Oct 092018
 
 October 9, 2018  Posted by at 1:03 pm Primers Tagged with: , , , , , , , , , ,  


Pieter Bruegel the Elder Two monkeys 1562

 

And there we go again. Another IPCC report, and they all keep getting more alarming than the previous one. And then nothing substantial happens. Until the next report is issued and makes everybody’s headlines for a day, or two. Rinse, spin and repeat. “Now we really have to do something!”. “World leaders have a moral obligation to act!”.

Oh boy. To start with that last bit, world leaders don’t act because of moral obligations. They act to stay in, or get in, power. And they all know that to achieve that goal they must keep their people happy, even if dictators do this differently from ‘democratically elected’ leaders.

The first tool they have for this is control of the media, control of the narratives that define -or seem to- their societies. If a society is in bad shape, they will control the media to show that it is doing fine. if it’s actually doing fine, they will make sure all the praise for this is theirs and theirs alone.

So what makes their people happy? One thing far ahead of anything else is material comfort. If leaders can’t convince people that they’re comfortable, their power is in danger. Once enough people are miserable or hungry, a process is set in motion that threatens to push leaders aside in favor of someone who promises to make things better. There’s never a shortage of those.

 

Leaders, politicians, think short-term. They may see further into the future than the next election, but that is not useful information. If they enact measures aimed at 10 years from today or more, they risk being voted out in 2 years, or 4. It’s not even their fault, it’s how the system works. It is different for dictators, but not even that much.

The general notion is clear. But that means we can’t rely on our leaders to act against the climate change the IPCC keeps warning of. because is has a -much- longer time window than the next elections -or the next coup in dictator terms. Even if every IPCC report depicts a shorter window than the last one, it’s still not inside those 4-year election cycles (numbers vary slightly, 4 is typical).

A typical ‘response’ to the climate threat are the COP meetings and agreements. I have fulminated plenty against COP21, the Paris accord, even named it CON21. Because that was signed by those very leaders tied down in their election cycles. Completely useless. That most of the other signees were business leaders who represent oil companies, airlines and Big Tech with huge server parks seals the reality of the deal.

These are not the people who will solve the problems. They have too much interest in not doing so. The CEO’s have their profits to think about, the politicians their elections. They should be kept out of the decision-making process. But they’re the only ones who are in it.

I still think the issue was never better epitomized than in the December 2016 piece in the Guardian by Michael Bloomberg and Mark Carney entitled “How To Make A Profit From Defeating Climate Change” , about which I said at the time:

These fine gents probably actually believe that this is perfectly in line with our knowledge of, say, human history, of evolution, of the laws of physics, and of -mass- psychology. All of which undoubtedly indicate to them that we can and will defeat the problems we have created -and still are-, literally with the same tools and ideas -money and profit- that we use to create them with. Nothing ever made more sense.

That these problems originated in the same relentless quest for profit that they now claim will help us get rid of them, is likely a step too far for them; must have been a class they missed. “We destroyed it for profit” apparently does not in their eyes contradict “we’ll fix it for profit too”. Not one bit. It does, though. It’s indeed the very core of what is going wrong.

Profit, or money in general, is all these people live for, it’s their altar. That’s why they are successful in this world. It’s also why the world is doomed. Is there any chance I could persuade you to dwell on that for a few seconds? That, say, Bloomberg and Carney, and all they represent, are the problem dressed up as the solution?

This week’s IPCC report says the efforts to keep warming at acceptable levels (1.5ºC) will cost many trillions of dollars every year. But a billionaire publisher and a central bank head want to make a profit?! Hey, perhaps they can, as long as you and I pay… But they won’t solve a thing. if only because not doing that will be too profitable. Still, while they’re at it, maybe they can do us a favor.

You see, what is hardly ever mentioned, let alone acknowledged, is that we have more than one major existential problem, and they exist in such a form of symbiosis that solving only one doesn’t make much difference.

We have a changing climate, we have accelerating species extinction, we have plastics in our fish, and we have a global economy that’s about to topple over. The common thread in all these is an overkill in energy use and therefore an overkill in waste. Thermodynamics, 2nd law. Waste kills. By raising temperatures, finishing off wildlife, plugging rivers and oceans with plastics, making increasing amounts of people economically miserable.

But as I wrote a while ago, our economies exist to produce waste, it’s not just a by-product -anymore-. If we stop making things we don’t need, and things that do harm to our world and our lives, our economies will collapse. We must continue on our path or see our lifetstyles plummet. They will anyway, we’re just delaying the inevitable, but we’re stuck.

And politicians are utterly useless and utterly unfit in situations like this. But ask yourself: are you any better? If you were told that in order to ‘save the planet’, you’d have to cut your energy use in half, which would take away many of your comforts and luxuries, would you do it?

A better question yet is, if you would agree to do that, and then see that your neighbor does not, would you still cut your driving and flying and electricity? That’s hard enough on an individual level, but how about if one nation does, while another refuses? Or when nations that have much lower per capita energy consumption tell the West: you go first?

 

What do you think the odds are that we’ll find a global solution, approach, before the 2030 cutoff date the IPCC provides in its latest report? While the likes of Bloomberg and Carney still talk about climate change as a profit opportunity? I know what I think.

The report says we need to drastically ‘reform’ our economies and lifestyles. Cutting our energy use in the West in half won’t be enough, if only because billions of people demand more energy at their disposal. Will you cut into your lifestyle, will your children, when they see their neighbors increasing their energy use, when they see entire nations increase theirs?

We don’t have ‘leaders’ that can stop species extinction or a warming planet or an economic collapse, because they either are clueless or they will be voted out of power if they tell the truth. Extend and pretend is a term that’s used to describe economic policies a lot, but it actually paints an accurate picture of everything we do.

“Free”, surplus, energy can come in the shape of sugar in a petri dish full of bacteria, or of stored carbon on planet earth. In both cases, the outcome is as predictable as can be. Can we, with our billions of cars and billions of miles flown every year, and billions of phones and computers, return to the energy use of only 100 years ago? Don’t think so.

On the contrary, we’re constantly increasing our energy consumption. Just like the bacteria do in the petri dish. Until they no longer can, until reality, physics, thermodynamics, sets a limit. One of my favorite themes is that we are the most tragic species ever because we can see ourselves doing things that we know are harmful to us, but we can’t stop ourselves from continuing.

The best we can hope for is that tomorrow morning everything will be the same again as where we started today. But no, that’s not sufficient, either, many of the things we’ve unleashed have 20+ year runtimes, and they’re already baked into the cake of our futures. We can’t start afresh every morning, no Groundhog Day for us. Every morning the alarm goes off things have gotten worse. And we can’t stop that.

 

 

Jun 222018
 
 June 22, 2018  Posted by at 8:08 am Finance Tagged with: , , , , , , , , , , , , ,  


Wassily Kandinsky Yellow-Red-Blue 1925

 

Could China’s Next Target Be the US Housing Market? (Forsyth)
Next Central Bank Puts QE Unwind on the Calendar (WS)
Eurogroup Deal For Greece Clinched After Marathon Session (K.)
IMF Welcomes Greek Debt Deal But Has Reservations On Long-Term (R.)
Germany Has Made Over $3 Billion Profit From Greek Crisis (KTG)
Greek GDP Is Low, But Food Prices Are High (K.)
EU Is Getting Ready For No-Deal Brexit – Juncker (G.)
Multi-Decade Outsourcing Boom Comes to Sticky End in the UK (DQ)
Energy Is The Primary Driver Of The Economy (EI)
Italy To Pick Up Migrants, Impound German Charity Ship (R.)
People Donate Millions To Help Separated Families (AP)
2 Koreas Meet To Arrange Reunions Of War-Split Families (AP)
Tourism Preventing Kenya’s Cheetahs From Raising Young (G.)
India Is Facing Its Worst-Ever Water Crisis (ZH)

 

 

They can’t really sell Treasuries. MBS, though…

Could China’s Next Target Be the US Housing Market? (Forsyth)

While so much attention is focused on foreign purchases of Treasuries, the big action has been in U.S. agencies, most of which consist of mortgage-backed securities from government-sponsored Ginnie Mae, Fannie Mae, and Freddie Mac. In April, overseas investors bought $20 billion of agencies, bringing their 12-month total to $186 billion, or over $100 billion more than Treasuries. Asia accounted for $160 billion of those purchases, including $24 billion from China. U.S. corporations also get key support for their borrowing habit from abroad. Foreign investors bought $128 billion of corporate bonds in the latest 12 months, although just $1.6 billion in April. As for equities, overseas investors bought $82 billion ($6 billion in the latest month).

The numbers show that, even more than Uncle Sam, U.S. home borrowers depend on the kindness of strangers. China could retreat from bolstering the American housing market merely not reinvesting the monthly MBS interest and principal payments, resulting in a stealth tightening of mortgage credit. The housing market is already in the doldrums, as May’s weaker-than-expected existing home sales at an annual rate of 5.43 million, 100,000 less than forecast and below April’s 5.45 million annual pace. That disappointing home sales pace comes with unemployment at just 3.8%. But with single-family home prices up 5.2% from a year ago, home sales are sluggish. A further push up in mortgage rates, already at seven-year highs, would further crimp this key sector of the U.S. economy.

Read more …

Do we see nerves there?

Next Central Bank Puts QE Unwind on the Calendar (WS)

Markets were surprised today when the Bank of England took a “hawkish” turn and announced that three out of nine members of its Monetary Policy Committee – including influential Chief Economist Andrew Haldane, who’d been considered dovish – voted to raise the Bank Rate to 0.75%, thus dissenting from the majority who kept it at 0.5%. This dissension, particularly by Haldane, communicated to the markets that a rate hike at the next meeting in August is likely. The beaten-down UK pound jumped. But less prominent was the announcement about the QE unwind. Like other central banks, the BoE heavily engaged in QE and maintains a balance sheet of £435 billion ($577 billion) of British government bonds and £10 billion ($13 billion) in UK corporate bonds that it had acquired during the Brexit kerfuffle.

Before it starts shedding assets on its balance sheet, however, the BoE wants to raise the Bank Rate enough to where it can cut it “materially” if needed, “reflecting the Committee’s preference to use Bank Rate as the primary instrument for monetary policy,” as it said. In this, it parallels the Fed. The Fed started its QE unwind in October 2017, after it had already raised its target range for the federal funds rate four times. The BoE’s previous guidance was that the QE unwind would start when the Bank Rate is “around 2%.” Back in the day when this guidance was given, NIRP had broken out all over Europe, and pundits assumed that the BoE would never be able to raise its rate to anywhere near 2%, and so the QE unwind could never happen.

Today the BoE moved down its guidance about the beginning of the QE unwind to a time when the Bank Rate is “around 1.5%.” The Fed’s target range is already between 1.75% and 2.0%. The Fed leads, other central banks follow. And by August 2, the BoE’s Bank Rate may be at 0.75%. From that point forward, the QE unwind may only be three rate hikes away.

Read more …

Many headlines talk about debt relief. But that’s not what this is. It’s just another bunch of loan extensions and a €15 billion new loan. There will be many more years of austerity and creditor oversight. No, the bailout has not been completed.

Eurogroup Deal For Greece Clinched After Marathon Session (K.)

After several hours of negotiations, Greek officials and representatives of the country’s international creditors reached an agreement on securing the sustainability of the country’s debt in the early hours of Friday. Greece is to receive a loan tranche of 15 billion euros (3.3 billion euros of which would be used to pay off part of the country’s debt to the ECB and IMF), European officials said. Greece will also get a 10-year extension for the repayment of its European Financial Stability Facility (EFSF) loans and an additional grace period of 10 years on interest payments. The extension of the repayment period of the EFSF loans and the size of the final bailout tranche had been a sticking points in the talks.

These two issues were the focus of several trilateral meetings between Greek Foreign Minister Euclid Tsakalotos and his French and German counterparts, Bruno Le Maire and Olaf Scholz. At a press conference announcing the details of the deal, European Economic and Financial Affairs Commissioner Pierre Moscovici spoke of a “historical moment for Greece” and said a new chapter was beginning for the country. He expressed “great satisfaction” in seeing Greece emerge from eight years of financial support.

“Tonight’s Eurogroup agreement achieves what we have been calling for, a credible, upfront set of measures, which will meaningfully lighten Greece’s debt burden, allow the country to stand on its own two feet, and reassure all partners and investors,” he said. Eurogroup President Mario Centeno struck a similar note. “This is it,” he said. “After eight long years, the Greek bailout has been completed.”

Read more …

The IMF has caved on debt relief. Even though it knows it must be accorded.

IMF Welcomes Greek Debt Deal But Has Reservations On Long-Term (R.)

The IMF welcomed on Friday a deal on debt relief for Greece reached by Athens’ euro zone creditors saying it will improve debt sustainability in the medium term, but maintained reservations on the long term. Euro zone finance ministers earlier on Friday offered Greece a 10-year deferral and maturities extension on a large part of past loans as well as 15 billion euros in new credit to ensure Athens can stand on its own feet after it exits its third bailout in August. “The additional debt relief measures announced today will mitigate Greece medium-term financing risks and improve medium term debt prospects,” the IMF managing director Christine Lagarde told a news conference.

But she added that the fund will not join the expiring 86-billion-euro bailout as the time “has run out”, and maintained “reservations” on the long term sustainability of the Greek debt, which runs until 2060. The fund will begin assessing the sustainability of the Greek debt “as early as next week”, Lagarde said, adding that the fund will remain engaged in Greece and will participate to the monitoring of the Greek economic performance and reforms after the end of the program.

Read more …

“Contrary to all right-wing myths, Germany has benefited massively from the crisis in Greece..”

Germany Has Made Over $3 Billion Profit From Greek Crisis (KTG)

Germany has earned around 2.9 billion euros in profit from interest rate since the first bailout for Greece in 2010. This is the official response of the Federal Government to a request submitted by the Green party in Berlin. The profit was transmitted to the central Bundesbank and from there to the federal budget. The revenues came mainly due to purchases of Greek government bonds under the so-called Securities Markets Program (SMP) of the European Central Bank (ECB). Previous agreements between the government in Athens and the eurozone states foresaw that other states will pay out the profits from this program to Greece if Athens would meet all the austerity and reform requirements.

However, according to Berlin’s response, only in 2013 and 2014 such funds have been transferred to the Greek State and the ESM. The money to the euro bailout landed on a seggregated account. As the Federal Government announced, the Bundesbank achieved by 2017 about 3.4 billion euros in interest gains from the SMP purchases. In 2013, approximately 527 million euros were transferred back to Greece and around 387 million to the ESM in 2014. Therefore, the overall profit is 2.5 billion euros. In addition, there are interest profits of 400 million euros from a loan from the state bank KfW.

“Contrary to all right-wing myths, Germany has benefited massively from the crisis in Greece,” said Greens household expert Sven Christian Kindler said and demanded a debt relief for Greece. “It can not be that the federal government with billions of revenues from the Greek interest the German budget recapitalize,” Kindler criticized. “Greece has saved hard and kept its commitments, now the Eurogroup must keep its promise,” he stressed.

Read more …

And here’s why the Greek recovery story is simply falsehood.

Greek GDP Is Low, But Food Prices Are High (K.)

Greeks may be among the poorest citizens in the European Union, but that does not mean low prices for basic products and services in this country. According to figures published on Wednesday by Eurostat, Greece was the 17th most expensive country among the 28 EU member-states last year, with the general price level standing at 84 percent of the EU average. However, in the most basic category – food – price levels in Greece stood above the bloc’s average, having a significant negative impact on living standards. Eurostat figures had shown on Tuesday that the per capita GDP in Greece in 2017 amounted to just 67 percent of the EU average, while real private consumption stood 23 percent below the EU mean rate.

A key role in food prices remaining at such high levels – in spite of the decade-long crisis – has been played by a succession of hikes in the value-added tax: From a 9 percent rate on food imposed in 2009, many food products now bear a VAT rate of 24 percent, making Greece the 13th most expensive country for food across the bloc. High indirect taxes also explain the particularly high prices in tobacco and alcoholic beverages in Greece, which make this country the 12th most expensive in the EU in this category.

Read more …

A hard Brexit will be very unpretty. Airbus talked today about moving 14,000 jobs out of the UK. And they won’t be the last.

EU Is Getting Ready For No-Deal Brexit – Juncker (G.)

The EU needs to be realistic about the dangerous state of the Brexit negotiations and is preparing to deploy its trillion-pound budget to cushion the bloc from the prospect of a no-deal scenario, the European commission president has warned. With the two sides still far apart on the “hardest issues”, just days from a crunch leaders’ summit in Brussels, Jean-Claude Juncker told the Irish parliament on Thursday he was stepping up preparations for a breakdown in talks, and even drafting plans aimed at keeping the peace in Northern Ireland. The problem of avoiding a hard border with the Republic – said by the Irish taoiseach, Leo Varadkar, to be akin to a “riddle wrapped in an enigma” – is threatening to thwart all attempts to make progress on a wider deal.

With Theresa May refusing to countenance what Juncker described as the bloc’s “bespoke and workable solution”, of the Northern Ireland effectively staying in the customs union and single market, it was crucial for the 27 EU member states to prepare for the worst outcome, the commission president said. Juncker told Irish MPs and senators in a joint session of parliament in Dublin: “With pragmatism comes realism. As the clock to Brexit ticks down, we must prepare for every eventuality, including no deal. This is neither a desired nor a likely outcome. But it is not an impossible one. And we are getting ready just in case.

“We will use all the tools at our disposal, which could have a cushioning impact. The new long-term budget for our union from 2021 onwards has an in-built flexibility that could allow us to redirect funds if the situation arose. “We will also earmark €120m (£105m) for a new peace programme which has done so much in breaking down barriers between communities in Northern Ireland and the border counties.”

Read more …

More things coming to an end in Britain.

Multi-Decade Outsourcing Boom Comes to Sticky End in the UK (DQ)

The United Kingdom, widely considered to be the birthplace of the modern incarnation of the public-private partnership (PPP), in which private firms are contracted to complete and manage public projects, could be one of the first countries to jettison the model. The collapse in January of 200-year old UK infrastructure group Carillion, whose outsized role in delivering public services earned it the moniker “the company that runs Britain,” has fueled concerns that other big outsourcing groups could soon follow in its doomed footsteps. Last week the CEO of Interserve, another large outsourcing group, revealed that the government has given the firm a red rating as a strategic supplier, meaning it has “significant material concerns” about the company’s finances.

Fears are growing that Carillion was not a one-off episode but rather the swan song of a deeply flawed and dying business model. Those fears were hardly assuaged by the release this week of a damning parliamentary report into the UK government’s practice of outsourcing public projects through so-called Private Finance Initiatives (PFIs). PFI deals were invented in 1992 by the Conservative government and then enthusiastically rolled out by the subsequent Labour government. The schemes usually involved large-scale public buildings such as new schools and hospitals which were previously funded by the UK Treasury. Under PFI they were put out to tender with bids invited from developers who put up the investment to build new schools, hospitals or other schemes and then leased them back.

[..] The Treasury’s incapacity to measure the actual benefits of PFI should be of grave concern to British taxpayers given that the interest rate of private-sector debt — these projects are debt financed — can be as much as 2 to 3.75 percentage points higher than the cost of government borrowing. Even if the government doesn’t enter into any new PFI-type deals, it will pay private companies £199 billion, including interest, between April 2017 until the 2040s for existing deals, in addition to some £110 billion already paid. That’s for 700 projects worth around £60 billion. British taxpayers could clearly “get a much better deal,” the report concludes.

Read more …

John Lounsbury posted this talk by Steve from late 2016 again. And why not? Economics denies the role of energy…

Energy Is The Primary Driver Of The Economy (EI)

Economic theory has failed to incorporate the role of energy in production for two centuries since the Physiocrats, according to Prof. Steve Keen. In this video he derives a production function that includes energy in an essential manner. It implies that economic growth has been driven by the increase in the energy throughput capabilities of machinery. Prof. Keen argues that all economic gain can be traced to the use of energy which we receive at no cost from the sun. Capital and labor participate in the economy only by use of this energy.

Read more …

The Dutch play a strange role in this.

Italy To Pick Up Migrants, Impound German Charity Ship (R.)

Italy appeared to relent on Thursday after at first refusing to accept 226 migrants on board a German charity rescue ship, saying later in the day it would take them in but would impound the vessel. Anti-immigrant interior minister Matteo Salvini initially said the Dutch-flagged ship Lifeline should take the people it plucked from the Mediterranean to the Netherlands and not Italy. But transport minister Danilo Toninelli, who oversees the coastguard, later said it was unsafe for the 32-metre vessel to travel such a great distance with so many people on board. “We will assume the humanitarian generosity and responsibility to save these people and take them onto Italian coastguard ships,” Toninelli said in a video posted on Facebook.

Earlier this month Salvini pledged to no longer let charity ships bring rescued migrants in Italy, leaving the Gibraltar-flagged Aquarius stranded at sea for days with more than 600 migrants until Spain offered them safe haven. The Dutch government denied responsibility for the vessel, something Toninelli said Italy would investigate. The Italian coastguard would escort Lifeline “to an Italian port to conduct the probe” and impound the ship, he said. Also on Thursday, the German charity Sea Eye which operates another Dutch-flagged ship, the Seefuchs, said in a statement it was ending its sea rescue mission after the Dutch government told them that it was no longer responsible for the vessel.

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Please make sure it’s spent well.

People Donate Millions To Help Separated Families (AP)

In an outpouring of concern prompted by images and audio of children crying for their parents, hundreds of thousands of people worldwide are donating to nonprofit organizations to help families being separated at the U.S.-Mexico border. Among those that have generated the most attention is a fundraiser on Facebook started by a Silicon Valley couple, who say they felt compelled to help after they saw a photograph of a Honduran toddler sobbing as her mother was searched by a U.S. border patrol agent. The fundraiser started by David and Charlotte Willner had collected nearly $14 million by Wednesday afternoon.

The Willners, who have a 2-year-old daughter, set up the “Reunite an immigrant parent with their child” fundraiser on Saturday hoping to collect $1,500 — enough for one detained immigrant parent to post bond — but money began pouring in and within days people had donated $5 million to help immigrant families separated under the Trump administration’s “zero-tolerance” policy that criminally prosecutes all adults caught crossing the border illegally. “What started out as a hope to help one person get reunited with their family has turned into a movement that will help countless people,” the couple said in a statement released by a spokeswoman Wednesday. The couple, who were early employees at Facebook, declined to be interviewed.

“Regardless of political party, so many of us are distraught over children being separated from their parents at the border.” The money collected from more than 300,000 people in the United States and around the world will be given to the Refugee and Immigrant Center for Education and Legal Services, or RAICES, a Texas nonprofit that that offers free and low-cost legal services to immigrants.

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South Korean President Moon Jae-in doesn’t sit still.

2 Koreas Meet To Arrange Reunions Of War-Split Families (AP)

North and South Korean officials are meeting to arrange the first reunions in three years between families divided by the 1950-53 Korean War. Friday’s meeting at the North’s Diamond Mountain resort comes as the rivals take reconciliation steps amid a diplomatic push to resolve the North Korean nuclear crisis. Seoul’s Unification Ministry said the meeting will discuss ways to carry out an agreement on the reunions made at a summit between North Korean leader Kim Jong Un and South Korean President Moon Jae-in. The two summits between Kim and Moon have opened various channels of peace talks between the Koreas, including military talks for reducing tensions across their tense border and sports talks for fielding combined teams at the upcoming Asian Games in Indonesia.

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Even if we don’t shoot them, we find other ways to kill them off.

Tourism Preventing Kenya’s Cheetahs From Raising Young (G.)

High levels of tourism can lead to a dramatic reduction in the number of cheetahs able to raise their young to independence, new research has found. A study in Kenya’s Maasai Mara savannah found that in areas with a high density of tourist vehicles, the average number of cubs a mother cheetah raised to independence was just 0.2 cubs per litter – less than a tenth of the 2.3 cubs per litter expected in areas with low tourism. Dr Femke Broekhuis, a researcher at Oxford University and the author of the study, surveyed cheetahs in the reserve between 2013 and 2017 to assess how the frequency of tourist vehicles affected the number of cheetah cubs that survived to adulthood.

“During the study there was no hard evidence of direct mortality caused by tourists,” such as vehicles accidentally running over cubs, Broekhuis said. “It is therefore possible that tourists have an indirect effect on cub survival by changing a cheetah’s behaviour, increasing a cheetah’s stress levels or by minimising food consumption.” Broekhuis said she has seen as many as 30 vehicles around a single cheetah at the same time. “The most vehicles that we recorded at a cheetah sighting was 64 vehicles over a two-hour period,” she said.

Too many tourist vehicles can reduce a cheetah’s hunting success rate, the study suggests, and even if the hunt is successful, the disturbance from tourists could cause a female to abandon her kill, making her less likely to be able to provide for her young. Broekhuis said it was “crucial that strict wildlife viewing guidelines are implemented and adhered to,” and suggested limiting the number of vehicles around a cheetah to five and not allowing them to get any closer than 30 metres.

Read more …

The shape of things to come.

India Is Facing Its Worst-Ever Water Crisis (ZH)

India is facing its worst-ever water crisis, with some 600 million people facing acute water shortage, a government think-tank says. The Niti Aayog report, which draws on data from 24 of India’s 29 states, says the crisis is “only going to get worse” in the years ahead. Around 200,000 Indians die every year because they have no access to clean water, according to the report. And as The BBC reports, many end up relying on private water suppliers or tankers paid for the by the government. Winding queues of people waiting to collect water from tankers or public taps is a common sight in Indian slums. Indian cities and towns regularly run out water in the summer because they lack the infrastructure to deliver piped water to every home.

• 600 million people face high-to-extreme water stress. • 75% of households do not have drinking water on premise. 84% rural households do not have piped water access. • 70% of our water is contaminated; India is currently ranked 120 among 122 countries in the water quality index. India faces more than one problem – all compounding the nation’s crisis: Droughts are becoming more frequent, creating severe problems for India’s rain-dependent farmers (~53% of agriculture in India is rainfed17). When water is available, it is likely to be contaminated (up to 70% of our water supply), resulting in nearly 200,000 deaths each year.

Interstate disagreements are on the rise, with seven major disputes currently raging, pointing to the fact that limited frameworks and institutions are in place for national water governance. And that means massive problems lie ahead… 40% of the Indian population will have no access to drinking water by 2030 with 21 cities running out of groundwater by 2020 – affecting 100 million people which will cut 6% from GDP by 2050. What remains alarming is that the states that are ranked the lowest – such as Uttar Pradesh and Haryana in the north or Bihar and Jharkhand in the east – are also home to nearly half of India’s population as well the bulk of its agricultural produce.

Read more …

Mar 302018
 
 March 30, 2018  Posted by at 7:07 pm Finance Tagged with: , , , , , , , , , , ,  


Jerome Liebling May Day Union Square Park New York City 1948

 

 

Dr. D. peels the American political onion to get down to what it’s all about. I’m impressed. He explains America better than just about anyone. Turns out, there ain’t much left. So yeah, what happened?

 

 

Dr. D: The news cycle runs so frenetically it’s easy to lose track of the bigger tide. Let’s go back a week and look at something the Automatic Earth has been talking about since the beginning.

This weekend at a speech in Mumbai, Hillary Clinton said:

“If you look at the map of the United States, there’s all that red in the middle where Trump won. …I win the coast….I won the places that represent two-thirds of America’s gross domestic product. So I won the places that are optimistic, diverse, dynamic, moving forward. And his whole campaign, ‘Make America Great Again,’ was looking backwards.”

There are many ways to look at this: for one thing, by number, over 90% of the counties are Red. Yet over 50% of the population is concentrated in the cities and Blue counties. Clinton officially won the popular vote. Yet the United States has always had a geographical Electoral College system. A compromise of representation between small, weak states and strong, large states, and the rules of the 2016 campaign were no mystery or surprise. Yet that’s only the middle-sized picture.

The Big Picture is Mrs. Clinton saying she’s representing the important people, the right people – even the working people – and that 2/3rds of those people live exclusively in Blue districts on both coasts. While this is arguably true, it wasn’t always true. NYC or San Francisco have always been important, but from their founding until now, places like Dayton, St. Paul, Pittsburgh, or New Orleans were considered vital, important places, places where their own specialty happened: tires or flour, steel or shipping, lumber or mining.

What Happened? In a way the election was a referendum on “What Happened?” What happened to my community, my country, my area, and all the vital work those long-abandoned areas used to do, what happened to the massive GDP those areas used to contribute, and the answer is simple:

 

An organism contracts from the periphery to the core.

 

There’s a lot in that statement. As it took decades, even a century to happen, you can see which peripheries were sacrificed first and next, who had power, who didn’t, and how long they could maintain it; and that’s interesting, because it was not East or West, white or black, rural or urban as they might have you believe. There are as many hopeless, abandoned people in Baltimore as there are in Billings, Montana, possibly more, and possibly started far sooner. But if it’s not ethnic or geographical, then what is it?

 

An organism contracting from the periphery to the core is a consequence of centralization.

 

The Automatic Earth began with discussing the shrinking of the country, of industrialization, in terms of who would receive the ever-dwindling supplies oil and energy, the infrastructure and attention, but that is not necessarily a function of practicality. It is more often a function of political power, and we largely have a political problem and not a practical one.

The Core has been using their power to attract and concentrate more wealth and more power to themselves and their areas until most of the nation’s wealth and power are concentrated in Clinton’s 2/3rds of GDP, the sub-10% of the counties. All top 10 richest zip codes are now in one region: the Washington D.C. area.

Economic wealth and power is used to expand political power, further extracting the wealth of the Periphery to maintain the lifestyle of the Core. While this may seem a practical strategy, it isn’t. At one time the Periphery was creating maybe 2/3rds of the wealth of the nation, costing nothing, and that was with no more infrastructure than remains today.

So when those places are idled, 2/3rds of the nation’s GDP also vanishes, and while the Core can maintain their lifestyle by cannibalizing the remaining energy and attention, the entire nation they are part of only becomes far poorer. So far from the concentration of power making them stronger , it’s making them weaker , as they have a fraction of the former wealth and ability, cohesion and cooperation, men and materials to draw on.

 

This leads to the problem she highlights, which is social and political fracturing. With a majority of the wealth pulled to the Core, the Periphery withdraws its economic and social consent in a sense of unfairness that is only validated by further extractions, concentrations, and non-cooperations.

This can make it more difficult to run even the Core economy as disagreements develop between Core vs Periphery or entitled vs disenfranchised peoples even within the Core itself, leading to a difficulty maintaining compliance, resource supplies, disagreements on how to allocate wealth, support infrastructure, and so on.

This may seem an engineering issue, but this is also Tainter’s “Collapse of Complex Societies”, where cultures weather many storms, many expansions and contractions, but what causes “Collapse” is the attempt to maintain expensive infrastructure built up during the good times, at the expense of one portion of society. If compromise can be reached, Society survives.

If a compromise cannot be reached and the Core attempts to force its will via social and military force, the price of compliance becomes too high and fails, and with it, the cooperation, the social contract that makes a people or a nation one unit. It fractures, and when it does, those pieces break up and become, as he says, simpler, Less Complex societies. Less specialized, less concentrated, and less centralized, or by our modern pejorative view, “Primitive.”

As our American society has measurably less energy since 1974, we have seen the re-allocation and distribution of that energy ring-fenced into an ever-dwindling core of fewer counties, and fewer participants in those counties, and like other complex societies, we have been socially fracturing since that time as well, as fewer and fewer within the system benefit from it.

There’s much more to unpack in this, but let’s just ask some questions:

• What makes a “Core”? What constitutes the “Periphery”?

• Since the Periphery has and could contribute a majority of overall GDP, what inspires the Core to sacrifice it rather than expand their wealth through it?

• As a metaphor for a bodily process, a biological “contraction” occurs during emergencies such as starvation, freezing, or flight. But would the body really survive if it crippled the legs, lost its fingers, or its hearing to save itself? Contrarily, would the body survive and function if the brain, liver, or heart swelled to 3 times their original size?

• What is the resource load of a brain or stomach that is 3x larger than necessary?

• Since from an engineering perspective all parts of a machine must be in working order for it to work at all, what impractical, non-engineering priorities must be established to cause the core and periphery to become so mismatched?

• How are those impracticalities decided? How are they maintained?

• Is the deciding and maintaining of inequity and non-function a benefit to the Core? To the Periphery? Both? Neither?

• Once the Periphery has been sacrificed to the Core, what must happen for them to be re-joined and freely cooperate again?

• Can this be done? What would have to be sacrificed that wasn’t sacrificed before? By which side? One? Both?

 

Mrs. Clinton’s idle quote has meaning. If her places are “optimistic, diverse, dynamic, moving forward” then logically the other , the 90% of Red America is “pessimistic, oppressive, racist, dull, lazy, and backwards.” “Deplorable,” if you will. Aside from how this doesn’t seem to be a good pitch to win votes among 90% of voting counties, you have to ask, “How did they get this way?” and “What is your plan to gather your countrymen and make them optimistic, productive, and to work again, and thus help all?” Yet oddly, that was her opponent’s slogan.

If she’s not asking the question of how to include and elevate everyone, isn’t she really saying “I’m in favor of further enriching my Core at your expense”? And while historically that is indeed a common response to dwindling energy, Tainter warns it may also be one that can collapse both the economy and the society.

Since large, concentrated societies contract to the Core to protect themselves and their critical assets, those in the core historically won’t offer time or resources to help anyone but themselves: the army, the police, the roads, the tax officials. When that is true, you may want to localize, decentralize and maintain your own Core, with your own people, at home. This re-localizing will re-establish the balance of power in the Periphery where most people live.

 

 

Jan 222018
 
 January 22, 2018  Posted by at 7:27 pm Finance Tagged with: , , , , , , , , ,  


Winslow Homer Mending the nets 1881

 

Yes, it’s 10 years ago today, on January 22 2008, that Nicole Foss and I published our first article on the Automatic Earth (the first few years on Blogger). And, well, obviously, a lot has happened in those 10 years.

For ourselves, we went from living in Ottawa, Canada to doing a lot of touring starting in 2009, to support Nicole’s DVDs and video downloads. We visited Sweden, Slovakia, Czech Republic, Germany, Switzerland, Italy, Spain, Austria, Denmark, US of course, with prolonged stays in France, Britain, New Zealand, Australia, times that I miss a lot here and there, to now with Nicole settled in New Zealand and my time divided between Athens, Greece and the Netherlands.

We met so many people both online and in the flesh in all these countries it’s impossible to remember everyone of them, and every town we found ourselves in. Overall, it was a humbling experience to have so many people share their views and secrets, especially since we never stayed at hotels (or very rarely), we were always invited to stay with our readers. Thank you so much for that.

Since we started publishing 8 months before the fall of Bear Stearns, and we very much predicted the crisis that followed (we had been doing that before as well, since 2005 at the Oil Drum), we were the first warning sign for many people that things were going off the rails.

There are still to this day people expressing their gratitude for that. Others, though, not so much. And that has to do with the fact that governments, media and central banks came together to create the illusion of an economic recovery, something many if not most people still believe in. Just read the headlines and the numbers, on housing markets, stocks, GDP, jobs. Unfortunately, it was an illusion then and it still is now.

 

To get back to 10 years ago: Nicole and I decided to leave the Oil Drum because they didn’t want us to write about finance. Given what happened with Lehman while we were leaving, and as said with Bear Stearns later, it would appear that finance was indeed the hot issue back then, more than peak oil or associated themes.

The main reason we wanted to focus on finance was that we realized it was the most imminent of all the crises mankind faced and still faces. Energy and environmental issues are real and threaten our way of life, but before they hit us, the mother of all financial crises will.

What has changed, and increased, a lot over the past decade is the media. They have moved, more than before, into a kind of la la land where narratives are invented and presented with the express intention of keeping people feeling good about themselves in the face of all the distortion and disasters they face.

The big move in energy is not so much peak oil, but a meme of moving away from oil. ‘Renewable energy’ is all the fad, and it works, because it holds the promise that we can maintain our levels of energy consumption, and our lifestyles in general, pretty much up to some undefined moment in the future. For all you know, a seamless transition.

It’s a nonsense narrative, which originates not just in wishful thinking, but much more than that in widespread ignorance about what energy actually is and does, and what qualities oil and gas bring to the table that no other energy source can.

We must have written a hundred articles about such themes as energy return on energy invested (EROEI), and that the EROEI on renewables doesn’t allow for our present complex societies to continue as they are. Renewables are not useless by any means, but switching to them from oil will mean a huge simplification from our present lives. More than anything, probably, we have to ask if that would be such a bad thing.

But that is a question we avoid at all costs, because it is a threatening one. It implies we may have to do with less, and that’s not what we’re hardwired to do. Like any other species, we always want more. This is so ingrained in our world that our economies depend squarely on a perpetual need to strive for more tomorrow than we have today. Not as individuals, perhaps, but certainly as a group.

More trinkets, more gadgets, more energy. And for a -relatively- long time, more people. Relatively, because population growth is a recent phenomenon. It started at the very moment we began to have sources of ‘free’ or ‘surplus’ energy. Give any species a source of ‘surplus’ energy, and it will use it up as fast as it can, and proliferate to achieve that, until the surplus is gone. We are no different.

 

Of course, as the 2nd Law of Thermodynamics holds, the use of energy produces waste. More energy use produces more waste. One source may be slightly less polluting than another, but it’s thermodynamics that dictates the limits here. No energy source is fully renewable, and clean energy is just an advertizing term. And with an energy return too low to run complex societies on, those are hard limits. The only way out is to use less energy, but our economic models are geared towards the opposite, as are our brains.

Meanwhile, we’re saddling our children with the consequences of our prolific use of energy. Species extinction runs a hundred or a thousand times faster than is ‘natural’, ever more of our arable land is too polluted or wasted to produce food, and the grand mass of plastics in our oceans exceeds that of the living creatures that fed us for a very long time, taking the numbers of these creatures down so fast our grandchildren will have to eat jellyfish.

Ironically (and there’s lots of irony in the story of our tragic species), we produce more food per capita today than ever before, but its distribution is so warped that one group of us throw away more than we consume, while another goes hungry. And to top it off, much of what we eat lacks nutrition, and is often even downright toxic for us; it makes us fat and it makes us sick.

Then again, our entire environment is also fast becoming toxic. We’re a bloated, obese, asthmatic, allergic and cancer-riddled species, and yet we call ourselves a success. It’s all about the narrative.

 

But as Nicole and I said 10 years ago, and still do, it’s finance that will be the first crisis to hit. It will hit so hard it’ll make any other crises, environment and energy, feel like an afterthought. Pension plans across the board will prove to be a Ponzi, housing will collapse, shares will crumble, scores of people will lose all their savings and their jobs, their homes.

This is because, in an ostensible effort to ‘save’ our societies and economies, our -central- bankers and politicians decided to put everything on red, and loaded another $20 trillion into the upper shelf of the financial world, the very shelf that was most rotten to begin with in more than one sense of the word. And they’re not the ones paying the heftiest price for this stupidest bet of all times, you are.

 

All in all, the only possible conclusion we can draw is that in the past 10 years, things have indeed changed. Thing is, they have changed for the worse. Much worse. And the recovery narrative can’t and won’t hold. Question is who realizes this, and what they are planning to do with the knowledge.

Friend of the Automatic Earth Nomi Prins said recently that in her view, the Fed is scared to death of causing a global financial crash. I think they may have recognized the inevitability of that crash quite a while ago, and they’re working to minimize the impact on themselves and their buddies and masters.

A global central bank tightening looks an easy sale now that people have swallowed the recovery myth whole. The crash that will lead to might take long enough to develop for them to deny any responsibility.

And then we’re all on our own. The political ramifications will be gigantic. Because the incompetence and corruptness of incumbent politicians will be exposed, and governments overthrown.

Nothing we couldn’t have, and didn’t, see coming in January 2008. Best advice today, as it was back then: get out of debt.

And thank you so much for 10 years of reactions, responses, comments, your hospitality, and all other forms of support -including financial of course.

 

 

Dec 102017
 
 December 10, 2017  Posted by at 10:22 am Finance Tagged with: , , , , , , , , , ,  


Robert Frank Motorama, Los Angeles 1956

 

Peak Fantasy Time (David Stockman)
Deflation Remains Biggest Threat As Lofty Stock Markets Head Into 2018 (F.)
Global Powers Lobby To Stop Special Brexit Deal For UK (G.)
The US Media Yesterday Suffered its Most Humiliating Debacle in Ages (GG)
Principles of Political Economy: The Opening Lines (Steve Keen)
Half A Salary, Half A Job, Half A Life (K.)
Erdogan, Tsipras Strike Secret Deal On Refugees (K.)
Refugee Arrivals in Greece Offset Decongestion Efforts (K.)
Super Rich Shown To Have Grown Out Of Ancient Farming (G.)
India Gov. Files Suits Against Monsanto et al Over Bollworm Cotton Attack (VoI)

 

 

Politics is the entertainment division of the military industrial complex.
-Frank Zappa

The decline in quality of jobs -and compensation- is as horrible as the jobs reports’ attempts at hiding that decline.

Peak Fantasy Time (David Stockman)

If you want to know why both Wall Street and Washington are so delusional about America’s baleful economic predicament, just consider this morsel from today’s Wall Street Journal on the purportedly awesome November jobs report. “Wages rose just 2.5% from a year earlier in November—near the same lackluster pace maintained since late 2015, despite a much lower unemployment rate. But in a positive sign for Americans’ incomes, the average work week increased by about 6 minutes to 34.5 hours in November…. November marked the 86th straight month employers added to payrolls.” Whoopee! Six whole minutes added to a work week that has been shrinking for decades owing to the relentlessly deteriorating quality mix of the “jobs” counted by the BLS establishment survey.

In fact, even by that dubious measure, the work week is still shorter than it was at the December 2007 pre-crisis peak (33.8) and well below its 2000 peak level. The reason isn’t hard to figure: The US economy is generating fewer and fewer goods producing jobs where the work week averages 40.5 hours and weekly pay equates to $58,400 annually and far more bar, hotel and restaurant jobs, where the work week averages just 26.1 hours and weekly pay equates to only $21,000 annually. In other words, the ballyhoed headline averages are essentially meaningless noise because the BLS counts all jobs equal – that is, a 10-hour per week gig at the minimum wage at McDonald’s weighs the same as a 45 hour per week (with overtime) job at the Caterpillar plant in Peoria that pays $80,000 annually in wages and benefits.

In fact, what has been the weakest expansion in history by far may now be finally running out of gas. During the last several weeks the pace of US treasury payroll tax collections has actually dropped sharply – and it is ultimately Uncle Sam’s collection box which gives the most accurate, concurrent reading on the state of the US economy. Some 20 million employers do not tend to send in withholding receipts for the kind of phantom seasonally maladjusted, imputed and trend-modeled jobs which populate the BLS reports.

Yet we we are not close to having recovered the 4.3 million goods producing jobs lost in the Great Recession; 40% of them are still AWOL – meaning they are not likely to be recovered before the next recession hits. Stated differently, the US economy has been shedding high paying goods producing jobs ever since they peaked at 25 million way back in 1980. Indeed, we are still not even close to the 24.6 million figure which was posted at the turn of the century.

By contrast, the count of leisure and hospitality jobs( bars, hotels and restaurants), or what we have dubbed the “Bread and Circuses Economy” keeps growing steadily, thereby filling up the empty space where good jobs have vacated the BLS headline total. Thus, when goods-producing jobs peaked at 25 million back in 1980, there were only 6.7 million jobs in leisure and hospitality. Today that sector employs 16.0 million part-time, low-pay workers..

Read more …

“.. the Fed has erroneously predicted 2% inflation for 66 months and continues to tell us that the low levels of inflation are “transitory.“

Deflation Remains Biggest Threat As Lofty Stock Markets Head Into 2018 (F.)

In the two weeks running up to the passage of the Senate’s version of the tax bill, the equity markets moved significantly depending on how any particular Republican senator intended on voting. Then, when the Senate finally passed the bill on the next business day, markets made new intra-day record highs, but then reversed course. Given the current sky-high market valuation levels, the tax benefits are already priced in. Economist David Rosenberg examined market reaction to the five major tax bills of the last 70 years. He found that, on average, the S&P 500 rises 14.3% (median 18.9%) in the year leading up to the passage of the tax legislation. In the year following, on average, the index falls 7.5% (median 13.1%). It could be he is on to something.

If it has been historically easy money that has propelled the U.S. and every other major stock market to record heights over the past few years, then it is noteworthy that the last 12 moves from the world’s central banks have been tightening moves. We know that the Fed is certain to tighten next week at its December 12-13 meeting. This, despite the fact that the Fed’s governing board is deeply divided on the outlook for interest rates and inflation. According to their own minutes, some Fed-governing members continue to hold to the academic view that the Phillips curve (i.e., inflation always rises when the unemployment rate is low) is alive and well. Under this view, inflation is just around the corner and the Fed had better be pre-emptive, lest inflation get ahead of them.

The other view is that today’s economy exhibits behaviors that are significantly different from those that dominated the 60+ years of post-WWII America, and that inflation is no longer the threat it used to be. In fact, deflation may be a bigger threat, especially given the high and rising debt levels. Regular readers know that I have espoused the latter viewpoint. I have pointed out several times that the Fed has erroneously predicted 2% inflation for 66 months and continues to tell us that the low levels of inflation are “transitory.” Fed Chair-Elect Powell espoused this viewpoint in his confirmation hearing, so, there is not much hope that they Fed will back off.

Read more …

US, Canada et al don’t want any special treatment for Britain. But that’s not their decision.

Global Powers Lobby To Stop Special Brexit Deal For UK (G.)

Theresa May’s hopes of securing a unique post-Brexit trade deal with the EU were under threat on Saturday night as Brussels said it was coming under international pressure to deny Britain special treatment. After a week that saw May reach a deal with the EU that will allow Brexit talks to move forward on to future trade relations, EU officials insisted a bespoke deal more favourable to the UK than other non-EU nations was out of the question. One EU source close to the talks said: “We have been approached by a number of [non-member] countries expressing concerns and making it clear that it would constitute a major problem for them if suddenly the UK were to get better terms than they get.”

The official said that once the UK is out of the single market and customs union in March 2019, there could be no replication of the terms of the current trading relationship, or anything close to it, and no special treatment. “It is not just an indication of some strange rigid principle. It is because things won’t work,” he said. “First and foremost we need to stick to this balance of rights and obligations, otherwise we will be undermining our own customs union and single market. Second, we cannot upset relations with other third countries,” the official said. “If we were to give the UK a very lopsided deal, then the other partners with whom we have been engaging and who entered into balanced agreements would come back and question those agreements.”

Read more …

Julian Assange on Twitter: “Is the fake news story about @WikiLeaks yesterday the worst since Iraq? It’s a serious question. Three outlets, CNN, NBC and ABC all independently “confirmed” the same false information. Has there previously been a serious triple origin fake news story? i.e not just re-reporting.”

The US Media Yesterday Suffered its Most Humiliating Debacle in Ages (GG)

Friday was one of the most embarrassing days for the U.S. media in quite a long time. The humiliation orgy was kicked off by CNN, with MSNBC and CBS close behind, with countless pundits, commentators and operatives joining the party throughout the day. By the end of the day, it was clear that several of the nation’s largest and most influential news outlets had spread an explosive but completely false news story to millions of people, while refusing to provide any explanation of how it happened. The spectacle began on Friday morning at 11:00 am EST, when the Most Trusted Name in News™ spent 12 straight minutes on air flamboyantly hyping an exclusive bombshell report that seemed to prove that WikiLeaks, last September, had secretly offered the Trump campaign, even Donald Trump himself, special access to the DNC emails before they were published on the internet.

As CNN sees the world, this would prove collusion between the Trump family and WikiLeaks and, more importantly, between Trump and Russia, since the U.S. intelligence community regards WikiLeaks as an “arm of Russian intelligence,” and therefore, so does the U.S. media. This entire revelation was based on an email which CNN strongly implied it had exclusively obtained and had in its possession. The email was sent by someone named “Michael J. Erickson” – someone nobody had heard of previously and whom CNN could not identify – to Donald Trump, Jr., offering a decryption key and access to DNC emails that WikiLeaks had “uploaded.”

Read more …

Steve is busy introducing economics to energy. Another thing the entire field entirely overlooked.

Principles of Political Economy: The Opening Lines (Steve Keen)

Labor without Energy is a Corpse; Capital without Energy is a Statue

Economics went astray from the very first sentence of Adam Smith’s Wealth of Nations in 1776: “The annual labour of every nation”, Smith asserted, “is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always, either in the immediate produce of that labour, or in what is purchased with that produce from other nations.” This paragraph mimicked the structure, and even the cadence (though not the brevity), of the opening sentence of Richard Cantillon’s 1730 treatise Essai sur la Nature du Commerce en Général (which Smith read). However, Smith made one crucial substitution: he asserted that “Labor … is the fund” from which our wealth springs, whereas Cantillon asserted that it was Land:

“Land”, Cantillon began, “is the source or matter from which all wealth is drawn; man’s labor provides the form for its production, and wealth in itself is nothing but the food, conveniences, and pleasures of life.” (21) Both these assertions are strictly false. The true source of the wealth that humanity has generated from production is neither Labor nor Land, but the Energy that humanity’s production systems harness and turn into useful work (now known as “Exergy”). However, Smith’s assertion is irredeemably false, whereas Cantillon’s merely needs generalization to make it consistent with the fundamental laws of the universe known as the Laws of Thermodynamics. These Laws are still poorly known by economists, which in part explains why economic theory has managed to be in conflict with them for so long. Illustrating why this is so, and why it is crucial, will take time, and effort on your part too to understand them (if you do not already).

But the fact that no theory that contradicts them can be taken seriously, was stated eloquently by the physicist Arthur Eddington in his 1928 book for lay readers The Nature of the Physical World: The law that entropy always increases—the second law of thermodynamics—holds, I think, the supreme position among the laws of Nature. If someone points out to you that your pet theory of the universe is in disagreement with Maxwell’s equations—then so much the worse for Maxwell’s equations. If it is found to be contradicted by observations—well, these experimentalists do bungle things sometimes. But if your theory is found to be against the second law of thermodynamics I can give you no hope; there is nothing for it but to collapse in deepest humiliation. (37)

Read more …

Life in Greece. Every day gets worse.

Half A Salary, Half A Job, Half A Life (K.)

Two in three Greeks fail to pay their bills on time, mainly because they don’t have the money. Three in 10 private sector workers, meanwhile, work part time and get paid a salary of 407.15 euros a month, on average. The first case puts Greece at the top of the list of EU countries in terms of citizens that don’t keep up with their bills, according to the European Consumer Payment Report 2017, with the main reason being the lack of money. In the rest of Europe, the main causes of delays are simple absentmindedness or forgetfulness. The second case is something entirely different. In one sense, it can be interpreted as a reduction in unemployment, which dropped to 20.5% in September. Basically, unemployment falls as part-time work rises, with 30.6% of employees in the private sector working such jobs.

Is this something to be glad about? Should we welcome it as an improvement in the country’s economy? Flexible forms of labor that bring in a pittance of a salary strengthen the ranks of the nouveau pauvre, but at the same time bring down unemployment – albeit dragging down every index that points to a normal life along with it. This is the new normal. But how can 400 euros a month possibly be considered normal? We are beyond the viral videos of the first months of the crisis, of frenzied officials claiming that children were fainting of hunger at school, of images of people rummaging through trash cans looking for food, of pensioners falling over each other for a bag of free potatoes and other such dramatic scenes, real or contrived, that appeared on screens all over the world, and which the present government is quick to claim no longer exist.

Today, some really “lucky” Greeks are insured and have a daily wage of 51 euros, adding up to 1,193 euros a month. But the majority, the less fortunate – yet still fortunate enough to have a job – need to make do with 400 euros a month. It is a conundrum that requires a good deal of math. This month you’ll pay the water bill but not the electricity, you’ll limit your purchases to the bare essentials and you’ll adapt your diet to your budget. What’s left after that? A constant knot in your stomach that you have to learn to put up with. You won’t faint in the street, but each day will be a struggle. You will die a little bit inside, but this is not a measurable reaction and the indices don’t care. Neither does the government, whose slogan when it was in the opposition was that there are real people behind the data. Now the only number it cares to talk about is the shrinking unemployment rate.[..]

The line that defines normal is constantly being shifted and with it the definition of poverty.

Read more …

Erdogan was in Greece the past week and tried to stir up as much shit as he could. Refugees remain his main weapon.

Erdogan, Tsipras Strike Secret Deal On Refugees (K.)

As pressure due to overcrowding continues to build at reception centers for migrants on the islands of the eastern Aegean, Turkish President Recep Tayyip Erdogan accepted a request by Prime Minister Alexis Tsipras that Turkey take back migrants from the Greek mainland as well as the islands, Kathimerini understands. During a joint press conference with Erdogan on Thursday, Tsipras declared that “new measures have been agreed for cooperation in the context of the European Union-Turkey agreement,” referring to a deal signed between Ankara and Brussels in March 2016 to curb human trafficking across the Aegean. Tsipras’s comments spurred much speculation about what those measures might be. It appears that they would involve triggering the return of migrants to Turkey, a process that has largely halted as new arrivals often lodge applications for asylum, a lengthy process.

Thousands of migrants, particularly those deemed to be the most vulnerable such as children, pregnant women and the elderly, have already been transferred from cramped facilities on the islands to the mainland. But conditions remain overcrowded at the island camps amid a constant stream of new arrivals from neighboring Turkey. What remains unclear is whether officials in Brussels have approved the deal; as it stands, it would basically undermine the basis of last year’s EU-Ankara agreement, according to which migrants should remain on the islands until a decision has been reached on their status (whether they are considered to belong to vulnerable groups meriting priority treatment, to be granted asylum etc). In recent comments, Dutch Ambassador in Athens Caspar Veldkamp expressed concerns about the prospects of mass relocations to the mainland if returns are not being made to Turkey, noting that this could undermine the EU-Turkey deal and encourage human smugglers rather than averting them.

For the leftist-led government, however, moving migrants from cramped facilities to mainland camps would appease those in the party concerned about inhumane conditions on the islands. As winter looms, and hundreds of migrants continue to live in tents around the reception centers, Migration Minister Yiannis Mouzalas has conceded that he could not rule out the risk of people dying from hypothermia. In an interview with Der Spiegel that was published on Friday, Mouzalas said that authorities were making preparations to ensure that island camps are ready to deal with plunging temperatures. Everything should be in place by December 15, he said. “The key though is the number of new arrivals,” he said, adding that if there is no large increase in numbers “then we are well prepared.” Authorities might reserve some rooms at local hotels if necessary, he said.

Read more …

Haven’t heard this one before, and it feels like an ominous sign: “Migration Minister Yiannis Mouzalas told Germany’s Spiegel Online that he cannot guarantee that no one will die in the camps with the onset of winter.”

Refugee Arrivals in Greece Offset Decongestion Efforts (K.)

The effort to improve the living conditions of refugees and migrants stranded at overcrowded reception centers on the eastern Aegean islands of Lesvos, Chios and Samos by transferring some of them to the mainland will fail to yield the desired result as long as flows from Turkey continue. In its latest report, the UNHCR said that 17,764 people were transferred from the islands to the mainland in the period from July 2016 to November 2017. UNHCR sources clarified, however, that the number of those removed from the islands is significantly higher than the official figure. Many of the people who have completed the necessary procedures or are deemed to be vulnerable, and as such are allowed to depart for the mainland, do so at their own cost, the same sources said.

They also reckoned that in 2016 around 40% of transfers were conducted by the UNHCR but the%age rose to 80% in 2017 after a request by the Migration Policy Ministry. At the same time, however, in the period between early April 2016, when Ankara and Brussels reached a deal to limit migrant flows into Europe, until late November, some 48,600 people arrived in Greece. In November, 3,800 people arrived on the Greek islands from Turkey, while 2,128 asylum seekers were transferred to the mainland in the same month. The Migration Policy Ministry on Saturday dismissed rumors on Chios that there are plans for the immediate removal of some 1,000 people from the Vial hotspot. It said that removals will take place gradually.

Meanwhile, Migration Minister Yiannis Mouzalas told Germany’s Spiegel Online that he cannot guarantee that no one will die in the camps with the onset of winter. “What we can do,” he said, “is try the utmost to prevent death.” Moreover, the German newspaper Bild said that an increasing number of refugees in Greece are trying to get to other European Union countries using forged passports.

Read more …

There are multiple pieces coming out lately that prove the obvious: once mankind started gathering surpluses, hierarchies developed, and so did inequality.

Super Rich Shown To Have Grown Out Of Ancient Farming (G.)

To measure relative wealth in a society, the team worked with archaeologists studying 62 different societies in Europe, Asia and North America. Some of these were up to 10,000 years old and included digs in ancient Babylonia, Catalhoyuk (now in Turkey) and Pompeii. Researchers analysed the sizes of houses at these sites and used these as indicators of the variations of wealth that existed there at any one time. “House size gives a very good indication of wealth,” said Smith. This point was backed by Kohler. “We consider house size to be a proxy for wealth.” The figures produced by these analyses provided the team with an indication of a particular society’s wealth. The greater the diversity in house size, the greater the inequality. In turn this disparity was measured using a system based on the Gini coefficient.

“Gini coefficients range from zero for societies in which each person has exactly the same amount of wealth to a society in which a single person owns the resources of an entire society. Such a society would have a Gini coefficient of one,” Kohler said. The team found that ancient farming societies had an inequality with a coefficient of around 0.35. That is a higher level of inequality than the level that is likely to have existed in earlier millennia when humans lived as hunter gatherers and shared many resources. “However, this inequality among these, the first farmers, is an awful lot less than the inequality you find in the US today,” said Kohler. “Here we have a Gini coefficient of around 0.8 today.” In the ancient farms of the New World, inequality stayed more or less the same. However, in Eurasia it started to climb over time until it reached levels of around 0.6 a few thousand years ago. This rise coincides with the introduction of oxen and horses and their exploitation in the ploughing of fields.

Read more …

More. Monsanto. Mayhem.

India Gov. Files Suits Against Monsanto et al Over Bollworm Cotton Attack (VoI)

The Maharashtra government on Friday announced that it would file police complaints against seed companies like Monsanto, which supplied seeds of BT Cotton, the crops from which were destroyed in a large-scale bollworm attack. Maharashtra’s Revenue Minister Chandrakant Patil said on Friday more than 70% of the cotton crop in Vidarbha has been destroyed due to the bollworm attack. He added that companies like Monsanto had provided the BT Cotton seeds with the promise that they were immune to attacks by the pest. The Vasantrao Naik Shetkari Swavalamban Mission, a state government body, has estimated that the output of cotton in Maharashtra would fall to 43.10 lakh quintal as compared to 78.61 quintals in December 2016.

The opposition parties are however demanding that the Maharashtra government pay compensation to cotton farmers on the lines of the ongoing farm loan waiver extended to cultivators. The Nationalist Congress Party is demanding that the government provide a compensation of Rs 25,000 per hectare for farmers whose crop has been destroyed in the bollworm attack. NCP leader Dhananjay Munde said his party would hold protests in the cotton-growing areas of Vidarbha to force the government raise compesation to farmers. With the opposition parties likely to paralyse the state legislature during the Winter Session to be held in Nagpur from Monday, Chief Ministre Devendra Fadnavis’s government on Friday asked revenue officials to carry out panchnama of crops destroyed in the bollwork attack. “We are working on a compensation package for farmers,” Patil told reporters.

Read more …

 

Politics is the entertainment division of the military industrial complex.
-Frank Zappa

 

Jul 122017
 
 July 12, 2017  Posted by at 11:34 am Finance Tagged with: , , , , , ,  


JMW Turner Vignette Study of a Ship in a Storm c.1830

 

Nicole sent me this video, which I know next to nothing about. I don’t know where it was filmed, or when, or why, nada. But, apart from the fact that listening to Nicole is always interesting, and I haven’t heard her talk nearly enough recently, because we live on opposite ends of the world these days, this is interesting because it relates directly to energy issues that have lately been a recurring theme at the Automatic Earth.

That is, once the net energy we gain from our energy sources falls by enough, our complex systems become untenable. This is not an easy-to-grasp thing for many, but it’s nevertheless true. The energy return on energy invested (EROEI) on the vast majority of our present energy sources is already dangerously close to the point where we will have to make our lives, and our societies, simpler.

We can discuss whether that’s such a bad thing, but it doesn’t really matter. We can’t beat thermodynamics. The initial reactions to this will in all likelihood by very dramatic, and in cases violent, since many individuals will try to escape having to adapt, and since individuals, societies, nations will realize that energy provides political -and military- power. Trust is a delicate topic.

There can be no doubt that in the immediate future we will attempt to build even more complex systems and societies, just to solve the problems caused by complexity, only to find out later that these systems are all built around centers that cannot hold. And we can all imagine what this will mean for our economies.

Here’s Nicole:

 

 

Nicole Foss from Community Solutions on Vimeo.

 

 

Jun 262017
 
 June 26, 2017  Posted by at 11:49 am Finance Tagged with: , , , , , , , , , ,  


Paul Klee Ghost of a Genius 1922

 

The Automatic Earth has written many articles on the topic of EROEI (Energy Return on Energy Invested) through the years, there’s a whole chapter on it in the Automatic Earth Primer Guide 2017 that Nicole assembled recently, which contains 17 different articles.

Still, since EROEI is the most important energy issue there is at present, and not the price of oil or some new gas find or a set of windmills or solar panels or thorium, it can’t hurt to repeat it once again, in someone else’s words and from someone else’s angle. This one comes from Brian Davey on his site CredoEconomics, part of his book “Credo”.

It can’t hurt to repeat it because not nearly enough people understand that in the end everything, the survival of our world, our way of life, is all about the ‘quality’ of energy, about what we get in return when we drill and pump and build infrastructure, what remains when we subtract all the energy used to ‘generate’ energy, from (or at) the bottom line.

Anno 2017, our overall ‘net energy’ is nowhere near where it was for the first 100 years or so after we started using oil. And there’s no energy source that comes close to -conventional- oil (and gas) when it comes to what we are left with once our efforts are discounted, in calories or Joules.

The upshot of this is that even if we can ‘gain’ 10 times more than we put in, in energy terms, that won’t save our complex societies. To achieve that, we would need at least a 15:1 ratio, a number straight from our friend Charlie Hall, which is probably still quite optimistic. And we simply don’t have it. Not anymore.

Also, not nearly enough people understand that it has absolutely nothing to do with money. That you can’t go out and buy more or better energy sources. Which is why we use EROEI instead of EROI (Energy Return on Investment), because the latter leaves some sort of financial interpretation open that doesn’t actually exist, it suggests that a financial price of energy plays a role.

First, here’s Nicole from the Automatic Earth Primer Guide 2017. Below that, Brian Davey’s article.

 

 

Nicole Foss: Energy is the master resource – the capacity to do work. Our modern society is the result of the enormous energy subsidy we have enjoyed in the form of fossil fuels, specifically fossil fuels with a very high energy profit ratio (EROEI). Energy surplus drove expansion, intensification, and the development of socioeconomic complexity, but now we stand on the edge of the net energy cliff. The surplus energy, beyond that which has to be reinvested in future energy production, is rapidly diminishing.

We would have to greatly increase gross production to make up for reduced energy profit ratio, but production is flat to falling so this is no longer an option. As both gross production and the energy profit ratio fall, the net energy available for all society’s other purposes will fall even more quickly than gross production declines would suggest. Every society rests on a minimum energy profit ratio. The implication of falling below that minimum for industrial society, as we are now poised to do, is that society will be forced to simplify.

A plethora of energy fantasies is making the rounds at the moment. Whether based on unconventional oil and gas or renewables (that are not actually renewable), these are stories we tell ourselves in order to deny that we are facing any kind of future energy scarcity, or that supply could be in any way a concern. They are an attempt to maintain the fiction that our society can continue in its current form, or even increase in complexity. This is a vain attempt to deny the existence of non-negotiable limits to growth. The touted alternatives are not energy sources for our current society, because low EROEI energy sources cannot sustain a society complex enough to produce them.

 

 

Using Energy to Extract Energy – The Dynamics of Depletion

 

Brian Davey: The “Limits to Growth Study” of 1972 was deeply controversial and criticised by many economists. Over 40 years later, it seems remarkably prophetic and on track in its predictions. The crucial concept of Energy Return on Energy Invested is explained and the flaws in neoclassical reasoning which EROI highlights.

The continued functioning of the energy system is a “hub interdependency” that has become essential to the management of the increasing complexity of our society. The energy input into the UK economy is about 50 to 70 times as great as what the labour force could generate if working full time only with the power of their muscles, fuelled up with food. It is fossil fuels, refined to be used in vehicles and motors or converted into electricity that have created power inputs that makes possible the multiple round- about arrangements in a high complex economy. The other “hub interdependency” is a money and transaction system for exchange which has to continue to function to make vast production and trade networks viable. Without payment systems nothing functions.

Yet, as I will show, both types of hub interdependencies could conceivably fail. The smooth running of the energy system is dependent on ample supplies of cheaply available fossil fuels. However, there has been a rising cost of extracting and refining oil, gas and coal. Quite soon there is likely to be an absolute decline in their availability. To this should be added the climatic consequences of burning more carbon based fuels. To make the situation even worse, if the economy gets into difficulty because of rising energy costs then so too will the financial system – which can then have a knock-on consequence for the money system. The two hub interdependencies could break down together.

“Solutions” put forward by the techno optimists almost always assume growing complexity and new uses for energy with an increased energy cost. But this begs the question- because the problem is the growing cost of energy and its polluting and climate changing consequences.

 

The “Limits to Growth” study of 1972 – and its 40 year after evaluation

It was a view similar to this that underpinned the methodology of a famous study from the early 1970s. A group called the Club of Rome decided to commission a group of system scientists at the Massachusetts Institute of Technology to explore how far economic growth would continue to be possible. Their research used a series of computer model runs based on various scenarios of the future. It was published in 1972 and produced an instant storm. Most economists were up in arms that their shibboleth, economic growth, had been challenged. (Meadows, Meadows, Randers, & BehrensIII, 1972)

This was because its message was that growth could continue for some time by running down “natural capital” (depletion) and degrading “ecological system services” (pollution) but that it could not go on forever. An analogy would be spending more than one earns. This is possible as long as one has savings to run down, or by running up debts payable in the future. However, a day of reckoning inevitably occurs. The MIT scientists ran a number of computer generated scenarios of the future including a “business as usual” projection, called the “standard run” which hit a global crisis in 2030.

It is now over 40 years since the original Limits to Growth study was published so it is legitimate to compare what was predicted in 1972 against what actually happened. This has now been done twice by Graham Turner who works at the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO). Turner did this with data for the rst 30 years and then for 40 years of data. His conclusion is as follows:

The Limits to Growth standard run scenario produced 40 years ago continues to align well with historical data that has been updated in this paper following a 30-year comparison by the author. The scenario results in collapse of the global economy and environment and subsequently, the population. Although the modelled fall in population occurs after about 2030 – with death rates reversing contemporary trends and rising from 2020 onward – the general onset of collapse first appears at about 2015 when per capita industrial output begins a sharp decline. (Turner, 2012)

So what brings about the collapse? In the Limits to Growth model there are essentially two kinds of limiting restraints. On the one hand, limitations on resource inputs (materials and energy). On the other hand, waste/pollution restraints which degrade the ecological system and human society (particularly climate change).

Turner finds that, so far it, is the former rather than the latter that is the more important. What happens is that, as resources like fossil fuels deplete, they become more expensive to extract. More industrial output has to be set aside for the extraction process and less industrial output is available for other purposes.

With signficant capital subsequently going into resource extraction, there is insufficient available to fully replace degrading capital within the industrial sector itself. Consequently, despite heightened industrial activity attempting to satisfy multiple demands from all sectors and the population, actual industrial output per capita begins to fall precipitously, from about 2015, while pollution from the industrial activity continues to grow. The reduction of inputs produced per capita. Similarly, services (e.g., health and education) are not maintained due to insufficient capital and inputs.

Diminishing per capita supply of services and food cause a rise in the death rate from about 2020 (and somewhat lower rise in the birth rate, due to reduced birth control options). The global population therefore falls, at about half a billion per decade, starting at about 2030. Following the collapse, the output of the World3 model for the standard run (figure 1 to figure 3) shows that average living standards for the aggregate population (material wealth, food and services per capita) resemble those of the early 20th century.(Turner, 2012, p. 121)

 

Energy Return on Energy Invested

A similar analysis has been made by Hall and Klitgaard. They argue that to run a modern society it is necessary that the energy return on energy invested must be at least 15 to 1. To understand why this should be so consider the following diagram from a lecture by Hall. (Hall, 2012)

eroei

The diagram illustrates the idea of the energy return on energy invested. For every 100 Mega Joules of energy tapped in an oil flow from a well, 10 MJ are needed to tap the well, leaving 90 MJ. A narrow measure of energy returned on energy invested at the wellhead in this example would therefore be 100 to 10 or 10 to 1.

However, to get a fuller picture we have to extend this kind of analysis. Of the net energy at the wellhead, 90 MJ, some energy has to be used to refine the oil and produce the by-products, leaving only 63 MJ.

Then, to transport the refined product to its point of use takes another 5 MJ leaving 58MJ. But of course, the infrastructure of roads and transport also requires energy for construction and maintenance before any of the refined oil can be used to power a vehicle to go from A to B. By this final stage there is only 20.5 MJ of the original 100MJ left.

We now have to take into account that depletion means that, at well heads around the world, the energy to produce energy is increasing. It takes energy to prospect for oil and gas and if the wells are smaller and more difficult to tap because, for example, they are out at sea under a huge amount of rock. Then it will take more energy to get the oil out in the first place.

So, instead of requiring 10MJ to produce the 100 MJ, let us imagine that it now takes 20 MJ. At the other end of the chain there would thus, only be 10.5MJ – a dramatic reduction in petroleum available to society.

The concept of Energy Return on Energy Invested is a ratio in physical quantities and it helps us to understand the flaw in neoclassical economic reasoning that draws on the idea of “the invisible hand” and the price mechanism. In simplistic economic thinking, markets should have no problems coping with depletion because a depleting resource will become more expensive. As its price rises, so the argument goes, the search for new sources of energy and substitutes will be incentivised while people and companies will adapt their purchases to rising prices. For example, if it is the price of energy that is rising then this will incentivise greater energy efficiency. Basta! Problem solved…

Except the problem is not solved… there are two flaws in the reasoning. Firstly, if the price of energy rises then so too does the cost of extracting energy – because energy is needed to extract energy. There will be gas and oil wells in favourable locations which are relatively cheap to tap, and the rising energy price will mean that the companies that own these wells will make a lot of money. This is what economists call “rent”. However, there will be some wells that are “marginal” because the underlying geology and location are not so favourable. If energy prices rise at these locations then rising energy prices will also put up the energy costs of production. Indeed, when the energy returned on energy invested falls as low as 1 to 1, the increase in the costs of energy inputs will cancel out any gains in revenues from higher priced energy outputs. As is clear when the EROI is less than one, energy extraction will not be profitable at any price.

Secondly, energy prices cannot in any case rise beyond a certain point without crashing the economy. The market for energy is not like the market for cans of baked beans. Energy is necessary for virtually every activity in the economy, for all production and all services. The price of energy is a big deal – energy prices going up and down have a similar significance to interest rates going up or down. There are “macro-economic” consequences for the level of activity in the economy. Thus, in the words of one analyst, Chris Skrebowski, there is a rise in the price of oil, gas and coal at which:

the cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time.(Skrebowski, 2011)

This kind of analysis has been further developed by Steven Kopits of the Douglas-Westwood consultancy. In a lecture to the Columbia University Center on Global Energy Policy in February of 2014, he explained how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in “conventional oil” production but has merely served to slow what would otherwise have been a faster decline.

More specifically, the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that amount, $3.5 trillion was spent on the “legacy” oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production, it fell by 1 million barrels a day. By way of comparison, investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.

Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.

The situation can be understood by reference to the nursery story of Goldilocks and the Three Bears. Goldilocks tries three kinds of porridge – some that is too hot, some that is too cold and some where the temperature is somewhere in the middle and therefore just right. The working assumption of mainstream economists is that there is an oil price that is not too high to undermine economic growth but also not too low so that the oil companies cannot cover their extraction costs – a price that is just right. The problem is that the Goldilocks situation no longer describes what is happening. Another story provides a better metaphor – that story is “Catch 22”. According to Kopits, the vast majority of the publically quoted oil majors require oil prices of over $100 a barrel to achieve positive cash flow and nearly a half need more than $120 a barrel.

But it is these oil prices that drag down the economies of the OECD economies. For several years, however, there have been some countries that have been able to afford the higher prices. The countries that have coped with the high energy prices best are the so called “emerging non OECD countries” and above all China. China has been bidding away an increasing part of the oil production and continuing to grow while higher energy prices have led to stagnation in the OECD economies. (Kopits, 2014)

Since the oil price is never “just right” it follows that it must oscillate between a price that is too high for macro-economic stability or too low to make it a paying proposition for high cost producers of oil (or gas) to invest in expanding production. In late 2014 we can see this drama at work. The faltering global economy has a lower demand for oil but OPEC, under the leadership of Saudi Arabia, have decided not to reduce oil production in order to keep oil prices from falling. On the contrary they want prices to fall. This is because they want to drive US shale oil and gas producers out of business.

The shale industry is described elsewhere in this book – suffice it here to refer to the claim of many commentators that the shale oil and gas boom in the United States is a bubble. A lot of money borrowed from Wall Street has been invested in the industry in anticipation of high profits but given the speed at which wells deplete it is doubtful whether many of the companies will be able to cover their debts. What has been possible so far has been largely because quantitative easing means capital for this industry has been made available with very low interest rates. There is a range of extraction production costs for different oil and gas wells and fields depending on the differing geology in different places. In some “sweet spots” the yield compared to cost is high but in a large number of cases the costs of production have been high and it is being said that it will be impossible to make money at the price to which oil has fallen ($65 in late 2014). This in turn could mean that companies funding their operations with junk bonds could find it difficult to service their debt. If interest rates rise the difficulty would become greater. Because the shale oil and gas sector has been so crucial to expansion in the USA then a large number of bankruptcies could have wider repercussions throughout the wider US and world economy.

 

Renewable Energy systems to the rescue?

Although it seems obvious that the depletion of fossil fuels can and should lead to the expansion of renewable energy systems like wind and solar power, we should beware of believing that renewable energy systems are a panacea that can rescue consumer society and its continued growth path. A very similar net energy analysis can, and ought to be done for the potential of renewable energy to match that already done for fossil fuels.

eroei-renewables

Before we get over-enthusiastic about the potential for renewable energy, we have to be aware of the need to subtract the energy costs particular to renewable energy systems from the gross energy that renewable energy systems generate. Not only must energy be used to manufacture and install the wind turbines, the solar panels and so on, but for a renewable based economy to be able to function, it must also devote energy to the creation of energy storage. This would allow for the fact that, when the wind and the sun are generating energy, is not necessarily the time when it is wanted.

Furthermore, the places where, for example, solar and wind potential are at this best – offshore for wind or in deserts without dust storms near the equator for solar – are usually a long distance from centres of use. Once again, a great deal of energy, materials and money must be spent getting the energy from where it is generated to where it will be used. For example, the “Energie Wende” (Energy Transformation) in Germany is involving huge effort, financial and energy costs, creating a transmission corridor to carry electricity from North Sea wind turbines down to Bavaria where the demand is greatest. Similarly, plans to develop concentrated solar power in North Africa for use in northern Europe which, if they ever come to anything, will require major investments in energy transmission. A further issue, connected to the requirement for energy storage, is the need for energy carriers which are not based on electricity. As before, conversions to put a current energy flux into a stored form, involve an energy cost.

Just as with fossil fuels, sources of renewable energy are of variable yield depending on local conditions: offshore wind is better than onshore for wind speed and wind reliability; there is more solar energy nearer the equator; some areas have less cloud cover; wave energy on the Atlantic coasts of the UK are much better than on other coastlines like those of the Irish Sea or North Sea. If we make a Ricardian assumption that best net yielding resources are developed first, then subsequent yields will be progressively inferior. In more conventional jargon – just as there are diminishing returns for fossil energy as fossil energy resources deplete, so there will eventually be diminishing returns for renewable energy systems. No doubt new technologies will partly buck this trend but the trend is there nonetheless. It is for reasons such as these that some energy experts are sceptical about the global potential of renewable energy to meet the energy demand of a growing economy. For example, two Australian academics at Monash University argue that world energy demand would grow to 1,000 EJ (EJ = 10 18 J) or more by 2050 if growth continued on the course of recent decades. Their analysis then looks at each renewable energy resource in turn, bearing in mind the energy costs of developing wind, solar, hydropower, biomass etc., taking into account diminishing returns, and bearing in mind too that climate change may limit the potential of renewable energy. (For example, river flow rates may change affecting hydropower). Their conclusion: “We nd that when the energy costs of energy are considered, it is unlikely that renewable energy can provide anywhere near a 1000 EJ by 2050.” (Moriarty & Honnery, 2012)

Now let’s put these insights back into a bigger picture of the future of the economy. In a presentation to the All Party Parliamentary Group on Peak Oil and Gas, Charles Hall showed a number of diagrams to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff. Some of the production is consumer goods, either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production i.e. investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems, more and more production must go into energy acquisition, infrastructure and maintenance. Less and less is available for consumption, and particularly for discretionary consumption.

hall

Whether the economy would evolve in this way can be questioned. As we have seen, the increasing needs of the oil and gas sector implies a transfer of resources from elsewhere through rising prices. However, the rest of the economy cannot actually pay this extra without crashing. That is what the above diagrams show – a transfer of resources from discretionary consumption to investment in energy infrastructure. But such a transfer would be crushing for the other sectors and their decline would likely drag down the whole economy.

Over the last few years, central banks have had a policy of quantitative easing to try to keep interest rates low. The economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth, it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis and it will get a lot worse when oil production starts to fall more rapidly as a result of investment cut backs. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability, this is still a dead end and, at some point, people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why degrowth is needed.

Further ideas can be extrapolated from Hall’s way of presenting the end of the road for the growth economy. The only real option as a source for extra resources to be ploughed into changing the energy sector is from what Hall calls “discretionary consumption” aka luxury consumption. It would not be possible to take from “staples” without undermining the ability of ordinary people to survive day to day. Implicit here is a social justice agenda for the post growth – post carbon economy. Transferring resources out of the luxury consumption of the rich is a necessary part of the process of finding the wherewithal for energy conservation work and for developing renewable energy resources. These will be expensive and the resources cannot come from anywhere else than out of the consumption of the rich. It should be remembered too that the problems of depletion do not just apply to fossil energy extraction coal, oil and gas) but apply across all forms of mineral extraction. All minerals are depleted by use and that means the grade or ore declines over time. Projecting the consequences into the future ought to frighten the growth enthusiasts. To take in how industrial production can hit a brick wall of steeply rising costs, consider the following graph which shows the declining quality of ore grades mined in Australia.

mining-australia

As ores deplete there is a deterioration of ore grades. That means that more rock has to be shifted and processed to refine and extract the desired raw material, requiring more energy and leaving more wastes. This is occurring in parallel to the depletion in energy sources which means that more energy has to be used to extract a given quantity of energy and therefore, in turn, to extract from a given quantity of ore. Thus, the energy requirements to extract energy are rising at the very same time as the amount of energy required to extract given quantities of minerals are rising. More energy is needed just at the time that energy is itself becoming more expensive.

Now, on top of that, add to the picture the growing demand for minerals and materials if the economy is to grow.

At least there has been a recognition and acknowledgement in recent years that environmental problems exist. The problem is now somewhat different – the problem is the incredibly naive faith that markets and technology can solve all problems and keep on going. The main criticism of the limits to growth study was the claim that problems would be anticipated in forward markets and would then be made the subject of high tech innovation. In the next chapter, the destructive effects of these innovations are examined in more depth.

 

 

May 182017
 
 May 18, 2017  Posted by at 7:00 pm Finance, Primers Tagged with: , , , , , , , , , , ,  


Pablo Picasso Bull plates I-XI 1945

 

Nicole Foss has completed a huge tour de force with her update of the Automatic Earth Primer Guide. The first update since 2013 is now more like a Primer Library, with close to 160 articles and videos published over the past -almost- 10 years, and Nicole’s words to guide you through it. Here’s Nicole:

 

 

The Automatic Earth (TAE) has existed for almost ten years now. That is nearly ten years of exploring and describing the biggest possible big picture of our present predicament. The intention of this post is to gather all of our most fundamental articles in one place, so that readers can access our worldview in its most comprehensive form. For new readers, this is the place to start. The articles are roughly organised into topics, although there is often considerable overlap.

We are reaching limits to growth in so many ways at the same time, but it is not enough to understand which are the limiting factors, but also what time frame each particular subset of reality operates over, and therefore which is the key driver at what time. We can think of the next century as a race of hurdles we need to clear. We need to know how to prepare for each as it approaches, as we need to clear each one in order to be able to stay in the race.

TAE is known primarily as a finance site because finance has the shortest time frame of all. So much of finance exists in a virtual world in which changes can unfold very quickly. There are those who assume that changes in a virtual system can happen without major impact, but this assumption is dangerously misguided. Finance is the global operating system – the interface between ourselves, our institutions and our resource base. When the operating system crashes, nothing much will work until the system is rebooted. The next few years will see that crash and reboot. As financial contraction is set to occur first, finance will be the primary driver to the downside for the next several years. After that, we will be dealing with energy crisis, other resource limits, limitations of carrying capacity and increasing geopolitical ramifications.

The global financial system is rapidly approaching a Minsky Moment:

“A Minsky moment is a sudden major collapse of asset values which is part of the credit cycle or business cycle. Such moments occur because long periods of prosperity and increasing value of investments lead to increasing speculation using borrowed money. The spiraling debt incurred in financing speculative investments leads to cash flow problems for investors. The cash generated by their assets is no longer sufficient to pay off the debt they took on to acquire them.

Losses on such speculative assets prompt lenders to call in their loans. This is likely to lead to a collapse of asset values. Meanwhile, the over-indebted investors are forced to sell even their less-speculative positions to make good on their loans. However, at this point no counterparty can be found to bid at the high asking prices previously quoted. This starts a major sell-off, leading to a sudden and precipitous collapse in market-clearing asset prices, a sharp drop in market liquidity, and a severe demand for cash.”

This is the inevitable result of decades of ponzi finance, as our credit bubble expanded relentlessly, leaving us today with a giant pile of intertwined human promises which cannot be kept. Bubbles create, and rely on, building stacks of IOUs ever more removed from any basis in underlying real wealth. When the bubble finally implodes, the value of those promises disappears as it becomes obvious they will not be kept. Bust follows boom, as it has done throughout human history. The ensuing Great Collateral Grab will reveal just how historically under-collateralized our supposed prosperity has become. Very few of the myriad claims to underlying real wealth can actually be met, leaving the excess claims to be exposed as empty promises. These are destined to be rapidly and messily extinguished in a deflationary implosion.

While we cannot tell you exactly when the bust will unfold in specific locations, we can see that it is already well underway in some parts of the world, notably the European periphery. Given that preparation takes time, and that one cannot be late, now is the time to prepare, whether one thinks the Great Collateral Grab will manifest close to home next month or next year. Those who are not prepared risk losing everything, very much including their freedom of action to address subsequent challenges as they arise. It would be a tragedy to fall at the first hurdle, and then be at the mercy of whatever fate has to throw at you thereafter. The Automatic Earth has been covering finance, market psychology and the consequences of excess credit and debt since our inception, providing readers with the tools to navigate a major financial accident.

 

Ponzi Finance

Nicole: From the Top of the Great Pyramid
Nicole: The Infinite Elasticity of Credit
Nicole: Look Back, Look Forward, Look Down. Way Down
Nicole: Ragnarok – Iceland and the Doom of the Gods
Ilargi: Iceland To Take Back The Power To Create Money
Ilargi: The Only Thing That Grows Is Debt
Ilargi: Central Banks Are Crack Dealers and Faith Healers
Nicole: Promises, Promises … Detroit, Pensions, Bondholders And Super-Priority Derivatives
Nicole: Where the Rubber Meets the Road in America
Ilargi: How Our Aversion To Change Leads Us Into Danger
Ilargi: Debt In The Time Of Wall Street
Ilargi: The Contractionary Vortex Of The Lumpen Proletariat
Ilargi: Hornswoggled Absquatulation

 


Fred Stein Evening, Paris 1934

 

The Velocity of Money and Deflation

Nicole: The Resurgence of Risk
Nicole: Inflation Deflated
Nicole: The Unbearable Mightiness of Deflation
Nicole: Debunking Gonzalo Lira and Hyperinflation
Nicole: Dollar-Denominated Debt Deflation
Nicole: Deflation Revisited: The Studio Version
Nicole: Stoneleigh Takes on John Williams: Deflation It Is
Ilargi: US Hyperinflation is a Myth
Ilargi: Everything’s Deflating And Nobody Seems To Notice
Ilargi: The Velocity of the American Consumer
Ilargi: Deflation, Debt and Gravity
Ilargi: Debt, Propaganda And Now Deflation
Ilargi: The Revenge Of A Government On Its People

 

Markets and Psychology

Nicole: Markets and the Lemming Factor
Ilargi: You Are Not an Investor
Nicole: Over the Edge Lies Fear
Nicole: Capital Flight, Capital Controls and Capital Fear
Nicole: The Future Belongs to the Adaptable
Nicole: A Future Discounted
Ashvin Pandurangi: A Glimpse Into the Stubborn Psychology of 'Fish'
Ashvin Pandurangi: A Glimpse Into the Self-Destructive Psychology of 'Sharks'
Ilargi: Institutional Fish
Ilargi: Optimism Bias: What Keeps Us Alive Today Will Kill Us Tomorrow
Nicole: Volatility and Sleep-Walking Markets

 

Real Estate

Ilargi: Our Economies Run On Housing Bubbles
Nicole: Welcome to the Gingerbread Hotel
Nicole: Bubble Case Studies: Ireland and Canada
Ilargi: Don’t Buy A Home: You’ll Get Burned

 


Berenice Abbott Murray Hill Hotel, New York 1937

 

Metals, Currencies, Interest Rates, and the War on Cash

Nicole: Gold – Follow the Yellow Brick Road?
Nicole: A Golden Double-Edged Sword
Ilargi: Square Holes and Currency Pegs
Nicole: The Special Relativity of Currencies
Nicole: Negative Interest Rates and the War on Cash
Ilargi: This Is Why The Euro Is Finished
Ilargi: The Broken Model Of The Eurozone
Ilargi: Central Banks Upside Down
Ilargi: The Only Man In Europe Who Makes Any Sense

 

China’s Epic Bubble

Nicole: China And The New World Disorder
Ilargi: Meet China’s New Leader: Pon Zi
Ilargi: China Relies On Property Bubbles To Prop Up GDP
Ilargi: Deflation Is Blowing In On An Eastern Trade Wind
Ilargi: China: A 5-Year Plan And 50 Million Jobs Lost
Ilargi: The Great Fall Of China Started At Least 4 Years Ago
Ilargi: Time To Get Real About China
Ilargi: Where Is China On The Map Exactly?

 

Commodities, Trade and Geopolitics

Nicole: Et tu, Commodities?
Nicole: Commodities and Deflation: A Response to Chris Martenson
Nicole: Then and Now: Sunshine and Eclipse
Nicole: The Rise and Fall of Trade
Nicole: The Death of Democracy in a Byzantine Labyrinth
Nicole: The Imperial Eurozone (With all That Implies)
Ilargi: The Troika And The Five Families
Ilargi: Globalization Is Dead, But The Idea Is Not
Nicole: Entropy and Empire
Ilargi: There’s Trouble Brewing In Middle Earth

 


Giotto Legend of St Francis, Exorcism of the Demons at Arezzo c.1297-1299

 

The second limiting factor is likely to be energy, although this may vary with location, given that energy sources are not evenly distributed. Changes in supply and demand for energy are grounded in the real world, albeit in a highly financialized way, hence they unfold over a longer time frame than virtual finance. Over-financializing a sector of the real economy leaves it subject to the swings of boom and bust, or bubbles and their aftermath, but the changes in physical systems typically play out over months to years rather than days to weeks. 

Financial crisis can be expected to deprive people of purchasing power, quickly and comprehensively, thereby depressing demand substantially (given that demand is not what one wants, but what one can pay for). Commodity prices fall under such circumstances, and they can be expected to fall more quickly than the cost of production, leaving margins squeezed and both physical and financial risk rising sharply. This would deter investment for a substantial period of time. As a financial reboot begins to deliver economic recovery some years down the line, the economy can expect to hit a hard energy supply ceiling as a result. Financial crisis initially buys us time in the coming world of hard energy limits, but at the expense of worsening the energy crisis in the longer term.

Energy is the master resource – the capacity to do work. Our modern society is the result of the enormous energy subsidy we have enjoyed in the form of fossil fuels, specifically fossil fuels with a very high energy profit ratio (EROEI). Energy surplus drove expansion, intensification, and the development of socioeconomic complexity, but now we stand on the edge of the net energy cliff. The surplus energy, beyond that which has to be reinvested in future energy production, is rapidly diminishing. We would have to greatly increase gross production to make up for reduced energy profit ratio, but production is flat to falling so this is no longer an option. As both gross production and the energy profit ratio fall, the net energy available for all society’s other purposes will fall even more quickly than gross production declines would suggest. Every society rests on a minimum energy profit ratio. The implication of falling below that minimum for industrial society, as we are now poised to do, is that society will be forced to simplify.

A plethora of energy fantasies is making the rounds at the moment. Whether based on unconventional oil and gas or renewables (that are not actually renewable), these are stories we tell ourselves in order to deny that we are facing any kind of future energy scarcity, or that supply could be in any way a concern. They are an attempt to maintain the fiction that our society can continue in its current form, or even increase in complexity. This is a vain attempt to deny the existence of non-negotiable limits to growth. The touted alternatives are not energy sources for our current society, because low EROEI energy sources cannot sustain a society complex enough to produce them.

We are poised to throw away what remains of our conventional energy inheritance chasing an impossible dream of perpetual energy riches, because doing so will be profitable for the few in the short term, and virtually no one is taking a genuine long term view. We will make the transition to a lower energy society much more difficult than it need have been. At The Automatic Earth we have covered these issues extensively, pointing particularly to the importance of net energy, or energy profit ratios, for alternative supplies. We have also addressed the intersections of energy and finance.

 

Energy, EROEI, Finance and ‘Above Ground Factors’

Nicole: Energy, Finance and Hegemonic Power
Ilargi: Cheap Oil A Boon For The Economy? Think Again
Ilargi: We’re Not In Kansas Anymore
Ilargi: Not Nearly Enough Growth To Keep Growing
Ilargi: Why The Global Economy Will Disintegrate Rapidly
Ilargi: The Price Of Oil Exposes The True State Of The Economy
Ilargi: More Than A Quantum Of Fragility
Ilargi: (Re-)Covering Oil and War
Nicole: Oil, Credit and the Velocity of Money Revisited
Nicole: Jeff Rubin and Oil Prices Revisited
Charlie Hall: Peak Wealth and Peak Energy
Ken Latta: When Was America’s Peak Wealth?
Ken Latta: Go Long Chain Makers
Euan Mearns: The Peak Oil Paradox – Revisited
Ilargi: At Last The ‘Experts’ Wake Up To Oil
Ilargi: Oil, Power and Psychopaths
Nicole: A Mackenzie Valley Pipe-Dream?

 

Unconventional Oil and Gas

Nicole: Get Ready for the North American Gas Shock
Nicole: Shale Gas Reality Begins to Dawn
Nicole: Unconventional Oil is NOT a Game Changer
Nicole: Peak Oil: A (Short) Dialogue With George Monbiot
Nicole: Fracking Our Future
Nicole: The Second UK Dash for Gas: A Faustian Bargain
Ilargi: Jobs, Shale, Debt and Minsky
Nicole (video): Sucking Beer Out Of The Carpet: Nicole Foss At The Great Debate in Melbourne
Ilargi: Shale Is A Pipedream Sold To Greater Fools
Ilargi: The Darker Shades Of Shale
Ilargi: Debt and Energy, Shale and the Arctic
Ilargi: London Is Fracking, And I Live By The River
Ilargi: And On The Seventh Day God Shorted His People
Ilargi: The Oil Market Actually Works, And That Hurts
Ilargi: Drilling Our Way Into Oblivion
Ilargi: Who’s Ready For $30 Oil?
Ilargi: US Shale And The Slippery Slopes Of The Law

 

Electricity and Renewables

Nicole: Renewable Energy: The Vision and a Dose of Reality
Nicole: India Power Outage: The Shape of Things to Come
Nicole: Smart Metering and Smarter Metering
Nicole: Renewable Power? Not in Your Lifetime
Nicole: A Green Energy Revolution?
Nicole: The Receding Horizons of Renewable Energy
Euan Mearns: Broken Energy Markets and the Downside of Hubbert’s Peak

 


Underwood&Underwood Chicago framed by Gothic stonework high in the Tribune Tower 1952

 

In the aftermath of the Fukushima disaster, TAE provided coverage of the developing catastrophe, drawing on an earlier academic background in nuclear safety. It will be many years before the true impact of Fukushima is known, both because health impacts take time to be demonstrable and because the radiation releases are not over. The destroyed reactors continue to leak radiation into the environment, and are likely to do so for the foreseeable future. The vulnerability of the site to additional seismic activity is substantial, and the potential for further radiation releases as a result is similarly large. The disaster is therefore far worse than it first appeared to be. The number of people in harms way, for whom no evacuation is realistic despite the risk, is huge, and the health impacts will prove to be tragic, particularly for the young.

 

Fukushima and Nuclear Safety

Nicole: How Black is the Japanese Nuclear Swan?
Nicole: The Fukushima Fallout Files
Nicole: Fukushima: Review of an INES class 7 Accident
Nicole: Fukushima: Fallacies, Fallout, Fundamentals and Fear
Nicole: Welcome to the Atomic Village

 

The Automatic Earth takes a broad view of the context in which finance, energy and resources operate, looking at issues of how society functions at a macro level. Context is vital to understanding the bigger picture, particularly human context as it relates to the critical factor of scale and the emergent properties that flow from it. We have continually emphasised the importance of the trust horizon; in determining what functions at what time, and what kind of social milieu we can expect as matters evolve.

Expansions are built upon the optimistic side of human nature and tend to lead to greater inclusiveness and recognition of common humanity over time. Higher levels of political aggregation, and more complex webs of trading relationships, come into being and achieve popular support thanks to the benefits they confer. In contrast, contractions tend to reveal, and be driven by, the darker and more pessimistic side of human collective psychology. They are social and are political as well as economic. In both directions, collective attitudes can create their own self-fulfilling prophecies at the societal level.

Trust determines effective organisational scale, extending political legitimacy to higher levels of political organisation during expansions and withdrawing it during periods of contraction, leaving political entities beyond the trust horizon. Where popular legitimacy is withdrawn, organisational effectiveness is substantially undermined, and much additional effort may go into maintaining control at that scale through surveillance and coercion.

The effort is destined to fail over the longer term, and smaller scale forms of organisation, still within the trust horizon, may come to hold much greater significance. The key to effective action is to know at what scale to operate at any given time. As we have said before, while one cannot control the large scale waves of expansion and contraction that unfold over decades or centuries, understanding where a given society finds itself within that wave structure can allow people and their communities to surf those waves.

 

Scale and Society

Nicole: Scale Matters
Nicole: Economics and the Nature of Political Crisis
Nicole: Fractal Adaptive Cycles in Natural and Human Systems
Nicole: Entropy and Empire
Nicole: The Storm Surge of Decentralization
Ilargi: When Centralization Scales Beyond Our Control
Ilargi: London Bridge is (Broken) Down
Ilargi: The Great Divide
Ilargi: Quote of the Year. And The Next
Nicole: Corruption, Culpability and Short-Termism
Ilargi: The Value of Wealth
Ilargi: The Most Destructive Generation Ever
Ilargi: Ain’t Nobody Like To Be Alone

 

Trust and the Psychology of Contraction

Nicole: Beyond the Trust Horizon
Nicole: Bubbles and the Titanic Betrayal of Public Trust
Ilargi: Why There Is Trump
Ilargi: Who’s Really The Fascist?
Ilargi: Ungovernability
Ilargi: Comey and the End of Conversation
Ilargi: Eurodystopia: A Future Divided
Nicole: War in the Labour Markets
Nicole: An Unstable Tower of Breaking Promises
Ilargi: Libor was a criminal conspiracy from the start

 

Affluence, Poverty and Debt and Insurance

Nicole: Trickles, Floods and the Escalating Consequences of Debt
Nicole: Crashing the Operating System: Liquidity Crunch in Practice
Ilargi: The Impossible and the Inevitable
Nicole: The View From the Bottom of the Pyramid
Ilargi: The Lord of More
Ilargi: The Last of the Affluent, the Carefree and the Innocent
Ilargi: The Worth of the Earth
Nicole: Risk Management And (The Illusion Of) Insurance

 


Fred Stein Streetcorner, Paris 1930s

 

Finally, TAE has provided some initial guidance as to how to position one’s self, family, friends and community so as to reduce vulnerability to system shocks and increase resilience. The idea is to reduce the range of dependencies on the large scale, centralised life-support systems that characterise modernity, and also to reduce dependency on the solvency of middle men. The centralised systems we take so much for granted are very likely to be much less reliable in the future. For a long time we have uploaded responsibility to larger scale organisational entities, but this has led to a dangerous level of complacency.

It is now time to reclaim responsibility for our own future by seeking to understand our predicament and take local control of efforts to mitigate its effects. While we cannot prevent a bubble from bursting once it has been blown, we can make a substantial difference to how widely and deeply the impact is felt. The goal is to provide a sufficient cushion of basic essentials to allow as many people as possible to preserve the luxury of the longer term view, rather than be pitched into a state of short term crisis management. In doing so we can hope to minimise the scale of the human over-reaction to events beyond our control. In the longer term, we need to position ourselves to reboot the system into something simpler, more functional and less extractive of the natural capital upon which we and subsequent generations depend.

 

Solution Space, Preparation and Food Security

Nicole: The Boundaries and Future of Solution Space
Nicole: Facing the Future – Mitigating a Liquidity Crunch
Nicole: 40 Ways to Lose Your Future
Nicole: How to Build a Lifeboat
Nelson Lebo: Resilience is The New Black
Nelson Lebo: What Resilience Is Not
Nicole: Sandy: Lessons From the Wake of the Storm
Nicole: Crash on Demand? – A Response to David Holmgren
Nicole: Finance and Food Insecurity
Nicole: Physical Limits to Food Security – Water and Climate
Ilargi: Basic Income in The Time of Crisis
Nelson Lebo: (Really) Alternative Banking Systems
Nicole (video): Interview Nicole Foss for ‘A Simpler Way: Crisis as Opportunity’
Happen Films: A Simpler Way: Crisis as Opportunity (full video)

 

 

May 142017
 
 May 14, 2017  Posted by at 9:39 am Finance Tagged with: , , , , , , , , , , ,  


Henri Matisse Sorrow of the King 1952

 

US Says Trump ‘Can’t Imagine Russia Pleased’ With North Korea Missile (R.)
Macron Takes Office As French President (AFP)
Tech Companies Have Become Monopolies, Drag On Economic Growth (AT)
‘We Can’t Do Brexit With Half The Brexiteers Outside The Tent’ (G.)
Schaeuble Says Financial Transfers In Euro Zone Are Necessary (R.)
Ireland Is World’s Fourth-Largest Shadow Banking Hub (ITimes)
London Home Raffled For £3.75m Bought With Right-to-Buy in 2014 For £360k (G.)
Media Blackout On The DNC Lawsuit Proves That It Is Nuclear (Med.)
Patriotism And Conscience: The Edward Snowden Affair (LibR)
Worried About ‘Wannacry’? You Should Have Listened To Julian Assange (Duran)
Steve Keen Defines A Production Function Based On Energy (Res.)
The Rise Of Rentiers And The Destruction Of The Middle Class (Ev)
The Economic School You’ve Never Heard Of (EpT)
The Future of Work, Robotization, and Capitalism’s Useless Jobs (Bregman)
US Much Women More Likely To Die In Childbirth Than 25 Years Ago (ProP)
Africa’s New Slave Trade (G.)

 

 

A more or less subtle way of trying to drag Putin into the situation.

US Says Trump ‘Can’t Imagine Russia Pleased’ With North Korea Missile (R.)

U.S. President Donald Trump “cannot imagine Russia is pleased” with North Korea’s latest missile test on Sunday, as it landed closer to Russia than to Japan, the White House said in a statement. “With the missile impacting so close to Russian soil – in fact, closer to Russia than to Japan – the President cannot imagine that Russia is pleased,” the White House said in its statement. The launch served as a call for all nations to implement stronger sanctions against reclusive North Korea, the White House added.

Read more …

Macron takes office in a strange kind of void. On Monday he will appoint a prime minister, and on Tuesday a cabinet. But his party has zero seats in parliament, so what can they do? Whether they can win a majority in the June elections is very much up for grabs. They may wind up needing -and using- support from the Socialist party that was burned down in the presidential elections.

Macron Takes Office As French President (AFP)

Emmanuel Macron becomes France’s youngest ever president on Sunday, taking over from Socialist Francois Hollande in a solemn ceremony. [..] The new president faces a host of daunting challenges including tackling stubbornly high unemployment, fighting Islamist-inspired violence and uniting a deeply divided country. Socialist Hollande’s five years in power were plagued by a sluggish economy and bloody terror attacks that killed more than 230 people and he leaves office after a single term. The 64-year-old launched Macron’s political career, plucking him from the world of investment banking to be an advisor and then his economy minister. “I am not handing over power to a political opponent, it’s far simpler,” Hollande said on Thursday.

Macron’s first week will be busy. On Monday, he is expected to reveal the closely-guarded name of his prime minister, before flying to Berlin to meet German Chancellor Angela Merkel. It is virtually a rite of passage for French leaders to make their first European trip to meet the leader of the other half of the so-called “motor” of the EU. Pro-EU Macron wants to push for closer cooperation to help the bloc overcome the imminent departure of Britain, another of its most powerful members. He intends to press for the creation of a parliament and budget for the eurozone. Merkel welcomed Macron’s decisive 32-point victory over Le Pen, saying he carried “the hopes of millions of French people and also many in Germany and across Europe”. In June, Macron faces what the French media are calling a “third round of the presidential election” when the country elects a new parliament in a two-round vote. The new president needs an outright majority to be able to enact his ambitious reform agenda.

Read more …

A huge global problem.

Tech Companies Have Become Monopolies, Drag On Economic Growth (AT)

Once upon a time the US stock market had disruptive challengers changing the economic landscape – Apple, Google, Cisco, Intel and a half dozen other upstarts. The same companies are there, but they have morphed from the equivalent of Luke Skywalker to Jabba the Hut. Tech companies used to be aggressive growth stocks, the kind that young people bought for long-range gain, while retirees stuck to less-volatile instruments like utility stocks. The world officially went topsy-turvy this year, when the volatility of tech stocks fell below the volatility of utility stocks. The graph shows the implied volatility of options on the S&P tech sector ETF (ticker XLK) vs. the implied volatility of options on the S&P utilities sector (XLU). Options on volatile stocks cost more than options on stable stocks, because volatility increases the likelihood of a payout.

Implied volatility is backed out of the prices of traded options, and reflects investor expectations about future stability. Why would investors expect less volatility from tech stocks than from utilities? Because they are utilities, that is, utilities with neither debt nor regulation. Power, water and sewer companies charge a stable fee to a predictable base of customers. They borrow heavily to build facilities, and are subject to public regulation, such that changes in interest rates and public policy can affect their value. Historically, though, they were widow-and-orphan stocks, the least risky sector of the equity market. In the disruptive days of the 1990s tech boom, the volatility of the S&P technology subsector was two to three times the VIX index. Today the implied volatility of XLK, the tech sector ETF, is actually lower than the VIX. The tech companies have brought down the overall level of market volatility.

Tech companies now sit atop a virtual toll booth and impose a charge on a myriad of transactions. Like water and power companies, they have monopolies, although these monopolies are driven by the price of infrastructure and the network effect. Google has the Internet-advertising monopoly. Microsoft has the personal computer software monopoly. Amazon has the Internet sales monopoly. Facebook has the targeted advertising monopoly. And Apple has the oddest monopoly of all: it is the vehicle by which customers assert their individuality by overpaying the largest-capitalization company in the world. [..] They’re all tech companies, and each dominates its corner of the industry: Google has an 88% market share in search advertising, Facebook (and its subsidiaries Instagram, WhatsApp and Messenger) owns 77% of mobile social traffic and Amazon has a 74% share in the e-book market. In classic economic terms, all three are monopolies.”

Read more …

“One Brexiter said: “There is no way to unpick Brexit that doesn’t involve civil war. “

Problem 1: Rich people trying to buy seats.

Problem 2: Both left and right across Europe want to “Love Europe Not the EU”. But the EU rules.

‘We Can’t Do Brexit With Half The Brexiteers Outside The Tent’ (G.)

As an investor in a Premier League football club and a collector of steam locomotives, Jeremy Hosking is used to expensive pursuits. The multimillionaire asset manager is under no illusions that his offer to fund well in excess of 100 local campaigns to unseat pro-Remain MPs could prove to be another. “This is going to stretch the bank’s ability to send out cheque books in a timely manner,” he says. “There is going to be a lot of ink involved.” Hosking has already spent in pursuit of securing Britain’s departure from the European Union shows his dedication to the cause. He gave about £1.7m to Vote Leave and even set up his own poster campaign, Brexit Express, as the referendum approached. Now the Crystal Palace co-owner wants to safeguard the result by funding Tory candidates trying to gain seats where most voters backed Brexit. He will do so through his Brexit Express campaign.

“For me, it is a long-running issue about sovereignty and the transfer of power,” he says. “It wouldn’t matter so much if the EU was constitutionalised properly, but one of the great things about being a democracy is we can boot the government out every five years, but we couldn’t boot out the EU. “A lot of the Remainers I know were really reformers – they held their nose and voted Remain in much the same way we are suggesting that traditional Labour voters should on this occasion hold their nose and vote Tory.” Hosking’s project is testing perhaps the most pertinent question posed by this election. Will the political fissure created by the EU referendum convince voters to abandon their traditional affiliations and back a party that more closely represents their views on Brexit?

The candidates eligible for his money must meet two simple tests. They must be a Conservative candidate trying to unseat an opposition MP that backed Remain. They must also be contesting a seat where most voters are believed to have voted in favour of Brexit. His team has come up with a list of 138 constituencies that they think fit the bill. All will be eligible for donations of up to £5,000 each. While there are some Lib Dems, SNP and Plaid Cymru-held seats on the list, the campaign is aimed overwhelmingly at Tories trying to win Labour-held seats in the north and the Midlands. There is a string of such seats that the Tories have a chance of winning. They include Coventry South, Bury South, Dewsbury, Gedling, Halifax and Bishop Auckland – a seat that has returned a Labour MP since 1935.

Hosking says that while Theresa May was not his “number one choice” as leader, he believes she is handling the Brexit issue well so far. He also believes that a cohort of Tory MPs from Brexit-supporting Labour seats could be key in safeguarding the referendum result and prevent any “backsliding”. “We need all the Brexiteers on the same side,” he says. “We can’t do this Brexit thing with half the Brexiteers outside the tent. “The thinking is, it would be strange if the Conservative party was dusting off inveterate Remainers to fight these seats… the Conservative party is more Brexit-orientated than it was a year ago.” Unlike some Brexiteers, Hosking knows there could be some bumpy times ahead. “We need the best team and you need the army fully equipped and as big as possible,” he says.

Read more …

He contradicts mis own words with impunity and of course doesn’t get called on it.

Schaeuble Says Financial Transfers In Euro Zone Are Necessary (R.)

German Finance Minister Wolfgang Schaeuble told a magazine he shared French president-elect Emmanuel Macron’s view that financial transfers from richer to poorer states are necessary within the euro zone. Macron, who is due to meet with German Chancellor Angela Merkel in Berlin on Monday, has promised to press ahead with closer European integration. Asked whether Macron was right in believing Europe and the euro zone need a “transfer union”, Schaeuble told Germany’s Der Spiegel magazine: “You can’t build a community of states of varying strengths without a certain balance.” “That’s reflected in the European budget and bailout programmes, for example, and that’s why there are net contributors and net recipients in Europe. A union can’t exist if the stronger members don’t vouch for the weaker ones,” he added in an interview to be published Saturday.

Some conservatives around Merkel worry the euro zone could develop into a “transfer union” in which Germany is asked to pay for struggling states that resist reforms. Schaeuble, a veteran member of Merkel’s party, said if countries wanted to make Europe stronger, it was necessary for each individual country to become stronger first – including France and Italy but also Germany. Schaeuble also signaled he would not object if the European Commission gave its blessing to possible French budget deficits: “It’s up to the European Commission to design the budget rules.” He added: “The German government and I have never objected to a ruling of the Commission on how the deficits of countries like France should be judged.” The European Commission estimates France’s deficit will be 3% of GDP this year, from 2.9% previously forecast, and 3.2% in 2018 from the previous forecast of 3.1%. EU rules say countries should keep their deficits below 3% of GDP.

Read more …

Not very useful without solid China data.

Ireland Is World’s Fourth-Largest Shadow Banking Hub (ITimes)

Ireland is home to the world’s fourth-largest “shadow banking” industry, with $2.2 trillion of nonbanking financial assets based in funds, special-purpose vehicles and other little-understood entities in Dublin’s IFSC, according to a report published on Tuesday. The figure equates to almost eight times the size of the Irish economy, as measured by GDP. The US has the world’s largest shadow-banking sector, with $13.8 trillion of assets as of 2015, according to the latest annual review of the sector by the Basel-based Financial Stability Board (FSB) as it searches for potential risks in the increasingly complex world of international finance. The Cayman Islands, which has taken part in the FSB study for first time, is the second-largest, at $4.3 trillion, followed by Japan, at $3.2 trillion.

The G20 major industrialised and emerging economies gave the FSB the job in 2010 of keeping track of the expanding world of financial activities that take place outside of mainstream banks, given the role that the sector played in the 2008 global financial crisis. The key concern is that, as central banks have clamped down on excessive risk-taking in the banking sector in the wake of the 2008 financial crisis, lenders might extend their use of shadow banking to escape the claws of regulators. “Market-based finance provides important diversification of the founding resources which support the real economy,” said Mark Carney, governor of the Bank of England and chairman of the FSB on the release of the latest report.

[..] The FSB said China, which ranked third with Ireland in the last report, published in late 2015, didn’t file data on time to be included in its narrow definition of shadow-banking activities that pose potential risks to global finance. Luxembourg, Ireland’s main rival in nonbanking financial activities in Europe, has not yet taken part in the annual survey. Nonbank financing provides a valuable alternative to bank funding and helps support economic activity, according to the FSB, adding that it can provide a “welcome” alternative supply of credit and provides “healthy competition for banks”.

Read more …

Where would we be without bubbles?

London Home Raffled For £3.75m Bought With Right-to-Buy in 2014 For £360k (G.)

A homeowner who tried to raise £3.75m by raffling her home online bought the property three years ago using the controversial right-to-buy scheme, and paid just £360,000. Renu Qadri, who lives in the house in Hardy Road, in south east London’s Blackheath, launched an online raffle on May 7. The dedicated website offered tickets for £5 each, with payments via Paypal. The stated aim was to sell 750,000 tickets, netting her £3.75m. A ticket picked at random would then win the property, including some of the furniture and £12,000 of “lead crystal chandeliers”. The raffle was halted on Thursday after advice from the homeowner’s local council, Greenwich, over “potential” breaches of Gambling Commission rules.

The website was taken down and replaced with a statement that said: “Ticket holders, please be advised that unfortunately we have been contacted by the local council informing us we will no longer be able to continue with this draw. Therefore we will be closing the site and all tickets holders will receive a full refund within 28 days. The five-bedroom flat is still on the market, however, and listed on property portal Rightmove for £1.25m. The owner, who is believed to have lived there since 2002, bought the property under the Government’s right-to-buy scheme three years ago, according to documents lodged with the Land Registry. It is understood that at the time it was valued at £460,000. Land Registry records confirm, however, that the price paid was £360,000, indicating the buyers benefited from a £100,000 right-to-buy discount. This is just under the maximum discount available through the scheme, which in London is currently £104,900.

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The media are too busy attacking Trump.

Media Blackout On The DNC Lawsuit Proves That It Is Nuclear (Med.)

I had the privilege of interviewing my newest personal hero yesterday, attorney Elizabeth Lee Beck, about her legal team’s fraud case against the Democratic National Committee. One of the many useful insights that this straight-shooting mom on fire brought to light during our conversation was her story about a time she reached out to New York Times reporter Michael Barbaro to get some help cracking through the deep, dark media blackout on this extremely important case. Barbaro had previously interviewed Beck and featured her in a front-page story not long ago, so she had every reason to try and contact him. What happened next? “The little piss head blocks me,” Beck said. Why is a journalist for the New York Times blocking a potential source from contacting him? Why is the mainstream media refusing to go anywhere near a legal case that has heavy implications for the future of American democracy?

You already know the answer to this deep down, whether you’re the kind of person who turns and faces reality or the kind of person who dissociates from reality at all costs while watching Samantha Bee and chugging cough syrup on the sofa. The function of the mass media is not to inform the American public of important things that are happening in their country, it is to turn attention away from the important things that are happening in their country and to keep them sleepy and compliant. The DNC lawsuit is one of the greatest threats to America’s power establishment right now, but only if people know about it. If the corporate media were to advance this story with even a fraction of the intensity that they’re advancing their xenophobic anti-Russia nonsense, they’d start waking up the sleeping masses to the fact that there is nothing resembling democracy happening in America at all.

And the DNC’s own lawyers have indeed made it abundantly clear to anyone who’s been listening that there is no democracy in America. You cannot make the case that you are not required to provide real primary elections in a rigidly-enforced two-party system and still say that democracy is happening to any extent within your nation. Being forced to choose between two establishment-selected corporatists is not democracy, and this revolutionary lawsuit has been showing in no uncertain terms that this is exactly what is happening both in practice and in theory. In order to say that there is any sort of democratic process in America at all, there would have to either be a way to run viable independent and third-party candidates, or the people would have to be able to determine who the candidates will be for the two parties that they are permitted to choose from. Currently neither of those things is happening.

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I’ve said it before: in Assange, Snowden, Manning etc., America -and the west- “persecutes, prosecutes, vilifies, condemns, exiles, or murders” its finest.

Patriotism And Conscience: The Edward Snowden Affair (LibR)

Here’s the point: If the NSA were to be abolished today and if Congress were to order all of its documents and records to be released immediately to the public, nothing would happen to the United States. Nothing! The same holds true for the CIA and the military-industrial complex. If all their files and records were to be suddenly disclosed to the people of the world, America would continue to exist as a country. It would not fall into the ocean, and the federal government would continue to operate. In fact, full disclosure of all of the illegal and immoral actions that the U.S. national-security establishment has engaged in during the past 70 years of its existence would be the greatest and healthiest thing that could ever happen to the United States.

Full disclosure of such secrets would be an antiseptic that would help cleanse the federal government and the country of many of the long-lasting stains that the national-security establishment has inflicted on it — an antiseptic that might finally begin to restore trust and confidence in the federal government among the American people. To be sure, the secrecy is always alleged to be justified by “national security,” the two most important words in any nation whose government is a national-security state. But what does that term mean? It has no objective meaning at all. It’s just a bogus term designed to keep nefarious and illegal actions secret. But heaven help those who reveal those secrets to others. They will be persecuted, prosecuted, vilified, condemned, exiled, or murdered. Nothing matters more to a national-security state than the protection of its secrets.

Those who reveal them must be made examples to anyone else who contemplates doing the same thing. In the process, conscience is suspended and stultified. It has no role in a national-security state. Individual citizens are expected to place their deep and abiding trust in the national-security establishment and to unconditionally defer to its judgment and expertise. Its job is to protect “national security” and that’s all that people need to know. Sometimes that entails illegal activity, such as murder, torture, and kidnapping, but that’s just the way it is. What’s important, they say, is that the national-security establishment is on the job, a perpetual sentinel for freedom, protecting “national security.”

Imagine that Edward Snowden voluntarily returned to the United States for trial. Do you think he would be given the opportunity at trial to show why he disclosed the NSA’s illegal and nefarious surveillance schemes? Do you think he would be entitled to argue that he was simply following the dictates of his conscience when he chose to reveal that information to the American people and the world?

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“Perhaps in order to save money, governments should also use prop-planes from the 1940s to conduct recon missions? ”

Worried About ‘Wannacry’? You Should Have Listened To Julian Assange (Duran)

A widespread computer virus attack known as ‘WannaCry’ has been compromising computers with obsolete operating systems across the world. This should be the opening sentence of just about every article on this subject, but unfortunately it is not. The virus does not attack modern computer operating systems, it is designed to attack the Windows XP operating system that is so old, it was likely used in offices in the World Trade Center prior to September 11 2001, when the buildings collapsed. Windows XP was first released on 25 August, 2001. A child born on the release date of Windows XP is now on the verge of his or her 17th birthday. Feeling old yet? The fact of the matter is that governments and businesses around the world should not only feel old, they should feel humiliated and disgraced.

With the amount of money governments tax individuals and private entities, it is beyond belief that government organisations ranging from some computers in the Russian Interior Ministry to virtually all computers in Britain’s National Health Service, should be using an operating system so obsolete that its manufacturer, Microsoft, no longer supports it and hasn’t done for some time. Perhaps in order to save money, governments should also use prop-planes from the 1940s to conduct recon missions? The scathing reality of this attack is that Julian Assange warned both private and public sectors to be on guard against known vulnerabilities in such systems, vulnerabilities Wikileaks helped to expose. Assange even offered to help companies to get their digital security up to date. The fact that Assange’s plea fell on deaf ears must bring further shame to all those impacted by the ‘WannaCry’ attacks who refused to listen to Assange and get with the times.

[..] if only governments and mega-corporations took precautions to ensure actual safety measures were in place, rather than engaging in bogus fear-mongering in order to conceal their own incompetence and lack of modern technology, the people that such bodies are supposed to protect would be safe rather than misled and exposed to threats. The blame for today’s attack can and should be equally shared by the hackers themselves and by those who patently ignored the warnings of Julian Assange, who advised the wider world to get clever, get secure and get modern upon the release of Vault 7 by Wikileaks. When there is a wolf at your door, it is unwise to blame the person pointing out the presence of the hungry wolf. Those who attack Julian Assange for pointing out the wolf of un-secured computer systems are doing just that.

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How many people know and understand that the economic models on which all current policies are based entirely ignore both credit and energy in our economies? How crazy is that?

Steve Keen Defines A Production Function Based On Energy (Res.)

Professor Steve Keen may be the first mainstream economist to address a fatal flaw in economic theory: omitting or minimizing the role of energy. Keen has developed a production formula incorporating energy, not as one factor of production along with capital and labor, but as the indispensable flow activating both. “Labor without energy is a corpse” says Keen; “Capital without energy is a sculpture.” Keen was one of twenty or so economists who made a credible prediction of the 2008-9 crisis, which government economists in the US and abroad declared “unpredictable” – after it blindsided them.

His work draws on contemporary economic theory and generates real-world predictions. He’s the sort of economist who financial commentators, investors and even government economists listen to; folks who haven’t heard of Daly’s steady state economy, Odum’s energy flow analysis of the ecosystem-economy, or Hall’s EROI “cheese slicer” model. Keen’s model implies that economic production is measurable in energy units, as Odum and others argued. Wealth is “nothing but the food, conveniences and pleasures of life,” as the earliest economists recognized. But it results from useful work, which can be measured in kilocalories. (To us weight watchers, just “calories.”) Here is his fundamental equation (the only one here, I promise):

To test his model against real data, Keen correlated its results with historical statistics of US GDP, and then compared correlations of GDP with the key terms individually. Over 40-odd years of data, his function correlated 0.79 with US GDP. The correlations with employment (Labor) alone and energy consumption (E) alone were much lower, at 0.60 and 0.59 respectively. His model might have correlated better if applied to a closed economic system, such as the entire world, or the US prior to 1970, if good data were available. Most of the useful work that supports Americans today is performed in the Far East or in the engines of container ships, and the energy inputs are considerable. Introducing his test data, Keen remarked that government statistics showing minimal unemployment were “just nonsense”. He presented a measure of employment instead. “They ask what Trump is complaining about- here’s what he’s complaining about..” (This was back in November.)

Presenting a chart of industrial energy consumption 1960-present, Keen remarked on the on the long decline since the 1979 peak, his latest values showing consumption comparable to 1967-8. Partly the result of increased efficiency, he said, but also “..becoming intractable because we are moving from highly efficient oil and coal to much less efficient wind and solar.” (Efficiency as energy output per unit of energy input.) I don’t think I’m overstating to say that Keen’s model marks a breakthrough in mainstream economics, though Keen describes it as merely “..the beginnings of a decent equation to explain the role of energy in production.”..demonstrating that wealth is “..fundamentally created by the exploitation of free energy, as the Physiocrats argued two centuries ago.” For those who discount any economic reasoning not expressed in calculus, Keen’s work opens an access to the wisdom of the Physiocrats. Maybe that of Daly, Odum and Hall as well.

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Time to organize. Or keep losing.

The Rise Of Rentiers And The Destruction Of The Middle Class (Ev)

The facts about the decline of the American middle class are increasingly familiar, though startling nonetheless. After growing almost continuously since World War II, U.S. median income stagnated at the end of the 1980s and then, beginning in 2000, declined 11%. Middle-class incomes today are no higher in real terms than they were in 1987. Much of the debt that caused the crisis was accumulated by the middle class as people tried to compensate for stagnant incomes by mortgaging up their homes and running up their credit cards. Then the debt bubble burst and the median family lost nearly $50,000, or 40% of its net wealth, from 2007 to 2010. For the typical middle-class family, the crisis wiped out 18 years of savings and investment. With too much debt before the crisis and their modest savings hammered by the downturn, many middle-class baby boomers are facing a major decline in living standards as they age.

On the other side of the generational divide, this will be the first cohort in modern American history whose children will quite possibly be poorer than their parents. So what do the rise of rentier capitalism and the hollowing out of America’s middle class have to do with each other? It is too simple to say that one directly caused the other. But they are more tightly linked than might be expected. The usual explanations for the woes of the American middle class point to big tectonic forces—namely globalization and technological change. At a superficial level this argument is correct—competition from low-wage countries has depressed wage growth in certain sectors, and technology has eliminated some manufacturing and middle-management jobs. But what this analysis leaves out is what we didn’t do—we didn’t make the long-term investments that would have helped us better adapt to these tectonic shifts.

One of the great historical strengths of both American capitalism and the American political system has been their adaptability. When the Industrial Revolution threatened America’s largely agricultural economy, America adapted and went one better, leapfrogging European industrial production by the early twentieth century. When industrialization then unbalanced America’s political system and strained its social fabric, Teddy Roosevelt unleashed a wave of political and social innovation, busting up trusts and introducing protections for consumers and workers. In the depths of the Depression, another Roosevelt responded with rural electrification, the creation of Social Security, and financial regulation that kept the system stable for 70 years. When the Soviet Union challenged America in the Cold War, we made massive investments in technology, education, and the National Highway System. The benefits of these innovations and investments flowed broadly in American society, not least to the middle class.

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Austrian school.

The Economic School You’ve Never Heard Of (EpT)

Economics was once tasked with describing how man manages the world’s scarce resources, a process far older than economics as a science. But it has morphed into a field that blames the individual and reality for not measuring up to its theories, and then uses the coercive power of the state in an attempt to shape individuals and reality according to its ends. The Austrian school of economics, the once dominant school of economic thought at the turn of the 19th century, focuses on the individual—and his or her actions and motivations—to explain economic life. It derives its name from the many scholars from Austria who developed 19th-century classic liberalism into a coherent explanation of economic life.

“Economics is in reality very simple. It functions in the same way that it did thousands of years ago. People come together to voluntarily engage in commerce with one another for their mutual benefit. People specialize and divide work among themselves to advance their condition,” writes modern Austrian economist Philipp Bagus in his book “Blind Robbery!” A bedrock principle of this understanding is that exchange should occur voluntarily and not under the coercion of the state or any other party. If exchange is voluntary, the individual or company must offer something of value if it wants to obtain something of value. This premise encourages innovative, creative, and productive behavior. It also forces individuals to think about what their fellow humans may appreciate or need. Every decision to allocate capital and labor needs to stand the test of reason, argument, and negotiation.

On aggregate, this decision-making process is much more elaborate and prudent than any central planning decision, which must use force to compel its subjects. “Production is directed either by profit-seeking businessmen or by the decisions of a director to whom supreme and exclusive power is entrusted. . . . The question is: Who should be master, the consumers or the director?” Austrian school economist Ludwig von Mises (1881-1973) writes in his book “Human Action.” This approach to economics can do without the complex mathematical models of the current schools because it admits that perfection doesn’t exist. There is no equilibrium. Things aren’t perfect, but the best possible solution to economic problems will be found by private individuals acting voluntarily, each assessing new situations for themselves.

“This is precisely what the price system does under competition, and which no other system even promises to accomplish. It enables entrepreneurs, by watching the movement of comparatively few prices, as an engineer watches the hands of a few dials, to adjust their activities to those of their fellows,” Nobel laureate Friedrich von Hayek wrote in his 1944 classic “The Road to Serfdom.”

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How any people are still happy in their work? Why do they volunteer to work for others?

The Future of Work, Robotization, and Capitalism’s Useless Jobs (Bregman)

I admit, we’ve heard it all before. Employees have been worrying about the rising tide of automation for 200 years now, and for 200 years employers have been assuring them that new jobs will naturally materialize to take their place. After all, if you look at the year 1800, some 74% of all Americans were farmers, whereas by 1900 this figure was down to 31%, and by 2000 to a mere 3%. Yet this hasn’t led to mass unemployment. In 1930, the famous economist John Maynard Keynes was predicting that we’d all be working just 15-hour weeks by the year 2030. Yet, since the 1980s, work has only been taking up more of our time, bringing waves of burnouts and stress in its wake. Meanwhile, the crux of the issue isn’t even being discussed. The real question we should be asking ourselves is: what actually constitutes “work” in this day and age?

In a 2013 survey of 12,000 professionals by the Harvard Business Review, half said they felt their job had no “meaning and significance,” and an equal number were unable to relate to their company’s mission, while another poll among 230,000 employees in 142 countries showed that only 13% of workers actually like their job. A recent poll among Brits revealed that as many as 37% think they have a job that is utterly useless. They have, what anthropologist David Graeber refers to as, “bullshit jobs”. On paper, these jobs sound fantastic. And yet there are scores of successful professionals with imposing LinkedIn profiles and impressive salaries who nevertheless go home every evening grumbling that their work serves no purpose.

Let’s get one thing clear though: I’m not talking about the sanitation workers, the teachers, and the nurses of the world. If these people were to go on strike, we’d have an instant state of emergency on our hands. No, I’m talking about the growing armies of consultants, bankers, tax advisors, managers, and others who earn their money in strategic trans-sector peer-to-peer meetings to brainstorm the value-add on co-creation in the network society. Or something to that effect. So, will there still be enough jobs for everyone a few decades from now? Anybody who fears mass unemployment underestimates capitalism’s extraordinary ability to generate new bullshit jobs. If we want to really reap the rewards of the huge technological advances made in recent decades (and of the advancing robots), then we need to radically rethink our definition of “work.”

It starts with an age-old question: what is the meaning of life? Most people would say the meaning of life is to make the world a little more beautiful, or nicer, or more interesting. But how? These days, our main answer to that is: through work. Our definition of work, however, is incredibly narrow. Only the work that generates money is allowed to count toward GDP. Little wonder, then, that we have organized education around feeding as many people as possible in bite-size flexible parcels into the employment establishment. Yet what happens when a growing proportion of people deemed successful by the measure of our knowledge economy say their work is pointless? That’s one of the biggest taboos of our times. Our whole system of finding meaning could dissolve like a puff of smoke.

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Painful. 3rd world.

US Much Women More Likely To Die In Childbirth Than 25 Years Ago (ProP)

The ability to protect the health of mothers and babies in childbirth is a basic measure of a society’s development. Yet every year in the U.S., 700 to 900 women die from pregnancy or childbirth-related causes, and some 65,000 nearly die — by many measures, the worst record in the developed world. American women are more than three times as likely as Canadian women to die in the maternal period (defined by the Centers for Disease Control as the start of pregnancy to one year after delivery or termination), six times as likely to die as Scandinavians. In every other wealthy country, and many less affluent ones, maternal mortality rates have been falling; in Great Britain, the journal Lancet recently noted, the rate has declined so dramatically that “a man is more likely to die while his partner is pregnant than she is.”

But in the U.S., maternal deaths increased from 2000 to 2014. In a recent analysis by the CDC Foundation, nearly 60% of such deaths were preventable. While maternal mortality is significantly more common among African Americans, low-income women and in rural areas, pregnancy and childbirth complications kill women of every race and ethnicity, education and income level, in every part of the U.S. [..] The reasons for higher maternal mortality in the U.S. are manifold. New mothers are older than they used to be, with more complex medical histories. Half of pregnancies in the U.S. are unplanned, so many women don’t address chronic health issues beforehand. Greater prevalence of C-sections leads to more life-threatening complications. The fragmented health system makes it harder for new mothers, especially those without good insurance, to get the care they need. Confusion about how to recognize worrisome symptoms and treat obstetric emergencies makes caregivers more prone to error.

Yet the worsening U.S. maternal mortality numbers contrast sharply with the impressive progress in saving babies’ lives. Infant mortality has fallen to its lowest point in history, the CDC reports, reflecting 50 years of efforts by the public health community to prevent birth defects, reduce preterm birth and improve outcomes for very premature infants. The number of babies who die annually in the U.S. — about 23,000 in 2014 — still greatly exceeds the number of expectant and new mothers who die, but the ratio is narrowing. The divergent trends for mothers and babies highlight a theme that has emerged repeatedly in ProPublica’s and NPR’s reporting. In recent decades, under the assumption that it had conquered maternal mortality, the American medical system has focused more on fetal and infant safety and survival than on the mother’s health and well-being.

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Everybody in the west is responsible for this. Our governments willfully create the chaos that generates it.

Africa’s New Slave Trade (G.)

The dangers of attempting to cross the Mediterranean to Europe, in overcrowded, unseaworthy vessels, have been highlighted by a series of desperate rescue missions and thousands of deaths at sea in recent years. Last week, at least 245 people were killed by shipwrecks, bringing the toll for this year alone to 1,300. Less well-known are the dangers of Libya itself for migrants fleeing poverty across West Africa. The country’s slide into chaos following the 2011 death of dictator Muammar Gaddafi and the collapse of the government have made it a breeding ground for crime and exploitation. Two rival governments, an Isis franchise and countless local militias competing for control of a vast, sparsely populated territory awash in weapons, have allowed traffickers to flourish, checked only by the activities of their criminal rivals.

Last year, more than 180,000 refugees arrived in Italy, the vast majority of them through Libya, according to UN agency the International Organisation for Migration (IOM). That number is forecast to top 200,000 this year – and these people form a lucrative source of income for militias and mafias who control Libya’s roads and trafficking networks. Migrants who managed to reach Europe from Libya have long told of being kidnapped by smugglers, who would then torture them to extort cash as they waited for boats. But in recent years this abuse has developed into a modern-day slave trade – plied along routes once used by slaving caravans – that has engulfed tens of thousands of lives.

The new slave traders operate with such impunity that, survivors say, some victims are being sold in public markets. Most, however, see their lives and liberty auctioned off in private. “They took people and put them in the street, under a sign that said ‘for sale’,” said Shamsuddin Jibril, 27, from Cameroon, who twice saw men traded publicly in the streets of the central Libyan town of Sabha, once famous as the home of a young Gaddafi, but now known for violence and brutality. “They tied their hands just like in the former slave trade, and they drove them here in the back of a Toyota Hilux. There were maybe five or seven of them.”

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Apr 142017
 
 April 14, 2017  Posted by at 8:23 am Finance Tagged with: , , , , , , , , , , , ,  


American Soldiers Observing Eruption of Mount Vesuvius 1944

 

‘Russia Thinks We’re Crazy, Completely Crazy’ (ZH)
We’re Heading Straight Into a Recession – Jim Rickards (MWS)
How’s This For Grade 1 Central Bank Hubris? (Albert Edwards)
Wall Street Fear Gauge Hits Fresh High For The Year (CNBC)
The Ethical Case For Taxing Foreign Home Buyers (Gordon)
UK Banks Crack Down On Credit Card Lending After Borrowing Binge (Tel.)
CIA Director Brands Wikileaks A ‘Hostile Intelligence Service’ (G.)
‘US Will Keep ‘Open Mind’ On Any IMF Aid To Greece’ (AFP)
American Energy Use, In One Diagram (Vox)
Macroscale Modeling Linking Energy and Debt (King)
Refugee Rescue Group Accuses EU Border Agency Of Plotting Against Them (AFP)
At Least 97 Migrants Missing As Boat Sinks Off Libya (AFP)
The Ultimate Lovebird (DM)

 

 

As Cohen indicates, Tillerson signed multi-billion contracts with Putin. That required a lot of trust. That trust is now being put at risk.

‘Russia Thinks We’re Crazy, Completely Crazy’ (ZH)

Lastly, Stephen Cohen, Professor of Russian studies at Princeton and NYU, an actual expert on China, weighed in, saying ‘Russia thinks we’re crazy, completely crazy.’ He even took some time to express his ‘disgust’ with Al Mattour, saying ‘your previous guest, I don’t mean to be rude to him. First of all, he doesn’t know what he’s talking about. And, secondly, he excludes the reality that Russia has a politics. And the politics in Russia today as we talk is […] the concern that America is preparing war against Russia. If not on Syria, then on the other two cold war fronts […] where NATO is building up in an unprecedented way. This is not good because they have nuclear weapons and because accidents happen.’

He then theorized what the conversation between Putin and Tillerson was like, pointing to the two having a history of trust together from the time Tillerson led Exxon Mobile. ‘Rex, says Putin, what in the world is going on in Washington?’ Professor Cohen, ominously, summed it up, ‘I’m not young. I’ve been doing this 40 years, sometimes as a Professor, sometimes inside. I have never been as worried as I am today about the possibility of war with Russia.’

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Any day now.

We’re Heading Straight Into a Recession – Jim Rickards (MWS)

Before the holiday weekend begins, best-selling author James Rickards joins Olivia Bono-Voznenko outside the NYSE to talk all about the markets and his latest book, “The Road to Ruin.” Jim discusses the currency wars, Trump’s turnaround on China & the Fed and an inevitable crisis amid a weak system.

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Though he defines it poorly, Edwards is right that deflation is still here.

How’s This For Grade 1 Central Bank Hubris? (Albert Edwards)

Peter Praet, the ECB’s chief economist said in a recent interview that, “Since the crisis, we have had serious concerns about deflationary risks on several occasions in the euro area, but now we can say they have disappeared.” Really? Has he seen the chart below, which shows core CPI in the Eurozone heading sharply lower and now approaching its all-time low seen at the start of 2015! Not only that, but Eurozone inflation expectations are also declining again, after surging in the aftermath of Donald Trump’s election. To be fair, Praet was focusing on the rise in headline inflation in the Eurozone, which touched 2% in February before dropping back in March to 1.5%.

After some 18 months bobbing around the zero mark, I can understand why central bankers might be heaving a sigh of relief, but for them to take credit for a recovery in headline inflation is totally disingenuous given it has been entirely driven by a recovery in the oil price. Similarly, Janet Yellen was quoted saying the Fed is “doing pretty well” in meeting its congressionally mandated goals of low and stable inflation and a full-strength labor market. It’s this sort of comment that has led Marc Faber to want to short central bankers, the only way being to buy gold. The increasing volume of central bank hubris may even explain the recent breakout of gold to the upside! It is not just eurozone inflation expectations that seem to be in retreat. The same thing is happening in the US too (see chart below).

I am always surprised how dominated 10y inflation expectations are by short-term movements in the oil price and headline inflation, but it was noticeable just how rapidly inflation expectations ran up in the wake of Trump’s election – way in advance of what might have been expected by the bounce in the oil price. One might have thought the surge in the oil price from its trough some 12-18 months ago might have had more impact on wage inflation, but so far that does not seem to be the case. Despite the euphoria in the markets about the “reflation trade”, survey inflation expectations have continued to drift downwards. One thing is certain: for central banks to call victory over deflation may prove very premature indeed. Nemesis awaits.

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Easter jitters.

Wall Street Fear Gauge Hits Fresh High For The Year (CNBC)

Stocks may be in for a deeper pullback, now that the so-called fear index is finally breaking out higher. The CBOE Volatility Index (.VIX), considered the best gauge of fear in the market, closed above its 200-day moving average for the first time since the election this week. The indicator jumped more than 2% Thursday afternoon at one point to a fresh high for the year. U.S. markets are closed for trading Friday for the Easter holiday. The recent spike in fear comes just as geopolitical risk heats up. The Pentagon said Thursday U.S. military forces dropped the largest non-nuclear bomb in Afghanistan, the first time the so-called mother of all bombs has ever been used in combat. U.S. stocks fell, with the S&P 500 and DJIA closed at two-month lows Thursday. “I’d say it’s probably more of a Trump trade [reversing] than the geopolitics, but going forward I think the geopolitics is the topic the market is focusing on,” said Andres Jaime at Barclays.

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Good argument: A foreign-buyer’s tax can be refunded to individuals to the extent they pay income taxes..

The Ethical Case For Taxing Foreign Home Buyers (Gordon)

Foreign capital is playing an important role in the real estate markets of Toronto and Vancouver, and has for some time. As political leaders debate its impact and possible policy measures to alleviate its attendant issues, it is important to think clearly about the ethics of foreign ownership. Predictably, those who want to stymie or avoid policy action in this area have alluded to “xenophobia” to deter critics. Even some well-intentioned people have given credence to these claims. Yet curtailing or taxing foreign ownership is not xenophobic, especially if policy is properly designed. Xenophobia is the irrational or unjustified fear of foreigners. Concerns about the impact of foreign ownership are about flows of money, not people, and they are certainly justified in Toronto and Vancouver.

Foreign ownership raises two main ethical problems. First, those who buy based on foreign income or wealth often have access to money in ways that are unavailable to local residents. This means that locals are potentially put into disadvantageous, or unfair, competition for real estate where they live. Second, people who buy property based on foreign income or wealth may not have contributed much in Canadian taxes, which is largely what makes the property so valuable in the first place. Canadian real estate has become an attractive place to stash international money for a variety of reasons – we don’t effectively enforce money laundering regulations, we have relatively low property-tax rates and the enforcement of capital gains taxes has been lax. But real estate in Canada is ultimately attractive because of the country’s stable institutions, its public infrastructure and its social cohesion.

These latter things are paid for, or fostered by, taxes collected from Canadians – income taxes in particular. At a minimum, then, Canadians should have preferential access to property ownership, since they are paying for what makes it so valuable. It is precisely for these reasons that we see nothing ethically problematic about charging foreign students more in tuition at Canadian universities. Residential property is no different. Concerns around foreign ownership are especially potent when money is arriving from societies where corruption is widespread, and when foreign money is playing a significant role in driving up prices. Both apply in the cases of Toronto and Vancouver.

[..] We can then better design a foreign-buyer’s tax, which is needed to calm Toronto’s frenzied market. A foreign-buyer’s tax can be refunded to individuals to the extent they pay income taxes – the amount they pay in the three years following a purchase, for instance. This makes it clear that the tax need not discourage entrepreneurial talent from abroad, as claimed by Toronto Mayor John Tory. This understanding of the issue also leads straightforwardly into the proposal by many economists in British Columbia, including my colleague Rhys Kesselman. Provincial governments should introduce an annual property surtax on expensive homes that can be offset by income taxes paid, while exempting seniors with sustained CPP contribution records. This continuous surtax would powerfully target foreign ownership, and would thereby reconnect the local housing market to the local labour market.

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I’ll believe it when I see it. Nobody wants to see the economy crash, they’ll stick with loose lending standards to prevent it.

UK Banks Crack Down On Credit Card Lending After Borrowing Binge (Tel.)

Britain’s credit card binge could be at an end as banks tighten up controls on consumer debt. Borrowing growth hit rates of more than 10pc over the past year, a pace not seen since the boom years before the financial crisis, but now banks are touching the brakes. The Bank of England has warned that a consumer debt could be more of a risk to banks than mortgage lending, should there be an economic downturn. Fierce competition to win new customers has led banks to offer more credit to customers with increasingly long interest-free periods.But banks have started tightening lending criteria for credit card applicants in a move of an intensity not seen since the depths of the financial crisis in 2008 and 2009.

A net balance of 33pc of lenders expect to tighten standards in the coming three-month period, according to Bank of England data. When unsecured loans are also included, a net balance of 27pc plan to scrutinise applications more closely. There was also a fall in the number of credit card applications approved in the first quarter of the year, and banks expect the number to remain roughly steady in the coming quarter. By contrast credit scoring criteria for secured loans, such as mortgages, is holding broadly steady. “The recent rapid growth in consumer credit could principally represent a risk to lenders if accompanied by weaker underwriting standards,” warned the Bank of England’s Financial Policy Committee this month.

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After first praising it.

CIA Director Brands Wikileaks A ‘Hostile Intelligence Service’ (G.)

Mike Pompeo, the director of the CIA, has branded WikiLeaks a “hostile intelligence service,” saying it threatens democratic nations and joins hands with dictators. In his first public remarks since becoming chief of the US spy agency in February, Pompeo focused on the group and other leakers of classified information like Edward Snowden as one of the key threats facing the United States. “WikiLeaks walks like a hostile intelligence service and talks like a hostile intelligence service. It has encouraged its followers to find jobs at CIA in order to obtain intelligence… And it overwhelmingly focuses on the United States, while seeking support from anti-democratic countries and organisations,” said Pompeo. “It is time to call out WikiLeaks for what it really is – a non-state hostile intelligence service often abetted by state actors like Russia.”

[..] Last month, WikiLeaks embarrassed the CIA and damaged its operations by releasing a large number of files and computer code from the agency’s top secret hacking operations. The data showed how the CIA exploits vulnerabilities in popular computer and networking hardware and software to gather intelligence. Counterintelligence investigators continue to try to find out who stole the files and handed them to WikiLeaks. Assange meanwhile criticized the US agency for not telling the tech industry and authorities about those vulnerabilities so they can be fixed. Pompeo said Assange portrays himself as a crusader but in fact helps enemies of the United States, including aiding Russia’s interference in last year’s presidential election.

“Assange and his ilk make common cause with dictators today. Yes, they try unsuccessfully to cloak themselves and their actions in the language of liberty and privacy; in reality, however, they champion nothing but their own celebrity. Their currency is clickbait; their moral compass, nonexistent.” However, Pompeo did not comment on how Trump has previously lavished praise on Assange for the information he has made public. Nor did Pompeo mention that he himself had cited and linked to WikiLeaks in a tweet attacking the Democratic Party. Pompeo at the time was a Republican congressman and member of the House Intelligence Committee. The CIA declined to comment on that.

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Translation: get it done.

‘US Will Keep ‘Open Mind’ On Any IMF Aid To Greece’ (AFP)

The US government will keep an “open mind” on any new loan package from the IMF for debt-burdened Greece, a senior US Treasury official said Thursday. Despite criticism of international organizations by the Trump administration, the comments allay concerns that US Treasury Secretary Steven Mnuchin could veto any large new aid package for Athens. “We’re looking for the Europeans to help Greece to resolve its economic problems, and we think the IMF can play a supportive role,” the official told reporters. “And we’ll look at any potential future agreement with an open mind.” IMF chief Christine Lagarde on Wednesday said Greece and its eurozone creditors have made progress towards a new loan package that includes debt relief, but that is something the fund has been saying for months without a final deal.

Greece last week accepted a tough set of reforms demanded by its eurozone creditors in hopes of securing a new loan in time to avert a looming debt default in July, although it still must finalize the details. Athens has been deadlocked for months over reforms, and budget targets, which has put the IMF and EU at loggerheads over the need for debt relief in order to ensure an economic recovery, and the government’s ability to repay its loans. The eurozone is under heavy pressure to end the feud in order to avert a chaotic default and inflicting damage on an already stalled Greek recovery. Greece has about €7 billion in debt repayments due in July. All the key officials involved in the talks are expected to be in Washington next week to attend the IMF and World Bank annual meetings.

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We waste. That’s what we’re good at.

American Energy Use, In One Diagram (Vox)

Every year, Lawrence Livermore National Laboratory LLNL produces a new energy flow chart showing the sources of US energy, what it’s used for, and how much of it is wasted. If you’ve never seen it before, it’s a bit of a mind-blower. Behold US energy in 2016: So much information in so little space! (It’s worth zooming in on a larger version.)

[..] a British thermal unit (BTU) is a standard unit of energy — the heat required to raise the temperature of a pound of water by 1 degree Fahrenheit. If you prefer the metric system, a BTU is about 1055 joules of energy. A “quad” is one quadrillion (a thousand trillion) BTUs. [..] a few things equivalent to a quad: 8,007,000,000 gallons (US) of gasoline, 293,071,000,000 kilowatt-hours (kWh), 36,000,000 metric tons of coal The US consumed 97.3 quads in 2016, an amount that has stayed roughly steady (within a quad or so) since 2000.

Perhaps the most striking feature of the spaghetti diagram — what everyone notices the first time they see it — is the enormous amount of “rejected” energy. Not just some, but almost two-thirds of the potential energy embedded in our energy sources ended up wasted in 2016. (And note that some scholars think LLNL is being too optimistic, and that the US is not even 31% efficient but more like 13%.) What’s more, the US economy is trending less and less efficient over time. Here’s the spaghetti diagram from 1970 (LLNL has been at this a long time):

Back then, we only wasted half our energy! It’s important to put this waste in context. It is not mainly about personal behavior or inefficient energy end use — keeping cars idling or leaving the lights on, that kind of thing. That’s a part of it, but at a deeper level, waste is all about system design. The decline in overall efficiency in the US economy mainly has to do with the increasing role of inefficient energy systems. Specifically, the years since 1970 have seen a substantial increase in electricity consumption and private vehicles for transportation, two energy services that are particularly inefficient. (Electricity wastes two-thirds of its primary energy; transportation wastes about three-quarters.)

There is loss inherent in any system that converts raw materials to usable energy, or transports or uses energy, of course. That follows from the second law of thermodynamics. And it’s true both narrowly (a car is an energy system) and broadly (a city is an energy system). It’s not possible to achieve perfect efficiency, or anything close to it. But surely we can do better than 31%! Sixty-six quads is a truly mind-boggling amount of energy to vent into the atmosphere for no good purpose. It really highlights the enormous potential of better-designed systems — especially better electricity and transport systems, along with better urban systems (i.e., cities) — to contribute to the country’s carbon reduction goals. We could double our energy use, with no increase in carbon emissions, just by halving our energy waste.

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I like this, and it’s high time energy became a part of economic modeling; Steve Keen is working on it too. BUT: to understand today’s predicaments, you have to look -seperately- at what has happened in financial markets. The debt binge was not a result of what went on with energy; it stood -and stands- on and by itself.

Macroscale Modeling Linking Energy and Debt (King)

What if you realized that the fundamental economic framework of macroeconomics is insufficient to inform our most pressing concerns? The world is dynamic, in constant change, yet most economic models (even the most widely used “dynamic” model) lack fundamental feedbacks that govern long-term trends (e.g., regarding role of energy) and make assumptions that prevent the ability to describe important real-world phenomena (e.g., financial-induced recessions). Monetary models of finance and debt often assume that natural resources (energy, food, materials) and technology are not constraints on the economy. Energy scenario models often assume that economic growth, finance and debt will not be constraints on energy investment.


Energy and food costs have declined since industrialization, but no longer

These assumptions must be eliminated, and the modeling concepts must be integrated if we are to properly interpret the post-2008 macroeconomic situation: unprecedented low interest rates, high consumer and private debt, high asset valuations, and energy and food costs that are no longer declining. As we attempt to understand newer and more numerous options (e.g., electric cars, renewables, information) regarding energy system evolution, it is paramount to have internally consistent macro-scale models that take a systems approach that tracks flows and interdependencies among debt, employment, profits, wages, and biophysical quantities (e.g., natural resources and population). There is a tremendous research need to develop a framework to describe our contemporary and future macroeconomic situation that is consistent with both biophysical and economic principles. Unfortunately, this fundamental integration does not underpin our current thinking.


U.S. consumer costs of fundamental needs (energy, food, housing, transport) are no longer declining

• Debt is money.

• Money is created when commercial banks lend money to businesses, not when the U.S. Treasury prints money or when Federal Reserve Bank lowers interest rates. Those government and Fed actions are reactions to the creation or destruction of money (e.g., paying back loans) within the real economy.

• Businesses seek new loans when economic opportunities are present. Thus, a growing economy can support more debt.

• Economic opportunities are present when consumers have disposable income to spend (and when innovative technologies supplant old technologies, thus lowering prices, and enabling growth).

• Consumers have more money to spend when core needs (e.g., food, energy, housing) are getting cheaper relative to incomes. Thus, if these core needs are no longer getting cheaper, this is an indication of the lack of income growth to support business investment. In turn banks stop lending because there are fewer viable business opportunities.

• The conclusion is that without decreasing food and energy costs to consumers, real incomes do not rise.

• This is a viable explanation of the post-2008 economy, but one ignored by practically all policy makers, economists, and advisors!

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Frontex is a disaster.

Refugee Rescue Group Accuses EU Border Agency Of Plotting Against Them (AFP)

A Spanish group which has been rescuing migrants in the Mediterranean since 2016 accused the EU’s border control agency Frontex on Wednesday of plotting to discredit private aid organisations in order to put off donors. Allegations by Frontex that donor-funded rescue vessels may have colluded with traffickers at the end of last year prompted Italian prosecutors to begin an informal investigation into their funding sources. “The declarations by Frontex and political authorities are intended to discredit our actions and erode our donors’ trust,” said Proactiva Open Arms head Riccardo Gatti. “They are trying to say that we support the smuggling or the traffickers themselves,” he said. In a report cited in December by the Financial Times daily, Frontex raised the possibility that traffickers were putting migrants out to sea in collusion with the private ships that recover them and bring them to Italy “like taxis”.

Prosecutors then publicly wondered at the amount of money being spent, though they stopped short of opening a formal probe. “We feel there’s someone who wants to put a spoke in our wheels, though we do not really know who is behind it,” Gatti said. The organization said it had nothing to hide. “We have 35,000 donors. Some are well known – like Pep Guardiola, the current manager of Manchester City – others are anonymous,” said Oscar Camps, Proactiva Open Arms director. He said the group had so far received €2.2 million euros in donations for an op in the Med that costs between €5,000 and €6,000 a day. Pro-Activa Open Arms also heavily criticized a deal signed in February between Italy and Libya which purportedly hopes to stem the flow of migrants from the coast of North Africa to Italy.

Gatti said the deal was made with only part of the 1,700 militias he said control Libya and would therefore be ineffective. Human rights watchers have also warned the accord would put the lives of those fleeing persecution and war in greater danger. “Everything is controlled by the militias in Libya, even the coast guard, and 30 percent of the financial flows in the country come from human trafficking,” he said. The deal is in doubt after it was suspended in March by Tripoli’s Court of Appeal. Nearly 25,000 migrants have been pulled to safety and brought to Italy since the beginning of the year in a sharp increase in arrivals.

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Happy Easter.

At Least 97 Migrants Missing As Boat Sinks Off Libya (AFP)

At least 97 migrants were missing after their boat sank on Thursday off the Libyan coast, a navy spokesman said. Survivors said the missing include 15 women and five children, General Ayoub Qassem told AFP. He said the Libyan coastguard had rescued a further 23 migrants of various African nationalities just under 10 kilometres (6 miles) off the coast of Tripoli. The boat’s hull was completely destroyed and the survivors, all men, were found clinging to a flotation device, he said. Those who had disappeared were “probably dead”, but bad weather had so far prevented the recovery of their bodies, Qassem added. An AFP photographer said survivors had been given food and medical care at Tripoli port before being transferred to a migrant centre east of the capital.

Six years since the revolution that toppled dictator Moamer Kadhafi, Libya has become a key departure point for migrants risking their lives to cross the Mediterranean to Europe. Hailing mainly from sub-Saharan countries, most of the migrants board boats operated by people traffickers in western Libya, and make for the Italian island of Lampedusa 300 km away. Since the beginning of this year, at least 590 migrants have died or gone missing along the Libyan coast, the International Organization for Migration said in late March. In the absence of an army or regular police force in Libya, several militias act as coastguards but are often themselves accused of complicity or even involvement in the lucrative people-smuggling business. More than 24,000 migrants arrived in Italy from Libya during the first three months of the year, up from 18,000 during the same period last year, according to the UN High Commissioner for Refugees.

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Easter feel good.

The Ultimate Lovebird (DM)

A stork has melted hearts in Croatia by flying to the same rooftop every year for 14 years – to be reunited with its crippled partner. The faithful bird, called Klepetan, has returned once again to the village of Slavonski Brod in east Croatia after a 5,000 mile migration. He spends his winters alone in South Africa because his disabled partner Malena cannot fly properly after being shot by a hunter in 1993. Malena had been found lying by the side the road by schoolteacher Stjepan Vokic, who fixed her wing and kept her in his home for years before helping her to build a nest on his roof. After placing her there, she was spotted by Klepetan 14 years ago. And now every year they are reunited in the spring. Klepetan keeps a very strict timetable, usually arriving back at the same time on the same day in March to be welcomed by locals.

But this year he was running six days late, causing panic among local media and fans of the stork couple. Such is the popularity of the pair that there is even a live feed on the main square in the capital Zagreb showing the two storks. There was huge excitement when stork-watchers saw what they thought was Klepetan circling over the nest, and then coming in to land. But the new arrival turned out to be a different stork that was attempting to woo Malena. She quickly attacked him and drove him off and continued to wait for Klepetan. Stjepan Vokic, whose roof the couple nest on, said: ‘She was pretty clear about the message, I doubt he will be back again.’ Vokic has taken care of Malena since she was first injured by hunters and says that she – like her partner – is now part of the family.

During the winter, Vokic keeps her inside the house, and then lets her go to the roof each spring where she patiently waits for her partner. This year, Malena made a rare flight and the couple were reportedly inseparable for hours. She does have the ability to make very short flights but her wing has not healed well enough for her to make the trip to Africa, or even to properly feed herself. Every summer, the pair bring up chicks, with Klepetan leading their flying lessons in preparation for the trip south in summer. The oldest recorded living stork was 39. Locals are hopeful the couple’s long relationship will continue for years to come.

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