Depression

Global Recession Accelerating toward Depression

storm-cloudsgc2smOff the keyboard of Thomas Lewis

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storm-clouds

The weather forecast says sunny and mild. Let’s go shopping. (Wikipedia Photo)

Published on The Daily Impact on October 21, 2015


With the mainstream media devoting 80% of their time covering the contest to see what color uniform the captain of the USS Titanic will be wearing in 2017; with the Tea Party Taliban — 40 fundamentalist members of the House of Representatives — bringing the federal government to its knees; the storm clouds of a great global depression are building into our skies from all directions, largely unacknowledged even as they begin to blot out the sun.

Any economy is a pyramid whose broad base is comprised of the middle class — people who have enough money to provide a decent life for themselves. They do this by spending their money on the necessities of life, thus giving life to businesses organized to provide them with those necessities. This activity is called trade, and where there is no trade, there is no economic life.

Even as recession looms there is plenty of trade going on. But it’s not so much trade in the necessities of life, but gambles on the future value of necessities, on short positions and leveraged positions and junk debt and derivatives and indexes, indulged in by riverboat gamblers throwing around other peoples’ money. The one percent of the world’s population who own 50% of the world’s wealth are having a wonderful time at the casino, they’re getting richer by the minute and will tell you that everything is wonderful.

But the trade in the necessities of life, the trade that sustains economies instead of blowing them up, as the gamblers always do, is in desperate trouble, for one overwhelming reason. In most of the world today, the people who must buy the necessities of life don’t have the money to do so. Or to put it another way, the broad foundation of the pyramid is collapsing.

According to one of the world’s largest banks, Britain’s HSBC, global trade volume was down 8.4% in the first half of this year (the latest numbers are for June). That means, sayeth the bankers, that we — all of us, the whole world — are already in a dollar recession.

For decades, the driver of the world economy has been China, as it flooded the world with cheap exports and feverishly imported oil, coal, concrete, steel and dollars.  Now the driver is coasting, rapidly losing power: imports to China were down 20% in September (year-to-year) and exports were off 3.7%. The China Containerized Freight Index, which has been tracking shipping volumes for 17 years, has been dropping precipitously for over a year and has just hit an all time low.

The Masters of the Universe (irony alert: this is the term of art used here to denote the class of hedge fund, equity management shadow bankers who routinely blow up the world for profit) who saw the Chinese decline coming assumed that the world’s other emerging markets, such as Brazil, Turkey, India, Russia and the like, would pick up the slack. Indeed, the Masters turned firehoses of capital on the emerging markets for the past several years, inflating bubble after bubble after bubble in their frantic rush to realize the returns on investment of their dreams.

The dreams have turned to nightmares. The collapse in commodity prices (a consequence of the slowing of the developed economies), among other things, has wrecked the frail emerging markets, and the firehoses of capital are pointing the other way. The International Monetary Fundand the Bank of England, among many others, are warning that the billions of dollars of investment capital now being sucked out of the emerging economies, and trillions of dollars in loans that can never be repaid, pose an existential threat to the economies of the world.

If you think the U.S. is immune from these raging financial fires, think again. Debt, like dry tinder, is everywhere and the hot winds are spreading and fanning embers everywhere:

  • American retail giants that once dominated the world — McDonald’s, Walmart, Sears, Microsoft, Hewlett-Packard, even Facebook and Twitter — are sick and dying, their revenue, profit and stock vital signs weak and thready, as they say in the ICU. The surgeons are hacking off limbs — closing stores and firing people — as fast as they can, trying to save the organism.
  • The shipping of goods within the U.S. — the bedrock measure of buying and selling, has declined every month (year-to-year) since February, and that includes September, the peak month for shipping holiday merchandise to stores for selling in the season in which many stores make their profit for the year.
  • A report from CNBC showing both retail sales and wages flatlining was headlined: “Consumers shutting down as US economy deflates.”

It’s happening all over the world.

This has been a bulletin from The Daily Impact. We now return you to our regular programs: financial advice from Don “I’m really, really rich” Trump and self-defense classes from Dr. Ben “shoot that guy behind the counter” Carson.


Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

The Final Personal Solution

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Published on the Doomstead Diner on September 20, 2015

Discuss this article at the Psychology Table inside the Diner

This week, a close friend, really practically a Brother of one of the Diners committed Suicide.  The exact reasons for this as yet are unclear, but it is clear that this fellow had many troubles through his life, his ability to do the kind of fine work he had made his living at was impaired, his life was not going well for him, and he made the decision to end it this week.

His age, mid-60s since he was 3 years older than my friend Eddie, who also writes here on the Diner regularly.  This isn't the first suicide this year that touched Eddie's life, a contemporary of one of his children also pulled the life plug on himself.  In his case, apparently battling depression for many years.

Here is what Eddie wrote about his own friend this week Inside the Diner, Remembering his Friend and Brother:

Where do you start? There is so much I could say about him. A hundred stories, easy. I want to write something, but it is hard, hard. So fucking hard.

Okay, here goes.

We even had the same name.

Middle names, that is. Because we were both named for my father. It was my father's middle name too, but Dad was called by it…and he was called by it too, even though I was not.

FRIENDSHe was three years older than I was. We were childhood best friends. Yes we were. But it went much further than that. We were like brothers, two brothers of different mothers. Best friends whose fathers were also best friends.

And it went further still. My family was friends with all his many aunts and uncles, and grandparents….and we were good friends with his mother's people too. They were country people who lived right in Mud Creek Bottom, which would figure in a lot in our development.

Our relationship was better in many respects, than real brothers, because he lived a hundred miles away when we were growing up. We spent every Christmas together. In the summer, he'd spend a week at my house in the sticks, and I'd  spend a week at his house in the burbs. I looked forward to every visit. The first night he would be at my house, I wouldn't be able to fall asleep.

We were always going to get up early the next day and go exploring, or hunting. We used to wander up and down Bridge Creek for miles, not any respecters of property rights. We travelled with stealth, hidden from view down under the canopy of the creek. We mostly went unnoticed, even though we went armed. First with our BB guns and later with rifles and shotguns.

Anyway, I would lie awake long after he was sacked out and sawing logs, but I'd be awake at first light, and I'd poke him, and he wouldn't wake up. He'd tell me to leave him alone and then he'd turn back over and sleep for a couple more hours.

It went on like that from my earliest memory, until he turned into a teenager and we found reasons not to spend so much time together. But it didn't end there. We stayed close for many years, drifting apart in adulthood.

Like some other city kids I knew, he turned to petty larceny as an adolescent,out of boredom and for thrills and free beer, stolen from garage refrigerators in the Dallas tract house suburbs. He always got me in trouble, being the one who had nerve and lacked the kind of respect for authority that I had seemingly hardwired into my psyche.

After a couple of years of not seeing each other, he showed up at my surprise 21st birthday party and gifted me with a whole ounce of the finest Lebanese blond hashish. Best party ever.

I got married first and he did soon after. He was the best man at my wedding. I was the best man at his wedding. But he was, if anything, an even worse husband than I was,and his bride soon left him, as did mine. I went back for another try, and got lucky. He never did.

Thirty years ago he moved to a dying town in Central Texas, went to work for his father, who owned a jewelry store and a profitable jewelry repair business, and bought a run down house, where he lived alone, pursued his many hobbies, and slowly drank himself into ruin.

He had to give up his craft. A rattlesnake bite ruined his ever steady right hand. It was an avoidable accident that happened when he, probably under the influence, was handling a pygmy rattler owned by a friend. He loved snakes, and kept a big Western Diamondback for a pet (if you can call such an animal a pet) for more than 20 years, until she finally died of old age.

He drunk called me once out of the blue and asked me, in his alcohol induced honesty, why I didn't stay in closer touch. I told him I was just busy trying to raise my kids, which was true, but it wasn't the real reason. I just went a different way. I buckled down to thirteen years of school. He dropped out of college after a year. He was always a talented artist, drawn to beadwork and Native American arts and crafts. He, like his father, was a great hunter, and an amateur gunsmith. He built flintlock rifles from kits and used them. He got into rendezvous and re-enactments. He liked to take off and spend a week in Terilingua for the Chili Cook-Off, an event I always wanted to attend, but never seemed to find time for in my busy schedule.

He showed up one year in the late 90's for a fishing trip we had planned down in Aransas Bay. He spent some time with my famiiy then, and maybe we got together once or twice after that. I'm not really sure.

I really meant to spend more time with him. But I didn't. Life got in the way.

The last time I remember seeing him was at his Uncle Chester's funeral. Chester was the best woodsman of all our fathers and uncles. He fed his family off the largesse of Mud Creek. His kids, older than we were by some ten years, had built a cabin on the creek where we went fishing dozens of times with our Dads over the years.. Not on their land, actually, this cabin. I never knew who owned that land back in our day.  I went to Chester's house after the funeral, and he was there.  I asked  him to walk down the mile or two of ruts to the creek, but he wasn't into it. By that time the land had passed into the hands of a local millionaire who had torn the old cabin down and put in RV hook-ups.

I really wanted to walk down there anyway, because I knew it would be my last chance, but it didn't happen.


So…I got the call today. He took his own life over the weekend.

My brother called to tell me, right as I was finishing up my work day. He didn't know any details. There was a note, which he left for his sister. I have no idea as to his state of mind, but like most old alcoholics, he was probably fighting depression. Alcohol does that to people. I expect he shot himself. Once decided, for him of the iron will and supreme stubbornness, he would have done it quickly and efficiently.

I feel like shit right now. Guilty, mostly, for being a terrible brother and friend. Sadness, that it had to end that way for him. Sadness for his few remaining family and friends.

I feel that we will surely be together again. We have known each other over many lifetimes. So long, my brother. May you rest in peace, and in time….be reborn.

Suicides are virtually always considered "tragedies" by the people whose lives they touch, and bigger tragedies the younger you are when the person decides it is time to go to the Great Beyond.  But are they really always tragedies?

In another case of Death that has touched a Diner this year, a close friend of one of the younger Diners Roamer also crossed the Great Divide a couple of months ago while he was visiting with me.  In this case not willingly though, he fought tooth and nail to the bitter end against a Cancer which had left him paralyzed.  He had a wife and young child, and he obviously felt life was worth living no matter how bad things got for him.  This is clearly a tragedy on many levels.

Over on Guy McPherson's blog Nature Bats Last, Suicide is a fairly regular topic for discussion, while I participated over there the topic came up in almost every thread.  Guy even has a suicide information article up with a link from the Homepage of NBL.

Contemplating Suicide? Please Read This

MartinTue, Jul 8, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If you are contemplating suicide, please re-consider. And then click here for awareness, prevention, and support on the topic of suicide.

I’m not advocating for or against suicide. I’m non-judgmental about the issue, although I agree with Archbishop Desmond Tutu that every human has a right to make the decision to end his or her own life. It can be a thoughtful decision, as illustrated by Martin Manley.

In that note, Guy includes a link to the Blog of Martin Manley,  who pulled the plug last year, on his 60th Birthday.  Yahoo took the blog down, but it appears to have been republished elsewhere by friends and/or sympathizers.  He detailed in that blog the reasons for his choice, which basically came down to the fact he saw his mental capacities diminishing on the way to Senile Dementia, aka Alzheimer's.  Not a life threatening problem in the short term if you have people to take care of you, but the quality of life for an Alzheimer's victim is not too great, and it's not too great either for the loved ones who have to watch as the decay progresses and take care of this person.  If/When they need full time medical care, the costs can be enormous as well.  To spare himself the agony of watching himself decay and spare his family the same agony, he bought the ticket to the Great Beyond of his own volition.  To me, that is not a tragedy, it was an informed decision he made for himself.  The tragedy came before, which was his realization he was succumbing to Senile Dementia.

The reason they discuss suicide so often on NBL is because over there, the general belief is that the entire Human Race if not all life forms on Earth are bound for a Near Term Extinction, coming as soon as 2030 in recent estimates by Guy.  This is pretty depressing if you believe it to be the case, and similar to not wanting to watch yourself decay to Senile Dementia, it's none to pleasant to contemplate watching life on Earth spin down to nothingness.  Believe in this strongly enough, you might choose the suicide option.  Is that a valid option in this case?  That's a tougher question than your own personal problems and health issues.

Before we can examine that question, first we have to look at more common reasons for suicide, and whether they are Valid or Not Valid?

1- Terminal Disease

http://ecx.images-amazon.com/images/I/51XiK591jdL._SY355_.jpgWell, first off Life is a Terminal Disease.  Every living thing dies, it's not perpetual.  Just a timeline issue here.

Terminal Diseases can be defined though, say as something that has a 90% or better chance of killing you inside of say 2 years or less.  In this case, it depends mostly on whether this process will involve a lot of pain and expense over that 2 year period.  If it is likely to do that, suicide becomes a valid option.  In fact in this case it has even been made legal in a few states to be assisted in your trip to the Great Beyond by folks in the Medical Industry.  Oregon recently approved this form of suicide.  You can thank Dr. Death, Jack Kevorkian for this becoming more "accepted" by the culture at large over time.

No other reason for suicide gets the LEGAL stamp of approval though, anywhere.  However, there are many reasons which in fact are more common than the terminal disease reason.

2- Depression

This is probably the Number 1 Proximal Cause for suicide.  Whenever you read about a suicide, Depression gets cited as a possible cause, often with something to back it up like the person was taking meds for this, had an alcohol addiction etc.  What rarely gets discussed is exactly WHY this person was depressed enough to take his own life?  Sometimes it is a biochemical problem, but there are many exogenous reasons that can cause a person to become depressed that themselves have valid reasons.  Marital and relationship problems are common here.  Loneliness and LACK of relationships can be a problem.  The Shrinks can sometimes medicate the depressed individual sufficiently he doesn't manifest depression symptoms, but that doesn't mean the issue causing the depression went away.

Depression is a form of emotional anguish or pain, and it is no less real than physical pain.  It can make life unbearable.  Just like meds for physical pain, anti-depressants have side effects and they are addicting.  With protracted use over time, their effectiveness can diminish, and again if the depression has its root cause in something else going on in the life of the sufferer, that root cause remains.

3- Physical Pain

Resultant from many possible causes due to illness like Cancer, Car Accidents or just deterioration due to  the Aging process, ongoing daily pain can become so unbearable that life is no longer worth living.  It is one thing to have pain that even if very strong is short lived, it is another thing entirely to have pain that never goes away.

Like the above example of anti-depressants for emotional pain, the meds that depress physical pain have many side effects, especially if you have to load up on heavy doses to relieve the pain.  If you have other addictions, the amounts grow exponentially larger.   The fellow I shared the hospital room with after my operation was in this category.

http://i467.photobucket.com/albums/rr36/altreel/Top%20Ten/HST%20Quotes/hunterthompsongun.jpgA few years ago, one of my favorite writers and role model for the Gonzo stylization I often use, Hunter S. Thompson blew his brains out with one of his many Guns.  Hunter was a real Gun Freak, not that common amongst left political leaning people.  In the aftermath of that suicide, it did come out that Hunter had been in pain for a long time, a likely result of his long time heavy use of alcohol and a whole pharmacy full of illicit and pharmaceutical drugs.  Probably in his later years not even an IV pump of Morphine could touch his pain.  Hunter burned his candle brightly, and then he burned it out.  It was his choice and his time to go.  That is not a tragedy.  It was a path he took early in his life and he never swayed from it, even though living that way is quite likely to shorten how long your personal timeline walking the earth will be.

4- Financial Problems

https://armstrongeconomics.files.wordpress.com/2013/03/jumper.jpg?w=584You could file this as a sub category of Depression, since when you get into financial difficulty, it is certainly depressing and taking meds does not cure your financial problems.  However, because this is a fairly common reason for suicide, I'm giving it a separate category.

Where this one really hits is in the category of people who have lived comfortable and financially secure lives, but then for one reason or another "lose it all" fairly rapidly.  The classic example are the Bankster Jumpers from the era of the Great Depression.  Not limited to that time period though, in the aftermath of the financial crisis of 2008, there were numerous Bankster suicides of one sort or another.  One of the most well publicized was that of René-Thierry Magon de La Villehuchet, heir to a fortune that went back to the French Revolution.  René lost it all in the Bernie Madoff fiasco.

Magon served as the chairman and CEO of Crédit Lyonnais Securities USA. He also contributed to the founding of Apollo Management, financial management firm established by financier Leon Black.

http://www.fashion-writings.com/img/yv/rene-thierry-magon-de-la-villehuchet-wife/rene_thierry_magon_de_la_villehuchet_hedge_fund.jpgLater, he founded Access International Advisors, a research analyst investment agency that specialized in managing hedged and structured investment portfolios that involve commercial physical and biological research.[1][2] It had connections to wealthy and powerful aristocrats from Europe. Magon de La Villehuchet's family had done business with many of these aristocrats and their ancestors for almost 300 years.[3] Its funds enlisted intermediaries with links to the cream of Europe's high society to garner clients. The Federal Bureau of Investigation and U.S. Securities and Exchange Commission (SEC) do not believe Magon de La Villehuchet was involved personally in the US$50 billion fraudulent financial Ponzi scheme which Madoff was arrested for masterminding, on 11 December. Bloomberg News reported on 2 January 2009 that the AIA funds had increased aggregate exposure to Madoff from 30% to 75% of a total US$3 billion assets in 2008, for a US$2.25 billion exposure. It also identified Philippe Junot, former husband of Princess Caroline of Monaco, and Prince Michael of Yugoslavia as partner and investor-relations executive, respectively, in the firm; and Liliane Bettencourt, the world's wealthiest woman, the 86-year-old daughter of L’Oréal founder Eugène Schueller, as an early investor.[4]

According to The New York Times, René-Thierry's older brother Bertrand said that Thierry was connected to Madoff by Thierry's partner in AIA, Patrick Littaye, another French banker, and that Thierry had not known Madoff personally. “He had a true concept of capitalism,” Bertrand Magon de La Villehuchet, 74, said of his brother, quoted in the Times. “He felt responsible and he felt guilty. Today, in the financial world, there is no responsibility; no one wants to shoulder the blame.”[5] Bloomberg reported that Bernard had invested 20% of his assets in an AIA/Madoff fund. It also reported that René-Thierry founded Access in 1994 with Littaye. The two had met at Paribas in 1970.[4] In February 2009, Littaye denied having heard of whistleblower Harry Markopolos' accusations against Madoff in the years before the scandal broke, and said Madoff was "of course" exempted from the usual handwriting analysis (graphology) which was among the due diligence efforts AIA made with its outside fund managers.[6]

https://s-media-cache-ak0.pinimg.com/736x/a9/49/5d/a9495dceeea96543d97c8d5be22a6c56.jpgOf course, most people aren't in that stratospheric territory of having so much to lose to begin with, it's much more common for the formerly middle class guy with the good middle manager job in his 40s or 50s who gets laid off, can't find a new job at anywhere near the old pay rate, has his McMansion foreclosed on and the best he can do is find a job at Min Wage as a Greeter at Walmart if he is lucky.  This is relatively speaking just about as huge a fall as René took, and the consequences are similar.  It is simply too much too deal with, particularly at that stage of your life.  You really can't start over at that point, and the prospect of living out the rest of your days in poverty is not the least bit appealing.  The suicide option becomes the valid choice for many who find themselves in this situation.

There are of course as many possible reasons for suicide as there are people if you want to get very specific, but in the end whatever it was just made life no longer worth living for the person who decided to pull the plug.  Is that not your right?  It's your life after all, you are the one encased in the meat package, nobody else.  However many people consider this morally indefensible, and in fact some Christians consider suicide to be a Mortal Sin.  They argue about this some.  Some figure you can't make it into Heaven if you buy your ticket this way, others are more lenient on it.

There are seven suicides in the Bible,[citation needed] most notably in Matthew 27:5, the suicide of Judas Iscariot, who betrayed Jesus, and that of Saul (1 Samuel 31:4). In Acts of the Apostles 16:28 Paul prevents the attempted suicide of a jailor. Jonah (Book of Jonah 4:8), Elijah (1 Kings 19:4) and Job (Book of Job 6:9) express suicidal feelings.

Some Christians state that one cannot repent from suicide since one is not capable of praying and asking for forgiveness after death. However, this can also be seen as that when one commits suicide they are repenting because when dead one cannot choose to sin again, ultimately making suicide one sin that can only be committed once.

One thing we do know from this though is that suicide has been around as a choice since at least Biblical times, and it probably goes back a good deal further than that for Homo Sap.  It also appears to be fairly unique to Homo Sap, at least in the way we go about it. Do other animals commit suicide?

Animal suicide is a hugely controversial issue in the world of animal research and psychology, because although there are numerous documented instances of animals seemingly intentionally ending their own lives, no one is exactly sure whether these cases can technically be classified as suicide.

http://s3-ak.buzzfeed.com/static/enhanced/terminal01/2011/8/12/12/enhanced-buzz-1962-1313166491-6.jpgFirst things first, because we’re sticklers for factual information, we feel like we have to point out that the most famous “suicidal” animal of all, lemmings, do not actually throw themselves off of cliffs when they migrate. As we’ve already mentioned before, no one is exactly sure where the myth originated from, but we can thank Disney for making it “common knowledge” when they used a turntable to throw dozens of them into a river and then filmed the results for an Academy Award winning documentary called “White Wilderness”. Why did they intentionally kill the lemmings in this way? Because it was thought at the time that lemmings did this, and the filmmakers needed a video of it. You can read the truth about the situation concerning the lemmings here.

Moving on, there are numerous cases from history of animals seemingly killing themselves for no explainable reason. Perhaps the most famous is the curious case of Overtoun Bridge. In a nutshell, since the 1960s dozens (or hundreds depending on which source you consult) of dogs have leapt off of the bridge to their doom for no discernible reason.

While the exact number of dogs who’ve plummeted to their deaths isn’t known, the phenomenon has been widely covered and written about for years. It wasn’t until an animal behavioral specialist, David Sands, investigated the bridge that the mystery was finally solved. Sands discovered that the end of the bridge most favoured by dogs seeking to end it all just so happened to be above a known nesting ground for mink. Sands also discovered that the majority of known dogs that had made the leap were long snouted breeds known for their extraordinary sense of smell.

Putting these two facts together, Sands was able to conclude that the dogs weren’t committing suicide at all, rather they were excited by the smell of a small furry creature and tragically leapt over the safety wall (which is above the sight-line of most dogs) not realising they were standing on a bridge.

In yet another apparent dog suicide attempt often used as an example that dogs are capable of the level of abstract thinking necessary to be able to contemplate ending it all, we have the incredible story reported in the Illustrated London News in 1845 about a Newfoundland dog that supposedly repeatedly threw itself into the water and refused to move until it drowned. The dog was rescued several times throughout this, but  every time it was rescued, it would return to the water and (apparently) attempt to drown itself by not moving. As amazing as that story is, how accurate it is and the events surrounding the apparent suicide have been lost to history. If this one dog was capable of it, one would think there would be numerous other irrefutable dog suicide attempt stories like it.  The closest we have today is the phenomenon of dogs that will sometimes refuse to eat after losing their masters, which does in rare cases continue to the death of the dog.  But the question still remains in these cases- is the dog refusing to eat so that it will die, or is it just refusing to eat because it’s sad and has no appetite, as can happen with humans, but in the dog’s case not realizing the potential consequences?

In an article about the strange world of supposed animal suicide, LiveScence contributor Katharine Gammon summed the key point up nicely, For an act to be classified as a suicide, the agent must know that what it is doing will end its life.”

Of course, it is nearly impossible to ever tell if any non-human animal knows its actions will result in its own death and performs the actions towards that end.  That said, there are several types of insects who willingly allow themselves to be killed, or even in a few cases, do the deed themselves.

For instance, it has been noted that certain species of ant possess the ability to explode themselves at will when threatened (often emitting some sticky or poisonous substance in the process), earning them the apt nickname of “exploding ants“. However, even if the ants realise what will happen in terms of their own existence when they perform this selfless act, most would not classify this as suicide any more than a soldier leaping onto a grenade to save surrounding soldiers would be considered to have committed suicide; the ant sacrifices itself for the greater good because as a species, it’s evolved to put the needs of the many before the needs of the individual.

The Forelius pusillus ant also has worker ants that will sacrifice themselves for the good of the colony, but this time in a slightly different manner than the exploding ants.  Every night, the nest of a colony needs sealed off in such a way that the nest will be undetectable from the outside, in order to protect it from predators.  As such, sick ants or ones who are older will (apparently) volunteer to perform the task of staying outside the nest at night.  Once all the rest of the ants are inside, the sacrificial ants will seal up and hide the entrance and usually will end up dying from being left outside.  Even when researchers have collected these sacrificial ants and taken care of them, they usually die soon anyway, which is why it is thought that generally older or sick ants are chosen or volunteer for this task.

Likewise, honey bees will willingly explode their own penises and subsequently die, just for a chance to pass on their genes. They will also willingly remove themselves from a hive if they know they’re infected with a disease that could potentially hurt other bees.

Japanese honey bees, when defending against the Giant Asian Hornet, will intentionally group together and ball the invader.  Once they’ve surrounded the hornet, they will decouple their wings internally and then beat their muscles vigorously, similar to how honey bees heat their hives despite being cold blooded. In this case, the heat at the center, combined with high carbon dioxide levels in the ball, becomes intense enough to kill the hornet- the bees only real defense against it.  Unfortunately, bees near the hornet in the ball may also die as a result, but do so (apparently) willingly for the good of the hive. Again, some would classify this as suicide, but others would classify it as a form of altruistic behaviour typical of a hive orientated species. Indeed, whether to classify an animal’s action as suicide is almost as contentious as the issue of whether animals possess the cognitive function to understand it as a concept. Do the bees at the center of the heat ball understand their actions may result in their death or do they simply do it as the introduction of the invader triggers certain innate actions built into their brains, without any real conscious or abstract thought happening at all?

In short, though we’re aware of numerous cases in which animals have seemingly intentionally taken their own lives, we simply don’t know whether the animals understood the ramifications of their actions, or were just reacting to environmental triggers without much thought going into it.

In all probability, suicide is an artifact of sentience and the ability to reflect on your own life.  This is a relative thing and differs between people depending on their prior experience through life.  Poor people don't commit suicide just because they are poor usually.  It's only when things become utterly hopeless and their survival is in question that they commit suicide, as has been the case for 10s if not 100s of thousands of subsistence Indian farmers over the last decade.

In 2012, the National Crime Records Bureau of India reported 13,754 farmer suicides.[1] The highest number of farmer suicides were recorded in 2004 when 18,241 farmers committed suicide.[2] The farmers suicide rate in India has ranged between 1.4 to 1.8 per 100,000 total population, over a 10-year period through 2005.[3]

India is an agrarian country with around 60% of its people depending directly or indirectly upon agriculture. Farmer suicides account for 11.2% of all suicides in India.[1] Activists and scholars have offered a number of conflicting reasons for farmer suicides, such as monsoon failure, high debt burdens, genetically modified crops, government policies, public mental health, personal issues and family problems.[4][5][6] There are also accusation of states fudging the data on farmer suicides.[7]

However, you don't have to drop into total poverty to become suicidal on an economic level, just a significant enough drop in your standard of living is enough to do it, if you start off rich or even just middle class.  Even more distressing is if you start off poor, climb out of poverty but then are threatened with having to RETURN to the poverty from whence you came.  That is a terrifying prospect for the social climber who got out of poverty to begin with.

http://www.bramun.com/uploads/1/2/3/1/12314222/219300602.jpg?531Similarly, those born with mental disabilities usually aren't suicidal, they never knew anything different, and besides that their ability to self-reflect is impaired.  However, for the person such as Martin Manley who had good mental faculties but saw them fading away, contemplating the future as an impaired individual was intolerable.  It was not a life he thought would be worth living.

This brings us back round to the issue of people who are observing collapse, and who have come to believe the future is hopeless.  If you empathize with the people you currently observe already suffering from the effects of collapse, such as the Syrian refugees, this can be a cause of such emotional pain in yourself that suicide becomes an option you contemplate.  For others, its not so much the people they empathize with, it is the rest of the biosphere, all the plants and animals they witness dying around them, of which there are increasingly more stories every day.

“Countless” dead birds reported in Pacific off US coast, nothing will eat the bodies — “There are no seals present” — Expert: “The fish are not there… all of them are starving” — Animals “acting weird, sick and weak, too weak to fly, too weak to run”

So in the end, for the Sentient Homo Sap, what this question begins with is the QUALITY of your life at present, and your perceptions of what that life will be like in the future.  If you're not happy with your life now and have good reason to suspect it's only going to get worse in the future, then suicide starts to become a valid option for you.

http://www.housingforseniors.com/pics/userpics/Image/woman_with_dog2.jpgAnother issue is one of having a purpose to your life, a reason to keep living.  In the case of Roamer's friend the young cancer victim, his wife and child gave him a purpose.  So even though his quality of life was poor, he wanted to stay alive for them.  With many older folks who are either childless or their children have grown and drifted away in our fractured society, they can lose this purpose.  You will see many older folks with pets, dogs or cats usually.  The dependence of the pet on them is a purpose for them to keep going.

I myself have many reasons to ponder on this question these days, as regular Diners know I injured my neck a year ago and the quality of my life has steadily deteriorated.  I now have trouble walking, doing common daily tasks and I have pain all the time.  3 weeks after the operation to repair it, there has been no sign of improvement, in fact some things are worse.  I now have to lie down much more often to relieve the pain.  At this point it looks unlikely that things will improve moving ahead.  The best I probably can hope for is things don't get too much worse too fast.

The issue here again is how far you fall from one state to another, and how fast it occurs.  For myself I went from this:

RE Backflips in Nice, France

RE-age-28-backflip

to this

RE Takes a Selfie after the Neck Job

Bed-Superstar

I could still do backflips into my 40s.  No pictures of me from those years, I had become a loner and in those days people didn't carry around phones to take selfies.  Nowadays, just to get myself from the desk & laptop to the bathroom & toilet is a chore.  The quality of life has diminished considerably.  I was also like the Picture of Dorian Gray for years, from 20 to 40 my appearance barely changed at all.  Even up to the last few years, when I looked in the mirror to shave I saw the young man I once was, not the old cripple I have become.  Now when I look in the mirror to get my neck brace on, I see the stark and unmistakeable truth, that I already have one foot in the grave.

I also face financial problems moving ahead, unless and until there is resolution in my favor with Workman's Compensation and SSDI.  I am fortunate to have savings that has carried me through thusfar, if I was already broke on top of all the other problems, suicide would definitely be an option I would consider.

In one respect I am fortunate in that I still do have a purpose for living, that is my writing here on the Diner and my discussions with the other Bloggers & Diners who are concerned with the topics of the ongoing Collapse of Industrial Civilization.  This is something I can still do, and it occupies my day.  I often get emails from readers who tell me how much my writing means to them.  This gives meaning to my life and a reason for struggling through the pain and the disability.  If I did not have such a purpose, again soldiering onward with the physical problems would seem kind of pointless.

Suicide itself isn't necessarily tragic, sometimes it is simply the best Final Personal Solution to finishing a life that has deteriorated to such a point you don't get any joy from pursuing it.  What more often is tragic are the circumstance that led up to this, be they an Accident, Cancer or Alzheimers, financial problems, marital problems, school bullying, drug and alcohol addictions, being a victim of child abuse or just being born with a biochemical imbalance in your brain that brings on the feelings of depression organically.

Out in the world at large, because collapse has already moved through several countries, Greece and Spain in the West particularly, for the farmers in India and so forth, suicide rates are rocketing upward in all these places.  As the graph above shows, even here in the FSoA, suicide rates are on the rise, and collapse hasn't even hit here yet with the force it has in Greece and Spain.  As situations become increasingly more hopeless for more people, this is an inevitable outcome of collapse.  Again for those people already, the suicide is not the tragedy, the tragedy came before that as they experience the loss of the life they once knew, and see no possibility for a better life in the future.  This will be the case for many more people as time goes by.  As the farms in California and the midwest dry up, many more people here will lose their homes and their livelihoods.  Eventually, if it has not already, a suicide of someone you know will occur.  When it does, think about why it was this person's choice, and if the reasons were valid, then be greatful that this person still had that Final Personal Solution to fall back on.  No pain anymore.

Rest in Peace.

Oil and the Economy: Where are We Headed in 2015-16?

Off the keyboard of Gail Tverberg

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Published on Our Finite World on January 6, 2014

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The price of oil is down. How should we expect the economy to perform in 2015 and 2016?

Newspapers in the United States seem to emphasize the positive aspects of the drop in prices. I have written Ten Reasons Why High Oil Prices are a Problem. If our only problem were high oil prices, then low oil prices would seem to be a solution. Unfortunately, the problem we are encountering now is extremely low prices. If prices continue at this low level, or go even lower, we are in deep trouble with respect to future oil extraction.

It seems to me that the situation is much more worrisome than most people would expect. Even if there are some temporary good effects, they will be more than offset by bad effects, some of which could be very bad indeed. We may be reaching limits of a finite world.

The Nature of Our Problem with Oil Prices

The low oil prices we are seeing are a symptom of serious problems within the economy–what I have called “increased inefficiency” (really diminishing returns) leading to low wages. See my post How increased inefficiency explains falling oil prices. While wages have been stagnating, the cost of oil extraction has been increasing by about ten percent a year, described in my post Beginning of the End? Oil Companies Cut Back on Spending.

Needless to say, stagnating wages together with rapidly rising costs of oil production leads to a mismatch between:

  • The amount consumers can afford for oil
  • The cost of oil, if oil price matches the cost of production

The fact that oil prices were not rising enough to support the higher extraction costs was already a problem back in February 2014, at the time the article Beginning of the End? Oil Companies Cut Back on Spending was written. (The drop in oil prices did not start until June 2014.)

Two different debt-related initiatives have helped cover up the growing mismatch between the cost of extraction and the amount consumers could afford:

  • Quantitative Easing (QE) in a number of countries. This creates artificially low interest rates and thus encourages borrowing for speculative activities.
  • Growth in Chinese spending on infrastructure. This program was funded by debt.

Both of these programs have been scaled-back significantly since June 2014, with US QE ending its taper in October 2014, and Chinese debt programs undergoing greater controls since early 2014. Chinese new home prices have been dropping since May 2014.

Figure 1. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

Figure 1. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

The effect of scaling back both of these programs in the same timeframe has been like a driver taking his foot off of the gasoline pedal. The already slowing world economy slowed further, bringing down oil prices. The prices of many other commodities, such as coal and iron ore, are down as well. Instead of oil prices staying up near the cost of extraction, they have fallen closer to the level consumers can afford. Needless to say, this is not good if the economy really needs the use of oil and other commodities.

It is not clear that either the US QE program or the Chinese program of infrastructure building can be restarted. Both programs were reaching the limits of their usefulness. At some point, additional funds begin going into investments with little return–buildings that would never be occupied or shale operations that would never be profitable. Or investments in Emerging Markets that cannot be profitable without higher commodity prices than are available today. 

First Layer of Bad Effects 

  1. Increased debt defaults. Increased debt defaults of many kinds can be expected, including (a) Businesses involved with oil extraction suffering from low prices (b) Laid off oil workers not able to pay their mortgages, (c) Debt repayable in US dollars from emerging markets, including Russia, Brazil, and South Africa, because with their currencies now very low relative to the US dollar, debt is difficult to repay (d) Chinese debt related to overbuilding there, and (e) Debt of failing economies, such as Greece and Venezuela.
  2. Rising interest rates. With defaults rising, interest rates can be expected to rise, so that those making the loans will be compensated for the rising risk of default. In fact, this is already happening with junk-rated oil loans. Furthermore, it is possible that the US Federal Reserve will raise target interest rates in 2015. This possibility has been mentioned for several months, as part of normalizing interest rates.
  3. Rising unemployment. We know that nearly all of the increased employment since 2008 in the US took place in states with shale oil and gas production. As these programs are cut back, US employment is likely to fall. The UK and Norway are likely to experience drops in employment related to oil production, as their oil programs are cut. Countries of South America and Africa dependent on commodity exports are likely to see their employment cut back as well.
  4. Increased recession. The combination of rising interest rates and rising unemployment will almost certainly lead to recession. At first, some of the effects may be offset by the impact of lower oil prices, but eventually recessionary effects will predominate. Eventually, broken supply chains may become a problem, if companies with poor credit ratings cannot get financing they need at reasonable rates.
  5. Decreased oil supply, starting perhaps in late 2015. The timing is not certain. Businesses are likely to continue extraction where wells are already in operation, since most costs have already been paid. Also, some businesses have purchased price protection in the derivative market. They will likely continue drilling.
  6. Disruptions in oil exporting countries, such as Venezuela, Russia, and Nigeria. Oil exporters generally get the majority of their government revenue from taxes on oil. If oil prices remain low, oil-related tax revenue will drop greatly, necessitating cutbacks   in food subsidies and other programs. Some countries may experience overthrows of existing governments and a sharp drop in oil exports. Central governments may even disband, as happened with the Soviet Union in 1991.
  7. Defaults on derivatives, because of sharp and long-lasting changes in oil prices, interest rates, and currency relativities. Securitized debt may also be at risk of default.
  8. Continued low oil prices, except for brief spikes, because of high interest rates, recession, and low “demand” (really affordability) for oil.
  9. Drop in stock market prices. Governments have been able to “pump up” stock market prices with their QE programs since 2008. At some point, though, higher interest rates may draw investors away from the stock market. Stock prices may also decline reflecting the poor prospects of the economy, with rising unemployment and fewer goods being manufactured.
  10. Drop in market value of bonds. When interest rates rise, the market value of existing bonds falls. Bonds are also likely to experience higher default rates. The combined effect is likely to lead to a drop in the equity of financial institutions. At least at first, this effect is likely to occur mostly outside the US, because the “flight to security” will tend to raise the level of the US dollar and lower US interest rates.
  11. Changes in international associations. Already, there is discussion of Greece dropping out of the Eurozone. Associations such as the European Union and the International Monetary Fund will find it increasingly difficult to handle problems, as their rich countries become poorer, and as loan defaults become increasing problems.

In total, eventually we are likely to experience a much worse situation than we did in the 2007-2009 period, although this may not be evident at first. It will be only over a period of time, after some of the initial “dominoes fall” that we will see what is really happening. Initially, economies of oil importing countries may appear to be doing fairly well, thanks to low oil prices. It will be later that the adverse impacts begin to take over, and eventually dominate.

Major Concerns

Inability to restart oil supply, even if prices should temporarily rise. The production of oil from US shale formations has been enabled by very low interest rates. If there is a major round of debt defaults by the shale industry, interest rates are unlikely to fall back to previously low levels. Because of the higher interest rates, oil prices will have to rise to an even a higher price than required in the past–in other words, to more than $100 barrel, say $125 to $140 barrel. There will also be a lag in restarting production, meaning that high prices will need to be maintained for some time. Bringing oil prices to a high level for a long time seems impossible without crashing the economies of oil importers. See my post, Ten Reasons Why High Oil Prices are a Problem.

Derivatives and Securitized Debt Defaults. The last time we had problems with these types of financial instruments was 2008. Governments around the world made huge payments to banks and other financial institutions, in order to bail them out of their difficulties. The financial services firm Lehman Brothers was allowed to go bankrupt.

Governments have declared that if this happens again, they will do things differently. Instead of bailing institutions out, they will make changes that will make these events less likely to happen. They will also make changes in how shortfalls are funded.  In many cases, the result will be a bail-in, where depositors share in the losses by “haircuts” to their deposits.

Unfortunately, from what I can see, the changes governments have made are basically too little, too late. The new sharing of losses will have as bad, or worse, impacts on the economy than the previous government bailouts of banks. Regulators do not seem to understand that models used in pricing derivatives and securitized debt are not designed for a finite world. The models appear to work reasonably well when the economy is distant from limits. Once the economy gets close to limits, many more adverse events occur than the models would have predicted, potentially causing huge problems for the system.1

What we are likely to be encountering now is a combination of defaults of many kinds simultaneously–derivatives, securitized debt, and “ordinary” debt. Many of these risks will be shared among institutions, so that banking problems will be widespread. The sizes of the losses are likely to be very large. Businesses may find that funds intended for payroll or needed to pay suppliers are subject to haircuts. How can they operate in such a situation?

It is even possible that accounts under deposit insurance limits will be subject to haircuts. While deposit insurance is available in theory, the amount held in reserve is not very great. It could easily be exhausted by a few large claims (the scenario in Iceland a few years ago). If governments choose not to make up for shortfalls in funding of the insurance programs, the shortfalls could end up with depositors.

Peak Oil. There seems to be a distinct possibility that we will be reaching the peak in world oil supply very soon–2014 or 2015, or even 2016. The way we reach this peak though, is different from what most people imagined: low oil prices, rather than high oil prices. Low oil prices are brought about by low wages and the inability to add sufficient new debt to offset the low wages. Because the issue is one of affordability, nearly all commodities are likely to be affected, including fossil fuels other than oil. In some sense, the issue is that a financial crash is bringing down the financial system, and is bringing commodities of all kinds with it.

Figure 2 shows an estimate of future energy production of various types. The steep downslope is likely because of the financial problems we are headed into.2

Figure 2. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.Figure 2. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings. Renewables in this chart includes hydroelectric, biofuels, and material such as dung gathered for fuel, in addition to renewables such as wind and solar. (It is based on an IEA inclusive definition.)

A major point of this chart is that all fuels are likely to decline simultaneously, because the cause is financial. For example, how does an oil company or a coal company continue to operate, if it cannot pay its employees and suppliers because of bank-related problems?

Our Long-Term Debt Problem. Long-term debt is an important part of our current system because (a) it enables buyers to afford products, and (b) it helps keep commodity prices high enough to encourage extraction. Unfortunately, long-term debt seems to require economic growth, so that we can repay debt with interest.

Figure 3. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

 Figure 3. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Economists conjecture that economic growth can continue, even if the extraction of fossil fuels and other commodities declines (as in Figure 2). But how likely is this in practice? Without fossil fuels, we can exchange baby-sitting services and we can give each other back rubs, but how much can we really do to grow the economy?

Almost any economic activity we can think of requires the use of petroleum or electricity and the use of commodities such as iron and copper. A more realistic view would seem to be that without the materials we generally use, our economy is likely to shrink. With this shrinkage, long-term debt will become increasingly impossible. This is one of the big problems we are encountering.

Our Physics Problem. Politicians and businesses of all types would like to advance the idea that our economy will continue forever; the politicians and businesses of every kind are in charge. Everything will turn out well.

Unfortunately, history is littered with examples of civilizations that hit diminishing returns, and then collapsed. Research indicates that the when early economies underwent collapse, the shape of the decline wasn’t straight down–declines tended to take a period of years. Not everyone died, either.

Figure 4. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.Figure 4. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.

Physics gives us a reason as to why such a pattern is to be expected. Physics tells us that civilizations are dissipative structures. The world we live in is an open system, receiving energy from the sun. Examples of other dissipative structures include galaxy systems, the solar system, the lives of plants and animals, and hurricanes. They are born, grow, and eventually stop dissipating energy and die. New dissipative structures often arise, if sufficient energy sources are available to dissipate. Thus, there may be new economies in the future.

We would like to think that we can stop this process, but it is not clear that we can. Perhaps economies are expected to reach limits and eventually collapse. It is only if economies can add large amounts of inexpensive energy resources (for example, by discovering how to make use of fossil fuels, or by discovering a less-settled area of the world, or even by adding China to the World Trade Organization in 2001) that this scenario can be put off.

What Can We Do?

Renewable energy is has recently been advertised as the solution to nearly all of our problems. If my analysis of our problems is correct, renewable energy is not a solution to our problems. I mentioned earlier that adding China to the World Trade Organization in 2001 temporarily helped solve world energy problems, with its ramp up of coal production after joining (note bulge in coal consumption after 2001 in Figure 5). In comparison, the impact of non-hydro renewables has been barely noticeable in the whole picture.

Figure 5. World energy consumption by source, based on data of BP Statistical Review of World Energy 2014.Figure 5. World energy consumption by source, based on data of BP Statistical Review of World Energy 2014. Renewables are narrowly defined, excluding hydro-electric, liquid biofuels, and materials gathered by the user, such as branches and dung.

Guaranteed prices for renewable energy are likely to be an increasing problem, as the cost of fossil fuel energy falls, and as buyers become increasingly unable to afford high energy prices. Issues with banks, making it difficult to pay employees and suppliers, are likely to be a problem whether an energy company uses renewable energy sources or not.

The only renewable energy sources that may be helpful in the long term are one that do not require buying goods from a distance, and thus do not require the use of banks. Trees growing in a local forest might be an example of such renewable energy.

Another solution to the problems we are reaching would seem to be figuring out a new financial system. Unfortunately, debt–and in fact growing debt–seems to be essential to our current system. We can’t extract fossil fuels without a debt-based system, in part because debt allows profits to be moved forward, and thus lightens the burden of paying for products made with a fossil-fuel based system. If a financial system uses only on the accumulated profits of a system without fossil fuels, it can expand only very slowly. See my post Why Malthus Got His Forecast Wrong. Local currency systems have also been suggested, but they don’t fix the problem of, say, electricity companies not being able to pay their suppliers at a distance.

Adding more debt, or taking steps to hold interest rates even lower, is probably the closest we can come to a reasonable way of temporarily putting off financial collapse. It is not clear where more debt can be added, though. The reason current debt programs are being discontinued is because, after a certain level of expansion, they primarily seem to create stock market bubbles and encourage investments that can never pay back adequate returns.

One possible solution is that a small number of people with survivalist skills will make it through the bottleneck, in order to start civilization over again. Some of these individuals may be small-scale farmers. The availability of cheap, easy to use, local energy is likely to be a limiting factor on population size, however. World population was one billion or less before the widespread use of fossil fuels.

We don’t have much time to fix our problems. In the timeframe we are looking at, the only other solution would seem to be a religious one. I don’t know exactly what it would be; I am not a believer in The Rapture. There is great order underlying our current system. If the universe was formed in a big bang, there was no doubt a plan behind it.  We don’t know exactly what the plan for the future is. Perhaps what we are encountering is some sort of change or transformation that is in the best interests of mankind and the planet. More reading of religious scriptures might be in order. We truly live in interesting times!

Notes:

[1] Derivatives and Securitized Debt are often priced using the Black-Scholes Pricing Model. It assumes a normal distribution and statistical independence of adverse results–something that is definitely not the case as we reach limits. See my 2008 post that correctly forecast the 2008 financial crash.

[2] Points are plotted at five-year intervals, so the chart is a bit more pointed than it would have been if I had plotted individual years. The upper limit at 2015 is an approximation–it could be a year or so different.

Oil Market Unravels

Off the keyboard of Michael Snyder

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Published on The Economic Collapse on January 5, 2015

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Oil Falls Below 50 As Global Financial Markets Begin To Unravel

Crisis Silhouette - Public DomainOn Monday, the price of oil fell below $50 for the first time since April 2009, and the Dow dropped 331 points.  Meanwhile, the stock market declines over in Europe were even larger on a percentage basis, and the euro sank to a fresh nine year low on concerns that the anti-austerity Syriza party will be victorious in the upcoming election in Greece.  These are precisely the kinds of things that we would expect to see happen if a global financial crash was coming in 2015.  Just prior to the financial crisis of 2008, the price of oil collapsed, prices for industrial commodities got crushed and the U.S. dollar soared relative to other currencies.  All of those things are happening again.  And yet somehow many analysts are still convinced that things will be different this time.  And I agree that things will indeed be “different” this time.  When this crisis fully erupts, it will make 2008 look like a Sunday picnic.

Another thing that usually happens when financial markets begin to unravel is that they get really choppy.  There are big ups and big downs, and that is exactly what we have witnessed since October.

So don’t expect the markets just to go in one direction.  In fact, it would not be a surprise if the Dow went up by 300 or 400 points tomorrow.  During the initial stages of a financial crash, there are always certain days when the markets absolutely soar.

For example, did you know that the three largest single day stock market advances in history were right in the middle of the financial crash of 2008?  Here are the dates and the amount the Dow rose each of those days…

October 13th, 2008: +936 points

October 28th, 2008: +889 points

November 13th, 2008: +552 points

Just looking at those three days, you would assume that the fall of 2008 was the greatest time ever for stocks.  But instead, it was the worst financial crash that we have seen since the days of the Great Depression.

So don’t get fooled by the volatility.  Choppy markets are almost always a sign of big trouble ahead.  Calm waters usually mean that the markets are going up.

In order to avoid a major financial crisis in the near future, we desperately need the price of oil to rebound in a substantial way.

Unfortunately, it does not look like that is going to happen any time soon.  There is just way too much oil being produced right now.  The following is an excerpt from a recent CNBC article

The Morgan Stanley strategists say there are new reports of unsold West and North African cargoes, with much of the oil moving into storage. They also note that new supply has entered the global market with additional exports coming from Russia and Iraq, which is reportedly seeing production rising to new highs.

Since June, the price of oil has plummeted close to 55 percent.  If the price of oil stays where it is right now, we are going to see large numbers of small producers go out of business, the U.S. economy will lose millions of jobs, billions of dollars of junk bonds will go bad and trillions of dollars of derivatives will be in jeopardy.

And the lower the price of oil goes, the worse our problems are going to get.  That is why it is so alarming that some analysts are now predicting that the price of oil could hit $40 later this month

Some traders appeared certain that U.S. crude will hit the $40 region later in the week if weekly oil inventory numbers for the United States on Wednesday show another supply build.

‘We’re headed for a four-handle,’ said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York. ‘Maybe not today, but I’m sure when you get the inventory numbers that come out this week, we definitely will.’

Open interest for $40-$50 strike puts in U.S. crude have risen several fold since the start of December, while $20-$30 puts for June 2015 have traded, said Stephen Schork, editor of Pennsylvania-based The Schork Report.

The only way that the price of oil has a chance to move back up significantly is if global production slows down.  But instead, production just continues to increase in the short-term thanks to projects that were already in the works.  As a result, analysts from Morgan Stanley say that the oil glut is only going to intensify

Morgan Stanley analysts said new production will continue to ramp up at a number of fields in Brazil, West Africa, Canada and in the U.S. Gulf of Mexico as well as U.S. shale production. Also, the potential framework agreement with Iran could mean more Iranian oil on the market.

Yes, lower oil prices mean that we get to pay less for gasoline when we fill up our vehicles.

But as I have written about previously, anyone that believes that lower oil prices are good for the U.S. economy or for the global economy as a whole is crazy.  And these sentiments were echoed recently by Jeff Gundlach

Oil is incredibly important right now. If oil falls to around $40 a barrel then I think the yield on ten year treasury note is going to 1%. I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying.

If the price of oil does not recover, we are going to see massive financial problems all over the planet and the geopolitical stress that this will create will be unbelievable.

To expand on this point, I want to share an excerpt from a recent Zero Hedge article.  As you can see, a rapid rise or fall in the price of oil almost always correlates with a major global crisis of some sort…

Large and rapid rises and falls in the price of crude oil have correlated oddly strongly with major geopolitical and economic crisis across the globe. Whether driven by problems for oil exporters or oil importers, the ‘difference this time’ is that, thanks to central bank largesse, money flows faster than ever and everything is more tightly coupled with that flow.

Oil Crisis Chart - Zero Hedge

So is the 45% YoY drop in oil prices about to ’cause’ contagion risk concerns for the world?

And without a doubt, we are overdue for another stock market crisis.

Between December 31st, 1996 and March 24th, 2000 the S&P 500 rose 106 percent.

Then the dotcom bubble burst and it fell by 49 percent.

Between October 9th, 2002 and October 9th, 2007 the S&P 500 rose 101 percent.

But then that bubble burst and it fell by 57 percent.

Between March 9th, 2009 and December 31st, 2014 the S&P 500 rose an astounding 204 percent.

When this bubble bursts, how far will it fall this time?

Psychology & Sociology of Collapse: Interview with Mark Garavan

logopodcastOff the microphones of Mark Garavan, RE & Monsta

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Aired on the Doomstead Diner on August 17, 2014

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For those of us trying to understand and deal with the many  manifestations of a Collapsing Industrial Civilization, often it becomes quite overwhelming.  Recently I wrote about these issues in an article, Where Have All the Doomers Gone.On the other side of the line, people who remain unaware of the underlying problems we face also are suffering from depression, with Suicide numbers up across the board in all Industrial countries, and the number of people on pharmaceutical anti-depressants like Prozac also on a steady increase.Shortly after I wrote that article, Mark Garavan from the FEASTA website published an article from the sociological and psychological perspective, so I contacted him through my other friends from FEASTA, Brian Davey and David Korowicz.  The result is this initial Podcast, which I think is one of our best to date (definitely the best in Audio Quality).  We hope to do another one in the near future as well.
I urge everyone who is having feelings of Depression and Anxiety, or who feels like they are becoming “Burned Out” by the collapse dynamic to give this podcast a listen.  It probably won’t make you feel a whole lot better, but at least you will know you are not alone and there are good and valid reasons for why you feel the way you do right now.Below, the original article from Mark, which he sent to me in email since the FEASTA website has been having issues lately.-RE

As the 21st century unfolds it is increasingly clear that we are entering more deeply into times of travail. The symptoms, both personal and social, of systemic stress are all about. At the political level we see the re-emergence of various fundamentalisms, nationalisms, far-right politics and the normalisation of the Orwellian permanent ‘war on terror’ and subsequent justification for constant state surveillance of citizens. Authoritarian government in the East and post-democracy in the West now exist side by side. Politics is contracted to a regime of technocratric management of the global economy. The capitalist economic system lurches into continual instability kept afloat only by measures such as quantitative easing and the imposed socialisation of elite debts. At the social level inequality, insecurity, new forms of apartheid and social exclusion, slavery and trafficking, and vast enforced movements of people in search of economic security further accentuate the instability of the world. Hovering above all of this disorder ecological crisis grows. The term Climate Change may suggest that only the weather is in question but climate is everything – food, water, temperature, nature itself. Half of all vertebrate life-forms have become extinct in the last forty years.

What is all of this doing to us today? These interlocking problems are not just ‘out there’. We are also being affected at a deep personal level. Not only are we now in the age of social and ecological unsustainability we must also acknowledge that we are in the age of psychological unsustainability. We must acknowledge the pain and distress of this. All of this social and natural dis-order is taking a toll on our human well-being. Our emotions are picking up this systemic collapse long before our rational minds can. Symptoms of stress and distress are all about us – the exponential rise of labelled ‘mental illnesses’ (fuelled by pharmaceutical companies), of addiction, of despair.

Many of us are anxious or depressed.

As Feasta has predicted and argued since its foundation, the system itself is disintegrating. That this is happening is a tragedy. There is no comfort in having anticipated what is now occurring. We are now living through this time. It is no surprise that as the system decays we suffer stress and anxiety at a personal level.

It is in this context that Feasta needs to address where it stands today and what it can do at this time. We have produced detailed analyses and proposals over many years. All of these remain serviceable and valuable. But as a small organisation, desperately trying to argue for fundamental change at a systemic level, a high toll is exacted at the human level. Organisations often do not talk enough about this element. Burn-out, inter-personal frustrations, sheer exhaustion can dissipate even the most committed. I know all of these features from personal experience in campaigns. I know what total exhaustion and inability to continue is like. There is so much to do, so much seems to rest on our shoulders, the issues are so urgent, we feel so much responsibility. It can easily become overwhelming.

Often, advocates for change necessarily end up in the role of the critic, of the one in opposition, of the one who points out what is wrong, of the nay-sayer, of the doom-mongerer. We seem to come from a place of negation. We can appear experts in what is wrong, in what we oppose, in what we hate.

At this time of grave and genuine crisis, we desperately need to evoke what we love. We need to restore to our public discourse the capacity to dream of a world of inclusion, economic sufficiency, democratic participation and of psychological wholeness and well-being where care and compassion ground our fragile existence. The widespread alienation characteristic of our failing system may channel itself into anger, hatred and fear unless a project of hope and inspiration can be offered.

The word Feasta can be used ambivalently. Its origins as a title comes from the line Cad a dheanimid feasta gan adhmaid (what will we do in the future without wood). This suggests the future as a place of forboding and warning. But Feasta can also be an assertion of hope – that despite all there is a future. It must be inhabited and constructed. That is up to us.

But we cannot do it all of course. At a minimum all we in Feasta can do is not collude with the contemporary illusions. We can speak with utter honesty about ourselves as struggling human beings, about our collapsing system, about our fears, distresses and vulnerabilities and about our hopes of a world that might be good enough for a holistically sustainable human life. Sustainability must include the social, political, economic and ecological and also the psychological. The new language and praxis of a sustainable politics must include care and well-being – focusing on the welfare of all of us. That needs to start now so we can begin to support ourselves through these times of woe.

Your Recovery Without Drugs

Off the keyboard of Jim Quinn

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Published on The Burning Platform on August 18, 2014

brain-drugs

Discuss this article at the Economics Table inside the Diner

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

Thomas Jefferson

Does this chart portray an economic recovery in any way? Wages have been stagnant since the START of the supposed recovery in 2010. Real median household income, even using the highly understated CPI, is on a glide path to oblivion. You just need to observe with your own two eyes the number of Space Available signs in front of office buildings, strip centers and malls across America to realize we have further to fall. Low paying, part-time burger flipping jobs aren’t going to revive this debt saturated economic system. But at least the .1% are enjoying their Federal Reserve created high. Fiat is a powerful drug when administered in large doses to addicts on Wall Street.

The S&P 500 has risen from 666 in March of 2009 to 1,972 today. That is a 196% increase in a little over five years. During this same time, real household income has fallen by 7%. There have been a few million jobs added, while 11 million people have left the labor market. According to Robert Shiller’s CAPE ratio, the stock market valuation has only been higher, three times in history – 1929, 1999, and 2007. He seems flabbergasted by why valuations are so high. Sometimes really smart people can act really dumb.

The Federal Reserve balance sheet was $900 billion before the 2008 financial crisis. Today it stands at $4.4 trillion. The Fed has increased their balance sheet by 220% since the March 2009 market lows. Do you think there is any correlation between the Fed puppets printing $2.4 trillion and handing it to their Wall Street puppeteers, who used their high frequency trading supercomputers and ability to rig the markets so they never lose, and the third stock bubble in the last 13 years? It’s so self evident that only an Ivy League economist or CNBC anchor wouldn’t be able to see it.

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Let’s look at the amazing stock market recovery without Federal Reserve heroine pumped into the veins of Wall Street banker addicts. If you divide the S&P 500 Index by the size of the Federal reserve balance sheet, you see the true purpose of QE1, QE2, and QE3. It wasn’t to save Main Street. It was to save Wall Street. Without the Federal Reserve funneling fiat to the .1% banking cabal and creating inflation in energy, food, and other basic necessities for the 99.9%, there is no stock market recovery. The recovery has occurred in Manhattan and the Hamptons. It’s been non-existent for the vast majority of people in this country. The wealth effect and trickle down theory have been disproved in spades. The only thing trickling down on the former middle class from the Fed is warm and yellow.

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The entire stock market advance has been created on record low trading volumes and record high levels of monetary manipulation. Even though the Federal Reserve has driven senior citizens further into poverty with 0% interest rates, those with common sense have refused to be lured back into the lion’s den. They have parked record levels of fiat in no interest bank and money market accounts. They are tired of being muppets led to slaughter.

Quantitative easing was supposed to force little old ladies into the stock market and consumers to spend their debased dollars before they lost more value. The spending would revive the dormant economy just as the Keynesian text books promised. It didn’t happen. The peasants haven’t cooperated. Quantitative easing and ZIRP sapped the life from the middle class as their wages have stagnated and their living expenses have skyrocketed. Mission Accomplished by the Fed. Of course, the CNBC bimbos and shills would declare this $10.8 trillion to be money on the sidelines ready to boost the stock market ever higher. I love that storyline. It never grows old.

The MSM, government and Wall Street continue to flog the story about a housing recovery. It’s been nothing but a confidence game based upon the Fed’s easy money and the Wall Street scheme to buy up foreclosed properties with the Fed’s money. The scheme was to artificially boost home prices by restricting home supply through foreclosure manipulation, in order to allow the insolvent Wall Street banks to get out from under their billions in toxic mortgage loans.

Shockingly, the Case Shiller home price index has soared by 25% since 2012 despite first time home buyers being virtually non-existent and mortgage applications plunging to 14 year lows. How could that be? Don’t people need mortgages to buy houses? Isn’t real demand necessary to drive prices higher? Not when Uncle Ben and Madam Yellen are in charge of the printing press. Housing bubble 2.0 has arrived. I wonder if the Federal Reserve balance sheet increase of 50% since 2012 has anything to do with the new housing bubble.

It seems a similar result is obtained when dividing the Case Shiller Index by the size of the Fed’s balance sheet. The real housing market for real people is worse than it was in 2009. The national home price increase has been centered in the usual speculative markets, aided and abetted by the Fed’s easy money, managed by the Wall Street hedge funds, and exacerbated by the late arriving flippers who will be left holding the bag again. The Fed/ Wall Street scheme has priced young people out of the market and has failed to ignite the desired Keynesian impact. Investors/flippers account for 34% of all home sales. Foreigners with no knowledge of value metrics account for 30% of all home sales. The lesson of history is that most people don’t learn the lessons of history. The 2nd housing bubble in seven years is seeking a pin.

If ever you needed proof of the confidence game in its full glory, the chart below from Zero Hedge says it all. Mortgage rates have been falling for the past year, home builders have been reporting soaring confidence about the future, and the National Association of Realtors keeps predicting a surge in home buying any minute now. One small problem. Mortgage applications are in free fall, new home sales are at 1991 levels, and existing home sales are falling. Home prices have peaked and are beginning to roll over. The Wall Street hedgies are all looking to exit stage left. Young people are saddled with over a trillion of government issued student loan debt and millions of older subprime borrowers have been lured into more auto loan debt. Home sales will be stagnant for the next decade.

 

Quantitative easing will cease come October, unless Yellen and Wall Street can create a new “crisis” to cure with more money printing. By every valuation measure used over the last 100 years, stocks are overvalued by at least 50%. By historical measures, home prices are overvalued by at least 30%. Ten year Treasuries are yielding 2.4%, while true inflation is north of 5%. With real interest rates deep in negative territory, the bond market is even more overvalued than stocks or houses. These simultaneous bubbles have been created by the Federal Reserve in a desperate attempt to keep this debt laden ship afloat. Their solution to a ship listing from too much debt was to load it down with trillions more in debt. The ship is taking on water rapidly.

We had a choice. We could have bitten the bullet in 2008 and accepted the consequences of decades of decadence, frivolity, materialism, delusion and debt accumulation. A steep sharp depression which would have purged the system of debt and punishment of those who created the disaster would have ensued. The masses would have suffered, but the rich and powerful bankers would have suffered the most. Today, the economy would be revived, saving and investing would be generating needed capital for expansion, and banks would be doing what they are supposed to do – lending money to businesses and individuals. Instead, the Wall Street bankers won the battle and continue to pillage and loot the national wealth while impoverishing the masses.

The arrogance, hubris and contempt for morality displayed by the ruling class is breathtaking to behold. They think they are untouchable and impervious to norms followed by the rest of society. They may have won the opening battle, but will lose the war. Discontent among the masses grows by the day. The critical thinking citizens are growing restless and angry. They are beginning to grasp the true enemy. The system has been captured by a few malevolent men. When the stock, bond and housing bubbles all implode simultaneously, all hell will break loose in this country. It will make Ferguson, Missouri look like a walk in the park. I wonder if the occupants of the Eccles building in Washington DC will get out alive.

“It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.”Henry Ford

Charts provided by Confounded Interest

WWII — A GOOD WAR WITH VERY BAD RESULTS

Off the keyboard of Stuck in New Jersey

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Published on The Burning Platform on June 10, 2014

WWII_propaganda

Discuss this article at the Geopolitics Table inside the Diner

http://images.huffingtonpost.com/2010-12-20-wwiipropagandacrazy.jpg“War forces ‘national planning’. To permit total mobilization of your country’s economy, you gladly surrender many freedoms. You know regimentation was forced by your country’s enemies.”
———— “The Road To Serfdom”, Step 1

“Criticism of the decisions made during war only come from people who have never fought in a war but you sure have enjoyed the results of all those men dying. Right?”
———— Village Idiot (bb) to me, referring to D-Day and WWII

Well, let’s take a look at The Good War, and the “results” I have “enjoyed”.

BEFORE THE WAR —- FDR’S NEW DEAL

Herbert Hoover couldn’t adequately deal with the Great Depression. So, disgusted Americans elected FDR in 1932. FDR’s campaign promises in 1932 were to; cut federal spending, balance the budget, maintain a sound currency, and stop bureaucratic centralization in Washington. That didn’t work out to well. Instead he gave Americans a bewildering, incoherent mass of new expenditures, taxes, subsidies, regulations, and direct government participation in every aspect of economic activity. For starters, how about 47 new Federal Programs and Agencies implemented between 1933 – 1939? Listed in order of implementation;

Emergency Banking Act , Government Economy Act, Beer-Wine Revenue Act, Civilian Conservation Corps, Abandonment of Gold Standard, Federal Emergency Relief Act, Agricultural Adjustment Act, Emergency Farm Mortgage Act, Tennessee Valley Authority Act,, Securities Act, Abrogation of Gold Payment Clause, Home Owners Refinancing Act, Establish the Home Owners Loan Corporation (HOLC), Glass-Steagall Banking Act, creation of Federal Deposit Insurance Corporation, National Industrial Recovery Act, create the Public Works Administration (PWA), Emergency Railroad Transportation Act , Civil Works Administration , Gold Reserve Act, National Housing Act, create the Federal Housing Administration (FHA), Securities Exchange Act, Federal Communications Act , Soil Conservation & Domestic Allotment Act, Emergency Relief Appropriation, Works Progress Administration , Rural Electrification Act , National Labor Relations Act /Wagner Act, Resettlement Act, Social Security Act (SSA), creation of Social Security Trust Fund, United States Housing Act, Bonneville Power Administration, Farm Tenancy Act, Farm Security Administration, Federal National Mortgage Association (FNMA), New Agricultural Adjustment Act, Fair Labor Standards Act, Federal Security Agency

[Side Note: It has been said that FDR was much loved, and that’s why he was elected four times. That’s not true. The 1936 election is touted as one of the biggest landslides in history. Nevertheless, some guy named “Alf” was able to garner 17 Million votes. Look again at the above 47 acts … WHO benefits? Old folks, young folks, blacks, poor folks [supposedly], Unions, farmers, and anyone wanting or owning a home, amongst others. In other words, enormous swaths of the country needing free shit. Even blacks, loyal to the Republican Party ever since the Civil War, abandoned the GOP in exchange for the pitiful relief payments and crap jobs in the federal work-relief programs. It’s called Buying Votes. John T. Flynn, in his book, ‘The Roosevelt Myth’, said ——– “it was always easy to interest him in a plan which would confer some special benefit upon some special class in the population in exchange for their votes,” and that eventually “no political boss could compete with him in any county in America in the distribution of money and jobs.”]

In a 1936 book called ‘The Menace of Roosevelt and His Policies’, Howard E. Kershner wrote that Roosevelt; ——– “took charge of our government when it was comparatively simple, and for the most part confined to the essential functions of government, and transformed it into a highly complex, bungling agency for throttling business and bedeviling the private lives of free people. It is no exaggeration to say that he took the government when it was a small racket and made a large racket out of it.”

Under heavy criticism for all this crapola even FDR himself eventually said that he was — “not willing that the vitality of our people be further sapped by the giving of doles, of market baskets, by a few hours of weekly work cutting grass, raking leaves, or picking up papers in the public parks.” But, just like his broken campaign promises, the Free Shit Handouts did continue throughout his Presidency.

FDR’s true colors should have been apparent to everyone after his first inaugural speech when he said ——- “we must move as a trained and loyal army willing to sacrifice for the good of a common discipline.”. Then he made a comment Obama would have been proud of by warning Congress that if they didn’t do his bidding he would seek —— “broad executive power to wage a war against the emergency as great as the power that would be given me if we were in fact invaded by a foreign foe.” FDR, the new King, swinging his E.O. pen from the Bully Pulpit … it won’t be the last time a president ignores the will of the people.

http://4206e9.medialib.glogster.com/media/c3a77eb567ef1f05e000860822724d1c59c3d671f78610d8a59cbf49db0c4805/wwii-propaganda.jpgFDR often clung to the analogy that just as war was a national emergency, so was the current economic climate. Just as in war the government controls and mobilizes the economy, so should the government do likewise in this economic national emergency. Aside from the fact that whenever the government declares a war on any aspect of social / economic life (i.e.; war on drugs, war on poverty, war on racism, war on obesity, etc.) that the war always ends it dismal failure, is the fact that successfully prosecuting a war has virtually nothing in common with the necessary requisites of getting an economy out of a depression. But FDR was determined to change every aspect of the American landscape, a war where the protagonist was the American Government, and the victims the American People who voted the scoundrels into office. As expected, his war on the economic national emergency would fail. Eventually, only a real war would save his ass …. and preserve Big Daddy government he perfected.

Prior to the Good War, exactly how did things work out? In 1939, ten years after its onset and six years after the commencement of the New Deal, 9.5 million persons, or 17.2% of the labor force, still remained officially unemployed …with 3 million of those “employed” being enrolled in emergency government make-work shovel-ready projects. As late as June 1939, industrial production remained significantly below 1929 levels (81 vs. 100).

Furthermore, mounting evidence makes it clear that poor people were principal victims of the New Deal. New Deal programs were financed by tripling federal taxes from $1.6 billion in 1933 to $5.3 billion in 1940. Excise taxes, personal income taxes, inheritance taxes, corporate income taxes, holding company taxes and so-called “excess profits” taxes all went up. New Deal taxes were major job destroyers during the 1930s. Higher business taxes meant that employers had less money for growth and jobs. Social Security excise taxes on payrolls made it more expensive for employers to hire people, which discouraged hiring. The National Industrial Recovery Act cut back production and forced wages above market levels, making it more expensive for employers to hire people – blacks alone were estimated to have lost some 500,000 jobs because of the NIRA. The NIRA forced consumers to pay above-market prices for goods and services, and the Agricultural Adjustment Act forced Americans to pay more for food. Amazingly, FDR banned discounting by signing the Anti-Chain Store Act and the Retail Price Maintenance Act.

The most important source of New Deal revenue were excise taxes levied on alcoholic beverages, cigarettes, matches, candy, chewing gum, margarine, fruit juice, soft drinks, cars, tires, telephone calls, movie tickets, playing cards, electricity, radios – in other words, the New Deal was substantially financed by the middle class and poor people. Consumers had less money to spend, and employers had less money for growth and jobs. It wasn’t until 1942, in the midst of World War II, that income taxes exceeded excise taxes for the first time under FDR.

By 1939 the whole damn house of cards was about to tumble. Unemployment climbed back over 20%. This, despite cartelizing industry, subsidizing farmers, creating massive make-work projects, promoting organized labor, and launching the modern welfare state (social security, minimum wage laws, AFDC) …. all funded by a combination of increased debt, excise taxes, and high progressive income taxation. Even FDR’s secretary of the Treasury, Henry Morgenthau, confessed to the House Ways and Means Committee on May 9, 1939;

“We have tried spending money. We are spending more than we have ever spent before AND IT DOES NOT WORK … We have never made good on our promises … I say after eight years of this Administration we have just as much unemployment as when we started. …. And an enormous debt to boot!”

Where the New Deal succeeded beyond FDR’s wildest imagination was in changing the country’s dominant ideology. Just look at the 47 new acts and agencies. Each interferes with the effective operation of the free market. Each renders the economy less productive with its subsidizing, financing, insuring, regulating, fines and punishments. The New Deal set a precedent that virtually any government program could gain sufficient political support in Congress. Limited constitutional government no longer applied …. especially after the Supreme Court revolution that began in 1937. After the New Deal virtually everyone would look to the federal government for solutions to problems great and small, real and imagined, even personal as well as social. After the New Deal any new proposed federal program might be opposed because of its structure, personnel, or cost … but virtually no one objected on principle, that this new program by its very nature was inappropriate to the role of government. Government now is The-Solution-To-Everything. FDR’s lasting legacy is a bloated, very stupid, extremely intrusive government trampling on citizens liberty. But, even so, it almost died on the vine.

Prior to entering the Good War, FDR’s economic war plans to remake America into a socialist utopia was failing miserably, as shown above. What he needed was a real damn war. Not to save Europe or help America! But to preserve his new found powers and to keep the Federal Bloated Pig fed into perpetuity.

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WINNING THE GOOD WAR AND ENJOYING ITS RESULTS

EUROPE

Let’s start with Poland. Why? Because Britain and France declared war against Germany when German military forces attacked Poland …. and Britain and France would liberate Poland, they said. How sincere was that pledge? Not, very. Soviet forces attacked Poland from the East two weeks later, ultimately taking even more Polish territory than did Germany, and the leaders of Britain and France kept silent. Was Poland free after WWII ended? Of course, not. They had to endure decades of brutal (at times) Soviet domination. So, the Good War wasn’t so good for Poland.

What about all of Eastern Europe? Also dominated and ruled by the Soviets. No freedom for them as a result of the Good War.

What about England? They won!! Churchill, in his ‘Finest Hour’ address, said: —— “Upon this battle depends the survival of Christian civilization. Upon it depends our own British life and the long continuity of our institutions and our Empire.” A few weeks earlier in his ‘Blood, Sweat and Tears’ speech, he said that unless Germany was defeated, there would be; ——– “no survival for the British empire, no survival for all that the British empire has stood for…”. How did wining the Good War turn out for the Brits? Even Churchill lamented the war’s outcome three years after the end of fighting; —— “The human tragedy of the war reaches its climax in the fact that after all the exertions and sacrifices of hundreds of millions of people and of the victories of the Righteous Cause, we have still not found Peace or Security, and that we lie in the grip of even worse perils than those we have surmounted.” The once mighty British empire … the one in which the sun never set … that empire has vanished into history. The Brits can now watch the sun set on their empire every day, and they don’t even need to leave their island.

British historian Basil Liddell Hart wrote: ———- “All the effort that was put into the destruction of Hitlerite Germany resulted in a Europe so devastated and weakened in the process that its power of resistance was much reduced in the face of a fresh and greater menace – and Britain, in common with her European neighbours, had become a poor dependent of the United States. These are the hard facts underlying the victory that was so hopefully pursued and so painfully achieved ….. It confirmed the warning of past experience that this victory is a ‘mirage in the desert’ – the desert that a long war creates, when waged with modern weapons and unlimited methods.”

What about the rest of Western Europe? Well, several of them are saddled with a permanent Occupying Force — at least that’s what it’s called when Russia did likewise. None of them can adequately protect themselves. All of them are sock-puppets to Uncle Schmuel. This is not freedom. Europe for the first time in its history was no longer master of its own destiny. In 1941 FDR and Churchill issued the “Atlantic Charter”, a formal declaration of Allied war aims, that the USA and Britain would seek; —- “no territorial changes that do not accord with the freely expressed wishes of the peoples concerned”. They lied! They re-drew so many borders with impunity dividing up countries like an Etch-A-Sketch Gone Wild. Their horrible decisions took decades to come to its bloodletting fruition, such as in Yugoslavia in the early 1990s and still in the Middle East to this day. Wow, that’s some kind of ‘victory’.

But, the USA (the government) and Soviet Russia came out smelling like a rose. FDR, Stalin, and Churchill met in Yalta and accomplished EXACTLY what they accused the Krauts, Nips, and Dagos of conspiring to achieve ……. world domination. One must be willfully blind to not see the hypocrisy. WWII was not a war for freedom. Rather, it was a war for who would become the winner of the global game of Risk, and the players at Yalta, each in his own duplicitous way, tried to assure that only one power would be left standing.

Russia did exceptionally well, although it took seven decades to realize the full potential. Russia today has virtually no debt, and with their thousands of nukes is the only nation in the world that can legitimately stand up to American military might, and has enormous natural resource wealth with oil, minerals, and arable land, and along with China and other nations is working hard to put an end to the petro-dollar …. which would certainly put the final nail in the coffin of the American Empire. I wonder how the Village Idiot will enjoy those results.

AMERICA

There is no doubt that the end of WWII launched an era of astounding prosperity. Perhaps that’s what out Village Idiot means by me enjoying “the results of men dying”. But, that would be quite a statement coming from the Village Idiot, who is also an unabashed Fundy Bible Thumper. It’s almost as if he never read the warnings from Scripture against loving things, acquiring unnecessary wealth, and the evils of loving money. The only question that matters is whether or not obtaining this prosperity was worth the cost. I don’t think it was. Decide for yourself.

ISOLATIONISM DIES ……… GIVING BIRTH TO GLOBALISM

Yes, there are exceptions (taking the land from Native Americans, taking/buying lands from the French, taking/fighting the Mexicans for huge portions of land), but for the most part, American history is one whereby its citizens and politicians preferred isolationism. For a hundred years after George Washington’s farewell address warning against “foreign entanglements”, America basically minded its own damn business. Then along came that rat-bastard, Woody Wilson (may he rot in hell), who was elected largely on his promise to keep America out of the European War. But about a month after his inauguration this war-mongering Ivy League elitist gives his “War message to Congress”, not because our security is at stake, but because America suddenly acquired this duty to spread liberty across the world; —– “The world must be made safe for democracy. Its peace must be planted upon the tested foundations of political liberty.”

Anyway, war was declared, the people went along with the charade, millions died, and ………… peace in Europe was never achieved. As a result, by the 1930’s, disillusioned Americans became more convinced than ever that foreign adventure was a disastrous policy. American isolationism was renewed with a vengeance. The majority of Americans were very firmly opposed to entering WWII. Most people know that FDR’s goading Japan to attack Pearl Harbor changed all that. But there was another guy who helped kill isolationism, Henry Luce.

Luce was the founder and editor of the Time and Life empire. Those two magazine were THE source of news for Americans. Luce penned an editorial in 1941, “The American Century.”. Luce should be the patron saint of Fox news and neocon warmongers. Luce said the US was already the strongest nation in the world for several decades, and that NOW was the time to accept the responsibilities of that power, writing that the US should “exert upon the world the full impact of our influence, for such purposes as we see fit and by such means as we see fit.”. He said the US must be a force for good. How? By spreading our culture, feeding and clothing the world, and spreading the ideals of democracy, freedom, and justice around the globe. His editorial was received with great enthusiasm. It effectively marked the death of American isolationism.

A FANATICAL REVIVAL OF AMERICAN EXCEPTIONALISM

America was birthed with a belief in its exceptionalism going as far back as the 1600’s whereby the Puritans believed themselves to be on a “special mission from God”. The end of WWII fueled our exceptionalistic beliefs, like throwing gasoline on a fire. Ours was the only significant economy left standing, and one without global competition. Our military was invincible. Always a religious people, it seemed even atheists acknowledged that America was specially blessed by God. We could do whatever we wanted, when we wanted, for as long as we wanted, and cost was never an issue. We believed one of the craziest notions of all time ….. that each successive generation would surpass the affluence of the one before.

The process of breaking these illusions and returning to reality STLL HAS NOT TAKEN PLACE!! To listen to Obama’s West Point speech a couple weeks ago was like taking a Time Capsule trip back to May 8th, 1945. Obama actually believes in his heart we are still an exceptional nation, who can do what it wants, when it wants, including bombing other nations unilaterally as we see fit, and cost is never an issue.

Historian Murray Rothbard summed it up most succinctly when he wrote: —– “World War II is the last war myth left, the myth that the Old Left clings to in pure desperation: the myth that here, at least, was a good war, here was a war in which America was in the right. World War II is the war thrown into our faces by the war-making establishment, as it tries, in each war that we face, to wrap itself in the mantle of good and righteous World War II.”

It is our belief in an exceptional military that is so dangerous … to us and the rest of the world … for exceptionalism inevitably leads to over-confidence. Since 1945, American presidents have repeatedly sought to justify US military actions in foreign countries Exceptionalism/over-confidence led that that jackass Lydon Johnson to believe the Vietnam war would be over in a few weeks. It led Bush to compare fighting Iraq – another “good war” — with our mission against Hitler, and his moronic son to prematurely ejaculate “mission accomplished”. Fast forward to the current Moron-In-Chief and you get a numbskull who calls Afghanistan a “necessary war”, and who is desperately seeking to re-ignite a Cold War with Russia — because we are exceptional, and they are not — or, possibly even WWIII, the next Good War that will certainly this time be the war to end all wars.

THE CURSE OF AFFLUENCE

Hey, I watch the Honeymooners. In one episode Alice complains to Ralph about their lack of modern conveniences saying that their last month’s electric bill was eighty-nine cents!! Ha! I don’t want to live like that! I’m delighted I have a fridge, a gas oven, a vacuum cleaner, and other niceties of life. But, as stated earlier, what was the real cost in completely transforming society?

The most obvious is that everything became larger; media, education, entertainment, corporations, you name it but, especially government. Individual craftsmanship gave way to mass production. Mom and pop gave way to franchises. Quaint towns and villages each unique to its geographical location gave way to suburbia … a mind numbing sameness that is only marginally better than those old Soviet-era grey concrete apartments.

The growth of suburbia created a “consumption multiplier”; more homes meant more appliances had to be produced, and furniture to furnish them, and malls to supply the homeowner with all their needs, more roads needed to be built, and more automobiles to transport the consuming masses, and children largely abandoned by their parents needed more toys, phones, computers, and gadgets to keep them occupied.

A mass-produced society really doesn’t need a lot of people who work for themselves. So, now, instead of people like our own Hardscrabble Farmer, we have hordes of worker drones working for someone else in corporations, government offices, and universities; mostly white collar workers in their cubicle fiefdoms, and millions upon millions in the soul-destroying “service industry”. Schools are incapable of coming to the rescue as their only interest is producing little robots that conform to the status quo, individualism be damned.

Even the Most Holy of Holies has been replaced by The Holy God Of Stuff. Go to any Christian bookstore and you’ll find row after row of books on how to ‘name it and claim it’… in the name of Jesus, of course. The theology section might consist of two rows of shelves. From Joel Olsteen (the psychologist to neurotic Christians) to Trinity Broadcasting Network (for Christians so materialistic it makes the Devil blush) the case can be made that Friedrich Nietzsche was correct; “God IS dead”, at least in most American churches.

So, tell me, how wonderful has all this material abundance really been? Not that it really matters … because the Age of Abundance will soon pass. This generation is already worse off than mine was, and the next one will be still even worse. The Honeymooners kitchen in the not too distant future will look like the lap of luxury.

AN OUT OF CONTROL FEDERAL GOVERNMENT and PRESIDENCY

The math is simple. During the war years, federal civilian employees increased from one million to nearly four million. Washington’s spending grew from $9 billion to $99 billion dollars. And like a cancer, neither has stopped growing since. Time after time FDR assumed more and more authority, almost acting like a King. Important decisions concerning both domestic and foreign policy were not made by Congress, but by the President and his advisers. Not every president after FDR was as bad. But, no one complained, no one was outraged, no one questioned FDR’s abuse of the Constitution, and so, the precedent was once again established (after a hiatus from the Lincoln years). Obama has read FDR’s playbook, and perfected it.

THE BIRTH OF THE MILITARY-INDUSTRIAL COMPLEX

The partnership of Big Science, Big Government, and Big Business established in1940 had created a firm foundation for future projects. Scientists were commissioned to perfect new weapons like the atom bomb, better radar, jet engines, penicillin, etc. Prostitution increased dramatically as FDR offered big business executives key positions. Corporate profits doubled. There was a demand in markets that previously did not exist. It was the beginning of the end of the family farm as larger commercial farms absorbed them. This was all pretty nifty at the time as it helped win the war. BUT, the beast didn’t stop growing after the war, it just grew and grew and grew … a cancerous blob of protoplasmic slop that will, in time, consume itself.

Eisenhower talked about the dangers of the MIC in his farewell speech. During the war an organized relationship arose between big business and the military’s spending on defense as hundreds of millions of dollars were spent which, in turn, inflated American industrial capacity. Small companies disappeared as two-thirds of government contracts went to the 100 largest corporations. Today the MIC spends more on American defense than the next 9 largest spenders combined … and that includes Russia and China …not to mention we are the world’s number one arms exporter by a huge margin.

Military spending is less effective at creating jobs than virtually any other form of government activity. In fact, it might not actually “create” any jobs at all. Military spending doesn’t make our country richer, otherwise, why wouldn’t we just build 10 millions tanks so we could all become millionaires? If you like Paul Krugman and his Weaponized Keynesianism band, you won’t believe this, but every dollar spent on military spending is a dollar not spent making something that will help all Americans economically. It’s pissing money down the toilet.

THE CURSE OF ADVERTISING AND CREDIT

I loathe advertising at about the same level I do bankers and politicians. How can I respect an industry whereby every product output is basically a lie (of either omission or commission), a half-truth, or an exaggeration, and whose goal is always for their clients (us) to commit one of the 7 Deadly Sins, that of Greed? The post-war explosion in the production of consumer goods created an explosion in the advertising industry …. because people just don’t buy all that crap on their own, they need to be suckered into it. But, even with mom now in the workforce, there often wasn’t enough money to buy stuff, as there was so much of it. This new materialism led to the creation of an economy run on credit …. a concept basically unknown before the war, when most families borrowed money only to buy a house, or perhaps a car. The credit card changed America, and not in a good way for its many debt slaves.

BLACKS (or African-Americans, Neegrows, colored folk, …. or whatever)

In 1941, 10 of 13 million Blacks still lived in the rural South. One million blacks migrated to the North during the war. Two million were employed in the defense industry. As early as 1943 a riot broke out in a federally-sponsored housing project in Detroit, leaving 35 blacks and 9 whites dead. A little over two decades later Newark, Watts, and other areas were left burning. Civil disobedience – “sit-ins” first, violence later – occurred almost immediately after the Congress of Racial Equality (CORE) was founded in 1942.

MEXICANS

The need for farm workers rose dramatically after Pearl Harbor. To meet the demand, the United States established the Bracero (work hands) Program in 1942, and by 1945, several hundred thousand Mexican workers had immigrated to the Southwest. Commercial farmers welcomed them; labor unions, however, resented the competition, leading to animosity and discrimination against Mexicans. The war opened the immigration floodgates, both legal and illegal.

WOMEN

The war had a dramatic impact on women. The most visible change was the sudden appearance of large numbers of women in uniform, such as 250,000 women joining the Women’s Army Corps (WAC), as well as the other service branches. And over 6 million women entered the work force, and for the first time in history, married working women outnumbered single working women. “Rosie the Riveter” became the popular symbol of women who abandoned traditional female occupations.

I’m not a misogynist. I have no qualms with women having the same opportunities as men. But this ‘social engineering’ came at a cost to family life and therefore to society, and to deny it is foolishness. Moms either stayed on the job, or went to work outside of the home in large numbers, not because they needed to, but because they could. There became suddenly so many things to buy! Consumerism may not have been born during the immediate post-war era, but it was surely Super-Sized. And one of the reasons Boomers became the most fucked up generation ever (according to many here on TBP) may have been because we were raised by others not called mom-and-dad. We did enjoy them buying us stuff to assuage their guilt. We watched. We took notes. And, when we grew up, many of us bought BMWs and McMansions.

ENEMY ALIENS IN OUR MIDST!!!

At first, Japanese-American-owned banks and businesses were closed, as well as Japanese language schools. FDR ordered members of suspected “enemy alien” groups to turn in their cameras, radios, and weapons. The U.S. Attorney General established curfews in military zones and forbade “enemy aliens” to travel outside of a five mile radius from their homes. Then, eventually, 112,000 of America’s 127,000 Japanese living on the mainland were sent to Internment Camps (lesser known is that about 15,000 people of German and Italian ancestry were also subject to Amerika’s wartime confinement program.)

The above events are rarely discussed and easily dismissed as a necessary act during a time of war. In other words, no big deal, move along. However, it is one of Amerika’s darkest moments. I will keep my argument simple; —- THEY WERE AMERICANS!!! Many were born HERE, some families going generations deep. Even those not born here, they immigrated here because they wanted to be Americans, and they were loyal to this country. I was born in Austria, but after living here 55 of my 60 years, if you try to tell me I’m not an American, trust me, I’m likely to punch you in the brain.

Once again, this heinous act set (or, re-established) a precedent … that it’s perfectly OK to send AMERICANS to prison —err, interment — camps for some stupid trumped-up fear-mongering reason. And if you disagree with that, my friend, you will really enjoy the FEMA Camps, coming to a theater near you, soon.  How will you feel when they come for YOU, because you own a gun, or belong to the Tea Party, or because you are a wacko ‘Constitutionalist”, or belong to the 99 other groups this Federal Government is so afraid of that there’s an FBI Watch List monitoring them all? Will you still say, “It’s no big deal?”

HOW “GOOD” WAS THE GOOD WAR REALLY?

“What kind of war do civilians suppose we fought, anyway? We shot prisoners in cold blood, wiped out hospitals, strafed lifeboats, killed or mistreated enemy civilians, finished off the enemy wounded, tossed the dying into a hole with the dead, and in the Pacific boiled the flesh off enemy skulls to make table ornaments for sweethearts, or carved their bones into letter-openers.” That quote comes from a 1946 Atlantic Monthly article by Edgar L. Jones titled ‘One War Is Enough’. The article is here, and well worth the read (if you can handle the truth); —- http://www.theatlantic.com/past/docs/unbound/bookauth/battle/jones.htm

BACK TO THE VILLAGE IDIOT

The Village Idiot (bb) eventually did answer my question regarding WHICH results I’ve “enjoyed” as a result of “all those men dying”. This is all he could come up with;

“Think about it, if we had lost the war America as we knew it would not have been.”

To which I say, “If only that were true. If only ….”. There are a great many people who understand that our WWII victory was a Pyrrhic one. The Village Idiot will not believe me. He’ll probably even call me bad names. So, I close with a quote from Charles A. Lindbergh, 25 years after the war ended he wrote;

“We won the war in a military sense; but in a broader sense it seems to me we lost it, for our Western civilization is less respected and secure than it was before. In order to defeat Germany and Japan we supported the still greater menaces of Russia and China – which now confront us in a nuclear-weapon era. Much of our Western culture was destroyed. We lost the genetic heredity formed through eons in many million lives. It is alarmingly possible that World War II marks the beginning of our Western civilization’s breakdown, as it already marks the breakdown of the greatest empire ever built by man.”

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Homeless Children Population Explosion

Off the keyboard of Michael Snyder

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Published on Economic Collapse on December 9, 2013

Child-Crying-Photo-by-D-Sharon-Pruitt

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The Most Homeless Children In New York City Since The Great Depression

At a time when Wall Street is absolutely swimming in wealth, New York City is experiencing an epidemic of homelessness.  According to the New York Times, the last time there was this many homeless children in New York City was during the days of the Great Depression.  And the number of homeless children in the United States overall recently set a new all-time record.  As I mentioned yesterday, there are now 1.2 million public school kids in America that are homeless, and that number has gone up by about 72 percent since the start of the last recession.  As Americans, we like to think of ourselves as “the wealthiest nation on the planet”, and yet the number of young kids that don’t even have a roof over their heads at night just keeps skyrocketing.  There truly are “two Americas” today, and unfortunately most Americans that live in “good America” don’t seem to really care too much about the extreme suffering that is going on in “bad America”.  In the end, what kind of price will we all pay for neglecting the most vulnerable members of our society?

If you live in “good America”, I very much encourage you to read an excellent piece about homelessness in New York City that was just published in the New York Times.  What some young kids have to go through on a nightly basis should break all of our hearts…

She wakes to the sound of breathing. The smaller children lie tangled beside her, their chests rising and falling under winter coats and wool blankets. A few feet away, their mother and father sleep near the mop bucket they use as a toilet. Two other children share a mattress by the rotting wall where the mice live, opposite the baby, whose crib is warmed by a hair dryer perched on a milk crate.

Could you imagine having your own family live like that?  The name of the little girl in the story is Dasani, and every night her family sleeps in a city-run homeless shelter that sounds like it is straight out of a horror movie…

Her family lives in the Auburn Family Residence, a decrepit city-run shelter for the homeless. It is a place where mold creeps up walls and roaches swarm, where feces and vomit plug communal toilets, where sexual predators have roamed and small children stand guard for their single mothers outside filthy showers.

It is no place for children. Yet Dasani is among 280 children at the shelter. Beyond its walls, she belongs to a vast and invisible tribe of more than 22,000 homeless children in New York, the highest number since the Great Depression, in the most unequal metropolis in America.

You can read the rest of that excellent article right here.  Sadly, there are countless other children just like Dasani that live like this day after day, month after month, year after year.

Shouldn’t we be able to do better than this as a society?  After all, the stock market has been hovering near record highs lately, and Wall Street is absolutely drenched with wealth for the moment.

With so much wealth floating around, why are New York City subways being “overrun with homeless” right now?

Something has gone horribly wrong.

I think that a recent editorial by David Simon, the creator of the Wire, summarized things pretty well.  We are not “one America” anymore, and most of the people that live in “good America” don’t really care much about those living in “bad America”…

America is a country that is now utterly divided when it comes to its society, its economy, its politics. There are definitely two Americas. I live in one, on one block in Baltimore that is part of the viable America, the America that is connected to its own economy, where there is a plausible future for the people born into it. About 20 blocks away is another America entirely. It’s astonishing how little we have to do with each other, and yet we are living in such proximity.

There’s no barbed wire around West Baltimore or around East Baltimore, around Pimlico, the areas in my city that have been utterly divorced from the American experience that I know. But there might as well be.

Once upon a time, things were different in America.  Nobody resented businessmen for building strong businesses and making lots of money.  And successful businessmen such as Henry Ford hired large numbers of American workers and paid them very well.  He felt that his workers should make enough money to buy the cars that they were building.  In those days, businessmen were loyal to their workers and workers were loyal to those that employed them.

Unfortunately, those days are long gone.  Today, in business schools all over America students are taught that the sole purpose of a corporation is to make as much money as possible for the stockholders.  Not that there is anything wrong with making money.  But at this point we have elevated greed above all other economic goals.  Taking care of one another isn’t even a consideration anymore.

In the old days, big businesses actually needed our labor.  But that is now no longer the case.  Today, corporations are shipping millions of our jobs overseas and they are replacing as many of us with technology as they possibly can.  The value of the labor of the working man is declining with each passing day.

As a result, the fortunes of big business and American workers are increasingly diverging.  For example, the disconnect between employment levels and stock prices has never been greater in this country.  If you doubt this, just check out this chart.

And instead of fixing things, Barack Obama is negotiating a secret treaty which will result in millions more American jobs being shipped overseas.  The following is a brief excerpt about this secret treaty from an Australian news source

The government has refused the Senate access to the secret text of the trade deal it is negotiating in Singapore, saying it will only be made public after it has been signed.

As the final round of ministerial talks on the Trans-Pacific Partnership resumed on Sunday, Nobel prize-winning economist Joseph Stiglitz wrote to each of the 12 participating nations warning that the deal and the secrecy surrounding it presented ”grave risks”.

So why aren’t we hearing much about this secret treaty from U.S. news sources?

If this is going to affect millions of American jobs, shouldn’t the mainstream media be making a big deal out of this?

And even if we weren’t losing millions of jobs to the other side of the planet, we would still be losing millions of jobs to advancements in technology.  In fact, a CNBC article that was posted earlier this week seems to look forward to the day when nobody will have to worry about the low pay that fast food workers get anymore because they will all be replaced by droids…

Maybe so, but as fast food workers protest low wages and the president of the United States equates hard work with the right to decent pay, the rise of technology once again proves to be no stunt, or laughing matter. McDonald’s, where food production is already about as mechanized as food science allows, stopped updating the famous number “served” figure at its restaurants back in 1994—just short of 100 billion—but how long will it be before trillions are served their burgers and fries by a drone, after being cooked by a droid? Those machines work for cheap, and the best thing is, they have no concept of hard work, or dignity, or the foresight to consider whether or not the “cool” things they can do ultimately contribute, or detract, from a strong, consumer-dependent economy.

So what is the solution to all of this?

Where will the millions of desperately needed jobs for “bad America” come from?

Well, it appears that good ideas are in short supply these days.  In fact, some of the ideas being promoted by our “leaders” are absolutely insane.  For example, one prominent entrepreneur recently suggested that the solution to our employment crisis is for Congress to pass an immigration bill which would bring in 30 million more low-skilled workers over the next ten years…

Middle class Americans face a tough future because robots and machinery are eliminating their jobs, according to Steve Case, an entrepreneur who earned roughly $1 billion by creating the first successful internet firm, America Online.

But Congress could help the situation by passing an immigration bill that would import some foreign entrepreneurs and almost 30 million low-skilled workers over the next decade, Case told an audience of D.C. lobbyists and lawyers gathered on Tuesday by the business-backed Bipartisan Policy Center.

Exactly how would this improve the employment situation in this country?

I still cannot figure that one out.

But there are people out there that actually believe this stuff.

Meanwhile, many parts of Europe are suffering through similar things.

The unemployment rate in the eurozone recently hit a new all-time high, and the number of people living in poverty in Europe just continues to grow

Over 124 million people in the European Union – or almost a quarter of its entire population – live under the threat of poverty or social exclusion, a report by EU’s statistical office has revealed.

Last year, 124.5 million people, or 24.8 percent of Europe’s population were at risk of poverty or social exclusion, compared to 24.3 percent in 2011 and 23.7 percent in 2008, the Eurostat said in a document published earlier in the week.

So what is going to fix this?

Where are the good jobs for workers in North America and Europe going to come from in the years ahead?

If you have a potential solution, please feel free to share it below…

TBTF Banks Take Over

Off the keyboard of Michael Snyder

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Published on The Economic Collapse on December 3, 2013

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Too Big To Fail Banks Are Taking Over As Number Of U.S. Banks Falls To All-Time Record Low

Lower East Manhattan - Photo by Eric KilbyThe too big to fail banks have a larger share of the U.S. banking industry than they have ever had before.  So if having banks that were too big to fail was a “problem” back in 2008, what is it today?  As you will read about below, the total number of banks in the United States has fallen to a brand new all-time record low and that means that the health of the too big to fail banks is now more critical to our economy than ever.  In 1985, there were more than 18,000 banks in the United States.  Today, there are only 6,891 left, and that number continues to drop every single year.  That means that more than 10,000 U.S. banks have gone out of existence since 1985.  Meanwhile, the too big to fail banks just keep on getting even bigger.  In fact, the six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten 37 percent larger over the past five years.  If even one of those banks collapses, it would be absolutely crippling to the U.S. economy.  If several of them were to collapse at the same time, it could potentially plunge us into an economic depression unlike anything that this nation has ever seen before.

Incredibly, there were actually more banks in existence back during the days of the Great Depression than there is today.  According to the Wall Street Journal, the federal government has been keeping track of the number of banks since 1934 and this year is the very first time that the number has fallen below 7,000…

The number of federally insured institutions nationwide shrank to 6,891 in the third quarter after this summer falling below 7,000 for the first time since federal regulators began keeping track in 1934, according to the Federal Deposit Insurance Corp.

And the number of active bank branches all across America is falling too.  In fact, according to the FDIC the total number of bank branches in the United States fell by 3.2 percent between the end of 2009 and June 30th of this year.

Unfortunately, the closing of bank branches appears to be accelerating.  The number of bank branches in the U.S. declined by 390 during the third quarter of 2013 alone, and it is being projected that the number of bank branches in the U.S. could fall by as much as 40 percent over the next decade.

Can you guess where most of the bank branches are being closed?

If you guessed “poor neighborhoods” you would be correct.

According to Bloomberg, an astounding 93 percent of all bank branch closings since late 2008 have been in neighborhoods where incomes are below the national median household income…

Banks have shut 1,826 branches since late 2008, and 93 percent of closings were in postal codes where the household income is below the national median, according to census and federal banking data compiled by Bloomberg.

It turns out that opening up checking accounts and running ATM machines for poor people just isn’t that profitable.  The executives at these big banks are very open about the fact that they “love affluent customers“, and there is never a shortage of bank branches in wealthy neighborhoods.  But in many poor neighborhoods it is a very different story

About 10 million U.S. households lack bank accounts, according to a study released in September by the Federal Deposit Insurance Corp. An additional 24 million are “underbanked,” using check-cashing services and other storefront businesses for financial transactions. The Bronx in New York City is the nation’s second most underbanked large county—behind Hidalgo County in Texas—with 48 percent of households either not having an account or relying on alternative financial providers, according to a report by the Corporation for Enterprise Development, an advocacy organization for lower-​income Americans.

And if you are waiting for a whole bunch of new banks to start up to serve these poor neighborhoods, you can just forget about it.  Because of a whole host of new rules and regulations that have been put on the backs of small banks over the past several years, it has become nearly impossible to start up a new bank in the United States.  In fact, only one new bank has been started in the United States in the last three years.

So the number of banks is going to continue to decline.  1,400 smaller banks have quietly disappeared from the U.S. banking industry over the past five years alone.  We are witnessing a consolidation of the banking industry in America that is absolutely unprecedented.

Just consider the following statistics.  These numbers come from a recent CNN article

-The assets of the six largest banks in the United States have grown by 37 percent over the past five years.

-The U.S. banking system has 14.4 trillion dollars in total assets.  The six largest banks now account for 67 percent of those assets and all of the other banks account for only 33 percent of those assets.

-Approximately 1,400 smaller banks have disappeared over the past five years.

-JPMorgan Chase is roughly the size of the entire British economy.

-The four largest banks have more than a million employees combined.

-The five largest banks account for 42 percent of all loans in the United States.

-Bank of America accounts for about a third of all business loans all by itself.

-Wells Fargo accounts for about one quarter of all mortgage loans all by itself.

-About 12 percent of all cash in the United States is held in the vaults of JPMorgan Chase.

As you can see, without those banks we do not have a financial system.

Our entire economy is based on debt, and if those banks were to disappear the flow of credit would dry up almost completely.  Without those banks, we would rapidly enter an economic depression unlike anything that the United States has seen before.

It is kind of like a patient that has such an advanced case of cancer that if you try to kill the cancer you will inevitably also kill the patient.  That is essentially what our relationship with these big banks is like at this point.

Unfortunately, since the last financial crisis the too big to fail banks have become even more reckless.  Right now, four of the too big to fail banks each have total exposure to derivatives that is well in excess of 40 TRILLION dollars.

Keep in mind that U.S. GDP for the entire year of 2012 was just 15.7 trillion dollars and the U.S. national debt is just 17 trillion dollars.

So when you are talking about four banks that each have more than 40 trillion dollars of exposure to derivatives you are talking about an amount of money that is almost incomprehensible.

Posted below are the figures for the four banks that I am talking about.  I have written about this in the past, but in this article I have included the very latest updated numbers from the U.S. government.  I think that you will agree that these numbers are absolutely staggering…

JPMorgan Chase

Total Assets: $1,947,794,000,000 (nearly 1.95 trillion dollars)

Total Exposure To Derivatives: $71,289,673,000,000 (more than 71 trillion dollars)

Citibank

Total Assets: $1,319,359,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $60,398,289,000,000 (more than 60 trillion dollars)

Bank Of America

Total Assets: $1,429,737,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $42,670,269,000,000 (more than 42 trillion dollars)

Goldman Sachs

Total Assets: $113,064,000,000 (just a shade over 113 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $43,135,021,000,000 (more than 43 trillion dollars)

Please don’t just gloss over those huge numbers.

Let them sink in for a moment.

Goldman Sachs has total assets worth approximately 113 billion dollars (billion with a little “b”), but they have more than 43 TRILLON dollars of total exposure to derivatives.

That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 381 times greater than their total assets.

Most Americans do not understand that Wall Street has been transformed into the largest casino in the history of the world.  The big banks are being incredibly reckless with our money, and if they fail it will bring down the entire economy.

The biggest chunk of these derivatives contracts that Wall Street banks are gambling on is made up of interest rate derivatives.  According to the Bank for International Settlements, the global financial system has a total of 441 TRILLION dollars worth of exposure to interest rate derivatives.

When that Ponzi scheme finally comes crumbling down, there won’t be enough money on the entire planet to fix it.

We had our warning back in 2008.

The too big to fail banks were in the headlines every single day and our politicians promised to fix the problem.

But instead of fixing it, the too big to fail banks are now 37 percent larger and our economy is more dependent on them than ever before.

And in their endless greed for even larger paychecks, they have become insanely reckless with all of our money.

Mark my words – there is going to be a derivatives crisis.

When it happens, we are going to see some of these too big to fail banks actually fail.

At that point, there will be absolutely no hope for the U.S. economy.

We willingly allowed the too big to fail banks to become the core of our economic system, and now we are all going to pay the price.

2013: The End of the Beginning

Off the keyboard of Gail Tverberg

Published on Our Finite World on January 6, 2013

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We have been hearing a lot about escaping the fiscal cliff, but our problem isn’t solved. The fixes to date have been partial and temporary. There are many painful decisions ahead. Based on what I can see, the most likely outcome is that the US economy will enter a severe recession by the end of 2013.

My expectation is that credit markets are likely see increased defaults, as workers find their wages squeezed by higher Social Security taxes, and as government programs are cut back. Credit is likely to decrease in availability and become higher-priced. It is quite possible that credit problems will adversely affect the international trade system. Stock markets will tend to perform poorly. The Federal Reserve will try to intervene in credit markets, but if the US government is one of the defaulters (at least temporarily), it may not be able to completely fix the situation.

Less credit will tend to hold down prices of goods and services. Fewer people will be working, though, so even at reduced prices, many people will find discretionary items such as larger homes, new cars, and restaurant meals to be unaffordable. Thus, once the recession is in force, car sales are likely to drop, and prices of resale homes will again decline.

Oil prices may temporarily drop. This price decrease, together with a drop in credit availability, is likely to lead to a reduction in drilling in high-priced locations, such as US oil shale (tight oil) plays.

Other energy sources are also likely to be affected. Demand for electricity is likely to drop. Renewable energy investment is likely to decline because of less electricity demand and less credit availability. By 2014 and 2015, less government funding may also play a role.

This recession is likely be very long term. In fact, based on my view of the reasons for the recession, it may never be possible to exit from it completely.

I base the foregoing views on several observations:

1. High oil prices are a major cause of the United States Federal Government’s current financial problems. The financial difficulties occur because high oil prices tend to lead to unemployment, and high unemployment tends to lead to higher government expenditures and lower government revenue. This is especially true for oil importers.

Figure 1. US Government Income and Outlay, based on historical tables from the White House Office of Management and Budget (Table 1.1). *2012 is estimated. http://www.whitehouse.gov/omb/budget/HistoricalsFigure 1. US Government Income and Outlay, based on historical tables from the White House Office of Management and Budget (Table 1.1). *2012 is estimated by OMB. http://www.whitehouse.gov/omb/budget/Historicals

2. The United States and world’s oil problems have not been solved. While there are new sources of oil, they tend to be sources of expensive oil, so they don’t solve the problem of high-priced oil. Furthermore, if our real economic problem is high-priced oil, and we have no way of permanently reducing oil prices, high oil prices can be expected to cause a long-term drag on economic growth.

3. A cutback in discretionary spending is likely. US workers are already struggling with wages that are not rising as fast as GDP (Figure 2). Starting in January, 2013, US workers have the additional problem of rising Social Security taxes, and later this year, a likely cutback in government expenditures. The combination is likely to lead to a cutback in discretionary spending.

Figure 2. Wage Base (defined as sum of "Wage and Salary Disbursements" plus "Employer Contributions for Social Insurance" plus "Proprietors' Income" from Table 2.1. Personal Income and its Distribution)  as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.Figure 2. Wage Base (sum of “Wage and Salary Disbursements” plus “Employer Contributions for Social Insurance” plus “Proprietors’ Income” from Table 2.1. Personal Income and its Distribution) as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.

4. The size of our current financial problems, both in terms of US government income/outgo imbalance and debt level, is extremely large. If high oil prices present a permanent drag on the economy, we cannot expect economic growth to resume in a way that would fix these problems.

5. The financial symptoms that the US and many other oil importers are experiencing bear striking similarities to the problems that many civilizations experienced prior to collapse, based on my reading of Peter Turchin and Sergey Nefedov’s book Secular Cycles. According to this analysis of eight collapses over the last 2000 years, the collapses did not take place overnight. Instead, economies moved from an Expansion Phase, to a Stagflation Phase, to a Crisis Phase, to a Depression/Intercycle Phase. Timing varies, but typically totals around 300 years for the four phases combined.

It appears to me that the corresponding secular cycle for the US began in roughly 1800, with the ramp up of coal use. Later other modern fuels, including oil, were added. Since the 1970s, the US has mostly been experiencing the Stagflation Phase. The Crisis Phase appears to be not far away.

The Turkin analysis started with a model. This model was verified based on the experiences of eight agricultural civilizations (beginning dates between 350 BCE and 1620 CE). While the situation is different today, there may be lessons that can be learned.

Below the fold, I discuss these observations further.

 

Issue 1. High oil prices tend to lead to government financial problems.

Food prices tend to rise at the same time as oil prices, partly because oil is used in the production of food (for example, plowing, irrigation, herbicides and insecticides, harvesting, transport to market). Also, because oil is in short supply, corn is now being grown for use as ethanol to be used as a gasoline-extender. Growing additional corn puts pressure on food prices, because it drives up the price of land and encourages farmers to put more land into corn production, and less into other crops.

The reason governments are affected by high oil and food prices is as follows. When oil and food prices rise, buyers cut back in discretionary spending, so as to have enough for “basics,” including food and commuting expenses. Workers are laid off in discretionary industries, such as vacation travel and restaurants. These laid off-workers pay less taxes, and sometimes default on loans. Governments are quickly drawn into these problems, for two reasons:

  1. Their tax revenue is lower, because of layoffs in discretionary sectors.
  2. Their expenditures are higher, because of the need to pay more unemployment benefits, provide economic stimulus, and bail out banks.

Oil importers are especially affected, because they are also paying out funds to oil exporters. The countries with well-publicized financial problems (including several European countries, the United States, and Japan) tend to be major oil importers.

Oil exporters are not adversely affected to the same extent, because they have additional revenue from higher prices on oil they are exporting. They may still be somewhat affected because of rising food prices, and the fact that higher oil revenues do not necessarily go to those buying food. A recent study shows that food shortages helped trigger the Arab Spring protests.

Part of the reason that the impact of high oil prices is as severe as it is, is because there are many follow-on effects. For example, if oil prices rise, the price of shipping goods of all types rises. If businesses are able to pass through these higher costs, discretionary income of buyers for other goods falls. If not, businesses find that their higher costs lead to lower profits. To bring profit margins back up to an acceptable level, businesses may lay off workers.

As another example, prices of homes are likely to be adversely affected by high oil prices, because a family with inadequate discretionary income will forgo moving to a larger home, and may even default on a mortgage.

It should be noted that the impact of high oil prices doesn’t completely go away unless oil prices go down and stay down. Businesses can partly mitigate the impact of high oil prices by laying off workers in discretionary segments. Some businesses will fail completely, however. Replacement may be by an overseas company, with a lower cost structure that uses less oil. See my post on energy leveraging.

Workers generally must permanently adjust their budgets to higher food and oil prices. This is often difficult to do. The lack of jobs is a particular problem–something that workers cannot fix by themselves. Government programs can mitigate the job shortfall, by paying benefits to unemployed workers and by reducing interest rates, so that businesses can more easily make investments that will lead to more employment. These programs are costly, though, and are a major cause of the current mismatch between government income and expense.

Issue 2. World oil problems have not been solved.

There have been a number of reports this years, such as one by the International Energy Agency, seeming to suggest that the world oil problem has been solved. These analyses are incomplete. They do not recognize that our real problem is a financial problem. Our economy (everything from interstate highways to electric transmission to Social Security programs) was put in place using cheap ($10 or $20 barrel) oil. Shifting to today’s high cost of oil (up near $100 barrel) causes severe economic dislocations. There is no more cheap oil to be found, however, because oil companies extracted the cheapest to extract oil first and now the “easy oil” is gone.

The impression one gets from reading the papers is that US oil production is having a huge impact on world oil production. If a person looks at the numbers, world oil production is close to flat. Rising US production makes up for falling European production, but doesn’t do a whole lot more.

Figure 3. World crude oil production, based on EIA data. *2012 estimated based on partial year data.Figure 3. World crude oil production, based on EIA data. *2012 estimated based on partial year data.

The rise in United States oil production is indeed somewhat helpful, but we are still many years away from being “energy independent” and even farther from becoming “oil independent.” The real issue is high oil prices, and these are not being fixed.

Figure 4. US crude oil prices  (based on average prices paid by US refiners for all grades of oil based on EIA data) converted to 2012$ using CPI-Urban data from the US Bureau of Labor Statistics. Figure 4. US crude oil prices (based on average prices paid by US refiners for all grades of oil based on EIA data) converted to 2012$ using CPI-Urban data from the US Bureau of Labor Statistics.

Our financial problems are here and now, in 2013. Promises of hoped-for higher oil production in several years at a still very high price don’t fix today’s financial problems. In fact, they will likely continue to contribute to financial problems in the future.

Issue 3. Declining wages and increased taxes can be expected to lead to a decline in discretionary spending.

As indicated at the beginning of the post, wages (including earnings of businesses owners considered as “proprietors,” but not including “transfer payments” such as Social Security and unemployment insurance) have not been growing as fast as GDP since 2000. Below is a repeat of Figure 2 shown at top of post.

Figure 2. Wage Base (defined as sum of "Wage and Salary Disbursements" plus "Employer Contributions for Social Insurance" plus "Proprietors' Income" from Table 2.1. Personal Income and its Distribution)  as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.Figure 2. Wage Base (sum of “Wage and Salary Disbursements” plus “Employer Contributions for Social Insurance” plus “Proprietors’ Income” from Table 2.1. Personal Income and its Distribution) as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.

There seem to be several reasons behind this decline. One reason, already mentioned, is high oil prices leading to US layoffs, because of decreased discretionary expenditures.

Another reason for the decline is increased automation. Electricity can often be substituted for human labor, reducing costs, but also reducing jobs. Economists seem to term this change higher labor productivity. They also seem to believe that new jobs will appear from somewhere, but in practice, this is not happening. Instead, lack of jobs is part of what is leading to recessionary influences.

Another reason for the decline is increased competition from countries with lower labor costs and lower fuel costs. China joined the World Trade Organization in December 2001, and its manufacturing (and thus use of fuels) increased dramatically shortly thereafter.

Figure 5. China's energy consumption by source, based on BP's Statistical Review of World Energy data. Figure 5. China’s energy consumption by source, based on BP’s Statistical Review of World Energy data.

Another reason is demographic. Baby boomers are reaching retirement age. This has already begun affecting the number of individuals who retire each year. In the future, the number of retirees can be expected to increase further.

In total, we see a very large drop in the percentage of US citizens with jobs, starting about 2000 (Figure 6). This is very close to the time that China ramped up its growth (Figure 5).

Figure 6. US Number Employed / Population, where US Number Employed is Total Non_Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census.  2012 is partial year estimate.Figure 6. US Number Employed / Population, where US Number Employed is Total Non_Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census. 2012 is partial year estimate.

In calendar years 2011 and 2012, workers’ contributions for Social Security funding were temporarily reduced by 2% of wages, as a way of stimulating the economy. As of January 1, 2013, this temporary reduction was removed. For a couple with combined wages of $100,000, take-home pay is thus being decreased by $2,000 per year. With less disposable income, workers can be expected to cut back somewhere–buying a larger home, buying a new car, or going out to eat.

So far, only a small amount of other tax increases have been put in place, and only a few cuts have been made. More tax increases or benefit cuts will be needed later this year to bring revenue and expense into better alignment. Any such change will tend to have a recessionary impact, because citizens’ discretionary incomes will be affected.

Issue 4. The spending gap and the amount of debt look too big to be fixable without excellent economic growth.

As noted above, wages have not been keeping up with GDP. The majority of federal taxes are based on wages, so in my comparisons, I use wages, rather than GDP, as a base.

If we use the wage base from Figure 2, the amount of government outgo vs income (all levels, not just federal) is as follows:

Figure 7. US Government Spending (all levels) as percentage of Wage Base, as defined in Figure 2, above. Figure 7. US Government Spending (all levels) as percentage of Wage Base, as defined in Figure 2, above, based on US Bureau of Economic Analysis data.

Based on Figure 7, the issue in recent years has been primarily rising expenditures. These higher expenditures would seem to be partly because of high-priced oil, but also because of other influences noted above that are leading to declining employment. The amount of the gap is close to 15% of wages–something that is very hard to fix. Even the current increase in Social Security taxes (“only” 2% of wages) will exert downward pressure on discretionary spending.

A related issue is that compared to wages (using the same wage base as in Figure 2), debt of all kinds is extremely high.

Figure 8. US Debt as a Percentage of the Wage Base, where the Wage Base is as defined in Figure 2, and Federal Debt is from Treasury Direct, and other types of debt are from the Federal Reserve Z.1 report. Figure 8. US Debt as a Percentage of the Wage Base, where the Wage Base is as defined in Figure 2, and Federal Debt is from Treasury Direct, and other types of debt are from the Federal Reserve Z.1 report.

Government debt is in now more than household debt of all kinds, including mortgage, credit card, auto, and student loans. It is close to two times the wage base used in this analysis.

One issue with paying down debt is that during the pay-down period, the government (or individual) reducing the debt “feels poorer,” because funds available for spending on goods and services needed today is lower. This happens because some current tax revenue, or some current wages, must be used to pay down debt, and thus is not available for today’s spending. This is a turn-around from the increasing debt situation experienced many times in the past. For example, part of the reason times seemed good in the 2002-2006 period was because people were able to refinance their homes and use the funds to buy a new car or add on a family room. If we are forced to pay down debt, we have the reverse effect.

Issue 5. Similarity to “Secular Cycles” of Peter Turchin and Sergey Nefedov.

Throughout the ages, many economies that have experienced long-term expansion. Eventually, they reached limits of some sort and collapsed. The book Secular Cycles by Peter Turchin and Sergey Nefedov takes an analytical approach to looking such past cycle. They developed a fairly complex model of what they would expect over time, in terms of trends in wages, prices, population, income inequality, and other variables. They then examine historical records (relating to eight civilizations in four countries, with “start dates” between 350 BCE and 1620 CE) to see whether this predicted pattern was born out in practice. In general, the authors found good agreement with the predicted model.

Typically, civilizations analyzed were reaching upper limits in population growth because of limits on food availability, but sometimes limits on water or fuel also were important. The model predicted four phases (expansion, stagflation, crisis, and depression/ intercycle). The typical length of the entire cycle was 300 years. The length of the various segments was fairly variable. The stagflation stage often lasted 50 or 60 years. The crisis stage tended to be shorter, more often in the 20 to 50 year range. There often was overlap between phases, with a civilization seeming to cycle back and forth between, say, expansion and stagflation.

In the model, there are various feedback loops. For example, as the number of workers rises relative to the amount of land, the price of land and food tends to rise. Jobs outside of agriculture do not rise proportionately, so wages of common workers tend to fall in inflation adjusted terms. With lower wages for common workers, nutrition declines. Eventually, the population becomes weakened, and population declines. There are also other players–the elite and the state itself.

Some characteristics of the four phases are as follows:

  1. Expansion phase (growth) – Increasing population, relatively low taxes, political stability, low grain prices, and high real (inflation-adjusted) wages.
  2. Stagflation phase (compression) – Slowing population growth, much heavier taxes needed to support a growing elite class, low but increasing political instability, rising grain prices, declining real wages for most workers, increasing indebtedness, and increasing urbanization.
  3. Crisis phase (state breakdown) – Population declining from the peak (typically by disease or by deaths from warfare), high income inequality, political instability increasing to a peak, high but very variable grain prices, high urbanization, tax system in a state of crisis, peasant uprisings.
  4. Depression/intercycle – Low population, attempts to restore state, declining economic inequality, grain prices decreasing but variable.

It seems to me that the United States and much of the world are going through a cycle much as described by Turchin. The Growth Phase of our current cycle seems to have begun around 1800, with the rise of coal use. Stagflation in the United States seems to have started with the drop in US oil production in 1970. All of the government budget and debt problems now seem to suggest that we are reaching the Crisis Phase.

Obviously, there are differences from the civilizations modeled, because we now live in a much more integrated world. Furthermore, earlier societies did not depend on oil and other modern fuels the way we do today. We do not know how the current situation will play out, but the comparison is concerning.

Financial Issues Affecting Energy Security

Off the keyboard of Gail Tverberg

Published on Our Finite World on November 6, 2012

Discuss this article at the Epicurean Delights Smorgasbord inside the Diner

Last week, I gave a talk called Financial Issues Affecting Energy Security at the Advances in Energy Studies conference in Mumbai, India. The general topic of the conference was, “Energy Security and Development-The Changing Global Context.”

As I look at the situation, it seems to me that many of the crises around the world are connected to oil supply and the cost of this oil supply. If oil supply gets tighter, there is potential for these crises to get worse. In this talk, I will also show the connection of oil supply limits to some of the financial crises we see today, and to energy security. I will also show some slides on the Indian oil and coal situation, and explain some connections to world limits.

World GDP, oil consumption, and energy consumption tend to move in tandem (Slide 2). While the figures shown above are for the world, the same situation tends to exist for smaller groupings as well. Countries with rapid economic growth tend to use a growing amount of energy, especially oil. This is logical, because making goods and services tends to use energy. For example, growing food and transporting it using modern methods uses oil.

Another reason energy consumption and growth in GDP tend to go together is because workers who earn a salary by making goods or services can afford to buy goods and services using oil and other energy products. For example, they may be able to afford to buy a car or to go on a vacation. People who have lost their jobs have much less to spend on goods and services. This is another reason energy (and oil) consumption tends to be higher when more people have jobs–that is during periods of economic growth.

Countries with little economic growth tend to be ones with little growth in oil consumption, and in energy consumption in general.

If we look at world oil supply and price (Slide 3), we see that there have been two big price spikes. The first one came in the 1970s and early 1980s, after the oil production of the United States began to fall in 1971. The United States found itself increasingly dependent on imports, leaving the door open for the Arab Oil Embargo. By the mid-1980s, the world got its oil supply problem under control, partly by drilling for oil in new places (North Sea, Alaska, and Mexico) and partly by finding ways to reduce oil consumption (smaller cars; shifting electricity production to coal or nuclear instead of oil).

In recent years, we are facing a second sharp rise in oil prices. This sharp rise really reflects both a “demand” and a “supply” problem:

(1) Demand. World demand for oil started rising sharply after China joined the World Trade Organization in 2001. China, India, and other Asian countries began rapid economic growth, leading to a greater need for oil and other energy products. Slide 3 shows world supply did not show any unusual “spurt” to meet this demand. Instead prices began to rise.

(2) Supply. To a significant extent, “The easy oil is gone“. What is left in the ground is oil that is both expensive and slow to extract. Two examples of such oil are “shale oil” and bitumen from the Canadian oil sands. Because of  high extraction costs, these types of oil need a high sales price to justify their extraction. In fact, a recent report indicates that costs in the Canadian oil sands are soaring. If growth in oil sands production is to continue at forecast levels, oil prices will need to be higher than has recently been the case.

If we look at a graph of growth in oil supply with fitted trend lines, we can see that the rate of growth has in fact been declining over time. This is precisely the opposite of what is needed to accommodate the energy needs of rapidly growing countries such as India and China, and is part of the reason for current high prices.

If we look at world oil consumption divided among three different parts of the world (Slide 5), we see three very different patterns:

(1) European Union, United States and Japan combined. Consumption has fallen since 2005. These are precisely the countries with serious recessions in the 2007-2009 period, when oil consumption was dropping rapidly.

(2) Former Soviet Union (FSU) – Consumption fell when the Soviet Union collapsed in 1991, and has never recovered.

(3) Remainder (many countries, including China, India, and oil exporters) – Consumption grows rapidly, year after year, even though world supply is not growing by much.

If world oil supply remains relatively flat (as is recently the case on Slide 4), and the growth pattern shown on Slide 5 continues, it is clear that there will soon be a conflict. Either the EU, US, Japan grouping will need to drop their consumption by more, or the “Remainder” group will need to slow down on their consumption, or both. This pattern could mean slower growth for the “Remainder” grouping, or outright recession for the European Union, US and Japan.

 In countries where oil prices are not subsidized, such as the European Union, the United States, and Japan, there are several basic issues:

(1) Because oil prices are not subsidized, higher oil prices are passed through to consumers. These higher prices lead consumers to cut back on discretionary expenses because oil is used for some of the necessities of life, including food production and commuting to jobs. As a result, people in discretionary industries, such as vacation travel, and restaurants, tend to be laid off. There may also be debt defaults, if laid-off workers cannot afford to repay loans. The combination of these factors leads to recession.

(2) Governments are affected, too, because laid-off workers pay less in taxes. Furthermore, laid-off workers often need unemployment benefits and other benefits to mitigate their circumstances. The government may also choose to “stimulate” the economy, or to bail out banks with bad loans. With all of the additional spending and less revenue, recessionary forces get transferred to the governmental sector. This is why so many governments are now troubled with high debt.

(3) In the Euro zone, counties in poor financial condition find it necessary to pay higher interest rates. adding to the country’s financial difficulties.  The US has been spared this problem so far, partly because it is viewed as a “safe haven” from Euro problems, and partly because it has the ability to manipulate the level of its currency.

Countries vary in their exposure to high oil prices. Oil importers who get a  large share of their total energy from oil (as opposed to other types of fuel) seem to be most at risk. The PIIGS (Portugal, Italy, Ireland, Greece and Spain) tend to be countries using large share of oil in their energy mix.  A country which can’t regulate its own currency, such as Greece and other Euro countries is at particularly high risk, because of the problem with higher interest rates mentioned earlier (because these countries cannot drop the value of their currency, to make their exports more competitive).

Eventually, it seems likely that high oil prices will affect all economies, even those of oil exporters. Extra funds from oil exports do not “make their way” to all consumers. So while some parts of an economy may be booming, others will collapse from lack of funds.

Greece provides an example of the dip in oil consumption that occurs when a country enters a recession. Greece’s largest industry is tourism. High oil prices affect consumers’ ability to purchase vacations in Greece. Large multinational companies (such as Coca Cola Hellenic) decide to move out, for more stability, further adding to the country’s problems. With less investment, the country has an even greater tendency to spiral downward.

Other European countries requiring bailouts tend to follow a similar pattern to Greece (Slide 9).

So far, we have been talking about countries which don’t subsidize oil prices. How about other countries?

One such country is Egypt (Slide 10). For quite some time, it was an oil exporter. It historically has subsidized both food and oil prices. It has run into problems recently because oil consumption has been rising at the same time that oil production has been falling. Without oil exports to sell, it is very hard to have enough money to fund subsidies of food and oil. Cutbacks in subsidies lead to civil unrest, and the situation starts going downhill quickly. I wrote a post about the Egypt situation earlier, What Lies Behind Egypt’s Problems?

India is not an oil exporter, but it has been subsidizing diesel prices. The graph shown on Slide 11 shows that oil consumption has been rising rapidly, while India’s own oil production has been almost flat. This combination is problematic, because it becomes very expensive to subsidize increasing imports. The growing gap puts pressure on the rupee. It also leads to deficit spending, which in turn leads to a lower sovereign debt rating.

India is now using more coal for generation than it is exporting. Furthermore, the rate of increase in supply and consumption seem to be diverging, with coal production recently becoming much flatter than consumption.

Coal imports cannot be expected to rise indefinitely. China and Europe are both interested in purchasing coal imports, so there is competition for available supply. Also, coal imports tend to be expensive, because of the cost of transport. Coal import costs put pressure on India’s financial condition, just as oil imports do.

Shortages of oil, coal and gas are already taking a toll on India’s economic growth, according to the Wall Street Journal: Grinding Energy Shortage Takes Toll on India’s Growth.

It seems to me that government officials are making plans for the future without really understanding what a limited supply of cheap oil means. What it means, in practical terms, is that governments and citizens will be poorer, rather than richer, in the future. There will be fewer people employed in jobs that require external energy (practically all jobs in Western countries today). Because of energy constraints, wages of most workers will tend to fall in inflation adjusted terms.

Governments will be particularly be affected, because there will be a drop in their tax revenue at the same time that there is more need for governmental services. It will be difficult to keep up pension programs and fuel subsidy programs. The higher cost of fuel (including cooking fuel, where there are subsidies) will mean that consumers will find fuel less affordable. Governments of countries that are particularly affected are likely to be subject to major changes, as citizens become increasingly unhappy with the status quo.

 We can look at countries such as Greece to get an idea of the more direct financial security impacts that we can expect. In Greece, we find that high solar feed in tariffs are increasingly a problem, and have recently been reduced. Two electricity companies that rely heavily on natural gas have gone bankrupt.  The possibility of rotating blackouts has been mentioned, if the country cannot afford to import high-priced natural gas and oil for electricity. As the highest cost-electricity becomes less affordable, an increasing proportion of electricity seems likely to come from the lowest cost fuel, locally produced lignite.

Also in Greece, non-payment of bills, theft of electricity, and theft of copper wire are already being reported as problems.

In Portugal, China recently bought an interest in the company operating Portugal’s electric grid. The sale was necessitated by the poor financial condition of the company.

Civil unrest is increasingly becoming a problem in countries with shortfalls in affordable energy. Greece. Spain, and Egypt all report civil unrest. If nothing else, such unrest could lead to damage to energy structures, such as electric power plants, including nuclear plants.

As there is more competition for limited resources, the world as we have known it is likely to change. Willingness to accept foreigners into one’s country will decline, if there are not enough good-paying jobs to go around. There will be direct conflict over resources, such as China and Japan’s recent oil dispute.

The Euro zone brought together unequal countries, nearly all of which were short on energy supplies. Now, we are hearing increasing reports about the possibility of the Euro zone’s financial disintegration.

Even within countries, there is the possibility of rich areas wanting to be free from  areas which are less well off. We see this dynamic playing out as there are growing calls in Catalonia for independence from Spain.

As countries face the need to cutback, rather than grow, world trade can be expected to decline. In fact, the Wall Street Journal recently reported, “World Trade Volumes Decline for Third Month.” While it is not certain the current dip will continue, this is a pattern we can expect to see again. Conflict between countries, such as we are seeing between Japan and China, can be expected to lead to a drop in trade. The need for austerity measures in countries with financial problems is also likely to lead to a drop in trade.

While it would be nice to assume “Business as Usual” will continue, and “a rising tide will lift all boats,” these situations look increasingly less likely. What we are instead seeing is that a lowering tide can adversely affect the energy security of many countries at the same time. This is not an easy thought to consider, especially for a country such as India,  whose per-capita energy use lags far behind the world average.

High-Priced Fuel Syndrome

Off the keyboard of Gail Tverberg

Published on Our Finite World on September 26, 2012

Discuss this article at the Epicurean Delights Smorgasboard inside the Diner

Governments and economists around the world have not figured out that what the world economy is suffering from, to varying degrees, is “high-priced fuel syndrome“.

High-priced fuel syndrome has a number of symptoms:

  • Slow economic growth, or contraction
  • People in discretionary industries laid off from work
  • High unemployment rates
  • Debt defaults (or huge government intervention to prevent debt defaults)
  • Governments in increasingly poor financial condition
  • Declining home and business property values
  • Rising food prices
  • Lower tolerance for immigrants
  • Huge difficulty in funding retirement programs, programs for disabled, and regular pension plans
  • Rising international tensions related to energy supply

The countries with the most problem with high-priced fuel syndrome are the industrialized countries that are big importers of oil. This is the case because oil has been a particularly high-priced fuel in the past few years. Importing high-priced oil adds challenges of its own, since funds used for imported oil flow out of the country.

Figure 1. Historical inflation adjusted oil price per barrel, (Brent equivalent in 2011$), based on amounts shown in BP’s 2012 Statistical Review of World Energy.

While oil is the biggest culprit in high-priced fuel syndrome, high-priced fuels of other sorts can play a role as well. Natural gas is recently high-priced in Europe and Japan, but not the USA. The higher natural gas price contributes to a higher average energy cost level for these countries.  High-priced renewables, such as off-shore wind and solar photovoltaic, can be expected to act in a similar fashion, because they add to the price challenge customers face.

At this point, Europe is hardest-hit by high-priced fuel syndrome. In part this is because Europe is a big importer of both oil and gas,  and both are high-priced. European countries have also encouraged the use of high-priced renewables, adding to their difficulties.

While many people have laughed at the issue of the world “running out of oil” (or natural gas, or some other substitute fuel), it seems to me that they have basically missed the point. There is always lots of fuel in the ground, or available through devices we create that produce “renewable” fuel. The major issue is that the fuel becomes too expensive for the economy to afford.

The United States, Europe, and Japan were industrialized back when fuels were cheap, in the pre-1972 era (Figure 1, above). The cost structure of government welfare programs (such as Social Security, Medicare, unemployment) also assume that the economy will continue as it did with low-priced fuels. Substituting ever more-expensive fuels can be expected to push a country toward economic contraction, reduction in programs that the economy can no longer afford, and the symptoms listed above.

Why We are Encountering Rising Fuel Prices

When companies begin extracting oil (or natural gas, or coal), they start with the easiest, cheapest-to-extract first. In Figure 2, oil (or natural gas or coal) extraction starts at the top of the triangle, and gradually works down the triangle.

Figure 2. Author’s illustration of impacts of declining resource quality.

As we require more and more fuel, we gradually seek out less-desirable sources of fuels. These fuels tend to be slower to extract, and are more expensive for what we get. They are often more polluting as well.

Oil is the fuel that we recently have had a problem with easy-to-extract supply running low. We had a somewhat similar problem in the mid 1970s and early 1980s. At that point there was still plenty of cheap oil left in areas where we had not yet drilled (Alaska, North Sea and Mexico, for example), so the problem was temporary, lasting only until we could drill more oil.

This time, the problem seems to be permanent. The chief executives of oil companies Total and Shell have been quoted as saying, “The days of so-called ‘easy oil’ are over, making it harder to meet demand without complicated and expensive projects.”(Voss, 2007). Examples of such expensive-to-extract oil include deep-water oil and tight oil that must be “fracked”. The fact that the cheap oil is mostly gone is the major reason why oil prices are higher than they were five or ten years ago. If oil prices had not risen, it is likely that the amount of oil extracted each year would be declining.

There are alternative fuels such as ethanol and biodiesel, but they also tend to be expensive.

Natural gas and coal aren’t immediate substitutes for oil. For example, they won’t act as fuels in most of today’s cars, trucks and airplanes. While there are long-term possibilities for substitution, the high-priced fuel syndrome is today’s problem, not a future problem.

Rising Fuel Costs Cause the Economy to Contract

There are a number of ways rising fuel costs can cause the economy to contract. The problem is that consumers’ incomes don’t rise, just because oil prices rise. If consumers are required to pay more for a necessity, they will cut back on discretionary goods and services. A few examples:

Food prices. If oil prices rise, the price of food tends to rise as well, because oil is used in many ways in producing food: cultivation of fields, planting fields, chemical sprays (herbicides, pesticides), transporting soil amendments, harvesting fields, and transporting food to market.

Figure 3. Comparison of Food and Oil Prices. Food Prices indices are as published by the Food and Agriculture Organization (FAO) of the United Nations, available at http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/
Oil prices are monthly average Brent Oil spot prices, as published by the US Energy Information Administration. http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=rbrte&f=m

Low-income customers tend to be disproportionately affected by rising food prices. They especially tend to cut back on discretionary spending, such as buying a car or going out to a restaurant, in order to be able to afford enough food. As a result, workers in discretionary industries are laid off.

Commuting cost. If oil cost rises, the price of auto travel rises. Some auto travel, particularly commuting, is a necessity. Consumers, particularly lower-income consumers, tend to cut back on discretionary spending, such as vacation trips, to afford essential trips.

Businesses. Businesses are affected in multiple ways by rising oil prices. First, businesses in discretionary industries find that their “unit-sales” are down, because customers are spending more on food and commuting, as a result, need to cut back elsewhere. Lower unit-sales are likely to lead to lay-offs.

In many instances, businesses also use oil directly in the products they sell. For example, airlines use jet fuel. If oil prices rise, they have they either face lower profits, or need to raise prices to recoup their higher costs. This type of price increase further stresses customers’ budgets.

Electricity. While the current US problem is oil prices, rising electricity prices would be expected to have a similar effect. Every business today uses electricity in various ways–electric lights, running computers, running elevators, operating tools of various sorts. If electricity costs rise because of higher natural gas prices or because of greater renewable surcharges, it will raise the cost of the product produced.

Businesses again have the choice of raising the price to consumers, or facing declining profits. If they raise prices, they will be less competitive with suppliers from other countries, who may not be facing rising electricity costs, if their source of electricity (perhaps coal or nuclear) is not rising in price as fast.

If electricity prices rise, consumers’ budgets will be stressed in a similar way to the way that they are stressed by rising oil prices. This, too, can be expected to lead to a cutback in discretionary expenditures.

Follow-on effects. Laid-off workers may move in with relatives and cut back on driving to save on costs. This helps reduce demand for both homes and automobiles. With less demand for homes, housing prices may decline, especially in parts of the country with significant layoffs and plentiful housing supply.

Laid-off workers may default on loans, creating financial distress for banks. Even people who still have jobs may find the hours they work reduced, so that their take-home pay is lower. They too may cut back on discretionary expenditures.

Impact on Governments

Governments suffering from high-priced energy syndrome can expect a number of negative impacts:

  1. Laid-off workers expect to collect unemployment benefits. If there are other kinds of benefits that they might collect under some other program (disability, retirement, low-income assistance), they will want them as well.
  2. If citizens are working fewer hours or laid off, the amount of taxes they pay is lower.
  3. Banks and other industries are likely to need bailing out, as borrowers default on loans.
  4. The government will be faced with direct increases in costs, because the government uses oil to fuel its autos and jets.
  5. The government will face increasing costs on products it buys that use oil, such as asphalt for highway projects.
  6. Local governments may face reduced tax revenue because of declining home and business property values.

Figure 4 below shows US Federal Government Income and Outlays, in recent years:

Figure 4. US Government Income and Outlay, based on historical tables from the White House Office of Management and Budget (Table 1.1). *2012 is estimated. http://www.whitehouse.gov/omb/budget/Historicals

It is clear from Figure 4 that income had dropped at the same time outlay has risen. Even though the crisis is supposedly past, there is still a huge gap between income and outlays. Outlays in recent years are higher than would be expected based on pre 2005 trends, while revenues are lower than would be expected. Revenue would need to be more than 50% higher, to match outgo, for 2009 through 2012 fiscal years.

The amounts shown in Figure 4 are consolidated, so include programs such as Social Security and Medicare, besides “on budget” spending. How many readers could afford to contribute 50% more than they currently pay for the sum of (Federal Income Taxes + Social Security + Medicare funding)? If the government were to actually raise taxes this much, there would be a huge new round of lay-offs, because consumers would find their after-tax income much reduced, leading to even more cuts in discretionary spending.

Needless to say, the US government will do everything in its power to cover up its problems. In a later section, we will discuss how this huge deficit is being hidden.

Note that the only years during which US Federal Government income exceeded outgo in Figure 4 are 1998 through 2001. These years approximately coincide with the time period when historical oil prices were at the lowest level in recent years (Figure 5, below).

Figure 5. Historical average annual oil prices, (“Brent” or equivalent) in 2011$, from BP’s 2012 Statistical Review of World Energy.

Impacts of the Oil Price Increase in 2006 – 2008 Period

While most people now don’t think of oil prices in 2006 as being high, according to Figure 5, oil prices already had more than doubled from 2002 levels by 2006. If we look back at the financial situation in 2006-2007, we see impacts very similar to what we would expect from rising oil prices.

Sub-prime borrowers began to default as early as 2006 (Bernanke, 2007). As mentioned earlier, it was people who were on the “edge” financially who were most at risk of defaults on home loans. Sub-prime borrowers would seem to be on the “edge” financially and thus were particularly as risk, because they lacked the financial qualifications to obtain “prime” interest rates.

Figure 6. S&P/ Case-Shiller 20 City Home Price Data, using seasonally adjusted data. June 2006 is the peak month. Data from http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff–p-us—-

Home prices started to drop in 2006 as well (Figure 6, above), and they haven’t been able to recover yet. We don’t think of homes as being discretionary spending items, but people can’t move into more expensive homes unless their incomes are rising. First-time buyers will also tend to put off purchases, if their financial situation is tight. The construction industry was one of the industries to face large lay-offs.

Defaults on loans caused considerable problems in the financial industry. “Short sales” (in which the sales price of a home is insufficient to pay off the remaining mortgage because the price of a home has fallen) also caused losses to the financial industry. The financial system was not set up with the idea that there may be a systemic problem of this sort. As a result, many banks found themselves in financial difficulty and needed governmental bailouts.

Other industries, such as auto manufacturing and insurance, also required bailouts. These patterns are precisely what one might expect from rising oil prices.

I make arguments similar to these in Oil Supply Limits and the Continuing Financial Crisis. James Hamilton (2009) has shown that the rise in oil prices alone were sufficient to bring on recession in the 2007-2008 recession.

One other important factor also affecting the 2006 to 2008 period was target interest rates. The Federal Reserve Open Market Committee (FOMC) raised interest rates during the 2004 to 2006 period (Figure 7, below).

Figure 7. Intended Federal Funds Interest Rates, as set by the Federal Reserve Open Market Committee http://www.federalreserve.gov/monetarypolicy/openmarket.htm

The basic idea in manipulating interest rates is that low interest rates are supposed to increase economic activity, because low interest rates make it less expensive to buy a car, using a loan, or to take out a home improvement loan. They also make it less expensive for businesses to finance expansion with a loan. Higher interest rates are supposed to decrease economic activity, because of the opposite impact.

Ludlum (2009) reviewed the minutes of the Federal Reserve Open Market Committee (FOMC). The FOMC noticed rising energy and food prices as early as December 9, 2003. It wasn’t until June 2004, though, that the FOMC first raised interest rates, in an attempt to “damp down” demand for oil. The committee’s view (not stated in the minutes, but implied by rising interest rates) was that the rapid expansion of the US economy was leading to rising oil and food prices. The expectation was that raising interest rates would damp down US demand for oil, and bring inflationary pressures affecting oil prices under control. The FOMC continued to raise interest rates by 0.25% at each of its meetings (the minutes repeatedly comment about rising energy and food prices), until the target interest rate reached 5.25% in June 2006). The FOMC did not start bringing interest rates down again until September 2007.

If the problem were really rising US demand for oil, this approach might have worked. In fact, the real issue was rising oil demand elsewhere, especially China, India and other Asian countries. China had joined the World Trade Organization in December 2001, and was ramping up its exports starting in 2002 and 2003. It also didn’t help that world oil supply was not rising very quickly, so rising demand led to rising oil prices.

Figure 8. Oil Consumption for Selected Areas, based on BP’s 2012 Statistical Review of World Energy

The combination of higher interest rates and rising oil prices provided a “double whammy” to the US economy, helping push the US economy into recession. Europe and Japan also experienced major recession. The parts of the world with rapidly growing oil consumption generally did not experience recession.

The Growing Economy Problem

At least part of the reason for the High-Priced Fuel Syndrome is the fact that with all of the world’s debt, there is a need for growth to continue indefinitely. In a growing economy, it is as if we can always “borrow from the future,” because the future is always bigger and better than the past. We start running into huge problems if this is not true.

Figure 9. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Part of the problem is that repaying loans is difficult in a shrinking economy (Figure 9), because less funds are “left over” after loan repayment. If we think of the situation as a government whose revenues start declining, we can understand what the problem is with repaying debt, plus interest on that debt. (Arguably inflation could play a role for a while, but lenders soon would catch on, and require higher interest to compensate for inflation.)

As long as the economy grows each year (and government revenue is higher), it makes sense for the government (and many others) to keep borrowing.  But if the economy starts shrinking, we have a serious issue, because the government not only needs to stop borrowing more, but it also has to face the prospect of repaying what it already owes.

The situation is not too different for individual borrowers and for businesses. For individual borrowers, the risk is of being laid off from work, and not being able to find new job. For businesses, it is the risk of fewer buyers for their products, and because of this, less revenue in the future. With less revenue, fixed costs become a larger and larger share of total revenue, making it harder to repay debt.

Thus, in a shrinking (or even a flat) economy, debt defaults become more and more of a problem. Banks find themselves in more and more financial difficulty. This is basically the issue referred to earlier, with respect to high oil prices causing loan defaults.

Paying for Social Security and Medicare benefits is another area where growth makes a big difference. If an economy is growing, there is always a growing population of young workers to pay for benefits to the elderly. If the number of workers shrinks relative to the retired population because of high unemployment or few children, funding becomes a problem. This is yet another area where we have been counting on growth to continue indefinitely, to keep the model functioning as planned.

Recent Government Cover Up of High-Priced Fuel Syndrome

We noted above that the Federal Reserve raised interest rates in the 2004 to 2006 period, in an apparent attempt to damp down oil demand. Starting in September 2007, the FOMC took the opposite tack. Instead of raising interest rates, they brought them down, bringing them as close to zero as they could by late 2008. See Figure 7, above. The intent of this move was to stimulate the economy, by making borrowing less expensive.

Then the Federal Reserve decided to go further, and take up what it called Quantitative Easing, which is what other people call “printing money”—buying the government’s own debt, and some related debt.  Target interest rates affected only short-term debt. Through the use of Quantitative Easing, it hoped to lower longer-term interest rates, as well, and thus provide even more of the low-interest rate benefit to potential borrowers. The United Kingdom and the Eurozone are taking a somewhat similar approach.

A major reason for Quantitative Easing (besides the stated business reasons for decreasing interest rates) seems to be lowering the amount of interest payments that the government itself would need to pay. This would help reduce the big gap between governmental outgo and income (Figure 4, above).

A second reason for Quantitative Easing is that it was a way of enabling the huge amount of deficit spending taking place. Without Quantitative Easing, the government would have had to go, “hat in hand”, to the world market, asking for additional loans. There might be a possibility of not all of the loans being sold, or of higher interest rates being required. By buying back a large share of the US’s own debt, it was able to make certain that interest rates would stay low, and that there would be an adequate market for the debt.

Impacts of Government Cover-up

One problem with artificially low interest rates is that the interest rates, in effect, steal from one segment of society, and use it to subsidize a different segment of the economy. The segment of the economy that is “stolen from” consists of pension plans, and people who would otherwise be saving their money, perhaps for retirement, and would benefit from interest income. Part of the reason that pension plans are having so much difficulty with funding now is because of artificially low interest rates. Pensions plans will need to be bailed out, or contributions will need to be much higher, if the system continues with artificially low interest rates.

Another even more major problem is that without a return to growth, there is no nice way to end the low interest rate/Quantitative Easing policy. One possibility is that at some point, the dollar will drop relative to other currencies, and the price of imported oil will become even higher. This will make the situation worse.

Somehow the situation must be resolved. One possibility is that the government will greatly reduce benefits and raise taxes, so as to balance its budget. Alternatively, there could be a major governmental change, perhaps leading to a totally new governmental structure and different currencies. It is possible that there will be hyperinflation, or some type of break in international trade. Countries may trade more with trusted partners, or may require collateral for trade.

Impact of High-Priced Fuel Syndrome on Exporters

This post has mostly been about the impact of High-Price Fuel Syndrome on energy importers, such as the United States, Europe, and Japan. The situation isn’t quite as bad for energy exporters, but they are not completely spared.

Energy exporters are usually in a better position financially than importers, because they collect funds from the oil or other type of high priced energy they sell. These funds can be used to fund government programs. If the energy exporter is fortunate to still have some “cheap to extract” oil left, the energy exporter can perhaps subsidize oil prices for its own people. This approach works much better when population is relatively small, such as Saudi Arabia, than when population is large, such as Russia, because with subsidy, internal use tends to rise, and exports decline.

Even when a country is an energy exporter, high oil prices or other high energy prices can be a problem. One issue is that those who benefit from high oil prices (oil companies, oil workers, local economies, governments that tax oil production) are not the same as the economy in general. For example, if oil prices are high, the major producing areas, such as Alberta, Canada can benefit, even as the rest of Canada behaves much like an oil importer, with job losses.

Another issue is the one illustrated in Figure 3, that of food prices tending to rise as oil prices rise. The Middle East is an oil exporter, but a food importer. If food prices rise at the same time as oil prices, the government finds it necessary to cushion this cost increase for the poor. To do this, they must raise food subsidies, or increase the level of payments to those who are unemployed. Making these changes quickly is not necessarily easy. There is considerable evidence that the 2011 “Arab Spring” uprisings were related to high food prices (Lagi, 2011).

So even for oil exporters, high oil prices may lead to problems.

In Summary

In summary, we are running short of cheap energy, especially cheap oil. High priced oil (or high priced energy of any type) tends to slow down the economy, leading to economic contraction. Our financial system is not made for contraction. Ben Bernanke and others have used artificially low interest rates and Quantitative Easing to try to cover up our current problems, but this is not a long-term solution. At some point, the underlying problems will become evident, and some type of discontinuity will take place. The economic situation will change from one of growth to decline.

Our system of benefits and taxes to pay for those benefits is based on the cost structure that was possible with cheap energy, and the growth that was possible with cheap energy. Very major changes will be needed, if government outgo is to made to match income. Basic programs such as  unemployment, Medicare, and Social Security will either have to be reduced, or taxes raised substantially. Maintenance of huge amounts of infrastructure (such as roads, water and sewer pipelines, electricity transmission lines, and schools) can be expected to be increasingly expensive as well.

It is not clear exactly how the current situation will play out, but a return to cheap energy and robust economic growth seems very unlikely. A more likely outcome is a serious discontinuity, with affected countries much poorer afterward.

References: 

Bernanke, B. S., The Subprime Mortgage Market, Speech at the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition, May 17, 2007. Available at http://www.federalreserve.gov/newsevents/speech/bernanke20070517a.htm

Hamilton JH. Causes and consequences of the oil shock of 2007-08. Brook-
ings Papers on Economic Activity
:215e61. Accessible at http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2009_spring_bpea_papers/2009a_bpea_hamilton.pdf; Spring 2009.

Lagi M., Bertrand, K., and Bar-Yam, Y. The Food Crises and Political Instability in North Africa and the Middle East, Complex Systems Institute, 2012 Available at http://arxiv.org/pdf/1108.2455v1.pdf

Ludlum, S. Further Evidence of the Influence of Energy on the US Economy – Part 2, The Oil Drum, April 23, 2009. Available at http://www.theoildrum.com/node/5326

Tverberg, G. Oil Supply Limits and the Continuing Financial Crisis, Energy, 2012, 37 (27-34).

Voss S. and Patel, T. Total, Shell Executives Say ‘Easy Oil’ Is Gone (Update 1), Bloomberg, April 5, 2007 Available at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aH57.uZe.sAI

The Close Tie Between Energy Consumption, Employment, and Recession

Off the keyboard of Gail Tverberg

Published on Our Finite World on September 17th, 2011

Discuss this article at the Epicurean Delights Smorgasbord inside the Diner

The number of jobs available to job-seekers has been a problem for quite a long tine now—since 2000 in the United States, and longer than that in Europe. If we look at the percentage of the US population who are employed, it is now back to 1984 or 1985 levels.

Figure 1. Total number of individuals employed in non-farm labor, and reported by the US Bureau of Labor Statistics, divided by US resident population, as reported by the US Census Bureau.

I have run into a number of clues about what is happening. In this post, I’d like to discuss what I am seeing. Part of the problem is that high oil costs squeeze the economy, reducing employment. Part of the problem is growing trade with Asia. It is even possible that the Kyoto protocol (which the US did not sign) has something to do with what we are seeing. Let me start by explaining a fairly strange relationship.

A Strange Relationship – A Close Tie Between the Amount of Energy Consumed and the Number of People Employed

Since 1982, the number of people employed in the United States has tended to move in a similar pattern to the amount of energy consumed. When one increases (or decreases), the other tends to increase (or decrease). In numerical terms, R2 = .98.

Figure 2. Employment is the total number employed at non-farm labor as reported by the US Census Bureau. Energy consumption is the total amount of energy of all types consumed (oil, coal, natural gas, nuclear, wind, etc.), in British Thermal Units (Btus), as reported by the US Energy Information Administration.

I have written recently about the close long-term relationship between energy consumption and economic growth. We know that economic growth is tied to job creation, so it stands to reason that energy consumption would be tied to job growth1. But I will have to admit that I was surprised by the closeness of the relationship for the period shown.

This close relationship is concerning, because if it holds in the future, it suggests that it will be very difficult to reduce energy consumption without a lot of unemployment. It also would seem to suggest that a shortage of energy supplies (as reflected by high prices) can lead to unemployment.

Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and Less Energy Consumption

Suppose oil prices rise2. The critical issue is that consumers’ incomes do not rise at the same time. Consumers’ budgets get squeezed, and they cut back on discretionary spending. For example, they may go out to restaurants less, make fewer long-distance vacation trips, put off buying a new car, or contribute less to their favorite charities. Workers in discretionary sectors of the economy tend to get laid off, as a result. We have come to know this as part of recession.

(The impact of an oil price rise will be worse if other fuel prices, such as natural gas, rise as well. It will be mitigated, if natural gas prices are low, as they are in 2012 in the United States. Europe has much higher natural gas prices than the United States. This is big part of the reason why recessionary impacts are now worse in Europe than the United States.)

In the case of high oil prices and lay-offs, less energy of all types–not just oil–is used. Laid-off workers may move in with relatives, and thus reduce their living expenses. Each laid-off worker would have used oil to get to their job, and this will no longer be required. The jobs experiencing layoffs themselves may have required fuel use of various types, such as heat for buildings, fuel for airplanes, or electricity used in making new cars, and this is reduced as well.

There is also likely to be a link to housing prices. Moving up to a more expensive home is a discretionary expenditure. If people’s incomes are squeezed by high oil prices, and some are being laid off, there will be less demand for homes as well. This lower demand can be expected to reduce housing prices, especially in areas where commuting distances are longest (and thus, oil use for commuting greatest). There are also likely to be layoffs in the construction industry, as there is less demand for new homes and new buildings of all sorts.

As I have mentioned previously, James Hamilton (2011) has shown that 10 out of 11 recessions in the United States since World War II were associated with oil price spikes.

High Energy Costs in One Area Tend to Lead to Substitution to Places Where Energy Costs Are Lower

If there is a possibility of international trade, manufacturing and some types of services will tend to move to areas where costs are lowest. Part of these costs are energy costs. A manufacturer with cheap electricity costs will have an advantage over one with higher electricity costs. As energy costs rise (as they have in recent years), they get to be more important in determining where manufacturing will be done.

Besides direct energy costs, wages are another part of the difference in costs from one part of the world to another. Wages tend to be lower in the warmer areas of the world. In part, this is because energy from the sun provides much of the needed energy for heating homes, so there is less need for supplemental energy. This means that wages do not need to be as high for a comparable standard of living.

If we look at recent world energy consumption, we see rapid growth in energy consumption. This pattern is quite different from the US pattern we saw in Figure 2, which was much flatter.

Figure 3. World Energy Consumption based on BP’s 2012 Statistical Review of World Energy

Figure 4 below shows that there has been a striking difference in how energy consumption has grown in various parts of the world.

Figure 4. Energy Consumption divided among three parts of the world: (1) The combination of the European Union-27, USA, and Japan, (2) The Former Soviet Union, and (3) The Rest of the World, based on data from BP’s 2012 Statistical Review of World Energy.

Energy consumption has been quite flat in the grouping of industrialized countries I show first (European Union-27, USA, and Japan). The Former Soviet Union (FSU) collapsed in 1991, and the consumption for those countries has never recovered. Energy consumption for the “Rest of the World” has been increasing amazingly rapidly since 2002. The rest of the world includes China, India, Bangladesh, and many small countries, plus oil exporters, such as Saudi Arabia and Mexico. Although I don’t break it out separately on Figure 4, the increase in energy consumption since 2002 has been especially marked in Asia.

The “bend” in the line for “Rest of the World” energy consumption took place immediately after China joined the World Trade Organization in December 2001. If we look at China’s fuel consumption by itself, we see that its huge rise in energy consumption (Figure 5, below) came mostly from increased coal consumption starting at that time. Oil consumption also increased. Nuclear and renewables are too small to be visible on the chart.

Figure 5. China’s energy consumption by source, based on BP’s Statistical Review of World Energy data.

Other countries, especially Asian countries like India, also ramped up their energy consumption at a similar time. India also uses coal as its primary fuel, with 53% of its energy consumption in 2011 coming from coal (based on BP 2012 data).

While I don’t have employment data for Figure 4 groupings, I do have economic growth data (Real GDP is Gross Domestic Product, adjusted to remove effects of inflation), shown in Figure 6, below.

Figure 6. Three-year average real GDP growth for (1) EU-27, USA, and Japan, (2) Former Soviet Union, and (3) Rest of the World, based on data by Angus Maddison through 2008, and USDA since then.

Figure 6 indicates that the economy of the “Rest of World” has been growing much faster than the EU, USA, and Japan grouping since 2001. In fact the Rest of the World’s growth has been much faster for nearly the entire period shown on the graph. Based on the steeper rise in energy consumption of the “Rest of World,” in Figure 4 compared to the old industrialized countries grouping, this might be the predicted result.

One point that many people miss is that the Great Recession of 2007-2009 was to a significant extent a phenomenon of the older industrialized countries. EU, USA, and Japan all were hit very hard, while the “Rest of the World” almost sailed along. This can be seen in the energy consumption data on Figure 4, and the economic growth data on Figure 6.  The Rest of the World slowed down a bit, but even during that period, its growth rate exceeded the best growth rate of the EU, USA, and Japan grouping during the 1984-2011 period (based on Figure 6).

Is it Possible to Change the Relationship between Energy Consumption and Number Employed?

The answer is pretty clearly, yes, but lower wages may be part of the mix.

Let’s look at how the United States changed its energy consumption, per number of people employed, over time. If we go back to the 1949 to 1972 time period, we also see a close relationship ( R2 = 99%) between US energy consumption and employment, but it is a different close relationship than since 1982, (shown in Figure 2, near the top of this post).

Figure 7. Graph of amounts similar to Figure 2, but for the period 1949 to 1972.

During the 1949 to 1972 period, energy consumption was consistently rising faster than the number of people employed. Oil was cheap, as were other energy sources, so not too much thought was given to how efficiently it was used. Also, as we will see in Figure 9, wages for workers were rising much more quickly (in inflation-adjusted terms) than they have been in more recent times.

About 1972, we discovered we had a big problem:

Figure 8. US crude oil production based on data of the US Energy Information Administration.

Oil had been our largest source of energy, and our own domestic production was dropping quite rapidly. By 1973, the Arabs had discovered our vulnerability, and the 1973 Oil Embargo began, leading to a sharp rise in gasoline prices. The US Federal Government regulated oil prices from 1973 to 1981. At the same time, a major effort was made to switch oil use to another fuel whenever possible. Electricity generation was switched to include more coal and nuclear (based on EIA data), and to remove production using oil. There was great demand for more fuel-efficient cars, leading to the import of cars from Japan (a country that had been making smaller cars for years), and the down-sizing of US cars.

Figure 9. Employment and Energy Consumption using data similar to that used in Figure 2 and 7, but for the 1972-1982 time period.

As a result, the period 1972-1982 was a time when energy consumption was relatively flat, but employment rose. A big part of this rise reflected the addition of women who had not previously worked outside of the home to the work force. With the higher price of oil, salaries did not go as far, so having another family member working was helpful. According to Toosi, the percentage of women who were part of the workforce rose from 43.3%  in 1970 to 51.1% 1980. Wages of women were lower than those of men (Figure 10, below), helping to hold down the average wage.

Figure 10. US Median Wages, separately for males and females, in 2010$. Based on Census Historical Income Tables: People, Table P5 – Regions by Median Income and Sex.

Also, the wages of lower-paid men stopped rising in real (inflation-adjusted) terms. (The wages shown are Figure 5 are median wages–50% of wage-earners earn more than that amount and 50% year earn less.) Wages of high-paid workers, such as business executives and physicians (not shown on the chart), were still rising.

It is hard to tell what the relative impacts were of the many changes that took place in the 1972 to 1982 time period. Clearly, lower average wages (with more women in the work force) and flatter wages were a big part of the change. But there were other changes as  well, including more imported manufactured goods, changes to fuels other than oil, and more efficient use of oil, all contributing to the differences we see between Figure 2 and Figure 7. The US became a net importer during this period as well, and thus began running up external debt (based on US Bureau of Economic Analysis data).

Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing for some. I show the change in the relationship in another way in Figure 11. Here I show (energy consumption/number of people employed). It shows that energy consumption per employed person was rising prior to 1972, came down for a variety of reasons in the 1972-1982 period, and is now pretty close to flat (decreasing slightly).

Figure 11. Total US energy consumption divided by number employed. Energy consumption from US EIA, number of non-farm workers from US Bureau of Labor Statistics.

On a positive note, one factor that has helped keep quality of life up is increased efficiency in using energy. Homes are better insulated now. Home heating and cooling units are more efficient. Businesses have worked hard to keep energy use down, because energy is a major factor in their cost structure. For example, we read about airlines retiring their less fuel-efficient jets. Thus, even though energy consumption divided by number of workers is flat or trending slightly downward, our standard of living has risen considerably since 1970 or 1980.

Another thing that has helped improve living standards is the amount of manufactured goods we are now importing from China and other countries around the world, especially Asian countries. The amount of debt we need to keep amassing to buy all of the goods we buy abroad is a problem, however, because we are not earning enough to pay the full amount of these goods. If we could count on economic growth forever, perhaps we could simply “grow” out of this debt, but this seems increasingly unlikely, for reasons I will discuss in later posts.

The United States Hit Peak Percentage Employed in 2000

If we look at the percentage of the US population who have jobs outside the home (or self-employed farm workers), the trend is quite alarming (Figure 12):

Figure 12. US Number Employed / Population, where US Number Employed is Total Non_Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census. (This includes children and others not usually in the labor force.) 2012 is a partial year estimate.

While the percentage of people with jobs was rising between 1960 and 2000, in recent years it has dropped. The recent drop seems to be at least in part related to the shift in energy consumption growth (and jobs) to the “Rest of the World,” which includes China, India, and many other developing countries and oil exporting countries. Jobs that the United States would have had, seem to have been shifted elsewhere.

The percentage of US population employed outside the home or farm has grown for a very long time.  The increase started in the 1800s, as the use of coal allowed a reduction to the number of workers needed in farming, because it allowed more use of metals, enabled the use of electricity, and helped make farmers more efficient. See my post The Long-Term Tie Between Energy Supply, Population, and the Economy. See also Smil, (1994) and Lebergott (1966).  Later, women increasingly joined the work force, especially after World War II.

The combination of rising energy costs (especially oil) and increased international trade gave China and other Far Eastern countries an opportunity to ramp up their manufacturing and service industries (call centers in India, for example). Jobs migrated to China and to other countries with low energy costs (thanks to lots of coal in the mix) and low costs of  living, thanks in part to better solar heating.

There had always been some foreign trade, but the amount of trade increased in the late 1970s, when we started importing smaller cars from Japan, as well as more oil. It increased again later, especially after China entered the World Trade Organization in late 2001. US imports of goods and services increased from $54 billion in 1970,  to $291 billion in 1980, to $616 billion in 1990, to $1.4 trillion in 2000, and to $2.7 trillion in 2011 (US Bureau of Economic Analysis).

Other Observations

Role of World Trade. Figure 4 suggests that world trade makes a huge difference in the amount of energy consumed. If we truly wanted to reduce our energy consumption (which I doubt world leaders are really interested in), we could reduce world trade through taxes on imports, or some other mechanism. The number of people employed would likely drop as well, although perhaps part of the difference could be made up by greater efficiency and by lower wages for individual workers.

The important role of world trade also brings up another issue. If world trade were, for some reason, interrupted or seriously scaled back, this would likely significantly reduce energy consumption (and employment) around the world.

Energy Consumption vs Number of Jobs Patterns by Country will Vary. I have shown US data. Patterns in other countries are likely to vary, in part because of the different specializations (amount of services compared to manufacturing, for example) of different countries, and different wage levels in different countries.

Good Intentions Aren’t Always Helpful. The Kyoto Protocol with respect to Climate Change was adopted in 1997. Figure 4 and Figure 5 suggest that adding China to the World Trade Organization had far more impact, and in the opposite direction. In fact, additional carbon taxes on goods that require high energy input may have encouraged competition in countries without such controls. Furthermore, reduced oil consumption through, say, higher taxes on gasoline, left more oil on the world market, to be used by developing countries. (This is related to “inelastic supply” of oil. Reducing demand in one area leaves more supply for other areas.)

Figure 13. Actual world carbon dioxide emissions from fossil fuels, as shown in BP’s 2012 Statistical Review of World Energy. Fitted line is expected trend in emissions, based on actual trend in emissions from 1987-1997, equal to about 1.0% per year.

Figure 13  shows that while Kyoto Protocol may have helped reduce emissions in some countries, world carbon dioxide emissions have grown more than what would have been expected, based on the 1987-1997 trend in emissions. If the Kyoto Protocol influenced China’s and the rest of Asia’s decision to ramp up exports, this decision would have indirectly affected job availability in the United States, even if the US was not a signer of the Protocol.

The “Smaller Batch” Issue. If there is not enough energy to go around at prices people can afford to pay, recession seems to be nature’s way of fixing the situation. I compare the situation to a chemical formula, or to a cake recipe. If one necessary ingredient is in short supply, the economy behaves as if it is making a “smaller batch”. It contracts in a way that leaves out those who were most marginal to begin with–such as employees of discretionary industries, and borrowers who could only barely make payments on loans (subprime borrowers), and countries with the highest energy costs. Employment is reduced, and unemployed people tend to move in with friends or their family, to cut expenses. This reduces energy consumption.

Increased Wage Dispersion May Reflect Another of Nature’s Coping Mechanisms. In the animal kingdom, any “K-selected species,” such as a dog or cats or primates, (probably including humans), has an inborn instinct toward hierarchical behavior. The manifestation of this instinct tends to be greater as there is greater crowding, and greater competition for resources (Dilworth, 2009). The intent in the animal kingdom is survival of the fittest, with those at the bottom of the hierarchy being starved out, if there is not enough to go around.

It is striking to me that since the mid-1970s, we have seen what could perhaps be interpreted as increased hierarchical behavior in humans and corporations. Wage dispersion has tended to become greater since the mid-1970s, when we started encountering energy supply problems. We have also seen the growth of international businesses. These large businesses have been increasingly favorably taxed, because they can choose tax havens around the world to incorporate. All of these changes tend to concentrate wealth at the top, in large companies and in the wealth of high paid workers. Perhaps all of this is a coincidence, but the timing is striking.

Increased use of part-time and contract jobs might be considered a trend in this direction as well. Job sharing has been proposed as a way of dealing with having an inadequate number of jobs in the older industrialized countries, but this tends to act in the same way (pushes the wages of lower-paid workers down, while leaving the top wages untouched).

Economic Models. Economic models seem not to take into account the very substantial shift in percentage of the population employed. Part of economic growth on the “way up” was growth in the percentage of people employed. If economists miss this change, as well as the fact that the percentage now seems to be headed down, their models will be wrong. Expected economic growth may disappear.

The World War II baby boom generation is now reaching retirement age. This change will tend to push the percentage of population employed down further, all other things being equal.

Impact on Governments. If fewer people are employed, this is a problem for governments around the world. Governments in Europe are particularly affected now, partly because of the generous benefits they offer. The US budget deficit is very much related to this issue as well. I will write more about debt and government funding in another post.

Notes:

[1] The idea of looking at employment in relationship to the economy after reading Mario Giampietro and Kozo Mayumi’s book, The Biofuel Delusion: The Fallacy of Large-Scale Agro-Biofuel Production, Earthscan, 2009.

[2] While total energy costs are important, individual energy costs, such as gasoline cost, are important as well, because there is little short-term substitutability across sectors. For example, coal is not an option for running today’s gasoline-powered cars, and public transport is not an option in most of the US. If there is a long enough lead-time and citizens can afford the transition, substitutions might be made, but it is not something we can count very much in the short term.

Other References

Hamilton, J. D. Historical oil shocks. NBER working paper No. 16790. Feb 2011. Available from http://www.nber.org/papers/w16790.pdf

Toosi, M. A Century of Change; the US Labor Force 1950 to 2050, in Monthly Labor Review, Bureau of Labor Statistics, May 2002. Available from http://www.bls.gov/opub/mlr/2002/05/art2full.pdf

Smil, Vaclav, Energy in World History, Westview Press, 1994.

Lebergott, S. Labor Force and Employment 1800 to 1960, in Brady, D. S., Editor, Output, Employment and Productivity in the United States after 1800, National Bureau of Economic Research. (1966) Available at http://www.nber.org/chapters/c1567.pdf

Dilworth, C. Too Smart for Our Own Good, Cambridge University Press, 2009.

Financing the Industrial Revolution

Off the Keyboard of RE

Discuss this article at the Economics Table inside the Diner

Along with most of the rest of the Financial Bloggers out there, I make it a daily practice to scan the articles being posted on Zero Hedge.  the Tyler Durdens have a plethora of contacts in the World of Wall Street, so they are often the Blog that Breaks Big Newz first.

I no longer read the commentary there, and to be honest most of the time don’t even read the articles either, because mostly they fall into the category of Helicopter Ben/Super Mario Draghi bashing or Gold Bitchez! articles.  You pretty much know the spin that will come off the pages of any Tyler Durden article.

In the case of a recent article, Tyler quoted from Diapason’s Sean Corrigan and the whole excerpt was on the Home Page of Zero Hedge to read under the title of The Circular Logic And Prayer Tactics Of Draghi Queens, Sinomaniacs, And Other Orwellians

 

“Companies in the steel sector should be prepared for a long-term depression,” Zhang Changfu, secretary-general of the CISA, told media earlier.

Strange then, that the official data for July suggest that Chinese steel outout hit a new, all-time high of 61.7M tonnes during the month, the YoY increase making up no less than 99% of the entire global increment over the year. Why on earth would this be?

Chalk it up to moral hazard – specifically, the same zombifying belief shared by the whole motley crew of Sinomaniacs, Draghi queens, and QEasers everywhere; that bad news equals good; that, in true Orwellian fashion, ‘Weakness Is Strength’ – that any shortfall in voluntary demand will elicit a large enough crank of the printing press handle that the glut will soon be removed from the market and so obviate the need to undertake any painful restructuring, or to quit the business and release scarce resources for use by those with a genuinely viable business plan.

Back in metal-bashing business, Wang Lei, the head of a Shandong ore trading company, bemoaned the current adversity, telling Caixin:

“If you had iron ore [last year], you could hold it for a couple months and then sell it and earn $20 to $30 per ton easily. We bought ore for about $135 per ton, but no one will take it, even if we try to sell it at a loss.”

Wang and his friends apprear to have drawn a deangerous lesson from the events of 2008-9 though. As he told the magazine, Wang remembers watching the value of his company’s inventories decline rapidly in 2008 until the price bottomed at US$60 per ton the following year.

When the ore prices fell, he reminisced, he and his fellow trades were not pessimistic because they correctly assumed that the Chinese government would step in with an economic stimulus to offset the crisis and so revive demand. Sure enough, as the boom progressed, prices soared, reaching close to $200 a tonne in 2010, a level they revisited some 18 months ago, before policy began to tighten and the long slide to sub-$100 began.

So, once bailed out, always bailed out seems to be the guiding inference. Meantime, close your eyes and pray.

 

Why do I find this particular snippet interesting?   The reason is that embedded in this is how the whole Industrial paradigm got funded in the first place, and why the same old tricks aren’t working now.

The whole Industrial Revolution got funded by a few people who hold the power to issue essentially Infinite Credit.  Ever wonder where Henry Ford got the money to build his first Model T plants with his novel Production Line method?  Henry had gone BANKRUPT not once, but at least TWICE before he got Ford Motor Company off the ground making Affordable Carz.  Some websites put his Bankruptcies as high as 5 before getting Rolling.

Henry Ford

In 1893, Henry Ford was the chief engineer at the Edison Illuminating Company. Within nine years, Ford had built his first automobile, named the Quadricycle, and started the Detroit Automobile Company. A gifted engineer, Ford focused heavily on the mechanics of his auto, and completely ignored the idea of marketing   his invention. Ford’s first product failed to capture the public’s attention, and Ford was forced to leave his company and file bankruptcy. One year later, Ford started the Ford Motor Company and designed a car that broke the land-speed record. In 1908, Ford released the Model-T to an eagerly awaiting public, and changed the face of American industry.

Henry Ford

Filed Bankruptcy when his first automotive company failed. His second automotive company failed also. In June 1903, at the age of 40, he created a third company, the Ford Motor Company, with a cash investment of $28,000.00

He also apparently was nearly outta cash AGAIN before he started selling some Model Ts.  One suspects though had he gone BK again, he would have drummed up some more money AGAIN from “Investors”.

WTF was investing in this guy and why, after failing before?  Notice who Hank worked for as Chief Engineer?  The Edison Illuminating Company. Basically the same folks who backed Edison were backing Henry Ford.  Who backed Edison?

Edison General Electric
Edison’s businesses in Schenectady grew quickly.  He moved his underground tube company to Schenectady.  But Edison’s businesses were struggling financially.  His decision to stick to direct current hindered the success of his electrical and lighting companies.  Electric lighting was still expensive, affordable only by the wealthy.  Despite widespread interest, it was not available to the average person.
In 1889, Edison’s chief financial backer, J.P. Morgan, had concerns about the operation of Edison’s businesses.  He worked with some of Edison’s financial associates, including Samuel Insull, and created the Edison General Electric Company, a merger of Edison’s lighting and electric companies, which included the Edison Electric Light Company, Edison Lamp Works, and Edison Machine Works.

Unsurprisingly, J.P. Morgan was the primary backer, but all the Big Money names of the era were involved, the Vanderbilts, Astors, and of course the Rockefellers as well.  these are the folks who had the Open Tap to Unlimited Credit, which really was coming from over in Europe at the time.

Notice also that just like Henry Ford, Edison’s Electric Bizness ALSO had financial problems early on, yet he never went completely Outta Biz either.  Electricity remained available only for the Wealthy, it was not an every J6P sorta thing in those days powering Refrigerators and Plasma TVs.

Our Industrialist friends however were enamored of the Progress involved here, and with the spigot of Unlimited Credit available to them, BY GOLLY they were gonna MAKE IT WORK!

How to make it work though?  If J6P doesn’t have the MONEY to buy the Expensive Electricity, you can’t sell it to him.  So you first gotta make the Electricity CHEAP enough to buy, and that takes CHEAP ENERGY. Fortunately for said Industrialists of the era, they HAD a source of Cheap Energy, the Oil coming a bubblin’ up from Jed Clampett’s farm, which Standard Oil’s John D. Rockefeller handed Jed enough money to move to Beverly Hills while he pumped Jed’s old farm dry for its Oil.

Still though, even pricing out this Oil dirt cheap, unless J6P had money to buy it with he wasn’t going to be buying the Thomas’ Electricity OR Hank’s Carz!  So now you gotta get Money to the Customers, but of course you don’t GIVE it away, you LOAN it out.  Who do you loan this money to, and where do you get it from?

First and foremost, you loan the money to Goobermints to build roads and build an electric grid.  You create the money on a Balance Sheet the moment Da Goobermint signs up to Build these Improvements for J6P.  The Money begins to Trickle out to J6P as he gets employed building the new roads and wiring up all the McMansions for Electric Lights.

You also loan out the money to other Brainy Entrepreneurs who come up with novel ways to use the Electricity, like Wireless Radios and TVs; and also novel ways to use the Carz, like Fast Food Drive Ins and Shopping Malls.  Everybody LOVES this stuff!  They are also Happy because there are new Jobs in the Industrial Economy and if they are smart guys like Henry Ford they can get an Engineering Degree and hop on the High Paid Gravy Train also!

Reminder here, Henry Ford is ALSO the guy who said this with respect to our Monetary system:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Henry Ford

Interesting of course that someone who was the most direct benficiary of this corrupt system of Cronyism would make such a statement.  Essentially Hank had a line of virtually unlimited credit, and by virtue of the Limited Liability Corporation the losses taken on his first two Bankruptcies were not borne by Investors like JP Morgan, who did the old Pump and Dump with the stock and were out from under the loss well before his first companies tanked.  Your more average dummy financial speculator of the time took the losses, and of course with them came the various Financial Panics of the era.

The KEY to getting this all matched up and Rolling Along was to marry the Cheap Energy to a Centrally Controlled money distribution system, and this of course was the genesis of the Federal Reserve Bank, which most everyone knows now isn’t Federal or goverment at all, but rather a Privately Owned consortium by the TBTF Banks, the same ones JP Morgan, John D. Rockefeller and Andrew Mellon founded, all with direct connections to European Banks run by the Rothschilds and Warburgs.

Thus began the real ramping up of the Debt of the Industrial Revolution, and speculative Money flew out the door, unfortunately a whole lot faster than the whole system could absorb all the new production and faster than jobs could be created for people to them have money to buy the products.  That whole specualtive bubble came crashing down a little over 16 years after the founding of the Federal Reserve with the Great Depression.

Again here, the Bath is not taken by the Industrialists who made the Loans and undewrote the Stock issues in the first place for these Boondoggles, the bath is taken by Goobermints that put up Power systems they could not pay for, which then got repoed and Privatized.  Edison Electric was NEVER a money making Bizness, it always got subsidized in some way on the backs of the Taxpayers to keep it running.  Since the Taxpayers never could really afford it, Goobermints kept on taking on more and more debt to keep the system running.  They have been rolling over and refinancing this debt for over a Century now.

The story of the Automobile is not a whole lot different than that, although in this case rather than many local municipalities putting up small Electric Grids they could not pay for, in the aftermath of WWII the Eisenhower Interstate Project was undertaken, the single Largest Public Works Project ever undertaken inthe History of Mankind.  Bigger than the Colossus of Rhodes, bigger than the Pyramids of Egypt, Bigger than even the Great Wall(s) of China built over Centuries of time.  Where do you suppose the Money for that came from?  Taxes?  No Sirree Bob, the Interstate was Financed on Debt through a new Goobermint Special Purpose Vehicle, the Highway Trust Fund.

From Wiki:

The United States Highway Trust Fund is a transportation fund which receives money from a federal fuel tax of 18.4 cents per gallon on gasoline and 24.4 cents per gallon of diesel fuel and related excise taxes.[1] It currently has three accounts, the Highway Account which funds road construction, a smaller ‘Mass Transit Account’ which supports mass transit and also a ‘Leaking Underground Storage Tank Trust Fund’. It was established 1956 to finance the United States Interstate Highway System and certain other roads. The Mass Transit Fund was created in 1982. The federal tax on motor fuels yielded $28.2 billion in 2006.[2] In 2008 the fund required an additional $8 billion from general taxation due to reduced receipts from fuel tax in order to meet its obligations.

So here, on the expectations of the Revenue it would generate from Gas and Diesel burning in taxes over these new Roads, billions of new dollars are created out of thin air to establish this “Trust Fund”, which sorta remained solvent up until 2008, when reduced Tax income and rising maintenance costs finally crossed over and the Fund could not service its own debt.

Who did the Interstate Highway REALLY benefit?  The Industrial Monopolists who built the Carz and owned the Oil production and refining facilities of course.  The more people you got to consume the Oil faster, the Richer you got, and boy did they EVER get Rich!  J6P of course is completely clueless about how this all got financed up, as Henry Ford said if he actually DID have a clue there would have been a Revolution quite some time back here.

The Debt Financing of Industrialization was not of course just limited to the Electric Grid and the Interstate Highways, just about as big a Boondoggle was undertaken to finance the Biggest War Machine ever built, which I refer to as the BAM or Big Ass Military.  Billions upon Billions of Dollars of Debt Money created to finance corporations like General Electric, Lockheed and McDonnell-Douglas to build ever more powerful and expensive War machines of all sorts.  Concurrent with that expenditure was the expense of Large Public Works Projects like the NASA Space Program, which did a lot of the basic research into Rocket & Jet engines that power Supersonic Fighter Jets and Electronics systems that run the Fly-by-Wire systems necessary to control such aircraft.  Still more debt money went into the Super Conducting Super Colliders in the effort to develop the Holy Grail of the industrialist, unlimited Cheap Energy from Fusion Power.  With Fusion, the Jetson’s Futre was ASSURED, and they gambled very BIG MONEY on that idea.  Those SCSCs don’t come cheap.  Sadly of course, 40 years after reading my first articles about the Promise of Fusion Power on the Pages of Popular Science and Popular Mechanics we aren’t really any closer to it now than we were then.

Industrialists have always held out the Jetsons future for general consumption as Inevitable Progress.  It’s everywhere in Pop Culture and Media, from Star Trek and Star Wars right back to the early Scifi of Jules Verne.  Probably 90% of people inside the Industrial World really do believe this stuff is inevitable and we are just going through a temporary Economic Glitch here.  The Mars Landings, the “Discovery” of new Exo-Planets, all the Science Newz you read every day is designed to reinforce that belief in the inevitability of Progress and the Techno-Future.

Industrialists close to the Credit Spigot like Richard Branson even try to Live Out these dreams, with their own Private Spaceships, financed of course on Debt on the idea they will get tons of people involved in Space Tourism on Virgin Milky Way Spaceships.  or they will be Mining Asteroids for Mineral or Jupiter for Methane or other such Pie in the Sky nonsense.

What all these folks remain Willfully Blind to is the fact that not only do we not have sufficient Energy to Conquer the Final Frontier, we really do not even have enough just to maintain all the systems build over the last century on gobs of debt money.  The Debt is coming due, and it can’t be Rolled Over anymore because the Growth has STOPPED, regardless of what massaged GDP statistics say.  Money creation right from the Get–Go in the time of John D. Rockefeller has been tied to Energy production, and as long as Energy production (or rather extraction is the better term) kept increasing, the Debt Money kept on flowing outward.  Long as you had the Inside Track on any new technology, you could always invest and Pump & Dump it for a profit.  This of course was what the whole Dot Com Bubble was all about, and you see the last gasp of this type of action with the Facepalm and PoopOn IPOs.

Really though, those in charge of Credit Creation now are less concerned with Investing in any New Biznesses than they are in trying to figure out where and how to sequester their money in “safe” inestments like USTs and Gold, either of which are very productive enterprises which create any Jobs of course.  The same priniciples of vast expansion of Debt which came in the runnup to and aftermath of WWII can’t work this time, because the cheap energy that Debt was issued to buy does not exist anymore.  All the cheap stuff has been converted to CO2 molecules floating around willy nilly in the atmosphere doing nobody any good at all, and quite possibly doing a lot of harm as well.  Only EXPENSIVE energy remains, and a world of increasingly impoverished people cannot afford it, and they aren’t “credit worthy” either.

Few in the Industrialized world want to see the Gravy Train end here, certainly not the Elite running the show so they keep  trying the same old straategies that worked before, but they aren’t WORKING.  Well, at least not to fix the general problem they aren’t working; they are working pretty good to transfer the last of the reamining wealth into their grubby little hands though.  For the most part though, that wealth is ephemeral, and there really are not any “safe havens” to sequester this stuff anymore.  In the Bye and Bye, it will all collapse, possibly quite suddenly given how fast HFT programs run these days.

Industrialization was the equvalent of a Harvard Keg Party, run pretty much by the same Harvard Frat Boys that ran the Keg Parties themselves in Hahvahd Yahd.  The problem here is they are Outta Beer to sell at a price 90% of the population can afford to buy, and you just cannot scale down this type of infrastructure too much before it all collapses.  Even if you are a Pigman with enough Bonus Money to buy a Lamborghini, its not gonna last too long driving on pothole ridden streets.  Hell, they don;t last long on well paved streets!  LOL.

Until the population as a whole grasps how they were taken for a ride here though, and as long as this population itself continues to hold onto the dreams of a techno future that will never come, those in control of the credit creation Biz will continue pulling rabbits out of the hat here to keep it going one week, one day, one hour longer, until at last it can go no more.

Coming Soon to a Theatre Near You.

RE

Knarf plays the Doomer Blues

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@Volvo - KMO says he made some life choices he regrets. Not sure what they were. And I don't th [...]

RE Economics

Going Cashless

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Simplifying the Final Countdown

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Bond Market Collapse and the Banning of Cash

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Do Central Bankers Recognize there is NO GROWTH?

Discuss this article @ the ECONOMICS TABLE inside the...

Singularity of the Dollar

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Kurrency Kollapse: To Print or Not To Print?

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SWISSIE CAPITULATION!

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Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money

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Merry Doomy Christmas

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Peak Customers: The Final Liquidation Sale

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Collapse Fiction

Useful Links

Technical Journals

The assessment of the effect of the electricity price on energy production is important when studyin [...]

Anticipating seasonal climate anomalies is essential for defining short-term adaptation measures. To [...]

The population that lives in cities has surpassed the one that lives in the countryside. Cities are [...]

Concerns exists regarding natural disasters, but what about the resulting power outages? This study [...]