why don’t you ring up the nuclear physicists who deal with such issues — and ask them why they don’t do this….

            Sometimes the best inventions are the simplest ones…. the one’s that leave you saying — why didn’t I think of that!

            • doomphd says:

              yeah, we need to get more heads looking at this than mine. there must also be a load of gamma, x-ray and high-energy beta radiation to deal with, and the heat being generated.

            • Fast Eddy says:

              Consider that the cores of Fukushima are only kept under control by pumping tonnes of sea water onto the area where they are located … every single day since the accident…

              A relatively minor problem compared to what is coming — and we have BAU fully function — yet we are unable to solve it….

            • doomphd says:

              we might start with a letter to Arnie Gunderson. he’s a well respected critic of Fukushima. let me outline something, post it here, and you (and others) can edit. please give me a day or two, i have its lots of deadlines to meet by end of this week. or you can start something, FE.

            • Fast Eddy says:

              I’m 99.99999999999% certain that there is nothing can be done with the spent fuel ponds… so will leave this to others to look into

  8. Harry Gibbs says:

    “Leading central banks now own a fifth of their governments’ total debt, a sign of the scale of the challenge they will face in unwinding unprecedented stimulus measures deployed over the past decade.

    “Since the financial crisis emerged, the world’s biggest central banks have carried out large-scale purchases of bonds and other securities in a bid to boost the global economy by driving down borrowing costs for households and businesses.

    “In total, the six central banks that have embarked on quantitative easing over the past decade — the US Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England, along with the Swiss and Swedish central banks — now hold more than $15tn of assets, according to analysis by the FT of IMF and central bank figures, more than four times the pre-crisis level.

    “Of this, more than $9tn is government bonds — one dollar in every five of the $46tn total outstanding debt owed by their governments.

    “The ECB’s total balance sheet recently topped that of the Fed in dollar terms. It now holds $4.9tn of assets, including nearly $2tn in eurozone government bonds.

    “The BoJ’s balance sheet has also just topped that of the Fed, with $4.53tn of holdings, of which 85 per cent are Japanese government securities.

    “The Fed’s balance sheet has expanded significantly several times in the past, including during the second world war when it soaked up debt sales in a bid to improve market conditions. But the current era is the first time in history that such a large group of central banks have undertaken such a substantial volume of co-ordinated buying over the space of nearly a decade…

    “Central banks’ bond buying has profoundly affected markets around the world, pushing investors into a hunt for yield that has resulted in an era of unprecedentedly low volatility, with junk bonds the best-performing asset since the financial crisis, cash flowing into emerging markets, and equity indices hitting a series of record highs…”

    https://www.ft.com/content/ae19e60e-81b0-11e7-94e2-c5b903247afd

    • Greg Machala says:

      “Challenge they will face in unwinding unprecedented stimulus ” – The Central Banks will not unwind anything. It is impossible. There is not enough energy or resources on planet Earth to back those stimulus dollars. There is a limit to growth. And the stimulus that cannot be unwound is a symptom of it. If we were not reaching limits, unwinding the stimulus would be easy since the economy would be all fired up and running on all cylinders by now.

      • Harry Gibbs says:

        Well put. You know we are in systemic crisis when years of historically low interest rates and trillions in stimulus do not generate a robust and holistic recovery, and when low oil and commodity prices do not encourage sufficient demand to rebalance markets.

    • Right. Low interest rates lead to high asset prices. That is why equity indices are hitting record highs (except today).

  9. Another bizarre case of our contemporary times for your attention..

    There has been a guy in Denmark building submarines diywise, successfully, depends how you count it, after a ~decade+ he progressed refining it each successive project to gen/ver4 of such ships and started to participated in diy suborbital rocketry as well. This culminated in sort of merger of efforts in which his sub was positioning floating launch platform for these rockets, eventually he started on his very own team of rocketry.

    Now here is the grand finale, few days ago, he gave a ride to a Swedish journalist girl, working for “trusty organizations” of TPTB such as NYT-Guardian-Vice News. For some unknown reason, the girl was immediately proclaimed as missing and in very short hours the sub captain was charged with homicide, mind you – no body no nothing. The case is being reported as he killed her again for unknown reason, supposedly damaged the evidence by scuttling/sinking the sub, and rescuing himself..

    PS mind you that fast paced investigative marvel is all taking place when Danish Police looks another way when Pakistani and other gangs are brutalizing the country

    PS2 just providing you with possible insight and clues into the priorities of the Deep State like entities, the pecking order inside the system, and what to expect from it all as we march further..

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