The search for the fabled “elixir of life” goes back at least as far as the second millennium BC. Right now, though, many would settle for the elixir of alternative.
For investors, that would be somewhere safe to park their money when the “everything bubble” in asset prices bursts, as, of course, it will. For many more, the “elixir of alternative” would be the discovery of replacements for the tired, self-serving, failed incumbency systems that have been making the wrong decisions on our behalf for a very long period of time.
These issues are, of course, connected – a financial crash will have profound effects on the distribution and nature of wealth and power.
Whatever else might be said about them, the markets have turned into sources of harmless entertainment for non-participants of all ages. No fad seems to be too wild for hapless investors to pour money into it. Numerous over-hyped stocks have collapsed from absurdly inflated prices. Manias for cryptos, NFTs and – most recently – ‘anything AI’ are symptoms of investors’ quest for the ‘elixir of alternative’.
It’s one thing to make a case for selling stocks and real estate, but quite another to find something else to buy instead. What sector, or stock, or alternative asset class, can offer protection against the crunch that we know is coming, and what investment can be “as safe as houses” when all the conditions for a property price crash are in place?
The prices of traditional but ‘unsexy’ safe haven assets – such as gold – may yet turn out to be the best available lead-indicator for the onset of the market vertigo which precedes all-out panic.
Many investors probably sense the essential fragility of stock and property markets driven to unsustainable levels by the “everything bubble”. Some may think that, when the bubble bursts – as all bubbles do – they’ll be ‘made good’ by the authorities, which is pretty much what happened – at the price of enormous moral hazard – during the GFC of 2008-09.
Still others may recognize the mathematical impossibility of governments and central banks handing back all of their money to those who have thrown it away in reckless gambles. The ‘create [“print”] money’ fix used during the GFC is the kind of “get out of gaol free” card that can only be played once. It’s been said that “death is there to keep us honest” – in economics, that role is fulfilled by inflation, which is the inescapable nemesis for anyone tempted into the debasement of money.
The fable of the conventional
The “elixir of life” isn’t the only fable crafted for our comfort. Another is orthodox economics, with its central proposition that the economy can be understood in terms of money alone. If there was indeed ‘a financial fix for everything’, we could ask the banking system to lend low-cost, environmentally-friendly energy into existence, and command central banks to conjure it out of the ether. If all else failed, we could overcome our climatic and ecological problems by clubbing together to send money to the environment.
In other words, the material matters. Infinite economic growth on a finite planet isn’t possible. Two centuries of abundant (but now fast-depleting) fossil fuel prosperity haven’t changed that.
If you’ve been visiting this site for any length of time, you’ll know that the “financial” economy is an operating system for the “real” or material economy of products and services.
We ignore the material at our peril, and should not conflate the “laws” of economics with the real scientific laws of physics. The so-called “laws” of economics are really nothing more than behavioural observations about the human artefact of money. We must, as a matter of necessity, be selective and sceptical in our use of the tenets of the economic orthodoxy.
Where the economy is concerned, the applicable laws are those of thermodynamics. Energy cannot be created or destroyed, but it can be transformed from a dense to a diffuse state.
That’s how the material economy works. We use energy to convert raw materials into products, a process which is paralleled by diffusion of energy from dense forms into waste heat, the latter containing climate-harming gases when the dense input is sourced from carbon fuels. Given that most products are destined for rapid disposal, the material economy is thus a dissipative-landfill system.
We can speculate, of course, about our ability, or otherwise, to replace energy-dense oil, natural gas and coal with renewable energy alternatives of lesser density. The dynamic of deteriorating energy density has been called “energy sprawl”, where the energy-delivering infrastructure becomes ever larger in proportion to the economy itself. In short, we may need to put more material resources into wind turbines, solar panels, grids and storage systems than are presently invested in wells, refineries, pipelines and filling stations.
On the money
Our interest here, though, is in money. This being so, we need to be clear about what money actually is. As you may know, money has no intrinsic worth, but commands value only in terms of the material products and services for which it can be exchanged. This is why no amount of currency – or of any kind of money – would be of any use at all to a person adrift in a lifeboat, or stranded on a desert island. Money detached from the possibility of exchange is worthless. The resulting SEE nomenclature is that of money as claim.
Within this claim conception, we have wriggle-room in the distinction between the flow of monetary claims exercised in the present and the stock of these claims set aside for later. ‘Later’ is the operative term here – the primary reason for investment is that spending relinquished now will be exceeded by the value to be received later. There’d be no point in going without that new $1000 gadget now if setting that money aside would yield only $900 at some future date.
At the macro level, appreciation over time can only work if two predicates are honoured – the economy must carry on expanding, and money mustn’t lose its value through the devaluation of inflation.
Neither of those predicates still holds. Over a long period, most reported “growth” in the global economy has been cosmetic, a function of super-rapid credit expansion. With everything stated at constant 2022 values for convenience, world real GDP increased by $83tn PPP between 2002 and 2022. Unfortunately, global debt expanded by $266tn over that same period.
Most of the “growth” of modern times has thus been a sleight-of-hand trick based on credit expansion. The giveaway here is that GDP doesn’t measure economic output, but the very different concept of the transactional use of money. Moreover, formal debt increasingly understates the true scale of liabilities, as it excludes the NBFI (“shadow banking”) component, and the ever-rising “gaps” in the adequacy of pension provision.
Inflation, meanwhile, has routinely been understated over a long period, most obviously through the convention which states that asset price escalation ‘doesn’t count’ as inflation. If we calibrate material economic prosperity, and compare it with transactional activity measured as GDP, we can calculate that systemic inflation, known here as RRCI, has long been substantially higher than the official GDP deflator measure.
Why not obvious?
If you’re new to Surplus Energy Economics, much of the foregoing may seem self-evident. There’s nothing terribly controversial about a material economy of energy-created products and services sitting alongside a parallel financial economy of money and credit understood as claims. Given that prices are financial values ascribed to material products, prices and inflation must, of necessity, be functions of the relationship between these “two economies”.
If this much is obvious, why haven’t decisions been made on this basis? The straight answer is that the real and the palatable aren’t necessarily the same thing.
Moreover, we no longer have an intellectual framework for government. Collectivism, in its purist Marxist-Leninist form, disappeared with the fall of the Soviet Union.
Its traditional antithesis, market capitalism, has since been abandoned as inconvenient – markets are no longer allowed to set prices, and put a price on risk, without undue interference, and it’s been a long time since the owners of capital have been able to earn a solid real (ex-inflation) return on their investments.
Back in 2008-09, we didn’t like what market forces were about to do, so we put them on hold.
Without a rationale of government, the conduct of economic affairs has degenerated into a condition of ‘make-it-up-as-we-go-along’, ‘grab-what-we-can’ opportunism. The ‘powers that be’ adopted ultra-loose credit supply policies (“credit adventurism”) from the 1990s, hoping that this would cure “secular stagnation”. When, as of 2008, its failure had led us into systemic crisis, the resort to “monetary adventurism” was made without any consideration of what this might mean for inequalities of wealth and income.
The realities now are that economic trends – ludicrous asset valuations, debts and quasi-debts at stratospheric levels, the deceleration (and unfolding inflexion) of the energy-powered material economy, and rises in the real costs of energy-intensive necessities – are pointing straight towards a combination of financial crash and worsening social dysfunction. This is more “Versailles-on-Thames” than “Camelot on the Potomac”.
Meanwhile, the search for the elixir of alternative goes on.
@Don
I wonder if the shrinking economy is being denied, rather like we both (?) did at the time, when we were unaware of the growing economy in the 1950s?
Maybe the “growth” in the market values of our houses, and now the oncoming “decline” imperceptibly changes our mindsets? From up to down! I am very conscious that I saw things positively from the top-down 60 years ago, and now my view from the grassroots is as positive.
Barry Cooper
@Barry Cooper
I did not have a “growth bias” 60 years ago. I was born before the US entered WWII, so my earliest memories are eating food from our backyard garden and chicken house. Our family always lived on the edge of poverty. I had the good fortune (which seemed a disaster at the time) that a move to a larger town, driven by my father’s poor health, opened the door for me to go to a good college. I just had to work long hours to make the money. While at the college, around 1960, Admiral Rickover visited and talked about the real economy based on physical resources. The prospect of running out of oil was a primary driver of the nuclear submarine project.
The area where I lived was based on oil, cotton, and cattle. All of those required close attention to financial factors such as the prices quoted early in the morning on the radio. But nobody thought that the economy actually consisted of speculating on prices…or that printing money in the basement had any impact on real production. There was a joke at the time:
“3 men meet in an airport bar. The first says ‘I’m from Pittsburg…I make steel’. The second says ‘I’m from St. Louis…I make shoes’. The third says ‘I’m from Dallas…I make deals’. ”
The joke is practically incomprehensible now. So my view of the economy, for 60 years, has been that resource limitations are real and that Wall Street is a mirage. Even when I was working in lower Manhattan in 1965, Manhattan still had a thriving manufacturing economy, and right across the Hudson was a huge industrial area. And down the street was the Fulton Fish Market. Out the window one could see barges ferrying materials between the rail terminals in New Jersey and manufacturing plants in NYC.
So it’s all changed. But I’m still influenced by childhood poverty and Rickover’s perspective and the ghost of lost production.
Don Stewart
I think the big change in more recent history has been the credit and liquidity binge, itself a function of trying to head off (though it can’t prevent) de-growth.
This divides society into those who already owned assets before the “everything bubble” got started after 2008, those who have had access to low-cost capital since then, and everyone else.
Take a small town near the coast or in attractive countryside. The latter-day carpetbaggers – those with access to cheap capital – move in, and locals can no longer afford to live there. These new buyers cover their modest mortgage costs out of tourist rentals.
What happens next, of course, is that tourism contracts (in line with rapid discretionary compression), and property prices, generally, slump. The carpetbaggers get wiped out, unless the authorities try to bail them out (which worked in 08-09, but can’t work now). But previous conditions are unlikely to be restored.
@Don
Thank you for that. Your life as a youngster was radically different from mine. Born in 1937 I can’t remember anything before the war. I didn’t see my father until 1945. He was a Royal Marine and commanded a landing craft on D-Day and then joined the Pacific war to help the American landings. During the war you could say I lived in poverty – as all children did – my mother had a Govt grant of 15 shillings a week and was unwilling to buy stolen or illegally grown stuff in the black market. Food and clothing were rationed.
My perception of having a growth mindset from childhood until the late 1960s – with hindsight – ranged from having no money of my own until I started earning enough to pay my rent in 1958.
This not off-topic because I was not aware that my mindset was growth oriented then – being allowed to have long trousers from the age of 13 then more food when rationing ended in 1954, then gradually earning enough to meet essentials until the late 1960s when discretionary spending became possible. I don’t think anyone was aware of having a growth mindset. As I don’t think there is awareness now of a shrinking economy – the UK is now beset with strikes – including medical and transport workers – people who think there is money available to pay them more. They still have a growth mindset in the real shrinking economy.
Maybe this is how the transition from growth to shrinkage is. Those who are aware are changing their lifestyles. My years of growth were spent in cities, I now live in the countryside, with neighbours who are either retired or finding out how to live off grid.
The gradual change in the national mindset will one day be seen as interesting. At present it is a kind of blindness! Encouraged by a Government who seem to be blind to what is happening – or maybe they do see that is happening and are terrified of admitting it. Parliamentary debate is all about how to get growth to pay the debts. Not how to de-grow/shrink, which for the time being, is hidden by debt.
What I find interesting about present-day mindsets is how these differ between influential groups.
On the one hand, government ministers and officials continue to make ritual references to “growth”, but seem to do so without any great sense of conviction. The US economy is growing, but only because of fiscal deficits which are driving public debt up towards unsustainable levels. The EU is, at best, stagnating. The British economy is deteriorating at a frightening pace, and Japan has been ex-growth for decades. Even China has problems, with its real estate Ponzi unwinding for all to see. Officialdom clearly knows all this, even if it can’t be acknowledged in public.
Yet the corporate world is full of confidence. Households are going to do ever more consuming, driving, flying, watching, listening, subscribing – every sector from tech and travel to entertainment and leisure has a rosy future. They seem to believe this, too, at least if investments are anything to go by.
Michael Easter on Problem Creep
(in scientific jargon…prevalence induced concept change)
Scientific evidence that people will always find something to complain about.
Michael’s article, which is behind his pay wall, points out that the murder rate in the US was about 35 percent in 1700 (doubtless…not including the killing of Native Americans), and is now about 5 percent. The infant mortality rate in the world was historically 50 to 60 percent. As late as the late 1800s Poland, Bavaria, and Sweden all had rates above 50 percent. He doesn’t quote any statistics, but women’s mortality was also bad..from death in childbirth to simple exhaustion from taking care of a dozen children on the American frontier…after American infant mortality declined.
But only 11 percent of Americans think the world is getting “better”. I tend to agree that the “better” trend has exhausted itself. Partly because we have simply become used to the benefits of living a life which is not what our bodies evolved to live in, and we have mostly refused to modify the way we live in order to bring our environment and bodies into alignment.
Having seen great changes in my own life, and watching my grandchildren adapting to a very different world, I can see the pros and cons of what is currently happening. My opinion is that the cons are on the way to winning the war. It’s obviously not any physics problem that prevents us from living a simpler life more aligned with our evolutionary gifts.
Don Stewart
@Tim
You said: “The British economy is deteriorating at a frightening pace”.
Maybe, just like Britain was first into industrialism, we are already ahead of the rest of you into what comes next?
WORLD: Watch and learn how the UK Government is failing to understand what is going on, whilst the new era is germinating, evolving and growing at the grassroots.
I don’t want to sound too gloomy, Barry, but the UK’s deterioration is there for all to see – crumbling school buildings, multi-year NHS waiting lists, raw sewage being poured into seas and rivers, failed public investment projects, homelessness, over-stretched public services and, perhaps above all, millions living from hand-to-mouth, barely able to afford the basics.
I don’t disagree Tim but I don’t think things are much better, if at all, in Germany and France.
Neither Germany nor France is in a particularly good economic condition – the world economy is, after all, contracting. But does either country have school buildings in danger of collapse, or raw sewage being pumped into rivers and seas? It’s not just a matter of economic deterioration, but of how societies deal with it.
When does Germany bolt to Russias open arms? That will be the ticket for their future.
Dr Tim, for folks in the United Kingdom the adverse impact of stalled growth is made considerably harsher as a result of the government pursuing a policy of SFR – Severe Financial Repression.
In addition to negative real interest rate and currency debasement – devaluation – other key strands include freezing personal tax allowances, and linking payments from the citizenry to the state in line with RPI while payments from the state to the citizenry increase with CPI – the difference between RPI and CPI is around 0.7% annually.
The cumulative effect of these many strands over a prolonged period of time is very substantial.
The current government is committed to a fundamentally misguided economic system, and I can say that without partisan bias because Labour seems to be on the same page. Whatever either side say to the contrary, they are not in favour of greater economic equality. They are not interested in “levelling up”. They think that the economy can be energised by providing incentives to the “haves” and ignoring the “have-nots”. Both parties have a record of inflating and propping up property prices, to the detriment of younger people.
I think the following is vital reading for everyone – except those of a nervous disposition:
How real do you think it is?
A plan to “steal” almost all the assets in the world?
I don’t see how they can do it without people becoming extremely violent towards the people who did that.
Two separate questions – do we believe the plan and structure exists, and do we believe they can get away with it? I’m quite persuaded on the former, less so on the latter.
But the frightening aspect of this is what pooled collateral, and the primacy of derivative claims, will mean in the next financial crisis – are financial institutions, corporations, households and even governments going to be taken down in an effort to honour speculative bets? Do these speculative ‘claims’ have primacy over real-world creditors? That’s what this seems to mean and, if it does, we’ve created a lethal self-destruct system.
Dr. Morgan, i’m shocked. It appears your viewpoints are evolving! 😉
“You will own nothing and like it!”
My views on the fundamentals haven’t changed, but this is new information, and necessarily changes my stance. If, de facto, asset ownership is pooled in a crash, and derivatives rank above other claims, then the entire concept of ownership is undermined.
“You will own nothing, and you will be happy” sounds like “let them eat brioche”, but it’s something that I might write about.
Dr. Morgan,
What are your viewpoints on Bail Ins?
Utterly opposed. In principle, they are state-sanctioned confiscation, amounting to theft for the purposes of expediency.
“and do we believe they can get away with it?”
They’ve shown you in the past few years what absurd and untrue things they can get the populace to believe. I think you might want to rethink your assertion that they can’t. Who will stop them? Do you really think they’ll just let things fall apart and not make up some story and create a scapegoat?
“The next step was to ‘harmonise’ the laws internationally so that there would be no escape, at least in the Western orbit.”
so China and Russsia et al are out of the scope of this innnsanity.
“… are financial institutions, corporations, households and even governments going to be taken down in an effort to honour speculative bets? Do these speculative ‘claims’ have primacy over real-world creditors?”
it would be bizzzare if it came to this, where “they” would collect on their bets but would collapse the western economy in the process.
so “they” would own everything but it would be mostly worthless.
lots of good quotes in that link:
“The derivatives bubble is often estimated to exceed one quadrillion dollars (a quadrillion is 1,000 trillion). The entire GDP of the world is estimated at $105 trillion, or 10 per cent of one quadrillion; and the collective wealth of the world is an estimated $360 trillion. Clearly, there is not enough collateral anywhere to satisfy all the derivative claims.
The majority of derivatives now involve interest rate swaps, and interest rates have shot up. The bubble looks ready to pop.”
“A number of researchers have found that super-priority in bankruptcy for derivatives actually increases rather than decreases risk.”
“But he did point out that even the assets of the wealthy are threatened. ”
“As for timing, Webb says just the movement in interest rates, from 0.25 per cent to 5.5 per cent, should have collapsed the market already. He thinks it is being held up artificially, while ‘they’ get the necessary systems in place.”
“Derivatives do not now produce even the security for which they were originally intended.”
it’s probable that the western economy is so complex that it always must be “held up artificially”.
the construction of this $1 quadrillion bubble is absolutely artificial.
I would guess that it’s probable that if this bubble pops, “they” will limit the wins and losses so that the real economy doesn’t collapse.
“they” would be really stooooopid to insist on collecting all of their winnings which would result in a rapid collapse in the western economies.
a little side note here:
could this be seen as “three economies”?
the real energy based economy, the necessary financial economy that enables the real economy, and the unnecessary superficial economy that is derived from the financial economy.
it would be utterly reediculous if this superficial economic layer brought about the collapse of the “real” layers.
but then, it wouldn’t be all that surprising if that is what “they” end up doing in the long run.
The concept of “two economies” – a “real economy” of material products and services, and a parallel “financial economy” of money and credit – is central to my thinking, and I’m wholly convinced that a failure to recognise the existence of the “real” economy is the critical, fundamental flaw in orthodox economics.
What we’re discussing here involves (a) layered complexity in the financial economy, and (b) ultimate ownership.
The financial economy exists as flow (of transactions) and stock (of claims). This issue is about stock.
Considered as stock, the financial system is multi-layered. First, there is debt, which, globally and in PPP (purchasing power parity) terms, is just short of $400tn. Then there are broad liabilities – data on these is neither timely or complete, but my estimate is just over $900tn. These overlap, i.e. debt is part of the bigger number.
Then there are derivatives, which can be thought of as bets. These have been estimated at somewhere between $600tn and $1000tn. These, though, are gross values, and there’s a case to be made for netting them off – deducting what a participant is owed from what he owes. On this basis, net numbers are drastically lower.
Unfortunately, the case for netting off isn’t entirely foolproof. Peter owes Paul $1000, but Peter is owed $800 by Philip. Logically, Peter’s net liability is $200 – but what happens if Philip goes bust, and can’t pay Peter?
“it would be bizzzare if it came to this, where “they” would collect on their bets but would collapse the western economy in the process.”
No it wouldn’t, it would just be 2008, except this time they don’t bail out your assets, and buy them up on the cheap.
Perhaps the 3rd economy is the digital economy.
Not only don’t they not bail out your assets, they starve .gov of money. Rates go up to 20%, housing values fall but property taxes do not. Before you know it, people are either leaving the keys at the house and walking away because they owe more then its worth or the property gets confiscated after time due to taxes not coming down and the economy being so terrible ya just can’t pay em……………
Who owns the federal reserve again?
‘They’ may think they have it sewn up but the government can change the rules whenever they like.
It happened to the Hunt brothers in the 1970s when they had the silver market beaten. It happened in the financial crisis in 2008 when short selling of financials was stopped and positions closed. And I’m sure there are other examples.
I’d hope that is the case anyway and at least we still gold and now Bitcoin. No counter party risk. In cold storage ‘they’ can’t get that.
“Then there are derivatives, which can be thought of as bets. These have been estimated at somewhere between $600tn and $1000tn. These, though, are gross values, and there’s a case to be made for netting them off – deducting what a participant is owed from what he owes. On this basis, net numbers are drastically lower.”
and that’s where there is some hope, that this might just be innsanely big bets among the biggest players, but perhaps just maybe between them all is a net amount near zero.
and if this derivatives bubble starts collapsing, perhaps just maybe those with the winning hands will negotiate to cancel their bets if not cancelling would mean devastating financial contagion.
in a way, $1 quadrillion is so big that there’s no need to worry about it.
I just what to be clear on who “They” really are in this case, because the term is frequently used to describe a wide range of actors, especially on this blog.
Are we saying “They” are the owners of more esoteric derivatives, those at the top of the tree regarding complexity. Not your plain vanilla call option, right?
Or are we saying “They” are this obscure and unheard-of entity called the DTCC, which is the owner of Cede & Co?
So, let’s name some names. If we are saying it’s the latter (i.e., DTCC), then does that mean that America (and large parts of the world) is owned by the nine people, who form the management committee of DTCC?
That would make Mr Frank La Salla, who is President and CEO of DTCC, the de-facto president and CEO of the western world, would it not?
Am I on the right track here, or barking up the wrong tree?
I have posted this Quote from the DTCC website. It all sounds quite benign. Who could argue with it?
“WHO ARE WE?
DTCC safeguards the financial markets and helps them run efficiently – in times of prosperity and crisis. We are uniquely positioned at the center of global trading activity, processing over 100 million financial transactions every day, pioneering industry-wide, post-trade solutions and maintaining multiple data and operating centers worldwide. From where we stand, we can anticipate the industry’s needs and we’re working to continually improve the world’s most resilient, secure and efficient market infrastructure. Our employees are driven to deliver innovative technologies that improve efficiency, lower cost and bring stability and certainty to the post-trade lifecycle.”
I’ve attached a link to their website. It’s possible to download their annual report, if anyone has the will.
@Tim on October 18: “I don’t want to sound too gloomy, Barry, but the UK’s deterioration is there for all to see.”
Yes, that is true, as seen from the top down.
At the grassroots, no need to be gloomy.
I see previously well-paid individuals and their families moving from metropolitan areas to the country, to make new lives with surplus capital from selling their city houses. Investing in new local ventures and participating in the emerging food-based local economies.
Top-down national Statistics tend to support my view. 30% of people in “my” parish were self-employed in the 2021 national census, 10% in Cardiff and 8% in Birmingham.
From the bottom up, the cities are deprived of self-employed people. They are the innovators of the oncoming era.
The focus of this article is clearly about economics and energy, and how we might successfully navigate the coming phase of degrowth. But ecology is just as important to the stability of industrialised civilisation, and to the question of whether the economic and political system can survive an extended contraction in the real economy.
It just may be ecological tipping points that ultimately trigger collapse, and many of them may have already been crossed, or may already be locked in. In response to an article elsewhere I argued that in order to survive we need to get the economists and ecologists on the same side.
Given the surge in traffic to my site, I presume it has got a lot of people thinking or interested, but with a lack of feedback on The Conversation, I thought I’d link to it here, and see if anyone in this audience has strong or interesting views:
“To get the economists and ecologists on the same page, it has to be more profitable to restore ecosystems than it is to destroy them.”
Tim, it is only a few months since most of France’s inner cities were ablaze with extreme violence…..met with extreme violence by the authoritarian Fifth Republic. I spend much time driving French and German motorways: the infrastructure is visibly crumbling and the sanitary facilities in many French motorway services are a disgrace. French banks are massively overgeared and the German banking sector is in poor shape. Even our railway system is a dream compared to Deutsche Bahn…..as the Germans acknowledge. While their Greens try to shut down German industry and stoke the flames of war in the Ukraine, ordinary Germans face spiralling rental costs while German Jews are facing levels of antisemitism unseen since 1945. There is much to criticise in the UK but there are quite a few Potemkin village beyond Calais.
SEEDS models of France and Germany certainly don’t look too great. France has two immediate problems that come to mind. The first is her nuclear industry, and the second is simmering discontent, particularly in communities on the periphery of Paris. Germany has been especially hard-hit by loss of energy supplies from Russia. Also, internal terms of trade within the Euro Area have long favoured Germany, but the country is a huge (c EUR 1 trillion) creditor of the Euro clearing system (Target2) and is, I suspect, unlikely to recover sums owed, most of it by Italy and Spain – exporting to other EA countries is one thing, getting paid is quite another. I agree about French and German banks, but I would remind you of the LDI exposure in the UK exposed to view during the Truss-Kwarteng fiasco.
The problems in those countries don’t explain why British schools are dangerous, and raw sewage is pouring into seas and rivers. Neither is consistent with a supposedly ‘first world’ economy.
My problem with the UK is its extreme neoliberalism, not just because it’s bad economics, but also because it promotes the doctrine of greed. This is perhaps a topic for another time……
I did not excuse crumbling infrastructure here. I merely noted that this is not a uniquely UK problem….which it isn’t. The LDI fiasco would never have happened if the BOE/FCA had been doing their pension fund oversight job properly……a point made at the time by the Fed! The CEO of Next warned Andrew Bailey about the ticking bomb of LDIs years ago. Blaming Truss/Kwarteng won’t do…..at some point interest rates were going to rise, whoever was in charge….as indeed we have seen since last year.
France and Germany are no strangers to greed or economic polarisation. Indeed Macron’s core constituency are the urban-based BoBos who are doing very nicely and want to ignore the large parts of France which aren’t.
isn’t Biden currently doing a bit of a Truss Kwarteng routine in the US,
he keeps making ideological based spending decisions, a 100 billion here, 100 billion there, without really considering the overall health of the economy that has to support that sort of deficit spending,
surely at some point the markets will baulk and not be eager to buy the newly issued bonds?
The US is running a huge deficit, and public debt has shot up since the debt ceiling was removed at the start of June. If you look at probable growth this year (as dollars, not a %), you’ll see that this number is far exceeded by increases in debt. This is sleight-of-hand – the government borrows, the public spends the borrowed money (which they receive as services, or transfer payments, in excess of tax revenues), and, bingo, “growth!” We should never forget that GDP is a total of financial transactions, not a measure of output or value. If more money is pushed into the system, and people spend it – that’s what it’s for – transactions increase.
This is why I calculate output in my own way, by stripping out the credit effect to measure underlying of ‘clean’ output, known here as ‘C-GDP’. This is by no means unique to the US, of course, and SEEDS calculates C-GDP for 29 countries and the world economy.
It’s getting ever harder to place huge amounts of US debt with buyers. Short of cutting back on spending, or raising taxes, this can only be tackled in one way – make debt more attractive to investors by raising the yield. This is a borrowing-driven rise in rates. Even if the Fed decides to freeze or even cut policy rates, supply and demand for debt will drive yields higher anyway. There will be knock-on effects as well – if yields on Treasuries rise, other debt issuers will have to put their rates up to compete for capital.
What Truss and Kwarteng did was more overtly political – they wanted to borrow to finance tax cuts, primarily for the better-off. They are back on this tack now, with Sunak reportedly planning tax cuts for the 5m best-off people in the UK, and also looking at stamp duty cuts, presumably in the hope that this will provide support for property prices.
Some interesting points on the rise of the Global South:
“Similarly, the United States has mounted a strong global campaign to persuade countries not to join the Belt and Road Initiative (BRI). This campaign has been partially successful. Many European and Asian countries like Germany, Japan, India and South Korea have not joined the BRI. Yet, out of 193 member states of the UN, over 150 have signed on to join the BRI. There could be no louder signal that the Global South will pursue its own course, even against the opposition of the North.
BRI is bringing real benefits to the Global South. It is striking that the fast train between Jakarta and Bandung (with speeds of up to 350kmh) was launched in the very week that Britain (a member of the G-7) announced it did not have funds to proceed with the fast train between Birmingham and Manchester. Future historians will mark this as a clear indicator of how times have changed in our world.”
I will mention but leave aside that the author is clueless about the role that declining FF energy will play in the future (vastly limited) “rise” of the Global South.
“Yet, out of 193 member states of the UN, over 150 have signed on to join the BRI.”
so about 150 in conflict with 40, totally expected, that the nations of the world would have such conflict.
“The new and emerging rivalry between China and India is also complicating the picture.”
but wait, even in this region of the world, there is conflict between the two largest nations.
the author shines a bright spotlight on the impossibility of all the nations to cooperate.
I was uneasy about watching this, but Chuck Watson exceeded all my expectations and this is a very wise, balanced and timely discussion;
I’m sorry this is off the topics of energy and economics, but unless we can get governance under some sort of rational control we’ll never be able to address energy, economics, ecology or even the future prospects of an organised society.
thanks for that.
since it indeed has lots to say about governance, in my opinion it’s good in a manner of “the way we live next”.
but though imperfect, the governance in places like China and Russsia seems to be under “rational control”, more or less.
as some may remember, my opinion of the governance in the Western corporatocracies is that they are loaded with psychowoketards.
now that they have (irrrational) control, is it even possible to regain rational controllers?
@Matt
Many thanks for the description and link. This has been quite useful for me.
Don Stewart
Surplus Energy Economics 
@Don
I wonder if the shrinking economy is being denied, rather like we both (?) did at the time, when we were unaware of the growing economy in the 1950s?
Maybe the “growth” in the market values of our houses, and now the oncoming “decline” imperceptibly changes our mindsets? From up to down! I am very conscious that I saw things positively from the top-down 60 years ago, and now my view from the grassroots is as positive.
Barry Cooper
@Barry Cooper
I did not have a “growth bias” 60 years ago. I was born before the US entered WWII, so my earliest memories are eating food from our backyard garden and chicken house. Our family always lived on the edge of poverty. I had the good fortune (which seemed a disaster at the time) that a move to a larger town, driven by my father’s poor health, opened the door for me to go to a good college. I just had to work long hours to make the money. While at the college, around 1960, Admiral Rickover visited and talked about the real economy based on physical resources. The prospect of running out of oil was a primary driver of the nuclear submarine project.
The area where I lived was based on oil, cotton, and cattle. All of those required close attention to financial factors such as the prices quoted early in the morning on the radio. But nobody thought that the economy actually consisted of speculating on prices…or that printing money in the basement had any impact on real production. There was a joke at the time:
“3 men meet in an airport bar. The first says ‘I’m from Pittsburg…I make steel’. The second says ‘I’m from St. Louis…I make shoes’. The third says ‘I’m from Dallas…I make deals’. ”
The joke is practically incomprehensible now. So my view of the economy, for 60 years, has been that resource limitations are real and that Wall Street is a mirage. Even when I was working in lower Manhattan in 1965, Manhattan still had a thriving manufacturing economy, and right across the Hudson was a huge industrial area. And down the street was the Fulton Fish Market. Out the window one could see barges ferrying materials between the rail terminals in New Jersey and manufacturing plants in NYC.
So it’s all changed. But I’m still influenced by childhood poverty and Rickover’s perspective and the ghost of lost production.
Don Stewart
I think the big change in more recent history has been the credit and liquidity binge, itself a function of trying to head off (though it can’t prevent) de-growth.
This divides society into those who already owned assets before the “everything bubble” got started after 2008, those who have had access to low-cost capital since then, and everyone else.
Take a small town near the coast or in attractive countryside. The latter-day carpetbaggers – those with access to cheap capital – move in, and locals can no longer afford to live there. These new buyers cover their modest mortgage costs out of tourist rentals.
What happens next, of course, is that tourism contracts (in line with rapid discretionary compression), and property prices, generally, slump. The carpetbaggers get wiped out, unless the authorities try to bail them out (which worked in 08-09, but can’t work now). But previous conditions are unlikely to be restored.
@Don
Thank you for that. Your life as a youngster was radically different from mine. Born in 1937 I can’t remember anything before the war. I didn’t see my father until 1945. He was a Royal Marine and commanded a landing craft on D-Day and then joined the Pacific war to help the American landings. During the war you could say I lived in poverty – as all children did – my mother had a Govt grant of 15 shillings a week and was unwilling to buy stolen or illegally grown stuff in the black market. Food and clothing were rationed.
My perception of having a growth mindset from childhood until the late 1960s – with hindsight – ranged from having no money of my own until I started earning enough to pay my rent in 1958.
This not off-topic because I was not aware that my mindset was growth oriented then – being allowed to have long trousers from the age of 13 then more food when rationing ended in 1954, then gradually earning enough to meet essentials until the late 1960s when discretionary spending became possible. I don’t think anyone was aware of having a growth mindset. As I don’t think there is awareness now of a shrinking economy – the UK is now beset with strikes – including medical and transport workers – people who think there is money available to pay them more. They still have a growth mindset in the real shrinking economy.
Maybe this is how the transition from growth to shrinkage is. Those who are aware are changing their lifestyles. My years of growth were spent in cities, I now live in the countryside, with neighbours who are either retired or finding out how to live off grid.
The gradual change in the national mindset will one day be seen as interesting. At present it is a kind of blindness! Encouraged by a Government who seem to be blind to what is happening – or maybe they do see that is happening and are terrified of admitting it. Parliamentary debate is all about how to get growth to pay the debts. Not how to de-grow/shrink, which for the time being, is hidden by debt.
What I find interesting about present-day mindsets is how these differ between influential groups.
On the one hand, government ministers and officials continue to make ritual references to “growth”, but seem to do so without any great sense of conviction. The US economy is growing, but only because of fiscal deficits which are driving public debt up towards unsustainable levels. The EU is, at best, stagnating. The British economy is deteriorating at a frightening pace, and Japan has been ex-growth for decades. Even China has problems, with its real estate Ponzi unwinding for all to see. Officialdom clearly knows all this, even if it can’t be acknowledged in public.
Yet the corporate world is full of confidence. Households are going to do ever more consuming, driving, flying, watching, listening, subscribing – every sector from tech and travel to entertainment and leisure has a rosy future. They seem to believe this, too, at least if investments are anything to go by.
Michael Easter on Problem Creep
(in scientific jargon…prevalence induced concept change)
Scientific evidence that people will always find something to complain about.
Michael’s article, which is behind his pay wall, points out that the murder rate in the US was about 35 percent in 1700 (doubtless…not including the killing of Native Americans), and is now about 5 percent. The infant mortality rate in the world was historically 50 to 60 percent. As late as the late 1800s Poland, Bavaria, and Sweden all had rates above 50 percent. He doesn’t quote any statistics, but women’s mortality was also bad..from death in childbirth to simple exhaustion from taking care of a dozen children on the American frontier…after American infant mortality declined.
But only 11 percent of Americans think the world is getting “better”. I tend to agree that the “better” trend has exhausted itself. Partly because we have simply become used to the benefits of living a life which is not what our bodies evolved to live in, and we have mostly refused to modify the way we live in order to bring our environment and bodies into alignment.
Having seen great changes in my own life, and watching my grandchildren adapting to a very different world, I can see the pros and cons of what is currently happening. My opinion is that the cons are on the way to winning the war. It’s obviously not any physics problem that prevents us from living a simpler life more aligned with our evolutionary gifts.
Don Stewart
@Tim
You said: “The British economy is deteriorating at a frightening pace”.
Maybe, just like Britain was first into industrialism, we are already ahead of the rest of you into what comes next?
WORLD: Watch and learn how the UK Government is failing to understand what is going on, whilst the new era is germinating, evolving and growing at the grassroots.
I don’t want to sound too gloomy, Barry, but the UK’s deterioration is there for all to see – crumbling school buildings, multi-year NHS waiting lists, raw sewage being poured into seas and rivers, failed public investment projects, homelessness, over-stretched public services and, perhaps above all, millions living from hand-to-mouth, barely able to afford the basics.
I don’t disagree Tim but I don’t think things are much better, if at all, in Germany and France.
Neither Germany nor France is in a particularly good economic condition – the world economy is, after all, contracting. But does either country have school buildings in danger of collapse, or raw sewage being pumped into rivers and seas? It’s not just a matter of economic deterioration, but of how societies deal with it.
When does Germany bolt to Russias open arms? That will be the ticket for their future.
Dr Tim, for folks in the United Kingdom the adverse impact of stalled growth is made considerably harsher as a result of the government pursuing a policy of SFR – Severe Financial Repression.
In addition to negative real interest rate and currency debasement – devaluation – other key strands include freezing personal tax allowances, and linking payments from the citizenry to the state in line with RPI while payments from the state to the citizenry increase with CPI – the difference between RPI and CPI is around 0.7% annually.
The cumulative effect of these many strands over a prolonged period of time is very substantial.
The current government is committed to a fundamentally misguided economic system, and I can say that without partisan bias because Labour seems to be on the same page. Whatever either side say to the contrary, they are not in favour of greater economic equality. They are not interested in “levelling up”. They think that the economy can be energised by providing incentives to the “haves” and ignoring the “have-nots”. Both parties have a record of inflating and propping up property prices, to the detriment of younger people.
I think the following is vital reading for everyone – except those of a nervous disposition:
https://radixuk.org/opinion/the-great-taking-how-they-can-own-it-all/
Holy Moly Tim.
How real do you think it is?
A plan to “steal” almost all the assets in the world?
I don’t see how they can do it without people becoming extremely violent towards the people who did that.
Two separate questions – do we believe the plan and structure exists, and do we believe they can get away with it? I’m quite persuaded on the former, less so on the latter.
But the frightening aspect of this is what pooled collateral, and the primacy of derivative claims, will mean in the next financial crisis – are financial institutions, corporations, households and even governments going to be taken down in an effort to honour speculative bets? Do these speculative ‘claims’ have primacy over real-world creditors? That’s what this seems to mean and, if it does, we’ve created a lethal self-destruct system.
Dr. Morgan, i’m shocked. It appears your viewpoints are evolving! 😉
“You will own nothing and like it!”
My views on the fundamentals haven’t changed, but this is new information, and necessarily changes my stance. If, de facto, asset ownership is pooled in a crash, and derivatives rank above other claims, then the entire concept of ownership is undermined.
“You will own nothing, and you will be happy” sounds like “let them eat brioche”, but it’s something that I might write about.
Dr. Morgan,
What are your viewpoints on Bail Ins?
Utterly opposed. In principle, they are state-sanctioned confiscation, amounting to theft for the purposes of expediency.
“and do we believe they can get away with it?”
They’ve shown you in the past few years what absurd and untrue things they can get the populace to believe. I think you might want to rethink your assertion that they can’t. Who will stop them? Do you really think they’ll just let things fall apart and not make up some story and create a scapegoat?
“The next step was to ‘harmonise’ the laws internationally so that there would be no escape, at least in the Western orbit.”
so China and Russsia et al are out of the scope of this innnsanity.
“… are financial institutions, corporations, households and even governments going to be taken down in an effort to honour speculative bets? Do these speculative ‘claims’ have primacy over real-world creditors?”
it would be bizzzare if it came to this, where “they” would collect on their bets but would collapse the western economy in the process.
so “they” would own everything but it would be mostly worthless.
lots of good quotes in that link:
“The derivatives bubble is often estimated to exceed one quadrillion dollars (a quadrillion is 1,000 trillion). The entire GDP of the world is estimated at $105 trillion, or 10 per cent of one quadrillion; and the collective wealth of the world is an estimated $360 trillion. Clearly, there is not enough collateral anywhere to satisfy all the derivative claims.
The majority of derivatives now involve interest rate swaps, and interest rates have shot up. The bubble looks ready to pop.”
“A number of researchers have found that super-priority in bankruptcy for derivatives actually increases rather than decreases risk.”
“But he did point out that even the assets of the wealthy are threatened. ”
“As for timing, Webb says just the movement in interest rates, from 0.25 per cent to 5.5 per cent, should have collapsed the market already. He thinks it is being held up artificially, while ‘they’ get the necessary systems in place.”
“Derivatives do not now produce even the security for which they were originally intended.”
it’s probable that the western economy is so complex that it always must be “held up artificially”.
the construction of this $1 quadrillion bubble is absolutely artificial.
I would guess that it’s probable that if this bubble pops, “they” will limit the wins and losses so that the real economy doesn’t collapse.
“they” would be really stooooopid to insist on collecting all of their winnings which would result in a rapid collapse in the western economies.
a little side note here:
could this be seen as “three economies”?
the real energy based economy, the necessary financial economy that enables the real economy, and the unnecessary superficial economy that is derived from the financial economy.
it would be utterly reediculous if this superficial economic layer brought about the collapse of the “real” layers.
but then, it wouldn’t be all that surprising if that is what “they” end up doing in the long run.
The concept of “two economies” – a “real economy” of material products and services, and a parallel “financial economy” of money and credit – is central to my thinking, and I’m wholly convinced that a failure to recognise the existence of the “real” economy is the critical, fundamental flaw in orthodox economics.
What we’re discussing here involves (a) layered complexity in the financial economy, and (b) ultimate ownership.
The financial economy exists as flow (of transactions) and stock (of claims). This issue is about stock.
Considered as stock, the financial system is multi-layered. First, there is debt, which, globally and in PPP (purchasing power parity) terms, is just short of $400tn. Then there are broad liabilities – data on these is neither timely or complete, but my estimate is just over $900tn. These overlap, i.e. debt is part of the bigger number.
Then there are derivatives, which can be thought of as bets. These have been estimated at somewhere between $600tn and $1000tn. These, though, are gross values, and there’s a case to be made for netting them off – deducting what a participant is owed from what he owes. On this basis, net numbers are drastically lower.
Unfortunately, the case for netting off isn’t entirely foolproof. Peter owes Paul $1000, but Peter is owed $800 by Philip. Logically, Peter’s net liability is $200 – but what happens if Philip goes bust, and can’t pay Peter?
“it would be bizzzare if it came to this, where “they” would collect on their bets but would collapse the western economy in the process.”
No it wouldn’t, it would just be 2008, except this time they don’t bail out your assets, and buy them up on the cheap.
Perhaps the 3rd economy is the digital economy.
Not only don’t they not bail out your assets, they starve .gov of money. Rates go up to 20%, housing values fall but property taxes do not. Before you know it, people are either leaving the keys at the house and walking away because they owe more then its worth or the property gets confiscated after time due to taxes not coming down and the economy being so terrible ya just can’t pay em……………
Who owns the federal reserve again?
‘They’ may think they have it sewn up but the government can change the rules whenever they like.
It happened to the Hunt brothers in the 1970s when they had the silver market beaten. It happened in the financial crisis in 2008 when short selling of financials was stopped and positions closed. And I’m sure there are other examples.
I’d hope that is the case anyway and at least we still gold and now Bitcoin. No counter party risk. In cold storage ‘they’ can’t get that.
“Then there are derivatives, which can be thought of as bets. These have been estimated at somewhere between $600tn and $1000tn. These, though, are gross values, and there’s a case to be made for netting them off – deducting what a participant is owed from what he owes. On this basis, net numbers are drastically lower.”
and that’s where there is some hope, that this might just be innsanely big bets among the biggest players, but perhaps just maybe between them all is a net amount near zero.
and if this derivatives bubble starts collapsing, perhaps just maybe those with the winning hands will negotiate to cancel their bets if not cancelling would mean devastating financial contagion.
in a way, $1 quadrillion is so big that there’s no need to worry about it.
I just what to be clear on who “They” really are in this case, because the term is frequently used to describe a wide range of actors, especially on this blog.
Are we saying “They” are the owners of more esoteric derivatives, those at the top of the tree regarding complexity. Not your plain vanilla call option, right?
Or are we saying “They” are this obscure and unheard-of entity called the DTCC, which is the owner of Cede & Co?
So, let’s name some names. If we are saying it’s the latter (i.e., DTCC), then does that mean that America (and large parts of the world) is owned by the nine people, who form the management committee of DTCC?
That would make Mr Frank La Salla, who is President and CEO of DTCC, the de-facto president and CEO of the western world, would it not?
Am I on the right track here, or barking up the wrong tree?
I have posted this Quote from the DTCC website. It all sounds quite benign. Who could argue with it?
“WHO ARE WE?
DTCC safeguards the financial markets and helps them run efficiently – in times of prosperity and crisis. We are uniquely positioned at the center of global trading activity, processing over 100 million financial transactions every day, pioneering industry-wide, post-trade solutions and maintaining multiple data and operating centers worldwide. From where we stand, we can anticipate the industry’s needs and we’re working to continually improve the world’s most resilient, secure and efficient market infrastructure. Our employees are driven to deliver innovative technologies that improve efficiency, lower cost and bring stability and certainty to the post-trade lifecycle.”
I’ve attached a link to their website. It’s possible to download their annual report, if anyone has the will.
https://www.dtcc.com/about/leadership/management-committee
@Tim on October 18: “I don’t want to sound too gloomy, Barry, but the UK’s deterioration is there for all to see.”
Yes, that is true, as seen from the top down.
At the grassroots, no need to be gloomy.
I see previously well-paid individuals and their families moving from metropolitan areas to the country, to make new lives with surplus capital from selling their city houses. Investing in new local ventures and participating in the emerging food-based local economies.
Top-down national Statistics tend to support my view. 30% of people in “my” parish were self-employed in the 2021 national census, 10% in Cardiff and 8% in Birmingham.
From the bottom up, the cities are deprived of self-employed people. They are the innovators of the oncoming era.
The focus of this article is clearly about economics and energy, and how we might successfully navigate the coming phase of degrowth. But ecology is just as important to the stability of industrialised civilisation, and to the question of whether the economic and political system can survive an extended contraction in the real economy.
It just may be ecological tipping points that ultimately trigger collapse, and many of them may have already been crossed, or may already be locked in. In response to an article elsewhere I argued that in order to survive we need to get the economists and ecologists on the same side.
Given the surge in traffic to my site, I presume it has got a lot of people thinking or interested, but with a lack of feedback on The Conversation, I thought I’d link to it here, and see if anyone in this audience has strong or interesting views:
“To get the economists and ecologists on the same page, it has to be more profitable to restore ecosystems than it is to destroy them.”
https://theconversation.com/have-we-reached-the-end-of-nature-our-relationship-with-the-environment-is-in-crisis-206278#comment_2942132
Tim, it is only a few months since most of France’s inner cities were ablaze with extreme violence…..met with extreme violence by the authoritarian Fifth Republic. I spend much time driving French and German motorways: the infrastructure is visibly crumbling and the sanitary facilities in many French motorway services are a disgrace. French banks are massively overgeared and the German banking sector is in poor shape. Even our railway system is a dream compared to Deutsche Bahn…..as the Germans acknowledge. While their Greens try to shut down German industry and stoke the flames of war in the Ukraine, ordinary Germans face spiralling rental costs while German Jews are facing levels of antisemitism unseen since 1945. There is much to criticise in the UK but there are quite a few Potemkin village beyond Calais.
SEEDS models of France and Germany certainly don’t look too great. France has two immediate problems that come to mind. The first is her nuclear industry, and the second is simmering discontent, particularly in communities on the periphery of Paris. Germany has been especially hard-hit by loss of energy supplies from Russia. Also, internal terms of trade within the Euro Area have long favoured Germany, but the country is a huge (c EUR 1 trillion) creditor of the Euro clearing system (Target2) and is, I suspect, unlikely to recover sums owed, most of it by Italy and Spain – exporting to other EA countries is one thing, getting paid is quite another. I agree about French and German banks, but I would remind you of the LDI exposure in the UK exposed to view during the Truss-Kwarteng fiasco.
The problems in those countries don’t explain why British schools are dangerous, and raw sewage is pouring into seas and rivers. Neither is consistent with a supposedly ‘first world’ economy.
My problem with the UK is its extreme neoliberalism, not just because it’s bad economics, but also because it promotes the doctrine of greed. This is perhaps a topic for another time……
I did not excuse crumbling infrastructure here. I merely noted that this is not a uniquely UK problem….which it isn’t. The LDI fiasco would never have happened if the BOE/FCA had been doing their pension fund oversight job properly……a point made at the time by the Fed! The CEO of Next warned Andrew Bailey about the ticking bomb of LDIs years ago. Blaming Truss/Kwarteng won’t do…..at some point interest rates were going to rise, whoever was in charge….as indeed we have seen since last year.
France and Germany are no strangers to greed or economic polarisation. Indeed Macron’s core constituency are the urban-based BoBos who are doing very nicely and want to ignore the large parts of France which aren’t.
isn’t Biden currently doing a bit of a Truss Kwarteng routine in the US,
he keeps making ideological based spending decisions, a 100 billion here, 100 billion there, without really considering the overall health of the economy that has to support that sort of deficit spending,
surely at some point the markets will baulk and not be eager to buy the newly issued bonds?
The US is running a huge deficit, and public debt has shot up since the debt ceiling was removed at the start of June. If you look at probable growth this year (as dollars, not a %), you’ll see that this number is far exceeded by increases in debt. This is sleight-of-hand – the government borrows, the public spends the borrowed money (which they receive as services, or transfer payments, in excess of tax revenues), and, bingo, “growth!” We should never forget that GDP is a total of financial transactions, not a measure of output or value. If more money is pushed into the system, and people spend it – that’s what it’s for – transactions increase.
This is why I calculate output in my own way, by stripping out the credit effect to measure underlying of ‘clean’ output, known here as ‘C-GDP’. This is by no means unique to the US, of course, and SEEDS calculates C-GDP for 29 countries and the world economy.
It’s getting ever harder to place huge amounts of US debt with buyers. Short of cutting back on spending, or raising taxes, this can only be tackled in one way – make debt more attractive to investors by raising the yield. This is a borrowing-driven rise in rates. Even if the Fed decides to freeze or even cut policy rates, supply and demand for debt will drive yields higher anyway. There will be knock-on effects as well – if yields on Treasuries rise, other debt issuers will have to put their rates up to compete for capital.
What Truss and Kwarteng did was more overtly political – they wanted to borrow to finance tax cuts, primarily for the better-off. They are back on this tack now, with Sunak reportedly planning tax cuts for the 5m best-off people in the UK, and also looking at stamp duty cuts, presumably in the hope that this will provide support for property prices.
Some interesting points on the rise of the Global South:
“Similarly, the United States has mounted a strong global campaign to persuade countries not to join the Belt and Road Initiative (BRI). This campaign has been partially successful. Many European and Asian countries like Germany, Japan, India and South Korea have not joined the BRI. Yet, out of 193 member states of the UN, over 150 have signed on to join the BRI. There could be no louder signal that the Global South will pursue its own course, even against the opposition of the North.
BRI is bringing real benefits to the Global South. It is striking that the fast train between Jakarta and Bandung (with speeds of up to 350kmh) was launched in the very week that Britain (a member of the G-7) announced it did not have funds to proceed with the fast train between Birmingham and Manchester. Future historians will mark this as a clear indicator of how times have changed in our world.”
https://johnmenadue.com/the-global-south-a-new-north-star/
thanks for that.
I will mention but leave aside that the author is clueless about the role that declining FF energy will play in the future (vastly limited) “rise” of the Global South.
“Yet, out of 193 member states of the UN, over 150 have signed on to join the BRI.”
so about 150 in conflict with 40, totally expected, that the nations of the world would have such conflict.
“The new and emerging rivalry between China and India is also complicating the picture.”
but wait, even in this region of the world, there is conflict between the two largest nations.
the author shines a bright spotlight on the impossibility of all the nations to cooperate.
I was uneasy about watching this, but Chuck Watson exceeded all my expectations and this is a very wise, balanced and timely discussion;
I’m sorry this is off the topics of energy and economics, but unless we can get governance under some sort of rational control we’ll never be able to address energy, economics, ecology or even the future prospects of an organised society.
thanks for that.
since it indeed has lots to say about governance, in my opinion it’s good in a manner of “the way we live next”.
but though imperfect, the governance in places like China and Russsia seems to be under “rational control”, more or less.
as some may remember, my opinion of the governance in the Western corporatocracies is that they are loaded with psychowoketards.
now that they have (irrrational) control, is it even possible to regain rational controllers?
@Matt
Many thanks for the description and link. This has been quite useful for me.
Don Stewart