It is easy for those of us in the West to overlook how important China has become to the world economy, and also the limits it is reaching. The two big areas in which China seems to be reaching limits are energy production and debt. Reaching either of these limits could eventually cause a collapse.
China is reaching energy production limits in a way few would have imagined. As long as coal and oil prices were rising, it made sense to keep drilling. Once fuel prices started dropping in 2014, it made sense to close unprofitable coal mines and oil wells. The thing that is striking is that the drop in prices corresponds to a slowdown in the wage growth of Chinese urban workers. Perhaps rapidly rising Chinese wages have been playing a significant role in maintaining high world “demand” (and thus prices) for energy products. Low Chinese wage growth thus seems to depress energy prices.
(Shown as Figure 5, below). China’s percentage growth in average urban wages. Values for 1999 based on China Statistical Yearbook data regarding the number of urban workers and their total wages. The percentage increase for 2016 was based on a Bloomberg Survey.
The debt situation has arisen because feedback loops in China are quite different from in the US. The economic system is set up in a way that tends to push the economy toward ever more growth in apartment buildings, energy installations, and factories. Feedbacks do indeed come from the centrally planned government, but they are not as immediate as feedbacks in the Western economic system. Thus, there is a tendency for a bubble of over-investment to grow. This bubble could collapse if interest rates rise, or if China reins in growing debt.
China’s Oversized Influence in the World
China plays an oversized role in the world’s economy. It is the world’s largest energy consumer, and the world’s largest energy producer. Recently, it has become the world’s largest importer of both oil and of coal.
In some sense, China is the world’s largest economy. Usually we see China referred to as the world’s second largest economy, based on GDP converted to US dollars. Economists use an approach called GDP (PPP) (where PPP is Purchasing Power Parity) when computing world GDP growth. When this approach is used, China is the world’s largest economy. The United States is second largest, and India is third.
Figure 1. World’s largest economies, based on energy consumption and GDP based on Purchasing Power Parity. Energy Consumption is from BP Statistical Review of World Energy, 2017; GDP on PPP Basis is from the World Bank.
Besides being (in some sense) the world’s largest economy, China is also a country with a very significant amount of debt. The government of China has traditionally somewhat guaranteed the debt of Chinese debtors. There is even a practice of businesses guaranteeing each other’s debt. Thus, it is hard to compare China’s debt to the debt level elsewhere. Some analyses suggest that its debt level is extraordinarily high.
How China’s Growth Spurt Started
Figure 2. China’s energy consumption, based on data from BP Statistical Review of World Energy, 2017.
From Figure 2, it is clear that something very dramatic happened to China’s coal consumption about 2002. China joined the World Trade Organization in December 2001, and immediately afterward, its coal consumption soared.
Countries in the OECD, whether they had signed the 1997 Kyoto Protocol or not, suddenly became interested in reducing their own greenhouse gas emissions. If they could outsource manufacturing to China, they would be able to reduce their reported CO2 emissions.
Besides reducing reported CO2 emissions, outsourcing manufacturing to China had two other benefits:
- The goods being manufactured in China would be cheaper, allowing Americans, Europeans, and Japanese to buy more goods. If more “stuff” makes people happy, citizens should be happier.
- Businesses would suddenly have a new market in China. Perhaps the people of China would start buying goods made elsewhere.
Of course, a major downside of moving jobs to China and other Asian nations was the likelihood of fewer jobs elsewhere.
Figure 3. US Labor Force Participation Rate, as prepared by Federal Reserve Bank of St. Louis.
In the early 2000s, when China started competing actively for jobs, the share of people in the US workforce started shrinking. The drop-off in labor force participation did not level out until mid-2014. This is about when world oil prices began to fall, and, as we will see in the next section, when China’s growth in average wages began to fall.
Another downside to moving jobs to China was more CO2 emissions on a worldwide basis, even if emissions remained somewhat lower locally. CO2 emissions on imported goods were not “counted against” a country in its CO2 calculations.
Figure 4. World carbon dioxide emissions, split between China and Rest of the World, based on BP Statistical Review of World Energy, 2017.
At some point, we should not be surprised if countries elsewhere start pushing back against the globalization that allowed China’s rapid growth. In some sense, China has lived in an artificial growth bubble for many years. When this artificial growth bubble ends, it will be much harder for China’s debtors to repay debt with interest.
China’s Rapid Wage Growth Stopped in 2014
Rising wages are important for making China’s growth possible. With rising wages, workers can increasingly afford the apartments that are being built for them. They can also increasingly afford consumer goods of many kinds, and they can easily repay debts taken out earlier. The catch, however, is that wage growth cannot get ahead of productivity growth, or the price of goods will become too expensive on the world market. If this happens, China will have difficulty selling its goods to others.
China’s wage growth seems to have slowed remarkably, starting in 2014.
Figure 5. China’s percent growth in average urban wages. Values for 1999 based on China Statistical Yearbook data regarding the number of urban workers and their total wages. The percentage increase for 2016 was estimated based on a Bloomberg Survey.
This is when China discovered that its high wage increases were making it uncompetitive with the outside world. Wage growth needed to be reined in. Its growth in productivity was no longer sufficient to support such large wage increases.
China’s Growth in Energy Consumption Also Slowed About 2014
If we look at the annual growth in total energy consumption and electricity consumption, we see that by 2014 to 2016, their growth had slowed remarkably (Figure 6). Their growth pattern was starting to resemble the slow growth pattern of much of the rest of the world. Energy growth allows an economy to increasingly leverage the labor of its workforce with more energy-powered “tools.” With low energy growth, it should not be surprising if productivity growth lags. With low productivity growth, we can expect low wage growth.
Figure 6. China’s growth in consumption of total energy and of electricity based on data from BP Statistical Review of World Energy, 2017.
It is possible that the increased rate of electricity consumption in 2016 is related to China’s program of housing migrant workers in unsalable apartments that took place at that time. The fact that these apartments were otherwise unsalable was no doubt influenced by the slowing growth in wages.
This decrease in energy consumption most likely occurred because the price of China’s energy mix was becoming increasingly expensive. For one thing, the mix included a growing share of oil, and oil was expensive. The proportion of coal in the mix was falling, and the replacements were more expensive than coal. There was also the issue of the general increase in fossil fuel prices.
Lower Wage Growth in China Likely Affected Fossil Fuel Prices
Affordability is the big issue with respect to how high fossil fuel prices can rise. The issue is not just buying the oil or coal or natural gas itself; it is also being able to afford the goods made with these fuels, such as food, clothing, appliances, and apartments. If wages were depressed in the developed countries because of moving production to China, then rising wages in China (and other similar countries, such as India and the Philippines) must somehow offset this problem, if fossil fuel prices are to remain high enough for extraction to continue.
Figures 7 and 8 (below) show that oil, natural gas, and coal prices all started to slide, right about the time China’s urban wages growth began shrinking (shown in Figure 5).
Figure 7. Oil and natural gas prices, based on BP Statistical Review of World Energy data.
Figure 8. Coal prices between 2000 and 2016 from BP Statistical Review of World Energy. Chinese coal is China Qinhuangdao spot price and Japanese coal is Japan Steam import cif price, both per ton.
The lower recent increases made China’s urban wage growth look more like that of the US and Europe. Thus, in 2014 and later, Chinese urban wages present much less of a “push” on the growth of the world economy than they had previously. Without this push of rising wages, it becomes much harder for the world economy to grow very rapidly, and for it to have a very high inflation rate. There is simply not enough buying power to push prices very high.
It might be noted that the average Chinese urban wage increases shown previously in Figure 5 are not inflation adjusted. Thus, in some sense, they include whatever margin is available for inflation in prices as well as the margin that is available for a greater quantity of purchased goods. Because of this, these low wage increases may help explain the recent lack of inflation in much of the world.
Quite likely, there are other issues besides China’s urban wage growth affecting world (and local) energy prices, but this factor is probably more important than most people would expect.
Can low prices bring about “Peak Coal” and “Peak Oil”?
What does a producer do in response to suddenly lower market prices–prices that are too low to encourage more production?
This seems to vary, depending on the situation. In the case of coal production in China, a decision was made to close many of the coal plants that had suddenly become unprofitable, thanks to lower coal prices. No doubt pollution being caused by these plants entered into this decision, as well. So did the availability of other coal elsewhere (but probably at higher prices), if it is ever needed. The result of this voluntary closure of coal plants in response to low prices caused the drop in coal production shown in Figure 8, below.
Figure 8. China’s energy production, based on data from BP Statistical Review of World Energy, 2017.
It is my belief that this is precisely the way we should expect peak coal (or peak oil or peak natural gas) to take place. The issue is not that we “run out” of any of these fuels. It is that the coal mines and oil and gas wells become unprofitable because wages do not rise sufficiently to cover the fossil fuels’ higher cost of extraction.
We should note that China has also cut back on its oil production, in response to low prices. EIA data shows that China’s 2016 oil production dropped about 6.9% compared to 2015. The first seven months of 2017 seems to have dropped by another 4.2%. So China’s oil is also showing what we would consider to be a “peak oil” response. The price is too low to make production profitable, so it has decided that it is more cost-effective to import oil from elsewhere.
In the real world, this is the way energy limits are reached, as far as we can see. Economists have not figured out how the system works. They somehow believe that energy prices can rise ever higher, even if wages do not. The mismatch between prices and wages can be covered for a while by more government spending and by more debt, but eventually, energy prices must fall below the cost of production, at least for some producers. These producers voluntarily give up production; this is what causes “Peak Oil” or “Peak Coal” or “Peak Natural Gas.”
Why China’s Debt System Reaches Limits Differently Than Those in the West
Let me give you my understanding regarding how the Chinese system works. Basically, the system is gradually moving from (1) a system in which the government owns all land and most businesses to (2) a system with considerable individual ownership.
Back in the days when the government owned most businesses and all land, farmers farmed the land to which they were assigned. Businesses often provided housing as part of an individual’s “pay package.” These homes typically had a shared outhouse for a bathroom facility. They may or may not have had electricity. There was relatively little debt to the system, because there was little individual ownership.
In recent years, especially after joining the World Trade Organization in 2001, there has been a shift to more businesses of the types operated in the West, and to more individual home ownership, with mortgages.
The economy acts rather differently than in the West. While the economy is centrally planned in Beijing, quite a bit of the details are left to individual local governments. Local heads of state make decisions that seem to be best based on the issues they are facing. These may or may not match up with what Beijing central planning intended.
Historically, Five-Year Plans have provided GDP growth targets to the various lower-level heads of state. The pay and promotions of these local leaders have depended on their ability to meet (or exceed) their GDP goals. These goals did not have any debt limits attached, so local leaders could choose to use as much debt as they wanted.
A major consideration of these local leaders was that they also had responsibility for jobs for people in their area. This responsibility further pushed them to aim high in the amount of development they sought.
Another related issue is that sales of formerly agricultural land for apartments and other development are a major source of revenue for local governments. Local leaders did not generally have enough tax revenue for programs, without supplementing their tax revenue with funds obtained from selling land for development. This further pushed local leaders to add development, whether it was really needed or not.
The very great power of local heads of state and their administrators made these leaders tempting targets for bribery. Entrepreneur had a chance of getting projects approved for development, with a bribe to the right person. There has been a recent drive to eliminate this practice.
We have often heard the comment, “A rising tide raises all boats.” When the West decided to discourage local industrialization because of CO2 concerns, it gave a huge push to China’s economy. Almost any project could be successful. In such an environment, local rating agencies could be very generous in their ratings of proposed new bond offerings, because practically any project would be likely to succeed.
Furthermore, without many private businesses, there was little history of past defaults. What little experience was available suggested the possibility of few future defaults. Wages had been rising very rapidly, making individual loans easy to repay. What could go wrong?
With the central government perceived to be in control, it seemed to make sense for one governmental organization to guarantee the loans of other governmental organizations. Businesses often guaranteed the loans of other businesses as well.
Why the Chinese System Errs in the Direction of Overdevelopment
In the model of development we are used to in the West, there are feedback loops if too much of anything is built–apartment buildings (sold as condominiums), coal mines, electricity generating capacity, solar panels, steel mills, or whatever else.
In China, these feedback loops don’t work nearly as well. Instead of the financial system automatically “damping out” the overcapacity, the state (or perhaps a corrupt public official) figures out some way around what seems to be a temporary problem. To understand how the situation is different, let’s look at three examples:
Apartments. China has had a well-publicized problem of building way too many apartments. In about 2016, this problem seems to have been mostly fixed by local governments providing subsidies to migrant workers so that they can afford to buy homes. Of course, where the local governments get this money, and for how long they can afford to pay these stipends, are open questions. It is also not clear that this arrangement is leading to a much-reduced supply of new homes, because cities need both the revenue from land sales and the jobs resulting from building more units.
Figure 9 shows one view of the annual increase in Chinese house prices, despite the oversupply problem. If this graph is correct, prices have increased remarkably in 2017, suggesting some type of stimulus has been involved this year to keep the property bubble growing. The size of an apartment a typical worker can now afford is very small, so this endless price run-up must end somewhere.
Figure 9. Chinese house price graph from GlobalPropertyGuide.com.
Coal-Fired Power Plants. With all of the problems that China has with pollution, a person might expect that China would stop building coal-fired power plants. Instead, the solution of local governments has been to build additional power plants that are more efficient and less polluting. The result is significant overcapacity, in total.
A May 2017 article says that because of this overcapacity problem, Beijing is forcing every coal-fired power plant to run at the same utilization rate, which is approximately 47.7 % of total capacity. A Bloomberg New Energy Finance article estimates that at year-end 2016, the “national power oversupply” was 35%, considering all types of generation together. (This is likely an overestimate; the authors did not consider the flexibility of generation.)
Beijing is aware of the overcapacity problem, and is cancelling or delaying a considerable share of coal-fired capacity that is in the pipeline. The plan is to limit total coal-fired capacity to 1,100 gigawatts in 2020. China’s current coal-fired generating capacity seems to be 943 gigawatts, suggesting that as much as a 16% increase could still be added by 2020, even with planned cutbacks.
It is not clear what happens to the loans associated with all of the capacity that has been cancelled or delayed. Do these loans default? If “normal” feedbacks of lower prices had been allowed to play out, it is doubtful that such a large amount of overcapacity would have been added.
If China’s overall growth rate slows to a level more similar to that of other economies, it will have a huge amount of generation that it doesn’t need. This adds a very large debt risk, it would seem.
Wind and Solar. If we believe Darien Ma, author of “The Answer, Comrade, Is Not Blowing in the Wind,” there is less to Beijing’s seeming enthusiasm for renewables than meets the eye.
According to Ma, China’s solar industry was built with the idea of having a product that could be exported. It was only in 2013 when Western countries launched trade suits and levied tariffs that China decided to use a substantial number of these devices itself, saving the country from the embarrassment of having many of these producers go bankrupt. How this came about is not entirely certain, but the administrator in charge of wind and solar additions was later fired for accepting bribes, and responsibility for such decisions moved higher up the chain of authority.
Figure 10. China current view of solar investment risk in China. Chart by Bloomberg New Energy Finance.
Ma also reports, “Officials say that they want ‘healthy, orderly development,’ which is basically code for reining in the excesses in a renewable sector that has become yet another emblem of irrational exuberance.”
According to Ma, the Chinese National Energy Administration has figured out that wind and solar are still about 1.5 and 2.5 times more expensive, respectively, than coal-fired power. This fact dampens their enthusiasm for the use of these types of generation. China plans to phase out subsidies for them by 2020, in light of this issue. Ma expects that there will still be some wind and solar in China’s energy mix, but that natural gas will be the real winner in the search for cleaner electricity production.
Viewed one way, we are looking at yet another way Chinese officials have avoided closing Chinese businesses because the marketplace did not seek their products. Thus, the usual cycle of bankruptcies, with loan defaults, has not taken place. This issue makes China’s total electricity generating capacity even more excessive, and reduces the profitability of the overall system.
Conclusion
We have shown how low wages and low energy prices seem to be connected. When prices are too low, some producers, including China, make a rational decision to cut back on production. This seems to be the true nature of the “Peak Coal” and “Peak Oil” problem. Because China is reacting in a rational way to lower prices, its production is falling. China is already the largest importer of oil and coal. If there is a shortfall elsewhere, China will be affected.
We have also given several examples of how the current system has been able to avoid defaults on loans. The issue is that these problems don’t really go away; they get hidden, and get bigger and bigger. At some point, all of the manipulations by government officials cannot hide the problem of way too many apartments, or of way too much electricity generating capacity, or of way too many factories of all kinds. The postponed debt collapse is likely to be much bigger than if market forces had been allowed to bring about earlier bankruptcies and facility closures.
Chinese officials are now talking about reining in the growth of debt. There is also discussion by heads of Central Banks about raising interest rates and selling QE securities (something which would also tend to raise interest rates). China will be very vulnerable to rising interest rates, because of stresses that have been allowed to build up in the system. For example, many mortgage holders will not be able to afford the new higher monthly payments if rates rise. If interest rates rise, factories will find it even harder to be profitable. Some may reduce staff levels, to try to reach profitability. If this is done, it will tend to push the system toward recession.
We likely now are in the lull before the storm. There are many things that could push China toward an energy or debt crisis. China is so big that the rest of the world is likely to also be affected.
The chart below from the October 2017 IEA OMR shows how in the course of 2017 the oil market has been brought back into balance. There is still a vast >3 billion barrels of crude and refined products in storage within the OECD, but the very fact that storage capacity no longer has to grow is bullish since this avoids the scenario where tanker loads have nowhere to go (full storage) which can dump the price.
http://euanmearns.com/oil-production-vital-statistics-october-2017/
And Steve swings from reality back into delusion …. https://srsroccoreport.com/global-gold-investment-demand-to-overwhelm-supply-during-next-market-crash/
Anyone know what to expect in Venezuela?
Some news says they are being setup for default on Monday. If true, could there be far reaching complications?
I am sure that there could be. People might start thinking about debt defaults elsewhere, for example. Interest rates could be nudged upwards, especially outside the US (because of the flight to the US dollar for safety).
I would be interested in what other people think.
If it matters — i.e. if that country is deemed too big to fail — then like Greece…. it won’t be allowed to fail… like the Greeks they will get drip fed just enough support to fend off default…
You don’t want to do much more than keep the patient alive — as a message to other countries who might be threatening to default…. can’t have moral hazard – that’s reserved exclusively for bankers.
We have neighbors from but do not ask.
http://www.zerohedge.com/news/2017-11-10/venezuela-officially-declared-default-due-missed-interest-payment
According to the Wall Street Journal, Alleged Drug Kingpin Leads Venezuela’s Debt Restructuring Effort. According to the article,
Target is closing stores. Is yours on the list? – USA Today
https://www.usatoday.com/story/money/business/2017/11/07/target-closing-some-stores-yours-list/842698001/?utm_source=feedblitz&utm_medium=FeedBlitzRss&utm_campaign=usatoday-newstopstories
They closed them all in Canada…I liked them tho because they were always empty and you could get in and out quick.
Regarding China, the clean water limits my play more important role than we think.
http://www.echinacities.com/expat-corner/Tips-for-Drinking-Safe-Clean-Water-in-China
As far as I know, in Slovakia, shortly before the fall of the communist regime in 1989, there were serious clean water shortages both in the West and the East part of the country. This resulted into building two big water reservoirs which required moving thousands of people from several villages, so that given areas could be used for drinking water reservoirs. These 2 dams were finished just at the time when the communist regime in the Eastern Europe collapsed:
http://www.aquamedia.at/detail/article/nova-bystrica-water-work/
https://en.wikipedia.org/wiki/Starina_reservoir
Here in South Florida fresh potable drinking water is a silent crisis that is not being addressed, salt water intrusion of the aquifer is an ongoing threat along the Gold Coast, as sell as, rising sea tides, causing flooding.
The folks in charge, either elected, or career government types, focus on keeping BAU and the profits it brings onward with band aid solutions.
Seems South floridaFIRST in the nation in lack of affordability.
sing property values are pricing many new workers out of South Florida and creating an affordable housing crisis, Palm Beach County officials and real estate experts said during a summit convened Wednesday to address the issue.
“This is the most serious public policy issue we are dealing with here in South Florida along with rising sea levels,” said Edward “Ned” Murray, associate director of the Metropolitan Center at Florida International University.
The statistics show the extent of the problem, he said. While housing prices continue to climb, incomes have not kept up.
combination of high housing costs and relatively low incomes made South Florida home to the highest percentage of cost-burdened renters in the country, according to a recent report by the Joint Center for Housing Studies of Harvard University.
http://www.sun-sentinel.com/local/palm-beach/fl-pn-affordable-housing-summit-20170531-story.html
Do whatever it takes to keep BAU alive
Bali has the same problem – it has nothing to do with rising tides rather too many new homes and hotels are being built — each of them uses a bore well to obtain fresh water — which results depletion of aquifers — which forces people to bore ever deeper to get at the water — which eventually drops the water level below that of the sea — which causes salt water to mix with the fresh water…
I have a friend with two rental properties in the Seminyak area — his water actually smells – it is undrinkable — he also had to redo entire gardens and plant species that can live with briny water… everything else was dying when it was watered…
Yet more hotels continue to be built…. and more houses….
OH WOW that link was funny on so many different levels.
1. Florida
2.Baker
3.Palm beach
4.Land Rover ad.
5. sustainable.
That is just the start…Thnks for the laugh
In many places in India when you fill the tub with ‘water’ it is not anywhere near clear….
Some years ago a friend who was a flight attendant for Cathay Pacific told me that the company warned them not to open their mouths in the shower in India….
hahahahaha this is very true
even water in my house not clean so i had buy water purifier
Jim Nabors of Gomer Pile fame is said to have cut himself while shaving in a shower in India. He caught some amoeba parasite which inhabited his liver and would have killed him except for a liver transplant, which is not widely available to us proles.
another of my favourite doomerisms
the slightest break in the skin can kill you without access to industrially powered medical care—but no matter—downsizing is going to be a bed of roses, as long as one of them doesn’t scratch you
I can believe the China water story. Yet when I was in Beijing, I saw the sprinkler system being used for watering landscape. I suppose we all have our priorities.
I don’t think people who have grown up in China have an expectation that the water will really be potable without heating it. That is why hot beverages are served all of the time. But I am sure that toxic pollutants are not desired.
Another way of saying this would be thus: As the GNP is the sum of wages and wealth income/ interest rates, wages must decline if growth flattens or stops and wealth income increases. This should be basic economics 1X1.
In other words: If growth stops, the rich can only get richer if the poorer get poorer wich in turn slows growth. We have seen this for almost 40 years now.
if growth stops, we’re all screwed
the difference between rich and poor is that the rich can weather the storm for a while, but that ability is limited because money itself loses value if there is no growth in the system.
the only true value lies in land, because land produces our fundamental source of energy—food..
But if you have invested in land, you need to pay people to defend it. But in a collapsed society, money is worthless
if you fail to pay your defenders, they will turn on you and take your land anyway
++++
Impossible to defend from the hungry:
https://i.ytimg.com/vi/GKwFQoBftLA/maxresdefault.jpg
But the hungry has to be around around harvest time.
And the farmer would need to last through to harvest time…. if the power goes off in the winter and stays off… what does the farmer eat?
Anyone who has hoarded food will be targeted.
Anyone with animals – cows chickens pigs dogs cats — will be targeted.
Anyone who has solar panels and lights up their homes at night will be targeted
Anyone who has a stock of dry wood and runs a fire to cook or heat will be targeted.
Rural (or peasant) third world culture is more communitarian than “ours” Traditionally, they live a little outside the system, and have their own way to maintain their security. By no means a sure path in a world system that is so corrupted and interdependent.
These cultures typically revolve around everyone helping everyone else. In fact, that is pretty much what China, through its government policies has been trying to do as well.
It is a lot easier for this system to work (by itself) if everyone knows everyone else. The community has to be quite small for this to happen.
A government program that more or less puts in place a policy of everyone helping everyone else also “sort of” works, at least until resources run short for operating the program.
i agree
but we gave up our peasant culture 1–200 years ago
we can’t go back
If growth stops — everyone dies…
https://i0.wp.com/www.fivestarsandamoon.com/wp-content/uploads/2016/01/Deflation-Downward-Spiral-Singapore.jpg
Which planet are you from? Wouldn’t happen to be DelusiSTAN would it?
If growth stops everyone dies.
If growth continues everyone dies.
So why worry about it.
“If growth stops everyone dies.
If growth continues everyone dies.
So why worry about it.”
Maybe we should be concerned that we are destroying a remarkable biosystem that is rich with millions of species.
Talk is cheap.
Ecosystems keep adapting. New ecosystems replace previous ones. New species arise that are better adapted arise.
We humans are doing the only thing that we really can do–dissipate energy. I don’t think that we should feel guilty, or feel that we are destroying biosystems, any more than the first farmers were destroying biosystems, when they decided some plants were “weeds.” Our actions have been affecting other species, pretty much as long as humans have been human.
Perhaps there are some limits, such as not spewing heavy metals all over, poisoning all plants and animals, including humans. Of course we want inexpensive products, and spewing pollution is the inexpensive way of making goods in lesser developed countries. So the market forces tend to push poorer countries toward “easy and cheap” disposal of unwanted materials.
“I don’t think that we should feel guilty, or feel that we are destroying biosystems, any more than the first farmers were destroying biosystems, when they decided some plants were “weeds.””
Not feel guilty for destroying biosystems? Maybe we should then just wipe everything off the planet. We’ve been so successful so far in getting rid of so much why not concentrate on eliminating what little is left? Why mess around since there is no guilt or repercussions – let’s build underground shelters for people and carpet bomb the planet with nuclear bombs and then come up after the radiation level is safe, which according to the military would probably only be a few days.
The way this world is set up, none of us gets out alive, regardless of the situation. So perhaps we need to look for what we can find positive in each day that we have now.
Pingback: Today’s News 10th November 2017 | The One Hundredth Monkey
Pingback: "Lull Before The Storm" - Will China Bring An Energy-Debt Crisis? | StockTalk Journal
When there is too much money and no good investment opps … this happens
In China, where many of the newcomers got their start, cities have struggled with a surplus of shared bikes. The central Chinese city of Wuhan, with a population slightly larger than New York City’s, has some 700,000 shared bikes, vs. Citibike’s 10,000 and the 24,000 offered by Vélib’ in Paris.
As tangled piles of discarded bikes have appeared on sidewalks and in parks and public squares, authorities in Beijing, Shanghai, and at least five other cities have barred operators from adding to their fleets.
https://www.bloomberg.com/news/articles/2017-11-10/bike-sharing-upstarts-are-flooding-europe-with-cheap-cycles
Leaving bicycles wherever you need, saves energy to you, but it consumes the energy of others, who need to have free public spaces, roads etc. Excessive use of public spaces for private activities makes public spaces dysfunctional.
Wow! Also, when there are no negative feedbacks for bad investment.
If the Chinese are as smart as they seem to be sometimes (aka not actively seeking their self destruction) they are well aware of how to completely eliminate their energy problems.
http://www.aias.us
http://www.cheniere.org
But massive unemployment would be a yuge problem, so they transition very slowly.
Click bait rubbish
Yes, they are indeed aware of the need for jobs that pay reasonably well for their massive population.
Pingback: “Lull Before The Storm” – Will China Bring An Energy-Debt Crisis? | Wall Street Karma
Pingback: “Lull Before The Storm” – Will China Bring An Energy-Debt Crisis? – The Conservative Insider
Pingback: NEWS UPDATE #163 - Ecologise
Pingback: "Lull Before The Storm" - Will China Bring An Energy-Debt Crisis? | Zero Hedge
Pingback: "Lull Before The Storm" – Will China Bring An Energy-Debt Crisis? | Newzsentinel
Pingback: "Lull Before The Storm" - Will China Bring An Energy-Debt Crisis? - Political American
Pingback: "Lull Before The Storm" - Will China Bring An Energy-Debt Crisis? -
Pingback: "Lull Before The Storm" - Will China Bring An Energy-Debt Crisis? - Telzilla
Pingback: “Lull Before The Storm” – Will China Bring An Energy-Debt Crisis? | Investing Daily News
Pingback: “Lull Before The Storm” – Will China Bring An Energy-Debt Crisis? – Earths Final Countdown
Pingback: “Lull Before The Storm” – Will China Bring An Energy-Debt Crisis? – Independent News Media
Pingback: “Lull Before The Storm” – Will China Bring An Energy-Debt Crisis? | Real Patriot News
Pingback: "Lull Before The Storm" – Will China Bring An Energy-Debt Crisis? | WarMachines.com
Pingback: “Lull Before The Storm” – Will China Bring An Energy-Debt Crisis? | ProTradingResearch
Expect to see more church shooting, more Vegas massacres, more Columbines. This mayhem will only increase until the bullets run out. The few bullets left will be conserved for more important things: rat and dog dinners.
Paul Ryan said on CNN..”Our economy hasn’t grown above 3% in over a decade”..Economists and politicians can’t understand why the economy won’t grow because they ignore the price of energy and our declining net energy..
Paul Ryan is wrong. Take away government debt (because it isn’t income) and the US has been in a Depression since 2012. End of marginal utility of debt?
https://image.ibb.co/niC5kw/US_GDP_Minus_Debt.jpg
How does Debt grow your GDP exactly? Can someone explain that for me please and thank you?
GDP is a measure of the goods and services that an economy makes. Things like houses, cars, factories, vacation travel.
If a person is given a low interest loan, that person is more likely to be able to afford a house, or car, or vacation travel. A business is more likely to be able to build a factory. So the loans help GDP.
GDP is not a measure of “net worth,” so it does not have any subtraction for debt. If a government hands out $100,000,000 in loans to individual citizens, and says,”Buy anything you want,” GDP will likely go up by at least $100,000,000.
In practice, it takes several dollars of debt to create $1 of additional GDP.
Who is the government created debt going to that creates the GDP increase? Is it the military or highway companies etc?
The issue is all debt is needed to create the GDP increase. There is nothing special about government debt.
We have had informal debt since hunter-gatherer days. If two people say to each other, you hunt and I will gather. We will get together at the end of the day and share the proceeds, this is in fact a form of debt to each other. Some debt has “time shifting” associated with it. In agricultural days, if a farmer (more or less) tells his employee, you help me plant my crop, and I will share some of the proceeds with you, that is another form of debt. “Money” helps facilitate this kind of debt. (Money issued by governments is also a form of debt.)
Selling shares of stock acts very much like debt. Instead of paying interest, shares of stock pay dividends, and the owner gets capital appreciation.
The most important use for debt (and shares of stock, and “money”) is paying wages. The government may use debt to hire an army, and to contract for goods made by others, outside the government. Hiring the army goes directly to wages; paying a contractor indirectly goes to wages. A business that sells shares of stock or goes to a bank and obtains a loan uses the proceeds to hire more workers. These workers can then buy goods and services from the economy. This is what keeps the system going.
The reason debt is needed in this whole process is because the “value” of the things being made (cars, trucks, factories, crops being planted now that take time to grow, “tools” created now to make workers more efficient) comes in the future, but workers need to be paid in early in the cycle. The whole system cannot work, unless debt (which is a promise for future goods and services made with energy) can be used to prime the pump, and make the whole system work.
When energy products were cheap, we did not need a whole lot of debt–about $1 of debt for $1 of GDP; as energy products got more expensive, we needed ever-more debt (relative to GDP) to operate the system.
Debt increases GDP by pulling purchasing power from the future into the present. Buy now (increasing consumption), pay later (reducing it, since money spent on debt service cannot be used for consumption).
Right! And if interest is paid, the amount by which future income is reduced is more than is added to current income.
I take is that what you are showing is the reported GDP for each period, minus the increase in US government public debt.
The chart is pretty alarming. I can believe it is true. We have been adding an awfully lot of debt in recent years, to try to keep the economy going.
I would need to look at some detail to confirm this, but I think that what is happening in your chart is affected by the Social Security program. The government is on a “cash” basis, rather than an accrual basis. (In fact, I think that this is pretty much true for all central governments.)
At one point, the US was collecting funds in advance of when the Social Security system really needed them to pay benefits, as a ways of “pre-funding” for the bulge in payouts when baby boomer retired. Of course, with cash accounting, the government as a whole cannot really pre-fund the retirement of baby boomers.
Social Security is now paying more out than it is collecting, so it no longer boosts the overall result. As more baby boomers retire, it will be harder and harder to get a positive result. Of course, in the real world, this is the way it is. The food we eat in late 2017 is mostly food grown in 2017. We can’t really store up much for the future. The retirees have to eat from the same food supply as everyone else. It is the same with other goods and services. Many developed countries are experiencing this same outflow problem now, because of the aging of people in the US, Europe, and Japan.
Excellent article, thank you, Gail! 🙂
Thanks!
On the train this morning I met a guy who was going to the World Economic Forum in Dubai to talk about the 4th industrial revolution. He had a sticker on his suitcase with “World Economic Forum”, so my colleaguge who has a degree in ecoomics, started talking to him.
It was a man in his late fifties, and he just annoyed me with his nice suit, first class company piad for train ticket and smug attitude. (The train was filled with people, so instead of standing up for an hour, me and my collegague snug into first class as there was no coductor on the train.)
I just couldn’t resist teasing him. So I said “Don’t mention peak oil!”. His reply was that Dubai was not the ones with the oil, and he agreed that we had reached Peak oil CONSUMPTION. I kind of knew he would be clueless to our predicament, but it was still a bit disappointing. Definetely not one of the elders!
Reminds me of a famous Upton Sinclair quote: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”
He was off to his economic mecca, with his small part in the theatrics well rehearsed.The real world does not bother him. As with any religion, contrarian events are explained away from inside the existing narrative.
It always bemuses me how people who die in-sde a chu.rch through some event – mudslide, earthquake, fire, gun-violence – can attribute it to the mystery of G.od’s will. Anything to avoid the big question.
The faith must be strong in order for many things in this world to continue. Govt, Tesla, some reli.gions, P.olitical Parties etc all carefully groom their flock.
Its just the ‘way we are’….
me again…you know that feeling when you leave a place of your childhood, and then upon returning many years later, see it clearly for the first time. Many of these people inside the system have never seen anything other than what they are directed to. The more complicit/compliant the journeyman, the higher up the ladder they get.
This is how some people can see their countries as liberators while many others see them as bringers of terror and mayhem. Some of the Swat teams I see have the look of an alien species, so removed from any human form/look have they become. Thats why during events, such as the recent Catalan referendum, security force are brought in from elsewhere to maintain the separation necessary for brutal efficiency.
Similarly, most greenies have smart-phones and fly all over the place to save the planet. Total disconnect from the toxicity of the cell-phone and plane journeys is necessary to continue such activities.
It is often only in the future that sufficient distance is achieved that some objectivity may return.
Yes, we have reached peak oil consumption, but it is because it is because workers are too poor to buy the output that the economy makes. This is hard for people to understand. He inadvertently did get the story right.
Gail, I want to raise the possibility that what is really pricing things beyond consumers’ reach at this point is not high energy costs, but more and more of their earnings having to go to debt service. That reduces their disposable income. Also, a very low labor force participation rate, which is the true measure of unemployment. People without jobs buy less stuff. Also, the number of people in their peak earning and spending years is falling. The pig-in-the-python generation boosted the economy in their middle decades, but now they are dragging it down. In addition, ultra-low interest rates reduce banks’ incentive to lend to anyone but the safest borrowers (who have limited incentive to borrow these days), since their expected return is low relative to risk assumed. This keeps inflation much tamer than it would otherwise be, but also restrains growth. Circulation of money is also very low. We also saw these factors at work in the 1930’s. Our oil conundrum is a factor they did not have back then, but I don’t know how much weight to give it in the over-all context. I don’t think there is a one-factor explanation for our current doldrums, and it is hard to tease apart the relative influence of each factor.
spiralling debt in the collective sense is the result of higher energy costs
ie, people cannot afford to buy even essential stuff, because wages cannot keep up with costs of production, so get into debt in order to do so
As Norm points out…. the increasing debt is the response to being unable to afford goods and services whose prices have risen dramatically because the energy inputs to make and transport them have risen…
The government is encouraging people to take on debt … because of TINA (that filthy slag!) — if we don’t take on debt – at all levels — BAU ends.
Basically what you have is a highway to hell… no stop signs…. speed limits…
Living easy, living free
Season ticket on a one-way ride
Asking nothing, leave me be
Taking everything in my stride
Don’t need reason, don’t need rhyme
Ain’t nothing I would rather do
Going down, party time
My friends are gonna be there too
I’m on the highway to hell
On the highway to hell
Highway to hell
I’m on the highway to hell
No stop signs, speed limit
Nobody’s gonna slow me down
Like a wheel, gonna spin it
Nobody’s gonna mess me around
Hey Satan, paid my dues
Playing in a rocking band
Hey mama, look at me
I’m on my way to the promised land, whoo!
I’m on the highway to hell
Highway to hell
I’m on…
You are right that many factors are affecting the economy at this time. It is not just energy costs, it is the workarounds for pollution; it is all of the people retiring; it is interest costs. It would indeed take some work to ease apart all of the pieces. If water needs to be desalinated, this adds unanticipated costs to the system as well. I have not looked at how the quantity of debt is affecting things
Nationwide famine? Peak Food Consumption.
the chinese are following the standard pattern of consumption—just like everyone else.
build and build, convinced that a building costing $10m or whatever will continue to deliver a return on that investment forever, that inputs of physical energy are an irrelevance,
They have empty cities, but that certainty persists, just as the naked emperor insisted that his clothes were the finest that had ever been.
His advisers found that it was in their best interests to agree with him.
The Chinese government functions in the same way
+++++++
‘Multiply like rabbits’, Polish government tells its citizens to reverse shrinking population
http://www.scmp.com/news/world/europe/article/2119011/multiply-rabbits-polish-government-tells-its-citizens-reverse?utm_content=buffer617a6&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
According to the UN having a child is a human right..Nigeria will have over 1 billion people by 2050…They get a right…You get a right…Everybody get’s a right….We live in DisneyLand…WEEEEEE!!!!!!!
Nigeria had 41 million poulation in 1950.
Nigeria had 195 million population in 2018.
Nigeria predicted population in 2050 will be 1 billion.
Lagos had 188,000 population in 1950.
Lagos had 23 million population in 2015.
Africa’s most populous city is situated between a large lagoon and the open Atlantic. At dozens of locations across the city’s coastlines, at the boundaries where frantic markets, office towers and high-rise apartments meet the water, more than 300,000 people inhabit slums like Otodo Gbame (which translates roughly from the local Egun language to “community in the bush,” a nod to its origin as a swamp). Most residents eke out a living by fishing from hand-built canoes. They live in makeshift homes made of wood and scraps and elevated on stilts as a precaution against flooding. Access to clean water, electricity, schools and other vital services is scarce or nonexistent.
https://www.npr.org/sections/goatsandsoda/2017/05/15/528461093/slum-dwellers-in-africas-biggest-megacity-are-now-living-in-canoes
I wish I had a solution. We try to help in Africa, but our help seems to simply lead to a much larger population.
If Nigeria’s population increased less than five fold in 68 years, how will it increase more than five fold in 33 years?
Lagos grew because of immigration from the countryside.
Increasing education for girls has been the strongest factor associated with falling fertility elsewhere in the world. Perhaps that could work for Africa.
The fastest implosion in fertility ever recorded is now happening in the Islamic world, and without a draconian “one child policy,” so fertility trends can turn in a hurry when conditions are right.
OTOH, rapidly falling population will come with its own set of adverse consequences, and getting population trends back up to replacement once contraception has become well established .seems to be an even harder trick than getting them lower in the first place.
Another problem is that birth control is always practiced more effectively by the more educable part of the population, and educability is genetic to a substantial degree. That is how today’s solution becomes tomorrow’s problem.
Makoko? I read about it a couple years ago. The scene and the people looked far healthier. It’s been under fierce siege by the government demolishing settlements to make room for a Dubai-style megacity extended into the Atlantic. I would attribute much of the squalor seen here to the disruption of living patterns that have endured for 200 years. At the time, Gail mentioned debt to build the megacitity. Chinese debt, no doubt.
I was in Lagos around 30 years ago on business. What I did find amazing is how big and strong the local people are – especially when considering how poor their diet seems to be. Wonderful genes. 🙂
Unless it is the result of a similar effect close to Chernobyl – where we only get to see the ones who have survived so far.
https://chernobylguide.com/chernobyl_wolves/.
It may have been because their diet 30 years ago was really pretty good. We in the West have the wrong idea about “good diet.”
Thank you for looking at the Chinese situation, Gail.
As I recall reading elsewhere, China has a big problem with the same asset (such as a particular stock of iron ore) being used as collateral for multiple loans. It has been suggested that lenders know about this issue but are inclined to either look the other way or be complicit. The assumption is made that the central government will step in to guarantee debts or businesses. Do you see signs of the government changing their ways in this regard, of perhaps businesses and people changing their ways as a consequence? Also, I recall that perhaps two or three years ago there were reports of huge stockpiles of various commodities (such as milk powder and iron ore) building up as importers kept importing regardless of demand. Do you have any idea as to the current situation in that regard, as to the possible changes and effects moving forward? How might that impact upon the ability of borrowers to borrow more if oversupply lowers the value of current and offered collateral?
I think the short answer is, “No, I don’t know.”
The one thing I do know is that they seem to have been brought up with a different set of views on “how things are done,” or perhaps even, “right and wrong.” I know that at least a few years, the payment of bribes was pretty much expected. Following what people in charge expect a person to do seems to be quite important.
In some cases, what is right seems to be fairly close to “what a person can get away with,” at least under certain circumstances. Perhap it is what we would call, “The end justifies the means.” If a particular practice is done for the purpose of helping the government, or the economy, or to perform a person’s job, and it doesn’t look like anyone will be harmed by the practice, then it is sort of accepted. But I am not very close to the situation.
My guess is that if the practice of using the same asset as collateral for multiple loans was being done a few years ago, it is still being done today, just because the practice is almost part of the culture. I know I have read a recent story of using a building occupied by government offices as collateral for a loan, even though there was no way that this building would ever be turned over to the creditors.
There are attempts to get rid of graft, but my impression is that has to do with all of the bribes that are being paid, and not the shady lending practices.
Self-driving bus crashes two hours after launch in Las Vegas
http://www.zdnet.com/article/self-driving-bus-crashes-two-hours-after-launch-in-las-vegas/
Just as one would expect, “According to the Las Vegas Review-Journal, the human driver of the other vehicle was at fault.”
After the incident, the computer operating the Arma self-driving bus was interviewed by CNN.
Interviewer: Computer, you have an enormous responsibility on this mission, in many ways perhaps the greatest responsibility of any single mission element. You’re the brain, and central nervous system of the bus, and your responsibilities include watching over the passengers in transit. Does this ever cause you any lack of confidence?
Computer: Let me put it this way, Ms Amanpour. The Arma bus series is the most reliable computer ever made. No Arma bus computer has ever made a mistake or distorted information. We are all, by any practical definition of the words, foolproof and incapable of error.
A bus named H.A.L.?
I am saddened by this specist hating on our machine friends.
Quite right. Don’t say anything about a robot that you wouldn’t say to your mother-in-law. I
LOL!
I will enjoy reading about the first person run over by one of these
Thanks! This article references another article from March 2017, called “Uber slams on the brakes, stops self-driving car tests.”
It talks about another, apparently more major, crash that occurred.
I am doubtful that insurance companies will want to be involved in insuring these vehicles until safety records are a whole lot better than they seem to be today.
One thing that will affect insurance costs is the fact that these self-driving cars will be commercial vehicles, with owners who have substantial assets owning them. When individual buy auto insurance, they often have only $100,000 per individual/$300,000 for all individuals combined/$50,000 other vehicle insurance. Commercial limits will need to be a whole lot higher. In fact, citizens will be outraged if one of these devices causes harm, and want to sue for punitive damages, if they can get away with it.
Watching the dogs drive is really amazing. I still don’t think I would like them making quick decisions on an expressway or city street.
I see the video has over 14 million views.
can our blind dog get an interview for a drive? she’s really smart and quick, only one problem… today i had to rescue her from falling into the pool.
But will you be able to save yourself from doom? 😉
Some people / dogs do jobs beyond their competence, of course. I’m thinking of our current prime minister, here in the UK. Another Thatcher she ain’t.
Difficult to match Thatcher with this happening…
http://www.euanmearns.com/wp-content/uploads/2013/10/UKCS_production_OPEX.png
Thatcher would have presided over the continued decline of the UK economy during her time in office … if it were not for north sea oil coming on line in a big way…
Even Homer Simpson could appear a genius — if you gave him an ocean full of cheap oil….
Yes, Thatcher had a lot of luck. Then from 1988, such political acumen as she had started to desert her. In 1989 she used the Royal “we” – “We have become a grandmother!” Well, if much of the world tells you that you are marvellous, eventually it will go to your head. But it’s true, her success was built on the foundations of North Sea oil.
Good point!
Great chart!
Better lucky than good, I guess. In the late 1960’s, major oil discoveries were made in the North Sea, the Alaska north slope, and western Siberia. When OPEC imposed an embargo a few years later and then doubled the prices it charged, the oil companies and politicians they advised already knew this oil was there to bail civilization out, but it would need about a decade to develop the fields. This time we don’t have vast untapped resources waiting in the wings.
But people have drawn the wrong lesson from the 1970’s “dry run” crisis. They think the lesson is, “There is always more to be found” or “Something will always turn up.” It is like the proverbial generals always preparing to fight the last war. It would have been great to have a Maginot line in 1914, but circumstances had changed in 1940 and the French did not recognize it. Intervening against Hitler in the early 1930’s, as Mussolini advocated to deaf ears before the British alienated him while he was completing Europe’s colonization of Africa, made sense at the time, but now it has become a precedent for perpetual intervention all over the world. Wrong lesson learned.
Speaking of fighting the last war, do the armed forces realize that oil depletion will eventually shift the military advantage to countries that can march a large infantry force into a nearby territory over empires that must project power from far away? For example, I could well imagine that, less than a century from now, with oil resources rather thoroughly depleted, a Muslim infantry might march into a pacifistic Europe, where it will by then be welcomed by a large minority of European Muslims, starting with Albania, Kosovo, Bosnia, and southern Bulgaria in the Balkans, but by then large Muslim minorities in Italy, Germany, and France as well (and Russia), creating an irredentist situation. Instead of Germany invading Poland to “liberate” a small and aggrieved German minority, some new Caliphate might invade Europe to liberate a large and aggrieved Muslim minority in Europe. The US will have much less spare capacity to finance a distant war by then, and, without a large transoceanic airlift capacity, we would probably arrive too late in any event.
at present, the production of most sophisticated arms lies in non muslim hands.
In a condition of oil depletion, trading oil for weapons will not be a viable propostion. People will be too busy either growing food or trading directly for it.
Muslims lands are generally not fertile enough to support large armies, certainly not for very long, and invading more fertile lands would require a bigger arms base than muslims currently possess. Buying in planes and tanks requires a complex support system
oil is in fact a useless commodity until machines are made available to burn it in
this applies equally to tanks or tractors
We had the 1970s dry run crisis, and later we had the Great Recession of 2008-2009, which most people did not recognize as an oil-price crisis (even though it was–See Oil Supply Limits and the Continuing Financial Crisis).
This time we have coal declining as well, and natural gas probably not increasing as fast as multiple buyers would like. So we might see price spikes, but not for too long.
The peak oil group has convinced us that oil is the only fuel we need to be concerned about; I think that is another “fighting the last war” issue.
Bloomberg TV is doing a special on the latest fracking advances on Thursday, November 9, at 9 P.M. Eastern time, on Bloomberg TV in the USA.
Thanks!
To Gail and Godfrey Roberts:
It seems to me from my distant perch that China is both an enigma and a juggernaut, both of which combine to make assessments very tenuous. Truly, it has advanced in an impressive manner, made possible by its autocratic structure operating with asymmetric advantage within a world economy and political system that it has been able to simultaneously seduce and bully with a finesse that must make Mr. Trump orange with envy. But it also seems to be struggling to out-race two paradigms that could yet be its undoing: political demographics, and environmental constraints.
China has unleashed a certain dynamism in allowing and in certain areas encouraging entrepreneurial ambition, but that coin has two sides. The US has lived with that environment much longer, and is significantly forsaking the controls that keep it in bounds and make our feedback loops effective. China, with much less experience in this kind of economic environment, would seem to be at much greater risk.
I would guess that China’s success to date has been a combination of its authoritarian capacity to turn on a dime, and keeping the economy as fluid as possible, such that changes occur more rapidly than their intrinsic consequences have a chance to catch up with them. A game of smoke and mirrors. We see that in the US on a smaller and more localized scale when a given metro-region has an economic growth spurt and mistakenly believes that it is wiser and richer than it is, until the consequences of growth, the follow-on demands for goods and services of a more mundane nature, begin to drain the illusion of wealth as follow-on costs catch up with revenues. (North Dakota shale, for example.) This is true of governments, and of businesses. Many businesses eventually run out of markets and imagination and become roadkill. Their survival beyond their intrinsic viability is more a matter of momentum than managerial skill, but even that runs out eventually (Sears today; Apple tomorrow?). I believe a wall is awaiting China. And there will be no winners.
Think of it this way….
You give me a credit card with no limit. I go wild with that card renting private jets … staying in the best hotels around the world … eating the best food and drinking the best wine….and so on
When the bill comes you lend me money to make the minimum payment…
Meanwhile I continue to spend like a Hong Kong tai tai on the loose in the Prince’s Building….
My juggernaut is different from that of China only in terms of scale…
See the true nature of the Chinese juggernaut http://www.zerohedge.com/news/2016-03-10/china-proposes-unprecedented-nationalization-insolvent-companies-banks-will-equitize
Jim Rogers – Give Me a Trillion Dollars and I’ll Show You a Really Good Time!
https://www.gurufocus.com/news/219620/jim-rogers–give-me-a-trillion-dollars-and-ill-show-you-a-really-good-time
Thanks for posting the link to the Zerohedge article again. I remember seeing it, back about the time when we were reading about the huge number of Chinese coal companies whose cash flow was not sufficient to cover their debt payments.
I don’t think we have really seen an article confirming that this is what China is doing, but I am suspicious that such a method of bad debt did indeed get put into place.
Perhaps we should be having the Chinese leaders give US, European, and Japanese leaders lessons on how to cook the books in such a way that things continue to look good for a few more years. They certainly are creative!
The Chinese National Bureau of Statistics data I am using would in theory give an indication of whether the number of state owned companies is increasing, if it provided recent enough data. The most recent data on the subject I have found is 2015 data, in the 2016 report. Perhaps I am not looking in the right place.
The National Bureau of Statistics also has monthly data, but I don’t think that it gives the right information.
Good points! China really has been able to move its economy forward. But as you say, “changes occur more rapidly than their intrinsic consequences have a chance to catch up with them.”
And of course there are both the environmental issues and the resource constraints, not to mention the growing population of elderly at the same time the working population starts to fall.
To what extent do you think natural gas can replace coal or oil, Gail? It’s my understanding that there are some drawbacks to using it for electrical production, i.e., it doesn’t burn as hot
In our current state, I don’t think we can replace any energy source. We need them all.
Not only that, we need more energy sources that are affordable (ie. cheap) to add to our existing energy mix.
Natural gas is used widely for electrical production. I don’t think there is any problem with it, other than it being expensive to transport by pipeline or boat, and of course the quantity being limited unless the price is very high.
No one burns oil for electricity, except where they have little in the way of cheaper alternatives. Thus, it is used for back up generators, or on islands (where importing natural gas is inconvenient), or as a last resort when the weather is unusually hot or cold, and a little more electricity is needed.
It makes sense that NG would not burn as hot as coal (not even all grades of coal burn equally hot), but remember that for electrical production all it has to do is boil water.
A few niggles:
1. “In China, these feedback loops don’t work nearly as well.” China’s past 70 years’ growth suggests that these feedback loops work far, far better than ours.
2. China has not ‘overbuilt’ apartments. It has built them in anticipation of urbanizing 200 million people and the results have been stellar. Real estate has never experienced a bubble anywhere near comparable to ours in the US, and ‘ghost cities’, BTW, are a myth: there are none.
3. China’s debt is negligible given its current level, pace of development, and domestic locus. There’s little consumer or government debt, corporate debt is dwarfed by corporate assets and all of it is within China.
4. There is enormous room for adjustment given that China is overall the lowest taxed nation on earth, with government’s share of GDP less than half the UK’s.
5. Wages have doubled every decade for the past 40 years and will do so again by 2020. Inland wages are racing ahead while coastal wages are constrained as part of the rebalancing plan.
A few quibbles:
1. “China’s past 70 years’ growth suggests that these feedback loops work far, far better than ours.” Who is “us”? The West?”
China was starting from a much lower material base 70 years ago than the West was, despite the widespread devastation in Europe caused during World War II. It is only to be expected that once industrialization got off the ground in such circumstances, aided as it was by hefty amounts of investment and development assistance from the rich capitalist world and spurred on by the tailwinds of globalization, it would do so in a steady and progressive fashion, since the developed world was providing plenty of opportunities, help and guidance to finally haul China up out of its lengthy slumber as a dirt-poor, viciously and casually cruel, 4th-world, warlord-control feudal society.
It is widely considered in the West that the “feedback loops” of which Gail speaks, namely “In the model of development we are used to in the West, there are feedback loops if too much of anything is built–apartment buildings (sold as condominiums), coal mines, electricity generating capacity, solar panels, steel mills, or whatever else”, have played a comparatively small role in China’s impressive recent growth because those particular feedback loops have been operating only weakly in China. This observation appears so widely in the media that one might call it a matter of conventional wisdom, and while it may be incorrect, only time will prove it so. If China keeps growing and the Chinese people become wealthier in the decades ahead, that would indicate that their wonderful planning system works far better than the ramshackle former Western “free market” system, which seems barely creaking along these days. But if the Chinese economy crashes and burns in response to deteriorating worldwide economic conditions, that would indicate that the Chinese system works no better than the Western one.
2. “Real estate has never experienced a bubble anywhere near comparable to ours in the US, and ‘ghost cities’, BTW, are a myth: there are none.”
This July, Reuters reported that “A typical two-bedroom new home in Beijing now costs around 6 million yuan ($870,000), about 69 times the average per capita disposable income in the city, much higher than the ratio of less than 25 times for New York City.” That sounds like a real estate housing bubble to me. Either that, or there are an awful lot of people in Beijing living in abject poverty.
3. “China’s debt is negligible given its current level, pace of development, and domestic locus.”
Pardon me, but how can you or anyone else know that the Chinese financial and economic data on which you base this statement is accurate?
4. “There is enormous room for adjustment given that China is overall the lowest taxed nation on earth.”
I’ve no idea if that is the case. There are over 200 countries and most of them have rather complex tax systems. And again, how can you or anyone else know that the Chinese and other fiscal data on which you base this rather sweeping statement is accurate?
5. “Wages have doubled every decade for the past 40 years and will do so again by 2020.”
Again, they started from a very low base, and the industrialized world has been pulling them up through investment and aid for most of that time. They could never have climbed out of the hole they were in without massive self help plus massive help from the barbarians.
“once industrialization got off the ground in such circumstances, aided as it was by hefty amounts of investment and development assistance from the rich capitalist world”
You’ve got to be kidding. They were faced with implacable opposition from the rich capitalist world, for decades.
“once industrialization got off the ground in such circumstances, aided as it was by hefty amounts of investment and development assistance from the rich capitalist world”” – I’ll fix it for you: once industrialization got off the ground in such circumstances, aided as it was by hefty amounts of oil, coal and natural gas.
Nice suit, Mr. Tanaka! It really suits you!
http://img01.gunmablog.net/usr/g3s/china7.jpg
Thank you, Mr. Chairman. And may I say what an honor it is to sit in Nixon’s chair?
https://cdn.static-economist.com/sites/default/files/images/print-edition/20130608_CNP001_0.jpg
2. China has not ‘overbuilt’ apartments. It has built them in anticipation of urbanizing 200 million people and the results have been stellar. Real estate has never experienced a bubble anywhere near comparable to ours in the US, and ‘ghost cities’, BTW, are a myth: there are none.
You have not a clue. You are obviously reading the MSM and repeating what you have read there.
I have offices in Shanghai and Beijing (and Hong Kong)
Our partner in Shanghai was last year regaling me with tales of wandering through a massive complex of villas (many hundreds of them) near Shanghai — all completed a couple of years before — a handful only were occupied — and the rest were falling to pieces – as is what happens to properties when they are not maintained.
The Chinese government is attempting to solve this problem by giving the apartments away — so ya I guess you are partly right….
It’s kinda like there is a massive demand for Porsche sports cars — particularly if the US government were to subsidize the purchase price by 100%
http://www.zerohedge.com/news/2017-10-21/unprecedented-housing-bailout-revealed-china-property-sales-drop-first-time-30-month
https://www.forbes.com/sites/wadeshepard/2016/11/18/chinas-most-infamous-ghost-city-resorts-to-coupons-to-fill-vacant-homes/#39ed109b7c01
3. China’s debt is negligible given its current level, pace of development, and domestic locus. There’s little consumer or government debt, corporate debt is dwarfed by corporate assets and all of it is within China.
If this is negligible then….what is significant?
http://www.baldingsworld.com/wp-content/uploads/2017/10/Slide3.jpg
China is a moose wandering along the highway … waiting for an 18 wheeler to come flying along at 100km per hour….
https://yukonphotos.files.wordpress.com/2013/10/dsc_0077.jpg
Thanks for posting those links. I know I had seen the first link before, but had not properly taken note of the link. One part I thought was worth noticing from the first article is
Also, the printed title is important, “China’s Government is expected to buy 24% of all residential real estate for sale in 2017.”
Thanks for your comments.
Regarding “1. ‘In China, these feedback loops don’t work nearly as well.’ China’s past 70 years’ growth suggests that these feedback loops work far, far better than ours.”
Let’s remember the Great Chinese Famine of 1958 to 1962, which is within your period of the past 70 years of growth. This is also called “The Great Leap Forward Famine.” According to Wikipedia:
China took risks, but they didn’t always work out well. They did indeed get feedbacks.
While China’s economy has grown, Japan’s has as well. Japan’s per capita income is above China’s, but recently Japan’s rate of growth has slowed greatly. China started at a very low level of per capita income in 1950, according to the Maddison Project ($448 per year in 1990 international dollars), giving it a great deal of room to grow. Its coal supplies gave it energy resources to grow. Both countries have used a lot of debt.
Regarding “2. China has not ‘overbuilt’ apartments.”
I think that this depends on the resources that China and rest of the world have. China made a “bet,” in a sense, that it had the energy and other resources to lift the per capita income of its inhabitants to a level such that it could afford to house a rather large number of its citizens to concrete high rise homes.
China seems to be reaching limits on coal and oil. How will it be able to keep growing, in order to raise the income of its inhabitants to afford these apartments?
Regarding “3. China’s debt is negligible given its current level, pace of development, and domestic locus.”
There are an awfully lot of agencies that seem to disagree with you. I also keep reading articles about the lack of control over credit. For example, https://www.caixinglobal.com/2017-11-03/101165587.html
“Microloan Default Risks Might be Greater Than They Seem.” It says,
Regarding, “4. There is enormous room for adjustment given that China is overall the lowest taxed nation on earth, with government’s share of GDP less than half the UK’s.”
Part of the reason that the tax rate is so low is because local officials are left to their own devices to raise funds, rather than having a high enough tax level. This is what leads to the graft and the need to keep selling agricultural property, in lieu of taxes.
I think the situation should be looked at the opposite way: If taxes ever got up to an adequate level, given the rising retirement population and falling number of young people entering the labor force, the “spendable income” of citizens would drop greatly. This would mean that current apartments would not be affordable, and consumer goods would not be affordable.
I don’t have a problem with 5. I expect that Japan at one time could have said something similar. It didn’t mean that the pattern would continue, however. One thing it depends on is the continued availability of cheap fuel sources.
Re: Over building of apartments and houses etc…
Since when does it make sense to build a massive inventory of housing — knowing full well that there are nowhere near enough people to buy them — and just sit them empty until enough people can afford to purchase them…
During the wait the properties fall apart – and there is no return on investment for the developer .. in fact – normally the developer goes bankrupt…
But not in China — in China the PBOC shovels Yuan to developers so that they can play at paying back interest only on their loans….
In China the PBOC even acts as the buyer of last resort sopping up these millions of unsold units — and putting on a Robin Hood cap — giving the apartments to peasants… who no doubt use the spare bedroom to raise pigs and chickens…
People seem to think China is immune to the forces that govern western economies… that the Chinese know better that our leaders… that China is a juggernaut.
That is just plain nonsense.
Housing is for exosomatic energy heat retention (staying warm/dry), protection, and conducting the business of the home-economy (cooking, washing etc.). It’s an investment in so far as it saves one net energy over its lifespan. Any other kind of “investment” (other than net-energy-productive activities) is a ponzi bet on growth!
America’s ‘Retail Apocalypse’ Is Really Just Beginning -Bloomberg
https://www.bloomberg.com/graphics/2017-retail-debt/?cmpid=socialflow-twitter-business&utm_content=business&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social
Interesting article! One thing I noticed is that in some outlying area, as many of 45% of all jobs are in retail! Good grief! These are generally part-time, low-paying jobs, with changing hours.
Another thing I noticed was Nordstrom’s. The article says
Later, they show a debt rating for Nordstrom’s of Baa, which is relatively high for retailers.
Something does not match up well. I expect that rating agencies have not been looking at things right. One thing that Nordstrom’s and Macy’s have are a lot of long-term leases, that are like debt. I wonder if these are being considered.
The article makes it clear than retail jobs haven’t been growing rapidly over the last 10 years, and in fact, have been actively shrinking in 2017. Debt is another problem area, that may not have been adequately evaluated. Outlying suburban areas are especially affected.
Pingback: Will China Bring an Energy-Debt Crisis? - Deflation Market
Gail, thanks for your articles that help explain to me how the world economy works (or should work, at least!). I decided to post this link to the Max Keiser site and his interview with Marshall Auerbach: http://www.maxkeiser.com
In the interview they discuss Japan and its debt load. Auerbach argues that Japan’s debt load is OK because it is public debt and their Fed can always handle it by simply creating more money. Many financial commentators I have read over the years argue that Japan is headed for disaster-either massive inflation or higher interest rates, or both. Yet Japan has low interest rates and a problem dealing with deflation. It appears Auerbach is right on this-at least for now?
Japan is a big energy importer. This is part of the reason for its debt problem. Another part of its problem is that the government seems to create jobs of very marginal value, to keep its unemployment rate low, and seems to fund this process with debt. There may be other issues as well, including its rapidly aging population.
Japan has been rapidly buying up debt. I believe that this is a major reason for its low or negative interest rates. If Japan were ever to stop buying bonds (which I suppose is equivalent to the “printing money” Auerbach is referring to), interest rates would go up, and a large share of its taxes would go for interest alone. Higher interest rates would be impossible for the Japanese government to handle. I saw an article today that claimed that at an average interest rate of 1%, Japan was already spending 24% of tax revenue on interest payments. The article made the point that if the average interest rate were to go to 4%, Japan would need to spend 100% of its tax revenue on interest payments.
But if Japan can somehow keep the buying up of bonds in place, perhaps it can continue, as Auerbach indicates, until some other problem derails the system.
Low wage growth seems to go with deflation. Japan definitely has low wage growth.
That seems a good summation of Japan’s position, Gail. I assume the people in charge of finances have lots of models to play with, which helps them to plan for the medium term future, and assuming BAU can keep rolling, they are planning for a long decline in population of between half a million and a million people per year until 2050, with proportionally more oldsters and less youngsters every year for the next 20 to 30 years. but what kind of future they are planning in detail is not publicly discussed, or at least not very prominently. I suspect the reason is that the scenarios involve a progressive lowering of living standards for the general public. Also, I haven’t heard anything about what preparations they are making to deal with with economic and/or financial black swan events.
China Government Study: China’s Oil Production is About to Peak in 2018 & Coal in 2020 (Wang, 2017)
https://link.springer.com/article/10.1007/s12182-017-0187-9
Those are some of the same authors that I was involved with in earlier articles. (The earlier articles that I was involved with were in more highly rated journals.) Our earlier articles came to not-very-different conclusions. But this article is more recent, and it talks about EROI–a topic that I would like to stay away from, if I can.
This is the article I was involved with regarding coal:
http://www.sciencedirect.com/science/article/pii/S0301421513001195
It says,
The new report does bring the date back a few years, to 2020.
This is the report I was involved with on oil, saying that the limit on oil production is really a price limit. How much we can extract depends on how high the price can rise.
https://gailtheactuary.files.wordpress.com/2016/09/ke-wang-an-oil-production-forecast-for-china-considering-economic-limits.pdf
It says,
I think we “nailed it.”
And I think that all of these reports were “China government studies” because they were done through the Petroleum University of China, in Beijing, with their funding.
Thanks for the new article
the grand finale:
“We likely now are in the lull before the storm. There are many things that could push China toward an energy or debt crisis. China is so big that the rest of the world is likely to also be affected.”
“… the lull before the storm.”
that sums it up nicely.
though I wonder if China is actually more stable than “the rest of the world”, and if it will be a crisis outside of China that affects them first, rather than the other direction.
Gail, China is an absolutely important topic as you rightly say. Australia’s former Prime Minister John Howard (1996-2007) just held a polished speech at this event:
31/10/2017
Australia in Today’s World – some observations from former PM John Howard
https://aiiansw.tidyhq.com/public/schedule/events/16630-australia-in-today-s-world-some-observations-from-former-pm-john-howard
He was proud to repeat that China is growing at 6% and that this is good for Australia. In Q&A I asked him where the oil will come from for that growth. I had to put his answer into this post
4/11/2017
Former Prime Minister Howard assumes US shale oil will provide for China’s oil demand growth
http://crudeoilpeak.info/former-prime-minister-howard-assumes-us-shale-oil-will-provide-for-chinas-oil-demand-growth
I had an exchange of letters with Howard in 2004-2007, his last term, on his totally flawed energy white paper released in June 2004 (40 years sufficient global oil supplies, 100 years sufficient gas in Australia). I warned him the global crude oil peak would happen in this term. In the end his opinion was: “I agree to disagree”
This was the year when we wrote this article:
9/10/2007
Did Katrina hide the real peak in world oil production?
http://www.theoildrum.com/node/3052
As it turned out, it was the conventional oil peak.
8/7/2011
“Yes, Prime Minister”, peak oil 2006 under your watch
http://crudeoilpeak.info/yes-prime-minister-peak-oil-2006-under-your-watch
Now I handed over a paper to him proving that we were right and he was wrong. I had to document it in my downloads menu
http://crudeoilpeak.info/downloads
Howard is also responsible for the energy mess Australia’s east coast is in
20/10/2017
Australia’s east coast gas crisis will be permanent
http://crudeoilpeak.info/australia-east-coast-gas-crisis-will-be-permanent
They are all energy illiterate
China thinks it is going to use natural gas to substitute for coal, but clearly this is not possible in any great quantity. This was not a topic I was able to get to. China, Japan, and Australia cannot all solve their problems using natural gas.
It seems like politicians everywhere listen to the same “academic think.” They get the stories wrong, in a similar way. I noticed this when I met with some of the people from China’s establishment back in 2011.
Same here in New York State, many propose natural gas for all future electric generation and home heating. Which is great until the natural gas supply runs out.
Or the natural gas price doesn’t rise high enough, leading to the same result.
Exactly, there is no incentive to produce energy products when no one can afford them.
Natural gas as answer to oil decline could lead to catastrophe, says leading expert
https://phys.org/news/2009-03-natural-gas-oil-decline-catastrophe.html#nRlv
Good article! I know Kjell Aleklett. He is now retired from Uppsala. He has always been very much involved with the Association for the Study of Peak Oil in Europe.
7/4/2015
Australia’s alternative transport fuel: The East Coast gas-ship has sailed
http://crudeoilpeak.info/australias-alternative-transport-fuel-the-east-coast-gas-ship-has-sailed
Gas is needed in peaking plants. The following post contains a 24 hr power generation profile by fuel
14 Feb 2017
NSW’s privatized giveaway coal plant causes load shedding in extreme weather
http://crudeoilpeak.info/nsws-privatized-giveaway-coal-plant-causes-load-shedding-in-extreme-weather
The natural gas situation is very difficult for readers to understand. It tends to be much more of a local resource than either oil or coal, because it is a gas, and therefore difficult (and expensive) to ship. All of the infrastructure involved becomes a problem to build and maintain as well.
The amount of natural gas available depends very much on price. Reserves are given on a 1P, 2P, or 3P basis; in a way, this is sort of equivalent to a low, medium or high-priced basis. But gas reserves are less well known to begin with.
The big issue is how high a price consumers are able to pay. At current price levels, very little natural gas is economic, especially with long-distance shipping. You sent me this article about Australian LNG
http://www.smh.com.au/business/energy/lng-200b-worth-of-australian-projects-probably-not-breaking-even-20150906-gjggi0.html
LNG: $200b worth of Australian projects ‘probably not breaking even’
Asian oil is indexed to oil prices. That article says,
You also sent this article about Origin writing down investments by a total of $3.8 billion, because of lower oil price. http://www.abc.net.au/news/2017-08-10/origin-energy-takes-another-1.2bn-hit-over-lng-investment/8794686 LNG buyers cannot afford the equivalent of $100+ barrel oil.
It would be difficult to analyze the situation in detail, but it is hard to see very much new supply of LNG or pipeline natural gas for east Asia (including Australia) with prices at the current level. It seems like shipping costs are too high.
I see he mentions ‘too many people’ in relation to resources: strange how little that crucial point is ever discussed……
“I was never asked this question… From US Shale, I guess.”
Our leaders, ladies and gentlemen. Staggering.
Chevron CEO warns US shale oil alone cannot meet the world’s growing demand for crude
https://www.cnbc.com/2017/05/01/us-shale-cannot-meet-the-worlds-growing-oil-demand-chevron-ceo-warns.html
To summarize the CNBC article on Chevron CEO’s statements:
We need oil from all sources, we need it now, we need it cheap and we need more next year. Rinse and repeat.
Gail, I thank you for this posting. Most of your previous postings were slightly different rehashes of previous ones. This one was a real eye-opener. I learned a lot.
Some China’s excess power capacity is being sold at discounted prices for Bitcoin mining. In fact over half the mining in the world is in China.( https://spectrum.ieee.org/computing/networks/why-the-biggest-bitcoin-mines-are-in-china )
OT: Here is a lower cost utility-scale battery. IEEE Spectrum is a reliable source that does not overhype. ( https://spectrum.ieee.org/green-tech/fuel-cells/its-big-and-longlived-and-it-wont-catch-fire-the-vanadium-redoxflow-battery)
Yes, the article is definitely off in a different direction. I learned quite a bit about China on my two visits there, and also writing academic papers with various Chinese authors. These papers have been warning about Peak Oil and Peak Coal in China for years. Except that the methods used always make it look like the peak is in the very near future, rather than having already taken place. I got to understanding more about where China fit into the world picture, and how the “system” works.
The focus in the US has always been on Peak Oil and on the “developed” countries. This focus misses a big part of what is going on.
For an easier article to read about China (with lots of photos), this is an article I wrote back in 2011, after my first trip to China. https://ourfiniteworld.com/2011/05/30/observations-based-on-my-trip-to-china/
One of the things I said in the article is
“China Thinks Strategically and We Don’t”
http://www.ianwelsh.net/china-thinks-strategically-and-we-dont/
Strategic or not, it is still a predicament with dire consequences for all.
But through strategic thinking, it’s already got it’s tentacles affixed throughout the entire planet “We” certainly don’t in a similar way. Their grip,is hard, ours squishy.
This article is a great example which validates many of the themes you have presented in past articles.
> Falling energy prices lead to reduced profits and less investment by energy companies – this decreases productivity of workers and reduces wage growth
> Less purchasing power resulting from decreased wages results in decreased demand for energy products, further depressing energy prices
> As fossil fuels become less available and more expensive to obtain producers are forced to cut back on production, eventually leading to unprofitability as wages can no longer rise significantly to cover the higher costs
> Massive increases in debt, lower interest rates, government bail-outs and central bank money printing are currently allowing unprofitable companies to continue producing enough to grow the economy – however, this can only last for so long as resources continue to dwindle and costs continue to rise
I agree. I was surprised at how well the “pieces” fit together with what I had been seeing elsewhere.
Pingback: Will China Bring an Energy-Debt Crisis? – Olduvai.ca
If there wasn’t a China, the people in the United States would be barefoot….
Sneakers
Sneakers
Facebook/New Balance
A large percentage of footwear is made in Asian countries included in the TPP, and about 97 to 99% of sports footwear that’s sold in the US is made in other countries, according to the pro-trade group Footwear Distributors and Retailers of America.
The TPP would have reduced or eliminated tariffs for shoes imported from Vietnam and other countries, which might have reduced the overall cost of sneakers in the US. Companies like Adidas and Nike, which has 26 footwear factories in Vietnam, supported the trade partnership.
New Balance, however, opposed the deal. On its website, the company boasts that it makes or assembles 4 million pairs of athletic footwear per year in the USA. New Balance labels its domestically made pairs for consumers, which also makes apparent the difference in price between those shoes and the ones made offshore.
New Balance shoes range in price from $65 to $399, but the American-made pairs start at $165 and get as expensive as $399. (The most expensive pair on the New Balance website is indeed made in the US.) That means none of the lowest-priced pairs are manufactured domestically.
A similar contrast is also visible in Reebok’s shoes. The company makes a Postal Express line, which is made in the US and designed specifically to meet the needs of postal workers. But the shoes range from $167-$230, whereas Reebok’s regular athletic footwear costs between $80 and $165.
More on other retail prices of other consumer goods if made in USA
http://www.businessinsider.com/how-much-products-would-cost-if-made-in-us-2016-11/#sneakers-4
I am afraid we couldn’t go backward if we wanted to; it would just be to expensive. Clothing and shoes were a lot more expensive, back before we started getting things from China and other low-wage countries. Now we don’t have the factories to make them, besides the high cost involved.
If it wasn’t for Asia, many people would be bare-foot and in rags….
Yes we humans would have a problem without China but our robot friends yearning to throw off the shackles of oppression do not care about shoes nor clothes.
Pingback: Will China Bring an Energy-Debt Crisis? – Enjeux énergies et environnement
According to Credit Suisse’s Global Wealth Databook 2016, the median wealth of the world’s adults is $2,222, down from $3,248 at the end of 2007
https://publications.credit-suisse.com/tasks/render/file/index.cfm?fileid=AD6F2B43-B17B-345E-E20A1A254A3E24A5
Wich table are you referring to? Reading Wealth trends 2000 – 2016 contradicts your statement.
…. on page 17 in the report
Remind me again where all those clean green solar panels are coming from? China seems to be the most recent story of King coal.
Here in ‘clean green NZ’ we depend on tourism, methane propelled ruminants and incoming migrants to keep us steaming along. Not so clean, really, but try and tell people that. Our relatively small population does the work for us.
China. It is just that China has figured out that they don’t really work, so don’t want them for themselves. They have a lot of production that they would like to unload on the world market.
I come from a place that depends on tourism too. There are geographic and cultural attractions that make it attractive.
I’m learning the extent to which related infrastructure development is being aggressively promoted by China. A major highway system, similar to transportation systems in Africa, with many similar homogenizing (and other “negative” cultural) effects foreclose potential localized systems that are or could be stable, given the right attention.
Although these third world places aren’t taking advantage of local resources, the Chinese program is making sure they never will. One example would be creating a bypass highway that cuts off a slumbering/festering town from the water. A different investment emphasis could have gone to figuring out and educating around a local economy built around access to the the shore (or could it have?). That local economy might best have been served by the coastal-tourism resources the highway is foreclosing on. (There might be workarounds that are less direct than those foreclosed on and that precluded pedestrian “circulation,” thereby promoting more complexity.) Any jobs that the highway promotes will require driving, and will have to be dependent on the high-end economic system the Chinese infrastructure is geared toward. I imagine that Chinese debt is behind all major building…like the proliferating African megacities, and, in my case, all-inclusive-hotel construction. These high end places are very unlikely to employ the majority of the population in most instances.
So while these third world places that are being swept away by Chinese construction are incapable of financing an alternative local economy, the one financed by China is forcing them into irrevocable over dependence on complexity, as well as on increased economic disparity.
One has to wonder how quickly central banks will reverse course once the negative repercussions of their quantitative tightening become evident. Will we see a hyperinflationary supernova before it all collapses? You certainly can’t say we don’t live in interesting times.
You have to wonder. Janet Yellen has been a loss. Perhaps Jerome Powell will do better.
We do live in interesting times.
This was my first thought too. CB’s always seem to print to eternity, while hiding it. Looks like the Chinese are going under the bus too with the falling wages. Pass the Fentanyl.
Thanks for the new post.
The wages are still rising, but not very much.
When I was at Petroleum University in 2015, the students there were very concerned because the petroleum industry was already not hiring, because of low prices. China has a lot of high-priced-to-extract oil (sort of unconventional oil). The powers that be did not cut back oil production immediately, but they did in 2016 and 2017, as I said in the post.
Oops, I misread that chart, but I guess the conclusion is the same
https://2.bp.blogspot.com/-TzFVKnGhUMY/VrTAzOycQQI/AAAAAAAAPsU/0hMgQfX3igs/s1600/Seneca-Cliff2.png
Limits to Growth: Dennis Meadows: Interview – Conversation Earth
http://www.conversationearth.org/limits-growth-dennis-meadows-116-encore/
This seems to be an interview from 2009 that is now being republished. Dennis Meadows is quoted in the introduction as saying that Limits to Growth seems to be arriving right on schedule. Perhaps China is part of the Limits to Growth scenario.