2019: World Economy Is Reaching Growth Limits; Expect Low Oil Prices, Financial Turbulence

Financial markets have been behaving in a very turbulent manner in the last couple of months. The issue, as I see it, is that the world economy is gradually changing from a growth mode to a mode of shrinkage. This is something like a ship changing course, from going in one direction to going in reverse. The system acts as if the brakes are being very forcefully applied, and reaction of the economy is to almost shake.

What seems to be happening is that the world economy is reaching Limits to Growth, as predicted in the computer simulations modeled in the 1972 book, The Limits to Growth. In fact, the base model of that set of simulations indicated that peak industrial output per capita might be reached right about now. Peak food per capita might be reached about the same time. I have added a dotted line to the forecast from this model, indicating where the economy seems to be in 2019, relative to the base model.1

Figure 1. Base scenario from The Limits to Growth, printed using today’s graphics by Charles Hall and John Day in Revisiting Limits to Growth After Peak Oil with dotted line at 2019 added by author. The 2019 line is drawn based on where the world economy seems to be now, rather than on precisely where the base model would put the year 2019.

The economy is a self-organizing structure that operates under the laws of physics. Many people have thought that when the world economy reaches limits, the limits would be of the form of high prices and “running out” of oil. This represents an overly simple understanding of how the system works. What we should really expect, and in fact, what we are now beginning to see, is production cuts in finished goods made by the industrial system, such as cell phones and automobiles, because of affordability issues. Indirectly, these affordability issues lead to low commodity prices and low profitability for commodity producers. For example:

  • The sale of Chinese private passenger vehicles for the year of 2018 through November is down by 2.8%, with November sales off by 16.1%. Most analysts are forecasting this trend of contracting sales to continue into 2019. Lower sales seem to reflect affordability issues.
  • Saudi Arabia plans to cut oil production by 800,000 barrels per day from the November 2018 level, to try to raise oil prices. Profits are too low at current prices.
  • Coal is reported not to have an economic future in Australia, partly because of competition from subsidized renewables and partly because China and India want to prop up the prices of coal from their own coal mines.

The Significance of Trump’s Tariffs

If a person looks at history, it becomes clear that tariffs are a standard response to a problem of shrinking food or industrial output per capita. Tariffs were put in place in the 1920s in the time leading up to the Great Depression, and were investigated after the Panic of 1857, which seems to have indirectly led to the US Civil War.

Whenever an economy produces less industrial or food output per capita there is an allocation problem: who gets cut off from buying output similar to the amount that they previously purchased? Tariffs are a standard way that a relatively strong economy tries to gain an advantage over weaker economies. Tariffs are intended to help the citizens of the strong economy maintain their previous quantity of goods and services, even as other economies are forced to get along with less.

I see Trump’s trade policies primarily as evidence of an underlying problem, namely, the falling affordability of goods and services for a major segment of the population. Thus, Trump’s tariffs are one of the pieces of evidence that lead me to believe that the world economy is reaching Limits to Growth.

The Nature of World Economic Growth

Economic growth seems to require growth in three dimensions (a) Complexity, (b) Debt Bubble, and (c) Use of Resources. Today, the world economy seems to be reaching limits in all three of these dimensions (Figure 2).

Figure 2.

Complexity involves adding more technology, more international trade and more specialization. Its downside is that it indirectly tends to reduce affordability of finished end products because of growing wage disparity; many non-elite workers have wages that are too low to afford very much of the output of the economy. As more complexity is added, wage disparity tends to increase. International wage competition makes the situation worse.

A growing debt bubble can help keep commodity prices up because a rising amount of debt can indirectly provide more demand for goods and services. For example, if there is growing debt, it can be used to buy homes, cars, and vacation travel, all of which require oil and other energy consumption.

If debt levels become too high, or if regulators decide to raise short-term interest rates as a method of slowing the economy, the debt bubble is in danger of collapsing. A collapsing debt bubble tends to lead to recession and falling commodity prices. Commodity prices fell dramatically in the second half of 2008. Prices now seem to be headed downward again, starting in October 2018.

Figure 3. Brent oil prices with what appear to be debt bubble collapses marked.

Figure 4. Three-month treasury secondary market rates compared to 10-year treasuries from FRED, with points where short term interest rates exceed long term rates marked by author with arrows.

Even the relatively slow recent rise in short-term interest rates (Figure 4) seems to be producing a decrease in oil prices (Figure 3) in a way that a person might expect from a debt bubble collapse. The sale of US Quantitative Easing assets at the same time that interest rates have been rising no doubt adds to the problem of falling oil prices and volatile stock markets. The gray bars in Figure 4 indicate recessions.

Growing use of resources becomes increasingly problematic for two reasons. One is population growth. As population rises, the economy needs more food to feed the growing population. This leads to the need for more complexity (irrigation, better seed, fertilizer, world trade) to feed the growing world population.

The other problem with growing use of resources is diminishing returns, leading to the rising cost of extracting commodities over time. Diminishing returns occur because producers tend to extract the cheapest to extract commodities first, leaving in place the commodities requiring deeper wells or more processing. Even water has this difficulty. At times, desalination, at very high cost, is needed to obtain sufficient fresh water for a growing population.

Why Inadequate Energy Supplies Lead to Low Oil Prices Rather than High

In the last section, I discussed the cost of producing commodities of many kinds rising because of diminishing returns. Higher costs should lead to higher prices, shouldn’t they?

Strangely enough, higher costs translate to higher prices only sometimes. When energy consumption per capita is rising rapidly (peaks of red areas on Figure 5), rising costs do seem to translate to rising prices. Spiking oil prices were experienced several times: 1917 to 1920; 1974 to 1982; 2004 to mid 2008; and 2011 to 2014. All of these high oil prices occurred toward the end of the red peaks on Figure 5. In fact, these high oil prices (as well as other high commodity prices that tend to rise at the same time as oil prices) are likely what brought growth in energy consumption down. The prices of goods and services made with these commodities became unaffordable for lower-wage workers, indirectly decreasing the growth rate in energy products consumed.

Figure 5.

The red peaks represented periods of very rapid growth, fed by growing supplies of very cheap energy: coal and hydroelectricity in the Electrification and Early Mechanization period, oil in the Postwar Boom, and coal in the China period. With low energy prices,  many countries were able to expand their economies simultaneously, keeping demand high. The Postwar Boom also reflected the addition of many women to the labor force, increasing the ability of families to afford second cars and nicer homes.

Rapidly growing energy consumption allowed per capita output of both food (with meat protein given a higher count than carbohydrates) and industrial products to grow rapidly during these peaks. The reason that output of these products could grow is because the laws of physics require energy consumption for heat, transportation, refrigeration and other processes required by industrialization and farming. In these boom periods, higher energy costs were easy to pass on. Eventually the higher energy costs “caught up with” the economy, and pushed growth in energy consumption per capita down, putting an end to the peaks.

Figure 6 shows Figure 5 with the valleys labeled, instead of the peaks.

Figure 6.

When I say that the world economy is reaching “peak industrial output per capita” and “peak food per capita,” this represents the opposite of a rapidly growing economy. In fact, if the world is reaching Limits to Growth, the situation is even worse than all of the labeled valleys on Figure 6. In such a case, energy consumption growth is likely to shrink so low that even the blue area (population growth) turns negative.

In such a situation, the big problem is “not enough to go around.” While cost increases due to diminishing returns could easily be passed along when growth in industrial and food output per capita were rapidly rising (the Figure 5 situation), this ability seems to disappear when the economy is near limits. Part of the problem is that the lower growth in per capita energy affects the kinds of jobs that are available. With low energy consumption growth, many of the jobs that are available are service jobs that do not pay well. Wage disparity becomes an increasing problem.

When wage disparity grows, the share of low wage workers rises. If businesses try to pass along their higher costs of production, they encounter market resistance because lower wage workers cannot afford the finished goods made with high cost energy products. For example, auto and iPhone sales in China decline. The lack of Chinese demand tends to lead to a drop in demand for the many commodities used in manufacturing these goods, including both energy products and metals. Because there is very little storage capacity for commodities, a small decline in demand tends to lead to quite a large decline in prices. Even a small decline in China’s demand for energy products can lead to a big decline in oil prices.

Strange as it may seem, the economy ends up with low oil prices, rather than high oil prices, being the problem. Other commodity prices tend to be low as well.

What Is Ahead, If We Are Reaching Economic Growth Limits?

1. Figure 1 at the top of this post seems to give an indication of what is ahead after 2019, but this forecast cannot be relied on. A major issue is that the limited model used at that time did not include the financial system or debt. Even if the model seems to provide a reasonably accurate estimate of when limits will hit, it won’t necessarily give a correct view of what the impact of limits will be on the rest of the economy, after limits hit. The authors, in fact, have said that the model should not be expected to provide reliable indications regarding how the economy will behave after limits have started to have an impact on economic output.

2. As indicated in the title of this post, considerable financial volatility can be expected in 2019 if the economy is trying to slow itself. Stock prices will be erratic; interest rates will be erratic; currency relativities will tend to bounce around. The likelihood that derivatives will cause major problems for banks will rise because derivatives tend to assume more stability in values than now seems to be the case. Increasing problems with derivatives raises the risk of bank failure.

3. The world economy doesn’t necessarily fail all at once. Instead, pieces that are, in some sense, “less efficient” users of energy may shrink back. During the Great Recession of 2008-2009, the countries that seemed to be most affected were countries such as Greece, Spain, and Italy that depend on oil for a disproportionately large share of their total energy consumption. China and India, with energy mixes dominated by coal, were much less affected.

Figure 7. Oil consumption as a percentage of total energy consumption, based on 2018 BP Statistical Review of World Energy data.

Figure 8. Energy consumption per capita for selected areas, based on energy consumption data from 2018 BP Statistical Review of World Energy and United Nations 2017 Population Estimates by Country.

In the 2002-2008 period, oil prices were rising faster than prices of other fossil fuels. This tended to make countries using a high share of oil in their energy mix less competitive in the world market. The low labor costs of China and India gave these countries another advantage. By the end of 2007, China’s energy consumption per capita had risen to a point where it almost matched the (now lower) energy consumption of the European countries shown. China, with its low energy costs, seems to have “eaten the lunch” of some of its European competitors.

In 2019 and the years that follow, some countries may fare at least somewhat better than others. The United States, for now, seems to be faring better than many other parts of the world.

4. While we have been depending upon China to be a leader in economic growth, China’s growth is already faltering and may turn to contraction in the near future. One reason is an energy problem: China’s coal production has fallen because many of its coal mines have been closed due to lack of profitability. As a result, China’s need for imported energy (difference between black line and top of energy production stack) has been growing rapidly. China is now the largest importer of oil, coal, and natural gas in the world. It is very vulnerable to tariffs and to lack of available supplies for import.

Figure 9. China energy production by fuel plus its total energy consumption, based on BP Statistical Review of World Energy 2018 data.

A second issue is that demographics are working against China; its working-age population already seems to be shrinking. A third reason why China is vulnerable to economic difficulties is because of its growing debt level. Debt becomes difficult to repay with interest if the economy slows.

5. Oil exporters such as Venezuela, Saudi Arabia, and Nigeria have become vulnerable to government overthrow or collapse because of low world oil prices since 2014. If the central government of one or more of these exporters disappears, it is possible that the pieces of the country will struggle along, producing a lower amount of oil, as Libya has done in recent years. It is also possible that another larger country will attempt to take over the failing production of the country and secure the output for itself.

6. Epidemics become increasingly likely, especially in countries with serious financial problems, such as Yemen, Syria, and Venezuela. Historically, much of the decrease in population in countries with collapsing economies has come from epidemics. Of course, epidemics can spread across national boundaries, exporting the problems elsewhere.

7. Resource wars become increasingly likely. These can be local wars, perhaps over the availability of water. They can also be large, international wars. The timing of World War I and World War II make it seem likely that these wars were both resource wars.

Figure 10.

8. Collapsing intergovernmental agencies, such as the European Union, the World Trade Organization, and the International Monetary Fund, seem likely. The United Kingdom’s planned exit from the European Union in 2019 is a step toward dissolving the European Union.

9. Privately funded pension funds will increasingly be subject to default because of continued low interest rates. Some governments may choose to cut back the amounts they provide to pensioners because governments cannot collect adequate tax revenue for this purpose. Some countries may purposely shut down parts of their governments, in an attempt to hold down government spending.

10. A far worse and more permanent recession than that of the Great Recession seems likely because of the difficulty in repaying debt with interest in a shrinking economy. It is not clear when such a recession will start. It could start later in 2019, or perhaps it may wait until 2020. As with the Great Recession, some countries will be affected more than others. Eventually, because of the interconnected nature of financial systems, all countries are likely to be drawn in.

Summary

It is not entirely clear exactly what is ahead if we are reaching Limits to Growth. Perhaps that is for the best. If we cannot do anything about it, worrying about the many details of what is ahead is not the best for anyone’s mental health. While it is possible that this is an end point for the human race, this is not certain, by any means. There have been many amazing coincidences over the past 4 billion years that have allowed life to continue to evolve on this planet. More of these coincidences may be ahead. We also know that humans lived through past ice ages. They likely can live through other kinds of adversity, including worldwide economic collapse.

Note:

[1] Note that where the dotted line for 2019 is placed is based on where I see the 2019 economy relative to the downturn in industrial output per capita, based on a number of kinds of evidence, not all of which is cited in this article. The 1972 base model would give a slightly different timing of the downturn, a few years earlier. Also note that while the original “The Limits to Growth” book is no longer in print, Limits to Growth: The 30-Year Update by the same authors is available for sale.

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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2,080 Responses to 2019: World Economy Is Reaching Growth Limits; Expect Low Oil Prices, Financial Turbulence

    • Davidin100millionbilliontrillionzillionyears says:

      if you want to see less inequality of wealth, I’m with you!

      this might just be populist talking point #1 for the next few years at least…

      the path seems to be diminishing returns > specifically declining net (surplus) energy > less wealth to spread around > greater inequality > protests over greater inequality (Yellow Vests…)…

      unfortunately, the AOC type push for a more socialist America will be met with great pushback by those Davos types…

      as the world declines in prosperity, capitalism may be blamed by the have-nots…

      we may or may not be headed for more socialism in the American hybrid capitalist system…

      whatever… any major changes to our political-economic system will ultimately be ineffective against the unstoppable downward momentum of that net (surplus) energy form FF, which dominates all adjustments to our system…

  1. Uncle Bill says:

    Pipeline explosion witnesses describe scene where 73 died: ‘People’s skin came off

    The tragedy comes as Mexican President Andres Manuel Lopez Obrador — known as “AMLO,” who took office in December — has vowed to eradicate fuel thieves who illegally drilled taps into pipelines an estimated 12,581 times during the first 10 months of 2018, an average of about 42 violations per day.
    “We are going to eradicate that which not only causes material damages, it is not only what the nation loses by this illegal trade, this black market of fuel, but the risk, the danger, the loss of human lives,” said Lopez Obrador, who ran on an anti-corruption platform before being elected last year
    https://www.foxnews.com/world/death-toll-from-mexico-pipeline-explosion-rises-to-73-dozens-injured.amp
    Isaias Garcia, a farmer who witnessed the explosion from a distance, explained why so many had come to the area.
    “Everyone came to see if they could get a bit of gasoline for their car,” he said. “There isn’t any in the gas stations.

    I was in high school during the long gas lines back in the 70s here in the United States…ugly…
    While in Charlotte North Carolina a brief gas shotage there because of shutdown of pipeline arcound 2009….very stressful to find a station running on empty…can’t imagine what would happen when the pumps run dry and stations close….forgetaboutit

    • Or when people lose their jobs, so that they cannot afford the gasoline that is available, leaving huge gluts that no one can afford.

      • I’ve been tracking the gasoline issue in Mexico for the last few years. Gasoline has been averaging $4 a gallon since PEMEX and the government stopped providing subsidies. A couple of months after the subsidies ended gasoline thefts started. These aren’t local farmers tapping the pipelines. Thieves have included PEMEX employees, law enforcement, as well as criminal organizations. I believe gasoline shortages are creating a domino affect on Mexican exports. Mexico is the second largest trading partner for the U.S. They are the number one provider of fresh produce into the U.S. IMO a lot of the food inflation we’re seeing in the U.S. is originating from Mexico. The gasoline subsidy provided by PEMEX was also a subsidy for American food imports. For any PM investors out there, Mexico also provides 30% of the world’s silver supply. Things could get interesting over the next several years.

        • Duncan Idaho says:

          Yep—
          Mexico is a major player in US finance and resources.

        • “Mexico is the second largest trading partner for the U.S.” – Canada is no doubt number 1.

          “They [Mexico] are the number one provider of fresh produce into the U.S. IMO a lot of the food inflation we’re seeing in the U.S. is originating from Mexico. The gasoline subsidy provided by PEMEX was also a subsidy for American food imports.”

          We definitely get a lot of produce from Mexico. The gasoline subsidy was only possible (a) when oil prices were high, and (b) when Mexico had significant amounts of oil to export that it could tax at a high rate and then use those taxes to fund things like new refineries and programs from Mexican citizens. Recently, Mexico has been in a deficit position with respect to trade imports. (It imports more than it exports.) https://tradingeconomics.com/mexico/balance-of-trade It can’t really afford to purchase the refined fuel products it buys from the US, which is its problem. Gasoline imports from the US in particular have been spiking recently.

          • Jason C says:

            Unless a country can print world currency at will, aka USA, imports can’t exceed exports for long. Any estimate for how long Mexico will ladt?

            • Duncan Idaho says:

              Long time—
              Really, wake up—
              You are not in Kansas anymore—-

            • Davidin100millionbilliontrillionzillionyears says:

              yes, a long time…

              as an economic appendage to the USA, kind of a big farmer’s market that sends lots of food here…

              if that’s actually the case, then yes, Mexico can “last a long time”…

              and possibly avoid becoming Venezuela 2.0 …

              it may descend soon to a country of mostly dirt poor farmers, but if it can grow enough food to feed a smaller population AND make some money selling the rest to the USA, it could “last” as long as its buyer (the USA) lasts…

            • This link https://commodity.com/mexico/ shows the following top commodity exports and imports:

              Commodity exports:

              1. Crude petroleum $15.5 billion

              2. Gold $4.88

              3. Tropical fruits $2.48

              4. Tomatoes $2.11

              5. Silver $1.89

              Commodity imports:

              1. Refined petroleum $18 billion

              2. Corn $2.69

              3. Aluminum $1.64

              4. Soybeans $1.62

              5. Wheat $.987

              So, comparing exports to imports, on a US dollar basis, the Refined Petroleum Products it buys for $18 billion exceed the value of the crude oil it sells for $15.5 billion. This sounds like a problem.

              Mexico also imports large amounts of the staple foods that Mexicans and their animals eat. Data indicates that their own production has grown as well. I imagine what is happening is that Mexicans are eating more meat. Also their population is growing. Both add to their total food needs, because meat production is inefficient compared to production of plant foods.

            • I am not sure. Their petroleum industry is not now a net profit center anymore, comparing export $ to import $ (in another comment). This is a big problem. They have to support the loss with profits from other areas. This becomes harder and harder to do.

      • Duncan Idaho says:

        We shall see Gail—–
        Suburbia was a bad idea.

        • Jason says:

          They can last a long time? I think they are the next Venezuela, diminishing oil production,
          increasing population. Explain to me how they can continue to have a trade imbalance for extended time. I know debt creation works, but you need lenders. When their natural resources run out who will lend them more debt? Wake me up Duncan.

        • Davidin100millionbilliontrillionzillionyears says:

          I live in “the suburbs”…

          it has been quite good…

          we should be more thankful to all the scientists and engineers etc who invented the worldwide FF system which has allowed Suburbia to flourish…

          sorry, JHK, but Suburbia rocks!

          it’s been worth every penny and every drop of crude oil….

          ps: maybe below zero F tonight, but I hear the furnace running and it’s burning some of that precious (and a bit pricey) heating oil…

          the suburban house is warm…

      • Sheila chambers says:

        I expect that law enforcement & the military will take up any oil “surplus” as the natives will indeed be restless!
        The military can always “afford” what they want, after all, the government will give them all the tax money they want.

        • Peter G. says:

          The Mexican military and a lot of the law enforcement in Mexico have become less inclined to follow orders and more inclined to act as soldiers of fortunes. Here is an interesting article that demonstrates what is happening. Unfortunately, its wide spread. Mexico is a warmup to the main event.

          https://www.npr.org/2018/09/26/651708030/mexican-authorities-disarm-acapulco-police-amid-infiltration-concerns-by-drug-ga

          • Duncan Idaho says:

            I just moved to the States from Mexico—
            One really needs some real time there to make a judgement.
            It really isn’t that challenging.

          • Sheila chambers says:

            I think they are following the money, their not getting paid enough by the Mexican government, the drug gangs offered them a better & safer deal so they took it.
            Any unpopular government that wants to stay in power had better pay it’s law enforcement & it’s military very well or they will seek a better option.
            The same thing happens here but it isn’t as widespread as in poorer Mexico since their oil revenue went south along with their oil.
            As things continue to deteriorate, we can expect even more migrants trying to get past our borders for “a better life” but is “life” on our cold, cruel streets really better than where they are now?
            Those migrants fleeing central america look better dressed, better fed & they even have smart phones, something our poor, needy, jobless & homeless do not have.
            Perhaps our poor, needy, jobless & homeless should migrate south for a “better life”.

  2. Third World person says:

    the rise of feminism in Muslim countries
    Tunisian women free to marry non-Muslims

    Tunisia has overturned a law that banned women from marrying non-Muslims.
    A spokeswoman for President Beji Caid Essebsi made the announcement and congratulated women on gaining “the freedom to choose one’s spouse”.
    Until now, a non-Muslim man who wished to marry a Tunisian Muslim woman had to convert to Islam and submit a certificate of his conversion as proof.
    Tunisia, which is 99% Muslim, is viewed as one of the most progressive Arab countries in terms of women’s rights.
    https://www.bbc.com/news/world-africa-41278610

  3. Uncle Bill says:

    I beginning to see the wall at the end of the BAU tunnel…

    If the shutdown continues into February, rent hikes and eviction threats will probably spread as more landlords get antsy. The letter follows a similar note that a different Arkansas landlord sent to 50 properties last week.
    The buildings are subsidized by a U.S. Department of Agriculture rental assistance program that supports 282,000 households nationwide, most of them with elderly residents. The agency said last week that rental assistance is funded through January.
    The federal government’s bigger housing programs, run by the U.S. Department of Housing and Urban Development, are funded only through February. Those programs support more than 3 million households.
    President Donald Trump forced the shutdown of several federal agencies, including HUD and the USDA, to put pressure on Democrats to support $5.7 billion in funding for a border wall that he previously said Mexico would pay for. Democrats have refused to budge.
    The shutdown will get worse with time as 800,000 federal workers continue to miss checks, landlords miss rent and some 38 million Americans miss out on food benefits come March.

    https://news.yahoo.com/government-shutdown-hiking-rent-hundreds-205727104.html

    Trump claimed he could identify with those workers missing paychecks!
    Hardly, he got his start as a landlord evicting tenants!

    • Duncan Idaho says:

      Trump is a loser when it comes to business–
      The Russians kinda help him, but he has burned so many people, that no one will touch him.
      He lost 400 million that Daddy gave him.
      He was, from what I hear, not a bad TV personality.
      The perfect President!

    • zenny says:

      A good reason to give the orange man his wall money…Willing to bet the shut down will cost more that the wall.

  4. Pingback: Our World Is Dying – forecastingintelligence

  5. Rodster says:

    This is what a total collapse looks like: “We are now in our third day of complete shutdown throughout the whole of Zimbabwe. Banks are closed, schools are closed, roads are closed in and out of the main towns and transport systems have shut down. If this goes on for much longer, the humanitarian crisis will escalate. We cannot buy food because the shops are all closed and transport systems have closed down. Most of the hospitals are without essential medicines and also staff because doctors and nurses can’t even get to work.”

    The crisis was precipitated on Sunday (January 13) by President Emmerson Mnangagwa when he announced a shock increase of 200 percent in the fuel price – this in a country with more than 90 percent unemployment and where the struggle to survive escalates daily.

    https://www.zerohedge.com/news/2019-01-20/it-feels-apocalyptic-letter-zimbabwe-where-country-remains-total-shutdown

  6. Chrome Mags says:

    https://www.bbc.com/news/world-latin-america-46939165

    “When thieves punctured a pipeline in the Mexican town of Tlahuelilpan, a geyser of high-octane gasoline was sent several metres into the air, More than 700 residents flocked to the scene to fill jerry cans. People spoke of a party atmosphere. Local petrol pumps had reportedly run dry, and people needed fuel for their cars. But two hours later, at least 79 people lay dead after an explosion tore through the scene. Mexico is a big producer of oil, so how is it that people are dying rushing to gather fuel?”

    “Criminals known as huachicoleros have in recent years begun stealing from oil pipelines and selling fuel on the black market. A few litres of fuel are worth more than the daily minimum wage in Mexico. Gangs reportedly made 12,581 illegal taps in the first 10 months of 2018, the Associated Press reports – about 42 a day. Authorities estimate it costs Mexico more than $3 billion (£2.3bn) each year.”

    Looks like poor wages has spurred people to stealing fuel/oil to make some money to live on. More unfortunate consequences on the way down.

  7. Baby Doomer says:

    Don’t Blame Amazon for the Retail Apocalypse

    The fundamentals of the retail business look horrible: Sales are stagnating, and profitability is getting worse with every passing quarter.

    Jeff Bezos and Amazon.com get most of the blame, but this is only part of the story. Today, online sales represent only 8.5% of total retail sales. Amazon, at about $100 billion in sales, accounts only for 1.6% of total U.S. retail sales, which at the end of 2018 were around $6 trillion. In truth, the confluence of a half-dozen unrelated developments is responsible for weak retail sales.

    https://www.barrons.com/articles/dont-blame-amazon-for-the-retail-apocalypse-51547989221

    • Jason says:

      Are retail sales, in total, down that much, or did retailers build too many stores? I guarantee you that if Sears closed half of their lower performing stores, and were able to write off their debt, they could still be profitable. The remaining employees and executives would have to take large pay cuts, as well as shareholders, but they could make money. Just like shale, if they limited their number to just the most productive platforms could make a profit. It is the debt repayment that kills. This is the step down that Archdruid thinks will happen. It is all up to banks and people to write off bad debt. Like monkey with hand in log, have to let go of something to survive.Greed kills.

      • Baby Doomer says:

        I don’t necessarily buy the over built stores argument..And the reason is the US population is still growing around a few million or so every year..So its hard to argue you have to many stores when you are adding more and more people every year..I’m sure though in some places where the population is shrinking, that could be the case..But overall in general that doesn’t seem to make much sense..And due to all the box and chain stores they have consolidated nearly all of the small business stores..So you would think that there are less stores today than in the past before you had all the wal marts etc..

        I think the US economy is suffering from “stagflation” right now..

        • The US population is still growing, but not by “a few million or so” each year. This is what the United States census bureau said in December 2018:

          Nationally, natural increase (the excess of births over deaths) was 1.04 million last year, reflecting 3,855,500 births and 2,814,013 deaths. With fewer births in recent years and the number of deaths increasing, natural increase has declined steadily over the past decade. In 2008, natural increase was nearly 1.8 million (based on National Center for Health Statistics data).

          It also says,

          As a whole, the U.S. population continues to grow due to both natural increase and international migration. Though international migration was slightly higher last year (978,826 compared to 953,233 the year before), natural increase was slightly lower last year (1,041,487 compared to 1,122,546 the year before).

          From this I would deduce that the census department believes that immigration lead to an increase in US population of 978,826 in the 12 months ended July 1, 2018. The excess of US births over US deaths only added 62,661 people (1,041,487- 978,826). Of course, immigrants have higher birth rates than others. Cutting back on immigrants would make the excess of births over deaths negative.

          EDIT: I did this wrong. See discussion below. Total is really about 2 million. Oops!

          • Kurt says:

            Natural increase is birth – deaths which is 1 million. Immigration is another million. So population increased by 2 million.

            • I think you are right.

              Total population growth was 0.6%, (down from 0.7%), so I am reading this wrong. If total population was about 326 million in 2017, then 0.6% is about 2 million.

        • GBV says:

          It strikes me that population growth is less relevant for the sale of consumer goods – you could add millions of people to any economy, but if they don’t have any money and/or have shrinking wages, then I can’t imagine they’ll be buying much.

          Where population growth in terms of consumption creates more of a problem, at least in my mind, is with regards to necessities. Money or not, people have to eat…

          Perhaps this is just how many have suggested a deflationary wave plays out: assets collapse in price as nobody can afford them, while basic necessities continue to increase in price (driven by increased demand by population growth at the same time that cost of production increases)?

      • The problem is that the low-performing stores are in the rural, depressed areas with few jobs. Closing these stores makes the situation worse. The stores in the cities would mostly stay, except for those in economically depressed areas.

        The rich grow richer; the poor get poorer.

        • i sometimes equate wealth movement to a flat tray, lying horizontally, covered by a shallow sheet of water

          sprinkle a few drops of oil all over the water, and each drop stays where it falls, sitting on the water surface

          move the tray slightly, and the oildrops begin to move.

          keep the tray of water gently moving, and eventually the oil dropsl finish up in a single blob

  8. Jason says:

    A quick search of retail sales shows that for the last ten years, most months have shown an increase in retail sales. The last ten years have also shown an increase in energy production.
    They go hand in hand, which is what Gail has been saying. When energy production drops, economy will follow, but her point is that Banks and lenders expect you to pay back plus interest, which is getting close to being not possible. Will they realize that hey, we need to reset terms of loan to be more realistic, or say screw you, if you can’t pay we will liquidize you, because, you know, Tony needs his money. It’s like legal mafia. Iron fist in velvet glove. But it won’t work when everybody is shrinking. It’s simple punishment mentality. Will prisons still be growing while energy shrinks? I would like to think that the new push for feminine leadership and qualities in the media will lead to more group support and caring, but what I see is aggressive, bullying feminism. Some weird mutation between all competitive masculinity with a feminist skin. A bit of a rant, thanks for letting me blow off some steam.

    • I agree. Increased energy consumption underlies all growth in what we think of as GDP.

      There has to be a high enough return on investment for the system to work, though, and that is becoming less and less possible because of diminishing returns. So the system starts reaches a point where the amount of interest it can pay is very low, and the frequency of defaults is much higher. Any little upward adjustment in the interest rates causes a major problem.

    • GBV says:

      “Will prisons still be growing while energy shrinks?”

      Perhaps we’ll see the return of “debtor’s prison”, where you’ll be forced into working off your debts…

      In a way, I’m not entirely opposed to that approach. Probably because I’m not in debt, and maybe because I’m a terrible, unsympathetic person at heart…

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