#128: GFC II

THE ANATOMY OF THE NEXT CRASH

Surprising though it might seem, barely two weeks have elapsed since those of us who anticipate GFC II – the sequel to the 2008 global financial crisis (GFC I) – were in a very, very small minority.

Consensus opinion, backed to the hilt by conventional economics, said that no such event was going to happen. Rather, we had entered the sunny uplands of “synchronised growth”, and debt had ceased to be anything much to worry about.

Of course, events, in Italy and elsewhere, haven’t yet proved us right, or the consensus wrong. We remain in a minority, though one that seems to be becoming larger. But events should embolden us, and on two fronts, not one.

First, recent developments strengthen the case for GFC II, not because of their seriousness alone, but because – as will be explained here – they conform to a logical pattern that points towards a coming crisis.

Second, we’re being reminded of quite how far conventional economics is out of touch with reality. This, of course, will be proved decisively if – or when – GFC II does happen.

This, when you consider its implications, is really quite remarkable. Government, business and finance all place heavy reliance on a school of thought which decrees that the workings of the economy are entirely financial – so, if events prove this approach to have been wrong, the ramifications will be enormous.

Those of us who understand that, far from being a matter of money, the economy is an energy system, have a lot of work in front of us.

This seems like a good point at which to publish the promised brief summary of why GFC II is likely.

ECoE starts to bite

Here is one big difference which makes the two contesting views of the economy incompatible. For anyone who believes in money-based interpretation, there are few (if any) logical barriers to perpetual growth in prosperity.

From an energy perspective, however, there is every reason to doubt the feasibility of indefinite expansion on a finite planet.

To be quite clear about this, what is contended here is not that we will “run out of” either petroleum or of energy more broadly. Rather, the argument is that we are running out of cheap energy.

“Cheap”, in this context, does not refer to sums of money invested in the supply of energy. Rather, it refers to the quantity of energy consumed whenever energy is accessed.

The definition used here is the energy cost of energy, or ECoE. Throughout much of our industrial history, the trend in ECoE has been downwards. This trend, beneficial for growing prosperity, was driven by geographical reach, economies of scale and technology.

In recent times, however, both reach and scale have plateaued, and technology has become a mitigator of ECoE increase rather than an accelerator of ECoE decrease. The driver now is depletion.

According to SEEDS, the global trend ECoE was 1.7% in 1980, and 2.6% in 1990. The difference between the two numbers was modest, and neither was a material (or, to most observers, even a noticeable) head-wind to growth.

Because the operative trend is exponential, however, ECoE was close to 4% by 2000, and had now become large enough to start driving a wedge between economic expectation and economic outcome.

The dynamic of sequential crises, part one – GFC I

By about 2000, then, underlying growth in prosperity was weakening, something not helped by the form of globalisation being promoted. Fading growth wasn’t something that conventional economics could explain, let alone accept.

What was apparent, however, was that the ability of Westerners to go on increasing their consumption was flagging, not least because of the outsourcing of skilled, well-paid jobs to the emerging market economies (EMs).

The solution to this seemed simple – give consumers easier and cheaper access to credit.

Two expedients combined to further this aim. The first was to drive down the real (ex-inflation) cost of borrowing. The second was to increase the availability of debt through “deregulation” of the financial sector. Both accorded with the prevailing ideology of laissez-faire economics, with its emphasis on diminishing the role (including the regulatory role) of the state.

Obviously enough, this strategy drove global debt upwards. Expressed in PPP dollars at constant 2017 values, world debt increased by 43%, from $121 trillion in 2000 to $174tn in 2007. Nobody in any position of influence seemed unduly concerned about this, because GDP had increased by a seemingly-impressive 53% over the same period.

Hardly anyone seemed to notice that each $1 of this growth had been accompanied by $2.08 of net new debt. Accordingly, the clear inference – that a big chunk of this “growth” was nothing more substantial than the simple spending of borrowed money – passed largely unnoticed.

The second, less obvious consequence of deregulation was the diffusion of risk, and the separation of risk from return. Various innovative practices enabled the creation of high-return, high-risk instruments which could be sliced in such a way that high risk was divested and high return retained. Surprisingly few observers noticed quite how dangerous this practice was likely to prove.

Risk-aversion revisited

The first – and, with hindsight, unmistakeable – portent of GFC I happened during the “credit crunch” of 2007. Banks, suddenly aware of elevated risk, couldn’t know which counterparties were safe, and which were not.

This was an instance of risk-aversion. What resulted was an interruption in the continuity of credit supply. This took down the small number of banks which had been reckless enough to finance their lending using short-term credit from wholesale markets. These aside, the system seemingly recovered from risk-aversion, though astute observers must by now have realised that the “credit crunch” might well be a precursor to something more systemic.

This 2007 chapter is highly relevant now, because we have entered a new phase of risk-aversion. Even before recent events in Italy, some of us had discerned the rise of risk-aversion, most obviously in the travails of a string of EM currencies. The probability is that this isn’t simply a function of a strengthening dollar, but reflects the withdrawal of capital from countries now seen as risky.

This time – and with a significance that will become obvious shortly – it is the creditworthiness of countries and their currencies which are being questioned, not just that of banks

This is why, here, we had started discussing GFC II, and commenting on its imminence, well before anything kicked off in the Euro Area (EA).

These events have not, then, changed our expectations. Rather, they have conformed to a pattern in which an outbreak of risk-aversion precedes a full-blown crisis.

The dynamic of sequential crises, part two – GFC II

So far, the dynamic of GFC II is conforming to the pattern of GFC I, with an episode of risk-aversion happening first. If the pattern continues, we will get through this chapter and breathe a collective sigh of relief – just in time for GFC II to catch us unawares.

This time, though, the fundamental dynamic is different, which means that the shape of GFC II will be different as well.

The explanation for this lies in how we responded to GFC I.

Put simply, during GFC I the authorities woke up to the obvious fact that the world had too much debt. Whenever debt becomes excessive – for a household, a business or a whole economy – the primary problem isn’t whether the debt can be repaid. At the macroeconomic level, at least, repayment can usually be deferred.

The big and immediate problem is servicing the debt – and this, by 2008, had become something that the world’s borrowers simply couldn’t afford to do. The logical solution seemed to be to slash interest rates.

This involved two processes, not one. The first, which was to take policy rates down to somewhere near zero, would never have been enough on its own. This was why massive QE programmes were launched, buying bond prices upwards in order to force yields sharply lower.

Defenders of QE argued that this didn’t amount to “printing” or otherwise creating new money, that it wasn’t monetisation of debt, and that it wouldn’t spark a sharp rise in inflation.

None of these assurances was, or is, cast-iron. QE isn’t the creation of money so long as it is reversed in good time. QE may not in principle be debt monetisation, but it certainly has become that in Japan, where QE money has been used by the BoJ to buy up nearly half of all JGBs in issue. It would be no huge surprise if the ECB, too, adopted monetisation as the least-bad way out of the looming debt crisis. And QE need not spark inflation, if by that term is meant rises in retail prices – but QE most assuredly has created huge inflation in the prices of assets.

A new adventurism

Be that as it may, what we have seen since GFC I has been “monetary adventurism”, which is distinct from the “credit adventurism” practised before 2008. The credit variety hasn’t gone away – indeed, it has worsened, with each dollar of “growth” since 2008 coming at a cost of $3.39 in new debt, compared with a ratio of 2.08:1 before GFC I – but monetary adventurism has leveraged its consequences.

The numbers are that, between 2008 and 2017, GDP increased by $28.8tn, but debt expanded by $98tn. Nor is this all. The destruction of returns on capital has created what the WEF has called “a global pension timebomb”, blowing a hole estimated by SEEDS at close to $100tn in worldwide pension provision adequacy. QE has poured something of the order of $28tn into the system. In the background, meanwhile, ECoE has continued to tighten its grip, rising from 5.3% in 2007 to 8.0% now.

To cut to the chase, most of the recorded “growth” in world GDP since 2008 has been cosmetic, amounting to nothing more substantial than the simple spending of borrowed money. As we have seen, this is corroborated by the concentration of “growth” towards the lower end of the value-added spectrum.

Bring the increase in ECoE into the equation as well and what we are looking at is a 10% ($7.6tn) increase in world prosperity trying to support a 54% ($98tn) expansion in total debt. Moreover, the 10% increase in aggregate prosperity has barely matched the rate of growth in population numbers. People have not been getting more prosperous, then, but they have been getting ever further into debt.

What on earth could go wrong with that?

Not like GFC I – the nature of GFC II risk

Thus far, with an episode of risk-aversion in the EM economies compounded by debt worries in Europe, events are following the pattern of GFC I.

But there are at least three reasons why we should not assume that GFC II will continue to look a lot like GFC I.

First, prosperity per person has been declining across almost all of the Western economies. The worst affected countries include France (a fall of 5.4% since 2007), Australia (-6.0%), the United States (-6.3%), Britain (-7.9%) and – of course – Italy, where prosperity has declined by 8.4%.

It is no coincidence at all that major political reverses for the establishment have happened in four of these five countries. Deterioration in prosperity seems certain to have informed the “Brexit” vote, the election of Mr Trump, the defeat of all established parties in the first round of presidential voting in France, and the triumph of Lega and M5S in Italy.

The relevance of this going forward, though, is something termed here “acquiescence risk”. This broadly means that populations undergoing hardship are likely to oppose any kind of rescue plan, especially if it is assumed by voters to involve rescues for an elite, and “austerity” for everyone else.

The second big difference between conditions now and those prevailing in 2008 is that recklessness has no longer been confined almost entirely to the developed economies of the West. This broader compass is hinted at by risk-aversion in the EMs. On the SEEDS risk matrix, China is now rated as riskier than any economy other than Ireland.

Third, and most important of all, a phase of “credit adventurism” which put banks at risk in 2008 has become a wave of “monetary adventurism” which puts fiat currencies themselves at risk.

What we should anticipate, then, is that GFC II will be truly global, not exempting EMs, and that, this time, currencies, and therefore national economies, will share a wave of risk previously (in 2008) borne largely by banks alone.

Precedent can help us anticipate why GFC II will happen – but will prove a poor guide to its shape and extent.

= = = = =

Since brevity was promised here, it is to be hoped that the foregoing provides a succinct summary of why GFC II is likely.

There seem certain to be plenty of opportunities for going into this in greater detail.

 

= = = = =

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480 thoughts on “#128: GFC II

  1. I find it frustrating that you have presented the facts / dangers in a very clear way – not like some unfathomable 5000 page economics book – yet you only have a relatively small readship on here who understand that economies are an energy based system.

    True you published a very good book ‘Life after growth’ – but did anyone in the Government take notice – seemingly not.

    I may forward a link referencing you latest post to my MP – but I’ll just get a letter back saying it’s been forwarded to the relevant department – and that’ll be it.

    I hope GFC II doesn’t happen – but at the very best we’ll all have to get used to a lower standard of living.

    • It can be pretty frustrating, especially as I believe my forecasting has been a lot better than the consensus – not all that difficult, admittedly!

      It doesn’t really bother me that governments aren’t interested, and I certainly don’t go out of my way to persuade them. It was different when I was a Tullett, where anything we published usually got media coverage.

      What I am content with is that we have a lively and informative debate here, whilst SEEDS is proving very powerful.

    • Reflecting on this, I probably should do more promotion, but I do this stuff because it fascinates me, and I built SEEDS ‘to see if it could be done’. If we push the boundaries, and have good debates that everyone (including me) learns from, then that’s good. Politics and politicians bore me.

      The site is free access and free of ads. I’ve not even got round to the professional page yet, and that’s only going to be done because I don’t see why anyone wanting comprehensive or tailored SEEDS output should get it for nothing.

    • Anyone who questions the conventional wisdom is going to have a hard time of it. Anyone who says that things are going to get worse is going to have an even harder time. This analysis has both.

      The conventional wisdom has vested interests and the thought that things are getting worse implies sacrifice and a hard time and no one wants to hear that, least of all politicians. If things go wrong people implicitly raise the question: things have gone wrong you are in charge; why should you continue to be in charge. Look at Hillary Clinton: everyone, including the Russians, was responsible for her defeat – except her.

      The Peter Turchin book referred to here recently suggests things go in cycles and he may be right and we are entering a period of upheaval.

    • I have past experience of reactions when one questions the conventional wisdom. Fortunately, though, I’m not interested in influencing anyone, certainly not government. They are never going to ask my advice, and, even in the wildly improbable event of them doing so, I’m not at all sure that I would offer it.

    • It would be like offering advice to the captain of the Titanic… just prior to the ship sinking below the waves….

    • Indeed so.

      Also, if you read up on Titanic it becomes ever more baffling that Capt. Smith was ever entrusted with the command.

  2. Tim, I too think it would be great if your work could get more exposure. Maybe you could be an interviewee on Chris Martenson’s Peak Prosperity podcast?

    • Submit articles to Zero Hedge.

      The MSM will not touch this…. the masses must not be alerted to the fact that the root cause of what we are experiencing is … the end of cheap oil.

      That would result in mass panic and despair and would prematurely tear down BAU.

      That is in nobody’s interest.

      Come to think of it … don’t submit this to ZH….

  3. I am curious about your data and methodology used in calculating changes in ECoE. This number is fraught with boundary uncertainties and energy units complications. Please direct me to the best one of your posts or books that go into the details of your calculations.

    For those of us who agree with you that another financial crisis is inevitable, two big questions immediately come to mind. First, since the physical economy is mediated by the global financial system, failure of the financial system is likely to disrupt the process of goods production and distribution. How best to prepare for the collapse of supply chains? How much danger of food shortages will there possibly be?

    Second, if the next financial crisis doesn’t lead to an immediate collapse of the physical economy, how best to protect the value of financial assets? I fully expect to lose all of my family’s savings and other financial assets if necessary, but would rather not if there still might be a way to have some residual monetary purchasing power. I suspect that you don’t want to get into specific investment advice, but some general speculation would be welcome about what kinds of financial assets might be likely to survive a financial crises (or would be the very last to go).

    • First of all, ECoE is discussed in a recent report which you can download. This link – I hope! – takes you straight to it:

      https://surplusenergyeconomics.files.wordpress.com/2018/03/surplus-energy-economics-interpreting-the-post-growth-economy2.pdf

      It can, in any case, be downloaded from the resources page of this site. I have, incidentally, just placed on that page two of the reports published when I was global head of research at Tullett Prebon.

      On your first question, a collapse of supply chains is almost inevitable, and would happen within a very short time. We would see payments systems go down very rapidly. Simply where food is concerned, distributors couldn’t fuel their delivery vehicles, shops couldn’t run their tills or their refrigerators, and nobody could pay anybody for anything. Even in the normal course of events, a local power cut can render it impossible to buy anything in your local shop. It has been suggested that food could disappear from supermarket shelves within 24-48 hours. I don’t really do preparation issues here – important though they are – because I concentrate on energy and economics.

      Financial assets could very well vanish very quickly – indeed, even in a ‘modest’ crash, unlikely though that is, governments might introduce ‘bail ins’, iniquitous though some of us think that would be. Back in the 1930s, the United States outlawed private ownership of physical gold. Paper entitlements to gold would soon become worthless. Physical assets should retain their worth.

      Without wishing to seem flippant, my preparations would involve a generator, plenty of fuel, tinned food, bottled water, and a big stack of John Martyn and JJ Cale CDs in which, courtesy of the generator, I would be able to indulge.

    • This study by David Korowicz explores the implications of a major financial crisis for the supply-chains that feed us, keep production running and maintain our critical infrastructure. He uses a scenario involving the collapse of the Eurozone to show that increasing socio-economic complexity could rapidly spread irretrievable supply-chain failure across the world.

      http://www.feasta.org/2012/06/17/trade-off-financial-system-supply-chain-cross-contagion-a-study-in-global-systemic-collapse/

    • Without wishing to seem flippant, my preparations would involve a generator, plenty of fuel, tinned food, bottled water, and a big stack of John Martyn and JJ Cale CDs in which, courtesy of the generator, I would be able to indulge

      Unfortunately .. there is not going to be a reset… this is not an earthquake… when the system capitulates… everything stops … food production — electricity — everything.

      And it will never re-start… because it collapsed because the energy to operate the system … including extracting and producing that energy is too expensive…

      Collapse does not change the physics.

      I personally keep a large store of food, batteries and weapons on hand… but I am fully aware that others will show up and want the food … and even if they don’t — when it runs out … I die.

      When the electricity goes off… BAU flatlines… the blood drains from her body…. and because we are organisms that rely on BAU to remain alive… the blood drains from our bodies as well.

      This is a very…. difficult … situation …

      When I think of hungry people hammering on my door in the middle of the night — desperate for food — desperate enough to kill… I sincerely hope that there is a Plan B that involves pre-empting all of this and wiping us all out painlessly…

      I would not be unhappy to see an all out nuclear launch … hopefully there is a warhead with my name on it

      The moment is getting close…. I can smell the CB’s fear now….

    • I would add that, since collectivist solutions have already failed (nb the USSR), and the private corporate model might not survive GFC II, we may need to look at co-operative and localised models in the future.

    • Thank you Dr Morgan for the reference, which I had read already. I believe the general trend of increasing ECoE and find your gross and net energy percentages very plausible. I was just wondering how the net was calculated. Murphy and Hall have done a lot of work on this, but even they admit it is not that easy to do.

      And thank you Mr Malthus for the Korowicz reference, which is a classic paper for those of us in the fast-collapse camp. Most people don’t appreciate that with increasing complexity in resource extraction, production and delivery comes an increasing fragility, or brittleness, which has dangers that are virtually invisible until they suddenly appear with devastating magnitude.

      I have long prepared for a very rapid collapse of the global market economy and industrial civilization with it. I see cities as death traps that will snap shut sooner or later. I live off-grid on a small farm on a tropical island and am prepared to support my family without money, so I have a better situation than most to watch collapse happen, but I also know that ‘better’, while necessary, may not be sufficient in the end. In the meantime we can all watch for the approaching denouement with morbid fascination. I am glad to see others keeping a sharp lookout too.

    • Joe – I have been through the prepper phase uprooting and moving to the south island of NZ 3.5 years ago…. set up a somewhat remote farm in a farming community (how truly remote can you be with 7.8 B of us marauding across the planet!)

      I put in gravity water — spare tools — blah blah blah…

      But then I realized a few things:

      1. There were about 5000 people within a days walk from me – and around 500,000 within a tank of petrol — many of whom would be arriving wanting food. I also have neighbours/friends who would want same. What was I going to do – shoot them? Without a doubt the hordes would be into the gardens at night ripping up everything…

      2. Then I realized that disease was going to be a huge problem — during the middle ages diseases such as cholera hit in rural areas big time. You name it – it will be on the loose when the medical system vapourizes. Diseases will be back with a vengeance.

      3. The coup de grace for my Prepping Dream came when I researched the spent fuel pond issue. There are 4000 of these … multiply that by the 14,000 Hiroshimas indicated in the article below and you get 56,000,000 Hiroshimas of radiation being released when BAU goes down and these facilities boil over.

      After realizing the futility of it all — I again uprooted and we moved to Queenstown to ski and play a little ice hockey… and look at the view….

      My advice to anyone contemplating prepping — forget about it — it is futile… spend the time that remains doing things that you enjoy….

      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).

      A typical 1 GWe PWR core contains about 80 t fuels. Each year about one third of the core fuel is discharged into the pool. A pool with 15 year storage capacity will hold about 400 t spent fuel. To estimate the Cs-137 inventory in the pool, for example, we assume the Cs137 inventory at shutdown is about 0.1 MCi/tU with a burn-up of 50,000 MWt-day/tU, thus the pool with 400 t of ten year old SNF would hold about 33 MCi Cs-137. [7]

      http://belfercenter.hks.harvard.edu/publication/364/radiological_terrorism.html

      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

      If any of the spent fuel rods in the pools do indeed catch fire, nuclear experts say, the high heat would loft the radiation in clouds that would spread the radioactivity.

      “It’s worse than a meltdown,” said David A. Lochbaum, a nuclear engineer at the Union of Concerned Scientists who worked as an instructor on the kinds of General Electric reactors used in Japan. “The reactor is inside thick walls, and the spent fuel of Reactors 1 and 3 is out in the open.”

    • Thanks Joe.

      Hall and Murphy are quite brilliant, and you couldn’t find a better source for all things EROEI.

      My ECoE calculations are very complex, and I’m intentionally somewhat vague in what I disclose, in this and in one or two other areas.

      The reason for this is simple. With conventional interpretation of the economy losing effectiveness, there has to be a likelihood that commercial users of economics will seek something more comprehensive.

      This might well mean that a big financial outfit, quite probably in the US, will try to crack at least some of the same problems I encountered building SEEDS. Having done this myself, I know that it’s even harder to do than it seems when you start. This is why I withold some parts of the equations.

    • To elaborate slightly, I do publish ECoEs for the world overview, and individual economies. I also publish aggregated fossil fuels numbers, and aggregated renewables.

      That’s actually a pretty comprehensive quantity of data. The aim is to provide information which, I hope, is (a) more than sufficient for anyone reading this site, but (b) falls safely short of what anyone aiming to use it commercially would need.

    • Hi Tim

      Re your co-operative and localised models have you read the works of Hans Herman Hoppe? He is what you might call an anarcho – capitalist.

      Anarcho-capitalism is based on the principle of the sanctity of private property, free exchange and individual co-operation. It is a counterblast to democracy which Hoppe believes has failed. In terms of politics he advocates a “sovereign” along the Hobbesian lines.

      Hoppe’s work is interesting but how we would get from where we are now to where he advocates we should be is a moot point. I think that, effectively, his system presupposes a breakdown in the current system which would bring fresh thinking to the surface.

    • The democracy question reminds me of some interesting points than I unearthed researching issues around the 1867 Reform Act. The initial proposals to extend the franchise, though modest, became far more extensive as the Liberals and Conservatives competed with each other to pass a Bill, which would put them in the driving seat when it came to redistribution of seats.

      The interesting bit, though, happened in debates over Gladston’e Liberal bill, defeated in 1866. As you would expect, there were reformers, and opponents of reform.

      But there was a third group, which wanted to extend the franchise but not by lowering the financial qualification for votes.

      Rather, they wanted to introduce exams, fairly simple in scope, which people would have to pass to gain the vote. Knowing what I know about their leader – Robert Lowe – he would have been quite happy to see wealthy people barred from voting if they couldn’t pass the exams!

      His big idea was that education should precede enfranchisement. With how things turned out, he concluded that education would have to spread in the wake of, rather than before, the widening of the franchise.

      He is famously quoted for saying “we must educate our masters”. What he actually said was “we must compel our future masters to learn their letters”.

      1866 is memorable for the rare instance of a government being brought down by the rhetoric of one brilliant orator (Lowe).

      Before that, he had a brief but important stint in politics in Australia. He it was who urged Australians to refuse to admit further convicts transported from Britain. He led a rally on Circular Quay in Sydney, which blockaded a convict ship, which was unable to unload its unhappy cargo, and had to sail back to the UK.

      Britain never again tried transportation of convicts to Australia. Yet I don’t think he is commemorated there.

  4. Good day Mr. Morgan,

    As a former P. Eng, from the energy sector who evolved in the financial sector, a friend of mine – former head manager at IOSCO – introduced me to SEEDS and the concepts it supports: a major change on my “view” of the future and the economy…

    So, would like to thank you for the great work and knowledge you’re providing us through your newsletters. And, since we’re not connected to financial/government institutions who have a lot of resources – i.e. money -, thank you for sharing your knowledge on a free basis.

    • Thank you – you are very welcome, and any contributions you can make from your experience will be greatly appreciated.

      It is most unlikely that I would be asked to advise governments, and not altogether likely that I would do so even if asked.

      Though I do not wholly rule out the licensing of SEEDS output, this site will remain free to access, and an ad-free zone.

  5. When the perception of value changes, and it will, things will reverse. Stockmarkets will burn, governments will go broke and central banks will try to monetize the kitchen sink.

    The last couple of months i see more and more signs of disruption. China’s credit machine is shrinking, their energy imports are rising. Currencies in distress; Turkey, Argentina. Serious political challenges in southern Europe. Rising ‘populism’. Together with overleveraged and stretched financial markets we’re heading for a big mess.

    Central banks and governments have several emergency plans on their shelves. I sure would like to read a few of them.

    They will write off a lot of debt, introduce a new currency, skip 80% of pension promises and declare derivatives null and void. Now start working the fields, citizen. Or something like that. There are emergency plans, of course they don’t talk about it, it would only undermine trust. When we will learn what’s in it, it will be on prime time television. It includes new currencies, and in my opinion, gold will play a role. It makes no sense to keep other currencies as a reserve on your balance sheet if they, too, become worthless. Countries are repatriating their gold to be able to launch a new currency when the time comes.

    And indeed, dear Doc, it makes no sense to inform politicians. Lets have some fun, looking at the horizon.

    • Sadly, I fear you are probably right. Someone – was it George Bernard Shaw? – called patriotism “the last refuge of the scoundrel”. Perhaps monetisation might be that “last refuge” now.

      For society, this may be a huge test of our ability to adapt. In the past, human beings have proved themselves remarkably good at adapting. It remains to be seen whether we can do it this time.

    • Yes, the ultimate challenge of adaptation. Cooperation as a balance between recources and intelligence.

      Competition is struggle. And struggle is for apes.

  6. Thank you Tim, for this apposite summary. Italy is I think cause of a major concentration of minds about the EU. As forecast by Bill Mitchell and MMT economists the EU is a recipe based on neo-liberal policies flawed to the point of inevitable collapse. Probably the way out for the moment will be a waiver of EU central bank rules and a bail out of the debts accumulated over the last several years. It can probably be masked by asset swaps, a la GFC1 – which cost the US Fed $28 Trillion!
    Now we also see another $21Trillion in deficit spending unaccounted for* and estimates as high as $58Trillion are mentioned. So obviously the books are being cooked, and that’s just for the USA.

    In a way the money doesn’t matter. It’s just numbers in accounts. What matters is the energy waste in the financial sector and the consumption waste in unnecessary production of trinkets instead of investments in infrastructure. As you say the economies are growing through debt and the debt is wasted resources, which will tell soon enough. Resources is key and includes energy.

    The debts can be jubileed, written off with no compensation. In the financial economy few would complain. QEII for the rest will delay the inevitable collapse, but there are it seems no plans to cope.
    *https://www.forbes.com/sites/kotlikoff/2017/12/08/has-our-government-spent-21-trillion-of-our-money-without-telling-us/#363fe1d07aef

    • Yes, I did see that. Steve K got himself into a muddle somewhat. Here’s a primer on MMT I wrote for a lecture a few weeks ago so you can see where I stand.

      file:///Users/johndoyle%201/Desktop/Lecture%20notes%20%20Folder/MODERN%20MONETARY%20THEORY%20a%20Primer.pdf

    • Thanks John

      I’m convinced that mass monetisation of debt would destroy the value of money. But I don’t think this will deter the powers that be from trying it. We’ve had enough crazy ideas in recent years, such as negative interest rates, helicopter money and banning cash – so what’s one more piece of folly added to the pile?!

    • Were you able to open my article? I just sent my email to TBB but it didn’t show up in my reply. Odd? [ejhr@ozemail.com.au]
      Anyway the possibility of over spending is built into the current system. All MMT does is point that out. The limit is that you create money when you buy something, something that is for sale at the time of purchase. It cannot just be printed as it has no value without the link to a service or goods. Money is a symbol of value and only exists when there is a value to refer to. It’s a fundamental of accounting. So your problem is a non event. Only when there are no goods or services for sale will it be unable to be spent into existence.

    • @John – I couldn’t figure out how to access the PDF, but thanks for trying! Love to read it if there is some other way to link.

    • Thanks. I have no way I know to activate a link to a blog, as a pdf doesn’t cut it. You can email me on and get it that way. Interested in your opinion. I sent it to Warren Mosler and he was OK with it.

  7. Dr. Tim – I’ve recently seen many people site the statistic of increasing debt being required to cause increase in GDP. My question is where is the money going if it isn’t going toward GDP? It seems like the only options are taxes or savings? If the money is going to taxes or savings, don’t we need more government spending and not less in order to support demand?

    By aggregating private debt with government spending as one number aren’t we treating two discreet factors the same?

    • In SEEDS theory, money has no intrinsic worth, being simply a system of claims on the output of goods and services.

      But this is not to deny the importance of monetary systems, for good or ill. Money, essentially, is loaned into existence (and later repaid out of existence). It shifts the distribution of claims over time. So, if I borrow from you, your ability to consume in the present is reduced; but mine is reduced, and yours is increased, at some future date, when the debt is repaid.

      So building up debt makes a time transference, but actually shifts value from lenders to borrowers if repayment (for full value) doesn’t happen.

      Also central to this is investment – in the real sense of creating productive capital assets, financed by those prepared to surrender part of their ability to consume in the present, in exchange for an enhanced ability to consume in the future.

      Savings ratios have crashed, not least because low interest rates (and returns on capital) are an economic signalling process, currently urging people to consume (by borrowing), and discouraging them from saving/investing. The destruction of pension provision is a big part of this process.

      So the mechanism of post-2008 policy has been one of boosting current consumption at the expense of future productive capacity. It’s not unlike cannibalising the economy of the future to sustain the economy of today.

  8. There seems to me to be very little gained by writing to one’s MP or trying to get the difficult economic situation publicised.

    Firstly, the political elite listen only to the general public in order to maintain and further their popularity.

    Secondly, it’s been well entrenched in our educational system that economics is controlled by money, and money makes the world go around! Politicians think they can solve economic problems by throwing money at the problem.

    On the issue of financial protection for the future it’s my view that many speculators have resorted to digital currencies such as Bitcoin as a means to avoid any future currency collapse. However, this could still turn out to be a delationary problem rather than an inflationary one.

    • Good points.

      But, if fiat currencies come under real pressure, do you think the authorities will tolerate the existence of alternatives? In other words, would they hasten the collapse of – say – USD, by allowing people to switch out of it into cryptos?

      I rather doubt it. In the 1930s, the US made private ownership of gold unlawful, with stiff penalties for anyone not conforming. The principle here is called “seigneurage”.

      In short, I think they’ll try to ban cryptos.

    • I agree that the establishment would attempt to ban crypto currencies.

      However the problem arises when ATMs cease to function and banks are reluctant to release cash.

      The block chain, on which crypto currencies can operate, is largely independant of the banking system, and unlike gold and precious metals the crypto currencies are very granular.

    • If the CBs wanted to end CCs today they would:

      1. Announce that holding CCs was illegal – a criminal offence punishable by 10 years in prison.

      That would probably put an end to this nonsense on the spot as most people would try to dump crashing the steaming sh it pile.

      2. If that did not immediately work remember this – THE NSA KNOWS ALL – if you have traded CCs the NSA KNOWS. So all the CBs would have to do is identify a few people who refuse to delete their CC files — jail them for 10 years — and I guaraf-f789ing – ty you …. CCs would end.

      Which begs the question – why don’t the CBs do this?

  9. Fresh Interview: Chris Martenson and Art Berman discussing oil

    Focus is on prospects in the US, but with a global perspective. Art sees prices up and production not meeting some people’s expectations. Quite a bit of discussion about the bubble aspects of shale.

    In the last two minutes, a brief discussion of the US attempting to pressure Germany into buying US natural gas. Art’s opinion is that there is no way the US could substitute for Nord Stream.

    IF you believe Art, then the projections from SEEDS data may look conservative in terms of increasing Energy Cost of Energy.

    Don Stewart

    • In all probability, SEEDS projections for ECoE are conservative – even so, though, their implications are stark. Here are some indicative world ECoEs:

      2000: 3.9%
      2010: 6.0%
      2015: 6.9%
      2020: 8.8%
      2025: 9.6%

      These, of course, are global averages – ECoEs are lower in countries like Russia, higher in most Western economies. Globally, we are already reaching levels of ECoE where growth becomes all but impossible, which is why we’ve been using credit and monetary adventurism to simulate growth. Italy is already (2018) at 9.1%, and the US is set to top 9% next year.

  10. Tim — when is CNBs and Bloomberg going to book a spot for you to present this? (sarc…)

  11. Tim, I dusted my copy of ‘Life After Growth’ off the bookshelf and re-read it with a view to answering the thought: how does the argument stack-up five years down the track. I have to say that the argument still sounds pretty convincing to me, and events since publication have not in any way invalidated the thesis.
    One of the observations you have made in past commentary is that politicians and mainstream economists seem to be genuinely ‘baffled’ by the paucity of the economic ‘recovery’ post GFC1.
    My observation here is that ‘bafflement’ is growing.
    The latest GfK’s Consumer Confidence Index remains mired in negative territory, and has been negative for two and a half years! Gfk’s Client Strategy Director expresses some bewilderment over the situation: “We have been at zero or negative for 29 months now. When will the strong jobs market and rising real incomes, coupled with ongoing low interest rates and low levels of headline inflation, have an impact?”
    Could the answer be this? The jobs market may be strong, but a fair chunk of that is either self-employment or part-time employment, and with relatively low wages for many. Real incomes are rising statistically, but in reality for a great many folk they remain static at best. The beneficial impact of low interest rates have been ‘banked’, and I suspect we have long ago moved into the dis-beneficial impact of low rates. Finally, low levels of headline inflation mask the reality of high price inflation in essentials.
    I’ll finish with an observation from last week. The national broadcaster informed folks: ‘Inflation keeps on coming-in lower than expected: If you strip out volatile items like food and fuel, then so-called ‘core inflation’, Bank of England governor Mark Carney’s preferred measure, is only 2.1% – barely above target.’ Essentially, a national commentator was saying that if one ignores the things that everyone needs to buy in order to survive then price inflation is quite low! This is fairly representative of the standard of economic commentary that now parades before us from the ‘intellectual’ class as serious thought. It really is quite depressing.
    Perhaps the national slogan should be: Bafflement Rules, OK?

    • I think I’m right in saying that ‘core inflation’ was first promoted by Richard Nixon, and has been described as ‘inflation, excluding things that are actually going up in price’. This background makes it doubly surprising that Mr Carney should use it. As for ‘the national broadcaster’, words fail me.

      About the book, thanks, and I do think it holds up pretty well. For it to be simply ‘wrong’, we would have been witnessing higher prosperity, lower debt and greater public satisfaction long before now.

      I do sometimes wish, though, that I had had SEEDS available when I wrote it!

      Prosperity is certainly falling in the UK, and is visible in a whole load of indicators, including the numbers struggling to get by, the worsening of child poverty, rises in the prices of essentials, and high consumer credit. Plus, of course, any normally-functioning economy wouldn’t need interest rates so far below inflation that people are being paid to borrow.

      The connection that is not being made, though, is the one between a weakening economy and truly gigantic banking exposure…….

    • Tim, I’d like to add two points. First I’d like to be Devil’s Advocate so-to-speak and pose the thought what if GFCII is a process and not an event? Following this thought further one could postulate that the process is likely to be largely unnoticed – the famous frog in a pan of water that is gradually heated to boiling point, or noticed but ascribed incorrectly to other factors. Secondly, I wonder whether you have given any thought to producing a follow-on edition to your book that could entitled: ‘End of Growth: The Initial Decades’. A second volume would allow you to reconfigure your thoughts from the first edition, incorporate your work and figures from SEEDS and would, I hope, draw upon some of the excellent contributions from readers of your pieces here on the web. I have learned a lot from you AND a very great deal from many of the informed posters on here; and they deserve my heartfelt thanks for helping move my thoughts forward.

    • Thank you for another interesting post Dr Morgan.

      To ask a question similar to Kevin’s: Is there any reason to foresee the questioning of the creditworthiness of multiple countries and their currencies happening simultaneously as opposed to sequentially?

    • Kevin:

      I think GFC II is a process – indeed, an aim in this piece has been to show a sequential process, starting in the late 90s, which has led us to where we are now. But the ideas of process and crash(es) do not seem not mutually exclusive.

      If we wanted the simplest possible synopsis, we could say that:

      the energy basis of the economy posed a problem [1], which, partly out of ignorance [2] and partly out of folly [3], we addressed in the worst possible way

      – where [1] is ECoE, [2] is money-based interpretation of economics, and [3] is ‘deregulate everything’ or ‘let the future take care of itself’).

      Writing a sequel to LAG is something I’ve pondered, especially as I have now have (a) the great benefit of contributions and discussions here, and (b) SEEDS. Writing a book, however, is not a project to be undertaken lightly.

    • WW:

      I think it will be simultaneous, or ‘very quickly sequentially’, because of interconnectedness and transmission. If one economy (of any significant size) fails, others will be dragged in very rapidly.

  12. Pingback: L'Energia del Governo del Cambiamento – alcune idee | L'occhio di Romolo

  13. Dr. Morgan
    Regarding the US being at around the 9 percent ECOE level, despite big increases in oil production.

    You may be amused to hear Art describe the incredible scene when a well is fracked (during the interview with Martenson). To the cynic (or realist?) it’s an incredible example of working really hard to go broke faster.

    Don Stewart

    • Thanks.

      It’s interesting – to put it mildly – that shales have always been free cash flow negative.

      Essentially, then, all this extra oil has been subsidised for the rest of us by those kind people on Wall Street who have been happy to pour money into a leaky bucket!

  14. I’ve put a request in to go on Mars One. I feel that my survival chances are better in a climate where the daytime temperature can get up to a nice 20c. Night time would require bed socks though .

    I wish all of you well back on Earth. Take care.

  15. Dr. Morgan

    May I suggest a general framework beyond strict economics in which the SEEDS output may be interpreted?

    Sendhil Mullainathan, an economist at Harvard, wrote the book Scarcity….

    As you will note from the description, the authors view scarcity as being a sort of universal acid which explains why poor people have such a hard time coping, why dieters fail to lose weight, and why busy people have trouble relaxing.

    If we use Prosperity per Capita as the critical output from SEEDS, then we may find that it is relevant to a lot of things including scarcity and political turmoil. I will combine the measure with Dan Ariely’s evidence that loss is more psychologically compelling than gain. If we look at Italy, we find the Prosperity Index has changed as follows:

    2001……….100.25
    2007…………97.86 (2.39)
    2017…………88.06 (12.19)
    2025…………86.19 (14.06)

    If we look at Russia:

    2000……….100.0
    2008……….168.7 +68.7
    2017………175.21 +75.21
    2025………175.24 +75.24

    Retailers know all about establishing reference prices. A man’s shirt which costs 50 dollars will sell better if it is placed next to one that costs 75 dollars than if it is placed next to one that costs 25 dollars.

    My (amateur) argument is that the Italians are probably pegging their sense of entitlement to the year 2001. The Euro was new and glossy. But by 2007, the sheen was off that bauble as debt and increasing energy costs took their toll. By 2017 the losses were severe, and were made worse by worries about debt. Yet the Powers That Be in Brussels could not be bothered by the pain in Italy. If your projections are accurate, then the next 8 years will not see much further erosion. If some government manages to get control in Italy, they may survive simply because they slowed down the deterioration. On the other hand, Art Berman could be right that energy costs are about to escalate, or you (and others) might be right that we are facing a debt implosion. In which case I doubt that being an Italian political leader is a very good idea.

    The Russians are probably pegging their sense of entitlement to the disastrous years of Yeltsin. As compared to that peg, the years under Putin look absolutely stunning. They probably look even better if Russians contemplate the collapsing economies of Europe. And Putin has announced his intention to reduce military spending to focus on the non-defense economy…which should add to the optimism.

    Don Stewart

    • I agree 100% about Italians referencing 2001 – also, Euro membership made borrowing far cheaper than it had ever been with the lira. My article about Italy makes the point about prosperity peaking at the same time as the Euro was adopted…….

    • Just listened to the May 29th broadcast ‘Peak Prosperity’s featured voices featuring Art Berman. (Thanks for mentioning him)

      Sounded very honest and reached some very worrying conclusions.

      Perhaps if the US has seen sense 10 years ago and invested in smaller energy efficient cars and all car makers had not given the emerging markets the idea the having a car was great we might not be in our current consumption mess.

      Anything to make a quick buck on large SUVs and selling huge uneconomical cars to China – Asia etc. I wouldn’t want to be a car manufacturer at the moment.

      http://www.artberman.com/art-berman-think-oil-is-getting-expensive/

    • Pretty much however you look at it, we have too many cars, and the ones we have are too big. There are obvious problems around congestion, pollution (and health effects), and environmental issues. As energy supplies tighten, this will add further pressure.

      In fairness to the public, their choices are narrowed by a failure to provide quality public transport, and swayed by ads showing cars driving on traffic-free roads with neither speed limits nor traffic police. The contrast between what we actually do in our cars – sitting in traffic jams, and struggling to find a parking space – are ludicrously at odds with how cars are sold to us.

      The only answers, I believe, are (a) better public transport, and (b) a redesign of habitation and working patterns to reduce travel needs, the net effect being fewer cars. This, of course, isn’t the way that this very influential industry wants to go.

    • The US auto industry was considered TBTF and therefore was bailed out….

      A concerted effort to build out public transport would collapse the auto industry … therefore should not be considered.

      We need more cars … every single year … on the roads… just like we need more of everything every single year…

      Otherwise BAU collapses… and we will be scratching in the ground with sticks

      TINA

    • Russia can rattle its sabre to make Europe spend more on arms – while in reality they can divert their resources into improving their standard of living.

      Pretty clever.

    • Donald
      My take on Russia and arms spending and strategy is probably different than yours. What I have heard Putin consistently say is:
      *They have no interest in fighting a conventional war with NATO. NATO outnumbers them by a huge margin. A conventional war is a sure loser for Russia.
      *When the US pulled out of the antimissile defense agreement (the US plowed ahead with antimissile systems), that put Russia at risk of a US first strike. Quite a few Pentagon people spoke approvingly of a first strike strategy. The official policy morphed from Mutual Assured Destruction into America should be Untouchable.
      *So Russia’s defense strategy became maintaining MAD. And so both Russia and China developed new weapons which are quite resistant to any notion of missile defense. In addition, Russia keeps a certain number of missiles in railroad tunnels deep underground to guard against a first strike.
      *Putin, and the Russian High Command, now perceive that the US, and I suppose NATO, understand that MAD is alive and well.
      *Consequently, defense expenditures in Russia can be reduced.

      The US and NATO strategy seems to be to constantly walk up to Russia’s border with troops, which act belligerently, but don’t actually start a war. Pentagon strategists think they can hurt Russia, but not so badly that Russia itself would fire the first nukes.

      Dr. Morgan’s data indicates that the ‘hurt Russia’ plan hasn’t worked thus far. Several years ago Obama said ‘Russia’s economy is in tatters’. Dr. Morgan’s data indicates that Russia had a better economic performance during that period than most of the West. Of course, any time trade is restricted, both parties tend to lose. Putin has said that the biggest mistake people like Yeltsin made was to trust the US, thus becoming more dependent on the volatile politics in Washington.

      There were some jokes at the current St. Petersburg Economic meeting along these lines.

      Don Stewart

  16. I am guessing that GFC 2 will happen before Trump leaves office. If it does, I think, that Trump will respond with protectionist tariff and trade policies.
    And a currency crisis should make international trade far more problematic.
    That seems to mean that countries who depend on foreign trade the most will suffer the most.

    Do you think that Globalization as a political and economic policy will survive GFC2?

    • I think Mr Trump is already responding in this way. If SEEDS is right, there is a process which is eroding per capita prosperity in the United States (as elsewhere), and which cannot be reversed. Protectionism – which we can see as ‘blaming others’ and ‘trying to shift the burden onto foreigners’ – is a wholly predictable outcome of this process.

      I’m always careful to put the blame on the form of globalisation adopted when discussing this issue. Seeking to spread the benefits of development to poorer part of the world is a laudable aim. But using poorer countries as a source of cheap labour from which to supply goods and services to rich(er) westerners, who in turn go ever deeper into debt, is something very different.

      I do not see how “the Anglo-American economic model”, aka “the Washington consensus”, which includes the preferred form of globalisation, can survive GFC II. Indeed, I think it’s been on the way out since GFC I, through a combination of (a) popular repudiation, and (b) its own failure.

  17. Scarcity and Lies, Damned Lies, and Statistics
    https://www.oftwominds.com/blogmay18/burrito-update5-18.html

    Charles Smith has been keeping his Burrito Index now for many years. It tells a completely different tale from US Government figures. In general, things which are electronic (which we don’t actually NEED) are falling in terms of hedonics while the cost of the physical objects we DO NEED are increasing enormously. The ‘hedonic adjustment’ opens a gate wide enough to drive a herd of cattle through. Governments have taken good advantage of the opportunity.

    Don Stewart

    • Hi I managed to read a lot of his article but it was marred by a cookie request display that kept getting in the way. I could find no way of getting rid of it.

      However the real price increases were pretty frightening. Regarding health premiums I don’t know how much of it was due the increased costs of better treatment or just profiteering.

      In the UK private health treatment is shooting up – but again I don’t know what is causing it – more expensive equipment or certain firms taking their cut.

      Whatever way you look at it our standard of living is being forced down and down and can only be hidden (as we know) for so long behind borrowing.

      When the massive implosion happens perhaps it will be seen by an alien civilisation who will just shrug their heads (if they have any) and say ‘Another fossil fueled planet that didn’t make it’

    • This is a complex area. The issues around inflation include hedonics, geometric weighting and substitution. The overall effect seems to be that reported inflation is less than it would have been under earlier conventions, or as experienced by the ordinary person. In the US, SGS is particularly good on this.

      There are at least two obvious implications. First, if inflation is under-stated, then real (ex-inflation) bond yields, and indeed interest rates, are overstated. Second, if there is a read-across to the GDP deflator, then growth calculations are overstated.

      From a practical perspective, what really matters is the cost of essentials. Prosperity isn’t how much income someone has, but how much remains after deducting the cost of essntials. This is why I developed the UK Essentials Index, which got a surprising amount of traction in the press.

      Essentials tend to have a particularly strong energy linkage. So we can say that essentials are where the ordinary person experiences rising ECoE at first-hand. If we measure average incomes or wages, not against CPI but against essentials, we generally find a deterioration in real incomes. This tallies with SEEDS findings on prosperity.

      So there are connections here between inflation (under-stated), real cost of debt (over-stated), reported growth in GDP (over-stated), cost of sssentials, ECoE and prosperity. These are issues on which, I believe, SEEDS sheds particular light.

  18. Very good points from Don.

    Spaniards certainly think of pre-2008 as the Golden Age to which they yearn to return; when a kid could walk out of school, get a construction or factory job, a loan for a car and a flat straight away, and the lazy could get permanent and protected jobs as ‘functionaries’ of various kinds (above all as teachers) with comparative ease.

    Now, their prospects are for the most part very poor indeed, and they are stuck at home with no fun money. In the province where my family live, Navarra, there were NO workers under 25 in construction in 2017! Those who stayed in education and have several degrees find it is not much better for them, as salaries are so awful.

    My Catalan cousins only employ workers in the 50’s in their swimming pool business (partly because they are desperate not to lose the job and my psychopathic cousin can screw them down on wages -he does this to his own brother, too!).

    Factory work (eg the VW plant in Pamplona, the Mondragon Co-operative companies in Pais Vasco) and farming and the bureaucracy are heavily weighted towards the middle-aged and elderly (except for the highly disposable North Africans working in agriculture).

    For Russians, who materially expect far less of life anyway, it’s been getting better and better after the objective misery, shortages, and everyday low-level violence and corruption of the recent past.

    • There are certainly many problems, some of which you mention here. Another is housing. BIS data shows that, in real terms, residential property in Spain remains 33% below its 2007 peak (which, to be sure, was hugely inflated).

      This ought to help Spanish families, but there is real anger over Air B’nB-type letting, and a perceived failure to enforce the rules around licensing. There is also a problem with Madrid trying to block enforcement of these rules. It’s not clear whether the departure of Rajoy will affect this.

      A local businessman here – frankly, a bit of a wally, or whatever the Spanish equivalent is! – boasted to me about employing North Africans because they are cheap.

      Another issue is with the difficulty of forming a new small enterprise or even setting up as self-employed. As I understand it, anyone doing this has to start paying hefty social security sums from Day One, even before the business is really established, or generating a profit or income.

      Spain has a reputation for taxing anything that moves, and this isn’t conducive to encouraging businesses. It may be the case that tax reform is overdue.

  19. The Polish builder (excellent!) I employed told me that there is a similar impediment to small business growth in Poland – a huge national insurance tax regardless of income from the business. This was the incentive for many skilled workers to come to Britain and try their luck.

    • Hi I see the article is from 2016 but a very sad scenario for many. So why is basic healthcare so expensive in the US? Can it be right to leave so many middle aged people in pain?

      Having said that I had a very painful back problem last year and urgently needed some lower back injections. After being told they would see me in two weeks I was then informed that it would be a further 18 weeks just for the initial consultation.

      The pain in my back and down through my knees was terrible and I did have some very negative thoughts – however I was very lucky and had some savings which I used for some private care. But it left me wondering what happens to anyone who can’t afford pain relief

      Well the article about the situation in the US told me one option – suicide. Not the mark of a civilised society is it leaving people to suffer.

    • Why is US Healthcare so screwed up?
      It would take a volume. I doubt if our host, tolerant as he is, would welcome the sordid details going on for page after page.

      Just one anecdote. My wife had cataract surgery. My wife is famous for ‘white coat syndrome’ anytime somebody in authority approaches to take her blood pressure. But her post-op blood pressure WAS high. The WC syndrome made it worse. The nurse was worried. She approached the doctor, who looked at the chart. He said to the nurse, ‘I told her to see her family physician…turn her loose.’ In other words, his ass was covered. Not his problem.
      Don Stewart

    • These problems are almost entirely due to politics. Politics everywhere is totally dysfunctional, and politicians are allowing, nay encouraging, it to happen. There will always be suicides due to personal issues but the rate of increase is due to living in an increasingly dysfunctional society, made so by political policies such as neo-liberalism. Neo-liberalism emphasises the individual over the collective, mainly through denigrating government and letting the profit motive take over the collective economy supposedly based on not-for-profit essential services that governments should be responsible for. We live in a society where we are endlessly subjected to lies, half truths and deliberate distortion of facts. So who can you trust?

      In my experience I see economics as very largely responsible for the damaged society of today. But they didn’t start it. They simply rolled over for political ends, because their jobs depended on sticking to the mainstream narrative etc. The politicians are now paid hacks for big donors, corporations and individuals, all with an agenda to sell.

      It’s just completely avoidable. We need to start understanding we are subjected to lies in all walks of life.Then try to remedy that by calling out the lies we get to hear every day.

      The Federal government can always pay its debts, cannot go bankrupt and it spends its money into existence – with no need to borrow or use taxes to fund itself. In simple terms, we the people do not fund the government. It funds us. It buys the debts to put funds into the economy so we can earn money and pay our taxes.

      The debts are the costs of infrastructure, defence , welfare, education, healthcare and employment and all goods and services we need for a functioning state. The private sector avails itself of the government’s preparation and can go about production etc at a profit. With adequate funding, [a no brainer], the rise in prospects for the community, its citizens etc will not have to face the disfunction of today. The suicide rate will go down, the happiness index will go up
      Simple. It’s just political will that can change things.

    • The problems we are seeing are symptoms related to the end of cheap oil… cheap oil is the blood of the economy… the economy is now in an anemic state… not enough oxygen is making it to the cells… the body is slowly dying… at some point too many cells die and body functions will completely cease…

      Politicians can do nothing about this …. CBs are able to exert some influence on the situation — they can pump the body with all sorts of stimulants to keep it alive a little longer… but that’s about it

      There is no cure.

      This is our destiny

  20. Essentials index. Hi Tim I’ve looked up an old index you produced in November 2013. The rise in cost of essentials couldn’t stick out more over both periods.

    It contains some stark warnings. was it widely distributed by Tullets?

    The only criticism is your use of fonts for you name and some of the headlines……only joking.

    • Quite widely distributed, and received a lot of press coverage.

      It has to be remembered, though, that the source of a report plays a huge role in publicity. My Perfect Storm report – explaining why growth in the West was over – got a lot of press coverage, and sparked considerable controversy, but that’s because it came from the head of research at a very big financial institution. Likewise my Tullett papers on generational inequality, and thwarted materialism and the 2011 riots.

      The same can be said for two reports I authored for the Centre for Policy Studies. The first called planned Coalition spending cuts “a storm, but not a hurricane”, and even The Sun interviewed me over that. The second, just ahead of the referendum, explained why independence for Scotland might not be a good idea in financial terms.

  21. So you would have thought that senior people in the Government / Treasury would have taken note – likewise economists – yet nothing has been done.

    Hey ho.

    • These are complicated issues which I don’t dwell on much, because I have no desire to influence policy.

      Politicians and administrators have a job to do, and many do it to the best of their ability. They have to take expert advice, which they get from ‘conventional’ economics, and are not about to take up anything as radical as Surplus Energy Economics – at least, not until things get so bad that radical ideas become worth trying.

      There are frustrations sometimes. For instance, there are reports that some banks in the UK are considering giving young people 100% mortgages, but secured against their parents’ property. These are unconfirmed reports but, if they are real, I would feel like urging government to prohibit anything quite so stark raving mad, and dangerous.

      But, if they’re minded to allow something like this, nothing I could say would make any difference – so I’m not going to lose sleep over it…..

    • I would urge the UK government to agree to this…. to do ‘whatever it takes’

      Because if they do not … then the UK housing bubble will explode sooner than later… the banks will blow up… and because the banks and the UK are TBTF…. if they cannot be bailed out…this triggers the end of BAU…

      And we die.

      Of course 100% mortgages are no panacea …. they just kick the can a little further down the road…. (before it gets kicked over the cliff…)

      And at this point…. that is the most we can hope for from a govt policy.

      Die now? Die later?

      I’ll take a few months more… ideally a few years more… if this is what it takes.

      One must realize that the rules of the game no longer apply… what seems like madness… is actually sanity…. if 100% mortgages get the green light — we can be certain that the policy makers have had a peak behind the curtain … were frightened… pushed the curtain back an place… then passed the new policy…. anything to keep that wicked beast behind that curtain another day….

    • Plenty has been done … when you run out of cheap energy to operate your economy… you borrow from the future…. and collapse later vs sooner.

      The governments and CBs are doing EXACTLY what they should be doing. Magnificent!

      Think back to 2008…. if they had no embarked on the current path (which will end in doom)…. BAU would have collapsed (see Korowicz Trade Off)…. and we would be long gone.

      TINA. There is no alternative.

      If there is feel free to provide suggestions as to what they could have done that would have improved the situation. Keeping in mind that would be like trying to explain to Ronaldo how to score goals….

  22. To me – because of the clear way you present your analysis and data – it seems obvious that something is badly amis with ‘conventional’ economics.

    However if the experts who advise the Government have an inflexible view then we will just have to face the consequences.

    • This is a topic that might be worth a discussion on its own, not least because it has a strong ethical dimension. I don’t have any particular country in mind here, by the way – just general considerations.

      First off, I agree with you that some governments, at least, are unpersuadable, implying that ‘they’ll just have to take the consequences’. Indeed, why waste our time trying to convince them? But there are plenty of ‘buts’ around this…

      Will it really be the government that faces the consequences – or the public?

      What should be done if policy changes could improve things?

      Conversely, what is the position if there is no way out, and the economy is in no condition to survive GFC II?

      And this is just governments – what about business?

    • Thanks, I saw that.

      The first thing to say is that global numbers are more meaningful on this than national numbers (which is not to discount the importance of the latter). Where a country imports a lot of food, manufactured goods and components – all of which are energy-intensive – it shifts energy use to suppliers, though of course it pays for this.

      So you could (a) import energy and use it to make (say) manufactured goods, or (b) let someone else do the manufacturing (or whatever) and import the finished product. The latter step sometimes enables countries to claim ‘improved energy efficiency’, when what is really happening is that they’re moving the profile of economic output down the value-added scale.

      With this caveat noted, there are clear links between declining energy use and deteriorating prosperity, and the latter should have a bearing on population, but over the long- rather than the medium- or short-term.

      Did you also see, on ZH, a report that JPM thinks Italy’s best course might be to ditch the Euro? This reminded me that, according to SEEDS and highlighted here, Italian prosperity peaked just as the country adopted the Euro…………….

    • Tim, there is a proviso attached to your first paragraph in your reply.[at 8:22]
      Exports are a cost and imports are a benefit when you see it this way. Countries that import, food etc, are getting the energy benefit from the external workers and materials and in return the importer just writes up numbers in accounts held by the exporter in the importer’s central bank. There’s a huge energy imbalance. All China’s holding are in US dollars -[which the Chinese want] but the USA benefits enormously as it only costs a number in an account which is infinitely available. It’s obvious who benefits the most.
      The bellyaching over US job losses is unrelated to exports/imports. It is an internal political problem due to the US not having a policy of full employment – which it did post WW2 until about 1970.

    • Yes, I saw that. Others have suggested that it is Germany which should leave the Euro. Economically this might make sense but it won’t happen. It’s bad enough if Italy leaves but Germany! If any country leaves the Euro it means that it is not suitable for all and that condemns the whole thing.

    • Indeed so.

      An interesting dimension to the downturn in prosperity is that we can no longer ‘get away with’ the policy mistakes that growth has covered up in the past.

      The Euro, with its flawed structure, is a case in point. The argument that Italy’s interests might best be served by leaving is hard to counter. Prosperity per capita in Greece is down almost 14% since 2007 – so could departure from the Euro, and default, have been much worse for the average Greek?

      There are other follies, too, which become visible, and damaging and/or dangerous, without growing prosperity. The economic extremism of the “Anglo-American economic model” is one example, and, on a localised scale, Canada may yet pay a hefty price for letting property prices escalate.

    • John

      Thanks. The irony is that official US unemployment numbers are very low, though of course this is misleading, as it excludes large numbers of “discouraged workers” (!)

      The real problem for the US is outsourcing of skilled, highly-paid jobs, and replacement with low-grade employment.

      This said, China is hardly to blame if US corporates shift operations overseas…..

    • This is an utter load of rubbish.

      Why Germany’s nuclear phaseout is leading to more coal burning
      Between 2011 and 2015 Germany will open 10.7 GW of new coal fired power stations. This is more new coal coal capacity than was constructed in the entire two decades after the fall of the Berlin Wall. The expected annual electricity production of these power stations will far exceed that of existing solar panels and will be approximately the same as that of Germany’s existing solar panels and wind turbines combined. Solar panels and wind turbines however have expected life spans of no more than 25 years. Coal power plants typically last 50 years or longer. At best you could call the recent developments in Germany’s electricity sector contradictory. https://carboncounter.wordpress.com/2015/06/06/why-germanys-nuclear-phaseout-is-leading-to-more-coal-burning/

      Germany Runs Up Against the Limits of Renewables
      Even as Germany adds lots of wind and solar power to the electric grid, the country’s carbon emissions are rising. Will the rest of the world learn from its lesson? After years of declines, Germany’s carbon emissions rose slightly in 2015, largely because the country produces much more electricity than it needs. That’s happening because even if there are times when renewables can supply nearly all of the electricity on the grid, the variability of those sources forces Germany to keep other power plants running. And in Germany, which is phasing out its nuclear plants, those other plants primarily burn dirty coal. https://www.technologyreview.com/s/601514/germany-runs-up-against-the-limits-of-renewables/

      If ‘renewables’ (I don’t like the term considering solar panels are manufactured using coal and other fossil fuels)… get beyond about 1% of the energy mix… this will result in massively expensive electricity — which will take down the global economy

  23. Author: Michael Shellenberger, President, Environmental Progress. Time Magazine “Hero of the Environment.” http://environmentalprogress.org/founder-president/

    Over the last year, the media have published story after story after story about the declining price of solar panels and wind turbines.

    People who read these stories are understandably left with the impression that the more solar and wind energy we produce, the lower electricity prices will become.

    And yet that’s not what’s happening. In fact, it’s the opposite.

    Between 2009 and 2017, the price of solar panels per watt declined by 75 percent while the price of wind turbines per watt declined by 50 percent.

    And yet — during the same period — the price of electricity in places that deployed significant quantities of renewables increased dramatically.

    Electricity prices increased by:

    – 51 percent in Germany during its expansion of solar and wind energy from 2006 to 2016;

    – 24 percent in California during its solar energy build-out from 2011 to 2017;

    – over 100 percent in Denmark since 1995 when it began deploying renewables (mostly wind) in earnest.

    What gives?

    If solar panels and wind turbines became so much cheaper, why did the price of electricity rise instead of decline?

    One hypothesis might be that while electricity from solar and wind became cheaper, other energy sources like coal, nuclear, and natural gas became more expensive, eliminating any savings, and raising the overall price of electricity.

    But, again, that’s not what happened.

    The price of natural gas declined by 72 percent in the U.S. between 2009 and 2016 due to the fracking revolution. In Europe, natural gas prices dropped by a little less than half over the same period.

    The price of nuclear and coal in those place during the same period was mostly flat.

    Another hypothesis might be that the closure of nuclear plants resulted in higher energy prices.

    Evidence for this hypothesis comes from the fact that nuclear energy leaders Illinois, France, Sweden and South Korea enjoy some of the cheapest electricity in the world.

    Since 2010, California closed one nuclear plant (2,140 MW installed capacity) while Germany closed 5 nuclear plants and 4 other reactors at currently-operating plants (10,980 MW in total).

    Electricity in Illinois is 42 percent cheaper than electricity in California while electricity in France is 45 percent cheaper than electricity in Germany.

    But this hypothesis is undermined by the fact that the price of the main replacement fuels, natural gas and coal, remained low, despite increased demand for those two fuels in California and Germany.

    That leaves us with solar and wind as the key suspects behind higher electricity prices. But why would cheaper solar panels and wind turbines make electricity more expensive?

    The main reason appears to have been predicted by a young German economist in 2013.

    In a paper for Energy Policy, Leon Hirth estimated that the economic value of wind and solar would decline significantly as they become a larger part of electricity supply.

    The reason? Their fundamentally unreliable nature. Both solar and wind produce too much energy when societies don’t need it, and not enough when they do.

    Solar and wind thus require that natural gas plants, hydro-electric dams, batteries or some other form of reliable power be ready at a moment’s notice to start churning out electricity when the wind stops blowing and the sun stops shining.

    And unreliability requires solar- and/or wind-heavy places like Germany, California and Denmark to pay neighboring nations or states to take their solar and wind energy when they are producing too much of it.

    Hirth predicted that the economic value of wind on the European grid would decline 40 percent once it becomes 30 percent of electricity while the value of solar would drop by 50 percent when it got to just 15 percent.

    In 2017, the share of electricity coming from wind and solar was 53 percent in Denmark, 26 percent in Germany, and 23 percent in California. Denmark and Germany have the first and second most expensive electricity in Europe.

    By reporting on the declining costs of solar panels and wind turbines but not on how they increase electricity prices, journalists are — intentionally or unintentionally — misleading policymakers and the public about those two technologies.

    The Los Angeles Times last year reported that California’s electricity prices were rising, but failed to connect the price rise to renewables, provoking a sharp rebuttal from UC Berkeley economist James Bushnell.

    “The story of how California’s electric system got to its current state is a long and gory one,” Bushnell wrote, but “the dominant policy driver in the electricity sector has unquestionably been a focus on developing renewable sources of electricity generation.”

    Part of the problem is that many reporters don’t understand electricity. They think of electricity as a commodity when it is, in fact, a service — like eating at a restaurant.

    The price we pay for the luxury of eating out isn’t just the cost of the ingredients most of which which, like solar panels and wind turbines, have declined for decades.

    Rather, the price of services like eating out and electricity reflect the cost not only of a few ingredients but also their preparation and delivery.

    This is a problem of bias, not just energy illiteracy. Normally skeptical journalists routinely give renewables a pass. The reason isn’t because they don’t know how to report critically on energy — they do regularly when it comes to non-renewable energy sources — but rather because they don’t want to.

    That could — and should — change. Reporters have an obligation to report accurately and fairly on all issues they cover, especially ones as important as energy and the environment.

    A good start would be for them to investigate why, if solar and wind are so cheap, they are making electricity so expensive.

    https://www.forbes.com/sites/michaelshellenberger/2018/04/23/if-solar-and-wind-are-so-cheap-why-are-they-making-electricity-more-expensive/#d541a5f1dc66

    • Thanks for the detailed reply Thomas – I read the report from the Guardian with some skepticism.

      But does the price of electricity in France – South Korea etc included the vast decommissioning costs?

      Regarding the variable nature of supply from renewables I know that there are plans to build a huge offshore island (in the North sea) where the wind might be more constant.

      We also have to look at improvements in storage technology which could even out the irregularities in supply.

      However with everything I’ve mentioned above I don’t have any analysis to back it up.

      But eventually fossil fuels will run out so we have to prepare alternatives although I’ve read that we might not have enough energy to manufacture the replacement solar panels and wind turbines.

      I haven’t factored in any breakthrough in Nuclear Fusion because in 20 years time we will be told that it’s only 20 years away

      My own view is that we should at least ensure as many homes as possible are properly insulated. A fleet of drones – helicopters with infrared cameras could find out the worst offenders.

    • Have a scan through this excellent site – there are a number of solid articles dealing with storage – basically it would drive the costs through the roof…. and it is not possible on a significant scale.

      http://euanmearns.com/

    • Renewable energy ‘simply won’t work’: Top Google engineers

      Two highly qualified Google engineers who have spent years studying and trying to improve renewable energy technology have stated quite bluntly that whatever the future holds, it is not a renewables-powered civilisation: such a thing is impossible.

      Both men are Stanford PhDs, Ross Koningstein having trained in aerospace engineering and David Fork in applied physics. These aren’t guys who fiddle about with websites or data analytics or “technology” of that sort: they are real engineers who understand difficult maths and physics, and top-bracket even among that distinguished company.

      Even if one were to electrify all of transport, industry, heating and so on, so much renewable generation and balancing/storage equipment would be needed to power it that astronomical new requirements for steel, concrete, copper, glass, carbon fibre, neodymium, shipping and haulage etc etc would appear.

      All these things are made using mammoth amounts of energy: far from achieving massive energy savings, which most plans for a renewables future rely on implicitly, we would wind up needing far more energy, which would mean even more vast renewables farms – and even more materials and energy to make and maintain them and so on. The scale of the building would be like nothing ever attempted by the human race.

      In reality, well before any such stage was reached, energy would become horrifyingly expensive – which means that everything would become horrifyingly expensive (even the present well-under-one-per-cent renewables level in the UK has pushed up utility bills very considerably).

      http://www.theregister.co.uk/2014/11/21/renewable_energy_simply_wont_work_google_renewables_engineers/

      “To provide most of our power through renewables would take hundreds of times the amount of rare earth metals that we are mining today,” according to Thomas Graedel at the Yale School of Forestry & Environmental Studies. So renewable energy resources like windmills and solar PV can not ever replace fossil fuels, there’s not enough of many essential minerals to scale this technology up. http://energyskeptic.com/2014/high-tech-cannot-last-rare-earth-metals/

    • Very interesting. I wonder if wind turbines in particular could be built with better materials to extend their life.

    • Replacement of oil by alternative sources

      While oil has many other important uses (lubrication, plastics, roadways, roofing) this section considers only its use as an energy source. The CMO is a powerful means of understanding the difficulty of replacing oil energy by other sources. SRI International chemist Ripudaman Malhotra, working with Crane and colleague Ed Kinderman, used it to describe the looming energy crisis in sobering terms.[13] Malhotra illustrates the problem of producing one CMO energy that we currently derive from oil each year from five different alternative sources. Installing capacity to produce 1 CMO per year requires long and significant development.

      Allowing fifty years to develop the requisite capacity, 1 CMO of energy per year could be produced by any one of these developments:

      4 Three Gorges Dams,[14] developed each year for 50 years, or
      52 nuclear power plants,[15] developed each year for 50 years, or
      104 coal-fired power plants,[16] developed each year for 50 years, or
      32,850 wind turbines,[17][18] developed each year for 50 years, or
      91,250,000 rooftop solar photovoltaic panels[19] developed each year for 50 years

      The world consumes approximately 3 CMO annually from all sources. The table [10] shows the small contribution from alternative energies in 2006.

      http://en.wikipedia.org/wiki/Cubic_mile_of_oil

    • Thanks Thomas – I had read the CMO analysis before – it’s pretty daunting. The Energy matters link is very interesting in terms of all the articles.

      Tim – at the moment I need a car to transport 2 elderly members ( 88 and 90 respectively) of my family when required (doctors / hospital appointments / days out).

      However when the worst comes to the worst I’ll question my need to own one. The bus service to my area has just been improved – as have the trains (one place where the new timetables didn’t cause chaos except on the first day). I can have my food delivered and could always rent a car when required.

      Of course impromptu meetings with friends in out of the way pubs would have to end.

    • You are grossly underestimating the worst….

      This is an extinction event. When the electricity goes off… it goes off… forever

    • Agreed. The marginal cost of renewables is one thing, but using batteries (etc) to smooth out their contributions to fit demand is something wholly different, and orders of magnitude more expensive.

      I’ve said before that we need to engage in redesigning patterns of work, habitation and travel to pre-adapt our societies, but little or no emphasis is put on this – for example, EVs are being promoted, but designing a society that can get by with half as many vehicles as now is seldom, if ever, debated.

    • How would one charge an EV when BAU has collapsed — due to the unavailability of cheap to produce energy?

      The coal mines that provide the coal to the electricity generation plants will flood and close forever.

      The factories that make the machinery to produce energy will close forever.

      There will be no magical reset. Physics are physics…. we have burned all the cheap stuff and that is why we are collapsing

      Collapse does not magically conjure up new cheap stuff to burn.

      You guys really need to get your minds around this…. maybe watch The Road a few times….

      Or try turning off the power for a few days… just to get a whiff of what the end of BAU will look like

    • Thomas

      No-one (not me, anyway) is suggesting you or anyone shouldn’t have a car. What I am questioning is whether we could redesign our systems to get by with fewer vehicles. This might make change, when it is forced on us, less of a shock, and less of a cliff-edge.

      If the alternative is to face dramatic shocks somewhere not too far in the future, it might be better to aim for ‘one car per household’ before we are forced into it. That requires adaption, but it’s hardly a huge deprivation. A necessary complement would be greatly improved public transport. Some cities – most recently, Paris – are having to confront such issues because of pollution and congestion, but these are piecemeal measures, not planned strategies.

    • If we cut back then that means we reduce the demand for petrol…. which would crash the price of petrol…. which would bankrupt oil producers… who are already on the verge of collapse…

      https://srsroccoreport.com/end-of-the-u-s-major-oil-industry-era-big-trouble-at-exxonmobil/

      https://srsroccoreport.com/worlds-largest-oil-companies-deep-trouble-as-profits-vaporize-while-debts-skyrocket/

      I do not think cutting back would be helpful at all…

      We’ve got a patient riddled with cancer, AIDS, heart disease… you name it… the best we can do is jam as many stimulants into him as possible… call in Lance Armstrong if need be… fight for every last day… every last minute….every last mile…

      Fortunately … the CBs recognize this … and they are doing whatever it takes…

      In another hour and a half it will be midnight… I will have lived another day that was not expected… a cause for celebration.

      Alas I will save that for Friday night wine night…. otherwise it might get out of hand

    • Hi John it’s the same article as appears in the Guardian which I supplied the link to. Obviously original journalism is in short supply.

    • That is all nonsense. The climate has been changing forever… often over very short periods … I just read a history of Iraq… there is evidence that in some areas of the country once fertile settlements turned to desert — and back to fertility — over the course of decades…

      Greenland was called Greenland for a reason …

      Leo Dicaprio – poster boy for global warming — bought an island in Belize that is at sea level – and is constructing a multi million dollar concrete eco resort…

      Global warming is a hoax… the purpose of inventing this is to deflect from the real problem — the end of oil…. the PTB cannot state that we are running out of cheap oil … because that would spook the humans…

      So they use global warming as a proxy…. ask anyone what the solution to global warming is .. and I guarantee you they will immediately blurt out – renewable energy…

      They have learned very well the edicts issued by the Ministry of Truth…

      Renewable energy solves global warming — therefore solves the end of oil (that is implied).

      This keeps the humans from panicking — it keeps the spending — and keeps them calm before the slaughter.

      It is a perfect formula — create a fake problem — to represent the real problem – then create fake solutions – renewable energy.

      There you have it … a matrix in a bottle…. step right up humans … we’ve got this new matrix — we call it HOPIUM!

    • What you say is just your judgment. You promote fake news. You have to answer the question that adding co2 to the atmosphere cannot have no effect. Greenland, by the way, was called Greenland to distinguish it from Iceland in order to attract settlement there, an advertising slogan from 1000 years ago!
      But your idea that we are all stuffed is evidenced enough to be right. IMO, we can avoid worrying about the climate because we are stuffed. and collapse is ordained now, unavoidable. Climate effects are too slow to stop us collapsing. We won’t be around to have to live with the changes.

    • And this is the moment I live for… it is where I go for the throat… the kill….

      Let’s do it!

      The point is, if the greenhouse effect is too strong, Earth gets warmer and warmer. This is what is happening now. Too much carbon dioxide and other greenhouse gases in the air are making the greenhouse effect stronger.

      https://climatekids.nasa.gov/greenhouse-effect/

      We have been burning fossil fuels in earnest for around 150 years now…. each year we have hit records for the amounts burned…. I am seeing that we are now up to 21 billion tonnes of carbon being released per year at the moment….

      The greenhouse effect ’causes the Earth to get warmer and warmer’

      Are you with me so far?

      Headlines from the past winter:

      Siberian cold front sweeps across Europe, bringing record low temperatures

      Record-setting cold weather continues to grip Europe

      Record-breaking big freeze grips much of North America

      Big freeze: Russia’s Yakutia sees near-record cold spell

      So after 150 years of pumping warming carbon into the atmosphere .. how can it be possible that we are experiencing record cold….

      This is like granny complaining in the 1800’s that she is cold… so each year for 150 years you toss another blanket on her… and her saying in 2018 that she’s colder than ever.

      In the immortal words of Spock….

      This Does NOT Compute.

    • Funny … every time we get a hot spell … I am told by the MSM that is evidence that our burning of fossil fuels is to blame….

      You cannot have it both ways.

      But of course when the Ministry of Truth has an agenda… it sends down edicts to the MSM… and the MSM regurgitates these press releases… truth is not the point… the MSM exists to tell you what to think.

      Of course they have no choice… because in some parts of the world the climate is getting hotter and drier — in others colder and wetter… same as it ever was….

      So they focus on weather… because it is easy to identify places that are having a hot spell… to support the ho ax.

      Well done – you have learned well. Keep your eye on Bloomberg… every couple of months they run a big headline on the main page — Record Hot Temperatures … Global Warming is Upon Us….

      What did the Nazis say about repeating big lies?

      And you can chill …. we have just about burned all the carbon that we will ever burn…. and nobody is boiling….

      In fact down here in Queenstown the ski season opened two weeks early — and the chimney sweep was by the other day and mentioned he’s never seen such cold temperatures this early in the season.

      Did I mention that I used to be in your position? Yep – I used to think anyone who disputed climate change was mentally flawed…

      But then I did my research

    • Nah…. there is an agenda….

      Remember WMD? Over and over and over… that was not confusion … that was an agenda

      I remember at the time … saying to people that this was utter bullshit … and they looked at me like I was nuts…

      First Rule: recognize that the MSM does NOT exist to inform you — it exists to TELL you what to think. If you accept that you are on the path to truth

      Dont believe me? Here – they admit it

      You can lead horses to water….

    • If there is an agenda then it is to deny climate change so that they can continue to profit by trashing the environment etc. [They are actually acceleration the arrival of their own demise, like turkeys voting for Christmas].

    • John … permit me a moment to roll back the curtain for you … to expose a bit of this matrix….

      I understand that Google spent tens of millions on the viability of renewable energy — and this was their conclusion

      http://www.theregister.co.uk/2014/11/21/renewable_energy_simply_wont_work_google_renewables_engineers/

      Solar and Wind – even after hundreds of billion of investment — are no more than a rounding error in terms of global energy… and as we are seeing in Germany — they drive electricity prices through the roof — because of their intermittency. Add batteries and costs go into the stratosphere.

      That is why they remain a rounding error.

      The people running the show know what Google and many others know — transitioning to ‘renewable’ energy (it is in no way renewable of course… unless we grow solar panels and windmills on trees… and they would know that as well)…

      Yet the MSM pounds the drum day after day after day — renewable energy is around the corner…

      Now let’s move to EVs…. these are an even bigger joke than solar and wind…. they are NOT GREEN. They are manufactured using fossil fuels — they are charged using fossil fuel generated electricity. They absolutely pointless. Only a deluded fool would buy an EV… and the happiest two moments in the fools life would be when he drove off the lot — and when he traded the junk heap back in for a real vehicle — a reliable vehicle — an ICE vehicle…

      Yet again — open any MSM source any day of the week — the UK is banning ICE vehicles shortly … so is France… the list goes on …

      Do you really think that is possible????? Of course it is not … you think EVs are expensive now — try replacing the entire fleet with them ….

      Then there are the recharging stations…. we’d need to have massive amounts of land dedicated to charging this new fleet of utopian vehicles…. great article on this here http://euanmearns.com/electrifying-the-a9-trunk-road-in-scotland/

      And where would all the electricity come from???? NOT solar and wind that is for sure:

      http://euanmearns.com/how-much-more-electricity-do-we-need-to-go-to-100-electric-vehicles/

      Again — the Ministry of Truth IS AWARE of all of this… they know we cannot go electric. They know transitioning to renewable energy is impossible.

      So why do they instruct the MSM to publish these puff pieces day after day?

      Here is where I show you the matrix.

      I have spent a fair bit of time in the third world… lived in a village in Bali for 7 years… have been to some places during times of strife – Jakarta during the 97 crisis… Egypt during the riots… Yemen just things were unraveling ….

      And I have observed how people respond when they lose hope in the future…. in Egypt I saw rage… which has now from what I am told by friends who have lived there for decades turned to despair… people just go through the motions….

      Similarly in the slums of Manila and other cities — you see men who can’t be bothered to get off their asses…. they are not lazy … there are no decent jobs… so they turn to drugs… and booze…

      The Ministry of Truth is aware of this — and they MUST not allow The Core to sink into despondency.

      We see that with the endless economic recovery articles — we see it with the fake job numbers etc etc….

      Let’s turn to oil —- conventional peaked in 2005… the last thing the MOT want is for the masses to start to think about what that means….

      ‘A New Saudi Arabia – 100 years or oil’ — those were the endless headlines re shale…. are they true? Of course not – ask Art Berman….

      But it feels good doesn’t it — plenty of oil …..

      However even the stupidest most gullible human knows oil is not forever… we need a Plan B.

      But there is no plan b — we have tried — but nothing can replace FFs…

      The MOT must ensure that Hope is not lost — so we get solar and wind and EVs….. ask 100 people what the post oil future looks like… and pretty much all of them will blurt out verbatim tag lines fed to them by the MSM….

      They have been told what to think… and they are very good at it.

      But the MOT must be careful… they cannot have the masses dwelling on oil… so they invent global warming… as a proxy for peak oil

      The Punchline:

      If humans were causing the planet to boil — due to burning fossil fuels…. and the MOT understood (as they do) that we cannot slow or stop the burning of fossil fuels without collapsing civilization … i.e there is NOTHING we can do about it — TINA….

      Then why would the the MOT instruct the MSM to bleat on about this?

      Let’s say the MOT knew that a massive asteroid was going to destroy earth on June 12, 2029.

      Do you think the MOT would instruct the MSM to run massive headlines detailing this????

      So ask yourself… why tell us we are going to boil if we continue to burn fossil fuels?

      Again – it is all part of a formula… the masses can be told we are going to boil — so long as we have a solution — nothing like an emergency to focus the mind … to deflect the mind from a real problem (depleting resources)…. and to maintain hope…

      The UK is NEVER going to ban ICE vehicles…. batteries are NEVER going to store enough electricity in Australia to keep the power on using solar….

      The MOT is drip-feeding these feel good stories …. and they keep hopes high that there is a Plan B.

      And the masses — they want to believe so badly — that they will reject facts and logic…. they will think … exactly what the MSM wants them to think.
      .

    • How about we start with your real first name. Enough of the FE and TM monikers.etc. everybody should use their real names. After all you cannot hide it from the Deep State deviants. So why worry.
      I think you should by now have realised we are mostly on the same page. You are hardly ever telling stuff I don’t already understand. But you don’t understand macroeconomics and that handicaps your ideas. I’ve mostly given up on OFW as Gail refuses to understand how the economy actually functions. She’s fine apart from that. I’ve been honing my understanding of macroeconomics for 5 years now, but I find it hard to cut through the tangled web of lies that people erroneously believe about their economies. The Deep State really doesn’t want us to know, because they have a vested interest in our ignorance about it. So it should be surprising you have not understood considering your position as a realist.

    • Gail completely understands the financial angle to this crisis… and even I have a fairly solid grasp of it as well.

      It is actually pretty simple… we are out of cheap oil … we are dropping in epic stimulus to fight against a deflationary death spiral… at some point we push on a string… the financial system collapses… BAU follows (rapidly) … the electricity goes off…

      And we are left cowering in the darkness and the cold… waiting to die….

      I suppose you are the one bleating on about MMT? Some sort of aficionado?

      Stick to cigars.

      A for my identity… I don’t see how that matters…. ideas matter… chopping through the matrix with a razor sharp axe matters…. understanding the true nature of the world matters… this is my hobby… I have time on my hands so I am getting rather adept at it

    • Stop wallowing in your ignorance on macroeconomics. I bet you cannot prove wrong a single tenet of the theory. Gail has admitted to another blogger she doesn’t know where money comes from.
      Do you know where money come from? Do you understand what is deficit spending, and balancing the budget? Do you know what monetary sovereignty is and how much it matters? Are exports good, or bad? Is social security broken? Will we leave our debts to future generations to pay off?
      MMT explains all these.
      Try eating your cigar.

    • I’ve already explained the financial angle for you John. No need to be petulant

    • Impossible, Maybe in your dreams. Answer the above questions to make your case. Then can see how far your opinions go. Calling me names doesn’t help your case. My email is in one of my earlier answers. Contact me and I will send you an explanation of MMT. If you still oppose it but you have read up and understood, then that’s better than opposing it with no evidence, your current position.
      You have nothing to lose but your ignorance.

    • If MMT would allow BAU to continue for even a day longer… the CBs will adopt it…. the fact that they have not indicates they have evaluated it and determined it is futile….

      The CBs leave no stone unturned

    • Once again, you cannot answer!!.
      And your diagnosis is wrong, premature.. I can assure you that when the time comes they will adopt it and say they knew about it all along. The trajectory between denial and acceptance is underway right now.
      So are you willing to learn?

    • He ‘s got a thick skin, Tim. It’s the culmination of years of his posts, repeated ad nauseum. BTW,
      “The Conversation” is a blog where only real names are used. Do you think you would lose out to insist on real names? People have to own their comments then, which is a good thing.

    • But if I used my real name, due to the politically incorrect (although right) nature of my posts…..I may not get invited to dinner parties and catillions ….. and I so love a good ball!

    • On the contrary people would see you as a guru assuming your positions came true. Quite a few people are dining out on saying they foresaw the GFC..Remember the Queen embarrassed the LSE worthies by asking how come they didn’t see it coming, whereas Steve Keen is on Youtube 18 months earlier saying it was coming?

    • They is you John. It is everyone.

      You are trashing the environment — posting on this site is trashing the environment. Having children is trashing the environment. Driving a car… taking a bus… riding a bicycle… trashing the environment

      Unless you are going to throw your ‘stuff’ in the bin… and run into the forest and live as a hunter gatherer, you are trashing the environment. We all are – so don’t feel so badly.

      This system we call BAU — runs on fossil fuels – take them away and we are scratching in the ground with sticks for bugs to eat.

      There are no alternatives to fossil fuels. Not solar not wind … nothing.

      Even if climate change was 100% influenced by the burning of fossil fuels…. guess what?

      I would vote to burn more. Because the alternative is DEATH.

      BAU requires growth – it requires that we burn more energy each year to keep the system alive….

      Think of what recession means — think of what a recession looks like if the CBs do not step in to stimulate (to burn more energy)….

      Think of 2008 — imagine the CBs doing nothing.

      You would be dead.

      T. I . N. A.

      That is the unfortunate truth. Bleating on about fossil fuel burning is like urging the planet to commit suicide.

    • Oh, I believe we are a locust species. My comment was directed at the wealthiest, the “donor” class, the rentier class, who have or have command over the reins of government and its direction.
      They encourage pollution and greed so they will be the first to notice, but the last to act.
      We are the most fortunate generation to have ever lived. Too young to fight WW2 or even Korea.
      Economies were growing rapidly. We will probably nearly all be dead before the big crash occurs, so we, [most of us] live in world of plenty. I won’t tell my teenage grandchildren what fears I have, so I worry alone.

    • Al Gore… yes Al Gore…

      Does this sound like what someone who is urging us to lower the thermostat because we need to save the world from global warming would do?

      Al Gore’s ‘Inconvenient Truth’? — A $30,000 Utility Bill

      https://abcnews.go.com/Politics/GlobalWarming/story?id=2906888&page=1

      Gore claims he doesn’t own a private jet…

      Well… he rents them though

      Scene Two: Here is Al Gore flying a private jet from Nashville to Washington https://www.forbes.com/sites/jamestaylor/2011/06/29/is-al-gore-a-fossil-fuel-industry-mole/#59e85026d150

      Ever notice when there is a major climate conference … that the delegates arrive in… you got it…

      https://www.mrc.org/articles/media-hype-davos-climate-change-focus-1700-private-jets-fly

      Then year after year we burn record amounts of fossil fuels….

      This is a colossal joke… these people no doubt see these junkets as Hopium Holidays… put on a show … have some nice dinners… call in some high priced call girls… get back on the private jets… and do absolutely nothing … because they never intended to.

      Logic.

    • Al gore,Al Gore? where did he come into my comment? He’s just a serious sounding politician who doesn’t connect the dots linking himself to the problem.
      Kind of sad, really.

    • Al is just part of the full court press … to tell you what to think…. to keep the sheeple from panicking….

      Think of it as public service…. along with some self-interest… the last thing he wants is a panic… because that would end his life of living huge….

      He’s not about to give up his mega mansions and private jets…. that would be pointless because as he knows…. we are not going to boil… man has a very limited impact on climate….

      The sun and the earth’s wobble…. have a huge impact…

    • On Iraq and WMD, I think I everyone knows now that this was nonsense, as many of us suspected at the time. Saddam didn’t even seem to have the WMDs the West probably sold him in the first place. The reasons for the US invasion are still not clear, though I lean towards the view that the Iraqi plan to price oil in Euros was what provoked the attack. I still have no idea why other countries joined in. Whenever anyone criticises Mr Trump, I’m tempted to remind them about the man I always called George W. Idiot.

      But the point, surely, is that we do now know. The MSM do push a message, but I also know that they compete furiously for scoops – this, I suppose, is Adam Smith’s principle of competition coming to the rescue!

    • Perhaps after the fact… when it became obvious — people mis-remembered what they thought in the run up to the war….

      Kinda like when someone says the US housing market is going to crash — and people laugh at them saying that is just plain ridiculous — and then when it happens — they forget laughing at you … and convince themselves that they knew this was coming….(they just forgot to get short…)

      I cannot recall the number of times that I ridiculed this WMD narrative — I have a gang of mates in Hong Kong — many of them are lawyers… one would assume well-informed … somewhat intelligent…

      I recall making the assumption that they would see through the propaganda… and mocked the whole thing …. the response was some rather stern looks … and a chorus of ‘I don’t know about that’… followed by some negative comments about Saddam and how he had to go…..

      I have never brought it up since — but I guarantee you if I did — the memories would be short — and they’d all profess to having known WMD was bogus…

      The vast majority of people were on board for that war …. as they are brought on board for all wars… yes there were marches but the silent majority would have won a referendum on that easily…George Bush got re-elected subsequently ….

      The masses generally think- and do — what the MSM tells them to do.

    • I have a friend … he wrote for the Economist for a number of years… the last time I had dinner with him he had quite and war working for some non-MSM outlet….

      As he put it — you write what the editors tell you to write — and it has gotten worse year by year…

      If you attempt to write the truth — and it does not follow the narrative that the editors have mandated… they will tear it up and sent you back to the computer…

      If you continue to rock the boat… you will be out on your ass very quickly… and there will be hundreds of qualified prestitutes lined up applying for your job…. given the state of ‘journalism’ these days…

      Of course the editors are only part of the chain of command — the chain goes right to the Ministry of Truth…. they decide the narrative.

      My friend was rather dismayed by this state of affairs… he refused to whore himself… and he was paying the price — struggling to get by on a shitty salary …

  24. Thomas – Thank you – all very interesting.

    As an aside – recently our state of the art recycling plant got burnt down. Ok fires happen – but just a few weeks later another plant got destroyed by fire only 15 miles away.

    We are now seriously short of recycling capacity in my area – just seems to be a bit strange that fires struck in such a short space of time.

    • I see recycling as pissing into the wind….it is futile….

      And for the most part it is heavily subsidized… which means a great deal of energy has gone into collecting … delivering .. sorting … and breaking down the materials…

      Generally we would be better off extracting the raw materials and refining them…

      But it does make people feel good to recycle… because it feels like they are taking action …

      I recently found out that our office was paying $100 per month to the recycling man to pick up our sh it… I ordered that cancelled…. I got a bit of blowback on that… it is very difficult to explain such matters to Green Groopies …. but of course they do want raises every year… so they can buy more stuff… that they can recycle…

      And then of course there is the small matter of adding well over 80,000,000 nett new people to the planet this year…

  25. Dear Dr Morgan thank you for your articles which I find very informative. However when I try to discuss your ideas with others there is no interest. I suspect this translates into no hope.

    An amusing thought, apparently from a Saudi Prince – “The stone age did’nt end because they ran out of rocks”!

    • Thank you, and welcome. I certainly think in many countries there is no hope. For some of them – though not all – my numbers agree with them.

      The Saudi who said that was, I’m pretty sure, former oil minister Sheikh Yamani. In my view, he’s right – we will not run out of oil, but of oil that is affordable. If 100 units of oil energy requires 100 units (or even close) to access, then we will leave it in the ground.

  26. And here’s Leo D’s sea level resort — the one into which he is pouring millions …

    Leo is the guy who likes to remind us (along with Al Gore) that sea levels are going to rise 7M in the next decade…..

    So why would he invest millions … in an island resort…. that will be underwater soon after it opens?

    This does NOT compute.

    • Add this place to our bucket list!

      Leonardo DiCaprio has announced that he plans to open an eco-friendly resort on his private island named Blackadore Caye in Belize, which he bought in 2005 for $1.75 million. The 104-acre oasis will be turned into a luxury destination with villas over the water, artificial reefs, and a place to grow marine grass for manatees. It is expected to open in 2018.

      “The main focus is to do something that will change the world. I couldn’t have gone to Belize and built on an island and done something like this, if it weren’t for the idea that it could be groundbreaking in the environmental movement,” the A-list actor told The New York Times.

      The Wolf of Wall Street star had originally struck a deal to build with the Four Seasons, but that fizzled, so he is now developing the concept with Delos and principal architect Jason F. McLennan. There will be 68 villas and 48 private houses for sale, which will cost between $5 and $15 million.

      The Hollywood hunk has enlisted spiritual guru Deepak Chopra to develop a health and wellness program for the sanctuary.

      This sounds like a compound to house all his model girlfriends! We kid… good for you Leo, keep saving our planet one swanky idea at a time!

      http://www.celebdigs.com/celebrities/leonardo_dicaprio/leonardo_dicaprio_plans_eco_friendly_resort_private_island_belize_real_estate_photos_040615.php

      Watch what people do…. not what they say….. Leo is simply a front man for the Ho ax…. you need a celeb or two to get the stunned humans on board when you have a big LIE to tell.

    • Can’t comment on this, having not seen these reports. But I do think Leonardo di Caprio is the finest actor I’ve seen in a very, very long time. I was particularly impressed with how he played Howard Hughes in The Aviator. To learn about Hughes’ OCD, he spent a long time at a clinic treating the disorder. Hearing him interviewed about this, I thought him thorough, ultra professional and very intelligent.

  27. I’ve also read (can’t locate the source) that Al Gore has responded to similar questions (about a predicted 7M rise by the 2020s) by stating that this is because of the penetration of renewable energy….

    The funny thing is… we are putting more carbon into the atmosphere now than when he made this prediction …

    Of course Al knows that this is a dog and pony show… he knows the climate is always changing… and that burning fossil fuels has minimal impact….

    He is a front man… like Leo…. it must be very frustrating to be made to look like a fool…. and not be able to say — this is all fake…. they asked me to help distract the masses from the peak oil thing….

    • Personally, I’ve always had a lot of time for Al Gore. Here’s why.

      During Vietnam, he had a legitimate entitlement not to go. But he waived this and volunteered to do his bit.

      Second, there can be no doubt that he called the world’s attention to climate change. This wasn’t easy or popular. I knew quite a few senior people in corporate America at that time, and the ones I knew, and talked to privately, hated him.

      Third, I think we’d have been living in a better world if he’d won in 2000 rather than Bush. Come to that, a better world if he, rather than Clinton, had been elected in 1992.

    • POTUS is a figurehead… the board of directors reside at – and own – the Federal Reserve.

      They issue the orders to the managers – POTUS and the flunky politicians…

      Go against the board – and you get JFKed….

      Go with the board — you get 500k per speech when you finish up

      I do not see any difference between Bush Clinton Obama or Trump.

      Well actually one difference… Trump hasn’t been ordered to kick off any major wars —yet….

      I actually have no problem with this — the masses cannot be trusted with making major decisions… democracy … except on a local level (who’s pot hole gets filled…) does not work.

    • I’m not sure if it’s the Fed, or the big corporates who fund election campaigns.

      But I agree entirely about the ‘speaking circuit’. We don’t allow anyone to pay serving politicians or administrators, but as soon as they leave – or even in periods out of office – they get very well rewarded. Unless you think it really is worth paying huge sums to listen to pearls of wisdom from these people, then it looks pretty bad. I once suggested limiting the annual earnings of retired ministers to 10X average income. At the time, in the UK, this would have meant a cap of £300,000 – good money, but not a road to riches. Anyone arguing that such a sum is insufficient is not somebody suited to office.

    • A that age old axiom goes… ‘follow the money’

      I reckon if you are going to follow the money — you need to follow it to the source….

      I recall watching this …. and thinking at the time … if this Deep State is so powerful… if they control the MSM (and everything else)…. then why would they allow PBS to run a program exposing the game? It makes no sense….(logically)

      And like Captain Willard… I asked myself… now why would they do that?

      And it occurred to me…. that someone was trying to deflect attention…. the real powers want to remain behind the curtain… they never want to be identified… because that would potentially make them targets (particularly given that they have been targets for 2000 years…)

      So if I am them … why don’t I trot out a nice story for the masses…. give them this all-powerful Deep State… and let them scream and yell about it on web forums…

      Oh and another thing…. democracy… elections… POTUS… perfection!

      Give unpopular orders to a front man like Bush…. the populace gets angry…. they don’t show up at your door step with pitchforks and flame…. no no no — they rant and rave at Bush…. he takes the flak… but is there a messy revolution with an uncertain outcome?

      Nope. The hoi polloi get to vote …. they get to reset the table — if they choose… they get to blow off steam….

      Then you serve up the next flunky — Mr Hope and Change… what hope – what change? More debt … more wars (actually even more wars than Bush!)….

      And now as the end game approaches … we get … Mr Entertainment… the court jester… the fool…. the distraction ….let’s turn this shit show into a reality tee vee show … who will Trump fire this week!

      Follow the money…. and you will determine who is in control…

      When watching this notice how the military is controlled… you simply demonstrate that if they do what they are told — they will get rewarded with cushy jobs in the complex when they finish up….

      https://www.pbs.org/video/moyers-company-deep-state-hiding-plain-sight/

      “Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive that they had better not speak above their breath when they speak in condemnation of it.” ― Woodrow Wilson

  28. https://www.carboncommentary.com/blog/2014/02/11/tidal-lagoons-versus-nuclear-power-stations-a-closer-comparison-than-you-might-think this is a short and interesting article of the Swansea Tidal Lagoon vis Hinkley Point. At a time when the Cabinet supports runway 3 at Heathrow but is not rushing to back the Tidal Lagoon Swansea, recently the Bristol Channel Tidal project got a knockback as well I recall.
    https://letthemconfectsweeterlies.blogspot.com/search?q=EROEI

    https://infrastructure.planninginspectorate.gov.uk/wp-content/ipc/uploads/projects/EN010049/EN010049-002217-2.1.2%20Poyry%20Report.pdf

  29. A couple of admin points

    First, let’s comment about people respectfully. Disagreement is absolutely fine – and you can probably guess my views about the policies of certain politicians! – but please not let’s go down the road of personal attacks or accusations. It’s best if we stick to economics and energy, and leave the personal stuff to other sites.

    Second, I’m going through a raft of new economic data at the moment, so I’m likely to be a bit distracted this week – apologies in advance.

  30. Why hope is important:

    What the nationwide strike showed was not just the unrest created by uneasy shippers, it was the massive unease that permeates a country whose economy has shrunk.

    Like Italians, Brazilians are starting to get the notion it isn’t coming back.

    “We have watched a flirtation with collective suicide,” wrote rightwing commentator Reinaldo Azevedo, who compared Brazilians heading to the polls in October’s congressional and presidential elections to lemmings heading for a clifftop.

    Leftist commentators are equally alarmed. “It is a dangerous moment,” said Laura Carvalho, a professor of economy at the University of São Paulo. “This is related to the economic crisis, the political crisis, the corruption scandals.”

    Economic malaise or, dare I write, depression is a pressure vessel. Whatever social divisions will always exist wherever on Earth, they become increasingly untenable where hopelessness sets in without the medicine of opportunity.

    There’s a reason every political regime seeks robust economic growth, it reduces so many even serious social maladies.

    http://www.alhambrapartners.com/2018/06/05/what-happens-when-the-dollar-double-whammy-lands-on-you-again/

    People want to need to wear sunglasses…. (so said Huey Lewis)

  31. Further to that comment …

    When was the last time anyone every approached you on an issue and said – you told me so — you were right – I don’t know how I missed that

  32. Hi Tim,

    Rather depressing reading in the comments if that sort of thing gets you down.

    SEEDS is a part of the solution to the current problem. I personally think, as you know, that Seeds needs to be coupled with an embodied energy index that will then translate to an empirically falsifiable value scale for the pricing of monetary exchanges.

    There is a Finance problem at the heart of this problem. The Finance problem is that Finance has become divorced from the real Economy. SEEDS is intimately related to the DNA of the real economy in that All productive activity is Energy and Materials conversion into Goods and Services of primary importance to life.

    The size of the Finance Speculation sector is an easily remediated problem but clearly not when The same people living high off that imaginary hog are writing the regulations by which they are “Governed”.

    A health Dose of Bucky Fullmeister is what is needed vis the Production function for modern Industry and Industrial Agriculture also a look back into the concepts of Localism and Subsidiarity.

    Let’s be brutal shall we. The Systems of Political Economy are broken not because of a lack of resources and technical ability the failure is a failure of Imagination due to slavish following of an already falsified PseudoScience of Neo-Classical Economics.

    One can look to the Great Hunger in Ireland, where the failure of the Potatoe Crop was not a failure of The Irish land to produce enough food to feed the People of Ireland. The Crops grown for export were still exported throughout the Famine, Hard Currency cash crops being seen as more important than Human Life. ( http://www.popflock.com/learn?s=The_Great_Hunger ) Effectively the same Malthusian, Social Darwinism that allowed the Irish Famine to become a reality out of ideological choice and not a necessity is the same Malthusian Social Darwinism driving the current failure of Seeing Bucky Fullmeisters simple solution to the production Function, Do more with Less.
    The Circular Economy, where re-cycling and building for reclamation does not only preserve Materials but also sees energy re-capture and economy maximising the repeated use of all resources across time and product lines.
    https://letthemconfectsweeterlies.blogspot.com/search?q=Circular+Economy

    The Use and Utility is the benefit of a good, not the rights to use and abuse otherwise called ownership. Ownership has a speculative rentier benefit to a very small class of people (Elites) and it is this excessive freeloading which is causing so much waste in the ample resource base available.

    Doing Less with more has been the experience of the past 30 years or so, its now time to try Buckys way. Doing More with Less. Seeds and Embodied energy pricing can incentivise Doing More with Less, which is what the Circular economy is about. The Broken way of doing Less with more for a Higher Financial Profit is logic turned upside down an anti-Economics that has become accepted as some sort of Natural law when in fact it is and always has been the Emperors New Clothes.

    Ephemeralization – Doing more with less – Buckminster Fuller (animated clip)

    Buckminster Fuller on an Economic System Based on Abundance not Scarcity

    My own background is that of an Entrepreneur, regarding the next Collapse, the causes are the same as the Last one 2008 and the one before that 2000 and probably all of them since the first Mississipi Bubble courtesy of John Law.

    http://letthemconfectsweeterlies.blogspot.com/2016/02/usury-hells-fuel-and-mans-oppressor.html
    The courtiers of the Exchequer address the king;

    We economists beholden as we are to the princes of usury and as the false prophets of usury.
    We fit the horse foot to the shoe that suits us best. It matters not that the horse becomes lame and less furlongs are ploughed. As we deny the poison in our own usurious medium. We also deny that what ills our patient, could be from any panacea concocted in our own alchemists crucible.

    Our unit of account, that is to say this store of value.
    Not to leave unsaid, this medium of exchange.
    Our scarlet pimpernel which no one quite pins down.
    We say; ”we give you something , always the same
    fungible with each the other. The one whole. Held in safe keeping, returned. What we call these claims or, definitions of claims. These bundles of demands, is money.

    Insinuated into civil intercourse,
    ubiquitous in the machinery of community,
    deployed as a lever and pulley in affairs of state.
    A measure of nothing, conjured to divine what’s important.

    Counsel for the people charge usury of its crimes.

    This baron abstract that claims fruit.
    This heavy invisible burden,
    a yoke. Fashioned in language,
    felt but never seen.

    inflicting scars as deep as any lash,
    claiming lives as real as any canon.
    This nightmare device of imagination.
    Who are the slayers of this mythical dragon?

    Coleridge saw beauty in nature where sweet amaranths bloom. And Shakespeare compared his summers day.
    What of this hamlets ghost of a spectre?
    something is rotten in the danegeld,
    many more promises are written than can be kept.

    So much nectar strained from thin broth,
    which bargains can be made?
    When the music stops and the dancers
    sit down. Chairs are our metaphor for the real.
    Always too few.

    Rascals become clothed in robes
    and honesty is reduced to rags.
    Elisabeth lease had a purchase on truth.
    ”When people starve how can overproduction stand charged. It is money promises, kept short in supply that causes starvation. The consumption in the lungs of the community, is the usurers confection.

    A counterfeit Nobel laureate, theres an irony.
    Denies that in money there can be a place that gertrude stein called there, home once but no longer there , there in Oakland. A precursor to some sub prime heritage.
    A speaker of truth to power could follow Pauli ´Das ist nicht nur nicht richtig, es is nicht einmal falsh!

    Not even wrong, not even there.
    All counterfeit, yet to counterfeit the counterfeit? a crime.
    What of the shepherd of this unruly nothing,
    where will they pen and fence this pack of wolves.
    Will they dress this pack of cards in sheep’s clothing.
    Limit the herd a need for Golden standards.

    Prudence of sound Money and even sounder usury.
    Fix the price and patronise those who will honour the thievery. A mechanism to harmonise silent ballot boxes.
    A gentlemen from belgium would complement his single currency. Unruled and unruly sets a course for austerity on a continent many times at war. A fight of 11 rounds.

    Spread like a cancer through the development of continents, enabling the killing called wars. That increase the debt and centralise the money power.
    Quiggly shewed the tragedy, little hope it seemed,
    blind faith in capitalisms harlot. That babylonian whore.

    At first a mere money trick for ragged trousered philanthropy. With usury, take away whats not even yet been paid. Ruskin would see wealth as that which is valuable in the hands of the valiant. Real goods sustain and wealth succours. Usurious money is but an unmade claim and worse. No banker has earned that newly minted note that hangs discordant in the air, as apt to rob as to pay.

    How obscure this obscurant cult of mammon.
    What smoke screened hall of mirrors.
    How obese and gluttonous the leviathan of usury.
    Austerity for the likes of you and I.
    More banqueting and evacuated vomit spews from the sceptred top table. Corrupt in patronage and jealousy of power. Overstuffed with greed and thirsty for more.

    How mean the jealousy of greed grows.
    As more wants more and demands all.
    The truly poor are those who desire much,
    oppressive wealth no longer is, it only has.
    Usury consumes the usurer, no self just an exponential nothing. Growing ever more grotesque in a shadow of what never was and never could be.

    There is the problem it lies with the Administration and not the Executive, where the executive is the population and its Industry.

    “I am not one of those who think that the people are never in the wrong. They have been so, frequently and outrageously, both in other countries and in this. But I do say that in all disputes between them and their rulers the presumption is at least upon a par in favour of the people. Experience may perhaps justify me in going further. When popular discontents have been very prevalent, it may well be affirmed and supported that there has been generally something found amiss in the constitution or in the conduct of Government. The people have no interest in disorder. When they do wrong, it is their error, and not their crime. But with the governing part of the State it is far otherwise. They certainly may act ill by design, as well as by mistake. “Les révolutions qui arrivent dans les grands états ne sont point un effect du hasard, ni du caprice des peuples. Rien ne révolte les grands d’un royaume comme un Gouvernoment foible et dérangé. Pour la populace, ce n’est jamais par envie d’attaquer qu’elle se soulève, mais par impatience de souffrir.” These are the words of a great man, of a Minister of State, and a zealous assertor of Monarchy. They are applied to the system of favouritism which was adopted by Henry the Third of France, and to the dreadful consequences it produced. What he says of revolutions is equally true of all great disturbances. If this presumption in favour of the subjects against the trustees of power be not the more probable, I am sure it is the more comfortable speculation, because it is more easy to change an Administration than to reform a people”.
    Edmund Burke.
    http://letthemconfectsweeterlies.blogspot.com/2017/03/on-present-discontents-burke-opined.html

    • While you are correct that the divergence of the FIRE economy from the real physical economy is a massive issue, you are wrong that there isn’t also an underlying issue of resource and particularly energy scarcity. Solutions for an “abundance economy” aren’t going to help us as we enter an age of scarcity.

    • I find it helpful to think in terms of “two economies” – intimately connected, of course, but thinking of them individually helps our understanding.

      The first or “real” economy is an energy system. Energy is essential for all of the goods and services that we use. The scale of this economy is determined by access to energy, after the deduction of the energy cost of accessing energy (ECoE). This energy economy is the senior of the two systems.

      The second or “financial” economy is subservient to the first. It consists of money and credit, whose only value is as claims on the “real”, energy-determined economy of goods and services.

      The financial system introduces a time element into the “when” of who consumes the output of the energy economy. Lending defers consumption for some, whilst borrowing brings consumption forward for others. But this process does not add to the output of the energy economy.

      The system of money and credit is a management tool for the real economy. It can help us to manage the real economy better, or lead us into managing it worse. Like any management process, it is capable of being misused and manipulated, and that’s part of what we are living through now.

      The process by which money is “loaned into existence” makes credit creation the driver of the scale of claims (on the real economy) that are created. But creating claims doesn’t add to the quantity of goods and services for which these claims are exchanged. The creation of excess claims (money and credit) simply means that this excess has to be destroyed at some time in the future – destroyed, because they cannot be honoured by the real economy.

      The destruction of “excess claims” explains the GFC process. This mechanism could be discussed here in a future article.

    • What I have trouble with is understanding how these two economies are coming together in terms of shale oil….

      Without shale we would be done…

      Yet shale is somehow made feasible by conjuring up cash to allow these players to stagger on… losing hundreds of billions…

      I am not clear how this is possible…. how it has continued for so long.

    • Shale has been free-cash-flow-negative all along, subsidised by investors persuaded by the ‘Saudi America’ narrative. There is an excellent piece on this – I will post the link if I can recall where it is.

      Investors (principally in the US) do seem remarkably gullible, in at least three ways:

      – Subsidising shale

      – Accepting high valuations on ‘cash burners’, and carrying on giving them more cash to burn

      – Believing that converting equity to debt – by using borrowed money to buy back stock – adds value, and is somehow sustainable.

      Two thoughts to add. First, I don’t recall this level of gullibility when I was working in US equities. Second, this would be a lot of fun if I was still an equities analyst.

    • Is it gullibility… or is it that the smart money understands that shale is TBTF… that the CBs will (are?) fund it/bail it out…. (secretly of course – can’t have the masses get wind of this)….

      So the smart money piles in … like they do with every other bubble…. hoping to ride the wave … and hoping to get off before it crashes into the rocks…

      I think there is a book about this investment strategy … something about the viability of the investment option not really mattering … rather identifying the wave early enough … getting on … then getting off…

      This makes a lot of sense…. look at all these companies that are losing mega dollars… that by rights should not exist (netflix tesla uber twitter go pro etc…) …. if you got on early you made a fortune…

      The thing with shale that is different — is that the money burned extracting it represents energy … so shale must be a nett negative based on the losses….

      We need cheap to produce oil and the nett energy return to run BAU…. I don’t see how this helps…

      It kinda doesn’t make sense to bother extracting it?

    • Hi Tim , I think you summarise the position very well.
      The Real and Financial economies is a useful demarcation.
      That one is subservient to the other as an Axiomatic fact of life
      is quite true and it is the denial of that Axiom in the current
      stage of Late Stage Financialised Capitalism which is causing the problem.
      There is a Management problem, There is a Confidence problem and there is an Imagination problem.
      The Management problem is that The Financial Management Tail is Wagging the Real economy Dog.
      The Confidence Problem is summed up by the Old Roosevelt Line. “We have nothing to Fear but fear itself”
      The Imagination Problem is a problem of Kakistocracy. Under a regime of deep corruption, there is much more Buggins turn and Placeman allocation of positions of Authority, The wrong incentives attract the wrong sorts this may be summarised as the Spivs have taken over the Asylum.

    • @rogerlewis

      I found the Werner video priceless. David Buick (sic) an old time City man looks totally bemused by Werner’s succinct (and correct) statement but he implies, quite rightly, that nothing will be done about the current structure of banking.

      GFC11 is bound to involve the banks and, if we are still in the EU (highly likely now from what I can see) we will be subject to the bail in procedures. I believe that the moment folk lose money on an ordinary bank deposit is “blue touch paper time” and it really will be pitchforks and barricades.

      However, I also think that this EU edict may simply be abandoned and we will have a bail out (again) but this time there will have to be wholesale reform of the system afterwards.

    • Narrative is indeed critical.

      I suspect that maintaining the narrative was made much harder by GFC I, without which I doubt whether Trump, “Brexit” or events in France, Italy and many other countries would have happened.

      GFC II could make it even harder to maintain the narrative.

    • It might help if I set out my own view on how GFC II happens (this article is mostly about why).

      Like GFC I, GFC II is likely to start with risk-aversion, a phase that has now commenced.

      Then, again like GFC I, we get a debt crisis, though this time there will be concurrent risk to some fiat currencies, most obviously in the Euro Area, perhaps GBP, and some EMs.

      The authorities then unveil QE on a huge scale. This time is different, though. First, there’s no scope for cutting policy rates (let’s leave NIRP out of this for now, to avoid complication).

      Second, the aim of QE in GFC I was to slash yields (the market’s interest rates) by buying bonds in large amounts. This time, QE will be used to monetise debt, a straight swap of newly-created money for the debt of distressed borrowers. This is fundamentally different from the market operation that was QE in GFC I.

      Now there are two new problems, not encountered in GFC I. The first of these is that voters won’t acquiesce, and some opposition parties will join with “populists” in committing to scrap the plan.

      Then, out of this melange emerges a breakdown of faith in fiats. If people can borrow, then get out of trouble by being handed what (by this time) will be perceived as “funny money”, then the credibility of fiats takes a blow from which it is unlikely to recover.

      This will be compounded by toxic contagion in the financial system. Countries whose banking systems (as measured by financial assets) are too big will be left with holes that cannot be filled using QE without destroying faith in the currency.

      For instance, take a country wih financial assets at 1000% of GDP. If 10% turn toxic, filling the gap would require creating QE equivalent to 100% of annual GDP. In principle, this is tantamount to almost doubling the money supply. Try anything like this and the currency is toast.

      I’m still working this through – one reason for no article on it just yet – but this outline is what I think the scenario looks like.

    • Thank you for your insight, Tim. Because I understand MMT fairly well now, after about 5 years of reading up on it and conferring with colleagues, and skeptics. My take on what might happen is a bit different, but it’s still an educated guess.
      I actually don’t think the problem will be triggered by money or finance. These will be affected in consequence of course, but I think it will be some resource scarcity that will set it going. It might be oil, or shale or any one of the unconventional oil, or a big crop failure from drought. Also there could be a breakdown in some essential service, or both. The US power grid depends on 55 substations across the nation, so its vulnerable. But it wouldn’t be enough on its own as it would be repaired. It has to be something that spooks a great many people, like famine.
      I lived through the GFC. All the banking schemozzle had no effect on me personally so I was just a bystander. My work continued etc. Can that happen again? It’s possible at least once more.

      As far as the financial world goes there will have to be a great unwinding. If the banks are seen to suffer the people will hardly show sympathy. What the public will not countenance is seeing the banksters profit from the mess which they did in spades last time. no more privatising profits and socialising losses. From an MMT standpoint, the funds needed to bail the banks will never come from tax payers. They will be bought as always happens, by marking up numbers in reserve accounts at the central bank. “Thin air” money. It doesn’t matter if the money is never recovered. Like taxes they will simply disappear the moment the debt is “paid”. It’s happening now as the $29 Trillion paid out for GFC 1 continues. Paying it off will have little effect on resources as it is mostly just insurance money. and some jobs will be lost in the banks.

      There are derivatives out in the financial world that have an unknown sum attached. I have seen from $800Trillion to $1.4 quadrillion. This sum just has to be written out of existence, not jubileed or monetised.
      Private debts will be the ones most pertinent to the population. Here I use what Steve Keen suggested a few years ago. The government will pay off a large slab of mortgages and for those without a mortgage they will get an injection to match, so no one is left out. All the mortgages will be written down to a new lower value, a market reset. The banks will still be solvent just not as big as now with the mortgage haircut. All this can be done in the background by simply typing numbers into accounts. No threat to private/ personal savings in the banks need be considered. I can’t say how share prices would be managed. I’m not well versed in that, but forget derivatives.

      How long this will last is unknown, It might set off a runaway disaster or it might be patched up and a restart allowed to happen. The new governments will set up for full employment and undo the neoliberal nightmare. It might us give a breathing space for an unknown time.

    • The CBs are doing whatever it takes to fend off GFC2….. so when it comes…. I suspect they will have used up all the tools… because they understand what GFC2 means…

    • @John Doyle – I think Keen’s latest rendition of the Jubilee makes the bailout (1) payoff private debt, or (2) have to be used to purchase stocks as a credit for corporate debt payoff. This limits any immediate inflationary impact. Not that I’m much worried about that, but it would be a gradual impact as more consumer spending ramps up on a month-to-month level instead of one big plop.

      I think regardless of what appears to start the crisis it will be one of reduced production. We need lot let low demand destroy production – but the high price of inputs or essentials certainly seem like a good candidate.

    • Once again thank you Dr Morgan, that’s very interesting.

      What do you think of the possibility of governments using further QE to start a reflation cycle, converting energy into useful embodied forms such as infrastructure upgrades?

      I’m reading Hyman Minsky’s monologue on Keynes’ General Theory of Employment, Interest and Money at the moment. If I’ve understood this and your other posts correctly then it seems as though the coming destruction of claims on energy (money) and claims on future energy (debt) are very similar to a ‘Minsky moment’.

    • @Dr. TIm – Backstopping assets and the money supply quandry has some of the same theoretical problems as peoples concern with debt.

      https://www.zerohedge.com/news/2018-06-07/household-wealth-rises-above-100-trillion-first-time-ever-there-just-one-catch

      The impact of backstopping assets doesn’t really change the current productive economy of goods and services. Savings is only really possible as a construct if the future has more goods and services – since you can’t really “save” money unless you are also saving (1) Energy resources, (2) Materials, and (3) Productive capacity. Since we’re NEVER saving those 3 things, the illusion of saving currency relies on increased capacity.

      As you’ve pointed out before “weatlh” in terms of asset value or savings isn’t real in the sense that it doesn’t hold value if everyone tries to sell at once to eachother – there is actually way more savings/asset value than there are goods and services at any time.

    • If you believe, as I do, that the economy is an energy system, then one fundamental point emerges, relevant to GFC I and, even more so, to GFC II.

      This is that prosperity has ceased growing. In almost all Western countries, people are becoming poorer. Prosperity continues to grow in some emerging economies.

      What we have been engaged in since c2000 is an exercise in denial over this fundamental issue. That means that we’ve been trying to carry an ever-growing burden of claims – money, credit, debt – on a diminishing carrying capacity.

      Once this point is grasped, the inevitability of GFC II becomes starkly apparent. There are many ways in which this inevitability takes place, and I’m planning a follow-up to this article, moving on from the ‘why?’ of GFC II to the ‘how?’

      The probability is that problems break out in one or more areas, spreading thereafter by the lines of transmission implicit in the globalised financial system. Some countries and areas are at far higher risk than others.

      The nature of this exposure spans the political as well as the financial. Decreasing prosperity changes politics fundamentally, just as it increases the burden of financial exposure.

      So we should be looking for a combination of financial exposure and popular discontent when examining where the cracks may occur first.

      Logically, risk is at its most pronounced in any country or region with excessive debt, and/or an over-large financial sector, where, meanwhile, decreasing prosperity is causing discontent.

    • Not sure that prosperity is diminishing except perhaps marginally. I think what is happening is that prosperity is skewed towards the top 1% or so and the lower orders are missing out. Their sense of entitlement may trigger a correction which may become a GFC2. I can’t say if in total there is a diminution as compared with the current division of the wealth spectrum, but it may last for quite a while. Can seeds parse such figures?

    • SEEDS can tell you that prosperity per capita is decreasing in almost all developed economies, with the exception of Germany.

      The allocation issue isn’t modelled as such, but the critical point here is that ZIRP has changed the relationship between capital and income, inflating the value of capital, whilst slashing income as a percentage of capital. Because this has favoured anyone who owned capital before ZIRP, it has favoured “the wealthy”.

  33. Meanwhile back in real economy. House of Fraser is planning massive shop closures – including London – and even Poundland is in trouble.

    I’ve always thought that Poundland could run into trouble with it’s pricing tied down to its name.

    Far more sensible would have been to have called itself ‘Adjusted for inflation Poundland’

    • These are further signs that the UK economy is in trouble. The symptoms of customers short of money are unmistakeable. GDP increased by £36bn last year, whilst debt grew by £101bn (both at constant values).

      So, if Poundland is suffering, maybe that’s a “quid pro quo”?

  34. Well I can’t top your pun – but if you’ve got inflation how can you continually peg your prices?

    • If you source mainly from overseas (China) and that country keeps their exchange rate low (again China) then it might be possible for some time. You could fix a price with your suppliers and compromise on quality which gives you further leverage at source.

      However, I can’t see this working forever and it will indeed be “Poundland – or not”.

    • Probably both – actually I’ve just read that Poundland does sell things at over £1 so it must be other issues that have caused its problems – business rates?

  35. Thoughts About Modern Monetary Theory

    Adrian Bejan, a Physicist and Engineer at Duke University, has written dozens of book about thermodynamics and his own pet formulation called the Constructal Law. The Constructal Law says that anything that can move, from lava flowing from a volcano to plumes of smoke rising, to plants, to animals, and to the human/machine symbiosis which is now a dominant player on this planet….will evolve in the direction of movement with less friction and more fuel consumption. He pretty much equates civilization and prosperity with fuel consumption.

    So, in some respects, his view of the economy are in line with Dr. Morgan’s. It would take a dissertation to parse out all the details…which I won’t attempt here. Here I will just mention his theory of money. Money is seen as one of those technologies which greatly reduced friction. For example, suppose Farmer A has a nice crop growing, but then a vicious hail storm wipes out his crop. He desperately needs to feed his family. So he goes into town to see Banker X, who agrees to give him some gold to buy enough to survive to plant again next year. Farmer A takes his money to Farmer B, who was not hailed out, and gives him the gold in return for food. The gold (the money) has facilitated the transfer of some surplus food to a place of scarcity. It is possible to think of purely sharing economies or economies operating on some kind of barter, but gold (money) is the friction free way to do this transaction.

    Now we come to the modern world where money is created out of thin air by either banks or central banks. I won’t get into the complication that the central banks may just give the newly created money to the banks or to corporations through purchase of securities. In any event, we end up with a lot of newly created money in the money centers. The people in the money centers then look for the best place to loan that money out. Some of the choices include:
    *Credit card companies leeching off gullible or desperate consumers
    *Students, trying to get ahead in a world of narrowing horizons
    *Developing countries convinced that more spending will life them to Developed Country status
    *Shale oil drillers promising that ‘this is the year we start to make money’
    *Corporations buying back their own shares to enrich the management

    I haven’t listed any uses for the newly created money which seem really virtuous, because it seems to me that the uses of the money since 2008 have been scarcely allocated to virtue.

    So who gets the newly created money? The money centers and the manipulators get their share, and those willing to pay high interest rates (like the shale companies and the Developing Countries).

    Modern Monetary Theory is frequently accompanied by proposals that the government spend money into existence through a Guaranteed Annual Income. That is, every family gets a check from the government. Let’s assume that Bejan and Morgan are correct, and that energy is the linchpin of the economy. Lets also assume with Morgan that energy doesn’t grow on trees, and in fact our tree doesn’t look too healthy. So energy is flat to declining. Then Modern Monetary Theory coupled with a Guaranteed Annual Income is a method for distributing claims on energy which is quite at odds with the way banks and central banks would do the job. The combination would be a way to channel the available energy to more basic needs, such as food, housing, transportation, heating and cooling, drinking water, etc.

    My conclusion:
    *Energy really is the linchpin, and the prognosis is not good for those who believe in perpetual growth on a finite planet.
    *The energy descent will likely take a different shape under the bank/central bank money creation scenario than under the MMT/GAI scenario.
    *The choice depends on one’s values. In the Goldfinger movie about James Bond decades ago, the song said ‘he loves only gold’. That might be said about our current culture.

    Don Stewart

    • Thank you, very interesting.

      The one thing I’d add is about tendencies since 2008, including the allocation of credit.

      It’s little recognised that the system we call “capitalism” or “the market economy” ceased to function in 2008-09. If it had been allowed to operate, banks (and bankers) would have been wiped out, as would those with dangerous levels of debt. Following the immediate taxpayer rescue of banks, the policies of ZIRP and QE prevented market forces working out to their conclusions.

      As the price of preventing this from happening, we saddled ourselves with zombie companies, huge incentives to borrow, the wholesale destruction of pension provision, and the illogicality of trying to operate a “capitalist” system without (positive) returns on capital.

      This is the first time since the introduction of fiat currencies that we have tried suspending the working of market forces on a global scale. An alternative might have been to take banks into public ownership – remember, without taxpayer support their equity value was zero – and let the market have its way on everything else. We cannot know if this would have been better. But we know what happened in economies (such as the USSR) where market forces were over-ruled.

      Essentialy, then, back in 2008-09 we bought ourselves some time – but at a price which is only now becoming really apparent.

    • Hi Don, a couple of points to consider re MMT may interest you. Yes, the Federal government spends money into existence, but specifically to pay a debt, or invoice,. It cannot spend if there is no invoice first. What this does is automatically stabilise the economy. If the resources are not available then there will be no money creation. It is possible for the government to over produce invoices and if it does not match production it will cause inflation. That may be a price worth paying, perhaps because production will ramp up GDP and cancel inflation. Eventually though it will crash through an energy drought.

    • John Doyle
      My point is that if government issues claims on energy to ALL families, they are first in line. At the present time, it is the money centers and their chosen target destinations who are first in line. The amount to be distributed falls in accordance with the ECOE theory or Bejan’s ‘fuel equals prosperity’ theory (assuming fuel is diminishing). So what I am describing is the distribution of a shrinking surplus.

      If there were no limitations on energy (or other essential raw materials), then the creation of money and its distribution might stimulate the production of more surplus. Back in Roman times, the discovery of additional gold and silver stimulated the economy because there were no practical limits on human labor, which formed the backbone of the economy. We are in quite a different world in the 21st century. (Bejan thinks there MUST be an engineering solution, because the Sahara desert gets enough sunshine to power everything. I obviously see some serious thermodynamic issues with his belief….which is odd because he is the thermodynamics expert and I am a total novice. Take your pick.)

      Don Stewart

    • ‘In the Goldfinger movie about James Bond decades ago, the song said ‘he loves only gold’

      ‘Do you expect our economy to thrive Goldfinger?’
      ‘No I expect your economy to die’

    • “f there were no limitations on energy (or other essential raw materials), then the creation of money and its distribution might stimulate the production of more surplus.”

      The creation of money can still stimulate the production of more surplus if it is injected into the economy in ways that actually increase demand. An economy better structured to have demand side stimulus would be able to continue longer before collapsing than one that allows over concentration of wealth and thus suffers demand destruction. The ride ends when extraction is no longer profitable; thus, a higher demand will keep the ride going for a longer duration.

    • I am thinking more in terms of thermodynamics. At the present time, a rather high proportion of the fuel burned is turned into waste heat. That ratio can increase. The amount of energy which must be burned in order to produce the fuel can also increase (Dr.Morgan’s Energy Cost of Energy). No amount of demand side stimulus can overcome those factors. The only thing that can overcome is:
      *better technology (e.g., more efficient burning to usable output)
      *substitute technology (e.g., reversion to wood as the fuel)
      But reversion to a lower density fuel (e.g., oil to wood) will have large repercussion on the total output from the system. For example, we would not be able to get a wood fired plane off the ground. If we knew that oil was declining, we could mandate more walking and perhaps more mass transit and reserve oil for flying and diesel trucks…like in wartime. But that is managing a decline.

      Don Stewart

    • As I see it, prosperity (P) is determined by the aggregate quantity of energy (E), less ECoE, divided by the population (N). We can state this as:

      (E-ECoE)/N = P

      We can use this prosperity more or less wisely. We can share it out or or less equitably. But we cannot change it.

      If, within this formula, aggregate energy quantities grow more rapidly than the combined increase in ECoE and population numbers, then we become more prosperous.

      Otherwise, we do not.

    • Dr. Morgan
      In general, I agree. However, there are some subtleties, which relate to Engineering or, as Bejan calls it, Evolution. Sometime when you are bored with nothing to do (????), you should take a look at his chapter on athletic performance in The Physics of Life. As he points out, athletics are a good place to observe evolution because we see it happen right in front of our eyes.

      Reading about it is also a good place to reflect on another phenomenon: short term vs. long term. For example, in many of Bejan’s cases athletic performance is a function of height and weight. The height and weight of champion athletes is increasing at several multiples of the increase for the general population. He uses physics to calculate the advantage conferred. At the top level of performance, the advantage is overwhelming.

      But there is a dark side to it all. If you read Valter Longo’s book The Longevity Diet, you find that growth is not conducive to long, disease free life. There is a group of people in Ecuador who lack receptors for growth hormone. Even though they eat a terrible diet and smoke, they are virtually free from chronic disease. But they are very short people. So athletes are, in a sense, sacrificing the long term for the short term.

      Several years ago I was visiting my sister in Los Angeles. We passed a big billboard on the highway advertising Magic Johnson’s late night television show (The Magic That Lit Up the Night). Magic Johnson, at that point, was an ex-basketball star who had had sex with at least a thousand women and had contracted AIDS.

      So the reliable fire which bakes the bread is not the same as the roman candle firecracker. Some people will choose one or the other.

      Finally, I propose that Bejan’s question ‘What is flowing?’ is more subtle than Bejan seems to realize. Bejan reduces it all to movement (with his own definition of what movement is). It has long intrigued me that what is moving is ultimately the Mind. Drug addicts don’t really care much if they move (at least I don’t think they do). What the addict wants is for his mind to move under the influence of the drug. If drugs were legal and cheap, how many people would abandon all the hard stuff about doing real work and immerse themselves in the fantasy world of the drugged mind? And isn’t that what many people do every evening with their television? What is true is that movement in the mind caused by drugs can’t generally be monetized (the drugs themselves can be monetized, but nobody is going to pay me for going into a drug induced trip to nowhere). So if Society’s overarching goal is that the debts have to be repaid in order to keep the wealthy wealthy, then drugs are a mortal danger….unless they can be combined with advertising which keeps people hooked on buying more stuff (so is TV the perfect solution?).

      Don Stewart

    • Furthermore, governments, and those who advise them, don’t know about this. They assume the economy to be a financial system, when really it’s all about energy. To find out otherwise, you only need to switch the power off for 48 hours and watch what happens.

      Therefore, they are using the wrong tools to address the issues. I’ve likened it to trying to fix an ailing pot-plant with a spanner.

      This might be tragic, or comic, depending on how you choose to look at it.

      Finally, even if they understood it, they wouldn’t know how to quantify it. That’s why I’ve spent more than four years building SEEDS.

    • I don’t think its quite like that. MMT economists are always saying growth can only last while adequate resources exist. I think the politicians are aware there is a limit, but it’s not going to be broadcast, since there is no solution. Admitting it would be like a death wish.

    • I take your point, John, but would qualify it in one respect – there are no solutions which suit our prejudices. This doesn’t mean that there aren’t solutions if we’re prepared to change from our preconceptions.

      If I were asked for a plan – which, of course, I never would be – my answer would be to begin by recognising the energy basis of the economy. (That itself shouldn’t be hard to sell. Just as the armed forces role-play or simulate conflicts, the authorities could simulate cutting off all power for 24 and then 48 hours, with collapse probably occuring somewhere between those parameters. QED).

      Second, ditch all financially-based interpretations of the economy, and then measure and project the energy basis of prosperity (again, something that an organisation with the resources of a government-funded think-tank should be able to accomplish).

      Third, recognise reality. Prosperity has ceased growing and, in many countries, is observably declining. This, again, is demonstrable.

      Next, come to terms wIth this. If growth is over, there’s no point banging our heads against a brick wall and pretending it’s not the case.

      From that, design responses. Invest in pleasant cities, and in public transport, to reduce journey distances and use of cars. Pursue greater equity, recognising that a declining economy can no longer sustain inequalities on the scale of today. Have a frank debate about population trends, and an equally frank debate about the appropriate border-line between private and public provision.

      None of this is impossible – just unpopular. One day, I think, most of it will be forced upon us.

      Finally, lock up all extreme socialists and neoliberals in a palatial building, with huge amounts of gold and fiat money – but no electricity……..

    • Tim – the solutions you are suggesting are a very bad idea

      In fact if leaders were to implement these sorts of things now — BAU would collapse prematurely.

      We MUST have growth — by whatever means —- the CBs understand this — and that is why they are doing whatever it takes to keep the ball rolling… they have delivered us 10 years so far!

      ‘Our most recent history shows that the slightest slowdown of our current economy by just a few percentage points brings an immediate chaos of unemployment and global destabilisation. Yet somehow that won’t apply to a permanent ‘downsizing’; that seems to follow a different set of social rules, as if we can do it and still retain a civilised existence. And of course without downsizing wages too much. We will still expect to eat, buy ‘stuff’ and carry on in employment and even retain our wheels, with the strange certainty that as long as we have wheels, we will have prosperity by involving ourselves in the exchanges of trade that will not differ much to what we have now.’

      http://www.endofmore.com/?p=1464

      There is no BAU Lite (and any attempt to pursue this would taste even worse than Bud Lite)…

      We need more vehicles… more aircraft… more people….more shopping …. more coal and oil and gas to be burned…

      There is no coming off the gas pedal and slowing down…. because that would send us crashing into a brick wall.

      Bernanke said deflation was what he feared most…. a deflationary death spiral is a frightening beast… once it gets underway it can be difficult/impossible to stop — that is why the CBs rush in the moment growth is threatened…. he was so very correct

      Surely all of that is obvious. Or perhaps not….

      I have a good mate — and we’d do long hikes together before I moved to NZ — we touched on some of these subjects — and he at one point said he’d rather not go there… because when he does he has nightmares…he fears for the lives of his kids…..so we put the oil discussions in a box… and never re-opened it

      I know people have children… grand children … and dissecting this dying beast can result in mental trauma… acknowledging the very grim implications of what happens when the beast dies is not a happy place….

      So people look away — or they reach for a piece of wood in the cold Atlantic sea….

      I have no kids… because I chose not to… partly because I saw no future for them (and because I don’t like being woken up in the middle of the night….)

      This no doubt allows me to be able to look this beast in the face and tell him f789 you beast… come and get me … it’s been a bloody good run …. made better by the fact that I have know you you are gutted and dying for over 10 years now … and I have used that knowledge to squeeze every ounce of juice out of the orange….

      So I have gotten the better of you… and if you take me down with you tomorrow — I will go without a struggle (better still… I my pre-empt you with a 150mph run into a rock cut… just after the power goes out)…

      I can see how those with children might not see it on these terms…. why they would reach for that floating timber… and load their children onto it … before sinking below the waves.

    • “Finally, lock up all extreme socialists and neoliberals in a palatial building, with huge amounts of gold and fiat money – but no electricity……..”

      This phase is the highlight of your plan, Dr. Morgan.

    • I look at it this way. Decreasing prosperity means there are things we can no longer afford. One of these things is the luxury of letting extremists determine economic policy.

      Those who want to nationalise everything, and those who want to recreate the Victorian era where the rights and working conditions of ordinary people are concerned, are luxuries that we can do without.

  36. G7, Trump, James Kunstler
    Kunstler is a provacateur blogger. He’s not everyone’s cup of tea, but his post today (which is short and just conclusions rather than a rehearsal of facts) is in line with some of the discussion just above:

    http://kunstler.com/clusterfuck-nation/the-summer-of-discontent/#more-9328

    Trump, immediately after the Tax bill was passed, commented at a dinner for the rich and well-connected that ‘I just made all of you a lot richer’. So we can be pretty confident that he would never favor the MMT/ GAI scenario. Out of the turmoil, will someone in Europe or China come forward with the MMT/ GAI alternative? Dr. Morgan has been predicting a turn to the left, particularly in the UK.

    Grab your popcorn….Don Stewart

    • Hi I’ve just read the blog through your link. Well it’s straight talk – but what would American politicians reaction be if it was read out to them with an absolute top economist saying ‘These are the facts – they cannot be disputed’.

      I would suggest they would retreat into a fantasy World of denial.

      As an aside – my childhood dream has always been to see man land land on Mars. If the worst really does come to the worst I doubt there will be the political will to get there – and certainly not the resources.

    • I wouldn’t say most people in the UK are turning to the Left, just that the arguments of the pro-globalist Right no longer convince in the face of evidence to the contrary of decreasing prosperity.

      Many will vote for whatever promises a cheaper life -hence the naive support for nationalisation of this and that.

      The British have never been ardent capitalists, but equally most, even the working class, are suspicious of doctrinaire Leftists.

      What occurs in these soggy island over the next few years will be most entertaining, to say the least.

      I am preparing to bail out to Spain should the need arise, where at least I could die in sight of mountains rather than in this the flattest part of Britain!

    • “As an aside – my childhood dream has always been to see man land land on Mars. If the worst really does come to the worst I doubt there will be the political will to get there – and certainly not the resources.”

      Travel to Mars was never possible if it makes you feel any better. The energy requirements alone make it fundamentally impossible before accounting for the fact that people would need to endure deadly radiation, exposure to microgravity for too long to survive (extended exposure causes destruction of bone matrix and macular degeneration amongst other health issues), and would need to being along an impossibly large amount of resources.

      Manned space travel to Mars was always an eschatological idea within the context of the modern civil religion. It is no more possible than “sustainable civilization”.

    • MMT is a popcorn grabbers wet dream. With 7.5 billion people confronted with diminishing returns in cold hard assets like food, the ‘left’ is just another dying carcass looking for titties.

  37. Dr. Morgan
    Re: design responses

    I have mentioned Bejan’s book The Physics of Life. It might be worthwhile for you to take a look at the chapter on City Evolution. Bejan makes the case that city design has been aimed at minimizing travel time from any point in the city to any other point in the city. So, for example, in ancient Rome, the blocks were square, but the suburbs built in the 20th century evolved into rectangular shapes. The square minimizes travel time if one is on foot. The longer blocks minimize travel time if one has access to street cars. Ring roads minimize travel time when one has access to high speed automobiles.

    Another example of minimizing time is when one throws a stick into a lake for a dog to fetch. Let’s assume that the stick is thrown at a 45 degree angle. So the dog can run rapidly up the beach to a certain point and then jump in the water and swim. What does the dog minimize? The dog minimizes the time to get to the stick…without benefit of a college education or ever being frustrated in trigonometry class. The dog does not minimize caloric expenditure, nor distance traveled. I am not surprised at the dog’s decision, since dogs are hunters, and getting to a prey animal rapidly is what it is all about. The stick is, for behavioral purposes, a prey animal.

    A human father, seeing his child in an attack of cramps in the lake while swimming, will behave like the dog.

    Trucks, which are more oriented toward profit, will pay more attention to fuel economy. But even with trucks, there are powerful forces urging that they pay attention to time. The drivers are paid for their time. And ‘just in time’ is now the rule for almost all trucks.

    The Atlanta airport is a good example of minimizing travel time. There is a fast train, with rectangular terminals leading off from it at regular intervals. The design makes the time spent walking equal to the time spent on the train, which minimizes the time spent. As someone who spent way too much time in the Atlanta airport, I fully understand the goal of spending as little time there as possible.

    So if one’s goal is to encourage the minimization of fuel, not time, then fundamental changes need to occur.

    At the opposite extreme would be the promenade on Sunday afternoon which used to occur (and maybe still does) in Mexico cities. The goal is not to get somewhere, but to be seen.

    When I choose a route to get to the coffee shop, it all depends on the weather. One route is sunny for when it is cold. Another shady for when it is hot.

    My point is not to list ALL of the decision factors people consider. Just to point out that Bejan and colleagues have accurately predicted design by assuming that time minimization is the determining factor. I imagine the Strong Towns people would rather people adopt new goals. And Karen Lynn Allen proposes that the 10 minute neighborhood will cure most all our ills:
    http://karenlynnallen.blogspot.com/2018/06/10-minute-neighborhoods-low-tech.html

    Whether we actually have the resources to rebuild our urban environments or not, I won’t express an opinion. Merely observe that it is probably a good idea to have clarity in terms of ‘what is flowing’.

    Don Stewart

  38. A poster made an interesting comment in The Guardian under an article on the effects of the closure of major chain stores in the town of Darlington – BHS, M&S, House of Fraser – to the effect that such national chains may well be losing interest in having a presence in even prosperous middle-ranking towns.

    Darlington is, it appears, not impoverished: a street photo seems to conform this.

    This may well be true. And later in the day I was told that M&S is clearing out of Newmarket, just such a town in a prosperous region. We shall see how the pattern develops.

    BHS, which closed in Darlington in 2016, is still boarded up,and the Council people say they are worried about what to do with these large stores in the town centre, which seem likely to become permanent eyesores.

    Retail market experts are suggesting that retail staff now look to move out of retail completely or prepare to work in warehouse fulfilment centres. Bright future poor devils!

    • This is another symptom of deteriorating prosperity, along with cutbacks in restaurants and pubs. Part of the process is likely to be the migration of workers towards lower-paid employment, generally less secure as well, including the “gig” economy.

      A casualised, poorly-paid workforce is symptomatic of a low-prosperity economy. Additionally, these trends are likely to undermine tax revenues.

      It surprises me more than ever that, with the possible exception of Ben Broadbent, these trends are still unnoticed. I don’t know how much mote obvious the deterioration in prosperity has to become before anyone with influence over policy notices it.

    • ‘I don’t know how much more obvious the deterioration in prosperity has to become before anyone with influence over policy notices it.’

      Probably when councils can no longer afford waste collections – usage of motorways falls back to 1960’s levels (not a bad thing actually) – trains start running at far less than full capacity (already happened with franchises putting in silly bids which they couldn’t afford).

      I think my MP must walk around my local town with virtual reality goggles on because he doesn’t seem to ever comment in his newsletters how the town centre redevelopment has been delayed for nearly a decade with rows and rows of shops remaining boarded up.

      Off topic- but of interest – he was incredibly pro leave EU – however his latest newsletter says the following.

      ‘It (HS1) is the fastest rail service in the UK and it is key to us pursuing the Government’s aim of a deep and special relationship with the European Union after Brexit’

    • When I was still living in England, waste collections had already gone from weekly to fortnightly – and even that was bad enough.

      HS2 is a daft idea, but the timescale lies far beyond GFC II.

      As for the EU, I must admit I can see nothing wrong with an MP who supported Leave also wanting a close relationship with Europe after “Brexit”. The greatest “Brexit” risk, as I see it, is the UK turning its back on Europe and getting closer to the US. I’ve written here before about the emerging schism within “capitalism” between the European and the American models. For me, that choice is a no-brainer.

    • Yes HS2 is a daft idea but we’re stuck with leaders who think it will help revitalise our economy when it fact all it will do is soak up vital resources and leave much needed improvement to local travel needs underfunded.

      Regarding the EU – yes we do need to keep close ties and stay away from the American model. However he was so anti anything Europe at the time of the referendum that I was very surprised that his stand against Europe appears to have softened.

    • Donald
      Sometimes we (or at least I) forget that politicians are in a parallel universe. They live in a world of reality television where ‘anything goes and nothing matters’. For example, I read in some story on the Automatic Earth that, at the just concluded G7 conference, the G6 were trying to show some graphs and charts to Trump, and he refused to look. He had his stump speech which works well with farmers in the Midwest and people in the old factory towns from Massachusetts to Georgia and he didn’t want to be bothered with trivial facts. The G6 may be a little more attuned to facts than Trump, but all of them are dependent on the reality TV scenario for survival in our media soaked world.

      We have fallen so far from the sober considerations characteristic of the Lincoln-Douglass debates that it is pitiful.

      Don Stewart

    • Trouble is those who play up to and cleverly manipulate the media have the best chances of staying in power.

      We might not get rid of Trump until 2024 although this could be a good thing in one sense as he’ll have to take the rap for the coming crisis.

      When the crash comes I’ve no doubt he’ll go on national TV and shout out ‘Lies lies – it’s all lies’
      Many will believe him.

    • ‘BHS, which closed in Darlington in 2016, is still boarded up,and the Council people say they are worried about what to do with these large stores in the town centre, which seem likely to become permanent eyesores’

      Convert them into flats to try and ease the housing crisis perhaps – but not sure where the money would come from though.

      As you will have seen from my earlier post in reply to Tim and indirectly yourself – you will have read that part of my local town has been boarded up for ages. I doubt it’s ever going to be redeveloped because where are the businesses going to come from?

  39. Neil Postman: Amusing Ourselves to Death: Public Discourse in the Age of Show Business
    Originally published in 1985. It was republished in 2005 in a paperback edition. Also, apparently available for download as a PDF, for free.

    Don Stewart

  40. Opposite Extreme: Tell the Truth
    http://peaksurfer.blogspot.com/2018/06/is-it-hot-enoughyet.html

    When I read Albert’s words, I am reminded of the FACT that a great many people in the eastern half of the United States suffered damage from frozen pipes this past ‘spring’. A friend of mine in central Texas had frozen pipes, doing significant damage. A friend of my wife’s here in North Carolina and her husband went to Europe for 2 weeks in April. They returned to 20,000 dollars of damage from frozen water pipes. In April in North Carolina???

    Yet there are still people in the Global Warming camp who vociferously object to the Climate Change moniker because they are apparently still convinced that everything is going to get warmer and a few frozen pipes are just outliers. Personally, I was convinced by the observations of ice cores by a high school chemistry teacher in New Jersey that what we were looking forward to was Climate Destabilization….when you turn a water tap on to get more pressure, you may go from smooth flow to turbulent flow very quickly.

    The truth is bad enough. As Albert says. In a Neil Postman world, it is sometimes very hard to tell the truth and actually get through the clutter. And so, I suppose, the allure for politicians of ‘anything goes and nothing matters’.

    Don Stewart

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