Debunking ‘Lower Oil Supply Will Raise Prices’

We often hear the statement, “When oil supply is lower, oil prices will rise because of scarcity.” Now, we are getting to see firsthand whether oil prices really do rise, as oil supplies become more scarce.

Figure 1. Figure from the OPEC Monthly Oil Market Report for August 2019 showing world and OPEC oil production by month.

Figure 1 shows that world oil supply hit a peak in November 2018 and has declined since then, mostly because of a decline in OPEC’s production. So, total oil production seems to be down for about eight months, relative to the peak in November 2018.

Despite this big cutback by OPEC in its oil production, prices have not responded as OPEC had hoped:

Figure 2. Average monthly spot Brent Oil prices, based on EIA data.

In fact, as I write this, Brent oil price is currently quoted as $60.48, which is back in the range of December 2018 and January 2019 low prices. Also, reducing production doesn’t seem to be reducing inventories. Figure 3 suggests that they are now higher than they were before the reduction in oil supply took place.

Figure 3. Figure from the OPEC Monthly Oil Market Report for August 2019 showing OECD commercial oil stocks.

Why aren’t oil prices rising and oil inventories falling, if oil production has fallen?

The basic issue is that the economy is very much interconnected under the laws of physics, because energy is required for every activity that is considered part of GDP. Energy is required for any kind of heat or any kind of movement. Energy is even required for electricity. Without energy from the sun, food can’t grow; without supplemental energy of some kind (such as using electricity to heat an electric stove or burning animal dung or sticks), it becomes impossible to cook food or smelt metals.

One strange phenomenon that arises from the interconnected nature of the economy is the fact that the prices of all energy products (including those not listed on Figure 4) tend to move together.

Figure 4. Comparison of changes in oil prices with changes in other energy prices, based on time series of historical energy prices shown in BP’s 2019 Statistical Review of World Energy. The prices in this chart are not inflation-adjusted.

This strange phenomenon arises because energy products are well-buried within every part of the world economy. A person’s job requires energy consumption. The tasks that governments do, such as building roads and schools, require energy consumption. Both transporting and cooking food require the use of energy products. Refrigerating food requires energy products. These energy uses, as well as many other everyday hidden uses of energy, aren’t things that we can easily cut back on.

Consumers often think, “I will drive less, and that will cut back on my energy consumption.” Unfortunately, in the whole scheme of things, whether or not individuals cut back on their optional use of gasoline doesn’t get the world economy very far. Gasoline accounts for about 26% of world oil consumption, or about 8.7% of total energy consumption, based on the most recent BP energy data. Cutting back on the optional use of gasoline would not reduce total consumption very much. If it were possible to reduce gasoline consumption by 10% by voluntary cutbacks, it would still reduce world energy consumption by less than 1%.

The strange pattern of the price changes shown on Figure 4 indicates that there is something affecting energy prices of many kinds, simultaneously. I would describe this as “affordability.” It has to do with how affordable finished goods and services are to the population in general, much more than it does scarcity. (Economists call this affordability issue “demand.”) If finished goods and services are affordable to a large number of consumers, as they were in 2008 and in 2012 and 2013, prices will be bid up to very high levels (Figure 4). If finished goods and services aren’t very affordable, a drop-off in prices, such as that experienced in November and December of 2018 (Figure 2), is likely to occur.

When OPEC decided to cut back its production of oil in response to the low prices in late 2018, this cutback in oil production didn’t help the affordability of finished goods and services. In fact, this cutback probably made the worldwide total quantity of affordable finished goods and services a little lower. This happened because, with the cutback in oil production, the governments of OPEC countries were able to collect less tax revenue on the smaller quantity of oil that the countries were selling. In fact, this smaller quantity of oil wasn’t even being sold at a higher price.

With lower revenue, governments of OPEC countries are being forced to cut back on funding of new projects such as roads and schools. These projects will use fewer energy products, and the would-be workers will have less money to spend on goods made with energy products. Thus, these cutbacks help to lower the world’s “demand” for oil and other energy products and thus help lower the price of oil.

The fact that the economy is interconnected in this strange way makes shifting prices upward much more difficult than if scarcity were the primary issue. In effect, the whole stack of energy prices in Figure 4 must somehow be made to rise. This is difficult to do because it is the lack of wages of the many poor people around the world that is holding back “demand” for energy products. If, somehow, higher wages could be sprinkled on the many poor workers of the world, including those in India and Africa, then oil (and other energy) prices would tend to rise. With higher wages, these poor people would be able to afford items such as nice homes, cars, and air conditioning, pulling world food and energy demand upward.

One difficulty with rising oil (and other energy) prices: They don’t translate into rising wages.

Rising oil prices tend to cause recessions and layoffs. We can see this from historical data. Average wages, considering layoffs, tend to fall rather than rise during times of spiking oil prices. In fact, the chart seems to suggest that the big increases in average wages tend to occur when oil prices are under $40 per barrel. A growing supply of cheap energy thus seems to be the magic ingredient that shifts wages upward.

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

Because of this difficulty with spiking energy prices, high energy prices tend not to last for very long. One issue is that regulators quickly raise short-term interest rates to solve what they perceive as “the problem of rising food and energy prices.” Once recession sets in (gray bars in Figure 6), regulators find that they need to lower interest rates and raise the level of debt to stimulate the economy again. With lower interest rates and more debt, major purchases (such as homes, cars, and factories) become more affordable, because purchases bought on credit have lower monthly payments. With greater affordability, food and energy prices again rise, to again encourage more production.

Figure 6. Three-month and ten-year interest rates through July 2019, in chart by Federal Reserve of St. Louis.

So we end up with an endless seesaw of energy and food prices. In fact, the peaks have tended to fall lower and lower since 2008, as can be seen in Figure 7, showing monthly average prices.

Figure 7. Monthly average Brent Oil prices since January 2000, based on data of the US Energy Information Administration.

Monthly average peaks started at $132.72 in July 2008. More recently, peaks have fallen as follows:

  • Peak of $125.25 for the month of March 2012
  • Peak of $109.54 for May 2014.
  • Low month average price of $30.70 in January 2016.
  • Most recent average peak was $81.03, for the month of October 2018.

From this pattern of falling peaks, we can see that the stimulus being used recently (which includes Quantitative Easing in some parts of the world) has become less and less effective at stimulating demand for food and energy products.

It looks as though growing debt at ever-lower interest rates is becoming a less effective workaround for the economy’s real need, which is a need for a rapidly growing supply of under $40 per barrel oil and other low-priced energy products.

Oil prices can be a problem in two different directions: (a) Too high for consumers or (b) Too low for producers.

From the Point of View of the Consumer. Many people have had the “Ah Ha” moment, in which they have figured out that high oil prices are a problem from the point of view of consumers. In part, they have deduced that these high oil prices may mean that we are “running out” of cheap-to-extract oil. Processes are becoming more complex, and as a result, consumers need to pay more to cover the higher cost of extracting and refining the oil.

But there is a related issue: Higher oil prices are likely to cause recession. If oil prices rise, the prices of many different types of goods and services (such as food, goods transported by truck or airplane, and vacation travel) rise at the same time. Wages don’t rise as quickly, in part because it is the true energy content (measured in Btus, barrels of oil equivalent, or something similar) that the economy requires. If the economy needs to dedicate a larger share of its resources to producing energy products, this is an issue that is akin to growing inefficiency. There are fewer resources remaining (such as human labor, metals, fresh water, and energy products) for investment that might provide goods such as new homes, cars, clothes and air conditioning.

With fewer resources to use, the economy reacts by shrinking back. I think of the situation as being akin to the way a chemist might “make a smaller batch,” if the quantity of one necessary reagent is low. An adequate supply of energy products is what makes the economy operate as it does; if buying an adequate amount of energy products becomes too expensive for consumers, a cutback in the buying of discretionary goods is forced on the economy (Figure 8). Lowering interest rates tends to make the debt repayment portion on new purchases lower, helping to alleviate the squeeze.

Figure 8. Chart made by author in 2010, to illustrate a talk called Peak Oil: Looking for the Wrong Symptoms.

From the Point of View of the Oil Producer. There are oil producers of many kinds, including:

  • Tight oil producers from shale operations,
  • Heavy oil producers in places such as Canada and Venezuela,
  • Producers of oil from deep water such as Brazil and Angola, and
  • Middle Eastern oil exporting countries that seem to have a very low direct cost of oil production.

Strange as it may seem, Middle Eastern oil exporting countries are among the most vulnerable to problems associated with continued low oil prices. The reason why these countries are so vulnerable is because their entire economies are oriented toward oil and gas production. They often have large populations with inadequate income unless the government provides them with handouts or with programs that provide jobs. If these governments need to cut back too much, there is a real danger that the governments will be overthrown. In fact, the population may break down into warring factions. Oil production may stop because of internal disorder.

It is because of issues such as these that the OPEC countries have cut back on oil production, in the hope that prices would rise to more acceptable levels for their countries. Fiscal Breakeven prices, relating to the level of oil prices that are needed so that each government can collect sufficient taxes for its budget, are published from time to time.

Figure 9. Chart published by the Arab Petroleum Investments Corporation (APICORP) giving Fiscal Breakeven Prices estimated to be needed for 2013.

Now that oil prices have been low since late 2014, Middle Eastern countries won’t admit to the true level of oil prices that are needed to operate their countries in the way that they have in the past. Their populations have been rising faster than their oil production, so it is hard to believe that the oil prices that the countries truly need, if they do not cut back on programs, are any lower than the amounts shown in Figure 9. At about $60 per barrel, the current Brent Oil price is clearly far too low for the major oil producers of the Middle East.

Shale and heavy oil producers are often less vulnerable than Middle Eastern producers, because the entities funding their operations (that is, buyers of shares of stock and providers of debt) believe that “of course” oil prices will rise in the future because of scarcity. Because of this, they are willing to provide additional funding, even when a recent owner has gone bankrupt from low prices. Middle Eastern oil producers have less of this benefit. If the money isn’t available for major programs, they are forced to cut back. Growing debt is unlikely to cover more than a portion of the shortfall.

There are other producers in the energy price “stack” in Figure 4 that are vulnerable to collapse or bad outcomes from continued low energy prices. One example is coal producers in China. China seems to be experiencing Peak Coal because of continued low coal prices; while new mines have been opened, they do not act to increase the total quantity produced, because so many mines needed to be closed because they were losing money at current low prices.

Figure 10. 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.

If the world economy is hoping for China’s increasing demand to pull the world economy forward in the future, it is likely kidding itself. China cannot expect imports to make up for its lack of growth in coal production. China’s lack of adequate energy supplies likely underlies the tariff issue that we hear so much about. There is a need to pull back production of goods from China, if China doesn’t really have the energy resources to continue in the role it has been playing.

The big question is how high oil prices will be in the future

The contention of the IEA and many others is that energy prices can rise arbitrarily high. For example, the IEA showed the figure I have numbered Figure 11 in its World Energy Outlook 2015 .

Figure 11. IEA Figure 1.4 from its World Energy Outlook 2015, showing how much non-OPEC oil can be produced at various price levels.

The big groupings in Figure 11 are

  • Conventional Crude (such as from the Middle East and perhaps deep water like Brazil),
  • Tight Oil from Shale, and
  • Extra Heavy Oil and Bitumen (such as from Canada and Venezuela).

Evidently, in 2015, the IEA believed that $300 per barrel oil prices were not too high to show as a possibility on a chart. With $300 per barrel oil, there would certainly be enough oil. At such a high price, it might be possible to move the city of Paris, France, out of the way and extract the tight oil from shale underneath it!

Unfortunately, in the real world, prices cannot rise this high. Market prices are set by the laws of physics. The economic limit we reach is a price limit that pushes the economy back into recession. We have seen in Figure 7 that this price limit seems to be dropping lower and lower, over time. In fact, I am one of the coauthors of an article published in the journal Energy called, An Oil Production Forecast for China Considering Economic Limits. This 2016 article makes the point that the economic limit we are reaching is a limit on how high oil prices can rise. I am the lead author of Section 2, which discusses this issue at length. If prices cannot rise high enough, the vast majority of the oil that seems to be available based on published reserve amounts and geological surveys cannot really be extracted.

Whether there are ways to raise oil and other energy prices higher than they are now remains to be seen.

Why don’t standard models forecast low oil prices in the future? 

Economists have put together a simple model of how the economy works. In their model, there are always substitutes. The only thing that goes wrong seems to be that prices rise, if there isn’t enough supply. These rising prices encourage greater supply and substitution. The type of chart a person typically sees is a Supply and Demand curve as shown in Figure 12.

Figure 12. Supply and Demand model from Wikipedia.
Attribution: SilverStar at English Wikipedia CC BY 2.5 (http://creativecommons.org/licenses/by/2.5)], via Wikimedia Commons

They have never considered a situation where energy products are deeply buried within essentially all goods and services that are made. If there isn’t enough supply, a “smaller batch” of the world economy is made. We think of this as recession, but it can take on other forms as well:

  • Depression
  • Wars
  • Epidemics
  • Defaulting debts; falling prices of assets
  • Failing governments and intergovernmental organizations
    • Collapse of the central government of the Soviet Union in 1991
    • UK’s decision to leave the European Union
  • Increasing conflict between political parties and between countries
  • A reduction in globalization
  • Ultimately, the collapse of a civilization

Economists have not understood the connection between physics and the economy. There is a need for a sufficient quantity of affordable energy products every moment of every day. In fact, we seem to need a vastly increased quantity of inexpensive-to-produce energy supplies right now if we are to fix the world economy’s problems from an energy point of view. The “lower interest rates and more debt” way of hiding problems seems to be reaching an end point. If nothing else, interest rates today are close to as low as they can go.

Is the economy approaching a singularity?

In physics and math, a singularity is a point at which a function takes an infinite value. We end up with a situation that seemingly cannot exist. It is like dividing the number 1 by the number 0. No matter how many times that the number 0 is added together, it will never equal 1.

The economy seems to be reaching an equally strange situation. It is not a situation where we are running out of oil; it is a situation of too much wage disparity, and this wage disparity makes the prices of many commodities too low for producers of these commodities. For example, farmers cannot afford to pay their mortgages. And prices for all fossil fuels and many metals are too low for companies extracting these materials to make an adequate profit for reinvestment and taxes. The problem is not simply low oil prices.

This situation of excessive wage disparity is related to globalization, with many workers around the world earning very low wages, so that they cannot afford goods such as homes and cars. It is related to the increased use of robots substituting for manual labor. It is also related to wage disparity within countries as jobs become increasingly specialized.

As this situation plays out, energy prices fall when common sense would seem to suggest that they should rise. In fact, the problem of falling prices extends to more commodities than fossil fuels and food; it extends to minerals of many kinds, including copper and aluminum.

In such a situation of falling commodity prices, we can expect many related problems. For example, governments of countries that depend on the revenue of these exports may fail, leading to Balkanization of these countries in some cases. A wide range of debt defaults can be expected, leading to failing financial institutions that need to be bailed out. Rapidly changing relativities among currencies are likely to put markets for derivatives at the risk of failing. Needless to say, stock markets are likely to be adversely affected. So-called renewables will quickly fail because they are currently dependent on fossil fuels for repairs and the electric grid. In fact, it is hard to see any aspect of the world economy that can continue unaffected.

How does what appears to be an approaching calamity play out?

Perhaps it is fortunate that we don’t really know. Collapses of early economies seemed to take many years, typically over 20 years. Today, the world economy depends on global supply chains and the electric grid. The financial system is also very important. It is hard to believe that the overall system can stay together for many years, but perhaps, in parts of the world, it can. We just don’t know.

Given how connected the economy seems to be, and how widespread the problems seem to be at the singularity we are reaching, it almost appears that there is a plan behind what is happening. From what we can observe, there seems to be some literal higher power behind all of the energy flows that we observe in the universe. This literal higher power seems to have put into place all of the laws of physics. This literal higher power seems to also be behind all of the self-organizing elements within the universe, including humans, ecosystems and economies. I cannot help but wonder whether there is some plan for what is ahead that we don’t understand.

 

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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1,469 Responses to Debunking ‘Lower Oil Supply Will Raise Prices’

  1. Hubbs says:

    More ominous, with lightning bolts etc.
    https://www.youtube.com/watch?v=7gej3hLOLDU @ 2:44
    Or for those of religious beliefs and silver:
    https://www.youtube.com/watch?v=lpWS1dlm5i8 @2:40
    “You always were a Judas
    But I got you anyway
    You may have got your silver…..”

  2. It's different this time around....YES says:

    Oh my, Still can post so here it goes Folks…all that glitters

    Russia’s Huge Gold Stash Is Now Worth More Than $100 Billion
    Yuliya Fedorinova and Anya Andrianova
    BloombergSeptember 9, 2019, 9:06 AM EDT

    (Bloomberg) — Russia’s long-running bet on gold is looking better every month.

    The country quadrupled gold reserves in the past decade as it diversified away from U.S. assets, a move that has paid off recently as haven demand sent prices to a six-year high. In the past year, the value of the nation’s gold jumped 42% to $109.5 billion and the metal now makes up the biggest share of Russia’s total reserves since 2000.

    Russia’s central bank has been the largest buyer of gold in the past few years as President Vladimir Putin seeks to break reliance on the U.S. dollar as relations between the countries remain strained. If Russia did need to tap its gold holding, it would fetch a hefty price — the metal is heading for the best year since 2010 as the U.S.-China trade war hurts global growth and central banks ease monetary policy.

    “Russia prefers to cushion its macroeconomic stability through politically neutral tools,” said Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki. “There is a massive substitution of U.S. dollar assets by gold — a strategy which has earned billions of dollars for the Bank of Russia just within several months.”

    Russia isn’t alone in hoarding gold. China, Kazakhstan and Poland have been among the biggest buyers in the past couple of years, and global holdings are expected to increase for a while yet

    Yes, they see a yellow brick road ahead of the funny money trail that’s paved by the CB of the world.

    Ahh, here is an oldie from 1971 Freda Payne, Band of Gold….
    https://m.youtube.com/watch?v=SvItNEdM4Jw

    All I got left is a band of Gold…..I can hear us all good bugs sing that after BAU….😛

  3. Harry McGibbs says:

    “Saudi Arabia’s new energy minister has said he favours cutting oil production in order to shore up prices amid a global over-supply, according to reports.

    “Prince Abdulaziz bin Salman, who was appointed by father King Salman Sunday, is said to have made the remark at the World Energy Congress in Abu Dhabi Monday.”

    https://www.dailymail.co.uk/news/article-7443595/Saudia-Arabia-cut-oil-production-attempt-raise-prices.html

  4. All is Dust says:

    Solar Panels not generating the promised return on investment
    https://www.bbc.co.uk/news/uk-england-49566130

    • Without huge subsidies, this story can be expected to play out throughout the world.

    • Robert Firth says:

      I use a gas water heater; it turns on when I turn on the water. Currently, a large (and heavy!) cylinder of gas costs EUR 30 and lasts 6 months. Instead, I could go to solar panels, for which I was quoted EUR 3000. Assuming they need zero maintenance, the payback time would be 50 years.

      If the poor people in the article were charges GBP 10,000 to 15,000, they were ripped off.
      Colour me unsurprised.

      • The people in Great Britain bought larger systems than needed to simply replace the gas hot water. This is part of the way they were ripped off. Also, Great Britain is a cloudy country (see the photo). Getting much solar energy from the panels there is a problem.

        • Robert Firth says:

          Gail, agreed. Solar power makes little sense in the UK. It makes a little more sense here (46 North 14 East) but even so would be problematic in winter. And it would have made no sense in my previous home, Singapore (1.5N), which has heavy rainfall on an almost daily basis year round.

          But it works in Egypt! When I visited Cairo, most houses had solar powered hot water. But they used a low technology system: big metal tanks painted black. Heat the water during the day, drain it from the roof into another metal lank insulated against heat loss, and you have an essentially zero cost system. Also fully sustainable and with zero pollution.

          A part of my philosophy I quote often: work with Nature, not against Her.

          • Yes, hot water in the sun definitely works, especially in climates where it doesn’t freeze. There are also workarounds to make a somewhat more expensive system work in sunny areas where it does freeze.

          • Artleads says:

            +++++++++

          • Artleads says:

            It would still need civilization to pull off. And the trope that civilization must grow (ALONG ITS CURRENT LINES!) or collapse quickly is probably not well founded.

            • I’d be happy to be shown otherwise, but I can’t see another ‘state’ (ie static), between infinite growth and collapse

              because static infers humankind with no ambition to self improve. Something we all seem to be born with to a greater or lesser degree.

              No other species seems to have that

              We do, and it’s what has led us into the mess we are in.

              when we reach a state where no further growth is possible, our immediate reaction will be denial, our second reaction will be to look for ‘blame’ our third reaction will be conflict in order to steal ‘growth stuff’ from somewhere else.
              That ultimately accelerates collapse

              Which is more or less where we are right now. Things just haven’t kicked into top gear yet.

  5. MG says:

    The proces of putting into operation of the new block of the Mochovce nuclear power plant in Slovakia is connected with various unfinished things and defects, as the checks by the supervisory authority reveal. The supervisory authority must wait with licencing the operation, untill all defects are removed.

    https://ekonomika.sme.sk/c/22207655/odhalili-nedostatky-v-mochoveckej-elektrarni-nie-je-ich-malo.html?ref=trz

    It seems our problems will be more and more about machines not being able to operate 24/7 due to various (hidden) errors, lack of or improper maintenance etc. As Gail points out, adding intermittent energy makes the things worse. We need to add reliable sources of energy, not more and more intermittent ones.

    • High interest rates several hundred years ago may have had to do with the very high default rate on debts when people depended on unreliable wind energy to power their sailing boat. Wind energy might or might not get your boat to the desired final destination, in a reasonable length of time. If the storm encountered was bad enough, the cargo might need to be thrown overboard to try to save the boat and crew. Many ships were lost completely.

      • hkeithhenson says:

        ” If the storm encountered was bad enough, the cargo might need to be thrown overboard to try to save the boat and crew.”

        I doubt it. Think about trying to throw cargo overboard in a raging storm. The last thing you would want to do is open a cargo hatch in a storm.

        “Many ships were lost completely.”

        That’s still a problem.

        • Not to the same extent. I have heard that archeologists estimate the number of ships in a particular historical period by the number of remains of shipwrecks found from that period.

      • hkeithhenson says:

        “High interest rates several hundred years ago”

        Gregory Clark in “Genetically Capitalist?” makes a case that one of the things that happened during the run-up to the industrial revolution was a substantial reduction in interest rates. How this might relate to the present day is not clear to me.

        • DJ says:

          If the capitalism genes (plural!) causes carrier to delay consumption for higher return in the future, then spread of capitalism genes could increase capital and thereby lower interest rates.

          But know theyre replaced by negative interest debt binge handout genes.

          • hkeithhenson says:

            According to Clark, the genetic advantage of being well off ended about 1800. I.e., the industrial revolution increased wealth enough that the poor reproduced about as well as the rich.

            What goes on now is not closely related to the selection during the runup to the industrial revolution. Except that we still have people with the kind of drive that gained their ancestors’ wealth.

            • DJ says:

              Interesting to see what will be selected for if there is a bottleneck with few survivors.

            • hkeithhenson says:

              “bottleneck”

              A large part of the race went through such a bottleneck between the start of agriculture and the rise of states. We lost over 90% of the diversity of Y chromosomes.

            • Around the world, things are at least somewhat different. Sub-Sahara Africa and parts of the Middle East still have very high birth rates. The pattern is often that rich older men have several wives. Poorer men don’t get wives. Brides are often young, so wives can have many children.

            • hkeithhenson says:

              If this went on for tens of generations, I would expect the genes related to acquiring wealth would become more common.

              Of course, the death rate has come down due to the various outputs of the industrial revolution, including food.

            • Kowalainen says:

              The industrial revolution and its factory-style education system shifted large swaths of an untapped resource into the semi-literate productive work force. The expanded work force and readily available schooling system is a tour de force in wealth generation and prevalence over inferior states.

              It is a competitive, collaborative structure within itself where an upward movement in the social strata is encouraged and not set in stone by enforcing the status quo of class hierarchy.

              The threat to this system is of course collapse from obscurity and overspecialization where the state itself becomes overburdened by its own administration complexities, eventually leading to theft, corruption and misallocation of resources, as it is explicitly trying to shape its course to the benefit of its new class, the nomenclature, instead of implicitly by the just actions of its inhabitants and adhering to the principles of liberty.

              The dominance scheme always eventually fail since more effectively run states will act as a corrosive where the productive and competent work force will migrate to those where the private and common wealth generation is the greatest.

              Therefore artificial and enforced welfare states eventually will fail as people start to prioritize equality of outcome instead of equality of opportunity. Watch it unfold in real time in Sweden.

    • Epidemics don’t need to be human epidemics to be a problem. Humans can get along with less meat, but they still need pretty much the same calories, especially if they have grown to mature size based on a higher calorie meat-containing diet.

  6. Harry McGibbs says:

    “Numerous indicators in the U.S. and around the world are signaling a slowing economy at best and a near-term recession at worst.

    “The slowing global economy, along with low interest rates, ongoing trade tensions, and intensifying Brexit uncertainty will weigh on banks’ profitability for the foreseeable future. In the US, whatever benefits banks derived from Trump’s tax reform, if any, are long gone.”

    https://www.forbes.com/sites/mayrarodriguezvalladares/2019/09/08/banks-around-the-world-face-significant-profits-pressure-for-the-foreseeable-future/#2d02d81b7b5d

    • Harry McGibbs says:

      “Regulators are surveying Japan’s financial firms to determine their exposure to foreign assets, including risky credit products, as the global economy slows, according to sources.

      “The Bank of Japan and Financial Services Agency want to get a more detailed picture of domestic banks’ and insurers’ investments in collateralized loan obligations (CLOs) and leveraged loans to assess how they will fare if the borrowers run into difficulties, the sources said.”

      https://www.japantimes.co.jp/news/2019/09/09/business/financial-markets/regulators-boost-scrutiny-clos-banks-buy-billions-worth-risky-assets/#.XXYH3ChKjIU

      • Harry McGibbs says:

        “The prospect of more deeply negative rates is particularly painful for Deutsche Bank, which recently announced a massive turnaround effort that includes 18,000 job cuts. The bank has pledged to increase revenues by 10% to €25 billion ($28 billion) by 2022, leaving little room for error or higher costs.”

        https://edition.cnn.com/2019/09/04/economy/ecb-cut-deutsche-bank-scli/index.html

        • How is it possible to operate an economy on negative interest rates?

          • Harry McGibbs says:

            The EU is slowly finding out that it isn’t. That isn’t going to stop the ECB from cutting rates further though and trying to help prop up banks as they do so:

            “The ECB is leaning towards a package that includes a rate cut, a beefed-up pledge to keep rates low for longer and compensation for banks over the side-effects of negative rates, sources told Reuters last week.

            “At the very least, markets expect a 10 basis point cut in the deposit rate to -0.50% — the first cut since 2016…

            “Nearly 90% of economists polled by Reuters expect the ECB to announce a return to quantitative easing (QE), starting with monthly asset purchases of 30 billion euros from October.”

            https://uk.reuters.com/article/uk-eurozone-markets-ecb/time-for-shock-and-awe-five-questions-for-the-ecb-idUKKCN1VU0F5

            • Robert Firth says:

              Modern monetary theory meets reality. In the old, sane world of classical economics, innovation was driven by investment. To increase production, you raised interest rates, which encouraged more people to save, hence allowing more investment. The engine of the economy was the saver, or, as Samuel Smiles put it, “thrift”. And more innovation, more production created more wealth, and hence more savings. It was a virtuous spiral.

              But in a debt based economy the arithmetic works the other way. Lower interest rates encourage more debt, but discourage savings. And fewer savings mean less investment, and the missing investment can be replaced only with more debt. So the modern economy needs ever increasing amounts of debt just to stand still. Remember the Gadarene Swine? That’s where we are now, with the demons of debt running all developed economies off the cliff.

            • “Lower interest rates encourage more debt, but discourage savings. And fewer savings mean less investment, and the missing investment can be replaced only with more debt. So the modern economy needs ever increasing amounts of debt just to stand still.”

              Good point. Also, all of the so-called renewables are debt-based form of energy. Fossil fuels are much more pay-as-you-go.

            • Kowalainen says:

              Robert, not quite right.

              Debt is needed for circulating the enormous amounts of goods and services which industrial civilization have created by the means of cheap energy and mass production, and by doing so liberated the uneducated plebs from crushing drudgery and enabled them to an upward movement in the social strata.

              Now what does the (highly educated) upper middle class do? Well, they save money by investing it back into the apparatus which they are dependent upon by the means of production and employment. Nobody “saves” money anymore in a bank account. The debt is used for shifting assets from old, stagnant money.

              Therefore the enormous hatred from old money to fiat currency. But they are fighting their own delusions of going back to a feudal order of a gold backed currency. Because, you see, the gold has all been swallowed up by the industrial apparatus which produces things like the gold plated Apple Watch and an copious amount of other applications which is dependent of the technical properties of the precious metal.

              There is absolutely no way back. The lions share of the gold is simply…. GONE!

              “So far, the Fed has denied the German financial regulator access to the vast deposits that are literally being held hostage overseas. Thus, the Bundesbank has had no opportunity to audit the reserves that belong to Germany.

              Various theories circulated about Germany’s foreign gold reserves, with some experts questioning whether it is still there or if it has been used by foreign central banks. However, the German government doesn’t seem very worried about the issue.”

              https://www.rt.com/business/445133-germany-access-gold-us-fed/

  7. Harry McGibbs says:

    “The global bull run that started in 1985 is now one of the most intense in the debt market’s 700-year history, comparable with a deleveraging and economic growth spurt that followed the Napoleonic wars.

    “Despite longstanding predictions of the end of the bond bull market that started after former Federal Reserve chair Paul Volcker quashed inflation in the 1980s, government debt has kept rallying this year, taking the average annual fall in yields to 17.4 basis points (0.174 percentage points) over the past 34 years.

    “That puts it on the cusp of surpassing the 1873-1909 bull run in length, and makes it the strongest decline in long-term interest rates since 1817-1854, when bond yields declined by 22 bps a year, according to research by Paul Schmelzing, a visiting scholar at the Bank of England.”

    https://www.ft.com/content/417dce0c-ce3e-11e9-b018-ca4456540ea6

  8. Theedrich says:

    “Peer polities then tend to undergo long periods of upwardly-spiraling competitive costs, and downward marginal returns.  This is terminated finally by domination of one and acquisition of a new energy subsidy (as in Republican Rome and Warring States China), or by mutual collapse (as among the Myceneaeans and the Maya).  Collapse, if and when it comes again, will this time be global.  No longer can any individual nation collapse.  World civilization will disintegrate as a whole.  Competitors who evolve as peers collapse in like manner.”

     —  Joseph A. Tainter, The Collapse of Complex Societies, Cambridge University Press, 1988, 1992, p. 214.

    • Thanks! I had forgotten about this quote. Joe Tainter has been talking about this issue for a long time.

      This is a photo taken back in 2011 of a group of us, hanging out in pub after a BioPhysical Economics conference. I am on the left. Next is David Packer (Editor for Springer of Charlie Halls’ book series), Charlie Hall (of EROEI fame), Joseph Tainter, and James Howard Kunstler. I don’t know the next person; he was a speaker at that conference. The last two, who are only partially shown, are George Mobus (With Question Everything Blog) and Dave Murphy (at that time, grad student of Charlie Hall).

      https://gailtheactuary.files.wordpress.com/2018/07/after-bpe-conference-at-pub.jpg

    • DJ says:

      But if there is no competing systems, do the one system have competitive costs?

      • The system needs to have enough energy to support the overall civilization that provides the demand for energy products. If workers are becoming too poor to buy the output of the products of the system, there is a major problem.

        • DJ says:

          I understand that complexity demands unequality, while still keeping the lowest level part of the system.

          But the soviet broken by losing competition against US, currencies collapsed by escape to gold/other currency doesnt really exist anymore.

        • Kowalainen says:

          Indeed there is a problem for the regular workers. Who are increasingly becoming less productive and thus less relevant as the technological progress marches relentlessly forward.

          It is none of their fault, it is evolution on its course toward ever greater complexity by encoding the intricacies of this civilization into software, instead of in corruptible human chauvinistic organizations, which is running on machines that is created using software, which is being used to create software, which runs on machines, which…… [ad perpetuum].

          There is no turning back on this epic journey towards total and utter irrelevance for humans. I can think of few engineers and scientists who would conclude this necessarily a bad idea or even possible to stop at this stage of the evolutionary processes which governs Gaia.

          We simply just don’t care. If that’s the way it will be, then so be it. Who are we to judge what the evolutionary traits which is encoded in our brains and thought processes eventually leads to. Yes, we simply don’t care and pursue what we find great satisfaction in, even though it will inevitably lead to our own total and utter irrelevance. But then, at least we will have great teachers in the mystery of the universe and get to admire the technology and machines produced by superhuman intellect. Just as we, today, admire great scientists and engineers from the past.

          • Pedro says:

            Not my idea of evolution.
            Just a dead end path from which any surviving humans (but not computer hardware/software) might evolve via their DNA in another direction.
            Computers only ‘write’ software according to the rules set down by humans.
            For software to evolve in relation to Gaia it would need a lot of ‘facts’ about the current state of the planet, resources available and a means to equate all the information,
            in short intelligence which doesn’t evolve from software.
            As an ex programmer I can understand how the media waffle is accepted by the general public but I do not accept that machines are likely to evolve to suit their continuance on this planet.
            For humans to evolve requires the mechanisation to collapse (which it will) and for the basic animal functions which we are born with start working again.
            That won’t be pleasant by our current standards. No more aged care, cancer cures, limited support for person with any defects etc. I.e. Study animals in the wild to get an idea
            of the realities of natural life. Gonna be survival of the most fit.

          • Slow Paul says:

            Sorry to soil your dream of becoming irrelevant, but computers lack this thing called “life”, that is the natural driving force within every living cell within every living organism. This force magically makes all cells and organisms reproduce themselves and consume energy for no other reason.

            You can program a single computer to want this but this computer (and its copies) will have no instinct, no intuition to how to physically do all the thousands and thousands of small operations an animal do every day to survive, not to mention copulate (assemble?)… And for what ends would you want this to happen?? So the sci-fi-fantasy of your childhood becomes true??

    • Kowalainen says:

      The flaw in this reasoning is that all complexity is a burden carried by the organizational structure of an agent or organization which is subject to competition. A flaw of human chauvinism.

      Yet competitive and collaborative structures of extreme complexity, which is yet not fully understood in mankind’s scientific endeavor, created from and of natural selection and adaptation producing an enormous biodiversity on planet earth. Eventually producing the mind boggling complexity of the human and mammal brain. Which central governing organ was behind this emergence? The answer is that no such organization is necessary in a system which implicitly has this encoding scheme built into its principles. The principle of mutual benefit from a distributed ecosystem of competitive collaboration.

      Software is a principle which encodes the industrial civilization organization as a symbolic representations of complex economic and industrial processes. It carries no cost of an complex human organizational structure. As with genetic expressions, the software encodes the creation of hardware in which it executes. May it be the manufacturing process of semiconductors or of machinery which extracts energy from earth.

      Civilizations, however collapse from their own brutality and divergence from the natural order of competitive collaboration driven by an energy and resource accounting scheme, by its own organizational overhead. Once departed from the natural order, stagnation from overspecialization and obscurity and esotericism sets in, eventually to the creation of an all encompassing central governing organ of brutality and horrors where everything and nothing is possible, thus guaranteeing its own demise by the principles of departing from the natural order with no central ruler or governor.

    • Davidin100millionbilliontrillionzillionyears says:

      “Collapse, if and when it comes again, will this time be global. No longer can any individual nation collapse. World civilization will disintegrate as a whole. Competitors who evolve as peers collapse in like manner.”

      I wonder if Tainter would reconsider this quote…

      perhaps all countries are “peers” in some context, but there are vast differences in their energy supplies, and thus various collapses could occur as individual countries are cut off completely from FF resources…

      it seems that the initial stages of this scenario are happening right now, so I would say that it’s more than theoretical..

      of course, other scenarios are possible, and collapse could be triggered from within The Core and thus be a full one-time global collapse…

      but for now, it seems that the bigger faster stronger countries will cut off the weaker periphery as a means of extending their survival…

      the 365 days of 2020 will tell us much more…

      • The EU organization seems to be particularly at risk. So do oil exporters. China and Japan both have risks of their own.

        It seems like some of these could fail in a partial cutback.

  9. Kurt Cobb (whom I know from the US Association for the Study of Peak Oil) has a new post up called, Oil Prices and the Coming Financial Ice Age. In it, he puts together my recent posts with the work of financial strategist Albert Edwards.

    This is the way the post ends.

    Now, here’s how Tverberg’s thinking hooks up most directly with Edwards’. Tverberg writes: “It looks as though growing debt at ever-lower interest rates is becoming a less effective workaround for the economy’s real need, which is a need for a rapidly growing supply of under $40 per barrel oil and other low-priced energy products.” Edwards sees debt creation as becoming a less and less potent way to create economic growth in a debt-saturated economy. Tverberg goes to what she believes is the heart of the matter claiming that added debt cannot seem to provide oil and other energy sources at cheap enough prices for the economy to flourish. The financial Ice Age seems central to the views of both.

    And, both Edwards’ and Tverberg’s outlook lead to the same result, a crash in the world economy that will be difficult to turn around. For Edwards there is the possibility that after a long retrenchment period, economic conditions could return to what passes for normal. For Tverberg, however, her thesis suggests a permanent alteration of conditions for modern societies in which energy insufficiency becomes a feature that limits and even stops economic growth.

    If either one is correct, look for an economic tsunami in the not-to-distant future.

    The whole post relates to this issue. He uses the word “Tverberg” 11 times in the post. I think he did a good job.

    • It's different this time around....YES says:

      Thank you! Think this was also posted on PO News also…
      If either one is correct, look for an economic tsunami in the not-to-distant future.
      I’m not going to sleep too soundly at night for now on……doesn’t appear this can will be kicked down the road for much longer.
      The sad part is those in charge seem not to have an idea how to act, just react.

    • Chrome Mags says:

      https://peakoil.com/generalideas/kurt-cobb-oil-prices-and-the-coming-financial-ice-age

      Gail, that’s a link to an article on peak oil dot com on the topic you just posted.

    • Harry McGibbs says:

      Wow. I wonder if oilprice.com will publish it…

    • Robert Firth says:

      “Edwards sees debt creation as becoming a less and less potent way to create economic growth …”

      Debt has never been a “potent” way to create economic growth. Just ask John Law. Investment creates economic growth, and thrift creates the wealth to be invested. And since it is the investors who bear the risk, they were (not always, but usually) prudent in their choices.

      Debt only works if it is not repaid, but rolled over, passed on to a greater fool, inflated away, or repudiated. And debt, like heroin, only creates a need for more and more debt.
      Which is where we are now, faced with the addict’s dilemma: rehab, or death.

      • Kowalainen says:

        An increasing money supply (and energy) is essential to circulate the increasing and nowadays enormous output of industrial civilization. It is quite natural that once resource limits hit, increasing money supply will achieve absolutely nothing in terms of prosperity increase.

        Money is simply an accounting scheme for enabling production and consumption at an unprecedented rate in human civilization. The real drug is the attachment simple minded people has to accounting and the goods and services this system has produced. Wishing to go back to the gold standard is the true heroin injection of nostalgia and hopium for a sustainable future.

        Take for example Apple which uses an estimated amount of 30% of all gold cumulatively produced in the world. The remainder of industrial civilization uses the rest and more as they dip into the supposedly existing gold vaults.

        Going back to the delusion of a gold standard implies scraping off the gold plating of mostly electronic devices. Yes, good luck with that enterprise restoring the world into a ‘sustainable’ feudal system of centralized brutalism and dominance scheme.

        IT WILL NEVER HAPPEN!

        • hkeithhenson says:

          ” 30% of all gold cumulatively produced in the world.”

          Fascinating. Do you have a pointer to an authoritative source? This has implications for space mining.

          • roughly 130000 tons of gold exists in the global system

            it underpins much of our financial system one way or another

            space mining brings back (or finds) a million tons of gold

            value of world gold drops about 90%

            (and that’s if they find just one gold bearing satellite)

            • hkeithhenson says:

              ” a million tons of gold”

              It’s not that easy. Mining the asteroid 1986 DA over 24 years would give about 500 tons of gold a year. https://htyp.org/Mining_Asteroids On the other hand https://en.wikipedia.org/wiki/16_Psyche is about a million times larger asteroid so a scaled-up mining operation there could swamp the gold market. Gold is mined down to 3 ppm on earth. Asteroids are around 1 ppm. There is no reason to think we will find higher grades.

            • Kowalainen says:

              Keith, if we have your satellite system driven by PV’s or perhaps by tapping into the energetic plasma sheath surrounding the sun using its extreme voltage differential to drive enormous currents for powering microwave generators aimed at mining sites in the asteroid belt or on earth, it is possible to transmute simpler elements in the periodic table into gold by nuclear processes.

            • wish I’d thought of that

            • hkeithhenson says:

              “transmute”

              Perhaps I should not be so negative, but this looks to be *really* unlikely. It’s worse than a million dollars worth of energy for $100 worth of gold. E=mc^2 Sorry

              But if you have a neutron star that you dump into a black hole, that does make planetary masses of gold. I don’t think you want to be very close when this happens though.

            • Kowalainen says:

              Norman, we are grateful having you as the arbiter of status-quo and eventual doom from a collapse which will not happen – can not happen.

              Norman, now imagine a world of synthetic, silicon ‘brains’ encoding most of, if not all of human ingenuity with these devices connected to each other using radio waves and light beams traveling in fibers made of glass and in the ether. It is an enormous man made networked system of interconnectedness. All the encoding is written and executed in machines by several completely new languages of syntax and semantics never seen in any previous civilizations.

              Even to me, that sounds like pure science fiction. Yet here we are. The irony I am reveling in is utterly and totally the elephant in the room and you fail to see it walking up and down your computer screen.

              Yes Norman, what is your conclusion from our hypothetical discussion 100 years ago?

              🙂

            • This sounds like science fiction to me as well. I think Norman is right.

            • can we leave this nonsense please?

              there can be many and varied opinions, on a wide range of subjects on OFW, and they are interesting to many of us to varying degrees
              —but this is coming close to the level of a debate on whether the earth is flat or spherical, or whether said earth is 10k years old etc.
              and as such is getting a bit embarrassing even to try to form any kind of discussion around it.

              for the simple reason—there can be no discussion about the merits of what is being proposed or suggested above as some kind of science based theory or practicality.. No matter what level of “proof” is offered.

              Google flat earthers or Ken Ham to understand what I mean about ‘proof’

              I’ve tried humour, and I have avoided being dismissively rude–because everyone is entitled to a point of view

              But this is childish nonsense and has no place here.

            • unless of course it is one colossal windup—in which case I applaud your dedication

            • Kowalainen says:

              Keith & Gail,

              Elements will be transmuted using high-energy plasma devices. It is already done. Just crank up the voltage and current until the new elements are formed all over the periodic table.

              https://youtu.be/DTaXfbvGf8E

              Black holes and neutron stars… Mm, yeah.. 😉

              Now that’s some proper science fantasy. Zero division garbage in and Hawking fairy tale out.

            • hkeithhenson says:

              ” already done.”

              No doubt about it, but not practical.

              https://en.wikipedia.org/wiki/Synthesis_of_precious_metals

            • I have sold my gold shares in anticipation of the coming glut

          • Kowalainen says:

            Keith, google is your friend.

            “Josh Centers, from TidBits, estimates that each gold watch will contain 2 troy ounces (62.2 grams) of gold. So, based on the estimated sales figure, he concludes that Apple will need 746 tons of gold a year, or about 30% of the world’s annual production.”

            That is the Apple Watch alone. Take into account all other technical usage of gold such as ENIG gold plating of printed circuit board.

            https://www.mining.com/apple-buying-a-third-of-worlds-gold-to-meet-demand-for-iwatch-14071/

            It is a delusion to believe that there exist any ‘gold reserves’ to revert back to when the collapse, which will not happen, does not happen.

            It’s all used up in technical applications. The economic utility of gold in modern electronics far exceeds that of storing it in vaults.

            • DJ says:

              “may soon”

              “plans to start”

              “by his estimate”

              More chauvinistic software encoded google bullshit.

            • called:

              wish science
              wish economics
              wish politics

              very common among the great thinkers of this world

            • Robert Firth says:

              The average weight of an Apple Watch is about 40g. If it contains two ounces of gold, Apple have discovered Cavorite.

            • DJ says:

              This seems to be about a jewelry watch, maybe weighing 100g.

              Easy to steal, melt it and still worth $3000.

              Discontinued sep-16, according to same google who said they planned to soon may by estimate use up a third of all gold .

            • DJ says:

              If everyone bought their mistress a gold necklace every christmas we would soon use up all gold.

              Provided mistress doesn’t sell necklace and buy an eWatch .

        • Robert Firth says:

          Kowalainen, I respectfully disagree.

          In classical economics, money served two purposes: as (1) a medium of exchange and (2) a store of value. Modern economics looks only at the first, and ignores the second: why else would country after country try to increase the rate of inflation, ie to help destroy the ability of money to be a store of value?

          Now, almost anything can be a useful medium of exchange, because it requires only symmetrical agreement between buyer and seller. Cowrie shells, coffee beans, vending machine tokens, pieces of paper with pictures of important people, dead or alive. But a store of value can only be something that the owner believes will be accepted in the unknown future, when perhaps cowrie shells will not be much appreciated.

          And what might that store of value be? Behind your argument is Modern Monetary Theory, and John Maynard Keynes. Behind my disagreement is four thousand years of history.

          • Kowalainen says:

            Robert, it is a misinterpretation of the accounting scheme which is fiat money. Then the second misinterpretation is that money itself has value. It has none. It is a symbolic representation of actual and maybe possible transactions within the economy. Most money is also not used for circulating goods and services, it is used for shifting old ‘stagnated’, inert money into the hands of a more forward looking stewardship. Hence the desire to shift back into a gold backed currency where the value is ‘eternal’. But the gold you might ask, well let the Joker tell you where it is by the analogy of his pen in this scene.

            https://youtu.be/ssA_l5t-o7o

            The petrodollar placed the Energy, with capitol E into the accounting scheme. Thus we are now executing all transactions within a pure energy based economy where every transaction of significance is denoted in USD – Petrodollars.

            Thus every time the CB’s cuts the rate, they effectively demand more energy to be put into the system for increasing the amount, denoted as fiat currency which is the Petrodollar, of production of goods and services which can be circulated and produced using petroleum as its primary tour de force.

            Let’s read the words from late M King Hubbert:

            “The world’s present industrial civilization is handicapped by the coexistence of two universal, overlapping, and incompatible intellectual systems: the accumulated knowledge of the last four centuries of the properties and interrelationships of matter and energy; and the associated monetary culture which has evolved from folkways of prehistoric origin.

            The first of these two systems has been responsible for the spectacular rise, principally during the last two centuries, of the present industrial system and is essential for its continuance.

            The second, an inheritance from the prescientific past, operates by rules of its own having little in common with those of the matter-energy system. Nevertheless, the monetary system, by means of a loose coupling, exercises a general control over the matter-energy system upon which it is superimposed.

            Despite their inherent incompatibilities, these two systems during the last two centuries have had one fundamental characteristic in common, namely exponential growth, which has made a reasonably stable coexistence possible. But, for various reasons, it is impossible for the matter-energy system to sustain exponential growth for more than a few tens of doublings, and this phase is by now almost over. The monetary system has no such constraints, and according to one of its most fundamental rules, it must continue to grow by compound interest.”

            -M King Hubbert

      • DJ says:

        Die from overdose or withdrawal symptoms

      • We have lots of other promises besides debt. We now have derivatives, for example. Government pension schemes tend to be unfunded promises. Prices of shares of stock and prices of homes give the illusion that they can be sold, and the value be used to buy goods and services made with energy. That is temporarily true, but is not true in general. Far more promises have been made than can really be paid for with the actual resources in the ground. Diminishing returns is a huge problem.

  10. It's different this time around....YES says:

    Did Verld is kaput nutso…
    Americans are trying to get Denmark’s negative-interest mortgages
    BERLIN – Two weeks ago Jyske Bank, Denmark’s third-largest bank, shocked the world by offering mortgages with a negative interest rate. Put simply, the bank would effectively pay customers to borrow money. It’s a bit more complicated than that, however, as borrowers have to pay fees that offset the savings.

    The news got loads of attention, as people struggled to wrap their heads around being paid for something they are supposed to be purchasing. Consumers around the world wanted in on the action.

    The weekend following the negative mortgages announcement, Jyske Bank received 80-90 inquiries from Americans who wanted these viral mortgages.

    It’s all been rather amusing for Jyske Bank and its housing economist Mikkel Høegh, who has had to deal with all the attention.

    “What I have said to the Americans is that they have to have a Danish property to get such a loan,” Høegh told Yahoo Finance in an email. “Some of the Americans then asked if I could help them buying a property in Denmark. I can’t with that but we can help them with the funding if they get the house.
    https://finance.yahoo.com/news/americans-are-trying-to-get-denmarks-negative-mortgages-143832101.html

    Won’t be long now before the wheels fall off!

    https://m.youtube.com/watch?v=8guSoWOafkI

    If someone told me this would ever happen I would call the MAD!

    • Robert Firth says:

      “Put simply, the bank would effectively pay customers to borrow money. It’s a bit more complicated than that, however, as borrowers have to pay fees that offset the savings.”

      What a beautiful scam! Instead of making their profit over the 20 or 30 year life of the load, they make it up front. And can then bundle the mortgages and sell them to a greater fool, so pocketing 100% of the profit and transferring 100% of the risk.

  11. Pingback: Oil prices and the coming financial 'Ice Age' - Resilience

  12. It's different this time around....NO says:

    Good Morning, another Day another Doomer Story, how nice

    World’s Worst Bad-Loan Mess Set to Worsen on India’s Cash Crunch
    Rahul Satija and P R Sanjai
    https://finance.yahoo.com/news/world-worst-bad-loan-mess-023000807.html

    Bloomberg September 7, 2019

    World’s Worst Bad-Loan Mess Set to Worsen on India’s Cash Crunch
    (Bloomberg) — Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here.

    A prolonged shadow-banking crisis and hurdles in bankruptcy rules are set to keep India atop the world’s worst bad-debt pile, even as Italy, which held the title previously, quickens the clean-up of its lenders.

    Moody’s Investors Service to Credit Suisse Group AG. warned that more loans may sour in the Asian nation’s banking system. More than 2.4% of total loans in India’s banking system may be under stress on top of the 9.6% bad debt ratio as of June, the highest among major economies, Credit Suisse estimates shows. Italy, on the other hand, has nearly halved its ratio to 8.5% in the last three years.

    The failure to slash stressed assets is undermining India’s efforts to revive economic growth that has cooled to a six-year low. A cash crunch in the shadow-banking sector that started with the collapse of IL&FS Group last year and the delays in the bankruptcy process are adding to the challenges faced by banks as they seek to tidy up their balance sheets.

    “When the economy decelerates like this we will see non-performing loans go up,” said Saurabh Mukherjea, founder of investment advisory firm Marcellus Investment Managers Ltd. “You’ll see more bad loans come through as we approach the first anniversary of IL&FS meltdown.”

    Yes, indeed, I agree we will see more bad loans… Surprise… surprise….
    Pressure building

    https://m.youtube.com/watch?v=dA369GWrVRo

    • Thanks! This is a Robert Rapier article. He says, “Regardless, probably the only thing that can arrest the current slowdown is a spike in oil prices from current levels.”

      Right! If the prices are too low, producers stop producing!! This is the issue.

      • Rodster says:

        Dubai and the UAE are basically in recession and housing sales have slumped massively from low oil prices. Investors in shale are beginning to walk away due to low oil prices.

        • Harry McGibbs says:

          “Oil producers and their suppliers are cutting budgets, staffs and production goals amid a growing consensus of forecasts that oil and gas prices will stay low for several years.”

          https://www.reuters.com/article/us-usa-oil-slump/us-shale-firms-cut-budgets-staff-as-oil-price-outlook-dims-idUSKCN1VR15P

          • I looked up information on real estate in the Permian Basin, to see to what extent real estate is being affected. This article from August 1 says Midland Experiencing Housing Shift.

            “The oil and gas industry is slowing a bit and people are moving so raised supply and lower demand there is that you know shift that we were talking about,” said Pruitt.

            Now Pruitt said community member’s house hunting in Midland can expect more for sale signs to pop up and stay up for a longer periods of time.

            Back at the end of 2018, houses were sitting on the market on average of 33 days.

            Now houses can be expected to be listed for an average of 64 days. A change from even last week, which was 52 days.

            • Harry McGibbs says:

              I knew a fellow here on Islay who did well selling property in Alberta. The market crashed badly less than a year after oil prices crashed and he was back here by late 2015.

              The apocalyptic wildfires there that year in BC and Alberta probably didn’t help.

        • Harry McGibbs says:

          “Dubai is closer to emerging from a prolonged bout of deflation even as business conditions turn worse. Prices were “broadly unchanged” in August after output charges declined in each of the past 15 months, according to IHS Markit.”

          https://www.bloomberg.com/news/articles/2019-09-09/dubai-closer-to-vanquishing-deflation-but-economic-chill-sets-in

          • Inflation/deflation makes a huge difference to an economy. Debt in the country’s own currency needs to be paid back in the stated amount, even with deflation. Thus, a housing downturn make repaying home loans very difficulty for many buyers.

            It is hard to keep track of deflation on a country-by-country basis. Part of it has to do with relativity of the local currency to the dollar.

  13. Yoshua says:

    The European hit number one is…well there is not one…since no one is European.

    We are some European on this site…but we are strangers to one another.

    We Europeans are a bit strange… well…who isn’t.

    Anyway…this post was about nothing…just something that crossed my simple mind

    • Kowalainen says:

      Actually all Europeans share the main parts of the genome with the Kostenki man.

      “Scientists have sequenced a 37,000-year-old genome. The results show that present-day Scandinavians are the closest living relatives to the first people in Europe.”

      “Actually, he is closer to Danes, Swedes, Finns and Russians than to Frenchmen, Spaniards and Germans”

      “Previously the impression was that our forebears lived in separate populations and had children within the group, instead, Willerslev now paints a very different picture consisting of one large meta-population.
      A meta-population consists of several populations which mate with each other.
      The meta-population is connected through the neighbour’s neighbours, consisting of people who generally resemble each other a lot, but who also have their own unique traits.
      “It was a huge, complex network, and not separate branches that lived in isolation,” says Willerslev.
      He believes the Europeans must have been one enormous meta-population stretching across Europe, the Middle East and Central Asia.”

      https://sciencenordic.com/ancient-dna-denmark-dna/scandinavians-are-the-earliest-europeans/1410116

      Behold you late comer into the history of Europe. Bow upon the true rulers of Europe.

      • Sven Røgeberg says:

        Interesting! From the article (dated 2014): «The Swedish scientist Pontus Skoglund from Harvard University, who was not involved in either Willerslev’s new study or that of Reich, published in September, also finds it quite convincing.

        “It’ll be interesting to see more tests done, and as a field we need the time to digest these conclusions. But for now, it looks as though it may well be true, in which case it is an extremely important result,” says Skoglund.»
        Are there news about how the work in this field is developing?

        • Kowalainen says:

          European ancestry, and shift from hunter-gatherers to more advanced civilizations incorporating agriculture and farming technology is being traced back to Göblecki Tepe. Dating back to 10th millennium BCE.

          Let me state that again: 10th millennium BCE.

          “The imposing stratigraphy of Göbekli Tepe attests to many centuries of activity, beginning at least as early as the Epipaleolithic period. Structures identified with the succeeding period, Pre-Pottery Neolithic A (PPNA), have been dated to the 10th millennium BCE.”

          https://en.m.wikipedia.org/wiki/Göbekli_Tepe

          The history books have to be rewritten. Our history is significantly older and more technologically advanced than what we know today.

          https://youtu.be/Lagy_VAgHBg

          For all engineers and scientists dwelling here, what does those “devices” appear to be?

          https://youtu.be/ZyfE3IvDWR8

          😉

          • The first of the articles mentions that Jerico was roughly contemporary to the Göbekli Tepe. Shouldn’t it be included, too? Admittedly, there were nicer carvings at the Göbekli Tepe.

            We also know/strongly suspect that there are cities buried under the Sahara Desert.

          • Pintada says:

            “For all engineers and scientists dwelling here, what does those “devices” appear to be?”

            A scam?
            A joke?
            Random junk?

            Yes.

          • Robert Firth says:

            Electricity in Ancient Egypt? The Great Pyramid an anticipation of Tesla’s wireless power scheme? Great science fiction. Well, no, bad science fiction, by Leigh and Walt Richmond.

            There is a perennially hilarious US based TV show called “Ancient Aliens”. Anything we cannot explain was created by aliens. Even competent rulers were aliens in disguise (one program even claimed that about Nefertiti). Another attributed the Antikythera Machine to aliens, even though Poseidonius described similar machines as having been invented by Archimedes of Syracuse. (But maybe he was a space alien)

            My alternative explanation is that these strange artefacts were built by hedgehogs. After all, we have ample evidence for the existence of hedgehogs, and none for the existence of space aliens, so my theory is surely far more plausible, …

      • Yoshua says:

        A follow up on that article. Some 7 thousand years ago a new mix took place. Pretty much what is taking place today.

        “The new findings have shown the researchers that the Europeans are the descendants of at least three population groups; the original hunter-gatherers, farmers from the Middle East, and the new Northern Euroasiatic population group.

        They are able to prove that groups in our prehistory were much more genetically diverse than Europeans are today.

        “Present-day Europeans are surprisingly genetically homogenous. There is not one genetic component that is only found in certain populations,” says Krause. “7000 years ago, farmers and hunter-gatherers really were genetically different peoples.”

        The genetic differences have also been reflected in appearance, with fossil DNA now bringing to light Central European hunter-gatherers with dark hair, dark skin, and blue eyes (a combination that is practically non-existent today) and farmers with dark hair, brown eyes and light skin and also hunter-gatherers in Sweden with a “European look” of light skin and blue eyes.”

        • Xabier says:

          Fascinating. Unlike migration into Europe today, those distinct groups – farmers and hunter-gatherers – were intelligent and highly competent in their own spheres, not unskilled and imported by the owners of capital to keep up demand in a failing economic system……

          • DJ says:

            Those arriving today seems more than capable of surviving and reproducing in europe.

            • doomphd says:

              largely undoing the result of the victory at the gates of Vienna and the lucky break earlier when Kubla Khan decided Europe was not worth conquering.

            • DJ says:

              Imagine that- in one generation the gregory clark capitalism enabling gene could be wiped out from europe along with the natural resources required for progress.

            • hkeithhenson says:

              “capitalism enabling gene”

              Wasn’t one gene, whole bunch of them for qualities such as intelligence, literacy, numeracy, willingness to put off rewards and drive to work long hours. Not long ago there was a UK study that found a bunch of genes associated with economic success.

            • Ed says:

              DJ is right the new immigrants are better at reproducing. They win the evolution game.

            • Kowalainen says:

              Ed, did ants “win” the evolution game because there are more ants than humans on earth? There are an estimated amount of 100 trillion ants on earth.

              What has been achieved with the unfettered mass immigration is to grow the total GDP at the expense of GDP/capita. It is beneficial for the thoroughly corrupt and nepotist Swedish state and their cronies in the big business interests. The deluded and thoroughly brain washed homeowners believing the hoax of the welfare state, their homes perpetually increasing in value, continuing, I repeat that, continuing to voting for the erosion of their own liberty and prosperity. The Stockholm syndrome never leaves the sect members, which is the offspring from despots and their lackeys, which has become Sweden.

              The true “Swedish” story speaks a different story. For example, look at the USD vs the SEK over a 10-year period and now prepare for the irreversible plunge as the municipalities in Sweden have to borrow to finance their obligations, mostly as welfare payouts to unemployable immigrants and their large families.

              Swedish readers with some savings denoted in Swedish currency should immediately shift their assets to USD. When sh1t hits the fan over in Gretaland, it’s going to be bad. Look; nobody will care about the IKEA furnished, mass produced Potemkin facades in the soulless villa suburbs. Inhabited by equally soulless worker drones of the supposedly “perfect” Swedish socialism as marketed by the Swedish Institute.

              How I will laugh at the unfolding tragicomedy.

            • When I visited Sweden, I remember hearing about the idea that we could change the world economy to a circular economy, pretty much like a perpetual motion machine. In fact, the people “pushing” this view really believed the plan could happen.

            • hkeithhenson says:

              There is no reason why an economy that recycles materials will not work. On a very large scale, that happens for all the living things on earth and has been deeply considered for space colonies.

              Of course, it takes energy to grow food and reprocess everything else. But do keep conservation of mass in mind.

            • Recycling very often takes quite a bit more energy than mining new supplies and using them directly. So it needs big subsidies. This is something people don’t understand. By the time we are working with todays complex equipment, the various scarce metals are used in such tiny quantities, often in alloys, that the process of getting materials back is horribly expensive. Unless a tax in put on this equipment when it is sold, there is essentially no way to fund this recycling process. This is one of the big issues that is missed in EROI analyses.

            • hkeithhenson says:

              “So it needs big subsidies.”

              Or very cheap energy, or more efficient ways to sort out the mixed trash.

              “no way to fund”

              Not yet. But as far as I know, nobody has asked the engineers for a cheap solution. It can’t be that hard when you considered the natural processes that made ore deposits in the first place.

            • I heard a talk about this issue once. The dispersion of the metals in the devices we have created adds a whole new set of issues that must be solved in order for the minerals to be used again. There is no reason to believe that the cost of getting these minerals back will be inexpensive. For example, one of the solar panel articles said that the only way that it was possible to identify which panels included which minerals was by looking up the serial number in a data base. I am sure that reprocessing phones and computers comes close to having the same issue. Many of the minerals are toxic to humans. There are lots of details to be worked out. It is not a “one size fits all” solution.

            • hkeithhenson says:

              “lots of details”

              Agree on that point!

              But most of the minerals we want to sort out came from hydrothermal deposits (i.e., hot, high pressure, saltwater). The process continues to this day with the “black smokers” that vent hot water full of minerals near the ocean ridges.

              It might take locating the reprocessing systems deep in the ocean to get the pressure. But the main point is that the chemistry looks feasible and the energy requirements don’t look excessive. Also, as far as I know, this has never been presented as a design to cost project.

            • i look in my recycling bin and the reason for subsidy becomes obvious.

              every 2 weeks, a huge truck comes along and carts way mostly fresh air

            • recycling stuff in the deep oceans

              that has to be one of the best headbangers yet

            • Kowalainen says:

              The populace will believe anything the state shoves down their throats. Just about any slogan, and PR gimmick such as Greta, will do perfectly as fine. As long as the message is of Sweden’s supposed superiority.

              The only thing circular in Sweden is the soulless masses of pretentious backslappers placed in the circumference around the hub of a deeply corrupt state.

              Gail, would you agree that Sweden is a bit creepy in the sense that Tim Pool portrayed?

              https://youtu.be/M06w0xoJguA

            • I don’t think I would go quite that far. People are pretty much the same the world around. They try to find solutions, however they can, even if they have to perform a great stretch to get there. Most of them don’t really understand the story too well themselves, so they are willing to believe that someone’s model of how the economy works will be perfectly suitable.

            • Dennis L. says:

              Is it possible that not having children leaves couples with less skin in the game? Feminists are so gung ho on careers but at the end of a lifetime of work, it was still a job and upon reflection I find the most satisfying part was the relationships with people with whom I worked. With luck, children go on forever, at retirement and within a few years most people go their own ways be it living in a different state, spending winters in the south(assumes a northerner), etc.
              Jobs are also so intense, clinicians here seem to have 50 hour weeks as full time and anything there after is unpaid overtime. That is a heck of a pace when the fifties approach or pass. Grandchildren can for the most part be sent home with their parents, a true part time job.
              Is it possible that the apparent and reported decline in happiness among Western women and probably men has resulted in a loss of enthusiasm for the civilizations that produced those opportunities?
              Dennis L.

            • doomphd says:

              “It might take locating the reprocessing systems deep in the ocean to get the pressure.”

              somebody needs to introduce Keith to a pressure cooker, shown elsewhere on this post commentary.

              also, not all ore forming processes are hydrothermal. some ores come from evaporate deposits, ancient lakebeds, etc. some, like chrome, come from igneous concentrations of minerals at the bottom of frozen magma chambers.

            • hkeithhenson says:

              “pressure cooker”

              Going into the deep ocean is just a cheap way to get pressure. Pressure lets the water get hotter without boiling.

              Pressure vessels are a major expense.

              Otherwise, I agree with you about ore formation.

            • doomphd says:

              “Pressure vessels are a major expense.”

              their cost would be trivial compared with the expense of doing anything in the deep ocean. there, you have to keep high-pressure, corrosive fluids (especially hydrothermal vent fluids) from entering the equipment. you have to use titanium if you expect to do business there for any length of time.

        • Sven Røgeberg says:

          Thanks, Yoshua! Do you have reference?

        • aaaa says:

          or maybe it is just appeal-to-genetics bullshit science

  14. Senecas Cliff says:

    GE purchased their windpower business, including all the designs and blueprints, from Enron when Enron went bankrupt. Enough Said.

  15. https://www.reuters.com/article/brazil-ge/ge-investigates-new-wind-turbine-collapse-in-brazil-idUSL5N25W64T

    GE Investigates new wind turbine collapse in Brazil

    On Tuesday, a GE wind turbine fell to the ground from its tower at the Delta 6 wind farm in Brazil’s northern Maranhao state. A worker is being treated for injuries.

    Two months ago another turbine made by GE collapsed in Brazil when its tower broke in half. There have been three such collapses of GE wind turbines in the United States this year.

    By my count, that comes to five GE wind turbines collapsing during 2019, for no apparent reason. We know that GE has been having financial difficulties. Has it been cutting corners in the specifications for its wind turbines?

    • Robert Firth says:

      Gail, thank you for the heads up.

      I followed a few references, and it seems to be the problem is not with finance, but with engineering. Here is a quote from a news feed:

      “Reports indicate that blade detached from the turbine due to strong winds topping 100 km/h, which caused the turbine to lose stability and crash. Wind speeds in the area usually range between 8 and 12 meters per second.”

      The physics implies that it was the force on the turbine that collapsed the tower. But note
      how it is reported: two different units for the resistance and the force. Giving the impression that a resistance of 100 km/hr can easily resist wind speeds of 12 m/sec.

      Do the math: 12 m/sec is 43 km/hr, so a wind twice as strong as the “usual” is within 16% of the structural limit. Not a safe margin, given the unpredictably of weather. So, once again, the problem is not finance, but Hubris.

      • But if they had built stronger towers, with safer margins, it would have taken more materials and thus would have cost more. Their engineers should have been looking carefully at the margins they were building in.

        • hkeithhenson says:

          “stronger towers, with safer margins,”

          From the stories, my guess would be poor quality control, particularly the welding or possibly the quality of the steel plate used.

          It is really amazing to see one of those windmill towers being manufactured. Takes *one* guy and a huge bending machine.

      • Another issue affecting revenue is the shift toward providing wind and solar only though auctions, with the lowest cost bid winning. If a company wants to win auctions, it needs to keep prices to a minimum. The way a company keeps prices to a minimum is by cutting safety margins to a minimum and buying metals from other suppliers at the lowest possible bid (and not checking too closely that products bought from others really meet strength and other requirements).

        A person would expect both wind and solar quality to drift downhill, when supplies are provided under auction. Lifetimes would likely shorten. The share of devices that need to be replaced would likely rise.

        • Robert Firth says:

          Good point. I remember a similar problem when I worked for UK Ministry of Defence. Technical procurement was based on tender, and the tenders submitted when through a two step process. The first step verified that what was tendered would do the job. The surviving bids then went to the second step, which selected the one believed most cost effective.

          The potential contractors gamed this system in a simple way: they submitted a technically adequate proposal to step one, and then covertly substituted an inadequate, but cheaper, one for step two. Which, of course, the bean counters of step two didn’t notice, having no technical expertise. (Of course, they were a higher pay grade than those with technical expertise, for precisely that reason. Ah, the good old English caste system).

          This scam was pulled in a procurement for the organisation I worked for, so a colleague and I documented the bait and switch in detail, and escalated it to a senior official in Procurement Executive who had a head on his shoulders. For once, a happy ending.

  16. rjsigmund says:

    your first graph shows global oil supply…this table from the same report show global oil demand estimates for 2019: https://rjsigmund.files.wordpress.com/2019/08/july2019opecreportglobaloildemandcopy.jpg
    you’ll note that third quarter demand is 2 mbpd, or 2% greater than July’s supply.

    • The third quarter demand figure in the report might be characterized as a guess. Or maybe wishful thinking. The thing we know for sure is prices. They fell in July and August.

      • rjsigmund says:

        certainly OPEC’s 3rd quarter demand figures can be characterized as a guess, but they are an educated guess…OPEC consults reports from the IEA, Platts, Argus, ‎the U.S. EIA, CERA and Petroleum Intelligence Weekly before they make their estimates, so i’d consider them as reasonable as any…& probably moreso than any other the others, because OPEC must maintain credibility if their reports are to be taken seriously…

        i agree with your premise, that supply has little impact on prices, but i would suggest a corollary that demand also matters little… i am interpreting your post to suggest that you think affordability, a stand in for demand, is the crucial factor for oil prices…that’s a misunderstanding common among those with an economics education, because it’s assumed to be true without further investigation…the fact is, none of the agents of the physical supply or demand for oil have much of an influence on its price; neither the producer, the refiners, nor the buyers of the final products…oil prices, moreso than prices for any other commodity, are set by speculators in New York, London, and other financial centers where oil contracts are traded, simply because their influence is so much greater than any party handling the physical commodity….on most days, the electronic trading in oil contracts on NYMEX exceeds the weekly physical production and movement of oil by more than a hundredfold; and as a result decisions by those oil traders has a much greater impact than oil’s supply, demand, or affordability….sure, those traders take supply and demand data into account when they’re buying or selling, but from my observations of the oil market over the past half dozen years, factors such as the latest tweet by Mr Trump have a greater impact on oil than any of those things economists believe about price…

        • The models of economists do not have turning points in them. There are no limits. It doesn’t matter who OPEC consults with, the organizations all base their views on the assertion that demand can and will expand indefinitely.

  17. It's different this time around....NO says:

    The stable genius strikes again!
    The tariffs ‘eliminate all remaining economic gains from the administration’s deregulation actions’
    The $2,031 number is higher than other estimates because tariffs keep increasing.
    In May, the New York Fed estimated a $831 cost to households from tariffs. J.P. Morgan estimated that tariffs that went into effect on September 1 would cost American households up to $1,000 per year. Additional tariffs on China went into effect on October 1, and more tariffs are set to kick in on December 15.
    “If all tariffs threatened by the Trump administration are imposed, combined with the current tariffs in place, the annual cost to U.S. consumers would be $461.1 billion and the cost for the average household would be $3,614,” the report stated.
    https://finance.yahoo.com/news/trump-tariffs-cost-2020-research-151755274.html?bcmt=1

    Trump should seek another running late for re-election! What is Pence going to do now!?

    • Robert Firth says:

      Ah yes, the NY Fed and JP Morgan. Committed globalists who serve the ultra rich elite and despise the common worker. Now they would never, never, fudge the numbers, would they?

      • It's different this time around....YES says:

        Of course not, the economy is strong and no recession is expected this year or next, as far as they can see. Trariffs, like deficits, don’t matter none. It gets paid for by somebody else!
        Actually, from what I see, living is getting cheaper everyday!
        https://m.youtube.com/watch?v=jLo7tHDHgOc

        Life is good and there are plenty of pawn shops and Dollar stores taking the place of retailers closing up!

  18. It's different this time around....NO says:

    Open for Business…bring your own mosquito tent and water!
    Tourist-dependent Bahamas says it’s still open for business
    DEE-ANN DURBIN and ADRIANA GOMEZ LICON
    Associated PressSeptember 7, 2019, 1:58 AM EDT
    The Bahamas was on track for a record year of tourism before Hurricane Dorian hit. Now, the outlook for that vital sector is uncertain.
    Some of the best-known resorts in the 700-island chain, like Atlantis, Paradise Island, were unscathed by the monster storm. So was Nassau, the largest city.
    But 100 miles away, on Grand Bahama Island and the Abaco islands, many smaller hotels and vacation rentals were damaged or destroyed. That leaves the Bahamas with a double challenge: convincing tourists to keep coming without trivializing the suffering on the affected islands
    The Bahamas depend heavily on tourism, which supplies half their annual gross domestic product of $5.7 billion, according to the Bahamas Investment Authority. By comparison, tourism brings in 20% of Hawaii’s annual GDP and less than 3% of the GDP of the United States

    Sounds like we wiill have many more new arrivals here in South Florida, where I live!
    Half the economy depends on Tourism dollars….well now those poor folks.
    If I were you I would build the next raft out to Miami!

    • I suppose a cruise ship might stop at the Bahamas, if this were one of many scheduled stops, and the trip onshore only involved buying a few trinkets as souvenirs. But it is hard to see why someone would want to book at trip to a luxury resort, unless they were certain that the resort was in good shape and could obtain all of the supplies it needed.

  19. It's different this time around....NO says:

    Oh, didn’t this happen a long, long time ago in the 1930’s? Except there were many more family famers! Incorporate to a Giant Megafirm or get out!
    Back YahooNEWS
    More Dire News For Trump In The Heartland: Past-Due Wisconsin Farmer Loans Hit Record
    Mary Papenfuss
    Mary Papenfuss
    HuffPostSeptember 7, 2019, 4:17 AM EDT
    President Donald Trump’s farm belt popularity likely took another hit Friday with news that Wisconsin farmer loan delinquencies hit an 18-year record high in June.

    The past-due loans are a serious sign of the financial struggles taking a toll on farmers amid Trump’s trade war with China that he insisted would be easy to win.

    The share of farm loans that are long past due rose to 2.9% at community banks in Wisconsin as of June 30, according to a Reuters analysis of loan delinquency data gleaned from the Federal Deposit Insurance Corp. That’s the highest rate in comparable records that go back to 2001.

    Rural support was critical to Trump’s presidential victory, but it’s unlikely to hold if voters lose their farms and livelihoods to the trade war. Wisconsin is a battleground swing state that went for Trump by fewer than 23,000 votes. He won Michigan by fewer than 11,000 votes.
    Trump has arranged a mammoth $28 billion subsidy from taxpayers for farmers to help them survive the trade war, but many say it won’t be enough to make up for markets they have lost — possibly forever…..Aides spelling out farmer anger over the waivers told a stunned Trump last month that he has a “problem” in Iowa, Reuters reports.

    28 Billion subsidy!? Sounds and tastes like Socialism to me….

    https://m.youtube.com/watch?v=jyCDK7E35yk

    But hey, who ever listens and actually believes what a politician says!?

  20. It's different this time around....NO says:

    Hello, Good Morning Everybody! Did you enjoy your Orange Crush at the table yet?
    Suicide rates are on the rise, especially in rural America, according to a study published Friday.

    From 1999 to 2016, the rate of suicide among Americans ages 25 to 64 rose by 41 percent, researchers reported in JAMA Network Open. Rates among people living in rural counties were 25 percent higher than those in major metropolitan areas.
    A number of factors appear to be driving suicide rates up in rural America, including poverty, low income and underemployment, said lead study author Danielle Steelesmith, a postdoctoral fellow at Ohio State University’s Wexner Medical Center.
    “Those factors are really bad in rural areas,” said Steelesmith
    https://www.nbcnews.com/health/mental-health/suicide-rates-are-rising-especially-rural-america-n1050806
    The study also found that counties with high levels of social fragmentation — based on the levels of single-person households, unmarried residents and transient residents — and a high percentage of veterans had higher rates of suicide. All of those factors were more pronounced in rural counties.
    The presence of more gun shops was also associated with an increase in suicide rates in all counties, except for the most rural ones, the researchers reported
    Suicide “is a growing American tragedy,” said Dr. Albert Wu, an internist and a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health. “It has become a leading cause of death in the U.S., and is a major public health problem

    What till the wheels fall completely off the gravy train!….We’ve seen nothing yet!
    Suppose many in the rural parts already have that happened to them.

  21. CTG says:

    Cheap fuel (food) for thought…

    https://www.zerohedge.com/news/2019-09-06/european-gas-prices-plunge-10-year-low

    Storage as of 2 Sept approx 93%

  22. Forbes has a great article out called, Renewables Threaten German Economy and Energy Supply, McKinsey Warns in New Report

    But McKinsey issues its strongest warning when it comes to Germany’s increasingly insecure energy supply due to its heavy reliance on intermittent solar and wind. For three days in June 2019, the electricity grid came close to black-outs.

    “Only short-term imports from neighboring countries were able to stabilize the grid,” the consultancy notes.

    As a result of Germany’s energy supply shortage, the highest observed cost of short-term “balancing energy” skyrocketed from €64 in 2017 to €37,856 in 2019.

    “It can be assumed that security of supply will continue to worsen in the future,” says McKinsey.

    Also

    German consumers have paid dearly for the energy transition. German electricity prices are 45% above the European average, McKinsey reports. Green taxes account for 54% of household electricity prices.

    The McKinsey report is in German. https://www.mckinsey.de/branchen/chemie-energie-rohstoffe/energiewende-index

    • It also tends to destabilize their neighbor’s grid, who must invest in additional “overflow” blockage workarounds..

      • Robert Firth says:

        Which is even more bad news. Germany’s first resort for more electricity supply is Belgium and The Netherlands: there simply isn’t enough “bandwidth” to get it from anywhere else. And both those countries have embarked on their own push for renewables.

        Given their geographical proximity, it is quite probable that a weather event that affects Germany’s renewables will also affect theirs. They are in the same leaky boat, or should I say Ship of Fools?

  23. milan says:

    Great video of the demise of Canadian Steel to China?

    CRAZY???????????? IGNORANT POLITICIANS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    Trudeau’s $42 billion Chinese steel project will cost thousands of Canadian jobs | Ezra Levant

  24. Rodster says:

    Gail, it looks like JHK has been reading your articles.

    “All the abiding normality of the past seventy years is slipping away into flux. Modernity is finally yielding – to what? Nobody knows. And nowhere is this more obvious than in the realm of money and economy. Beyond all the other quarrels of modern times — democracy versus communism, Islam versus the West, the wealthy north versus the poor south — one thing remained pretty steady: the flow of oil into the engines of economy. Turned out, the world didn’t have to run out of oil for that normality to fray badly; the oil just had to become marginally unaffordable, and voila! It’s hard for people to grok, especially here in the USA with oil production so far above the old 1970 prior peak that the proposition seems absurd.”

    https://kunstler.com/clusterfuck-nation/unsettled-weather/

  25. Yoshua says:

    A Eurozone bank had to borrow almost USD 1 Billion from the Fed yesterday. European banks can’t function without dollars, so the Fed is the lender of last resort to European primary dealers as well.

    The euro almost collapsed during the euro crisis. It was saved in the last minute by the Fed through a swap line.

  26. The WSJ has an article, China’s Central Bank to Free Up $126 Billion for Lending
    People’s Bank of China to reduce amount of reserves commercial banks are required to keep with it by half a percentage point

    The text makes a person wonder how helpful this reserve reduction will be. It says,

    Friday’s half-point reduction in the reserve requirement was the third such move this year and lowered to 13% the amount of reserves China’s largest banks are required to set aside. Smaller banks have lower set-aside requirements.

    • Hubbs says:

      Not much, but they can’t be too obvious about their reportedly (Kyle Bass) financial straits, embarrassingly due to a shortage of dollars to finance their dollar-denominated debts. This shortage may have been exacerbated by massive derivative bets that the dollar would depreciate as they borrowed in dollars. In this day and age, you can never assume that is a safe bet. Ask the other EMs.

      But, but, but, China holds over a trillion dollars of US Treasuries you may say.
      Apparently, this may not be enough.

  27. Duncan Idaho says:

    Hint: We have 7.7 billion people in a collapsing ecosystem.
    Te rest is just fluff and noise.

    • Dennis L. says:

      That is succinct.
      Dennis L.

    • hkeithhenson says:

      “collapsing ecosystem.”

      Exactly. Does the human race have enough collective smarts to get us out of the mess or not?

      • Davidin100millionbilliontrillionzillionyears says:

        not…

      • Xabier says:

        As there is no such thing as collective intelligence; and as if it existed we wouldn’t be in this mess, the answer to that question must be far from positive.

        The best we can manage is that comparatively very few people among the 7.7 billion can arrive at an understanding of what is happening,but must be powerless to do anything about it.

        • DJ says:

          Even if all 7.7B understood.

          We would all wait for someone else start doing whats necessary. And since this involves unpleasant stuff, and a die-off, all 7.7B would just wait, and hope for more years and depart without too much suffering. Same as if only a few were aware .

          • collective intelligence can quickly become collective inertia

            • Kowalainen says:

              Is there a thing such as a “collective intelligence”? Delusion perhaps?

            • intelligence and delusion can be exactly the same thing

              It’s always a mistake to expect or specify any level of intelligence in anyone.

              Hawking proposed spreading humankind across the universe. A perfect example of intelligence and delusion in equal measure.

              No means exists by which it can be done. Any means that might facilitate it depends on our current industrial system, which is by comment consent, in terminal decline

              so cannot support such an enterprise. (insufficient energy)

              Not that such logic will alter existing delusions.

            • hkeithhenson says:

              “No means exists by which it can be done.”

              You are not well-read on this subject. See https://en.wikipedia.org/wiki/Starwisp

              https://en.wikipedia.org/wiki/Breakthrough_Starshot

              https://en.wikipedia.org/wiki/Project_Daedalus

              “so cannot support such an enterprise. (insufficient energy)”

              Have you looked up in the sky recently? The sun puts out enough energy to launch 1500 tons per second to near light speed.

              If human-derived entities go, they can slow their perception of time. At 10 exp -8, they can cross the galaxy in a subjective 8 hours.

              Also, Google “far edge party”

              https://www.everything2.com/title/Far+Edge+Party

              “One of the main problems of exploring the stellar systems of the galaxy even for very advanced civilizations is that a serial journey even at the speed of light would take so long time that most of the stars would have died during the journey. One solution is to parallelize the problem: the explorer travels to a new system, creates a number of copies (xoxes) of himself and sends them to other systems, while he remains behind exploring the system (this is a variant of exploring the galaxy using von Neumann machines). After around 10 million years, when all of the galaxy has been explored, the explorers gather together at a prearranged place, and exchange or merge their memories (‘The Far Edge Party’). This was proposed by Keith Henson as a possible method for a single individual to visit all of the galaxy within a reasonable time.”

              For an imagined account of a Far Edge Party, keep your eyes open for Ed Regis’ Excerpt from the Great Mambo Chicken.

            • “the explorer travels to a new system, creates a number of copies (xoxes) of himself and sends them to other systems, while he remains behind exploring the system”

              This sounds a bit unlikely to me.

            • hkeithhenson says:

              “a bit unlikely to me.”

              I didn’t write that part. But it’s an old idea https://en.wikipedia.org/wiki/Self-replicating_spacecraft

            • the fact that something can be imagined is sufficient to morph fantasy into reality

              at least in cyberworld or wherever

              I am now going to pick up my paintbrushes and imagine I can paint like Rembrant

            • hkeithhenson says:

              If any of you want to read what I wrote nearly 30 years ago “Nanotechnology and Megascale Engineering (or Party Animals Loose in Space!)” is the last post in this newsletter.

              https://www.cs.cmu.edu/afs/cs/usr/mnr/st/std076

            • Kowalainen says:

              Industrial Civilization is indeed in decline now since it is founded on a dominance scheme.

              Decadence, obscurity and dogma eventually sets in as the dominators eventually seeks to eradicate rationality, rule of law, liberty, creativity, ingenuity and equal opportunity, by any means possible to assert and maintain power. Transforming the whole thing to a human centric sect-like system of centralized brutality maintained by the bought and paid for lackeys (in government and media).

              Nature does not lord over anybody. It has no ruler, no king. It is an order the system itself strives for, in its infinite wisdom to gradually eradicate missteps and bad expressions from the gene pool by relegating them to irrelevance.

              You must view the implicit workings of the system as its intelligence. For example; the collective “intellect” of ants (and humans in extension) does not explain the system which is the ant colony. It emerged from the evolutionary process as an interrelated system of distributed components together with its environment. The same is true for the economy as it transforms itself to an interrelated set of components which assembles into productive units of goods and services connected to a distributed and networked computer system.

              See, Norman, yet again you fall into the trap of human chauvinism and fail to see the inevitable process of nature which will eventually purge out the worst of monkey brain excesses as it seeks to continue the process of evolution by whatever means necessary.

              And just like you Hawking was an chauvinist dreamingly placing humans in space ships racing to the stars. As if the singular entity, a human, or a group of humans, can exist without the system from which it originates. The same holds true for Elon’s grand plans building a a manned base of death and misery on Mars.

              The continuation of mankind will be a space born network of computers expanding radially out from the solar system once mankind and our AI’s masters the capability of reproducing the processes of nature represented as synthetic entities suited to the vacuum of space and atmospheres with no oxygen.

              Perhaps will Keith’s microwave beams will be the first step in powering these devices as they mine away in the asteroid belt and on the planetary surfaces to “reproduce” and express their machine genome. It is true since matter can be transmuted into other elements by adding energy. And it is certainly no lack of that radiating from the sun, at least not in the foreseeable future.

              Now, what did you conclude from the hypothetical discussion we had 100 years ago?

              😉

            • i must try to be generous and assume you are winding me up

              always hard to tell on here—unless you are the reincarnation of Stephen Hawking.?

              if not, I wonder how many lols Gail will allow me to have in this window

            • hkeithhenson says:

              “eventually purge out the worst of monkey brain excesses”

              This has happened, at least twice. Between the rise of agriculture and the rise of states, there was such intense selection that it left a strong signal in our genetics.

              “https://www.laboratoryequipment.com/news/2018/05/stone-age-wars-made-genetic-bottleneck-men

              “At the dawn of civilization, just as clans of Stone Age peoples were banding together to form increasingly complex societies about 7,000 years ago, a strange thing happened.

              The men began to disappear.

              At least their lineages did. A genetic bottleneck in most corners of the Eastern Hemisphere meant that roughly one genetic variety survived out of 20, based on the genetic networks before and after the DNA collapse.

              The collapse was due to generation after generation of total war between male-driven clans, which meant the losers were essentially pruned from the family tree, removing their genetic futures from the rest of human history, according to a new study by Stanford University scientists.”

              The more recent strong selection period happened in the run-up to the industrial revolution in the UK, much of Europe, and China. This is in Gregory Clark’s work which I have previously referenced.

            • It seems like, perhaps at later dates, a pattern of one group taking another group as slaves could have a similar effect. James C. Scott in “Against the Grain” talks about large groups of people being taken slaves, and the men and women separated. The women were taken as wives and household servants. (The high rate of death in childbirth was given as a reason why more wives were needed.) The men were sent off to do heavy labor like building roads. This pattern would also seem to lead to the same lack of male genes, without having to kill off all of the men.

            • hkeithhenson says:

              “perhaps at later dates”

              The genetic data indicates that whatever was eliminating the males ended with the rise of states. Records before the rise of states are rare, but there is one story in the Bible that may be applicable. [11] Book of Numbers, from The Holy Bible, King James Version Chapter 31

              7: They warred against Mid’ian, as the LORD commanded Moses, and slew every male.

              8: They slew the kings of Mid’ian with the rest of their slain, Evi, Rekem, Zur, Hur, and Reba, the five kings of Mid’ian; and they also slew Balaam the son of Be’or with the sword.

              9: And the people of Israel took captive the women of Mid’ian and their little ones; and they took as booty all their cattle, their flocks, and all their goods.

              10: All their cities in the places where they dwelt, and all their encampments, they burned with fire,

              11: and took all the spoil and all the booty, both of man and of beast.

              12: Then they brought the captives and the booty and the spoil to Moses, and to Elea’zar the priest, and to the congregation of the people of Israel, at the camp on the plains of Moab by the Jordan at Jericho.

              13: Moses, and Elea’zar the priest, and all the leaders of the congregation, went forth to meet them outside the camp.

              14: And Moses was angry with the officers of the army, the commanders of thousands and the commanders of hundreds, who had come from service in the war.

              15: Moses said to them, “Have you let all the women live?

              16: Behold, these caused the people of Israel, by the counsel of Balaam, to act treacherously against the LORD in the matter of Pe’or, and so the plague came among the congregation of the LORD.

              17: Now therefore, kill every male among the little ones, and kill every woman who has known man by lying with him.

              18: But all the young girls who have not known man by lying with him, keep alive for yourselves.

            • I seem to recall that De Mille made a movie out of that back in the 50s

              lots of slaying and all the rest of it.

            • Even at a much later date, Herod was demanding the killing of boys under the age of 2.

              If it is lower population that a country wants, killing (or discouraging the births of) baby girls makes a whole lot more sense. But if a group of people is having difficulty maintaining population, young girls will be valuable, and thus kept. Feeding a large number of women past childbearing years probably would be a burden too.

            • hkeithhenson says:

              “women past childbearing years”

              That does not seem to be true in all cases. Some years ago there was a study based on Finish parish records. Turned out that a grandmother allowed a woman to have one more child on average than one without.

              It also turned out that grandfathers didn’t have any effect.

            • Kowalainen says:

              Thanks Keith, I will read them.

              Indeed left behind, or perhaps they ran to the hills, were the men (and naturally plenty of women) who find war and killing repulsive from a emotional and moral standpoint. Thus the birth of the proto-nerd who ponders about the workings of nature and concerns about survival instead of seeking cheap thrills and satisfaction in dominating others.

              The leftover aggressive/dominator garbage genes can easily be spotted among the degenerates, sociopaths and the crazies in the extreme regions of the political spectrum. The left/crypto commies stands out in particular. But it is not isolated to these people. We all carry signal of this mental disease and it should be kept in check by careful introspection and perhaps meditation.

              And it must hurt since their lack of intellect and original thought will soon render them totally irrelevant as the technology continues to be implemented everywhere and nowhere at the same time, at an ever increasing pace, even more highly abstract and hard to grasp for the simple minded dullards.

            • hkeithhenson says:

              “women who find war and killing repulsive”

              War and all this killing of men is partly the fault of the women. Or maybe we should just blame agriculture. We know that a given area being farmed (in a good year) can support about 100 times the number of hunter-gatherers. Agriculture, by providing more food, shortened the birth interval considerably compared to hunter-gatherers. The result was high population growth which ran into ecological limits such as arable land. This and the occasional crop failure set up a “kill the next clan over and take their resources or starve” situation. The genetic data indicate this went on for around 2000 years, ending with the rise of states.

              Why the rise of states ended the patrilineal carnage is something I don’t understand. Perhaps states that suppressed internal patrilineal fighting were more successful in fighting other states at the margins because they had more warriors. Or there could be some entirely unrelated reason such as disease holding down the population in states.

            • Kowalainen says:

              The state is an emergent ecosystem of mutual interdependence. Of course dominators will seek to control the state to the detriment of its inhabitants, such as the despots and lackeys of old times.

              Effective states/ecosystems does not seek to dominate others, but to grow its “genome” by expanding its connectedness to other states and forms of societal organization and cultures, such as Pax Americana.

              However, the state must have a strong ‘immune system’ towards aggressor states and internal corruption, which is led by dominators seeking to obfuscate the natural order to affirm its own archaic and obsolete genetic expression.

              It is an absolutely inevitable process of nature to eradicate all forms of dominator schemes. And the harder we resist it the more hurt we have to accept and prepare for.

              Let’s have a peek into the past:
              https://youtu.be/8AROlXFJVxc

      • Kowalainen says:

        Absolutely. The problem is the rest – the vast majority which makes the bulk of “us”.

        Total irrelevance awaits:

        https://youtu.be/GHc63Xgc0-8

        • Sheila chambers says:

          Dream on dreamers, so you expect ‘bots to replace humans?
          Where will the necessarry ENERGY come from????
          OIL is going away!
          There is also a raw material shortage looming in our near future, gotta fix for that too?
          Tunnel vision is crippling our ability to plan intelligently.

          Those fast, cheap ‘bots won’t be visiting ANY of your shops, services or businesses any time soon, only HUMANS would be interested in what you produce or the services you offer but if humans have no JOB, they too won’t be visiting your shop, services or businesses so how are you gonna PROFIT without “CONSUMERS?”

          For a temporary fix, tax the crap out of the uber RICH & transfer that wealth to the low income & poor so they can be that “missing” consumer but this is only a temporary “fix” & the laws of physics will still prevail in the end & collapse will put an end to our stupidity, greed & short sightedness.

          [I edited this for you Shiela. Gail]

        • DJ says:

          The uber rich doesn’t wanna get crap taxed, they will move their capital elsewhere.

          “Taxing the rich” really means taxing the higher income earners. That only works until the productive class loses incentive to work.

          It is about time to lower minimum expected living standard.

        • aaaa says:

          robots are just a meme to give capitalists more excuses to continue penalizing labor, labor , the most of which doesn’t even need to exist, since most economies are just fluff tech bullshit now

          • Kowalainen says:

            You seem to to entertain the idea that labor is something good? It is intellectual work in the arts, sciences and engineering which is good. The rest is drudgery best suited for machines.

            • We need to move our bodies. Sitting around using only our heads doesn’t really work. Our bodies are constructed in a way that they need to do physical work, if our bodies are to perform as they should. Having a whole host of labor-saving devices is not as good for us as it sounds. We should be walking to our destinations.

            • that needed saying

    • Tim Groves says:

      I look at the world a little differently. We have 7.7 billion people supported by a collapsing energy and resource base. There are many many ecosystems in the biosphere and some of them are doing fine while others are doing not so fine, depending on the judgment criteria employed.

      • Kowalainen says:

        Mankind is also an ecosystem. The problem is when this ecosystem starts to act in a detriment to the ecosystem from which it originates.

  28. Harry McGibbs says:

    “It’s the end of the world as we know it. The world is disintegrating, and much of the highly visible noise and chaos is a symptom of a much deeper problem…The postwar economic order was built on ever-increasing integration, and there is no precedent in modern history for how — or even whether — the global economy can cope with its opposite.”

    https://www.axios.com/global-disintegration-economy-1a57b1c2-44b0-42bd-9a05-f6790f43c03e.html

    • Harry McGibbs says:

      “The current state of the global economy is sending out alarming signals throughout the shipping industry, which is dependant of solid trade growth, in order to continue growing as well.

      “Should this current course is maintained, as is widely expected, shipping fundamentals could very well take a turn for the worse. “

      https://www.hellenicshippingnews.com/dangers-lurk-for-shipping-in-a-potential-global-economic-slowdown/

      • Harry McGibbs says:

        “We can probably go around in circles pointing the finger at what the main driver [for deflation] is, but it’s fair to say the headline shock and uncertainty aspect, along with tariff hikes and renegotiations have only compounded and added to the headwinds of monetary policy tightening last year.”

        https://seekingalpha.com/article/4290025-global-outlook-deflation-back

        • The thing that seems to be most important in this Seeking Alpha article is the black line in this chart. It seems to equated to something like an average interest rate on debt (paid by consumers?), given by the numbers on the left hand side.

          https://gailtheactuary.files.wordpress.com/2019/09/global-monetary-policy-map-topdowncharts.com_.png

          The description from the article is as follows:

          The first and most overlooked aspect is how significant the monetary tightening of 2018 was. You can see in the chart below a 9-month period where there were exclusively rate hikes. At the same time the ECB was tapering QE, the BOJ did stealth taper, and the Fed was doing quantitative tightening. The patient was taken off life support…

          Coming out of a world that had gotten used to ultra low interest rates and super easy money, this tightening of policy (and if you recall, a surge in bond yields) really took a bite out of the global economic cycle. And now central banks are furiously backpedaling.

          Yesterday, I linked to a chart regarding changes in governmental spending vs. tax levels–adding to their own stimulative effect. I think it is less significant. This is that chart.

          https://gailtheactuary.files.wordpress.com/2019/09/hutchins-center-fiscal-impact-measure-aug-2019.png

          This chart is strictly US, for one thing.

        • Dennis L. says:

          Harry,
          Lost my post, exec summary: cell phones up and going up, cable up and going up 8-10% per year, Hershey’s Kisses up, gasoline up, employment taxes up on base by $4,500, accounting up, education costs up(there are many more fees than tuition, I take courses at a local cc, tuition is 850 give or take for a regular student, fees $125 more, books are a joke, the addon to submit homework is another fee from the publisher, even garbage collection is up. These guys alpha guys are bs, if they knew anything about money they would make some and not need to write nonsense.

          Tariff hikes will increase consumer prices, not decrease them – they are environmentally friendly as less junk purchased results in less junk in land fills, which ironically increases the per unit cost of garbage removal as so much is fixed expense. They will result in more employment repairing and making robots to make this junk – if the employees with this level of expertise can be found; those employees will go out and tip better and even waiters will benefit, but eating out will be more expensive. Do I know what I am talking about? Nope, but it makes more sense and is close to street reality than all these jokers.

          If one wants to be analytical, take the bonds/stock used to support fracking, divide by the number of barrels produced to get a marginal cost of oil, adjust for the lower oil value and find what the btu/dollar really is. If someone is kicking in money at essentially no cost, the price of oil is higher than priced. Take away this supply and would the price go up? I don’t have a clue but a good guess would be yes for a year, a corollary might be they are doing the same thing to oil that renewables do for electricity, driving down the price of gasoline from conventional oil which is needed for diesel, again, a guess.

          Looking over spot prices, oil seems to be up about 25% over the past three years, with all the fixed costs this would seem a reasonable trend, maybe not.

          I am more than a bit frustrated with all this deflation stuff, my RE taxes are up, what the heck has gone down that makes a bit of difference? I look forward to replies, you guys are smarter than I am and this is a nice way to see other points of view.

          Dennis L.

          • I think the direction of oil prices depends a whole lot on your starting point. Generally they are down, but if you pick a low enough price point, they are up.

            https://gailtheactuary.files.wordpress.com/2019/09/inflation-adjusted-oil-price-since-jan-2004.png

            I think our big problem is too much complexity and too much concentration of wealth at the top. This is what is causing the non-oil prices to rise, like the cost of a dentist visit. One reason I haven’t published a book is the fact that printed books with a large number of colored graphs are outrageously expensive. There is no point in writing a $200 book, if ordinary people cannot actually buy it. Giving the images away free in the internet makes a whole lot more sense. It is possible to reach a whole lot more people.

          • Harry McGibbs says:

            Dennis, even though I see our fate as a broadly deflationary collapse, perhaps with a hyperinflationary sting in the tail as the central banks crank up the ‘printing presses’, I tend to avoid conversations about inflation and deflation because the overall picture is so heinously complex. There is plenty of inflation around – assets have inflated on the back of central bank interventions post 2008 and we are seeing weaker nations in the emerging markets suffer rampant currency inflation, for example.

            Naturally consumers still *want* to be able to afford goods and services and producers still *want* to be able to sell them good and services. So, even though purchasing-power (perhaps a more helpful term for understanding our collective predicament) is ebbing away, producers and consumers still try to come to accommodation to keep the economy going, albeit an increasingly dishonest and unsustainable one.

            Central to that accommodation is debt, as Gail points out. So, for example, rather than people buying cars outright, as was almost always the case 20 years ago here in the UK, consumers now prefer to put down a deposit and buy one on credit.

            Manufacturers have also been downgrading the quality of non-essential parts (look at the declining quality of plastics used in car interiors these days, for example) and they will build in obsolescence. I don’t know about the US but shrinkflation of food products is rampant here in the UK.

            In other words, consumers have been taking on debt and producers have been cutting costs to try to offset the affordability problem that Gail writes about, so some economies still kind of look like they are growing and inflating. Obviously at some point these strategies run out of road and the affordability issue can no longer be hidden – then we hit our deflationary spiral. Looking at sales of big ticket items like cars and computers around the world, one wonders if we are nearly there.

      • Robert Firth says:

        That may be bad news for the shipping industry, but is good news for almost everyone else. If the shipping industry is reduced to a dozen China Clippers carrying tea, the world will be a much more resilient place, and countries will be far less dependent on circumstances beyond their control. And even the Chinese will benefit, by enjoying more of what they make, and making less that others will buy with fake money.

        • hkeithhenson says:

          ” more resilient place,”

          That’s not the case in the event of regional crop failures. Russia (back in the USSR days) had one of those and bought US wheat in huge amounts.

          • Robert Firth says:

            Quite correct, hkeithhenson. But that disaster was a direct consequence of central planning by those “fearful simplifiers”, in the form of collective agriculture. The previous system, peasant farming, was hard work for poor returns, but it was resilient.

            A piece of folk wisdom that utopian despots always ignore: “if it ain’t broke, don’t fix it”.

            • hkeithhenson says:

              ” But that disaster ”

              It wasn’t a disaster. A disaster would have been famine and a lot of people dying.

              “in 1971 and 1972 wheat crops in the Soviet Union suffered massive shortfalls;”
              https://en.wikipedia.org/wiki/Great_grain_robbery

              –The Soviet Union’s winter wheat crop, plagued by severe weather, was down this year to about half of 1971 levels,–

              “peasant farming was hard work for poor returns, but it was resilient.”

              I don’t think that is the case.

              “Famine still occurred in Eastern Europe during the 20th century. Droughts and famines in Imperial Russia are known to have happened every 10 to 13 years, with average droughts happening every 5 to 7 years. Russia experienced eleven major famines between 1845 and 1922, one of the worst being the famine of 1891–92.[97] The Russian famine of 1921–22 killed an estimated 5 million. ” https://en.wikipedia.org/wiki/Famine

              Being able to ship food around makes a huge difference. As energy supplies shrink, this may no longer be possible.

  29. Harry McGibbs says:

    The US recession has arrived. No, not that one, but a recession in US company profits.”

    https://www.ft.com/content/b73b1b66-cfda-11e9-99a4-b5ded7a7fe3f

    • Harry McGibbs says:

      “The lack of trading in the corporate bond market has been particularly eyed by financial regulators amid increased questions of how investors will be able to buy and sell debt the next time the market seizes up.”

      https://www.marketwatch.com/story/investors-turn-to-credit-default-swaps-amid-fears-of-liquidity-freeze-in-next-market-crisis-2019-09-05

    • FT article explains how companies contribute to the economy “making a smaller batch.”

      The combination of decelerating capex and shrinking profits is telling — corporate executives are opting for prudence instead of spending to grow.

      “In an earnings recession, companies attempt to cut bloated costs,” said Michael Wilson, chief US equity strategist at Morgan Stanley. “But they simply can’t cut fast enough as demand is also decelerating.”

      • Robert Firth says:

        Thank you, Gail. I believe you have identified the Achilles heel of our present industrial system. It used to be easy to cut costs: just fire a few dozen chimney sweeps, or dismiss a few dozen telephone operators. But automation requires a cadre of skilled maintainers, and managers to direct those maintainers, and accountants to pay their inflated salaries, …

        If it takes 50 workers to make a pin, how many of those workers can you dismiss? Complexity, division of labour, specialisation, have made cost cutting more and more difficult. I agree with many of our other participants: it is almost impossible for a modern industry to cut costs, to tighten its belt in an impending recession. The imperative of continuous growth has no brake pedal, and hence no way to avoid the Seneca Cliff.

        • That is a good point.

        • JesseJames says:

          A previous co I worked at hired a manufacturing planner for a new hi tech product. So they hire a guy with an MBA. What he was actually doing was glorified spreadsheet work….and planning. Now, a high school, or even community college educated person, who was able to think and was self motivated could have done that job, probably for a lot less money. But the modern Corp, does not want to entail the risk that such a person could get it done. This kind of degree inflated job requirements probably adds quite a bit of cost. It is probably baked into the MBA/CEO training these days.

          A separate problem is that even if the Corp were open to the non degreed person doing that job, the right self starter/thinker would not want to be in the corporate hierarchy, where innovation and self advancement is quashed, and they would be mired in the office politics and struggle for advancement, lost in the organizational inertia.

      • “making a smaller batch” is indeed the best way to explain the situation..
        And as RF mentioned the techno JITs can’t be optimized anymore by mindless cutting.
        These trends must converge at some point into kaboom.

  30. Harry McGibbs says:

    “How much money would have to disappear from your bank account each month before you scrapped the whole thing?

    “A penny a year? That is not much to lose. Or 1pc of your savings? It might still be worth using the bank for the sake of security and for electronic payments.

    “But what if 10pc of your cash was swiped? At some point you would say “stuff this”, march down to the nearest cash point or branch and take home every penny. This is the sort of problem the European Central Bank may soon have to consider.

    “Mario Draghi, the ECB’s outgoing president, is expected to cut interest rates again next week, taking its deposit rate from minus 0.4pc to minus 0.5pc or 0.6pc.”

    https://www.telegraph.co.uk/business/2019/09/05/negative-interest-rates-does-financial-medicine-turn-poison/

  31. It's different this time around....NO says:

    Seems we have a love/hate relationship here with BAU!
    My, my….when it goes comatose due to irrational conflicting remedies by our desperate leaders,
    I’ll be humming along to this time…
    https://m.youtube.com/watch?v=3GhoWZ5qTwI

    We begin this editorial with an apology to you, our faithful readers. In March, we described the Brexit situation, then careening through its third year and nowhere close to resolution, as an “omnishambles.”
    An omnishambles is a state of utter chaos, total disorder and perfect mismanagement – which brings us to our apology. If you’ve been paying any attention to British Prime Minister Boris Johnson, you know that, in declaring United Kingdom politics to have reached peak shambolic six months ago, we spoke too soon. Oh, did we ever.
    Because if the Conservative government was making an omnishambles of Brexit back in the spring – a happy era now remembered as a halcyon age of a merely half-hearted appetite for national self-destruction – then what words can adequately describe the scale of Mr. Johnson’s achievements?
    Megashambles? Summa cum laude shambles? Tyrannosaurus shambles? The-Chernobyl-reactor-just-exploded-and-the-dosimeter-reads-15,000-roentgen shambles?
    https://www.theglobeandmail.com/opinion/editorials/article-how-bad-is-boris-johnson-we-cant-even-find-the-words/
    At least we can get some enjoyment out of this!?

  32. MG says:

    Two men ‘planning to kidnap and murder woman who renounced Islam’ arrested

    https://www.independent.co.uk/news/uk/crime/men-arrests-kidnap-murder-plot-woman-islam-london-coventry-a9093896.html

    Police Detain two Afghans Who Planned to Murder Woman in Slovakia

    http://www.tasr.sk/tasr-clanok/TASR:20190905TBB00365

  33. Tom Robertson says:

    Gail, glad to see you are still at it (whatever “it” may be.) Tom Robertson

    • Hi Tom,

      As I look back, you wrote to me back in 2013, telling me about how much you liked my post relating to my talk from the 5th Biophysical Economics Conference, Burlington, Vt. This is a link to the slides from the 2013 talk.

      In your e-mail, we wrote about EROEI and net energy.

      When I look back at my presentation, what I am saying has not changed much at all. It turns out to be pretty much right. I have added a little, but not changed much.

      Other energy views have not fared as well. The Peak Oil story, especially its expectation of high prices, is pretty close to just plain wrong. That is why it has gone by the wayside.

      The EROEI view has a little bit that is right, but as I point out in the 2013 presentation, it is really the overall average EREOI that is important. Searching for things that are borderline to add isn’t helpful. It needs to replace low EROEI fuels with higher ones. The BioPhysical Economics Group isn’t having a meeting this year. Perhaps it will have one next year in Wyoming. I expect its day in the sun is mostly past.

  34. Harry McGibbs says:

    Lots of articles these days flagging up central bank impotence:

    “Jay Powell, the Fed chief, hasn’t had much chance to take a vacation this summer.

    “Amid headlines that point to a global slowdown, he is under pressure to cut rates – the market is currently pricing 100 basis points of cuts within a year. Unfortunately, Powell has few levers to pull when it comes to staving off the next recession.”

    https://www.forbes.com/sites/randybrown/2019/09/04/the-fed-rethinks-its-role-in-a-recession/#3c0ba2ba45e7

    • Harry McGibbs says:

      “Falling expectations for consumer-price growth, plunging bond rates and flatter yield curves all point to mounting doubts in financial markets over whether monetary policy makers have what it takes to reflate their economies and avert a global recession…

      ““What markets are telling us is that they don’t expect central banks to be able to raise inflation now,” said Naoya Oshikubo, senior economist at Tokyo-based Sumitomo Mitsui Trust Asset Management Co., Asia’s largest asset manager. “Central banks need to regain credibility.””

      https://finance-commerce.com/2019/09/the-worlds-central-banks-have-lost-credibility-with-markets/

      • Harry McGibbs says:

        “Economists doubt there’s much that can be done in terms of monetary policy to stave off a downturn. With short-term interest rates so low already, central banks don’t have the firepower they once possessed to get economies back on track.

        “As the economic challenges pile up — from the U.S.-China trade war to the seemingly never-ending Brexit saga — business confidence and investment is falling off.”

        https://www.voanews.com/economy-business/economists-fear-central-banks-have-no-firepower-deter-slowdown

        • Harry McGibbs says:

          “Monetary policy – both conventional and unconventional – works through lower interest rates. Lowering rates across the yield curve helps stimulate demand by lowering the cost of financing consumption or investment. It also gives investors incentives to re-balance into riskier assets, in principle reducing the cost of capital for companies.

          “If policy rates are near their effective lower bound and the scope for longer-term rates to fall is limited, monetary policy cannot provide much more stimulus through this channel – a liquidity trap situation.”

          https://seekingalpha.com/article/4289756-central-banks-running-ammo

      • Falling energy prices work in the opposite direction from inflation. When the world was becoming more and more efficient through the use of added energy consumption, it could raise interest rates. Now, as energy consumption per capita seems to be falling (with cutbacks from OPEC), inflation and interest rates are falling.

        • Dennis L. says:

          Gail,
          Living expenses don’t seem to be falling, they are increasing. All my insurance costs are up, groceries feel to be up and a number of friends agree, health care costs are up, education costs are up, real estate taxes are up, taxes are up due to the Trump tax cuts, hotel rooms are up at places I have stayed for years, dining out is up considerably. Text books for kids are a disgrace for what one gets. New texts are now loose leaf, guaranteed to fall apart. Fuel seems to be about the same as last year. Returns on investment are down, inflation in assets is thus up. Repairs to an auto are far from trivial, and don’t seem to go down.

          Professional services such as law and accounting are up and worst of all, dance lessons are up. A friend reports dental hygiene wages in a medium, WI city where I was for a number of years are now between $40 and $47 per hour, dental costs are up and a simple visit is now in excess of $200.

          If one keeps track of spending by category in Quicken, the increases are significant and the down turn in cash income from inflating assets real.

          Wages in general services are up when there are people to employ or who are employable. Simple things like getting grass cut, snow shoveled are up. Getting one’s hair cut is up and I don’t have that much to cut, bummer; it is not an increase per captia but the increase per follicle is enormous.

          Dennis L.

          • If the economy is to grow, the share going to energy producers, including food producers and fossil fuel producers, must go down as a % of GDP. Energy is essential. If the less essential portions of the economy are to grow (professional services, for example), the share of resources consumed by the energy sector must fall.

            This part of the story is sort of understandable.

            But trying to explain the whole story is not easy. It seems like growing debt and money supply can make it look like the rest of the economy is growing, and that prices in general are rising. Thus, growing debt plays a role in inflation. It may be that rising asset prices because of falling interest rates plays a role as well, because the value of these asset could be used to buy other goods and services, as well.

            • Dennis L. says:

              First comment on inflation and central banks, a hypothesis:
              Prior to CB, bank failures were not uncommon. If a bank loans money to two entities and the depreciation rates are different, one too low, one too high there can be a liquidity crisis as banks are fractional and depend on money in/money out. A CB acts to supply money and makes a decision for a bit more money than necessary as that will carry over the under depreciated asset timing issues as well as account for growth. The CB can create no wealth, it can only balance timing issues otherwise why invest in real assets in the first place? If the economy is growing at the same rate as money growth, wages, etc. all rise at about the same rate and in terms of real wealth, there is no overall difference and liquidity issues are avoided.
              We are now at a point were the underlying energy is declining which means all assets have shorter depreciation times than originally estimated, the CB appears to be purchasing the paper assets and raising marginal prices for stocks/bonds etc. We are not stealing from the future, we have over invested in the past and there are fewer assets on the books than reported as the depreciation schedule is not correct. The issue is none of these assets make a return on capital, the only way to trade them for real wealth is to sell them. Could this be the reason the wealth of the elites declined last year? No matter what the CB does, real assets are now liquidating and there are no more “cheap” materials to be found be it copper, oil, coal, fish, etc.
              The number of publicly traded companies is declining which is consistent with rising share prices and selling off assets for income. It makes it hell on pension plans and savers.

              Dennis L.

            • You make some interesting points. I particularly like

              “We are not stealing from the future, we have over invested in the past and there are fewer assets on the books than reported as the depreciation schedule is not correct.”

              Our economy depends on promises. But we have made too many promises. We have over invested in the past, because we did not realize what poor returns we would actually get. The subsidies the government is giving for green electricity and electric cars encourages more mal-investment.

            • Kowalainen says:

              An increasing supply of money is needed for the circulation of goods and services when an abundance of natural resources is available to power the enormous output capacity of industry. Hence the invention of fiat money.

              The petrodollar puts energy into the valuation of money which circulates in the economy and enables prosperity to be available as goods and services priced in energy units.

              The first thing to indicate a resource limits is the amount of money which is allowed to circulate among the common man, and the amount of goods and services of which they can afford to buy.

            • With the current low price of oil, what we think of as petrodollars don’t exist any more. Saudi Arabia doesn’t have leftover cash with which to buy US Treasuries and in that way, hold US borrowing costs down. Instead, the price of oil is so low that it needs to go and borrow elsewhere, to keep its own economy from collapsing. That is why it cutting back on production.

    • This article says, “Historically, when faced with a recession, the Fed has cut rates by 500 basis points on average.” It also points out that the Fed stopped raising interest rates, when they hit 2.5%. Putting these two things together, to get the stimulative effect used in past recessions, the rate would need to go to -2.5%. This can’t happen.

      I question the 500 point change. A change from 18% to 13% is different from a change from 2.5% to -2.5%.

      • Yoshua says:

        The Eurozone will enter a recession with rates at zero. It will be interesting to see what Lagarde will do when she is the head of ECB.

        • Ed says:

          She will worry her pearls more.

          • Harry McGibbs says:

            She intends to use her presidency of the ECB to, among other things, “green the financial system”:

            She says:

            “With regard to the ecological transition, the discussion on whether, and if so how, central banks and banking supervisors can contribute to mitigating climate change is at an early stage but should be seen as a priority. The ECB is already engaging in such discussion, for example as a member of the Network on Greening the Financial System (NGFS).

            “My understanding is moreover that the ECB has focused on supporting market participants, legislators and standard – setting bodies in identifying the risks emerging from climate change and providing a clear framework to reorient financial flows and reduce such risks.”

            http://www.europarl.europa.eu/meetdocs/2014_2019/plmrep/COMMITTEES/ECON/PR/2019/09-04/1187645EN.pdf

            • Putting the world “green” into the description is sure to make the idea popular.

            • Robert Firth says:

              There are many forms of insanity. But surely this takes pride of place: that by “reorienting financial flows”, we can mitigate climate change. Dropping helicopter money into the eye of a tornado, perhaps?

              Or perhaps she believes that the “financial flows” will exercise leverage on the real world? So, reducing the cost of borrowing in the Bahamas by 1% will reduce the impact of a tornado by … by what? And setting up “bodies to identify the risks”? The Club of Rome did that, and was not just ignored, but denounced and demonised.

              It is truly hard to contemplate the solution, when you are part of the problem.

            • Kowalainen says:

              “Green the financial system” seems a lot like printing to me.

              “Reorienting the financial flows”, sounds like stealing money from the middle class, enrich herself and her friends with the loot.

              Read behind the lines folks, it’s all behind the lines.

    • Robert Firth says:

      The main purpose of banks used to be the stewardship of money. But for decades, central banks have worked systematically to destroy the value of money, and with it their own credibility. Now nobody trusts them, and they are vastly surprised that they are impotent.

      One more time, good people” “The mills of God grind slowly, but they grind exceeding small.”

    • Xabier says:

      How awful to wake up as a Central Banker only to find oneself impotent!

      Are they getting counselling for this dreadful turn of events? They need help, surely?

      And the directors of all those other TBTF banks, rotting from within due to such low interest rates, the psychological toll must be great.

      Not to mention the economists who produce the growth projections that always, for some reason, get revised down to nothing much at all, year after year. How soul-crushing to be wrong so often!

      One supposes they just grit their teeth and get on with collecting the next huge pay-cheque and bonus – something at least to dull the pain.

      Sheer heroism, and on our behalf….

  35. Yoshua says:

    German factory orders dropped 5.6 percent in July YoY.

    https://pbs.twimg.com/media/EDr2mGiW4AAjCiH?format=jpg&name=900×900

    Eurocrisis ll will hit the core this time.

      • Yoshua says:

        The German Bund is a massive bubble. What will pop this one?

        https://pbs.twimg.com/media/EDtT8z8XoAE1abo?format=jpg&name=large

        • DJ says:

          Maybe nothing to big to fail will fail until everything fails? Bunds sounds like to big to fail.

          • I keep thinking about Oliver Wendell Homes’ poem.
            http://holyjoe.org/poetry/holmes1.htm

            The Deacon’s Masterpiece
            or, the Wonderful “One-hoss Shay”: A Logical Story

            Have you heard of the wonderful one-hoss shay,
            That was built in such a logical way
            It ran a hundred years to a day,
            And then, of a sudden, it — ah, but stay,
            I’ll tell you what happened without delay,
            Scaring the parson into fits,
            Frightening people out of their wits, —
            Have you ever heard of that, I say?

            Seventeen hundred and fifty-five.
            Georgius Secundus was then alive, —
            Snuffy old drone from the German hive.
            That was the year when Lisbon-town
            Saw the earth open and gulp her down,
            And Braddock’s army was done so brown,
            Left without a scalp to its crown.
            It was on the terrible Earthquake-day
            That the Deacon finished the one-hoss shay.

            Now in building of chaises, I tell you what,
            There is always somewhere a weakest spot, —
            In hub, tire, felloe, in spring or thill,
            In panel, or crossbar, or floor, or sill,
            In screw, bolt, thoroughbrace, — lurking still,
            Find it somewhere you must and will, —
            Above or below, or within or without, —
            And that’s the reason, beyond a doubt,
            A chaise breaks down, but doesn’t wear out.

            But the Deacon swore (as Deacons do,
            With an “I dew vum,” or an “I tell yeou”)
            He would build one shay to beat the taown
            ’N’ the keounty ’n’ all the kentry raoun’;
            It should be so built that it couldn’ break daown:
            “Fur,” said the Deacon, “’tis mighty plain
            Thut the weakes’ place mus’ stan’ the strain;
            ’N’ the way t’ fix it, uz I maintain,
            Is only jest
            T’ make that place uz strong uz the rest.”

            So the Deacon inquired of the village folk
            Where he could find the strongest oak,
            That couldn’t be split nor bent nor broke, —
            That was for spokes and floor and sills;
            He sent for lancewood to make the thills;
            The crossbars were ash, from the straightest trees,
            The panels of white-wood, that cuts like cheese,
            But lasts like iron for things like these;
            The hubs of logs from the “Settler’s ellum,” —
            Last of its timber, — they couldn’t sell ’em,
            Never an axe had seen their chips,
            And the wedges flew from between their lips,
            Their blunt ends frizzled like celery-tips;
            Step and prop-iron, bolt and screw,
            Spring, tire, axle, and linchpin too,
            Steel of the finest, bright and blue;
            Thoroughbrace bison-skin, thick and wide;
            Boot, top, dasher, from tough old hide
            Found in the pit when the tanner died.
            That was the way he “put her through.”
            “There!” said the Deacon, “naow she’ll dew!”

            Do! I tell you, I rather guess
            She was a wonder, and nothing less!
            Colts grew horses, beards turned gray,
            Deacon and deaconess dropped away,
            Children and grandchildren — where were they?
            But there stood the stout old one-hoss shay
            As fresh as on Lisbon-earthquake-day!

            EIGHTEEN HUNDRED; — it came and found
            The Deacon’s masterpiece strong and sound.
            Eighteen hundred increased by ten; —
            “Hahnsum kerridge” they called it then.
            Eighteen hundred and twenty came; —
            Running as usual; much the same.
            Thirty and forty at last arrive,
            And then come fifty, and FIFTY-FIVE.

            Little of all we value here
            Wakes on the morn of its hundreth year
            Without both feeling and looking queer.
            In fact, there’s nothing that keeps its youth,
            So far as I know, but a tree and truth.
            (This is a moral that runs at large;
            Take it. — You’re welcome. — No extra charge.)

            FIRST OF NOVEMBER, — the Earthquake-day, —
            There are traces of age in the one-hoss shay,
            A general flavor of mild decay,
            But nothing local, as one may say.
            There couldn’t be, — for the Deacon’s art
            Had made it so like in every part
            That there wasn’t a chance for one to start.
            For the wheels were just as strong as the thills,
            And the floor was just as strong as the sills,
            And the panels just as strong as the floor,
            And the whipple-tree neither less nor more,
            And the back crossbar as strong as the fore,
            And spring and axle and hub encore.
            And yet, as a whole, it is past a doubt
            In another hour it will be worn out!

            First of November, ’Fifty-five!
            This morning the parson takes a drive.
            Now, small boys, get out of the way!
            Here comes the wonderful one-hoss shay,
            Drawn by a rat-tailed, ewe-necked bay.
            “Huddup!” said the parson. — Off went they.
            The parson was working his Sunday’s text, —
            Had got to fifthly, and stopped perplexed
            At what the — Moses — was coming next.
            All at once the horse stood still,
            Close by the meet’n’-house on the hill.
            First a shiver, and then a thrill,
            Then something decidedly like a spill, —
            And the parson was sitting upon a rock,
            At half past nine by the meet’n-house clock, —
            Just the hour of the Earthquake shock!
            What do you think the parson found,
            When he got up and stared around?
            The poor old chaise in a heap or mound,
            As if it had been to the mill and ground!
            You see, of course, if you’re not a dunce,
            How it went to pieces all at once, —
            All at once, and nothing first, —
            Just as bubbles do when they burst.

            End of the wonderful one-hoss shay.
            Logic is logic. That’s all I say.

          • Tim Groves says:

            On a similar vein, may I suggest this poem by the great scottish bard Sir WIlliam Topaz McGonagall?

            http://cdn3.whatculture.com/images/2015/06/INTRO-600×338.jpg

            The Tay Bridge Disaster

            Beautiful Railway Bridge of the Silv’ry Tay!
            Alas! I am very sorry to say
            That ninety lives have been taken away
            On the last Sabbath day of 1879,
            Which will be remember’d for a very long time.

            ’Twas about seven o’clock at night,
            And the wind it blew with all its might,
            And the rain came pouring down,
            And the dark clouds seem’d to frown,
            And the Demon of the air seem’d to say-
            “I’ll blow down the Bridge of Tay.”

            When the train left Edinburgh
            The passengers’ hearts were light and felt no sorrow,
            But Boreas blew a terrific gale,
            Which made their hearts for to quail,
            And many of the passengers with fear did say-
            “I hope God will send us safe across the Bridge of Tay.”

            But when the train came near to Wormit Bay,
            Boreas he did loud and angry bray,
            And shook the central girders of the Bridge of Tay
            On the last Sabbath day of 1879,
            Which will be remember’d for a very long time.

            So the train sped on with all its might,
            And Bonnie Dundee soon hove in sight,
            And the passengers’ hearts felt light,
            Thinking they would enjoy themselves on the New Year,
            With their friends at home they lov’d most dear,
            And wish them all a happy New Year.

            So the train mov’d slowly along the Bridge of Tay,
            Until it was about midway,
            Then the central girders with a crash gave way,
            And down went the train and passengers into the Tay!
            The Storm Fiend did loudly bray,
            Because ninety lives had been taken away,
            On the last Sabbath day of 1879,
            Which will be remember’d for a very long time.

            As soon as the catastrophe came to be known
            The alarm from mouth to mouth was blown,
            And the cry rang out all o’er the town,
            Good Heavens! the Tay Bridge is blown down,
            And a passenger train from Edinburgh,
            Which fill’d all the peoples hearts with sorrow,
            And made them for to turn pale,
            Because none of the passengers were sav’d to tell the tale
            How the disaster happen’d on the last Sabbath day of 1879,
            Which will be remember’d for a very long time.

            It must have been an awful sight,
            To witness in the dusky moonlight,
            While the Storm Fiend did laugh, and angry did bray,
            Along the Railway Bridge of the Silv’ry Tay,
            Oh! ill-fated Bridge of the Silv’ry Tay,
            I must now conclude my lay
            By telling the world fearlessly without the least dismay,
            That your central girders would not have given way,
            At least many sensible men do say,
            Had they been supported on each side with buttresses,
            At least many sensible men confesses,
            For the stronger we our houses do build,
            The less chance we have of being killed.

        • Lack of demand from China for German goods?

  36. Yoshua says:

    The T10Y looks like a bubble about to pop. But what would the sharp pin be that pops this bubble?

    https://pbs.twimg.com/media/EDq_buWXkAEu4JI?format=jpg&name=large

    • Harry McGibbs says:

      “Conditions are favorable for another steep fall in the U.S. Treasury bond yield curve, says UBS, Switzerland’s largest financial institution. In revised projections published Wednesday, the bank identified U.S.-China trade tensions and their impact on economic growth as the chief catalyst for the continued drop off in yields.”

      https://www.ccn.com/10-year-treasury-bond-yield-will-crash-to-1-ubs-warns/

      • Yoshua says:

        A trade deal would pop the bubble?

      • I get confused on this too. Cutting short term interest rates would seem to give long-term interest rates more room to fall.

        A new trade agreement would seem to suggest world growth would be higher than previously forecast and the yuan would rise higher. Oil prices might rise higher as well. It is hard to see why this, by itself, would lower US Treasury interest rates.

  37. Harry McGibbs says:

    “Provincial auditors across China are sounding the alarm on a wave of fast-approaching local government debt maturities that analysts think could amount to at least Rmb3.8tn ($560bn) within the next two and half years, presenting a risk to China’s financial system.”

    https://www.ft.com/content/5093658a-ced1-11e9-b018-ca4456540ea6

  38. Harry McGibbs says:

    A great overview by Ambrose Pritchard-Evans; worth reading in full; highlights:

    “Britain’s constitutional crisis has hit before the next great spasm of Europe’s intractable monetary crisis. But they are in close competition.

    “The eurozone faces a category five economic storm. It is structurally defenceless as the world slides into recession. This will not be an ordinary downturn because central banks no longer have the instruments to fight it.

    “If there is an October election in the UK – and if it delivers a bigger Tory majority as polls suggest – EU leaders will have to decide whether to risk adding the shock of a no-deal Brexit to all the other shocks hitting their industries.

    “The US economy has been the last pillar holding up the global edifice. It is now crumbling too. The yield curve is deeply inverted. Consumer sentiment has dropped to a seven-year low. The ISM manufacturing index has tipped into contraction. Export orders are the lowest since April 2009.

    “In my view, the recessionary door has already closed. Even if the Federal Reserve were to slash rates by 50 basis points this month, it would be too late.

    “Donald Trump’s fiscal cliff has arrived and the Democrats in Congress are in no mood to offer the White House a lifeline. Net stimulus from state and federal governments will swing from plus 0.75pc of GDP last quarter to negative levels by early next year, according to the fiscal gauge of the Hutchins Centre.

    “World trade is contracting. The eurozone has in turned stalled. It is paying the price for its chronic reliance on global demand to keep afloat.

    “It is also the chief casualty of Donald Trump’s trade wars. Chinese goods that are shut out of the US market are being diverted into Europe. The more that Beijing devalues the yuan, the worse it gets.

    “The European Central Bank cannot do much to counter the Chinese deflationary wave. The policy rate is still stuck at minus 0.4pc after decade of global expansion.

    “There is much talk of an imminent ECB rescue package. But Frankfurt has already reached the ‘reversal’ threshold where further rate cuts turn contractionary. They hurt banks. They lead to a rise in ‘precautionary’ savings as household puts aside more money…

    “…we may all go over the cliff together, Europe and Britain lashed together in mutual destruction into the storm waters of global recession… The currency bloc would disintegrate.

    “We might then be having a very different political discussion in the early 2020s.”

    https://www.telegraph.co.uk/business/2019/09/04/double-shock-global-recession-no-deal-brexit-may-europe-can/

  39. hkeithhenson says:

    https://news.slashdot.org/story/19/09/03/1936221/tesla-batteries-are-keeping-zimbabwes-economy-running

    An interesting example of keeping a rather primitive economy going with high tech. As Gail would point out, it can’t be done without the infrastructure to manufacture smartphones.

    • I hope that Tesla collected funds in something other than Zimbabwe currency for these batteries. I don’t think I would give the country the ability to “buy now, pay later.”

      • JesseJames says:

        Tesla does not account for dollars. Ther is no profit and loss. Tesla gets money by virtue signaling, and by bilking government subsidy. Besides, there was probably some kind of IMF bribe involved.

  40. Sven Røgeberg says:

    «From the 2016 US presidential election and into 2019, we demonstrate that a visceral feeling of oneness (that is, psychological fusion) with a political leader can fuel partisans’ willingness to actively participate in political violence.«
    https://www.nature.com/articles/s41562-019-0708-1

    • We seem to get the same result on both sides of the political spectrum. We have the Obama followers who think that standing in the way of pipelines is the right thing to do.

    • JesseJames says:

      I thin you must be referring the the left…that systematically calls for violence, and systematically practices it.

  41. I see that the WSJ reports, Ethanol Industry Reels as Trade Dispute and Policy Changes Cut Demand
    Producers of corn-based fuel additive close plants in Indiana, Iowa and Minnesota

    https://gailtheactuary.files.wordpress.com/2019/09/ethanol-production-and-margin-wsj.png

    A person might wonder why the ethanol producers didn’t start cutting back sooner. The results look way too much like those of shale producers.

    • Harry McGibbs says:

      And a similar dynamic with natural gas in Europe:

      “Natural gas prices in Europe are set to fall further below their lowest in a decade as suppliers show few signs of scaling back abundant deliveries.”

      https://www.bloomberg.com/news/articles/2019-09-03/gas-prices-poised-to-fall-in-europe-as-producers-keep-taps-open

      • The Dutch natural gas prices seem to be down at US levels already, and the article talks about the possibility of another 20% drop by fall.

        https://gailtheactuary.files.wordpress.com/2019/09/dutch-benchmark-gas-price-has-declined-more-than-50pct.png

        • doomphd says:

          according to Orlov, the Russians don’t need the income from exported oil and gas. they apparently export because they like to do so. good PR?

          • I guess it was some sort of joke made by Orlov, he was probably about to say the gov revenue is increasingly shifting towards value added from food, and tech/machinery/arms exports.. Or in terms of the overall interview hinting at the future he envisions where several civilization clusters will live apart, i.e. energy exports not flowing anymore, each country-regional cluster living on their own endowment.

            • Robert Firth says:

              In the bad old days when economists used words that carried meaning, this was called “autarky”. Ancient Egypt practiced it for millennia, relying on their only natural resource, the Nile, for almost everything. Except wood, which they imported from the Levant, but they mostly built with papyrus reeds tied into bundles, and then with stone.

              China also believed in autarky, and remained almost entirely self sufficient, until greed for silver induced them to open up trade. A system that collapsed when a couple of Nestorian monks stole the secret of silk.

              Then came globalism, in the form of states that needed external resources, and acquired them in the most efficient way: by conquest. Until the cost of empire became greater than the dwindling resources could support. Which is where we are now.

              “History is indeed little more than the register of the crimes, follies, and misfortunes of mankind.” No prizes for identifying the author.

            • You are right!

            • Xabier says:

              Not awfully encouraging, when one’s national/regional endowment has been more or less exhausted after centuries of industrialisation, and 70 or so years of industrial agriculture….

          • doomphd says:

            it’s interesting that Orlov took his family to live in Russia, apparently just a few years ago. he’s at a relatively safe distance now to blog and observe the collapse of the west. it looks to me that Russia is well positioned to survive the coming collapse as an autarky. they also have a better balance of population to available natural resources, so less internal strife, but may have to defend their turf from outsiders, like their WWII forefathers. Putin has them well positioned on that matter.

  42. Harry McGibbs says:

    And finally a morsel of good news:

    “Hong Kong is scrapping the hated extradition bill which has sparked months of protests and violence in the city.

    “Embattled Hong Kong leader Carrie Lam announced the bill’s withdrawal at a meeting with lawmakers today and confirmed it in a public statement in which she called for dialogue.”

    https://www.dailymail.co.uk/news/article-7425267/Hong-Kong-police-fire-beanbag-rounds-overnight-clashes-protesters.html

    • Kowalainen says:

      Was there any other option for the brutalist despots in the central committee? Just hand back that piece of land to the queen and be done with it.

      Now we are waiting for the revolts to start all over mainland as the trade war slowly escalates. Let’s watch which of the populations; the free world versus the slaves of the Politbüro will see an uprising the fastest.

      • Dennis L. says:

        If I recall correctly, it is never the working class that rises up, it is the upper middle, educated class that is a problem, e. g. actions on college campuses are mostly university level, few demonstrations on cc and technical schools. Trotsky, Lennin were university students, not welders. Many of these leaders of the revolt seem to have wonderful ideas of what is perfect for the worker, but few skills that are useful to make a living.

        Dennis L.

        • Xabier says:

          Workers tend to riot for bread: frustrated intellectuals, to murder for ideas.

        • The clincher moment came when inside the vandalized assembly chamber the rioters had laid upon the speaker booth pristine colonial [HK ver] union jack flag.. wtf?

          They are simply not Chinese in any sort of acculturated-psychological sense anymore (identity mismatch), rather fully indoctrinated to already non existent entity (which subjugated them earlier), sad but true. Exceptional, but there were few similar cases thorough the history as well.

          Besides the bottom case remains, rioting with covered faces like that, moreover setting barricades on fire in front of Police HQ or pushing cops on defense at another local police station inside would surely get you killed in the US, severely injured in France and clubbed everywhere else in the world..

          I watched the livefeeds over the weekend, and the mood from these scenes was very dystopian especially on the dark-neon streets under nightly lite rain..

          • Tim Groves says:

            They are simply not Chinese in any sort of acculturated-psychological sense anymore

            Why should they be? Most of them have been Hong Kongers for generations. And most of their ancestors came to Hong Kong because they wanted to escape from China.

            Also, what does it mean to be Chinese in an acculturated-psychological sense? Mao literally erased Chinese culture at the same time as he literally decimated the population under his rule.

            If we must get into this ridiculous argument, then one could argue that Chinese in Hong Kong, Macao and Taiwan, as well as diaspora Chinese living in Singapore, Malaysia, Indonesia and elsewhere are more authentically Chinese in a sort of acculturated-psychological sense than the poor sods who have been deprived of much of their cultural heritage for the past 70 years under the auspices of the CCP.

            Destroy The Four Olds
            “Sweep away all monsters and demons,” an editorial in the party’s newspaper People’s Daily read on June 1, 1966. “Smash the bourgeois ‘specialists,’ ‘scholars,’ ‘authorities,’ and ‘venerable masters.'”

            The article called on the people to destroy “the Four Olds:” old ideas, old cultures, old customs, and old habits that it has said had been fostered by the exploitative rich to poison the minds of the people.

            All of history, in short, was to be seen as useless. This was the central meaning of Cultural Revolution: That China was going to destroy every trace of its bourgeois past and replace it with a new culture built on the principles of Maoism and Marxism. Communist leaders like President Liu Shaoqi were taken out of power and replaced with men Mao believed were not critical of his reign.

            The people carried with them a Little Red Book, a plastic red collection of Mao’s ideologies. Yu even recalled reading and studying it with her friends while on commutes as though it were a Holy Bible. Streets, historical sites, and even babies were given new, revolutionary-sounding names. Libraries were destroyed, books were burned, and temples were torn down to the ground.

            Historical sites were ripped apart. In Shandong, the Red Guards attacked the Temple of Confucius, destroying one of China’s most historically significant buildings; in Tibet, soldiers forced Buddhists priests to destroy their own monasteries at gunpoint.
            A new world, Mao promised, would rise from the ashes of the old one; one that swept away every hint of elitism and class inequality.

            https://allthatsinteresting.com/cultural-revolution

            • Kowalainen says:

              The corruption, decadence and stagnation from then despots of old China was swiftly dealt with by the Maoists. Thus creating a new system extremely prone to exactly the same problems. The abuse, plotting and scheming by the rulers and their vassals will take a life of its own and with time implode again, and again. Leading to a total stagnation. Cut off the lifeline to the free world and watch PRC crumble, just like the Soviet Union did.

              The SAR:s, Taiwanese and the other former Chinese/British colonies are indeed the true carriers of Chinese culture, but enhanced with British common law and old tradition to starve off the worst aspects of civilization breaking status-quo and dystopia generation as described above.

              The Chinese culture will indeed come to flourish under a system where the horrors of a Orwellian/feudal/slave state is simply verboten. It is a gift from the Brits to the Chinese.

              Tsai Ing-Wen for president of the United States of China.

              http://www.roc-taiwan.org/uploads/sites/88/2016/07/652216221853.jpg

            • hkeithhenson says:

              “would rise from the ashes of the old one; one that swept away every hint of elitism and class inequality.”

              At the end of http://faculty.econ.ucdavis.edu/faculty/gclark/papers/Capitalism%20Genes.pdf

              56Figure 17 Male total fertility rate for the Qing Imperial Lineage in 1644-1840. This is the number of births per man living to age 45. The royal lineage, which had access to imperial subsidies and allowances that made them wealthy, was more successful reproductively than the average Chinese man. But in most decades the advantage was modest – not anything like as dramatic as in pre-industrial England.

              But these advantages cumulated in China over millennia perhaps explain why it is no real surprise that China, despite nearly a generation of extreme forms of Communism between 1949 and 1978, emerged unchanged as a society individualist and capitalist to its core. The effects of the thousands of years of operation of a society under the selective pressures of the Malthusian regime could not be uprooted by utopian dreamers.

            • Robert Firth says:

              Ah yes: Jakob Burckhardt’s “fearful simplifiers” in action. Their worst assault on Chinese culture and history was, I still believe, the introduction of the “simplified” Chinese script. An innovation I hope a renascent China will speedily reverse.

    • Robert Firth says:

      Not so fast… Carrie Lam has merely announced that, when the legislature reconvenes, in a month or so, she will *propose* withdrawing the bill. And since many in the legislature are puppets of the CCP, it is quite likely they will refuse.

      So the announcement is a promise she has no power to keep. The controlled press in Peking trumpeted the fake news and informed the “protesters” there was no longer any excuse for violence. Since the violence is largely orchestrated by agents provocateurs who are CCP stooges, this may or may not happen.

      China is in a situation called “Zugzwang”. She must move, but every move weakens her position.

  43. Harry McGibbs says:

    “[India’s] BSE benchmark Sensex crashed nearly 770 points and the NSE Nifty tumbled over 225 points on September 3 due to panic sell-offs across the board as investors fretted over deepening economic crisis and ever-lasting global trade tussle.

    “A slew of recent macroeconomic data on GDP, core sectors and auto sales are pointing towards a deepening economic rout in the country.”

    https://www.thehindu.com/business/markets/sensex-crashes-770-points-as-economic-crisis-deepens/article29323227.ece

  44. Harry McGibbs says:

    “The parallels [of pre-WW2] to today’s fiat money system operated in the US by the Federal Reserve are stark.

    “Just as the first world war cut Britain and Germany off from their classical gold standard, America’s spending spree of the 1960s, particularly in respect of financing the Vietnam war led the US to print more dollars than could be redeemed for gold at the rate of $35 per ounce. Thus, in 1971 Nixon closed the gold window and ever since then, the dollar has been based on fiat rather than on sound money.

    “Today, whenever policy makers desire economic growth and high employment, their solution is simply to print money. This of course was ultimately Hitler’s economic solution.

    “This printed money however does little else in the long term aside from creating the kind of economic bubble which ultimately lead to Germany invading other countries for their resources.

    “Debt is dangerous because inevitably, the market will call the bluff of the money printers. It happened with Germany’s MEFO scam and it will eventually happen to the United States.”

    https://eurasiafuture.com/2019/09/03/world-war-debt-germans-debt-caused-the-second-world-war-the-federal-reserve-isnt-far-behind/

  45. It's different this time around....NO says:

    North Sea Oil Poised for Last Hurrah With Giant Norway Field
    Timothy Abington and Mikael Holter
    https://finance.yahoo.com/news/north-sea-oil-poised-last-230001167.html
    (Bloomberg) — The rise of a huge new Norwegian oil field is poised to give North Sea output one of its biggest boosts in years. The surge won’t last.
    Johan Sverdrup, one of the five largest offshore oil fields ever discovered in Norway, has been given the green light to begin production, with operator Equinor ASA scheduled to start loading crude onto tankers as soon as next month. The field will single-handedly deliver the biggest increase in oil production for Norway next year since the 1980s. While that’s good news for its owners and Norway, the North Sea will still have to grapple with declines in supply from more mature fields that have been operating since the 1970s.
    The problem for North Sea producers is that there’s just no other project under development that comes close to Sverdrup in scale. The next biggest field due to start by the end of 2020 is Martin Linge, according to Energy Aspects Ltd. Also part of Equinor’s pipeline, it pales in comparison.
    “With the inclusion of Sverdrup, we see an increase in production in the near term,” said Sonya Boodoo, an analyst at Rystad Energy. “Without Sverdrup, production would have stagnated
    Good to the LAST Drop!
    https://m.youtube.com/watch?v=T5_0iG7YP5Y

    Remember the good old DAYS.?…that’s soon to be all we have of BAU.. memories…

    • Denial says:

      Yes but what about the new areas that are opening up due to melting glaciers? There will probably be trillions of barrels up there. That is the reason for all the military action in the arctic and soon there will be a passage through . There could easily be 5 North Seas up there.

      • I can see the possibility that in the future, there could be a new beginning, using these new-found fossil fuel resources, if there are a few humans left. Actually, I expect coal, rather than oil, will be the resource exploited, because this can often can be done with limited technology. Oil and gas would be quite iffy, unless this new economy can make great strides with coal.

        As more coal is used, I would expect the population of humans would grow. Plants of new kinds would flourish in the new warmer areas. The lack of sunlight in the winter would still be a huge problem, however.

        • info says:

          Looks like steampunk will become real.

        • hkeithhenson says:

          Coal . . . I happen to know a great deal about steam locomotives. They took an appalling amount of labor to keep them going, perhaps as bad in maintenance hours per hour of operation as helicopters. I suspect that if you want to keep railroads running and all you have is coal, then converting the coal to diesel fuel might be the least labor-intensive way to go.

          If you want to know more than a reasonable amount about the topic, https://en.wikipedia.org/wiki/Union_Pacific_4014

          • I expect that the jobs needed to keep the railroad operating paid fairly well, because the railroad was a hugely more efficient way of transporting goods and people compared to stage coaches moving over land. The railroad made possible many kinds of industries. It allowed foods and coal to be transported long distance over land, instead of only over water. It truly helped economies advance at the time it was first installed.

            • hkeithhenson says:

              Re jobs, “steadily reduced employment, which peaked at 2.1 million in 1920, falling to 1.2 million in 1950 and 215,000 in 2010.” Current numbers look like 91,000 and still falling. Given that the 1920 population was 106 million, very close to 2 percent of the population worked for the railroads. Much interesting history, including that the railroads invented the pension system.

            • DJ says:

              Was that everyone involved in the railroading?

              If you compare building out over the whole country, maybe mostly using shovel and wheel barrow.

              To cheating on maintainance and closing down routes, and whatever new is built using powerful machines.

            • Robert Firth says:

              For an amusing, and largely accurate, view of the railways in the 19c US, I recommend “The Harvey Girls” (MGM, 1946), starring Judy Garland. Set in the 1880s, when the railway industry had matured and before the automobile ravaged it.