Will China Bring an Energy-Debt Crisis?

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.

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.

 

 

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
This entry was posted in Financial Implications and tagged , , , , . Bookmark the permalink.

912 Responses to Will China Bring an Energy-Debt Crisis?

  1. Pingback: China 2015 |

    • Selling off assets to offset operating losses doesn’t work as a long range plan.

      • MickN says:

        Thank you Gail. That will be my go-to phrase when talking to anyone who insists that the
        UK is doing well. That is a perfect description of the way the country has been run for many years. Although I suppose when asset values collapse it may not have been so stupid- we gained a few more years of good living or at least some of us did.

  2. Pingback: Mideast Turmoil: Observe the Oil, Observe the Cash | CENSORED.TODAY

    • The food pantry I help with once a month gets a lot of donated food from stores. This food is not expired. I expect the stores giving the donations include Walmart. With these give-away programs to the poor, it is hard to see why this happens.

      • Mark says:

        This was on reddit, and is a bit out of context. As I understand it, a tornado caused a power outage. Long story short, they’re afraid to give it away for fear of being sued.

        Over half the food in the US goes in the garbage. Supermarket dumpsters are highly secure in my area. They have steel chutes attached to secure areas of the buildings, and are locked behind high walls and barb wire fences.

        Folks, this ain’t normal-Joel Salatin

        • Food in the garbage presumably eventually goes to other creatures.

          Countries without refrigeration lose more food than we do to “pests.” We really don’t have the right to eat 100% of it. Quite a bit of it (more than 50%) should go to other creatures. But we have convinced us that if we have planted it, and used weed killers to keep other plants away, we would have the right to eat it. If nature’s original way were followed, we would only get the little bit that we “hunted and gathered.”

          • Fast Eddy says:

            Dumpster Diving is apparently going to be an exhibition sport at the next summer Olympics… if there is a next summer Olympics…

          • xabier says:

            I always enjoy the idea of the original human hunters finding a predator nibbling on its victim, and then hanging around until it had eaten enough and didn’t want to fight over it, and then chasing it off and taking what was left.

            That’s our proper place in the scheme of things, eating Nature’s left-overs.

            Soon, however, we may all end up as Nature’s main meal.

          • Mark says:

            “Food in the garbage presumably eventually goes to other creatures. ”

            I don’t think so, but know very little about it. The land fill is lined with very heavy plastic, and they put pipes in for the off gassing. Micro organisms decompose the food waste, and some birds would pick at it. There’s a lot of salt in that stuff, but otherwise it would make great top soil. Problem is that it’s a soup of all the other stuff in the landfill, so I presume that most of the energy in that food is dissipated to the atmosphere in the off gassing. That’s the way I see it.

            • Some microorganisms can live, at least for a while.

              I suppose that the extent to which animals can use it varies a lot. We always see pictures of people in poor countries, picking through landfills to find food and things they could sell. I am sure that animals could get some as well.

              In other countries, it depends on how sophisticated the installation is. If it is “just landfill,” then animals could get to it. If the owners want to collect the gas from it, then it loses something. In some parts of the world (Europe, particularly) as much trash as possible seems to be burned. The purpose of this is to produce electricity, in some cases. The IEA calls one of its groupings, “Renewables plus trash.”

            • Mark says:

              You and your global thinking 🙂

      • zenny says:

        I have stopped giving to the food bank…They do not want pork and beans Spam is a NO NO I give everything to seniors housing it is a one stop drop and they say thank you.

  3. ravinathan says:

    Gail, this guy cites you a couple of times.
    : https://www.scribd.com/book/364164648

    • Thanks! This is the same report that Baby Doomer mentioned a day or two ago. It is, Peak Industrial Output and the Limits to Growth as a Consequence of Depleting Natural Resources by: Dr Simon Michaux (2017).

      This is a report Simon Michaux put together for a company that burns trash to make electricity, I believe in Germany. The client had been hoping that fossil fuel prices would go up, making the operation more competitive financially; when prices went down instead, the client wanted to know if they should just forget the burning trash for electricity. (Or perhaps it is some other type of recycling, but it is definitely trash that they are using.) The report brings together a lot of things written by a lot of different people (including me) on related subjects. He is saying, in effect, we still have a major problem. It just doesn’t look like it right now. Don’t give up now. Keep on with your operation of burning trash.

      I have corresponded with Michaux a little; I have never met him in person. He brings some insights from a slightly different direction; in particular, he has been involved with mining and depletion of minerals. The report has quite a few interesting things in it.

  4. Fast Eddy says:

    Dick’s Sporting Goods Inc. seems a little too eager to get the Black Friday party started.As far back as November 5, the chain was sending email blasts declaring “Black Friday NOW!” and promising up to 50 percent off certain purchases.

    In a press release earlier this month, Dick’s trumpeted it would bring “the excitement and savings of Black Friday to customers earlier than ever this year.”In the current shopping environment, such a promotional strategy should only be seen as one thing: an act of desperation.

    The earnings report Dick’s released on Tuesday made clear why it’s running scared. The retailer said same-store sales fell 0.9 percent compared to a year earlier, only the third such decline in eight years.

    https://www.bloomberg.com/gadfly/articles/2017-11-14/dick-s-sporting-goods-earnings-shot-blown

    Another retailer than looks to be going down.

    • Jesse James says:

      DIcks might want to reinstate the sale of semi auto rifles. It might up their sales a bit.
      I honestly don’t see how the local Dicks here in town stays open. No one in it…very pricey space…

      • Ours has recently expanded, and added “Field and Stream” to its logo. I haven’t been inside to see the changes needed. It didn’t make much sense, because Cabella’s opened a year or so ago, not too far away.

  5. Davidin100millionbilliontrillionzillionyears says:

    chance to make big bucks shorting Tesla!!!!!!!!!!!!!!!!!

    https://www.cnbc.com/2017/11/14/chanos-says-tesla-ticks-all-the-boxes-for-being-the-perfect-stock-to-bet-against.html

    or just some good free entertainment, watching the train wreck.

    Schadenfreude lives!

    and…

    47 days left in 2017 so…

    BAU tonight, baby!

    • I see:

      “Put it this way,” Chanos said. “If you wouldn’t be short a multi-billion-dollar loss-making enterprise in a cyclical business, with a leveraged balance sheet, questionable accounting, every executive leaving, run by a CEO with a questionable relationship with the truth, what would you be short? It sort of ticks all the boxes.”

      He said the company is burning more than $1 billion in cash each quarter and will have a harder time tapping the capital markets if and when Musk leaves.

      I especially like the statement, ” CEO with a questionable relationship with the truth.” It sounds a lot better than liar.

  6. Baby Doomer says:

    Try to imagine one day the TV signal cuts out. “Standby”. Gunshots go off in the distance. You go to buy some groceries and some of the shelves are empty, then half of the shelves, then most of the shelves. Feeling hungry, desperately trying to grow a garden in the backyard at the last minute. Worrying about security constantly. You see an abandoned police car. People with guns riding by on bicycles hauling supplies in cart covered with tarp. You see a dead body on my way to look for food out in town. Eventually far right groups fill the social and political vacuum, then far left groups react. Then violence. Everyone has something to say and they’re shouting it on the unkempt street corners getting into fights.Can’t get on Reddit, can’t get on Google search – the mighty internet has fallen…

    • Fast Eddy says:

      It is hard to imagine … normalcy bias gets in the way….

      If anyone wants to imagine what this looks like I strongly suggest a quick visit to a place where this has happened – at least to some degree…

      I’ve seen a Lite version of this in Jakarta during the financial crisis in 1998 — utter utter desperation – no vehicles on the highway – you kept the windows closed when you had to stop the car….

      Then a taste in Haiti post quake — you definitely would not want to be wandering those streets after dark…

      A sniff of this in Bahrain — locked down by the military with choppers buzzing and men with guns everywhere…

      Bits and pieces here and there in various ghettos in Asia….

      Finally Egypt during the riots — thousands of opposing forces hurling rocks at each other…. people being run down and having the sh..it kicked out of them…

      Just one of those experiences will shatter normalcy bias… this stuff happens… it will happen .. and FAR worse when BAU goes down …. there will be no police – no military — nobody will help you when the bad guys show up …. humanity (don’t ya just love that ambiguous term … ) ….will no exist.

      We won’t miss the internet or tee vee when this goes down … the news will be happening right outside you front doors.

      • Davidin100millionbilliontrillionzillionyears says:

        try to imagine…

        after The Collapse…

        we all die and enter the nothingness of eternal death…

        a few years or centuries or millennia later…

        the extinction of the human race…

        and a few billion years later…

        the sun has grown into a red giant and annihilates the Earth.

        so…

        in that Reality…

        what’s the big deal about The Collapse?

        IC IC baby!

        BAU tonight, again!

      • Baby Doomer says:

        Humans can not live without illusions. For the men and woman of today, an irrational faith in progress may be the only antidote to nihilism. Without the hope that the future will be better than the past they could not go on.

        -John N Gray

      • zenny says:

        Honest nothing happen in my city

    • JH Wyoming says:

      Try to imagine one day…that you’ve been so convinced of imminent collapse that you failed to plan for the future, initiating personal collapse. Instead of a dead TV, it’s chalk full of ads and programs, news, but suddenly the signal is lost because you failed to pay the satellite bill. So you go out to the store with the little bit of change you’ve got left and buy a newspaper. In it is a story about a baseball card that just auctioned for 34.5 million. It sold for that much because the rich just keep getting richer and competition between them is fierce for rare, special cards. You sit back on the couch which is about to be repossessed at any time and wonder how in the heck the world went on without you. A poignant, yet sad realization that so much life could have been had, only if you’d forgotten about things out of your control and instead simply went on about your business of living life to the fullest. Meanwhile the clock is still ticking so get in the game and score yourself a touchdown.

      • Fast Eddy says:

        That is why one should continue dancing while the music plays…. but make sure to take regular breaks to smash back some good single malt whiskey… or a bottle of wine… or whatever…

        Don’t worry about missing a few songs in the dance….

      • Interesting point.

        Part of the reason my travels around the world have been possible is because I have realized that there is no point in saving what funds I have saved up from working as an insurance actuary indefinitely. It is either use them now, or don’t use them at all. If I am going to take a vacation, I make certain that we plan it for someplace where I might be able to learn something useful. And of course, some of my trips are paid for by groups who want me to come and talk.

        I also don’t spend money on long term care insurance. I have figured that it won’t be there if I need it, anyhow. My husband and I are both in very good health now. What is the point? I don’t really want to live in a nursing home, anyhow.

  7. Fast Eddy says:

    Auto-Loan Subprime Blows Up Lehman-Moment-Like
    by Wolf Richter • Nov 14, 2017 • 2 Comments
    But there is no Financial Crisis. These are the boom times.

    Given Americans’ ceaseless urge to borrow and spend, household debt in the third quarter surged by $610 billion, or 5%, from the third quarter last year, to a new record of $13 trillion, according to the New York Fed. If the word “surged” appears a lot, it’s because that’s the kind of debt environment we now have:

    Mortgage debt surged 4.2% to $9.19 trillion, still shy of the all-time record of $10 trillion in 2008 before it all collapsed.
    Student loans surged by 6.25% year-over-year to a record of $1.36 trillion.
    Credit card debt surged 8% to $810 billion.
    “Other” surged 5.4% to $390 billion.
    And auto loans surged 6.1% to a record $1.21 trillion.
    And given how the US economy depends on consumer borrowing for life support, that’s all good.

    However, there are some big ugly flies in that ointment: Delinquencies – not everywhere, but in credit cards, and particularly in subprime auto loans, where serious delinquencies have reached Lehman Moment proportions.

    Of the $1.2 trillion in auto loans outstanding, $282 billion (24%) were granted to borrowers with a subprime credit score (below 620).

    https://wolfstreet.com/2017/11/14/auto-loan-subprime-blows-up-lehman-moment-like/

    • I am certain that oil prices being a little higher now enter into the picture as well. The subprime borrowers are likely to be the borrowers who are “closest to the edge.” I small increase in the price of gasoline could upset the financial picture of these borrowers, especially if combined with some other phenomenon, like fewer hours working because of a hurricane.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s