Economies won’t be able to recover after shutdowns

Citizens seem to be clamoring for shutdowns to prevent the spread of COVID-19. There is one major difficulty, however. Once an economy has been shut down, it is extremely difficult for the economy to recover back to the level it had reached previously. In fact, the longer the shutdown lasts, the more critical the problem is likely to be. China can shut down its economy for two weeks over the Chinese New Year, each year, without much damage. But, if the outage is longer and more widespread, damaging effects are likely.

A major reason why economies around the world will have difficulty restarting is because the world economy was in very poor shape before COVID-19 hit; shutting down major parts of the economy for a time leads to even more people with low wages or without any job. It will be very difficult and time-consuming to replace the failed businesses that provided these jobs.

When an outbreak of COVID-19 hit, epidemiologists recommended social distancing approaches that seemed to be helpful back in 1918-1919. The issue, however, is that the world economy has changed. Social distancing rules have a much more adverse impact on today’s economy than on the economy of 100 years ago.

Governments that wanted to push back found themselves up against a wall of citizen expectations. A common belief, even among economists, was that any shutdown would be short, and the recovery would be V-shaped. False information (really propaganda) published by China tended to reinforce the expectation that shutdowns could truly be helpful. But if we look at the real situation, Chinese workers are finding themselves newly laid off as they attempt to return to work. This is leading to protests in the Hubei area.

My analysis indicates that now, in 2020, the world economy cannot withstand long shutdowns. One very serious problem is the fact that the prices of many commodities (including oil, copper and lithium) will fall far too low for producers, leading to disruption in supplies. Broken supply chains can be expected to lead to the loss of many products previously available. Ultimately, the world economy may be headed for collapse.

In this post, I explain some of the reasons for my concerns.

[1] An economy is a self-organizing system that can grow only under the right conditions. Removing a large number of businesses and the corresponding jobs for an extended shutdown will clearly have a detrimental effect on the economy. 

Figure 1. Chart by author, using photo of building toy “Leonardo Sticks,” with notes showing a few types of elements the world economy.

An economy is a self-organizing networked system that grows, under the right circumstances. I have attempted to give an idea of how this happens in Figure 1. This is an image of a child’s building toy. The growth of an economy is somewhat like building a structure with many layers using such a toy.

The precise makeup of the economy is constantly changing. New businesses are formed, and new consumers grow up and take jobs. Governments enact laws, partly to collect taxes, and partly to ensure fair treatment of all. Consumers decide which products to buy based on a combination of factors, including their level of wages, the prices being charged for the available goods, the availability of debt, and the interest rate on that debt. Resources of various kinds are used in producing goods and services.

At the same time, some deletions are taking place. Big businesses buy smaller businesses; some customers die or move away. Products that become obsolete are discontinued. The inside of the dome becomes hollow from the deletions.

If a large number of businesses are closed for an extended period, this will have many adverse impacts on the economy:

  • Fewer goods and services, in total, will be made for the economy during the period of the shutdown.
  • Many workers will be laid off, either temporarily or permanently. Goods and services will suddenly be less affordable for these former workers. Many will fall behind on their rent and other obligations.
  • The laid off workers will be unable to pay much in taxes. In the US, state and local governments will need to cut back the size of their programs to match lower revenue because they cannot borrow to offset the deficit.
  • If fewer goods and services are made, demand for commodities will fall. This will push the prices of commodities, such as oil and copper, very low.
  • Commodity producers, airlines and the travel industry are likely to head toward permanent contraction, further adding to layoffs.
  • Broken supply lines become problems. For example:
    • A lack of parts from China has led to the closing of many automobile factories around the world.
    • There is not enough cargo capacity on airplanes because much cargo was carried on passenger flights previously, and passenger flights have been cut back.

These adverse impacts become increasingly destabilizing for the economy, the longer the shutdowns go on. It is as if a huge number of deletions are made simultaneously in Figure 1. Temporary margins, such as storage of spare parts in warehouses, can provide only a temporary buffer. The remaining portions of the economy become less and less able to support themselves. If the economy was already in poor shape, the economy may collapse.

[2] The world economy was approaching resource limits even before the coronavirus epidemic appeared. This is not too different a situation than many earlier economies faced before they collapsed. Coronavirus pushes the world economy further toward collapse. 

Reaching resource limits is sometimes described as, “The population outgrew the carrying capacity of the land.” The group of people living in the area could not grow enough food and firewood using the resources available at the time (such as arable land, energy from the sun, draft animals, and technology of the day) for their expanding populations.

Collapses have been studied by many researchers. The book Secular Cycles by Peter Turchin and Sergey Nefedov analyze eight agricultural economies that collapsed. Figure 2 is a chart I prepared, based on my analysis of the economies described in that book:

Figure 2. Chart by author based on Turchin and Nefedov’s Secular Cycles.

Economies tend to grow for many years before the population becomes high enough that the carrying capacity of the land they occupy is approached. Once the carrying capacity is hit, they enter a stagflation stage, during which population and GDP growth slow. Growing debt becomes an issue, as do both wage and wealth disparity.

Eventually, a crisis period is reached. The problems of the stagflation period become worse (wage and wealth disparity; need for debt by those with inadequate income) during the crisis period. Changes tend to take place during the crisis period that lead to substantial drops in GDP and population. For example, we read about some economies entering into wars during the crisis period in the attempt to gain more land and other resources. We also read about economies being attacked from outside in their weakened state.

Also, during the crisis period, with the high level of wage and wealth disparity, it becomes increasingly difficult for governments to collect enough taxes. This problem can lead to governments being overthrown because of unhappiness with high taxes and wage disparity. In some cases, as in the 1991 collapse of the central government of the Soviet Union, the top level government simply collapses, leaving the next lower level of government.

Strangely enough, epidemics also seem to occur within collapse periods. The rising population leads to people living closer to each other, increasing the risk of transmission. People with low wages often find it increasingly difficult to eat an adequate diet. As a result, their immune systems easily succumb to new communicable diseases. Part of the collapse process is often the loss of a significant share of the population to a communicable disease.

Looking back at Figure 2, I believe that the current economic cycle started with the use of fossil fuels back in the 1800s. The world economy hit the stagflation period in the 1970s, when oil supply first became constrained. The Great Recession of 2008-2009 seems to be a marker for the beginning of the crisis period in the current cycle. If I am right in this assessment, the world economy is in the period in which we should expect crises, such as pandemics or wars, to occur.

The world was already pushing up against resource limits before all of the shutdowns took place. The shutdowns can be expected to push the world economy toward a more rapid decline in output per capita. They also appear to increase the likelihood that citizens will try to overthrow their governments, once the quarantine restrictions are removed.

[3] The carrying capacity of the world today is augmented by the world’s energy supply. A major issue since 2014 is that oil prices have been too low for oil producers. The coronavirus problem is pushing oil prices even lower yet.

Strangely enough, the world economy is facing a resource shortage problem, but it manifests itself as low commodity prices and excessive wage and wealth disparity.

Most economists have not figured out that economies are, in physics terms, dissipative structures. These are self-organizing systems that grow, at least for a time. Hurricanes (powered by energy from warm water) and ecosystems (powered by sunlight) are other examples of dissipative structures. Humans are dissipative structures, as well; we are powered by the energy content of foods. Economies require energy for all of the processes that we associate with generating GDP, such as refining metals and transporting goods. Electricity is a form of energy.

Energy can be used to work around shortages of almost any kind of resource. For example, if fresh water is a problem, energy products can be used to build desalination plants. If lack of phosphate rocks is an issue for adequate fertilization, energy products can be used to extract these rocks from less accessible locations. If pollution is a problem, fossil fuels can be used to build so-called renewable energy devices such as wind turbines and solar panels, to try to reduce future CO2 pollution.

The growth in energy consumption correlates quite well with the growth of the world economy. In fact, increases in energy consumption seem to precede growth in GDP, suggesting that it is energy consumption growth that allows the growth of GDP.

Figure 3. World GDP Growth versus Energy Consumption Growth, based on data of 2018 BP Statistical Review of World Energy and GDP data in 2010$ amounts, from the World Bank.

The thing that economists tend to miss is the fact that extracting enough fossil fuels (or commodities of any type) is a two-sided price problem. Prices must be both:

  1. High enough for companies extracting the resources to make an after tax profit.
  2. Low enough for consumers to afford finished goods made with these resources.

Most economists believe that an inadequate supply of energy products will be marked by high prices. In fact, the situation seems to be almost “upside down” in a networked economy. Inadequate energy supplies seem to be marked by excessive wage and wealth disparity. This wage and wealth disparity leads to commodity prices that are too low for producers. Current WTI oil prices are about $20 per barrel, for example (Figure 4).

Figure 4. Daily spot price of West Texas Intermediate oil, based on EIA data.

The low-price commodity price issue is really an affordability problem. The many people with low wages cannot afford goods such as cars, homes with heating and air conditioning, and vacation travel. In fact, they may even have difficulty affording food. Spending by rich people does not make up for the shortfall in spending by the poor because the rich tend to spend their wealth differently. They tend to buy services such as tax planning and expensive private college educations for their children. These services require proportionately less commodity use than goods purchased by the poor.

The problem of low commodity prices becomes especially acute in countries that produce commodities for export. Producers find it difficult to pay workers adequate wages to live on. Also, governments are not able to collect enough taxes for the services workers expect, such as public transit. The combination is likely to lead to protests by citizens whenever the opportunity arises. Once shutdowns end, these countries are especially in danger of having their governments overthrown.

[4] There are limits to what governments and central banks can fix. 

Governments can give citizens checks so that they have enough funds to buy groceries. This may, indeed, keep the price of food products high enough for food producers. There may still be problems with broken supply lines, so there may still be shortages of some products. For example, if there are eggs but no egg cartons, there may be no eggs for sale in grocery stores.

Central banks can act as buyers for many kinds of assets such as bonds and even shares of stock. In this way, they can perhaps keep stock market prices reasonably high. If enough gimmicks are used, perhaps they can even keep the prices of homes and farms reasonably high.

Central banks can also keep interest rates paid by governments low. In fact, interest rates can even be negative, especially for the short term. Businesses whose profitability has been reduced and workers who have been laid off are likely to discover that their credit ratings have been downgraded. This is likely to lead to higher interest costs for these borrowers, even if interest rates for the most creditworthy are kept low.

One area where governments and central banks seem to be fairly helpless is with respect to low prices for commodities used by industry, such as oil, natural gas, coal, copper and lithium. These commodities are traded internationally, so it is not just their own producers that need to be propped up; the market intervention needs to affect the entire world market.

One approach to raising world commodity prices would be to buy up large quantities of the commodities and store them somewhere. This is impractical, because no one has adequate storage for the huge quantities involved.

Another approach for raising world commodity prices would be to try to raise worldwide demand for finished goods and services. (Making more finished goods and services will use more commodities, and thus will tend to raise commodity prices.) To do this, checks would somehow need to go to the many poor people in the world, including those in India, Bangladesh and Nigeria, allowing these people to buy cars, homes, and other finished goods. Sending out checks only to people in one’s own economy would not be sufficient. It is unlikely that the US or the European Union would undertake a task such as this.

A major problem after many people have been out of work for a quite a while is the fact that many of these people will be behind on their regular payments, such as rent and car payments. They will be in no mood to buy a new vehicle or a new cell phone, simply because they have been offered a check that covers groceries and not much more. They will remain in a mode of cutting back on purchases, not adding more. Demand for most kinds of goods will remain low.

This lack of demand will make it difficult for business to have enough sales to make it profitable to reopen at the level of output that they had previously. Thus, employment and sales are likely to remain depressed even after the economy seems to be reopening. China seems to be having this problem. The Wall Street Journal reports China Is Open for Business, but the Postcoronavirus Reboot Looks Slow and Rocky. It also reports, Another Shortage in China’s Virus-Hit Economy: Jobs for College Grads.

[5] There is a significant likelihood that the COVID-19 problem is not going away, even if economies can “bend the trend line” with respect to new cases.

Bending the trend line has to do with trying to keep hospitals and medical providers from being overwhelmed. It is likely to mean that herd immunity is built up slowly, making repeat outbreaks more likely. Thus, if social isolation is stopped, COVID-19 illnesses can be expected to revisit prior locations. We know that this has been an issue in the past. The Spanish Flu epidemic came in three waves, over the years 1918-1919. The second wave was the most deadly.

A recent study by members of the Harvard School of Public Health says that the COVID-19 epidemic may appear in waves until into 2022. In fact, it could be back on a seasonal basis thereafter. It also indicates that more than one period of social distancing is likely to be required:

“A single period of social distancing will not be sufficient to prevent critical care capacities from being overwhelmed by the COVID-19 epidemic, because under any scenario considered it leaves enough of the population susceptible that a rebound in transmission after the end of the period will lead to an epidemic that exceeds this capacity.”

Thus, even if the COVID-19 problem seems to be fixed in a few weeks, it likely will be back again within a few months. With this level of uncertainty, businesses will not be willing to set up new operations. They will not hire many additional employees. The retired population will not run out and buy more tickets on cruise ships for next year. In fact, citizens are likely to continue to be worried about airplane flights being a place for transmitting illnesses, making the longer term prospects for the airline industry less optimistic.

Conclusion 

The economy was already near the edge before COVID-19 hit. Wage and wealth disparity were big problems. Local populations of many areas objected to immigrants, fearing that the added population would reduce job opportunities for people who already lived there, among other things. As a result, many areas were experiencing protests because of unhappiness with the current economic situation.

The shutdowns temporarily cut back the protests, but they certainly do not fix the underlying situations. Instead, the shutdowns add to the number of people with very low wages or no income at all. The shutdowns also reduce the total quantity of goods and services available to purchase, regardless of how much money is added to the system. Many people will end up poorer, in some real sense.

As soon as the shutdowns end, it will be obvious that the world economy is in worse condition than it was before the shutdown. The longer the shutdowns last, the worse shape the world economy will be in. Thus, when businesses are restarted, we can expect even more protests and more divisive politics. Some governments may be overthrown, or they may collapse without being pushed. I fear that the world economy will be further down the road toward overall collapse.

 

 

 

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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4,744 Responses to Economies won’t be able to recover after shutdowns

  1. Fast Eddy says:

    In February, friends Jay Wang and Zhou Ping were among the millions of Chinese manufacturers battling to resume production after the coronavirus outbreak shuttered key industrial sectors across the economy.

    But when the pair finally managed to restart their separate operations last month, after rigorous quarantining of workers and disinfection of factory floors, they encountered an even bigger problem: clients from Europe and the United States were suspending orders as the pandemic spread throughout the rest of the world.

    “In late February, I took orders for more than 90,000 pairs of shoes, but 80,000 were cancelled last week,” said Wang, who like Zhou has run a factory in the industrial and export hub Dongguan in southern China for about a decade.

    https://www.scmp.com/economy/china-economy/article/3078084/coronavirus-chinas-manufacturing-hub-dongguan-faces-grim-test

    • Rodster says:

      “But when the pair finally managed to restart their separate operations last month, after rigorous quarantining of workers and disinfection of factory floors, they encountered an even bigger problem: clients from Europe and the United States were suspending orders as the pandemic spread throughout the rest of the world.”

      They forgot or missed the part about a Globalized networked economy.

    • If one country is down, the whole network is down in a globalized economy. This is a big problem.

      The period of the outage in a world where everything is pretty much separate is very short. In fact, in 1918-1919, most people worked on farms. They would stop working while they were sick, but that was all. Social Isolation might stop church services (which likely were every three weeks or so, because of shared clergy). They might stop a few other things. A local factory might close for a while, as the virus passed through.

      But it was not a matter of everyone being closed, for long periods. And others not being able to reopen, while others were closed.

  2. JMS says:

    In Turkmenistan, the authorities perhaps believe the virus is just an avid attention-seeker, and that if no one talks about it, the virus will end up getting mortally bored and going to be scary for another country.

    “It’s as if it had never existed. The state media are saying nothing about the effects of coronavirus in Turkmenistan and the word has even been removed from health information brochures distributed in schools, hospitals and workplaces, according to Turkmenistan Chronicles, one of the few sources of independent news, whose site is blocked within the country.
    In this information black hole neighbouring Iran, people wearing face masks or talking about the coronavirus on the street, at bus stops or in lines outside shops are liable to be arrested by plainclothes police, according to journalists based in the capital, Ashgabat, who report for Radio Azatlyk”
    https://rsf.org/en/news/coronavirus-limits-turkmenistan

    • ITEOTWAWKI says:

      The d umbness of our species knows no boundaries. Don’t worry s t upid humans, it will all be over in a few months….the planet has had enough of your s t upidness and out-of-control growth…it has dispatched a silent enemy that will finally bring you down…enough is enough…you were around for 200 000 years, time to wrap it up…

      Fauci gets security detail after receiving threats

      https://www.politico.com/news/2020/04/01/fauci-coronavirus-security-160901

      • JMS says:

        Magical thinking rules human mind, and in fact it worked (more or less) for 200 000 years. And sure it will continue to work for some time more if we discover a real powerfull incantation! Time to call a world council of shamans and put it to work 24/24.

        • ITEOTWAWKI says:

          Hahaha JMS, good plan. Hope you’re keeping safe with what is happening in your neighboring country….absolutely horrifying 😦

          Desejo a você e sua família boa saúde até o fim !! (I hope Google Translate did a good job) 🙂

          • JMS says:

            Portugal took measures to contain the virus earlier than Spain, and our population is reasonably obedient and disciplined (in this respect, we are somewhat the Japanese of Europe), so the situation here is relatively controlled, but the shock in the economy it’s being brutal of course and ultimately will destroy us all. There’s no way out of this i’m sure. In the meantime, the spring is beautiful, I’m not confined to an apartment because I live in the countryside, and I’m sure my neighbors will love my big vegetable garden :). In short, the dice are cast, and we can only wait for events to unfold.
            All the luck for you too! Καλή τύχη και σε σας!

            • Yes, Spain just announced ~5M unemployed, worst since 2002, it will be hard for ClubMed..

            • ITEOTWAWKI says:

              Thank you very much JMS! Same to you!!

              Everyday my kitchen is fully stocked with food and I can take a hot shower is a gift from the Flying Spaghetti Monster 🙂

    • The government of Turkmenistan knows very well that its medical system is not going to be able to ramp up to handle the epidemic, so trying to level the number of illnesses makes no sense. Spreading out the illnesses is greatly damaging to the economy; likely more will die of hunger from lack of income, if the illness persists for years on end.

      We have told ourselves that we can fight the coronavirus and win. Rich nations at least have some resources to throw at the problem, so that they think that they can win. I think the health care resources that go to coronavirus get taken away from other health care. The disease will likely come back and back, to the extent that we are able to keep the number of illnesses down.

      Perhaps the economy fails under either scenario. But we cannot declare that one approach is better than the other.

      • JMS says:

        Yes, I believe you are right, Gail. If there’s no winning strategy and defeat is almost certain, anything goes. But is funny that in Turkmenistan people who wear masks are arrested, when in the West we are perhaps close to seeing the opposite.

      • Marco Bruciati says:

        Every country Will do a diferent errore. Italia give hospital ti too much people. Every day arrive africans in Sicilia and they have hospital. Is not sustenible. Usa not give ti too much people and this Will give riots . 10 milioni Person soon whitout work . Ready to died on street they have nothing to lose and house full of army

      • Fast Eddy says:

        I have been to Uzbekistan… it has a fairly primitive economy… so letting the Wuhan do its thing would not be like letting this thing loose in an OECD country…

        Now Turkmenistan is a truly f%7ed up place… when in Uzbekistan we were told that the leader is basically…. insane… clearly insane…

        Check this out:

        The president of Turkmenistan (who named himself Turkmenbashi, “Leader’ of the Turkmen”) is known for his strange YouTube videos and even stranger laws. He’s banned men from having long hair or beards, outlawed opera, banished dogs from the city, and even renamed the days and months of the year after his family members. You can even get fined for owning a vehicle that isn’t painted white!

        https://www.acanela.com/blog/turkmenistan-bizarre-country

        I doubt that letting the Wuhan boil in that country would matter much…

        Whereas not bothering to try to contain it at all in say the USA… that would be devastating …

    • Onset of Pandemonium in living color (if legit)..
      btw there are also several video channels of stranded Western tourists and expats documenting the progression of the Wuhan-bug impact, so worth following up..

    • ITEOTWAWKI says:

      Wow, that’s crazy….but hey Ed, there’s only one case in your town in northern New York…So it can’t be happening…everything going on with the coronavirus across the world is some big conspiracy to prevent the re-election of President Q*Bert..why…because Ed’s hometown has only one case still…if it wasn’t a conspiracy Ed’s home town should all be sick or dead by now….ugh…

      Ecuador struggles to collect the dead as coronavirus spreads

      https://nationalpost.com/pmn/health-pmn/ecuador-struggles-to-collect-the-dead-as-coronavirus-spreads

      • I am afraid this will be the situation in much of the world.

      • Chrome Mags says:

        This situation with the virus keeps changing day by day, continually getting worse and we’re still likely in the early stages of this real life B movie. I mean the authorities won’t even come and pick up the dead? It’s not that hard to dig a mass grave with a dozer, get a flatbed truck, wear hazmat suits and make the rounds to get them. I’m sure the family members will be willing to load them on to the truck and even unload them. Wake up the authorities in Quayaquil, Ecuador!

    • At the end,

      However, not all experts think the oil industry’s loss is necessarily a gain for green energy and the climate. “If anything it may hold up the share of oil for longer, because it’s cheaper. It could be bad news from a climate point of view,” said Dieter Helm, professor of energy policy at the University of Oxford.

      It is whatever is least expensive that wins. Green energy comes out more expensive in any scenario.

    • According to the article, “Global efforts to combat the pandemic’s impact and rev up economic activity have largely failed so far.”

      No kidding!

  3. ITEOTWAWKI says:

    Hahaha this is rich, cue the irony of it all….Coronavirus has reached Easter Island!!!

    Coronavirus: Three more cases on Rapa Nui

    https://www.rnz.co.nz/international/pacific-news/413176/coronavirus-three-more-cases-on-rapa-nui

    • Wasn’t just recently Biff Lezos of Crapwarehouse.com fame trying to acquire the entire archipelago there?

    • Robert Firth says:

      The good news: those infected are neither long ears nor short ears; they are Chilean immigrants. Maybe the Moai still watch over their descendents.

  4. Tango Oscar says:

    Wow Oil is skyrocketing on Trump’s claims that SA and Russia are going to cut production by 10-15 MBD. I just can’t see why on earth they would do this but if true it’s good news for oil companies. It just crossed $25 a barrel right now.

    • Russians sending humanitarian aid air cargo into the US and cutting %% oil production..?
      This world is truly turning into bizarre place..

    • Dan says:

      Like everything that crawls out of his mouth it is fake and a lie.
      Trump hasn’t spoken to Russia about it. SA won’t cut unless the US ponies up with either some goodies or cuts ourselves.
      Putin has us right where he wants. There is a reason he walked away from the table in March and he’d be a fool to fold now.
      This move was all about breaking the dollar – if they can hang on they will succeed.
      Do not forget we have been sanctioning Russia for years and we have been an international economic bully.
      Trump as usual was / is talking out of his a$$ to juice the markets – the only thing he cares about – that and his poll numbers.
      What a time for a con man to be leader.

      • Covidinamonthorayearoradecade says:

        first, even if it’s true, a cut of 15 million barrels per day is way too little…

        the oil markets may like it for a short time, and I see WTI up to $24…

        storage capacity will still be full very soon, and then prices will plunge…

        Putin may want to break the USA, but what he is going to get is what everyone is going to get… massive economic damage… Russia will be FORCED to cut their production, as will every other producing country…

        there is/will be not enough demand…

        Russia has less distance to fall, so I expect they will have more survivors, in an economically devastated world…

        congrats to Putin if he thinks that will be a “win”…

        • Dan says:

          If the world survives this most certainly would be a win for Putin / Russia. The US has become an economic terrorist with a defacto given license to determine the energy flows and economic prosperity for all nations. Do something we don’t like and we strangle the daylights out of you.
          Putin is playing 10-20 years ahead – I’m not a fan but I respect his calculations if this is the case. If Russia plays ball and conforms the chips will fall where they may but they lose leverage and as you correctly point out they are going where everybody else is going anyway.
          I seriously doubt Russia will pass up an opportunity to break our backs – they want a chair at the table when this is over.
          They may cut on Trump’s wishes but it will come with a heavy price – sanctions lifted as a start and a pull back of some military bases to show good faith.
          The Achilles heel we have is that the only thing we have is control of the reserve currency / petrol dollar. Take that off the table and we lose quite a bit of force projection.
          Anyhoo, that is just my own little theory and if I was playing a strategic game with the intent of “winning” it would be a plausible plan.

          Once again they walked from the OPEC table in early March dropping the price of oil by nearly $15 overnight – they had a reason. Don’t believe for a second the Saudis had something to gain as well (taking out US shale).

          Trump is desperate – Ask me if I believe his tweet yesterday about Iran planning a sneak attack. That like today was to juice the market.

          Just because we are locked in our houses does not mean the chess pieces aren’t being moved.

          • Tim Groves says:

            I was wondering, if Trump wants to stave of the shale bust, could he impose high tariffs on cheap imported oil to force importers to pay the equivalent of, say, $40 a barrel for it? Is the US a big enough economy to get away with such a move?

            • Hugh Spencer says:

              Problem appears to be that US fracked oil is too light – and needs heavier molecular weight oils so it can be economically converted into gasoline etc.

              >I was wondering, if Trump wants to stave of the shale bust, could he impose high tariffs on cheap imported oil to force importers to pay the equivalent of, say, $40 a barrel for it? Is the US a big enough economy to get away with such a move?<

            • Dan says:

              I agree with Norman below and Gail’s theory – The price can only be what the peons can afford.
              Somewhere we will go bust and so will Russia / SA and everyone else.
              I have no idea what the backside will look like or if anyone will be left standing but it is going to play out.
              I’m sure Gail is watching like a hawk and I agree with her premise.
              Like my Daddy use to tell me wish in one hand and sh!t in the other and see which one fills up first.

      • Tango Oscar says:

        Maybe but as long as oil keeps going up I couldn’t care less. May as well start bombing countries to get them to quit producing at this point. Anything to stop a worldwide economic collapse.

  5. Ed says:

    US federal military deploys two aircraft carrier groups one to each side of South America. Monroe doctrine Americas for the Americans Europe stay out. Trump doctrine Americans for the Americans China and Russia stay out.

    • Ed says:

      locking down the oil in Venezuela.

      • Covidinamonthorayearoradecade says:

        the world no longer needs VZ oil…

        perhaps the USA could use some of their heavy oil to blend with the USA light tight oil (LTO – shale oil)…

        but then the USA doesn’t need half of its production either…

    • It is something.

      Trump said he had talked recently with the leaders of both Russia and Saudi Arabia and believed the two countries would make a deal to end their price war within a “few days” – lowering production and bringing prices back up.

      Trump also said he has invited U.S. oil executives to the White House to discuss ways to help the industry “ravaged” by slumping energy demand during the coronavirus outbreak and a price war between Saudi Arabia and Russia.

      • Few of the underwater US/CAN “alt oil” producers will change ownership and management and the quasi BAU marches on like Donkey Kong!

        • Everybody talking about this bizzare situation is using the word bizzare now, incl. the RT denial article above, which is also bizzare happenstance..

          On more serious note, the oil prices at European gas stations barely moved down, and Russians (co-)own lot of the vertically integrated value chain in the industry among their client countries (in Chine less so probably), anyway it’s clear who is [relatively] benefiting more from the situation so far.. The Saudies are on the defensive..

      • guess i’m missing something

        but if ff consumption is dropping through the floor even at below $20 then how will raising it to an artificial $60 or whatever increase the actual flow of cash back to the producers? Other than in the very short term?

        You can’t make users use more than the economic system will absorb. That to me seems a fundamental law of energy-economics.

        if consumption is falling because people are no longer using the stuff, then surely putting the price up will just make people use even less, so the actual immediate cash return will remain static more or less, and the FUTURE cash return will fall even lower because if prices rise now, it will destroy what is left of the CURRENT economic system which we would need to try to get things moving next year.

        So Russki/Saudi systems must eventually collapse

        I’d like an explanation that contradicts this hypothesis. Maybe I’ve over simplified things here. I accept I could have got things wrong in my head.

        • Dan says:

          Sounds like a valid hypothesis. The Fed is estimating an unemployment rate of nearly 33%. To put that in perspective in the depths of the great depression it was about 25% (pretty sure that is correct but haven’t researched for this comment).
          The govt is now saying the stimulus checks could take 20 weeks (5 months).
          I understand the supply / demand / storage issue.
          We are now all standing in a circular firing squad.
          The timing of everything in the last 6 months could not have been better – repo injections (banks wobbling), China shutdowns, early freeze cutting grain harvests, locusts in Africa, global shutdowns, virus that mains / kills, oil price wars, massive layoffs, etc.
          We have left BAU and are now headed to the Twilight zone.

          • Norman Pagett says:

            i couldnt figure anything other than a circular firing squad either

            i just wanted to be sure

        • Covidinamonthorayearoradecade says:

          “You can’t make users use more than the economic system will absorb.”

          yes, I agree…

          so it’s really very simple…

          unless all oil producers voluntarily cut by half, all storage capacity will be full very soon…

          then they all will be forced to cut…

          very simple…

          there is no way a necessary deal will be reached to cut by half…

          oil at or near single digit $ is coming soon…

          • Dan says:

            I checked the unemployment figure from the Great Depression (couldn’t help myself).
            Damn I’m good.

            The highest rate of U.S. unemployment was 24.9% in 1933, during the Great Depression.1 Unemployment remained above 14% from 1931 to 1940. It remained in the single digits until September 1982 when it reached 10.1%.2 During the Great Recession, unemployment reached 10% in October 2009.

            https://www.thebalance.com/unemployment-rate-by-year-3305506

            • few seem able to accept that it was Hit ler who ended the great depression, not Roosevelt

              illustrates my point about oil (and iron etc)

              while it’s in the ground it has a ‘price’

              when it’s extracted and burned (Ie in planes ships and tanks) it takes on a value; same applies if it’s being used to produce cars TVs and washing machines. The economics of production are the same.
              People have to be paid real wages to deliver real stuff

              paying just the wages part won’t work if no ‘stuff’ is being produced

              now we’ve stopped producing, the economic system falls off a cliff

              pumping in cash won’t change it.

  6. ITEOTWAWKI says:

    In my province, Quebec, whole regions of the province have been closed off to slow the spread of COVID-19. I fully expect that my island, the Island of Montreal, will be closed off to the rest of the province soon, and then they will extend it to closing down whole neighborhoods across the island….not even the best screenwriter in Hollywood could come up with the scenario that’s playing out right now worldwide…I’m sure when all this is over, there is bound to be a Hollywood blockbuster covering what we are going through right now (sarc!) 🙂

    Security checkpoints added in several Quebec regions to limit the spread of COVID-19:

    https://montreal.ctvnews.ca/security-checkpoints-added-in-several-quebec-regions-to-limit-the-spread-of-covid-19-1.4877441

    • This is truly bizarre. Do these checkpoints really limit the spread of COVID-19? Or do they move the illness’s timing back a few days?

      Does this ever stop, before herd immunity is reached?

      • MM says:

        Let the virus rip through or let the insanity rip through.
        Most of the people have decided to go insane, so we will burn through this scenario.
        Reverting insanity is psychologically very difficult because accknowledhing a mistake is hard for the weak. OFW readers are the iron men and women of hard times 🙂

      • Xabier says:

        A friend in London took his little daughter on an exercise walk to one of the big railway stations, to see how deserted it was.

        A policeman approached, and warned him to go home as, curiosity isn’t permitted when exercising. He was near to no one.

        The policeman had no mask on ,and was practically in his face: not very bright!

        It’s like one long, surreal, English Sunday, with a creeping madness and illogicality….

        • Dan says:

          The police better be careful how they treat the peasants. It is already pretty well understood they are the muscle of our oppressors.

    • Xabier says:

      Hundreds of millions of people sitting at home going quietly loopy and bug-eyed has little dramatic potential, although divorce lawyers are no doubt rubbing their hands in anticipation: but I suspect there will be a certain wildness in the air when we are let out again. Well, I hope so…. 🙂

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