Seven Reasons Why We Should Not Depend on Imported Goods from China

It seems to me that the situation in China is far different from what most people think it is. Even if we would like to depend on China, we really cannot.

Reason 1. When we depend on goods from China, an amazingly large share of the world’s industrial activity gets concentrated in China.

The five largest users of energy in the world are China, the United States, India, Russia, and Japan. The International Energy Agency shows total energy consumption as follows for the year 2016:

Figure 1. IEA’s estimate of energy consumption (total fuel consumed, or TFC) by sector in 2016 for the top five energy consuming nations. Mtoe is million tons oil equivalent. Source: IEA. Non-energy use is the use of fossil fuels as a material to create end products that are not burned. Examples include medicines, plastics, fertilizers, asphalt, and fabrics.

When these countries are compared, restricting our analysis to the portion of energy used by industry, we find the rather disconcerting result shown in Figure 2:

Figure 2. Chart by the International Energy Agency showing total fuel consumed (TFC) by industry, for the top five fuel consuming nations of the world.

China consumes more fuel for industrial production than the next four countries listed (United States, India, Russia, and Japan) combined. Of course, we don’t know exactly the corresponding amounts for other countries of the world, but we can observe that if a country is concerned about its CO2 emissions, the easiest way to reduce these emissions is to send heavy industry elsewhere, such as to China or India. There are likely many countries that are primarily service economies, thanks to the option of outsourcing most industry to other countries.

Much of the discussion I have read regarding sending industry elsewhere has been in the direction of, “As advanced as our economy is, we don’t need heavy industry; service jobs will substitute. Industry can be developed at lower cost elsewhere. Everyone will be better off with this arrangement. The invisible hand will provide jobs and goods and services for everyone.” In addition, corporations saw the possibility of adding customers from around the world. Not too many thought about the real-world problems that might result.

Clearly there is a problem with the jobs being lost to China and other Emerging Markets. When new service jobs are added, they often do not pay as well the industrial jobs they replaced. In fact, there might not be enough jobs in total, if automation plays an important role as well.

Another issue is that the level of industrial concentration can be a problem. We are now depending on China and perhaps a few other countries to provide for a large share of the “stuff” we use. Even if China is not the only provider, it is often an important part of the supply chain. If something should go wrong (for example, widespread riots in China), we don’t have a Plan B.

Reason 2. China needs energy products to make the goods it uses for itself and for the goods it exports. China’s own energy supply is faltering. Because of China’s huge size, it is becoming increasingly difficult to keep China’s energy consumption rising sufficiently rapidly using imported energy.

China’s own energy production is shown in Figure 3. (Note: Hot off the press! New BP report released this week.)

Figure 3. China energy production by fuel, based on 2019 BP Statistical Review of World Energy data. “Other Ren” stands for “Renewables other than hydroelectric.” This category includes wind, solar, and other miscellaneous types, such as sawdust burned for electricity.

It is easy to see that China’s coal production hit its highest point in 2013 and has stayed at a lower level since that date. Also, China’s highest oil production occurred in 2015, with lower production since that date. China’s total energy production has been rising recently, but only with great effort. Total energy production is only 8.9% higher in 2018 than it was in 2012, implying an increase of less than 1.5% per year, relative to 2012 amounts.

A standard workaround for inadequate energy production growth is imported energy products. Even with these imports, it has been impossible to keep total energy consumption rising as rapidly as it rose in the 2002 to 2007 period. The cost with imports is greater, also.

Figure 4. China energy production by fuel, plus line showing its total energy consumption (including imports), based on BP 2019 Statistical Review of World Energy data.

In 2018, China imported 71% of its petroleum (either as crude or as products), and 43% of its natural gas. It was the largest importer in the world with respect to both of these fuels.

In 2018, China’s coal imports shrank as its own coal production surged. This was almost certainly a change planned by China. China would much prefer producing its own coal (and keeping the jobs within the country) to importing coal from elsewhere. China imported 4% of its coal from elsewhere in 2018.

Reason 3. The commodity demand from China is so huge that, to a significant extent, it determines world commodity price levels. Where regional energy prices exist, China’s choice regarding whether or not to import from a country can influence local price levels.

Chile is the largest copper producer in the world. A recent article regarding problems associated with lower copper prices notes that the demand for Chilean copper has been driven “almost entirely by the expanding Chinese economy over the last three decades.” For many commodities, China consumes over half of the world’s commodity supply. If China’s industrial demand is growing, prices will tend to rise, allowing more of the mineral to be extracted. Higher commodity prices tend to be needed over time because the ores of highest concentration (and otherwise easiest to extract ores) tend to be extracted first. Ores extracted later tend to be more expensive to extract, so higher prices are required for extraction to be profitable.

This situation of China playing an extremely large role in commodity prices holds for a very large number of commodities. If China is building widgets or any other product, using a particular commodity, China’s need to buy this commodity in the world market will tend to hold up world prices for the commodity. This situation holds even for fossil fuel prices.

Reason 4. Over the next few years, China’s coal supply is likely to fall significantly because of depletion. This lower fuel supply is likely to lead to a shrinkage of China’s industrial capability, and, indirectly, falling world commodity prices of all kinds.

The problem that China is encountering in Figure 3 is “peak coal.” This is a similar problem to that encountered by the United Kingdom immediately before World War I, and to that Germany encountered just before World War II.

Figure 5. The timing of the peaks is peculiar, relative to wars.

Coal tends to be the industrial fuel of choice because it is cheap. Goods made with coal tend to be inexpensive, especially if wages paid to workers are low and if the company making the goods does not spend much money on pollution prevention. Hydroelectric can be an adequate substitute for coal, if the water flow can be depended upon. Wind and solar are too intermittent and not sufficiently inexpensive to be adequate substitutes for coal. Wind and solar (included in “Other Ren” on Figure 3) are also far smaller in quantity than coal.

Outsourcing a large share of the world’s manufacturing to China seemed like a great idea back when it was started, often in the early 2000s. If, at some point, China cannot really handle the responsibility it has taken on, outsourcing gets to be a huge problem.

The reason why coal prices cannot rise very high is because if they do, the prices of finished goods will need to rise as well. Wages of workers around the world will not rise at the same time because the higher cost of production takes place due to something that is equivalent to “growing inefficiency.” The coal mined is of lower quality, or in thinner seams, or needs to be transported further. This means that more workers and more fuel is needed for each ton of coal extracted. This leaves fewer workers and less fuel for other industrial tasks, so that, in total, the economy can manufacture fewer goods and services. Because of these issues, countries experiencing peak coal are pushed toward contraction of their economies.

Unfortunately, rather than leading to high prices (to compensate for the higher extraction costs), running short of inexpensive-to-extract fuel tends to lead to war, or to tariff fights. Countries whose coal is depleting will try to maintain their own supply as long as possible. They will invent excuses to stop importing coal. Back in September 2018, the Financial Review reported, “China has introduced unofficial restrictions on coal imports in a bid to prop up domestic prices by slowing down customs approvals at key ports.” China needed higher internal prices to make it profitable to extract coal from its depleting coal mines.

Figure 6. Chart showing prices of Brent Oil, China Qinhuangdao Spot Coal price, and Asian Marker Coal, all in US$ of the day. Amounts from BP 2019 Statistical Review of World Energy. Note also that the units of coal (ton) are much larger than the units of oil (barrel) used on this chart. Thus, the same number of dollars of buys a much larger quantity of coal than of oil; coal is cheaper.

If higher coal prices really were possible over the long term, it would make it possible to open new mines in more distant locations. The location of coal mines is important because transport costs by rail or truck tend to be high. China built the large ghost city of Ordos, Inner Mongolia, on the expectation that coal prices would rise, making development of coal in the area profitable. Unfortunately, coal prices fell, making the project not economic. I visited the area in 2015, after teaching a short course on Energy Economics in Beijing. There was a large almost empty airport, and few vehicles were using nearby multi-lane roads.

Reason 5. All of the concern about future tariffs artificially raised China’s 2018 industrial production and commodity prices. Because production was brought forward into 2018, China’s production and world commodity prices can be expected to be lower in 2019 and in future years.

Manufacturers wanted to front-run tariffs, so they tended to ramp up production in advance of the tariff implementation date. This higher production in turn tended to raise commodity production and prices around the world. Note on Figure 6, above, that coal and oil prices are both higher in 2018 than in 2017. Prices in 2019, not shown, are tending to trend downward again.

China badly needed higher coal prices in order to help its coal extraction. Thus, part of the reason that China was able to continue to function as well as it did in 2018 was because of all of the discussion about future tariffs. If this discussion had not taken place, employment in China would likely have been lower. With this lower employment, sales of automobiles and smartphones would have been lower as well.

Note, too, that even with the demand brought forward into 2018, China’s economy was not functioning very well in 2018. Private passenger automobile sales for the year fell by 4%. Smartphone sales fell by a worrisome 15.5%. Clearly, workers were having difficulty buying the kinds of goods a person would expect a growing economy to be selling. I would attribute these problems to the peak coal problem mentioned earlier, making it increasingly difficult to increase the amount of industrial operations provided by China’s economy.

Reason 6. The Chinese economy has been gradually changing and adapting to hide its energy problems. Even more changes will be needed in the future, potentially affecting the world economy, with or without tariffs.

The Chinese economy reports carefully massaged GDP numbers, which many analysts consider to be inflated in recent years. Its debt level keeps rising to try to keep all of its operations going.

We know that China discontinued one major industry at the beginning of 2018: recycling plastic and other types of low-valued recycling. With low oil and natural gas prices, this type of recycling cannot be profitable. Of course, discontinuing a major industry can be expected to lead to a loss of jobs within China. But, on the positive side, it frees up coal and other energy resources in China for other industries that can (perhaps) make more profitable use of them.

On a world basis, the loss of the plastic recycling industry becomes a problem. If rich countries are willing to subsidize the cost of sending plastic recycling to China, this subsidy allows containers that bring goods to rich countries to be sent back to China with a paid load inside. Thus, operating the plastic recycling industry helps keep the cost of shipment of goods from China to the US or Europe down because the shipping costs only need to cover the one-way cost of transit, rather than also covering the cost of shipping the empty container back. Without the subsidy to pay the freight of the plastic recycling, costs for the shipping industry rise, making international trade more expensive. Eliminating the subsidy that rich countries are paying to ship otherwise-empty containers back full of mixed trash is part of what pushes the world economy to contraction.

Other countries are not taking over very much of China’s role in recycling plastic, either. The net effect is that the loss of recycling is one of the things pushing the world toward contraction.

China has no doubt been cutting back in other ways as well. It is likely that it is not building as many uninhabited cities and roads that are really not needed. Ugo Bardi recently posted this chart showing global cement production.

Figure 7. World Cement Production by Ugo Bardi from a blog post on January 19, 2019.

China produces over half of the world’s cement; part of the reduction we are seeing relates to China’s falling use of concrete in new buildings and roads.

In some cases, China is moving in the direction of being a service economy. A recent video states that of the $237.45 cost of producing an iPhone in China, Chinese workers only provide assembly services, worth $8.46. The US contributes $68.69 of the cost, mostly in the design and distribution phases. The parts are generally outsourced from other parts of the world.

One way of looking at what is happening in China’s economy is to analyze the country’s oil consumption in terms of the relative amounts of diesel (used primarily by industry) and gasoline (often used by private passenger vehicles).

Figure 8. Gasoline and diesel consumption for China, based on data from 2019 BP Statistical Review of World Energy.

Based on Figure 8, it appears that China’s industrial growth suddenly leveled off about 2012. This, not by coincidence, is about the time that China’s coal problems were becoming apparent in China. China’s gasoline consumption has continued to rise, however. It appears that once it became apparent that its coal supplies were starting to seriously deplete, China began to “grow” China’s economy more as a service economy. After 2012, most growth seems to have come in the non-industrial sectors of China.

Reason 7. A major concern should be a financial collapse, far worse than 2008, both in China and for the world as a whole.

The world needs growing energy supply to support the world economy. China is increasingly having difficulty with its energy supply. When China has trouble with its energy supplies, the world as a whole has a problem with its growth in energy supplies.

A few months ago, I showed the role China has played in the world economy is this chart:

Figure 9. Ten year growth in world energy consumption, divided between the blue portion associated with rising population, and the red portion associated with higher energy consumption per capita, which I have called “Living Std.”, meaning “Higher Living Standards.”

China added a little bump in GDP growth at the end of the nearly 200-year time period shown, after it joined the World Trade Association in December 2001. The energy added by China (mostly in the form of coal) allowed the world economy to continue to grow, when it otherwise would have been up against limits.

Now we are reaching a situation where China’s energy production is likely to flatten or fall because of the depleted state of its coal mines, and the fact that coal prices can’t rise high enough, for long enough, to open new mines. The world economy, over the period shown, has always had rising energy consumption. In most cases, energy consumption rose faster than population growth, allowing some growth in the standard of living over time.

Changing to a situation of shrinking energy consumption per capita would likely be extraordinarily traumatic. Population would likely fall. Commodity prices would drop to low levels. Debt would tend to default; prices of shares of stock would fall. Many governments would fail. If shrinking energy consumption per capita starts in one country (whether China or elsewhere), it could easily spread to other countries around the world.

We don’t know what is ahead, but we know that the low points on Figure 9 were very bad times, even though energy consumption in total was not contracting. The decade of 1860 to 1870 was the decade of the US Civil War. The decade of the 1930s was the decade of the Great Depression. The decade of the 1990s was the decade of the collapse of the central government of the Soviet Union.

We also know that world energy consumption and GDP growth tend to be highly correlated.

Figure 10. World GDP Growth versus Energy Consumption Growth, based on data of 2018 BP Statistical Review of World Energy and GDP data in 2010$ amounts, from the World Bank.

This is as we would expect, because energy consumption is required for the many aspects of GDP growth. Transportation, heating and/or cooling, and electricity all require energy consumption, for example.

The recent divergence between GDP and energy consumption on Figure 10 may be the result of overstated GDP amounts by China, India, and other countries. If a country wants to appear inviting for new investment, there is a temptation to overstate GDP since other countries seem to be doing so, without penalty.

Back during the Great Recession of 2008-2009, our problem was with homeowners who took out loans that were far higher than they could really afford. Today, we have whole economies taking on more debt than properly stated GDP reports would suggest they are able to handle. We go from one version of optimism regarding debt levels to another.

Conclusion. If a person doesn’t understand how badly the energy situation is working out for China, or how important energy consumption is, it is easy to think that the problems China is facing are primarily tariff-related. In fact, China’s situation is a very worrisome one, with or without tariffs being added.

To fix the situation, China would need a very cheap, non-intermittent, locally produced, non-polluting additional energy source. This energy source would also need to be rapidly scalable. Such an energy resource doesn’t appear to be available.

 

 

 

 

 

 

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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890 Responses to Seven Reasons Why We Should Not Depend on Imported Goods from China

  1. Harry McGibbs says:

    “Whether it is a result of contagion or trade disputes, there is growing evidence from freight flows that the economy is materially slowing. Our confidence in this outlook is emboldened by the knowledge that since the end of World War II (the period for which we have reliable data) there has never been an economic contraction without there first being a contraction in freight flows…

    “There is no official definition of a “global recession”. Some define the term as under 2% growth. Others say under 3.0%. I am willing to split the difference.

    “The US recession may not have started yet, but a global recession (under 2.5% growth), likely has.”

    https://www.fxstreet.com/analysis/freight-shipments-sinking-globally-us-joins-the-parade-global-recession-starts-201906231105

    • Harry McGibbs says:

      “Factory output is faltering in a number of key economies, darkening the outlook for the global economy and increasing the likelihood that leading central banks will respond with fresh stimulus. Global industrial production has been weakening since the start of 2018… Europe has suffered the sharpest downswing, and there is little relief in sight…”

      https://www.hellenicshippingnews.com/faltering-factories-cast-a-dark-cloud-over-the-global-economy/

      • Harry McGibbs says:

        “The [US] economy’s vital signs are deteriorating. For the week ending June 15th U.S. weekly rail traffic was 527,989 carloads and intermodal units, representing a 5.4% decline versus the same week last year. This means businesses are shipping fewer goods and services cross country via railroads. It also connotes business activity is in decline… Rate cuts may not stave off another recession.”

        https://seekingalpha.com/article/4271682-rate-cut-may-avert-recession

        • Harry McGibbs says:

          “…it is only a matter of time before the bubbles pop and the economy moves into the downward spiral.”

          https://seekingalpha.com/article/4271621-feds-endless-boom-bust-cycle

          • Harry McGibbs says:

            “Eventually, risks to global outlook overshadow world GDP growth, which could linger at 2 percent-2.5 percent or worse. World trade and investment plunges. Migration crises abound. The number of globally displaced, which has exceeded World War 2 figures since the mid-2010s, soars to record highs. A series of new geopolitical conflicts prove harder to contain.

            “So where are we today vis-à-vis these scenarios? A simple answer: Moving closer to the edge.”

            https://www.manilatimes.net/why-global-economic-prospects-are-fading/573858/

          • Davidin100millionbilliontrillionzillionyears says:

            seeking alpha “feds endless boom bust cycle”…

            concludes: “… the ups and downs of the business cycle as it has played out through time.”

            this seems to assume that we are merely in a downward portion of the normal business cycle…

            but we are getting closer to the new normal where down years will be the majority and growth years will be getting more rare…

            and that’s a best case scenario… sort of the Creeping Collapse model…

            Sudden Collapse is another scenario…

            we might know in 10 months or 10 years…

            to be continued…

        • Both rail shipments and shipments by rail are in decline right now. Both indicate a drop in business activity.

    • Not everyone understands that the world economy needs to grow, or it tends to collapse. If growth is too slow debt cannot be repaid with interest. Too many businesses fail. We seem to be reaching the shrinking point,

      • MM says:

        Growth of 2% is not shrinking and at 1% interest credit payment is not hard

        • Harry McGibbs says:

          A lot of the world has way higher interest rates than that. The global economy is adaptive to a circa 3% p/a growth rate. Drop below that and the situation can become self-amplifying.

          Re the drop in US rail freight, I am wondering if the floods had anything to do with it.

        • Depletion of energy resources and mineral ores is at more than 1% and world population growth is at more than 1% per year. Energy consumption per capita is in danger of going negative. This has had severely negative consequences previously.

  2. Harry McGibbs says:

    “China has the strength and patience to withstand the trade war, and will fight to the end if the U.S. administration persists with it, China’s state-run People’s Daily said in an editorial Saturday. The U.S. must drop all tariffs imposed on China if it wants to negotiate on trade, and only an equal dialogue can resolve the issue and lead to a win-win, the newspaper said.”

    https://www.bloomberg.com/news/articles/2019-06-22/china-would-fight-trade-war-to-the-end-state-media-says

  3. Harry McGibbs says:

    “A steady rise in employment has been one of the eurozone’s big successes over the past six years of economic expansion. But there are signs the region’s job market may be cooling as manufacturers cut back on hiring in response to weaker global demand for their exports. That could place the eurozone’s already faltering recovery in peril, since it would lose the support of consumers at home just as it has lost buyers abroad.”

    https://www.wsj.com/articles/eurozone-job-market-cools-putting-economic-recovery-in-peril-11561287600

    • Harry McGibbs says:

      “The [UK] car industry suffered its worst month in more than six and a half years in May as a slump in demand weighed on production, figures show… The PMI reading for May was 43.5, down from 48.9 the previous month. A reading below 50 signals contraction.”

      https://www.thetimes.co.uk/article/worst-month-for-car-industry-as-pressures-mount-2j0pc3wcf

      • Part of the problem is all of the rules requiring higher mileage and less pollution. Get rid of these rules and a bit of the problem would go away.

        • John Doyle says:

          Cars are way overdesigned now. Apart from a few safety features we just don’t need all the stuff incorporated. 4WD’s are now advertised as town cars, What is wrong with a sedan or even a wagon? cars compete with one another for some angle that will make their model sell better. It’s conspicuous over consumption. It’s also why there is so much waste. Millions of tons go to landfill. Some is recycled. Plastic water bottles are used once then end up in the ocean, break down in the sun and end up in the food eaten by Krill, who then get into the whales, not to mention straws up turtles nostrils and fishing nets strangling sharks even. It’s all just affluence, waste and even the third world is complicit. 3 rivers in Asia contribute 80% of the plastic waste in the ocean, We sorely need a new narrative.

          • Grant says:

            What would the new narrative be John?

            Cars may be over engineered in many ways. Gail mentions the rules about fuel use – a lot of effort for little real gain – well into Pareto principle terrority. Not just vehicles either – the cost of fuel together with regulation is causing envelopes to be pushed hard in most engineering situations. Aerospace being an example. Added complexity and people’s expectations tending to run in opposite directions.

            As for safety, well there was time back in the 80s or thereabouts when lighter and more Aerodynamic vehicles was the objective, especially in Europe and Japan. Then along came the safety brigade and the easiest way to make the rather odd safety test work was to add size, padding and structures thus increasing weight and putting further press=ur on economy.

            The advent of electric cars and their somewhat weighty batteries suggests that only a miracle of science might revert design efforts to small and light engineering once again. The physics of the battery demands will always takes precedence.

            As for plastics. Look at everything around you, assess what is ‘plastic’ in some sort of interpretation and then decide with what you would replace it. (Presumably some sort of wood, metal or silica derivative …?).

            What would the global economy look like if modified accordingly?

            Now consider the changes and time scale likely required to to deliver the change.

            How do things look?

          • Dennis L. says:

            Yes, I agree with the superfluous features.
            At dance classes I see many four wheel drive vehicles even in smaller in sizes driven by women. It seems to be an internal safety thing, they feel more secure with four wheel drive, less chance of getting stuck. The other solution with front wheel drive only is dedicated snow tires, a pain to change over with the seasons and a pain to store.
            Maintenance of these cars is also a problem when things go wrong which is not often but when it is, a thousand dollars does not go far at a dealership.
            The interior, design, upper end speed and handling performance does however put a 1960’s Cadillacs to shame except at the drive-in, oops, they don’t have those anymore, no problem.
            Dennis L.

          • Rodster says:

            “Cars are way overdesigned now. Apart from a few safety features we just don’t need all the stuff incorporated.”

            That’s on purpose because when things break it requires service and cars now are purposely designed to combat the DIY’ers on YouTube so it tends to require a trip to the car dealer.

        • If I’m not mistaken econoboxes still start at EUR ~8k, incl. advanced pollution measures, so that’s reasonably cheap. But producers moved up the chain and make money on ~25k carz and pricier models only.. Also the problem is elsewhere, the market bamboozled people that they need to upgrade their car sooner that say ~8yr intervals chiefly on the fashion not technical merits.

          • Grant says:

            It’s probably a bit more nuanced than that.

            Political regulation has pushed towards diesel engined for improved economy and lower CO2.

            Then they saw fuel prices (and often the tax take) increasing and the buying public were displeased.

            The politicians then spotted the potential for more controls baqsed on nasty NOx emmissions and particulates – especially the very small particulates that earlier legislation had virtually mandated to happen. SO not millions of people persuaded to ‘go diesel’ in recent years find that they are now the bad guys not the good citizens they thought they were becoming. Cars that can withstand at least 20 years of rough roads and typical levels of corrosion potential are being scrapped after 8 or less because the political climate and the rush to complex mechanical and electrical controls has on the one hand made the vehicles antisocial and therefore of reduced value and on the other hand people have discovered that the fancy hi-tech stuff fails and has become expensive to replace.

            Or ate least the manufacturers OEM spares are expensive since they really want to shift more new metal boxes and the alternative spares from China, possibly coming of the same production line and looking identical, are often of poor quallity with a short life. Cheap but not for long.

            So 50% or more of the potential value of the asset is wasted for reasons that will NEVER cover the loss of materials and energy by any measure.

            Now at the same time to reduce CO2 engines have been getting smaller and more powerful and therefore under significant stress. So they fail after not to much use far more frequently then we might expect after a coupe of decades of really solid engineering quality advances.

            People have to make small engines to meet the CO2 and emissions targets. But the latest targets are too much to attempt to engineer in the time available – especially so for smaller engines where the % improvements required are just not possible.

            The only option, due to the way the penalties for non-conformance for CO2 reduction targets across the entire range of what the customers BUY (not the average across range of vehicles the manufacturer MAKES) are structured is to go electric and offset electric production ‘credits’ against the main product line penalties caused by what the buyer wants to buy.

            This is the removal of freedom of choice by the back door with the manufacturers likely to take the blame. The politicians will still be sailing off to their fantasy island sails full of wind powered virtue.

            Meanwhile the cost of infrastructure adaptation to accommodate the ‘chicken and egg’ situations related to electric vehicle re-charging infrastructure will absorb a lot of debt, a lot of energy and a lot of construction materials and their associated CO2 output before any of the allegedly “urgent” CO2 reduction benefits could possibly be delivered.

            Some may think it is utter madness.

            Politicians, believing their own propaganda, see it as the new normal demanded by the voters.

            It could be a fun ride.

            • The whole idea of the changeover to electric is madness. The charging capability won’t be available (except perhaps for those in US with garages) and the sustainability of the electric grid is very poor. It cannot outlast oil supply.

              The use if diesel for cars in Europe makes little sense, because it tends to make too much demand for diesel products relative to gasoline, and thus sends the price old diesel to a high level. Not to mention all of diesel’s pollution issues. Using gasoline all along would have been more sensible.

            • Kowalainen says:

              High performance recuperated gas turbine range extenders will surely be introduced as the archaic piston engines are shifted out. They can be adapted to burn basically anything from LNG to coal powder.

              Microturbines have around 15% efficiencies without a recuperator, 20 to 30% with one and they can reach 85% combined thermal-electrical efficiency in cogeneration.

              Just the sound of them pistons rattling about in the guts of the unwieldy large clump of metal barely and loosely connected to the crank shaft makes the engineer in me cringe. What an old-fashioned well beyond the best before date one can ever imagine.

              They are more akin to steam engines than to any other form of modern propulsion technology.

  4. Chrome Mags says:

    https://oilprice.com/Energy/Crude-Oil/Trump-We-Wont-Protect-Foreign-Oil-Tankers-For-Free.html

    ‘Trump: We Won’t Protect Foreign Oil Tankers For Free’

    “Countries that get their crude oil via the shipping routes in the Middle East should protect their own ships along the lanes, U.S. President Donald Trump said on Monday, as tensions between the United States and Iran continue to simmer.

    “China gets 91% of its Oil from the Straight, Japan 62%, & many other countries likewise. So why are we protecting the shipping lanes for other countries (many years) for zero compensation,” President Trump tweeted on Monday.

    “All of these countries should be protecting their own ships on what has always been a dangerous journey. We don’t even need to be there in that the U.S. has just become (by far) the largest producer of Energy anywhere in the world!”

    If I’m reading between the lines correctly, it sounds like Trump got a call from Putin and was told not to start a war with Iran, small or big, and now Trump is trying to find a way to distance the US Navy from a potential conflict with Iran. Trump is opting instead to squeeze Iran financially and let other countries deal with potential ship damage in the Straits of Hormuz. That strategy works up until the cost of oil skyrockets and the world economy descends into a deep recession. It’s a very dangerous high stakes game.

    • Lastcall says:

      So The Don would welcome Chinese navy ships to the gulf?
      Maybe a Chinese flag, and an Iranian pilot on a ship would be protection enough.

      • Grant says:

        He could invite the Russians as well – I’m sure they would not want the Chinese to have the run of the area.

        Or is he just seeing an opportunity of a deal to sponsor the Game of Ships as if it was some sort of computer game – which it sort of is if you consider the use of drones.

        • Davidin100millionbilliontrillionzillionyears says:

          Game of Drones…

          but won’t be on HBO…

          this new epic tale will be free to view on many news channels…

          • Grant says:

            Now and again I wonder if the sources of entertainment are in fact State sponsored and the content is intended to act as an information and eduction channel to prime the viewers for their future futures.

            At which point they will likely start to adopt the roles and actions that they see on screen.

            That could be interesting.

  5. Dennis L. says:

    Cold here in Rochester, attached link shows corn height last year and this year. I have no idea of how much is stored, but it is a long way to the fall harvest of 2020 and a challenge to diet that long. This is bothersome as not only is it troubling for the food supply, if the farmers go out of business along with the supporting infrastructure, how does it get started again? Many farmers are in their late fifties or sixties, who replaces them? Farm equipment is now computers on wheels and yet at a local, chain restaurant I occasionally chat with a equipment technician for a major implement dealer who tends bar one night to make ends meet. This is a talented man, hard to replace, vital when there is a narrow window in which to plant/harvest the crop and the equipment must run. Take out one piece of the chain and everything stops; people still want to eat and as Gail points out over and over, it is not demand but the ability to pay for that demand.
    https://www.zerohedge.com/news/2019-06-24/shocking-after-photos-reveal-awful-truth-about-widespread-us-crop-failures-2019
    Dennis L.

    • The forces of globalized make believe economy are taking over.

      For example in Europe many of the family and mid sized farming operators are going bust, everything is moving into these giant conglomerates, who not only reap the ‘efficiency’ benefits from centralized aggregation but more importantly have secured through lobbying the most beneficial access to gov subsidies etc., also speculators flocked into land..

      So, the future crash will be epic, no local food.. backup at least for most of the urban masses.. and the centralized giga producers are prone to so many risks, it’s uncanny, from sanitary to energy and logistics..

      • Xabier says:

        Apart from the ever-growing domination of giant agri-business and the elimination of mixed medium-scale family farms, we have good farmland disappearing to make way for ‘eco-friendly’ housing and light-industrial/ hi-tech bio-medical developments and – wait for it – ‘green transport solutions’ -happening all around me.

        A ‘green transport solution ‘ is, of course, just more concrete being poured, like everything else.

        There is no hope: they will take us to extinction through the erosion and elimination of all the resilient layers built up over centuries.

    • Grant says:

      That this engineer can still find employment at a restaurant is interesting.

      Around here bars (and especially pubs – the tradition drinking place of old with food service added in the past 4 decades) have been closing rapidly for a decade and there seem to be no signs of that slowing.

      Restaurants of long standing have been disappearing despite a growing population. Other restaurants that would often appear and disappear within a year – usually about 11 months for tax reasons – now seem to disappear within 6 months due to lack of trade.

      Thus jobs of the type you describe are becoming more difficult to find and presumably pay less, one way or another, than they once did.

      This may not yet have become obvious to the majority but I doubt it will stay like that for long.

      • Where are you located Grant?

        • Grant says:

          UK. In the middle of England.

          But I think the story is much the same everywhere.

          The ‘culture’ of eating out rather than at home only really developed to any scale in the past 4 decades or so. Maybe earlier in the cities after WW2.

          Now with wall to wall TV, often on quite expensive subscription model contracts, video games and the internet for the younger generations and many choosing to “entertain” (even if only themselves) at home since Supermarket drinks will inevitably be cheaper than full service drinking in a public house (bar).

          Indeed there are suggestion that the latest newly maturing generations are not interesting much in drinking as a basis for socialising. Drugs may be cheaper? Even the upwardly mobile (old term that may still apply) seem to be (according to media reports) tending toward cocaine rather than booze.

          But those details aside there seems to be a change in the patterns of which types of business are viable and which are not.

          In the news today is a report that a large town a few miles from where I live and which was at one time for a number of reasons a major centre for brewing beers (up until about 20 years ago I guess when things started to change), is about to lose a major business that employs 900 workers. Currently the largest employer in the town apparently, if the reports are to be believed.

          It will close in August. It prepares foods to be sold under other brand names presumably through some of the major supermarkets.

          On the same day the owning company announced a £20 Million investment in a new plant in India. I imagine £20M goes a lot further in India than the UK and recent population growth and some measure of ‘success’ for the Indian economy may suggest to them that investment there is likely to beat the results of anything they can produce in the UK.

          Taken in isolation the story is only a big deal locally due to the scale of job losses relative to the size of the population.

          However it may be representative of a trend throughout the country in different business areas – the death of the traditional ‘High Street’ shopping areas has been well documented over the past decade or so. As has the rapid decline in Bank branches, Post Offices and Gas (Fuel) stations for local people to replenish the fuel for their transport without needing to travel significant distances to do so.

          It could be deceptive but it does seem that the pace of these changes is beginning to catch people out and many profess that they would like the opportunity to change habots and preserve at least some of the familiar live actions that they have not realised were disappearing.

          That apparent desire may not result in any real reversal even if it could be achieved – and the target may already have moved too far for reversal to be an option.

          One other things that has become much more common recently (or so it seems to me but this could simply be the result of adverting campaigns largely via Google and some of the ‘press’ outlets) is the “equity release” option to free up cash by re-financing one’s home in older age.

          Whether this is something that people feel the need to do to ‘survive’ (or at least maintain their standard of living for a while) or because government is encouraging it for some reason (probably a selfish political reason) I am as yet not sure.

          I can’t image that it is really a positive and fiscally prudent thing to do for most people.

    • Those are shocking pictures. Think of what will happen to the ethanol production. States requiring ethanol in the blend (California comes to mind) will have difficulties.

      Corn syrup is used as a sweetener in many things, including soft drinks. I would consider the loss of corn syrup sweetened soft drinks a “plus.”

      Many animals are fed the leftovers after making ethanol and corn syrup (DRG). This is poor food for them, but cheap. Generally, it must be mixed with other food. Farmers will send their animals to market sooner, if they cannot get the expected food for the animals. If more animal products are sent to market, the price of meat may fall. Or eventually, it may rise. If US meat consumption falls, this would also be a plus.

  6. Davidin100millionbilliontrillionzillionyears says:

    Bund 10 year is minus 0.3%…

    how low can they go?

    in other news… also a very strong sign of economic decline:

    Bitcoin is over $11,000

    something is terribly wrong here…

  7. Tim Groves says:

    I found this fascinating. As well as a warning that smartphones and apps being used to “groom” us into slavery to Big Tech, There is a lot of footage on how the system of social “points” is currently working in China.

  8. Tim Groves says:

    You want fries with that?

    And there was me thinking tight synthetic underpants were to blame for falling birthrates.

    Male fertility is being irreversibly damaged by a diet of western junk food by the time men reach 18, a study has found.

    A groundbreaking investigation has established that teenagers who favour high-fat and processed foods like pizzas, chips and snacks are killing off sperm-producing cells that can never be replaced.

    It showed that a diet dominated by fish, chicken, vegetables and fruit is best is for protecting those cells and ensuring healthy levels of sperm.

    https://www.telegraph.co.uk/news/2019/06/24/mens-fertility-irreversibly-damaged-age-18-thanks-western-junk/

    • I would be interested to learn more details of the study. The four food groupings don’t seem very obvious to me for example. The “prudent diet” (as described) doesn’t look to me like a diet anyone is following. Maybe they mean people who are trying to skew their eating toward whatever is currently being considered healthy. This is the winning diet in their study, according to the article.

    • Actually, the reality of food intake across the population is quite shocking on both extremes, I know people who never ever eat out (incl. those taking home made food – lunch boxes – into office jobs), as well as those who only eat out various degree of junk food 24/365. Obviously, the latter, second mentioned group has recently made majority in many countries of the IC hubs.. moreover sometimes it’s the ~third generation doing that, and the physical as well as mental disorders are pretty much obvious even from a distance..

    • Yorchichan says:

      They appear to have omitted to test the healthiest diet of all. This is a diet:

      a) High in saturated or mono unsaturated fat, with zero polyunsaturated seed (vegetable) oils. This would further reduce the oxidative stress touched on in the article;

      b) Low in carbohydrates (no bread, sugar, pasta, rice or tubers).

    • Grant says:

      Hmm.

      Population control via the food chain?

      • Yorchichan says:

        Plus obesity, diabetes, atherosclerosis and cancer. Carbohydrates increase insulin production causing fat to be deposited and eventually insulin resistance.

        If anybody is sufficiently interested, check out any of Ken D Berry, Ivor Cummins, David Diamond, Dave Feldman and Gary Taubes on youtube.

        • Grant says:

          The one certainty about the habit of living is that one will eventually stop doing it irrespective of diet.

        • Kowalainen says:

          Oh well, how convenient to omit the well established scientific and easily observable fact that in countries where people eat most fruit and vegetables, a diet high in carbohydrates, are the least likely to develop obesity and other metabolic diseases such as diabetes.

          How convenient indeed. Actually, the more carbohydrates I eat, the better I feel and with the energy i easily sustain a 300 watt output for about 1h. Try that with your disease provoking diet high in fats.

      • Kowalainen says:

  9. Chrome Mags says:

    https://oilprice.com/Energy/Energy-General/Shale-Pioneer-Fracking-is-an-Unmitigated-Disaster.html

    Shale Pioneer: Fracking is an “Unmitigated Disaster”

    “In fact, I’m not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change.”

    “While hundreds of billions of dollars of benefits have accrued to hundreds of millions of people, the amount of shareholder value destruction registers in the hundreds of billions of dollars,” he said. “The industry is self-destructive.”

    The industry is at a bit of a crossroads with Wall Street losing faith and interest, finally recognizing the failed dreams of fracking. While shale E&Ps have succeeded in boosting oil and gas production to levels that were unthinkable only a few years ago, prices have crashed precisely because of the surge of supply. And, because wells decline at a precipitous rate, capital-intensive drilling ultimately leaves companies on a spending treadmill.

    Did you read that last part? “…leaves companies on a spending treadmill.” There’s that red queen effect us peak oilers warned about regarding fracking. I suppose its a bit like knowing gold is in a mine, but its spread so far and wide and takes so much equipment, time and manpower, that by the time you’ve mined it, it’s at a loss. The allure of being able to get something has to be weighed by the profit results from attaining and selling it.

    • When the frackers first started, they put together models of how the finances would work out. These models considered all aspects of the system—-how many wells, how much these wells would produce, over what period of time, what would be the ongoing costs, and what would be the selling price. The probably would also need the cost of borrowed money.

      I think that the models that were put together were very much optimistic. Later wells were not as productive as wells in the sweet spots. Wells couldn’t really be counted on to produce for 30 years (or some other long period). Oil prices go down as well as up. Expenses don’t just disappear; some wells need to be re-fracked. Interest rates rise as banks have less faith in this type of operation.

      The models “proved” to buyers of shares of stock that everything would come out fine. Auditors signed off on financial statements based on the model results. But reality is proving to be much different.

      I am not sure how EROEI calculations are being done. The only way that makes sense to me is on a year by year basis. For example, in the year 2009, how much energy was invested, versus how much was extracted. The same calculation would be needed for 2010, for all frackers in the aggregate. This is the EROEI calculation done for traditional oil, gas, or coal. But this approach produces ratios which change each year, for frackers in the aggregate, I would expect.

      While EROEI calculations look objective, they have a lot of the same issues that model estimates of any kind have.

      The temptation would be to use a model approach of hoped for future production for frackers. This is the same type of model approach for wind and solar. When this approach is used, it is very easy to get an artificially high EROEI indication, because of all of the wrong assumptions built into the model, and because of the improper year matching. The Limits to Growth model makes it very clear that the world economy works only on “actually available net energy,” not on “model hoped-for future net energy.”

      • Xabier says:

        I discovered this in my private ‘models: I tried to be very pessimistic, but in retrospect I can see that unjustified optimism always crept in.

        It’s interesting to look back and realise that you were taking a somewhat rosy view even when trying to be brutally ‘realistic’.

  10. richard b says:

    Surely a key turning point is when the damage inflicted by climate change exceeds global economic growth.
    .
    When we reach this point, further economic growth becomes impossible and the collapse is locked in.

    Don’t know if anyone has seen stats on this, but I’d suspect that if you costed in the damage to the entire biosphere ( fish stocks, coral reefs, insect populations, etc) we are there already

    • Global economic growth is an illusion created by ever increasing debt and other promises. We are likely far past the point where economic growt is much more than an illusion that takes place as a result of falling interest rates, rising debt, and rising asset prices. Once the debt bubble pops, the story looks like game over.

      Damage to the biosphere will likely self-correct, to the extent such correction is possible, once humans are out of the picture. People today get “hung up” on problems that we have no ability to correct.

      • Grant says:

        The biosphere will always correct in one way or another.

        Should another Ice Age arrive at some point and have the same extent as the last one, how much of our ‘civilization’ would be rediscovered within a few tens of thousands of years as the ice receded and those who might come after us develop the ability to move beyond survival and seek to discover the ways of their forerunners?

        What might be left for them to find once the ice has performed its grind??

        • At least a few humans or prehumans seem to have lived through past ice ages. It might be possible fo a few to survive any future climate fluctuations.

          • The sheer terraforming power of iceage(s) as they receded – profoundly influenced the mammals on these affected more diverse and complicated landmasses and shorelines. For example it’s documented how new races (sub species) of mammals developed in response bigger brains (+ %% volume) at that time to cope with the newly changed more complex environment etc..

            From arctic circle to clubmed..

            But now we have sort of reversal direction forcing as the deforestation, heat waves are spreading from south to north. Nevertheless and counter intuitively this could flip into new iceage beginning anyway.

          • Grant says:

            Indeed Gail but the evidence of their existence may be trickier to discover.

            What might be left of the bone fragments? And where might they be?

            Structures and evidence of habitation and civilisation before the ice came? Yes, perhaps, if anything survived the grinding ice and someone was lucky enough to stumble across it and recognise what it might be.

            • John Doyle says:

              There are voices that reckon North America had an earlier civilisation that was scraped off by advancing glaciers and the giant flood event about 12,500 years ago. Lake Winnipeg is the remnant of it. All pure speculation, except the physical events did occur:

              https://rielpolitik.com/2019/06/26/hidden-history-america-before-the-key-to-earths-lost-civilization-by-graham-hancock/

            • Good points! The civilization in the Americas was awfully far along. It may have started much earlier that people generally believe.

            • The last ice age disappeared only about 10,000 years ago. We seem to have a lot of bones, cave drawings, and other evidence from an earlier period. This was back in the hunter gatherer period. We wouldn’t expect any structures other than caves then.

            • Grant says:

              There could be a question about whether the information discovered in caves indicates a first time increasing ability of ‘humans’ to do smart stuff or the back end of a failed prior civilisation (or two).

              Living deep in a cave and adding artwork to the walls seems like a strange thing to do but presumably means they had sources of light (and therefore heat and thus the ability to ‘cook’ and broaden the diet options?) and access to at least rudimentary technology related to dyes.

              If they could do that presumably knowledge about how to create some sort of outdoor shelter was available – and of course would likely be necessary for those with a relatively nomadic hunter gatherer life style. Not much of that would survive an ice age or even just the passage of time.

              Human constructions since the end of the ice age and the introduction of farming that tended to lead to settlements rather than a nomadic life, will also have had an inconsistent survival quality but in the main for most of the world will have been satisfied by materials that were not general very long lifed. Wood for example.

              To discover more permanent construction requires some site identification and digging for those site that have, for whatever reason, been inundated (and so protected) over time.

              They may be relatively few and scattered far an wide. Not that much of the earth’s surface as we know it has been studied. Places that were viable in the last ice age are likely to be covered with water now and so difficult or impossible to spot or investigate.

              After several thousand years of steady and slow development in the last few hundred years things have accelerated rapidly. So a lot of development in a very narrow window in geological time frames.

              We have had the energy necessary to create ways to protect humans from naturally occurring disadvantageous effects of climate and weather and the after effects of ice ages (for example.)

              If that came to sudden end, for whatever reason, it would not take long for things to start to crumble and not much longer for relatively minor changes to start to obliterate the evidence of original existence. Or at least cover it up.

              Advanced civilisations could develop and disappear in a period the length of which currently know archaeological techniques could probably not identify with any degree of accuracy and exactitude.

              Only the availability of what seem to be ancient coal seams and oil reservoirs suggest that humanity has never been at this point before.

              But what if there was no need to mine for coal or drill for oil to find the required level of energy to support humanity in earlier times?

            • By the way, China used coal at least a bit, over 2000 years ago. We saw bells in Wuhan that had been made using coal over 2000 years ago, but general industrialization didn’t start that early.

              All of the potential uses for coal aren’t necessarily immediately obvious.

    • Tim Groves says:

      Surely—and I’m not joking—a key turning point is when the damage inflicted by climate change protestors exceeds global economic growth. If they can get us to turn off enough coal and nuke plants and shut down enough oil wells and pipelines, further economic growth becomes impossible and the collapse is locked in.

      • Old grumpy (wise) elders of the OFW sort should positively troll these youngsters every day in the following manner:

        Oh well, jolly good, so:

        How many trees did you plant this season/year ?
        How often do you eat out, what % of your diet is long distance imported?
        How do you operate-dial up your climate control (house and carz) ?
        Did you consider for your “online life” simple low energy tiny board ala (RaspBerry) instead of big gaming rig PC, notebook or top spec smart phone.. ?
        ..
        .

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