#145: Fire and ice, part two


Although it was something of a detour from the theme of fire and ice, our previous discussion about “Brexit” does have one point of relevance to that theme. Here’s why.

All things considered, there seems to be an utterly compelling case for intervention in the dysfunctional “Brexit” process by the “adults” in European governments. Yet, even at this very late stage, no such intervention has happened. Governments seem to see no alternative to letting London and Brussels – but mostly Brussels – make a complete hash of the whole process. Indeed, only now do the governments of the countries most affected (Ireland and France) seem even to be implementing contingency plans for an adverse outcome.

Of course, you might jump to the conclusion that irrationality reigns in European capitals, and especially in Dublin and Paris. But it’s surely obvious that this is part of a much wider process, one which we can think of as a form of shock-paralysis.

Essentially, the idea explored here is that governments around the world have been paralysed into inaction, not so much by fear alone as by a simple inability to understand what’s happening around them. Nothing, it seems to them, is happening rationally. They don’t really understand why so many amongst the general public are so angry – and they certainly don’t even begin to understand what’s happening to the economy.

I call this shock-paralysis “the juggernaut effect”.


The word “juggernaut” seems to derive from Sanskrit, and refers to an enormous waggon carrying the image of a Hindu god. The figurative meaning is of an irresistible force, flattening anyone foolish enough to stand in its way.

Rationally, you’d think that anybody standing in the path of a “juggernaut” ought to be making every effort to escape. But it’s quite likely that shock, fear and incomprehension will have a paralysing effect, overwhelming rational faculties, leaving him or her rooted to the spot.

That’s a useful way to describe the effects that current economic (and broader) trends are having. It doesn’t just apply to governments, of course, and it’s prevalent amongst the general public, too.

Just as the person standing in front of the “juggernaut” is all too well aware of its lethality, today’s leaders and opinion-formers surely know at least something about the financial, economic, political and social forces converging on them.

But they seem incapable of doing anything about it.

A big part of this paralysis is incomprehension – any problem becomes infinitely harder to tackle if you don’t understand why it’s happening. And there are reasons enough for policy-makers, and ‘ordinary’ people too, to feel completely baffled.

The irrational economy

You don’t need to be a committed Keynesian – indeed, you need only numeracy – to understand the basic principles of economic stimulus.

If economic performance is sluggish, activity can be stimulated by pushing liquidity into the system, either through fiscal or through monetary policy. If too much stimulus is injected, though, there’s a risk that the economy will overheat, with growth exceeding the sustainable trend. Rising inflation is one of the most obvious symptoms of an over-heating economy.

Here, though, is the conundrum, for anyone trying to understand how the economy is performing.

Since the 2008 global financial crisis (GFC I), the authorities have pushed unprecedentedly enormous amounts of stimulus into the system.

We ought, long before now, to have experienced overheating, with growth rising to levels far above trend.

This simply hasn’t happened.

This should have been accompanied by surging inflation, most obviously in commodities like energy, minerals and food, but across the whole gamut of goods and services, too, with wage rates rising rapidly as prices soar.

Again, this simply hasn’t happened.

To be sure, there’s been dramatic inflation in asset prices, and that’s both important and dangerous. But the broader point is that neither super-heated growth, nor a surge in price and wage inflation, have turned up, as logic, experience and basic mathematics all tell us that they should.

Pending final data for 2018, it’s likely that global GDP last year will have been about 34% higher than it was back in 2008. Allowing for the increase in population numbers, GDP per capita is likely to have been about 20% larger in 2018 than it was ten years previously. This isn’t exactly super-heated growth. According to SEEDS, world inflation stands at about 2.5% which, again, is nowhere near the levels associated with an over-heating economy. Far from soaring, the prices of commodities such as oil are in the doldrums.

Price (and other) data is telling us that the economy has stagnated. But the quantity of stimulus injected for more than a decade says that it should be doing precisely the opposite.

There can be no doubt whatsoever about the scale of stimulus. The usual number attached to sums created through QE by central banks is in the range $26-30 trillion, but that’s very much a narrow definition of stimulus. Ultra-loose monetary policy, combined with not inconsiderable fiscal deficits, have been at the heart of an unprecedented wave of stimulus.

Expressed in PPP-converted dollars at constant values (the convention used throughout this analysis), governments have borrowed about $39tn, and the private sector about $71tn, since 2008. On top of that, we’ve wound down pension provision in an alarming way, as part of the broader effects of pricing money at negative real levels, which destroys returns on invested capital.

Even if we confine ourselves to QE and borrowing, however, stimulus since 2008 can be put pretty conservatively at $140tn.

That’s roughly 140% of where world PPP GDP was back in 2008. You might think of it as the injection of 12-14% of GDP each year for a decade.

That’s an unprecedentedly gigantic exercise in stimulus.

And the result? In contrast to at least $140tn of stimulus, world GDP is perhaps $34tn higher now than it was ten years previously. Price and wage inflation is subdued, and the prices of sensitive commodities have sagged. The prices of assets such as stocks, bonds and property have indeed soared – but one or more crashes will take care of that.

By now – indeed, long before now – anyone in government ought to have been asking his or her expert advisers to explain what on earth is going on. Assuming that Keynes wasn’t mistaken (and simple mathematics proves that he wasn’t), the only frank answer those advisers can give is that they just don’t understand what’s been happening.

Questions without answers?

The utter failure of gigantic stimulus to spur the economy into super-heated growth (and surging inflation) is reason enough for baffled paralysis. But there are plenty of other irrationalities to add to the mix.

If you were in government, or for that matter in business or finance, then as well as asking your advisers about the apparent total breakdown in the stimulus mechanism, you might want to put these questions to them, too:

– Why has a capitalist economic system become dependent on negative real returns on capital?

– Why, since the shock therapy of the 2008 global financial crisis (GFC I), have we accelerated the pace at which we’re adding to the debt mountain?

– Why, seemingly heedless of all past experience, have we felt it necessary to pour vast amounts of cheap money into the system?

– Why have the prices of assets (including stocks, bonds and property) soared to levels impossible to reconcile with the fundamentals of valuation?

– Why has China, reputedly the world’s primary engine of growth, found it necessary to resort to borrowing on a gargantuan scale?

This last question deserves some amplification. Pending final data, we can estimate that Chinese debt has increased to about RMB 220tn now, from less than RMB 53tn (at 2018 values) at the start of 2008. These numbers exclude what are likely to be very large quantities of debt created in what might most politely be called the country’s “informal” credit system.

So, why does an economy supposedly growing at between 6% and 7% annually need to do much borrowing at all?  Put another way, how meaningful is “growth” in GDP of 6-7%, when you have to borrow about 25% of GDP annually, just to keep it going?

And this prompts several more questions. For starters, why are the Chinese authorities, hitherto esteemed for their financial conservatism, presiding over the transformation of their economy into a debt-ponzi? Second, can ‘the mystique of the east’ explain why the world’s markets are seemingly either ignorant, and/or complacent, about the creation of a financial time-bomb in China?

The juggernaut effect

Even these questions don’t exhaust the almost endless list of disconnects in our increasingly surreal economic plight, but they surely give us more than enough explanations for the paralysing “juggernaut effect” in the corridors of power.

Put yourself, if you will, into the shoes of someone trying to formulate policy. Two things are obvious to you, and either one of them would be a grave worry. Together, they’re enough to overwhelm rational calculation.

First, you know that there are some very, very dangerous trends out there. In the purely financial arena, you’re aware that debt has become excessive, whilst the system seems to have become reliant on a never-ending tide of cheap credit.

If your intellectual leanings are towards market economics, you’ll also have realised that pricing money at rates below inflation amounts to an enormous subsidy. Politically, that subsidy is going to the wrong people. If you came into government with business experience, you’ll also know that we’ve witnessed the destruction of returns on capital, which makes no kind of sense from any business or investment point of view.

You might know, too, that the viability of pension provision has collapsed, creating what the World Economic Forum has called “a global pensions timebomb”. If the public ever finds out about that, the reaction could dwarf whatever political travails you might happen to have at the moment.

Lastly – on your short-list of nightmares – is the strong possibility that some event, as yet unknown, will trigger a wave of defaults and a collapse in the prices of property and other assets.

Your second worry, perhaps even bigger than your list of risks, is that you don’t really understand any of this. Your economic advisers can’t explain why stimulus, though carried to (and far beyond) the point of danger, hasn’t worked as the textbooks (and all prior experience) say it should. If there’s anything worse than a string of serious problems and challenges, it’s a complete lack of understanding.

Without understanding, the policy cupboard is bare. You don’t know what to do next, because anything you do might have results that don’t match expectations, making matters worse rather than better.

It might be better to do nothing.

In short, you feel as though you’re making it up as you go along, in the virtual certainty that something horribly unpleasant is going to hit you, with little or no prior warning.

Welcome to “the juggernaut effect”.

188 thoughts on “#145: Fire and ice, part two

  1. Some notes from Christopher Lasch’s book, The True and Only Heaven. Selections from pages 72 to 81 in the 2019 reprint, which I find particularly relevant to Dr. Morgan’s analysis of the crisis of neoliberalism.

    *Keynesian theory elaborated the discovery already proclaimed by the advertising industry in the 1920s, that ‘prosperity lies in spending, not in saving’, in the words of Earnest Elmo Calkins, one of the first advertisers to grasp the principle of ‘artificial obsolescence’.
    *Keynes in 1924: The day is not far off when the economic problem will take the back seat where it belongs, and the head and the heart will be occupied by the real problems—the problems of life and human relations, of creation and behavior and religion….birth control…, marriage laws, the treatment of sexual offenses and abnormalities, the economic position of women, the economic position of the family.
    *The notion of duty was outdated; one’s highest duty was to oneself.
    *Civilization was the product of the personality and will of a very few…(the Davos crowd???)
    *No other career (than Keynes’) exemplified the contradictory implications of progressive ideology quite so clearly: its assault on convention and its retrospective defense of convention; its theoretical commitment to democracy and its emotional aversion to democracy; its eagerness to issue the widest possible distribution of the good things in life and its deep-seated suspicion that most people were incapable of appreciating them. Keynes attacked the old ethic of thrift and saving head-on, by attempting to show that it was objectionable on economic as well as moral ground. Yet he could not suppress the nagging reservation that an ethic of enjoyment might be incapable of eliciting the ‘religious’ enthusiasm that capitalism required in its struggle with communism.
    *Keynes on Russia: his revulsion from a ‘creed which exalts the boorish proletariat above the bourgeoisie and the intelligentsia
    *The attraction of progressive ideology, at least in its liberal version, thus turns out to be its greatest weakness: its rejection of a heroic conception of life.
    *It remained only to complete the capitalist revolution by making the blessings of leisure available to all. No improvement in mental capacity was required in order for the desirability of this goal to be generally recognized; nor did its realization require altruism and self-sacrifice—only a willingness to subordinate short-term pleasures to long-term peace and prosperity.
    *George Orwell in 1940: Western democracies had come to think that human beings desire nothing beyond ease, security, and avoidance of pain….fascism was psychologically far sounder than any hedonistic conception of life.
    *Lewis Mumford in 1940: Having no sense of sin they discounted inherent obstacles to moral development and therefore could not grasp the need for a form-giving discipline of the personality. They scorned the discipline gained through manual labor, the endurance of discomfort, and the nurture of the young. They sought to free mankind from all manner of hardship and adversity, from the boredom of domestic drudgery, and from natural processes in general. Societies based on progressive principles renounced every larger goal in favor of the private enjoyment of life.
    *Popular initiative has been declining for some time—in part because the democratization of consumption is an insufficiently demanding ideal, which fails to call up the moral energy necessary to sustain popular movements in the face of adversity.
    *Improvidence, a blind faith that things will somehow work out for the best, furnishes a poor substitute for the disposition too see things through even when they don’t.

    I think everyone can pick up echoes from the 2016 election in the US, the travails of Brexit, the turmoil in Italy and France. As well as the history of China in the last few decades. I will add one comment on Mumford’s disquiet about the banishing of discomfort. New scientific research is showing that humans diverged from apes by greatly increasing their activity level. An ape can be sedentary and find plenty of leaves to eat. But a human needs to walk about 8 or 10 miles every day to hunt and gather, and it needs to exercise its brain and muscles in novel ways while doing so. Studies comparing sedentary monkeys living in the same forest with monkeys who gather food widely are instructing us on what it takes to make a healthy human. And these 2019 findings would probably not surprise Mumford.

    Don Stewart

    • Independently, I’ve worked out that I’m happier (and saner?) when I walk fast about 8 to 12 miles per day – it feels about right, and enlivening.

      Combined with some vigorous wood splitting or fencing (sharp steel kind) practice.

      I’m sure there would be a sex difference in levels and kind of physical activity?

    • Brexit is a pantomime, in my opinion, the real shell game is still petrodollar hegemony and since 2001 9/11 an assertion of overt and covert American Exceptionalism. Macron in France is doing his part for that and asserting French/EU interests above UK interests.
      This Graphic is instructive on the ebb and flow of geopolitical favour of the Imperium

      Meanwhile, the world still spins and Lazards levelised cost of energy and energy storage came out in November.


      The trends and implications for EROI are actually rather encouraging.

  2. In its rather understated way, this is one of the more disturbing things that I’ve read recently:

    “[Health Secretary Matt] Hancock also denied reports that the government was “specifically” planning for martial law if the UK left without a deal – but he did not rule it out.

    “He said that the government “looks at all the options in all circumstances,” but when pressed by Andrew Marr, the health secretary added: “It remains on the statute book, but it isn’t the focus of our attention.”

    “Martial law involves the suspension of normal law, and temporary rule by the military. It can include measures such as curfews and travel restrictions.”

    Of course, Britain isn’t the only country where such powers could be used, and neither is “Brexit” the only circumstance in which they might be invoked.


    • Why are Juncker and his friends being so difficult – don’t they understand the dangers they are creating. Probably not as they can’t see what is happening in the rest of the EU from their fantasy World in Brussels.


    • On Marshall Law, I once owned a development site in London Docklands In Leamouth. I bought several sites as part of a larger site assembly for my East14.com development, which was a Networked Internet community based around two Large Data centres.

      I ran into problems on the part of the site which had frontage to the River Thames, a Local councillor told me I would never get any planning permission to develop that River frontage as it was preserved for Civil Defence. There was no published policy in the public domain but discreet enquiries confirmed that he was in fact correct. The site was part of the logistics plan for moving Military assets into the centre of London, disembarking at strategic wharves along the Thames.
      I had similar enquiries made during my Bid for the Millenium Dome post the PY Gabot stewardship of the project.



  3. Sorry, this post is off topic, but I thought this is an interesting perspective that some on this site might find helpful, or at least intriguing. In prior posts to Tim’s articles alerting readers to “prepping” sites in response to the “but what do I do to prepare for this” inquiries readers sometimes make, I have mentioned the site Dark Green Mountain Survival Research Centre website, with its gonzo-aspirational host, “Category 5.” He has just launched a new series of posts trying to awaken an “adapter’s movement” to supersede the survivalist and prepper movements, and his introduction contains some interesting history and color commentary on the shortcomings of the survivalist and prepper movements. In future posts he promises to lay out the principles of an adaptation approach. What I thought some might find interesting here are his comments on the common usage of “collapse,” to describe our predicament or a dreaded future event. He prefers the term “apocalypse,” and I found his explanation for preferring this term, and the viewpoint it embodies, worth considering:

    “Though it may seem like a nothing issue and easy to dismiss, one person wrote about their discomfort in the regular use of Apocalypse [in the author’s writing]. You will notice that I use that term to describe our predicament more than other terms though it comes with inherent religious overtones. Sometimes Collapse does not do. Collapse from what to what? Banks closing or limiting withdrawals? Is that a collapse? Not really. That happens periodically in history. Life goes on. Generally, when I use SHTF or WROL [“without rule of law”] or TEOTWAWKI, I am using the term sarcastically. Even mockingly. I use Apocalypse often because its a better discriptor and what we are facing is truly Apocalyptic. The commenter rightly pointed out that most people read Apocalypse as the end of the world. The term means Revelation. The truth is Revealed.

    Now, I am fully aware of this, being the wordy fellow that I am. It’s a subtle joke in my writing. Apocalypse is the moment the veil has been pulled back and the truth is exposed. It’s the moment people see that they have followed a lie, their suburban middle class lifestyle was a false god, weeping and gnashing of teeth to follow. But it is not the end. When people use the term TEOTWAWKI or The End Of The World As We Know It, They generally only see The End Of The World part. I jump up and down waving my arms to point out the As We Know It part. This may seem a strange place to start my description and principles of The Adapters Movement, but it is good to point out, folks from other countries often point out and criticize that what North Americans call prepping is simply just called LIFE in most of the world.”

    I will add this, from Wikipedia: “An apocalypse (Ancient Greek: ἀποκάλυψις apokálypsis, from ἀπό and καλύπτω, literally meaning “an uncovering”) is a disclosure of knowledge or revelation. … It is also the Greek word for the last book of the New Testament entitled “Revelation”.”

    • Tagio, i suggest “Tipping point” and “Trade off” from David Korowicz. Goog it in pdf, if you haven’t read it already. We live in a interconnected JIT economy with 7+ billion. Think about it.

      Sometimes it attacks me and bites me in the throat.

      I’ve read a lot. For 10+ years now, since “Lehman”. Prepping is futile, but i still do it. My dose of hopium.

    • When the curtain is drawn aside, we see Mankind for what it is: a globally-distributed chattering ape-collective, with many attractive qualities, but absolutely no group capacity for exercising foresight, living in economies built on fragile technologies and delusion, and an utter lack of prudence (eg JIT structures, just waiting to be knocked down in a cascading collapse).

      I believe Korowicz recommends getting a dog and going for happy walks while it’s still possible. Amusing -and sensible – man.

  4. Keiser Report on gilet-jaune and similar movements
    Max and Stacey discuss the populist uprisings and predict the end of Davos as we know it. Search on RT and Keiser Report.

    Many of the same themes as Lasch discussed decades ago, but now perhaps coming to a head. Put together with unavoidable problems springing from increasing ECoE, the themes discussed pose what I perceive as unique challenges which political leaders and the financial establishment are ill-equipped to deal with.

    Don Stewart

    • Interesting, especially as it isn’t clear where Mr Macron goes now. As things stand, his labour “reform” agenda is a dead duck, and, with upwards of 60% of the public against him, he surely can’t expect to be re-elected.

      I had my doubts about him from the start, not least because he uses the word “reform” in the neoliberal sense of “weaken workers’ conditions of employment”. It doesn’t help that he’s slashed taxes for the very richest.

      His personality seems to be that ‘if you disagree with me, you’re wrong’, so I don’t think he’s strong on the ability to change direction and admit mistakes. I also suspect that he may be a quick and adroit thinker, but not a deep one.

      These characteristics can manifest as an image of arrogance, and can result in underestimating opponents, and dismissing opposing points of view. I don’t think he has much empathy with the non-metropolitan majority, and his proposed national dialogue on issues raised by the gilets jaune looks like a PR exercise.

      Above all, can he accept rejection, which is what he seems to be getting from a majority, and is likely to get from the voters?

    • To me it looks like they try to crush borders, physically as well as in financials. We don’t go to war when we all live in the same country and share our bank accounts seems to be their trick. Localism and tribalism is what awaits us in my opinion, so another extend & pretend. Opposite forces awake as we speak; Brexit, yellow jackets, Trump. The former will loose in a ever less world. The choice is between leftist (communist) gulags and fascism / national socialism.

      The power base (west) is consolidating. Pity other countries have nukes too.

      Its always easy to point in ‘ever more conditions’; in ever less conditions, AND, failing CB actions, its about survival.

  5. The salaries, perks and pensions of Juncker & Co. have no relation either to public sentiment or to the effects of their irresponsible arrogance, so of course they don’t care one bit.

    Moreover, they despise the electorate, as Tusk’s cynical comments to Cameron illustrate.

    I’m sure they would be delighted to see martial law in Britain, and probably even a renewal of terrorism in Ireland by the radical IRA remnants – quite a bit of activity recently it should be noted.

    • Point taken, though I doubt if anyone would welcome a return to The Troubles in Northern Ireland. Introducing martial law in Britain (or any comparable country) would surely be very much a worst-case scenario.

      There seem to me to be at least two broader issues to focus on right now. In Europe, it’s possible that 40% of voters could support insurgent (aka “populist”) parties in the European elections in May. We can identify a string of countries like to follow Italy down the insurgent route in their next national elections. In other words, the Eurocrats’ political power-base seems to be crumbling.

      More immediately, Chinese economic woes are worsening, as excellently chronicled by this article at Wolf Street.

      Big change is coming…….

    • At the bottom of the article is a link to ‘Fake cash and fake accounting’ Now Tesco have been found out and recently Patisserie Valerie.

      I wonder how many more UK firms are not being honest.


  6. Well here’s a headline from the Telegraph.

    Trump showdown with Iran leaves the world hostage to a violent oil shock


    I wonder if the Saudis have the capacity to make up the shortfall – probably not


  7. Art Berman tweet on the cost of drilling oil and gas wells:

    Cost of drilling oil & gas wells today is 3.7 times higher than 2002-2004 average. Cost has increased 18% since the oil-price collapse. Cost benefits since 2014 mostly from -42% drop in oil-field service costs, not technology. #OOTT #oilandgas #oil #WTI #CrudeOil #fintwit #OPEC pic.twitter.com/3vkUeXy…

    Art’s point on field service costs is that those companies are being squeezed by the recession in drilling…they aren’t magically getting more efficient.

    Yet the US has declared a big increase in reserves, putting the US reserve level at historical highs. Does anybody understand that rising ECoE implies necessary changes in lifestyle and financial vehicles? And, horribly, perhaps we can no longer afford such an expensive government?

    Don Stewart

    • Historically, states attempt to preserve as many of the structures built up in happier times when the juice is freely flowing, until the bitter end.

      In some ancient states, we can see evidence of revolts, totalitarian regimentation, and a repudiation of the old gods, a changing of the idols worshipped in the temples -eg Crete. We are no more advanced than that.

      We will see no appreciation of smaller government, and the ‘solution’ to this preferred by the Davos people – a steady reduction in ‘entitlements’ – is not going to wash with the masses. The new gods of nationalism are rising.

      The masses (who may be disenfranchised as democracy crumbles) will be alternately placated (‘Yes, you can retire on a pension at 60 and have August beach holidays!’) and repressed (rubber bullets a la France) until….Kaboom, RIP industrial civilization.

  8. I would agree: the internal perturbations of Europe (which of course includes the UK) are rather secondary: China just looks worse and worse.

    Interesting impact on the fortunes of German industry, too.

    Is one to look for a safe refuge, or merely identify a ship likely to sink last of all?

  9. Search on Energy Skeptic to read Alice Friedemann’s horrified review of Vaclav Smil’s enumeration of the amount of materials consumed by humans. And it is only supposed to get worse. And materials production is a major use of energy. It seems as though the wheels have to come off this locomotive.
    Don Stewart

    • I read that last night: Alice Friedemann is putting out lots of good stuff -reviews and summaries – and I would say she is required reading. Always balanced and intelligent.

      That particular post opens up simply appalling vistas.

      The squandering of resources on inessential production,the extent of pollution and degradation -inherent to our system -is particularly shocking once one has grasped the magnitude of the scale on which it is being done.

      All out of sight for the citizens of the advanced economies, as David Korowicz observes.

    • What happened to the dinosaurs will happen to us Xabier.

      The crocodile is still there though.

    • Interesting article, thanks: but – as nearly always – an illogical and unconvincing conclusion as to how we can save ourselves.

      Something modelled on China’s ‘social credit’ system? It is just an instrument of totalitarian control in favour of the Party, with a veneer of communitarian morality

      But the aspects of biology he discusses are certainly pertinent.

  10. From the Daily Telegraph –

    Fed has rescued the world and its debtors in the nick of time.

    Effectively the Fed has postponed rate rise and Quantitative tightening. I thought they were seeing commonsense at least.


    • Thanks Donald

      I’ve always been clear that the Fed’s ‘normalization’ plan would be put on hold, or even reversed, at the first sight of serious trouble. The same goes for the ECB and BoJ – we are in a trap, dependent on cheap money until the point of impact.

      In the US, the much-vaunted “strength” of the economy is a myth – I’ve called it “candyfloss economics”. Barely 1% of all “growth” since 2008 has come from hard-priced globally marketable output (GMO). The rest has come from internally consumed services (ICS), essentially services that Americans can sell only to each other. ICS is a ‘residual’ – it’s been the outlet for cheap liquidity poured into the system. It’s ‘spending borrowed money’, a process which adds activity without really adding value.

      We’ve all become credit junkies as a result of an exercise in denial over deteriorating prosperity.

      By far the most disturbing trends are coming from China, where things have been going badly wrong since October. Falling sales of smartphones and cars are one thing, but falling demand for high tech components (like electric drive motors, commodity chips and advanced chips) is quite another. Industries in trouble seem to include “growth” sectors like gaming and data-centres. Firms are defaulting on debts which were, supposedly, hugely covered by cash piles, cash which turns out to have been non-existent (shades of Enron). Domestic credit ratings, which always looked iffy, are now turning out to be outright daft (shades of sub-prime). State owned enterprises (SOEs), always assumed to be ultra-safe, are starting to default. Capital is being withdrawn from overseas, causing companies to halt or suspend projects.

      In short, China seems to be cracking – and remember, China has accounted for c36% of all global “growth” since 2008….

    • Yes Tim we are in a trap. I’m sure there are those at the Fed who are aware and are now at a loss of what to do as they can no longer use their tools to bring the economy into a ‘real’ footing.

      I’ll never forget the film I saw about Enron – it must be in the top 10 of most crooked organisations ever.

  11. Extract from the Independent

    “Vision 2030” was unveiled by Crown Prince Mohammed bin Salman three years ago as a programme to reduce dependence on oil and diversify the economy while carrying out sweeping modernisation of government policy; it was viewed as a major reforming step.

    Well we know their oil reserves are in decline so plans like Vision 2030 should act as a klaxton to anyone who doubts this.

  12. US Energy Independence
    See Art Berman’s tweet:

    The chart shows that US energy imports have declined to near zero. What the chart doesn’t tell us is the cost of producing the energy domestically. Only an approach like Dr. Morgan’s ECoE can tell us that.

    I remember a Chinese film made perhaps 20 years ago about the ‘Great Leap Forward’ era. An agricultural commune was so proud of itself that it had produced a small amount of iron. What was apparent in the film was that the amount of labor required to produce the iron was enormous. Mao’s ideas about communal self-sufficiency were leading to ruin.

    We really need to look at the economy as a system, rather than rely on snapshots of partial views.

    Don Stewart

    • What is cheaper, invade Venezuela and mix their bitumen with light crude, or monetize fracking?

      They WILL monetize the kitchen sink.

      The spice must flow, the ponzi must grow.

  13. Hi Tim, I hope all is well.

    The Nation has a new article, “France’s Yellow Vests Movement Comes of Age,” describing and discussing the significance of the recent assembly of 300 delegates from over 75 Yellow Vest groups around France at Commercy. One of the delegates states that the Yellow Vest movement is “the first revolt of the energy-precarious.” I think this is a very good descriptor, and very much harkens to your work. The entire article is well-worth a read. Here is the context of that particular quote:

    “Nothing was more absurd, delegate after delegate told me, than the common refrain according to which the Yellow Vests were ignorant of the scale of the environmental crisis and of the need to make drastic reforms. Rather, people abhorred the gasoline tax because it was seen as a backhanded measure to make up for a hole in government revenues following an estate-tax cut for France’s wealthiest. Aurélia, also from Nantes, thinks that we should see the Yellow Vests as “the first social and environmental revolt in France. By taxing car gasoline, the state taxes people who have no other choice. These are people who have no access to public transportation. This is the first revolt of the energy-precarious.”

    Torya and Adel know first-hand the ravages being inflicted on French public services. Torya works for the French national railroad company (SNCF) and participated in the fight against Macron’s SNCF reforms in the spring of 2018, which slashed union benefits for rail workers and paved the way for the full privatization of the French rail network. “I joined the Yellow Vests to protest against the hypocrisy of the government,” she said. “If the gasoline tax were really an environmentalist measure, the government would not be in the process of closing down 9,000 kilometers of train lines, but would be investing in renovating train lines, buying more cars, and hiring more workers.”

    Adel, her co-delegate, knows what the future holds for workers in a deregulated transportation system. Unlike Torya, he works for one of the already privatized rail subcontractors and has seen his working conditions degrade considerably since his last job as a conductor in the Paris metro system. It is Adel’s job to regulate traffic coming in and out of stations. But he now finds himself covering two or sometimes three different roles, with bosses extending their workers to the limit. He was once even sanctioned with five days of unpaid leave when he refused to follow orders from a superior, which would have forced Adel to rush train traffic to a point he deemed extremely dangerous. It would be hard to put the changes being enacted in better form: “Before, it was the worker on the job, who knew the machinery, that had the final say, and the manager listened. Today, it’s the opposite.” “

    • Thanks – well enough, but busy.

      I’ve been watching Mr Macron’s responses to the yellow waistcoats with morbid fascination, verging on astonishment.

      On the one hand, he’s planning his ‘national debate’ on the issues. On the other, his government seems to be planning to introduce very coercive laws to criminalize demonstrators.

      On the debate, before it even started, the former minister put in charge of it had to resign when it became known that her monthly salary would be EUR 14,666. Did anyone think that appointing a former minister (i.e. an establishment insider) on a huge salary to run this project made any sense at all? Did they think that her salary could remain secret? Or was it just that it didn’t matter?

      If this was the thinking behind it, then whoever planned this was so far out of touch with reality as to make Marie Antionette look like a “populist”.

      Then there’s coercion. That’s fine when dealing with a violent minority. But it won’t work against essentially peaceful protests with public support. Somebody once said of resistance tactics that “if your enemy isn’t repressive by nature, make him so by provocation”. Macron seems to need no provocation.

      I really do try to steer clear of party politics, and even more so of personality politics. But I have to say that I’m appalled that a great country like France is led by someone who is either pompous, and/or out of touch with ‘ordinary’ people and their concerns, and/or just plain stupid.

      I keep being reminded of James I of England (VI of Scotland) – a clever but deeply unintelligent man, once described as “the wisest fool in Christendom”.

    • “I really do try to steer clear of party politics, and even more so of personality politics. But I have to say that I’m appalled that a great country like France is led by someone who is either pompous, and/or out of touch with ‘ordinary’ people and their concerns, and/or just plain stupid.”

      Probably a combination of the three. Modern technocracy is by its very nature pompous since it believes that not only is everything able to be rationally controlled and improved, but that its technocrats are the only ones qualified to do so. As far as stupidity goes, he may or may not be stupid in a normal sense but he’s clearly too stupid to understand the dynamics of the complex system he’s nominally at the head of (I think at this point it’s simply too vast and complex for anyone to exert sovereign power). I’m mainly considering it in the way Tainter states that eventually the system gets too complex for anyone to really fully understand how to fix things when they go wrong.

    • Tim

      Macron is an “Enarque”; in other words he’s graduate of the top schools in France that have provided the administrative class for many years. He has that sense of superiority in a system where the state is paramount.

    • He seems remarkably ill-equipped to respond to change. He seems to be a throwback to an era when the general public accepted what its “betters” told it, and stood by whilst policies favoured a tiny minority of the super-rich. This era is ending, and it’s no longer possible to use a combination of coercion and PR spin to enact policies unpopular with the majority.

  14. It’s been reported in the press recently that Venezuela has larger oil reserves than Saudia Arabia. If this is true does this change the long term access and availability of energy resources? Will there be an energy shortage in our lifetime if these resources can be used efficiently?

    • I’ve not seen these reports, but I’ve long believed that Venezuela has very large reserves. Unfortunately, though, quality is extremely low. If you look up ‘Orimulsion’ you’ll see what I mean.

    • ‘Unaffordable’

      Its hard to get toothpaste back into the tube. But, as we all know, the last squeeze out, too, isn’t easy.

  15. I have discovered the excellent Jo Nova – an Aussie former Green fanatic who has see the light (candle or electric?)

    Minnesota recently had a brown out – there was not enough energy for homes.


    Wind is producing only four percent of electricity in the MISO region, of which Minnesota is a part.

    While that’s not good, what’s worse is wind is only utilizing 24 percent of its installed capacity, and who knows how this will fluctuate throughout the course of the day.

    Coal, on the other hand, is churning out 45 percent of our power, nuclear is providing 13 percent, and natural gas is providing 26 percent of our electricity.

    This is exactly why the renewable energy lobby’s dream of shutting down coal, natural gas, and nuclear plants and “replacing” them with wind and solar is a fairy tale. It simply cannot happen, because we never know if and when the wind will blow or the sun will shine when we need it most.

    I read somewhere that a Labour MP wants us to abandon fossil fuels. The world is run by 12 year olds.

    • “I read somewhere that a Labour MP wants us to abandon fossil fuels. The world is run by 12 year olds.”

      In the US, the ‘Green New Deal’ supported by some 40+ congress representatives basically would require the US to be off of fossil fuels by 2030! The worse things get, the less these people seem concerned with reality…

  16. @Dr. Morgan and Wally
    Maya crude has been selling for about 15 dollars more than West Texas Intermediate. Maya is a heavy oil from the Mexican Gulf. The officials in the US predict that conventional oil production in the US will continue to decline steadily. But the decline will be way more than offset by increases in the light crudes produced by fracking. But in order to produce a balanced product (e.g., including some diesel), there needs to be a mixture of the lights and the heavy (a dumb-bell crude). Venezuela is a bottomless supply of the heavy. Russia and China have invested in the heavy Venezuelan crudes. The US needs to foment a revolution in Venezuela in order to ‘let the American oil companies get that oil out’ (quote by a US politician). A revolution frequently involves reneging on contractual agreements. So a revolution stiffs the Russians and the Chinese (always a popular move in the US), gets ‘certified USA’ corporations in control, and probably doesn’t start a nuclear war. Does Macron think that Total will be among the favored? Stranger things have happened.

    (Please be advised that I could not find the on and off switch in a refinery. So be wary of my technical explanation.)

    Don Stewart

  17. Some thoughts about the Green New Deal in the US

    *I agree with the Strong Towns position on the primacy of the design of places and the dangers of hubris.


    *Ways of Inhabiting/ Chronic Disease/ Medical Spending

    This will run counter to Strong Towns thinking. I believe that a family garden plot is an essential going forward. First off, the key to avoiding chronic disease is vegetable consumption. Vegetables are full of water, which makes them perishable and energy hogs to move. They also require refrigeration, which is an energy hog. Second, the federal government is going to be forced to stop funding treatment for avoidable chronic diseases…because the tax money is simply not going to be there. Everybody needs to be able to grow their veggies. All this boils down to something like David Holmgren’s decades long examination of Retrofitting the Suburbs.


    Cities, which are overwhelmingly in debt, and owe lots of unfunded retirement benefits, are simply going to have to learn to live on less. Perhaps we need a Federal Municipal Bankruptcy Administration to help with an orderly transition.


    I do not claim that anyone can persuade a majority of the voters to back such proposals as I have outlined above. I expect the deterioration in ECoE will force us to do unpleasant things. I believe that it will be necessary to go back to the 19th century revolt of the ‘maker class’ against mass production and mass consumption. (See the discussion in Christopher Lasch’s The True and Only Heaven.) Samuel Gompers in the United States led a trade union movement which settled for ‘more money’ in return for laboring at ‘meaningless jobs’. The ‘maker class’ lost a class war. That war still rankled when I was a boy listening to my elders talk. We have to revert to a ‘maker’ society.

    Don Stewart

  18. Prospects for getting to net zero emissions:
    The woman from Costa Rica who steered the Paris agreement in an interesting interview. She is quite optimistic about the prospects for electric plants and for electrifying personal transportation. For example, all the motorcycles in India will be electric within 4 years (I assume that is new sales). She also points to China as moving strongly in the direction of wind and solar and away from coal for generating electricity.

    So far as I know, there are no real prospects for moving cargo from fossil fuels to anything else. Alice Friedemann’s book When The Trucks Stop lays out the problems of doing heavy work in a mobile environment with anything other than fossil fuels. It is worth noting that locomotives, at least in the US, are diesel/ electric. There is essentially a diesel powered electricity generator in each locomotive. The electricity drives the wheels. If diesel becomes scarce, then natural gas may be used for trucks. As noted in an earlier comment, it seems by their actions that the US, Britain, and France are convinced they need to make Venezuela into a heavy oil supplying colony.

    Don Stewart

  19. Little more on Christiana Figueres interview
    She makes the point that countries are starting from different places. Some built economies based on the fossil fuels they had, while those who had no fossil fuels (such as her native Costa Rica) built economies based on the energy they could access. While I am not a historian, I would be surprised if those without fossil fuels could do as well as those with fossil fuels.

    But IF fossil fuels are eliminated, then the playing field is suddenly leveled. In fact, the countries that built economies without fossil fuels are probably starting with an advantage. It kind of reminds you of Jesus’ statement ‘the last shall be first’. I don’t know if the US, Britain, and France have all figured this out…but I imagine there are people in the respective governments looking at it. Nobody likes to go from the swaggering king of the world to an also-ran.

    Don Stewart

    • The petrodollar is a mayor example that got us where we are; overextended surplus fossil fuels.

      The reverse won’t have mercy on us.

  20. Teenage Girls in Europe?

    Greta Thunberg shocked the rich people in Davos by looking straight at them and essentially calling them murderers. But after a few seconds to think about it, they applauded her. Christiana Figueres claims that many of the Fortune 500 companies are pledging carbon zero by dates certain. Yet governments across the world seem to be doubling down on fossil fuels: the outright lies and subsequent resignation of the Belgian environmental official; the invasion of Venezuela to secure supplies of heavy crude; France’s desire to continue trying to regain dominance of something in the Middle East and North Africa while going to war with its own people; Trump’s well known positions in the US; Britain celebrating new North Sea fields and subsidizing fracked gas while apparently letting two nuclear plants fade into the sunset, etc.

    I can make up ‘explanations’ for the US with the best of them, sitting in the pub or coffee shop. But I am curious what Europeans (including Brits) think about it. Are governments losing control of the narrative, but remaining firmly in control of the guns? Hungary in 1956???

    Thanks for any suggestions….Don Stewart

  21. Stewart’s late night in the Pub explanations for the US debacle

    If you look at the expansion of debt since Morning In America with the election of Ronald Reagan in 1980, most sectors have a multiple of around 10. (I’m ignoring financial companies debt, because I don’t know what it means.) But the federal government debt is now 20 times what it was in 1980. It’s worth noting that the federal government has no way to make money to pay their debt except by raising taxes or selling off the national parks.

    So one of my explanations for the irrational behavior of the US federal government is that the 3 Shell Game is about to fall apart. The Gipper was headed in the wrong direction, and G.W. Bush was incorrect when he said ‘Ronald Reagan proved that deficits don’t matter’. Donald Trump and his trillion dollar deficits is about to prove it again. But, as in Europe, they still have the guns.

    Purely from a technical angle, I would seriously consider a Constitutional Convention where the States ratified the resolution that: The United States is hereby dissolved.

    A lot of people who think they are very rich suddenly become very poor. Florida golf courses and Caribbean resorts are deserted. But, just maybe, productivity can be rediscovered. Even with higher priced energy.

    Don Stewart

    • Don S,
      I do not believe that productivity will ever be re-discovered.
      Quite simply because the whole technological base is gone.
      A number years ago I taught a highly technical module to MSc students as part of a physics course at a local university.
      In class of 21 students only 1 was from the UK. The rest were from Asia.
      Even most of the teaching staff, highly qualified guys with decades of industrial experience seeing out there days in academia, because the companies they worked for no longer existed, ( in the UK anyway ).
      The UK simply does not have the where-with-all to re-invent itself as a manufacturing nation.
      What is it that they say in Wimbeldon ?
      Game, Set, & Match !
      It’s all over.

  22. I have very fond memories of Navy open day at Portsmouth: the romance of ‘Victory’. The captured Spanish officers were apparently very surprised to find that their captors had no intention of shooting them, and instead invited them to dine and praised their bravery with a great many toasts.

    In the case of the UK today ‘punching above one’s weight’ represents – as you say – mere delusion, and it should be noted that the Defence Secretary seems to be referring to ground interventions as well as maritime power (which is clearly a prime interest for the UK). And that after the notoriously ill-equipped, badly planned and misdirected interventions in Iraq and Afghanistan.

    I’ve had my nose in an excellent book on the Battle of Jutland over the last week, having over-dosed on the Somme and the Ypres Salient: what would those brave sailors have made of the feeble Europhiles who claim that they ‘don’t think of themselves as British anymore’!

    In 1936, I suspect that they would have been more than a little relieved to find a smart RN ship had arrived to fetch them off from oh-so-insanely ‘European’ Spain……..

    • The real question though is, Why would you want to punch above your weight anyway ?
      The UK, ( if it manages to stay a U-K ) is a small island off the coast of NW Europe. It claims to be the worlds 6th largest economy, ( based on GDP ).
      We here all know that GDP figures are massaged beyond recognition, so based on GDP per capita, the UK is the worlds 21st largest economy.
      That sounds more plausibel to me.
      So why would a small nation want to punch above its weight ? You are only going to get a black eye once you hit on somebody who can fight back.
      The Glory Days of Empire are over.
      So get over it, and live with the new reality.

    • Quite right to Johan, The UK Column was very good on the Hapless Gavin Williamson yesterday well worth a watch. Lunchtimes Monday Wednesday and Friday.I always try to catch it live or if I miss it watch it later in the day.

  23. Jim Kunstler; Girl’s Crusades; Early 20th Century; Fascism; Green New Deal
    I recommend, in this order, reading:
    *Jim Kunstler’s (Kunstler.com) essay titled Mistaken Futures about the futility of the Green New Deal
    *Christopher Lasch, in The True and Only Heaven, beginning on page 298, discussing Theodore Roosevelt against William James. Roosevelt sounding very much like Hitler in terms of building warrior qualities into young males and providing room (in colonies) for expansion of our race’s superior abilities. James abhorring war, but coming up with the idea of ‘the moral equivalent of war’. Of course, James’ ideas were later implemented in the Depression in terms of the Civilian Conservation Corps and then in John Kennedy’s Peace Corps. Mussolini claimed to have learned something from James about the building of moral fiber which occurs in war. In short, the notion that industrial society had become ‘soft’ and needed to be cattle-prodded toward a restoration of martial valor was abroad in the early 20th century. I have seen a turn in that direction in the US in recent decades.
    *Read a little about the Green New Deal and the Girl’s Crusades in Europe. They seem to me to be a plea for the governments to do something. The CCC camps and the Peace Corps undoubtedly had an impact on thousands of people’s lives, but I can’t see that they changed anything fundamental about the direction society was moving. Both the Green New Deal and NeoLiberal capitalism promote consumerism as the answer. So our society now is not like it was a hundred years ago, in the sense that hardly anyone is promoting hardship as a builder of moral fiber. The closest we come is noting how Gyms have replaced manufacturing as the growth industry in Manhattan. And no President now is likely to urge women to stay home and have more children to provide more bodies for the military.
    *Fascism, as near as I can tell, was full of symbols and opportunities to march in formation but really had no deeper roots. See post-WWII Italian movies like The Conformist.

    Lasch quotes sources that ‘Towards 1780, thanks to the growth of productive forces, everybody believed in the indefinite progress of mankind’. IF Kunstler is correct that our immediate challenge is to reorganize society to deal with the new reality…we have no socially acceptable program. It’s like the Brexit debates in Britain…there is no majority position supporting anything. Such a situation is fertile ground for demagogues and dictators.

    Don Stewart

  24. It really doesn’t matter what white elephant toys are selected for the armed forces if they’re still always instructed and managed by donkeys; every time the politicians nominally responsible for this area open their mouths any enemies would be delighted. People never learn on fighting the last war, we are now firmly in the digital age, where it is easier to have an army of modestly-paid nerds in office blocks crashing targeted countries’s energy infrastructure through computer hacking, to bring that nation to a halt in hours.

    Even in the 20th century, the wise were breaking their opponents by ruining their currency for example, to do far more damage than most conventional violence could achieve, sowing chaos through destruction of opponents’ economies. (rather than their own via generation-crippling debts, incurred funding nuclear rust-buckets and aircraft carriers that’re almost never meaningfully used) The dinosaurs in charge of military affairs everywhere today have both feet planted in 20th century thinking and are too inflexible to change. They are compartmentalised into the various armed forces, even subdividing within that definition, when they should be thinking holistically to overcome any given enemy.

    China understands this best, slowly taking the US’s crown without a shot fired, through many subtle strategies, from educating their brightest in the crucial fields, through globe-circumnavigating infrastructure and diversifying the economy, to good trade agreements, population control and attempting to be as self-sufficient as possible in essentials. Contrast that with the old west still indulging in prestige wars, the evisceration of their own middle-class backbone, rapacious trade agreements that create enemies around the globe and destruction of their own environments. (Yes China gets plenty wrong too, but seems to be trying to get it right, indicating that they understand how it all works and actually have a genuine strategy)

  25. Pingback: #147: Primed to detonate | Surplus Energy Economics

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