Many people are concerned that we have an oil problem. Or they are concerned about recession and the need to lower interest rates.
As I see the situation, we have a problem of a networked economy that is not functioning well. A big part of this problem is energy-related. Strange as it may seem, energy prices (including oil prices) are too low for producers. If debt levels were growing more rapidly, this low-price problem would go away.
The “standard way” of encouraging more debt-based purchases is by lowering interest rates. But we are running out of room to do this now. We also seem to be running out of economic investments to make with debt. If expected returns on investment were greater, interest rates would be higher.
Without economic investments, demand for commodities of all kinds, including energy products, tends to stay too low. This is the problem we have today. Our debt problem and our energy problem are really different aspects of a networked economy that is no longer generating enough total return. History suggests that these periods tend to end badly.
In the following sections, I will explain some of the issues involved.
[1] Our problem is not just that oil prices are too low. Prices are too low for practically every type of energy producer, and in many parts of the globe.
Oil: OPEC oil producers have cut back production because they view oil prices as too low. OPEC reports a cutback in production of 2.7 million barrels per day between November 2018 and July 2019 (from 32.3 million bpd to 29.6 million bpd).
In the US, there has been an increase in bankruptcies of oil producers during 2019, relative to 2018. There has also been a reduction in the number of oil drilling rigs of 17% since the week of November 16, 2018, according to reports by Baker Hughes. These are signs of producer distress.
Natural gas: While recent US natural gas prices have bounced up off their recent lows, as recently as August 8, 2019, we were reading:
U.S. gas futures this week collapsed to a three-year low, while spot prices were on track to post their weakest summer in over 20 years. In other markets, such lackluster pricing would cause investment to retrench and supply to contract.
But gas production is at a record high and expected to keep growing. Demand is rising as power generators shut coal plants and burn more gas for electricity, and as rapidly expanding liquefied natural gas (LNG) terminals turn more of the fuel into super-cooled liquid for export.
Analysts believe the natural gas market is not trading on demand fundamentals because supply growth continues to far outpace rising consumption. Energy firms are pulling record amounts of oil from shale formations and with that oil comes associated gas that needs either to be shipped or burned off.
When we look worldwide, we see that the Wall Street Journal is reporting, “U.S. Glut in Natural Gas Supplies Goes Global.” A chart from that article shows falling natural gas prices in Europe and Asia, almost to the level of US natural gas prices.
Coal: The US Energy Information Administration writes, “More than half of US coal mines operating in 2008 have since closed.” USA Today writes, “Is President Trump losing his fight to save coal? Third major company since May files for bankruptcy.”
China has also been closing coal mines in response to low prices. Its coal production ramped up quickly after it joined the World Trade Organization in 2001, but since the 2012 to 2013 period, production has been close to level. An academic paper talks about a “de-capacity program” undertaken in China in 2016 in response to plunging coal prices and overall financial loss of coal enterprises.
Figure 1. 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.
Uranium: A recent article says, “Plummeting global uranium prices hit Namibia hard.” Another article talks about the huge amount of capacity that has been taken off-line because of continued low uranium prices. The article estimates that 25% to 35% of global uranium production had already been taken off-line by the time the article was published (May 20, 2019).
Ethanol: According to the Wall Street Journal, the ethanol industry has been losing money since at least 2015, and is now closing ethanol plants in three states. The trade war has exacerbated its problems, but clearly its problems began before the trade war.
[2] The general trend in oil prices has been down since 2008. In fact, a similar trend applies for many other fuels.
Figure 2 shows that oil prices since 2008 have been trending downward.
Figure 2. Inflation adjusted weekly average Brent Oil price, based on EIA oil spot prices and US CPI-urban inflation.
Figure 3 shows that other energy prices have been following a similar price trend to that of oil. This situation happens because energy products are primarily used in finished goods and services of many kinds, such as cars, homes, vacation travel, and air conditioning. If demand for finished goods and services is high, prices for all commodities can be expected to be high; if demand for finished goods and services is low, prices for all commodities can be expected to be low. Thus, it shouldn’t be too shocking that the problem of prices that are too low for energy producers is very widespread.
Figure 3. 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. They are annual averages, so smooth out quite a few smaller bumps.
[3] The situation of prices being too low for many types of energy producers simultaneously is precisely the problem I found back in December 2008 when I wrote the article Impact of the Credit Crisis on the Energy Industry – Where Are We Now?
The article mentioned was written in December 2008. If we look back at Figure 2, this was a time when oil prices were very low. I had first noticed a cutback in credit of various kinds (including credit card debt and mortgage debt) in the middle of 2008, about the time oil prices crashed. Later in the year, additional financial problems emerged, including the collapse of Lehman Brothers. Banks became less willing to offer credit to buyers who were deemed insufficiently creditworthy.
In my December 2008 article, I wrote about suppliers in various supply chains not being able to get credit. Without credit, supply chains could not operate. Businesses depending on supply chains were forced to cut back on their purchases. In fact, some suppliers went bankrupt. Workers were laid off in this process; these layoffs added to the lack of buyers for finished goods and services. Energy prices of many types crashed simultaneously because of the lack of demand for commodities used to make finished products of many kinds.
The fix for the problem back in late 2008 was for the US to begin Quantitative Easing. Quantitative Easing lowered longer-term interest rates and allowed more credit to get back to supply chains. By 2011, oil prices had risen to a level that was more tolerable for producers. These higher prices slowly slipped away, especially disappearing when the US discontinued its Quantitative Easing program in 2014.
If a person looks at the late 2008 situation, it is clear that a lack of debt availability indirectly led to low commodity prices. Prices dropped almost vertically when the debt bubble popped. This time, the situation is a little different. We arrived at low prices through the long diagonal black dotted line on Figure 2; this time other factors besides an obvious lack of debt have been involved.
One issue that seems to be involved this time is a shift in relativities between the dollar and other currencies, making energy products more expensive for those outside the US.
A second contributing issue this time is growing wage disparities, as goods are increasingly manufactured in low-wage countries. Low-wage workers (both in developing countries and in advanced economies trying to compete with developing countries) are less able to buy finished goods and services. This contributes to the lack of demand for finished goods and services using commodities of all kinds, including energy products.
[4] In the right circumstances, a rapidly growing supply of cheap energy products can help the world economy grow.
If we look back, there was a period of rapid growth in the world’s energy consumption between World War II and 1980. This was a period of rapid growth in the world economy.
Figure 4. Average growth in energy consumption for 10 year periods, based Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects (Appendix) together with BP Statistical Data for 1965 and subsequent.
In fact, both population and energy consumption per capita were growing. This growing energy consumption per capita allowed living standards to grow as well (Figure 5).
Figure 5. Energy growth amounts shown in Figure 4, divided between amount that supported population growth (based on 2019 world population estimates and earlier estimates by Angus Maddison) and all other, which I have called “living standards.”
Most people would agree that a major increase in living standards took place between World War II and 1980. New buildings were constructed to replace those destroyed or damaged during World War II. Many people were able to buy cars for the first time. Interstate highway systems were built. Electric transmission lines were built, and oil and gas pipelines were laid. In rural areas, homes were often electrified for the first time. With the aid of energy saving appliances and birth control pills, many women joined the workforce. The US, Europe, Japan, and the Soviet Union all saw their economies grow.
[5] It is striking that the period of rapid energy consumption growth between World War II and 1980 corresponds closely to the long-term rise in US interest rates between the 1940s and 1980 (Figure 6).
Figure 6. Three-month and ten-year interest rates through July 2019, in chart by Federal Reserve of St. Louis.
If interest rates rise, it becomes more expensive to borrow money. Monthly payments for homes, cars, and new factories all rise. Evidently, the US economy was growing robustly enough in the 1940 to 1980 timeframe that US short term interest rates could be raised without much economic harm. The big concern seemed to be an overheating economy as a result of too rapid growth.
The huge increase in interest rates in 1980-1981 put an end to any concern about an overheating economy (compare Figures 6 and 7). Oil prices came back down once the world economy was in recession from these high interest rates.
Figure 7. Historical inflation-adjusted Brent-equivalent oil prices based on data from 2019 BP Statistical Review of World Energy.
[6] Starting about 1980, the US economy began substituting rapidly growing debt for rapidly growing energy supplies. For a while, this substitution seemed to pull the economy forward. Now growth in debt is failing as well.
Figure 8 shows how the ratio of total US debt (including governmental, household, business and financial) has changed since 1946. It becomes clear that once the big “push” that the economy received from rising consumption of energy products began to fail about 1980, the US moved to the addition of debt as a substitute.
Figure 8. Ten-year average increase in US debt relative to GDP. Debt is “All Sectors, Liability Level” from FRED; GDP is in dollars of the day.
I think of debt as being one of many kinds of promises. Figure 9 illustrates that while the total amount of goods and services has been growing, debt levels and other kinds of promises have been growing even more rapidly.
Figure 9. Promises of future goods and services tend to rise much more rapidly than actual goods and services. Chart by Gail Tverberg.
Many things can go wrong with this system. If the growth in added debt slows too much, we can expect to start seeing financial problems similar to those we saw in 2008. Also, if the level of debt (such as student debt) gets too high, its payback interferes with the purchase of other needed goods, such as a home. If energy providers decide prices are too low and stop producing, then promised Future Goods and Services can’t really appear. Huge defaults on promises of all kinds can be expected. This happens because the laws of physics require the dissipation of energy for physical processes underlying GDP growth.
[7] Since 2001, world economic growth has been pulled forward by China with its growing coal supply and its growing debt. In the future, this stimulus seems likely to disappear.
Figure 10. Figure similar to Figure 5, with bump that is primarily the result of China’s accelerated growth circled.
China has been financing its rapid economic growth since 2001 with growing debt.
Figure 11. China Debt to GDP Ratio, in figure by the IIF.
We know that low prices for coal have led to flattening production since the 2012 – 2013 period (Figure 1). In fact, part of the reason for the flattening of non-financial corporate debt in recent years in Figure 11 may reflect swaps of uncollectible coal mine debt for equity, removing part of coal mine debt from the chart.
The failure of coal production to grow rapidly puts China at an economic disadvantage because coal is a very low-cost energy source. Any substitution, even imported coal, is likely to raise its cost of making goods and services. This makes competition in a world economy more difficult. And China’s debt level is already very high, putting it at risk of the problems discussed in Section [6].
[8] The world economy needs much more rapidly growing debt if energy prices are to rise to a level that is acceptable to energy producers.
Debt acts like a promise of future goods and services. Growing debt, plus increases in other types of promises of future goods and services, helps to keep energy prices high enough for energy producers. There are at least three reasons that growing debt helps an economy:
First, increasing debt can be used to build factories, and these factories hire large numbers of people. The factories utilize various raw materials and energy products themselves, raising demand for goods and services. Furthermore, the workers hired by the factories, with their incomes from their jobs, also raise the demand for goods and services. These goods and services are made with commodities. Growing debt thus raises demand for commodities, and thus their prices.
Second, increasing debt levels by governments are often used to hire workers or to raise benefits for the unemployed or the elderly. This has a very similar effect to building new factories. These workers and these beneficiaries can afford more goods and services, and these goods and services are made using commodities. Governments also use some of their funds to build schools, pave roads and operate police cars. All of these things require energy consumption.
Third, consumers can afford to buy more of the output of the economy, if their debt levels are increased. If debt can be structured so that anyone who walks into a car dealership can afford a new car (such as longer durations, lower interest rates, and no down payment), this added debt allows increasing demand for new cars. It also allows increasing demand for the energy products used to make and operate these new vehicles. Furthermore, if new homes can be made more affordable for young people, this works in the direction of adding more mortgage debt.
The Institute of International Finance (IIF) reports that the ratio of world debt to GDP (red line on Figure 12) has been falling since 2016. This falling ratio of debt to GDP no doubt contributes to the low-priced energy problem with which energy producers are now struggling.
Figure 12. IIF figure showing total world debt and the ratio of total world debt to GDP.
Non-debt promises of many types can also have an impact on energy prices, but it is beyond the scope of this article to discuss their impact. Some examples of non-debt promises are shown on Figure 9.
[9] The world economy seems to be running out of truly productive uses for debt. There are investments available, but the rate of return is very low. The lack of investments with adequate return is a significant part of what is preventing the economy from being able to support higher interest rates.
In a self-organizing networked economy, market interest rates (especially long-term interest rates) are determined by the laws of physics. Regulators do have some margin for action, however. They can raise or lower certain short-term interest rates. They can also use their central banks to purchase existing securities, thereby influencing both short- and long-term interest rates. In addition, they can indirectly affect the system by raising and lowering tax rates and by adopting stimulus programs.
Market interest rates, in some sense, tell us how productive investments truly are at a point in time. Years ago, investments that the economy was able to make were far more productive than the investments we are making today. For example, the first paved road in an area had a huge beneficial effect. New roads were able to open whole areas up to commerce. Once an area had been developed, later investments were much less beneficial. Fixing up a road that has many holes in it takes energy and materials of many types, but it doesn’t really add productivity to the system. It just keeps productivity from falling.
After a point, adding new roads or other infrastructure doesn’t add much of anything. This is especially the case if population is level or falling. If population is falling, it would likely make sense to reduce the number of roads, but this is difficult to do, once there are a few occupied homes along a road.
As another example, a car that gets a person from home to work is a great addition if the vehicle allows the person to take a job that he could not otherwise take. But added “bells and whistles” on cars, such as air conditioning, a musical system, sturdier bumpers, and devices to reduce emissions, are of more questionable value, viewed from the point of view of allowing the economy to function cheaply and efficiently.
Another type of investment is education. At one point, a high school education was sufficient for the vast majority of the population. Now additional years of schooling, paid for by the student himself, are increasingly expected. An investment in higher education can be “productive,” in the sense of helping to differentiate himself/herself from those with no post-secondary education. But the overall level of wages has not been rising enough to compensate for all of the extra education. It is the growing complexity of the system that is forcing the need for extra education upon us. In a sense, the extra education is a tax we are required to pay for having a more complex system.
The need for pollution control might be considered another kind of tax on the system.
Our hugely expensive health care system is another tax on the system. After paying the cost of health care, workers have less funding available for buying or renting a home, raising a family, food and transportation.
[10] Since 1981, regulators have been able to prop up the economy by reducing interest rates whenever economic growth was faltering. Now we have pretty much run out of this built-in source stimulus.
Many observers have noted that central bankers are running out of tools to fix our economic problems. The lack of room to take down interest rates can be seen in Figure 6.
Figure 13 shows that long-term patterns of reductions in interest rates (darker bands) have happened previously. These reductions in interest rates came to an end because they couldn’t go any lower, given inflation expectations and likely levels of defaults. We seem to be facing a similar situation today.
Figure 13. Chart from the Financial Times showing historic interest rates and periods during which interest rates fell.
According to Figure 13, there have been three periods of falling interest rates in the last 200 years:
- 1817-1854
- 1873-1909
- 1985-2019
In the gap between the first two periods of falling interest rates (1854 to 1873), the US Civil War took place. This was a period of very poor return on investments. Somehow it ended in war.
Immediately after the second two periods of falling interest rates (after 1909), the world entered a very unstable period. First there was World War I, then the Great Depression, followed by World War II.
Now we are facing the possibility of yet another end-point for the take-down in interest rates.
[11] The total return of the economy seems to be too low now. This seems to be why we have problems of many types, ranging from (a) low interest rates to (b) low profitability for energy producers to (c) too much wage disparity.
All of the problems listed above are manifestations of an economy that is not producing sufficient total return. The laws of physics distribute the problem to many areas of the economy, simultaneously.
A person wonders what could be ahead. We seem to be reaching the end of the line regarding the takedown of interest rates, as shown in Figure 13. If a takedown in interest rates is possible, it acts as a relief valve for some of the other problems the economy is facing, including too much wage disparity and energy prices that are too low for producers.
In Section [10], we saw that when the relief valve of lower interest rates had disappeared, wars and depressions have taken place. We can’t know the precise outcome this time, but our current situation doesn’t look good. Will we encounter wars, or a serious depression, or financial problems worse than 2008? We can’t know for certain. Or will we somehow find a way around serious problems?
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Just when I said it can’t get any worse….it does!
BAU, BAU, BAU….
It’s the most powerful greenhouse gas known to humanity, and emissions have risen rapidly in recent years, the BBC has learned.
Sulphur hexafluoride, or SF6, is widely used in the electrical industry to prevent short circuits and accidents.
But leaks of the little-known gas in the UK and the rest of the EU in 2017 were the equivalent of putting an extra 1.3 million cars on the road.
Levels are rising as an unintended consequence of the green energy boom.
https://www.bbc.com/news/science-environment-49567197
However, the significant downside to using the gas is that it has the highest potential of any known substance. It is 23,500 times more than carbon dioxide (CO2).
Just one kilogram of SF6 warms the Earth to the same extent as 24 people flying London to New York return
And from what I heard there is going to be a strike on September 20th
Boy, this really amazing….
Betcha there are other combinations out in the environment that we have no idea the impact from
Technological advancements!
This looks like another important issue that has been overlooked in most analyses.
Needless to say, EROEI does not look at this. The supposed benefit of wind and solar doesn’t look at this either.
Sulphur hexafluoride is also a very long lived compound. Its perfect octagonal symmetry renders it almost impervious to catalytic degradation, and the strength of the S=F bond makes it also immune to most electrical discharges (unlike methane, which is readily oxidised by thunderstorms).
Nitrogen trifluoride (NF3) and hexafluoroethane (C2F6) are also very potent greenhouse gases, which are byproducts of solar panel construction.
So very green. Gaia thrilled no doubt:
“From where I’m standing, the city-sized Baogang Steel and Rare Earth complex dominates the horizon, its endless cooling towers and chimneys reaching up into grey, washed-out sky. Between it and me, stretching into the distance, lies an artificial lake filled with a black, barely-liquid, toxic sludge.
“Dozens of pipes line the shore, churning out a torrent of thick, black, chemical waste from the refineries that surround the lake. The smell of sulphur and the roar of the pipes invades my senses. It feels like hell on Earth.
“Welcome to Baotou, the largest industrial city in Inner Mongolia…You may not have heard of Baotou, but the mines and factories here help to keep our modern lives ticking. It is one of the world’s biggest suppliers of “rare earth” minerals. These elements can be found in everything from magnets in wind turbines and electric car motors, to the electronic guts of smartphones and flatscreen TVs.”
http://www.bbc.com/future/story/20150402-the-worst-place-on-earth
In the meantime in Norway:
WELCOME TO THE ZEN RESEARCH CENTRE
We will enable the transition to a low carbon society by developing sustainable neighbourhoods with zero greenhouse gas emissions.
https://fmezen.no/
Eating food and cooking food pretty much guarantees greenhouse emissions. Any vehicle at all requires greenhouse emissions. Building and maintaining roads requires greenhouse emissions. Keeping hedges in nice shapes requires greenhouse emissions.
True. Plus, if we are to use strictly renewable energy sources and materials then not only are we not going to be able to support a civilisation or population anything close to what we have now, we also will see even greater and more rapid wholesale destruction of forests and other ecosystems.
“In the meantime in Norway:”
Norway can afford to try this only because they have huge FF reserves relative to their population size, and they export these FF products for huge profits…
and therefore export the greeenhouse gas emissions…
so perhaps in their own eyes they will be a “low carbon society” because their FF will be burned elsewhere and their carbon will be released elsewhere…
what is the Norwegian word for “hypocrisy”?
“Hykleri” 🙂
Spot on David. This FF is able to support loads of academics producing “green” research papers and hosting of conferences on how to build “zero emission neighborhoods”. And then we can buy “climate compensated” holidays in south Europe. All those fossil fuel money put to good use 🙂
Good way of putting the issue!
The funding of this project is coming from the EU, and is part of pilotstudys in 6 european countries.
More about policy in Norway:
https://oilprice.com/Energy/Energy-General/Busting-The-Myth-Of-The-Worlds-Hottest-Electric-Car-Market.html
This is a great article! One quote I liked:
https://gailtheactuary.files.wordpress.com/2019/09/travel-patterns-to-and-from-work-before-and-after-ev-purchase.png
A person might think that Norway had money to burn with all of its oil revenue. It decided to try to get viewed as green through an outrageous support program for EVs.
More news from Norway:
«
In the past, alliances and enemy images have been closely linked to geographical location and access to natural resources, like oil. Geopolitics – the struggle for power and competition for natural resources – has played a role in conflicts such as the Iraq Wars and the clashes between Russia and Ukraine.
As new and cleaner sources of energy become increasingly available and in demand, researchers and experts have inquired into the possible implications of the green transition for geopolitics.»
https://www.nupi.no/nupi_eng/News/Debunking-renewable-energy-myths
I suggest they meditate some more…… Or maybe less?
I have problems in understanding how anything such as “global debt” can occur. In my limited understanding of finances there ca be no global debt as whatever is somebody’s debt has to be someone else’s asset, or?
Family “shop keeper” finances logic (or salaried person viewpoint) vs. global “synthetic” finance. Two very different levels, dissimilar playing fields, rules, and even participants..
Might makes right, bigger (mightier) countries can eventually live beyond their means, say upto more than 1/3th of their entire allotted lifespan (even decades or more)..
Plus obviously the undercurrent factor of multi generational private wealth, separate entity from the usual gov structures. In current form (hiding behind CBs) most notably present since late ~17th century.
So those above are the basic three pillars of humanoid actors within the economy:
– working bees
– gov-mil structures
– independent wealth/capital
Think of a debt as a promise to do something in the future. In most cases, it doesn’t have much behind it.
For example, a company borrows money (or sells shares of stock, something that is close to equivalent) to build a huge machine. The value of the machine is expected to be more than just the sum of the cost of the raw material that go in to the machine. The value includes enough to pay the worker (in advance of the machine being completed). The machine is expected to generate enough cash flow to repay the debt with interest, and to pay necessary government taxes. If there is stock ownership involved, dividends are to be repaid from the machine.
Yes, there is a machine on the other side of the transaction. And a bank may make the loan, using money it creates out of thin air. But there is a lot that can go wrong on the estimation process.
Consider another kind of debt. A student takes out a loan to go to college. The student believes that with the loan he/she will be able to repay the debt with interest. In fact, the student finds that there are not really jobs that pay very well in his field of interest. He/she cannot, in fact, repay the debt.
Of a government sets up a Social Security program and promises the workers retirement income. This is not considered a debt, generally, but the vast majority of people plan their lives as if they promised benefits will be paid. The government can only pay these benefits if the economy is functioning well enough.
Of you buy a car, and take out a loan to pay for it. The car depreciates rapidly, as you leave the show room. You often owe far more than the car is worth.
Gail,
There is a difference between liquidation value and return on capital value. If the vehicle serves a purpose of getting a person to and from a place of employment at a cost less than the income minus normal living expenses, the liquidation value is not relevant. What is relevant is the ability to hold the job with a vehicle. It seems it is more of a timing issue than an absolute amount issue. If the depreciation and the income are matched, there is no issue, all depreciation does not occur in the first minute the car is driven off the lot.
SS might be thought of as a way to hold a county together. Were SS to stop paying perhaps the greatest downside would be the young seeing much less value of the government to themselves and have much less allegiance towards it. This may be happening now in the political split in this nation which watching media seems to be split as much along age lines as anything else.
A small, closely knit group such as the Amish if scaled to nation size would provide little “skim” to the powers that be, they use so few government services that when they go away they notice much less than say a person living on welfare in a large city with little to no intergenerational connections.
Accounting is all about estimates, you were(are) an actuary, estimates can be made fairly accurately and include variances. An honest and competent actuary/accountant will produce estimates both positive and negative which should balance, unfortunately, there is always someone who stands to benefit more immediately from one way than the other.
Dennis L.
Estimates are based on sets of assumptions. The usual one is that the future will be a lot like the past. This is true sometimes, but not others. In a finite world, if a person assumes that the future will be like the past, at some point you will badly overestimate how good the future will be. I believe we have been doing this for a long time. This is why pension plans are in so much trouble.
You say, “SS might be thought of as a way to hold a county together. Were SS to stop paying perhaps the greatest downside would be the young seeing much less value of the government to themselves and have much less allegiance towards it.”
Social Security was implemented during the Depression to try to reduce the size of the workforce, so that young people would have more chance of getting a job. If you cut off all of today’s retirees and disabled from getting benefits, you will suddenly have a huge number more people competing for paying jobs, pushing young people out of the labor force, and perhaps lowering wage levels. With so many people hunting for jobs, why pay workers os much?
Furthermore, the total “demand’ for goods and services will likely go down, because (total income from jobs) + (missing SS benefits) will buy a whole lot less. Commodity prices of all kinds will fall too low. Debt defaults are likely throughout the system. The economy is likely to crash.
There is an awfully lot of “what do you want the estimate to be” hidden behind estimates. Once an estimate is in place, there is a lot of inertia against changing the estimate at all, especially in an unfavorable direction.
Thank you, Gail, once again. Please allow me to add my own thoughts.
First, the huge machine. I saw this happen, at a startup company I worked for. We had grown a little (thanks to a second round of financing), and needed more computer power. But our software only ran on an obsolete mainframe, that sold for USD 600,000. Well, the CEO (a former professor) went to the most cautious, conservative bank in Pittsburgh, and persuaded them lend him the purchase price, with the big machine as security.
Being cautious and conservative, they had no understanding of technology, and found out too late, after the inevitable bankruptcy, that the only value in the mainframe computer was the gold in its wiring.
On student loans: I saw this also, living in the US from 1983 to 1997. Open the doors of opportunity for poor young women and men. But most of them could not take advantage of higher education, hence the proliferation of “fluff” degrees in feminist studies, race theory, postmodern criticism, and so on. And on graduation, they were stuck with the loans, and with no means to repay them.
This was not a surprise to me, since Classical economics predicts exactly this outcome: that subsidies to consumers are always seized by producers, leaving the consumers worse off. And, of course, the Obama administration did exactly the same with health care.
Social security and its multiple follies has already been analysed to death, so no comment.
But car loans, yes: the system is rigged so that the value of the car is less than the value of the loan, at the moment you drive it off the lot. Which is why I never took out a car loan.
This is a good point:
“subsidies to consumers are always seized by producers, leaving the consumers worse off.”
Your other points are good, too.
I assume your “global debt” is a sum of government, company and household debt? If so, even if banks create money, the sums owed must appear on somebody’s balance sheet, so I still don’t get how there can be a global debt?
If debt was a successful way to create eceonomic growth, why are not all countries experiencing no or very limited growth, or even recession go for more debt? The two links give a quite different picture of the possibility of debt to create real growth, either for households or countries.
https://equitablegrowth.org/heres-how-high-levels-of-household-debt-affect-economic-growth/
https://theforum.erf.org.eg/2018/04/03/debt-drag-economic-growth/
Everyone owes everyone else. It’s a means to:
1. Shift old money to the pockets of new money. Thus the hatred for fiat currencies.
2. Use it as tokens of exchange for accessing the enormous and ever increasing amount of industrial output.
3. Most gold have been used up in industrial processes. Don’t expect there is a tractable way to go back to a gold backed currency.
Everyone wants more stuff and money. Hence the ever increasing amounts of tokens of exchange, goods and services.
Global debt is the sum of government, company, and household debt. I believe that financial debt is also included, at least in some compilations. Governments can print money and use it to buy back some of their own debt in the market place to try to make the marketplace behave if there is really less debt in place.
Governments are pretty much on a “cash” basis. They make a lot of promises, such as “We will bail out nuclear power plants” or “We will pay Social Security” but they do not reflect these promises on any kind of balance sheet. Governments overspend their income on a regular basis. The value of their bonds generally represents only past overspending, not planned future overspending of their income.
I suppose households have balance sheets. Most young people would likely have negative equity, unless somehow they could set up an asset equal to the value of the expensive education that they paid for, but received little true value for.
Businesses are the only ones that really put together balance sheets, and this can be iffy, as well. It is easy to claim that some device or property has value (say, the purchase price). Also, that some loan that a company has made will be paid back with interest. But if property prices decline, or if the loan is not really paid back, the equity that seems to be there, really isn’t. Today, derivatives are often paired with investments in foreign countries, with the expectation that if there is a big currency swing, the derivative will “fix” the big expected change in equity that will come from currency swings. In fact, derivatives have no reserves behind them. They may very well not be able to pay out, especially if there is a liquidity problem.
A huge example of promises that are likely not really there are pension plans. They often were set up years ago, when interest rates were higher. People have planned their lives as if the monthly income of these pension plans will continue, but in fact, there often is very little in assets to back up these promises. There are governmental organizations that supposedly insure (some) pensions, but they are not advance funded. When a problem occurs, they have to ask for a government allocation to try to handle the problem.
Similarly, the insurance on bank accounts is written by governmental organizations that have at most a tiny amount of advance funding. They have to go back to their government and ask for funding, whenever there is a string of major defaults. Since governments are on a cash basis, they don’t accrue for all of the expected cost of these payments.
The smoke and mirrors goes on.
Gunnar, Classical economics says you are correct. Every troy ounce of gold lent out is a troy ounce previously saved. But that is a system called “100% reserve banking”, in which the money lenders lend out only what they have in their coffers. Pioneered by the Knights Templar, incidentally.
Today we have “fractional reserve banking” where the banks lend more money than they have. So you save XAU1 at 3% interest, but they then lend XAU10 at 4% interest, and make out like bandits. Until the debts are not repaid, upon which … well we saw that happen, didn’t we? The State steals from everyone else, to repay the banks.
Did someone yell SPIKE?
YahooFINANCE
U.S. readies emergency oil reserves in wake of Saudi attacks
By Timothy Gardner
ReutersSeptember 15, 2019, 12:42 AM ED
WASHINGTON (Reuters) – The Trump administration said on Saturday it stood ready to tap U.S. emergency oil reserves if needed after attacks in Saudi Arabia shut more than half the crude output in the world’s largest oil exporter.
Yemen’s Iran-aligned Houthis claimed responsibility for the attack that knocked out about 5 million barrels or 5% of global production, but U.S. Secretary of State Mike Pompeo put the blame squarely on Iran.
The Strategic Petroleum Reserve, managed by the Energy Department, is held in heavily-guarded underground caverns on the Texas and Louisiana coasts. The world’s largest oil reserve currently holds nearly 645 million barrels of oil, according to the department website, consisting of 395 million barrels of heavy sour crude and 250 million barrels of light sweet oil.
Former Secretary of State Henry Kissinger pushed for the creation of the SPR in 1975, after the Arab oil embargo spiked gasoline prices and damaged the U.S. economy.
Old Henry was a smart Guy! Tricky Dickie said so
https://m.youtube.com/watch?v=9XXaVhWVR8w
Attack on Saudi refinery could push prices up to $100 p/b, says Robert Rapier:
https://www.forbes.com/sites/rrapier/2019/09/14/a-recipe-for-100-oil/?fbclid=IwAR0dhrwfBs4LKcCfgnWO48hJCMEGaIq_o5K7xmI0FW8aF83PqoaUuNsY6hA#651413184dbb
Let’s hope the outage is not prolonged and there are no further attacks. Europe inc UK, China, Japan, Australia and EM nations like Argentina, Turkey and India need $100 oil right now like they need a hole in the head.
Also, would the inflationary impulse from $100 oil discourage the Fed from cutting rates?
Although, Argentina perhaps not a good example, as they do produce some oil… and who knows? Perhaps higher prices might finally help them get their shale industry off the ground…
Less oil higher prices, who cares of affordability. We’ll see what happens on Monday. +5$ brent minimum i guess.
The WSJ is saying that oil production will be restored by Monday. The processing plant at Abiqaiq may be a bigger problem however.
FT has quite a good article:
““Today’s attack on the Abqaiq processing facility constitutes a paramount oil bullish, equity bearish, and global growth negative risk,” said Bob McNally of the Rapidan consultancy, who previously advised the White House under George W Bush.
““Such a brazen attack by an Iranian proxy on the crown jewel of the Kingdom of Saudi Arabia’s energy system will raise the overall geopolitical risk premium. “Due to its complexity, size, and customised components, repairing Abqaiq could take months, depending on the extent of the damage, though workarounds can offset some of the loss.””
https://www.google.com/amp/s/amp.ft.com/content/c76c2c6a-d79f-11e9-8f9b-77216ebe1f17
Will the Saudis be able to properly defend against the next strike which undoubtedly already is in its execution stage?
Let’s say this time a 100 drones targeting a few sites of crucial importance. Yes, I can almost feel the whiff of superglue, balsa wood, a hot solder iron and some plastic explosives from here.
Yep, the royal family is a goner, unless something out of the extraordinary happens. Time will tell.
@ Kowalainen
some serious info here:
https://abaadstudies.org/pdf-25.html
Thanks.
Guerrilla warfare has become a hobbyist low-tech hardware with high-tech software. Gone are the Kalasjnikov‘s and suicide bomb belts of old.
Now what are the Elders gonna do? Ban all micro controllers/FPGA’s, small size petrol/jet engines, plastics, cameras, 3D-printers, cheap ass Chinese CNC routers, PCB assembly pick and place machines, and balsa wood? I guess that’s quite intractable.
Dumb ass dominators get to taste their own medicine flown and delivered straight up their collective a$$es.
… As did the flower of French chivalry at the Battle of Agincourt, courtesy of a lot of Welsh peasants armed with longbows. Power to the people, indeed.
The desalinisation plants are a very easy target.
The desalination plants are mostly pumps and water, possibly quite “easy” to fix. However, the fossil burning power plants providing the Saudi with electricity would be particularly effective. Imagine Riyadh completely dark with the power plants ablaze. What a spectacular sight for the city dwellers.
Right now WTI is reported $61.18, which is around +11.5%.
I wouldn’t had my breath for $100 per barrel oil.
Kit Juckes of French bank Société Générale:
“…even for those who aren’t sceptical about Saudi claims to be able to restore a third of the lost output as early as today, there is bound to be a higher risk premium attached to prices going forwards.
“Slower global growth was beginning to act as a drag on oil prices, but the risk premium goes the other way and that in turn is another drag on global growth.”
https://www.theguardian.com/business/live/2019/sep/16/oil-price-saudi-arabia-iran-drone-markets-ftse-pound-brexit-business-live
In other words, beyond the short-term this may even help pull prices down.
Drastic falls in cost are powering another computer revolution
The Internet of Things is the next big idea in computing
https://www.economist.com/technology-quarterly/2019/09/12/drastic-falls-in-cost-are-powering-another-computer-revolution?cid1=cust/dailypicks1/n/bl/n/20190913n/owned/n/n/dailypicks1/n/n/E/308551/n
«One way to understand the IoT says Martin Garner at CCS Insight, a firm of analysts, is by analogy with another world-changing innovation. Over the past century electricity has allowed consumers and businesses at least in the rich world, access to a fundamental, universally useful good—energy—when and where they needed it. The IoT aims to do for information what electricity did for energy.»
But our problem now is keeping the electricity on. These great hopes for saving information cheaply depend on keeping the electricity on. By the way, the electricity was off at our home (and 234 other homes in our area) for something like half an hour this afternoon. It was a nice, sunny Sunday afternoon, with no obvious construction going on.
hyperdeflation… (spellcheck doesn’t think it’s a real word)…
hyper-deflation…
I thought of that word…
has it ever been a real thing anywhere?
specifically, what would it be?
would it be as destructive as hyperinflation?
economic decline because of decreasing energy supplies is a certainty, but the specific unfolding remains to be seen…
it should be quite entertaining to watch…
In hyper-deflation, cash would be king, president and god-emperor. Stuff would be marked down cheaper by the day and then by the hour. Specifically, you would bring wheelbarrows to the store to cart away all the stuff you can by with your nickels and dimes. It would be like everyday is a fire-sale day. This wouldn’t last long because producers would have no financial motivation to produce. So the economy would grind to a halt or disappear down the plug hole and around the U-bend.
it might be fun while it lasts…
Wonderful! I would leave the wheelbarrow behind and buy a Greek island. Then invite in to settle anyone who swore allegiance to me as God Emperor:
“Re d’un placido mondo,
D’una landa infinita,
A un popola fecondo
Voglio donar la vita.
…
E l’ultimo bisogno
Dell’esistenza mia.”
Oh well, it didn’t work out for him, either.
It certainly feels that we are circling the drain faster and and faster – Brexit, Draghi’s ECB, China, slowing economy and now this attack. Kind of like “are we done yet on these”? It does seem that the propping up is getting more and more glaring.
I agree with all that…
it also feels that the more extreme the propping up gets, the more likely that it will fail to prevent global recession…
those (black) drones may be little black swans flying high above…
I previously was thinking that BAU could get to 2030, but there has been a severe deterioration this year…
2020 sure looks like recession…
even with that, the early 2020s could wobble along with quasi-BAU, as long as the big black swan of hyperinflation doesn’t appear…
but decreasing net (surplus) energy never sleeps…
So many clues seemingly converging on ~2023-5.. as important threshold to be universally noticed (although many of the forcing behind it perhaps still not openly revealed – acknowledged – understood).
2020 foresight.
The global economy is getting to be like those very old 17th century slum houses in Victorian London which one can see in early photos: by the 1850’s they were all props and iron ties holding together rotting timbers and plaster, with floors and roofs at crazy angles – but guess what, desperate people were happy to live in them packed in like sardines, they had no choice at all. We are the slum tenants.
I have to say, there’s a palpable accelerationnow in the decay of markets and industries, and the desperate blatancy of the measures being taken is ever more apparent.
Well, may those props hold!
Bin Laden was a student of history. He noted that great empires fell not from military defeat, but from debt. By that measure 9/11 was stunningly successful. The physical damage was small as measured on a national scale, but the overreaction was and is incredibly costly. First, our fool of a president used it as an excuse to launch an incredibly stupid unwarranted multi-trillion-dollar fiasco in Iraq. Then we launched a homeland security program whose spending is totally out of proportion to the danger. All this cascaded into Trump whose costs are to be measured.
Bin Laden is looking down (or up? ) and smiling.
interguru
one mustn’t forget the overwhelming destruction of what Saddam did to Kuwait and all of the oil fields in his path. I figure in fact that the reason for 9/11 can be traced to the events of 1990. The Middle East is the powder keg that will one day consume us all. For more see here:
https://thesaker.is/some-of-the-many-things-most-americans-never-heard-about-9-11/
and here:
https://youtu.be/n0-61F-q3YM
Israel and Palestine both have high birth rates. In addition, there are idealistic young people coming to Israel, to volunteer to join the military. The population growth rate for Israel, (excluding Palestine) for 2019 is 1.6% according to the UN 2019 Population Estimates. For Palestine, the population growth rate for 2019 is estimated to be 2.4%.
In comparison, the World population growth rate is 1.1% for 2019. The population growth rate for all of Africa is 2.5%, and the population growth rate of Iraq is 2.3%. So Palestine is up with these high population growth rates, but even Israel ex Palestinian population growth rate is high. These high population growth rates add to the Middle East problems. Not having water to go around makes the problems worse.
@Gail
Yes, indeed and here in Canada I had the pleasure of running into an expat Palestinian and was floored by it. Asking too many questions of him but he didn’t want to talk much about his experiences nor how he managed to escape. Later I learned though through a buddy of his the wife pregnant with their seventh child. Yep, I guess so given where he comes from I replied back.
Israel what a failed state, yep their groaning and crying for a messiah at any cost apparently is sorely weighing terribly I imagine on their leaders minds but especially their religious ones. Land, Oil and Water? Can you imagine?
It is very strange. Part of the issue seems to be a population competition. Israel has the greater population, but Palestine is catching up. Why do this, without enough oil, land, or water?
To believe a cave hiding community organizer in 3rd/4th world sh#hole can suddenly affect (switch off) laws of physics at Manhattan site is preposterous. But even adults tend to believe in various fairy-tales.. it’s partly a coping (defensive) mechanism as the insanity level out there is immense.. people just want to be good members of the herd..
Domestication of humanoids.
A good student, then. Athens fell after her defeat at Syracuse, but not because of that defeat. Rather, because they could no longer collect the tribute from the Delian League, which is what had funded their armed forces.
Rome entered her long decline when the silver mines of Iberia were exhausted, and she had to debase the coinage to pay the legions, which they rather did not like. The fatal blow was the Chrysarguron, when the government refused to accept its own coin in payment of taxes, but demanded gold and silver bullion.
Spain of course became a great power thanks to the gold and silver plundered from South America, and collapsed when that ran out. And Britain was finished when she abandoned the Gold Standard during the Great War; it proved impossible effectively to return to it given the peace, because her debts were too great.
More recently, the Soviet Union drowned in debt after oik prices collapsed in the ’80s. Their incursion into Afganistan accelerated the process, Does that ring a warning bell?
I suppose a person could call the war and the security program as ways to hire people who wouldn’t otherwise have jobs. I would call most or all of this “overhead” on the system, similar to the overhead we get from a hugely growing educational and medical system. If we actually have to collect taxes to pay for all of this, young people can’t afford to have homes or families.
drones are a super weapon better than any jet or army. One need only go watch the trailer for the movie Angel Has Fallen to see the truth of this.
https://youtu.be/XF8h3hOGBJM
The houthi’s don’t need no Iranian to teach them just watch Hollywood
Hopefully this will bring an end to a really stupid war. USA/EU/Russia/China should have a grand sit-down with all of the middle east and iron out some end of hostilities across the entire region, from Israel/Palestine to Afghanistan. It’s ridiculous to play stupid coldwar games in a region that’s so essential to the continued survival of modern civilization
Yeah, there’s a lot that can be done with drones. Drones are getting more capable and smaller. That’s a bad combination because things that are small are harder to see to defend against. Can radar even pick up a small drone?
This may be a good time for the Saudi’s to strike a deal to end the fighting.
Ah, another bit of my research! No, small drones cannot be detected by ordinary radar. However specialist radar rigs can detect them, but cannot tell the difference between a drone and a bird. The current plan (as yet unproven) is to rely on “machine intelligence” (What else? MI has all the promise of astrological charts or ouija boards)
The countermeasure is to get the drone to behave like a bird, for which it only needs as much intelligence as one bird, while the radar needs the intelligence to pick ten drones out of a thousand birds, and do so before the drones get too close to be safely destroyed.
CIWS radars and IR sensors can detect incoming artillery shells and other munitions through their infrared signature, material reflectivity and diffraction patterns as well behavior in the air.
Extending defense capability, however, isn’t cheap.
http://www.quickmeme.com/img/45/4520adc323cedcf0829023be4b78f57f6a384360618ecd2a42fddcf9130d5e27.jpg
Those are excellent points about the difficulty of getting radar to work at picking out drones from birds, at a distance.
Not much birds in the Saudi desert. And how are anyone going to get birds to fly directly over critical infrastructure at the correct time.
Modern CIWS radars and IR sensors can easily target and shoot down a few drones. However in a coordinated attack from multiple directions at once… Not much hope there. Unless cheap guided missiles are used in a massive barrage against the swarm.
https://youtu.be/bQ342q5DIRQ
The Houthis are using guided missiles against Saudi drones:
https://youtu.be/ynNgMPOu42w
“Not much birds in the Saudi desert.”
Not so: Arabia is on the flight path of many migratory birds. All you have to do is prep the drones for flight, and wait.
The gear can basically be bought at a hobbyist store and shipped to some shady entity in Turkey, then loaded up on a shitty old Toyota pickup truck driven down through the desert. And once the gas runs out. Do like the Vietnamese, haul it on animals and carry it to some shack with a solar panel as roof, equipped with the right know-how, a computer, multimeter, superglue, balsa wood, soldering iron, a few meters of electrical wire and the right motivation.
Kaboom ensues. It’s a crazy world.
@ Kowalainen:
From the website Lawfare….https://www.lawfareblog.com/micro-drones-test-successful
In one of the most significant tests of autonomous systems under development by the Department of Defense, the Strategic Capabilities Office, partnering with Naval Air Systems Command, successfully demonstrated one of the world’s largest micro-drone swarms at China Lake, California. The test, conducted in October 2016 and documented on Sunday’s CBS News program “60 Minutes”, consisted of 103 Perdix drones launched from three F/A-18 Super Hornets. The micro-drones demonstrated advanced swarm behaviors such as collective decision-making, adaptive formation flying, and self-healing.
Now I guess we know where that scene in the Hollywood movie Angel Has Fallen came from.
Not that hard. All the drones need is chirp sonar and the intelligence of a bat. After all, the bats have been using this technology for over 100 million years and are pretty good at it. So, defenders, is it a swarm of bats, or is it kaboom in motion?
And I wouldn’t call 103 drones a “swarm”. A proper batty swarm can have over 100,000 members.
Problem is the range for the micro drones and to carry enough explosive power that they can penetrate through perimeter defenses such as simple nets and fences, and if they manage to do so, carry enough explosive power to cause enough destruction.
The micro drones also need miniaturized navigation and targeting systems to hit relevant infrastructure. Slamming the drone on the pavement or bury it in a sand dune achieves nothing. Besides, the intelligence of a bat is not exactly trivial, however that might seem for a human observer.
Rudimentary celestial navigation and cheap MEMS based IMU’s in combination with CMOS cameras, image recognition algorithms and a drone with a weight of +10 kg powered by a fossil burner having a range in excess of 1500km can wreck a substantial amount of havoc crippling half of the “victim” production capacity, as proven by the recent events.
Couldn’t even get toilet paper on credit!
GILLETTE, Wyo. (AP) — At two of the world’s biggest coal mines, the finances got so bad that their owner couldn’t even get toilet paper on credit.
Warehouse technician Melissa Worden divvied up what remained, giving four rolls to each mine and two to the mine supply facility where she worked.
Then mine owner Blackjewel LLC filed for Chapter 11 bankruptcy protection on July 1. Worden figured the accounts would get settled quickly.
“The consensus was: In 30 days, we’ll look back on this, and we made it through, and we’ll be up and running, and it’s a fresh start,” Worden said.
What happened instead has shaken the top coal-producing region in the United States. Blackjewel furloughed most of its Wyoming employees and shut down Eagle Butte and Belle Ayr mines, the first idled by hardship since coal mining in the Powder River Basin exploded in the 1970s
https://news.yahoo.com/mine-shutdowns-top-us-coal-160140125.html
The turmoil comes as U.S. coal production is down over 30 percent since peaking in 2008. Utilities are retiring aging coal-fired power plants and switching to solar, wind and cheaper and cleaner-burning natural gas to generate electricity despite President Donald Trump’s efforts to prop up the coal industry.
A decade ago, about half of U.S. electricity came from coal-fired power. Now it’s below 30 percent, a shift that heavy equipment operator Rory Wallet saw as utilities became less willing to lock in multiyear contracts for Belle Ayr mine’s coal.
Where’s Fast Eddie when we need him?
BURN MORE COAL
more like, they’re switching to natural gas. What % are wind and solar at now? I know the shillforce at the other PO site are expecting full renewable and EV anytime now
Once the natgas bonanza is over, yes you guessed it right. Back to basics. Inevitably we’ll revert back to:
BURNING MORE COAL.
Then as those deposits depletes we’ll switch right back to
BURNING MORE PEAT.
Once all peat bogs are dug up and properly turned into stuff we don’t need, bought with money we don’t have, then you’ll see; we’ll chuck in anything, including our hopes, delusions and dreams of a better tomorrow:
STRAIGHT INTO THE FIRES WHICH KEEPS US WARM AND NOURISHED.
At that time, there will be zero solar panels and windmills. Just a plenty of despair.
https://i.pinimg.com/originals/4c/a8/65/4ca865afaaf9674fb62b07997ae36ef8.jpg
I am not convinced it is this easy. The easy-to-get coal has mostly been used, except that that is too far from population centers to make any sense to extract. I know there is coal in Alaska of this type. There may also be coal in other places, such as Russia or Canada of Australia. If there is enough global warming, it may once again be near population centers. But as long as it is too far away, the effort/cost to transport it becomes too great to make sense.
Peat moss is probably this way as well.
Thoughts anyone?
https://www.zerohedge.com/geopolitical/massive-fire-after-drone-strike-hits-worlds-largest-oil-processing-facility-saudi
Dennis L.
Hint:
Long Range Attack On Saudi Oil Field Ends War On Yemen
Today Saudi Arabia finally lost the war on Yemen. It has no defenses against the new weapons the Houthis in Yemen acquired. These weapons threaten the Saudis’ economic lifelines.
No kidding! This is bad for Saudi Arabia.
Yemen is horribly overpopulated and suffering from peak oil. It has a terrible problem with inadequate water supply as well. It seems to still allow (rich) men to have multiple wives. Permitting multiple wives helps keep the population growing.
Rich men having multiple wives is natures form of socialism 😀
What goes around comes around! Women have rights too!
https://m.youtube.com/watch?v=d4yjrDSvze0
Well-educated women marrying well educated men increases household wage disparity, because well-educated women expect that their husbands will be well educated as well.
Back when women rarely worked outside of the home, it was the husband’s wages alone that determined the wealth of the family. If quite a lot of husbands married wives who earned low wages, that flattened the distribution of family incomes. But once high earners started marrying high earners, that ramped up the extent of wage disparity.
Thoughts. First, the background. For years, the diabolical trinity of Saudi Arabia, the US, and Israel have been doing all in their power to destabilise the Middle East. The Saudis have massacred civilians in Yemen without restraint, seemingly secure in their military supremacy. And they have been losing.
Now come the drones. Here’s what I wrote in a lecture I gave many years ago:
“The drone – flies anywhere, kills anyone. Being pilotless, it is safe for the user. But,
more important, it is anonymous. In addition, it can be miniaturised, built cheaply in a garage, and mass produced with simple tools. In other words, it is the ideal weapon, not for governments, but for anarchists, insurgents, and revolutionaries.”
And it couldn’t happen to a more deserving cabal of tyrants. Perhaps with John Bolton gone, and the Trump administration purged of the remaining neocons and Israel Firsters, the US will wake up to the fact that their natural ally in the ME is Iran, and their implacable enemies are … you fill in the blanks.
++++++
Trumps kids are married into I.F. circles/dynasties (not mentioning his other past long term deals), so that won’t happen.. at best he just declines the craziest demands of support.
In terms of the SaudiYemen situation, the drones are just a tool, out of many, the bottom line it’s more about the classic rehash of the situation where rich-spoiled techno army can’t/won’t commit long term on the ground vs determined poor locals (well having a bit of help from Iran/China/Non Saudi Gulfies.. helps)
the drones are just a tool
Please, they just took 5.5 million barrels of oil off the market.
KSA has no defense against this attack.
Robert yes evil has the money. It would be lovely if the US federal government served good. But it does not.
“All republics that acquire supremacy over other nations, rule them selfishly and oppressively.”
Sir Edward Shepherd Creasy, The Fifteen Decisive Battles of the World, Chapter Two.
The US said, ““The U.S. strongly condemns today’s drone attacks against oil facilities in Abqaiq and Khurais. These attacks against critical infrastructure endanger civilians, are unacceptable, and sooner or later will result in innocent lives being lost.”
That level of mendacity is the real problem. We, in the US, have participated, funded, and apologized for the Saudi mass murder in Yemen. Now to pretend that we care about the lives of civilians is more than evil.
Those refineries are sitting ducks. I’m very surprised this hasn’t happened earlier.
Actually, what is Iran going to provide which is not available as off the shelf stuff? Explosives and shaped charges perhaps, but those can surely be bought on the black market for next to nothing or manufactured on the cheap with some previous-century explosive “tech”.
https://www.youtube.com/watch?v=oS0poO4vHGE
I mean, we are talking about super glue, balsa wood, a little plastic and a small computer with a couple of cameras and a map stored in memory. Purchasable in Walmart and the rest trivially downloadable from the Internet.
I bet they have not found a single shred of evidence that Iran is behind this.
The Wall Street Journal is reporting:
Saudi Arabia Shuts Down About Half Its Oil Output After Drone Strikes
Shutdown amounts to a loss of some five million barrels a day, roughly 5% of the world’s daily production of crude
Also:
My guess is that prices will spike, then fall back down. How quickly they will fall isn’t obvious.
One big question is how quickly the blaze can be put out and how serious the damage is.
Gail says, “One big question is how quickly the blaze can be put out and how serious the damage is.”
I must add, “… and how soon the next attack happens.”
Good point!
As I’ve said before
The oil era will not end through lack of oil, but by fighting over what’s left of it. What’s going on in Saudi is part of that.
5% of global supply may not seem a lot, but Saudi Oil is ‘easy’ oil. whereas shale oil is ‘tight’ oil, and much more expensive to get hold of.
The world economic system cannot function on the tight oil EROEI of about 6 : 1 despite the USA crowing to the contrary.
That is the critical part of the oil equation
Does anyone know the proportion of easy oil production that has been put out of action?
In a sense, though, Saudi oil is not easy oil. It has a whole system that must be maintained, in order to get oil out of the ground. It needs to have a fairly large military. The World Bank reports the cost of Saudi Arabia’s military to be 8.8% of GDP. This compares to United States with 3.2% and China with 1.9%. Other oil and gas states also require large military expenditures:
Algeria 5.3%
Iraq 2.7%
Kuwait 5.1%
Libya 15.5% (2014)
Oman 8.2%
Russia 3.9%
United Arab Emirates 5.6%
Yemen 4.0%
“Arab World summary” 5.6%
There are many other costs as well. Saudi Arabia needs to provide jobs and provide subsidies for at least some food and energy, so that its people do not revolt and overthrow the government. These are directly related to having an oil-based economy, located in the middle of the desert.
I think that the narrow focus of “cost to get oil out of the ground” can be misleading. It certainly doesn’t tell how much about how low a price Saudi Arabia could to sell oil for. That seems to be $85 to $100+ per barrel.
my meaning was that the oil itself is easy flowing, not having to be fracked out of rock and stuff.
obviously military protection of oil everywhere affects the overall cost.
As time goes on from now, these problems will increase until the costs involved outweigh the benefits of oil itself. The problem will lie in convincing the powers that be that this will be the new level of oil-cost normality—ie zero benefit
Expect new orders to the MIC for extending the Saudi’s defense capabilities. It could have been drones from the usual suspects to highlight weaknesses in the Saudi infrastructure.
The next wave of drones will be swiftly dealt with.
https://youtu.be/qxVOclDHI9Y
And of course the obligatory R2D2’s
https://youtu.be/dKits_TkqX0
There are many types of drone. A crawling drone the size of a cockroach (a skitterbot) can hold enough nerve gas to kill 100 people, and is essentially unstoppable. Program 1000 of them with the right parameters, let them loose at the border, and ten days later the Saudi royals cease to exist.
At which point the former kingdom gets hit with the biggest slave revolt since Spartacus, and in another ten days the country ceases to exist.
Indeed if the micro drones targets people instead of infrastructure. Manufacturing micro drones however does not come cheap. Advanced mfg capabilities, control systems, sensors and targeting devices are required.
Swarm attacks on infrastructure of mid size (+10kg) low-tech subsonic (+700km/h) drones could however work since there is no currently existing weapons system that can handle 100’s of mid size jet powered drones, programmed for flying erratically, basically its hobbyist gear with military explosives and off the shelf electronics GPS/Glosnass/etc, fibre optic gyros, micro-controllers/FPGA’s and rudimentary stellar navigation in the case of GPS jamming, being dispatched from a “mothership” and converging on specific targets with proximity fused directed explosives, or in dispersed attacks hitting wellheads, pumps, crackers, pipelines, etc, and other sensitive apparatus all at once. EMP weapons could be used in the interim while the drone swarm become hardened against EM attacks. Small drones is inherently weak with high powered lasers that will eventually cut through or heat up the surface of the drone. But, yeah, the latest MIC gear for sure does not come cheap and might not even be available for unstable and questionable “nation states”.
Easiest to protect are the refineries since they are not sprawled out like other infrastructure. However, they are easiest to hit due to their size. I estimate that strikes on a few of the really “good” wellheads and pipelines in Ghawar would certainly be felt by the Saudis and the rest of the IC.
https://youtu.be/DPGDAZyQ44k
Oh, but as we have seen, in the Skripal affair, ‘battlefield nerve gas’ ain’t what it used to be…. 🙂
Dr Strangelove-
“Mr. President, I’m not saying we wouldn’t get our hair mussed. But I do say no more than ten to twenty million killed, tops. Uh, depending on the breaks.”
– Gen. ‘Buck’ Turgidson
I’m amazed at how casually the world seems to be taking this news. Zerohedge made mention of it but someone at /rcollapse made it clear in the follwoing comment:
“The target of the drone attack is the jugular of Saudi power and the biggest crude purification plant in the world; it’s not a refinery but a much more important piece of the puzzle in commercialisation of hydrocarbons.
Crude needs to be stabilized and the sulfur needs to be removed before transportation to a refinery where the cracking takes place. It doesn’t matter how much oil SA can pump from the ground if they can’t ship it. And the House of Saud might not have sufficient funds and time to repair it. It will take years to back up if the initial reports of damage are correct.”
Seriously, we could wake up to a whole new world tomorrow.
Sleepwalking into the abyss.. on so many fronts.
I don’t think it is really possible to purchase insurance against attacks like this.
Matt Mushalik sent me a link to an interesting background report on the Saudi situation prepared by an organization called Center for Strategic & International Studies.
https://csis-prod.s3.amazonaws.com/s3fs-public/publication/Jones_IransThreatSaudi_layout_v8.pdf
The report has nice areal photos of the processing plant a Abiquaq. It reports that Saudi Arabia has made quite a few preparations for attacks, such as cut off valves on pipes and strategically placed replacement parts that can be brought into use quickly.
https://www.zerohedge.com/energy/declassified-satellite-images-reveal-it-would-take-months-fix-saudi-oil-facility
If true, increased oil cost leads to recession or worse. Overall price is set at the margin, this is a fairly large margin. It is easy to get carried away with pessimism, but it appears much/most /all of Saudi oil goes through this plant.
Interesting projection of how much absolute oil will be lost from the world over the repair period and the size of the effect on world GDP.
Dennis L.
The irony of IC fossil fuel enabled high-tech devices created from an unsatisfiable need for more to put inside ever shrinking devices with growing capabilities than ever before in the known history of mankind. Off the shelf wizardry used against the oil powered industrial civilization which enabled it all.
Either we accept the rule of nature where there is no governing organ. A totally distributed system with no permanent ruling class, or nature will sort it out by whatever means necessary. As long as the corruptible nomenclature and stagnant old money exists for its own sake and seeks to dominate through conflict and mass psychosis, there will be perpetual war with weapons manufactured from disassembled devices of mass consumption used against its enablers, because there is an implicit, yet obvious military capability, and other “creative” uses of these “benign” and highly sophisticated devices.
The ruling class assisted by the nomenclature certainly blew the prospects of IC way out of proportion by creating this mess in the first place. Perhaps it is time to cut it back a few notches and reflect over the state of their brutalist centralized single points of failure and consider a networked and distributed self-organizing system in which they can seek to dominate by the means of technical excellence, commerce, connectedness and arts.
In the mean time; let’s fly some more bullets and spy on the populace in an ever greater extent and continue until the system becomes so centralized and sensitive any a 10-year old smart ass kid can program a micro-controller to disable the works by a targeted drone attack.
It would seem that helicopter money could/will be used (free money to pay down or pay off the debt to those who have it and an equivalent amount of funds to those who don’t) to increase debt further without lowering interest rates. The free money will boost economic activity. That would kick the can a little farther down the road.
You might be right. The problem with helicopter money is that it tends to move currency relativities around. The countries that need helicopter money the worst (ones doing poorly, such as Argentina) would find their currencies reduced in value most. Thus, helicopter money is at most a temporary solution by a few rich countries. If it works, it will help raise the prices of fossil fuels, and keep their production up. It is ultimately the fossil fuels that provide the benefit that allows the economy to continue.
Good Morning Doomers and FWers!
News to chew on with your morning cup of Joe!
https://www.bbc.com/news/world-middle-east-49699429
Drone attacks have set alight two major oil facilities run by the state-owned company Aramco in Saudi Arabia, state media say.
Footage showed a huge blaze at Abqaiq, site of Aramco’s largest oil processing plant, while a second drone attack started fires in the Khurais oilfield.
The fires are now under control at both facilities, state media said.
A spokesman for the Iran-aligned Houthi group in Yemen said it had deployed 10 drones in the attacks.
The military spokesman, Yahya Sarea, told al-Masirah TV, which is owned by the Houthi movement and is based in Beirut, that further attacks could be expected in the future.
Well, we have the right stable genius in the White House to make sure it does happen again!
Today in Slovakia: With the declining food growing, the protected wild bears come closer to the human dwellings and attack domestic animals and humans. Now the humans must fear…
https://www.cas.sk/clanok/883450/rodina-farmara-petra-je-v-soku-na-pohlad-ktory-sa-im-naskytol-za-plotom-zahrady-tak-skoro-nezabudnu/
The situation is similar in the Japanese countryside.
Twenty-five years ago, there were fears that black bears were soon going to be extinct in Western Honshu, but they are still here. They already are virtually extinct in Kyushu (no sightings since 1987) and Shikoku (where only 20 or 30 individuals were thought to remain as recently as 2013). The bulk of the black bear population lives in the mountains of central and Northern Honshu and is thought to be between 10,.000 and 30,000 at present. But nobody really knows.
Now we are coming up to the persimmon, acorn and chestnut season, the bears are on the prowl looking to fatten themselves up for the winter. They are mostly nocturnal and make there presence known by scratching the trunks of trees or climbing and then breaking off branches to get at fruit and nuts. My newspaper delivery man is also nocturnal and sees one every so often.
https://www.nippon.com/en/ncommon/contents/features/48017/48017.jpg
Yes, this is all about the death of the cultural landscape.
The passing of the torch …..
T. Boone Pickens was a legendary oil tycoon known for his colorful personality and generous donations to worthy causes. Born in a small town in Oklahoma, he spent most of his adult life in Texas. He founded Mesa Petroleuem, which became one of the largest independent oil and gas companies in America. The 1980s corporate raider became an advocate of energy independence. He gave away more than one billion dollars to philanthropic and educational causes including his alma mater Oklahoma State University, Meals on Wheels, hospitals, medical centers, kids at risk programs, and the military.
We invite you to share condolences for T. Boone Pickens in our Guest Book.
Died: Wednesday, September 11, 2019. (Who else died on September 11?)
Details of death: Died at the age of 91 from natural causes
http://www.legacy.com/news/celebrity-deaths/notable-deaths/article/t-boone-pickens-1928-2019-legendary-oil-tycoon
Remarkable man and remember ten years ago he was sounding the peak oil alarm.
Claimed every inch of the USA was poked and looked like Swiss Cheese.
Had a website going back then for a transition. Never will see Oil men like him again!
R.I.P.
Thank you Gail in altering us all readers that there are promises that will never be lived up to…
I.O.U debt is the promise.
Most of his money came from oil, one of the biggest causes of the climate crisis, which has already killed or put millions out of their homes, and he thought wind was another profit source. His legacy will not be should not be about charity.
Without fossil fuels, we would not have enough food for everyone. We could not cook those foods either. The vast majority of us would spend our time doing low level agriculture. The situation doesn’t have a simple solution.
I have been corresponding with my sister Lois Tverberg, who is a writer of religious books, about what the word that is repeated endlessly in the book of Ecclesiastes really means. We have decided it means “entropy.” (Lois was a physics major as an undergraduate.) The Old Testament book is saying, “Entropy, entropy, everything is entropy.” It is not possible to have energy dissipation without entropy. They are two sides of the same coin. Today’s human population cannot exist with growing energy consumption (also known as “dissipation”). It is an unfortunate issue, but it is basically unsolvable, without bringing human population down to a very low level.
Yep–
Georcescu-Roegen on entropy http://webpage.pace.edu/dnabirahni/rahnidocs/law802/The%20Entropy%20Law%20and%20the%20Economic%20Problem.pdf
“It is an unfortunate issue, but it is basically unsolvable, without bringing human population down to a very low level.”
Gail, if a problem has only one solution, that solution will eventually come to pass.
But I prefer the language of the Vulgate: Vanitas vanitatum, omnia vanitas. Or, from a later prophet: Nolite thesaurizare vobis thesauros in terra
Hi Gail. I think you ment to say: «Today’s human population cannot exist withOUT growing energy consumption (also known as “dissipation”).
I dont have an english Bible, but are the word mentioned here the one you ment?:
«It emphatically proclaims all the actions of man to be inherently “hevel” (a word meaning “vapor” or “breath”, but often interpreted as “insubstantial”, “vain”, or “futile”) […] as the lives of both wise and foolish men end in death. While Qoheleth clearly endorses wisdom as a means for a well-lived earthly life, he is unable to ascribe eternal meaning to it. In light of this perceived senselessness, he suggests that one should enjoy the simple pleasures of daily life such as eating, drinking, and taking enjoyment in one’s work, which are gifts from the hand of God. The book concludes with the injunction: “Fear God, and keep his commandments; for that is the whole duty of everyone” (12:13
.
It is hevel. My sister is the one who came up with entropy. I was thinking it was more the energy/breathe itself.
Thank you Gail for the other perspective.
In all fairness to T Boone Pickens, he was a product of a different age and place.
I was born around 1960 and a gallon of Petro was 25 cents! There was no talk about the climate and the energy crisis came and went in the early 1970s . The environmental movement started about then and it was about cleaning it up!
The climate crisis was put out there in the late 1980s! Was canvasing for GreenPeace
As a matter of fact T Boone Pickens was a proponent for alternative energy! He had a big wind farm project in Texas that never took off…as Gail has explained…he learned the hard way.
https://www.miamiherald.com/news/business/article234975657.htmlater in his career, Pickens championed renewable energy including wind power. He argued that the United States needed to reduce its dependence on foreign oil. He sought out politicians to support his “Pickens Plan,” which envisioned an armada of wind turbines across the middle of the country that could generate enough power to free up natural gas for use in vehicles.
“I’ve been an oilman all my life, but this is one emergency we can’t drill our way out .
Pickens’ advocacy for renewable energy led to some unusual alliances. He had donated to many Republican candidates since the 1980s, and in the 2004 presidential campaign he helped bankroll television ads by a group called Swift Boat Veterans for Truth that attacked Democratic nominee John Kerry. A few years later, Pickens endorsed a Kerry proposal to
Pickens couldn’t duplicate his oil riches in renewable energy. In 2009, he scrapped plans for a huge Texas wind farm after running into difficulty getting transmission lines approved, and eventually his renewables business failed
“The climate crisis?”
There isn’t one. 😉
It’s a scam pushed by globalists and collectivists to collect and profit personally from yet more fees on the energy we all use.
The climate alarm agenda has sent electricity prices through the roof in many industrialized countries, damaging their economies, impoverishing their citizens, and sending the most vulnerable to an early grave. But that’s OK. After all, climate alarmist think humanity is a cancer on the planet.
The agenda as it is being implemented today, started with the late Maurice Strong.
https://www.azquotes.com/picture-quotes/quote-what-if-a-small-group-of-world-leaders-were-to-conclude-that-the-principal-risk-to-the-maurice-strong-71-38-79.jpg
I don’t think that self-organizing systems depend on the action of one person. Unless these ideas fit in with what others are seeing and hearing, and a larger narrative, they don’t work.
What makes the Maurice Strong situation strange is that he came from the Canadian oil industry. This is the “wrong side” to be coming from.
I know that some of the peak oil people were really upset by the climate change narrative, because they saw it as a way of denying the limits of fossil fuel extraction. And I agree with them. No problem with fossil fuels. In fact, we can extract huge amounts in the future. The IPCC models basically assume that energy is not needed for the economy, and that prices can rise arbitrarily high, so that every possible bit of coal, oil, and gas we are aware of can be extracted. They make no sense from an energy point of view.
The climate is certainly changing, but whether we can do anything about it is a different story.
If it’s changing perceptively at present—and that depends entirely on one’s semantics and definitions—that isn’t the same thing as it being a crisis. That’s my main point.
And if it’s changing, this may or may not have something to do with anything people have done. After all, God and Gaia move in mysterious ways and keeping the average weather static or stable from year to year isn’t part of their game plan. Hence, all those long ice ages the world keeps going into and coming out of without any help from mankind. Hence the hundred year California Drought, the Year Without a Summer and the Dustbowl—six years without rain in some parts of the Midwest—that forced Henry Fonda to up stakes and move to California.
When we were young, the sort of changes in weather some of us notice today would not have been recognized as CC but would be put down to natural variation. If and when New York gets Atlanta’s climate and Atlanta gets Havana’s (and this has happened long ago in the past), that will be CC we can all agree on.
Featured speaker at ASPO MEETING. 2007 https://www.facebook.com/photo.php?fbid=1505594846907&set=a.1399109144831&type=3&theater
Dana, just do what the govt does and write more markers, aka Kick the can down the road. One day you will die and the markers will be worthless. On day the US of A will die and the markers will be worthless. Just hoping that I and my children outlive the US.
Strong language
I don’t know about the other posters here, but for me, a lifetime of servicing debt has been an ordeal. I have had few vacations, very few personal days off, too much work. I am trying, at the age of fifty-seven, to pay off personal debts, and avoid taking on any new debt. I would like to transition to a lifestyle where I don’t feel like a slave to an uncaring system. Maybe others feel the same way.
Dear Dana
First, you have my deep and unalloyed sympathy. For many, debt has become a way of life, and for far too many, that way of life has become a necessity. But I would urge you to try hard to become debt free. Please allow me to share some thoughts.
Fortune gave me a family with a tradition of frugality, which I learned as a child and tried to follow. I have never had any credit card debt, never taken out a car loan, and after getting married my only debt was a mortgage.
But in 1983, we moved to the US, and fell into the consumer lifestyle. A house in the suburbs, a three mile drive even to buy a loaf of bread, and hence two cars. Five children to raise. Federal, state, county, city and school taxes. Add that up, and the US is a very high tax society. In almost 15 years, we never took a foreign holiday, something which had been readily affordable in England.
Then fortune again smiled on me, and in 1997 I was offered employment in Singapore. So, no house, just a rented apartment for which my new employer provided a good allowance; no car (I bought 3 used cars in my life, and one new. Saved up for three years to buy the first, …), and again with some frugality, was able to live on 75% of my income.
And over the years that income increased, but my expenses did not. So some holiday travel, this time by business class, and more saving. By 1 January 2001, I was 100% debt free, and determined to remain so.
“Neither a borrower nor a lender be”, said the Bard, and of course he was right.
If it will not offend, I would like to pray for you and for the success of your resolve. Tomorrow, in the local Chapel of the Eucharist, in the presence of the Blessed Sacrament.
For there is no better way to go to sleep, than in the knowledge that you are in debt to none, save the One by whom all debts will be forgiven.
“For there is no better way to go to sleep, than in the knowledge that you are in debt to none, save the One by whom all debts will be forgiven.”
Very nice, it would seem many of our frustrations and personal problems have very simple solutions. Christians seem to have in many cases let go of their faith convinced secular humanism was a better alternative; it would seem that is not the case.
Dennis L.
Dear Dana
Just to report that, as promised, I visited the Chapel on your behalf this morning. And since this parish is dedicated to Our Lady of Succour, I also asked for the intercession of the Blessed Virgin, and recited the Ave Maria.
Blessed be.
Hey Dana, can you let us know how all this petitioning of the Lord works out for you? I’d be curious to find out. Thanks.
If petitioning the Lord can “tune down” a person’s own desire to “keep up with the Joneses” on everything, it has the problem 99% solved.
Thank you, Gail. I follow the philosophy of Ibn Sina, who in the Kitab ash-Shifa taught that God does not perform miracles, but works through the medium of the Natural Law. However, I know from my own personal experience that this Law does permit spiritual communication, and so it is permissible to petition for such an intervention.
And yes, it is almost precisely that for which I petitioned.
Indeed.
https://www.dailydot.com/wp-content/uploads/658/15/5eccf9d4cfbc0d7f36eb45c280ccfc94.jpg
https://i.pinimg.com/originals/d5/89/8d/d5898dac3500f118998d4cf570a9cc31.jpg
you cannot petition the Lord with prayer. you can go through the effort, of course, but you might as well ask your favorite rock formation for favors.
There are a lot of people with impressive results, however.
on Sunday, I watched a bumble bee patiently harvesting a huge sunflower head, patiently moving from one stamen (is that the right word?) to the next. I could have spent the afternoon absorbed by that bee.
My mind was full of the intricacy of the Fibanacci spiral, the bee knew nothing of that and got on with what it needed to do.
Then it seemed to me that the bee was teaching me about what’s important in life.
Much better than any sermon
For someone to correctly understand this they first would have to undersatand the need for a relationship with a creator. If you do not believe in a creator then one cannot have a relationship with or petition a single cell. No wonder there is all this confusion. Nothing cannot exist without a beginning. That is where we need to begin. Amazing that the planet is exactly where it needs to be to cause us to not be destroyed. Some credit this to chance. Some to a higher intelligence we refer to as God (Creator).
i bet that assertion will not hold up to a rigorous statistical analysis. how many prayers were not answered? Napoleon said God is on the side of those with the biggest cannon. these days, God might be behind those with the most sophisticated and effective missile defense systems.
… which is exactly what I did, in the Sanctuary of the Temple of Isis on the isle of Philae. And was answered. Though perhaps that was because of the rose I placed on the altar, as much as the petition.
wasn’t Blessed Be one of the required ‘exchanges’ in The Handmaids Tale’? (I couldn’t bear to watch past halfway through the first episode)
I respect the fact that you have a faith, but Be careful where you offer up your prayers, they may just be answered in the kind of future you weren’t expecting.
We should be collectively aware that the ‘age of reason’ coincided more or less with the advent of the age of fossil fuel use.
Before the age of reason, freedom of thought could have dire consequences. It took 400 years for the church to formally accept the truth of Galileo’s teachings. Universal distribution of surplus energy allowed the universal distribution of clear thinking.
We allow ourselves to forget that.
Remove that surplus energy, and the cloud of denial will return. It has never left millions of minds. The certainty of holy writ still darkens vast swathes of human minds. They will be happy for the return of priests to inflict it on all of us again.
As to debt. I too have been fortunate. Not through a faith, but by the sheer chance of having a gift that other people wanted to use and pay for. It made me comfortable and debt free. Though not obscenely rich.
Just as well—I would have been useless at anything else.
But I have always been aware that, by the same chance there are millions less fortunate than me.
They chase the wealth mirage, not realising what it is, the illusion created by the infrastructure supported by fossil fuels, which have been very unevenly and unfairly distributed.
Living by chance and beholden to the physical causes one not to understand the reason for the requirements of the whole person. Too much knowledge can cause one’s mind to become introverted (given to examining own sensory and perceptual experiences).
i suppose you agree with the King of Austria when he criticized Mozart for having too many notes in his music? one can never have too much knowledge.
It has been said: too much of anything can become harmful. Ecclesiastes 1:12-18 (NKJV).
Ecclesiastes 1:18 (NIV) For with much wisdom comes much sorrow; the more knowledge, the more grief.
That is sort of the way it is. It is more pleasant to make models of how a person thinks the world and the world economy ought to work.
Knowledge is symbolic, semantic and syntactic.
Reality, however, just is.
The external world as we perceive it is a phenomenon filtered through our limited sensory inputs, filtered and processed to concepts of reality inside our brains which forms our limited understanding of the world around us.
Believing that what we think of and perceive as the true objective reality is a delusion. It is a convenient manifestation of the smoke and mirrors inside our skulls which is an artifact of biological computation adapted and created by the pressures of evolution.
Thus there is no true reality behind our perception, let’s say of say the color red. It’s all a manifestation of this processing, however real it might be to the person experiencing it.
Believing that true knowledge in the forms of conceptual representations inside our skulls and written in books is nothing else than a delusion and a craving for our minds to seek an ultimate understanding in a reality that defies all explanation.
Or perhaps the cloud of denial has already returned. We hear day after day that we don’t really need energy. We hear that green this and that can save us. If we think the right thoughts, or behave highly, we can conquer Co2 and global warming. Strangely enough, another belief is, “He who dies with the most toys wins.” We can save ourselves, if we just think enough nice green thoughts.
I don’t think religion has any corner on false beliefs. Ideas self-organize to suit the needs of the time. They can be false ideas, if that is what suits the needs of political leaders.
Here in the US you can never be truly debt free. My wife and I have no debt for almost 20 years. But we still must pay property taxes which are high where we live. We live on a private road so we must pay for snow removal and road maintenance. And of course being self-employed we must purchase our own health insurance. All of which keeps us tethered to the fiat currency system even though we have no “debt”. I think Dmitry Orlov has the right idea, ditch the car and the house and live on a sail boat. I wish I could convince my wife to do that.
Orlov has done very well monetizing his writing online with his blog…
he has recently said that he now lives on a farm in Russia which I’m sure he could easily purchase since his income in USD must exceed $100,000 per year…
I would guess that his wife got very tired of living on a tiny boat…
I think the little boy is more of the question. He needs to attend a school.
Pushing that utterly ridiculous boat idea and then ditching it makes one lose respect for Orlov. Not quite all, because he has written some very good and perceptive stuff, but is now just a rather tedious Russian patriotic propagandist, and the heavy-handed sarcasm habitual to Russians becomes wearing after a while, even if the target (the US and the globalists) merits it.
Yes, they’ve got us, and as things decline the parasites will grow more pressing in their demands.
Just as the old feudal lords in Europe wouldn’t allow people to grind their own corn: they had to go to the lord’s mill, and pay for the service.
By the late 14th century in England, 95% of people were stuck in the money economy, having to pay for services and taxes in cash, not kind.
Exactly, Xabier. The monetisation in England started with the “Assize of Bread” act of 1266, which established the famous “penny loaf”. The butchers got their cut in 1272, when meat was monetised. The process was completed in 1801, when all the village commons in England were stolen, so the people could no longer keep their own fowl:
The Law doth punish man or woman
That steals the goose from off the common
But leaves the greater felon loose
Who steals the common from the goose.
But I think the all time prize for pointless rapacity goes to the priests of ancient Israel, who issued a religious prohibition on people slaughtering their own animals. They had to have them slaughtered by the priests, who then took the best part of the animal for themselves.
My impression is that back in the day when slaves were used extensively, a major task for female slaves was grinding grain. This task is very energy intensive.
I think timing is everything, with respect to attitudes about debt.
You say you are fifty-seven, so you were born about 1962. You turned 18 about 1980. Ronald Reagan was elected president in 1980, and began serving in 1981. This was the time when debt suddenly wen’t from being a “bad thing,” when everyone’s parents warned their children about how awful debt was, to becoming a miraculous thing called “leverage,” by which fortunes could be made. Interest rates were terribly high in the 1980s.
Somewhere along the line, businesses figured out that they weren’t nearly as profitable as in the 1950s and 1960s. They needed to squeeze every nickel they could. They didn’t want to train and keep their workers for many years. It made more sense just to hire workers on as temporary a basis as they could. The generous pension plans that companies were giving away in the 1970s gradually disappeared, and were replaced by individual savings plans that weren’t nearly as generous, and didn’t have the guarantees attached.
Those of us who were born earlier than 1962 were more likely to have parents who grew up during the Depression. They would tell us regularly how awful debt was. We would go to church and hear, “The love of money is the root of all evil.” Also, “Neither a borrower nor a lender be.” And it helped a lot that companies were in good enough financial condition to look out for their employees, paying them more generously than now. And some of us were fortunate enough to have purchased property, back in the 1970s when inflation rates were high. We ended up with a lot of price appreciation, which padded our balance sheets.
But as I said, the situation changed remarkably after 1980. Once the situation around a person changes, it is hard not being swept in by the changes. Lenders have been very willing to offer debt to people–often more than they can handle. If a person’s co-workers are all buying fancy new cars using debt, it is hard not to go along and do the same thing. If houses in the “right” neighborhood are expensive, but a person can qualify for a loan, it seems like a good idea to go along with everyone else.
I feel very bad for you and others caught in by the debt trap. A person needs some kind of vehicle to get to work in the US. And homes have risen remarkably in price. It is a difficult problem to fix today, with so much temptation to borrow all around.
Maybe in a future column you can explain how ExxonMobil and other oil companies stock declines in value (XOM down 25% over five years) but they continue paying dividends. I think they’re doing it by selling assets?
Quote: ExxonMobil stock has fallen 7.9% in the past two years. The fall in its stock and the 13.0% rise in its dividend payment have led to a surge in its dividend yield to 4.7%. The stock’s dividend yield stood at 3.7% in the second quarter of 2017.
For the 5 years ending 12/2018, XOM averaged $10.6b a year in free cashflow (after avg. dividends of $12.6b and $22.1b in capital expenditures per year). Short term stock price has little to do with their dividend policy.
Pension plans have traditionally heavily invested in oil companies and electric utilities because these companies are ones that can be depended on for dividends. Whether or not the stock will rise is unknown, but if they pay well on dividends, it tends to hold the price up over time, and the return including dividends is likely to be adequate, if not outstanding.
My take, oil is still a good bet for long-term investors because there will always be a demand for it.
We won’t move on from the oil age as easily as we moved on from the stone age.
Once the oil industry goes, it all goes.
Let the next batch of anti-ff protesters superglue themselves to oil company office front entrances, and leave them there.
There is also the possibility (% probability) that after the very next GFC (or another future round) the oil production (incl. “price”) would indeed bounce back again. However, by that time “investors/interest rate” – concepts as understood today won’t be around anymore as the chaos of broken JITs would be at some level propped up by the govs at the more fortunate places. In other words at that junction the mixed economic system pivoting way more towards the state domain, think about it like war economy of WWII era but even more intense, e.g. back than US gov could trim power of the big MNCs and banks a bit, nowadays in post GFC context it would be rather more or less complete takeover.. Used only as an example, more likely it will take place in other countries.. or smaller balkanized ver. of the US.
I guess this might have ~75% probability for ~2025-35..
Basically an attempted artificial floor put bellow the collapse for a short while..
Ironically super glue is made from FF’s. They better tie themselves using homegrown hemp rope, that is after they have smoked the leafs so that nothing goes to waste.
Eco hipster slacktivists. Suckling the petroleum wellhead while protesting against the industry which maintains their delusions of a sustainable fossil free tomorrow. And that glowball warmongering narrative on top of it.
https://static.thefederalistpapers.org/wp-content/uploads/2018/09/climate-change-scam-exposed.jpg
Mending Roads Pre-Fossil Fuels:
A common theme in 19th century European art was the ‘Dead Road-Mender’: a poor peasant, too old and weak to labour in the fields any longer, is seen dead at dusk, with his stone-hammer in hand, having been set to filling up the potholes in the road near his village.
In more Romantic paintings, the Angel of Death is seen hovering about, or taking him up kindly……
Thanks for yet another excellent article, Gail.
Road mending was not quite as awful a job as the original road building, I expect. The old and the weak could do it. But cutting pieces of stone and dragging the stone long distances over unpaved roads, would not be for the old and weak.
Setting the old and poor to road-mending was also a way of finishing them off so they wouldn’t be a burden on tax payers – humiliated and exhausted, it broke their spirit. Women could be forced to do it as well, of course.
This morning, in Kiev, I looked out of my window and saw an old man – a road sweeper. He was diligently brushing every scrap of paper that he could find in the street into receptacle that he held in his other hand.
It was a strange sight since the road was covered with potholes and the nearby pavements could only be described as decrepit. Yet, he kept his eyes down and went after every little tram ticket that he could find on “his” patch of road. Sad.
No broken windows there!
UK avoids the rush.
https://consciousnessofsheep.co.uk/2019/09/12/yellowhammer-a-taste-of-collapse/
Somehow, this reminds me of the prelude to the rollover from 1999 and 2000. Every computer system had to be fixed to work around the problem. There was considerable fear that some would be missed. But of course, that turned out well.
Unfortunately, the UK leaving the EU most likely has a lot more in common with the collapse of the Central Government of the Soviet Union. Every individual republic was on their own again. This produced a big dip in GDP in the future.
https://gailtheactuary.files.wordpress.com/2019/08/low-oil-prices-have-a-delayed-effect-on-oil-producers.png
Too much existing debt and too little growth (not enough net energy) to service it equals debt deflation. The price consumers can pay for energy is being deflated by debt service. Debt increases and is never put to rest because the economy can never produce a real surplus to keep things running and also pay-off the debt. The average consumer can never obtain enough surplus to pay-off their debt. Putin says the price of oil could be $25 a barrel in 2020 while the U.S. considers a 100-year bond and negative interest rates spread. Even with more debt there is an increasing head-wind of decreasing net energy. It may be time for helicopter money, but the one-percent don’t like giving anything away that they can put in their own pockets. If a typical business cycle were to happen, prices for energy might fall so low as to put the entire industry out of business, or so it seems.
https://www.zerohedge.com/news/2016-10-09/economic-recovery-feels-weak-because-great-recession-never-really-ended
In the words of one Cuban revolutionary, “revolution is not an apple that falls when it is ripe. You have to make it fall.”
Unfortunately the lions share of the apple is already eaten. Nobody can stage a revolt in a JIT society. Once the supermarket shelves empties, that’s the end of that. And try to make a revolution on an empty stomach. It quickly fizzles our into infighting for the scraps among the revolutionaries.
The push towards more urbanization guarantees that no such revolt can ever take place.
https://www.azquotes.com/picture-quotes/quote-amateurs-talk-strategy-professionals-talk-logistics-omar-n-bradley-134-40-39.jpg
Cuba is still communist.
Fidel died of old age——
Military people are not the brightest porch lights on the block.
“You don’t wanna get older, it has nothing going for it.”
—Woody Allen
https://imagevars.gulfnews.com/2019/07/03/190703-Woody-Allen_16bb7f3991f_original-ratio.jpg
What does this mean?
https://www.cnbc.com/2019/09/13/mortgage-rates-had-worst-week-in-3-years.html
I don’t understand I hear negative interest rates then I hear interest rates climbing…what is it? Who would buy a 50 year bond? I can’t see this going on for 20 years I don’t want to wait 50 years for something to mature and I think most people feel this way…
It means that US mortgage rates just increased a little. 20 basis points is equivalent to 0.2%. For example, if a mortgage rate as 4.0% and increased to 4.2%, that would be an increase of 20 basis points, and would make monthly payments for the life of the loan higher.
In the US, 30 year mortgages are standard, but the length can range from about 10 to 40 years. These mortgages can be either fixed rate or variable rate, with the rate variability starting after a specified time period, such as 5 years.
If rates fall, many people on fixed rate mortgages refinance their loans, so as to take advantage of the new lower rate. What the article is talking about is an uptick in interest rates, making cost less advantageous.
The negative interest rates are mostly in Europe and Japan, and are particularly on government bonds. But they can be on other kinds of debt as well. There was one recent story about a negative interest rate on a mortgage.
Pension plans, banks, and others that depend on interest income don’t like interest rates too low. But borrowers do. The article is point out that from the point of view the borrower, the new higher interest rates are a problem.
To the extent that changes such as these would be affecting European bonds with negative interest rates, they would be making interest rates less negative.
James:
“Too much existing debt and too little growth (not enough net energy) to service it equals debt deflation. The price consumers can pay for energy is being deflated by debt service. Debt increases and is never put to rest because the economy can never produce a real surplus to keep things running and also pay-off the debt. The average consumer can never obtain enough surplus to pay-off their debt.”
so the root of the problem is decreasing net energy…
no central banker or economist will be able to find a solution to this problem…
it’s like The Big Endgame…
this next crisis, which seems likely to hit in 2020, is vastly different from 2008/2009 when oil prices were way higher and interest rates were much more above zero…
CBs and economists may think they can recover from this because they thought they solved the last crisis…
there will be global recession again, but this time with no recovery…
it’s a new situation, and the question remains whether the result will be severe recession with no recovery…
or…
The Collapse…
I am afraid you are correct.
Very good article. Fig 2 says it all. Each high oil price episode on the trend line is like a heart attack or stroke for the financial system and the economy. I wonder though what will happen to Chinese oil imports when oil production declines due to low prices
My latest post
10/9/2019
Peak oil in Asia: where will the oil come from for the Asian Century?
http://crudeoilpeak.info/peak-oil-in-asia-where-will-the-oil-come-from-for-the-asian-century
China cut back its oil production in response to low prices. That is why its peak came.
According to most models, a large share (40% ?) of future “demand” for oil consumption growth seems to come from China. Once China’s growth in oil consumption levels off, world oil consumption will begin falling. In fact, this may already be happening.
This would need updating:
10/6/2015
China’s offshore CNOOC started to peak in 2010
http://crudeoilpeak.info/chinas-offshore-cnooc-started-to-peak-in-2010
“While China country was able to meet its energy requirements by producing 4 million barrels per day (mb/d) from domestic oil fields twenty-five years ago, last year the ratio of foreign oil dependency reached 70 percent…
“…the Chinese government has been pushing its state-controlled energy companies to increase production from domestic oil fields to reduce dependence…
“After the implicit request from the Central Government, the three energy giants [Sinopec, Cnooc, and PetroChina] showed their intention to invest a cumulative $77 billion or 517 billion yuan in domestic upstream activities. The economic rationale behind these investments is weak given the maturity of the oil fields in question and their relative depletion.”
https://oilprice.com/Energy/Energy-General/Chinas-Big-3-Struggle-To-Ramp-Up-Oil-Production.html
The one thing that can China can do to influence oil company’s spending is new investments is likely to be to change how it is taxed. Countries generally tax oil companies heavily. If China decided to back off on taxes for oil companies, (“give it preferential treatment”), this can make a big difference regarding what it can afford to spend on new development.
When I helped write the paper “An oil production forecast for China considering economic limits,” the big thing that made a difference regrading when China’s oil production began to decline was the price of oil. But lowering the tax rate could help as well. This is an indirect subsidy. Often, taxes on oil companies are structured so that the amount of tax falls as the price of oil falls. This way the government is the one that is primarily disadvantaged.
I should add, you really have nice charts in your post. I especially like this one.
http://crudeoilpeak.info/wp-content/uploads/Asia_oil_consumption_1965-2018.jpg
China and India both are having huge problems right now, particularly in the area of car sales, but in other areas as well. A huge share of world growth in import demand comes from these countries. As they start having financial problems, they cut back on their imports. This is what drives the low prices, and the belief by OPEC nations that they need to cut back on their production.
If we take 37 years of declining interest rates, plus or minus one year, as graph 13 suggest, we have until 2021-2023 before T.S.H.T.F.. For me personally, it’s already starting. I’ve always been a fast learner, in this case I wish I was behind the curve.
Pingback: Our Energy and Debt Predicament in 2019 – Olduvai.ca
“The Trump administration may begin issuing 50-year “ultralong” bonds next year as the government seeks new ways to finance ballooning deficits and tries to take advantage of low interest rates.
“Treasury Secretary Steven Mnuchin said on Thursday that he had been studying whether there was sufficient market demand for a 50-year bond, which would overtake the 30-year bond as the longest-term debt that the government issues.”
https://www.nytimes.com/2019/09/12/us/politics/treasury-50-year-bonds.html
“The finances of U.S. farmers continued to deteriorate, with 2.32% of all farmland loans in arrears at the end of June, up from 2.15% a year earlier and the highest share since 2013.
Default rates on other agricultural loans accelerated to 1.82% from a recent low of just 0.77% back in 2015 and the highest since 2011.
“The other troubling trend was the increasing delinquency rates for credit cards and other consumer loans, which have been gently but consistently rising since 2015.”
https://uk.reuters.com/article/us-usa-borrowing-kemp/us-consumers-show-growing-signs-of-debt-distress-kemp-idUKKCN1VX1XW
Farming is another type of energy production that is not sufficiently profitable for those doing it.
Some of the problems come in the growing gap between what the consumers and what comes back to the farmers. Part of the problem comes from growing epidemics that are “taking out” pig production in China and other areas. Another part of the problem has been the poor weather. We have come to count on “no problems,” but if we look back through history, problems are very much to be expected. This is part of the reason for stockpiles and for relatively high interest rates. Defaults are very much to be expected, in the whole scheme of things.
https://www.nytimes.com/1986/08/28/us/working-80-acres-amish-prosper-amid-crisis.html
I have heard this more than once and around my farm there are many Amish whom I never see hurry and who wave at everyone who passes. One farmer does appear to be more progressive than some of the rest, he harvests, plants, etc. with three real horse power instead of two, a 50 percent increase. Horses are of course under the right circumstances self repairing and self replicating.
Dennis L.
And the price of the 50-year bond will be leveraged even more than that of the 10- and 20-year Treasury Bonds by changes in interest rates. So the 50-year bond will help feed interest rate speculation, I expect.
“The world hasn’t seen such staggering numbers of people fleeing violence, persecution and desperation since World War II — and countries that had offered safe harbor are beginning to turn them away…
“The vast majority of displaced people flee not to wealthy Western countries, but to their neighbors. It’s there that efforts to curb protections are most acutely felt…
“Turkey hosts more refugees than any other country.”
https://www.axios.com/syria-refugee-crisis-rohingya-bangladesh-trump-cd761f56-8cdb-4820-94b1-20765a8a0664.html
“German Chancellor Angela Merkel’s government is watching with alarm the growing number of migrants reaching the Greek islands from Turkey.
“The swell of asylum seekers crossing the western Aegean Sea is a sign of trouble in the arrangements hashed out with Turkey that eventually staunched the flow of arrivals during the crisis of 2015 and 2016. A new influx, even if nowhere near the same scale, has the potential to stir up trouble for Merkel…”
https://www.bloomberg.com/news/articles/2019-09-12/germany-alarmed-by-spike-in-migrants-reaching-greece-from-turkey
The big problem is overpopulation. We have not worked this one out. We found ways to reduce the death rate, but not the birth rate.
A wise man once defined overpopulation as the situation where human numbers are destroying human values. We are well beyond that point, and countries are (at last) beginning to realise that their hospitality is simply destroying their own values.
This assumes that those values actually is something more than savagery hidden behind the veil of industrial civilization.
Nobody knows how to establish and to maintain a functioning society with its connectedness and welfare without the enormous prosperity being shoved down our collective spoiled throats.
The slightest hint of despair and people resort to nihilistic instant gratification and debauchery to cover for their lack of meaning in, and of spiritual life. There is nobody who cares the slightest in a purely individualistic society.
Obedience of the rule of law only masks this inherent degradation of culture. The transformation of man to the worker drone is complete.
Kowalainen, please permit me to disagree. I shall cite but one example: the systematic and organised gang rape of children.
This was almost unknown in the West, but is now prevalent in, for example, the UK, Germany, and Sweden. And everyone knows who is doing it: the “refugees” those countries foolishly admitted. This is not a matter of wealth or prosperity, it is indeed a matter of basic human values: values those societies respected and enforced, but that the invaders did not respect, and that those who had opened the gates to those invaders did not enforce, because they deemed their reputations and ideology more important than the safety of the people.
The Romans knew better: “Salus populi suprema lex”. And they did indeed maintain a functioning society, between the two poles of welfare (“annona”) and crucifixion. I do not approve of the latter, but I have two granddaughters, and if anyone violated them, I would hammer in the nails myself.
“The declining economic outlook and increasing political pressure are pushing central banks into more aggressive unconventional monetary policies.
“Simultaneously, fears are growing that such steps, especially negative interest rates, actually threaten the stability of the financial system. They risk setting off dangerous feedback loops in credit markets and the real economy, where the second and third-order effects are difficult to anticipate or control.”
https://www.bloomberg.com/opinion/articles/2019-09-13/negative-rates-threaten-health-of-banks
“Mark Haefele, chief investment officer at UBS Global Wealth Management, also has doubts about the ECB’s firepower.
“The ECB has committed to keeping rates at current levels or lower until it sustainably achieves its inflation target. But the effectiveness of forward guidance rests on central bank credibility. The ECB’s inability to achieve its inflation target a decade after the global financial crisis may undermine its credibility.””
https://www.theguardian.com/business/live/2019/sep/13/ecb-backlash-stimulus-package-draghi-trade-war-trump-sterling-brexit-business-live
“Mass-selling German newspaper Bild on Friday accused European Central Bank President Mario Draghi of “sucking dry” the bank accounts of Germany’s savers, a day after the ECB cut interest rates deeper into negative territory…
““Banks could soon pass on lower interest rates to even more customers,” Joachim Wuermeling, a board member of Germany’s central bank, the Bundesbank told Focus magazine.”
https://uk.reuters.com/article/uk-ecb-policy-germany/count-draghila-is-sucking-our-accounts-dry-says-german-daily-bild-idUKKCN1VY0MG
“…in Europe, corporate debt is in a very different place than it is stateside. As of August 1, a staggering 40% of investment grade corporate debt was yielding negative.
“And after the ECB’s new policy announcement this morning? That number’s guaranteed to grow.”
https://unseenopp.com/why-europes-latest-rate-cut-could-cause-the-next-financial-crisis/
The problem as described in the “unseen” article you link to is
The longer the yield, the bigger the change. Thus, a 50-year bond would have an especially big swing.
Gail, the “rule of thumb” here is the number 72. If you do the math, you find that if interest rates rise to 2%, then a 50 year bond at 0% will lose 70% of its value overnight.
Fun! Of course, I expect that those buying them are expecting that interest rates will continue to fall.
Whenever the US – China relationship starts looking a bit better, interest rate starts to rise again. When it goes downhill, interest rates fall. Derivatives are particularly subject to problems when there are fast changes.
Somehow, more money is needed in the everyone’s hands. Lower interest rates aren’t really doing this. They aren’t encouraging people to buy more cars, for example.
More paper wealth doesn’t help either, the only way to realize it is to sell and then the asset is gone, dividend paying stocks are great if purchased well.
My understanding is there are fewer companies listed today than say twenty years ago, the only way to have the same income the next time the seller sells is for the stocks to appreciate in price, this assumes the overall wealth remains constant as with a bond. E.g. if a person has eleven stocks and sells one for ten dollars, the remaining ten need to increase in value ten dollars total, the next sale of one stock leaves nine stocks which need to increase in value by the value of the stock sold, this quickly gets out of hand.
Dennis L.
I got curious and looked up what the World Bank data said about the total value of shares of stock for various countries and country groupings. This is what they showed, as the sum of total value, as a percentage of GDP.
https://gailtheactuary.files.wordpress.com/2019/09/total-value-of-listed-shares-of-stock-world-bank-data.png
The conclusion a person comes to is that it depends a whole lot on when a person invests. Japan’s big run-up in value came before 1989. (That is when Japan’s debt bubble started collapsing.) The US’s big run up in stock market values came before 1999. (1999 is when oil prices were lowest. It also marks the end of the growth of the share of the population with jobs.) The Euro Areas’s big run up in value came before 2000. (The year 2000 was the year of peak oil extraction for Europe.)
This chart shows that the value of the Euro Area’s stock are far lower than those of Japan and the USA, as a percentage of GDP.
It is also possible to look at the US$ value of shares of stock. Currency relativities will make a big difference in that chart.
Gail, lower interest rates don’t work with prudent people. They lower the future value of peoples’ savings, so prudent people save more to make up the difference, and therefore spend less.
The only effective ways to put more money into everyone’s hands are first, to redistribute wealth, which won’t happen. Falling house prices, for example, are a good thing because they are a transfer of wealth from richer (sellers) to poorer (buyers), but this is anathema to Modern monetary theory.
The second way is to create more real wealth to back the money, but again MMT deprecates this route, because it teaches that debt magically creates wealth. It also offends people who believe that debt makes the world go round, in spite of some six hundred years of “letters of credit” telling them the opposite.
But surely, to close the loop, not buying a car does indeed leave more money in the hands of the non buyer, to be spent on things more important that getting faster and more expensively from point A to point B. I’m well aware, for example, that the money I didn’t spend on a car would have funded three taxi rides a day for ten years. And the money I didn’t spend on them funded books, music, holidays, and visits to my distant children.
Falling housing prices are likely to lead to huge debt defaults, however, as people who are forced to move find that the remaining balance on their loan is greater than the equity in their home. Businesses have exactly the same problem. It is my impression that mortgage loans for businesses seem to need to be renegotiated every five years or so, to reflect the changing interest rate and property value situation. If prices are rising or even flat, there is no problem. But if property values are falling, then there is a need to cover up the problem, to the extent possible. For a while, lenders tend to “extend and pretend.” But at some point, businesses close or something else happens to make it clear that the debt is not really payable.
“Another shadow financier in India has defaulted on a debt repayment, signaling the nation’s yearlong credit crisis is far from abating.
“Altico Capital India Ltd., a non-banking finance company that focuses on lending to the real-estate sector, didn’t pay 199.7 million rupees ($2.8 million) of interest on borrowings from Dubai-based Mashreqbank PSC, Altico said in an exchange filing on Thursday.”
https://www.bloomberg.com/news/articles/2019-09-13/clearwater-backed-shadow-bank-default-adds-to-india-credit-woes
The Altico Capital article also says:
The danger is that other lenders will cut back on the loans they are offering. A lot of mortgage loans are temporary. They need to be “rolled over” to a new loan regularly. (US homeowners do not run into this much, but US businesses do, and property loans of all types run into this problem, around the the world run into this problem.) If property values go down, then there is an issue if the full amount of loan should be extended. The temptation is to “extend and pretend.” Maybe the value dip will be temporary.
If new buyers cannot find loans, it is almost certain that property values will drop.
The people in Slovakia use energy drinks for quenching the thirst and the companies found that energy drinks are a golden mine.
https://profit.sme.sk/c/22209085/predaj-energy-drinkov-rastie-na-red-bull-utocia-konkurenti-z-ceska-i-madarska.html
These energy drinks are not really good for people, but they don’t realize this. Or maybe they just don’t care.
It is not just the “Red Bull” energy drink, but plain old “Coca-Cola.” I am not aware that the caffeine is a huge problem. It is the sugar and the carbonation, and the lack of fiber and correct nutrients. Our bodies are not designed to operate on this kind of beverage. We need boiled water, or tea, or water diluted with a little wine (to kill the microbes). Or even a little beer isn’t all that bad.
I think the carbonation may be beneficial as those little bubbles help alkalize the body and improve the oxygenation of the blood—according to a book I’ve been reading on the wonders of sodium bicarbonate. It can cure a rainy day, apparently.
Perhaps the biggest downside of energy drinks or Coca Cola are the sugar and, even more so, the high fructose corn syrup that many of them contain. One of my neighbors has a 35-year-old daughter who is hooked on sugary drinks, and she has ballooned up to the proportions of a baby seal.
And even the non-sugar ones that contain artificial sweeteners are going to do the body harm. Sparkling water with a slice of lemon and perhaps a dash of vodka is far healthier.
Thank you, Tim.
When I was 17, my paternal grandmother died of diabetes. In those days there was no effective medication (insulin would not be synthesised until 1978) so she had been bedridden for several years.
It was obvious that, with a fair degree of probability, I carried the gene. So I stopped eating sugar? No: it took me about three years to kick the habit, but from then on, no sugar in coffee, tea, soft drinks (which I also mostly avoided), and no desserts. Well, maybe one dessert a month, just to remember the taste.
So, every morning unsweetened grapefruit juice (rich in potassium), diluted 1 for 1 with sparking mineral water (rich in magnesium), bottled at an Alpine spring first used by the Roman Empire and pretty much sustainable. And, of course, wine.
Yes, it was hard, but perhaps one reason I’m still here.
I think regular exercise (as in not sitting too long, taking time to walk many times per day) is important as well.
Exactly, Gail. Which is why, upon moving to Singapore, I stayed within walking distance of work, and walked every Sunday also (yes, it was a six day working week)
Sugar according to Dr Greger at nutritionfacts.org
https://youtu.be/zbfx6qRPidA
excellent article… sort of what I was hoping for, an energy+debt article…
I especially want to comment on this:
“[11] The total return of the economy seems to be too low now. This seems to be why we have problems of many types, ranging from (a) low interest rates to (b) low profitability for energy producers to (c) too much wage disparity.
All of the problems listed above are manifestations of an economy that is not producing sufficient total return. The laws of physics distribute the problem to many areas of the economy, simultaneously.
A person wonders what could be ahead.”
I think there is a clear answer to why the “total return” is too low, and that would be that the world has now passed the peak of net (surplus) energy… which means we are in a new situation, different from any other past crises, and even very substantially different from the 2008/2009 crisis…
if this is true (and I very strongly think so) then there is no solution for the problems of debt, interest rates and wages…
our networked system means that debt has been manageable because of growing energy supplies… everything in our economic system is relative to energy supplies… with decreasing net (surplus) energy, debt becomes increasingly unmanageable…
if world energy is in a state of permanent decline (I strongly think this is true) then “what could be ahead”?
probably a state of permanent recession, or worse…
whatever is ahead, it is a new situation never before faced by world leaders…
all attempts at economic growth now will probably end in failure…
it’s an exciting new world!
You have described the situation perfectly. It is a “too little net surplus energy” problem.
The EROEI people have not understood what too little net surplus energy really looks like. They have not understood how to calculate where the economy is, relative to an energy surplus. They have developed false methods of calculating EROEI on renewables. They seem to add to the problem, rather than being able to provide true solutions.
The EROEI folks mostly come at this issue from an energy alone or ecological basis (return on a fish’s labor). Most of them have no understanding of debt, or the financial system, or the fact that energy prices might not rise as the cost of energy production rises. In fact, the overall average EROEI may need to rise over time, to keep the system operating, but no one, to my knowledge, has considered this issue.
What the world really needs is growing per capita net energy consumption (return on human labor). Taking away high EROEI energy products and substituting lower EROEI energy products in definitely counterproductive. Interesting people in “solutions” that are not scalable doesn’t work either.
Jon Elster is Norway most acknowledged social scientist, since 1995 Robert K. Merton Professor of the Social Sciences ved Columbia University, New York. In this interview he tells that if he had been younger he would have tried to make his career studying the climat crisis. This are his reasons (worth using your Google translater):
«Den forener tre interessante ting. Det er den største utfordring verden har stått overfor, det er jo ikke så lite. For det andre teoretisk, betydningen av usikkerheten i disse fremskrivningene. Og, for det tredje, det normative: Hvor mye skal vi diskontere fremtidige generasjoners nytte for å finne nåverdien? Var jeg ung, ville jeg satset på dette!
– Det politiske er en fjerde dimensjon. Tenk deg nå at nasjonene skjønner at noe må gjøres og setter seg ned for å fordele utslippsrettigheter. Hvilken fordeling skal de velge? Hvert land vil kunne påberope seg et plausibelt normativt kriterium som tilfeldigvis passer med deres egeninteresse (eksempelvis fattige land som mener det det urettferdig hvis de må kutte like mye utslipp som vestlige land som allerede har nytt godt av fossildrevet vekst, red. anm.). Det er jo det som skjer allerede. Å bli enige i forhandlinger hvor alle kan påberope seg prinsipper, det er veldig vanskelig. Det er vanskeligere enn hvis alle nakent forhandler for egne interesser, for da er det ikke et så stort tap å komme til noe kompromiss. Men har man et prinsipp, da kan man ikke gå på kompromiss.»
And then he tells about what could be a solution:
«Elster forteller at han har sans for et løsningsforslag som er blitt lansert av en krets av amerikanske toppøkonomer: Høy skatt på fossile produkter kombinert med en en høy importavgift på varer fra land som ikke har tilsvarende fossilskatt. Inntektene fra disse skattene skal så fordeles jevnt mellom borgerne. Dette kan fungere, mener Elster.»
So also Elster seems to believe in the feasibility of a substitution from FF to RE, and at least in this interview he is not asking questions about the constraints and limitations with the economic models this policy recommendations rest on.
The full interview in norwegian behind a paywall:
https://morgenbladet.no/aktuelt/2019/09/hva-har-du-si-om-kjaerlighet-jon-elster
Just another academic with non-feasible solutions. Taxing this or that won’t help. All nations want to use more energy. To reduce sea oh two emissions one must use less energy (since renewable energy is just an extension of fossil fuels).
Simple as that. That’s why discussing “solutions” to glowball worming problems is futile.
It is not futile as it seeks to focus more power to the government industrial mass production complex. The new green deal is such a device.
You are sorely mistaken if you thought it was about caring about our beloved earth. It’s a scam, like all the other smoke and mirrors shoved out from the lackeys and rulers of old consumerism culture.
The economic system requires energy to create GDP. In fact, the economic system requires fossil fuels to create so-called renewables. This approach will lead to a high tax on imported renewable devices. In fact, it will lead to a high tax on practically everything. It is a move toward autarky. President Trump is putting tariffs on some goods from other countries, but this proposal would seem to add a lot more tariffs.
I expect that the prices of fossil fuels would fall even faster, and the system would collapse more quickly, with this proposal.
The thing I forgot to point out previously when I answered this is the fact that foods are the prime example of goods that require fossil fuel inputs for their modern production. In fact, there are huge supply lines in many, many areas associated with food production and delivery:
Machines of all kinds that do the many tasks associated with farming
Computers to operate all of this machinery
Fertilizers
Herbicides
Pesticides
Irrigation equipment
Refrigerated trucks
Cooking equipment for food
Needless to say, cows and other ruminants produce methane emissions, so are part of the global warming issue as well.
If Elster’s plan really were to be followed, it would mean that pretty much all imported food would need to be highly taxed. Devices used in the local production of food would also be taxed heavily. I don’t see this plan as having any chance of being popular with people whose wages are not going to rise, to offset all of this effort.
Another potential relief valve is lowering taxes and regulation. Imagine the potential energy unleashed if income taxes were cut 50% across the board tomorrow. Like lowering interest rates, it could buy us decades of time. If we are discussing negative interest rates today then no income taxes in the future cannot be a crazy idea.
There have been talks about another US tax cut. This one says, “The Trump administration is looking into a plan to cut taxes by the amount it is taking in from China tariffs.”
I am doubtful about tax cuts buying us decades of time, but maybe they might buy us a little time. It would be less of a departure from business as usual than would be a guaranteed income scheme for everyone. We know that absolutely even incomes don’t work. Cutting income taxes would live current difference in wages in place.
It seems to me resource depletion and debt are only the two of the biggest factors leading to one or many big disruptive events that will bring life as we knew it to a close. Seen in the timescale of human history, it’s just a blip. I predict those left standing will regroup in a more local and much less energy-intensive way. Having said this, the evolutionary march towards the singularity is unstoppable in the long run. If our descendants in three or four generations are recognizable to their ancestors, I would be very surprised.
Humans and pre-humans made it through ice ages. Some humans can probably make it through almost anything else that comes along. You are right about regrouping. Trying to make it on ones own would be very difficult.
“If our descendants in three or four generations are recognizable to their ancestors, I would be very surprised.”
🙂
They’re already close to unrecognizable in my case. Maybe lifestyles diverged too fast since the 70’s.
Hi Gail,
Thanks for today’s post. Tucked away at the close of one paragraph you state “Huge defaults on promises of all kinds can be expected.” This matches a sort of nightmare vision I keep having for the coming decade. Will the 2020s be the Decade of Defaults? That’s how it’s looking to me, metastasizing into an excruciating hot mess! I think we’re almost certain to encounter most of the horribly difficult predicaments you mention in closing. Most efforts to ‘find a way around serious problems’ only amount to kicking the can down the proverbial road. Bracing for hard times ahead seems prudent, to say the least. I greatly appreciate your hardnosed realism and respect for the laws of physics!
Jim
With everything (more or less) going wrong at once, it is hard to know how “huge defaults on promises of all sorts” will work out. It could indeed to lead to a lot of financial problems, everywhere. It could lead to the Federal Government trying to push Social Security over to the states to handle (if they can).
But we really don’t know how this all will work out, with so many things happening at once. It is possible that there will be some kind of war, with many people dying in the war. Or there could be an epidemic that wipes out billions of people. Or there could be some kind of religious ending to our predicament that we don’t understand. There could be governmental collapses of various types.
The best advice I can give you is to enjoy every day you have now. Diversify your investments, so if one goes first, you aren’t left with nothing. Try to maintain good relationships with family members, such as adult children or siblings. If things are not going well, perhaps you can team up with others.
I am not sure that trying to grow your own food is a good plan. It is too difficult for most of us. Grains in particular are difficult. If things change, homesteading may be hard to keep up.
Jim, I agree with your vision, but not with the nightmare. I see the coming defaults as the systematic replacement of false values by true values. “For he is like a refiner’s fire”, as the Good Book has it.
And I remember well the words of my first and best financial advisor: “Pay cash, or go without”. Thank you, grandmother.
Thanks Gail for that new post!
I’ve been also thinking about the fact a first built road has much more effect than maintaining it. We can also add the fact that once people buy a new product, it creates some growth. But once the market is full, for example with cars or phones in developed country, the market stagnate. The people will not have many cars at the same time usually.
Other subject, I’ve been attending to a conference in the last 2 days with European actors on hydropower. It was very interesting, especially to discuss the role hydropower has to play to bring flexibility and storage for the future renewable mix we want to have. At least, people working in hydro industry are aware we can’t only rely on intermittent electricity production and battery. The fact that pump storage is much cheaper than battery was also underlined. Now we have to let the rest of the actor aware of those issues.
Yes, once a market gets full of cars (or practically anything else), it is hard to add more than the amount needed for those that wear out, plus those needed for new entrants into the economy. If there is no net gain, it is hard to build economies of scale.
Regarding hydroelectric backup, the question isn’t whether the approach is cheaper than other methods; it is whether it raises total wholesale costs too much relative to what the market is willing to pay. There is an in-and-out loss on storage, for one thing. It seems like the only way companies can tell if something will work is to try it. Here in the US, there has been a bad problem with intermittent electricity driving down the wholesale price of electricity.
https://gailtheactuary.files.wordpress.com/2019/08/bloomberg-pjm-fair-value-price-for-electric-power.png
Regulators are at their wits end, trying to figure out what to do. When wind and solar get subsidies (even the subsidy of going first), everything else needs subsidies. Now nuclear needs subsidies. This is a link to the article this is from. https://www.bloomberg.com/news/articles/2019-07-25/biggest-u-s-power-grid-ordered-to-halt-2019-capacity-auction
Brilliant post, thank you.
Conjecture: central banks set short term interest rates, influence, but do not control, longer term interest rates. Longer term rates are set by inflation/growth expectations. As cheap oil depletes, global growth diminishes down to zero, interest rates globally move to zero (on average) until the system freezes and eventually breaks through political currency crisis, political dis-union, wars. There are maybe 3-5 years more to go on the current global growth rate trend-line downward to zero.
Why the market does not “see” the risk here and add a substantial default risk premium to bonds etc. is hard to understand. But historically bond prices did impending defaults and wars, until very last. I guess we are just willingly blind to the future.
Correction to my comment. Sorry. “But historically bond prices did not warn of impending defaults and wars, until very last.”
Bond prices indeed did not warn of impending wars, because the experts and intelligentsia believed war to be impossible. This was set out in detail in a book called “The Great Illusion”, written by one Norman Angell. The reason: countries’ economies had become so intertwined, so dependent on transnational supply chains, that war between industrial countries was futile and unproductive, so would not happen.
A much admired best seller when published, in 1909.
By another irony of history, one year earlier the Liberal government of H H Asquith had come to power, and introduced policies that near enough made the Great War inevitable.
https://www.bloomberg.com/news/articles/2019-09-11/chinese-electric-car-sales-drop-for-second-straight-month
Chinese Electric Car Sales Drop for Second Straight Month
“…27 years of following the auto industry have taught me one thing: when consumers stop buying cars they stop buying all models, regardless of propulsion system.”
https://www.forbes.com/sites/jimcollins/2019/09/11/chinas-car-market-is-heading-from-recession-to-depression/#3d8705fa6b55
Changes in emission rules seem to be part of the problem. Reuters reports, Behind the plunge in China auto sales: chaotic implementation of new emission rules.
Dealers are being left with a lot of vehicles that don’t meet the new emission standards. It is not clear to me what cars meet the new rules. This is a paper on the new standards. https://www.technology.matthey.com/article/61/4/269-278/
I thing emission standards are becoming a big problem, because they are the wrong solution. One way out is simply to cheat, as German car makers did. Another way is to avoid buying new cars, as the Chinese seem to be doing.
Electric cars we can forget about: they simply move the emissions from the tailpipe of the car to the smokestack of the power station. There is only one effective solution to auto emissions: get rid of the autos. Move to a system where 90% of journeys are by public transport, and an electric scooter or little runabput covers the last mile.
Not easy is a country devoted to “suburban sprawl”, but the land under those houses would be far more productive converted back to sustainable agriculture.
“last mile” how about walking? Like we always done.
Thank you, DJ; that’s what I have always done. Except at my last job the last mile was the only mile: I walked to and from work. And today I walk to the bus stop, walk around the “big city” doing my shopping, and walk back home from the bus stop.
But that is rather unusual for someone who is 74. Many older people cannot walk very well, and certainly not with a load of shopping. To them, mobility is an important part of their lifestyle.
Bicycles is the transportation of the past and the future.
https://alchemyrider.files.wordpress.com/2013/05/bike-and-car.gif
THE RULES:
We are the Keepers of the Cog. In so being, we also maintain the sacred text wherein lie the simple truths of cycling etiquette known as The Rules.
//1. Obey The Rules.
//2. Lead by example.
It is forbidden for someone familiar with The Rules to knowingly assist another person to breach them.
//3. Guide the uninitiated.
No matter how good you think your reason is to knowingly breach The Rules, it is never good enough.
//4. It’s all about the bike.
It is, absolutely, without question, unequivocally, about the bike. Anyone who says otherwise is obviously a twatwaffle.
//5. Harden The Fuck Up.
https://www.velominati.com/
Also, figure out how to maintain roads. These are horribly difficult to maintain without fossil fuels. This is a point that people often miss. Without paved roads, we need different forms of transportation.
The issue is as much roads as it is vehicles. Maintaining roads requires a lot of fossil fuels. People become excessively focused on the vehicle part of the problem. If we have vehicles, they need to be vehicles that are adapted to dealing with unpaved roads–vehicles set high off the ground, for example. Also, we won’t need to go to current jobs, so going to the same central areas we do now will not be helpful. Governments are likely to be weaker. They will not be able to subsidize public transport the way it is subsidized now, I expect.
Also, “using less” is not really a solution. We need to keep demand up, or the whole system tends to fall apart.
Gail, the Romans maintained excellent roads using no fossil fuel. The solution is simple: instead of building roads to take the weight of heavy vehicles, make the vehicles light enough not to damage the roads. Maybe not roman legions and oxcarts, but pedestrians, bicycles, and light runabouts for people with limited mobility. And maybe trams, but not at grade level.
What about heavy loads? Oceans, rivers, canals and railways between densely populated areas; for the outback, the cargo airship would be a sustainable and very cheap solution, not least because it requires almost no infrastructure on the ground.
As always, the only way to cope with a declining supply of energy is to reduce our need for energy, by as much as possible.
My understanding is that the way the Roman roads were maintained was by importing a constant supply of slave labor. The work was so demanding that ordinary citizens were unwilling to do it. Life expectancy of workers was short. This is a big reason why once Rome fell, these roads could not be maintained.
Yes, having light weight vehicles does help these roads last. But this is precisely the opposite of public transportation and trucks pulling double trailers.
Human or animal pulled boats, operating in canals or flat rivers, has been a historical solution for moving heavy goods like coal. Aside from water transport, transportation has been extraordinarily difficult, because we never have had the slave labor to keep up the huge amount of roads that would be needed.
Using less fossil fuels is not really an answer, because we cannot keep the prices up high enough.
We need a system in which the “return on human labor” is sufficiently high. At this point, for quite a bit of the world’s population, this return is too low. Our level of complexity requires advanced education, expensive healthcare, and taxes to pay for the many elderly who have been promised retirement and healthcare benefits. By the time all of the these have been paid for, young people don’t have funds left to start families of their own. They continue to live in their parents’ basements forever.
The alternative to urban sprawl is high density with apartment towers. Sydney’s monopoly game around new and planned metro stations is a good example
Sydney’s Immigration Metros
http://crudeoilpeak.info/sydneys-immigration-metros-part-1
I hope Gail will weigh in here. I suspect that the hidden costs of apartment towers would lead to ginormous problems. But as to high (or high-ish) density in urban places, depending on the type of shelter devised, that would seem better all around than sprawl.
The existence of large numbers of people living in close proximity is possible only because of high energy consumption. The high energy consumption allows materials to constantly be brought to the core of the city, and waste products to be removed from the city.
It seems like it was Jared Diamond who wrote about how difficult it was keeping the population of cities up, before modern times. Communicable diseases were a huge problem. Cities had to keep importing population from surrounding rural areas to keep population from falling.
With less energy consumption, we will have a great deal less need for cities. There won’t be the jobs in cities to support much population. So, in a way, the discussion doesn’t make much sense. If a city has 24/7/365 electricity to run elevators, and a large share of GDP to spend on trying to outwit germs, then elevator building make sense.
Otherwise, most of our wealth will come from what we can grow. A much smaller number of people will need to be widely dispersed. Or perhaps they can live in small villages, with their fields around them. But today’s homes aren’t built in this configuration. New homes, if they are built at all, will be much simpler, I would expect. They will be constructed with local materials, without electricity or indoor plumbing, I would expect.
Thanks, Gail! I never put all this together, and we’ve tended to go from one extreme scenario to the other. But you are talking about what looks like a middle ground, where there might be some, much reduced and localized, industrial production. Someone mentioned solar heating on the roof, which would be beyond the means of individuals, but perhaps not a local government. I’m seeing those overhead buckets that you tip over for showering. Basic compost toilets are a possibility if there can be a local education and support program around them. Happy days!
Also, I’ve been around “urban agriculture” (or horticulture) communities for a very long time, and have done enough and seen enough to be sure more food can be grown on the ground in cities than now…by an order of magnitude. Learning and programing to do that could be one of several things to reduce sprawl. And where you already have the makings of of a village, there could be the nudge to create more villages, which also would be a sprawl prevention strategy.
Gail is absolutely right that these dense cities need 24/7 power supply. But that will not be the case in future. I attended 2 Greater Sydney Commission panel meetings and advised them that by approving one residential and office tower after the other they overbook Sydney’s power supply.
That will become apparent in the next hot summer when global warming will make it more and more likely that we’ll have simultaneous heatwaves in 3 East Coast states all hanging on the same grid and depending on power imports from each other.
In 2017 we already had load shedding. Instead of turning off the lights and aircons in those government departments which are responsible for the planning mess, they had to turn off pot lines in an alumina smelter, one-by-one for 1 hr. This is actually a No-No.
14 Feb 2017
NSW’s privatized giveaway coal plant causes load shedding in extreme weather
http://crudeoilpeak.info/nsws-privatized-giveaway-coal-plant-causes-load-shedding-in-extreme-weather
For those who read my immigration metro article it should be clear that I am against this type of development. In the summer 2018/19 we just made it. I have now gone also into the details of power supplies because the public thinks we are going to have a smooth transition to electric cars.They would move the problem from oil back to coal. First priority would be to replace existing (and aging!) coal plants by renewables plus pumped hydro storage which are massive projects and would also depend on rainfall (once dams are filled evaporation and other losses would need to be constantly replenished)
Dam levels for hydro power are here, for the 2017/18 season (no hurry to update for 2018/19)
https://www.snowyhydro.com.au/our-energy/water/storages/
Talking of water, Sydney’s dam levels are now at 49%
https://www.waternsw.com.au/supply/Greater-Sydney/greater-sydneys-dam-levels
Gail’s website title “our finite world” is the appropriate heading for all these problems.
Here is Sydney’s power supply situation as of January/February 2019, the hottest months
5/2/2019
NSW coal fired power plants generation in late January 2019
http://crudeoilpeak.info/nsw-coal-fired-power-plants-generation-in-late-january-2019
A couple of points:
1. Right now we are, admittedly, talking about relatively limited power outages. Figuring a way to work around them is not too difficult. But we cannot count on this going forward. The outages may represent rolling blackouts, on a regular basis, or they may reflect damage that hasn’t been repaired after storms. They may represent mishaps that we have not encountered before. In such a case, it becomes difficult, because elevators don’t work in high rise buildings and traffic lights don’t work. Air conditioning systems in buildings with windows that don’t open don’t work. Workers cannot get work done, without electricity.
2. Looking at the Australia electricity situation from a distance, I see this pattern of energy production.
https://gailtheactuary.files.wordpress.com/2019/09/australia-electricity-production-bp-to-2018.png
*Renewables include wind and solar. They also include something called “other” by BP, which seems to be used primarily in the oldest years. It may be oil-related. There are two things of note about hydroelectric:
a) It is basically not growing. It can be used less and less (proportionately) for balancing wind and solar. The amount of hydroelectric reached a peak in 2011, at 19.6 terawatt hours. In 2017, it was down to 13.5 terawatt hours, then back up to 17.3 terawatt hours in 2018.
b) Hydroelectric is extremely variable from year to year, and I am certain from month to month. This is another reason that it cannot be counted on a whole lot for balancing.
This leaves natural gas as the primary balancing fuel. You know much better than I do its distribution around Australia. In total, natural gas used for electricity has been about flat since 2013. Somehow, it must be pressed into use to a rapidly growing extent, if wind and solar are to be balanced. I expect that batteries and simply cutting off unneeded production will likely be required as well. With less hydro for balancing, the situation because more difficult to keep in balance.
Hi Gail,
I shared your writing on Facebook, and got this response from a man who thinks he’s very smart. I think his view of the world is that energy can just be summoned up at will if we but have the proper attitude. You must certainly have seen this kind of reasoning before and figured out to stop it in its tracks? Please help!!!!!
“I’m unable to decipher whether the author is for or against city dwelling other than this statement; With less energy consumption, we will have a great deal less need for cities. There won’t be the jobs in cities to support much population. So, in a way, the discussion doesn’t make much sense. If a city has 24/7/365 electricity to run elevators, and a large share of GDP to spend on trying to outwit germs, then elevator building make sense.” They (homes I imagine) will be constructed with local materials, without electricity or indoor plumbing, I would expect.” This statement need elaboration. Young folks born in the 90s and beyond (for the most part) see farming as labor intensive, back breaking work and see Agriculture as an industry requiring modern technology providing the food we need. If the author is advocating relocating folks from the cities, other than producing food what would their source of income be? Sprawl is an unavoidable reality in the culture of developed Countries as the populations of progressive Cities become an attractive place to raise the modern family. I can attest to that from the vantage point of living in Atlanta. A 3 bedrm dwelling in 1980; avg 1500 sq ft, sold for $40,000 today that home in an average neighborhood sells for $250,000. When minimum wages go up so does every thing else. A never ending spiral that millennials accept as normal.”
London solved this problem four hundred years ago, with the Georgian square, an eminently liveable high density concept. Of course, we had inherited from the Romans a strict prohibition of buildings taller than six storeys, a wise decision that was abandoned only after 1945, when “modern” architecture took over, and began building for awards rather than humans.
Thanks, Robert Firth! This is so well stated! I’d like to share it elsewhere, especially if I can find a visual to go with it.
Mm, yeah, more centralization inevitably creates single points of failure. Let’s say for example drone striking a few of the major transformer stations (up to 1 year delivery time of a new transformer) or transmission lines towards these centralized behemoths which only goal is to produce humanoid worker drones – slaves to the system.
The “upside” to large cities is that the plebs can be controlled much more easily through bread and circuses, guaranteeing the vote, instead of what nature can offer in terms of resilience, agriculture, fishing, hunting, connectedness and solitude.
https://www.irishtimes.com/culture/heritage/dublin-s-five-georgian-squares-could-be-rejuvenated-1.1516142
Electrification of autos isn’t about the environment. It’s about saving oil and natgas for the commercial transport uses.
The electrification is however cleverly marketed. It is the same with the meat industry. What you are unaware of – you can not suffer from.
I thought electrification of autos was primarily to give a new industry to China, and to help it better use its coal resources instead of imported oil. Also, electric autos would allow coal burned at a distance to power autos, helping keep the air in the heavily populated cities free from particulate matter.
Also, the peak oilers spread the word that we were “running out of oil.” Electrification of autos was about avoiding this problem.
Lessening the extractive and processing pressures which is a burden for the oil industry will be to the benefit of economic growth.
Burning low grade fossil fuels for powering autos and other electrified infrastructure makes sense. However, not for the environment.
Gail, thanks another great article. You might consider writing an article detailing the ramifications of the New Green Deal…. eliminating fossil fuels, etc. There is a lot for you to work with on that subject.
That is a good idea. Thanks for the suggestion.
I am supporting that suggestion of taking on the GND!
I think that one factor often neglected is the price of food as indicator. You see, one can reduce spending on everything, except food. You can live without plasma TV or expensive stereo amp, but you can’t live without food. At certain moment low energy prices will impact food prices. At that moment one who has both energy source and arable land (like US or Russia) will achieve some kind of world food monopoly. There will be many mouths to feed but not enough food, at least until population reduction solves the problem by itself. For instance, I would suggest to a country like Russia to reduce oil exports as much as possible and wait for the moment when it can sell energy product embedded in food product. At that moment you can charge any price for energy product. At that moment food supplier is the master and everybody else is the servant. No need to say that it would be difficult to take food from Russia because they have powerful nuclear weapons to protect their food product.
I am keen observer in many things, but since I am not an economist, I can only observe shop prices as indicator. I think that country like Serbia is indicative because it’s some kind of world economy median and I observe slow but steady food prices rise in spite of the fact that Serbia even in the worst of years usually has food surplus for export.
No mention of negative interest rates. As I kept reading I thought you might discuss negative interest rates in the next paragraph. So where do they fit in? They are being tried in other parts of the world, and the popular press seems to indicate they will be coming to the US soon enough. So how do negative interest rates fit into your analysis? Will you be addressing them in future posts?
Negative interest rates in some (many) parts of the world are simply a sign that rates of return on investment are too low. The world economy is not producing enough output for all parts of the system. Some parts of the system have to get “shorted.” Investors demanding return on bonds are some who get shorted.
I didn’t mention negative interest rates because I already had an awfully lot of topics in this post. It was getting too long. Also, since I am in the United States, negative interest rates are at least not quite as much of a perceived problem as in Europe and Japan.
Gail, you say that negative interest rates are a feature of there being insufficient return on capital for new investments. And in a contracting economy with falling house prices, falling commodity prices and the like, this seems logical.
But what’s not logical is why anyone would lend out their hard earned cash for a negative return. So wouldn’t negative rates just lead to a contraction in credit extension? Or even an end of credit extension?
And so negative rates must be accompanied with QE to keep credit extension going. And this must keep on going forever to monetize the debt in the system until there is a total collapse of the currency.
I think this is the road we are firmly on at the moment.
My understanding of the negative interest rates debt:
1. A lot of it is hidden inside of perfectly ordinary looking investment vehicles.
2. Those who are package up these negative interest rate loans are working on the principle that as interest rates become more negative, the carrying value of the loan raise.
This procedure clearly only works as long as interest rates are becoming more and more negative. If interest rates start rising again, then the “book value” of these bonds suddenly drops.
One article we saw a while back summarized the issue as, “Negative interest rate bonds are for trading, not for holding.” This is a link: https://www.forbes.com/sites/vineerbhansali/2019/06/17/trading-sardines-the-case-of-currency-hedged-negative-yielding-bonds/#719d6e535f70
Another issue is that most money that is invested in not invested by ordinary citizens. It is invested by institutions that have huge quantities of funds to invest. These would include insurance companies, pension plans, banks, hedge funds, and those operating money market funds and the like. A private individual can put dollar bills under the mattress, or buy a little gold. But these options don’t really work for institutional investors. They need to work with stocks, bonds, derivatives, and other things that are readily for sale.
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Great stuff as ever, Gail. I found someone as bearish on oil prices as you:
“…forget about contraction, there is a recession which is coming and one should fasten the seatbelts because turbulent times are coming and the fall could be bigger than what we have seen even in 2008…
“Capital expenditure is falling globally. The global PMI is below 50, which would suggest that the world is headed towards recession. We are seeing the US ISM fall below 50, which increases the probability of recession significantly. We are also seeing Germany, China essentially in recession. We are seeing manufacturing, global trade contract everywhere. All major countries are seeing global exports decreasing. We are seeing big ticket items decreasing as well. This is a lot of leading indicators that suggest there is trouble ahead…
“I think oil could go to $30 or if not $20 a barrel which I do not think people are prepared for.”
https://economictimes.indiatimes.com/markets/expert-view/i-am-expecting-a-global-recession-oil-could-go-to-30-if-not-20-a-barrel-raoul-pal-real-vision/articleshow/71078971.cms
“Global oil demand continues to see downgrades from major energy forecasters, with several downward revisions in just the past week…
“The U.S. EIA said in its Short-Term Energy Outlook that it expects oil demand to grow by only 0.9 million barrels per day (mb/d) this year, the latest in a series of downgrades from the agency. In July, it said 2019 demand would grow by 1.1 mb/d and in June it said 1.2 mb/d. The EIA started off the year expecting demand to grow by 1.5 mb/d this year.
“The point is not to pick on the EIA – just about every major forecaster has been forced to dramatically slash their numbers – but rather the global economy has slowed down by much more than expected. If the roughly 890,000-bpd demand growth figure comes to pass as the EIA now predicts, it would be the first time since 2011 that oil demand grew by less than 1 mb/d.”
https://oilprice.com/Energy/Energy-General/Oil-Demand-Growth-Weakest-In-Nearly-A-Decade.html
The fellow in India has some different insights than I do, but they all come together in the same way. He is particularly concerned about the lack of money supply. I see money as a form of government debt, which I have not focused on separately. Recent Quantitative Tightening has raised the relativity of the US dollar to other currencies, including the Indian rupee. This is a big part of the problem.