Why it (sort of) makes sense for the US to impose tariffs

Nearly everyone wonders, “Why is Donald Trump crazy enough to impose tariffs on imports from other countries? How could this possibly make sense?”

As long as the world economy is growing rapidly, it makes sense for countries to cooperate with each other. With the use of cooperation, scarce resources can become part of supply lines that allow the production of complex goods, such as computers, requiring materials from around the world. The downsides of cooperation include:

(a) The use of more oil to transport goods around the world;

(b) The more rapid exhaustion of resources of all kinds around the world; and

(c) Growing wage disparity as workers from high-wage countries compete more directly with workers from low-wages countries.

These issues can be tolerated as long as the world economy is growing fast enough. As the saying goes, “A rising tide lifts all boats.”

In this post, I will explain what is going wrong and how Donald Trump’s actions fit in with the situation we are facing. Strangely enough, there is a physics aspect to what is happening, even though it is likely that Donald Trump and the voters who elected him would probably not recognize this. In fact, the world economy seems to be on the cusp of a shrinking-back event, with or without the tariffs. Adding tariffs is an indirect way of allowing the US to obtain a better position in the new, shrunken economy, if this is really possible.

The upcoming shrinking-back event is the result of too little energy consumption in relation to total world population. Most researchers have completely missed the possibility that energy limits could manifest themselves as excessive wage disparity. In fact, they have tended to assume that energy limits would manifest themselves as high energy prices, especially for oil.

The world’s networked economy doesn’t work in the simple way that most researchers have assumed. Too much wage disparity tends to lead to low energy prices, rather than high, because of increasing affordability issues. The result is energy prices that are too low for producers, rather than too high for consumers. Producers (such as OPEC nations) willingly cut back on production in an attempt to get prices back up. The resulting shortage can be expected to more closely resemble financial collapse than high prices and a need for rationing. Trump’s tariffs may provide the US a better position, if the world economy should partially collapse.

Let me try to explain some pieces of this story.

1. Energy is needed to power the world economy. This fact has been missed by politicians and most economists. 

Economist Steven Keen recently developed a graphical explanation of the role energy plays in the world economy. In his graphic, he shows that workers need food (an energy product) just as machines need some sort of energy product to operate. In Steve Keen’s words, “Labor without energy is a corpse: capital without energy is a sculpture.”

Figure 1. Graphic by Steven Keen, depicting the role of energy in the economy. Energy in the form of food is necessary for human labor, just as energy (in one of its many forms) is needed for physical transformations that make the activities underlying GDP possible. These physical transformations necessarily lead to both the desired products and multiple types of waste.

In fact, there is a physics reason why energy consumption is needed in the economy. Energy “dissipation” is needed for the physical actions underlying GDP. For example, transportation requires a physical movement of people or objects. This can only happen with the use of energy. Even the use of heat or of electricity requires energy dissipation.

2. China’s huge growth in energy consumption since it joined the World Trade Organization (WTO) in December 2001 is truly amazing. It has changed the world order in a few years.

China’s energy consumption ramped up very quickly after joining the WTO in late 2001. At the same time, the energy consumption of the US and the EU stagnated, as manufacturing moved to China and other Emerging Markets.

Figure 2. Energy Consumption for the United States, China, and European Union, based on data from BP’s 2018 Statistical Review of World Energy.

As the shift in energy consumption occurred, jobs shifted elsewhere. Also, the competition with China and other low-wage countries tended to hold down wages of workers whose jobs could be shifted overseas. When we look at labor force participation rates for the US, we see that these seem to have turned down about the same time that China joined the WTO. This suggests that workers started leaving the workforce about the time competition with China ramped up.

Figure 3. US Labor Force Participation Rate, in chart prepared by the Federal Reserve of St. Louis.

3. China is now facing a problem with Peak Coal. Its level of coal production is barely sustainable because of depletion and low coal prices. 

Figure 4. China energy production by fuel, based on BP Statistical Review of World Energy 2018 data. “Other Ren” means Other Renewables. This includes wind, solar and other renewables, such as wood burned for fuel.

If China is to manufacture goods and services for the world economy as well as its own people, it needs a growing supply of cheap-to-produce energy. China’s largest source of energy is coal. China’s coal production hit a peak in 2013 and has been on a bumpy plateau, or falling, since. The problem has been a combination of (a) a higher cost of coal production, because existing mines are depleting, combined with (b) coal prices that do not rise high enough to make production from these mines profitable.

Of course, if coal prices were to rise higher, China would have a different, but equally serious problem: The cost of finished goods created for the world marketplace would be quite a bit higher, making it difficult to export them profitably. If customers’ wages rose at the same time coal prices rose, there would be no problem. The problem could be described in some sense as growing mining inefficiency because of coal depletion. Unfortunately, the world economy does not reward a shift toward inefficiency.

4. With Peak Coal occurring in China, it makes little sense for the United States, the European Union and others to depend as heavily on China as in the past.

The economy of every country today is built on debt. If the world economy is growing, this debt pile can rise higher and higher. If interest rates can be brought ever lower, this also helps the pile of debt rise higher and higher.

China’s economy also uses increasing debt to sustain its economic growth. If the economy of China should slow down or start shrinking because of energy limits, debt defaults could start overwhelming the system. Uprisings from laid-off workers might become difficult to quell. The situation could easily spiral out of control.

Economies around the world depend on China for many manufactured goods. In fact, for many minerals, China’s usage amounts to over half of the world’s consumption. This arrangement doesn’t really make sense because (a) China cannot really be depended on for the long term because of coal depletion, (b) jobs that pay well in Advanced Economies are being lost to China and other Emerging Markets, and (c) the level of concentration of manufacturing in China puts the world system at risk if China has any kind of adverse shift in its economy.

5. The whole idea of buying fuels from other countries only works as long as there is enough to go around. 

Many people are of the opinion that if there is not enough fuel of a particular kind, fuel prices will rise, and the market will continue to operate normally. There are at least two reasons why this doesn’t make sense:

Reason #1. The issue underlying rising costs of fossil fuels is nearly always depletion. For example, with coal mines, the coal closest to the surface in the thickest seams is extracted first. As this is depleted, deeper coal in thinner seams can also be extracted, but the cost tends to be higher. When depletion takes place, it is nearly always possible to extract more of the given fuel if some combination of more human labor and more technology (powered by energy) is used. Of course, adding labor and/or technology leads to a higher cost of production. 

But the prices of commodities are not determined based on the cost of production; prices are determined in the marketplace. They reflect the quantity of finished goods and services made with these commodities, that consumers (in the aggregate) can afford. Extracting coal or another fuel in what is essentially a less efficient manner doesn’t add to what consumers can afford. The combination of flat prices and higher costs leads to unprofitable producers–precisely China’s problem. Producers tend to cut back on production.

We can see that higher energy prices don’t lead to higher wages by looking at what happened when oil prices rose a few years ago in the US. We see that higher oil prices led to lower average wages because of recession.

Figure 5. Average wages in 2017$ compared to Brent oil price, also in 2017$. Oil prices in 2017 dollars are from BP Statistical Review of World Energy 2018. Average wages are total wages based on BEA data adjusted by the GDP price deflator, divided by total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.

Reason #2. If we look back at the timing of Peak Coal in the UK and in Germany, it looks very much as if depleting coal supply was one of the causes of both World War I and World War II. Governments know that energy supplies are required to operate their economies. If they cannot get enough energy products internally or through trade, they will fight other countries for access to supplies.

Figure 6. Image by author.

Economists, sitting in their ivory towers, have not stopped to think through the obvious. Their standard supply and demand curve does not work for energy because an adequate supply of cheap energy is needed for both the demand for goods and services (coming from wages workers earn) and the supply of goods and services. Once affordability becomes a problem, because too many people have low wages, the prices of fuels stop rising. It is the fact that prices don’t rise high enough that causes the “peaking” of oil, natural gas, and coal production. Extraction stops, even though there seem to be plenty of resources still available with current technology.

6. A major energy issue today is the fact that China and India have run through their own energy supplies and now need to import energy from outside their countries to supplement domestic supplies.

As shown in Figure 4 (above), China’s coal production stopped rising in 2013, keeping the total amount of energy it produces close to flat. To compensate for this shortfall, China has started to import oil, coal and natural gas. The difference between the thick black line and the top of the “stack” of types of energy produced in China (in Figure 7 below) represents the quantity of fuel that it has needed to import. Clearly, this quantity has been increasing.

Figure 7. China energy production by fuel plus its total energy consumption, based on BP 2018 Statistical Review of World Energy data.

India’s coal supply is not yet decreasing, but it is running into a similar problem. It needs to import more and more energy products from abroad, as its energy consumption (thick black line) rises above its energy production “stack.”

Figure 8. India’s total energy consumption compared to its energy production by type, based on BP 2018 Statistical Review of World Energy. “Other Ren” includes wind, solar, and other commercially traded renewable types of renewable energy, such as geothermal.

7. Worldwide, there is a growing need for imported fuels of many kinds.

Figure 9 shows the imports needed for five major areas of the world. In this analysis, the European Union is treated as a single unit. Thus, in this analysis, the imports it receives are only those from outside the European Union, taken as a whole.

Figure 9. Required energy imports for five major areas of the world, based on the difference of energy consumption and energy production shown in BP’s 2018 Statistical Review of World Energy.

We can see from Figure 9 that the European Union and Japan have been major importers of fuels for a very long time. India and China have only in recent years become energy importers. At the same time, the US is becoming more and more energy sufficient with its own fuel production.

Figure 10 shows the ratio of imported energy to total energy consumption for these five areas.

Figure 10. Percentage of energy imported in 2017 in Japan, India, the EU, China, and the US. Imports calculated as the difference between Total Energy Consumption and Total Energy Production based on data from BP 2018 Statistical Review of World Energy. The European Union is treated as a single unit. Thus, energy imports are those from outside the EU.

The US is clearly in a better position than other countries/groups shown, with a smaller share of energy imported in Figure 10 and a declining trend in imported energy in Figure 9. Japan, the EU and India are all subject to substantial risk if available imports should fall.

8. The ramp up of “clean energy” to date has proven to be a major disappointment. The quantities added are far below what the IEA believes is needed.

Partial confirmation of this statement can be seen by observing the tiny orange “Other Ren” bands on Figures 4, 7, and 8 for China and India, which include wind, solar, and other non-hydroelectric renewables. China is the largest user of wind and solar in the world, yet its use of these devices provides only a tiny portion of its total energy consumption.

We have known since the 1950s that fossil fuel supply would eventually become a problem. Academics, with their focus on making models, have been able to come up with hypotheses regarding what might act as substitutes. But these models tend to miss a lot of things, including the following:

  • Adverse events, such as Fukushima for nuclear.
  • The need for electricity storage and extra long distance transmission lines, as wind and solar usage are ramped up. The cost-benefit analysis is much less favorable with these added.
  • Issues that affect only some installations, such as workarounds to keep long-distance transmission lines from starting fires in dry areas, or the high cost of underground transmission lines.
  • The best sites are taken early.

It is not until the actual experience arrives that we see how these substitutes are working in practice. If we think back, the nuclear promise of producing electricity that was hoped to be “too cheap to meter” hasn’t really panned out. In fact, many Advanced Economies are cutting back on their use of nuclear.

With respect to “renewables,” (including hydroelectric, wind, solar, and others) the amount of new generation added each year seems to have hit a plateau. It may be that the additional need for storage and transmission lines are already slowing the growth of renewables.

Figure 11. IEA Renewable Net Capacity Additions as of May 2019. Source: Chart from India Times.

The IEA has started pointing out that far more energy investment is needed if sustainable development goals are to be met–about 300 GW per year, instead of the current 177 per year in additions, on average, between 2018 and 2030.

9. Donald Trump and his advisors have sensed that the current economic system is not working because of too much wage disparity. If the economic system is destined to break in one way or another, Trump can influence which way the break will occur by the imposition of tariffs.

Trump and his advisors no doubt recognize the importance of a cheap, available energy supply. They also realize that energy is an important enough factor of production to fight over. Furthermore, many past wars have been resource wars. Tariffs are, in some sense, a step toward a resource war.

One of the immediate problems at hand is too much wage disparity. Strange as it may seem, excessive wage disparity can be a sign of inadequate energy supply because in a networked economy, high prices of commodities and low wages of workers are almost “mirror images” of each other. High commodity prices tend to cut off consumption of commodities (such as oil or coal) by prices of finished goods that are too high for consumers.

Excessive wage disparity works in reverse: It sends prices of commodities (such as coal and oil) too low, cutting off production because prices fall too low for producers of these commodities. Production falls because producers cannot make a profit. When wage disparity is very high, a large share of workers have very low wages, leaving them unable to purchase more than a small amount of high-priced goods (such as cars and homes) made with commodities. It is this low “demand” that holds down commodity prices.

Figure 10 shows that wide income disparities were issues both at the time of the Great Depression and in recent years. Commodity prices have been relatively low each of these times. The problems didn’t look like shortages; they looked like gluts because of issues related to lack of affordability.

Figure 12. U. S. Income Shares of Top 1% and Top 0.1%, Wikipedia exhibit by Piketty and Saez.

The US has raised tariffs in the past. One time was immediately before the US Civil War. Tariffs were again raised in 1922 and 1930, when wage disparities were at a high level.

Unfortunately, there is a significant chance that major parts of the world economy will start collapsing, with or without Trump’s tariffs and the trade war, because energy supplies worldwide are not growing sufficiently. In fact, some of these energy supplies are purposely being removed by producers, such as Saudi Arabia, because prices are too low.

By putting tariffs on some goods, Trump is providing a substitute for the missing high oil prices needed to slow the growth of globalization, if the issue of ever-increasing wage disparity is to be solved. The tariffs tend to raise the value of the US dollar relative to other currencies, making the cost of commodities (including fossil fuels) cheaper for US consumers than for other consumers around the world. The tariffs tend to encourage new investment in US production of many types, at the same time that they make investment in other countries, such as China, less appealing.

All of these changes indirectly give the US an advantage if there should be a partial collapse of the world economy. With the benefit of the tariffs, perhaps the partial collapse would leave some combination of countries, including the US and Canada, mostly unaffected. There might be other groups remaining as well. Weak economies, such as Venezuela, Cuba, and Haiti, would likely be pushed aside. Even Europe and Japan would likely have major problems.


Most observers have missed the point that excessive wage and wealth disparity can be a sign of serious energy problems, just as high prices can be a sign of short supply. They have also missed the point that coal supply is very important, just as oil supply is very important.

In the real world, when there is not enough to go around, wars are a definite possibility. A trade war is a somewhat reduced version of a war. Trump and his advisors, whether or not they understand the real situation, seem to be trying to guide the US to as good an outcome as possible, in the current situation of excessive wage disparity.

The underlying issue is likely the Limits to Growth problem modeled in the 1972 book, The Limits to Growth, by Donella Meadows, et al.

Figure 13. 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,” with dotted line added corresponding to where I see the world economy to be in 2019.

As resources become depleted, it becomes increasingly difficult to maintain economic growth. Industrial output per capita (for example, the number of new cars or number of smartphones per 1000 people) starts falling. The 1972 computer simulations did not consider wages or prices, only physical quantities of various items.

Now, as we can see how the limits are playing out in the real world, it appears that the most prominent manifestation of the world’s low resource problem is excessive wage disparity–an issue most people have never considered as being related to shortages of resource supplies. Few people have stopped to think that goods made with energy products are equally unaffordable whether the problem is prices being too high, or wages of most people being too low.

This entry was posted in Financial Implications and tagged , , , , by Gail Tverberg. Bookmark the permalink.

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.

1,341 thoughts on “Why it (sort of) makes sense for the US to impose tariffs

  1. “A source close to French President Emmanuel Macron said on Sunday that failing to pay a 39 billion pound ($50 billion) Brexit bill when Britain leaves the European Union would amount to a sovereign debt default…

    “Boris Johnson, the leading candidate to succeed Theresa May as leader of Britain’s Conservative party and therefore its next prime minister, said in a newspaper interview that he would withhold the previously agreed Brexit payment until the EU gave Britain better exit terms.”


  2. Chinamerica….doing just fine

    China says its May trade surplus was $41.65 billion, significantly more than expected
    Yen Nee Lee | @YenNee_Lee
    China said on Monday its overall trade surplus in May was $41.65 billion, significantly more than expected.
    Economists polled by Reuters had expected the world’s second largest economy to post an overall trade surplus of $20.5 billion.
    China’s trade surplus with the U.S. rose to $26.89 billion in May from $21.01 billion in April, customs data showed
    Trump threatened that more levies could come — a point reiterated by U.S. Treasury Secretary Steven Mnuchin, who told CNBC the president “is perfectly happy” to increase tariffs on China if his expected meeting with Chinese President Xi Jinping doesn’t go well. Trump said that he’s expected to meet Xi later this month.
    Many analysts expect China to experience a larger economic hit from its ongoing trade war, with data in recent months showing signs of slowing activity. The International Monetary Fund and major banks such as Morgan Stanley recently lowered their growth forecasts for China citing trade concerns.
    But the latest employment data in the U.S. — which showed weaker than expected jobs creation — put the two countries on roughly equal footing, said Johanna Chua, head of Asia economics and market analysis at Citi.
    Chua told CNBC’s “Street Signs” after the latest Chinese data release that the U.S. jobs data may be the first sign that the American economy is getting hit by the escalation in trade tensions

    Seems we are one economy now….

    • I don’t think that there are real ways to tackle the issue of rising costs for the elderly other than (1) cut benefits and (2) raise taxes, either of which reduces aggregate demand for goods and services. Commodity prices can be expected to fall; debt can be expected to default. In my view, this whole process simply leads to collapse.

      The other alternative is add more debt, and try to keep the system going a little longer. Maybe add some more immigrants, to keep the younger population up.

      • Do you think adding more immigrants has worked for europe so far?

        Also… (3) identify and deal with the root cause of problems instead of throwing more and more money at temporary superficial patches that inevitably leads to more and more problems and more and more patches because somebody somewhere profits from not dealiing with the root cause of problems.

        • At some point, our profit based economy breaks down because problems are not dealt with as they should be in the most efficient way possible.

          Instead of wise choices being made we see boardrooms full of moneymen, women and non-binary executives brainstorming how to extract as much profit from a scam as possible.

          We see China building ghost cities and pouring more concrete than ever before when many chinese are quite happy where they are.

          70% of healthcare costs would evaporate if people just eat a healthy diet and according to their needs. Reduce smoking and alchohol intake and you’re half way there. Heart disease and cancer would plummet – the two top healthcare drains on funds.

          How do you get people to change their ways? Education only goes so far so an incentives program needs to be implemented. Cash rewards, a points system, anything that motivates people to change their habits.

          Otherwise you have a shrinking healthy worker population supporting an increasingly unhealthy, lazy, very costly population. Unsustainable.

          Maybe China has the right idea after all with their good citizen points system. What’s the alternative?

          • Yes, this overall theme seems to resonate through ages, simply the best form of gov to be found is moderate authoritarianism, keeping various extreme factions in check (e.g. both chaos brewing libertines as well as hard conservatives, plus obviously trimming and weeding out corruption in the epicenter in your own support base). However, keeping such delicate balance is a mastery class and usually did not last very long.. but when it ~worked it was heavenly..

            ps I’m not implying-saying contemporary China is the model case for it though!

          • FW has me now looking at the whole system…which I would think has to be intensely and lovingly observed if there’s a chance to change it. That helps me not to get upset, for if you can point out how the system is working (or not), and not get too personal about it, people tend to listen better. (I generally meet hell on the local blog when I discuss OFW, but recently I find if I stick to the point, some of the attacks get defused.

      • Hmmm, unfortunately for us seniors, there is a third way. A politically acceptable way is to require multiple consultations and reviews for life saving treatments after a given age, or even wonderful procedures that enhance life quality such as hips, knees, etc.
        For all people complain, Medicare with a good supplemental program and drug program for those who need it is wonderful, our children are getting the short end of the stick.
        Dennis L.

        • I’m definitely in agreement that this thing is going to end in collapse. What a freak show it is becoming (as if the last 10 years has been normal). The weakest jobs report in nearly 10 years and the feds acknowledging that the “greatest economy ever” cannot sustain 2.5% interest rates. Trade wars, and our leader continues to flip and flop and tweet, the congress too cow towed to speak up and deranged to focus on anything besides transsexuals and coddling illegal invaders. Markets are up – pure madness.
          Yes it is going to end, but we need BAU to persist.


          Yes, the Beeebs has challenged Tom Cruise to a fight. It should be a fight to the death and this will lift my spirits immensely. Of course the smart money is on Cruise. Having never even heard a Justin Beiber song in my life I know enough to hate him – look at him. Maybe we can have seniors in need of medical care to fight to the death on live national T.V. (they are going to die anyway). It may even generate some much needed revenue and it gets rid of old people in an honorable and entertaining fashion (a twofer).
          So we need BAU to continue for the insanity to continue. We are almost there, almost to the point where nearly everyone will welcome the sweet release of collapse.

          • For some reason as I read Dan’s message I recalled the very old National Lampoon audio skit about Monolithic Oil. Although I think the message probably comes from several different political directions these days.

            Search for ‘National Lampoon Monolithic Oil’ and you should see a YouTube link pop up quickly, complete with a picture of the album cover.

          • I’m starting to view the human race as an old friend that’s lost her marbles and is now running around naked down the street screaming obscenities at everyone and pooping in every corner.

            What can you do? The feeling of helplessness is overwhelming. The patient is too far gone. There is no going back Bob. You can’t put the genie back in the bottle. The demons have been unleashed and they have infected the once noble creature known as human beings.

            We put suffering animals down with a bullet to the head because it becomes unbearable to simply allow nature to take its course. A needle is preferable now but the point is to make it quick.

            The promoters of tolerance and progress have become the most insufferably intolerant people ever known and the backlash is arriving right on cue.

            To make things more interesting, as you suggest, you only have to take away all the medication that people are currently using to hold back the demons. Then the games can truly begin. The streets will be filled with rampaging agents of madness, climbing the walls and pooping on every doorstep.

            Then it’s open season and no one will be arrested for their actions.

      • Adding more immigrants leads to MORE DEMAND for housing, roads, fuel, health care, food, water, trash collection, transportation, electricity, more JOB demand & higher taxes.
        I think that “fix” leads to more problems than it solves & then what do you do when THEY get OLD?
        Import even more people?
        Perhaps cutting benifits for those who have plenty & raise taxes on those that have too much.
        What is really NEEDED are FEWER PEOPLE!
        THAT”S the foundation of all our other delemas, HUMAN OVERPOPULATION!
        That’s the BIGGEST “ELEPHANT” in the room that is constantly IGNORED!

        • If one puts forward that point of view one also needs to be prepared act accordingly.

          So small or no family. No possible reliance on others to care for one in older age or because of infirmity. That’s not to say there will be no care but that one should not rely on it.

          No extended healthcare to keep people alive beyond what is ‘natural’ just because the medics can do it.

          For a reduction process rapid enough to be meaningful in terms of proposal from the ‘green’ brigade it seems to me that there would need to be active reduction rather that waiting a few generations and hoping that numbers may go down (presumably across all parts of the world.)

          So one might have to agree with one’s family who should be on the exit list. Or let the authorities make the decision.

          I can’t imagine many people would vote for that. There might be some resistance.

          Still, that would be a good excuse for a bit of war and destruction which, if half planned in advance, might achieve the objectives anyway.

          All of that decision making is based on forecasts of what MAY happen a generation or three from now. Basically generations that will barely exist if a voluntary birth rate reduction campaign is persuasive and successful from its inception.

          There will be few people around to recognise the success of the campaign.

          What a shame?

          How convincing should such an argument be for it to be morally acceptable to the masses across all cultures?

        • The importation of immigrants is as ideologically driven as it is economically. I see it as a continuation of post-World War 2 ideal of chipping away at nation-states, and monolithic cultures.so that we don’t succumb to intolerance. The people pushing for more immigration are also pushing for more cultural diversity. They people pushing for more immigration believe that people with a weak or non-existent sense of identity are less likely to persecute others for being different. Basically, a room of strangers are less likely to gang up on any one person.

          There’s also this theory that putting people in close proximity to each other, make them friendly and that hostility is due to people being afraid of the unknown and strange.

        • We humans are a Ponzi scheme. Australia’s growth is testament to high immigration figures. Nothing else is doing well among the usual considerations for the economy’s GDP. I’ve no idea when the penny will drop.

        • “what do you do when THEY get OLD?”

          Since they don’t produce, but only is a vehicle for debt, it will be game over well before THEY get old.

          • You take busloads of them on a trip to the Grand Canyon and guide them through a door that leads to a precipice on the other side.

            I can’t think of a nicer way to go.

        • The importation of immigrants is as ideologically driven as it is economically. I see it as a continuation of post-World War 2 ideal of chipping away at nation-states, and monolithic cultures.so that we don’t succumb to intolerance. The people pushing for more immigration are also pushing for more cultural diversity. They people pushing for more immigration believe that people with a weak or non-existent sense of identity are less likely to persecute others for being different. Basically, a room of strangers are less likely to gang up on any one person.

          There’s also this theory that putting people in close proximity to each other, make them friendly and that hostility is due to people being afraid of the unknown and strange.

          • “Basically, a room of strangers are less likely to gang up on any one person.”

            But what happens when you put a tribe into a room of strangers?

    • “Japan is producing fewer babies than in the 19th century, according to figures that confirm the extreme demographic crisis threatening the country’s economy, industries and welfare system. According to the health, labour and welfare ministry, the population fell to 124.22 million last year, a drop of 444,000 people. Barely 918,000 babies were born, 28,000 fewer than in 2017, and the smallest number since records began in 1899.”


    • Ohh dear, looks like the lights will be going out, I had better invest in bees. Current supply from wind and solar 10.1 GW at 5.04pm UK time, total use 37.2GW AND that’s without a fleet of electric cars etc and I think we are banning gas home boilers soon for new homes and wood burners because they pollute too much. I despair. On the plus side our local cement factory has become a recycling plant, it is now burning all kinds of rubbish inc tyres and recycling the energy into cement. I think there will be a lot more of this.

        • If it tires of tyres maybe the deceased will be turned into elrctrons; are we a net energy source when cremated?

          • I attended a friend of a friend’s cremation ceremony, and there appeared to be a lot of natural gas being consumed to quickly convert his body into a tray of ash. i think the muslims have the correct idea of a sack in place of an expensive coffin, to make it easier to compost the remains and return the components to the earth.

      • There will be more of that in the UK, certainly.

        The proud owners of ‘luxury’ new homes in a big development near here have been told that they will be heated by the burning of waste in a power plant on the very edge of the development.

        Not what they planned for in moving to a green-field development I’m sure! The definition of luxury is changing, it seems.

        Add to that 5G to fry our brains even more……

        • Things do not appear to be getting better.

          It’s almost as if we’re being coralled into prison like environments for “our own good.”

  3. Hmmm.something don’t add up here? Imagine that.. sarcasm
    Lu Wang
    BloombergJune 10, 2019, 6:11 AM EDT
    If Supply and Demand Set Stock Prices, U.S. Market Has a Problem
    (Bloomberg) — The U.S. stock market has been staging a vanishing act for years. Which is to say, it’s gotten smaller, due to a combination of takeovers, buybacks and fewer new listings. Investors don’t mind this. They often cite the contraction as part of a bull case premised on scarcity.
    Something is happening to tilt the calculus against them.
    While American firms almost always repurchase way more stock than they sell via offerings, May was different, as deals by Uber Technologies Inc. and Lyft Inc. glutted the market with new supply.
    All told, U.S. companies announced plans to sell $43 billion of stock via initial and secondary offerings last month, roughly matching the amount they said they would remove via buybacks and takeovers. Only twice in the past six years has issuance exceeded supply, according to data compiled by TrimTabs Investment Research. For context, about $4.30 had been bought back for every $1 raised, on average, over the past year.
    In a world where a trade war rages, bond yields are falling and every Federal Reserve utterance is combed for its interest-rate implications, it’s easy to dismiss swelling share issuance as a mortal threat to the rally. Not everyone sees it that way. The shift in the market’s supply and demand dynamic plays into a host of late-cycle anxieties in which companies pressure buyers with last-ditch efforts to cash in on stretched valuations before they deflate.
    “Companies are looking at this as a great time to unload shares rather than to buy shares,” said Winston Chua, an analyst with TrimTabs. “You’re removing the buffer from the market that’d normally prevent more dramatic declines,” he said. “That’s usually a bad sign.”

    [I cut back the length of the quote. We aren’t supposed to copy whole copyrighted articles. – Gail ]

    • I hadn’t thought about “supply of stock” being a variable in the prices of stocks in general. Supply of debt (to buy on margin) does seem to be a variable in the prices, though.

  4. “The CFR Japan physical naphtha crack against front-month August ICE Brent crude slumped to a near 11-year low on the back of supply overhang and cracker outages…

    “According to market sources, the Asian naphtha market sagged under the weight of a supply glut as spot demand remained sluggish.”


    • In Canada, naphtha is used as a diluent for the bitumen extracted in Alberta. It makes the mixture flow well, and can be extracted when it is no longer needed.

      I can see, though that low prices for one part of the oil barrel can lead to low prices nearby. LNG has been trading at low prices recently. To the extent that LNG can replace naphtha for some uses, it will tend to bring the price down. They are both quite “light” (short chain) hydrocarbons.

        • You are right. What I said doesn’t make much sense.

          The article discusses substitution by LPG, rather than LNG. Somewhere in the back of my mind, I was thinking Natural Gas Liquids, which is of course different yet (but closer to Naphtha). It is the longer chain molecules, removed from the mix of natural gases extracted.

          LPG is Liquid Petroleum Gas. This is propane with 3 carbon molecules, or butane, with 4 carbon molecules, according to one source.

          The number of acronyms is very high in this business.

          • “acronyms”

            No kidding. You almost need to be a chemical engineer specializing in oil refining.

            I spent several years in the late 1970s and early 1980s intermittently working here: https://en.wikipedia.org/wiki/Houston_Refining I was there when they quit adding lead to gasoline and tore out the delivery rail tracks.

            One thing that is not well known is the difference between winter and summer gasoline. Winter gasoline can have up to 40% butane in it.

            • Increases the quantity and butane is cheap! No wonder winter gasoline is cheaper. Butane tends to evaporate in summer. Robert Rapier would write about this subject from time to time.

  5. https://getyarn.io/yarn-clip/227a90f6-ab40-4b4e-8011-b8cd9fa238a2

    After half a decade of lower spending on new projects, oil production growth was supposed to slow to a trickle just as demand was supercharged by a once-in-a-generation shake up in the shipping fuel market. Many market commentators predicted that if $100 a barrel-oil was going to make a come back, it would happen in 2020.

    S&P Global Platts, the owner of what was previously named PIRA Energy consultants, put the surplus next year at around 400,000 barrels a day in a report to clients in May. The Energy Information Administration, the statistical arm of the U.S. Department of Energy, sees a 100,000 barrel-a-day excess. And Energy Aspects, another influential consultant popular with hedge funds and big trading houses, sees a “large” stock-build of 500,000 barrels a day. IHS Markit expects a total surplus of 800,000 barrels a day next year.

    The surpluses, however, mask notable differences within the petroleum market, with most consultants anticipating a larger overhang in refined products than in crude.

    Although the Paris-based IEA hasn’t yet published its first detailed look into 2020, it offered some glimpses of its thinking earlier this year when it published a 5-year outlook from 2019 to 2024. In that report, it forecast oil demand next year at 102 million barrels a day, and production from non-OPEC countries plus condensates from OPEC at 71.9 million barrels. That, effectively, will leave a gap for OPEC crude to fill of just 30.1 million barrels, close to the cartel’s current production.


    • Thanks, seems as yet another ominous sign of brief false calm before ~2025 then onward rodeo marked with real shortages, bankruptcies and general unobtanium panicky mentality spreading over JITs..

      • Yes, that’s pretty much how it seems to be shaping up, the writing is on the wall for all to see if they take time to inform themselves. We’ve enjoyed a reprieve of a decade, and most of us let it slip past without full appreciation and gratitude.

        Although we know it’s only plate, not solid metal, these are truly the Golden Years at the end of the Age of Abundance; and one should enjoy them to the utmost – while trying to toughen up mentally and physically to prepare as best as possible for what is to come and face it with a calm soul.

        The believers in Real Socialism, Real Capitalism, the Green New Deal, The Rapture, etc, are all going to be gravely disappointed and waste this interval in useless and deluded efforts to bring about their infantile dreams; but we know what the reality is likely to be, and can dispose of our time and emotions wisely.

  6. This relates to my last post….this from the site Automic Earth,…..

    The top 1% of U.S. households are holding a record $303.9 billion of cash, a quantum leap from the under $15 billion they held just before the financial crisis.”
    • Too Much Money -And Too Few Places To Invest It- (Axios)
    A truly bizarre trend is having an impact on the economy — wealthy people and corporations have so much money they literally don’t know what to do with it. Why it matters: At a time when growing income inequality is fueling voter discontent and underpinning an array of social movements, the top 1% of earners and big companies are holding record levels of unused cash. The big picture: U.S. companies raked in a record $2.3 trillion in corporate profits last year, while the country’s total wealth increased by $6 trillion to $98.2 trillion (40% of which went to those with wealth over $100,000). So, where is all the money going?
    The IMF notes large companies around the world are overwhelmingly and uniformly choosing not to reinvest much of it into their businesses…
    Between the lines: These factors, combined with legislative policies that have consistently favored business owners over workers, eroded unions and reduced employees ability to demand higher wages.

    The Tax Cut and Jobs Act — i.e., the Trump tax cut —exacerbated these issues, slashing the share of U.S. taxes that companies paid to its lowest level in at least half a century and provided companies even more capital for buybacks, dividends and executive compensation.
    “Perhaps the fallacy of the tax plan to begin with was companies were not starved for capital coming into this,” Mark Hackett, chief of investment research at Nationwide, tells Axios. “They were starved for growth opportunities.


    What can possibly happen here!? Maybe I should go out and invest in artwork, like obtaining a nice sculpture of a stainless steel Bunny for 90 million dollars!
    Boy, the problems of the very very rich.

      • “Less than two months ago, gasoline prices were headed for $3 a gallon. Today they’re headed for $2 a gallon…

        “U.S. frackers haven’t turned a profit in 10 years, and investors have not only been putting pressure on them to show them a return on their investments, but have largely shut off the flow of new investment capital until they do. Last year oil companies raised about $22 billion from both equity and debt financing, less than half what they raised in 2017 and less than a third of what they raised just five years ago.

        “More than 170 small fracking companies weren’t able to survive and declared bankruptcy last year. Another eight small fracking companies have cratered so far this year. And if oil prices continue to slide — crude oil hit $66 a barrel less than two months ago but now trades at $54 a barrel — lack of investors’ funds will be the least of their worries. Survival will be their top priority. Those companies going bankrupt last year left investors holding the bag on nearly $100 billion, and new investors aren’t interested in repeating the experience.”


        • Frackers seem to be putting their “Drilled but Uncomplete” wells into operation, rather than drilling new wells. This temporarily holds up oil production, but causes it to fall more steeply later. OPEC showed this chart in its last report on the oil market.

          Notice that the DUC well count is shown on the right hand size. There are many months worth of previously drilled wells in inventory.

          Cutting way back on new well drilling cuts revenue for the companies that specialize in this.

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