#167. Tests and correctives


In any moment of crisis, it’s easy to be pulled two ways, between the immediate and the fundamental. But it helps when, as now, we can recognise that both themes meet at the same point.

In this sense, “the 2020 Wuhan crisis” (or whatever it ends up being called) has acted as a catalyst for severe risks built into the system over a protracted period of mismanagement, incomprehension, self-interest, hubris and sheer folly.

Just so that you know what’s coming, this discussion is going to concentrate on two issues.

The first of these is the scope for value destruction in the current situation. Here I believe that the use of an independent benchmarking system – based on energy economics – provides an advantage over the monocular, ‘the economy is money’, way of looking at these things.

The main theme here, though, is energy in general, and oil in particular.

On the one hand, the consensus assumption is that we’ll be doing more of every sort of activity (including driving and flying) that depends on having more energy (and more petroleum) in the future than we have now.

On the other, however – and even before the recent slump in oil markets – crude prices simply can’t support even the maintenance of oil supply, let alone the 10-12% increase seemingly required by consensus expectations.

What I aim to do here is to explore this contradiction.

Before we start, though, I’d like to apologise to anyone who, over the past two weeks or so, has wondered why their comments seem to have vanished into the ether, or why there seems to have been much less debate here than usual. What appears to have happened – for no apparent reason, and wholly outside my control – has been that most notifications of comments awaiting approval have ceased to reach me. For the time being, and as frequently as possible, I’m going to review the list of outstanding comments manually.

Short shock, long folly, value exposed

Right now, as markets and sentiment gyrate wildly, we’re watching a fascinating intersection between the immediate and the fundamental playing out before our eyes.

The system that’s being shocked by the coronavirus crisis was a system that was already in very bad shape, and we can be pretty certain that, if the catalyst hadn’t (or maybe hasn’t yet) come from Wuhan, it would have (or assuredly will) come from somewhere else.

As somebody might have said, ‘if you build a monster, don’t be surprised if it bites you’ – and as somebody once did say, “some days you eat the bear, some days the bear eats you, and other days you both go hungry”. I’ll leave it to you to decide what roles greed, incomprehension and sheer folly have played in the building of the financial monster.

One of the critical issues now has to be the potential for ‘value destruction’ in the current crisis. Amongst the advantages of having an alternative, non-financial (energy) approach to economics is that it provides a second basis of measurement (in this case, the SEEDS prosperity benchmark) for just this kind of contingency.

‘Value’ really falls into two categories. The first is largely ‘notional’, and covers assets such as equities and property. Since nobody could ever monetise the entirety of either asset class, these ‘values’ are functions of the changing narratives that we tell ourselves about what things are ‘worth’. No money actually leaves somebody’s bank account because of a slump in the market price of his or her property or share portfolio.

‘Real’ value, on the other hand, consists of defined commitments which may become incapable of being honoured. The obvious example now is debt, on which businesses or households may be forced to default because their sources of income have dried up.

My approach here has been to use the Surplus Energy Economics Data System (SEEDS) to scroll back through the long years of financial excess in search of reference point ratios more sustainable than those of today.

Without burdening you with too much detail on this, SEEDS-based calculations suggest that up to 60% of the world’s private debt could be at risk, with the exposure of the broader structure of other financial assets at about 70%. My calculations are that up to $70 trillion of debts, and as much as $190tn of broader financial commitments, may be exposed.

Huge though they are, it must be emphasised that these are estimates of the scope for ‘value destruction’ – and how much of this scope turns into real losses depends upon many variables, chief amongst them being the duration and severity of the virus crisis, and the policies adopted by the monetary and fiscal authorities.

Assuming that these authorities act with more wisdom than they’ve exhibited so far – and stop firing off their scant remaining rate policy ammunition before the target comes over the hill – then the outcome isn’t likely to be anywhere nearly this bad, and a full-blown cascade of defaults can be avoided. Meanwhile, it’s possible to see stock markets settling perhaps 40% below their pre-crisis levels, with property prices down by 30%.

This, of course, presupposes that decision-makers don’t resort to putting so much gas back into the balloon that it really does detonate, leaving us scattered with the fragments of exploded hubris. In essence, do we use this event to re-group, or do we insist on ‘irrationality as usual’, regardless of cost?

After all, with the levers of the system in the hands of people who actually think that over-inflated stock markets, and over-priced property markets, are both ‘good’ things, there’s almost no degree of folly that can wholly be ruled out.

Energy – cutting away the foundations

Properly considered, there are two separate market crises happening now, both of them linked to the Wuhan coronavirus event.

One of these is the wave of falls in global stock markets, which the Fed and other central banks are trying, Canute-style, to stem. It would be far better if markets were left to get on with it, with the official effort concentrated on getting businesses and households through the hiatus in their cash flows.

The other crisis – linked to the epidemic by the anticipated sharp fall in petroleum demand, though triggered by a spat between major producers – is the sharp fall in the price of crude oil.

Some observers have suggested that the fall in oil prices will offer some relief for consuming economies, whilst others point out that the oil sector itself is going to be hit by a wave of financial failures, just as much the same thing might be poised to happen across vast swathes of the rest of the economy. The real issue, though, is how much damage this is going to inflict on the oil and gas industry, and where it leaves the industry’s ability to invest.

For those of us who understand that the economy is an energy system, the link between these events takes on a fundamental significance. Oil may be “only” 34% of global primary energy consumption, but it continues to account for a lot more than 90% of all energy used in transport applications. Fossil fuels (FFs), meanwhile, still provide more than four-fifths of world energy supply, a number that has changed only fractionally over decades.

Enthusiasts and idealists might talk about a post-fossil economy, just as the airline industry tells us that it can continue to grow whilst moving towards zero net carbon emissions. But, in both of these instances, as in others, there’s a very big gap between aspiration and actuality.

In search of neutral ground, we can do worse than look at long-range energy demand projections from the International Energy Agency (IEA), the U.S. Energy Information Administration (EIA) and OPEC.

All three publish central case forecasts, essentially mixing consensus-based economic assumptions with the mix of policies in place around the world. In broad terms, all three are agreed that, unless there are changes to these central parameters, we’re going to be using 10-12% more oil in 2040 than we use today.

‘Please sir, can I have some more?’

If you look at these projections in greater detail, it further emerges that we’re going to be doing a lot more of the things for which oil, and energy more broadly, are pre-requisites.

We are, for example, going to be driving more, even though electrification should keep the rise in oil demand for road use pegged at single-digit percentages. By 2040, there are expected to be more than a billion (74%) more vehicles on the world’s roads than there are today. It seems to be assumed that, by then, about 40% of the global fleet will have been converted to EVs, but that will still see us using more oil on our roads – not less.

We’re also, it seems, going to be flying a lot more than we already do, requiring a lot more petroleum, despite an assumed pace of energy efficiency gains seemingly running at about 1.5% annually. My interpretation suggests that passenger-miles flown are expected to rise by about 90% over that same period, though, thanks to compounding efficiency gains, petroleum use in aviation is expected to rise by “only” about 38%.

Within the overall energy position, the expectation is that our consumption of primary energy will be about 28% greater in 2040 than it was in 2018. Within this increment (of 3,900 million tonnes of oil equivalent), about 12% (450 mmtoe) is expected to come from hydro, and 44% (1,720 mmtoe) from wind, solar and other forms of renewable energy (RE). Nuclear might chip in another 5% of the extra energy that we’re going to need.

But the remaining 39% or so of the required increase is going to have to come from expanded use of fossil fuels, some of it from oil though most of it from gas (though it’s also noteworthy that no reduction in our consumption of coal seems to be anticipated). From the above, it will hardly be a surprise (though it is certainly disturbing) that annual rates of CO2 emissions from the use of energy are expected to carry on rising.

If any of this is remotely likely, though, why are oil prices languishing around $30/b?

To be sure, we know that demand is going to be impacted by Wuhan, and that producers including Saudi and Russia are scrapping over who should absorb this downside. But oil prices were hardly robust, typically around $65/b, even before the epidemic became a significant factor.

The fact of the matter is that we simply cannot square oil prices of $30, or $60, or even $100, for that matter, with any scenario calling for increases in supply.

We all know that global oil supply has been supported by American shale production, which has in turn relied on subsidies from investors and lenders. Now, though, it’s becoming ever more apparent (as was set out in a recent official report from Finland) that even ‘conventional’ oil supply is in big economic trouble.

It’s a sobering thought that, were capital flows to dry up to the point where there was a complete cessation of new drilling, US shale liquids output would fall by about 50% within twelve months. But it’s an even more disturbing thought that, unless capital investment can be ramped up dramatically, conventional oil supply is going to erode, less spectacularly, perhaps, but relentlessly.

So here’s the question – how, under this scenario, are we supposed to find sources for an increase in oil supply going forward? More broadly, and with oil and gas generally produced by the same companies, can we really increase the supply of natural gas by more than 30% over the coming twenty years? And can we – and, for that matter, should we – be using just as much coal in 2040 as we do now?

No ‘get out of gaol free’ cards

Two suggestions tend to be offered in answer to such questions, so let’s get both of them out of the way now.

One of these is that the use of renewables – whose output is currently projected to rise from 560 mmtoe in 2018 to more than 2,280 mmtoe by 2040 – can grow even more rapidly than is currently assumed.

But the reality seems to be that meeting current assumptions – boosting hydro-electricity supply by 50%, and quadrupling power from other renewable sources – is already a tough ask. The unlikelihood of these ambitious targets being beaten is underscored in the figures.

Energy transition has been costed by IRENA at between $95 trillion and $110tn, the latter equivalent to 720x today’s equivalent of what it cost America to put a man on the Moon. This time, of course, it isn’t just rich countries that have somehow to find this level of investment, but poorer and middle-income nations, too.

Annual capital investment in REs was, in real terms, lower in 2018 than it had been back in 2011, mainly because prior subsidy regimes have tended not to be scalable in line with expansion. Yearly capacity additions, too, stalled in 2018.

The really critical snag with “big bang” transition is simple, but fundamental. RE technology has yet to prove itself truly “renewable”, because capacity creation, and the building of the related infrastructure, cannot yet be undertaken without the extensive use of fossil fuel energy in the supply of materials and components.

The second notion – which is that we can somehow “de-couple” the economy from the use of energy – is risible, even in an era in which we often seem to have “de-coupled” economic policy from reality. The EEB was surely right to liken the search for “de-coupling” to “a haystack without a needle”.

Until somebody can demonstrate how we can drive more, fly more, manufacture more goods and ship them around the world, build more capital equipment, and supply more of basics such as food and water, without using more energy, “de-coupling” will continue to look like a punch-line in search of a gag.

This is really a matter of physical limitations – and there’s no “app” for that.

Stand back………….

On the principle that “what can’t happen won’t happen”, we need to stand back and consider the strong possibility that the consensus of expectations for future energy supply is simply wrong.

Let’s assume, for working purposes, that RE supply does, as expected, expand by 2,170 mmtoe by 2040, and that hydro and nuclear, too, perform in line with consensus projections. In this scenario, supply of non-fossil fuel energy would, as specified, be higher by about 2,370 mmtoe in 2040 than it was in 2018.

At the same time, though, let’s make some rather more cautious assumptions, well supported by probabilities, about fossil fuels.

For starters, let’s assume that shale oil production doesn’t slump, and that other forms of oil production remain robust enough to keep total supplies roughly where they are now. This would mean that oil supply won’t have fallen by 2040, but neither will it have delivered the widely-assumed increase of 10-12%. Let’s further assume that gas availability rises by 15%, rather than by 30%, and that the use of coal falls by 10%.

In this illustrative scenario, fossil fuels supply remains higher in 2040 than it was in 2018, but by only about 300 mmtoe (+3%), instead of the generally-expected increase of 1,540 mmtoe (+13%). This in turn would mean that, comparing 2040 with 2018, total energy supply would be higher, not by the projected 28%, but by only about 19%.

…..and do less?

My belief is that this is a more realistic set of parameters than the ‘more of everything’ consensus about our energy future. If energy supply does grow by less than is currently assumed, growth in many of the things that we do with energy is going to fall short of expectations, too.

Let’s unpack this somewhat, to see where it might lead. First, if expectations for RE are achieved, we can carry on using more electricity, though not at past annual rates of expansion.

But less-than-expected access to oil would have some very specific consequences. With population numbers still growing, we’ll need to keep on increasing the supply of petroleum products to essential activities, such as the production, processing and distribution of food. You’ll know that my expectations for “de-growth” anticipate a lot of simplification and ‘de-layering’ of industrial processes, and there’s no reason why this shouldn’t apply to food supply. But it remains hard to see how we can supply more food from less oil.

In short, there are reasons to suppose that oil supply constraint is going to have a disproportionate and leveraged impact on the discretionary (non-essential) applications in which petroleum is used. At the same time, faltering energy supply – and a worsening trend in surplus energy, reflecting the rise in ECoEs – is likely to leave us a lot less prosperous than conventional, ‘economics is money’ projections seem to assume.

From here, it’s a logical progression to question, in particular, whether the assumption of continued rapid expansion in travel might, in reality, not happen. We could take – but, so far, haven’t taken – ameliorative actions, including limiting car engine sizes, and promoting a transition to public transport. My conclusion – which is tentative, but firming – is that we might be a lot nearer to ‘peak travel’ than anyone yet supposes.

The assumption right now seems to be that, as and when the virus crisis is behind us, we’ll go back to buying more cars and using them more often, flying more each year than we did the year before and, perhaps, rediscovering a taste for taking cruise-ship holidays.

Let’s just say that such an assumption might well prove to be a long way wide of the mark.


243 thoughts on “#167. Tests and correctives

  1. Tim,
    I think that there is one or two corollaries (or implications if you will) that to the statement that follow from the usual statement our economy is predicated on an assumption of continued growth, that I never really appreciated until this virus problem starting disrupting business.

    One is that the necessity of continued growth implies an essentially uninterrupted (and preferably continuously increasing) cash flow. Without that, the business quickly comes to an end. Several posts ago I joked about how our media loves stories about the average consumer not having enough savings to handle an emergency $500 car repair, while it is now really clear that, with the exception of some mega corporations like Apple that have billions in offshore accounts, the average business does not have sufficient “savings” or reserves to ride out a 2 or 3 month severe down turn in business without going under. Infinite growth implies uninterrupted undiminished cash flow, without which the system quickly collapses. Just as “deadbeat” consumers live paycheck to paycheck, our businesses essentially live month to month with completely insufficient reserves to handle a genuine contingency.

    Two is that, what this all really implies is that at any moment, almost all companies are functionally insolvent. They only stay afloat because of their ability to continuously pull consumption forward. This is also essentially Steve Ludlum’s insight that industry is incapable of paying for itself, it all depends on continually borrowing based on a future outlook.

    • Cash
      53 years ago I was married. The best man eventually became the Treasurer of a huge company. He earned his promotion by figuring out how to run ‘negative cash on hand’ in the financial statements. So the company went from having a comfortable cushion to living on borrowed money to pay debts. I’m sure it is all more convoluted now…with all the ‘improvements’ in finance.
      Don Stewart

  2. “you wouldn’t have been in this mess if you hadn’t spent XXX billion of borrowed money on stock buy-backs”. Already being said, but Congress is owned by corporations so that truth will be drowned out. …”How could we have known”….”like no other in history”….OY

    I find the analysis of Art Berman and Dr. Morgon to be spot on when it comes to the conclusions reached about our future. Interesting read, but like this site he has had no impact on anyone making a course correction and it is doubtful we will make one now. https://www.artberman.com/2020/03/17/saudi-oil-price-blunder-tipping-point-for-a-global-depression/

    Respectfully Dr. Morgon, I realize you live in another country and from what I perceive has had little exposure to the full breadth of American political discourse. You also say you want to avoid politics but I do have some observations that leave me somewhat confused? Here are a few observations: you have implied that Donald Trump knew or was lucky to argue the trade issue and for bringing production back to America, you had real disdain for Hillary Clinton and you indicated Tulsi Gabbard was a good candidate and Joe Biden was weak.

    I have my issues with “Free” trade with out labor or environmental expectations, Joe Biden and his corporate coziness and Hillary Clinton’s neo-liberal view of the World; however, I cannot overlook the fact that each GOP president elected since Eisenhower, was progressively worse, while each Democrat tried to change things for the better with the cards, corporations and the media stacked against them. Yeah before someone intimates that the media is liberal, I will say BS as most media is corporate and some have some semblance of a soul, but it is only fleeting, with the NYTimes being the prime example.

    To me, Tulsi is an inexperienced hack and has less ability to control the levers of power than trump. She, Sanders and Trump have been pushed really hard by Putin, the master of the game at this point, and I wonder what type of information and analysis sways you toward Putin’s choices in the political arena? I view much of the commentary on this site very intelligent, but I am trying to figure out whether I am totally biased or whether this is a blind spot?

    • I have opinions on the US political scene, obviously, but I limit how much I say because, not being American, my views should, at most, be offered tentatively – I know less about it than Americans do, and I must respect their democratic decisions. Addditionally, I don’t know to what extent Russia, and/or others, interfere in American politics.

      With this understood, I can offer some opinions.

      First, my analysis indicates that the average person, in most Western countries, has been getting poorer over an extended period. That is bound to fuel discontent with incumbencies. That was why I thought that Mr Trump might be elected, and why I thought the British probably would opt for “Brexit”.

      Second, I dislike “identity politics”. To say that women, or black voters, or any other group, are all going to vote the same way, is patronizing – for me, everyone is an individual, first and foremost, not a member of a group.

      Third, people worried about money, and about insecurity, are going to want to see their economic priorities addressed. This means that such concerns are going to rise up the agenda, pushing non-economic issues into lesser priority.

    • Greg,
      Thanks for the Art Berman link. Very solid thinking in my opinion. The debt bubbles are huge, and the unwinding will not likely be over in one or two quarters. As Richard Heinberg wrote years ago: “The Party’s Over.” His timing and direct driver look off so far, but the knock on effects look correct. The energy shortages may not kick in for years, but the debts fueled during the “party” will likely leave huge destruction along the way.

    • Steven pulls out a book that may have driven my bias on oil along with my history of watching oil and its politics: the shock of 1973 (America could not longer supply its requirements), then the messy politics associated with Jimmy Carters actions to live within our means that was fought by corporations and OPEC in the mid 1980s giving rise to “free market” shoe salesman son’s Ronald Reagan (I was studying to be a Geologist as working outdoors and making bank appealed to the this “poor” white boy) and by 1998 I was a Vice President of a large US government contractor that enabled me to see how DC “works”. I ran for Congress as a Pro Choice Republican in 2002 (the Congressman is still there) and as Second Amendment Democrat against Liz Cheney in 2016 and I knew both were lost causes. I did not play the game, but I could see how it was played, a character flaw for sure.

      When Bush/Cheney used 911 to go to war it seemed to be a Resource War and Heinberg’s book seemed correct and as you allude, the “knock on effects” appear to be occurring. So was Peak Oil wrong or should it have been redefined as Peak Cheap Oil, because based on reading this site and watching the 2008 along with its response, it certainly seems we papered over a resource problem by creating a financial problem. Peak Cheap Oil seems real to me.

      Now to bias, I am currently listening to KGAB radio that broadcasts “gaslighting” Glenn Woods as a four hour precursor to Rush Limbaugh, that will be broadcast across America for 3 hours. The people that listen to these lies also watch Fox News, which has pervaded the US and ultimately the world airwaves for the past 30 years. This propaganda model is repeated across all 50 states and I think this sewage of lies has pervaded worldwide thinking through social media being driven by Americans but enhanced by Putin. The Mueller Report details these issues. Yes I respect the will of the voters but I do not believe voters, especially republican ones, are basing their votes on facts, but on lies.

      I also hate identity politics and it does seem to be a mantra of the left, but I think that is a good characteristic at its core, but it gets annoying when it takes precedence over more important issues. Even in Wyoming most Democrats get elected on social issues and not economic or what I consider very important maintaining our public lands in the hands of the American taxpayer, a primarily American based fight.

      Thanks for the consideration of a touchy subject and I hope I have explained it correctly as “lost in translation” is a real problem when we discuss our problems.

    • Thanks Greg, you explain this very well, and I commend you for standing up and being counted, even in situations where you knew that the contests were lost causes.

      In purely economic terms, my hunch is that the political centre of gravity is likely to swing to the Left after this crisis, perhaps meaning that the trend towards ‘populism’ might henceforth favour the Left more than the Right. But politicians of the Left – indeed, from all parts of the spectrum – are going to need to focus on matters that are of economic importance to voters.

      To give just one possible example, these events are showing the extreme vulnerability imposed on millions by the “gig economy”. Economic “liberals” have generally supported “the gig economy” from the mantra of “the market is always right”, whilst the Left hasn’t given this as much attention as they bestow instead on their favoured social “liberal” causes.

    • There was an article in, of all things, The Daily Telegraph yesterday – I was reading it in the garage waiting room so didnt finish it all but it called for business to change it wants a bail out, in particular an end to tax evasion, exploitative employment practices and curbs on executive pay. It also suggested that in exchange for the bail out the Government take a share in companies in exchange.

      I might add that in addition a wealth tax would be an idea as after all if The Government doesnt bail out the economy most of the billionaires asserts will be worthless.

    • We’re at the end of a period of extremes.

      Until recently, it was possible to make billions by simply inventing an “app”, and/or by floating a company which was loss-making, which had no realistic possibility of ever making any money, and was burning its way through cash put up by shareholders who, in turn, thought that they were back-stopped by an infallible Fed. “Ordinary” people, meanwhile, were being sucked into the vortex of insecurity of the “gig economy”.

      This era is over (and was, I feel, ending anyway). Having a billion dollars is great unless either (a) all dollars become worthless, and/or (b) society turns against you.

    • So true Tim, it was indeed all about to collapse anyway. How convenient that this virus should arrive now. I think we are seeing an engineered economic reset. After all, the Chinese stock market is OK and most of our production is outsourced to Asia anyway. Comments from my article due this week:

      AND – I wonder why the government haven’t forced closure of restaurants, pubs etc; because if they did, then businesses would be able to claim on their insurance for loss of earnings for the duration of the crisis; an impossible sum for insurance companies. So HMG just ‘advises’ that ‘people should not go to pubs etc’ – virtually guaranteeing their failure. This is either wilful ignorance or a deliberate, hidden agenda. I am not sure which at present.
      AND – don’t forget when the banks start failing they will be coming for your bank accounts, just like they did in Cyprus in 2013, under the ‘Bail-in’ process instigated after the last financial disaster in 2008.”

    • Thanks Peter.

      It does occur to me that, if it were made easier for businesses to claim on insurance, the insurance industry might not be able to cope. Bail-ins would, in my opinion, be criminally stupid.

      We may have to contemplate putting much of the financial system into protective nationalisation.

      As a bit of simple mathematics, the world financial system is roughly 5x the size of the world economy. The leverage built into the system is enormous, and could convert an economic cold into financial pneumonia.

      My thinking right now is that, properly understood, the economy was never as big as GDP numbers implied that it was. This means that the financial system leverage isn’t 5x, but a lot worse than that.

      One can come up with scenarios in which the world economy survives (albeit much battered, badly disrupted and very different) but, even under such (relatively) optimistic scenarios, it’s very hard to see how the financial system survives.

    • All agreed Tim, and I can’t for the life of me see a solution to this other than a complete reset of the global system which will be fought tooth and nail by the oligarchs as they see their illusory ‘fortunes’ disappear down the plug hole.

      With the economies of the west closing down, the central banks will carry on doing what they already have until forced to declare a debt jubilee, but I am not sure how that works except this implies a gradual return to localised economies at a much lower level of economic activity in line with our predictions.

      Keeping the utilities going will be most important and Greta should be happy at the much reduced use of fossil fuels! Cars and houses are likely to be devalued and farm land will be at a premium. It will be all about food and basic supplies to keep body and soul together for an extensive period. I think we can forget iGadgets and Chinese trinkets now.

    • I was dealing to one if my neighbours yesterday whose wife works in a huge shopping centre.

      She had told him that it was virtually empty.

      I don’t know if traffic density is going to decrease as more maybe travelling by car to avoid buses and trains where they come into contact with other people.

      So perhaps there will be an increase in personal transport for those going to work but of course a massive decrease in social travel.

      If roads become empty after the rush hour you may see many boy racers out having fun.

      Where I live there’s nowhere much to go as you’re advised not to go to the pubs and all cinemas and theatres are now shut.

      However my hairdresser is still open for business and I am going tomorrow.

    • Yes, Don, thanks. I am staring at an empty calendar for the foreseeable and as you say, will shop by car as usual avoiding the boy-racers 🙂

      I am grateful to a pensioner with a ‘guaranteed’ income thus far so long as the insurance companies remain solvent – what happens after that is in the hands of the Gods.

      I do feel so sorry for people who are losing their jobs – it is a great worry – and we are doing everything we can to support the local community here in our little village in rural Somerset. Interesting that the local shops are not facing ‘runs’ like in cities. A salutary lesson in the collapse of society which doesn’t exist anymore as Maggie made the point!

    • Firstly sorry for the predictive text typo – the first line should have read – I was talking to one of my neighbours -.

      I hope your pension isn’t affected and I also feel sorry for those whose jobs are at risk.

      After being pestered and pestered to have a Smart meter fitted by EON I finally relented.

      The fitter has arrive coughing and sneezing but has assured me he hadn’t got the virus.

      Anyway he’s had a look at my gas meter and doesn’t think it can be changed as it’s of a particular design.

      I asked why EON didn’t ask me to send details of the make over first and was told that it’s not EONs policy.

      Basically they send the contractor out and if he can’t do it he moves onto the next job.

      What a terrible waste of time and energy.

    • Greg,

      If you moved too New England, you just might win an election! Recall Romney did so some years back.

      And if you ever get near Amherst MA (Pioneer Valley), please let me buy you a beverage! We need more like you.



  3. The latest from Chris Martenson makes for very sombre viewing:

    The Central Banks are still praying to the Gods That Failed. Given that fiat money is based on trust, and that trust is eroding away, will there be an economic reset? We certainly live in interesting times…

  4. We interrupt this thread with an important announcement that originated from the French Health Ministry:

    We now return to the unfolding economic collapse

  5. Update

    I’ve been planning to post my “scoping” project here at some length, but think I might publish it sooner, and in shorter form.

    I’ve got the global numbers on how much “value destruction” might happen worldwide, and I’m working through the country-by-country numbers, but it’s the global picture that matters. I’ve also looked at what might happen both to GDP and to prosperity.

    “Might”, of course, is the operative term.

    • If it goes ahead – which I hope isn’t the case – it could be saved to provide the energy for RE maintenance – but no doubt it’ll fund yet one more big party

  6. What About Helicopter Money?
    Charles Smith today on the urgency of lots of helicopter money to the masses very quickly:

    Trump has now promised ‘checks in the mail’ very soon. He is also promising industry specific bailouts. I have little confidence in my own ability to predict what will happen to this money. I assume that a lot of people in the bottom 85 percent will use the money just to pay the bills. If payment terms are relaxed, as I know some are, then I suspect many people will simply spend what they get and worry about later, later.

    Since daily commerce is at a standstill in the US, there are lots of people who are effectively unemployed. And Amazon has announced that it will stop shipping everything except medical supplies and household necessities. That probably puts a brake on the recovery in China (Nate Hagen’s said in an interview that China’s ‘thermal footprint’ has increased from less than 50 percent of normal up to the 70s as factories reopen). Whether there is some ‘plot against China’ or whether it is simply the recognition of the transportation bottleneck is an open question…many items in the Amazon supply chain fly in the bottom of passenger airplanes, which are mostly no longer flying.)

    So, we are apparently going to pile up government debt and print a lot of money and try our best to preserve BAU. In the meantime, people are of necessity forming lower energy usage habits…such as telecommuting and reduced choices in retail stores.

    How will this end?

    Don Stewart

    • “Helicopter money” is where we are, and that’s what we have to try to think our way through.

      In the years before 2008, we used “credit adventurism” to try to sustain BAU. The result was that the credit (banking) system was put in the line of fire.

      Then we used “monetary adventurism”, both to rescue the credit system and, as ever, in an effort to continue with BAU. That always threatened to put the monetary system in jeopardy, just as we had previously put the credit system at extreme risk.

      BAU is over. The implications are that (a) we take on the risk of hyperinflation, and/or (b) the credit system collapses.

      My ‘scoping’ study suggests that the economy survives (but in a much-battered state), but that the financial system collapses.

      Even on the basis of reported GDP (which many of us know is a false measure anyway), the financial system is roughly 5x the size of the economy. Much of the financial system consists of ‘promises of futurity’ (i.e. A promises to pay B the sum of X, at date Y). The promises cannot be honoured, and probably never could have been, but this crisis puts an end to “extend and pretend”. The leverage in the finance/economy equation is lethal.

    • 100% agreed doc. The system goes the way of the dinosaur. This was coming anyway, Corona virus pushed it over the edge. Sold my financial ‘assets’ in december and made some preparations. Here we go, take care all of you.

    • Dr. Tim has been correct about the $US being the least ugly currency in this global mess. The Yen is the only competition holding its own. It is up to the Fed, EU-CB, Bank of England, and a few others to figure a way to flood the global system with $US. There is huge demand for it at present.

    • Thanks Steven. JPY is indeed holding its own, so far, but I’m not sure that’s justified.

      My scoping study does go into national and regional exposure, but my plan is simply to publish the global conclusions, rather than delay it, and make it more complicated, by going into this detail. I will say, though, that US exposure is at the lower end of the risk spectrum. America’s ratio of private financial assets to GDP is markedly lower than those of the other main currency areas.

  7. Tim,
    Does your scoping study provide any insight into the process of financial system collapse? In particular I’m wondering if you see a sudden cataclysmic event, or a more prolonged and gradual collapse. My work to explore a bottoming point in the stock markets, is suggesting an absolute bottom between 2021 and 2023, with much of the damage occurring in the early phase.

    • Yes, it does, and your question prompts me to address this point before my next article is ready.

      World financial assets (excluding central banks) were, pre-crisis, about 455% of global GDP (and, in parenthesis, 730% of prosperity as I measure it). They had been at these elevated levels ever since the GFC.

      That 455% ratio is a lethal quantity of what, in layman’s terms, are ‘promises to pay’.

      This points to cataclysmic collapse. So far as I can see, our financial system is bust. One might well conclude that we ‘need to design a new one’.

      Stock market values aren’t defined sums, because investors could never ‘turn the whole lot into cash’. Therefore, stock (and property) values are really “a narrative of what we tell ourselves things are ‘worth'”. Markets change as the narrative changes.

  8. Here comes the, not entirely unexpected, sterling crisis. Back to 1985 levels v $ and even the Euro is being seen as a safe haven.

    Oh, my!

    • There are two things that you probably know, Mark, but it’s worth mentioning them again, for general reference.

      First, the extent of national or regional financial risk isn’t a function of how severe the crisis itself is in any particular location, but of the degree of financial exposure. In the US this exposure is c480%, and in the EA about 690%, but in the UK it’s over 1100%. These numbers aren’t the easiest to find or to interpret, but the effort is worth it.

      Second, and although this is unrelated to the current crisis, I’ve been warning for years that UK financial exposure is something we should be concerned about.

      If there’s any comfort to be found re. GBP in this situation, it is that the United Kingdom isn’t alone in this. This differs from a fall caused by UK-specific factors, like worries over the balance of payments.

  9. Mac10 made an interesting observation on the inflationary effects of the coming heli money drop yesterday. His point is that, the coronavirus quarantines and precautionary measures crushing small business will have the collateral benefit of keeping the trillions dropped like manna from heaven out of the main economy, providing some measure of sterilization against rampant inflation.

    “Notwithstanding imminent heli money, as long as people are quarantined to their homes, this money will not find its way into the overall economy. Sure, grocery stores and pharmacies will do just fine. Amazon will mint coin. But the local bars and restaurants will see none of this money until the quarantine is lifted. Which means that the most vital sector of the entire economy – small business is now sans bailout. One must take that fact into account when predicting the timeline for “reflation”. It is not imminent.”

  10. Thermodynamic Depletion
    I won’t belabor the point here, but it may generate a sense of irony to look at some 4 year old charts from The Hill’s Group on the thermodynamic depletion of oil. I believe they have removed their charts and graphs from the internet, but here is the gist of the study as reported on the Doomstead Diner. Scroll down just a little to the rising cost and maximum oil price graph.

    In words, this means that our economy is no longer able to earn money to produce oil with the money we get for the products we produce with the oil. One can view our problem as either rising cost of production, dysfunctional economy (e.g., too much Las Vegas and bureaucracy), or the thermodynamic limits of internal combustion engines, or the cost of dealing with pollution, or too much debt, or some summary of all the dynamics.

    A society which is firmly convinced that fiat money is what makes the world go ’round is totally unprepared to think this way. (And I had some problems with the model as stated, but always found the ‘systems approach’ pretty convincing…like Limits to Growth.)

    Don Stewart

  11. Note, “collateral benefit,” above, should have been in quotes. Sarc intended. My wife mentioned this morning that the primary benefit of the heli drop to millenials in the gig economy will be to help them stay current with their landlords. I.e., it’s real effect will be to help landlords and protect, literally, the rentier class. You’ll notice that no one is asking landlords to take a hit for the team, just bars, restaurants, pizza joints, hair salons, fitness centers, etc. etc. etc..

  12. Zero Hedge on Rising Interest Rates

    IF one takes a systems approach, as I linked above to the Hill’s Group model, then we begin to get a glimmer of explanations which are simply unintelligible to people trained in conventional economics.

    Without making any predictions, I will just note that rising interest rates on Treasuries implies that Mr. Trump cannot simply print money with impunity. Many people have quoted Hemingway: I went broke slowly and then all of a sudden.

    Don Stewart

  13. Debt Thermodynamic Depletion???
    Suppose that one can print a trillion dollars of fresh debt, but the cost in terms of paying the interest on the existing debt is more than a trillion dollars due to rising interest rates???
    Don Stewart

    • And…hoping for some financial experts opinions
      Why would anyone buy a 10 or 20 or 30 year Treasury anyway? Certainly not for the small amount of interest it promises, given the very uncertain future. Will the US government even exist in 30 years?

      So it seems to me that one logical reason is to serve as collateral on debts that one incurs to speculate in the growing economy. A Treasury is probably an excellent way to finance leverage. But suppose that some smart people have figured out that the future is Degrowth, not exponential growth? Then ‘Going Big’ today may make an excellent sound bite, but may be disastrous.

      Don Stewart

  14. A little bit of cheery news – the boss of British football (soccer) team Crystal Palace promises to look after club staff, including those whose earnings depend directly on match-days.


    Meanwhile, more British supermarkets are acting to stop panic-buying.

    LVMH has switched from luxury goods to making hand-sanitizers – a sign of the times?

    • Let’s hope that other football clubs and manufacturers follow suit.

      The differences in pay between top players and low level staff must be eye watering

    • Having watched soccer, played soccer (amateur), and coached soccer to youngsters, I confess to loving the game. I miss it on not being on TV, and I feel sad that I can no longer coach youngsters due to the virus. BUT the money being poured into top flight soccer has become ever more obscene and ridiculous over the last 10 years. I suspect that it’s all part of the bigger picture of a peaking process. Have we already witnessed peak football? It’s must surely be that de-growth will change things dramatically. Many of the 3rd and 4th tier clubs in English football are permanently on the brink during the best of times, and I fear that a sizeable number won’t make it through the worst of times.

  15. An interesting and largely overlooked technology that could significantly reduce the fuel consumption of trucking: the hydraulic hybrid.

    Driving or braking energy is stored within a hydraulic cylinder and used to accelerate the vehicle using hydraulic motors. There are two possible configurations. Parallel configurations capture braking energy and use it to reaccelerate the vehicle in parallel with a conventional drivetrain. In series application, the engine drives a hydraulic pump, which pressurises the cylinder and the drivetrain is entirely hydraulic.

    In addition to recovering otherwise wasted braking energy, the hydraulic hybrid allows a smaller engine to provide power at its most efficient speed. Extract from EPA website:

    “In laboratory tests, the city fuel economy of the hydraulic hybrid UPS vehicle is 60% to 70% increased miles per gallon compared to a conventional UPS truck. The CO2 emissions of the demonstration UPS vehicle are more than 40% lower than a comparable conventional UPS vehicle. The hydraulic hybrid vehicle also achieves approximately 50% lower hydrocarbon and 60% lower particulate matter in laboratory tests. This prototype vehicle has also demonstrated modest reductions in NOx emissions. Optimized production vehicles are expected to have larger NOx reductions. Hydraulic hybrids are able to capture and reuse 70-80% of the otherwise wasted braking energy.

    When commercialized in high volume, EPA estimates that the additional cost of hydraulic hybrid technology has the potential to be about $7,000 for the UPS package car. In today’s dollars, the net lifetime savings of this technology in a typical UPS truck, which is used for 20 years, would be over $50,000. If fuel prices continue to increase faster than inflation, the lifetime savings would be even greater. The current data demonstrates that hydraulic hybrid vehicles have great potential not only for large commercial urban vehicles but also for personal vehicles, especially larger personal vehicles such as large SUVs, pickups, and vans.”

    This technology would therefore appear to have lower capital costs than pure electric vehicles and has a higher state of technological readiness. I can only conclude that it has not been pursued because it is not revolutionary or exciting enough and lacks the PR value of battery electric alternatives. Idealistic minds tend to value revolutionary solutions over simpler evolutionary solutions that may be more practical in the near term. Government ‘solutionising’ with naïve virtue signalling about banning all internal combustion engine vehicles by 2030, or some such future date, is hardly helpful. A better initiative would have been fuel consumption and emission targets that are linked to taxation. Leave it up to the engineers how best to achieve the targets.

  16. Dutch minister of health just broke down during a ‘Corona conference’. Tweeted he didn’t have dinner.

    Probably the same reaction finance ministers had during Lehman.

    So, imho, we’re boarding the physical plane as we speak.

    Narratives are still wrong.

    Time is on my side, still.

  17. After a somber trip through a deserted downtown
    Charles Smith opines today:
    “As for collectibles and other play-things of the super-wealthy: the bids will soon vanish and yachts will be set adrift to avoid paying the dock fees.”
    I wonder…did you see the picture of the capsized super-yacht?

    Just yesterday, my food co-op was advising people how to avoid the lines. Today, you could shoot the proverbial cannon in the aisles.
    Don Stewart

    • Didn’t see that picture, but would like to – where is it?

      CHS is very good, one of the best observers around. Billionaires clearly face challenges, not least that the world in which they built their wealth is changing.

      Just to add that I think this article is extraordinarily good, even by his high standards.

  18. Worrying piece from Ron Shine from CapX about the developing cold war between China and the US.

    Seems like it’s becoming impossible to get any reliable financial information now out of China

    • Chinese data has always been pretty opaque, but nobody minded that too much, when everyone thought that China couldn’t put a foot wrong!

      Meanwhile, I’m not sure what to make of reports that Chinese rates of new infection have almost disappeared.

    • I saw that. Granted, anything could happen in these bizarre circumstances, and we know that foreign ‘adventures’ can sometimes distract an angry public. But I don’t think China is concentrating on foreign relations with its economy, already in trouble, now being battered by the epidemic.

      Meanwhile, I think we should keep an eye on what’s happening in the Middle East, particularly (a) in Saudi, and (b) in the Syria/Turkey situation on the doorstep of the EU.

    • Stated at its simplest, there seeems to be a lot of strange stuff happening politically, at the same time that their oil revenues are collapsing.

    • Their trillion dollars plans for a sustainable energy future might have to be put on hold.

      I had my haircut in my local town today and yet again there was panic buying. When I got to the Supermarket no tinned food – empty freezers etc.

      I hope it calms down eventually although I did manage to get some cat food and spotted a small loaf of Hovis at the back of the bottom bread shelf.

    • With modern techniques, this panic buying should certainly have been stopped by now – after you’ve put, say, three of something through the scanner at the till, it could reject any more of the same item.

    • Well Sainsburys do have a limit but it’s up to the till girls to enforce it. I don’t know if the self checkouts do.

      I had to go to my local VW franchise today to get the glass on my passenger side wing mirror replaced.

      Good grief they were almost tripping over themselves to help and even got a technician to fit the part while looking after me with hot chocolate in their showroom waiting area ( nearly empty)

  19. 50 year bonds in US to pay for trillion dollar bailout
    I am sure that the Trump Administration looks at 50 years bonds through the lens of inflation. Repaying the bonds in 50 years will be trivial because the economy will have tripled and the value of a dollar will have declined.

    But if we look at it through the lens of SEEDS, it becomes a crippling burden on our grandchildren.

    Don Stewart

    • From a SEEDS perspective, we’ve already created huge ‘hostages to futurity’, and these are now being crystalised, and their time horizons truncated.

    • Let’s there’s not a spate of beheadings.

      I wonder if Bill Gates’ plans for a $500m super hydrogen powered yacht have been put on hold. He might well of lost several billion dollars of his assets’ book values by now.

  20. A Serious Mistake
    Dr. Joel Fuhrman on the real way to protect yourself from Coronovirus (and all the others)

    And a report from Italy:
    Serious doubts about the accuracy of COVID-19 testing methods, results, mortality rates, and the supposedly unique and extreme lethality of this virus are starting to emerge, even within mainstream media and government reporting. A recent study released by Italy’s national health authority found that nearly everyone who was pronounced dead from COVID-19 was already struggling with serious chronic disease(s).

    A recent article in Bloomberg titled, “99% of Those Who Died From Virus Had Other Illness, Italy Says,” illustrates an overlooked point in the corona-panic taking the world by storm: the status of one’s immune system and overall health determines morbidity and mortality, and likely your susceptibility to infection in the first place.

    And a YouTube from a German expert:

    In short, this whole kerfuffle, which has included some serious mudslinging between countries and the trigger for a serious financial crisis, may simply be a result of the inability of ‘pharmaceutical medicine’ to understand the ecology of health.

    Don Stewart

    • Interesting about the virus Don – it’s now coming across as a sort of hair that broke the camel’s back situation.

      If nothing else Governments will be learning a lot from this so that if an even more deadly virus strikes which kills very healthy people – they’ll be better prepared.


  21. It’s not just the toilet roll and dried pasta shelves that are empty. UK bullion dealers have sold out of just about everything, and some have suspended trading today. Yesterday, I spoke to a dealer I’ve known for a few years, and he told me that volume has increased 10 fold over the past couple of weeks. Interesting that it’s happened at a time when the gold price in Sterling has continued its upward trend. People are buying worst case insurance at a premium. I guess that Sterling weakness will be a big driver of the higher gold price in GBP, although I’ve never been able to fully reconcile the movements of Gold/GBP versus Gold/USD versus GBP/USD, and neither has my dealer contact. It seems there’s other factors that also influence the price in GBP, and I’ve never been able to get to the bottom of that. I wonder how many loo rolls a gold sovereign buys you these days?

    • The slump in Sterling, and related matters, are the subject of an article that I’ve written for the think-tank Radix, who will be publishing it today or tomorrow.

      Rather than going through the issues now, I’ll either link the Radix article when it comes out, and/or with their permission re-publish it here.

      In brief, though:

      – The selling of safe-haven assets reflects investors’ needs to meet margin calls, at a time when low-risk assets are amongst the few things that can be sold in these markets.

      – The weakness of GBP against USD makes sense, because of the disproportionate scale of UK exposure to the world financial system.

      – But it makes less sense for GBP to fall against the EUR, and the markets seem to be ignoring some very real structural weaknesses and risks in the Euro Area.

    • Thanks Tim, excellent article and well explained for us who were wondering where GBP is going. Some are saying that inflation will be the next bogie as supply contracts and currencies expand. I can’t see any other alternative in the medium term as a new economic model emerges.

    • Thanks.

      I was prompted to write this by news reporting, on BBC radio as it happens, which seemed to reference the falling pound as some kind of verdict on the way in which the British government is handling the coronavirus.

      It’s nothing of the sort, of course, and my aim was to try to set this straight in a public forum.

      As you might know, my previous Radix article, early in the crisis, set out to explain why tumbling stock markets aren’t all that important in the scheme of things, but cash flow interruption is.

  22. it would appear that this current crisis is only the opening act and there is a considerable amount more yet to come,

    the current rule book of economics & finance seems to be very simple: keep growing or die,

    currently we have ‘set the controls for the heart of the sun’

    unless we re-write the rules there is no way out,

    • Indeed so.

      The entire financial system is wholly predicated on ‘perpetual growth’.

      I, and others, have long believed this ‘growth forever’ mantra to be mistaken, and the conditions for a crash were in place a long time before this crisis struck. After all, any situation in which real rates are negative – so people are being paid to borrow – is intrinsically illogical.

      Governments have to respond by injecting replacement liquidity into the ‘real’ economy of businesses and households. They have to do this in a measured way, but nobody knows how long they will need to keep on doing it.

      Rules will have to be re-written, not least because they describe a situation that doesn’t exist.

    • Albert Edwards of Soc Gen thinks the Fed may be forced to go to negative short term rates. They want the $US to decline. And that would also indirectly send buyers out the curve, pressuring 2-5 year rates downwards.

  23. @ewaf88
    I wonder if the governments have learned anything. In a situation where very sick people are at risk of death (and not just having the flu), what makes sense is to advise the sick to isolate themselves…not ask the total population to practice social distancing.

    The one thing I see which is being forced and is working well (I think) is the virtualization of much of the medical business. Televisits are now legal (except maybe in New York and New Jersey) and the doctor’s offices don’t want people afflicted with the virus in their office. So they are now encouraging not only the virus afflicted but also people who need prescriptions renewed and the like to do a televisit. Or maybe just check a box that ‘yes, I still need my regular prescription renewed’. So a simple phone call replaces a lot of brick and mortar and gasoline and automobiles. As of a couple of days ago, Medicare still wouldn’t pay for a televisit, but the big private insurers do pay.

    Don Stewart

    • Televisits make a lot of sense – hopefully Medicare will see the light.

      I order my repeat prescriptions online and in the not too distant future will be able to have them delivered – again saving unecessary journeys.

      I have had a consultation online but there are some ailments for which a physical examination will always be required.

      Perhaps in 80 years time robots might be able to examine patients.

  24. @ewaf88
    A high percentage of doctor’s visits are 15 minute ‘yep, you are still insulin resistant, so keep taking your meds’. These kind of ‘no brainer’ visits can be replaced by robots in the extreme and televisits right now. But about 90 percent of our US health care expenses are a result of lifestyle: diet, movement, addictions, social dysfunction. To get an accurate diagnosis with enough specificity to suggest a remedial course of action which is tailored to the individual (or the family) is a very different matter.

    If you have time during these hectic days, I suggest looking at this facebook page by two brain doctors in California. The female in the family is a trained chef, as well as being a doctor. The first video (as of 3/20) is ‘how to cook for your own health 101’. The second video is an interview. It’s all interesting, but the first few minutes where they talk about the challenges they face as a family and individuals is illuminating. And then, toward the end, they talk about the problems when one crosses the street from the Blue Zone in Loma Linda to the real world of San Bernardino. Or just going 10 miles inland from their educated enclave in Redondo Beach. To solve these problems requires money and time and wisdom and overthrowing the power structures which currently dominate American politics and social life.

    It is sobering to talk to someone about cooking…who does not have a decent knife and no idea how to use one.


    Don Stewart

    • Thanks for the link – I totally agree that poor diet is to blame for a lot of ills.

      Perhaps one day the evil empires of McDonalds – Kentucky friend chicken and the refined sugar producers etc will come to an end .
      The economic benefits of healthly people requiring less health care – and being more productive will be huge.-

    • “The economic benefits of healthly people requiring less health care – and being more productive will be huge.-”

      Not in the way we calculate economic activity today. More illness, more business for doctors and pharmaceutics. Consider the best “medicine” for a healthy life, getting enough rest and eating less (e.g. fasting). There is no money to be made there and therefore it is not advocated by Big Health, Big Agri etc.

  25. Hello everyone. First comment but long time reader of this blog. To clarify the position with regards the permit to leave home in France. I’m a long term resident in France where I run a small business but a UK national to give you some context. The permit is called an Attestation and can be downloaded from the government website and as many printed off as you like. The ‘lockdown’ began last Tuesday and there are only four reasons you’re permitted to leave the house. Work, shopping for essentials (all other shops are closed anyway), hospital/doctors visit or helping/caring for a vulnerable neighbor/relative/friend.
    The idea is you tick the appropriate box on the form, add your name and date and carry it with you. If you are stopped by the Gendarmes or Police you should be able to produce the piece of paper otherwise risk a fine. It seems very low key and I personally have not needed to show my attestation yet.

    • Thanks for clarifying that.

      As it happens, I’ve printed out a list of the things I might be doing if I’m out here in Spain, so I can tick the relevant one(s), and hand it to a policeman if asked about what I’m doing. I might need it later today, my first trip anywhere since Monday.

    • Is there no permission for walking or cycling for fresh air and exercise? Are you really home-bound except for those 4 things? That seems really oppressive.

      In NYC they just closed all non-essential businesses but the governor clarified you could still do solitary outdoor activities like jogging. New Yorkers would lose their minds if they actually had to stay in their tiny apartments with their roomates for an extended period, and couldn’t even go to the park or walk around. Closing the bars has probably pushed many already to the brink.

    • Yesterday afternoon I ventured out for the first time since Monday. I filled up the car, ordered horse-feed for delivery, did some food shopping, went to the pharmacy and did a few other essential things.

      Everything is eerily quiet, of course, but I found the situation calmer than I might have feared. There was no visible increase in police presence. There were no shortages in the shops, and nobody here seems to have been panic-buying. I actually felt proud of how calmly and sensibly people here are responding to this.

      It’s strange having ‘a beach for every day of the year’ and not being able to visit any of them, and a marina amost on my doorstep with nothing happening. All of our cafes, bars and restaurants are closed. Right now there would normally be a lot of work going on in preparation for the start of the tourist season. Some of this work continues, but there will not be the usual influx of tourists from the start of April. We won’t have the gaiety and vibrancy of the usual season, but neither will our streets be cluttered by badly-driven hire-cars.

  26. The biggest finance news (among those paying attention) in Sweden right now is that Sweden’s financial supervisory authority had an emergency meeting yesterday with bond companies (test google translate on https://www.realtid.se/spiltan-lannebo-och-seb-stanger-fonder-uttag). Withdrawals from several corporate bonds have now been frozen as of yesterday without prior notice. This is not small players, it is one of the biggest banks and financial institutions. Sweden has a very large finance sector and it is also involved in the Baltic countries. This is “temporary” but there is no deadline… Feels a bit like when Nixon temporary removed the gold peg.
    The Swedish CB has promised to provide liquidity and buy bonds. They probably will “manage” this one but for how long? The cost here will be socialising the loss and lowering the currency (SEK). It is already in free fall btw.

    • Thanks Jeff. Sweden isn’t one of the 30 countries on SEEDS, so I’m not too familiar with the economic situation.

      I wasn’t aware of the fall in the SEK, but I’ve been watching GBP, of course, and have been surprised (to put it mildly) to hear news reports suggesting that the slump in Sterling reflects some kind of market ‘verdict’ on how well or how badly the British government has been handling the epidemic. That’s nonsense, of course, which is why I wrote about it over at the Radix think-tank. What matters in FX markets is the financial exposure of countries and currencies.

      The question about “how long?” is indeed critical. We’ve moved on from the nonsense of slashing rates and trying to prop up stock markets, reaching the obvious conclusion that tackling the cash flow hiatus of businesses and households is what matters.

      Again taking Britain as an example, government has announced support measures equating to about 18% of GDP. My feeling is that that will last for between four and eight weeks – but how long can the British, or anyone else, keep on doing this?

      I’m not at all surprised that funds of various types are going into lock-down. In these markets, it’s hard to sell anything other than those ‘safe-haven’ assets which, logically, are the very ones you’d prefer to hang on to. Margin calls alone are starting to hit the system like a battering-ram. It’s a logical impossibility for people in large numbers to take cash out of investment and savings funds, at a time when underlying assets cannot be monetised.

  27. Yes Tagio, sorry, there is a fifth. It just became more stringent though. Cycling has now been prohibited but you can go for a walk/jog within 2km (just over a mile) of your residence alone or with a maximum of one of your children.

  28. It seems the correlation between assets and income will return to levels more in harmony with reality. Saudi smells blood, dollar recycling is a dead end. Russia, as an energy surplus nation, joins that party. The monetary plane goes Boeing. The $ reserve harnas melts before our eyes. The monetary plane has landed. The physical plane is almost ready for take off. Do we understand this? Am i correct in my assumptions? Does the Wuhan Corona virus infect, or is it a cure? Does it blow up what isn’t sustainable, and leaves us in candlelight, instead of going dark completely?

    • Indeed, Houtskool. Much to think about here.
      How much of this is co-incidence and how much is design ?
      I knew that the world was going mad, but I just did not expect it to be so suddenly !
      If we were piling up corpses in the streets then, Yes, some of the measures being taken would be justifiable. But the actions being taken by our “leaders” is bordering on manic. The mainstream Media are whipping up hysteria.
      This causes me a great deal of concern, because I see this virus episode as a smokescreen to cover the implosion, ( or is it controlled demolition ? ) of the world financial system as we know it.
      Dr. Tim has said that we are entering a period of de-growth, where the economy will de-layer.
      I was thinking along the lines of a chemical reaction taking place over the coming two or three years. Instead we have just triggered a nuclear chain reaction which is ripping the financial world apart in the space of a couple of months.
      The economies of the Western world are in indefinite lock-down. Nobody but essential workers can get out. What effect will that have six months down the line ?
      Now, I have always believed that de-growth was going to result in Martial Law being imposed ( in the UK ) , Lo and behold, Italy has effectively introduced martial law in Lombardy. Bavaria is following suite. Gosh, that was quick !
      If, after a few weeks we wake up to closed banks, frozen accounts and a ban on all cash, then I will be inclined to think that the virus and its release were not entirely natural in origin.
      Let’s wait a week or two, let us wait for the smoke to thin out and drift away, and we will then see what our new world looks like.

    • On purpose or not, Johan, it is the pin in the everything bubble. It will, imho, change the narrative. From drag queens to farmers. The pendulum keeps swinging, is time on our side? To me, it is.

      The Trump tariffs didn’t work, or worked simply too slowly. ‘They’ know surplus energy is running out of steam, so a pro active measure is much needed. We will never know. And i don’t care. Adaptation is a main skill to survive AND enjoy it.

    • I think it’s fair to say that most of us here have long recognised the existence of the ‘everything bubble’, and, more importantly, have known why it is unsustainable, and must therefore explode.

      We’ve never bought in to ‘conventional’ economic nostrums, such as economics is ‘the study of money’, energy is ‘just another input’, growth can be ‘perpetual’, and ‘monetary policy can fix everything’.

      Well before the current crisis, our conversations here have included ‘de-growth’; how to place the environmental challenge within an energy-based interpretation of the economy; the inevitability of a financial crisis and/or ‘reset’; and the social and political implications of deteriorating prosperity.

      Speaking personally, I’m as shocked as anyone else by the Wuhan coronavirus epidemic. Its purely economic and financial effects, though, are more comprehensible to us, because of the broader trends that we’ve been discussing, than to anyone coming at this from a conventional standpoint.

      At the moment my own focus is on calibrating how big the economic and financial shocks are likely to be. I’m sure, though, that we need to continue and extend our conversations around issues such as ‘de-growth’, ‘reset’, GFC II and the environment.

  29. I think the situation might jump into sharp focus when looked at through the prism of “Exit Strategies”

    As a young Engineer in the late 1960’s working in long range motorway modelling it was clear that within 40 years more and more energy would be required to find and exploit new energy sources. In other words the world would be in a state of entropic collapse. I was told the exit strategy that was planned was a world run on fusion energy and batteries.

    Within 20 years It was clear that fusion was still 30 years away and I had no idea what we would do when entropy started to bite during the first decade of the new century, wars in the ME were a certainty. Our exit strategy turned out to be to “print” a lot of money and to blow up a very large bubble. But what would be the exit strategy from the bubble? How was it to be deflated? Surely it wouldn’t be allowed to explode? Well a virus. What a stroke of genius!

    Shortly the whole world will be in a state of lock down with the world’s governments printing hard to pay for everything. But again what’s the exit strategy? My bet is One World Government with just one digital currency and if you want access to food you will have to go and get chipped. Which is what they were planning all along. People will all be exposed for the wage slaves they have been all their lives.

    The good folks in charge had to find some sort of way to manage the wind-down of fossil fuels, this is the best they could come up with. Sorry! But seriously don’t you all feel like a bunch of Muppets?

    50 years ago I heard people swap freedom for security, it went right over my head, now not so much.

    • Hi Paul

      A somewhat dystopian vision of the future but, all of a sudden, one that falls within the realms of possibility.

    • Despite my local Sainsburys looking like a set out of a post apocalyptic film yesterday my off licence still has plenty of booze – frozen pizzas – sweets and crisps.

      Not the healthiest of diets but a long way from a dystopian future.

  30. The Virus or the Money?

    I’ll assume that the Zero Hedge and the Bloomberg articles are relatively accurate…but I’m not a financial wizard. If so, it seems that we are seeing a replay of the Long Term Capital Management debacle, with the Federal Reserve pulling out all the stops to prevent the implosion of a lot of money making schemes which were most assuredly NOT contributing to Prosperity. I can’t imagine any sane society which tries to save people and institutions which earn a penny on a trade but lever it up to a dollar with debt.

    Which brings me to the other ‘levered activity’. Viruses do what they do best: replicate by levering the cell’s replication machinery. Humans are not merely victims of the deadly virus. A healthy individual’s immune system should be able to resist the virus. But there are two problems:
    *Most people eat a lot of junk food which does not provide the proper nutrition to the cells.
    *As we get old (think 80 years), our immune system begins to lose function.

    If we look at the deserted streets in Seattle or Italy, one has to question why we are sacrificing the economy which feeds us to save the elderly. (I am 79.)

    If we accept the medical study in Italy which found that the people who have died from Covid-19 actually died from multiple causes (e.g., they had a number of chronic diseases, and Covid-19 could be more accurately characterized as ‘the straw that broke the camel’s back), then the suspicion has to lurk that the powers that be find a ‘heroic response’ to Covid-19 to be a convenient method to divert people’s attention from the bailouts to the gamblers.

    Creating the bubbles was never smart in the first place, but now the central bankers seem determined to sacrifice the real economy to the bastard child they created.

    Don Stewart

  31. A form of world money already exists, and has done so since 1969. I’m talking about SDR’s (Special Drawing Rights). This is a form of paper money issued by the IMF to its member nations, and as such, isn’t a currency that you or I have access to. These SDR’s aren’t used routinely. They are issued very infrequently during major events such as GFC1. Their purpose is to provide liquidity when there’s a liquidity crisis, or when faith is lost in currencies, and markets start to seize up. Like other fiat currencies, SDR’s aren’t backed by anything tangible, and can be printed at will by the IMF. So ultimately they are just another form of debt, issued by a transnational organisation that isn’t really accountable to anyone in particular (although the USA does have power of veto over important decisions). I guess that SDR’s could potentially play a part in some form of global monetary reset, if things get that bad.

    • Sweden’s response to the problems in liquidity in the corporate bond market was probably a good idea. In the US, the Municipal Bond Market has run into the same problem. State bonds are included in the “Muni” boat as the interest is tax free for state residents. Most states (I think 48 of the 50) are mandated to have balanced budgets. They issue bonds for capital projects and sometimes for things like mortgage guarantees to qualifying individuals.

      Most municipalities(incl. cities) have far less revenue raising power than the states, and in hard times, some of those bonds can get to junk status. There are mutual funds with single state “munis” in them. I own one run by Vanguard (only .17% annual fee) It holds 85% AA, AAA, & A rated paper from Massachusetts, with the vast majority State issues. Yet the fear and desire for cash has been so great, that, as US Treasury rates plummeted, people panic sold shares in these types of funds. They drove the interest rates(on current market value) UP to over the 3% level from around 2% in a couple of weeks. The State of MA is in great shape to withstand a couple of lean years. They are extremely unlikely, in my opinion, to default like many corporate issuers. A halt to redemptions might be wise as the public has poor judgment, selling 3% tax exempt income for cash yielding nothing.

    • SDR is just a bag of turds nowadays. A fat stewardess at the back end of the monetary plane, serving cold coffee.

    • This analysis makes the panic and hysteria look unjustified. Unfortunately I think it’s too late to try to use science to calm things down. Emotions rule Homo superstitious. The economy looks to be battered for years, not that leverage and extreme indebtedness weren’t accidents waiting too happen in any case.

      As you might imagine, before they knew it was a problem, the epidemic raged on the ship, with infected crew members cooking and cleaning for the guests, people all eating together, close living quarters, lots of social interaction, and a generally older population. Seems like a perfect situation for an overwhelming majority of the passengers to become infected.

      And despite that, some 83% (82.7% – 83.9%) of the passengers never got the disease at all … why?


    • “When we emerge from this pandemic, we must urgently establish real European economic sovereignty!”

      What kind of nonsense is that?

      Another perpetual growth scam, supported by MMT like scams?

      I see the new German Bundeskanzler already skipping Target2.

      >>> ‘for the children’.

      Racism, red corvettes, raspberry berets and blue suede shoes are outlawed

  32. Dystopian? “relating to or denoting an imagined state or society where there is great suffering or injustice”. From where I’m standing all I have ever seen is great suffering or injustice. Are you really saying that the present arrangements work well for more than 5% of the world’s population??

    I’ve had 50 years to mull over the human condtion, with a small independent income I have chosen not to join-in, as every-thing I did seemed to produce CO2 and make matters worse so I have no skin in the game and no real personal interest in how it all works out. As a Chartered Engineer society charged me with sorting out its problems, a responsibilty I took very seriously and the main problem was always going to be winding down the world economy post 2005.
    My O level physics (1963) taught me that “work” which for 1000’s of years always involved sweat and aching muscles was fast becoming no more than than a social constuct and so a very large number of people would be really surprised to learn around 2010 that they had never done a days work in their lives! All their hopes and dreams for the future for them and more importantly their children and grand children collapsing over Seneca’s cliff.

    No, this virus thing is indeed a brainwave. When all is said and done it is a virus so there is no one to blame, brilliant. But then Bob you might have a better exit strategy here at the very end of the most extraordinary period in human history.

    • If you read the Radix article that I’ve linked here, you’ll see the culpability of the Chinese authorities in this.

      It’s not any sort of ‘conspiracy theory’ explanation but, rather, involves stupidity and self-interest. China didn’t do this ‘on purpose’, because committing economic suicide is an unlikely ploy in any form of international gamesmanship.

      Like other viruses before it, this one jumped the species barrier in “a [wet] market where live wild and domestic animals were sold in crowded cages in filthy and unsanitary conditions”. Many rich Chinese consumers seem to think that they can gain marvellous properties from consuming some pretty bizarre animal products. The virus seems to have transitioned to humans via bats and pangolins, neither of which are to be found on supermarket shelves in Europe or America.

      The CCP not only ignored and downplayed this, but punished doctors who were publicising it, and even shut down the public health laboratory in Shanghai that was leading research into it, the day after that lab had published some very important data.

      This shouldn’t be taken as any form of ‘China-bashing’. The same article outlines the failures of ‘globalism’ and ‘Europeanism’ in this disaster. No country has a monopoly on stupidity and wrong priorities. One can understand, though, why Beijing wants this to be given a neutral name which does not reference China.

  33. What we know and don’t know about Coronavirus
    I recommend this discussion:

    Some things were learned from hard experience in China:
    *They have stopped the wet markets
    *They learned that actions which give one enhanced immunity may not be appropriate when one is seriously sick. (For example, the damage is done not by the virus, but by the virulent attack launched by our immune system…a cytokine storm. So, in a healthy individual, a daily dose of poison which triggers the hermetic response is usually a good thing, but in a person who is suffering from a cytokine storm, adding yet more triggers can be deadly.)
    *Two of the principle co-morbities are high blood pressure and elevated HbA1c (being pre-diabetic or diabetic)….this is consistent with the Italian evidence that it is mostly sick people who are dying.

    My takeaways:
    *If you are sick, you need a professional.
    *If you are not sick, get yourself as healthy as possible, starting right now.
    *’Magic elixirs’ can be deadly. CBD, because it suppresses the immune system, is a terrible way to try to avoid the virus.

    Don Stewart

  34. What is the hermetic response?
    To perhaps make that clear. How do you build muscle? You stress the muscle. Body builders and sports coaches have this refined to a science. Just enough stress, but not so much that one does damage.

    The daily dose of mushrooms that they talk about (also from oats) give our immune system an appropriate dose of stress, which makes our immune system stronger…just like a muscle. (We actually have a dedicated mushroom receptor…recently discovered in China, I think.) But, I presume, once one is in a virus hospital, they do not feed the patients with anything which will put any stress on the immune system. So if you are still healthy, eat your mushrooms and oats daily and don’t pay any attention to those who shout about their ‘poisonous’ properties.

    Don Stewart

    • What is ‘hermetic’?
      Well, it is hormetic as spelled by the all-wise computer. Just in case anyone needs to do research on it.
      Don Stewart

  35. Max Keiser on the prospects for the US and Russia and Saudi Arabia
    (Max uses RT as their vehicle. To the best of my knowledge, they picked RT largely because RT does not censor them. )
    This is particularly interesting, perhaps, as the Trump Administration promises to spend 10 percent of GDP, financed by newly created debt.
    The coronavirus pandemic has popped a quadrillion-dollar financial bubble and we can expect a very deep and prolonged period of adjustment, RT’s veteran business commentator Max Keiser believes.
    The financial crisis, which many believe we have just entered, stems from the times of Ronald Reagan and Margaret Thatcher, with the establishment of ‘neoliberal’ policies “that enriched bankers and destroyed workers by giving bankers free reign to borrow and speculate without oversight or accountability,” Keiser told RT. Now, governments will have to adjust to a new reality, and having a low debt and massive reserves could be the trump card, according to the former Wall Street stockbroker.

    “Russia has the best hand at the geopolitical poker table. The Kremlin, for 20 years, has been doing the opposite of everyone else by reducing their national debt to near zero, and buying thousands of tons of gold while simultaneously raising living standards,” he said.

    Moscow has been boosting its gold and foreign currency holdings in recent years to shield its economy against any turmoil. According to the latest data published by Russia’s central bank, the reserves have recently eclipsed $580 billion.

    “Saudi Arabia by contrast, is in deep fiscal trouble and the problems there will be enormous. The US will repeat the experience of the Great Depression, but America has a knack for innovating their way out of problems,” said Keiser. He added, however, that measures to prevent the coronavirus from spreading further could hamper America’s anti-crisis efforts.

    • Here’s a response by a Brit. friend:

      Odd statement that Russia has been “simultaneously raising living standards”, not sure where he gets his data.

      Official Russian statistics that are readily available, vis;

      In Russia 17.5 million people live below the poverty line that is a three fold increase in ten years, this equates to 12% of the population who have to manage on about $180 a month or less, the comparable figure in the UK of 4 million people or 6% of the population who live below our poverty line that is about $1,700 a month, i.e. our poverty line is almost ten times higher than Russia’s. This dramatic increase in poverty has been driven by three main factors, theft of national resources by the elite, drop in oil prices, and Western Sanctions, it is easy to forget the latter but at the time of the invasion of Crimea, Russia only had two key industries, arms and the support of oil and gas, they had no recognisable software or hardware capability so quite bizarrely imported hardware and software was used to develop spying and cyber attack capability against the countries that supplied it, that free enterprise for you.

      There are 98 Russian Billionaires who own 60% of the nations wealth and this is greater than the entire population’s savings, in fact 1% of population own over 60% of the national wealth but this does NOT include Putin and his close family where obviously there is no official data but the joint estimate of the US and UK security services was that he had filched £75Bn up to the end of 2019, a number that even I as a cynic found to be incredible.

      Putin is in the process of installing himself as a life time military dictator, just as Xi has done in China and he seems to have little choice. My Russian friends tell me that if he was to stand down and stay in Russia he would risk arrest one the next ego-maniac President gets settled in and he would be forced to hand back all he had stolen (well, well, ave learned that from his arch enemy Mohammed bin Salman, funny old game this battle of the dictators), whoever his successor may be, but his biggest risk would be to step outside Russia with no diplomatic immunity as warrants for all kinds of crimes are waiting for him at the Hague from poisoning his enemies in Europe to shooting down civilian aircraft. But there again, how many military dictators in history have died in their beds!!!

      Putin has been in power over 20 years and has a 13 year low in population approval ratings at 31 percent. His own party now only has 29% of the vote so he has to rig every election to maintain his facade of accountability, but to be fair to the man, he is a master of the art of rigging elections!!! The standard description on the street in Russia for his party United Russia is “The party Of Crooks And Thieves” and it is only by his security services having a draconian reach into every detail of every citizens life that he can maintain complete control.

      Now we come nearer to the crux, how on earth can anyone say that R T does not sensor everything? It is a national propaganda machine and even my Russian friends who live over here who got rich thanks to “Vlad the Bad” readily admit it and say we should never believe a word they say, and they have given me loads of examples over the years, just have a look at what they said about the poisoning of the Skripa’ls.

      ‘No questions … or are there?’: how RT is reporting the spy scandal

      ‘No questions … or are there?’: how RT is reporting the spy scandal
      Jon Henley
      During 24 hours spent watching RT, it makes good on its aim to present ‘the Russian viewpoint’

      Yes Russia had big gold reserves and yes it has a low national debt but it has a poor heath service (that is why all the elite come to Europe of medical care and leave the peasant to wallow in shit) and we have no idea what the virus will do to the Russians, but you surely cannot say that because their national finances are solid that their economy won’t also be devastated if the virus spreads just the same as any other country?

      To me Putin has always been a “disrupter”, it is what Yorkshiremen call “sharp sticking” that is constantly probing his neighbours and most other countries that he sees as enemies and seeing how they react, and I do think that he will be able to play the pandemic to his own advantage and I also think that Xi will change from being an apparently passive but actually under the radar influencer to a more active one as i think that both will be very opportunist when the US and Europe are on the back foot and don’t have the stomach for any conflict.

      But far more importantly, the sun is shining and I have seeds to plant!



  36. Conspiracies; Surplus Energy; Geopolitical Maneuvering; Coronavirus; Propaganda
    (I wish I could get sexual intrigue in there, but I don’t see how to do it)
    Both the US and Germany have announced or proposed a 10 percent of GDP ‘new deal’ type spending…allegedly about the coronavirus. I haven’t heard any claims that it is to try to repair the damage done by the financial meltdown.

    If you looked at Max Keiser’s brief article on Russia, the US, and Saudi Arabia, you note that he thinks Russia is in by far the best financial shape, with virtually zero debt. He also thinks that the US will spend a lot of money trying to do something about the virus.

    Curiously, the UN Security Council entertained a proposal that votes could be virtual…that the representative did not need to be physically present to vote. Russia vetoed the proposal, asserting that ‘we need to reassure people that the virus is nothing to fear’.

    Unless you have been hiding under a rock, you can see that the US government and media are doing everything they can to instill fear. Taking advantage of the fear factor, the Dept of Justice has proposed that they be allowed to keep anyone they want to keep in jail as long as they want to keep them there, with no recourse. It was, of course, just such matters that prompted the Revolution against the King of England.

    So…is the virus an unfortunate, but predictable, outcome of the way humans are handling wild animals, with deaths occurring overwhelming among those already sick with lifestyle diseases and the elderly who are frail? Or is the virus a deadly threat to most Americans? And is the 10 percent boost in government spending mostly to help with the pandemic, or mostly to bail out Wall Street speculators and assist governments and corporations to go further into debt? Can Trump persuade the public that he is “conservative”, while pursuing FDR type policies? And….I’ll let you add your questions.

    I do think it is noteworthy that, over the last few days, negative interest rate bonds have disappeared at a rapid rate.

    Don Stewart

    • @ewaf88

      An interesting paper that does put some perspective on this.

      However, when it comes to public health policy perhaps one has to adopt the precautionary principle and widen measures that might not strictly be required under a more objective analysis.

      Having said that it does show the problem as being largely skewed and, in the light of this, it does call into question whether the breadth of measures that have been introduced are really necessary..

    • Well more people could actually die with ailments not connected to the virus than as a result if it due to lack of staff and beds.


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