Dec 162016
 
 December 16, 2016  Posted by at 5:44 pm Finance Tagged with: , , , , , , , , , ,  10 Responses »


Parisians duck down to evade German sniper fire following Nazi surrender of Paris, 1945

 

If you ever wondered what the odds are of mankind surviving, let alone ‘defeating’, climate change, look no further than the essay the Guardian published this week, written by Michael Bloomberg and Mark Carney. It proves beyond a moonlight shadow of a doubt that the odds are infinitesimally close to absolute zero (Kelvin, no Hobbes).

Yes, Bloomberg is the media tycoon and former mayor of New York (which he famously turned into a 100% clean and recyclable city). And since central bankers are as we all know without exception experts on climate change, as much as they are on full-contact crochet, it makes perfect sense that Bank of England governor Carney adds his two -trillion- cents.

Conveniently, you don’t even have to read the piece, the headline tells you all you need and then some: “How To Make A Profit From Defeating Climate Change” really nails it. The entire mindset on display in just a few words. If that’s what they went for, kudo’s are due.

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? That our definition of success is what dooms us?

Philosophers, religious people, or you and me, may struggle with the question “what’s the purpose of life?”. These guys do not. The purpose of life is to make a profit. The earth and all the life it harbors exist to kill, drill, excavate and burn down, if that means you can make a profit. And after that you repair it all for a profit. In their view, the earth doesn’t turn of its own accord after all, it’s money that makes it go round.

 

The worrisome thing is that Mark and Michael will be listened to, that they are allowed a seat at the table in the first place, whereas you and I are not. A table that will be filled with plenty more of their ilk, as the announcement of Bill Gates’ billionaire philantropist energy fund says loud and clear:

Microsoft co-founder Bill Gates and a group of high-profile executives are investing $1 billion in a fund to spur clean energy technology and address global climate change a year after the Paris climate agreement. Gates launched the Breakthrough Energy Ventures fund on Monday along with billionaire entrepreneurs such as Facebook head Mark Zuckerberg, Alibaba Chairman Jack Ma and Amazon.com chief Jeff Bezos. The fund seeks to increase financing of emerging energy research and reduce global greenhouse gas emissions to help meet goals set in Paris, according to a statement by the investor group known as the Breakthrough Energy Coalition.

Yes, many of the same folk and/or their minions were sitting at the table with Trump on Dec 14. To see if there are any profits to be made. When a profit is involved they have no trouble sitting down with the same guy they insulted and warned against day after grueling day mere weeks ago. They have no trouble doing it because they insulted him for a potential profit too. It’s business, it’s not personal.

Billionaires will save us from ourselves, and make us -and themselves- rich while doing it. What is not to like? Well, for one thing, has anybody lately checked the energy footprint of Messrs. Bloomberg, Gates, Ma, Zuckerberg, Bezos et al? Is it possible that perhaps they’re trying to pull our collective wool over our eyes by pretending to care about those footprints? That maybe these ‘clean energy’ initiatives are merely a veil behind which they intend to extend -and expand- said footprints?

The ones in that sphere who wind up being most successful are those who are most convincing in making us believe that all we need to do to avert a climate disaster is to use some different form of energy. That all the talk about zero emissions and clean energy is indeed reflecting our one and only possible reality.

That all we need to do is to switch to solar and wind and electric cars to save ourselves (and they’ll build them for a subsidy). That that will end the threat and we can keep on doing what we always did, and keep on growing it all and as the cherry on the cake, make a profit off the endeavor.

 

None of it flies even a little. First of all, as I said last week in Mass Extinction and Mass Insanity, there are many more problems with our present lifestyles than ‘only’ climate change, or the use of carbon. Like the extinction of two-thirds of all vertebrate life in just 50 years leading up to 2020. There’s -close to- nothing wind and solar will do to alleviate that.

Because it’s not oil itself, or carbon in general, that kills; our use of it does. And the rush to build an entire new global infrastructure that is needed to use new energy forms, which will depend on using huge amounts of carbon, is more likely to kill off that globe than to save it. “Carbon got us in this, let’s use lots more of it to get us out”.

The trillions in -public- investment that are would be needed will make us all dirt poor too, except for the gentlemen mentioned above and a handful of others who invent stuff that they manage to make us believe will save us. Still convinced?

 

The lifestyles of the last 10 generations of us, especially westerners, are characterized more than anything else by the huge increase in the use of energy, of calories and joules. As we went from wood to peat to coal to oil and gas, the energy return on energy investment kept going higher. But that stopped with oil and gas. And from now on in it will keep going down.

“Free carbon excess” was a one-off ‘gift’ from nature. It will not continue and it will not return. Different forms of carbon have offered us a one-time source of free energy that we will not have again. The idea that we can replace it with ‘clean energy’ is ludicrous. The energy return on energy investment doesn’t even come close. And you can’t run a society with our present levels of complexity on a much lower ‘net energy’. We must dress down. No profit in that, sorry.

We built what we have now with oil at an EROEI of 100:1. There are no forms of energy left that come remotely close, including new, unconventional, forms of oil itself. Peak oil has been a much maligned and misunderstood concept, but its essence stands: when it takes more energy to ‘produce’ energy than it delivers, there will be no production.

This graph is a few years old, and wind and solar may have gained a few percentage points in yield, but it’s still largely correct. And it will continue to be.

 

 

We have done with all that free energy what all other life forms do when ‘gifted’ with an excess of available energy: spend it as fast as possible, proliferate to speed up the process (we went from less than 1 billion people to 7 billion in under 200 years, 2 billion to 7 billion in 100 years) and, most of all, waste it.

Ever wonder why everybody drives a car that is ten times heavier then her/himself and has a 10% efficiency rate in its energy use? Why there’s an infrastructure everywhere that necessitates for every individual to use 1000 times more energy than it would take herself to get from A to B on foot? Sounds a lot like deliberately wasteful behavior, doesn’t it?

The essence here is that while we were building this entire wasteful world of us, we engaged in the denying and lying behavior that typifies us as a species more than anything: we disregarded externalities. And there is no reason to believe we would not continue to do just that when we make the illusionary switch to ‘clean’ energy.

To begin with, the 2nd law of thermodynamics says there’s no such thing as clean energy. So stop using the term. Second, that we call wind and solar ‘clean energy’ means we’re already ignoring externalities again. We pretend that producing windmills and solar panels does not produce pollution (or we wouldn’t call it ‘clean’). While enormous amounts of carbon are used in the production process, and it involves pollution, loss of land, loss of life, loss of resources (once you burn it it’s gone).

 

An example: If we want to ‘save’ the earth, we would do good to start by overthrowing the way we produce food. It presently easily takes more than 10 calories of energy -mostly carbon- for every calorie of food we make. Then we wrap it all in (oil-based) plastic and transport it sometimes 1000s of miles before it’s on our plates. And at the end of this process, we will have thrown away half of it. It’s hard to think of a more wasteful process.

It’s a process obviously devised and executed by idiots. But it’s profitable. There is a profit to be made in wasting precious resources. And there is a key lesson in that. There is no profit in producing food in a more efficient way. At least not for the industries that produce it. And perhaps not even for you, if you produce most of your food – it takes ‘precious’ time.

It would still be hugely beneficial, though. And there’s the key. There is no direct link between what is good for us, and the planet, on the one side, and profit, money, on the other. What follows from that is that it’s not the people whose entire lives are centered around money who are the most obvious choices to ‘save the planet’. If anything, they are the least obvious.

But in an economic and political system that is itself as focused on money as ours is, they are still the ones who are allowed to assume this role. It’s a circle jerk around, and then into, a drain.

 

Mankind’s only chance to not destroy its planet lies in diverging from all other species in that not all energy available to it, is used up as fast as possible. But that’s a big challenge. It would, speaking from a purely philosophical angle, truly separate us from nature for the first time ever, and we must wonder if that’s desirable.

We would need to gain much more knowledge of who we are and what makes us do what we do, and why. But that is not going to happen if we focus on making a profit. Using less energy means less waste means less profit.

Yes, there may be energy sources that produce a bit less waste, a bit less pollution, than those that are carbon based. But first, our whole infrastructure has been built by carbon, and second, even if another energy source would become available, we would push to grow its use ever more, and end up initially in the same mess, and then a worse one.

 

 

I stumbled upon an excellent example of the effects of all this today:

The Shattering Effect Of Roads On Nature

Rampant road building has shattered the Earth’s land into 600,000 fragments, most of which are too tiny to support significant wildlife, a new study has revealed. The researchers warn roadless areas are disappearing and that urgent action is needed to protect these last wildernesses, which help provide vital natural services to humanity such as clean water and air. The impact of roads extends far beyond the roads themselves, the scientists said, by enabling forest destruction, pollution, the splintering of animal populations and the introduction of deadly pests.

An international team of researchers analysed open-access maps of 36m km of road and found that over half of the 600,000 fragments of land in between roads are very small – less than 1km2. A mere 7% are bigger than 100km2, equivalent to a square area just 10km by 10km (6mi by 6 mi). Furthermore, only a third of the roadless areas were truly wild, with the rest affected by farming or people.

The last remaining large roadless areas are rainforests in the Amazon and Indonesia and the tundra and forests in the north of Russia and Canada. Virtually all of western Europe, the eastern US and Japan have no areas at all that are unaffected by roads.

 

 

It’s a good example because it raises the question: how much of this particular issue do you think will be solved by the promotion of electric cars, or windmills? How much of it do you think can be solved for a profit? Because if there’s no profit in it, it will not happen.

One more for the philosophy class: I know many people will be inclined to suggest options like nuclear fusion. Or zero point energy. And I would suggest that not only do these things exist in theory only, which is always a bad thing if you have an immediate problem. But more than that: imagine providing the human race with a source of endless energy, and then look at what it’s done with the free energy available to it over the past 10 generations.

Give man more energy and he’ll just destroy his world faster. It’s not about carbon, it’s about energy and about what you yourself do with it. And no, money and profit will not reverse climate change, or any other detrimental effects they have on our lives. They will only make them worse.

Dec 082016
 


Caters Extremely rare albino elephant, Kruger National Park in South Africa

 

Everything dies, baby, that’s a fact
But maybe everything that dies someday comes back …

Springsteen, Atlantic City

“Erwin Schrodinger (1945) has described life as a system in steady-state thermodynamic disequilibrium that maintains its constant distance from equilibrium (death) by feeding on low entropy from its environment – that is, by exchanging high-entropy outputs for low-entropy inputs. The same statement would hold verbatium as a physical description of our economic process. A corollary of this statement is that an organism cannot live in a medium of its own waste products.”
Herman Daly and Kenneth Townsend

 

What drives our economies is waste. Not need, or even demand. Waste. 2nd law of thermodynamics. It drives our lives, period.

First of all, don’t tell me you’re trying to stop the ongoing extinction of nature and wildlife on this planet, or the destruction of life in general. Don’t even tell me you’re trying. Don’t tell me it’s climate change that we should focus on (that’s just a small part of the story), and you’re driving an electric car and you’re separating your trash or things like that. That would only mean you’re attempting to willfully ignore your share of destruction, because if you do it, so will others, and the planet can’t take anymore of your behavior.

This is the big one. And the only ones amongst us who don’t think so are those who don’t want to. Who think it’s easier to argue that some problems are too big for them to tackle, that they should be left to others to solve. But why should we, why should anyone, worry about elections or even wars, when it becomes obvious we’re fast approaching a time when such things don’t matter much anymore?

The latest WWF Living Planet Report shows us that the planet is a whole lot less alive than it used to be. And that we killed that life. That we replaced it with metal, bricks, plastic and concrete. Mass consumption leads to mass extinction. And that is fully predictable, it always was; there’s nothing new there.

We killed 58% of all vertebrate wildlife just between 1970 and 2012, and at a rate of 2% per year we will have massacred close to 70% of it by 2020, just 4 years from now. So what does it matter who’s president of just one of the many countries we invented on this planet? Why don’t we address what’s really crucial to our very survival instead?

 

 

The latest report from the WWF should have us all abandon whatever it is we’re doing, and make acting to prevent further annihilation of our living world the key driver in our everyday lives, every hour of every day, every single one of us. Anything else is just not good enough, and anything else will see us, that self-nominated intelligent species, annihilated in the process.

Granted, there may be a few decrepit and probably halfway mutant specimens of our species left, living in conditions we couldn’t even begin, nor dare, to imagine, with what will be left of their intelligence wondering how our intelligence could have ever let this happen. You’d almost wish they’ll understand as little as we ever did; that some form of ignorance equal to ours will soften their pain.

It’s important to note that the report does not describe a stagnant situation, there’s no state of affairs, not something still, it describes an ongoing and deteriorating process. That is, we don’t get to choose to stop the ongoing wildlife annihilation at 70%; we are witnessing, and indeed we are actively involved in, raising that number by 2% every year that we ‘live’ (can we even call it that anymore, are you alive when you murder all life around you?) in this world.

This is our only home.

 

 

Without the natural world that we were born into, or rather that our species, our ancestors, were born into, we have zero chance of survival. Because it is the natural world that has allowed for, and created, the conditions that made it possible for mankind to emerge and develop in the first place. And we are nowhere near making an earth 2.0; the notion itself is preposterous. A few thousand years of man ‘understanding’ his world is no match for billions of years of evolution. That’s the worst insult to whatever intelligence it is that we do have.

Much has been made through the years of our ability to adapt to changing circumstances, and much of that is just as much hubris as so much of what we tell ourselves, but the big question should be WHY we would volunteer to find out to what extent we can adapt to a world that has sustained the losses we cause it to suffer. Even if we could to a degree adapt to that, why should we want to?

Two thirds of our world is gone, and it’s we who have murdered it, and what’s worse – judging from our lifestyles- we seem to have hardly noticed at all. If we don’t stop what we’ve been doing, this can lead to one outcome only: we will murder ourselves too. Our perhaps biggest problem (even if we have quite a few) in this regard is our ability and propensity to deny this, as we deny any and all -serious, consequential- wrongdoing.

 

 

There are allegedly serious and smart people working on, dreaming of, and getting billions in subsidies for, fantasies of human colonies on Mars. This is advertized as a sign of progress and intelligence. But that can only be true if we can acknowledge that our intelligence and our insanity are identical twins. Because it is insane to destroy the planet on which we depend one-on-one for everything that allows us to live, and at the same time dream of human life on another planet.

While I see no reason to address the likes of King of Subsidies Elon Musk, Stephen Hawking is different. Unfortunately, in Hawking’s case, with all his intelligence, it’s his philosophical capacity that goes missing.

Humanity Will Not Survive Another 1,000 Years If We Don’t Escape Our Planet

Professor Stephen Hawking has warned humanity will not survive another 1,000 years on Earth unless the human race finds another planet to live on. [..] Professor Hawking, 74, reflected on the understanding of the universe garnered from breakthroughs over the past five decades, describing 2016 as a “glorious time to be alive and doing research into theoretical physics”. “Our picture of the universe has changed a great deal in the last 50 years and I am happy if I have made a small contribution,“ he went on.

”The fact that we humans, who are ourselves mere fundamental particles of nature, have been able to come this close to understanding the laws that govern us and the universe is certainly a triumph.” Highlighting “ambitious” experiments that will give an even more precise picture of the universe, he continued: “We will map the position of millions of galaxies with the help of [super] computers like Cosmos. We will better understand our place in the universe.”

“But we must also continue to go into space for the future of humanity. I don’t think we will survive another 1,000 years without escaping beyond our fragile planet.”

The tragedy is that we may have gained some knowledge of natural laws and the universe, but we are completely clueless when it comes to keeping ourselves from destroying our world. Mars is an easy cop-out. But Mars doesn’t solve a thing. Because it’s -obviously- not the ‘fragile planet’ earth that is a threat to mankind, it’s mankind itself. How then can escaping to another planet solve its problems?

What exactly is wrong with saying that we will have to make it here on planet earth? Is it that we’ve already broken and murdered so much? And if that’s the reason, what does that say about us, and what does it say about what we would do to a next planet, even provided we could settle on it (we can’t) ? Doesn’t it say that we are our own worst enemies? And doesn’t the very idea of settling the ‘next planet’ imply that we had better settle things right here first? Like sort of a first condition before we go to Mars, if we ever do?

In order to survive, we don’t need to escape our planet, we need to escape ourselves. Not nearly as easy. Much harder than escaping to Mars. Which already is nothing but a pipedream to begin with.

Moreover, if we can accept that settling things here first before going to Mars is a prerequisite for going there in the first place, we wouldn’t need to go anymore, right?

 

 

We treat this entire extinction episode as if it’s something we’re watching from the outside in, as if it’s something we’re not really a part of. I’ve seen various undoubtedly very well-intentioned ‘green people’, ‘sustainable people’, react to the WWF report by pointing to signs that there is still hope, pointing to projects that reverse some of the decline, chinook salmon on the North American Pacific coast, Malawi farmers that no longer use chemical fertilizers, a giant sanctuary in the Antarctic etc.

That, too, is a form of insanity. Because it serves to lull people into a state of complacency that is entirely unwarranted. And that can therefore only serve to make things worse. There is no reversal, there is no turnaround. It’s like saying if a body doesn’t fall straight down in a continuous line, it doesn’t fall down at all.

The role that green, sustainability, conservationist groups play in our societies has shifted dramatically, and we have failed completely to see this change (as have they). These groups have become integral parts of our societies, instead of a force on the outside warning about what happens within.

Conservationist groups today serve as apologists for the havoc mankind unleashes on its world: all people have to do is donate money at Christmas, and conservation will be taken care of. Recycle a few bottles and plastic wrappings and you’re doing your part to save the planet. It is utterly insane. It’s as insane as the destruction itself. It’s denial writ large, and in the flesh.

It’s not advertized that way, but that doesn’t mean it’s not how it works. Saying that ‘it’s not too late’ is not a call to action as many people continue to believe. It’s just dirt poor psychology. It provides people with the impression, which rapidly turns into an excuse, that there is still time left. As almost 70% of all vertebrates, those animals that are closest to us, have disappeared. When would they say time is up? At 80%, 90%?

 

 

We do not understand why, or even that, we are such a tragically destructive species. And perhaps we can’t. Perhaps that is where our intelligence stops, at providing insight into ourselves. Even the most ‘aware’ amongst us will still tend to disparage their own roles in what goes on. Even they will make whatever it is they still do, and that they know is hurtful to the ecosystem, seem smaller than it is.

Even they will search for apologies for their own behavior, tell themselves they must do certain things in order to live in the society they were born in, drive kids to school, yada yada. We all do that. We soothe our consciences by telling ourselves we mean well, and then getting into our cars to go pick up a carton of milk. Or engage in an equally blind act. There’s too many to mention.

Every species that finds a large amount of free energy reacts the same way: proliferation. The unconscious drive is to use up the energy as fast as possible. If only we could understand that. But understanding it would get in the way of the principle itself. The only thing we can do to stop the extinction is for all of us to use a lot less energy. But because energy consumption provides wealth and -more importantly- political power, we will not do that. We instead tell ourselves all we need to do is use different forms of energy.

Our inbuilt talent for denying and lying (to ourselves and others) makes it impossible for us to see that we have an inbuilt talent for denying and lying in the first place. Or, put another way, seeing that we haven’t been able to stop ourselves from putting the planet into the dismal shape it is in now, why should we keep on believing that we will be able to stop ourselves in the future?

Thing is, an apology for our own behavior is also an apology for everyone else’s. As long as you keep buying things wrapped in plastic, you have no right, you lose your right, to blame the industry that produces the plastic.

 

 

We see ourselves as highly intelligent, and -as a consequence- we see ourselves as a species driven by reason. But we are not. Which can be easily demonstrated by a ‘reverse question’: why, if we are so smart, do we find ourselves in the predicament of having destroyed two thirds of our planet?

Do we have a rational argument to execute that destruction? Of course not, we’ll say. But then why do we do it if rationality drives us? This is a question that should forever cure us of the idea that we are driven by reason. But we’re not listening to the answer to that question. We’re denying, we’re even denying the question itself.

It’s the same question, and the same answer, by the way, that will NOT have us ‘abandon whatever it is we do’ when we read today that 70% of all wildlife will be gone by 2020, that 58% was gone by 2012 and we destroy it at a rate of 2% per year. We’re much more likely to worry much more about some report that says returns on our retirement plans will be much lower than we thought. Or about the economic growth that is too low (as if that is possible with 70% of wildlife gone).

After all, if destroying 70% of wildlife is not enough for a call to action, what would be? 80%? 90? 99%? I bet you that would be too late. And no, relying on conservationist groups to take care of it for us is not a viable route. Because that same 70% number spells out loud and clear what miserable failures these groups have turned out to be.

We ‘assume’ we’re intelligent, because that makes us feel good. Well, it doesn’t make the planet feel good. What drives us is not reason. What drives us is the part of our brains that we share in common with amoeba and bacteria and all other more ‘primitive forms of life, that gobbles up excess energy as fast as possible, in order to restore a balance. Our ‘rational’, human, brain serves one function, and one only: to find ‘rational’ excuses for what our primitive brain has just made us do.

We’re all intelligent enough to understand that driving a hybrid car or an electric car does nothing to halt the havoc we do to our world, but there are still millions of these things being sold. So perhaps we could say that we’re at the same time intelligent enough, and we’re not.

We can see ourselves destroying our world, but we can not stop ourselves from continuing the destruction. Here’s something I wrote 5 years ago:

Most. Tragic. Species. Ever.

We have done exactly the same that any primitive life form would do when faced with a surplus, of food, energy, and in our case credit, cheap money. We spent it all as fast as we can. Lest less abundant times arrive. It’s an instinct, it comes from our more primitive brain segments, not our more “rational” frontal cortex. It’s not that we’re in principle, or talent, more devious or malicious than more primitive life forms. It’s that we use our more advanced brains to help us execute the same devastation our primitive brain drives us to, but much much worse.

That’s what makes us the most tragic species imaginable. We’ll fight each other, even our children, over the last few scraps falling off the table, and kill off everything in our path to get there. And when we’re done, we’ll find a way to rationalize to ourselves why we were right to do so. We can be aware of watching ourselves do what we do, but we can’t help ourselves from doing it. Most. Tragic. Species. Ever.

The greatest miracle you will ever see, that you could ever hope to see, is so miraculous you can’t even recognize it for what it is. We don’t know what the word beautiful means anymore. Or the word valuable. We’ve lost all of that, and are well on our way, well over 70% of it, to losing the rest too.

 

 

 

PS Please note I could not gather all sources for all pictures here, but I’d be more than happy to add them. It’s not that I don’t recognize the effort that goes into them; it’s an emotional thing.

 

 

Dec 022014
 
 December 2, 2014  Posted by at 11:39 pm Finance Tagged with: , , , , , , ,  19 Responses »


Lewis Wickes Hine Newsies Gus Hodges, 11, and brother Julius, 5, Norfolk VA Jun 1911

Oh man, I wanted to keep this short, what I wanted to say looked so straight-forward. But then, in this convoluted world of pretense, is anything ever anymore? Please allow me to start off with something I wrote yesterday in Oil, Gold And Now Stocks? concerning the nonsense spouted by New York Fed President Bill Dudley, who claimed that money not spent by Americans on gas would actually boost the economy if -and that’s still an if – they spent it on anything else. I said they’d still have the same amount of money to spend, so how can it be a boost? Sure, you can say that a lot of the oil is imported, which would transfer profits abroad, but then so are most of the trinkets people can may buy at WalMart with their gas savings. .

Today Zero Hedge’s Tyler Durden turns that theme into not one, but two different posts. First this morning, ‘Central Bankers’ Say The Darndest Things – Bill Dudley Edition, and then just now the second take on the topic, with a very good explanation of what it is Dudley, perhaps the second-most important man in the American financial world – if he’s not numero uno-, gets so wrong, intentionally or not.

Fed Fischer’s Complete & Bizarre Nonsense: Oil Price Collapse “Making Everybody Better Off”

“I’m not very worried,” explains Fed Vice Chairman Stan Fischer in a very Bernanke-“contained”-like nonchalance about the total collapse of oil prices (and US oil producer stocks). Sharply lower oil prices will boost spending and aid U.S. growth, Fischer stated in a mind-blowingly naive speech for the 2nd-most-important-monetary-policy-maker-in-the-world, adding that lower oil prices were “a phenomenon that’s making everybody better off.” We don’t understand his ignorance: as Raul Ilargi Meijer noted earlier, Fischer is talking about money that would otherwise also have been spent, only on gas. There is no additional money, so where’s the boost? This is just complete and bizarre nonsense. As Bloomberg reports:

Fed Vice Chairman Stanley Fischer and New York Fed President William C. Dudley, speaking at separate events yesterday in New York, both stressed the positive economic impact from the steepest decline in oil prices for five years. “I’m not very worried,” Fischer told an audience at the Council on Foreign Relations. “The lower inflation that we’ll get from the lower price of oil is going to be temporary.” He also said lower oil prices were “a phenomenon that’s making everybody better off.”

Perhaps Mr. Fischer should ask the owners of oil producer and servicer stocks, the workers in Texas and North Dakota, as well permits collapse..

Here’s some 1st grade math…
• Money people have to spend (the number that is US CONSUMPTION) = X
• Money people have to spend on Gas = GAS
• Money people have to spend on everything else = EVERYTHINGELSE
• Therefore: X = GAS + EVERYTHINGELSE

Now if Gas becomes cheaper by 30%… the savings are merely spent on more of everything else OR ‘saved’ – there is not boost in US consumption… How does it make X any bigger? How does that make anyone better off? Just don’t tell Fischer, Dudley, or anyone on CNBC this!!!

Will Dudley, or the press that covers him, learn anything from this? Does he really not understand why what he says in gibberish, or does he do it on purpose? Do the press too? Will we ever know? All we can do is point it out, and hope people understand it with us.

But I was thinking about another topic today, and it happened to come up in a comment on my article on both The Automatic Earth and Zero Hedge, by an old friend and commenter I hadn’t seen in a while. I started off yesterday saying:

“Is the Plunge Protection Team really buying oil now? That would be so funny. Out of the blue, up almost 5%? Or was it the Chinese doing some heavy lifting stockpiling for their fading industrial base?”

And got this comment:

The Chinese have a “fading” industrial base?! The most spectacular industrial development story of all time, over decades, and they are “fading”?! Are we living on the same planet?

To which I said:

Big things fade too. Or as the French say: Un éléphant se trompe énormement.

Un éléphant se trompe énormement. In English: the bigger you are, the bigger your mistakes. There’s also a wordplay in there with the sound elephants make and a trumpet (trompette in French). But yeah, China’s industry is fading, and I don’t want to get into semantics about the meaning of the term fading. Two days ago, I posted ths from Bloomberg:

China Factory Gauge Drops as Shutdowns Add to Slowdown

A Chinese manufacturing gauge fell as factory shutdowns aggravated a pullback in the economy [..] The government’s Purchasing Managers’ Index (PMI) fell to an eight-month low of 50.3 in November, compared with the 50.5 median estimate of analysts in a Bloomberg survey and October’s 50.8. Readings above 50 indicate expansion.

“Today’s official PMI reading points to continued downward pressure on manufacturing activity,” said Julian Evans-Pritchard, China analyst in Singapore at Capital Economics. “The recent cut in the benchmark rate will do little to boost economic activity unless followed by a loosening of quantitative controls on lending, which policymakers will remain cautious about given concerns over mounting credit risk.” The final reading of another manufacturing PMI for November from HSBC and Markit was 50.0. It was unchanged from a preliminary reading.

My comment then: ‘It’s close to contraction, and that’s a long way away from 7.5% growth.’

Between the lines, we’ve been able to see for a while that China is quite a ways away from that 7.5% growth target, and a near contraction PMI reading would certainly seem to confirm that suspicion. Of course, nearly everything we get from China are ‘official’ numbers, and having faith in those wouldn’t seem to make a lot of sense.

Which made it sort of amazing to see an official government report issued that Jamil Anderlini wrote about for the Financial times on Friday, but which Reuters had already covered 10 days before that. These are government researchers, and that makes you wonder what the message is, and how it’s sent: is Beijing exaggerating the waste for political purposes, or acknowledging just a part of it? My bet would always be on number 2, Xi and Li are not sitting pretty or relaxed these days, and making their own faults look even bigger than they are does not seem to be the way they would go. Here’s some excerpts from Anderlini’s piece:

China Has ‘Wasted’ $6.8 Trillion In Investment

“Ghost cities” lined with empty apartment blocks, abandoned highways and mothballed steel mills sprawl across China’s landscape – the outcome of government stimulus measures and hyperactive construction that have generated $6.8 trillion in wasted investment since 2009, according to a report by government researchers. In 2009 and 2013 alone, “ineffective investment” came to nearly half the total invested in the Chinese economy in those years, according to research by Xu Ce of the National Development and Reform Commission, the state planning agency, and Wang Yuan from the Academy of Macroeconomic Research, a former arm of the NDRC.

China is this year on track to grow at its slowest annual pace since 1990, and the report highlights growing concern in the Chinese leadership about the potential economic and social consequences if wasteful investment leaves projects abandoned and bad loans overloading the financial system. The bulk of wasted investment went directly into industries such as steel and automobile production that received the most support from the government.

To wit: iron ore stocks are down 50%. That’s all China not buying anymore, plus the industry that invested hoping they would. Overcapacity everywhere. US shale, you name it. What does not have overcapacity these days? Oh well, yeah, care for the poor and the elderly, you’re right. I sit corrected.

Mr Xu and Ms Wang said ultra-loose monetary policy, little or no oversight over government investment plans and distorted incentive structures for officials were largely to blame for the waste. “Investment efficiency has fallen dramatically [in recent years],” they say in the report. “It has become far more obvious in the wake of the global financial crisis and has caused a lot of over-investment and waste.” [..]

Much of the investment in recent years has been funnelled into real estate projects, but apartment sales and prices have fallen this year, leading to fears of an impending property crash. Most of the industries that feed the real estate sector, such as steel, glass and cement, are awash with overcapacity and have been hit hard by the property downturn.

Misallocation of capital and poor investment decisions are not the only explanation for the enormous waste in China’s economy. A significant portion of China’s post-crisis stimulus binge was simply stolen by Communist Party officials with direct responsibility for boosting growth through investment, according to separate estimates by Chinese and overseas economists. Jonathan Anderson, founder of Emerging Advisors Group, the consultancy, estimates that about $1tn has gone missing in China in the past half-decade as a result of weak oversight and the enormous opportunity provided by the investment boom. “That translates into maybe 5% of GDP per year worth of skimming off the top,” he says.

“Think about it: every local government wakes up one morning in 2009 and finds that the central authorities have lifted every single form of credit restriction in the economy,” he says. “With no one watching the till, it would be awfully hard to resist the temptation to sidetrack the funds, squirrelling them away in related official accounts or paying them out through padded contracts to other connected suppliers and friends.”

That last bit doesn’t cover he situation. Beijing has relied on the shadow banking system, not just tolerated it, to get China to grow at the numbers it has. And local governments have taken the bait, and taken the shadow loans, so they would look good to their superiors, building whatever they could build, useful or not, roads, bridges, apartment buildings.

I don’t know if we will ever know the size of the shadow banks in China, but there can be no doubt that it’s mind shattering. And if an official government report says $6.8 trillion was spent on nothing, do we even want to know how much shadow loans were spent that way?

In 2009 and 2013, the report says, ‘half the total invested in the Chinese economy’ was ‘ineffective investment’, i.e. money wasted on bridges to nowhere. A more or less accepted number for total official Beijing ‘invested’ is $15 trillion in 5 years, and we now know that the ‘waste’ got bigger as time went on, and totaled about half of the total investment. And that’s just what Beijing put in; it’s anybody’s guess what da shadows added, and how much of that never went anywhere.

Here’s an idea of how that compares to the US, itself not exactly a slacker when it comes to stimulus:

Reuters, 10 days earlier, said this about the report:

China Wasted $6.9 Trillion On Bad Investment Post 2009

China has acknowledged that it is overly-dependent on investment to power the world’s second-biggest economy, but re-ordering the growth model takes time. Investment contributed to 42% of China’s economic growth between January and September this year. Exhorting caution, Xu and Wang said China wasted between 4.7 trillion yuan and 13.2 trillion yuan each year between 2009 and 2013 on investment with zero efficiency. The money wasted on such projects peaked in 2013 at 13.2 trillion yuan, or 47% of China’s total fixed capital formation for that year, their calculations showed. Investment quality had fallen so much recently that nearly two-thirds of the 67 trillion yuan that China wasted from 1997 were spent after 2008.

I don’t know if you can still follow it, but this adds up to absolute insanity. The $6.8 trillion number for money spent on ‘zero efficiency’ is but a cautious estimate by people who both have no access to, and are not supposed to know about, the Chinese equivalent of Don Corleone and the five families. Here’s a bunch of GDP numbers in the west for comparison, PPP GDP data from Wikipedia, for perspective:

France Population 66 million, GDP $2.6 trillion
Britain Population 64 million, GDP $2.45 trillion
Germany Population 87 million, GDP $3.6 trillion
Japan Population 126 million, GDP $4.8 trillion
USA Population 319 million, GDP $16.8 trillion
China Population 1,357 million, GDP $16.1 trillion

When you see those numbers, the $6.8 trillion spent on absolutely nothing productive in China should make you cringe and shudder. China took a big lighter and burned off half of Britain or France’s GDP each and every year just to look better. And not because it was so independently rich and could easily afford it, but because it wanted to look richer than it was, if only for a day, or a year. We all have had that wish at times.

And that’s without adding in the shadow banks, who were pivotal in making the local officials look even twice as grandiose than Beijing’s loose policies were already allowing them to be. China has been running on free debt for years, and who cares about paying it back? It’s no different from the US, is it? Or Europe, or Tokyo. It’s all just a big collection of big debt bubbles. And China looks like it might well be the biggest of them all.

If that PMI number, shaky as it may be both because it comes from the Communist Party and because of its own inherent flaws, dives below 50, and China starts contracting and moving even further away from it 7.5% growth target, I’d literally say there’s no telling what will happen. But it won’t be pretty, that I can tell. It won’t even be funny. Look at all the steel, copper, aluminum, producers in the west who have heavily invested in and on China growth. And don’t get me started on oil producers. Yeah, China’s going to stockpile and save the industry. Sure.

China, like the entire world, is doing much worse then anyone’s willing to tell you. But the entire world still is. And so is China. Enter Elephant stage left.