#148: Where now for energy?

WHY SUBSIDY HAS BECOME INESCAPABLE

What happens when energy prices are at once too high for consumers to afford, but too low for suppliers to earn a return on capital?

That’s the situation now with petroleum, but it’s likely to apply across the gamut of energy supply as economic trends unfold. On the one hand, prosperity has turned down, undermining what consumers can afford to spend on energy. On the other, the real cost of energy – the trend energy cost of energy (ECoE) – continues to rise.

In any other industry, these conditions would point to contraction – the amount sold would fall. But the supply of energy isn’t ‘any other industry’, any more than it’s ‘just another input’. Energy is the basis of all economic activity – if the supply of energy ceases, economic activity grinds to a halt. (If you take a moment to think through what would happen if all energy supply to an economy were cut off, you’ll see why this is).

Without continuity of energy, literally everything stops. But that’s exactly what would happen if the energy industries were left to the mercies of rising supply costs and dwindling customer resources.

This leads us to a finding which is as stark as it is (at first sight) surprising – we’re going to have to subsidise the supply of energy.

Critical pre-conditions

Apart from the complete inability of the economy to function without energy, two other, critical considerations point emphatically in this direction.

The first is the vast leverage contained in the energy equation. The value of a unit of energy is hugely greater than the price which consumers pay (or ever could pay) to buy it. There is an overriding collective interest in continuing the supply of energy, even if this cannot be done at levels of purchaser prices which make commercial sense for suppliers.

The second is that we already live in an age of subsidy. Ever since we decided, in 2008, to save reckless borrowers and reckless lenders from the devastating consequences of their folly, we’ve turned subsidy from anomaly into normality.

The subsidy in question isn’t a hand-out from taxpayers. Rather, supplying money at negative real cost subsidizes borrowers, subsidizes lenders and supports asset prices at levels which bear no resemblance to what ‘reality’ would be under normal, cost-positive monetary conditions.

In the future, the authorities are going to have to do for energy suppliers what they already do for borrowers and lenders – use ‘cheap money’ to sustain an activity which is vital, but which market forces alone cannot support.

How they’ll do this is something considered later in this discussion.

If, by the way, you think that the concept of subsidizing energy supply threatens the viability of fiat currencies, you’re right. The only defence for the idea of providing monetary policy support for the supply of energy is that the alternative of not doing so is even worse.

Starting from basics  

To understand what follows, you need to know that the economy is an energy system (and not a financial one), with money acting simply as a claim on output made possible only by the availability of energy. This observation isn’t exactly rocket-science, because it is surely obvious that money has no intrinsic worth, but commands value only in terms of the things for which it can exchanged.

To be slightly more specific, all economic output (other than the supply of energy itself) is the product of surplus energy – whenever energy is accessed, some energy is always consumed in the access process, and surplus energy is what remains after the energy cost of energy (ECoE) has been deducted from the total (or ‘gross’) amount that is accessed.

From this perspective, the distinguishing feature of the world economy over the last two decades has been the relentless rise in ECoE. This process necessarily undermines prosperity, because it erodes the available quantity of surplus energy. We’re already seeing this happen – Western prosperity growth has gone into reverse, and growth in emerging market (EM) economies is petering out. Global average prosperity has already turned down.

From this simple insight, much else follows – for instance, our recent, current and impending financial problems are caused by a collision between (a) a financial system wholly predicated on perpetual growth in prosperity, and (b) an energy dynamic that has already started putting prosperity growth into reverse. Likewise, political changes are likely to result from the failure of incumbent governments to understand the worsening circumstances of the governed.

Essential premises – leverage and subsidy

Before we start, there are two additional things that you need to appreciate.

The first is that the energy-economics equation is hugely leveraged. This means that the value of energy to the economy is vastly greater than the prices paid (or even conceivably paid) for it by immediate consumers. Having (say) fuel to put in his or her car is a tiny fraction of the value that a person derives from energy – it supplies literally all economic goods and services that he or she uses.

The second is that, ever since the 2008 global financial crisis (GFC I) we have been living in a post-market economy.

In practice, this means that subsidies have become a permanent feature of the economic landscape.

These issues are of fundamental importance, so much so that a brief explanation is necessary.

First, leverage. The energy content of a barrel of crude oil is 5,722,000 BTU, which converts to 1,677kwh, or 1,677,022 watt-hours. BTUs and watt-hours are ‘measures of work’ applicable to any source or use of energy. Human labour equates to about 75 watts per hour, so a barrel of crude equates to 22,360 hours of labour. At the (pretty low) rate of $10 per hour, this labour would cost an employer $223,603. Yet crude oil changes hands for just $65 which, undeniably, is a bargain. If the price of oil soared to $1,000/b, it would wreck the economy – but it would still be an extremely low price, when measured against an equivalent amount of human effort.

The economy, then, could be crippled by energy prices that would still be ultra-cheap in purely energy-content terms. More to the point, this could happen at prices that were still too low to ensure profitability in the business of energy supply.

The comparison between petroleum and its labour equivalent is meant to be solely illustrative – the relevant point is that the economy is gigantically leveraged to the ‘work value’ contained in all exogenous energy sources.

Second, the end of the market economy. The market economy works on a system of impersonal rewards and penalties. If you make shrewd investments, you’re likely to make a profit – but, if you act recklessly (or simply have a run of bad lack), you stand to lose everything. Failure, as penalised impersonally by market forces, is the flip-side of reward, itself (in theory) equally impersonal. Logically, market forces don’t allow you to have reward without the risk of failure. Using debt to leverage your position acts to increase both the scope for profit and the potential for loss.

The 2008 crisis was a culminating failure of reckless financial behaviour, by individuals, businesses, banks, regulators and policymakers. Left simply to the workings of the market, the penalties would have been on a scale commensurate with the preceding folly. Individuals and businesses which had taken on too much debt would have been bankrupted, as would those who had lent recklessly to them. If market forces had been allowed to work through to their logical conclusions, 2008 would have seen massive failures, bankruptcies and defaults – spreading out from those who ‘deserved’ to be wiped out to take in ‘bystanders’ with varying degrees of ‘innocence’ – whilst asset prices would have collapsed, and much of the banking system, as the primary supplier of credit, would have been destroyed.

Some economic purists have argued that this is exactly what should have happened, and that we will in due course pay a huge price for the ‘moral hazard’ of rescuing the reckless from the consequences of their actions.

They might well be right.

Be that as it may, though,  the point is that market forces were not allowed to work out to their logical conclusions. As well as simply rescuing the banks, the authorities set out on the wholesale rescue of anyone who had taken on too much debt. This was done primarily by slashing interest rates to levels that are negative in real terms (lower than inflation). Though described at the time as “temporary” and “emergency” in nature, these interventions are, for all practical purposes, permanent.

There’s irony in the observation that, though idealists of ‘the Left’ have dreamed since time immemorial of overthrowing the ‘capitalist’ system, the market economy has not been destroyed by its foes, but abandoned by its friends.

The Age of Subsidy

Critically for our purposes, what began in 2008 and continues to this day is wholesale subsidy. ZIRP has provided emergency and continuing sustenance for everyone who had borrowed recklessly in the years preceding the crash. It has also multiplied the incentive to borrow. Negative real interest rates are nothing more nor less than a hand-out to distressed borrowers, not only sparing them from debt service commitments that they could no longer afford, but inflating the market value of their investments, too.

Though less obvious than its beneficiaries, this subsidy has turned huge numbers into victims. Savers, including those putting resources aside for pensions, have been only the most visible of these victims. We cannot know who might have prospered had badly-run, over-extended businesses gone to the wall rather than continuing, in subsidised, “zombie” form, to occupy market space that might more productively have gone to new entrants. We do know that the young are victims of deliberate housing cost inflation.

There’s nothing new about subsidies, of course, and governments have often subsidised activities, either because these are seen to be of national importance, or because they have pandered to the influential interests on whom the subsidies have been bestowed.

Purists of the free market persuasion have long castigated subsidies as distortions of economic behaviour and they are, theoretically at least, quite right to think this.

The point, though, is that, since 2008, the entire economy has been made dependent on the subsidy of money priced at negative real levels.

Anyone who is ‘paid to borrow’ is, of necessity, in receipt of subsidy.

That we live in ‘the age of subsidy’ has a huge bearing on the outlook for energy. With this noted, let’s return to the role of energy in prosperity.

Prosperity in decline – turning-points and differentials

As we’ve noted, once the Energy Cost of (accessing) Energy – ECoE – passes a certain point, the remaining energy surplus becomes insufficient to grow prosperity, or even to sustain it. This point has now been reached or passed in almost all Western economies, so prosperity in those countries has turned down. Efforts to use financial adventurism to counter this effect have done no more than mask (since they cannot change) the processes that are undercutting prosperity, but have, in the process, created huge and compounding financial risks.

In the emerging market (EM) economies, prosperity continues to improve, but no longer at rates sufficient to offset Western decline. Global prosperity per person has now turned downwards from an extremely protracted plateau, meaning that the world has now started getting poorer. Amongst many other things, this means that a financial system predicated on the false assumption of infinite growth is heading for some form of invalidation. It also poses political and social challenges to which existing systems are incapable of adaption.

How, though, does the energy-prosperity equation work – and what can this tell us about the outlook for energy itself?

According to SEEDS (the Surplus Energy Economics Data System), global prosperity stopped growing when trend ECoE hit 5.4%. It might, at first sight, seem surprising that subsequent deterioration has been very gradual, even though ECoE has carried on rising relentlessly, now standing at 8.0%. This apparent contradiction is really all about the changing geographical mix involved – until recently, deterioration in Western prosperity had been offset by progress in EM countries, because the ECoE/growth thresholds differ between these two types of system.

Essentially, EM economies seem to be capable of continuing to grow their prosperity at levels of ECoE a lot higher than those which kill prosperity growth in Western countries.

The following charts illustrate the comparison, and show prosperity per capita (at constant 2018 values) on the vertical axis, and trend ECoE on the horizontal axis. For comparison with America, the China chart shows prosperity in dollars, converted at market exchange rates (in red) and on the more meaningful PPP basis of conversion (blue). For reference, ECoE at 6% is shown as a vertical line on both charts.

#148 energy comp US CH

As you can see, American prosperity had already turned down well before ECoE reached 6%. Chinese prosperity has carried on growing even though ECoE is now well above the 6% level.

How can China carry on getting more prosperous at levels of ECoE at which prosperity has already turned down, not just in America but in almost every other advanced economy?

There seem to be two main reasons for the different relationships between prosperity and ECoE in advanced and EM economies.

First, prosperity isn’t exactly the same thing in a Western or an EM economy – put colloquially, how prosperous you feel depends on where you live, and where you started from.

In America, SEEDS shows that prosperity per person peaked in 2005 at $48,660 per person (at 2018 values), and had fallen to $44,830 (-7.9%) by 2018. Over the same period, prosperity per person in China rose by an impressive 84% – but was still only $9,670 per person last year. Even that number is based on PPP conversion to dollars – converted into dollars at market exchange rates, prosperity per person in China last year was just $5,130.

Both numbers are drastically lower than the equivalent number for the United States. Not surprisingly, Chinese people feel (and are) more prosperous than they used to be, even at levels of prosperity that would amount to extreme impoverishment in America. Before anyone says that “America is a more expensive place to live”, conversion at PPP rates is supposed to take account of cost differentials – and, even in PPP terms, the average Chinese citizen is 78% poorer than his or her American equivalent.

The second critical differential lies in relationships between countries. Historically, trade relationships favoured Western over EM economies, though this has been changing, perhaps helping to explain the gradual narrowing in personal prosperity between developed and emerging countries.

Moreover, there are often quirks in the relationships between countries, even where they belong to the same broad ‘advanced’ or ‘emerging’ economic grouping. Germany is an example of this, having benefited enormously from a currency system which has been detrimental to other (indeed, almost every other) Euro Area country. For some time, Ireland, too, was a beneficiary of EA membership, though those benefits have eroded since the period of “Celtic Tiger” financial excess.

The conclusion, then, is that there’s no ‘one size fits all’ answer to the question of ‘where does ECoE kill growth?’, just as prosperity means different things in different types of economy.

It should also be noted that China’s ability to keep on growing prosperity at quite high levels of ECoE is not necessarily a good guide to the future. As things stand, China’s economy, driven as it by extraordinary levels of borrowing, is looking ever more like a Ponzi scheme facing a denouement.

The situation so far

Given how much ground we’ve covered, let’s take stock briefly of where we are.

We’ve observed, first, that the rise in trend ECoEs is in the process of undermining prosperity. Much of this has already happened – prosperity in most Western economies has now been deteriorating for at least a decade, whilst continued progress in EM economies is no longer enough to keep the global average stable. As ECoEs continue to rise, what happens next is that EM prosperity itself turns down, a process which will accelerate the rate at which global prosperity declines. SEEDS already identifies one major EM economy (other than China) where strong growth in prosperity will soon go into reverse.

Second, a world financial system predicated entirely on perpetual ‘growth’ in prosperity has become dangerously over-extended. Again, this observation isn’t something new. The inauguration, more than ten years ago, of mass subsidy for borrowers and lenders surely tells us that we’ve entered a new ‘era of abnormality’, in which subsidy is normal, and where historic principles (such as positive returns on capital) no longer apply.

If you stir energy leverage into this equation, an inescapable conclusion emerges. It is that we’re going to have to extend our current acceptance of ‘financial adventurism’ to the point where energy supply, just like borrowers and lenders, becomes supported by monetary subsidy.

The only way in which this might not happen would be if we could somehow escape from the implications of rising ECoE. Some believe that renewables will enable us to do this – after all, just as trend ECoEs for oil, gas and coal keep rising, those of wind and solar continue to move downwards.

This situation is summarised in the first of the following charts, which shows broad ECoE trends over the period (1980-2030) covered by SEEDS. As recently as 2000, the aggregate trend ECoE of renewables (shown in green) was above 13%, compared with only 4.1% for fossil fuels (shown in grey). Renewables are already helping to blunt the rise in ECoE, such that the overall number (in red) is lower than that of fossil fuels alone. We’re now pretty close to the point where the ECoE of renewables will be below that of fossil fuels.

On this basis, it’s become ‘consensus wisdom’ to assume that renewables will, like the 7th Cavalry, ‘ride to the rescue in the final reel’. Unfortunately, this comforting assumption rests on three fallacies.

The first is “the fallacy of extrapolation”, which is a natural human tendency to assume that what happens in the future will be an indefinite continuation of the recent past. (One of my mentors in my early years in the City called this “the fallacy of the mathematical dachshund”). The reality is much likelier to be that technical progress in renewables (including batteries) will slow when it starts to collide with the limits imposed by physics.

The second fallacy is that projections for cost reduction ignore the derivative nature of renewables. Building, say, a solar panel, a wind turbine or an electrical distribution system requires inputs currently only available courtesy of the use of fossil fuels. In this specialised sense, solar and wind are not so much ‘primary renewables’ as ‘secondary applications of primary fossil input’.

We may reach the point where these technologies become ‘truly renewable’, in that their inputs (such as minerals and plastics) can be supplied without help from oil, gas or coal.

But we are certainly, at present, nowhere near such a breakthrough. Until and unless this point is reached, the danger exists that that the ECoE of renewables may start to rise, pushed back upwards by the rising ECoE of the fossil fuel sources on which so many of their inputs rely. This is illustrated in the second chart, which looks at what might happen beyond the current time parameters of SEEDS. In this projection, progress in reducing the ECoEs of renewables goes into reverse because of the continued rise in fossil-derived inputs.

#148 energy comp segments

The third problem is that, even if renewables were able to stabilise ECoE at, say, 8% or so, that would not be anywhere near low enough.

Global prosperity stopped growing before ECoE hit 6%. British prosperity has been in decline ever since ECoE reached 3.6%, and an ECoE of 5.5% has been enough to push Western prosperity growth into reverse.

As recently as the 1960s, in what we might call a “golden age” of prosperity growth – when economies were expanding rapidly, and world use of cheap petroleum was rising at rates of up to 8% annually – ECoE was well below 2%.

In other words, even if renewables can stabilise ECoE at 8% – and that’s a truly gigantic ‘if’ – it won’t be low enough to enable prosperity to stabilise, let alone start to grow again.

Energy and subsidy –  between Scylla and Charybdis

The idea that we might need to subsidise energy ‘for the greater economic good’ is a radical one, but is not without precedent. Though the development of renewables has been accelerated in various countries by subsidies provided either by taxpayers or by consumers, the important precedent here doesn’t come from the solar or wind sectors, but from the production of oil from shales.

There can be no doubt that shale liquids, primarily from the United States, have transformed petroleum markets – without this production, it’s certain that supplies would have been lower, and prices could well have been a lot higher. Yet the supply of shale has owed little or nothing to the untrammelled working of the market. Rather, shale has received enormous subsidy.

Repeated studies have shown that shale liquids production isn’t ‘profitable’, because cash flow generated from the sale of production has never been sufficient to cover the industry’s capital costs, let alone to provide a return on capital as well. The economics of shale are too big a subject to be examined here, but the critical point is the rapidity with which production declines once a well is put on stream. This means that any company wanting to expand (or even to maintain) its level of production needs to keep drilling new wells – this is the “drilling treadmill” which, critically, has always needed more investment than cash flow from operations can supply.

Yet shale investment has continued, despite its record of generating negative free cash flow. It’s easy to attribute this to the support provided by gullible investors, but the broader picture is that shale producers, like ‘cash burners’ in other sectors, have been kept afloat by a tide of ultra-cheap capital made available by the negative real cost of capital.

In all probability, this is the pattern likely to be followed by the energy industries more generally, as profitability is crushed between the Scylla of rising costs and the Charybdis of straitened consumer circumstances.

In short, we’re probably going to have to ‘create’ the money to keep energy supplies flowing. If the argument becomes one in which energy is described as ‘too important to be left to the market’, energy will join a growing cast of characters – including borrowers, lenders and ‘zombie’ companies – kept in existence by the subsidy of cheap money.

 

357 thoughts on “#148: Where now for energy?

  1. I think Macron is well aware of the pickle he’s in.

    There is an energy strategy consultant in France (Jean marc jancovici) that has been doing similar analysis and had high level access in several french governments. In particular with the now resigned environment minister in Macron cabinet. Subject of contention : airport extention and related fossil/pollution subsidies. The “growth” minister won (notable climate sceptic) and Hulot resigned.

    I’m pretty sure that the debate happened and energy subsidy/debt path was chosen. TBH France is in a dire shape and their usual devaluation strategy is closed.

    • I now feel sentimental for the late 1970’s 80’s and 90’s when I used to either take the train or sometimes my car to the South of France.

      No oil shortages and – compared to today – a relatively low tech World (I used to have my Michelin road atlas on the passenger’s seat ready for all too frequent stops in laybys to find out where the heck I was) but in many ways – I was – personally – happier.

      My dreams of the future have in part come true – but I would trade all today’s technological wonders to travel in by basic Citroen AX or aboard a slowish but friendly French train again.

      Donald

  2. Yep, I get youir drift, and you may be right that it is over the top. But Brandon has been bang on in the past so I don’t dismiss his predictions easily. I have followed him for some ten years and he has not let us down so far. Take your choice!

  3. ewaf88,

    Regarding your comment above “With France, there is a crucial difference, however. It doesn’t have its own currency, and it sells its debt abroad,” this is not, strictly speaking, true, but is certainly widely believed to be true. It does not appear that that there is any rule prohibiting the central bank of France from issuing “greenback” euros in payment of debts, not loaned into existence but simply issued as sovereign currency. During the Greek crisis, Steve Ludlum at Economic Undertow explained how Greece could pay its debts doing this, in an article titled, “It All Falls Apart.”

    Forgive me for hammering this over and over, I am going to quote Ludlum extensively below. Unless European governments break free of bank control and realize this, they will hasten collapse by borrowing ever larger sums into existence.

    “– In a fiat scheme, the Greek government would issue funds denominated in euros to repay debts to Greek businesses and banks as well as individuals. This ‘money’ would have no liability attached, it is not debt-money, it would not be loaned into existence. A notable example of sovereign issue money is US Demand Notes introduced during the Civil War during the Lincoln administration by Edmund Dick Taylor. The notes were necessary because big Philadelphia- and New York banks would not lend to the government at reasonable rates.

    – The current government in Greece has played into the hands of forces intent on consuming it as if Greece was itself a form of capital. Greece has become pathetic: even as it defaults it begs for more loans. Greece needs to do for itself rather than beg. The Greek government can do so by issuing non-liability fiat euros — Greenbacks — and use them to retire euro denominated obligations on a fixed schedule.

    – Payments would be made electronically, out of ‘thin air’, the same way loans are made by banks … out of thin air. Payments would be made both inside- and outside the country.

    – Issuance of drachmas or any parallel currency would still require Greek repayment of €320+ billion of euro-denominated debts in a state where Greece could not hope to borrow. Greenbacks would offer means for repayment … possibly even across Europe. Whereas repudiation and insolvency will break down the euro conduit scheme; issuance of electronic greenbacks would render the scheme irrelevant. Euros are fungible: Cyprus notwithstanding, each euro is the same as all others. Fiat issuance by a government is the same as fiat issuance by a private sector bank, however, there is no liability to the government issue. The government can issue without digging itself deeper into the debt hole.

    – Loans made to Greece are simply issued by banks as credits on a spreadsheet. This ‘bank money’ does not exist until a loan is made. The gain from lending is the requirement on the part of the borrower to repay with money that is more costly to him than the loan is to the lender. Bank money costs the lender almost nothing to create as it requires only keyboard entries. The borrower must repay with circulating money; he cannot create repayment on his keyboard but must beg, steal or more likely borrow repayment- or have it borrowed by others in his name (bailout). Whereas interest cost tends to be a small fixed percentage of the principal payable over time, the expense of circulating money is determined by its availability in the marketplace, by supply and demand. When circulating money is scarce the real worth of repayment can be much greater than the nominal balance due, yet this is invariably when the demand to repay is fiercest, as during a margin call. If the loan is secured and the borrower cannot repay, he must surrender collateral along with other rights. These are always worth more than a keyboard entry.

    The point of greenback euros is to give the government the ability to make keyboard repayments, to pay lenders ‘in kind’.

    – Money created by lending is extinguished when the loan is repaid. What makes up the supply of circulating money is unpaid debts. Ironically, these are funds that are out of circulation, largely overseas or hoarded. When the sovereign issues fiat to retire debts, the borrowers’ liability is extinguished. There is no net increase in the amount of funds in circulation, which can only occur if funds are repatriated or dis-hoarded which would only take place if there is demand for them that the sovereign could not satisfy.

    – By creating ‘greenback’ euros, the Greek government can recapitalize its banks directly, rather than by bailing in depositors. Over time, the flow of liquidity would temper the shortage of funds outside of Greece. A Greek repayment agency would act as ‘lender of last resort’ in place of- or alongside the (worthless) ECB.

    – Issuing greenback euros would re-balance the relationship between banks and sovereigns. Creditors have gained power at the expense of sovereigns and the citizens. Greenback euros would represent power to render irrelevant the private creditors and their schemes.

    – Location, location, location: Greece will always be a part of Europe. Greek exports and tourism will bring in euros and other hard currencies. Foreign exchange can be leveraged or merged with greenback issue. What would keep fiat issue local is inefficiencies of Greek transfer mechanism. Fiat euros would be more effective if issued by Italy or another, larger European country.

    – The euro is the official currency of Greece, it has the same natural right to issue as does a private — crooked — bank in Frankfurt.

    – External lenders would not be able to hold countries hostage by withholding funds, should they do so, the government would issue in the banks’ place.

    – Whereas drachmas or a parallel currency would allow Greece to leverage its euro purchasing power by way of foreign exchange, fiat greenback euros would render such leverage unnecessary. More on this later …

    – Article 124 of the Lisbon Treaty does not specifically prohibit greenback euros. The Greek government would have to repeal the (pro-banking) 1927 Statute of the Bank of Greece which prohibits the government from issuing ‘money’ of any kind.

    Any fiat regime would require stringent energy conservation as the external flows of borrowed euros to purchase fuel are what bankrupted the Continent in the first place.”

    Note the point about Article 124 of the Lisbon Treaty. France can do the same as recommended by Ludlum. Of course, to implement this, the government has to break its control by the banks, with the idea that only banks can issue money (i.e., it has to be loaned into existence from banks). Nevertheless, theoretically, there is a way to avoid a collapse caused by inability to borrow.

    • If Greece (or any other Club O’Med country) issues Euro’s debt free they will quickly find their notes classed a forgeries and they would in no way merit the same value as the ‘real’ Euro’s, and yes they can be identified by the country issuance code.

      The bottom line the Euro is the DM is disguise, it is in effect Germany’s currency which they allow other people to use (as the US does the USD). Germany dominates the control of the institutions which manage this currency and will in the foreseeable future.

  4. Unsecured Prints of greenbacks would soon result in loss of confidence and hyperinflation and
    the end of the currency!?

    • Those were my thoughts. Unless there’s some tangible production to back any issue of notes you may as well use leaves as currency.

      Donald

    • France and Greenbacks
      I am dimly aware of the details of the Greenbacks in both the American Revolution and the American Civil War…as well as the issuance of unregulated ‘money’ by banks in the 1800s.

      I suspect that one crucial issue was whether taxes could be paid in the Greenbacks and bank script. I don’t think the bank script was ever useful to pay taxes. I suppose the Greenbacks could be used to pay taxes?

      In France, where taxes account for more than half of the GDP, then the government would be printing money to pay for its own revenue…since I assume people would not want to hold a greenback and use a real asset or even a Euro to pay their taxes. So printing the Greenbacks is equivalent to simply running a fiscal deficit. The out of control fiscal deficit in the US is what David Stockman points to as a proximate cause of the collapse of the US government.

      All this just leads us back to the notion that economies are finally about energy and its efficient and effective use. Government is one piece of the economy….not some inter-stellar entity which controls the economy.

      Don Stewart

    • I believe monetization to be both inevitable and disastrous. Of course, Japan has been monetizing debt for a long time, typically creating JPY 50trn annually even though the fiscal deficit itself is only 20tn. The good news is that Japan has, thus, far, got away with doing this – the bad news is that it has achieved nothing at all.

      Obviously, what happens to the USD, as the reserve currency, is critical. This article makes the case for creating money to support energy, most obviously shales. The way to do this would be to let the Fed buy shaleco bonds and, quite possibly, equities too.

      But does it stop there – or does the Fed also have to support at least two other sectors, viz. real estate and “tech”? The Lyft IPO reminds us of how crazy this situation has become, and there’s a pipeline of cash-burners heading to market. “Tech” sector valuations have become critical, so could the authorities just sit back and watch these valuations crash?

    • ‘So could the authorities just sit back and watch these valuations crash?’ A bit OT Tim but I’m wondering if GF2 happens this year if the rugby World cup could be affected.

      I’m sure you’d want it to go ahead because Wales could make a really big impact and I’d hate to see airlines going bust due to a financial crisis so leaving fans not being able to get to Japan -although I’m sure – at least – the Japanese Government would print yet more money to give JAL a lifeline.

      Donald

    • Well, obviously I’d like to see Wales win, but resilience in adversity is a Welsh strength – so even GFC II mightn’t stop them…..

    • They do have a business model Tim that actually projects a profit for 2026! Umm, a wish list I guess. But nevertheless the mad investors, driven by manic profit, think that all will be well. It is just another example of how screwed up our world has become. I rest my case.

  5. There is no solution to the monetery problem we have created, only different management strategies

    When faced with a mountain of already unrepayable debt, the choices are:

    1) default, risking a cascading contagion by triggering a loss of confidence in all other debt;
    2) borrow more to roll over the debt, which is what we have been doing for a while but with lower interest rates, enabling kicking the can down the road, but an end point approaches; or
    3) retire the debt with greenbacks

    As ludlum notes, this results in no net change in money in circulation but reduces debt (deleverages) and eliminates debt service costs.

    Note, issuing greenbacks to pay for other things or services, e.g., funding a green new deal, rather than deleveraging, raises other issues.

    Again, not advocating, just trying to point out what trying to centrally command and control a transition would involve. Personally I believe that it’s not going to happen and that the best avenues open to us are building personal, family and local reilience.

  6. I now see that the AA are now struggling. Tim you mentioned car rental firms are going to struggle in the future and may have to consolidate – the same for car dealerships.

    I guess if EV’s were viable (I know you’ve said they won’t provide a solution) then there would be far less breakdowns anyway so it would inevitable that some rescue organisations will go under.

    I reach 70 in 2028. I wonder if I’ll be living in an impoverished crime ridden World with very little help for the elderly because of a bankrupt NHS and social care system.

    Donald

  7. Note on Greenbacks
    Somebody formulated a law that ‘bad money drives out good money’. Meaning that two competing currencies, but of unequal value, cannot co-exist peacefully. Suppose that the government issues Greenbacks which can be used to pay taxes. Then, I predict, that companies would be formed to pay you 50 cents on the dollar for your greenbacks (50 cents of sounder money than the Greenback). Then the rich and corporations would use the accumulated Greenbacks to pay their taxes. The net result is that Government income in terms of relatively sound money declines rather rapidly.

    So whether the Greenbacks are able to circulate as a tax-paying currency is crucial. My own opinion is that governments will continue to rely on simply pushing more money into the system. They MAY pivot from pushing it in at the top (e.g., the banks and the super-wealthy) to pushing it in at the bottom (an annual personal dividend, or some such practice). If there were true unemployment in terms of human capital and resources then the creation of purchasing power at the bottom might well work. But if either the human capital or the resources are not available, then the only result will be inflation. We should note that the ‘official, Nobel in Economics’, position is that both human capital and resources are no limit to GDP growth. If you find that ridiculous, welcome to the club.

    Don Stewart

    • ‘We should note that the ‘official, Nobel in Economics’, position is that both human capital and resources are no limit to GDP growth. If you find that ridiculous, welcome to the club’

      I find it ridiculous – please send me my membership card.

      Donald

  8. Donald: more than bumpy indeed!

    The chasms, precipices, landslides, floods and eruptions will more reminiscent of a painting by ‘Mad’ Martin, than of a tranquil view of the Rigi painted by his contemporary Turner.

    But, my god, what a beautiful Spring day today here in Eastern England!

    It might even have cheered up old Cromwell, our local hero…..

    • Oh dear Bob, I would be a bit cautious inviting a Puritan to rule over us today (although I know you didn’t mean it this way!). The downsides during the interregnum were fairly severe and I am sure our Millenials would not be happy with this social order!

      But we do need a ‘cleansing’ of our culture and a return to the polite society that I remember during the 40s & 50s. Perhaps it will evolve in time and the pendulum will swing one more time?

    • Peter

      It was more the strength of purpose I was thinking of, allied to a strong moral sense, both of which appear sadly lacking in today’s politicians who are, in the main, just a bunch of second rate careerists.

      Of course strength of purpose and a strong moral sense don’t always, or even mostly, produce unalloyed good results but they are arguably the sine qua non of abilities that a politician needs in our current circumstances.

    • Yes, Bob, I understand and agree. It is so sad that those in power have lost all direection and moral compass. I live in hope that it will improve in time as the crisis passes and new concepts in an improved society emerge.

    • Looks good Don although you’d need to have a dwelling ‘far from the madding crowd’ – so to speak.

      I went off grid for a few hours when my provider ‘Virgin Media’ suspended my account a few days ago so I lost the internet and the majority of channels on my TV. It turned out I’d gone £4.47 over my credit limit (set at £130) after making a series of emergency phone calls to Malta after my Mum had suffered a fall in her hotel (she’s recovering now and back in the UK)

      I hadn’t realised they set limits but obviously it’s to stop rogue users running up huge bills. The problem is that their computers cannot discriminate between the aforementioned and people who have a genuine reason.

      I explained to them what the reason was but first I had to pay for all the extra charges to reset by limit. They gave only one computer generated phone warning but that came after I’d paid..

      I told them that they should have both a phone and email warning i advance of the cut off so that vunerable people who rely on the internet to get emergency telephone numbers etc are not affected – they said they would put it forward as a suggestion.

      So as things tighten I can see many more people not having the ability to pay for an essential service and being cut off. This could affect a large amount of people.

      Donald

  9. Central banks will ‘print’ again. This will provide the subsidy needed. Everyone knows this and everyone wants it. If it is enough or how long it will be is a separate question. Due to the history of central banking Central Bankers have to be prudent and conservative. They were forced into printing by the threat of vast asset deflation and they are holding out for the next round until at least some asset deflation emerges again.

    Probably. Trump openly wants printing and truth be told so does every politician in the world. Not to mention every rich person in the world. The weight of the world against central bankers is a huge weight they will not endure long. Trump seems resigned to having Powell around for a long time. We will see. Of course a radical Chairman still would have to get the votes of the rest of the Open Market Committee to print again. Not necessarily an easy thing.

    • What’s interestin is that both Russia and China are accumulating gold in large quantities. Anyone for a new version of the Gold Standard?

  10. This Brexit mess is like a ship at sea with two captains. One is trying to convince the passengers that sailing east will bring economic prosperity will the other says they must sail west.

    While they and the passengers argue amongst themselves they completely fail to see that the ship has got a leak and will sink before reaching either nirvana they’ve been promised.

    Donald

    • What I find of interest in the media coveradge of Brexit is that the German economy seems to be more badly impacted by Brexit that the British economy.

    • Quite.

      On the Ship of Fools, they spend all day jangling the bells on their caps, and banging one another over the head with their pig bladders. What fun!

      In the meantime, I see that the European Parliament has been devoting time to passing a verbose resolution condemning white Europeans for past colonial misdeeds in Africa and current racism, while not caring to address the more serious matter of the clear stagnation and decline of Europe’s economies, and the still dreadful youth unemployment rate in the South.

      Someone might also care to educate them on the role played by the Arab states of North Africa and Egypt in the mass enslavement of Sub-Saharan Africans, which far pre-dated the very short-lived European colonies.

      Second thoughts,why bother? History clearly means nothing to them and rhetoric everything.

      I am delighted to award them collectively, the Fool’s Golden Bladder for 2019, with the runners up being the Brexit Buffoons.

    • I can only suggest that with China making big strides in Africa the EU wants to try and appease the continent so they can get a foothold too.

      Donald

    • What a great RANT – and well said – all of it being totally true. But don’t expect these pointy-shoe. liberal bureaucrats to believe anything other than their next boondoggle and their latest graft project.

      This has to stop and by jingo the peole will rise in due time and sharpen their pitchforks. It has happened before when they were expected to ‘eat cake’ and it will happen soon again – and it won’t be so ‘mister nice man’ guillotine this time!

    • As I see it, the British electorate decided on “Brexit” in 2016.

      Arguments against the validity of that decision are specious. I’m sure the “leave” side told fibs, as I’m sure did the “remainers”. But that’s part and parcel of politics. I can’t recall a single election, anywhere, where all sides stuck to the literal truth. Democracy is imperfect, but alternative systems are worse.

      The idea that ‘people didn’t understand the issues’ is (a) patronising, and (b) equally true of parliamentary or presidential elections.

      I’m not saying I agree with “Brexit”. I’m neutral on that, and see neither outcome as a panacea for the UK’s real economic and wider problems. But I do feel compelled to recognize and respect the decision taken by the voters. A second referendum smacks of “keep on voting till you get it right”, which makes it not just disingenuous, but dangerously corrosive of trust.

      Labour and Conservative MPs were elected on manifestos committed to carrying out the voters’ decision. Their MPs do not have a licence to try to stop “Brexit”. If that’s what they want to do, they should resign the party whip, and stand for re-election as independents, or perhaps join the Lib Dems.

      If, in the UK Parliament, there are elected people trying to prevent what they were elected to enact, in Brussels there are unelected people trying to follow an agenda divorced from considerations of what voters need and want. Member governments should long since have intervened to impose pragmatism. The most at-risk economies are Ireland and France.

      Germany is adversely exposed to “Brexit”, but has other problems too. Germany has been a huge beneficiary of the Euro system, but the flip sides of this are problems in other EU states, reflected increasingly in “populist” politics.

      The best (or really the “least worst”) solution now looks like a clean break, followed by negotiations between the UK and the EU based on pragmatism, generosity and vision. Oh……

      The longer this drags on, the worse it gets for public trust in politicians and processes. With 2008 already perceived (rightly or wrongly) as “rescue for the rich, austerity for everyone else”, we really cannot afford to drag systems even further into disrepute.

    • Well Brexit is a complex process which was over simplified. Cameron should have got a better in depth knowledge of what it would entail and ensured that people were better informed. This may or may not have led to a different result.

      As a remainer I respect the result but would prefer to leave with a deal (May’s is the only game in town now) because of the initial economic disruption a no deal could bring to Europe as a whole.

      I just feel that the uncertainty caused by a no deal is too dangerous at the moment.

      Donald

    • An excellent synopsis Dr Tim, thank you, and I fully agree. The sad truth however is that the politicians (who should have their voters’ wishes acknowledged and supported) are paddling their own party-orientated agenda. ‘Representative Democracy’ should be just that but in UK it has been disassembled and reconstituted into an organisational structure reminiscent of an oligarchy.

      The nice thing about Brexit is that it has brought all the underlying grievances to the fore and the people are expressing their frustrations and disappointment with the ruling elite and the known corruption at the heart of these united kingdoms.

      Even now, in the 21st century, with all our interconnectedness, most of the natives are unaware that the land and houses they ‘buy’ are not owned by them, but are merely held in ‘Freehold’, that is: free of rent from the crown, which owns all the land, and the resources under it, ever since King William legitimised his theft of assets from the yeomen of England after 1066 in the Domesday Book of 1086.

      This will not end well!
      https://tomluongo.me/2019/04/02/brexit-desperation-betrayal-deepens/

      Our small group at THA are trying to redress the balance: http://harrogateagenda.org.uk/

  11. Cromwell expelled the ‘Rump Parliament’ as far as I recall (how I wanted to be a cavalier as a boy!); so maybe the current lot in Westminster should be referred to as the ‘Backside Bunglers’?

    More seriously, I feel that the damage this is doing to the institutions of a once-stable parliamentary democracy is incalculable.

    • I very much agree with this view Xabier.

      MPs seem to be of the view that if they don’t think they can get what they want within the rules and long established procedures then just change the rules. Well, well done them, but I suspect our “democracy” is not made better by this behaviour. It is also strange that an institution that makes rules and laws that it expects us to abide by should be so cavalier with it’s own laws and procedures.

      I also note that the police have asked that things calm down. But If I had been promised a say in our future on an important matter and MPs had voted to give me that say and voted to respect the decision and also to implement it then I would be pissed off.

      It seems to me that it is not for the Police to manage this but the MP’s who have decided as the “representatives of the people” to take the approach they have.

    • I wonder; the British have an infinite capacity for indifference.

      I’d like to think this whole farrago would start a period of soul searching leading on to real reform; but would it?

      If we do have a financial crash and recession all of this will be a sideshow and, in a few years time, it might all have blown away and we can get back to sleep, very little having changed.

    • A financial crash and a recession are hard-wired into the system – so it would be much better if the UK could confront this with institutions they trust and leaders they respect, which is all the more reason to stop posturing and get this done. Can you imagine a counter-crash programme, with its attendant hardships and necessary sacrifices, put forward by this lot, gaining public support?

    • Hi Tim

      I couldn’t imagine a church fete being put forward by this lot that could get support.

  12. Hi Tim,

    You ask, “Can you imagine a counter-crash programme, with its attendant hardships and necessary sacrifices, put forward by this lot, gaining public support?” One thing that the Brexit process has shown is that the need for public support is not as high a priority as I thought it was for something to get through parliament. What is need is enough support from MPs.
    The degree to which they’re support or otherwise is representative of the view of the people is another and it would seem relatively minor matter.

    • Getting something through Parliament is one thing – getting the public to go along with it, this time, is likely to be quite another. Parliaments, no less than monarchies, presidencies or any other form of government, govern ultimately by consent.

  13. Emotions; Feelings; History
    Frans de Waal, the primatologist, explains emotions and feelings and what happens in Mama’s Last Hug. Our emotions are largely constructed in response to a perceived threat or opportunity to our body. E.g., a dangerous predator is near, or a member of the opposite sex is near. The emotion prepares our body to react so as to escape the threat or seize the opportunity. For example, a primate’s feet reliably get cold when a threat is perceived…as our body constricts the blood supply to stanch the bleeding if we are cut. Male primates get erections when a female attendant approaches them.

    The emotion also tends to give rise to mental activity which tries to give a logical explanation for the sensations reaching the brain from the body. Thus, hatred for a competitor’s dastardly past behavior or complex sexual scenarios for the mating opportunity.

    As humans do their thing, they act in ways that give rise to history.

    For example, consider the situation in 1940 in Finland, Germany, and the Soviet Union. Finland and the Soviet Union had fought a ‘winter war’ which ended rather inconclusively (involving border issues, as I remember). Germany and the Soviet Union had divided Poland between them. Propaganda in the US portrayed what happened in Poland as ‘two dictators dividing the spoils’. A smart blogger from Poland recently wrote a vituperative piece about the essential sameness of the Germans and the (now) Russians.

    I recently read a history of the events in a very large book I picked up in a bookstore but did not buy. I think the following is accurate, but buyer beware. A meeting in the Kremlin to discuss the upcoming war with Germany. Stalin reviews his ideas about the strength of the Soviet forces, and looks forward to the fight. One of his Generals tries to point out that, in actuality, the Soviet forces did not perform well in the Finnish fight, and nothing has been done to correct the deficiencies. Stalin dismisses the General’s concerns, citing some official review of the force’s readiness. The General shuts up (in the interests of self-preservation?). Of course, the General turned out to be right. The Germans slaughtered the Russians and approached the gates of Moscow. Stalin’s retort to a General who advised retreating to Siberia ‘we still have pitchforks, don’t we?’.

    As the war dragged on, a bloody siege of Leningrad dragged on. An unimaginable number of Germans and Soviets died. Germany sent envoys to Finland trying to persuade them to attack the Soviets from the rear. Such an attack might have changed the outcome of the war in the East.

    The Finns did not attack.

    Why? My guess is that Finland was happy to see both Germany and the Soviet Union bleed in Leningrad. The emergence from the war of a strong Germany or a strong Soviet Union was not in Finland’s best interest. Finland’s best chances to pursue its own interests would not be furthered by strengthening the Germans…although there was no love lost toward the Soviets.

    From a great distance, and with ignorance of the historical situation which got the British government into this Brexit debacle, I perceive the same sort of thinking. It’s all about how the MPs perceive the threats and opportunities to their bodily well-being, bolstered by rationalizations generated in their fertile brains. I hope the body count is less than it was at Leningrad.

    Don Stewart

  14. Of course, the British once felt that – with the wealth of Empire and the wooden, and then steel, ‘walls’ of the Royal Navy (which was certainly once magnificent ) – and the natural disdain of the inhabitants of a large and powerful island for all foreigners, an island with a remarkable history and a strong national myth – the Armada, the war against Napoleon, etc – that they could defy the world.

    This has almost completely evaporated, hence the latent cowardice and lack of self-respect that one sees in many comments by ‘Remainers’: ‘Dangerous world, better off in the EU than out’, ‘Nasty damp grey little island’, etc.

    I was chatting with a member of the old aristocracy over drinks last month, and he not elderly) is still patriotic and confident in the old way: but this is now completely out of step with the ,main tendencies of post-imperial, metropolitan Britain.

    The sort of negative reactions to Brexit and crudely anti-British sentiments one sees would have been unthinkable as late as the 1960’s. Not to mention that many ‘British’ citizens haven’t the slightest sentiment of loyalty to the land, being essentially foreigners of alien cultures and by no means grateful for the refuge they have found here – the same throughout Western Europe, of course.

    Hence the Brexit debacle and a profoundly divided electorate and culture.

    But the EU, preening itself at the moment and barely able to conceal intense delight at seeing s Parliament reduced to a shambles, can really only triumph in the ruins of the cultures and self-respect of the constituent parts of the Union: rather than being the bright future, it is in fact the late ’empire’ (‘the first empire of the good’ as a Brussels dignitary said recently) of decline and failure.

    I would say it has already reached the stage arrived at by the Habsburg empire in the 1840’s. How much longer will it linger?

    • @Xabier

      Before we entered the EEC the Foreign Office produced a paper on sovereignty. They concluded that joining the EEC would entail a significant loss of sovereignty. Ted Heath said that we would not lose soveriegnty and this was a lie.

      The FCO paper was classified until 2002 when it was released and there is a version with very unflattering comments made on the lies told. Although I don’t have much time for Ted Heath I’m inclined to acquit him him less harshly. The paper says that the British have a view of themselves which is at variance with any realistic assessment of their position in the World and that this loss of soveriegnty would not go down well. I’m inclined to think that Ted Heath saw entry into the EEC as a way of helping to adjust to that new, and more realistic, position in the World, by stealth as of necessity.

      My point here is that it supports your contention that the 60s was different After all at that period we were still granting colonies their independence so the “imperial” mentality was still alive and kicking.

      I doubt if the EU will exist in its current form in ten years’ time. It’s not just populism it’s the structural deficiences of the Euro which cannot be remedied short of political union and that will never happen. Although the UK is in a parlous position, as Tim chronicles, the EU is actually in a worse state, both actually and potentially. If the Euro fails then it will take the EU with it.

    • No truer words spoken, Bob J – an excellent and succinct summary. I reference FCO in my book and link to the document. I am afraid that I was not so kind to Heath as you clearly are, and you may be right on his motivations. I still don’t think it acceptable for the ruling elite to put themselves above the people on the basis of “we know best what’s good for you”;. In a supposed democracy, representative or otherwise, this cannot be excusable behaviour IMHO. :http://harrogateagenda.org.uk/

    • Not long to go now Xabier, the pitchforks are being sharpened. The Brits are slow to anger and they put up with a lot – I think it comes from stoicism during the war and empire: “Keep Calm and Carry On!” – “Stiff Upper Lip” etc etc. – knowing one’s responsibilities as well as one’s rights and acknowledging duty and loyalty.

      I went to boarding school in the 50s and the regime was severe with prefects having authority over us juniors, including sadistic torture and corporal punishment. The cane was wielded with gusto by the ‘Head’ and there was no recourse. We learned to ‘take it’ – stay calm and carry on – big boys don’t cry.

      It served me well later on – giving me the strength to weather the trials of life. And I wouldn’t change a thing. We also learned to defer gratification, an attribute sadly lacking today in our artificial consumer economy.

      When I trained with Xerox in sales and marketing in the late 70s we were encouraged to display ‘HAGS’ behaviours when dealing with colleagues,customers and prospects:
      Honesty, Authenticity, Genuineness and Sincerity. It served me well. There were many aphorisms and one I loved was:
      “If you see a man without a smile, give him one of yours” :-)))))

      If you haven’t seen this video, it tells it as it is in Britain and where we came from:

    • Peter

      I assume the HAGS was genuine rather than the Groucho Marx version “Sincerity is the key to success. Once you can fake that you’ve got it made.”

  15. If you are a neutral outsider on brexit, so relatively unswayed by emotion and going on ‘just the facts’, it looks better to be tiny Ireland which with 26 allies behind it enable it to prevail in dealing with their ancient oppressor. Surely, that speaks volumes on the advantages of being in a club, especially when we are entering a new era of retreat from globalisation and scale will matter more to economies. Democracy everywhere has diminished via corporate capture to an illusion anyway, so to ordinary people on the street, whatever entity rules them, their lives appear to be the same. Whether many understand that or not is another matter though.

    • I take your point, Guy, and Ireland certainly needs the backing of the EU (or, more pertinently, of the ECB).

      But deteriorating prosperity, identified here but not yet recognized by mainstream economics, points to radical change, something we can already see in public attitudes in, for instance, France, Holland, Britain and the US.

      I make no apology for neutrality on “Brexit”, as, objectively, I see a balance of pros and cons. I hope we can all see that it’s a huge distraction.

  16. On the question of why the Continental national governments have not brought more rationality and capacity to compromise to the Brexit negotiations, why – however desirable that would be – should we imagine that they ever would?

    One consideration is that politics, of whatever complexion, is very rarely characterised by rationality: it was not rational, for instance, to drain the life-blood of Europe, and above all of France, in the Napoleonic wars to satisfy Napoleon’s puerile and psychopathic ambitions, or on a far greater scale in the trenches of Flanders, or WW2. Man is not a rational animal.

    We might hope for rationality and a desire to settle things as far as possible for the good of all: but that’s a bit like hoping for the Virgin Mary to pop up and deliver a prophecy when you next walk the dog – possible, but hardly likely.

    Even my step-mother’s Radical Left party in Spain (she was given her seat in parliament despite having failed to be elected – one votes for the party in theory, not the person…), and which pretends to be close to the working people, sees itself as delivering the appropriate ideologically-correct policies to the people, and not as listening to their wishes and formulating policies accordingly.

    And that is what we see at the level of national governments in Europe: they are -the old guard now threatened by ‘populists’ – committed to the European Project, Brexit which is the strongest challenge yet to the Project, must be crushed whatever damage it might do, and that is that.

    With such a very small % majority in favour of Brexit, they naturally assumed that it could be over-turned; and they are quite content to drive parliamentary democracy in Britain to a point of breakdown if they can only satisfy that aim.

    But what I truly wonder at – what dismays me – is the Remainers who do not appear to see the utter contempt for any electorate, British or Continental, which is embodied in the ‘Vote until you get it right’ attitude of Brussels.

    They appear not to understand, or value at all, the virtues of the long-evolved parliamentary system, and are clearly ripe for totalitarian government -with ‘elections’ that are merely stage-scenery.

    We also see this patronising arrogance in the effort to force Eastern Europe to take unwanted African and Asian migrants,and the attempt to blackmail those states resisting this with the threat of the withholding of EU funds. Pretty nasty stuff! One thinks of the forced population transfers of the Reich and the Soviet Union.

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