#73. The faltering economy


Since my previous article, German bunds have flirted with joining a group of negative-yielding bonds which already exceeded $10 trillion in value.

This means that investors are prepared to pay “safe-haven” borrowers (including the German and Swiss governments) simply to hold their money for them, in some instances for as long as thirty years. This “safe-haven” ploy simply means getting back the nominal amount, of course – and it has to be highly probable that some at least of that value will erode through the devaluing effects of inflation, particularly where long-dated bonds are concerned.

Such, today, is the sky-high price of a “safety” that is only relative anyway.

If you think about it in a detached way, any kind of negative interest rate situation is insane. Thinking through the concept of negative interest rates as they might apply to, say, mortgages, or saving, will quickly convince you that the very idea is something straight out of Lewis Carroll, Edward Lear or Monty Python.

More broadly, investing now means, at best, acceptance of a tiny income in return for a very high level of risk, whilst the likelihood of capital gain seems to rest entirely on the “greater fool” theory of central banks making money even cheaper than it already is. The normal relationships between investment and income, and between risk and return, have been destroyed.

If we take our thinking one stage further, we arrive at two unavoidable conclusions. The first is that we are trying to reinvent the financial system as we go along, in order to cope with gigantic debts that can never be repaid.

This can be likened to a blindfolded person on a bicycle trying to carry out brain surgery with a spanner.

Second, we wouldn’t be in this mess if the economy was growing. Clearly, therefore, it isn’t. The acceptance by the powers-that-be of the reality of “secular stagnation” reflects a dawning recognition that the economy is ex-growth.

We’ve examined the financial system at length here, but now it’s time we looked at the real economy – the economy, not of money, but of goods and services, of resources and labour.

The real economy

As most readers will know, my measurement of economic output and performance is based on the principles of Surplus Energy Economics (SEE). For those new to this approach, SEE adjusts output for the trend Energy Cost of Energy (ECoE), recognising that all economic activity is in the last analysis a function of energy, and that accessing energy has a cost in terms of the energy consumed in the access process.

This cost has been rising relentlessly for decades, reflecting the interplay of two factors. The first is the depletion of existing sources of fossil fuels, where declining output from old sources is replaced by supply from more recent sources which tend to be ever costlier because of smaller resources and higher costs of access.

The second factor, which offsets the upwards pressure of resource depletion, is the steady improvement of technology, but the effect of this is limited by the laws of thermodynamics. For example, technology has enabled us to access resources, such as shale oil, which we were not able to exploit twenty years ago. But what technology cannot do is to make shales and other newly-accessible resources as cheap to access as the giant, conventional oil fields of the past.

Much the same applies to renewables. Improved technology has brought the cost of – for example – solar power down dramatically. It may already have made solar, in particular, cost-competitive with the new oil and gas fields being developed today. But what solar can not do is replicate the economics of giant fields like Saudi Arabia’s Al Ghawar.

Renewables, in short, may stabilise ECoEs in a “post-giants” world, but they are not going to bring back an era of ultra-cheap energy produced from huge, technically very straightforward and readily-accessible sources of fossil fuels.

Of course, in the economy as we measure it in money, the costs of accessing energy are included, not least because, for example, an oil company’s costs are a contractor’s revenue. But the cost of accessing energy isn’t remotely a zero-sum game, for two main reasons. First, of course, money spent on developing energy sources is money that cannot be spent on anything else (roads, say, or hospitals). Second, our calculation of economic output does not account for the “economic rent” levied by the resource set, much as it also fails to account for the rising economic rent imposed by environmental constraints.

Taking stock: a surplus energy assessment of the economy

The impact of rising ECoEs on the global economy is shown in the first chart. This displays, as the financial economy, a measure known here as Standard Constant GDP (SCGDP), which is calibrated in market-rate dollars whilst measuring component growth in terms of purchasing power parity (PPP). (SCGDP has been a tricky concept to develop, and the detailed methodology is not something that I disclose).

The second line on the chart shows the real economy, after adjustment for trend ECoE. As you will see, the previously-small impact of ECoE has now become a major drag on economic output, to the point where the global real economy has hit a plateau and is facing impending decline.

The financial and real economies – global aggregates

SEEDS 2016 mod 1 world

Critically, the gap between the financial and real economies, which is measured as ECoE, is also the extent to which measured GDP overstates the underlying reality.

By basing our assessment of GDP on numbers which exclude ECoE, we have allowed the financial economy to become larger than the real one. And, since the financial economy of money and credit does not exist independently – it consists entirely of monetary “claims” on the real economy – we have been creating claims that cannot be met. These “excess claims” are the reason why the financial economy has become successively more abnormal, and has accumulated “excess claims” that are now big enough to bring down the financial system. This is a topic to which this discussion will return

The second chart applies the same approach to the United States. In common with many other mature developed economies, the US faces a steeper decline curve than the global aggregate.

The financial and real economies – the United States

SEEDS 2016 mod 1 US

The outlook for China, shown in the next chart, is for only very gradual deterioration, though this will be felt as a shock when contrasted with the spectacular growth previously enjoyed by China.

The financial and real economies – China

SEEDS 2016 mod 1 China

The striking feature of the Japan chart is the gap that already exists between the financial and real economies. The very large accumulation of “excess claims” provides corroboration that Japan’s very high debts are by no means some kind of statistical error, or are in any way irrelevant. The Japanese financial economy has created huge claims in excess of the capabilities of the real economy.

The financial and real economies – Japan

SEEDS 2016 mod 1 JP

The United Kingdom chart, shown next, is grim, indicating that the real economy has commenced a serious and seemingly relentless decline. The reasons for this are not obscure, and are a combination of bad luck and bad management.

Though Britain’s ECoE (on a consumption basis) is not out of line with global trends, the sharp decline in domestic energy production is already having a very deleterious effect on the overall ECoE. The gap between the financial and real economies is fairly modest thus far, but a policy of denial over what has been happening to the real economy could easily result in a ballooning of excess claims.

Though the decline curve in North Sea oil and gas output has long been known, successive governments have failed to respond effectively. Plans for the replacement of Britain’s ageing nuclear fleet should have been decided by the second half of the 1990s at the latest, but nothing was done. Now, the UK has committed to costly and problematic technology as an adjunct of wanting others to pay for it. Investment in renewables has concentrated excessively on offshore wind, which increasingly looks like the wrong choice.

The on-going deterioration in net energy trade suggests that the already-severe current account deficit (around 6% of GDP) could worsen significantly, and could exhaust the expedient of covering this shortfall with asset sales and overseas borrowing.

The financial and real economies – the United Kingdom

SEEDS 2016 mod 1 UK

The ‘black hole’ in the financial system

Finally, we need to consider the accumulation of “excess claims” which are created whenever the financial economy is larger than the underlying real economy.

Until relatively recently, excess claims were only being created at a relatively modest rate, and the accumulated pile of cumulative excess claims was not particularly dangerous. In 2000, for example, but expressed at 2015 values, excess claim creation stood at $2.4 trillion, and the outstanding total was $23 billion. By 2015, however, the accumulated pile of excess claims had reached $70 trillion, and is growing at over $4trneach year.

At $70trn, the outstanding total remains smaller than global debt ($150 trn), but has grown to the point where almost half of all global debt is incapable of repayment. In short, Surplus Energy Economics identifies a $70trn black hole where claims created by the financial economy cannot be satisfied by the real one.

With real economic output now static, and seemingly due to commence a relentless deterioration, this black hole is going to grow even more dangerous unless action  is taken to remedy the habitual mortgaging of a future that is much less prosperous than the global authorities have yet realised.

Surplus Energy Economics, then, makes sense of an artificially-inflated financial system, and explains why maintaining the semblance of normality is already requiring remarkable monetary gymnastics.



56 thoughts on “#73. The faltering economy

  1. This is another one of those stories where the analogy of the sand in the tipper truck comes to mind. The time comes to empty the sand from the truck. The driver lifts the tailgate, goes back to his cab and triggers the pneumatic arm which pushes up the dump box. The sand starts emerge from the dump box in a steady and predictable way. The arm keeps pushing up, the dump box lifts and sand flows – all very predictably. Then, physics and chaos theory kick in and one minuscule event triggers the remaining load of sand in the dump box to drop suddenly and uncontrollably on to the floor.

    The question is for me, and has been for some time is this. What will be that single (or possibly multiple) unpredictable and relatively minuscule event in the global economy that triggers our disappearance into the $70Trn black hole? We should be told.

    • Hi MM

      Your analogy is a good one, and as you say the trigger might be something small.

      Potential triggers are increasing. I discussed four of them in the previous article. The most recent things I’m hearing are that US GDP has been miscalculated and will be revised downwards; and that a string of European banks are in trouble and outflows from them are behind the buying of German bunds that has pushed yields negative.

    • Thank you and I shall read and digest your previous article.

      Today’s the day of course! Tomorrow either the UK will be free once more, or will enter full-on into the process of subjugation by a foreign oligarchy. Jean Monnet was a bloody clever bloke. Misguided; wicked even; but clever.

    • I have to say that the post-referendum situation intrigues me rather more than the outcome.

      Whatever the result, Britain is split down the middle, and I can’t see politicians capable of curing this division, because they have slipped even further into discredit during a thoroughly nasty campaign. We have seen the establishment at its worst, and political correctness rampant. I am very glad I moved abroad!

      So what results is a deeply divided and angry country with its leadership cadre discredited. As I say – nasty.

    • US GDP revisions will be announced by the BEA in the last week of July.

      However, we already have the numbers for each individual State. They do not add up to the US total. People who look at this more closely than I do think that GDP needs to restated back to 2006.

      At the start of the ten year period, the difference is small. But it gets bigger each year.. The latest year will need to be revised down by 6%.

      If this is what happens it is not good.

    • interesting your comment down the line about GDP (i cannot reply directly) but i don’t think we have to trust in official GDP number in a electoral years: a revision of 6% down push Trump on the white house directly.

    • Pity they remove the comments for the Telegraph… Drop into Finite World as well – these are the two best sites on the planet.

  2. The Blog site: Economic Study Association.com is relatively new and is interested in Economic Research with fascinating insights into the workings of a Trading Economy.Tim,I think you would find it very interesting.

  3. How did you generate these charts? Do you have a model that produces them, or these are your best guesses?

    • These results are modelled using SEEDS – I wouldn’t dare guess! SEEDS took a long time to develop and refine. It models 19 countries plus global aggregates.

  4. Very interesting as always Tim. Your models seem to suggest a major adjustment rather than a catastrophic crash. Just wondering what economic tools are available to manage the limits of negative feedback once supply and labour chains are cut to keep modern economies working. Also why do you say that offshore wind was a bad bet – is this compared to land based wind power or other forms of renewable energy?

    • You raise some very interesting points, some of which I would have addressed but it would have made my article far too long.

      First, we’ve become accustomed to growth over a very long period, so even a gradual deterioration is going to feel very unpleasant. Second, with population increasing, the per-capita impact will be worse than the aggregate impact. Third, inequalities have widened (within countries), which leverages the impact of decline on those in the bottom half (or indeed the middle) of the income scale.

      Fourth, we have made huge bets on the assumption of “growth as usual”. Even a decline in growth expectations has been enough to push the financial system into extreme expedients motivated, I believe, by a combination of panic and incomprehension. What a decline – even if modest – would do to a financial system already driven to trying ZIRP, NIRP and QE – is mind boggling.

      The feedback loops are complicated. In theory, the stimulus should make our economies strive for greater efficiency. But a huge proportion of our systems have their economics predicated on full capacity – you cannot profitably run an airline on 80% traffic loads, a ship on 80% holds, a hotel on 80% occupancy, or a property development on 80% take-up rate, because the profit only comes once capacity is utilised above perhaps 95%.

      On UK wind, it’s been a cop-out – “offshore wind doesn’t affect property and sounds green, so let’s do that”. I’ve been informed by those who study it that we’ve spent about £30bn on this, yet the energy return is poor and unreliable, and that the same money spent on nukes would have provided both much more electricity and much more reliability. Everything I’ve studied favours solar over wind.

    • Re: Solar and wind power

      To intervene from an energy market perspective. The problem with all renewables is that their output isn’t matched to demand in any way or shape, and they are rewarded through subsidies at unit rates that are totally unrelated to prevailing demand. Not only does this mis-direct capital, but it increases consumer costs. And worse still, it creates a need for further subsidies (like the “Capacity Market” to subsidise conventional thermal plant, or the Demand Turn Up scheme that will pay companies to use more energy). And because of the intermittency you still need sufficient reliable generation to cover your peak demand. So all of the high costs of renewables are additional to the capital cost of thermal and nuclear plant.

      Solar works well in some places. In the UK it is a disaster, with annual load factor of 10% of rated capacity, and about 4% across winter. The wholesale value of PV output is worth about 2p/kWh given wholesale prices at the time you get solar. But the subsidies have (until the beginning of this year) been around 14 p/kWh for roof panels. Rates are different for larger arrays, but the principle is the same. And the excess and unjustified returns have resulted in the financialisation of PV assets into large multi-million pound portfolios owned by banks, only too happy to invest the free money of QE into subsidised assets with 15% rates of return (and that’s before financial engineering to sell fixed income tranches and thus boost the stub returns).

      For offshore wind, the simple problem is that the cost is too high – mainly the fact that building tall lightweight towers in the middle of hostile maritime environments is very difficult. And made worse by incompetent regulators who push up the price of offshore transmission connectors. At least wind gets a load factor of around 25% onshore, and 35% offshore, but it is still expensive, unreliable, and negatively correlated with peak system demands – middle single digit load factors across the coldest 100 days of the year. A further facet of renewables is that many highly efficient CCGT are being downgraded to OCGT – if running more intermittently the cost of running the combined cycle heat recovery are not warranted, and as a consequence the efficiency of the plant is significantly reduced.

      In the words of the late, great Sir David Mackay, running Britain on renewables is an appalling delusion. But that’s what policy is pushing for, and it is creating a multi-layered environment where every part of the energy “market” is subject to intervention and subsidy or mandation by desk bound bureaucrats. A realistic system design to both lower emissions and keep costs under control would have been to ignore all renewables, build new nuclear to cover all UK baseload (although specifically not including Areva’s vastly over-priced and unproven design for Hinkley Point), use flexible and highly efficient CCGT for most seasonal and peaking plant. At the margin it isn’t very efficient to have a big complicated CCGT to cover your ultimate winter peaks – but on the other hand the relative capex costs of CCGT are low, and the outcome probably better than relying on diesel farms and other make do and mend approaches.

      UK energy policy is a vast mess, driven by unrealistic ambitions, poor quality thinking and a near total disregard for the cost. And at the moment I’d say that policy is getting worse, not better, with madcap ill informed ideas to push renewable heat, heat networks and small modular reactors.

    • Badger – thank you for this very clear explanation. The point about still needing full conventional capacity because renewables are not reliable is a particularly telling one.

    • Just to add to Badger’s very fine post. The insolation map for the UK can be found here http://bit.ly/292Fknx and the chart below the map shows that winter insolation is 10% of summer insolation and 20% of annual average. So if solar panels deliver an annual average of 10% of rated capacity then in the winter they must produce about 2% of capacity. And when it’s dark they produce zero output. It is well known that peak demand for electricity is during the winter when it is cold and dark, which is exactly the time when the output from solar is zero.

      The book by Sir David MacKay, FRS, Sustainable Energy – Without the Hot air, can be found here: http://bit.ly/28WNCvE and it deserves a wider readership and should be obligatory reading for all politicians and the people in the DECC.

      And finally a reminder. Sizewell B NPS was built by the CEGB and was intended as the first of a fleet of 10 identical stations that had a total budget price of £20bn. From first permanent structural concrete to fuel load took 74 months, as I recall. Compare that with the cost overruns and program delays of the Areva designed NPS for Hinckley. Sadly, the CEGB and its project expertise is no more.

  5. Hi Tim

    Although you say that unless action is taken to remedy the $70trn black hole it will continue to get worse, I cannot see such remedial action as being a realistic prospect at all. The measures would be so unpalatable that the problem could not be resolved in a “normal” political context.

    The traditional diversion is of course war and, under this condition, it is possible to call for sacrifice in the common good and one does wonder if this may not happen at some stage – a “contrived” conflict.

    The only other resort would be hyper, or at least major, inflation to get rid of the debts but any remedy on the scale required would be a very destructive force and ultimately uncontrollable.

    On a day when we are voting whether or not to leave the EU such analyses as yours really show the decision as a sideshow – which is what I believe. The referendum isn’t the end of the trouble in the UK; our troubles are only just beginning.

    • This is my next topic – not that I look forward to it – and you have set out the probabilities very well.

      On Brexit, I agree that there are bigger issues, nationally and internationally. Running a huge current account deficit, and plugging it by borrowing from abroad and flogging off assets comes to mind – and there are issues arising from Britain’s contraction of the twin diseases of neoliberalism and political correctness.

      For the rest of the world, too – yes, it’s a sideshow.

  6. Hi Dr Tim,

    our spending 3 months squabbling about EU membership whilst failing to even mention the real challenges facing the world has astonished and depressed me in equal measure,

    the only possible explanation can be that it is a manifestation of Parkinsons Law of Triviality,

    my other current pet theory is the Dunning Kruger effect that goes a long way to explain the failures in management in so many spheres,

    you have mentioned before that you suspect the Americans might actually understand quite how much the economy is screwed up and may have a contingency plan,

    my fear is that not only do they have the most outstanding debt they also have an enormous amount of nuclear weapons gathering dust,

    I wonder if Dr Strangelove has pitched the idea of solving world over population, arresting global warming with a nuclear winter and making all debts irrelevant simply by pressing a button?

    Sherlock Holmes. How often have I said to you that when you have eliminated the impossible, whatever remains, however improbable, must be the truth?

    if you suspect you may be heading to a similar conclusion please take comfort in the fact that you are not alone,

    • Matt

      I agree about the trivia of the EU “reform” negotiations, but don’t see it as a conspiracy. Other EU leaders were angered by Britain (Cameron) wasting their time over this nonsense, because (a) they needed to discuss migration and the economy, and (b) ministers cannot give binding guarantees anyway, as any significant change needs a consultative progress.

      Their view – which I share – seems to have been that the UK was being selfish. This view makes sense. First, the government has form – it habitually ignores the interests of others in pursuit of short-term gain (AIIB is the most obvious answer, but there are many others). Second, they saw no need for a referendum at this time – the EU was nowhere near the top of voter concerns, unlike say the NHS; and no lobby group (business, organised labour, media, the opposition) was campaigning for it. So they saw it as selfish political manouevering. Third, I’m sorry to say, the British do appear selfish, and are not regarded as team-players.

      Conspiracy theories can never be ruled out, but it never does to overestimate politicians – they are cunning, but not usually all that clever, and tend to be very small-minded. For instance, political money scandals are often about pretty small sums.

    • Thanks, and this cuts to the heart of “Brexit” as I see it.

      The many people long comnmitted to leaving the EU could not have won the vote alone, but were joined by many others opposed to the “metropolitan establishment” or “liberal elite”, and that was decisive.

      Two factors seem to have been critical here – neoliberalism, and the policies of intolerance sometimes dubbed “political correctness”. Prior to the referendum, the British electoral system had denied this anti-establishment group a voice – so when the referendum offered them one, they took it.

      Neoliberalism is a con favouring inequality. Competitive market economics did not need re-inventing. Neoliberalism reinvented it in ways that take out many of the checks-and-balances which, under the classical version, restrain inequality and exploitation.

  7. I’ve read more since posting this. The Guardian had a simple explanation;
    “If you’ve got money you vote remain. If you haven’t got money, you vote out”:


    There was another important division as well. Millennials voted to remain,[ but nobody gives a damn about millennials anyway[!] Just ask a pollie!


    It’s pretty certain the decline of our “industrial dynasty” is behind so much of today’s political troubles, but it’s locked in and cannot be reversed, maybe slowed a little. We certainly need a plan of management when things go south. Only chaos will be left and that will make the treatment migrants are getting now akin to being in a 5 star hotel!

  8. The dust is far from settled on the EU Referendum. The social media storm of the Remainers is fascinating – fear at the destruction of the markets (FTSE down 2.4%, Cable back to where it was in March etc.); accusations that 52% of the population are thick, chav racists; shame of being British; everyone wanting to emigrate to Canada etc etc. It tends to highlight that market manipulation since 2008 has served its purpose: the middle class are feeling very warm and cosy in their debt-inflated bubbles and have zero resilience.

    Call me cynical but I believe Cameron’s decision, to delay the Article 50 trigger for his successor, is supremely tactical. By the end of September a financial crisis will be manufactured leading to a 2nd Referendum; more fear, more lies but ultimately the result that the elites require. Ironic, isn’t it, that if the vote had been 52% Remain, everyone would have accepted it.

    The crisis will certainly wipe out a great deal of bubble market value, allowing central planners to have another bite at the debt cherry. The Leavers will be conveniently scapegoated and Joe Public will forevermore trust the “experts”. Until the next time.

    • Yes, all of what you say is depressingly plausible. It seems clear to me that hostility to the established elite was decisive, and equally clear that the elite won’t surrender gracefully. Your scenario is certainly possible.

      But the broader picture is surely that the elites have failed, and this is exposed by the economic picture. When an elite fails, it has two choices – dig in its heels, or concede reforms that diminish its power and privileges.

      History suggests that the former choice is the one most frequently made, but seldom if ever works.

      Reforms offered in 1905-06 could have have prevented the Russian Revolutions (2) of 1917, but the reactionaries stopped the reform process, and the Tsar (who was a half-wit anyway) simply dithered.

      Reforms planned ahead of 1789 could have prevented the French Revolution, but were resisted because they reduced the wealth and privileges of the elite, whilst the King, though intelligent, was isolated in Versailles.

      Concessions could have headed off the American War of Independence, but the British elite failed to compromise.

      It’s the usual story of greed or stupidity, or sheer arrogance, choosing resistance over reform. Obvious though it is, today’s elites are too arrogant and too greedy to see it.

      This is why some enlightened people favour reform. It’s also why they are ignored……………

    • well in same place around the EU the shock maybe have same effect: today mr Padoan, minister of ecomomy, and even before mr Prodi , say that was inequality that support populism and anti-eu sentiment all around: we have to see what they do after speak: this arrive immediately after a very bad electoral result last week in Italy: local version of Ukip win Rome (thanks to a corruption scandal) and Turin 4° biggest city (this is a real surprise for the elite: no scandal here, and decent amnistration of former mayor) combined with a lot of minor city. and even where win they lose a lot of vote to astention (100.000 in milan alone).

    • Brunel

      Like Tim I think your idea is plausible but this time there are some differences.

      Take two of the likely results of the financial crisis you mention ( and which are I agree are more than possible): devaluation of sterling and a fall in house prices.

      The devaluation of sterling has already begun and may well go much further but this may stimulate growth and counteract the recessionary forces that are now gathering; it’s equivocal, certainly not a panacea, but potentially not all bad.

      As to a fall in house prices I think growing numbers are already viewing high house prices as a double edged sword and many now are coming to the view that a substantial fall is not all bad.

      I also think you overestimate the comfort factor in the middle classes. The neoliberal world has also eroded their position in the last thirty years or so and such things as AI are rapidly moving up the food chain. It’s not only blue collar workers who are discomfited by neoliberalism.

    • devaluation of sterling is good for export. but is bad for import: UK import more than export. and if you have debt (i don’t know if this is a issue in UK) in dollar is a tsunami: is what happen in Brasil and a lot of country last year

      fall in house price put stress on bank that give money to buy

    • Paolo

      You are right about GBP devaluation.

      But the big issue is confidence. Britain has a big and growing current account deficit – for reasons I won’t go into here – at 6% of GDP.

      To meet this, the UK needs to borrow from abroad, and sell assets. The annual number is about £100bn.

      The danger is that foreign investors may (a) not want to buy British assets, and.or (b) not want to lend to Britain.

      Markets do over-react, and the GBP is likely to recover some ground at least.

      Second, the EU economy is not in good shape either/

    • Thanks – I took Maudlin’s site off my reading list when he pumped shale as the saviour…

      ‘a book on what the world will look like in 20 years’

      There will be no humans alive on the planet post BAU – due to radiation poisoning.

      John is very much underestimating the consequences of the end of the oil age. 4000+ spent fuel ponds CANNOT be managed without the full force of BAU.

      Japan’s chief cabinet secretary called it “the devil’s scenario.” Two weeks after the 11 March 2011 earthquake and tsunami devastated the Fukushima Daiichi Nuclear Power Plant, causing three nuclear reactors to melt down and release radioactive plumes, officials were bracing for even worse. They feared that spent fuel stored in the reactor halls would catch fire and send radioactive smoke across a much wider swath of eastern Japan, including Tokyo.

      Containing radiation equivalent to 14,000 times the amount released in the atomic bomb attack on Hiroshima 68 years ago, more than 1,300 used fuel rod assemblies packed tightly together need to be removed from a building that is vulnerable to collapse, should another large earthquake hit the area. http://www.reuters.com/article/2013/08/14/us-japan-fukushima-insight-idUSBRE97D00M20130814

      The problem is if the spent fuel gets too close, they will produce a fission reaction and explode with a force much larger than any fission bomb given the total amount of fuel on the site. All the fuel in all the reactors and all the storage pools at this site (1760 tons of Uranium per slide #4) would be consumed in such a mega-explosion. In comparison, Fat Man and Little Boy weapons dropped on Hiroshima and Nagasaki contained less than a hundred pounds each of fissile material – See more at: http://www.dcbureau.org/20110314781/natural-resources-news-service/fission-criticality-in-cooling-ponds-threaten-explosion-at-fukushima.html

  9. Just a thought – on the eve of the Chilcot report (two million words) – about the amount of information the internet has given us and in evidence by the links in this article…

    Who has the time to read it all?

    • Could well be.

      There doesn’t seem to be a realisation among those who write reports, internet articles, etc. that theirs is no longer one in a few hundred but one in a few million. The need to keep things brief and to the point seems to have escaped them.

    • Brevity is a virtue, though I don’t always achieve it!

      At the moment, of course, comment has been driven to a new crescendo by Brexit, and it’s interesting how unrelated things are being linked to it.

      For instance, the sharp further falls in the stock prices of certain European banks…..

      Chilcot is “too late”, but I hope it isn’t also (in terms of content, not size) “too little”. The public reached their own views a long time ago. If this report doesn’t match those views, and name names, it will be dismissed as “yet another expensive bucket of whitewash”. I hope it proves worth the wait.

    • Unfortunately, we seem to live in a world of ‘why use two when you can manage with four?’

      I hope, in vain I suspect, that when all our EU strings are untied, simplicity is the guiding principle of what comes next.

      I also hope that someone can separate the UK’s long term economic mess and its causes from the relatively short term economic effects of Brexit.

    • I’m sure there are grubby schemes for overturning the Brexit decision – but the problem is that the voters have decided, and defying that decision would take the UK into wholly new territory. For the establishment, defying the public so flagrantly could be a “let them eat cake” moment……

    • I can imagine that if this was not the decision the High Priests wanted that they could drag this on for years with no material changes…

      Of course they don’t have to drag things on for very much longer — because the global economy is running on vapour and will implode in due course.

    • I agree with you here Tim. Losing a referendum is one thing but if “the will of the people” is frustrated then folk will ultimately resort to pitchforks and some of those like David Lammy who are calling in effect for a reversal of the vote are utterly irresponsible; if they succeed he may no longer be an MP not because he’ll be deselected but because we won’t have a parliament.

    • Bob


      Let me try to sum up briefly. If you devise an economic system whereby a tiny minority become extremely wealthy whilst the majority are pushed into insecurity, sooner or later you have to expect a backlash.

      This is it. Thankfully, it has come through the ballot-box.

      The establishment has two choices. It can accept the rebuke, act on it, and reform. Or it can dig its heels in. History suggests that the latter course is futile.

      But elites tend to become out-of-touch, arrogant and greedy. They do not like sacrificing any power or wealth. They are angered by the sheer temerity of the masses in going against them.

      They need to stand back and reflect. Here’s hoping.

  10. ‘Though the decline curve in North Sea oil and gas output has long been known, successive governments have failed to respond effectively.’

    Prior to the discovery of north sea oil and gas… the UK was sinking into a swamp… the nation was given a reprieve… and that reprieve is now ending….

    I doubt there is anything the UK government could have done about this — just as the Saudi government has absolutely not a chance in hell of coming up with any sort of viable plan for ‘life after oil’

    It’s kinda like a grocery clerk finding a sack of half a million dollars on the side of the street — picking it up and going on a year long spending spree — fun while it lasted… but all good things must end.

    • I’m not sure that nothing better could have been done. The people in charge are likely to be judged by history as congenital idiots.

      The windfall from the North Sea could have been invested in modernising the British economy, including industry and infrastructure. That would have made Britain globally competitive, with a high-tech manufacturing sector competing on quality rather than price. Much of what post-war Germany achieved could have been matched using oil revenues. Instead, it was blown on unemployment and tax-cuts, whilst a strong GBP undermined industry.

      Norway did it better. They were determined not to blow their windfall, or let it change their way of life. Their economy was too small for the type of investment that the UK could have done, so they saved it.

      It’s not rocket-science………..

    • Norway would have been better off blowing the whole lot … because the billions they have socked away will become worthless when the global economy collapses…

      As for the UK — why plan for the future — when there is no future. We need cheap energy — without there is only darkness. Eternal darkness.

      Germany with all its high tech industries — will not avoid the collapse. When the first big domino falls — all dominoes fall.

      Contrary to what the ‘investment advisors’ flogging ‘post collapse hedges’ claim …. when the dam breaks on this — and it will break — the electricity will go off… the shops will empty …. and the starvation will begin.

      Nearly all food produced on this planet is done so using petrochemical fertilizers —these destroy the soil and nothing can be grown without years of organic inputs…. 7.3 billion people will not be able to wait years — and they will kill and eat everything that moves — so no manure… (Venezuelans are eating cats and dogs…)

      Then we have the spent fuel pond issue — 4000+ of them around the world — no BAU — no management of these high tech facilities… extinction event

      Japan’s chief cabinet secretary called it “the devil’s scenario.” Two weeks after the 11 March 2011 earthquake and tsunami devastated the Fukushima Daiichi Nuclear Power Plant, causing three nuclear reactors to melt down and release radioactive plumes, officials were bracing for even worse. They feared that spent fuel stored in the reactor halls would catch fire and send radioactive smoke across a much wider swath of eastern Japan, including Tokyo. http://www.sciencemag.org/news/2016/05/burning-reactor-fuel-could-have-worsened-fukushima-disaster

      Assuming a 50-100% Cs137 release during a spent fuel fire, [8] the consequence of the Cs-137 exceed those of the Chernobyl accident 8-17 times (2MCi release from Chernobyl). Based on the wedge model, the contaminated land areas can be estimated. [9] For example, for a scenario of a 50% Cs-137 release from a 400 t SNF pool, about 95,000 km² (as far as 1,350 km) would be contaminated above 15 Ci/km² (as compared to 10,000 km² contaminated area above 15 Ci/km² at Chernobyl). http://belfercenter.hks.harvard.edu/publication/364/radiological_terrorism.html

      This well and truly is an end of days scenario — that is not hype — that is the situation we are facing.

    • I don’t think that is exactly correct, Tim. Norway is monetary sovereign. It doesn’t need to save or borrow its own money. What the fund does do is give investors some interest payments. It can lend it out for interest but it is not necessary for Norway to save or put aside for some purpose like future pensions and welfare. The government can always do that at any time as deficit spending. Deficit spending is vital to the concept of growth, so debt repayments can be compensated for with rises in the equity of the loan. What Norway could better have done is to have slowed down production to match the need at the time. That way it would have oil for more years.
      In Britain’s case they should have done what you suggested and invested it in growth industries, make for a smarter nation etc.
      All today’s politicians are ignorant of macroeconomics. Neo-liberal economics could not stand up against a knowledgeable assault. Yet it persists as a dangerous toxin skewing economies to suit neo-liberal agendas. I, like you, hope the message that time is up is getting through. Except it’s going to take a big shock to reset the agenda. Brexit is not it, but it might be a harbinger of trouble coming soon!

  11. The ‘black hole’ in the financial system

    Finally, we need to consider the accumulation of “excess claims” which are created whenever the financial economy is larger than the underlying real economy.

    Until relatively recently, excess claims were only being created at a relatively modest rate, and the accumulated pile of cumulative excess claims was not particularly dangerous. In 2000, for example, but expressed at 2015 values, excess claim creation stood at $2.4 trillion, and the outstanding total was $23 billion. By 2015, however, the accumulated pile of excess claims had reached $70 trillion, and is growing at over $4trneach year.

    In this last paragraph should the “outstanding total” read $23 trillion?

    • Tim, Does “excess claims” equal, to use Michael Hudson’s remark,”debts that cannot be repaid, will not be repaid”?

    • Yes. Basically, the system of money and credit exists only as a set of “claims” on the output of the real economy. Money and credit may safely exceed current real output if they reflect a realistic expectation of future growth. But we have created far more money and credit “claims” than can conceivably be met.

    • I’m not surprised you find it hard to understand!

      Both Labour and the Conservatives have gone through a similar change.

      Labour used to be the party of “the left”, working people, unions, and soft socialism. But then came Tony Blair and “New” Labour, and that is what many MPs still are. The members of the party wanted a return to their older, “traditional” principles, and elected Jeremy Corbyn. But many of their MPs do not like this. So they have an argument between “Blairites” against “left” (or “traditional”) ideas.

      Something similar has happened to the Conservatives. Again there are “traditionalists”, and there are “modernisers”. David Cameron is a “moderniser”. They might elect another “moderniser”, Theresa May, to replace him. Or they might chose a “traditionalist”.

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