Recession Ahead: An Overview of Our Predicament

Many people have the impression that recessions come from financial missteps, such as the US subprime loan fiasco. If energy is involved at all, the problem comes from high oil prices as supply becomes inadequate to meet demand.

The real situation is different. We already seem to be on the road toward a new crisis; this crisis is likely to be much worse than the Great Recession of 2008-2009. This time, a major problem is likely to be energy prices that are too low for producers. Last time, a major problem was oil prices that were too high for consumers. The problem is different, but it is in some ways symmetric.

Last time, the United States seemed to be the epicenter; this time, my analysis indicates China is likely to be the epicenter. Last time, the world economy was coming off a high growth period; this time, the world economy is already somewhat depressed, even before hitting headwinds. These differences, plus the strange physics-based way that the world economy is organized, explain why the outcome seems likely to be worse this time than in 2008-2009.

I recently explained what I see as happening in a presentation for actuaries: Recession Likely: Expect a Bend in Trend Lines. This post is based on this presentation, omitting the strictly insurance-related portions.

The big thing that the vast majority of people do not understand is how important energy is to the economy. Because of this issue, I started my presentation with this slide:

Slide 3

After an opportunity for discussion, I offered the explanation that the role of food for humans is very much parallel to the need for energy of various types for the world economy. Food provides people with the energy required if they are to have the ability to think, move and speak. Energy products of many kinds enable the activities that we associate with GDP. For example, energy consumption enables machinery to operate and goods to be transported.

Slide 4 – Larger image at this link.

Using data from Smil, as well as more recent BP data, we can estimate how fast energy consumption has been growing over a very long period–nearly 200 years. We can see that the highest energy consumption growth occurred in the 1961 to 1970 period; the second highest growth occurred in the 1951 to 1960 period. These are periods we associate with rapid GDP growth and prosperity.

On the next slide, I show the same data displayed in a different way.

Slide 5 – Larger image at this link.

On this slide, I make two changes in the way the data are displayed:

  1. The increases in energy consumption are split into two components: (a) energy used to support population growth and (b) all other, which I describe as energy used to support improvement in “living standards.”
  2. A different graphing approach is used.

Note that when population growth corresponds to the full amount of energy consumption growth (in other words, at times when there is no red area above the blue area), energy consumption per capita is flat. High growth in energy consumption per capita seems to correspond to rising living standards, as occurred in the 1950s and 1960s.

While I label the “all other” category as if it is simply changes in living standards, there are other components, as well. One breakdown might be the following:

  1. True improvement in living standards.
  2. Additional energy investments required to offset diminishing returns.
  3. Increasing use of energy for overhead items that don’t get back to individuals, such as energy used to fight pollution or to allow globalization.
  4. Efficiency improvements allowing available energy to be more productive.

Efficiency improvements (Item 4) will allow more energy to be available for improvement in living standards, while Items 2 and 3 in the above list act in the opposite direction. We do not know to what extent these items really offset each other. Thus, “All other” = “Improvement in Living Standards” is only a rough approximation.

Slide 6 – Larger image at this link.

We can see from Slide 6 that whenever there is no red area above the blue area (flat living standards or flat energy per capita), adverse events seem to happen.

For example, the US Civil War (1861-1865) came at a time of low energy consumption growth. The Great Depression of the 1930s came during another period of low energy consumption per capita growth. World War I came at the beginning of this period, and World War II came at the end. The collapse of the central government of the Soviet Union in 1991 ushered in a decade of low world energy consumption growth, in part because of the loss of the central currency of the Soviet Union.

The “China Coal” note at the end pertains to the way that China and its coal supply has helped pull the world economy forward since 2001. This benefit seems to be already declining.

Slide 7 – Larger image at this link.

Slide 7 shows China’s energy production by fuel. Coal production (in red) soared after China was added to the World Trade Organization in December 2001. Beginning about 2012, China’s coal production began to plateau. Depleting mines and low prices for coal have kept production flat. Imports can be used as substitutes, to some extent, but it is difficult to keep costs low enough and provide adequate total supply.

With the loss of growth in China’s coal production, its economy has had to cut back. Each year, we read about coal mine closures and miners needing to find new jobs. We know that China discontinued its paper and plastic recycling business as of January 1, 2018. China has also been cutting back on solar subsidies, leading to fewer jobs installing solar panels. All of these types of changes reduce the number of people who can afford to buy high-priced goods, such as new homes, vehicles and smart phones.

Slide 8 – Larger image at this link.

It is becoming increasingly clear that China is being forced to cut back on heavy industrialization because of its coal difficulties. Slide 8 shows automobile purchases for six large economies. China is by far the largest of these economies in terms of auto sales. China’s auto sales began to slide in 2018 and are sliding further in 2019 (about -11%).

If we look back at the time of the 2008-2009 recession, we see that auto sales of the US dropped precipitously. The United States was the country that led the world into recession. The inability of US citizens to buy cars was a sign that something was seriously wrong. Now we are seeing a similar pattern in China.

China has reported that its GDP growth rate has been slightly lower during 2019, but we really don’t know how much lower. The amounts it publishes are too “smooth” to be believed. The actual GDP growth rate is believed to be lower than the recently reported 6.0%, but no one knows by precisely how much.

Figure 8b – CNBC Chart of changes in auto sales by country, based on data through October 2019. (Not part of original presentation.) Source

Figure 8b gives a little more information about recent car sales by country. We can see from this chart that based on data through October 2019, world automobile sales are expected to fall by about the same percentage (3%) in 2019 as during the recession year of 2008. I find this disturbing.

We can also see the huge impact that China has had on keeping world private passenger auto sales rising. The world economy looked like it was headed into recession in January, 2016, when world oil prices were very low, but a spike in China’s automobile sales at that time helped keep total world automobile sales rising and allowed world oil prices to rise from their low point.

In the next sections, I provide some background regarding this story.

Slide 9

Slide 10 – Larger image at this link.

Slide 10 shows the way that I visualize the world economy self-organizing and growing. The economy grows by adding new “layers” of businesses, products, consumers and laws. Unneeded products, such as buggy whips, are dropped from the bottom. Unprofitable businesses close. In some sense, the economy is hollow because of these deletions. It cannot easily go backward because, for example, the support services for widespread use of transport using horses are lacking.

Energy is used to operate all aspects of the system. One part of the system is a self-organizing financial system that helps decide, through wage levels, who gets the benefit of the goods and services that are made. This financial system includes self-organizing interest rates and self-organizing commodity prices.

The most important connection within the economy is the one I show at the center as “Consumers = Employees.” Consumers are very dependent on their wages as employees. If the economy is to continue to operate, workers must receive high enough wages to purchase the goods and services the economy produces. Even the lower-paid workers need to be able to afford food, housing and transportation, or the economy will tend to collapse.

Slide 11

When we look back through the history on Slides 4, 5 and 6, we see that the growth of energy consumption is very important in how economies operate. The theories of Ilya Prigogine explain why this is the case; when adequate flows of energy are available, self-organizing systems are able to grow.

Few economists today include energy consumption in their models, however. Economic theory has grown over time in its own “ivory tower.” Like other academic subjects, it depends on early theories and the process of peer review. The views expressed must also be pleasing to those in power, who would like everyone to believe that politicians, rather than the laws of physics, are in charge.

Slide 12

There are many types of self-organizing systems that grow. They all, directly or indirectly, require energy. Plants and animals of all types are self-organizing systems that grow. Hurricanes grow using the energy that they get from warm water.

Governments grow from the tax revenue that they are able to collect; they use the revenue to buy energy products such as electricity to operate governmental offices, oil to build roads and operate police cars, and natural gas to heat buildings.

The Internet grows through the revenue collected to provide its services. The Internet uses revenue to buy computers (made with energy products) and electricity to operate those computers.

Slice 13

Nearly all 0f the energy we use is hidden. For example, modern food production is very much dependent on energy consumption. Agricultural machines are made using energy products. Soil amendments, including organic soil amendments, are transported using fossil fuel energy. Refrigeration is possible through the use of energy. Hybrid seeds are only possible through energy consumption. Planting seeds by digging with a stick would only use human energy, but such a process would be terribly inefficient.

Slide 14

Slide 15

Most of us can easily recognize today’s goods and services, such as those listed.

Slide 16

Promises of future goods and services act like promises of future energy supplies. This happens because creating goods and services that people can actually use requires energy supplies of the appropriate type.

When people get cash or a check, they expect to use it to buy goods and services. Creating these goods and services requires energy consumption. If there is no energy of the right type available, the goods and services won’t be available to fulfill the promises.

Slide 17 – Larger image at this link.

Promises of future goods and services tend to grow faster than actual goods and services because it is these promises that, in some sense, “pull the economy along.” For example, if a young person gets a loan, (s)he can often buy a new car. The fact that a new car is being purchased leads to more jobs in the supply line leading up to new car production. Or, if a business takes out a loan or sells shares of stock, it can use the proceeds to hire employees. It is these growing wages that keep the system operating.

As long as the economy is growing rapidly, the mismatch between growing debt and actual output doesn’t become apparent. As the economy slows, some workers find themselves working fewer hours. Some businesses become less profitable and lay off workers to try to restore profitability. The catch is, with fewer workers, the economy slows even more. It usually takes more debt, at lower interest rates, to get out of such an economic slowdown.

Slide 18

Slide 19

There is a lot of confusion about prices. “Demand” is what people, through their wages and debt, can afford. As economists tell us, price depends on supply and demand.

In the short term, prices tend to bounce around a lot. The short term buyers of oil are oil refineries. They need to keep their employees busy. If they see a shortage of oil, they may bid up the price of oil to allow their workers to continue to be employed.

Over the longer term, prices of all energy products tend to depend on consumers’ ability to afford finished products, like cars, homes and cell phones. Producing these objects and shipping them takes energy. They also use energy as they operate.

Slide 20 – Larger image at this link.

The various energy prices shown here are simply a few of the many, many energy prices that we see around the world. Strangely enough, prices of all energy products tend to fluctuate together, over the longer term. Prices depend on affordability of end products, such as cars, homes, computers, food and clothing. Our problem since about 2012 has been lack of affordability of end products.

The primary way of raising affordability is by increasing productivity. Increased productivity is made possible by increasingly leveraging human labor with devices that are built with energy and are operated using energy. For example, a worker with a ditch digging machine is much more productive than a ditch digger with only a shovel. An analyst is more productive with a computer and Internet access than with only pencil and paper.

With higher productivity, more goods are produced in total. As long as not too much of this productive output is skimmed off the top (by governments, or by business hierarchy, or to pay for the devices and their fuel), it is possible for each worker to afford more goods and services, raising total demand.

An alternative way of raising affordability is by adding more debt at ever-lower interest rates. This approach tends to make goods such as cars, homes, and factories appear more affordable because their monthly payments are lower. This added-debt approach only works as long as the economy is growing quickly enough. If the economy slows too much, the added debt leads to financial crashes of many types.

Slide 21

Slide 22

Many people think that they know the amount of oil that can be extracted based on the current technology and the assumption that prices will eventually rise high enough to extract all of the fossil fuels that seem to be available. For example, the International Energy Agency has prepared reports in which it shows expected oil availability if oil prices rise to $300 per barrel.

The catch is that even if oil prices can bounce high, it is not clear that they can stay very high. The current price of oil is only in the $55 to $65 per barrel range. A price of $300 per barrel will allow oil extraction using very advanced technology. We don’t have any evidence that oil prices can stay this high because demand comes primarily from wages. Prices cannot stay high without adequate support from wage levels.

Of course, the issue is not just oil prices staying sufficiently high. Natural gas, coal, uranium and electricity prices all have difficulty rising high enough and staying high enough. Commodity prices such as copper and steel have the same issue.

Slide 23

There are many people who say, “Of course, oil prices will rise. Oil is a necessity.” They forget that it is really a two way tug of war between producers getting a high enough price to be profitable and consumers getting a low enough price to be affordable. There will be a winner and a loser.

People also forget that most commodity use is hidden. We see the fuel we buy for our personal vehicles, but there are a huge quantity of oil products required for shipping goods, paving roads, growing food, and for many other uses that we are not aware of. While we might be able to pay a little more to fill our gasoline tank, most of us would not be able to simultaneously pay more for food, transported goods of all kinds and road maintenance.

Slide 24 – Larger image at this link.

Economists often assume that if energy prices rise, wages will rise, as well. If we look at the data historically, however, it doesn’t work that way at all. What happens is the opposite: average wages tend to rise as long as oil prices stay low. Once oil prices spike, average wages tend to flatten out.

The amounts shown on Slide 24 are average wages, computed by taking the total inflation-adjusted wages for the population in total and dividing by population. When oil prices spike, recession soon sets in. The reason why average wages fall is partly because more people become unemployed. Other workers find it necessary to accept lower-paying jobs.

Slide 25 – Larger image at this link.

Many people focus on the run-up in oil prices to July 2008. An equally important point is the fact that the world economy has not been able to maintain these high prices since July 2008. The general price trend has been downward. The cuts by OPEC have not had a material impact.

Slide 26

Citizens of the United States, Europe, and Japan are used to thinking of high energy prices as being a problem because they are from countries that require substantial imported energy to maintain their GDP. For example, Greece will sell fewer trips on its tour boats, if oil prices are high. This will have an adverse impact on employment and the ability to repay debt with interest.

If a country is an oil exporting country, low oil prices are an even worse problem. This happens because oil exporting countries tend to earn a large share of their revenue from taxes on the sale of oil. These taxes can be much higher if oil is selling for, say, $120 per barrel than if it is selling for $60 per barrel. These tax dollars are used to provide subsidies to offset the high cost of imported food. They are also used to build industry and infrastructure to provide employment to the population.

If oil prices are too low, oil exporting countries will tend to cut back on oil production. In fact, this has been happening for OPEC for the entire year of 2019.

Similar problems occur if commodity prices of any kind (coal, natural gas, uranium, steel, copper, etc.) stay too low for an extended period. Producers go bankrupt, or they stop production, or they pay their employees so poorly that the employees go on strike. Sometimes, they may even start rioting. Many of the riots around the world today are related to low commodity prices.

Slide 27

Slide 28 – Larger image at this link.

The world experienced spiking oil prices in the period leading up to mid-2008. These high prices caused a recession and much lower prices followed. The chart on Slide 28 gives a somewhat exaggerated view of what goes wrong with high oil prices.

If the price of oil suddenly spikes to two or three times its previous price, both the price of food and gasoline are likely to increase. This change tends to lead to a big shift in a family’s budget. Debt payments, such as for a home and car, are pretty much fixed, so the big increase in food and gasoline prices must be taken out of the budget earmarked for everything else. This leads to cutbacks in discretionary spending such as vacations, restaurant meals, and charitable contributions.

In a short time, there are layoffs in discretionary sectors. Those who are laid off are more prone to defaults on loan payments. The problem soon escalates to a recession, with high unemployment and low oil prices.

Slide 29

Strangely enough, central banks push back against high oil prices as well. They know that high oil prices lead to high food prices. Citizens of energy-importing countries will be unhappy with elected officials if oil and food prices rise. Thus, central banks tend to raise short-term interest rates, as soon as they become concerned about high oil and food prices.

The recession that follows will quickly bring food and energy prices back down. If food and energy prices fall, the low prices will be the problem of the energy producers. Oil exporters will find their tax revenue too low, but the high-price problem of oil importers will be gone.

Figure 29b- Slide from a different presentation, showing the trend in interest rates. Larger image at this link.

You will recall that the rapid energy consumption growth periods were 1961 to 1970 and 1951 to 1960. During these periods, the economy was growing almost too quickly. The Federal Reserve was able to keep raising interest rates, as a way of holding down economic growth. It was not until 1981 that the pattern changed from raising interest rates to falling interest rates.

Since 1981, the US Federal Reserve and other central banks have been reducing interest rates. Lowering interest rates and rising debt levels, as mentioned previously, makes goods appear more affordable because of lower monthly payments. The concern now is that interest rates are about as low as they can go. Central banks no longer have room to offset recessionary tendencies (because of slow growth in energy consumption) by lowering short-term interest rates.

Slide 30

Most people never consider the possibility of low energy prices leading to collapse. It looks to me like this is the danger facing us today. Let’s start by looking back at what happened in 1991.

Slide 31 – Larger image at this link.

When the central government of the Soviet Union collapsed in 1991, the individual republics making up the Soviet Union were left on their own to find new currencies and new trading partners. Satellite countries of the Soviet Union were affected as well. Slide 31 shows that the consumption of many types of resources dropped for many years for the whole area. The low point was not reached until 1998.

Slide 32 -Larger image at this link.

If we look back to see what had happened previously, the Soviet Union was an oil producer and exporter. When oil prices were high in the 1973 to 1980 period, the Soviet Union prospered. But then low prices came along, at least partly because the US Federal Reserve raised interest rates to almost 20% in the 1980-1981 period. (See Figure 29b.)

The long-term low oil prices, in some sense, indicated that the world economy was producing too much oil; some inefficient area(s) of production needed to leave. The Soviet Union may have been singled out by the self-organizing economy because it used energy products in a less efficient manner than other economies. Its adverse outcome may also have reflected the fact that its cost of production was higher, leaving less of the sale price for reinvestment and taxes.

Slide 33

The Soviet Union is an example of what can happen if oil prices stay too low for several years. The central government of such an economy can collapse.

Slide 34

When commodity prices are too low, the economies of countries exporting those commodities are stressed. This is why we see so many uprisings in commodity-producing countries right now. Iraq with its oil has been having protests. Chile, with its copper and lithium exports, has been seeing protests. South Africa with its exports of coal, precious metals and gems has been having riots. With some escalation, any of these low-price situations could lead to an overturned government.

Slide 35

Slide 36

In Slide 36, I give an example of two different kinds of ingredients in a cake:

  1. Ones that are substitutable: the flavoring, which can be vanilla, almond, or something else
  2. Ones that are not substitutable: the flour, which is the energy product

With too small a quantity of flour, all we can do is make a smaller cake. Perhaps we can substitute a different energy product, but electricity most certainly will not do! Some bacteria eat electricity, but humans do not. Substitutability is limited, even within energy products/carriers.

Economists make models focusing on the special case when a material is not essential for the economy. This gives a misleading impression. If they had looked back at what happened when energy supplies were low relative to population growth, as we saw on Slide 6, they could make much better models.

Slide 37

We seem to be sitting on the edge of some form of collapse for at least parts of the world economy, right now.

Without enough energy consumption growth, top-level organizations, such as the European Union, the United Nations and the World Trade Organization, are especially at risk of collapse.

Slide 38

Slide 39

One of our big problems today is excessive wage disparity. High-wage workers rarely have trouble being able to afford homes, cars, vacations, and air conditioning. It is non-elite workers, the ones who have not been able to find high-paying jobs, who have an affordability problem.

The wage disparity problem is an outgrowth of how the physics of the economy works. If there are not enough goods and services to go around, the physics of the economy effectively “freezes out” some of the workers. Under this arrangement, there will be some survivors even if there is not quite enough for everyone. In some sense, the “best adapted” are able to survive. If the inadequate supply of finished goods and services were spread around evenly, there might be no survivors at all.

Slide 41

The thing that is key is that workers need to be able to afford finished goods and services produced by the economy. If too large a share of wages goes to high paid workers, or to owners of robots, there is not enough left over for the “regular” employees.

Slide 42

Many workers have seen their jobs disappear as their employers moved production to another country where wages were lower. Or, jobs can remain, but the wages will fall from the low-wage competition.

Slide 43

US income disparity seems to be as great as it was in about 1930, at the time of the Great Depression.

Slide 44

Slide 45 -Larger image at this link.

If we look at historical world energy consumption by fuel, we observe that it has been rising the vast majority of the time. The little dip that we see about 2008-2009 occurred at the time of the Great Recession. It doesn’t take much of a cutback in energy consumption to cause a major problem.

Back at Slide 20, I remarked,

The primary way of raising affordability is by increasing productivity. Increased productivity is made possible by increasingly leveraging human labor with devices that are built with energy and are operated using energy.

The world economy requires growing energy supply, of suitable kinds, to operate. If the quantity of energy available is reduced, productivity is likely to nosedive. This is true even if the reduction is intentional and seems to be for a good cause, such as reducing CO2 emissions.

We seem to be heading for a contraction in energy supplies now because of continued low energy prices. Fossil fuels are, in some sense, leaving us, whether we like it or not. World coal production has been flat to falling since 2012. IPCC scenarios assume a very different  pattern: Fossil fuel use, especially coal, will grow indefinitely, presumably because of high prices and improved technology.

Many people are hoping that wind, solar, and hydroelectric will someday replace fossil fuels. I consider this highly unlikely because all three are made using fossil fuels. Furthermore, these “renewables” in total represented only 10% of world energy supply in 2018. The 10% is divided as follows: wind, 2%; solar, 1% and hydroelectric 7%.

Slide 46 – Larger image at this link.

There clearly is a correlation between GDP growth and energy consumption growth. China with its growing coal use was pulling the world economy along, especially in the 2002 to 2012 period. Recently, it has lost much of this ability.

In my opinion, Trump’s tariffs are not the cause of our current trade problems. Tariffs seem to be enacted whenever growth in energy consumption per capita is very low. Tariffs were enacted both immediately before the US Civil War and at the time of the Great Depression. The problem is that jobs that pay well indirectly require significant energy consumption. When growth in energy consumption per capita is low, it becomes impossible to find enough jobs that pay well for everyone. Tariffs are used in an attempt to keep jobs that pay well at home.

Slide 47

We don’t know quite what will happen. The closest analogy is the Great Depression of the 1930s. More financial problems seem likely. In fact, they could escalate quite quickly. More strikes, such as those currently going on in France, seem likely. The situation is likely to play out a little differently in various countries.

The physics of the situation seems to try to keep some parts of the system operating, if at all possible. But, as mentioned at Slide 10, the self-organizing system deletes parts of the economy that are no longer needed. We no longer have an economy that can operate with horse and buggy, for example. We can’t just “go backwards” to an economy of an earlier era.

Slide 48

We are already seeing changes in this direction. Hong Kong’s protests are in the news practically daily. Germany is experiencing job layoffs. We know that in an interconnected world, a recession that starts in one large country is likely to eventually affect much of the rest of the world.

Now we are in a waiting period, waiting to see what happens next. Major changes seem likely over the next five years, but they could happen much sooner.

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.
This entry was posted in Financial Implications and tagged , , , , , . Bookmark the permalink.

638 Responses to Recession Ahead: An Overview of Our Predicament

  1. Herbie R Ficklestein says:

    Utter CHAOS…..Order ….Order…..

    https://news.yahoo.com/climate-pledges-misleading-greta-tells-un-meet-110026715.html
    Madrid (AFP) – Swedish activist Greta Thunberg accused rich countries of “misleading” people over climate action at UN talks in Madrid on Wednesday hours before a veteran leader of the global environmental movement with whom she shared the podium was locked out of the conference.
    The UN climate forum tasked with saving the world from runaway global warming has become an “opportunity for countries to negotiate loopholes and avoid raising their ambition” to act on climate, the 16-year-old told delegates and observers to vigorous applause.
    “Countries are finding clever ways around having to take real action.”
    Nations gathered in Spain’s capital are struggling to finalise the rulebook of the 2015 landmark Paris climate accord, which aims to limit global temperature rises to “well below” two degrees Celsius and to a safer cap of 1.5C if possible.
    But the consensus-based talks are bogged down in politically charged wrangling over the architecture of carbon markets, timetables for the review of carbon-cutting pledges and a new fund to help poor countries already reeling from climate impacts.
    Amid glacial progress in negotiations, more than 200 youth and indigenous rights activists were forcibly removed after protesting outside the plenary hall, chanting “climate justice now!” and “Shame! Shame! Shame!”.
    Among those unable to access the talks was Greenpeace International executive director Jennifer Morgan, who had joined Thunberg in addressing plenary delegates hours earlier.
    All accredited observers — researchers, scientists, NGOs who play a critical role in the talks — not already in the building were also denied entry after the fracas.
    – ‘This is not leadership’ –
    “We are the ones who can apply pressure and hold governments accountable,” Morgan told AFP outside the COP25 venue.
    “I call on the Secretary General to intervene here to make sure that youth and citizens around the world can engage and have their voices heard in these negotiations.”
    Several sticking points remain as the two-week marathon negotiations enter the final days.
    Nations are at odds over how the fight against climate change should be funded and how carbon trading schemes should be regulated.
    Meanwhile..in the actual REAL WORLD of Planet EAARTH…
    The first is that the Arctic may have crossed an important climate threshold, causing the region’s vast expanses of permafrost (basically, frozen ground) to begin to thaw, releasing organic carbon that has until now been locked up in the soil. The report concludes that the melting permafrost is now releasing between 1.1 and 1.2 billion tons of CO2 each year, which is roughly the combined annual emissions of Russia and Japan. And if the warming continues, that could accelerate, with catastrophic consequences (hello “permafrost bomb”). Scientists estimate that approximately 1,460 billion to 1,600 billion metric tons of organic carbon is stored in frozen Arctic soils, almost twice the amount of greenhouse gases as are contained in the atmosphere.
    The second bit of alarming news from the Arctic is that scientists have collected strong evidence from satellite data that the Greenland ice sheet is melting seven times faster than it did in the 1990s. The amount of ice lost nearly doubled each decade, from 33 billion tons per year in the 1990s to an average now of 254 billion tons annually. Since 1992, nearly 4 trillion tons of Greenland ice have flowed into the ocean, equivalent to roughly a centimeter of global sea-level rise

    https://www.rollingstone.com/politics/politics-news/arctic-melt-climate-change-global-warming-permafrost-bomb-greta-thunberg-925599/

    • As the link says, this is politics. There is close to nothing we can do. Renewables don’t work, for example.

      The poor countries would like the rich countries to fix this problem, but they can’t.

      • Robert Firth says:

        The poor countries would like the rich countries to send them more money that will be stolen by the rulers of those poor countries. And the United Nations will cheer them on, because they also are stealing from the rich countries. It seems that there is, after all, honour among thieves.

        • The United Nations seems to operate as if it is trying to attempt to protect the poor. Its funding is mostly from the rich, I expect. The question is how long the funding from the rich countries will keep up.

  2. Xabier says:

    ‘The owl of wisdom’: from the orange-hued lady who brought us ‘2+1+4 = 7, so 2014 is going to be a great year in which we can make things happen!’. One of the oddest public speeches by a senior figure(head) ever.

    What a hoot! It’s nice to be entertained a bit at the End of the World…..

    • Herbie R Ficklestein says:

      More of a mess….horrible and what people do when their backs are against the wall

      Sold to China as a Bride, She Came Home on Brink of Death
      The suspicious death of a Pakistani woman adds to growing evidence of mistreatment and abuses inflicted on hundreds of women and girls from the country who have been trafficked to China as brides.
      By Associated Press, Wire Service Content Dec. 12, 2019
      In this April 14, 2019 photo. Pakistani Christian woman Samiya David shows her picture with Chinese husband, in Gujranwala, Pakistan. Samiya had been in China just two months when her brother got a phone call telling him to pick her up at the airport. When he arrived, he found Samiya in a wheelchair, malnourished and too weak to walk, said her cousin Pervaiz Masih. She died barely five weeks later. Masih was among the relatives who prepared Samiya’s grave and attended her burial in May. (AP Photo/K.M. Chaudary) THE ASSOCIATED PRESS
      AP investigations have found that traffickers have increasingly targeted Pakistan’s impoverished Christian population over the past two years, paying desperate families to give their daughters and sisters, some of them teenagers, into marriage with Chinese men. Once in China, the women are often isolated, neglected, abused and sold into prostitution, frequently contacting home to plead to be brought back. Some women have told The Associated Press and activists that their husbands at times refused to feed them

  3. Herbie R Ficklestein says:

    IN ONE CHART
    Here’s proof that 401(k) plans are not working for most Americans — can you guess who they ARE working for?
    By Shawn Langlois
    Published: Dec 12, 2019 2:17 pm ET

    With almost half of all working-age families having ZERO in retirement savings, the fact that the median family had only $7,800 in these accounts shouldn’t come as a surprise. At the same time, the 90th percentile family had $320,000 and the top 1% of families (which isn’t shown on the chart) had $1,663,000 or more.

    “These huge disparities reflect a growing gap between haves and have-nots since the Great Recession as accounts with smaller balances have stagnated while larger ones rebounded,” the EPI’s Monique Morrissey wrote
    https://www.marketwatch.com/amp/story/guid/F5C203A0-1CFA-11EA-87D1-F95C118C2ABD

    The big gap between the mean retirement savings of $120,809 and the median retirement savings is yet another example of how the rich are getting richer and the poor are getting poorer in this country.

    “The retirement system does not work for most workers,” Morrissey explained in the note. “Decades after the number of active participants in 401(k)-style plans edged out those in traditional pensions, 401(k)s are not delivering substantial income in retirement, and that income is not equally shared

    How about that! I am so shocked and surprised!
    We’ve seen nothing yet…just as those in Paris France

    Under the new plan, 62 would remain the legal retirement age. But there will be incentives to keep working until 64, which Philippe said will allow for a balanced pension budget by 2027.

    He said the changes are necessary, with 1.7 people working to support each retiree instead of 4.5 when the system was created in 1945, NPR’s Eleanor Beardsley reports from Paris
    It remains to be seen whether French people will accept the changes.

    The largest rail workers’ union, the CGT, called for more strikes after the prime minister’s remarks.

    “The government is taking everybody for fools,” said Philippe Martinez the head of the CGT, according to France24. “Everyone will work longer – it’s unacceptable

    https://www.npr.org/2019/12/11/787107562/french-prime-minister-unveils-pension-plan-as-strike-continues-to-paralyze-paris

    We will see how foolish we really are soon enough!

  4. Harry McGibbs says:

    “India’s economy continued to report deepening signs of a slowdown with October factory production figures contracting as much as 3.8%, dragged by manufacturing which shrank 2.1% as well as power and mining, which declined even more.

    “Government data also showed retail inflation shot up to a 40-month high of 5.54% in November.”

    https://www.newindianexpress.com/business/2019/dec/13/industrial-output-keeps-shrinking-inflation-balloons-2075414.html

  5. Harry McGibbs says:

    “U.S. business debt exceeded that of households for the first time since 1991, a potential warning sign for the economy as corporate investment softens. …“The Fed’s Powell has said corporate leverage ‘historically high’.”

    https://www.bloomberg.com/news/articles/2019-12-12/u-s-business-debt-exceeds-households-for-first-time-since-1991

    • I tried to look to see what was happening using Federal Reserve of St. Louis data, but I didn’t run find total US business debt. Instead, I found non-financial debt of businesses and computed the ratio to GDP. On that basis, businesses don’t come close to household debt. These are some ratios to GDP.

      US mortgage debt looks like it went into a bubble between 2001 and 2009. It has come down a lot, relative to GDP. Total household debt (green line) includes credit card debt and student debt, among other things, besides mortgages. It is the non-mortgage part (difference between blue line and green line) that is growing.

      If total debt of businesses is now equal to total household debt (blue line), the amount of financial debt of businesses must be very high. I would imagine that this would include all of the debt for buying back the company’s own shares.


  6. Gulfies msm occasionally airs these “lite warnings” ..

    • Denial says:

      yes but half of the people will turn off because they talk about Trumpy…..most people think we have a healthy strong economy and not looking at the deficit; I don’t see China giving in because that would mean collapse for them. Nicole Foss Got it right 10 years ago when she called the U.S the last best horse in the glue factory. I wish I was in the business of political advertising! Would be a billionaire in no time!

    • “World economy falling apart” is pretty explicit.

  7. Harry McGibbs says:

    “Reports that the US and China have reached an initial trade deal were met with silence in Beijing where officials declined to confirm whether an agreement had been made.”

    https://www.theguardian.com/business/2019/dec/12/us-china-trade-deal-in-principle-tariffs

  8. Rising pork prices hide a far bigger problem for China’s economy Article from Nov. 17, 2017

    The bigger picture is one of waning demand and slowing economic activity

    Inflation and economic growth are two different things, but they are often intertwined. Although inflation does not necessarily translate into economic growth, if an economy is growing consistently, inflation will rise, as rapid growth tends to increase upward pressure on prices and wages.

    Unfortunately, both indicators are currently disappointing for China, according to research by China’s National Bureau of Statistics.
    . . .
    Consumers usually hate higher prices and prefer deflation. But policymakers want prices to increase in the belief that both consumers and investors will spend more when they believe prices will continue rising, thus spurring economic growth.

    That is why all major central banks set certain levels of inflation rates as their monetary policy targets. Most central banks in developed economies set an inflation target of around 2 per cent, as is the case in the US, Japan and European Union. That explains why the concerns over deflation in the world’s second-largest economy have gone far beyond China’s borders, as policymakers and central bankers in major economies are already battling fading inflation and inflation expectations despite their ultra-loose monetary policies.

    I think that high pork prices in China and high onion prices in India add to deflationary pressures with respect to goods in general, because consumers can generally not spend more than their wages. Pork (or other meat substitute) is a necessity in China; onions are a necessity in India. The decision to buy a car or go to a restaurant depends on having enough funds left over after necessities are covered.

    I found this (only somewhat related) chart in WSJ’s Daily Shot. The general idea seems right–people’s income determines the amount that they can spend. I am not sure the correlation is close as the chart suggests, because it is easy to manipulate how close the correlation looks by the choice of the scales on the two axes. Also, world demand is important, not just US demand, for many goods. Also, it seems like after tax income is important, including transfer payments.

    • Robert Firth says:

      Gail, as usual you are right and the central banks are dead wrong. An increase in the price of necessities reduces disposable income, so depressing the price, or the consumption, of other goods. Inflation of prices, with stagnant wages, therefore leads to economic contraction and a slow decline into a subsistence economy. This is happening all over the world, and the bankers are the proximate cause.

      Keynes, and MMT, predicted with their usual arrogant confidence that inflation would spur consumption, because people would spend money today that would be worth less tomorrow. They were wrong; disastrously wrong.

      • As I think about it, inflation seems to occur primarily when there is a new economy, and there is a real chance for increased productivity by the application of debt and fossil fuels. But as the economy gets more and more built out, both GDP growth and inflation tend to decrease. Eventually, the debt bubble pops, and we will have full-fledged deflation, I fear. It is all part of a cycle as well.

        • Denial says:

          If the FED starts printing money and flooding the market with it; is that deflation? Is what happened in Weimar republic deflation? It seems the way the governments are acting is that they will not let deflation happen….Bridges to nowhere…infrastructure, bridges to nowhere and at last resort…war…..they will borrow on future generations to keep that from happening. How long did deflation happen in 2008? Not very long….You take the government and the FED out of the equation and you are right on…

      • No, they are “wrong” over the very long haul but “correct” now and in the near/midterm, that’s how BAUs last – endure decades and generations..

        At least in terms of the priorities and vested interests of the insiders (preferring insular policies to keep the overall social power structure intact).

      • Xabier says:

        Keynes was too wealthy, and disconnected from basic human psychology. living in very rarified circles.

        Whereas some purchases might be made on the ‘use it before you lose it’ principle, most will, if they are able to save in some form, cling on to what they have for dear life – just as they once guarded dried meat in the corner of a cave.

        If you wish people to spend everything they earn, thereby maintaining consumption, there must be no real room for saving in any form.

        Cue, I suppose, banning of cash and significant negative rates?

  9. Dennis L. says:

    This seems relevant to your comments regarding renewable energy. A bit of deferred maintenance.

    Dennis L.

    • Herbie R Ficklestein says:

      Good video presentation Dennis, he points out the misguided mindset of rushing to create a renewable energy base resulted in neglected the existing grid and thus, creating the conditions that resulted in the wildfires. He also pointed out at the present rate to replacing the parts that caused the wildfires would at the present rate over 200 years!
      Lots of other eye opening statements in the talk.
      Check it out …for me that began in the middle part.

    • Interesting video! A person might think that after word of the problems involved, the message might spread that the total cost, including transmission lines, is significantly higher than advertised.

Comments are closed.