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:

    “Chinese Ministry of Commerce spokesman Gao Feng told a Beijing press conference on Thursday that “there will be no winner in the trade war, which could cause a recession in the United States and global economies.”

    “The ministry did not disclose US investment growth in China for the month of May alone, but the plunge seems to have coincided with the collapse of trade talks between Beijing and Washington.”

    https://www.scmp.com/economy/china-economy/article/3014407/trade-war-could-cause-global-recession-beijing-official-warns

  2. Harry McGibbs says:

    “Industrial output in the euro zone dropped in April, hit particularly by falling car production, adding to concerns of a prolonged slowdown in the region that may in turn apply pressure on the central bank. Monthly output dropped 0.5 per cent, compared with March, the regional statistics office said on Thursday.”

    https://www.irishtimes.com/business/economy/industrial-production-in-euro-zone-drops-1.3924486

  3. Neil says:

    Well I never knew!

    Narco-trafficking and petrol: a quarter of Colombia’s fuel goes to make cocaine

    Petrol is a key ingredient in the first stage of cocaine processing, when psychoactive agents are extracted from coca leaves: around 75 gallons of fuel are needed for each kilogram of coca paste, which is then refined into cocaine.

    https://www.theguardian.com/world/2019/jun/14/quarter-of-colombias-fuel-cocaine-industry

    I guess this means cocaine production might be under threat as well!

  4. MG says:

    Before the collapse? When we look at the times of Jesus Christ, there was a lot of neurological and orthopedic health issues. Today, when I visit a healthcare center here in Slovakia, I can see the same picture: the waiting rooms of neurological and orthopedic specialist physicians are overcrowded like no other clinics.

    • Ed says:

      Meaning people are stressed and under nourished?

      • MG says:

        I would say yes: the food quality goes down and the life is stressful.

      • MG says:

        Plus the fact that the population is ageing: missing substances in the ageing bodies.

        • aaaa says:

          Well, slovakia is an outsource country for Europe, yes? Lots of plants for low-priced labor? I now work at a plant and it’s very tough work that may result in trips to orthopedists as the norm – you don’t age gracefully if you work long enough.

          • MG says:

            The life in the mountains has never been easy. The declinig food quality, the insufficient nutririon seems to be the last straw in the collapse od the human societies.

  5. jupiviv says:

    Hello again to all of my favourite Collapsologists! It’s been a while since I posted here because, well, collapse has gotten boring for me of late, mostly because it’s taking too damn long to actually start happening. The number of ways one can express and demonstrate the reality of Our Finite World, are finite. No one’s going to want to listen either way!

    Still, I thank Gail and other collapse bloggers for continuing to write about these issues. Just because a true thing is unacceptable to virtually everyone who isn’t stark raving mad or terminally depressed, doesn’t mean it isn’t worth writing about.

    • unless you keep up your OFW posts you’ll be back of the queue (line) when collapse actually arrives.

      then you’ll be sorry

    • Dennis L. says:

      Having followed these ideas for many years(I read “Limits to Growth” in 1974-1975) it is my observation that being an optimist is a good strategy. If the world ends, most likely most of us end with it, if it does not, then we have lived a good life which is not to imply excess. It is a beautiful world and most likely it will continue to be such.

      Regarding nutrition, many years ago I saw a cartoon with a caveman and cavewoman sitting around a fire, roasting dinner and the caption, “If we eat all natural, how come we only live 37 years?” Things have gotten better, not worse.

      Dennis L.

      • jupiviv says:

        Agreed, no point in being depressed about the inevitable. People who claim they are depressed because of impending collapse are probably trying to ignore the actual causes of their depression.

        Still, a lot of things seem to be coming to a head. We probably won’t manage kick the can this time, at least not without major upheaval. My guess for what its worth: global economy breaks water around October this year; full blown recession by mid-2020.

        • Harry McGibbs says:

          A very plausible timeline if there is no temporary reprieve from these trade conflicts. Among other pointers, global trade and manufacturing data suggest that we are teetering on the brink right now.

        • You may be right on the timing. So far, things haven’t fallen apart. But the situation is trending badly.

    • Jan says:

      The point is collapse can be cancelled or at least delayed with intelligence and creativity. Peter Turchin proves that impressively. A proper preparation, like cleaning up atomic waste or supporting gardens or access to clean water, might ease the change to a new system. To analyze a problem and to find its rules and causes is different to mere prophecy. The problem is that most people are not strong enough mentally and run away from reality and thus enlarge the challenge.

      • Tim Groves says:

        Optimism alert!
        You lose 10 doomie points.

        Like you, I am all for preparing for economic and social turbulence. Indeed, if I hadn’t had some foresight I would have collapsed long ago. Instead, like Spike Milligan, I’ve managed to work my way up from nothing to a state of extreme poverty. 🙂

        We have a world today in which some of the biggest problems we as a society are facing are going unacknowledged and unaddressed. At the same time, some the problems we are putting our biggest efforts into fixing are not real problems at all and some of the solutions being implemented are not real solutions at all. On top of that, a lot of our productive efforts and resources are going into inherently wasteful or at best marginally useful activities. We as a society—the general we— are not living in the sort of perceptual world that gardeners, farmers and growers such as you or I inhabit.

        It’s all a humbug I tell you! ASd now, I’ll have my cocoa, listen to the shipping forecast*, and retire to Bedlam.

        *Although it’s never been the same since they changed from Finisterre to FitzRoy.

  6. David says:

    A recurrent theme on this blog is that (fossil fuel) energy supply is not just dependent on resource availability but also the relationship between the cost of extraction of the resource and the price of the resource to consumers. I get that the price of energy to consumers must stay below a certain threshold to support economic activity. I get that the price rises too much (and too fast) it can make more and more economic activity unviable, and the resulting disruption can be much greater than one might think at first glance given the relatively low cost share of energy as a percentage of GDP. I also get that producers need a price level sufficient to support the cost of extraction, which is rising because of depletion. I see that this causes a big problem – consumers need low price point to support economic activity, while producers need a high price point to remain viable as businesses.

    What I am not clear about is if this is really a fundamental limitation in the same way that resource availability is. It seems as if in principle there is a relatively simple fix for this problem, and that is to subsidize energy producers so that they can remain profitable. Energy’s cost share of GDP is around 8% or so. It seems like it should be possible to systematically tax less critical economic activity (for example, most of the end consumption that the very wealthy engage in) and use those funds to subsidize producers. An tax that amounts to 2-3% of GDP might ensure producer profitability for quite a while. As depletion continues that number can always be raised, making resource availability, and not producer profitability, the limiting factor after all.

    The politics of such a strategy is another issue, but if any place can do this relatively easily it might be a command economy like China that is managed by (seemingly) rational actors. Other than the political obstacles (which granted are substantial), is their something I’m missing that is blocking this possibility? If not, it seems like their is a decent chance that the political landscape can shift in a direction that could support such a strategy, especially if there is some kind of energy crunch crisis that opens up the possibilities.

    • The big problem is that energy supply is foundational to the economy. Its cost share must actually fall, if the rest of the economy is to grow. Even within this falling cost share, the combination of growing extraction and efficiency improvements must at least keep up with population growth, and have a margin for interest payments, depletion, and everything else that is needed in a growing economy.

      A subsidy for the energy industry normally is not needed. If it is cheap enough to produce (in resources and in people’s time) it is what provides the ability of the economy to provide the goods and services the rest of the economy needs.

      The rest of the economy is in some sense depends on the “energy surplus” that inexpensive to produce energy supplies produce. As the cost of production rises, there is less and less energy surplus. There is nothing the rest of the economy can to fix this problem. Printed money is not the issue. The issue is depletion.

      If a so-called source of energy needs a subsidy, it is not really producing the surplus energy the economy needs to support the overall system. The fact that wind and solar need subsidies are a sign to me that they are net energy sinks. If an energy source is behaving as expected, it should be possible to tax it heavily, to help support the rest of the economy.

    • Jan says:

      You are right and I think that is going to happen soon. Subsidies or less tax could help the profitabilty of oil companies, there are other similar ways thinkable. The point is that these costs or less tax revenue are missing somewhere else in the national economy and thus will reduce living standard. I think it will not reduce GDP. If we invest more work into extracting energy it might look like economic growth. But that is a growth without growing living standard. Our measuring system cannot indicate this problem. We should take that into consideration.

      • Artleads says:

        So…subsidies to produce more affordable energy = loss to high paying jobs = loss to consumption = lower living standards? Won’t there be over all job loss within that formula?

  7. Carlos Leiro says:

    I do not know if it’s my impression, I’m from another country. But from 2004 to 30 U $ per barrel until 2008 to 130 U $.
    Why was not it transferred to inflation? Was this so?

    • No, the big change in oil prices was not translated into general inflation. Instead, what has happened is wealthy people have benefited and the rest have ended up worse off financially.

      Lower interest rates and longer term loans (for example, on automobiles) have been used. The wealthy have found asset prices rising on homes, shares of stock, and many things. Poorer people have found the cost of healthcare and education skyrocketing, but jobs paying enough to justify the high cost of education often lacking. Poorer people have found inflation acts to their disadvantage. But the type of inflation for rich people makes the even richer.

      This difference in wage and wealth disparity is getting to be an increasing problem.

      • Hubbs says:

        A pure fiat currency system allows the moneychangers, i.e., those who do no useful, productive, value-added, wealth creating work, to instead focus entirely on gaming the system (financialization) by redistributing and concentrating existing wealth, resulting in wage disparity, rentier behavior, etc.
        From here, corruption, fascism, corporatism and misallocation of resources follow. This forms one prong of the pincer.

        The other prong of the pincer, (since you can’t pinch unless you have two prongs) is the need for a growing supply of cheap energy. This is being undermined by the current fiat system, debt binge, and misallocation of resources.

        • TIm Groves says:

          The much maligned moneychangers do much useful and productive work, although rather less since most of Europe switched to the Euro. Sitting in a little booth for eight hours a day converting dong, baht and rupees to dollars, pounds or krona for passing tourists helps make the wheels of commerce go around.

          And forex traders have been known to work up quite a sweat and ruin their nerves in their attempts to keep the money going around. Heroes of capitalism, I salute them all. Because for all its faults, a pure fiat currency system beats barter hands down.

          • I think all you need to do is have some market maker convert everything to a common unit, say bushels of wheat equivalent. Then, at the market, every thing can trade in units of bushels of wheat equivalent. You don’t really need currency to get away from barter.

            A person can bring something to the market to sell. He can even be paid before his goods sell, if it is agreed how many bushels of wheat equivalent of goods he will get in return. David Graeber claims credit preceded currency.

            • TIm Groves says:

              I was thinking more about things within the economy but not inside an actual physical market. For instance, take overseas travel. Is it practical to pay for your air travel and hotel accommodation in bushels of wheat? Even if the bushel of wheat was excepted in place of a currency, it would become the unit of currency. You would still probably prefer to carry tokens or coins representing X bushels of wheat, or to use payment cards or system that digitally credited and debited so many bushels of wheat for each transaction you engaged in.

              Our local vegetable market prices are published daily in the newspaper, and they vary greatly in yen terms according to how much growers and dealers bring to the market, how much sellers by, and to the quality of the produce. A rainstorm or a drought can also send prices of cabbages and onions soaring overnight. Bushels of wheat vary less from day to day but they can considerably from year to year. I guess it’s doable, but if it was an efficient method, I expect the buyers and sellers would prefer it to cash.

              On the other hand, I do engage in quite a bit of “barter” in the form of reciprocal gifts. For instance, several times a year I send my brother-in-law in Shikoku boxes of rice, and he sends me boxes of oranges, lemons and loquat—so much fruit in fact that I give some of this to friends locally and they give me various things including beer in return. There is no formal exchange mechanism or accounting involved, and no hard feelings if gifts are not reciprocated, but both sides understand the need for some kind of reciprocation, and if no reciprocation is forthcoming, then the exchanges are likely to cease.

              Among country people, a lot of small-scale barter, gift exchange, and giving away of surplus produce is always going on below the radar and doesn’t get monitored by the authorities or captured by the formal economic data.

            • Artleads says:

              But if you have a kind of apples=oranges economy, doesn’t that get too complex? Or might an equivalent group to money changers be likely to figure how to do it?

          • Hubbs says:

            My take from fiat currency is that it allows traders, hedge fund managers, banks to borrow, naked short, leverage to astronomical levels, etc.which destabilize the financial system beyond what ordinary normal reasonable asset-backed currency exchange would allow. The FED epitomizes this by the creation of currency from nothingness., but which they can use effectively in the first pass to buy up things before they turn over the stepped on and inflated currency to the public. Yes, being a trader can be “stressful” but it is still for the most part non-productive! In the opposite end of the spectrum, barter makes it very difficult to expand trade, and hence a medium of exchange (which also had a store of value,) naturally emerged.

            • You talk about a “store of value.” I talk about a “promise of future goods and services.”

              Our economy runs on promises of future goods and services. The point to note is that those future promises can be broken. So the “store of value” remains a store of value, only as long as the promises can really be paid. In the case of debt, it needs to be paid back with interest. In the case of government promises, governments need to make good on their promise to pay benefits to the elderly and unemployed. Shares of stock need to behave as expected. In other words, they need to pay dividends and the value of a share must generally rise over time. Derivatives need to pay off as expected, without bankrupting banks. All of these promises look like they may be broken.

              There is also a sort of inter generational promise. There is a promise that the next generation will do at least as well as their parents. And that children will take care of their parents in their old age, if parents took care of their children. This promise is increasingly being broken.

        • Tsubion says:

          Our economic system including all currencies should be directly tied to the amount of energy each country or region can physically produce.

          Everything else is pie in the sky wish-making.

          • I think “at what cost, relative to the value to the end user is of huge importance as well. Intermittent electricity is worth very little. The cost of producing it must be virtually zero, to make it worthwhile..

            • Tsubion says:

              All I’m saying is that money should be backed by something physical in the real world. Gold is impractical. People don’t usually think of energy as something physical but it is the only tangible quantifiable foundational measure backing all human activity. Gold doesn’t come anywhere close to that definition.

              Instead of Facebook starting a new currency it should be General Electric. In fact, I don’t know why the utilities have not already commisioned some type of crypto currency development. Maybe they have.

              The point is that if you have ten units of energy available and you print one million units worth of coin… you’ve already left the reservation. You are now officially in cuckoo land. In fact, where we are right now as a civilisation is as far off the reservation as one can get.

              But it’s not impossible to bring things back in line.

              I know you will say that we need oodles of fantasy debt to pull the future into the here and now.

              That is a reaction to what you are witnessing at present. And yes, it helps us extend and pretend while the mechanics get to work behind the scenes.

              Everyone needs to learn to live within their means. Be that a mud hut with a satelite dish or a mcmansion with a solar heated pool. Each according to their ability.

              China would never have poured so much concrete and wasted so much time overbuilding ghost cities and railways to nowhere had they based their development on energy tokens alone and the financial reality of most of their population.

              I witnessed the same behaviour here in spain during the construction boom. We have our own version of ghostly wastelands, projects that were never meant to be, but went ahead anyway making some scammers rich and many many others bankrupt.

              The ones that did well and still do to this day stayed within their means, doing up a small property and renting it out to tourists etc etc.

  8. SuperTramp says:

    Many Americans say their financial situation is worse since the Great Recession
    https://www.cnbc.com/amp/2019/06/14/many-americans-say-their-finances-are-worse-since-the-great-recession.html
    The Great Recession has been over for a decade.
    Yet many people’s finances haven’t recovered from the recession’s blows, according to a new survey by personal finance website Bankrate.com.
    “Even a modest downturn is going to cause further harm to Americans personal finances,” said Mark Hamrick, senior economic analyst at Bankrate.com.
    More than half of Americans who were adults amid the Great Recession said they endured some type of negative financial impact, Bankrate found. And half of those people say they’re doing worse now than before the crisis.

  9. Tim Groves says:

    While some of us a focusing our imaginations on post-collapse scenarios involving starvation, cannibals and cooking pots and the mass media is focusing on suicide, homicide, and most of all terrorism, up to now most of us have been dying from more prosaic and distinctly unfashionable causes such as cancer, strokes and heart disease.

    Not mentioned in this chart is the fact unearthed in a Johns Hopkins study that medical errors are the third-leading cause of death after heart disease and cancer, or that deficiencies in vitamins and magnesium are the cause of most of what ails us and most of us are blissfully unaware of these things because we are too busy worrying about suicide, homicide, and most of all terrorism.

    • Kim says:

      Yes, I am sure that mineral deficiencies are common due to eating food grown in poor soil.

      A suggested ameliorative is to take boron. Boron helps the body to retain and regulate the distribution of magnesium and calcium in the body. It can be very cheaply obtained by making a drink out of borax (search it), which can be found in the cleaning aisle of supermarkets in Anglo countries. It is banned in Europe (as a poison, although it is only as toxic as table salt). Boron can be great for people with chronic muscle pain, which can be deficiency-related.

      Or you can just buy the more expensive boron pills.

      Magnesium compounds can also be easily bought very cheaply in bulk in crystal form and made into a drink but magnesium can also be absorbed through the skin. One can put it in one’s bath like the traditional Radox bath, or even spray it directly onto the skin. Or one could simply go for a swim in the sea, which athletes in pro body contact sports in Australia often do after a game because magnesium has a role in relaxing muscle cells.

    • Kim says:

      Yes, I am sure that mineral deficiencies are common due to eating food grown in poor soil.

      Boron helps the body to retain and regulate the distribution of magnesium and calcium in the body. It can be very cheaply obtained by making a drink out of borax (search it), which can be found in the cleaning aisle of supermarkets in Anglo countries. It is banned in Europe (as a poison, although it is only as toxic as table salt). Boron can be great for people with chronic muscle pain, which can be deficiency-related.

      Or you can just buy the more expensive boron pills.

      Magnesium compounds can also be easily bought very cheaply in bulk in crystal form and made into a drink but magnesium can also be absorbed through the skin. One can put it in one’s bath like the traditional Radox bath, or even spray it directly onto the skin. Or one could simply go for a swim in the sea, which athletes in pro body contact sports in Australia often do after a game because magnesium has a role in relaxing muscle cells.

      • TIm Groves says:

        Thanks Kim. I hadn’t heard about the functions of boron, and I will definitely look into that.

      • Yep, that’s basically part of what the 90+ yrs tri/billionaires have been doing for quite a while.. Eating moderately (lot of veggies vs. meat), but more importantly ‘starving’ 1/2 – 2/3 of the day for keeping the bodily fluids and self correcting (auto immune) flows operational, additional intake of magnesium etc. And obviously add some of the more extra unobtanium treatments for us like blood infusions, organ transplants and so on, voila, you become sharp as Mr. Burns way into your 100th birthday.. so you can easily preside over your subordinated, exhausted ant worker bees in their 50s..

  10. Hideaway says:

    I was just reading the latest BP energy outlook report and came across this on page 11..

    .https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/energy-outlook/bp-energy-outlook-2019.pdf

    “Expansion in global output and
    prosperity drives growth in global
    energy demand.”

    No wonder we are in so much trouble and heading straight for collapse. To be real that statement should read …………
    Expansion in energy output has allowed global output growth and driven increased prosperity.

    Economists, bankers politicians, even those in ‘energy companies’ seem to have all their thinking backwards, they just don’t understand the way the system really works.

    Energy drives the system of civilization, not the other way around.

    • You are right. The availability of an ever growing supply of cheap energy is what powers the economy.

      But there is more to it as well. The economy operates on promises of many sorts. One of these promises is debt, and debt repayment with interest. Another is sale of shares of stock. A third is government promises, such as promises for unemployment insurance and old age benefits. These promises are needed to pull the economy forward. Especially, they are needed to keep commodity prices high enoug.

      Somehow all of this growth powered by energy and promises must stay ahead of depletion of many types. There is of course fossil fuel and mineral depletion. Rising population is an issue that acts much like depletion, in the sense that there must always be more goods and services to keep up with rising population.

      We are dealing with a very strange self organizing system. If something goes wrong, the system tends to collapse. People miss the possibility of collapse, if things don’t go right.

      • Hideaway says:

        I was just rearranging their little totally incorrect statement. I agree with you on all the extras of promises, debt etc as additions of keeping the economy going up to a point.

        Basically I see all the promises and debt as pulling forward the extraction of the lower net energy supplies, whether it is tight oil, deep sea oil, or renewables.

        What we appear to be doing, in a simplified form is guaranteeing we go from a Hubbert gentle curve after peak energy, to a sharp seneca cliff. We are dragging forward today all the slightly harder to get energy by a mountain of debt and promises.

        We were all warned in the ’70’s by the limits to growth team, yet humanity chose to go the BAU path, perhaps the book Extraordinary Delusions and the Madness of Crowds should be read in the context of civilization itself instead of individual fads. Maybe it was the ultimate warning of collective thinking.

        https://vantagepointtrading.com/wp-content/uploads/2010/05/Charles_Mackay-Extraordinary_Popular_Delusions_and_the_Madness_of_Crowds.pdf

        On page 135 …..THE LOVE OF THE MARVELLOUS AND THE DISBELIEF OF THE TRUE.

        It seems that disbelief in the truth is still rife in the world. It does beg the question of who will get the blame for the collapse of civilization at some point in the future. Will it be the messengers as per usual?? Hence my nic………

        • Tsubion says:

          The Ones That Cannot Be Named will be blamed. Again. And again. And again. Until they achieve Worshipful Master of Victimhood status. And we’ll be reminded of this for All Eternity. Forever and ever, aaaamen.

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