Why we get bad diagnoses for the world’s energy-economy problems

The world economy seems to be seriously ill. The problem is not overly high oil prices, but that does not rule out energy as being a major underlying problem.

Two of the symptoms of the economy’s malaise are slow wage growth and increasing wage disparity. Tariffs are being used as solutions to these issues. Radical leaders are increasingly being elected. The Bank for International Settlements and the International Monetary Fund have raised concerns about the world’s aggregate debt levels. The IMF has even suggested that a second Great Depression might be ahead if major banks should fail in the manner that Lehman Brothers did in 2008.

Figure 1. Ratio of Core Debt Growth (non-financial debt including governmental debt) to GDP, based on data of the Bank of International Settlements.

If the economy were a human being, we would send it to a physician for a diagnosis regarding what is wrong. What really is needed is a physician who has a wide overview, and thus can understand the many symptoms. Hopefully, the physician can also provide a reasonable prognosis of what lies ahead.

Individual specialists studying the world’s economic and energy problems tend to look at these problems from narrow points of view. Some examples include:

  •  Curve fitting and cycle analysis using economic data by country since World War II, as is often performed by economists
  • Analysis of oil supply based on technically recoverable reserves or resources
  • Analysis of fresh water supply problems
  • Analysis of population problems, including rising population relative to arable land, and rising retiree population relative to working population
  • Analysis of ocean problems, including rising acidity and depleting fish stocks
  • Analysis of the expected impact of CO2 production from fossil fuels on climate
  • Analysis of rising debt levels

In fact, we are facing a combined problem, but most analysts/economists are looking at only their own piece of the problem. They assume that the other aspects have little or no influence on their particular result. What we really need is an analysis of the overall economic malady from a broader perspective.

In some ways, the situation is analogous to having no physician with a sufficient overview of where the world economy is headed. Instead, we have a number of specialists (perhaps analogous to a psychiatrist, a urologist, a podiatrist, and a dermatologist), none of whom really understands the underlying problem the patient is facing.

One point of confusion regarding whether today’s oil prices should be of concern is the fact that the maximum affordable oil price seems to decline over time. This happens because workers around the world increasingly cannot afford to buy the goods and services that the world economy produces. Inadequate wage growth within countries, growing globalization and rising interest rates all contribute to this growing affordability problem. To make matters confusing, this growing affordability problem corresponds to “falling demand” in the way economists frame the issues we are facing.

If we believe the technical analysis shown in Figure 2, the maximum affordable West Texas Intermediate oil price has declined from $147 per barrel in July 2008 to $76 per barrel recently. The current price is about $62 per barrel. The chart suggests that downward price resistance might be reached at $55 per barrel, assuming no major event occurs to change the current trend line. Any upward price bounce would appear to leave the price still much lower than oil producers need in order to reinvest sufficiently to allow future oil production to be maintained at current levels.

Figure 2. Down sloping diagonal line at the top of chart gives an estimate of the trend in maximum affordable West Texas Intermediate (WTI) oil prices. The downward trend line starts in July 2008, when oil prices hit a maximum. This high point occurred when the US real estate debt bubble started unwinding. Later maximum points correspond to points when oil prices stopped rising and crude oil reservoirs started refilling. Chart prepared by Amit Noam Tal.

Thus, our concern about adequate future oil supplies should perhaps be focused on keeping oil prices high enough. It takes a growing debt bubble to keep oil demand high; perhaps our concern should be keeping this debt bubble high enough to allow extraction of commodities of all kinds, including oil. Figure 1 seems to show a recent downward trend in Debt to GDP ratios for the Eurozone, the United States and China. This may be part of today’s low price problem for commodities of all types.

Needless to say, climate analyses do not consider the severity of our energy problems, nor do they consider the extent to which there is a connection between energy supply and the ability of the economy to operate as usual. If the real issue is a near-term financial crash that will radically affect future fossil fuel consumption, the climate analysis will certainly miss this event.

The Real Nature of the Limits to Growth Problem

To truly understand the headwinds that the economy is facing, we should be looking at the combined effect of all of the limits that the individual specialists have been studying. We might also include other issues not listed. The 1972 book The Limits to Growth presents an early computer model of how at least some of the limits of a finite world might be expected to play out.

Figure 3. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil” http://www.esf.edu/efb/hall/2009-05Hall0327.pdf

This early approach reflected an engineering view of the problem, considering expected diminishing returns with respect to resources of all types. Other considerations included likely resource needs based on prior economic and population growth trends and efficiency gains. The Base Scenario shown in the 1972 book (Figure 3) showed collapse taking place about now–in other words, in the early part of the 21st century.

In the time since the 1972 Limits to Growth analysis was prepared, there has been a major discovery relating the importance of energy to the economy. Ilya Prigogine tackled the problem of the physics of thermodynamically dynamic open systems, earning a Nobel Prize for his efforts in 1977. When energy flows are available, many structures, called dissipative structures, can grow and change over time. Examples include plants and animals, hurricanes, stars (they expand in size, then collapse at the end of their lives), ecosystems, and economies. These structures are utterly dependent on energy flows. The economy needs energy in almost the same way that humans need food. Without sufficient energy flows, the world economy will collapse.

It is because of the laws of physics and energy flows that markets are able to set price levels. Indirectly, physics sets the maximum affordable price for energy products based upon the total quantity of goods and services individual workers can afford. These maximum affordable prices may be invisible, but they are very real. Economists may talk about “demand” for energy products, but the real issue is affordability: “Will the laws of physics allow prices to stay high enough to provide the commodities the world economy needs?”

It is because of the laws of physics that debt can play a major role in the economy. Debt can provide time-shifting services if an economy does not have sufficient energy supplies to permit the equivalent of bartering of finished goods and services for new capital goods. Debt can allow future goods and services (manufactured with energy products) to serve as payment for capital goods and other goods purchased using debt. Thus, debt acts as a promise of future energy supplies. These future energy supplies may not, in fact, actually be available at prices that consumers can afford. This is why debt bubbles so often collapse and have a devastating impact on economies.

In theory, the new physics discoveries might also be added to the Limits to Growth model. If this were done, I would expect the downslopes in Figure 3 to be much steeper. Also, the date when the population decline starts would likely move forward, relative to other declines. The actual dates of the declines would of course be expected to change as well, because of updated knowledge regarding resources, population, and other factors.

Including the physics aspect of the economy would lead to many periods when sharp changes take place. When these sharp changes take place, there might be wars, collapsing governments, and epidemics, all causing large numbers of deaths. Debt bubbles might pop, causing deflation and widespread banking problems. These types of events are similar to those that economies have experienced in the past. There is no reason to expect that today’s world economy will have unusual lasting power.

Of course, modeling one piece of the economy at a time, as described at the beginning of this post, leaves out such troublesome implications. Economists tell us all we need to worry about is price fluctuations as the economy substitutes one product for another. If a person has blinders on, perhaps this a good description of the world we live in. Otherwise, the model leaves a lot to be desired.

Implication of the Laws of Physics Being in Charge of How the Economy Operates

Politicians would very much like us to believe that they are in charge. They would like us to believe that adding more technology can solve all of our problems. They would like us to believe that citizens can make a significant difference by voluntarily cutting back on their own energy consumption. They would also like us to believe that countries can cut back on their debt levels without the whole Ponzi Scheme unraveling.

Anyone who has watched bread rise in a bowl can see the implications of growth within a finite structure. It doesn’t take very long for the volume growth of bread dough to exceed the space available. Even if the bread maker pushes the dough back down again, the effect is only temporary. The bread dough quickly rises again to overfill the bowl it is in.

One possible implication of the 2008 financial (and oil price) crash is that we are very close to limits, right now. Regulators can try to fine tune how the economy operates by raising and lowering interest rates (sometimes using Quantitative Easing (QE) in the process), but they are, in some sense, playing with fire. Figure 4 shows the dramatic impact that popping the real estate debt bubble seems to have had in 2008. It also shows the impact that adding and removing QE has had.

Figure 4. Figure showing collapsing debt bubble at the time US oil prices peaked. Figure also shows the use of Quantitative Easing (QE) to stimulate the economy, and thus bring oil prices back up again. Ending US QE seems to have had the reverse effect.

By raising interest rates, regulators could easily send part, or all, of the world’s economy to a financial crash that is worse than 2008’s. Or the economy could again reach limits, by itself, with just a little economic growth. In some sense, the world economy is very close to filling the bread bowl, as it was before the 2008 crash pushed it back down.

The World Economy Is Reaching Limits in Many Areas Simultaneously

Many people believe that we are reaching limits in at most a few areas of the economy, such as “running out of oil.” The evidence suggests that because of the networked nature of the economy, we are really reaching limits in many places, simultaneously. The following represent some problem areas:

(1) Too Low a Return on Labor for Workers Whose Jobs Are Easily Exportable. With globalization, workers are indirectly competing with workers around the world regarding who can produce goods and services most cheaply. They are also competing with computers and robots that can easily replicate their functions. The net impact is a world where a large share of the citizens find themselves living at a level not much above the subsistence level. In more developed countries, young people may live with their parents longer and may delay having children almost indefinitely, because wages are not keeping up with living costs. Many studies have shown rising wage disparity. In some ways, the wage disparity now seems to be as bad as in the 1930s.

Figure 5. U. S. Income Shares of Top 1% and Top 0.1%, Wikipedia exhibit by Piketty and Saez.

(2) Interest Rates. Interest rates are the lever that economists like to adjust upward or downward to try to stimulate the economy or push the economy downward. Short term interest rates, up until about the end of 2015, were at the level they were at during the Depression of the 1930s.

Figure 6. Monthly average 3-month term treasury bill rates in chart prepared by FRED. Amounts shown through October 2018. Grey bars indicate recessions.

Raising interest rates is like adding a little more dough to the already over-full bread bowl. With these higher interest rates, borrowers need to pay more for monthly payments, making the strain on their finances even worse than it was previously. Figure 6 shows that raising interest rates very often creates a recession. In fact, the Great Recession of 2008-2009 seems to be the result of an increase in short term interest rates. This time we are being told that the increase will be gentle, but if the bread bowl is already overly full (in the sense that affordability of the output of the economy is already way too low, for many workers), what difference does “gentle” make?

(3) Return on Capital Investment/Added Debt. Falling long-term interest rates between 1981 and 2016 seem to be an indirect reflection of falling long-term return on capital investment. If capital returns had been higher, there would be more demand for debt, forcing interest rates up to levels closer to where they had been when the economy was growing more quickly.

Figure 7. Monthly average 10-year US Treasury interest rates in chart prepared by FRED. Amounts shown through October 2018. Grey bars indicate recessions.

Another way we can look at how productive the addition of debt has been is by comparing the debt increase each year with the GDP increase (including inflation) each year. We use current year GDP as the denominator in both calculations. Figure 8 shows the indications for what the Bank for International Settlements calls “Core Debt” (that is, Total Non-Financial Debt, Including Government Debt).

Figure 8. Dollar Increase in US Core Debt as % of GDP, shown beside GDP dollar increase, as percentage of ending GDP. Amounts based on FRED data.

Comparing the red and blue lines on Figure 8, GDP rose fairly reliably in the pre-1981 period, as the amount of core debt rose. The core debt increases tended to be higher than the GDP increases, but not a great deal higher. Thus, the US ratios on Figure 1 could be close to 1.0 in early years.

Once interest rates started falling after 1981 (see Figures 6 and 7), core debt growth and GDP growth greatly diverged. I expect that quite a bit of this change was related to asset price inflation as interest rates fell. With lower interest rates, assets of all types started becoming more affordable. Thus, a greater number of buyers could be expected, driving up prices of assets of all kinds, including homes, stores, and factories. Owners of these assets could “take the equity out” as prices rose and could use the equity to purchase other goods and services. In theory, these activities might somewhat stimulate the economy. Figure 8 suggests that the benefits of these activities with respect to the “goods and services” portion of the economy (red line) were slight at best, however.

Figure 9. Dollar Increase in US Financial Debt as % of GDP, shown beside GDP dollar increase % of ending GDP. Amounts based on FRED data.

Figure 9 shows Financial Debt amounts corresponding to the Core Debt amounts shown in Figure 8. At first glance, it appears that Financial Debt (blue line ) has provided no benefit whatsoever for the Goods and Services part of the economy (red line). But clearly the bankers who created these financial products benefitted from the income they received from them. So did the low-income home buyers who bought homes that they could not really afford in the early 2000s. Home building was stimulated, and inflation in home prices was stimulated. Banks benefitted by being able to transfer their problem home loans to unsuspecting buyers. Whether this whole arrangement had any net benefit to the economy, other than to create pseudo-solutions for people who could not really afford the homes they were purchasing, is doubtful. But when the economy is near limits, strange solutions to stimulating the economy are attempted.

(4) Commodity Prices. If we have a supply problem with one kind of commodity, we likely have a supply problem with many kinds of commodities at the same time. The reason why this happens is because the prices of many types of commodities tend to move together, in response to general market conditions. This is why the US government talks about inflation in oil and food prices as a separate category of Consumer Price Inflation.

If prices for commodities are generally low, as they have been since 2014, this means that commodity investors have received low rates of return for several years. With low rates of return, producers of many commodities have cut back on reinvestment. With inadequate reinvestment, supply crunches are likely to occur across a broad spectrum of commodities simultaneously. A recent Wall Street Journal article says, Supply Crunch Looms in Commodities Markets. The article mentions copper, zinc, aluminum and nickel. Other articles talk about oil in a similar fashion.

The question becomes, “Can consumers bid up the prices of all of these minerals sufficiently, to encourage enough reinvestment to solve the world’s commodity supply problem?” Food prices would likely need to be bid up as well, because oil is used heavily in the production and transport of food.

It was possible to bid up commodity prices in the 1970s, because the economies of the United States, Europe, Japan, and the Soviet Union were all growing rapidly. Also, women were joining the labor force in large numbers. It was possible to bid up commodity prices in the 2002 to 2008 era, because China and other Asian nations were rapidly ramping up their demand for goods and services of all kinds.

Figure 10. China energy production by fuel plus its total energy consumption, based on BP Statistical Review of World Energy 2018 data. The difference between the production figures shown and the black line consumption total is imports.

Now we are facing a much different situation. China is in much worse shape than most people recognize because its coal supply seems to have passed peak production. This has happened because the cheap-to-extract coal is mostly depleted, making it unprofitable to increase coal production without significantly higher prices. Imported coal and natural gas are expensive options. China also has a serious debt problem.

Because of China’s problems, the country will necessarily need to cut back on manufacturing, road building and home building in the years ahead. (This would happen, with or without Trump’s tariffs!) For some minerals, China currently represents over 50% of the world’s demand. China is the largest oil importer in the world. It is doubtful that China can make major cutbacks in its use of commodities without lowering prices for many commodities worldwide.

Persistence of Outdated Models

We are dealing with a situation where a large number of people suspect, at least vaguely, that the world economy is like bread dough about to outgrow its bowl, but this is not an issue anyone really wants to quantify. Everyone wants solutions; they don’t want a better delineation of the problem. Repeated publication of climate change forecasts is, in a sense, a denial of the possibility that we may be facing resource limits that are close at hand. Such publication is saying, in effect, that the closest limit that citizens need to worry about is the climate limit.

Also, the reliance of researchers on the past work by others in the same field tends to reinforce what are essentially incorrect models. Cross-pollination across fields is difficult, given the technical nature of today’s academic research. Furthermore, it becomes increasingly difficult to properly model a situation that is very complex and depends upon non-linear interactions.

Putting All of These Issues Together

The focuses of today’s narrow research can give a surprisingly distorted overview of where the economy is. A few areas in particular stand out:

(a) The choice of the word “Demand” instead of “Affordable Quantity” makes it sound like the buyer has more control over purchases than he really does. Growing demand seems to depend on continually increasing debt. This is the reason for the debt bubble problem.

(b) Framing the energy problem as “running out of oil” makes it sound like searching for substitutes will be a fruitful area for solution. Because of the affordability issue, this search is futile unless the substitutes are truly cheaper, when all costs are considered. Declining availability of many minerals because of persistently low commodity prices could be an issue as well.

(c) If limits are being reached in many areas simultaneously, incentives for countries to co-operate seem likely to go downhill quickly. Bullies who claim to be able to obtain a bigger share of the shrinking total supply will tend to be elected.

(d) The physics tie between energy and the economy makes major energy consumption cutbacks virtually impossible, without risking economic collapse.

(e) Adding technology isn’t really a solution to the debt problem, because it tends to make the affordability problem worse. The problem is that while adding technology seems to lead to more employment for a few elite workers, it tends to displace lower-wage workers at the same time. The spending of lower-wage workers is really needed if adequate demand for commodities is to be maintained. Additionally, the ownership of the technology-related capital goods tends to be concentrated among the elite; this further shifts wealth from the non-elite to the elite.

The long term prognosis for the world economy seems pretty grim, when all of these issues are put together. Defaulting debt and a resulting collapse in asset prices of all kinds is of particular concern. The default of subprime housing debt was an issue in the US at the time of the Great Recession; the next round of defaults is likely to start elsewhere. Debt defaults could start fairly soon, perhaps in the next 6 to 12 months. The more hostile political situation we have been seeing recently seems to be evidence that limits are close at hand.

 

 

 

 

 

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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1,576 Responses to Why we get bad diagnoses for the world’s energy-economy problems

  1. Pingback: Tverberg: “The World Economy Seems To Be Seriously Ill…”Since 1998 Hitrust.net = Privacy and Protection | Since 1998 Hitrust.net = Privacy and Protection

  2. Lastcall says:

    People grow old and die. Civilizations eventually fail. For centuries amateur philosophers have used the former as a metaphor for the latter, leading to a few useful insights and just as many misleading generalizations. The comparison becomes more immediately interesting as our own civilization stumbles blindly toward collapse. While not the cheeriest of subjects, it’s worth exploring.

    Sadly, a good individual death is easier to achieve than a good civilizational death: personally, we have a wide range of behavioral choices, whereas great civilizations are denial machines that, at least in their latter stages of development, always reward excess and penalize modest sufficiency.

    Civilizations grow as big as they possibly can, given their energy sources, their technologies, and the available ecological bounty. And ours has grown the biggest of all as a result of having fossil fuels as energy supplies.

    According to tradition, the Buddha’s awakening began with his realization that sickness, old age, and death are inevitable. Perhaps our own realization that civilization’s demise is just as certain can lead to still another level of awakening.

    Here the metaphor may show its highest usefulness. Old age teaches us the preciousness of everything—friends, nature, and ordinary moments in ordinary days. Truly ancient people, aged 85 and above, often attain a level of happiness that belies their physical frailty.

    Maybe a society that’s on the verge of collapse provides the perfect incubator for an experience of reassessment, reconnection, and renewal. Whatever time we have left is valuable beyond measure. Let’s make the most of it.

    https://www.resilience.org/stories/2018-01-18/old-age-societal-decline/

    So I fix my old boat, work less and less, and build my shack / stock my fridge. Job done; buy a rocking chair and popcorn and hope the kids don’t give me grandkids!

    • Fast Eddy says:

      Very sensible pursuits!

    • Richard Heinberg is the author of this. This was originally published on January 18, 2018. It sounds like he has begun to see that the economy is headed for collapse, rather than peak oil, or some sort of managed “Limits to Growth.”

      • I looked to see what Richard Heinberg’s last book out seemed to be. It was “Our Renewable Future: Laying the Path for One Hundred Percent Clean Energy,” published on June 2, 2016. There were two authors, Richard Heinberg and David Fridley.

        The article is not quoted by Lastcall has a fairly different theme.

        • doomphd says:

          he works for a paper mill and does not have the courage of his convictions, hence the divergence of his views. or maybe he’s just slow to come around to the facts, one book at a time. he’s also quite full of himself.

    • Davidin100millionbilliontrillionzillionyears says:

      “Whatever time we have left is valuable beyond measure. Let’s make the most of it.”

      no, it is not valuable beyond measure…

      it’s a pathetic blip in a 13.7 billion year old universe…

      make the most of it, if you want to…

      or waste it frivolously, if you want to…

  3. Fast Eddy says:

    Hong Kong builders come up with flexible payment plans to woo buyers as sales come to a halt

    Wheelock Properties offers deferred payment plans for flats in five of its developments in the city

    Analysts expect developers to start cutting prices of new projects when market slows down even further

    As Hong Kong’s property market takes a turn for the worse, some developers are coming up with novel payment schemes to offload

    https://www.scmp.com/property/hong-kong-china/article/2172184/hong-kong-builders-come-flexible-payment-plans-woo-buyers flats amid fears sentiment could sour further.

    • Fast Eddy says:

      The nightmare scenario for policymakers is that owners of unoccupied dwellings rush to sell if cracks start appearing in the property market, causing prices to spiral. The latest data, from a survey in 2017, also suggests Beijing’s efforts to curb property speculation – considered by leaders a key threat to financial and social stability – are coming up short.

      “There’s no other single country with such a high vacancy rate,” said Gan, of Chengdu’s Southwestern University of Finance and Economics. “Should any crack emerge in the property market, the homes to be offloaded will hit China like a flood.”

      • If China were to institute a tax on these properties, like other countries do, this would lead to offloading quickly. I expect that Chinese officials are smart enough to realize this, however.

  4. Volvo740 says:

    Since 2011 gold and silver have been a pretty poor store of value. Hindsight is 20/20 of course. From now on that could be a different story. I think it’s kind of hard to prep for total chaos and gangs but perhaps there is something worth prepping for that lies prior to total collapse?

    I don’t know. Other options are of course to buy the food you need outright. Fuels are harder to store that long – OR maybe it isn’t that long! It’s pretty clear that winter is a problem in northern latitudes, and making your way south would be beneficial. Kind of like THE ROAD ….

    • xabier says:

      One can ‘prep’ in a modest way for the bumps in the road (localised disruptions in electricity, fuels, food, sudden unemployment,etc) , certainly, and that would be prudent – but not for The Road itself: I don’t think one would wish to experience that even for a moment.

    • What goods are going to be available in the future? If there are no goods to buy, how can we talk about anything being a “store of value”?

    • DJ says:

      If you lived in Venezuela or Turkey…

      • Fast Eddy says:

        Or Canada….

        A few years ago I had a beer with an old friend in Toronto…. I mentioned I was holding some gold….

        He asked why I would do that….

        I said well…. the Canadian dollar was at par with the US not long ago right? And it’s fallen about 25%….

        That’s why.

  5. Fast Eddy says:

    Embattled high street retailers call for help as closures soar

    Pubs, fashion outlets and estate agents prominent among 24,205 closures recorded in the first six months of this year

    Retailers have called for “decisive action” from the government to support the UK’s battered high streets after new data showed the number of shops, pubs and restaurants lying empty has soared by more than 4,400 in the first six months of this year.

    Closures increased by nearly 17% to 24,205 across 3,000 towns, cities, retail parks and shopping centres monitored by the Local Data Company. The number of new openings of shops, restaurants, pubs and other leisure destinations declined by 2.1% to 19,803 over the half year – leaving 4,402 more gaps on the high street. That total is more than double the number ever previously recorded over the first six months of a year since LDC began its research five years ago.

    https://www.theguardian.com/business/2018/nov/09/embattled-high-street-retailers-call-for-help-as-closures-soar

    I am unable to grab the chart of openings and closings…. it is grim

    • Fast Eddy says:

      The LDC report comes as data published on Friday shows the UK high street suffering its ninth negative month in a row for in-store sales. Sales fell by 2% year-on-year in October to mark 13 months since in-store growth exceeded 1%, according to the BDO High Street Sales Tracker.

      October should mark the start of the “golden quarter” for retailers, as shoppers start to gear up for Christmas. But Sophie Michael, head of retail and wholesale at BDO, said the second poor October in a row was a “real worry” for stores.

      Tom Ironside, director of business and regulation at the British Retail Consortium, said retailers’ profit margins were being squeezed by rising business rates and increased import costs. At the same time shoppers’ ability to spend had been limited by a lack of real wage growth over the last decade.

      He added: “The pressure on retailers, which is contributing to store closures, will continue unless the government takes decisive action.” He has also called on the government “to address spiralling business rates for the larger businesses that employ the majority of the UK’s 3.1 million retail workers”.

      • Fast Eddy says:

        Pubs were particularly badly hit by recent rises in business rates while more drinkers are choosing to buy discount alcohol from supermarkets and stay at home as a way to save money.

        Fashion retailers were also among the hardest hit with a more than 300 stores left empty as New Look, Marks & Spencer, Next and Philip Green’s Arcadia group, which owns Topshop and Miss Selfridge, all closed stores.

        People are not buying more clothing. The large chains have got a long way to go in closing stores.”

        • Harry McGibbs says:

          Higher business rates, debt-saturated consumers, the weaker £ and perhaps some generalised Brexit-anxiety proving a toxic brew for the UK’s high street.

          Oh, well, perhaps we’ll be able to snap up some nice Christmas bargains from panicking retailers before the entire economy collapses like a souffle.

        • xabier says:

          Pubs are not hard to understand: even if you have the money, it’s a painful experience buying several pints.

    • xabier says:

      The UK government has a tool to help the high street ready to hand: reduce the insane business rates paid by retailers.

      But like all stressed governments, it prefers revenue in hand to foresight.

      We have major retail spaces empty here, for over a year now, in prime locations this is unprecedented.

      Food joints are still packed – but then it’s an over-crowded city with a young population, and they don’t like cooking at home. Also, lots of pensioners living off the hog before the care home beckons; they’ve seen the lives of their own parents collapse at the end, and want to have some fun.

      The UK is a fascinating place for sociological observation these days, in the same sense, perhaps, that scans of a tumour are interesting.

  6. Fast Eddy says:

    Are you entertained? I SAID – ARE YOU ENTERTAINED????

  7. Fast Eddy says:

    Here you go doomies…. set up shop here when BAU ends …. under a mill US…

    https://search.savills.com/property-detail/gbglrsgls180131

  8. Harry McGibbs says:

    “For the last three weeks, Italians have been lining up to put their money into Swiss bank accounts as fears grow for the safety of their assets under the government’s proposed ‘people’s budget’.

    “Some are having to wait weeks to open an account. It’s becoming difficult for banks in Swiss cities to find appointments for their would-be Italian clients to open an account as a non-resident, according to a financial advisor at the Raiffeisen Institute. “We’re overburdened,” he told Repubblica.

    “Spooked by the EU’s stern warnings of potential economic crisis, downgrades by ratings agencies and a growth slowdown, scores of well-off Italians have crossed the border to find out if they can open an account in Switzerland…

    “Meanwhile, Italy’s finance ministry today rejected a grim economic forecast by the European Commission, describing it as a “technical failure.”

    “The European Commission predicted in today’s report that Italy’s deficit would balloon due to a spending boost planned by Rome’s populist government that blatantly defies EU rules on expenditure.

    “The EU said in its report today that growth in the eurozone would slow in 2019 and beyond, citing global uncertainty and heightened trade tensions.

    “”We regret to note the Commission’s technical failure,” Giovanni Tria said in a statement, slamming “an inadequate and partial analysis” of the populist government’s proposed 2019 budget.”

    https://www.thelocal.it/20181108/italians-rush-to-put-money-into-swiss-banks-as-budget-fears-grow

    • Harry McGibbs says:

      “A cold storage firm says it has run out of room because the food industry is stockpiling in the run-up to Brexit. Cardiff-based Wild Water has rented extra space in Newport, Bristol and Staffordshire, and bought another storage site in Merthyr Tydfil…

      “The UK government insisted the country’s high level of food security would continue “whether we leave the EU with or without a deal”.”

      https://www.bbc.co.uk/news/uk-wales-46127592

      • xabier says:

        Just imagine an already shaky retailer like M&S being hit by empty shelves i the food halls in a hard Brexit……

        • Harry McGibbs says:

          Quite!

          To be honest, even though I imagine most commenters on OFW take it as read that there will be food security issues everywhere at some point – I know I do – it still blows my mind to see a BBC article in which the UK government tries to reassure the populace on the matter.

          • xabier says:

            Somehow, the usual UK government line of ‘Nothing can go wrong, we are working on this with all relevant partners ; and in any case everything is in hand, and if everyone does what they should do all will be well’ fails to fill me with confidence.

            It just doesn’t ring quite as true as in 1940, when trust in government was appreciably greater.

            Although it was in the private sector, Brits have the recent monumental balls up of new train timetables which lasted for months and was utterly chaotic, despite being long-planned, to warn them…..

            Even less confidence -inspiring are the pro-Brexit politicians and lobbyists who like to say that there might be some pain, (for whom?) but it’ll be worth it 10 years time!

            • Harry McGibbs says:

              I have seen the Leave Means Leave brigade brandishing the slogan ‘No deal? No problem!’ Crazy recklessness – the mind absolutely boggles.

              As things get interesting, the government’s focus will shift more and more away from the welfare of its citizens and on to simply maintaining order and preserving itself, you would imagine. And ultimately it will break down entirely.

    • Swiss banks should do well. I am not sure about everyone else’s however.

  9. Harry McGibbs says:

    “China’s exports of rare earths fell by 37.4 percent from the previous month to their lowest in more than three years in October, according to customs figures released on Thursday and Refinitiv Eikon data.

    “The world’s largest producer of rare earth minerals, a group of 17 elements used in electric vehicles and consumer electronics, shipped 3,100 tonnes last month, versus 4,950 tonnes in September, the General Administration of Customs said. The exports were down 10.6 percent year-on-year…”

    https://www.kitco.com/news/2018-11-08/UPDATE-1-China-Oct-rare-earth-exports-slump-to-3-year-low.html

    • Harry McGibbs says:

      “Price increases of goods sold by China’s factories slowed for the fourth straight month in October as the world’s second largest economy faces lower demand for industrial materials amid cooling manufacturing activity…”

      https://sg.news.yahoo.com/china-factory-inflation-growth-slows-045532400.html

      • Chrome Mags says:

        Harry, price increases may have slowed, which really isn’t too big a deal because they are just price increases not decreases, however see article below that China’s exports are surging.

        https://www.reuters.com/article/us-china-economy-trade/china-september-exports-surge-creating-record-surplus-with-u-s-despite-tariffs-idUSKCN1MM080

        ‘China September exports surge, creating record surplus with U.S. despite tariffs’

        Also, there’s this article about China’s booming exports:

        https://www.businessinsider.com/chinas-is-boosting-exports-to-us-before-new-trade-war-tariffs-2018-11

        ‘China’s export boom is a worrying signal that Trump’s trade war will get worse’

        “Exports grew 15.6% year-on-year, up from an original consensus of 11.7% growth. Once those tariff hikes kick in, these figures are likely to weaken, ING said.”

        Now it is true once the tariffs kick in exports will likely decline, but we’ll have to see the tale of the tape. Can China find other outlets like sending more goods to Europe or other countries? I don’t see China losing face over this trade war. They’ll find other ways to export their goods.

        • Harry McGibbs says:

          The boost to exports is the result of a weaker Yuan and, as you say, a rush to beat the tariffs. The corresponding import-rush recently maxed out warehouse space availability near the Los Angeles and Long Beach port complex. It is a temporary anomaly, in other words.

          China does not need to be in outright contraction for problems to emerge, as the commodities supercycle and vast swathes of the global economy and financial system have grown to depend on Chinese GDP growth (at least officially) up around the 7% mark.

          • Harry McGibbs says:

            As for China finding fresh import markets for their goods, who knows? I am sceptical, given that the stronger $ is making most of the world functionally poorer, the emerging markets are in trouble and the EU is barely growing at all. Even China’s own consumers have too much debt:

            https://www.caixinglobal.com/2018-11-06/chart-of-the-day-chinas-growing-household-debt-101343512.html

            • The story should have household debt to wages in each of these countries. I expect China’s wages are a much smaller share of GDP than those of the other countries listed. In fact, the ratio should be to the wages of workers in cities, where such housing is sold. There are some workers, even today, I expect, whose housing is part of their pay package in rural areas. The amounts workers are paying for housing in Beijing and Shanghai are outrageous.

        • The fact that the US is borrowing so much (because of the earlier tax reduction) to stimulate the economy is at least part of the reason for its high imports worldwide, and thus from China, as far as I can see. The high interest rates also stimulate investment in the US from abroad.

          I wouldn’t count on China finding other markets elsewhere. With many currencies low relative to the dollar, they cannot afford much in the way of imports.

    • Importers are not using rare earths, or they have supplies elsewhere? It seems like this is an area where demand would hold up.

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