Central bankers seem to think that adjusting interest rates is a nice little tool that they can easily handle. The problem is that higher interest rates affect the economy in many ways simultaneously. The lessons that seem to have been learned from past rate hikes may not be applicable today.
Furthermore, there can be quite a long time lag involved. Thus, by the time a central banker starts seeing an effect, it may be clear that the amount of the interest rate change is far too large.
A recent Zerohedge article seems to suggest that problems can arise with 10-year Treasury interest rates of less than 3%. We may be facing a period of declining acceptable interest rates.
Figure 1. Chart from The Scariest Chart in the Market.
Let’s look at a few of the issues involved:
[1] The standard reason for raising interest rates seems to be concern about inflationary impacts occurring as a result of rising food and energy prices. In practice, the impact of such an interest rate change can be quite severe and quite delayed.
Figure 2 is an illustration from the Bureau of Labor Statistics website showing one of today’s concerns: rising energy costs. Food prices are not yet rising. Normally, however, if oil prices rise, the cost of producing food will also rise. This happens because modern agricultural methods and transportation to markets both require the use of petroleum products.
Figure 2. Figure created by the US Bureau of Labor Statistics showing percentage change in the Consumer Price Index between January 2017 and January 2018, for selected categories.
In fact, raising short-term interest rates seems to have been associated with trying to bring down rising food and energy costs, as early as the 1970s and early 1980s.
Figure 3. US three-month treasury interest rates. Chart prepared by St. Louis Federal Reserve.
The reason why an increase in short-term interest rates is helpful is because it reliably induces a recession. A person can see the close connection between short-term interest rate increases and recessions (gray bars) in Figure 3. Recessions in turn damp down food and energy prices.
The reason why this damping down effect occurs is because when there is a recession, many people are laid off from work. These people purchase fewer goods and services. With people out of work, “demand” for goods and services falls. (Demand is very closely related to “amount affordable.”) We might think of demand for goods and services as helping to maintain the “production” of new homes, new cars, upscale food products, toys, and even consulting services.
When demand falls, fewer goods of practically every type are made. This indirectly leads to less need for commodities of many types, including oil, natural gas, metals, and food. Commodities have very long production cycles, and only modest storage facilities. When lower demand for a commodity such as oil occurs, prices tend to adjust sharply downward, in order to signal the need for lower production. Figure 4 shows that interest rate spikes corresponded to the 1973-1974 oil price spike, the 1979 oil price spike, the 2004-2008 price run-up, and perhaps to other shorter oil price spikes.
Figure 4. Annual averages of Brent oil prices (in 2016$) and 3-month average interest rates, based on data similar to that shown in Figure 3 from “FRED.”
The annual data in Figure 4 loses the detail of month-to-month variations. Because of this, it makes the impact of the Great Recession look much less severe than it really was. Figure 5, using monthly data for recent periods, shows more clearly the severe fall in oil prices following the run-up in short-term interest rates in the 2004-2007 period.
Figure 5. Three-month US Treasury interest rates and Brent oil prices, both on a monthly average basis. Graph by FRED.
If a person looks at the indirect impacts on the economy as a whole, it becomes clear that the rise in short-term interest rates was one of the proximate causes of the Great Recession of 2008-2009. I talk about this in Oil Supply Limits and the Continuing Financial Crisis. The minutes of the June 2004 Federal Reserve Open Market Committee indicate that the committee decided to start raising interest rates at a rate of 0.25% per quarter for the purpose of stopping the rise in energy and food prices.
The huge financial problems that indirectly resulted did not occur until four years later, in 2008. It is likely that most economists are unaware of the connection between the decision to raise rates back in 2004 and the Great Recession several years later.
[2] Higher energy prices squeeze a person’s “spendable income.” Higher interest rates have the same effect.
Economist James Hamilton showed that ten out of eleven recent recessions were associated with oil price shocks. We would argue that if an economy is subject to higher interest rates in addition to higher oil prices, the economy is doubly likely to go into recession. Figure 6 shows an illustration of the situation.
Figure 6. Image by author showing recessionary impact of rising energy costs and interest costs.
A wage earner’s pay does not normally increase as energy costs rise, or as interest costs rise. Even if energy and interest costs are well buried (in higher food costs, or in the higher cost of goods transported across the country, or in higher student loan payments) the amount of income that a person has available to spend on discretionary goods and services falls if energy and interest costs rise. Having both energy and interest costs take a bigger share of available income at the same time is especially a problem.
[3] Reduced interest rates can be used to conceal the adverse impact of rising energy prices.
This is another version of what we saw in Figure 6. If interest rates can be reduced, they can offset most of the bad impacts of higher energy prices. For example, if oil prices are higher, it helps if auto loans and mortgage loans are lower in cost.
Figure 7. Image by author showing that artificially low interest rates can mostly offset the impact of rising energy costs.
Of course, central bankers don’t necessarily think this through. To what extent is today’s economy really dependent on very low interest rates?
[4] Falling interest rates have an almost magical impact on the economy. Rising interest rates reverse these magical impacts, and replace them with very negative impacts.
We saw in Figure 6 how falling interest rates could more or less conceal a rise in energy prices. The following are a few of the additional magical things that falling interest rates can do:
(a) Falling interest can raise asset prices of many kinds, including homes, stock prices, resale prices of bonds, and the price of land.
(b) Falling interest rates can raise commodity prices, making it possible to extract more fossil fuels and metals. Resources that previously did not look economic to extract, suddenly become economic to extract. This change occurs because with lower interest rates, more people can afford to purchase goods that use oil, such as cars and motorcycles. This tends to raise demand for oil products, and thus prices.
(c) Because higher-priced energy extraction becomes feasible at lower interest rates, more advanced technology, at higher prices, suddenly becomes feasible. Jobs open up in research areas that would not previously have made sense at lower energy prices.
(d) Falling interest rates can make the balance sheets of companies holding stocks and bonds as assets look better, because of their rising prices.
(e) Rising asset prices “feed back” into spendable income. People with homes that have risen in value can refinance, and use the proceeds to fix up their home (add an additional room or an updated kitchen, for example). Individual citizens and companies can sell shares of stock that have risen in value and use those proceeds to augment other income.
If interest rates rise rather than fall, the impacts can be expected to be extremely recessionary. The stock market may crash. Homes are likely to lose value because of a lack of buyers that can afford them. Energy resources that seemed to be available can suddenly seem not to be feasible because of low prices.
[5] The economy was able to reasonably tolerate the run-up in interest rates in the 1950 – 1980 period because the economy was growing very rapidly.
A person can see the pattern of short-term interest rates in Figure 3, above. Long-term (10-year) interest rates follow a somewhat similar, but smoother, pattern (Figure 8).
Figure 8. Monthly average 10-year Treasury interest rates, through January 2018, in chart by FRED.
World per capita energy consumption was rising very rapidly in the 1950 to 1970 period. Even in the troubled 1970 to 1980 period, per capita energy consumption continued to rise, although not as quickly (Figure 9).
Figure 9. World per capita energy consumption, with 1950-1980 period of rapid growth highlighted. World Energy Consumption by Source, based on Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects (Appendix) together with BP Statistical Data for 1965 and subsequent, divided by population estimates by Angus Maddison.
When world per capita energy consumption is growing this rapidly, jobs tend to be plentiful and wages tend to rise faster than inflation. According to Figure 10, US wages rose more rapidly than inflation in the 1950 to 1970 period, without wage disparity becoming a problem. Even in the 1970 to 1980 period, when high oil prices were a problem, US wages were able to rise quickly enough to keep up with inflation. Rising wage disparity did not become a problem until after 1980.
Figure 10. Chart comparing income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Amounts are inflation adjusted. Based on an analysis of IRS data, published in Forbes.
The share of US citizens in the workforce also rose during the period up to 1980, as an increasing percentage of women joined the workforce (Figure 11).
Figure 11. Employment as a percentage of the population, aged 25-54. Chart from FRED, using OECD amounts.
The thing that made the 1950-1970 period unusual was the growing availability of inexpensive fossil fuels. With fossil fuels, it was possible to add expressways where they had never been before. This allowed more interstate trade and improved the productivity of truck drivers. Labor saving devices allowed women to join the workforce. Farming continued to become more productive, with all of its labor saving equipment. Even as energy prices rose in the 1970 to 1980 period, citizens were able to continue to buy energy products because their wages were rising enough to keep up with inflation.
The growth in productivity was so great that wages plus government benefits (as measured by “Disposable Personal Income”) rose almost too fast. This added inflationary pressures to the economy. It is my opinion that these inflationary pressures contributed greatly to the oil price run-up in the 1973-1974 and the 1979-1981 periods.
Figure 12. Three-year average growth in Disposable Personal Income compared to inflation as measured by CPI-Urban. DPI from US Bureau of Economic Analysis; CPI from Bureau of Labor Statistics. Per Capita Disposable Personal Income is calculated by dividing DPI by US population, also from the BEA.
The run-up in oil prices also to some extent reflected a scarcity problem; note the two spikes in CPI-Urban in the 1970s in Figure 12, which are higher than would be expected, if the problem were simply a problem caused by the very high per capita Disposable Personal Income growth.
A major problem of the 1970s was a decline in US crude oil production for the area outside Alaska.
Figure 13. US crude oil production by type, based on EIA data.
This scarcity problem was significantly mitigated by the development of oil fields in Alaska, Mexico, and the North Sea in the next few years.
One of the things that substantially helped fix the oil problems of the 1970s was the fact that the US, as well as other developed countries, was able to make changes that substantially reduced their oil consumption. These changes included:
- Moving to smaller, more fuel-efficient cars
- Finding fuel substitutes when oil was being burned to create electricity
- Changing oil-based home heating to approaches that used other fuels
Figure 14. Oil consumption by part of the world. Data from BP Statistical Report of World Energy 2017.
The combination of these approaches brought supply and demand more into balance. There was a small dip in consumption in the 1973-1975 period, and a larger dip in the 1979 to 1984 period. In comparison, the Great Recession of 2008-2009 hardly made a dent.
An indirect impact of these changes was the fact that the US economy needed to become more integrated into the world market. The US started importing smaller, more fuel-efficient vehicles from Japan, since Japan was already making these cars. Japan started making other kinds of goods as well to sell to the US and other markets. The US and other countries built nuclear electric generation to replace some of the oil-fired electricity generation. These plants were capital intensive and required growing debt.
Especially after 1981, changes started to take place in the US economy, reflecting its changed role in the world. US companies grew in size, as they began to add overseas markets to their local markets. Wage disparity became more of an issue, as high tech operations required more specialized high-wage workers and fewer of those with only a general education. Increased competition for jobs with workers from lower-wage countries also tended to hold down wages of those without advanced training.
[6] The situation is very different now, compared to the 1970s. It is doubtful that today’s economy could tolerate a spike in interest rates.
Today, we are not seeing rapid growth in per capita energy consumption, the way we were in the 1950 to 1980 period (Figure 9). In fact, world per capita energy consumption is almost flat (Figure 15), the way it was during the period of the Great Depression of the 1930s, and the way it was at the time of the collapse of the former Soviet Union in the 1990s (Figure 9).
Figure 15. World energy per capita and world oil price in 2016 US$. Energy amounts from BP Statistical Review of World Energy, 2017. Population estimates from UN 2017 Population data and Medium Estimates.
There are other similarities to the 1930s period. Short-term interest rates are back to the low level they were in the 1930s (Figure 3). Growth in Disposable Personal Income per capita is persistently low (Figure 12). Wage disparity is at the high level experienced back in the 1930s (Figure 16).
Figure 16. U. S. Income Shares of Top 1% and Top 0.1%, Wikipedia exhibit by Piketty and Saez.
It is probably because of this renewed wage disparity that we are having difficulty with oil gluts. Oil gluts were also experienced in the 1930s. People with inadequate wages cannot afford goods made with oil products. These gluts occur because of affordability problems–inadequate wages for part of the workforce.
Figure 17. US ending stock of crude oil, excluding the strategic petroleum reserve. Figure produced by EIA. Figure by EIA.
Despite the spike in oil prices that central bankers are concerned about, oil prices are currently too low for producers. Oil exporting countries, such as Venezuela, Saudi Arabia, and Nigeria, depend on high oil prices so that they can collect high tax revenue. These countries are especially hurt by today’s low oil prices.
An increase in interest rates could very easily create a recession and drop oil prices even lower than they are today. Of course, that is precisely the intent of the central bankers. Our problem is that the economy cannot operate without energy products, particularly oil. The cost of producing oil is rising because of diminishing returns. It simply is not possible to drop its price as low as oil-importing countries would like it to be.
[7] Economists and central bankers think that they have good models of how the economy operates, but they really do not.
The economy is a self-organized system that is able to create goods and services using energy products. In fact, it cannot continue its existence, without continued very substantial energy consumption. The economy gradually builds itself up, with new businesses, new consumers, newly invented products, and with transportation and financial systems. I envision the economy as looking something like a child’s toy that is built from many pieces. If one or more pieces are removed, the system could collapse.
Figure 18. Dome constructed using Leonardo Sticks
The economy has been built based on the laws of physics. It requires sufficient energy. It is in many ways like a hurricane that loses power if it is forced to go over land for any distance. A hurricane gets extra strength if it is able to pass over very warm water, which provides the energy it needs. Right now, the world economy is showing signs that it does not have sufficient energy; the standard of living of young people around the world is falling. The return on energy investment is far too low.
While it may be true that the US economy looks like it is at full employment, based on the number of people looking for jobs, the percentage of people aged 25-54 with jobs tells a different story (Figure 11). This percentage has fallen since 2000, at least partly because of globalization.
Unfortunately, the approach that economists are taking to model the economy cannot provide a good representation of how the economy really works. A self-organized system has many feedback loops that are difficult to understand and model. One change leads to other changes that are hard to see in advance. The problem with current models is that they are likely to produce misleading indications.
[8] Conclusion
We have heard the saying, “That which does not kill you makes you stronger.” The theory behind raising interest rates seems to follow a similar line of reasoning. If central bankers can raise interest rates, economies will be stronger.
The catch is that we are too close to the “edge” to be testing an increase in interest rates. Economies, below a certain “stall speed,” cannot repay debt with interest, and cannot hope to provide entrepreneurs with an adequate return on investment. Our low rate of growth is already close to this stall speed.
Given where we are today, it would be quite possible to accidentally “kill” the economy with rising interest rates. This would be especially the case if short-term and longer-term interest rates rise at the same time. A budget with large deficits could cause longer-term interest rates to rise. So could selling large amounts of QE debt.
Also, feedbacks don’t come quickly enough to make necessary course corrections. This makes raising interest rates way too much like playing with physics reactions we don’t fully understand. Interest rate increases (like fission reactions) start chain reactions. In an open environment such as the world economy, we have limited understanding of the outcome of these chain reactions.
interesting read from the imf about negative interest rates it sounds like that is our destination after bail-ins when global financial crisis part 2 occurs file:///C:/Users/computer/Downloads/pp080317-negative-interest-rate-policies.pdf
I was at breakfast this morning sitting next to the cash register. The waitress was running credit cards for all the orders. It suddenly struck me, if we went to a cashless society and that little machine stopped working, then what? It could be a very small event that triggers an economic collapse. Of course, chaos theory tells us that, and the world economic system is definitely a chaotic system.
Link broken?
I am a big believer in negative interest rates.
Nevermind, googled it.
Strange times may be ahead. In a way, it would be easer to believe negative interest rates than rising interest rates.
By the way, make certain that you are pointing to files in the internet, not on your own hard drive. The file name you give looks like it is from your hard drive. I think you may have meant this report “Negative Interest Policies – Initial Experiences and Assessments.”
https://www.imf.org/en/Publications/Policy-Papers/Issues/2017/08/03/pp080317-negative-interest-rate-policies-initial-experiences-and-assessments
The Summary says:
What’s the big deal about prepping a doomstead?
Haven’t you all heard about the Back to land movement in the US during the 1970’s?
Pretty much the same concept and all. Any hoot, MOST returned back to the cities or urban centers within 5 years time.
That was a false alarm, as cheap credit and North Sea oil delayed the ultimate day of reckoning. When the end comes, most doomsteads will be overrun by marauding hordes of desperate people, because the cities will be unliveable.
The hordes will be driven by Mr DNA to survive… they will do anything…
They will quickly work out that the food supplies in the cities are gone… and they will immediately head to where they know there is likely to be food — rural areas.
One has to be seriously delusional to think that they will not be assaulted by hordes of people demanding food….
You have to also be delusional if you expect those hordes are going to make it past 20-30 miles from whatever city they start in.
What will stop them?
In any even they dont have to come from the city —- they are your neighbours…. I’ve got 5000+ people within 10km….
Big town meeting just finished up — called to discuss the the post storm cleanup (or lack thereof) — Madame Fast attended because I don’t really give a F789 — plenty of sniping… neighbours having a go at neighbours .. plenty of anger… plenty of blame….
Yep — these are the same neighbours who — when the serious SHTF….. will be joining hands and signing Koombaya — let’s all share what little we have….
https://nataliaantonova.files.wordpress.com/2013/12/cannot-handle-the-hysterical-laughter.gif
Nope – they will be ripping each others’ faces off…. killing for a tomato…. charging over the fences of those who have gardens….
Doomie Preppers are F789ing Id iots…. I am uniquely placed to make that observation … because I was one
The US might not be as close to full employment as we think
http://www.businessinsider.com/the-us-might-not-be-as-close-to-full-employment-as-we-think-2018-2
Every major monthly US government economic report – employment, GDP, inflation – is little more than a fraudulent propaganda tool used to distort reality for the dual purpose of supporting the political and monetary system – both of which are collapsing – and attempting to convince the public that the economy is in good shape.
https://imgur.com/a/ICxHO
Doom has finally arrived!
Gibson Bankruptcy Imminent
How many young people do you know that can afford a 4500 dollar Les Paul guitar?
Indeed, those maple top Les Paul’s can be very expensive, since they’re built in America. On the other hand, I have $500 Gibson SGJ. It was pretty much the cheapest Made in the USA Gibson around at the time. A fantastic instrument.
https://musicmag.com.ua/media/catalog/product/cache/1/image/940×587/22a9d8b2f8ff66ee1bdc58028baf4f69/_/-/_-gibson-sgj-2014-cs-10.jpg
very nice!
I had a mostly black SG way back when.
https://i.imgur.com/psekO3B.gif
No business is permanent. Of course, some get bought out, and continue on a smaller basis.
JCPenney to close more than 100 stores
https://nypost.com/2017/02/24/jcpenney-to-close-more-than-100-stores/
Wages are finally starting to rise, but not for the middle class
http://www.latimes.com/business/la-fi-wage-gains-uneven-20180223-story.html
Chris Hedges: America’s Mania for Positive Thinking and Denial of Reality Will Be Our Downfall
https://www.alternet.org/news-amp-politics/chris-hedges-americas-mania-positive-thinking-and-denial-reality-will-be-our
That’s a good article for those with the patience to read it.
Chris Hedges = DelusiSTANI
He cannot get his mind around the fact that we are in a zero sum game with respect to resources.. we need to kill kill kill… pillage pillage pillage… otherwise we end up like Somalians….
I used to think like Chris…. no longer
hedges sees it as a political problem—not exactly his fault, that is his line of business, radical political thinking
he is not alone, the vast majority see all this as a political problem—like hedges, there is a certainty that prosperity can be voted for
and because of that certainty, there will be conflict to prove it to be right—it will be that conflict that destroys us
Sure, and this dynamic is a large part of what drives the fast collapse of a complex society. No one understands why things don’t work as they used to, and they fight each other with alternative cargo cult level solutions as things continue to deteriorate until they utterly implode.
i’ve tried to point it out in conversations with some very intelligent people—it just brings blank looks of incomprehension
this was face to face over lunch with at least 2 guys, (at the same table and the same time) who’ve read (of their own free will) and agreed with the basics of my book
And even so—they don’t get it
their certainty is absolute, that changing a government will alter the pop problem–climate change—energy depletion, and restore some kind of fiscal balance
trying to point out that pensions will destabilise in the absence of cheap energy is impossible
thats why ”make america great again” works so well, the masses were/are desperate to ”believe”
There are two worlds.
One involves day to day interactions with people – family, friends, work colleagues, acquaintances, etc… this is the matrix.
The other world is here – on FW. This is reality.
As we can see … there is a clash of civilizations whenever the twain meets….
America’s need for a positive story to tell ourself is to me very much like debt. Debt pulls the economy along. Likewise, our positive story pulls our spirits along.
If people don’t believe one religion, they join another one: the religions of you can be successful, if you just try hard enough. Or the religion that science and technology can fix all of our problems.
my story is that we can make it to 2030.
I like the religion of negative interest rates myself. It seems as if thirty year US treasury bonds approaching 3.5% will make bad things will happen.
Attention Doomiie Preppppers…. you might think you are remote….
https://upload.wikimedia.org/wikipedia/commons/8/81/Map_of_Nuclear_Plants_US_02.png
http://www.infiniteunknown.net/wp-content/uploads/2011/03/Fallout-Map-From-Japan-Nuclear-Plant.jpg
OMG!
I live in the yellow zone and only traces of radiation show up. So maybe be your best bet is an island in the pacific because the solution to radio active polllution is dilution!
We got a warning shot with Fukushima and I think the eastern seaboard is going to be a nuclear wasteland when the lights go out but I’m keeping the doomstead stocked and operational!
Correct, you can apply that line of thought “because the solution to radio active pollution is dilution!” even inside the continental settings, just basic physics and common sense, sorry you have to figure it out on your own. Is it for everybody nope, anyway is it worth it to be a survivor, depends..
Also, the chances NPPs (and spent fuel ponds usually placed inside the site) will be unattended in first “shallow” rounds of staircase collapse are not very high. Obviously, other scenarios might apply, but for the very next ~5-15yrs it should not be an issue, after that especially inside the US where secession into several regional fiefdoms is very likely one should be aware of these sites and act today/yesterday.
Spent fuel ponds will be the forced destination for the excess of retirees, in a similar way to the rumoured use of criminal networks at Fuku in Japan ….well methinks.
I am so sorry to inform you but the yellow zone is indicating where radiation from Fukushima is landing …. and yes there is not enough of it kill you because Fukushima was and is contained… and it does not involve spent fuel ponds…
However that image is still relevant — because Japan has 54 nuclear reactors — and each reactor would have multiple spent fuel ponds (6 at Fukushima alone) …. https://www.scientificamerican.com/gallery/map-reveals-status-of-japans-54-nuclear-reactors/
The reactors are currently shut down…. but the spent fuel ponds cannot be shut down…. if you were to visit one you’d hear the hum of the machinery and computers and electricity and pumps…. that are circulating cooling water around the fuel…. preventing it from igniting and spewing massive amounts of radiation ….
So you see that plume map? Think of that … with endless plumes of intense radiation floating in your direction on the winds…. landing in your soil and in your vegetables…. getting into your water supply….. AND KILLING YOU.
Then consider there are dozens of reactors in the US and Canada … and the wind does not always blow from the west….
Then keep in mind that spend fuel ponds are not like atomic bombs — they do not blow up — they burn and burn and burn … for decades….. continuously spewing radioactive plumes in every direction ….
You are WASTING YOUR TIME.
You will be dead within a month of the end of BAU….
On the ‘positive’ side…. that month will feel like it has gone on forever….. because the suffering will be so severe… that every second of life will be too much….
Prepping is futile!
Myth: Well-prepared individuals, groups, and communities will survive our impending collapse and maintain healthy, fulfilling, and productive lives in its aftermath.
Reality: Those who survive our collapse will be those who can obtain sufficient life sustaining essentials—especially clean water and food—on a continuous basis, both during and after collapse. Those who store large quantities of these essentials and those who attempt to produce food, either individually or in communities, will be easy targets for the vast majority who have neither the foresight to store nor the skills to produce. No matter how remote or secluded your sanctuary, somebody will know about it; and they will come to call when they become desperate; and they will be well armed and devoid of compassion. You can prepare for a last stand, but you cannot prepare for post-collapse survival. Post-collapse Life Will Be Preferable to Our Industrial Lifestyle Paradigm
Myth: Industrialization has brought nothing but misery and degradation to the human race; our quality of life (and spiritual wellbeing) will improve substantially in a post-collapse world.
Reality: The post-collapse lifestyle awaiting the few who survive will, under the best of circumstances, share many attributes with pre-Columbian America. Unfortunately, the realities associated with subsistence level existence bear little semblance to the Hollywood accounts.
Those who anxiously await our post-collapse world will be disappointed, assuming they live to experience it. The fact that nobody is opting to jettison the amenities afforded by an industrialized way of life in favor of a hunter-gatherer lifestyle today should be sufficient proof that our future way of life is not something to be anticipated. Industrialism is not inherently “evil” or immoral; it is simply physically impossible going forward.
If someone wants to try prepping, I have no objection to it.
The problem I see is that all prior economic approaches built up over time, and involved many people, laws, religions, customs, and other ‘details’. People learned a trade, either from their parents or as an apprentice. There were blacksmiths to handle making horseshoes, for example. Citizens did not have to make every single thing they made, even back two thousand years ago. There have always been specialists. Even back in hunter-gatherer times, some seem to have specialized in hunting and others in gathering. Some were especially good at tool making of particular kinds, such as firemaking tools.
The Preppers I see are trying to take our 2018 devices with them, and put together some kind of existence, mostly by themselves. It is hard to see that this approach will work for very long. There are just too many pieces to break. Somehow, there needs to be a law enforcement system. I have been told that in some poor parts of the world, there are people who hire themselves out to provide “protection” for those who are wealthy enough to have goods that they want to hoard. A new system would somehow need this group of people, I expect. Preppers would need to raise enough crops so that they could handle all of their own food and fuel needs, plus pay others for services that they choose to buy (protection, buying goods from afar, grinding grain, road maintenance, for example). Without these support services in place, it becomes very difficult for the system to work.
Actually, I think “Protection” would likely be one of the first one to self-organize. Young men would figure out that they can earn some money by offering protection to farmers.
Everbody here in the USA gets in their personal car/truck and drives to a “grocery store” and loads up carts with piles of food which is then transported back to the domicile in the car/truck..
Even our food producers, generally, do not produce food for their own families/communities. They depend on diesel trucks making the connection between a specialist food producer and the local “grocery store” where all the food supply lines converge to provide a basic balanced selection of foods.
Starvation will be visiting nearly every single person in the US if this fragile system stops for any reason.
All the other critters live day to day by their wits barely eking out an existence. Why not us?
The global system does in fact function day by day. We merely do not perceive it…..
Not sure what the controversy is regarding prepping or a homestead doomstead?
In the 1970’s, the Hippie Back to the land movement proved it is not very successful.
Most returned back to the cities or urban settings with in 5 years time.
probably, no different a than today’s movement.
That’s coming soon…………
DelusiSTANIs do not agree.
Right. And the reason stopping the system could be a power outage as easily as a diesel outage. Closed banks or closed international trade would also stop the system.
Gail, yes, I mentioned it few months/years ago as well, e.g. the later stages of the fall of the western part of Roman Empire were known for one significant trend, money or even most objects of former luxury affinity suddenly lost value profoundly, against deal making capacity about protection of such living arrangements you describe. Slowly, proto-feudal and feudal order developed out of this necessity..
In terms of taking “2018 devices” with them into the collapsed world, it varies, if we put aside the spoiled bunch you are likely referring to, there are also others, a lot of handy people actively doing reenactment, incl. blacksmiths, shoe makers, warfare and animal husbandry. They are obviously not collapse proof, but even tiny minority out of this minority would preserve some knowledge into the future and make it work ~bronze/iron age as the minimum standard.
So again, we are at the core question is this now the peak event of human extinction, if that’s the case it will unlikely proceed in just one generation anyway, hence we are back into the point from which we departed, specifically what will the survivors do. And I’m not necessarily putting myself on the long term list, there are other people with better skills and luck to go through such bottleneck.
‘In terms of taking “2018 devices” with them into the collapsed world, it varies, if we put aside the spoiled bunch you are likely referring to, there are also others, a lot of handy people actively doing reenactment, incl. blacksmiths, shoe makers, warfare and animal husbandry. They are obviously not collapse proof, but even tiny minority out of this minority would preserve some knowledge into the future and make it work ~bronze/iron age as the minimum standard.’
I am making my way through https://www.audible.com/pd/History/The-Origins-of-Political-Order-From-Prehuman-Times-to-the-French-Revolution-Audiobook/B006P482NC
I note that in Britain … when humans last lived in a manner you are depicting above…. most adults were dead before 35.
These are people who were born into a very hard life…. they were not people who lived with washing machines and electricity and chain saws and modern medicine…..
And STILL…. they did not live very long.
We are about to enter their world …. however to get to that world we first need to get through a hoop that they never had to….
This transition will not be slow and gentle…. it will start with the electricity going off…. and the shops emptying of food.
So what you are a blacksmith — what good is that when 7.8 billion raging humans are ripping and tearing at the very fabric of the planet?
What will you eat? How will you survive – while you try to find this utopian community of skilled workers….
One other comment from that book — the plague is mentioned.. how it culled massive numbers of people ….
This was during a time when global population was a fraction of what it is now…. we are holding back a horde of trillions of wicked beasts… with medicines and inoculations….
When BAU goes so go the defenses…. so go sanitation … and these bugs are going to run riot… plague, polio, cholera you name it…..death and misery will be everywhere… and yes… even in rural areas…
It is rather amusing how we take good health for granted… there are many reasons why few lived past 35…. disease is a big one….
The end of BAU ain’t Little House on the Prairie…. you need to get over that …. it ain’t a doomsday prepper movie or whatever you have watched or read that instills in you a sense of adventure…
Then of there is the non-negotiable aspect — the spent fuel ponds…. I have posted the maps of the locations in the US and Japan… winds are predominantly westerlies… if you are in the US… you will be vomiting blood and guts within days of BAU going down…. likewise Europe and Asia… for we Antipodeans …. well… I might get a week of climbing up the ski hill and getting a few final runs down before the end arrives.
Dommie Prepping —- The Grand Delusion
Comment held… hmmm
A further note… if you want a Grand Delusion …. why not embrace a religion that offers angels milk and honey? Or even virgins….
That promises an escape hatch from the coming hell on earth?
Do you really want to be alive in a world filled with disease… brutal hardships… drudgery…. and no coffee?
With all of these things, we need to find good stories we can be telling ourselves as well. In some sense, we have had the privilege of living though the best period of history ever. We have had conveniences that even kings did not have before. All of us have had families, at least at one time. Many of us have had (and continue to have) close friends, and even not so close friends over the internet. We understand many things about our situation that others did not know.
We have many things to be thankful for.
We do indeed.
But that is not enough … Mr DNA usually lurks… because he does not feel threatened by starvation or a violent attack… BAU has taken care of all that… so he has been lounging in the background… with a cool drink…
BUT NOW he is involved…
He senses something is up …. and it is his job to make sure his host does not panic… he certainly does not want his host falling into despair and stepping in front of a bus….
So Mr DNA has called on his pal Mr Cognitive Dissonance… and Mr CG is urgently pumping in hopium… various flavours…
And as we can see from the comments on the board the FWers have a preference for Prepper Hopium…. come and getcher Prepper Hopium — no charge!!! They are queued up around the block
Huff and puff that big ol pipe you stuuuupid f789ing donkeys…. it makes you feel good…. it eradicates reality….
Meanwhile … now that Mr DNA has calmed the host…. he is preparing for war…. he is sharpening his fangs…. he is running sprints and lifting weights… he is shooting HGH…. for he knows that the battle of his life is imminent….
But unfortunately this is an unwinnable battle…. he will rip and tear and pillage and murder and torture and enslave and rape then do it all over again …. but then there will be nothing left … so he will then turn on other human hosts and eat them….
And then the radiation will flood in … and that will be the end of the most vile beast to ever walk this planet….
This has the making of a great sci fi movie… you know the one where the invincible villain blows himself up because his cleverness backfired?
Kinda like that.
Die Humans! Die! Vile Scum
you are reminding me of two classics: “Journal of the Plague Year” by Daniel DeFoe; “Mask of the Red Death” by Edgar Allen Poe. bottome line: don’t go to socials.
https://learningenglish.voanews.com/a/the-masque-of-the-red-death-edgar-allen-poe/3702277.html
Just swap in radiation for red death when listening to that….
Again your assumption is that all grids worldwide will go down at once.
You have never given a good reason why this would be so.
Because when the financial system collapses… the JIT global supply chain will stop dead…. which means the many thousands of spare parts that are required to operate the grid will not be available…
And when even a single simple component breaks anywhere along the line …. the grid fails…
Even if there were massive warehouses full of parts (there are not) …. when the financial system ends… the shops empty … money is worthless… there will be no jobs…
Why would an engineer abandon his family to chaos — and report to work to keep the grid operating?
I would suggest you read this:
Top 9 Things You Didn’t Know About America’s Power Grid
https://energy.gov/articles/top-9-things-you-didnt-know-about-americas-power-grid
Don’t let your normalcy bias get in the way….. the CBs are doing absolutely everything they possibly can to keep BAU alive because they know what failure means….
When they fail — the financial system collapses… as does civilization.
Then the fun begins
I am not a person who objects to people trying to figure out a way our problems. Maybe some of them will succeed, at least for a generation or two.
In order for real growth to resume, the capitalist way is for creative destruction to happen. That means shutting down loss-making industries. Loss making industries, for perverse reasons, tend to be those employing many, usually low-paid, people.
However, occasionally, companies at the other end of the spectrum do get into trouble, but when that happens something strange occurs. TBTF and TBTJ.
As you said in another post, when it is your bank account that is on the line, things change.
Societies and cultures are the units of selection in a crisis, not isolated doomsteads or families.
If the model is appropriate, individuals capable of breeding and rearing young will survive.
If not, there is no chance at all of extended survival, however deep the silo, remote the farm, and well-stocked the shelves/tool shed.
There is a partial analogy with WW1: thousands of individuals might pass through a regiment, and usually died.
But the regiment survived.
The regiment survived as long the supplies of energy and food, etc, were intact,and because it was itself greater than the sum of its individual members and their efforts.
For example, my English great-grandfather’s regiment: 1100 men passed through, 1914-18. By November 1918, only 100 were left standing, but the regimental organism still functioned, because the wider structures still supported it.
So a family that survives the collapse will fail in the long term if it doesn’t adhere to an appropriate political model? Based on this reasoning, societies couldn’t have arisen to begin with, since the first society didn’t have any social models to adhere to.
Besides, the idea of societies founded upon various abstract models, and succeeding/failing due to the strength of those models, is quite recent. Insofar as that idea itself is a model it is clearly unsuccessful, as evinced by how complex and intertwined modern societies are.
somehow i cant see thugs with guns staying on guard ”outside” your gate for very long once shtf time arrives
the ”armed guard” outside parkfield school was good at his job until the bad guy with an ar15 showed up—the reaction would be broadly similar
There are real guards and soldiers, who will do their duty – like the Swiss Guard of the French monarchs who died to a man in the Revolution because they had taken a sacred oath to do so – or people who just wear the uniform, take the pay cheque and dream of the pension.
I was very impressed by the London policeman who tried to deal with the London Bridge knifemen with his truncheon, on his own: a man who knew what he had undertaken to do in wearing the uniform.
i take your point
but they were functioning within a stable environment, as part of a stable force.
come shtf time, i dont think that stability will hold together for long
Yes, that’s the point, wannabe gang culture from FE’s googled pictures is mostly not the real utmost threat, but be afraid of the former mil/police going self employed aka the new warlords and proto nobility of the next feudal age.
PS luckily, during past 2-3decades most of the old stockpiles of ammunition from the cold war has been dispatched at various “low intensity” civil war fronts, so at least the new warlords will be limited to hand guns instead of precision artillery moved by draft animals
If one is a non-believer in the spent fuel ponds theory….
Then… instead of becoming a prepper … one should be signing up for special forces training… learning how to survive in the bush with nothing more than a knife… living off the land like an animal…
Establish a team of similar individuals with a plan to meet when BAU starts to crumble..
Then … head into the bush… and after a time … find a doomie prepper (if any have survived)… and enjoy his women … and put him to work in the garden….. if he refuses to work you enjoy his women in front of him…. or you can do what the Belgians did in the Congo … cut off hands….
“instead of precision artillery moved by draft animals”
There’s also a marked shortage of draft animals.
all eaten
Yes of course…
It takes a great amount of stuuupidity to think that there would be any animals around for very long post BAU….
They will be eaten and/or dead from disease. Enormous amounts of antibiotics and other medicines keep herds alive…. without them they sicken and die rather quickly…
So many things we take for granted…
The sacred oaths taken by those men were linked to the survival of their livelihoods and families, since they were foreigners. If they were Frenchmen, like the French Guard, they would almost certainly have acted differently.
This from an article about G. Bush’s new ‘eco-house’.
‘From a security point of view, having a contained system also make sense. You’re not dependent on anyone for resources but yourself.’
http://www.ecorazzi.com/2007/02/19/president-bushs-texas-ranch-is-off-grid-eco-friendly/
Many/most do believe they can sidestep collapse and wait it out. Fragile I would say.
Not for very long, I expect. A person cannot foresee ever contingency.
Why not just put a gun to the farmers heads — and order them to work the fields….
The boss is the man with the gun … who does not have to defend what is indefensible
I am so ashamed of myself for thinking that prepping was a good idea….
How very stuuuupid I was….
At least while I was putting this i di ocy in place I was still bucket listing … and fortunately I came to my senses while the ski lifts were still operating….
Imagine spending all one’s time and money on prepping — then shortly after BAU ends the hordes tore everything to pieces in 15 minutes!! Or there you are hunkered down in misery and disease… and your skin starts to slough off… and you vomit blood…. and you are thinking … son of a b it ch …. Fast Eddy was right about those spent fuel ponds
All gods are false gods… include the prepping god…
You need to worship the only true god – BAU…. hurry up … while it is still possible
There’s an app for anyone wanting to practice
Baby boomer obviously wrote this to convince himself of what he wants to believe. And notice how he cherry picks myths and describes scenarios as known facts to argue the points he wants to make.
Some myths and scenarios may well be turn out to be true in some locations.
Some preppers (me included) just rather like the idea of surviving, so preparations require a lot of careful planning to minimise (but can’t eliminate) the obvious dangers.
If the statements such as “No matter how remote or secluded your sanctuary, somebody will know about it; and they will come to call when they become desperate; and they will be well armed and devoid of compassion” were true for every preppers situation, well, yes, eat, drink and be merry….
Desperate, devoid of compassion they certainly will be, but are they still in physical condition and have the food, transport (luck?) etc to get to my location despite fellow desperates preying on them?
When (if) they get here (though my insignificant little retreat shouldn’t be much or a magnet), I will be expecting them, already knowing my surroundings, hidden food caches, water, shelters and have tactics planned accordingly ( which don’t include armed confrontation at my front door).
I may still go down but I intend to give it a try.
If I can survive a few months, the weaker desperates will not be around and the social circumstances will evolve as they will. No-one is in a position now to predict what they will be. The lifestyle will depend on this.
Preparations for food, water, shelter etc are the easy ones and already in place and tested. Interacting with remaining homo sapiens (if any) will be the hard part.
The industrial age will be remembered for it’s good and bad points (pretty good for me mostly) but a basic existence not relying on ‘high tech’ relics but using what still works until it doesn’t,can still be a good life.
It may be a shorter one, but that’s OK.I suspect I’m not immortal and don’t really care if the whole human race dies out either. Give the cockroaches a turn!
Spoken like a true DelusiSTANI.
Can you provide us with an indication of your general location? I don’t need specifics…. what’s the nearest big city to you?
I’ll be following up with a map of spent fuel ponds that are nearby…
proof that all the ponds will catch fire worldwide?
Please paint the picture where every grid goes down simultaneously.
Staggered collapse is more likely just as we are seeing now.
FE types his doom from nuke ponds while Venezuela sinks deeper into the swamp. The grid here in OZ is still going.
If I were a du nce … I would agree with you
you are a dunce
That does not compute… if I were… then I would agree with you…. however I do not.
L… o…. g… i …. c
Take comfort that you are in the company of plenty of other du nces though…. Permie Doomie Du nce Club…. I have tossed myself out of that club on my a ss… self-bounced….
I wonder when the ski hills will open…. last year there was early snow due to gl ob al cooling…. we’ve burned a lot of carbon in the past year so perhaps I’ll be on the slopes by June….
Bye bye weeds… bye bye doomsday farm…. bye bye rabbits that are getting through the fence…. bye bye bye all this bull sh it… I think I’m gonna cry (with glee!!!)
This is what preppers are expecting
This is what they will get — expect far worse:
Doomsday is (not) coming. The dangers of worrying about the Apocalypse
The predictions of catastrophic resource depletion have been repeatedly falsified, too, by a combination of technology and markets. As the most easily extracted supply of a resource becomes scarcer, its price rises, encouraging people to conserve it, get at the less accessible deposits or find cheaper and more plentiful substitutes.
https://www.theglobeandmail.com/opinion/the-dangers-of-worrying-about-doomsday/article38062215/
I would love to see Gail debate Pinker about oil and energy economics.. I would pay for that….
Pinker obviously wrote this book to convince himself of what he wants to believe. And notice how he cherry picks experts that argue the points he wants to make…And comparing things like Y2K to peak oil is laughable…
pinker lives in a world we’d all like to live in
Tim is doing the same on Surplus…. notice how the comments have collapsed… there is only one FW.
Pinker clearly belongs in an institution. What kind of institution I leave readers to decide….. 🙂
Never a good idea to debate a DelusiSTANI…. they will ignore logic and facts…
Two options – ignore them — or ridicule them. Ridiculing is my preferred option … it is like beating the sh it out of an 8 year old playground bully…..
okay, I read the whole thing, and obviously Pinker is a very smart man…
BD, you have quoted the exact sentences that I wanted to comment on:
“The predictions of catastrophic resource depletion have been repeatedly falsified, too, by a combination of technology and markets. As the most easily extracted supply of a resource becomes scarcer, its price rises, encouraging people to conserve it, get at the less accessible deposits or find cheaper and more plentiful substitutes.”
Pinker is absolutely right about the progress of the PAST…
and he’s right about FF in these sentences… in the past and present…
and US production is hitting all time highs this month… 10 million barrels per day…
and reasonable estimates are 11 million barrels per day in 2019…
but in the 2020s, that above quote will become false…
by the 2030s, there will be “catastrophic resource depletion”…
guaranteed.
“find cheaper and more plentiful substitutes.”
Oh?
THE END OF CHEAP OIL Global production of conventional oil will begin to decline sooner than most people think, probably within 10 years
Feb 14, 1998 |By Colin J. Campbell and Jean H. Laherrre http://dieoff.org/page140.htm (originally appeared in the Scientific American)
COSTS OF OIL PRODUCTION SKY ROCKET
The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/
yes, Pinker seems unaware that the cheap oil is scarcer and the substitute oil, mainly from shale, is more expensive…
but, overall, he is CORRECT about the past and present…
and, as I pointed out, a new US oil record this month and possible-probable new 11 mbpd record in 2019…
means he is still correct about “more plentiful substitutes”…
BUT…
he doesn’t know the full story of how FF absolutely will decline throughout the 2020s…
so, lacking this knowledge, he can easily remain an optimist…
since he is unaware that the progress of the past few centuries, which he knows about and writes about, will be reversing within a decade or two.
Actually …. he has been wrong about the past…. the cost of extracting oil has been too high for well over a decade now… and there have been no substitutes for fossil fuels…. renewable energy is 100% powered by fossil fuels …
Therefore all energy used — is still 100% fossil fuel based.
He is a f789ing id iot (assuming he believes what he says)
well, we could keep going back and forth on this for a lot longer 😉
he’s very smart, and yet is one of those intellectual-yet-idyots that Taleb mentions…
he can’t connect the dots, because he’s missing one dot…
what you mentioned, that FF is the base of all economies…
and that FF extraction keeps getting more expensive…
and that FF production will be declining in the 2020s…
and eventually reach zero…
well, okay, he’s missing quite a few very important dots.
he’s very smart, and yet is one of those intellectual-yet-idyots that Taleb mentions…
!!!!!!!!!!!!!!!!!!!!!
ha… we agree on something.
Good luck finding a cheaper alternative for zinc to galvanise steel.
Replacement is what Econ 101 teaches…. and it is immutable….
Pinker and I have exchanged emails on what he believes
he is convinced we have nothing to worry about
I say the opposite
si we’re quits
he sees past progress and sees no reason why it won’t continue…
may he live to 2030.
He has faith.
Soylent Green…. coming soon to Subway!
What’s in your chicken sandwich? DNA test shows Subway sandwiches could contain just 50% chicken
http://www.cbc.ca/news/business/marketplace-chicken-fast-food-1.3993967
Lots of things taste like chicken.
http://www.bbc.com/news/world-us-canada-43183737
Trump tax reform gives Buffett $29bn boost:
Buffett says the tax cut accounted for nearly 1/2 of the firms gain in net worth in 2017.
If Buffett’s investments in Berkshire benefitted this much over that short a period of time, how much will that tax cut from 35 to 21% do to the ballooning debt? This is financial harry carry on a national basis. This is insanity on steroids. There is no hope now – collapse is locked in, certified, stamped, signed and filed away under complete idiocy.
In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China’s state-backed margin finance company which in turn would be aided by a direct line of liquidity from the central bank.
https://www.reuters.com/article/us-china-markets-outlook/china-rolls-out-emergency-measures-to-prevent-stock-market-crash-idUSKCN0PF0DH20150705
Why would the Fed not do the same …. but not announce it…. to keep money pouring into shale.
I’m sure you’re on the right track…
especially since tight oil is a good energy source… and is real…
while that money is just digits conjured up on computers…
win-win.
Yes I have come to the same conclusion, mentioned earlier. The cash for tight oil is a minimal cost compared to not having that oil.
However this can only continue for so long until the resources used in gaining the tight oil start to have great inflationary effects/shortages in other areas of the economy.
The way things are headed are inflationary, then hyper-inflationary, with nothing anyone can do about it.
hyper-inflation? I’m very doubtful… at least here in the USA through the 2020s anyway…
if the wages of average workers remain stagnant, then that removes a major factor for inflation… and that seems to be the new normal…
and since TPTB likely aren’t interested in seeing those average wages go higher, I think there’s a good chance that there won’t be much inflation ahead, and perhaps pockets of deflation, much more of a chance than the dreaded hyper-inflation…
though any country, such as Venezuela, that falls into the grasp of Creeping Collapse, will be a likely candidate for that hyper-inflation.
No hyperinflation through 2020s? Lol…whatever you say bruh.
not in the USA…
that’s just a guess, obviously…
on the other hand…
I would guess devastating hyper-inflation in your country…
uh… where do you live?
Lol…when devastating hyperinflation hits my country it will definitely hit the USA. You seem to think that “digits on a computer” are simultaneously trivial and extremely significant. Of course in a sense that is true, because they directly/indirectly represent faith in growth. All I’m saying is that faith in growth cannot be sustained by one country alone, and against a rapid deterioration of that faith elsewhere.
We actually already have massive inflation hidden in plain sight.
It is the cost of retirement savings and future pensions (ie the return on dollars invested) that has gone up hugely in the last 20 years.
For example 20 years ago, allowing for a 7% return on assets in retirement meant one had to save $400k to have a retirement of $28k/a, in real terms.
Now with returns of say 2% (if lucky), means the cost of your retirement of $28k/a would be $1.4m.
It is just as real an inflation as daily goods and services going up in price, but economists and central bankers want it excluded for a very good reason!!
This, of course is not counted in ‘official’ inflation, but it is there and shows that we have been in an inflationary environment since the end of cheap oil in 1997. When you add the massaging of the ‘official’ inflation numbers, that everyone knows from their own expenditures are fake, it will not take much to go from the current inflation to hyper-inflation.
It will probably not be in wages, but in the cost of goods and services, especially essential ones as we hit real oil depletion by ~2020.
We can’t have continued ‘low inflation’ while governments around the world continue to print, sorry borrow against ‘non-asset’ assets in the $Trillions.
Something I read a few years ago from the Bank of England web page where they had history going back to 1694, showed that every time there was a large increase in money supply, not matched by goods and services, inflation followed, often with a lag of a couple to a few years.
We have and are still in hyper money printing, so hyper-inflation has to be inevitable when oil depletion (and by extension everything else depletion) kicks in with a vengeance.
We get the hyper-inflation just before and during the real collapse.
Stocks and housing in certain areas are inflating. I wonder if we are underestimating the quantity of dollars out there, because I’ve been waiting for all this magic money to start showing up in prices and just not seeing it. What percent of existing dollars is being created each year? That is the question. Not to mention regular old debt creation. Isn’t consumer debt as high, if not higher than in 2008? Does cpi include medical costs, university tuitions, and quarterback salaries? If dollars were a liquid, ideal would be even consistency and flow throughout, prices of certain goods acting as pressure to direct flow where needed. It is now starting to clump up in certain spots. This can’t be good for circulation.
As long as the inflation stays contained into financial assets and to some extent real estate it won’t really have the typical negative effects. The issue is if/when the money flows out of the FIRE economy into the economy of goods and services and suddenly prices inflate overnight. As long as people believe in the FIRE bubbles it will be BAU.
Health care and college tuition costs seem to rising as well…especially the health care. Anyone out there paying for health insurance / doctor visits can confirm?
The chart I showed of Per Capita Disposable Personal Income has an awfully lot of government benefits (paid for by more debt) in it.
https://gailtheactuary.files.wordpress.com/2018/02/growth-in-disposable-personal-income-compared-to-inflation.png
Inflation will stay financial assets if it doesn’t get into wages or its equivalent (Social Security, unemployment insurance, other benefits in Disposable Personal Income).
White House Considering Confiscating Guns From “Dangerous People”
https://www.bloomberg.com/news/articles/2018-02-24/white-house-said-to-consider-protection-orders-to-curb-shootings
Obama finally is going to get those guns by using Trump!
you know, private citizen Obama still could use his massive influence to do something about the black on black gun violence in his hometown of Chicago…
because, as you well know, 90% of the blacks murdered there are murdered by other blacks…
but, please tell us all…
what did he do in 8 years as POTUS?
and now he has better things to do, like writing his book.
And maybe when Obama has done that Bush can help lower the illegal immigration rates in Texas….Presidents to the rescue! /s
Yikes!
https://www.zerohedge.com/news/2018-02-24/former-calpers-board-members-shocking-admission-calpers-near-insolvency-it-needs
Imagine the impact of a stock market crash on Calpers….
in the future, with guaranteed declining FF and its wealth effect, something’s gotta go…
one obvious first cut would be to future promises of income while not working…
so pensions…
there may be some years of struggle ahead to keep these systems running…
but eventually, most people will realize that they are unfeasible.
Two retired Los Angeles city employees—Earl Paysinger, a former deputy police chief, and Emile Mack, a former assistant fire chief—pulled down more than $1.4 million apiece in pension benefits last year, giving them the largest nest eggs across all California’s public retirement systems.
Last week Transparent California released data showing that more than 62,000 retired California public workers earn at least six figures in annual retirement benefits. Paysinger and Mack are two of the seven members of the exclusive million-dollar pension club. All seven retired from the Los Angeles police or fire departments.
https://reason.com/blog/2017/10/23/californias-six-figure-pension-club-2016
Might I suggest hacking 62.000 tall trees first….
wow… that’s insane… too bad, but I don’t think CA can do anything about benefits already promised…
what they can do, is eliminate or at least greatly shrink payouts to employees from now on…
good state jobs are highly desired, so CA could offer $0 pension benefits and still get more than enough qualified candidates for state job openings…
sooner or later, they will figure this out…
it’s CA, so my guess is “later”.
The article says, “The CalPERS board voted to change the period for recouping future investment losses from 30 years to 20 years.”
I think what it really means is, “The CalPERS board voted to change the period for recouping past investment losses from 30 years to 20 years.” The article says that they recently changed the interest rate assumption to 7.0% from 7.5%. Of course, they can get nothing close to that on bonds, so they are hoping to get a low more than that on stocks. As long as interest rates keep falling, stock markets pump up quickly. But once interest rates start to rise, stock market fall.
This pension fund, and every other one, is “hurting.” Actuaries thought that the investment results of the 1970s and 1980s would last, but they were wrong.
From afar, in both time and distance, I had the impression that a lot of the issues relating to illegals/cartels were a result of NAFTA putting untold numbers of Mexican small farmers out of business with mass produced and exported US primary production. The peasants moved into cartels as the only employment option in the same way many US poor move into that regimes military?
We took away Somalia’s fish and got the pirates, we took away land form peasants in Africa and got boko harass, and we took away the future for Syria and got migrants crossing the Med. Blowback everywhere you look huh?
we took opium from Afghanistan and got the Taliban
Jobs that pay well is the problem wherever you look. A large share of US debt has indirectly gone into jobs for citizens, or benefits for citizens that substitutes for pay.
Countries everywhere are have real difficulty coming up with enough jobs that pay well. More and more debt sort of papers over the problem. Young people are encouraged to take all kinds of advanced schooling, but there are really not enough advanced jobs for them. But the debt for their education pays for a lot of teaching jobs.
Also figure into the calculaton the destruction of infrastructure in some of the most literate, though relatively poor, countries in Eurasia, and simiiar degredation in South America, and some are surprised that world GDP seems to have stalled.
“One of the most comprehensive studies on how immigration policy impacts the food system was commissioned by the American Farm Bureau Federation in 2014. Their report examines several policy scenarios, including what the authors refer to as the “enforcement only” option, which they define as “strengthened border security and…more aggressive use of deportation”—essentially Trump’s plan to date. ”
“The price shocks would not be diminished evenly across the supermarket aisles, with foods that are typically imported (like olives) or produced primarily with mechanized means (grains and legumes), staying roughly the same. The biggest price increases would be seen in the produce department—as fruits and vegetables are by far the most labor intensive foods to produce—though the researchers did not provide a specific number.”
“A study by the National Milk Producers Federation, however, found that the price of dairy products—also a very labor-intensive segment of the food system—would go up dramatically. The NMPF says to expect a 90 percent increase in retail milk prices if the immigrant labor supply is taken away from American dairy farmers.”
“According to the Farm Bureau report, “closing the border” (i.e. building a wall) would greatly exacerbate existing farm labor shortages found in many parts of the country, resulting in crops left to rot in the fields and a vast reduction in agricultural productivity—which could put some farmers out of business. ”
“Specifically, the report forecasts up a 27 percent reduction in meat production; up to a 31 percent drop in vegetable production; and as much as a 61 percent drop in fruit production. All told, farmers would see a 30 to 40 percent loss of net farm revenue due to the combination of lower production and higher labor costs precipitated by an enforcement only approach. Total agricultural output would fall by $30 to $60 billion. And according to the NMPF, one in six Americans dairy farms would likely close.”
“Numerous studies have underscored this uncomfortable truth. A 2010 survey conducted by the National Council of Agricultural Employers found that 68 percent of the native-born workers referred by state unemployment agencies to agricultural employers did not accept jobs offered to them. Of those that did accept a job, only 5 percent stuck it until the end of their employment contract.”
“A 14-year study of the agricultural labor market in North Carolina found similar results. In 2010, for example, the state’s unemployment rate rose to 11 percent—equal to more than a half million job seekers—but recruiters were successful in placing only 30 workers in agricultural jobs, and of those, 30 percent quit before the end of the season.”
“The reason that illegal immigrants contribute so much to the economy, besides performing heavy labor at a low cost to employers, is that they spend money in the cities and towns where they live just like anybody else. Plus, many actually pay taxes, despite their illegal status, though they use fewer government service per capita compared to citizens.
It’s been reported that the Social Security Administration receives over $7 billion annually in contributions from undocumented immigrants. And a 2006 report by the Texas state comptroller found that illegal immigrants residing in the Lone Star State contributed $424 million more to state revenue than they consumed in government services (education, healthcare etc), and added $17.7 billion to the gross state product.
https://modernfarmer.com/2017/01/trump-builds-wall-will-happen-food-system/
https://imgur.com/a/bbOTk
Ha. Good. We have lots of people like this.
AI and robots for farming.
and lettuce
https://www.youtube.com/watch?v=7B7MxVnvssY
and strawberries
The statement…”It’s ultimately technology that will make the difference” is the religion of technology hopium. He forgot to mention diesel fuel to run the robot tractors, FF generated chemical to grow the crops. After all….we all know now that “ information is the new oil”.
This trend toward robotic automation will continue until Mexican workers are no longer needed in agriculture….that is to say, it is fully automated.
It depends on energy though. Then we will see “ Google farms”.
The corporate vise will be near complete. We supply your information, and your food. Think the right way to be fed.
you got it all wrong
everyone is going to be given a 3d printer
then you can print out whatever meal you want—when you want it
so stop complaining
I am sure that is the CBs plan B.
Just make fiat money edible – problem solved.
US Gross National Debt Spikes $1 Trillion in Less Than 6 Months
https://wolfstreet.com/2018/02/24/us-gross-national-debt-spikes-1-trillion-in-less-than-6-months/
The debt trajectory was already so out of control, structural changes to spending was absolutely needed, but then they made the recent tax code changes, reducing corporate taxes from 35 to 21%. Now the trajectory is without question headed for financial ruin and possibly in the short run. I don’t think those tax reductions can last longer than a year or two before things begin to unravel. There’s going to be absurd levels of debt piled on.
It’s like having a $500. dollar a month car payment on some luxury car, but only 300 a month to service the payment, then modifying the car with a loan to make it a turbo, plus gold plated headers with a special fancy new paint job, then owing $800. a month., but to make matters even worse, then the 300 a month gets whittled down to 200., so the monthly deficit increases to $600 a month. But there are plans to even make that auto even more amazing as Washington DC plans to eliminate all revenue coming in and putting wings on the car to modify it to fly. Then the car and the economy will really take off. Huh?
I am glad the sooner the US goes bankrupt the better. It was only after the French royal government went bankrupt that ushered in the French Revolution…
I wonder if you will feel the same way if your bank account disappears at the same time. Also the bank account of your employer.
What was your favorite part of the French Revolution? The Reign of Terror under the nicely-named Committee of Public Safety or the wars and chaos and hyperinflation of the Directoire? I wonder which part Soros thinks most fondly of?
The Napoleonic Counterrevolution?
What was your favorite part of the French Revolution?
The part where it made way for a system of government more suited to industrialism, and more inclined towards spreading the resultant prosperity around more evenly?
People who look forward to setting up guillotines never seem to imagine their own heads on the block, for some reason……
40% of young Europeans apparently said they looked forward to revolution to ‘change things’: well, yes, one gets ‘change’, but what else?
it seems that there are debt plateaus as the US reaches the charade of a “debt ceiling”…
then the debt spikes after the ceiling is raised.
in the link, the graph clearly shows a $5 trillion increase in Obama’s last 5 years…
thanks, Obama, the economy needed that “money”!
$1 trillion yearly debt increases are the new normal…
so, we can expect $30 trillion by about 2027…
$40 trillion in the 2030s? perhaps.
who thinking that mexico wall will save usa for illegal immigration from mexico
i have one thing to say Those who cannot remember the past are condemned to repeat it
for ex you know China tried to build a wall to keep out nomadic hordes from raping and pillaging them. It took them over 50 years and at the cost of 100,000 lives and the economic collapse of 2 powerful dynasties for them to finish it and what a marvel to behold 50ft high, 10,000 miles long stretching over mountains and deserts……..and it did ABSOLUTELY NOTHING!!! The Huns, the Turks and the Mongols simply climbed over and kept raping and pillaging or in Genghis Khan’s case he just got his buddy on the other side to open the Wall and he basically conquered all of China with more raping and pillaging. Later the Manchus did the exact same thing 400 years later, got their buddy on the inside to open the Wall and conquered all of China again with raping and pillaging
and second thing is do you think Mexican people can really get scared of a wall
when they face Mexican cartel every day
Is the point really that the wall should stop them, and not only slow them down enough to get shot?
Two cheap fences 200m apart and shoot everything that moves between.
US don’t have to stop everyone, just shoot a no one will try. Life is bot THAT much better in US.
The situation in Europe now is less than one percent risk dying in the sea, if you succeed you are set for life (they believe) and also could legally send after your relatives and friends. Africa to Europe is a much higher step up in living standard.
Actually, immigrants often get step up in living standard even vs. the native European inhabitants (“right to assemble families”). That’s large part why there is such rage about it to begin with..
I tried to say that immigrants to Europe has lots of incentives and almost no risk of dying in the passage, and still hardly no one tries to go to Europe, I don’t know … maybe 100k a year out of 0.5B+ africans and middle easterners.
With less incentives going from Mexico to US, how large percent has to be shot at the border to completely stop that route? 1%?
Yeah, I agree DJ, at least from the standpoint of there being better designs. There are other strategies, like land mines, auto activated machine guns nests, electrified fencing, or how about 10’s of thousands of hungry, violent, pack dogs permanently left between two sets of fences left to run free. The fences could have rows of wheels up about 15 feet, so as someone climbs up they grab a wheel that rolls down so they can’t get up past them. Or how about millions of black mamba African deadly poisonous snakes between two fences. Just keep feeding them a pile of eggs and the population would skyrocket. Who would dare try to make it through that gauntlet? How about those bee boxes but with Africanized bees? There could be multiple fences, with A. Bees between one set, B.M. snakes between another set, wild hungry dogs between another, machine nests between another, land mines in the 5th and final set. Good luck intruders!
I suspect this could be televised.
“I suspect this could be televised.”
“Quick we’re going to camera set 3.”
“What do we have, Steve?”
“9 intruders that are scaling the first fence and are now into the first of five fence gaps. This one has African Black Mamba snakes that are deadly poisonous.”
“Do they have much of a chance?”
“They do. It’s mid-day and the snakes are in the shade away from where they are.”
Mark: “This intrusion surveillance alert is brought to you by Pepsi. If you’re out where it’s hot, you need something to quench your thirst – try Pepsi, it’s refreshing!”
Just think about all of the jobs that creating and maintaining such a fence would create. This “jobs” program could help replace the rest of the “defense” program.
holy shit gail even you support this stupid idea
I didn’t say I supported the idea. I am just pointing out some of the silly ways it can be beneficial to the economy. Mexico’s economy will crash, without oil. I am sure that this is a major concern. Do we need a second Venezuela just south of our border?
Gail—
It depends on where in Mexico you are—-
It is more complex than simple ideas about Northern Mexico.
True. But Mexico’s oil exports are rapidly falling to zero, and that affects what the government can do in programs for its people. Mexico is trying to import more natural gas from the US, but it needs more pipeline capacity to do this. Also, there were some issues this winter with not enough US natural gas being available for export. More pipelines/storage might help that issue. In theory, US natural gas could help the northern part of the country. Without cheap energy supplies, any country has a major problem.
Keep in eye on Venezuela … to understand what is about to visit Mexico
I can do better!
To hell with the fence…. just hire thousands of Millennials out of their parents’ basements…. give them an afternoon course on how to fire an automatic weapon…. another afternoon explaining to them how all Mexicans are dirty vermin that need to be exterminated…
Then position them along the border…. and tell them to open fire on anything that moves…. pay them $100 for every dead rat…..
What’s not to like?
Venezuelan refugee crisis:
https://www.cfr.org/report/venezuelan-refugee-crisis
when Mexico has a similar crisis, where will the refugees go?
southward?
perhaps.
I agree static defenses work poorly, Maginot Line, Great Wall, etc.. Yes, a proactive approach is needed. The Israelis use auto-ill zones
https://www.wired.com/2007/06/for-years-and-y/
https://www.wired.com/images_blogs/dangerroom/images/2007/06/04/samson_rcws.jpg
https://www.wired.com/images_blogs/photos/uncategorized/2007/06/04/samson_rcws.jpg
auto-kill zones
moron guard jobs lost to automation. even the guard dogs go unemployed.
This would be bigger than American Idol if televised…. it could run 24/7 …. there could be different feeds from different sections of the wall….
‘American Colosseum’
Sort of like The Running of the Bulls…. The Running of the Machine Guns….
holy shit people are supported genocide of Mexican people if the wall failed in ofw
btw let show people in ofw how brutal Mexican cartel
https://youtu.be/oh3eDt6P2KY
https://youtu.be/EcjRXcVqnOY
and i heard that mexican cartel have even chemical weapons
Simple solution. Offer temporary work permits. They can become Walmart greeters and tanning salon technicians, operate food trucks and those bouncy-bounce stations in the malls.
you will enjoy the movie “No Country for Old Men”. highly recommended.
Category: Entertainment.
And your point is? Oh right, you’re trolling.
When the food trucks stop coming everyone will support the genocide of their neighbors if they have food. Is it really shocking to see entire countries already engaging in that exact same behavior? We aren’t really a “civilized” species, we’re animals that have forgotten our own food/energy needs and society fuels the illusion.
http://www.offthegridnews.com/wp-content/uploads/2015/06/organic-farms-nytimesDOTcom.jpg
vs
http://www.top10hq.com/wp-content/uploads/2014/09/crips.jpg
When day come do da door it ain’t gonna be no halloween trikker treet m’uer f789ers
A garden will make you a target.
FE have you read the sci-fi boo Lucifer’s Hammer? It is this exact scenario but the good guys have muster gas. 🙂
mustard gas
There are good guys?
Perhaps we can install a few of those automated machine guns above near the garden perimeter? I think I’m going to start looking into that.
You shouldn’t be so surprised, especially since you seem to be a regular on this site (and probably others like it). Human beings kill each other in order to protect their own. Some of them enjoy doing it for various reasons, while others compartmentalise/rationalise the issue like a few commenters here.
The reason violence is so unpopular these days is because the causes of violence have been neutralised or at least ameliorated by FF-based prosperity. Without that prosperity it shall again become the norm. You can actually see the sheer visceral intensity of that need for violence *indirectly* in how adamantly people refuse to believe that FF-based prosperity is only temporary. People intuitively realise how cosmetic, and how fragile, their “rational” lifestyles and mindsets really are.
I’m not saying this is an absolute, inherent characteristic of human nature, but it is virtually universally present in various degrees within human beings. Figures like Christ or the Buddha may have been exceptions. At any rate, they articulated the exceptions. But unless one realises that exception in oneself, one has no right to criticise others for not doing so. Unfortunately, their self-proclaimed votaries are too busy rationalising their belief in magical entities and faerie realms, to be bothered about living a life devoted to truth and virtue.
Sounds like you are for Soros Open Border policy? Don’t say I didn’t warn you when MS-13 comes braking into your house! /s
Okay, I accept your history and see it as an observation that violence trumps kindness and love and a simple desire to preserve one’s culture defensively, not offensively. It is not very encouraging.
You ask a question in the third paragraph, I have no idea, what are your thoughts?
A wall is totally unnecessary. If they really want to stop illegal immigration, all they need to do is make a civil penalty for employing illegals. Make it a strict liability offense, set the penalty at $25k, and let anyone bring the suit and collect the penalty. My fellow trial lawyers will sue employers of illegals into bankruptcy. After the first family farm or chicken processing facility are lost to civil penalties, it will be impossible for them to find work and they will self deport.
This will never happen because the democrats want the votes and are riddled with white guilt, and the Republicans love the cheap labor and ability to crush unions.
I agree that this would work, not that I really would want to see it done. One question: where would the $25K penalty come from? The people being sued likely have barely enough for groceries and the next rent check.
I expect the initial targets would be employers of some size. Tyson chicken, large farms, etc. Of course, many private citizens of financial means employ illegals as nannies and domestics. A lien against someones home would probably have a chilling effect.
Personally, I don’t much care about immigration, or gun control, or deficits, or transgender bathroom issues (yes I have opinions) because I think the coming collapse is going to dwarf all of those issues to the point of irrelevancy. I only have one motivation, one moral, one guiding vision for the future……the survival of my children at all costs. Its liberating, in a way. All of the stress of career ladder climbing, retirement savings, worrying about physical fitness, aging, bucket lists, it just fades away.
the survival of my children at all costs
Sorry to inform you …
Suing the employers not the illegal employees.
“This will never happen because the democrats want the votes and are riddled with white guilt, and the Republicans love the cheap labor and ability to crush unions.”
Hey, that’s pretty good.
I lived in Mexico for quite a while. You really are quite clueless.
(I’m back in The States now)
My understanding is that a lot of the US fruit and vegetable industry would collapse if not for illegal Mexican workers. This is from a person that just toured through these areas and talked to many farmers in the same industry as ours. Large concerns often have hundreds of workers, nearly all Mexican, especially for all the field work.
A wall to keep Mexicans out is one of the last things the land owning right want.
If mexicans are that hard working. And I don’t doubt you. What is the problem?
The major supplier of fruit and veg in Europe is, apparently, Sicily – and it’s stuffed full of migrant workers, very badly treated.
Same with the fruit growers in England, and recently a gypsy gang was convicted of enslaving migrants who they then hired out to farmers. Their defence in court was actually ‘Why pick on us, everyone does it?’!
Doomie Preppers have this Koombaya vision of the world…. this is a disease contracted from attending too many Sunday markets selling organic pumpkins to refined wealthy types dressed in Brooks Brothers casual wear — who arrive in Teslas….. the disease is exacerbated by watching re-runs of Little House on the Prairie…. (kinda like scratching a rash until it bleeds)
It gets so bad that they actually begin to wish BAU would end…. so their Utopian vision of the world can be launched….
I would give one of my kidneys if I could be a fly on the wall at one of these Doomsteads when BAU goes down….. and the lights go off… and the Fast Eddy Challenge begins….. in earnest….
And of course it is about oil and natural gas:
“The next major conflict in the world will take place in the Eastern Mediterranean, & it’ll be contested among many different countries. These maps show how the region might turn into a literal battleground one day:
The biggest threat to regional stability will come from Turkey.”
https://twitter.com/nadiabelush/status/966845041569345536
For those who still think supply chain is not an issue
http://www.independent.co.uk/news/uk/home-news/kfc-chicken-shortage-crisis-stores-closed-apology-advert-newspaper-a8224791.html
“Teething problems” with the chicken chain’s supplier DHL sparked widespread shortages, leaving angry customers turning to rivals like Burger King to get their fast food fix.
The Wall Street Journal has a new article called “New England Has a Power Problem:The region is struggling to meet electricity needs and ambitious green power goals.”
Also,
New England seems to be in an interesting place. Something seems to be missing from the report, though. Why can’t they just jack up prices until supply and demand balance?
As an aside, by its very nature, green energy is never where you want it, when you want it.
Because natural gas in an area where it is mainly used for winter heating is an inelastic good. People will pay to be warm regardless of the price unless they literally cannot afford it, at which time it would be so expensive it’d crash the economy anyway.
Great article Gail. Like Davidetc above, I think the decision to raise interest rates is affected at least partially by expectations that the US will become a net oil exporter, founded on the recent increase in production (mostly in tight oil).
That is a good point. While being able to supply our own energy needs is helpful, we are still dependent on a huge supply pipeline. “Renewables” are especially bad that way. Instead of being dependent on Saudi Arabia, we are depending on China, Congo (cobalt), Chili, and Australia.
I don’t think that people realize that our problem in the US is as much an electricity problem as an energy problem. I quoted a story elsewhere saying that New England ISO (electricity regulator) is warning of rolling blackouts in the North East. Renewable mandates are making the problem much worse than it otherwise would be.
People don’t realize that the whole world has to have enough energy supply, and the quantity has to go up with population. And that the price has to be cheap enough.
Undue optimism for the near term, we might have few more quasi BAU years ahead?
https://surplusenergyeconomics.wordpress.com/2018/02/23/120-the-need-for-new-ideas/
Dr Creeping Collapse: prosperity in US 7% lower in 2030 than 2016, UK 10% lower.
Dr. Tim Morgan is a very smart man…
only 7% lower in 2030…
yes!
easy math, that’s about a half % per year…
which may be a reasonable effect of a slow FF decline throughout the 2020s.
US oil production – new record high this February…
possibly to hit 11 million barrels per day next year:
http://www.cbc.ca/news/business/oil-production-united-states-output-forecast-1.4479342
this may be enough extra energy to offset rising debt and interest rates, and perhaps offset higher inflation as well…
because, of course, the primary economy of goods and services runs mostly on the energy provided by FF.
money and debt can be mishandled if they are not kept in good proportion to the primary economy…
but energy rules over economics, finance, debt and money.
in 2017, in the real economy of goods and services, all of the goods and services were produced between January 1st and December 31st inclusive, and no goods and services were pulled forward from the future.
Be this a candle for “Stefeun”, who died a year ago today.
https://www.gerhard-richter.com/en/art/paintings/photo-paintings/candles-6/candle-6534
Sorry to hear, he was a good guy.
Yes he was a nice guy , may he rest in peace!
Yes. He was very helpful and very knowledgeable. We miss him.
Toys R Us faces bankruptcy, putting 3,200 jobs at risk
https://www.theguardian.com/business/2018/feb/23/toys-r-us-faces-bankruptcy-putting-3200-jobs-at-risk?utm_term=Autofeed&CMP=twt_b-gdnnews#link_time=1519429860
And another 3200 jobs bites the dust…
I heard amazon is hiring.
I thought this was quite good.
You captured my cynicism perfectly. I heard it was harsh, but wow.
Give FE his due, market is up somewhat(well, maybe more than somewhat) and the 10 year bond is holding under 3%. FE stuck to his guns.
it is possible and perhaps likely that The Collapse will come when markets are at or near all time highs…
US markets were up slightly for this week… about half a percent…
US 10 year yield is down to 2.87%…
is there a Percentage Protection Team?
gotta keep that rate under 3%.
https://imgur.com/a/qY6g6
there are 10 types of people:
those who understand binary, and those who don’t.
There is a T-shirt with that saying, I think.
I know; I own 10 of them 😉
Wow, you must really like binary then.
Could I have the other?
https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=t+shirts+for+men+there+are+10+types+of+people+in+the+world
Another Jordan Peterson Lecture with specific insights into productive and bureaucracy which adds to the drag on complex systems.
@Baby Doomer, I apologize if this has already been referenced or discussed, but further to your claim above that “Based upon the HSBC report and the IEA, the End of Oil Age will start around ~2020: there will be a dramatic economic depression due to exhaustion of cheap oil”, you and others on this site might want to read “A Regional Oil Extraction and Consumption Model.
Part II: Predicting the declines in regional oil consumption,” https://arxiv.org/pdf/1708.03150.pdf, by Michael Dittmar, of the Institute of Particle Physics, Zurich, Switzerland, dated August, 2017. Some excerpts, which you can find over at EnergySkeptic:
“Aside from the OPEC Middle East region, where a rather stable production is modelled for the next 15 to 20 years, production in essentially all other regions is predicted to be declining by 3 to 5% per year after 2020, and some are already declining at this rate.
Based on the evolution of intercontinental oil exports during the past decade, it is predicted that in the near future Western Europe will not be able to replace steeply declining exports from the FSU countries, and especially from Russia. Hence total consumption in Western Europe is predicted to be about 20% lower in 2020 than it was in 2015. For similar reasons, although the export sources are different, total consumption in the U.S. is predicted to be about 10% lower. . . .
Our model predictions indicate that several of the larger oil consuming and importing countries and regions will be confronted with the economic consequences of the onset of the world’s final oil supply crisis as early as 2020. In particular, during the next few years a reduction of the average per capita oil consumption of about 5%/year is predicted for most OECD countries in Western Europe, and slightly smaller reductions, about 2-3%/year, is predicted for all other oil importing countries and regions. The consequences of the predicted oil supply crisis are thoroughly at odds with business-as-usual, never-ending-global-growth predictions of oil production and consumption.”
Part I, on which the analysis in Part II is based, does not appear to be available online for free, but the abstract for Part 1 states:
“Abstract The growing conflicts in and about oil-exporting regions and speculations about volatile oil prices during the last decade have renewed the public interest in predictions for the near future oil production and consumption. Unfortunately, studies from only 10 years ago, which tried to forecast the oil production during the next 20–30 years, failed to make accurate predictions for today’s global oil production and consumption. Forecasts using economic growth scenarios overestimated the actual oil-equivalent liquid production, while models which tried to estimate the maximum future conventional and unconventional oil production/year, using official and public country reserve data and/or private oil industry oil reserve databases, often underestimated the current conventional oil production in some larger oil-producing countries. In this paper, a new approach to model the maximal future regional and thus global oil production (part I) and the consequences for the regional oil consumption (part II) during the next decades is proposed. Our analysis of the regional oil production data during past decades shows that, in contrast to periods when production was growing and growth rates varied greatly from one country to another, remarkable similarities are found during the plateau and decline periods of different countries. As a result, we propose to model the oil production decline phase in all oil-producing regions with a universal decline function which assumes that a few years with a stable production will be followed by about 5 years with a 3 %/year decline and 6 %/year afterwards. This plateau and decline function was found to describe accurately the oil production of the past 15 years from Western Europe (EU+Norway), Mexico and Indonesia. Following this model, the particular production phase of each major oil-producing country and region is determined essentially only from the recent past oil production data. Accordingly, we find that the conventional oil production in all regions, outside of the Middle East OPEC countries, will start the 3 %/year decline phase between the years 2015 and 2020. Using these data, the model is then used to predict the production from all major oil-producing countries, regions and continents up to the year 2050. The limited regional and global potential to compensate this decline with unconventional oil and oil-equivalents is also presented.”
Interesting, thanks.
So we might be looking into short few yrs window of ~3% /year decline phase, followed by a sharper knee into ~6% one. In another words expecting stepwise collapse, when they fail to paper over/deny reality of the first phase and or even the first phase completely disrupting prevailing JITs or ricocheting into geopolitical reshuffles.
From the article excerpts it seems that Europe is the most fragile one there (doesn’t have the resource nor willingness to take it by force/only in broader alliance with the US).. However, in the same vein, Europe being the one perhaps able to swallow the first wave of draconian mandates under some great lie (global werming, Russians are coming, refugees are not coming, .. hah).
Whiting Petroleum stock was up 25% yesterday, supposedly on the news that it bled out cash at a slower rate last quarter. Fracking is a lot of work for relatively meager pay. Kinda makes me wonder
why they bother.
Check out these charts I collected on Shale…
https://imgur.com/a/t7ulB
This does beg the question as to why so much investor money is still being poured into these companies? Even after several years of zero profitability. Does anyone have a good explanation?
I suspect because the energy sector has historically been profitable. And the fact that the economy needs energy supports the rationale for the investment. This seems to be somewhat of a normalcy bias. These investors assume that things will continue. So, energy must continue. So, there will be profitable energy companies. Humans have a hard time with discontinuity.
I read a few articles last year that said investors were starting to get very inpatient with the shale companies..Not sure if they speak for all the investors of course. Last year the worlds largest mining company BHP, sold their investments in shale…
It is possible to put together models that say that the wells will be profitable over the very long run. According to these models, they will continue to produce oil for a very long time (30 years?) and the price of oil will rise. Overhead costs associated with wells producing tiny amounts will never become a problem.
The real question might be who is doing the investing. I have a sneaking suspicion we would not still be in BAU (or a close proximity to it) if there was no tight oil.
Perhaps those investing know the real reason is that we NEED the oil and the cost does not matter. Without that 4m bbls/day? or thereabouts, the price could have gone through the roof for crude and the next step down the seneca cliff would already be happening.
I wonder how many govt controlled pension funds etc have invested, knowing that losing money on tight oil is actually cheaper than having high oil prices crash the system.
It is not conspiracy, just reality has occurred to many smart people.
ROFLMAO – they bled cash at a slower than expected rate. Kind of like the patient died at a slower than expected rate. What the hell. So, this is how we invest now?
Invest in yourself and your family. Do the things you have always wanted to do. These things can’t be taken away from you.
Thank you, doing so, excellent advice.
I’ve always wanted to inject heroin and cocaine at the same time, and on a daily basis. Thanks for that advice. 😉
I suspect you won’t be around very long, if you follow that pattern.
It is better to work on repairing relationships with others around you, and even building others. Do volunteer work, if you have time.
Venting/smart ass comment I made. Better to give indeed. This could be considered kumbuya, or new monastic individual, but I think it’s good advice too.
And don’t forget to cut off some of those toxic relationships with abusive people who do you nothing but harm.
Six years ago a friend of a friend of mine aged 65 at the time murdered a man who had been his schoolmate after more than half a century of an abusive “friendship” in which the victim had been regularly bullying, domineering and disparaging the perpetrator. One evening in a bar, the victim wound the perpetrator up a bit to tightly, and so the guy left the bar, went home, came back with a carving knife, and stabbed his old friend to death in a fit of temper. No money was involved. No threats or blackmail either. It was simply a matter of hurt pride and resentment at how the other had treated him and how he had allowed himself to be treated all these years.
Result, a 12 year prison sentence, plus the perpetrator’s family had to sell their home to pay compensation to the victim’s family. But this being Japan, the perpetrator’s family is nursing the hope that his sentence will be commuted to mark the accession of the new emperor next year.
Hey Mark, I remember that documentary “What a way to go: Life at the End of Empire”. I saw it about 9 years ago, and it was one of my first documentaries on my way to my “enlightenment” to how effed up we are as a species…
Btw your drug comment was LOLLLL!!!
Sounds like a plan! I wonder what it would feel like to mix both in a spoon then vapourize and inhale the lot?
It is a very very good feeling. You would like it. It´s called speedball and I took some of them in the seventies. But as Gail said, you won’t be around for long on this diet. You need a young and strong heart for that, because the heart get’s two conflicting messages at the same time from this mixture. Thank God, I am sober now for almost 40 years and happily waiting for the Zombie Apocalypse.
Speedball… that has a nice ring to it!
John Belushi, River Phoenix, and the rest. Thomas’ post is accurate.
Thanks ITEOTWAWKI, I just saw it a few months ago.
This document (open access on science direct) explodes the myth of expensive nuclear power.
https://www.sciencedirect.com/science/article/pii/S0301421516300106
It demonstrates that the spiralling costs of nuclear power are a direct result of regulatory changes that pushed build-times from just a few years to a decade or more. Take a close look at Figure 3.
This should surprise no one. A nuclear power plant is simply a steam plant with a fission powered boiler. Its fuel costs are smaller than a coal plant. It is one of the most power dense sources of any energy on the market.
https://pdfs.semanticscholar.org/519e/a5c55a312f3f45ccfcc4a093a941366c6658.pdf
Euan Mearns recent article demonstrates the EROI of lightly enriched uranium to be 310 and over 17,000 in a breeder reactor cycle.
http://euanmearns.com/the-eroei-of-mining-uranium/
This is the only realistic candidate for replacing the energy output of fossil fuels. The western world seriously needs to pull its head out of its arse and develop the legal, regulatory and supply chain infrastructure necessary for a rapid increase in nuclear power. We are too far down the fossil fuel depletion curve now to play silly games with fanciful alternative energy sources.
Unfortunately, EROI doesn’t tell the whole story. We need a rising amount of energy per capita. Scalability becomes important. So does the amount of debt needed.
EROI leaves out a lot of pieces relating to costs in the real world. Energy needs to be very cheap.
Energy also needs to be very safe. It doesn’t matter what the EROI is.
Perhaps, but all indications are that a fantastic mal-investment is going to be made in fake ‘renewables’ – by the time that the folly of this is seen clearly, it may well be too late to change course.
Maybe just build lots of nuclear-powered ships and sidestep the regulators. Can park them down the end of main-street and plug them in.
after hurricane Eva ran over the island of Kauai with sustained winds of 180 mph (gusts to 200 mph) and broke nearly all power poles on the island like match sticks, the US Navy sent in a nuclear-powered sub to hook up the main town to electricity. it was there for several months as they had to order a lot of wood poles from the US mainland. so coastal and major river waterways could benefit from moble nuclear plants aka ships. worked for Kauai.
“Even people who love their Tesla cars, are planning to get Tesla solar roof panels, and who are saving up for a ride on Space-X must admit one thing: Tesla burns through a prodigious amount of cash.
“One commentator has gone so far as to call Tesla “structurally bankrupt.” By this, he means that the firm’s operations are not self-sustaining and that it is unable to function as a going concern without access to capital markets.
“We find that GM is, by our definition above, also structurally bankrupt… Ditto for Ford…
“Legacy automakers are faced with a real conundrum. The real price of automobiles has doubled since the mid-1970s while median worker pay has remained stagnant over the same time.”
https://www.forbes.com/sites/erikkobayashisolomon/2018/02/22/tesla-is-structurally-bankrupt-but-so-are-gm-and-ford/#57dec0f0203c
Don’t worry they can just socialism again to save them from going under. And just call it a “Bail out”.
This is an interesting article. The amount of debt to buy these cars is even greater than the amounts shown. Of course, if a bank issues the loan, the profit will go to the bank, so it doesn’t make sense to include this debt as well.
This is video illustrates how fast and how completely things can fall apart.
https://youtu.be/7kDo23r1dYo
!!!!!!!!!!!!!!!!!!!!!
This is what happens when a Russian troll forgets to turn off their geo-location on Twitter:
(look on the bottom)
https://imgur.com/a/wNhFq
Your partisan allegiances are all that matter to you. They are your I-can-never-be-wrong-and-I-will-never-have-to-think-again-or-ever-change-my-mind psychic security blanket. Does the word “Russia” negate anything anyone might ever say or anything you might ever read that contradicts your current beliefs?
Bcs “Russia” do you refuse to accept that the Clinton foundation was a vast charity fraud and slush fund, that Hillary was committing serious – perhaps even treasonous – security breaches when as Sec of State she used her own private server (why would she do that?) and that Obama was also acting illegally and perhaps treasonously when he communicated with her using that server?
Do you refuse to accept that the Russia dossier was a fraud created by British Agent Steele and paid for by the DNC and Hillary through Fusion GPS?
Do you refuse to accept that some of the highest Law Officers in the land repeatedly perjured themselves before the FISA court in order to obtain warrants for surveillance of US citizens using that fraudulent dossier when they knew perfectly well that it was fraudulent?
Personally, I would rather see this site kept free of the Punch and Judy show of mainstream politics, but as long as you insist on producing partisan rubbish, I am compelled from time to time to whack you down.
Please desist with the mainstream left-right Repub-Dem political garbage-talk. Surely this site shows that we are all well past that now.
https://i.imgflip.com/btu2t.jpg?a421968
Well said, Kim. I endorse your very reasonable request that partisans take their partying elsewhere.
I agree as well. The left-right dem vs rep circus has no place on this blog. Politics is just plain corruption supported by foreign and domestic “lobby-group” dollars. it has nothing to do with dem vs rep.
+++++++++++++
Whenever I encounter someone who spews on about politics…. particularly if they take one side or the other….
I immediately recognize that I am in the presence of a f789ing idi ot.
And I act accordingly.
Entertaing
https://www.youtube.com/watch?v=n_8AO5MDBEw
Crazy!!!!
I agree with you. Mainstream politics adds nothing to this site.
Fully agree, I refer to the both sides of politics in most countries as tweedle- dum and tweedle even dumber.
Very informative, thanks BD.
British Gas owner to cut 4,000 jobs blaming price cap and competition
https://www.theguardian.com/business/2018/feb/22/british-gas-cuts-4000-jobs-blaming-price-cap-and-tough-competition
Someone earlier asked what options a government has when energy costs rise, apart from raising interest rates.
Another option is price caps. The article B.D. linked is explaining what is happening in Britain whine this price caps are used. Job loss is part of what happens. Ultimately businesses collapse. It is a temporary solution.
The future in Britain is clearly thermal underwear and tucking a dog or two in the bed to warm it up at night -which is not that uncommon even today…..
What is the EROEI on dog heat?
Use the dogs to help in hunting as well. Then you will get double benefit. Perhaps some people have not heard that “Three dog night” means a very cold night. A person needs to surround himself with three dogs to stay warm enough.
You just taught me something new!! Thanks Gail.
I had only ever thought of 3 dog night as a group. (shows my age).
Band name origin
The official commentary included in the CD set Celebrate: The Three Dog Night Story, 1964–1975 states that vocalist Danny Hutton’s girlfriend, actress June Fairchild (best known as the “Ajax Lady” from the Cheech and Chong movie Up In Smoke) suggested the name after reading a magazine article about indigenous Australians, in which it was explained that on cold nights they would customarily sleep in a hole in the ground while embracing a dingo (wild dog). On colder nights they would sleep with two dogs and, if the night was freezing, it was a “three dog night”.[5]
yo, HideAway… it was Aussies!
I suppose a dog could be used as a pig also, transforming food waste into compost and meat.
While listening to Three Dog Night.
The End of the Oil Age is Imminent!
Recently, the HSBC oil report stated that 80% of conventional oil fields were declining at a rate of 5-7% per year. This means that there will be an oil shortage of ~30 million barrels per day by 2030 and ~40 million barrels per day by 2040.
http://www.scribd.com/document/367688629/HSBC-Peak-Oil-Report-2017
What is mentioned far less often is that annual oil discoveries have lagged annual production since the 1980s.
https://imgur.com/a/6dEDt
Now, this problem has nothing to do with the recent decline in the oil price, which started in 2014. This has been an on-going problem for the past 30 years. Now, the IEA is predicting oil shortages by ~2020 due to declining exploration.
https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000
Here, the IEA blames this problem on the low oil price. But, this problem started in the 1980s. The problem is geological: we are running out of conventional cheap oil. Shale and tar sands are not the answer, either. Those resources are far too expensive, compared to conventional oil, because the global economy is based on cheap conventional oil. Expensive oil is not a replacement for cheap oil.
Based upon the HSBC report and the IEA, the End of Oil Age will start around ~2020: there will be a dramatic economic depression due to exhaustion of cheap oil. This will cause a global economic collapse.
It would be good to have 2017 added to that chart.
Baby Doomer, those 6 images say a lot, but image 3 of oil discoveries per decade says all that is really needed, when people understand that we are using oil at the rate of about 300 billion barrels/decade.
There were only 3 decades when that much or more were discovered, leaving all recent decades with significant deficits of discovery.
I read reports of the decline rates of 5-7% per year, then go back to what happened at Cantarell in Mexico, where production declined at a rate of close to 20% per annum between 2005-2008, right when oil prices were going through the roof.
In Ghawar they have been using horizontal wells since 2005 or earlier, plus pumping in at least 7m barrels of sea water/day to keep flow rates up. I’m no oil production engineer, but don’t have to be to know that when Ghawar starts declining in production, it will be fast.
It is probably the same with many other legacy fields from that golden period of discovery over 50 years ago.
Using the Cantarell example, the 5-7% decline numbers from HSBC (and others) could be VERY conservative.
https://static.seekingalpha.com/uploads/2009/8/23/saupload_reuters_cantarell_through_june_20093.jpg
Mexico Oil Reserves Gone in 9 Years Without New Finds
https://www.bloomberg.com/news/articles/2017-03-31/down-10-mexico-oil-reserves-gone-in-9-years-without-new-finds
The 5-7 percent decline is likely based on the rate for a single oil well. the Ghawar field seems to be more like a dartboard with the outer wells declining first, then abandoned, until finally there remains a large number of wells clustered around the bull’s eye. That will likely result in a much sharper decline from that field.
I think that they are using some advanced techniques that lead to the likelihood of a big share of supply being cut off, almost at once.
Yes Gail, that is true. These Hail Mary techniques create a seneca cliff of collapse. This effect is overlooked at times. Glad you pointed that out.
When the price of oil stays down too long, Saudi Arabia doesn’t have the funds to keep upgrading the system, so it can maintain current production. I expect that this will be when Saudi’s oil production falls. I know that Saudi Arabia has shared oil production in the neutral zone that has been out of production for a year or two. It hasn’t been working hard on restarting it (coming up with environmental excuses, for example). This saves money, but holds back available production. If it is not needed right now, why spend money on it?
What options might there be in response to the feared rising inflation, other than raising interest rates? Given that our energy situation will no longer support needed growth, is there some combination of actions that central banks and governments may take to keep things going a little longer without relying upon interest rate adjustments and/or QE? Part of the issue would seem to me to be the expectation (by almost everyone) that there must, can, and will be growth. All planning, investing, decision making, spending appears to be based upon the assumption that growth is forever.
I think deflation is a bigger fear for the Central Bankers than inflation (probably because it would be a disaster for fiat currencies). But, I don’t think there is anything left to try to keep growth going. QE has “dragged” the show out from 2008 to now. However, growth has stalled globally despite trillions of borrowing. Financial tricks have “borrowed from the future” using future promises of energy that won’t be there. I just don’t see how raising interest rates will help or hurt. We are in such bad shape financially that it really doesn’t matter at this point. And the stats will be cooked as they have been for decades to give the illusion of growth.
I agree that the growth statistics that we have are unreliable at best, perhaps even downright fraudulent at worst. Looking at https://yearbook.enerdata.net/total-energy/world-consumption-statistics.html
they show a slight increase in global energy consumption in 2016. I guess we will need to wait a bit longer for full 2017 figures. Baltic Dry index is also at very low levels.
BP data usually comes out in May or possibly June of the next year.
“We are in such bad shape financially that it really doesn’t matter at this point.”
Balancing on a pin head, fearful of any financial metric nudging one way or another, but all the while elevating the debt in a desperate ongoing strategy to synthetically force any kind of growth. Like Gail put in one of her posts above, the US govt. is now assigning some expenses as investments in their bookkeeping. The crux of that is of course to bolster GDP in any way necessary. A few years back it was adding in an estimated amount for street drugs sold – yeah, no kidding. But now it seems they need to cook the books (to maintain the edifice to the public that all is well – cough, cough) even further.
How far can this game be extended on the backs of financial confidence in an economic system borrowing ever more against the future?
how far?
as far as remaining energy resources will take us…
rising debt is a signal that the real economy of goods and services is not gaining enough energy to make the economy grow…
if higher inflation arrives in the near future, it will be another of the same kind of signal…
lower employment and stagnant wages are other similar signals…
it would be a shame if the secondary economy of money-debt-finance ruined the primary economy of goods and services…
aren’t money and debt human inventions that should enable the real economy to work better?
I think China has had problems with coal prices increasing. (This is its inflation problem.) It has been trying to encourage developing more coal mines that are perhaps farther away but cheaper to extract. With oil, the option doesn’t as work well. I am not sure that it even works well with coal.
https://www.reuters.com/article/us-china-coal/china-gives-new-incentives-to-boost-high-quality-coal-capacity-idUSKBN1FT0HW
“Coal companies will be encouraged to close inefficient and polluting mines and replace them with larger ones if they meet certain standards, the National Development and Reform Commission (NDRC) said in a statement on Friday.”
From your linked article, Gail, is that line above. I thought it was what happened to coal after it was mined that was most polluting, but China seems to be concerned about the pollution surrounding the extraction method?
I know that small mines have had a lot of safety issues. This article talks about possible water pollution from coal. https://www.sourcewatch.org/index.php/Water_pollution_from_coal This article talks about acidity of water becoming a problem. Also water pollution with heavy metals and mercury. We use scrubbers in the US to keep the heavy metals and mercury out of the air. Air pollution from mines https://www.sourcewatch.org/index.php/Air_pollution_from_coal_mines includes escaping methane, sulfur dioxide, oxides of nitrogen, and carbon monoxide. Some mines catch on fire. The resulting fires are hard to put out, and are very polluting.
Oil, of course, has pollutants as well. The refining process takes out the pollutants. The fact that different oil had different pollutants leads to separate refineries being needed for some kinds of oil. I know that some Saudi oil is polluted with vanadium, for example.
Natural gas is often polluted with hydrogen sulfide.
We should have a Commemoration Day each year to honor the thousands of Chinese coal miners killed and maimed to keep out system going. And raise some cash for their widows and children.
See Rutledge aspo meeting
GDP can be faked I think. So we’re in this weird space of real contraction and fake expansion.
if the US hits the predicted production increase up to 11 million barrels per day in 2019, then that surplus energy could actually bring a real economic expansion, no matter how small…
but otherwise, I really like your quote…
the combination of common price inflation (which gov economists should be able to see) and lower quality of most consumer purchases (which gov economists probably are entirely clueless about) definitely puts us in an economy of actual contraction.
if a 10 dollar hammer bought 10 years ago lasted for 10 years, and a 10 dollar hammer bought today will only last 5 years, what’s the inflation rate?
zero?
Probably the new hammer could be connected to an app which makes it considered twice as good, so we get -50% inflation over 10 years.
an app!
of course…
so, adding in the value of all apps, the economy must actually be soaring.
Yes.
And it is.
According to official statistics.
“… is there some combination of actions that central banks and governments may take to keep things going a little longer without relying upon interest rate adjustments and/or QE?”
probably not…
so why not continue QE etc as long as it’s keeping the economy going?
Pingback: Raising Interest Rates Is Like Starting a Fission Chain Reaction - Deflation Market
Trump Economic Report Blames Obama Policies for Slow Growth
https://www.wsj.com/articles/trump-economic-report-blames-obama-policies-for-slow-growth-1519232428
‘The minutes of the June 2004 Federal Reserve Open Market Committee indicate that the committee decided to start raising interest rates at a rate of 0.25% per quarter for the purpose of stopping the rise in energy and food prices’
3 meals away from anarchy….
Most Arab countries buy half of what they eat from abroad and between 2007 and 2010, cereal imports to the region rose 13%, to 66m tonnes. Because they import so much, Arab countries suck in food inflation when world prices rise. In 2007-08, they spiked, with some staple crops doubling in price. In Egypt local food prices rose 37% in 2008-10.
http://www.economist.com/node/21550328
The masses will accept a lot… including beatings… oppression…. but if they cannot put food on the table….
Watch out….
There are a bunch of oil exporting countries that depend on food imports. Most of them, I expect, will need to keep adding debt to allow this to happen. Rising interest rates would be a problem for them.
Their populations are also very young: this is the segment most likely to react with violence to intolerable conditions. Elderly people will just fade away in misery.
It it possible we could come up with some scenarios?
FE’s experience with various forms of renewable energy seem real to me as I have attempted this on a reasonable scale – snow on collectors, wind loads, etc.
Entitlements are are the elephant.
Population decline is in “Limits to Growth.” What are realistic scenarios for decline not some apocalyptic, mad max version.
We have beaten to death resources, debt, collapse: what some realistic courses? I don’t have a clue other than enjoy today. I am doing that, but it is difficult for a hard core Calvinist to coast.
One guess on my part is the stock market is not going up, the dollar is going down. Thoughts on that one?
I have a couple of invitations to talk to Life Insurance actuaries. (One is a Society of Actuaries meeting in Baltimore on May 7-8.) They are interested in interest rates, and what is going on that will affect them.
We do what we can, while we can.
Actually, in general it’s very simple, when you are near towards the end of the road/wall, you just kick the table of old dominant-sacrosanct rules and start/pretend game a new. So, it most likely means fog of war, forced depopulation, curtailment of frivolous spending (“carz culture”) for billions etc.
How is this going to proceed in fine detail and timing is impossible to say, because strange situations might appear like for example, he who cunningly switches first into the most oppressive authoritarian regime wins (as in winning the round for a brief moment before makeshift JITs workarounds collapse further and or adversary competing for same resource folds).
So, in essence I tend to subscribe to the school of staircase collapse of the relative expedient scenario, where some entities might muddle through for 5-15yrs windows between further cascading fall through irreversible ladders of collapse, while some enclaves might get a shortcut route in this process, e.g. this seems to fit the Venezuela’s case.
Gail, amazing article here linked to today by Ilargi over at the automatic earth, about the coming surge in marketable treasuries, inquiring who is going to buy all the new debt, and making the case that unless the Fed resumes QE, the domestic public is going to have to absorb 1.5T in new U.S. debt / year indefinitely. The implications are, needless to say, not good. One has to read the whole article and look at the charts to get the full picture, but his concluding paragraphs state:
““So, I’ve shown US federal debt is surging but the only thing keeping the US economy “growing” is the size of the deficit and debt incurred. I’ve show the traditional sources of net Treasury buying have ceased except for the domestic public. That the Intra-Governmental holdings are essentially peaking and will be a net seller within a couple years and all new debt issued will be “marketable”. I’ve shown the Federal Reserve plans to “roll off” approximately $250 billion a year for up to four years. I’ve shown that China ceased net buying Treasury debt in 2011 and foreigners have essentially gone on strike since QE ended. The only real foreign bid remaining is from some pretty shady demand that looks an awful lot like it could be central bank buying, but regardless the BLICS, foreign demand for Treasury’s (on a net basis) has essentially stopped.
This leaves the domestic public to purchase all the surging new issuance, plus the portion the Fed (and soon enough, the IG) is rolling off, and with little to no assistance from foreigners (even the possibility the strike turns into an outright selloff!?!). The domestic public currently holds about $6 trillion in Treasury debt and will need to buy in excess of $1.5 trillion annually (indefinitely) between picking up the roll off and the new issuance. If the public “willingly” do this at low interest rates, it will represent 7.5% of GDP going toward Treasury purchases that yield well below needed returns. If the Public don’t do this “willingly”, interest rates will soar far more than shown above and the US will be overwhelmed by debt service. The only other option is that the Federal Reserve makes a U-turn to re-start QE and openly engage in endless monetization.”
https://econimica.blogspot.nl/2018/02/who-is-it-that-wants-to-buy-trillions.html
That should be Hambone. He is a “creeping collapser”, recommends buying equities.
Thanks for the link to the article by Chris Hamilton. He doesn’t say much about himself, other than the fact that he is male and not an economists. He is certainly right about a debt surge coming.
One thing he doesn’t mention is the growing role of entitlements. This makes the situation even worse than he calculates. I found this chart in the WSJ today.
https://gailtheactuary.files.wordpress.com/2018/02/federal-spending-as-a-pct-of-gdp-by-type-wsj.png
A look at this chart makes it clear that “getting rid of defense” is not enough to fix our problem.
Also, even this chart understates the problem, because GDP is rising faster than wages.
I expect that European countries will have exactly the same problem with growing entitlements. It is not possible to support a big population of elderly people with a population of young people that barely making enough to support itself and shrinking in size relative to the number of elderly. We added programs back in the 1950-1980 period when things looked good, but we cannot support them now.
I think europes problem could get even worse, being purer democracies. We are not far from having 50%+ useless eaters, so we have parties whose whole program is stealing from producers and giving to the UE.
Hambone has mixed up the causality between demography and resource consumption.
Keep in mind that part of those entitlements is social security, which people pay into. If the govt. didn’t steal what they receive, but instead put it into some kind of secure savings, that part of the entitlement system wouldn’t be a problem. Gore promised to do that if elected but people decided that wasn’t in their best interest. Also people have money taken out of their paychecks for medicare & Medicaid, so where is that money going? The problem is the govt. acts like all the money they receive from wage earners is their play money that can be stolen for other usages and they explain it away as if there could be some logic to stealing. No, it’s stealing, plain and simple just like they walked into your home and took something from you. They are pilfering from your retirement accounts, then claiming entitlements are taking too much govt. revenue, so they can justify increasing the retirement age and other cuts to come. Guaranteed those cuts are coming.
Retirees eat from the same food supply every year as everyone else. They rent apartments from the same supply as everyone else. Unfortunately, the volume of retirees is so great that there is no possible way we could “store up” for their needs. Even the little bit of pensions that are available outside of Social Security takes a large share of stocks and bonds. (I remember 50% from one analysis. I don’t remember what the 50% applies to.)
As a result, every country, everywhere, pays retirees (today) out of what it collects today in taxes from younger people. The US (and perhaps a few others) tried to collect a little in advance because they knew that they would be hitting a big problem when baby boomers hit retirement age. That funding approach did not work with government funding, which is generally on a “pay as you go basis;” any amount collected had to be spent somewhere on something. So the government spent it on other things (wars?) and left untraceable debt in its place. The piece of government debt that you see which is not publicly traded is mostly (or perhaps entirely) debt related to retirement plans–money that was collected from these plans, but spent elsewhere.
Now with the retirees growing greatly in number, governments must somehow raise the taxes greatly on young people. I don’t think that this can be done.
Actuaries make the point that if older people are going to be supported by the young people, it doesn’t work for an economy to have very small families.I believe that is why Merkel wanted all of the immigrants brought into Germany.
You make an excellent point about retirees eating from the same food supply as everyone else. When talking about Europe’s immigrants, not just Germany’s, I’d point out that it’s not Europe’s voters that decide “the rules” but a narrow cabal, including Civil Servants, who are literally above the law. Until, that is, when the Nation States rebel.
YES that chart scares me.We need to import high IQ productive people instead we are taking in welfare cases.
“Two-year Treasury yields this week are near the levels they were at when Lehman Brothers failed nearly a decade ago. The yield is the one that is most reflective of Fed policy, and has been rising with expectations for Fed rate hikes.”
https://www.cnbc.com/2018/02/21/this-interest-rate-is-back-to-levels-it-was-at-when-lehman-failed.html
Thanks!
All we need to do is pump up growth in energy consumption per capita fast enough so that the world (or at least the US) can afford interest rates at this level.
I am afraid the government doesn’t understand the problem.
The dollar could fall.
And then, or because of, US could pay the interest with printed dollars.
Falling dollar allows flat/falling energy prices in other currencies and increasing energy prices in dollars, having the americans leave more to the rest of us.
Silly me .. WWIII is certain.
Hi Gail, thanks for writing this. The thought occured to me a couple of days ago that until the average person grasps why and how banking works, there is no way to change it for the better.
I’ll point to this:
https://gailtheactuary.files.wordpress.com/2018/02/zerohedge-crises-associated-with-spikes-in-10-year-treasury-yields.jpg
and suggest that the Central Banks cut interest rates every time people panic. I seem to recall “tanks in the streets” and “you won’t have an economy on Monday morning” as inducements.
One step at a time ….
The average person understood how banking worked in the 1910s-1930s. After that education was deliberately dumbed down to stop the common man from understanding how banks worked, among other reasons.
People who understand how banks work tend to agitate for populist revolutions supporting socialism or fascism…
There is stuff about banking that I still don’t understand. There are four basic points regarding banks:
(1) Banks generally “borrow short and lend long.” If they provide mortgage coverage, they lend very long. They make (at least part of) their money on the spread between long and short interest rates. If interest rates rise, it is long term lenders that have a problem (even if buyers do not default on their loans). This was the reason for the S&L crisis of the 1980s and 1990s, in which a large share of S&L’s failed (had to be bailed out). This article says, “When disaster finally hit the S&L industry in 1980, the federal government managed it very badly.”
(2) Banks are a “heads I win, tails you lose” proposition, if depositors are protected up to some rather high dollar amount per account. Banks have every motivation to make as risky loans and other investments as possible, knowing that if things go wrong, they will be bailed out. Also, with this insurance coverage, depositors don’t care very much about how financially stable banks are. They will choose the most convenient bank, not the most risk averse bank.
(3) In the US, the traditional way of bailing out banks, insurance companies, and pension plans is through a tiny charge on all similar banks, insurance companies, and pension plans. In some cases, the arrangement is a “post insolvency assessment plan.” (Post-insolvency is what has usual in the insurance industry.) The problem with any of these plans is that they are only intended to work with a very occasional “bad apple” in the lot. There is no way that the system can handle systemic risk.
(4) The new Basel III banking and insurance rules (which are being phased in over time) are intended to try to prevent insolvencies. The idea also is that with the large amount of equity required, the government will not be a in a position where it needs to bail out too-big-to-fail banks. The catch with this arrangement is that it can hold down the growth in debt. The world economy cannot continue to grow without rapidly growing debt. The solution creates a different, worse problem.
A clarification. Should an insurance company fail other insurance companies cover the loss. In essence, the industry self-insures. There is no state or Federal agency that bails them out. Reinsurance is also used to cover short term anomalies. You are correct that the industry would likely have major issues should a number of apples go bad simultaneously. However, we have seen major negative events hit the industry with few insolvencies. Katrina and Rita come to mind. I believe that State Farm stated that Katrina cost them more than they made in profit going back to the 1930’s. They survived. I attribute much of the industry’s stability to insurance actuaries. I’ve seen company presidents and CEOs nudge actuaries but never push.
In contrast, banks and some pension plans are insured by Federal agencies who use a tiny (insufficient) charge as funding.
You probably don’t remember the late 1970s. There were quite a few companies on the edge. CNA (where I worked) saw the price of a share of stock drop from $25 to $2. CNA was bought out by Loews at $2 per share. The credit union where a lot of CNA employees had loans also went bankrupt. Quite a large number of employees were laid off. Their auto loans from the credit union became immediately payable when they got laid off. Worrisome time.
Actuaries and reinsurers play an important role in keeping insurance companies operating, but a lot of the problems of the 1970s were hard to foresee. What got companies into trouble was inflation affecting old unpaid claims (long after the premium had been collected) and balance sheet problems because of rising interest rates and falling stock prices. Companies with these problems tended to be big commercial companies. Even if companies could carry bonds on their balance sheets at “amortized value,” if they needed to sell them to pay a claim, all they could get was what the market would offer.
Thanks, Gail. I suspect you understand more than you think, but finance companies deliberately add opacity, with bank balance sheets being described as information black holes by knowegable people.
I’ll suggest something on interest rates: they are the sum of the time cost of money, plus the risk of default, plus inflation. The industry tries to aggregate a large number of loans, and to commoditise them without systemic risk. Their problem is that if you price this risk correctly you get no business, hence the incentives are for a systemic crash (ie the lessons of 1929 were partially relearned in 2008)
Also this is not somethine people _want_ to understand.
I agree. The interest rate should be the sum of the time cost of money, plus the risk of default, plus inflation. In practice, it down’s work out that way, especially after QE. To some extent, it is a supply and demand situation. If every other investment is paying too little, bond investors have to expect too little, too.
To get onto specifics, I’ve read that ‘AAA’ rated paper is priced on a 10000 year default. Somewhat mind-boggling when the “average” reserve currency lasts for ~200 years.
I’ll not mention the time horizons of some doomsters here.
Also, some might think that governments have a vested interest (excuse the pun) in stability.
Exactly! The default risk is way too low. And if you look at the history of individual companies, you discover that they don’t last terribly long either. Look what is happening to GE, for example.
If it is accepted that 200 years is the benchmark for a Reserve Currency, two questions follow: what is the price of default money; and is the USA above or below the benchmark.
This is not an entirely separate question from energy limits, but let’s try to keep complication at arms length.
I’d guess that pensions are the biggest lifetime investment, followed by property, on average, whatever that means. Both are at the mercy of interest rates. See this:
https://www.zerohedge.com/news/2018-02-24/heres-how-regulators-are-inadvertently-laying-groundwork-next-housing-crisis
Money is a claim on energy.
It used to be people prefered less today over more tomorrow. And more could be promised.
Now that we know we will have less energy in the future we prefer some energy in the future even if it is less than today.
Negative interest rate.
Gail, amazing chart, great article! @richarda, I think what this chart shows is that the economy is less and less able to afford to service debt/pay the cost of borrowing money. If that trend line continues, the economy won’t be able to afford to pay any interest on newly issued 10-year Treasuries by about 2025.
Thanks. I hoped to point out that two peeple can look at data and see entirely different things. To take your comment one step further, there seems little in the way of preparation or forethought about what happens if/when 2008 happens again.
I’d vote for putting all the systemically important names in a hat and each day, drawing a name to be bailed in, ie taken into public ownership. We might need another hat for insurance companies.
Even to someone who doesn’t understand the hard facts, your presentation has an appealing flow to it. It sounds like a process of simplifying and ordering–like improving the composition in a painting.
There are very microscopic things to be done that could create billions of new “jobs.” a) People at the bottom of the pile need much less than is understood to make them happy-enough. b) We aren’t using the internet remotely as constructively as we could to bolster new social and economic arrangements. c) We are just about not using the Tropics effectively in terms of their minimal energy needs (and this is largely due to cultural mayhem.) d) We focus on the middle and the top when its the bottom of the pyramid that needs to be stabilized….
I’ve read that the unemployed in China are given a trowel and are sent to weed the local government flowerbeds. It’s one of those …. wait while I think about this … moments
No. I don’t mean that. It should be clear that a top down, centralized economic system cannot work. Weeding flower beds doesn’t shore up demand for anything (although it might help with tourism), but rigging up more shelter and growing more food could help.
“It should be clear that a top down, centralized economic system cannot work.”
I really, really, wish I could agree with you on this, but history tells me that there has always been the Ruler and the Ruled. I’d suppose it all depends on the definition of “work”.
When you say “bottom of pyramid” do you mean worlds poorest 3B or the poorest 42M americans?
If the first, those doesn’t consume much and doesn’t make much noise. If you are talking about americans then tell them they need much less than they understand and then take their food stamps and medicare.
In whatever society you find them, the poor aren’t fussy. In the US, homeless people would be fine with a Tuff Shed for shelter. In the Tropics, there is no need even for walls. A shed roof and hammocks would do. Security, planning and permission are more the problems than anything else.
But the homeless … how many are those? Even a million total over US?
What about the 42M on food stamp, and the 50M just above them? Maybe it is fake news, but I get the impression serveral millions is currently around riot level.
No top down
universal application of bottom up
universal in a different way–smaller micro units that take weight off centrality but also have accumulated power when coordinated
Correction. I meant much less emphasis on top down governance, not no top down governance. Top down governance have to manage/fund nuclear facilities. They have to collect taxes for that, and ward off disorder. No money for housing, food, schools, etc. If the poor can have universal housing without it costing, then the upper levels will have a model to copy. It starts with the poor.
Just for future referece, I’m going admit here to a weak attempt at trolling. I’m making no apologies though, for pointing out that there’s an elephant in the room.
This is hard to understand.
This is what a degree and student loans gets you nowadays?
https://imgur.com/a/LgUkl
I understand my niece with a bachelors degree in biology/zoology got a job working in a “pet hotel.” I expect that it is not a place that pays very well either. I hope that she doesn’t have a lot of student loans to pay off.
I think it is time for the Good Will Hunting solution. That is a library card too the public library and $2.75 in late fees.
She sounds like a caring person. Nobody told her about nursing.
She wanted to work in a zoo. She worked in a zoo as an intern for the maximum time that they would let her, but they didn’t have regular employment for her.
thanks for the new article and the link to how the fed works it proves the fed is ignorant of the reality that the world runs on oil there does not appear to be a conspiracy going on just lunacy
Actually, I would say the world ends on energy of all types, including oil. It is growing quantity per capita that matters. This is a basic issue that many miss.
US 10 year yield 2.95%…
will there be any psychological factors if it rises above 3%?
David for more valuable information on how this could possibly play out check out this guy on the following link i think this guy’s website is up there with our finite world https://www.youtube.com/watch?v=CpjpaJBqmqg
3.10-3.30 and things get real interesting—–
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