#86. In pursuit of safety


Although I’ve committed myself to publishing a “rescue plan” for the British economy, I’m hoping that readers will accept, for now at least, a broader reading of the economic and political situation. Recent developments have yielded a specific point worth of discussion, and a general one as well.

The specific point is that extremely wealthy people, mainly from the United States, have been buying-up “survival properties” in New Zealand. Though billionaires as such are a small group, the number of American inquiries about emigration to New Zealand is running at 13,000 a month, which is six times the year-earlier level, and property prices in favoured parts of New Zealand are soaring. The most desirable properties are said to be those self-sufficient in food, water and energy, and the country is, of course, a long way from the places where nuclear war is likeliest to break out. The implication, not missed by observers such as The Financial Times, is that the rich are buying bolt-holes.

The general point is that the self-styled “liberal” elites are still in deep denial over what is happening politically. One reason for this is that the economic data available to decision-makers is disconnected from reality as it is experienced by the general public.

A key point made here is that the economy is a great deal weaker than conventional data suggests, which in turn makes public dissatisfaction that much more understandable.

As well as heaping derision (and more) on Brexiteers, Donald Trump and others castigated for “populism”, the mainstream media are also doing their best to convince us (or perhaps to convince themselves?) that Marine Le Pen cannot win the forthcoming presidential election in France. After that, they will doubtless turn their fire on Holland’s Geert Wilders.

Whilst I don’t feel qualified to comment on the electoral prospects of Ms Le Pen and Mr Wilders, I’m convinced that popular candidates (a term I prefer to the pejorative “populist”) are going to go on winning. The elites, who prefer denial and derision to self-examination, haven’t learned yet, and voters are going to carry on dishing out lessons until they do.

Together, these trends encapsulate what is happening. Whilst the public continues to vent its dissatisfaction, and whilst the elites as a whole continue to bury their heads in the sand, some amongst them are preparing for a future which, they feel, might not be very nice.

They are probably right, even if their preparations may be based on faulty logic.

The public are revolting

Though history never repeats itself, there are recurring patterns. One of the most striking is the way in which elites, whatever their initial merits, decay into unpopularity. “Familiarity breeds contempt”, it is said, and familiarity with power certainly has a history of breeding contempt for the general public. The tendency is for elites to become arrogant, greedy and corrupt, and, because they also become disconnected from reality, they are most unlikely to reform themselves unless forced to do so by popular pressure.

Leaving aside – for now – the military “wild card”, one of three things can happen from here. First, the ruling elites may bow to popular pressure, voluntarily yielding real (not cosmetic) reforms which salvage their leadership at a significant cost in terms of surrendered power, wealth and privilege. This is the best outcome, and worthy of further examination, but it does not look the likeliest.

Second, the general public may give up, accepting that they’ve made their point, and recognising the futility of trying to reform incorrigible elites. This is highly unlikely, again for reasons that merit consideration.

Third, the irresistible force of public anger may collide with the immovable object of elite intransigence, the result being social unrest. Those seeking refuge may believe this to be the likeliest outcome. They may well be right.

The “wild card”, of course, is global military conflict. There were at least two occasions during the Cold War when this came close to happening. The first was the 1962 Cuban Missile Crisis, and the second occurred in 1983 with the downing of a Korean airliner. On both occasions, the threat was averted. The danger of “third time unlucky” might be another reason for acquiring a bolt-hole in the Antipodes, though this precaution seems unlikely to prove successful.

A mass capitulation?

The cherished hope of the elites is that the tide of public anger may recede, leaving the elites in full control with their wealth and privileges unimpaired. This hope is futile, so much so that it is really an exercise in denial.

Though other issues are involved, the main cause of public dissatisfaction is widespread economic hardship, set alongside the conspicuous flaunting of wealth and power by a privileged minority. Economists who seem baffled by the weak performance of the world economy would be even more baffled if they were aware of what is really happening behind the published numbers.

Over the decade to 2015, official figures imply a 1.8% rate of compound growth, a figure which includes the post-2008 downturn and which, the consensus says, is likely to rise to an annual growth rate of between 3% and 4% going forward. Both of these readings are fallacious, because they take as reality GDP numbers inflated by the spending of borrowed money.

Revised numbers from SEEDS show that world GDP, measured at constant values and with non-US data converted into international dollars using PPP (purchasing power parity) exchange rates, grew by $20tn (21%) between 2005 and 2015. But world debt, similarly measured, increased by $76tn (45%) over the same period. This is a “trailing ten-year” (T10Y) rate of borrowing of $3.81 per dollar of growth. This T10Y number is lower than the provisional number ($4.50) published here previously, but has been rising relentlessly – back in 2009, the T10Y number was $2.89 per growth dollar.

A stumbling economy

Given that almost $4 has been borrowed for each $1 of growth, you could be forgiven for supposing that, over an extended period, there has been no “real” growth at all. This is likely to be an exaggeration, but not much of one. Stripped of debt-fuelled consumption, growth in world GDP between 2005 and 2015 was probably about $7.6tn (rather than the reported $20tn), and trend growth may have been as low as 0.5% over that period as a whole. This, of course, includes the post-2008 recession, and current underlying growth is probably about 1.5%.

On this basis, world GDP in 2015 was probably nearer $94tn than the reported $114tn, which would make the global debt-to-GDP ratio about 280%, rather than the published 216%.

All of this, of course, is before adjustment for the trend cost of energy (ECoE) to define what Surplus Energy Economics terms “the real economy” (as opposed to “the financial economy”). In 2015, underlying output was $87tn on this basis, and ongoing growth in “real”, ex-ECoE terms is about 1.0%. That is still a positive number, but it is dwarfed by the rate at which debt continues to be accumulated.

Real pain – the deterioration in living standards

The underlying weakness of the economy is already showing up in the day-to-day experience of the public. On an underlying, “real economy” basis, the countries whose economies are now ex-growth include Britain, France, Italy, Spain, Canada and Japan. The American economy may still be growing, but at a rate nowhere near official figures. China and India are probably the only major countries enjoying significant growth but, even in these instances, underlying growth is a great deal below the rates reported officially.

This deterioration can be expressed in per capita terms, but it shows up in the day-to-day lives of the public in two distinct ways. The first is that the rise in the cost of household essentials continues to out-strip growth in nominal incomes. This is happening, primarily, because these essentials are highly leveraged to energy prices, and to commodities which are traded on world markets. Economists tend to assume that such commodities are priced in the same way as internally-consumed services, but the reality is that there is a huge difference between local and global pricing pressures.

As well as the cost of essentials, the other way in which economic deterioration is showing up in the lives of the public is in deteriorating provision for the future. Ultra-low interest rate policies, adopted to enable the world economy to co-exist with its debt mountain, are keeping borrowing cheap (and asset prices inflated) whilst destroying returns on capital. This is becoming glaringly obvious in pension fund deficits, but is also showing up in the continued escalation of debt.

What happens next?

The elites’ fervent hope, which is that popular discontent dies down, looks increasingly like a pipe-dream. As we have seen, the public is suffering in ways which are very real, but are not readily apparent in the data used by policymakers. This is leading those who take the key decisions into a position of genuine bewilderment – the data at their disposal simply does not tally with the popular mood, leading them to the false assumption that it is the public (rather than the data) which are wrong.

If the public do not back down, the other way to restore smooth relations between governing and governed would be for the elites to reform themselves. Since this would require significant relinquishment of wealth and power, this seems an unlikely policy to be adopted by an incumbency whose principal characteristics include arrogance and greed. Reform is rendered even less likely by the false comfort that the establishment seems to derive from an over-optimistic reading of the economic situation.

Marie Antoinette’s famous remark – that, if people are without bread, “let them eat brioche” – is probably apocryphal. But the point of the anecdote is that she was wholly ignorant of the circumstances of ordinary people, and this does seem to have been the case.

Today’s policymakers seem to be being lulled into similar complacency by economic data flattered out of all reality by the practice of mortgaging the future in order to inflate the present.

If the public are not going to back down, and the elites are determined to hang on to all of their power, wealth and privileges, the odds on social unrest may be pretty high.

Ultimately, this never does anyone much good. The noble aims of the French Revolution led directly to the Committee for Public Safety and “the terror”, with a wrought-iron “tree of liberty” sitting in mute irony beside the guillotine in the centre of every sizeable town. The Russian Revolution led to Bolshevist rule and Stalinist purges.

The only way of averting unrest may be for the elites to awaken to the causes of popular discontent, and implement far-reaching reforms. This is not going to happen unless their complacency over the economy can be punctured. If that happens, then they might switch from denouncing “populism” and turn instead to tackling the root causes of popular discontent.


60 thoughts on “#86. In pursuit of safety

  1. Hi, I think there is another option that will at least for the short term kick the decision into the long grass. If the increase in pain for ordinary people is slow, (frog in a pan analogy) they wont notice until the fight is knocked out of them. I’ve been struck how young people in this country while broadly aware that they’ve been shafted, are still not prepared to fight for their rights; the poor are too tired working as much as possible on zero-hour contracts, while the middle classes are cowed by fear of losing their remaining advantage, so avoid a criminal record for protesting even.

    One of the fastest ways to break an unruly population is to destroy the quality of education, so they can’t think for themselves & believe whatever they’re told, while the old are helpless and the middle-aged distracted by running ever harder at the working treadmill in the hopes of maintaining their standard of living. The young haven’t known anything better given their lack of experience & the lesson from their role models is confusion and ignorance, so perhaps it isn’t so surprising they don’t seem to know how to respond.

    To change society, everyone has to go out on the streets & keep it up until the system cracks first – remember Argentina when they had enough of decades of corruption & ineptitude & just kept up the nationwide protests (through the elite shuffling the deck of puppet rulers) until Kirchner was allowed to rule because they figured he wasn’t a stooge? People will only do this is they think they have nothing to lose & that includes an empty stomach as well as no hope, so given that here there’s still a long way to fall to second-world status, this decay could last a generation as living standards return to those of the ’60s. (no heating in winters, basic foods, little private transport)

    Since the elites are so well armed and have such control over the masses what with modern technology, whereby they don’t need many enforcers to keep us obedient, what’s to stop things regressing all the way to feudal conditions? Bread & circuses, divide & rule; these social control tools have worked for millenia, so why not now too?

    • Interesting thoughts, albeit gloomy. I take your point about how long-drawn-out this could be.

      This said, there are a couple of things that perhaps I should have added. First, the strong likelihood of some kind of full-blown financial crisis. Our real economy of goods and services is extremely vulnerable to systems disruption, and that includes financial systems. Second, the inability of our system to continue normally under the kind of nil/negative growth conditions that I’m anticipating (or rather, already observing).

      Some countries seem likelier than others to take to the streets, so this might happen sooner in, say, France than in Britain.

      Elites down the ages have put faith in being well-armed, but this faith tends to prove misplaced. Whatever the technology, you still rely ultimately on people, who can turn against you, or simply refuse to obey orders.

    • Interesting thoughts. I agree that the community at large will be unable to effect change. I think primarily this is do to the inability to focus on anything more than a 30-60 second blurb. Most people I talk to have checked out mentally. They can discuss football or decorating but are completely unable to comprehend abstract or even real ideas. Most are employed in a specialized field do to the complexity of our system which makes the a victim because of their lack of broader understanding. Eventually they will protest as we’ve seen in Greece and in the US but it’s just emotional rage not rational exchange. It would the same if UKs began protesting the lack of veg right now. What good would it do? The politicians are not alchemists who can conger up food and fuel, even though they have billed the fact that they can and people have been conditioned to believe. As the collapse occurs I think it unlikely that any will suddenly develop cognitive capacity rather it’ll be Trumps fault or Mays fault. No one understands EROEI No one understands energies role in an economy. If they do suddenly get it they’ll blame people like Tim for either bringing or not preventing it rather then look in the mirror at their own willful ignorance.

    • Indeed so. The level of general understanding is depressingly low. It probably always has been, but in the past it hasn’t mattered as much as it does now. In the past, the economy kept growing, and people could ignore the economy and just become a little better off year after year, and expect to be more affluent than their parents had been.

      Clearly this has changed. If the times were normal, the economy would, by now, have recovered strongly post-recession, and people would be feeling more affluent. Debt would not have continued to escalate, as it has been doing at a faster rate than pre-2008, and interest rates would be positive (ie above inflation), enabling returns to be earned on capital, and provision to be made for retirement.

      Just at the time when we need people to understand what is happening, it seems that a long history of dumbing-down is catching up with us. People feel baffled, and mistrustful – hence the appeal of “populism”.

      Also, the political left has failed. Historically, the left would have spoken out about hardship, and left-of-centre parties would probably be being swept to power. But the leadership of the left copped out a long time ago, and it’s hard for someone to campaign against inequality when he/she has a second home in Tuscany and children at expensive private schools.

      What we’re left with is unchannelled anger….

  2. Of course unlike Thatcher the current bunch of so called Conservatives have simply pissed off the Police rather than get them ‘on side’ while the ordinary Soldiers in The Army are drawn from the working class.

    Not good if the chips are down

    • Exactly so. Control of the army didn’t save Louis XVI or Nicholas II, and tanks have often proved an ineffective weapon against public unrest.

    • Yes, but not as absolute monarch, let alone in the splendour of the Sun King.

      It’s a good point, because the monarchy came back – in chastened form – after the alternatives had been found to be worse. If only the reform had happened before 1789 – the same choice facing the elites of today…..

  3. As an aside in “The Chrysalids” by John Wyndham the persecuted minority in a post apocalyptic world are rescued by inhabitants of “Sealand”, thought to be New Zealand, which remained untouched by what is assumed to be a nuclear war.

    • Good point! I’m not remotely a sci-fi fan, but I love Wyndham’s books.

      Here’s a “don’t read” tip – avoid Atlas Shrugged, by Ayan Rand. It is the gospel for some neoliberals, and portrays an uprising by the downtrodden rich. Apparently (because I’m not masochist enough to wade through it), her hero makes a speech spanning 65 pages. She was the arch advocate of free enterprise and the minimal state – but, I’ve heard, spent her last years living on welfare…….

    • Hi Tim

      Long but curiously easy to read but boring as hell at the end of the day! IMO not worth it.

    • I read Atlas Shrugged many years ago before it became the neo-Liberal manifesto. I confess to enjoying the book, although I thought it was a bit preachy and that Rand overstated her position. But I did think it had ideas worth keeping in mind. Governments are good when they fill essential roles that are difficult to carry off otherwise. But they have a distressing tendency to grow beyond these purposes, to align themselves with moneyed interests, and finally to become overbearing and exploitative. Rand does make a good case against this kind of overreach in her book, although stating it in black-and-white terms that doesn’t sit well with many astute readers.

    • I see that Rand’s philosophy is akin to anarcho-capitalism, a position that sees a minimal state and maximum individual freedom. Things like the welfare state are seen as basically theft; taking from the productive and giving to the unproductive and a slippery slope to societal demise.

      If you read books like Hans Herman Hoppe’s: Democracy: the God that Failed you have a very well argued critique of where we are and the value of an anarcho-capitalist system but you are left with the questions of how would we get there and is it really feasible?

  4. It seems to me that UK society is fractured along a Brexit divide. If the economy does suffer a catastrophe, the Stay In contingent (including the Press) will turn on the Leavers – “should have maintained the status quo” etc. Without the faintest idea where the status quo would have lead. None of them will even think of questioning the architects of the disaster – in my view, the Central Banks.

    • The central banks certainly deserve a lot of the blame – not least for keeping rates at “emergency” levels ever since 2009.

      As for the UK, I recognise that divide. What happens, though, if the UK economy slumps but so does the Eurozone economy?

      Personally, I suspect many “leave” votes were based in anti-establishment anger.

    • Thank you – it is a very useful examination.

      This, of course, is post-result analysis. One phenomenon that has become evident in recent times is the failing ability of polling to predict results correctly (which, interestingly, puts pollsters in the same boat as economists, whose own predictive ability has been failing).

      Polls work mainly by phoning people who, by definition, have to have a phone, and be willing to answer questions. An increasing number of voters seem not to fall into this category, and many of these are, so to speak, radicalised. They are likely to vote for change, be it Trump, Leave or rejection of the Italian referendum reforms. This may also be where Mr Corbyn’s support comes from.

      If I’m right that this is why polls are failing, it suggests that there may be a lot more support for Le Pen, Wilders and, even, AfD in Germany, than the “experts” think.

  5. There are two (main) problem with establishing any kind of “bolthole” (in NZ or anywhere else)

    1—those super rich enough (or maybe not so rich—depending on where aforementioned bolthole is) to have that destination set up will inevitably hang on until the last possible moment in the belief that BAU will begin to function again. At which point any means of getting to where they want to be is likely to have disappeared.

    2—The natives of the country of choice will renege on any “commercial” arrangement entered into when things were “normal”
    ie a basically friendly nation like NZ will not remain unaffected by global turmoil on the scale being suggested here—and billionaire or not—people turning up come shtf time will be effectively paupers, little better off than refugees trying to get across the English channel right now.

    Owning a substantial house in NZ will mean nothing, because the value of money will evaporate, because as Tim has pointed out on numerous occasions, we live in an energy economy, not a money economy.
    Maybe the super rich grasp that—but I doubt it.
    So the super rich wash up in NZ, expecting to “buy” something like the lifestyle they had using bits of coloured paper.

    In the UK among lesser mortals, the destination is Wales and the west country—out of London certainly.
    The same dynamics apply—the “welcome in the hillsides” will I fear turn very sour very quickly

    • Extremely good points. Being Welsh, I have little doubt about the reaction of my compatriots to American (etc) billionaires buying up fortresses in Wales – and it wouldn’t be “a welcome in the hillsides”!

    • I first started being intrigued by the mention of Manchester as the venue for the announcement of the EU Referendum last June. It seemed strange to me that such a major event would be held anywhere other than London, but concluded if it were marked by a significant amount of social unrest then the Government had concluded it should best be held away from the capital.

      Then I found a Cities report which stated in 2010 that, unlike most other EU countries, the UK had invested largely nothing in the recommended 5-6 sub-cities it should have done. Enter Mr Osborne with his Devolution plans, offering lots of bonuses for Manchester (and several other Northern cities) if they accepted his Devolution scheme – this included EU net recipient status for Greater Manchester (GM) (Scotland, NI and Wales are, or were until recently, EU funding net recipients also) – I was unaware that such recipient status was more granular than at country level.

      Then it was announced that GM and the Department of Health (DH) had announced a £6bn deal to devolve health services to the former – the DH has just re-organised its upper echelon management structure, and GM is the only city which has a representative. HMRC has been going digital for some time, and has been reducing its estate for 6 years via a PFI deal, intending to reduce to 13 regional centres (two of which are Liverpool and Birmingham, also Devolution-related) plus a Central London office.

      HS2 has always seemed to me to be an inappropriate “white elephant” national solution, especially in the current economic climate, however it will provide fast access to and from London for Manchester and a couple of other Northern cities.

      I looked further into the railways, and found that ex-London passengers were via fares subsidising London commuters (whose fares are subject to a “regulated” rate. I also found a comment that having London as the national rail hub would always cause problems, unlike other countries where the hub is usually in the centre of the country, as Manchester is – if by country you mean England.

      Manchester is well-placed from a number of perspectives, in the sense that it is towards the western coast, is to the centre of England, is well served from a transport perspective, etc. It is also high on the list for foreign property investment and is second only to London in its financial and professional services sector.

      The UK spaceport competition ended with the DoT saying that it could be based “at any suitable site”, however 5 of the 6 candidate sites were on the eastern coast (the 6th – RAF Leuchars on the NW coast was removed during shortlisting).

      I think in normal times this would just be the Government’s (unannounced) plan for the UK’s future to be based on city-based environments with high use of technology (4th Industrial Revloution), making it easier to provision services, while continuing to allow rural communities to deteriorate but still contribute taxes and food – in essence a sort of technocratic feudal economy.

      However it may be that this is UKGOV’s bolthole if things get too hot in London- or am I reaching here?

    • Fascinating stuff, silveryfox. I’ve often wondered what would have happened if, instead of building the Westminster parliament which opened in 1867, it had been built in Birmingham instead. (By then, the Midlands was taking over industrial leadership from Lancashire and Yorkshire).

      Agree entirely about HS2. It would seem better to improve links between Liverpool/Manchester and Leeds/Sheffield, and possibly Newcastle as well.

      PS Some years ago, journalist/novelist Gavin Lyall used the real crisis relocation plan as the basis of a novel, and the description of the dispersal plan was fascinating.

    • The problem will be that unless you live in Wales then, you will have to drive there (M4 is pretty bad every day…).
      Not sure about New Zealand. Earthquakes dont sound fun to me.
      I would say Scotland, but i think the RN is based there.

  6. It massively increases feelings of unease when Cartman from South Park (even those scriptwriters couldn’t have dreamed up an episode this hallucinogenic) is given the potential to be the most dangerous individual on the planet. That foreboding isn’t helped by his repeal of the Frank-Dodds financial regulatory legislation, even that fig leaf of protection against civilisationally-suicidal banking greed being apparently too much for his cabal of billionaire peers to tolerate.

    It would be a good entrepreneurial idea to mint coinage with defined degrees of precious metal in them, affordable to the general public, that could be used if trust in fiat currencies evaporates …..does something like this already exist? (So not gold min-bars or Kruger-rands & such like)

    • Silver Eagles, and like issues from other countries (Canadian Silver Maple Leafs, UK Silver Britannias, etc.) Going rate is around $20/troy oz., but varies widely.

      I’m of the opinion that the most valuable things to have are a home that is paid for, knowledge and skills that will be useful in a retrenchment scenario, strong neighborhood connections, and either productive land or tools of production. I particularly like chain saws because they can render wood, which is both a fuel and a building material. They are also fairly frugal with gasoline compared to the amount of work they do and offer huge gains in productivity over hand tools that do the same job. Maybe not the kinds of “assets” that most people think of, but if the conventional assets run aground, these will become essential to survival.

    • One other thing that comes to mind is that societies in pre-market economy days often had traditions of gift-giving to enhance community relations and grease the economic wheels. For example, if you had a decent bottle of scotch, you could probably get an invitation to a pretty nice dinner by offering it as a gift. And you’ll probably be able to enjoy a shot or two of the scotch after dinner, too. Think in terms of things that are durable and that will make life better for people should things go south — medical supplies, ammunition, that bottle of scotch, rechargeable batteries and a solar-powered charger unit, ability to play a musical instrument, etc. There are many such things that people will want and that may be hard to come by. But I still think what you can do and your community relationships will be more important than what you have if things come undone to that extent.

    • Suggest looking at woodworking tools also. Planes (meaning wooden ones with a cast steel blade) are reasonably cheap in the UK still, and some are several centuries old, as the wood was seasoned and air dried over at least a 5-year period in those days. They can shift a fair amount of wood in a short time and, with (in my case) several attempts they can make quite adequate furniture. They can also be reproduced fairly easily at home. Paul Sellers website is good for this (although he has a range of YouTube videos also) and covers making wood planes and home-casting carbon steel plane blades. Metal-bodied planes are also worth a look, as they can be picked up quite cheaply, date in some cases from just over 100 years ago and can be restored to serviceability from a rusted carcass quite quickly. Similarly, the old woodsaws are still around and can be restored and re-sharpened using a file. I’m not suggesting you could become a joiner, although if you did you could probably recruit a couple of willing apprentices fairly rapidly.

      The other possibility is to become a tools supplier, in which case you could invest in carbon steel, saw files, woodvices and sharpening blocks reasonably cheaply, although the quality is variable in modern versions – which would give you an easier life.

      Books on woodworking are also cheap, especially the older classics, which instead of illustrative photographs have drawings and furniture plans included.

      I guess my point is that these tools were used up to the early 1920s, have many uses in the right hands, are largely self-maintainable given the right sharpening tools, are sawdust-free compared to powered variants, and would give you a living.

      That said, I’d still rather use a chainsaw than a woodaxe!

  7. I think you exaggerate the extent of material suffering as a driver for social unrest at present. Brexit and Trump votes and their equivalent elsewhere are driven more by cultural conflicts and anxiety than hardship in the developed world.
    People are frightened by the rapidity of change and the breakdown of older social patterns.
    However if there is a debt mountain collapse and artificially primed growth stalls ( a new depression) there will be revolutions. Hopefully blood free.

    • Fair points, though I think we risk under-estimating economic hardship. The key to this lies in how the cost of essentials keeps rising much more rapidly than incomes. If, say, your wage grows by 2% but electricity, gas, etc etc rise by anything from 4% to 10%, you soon start feeling the squeeze.

      As you say, there are other factors which cause discontent. Change can be unsettling, especially when the change seems to be adverse rather than beneficial. Insecurity of employment, and the high cost of owning or renting somewhere to live, are corrosive of confidence. Governments (etc) seem to have developed a penchant for nagging and preaching.

      My suspicion is that a (peaceful – so far) revolution is already under way. Economic concerns are by no means the only motivation for voting for anti-establishment choices, and I feel I detect a growing tide of anger.

  8. I suppose as the prepper in Wales I ought to say something! I’ve seen this debated ad nauseam on prepper forums – bug in versus bug out, the best survivalist kit and so on but, in all honesty I doubt that if there is any period of lawlessness it won’t last long. So as to plans, in most cases, a full tank of fuel and a wad of cash would get you to a B&B somewhere rural where you can sit out the city riots in comfort.

    That does require a little discipline though: a half tank is your new ’empty’; £100 is you new ‘skint’. In addition increase your pantry: UHT milk lasts for months and evaporated even longer; learn to cook if needed and have dry foods available like flour, yeast, sugar (all types), cocoa and so on. As to water, my wife and I have drunk from our spring for 30 years without problems we just boil it first. Get a camping stove and spare cylinders but don’t suffer the dark. Light in the home is been the biggest advance we’ve ever made and there are a lot of past technologies. I have a large collection of oil lamps they run quite happily on paraffin which is kerosene which is heating oil and is very cheap unlike lamp oil which isn’t. But why even do that if you’re on the grid? For a small investment in a car battery charger, an old car battery, a small inverter and an extension cable when the power goes down you can plug in a table lamp (LED bulb) and it’ll last for hours.

    That’s the immediates for now, what I’ve done is to get out of debt. I own a smallholding here in Pembrokeshire with bees, chickens and 2 housecows. We live off grid, that is, we have no mains services other than a land line. We have no immediate neighbours but are on good terms with the closest farm. We’re close to a small town where the shops are entirely privately owned and a resilience group that already has plans in place to introduce an independent currency. I keep enough food and fuel to live very comfortably for several years, less comfortably for several more and then at an acceptable level for a lifetime. I hold no gold but I do have cash. Power is provided by solar, hydro and generator. I keep a 1000 litre tank of red diesel for the generator. This keeps a large chest freezer frozen by running it for an hour or so night and morning. I have several inverters and a large battery bank which charges from solar and from the generator when it’s on. I have reduced our power consumption by utilising thermo syphoning for the central heating (no pump needed) and for the pantry (no power needed at all). We stock the pantry with produce from the garden which is mostly under cover. The produce is bottled (americans call it canning) in Kilner jars. A lot is pickled and I produce my own vinegar from cider, wine and wild fruits such as Elderberry. I have a large grape vine that produces in excess of 100 bunches every year and peaches, apricots, nectarines and figs from an orchard house. I have taught myself plumbing, electrics, carpentry and general building and have every tool necessary. Oh, and I’m medically trained.

    Great post Tim! Da iawn! Diolch!

    • I am lost in admiration for you, and not a little envious because, as a youngster, I used to spend each summer on a farm in Pembrokeshire, a truly magical place. There must be considerable scope for fishing, too, I assume, as I used to catch a lot of fish, and my brother even had a few lobster-pots.

    • Nice post. I’m Welsh as well but on the wrong continent. Having grown up in Maine I’ve had none of the established advantages of a developed system. I’m glad you have that life it’s beautiful.

  9. On this basis, world GDP in 2015 was probably nearer $94tn than the reported $114tn, which would make the global debt-to-GDP ratio about 280%, rather than the published 216%.

    That’s speculative. If the T10Y cumulative global GDP is ~$800T of which ~25% was invested in fixed assets (structures, equipment, intellectual property) or ~$200T, what is the 2015 fixed asset-GDP ratio? GDP is more than just consumption.

    The U.S. invests ~15% of its GDP in fixed assets. The T10Y current cost of fixed assets increased at about the same rate as nonfinancial debt, or ~$17T. It seems to me that China who invests ~40% of its GDP in fixed assets would have seen fixed assets rise more than debt.

    • It depends how you value fixed assets, and how you depreciate the existing stock. In Spain and Italy, for example, there have been huge investments in roads to nowhere and airports with no flights. China has vast shopping precincts with no shops or shoppers, and equally vast housing estates with no one living in them. Industrial plant has been built to excess in China, because local government profits from it, even though the capacity is far in excess of requirements. The US has built new sports arenas whilst bridges crumble (civil engineers publish lists showing the total that needs to be spent on infrastructure no longer fit-for-purpose, or even safe).

      In many categories, the cost of investments is rising much faster than CPI. Britain has a sensible-looking plan for a tidal energy project in Wales – but the costs are huge. Building a new nuclear plant in England is so costly that the strike price for electricity from it is 2x the current price (and one energy supplier has just announced a 10% tariff increase).

  10. China has vast shopping precincts with no shops or shoppers, and equally vast housing estates with no one living in them.

    Those fixed assets will depreciate at ~4% per year, and they will be ultimately mostly utilized. You are missing the point. GDP is more than buying a bag of beets at your local grocer and filling up the car with diesel.

    The US has built new sports arenas whilst bridges crumble…

    New sports stadiums are decimal point rounding errors when it comes to construction of fixed structures. Of course, civil engineers are not biased when it comes to replacement of bridges with the money of others. Investment in fixed assets is 2 magnitudes of error more than sports stadiums and bridges.

    The issue is, are you denying that 25% of T10Y GDP was invested in fixed assets which makes your “consumption” debt to GDP ratio speculative?

  11. Hi Dr Tim

    Thanks – regarding my earlier post:

    “However 5 of the 6 candidate sites were on the eastern coast (the 6th – RAF Leuchars on the NW coast was removed during shortlisting)” Apologies – 5 candidates are on the Western coast, RAF Leuchars is on the NE coast of Scotland.

  12. Being prepared for calamity is obviously the best way to survive it, but what are we actually talking about here.
    If things get as bad as the “Prep’ers” anticipate, then what we are looking at is loss of life on an absolutely massive scale. Yes, the big cities will see the worst of it, but we are too many for all of us to “take to the hills” and live of subsistence farming.
    What happens to our society when tesco, asda and morrisons all have empty shelves for 10 to 12 weeks or more ? How many people will die of starvation ?
    One positive aspect about such a scenario, is that Political Correctness will be crushed underfoot in the stampede, as eg. once-feminist mothers will be out on the streets selling their daughter’s vitrue in return for a tin of soup.

    Anyway at my age, I do not see myself as being able to survive such an episode. Even if I did have a 6 month supply of dried lentils and brown rice, with no way of protecting it against a rioting mob, I would be relieved of my resources very quickly indeed.
    What I do see happening though, is the rapid imposition of marshall law and a subsequent militarisation of society. The military will control all food and this will be distributed primarily to themselves, the police and the Establishment elite. The weak, the old and the infirm will be allowed to go nature’s way, probably with a little bit of encouragement on the way.
    Confiscation of all wealth will of course be the first task performed under the new laws.
    I did once read about some ngo reporting that the US GDP will crash to below $1 trillion by 2025, if that is indicative of what is to come, then densely populated countries like the UK will suffer much the same fate. What would the UK look like with a DDP of only £150 Billion ?
    We would of course still have Trident to defend us from those bad Ruskies.
    The best case scenario for me would be a gentle decline of living standards over the next 25yrs. that would see me out at a ripe old age in managed decline.
    I do however fear for the lives that my son’s will be leading by then.

    • Johan

      OK. I think it’s time I sketched out – for what it’s worth – how I see this unravelling.

      We have to start with the economy. Since 2000, we’ve been using borrowing to fake growth. This means that the real level of economic output is smaller than the official number. It also means that growth, looking forward, is only going to be about 1.5% at best, not the 3.5% consensus assumption. Some countries (including the UK and much of Europe) are now ex-growth. Growth continues in China and India, but at rates far below published levels.

      If I’m right about this, the ratio of debt to GDP is also a lot higher than the official number, say 285% rather than 215%, and is rising more quickly than we think.

      We’ll carry on borrowing, of course, and keep real interest rates negative. Inflation, I believe, is understated – food, energy and services such as health care and defence are all experiencing rates of cost increase far higher than CPI. Households are already getting poorer, because wages are not keeping pace with essentials (and just think about what’s about to happen to electricity and gas prices in the UK).

      Eventually, we’ll face some kind of debt default. Governments may be incapable of rescuing the banking system this time. The public might actually want bankers, and therefore banks, to go under. Either way, payment systems are vulnerable. If these crash, we’re into some sort of state of emergency. We could also, or instead, face severe power shortages, having the same effect as a payment systems collapse.

      In this scenario, distribution could collapse, because no one can be sure they’re going to get paid. Shops could run out of stocks very quickly, worsened by panic buying. This is when we could expect some kind of martial law, presented as a State of Emergency.

      By then we could be on the brink of a breakdown in law and order. The public will be both frightened and angry. Then we get either a military coup by the establishment, or revolution, or anarchy. Meanwhile, there could be revenge attacks, in which case even New Zealand may not be far enough away for safety.

      This is a worst-case scenario. All of us need to think about how to prevent it. There is a political vacuum right now. The incumbent elites are seen with increasing contempt by the public. These elites have failed, most obviously by turning the economy into a Ponzi scheme. But the new, “insurgent” leaderships don’t have the answers. The task for everyone is to work out what those answers are.

    • Re: “All of us need to think about how to prevent it.”
      This is definitely a case of an ounce of prevention being worth a pound of cure. It’s also what makes the willful blindness of the people controlling the levers of power so discouraging. Or perhaps they see very well, but their plans for the future are mainly about their future rather than ours. It leaves the rest of us with the suspicion that we will essentially get thrown to the wolves once the current regime of extend-and-pretend runs out of road.
      But what is really needed is an honest appraisal of where we are, what our best prospects are for the foreseeable future, and how to best get from here to there. Instead, what I see is a lot of analysis of our present situation, a lot of extend-and-pretend on the part of the authorities, and a complete dearth of concrete proposals for addressing the issues we’re facing and preventing a crisis that looks to be looming ever larger on the road ahead..

    • Dear Dr. Tim, Thank you very much for your reply. Your insights always open up new perspectives for me to contemplate.
      I agree that the trigger for any collapse will be financial / economic in nature because it is when people feel it in their pocketbook, that they will eventually get up off their backs and take to the streets. Unfortunately it will be anger that prevails, because there is no guiding philosophy behind it. I always recall the quote ( paraphrased ) “.. the most thought provoking thought, in this thought provoking age, is that nobody is thinking ! ”
      The fact that nobody, apart from your good self and a few others, is addressing the real state of affairs is very worrisome, because when collapse comes it means it will be spontaneous, and the reaction will be knee-jerk. There will be disruptions in supply, in Germany people are advised to hold 10 days food + water in reserve, I do not think anybody has got that in the UK. Even those who do, when the power is cut, their deep-freeze cuts out and their supplies spoil.
      There will be deaths resulting from this, many deaths.
      Am I going out of my mind, or hallucinating in a parallel universe, or am I seeing things as they might turn out in the real world ?
      As you point out Tim, government figures like GDP etc are basically all fiddled, so nobody in power is going to go out on a limb and say, “Wait a minute guys, we are not as rich as we thought, our income cannot meet out outgoings, we need to renege all public sector pension promises, we cannot afford a large military and your house, by the way, is only worth a quarter of what you think it is.”
      The sense of entitlement that people in the West have needs to be reversed. We need to “cut out coat, to suit our cloth”, but nobody, absolutely nobody is willing to go along with that.
      Nobody wants to take a hit on their living standards, however in my reality I see that we all will.

    • Dolphin:

      What we may face here is the irresistible force of public disastisfaction hitting the immovable object of elite inflexibility. Neither the Tsar in 1917 or the Court of Versailles in 1789 believed they could be overthrown. They were complacent and out-of-touch, and drew false comfort from their control of the security forces. Neither outcome did anyone much good – France got the Terror then Napoleon, Russia got Bolshevism then Stalin. But there are other instances where regimes backed down, enabling a smooth transition. South Africa is a recent example.

      So what is needed is a climbdown by the elites. They need to compromise, by surrendering at least some of their wealth, their power and their inflexibility.

      It’s pretty obvious that, as you say, extend-and-pretend may run out of road. But this isn’t only an issue of economics, though of course economics are emphasised here. There are some promising signs – it seems big investors are getting tougher on boardroom pay – but nowhere near enough progress yet. It’s the inflexibility that may be the biggest problem.

      The focus now is on the EU, where critical elections loom. The “experts” say that Le Pen can’t win in France, or Wilders in Holland. But these “experts” have a habit of getting it wrong. If Le Pen wins, France switches from a stalwart supporter of the EU to being anti-Euro and potentially anti-EU. Following the Italian referendum, which effectively paralysed Italy as a contributor, the sidelining of France would put the whole burden on Germany. Mrs Merkel will then face some tough calls, not just on immigration but also on yet another bail-out for Greece.

      The question is, when does the pressure on the elites become enough to persuade them to back down and reform? One might have thought that “Brexit” and Trump would have started the process, but there’s little progress yet. Would success for Le Pen, or Wilders, tip the balance? My hunch is that they would. So I think we have a short period of uncertainty followed by a new direction.

    • Johan

      You’ve put your finger on why a new ideology is needed. When Keynesian economics lost public support in the 1970s, an alternative was ready in waiting, crafted by Milton Friedman, Sir Keith Joseph and others.

      As of now, there is no new consensus in waiting. Positions are poles apart.

      The public want something that they think is fairer and less authoritarian.

      The elites, plus supporting flag-wavers, want to give no ground at all.

      No-one has yet asked what might be more effective, in economic and other terms.

      All we can really do is try to contribute ideas. I’m considering writing something about what a reform package might need to contain if it is to meet popular demands.

    • Hi Tim

      I think your scenario is spot on.

      However, I do wonder if the chaos which will result is just the excuse TPTB need to impose sacrifices on the plebs. You say that we can’t rescue the banks but warnings of Armageddon if we don’t may well deceive the public and we’ll be away to the races yet again. However, like you imply I don’t hold out much hope for this “rinse and repeat” formula; as Abe Lincoln said about fooling….. and I think he was right there will be an end game here and I don’t think it will be pleasant. The most likely outcome I would imagine is a nastier World along fascist lines; I would hope for better but fear the worst.

    • Dr Morgan — Re: “All we can really do is try to contribute ideas. I’m considering writing something about what a reform package might need to contain if it is to meet popular demands.”

      Exactly what is needed. And exactly what is lacking.

    • I’m an avid reader of this blog, but I’m quite disappointed to read openly racist comments like this one. It’s also disappointing that you haven’t been called out for them before now.

    • Flanger

      I think I have found and removed this comment, and must apologise for not spotting it sooner – I must have just skim-read the comment. Otherwise I would have removed it immediately. Please tell me if I’ve missed anything.

      This might be a good point to spell out my stance here.

      First, I abhor racism (and anti-semitism). When I started in the City, South Africa was still apartheid. The general (and UK government) attitude towards SA was “constructive engagement”. I disagreed totally. I worked for a firm that did a very large amount of business with SA.

      I asked for permission to have nothing to do with SA – clients, stocks or anything else – until apartheid was overthrown. My employers were very good about this, and agreed. So I was exempted from meeting anyone from SA, or any other involvement, on grounds of principle. I don’t remember anyone else asking for the same exemption. I have always felt very strongly about racism and ant-semitism.

      Second, the difficult line here is freedom of expression. I believe that people should be allowed to express any opinions (short of incitement to violence or the targeting of individuals). This obviously includes views that I disagree with 100%.

      So my aim is to take out offensive terms without censoring opinions.

  13. Something that has been tickling away at me for a while now is the old board game Monopoly. No matter how you play, the results are always the same someone gets all the money and everyone else goes bust or ends up in jail. When you’re little and you play a charismatic elder sibling could always persuade you to play a little longer, maybe even ply you with ‘money’ to do so but the end result was always the same. Seems that’s where we are, with the beaming winner saying ‘want to play again?’ Pity is, most of us played with IOUs and so we’re trapped in this endless game.

    • Depends on regulation, I’d say.

      Did you know that Monopoly was invented by a socialist to denigrate capitalism? But the lure of easy – fake – money made it popular in ways its inventor could never have imagined…..

    • I like your Monopoly analogy – very apt! I’m sure there will be some form of financial crisis or debt default in the near future – either real or contrived. But increasingly, I think Governments will chose the option of going “cashless” to crawl their way out of it. This will keep the banks open and also allow HMRC to tax directly at source – in fact there are numerous benefits for the state in going cashless. The switch could be made very quickly and I’d be very surprised if contingency plans had not already been drawn up. After an initial week or so of chaos and minor breakdowns in law and order, people would get used to business as usual without cash – the alternative consequences being too awful. It would probably lead to greater inflation and allow interest rates to rise, as well as perpetuating the false rise in equities, bonds, property etc. Markets would evermore be “fake”. I’m not sure what would happen to PMs though – gold and silver coins would presumably become a bit of an anachronism.

  14. Dear Dr. Tim, a very good article and I look forward to your “rescue plan” for the British economy. I am wondering if this will involve various novel forms of default that are not recognised as such. Since we are promising future income streams (borrowing) to prop up GDP and personal consumption today, all we have to do is not pay out those future income streams. If we default on government bonds or trigger inflation that might destroy our reputation and our ability to borrow, but there must be other ways. For example, my grandfather had settled in Madrid to bring up his family when WWII broke out. He kept his savings in international equities custodied in ‘safe’ London. The government of the day decreed that all foreigners with such assets held in the UK would have them compulsorily converted to War Bonds. This happened without the UK getting recognised as defaulting.

    My idea would be to reengineer business rates and reintroduce meaningful domestic rates in a way that was offset against income tax for those living here. With our continuing trade deficit of £40bn, the sterling surplus gets recycled back by foreigners buying our future income streams in the form of commercial property which pays rents and investments in infrastructure funds with government backed inflation proof income streams (all off balance sheet). Charging annual business rates on physical infrastructure and property would basically claw back some of those future ‘rents’ that have been promised to foreigners, whether they are student accommodation that yields a lease or hospitals and care homes, or windfarms or nuclear power stations.

    • I’m intrigued by your grandfather settling in Madrid before WWII, as the Spanish Civil War only finished in 1939, which must have made life interesting!

      I like your idea of tackling Business Rates, a ludicrous tax which I once called “the small business equivalent of strychnine” – not so keen on the “off balance sheet idea”, though, as Britain already has huge commitments not classified as debt.

      If you look at the broader current account (rather than trade) deficit, the figure is £100bn and rising rapidly – and this deficit has to be bridged either by borrowing from overseas or selling assets. When you do this, of course, you set up new outward streams of either interest or profits, making this a vicious circle.

      Mr Carney has described this as depending on “the kindness of strangers”, but of course these decisions are driven by calculation, not kindness. Anyone buying GBP assets (or lending in GBP) during 2015 is now nursing a forex loss of almost 20%, which raises a fear that the vital flow of overseas capital into the UK could dry up.

      If that happened, it might be imperative to raise interest rates – something that an economy with £4.9tn in debt really cannot afford to do. This Achilles Heel gets little or no coverage or comment – which shows just how myopic people can be. It’s one reason why Mr Cameron and Mr Osborne laid out the red carpet for the Chinese.

  15. Tim,
    A new article by Aude IlligIan and Ian Schindler is just published that I think is of interest to you, Oil Extraction, Economic Growth, and Oil Price Dynamics. available at: http://link.springer.com/article/10.1007/s41247-016-0016-6

    From the article: “Rising cost share of energy is not benign. It means a loss of diversity in the economy. It means less money for some non-core sectors in the economy which leads to lower wages and fewer opportunities in these areas. This is a principle aspect of stagflation. The cost share of food and energy rises in family budgets and less money can be devoted to other areas of the economy. This leads us to make the following
    Conjecture 4.1
    When the cost share of essential items, such as food or energy, rises quickly, the necessary adjustment in the economy causes a recession.”

    • Thanks Jeff, that sounds right up my street.

      It’s no coincidence that, as well as writing “Perfect Storm” while I was working in the City, I also started “The UK Essentials Index”, which got quite a lot of media coverage. The cost of household essentials is where the pinch is felt first.

  16. Some worrying moves by UKGOV:

    1. “In 2015 the Cabinet Office, on behalf of Government, asked the Law Commission to review the effectiveness of the criminal law provisions that protect official information from unauthorised disclosure” The outcome thus far is a consultation which ends in Apr 2017 (see http://www.lawcom.gov.uk/project/protection-of-official-data/ ) – this legislation would replace the Official Secrets Acts – interestingly New Zealand is mentioned. The Guardian ran an article on it – https://www.theguardian.com/law/2017/feb/13/uk-government-law-commission-report-outlaw-whistleblowers-investigative-journalism

    2. The Law Commission were also asked to review the law on Gross Misconduct in Public Office (GMiPO) – the key point here is “All the options in the Consultation Paper therefore assume that the common law offence of misconduct in public office is to be abolished” – therefore any replacement legislation may not be retrospective. This is important internally within the UK (see http://www.liverpoolecho.co.uk/news/liverpool-news/more-1000-misconduct-claims-made-12514426 ), however for a recent report from Romania see http://www.dw.com/en/romania-a-country-is-changing/av-37539153 – where the Government attempted to repeal their GMiPO law.

    3. David Cameron committed to transparent Government in 2010 – the Institute for Government monitors this and other aspects of the Government’s performance – their latest Whitehall Monitor report is at https://www.instituteforgovernment.org.uk/sites/default/files/publications/Whitehall%20monitor%2017.pdf – the Team also blog on aspects of the report, and one notes a “worrying backslide in transparency” – see the blogpost by Adam Boon at https://www.instituteforgovernment.org.uk/blog?field_themes_tid=86

    Perhaps the most interesting thing is that both Law Commission reviews were commissioned in 2015.

  17. Dr Morgan’ – I asked for permission to have nothing to do with SA – clients, stocks or anything else – until apartheid was overthrown. My employers were very good about this, and agreed. So I was exempted from meeting anyone from SA, or any other involvement, on grounds of principle. I don’t remember anyone else asking for the same exemption. I have always felt very strongly about racism and ant-Semitism.

    That is a very laudable stance although I’m uncomfortable with this kind of politically correct positioning that divides individuals neatly into ‘good’ and ‘evil’ camps. Ultimately the unintended consequences of PC are far worse than the benefit of the worthy aims it set out with.

    The situation post apartheid in SA is hardly a bed of roses and many white South Africans disagreed with apartheid – did they not deserve your support ?.
    However you must be aware of the contradiction in your position – much of the cause of the problems you describe are the result of neo-liberal political correctness. In short, this ‘virtue signalling’ philosophy has eroded personal responsibility and massively increased a sense of entitlement of citizens to the state to unaffordable levels….and bankrupted the world in the process.

    Politicians being largely a vain and cowardly breed have taken the path of least resistance and done what is expedient rather than what is right long term. They have zero concept of sustainability.

    Someone in the US decided that poor black Americans shouldn’t be discriminated against by the mortgage market – a very PC stance. How did that turn out ?.

    I think it was Norman Tebbit that said ‘it’s one thing to give a dog a bone. Quite another to take it back’ . Now that political correctness has been unleased on the world who is going to voice factually correct truths concerning :-

    – The signing of blank cheques to prop up African dictators is just to make us feel better about ourselves. Bad governance not lack of aid is the problem.
    – Compelling the lazy and reckless to work and take responsibility for their own health (bit late now generations have been robbed of self sufficiency by workless households.
    – Recognise the consequences of the exponential growth function on population and debt.
    – Ask individuals to pay for the upbringing of an appropriate number of children for their circumstances
    – The exploding population of the third world has the capacity to reverse standards of living in the developed world. (It’s strange how all the blame for London’s smog is put on ‘diesel drivers’ and none whatsoever attributed to it’s ballooning foreign born population).

    A Country that turns it’s back on the truth out of fear of causing ‘offence’ is in very serious trouble…

    Of course anyone suggesting this kind of thing would be immediately howled down..so perhaps the system does have to break before it can be reformed …

    • Far too much for me to comment on. I’m not remotely a supporter of political correctness, and I believe in free speech. My stance on SA was a purely personal view that apartheid was evil.

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