Do the World’s Energy Policies Make Sense?

The world today has a myriad of energy policies. One of them seems to be to encourage renewables, especially wind and solar. Another seems to be to encourage electric cars. A third seems to be to try to move away from fossil fuels. Countries in Europe and elsewhere have been trying carbon taxes. There are also programs to buy carbon offsets for energy uses such as air travel.

Maybe it is time to step back and take a look. Where are we now? Where are we really headed? Have the policies implemented since the Kyoto Protocol in 1997 had any positive impact?

Let’s look at some of the issues involved.

[1] We have had very little success in reducing CO2 emissions.

CO2 emissions for all countries, in total, have been spiraling upward, year after year.

World CO2 Emissions

Figure 1. Carbon dioxide emissions for the world, based on BP’s 2019 Statistical Review of World Energy.

If we look at the situation by part of the world, we see an even more concerning pattern.

Figure 2. Carbon dioxide emissions by part of the world through 2018, based on BP’s 2019 Statistical Review of World Energy. Soviet Empire is an approximation including Eastern Europe and the Former Soviet Union, based on the BP report. It would not include Cuba and North Korea.

The group US+EU+Japan has been able to reduce its CO2 emissions by 5% since 2005. Emissions were slowly rising between 1981 and 2005. There was a dip at the time of the Great Recession of 2008-2009, followed by a downward trend. A person might get the impression that CO2 emissions for the EU tend to rise during periods when the economy is doing well and tend to fall when it is doing poorly.

The “star” in emissions reductions is the former Soviet Union and its Eastern European satellites. I refer to this group as the Soviet Empire. Emissions fell around the time of the collapse of the central government of the Soviet Union in 1991. This big decrease in emissions seems to be related to huge changes that took place at that time. Instead of one country with a single currency, the individual republics were suddenly on their own.

The high point in CO2 emissions for the Soviet Empire came in 1990, the year before the collapse of the Soviet Union central government. By 1999, emissions had fallen to a level 37% below their 1990 level. In fact, even in recent years, emissions for this group of countries has stayed low. Much industry collapsed and has never been replaced.

The group that has more than doubled its emissions is what I call the Remainder Group. The group includes many countries, including China and India, that ramped up their manufacturing and other heavy industry in the late 1990s and early 2000s, when the World Trade Organization added members. The Remainder Group also includes many countries that suddenly found new export markets for their raw materials, such as oil, iron ore, and copper. The Remainder countries became richer; they became more able to pave roads and build more substantial homes for their citizens. With all of this GDP-related activity, CO2 emissions increased rapidly.

[2] Population growth has followed a pattern that is in some ways similar to CO2 growth. 

Figure 3. Population from 1965 to 2018, based on UN 2019 population estimates.

In Figure 3, we see that population has been virtually flat in the former Soviet Empire (2% growth between 1997 and 2018). With the economy not doing well, young people emigrate to countries that seem to provide better prospects.

Population in the US+EU+Japan Group grew by 11% between 1997 and 2018.

The group that is simply outstanding for population growth is the Remainder Group, with 35% growth between 1997 and 2018. A big part of this population growth comes from improved sanitation and basic medical care, such as antibiotics. With these changes, a larger percentage of the babies that are born have been able to live to maturity.

It is hard to see any bend in the trend lines, which would indicate that recent actions have actually changed the course of activity from the way it was headed previously. Of course, the trend is only “linear,” implying that the percentage growth is gradually slowing over time.

This rapidly growing population feeds into the CO2 problem as well. The many young people would all like food, homes and transportation. While it is possible to obtain some version of these desired products without fossil fuels, the version with fossil fuels tends to be vastly improved. Most people prefer homes with indoor plumbing and electricity, if given an opportunity, for example.

[3] Deforestation keeps growing as a world problem.

Figure 4. Chart showing World Bank estimates of share of world forested by economic grouping.

High Income Countries keep pushing the deforestation problem to the poorer parts of the world. Heavily Indebted Poor Countries are especially affected. Worldwide, deforestation continues to grow.

[4] With respect to fossil fuels, there is a great deal of confusion with respect to, “What do we need to be saved from?” 

Do we have a problem with too much or too little fossil fuel? We hear two different stories.

Figure 5. Author’s image of two trains speeding toward the world economy.

Climate modelers keep telling us about what could happen, if indeed we use too much fossil fuel. In fact, the climate currently is changing, bolstering this point of view.

It seems to me that there is an equally great danger of collapse, accompanied by low energy prices. For example, we know that energy production in the European Union has been declining for many years, without the countries being able to do anything about it.

We also know historically that many civilizations have collapsed. The Soviet Empire collapsed in 1991, illustrating one type of collapse. The Soviet Union was an oil exporter. Its collapse came after oil prices were too low to allow adequate investment in new oil fields for an extended period of time. The Great Recession of 2008-2009 offers a much smaller, temporary version of what collapse might look like.

Another example of low prices accompanying collapse comes from Revelation 18: 11-13, warning of possible collapse like that of ancient Babylon. The problem was inadequate demand and low prices; even the energy product of the day (human beings sold as slaves) had little value.

11 The merchants of the earth will weep and mourn over her because no one buys their cargoes anymore— 12 cargoes of gold, silver, precious stones and pearls; fine linen, purple, silk and scarlet cloth; every sort of citron wood, and articles of every kind made of ivory, costly wood, bronze, iron and marble; 13 cargoes of cinnamon and spice, of incense, myrrh and frankincense, of wine and olive oil, of fine flour and wheat; cattle and sheep; horses and carriages; and human beings sold as slaves.

What we have been seeing recently is falling prices and prices that are too low for producers. Such a result can lead to collapse if too many energy producers go bankrupt and quit.

Figure 6. Inflation adjusted weekly average Brent Oil price, based on EIA oil spot prices and US CPI-urban inflation.

If we are in danger of collapse from low prices, renewables would not seem to be of much assistance unless they (a) are significantly less expensive than fossil fuels and (b) can be scaled up sufficiently rapidly to more than replace fossil fuels. Neither of these seems to be a possibility.

[5] Early studies overestimated how much help renewables might provide, especially if our problem comes from too little energy supply rather than too much.

Renewables look like they would be great from many points of view, but when it comes down to the real world situation, they don’t live up to the hype.

One issue is that while wind, solar, hydroelectric, geothermal, and other devices for capturing energy are called “renewables,” they are really only available through the use of the fossil fuel system. They are made using fossil fuels. If a part breaks, or if insects eat away the insulation on wires, replacements need to be made using the fossil fuel system and transported using the fossil fuel system. At best, renewables should be considered fossil fuel extenders, using less fossil fuels than conventional electricity generation. They are also dependent on other resources, which may eventually deplete, but which are not a problem at this time.

A second issue is that it is extremely difficult to do a proper cost-benefit analysis on renewables because they can only be used as part of a larger system. They tend to look inexpensive, when viewed in isolation. But when total system costs are viewed, they often are quite expensive.

One difficulty in a proper cost-benefit analysis is the fact that renewables are often sited at quite a distance from where electricity is to be used, leading to the need for a significant number of long distance transmission lines. Furthermore, if renewables provide intermittent power, they need to be sized for the maximum output, not their average output. All of these long distance lines need to be properly maintained, or they tend to cause fires. In some instances, burying the lines underground at significant cost is the only solution. Somehow, these higher costs need to be recognized as part of the cost of the system, but this is rarely done.

Another difficulty in a proper cost-benefit analysis is the fact that renewables’  intermittency must be overcome, if the electricity is to be of benefit to a modern economy that requires electricity 24/7/365. In theory, we could greatly overbuild the renewables system and the transmission. This might work, but we would end up with a large percentage of the system that is not used most of the time, greatly adding to costs.

Batteries can be added, but the cost tends to be high. One commenter on my site recently observed:

EIA reports the average cost for utility scale battery systems to be about $1500 per kWh. At that rate the batteries needed for backing up a solar or wind facility for three days cost around 30 times as much as the RE facility. But wind is often unpowered for more like seven days, during huge stagnant high pressure episodes. Thus the backup battery cost is more like 100 times the wind farm cost. Batteries are not feasible.

The major intermittency problem is season-to-season, especially saving up enough for winter. We do not have a way, today, of storing energy from one season to another, short of making it into a liquid (such as ammonia), and storing the liquid from season to season. This would be another way of driving up costs of the overall system. It has not been included in anyone’s cost calculations.

For the time being, we are forcing nuclear and fossil fuel to provide backup electrical services to intermittent renewables without adequately compensating them for their services. This tends to drive them out of business. This is not an adequate solution either.

A third issue is that renewables really need to be “economic” to work. In other words, they need to generate a profit for their owners, when comparing the unsubsidized costs with the benefits of the system. In fact, their owners need to be able to pay fairly substantial taxes to governments, to cover their share of governmental costs as well. If renewables truly were providing substantial benefit to the system, their use would tend to “take off” on their own, because they would be providing “net energy” to the system. Instead, renewables tend to act like “energy sinks.” They need endless subsidies. They can never substitute for fossil fuels. In fact, they can’t even pay their own way.

A related issue is that, because of the high total costs (as well as their lack of true net energy benefits), it is almost impossible to ramp up the quantity of renewables such as wind and solar very high. The EU has been a big supporter of renewables other than hydroelectric. Figure 7 shows a chart of the EU’s own energy production, together with its energy imports.

EU Energy by Type and Whether Imported

Figure 7. EU energy by type and whether imported, based on data of BP’s 2019 Statistical Review of World Energy. Renewables are non-hydroelectric renewables such as wind, solar, and geothermal.

After at least 20 years of subsidies, the EU has been able to increase renewables (other than hydroelectric) to about 10% of its total energy supply. The EU’s oil imports are roughly level, and its natural gas imports have been increasing. Even with rapid growth in non-hydro renewables, the EU has been experiencing a decrease in total energy consumption.

[6] Looking at the actual outcomes, a person might ask, “What in the world were policymakers really thinking about?”

We are told that the reason policymakers made the decisions they did was because they thought that they could reduce CO2 emissions in this way. Really? If a person really wants to reduce CO2 emissions, it is easy to see how to do it. A person simply has to take steps in the direction of reducing global co-operation. One step would be to reduce international trade. Another would be to get rid of umbrella organizations such as the World Trade Organization, the United Nations and the European Union. In fact, within individual countries, the top level of government could be removed, leaving (for example) the provinces of Canada and the states of the United States. In other words, policymakers could push economies in the direction of collapse.

Another way collapse could be encouraged would be by rapidly raising interest rates or cutting off credit. With less purchasing power, the world would be pushed into recession.

At the time of the Kyoto Protocol, policymakers moved in precisely the opposite direction of pushing the economy toward collapse. They moved in the direction of adding international trade and more debt to enable the growth. The countries with greater trade had huge coal resources that had not been used. With the help of this coal, the world economy was able to continue to grow. This approach only made sense if the real problem at the time of the Kyoto Protocol in 1997 was too little energy resources, not too much. The economy needed the stimulation that more low-cost energy and more debt could provide.

It is now more than twenty years later. The coal resources of China are starting to deplete. Coal is also causing serious ground-level pollution problems, both in China and India. Without growing coal production, world GDP growth starts slowing. We are again facing low oil prices and other commodity prices–a problem similar to the one present when the government of the Soviet Union collapsed. The world economy seems again to be headed toward having some of its governmental organizations collapse from inadequate energy. Political parties are becoming more extreme; countries are enacting new tariffs. If we go back to Figure 5, the concern should again be collapse, on the left side of the figure.

[7] The scenarios considered by the IPCC climate model need to be revisited.

A climate model looks to the past and tries to forecast what would happen in alternative “scenarios.” The concern I have is that the scenarios evaluated are not realistic. To get to the level of CO2 that would produce the most extreme scenarios, coal production would need to continue at a high level for many, many years. This seems unrealistic because world coal production has been fairly flat for several years, and prices tend to be lower than producers require if they are to stay in business. The likely direction for coal production seems to be down, rather than up.

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

In order for coal production to grow as much as the higher emission scenarios assume, there needs to be a major turnaround in the situation. World coal prices would need to rise substantially. In fact, coal in very difficult locations for extraction, such as under the North Sea, need to become profitable to extract. This situation seems very unlikely.

It seems to me that climate modelers should be considering more realistic scenarios regarding CO2 emissions from fossil fuels. One scenario which should be considered is the possible near term collapse of several governmental organizations, such as the European Union, World Trade Organization, and the governments of several oil exporting countries.

[8] The push toward renewables makes little sense without a firmer foundation than currently exists.

Early studies looked only at the cost of renewables themselves, without the cost of extra long-distance grid transportation and battery storage. Such an estimate makes renewables look far more valuable than they really are.

We now have enough experience that we can see what goes wrong. A hydroelectric plant that operates during the wet season in a tropical country may be of little practical use, for example, if there is no fossil fuel energy available to provide backup electricity production during the dry season. The total cost of the overlapping systems needs to be taken into consideration, including the need to hire staff year around for both the fossil fuel and hydroelectric facilities. Electricity transmission will likely be needed for both types of generation.

There are many other real-world examples that can be examined, before blanket “use renewables” recommendations should be issued. If renewables are not truly very inexpensive (around 2 cents per kWh or less), without subsidies, they are likely not to be long-lasting. Subsidies become more and more difficult to maintain, as a system scales up.

This entry was posted in Energy policy, Financial Implications and tagged , by Gail Tverberg. Bookmark the permalink.

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.

1,380 thoughts on “Do the World’s Energy Policies Make Sense?

  1. Thanksgiving is here. You know what that means. The doomsday clock is reset to two years… again… 🙂 Two years out.

  2. “…believe it or not, the world is facing a shortage of sand… Sand… is the most-consumed natural resource on the planet besides water…

    “The problem lies in the type of sand we are using. Desert sand is largely useless to us. The overwhelming bulk of the sand we harvest goes to make concrete, and for that purpose, desert sand grains are the wrong shape. Eroded by wind rather than water, they are too smooth and rounded to lock together to form stable concrete.

    “The sand we need is the more angular stuff found in the beds, banks, and floodplains of rivers, as well as in lakes and on the seashore. The demand for that material is so intense that around the world, riverbeds and beaches are being stripped bare, and farmlands and forests torn up to get at the precious grains.”

    • 10. Summary

      “A bunch of mildly clever, highly social apes broke into a cookie jar of fossil energy and have been throwing a party for the past 150 years. The conditions at the party are incompatible with the biophysical realities of the planet. The party is about over and when morning comes, radical changes to our way of living will be imposed.”

      • Except that, for the majority of human beings, it hasn’t been much of a party at all – he’s forgetting that.

        A good quote, though, for those of us who are so spoiled we don’t know our good fortune.

    • That is a great summarizing article. Definitely worth reading to understand how precarious the current situation is and how it might transition into something else.

    • Thanks! That is a very nice summary.

      One point Nate Hagens makes is, “Although Americans use 20 times more energy per capita than Filipinos, the percentage of ‘very happy’ citizens remains equal.”

      The Filipinos have the advantage of a mild climate and an economy built to use less energy, however. We would have a virtually impossible task doing something similar. The financial system would collapse, among other things.

      • The Filipinos are also very big on large and actively involved extended families. The elderly tend to be respected and looked after by their children and their children’s children—something that has gone out of fashion in the Industrialized world.

        • It is a lot easier to be involved with extended families when people don’t have to move for education and jobs. Also, if a person’s job is similar to that of his grandfather, respecting the grandfather is easier to do.

          The population of the Philippines is now growing at 1.4% per year. The CIA Factbook makes some interesting observations:

          The economy has been relatively resilient to global economic shocks due to less exposure to troubled international securities, lower dependence on exports, relatively resilient domestic consumption, large remittances from about 10 million overseas Filipino workers and migrants [Emphasis added], and a rapidly expanding services industry.

          Although 2017 saw a new record year for net foreign direct investment inflows, FDI to the Philippines has continued to lag regional peers, in part because the Philippine constitution and other laws limit foreign investment and restrict foreign ownership in important activities/sectors – such as land ownership and public utilities. [So citizens have to leave, go elsewhere and earn money in other currencies, and send remittances back home. Keeps local population growth down. Also, foreign remittances help increase the amount of imported goods purchased, without it showing up as energy consumption. Cuba does this too.]

          Wealth is concentrated in the hands of the rich. . . . At least 40% of the employed work in the informal sector. Poverty afflicts more than a fifth of the total population but is as high as 75% in some areas of the southern Philippines. More than 60% of the poor reside in rural areas, where the incidence of poverty (about 30%) is more severe – a challenge to raising rural farm and non-farm incomes.

    • Hagens is a interesting fellow with quite a background.
      Also a mushroom hunter, which dominates my interaction with him.
      Not someone most members of this blog can follow.

    • quite excellent…

      this quote from section 4.8:

      “Energy’s cost share of our economy, after five centuries of decline, reached a low in 1999 and has been increasing since (King, 2015). When obtaining energy requires more energy, materials and money, the economy suffers because discretionary wealth is redirected or drained away.”

      so The Endgame began back in 1999…

      20 years later, the consequences are starting to hit harder…

      • Yes, it’s an excellent, summary; apart from the usual limp and unconvincing ending, indicating in vague generalities how ‘we’ might adapt ‘wisely’ (humans, wise?) – but that’s the usual thing, the truth is simply too hard to face or express frankly.

        • Are you saying we should start a band called The Esoteric Doomers? I mean Slayer is already taken. 😉

        • Xabier:

          “Yes, it’s an excellent, summary; apart from the usual limp and unconvincing ending, indicating in vague generalities how ‘we’ might adapt ‘wisely’ (humans, wise?) – but that’s the usual thing, the truth is simply too hard to face or express frankly.”

          through 9 long sections, he makes quite a strong case for how humanity WILL NOT, probably CAN NOT change… how BAU is now deeply intertwined into the way most of us humans live…

          and even to the third paragraph from the end, he remains consistent:

          “It is likely that, in the not-too-distant future, the size, complexity, and (literal) `burn rate’ of our civilization will be much reduced by forces other than human volition. This paper suggests that we will not plan for this outcome –”

          if Mr. Hagens had ended there, without the last two paragraphs, then the whole piece would have been consistent with reality…

          the poetic fantasy of those two tiny concluding paragraphs doesn’t detract from the value of the massive content that comes before…

          • I agree, of course.

            It’s embarrassing, though, how there always has to be some implausible uplift at the end.

            Merely a kind of ritual conclusion, I suppose, so we can forgive him.

            • An old and venerable tradition:

              “But apart from that, Mrs Lincoln, how did you enjoy the play?”

      • I think of 1999 as the year that inflation-adjusted oil prices hit a bottom. It is also the year that employment as a share of the US workforce started turning down.

        The big change was in women’s labor force participation. It stopped growing and turned down a bit.

        Cheap energy made commuting cheaper and childcare cheaper. Adding energy costs made the “overhead” from working rise.

        Men’s labor force participation has been falling for a very long time. It has especially been falling since 2008.

    • Thank you, it has been a while since I followed Nate, interesting guy, the article has intriguing references to how we behave as groups.

      Dennis L.

      • those references show that it is highly probable that our human group will continue to push the BAU pedal to the metal for as long as we can…

      • Ah yes. Anyone expressing a opinion is called names. Anyone who likes trump is a “russian bot” Now we know what hillary meant when she said russian bots cost her the election. Those damn russian bots vote!
        Trump is only the peace candidate because democratic part has become the party of war.
        They practice war in their speech their partisanship their tactics and their attitude. Hate is war. Tulsi someone who has actually been to war is shunned by the neo war democrats.
        Hate is easy. You dont have to look at yourself its all the other guy. If your so keen on war elect a neo war dem and go. Ifyour not take your party back. Your party that controls its candidate selection with super delegates. only warmongers allowed. Yes trump the peace president by far. Call names now.. .

        • no you don’t get it either….what is happening is bigger than your tribal politics anyone on here propagating their brand of Hillary or Trump is a fool. Trump is not making the situation better just as Obama did not either. I think both parties are foolish—but not as bad as their followers. Consumption of fossil fuels has not gone down and nor has the “system” changed at all under Trump. I guess it is easier to compartmentalize and say I am for the blue team or I am for the Red team but for purposes here and discussions it does not fit; the ending is still the same. Frustrating so many people think they are insulated from every thing….. there may be peace for you but there is still plenty of war going on around the world….. Here you go

          Also right now is the largest amount of refugees in any time of history but don’t worry you got your fat pension rolling in right? One day that will disappear and that day is coming very soon.

          • Do you take joy in your last sentence? The second to the last almost seems like envy, is it? We humans are strange, if he/she has a nice pension, wonderful, it is a beautiful world.

            Dennis L.

            • Sorry did not mean to attack you personally just don’t like when people try to interject their personal politics here; it is a very myopic way of looking at our current predicament and a waste of time. I can tell by your comments your age and your financial situation…..I think those that have their pensions and social security feel that they are immune to the coming collapse just as those who say they have no debt so they are insulated from any problems in the future. It is like when the electricity goes off people still try to turn on the lights and forget that nothing works. There is no escape….we weren’t supposed to be here forever and soon we will be gone…….Trump,, Obama etc…will not save you….

          • As this graph shows, the percentage of refugees among the world’s population is rising steeply year by year. A graph of absolute numbers refugees would show a much steeper rise almost like a rocket.The amount of human misery represented by these numbers is mind-boggling and compassion fatigue-inducing. And there’s no sign that the world can cope or that anyone has a plan to make things better..

          • politicians are elected on the odd assumption that they have a ‘plan’ that will fix things.

            The reality is of course that there can never be a ‘solution’ because we are all part of the ‘problem’

            no politician can ever say this, because his job depends on the promise of the solution—and he needs wages just like the rest of us.

            so things lurch on in 4 year stints, with only ofw doomsters aware that we have an energy problem, not a political problem.

            It is we who demand infinite energy supplies, to provide for infinite people. But we see that problem from only a single standpoint–ie ourselves. We demand that our filling stations and supermarkets remain full, and if they don’t, then it is our politicians who mare at fault.

            In the same way, we blame exxon for climate change. But it is we who burn the oil by which we fry ourselves, and it is we who will riot when the oil has all gone as we freeze/starve and spread blame around.

            The future can only be navigated through the rear view mirror of history. That has worked more or less ok in the past, but our future isn’t going to fit that past-idea because we will not have the means to support the billions of extra people who are going to fill that future.

            • “The future can only be navigated through the rear view mirror of history.”

              There is a story told of the famous Sufi sage Mullah Nasruddin (‘Nasr ed Din’, “champion of the faith”) that he was seen riding his donkey backwards. When asked why so, he replied “my donkey is left handed”.

              But to me, the scene is an allegory. When you ride a donkey facing forwards, you can see where you are going, but not where you have been. When you ride a donkey facing backwards, you can see where you have been, but not where you are going.

              So a question, and one I suspect you can answer: what is the name of the donkey?

      • Tulsi takes on the warmongers. Where is her support? Too busy goose stepping down the street hating.

    • Lol!
      The rape and pillage president– lucky he is fairly incompetent, or things would be even worse.

      • What exactly has he raped and pillaged?

        His predecessor had 3 wars to his credit (to go with that shiny Nobel).

    • “The world is addicted to debt, which has ballooned to unprecedented levels in both developed and developing countries.

      “Many developing countries are reeling under mounting debt, experts said at UNCTAD’s Twelfth International Debt Management Conference, held at the United Nations in Geneva, Switzerland…

      “From Argentina to Zimbabwe, soaring debt levels have severely exposed many developing countries to global economic and financial volatility regardless of their income level…

      ““We are living in fragile times,” Mr. Schlettwein told high-level policymakers and debt managers from over 100 countries.”

      • Growing debt is what pulls economies forward. In some sense, there is not enough of it. But if the economy doesn’t grow fast enough, the whole debt bubble tends to collapse.

    • What “bold action” is really available? More bridges to nowhere? More concrete homes for Chinese citizens that they cannot really afford? All kinds of actions produce jobs in the short run, but provide no long term way of funding the debt needed to allow these projects.

      • The same for the UK Labour Party’s proposed ‘Industrial Revolution 2.0’ to ‘transform ‘ Britain : just a huge debt splurge on (probably) shoddy infrastructure, and short life expectancy solar and wind stuff, mis-represented as ‘investment’.

        Although I can’t see where the skilled workforce is meant to come from, such people being in notoriously short-supply these days.

        • I see they are planning to build 120,000 social and council houses as well. Noble, I’m sure, but this is hardly in line with their avowed intent to slash carbon emissions, unless these are to be houses of wattle and daub.

          We’d also get vast monocultures of hurriedly planted trees, which would be biological deserts and vulnerable to pests.

          All any of the major political parties really care about is resource-allocation and the exercising of power for its own sake.

          • Noble social and council houses? I think not. They will be given to immigrant parasites from the Third World, whom Labour will import in great numbers, and then allow them to vote. It’s right there in their manifesto.

      • FWIW, the overarching narrative in the mainstream news this week is that the global economy may have *just* turned a corner, thanks to the most significant and synchronised bout of central bank easing since the GFC.

        This has to count for something, given that human intangibles are always important for the financial system.

        But then this optimist outlook assumes the trade war will not take a turn for the worse and ignores the rising social unrest across the globe, as well as our debt-saturation problem, and the fact that central banks now have even less ammo to counter any downturn.

        • “The US-China rivalry isn’t easing off — it may, in fact, be about to get even more intense. That’s keeping the business world on edge.

          “The swarm of corporate executives, academics and politicians who descended on Beijing this week to discuss the state of the economy seemed a lot more unsure than confident about the outcome of the trade war, which now threatens to drag into 2020.

          “For one thing, the fabled “phase one” agreement with China that US President Donald Trump promised in October has yet to materialize, leaving businesses uncertain about what comes next.”

      • “And all the roads jam up with credit,
        And there’s nothing you can do,
        It’s all just bits of paper flying away from you,
        Look out world,
        Take a good look what comes down here,
        You must learn this lesson fast and learn it well

        “This ain’t no upwardly mobile freeway, 
        Oh no, this is the road, 
        This is the road,
        This is the road to hell.”

        (Chris Rea, The Road to Hell)

  3. ““I would bet that there would not be a [US] recession in the coming year. But I would have to say that the odds of a recession are higher than normal and at a level that frankly I am not comfortable with,” Yellen said at the World Business Forum.

    “With three rate cuts this year, there remains “not as much scope as I would like to see for the Fed to be able to respond to that. So there is good reason to worry.””

      • This video of a body-language expert observing Jeff Powell of the Fed making his last rate-cut announcement is worth a watch. The poor man looks like he is going to jump out of his skin with anxiety at around the 4 min 55 sec mark:

      • ” the bill purchases were an entirely technical effort to bolster reserves, with no monetary policy implications.”

        That is what they would like us to believe.

      • “$103.65 billion”

        That’s a serious amount of dough to inject in one day. What’s disconcerting is this effort to bolster liquidity hasn’t been short term with the problem fixed, but instead an ongoing effort that so far has no articulation by the Fed of an end. So it begs the question; Is there a permanent financial need for this intervention? And if so, how long can it be sustained? And if the effort is determined to have no end and the policy suddenly switches into not making these injections, what happens then? In other words, if this Repo situation is allowed to take a natural course without intervention, does it take down the rest of the economy with it? I suppose these are hypothetical questions that likely no one has clear answers for, but nonetheless represent some hard questions that need to be asked.

        • $75 billion is overnight repo and the remainder 14 days repurchasing, my guess is that lots of it is refinancing older repos. In a sense then, this is not $100 billion fresh money injection.

          My understanding is that if the repo situation would be allowed to take a natural cause, some financial companies would be illiquid. This would probably cause bank runs. It would really be interesting to know the underlying cause of the repo market problem.

          • At least part of what is going on is that banks are no longer borrowing from the repo market, because of the stigma attached to borrowing there. There is a recent WSJ article called, How the Discount Window Became a Pain in the Repo Market.

            Borrowing from the discount window, the Fed’s only channel for lending directly to banks, has plummeted. Through October, banks are on pace to borrow just $750 million from the Fed this year, half of last year’s total and well below the record low of $940 million set in 1961.

            Banks are desperate to avoid the stigma attached to accessing the window, which is designed to help them weather short-term funding crunches. It is one reason they are hoarding cash at levels well above what regulators require, ensuring that they won’t be caught short if markets go awry.

            The hoarding has drained liquidity from other parts of the market, contributing to a cash shortfall that roiled overnight-lending markets in September. The resulting spike in rates forced the Fed to inject tens of billions of dollars into the market for repurchase agreements to stabilize it. Two months later, the Fed is still pumping money into the repo market.

          • Christopher: “It would really be interesting to know the underlying cause of the repo market problem.”

            I saw an article by Pam and Ross Martens, I think, which said that JP Morgan was refusing to lend to other institutions…


            Gail: “Banks are desperate to avoid the stigma attached to accessing the window, which is designed to help them weather short-term funding crunches. It is one reason they are hoarding cash at levels well above what regulators require, ensuring that they won’t be caught short if markets go awry.
            The hoarding has drained liquidity from other parts of the market…”

            this makes sense… the Fed has to step in and provide the money, because:

            Christopher: “My understanding is that if the repo situation would be allowed to take a natural cause, some financial companies would be illiquid. This would probably cause bank runs.”

            and possibly a debt default death spiral…

            • “At least part of what is going on is that banks are no longer borrowing from the repo market, because of the stigma attached to borrowing there.”

              This is a reasonable explanation for the initial cause of this situation. But after two months when the fed has been very clear that they will offer liquidity, why are banks still worried about prestige and the stigma of borrowing from the fed? They are losing money from this prestige and losing money is also a stigma if you are a bank.

  4. “Ray Dalio doesn’t want to use the word “recession” when talking about the global economy. But he does believe it is headed for what he dubbed the “Great Sag.”

    “The billionaire hedge fund founder told CNN Business on Thursday that the world is dealing with financial challenges on a scale not seen since the 1930s, when economies were deep in the throes of the Great Depression. Pension and health care debts are piling up faster than they can be funded, he said…”

        • The things that tend to do well are company buy-backs of stock and acquisitions of other companies.

          Acquisition by individuals doesn’t seem to do well, in any form.

      • This is happening in the “world’s best pension system.” It gets this ranking because, “Dutch workers have typically been able to retire on a pension equivalent to roughly 80% of their average pay. . . Netherlands was ranked first in investment adviser Mercer’s 2019 annual review of global pensions.”

        This is way too much, unless retirement occurs at age 90 or something close to equivalent. It is way too generous. Young people cannot afford the cost.

        • Thinking of something I know at least a bit about, farming and farm families. It seems that dad, and yes, it is the dad as farming is physical work, seems to stay on the family farm as a hand until no longer able to physically work, many times turns over nice farm house to children so they can in turn have a family, helps out driving tractor, combine, repairing things, giving advice obtained through the years(an elder of the family), the young son or more, (probably secondary to modern machines allowing cultivation of more ground) takes over the farm, the capital of the farm is transferred to the younger generation at a rate that the land produces, not an assumed discount rate. Done correctly, the debt on the land is paid when the father and mother pass and so it begins again. Returns vary, and so to do the pensions received by the parents.
          I watched a video of a senior dad with his wife sitting proudly beside him in the combine, her look said to me, “Yup, you guys do the work, we(husband and wife) have a retirement because I gave you two sons.” It is organic and biological and it moves at a pace consistent with that of the land when done well, with too much debt, it moves to the bankers and everyone loses – I saw that in Iowa in the early eighties, a great deal of pain.

          Perhaps society is going to start transferring wealth generated as income at a rate that is consistent with real returns which implies variability. Ouch.

          Dennis L.

          • Now there is a problem with food prices staying too low, making it hard to make a living on a farm. There is more and more high tech farm equipment, feed, and seed. I can’t imagine that this gets less expensive. All of these folks want a cut of the take as well.

        • Gail, if I were asked to identify the world’s best pension system (an event whose likelihood is zero), I would select the system that could with a high degree of probability actually keep its promises. But perhaps no such system can be found, so my report would be a very short one: “Put not your trust in princes” (Ps cxlvi:3)

  5. More on the problems of the very, very rich. Overhead everywhere.
    So, the ultra wealthy collect their wealth in one place, who are the guards? If there are no guards, pretty trivial to find an owner, and make an offer not unlike that of the Godfather who informed someone hesitant to sign a contract that either a signature or his brains would go on the paper. Countries are moving their gold to military basis, depends on who has the largest moat.
    The question is what can it be exchanged into? I suspect gold to a hunter gather after perhaps a necklace has less than zero value. An automobile plant, any plant after oil has less than zero value(think RE taxes), most physical objects other than the environment itself go to zero so all the concern about declining resources is not an issue.
    Negative interest rates reflect this well, imagine when bored, Warren goes to the nearest bank branch, states he wants to open a saving’s account and when asked how much, states, $10B. Now, the bank has a problem if the overnight rate goes to less than zero.
    The stock market appears to have become a tactical exercise, darn little value to purchase although Zell is buying oil, there is blood on the streets.

    Dennis L.

  6. “The bad news is that applied for too long, negative or very low real interest rates are not only affecting long-term productivity, but also fuelling social inequality. Hence, central bankers are in a pickle.

    “They know that excessive quantitative easing is not sustainable, but it is the only tool they have to prevent recession…”

    • “The ECB, always happy to repeat the mistakes of Japan with an even stronger impetus, is likely to start new programs of debt monetization for green projects and claim it’s a different, radical, and new measure…

      ” …the massive spending financed with new money creation is likely to be even worse for economic growth.”

      • All they have to do is make ‘Green’ modifications and systems compulsory for householders, and it’s a whole new field of corrupt investment opportunities…..

        • No kidding. There is a whole new field of corrupt investment opportunities. And there are many ways you can spin the result, so the results look good, when in fact they are bad for the economy as a whole.

          This is a recent article Renewables are not making electricity any more expensive: Wholesale prices are dropping, though mostly due to natural gas.

          This article references a new study by Lawrence Berkeley National Laboratories called Impact of Wind, Solar, and Other Factors on Wholesale Power Prices: An Historical Analysis—2008 through 2017

          The Arstechinca article spins the falling wholesale prices as “good.” It says,

          It’s entirely possible for wholesale electricity prices to drop even as consumers end up paying more. That said, large changes in the wholesale price should ultimately be passed on to consumers to one degree or another.


          This is the same issue that Europe has been up against. This is an old chart of wholesale electricity prices falling, even as retail prices rise in Europe.

          The dotted line at the bottom represents wholesale electricity prices. You can see how tiny they are compared to total retail electricity prices. In the US, we have big pieces fo subsidies being hidden in the US federal tax system, so we cannot even see the total price being paid for wholesale electricity.

          Very low interest rates are also benefitting wind and solar.

          It shouldn’t be a surprise that mis-priced wind and solar electricity are more and more distorting wholesale electricity prices, pushing the electricity system toward collapse from too low rates for backup producers. This problem was recently noted in the Northeast US, where subsidies have been given both to nuclear and coal producers in Ohio, to try to get around this problem.

          • A friend of mine who is senior in a major oil/gas firm tells me they are looking at diversifying into biofuels and CCS. Of course as a company, all they are concerned with are profit, share-price, dividends and generally remaining viable.

    • Lots of worthwhile observations, but (of course) he doesn’t understand how the economy really operates with cheap energy and rising debt. One of his comments that is true:

      With negative rates, it does not pay to save, but if we spend too much, we will end up in bankruptcy sooner or later. Furthermore, with markets at record highs, we don’t even know how to invest.

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