#142: Past, present and future


As we near the end of a year that can certainly be called ‘interesting’, I’d like to reflect on what’s happened, what’s happening now, and what we might expect to happen going forward. I can’t be sure that this is the last article for 2018 but, in case it is, I’d like to thank everyone for their interest, their comments and their many invaluable contributions to the themes we discuss here – and, of course, to wish you a very merry Christmas and a happy and successful New Year.

Where Surplus Energy Economics, this site and SEEDS are concerned, this has been a memorable year. SEEDS – the Surplus Energy Economics Data System – was finally completed in early 2018, and, amongst other things, this has freed up time for more thematic analysis. It’s both humbling and gratifying to know that about 44,000 people have visited the site this year, another big increase over the preceding twelve months. Most importantly – though this is for you to judge – I like to think we’ve developed a pretty persuasive narrative of how the economy works, and how things are trending.

We can take less satisfaction in what we see around us. According to SEEDS, most of the Western economies have now been getting poorer for at least a decade – and, ominously, the ability of the emerging market economies to grow enough to offset this deterioration, and keep global prosperity static, seems to have ended. World prosperity per person has been on a remarkably long plateau at around $11,000 (constant values, PPP-converted), but has now started to erode.

Deteriorating prosperity might be ‘a new fact’ in the world as a whole, but it’s an established reality in the West – with the single exception of Germany (rather a special case), no developed economy covered by SEEDS has enjoyed any improvement in prosperity at all since 2007. In most cases, the decline in personal prosperity has been happening for longer than that. But our societies seem to have learned almost nothing about what’s going on – and, until the processes are understood, crafting effective responses is impossible.

Historians of the future are likely to be bemused by our futile efforts to escape from the energy dynamic in the economy. From the turn of the millennium, we started pouring ever larger amounts of debt into the system. This led, with utter inevitability, to the 2008 global financial crisis (GFC I).

Undeterred, we then compounded cheap and abundant debt with ever cheaper money, yet the inevitable consequences of this process will still, no doubt, be declared both ‘a surprise’ and ‘a shock’ when they happen. We surely should know by now that we have an “everything bubble” propped up by ultra-cheap money, and that bubbles always burst. If there’s any sense in which “this time is different”, it is that, since 2008, we’ve taken risks not just with the banking system, but with money itself.

The death of debt?

There’s one theme which, though we’ve touched on it before, really needs to be spelled out. Throughout the era of growth, we’ve come to accept the process of borrowing and lending as a natural component of our economic system. Indeed, this practice long pre-dates the industrial age, when borrowing and lending, which then was more commonly called “usury” (the lending of money for interest), began to be de-criminalised after Christian Europe had been shaken up by the Reformation.

Leaving theological and ethical issues aside, we need to be clear that the process of borrowing and lending is a product of growth, because debt can only ever be repaid (and, indeed, serviced) where the prosperity of the borrower grows over time.

For simplicity, we can divide debt into two categories. If someone borrows money to expand a successful business, it is the growth in the income of the business which alone enables interest to be paid and the capital amount, too, to be reimbursed in due course. This is termed “self-liquidating debt”.

“Non-self-liquidating debt”, on the other hand, is typified by the loans consumers take out to pay for a holiday, buy a car or replace a domestic appliance. Here, the borrower is buying something which he or she cannot afford out of current income, and the only way in which this can be repaid is if the borrower’s prosperity increases over time.

Take away the assumed growth in prosperity, however, and both forms of borrowing cease to be viable. “Self-liquidating” debt assumes that an expanded business can earn greater profits, but it’s hard to count on this when potential customers are getting poorer. As for “non-self-liquidating” debt, the all-important rise in the borrower’s means can no longer be relied upon when people generally are getting poorer.

In short, the very process of borrowing and lending is likely to be stripped of its viability as prosperity declines. This should be an extremely sobering thought in a world which is awash with debt, and where supplying cheap credit is seen as a panacea for economic stagnation.

You might well ponder at least two things about this. First, what happens to the large quantities of debt owed by those Western economies whose prosperity has already moved significantly along the downwards curve? Second, what happens to asset prices in a world where the credit impetus goes into reverse?

Reflecting on the essential linkage between debt and growth, you might also wonder why we’re not already seeing the debt edifice crumbling. There are two main answers to this. The first is that the debt structure has been buttressed by de-prioritising another form of futurity – simply put, we’ve already created huge (and burgeoning) gaps in pension provision as part of the price of preserving the edifice of debt.

The second answer is simpler still – we’ve not seen the debt edifice start to crumble yet……

Feeling the pain

People across the Western world certainly seem to know that their prosperity is eroding, and they’re far from happy about it. We can see the effects both in political choices and in rising popular discontent. If you understand deteriorating prosperity, then you understand political events in America, Britain, Italy, France and far beyond – events which, if you didn’t understand the economic process, must seem both baffling and malign.

Though understandable, anger isn’t a constructive emotion, and what we really need is coolly analytical interpretation, understanding and planning. If it’s true that we’re not getting this from government, then it’s equally true that government reflects the climate of opinion. We can hardly expect governments to understand the economic realities when opinion-formers stick resolutely to conventional interpretation. It’s more surprising that conventional methods still command adherence as outcomes continue to diverge ever further from expectations.

Making glib promises is part and parcel of politics and, in fairness, those who don’t do this can expect to lose out to those who do. What is more disturbing is the continued promotion of economic extremism. Nationalising everything in sight won’t work, and neither will dismantling the state and turning the economy into a deregulated, ‘law of the jungle’ free-for-all.

Over the years, we’ve tried both, and should know by now that the lot of the ‘ordinary person’ isn’t bettered by these extremes. At least, when prosperity was still growing, we could live with the price of ideological purity – now that prosperity (in the West, at least) has turned down, though, these consequences are something that we can no longer afford.

If you think about it, the extremes either of collectivism or of ‘laissez faire’ have always been absurdly simplistic. Have we ever really believed that benign apparatchiks can manage things better than people can do for themselves? Or that unfettered ‘capitalism’, which concentrates wealth and power just as surely as collectivism, can do things better? Perhaps most importantly, why do so many of us persist in the view that possessions, material wealth and nebulous ideas of relative ‘status’ are a definition of happiness?

Logically, deteriorating prosperity means that we concentrate on necessities and dispense with some luxuries. Amongst the luxuries that we can no longer afford are ideological extremes, and an outlook founded wholly or largely on ownership and consumerism.

The need for ideas

The good news is that we’re not going into this new era wholly lacking in knowledge. The trick is to understand what that knowledge really is. Keynes teaches us how to manage demand – or can teach us this, so long as we don’t turn him into a cheerleader for ever bigger public spending. Likewise – if we can refrain from caricaturing him as a rabid advocate of unregulated and unscrupulous greed – Adam Smith tells us that competition, freely, fairly and transparently conducted, is the great engine of innovation. More humbly, or perhaps less theoretically, but surely more pertinently, experience tells us that the “mixed economy” of optimised private and public provision works far better than any extreme.

Going forward, we should anticipate the collapse of the “everything bubble” in asset prices, and should hope that we don’t, this time, go so far into economic denial as to think we can cure this with a purely financial “fix”. I’m fond of saying that “trying to fix an energy-based economy with financial fixes is like trying to cure an ailing pot-plant with a spanner”. We should understand popular concerns, which seem to point unequivocally towards a mixed economy, extensive redistribution and an economic nationalism that needs to be channelled, not simply vilified.

Another, positive point on which to finish is that a deterioration in prosperity needn’t prevent us – indeed, should compel us – to make better use of the prosperity that we do have. There’s no situation which can’t be made worse by rash decisions, or made better by wise ones. The forces described here – economic trends, and their political and social corollaries – all contain the seeds (no pun intended…) of divisiveness. This being so, cohesion and common purpose have never been so important.

Togetherness, and concern for the welfare of others, are, and certainly should be, part of the fabric of Christmas. Seldom can these characteristics have been more important than they are now.


222 thoughts on “#142: Past, present and future

  1. The borrowing and spending binge by Canadian households, businesses and governments (all levels) continues unabated.

    At the end of September, 2018 the total debt outstanding in Canada (bottom line of the Statistics Canada credit market summary data table) was $7.953 trillion. At the end of September, 2017 the total debt outstanding was $7.577 trillion. In the 1 year period from the end of September, 2017 to the end of September, 2018 it increased by $376 billion. This is an increase of 4.9%.


    • The last time I ran the scores, Canada came third (amongst developed economies) in the SEEDS Risk Matrix, after Ireland and Britain (with Australia and France in fourth and fifth). Canadians haven’t suffered excessively in prosperity terms (so social/political risk isn’t a problem), but the country relies far too much on borrowing, and has a dangerously inflated property market. The financial sector looks too big, albeit not as extreme as Ireland or Britain.

      My expectation is that Canada’s rate of borrowing will have to decrease markedly, which could cause a sharp correction in property prices. I understand that this correction has now commenced, especially in previous property hot-spots.

  2. Given that the present energy system is at the heart of present economic woes, the most viable “solution” would be to engage populations in the transition to a Zero Carbon economy. We have to do this anyway to avoid the worst excesses of climate change which are rushing at us with increasing speed. (see the recent IPCC report in October 2018 which states that to avoid the worst of dangerous climate change we have 12 years to nearly halve our carbon emissions). Such a transition necessarily must include all the population in various ways through increasing involvement in local food etc. production, major improvements in energy efficiency and investment in local renewable energy supplies. The transition to Zero Carbon also necessitates a dramatic drop in our purchases of new “stuff”- c30% of our individual carbon footprints- is from new appliances, furniture, paint, toiletries, clothes and so on. This will mean the economy taking a nosedive and heading to a much smaller GDP.
    We can choose – either a financial/monetary crash or a civilisation crash from climate change- or maybe both.

    • That’s the problem we are ‘not all in this together’. The 1% want to keep the gains and lifestyles they’ve become accustomed too, their hired help (the next 10%) are making sure they get there cut too.

      It’s the remaining 89% who are expected to lose everything and revert to modern day serfs so that the above can carry on regardless

      Unless or until we all have to make sacrifices (and seen to be making them) then I don’t see any way out other than mother nature taking things in hand

    • We’ve had this 1%/10%/89% situation before, in fact it’s recurred through history, and has always succumbed to its own intrinsic instability.

      Note, first, that a lot of the 1%’s wealth is a function of inflated asset prices, so isn’t likely to be a permanent fixture.

      Second, in an age of deteriorating prosperity, we can’t expect the 89% to live on less and less, year after year – though that’s exactly the trend of late, with casualised and insecure work, zero-hours contracts, the “gig economy”, unaffordable housing and the rising cost of household essentials.

      In past times, the 1% has always thought it can make its position impregnable, by using money, force and technology to keep the majority “in their place”. It’s never worked out that way, and some of the 1% seem to be seeing that now, wondering what the best bolt-holes might be, and how to ensure the loyalty of their staffs.

      The more enlightened answer, which I think some of the 1% do recognise, is to shape trends rather than try to stop them.

    • Thanks Charmian. Personally, I don’t see how we can achieve zero carbon – even making wind turbines requires, for instance, steel, which can’t be produced with carbon – but big reductions are certainly both possible and imperative.

      The question, though, is: are we prepared for the required changes?

      I’ll give just one example. The vogue now is for electric vehicles instead of IC – but transition just isn’t possible based on renewables alone. The EV “dirty secret” (and I quote) is they’re going to need to be powered by burning more coal!

      Workable solutions involve fewer cars, and less travel – that in turn means changing where and how we live and work, as well as how, and how much, we travel. Are we prepared to invest in public transport, use it much more when we have, regenerate cities (to cut travel needs), and so on?

    • Hi Tim
      I totally agree that it will be hard, but if we want our civilisation to survive There Is No Alternative – to quote Mrs Thatcher, as I understand she was fond of saying- although in a somewhat different context.
      As for the details: agreed we need carbon to make steel, but we can minimise the amount used – plans for the Port Talbot steel works, for example, included using recycled material only and using the proposed Swansea tidal barrage for electricity. There are several mines now using wind turbines and/or PV arrays for their power sources.
      As for coal electricity to drive EVs- even if that were the case this would still drop the carbon emissions by over 50% or so because of the increased efficiency of electric vehicles. Better as you say is to accept public transport and change our organisation of everything to cut the demand for travel and for stuff.
      Very few people understand how much change is required to get to the necessary Zero Carbon- as it will need a complete re-organisation of our societies and completely different education and skills to be able to do it. No more lounging around watching TV or playing video games we will have to be out there tilling the land to grow food!
      How we achieve this is hard to say. Peter Harper who was at the Centre for Alternative Technology in Machynlleth said “The middle class will not give up their love miles”. That is one of the key issues to address. Behavioural psychologists needed urgently, as well as rules….

    • Thanks Charmian. Essentially, we can do this wisely, before it’s forced on us, when we still have some room for choices – or put it off and do it the hard way.

    • I don’t believe opting for a Zero Carbon solution is related in any manner to growth (or prosperity per Dr. Morgan). For instance, if all future development was around nuclear energy (as far as electricity is concerned), we would have a Zero Carbon solution. But, if said option is not sustainable (per cost, GDP metric, SEEDS metric, per ECOeI, per ECOE,…) then “energy wise” we would get poorer.

      Also, let’ s recognize the fact that most of future energy growth will come from India, Pakistan, Bangladesh, China… And those countries don’t have the option to purchase energy sources on the market (oil, gas,…) but have to rely on “local energy sources”, i.e. coal. And, we can’t forbid these countries to use such an energy source since their people are poor and seek a better future through the availability of “affordable energy sources” (namely electricity) which will have to be derived from coal…

    • From our point of view the issue around nuclear and renewables for energy supply is the reduced energy return they give compared to fossil fuels – Dr Tim’s research on the implications of this being what has brought us to this discussion. Nuclear in large amounts will not be around for much longer as it is a) too expensive compared to renewables and b) has reducing EROI- because of the very low and reducing U235 ore concentration. See the work of the Energy Watch Group on energy resources for more on this. This suggests that nuclear will in the future mainly be used for specialist purposes- maybe for large ships. Given the existing use of nuclear for submarines, it is not a big stretch to envisage nuclear cargo ships.

    • Charmian:

      It’s unfortunate about nuclear, because renewables, whilst imperative, aren’t going to give us the same surplus energy prosperity that we’ve become accustomed to with fossil fuels.

      Nobody has yet shown us how, using no fossil or nuclear power, we can supply the steel, copper, plastics and so on required for solar panels and wind turbines.

      Please don’t get me wrong about this – I’m absolutely pro-renewables, but expectations for a seamless transition from fossil, without any inconvenience or changes to lifestyles, are a delusion.

      Still, this might be dwarfed by the shock and anger when people find out what has happened to pension provision…..

    • Human contribution to CO2 is negligible, however if you are that troubled by the climate change tax opportunity, sorry, “Threat”, you can easily go Zero carbon by simply holding your breath. This will leave slightly less CO2 for plants to respirate of course, but they need to do their own taxing of oxygen.

    • Charmainl,

      Like so much of the AGW scaremongering, global headlines are made which are later (quietly) disproven.

      On November 6, mathematician Nic Lewis pointed out flaws in the October 31 paper. The authors of the October 31 paper now say they’ve redone their calculations, and – although they find the ocean is still likely warmer than the estimate used by the IPCC – they agree that they “muffed” the range of probability. They can no longer support the earlier statement of a heat increase 60 percent greater than indicated. They now say there is a larger range of probability, between 10 percent and 70 percent, as other studies have already found.

    • Donald,
      A very interesting webinar video.
      It does appear molten salt reactors are a game changing technology that could allow us to successfully transfer away from fossil fuels.
      This Moltex SSR looks excellent.
      Many thanks for posting.

    • Hi glad you found it interesting – I’ve got my fingers crossed.

      You never know other advances – like Quantum computing – may help us make new breakthroughs and present opportunities that we haven’t even thought of yet.

  3. A very accurate survey of where we are now.

    It is perhaps almost impossible to be so lucid, and at the same time hopeful: but one can still indulge in the wish for a Merry Xmas, and a not-too-painful coming year!

    I fear status-consciousness is deeply embedded in us, as in all primates, and will never be rooted out: all attempts at a political or moral reconstruction have failed for that very reason. It is not just a product of consumerism; in fact, consumerism flourished because it built on a natural foundation.

    Social hierarchies are also a useful mechanisms for organizing energy distribution in times of scarcity (which have been most of human history). The application of strict equality, regardless of sex, age, status and profession/skills would most likely be the death of the whole group….. (Reading about famines in 19th century England and how working people themselves self-organized to deal with them has confirmed this, for me at least).

    Likewise, human beings – as individuals, or in the mass – are hardly ever coolly rational, whatever their intellectual and temperamental endowments: the drivers of behaviour are subconscious and utterly irrational.

    Reaching for disproved and out-dated ideologies, historic economic theories which are no longer appropriate in the age of energy depletion, and attacking innocent scapegoats, are, I suspect, what we can anticipate.

    Equally, policy responses which destroy currencies and which foolishly try to hold back the tide of popular discontent by mis-portraying it as mere bigoted ‘populism’ are highly likely,

    Can we add revolution to this mix? Is it even possible in the age of universal survelillance and invisible, globalized, insitutions?

    Which leaves us with the old proverb: ‘Hope is born of …….lack of hope’.

    Merry Xmas everyone!

    • I derive some comfort from our ability to adapt. After 200 years in which rapid growth (and its accompanying values) have become embedded in our minds, it’s only to be expected that changing attitudes won’t come easily. One of my favourite authors has written of the remarkable human capacity for “mental re-tooling”, and I think – and hope! – that he’s right about that.

      Have a terrific Christmas!

  4. Tim,

    Merry Christmas

    I doubt if us in the UK will have a Happy & Prosperous New Year, more like an opportunity to find out what life in a failed state will be like.

    All the best


  5. What Charmain1 says is probably correct.
    Unfortunately we live in a democracy where every one – like people’s views on Bexit, all have totally different view points.
    Trying to herd cats into an unwanted location springs to mind.

    • I think we’ve spent so long promoting a ‘me! me!!’ culture that it’s going to be hard to adjust.

      It’s noteworthy, I think, that pre-Christmas spending by shoppers is tumbling, and in the EU as well as in Britain. It will be interesting to see if, as a result, people enjoy Christmas less – my guess being that they won’t..

    • Many presents just end up on shelves or given away anyway – a family walk and reinforcement of real Christmas values won’t do anyone any harm.

    • I agree. Here in Spain, 25th December is a religious event, and presents aren’t given until 5th January, The Night of the Kings. I find that refreshing.

      Even in England, traditionally, presents weren’t exchanged on the 25th, which was strictly a Christian festival, but on the 26th, the term “Boxing Day” deriving from “Christmas boxes” (presents).

      I’m sure you do, or would, enjoy “A Christmas Carol”, by Tom Lehrer.!

    • Wonderful to see that Tom is still with us (a sprightly 90). Have a great Christmas – Donald

  6. If there is indeed a major problem with the viability of money, all brought on by debt problems, then the market economy, which is mediated by monetary exchange, may fail rapidly. In that case, the only way to manage the physical economic assets needed to keep people alive (energy production, industrial agriculture, the electric grid) will be by a command economy.

    You ask, “Have we ever really believed that benign apparatchiks can manage things better than people can do for themselves?” Perhaps not, but try managing things for yourself without an money at all. We may very well depend on apparatchiks to manage things for us if the global market economy has a meltdown. Imagine Cuba’s Special Period going global.

    • My hunch is that the Fed is trying to let this happen in slow motion – if so, I commend their intent but doubt if it can succeed.

      As I’m sure you know, the problem isn’t price, but leverage. If you own stock priced at $1000 which falls to $600, no money has left your bank, you still own the stock, and it might even go back up again one day. But, if you borrowed $800 to buy it………..and this is far from purely theoretical, given the huge scale of margin debt.

  7. It seems much longer than one year…
    since Dr. Morgan unwrapped SEEDS. The baby must be growing vigorously!

    Which brings us to looking up from the crystal ball and out at the real world to try to figure out what we ought to be doing. For your amusement, I have two suggestions:
    *Tomorrow, I think, Dmitry Orlov will reveal ‘a bright light’ for our future (probably Russian nuclear plants)
    *On the Degrowth end of the spectrum, John Michael Greer has just started what promises to be a lengthy series of articles on what to do about our problems:

    I will make one comment on JMG’s article today. I occasionally succumb to click-bait. I’m not proud of myself when I do succumb, but this particular little excursion was interesting. It was a picture of various famous people’s houses and an estimate of the cost of the house. Leonardo DiCaprio’s place in Belize was around 30 million dollars, if I remember correctly. Leonardo flew his private jet up to Washington to give his climate change pitch to Donald Trump. Many other movie stars who could be shaken down for a few dollars to ‘fight climate change’ had houses in the 10 million to 25 million dollar range. Bill Gates was off the charts.

    What was interesting was Jimmy Carter’s house: 144,000 dollars. Of course, you can’t buy a garage for your cars in Los Angeles for 144K. But do you suppose ANY of the movie stars would be willing to move to Jimmy Carter’s neighborhood and live in a house like Jimmy Carter’s in order to convince the world that climate change is a serious issue?

    JMG’s writing may amuse you or infuriate you, but he usually makes a point. I talked with him about 10 years ago when he moved from trendy Ashland, OR to an old red-brick industrial town in Maryland. He lived in a cheap neighborhood. He rode trains when he needed to get somewhere. He walked a lot. I don’t know what prompted him to move to Rhode Island, but I imagine he is still an example of frugal living.

    Don Stewart

    • JMG has ended up being my role model, for good or bad.

      I am still trying to catch him up by increasing my beard yield.

      My only hope is that JMG has reached ‘peak beard’.

      P.S. Great stuff this year Tim. Looking forward to observing the world with you and the other commenters in 2019.

    • Thank you, Kevin. I do think things have gone pretty well here this year, though I’m much in need of some ‘down-time’.

      Have a great Christmas!

    • Well, the world of the very rich is so very comfortable: I sometimes enjoy very brief excursions in to it, and the return to my ‘humble ‘ reality is always a bit of a bump (despite myself).

      It perhaps needs the burning Faith of a saint or martyr, and a belief in future Paradise to give up such ease.

      Even the atheist Soviets promised a kind of earthly paradise -and the eventual redemption of the whole of mankind – in return for hard labour and sleeping 10 to a room. Real environmentalism cannot make any such tantalizing promises.

    • My late father knew the USSR, and indeed some of its leaders, pretty well, back at a time when few from the West could go there. As a child, my first camera was bought in the Party shop in Moscow. My father liked Russia – but had no illusions about the system.

    • Tim

      I’m sure you know that Gum (sic) is now a huge shopping mall full of all the capitalist brands.

      It’s also slightly amusing that opposite the Kremlin is a shop almost as big as a symbol of commerce!

      Maybe it’s the Yin and Yang principle!

    • Ha!

      A lift-boy in Communist Prague, having brazenly asked my father if he had a spare tie to give him, said: “no, I don’t want to be a capitalist – I just want to live like one”….

  8. “Togetherness, and concern for the welfare of others, are, and certainly should be, part of the fabric of Christmas. Seldom can these characteristics have been more important than they are now.”

    Tim. seriously I do not think there will be much of the above around when those who are effectively wards of the state or those who are “just about managing” through their child benefit, tax credits etc find that the Post Office ATM has gone down or the money they receive from the state no longer has any spending power.

    Here in the fag end of 2018, I am reminded of the 80’s German soap opera “Heimat” and the episode the “The best Christmas ever”, the one in 1942, just before Stalingrad. In the future, I will probably have similar feelings for the one of 2018 or 2019 or the one before they fail to keep the plates spinning. I am glad I do not live in a city when the current settlement comes to an end. When it happens we can look forward to a never ending season of ill will.

    • I’m a little more optimistic about this. According to SEEDS, people in the West are getting poorer by between 0.5% and 1.0% per year, which ought to be manageable. What is needed is the will, and the recognition of the need to adjust priorities. It seems to me that the ‘just about managing’ group is getting larger all the time, and is morphing into ‘no longer managing’ – if someone can tap into that voting bloc, change might happen.

    • It might well be that the bigger risk isn’t gradual erosion of prosperity, but the rapid invalidation of the debt model. This is why I emphasise debt in this article – and why I stress, as nobody else seems yet to be doing, that we’ve been using pension provision as a financial “human shield” to protect the debt structure.

    • If in a city, I suspect it would be best to live in one without any significant racial, and religious, tensions as things are now: alas, in the West this is increasingly difficult due to the misguided policies of the last few decades and the failure of state authority.

      Apart from that, there has been a very obvious increase in anti-social elements and coarsening of behaviour in a significant section of the population: a decline of civility.

      The London Riots of 2011 were, if you watch the videos, not the political protest by ‘disenfranchised youth’ which The Guardian liked to pretend, but a simple shoplifting expedition on a grand scale.

      This is part of my reasoning in contemplating moving back to my Basque roots in a mono-cultural Pyrenean town, where there is also more of a culture of community self-organisation – communal meals – and, frankly, a kinder and more humane attitude in general, but above all towards the elderly.

      Against that, one must set the alarming revival of true militant Fascism in Spain, aided by the Catalan debacle,and the future travails of the Euro and £……

    • .’More of a culture of community self-organisation – communal meals – and, frankly, a kinder and more humane attitude in general, but above all towards the elderly’

      The type of message I like to hear..

    • Back in 2011, when I was still at TP, I got quite a lot of press coverage for a report describing the riots as the product of thwarted consumerism………telling people that (a) ‘your life isn’t complete without our latest ifad’, but (b) ‘oh, sorry, you can’t afford it’

    • The EU is a concept that tries to avoid conflict between nation states by removing borders and identities. Chances that Iowa will fight Arizona are less than Italy will fight Spain over remaining ‘prosperity’.

      Watch what they do, not what they say. They know we’re in decline.

      Won’t work though as soon as “full faith & credit” turns into “lost faith & too much credit”.

      Killing your neighbor is easier than killing your sister.

  9. Thanks for the post Tim. Just been reading about what the EU intends to do if we reject the deal – as mentioned in some news websites – including the Spectator – they intend to punish us – make life difficult. Looking at Juncker’s childish posturing I feel they they’re right

    I mean we’ve been a member of this ‘club’ for decades and here they are treating us like pariahs. I feel this is deeply immature behaviour and they should be doing their best to arrange a smooth mutually beneficial deal.

    Ambrose in the Telegraph has great reservations about the current deal but has pointed out the shocks to the German car industry if it’s a no deal – so our Government should stand firm and get it changed.

    Imagine if you’re a worker on both sides of the Channel who could well lose their job of this farago – not a nice time to be caused anxiety with Christmas coming up.

    All this and declining prosperity too – one day perhaps someone in charge will fully wake up -and grow up.

    • It really is time for the adults – national governments, especially France and Ireland, but Germany as well – to step in and sort this out. Certainly the UK side has made mistakes, but they do at least have a democratic mandate for what they’re doing, and are elected politicians – not so the shower running the situation in Brussels.

    • Never quite a full member of The Club, alas; and as the EU has been transformed into an irrational project – almost a cult – the desire for revenge is no surprise.

      I’ve always sensed a lingering resentment on the Continent that Britain did not join the fascist tide in the 1940’s: too many bad consciences over there, in some circles. How many comments have I read along the lines of ‘Those Brits, on their tiny island, still think they are an Empire!’

      And of course, the Emperor never likes to hear that he has, in fact, no clothes, or at least not ones as splendid as he thought.

      In Spain, we have not only the Gibraltar issue, but I recall my Catalan cousin telling me that in school playground (private, Catholic school) ‘war’ games, everyone wanted to be a Nazi, and only he chose to be a ‘Yankee’, ie a Brit….

      It is regrettable that the former ambassador to the EU, while hitting many nails squarely on the head, glossed over the deep irresponsibility -so many livelihoods of ordinary people are at stake, so many businesses might well be ruined – and even malice, in the negotiating posture assumed by Brussels. Which makes one doubt his objectivity and intentions somewhat.

    • Hopefully the German car industry might well have a say in this – the UK is their biggest market which make them vulnerable to a no deal.

      Juncker might well be enjoying his posturing but there are very powerful voices which may change his stance.

      However if there is no deal and there are massive job losses Juncker could pay a massive price – as well as all his deeply immature cronies. I compare them to FIFA as it was,

    • I’ve been hearing and reading about the damage already suffered by businesses in France, and their fears over what is to come – it is high time for Mr Macron to intervene (and it might play well for him politically at home, too)

    • Well let’s hope so unless he’s already been brainwashed by the EU Brotherhood.

      This is really serious.

    • @Xabier

      The EU has almost become a cult to be defended at all costs; a utopian project.

      I recently read an article on Robert Mundell, known as the father of the Euro. Mundell defined what he termed an “optimal currency area” in terms of features. In the article (written in 2012) he lauds the euro but then, in a somewhat contradictory manner, goes on to say it has two glaring deficiencies: lack of a unified banking system and nation based issuance of treasury bills and bonds. Many have said that a fiscal union is also absent but Mundell denied this is necessary, perhaps somewhat disingenuously.

      Mundell was a supply side economist and he felt that both fiscal and monetary policy should be taken out of the hands of national governments; if that was done the only way that nations could improve things was by supply side measures, in effect an internal devaluation similar to the Hartz 4 reforms in Germany. He knew the Euro structure was structurally flawed but envisaged a crisis during which these defects would be remedied under duress.

      You do have to wonder at such a huge project being introduced that is known to be fundamentally flawed and envisages a crisis to correct those flaws. No mention of collateral damage in terms of unemployment or social dislocation.

      The original conversion rates gave a structural boost to those EZ currencies that were strong by giving them a devaluation by virtue of being pooled with weaker currencies and this, combined with the pain of internal measures have only served to create divergence rather than convergence, exactly the opposite of what was originally intended.

      This is the problem with all utopian projects: too many people suffer.

    • Quite right. Here’s my take on the euro:

      1. It takes away weak countries’ ability to devalue. The Italian lira, for instance, had devalued gradually ever since 1945. This is mildly inflationary, but maintains the competitiveness of Italian goods and services.

      2. This forces countries into what I term “internal devaluation”. As you can’t reduce the value of the currency, you have to reduce costs instead, which primarily means wages. Hence “austerity” – a product of a faulty monetary system.

      3. Competitiveness is distorted, even with the (imperfect) working of “internal devaluation”.

      4. Settlement strains. The systemic failings of the Euro lead to Target2 imbalances, with both Spain and Italy each now owing Germany close to 500bn euros.

      5. Misalignment of fiscal and monetary policy. These should function in tandem. But this cannot happen when there is a single monetary policy but 27 sovereign budgets (multiple budgets, like the US States’ budgets, or Scotland and Wales within the Sterling area, aren’t a problem because they’re not sovereign).

      6. Lack of automatic stabilisers. In Britain, say, a struggling region pays less tax and receives more benefits, with the reverse applying to prospering regions. Critically, this is automatic – government doesn’t have to keep enacting it as “subsidies”, it just happens. If this happened in the Euro Area, funds would flow automatically from, say, Germany to Greece.

      There are more, but these are the critical issues.

      Before the Euro existed, a student essay proposing such a system would have been failed by examiners.

      The Euro is reminiscent of the phrase: “a camel is a horse designed by a committee”.

    • I would add that Germans are 8.4% more prosperous now than they were in 2000. Ireland is still ahead of 2000 (by 4.8%), but is down from 2007 (when it was 11.7% ahead of 2000). Prosperity in all the other EA countries on SEEDS is down since 2000.

      Indices, with 2000 = 100, are as follows:
      Italy – 86.9 i.e. -13.1%
      Spain – 88.8
      France – 92.9
      Greece – 94.6
      Netherlands – 95.6
      Portugal – 95.9

    • I don’t think Juncker and co really care as they’ll be retiring on huge pensions – unless the EU collapses.

  10. Hi Tim

    Thanks for another lucid and pertinent post.

    Whilst I’m sure your right about the primacy of the energy dimension in the decline of prosperity I believe it to be compounded by other factors.

    In particular I’m thinking of the idea of “distributional coalitions” propounded by Mancur Olson in his book “The Rise and Decline of Nations” . Distributional coalitions grow up over time as promoters of particular interests; lobby groups is an example, and, as these groups are pursuing what is in effect protectionist policies this tends, over time, to impact on economic growth. It not only reduces growth buts skews growth as the benefits are concentrated whereas the costs are diffused throughout the rest of the population who do not notice. This eventually leads to stagnation and decline. This would compound the decline due to the energy dimension.

    In the UK Margaret Thatcher broke up a number of these distributional coalitions but what Olson talked about was something perhaps inherent, not only in economics, but in human nature; the desire for an edge.

    I confess I don’t see the current structure being broken up particularly peacefully as it implies that those with power either cede some or lose it altogether and they won’t do it.

    On that slightly sombre not may I wish you and all the other very knowledgeable commenters a Merry Christmas and a Happy New Year.

    • Hi Bob

      What you say is important, and isn’t inconsistent with the surplus energy approach, If we have, say, £1000m of prosperity, it’s always open to us to use it well or use it badly. So, if this year we have £1000m of prosperity used badly, but in ten years’ time we have only £900m, but used well, this could have a substantial mitigating effect.

      I do see the current distribution-of-wealth system breaking up, because: (a) it’s a historical cycle that always occurs eventually; (b) downwards pressures on prosperity are likely to intensify the cycle; and (c) if I’m right about the impending demise of the debt system, it’ll be a complete game-changer.

      I haven’t said it will happen peacefully – but I do hope for peaceful transition.

      On the debt point, it’s interesting that usury is outlawed by the Islamic faith and, properly understood , by Christianity too. In England, it was Henry VIII who removed the death penalty for usury, though it remained if the perpetrator charged interest of 10% or greater – and it remained impossible to use the law to enforce debtor obligations. It could yet be that adherents of these faiths will be able to say “we told you so……”

  11. There must be a hidden agenda in the promise of the Mærsk-company to be climate neutral by 2050, because they do not reveal how to reach this goal. If the gigantic fleet of Mærsk containerships must leave zero or very little carbon footprint, the only viable solution must lie in the development of nuclear engines in some way. No carbon footprint means no use of heavy fuel oil (diesel), the ships can hardly be driven by sail, windmills or bio fuels, so there is only one option left: nuclear reactors – probably in secret cooperation with Seaborg Technologies.

    I must admit I have no proof for my assertion. And building nuclear reactors involves a lot of fossils but better than not giving it a try.

    But a future with millions of nuclear reactors … hm, hm, hm … life is dangerous with or without.

    • Indeed, baffling. There are, though, modern wind-powered designs, where sails are like vertical tubes, rotating whatever the wind direction, generating electricity which could power engines. At least a ship, if large enough, shouldn’t have huge problems accommodating batteries.

      On nuclear, I’ve actually stood on top of a marine reactor, when I was in the submarine HMS Trenchant. It’s a strange sensation, to be sure. I must see if I have any photos of that event.

    • The yanks tried nuclear cargo (NS Savannah) but the numbers simply don’t add up.

      The only other ‘civil’ use of nuclear has been Soviet ice breakers but even there primary role was to keep the leads open for the Soviet Northern Fleet.

      I suspect Maersk think they can plant a couple of million trees to offset the carbon produced by ships,
      (that’s if there is any fuel left for them) or its back to sailing ships and all the impact to global trade that will have.

      I’m always suspicious of such long lead target dates, no one knows what the world will be in ten years time let along 30plus years. To me its all a fig-leaf to try and head off the hoi polloi waking up and realising what’s really coming

  12. Let’s hope the ships must not pass the Calm Belt or encounter tropical storms – now they make large detours of several hundred see miles to avoid hard weather. Batteries? Yes! For manoeuvres in harbours and internal waters – not long distance voyages. (But I think I am off topic now so I will stop here).

    I am very much looking forward on your next article, and thank you very much for this one.

    • Nobody could go more off-topic onto ships than I could (I could write screeds about “when I flew off an aircraft carrier……….”)

      Anyway, the next article might not be till after the holidays – unless some topic yells at me for coverage – but I’m glad you enjoyed this one.

  13. Search on
    The Struggle to Make Diesel-Guzzling Cargo Ships Greener

    Maersk is involved in studies using hydrogen to power very large, long distance cargo ships. They also use batteries to get the process going, very much like an automobile uses a battery to get the gasoline engine started. Whether the batteries also power on-ship electronics, as an automobile’s electronics are powered by the battery, and not the engine, I do not know.

    Don Stewart

    • At sea I would hope that a turbine would charge batteries and provide the electrical power needed,

    • I wonder whether there’s a hybrid answer? Use modern-design vertical-tube sales, both for propulsion and to charge batteries for windless times?

      I certainly hope this won’t be one of those solutions like EV – the cars are green (just please don’t ask about the coal used to generate the electricity….)

  14. As you probably know, Britain’s Gatwick Airport has been shut down by drones sighted over the runway. So far, about 110,000 people have been affected.

    Here are two quotations that I’ve noted from affected passengers (my emphasis):

    “The overall feeling now is that we are being held to ransom. Local hotel prices are rocketing and other flight options are selling out or are becoming ridiculously inflated as time goes on. Communication is shambolic.”

    “I called my travel insurance provider and they stated that they would not be able to help me as drones are not written in their Policy Booklet as a reason for a flight being suspended. They advised that I would have to take the issue up with Gatwick Airport.”

    This seems to me a classic example of changes are needed in the ethical basis of business.

    • There’s no law – and it would probably be impossible to write one – which says businesses mustn’t exploit the hardships of customers, or insist on the small print of contracts.

      What we need is a change in ethics. Where this sort of thing happens, the businesses should be shamed and shunned.

      An analogy here might be drink-driving – whilst law enforcement was tightened, what really worked to reduce drink-driving in the 1960s was a change of attitudes, where driving under the influence of alcohol became something people were ashamed about, not something that (as previously) they took lightly, or even took pride in or joked about.

      Strangely enough, if you work in the City you are subject to rules which include “treating customers fairly”.

    • It’s a pity the City doesn’t always treat its employees fairly – there should also be a law for that.

    • Incidentally, I heard that some pubs put up drinks prices dramatically on days when England had matches in this summer’s World Cup. Had I been there, I might have paid up, who knows – but, on the way out, I would have told the landlord why I wouldn’t be using his pub in the future.

  15. Brief Interlude in Psychology/ Physiology
    Since some people are mentioning the C word again (Collapse), it may be worthwhile to jog peoples imagination, prompting some further research and taking of action.

    There are three different systems in the human body which deal with stress. The most recently evolved and the most sophisticated is the social relationship system. This system is myelinated and capable of processing a whole lot of information. There is also the Acute Stress system (Fight or Flight). The Acute system is designed to function in the short term…e.g., the lion attacks and one chooses whether to run or fight, and it’s all over quickly. One escapes or one is dead. The third system is the Trauma system. A very ancient system which involves playing dead, releasing a lot of opioids to dull pain, and generally shutting down.

    Trauma happens when the subject sees no way of responding to the threat….no way to fight or to flee. The trauma may be short, or extended over a long period of time. Trauma can change the epigenetics of genes, and the way we think about the world.

    So as a first approximation, it seems to me that it is important to have in place a good social system and to have many credible responses to the anticipated event (such as monetary collapse). As an example of physical challenges, Dmitry Orlov recently observed that one can estimate the productivity of the Russian economy by looking at the kitchen gardens. The amount of land devoted to strawberries increases during good economic times, as people anticipate feasting. But if the gardens are heavily planted with potatoes, then people expect to NEED the calories, and so they are signaling pessimism on the economic front. For our purposes, knowing that one can sacrifice some strawberry plots to grow more potatoes should the need arise is a way to keep the stress in the Flight or Fight range and out of the Trauma dead end.

    In terms of social networks, it seems to me that one should be hooking up with other people who are at least as resilient as you are. You certainly don’t want to be thrown into a Collapse situation with a bunch of Ivy League Snowflakes. You also don’t want to be the King of the New York Bankers if the monetary system collapses. When the Alpha Male loses his position, he dies pretty quickly.

    I’m not a Psychologist, and this isn’t Medical Advice….Don Stewart

    • It has been observed that after WW2, former German army officers were hopeless and lost, but their wives were magnificent.

      Marry well. Or not at all. 🙂

  16. You are seeing the trees… but missing the forest.

    There are NO fixes. Civilization runs on cheap energy – and we are not finding any new cheap energy.

    We are approaching the bottleneck. And those who are running the show – forget about Trump and May and the other flunky politicians who issue the edicts from the Ministry of Truth under the pretense that they have power – those who are pulling the levers and pushing the buttons (rather desperately at the moment) are doing EXACTLY what they should do.

    They are attempting to mitigate the impact of expensive to produce energy. They are making free money available to frackers so that the US can produce 10M barrels of oil per day to keep the machine fueled.

    They are pumping out stimulus like no tomorrow (because there is no tomorrow) to help delay the collapse of consumers and businesses and governments.

    If the PTB did what you appear to be suggesting – then all would collapse in the milliseconds that it would take the aglo traders to respond to the end of stimulus.

    In literally seconds the global economy would be thrown into total chaos… chaos on such a magnitude that GFC 1.0 would look like a children’s tea party where Susie pulled Billy’s hair resulting in much screaming and crying. No … this would be more like Billy responding by pulling out an AK 47 and gunning down everyone at the party … then for good measure unsheathing a blade and slitting everyone’s throat… to make sure the job was complete.

    The PTB are fully aware of this – they know that there are no solutions – they know that to stop their stimulus would lead to a total holocaust.

    They understand that there are nearly 8B people on the planet who are ONLY fed because of cheap energy. They know about spent fuel ponds that MUST have cheap energy to remain tame.

    The age of cheap oil is nearly OVER.

    So they pull their levers… and push their buttons… ever more desperately…. as they fight for their lives…. and unknown to almost all…. the lives of the 7+ billion others who inhabit the planet.

    When they fail to support the machine — and they WILL fail — we start the process of fossilization.

    This should not be difficult to see — yet most cannot see it — or do not want to see it.

    Because seeing it… acknowledging it…. obviously is too much for most people. On some level no doubt they understand what is behind the curtain … but they will do absolutely anything to not pull that curtain back and have a peak.

    Because that horror would lead to madness… to despair… to family sized jugs of Xanax.

    Merry Xmas. Happy New Year to all.

    Enjoy both … as they might be your last

    • Goodness me Thomas – it’s the shortest (darkest) day of the year today and your post reflects this. I’m optimistic that we’ll find a way through.

      Happy Christmas though.

    • Where I am it is the longest day of the year … and yet I am pessimistic.

      I am also right. I have never been so certain of anything in my entire life. If only there was a way to short this I would end up owning the world. That is how right I am

  17. One of the best lessons in business ethics was given to me at Christie’s: a dealer had made a written offer on an Old Master drawing, which on second thoughts he wished to withdraw due to doubts as to attribution.

    ‘I know I’ve made you a written offer, but….’ he said to the expert head of department.

    The latter picked up the paper, and without a word, but smiling, tore it up.

    Gentlemanly (such was the tone of the department) correct and decent.

    I’m not sure that many bailiffs would see the point, though, or companies screwing the last penny out of their contracted customers…

    • @Xabier

      That may be less gentlemanly than you think. The reputation of an auction house rests on its selling items of a known province; if it does not conduct its business on that basis it will not last very long.

      Not gentlemanly; just well honed self interest – and very good PR.

    • Quite true, Bob: ‘enlightened self-interest’, of course. A very good rule in business.

      But whoever thought a gentlemen need imply being a fool as well?

      Even the truly psychopathic employer – a real scumbag financier who delighted in destroying people ( I do not exaggerate!) – of a friend in the City would occasionally do the right thing, out of sheer policy not decency.

      And Marxists think they can indoctrinate people, en masse, into virtue…..

  18. Tim,
    Many thanks for the tireless work over 2018.
    Seasons greetings to you and all the readers.

    • Hi Jonny, many thanks, and seasons greetings to you and yours.

      I won’t deny needing to recharge my batteries over Christmas! But I really enjoy doing this, and the final completion of SEEDS was a satisfying moment.

  19. Another good read Tim thank you. There’s no doubt that the air is going to come out of this everything bubble at some point. What happens to the US Dollar if this happens? Could its value collapse sparking a big dose of inflation on US consumers? Couple this with no growth and you’ve got stagflation. Central bankers are terrified of deflation and worse a full blown depression but isn’t the liquidation of this debt mountain a necessity? A circular economy with no inflation and stability is what’s needed. I’m not sure how you go about redistributing but a good start would be to establish a land value tax in the UK, not hard to do as the Land Registry has all the necessary information. Then we could perhaps scrap stamp duty and council tax and try to remove housing as an asset that’s being used for speculation and move to a ‘houses are for living in’ theorem. Then we could copy Germany and have lots of local community banks lending for productive purposes and not just the big banks blowing more air into the housing bubble. The UK is going to need a lot more productive output that we can export globally if we’re ever to escape this economic quagmire, that’s if it’s even possible with globalised competition.

    • Thank you, Peter, some very good points for me to ponder. For me, if 2018 was the year of defining the problem, next year might see a need to contemplate solutions. I know that nobody in power is going to take this sort of thinking on board as yet – but when things get bad enough, that might change.

      It’s interesting to note that, according to new figures from the ONS, consumers have now been living beyond their means for eight consecutive quarters.

  20. Even though most people are not resilience-proofed enough to not have to worry about the end-game of this ‘everything bubble’, it’s still morbidly fascinating rubbernecking at this multi-vehicle pileup. When popular investor guides like Moneyweek (that are actually paid for) are relentless cheerleaders for ”buying Japanese or UK stocks and other assets, essentially because they’re needlessly undervalued, so the implication is that they can only go up” you understand that there has to be a crash every time for people to believe in crashes at all. If the supposed experts in the pseudoscience of economics are still so clueless, most financial advice should be damaging even.

    The only safe assets to put your savings into for those who have any, are those which make up an essential part in the real economy and produce absolute essentials to life which wont change under a new, sustainable economic paradigm. So land that provides the potential for things like shelter, energy, (waterwheel on a stream even, or forest) fresh water, the creation of foodstuffs.

    If the bubble deflates relatively gently, this would allow survival in a transition period, where there needn’t be marauding hoards with pitchforks and burning torches hunting down scarce resources.
    A recent relevant pointer as to how such a transition could happen was the collapse of the Soviet Union, when millions of middle aged men and pensioners drank themselves to death, leading to a massive fall in the general population within a decade, most notable for the gender imbalance remaining. Shades of this epidemic of lost hope in a future are also visible in the US for example right now in the form of the opiate crisis, so a slow-puncture-style collapse in the % of the poor is already underway, just not that noticed because nobody cares about them in a neoliberal system.

    • Thanks, some pertinent comments. Investment advisers tend to move in a herd, which is one reason why markets often ‘trend’ in a given direction – I know this from long personal experience in UK, European and US equities, strategist and head of research.

      If, as may happen, I take on a future such role, you can be sure I won’t ‘run with the herd’ – as, indeed, I never have.

      I remember a big American client telling me that a good outcome of a crash can be weeding out the excess of “me too” (low quality) research, with these words – “I had a guy in here the other day recommending RTZ – but I’m not even sure he could spell it!”

    • I’ve always thought the most depressing aspect of the Russian collapse was what they drank themselves to death on (probably due to a rather unhappy experience with a bottle of vodka as a student).

      But, oh dear: dismal vistas wherever you look, and nothing but that gut-rot to end it all……

      Collapse Moral no. 1: Ensure a well stocked cellar of quality.

      Collapse Moral No. 2: good wine alleviates, but does not annihilate.

  21. Generally speaking, I prefer analysis and logic over instinct and feelings – but I do have a growing ‘gut feel’ that something is about to break loose.

    • Would that be on purpose? Killing off globalization, forced local economies? Blow up the debt overload? They know but they can’t tell us…. They can’t tell us because the holes that would cause would be to big to fill up. In my opinion the core is soaking up the last drops of prosperity to maintain trust in the Wests debt based system. Won’t be long now. Before mayor energy problems manifest themselves, they have to consolidate.

  22. I think it was Warren Buffet’s partner, Charlie Munger, who said show me the incentivisation in a system & I’ll predict for you the outcome, and it’s just common sense really; but people only think of this kind of thing as genius if someone sanctified as successful by current societal norms says it.

    The financial economy has corporately captured our nation states by the gradual sabotage of democracy and so their apparatchiks are the highest paid. This damages the country as a whole in that the brightest & best leaving education then will gravitate to the money-shuffling institutions/occupations to dream up new methods of creating gambling. As the mirage of regulation allows them to be fired in 5 minutes, they understandably are mercenary and are happy to invent ‘instruments’ that rend apart the fabric of the real economy and therefore society. They are also safe to do so in the knowledge that they will never be held accountable for any destruction they can cause; so this setup inevitably leads to a lot of creativity working to crash the economy.

    The revolving door between financial institutions, supposed regulators and govt. (the control of last resort) translates into a cozy arrangement where the status quo cannot be changed from within. An insider worried about the excessive parasiticism of the real economy leading to societal collapse and subsequent unrest will simply be replaced with one who doesn’t care. (if they were to stop) There can only be change if the masses (as with the poll tax just lose their fear of prison, realising that there isn’t the incarceration space for 90% of the populace) refuse to play the victim part in the game. It has to get bad enough though for the enforcers, the 9% who the elite pay to subjugate the masses, through force even if necessary, to switch sides. But we’re still at the scapegoating stage.

  23. It being Christmas I noted recently that the British people had voted “Its a wonderful life” as being their favourite Christmas film ever. What is interesting about that film is that it is a story that revolves around two faces of capitalism. The mortgage and loan company is the good and altruistic face of capitalism, of home ownership and community whereas in contrast Henry Potter is the neoliberal or laissez-faire face of predatory capitalism that sees not valuable customers but economic targets and victims.

    The question I would put here is to what extent do we all believe the world of Bedford Falls that we thought we grew up in to be morally and ethically degenerating into a global Pottersville?

    • Thanks Simon, I read about that, and the film has been mentioned in books about economics. Oddly enough, I’ve never seen the film itself.

      I’m just glad it wasn’t The Sound of Music!

      (My choices, predictably perhaps, would be Master and Commander and The Gift Horse, with Riddle of the Sands up for consideration).

    • It always fascinated me that ‘A Wonderful Life’ an archetypal Christmas film is in fact actually about a banking collapse. I suppose it was filmed at the height of the Great Depression and FDR needed to get the masses onside to have a hope if fighting the money power.

    • Hi Tim

      You really should watch Its a wonderful life. If you have not seen them I also recommend ‘Destry Rides Again’ and ‘The Shop Around the Corner’ as classic Jimmy Stewart movies.

    • PS
      For me its always been a question of how capitalism has degenerated so badly in terms of its morality and ethics. I closely studied companies trading on the LSE AIM market and I was stunned by the amount of routine fraud and corruption going on in dozens of companies whose managers are nothing more than white collar criminals. This involves continually manipulating and misleading investors as to the viability of the business and disguising their massive losses. As this fraud has become so common and prevalent the so called regulatory bodies have found it easier to simply ignore it and so it becomes even commoner practice.

      Then one looks at the amount of money that has been wasted and miss-allocated drilling shale in the US simply because shale companies are using unethical accounting practices whereby they have removed the CAPEX of drilling wells from their Non-GAAP reports and always declare the loss of drilling the depleting wells as impairments. One thing I learned is that you cannot trust anything oil companies tell you and certainly not anything investment banks or brokers recommend to you. They do not act alone in this as they are assisted by unscrupulous investment banks and brokers in securing new investment blood for the endless needs to issue new equity in order to pay off some of their debts but never all of them. The investment banks and brokers are fully aware of the true financial conditions of the shale industry and it is entirely unethical of them to deceive their customers into putting their money into companies which continually make staggering losses. They really don’t care about their customers just the fees they receive for fraudulently deceiving them.

      $30 billion in losses have been reported for the first half of 2018 alone in the report below. These losses have to be paid by someone.


      This is not a lot in the grand scheme of things, but the trouble is that the grand scheme of things has become riddled with such practices. I do not have the links but from memory I read that in 1970 90% of assets of companies in the S&P 500 were tangible and 10% intangible. In 2015 90% of their assets were intangible and only 10% tangible. This seems problematic when their assets are meant to be the security for a mountain of corporate debt that has been built in order to hollow out corporations by share buyback schemes to pay top execs bonuses etc.

      How easy or practical is it to seize or repossess this 90% of intangible assets? But then also what of the rehypothecation of those corporate debts? Those corporate bonds are themselves often treated as blue chip securities which are also used as collateral to support other investments and so it disseminates throughout the system. We have no idea how many debts this initial asset base ends up actually supporting as there can be many many competing claims that can be made upon it in principle.

      Whilst SEEDS might explain a good deal of the problem then we also have to take into account the unbelievable amount of capital that has been diverted to useless ends. The Bitcoin system is yet another example of the grand waste of resources that all of these things entail,

  24. @Simon Hodges
    On their current post, Max Keiser and Stacey Herbert discuss the implosion of Deutsche Bank. Its market value is now close enough to zero that hundreds of hedge fund managers could simply write a personal check and own this behemoth. But nobody seems to want to put up the petty cash for it. Max, with a lot of hyperbolic language, claims that the reason is that their derivative book is worth zero, and the rest of the bank is all based on fraud. I wonder if the derivative book may not have a negative value. (Not claiming I am giving direct quotes…you have to listen for yourself.)

    They also quote other bankers who claim that the decline in financial stocks is the work of evil algorithms who have replaced dedicated human research.

    I don’t claim to spend a lot of time studying financial companies…but I ask ‘Is this a first indication of the failure of the money system’ that Dr. Morgan fears?
    Don Stewart

    • There are always outliers, Don, though sometimes individual companies serve as advance warnings – last time around, Northern Rock (known in our dealing room as Northern Wreck) should have told the markets what was coming, because it meant that the wholesale funding markets were seizing up.

      Real question might be – “is this the Lehman moment?”

      Remember, though, that equities are actually small volume markets compared with bonds and some other financial markets – the media report equities because these include names known to the public. There’s not much ‘human interest’ in Treasury 2%s, CDSs, FX swaps and so on. Bonds are the ones to watch.

      This said, my broader feeling is that the wheels have started coming off. I can explain ‘why?’, but not so certainly ‘why now?’ I said some months back that a window in which a crash could happen was now open. Oil price falls look pretty ominous for economic expectations.

      I really think we’re on to something here with “the death of debt?”

  25. @Dr. Morgan
    While you are taking a well-deserved break, the German government may be facing a ‘Lehman Moment’. Are they going put the risk inherent in DB’s derivative book on the backs of the German people. Max says there are rumors of a forced merger with Commerz Bank.

    My question: What would happen if Germany just let DB go under and all those people who thought they had derivative protection are just left to their own devices?

    Don Stewart

    • I don’t know the scale of DB’s derivatives exposure. Speaking generally, though, one of the problems revealed in 2008 was that banks only reported the net position, generally a very small difference between huge +ve and -ve amounts. But netting off doesn’t work once you get into systemic damage, i.e. the failure of at least some counter-parties, compounded by uncertainty about the viability of others. Nothing is wrong until the day comes when risk is both huge and opaque.

      Thus seen, derivatives remind me of the way an army, thinking it might have to retreat, places dynamite in the base of bridges so they can be blown up behind it. Some of our modern financial practices seem to me to place TNT in the foundations of the system.

      I don’t see why the German taxpayer should step in – I don’t know much about the current finance minister, but the previous one would have said “nein!” to this. But also, is this an issue for Germany – or the ECB?

      “Interesting times” indeed!

    • Well, DB was about 20 times German GDP in 2014. So when this one blows up its bye bye Europe.

  26. @Dr. Morgan
    One more thought about DB. Suppose, for the sake of argument, that the German government decides that taking responsibility for a gigantic derivatives book is not the obligation of the German people or of German banks. As I understand it, the great majority of derivatives are not about pork bellies, but are instead about foreign exchange. If it suddenly becomes apparent to businesses that foreign exchange is a very real risk which cannot be ‘derivatived away’, and that the risk is not only coming from the inherent risk but also the zero-sum geopolitical maneuvering….

    then doesn’t that lead directly to the end of ‘globalization’ as we have known it?
    Don Stewart

    PS Max Keiser has an illuminating interview with Michael Hudson following his DB diatribe. Hudson describes the ‘Chinese way’ of dealing with debt, and then quotes from the new NAFTA agreement, which seems to prohibit trade with China. Are the 3 leaders trying to create an EU style protectionist scheme in North America? Also note the random arrest of wealthy Chinese businessmen by Canada. I would also suggest that the 3 leaders foresee an ‘energy independent’ North America, and particularly after they reconquer Venezuela. So an EU-like structure which is energy independent?

    • Apologies for ‘connect the dots’ thinking…
      And if the North American leaders are thinking the way I described above, doesn’t that illuminate Trump’s declaration to the Saudi’s that they cannot survive without America propping them up? And the ‘high five’ moments in Argentina between Russia and Saudi? And Saudi seriously considering buying Russian anti-missile systems?

      If all that has any truth to it, it puts Russia, China, and the OPEC countries into one bloc, with the North Americans being another bloc (probably with South America as a sort of colony). Which leaves Europe to decide its fate (maybe without Britain), and Africa as the colony of somebody.

      ECoE would seem to favor the Russia/ China/ OPEC bloc??? But the US will leverage its gigantic military every way it can.

      Don Stewart

    • One thing to add is that Russia has recently placed two Tu-160 supersonic bombers in Venezuela – aircraft capable of carrying a nuclear payload. That sounded vaguely Cuba Crisis-esque to me.

      This said, there is fundamental mistrust between Moscow and Beijing. The Russian side fear that the oil, minerals and water north of the Chinese border in Siberia may one day prove just too tempting. Oil production sites in Siberia are protected by huge numbers of company ‘security guards’, effectively armies. One Russian energy company alone employs more than 80,000 such – and that’s even before we consider the government’s official military forces.

  27. Last dot before Christmas
    Let’s first observe that an increasing number of European countries are volunteering to become the trip-wires against ‘russian aggression’. Putin reiterates that Russia, with 160 million people, has absolutely no illusions about fighting NATO with 600 million people and a much larger military. But still the potential trip-wires keep volunteering. Southeastern Europe has some qualms, but the rest seem united.

    And if they are going to be allied to the North American energy system, they need to get rid of their excessive dependence on diesel…since diesel will not be in surplus with North American and South American production. And so maybe Mssr. Macron had a plan which is a lot deeper than it first appeared. Maybe he isn’t ONLY an idiot.

    Don Stewart

    • The North American strength in energy is based on types of oil production that were loss-making even when prices were well above $100/b. In energy terms, and leaving the Middle East on one side, I’d say it’s Russia, not North America, which holds the high cards – quite apart from truly huge European dependency on Russian gas…..

  28. “Non-self-liquidating debt” does as you say not pay for itself if the activity it funds has no potential for wealth creation, but it was not always construed to be reliant on increasing prosperity to be repaid, rather it was seen as an alternative to saving. If we want to go on a holiday costing say £120 we can if we have a surplus between income and expenditure save £10 a month for the holiday over the preceding year and pay for it upfront. Alternatively if we lacked the discipline or time to do that we could borrow £120 and then pay it back. Depending on how we borrowed that money we may pack back on average anything from £120 to £240 (or from a loan shark £2,400). Thus it is not the case that the only way in which this can be repaid is if the borrower’s prosperity increases over time. Unless of course it was not lack of financial discipline that means the person didn’t save for the preceding year but rather there was no monthly surplus to allow £10 to be saved and only an increase in prosperity can possibly allow the debt to be paid off, or by definition the person will be poorer than they were before. They could of course choose to borrow more until they reach a point of insolvency when one or more of the creditors will loose money. This is perhaps the situation many in the economy are in – with no surplus and no ability to spend outside of borrowing to make themselves poorer.

    • Point taken, but the deterioration in prosperity necessarily impairs the ability to save. In Britain, for instance, the savings ratio has hit an all-time low, whilst consumer credit has risen rapidly, not a surprise after eight successive quarters in which consumers’ spending has exceeded incomes.

      Theoretically, it is indeed possible to borrow £100 now and pay it back in, say, twelve monthly installments. But the system as a whole still can’t work in a climate of deteriorating personal prosperity. For one thing, default rates will rise. This is likely to be reflected in a risk premium being added to interest rates.

      When I refer to “the death of debt”, I don’t mean that nobody will still be able to borrow – what I do mean is that debt as a system won’t work as it has in times of growth.

    • A bit disingenuous in parts – and BTW I do not argue in favour of neoliberalism.

      As regards his two contradictions the first of which is the necessity of a state apparatus to enforce and regulate contracts is uncontroversial and in contrasting this with the “minimal state ” position of the neoliberals he is creating a straw man as almost all would agree that this is necessary. As he himself says “Only the most extreme of laissez-faire economic thinkers would not acknowledge the requirement of a state structure that creates the space for and regulates contracts. “. Quite.

      The second is his contention: “If the people were free to make decisions about their lives democratically, surely the first thing they would do is interfere with the property rights of the elite, posing an existential threat to the neoliberal experiment.” Why? It is surely an inherent implication in free market theory that private wealth will accumulate; in fact this is one of the safeguards against overweening central power and a rationale for the whole system. Whilst “elites” may undermine democratic institutions, and inequality may need to be confronted, he seems to conflate “elites” with the rich whilst failing to concede the certain accumulation of private wealth under a free market system.

      As regards the rest of it he tars the neoliberal state with a tendency towards authoritarianism. But frankly this is not so much an argument against neoliberalism but a systematic ignoring of history. All social systems have a tendency to become “authoritarian” and “undemocratic” whatever flag they fly under; this is not so much a criticism of neoliberalism as one of human nature. As you say the piece is written from a Marxist perspective and he seems to have sight of the mythical Marxist utopia where all conflict has been banished and harmony reigns supreme.

    • I was only interested in what he wrote of crisis and austerity and how it was managed differently from peripheral countries to the core countries. It all seems essentially correct to me.

    • Indeed but there appears to be a conflict here. The neoliberal state is a minimal state; but how does this square with an authoritarian state that he says is the result of neoliberal policies? Surely there’s a contradiction there.

      It seems to me,as I said, that a capitalist free market system will result in the accumulation of private property. If that is the case then vested interests will develop which have to be defended, perhaps by force. But is this a distinction of the neoliberal state alone? Is this really any different from a fascist or a socialist state, albeit with different constituencies in play? Power has to be defended whatever flag it flies under.

      The strength of a free market capitalist system is that it does allow for the accumulation of private property as a countervailing power to the state and that is a strength that buttresses democracy by the diffusion of power. The “excessive” accumulation of power can surely be dealt with by means within the system; the author implies not but he may be assuming what is required to be demonstrated and that authoritarianism is not an inherent characteristic of neoliberalism.

    • Can I ask you if you honestly read all of that paper and understood it in its proper context? I kind of get the feeling you only read the first few paragraphs looking for a reason to dismiss it out of hand and with some highly dubious and inappropriate argumentation.

    • Yes I did indeed read it all. I’m not disagreeing with you and I don’t dismiss his arguments; neither am I arguing in favour of neoliberalism, as I said, but, s you yourself said it is perhaps written from a Marxist angle. This does not so much as negate the conclusions as to point out where his argument may be less than convincing in the terms he expresses it.

    • Then why not speak of the interesting observations if as you claim you are not pro neoliberalism. Why do you simply focus upon and let’s face it artfully invent the inappropriate negatives in your review which does not stand up to scrutiny?

    • The article’s thesis is that neoliberalism begets authoritarianism: “While neoliberalism’s advocates like to claim that the political system that corresponds to their economic preference is a democratic, minimal state, in practice, the neoliberal state has demonstrated quite the opposite tendency. ”

      What I am saying is that a capitalist system based on private property results in the accumulation of capital in private hands and that this may, and usually does, get reflected in the power structure. It is unexceptionable to say that this power structure supports those with property; in fact this has been the case throughout history. The power structure is by nature authoritarian as it supports disproportionately those with economic power. As I said this is not so much an argument against neoliberalism as against human nature. To say that neoliberalism has particular characteristics which promote authoritarianism in contrast to other systems seems to me to be wrong.

      I don’t agree with neoliberalism because I don’t see markets as a panacea for everything and the elevation of the market tends to corrupt ethics sooner or later and this means a social degeneration over time and, in fact, an undermining of the very tenets on which neoliberalism is based.

    • Thanks for all that Bob. I think the problem here is that I have an entirely different perspective on Neoliberalism that you do and it might be useful if I explained my view of things. You see Neoliberalism as not particularly authoritarian and just another economic and political choice. I’m afraid you are entirely wrong in that assumption. The ‘globalists’ Blair, Clegg, Cameron etc – are all Neoliberalists to the core. The EU is Neoliberalist to the core. The Conservative party and the progressive Blairite wing of the Labour party are Neoliberalists to the core.

      What you are entirely missing in this is that Neoliberalist imperialism is utterly authoritarian in its principles and utterly totalitarian in its practices. You need to join the dots to see why this is so but it is so and it is all rather sinister to say the least as it is a totalitarian conspiracy hiding in plain sight with the very concept of meaningful democracy itself at the very heart of it. What you need to see is that as things currently stand it doesn’t matter what your politics actually are and it doesn’t matter who you elect as the economic viability of any government is actually to be determined by Neoliberalized markets. I read the following on a site curiously calling itself ‘Open Democracy’ which wrote this view without acknowledging quite what it meant.

      “ ‘Lexiteers’ – those on the left who support a left-wing version of Brexit – claim that leaving the EU will free a Corbyn government to pursue a socialist path unconstrained by Brussels. They seem to believe that Wall Street and Frankfurt will become Corbyn’s friends; and will help ensure that Britain’s chronic balance of payments deficit continues to be funded so that the City of London can be taxed by radical social democrats who seek a new model of egalitarian government. In fact, of course, if it is outside of the EU the markets will exploit the UK’s isolation to break any such progressive project.”

      It doesn’t matter what politics the people choose because it is the markets that will exploit it in order to break its political project. Is this not itself completely and utterly totalitarian? There are no other political and economic choices and Neoliberalism is the end of political and economic history. What we also need to realize is that markets have changed and evolved massively in the last 30 years. Before they were the sum of a lot of individual traders making independent decisions. Now much of the decisions are made by computers. One of the aspects of the GFC which does not receive enough attention is how central banks around the world co-ordinated their actions. New technology has allowed the elite to control markets far more effectively in the short term and to the extent that they can take down any sovereign government they happen to take a Neoliberalist economic issue with. We first saw this in 1992 on Black Wednesday when George Soros and company bet against the government, the pound and the Bank of England.

      Not only is the politics and economics of Neoliberalism enforced by markets then it has also been made part of the EU constitution in the innocuous looking ‘European Stability Mechanism’ which is just the doctrines of Neoliberalism written into the very foundations of the EU in a very bureaucratic and technocratic way.

      Are not all of these Neoliberal things completely and utterly authoritarian and totalitarian? Is the writer not correct in pointing us into understanding the direction of these authoritarian and totalitarian tendencies and that this is a matter of great critical urgency? If you don’t get these things then you need to understand them fast because there is far more at stake here than most of us have realized.

      Do we have arguments against this? Yes we do. Neoliberalism has been a catastrophic failure as evidenced by the GFC and the central bankers are only in ‘control’ as such in the short term. Every single crisis has been caused by the inappropriate actions of central banks in response to the previous crisis. We can see well in advance as to how GFC2 will happen largely as a direct result of the central banks response to GFC1 as GFC1 was itself the direct result of an inappropriate response to the Dotcom bust of 2000 and 9/11. It is simply a question of when the volcano finally erupts. What will the Neoliberal response to the next crisis be? Can Neoliberalism survive GFC2? Can we survive GFC2? What seems pretty clear to me is that Neoliberalism completely avoids talking about its litany of failures.

      We also have another subtle yet far more interesting argument at our disposal and it goes directly to one of the contradictions you referred to.

      I do not think it is entirely obvious quite what the writer meant when he said “interfere with the property rights of the elite, posing an existential threat to the neoliberal experiment.”
      Could we not suggest that the elite’s ‘power’ itself is an assumed intellectual or theoretical ‘property’ of the elite and might we also democratically question the efficacy of that assumption of power in order to provide an existential threat to it when we tell them that their ‘power’ does not exist as such.

      Wouldn’t that conclusion start to account for rather a lot of curious things that happen in the general incompetencies of highly dysfunctional governments who consistently find themselves in Office but never in ‘power’ it seems? Maybe that is what the author was trying to write but failed to make the necessary connections? In order to seize power one must first of all to assume it in principle and power is always teleologically obliged to actual demonstrate that it is truly in control as such. Power is contractually obliged to deliver its proposed outcomes whether they are good or bad. It never does though does it? All we actually witness is power’s failure and an inability to deliver the political promises of its manifestos.

      Can you not see that power itself is extremely questionable? Central banks assume the ‘power’ to fix the GFC but we all know that their proposition was always doomed to failure. They appear to be powerful in the short term but in the reality of the long term we can see this to be nothing other than power’s foolish arrogance. Just as when Gordon Brown made the ridiculous claim to have abolished boom and bust economics on the very eve of the GFC. How postmodernly ironic was that clownish statement!

      In your review of this essay you implied that the writer was disingenuously creating a straw man argument. I don’t think he was as I believe he was merely stating some contradictions he derived from some set reading of ‘Harvey’ in order to conclude that “Therefore, a system must be put in place that protects against the ‘wrong’ decisions of a public that is supposed to buy, sell, act, and choose freely”

      Of course in writing this in 2015 did he not anticipate and account for the establishment reaction to Brexit and Trump perfectly? Can you in all seriousness deny that there isn’t a system that was obviously in place that protects against the ‘wrong’ anti-EU decisions of a public that is supposed to be able to act and vote freely. I think it is entirely correct to recognize that the establishments in the UK and USA are precisely in the process of an existential crisis in response to both Brexit and Trump and that we have witnessed an establishment and media in complete hysteria at the outcomes of Brexit and Trump and that this reaction is directly related to the electoral results as the empirical proof of their inability to control the people. This is an existential crisis in ‘power’ itself in that Brexit and Trump kicked power’s teeth out. They assumed ‘power’ but found out that their assumptions and power were obviously toothless. The establishment consequently descends into shrieking paroxysms of abuse of its populations in the face of its own powerlessness. In the US the Democrat hysteria of the response to Trump has been quite incredible and totally out of all proportion just as it was with Brexit.

      Sadly, this is just some of my understandings and experiences of these things.

    • Any system in which power and wealth are concentrated in the hands of a small minority is necessarily authoritarian.

      This is not contradicted by the neoliberal doctrine of a minimal state.

      First, a state can be authoritarian without having a big public services sector.

      Henry VII in England didn’t have ‘a public sector’, or even much of a standing army, but his was an intensely authoritarian regime, most notably in its use of informers and censorship (he even ordered an important Act of Parliament to be rescinded, and all copies burned, without being read). He dated his reign from the day before he defeated Richard III at Bosworth – a technicality, but one which rendered Richard’s supporters traitors, so they could be executed, and all of their property seized.

      Second, we need to beware of ‘what we do, not what we say’. Neoliberalism is a justification for the system, much like ‘the divine right of kings’ or Soviet communism, and in none of these cases is intellectual cogency necessary, as they are essentially PR for the system, not its justification.

      Put another way, just because intellectuals could (and did) expose the intellectual paucity of Soviet communist dogma, this didn’t persuade the Soviet apparatchiks to dismantle the system which served their interests. ‘OK, so our logic is feeble – but we’re still in charge‘.

      Any system controlled by a minority is likely to craft a philosophical justification for their control. But this is ancillary, and essentially PR, and they won’t surrender power and wealth just because it lacks credibility.

  29. @Absolutely last dot
    Why did Trump go out of his way to criticize Rex Tillerson, who was the CEO of Exxon-Mobil before he became Secretary of State? Could it be because Tillerson didn’t buy into the ‘American energy dominance’ meme? Tillerson got an award from Moscow for their joint partnership in the Arctic (on which occasion he said he was sure oil would rise to 200 dollars per barrel, making the Arctic profitable), and he said that ‘we are losing our shirts in shale, just like everyone else’. Well, Tillerson is out and the ‘American dominance’ team is in.

    Don Stewart

  30. Ex Green Jo Nova on Australia’s mission to achieve fuel poverty – a coal rich nation.

    Here’s a problem coal fired plants don’t need to worry about.


    Sydney’s ‘catastrophic’ hailstorm happened on Thursday, the damage bill said to top $125 million. How much of that damage is to rooftop Solar PV? The last massive hail storm in Sydney was in 1999 — but there were hardly any solar panels then.

    • It will be interesting to see the bill for solar panels which – if very high – I’m sure will kickstart development of protectors which will make some people very wealthy.

  31. In case you missed it, there’s been some disconcerting UK economic data this week:

    – Investment has fallen for three consecutive quarters, which hasn’t happened since 2009

    – Consumers’ spending has exceeded their incomes for eight quarters in a row – this is without precedent.

    The significance of this is that consumers are the only growth engine in the economy. As we know, this has been driven by cheap credit.

    – The savings ratio has slumped to 4.9% (‘normal’ would be 10-12%)

    – Car production has fallen by 20%

    – The current account deficit was £26.5bn, compared with £20bn in the previous quarter

    What I find interesting is that commentators are no longer saying ‘this is all about “Brexit”‘ – in other words, the broader issues we’ve long been discussing here seem to be starting to get noticed.

    • Yes I read about car production and I remember you saying that someone had said they expect a large percentage (50%) of car dealers to go out of business in the next 5 – 10 years.

      The deficit is very worrying but we need cheap energy to boost our manufacturing – but what do we manufacture especially as cars are on the decline?

      Regarding the drones at Gatwick – although what was done (environmentalists?) was very wrong and ruined Christmas for many – let alone endangering life – there was a meaning to it in a certain way although not fully recognised yet

      Basically it’s pointless building any new runways as there probably won’t be the demand in the future (spending on essentials not luxuries) let alone the fact the the costs of aviation fuel are probably going to soar putting many airlines out of business.

      However the main sign that we’re facing imminent economic collapse happened this morning but probably went unnoticed by most. I arrived at my local Marks and Spencers food hall at 6:15 this morning to do Christmas food shopping.

      It was a bit of a scramble but I manage to get a wonderful looking Turkey crown plus all the normal bit and pieces for the meal EXCEPT something very important – Bramley Apple sauce. I asked but they said they had none in stock. What NO Bramley Apple sauce? A clear sign that our relatively cosey existence is coming to an end.

      Ps Perhaps we might be saved as Waitrose might have some.

    • One theme I have noticed in all of this is that they are not prepared to admit that neoliberal economics has been a complete and utter failure. The GFC was the most massive indicator of this yet no-one acknowledged it as such. Every problem is now blamed on something else rather than recognising the bankruptcy of neoliberal economics. They blamed Brexit and Trump on racism and when that is not enough they fall back on blaming Russia and Putin for stirring up dissent. They see Neoliberal economics as being the end of economic history which we all know cannot be the case as some time in the future we are going to have to rationalise labour, production and consumption and realize that it is not a human right to have a new BMW every three years and two foreign holidays etc.

    • Neoliberalism has been an abject failure. It’s lousy economics. Indeed, it’s theoretical position is so full of holes that I think its true philosophical adherents must be few in number. In that sense, it may be like “trickle-down economics”, or for that matter “the divine right of kings” – convenient for a few; promoted by those serving that few, or in some way supportive of or dependent on them; and by a small number of extremists who believe in it for its own sake.

      We should never desist from restating that it has nothing in common with Adam Smith’s description of the market economy. Smith is not – stress, NOT – about the worship of private ownership, minimal regulation or a tiny state.

      The principle expounded by Smith is competition. Competition cannot operate unless markets are free, fair and transparent. Smith’s harshest invective is saved for monopolists and oligopolists. It is implicit that monopoly will not be prevented, nor markets kept free, fair and transparent, by their own efforts, because Smith highlights the incentives favouring concentration. Dishonesty also undermines markets. Smith was an ethicist before he was an economist.

      These considerations make tough and vigilant regulation imperative – and this is something which the state can alone provide.

    • Absolutely. Before ‘economics’ there was political economy which itself was a philosophical branch of ethics. When economics was isolated as a science it essentially became unethical. One thing that is not given enough attention is the role of outsourcing in general. The financial crisis was created by outsourcing responsibility for making loans via CDOs etc in that the people making the loans immediately off-loaded or outsourced them to 3rd parties. This systematic change enabled their irresponsible behaviour. In dealing with the financial crisis governments and central banks outsourced the solution to the problem by handing $trillions and $trillions to the very same people who created the problem in the first place. Its all completely unethical and that was always going to be the problem in just seeing economics as a plain old science that was devoid of ethics, morality and social accountability.

    • The biggest danger is perhaps what you see in the US where the political process has become corrupted and co opted by business and the elite. One of the most outrageous and blatant examples of this occurred during GFC1 when Hank Paulson demanded $700bn for the TARP programme without Congressional oversight! This is “in your face” politics and an open plundering of the masses to save the elite.

      Unfortunately most businesses want monopoly which not only puts up prices but, more importantly, stifles innovation and the regulations we have to tackle this are, it seems to me, quite weak as I can’t believe that industry concentration has done anything but increase in recent years.

    • A quick question Tim. The wars in the Middle East have been troubling me greatly over the past 2 years and I have done much research trying to work out how they came about in which Neoliberalism raises its ugly head yet again.

      Do you remember the Arab Spring and how it was initially reported? I remember it being first reported in terms of economic protests and that it was understood and related to a number of economic issues and conditions. At some point these economic protests seem to have been hi-jacked and the view of the Arab Spring today is that they were largely democratic protests. How do you remember it?

    • I read them as a combination of economic and pro-democracy events, though there are significant differences between countries, and I think there’s been a fundamentalist dimension too. The West – really meaning the US (pre-Trump), Britain and France – has contributed quite a lot to the uprisings but much less to the restoration of stability.

    • Tim, thank you for another first-rate piece of writing. May I add a couple of comments to your observations? First, the continuation of consumers (households) spending more than their income and the collapse in the saving ratio has occurred during a period of People’s Quantitative Easing, namely as a result of PPI redress. Frankly, I find this troubling and telling. Secondly, the BBC recorded that the deterioration in the current account position was ‘driven largely by higher profits from British companies flowing to foreign investors’. The latter point has been highlighted by SEEDS and for some time now you have made numerous observations about the structural deterioration in the External Income Account. Despite all the evidence that the UK economy is indeed crumbling before our eyes the reality has not yet registered with either the mainstream political class or most of the MSM. With every good wish for the Festive Season and the year ahead and may I express the hope that events continue to validate SEE, even though the reality is truly alarming.

    • Thank you Kevin, and a very Merry Christmas to you and yours.

      The current account deficit has been described, by no less a person than Mark Carney, as dependency on the “kindness of strangers”. What’s happened is that, as current account flows have been negative, investment flows have been positive, driven by borrowing from abroad, and the sale of assets to foreign investors. The latter has created market demand for GBP, buttressing the currency.

      But what people seem to be missing here is the dynamic. Each asset sold increases the outflow of profits, and each new debt increases the outflow of interest.

      The big danger here is that foreign investors become spooked. If this happens, they cease lending, cease buying assets, and cease leaving retained profits for reinvestment. Worse, they might try to divest their UK investments. That’s when the risk of a slump in GBP becomes serious.

      I’m confident that events will continue to validate SEE. At this moment I’m examining the trends to be anticipated in 2019 – I think it’s set to be a year of crescendo in the themes we’ve been discussing here……..

  32. Also a good time to look at steady state economics, post-growth and de-growth economics.




    Many years ago I was fascinated by Baudrillard’s concept of simulation in that I asked myself how many jobs are real and actually needed and how many are actually systematically simulated requirements? One can say exactly the same thing of consumption. How much of the stuff that we consume as reward for labour are simulated needs and desires?

  33. The thing that worries me about the EU the most is that neoliberalism has been built into its bureaucratic framework and machinery in the European Stability Mechanism as the end of economic history and the only method of dealing with economic problems.


    There are no other economic or political choices according to this logic and framework. Very scary indeed when one considers who the ‘technocrats’ overseeing the liquidation of countries will be. The very same financiers and investment bankers who caused the GFC.

  34. Neoliberalism; Corporations as Persons; Anarchism; Systems Thinking
    Full confession: my knee-jerk reaction is always anarchism. I don’t want governments telling me what to do.

    But, as Newton said, for every actions there is an equal and opposite reaction. So let’s look at a few of the signposts that perhaps anarchism is not always the solution. I will only hint at the content. You’ll have to look it up if you are interested.

    First stop is The Coddling of the American Mind: How Good Intentions and Bad Ideas Are Setting Up A Generation for Failure, by Lukianoff and Haidt. We learn that, since the iGeneration (the one raised on social media) have come to dominate education, things have gone badly. For example, for ‘self-inflicted non-fatal injuries’, the rate per 200,000 girls age 15 to 19, was 420 historically. But in 2010 the rate began to rise rapidly and is now at 630. Among girls aged 10 to 14, the rate rose from 110 to 318. ‘The years since 2010 have been very hard on girls’. The authors then rehearse the evidence presented by Jean Twenge linking the increase in mental dysfunction to social media.

    Humans are a hyper-social species, and females display aggression mostly through status…think of an enemy pointing out to everyone that YOU were not invited to the party. Social media excel at this sort of aggression displays. Girls can use AI operated photo editing software to make the picture of themselves ‘more beautiful’…reminding them constantly that they are lacking.

    I’m not going to try to present all the evidence you will find in the book. But you get the idea. Smart people in Silicon Valley know how to manipulate humans for profit. The suffering is born by the victims and by society at large. It’s hard to see how this can be turned around without government regulation.

    The second piece of evidence is George Mobus’ systems approach, presented in his blog Question Everything.

    ‘I don’t know what else to say. I had started a piece taking an inventory of beliefs and ideologies that underlie the major pathologies in our socioeconomic system, things like belief in free markets. But it was getting way too long even without explanations of why they were pathological. However, I have written at length about all of them in the past so you will find blogs about subjects like “profits” and “human rights” and read the discussions there.

    What I had thought to do was to remind everyone why our societies, western and eastern, northern and southern alike are failing in providing a meaningful life for all humans without destroying the ecosystem. We are in a no-win scenario. Most people on the planet are either already in poverty or many are headed in that direction with the pace accelerating. I have mentioned before the fact that I am seeing more homeless people in the neighborhood where I work as time goes on.

    There are too many of us. Our access to free energy is being strangled. The pollution from our prior use of energy is converting our climate into a nightmare. Water is becoming a serious issue in many places. Climate-forced conflict and migration has become plainly visible. And on and on.’

    ‘One thing I am sure of. The socioeconomic system we currently have is completely unsustainable. But there will have to be some further development in the human brain in order for a species of humans to regroup and have any kind of society at all.’

    I have previously commented that I find the view of Mind presented by the psychiatrist Dan Siegel compelling. Siegel takes a sort of systems view of the mind. I think this guards against the sort of reductionism inherent in social media, or in the neoliberal economics which governs most of the world. George Mobus takes an explicitly systems view of the world and the prospects for the peculiar animals we call homo, and Lukianoff and Haidt take a systems view of culture. All of these inevitably involve not only other people but also all of nature.

    Neils Bohr said: The opposite of a great truth is also true.

    My Anabaptist forebears and my anarchist inclinations make me skeptical about Christmas, but it is also true that I wish all of you a Merry Christmas.

    Don Stewart

  35. I’m currently enjoying repeats of Dan Fogle’s ‘New lives in the wild’ where he meets – loners – couples who have decided to live off grid (well some do have electricity and internet connections).

  36. Just a post about an additional shopping trip I did yesterday evening at around 8pm to buy some additional food for Christmas and Boxing day.

    I was expecting the local roads to be extremely busy – but they weren’t – and Sainsburys was nearly empty. What struck me as I walked around was the amount of unsold luxury chocolates and biscuits on special stands.

    Of course many may have been at parties or still stuck at Gatwick but – compared to last year – something didn’t feel right.

    • This is to be expected. Right across the West, my sense is that the wheels are coming off. For UK consumers to spend more than their incomes for eight consecutive quarters is without precedent, and helps explain the continuing rise in consumer credit. Obviously it is not sustainable.

      My feeling is that 2019 is when things come to a head. I’m sure you’ve seen the sharp falls in share prices in US “tech” stocks since late summer.

    • The MSM is also changing its tune and the commentary is becoming much more pessimistic.

      Although we are fixated on Brexit I believe the real fireworks will come from elsewhere when the balloon goes up and Brexit will fade into the background.

  37. Hi yes I’ve seen the sharp falls – with the mishandled Brexit (although the below BBC link would argue that they might not suffer too badly from a no deal scenario and were always in a strong negotiating position) and continuing phantom growth also think that things could become pretty nasty in 2019.


  38. Tech Stocks
    I have come to the conclusion that the ‘tech stocks’ are actually ‘retail’ stocks. What the tech companies are selling to the end user is ‘identity construction assistance’. What they are selling to the advertisers is information connecting individuals with products that can be sold to them with ‘identity marketing’.

    Don Stewart

    • Yes – several of the “tech” stocks are really advertising platforms. I understand that big corporate advertisers shifted some time ago to “zero-based budgeting”, which means ‘don’t spend more on anything than you did last year’. That’s not exactly a growth story, is it?

  39. Just when you thought things couldn’t get any more ominous, US Treasury Secretary Steven Mnuchin has spoken to the bosses of America’s six largest banks, and has put out a statement saying that everything is fine, and there are no liquidity or margin issues.

    It’s worth remembering that banks only ever make reassuring statements when things are going wrong, and that everything in banking “is fine, right up until the day when it isn’t”.

    Those with long enough memories might remember Alan Greenspan’s reassurances, and remarks that bankers were the best judges of what is in the interests of stockholders.

    • Sounds ominous. One of my favourite films concerning finance is a 2011 flick called ‘Margin Call’. Very well acted with realistic dialogue – part of which went ‘F**k’ when they realised just what a huge mess they were in.

    • A quote from a Twitter post from Binyamin Applebeaum of the NYT on Mnuchin’s call to the banks:

      “Let’s say you were trying to start a financial crisis. A good strategy would be to threaten to fire the Fed chair and then announce that banks aren’t worried about liquidity.”

    • Absolutely. To the best of my knowledge, the Fed chair cannot be fired by the President. But the reassurances about the banks strike me as truly scary – the last time any similar assurances were given was, I think, during 2007-08.

  40. Just looked at his statement on his Tweet. It’s got 3.5k likes and 3.3k replies. Unfortunately I cannot see the replies to see if any are questioning him.

    In his Twitter profile picture he looks like some sort of Mafia boss with his finger pointing as if he’s saying – ”Anyone who doubts my words – gets it’ (excuse the play on words)

    • Reflecting on it, can you imagine him saying something like: “I’ve spoken to the six biggest US banks, and most are very short of liquidity and all are extremely worried about margin calls”?

      No – me neither!

  41. Thanks for your work in 2018 Tim and look forward to what you will publish in 2019.

    I’ve just checked my returns for Fundsmith (your previous employer Terry Smith). It’s 1.8% against a return on 23.99% for 2017.

    I was aghast that Terry’s team purchased Facebook! I shall ask on what basis at the AGM in March.

    Best wishes

    • Thanks.

      I can’t comment, of course, on Fundsmith or its stock selections, but I can tell you that I have the very highest regard for Terry. I worked with him for about ten years at Collins Stewart, and then again at Tullett. At CS we had an analyst who called the dot-com bust when everyone else was still bullish.

      Of course, markets generally declined during 2018. The Dow started the year at about 24,825, and is 22,455 now, whilst the Nasdaq has gone from about 7010 to 6333. The FTSE100 has fallen from 7650 to 6678. So any kind of positive return over that period is impressive.

      It amuses me that stocks like FB are described as “tech” – for me, “technology” means electronics, biotech, materials sciences and so on. Personally, I don’t, and never would, use Facebook, Twitter or Google.

    • Thanks – it’s one of my ‘favourite’ typos.

      This from a reader in the Daily Telegraph against an article from Roger Bootle about Italy being on a collision course with the EU (worth reading if you have access)

      ‘More than 100% of German growth from their exports within the Eurozone is debt that will never be paid and gives them a zero interest level. The Bundesbank asserts are non existent apart from on paper. Read up on the EU’s Target2 and weep.’

  42. Purely anecdotal, so not scientific at all, but this year’s bonfire celebrations in my area were the most muted I can remember, as were the volume and exuberance of last year’s Xmas ones, so I wonder if people are feeling apprehensive, poor or both.

    I just checked my Fundsmith account and on the factsheet page, (which is available to all viewers) relevant table, the annual return minus December is ~10%, while the nearest equity industry equivalent score on it – for fair comparison – is about half that. I reckon that’s pretty amazing, which is why I make an exception using Terry’s company, I have no faith in stockpickers generally, based on their proven inferior results vs passive indexing. The meteoric scores he racked up in previous years were obviously heavily influenced by QE sugar-rush money pumping up all assets artificially; I didn’t get happy at that, just regarding it as a hedge against inflation/the currency devaluation.

    I agree that the facebook purchase was surprising given his philosophy and I too will be fascinated to hear his reasoning; he is only human though and honest enough to admit mistakes. I think he’s superior to Warren Buffet, who he’s sometimes lazily quoted as simply following, but his warning deconstruction of Tesco’s dodgy bookkeeping was excellent, while Buffet got caught out by them.

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