Understanding Why the Green New Deal Won’t Really Work

The reasons why the Green New Deal won’t really work are fairly subtle. A person really has to look into the details to see what goes wrong. In this post, I try to explain at least a few of the issues involved.

[1] None of the new renewables can easily be relied upon to produce enough energy in winter. 

The world’s energy needs vary, depending on location. In locations near the poles, there will be a significant need for light and heat during the winter months. Energy needs will be relatively more equal throughout the year near the equator.

Solar energy is particularly a problem in winter. In northern latitudes, if utilities want to use solar energy to provide electricity in winter, they will likely need to build several times the amount of solar generation capacity required for summer to have enough electricity available for winter.

Figure 1. US daily average solar production, based on data of the US Energy Information Administration.

Hydroelectric tends to be a spring-dominated resource. Its quantity tends to vary significantly from year to year, making it difficult to count on.

Figure 2. US daily average hydroelectric production, based on data of the US Energy Information Administration.

Another issue with hydroelectric is the fact that most suitable locations have already been developed. Even if additional hydroelectric might help with winter energy needs, adding more hydroelectric is often not an option.

Wind energy (Figure 3) comes closest to being suitable for matching the winter consumption needs of the economy. In at least some parts of the world, wind energy seems to continue at a reasonable level during winter.

Figure 3. US daily average wind production, based on data of the US Energy Information Administration.

Unfortunately, wind tends to be quite variable from year to year and month to month. This makes it difficult to rely on without considerable overbuilding.

Wind energy is also very dependent upon the continuation of our current economy. With many moving parts, wind turbines need frequent replacement of parts. These parts need to be precisely correct, with virtually no tolerance for change. Sometimes, helicopters are needed to install the new parts. Because of the need for continued high-technology maintenance services, wind energy cannot be expected to continue to operate for very long unless the world economy, with all of its globalization, can continue pretty much as today.

[2] Depending upon burned biomass in winter is an option, but we already know that this path is likely to lead to massive deforestation.

Historically, people burned wood and other biomass to provide heat and light in winter. If biomass is burned for heat and light, it is an easy step to using charcoal for smelting metals for goods such as nails and shovels. But with today’s population of 7.7 billion people, the huge demand for biomass would quickly deforest the whole world. There is already a problem with growing deforestation, especially in tropical areas.

It is my understanding that the Green New Deal is focusing primarily on wind, hydroelectric, and solar rather than biomass, because of these issues.

[3] Battery backup for renewables is very expensive. Because of their high cost, batteries tend to be used only for very short time periods. At a 3-day storage level, batteries do nothing to smooth out season-to-season and year-to-year variation.

The cost of batteries is not simply their purchase price. There seem to be several related costs associated with the use of batteries:

  • The initial cost of the batteries
  • The cost of replacements, because batteries are typically not very long-lived compared to, say, solar panels
  • The cost of recycling the battery components rather than simply leaving the batteries to pollute the nearby surroundings
  • The loss of electric charge that occurs as the battery sits idle for a period of time and the loss related to electricity storage and retrieval

We can get some idea of the cost of batteries from an analysis by Roger Andrews of a Tesla/Solar City system installed on the island of Ta’u. The island is in American Samoa, near the equator. This island received a grant that was used to add solar panels, plus 3-day battery backup, to provide electricity for the tiny island. Any outages longer than the battery capacity would continue to be handled by a diesel generator. The goal was to reduce the quantity of diesel used, not to eliminate its use completely.

Based on Andrews’ analysis, adding a 3-day battery backup more than doubled the cost of the PV-alone system. (It added 1.6 times as much as the cost of the installed PV.) The catch, as I pointed out above, is that the cost doesn’t stop with purchasing the initial batteries. At least one set of replacement batteries is likely to be needed during the lifetime of the system. And there are other costs that are more subtle and difficult to evaluate.

Furthermore, this analysis was for a solar system. There seems to be more variation over longer periods for wind. It is not clear that the relative amount of batteries would be enough for 3-day backup of a wind system, or for a combination of wind, hydroelectric and solar. The long-term cost of a solar panel plus battery system might easily come to four times the cost of a wind or solar system alone.

There is also the issue of necessary overbuilding to make the system work. On Ta’u, near the equator, with diesel power backup, the system is set up in such a way that 40% of the solar generation is in excess of the island’s day-to-day electricity consumption. This constitutes another cost of the system, over and above the cost of the 3-day battery backup.

If we also eliminate the diesel backup, then we start adding more costs because the level of overbuilding would need to be even higher. And, if we were to create a similar system in a location with substantial seasonal temperature variation, even more overbuilding would be required if enough capacity is to be made available to provide sufficient generation in winter.

[4] Even in sunny, warm California, it appears that substantial excess capacity needs to be added to avoid the problem of inadequate generation during the winter months, if the electrical system used is based on wind, hydroelectric, solar, and a 3-day backup battery.

Suppose that we want to replace California’s electricity consumption (excluding other energy, including oil products) with a new system using wind, hydro, solar, and 3-day battery backup. Current California renewable generation, compared to current consumption, is as shown on Figure 4, based on EIA data.

Figure 4. California total electricity consumption compared to the sum of California solar, wind, and hydroelectric production, on a monthly average basis. Data used from the US Energy Information Administration through June 30, 2019.

California’s electricity consumption peaks about August, presumably due to all of its air conditioning usage (Figure 5). This is two months after the June peak in the output of solar panels. Also, electricity usage doesn’t drop back nearly as much during winter as solar production does. (Compare Figures 1 and 5.)

Figure 5. California electricity consumption by month, based on US Energy Information Administration data.

We note from Figure 4 that California hydroelectric production is extremely variable. It appears that hydroelectric generation can vary by a factor of five comparing high years to low years. California hydroelectric generation uses all available rivers, so any new energy generation will need to come from wind and solar.

Even with 3-day backup batteries, we need the system to reliably produce enough electricity that it can meet the average electricity generation needs of each separate month. I did a rough estimate of how much wind and solar the system would need to add to bring total generation sufficiently high so as to prevent electricity problems during the winter. In making the analysis, I assumed that the proportion of added wind and solar would be similar to their relative proportions on June 30, 2019.

My analysis suggests that to reliably bridge the gap between production and consumption (see Figure 4), approximately six times as much wind and solar would need to be added (making 7 = 6 +1 times as much generation in total), as was in place on June 30 , 2019. With this arrangement, there would be a huge amount of wind and solar whose production would need to be curtailed during the summer months.

Figure 6. Estimated share of wind and solar production that would need to be curtailed, to provide adequate winter generation. The assumption is made that hydroelectric generation would not be curtailed.

Figure 6 shows the proportion of wind and solar output that would be in excess of the system’s expected consumption. Note that in winter, this drops to close to zero.

[5] None of the researchers studying the usefulness of wind and solar have understood the need for overbuilding, or alternatively, paying backup electricity providers adequately for their services. Instead, they have assumed that the only costs involved relate to the devices themselves, plus the inverters. This approach makes wind and intermittent solar appear far more helpful than they really are.

Wind and solar have been operating in almost a fantasy world. They have been given the subsidy of “going first.” If we change to a renewables-only system, this subsidy of going first disappears. Instead, the system needs to be hugely overbuilt to provide the 24/7/365 generation that backup electricity providers have made possible with either no compensation at all, or with far too little compensation. (This lack of adequate compensation for backup providers is causing problems for the current system, but it is beyond the scope of this article to discuss them here.)

Analysts have not understood that there are substantial costs that are not being reimbursed today, which allow wind and solar to have the subsidy of going first. For example, if natural gas is to be used as backup during winter, there will still need to be underground storage allowing natural gas to be stored for use in winter. There will also need to be pipelines that are not used much of the year. Workers will need to be paid year around if they are to continue to specialize in natural gas work. Annual costs of the natural gas system will not be greatly reduced simply because wind, hydro, and water can replace natural gas usage most months of the year.

Analysts of many types have issued reports indicating that wind and solar have “positive net energy” or other favorable characteristics. These favorable analyses would disappear if either (a) the necessary overbuilding of the system or (b) the real cost of backup services were properly recognized. This problem pervades studies of many types, including Levelized Cost of Energy studies, Energy Returned on Energy Invested studies, and Life Cycle Analyses.

This strange but necessary overbuilding situation also has implications for how much homeowners should be paid for their rooftop solar electricity. Once it is clear that only a small fraction of the electricity provided by the solar panels will actually be used (because it comes in the summer, and the system has been overbuilt in order to produce enough generation in winter), then payments to homeowners for electricity generated by rooftop systems will need to decrease dramatically.

A question arises regarding what to do with all of the electricity production that is in excess of the needs of customers. Many people would suggest using this excess electricity to make liquid fuels. The catch with this approach is that the liquid fuel needs to be very inexpensive to be affordable by consumers. We cannot expect consumers to be able to afford higher prices than they are currently paying for fossil fuel products. Also, the new liquid fuels ideally should power current devices. If consumers need to purchase new devices in order to utilize the new fuels, this further reduces the affordability of a planned changeover to a new fuel.

Alternatively, owners of solar panels might be encouraged to use the summer overproduction themselves. They might set the temperatures of their air conditioners to a lower setting or heat a swimming pool. It is unlikely that the excess could be profitably sold to nearby utilities because they are likely encounter the same problem in summer, if they are using a similar generation mix.

[6] As appealing as an all-electric economy would seem to be, the transition to such an economy can be expected to take 150 years, based on the speed of the transition since 1985.

Clearly, the economy uses a lot of energy products that are not electricity. We are familiar with oil products burned in many vehicles, for example. Oil is also used in many ways that do not require burning (for example, lubricating oils and asphalt). Natural gas and propane are used to heat homes and cook food, among other uses. Coal is sometimes burned in making pig iron and cement in China.

Figure 7. Electricity as a share of total energy use for selected areas, based on BP’s 2019 Statistical Review of World Energy.

Electricity’s share of total energy consumption has gradually been rising (Figure 7).* We can make a rough estimate of how quickly the changeover has been taking place since 1985. For the world as a whole, electricity consumption amounted to 43.4% of energy consumption in 2018, rising from 31.2% in 1985. On average, the increase has been 0.37%, over the 33-year period shown. If we assume this same linear growth pattern holds going forward, it will take 153 years (until 2171) until the world economy can operate using only electricity. This is not a quick change!

[7] While moving away from fossil fuels sounds appealing, pretty much everything in today’s economy is made and transported to its final destination using fossil fuels. If a misstep takes place and leaves the world with too little total energy consumption, the world could be left without an operating financial system and with way too little food. 

Over 80% of today’s energy consumption is from fossil fuels. In fact, the other types of energy shown on Figure 8 would not be possible without the use of fossil fuels.

Figure 8. World Energy Consumption by Fuel, based on data of 2019 BP Statistical Review of World Energy.

With over 80% of energy consumption coming from fossil fuels, pretty much everything we have in our economy today is available thanks to fossil fuels. We wouldn’t have today’s homes, schools or grocery stores without fossil fuels. Even solar panels, wind turbines, batteries, and modern hydroelectric dams would not be possible without fossil fuels. In fact, for the foreseeable future, we cannot make any of these devices with electricity alone.

In Figure 8, the little notch in world energy consumption corresponds to the Great Recession of 2008-2009. The connection between low energy consumption and poor economic outcomes goes back to many earlier periods. Energy consumption growth was unusually low about the time of the Great Depression of the 1930s and about the time of the US Civil War. The vulnerability of the financial system and the possibility of major wars are two reasons why a person should be concerned about the possibility of an energy changeover that doesn’t provide the economic system with adequate energy to operate. The laws of physics require energy dissipation for essentially every activity that is part of GDP. Without adequate energy, an economy tends to collapse. Economists are generally not aware of this important point.

Agriculture is dependent upon fossil fuels, particularly oil. Petrochemicals are used directly to make herbicides, pesticides, medications for animals and nitrogen fertilizer. Huge quantities of energy are necessary to make metals of all kinds, such as the steel in agricultural equipment and in irrigation pumps. Refrigerated vehicles transport produce to market, using mostly oil-based fuel. If the transition does not go as favorably as hoped, food supplies could prove to be hopelessly inadequate.

[8] The scale of the transition to hydroelectric, wind, and solar would be unimaginably large.

Today, wind, hydroelectric, and solar amount to about 10% of world energy production. Hydroelectric amounts to about 7% of energy consumption, wind about 2%, and solar about 1%. This can be seen on Figure 8 above. A different way of seeing this same relationship is shown in Figure 9, below.

Figure 9. World hydroelectric, wind and solar production as share of world energy supply, based on BP’s 2019 Statistical Review of World Energy.

Figure 9 shows that hydroelectric power is pretty well maxed out, as a percentage of energy supply. This is especially the case in advanced economies. This means that any increases that are made in the future will likely have to come from wind and solar. If hydroelectric, wind and solar are together to produce 100% of the world’s energy supply, then wind and solar, which today comprise 3% of today’s energy supply, will need to ramp up to 93% of energy supply. This amounts to a 30-fold increase in wind and solar between 2018 and 2030, based on one version of the Green New Deal’s planned timing. We would need to be building wind and solar absolutely everywhere, very quickly, to accomplish this.

[9] Moving to electric vehicles (EVs) for private passenger autos is not likely to be as helpful as many people hope.

One issue is that it is possible to mandate the use of EVs, but if the automobiles cost more than citizens can afford, many citizens will simply stop buying cars at all. At least part of the worldwide reduction in automobile sales seems to be related to changes in rules that are intended to reduce auto emissions. The slowdown in auto sales is part of what is pushing the world into recession.

Another issue is that private passenger autos represent a smaller share of oil consumption than many people would expect. BP data indicate that 26% of worldwide oil consumption is gasoline. Gasoline powers the vast majority of the world’s private passenger automobiles today. While an oil savings of 26% would be good, there would still be a very long way to go.

One study of EV sales in Norway suggests that, with large subsidies, these cars are disproportionately sold to high-income families as a second vehicle. The new second vehicles are often used for commuting to work, when prior to the EV ownership, the owner had been taking public transportation. When this pattern is followed, the savings in oil use from the adoption of EVs becomes very small because building and transporting EVs also requires oil use.

Figure 10. Source: Holtsmark and Skonhoft The Norwegian support and subsidy policy of electric cars. Should it be adopted by other countries?

If one of the goals of the Green New Deal is to level out differences between the rich and the poor, mandating EVs would seem to be a step in the wrong direction. It would make more sense to mandate walking or the use of pedal bicycles, rather than EVs.

[10] Wind, solar, and hydroelectric have pollution problems themselves.

With respect to solar panels, a major concern is that if the panels are broken (for example, by a storm or near the end of their lives), water alone can leach toxic substances into the water supply. Another issue is that recycling needs to be subsidized, to be economic. The price of solar panels needs to be surcharged at the front end, if adequate funds are to be collected to cover recycling costs. This is not being done in the US.

Wind turbines are better in terms of not being made of toxic substances, but they disturb bird, bat, and marine life in their vicinity. Humans also complain about their vibrations, if the devices are close to homes. The fiberglass blades of wind turbines are not recyclable, and many of them are too big to fit into standard crushing machines. They need to be chopped into pieces, in order to fit into landfills.

Adding huge amounts of 3-day battery backup for wind turbines and solar panels will create a new set of recycling issues. The extent of the recycling issues will depend on the battery materials used.

Of course, if we try to ramp up wind and solar by a huge factor, pollution problems will rise accordingly. The chance that raw materials will prove to be scarce will increase as well.

There will also be an increasing problem with finding suitable sites to install all of the devices and batteries. There are limits on how densely wind turbines can be spaced before the output of one wind turbine interferes with the output of other nearby turbines. This problem is not too different from the problem of declining per-well oil production caused by too closely spaced shale wells.  

Afterword

I could explain further, but that would make this post too long. For example, using an overbuilt renewables system, there is not enough net energy to provide the high salaries almost everyone would like to see.

Also, the new renewable energy systems are likely to be more local than many have hoped. For example, I think it is highly unlikely that the people of North Africa would allow contractors to build a solar system in North Africa for the benefit of Europeans.

Note

*There are two different ways of comparing electricity’s value to that of total energy. Figure 7 uses the more generous approach. In it, the value of electricity is based on the amount of fossil fuels that would need to be burned to produce the electricity amounts shown. In the case of electricity types that do not involve the burning of fossil fuels, these amounts are estimated amounts. The less generous approach compares the heat value of the electricity produced to the total heat value of primary energy sources. Using the less generous approach, electricity corresponds to only about 20% of primary energy supply. The transition to an all-electric economy would be much farther away using the heat value approach.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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1,326 Responses to Understanding Why the Green New Deal Won’t Really Work

  1. Xabier says:

    The natural endowment of all these British islands is more or less gone, once so beautiful and fertile……

  2. Chrome Mags says:

    For some reason peak oil dot com hasn’t worked for about 24 hours. Not sure why.

    • Rodster says:

      Does it really matter? It’s an aggregate news site and you have one or two trolls hijacking every thread with childish comments. You can’t take the site seriously anymore. I used to go there to read comments by shortonoil but he’s long gone probably because of the clowns who have ruined the site. And the site doesn’t have a moderator.

      • Chrome Mags says:

        I agree. The threads for the articles on the left are certainly that way. The threads ‘experts’ set up on the right are much better. Shortonoil still posts on the right side – just look for his name – not always there but it is about 1/2 the time.

        Lately the site has had a lot of weird posts put on there, some with Russian writing, others trying to advertise stuff. Maybe that’s why they shut it down to rework it or simply close it permanently. I just thought it was worth noting since it is or was a peak site.

    • It seems that for general overview you can visit say twice per year over Ted Patzek’s site for the PO related technical updates for world/regions, and filtering out the cheesy political stuff..

      In terms of PO, the bottom line remains, the enhanced recovery gave us decade or two more oil the early most pessimistic POilers expected. Now we are entering the age of consequences. Still it’s a spongy moving target, without further large investments in $T (private or GOV/CB printed) there could be supply crunch even before ~2025, but most likely during ~2025-35. Luckily enough of natural gas will likely provide some sort of fall back option for some limited plateau but not expect the same society by then.. it will be very different in terms of consumption patterns.

      • hkeithhenson says:

        “very different in terms of consumption patterns.”

        You are probably right, but it doesn’t have to be that way. As I analyzed recently, 12% of Saudi Arabia in solar farms and a bunch of F/T plants would produce 100 Mbbl of synthetic oil a day.

      • Chrome Mags says:

        World…, thanks for the tip on Patzek’s site.

  3. Yoshua says:

    “Mervyn King, the former head of the Bank of England: “It is time for the Federal Reserve and other central banks to begin talks behind closed doors with politicians to make legislators aware of how vulnerable they would be in the event of another crisis.”

  4. Harry McGibbs says:

    There have never been this many articles openly questioning the central banks ability to combat a global downturn. There’s something in the wind:

    “The world’s finance ministers and central-bank governors gathered this past weekend in Washington and looked out at a global economy badly in need of treatment…

    “…the IMF calls it a “synchronized slowdown.” The revised outlook is already the weakest since the crash 10 years ago, and the risks in the forecast are very much, as economists say, to the downside.

    “This would be concerning under any circumstances, but the prospect of recession under current conditions is truly alarming. The hesitant recovery of the past decade has depleted the conventional tools of macroeconomic policy. In many countries — not least the U.S. — fiscal stimulus and persistent budget deficits have boosted ratios of public debt to national income. Next time, governments will be reluctant to lean as heavily on extra public borrowing to raise demand, rightly or wrongly fearing lack of fiscal space.

    “”Monetary policy is all but exhausted too, with interest rates either close to their effective lower bound (as in the U.S.) or slammed down against it (as in the European Union).

    “”Another legacy of that previous recession, and the extraordinary measures taken to contain it, is heightened financial fragility. With abundant quantitative easing and super-low interest rates, financial conditions have been kept loose to support asset prices, press down on yields and strengthen demand. The measures were necessary, but the result is outlandish asset valuations and heightened credit risk. Recklessly inflated house prices were a main cause of the crash; in many countries, they’ve soared again on the back of cheap credit. Banks have added capital since 2009, but not enough to make them safe…”

    https://www.bloomberg.com/opinion/articles/2019-10-21/imf-growth-forecasts-world-economy-is-stumbling-toward-disaster

    • Harry McGibbs says:

      “Ian Stewart, Deloitte’s Chief Economist in the UK:

      “The global recovery started in 2009 and is long in the tooth. The world is overdue a slowdown. The fact that the IMF, and most economists, are forecasting a short-lived downturn, a classic ‘soft-landing’, might seem like good news.

      “But when growth is softening, as it is now, forecasts are more than usually lagging and fallible. (The IMF, and most economists, did not forecast the last recession, which was the biggest since the 1930s, until it had almost arrived.)

      “What matters more than the IMF’s forecasts is their analysis. It is downbeat… The risk of the slowdown becoming a recession is rising.”

      https://reaction.life/a-global-recession-could-be-just-around-the-corner/

      • Harry McGibbs says:

        “In cities around the world, people are taking to the streets…”

        Pictures:

        https://www.bbc.co.uk/news/newsbeat-50123823

      • Xabier says:

        But still talking as if it were just any ‘recession’ that is in the process of happening…..

        • It’s onion peeling defense..

          For NOW they are making sure the “slowdown” has been ~correctly analysed and predicted beforehand in msm and policy circles, so when we enter more serious stages of the incoming recessions-depression-GFC or what have you – THEY will continue to be relevant in advisory role (and executive-policy planning) for the next steps. That’s the most important thing to them, not loose all the levers of the global fin cartel. And IF they eventually are to loose it at some future junction – they want to at least nudge the course – profile of the events in order to help the insiders get out.

          Afterall, CBs have been around for centuries, and are pretty much versed in the scheming technology vs temporary plane focused govs and naive lower pecking order investors not mentioning the mostly gullible general public in the bottom of the pyramid.

    • Robert Firth says:

      The ignorance of history displayed by modern economists never ceases to amaze me. We Have Been Here Before.

      It was not “helicopter money”; it was “caravel money”: the gold looted from Central and South America by the Spanish conquistadors. Gold that at first made Spain very rich, and which was expended on diplomacy, military adventurism, and unchecked spending by the Crown and the nobility.

      All looked well in the short term; in the longer term it led to ruinous inflation and the destruction of Spanish power. Because there was no real production for which that gold could be exchanged, and so it created profligacy rather than prosperity.

      Which is exactly what the central bankers are doing today, with exactly the same result.

      • Harry McGibbs says:

        That is an interesting parallel you draw, Robert.

        I’m not too aggrieved by the central banks’ increasingly surreal interventions since the GFC, as I suspect we’d be in a much worse mess without them. I do wish they’d distributed their “caravel gold” in a more egalitarian fashion though.

      • People don’t make the connection. Confiscation of wealth from the rich will lead to inflation in food prices, for example. It will also lead to lower asset prices, I expect, since there will be fewer buyers for them. Derivatives may very well crash.

        • Indeed, there is nothing / few to confiscate in the physical sense.
          Assembled art and ~60room mansion palaces have in the end very relative price – value appraisal.

          As you mentioned several times already, their wealth are digits on computers, backed by loans / dividends / simply rent churning contracts how to redirect money flows out of the economy, all locked up in offices of various tax heavens across the world.

          But inside that niche there is even smaller inner elite group out of them with access to GOV bunkers or their own facilities, private armies and land endowments ready to be switched over to nucleus of future feudal dominions.

          • Someone will need to do the real work of obtaining food and fresh water on a regular basis, however. I hope this inner elite group has a lot of ability in these areas. If they don’t, the people they bring along to help with these issues may take over, enjoying the fruits of their own labor.

            • That’s a good point, but usually it is someone from the security apparatus who eventually takes over the former master. In terms of the labor and hands on expertise itself, yes, but you can keep a lot of documented know-how canned and later use generalist staffers to implement it and let them slowly venture into these respective fields as their full careers. Obviously at certain level, you have it all, e.g. a trillionaire with a bunker on his estates would provide place for say local doctors and several experts in various important fields (agriculture).. And in doomsday gov situation bunkers that’s all by default.

      • JT Roberts says:

        The events of the 1590s had suddenly brought home to more thoughtful Castilians the harsh truth about their native land – its poverty in the midst of riches, its power that had shown itself impotent… For this was not only a time of crisis, but a time also of the awareness of crisis – of a bitter realization that things had gone wrong. It was under the influence of the arbitristas that early seventeenth-century Castile surrendered itself to an orgy of national introspection, desperately attempting to discover at what point reality had been exchanged for illusion….

        The arbitristas proposed that Government expenditure should be slashed…

        Most of the arbitristas recommended the reduction of schools and convents and the clearing of the Court as the solution to the problem. Yet this was really to mistake the symptoms for the cause. MartínGonzález de Cellorigo was almost alone in appreciating that the fundamental problem lay not so much in heavy spending by Crown and upper classes – since this spending itself created a valuable demand for goods and services – as in the disproportion between expenditure and investment. ‘Money is not true wealth,’ he wrote, and his concern was to increase the national wealth by increasing the nation’s productive capacity rather than its stock of precious metals. This could only be achieved by investing more money in agricultural and industrial development. At present, surplus wealth was being unproductively invested – ‘dissipated on thin air – on papers, contracts, censos, and letters of exchange, on cash, and silver, and gold – instead of being expended on things that yield profits and attract riches from outside to augment the riches within. And thus there is no money, gold, or silver in Spain because there is so much; and it is not rich, because of all its riches….’

        The Castile of González de Cellorigo was…a society in which both money and labour were misapplied; an unbalanced, top-heavy society, in which, according to González, there were thirty parasites for every one man who did an honestday’s work; a society with a false sense of values, which mistook the shadow for substance, and substance for the shadow.

        J.H. Elliott, Imperial Spain: 1469-1716

        • Thanks for the information!

          People never seem to understand that true riches come from the goods and services an economy is able to make. They do not from financial wealth.

          • JT Roberts says:

            That’s correct wealth is the net productive capacity. It isn’t precisely the means of production that controls it. Rather it’s the personal productivity in proportion to cost of worker maintenance in the aggregate.

            When we consider the primary economic systems each has weaknesses. Capitalism frees stranded assets for production but requires perpetual growth so are inherently destructive. Command economies don’t require perpetual growth but lack motivation for personal productivity. So they devolve into totalitarian states.

            So there has to be the right balance of ownership vs production.

            The best to date was the Mosaic law which maintained a national economy for 7-800years.

            One key element was the land could not be sold in perpetuity. It would return as family inheritance every 50years. This gave individuals the opportunity to prosper by not locking people out financially because of a few owning the means of production. In the event of hardship the land could be sold and would be priced according to its productive potential up to the next jubilee year.

            Another feature was fixed pricing of labor. A days wage was set as well as a slaves price. Money was lent without interest in the event of need but with interest in the event of profits.

            Those who came to poverty could glean the fields maintaining their personal productivity and dignity.

            Interestingly the cities were unaffected by the jubilee. So property in them could be sold in perpetuity. This gave them a source of equity that could be leveraged for profit and investment. But the land that supported the city remained among the families it had been apportioned to. Creating natural demand that hard workers could prosper from.

            It was a perfect balance that if followed led to security and prosperity.

            If you image for a moment had the world developed with those economic principles what life would be like. Quite a different place from where we are today.

            • Right. The debts that were forgiven were a small portion of the total, particularly related to the agricultural output. If a farmer “got behind” because of bad weather, there was little chance he could catch up. As long as the debt was owed to a central authority (king, or something similar), it was possible for forgiveness to occur in jubilee years. Now that debt acts as backing for someone’s pension plan, it is much more difficult to do this kind of forgiveness.

        • Robert Firth says:

          Thank you, JT. Yes, he was one of the few voices of sanity in Spain at that time. His monograph, “Memorial de la Política necesaria y útil restauración a la república de España” might have saved the country, had it been written in 1550 not 1600. His influence on Adam Smith has also gone mostly unremarked.

          I confess to having not read JH Elliott, but he sounds like a good resource also. Most of my knowledge of that period comes from Fernand Braudel (as you might have guessed).

          • JT Roberts says:

            Hind sight is always 20/20 don’t you agree?

            If only the great economic thinkers of today were walking backwards they wouldn’t be stumbling over what’s been established in the past.

        • Xabier says:

          It was in just that period in Spain that my family grew quite rich as lawyers (and through good marriages), bought a title (although Phillip IV short-changed them on that!) and put their money into land, thereby staying secure for the next 4 centuries.

          The estate only became a liability in the second half of the 20th century, we got rid of it, and I suspect it will turn to some kind of desert very shortly: droughts and storms are regularly wiping out crops these day in that region, and nearly half the wells produce unfit water due to pollution!

          Land, from being so secure, is now very risky indeed, unless you can feed off subsidies, and they are declining in the EU.

          So, the country went to pieces, more or less, but they prospered: rather like the financiers and those who service them today, who are unaware – and do not care – how life is falling to pieces for those below them in the age of booming and faked GDP and cheap money……..

          Still, I’m grateful for their naked greed and ambition, as the coat of arms they bought is quite pretty with a green tree and hearts, which is quite decorative.

        • Powerful sub thread, thanks.

    • The story is, in some sense, obvious. It is not possible to keep lowering interest rates, and that is what the economy has been surviving on since 1981. We have a big problem.

    • Xabier says:

      ‘Something in the wind’: preparing us for extraordinary measures?

      Justifying yet another bail-out?

      Or maybe even the’ fairness’ of a bail-in of ‘those who have most’?

      • Yep, it’s uncanny, brewing..

        If we look back at the historical time-space highlights the clarity of self evident correct explanation always prevails in the end.

        Some faction clearly panicked (prematurely) badly from the early/internal PO prediction scenarios, hence 2001 and the follow up oil wars or rather mil deployment at major oil/natgas provinces and or trade hubs secured the signorage.

        Nevertheless, unipolar world still holding together by decent surplus cushion, so after ~2008 meltdown the world was able to organize grandiose liftathlon printing at least a dozen $T in synchronized fashion among major IC hubs, besides pushing other control tools and policies.

        Nowadays, another resources-consumption rate unbalance chapter is approaching and the propensity for global coordination is a mess.. so the sparks could be way larger this time.

        • Xabier says:

          Hard to estimate the shock to basic assumptions and feelings of prosperity in the core economies should people find their saving ‘bailed-in’ this time around.

          But all we are hearing is the desperate weakness of the banks, so bail-outs at the very least must be in the pipeline.

          Some opine that bail-outs will be politically unacceptable a second time: but if they occur what else will we be able do but look on?

          • I’m afraid the system must fork fairly soon, doesn’t matter on what prefabricated soft lie or real or prefabricated plot etc.. So, generally it could be under the banner “Saving the Earth” or “correcting the Wall St. greed & fraud” but eventually, some sort of forced austerity for almost everybody is in the pipeline before ~2030. Not sure about sequencing-stages.

            Given the ongoing “low key” protests around the globe already, Yellow Vests (fuel-tax), now Chile (public transit price hike) – this will likely need extraordinary circumstances to roll out..

  5. Harry McGibbs says:

    “Buyback spending is plummeting as companies spend less amid growing global uncertainty. According to Goldman Sachs, buyback spending slowed 18% to $161 billion during the second quarter, and the firm anticipates that the slowdown will continue.

    ““During full-year 2019, we expect S&P 500 cash spending will decline by 6%, the sharpest annual decline since 2009,” the firm says.”

    https://www.cnbc.com/2019/10/21/goldman-warns-buybacks-are-plummeting.html

    • Harry McGibbs says:

      “JPMorgan Chase & Co. says the money-market stress that sent short-term borrowing rates surging last month is likely to get much worse despite the Federal Reserve’s attempts to inject billions of dollars into the financial system.

      “The Fed has offered overnight loans and started buying up to $60 billion of U.S. Treasury bills a month in an effort to ease pressure in the vast repo market, where banks typically lend their assets in exchange for short-term financing.”

      https://finance.yahoo.com/news/jpmorgan-warns-u-money-market-093439609.html

    • How can share prices stay high without buyback spending?

      • Hubbs says:

        A double whammy. Shares have been purchased back by corporations at the highs. If buy-backs falter, the price per share drops and the stampede for the exits accelerates in a negative feedback loop-unwind, resulting in a worse situation than would have occurred- interest rates not been lowered to near zero which allowed corporations to float more debt to buy back shares. What a mess.

  6. Harry McGibbs says:

    “More than half of the world’s banks are too weak to survive a downturn, according to a survey from consultancy McKinsey & Co.

    “A majority of banks globally may not be economically viable because their returns on equity aren’t keeping pace with costs, McKinsey said in its annual review of the industry released Monday.”

    https://www.business-standard.com/article/international/half-the-world-s-banks-are-too-weak-to-survive-a-downturn-mckinsey-119102200142_1.html

    • Harry McGibbs says:

      “…running a bank in Europe, already an uphill struggle since the crisis, is about to get even harder. “Bank executives in Europe are depressed, despondent and concerned; there’s a confluence of factors that is undermining profitability in the medium term,” said one adviser to several large European lenders.

      ““There are genuinely fundamental questions about their future.””

      https://www.ft.com/content/09469d28-f410-11e9-b018-3ef8794b17c6

    • Yoshua says:

      I just read that the global Repo market is USD 5 Trillion daily operation. The Fed’s Repo operation is just a USD 75 Billion operation, and its window is only open to primary dealers, banks that are associated with the Fed.

      If those primary dealers won’t lend to smaller banks in distress, then the Repo market explodes, and the smaller banks collapse.

      • Wow! I hadn’t realized that the global Repo market is anywhere near USD 5 trillion. We seem to have a lot of pieces of the financial system that can go wrong.

  7. Harry McGibbs says:

    “The European Central Bank is running low on sovereign bonds to buy — that undermines the credibility of its pledge to keep going until inflation picks up. If inflation takes two years to firm, the ECB could face a shortage of about 60 billion euros ($67 billion) in debt during the next phase of its asset-purchase program.

    “At the present pace, the central bank could run out of bonds in little over a year, according to calculations by Bloomberg Economics.”

    https://www.bloomberg.com/news/articles/2019-10-21/ecb-restarting-qe-will-need-more-purchase-of-private-debt-chart

    • Harry McGibbs says:

      “Negative interest rates are now a fact of life in Europe and Japan, and multiple other countries including the United States are lowering their target policy rates.

      ““It is not really clear how we are going to get out of this,” Stanford University economics professor John Taylor said at a meeting of the Institute of International Finance.”

      https://www.kitco.com/news/2019-10-21/Negative-rates-forever-Central-bankers-look-for-an-exit.html

      • Harry McGibbs says:

        “Central bankers are doing their part, but the unintended consequences of easy money are rising, writes John Authers.

        “And companies aren’t investing the way policymakers hoped, signaling anxiety about the economy. “

        https://www.bloomberg.com/news/newsletters/2019-10-21/the-world-fiddles-while-the-economy-burns

        • We have been getting “asset growth” as interest rates fall. This asset growth benefits the rich, primarily. At some point, the decline in interest rates has to come to an end, and the system looks like it might collapse.

          • The legacy system might collapse – the new will be rushed in (private armies, fenced off agriculture areas, abandoned infrastructure, local / distant range trade separation, ..). Not saying it must happen in the very next step though, but that’s very likely the mid/long term destination.

            • Dennis L. says:

              World….
              When legacy systems collapse and armies move in, destruction seems to follow; the buildings in some middle eastern cities are mere shells if that. Closer to home think of Atlanta in the 1860’s, surly an extreme form of urban renewal. Running any group is a challenge, it is my opinion and an opinion only, a group needs to be more than private, there has to be a belief in something greater than self.
              Peak oil missed price, focusing only on money misses who we are deep down as humans, how we have been shaped to survive as a group over many thousands of years.
              Agriculture as I keep saying is not Little House on the Prairie, it is very challenging, hard work and the weather is not always your friend. Armies know how to blow things up, a crop takes a season and when that season is done, the next season does not come for many months.
              Dennis L.

          • Dennis L. says:

            As I have mentioned before, if one has a portfolio of individual securities, not a fund the growth of assets has been impressive, but if one wants cash an asset needs to be sold so going forward fewer assets are available to generate a return. This is the same with a fund but one does not see the sale of the assets, it is hidden in the gross amount. It is chasing one’s tail, and the only solution is to harvest some of the asset growth, save the rest and hope to invest when the asset is priced at a lower cost. This has not worked very well for anyone so in essence one appears wealthier but is going broke with assets that do not throw off cash, e. g. a house, once it is sold one needs a tent or has to rent an apartment, etc.

            Dennis L.

      • “It is not really clear how we are going to get out of this,”

        No kidding!

      • Country Joe says:

        It’s that “Per Capita” factor that holds the key.

  8. Get HaPpY says:

    Show ME the Money..no vegetables for youuuu!
    YahooFINANCE
    Chinese Contractor Ends Oil-Project Deals With Venezuelan Firms
    Fabiola Zerpa
    BloombergOctober 22, 2019, 12:00 AM EDT
    (Bloomberg) — China’s leading oil contractor in Venezuela terminated deals with local providers at oil projects due to lack of payment from the state oil company. But exiting is proving a challenge to both sides.

    China Huanqiu Contracting and Engineering Corp., known as HQC, an affiliate of China’s biggest energy company China National Petroleum Corp., told local providers that their contracts were being terminated, citing “the extremely difficult situation of this project,” according to a document seen by Bloomberg.

    Local oil service companies were invited to negotiate exit terms and payments due with HQC officials. The move follows HQC’s decision in early September to halt work at the biggest China-Venezuela joint venture due to lack of payment on the part of Petroleos de Venezuela SA

    This is what Collapse looks like…coming soon to your own neck of the woods…
    Don’t say you weren’t warned….
    A CNPC spokesman declined to comment. Multiple calls and emails to HQC and its listed parent China Petroleum Engineering Corp. went unanswered

    Yes, Those in charge will not answer your calls for HELP…ain’t that a surprise!

    Don’t be afraid to Ask for HELP….Rule #52

  9. The WSJ has an article on something we have talked about:

    All About the Money: Why Hong Kong Matters So Much to China.

    Since China resumed control of Hong Kong in 1997, the city has served as a conduit for trillions of dollars in fundraising, trade and investment.

    Having a separate system—sealed off, yet under Beijing’s thumb—caused a raft of social and political concerns that gave rise to this year’s protests, now in their fifth month. But the city also enabled China’s rise.

    The article has many nice charts. Unless you have a subscription, you will likely need to do a search for the article.

  10. Harry McGibbs says:

    “The [UK] CBI said its quarterly expected orders balance sank to -19 in October from +10 in July, the lowest since April 2009, driven by a steep drop in orders expected from overseas.”

    https://uk.reuters.com/article/us-britain-economy-manufacturing/uk-industry-outlook-weakest-since-2009-on-brexit-and-world-slowdown-cbi-idUKKBN1X113L

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