#151: The Great (brick) Wall of China


For more than ten years, capital markets have had one perennial obsession, with Wall Street, in particular, rising or falling with the latest change of sentiment over Fed rate policy. Now, though, a new fixation has taken over, with stock markets reacting to every slightest positive or adverse nuance in trade talks between China and the United States.

These obsessions share an irony, which is that the outcome of neither has ever been in much doubt.

On rate policy, and even when Fed comments have been at their most bullish, there’s never been much real chance of rates rising back towards what, pre-2008, was considered “normal”. After a ten-year-long debt binge, followed by more than a decade of ultra-loose monetary policy, the American and world economies are locked into an abnormality which must continue until it reaches its culminating failure.

Pushing rates up to, say, 250bps above inflation would crash the economy, and everybody knows it. At each and every downturn in sentiment and performance, central banks are going to reach for the taps, until either credit exhaustion, and/or the loss of faith in money, puts the experiment of ‘financial adventurism’ out of its misery – and, if we’re lucky, triggers ‘the great reset’.

With Sino-American trade, the probabilities are equally loaded, and there’s never been any real chance at all of a meaningful agreement being reached between Washington and Beijing. The reality is that, for reasons seldom understood by Western observers,  but explained here, China simply cannot agree to terms that would satisfy the White House.

Through the wrong lens

Part of the perception problem is that outsiders habitually look at China through Western eyes, assuming that, like Western countries, China concentrates on the pursuit of profitable growth. This, unfortunately, simply isn’t the case. China’s priorities in economic policy are wholly different, with profitability mattering hardly at all, and the focus emphatically on volume.

The basis of government in China is “the mandate of heaven”, a term which translates as government by consent. To be sure, China has impressively comprehensive surveillance and coercion capabilities, but nobody should assume that these could keep the party (the CPC) in power if the public turned against it.

Rather, the relationship between governing and governed rests on a “grand bargain”. The public’s side of this bargain is the acceptance of civil rights which are a lot more restricted than has been the norm in the West. In return, the authorities are required to deliver prosperity.

This, undoubtedly, they have thus far succeeded in doing. According to SEEDS (the Surplus Energy Economics Data System), the average Chinese person is 44% more prosperous now than he or she was just ten years ago. This achievement is all the more remarkable when set against the gradual but relentless deterioration of prosperity in the West.

Nobody should assume, though, that continuation of improvements in prosperity is assured. Rather, the bar keeps getting higher, and one of the themes explored here is the growing extent to which China has had to resort to increasingly dangerous financial expedients to keep prosperity growth on track.

The litmus-test of whether the government is keeping its side of the bargain is employment, especially in urban areas. Both theory and evidence illustrate that, whilst rural unemployment seldom brings about unmanageable unrest, urban unemployment both can, and has. The spectre which stalks the nightmares of the Chinese leadership is mass unemployment in the cities, a problem whose potential risk has grown steadily as millions have migrated from the countryside.

At all costs, then, China must sustain and grow urban employment. This in turn points to two criteria seldom recognized in the West – an emphasis on activity (rather than profit), and a single-minded concentration on volume (rather than value).

If China were to agree to restrict her exports of goods to the United States, her volume priority would take a huge hit – and meeting America stipulations on technology transfer could risk China’s goods falling so far behind competitor product specs that they would be barely saleable, almost irrespective of quite how far prices were allowed to fall.

These considerations indicate that China simply cannot afford to agree to the most important American demands over trade, which makes a deal implausible unless Washington backs down. The view taken here is that, whilst the United States can ‘win’ a trade war with China, such a victory could be Pyrrhic at best. Based on the analysis outlined here, the Chinese economy is already in very big trouble, and America can only lose if this predicament is worsened.

The paramount emphasis on volume goes along way towards explaining why China has built huge capacity, even where there are already excesses. Building residential property where there are no residents, shopping centres without retailers, unnecessary infrastructure and unneeded factory capacity may look irrational in the West, but what to Westerners may be a white elephant looks, in China, like a valuable source of employment.

Emphasis on volume does, though, come at a hefty cost. In industry, the creation of excess capacity necessarily crushes margins. As a result, profitability often falls to levels below the cost of capital, whilst cash flow is nowhere near sufficient to finance investment in additional capacity.

This, in turn, has forced a reliance on debt, which is used not just to fund capacity expansion, but to cover losses as well.

Overseas observers customarily ignore China’s reliance on debt, sometimes because they are simply dazzled by reported “growth”. Many people overseas marvel that China has more than doubled her GDP (+114%) since 2008, but far fewer recognize that doing this has required a near-quadrupling of debt (+284%) over the same period.

In the years since the 2008 global financial crisis (GFC), annual net borrowing in China has averaged 24% of GDP, a ratio to which not even Ireland has come close.

Stated at constant 2018 values, a RMB 47.3 trillion expansion in GDP has been accompanied by RMB 162 tn escalation in debt. Tellingly, almost 60% of that borrowing has been undertaken by businesses, whose debt at constant values has climbed to RMB 134 tn, now from just RMB 38 tn ten years ago.

The cracks appear

Unfortunately, both in activity and in finance, China seems to have hit a brick wall in the second half of last year.

Financially, the first cracks in the system showed up with a catastrophe in P2P (peer-to-peer) lending, a boom-to-bust event with distinct parallels to the subprime mortgage disaster experienced in the US and in other Western countries in the lead-up to 2008.

Like subprime, P2P offers high-cost loans to borrowers unable to obtain credit from conventional (and much less expensive) sources. The very fact that borrower quality is so low ought to warn investors off these platforms, but the allure of high yields has proved irresistible to many Chinese savers.

First legalized in 2015, numbers of P2P platforms exploded, to a peak of over 8,000 by mid-2018, by which point the sums invested had reached the equivalent of $190bn. Then, with grim inevitability, P2P began to disintegrate, with some borrowers defaulting, whilst others simply absconded. By the end of July last year, after regulators had started to involve themselves, more than 4,700 P2P platforms had ceased to exist.

This in turn has had seriously adverse economic effects, some of which put the first visible dent into Chinese volumetric progression. The sectors hit first by the P2P crash have been the sales of vehicles and domestic appliances, both of which had benefited from P2P-funded purchasing.

Within corporate borrowing, China has followed the West in making ever greater use of bond finance rather than bank lending. From negligible levels ten years ago, Chinese corporate bond issuance soared to $590bn in 2016, and has remained at very high levels since then, dwarfing all other emerging market (EM) issuance put together. The number of issuers has soared to 1,451 from just 68 ten years earlier, whilst the outstanding aggregate has climbed from $4tn to almost $20tn.

Of course, China hasn’t been the only reckless user of bond issuance – indeed, the American use of bond finance for stock buybacks belongs in its own category of insanity – but, once again, cracks are starting to emerge, and are showing up in defaults.

According to US credit rating agency Fitch, defaults by Chinese companies soared to record levels last year, with 45 companies defaulting on a total of 117 bond issues. Of these companies, six were state-owned entities (SOEs), whose failures give the lie to the long-standing investor assumption that Beijing would never allow an SOE to default.

A particular complication in China is that domestic credit rating agencies seem to be ‘generous’ in the ratings that they confer. The inferred claim that most Chinese corporate bond issues are rated AA or above – with very few in junk territory – simply defies logic. A significant number of Chinese corporates enjoy AAA ratings, something that only two American companies have been accorded.

The risk here is not simply that rates of default will continue to accelerate, but that companies will face escalating debt service costs as their status slides from investment grade into junk.

An additional twist has been defaults by companies which, according to reported numbers, should have had cash holdings far exceeding the sums on which they defaulted. One company defaulted on bonds worth RMB 139 million despite supposedly having cash of about RMB 4 billion in cash holdings. A second, supposedly sitting on RMB 4.9 bn in cash, defaulted on a bond worth just RMB 300m. A third defaulted on a RMB 1bn bond even though cash had been reported at RMB 15bn.

Thus far in 2019, default rates are continuing to soar. In the first four months of this year, Chinese companies have defaulted on RMB 39.2 bn ($5.78bn) of domestic bonds, 3.4 times the total for the same period in 2018.

Tumbling volumes

These disturbing financial trends are showing up in some dramatic reversals in economic activity.

First to suffer were sales of vehicles and domestic appliances, both of which had hitherto been funded extensively with P2P credit. In comparison with year-earlier figures, sales of cars in China fell by nearly 12% in September and October last year, by 13.9% in November and by 13.0% in December. These falls constituted a dramatic reversal in hitherto uninterrupted, multi-year expansion in annual car purchasing, which had soared from 5.2 million units in 2006 to 24.7 million in 2017. Though foreign car-makers have suffered sharp decreases in sales, domestic manufacturers have borne the brunt of the slump, an event which has had very severe consequences for businesses which supply the vehicle industry.

Industries in China have also suffered from a sharp downturn in the market for consumer goods, ranging from smartphones to domestic appliances, the latter being hit further by tightened regulations on multiple home ownership. Overseas investors started to notice these trends when they were reported by companies operating in China, though, for the more observant, the sharp deterioration had been flagged already by troubled component suppliers.

Apple was one of many companies caught flat-footed by the reversal in the Chinese market, admitting ruefully that “we did not foresee the magnitude of the economic deceleration, particularly in Greater China”.

Even more significantly, suppliers of industrial components started to suffer from sharp falls in orders. The CEO of Nidec – a Japanese supplier of electric motors to manufacturers of products which include disc-drives, vehicles, robotics and domestic appliances – has said that “[w]hat we witnessed in November and December was just extraordinary”. In a letter to shareholders, Nidec called recent events “a real punch in the gut”.

FedEx, another company shocked by the Chinese turndown, has said that “no markets will be able to absorb more than a fraction of what China produces”.

The magnitude of the downturn in China is now showing up in global macroeconomic indicators – trade volumes have slumped with a rapidity not seen since 2008, whilst flows of FDI (foreign direct investment) have fallen far more sharply than can be explained by US tax changes alone.

There is growing evidence, too, that Chinese investors have started pulling out of property and other investments in overseas markets. Even before trade disputes really heated up, Chinese FDI in the United States had collapsed, whilst Chinese investors were also scaling back their investments in Europe. Towards the end of last year, in a clear reflection of economic deterioration, Chinese equity markets fell sharply, tumbling to levels last seen before the 2008 crash.

Turning on the taps

Inevitably – and despite prior commitments to do no such thing – the Chinese authorities have been pouring eye-watering amounts of new liquidity into the system since the start of this year. This has helped Chinese capital markets recover, of course, but seems to have done nothing more than buy some time for the economy itself, with key volume indicators (such as vehicle sales) continuing to fall sharply.

These interventions are starting to get noticed, puncturing much long-standing overseas complacency about China as an ‘unstoppable growth engine’. Pointedly, Forbes magazine recently asked why, if the Chinese economy really is growing at over 6%, “is the People’s Bank of China (PBOC) pumping money into the market like a drunken sailor?”

It may not be at all fanciful to detect a sense of near-panic in Beijing. Having already called on state banks to lend more to SMEs (small- and medium-sized enterprises), Premier Li Keqiang has now called for greater “flexibility” in the use of monetary policy to encourage lending. The word “flexibility”, of course, has a particular meaning when applied to monetary policy.

As well as implementing stock purchases, the PBOC has loosened reserve requirements – enabling banks to increase lending against any given amount of capital – and seems to be relaxing some of the rules previously put in place to restrain the bubble in residential property prices. Credit stimulus totalled RMB 4.64tn – more than 5% of annual GDP – in January alone, and has continued throughout the year so far at rates suggesting that 2019 will witness another big leap in Chinese indebtedness.

What now?

What we’re seeing, then, is the first major setback to an economic model targeted on volume and supported by ultra-rapid credit expansion. Though some of us have been warning about the pace of Chinese debt expansion over an extended period, Western markets seem only to have become aware of these risks since volumetric indicators turned down, a trend whose impact has been highlighted by its consequences for a string of overseas companies which, hitherto, had been riding the expansionary wave in Chinese economic activity.

Perhaps the single most disturbing feature of the Chinese predicament has been the sheer scale of the downturn across a string of product categories ranging from cars and smartphones to industrial components. What we’ve been witnessing, across a diverse and representative cross-section of activity, hasn’t been a minor reversal, still less a slowing of growth, but an alarmingly deep fall in activity.

It need hardly be said that China has played an absolutely pivotal role in the world economy since 2008, not just providing growth but acting as a hugely important market for everything from manufactured goods to critical commodities, including energy, minerals and food. Additionally, Chinese overseas investment has been hugely important for overseas asset prices, most obviously in real estate.

The risks from here are (a) that activity continues to fall rapidly, and (b) that the financial system that has funded the push for volume starts to decay.

We can be pretty sure that, in terms of stimulus, China will do anything and everything possible to arrest the downwards lurch. Even on a comparatively optimistic reading, however, trade, investment and demand, worldwide, are going to take a major hit from what has already happened in China.

The really big question, in China as elsewhere, is whether the efficacy of financial stimulus will weaken, something which could happen if credit exhaustion kicks in, or if faith in money is undermined.

It’s worth reminding ourselves of quite how far we have already gone in reliance on cheap debt and abundant liquidity. Over five years, only stock buybacks of $2.95tn, mostly debt-financed, have kept Wall Street buoyant in the face of net investor selling of $1.1tn, whilst the Bank of Japan has now acquired more than half of all outstanding JGBs (Japanese government bonds) using money newly created for the purpose.

Stirring Chinese economic and financial risk into the mix suggests that we may be measurably close to the point at which the seaworthiness of the ‘perpetual cheap money lifeboat’ meets its toughest test.

119 thoughts on “#151: The Great (brick) Wall of China

  1. Great article as usual Tim. We hadn’t had a blogpost from you in about a month but it was worth the wait. Your article ties in well with what Gail over on Our Finite World has been saying about China and the proximate triggers of collapse.

    • Thank you. As regards blog posts, I seem to have been very busy this last two months, working on areas such as China, the outlook for fiat currencies, and environmental issues.

      My feeling right now is that an economy kept afloat on a tide of cheap money since 2008 is nearing some kind of endgame. I’m surprised that events in China haven’t attracted more notice than they have, but I’m sure that will change.

  2. A very good article, and a footnote
    The Chinese currency system can collapse due to financial reasons or to underlying economics, but it is also true that poor economics coupled with bad financials can destroy the lives of a generation in a country which can still stumble along:

    “The net worth of millennials (18- to 35-year-old) has collapsed 34% since 1996, according to a new, shocking report from Deloitte. Millennials are financially worse off than any other generation before them. With student loans, auto and credit card debts, rising rents, and out of control, health-care costs have pushed their average net worth below $8,000. Deloitte told The Washington Post that their findings reveal that millennials are delaying home-buying and marriage because of massive debt loads and rising costs are making big ticketed items virtually unaffordable. “The narrative out there is that millennials are ruining everything, from breakfast cereal to weddings, but what matters to consumers today isn’t much different than it was 50 years ago,” chief retail officer Kasey Lobaugh told the Post.”

    Don Stewart

    • Footnote to the footnote
      One would have to look at the details for that ‘average’ statistic, but the median is almost always less than the average. The median Millenial may have no net worth at all.

      Don Stewart

    • Thanks. The Chinese currency isn’t the only one at risk, of course, any more than the Chinese economy is the only one deteriorating rapidly behind supposedly decent ‘growth’ numbers.

      I’ve been struck recently by quite how rapidly the UK economy, for instance, has started falling to bits.

    • Stealing an analogy to describe life as a UK millenial (with no family or inherited wealth).

      “It’s like you turned up late to a game of Monopoly so you can only pass Go and pay rent because everyone else has bought up the board already.”

      In a fit of ‘childish rage’, I voted for Brexit to ‘topple the board’.

      Calmed down, after my liberal/remainer peers put me in the ‘naughty corner’ for a while.

      Tim – Great insight on the China situation. Who would have known? 😜

    • Thanks Kevin

      This interpretation of China, at which the consensus has not yet arrived, seems vitally important, and will form a central part of my planned next piece, about the outlook for money when the real and financial economies collide.

      It really is almost impossible to overstate how important a China reversal is for virtually everything, in economics, finance and government.

    • Hi Tim, Externally held debt is very important when it comes to making adjustments to relate Aggregate demand dropping off and balancing Exports and Domestic demand. The WIR currency in Switzerland is reckoned to have been one of the balancing factors in the Swiss Economy ( according to Bernard Leitear)
      Anyway, I made a mammoth Energy economy spreadsheet last year.


      columns u-w detail external debt by nation from the CIA Factbook.
      China has less than 2% of its domestic debt held abroad whilst USA has just under 20% , this is hugely significant where the Money Creator has the upper hand ( see Greece for details ) or indeed Japan, in Princes of the Yen, Prof. Richard Werner shows how the Fed had control of Japanese central bank policy which was used against Japanese interests leading to the lost Decade of the 90’s.

      Apart from the Casino Finance economy getting back to ECOE considerations, it does remain to be seen what the truth of Peak oil will be in terms of how steep the decline is and so forth ( indeed if it is at all?)

      I think it is easy to overlook the damage that the disproportionate share of output going to the financial sector is. Effectively the energy we do have is being misapplied and not directed to productive ends, absent the bed wetting over CO2 emissions , perhaps some focus on this would go along way to solving what are in fact mad made problems of the double entry book keeping kind.

      L. Erchard once wistfully noticed that ’Inflation has never been a law of development, it has
      always been stupidity of fools ruling the country.’ The non-inflationary economy is based upon the
      money supply effected against the commodity-backed metrological background, legal prohibition of
      usury and the realignment of the tariffs

      by the ‘natural monopolies’.

    • The question of peak oil is being re-framed right now. The parameters for me have little to do with available reserves, but everything to do with affordability and cost, the latter as trend ECoE.

      Over time, the ECoE of oil is rising. As total energy ECoE also rises, prosperity declines. This reduces how much people can afford to spend on oil. If the affordability number falls below ECoE, production becomes loss-making, which is why I think we’re going to have to subsidize shales, and will have to do the same for renewables – by ‘subsidize’, I mean making cheap capital available, not handing over taxpayers’ money.

      No subsidy is cost-free, of course, but we’ll be paying for it, I think, through inflation, not through taxes.

      This is part of a broader picture which points towards inflation as being necessary, first as a concomitant of subsidizing energy supply, and second as our only way out of gigantic debt. The deliberate, ‘no alternative’ triggering of inflation suggests the destruction of the value of money, not at all surprising when you think of money as a ‘claim’ on real economic output, in a situation in which real output is falling whilst the quantity of monetary “claims” has carried on expanding. The gap between the two – which SEEDS terms “excess claims” – is a pretty good way of calibrating the probable scale of the next crash (“GFC II”).

      I think the ‘establishment’ or ‘consensus’ has, as yet, no real conception of what is happening. The reason why I’ve covered China here is that it’s one of the three big themes now, the others being the monetary outlook and the issue of the environment. Other shocks are likely, of course, with the UK likely to be one of them, but these are ‘the big three’.

    • “No subsidy is cost-free, of course, but we’ll be paying for it, I think, through inflation, not through taxes.”
      Real costs are costs in Resources which are actually used in a mutually exclusive choice. I.e a Binary Choice or Multiple choices where within time x only option y can be realised.
      My own view is that smaller localised solutions in symbiotic networks will meet production and consumption needs in the future and artificial measures such as Inflation based upon positive interest rates ( Price of Money ( financial capital) which is, in fact, an artificial construct. This is what Etimov is getting at in his 2004 article I linked to previously.
      The Choice we do have which is a Binary mutually exclusive one is do we wish to Maintain CIvic Society along the lines of whatever our conception of the Golden Age of “Capitalism” is 1950’s US or Mid 1960’s Europe perhaps? Or do we want to save the To Big to Fail Financial System? The Too Big to Fail Financial System and the Financial system ore two different things.
      When one considers the potential based upon the current state of technology one can be very optimistic, but one is not optimistic sensibly with any acceptance of the current Financialised Capitalism predicated upon the Military Industrial Complex.

      It’s left, its right, in or out is best, leaves the meat of the whole subject unbothered by any serious questioning.

      1. The Military Industrial Complex

      2. The Money Power

      3. The Corporate revolving door

      4. United States Dollar hegemony ( Peanac)

      5. Oceana or Eurasia

      6. Brave New World for the 3%

      7. 1984 for the 97%

      If the great and powerful had the beneficence and wisdom of Gods, then all this would have been well: if with a greater knowledge of what is good for the people, they had as great a care for their interest as they have themselves, if they were seated above the world, sympathizing with the welfare, but not feeling the passions of men, receiving neither good nor hurt from them, but bestowing their benefits as free gifts on them, they might then rule over them like another Providence. But this is not the case. Coriolanus is unwilling that the senate should show their ‘cares’ for the people, lest their ‘cares’ should be construed into ‘fears’, to the subversion of all due authority; and he is no sooner disappointed in his schemes to deprive the people not only of the cares of the state, but of all power to redress themselves, than Volumnia is made madly to exclaim:

      Now the red pestilence strike all trades in Rome,
      And occupations perish.


      The care of the state cannot, we here see, be safely entrusted to maternal affection, or to the domestic charities of high life. The great have private feelings of their own, to which the interests of humanity and justice must curtsy. Their interests are so far from being the same as those of the community, that they are in direct and necessary opposition to them; their power is at the expense of our weakness; their riches of our poverty; their pride of our degradation; their splendour of our wretchedness; their tyranny of our servitude. If they had the superior knowledge ascribed to them (which they have not) it would only render them so much more formidable; and from Gods would convert them into Devils. The whole dramatic moral of Coriolanus is that those who have little shall have less, and that those who have much shall take all that others have left. :IBID

  3. The UK is like a stately home, grandiose from a distance, but on approach obviously neglected for a couple of generations, so more a safety risk than shelter let alone still an object of beauty. The engine of what passes for the economy, (if we politely ignore the international tax evasion industry) the property market, is flat-lining, knocking out swathes of the economy. P2p related to builders have gone bust, revealing hugely dodgy valuations and the ineffectiveness of FCA regulation, while other asset classes like stocks are similarly suspect. Neil Woodward’s fund is probably only a canary in the mine as opposed to an unfortunate exception, granted he’s only one stock-picker, but as the UK’s answer to Warren Buffet, I’ll bet he’s not the only one who’s made the wrong call.

    • Early days, but I sense that the property bubble is starting to pop even here in Cambridge: properties of a modest family-size that would have been under offer within a week last year are still sitting around in this ‘highly regarded’ village after three: time will tell……

  4. Thank you for such an excellent over-view of the situation in China.

    The Trump obsession is proving to be an overwhelming distraction from what should surely be the story at the moment.

    Phrases such as ‘end-game’ and ‘falling apart’ may acquire wider currency sooner than we might wish.

  5. Another round of PE; Perpetual Easing. This will go on until the currency is destroyed. All charts starting to look like 2008/9. 2.0 is close imho. The US imposes tariffs on China, Mexico, Australia and India to speed up the process…. ? To maintain the US$ as the only (or one of few) ‘viable’ currency to be able to afford necessary imports? When there’s no more PE, we’ll know they will keep the fiat currency system afloat. Everything else will burn.

    • If there’s an outright contradiction – with the real economy of goods and services no longer simply “growing slowly”, but shrinking, whilst the financial economy of money and credit keeps growing rapidly – then there can only be one outcome. Money commands value ONLY as a “claim” on the output of the real economy – and, if that real economy shrinks, the “claim” value of currencies will be diluted.

    • “Money commands value ONLY as a “claim” on the output of the real economy – and, if that real economy shrinks, the “claim” value of currencies will be diluted.”

      If banks create money when they lend it then will those claims on the real economy be destroyed if and when those loans are written off?

    • This is one of the topics we’re going to be discussing here soon, I think. Basically, ‘conventional’ economics portrays the economy as a financial system, but I see the financial as subsidiary to the ‘real’ economy, with money and credit really ‘claims’ on goods and services.

      Money is ‘loaned into existence’ and ‘repaid out of existence’, but money itself is only one form of financial ‘claim’. For instance, say you own a stock trading at $100 – you’d assume, naturally, that whenever you want you can turn that into $100 of money, a ‘claim’ that you could then exercise against “stuff”. Alternatively, you might have pensions or other forms of saving which you assume that, either now or later, can be converted into “stuff” via conversion into money. (You can see why what I’m working on now is complex).

      Taking a simple example, US equities seem to me insanely overvalued. Participants might agree in principle – but they still assume that, at any given moment, $100m of stocks can be converted, via money, into $100m of anything from houses to hamburgers. But are there enough houses and hamburgers to go round, if everyone decides to exercise their “converted claims”?

      The scale of what we’re dealing with, when we look at it comprehensively, is staggering. Take the UK as an example. At end-2017 (the latest published data), total financial assets were £23.5tn. Commercial banks assets were £11.2tn of that, insurance companies £2tn, pension funds £2.2tn, and ‘other financial intermediaries’ £7.5tn. But GDP in 2018 was only £2.08tn, and prosperity (SEEDS) £1.48tn.

      Reverting to China, and expressed in trn RMB at constant 2018 values, end-year ‘financial assets’ were 13tn in 2002, 120tn in 2008, 413tn at end-2017 and, my estimate, about 444tn now.

      So this really is a case of “the emperor’s new clothes”

  6. Some Thoughts About the Millennials in the US; maybe China and UK
    I think about my wife and I being married in 1966. I had been making more money than my father ever made since I was a senior in college and working my way through with no debt and one 250 dollar scholarship. My wife made more money than her father ever made her first year out of high school. Two kids from their respective poverty neighborhoods who fell in love and promptly had children and, within 2 years, bought a New Jersey split level which currently sells for 500K. We bought it for 23K, and paid 8K down, which got us a low interest rate. My wife had babies and I worked my way up the ladder and, because we both grew up poor, we pinched every dime…but we lived as well as we live now, supposedly much richer. We did a lot of camping in a big tent back in those good old days, and floated a lot of rivers and rode bicycles everywhere.

    By the time I was 35, we no longer owed anyone money. At 50, I maneuvered a transfer from high cost New Jersey back to my native Midwest, where my children went to state universities on the cheap. Not too long after the children were independent, we were able to take an early retirement package. Now we live on underfunded pensions and questionable 401ks. But at our age, life has to be described as ‘an upward trajectory’.

    It is very hard for me to see exactly how the Millennials are going to have anything like our trajectory. First, their expectations are much different than two poor kids from the slums. Second, ‘financial bubble prosperity’ is not at all like ‘real prosperity’. Who can afford college or housing or healthcare in the bubble? I am not sure about the Millennials in China or the UK, but I expect their future is no brighter, and possibly a lot worse, than those in the US.

    Don Stewart

  7. Factors that determine how well someone will do in their life:
    1. Date of birth
    2. Country of birth
    3. Family of birth
    If you’re born in a slum to newly landless peasants with day-labour jobs in the nearest city outskirts, are somehow healthy, willing to work hard and have the IQ of Einstein, you still have the same chance of success as if dropped off in the middle of a minefield, handcuffed with a blindfold on. Alternatively, you can have the charisma of a cardboard box, the morality of a pimp, the skill workset of a maggot, but a billionaire father and you can buy the US presidency, by just not losing most of the startup capital/obviously never paying taxes.

    • Still, that super-clever labourer, if given a chance in an alternative world, might well have grown up into a mass-murdering totalitarian dictator: in fact, the cleverness would make it more probable than not – look how many began like that….

      One thing which should end is the perpetual stream of articles telling Millennials how badly off they are, and drowning them in advertising showing a mostly unattainable Good Life: it does no good, and they can all anyhow thank their lucky stars that, whatever the frustrations and obstacles in their lives, they aren’t working on a refuse dump in Asia or Africa.

      Time to stop treating people as consumers and nothing else, and to cease fostering self-pity, the most useless of all emotions, and inter-generational blaming which is dangerous and unproductive.

      When I spoke to a rather depressed (and resentful) Millennial who was under the impression -because that was what journalists were telling her – that only her generation had serious problems, just by pointing out the hard times people had had in the 1970’s, and my own difficulties in the early 90’s and 2008 -particularly the latter when I almost lost everything – I seemed to change her view of things, and she thanked me for it.

      The ‘everything bubble’ has been very pernicious, but we do no good encouraging false perspectives and a lack of toughness and self-reliance in the younger generation, letting them see themselves only as victims.

    • Xabier – I went through my angry millenial phase a few years ago, partly fuelled by just the sort of articles you describe.

      I think they just help people justify and direct their anger.

      I like to think of it as a process of grieving for my expectations which were built up unrealistically during the 90s and 00s.

      Acceptance allows you to realise that every generation is trying to do their best with limited foresight, and that we’re relatively lucky compared to the rest of ‘the world. Especially with what may be coming over the next few decades.

  8. Dear Tim,

    Thank you for your most insightful China analysis.

    As a follow-up to yesterday’s FT article of Martin Wolf about the recent Bilderbergs meeting, to which he attended, is it not becoming more and more obvious that the US is currently implementing a « last man standing » scenario with respect to China?

    Collapsing the Chinese economy and current very ambitious communist regime would significantly reduce global energy usage and stretch remaining positive EROEI fossil fuel reserves.

    Would China « peacefully » collapse like the USSR? At the time nobody thought that this could be achieved. Yet, a deadly nuclear war with an economically desperate USSR was «somehow» avoided.

    Best regards,


    • Thanks John, an interesting thought.

      I certainly wouldn’t rule out a “last man standing” interpretation, though how this would really benefit the US is hard to see.

      Back in the late 1980s, the US didn’t stand to lose much, in economic terms, from the collapse of the USSR, and would gain access to markets in the Comecon area and to resources in Russia itself.

      This time, I think the US would suffer very much from a slump (or worse) in China. Demand for commodities would slump, making them cheaper for US consumers, but even this would have its downside for America.

      Finally, the whole global economy is hanging by the thread of perpetual cheap liquidity, so it’s in America’s (and everyone’s) interest to avoid provoking a really big setback.

    • Might it not be that there is now some tension, between the imperative need to keep the whole economic system (flawed and delusory as it is) running, and the long-established US policy of maintaining an unassailable global dominance?

      In the eyes of Washington, no other power can safely be allowed to achieve regional, let alone global,great or super-power status. But, action taken to ensure this can have unfortunate economic consequences through disrupting established trade and investment flows.

      From this strategic perspective, China – investing as it appears heavily in military capacity – clearly needs to be forestalled and humbled (as well as the break-up of the Russian Federation). But not without the risk of severe repercussions for the US economy itself in this now highly globalised structure.

      As the sole dominant global power, all challengers kept down, Washington would assume that whatever resources are available could be made to flow to the principal benefit of the US, so a ‘last man standing’ policy, the US alone in a wrecked world, would be superfluous.

      However, preventing the development of advanced economies in Africa and other regions might have something to recommend it, keeping them as regions solely for resource extraction, with impoverished low-energy consumption populations.



    None of the manuals on Economics puts a question of how a state gets wealthy; they focus on the art
    of getting rich within a single corporation, a single bank, or give a piece of advice to individual wealth.
    Nevertheless, in real life, the corporate effect proves to be achieved at the expense of some damage
    done to the state and society.

    The Russian economy has been
    purposely demonetized to hit one of the bottom positions in the world rating. This ‘blood’ loss was
    behind the collapse of all the parts of the industrial sector, and the intentionally created ruble vacuum was
    designed to be filled with US dollars and other monetary substitutes.
    There is no need at all to talk about the banking sector ‘development’ if we are aiming at the establishment
    of the financial atmosphere that would facilitate real production. Banking could ‘develop’ for the account of
    finance pumped out of the industry by means of the interest rate. We need to restore
    the functionally appropriate relation of ‘money supply to GDP’ by a ‘one-shot blood transfusion’

    Debt is money it is difficult to see how economies can grow without growth in debt, the velocity of money notwithstanding.
    That is a separate question to prosperity predicated upon ECOE and surplus energy. To look at that the Etimov article applied to China and the context of BRICS and the new SIlk ROad is very important.

    I find the paradigm shift currently taking place important, the new Washington Consensus monetary system will be predicated on CO2 measures I am sure but not Energy surplus or energy units. China and the Brics I think will be looking at Energy commodity units and key commodity resources. with Gold in the mix, as per Leitaers TERRA.
    Tim, regarding seeds my Blockchain project is now progressing with Alexandria/IOP who have a system for publishing/monetising scientific data sets, developed with MIT, it is perfect for commercial distribution of Seeds, let me know if you would like me to expand on how.




  10. Reblogged this on RogersLongHairBlog and commented:
    IN QUEST OF NATIONAL IDEA: “ENERGY RUBLE” BOUND TO BE THE HARDEST CURRENCY. VICTOR EFIMOV NEWSPAPER “CHAS PIK”, MAY 6, 2004 https://longhairedmusings.wordpress.com/2019/06/06/in-quest-of-national-idea-energy-ruble-bound-to-be-the-hardest-currency-victor-efimov-newspaper-chas-pik-may-6-2004/ None of the manuals on Economics puts a question of how a state gets wealthy; they focus on the art of getting rich within a single corporation, a single bank, or give a piece of advice to individual wealth. Nevertheless, in real life, the corporate effect proves to be achieved at the expense of some damage done to the state and society. The Russian economy has been purposely demonetized to hit one of the bottom positions in the world rating. This ‘blood’ loss was behind the collapse of all the parts of the industrial sector, and the intentionally created ruble vacuum was designed to be filled with US dollars and other monetary substitutes. There is no need at all to talk about the banking sector ‘development’ if we are aiming at the establishment of the financial atmosphere that would facilitate real production. Banking could ‘develop’ for the account of finance pumped out of the industry by means of the interest rate. We need to restore the functionally appropriate relation of ‘money supply to GDP’ by a ‘one-shot blood transfusion’ Debt is money it is difficult to see how economies can grow without growth in debt, the velocity of money notwithstanding. That is a separate question to prosperity predicated upon ECOE and surplus energy. To look at that the Etimov article applied to China and the context of BRICS and the new SIlk ROad is very important. I find the paradigm shift currently taking place important, the new Washington Consensus monetary system will be predicated on CO2 measures I am sure but not Energy surplus or energy units. China and the Brics I think will be looking at Energy commodity units and key commodity resources. with Gold in the mix, as per Leitaers TERRA. https://www.researchgate.net/publication/320445428_Global_primary_energy_use_associated_with_production_consumption_and_international_trade#pf9 Tim, regarding seeds my Blockchain project is now progressing with Alexandria/IOP who have a system for publishing/monetising scientific data sets, developed with MIT, it is perfect for commercial distribution of Seeds, let me know if you would like me to expand on how. https://longhairedmusings.wordpress.com/2019/06/02/which-would-you-rank-as-the-best-crypto-if-you-think-something-different-tweet-us-back-telling-us-why-realbitcoinwiki-flo-because-iop-blocktechceo/ https://www.openindexprotocol.com/ https://etdb.caltech.edu/ https://www.youtube.com/watch?v=9fJJf6DMLig

  11. West; China; Australian Agriculture; Midwest US’ Climate Change

    We can now see, thanks to Dr. Morgan’s data, that the financial system characteristic of the West has failed, and that the mercantilist financial systems of Japan and China have failed. But, I would argue, the monetary system is still a powerful allocator of resources. If an individual or firm can make more money by doing B rather than A, then resources will be powerfully directed toward B.

    And, in Australia, we can see a shocking to some indicator that agriculture has gone very wrong. In Call of the Reed Warbler, Charles Massy recounts the conversion of farmer Bruce Maynard to a radical production system for grains and animals (which account for 86 percent of global calories). Maynard is farming in the irregular weather characteristic of much of Australia. Maynard ditched sowing after rain, 95 percent of traditional soil disturbance, fertilizers, herbicides and pesticides, He combines grazing and grains fluidly. The result is:
    70 percent reduction in yield, more income, less risk (because no capital has been spent on inputs).

    I want you to take a minute to ponder what I just told you. It is more profitable to let production fall by 70 percent than to stay wedded to the industrial farming model.

    A lot of farmer’s in the Midwest US SHOULD be pondering that lesson. But the lure of the fossil fueled agricultural system is just as powerful as the notion that driving and flying are the best ways to travel. So we hear farmers bleating about missing the date for applying their herbicides due to the ‘stuck’ weather pattern…which climate research indicates is what we should expect in the future. Most of us are going to look like Australia…droughts and floods and unreliable weather. Which makes the risk imposed by high input strategies more perilous.

    Now, at the present time, the Federal Government has insurance programs for cereal grains. Farmers who cannot plant due to the flooding can apply for payments in lieu of grain production and grow something else such as a cover crop. I received an email from a cover crop seed company a few days ago. But we have to ask ourselves:

    Where is the surplus being produced which can be re-directed to subsidize the failing financial systems and the failing food production systems?

    Now, one can quibble that ‘one swallow does not make a summer’, but farmers who are stepping out of the box are increasingly reporting that they are making more money. And the ‘more money’ is because they are NOT buying the expensive inputs that the industrial system requires. For example, Bruce Maynard uses a utility vehicle, not a tractor, to sow his seed with an implement which simply slices the soil rather than turn it or pulverize it or otherwise use all those BTUs to manhandle it. And the chemical companies don’t go to his farm.

    So what I am proposing is that both the physical and financial systems are no longer being supported by any reality based monetary system. There is no system of energy production that is capable of maintaining BAU, so there is no way a monetary system can direct resources in any way other than collapse.

    Now, collapse need not be total. Humanity might survive on 30 percent of the present production of grains. There is an awful lot of waste in the system. But we would be looking at a global replay of the Special Period in Cuba. At least episodes of starvation should be contemplated. AND, maybe somebody will come up with something.

    Don Stewart

    • Immense resources and effort directed towards collapse sums up a late-stage civilisation, just before the crash, does it not?

      Our civilisation being, of course, deeper in the realms of unreality than any predecessor.

    • Indeed so, and I think our leaders and opinion-formers are losing touch with reality.

      Remember, please, that what we’re discussing here is physical deterioration – cars, smartphones, components, world trade, etc – rather than simply financial measures. It has to be likely that other volumetric numbers turn down, including usage of energy and minerals.

      So we may be seeing the start of a shrinking real economy, in contrast to continuing increases in world population.

      To believe you can fix this financially is utter folly – as, for that matter, is the belief that we can transition to EVs without shrinking the overall scale of the vehicle fleet.

    • On the subject of physical deterioration, is there any way of measuring the energy cost of counteracting the increasing entropy in our economic energy system?

  12. Last night’s music
    The music on the lawn at my food co-op last evening featured a Honky Tonk Revival band which sounded very good indeed. One of the songs may be pertinent to our present predicament…Don stewart

    Bloodshot Eyes
    Wynonie Harris
    Now, just because you’re pretty and you think you’re mighty wise
    You tell me that you love me, then you roll those big brown eyes
    When I saw you last week your eyes were turnin’ black
    Go find the guy who beat you up, ask him to take you back
    Don’t roll those bloodshot eyes at me
    I can see you’ve been out on a spree
    Well, it’s plain that you’re lyin’
    When you tell me you been cryin’
    Don’t roll those bloodshot eyes at me
    I used to spend my money just to make you look real sweet
    I wanted to be proud of you when we walk down the street
    Now don’t ask me to dress you up in a satins and in silk
    Your eyes look like two cherries in a glass of buttermilk
    Don’t roll those bloodshot eyes at me
    I can see you’ve been out on a spree
    It’s plain that you’re lyin’
    When you…

  13. My company sources a lot of product from China and I’ve certainly seen the level of email traffic from suppliers that we don’t currently deal with who are looking for business going up quite dramatically over the last 8 months or so.

    One thing that duels on my mind when I consider the situation in China, which is not just economic but they have significant environmental issues and problems with grain and pork production to deal with for examples. The thing that occupies my mind as I plan for the future, is that if we know they have a big problem so does the communist part so, what will they do about it and what are they then prepared to do about it when that doesn’t work?

    • I’m sure that China’s leaders are very bright people, and are ‘gaming’ this situation several steps into the future. My guess would be that, given existing stresses in the system, trade conflict with the US is an even worse prospect for them now than it would have been two or three years ago.

      As outlined above, I don’t see how they can meet American demands on exports and technology transfer without crippling their volume imperative. My guess, and perhaps theirs, would have to be that the US fully understands this Chinese priority, and might be actively seeking to weaken Beijing in this respect. They could let the RMB depreciate, of course, but this would have a nasty effect on the cost of commodity imports.

      They might – but I stress ‘might’ – consider making some kind of political offer in return for an easing of tariffs. I say this because economic strength or weakness is a key component of competition between nations, and it won’t be lost on China that it was economic strength which really beat Japan during 1941-45. China’s economy is both weaker and more vulnerable than the American economy, and I’m pretty sure they would ‘lose’ a trade war, even if the US didn’t really ‘win’ it.

      If I were them, I’ be tempted to offer political concessions in exchange for an easing of tariffs – they’d be reluctant to do this, but it could be their ‘least bad choice’.

  14. A graph of what has gone wrong in the Midwestern US

    About 55 percent of the crops have been planted, versus historical levels of 90 percent. The cause is the persistence of the weather pattern which has not been moved by the jet stream, which has caused historic flooding all the way down the Mississippi. What you will seldom see mentioned are three factors:
    *Industrial agriculture denatures soil so that rain doesn’t penetrate. It stays on top of the compacted soils and may cause erosion. This makes the downstream floods worse, erodes the soil, and makes a hot, dry summer more damaging because there is no deep soil moisture.
    *Seeds from the near-monopoly seed companies have been selected to respond to high levels of nitrogen and phosphorus and the absence of weeds. When the farmers can’t spray the herbicides to kill the weeds, and don’t have the money to buy the chemical inputs, things can get desperate.
    *Crop insurance through the Federal Government can partially save the year for the farmers. Meeting to explain how farmers can plant cover crops (which do not go to market) have been packed. If farmers were required to absorb their own risk due to following industrial agriculture practices, the financial situation would be disastrous. Which is part of the justification for changing to a low-input system even though yields are much less. If all corn and soybean farmers changed to low-input, and production was 30 percent of present, it would feed humans but not livestock in feedlots. (Your reaction to that news will be instructive.)

    Please be aware that I am not a farmer. I have worked on small farms, but not on industrial scale farms. What I write is what I understand.

    Don Stewart

  15. Tim, I have been looking forward to your analysis on China.

    I have a question: How confident should we be with some of the data coming out of China, particularly growth. Do you think they’ve been inflating their growth figures?

    Anecdotally; I buy quite a few products direct from China for use in my business. What I have noticed recently is there seems to be lowering of prices on some goods. Something I’d not seen before. It’s almost like there is a bit of desperation creeping in.

    • There have always been questions asked about Chinese GDP growth stats, not least because (a) they’re always bang on target, and (b) they’ve a habit of changing methods without restating past numbers for comparison.

      There are two main reasons why I don’t say much about this (though some observers do). First, the Chinese are by no means alone in this – in the West, huge non-cash “imputations” flatter reported GDP.

      Second, and more importantly, I don’t want discussion of the quality of the numbers to distract us from what matters most, which is how any given amount of GDP is generated.

      It’s like this – if you’re prepared to pour enough credit and enough cheap money into the system, you can make GDP into pretty much whatever you want it to be, until the price of those actions catches up with you. That happens – the price turns up – but by then it’s a bit late for interpretation.

      That’s why SEEDS has a “clean GDP” algorithm. It aims to tell us what GDP and growth would be without credit manipulation. It’s proved a very useful guide in the past.

    • If China’s approach is based on quantity, and not quality, this is exactly what we should expect. Search engines seem to have adopted the Ali Baba’s of our world too.

  16. I was in Shenzhen only 6 weeks ago, and I must say, I was pretty taken by the place !
    I don’t think I have much to contribute to your article Dr. Tim, other than to point out the amazing infrastructure over there. The High speed rail system is impressive, Shenzhen railway station is the size of a football stadium. HST trains depart every 6mins.
    Before seeing Shenzhen, I used to smile when the UK talked about HST, – now I just burst out laughing !
    Now I know that this is just a snapshot, and it is not indicative of the whole country, but none the less. At the turn of the millenium, I spent about 5 years working in the USA, and the infrastructure in that country was falling apart then. So where American infrastructure is falling apart, the Chinese are rapidly building up their own.
    When money becomes worthless, having something real and tangible is what it will all come down to.

    • It’s an interesting theory, Johan, though something like a HST system is only of continuing value if you can afford to maintain and operate it.

    • Is it an electrified system? On affordability Tim, this is a question of resource availability not of the availability of finance, this is why internal over externally held debt is highly cogent to the question.
      As seeds, is concerned with surplus energy available for prosperity, I am constantly struck by the conflation of Financial affordability and debt constraints,
      and the ignoring of resource availability, I think it is a linguistic problem rather than a logical mistake. One of y favourite Blogs is the GolemXIV blog which has a section The Liars Lexicon, could you perhaps make a SEEDS Lexicon


    • http://www.golemxiv.co.uk/liars-lexicon/volatility-the-market-god-slayer-of-nations/
      The modern markets are trading volatility. They need it. They make it. They get others to make it for them – and tell them they’re going to do it and when. They try to get inside knowledge of who will make what waves. Those who get to know ‘front run’ events. They cheat.

      I have been talking in terms of ‘assets’ rather than just shares for a reason. The reason is that debt is traded exactly the same way.

      No one buys and holds debt. They trade it. Its value goes up and down. It is volatile. If the markets can create debt volatility, by, let’s say, speculating on default using CDS bets – then they can track and trade that misery, for profit. That is what has been happening and what is going to happen more and more.

      Volatility is what makes the world go up and down! Sadly their ‘up’ and our ‘down’.

    • And if people can afford to travel with it. Affordibility vanishes with rising ECoE.

      They will try though >>> MMT

      And that undermines the currency. We’ll all have to pick our poison. Me myself and I took a few red pills from the docs cupboard while he was asleep.

    • What we’re witnessing is an unfolding collision between the ‘real’ economy of goods and services and the ‘financial’ economy of money and credit. When these are in conflict, there can only be one winner.

      What is so important now has little to do with money (which is why monetary fixes won’t work) – we’re seeing real categories of activity, from cars and steel to components, chips, trade and many other volume measures of activity turning down. Logically, what happens next is a downturn in the use of commodities.

      I’ll look at monetary issues in an article here ASAP.

    • Indeed, rogerlewis, they trade in debt, misery and grandmothers. Makes me sick. Coffins of credit.

    • “what happens next is a downturn in the use of commodities.”
      Hi Tim I follow the Baltic Dry Goods index fairly closely.
      Significant levels
      On 20 May 2008, the index reached its record high level since its introduction in 1985, reaching 11,793 points. Half a year later, on 5 December 2008, the index had dropped by 94%, to 663 points, the lowest since 1986;[9] though by 4 February 2009 it had recovered a little lost ground, back to 1,316.[10] These low rates moved dangerously close to the combined operating costs of vessels, fuel, and crews.[11][12]

      By the end of 2008, shipping times had been already increased by reduced speeds to save fuel consumption, but lack of credit meant the reduction of letters of credit, historically required to load cargoes for departure at ports. Debt load of future ship construction was also a problem for shipping companies, with several major bankruptcies and implications for shipyards.[13][14] This, combined with the collapsing price of raw commodities created a perfect storm for the world’s marine commerce.

      During 2009, the index recovered as high as 4661, but then bottomed out at 1043 in February, 2011, after continued deliveries of new ships and flooding in Australia.[15]

      Though rebounding to 2000 on 7 October,[16] by 3 February 2012, the index made a new multi-decade low of 647 on a continued glut of dry bulk carriers and decreases in orders of iron and coal.[17]

      On 10 February 2016 the Baltic Dry Index reached the historic low of 290.[18]

      By November 15, 2016 it rebounded to over 1000 sending the entire shipping industry to massive gains. Some companies reached 2000%+ in share price gains in as little as 5 days.
      From Wikipedia https://en.wikipedia.org/wiki/Baltic_Dry_Index
      1132, today.

      2016 was a dodged bullet, Could it be dodged again?
      the 1100 level seems like a pretty normal level of activity sub 750 I would worry abover 1250 I would also worry. Of course an Index that is Denominated in an Abstract Currency unit has many limitations but does offer a clue to the direction of momentum in trade flows. ( but not energy FLows,
      I have linked this before but do so again this paper is incredibly important.




      For MMT’s This exchange between Steve Keen and Bill Mitchell is relevant to the Real Goods V Financial Measures point, and much much more.!

      MMT’s ignorance of economic thoughtMay 24 at 11:10amBill Mitchell has a new post “A surplus of trade discussions” responding to some of the criticisms of the MMT position on trade deficits (though he didn’t link to any of them, including my post “Some Preliminary Questions for MMT“). He opens with the proposition that “exports are a cost and imports are a benefit”, and reaches the following


      When it comes to trade, MMT focuses, initially on the real layer of the analysis.Thus it is undeniable (and I am surprised to read all those who are torturing themselves trying to deny it) – exports are a cost and imports are a benefit.
      Giving some real thing away is a cost. Getting some real thing is a benefit.That doesn’t equate, as I have been reading the last few weeks, in a conclusion that MMT’s preference is for a nation to have a current account deficit.
      It just states the obvious fact that exports, by definition, involve sacrificing real resources and depriving a nation of their use.

      Imports on the other hand clearly involve receiving final goods and services where the real resource sacrifice has been made by the exporting nation.

      In a world where we produce to consume – not for its own sake – then receiving goods and services is better (real terms) than sending them elsewhere.

      Steve Keen Responds.

      Since I was one of the ones denying Mitchell’s opening gambit—though there must have been other people “torturing themselves”, since all I noted in my post was that I disputed it as a premise—I had better reply now on this issue.I do not deny the proposition that “Giving some real thing away is a cost. Getting some real thing is a benefit”: that’s obvious in a materialist world. What I do deny is that this proposition has any relevance to either macroeconomics or trade theory. And I am not the first one to deny this: that honour goes to Karl Marx.This raises one of my major issues with MMT: advocates know their own economic logic very well, but they seem to have little knowledge of compatible precursors to their views (or even compatible contemporaries, like complexity theory). Consequently, whether they realise it or not, they often end up making arguments that would be right at home in a conventional Neoclassical textbook. These arguments are just as wrong in MMT hands as they are in Neoclassical ones.This “exports=cost, imports=benefit” MMT analysis of international trade is a classic case in point. There are at least three ways in which this MMT perspective is a backward step in relation to preceding enlightened work in economics:

      Standard Neoclassical work on the irrelevance of opportunity cost below full employment
      Marx’s arguments on the irrelevance of the seller’s utility in trade
      The extensive Post Keynesian research on declining marginal costs of production and economies of scale.

  17. Maybe we can attract some tourists to our Great Wall of Debt if production stops.

    They believed in debt based currencies so we should be able to make it work.

    Signed, prominent party member Bang Dong Ow.

    • More respect, please, for an Ancient Civilisation which embodies in every action of its wise leader millennia of accumulated Wisdom, now resuming its rightful place as the greatest economy in the world. 🙂

  18. Parsing the current Geo-Political and Economic Scene
    See Alice Friedemann’s discussion of Rare Earth’s on her Energy Skeptic site….smart phones cannot be made (as currently designed) without rare earths, some of which are controlled by China. And we know that the Chinese are considering banning exports of same.

    A second straw in the wind is Putin’s lament in the St Petersburg Economic Forum that he has discussed the importance of maintaining limits on nuclear weapons with both Trump and Pompeo, and both seem to agree with him, but the US continues on its route to nullify existing agreements and Putin’s phone does not ring.

    I think that part of the issue is simply that Trump and his confidants are quite unwilling to negotiate with ANYBODY as an equal. It’s our way or the highway. Consequently, any agreements negotiated ‘in good faith’ will be superseded by agreements which maintain American Hegemony. The unspoken assumption is that America can, in fact, maintain hegemony when push comes to shove.

    I see this position as extraordinarily dangerous.

    Don Stewart

    • I would agree, dangerous and unsettling.

      British imperial hegemony was different in that the usages and necessity of diplomacy between sovereign states – although divided into Great Powers and lesser fry – were fully recognised by its leaders. Just what one would expect of an old trading empire, built up haphazardly, governed by an hereditary aristocracy.

      The US, with only a short lease on empire, and all too aware of the possibility of imminent decline, and having tasted of a level of power far in excess of that ever enjoyed by the British, is as contemptuous of diplomacy, and even good manners, as Imperial and above all Nazi Germany in their attempted rise to Great Power status.

      All that emanates from Washington these days is, as with the Nazis, bluster, threats and insolence, combined with the crudest of propaganda. directed at the principal external enemies – Russia and China.

      Interesting that Trump didn’t even have the wit, on his recent visit, to conceal his plans for the NHS as part of a trade deal with a Brexit Britain, and thought fit to comment so openly on British domestic politics.

      Empires in this state of hubris,and with this degree of real power, tend to make drastic errors, with grave penalties for everyone else…….

  19. Pingback: Freedom Gas, US DOE lets one go! – RogersLongHairBlog

  20. A Somewhat Contrarian View of China
    Take a look at this episode of Max and Stacy for a view of China somewhat at variance with Dr Morgan’s view. The first half doesn’t reach any sturdy conclusions, in my opinion. In the second half Constantin Gurdgiev outlines the real threat posed by China’s research and software and manufacturing progress and how he perceives the weaponization of trade by the US as being counterproductive to the US, and particularly US consumers.


    Don Stewart

  21. Mr. Morgan,
    I was wondering if you can say something about the energy story behind China’s growth: how China came to grow so quickly, and to what extent the current problems are related to energy.

    • I’m not Dr. Morgan, but in brief:

      The secret to China’s massive and quick rise and growth was that they had nearly untapped coal reserves and almost zero environmental laws like those making coal more expensive in the Western economies.

    • Nixon, Kissinger, The Nixon Shock etc. To Cotton on to China one has to understand Offshoring, and Globalisation, form an Industrial but also financialised Perspective.
      Princes of the Yen shows probably how Nixon and Kissinger expected the Chinese adventure to play out ( David Rockefeller maybe saw it differently)
      How Far the BRICS and the New World Development Bank factored into their thinking is a moot point.
      Nixon Mentions De Gaulle in this Tape.

      The Princes of the Yen is instructive on How the Fed Controls the Euro, and The Yen, Not so much Stirling and it seems the Yauan or the Rouble. As yet its not the physical resources such as Energy commodities but the access to them through currencies used for settlement of contracts. In Short Petro Dollar hegemony.

  22. There is no economy more exposed to the slowdown in China than Australia.

    The Reserve Bank of Australia board responded to the weakening economic picture last Tuesday with a 0.25 percentage point cut to official interest rates. That took official rates to an historic low of 1.25 per cent. The Reserve has now cut interest rates 13 times over the past seven and half years and more cuts are now expected. Rates could fall below 1 per cent – a level that economists call the “lower bounds” of interest rate policy. But will that be enough to revive growth and boost jobs?

    As interest rates fall towards zero, some economists say there is a growing likelihood that the Reserve Bank will resort to “unconventional” methods including ‘helicopter money’.

    A Surplus Energy analysis of the Australian economy would be timely just now Tim.


    • I agree – there are both direct and indirect risks for Australia.

      The direct risks include reduced exports to a faltering Chinese economy, and reduced or reversed Chinese FDI in Australia. The latter concerns me because, over the period since 2008, it seems clear that Australian property prices have formed a dangerous bubble. With hindsight, steps should have been taken to prevent this. An adverse wealth effect from China could puncture this bubble.

      The indirect risks are that deteriorating Chinese demand will impact world markets, most obviously in commodities.

      I’ve taken the unusual step of placing a supplement to this article on the resources page. This workbook has two pages – one for China, one for Australia – and provides, I hope, the most important SEEDS data for these economies.

      For Australia, growth in GDP since 2008 (of A$431 at 2018 values) has reflected a big surge in debt (+A$1,479). Excluding this effect, clean GDP growth in 2018 is estimated at c1.0%.

      Trend ECoE has risen to 5.6% – whilst this is better than the world average, it’s still more than high enough to put growth in prosperity into reverse. Aggregate prosperity in Australia (last year, A$1.29tn) has continued to increase, but only very gradually, and at rates lower than population growth.

      Prosperity per person peaked way back in 2004 (at A$56,800), and had fallen to A$51,100 by last year. This deterioration has been exacerbated for individuals’ ‘discretionary prosperity’ by higher taxation.

      The rate cut seems reasonable, not least because it might help prevent a hard landing in the property market.

      But some of the proposed ‘unconventional’ measures make no more sense to me for Australia than they do anywhere else.

      Finally, Australian financial assets as of end-2017 equated to 520% of GDP, but 752% of prosperity as calculated by SEEDS. This is medium-risk.

      The Australian situation, according to SEEDS, is difficult, but manageable.

  23. Off-Topic, but Important (I think)

    The article was prompted by a couple of posts by the Ottawa, Canada, climate scientist Paul
    Beckwith. I saw these previously, and they indicated to me that Beckwith did not understand what he was looking at in terms of food production. He does not understand that almost all of that Midwestern US corn and soybeans IS NOT FOOD FOR HUMAN CONSUMPTION. And in response to the critical planting dates (mentioned in this article), he blithely observes that ‘if the price goes high enough, the farmers will still plant’. Beckwith does not understand that if one is planting hundred day corn and a freeze happens in 90 days, the harvest is still zero. The critical planting time is both a function of the solar energy cycle (which peaks on June 21) plus the time to first frost and other considerations.

    Beckwith also did not understand the video of the crowded room with a ‘could not plant’ meeting…which was all about getting government payments because the fields were flooded or just too wet to plant.

    I could go on and on about what most climate scientists (and government officials and the public) do not understand about producing food….I know a little, but not enough. Yes, it is important that the public and the scientists know something about the carbon dioxide cycle. But it is arguably vastly more important that they understand the water cycle, which has been largely ignored. And EVERYONE needs to understand crop cycles and the food preparation, distribution, storage, and packaging which results in spending 100 calories to get 10 dietary calories. And how a perhaps reasonable goal is spending 4 calories to get 10 dietary calories.

    Don Stewart

    • Understanding that cycle would lead to turning the land around (and inside) towns into market gardens, and mixed-use smallholdings – from which crops could even be pushed into market on barrows, instead of into shoddy ‘luxury’ housing, which is the only kind of development rewarded by the current system.

      All new housing would have adequate gardens for growing food, (not housing trampolines made in China and covered with idiotic, sterile, decking) and working in them would be compulsory (just as the old landowners prescribed in Britain): fit and able? Dig before and after your day job!

      Oh, but that’s so 18th century! How could that possibly be the future of innovative and forward-looking economies going to Mars?

  24. Another Off-Topic but perhaps good for reading tea leaves
    Jay Inslee, the Governor of Washington state, asked the Democratic National Committee to hold a primary debate limited to the subject of Climate Change. The DNC not only refused his request, they also said they would drop him from the ballots if he participated in some other debate on the subject.

    So…the DNC is scared because some elections (such as the Australian election) seem to have turned on the perceived cost of dealing with climate change…and the voters don’t want to pay the tab. And the Inside the Beltway strategy is to try to suppress any debate which might focus the awful truth in the voter’s minds. Trump seems to understand that, blaming a host of other countries with ‘bad air’ for creating the problem…if there is a problem…which there probably isn’t. And Trump’s advice to congressional Republicans to do nothing and avoid the issue.

    Conclusion: the Smartest Guys in the Room are convinced that the public is incapable of dealing with reality. IF anything is done, it will be done at the 11th hour in the dark of night…and be witnessed only on K Street. Ain’t Democracy wonderful?

    Don Stewart

    • The meme that “the public can’t deal with reality” is complete self-serving BS. It excuses any need for the status quo to change course and permits them to keep pushing BAU, TINA.

      The “public can’t deal with reality there would be chaos and panic” is also devoid of any reality check or . We’re not talking about fleeing the city to get away from from Mount Vesuvius, it’s a lot more drawn out than that.

      The real threat is that people would stop prioritizing the consumer, status signaling lifestyle and begin taking actions that have some chance of increasing resilience and local self-sufficiency. Yes, there goes the multi-national, international trade business model and economy. The fact that we have to change to deal with admitted reality would probably be felt as a freaking major RELIEF, to MOST of us, who feel like we are living in The Upside Down world. (google it, if you don’t know the reference)

      Likely, the public would deal pretty well with – here’s the reality, we’re now all going to start having to do X, Y, Z etc and we’re all going to transition to this new way of doing things.”

      The meme is akin to the convention we see movies all the time – “we’ve got to keep the truth from the public, it’s too devastating, there’ll be chaos, etc.” In a movie which TENS OF MILLIONS are expected to watch, expected to identify with the key characters who are in the know and are acting based on that knowledge, but not their heads in agreement, yes, we have to keep this hidden.

    • Dear Energy Economists;

      The topic raised by Mr. Stewart has given me the opportunity to write and post this since it explains the DNC’s behavior, and at the same time, I would like to get this out of my head (typing up these ideas usually helps my mental health). I was thinking of putting it on OFW, but the bizarre censorship policies there makes it impossible.

      Smart people make models of the economy (eg SEEDS) and work hard to explain the relationship of oil price to economic viability (OFW and others), and still others point to the issues more closely related to anthropogenic global warming (AGW) and its effects ignoring the economy. Those people miss the reasons that we are extinct, and why no political party anywhere will ever institute (effective) policies directed at AGW. And sure, GFCII will happen or maybe it will be more like what I call the Tverbergian collapse ( https://ourfiniteworld.com ), and then AGW will begin in earnest.

      This old post by xraymike sums it up pretty well ( https://collapseofindustrialcivilization.com/tag/canfield-ocean/ ), and the canfield ocean concept is explained. I recommend the video at the end of xraymikes post except that it is old, and Dr. Ward states that “… in the next century, there will be a slowing of the oceanic current systems …”. That slowing has already begun especially for the Gulf Stream, so the “in the next century” part is not true – way too conservative.

      The Paris Accord set a goal of 2C of warming which made the accord irrelevant since 2C is already baked in. If we stopped emitting CO2 today (perhaps due to GFCII?), the warming that we have measured so far ~1C would not be the result. Global dimming would go away which would raise temperatures by ~0.8 to 1.2C within a couple years. The effects of CO2 in the atmosphere are not seen until 30 – 40 years after the fact, so, the effect of our emissions since the 1980’s are not being seen yet – ~1C. The permafrost is already melting and will dump a significant amount of CH4 and CO2 into the atmosphere – ~0.5C. You can find these numbers in the literature if you look and the total is well over 2.0C.

      There is at least 3000 billion tons of methane frozen at the bottom of the Arctic Ocean in the form of methane clathrates. What will happen to all of that ice when the Arctic Ocean is 2C warmer than it is today? It will melt. The release of 2000 gigatons of CO2 at the onset of the PETM raised the temperature of the deep ocean 5C. “Warming in the deep sea, inferred from the d18O of benthic forams, was typically about 5C (Nunes and Norris 2006) (Bender, Michael L. (2013-08-25). Paleoclimate (Princeton Primers in Climate) (Page 130). Princeton University Press.)

      Recent findings predict 12C of warming ( https://www.wunderground.com/cat6/Losing-Marine-Stratocumulus-Clouds-Could-Create-Mega-Hothouse-Climate ).

      So, you see, 2C gets you 4C, and 4C gets you 8C, and 8C gets you 12C. It is happening right now, and the process is unstoppable. Even if a few bipedal and naked apes survive to live on a 100% jellyfish diet on the coast of the Arctic in a 12C warmer world, will they be “human”? I think not. They would be as different from us as any of the human ancestors were even if the physiology does not support an actual designation as a separate species. But there is more – living on the coast of any ocean in a world 12C warmer would not be possible because the ocean (Canfield Ocean) at that temperature would be occasionally burping lethal levels of SO2 into the air, so my guess is that humanity will be literally extinct. We are a dead species walking.

      But, GFCII, or the Tverbergian collapse, or even AGW are not the reason we are extinct. Those are just symptoms.

      We are extinct because …

      1. Evolution is too slow:
      Avocados have those huge pits because there used to be giant sloths that swallowed the avocado whole and then pooped out the pit well away from the tree. Now, the avocado seeds are not dispersed by any natural means because the giant sloths are extinct. The sloth has not been extinct long enough for the avocado to have evolved a more reasonably sized pit.

      Humans are very well adapted to a hunter/gatherer lifestyle on the open savanna. We are very poorly adapted to life in a modern city because evolution moves much slower than the industrial revolution did.

      2. We are stupid
      The exponential function was well understood in 1697 when Johann Bernoulli published his work on the calculus of that function, and yet, poor professor Bartlett ( https://www.youtube.com/watch?v=sI1C9DyIi_8 ) spent his life trying to get the average person to get it – and failed. In the Philosophiae Naturalis Principia Mathematica – 1687 – Neuton explained in detail how the Earth moves around the sun and why it is round, but there are still people who think that the earth is flat. In 1896 Arrhenius calculated the amount a given amount of CO2 would raise the temperature of the earth, but the current President of the United States thinks it is a hoax. (Actually this is two examples: 1. he was elected, and 2. he is a moron.)

      How can a modern civilization survive and solve complex problems that are global in scale since it is made up of people that simply are not smart enough to know what is happening, or why? It’s not our fault. We evolved to be very good at chasing the antelope and how smart does one need to be to do that?

      3. We are xenophobic and provincial:
      Our home is the best home, and people who live in other places may not even be people at all.

      That is a very useful belief if you are a hunter gatherer since it keeps you from wandering too much, and it makes it acceptable to raid and kill your neighbors if resources become scarce. Obviously, it is less than useful in modern society.

      4. We have a compulsion to reproduce:
      I love my grand daughters, and I am certain that you love your children and grandchildren as well. We all know that they shouldn’t exist, but that doesn’t matter. I had finished my geology and my chemistry degrees before my daughter was born – I knew that she would see the end of this civilization, and probably die of starvation, but … I love my grand daughters.

      Again, it isn’t my fault. On the savanna, having more kids is a good thing, a useful adaptation.

      5. We are omnivorous, not vegetarian:
      If you can kill and eat a buffalo, you are better off than if you try to survive on roots and seeds, and so we evolved to eat meat when we can get it. The fact that eating meat is one of the main things that is destroying the ecosphere is in direct conflict with our genes. The genes will win always.

      6. We are short sighted:
      Speaking of eating that buffalo, if you can herd 100 buffalo over a cliff and thereby prevent any injuries in your tribe while securing that meat from the one buffalo that you need, you would do it. If you are a member of a tribe on the northwest coast of the US, you will not go and catch one salmon – you will try to catch them all. There is a Game and Fish Department in every state of the Union to prevent us from still behaving that way because we are evolved to that behavior.

      7. We are delusional:
      The hunter gatherer without water for several days would delude himself (without evidence) to believe that there is water over that next hill. If there was, he would survive while his friend that demanded proof of the water would not.

      So, in 1896 after Arrhenius did his work on the global effects of CO2, and given his knowledge of the exponential function, why didn’t he begin a movement of population control, and prevent the burning of coal and oil? Did he know that 99% of the population at that time (or this time actually) would simply not understand? Did he know that trying to explain it to the population of a foreign country would be doubly hard since he was a foreigner and therefore not to be trusted? Or, did he simply think that the amount of time involved (~120 years) was simply too long to worry about? Or, was it a combination of all these?

      In ~1900 he could have saved the world IF and only if he and the people of the Earth were not adapted for the savanna – that is, not human.

      So, no. We will not solve the AGW problem, and we will not survive as a species, and no one will propose any policies or programs that would be remotely capable of keeping humanity alive.


    • Thanks. Your general point, I think, is that human beings are doomed because of character traits which evolution hasn’t been rapid enough to change – and which wouldn’t have mattered if we hadn’t discovered, through fossil fuels, a method of growing our numbers and our consumption at an exponential rate. So it’s what we might call “the curse of Prometheus” – the gift of fire in the wrong hands. If that’s a fair summary, it’s hard to argue with any of it.

      There is data going back far enough to prove a correlation between energy use and population numbers, both of which turn upwards exponentially at the time of the Industrial Revolution. It seems fair to add that a third curve, environmental damage, can be added to those of energy use and population numbers.

      These correlations seem demonstrable, yet the consensus in economics still portrays energy as ‘just another input’. Some of us recognize, not only the primacy of energy in the population/activity/environment equation, but the further refinement of surplus energy, i.e. absolute energy availability minus energy consumed accessing energy. From this perspective, surplus energy has topped out, and will now head downwards. This, logically, ought to put downwards pressure on the related curves, i.e. population numbers, economic activity and the adverse environmental effects of that activity.

      This highlights two areas that I’m working on now. One of these is the implausibility of “sustainable growth”. But the other, which I think this interpretation of China underscores, is a not-yet-noticed decline in “the economy of stuff”. Globally, we’re already buying fewer cars, industry is buying fewer components, and the physical trade in (movement of) goods is decreasing. Logically, the next step is that usage of resources, including energy, minerals and plastics, starts to decrease.

    • Dr. Morgan said, “Your general point, I think, …”

      Sorry for the poor writing. I don’t practice as much as I should.

      Dr. Morgan continued, “human beings are doomed because of character traits which evolution hasn’t been rapid enough to change – and which wouldn’t have mattered if we hadn’t discovered, through fossil fuels, a method of growing our numbers and our consumption at an exponential rate … it’s hard to argue with any of it.”

      Yes, we are on the same page exactly, but there is more. Two points actually:

      1. No reason to be angry
      Humanity threw it all away, not because of some persons actions, not because of some person at all. Our current predicament could have been foreseen when the first plow worked in the first field. For millions of years humanity became perfectly adapted to the hunter/gatherer lifestyle and then in the blink of the eye was expected to become a sophisticated technology using vegan … an obviously impossible task.

      Most who read Dr. Morgan are far from the denial stage of grief. I would suspect that most reading this are angry, or depressed. Instead of being angry, or depressed or whatever stage of grief in which you might be stuck, I suggest gratitude, and wonder. Gratitude to have lived – at least for a while – in a rich, and not very spoiled world. I stop every day and remember to myself how wonderful my life has been so far – yes, because of excess amounts of cheap oil and coal.

      Now, we can be doubly amazed since we are witnessing the end of our own species in real time. Witnessing it, with the mental capacity to know how momentous it all is.

      2. No alien visitation
      Imagine if you can, an alien world where a civilization of intelligent creatures did not evolve in an environment that was radically different from their modern society. I cant. Ferrengi, Klingons, Kzin, or any other species that we can imagine would never have survived the bottleneck we find ourselves in. It wouldn’t be their fault!

    • @Pintada

      Very interesting and what might be called the “fatalist” view.

      As a matter of fact I agree with you. We all assume that our World will simply go on and on whereas the knowledge we have now says otherwise; it’s actually staring us in the face. I also wouldn’t disagree with your implicit timetable.

      But you would admit this is a pretty scary thought for most people even though it may be some way off in fact. It’s curiously comforting to think that things will go on and on and we’ll all get richer and healthier until we all live a sybaritic lifestyle forever. Delusional but comforting.

      As David Hume posed the question three hundred years ago of the sort: “we’ve observed the sun rising for a long time; how do we know it will rise tomorrow?” And of course we don’t but we make the comforting assumption that it will.

    • “Yes, there goes the multi-national, international trade business model and economy.”
      Reminded me of Frank Sinatra’s ‘High Hopes’ (1959)-
      ‘Oops, there goes a billion kilowatt dam’ – be careful what you wish for.
      I’ve been working for conservation and localisation for 30 of the intervening 60 years, but am increasingly convinced by Korowicz: http://www.feasta.org/2012/06/17/trade-off-financial-system-supply-chain-cross-contagion-a-study-in-global-systemic-collapse/
      The dissipative structure that is industrial civilisation is unlikely to be transitioned to a lower energy system without serious disruption. Most recently I have been visualising it as a Catherine Wheel, both it now seems as limited high energy display and as a wheel of torture.
      Seems they might only work if you believe in them, attracting energy, using it to the max….and then slowing to a halt. Self-serving maybe, but doomed to mortality none the less.

  25. It’s what Establishments uncomfortable with the implications of radical or even incremental change tend to tell themselves – self-serving.

  26. Hi Tim

    Thanks for another insightful post.

    There’s another thing that may be relevant in all this. The economic resurgence of China has not only alleviated poverty for the masses it has also created wealth for the few, few but nevertheless significant numbers.

    When people become wealthy they tend to want a stake in things politically but this may not be convenient to those in power because it means a dilution of their power. How the existing power structure will accommodate this I don’t know but it might be a factor going forward.

    The other thing that could amplify your conclusions is demography. The impact of the one child policy on demographics has been very significant. Projections see the decline in population starting around 2030 and there are some that believe that the population is already shrinking and the working age population is shrinking even faster. This obviously impacts on growth and social spending and there are many who believe that China will get old before it gets rich.

    It all sounds to me like it’s time to buckle up!

    • Thanks Bob. I thought it highly desirable to question whether the Chinese economy is showing signs of nearing the end of a credit-driven boom – and I’m convinced we can conclude that it is. The implications for the world economy could hardly be more profound.Set this alongside ludicrously over-priced capital markets and we have the ingredients for something very dramatic.

      On demographics, conventional economics habitually overstates the human labour input to economic activity. I tried to calculate this for one Western economy and worked out that less than 0.7% of the energy used in the economy comes from human labour. It’ll be more in China, but still a small proportion. The vast majority of economic activity is enabled by fuel inputs.

      The argument that population increases don’t dilute prosperity are based on the assumption that additions to the workforce add enough extra output to cancel out the dilution of more people sharing that output. To me, though, it doesn’t work out like that. As the energy squeeze develops, we’d be better off shrinking the population, not increasing it – and that applies to individual countries as well as to the global economy.

    • Hi Tim

      I agree with your point about reducing the population.

      However, for some reason this suggestion is regarded as almost taboo and a complete no no. As Don implies below this seems to me a better policy all round.

  27. Demographic Crisis?

    Observers on the right claim that we need more children to keep the ponzi economy functioning. But Tad Patzek, on the left, says that it is time to confront the fact that the earth can support only 1 in 8 of the current population. I suggest that this dichotomy is an existential problem. My own voter is that reality always wins, and I think Tad is closer to reality than those who complain about ‘one child policies’….Don Stewart
    PS Lots of time spent on the inability of humans to comprehend stories which unfold over centuries or aeons and the related issue of inability to comprehend exponential growth. The calculations on the carrying capacity of Earth are after all that groundwork has been laid.

    • I should also note that the Q and A at the end is interesting. He is asked very serious questions and gives serious answers. Tad works at the University in Saudi Arabia but still lives in Austin, TX. Note that he says he produces more energy on his property than he consumes…except for flying. Also note his admiration for school children in Saudi. As a footnote, train travel in Sweden is up 8 percent, which is being credited to Greta Thunberg.

  28. Also
    Tad skips rather lightly over his assumption that we can resume agriculture with the ‘organic’ model of around 1900, but much improved with modern science. Tad does not talk about the energy cliff in terms of food supply. The food model of 1850 or thereabout used about 4 calories of exosomatic (that is, not solar irradiation or human labor) to produce 10 calories of calories on the table waiting to be eaten. We now use 100 calories to produce 10 calories of food on the table waiting to be eaten. So our ‘technological innovation’ must take us from 100 calories to 4. As I see it, this is a wrenching change more severe than losing automobiles or airplanes.

    Don Stewart

    • Don,
      Where does this come from ? But could be very interesting best Peter

  29. @Peter
    Attempts to measure it at a specific time are like trying to measure the proverbial cow patty with a micrometer. And I don’t claim precision. One can look at the number of people employed in farm labor to the total employment to get a rough idea. That ratio has fallen steadily from 1850 to the present level of about 2 out of 100. The ratio was able to fall for, I think, three basic reasons:
    *Farm mechanization equipment. The great inventions of the second half of the 19th century certainly reduced the amount of manual labor on farms. You can look at paintings of old Dutch wheat fields and the mob of workers gathering the wheat as opposed to a million dollar combine operating with GPS to get an idea of the change.
    *Transportation. We were never able to get the people too far from the farm in the good old days. Although some ancient cities had a million people, there were farms immediately adjacent to them. Up until very recently, Shanghai produced the food it needed from a very small radius. But the building of canals and later railroads allowed the movement of grain (which is dried and thus no so subject to spoilage) from thousands of miles away, which led to specialization and larger farms using more mechanical aids.
    *The movement away from biological farming to chemical farming. There is no doubt that the Haber-Bosch process coupled with a chemical saturated agricultural cycle can produce a lot of calories. The collateral damage in terms of harm to the ecology and the human consumer is enormous. (See The Call of the Reed Warbler for an exploration of the counter-trend back toward holistic or regenerative farming. Holistic and regenerative definitely reduce the ‘calories in’ part of the equation on the farm, but they do nothing to change the calories spent on packaging and storage and food prep in the home…which are the dominant uses of the calories in.)

    Somebody, maybe Jason Bradford, told me the 4 calories in per 10 calories of food, and it stuck in my brain. Undoubtedly that number was picked from a specific place in time or is as slippery as Tad’s numbers. But I think it is indicative of the orders of magnitude change.

    As a footnote to my footnotes, today is Jerky Day. How many modern people, other than long distance truck drivers, have any idea what jerky is and how to make it? I met a couple a few years ago who figured out that jerky could be very profitable, and they supply truck stops.

    Don Stewart

  30. More evidence

    So now we know that the microbes live in our wombs, in our eyes, and now in our brains. Therefore, the movement from ‘chemical poisons’ to ‘ecological’ food production is certainly not impossible, but definitely implies a radical change in the ways we think. An enormous amount of GDP is generated by human’s delusion that they are separate from Nature. Francis Bacon heralded the rise of science as ‘subduing Nature’. That strategy has obviously had a ton of bad consequences, and has required an enormous amount of energy. Now that we are out of the cheap energy we need for that strategy, we have to discover, invent, or rediscover ecological methods. For example, in The Call of the Reed Warbler the author ponders the notion that it is impossible to restore Australia to the fire managed, no fences, agriculture which thrived for 30,000 years. Instead, ‘holistic’ strategies are turning Australia into a version of southern Africa…except that fire may very well play a crucial role because of Australia’s peculiar position. The author has begun to use fire in collaboration with the Aborigines that Australian culture reviles. That may very well be possible. What is not possible is to continue extractive Industrial Agriculture.

    Don Stewart

    • And yet plans to reform agriculture radically in the UK – and no doubt elsewhere – rely on even more energy intensive machines, monitors, drones, etc.

      Still nothing more than an extension of the industrial system which is going to fade away before our eyes like Prospero’s magical island kingdom.

      And how ironic that Francis Bacon died as a result of experimenting with frozen chicken, having caught a chill on Highgate Hill: Mother Nature wasn’t going to bend to his will……

  31. Superb comment, Pintada.

    I would add though that we can modify, considerably, basic behavioural traits formed on the savanna through laws, customs and philosophies.

    For instance, the pre-Industrial Norwegians had excellent and humane laws limiting population, noted and admired by Malthus when he made a tour there. One small instance, but it shows what can be done.

    It may seem that we don’t need to evolve, merely use our brains, rather than regarding certain issues as untouchable.

    We will go down largely because we do not act upon what we know, and because we do not wish to know certain facts for ideological, religious, or sentimental reasons – as well as sheer stupidity.

    • Dear Xabier;

      Thanks for all the comments that you have written over the years that have almost always been interesting. And thanks for not changing your name in all those years so that I know the time used to read the comment is likely well spent.

      You said, “… we can modify, considerably, basic behavioural traits formed on the savanna through laws, customs and philosophies.”

      Of course, but it’s too late. To do something meaningful, a large majority would have had to know where we were headed in ~1900, and then we would have had to do something about it. Because of who we are, that was simply impossible.


  32. Off topic but recently discussed:

    “From Nick Humphrey, geoscientist and meteorologist, in a recent interview with xRay Mike:

    I do not think it is possible [as XR is demanding] to transition to a net-zero carbon emission civilization within a decade. The idea itself is simply absurd because it would require basically returning to a pre-industrial society with none of the benefits which came from building the society provided by fossil fuels… Meanwhile, none of this stops climate change because there is already so much damage in the pipeline. At 500 parts per million of equivalent carbon dioxide concentration, enough greenhouse gases are currently in the atmosphere to ultimately warm the planet 4-5 degrees C/7-9 F above 1700s temperatures, raise the sea level by 220 feet/67 meters (assuming 1 ppm CO2 equivalent = 1 ft sea level rise, based on past longer-term paleoclimate change response), and remove significant amounts of soil moisture, leading to the destruction of agriculture. And this is without any other carbon releases or feedbacks…

    We are entering a range of weather conditions not supportive of agriculture. And not simply monoculture. All agriculture. Even other ways of doing Ag require stable weather conditions, seasonality, soils and ability to conduct economic activity between peoples. None of this will be possible in these conditions. And that assumes the ecosystems which support agriculture also remain stable and available and that is not likely given the ongoing global extinction of insects.”

    This debacle reflects, I think, the ongoing effort by governments around the world to obscure information so that the public remains confused and inert. Anyone who looks at the geological record knows that the last time CO2 levels were where they are right now, the seas were dozens of meters higher than today. In short, we have raised temperatures and destabilized ice sheets. We have no reason to believe that history won’t repeat itself. On the agricultural front, I am less certain. Great forests grew with much warmer temperatures. If greenery grew on the north slope of Alaska and left the oil deposits, then it seems that plants can adapt to 6 months of darkness and much higher temperatures. But I could simply be ignorant. I also agree that the insect-mageddon is alarming. I have a fruit tree that is now 8 years old and has never managed to make fruit.

    The Trump Administration has put out the word that warming scenarios out to even the end of this century are ‘without credibility’ and future projections must be limited to 2030 or thereabouts. So what is ‘baked into the cake’ will, they hope, never make the headlines.

    Put this news together with Patzek’s calculations that 7 billion have to be ‘disappeared’ and things don’t look so good. Of course, good Doctor Tim may save us all the agony with a financial collapse next week or two.

    Don Stewart

    • It won’t happen in their term of office, nor while they draw their pensions, or so they assume.

      The horizons of politicians (let’s leave aside their integrity for the moment) are very short indeed: I’m observing – both amused and appalled – the wranglings to form coalition governments in Spain at the moment after the recent elections.

      Wranglings between parties and within – they can have no attention-span left for more serious matters.

      By the way, for advocates of localism, there is no politics so biitter and petty as that of a town or county where the politicians have real powers: it’s not a edifying sight.

      That agriculture may largely go away seems not improbable, given the scale of dislocations that we are going to witness.

  33. Walk down any UK High Street and you can smell that a recession is coming and see all the gloomy faces of the poor. Boris Johnson seems likely to become PM soon and oil tankers are ablaze in the Straits of Hormuz, perhaps the ‘Black Swan’ event that we have been suspecting might come along one day or another? Johnson is not any more fit for the role of PM as is May, IMHO, but I’m powerless to do anything above that, not being a member of the Tory party.

    As the chaps at Ruffer Investment Company said a few days ago “…Our concern remains that the problems go rather deeper than just domestic politics and presidential tweets. ‘Free money’ (near zero interest rates) and ever increasing debts have distorted markets. Like some 21st century fairy tale, the proportion of US IPOs for loss-making companies has now exceeded the record set in the tech bubble. When debt and money have no cost, capital misallocation always ensues, and if the punchbowl is not removed, inflation follows. Increasingly, we see shades of 1999-2000 in stock markets, not just ‘Unicorn’ IPOs but also in the matching record levels of abhorrence of value compared to profitless growth. Meanwhile global politics isn’t changing – it has changed, we just haven’t seen the results yet. …this increasingly looks like a bubble to us”

    “Corbyn by Christmas” anyone?

    • Indeed so. Though the UK situation is extreme, it’s true that some kind of slump is coming globally. My aim with this article was to set out the China component of this, which is critical in my opinion, and improperly understood.

      Next, I plan to look at the global dimension, and the futility of relying on some kind of monetary rescue when it’s the physical economy of “stuff” that’s in trouble. The working title for the next article, accordingly, is “stuffed”.

      Some say that Wall Street is pricing in three Fed cuts this year – though I’d say it’s pricing in perpetual QE, ZIRP/NIRP and ‘whatever it takes’.

      We don’t have markets in any real sense now. Meanwhile, demand for everything from cars to chips is falling, as are trade and FDI.

      I’m ultra gloomy about the UK, not least because its crumbling real economy – not just shops and pubs now, but steel, cars, communications, and even online sales have now stopped growing – is supposed to carry debt of £5.5tn, whilst financial assets (a good measure of risk exposure) are c£26tn.The only good thing to say about Boris is that at least his name isn’t Hunt or Hancock, either of which would scare me rigid.

      Mr Corbyn seems to have lost the plot – by which I mean his repudiation of Blairism, and restoration of Labour’s “for working people” credentials, seems to have stalled. Maybe voters might be – in the words of the old song – “Making plans for Nigel”?

  34. Dr Tim,

    Thanks for the courtesy of replying; I sincerely hope you are wrong about Farage, but that’s for another day!

    I am gravely concerned about the huge impact tumbling asset prices, should that come to pass, will have on those UK ‘pensioners’ who have been encouraged to enter flexi-access drawdown with modest pension funds rather than purchase an annuity. I see, according to an article by Graham Bentley in one of my ‘trade journals’, that the FTSE All-Share index, even with dividends reinvested, has over the past 20 years returned less than 5 per cent per annum and a little over 2 per cent a year, net of inflation.

    It can also be argued much of that performance has occurred since 2008 with an unusual following wind of quantitative easing. If those lower returns and inflation levels persist, a 30 per cent fall in value would take over 18 years to recover purchasing power of capital. If you are in your 40s, accumulating capital and continually investing at those lower prices, that’s not necessarily a daunting prospect.

    If you’re 65 and expecting to withdraw capital regularly, after-the-fact promises of recovery may sound somewhat hollow.

    When you also realise that only around a quarter of my fellow citizens could correctly identify one in 1,000 as being the equivalent of 0.1 per cent, the presentation of probabilities to investors becomes increasingly difficult.

    I’m seriously considering biting the bullet and suggesting that my clients head for index-linked bonds, gold, short-term Sovereign debt, with some equities kept as a kind of ‘insurance’. The trouble is, I don’t know when!

    • I can’t comment on investment advice, of course, but on the general issues I’m now trying to pull something together for publication – not easy, as you can imagine.

      Did you know that, over 5 years, investors have been net sellers of US equities to the tune of $1.1trn – but the market has been supported by more than $2.9tn of buybacks, mostly debt-financed? That’s almost a definition of insanity, in my book……

    • I quite understand your position regarding ‘investment advice’, of course, but you are right in that insanity seems to be ruling the roost. I mean, look at Woodford’s woes – fancy holding illiquid assets in an open-ended fund, for goodness sake (and, no, I have never recommended any of Woodford’s ‘funds’)! Financial advisers flogging dodgy products that they don’t really understand to consumers, ineffective regulation, tax break distortions, dreadful distribution of wealth, not a thought about a ‘balanced economy’ – oh my!

      I stick to my ‘boring’ Victorian & Edwardian investment trust companies; setting gearing and discounts to NAV aside, they have been pretty reliable over the last 150 years.

      If people in my business carefully and truthfully explained the fact that (basic things like life insurance aside) most financial ‘products’ entail putting capital at risk and sometimes usurious expenses, how many ill-educated people would say ‘that’s OK, you know best’? They will shout when the losses come, that’s for sure.

      A really good question is: “If we get to the point you want to realise your goal and there isn’t enough money to pay for it, how would you feel?” I get some interesting answers!

    • Mark:

      I sort of expect that members of the public have a limited understanding of financial issues, which are complex, and people have busy lives. But it does shock me when professionals don’t seem to understand it either.

      The only comment I’d make about the Woodford situation is a general one, in two parts. The first is a question: how can anyone – especially someone as bright and experienced as him – lose money in these absurdly inflated markets? Second, and part of an answer: returns have been crushed to the point where the pursuit of any kind of return requires the acceptance of a great deal of risk. The days when you could buy an investment that was both “safe” and delivered a reasonable income are long gone – anyone wanting a yield that even matches inflation has to take on really high risk. These are indications that madness rules in capital markets. Time was when you could get a decent low-risk income from sovereign bonds, and a high yield, with comparatively low risk, in stocks like the big oils. No longer – which should make us ponder the question “what is investment for?”

      Broadly, this is an economic system that is cannibalizing its future. The signals we’re getting (as an economy) from the markets amount to “don’t invest”. The real economy is now so weak that investment has become, in economic terms, unaffordable.

    • Well, Tim, “don’t invest” is what I’m beginning to think! However, I do believe that there remain at least a few options, like Peter Spiller’s Capital Gearing Trust, Troy’s Personal Assets Trust (which some of my clients have held for 25+ years), Ruffer Investment Company and, maybe, BMO’s Pyrford Global Total Return, just as examples.

      All hold a lot of liquidity at the moment – perhaps wise.

      In these markets, even your old colleague Terry Smith has struggled somewhat in Emerging Markets – it’s really hard to find value anywhere anymore.

      I’m talking about my client’s pension funds; the alternative is to annuitise, in full or in part – there is noting remotely funny about a guaranteed income for life!

    • ‘Investors’, in their current form, pour currency into the pool of madness, formerly known as financial assets, to frontrun depreciation of that same currency, imho.

      Look for safety, consolidate. That means reducing counterparty risk as far as the eye can see. This btw is not financial advise either, just my current way of ‘dealing with’.

      The pendulum is about to swing from debtors to savers.

      First stage will be financial collapse, one can protect oneself against this, at least a little bit. Second stage, societal collapse, will be quite challenging, or impossible to prepare for. Its not a full time job for me though, i enjoy life as it comes.

    • Current ‘investors’ are frontrunning depreciation of the currency. Yield is what counts, income is for the poor. And there’s managed money; expecting yield. So no yield is no option, period.

      Reduce counterparty risk. And, if there’s currency involved, there’s counterparty risk. Trillions of it, that’s why it keeps ‘functioning’; there’s no other option.

      The mometary plane keeps going up until it crahes on Jupiter. The physical plane is going down until the mindset of the masses is being forced to recognize reality.

      So, counterparty risk is the key word, if you boarded the monetary plane. Billions will run for the hills, but the hills are already occupied when the time comes.

      Consolidate and leave the monetary plane. Board the physical plane and prepare for some heavy bumps during take off. This is not financial advise either.

  35. Amen, Houtskool, to all of that.

    ‘Trust in your savings, but tie your camel first’ , as a certain prophet might have said…….

    Occasionally I click on ads for companies offering to bathe the retirement of their clients in golden sunshine by ‘releasing’ equity in their homes – so simple – and I shudder.

    People seem to make rather odd assumptions about what the course of one’s life should look like.

    But perhaps they are not wholly to blame: its a delusion that afflicts our whole civilisation, and those who give good advice are few, and the tempters and criminals many, as always.

    • I looked into one or two of these schemes when my Mother, nearing 90, needed to think about downsizing – and, like you, I was shocked, especially by how plausible they seemed.

      This said, I wasn’t surprised. The ruling commandment in Britain seems to be the 11th – “don’t get caught” – and, if you mention ethics, the most probable response is “you mean the county north of the Thames?” Though it’s a long time since I was there, my impression is that the US is similar.

      I put this down to two decades and more of what I’ve called “law of the jungle economics”.

    • Money aint what it used to be. It doesn’t represent what we do anymore. In a growth environment debt works. With declining net energy, i.e., declining growth, >>> debt kills.

      With 7.4 billion people depending on it, we all should be able to understand the madness in financial markets we have today.

      I looked at options to move to Papua New Ginea, but that bone through my nose did hurt like hell. So i have a few RyanAir tickets for sale. If you’re interested, you can buy tickets in week 43 ICO.

  36. Hi Tim and others,

    I have a question about the gyrations of markets and what as a lay person I should regard as significant and what I can filter out as background noise.

    If I take, as an example, the near 1% drop in the British pound sterling against the American dollar on Friday. Is that significant? A near 1% fall in one day seems a lot but is it?

    Is it just the “players” in the financial “markets” trading to make their commissions or could it be something else?

    It’s the same with particular stock market indexes, how I should I interpret what is normal now in terms of gyrations and what would be a move that could be more significant?

    If you look a commodity prices oil has dropped pretty quickly over the last few weeks but iron ore has gone up significantly.

    None of these gyrations suggest a stable, steady as she goes market/economic system to me but is that new or has it always been the case?

    Any observations you have would be appreciated.

    • With regard to equity markets in particular, these are truly extraordinary times.

      The best way of explaining this difference is that, whereas in past times the actions of market participants were said to be motivated by ‘greed and fear’; now they seem motivated by ‘greed and complacency’.

      When anything that seems like ‘good news’ comes along, investors pile in, as they ever did. But, in the presence of ‘bad news’, reactions are different nowadays. First, ‘bad’ news on the economy swiftly becomes ‘good’, because it’s interpreted as favourable for a cut in rates. Second, it’s assumed that, in monetary policy, the authorities have a fix for all problems. So ‘bad’ news (‘fear’) no longer restrains responses to ‘good’ (‘greed’).

      Investors are still prone to fear, but this fear is cancelled out. In US equities, for instance, investors have been big net sellers for years, but are more than cancelled out by stock buybacks, mostly debt-funded. If you asked lenders if they were fearful about debt exposure, they’d probably answer that ‘they would be, but were sure of being rescued if the worst came to the worst’.

      The belief that monetary policy can fix all ills is irrational. But, as Keynes famously said, “markets can remain irrational longer than you can remain solvent”.

      Imagine you’re in a casino, but with strange rules. If you win, you keep your winnings. But, if you lose, your losses will be reimbursed by the casino. What’s to stop you gambling?

  37. It’s certainly not ‘steady as she goes’.

    But to avoid unnecessary stress, I’d take a slightly different angle.

    Expect change, even periodic disaster, as the only constant – which it was for the whole of recorded history for our ancestors.

    Ensure that you have the means to cook, heat yourself when desperate, and have some light which are independent of whatever occurs in the economy and the JIT system – and in the UK this includes thermal underwear and a suitable hat. No heat? You’ll still be warm enough. I even made a personal heater in the form of a tea light when everything went wrong in 2008.

    Make sure to have as extensive stocks of long-life dried and canned foods as is possible: that’s what that spare bedroom is for. And so on.

    This is how a household was run in the long ages of wars, invasions and plagues which we have been fortunate enough to have been able to forget, and this is what we will face: the possibility of intense and very sudden disruptions.

    The consciousness of having provided for food, heat and light – preferably for a year – is very reassuring.

    • Sound advice xabier. I would add – also have water purification. Preferably of the carbon filter variety like berkey filters instead of relying on chemical purification.

    • Don’t forget water: minimum 30 days supply at 25 litres per person per day – the best is a tank catching the rain that falls on the roof. Or water purification tablets, then you can drink stream water.

    • Hello Xabier,

      One thing we’ve not seen here for some time is inflation, not in the teen’s of percent any way and I wonder if that could happen again soon.

      We import a lot and the currency seems to be falling again too.

      Food prices, due to grain and animal diseases in China and elsewhere and erratic weather, may start to go up too.

      An international trading currency of declining value when set against reducing international supply or is that increasing international demand, could result in an uncertain future for us.

      PS. I’m interested in how effecting your team light personal heater was?

  38. Louis Arnoux and the Decline of the Supergiants
    And article from Louis regurgitating many of the controversies attendant on BW Hill’s model of oil depletion.


    I admit to a fascination with the notion that it is actually the work delivered that is important. It is not the theoretical work that can be done with a barrel of oil. And Arnoux and company (and BW Hill several years ago) who forecast the end of oil as a useful fuel. Now, theory tells us that a complex, innovative, system will simply adjust to reality. So, for example, if moving people in two ton internal combustion powered chariots doesn’t work…then maybe motor scooters will work. But most societies have collapsed rather than make fundamental changes. It seems societies build in rigidity, which prevents adaptation and innovation. My nominee for ‘rigidity enforcing’ at the present time is debt and governments using force to collect them.

    Don Stewart

  39. How apt that large parts of South America have lost all electricity supply this morning!

  40. A little off topic, but relevant to our general discussion:

    I recommend listening to all of this edition of Max and Stacey. In the first half, they feature a graph showing public confidence in national governments and the change over time. They link the declining trust to things like the accumulation of gold and crypto-currencies and political unrest. In the second half, Michael Pinto and Max have a very interesting and fact filled discussion about the impending collapse of currencies. Pinto points to the 1987 collapse on Wall Street (about 30 percent in one day…I was standing in the visitors gallery watching it happen). The stock market was half the value of GDP at that point. Now, the stock market value has increased 3 fold to 150 percent of the value of GDP (which is itself a fraudulent number). In 1987 Main Street could safely ignore what happened on Wall Street Today, Wall Street is the main event.

    Don Stewart

  41. Coal; Natural Gas and Fracking; Energy Policy
    This is about the apparent declining ECoE of natural gas in the United States and the way that is bending the trajectory of base load electricity capacity. Most of the natural gas in the US is produced as a byproduct of shale oil production. And the higher the gas to oil ratio, the less economic the shale well is…because gas sells at a fraction of oil. Presently, we hear reports that it is getting more difficult to finance shale drilling, so the drillers are both cutting back a little and also seeking higher cost money. If shale oil is not going to be enough of a lure to keep the fracking bubble going, then natural gas production will drop rapidly.

    Yet, as this presentation included in Albert Bates blog post indicates, the base load capacity in the US is now heavily weighted toward wind with natural gas backup:


    And, of course, the US is trying to strong-arm countries around the world to buy more US LNG.

    So…it seems to me that the US energy policy is tilting ever more toward a highly unstable plan for base load. Essentially, it is conditioned on the continued growth of drilling for shale oil, which does not seem like a reasonable prospect. Compounding the problem is the search for long term international contracts and the building of expensive LNG terminals and ships.

    Don Stewart

    • Hi Don,

      I wonder if the USA or any other country, that has gas or oil present within it’s borders, has ever considered not developing it and using it up at government level? I mean more specifically not developing it and using it yet.

      If we/they know the resource is finite and they can get it from somewhere else for now till theirs runs out, why not at least consider that as an option.

      Now I’m aware of the issues of balance of payments, from importing rather than domestic consumption or exporting, and stranded carbon assets if we stop burning fossil fuels, but it must at least be worthy of consideration.

      In the case of the current USA policy and I suppose Russia too. Is the thinking simply that we have so much of the stuff that we don’t need to worry about keeping some for the future or perhaps I’m not going to be here in that future so I don’t care?

  42. @ladydog
    I think there are a couple of points to consider:
    *The good old Maximum Power Principle. The Odum’s enunciated the Maximum Power Principle starting in the 1950s (you could find earlier precedents). Energy per unit of time. The principle carries over to food…processed foods that deliver lots of calories quickly sell better than natural foods with lots of fiber which digest slowly. Elon Musk first emphasized autos with lightning fast acceleration. If anyone is preaching ‘slow is good’, they are asking people to swim upstream in terms of what feels good and natural. People who were burned by the Depression learned about the virtues of frugality the hard way. But that generation is almost gone, and is no longer a factor in the markets.
    *If you look on Gail Tverberg’s site, you will see some bar charts showing energy consumption for the top 5 countries. China consumes more energy in it’s industries than the next 4 countries combined. But if you look at the US bar, you will find that the US consumes more energy in transportation than China, while China’s industry consumption is vastly greater than the US. So what we have is the US using a whole lot of gasoline to drive around, while the Chinese use more energy to make stuff. Trump thinks he can ‘rebalance’ and bring industry back to the US. But you can see from the reaction of companies such as Nike and the hundreds of others who signed the letter to Trump asking him to resolve the disputes, that rebalancing what has taken 20 years to put together is painful. What Nike and the others need is for China to keep on making stuff cheaply and for the Central Banks in the US and Europe to keep printing money so that consumers have the cash to buy the stuff.
    *the US does have a lot of coal which could be used for electricity. The article I pointed to in Albert Bates post shows how the electrical utilities are profit-maximizing by substituting natural gas plus wind for coal. My concern there is that the natural gas is a by-product of shale oil wells, and those are not profitable and so are a risk for the future. Should drilling cease, natural gas production would drop very rapidly. Which leaves the utilities with intermittent wind and no backup.

    Don Stewart

  43. Pingback: #152: Stuffed | Surplus Energy Economics

  44. Hello Ladydog

    The personal heater was a tea-light or two within a little contraption composed of a small plate with clay cone,(curved sides) pierced all over the sides and open at the top. Like a little clay volcano.

    I bought several as domestic garden lights from a potter friend, but, when stuck with no money at all to repair my heating system in the depths of winter, (for 3 winters!) it occurred to me that I could use it as a version of the old Spanish brasero or charcoal heater, which would be placed under a table covered with a heavy cloth, everyone sitting around the table warming themselves nicely, playing cards, etc.

    The heat rises and is contained by the wool blanket. With a warm jacket and a hat, I was as warm as toast on even the coldest days, and there is no fire risk to speak of, as long as you don’t get blind drunk and knock it over. If you get too hot, just lift the blanket a bit.

    One could make them or get a potter to do so both for personal or group use. If you were to make a wooden frame hold sheets up, it would be possible to warm a bed safely. Tea-lights produce a surprising amount of heat from a tiny, controlled flame, easily extinguished.

    I hope that is helpful.

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