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An update on mineral depletion

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Published on Cassandra's Legacy on January 3, 2017

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Do we need mining quotas?

 
 

 

 

 

Currently, the problem of resource depletion is completely missing from the political debate. There has to be some reason why some problems tend to disappear from the public's radar as they become worse. Unfortunately, the depletion problem won't go away because the public is not interested in it. I discussed depletion in depth in my 2014 book "Extracted" and now Theo Henckens' updates the situation with this post based on his PhD dissertation “Managing Raw Materials Scarcity, Safeguarding the availability of geologically scarce mineral resources for future generations" (16 October 2016, University of Utrecht, The Netherlands). The full dissertation can be downloaded via the link http://dspace.library.uu.nl/handle/1874/339827.  (UB)

 

 

 


Scarce minerals are running out: mining quotas are needed

 

 

by Theo Henckens

 

To ensure that sufficient zinc, molybdenum and antimony are available for our greatgrandchildren’s generation, we need an international mineral resources agreement.

Molybdenum is essential for the manufacture of high-grade stainless steels, but at present molybdenum is hardly recycled. Yet unless reuse of molybdenum is dramatically increased, the extractable reserves of molybdenum on Earth will run out in about eighty years from now. The extractable reserves of antimony, a mineral used to make plastics more heat-resistant, will run out within thirty years.

During more than a century the use of mineral resources increased exponentially with an average between 3 and 4% annually. Can this go on, given the limited amounts of mineral resources in the earth’s crust?

 
 
TRENDS IN THE ANNUAL EXTRACTION OF SEVEN COMMODITIES
 
 
 

Which raw materials or minerals are scarce?

A mineral’s scarcity is expressed as the number of years that its extractable amount in the Earth's crust is sufficient to meet anticipated demand. This exhaustion period is estimated from the annual use of such mineral. I calculated the ratio between the extractable amount and the annual consumption for 65 mineral resources. My calculation is based on what is considered to be maximally extractable from the Earth’s crust. These “Extractable Global Resources” are derived from a study by the International Resource Panel of UNEP (United Nations Environmental Program) in 2011. Regarding the annual use of mineral resources I have supposed an annual growth of 3% until 2050, where after I have supposed that extraction stabilizes. The table below shows the top ten scarcest mineral resources.

TOP TEN SCARCE MINERAL RESOURCES

 

 

 
Exhaustion period (in years) of remaining extractable mineral resources
Important applications
Antimony
30
Flame retardants
Gold
40
Electronic components
Zinc
80
Corrosion protection
Molybdenum
80
High-grade steels
Rhenium
100
High-quality alloys
Copper
200
Electricity grid
Chromium
200
Stainless steels
Bismuth
200
Pharmaceuticals and cosmetics
Boron
200
Glasswool
Tin
300
Tins, brass

What is a sustainable extraction rate?

In my dissertation I have defined a sustainable extraction rate as follows: “The extraction of a mineral resource is sustainable, if a world population of nine billion people can be provided with that mineral resource during a period of thousand years, supposing that the average use per world citizen is equally divided over the countries of the world”. Actually, the concept of sustainability is only applicable to an activity, which can continue forever. Concerning the extraction of mineral resources, I consider a thousand years as a reasonable approach. This is arbitrary of course. But 100 years is too short. In that case we would accept that our grandchildren would be confronted with exhausted mineral resources.
A sensitivity analysis reveals that even if we assume that the extractable reserves in the Earth’s crust are ten times higher than the already optimistic assumption of the UNEP International Resource Panel, then the use of antimony, gold, zinc, molybdenum, and rhenium in industrialized countries would still have to be hugely reduced in order to preserve sufficient of these raw materials for future generations. This is particularly so if we want these resources to be more fairly shared among countries and people than is currently the case. There are also environmental and energy limits to the ever deeper and remoter search for ever lower concentrations of minerals. If we want to stretch out all the exhaustion periods in the table to 1000 years, then it can be calculated that the extraction of antimony should be reduced of 96 %, that of zinc of 82 %, that of molybdenum of 81 %, that of copper of 63 %, that of chromium of 57 % and that of boron of 44 %. This is compared to the extracted quantities in 2010. These reduction percentages are high. The question is whether that is feasible. Moreover, would the price mechanism not lead to a timely and sufficient extraction reduction of scarce mineral resources?

The price mechanism fails
One would suppose that the general price mechanism would work: the price of relatively scarce mineral resource rises quicker than the price of relative abundant mineral resources.

TRENDS IN THE REAL PRICE OF SCARCE AND NON-SCARCE MINERALS IN THE UNITED STATES 1900-2015*


* The minerals have been classified according to their scarcity. The scarce raw materials in the figure are antimony, zinc, gold, molybdenum and rhenium. The moderately scarce raw materials are tin, chromium, copper, lead, boron, arsenic, iron, nickel, silver, cadmium, tungsten and bismuth. The non-scarce raw minerals are aluminum, magnesium, manganese, cobalt, barium, selenium, beryllium, vanadium, strontium, lithium, gallium, germanium, niobium, the platinum-group metals, tantalum and mercury.

 

 

My research makes clear that the price of scarce mineral resources has not risen significantly faster than that of abundant minerals. I demonstrate in my dissertation that, so far, the geological scarcity of minerals has not affected their price trends. The explanation might be that the London Metal Exchange looks ahead for a maximum period of only ten years and that mining companies anticipate for up to thirty years. But we must look much further ahead if we are to preserve scarce resources for future generations.

Eventually, the price of the scarcest minerals will rise, but probably not until their reserves are almost exhausted and little remains for future generations.

Technological opportunities are not being exploited
Are the conclusions I reach over-pessimistic? After all, when the situation becomes dire, we can expect recycling and material efficiency to increase. The recycling of molybdenum can be greatly improved by selectively dismantling appliances, improved sorting of scrap metal and by designing products from which molybdenum can be easier recycled. Alternative materials with the same properties as scarce minerals can be developed. Antimony as a flame retardant can be replaced fairly easily by other flame retardants. Scarcity will drive innovation.

Thirty to fifty percent of zinc is already being recycled from end of life products, but although it is technologically possible to increase this percentage, this is barely happening. Almost no molybdenum is recycled. Recycling is not increasing because the price mechanism is not working for scarce minerals. In the absence of sufficient financial market pressure, how can technological solutions for recycling and substitution be stimulated?

What should happen?

I argue that what is needed is an international agreement: by limiting the extraction of scarce minerals stepwise, scarcity will be artificially increased – in effect, simulating exhaustion and unleashing market forces. This could be done by determining an annual extraction quota, beginning with the scarcest minerals. Such an international mineral resources agreement should secure the sustainable extraction of scarce resources and the legitimate right of future generations to a fair share of these raw materials. This means that agreement should be reached on reducing the extraction of scarce mineral resources, from 96 percent for antimony to 82 percent for zinc and 44 percent for boron, compared to the use of these minerals in 2010. In effect, such an agreement would entail putting into practice the normative principles that were agreed on long ago relating to the sustainable use of non-renewable raw materials, such as the Stockholm Declaration (United Nations, 1972), the World Charter for Nature (UN, 1982), and the Earth Charter (UNESCO, 2000). These sustainability principles were recently reconfirmed in the implementation report of Agenda 21 for Sustainable Development (United Nations, 2016).

Financial compensation for countries with mineral resources
Countries that export the scarce minerals will be reluctant to voluntarily cut back extraction because they would lose revenue. They should therefore receive financial compensation. The compensation scheme should ensure that the income of the resource countries does not suffer. In exchange, user countries will become owners of the raw materials that are not extracted, but remain in the ground. An international supervisory body should be set up for inspection, monitoring, evaluation and research.

Not a utopian idea
In my dissertation, I set out the case for operationalizing the fundamental principles for sustainable extraction of raw materials, which have been agreed in various international conferences and confirmed by successive conferences of the United Nations. The climate agreement, initially thought to be a utopian idea, has become reality, so there is no reason why a mineral resources agreement should not follow.

 

 

 
Antimony
More than 50% of the antimony annually sold is used in flame retardants, especially in plastics for electrical and electronic equipment. A third of this equipment currently contains antimony. In addition, more than a quarter of antimony sold annually is used in lead batteries. In principle, antimony in its application as a flame retardant can largely be replaced by other types of flame retardants and antimony containing lead batteries can be replaced by non-antimony containing batteries.
 
 
Gold
In addition to its use in jewelry and as security for paper money, gold is especially used in high-quality switches, connectors and electronic components.
 
Zinc
The main application of zinc is as a coating on another metal to protect it against corrosion. Other applications include brass, zinc gutters, rubber tires and as a micro-nutrient in swine feed.
 
 
Molybdenum
Almost 80% of the volume of molybdenum extracted per annum is used to manufacture high-grade steels that are mainly used in constructions exposed to extreme conditions such as high temperatures, salt water and aggressive chemicals. There are very few substitutes for the current applications of molybdenum, and molybdenum is difficult, though not impossible, to recycle.
 
Rhenium
Rhenium is mainly used in high-quality alloys, to enable them to withstand extreme temperatures. It is also used in catalysts, to give gasoline a higher octane number.
 
Rare Earth Metals
Scarce mineral resources should not be confused with the Rare Earth Metals that are mainly mined in China. The Rare Earth Metals are seventeen chemical elements with exotic names, such as praseodymium, dysprosium and lanthanum. The name "Rare Earths" dates from the early nineteenth century. Rare Earths are geologically not scarce, at least not if you compare their extractable global resources with their current annual usage. But of course, that could change in the future.

 

 


 

 

 

 

 

 

Limits to Growth was RIGHT

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Published on Cassandra's Legacy on February 28, 2016

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Italy's Population Starts Declining
 

 

The "base case" scenario described in the 2004 edition of "The Limits to Growth", an update of the original study sponsored by the Club of Rome and published in 1972. Note how the world's population is supposed to start declining some years after the peaking of the world's economy. We are not yet seeing this decline at the global level, but we may be seeing it in some specific regions of the world; in particular in Italy.
 

More and more data are accumulating to disprove the legend of the "mistakes" that has been accompanying the study titled "The Limits to Growth" (LTG). For instance, Graham Turner has shown how the historical data for the world's economy have been following rather closely the curves of the "base case" scenario presented in 1972. But the fact that this scenario has been working well up to the beginning of the 21st century doesn't mean it will keep working in the same way in the future. The base case scenario describes a worldwide economic collapse that should start at some moment during the first two-three decades of the century. Clearly, the world's economy has not collapsed, so far, even though it may be argued that it is giving out ominous signs that it is starting to do just that. But, we can't yet prove that the base case scenario was right.

Yet, the LTG collapse scenario is an average over the whole world and we may imagine that some sections of the world's economy should collapse earlier, and some later. And, indeed, it appears that some local economies are collapsing right now. It may be that a country like Italy is already well advanced in this process, so that we shouldn't be not just seeing the decline of its GdP, but also the start of an irreversible population decline. And some recent data indicate that this is exactly the case: the LTG base case scenario is playing out in Italy, and probably not just in Italy.

So, let's try to make a qualitative comparison of the LTG scenario and the actual data for Italy. First of all, the scenario shows how the consumption of natural resources is supposed to reach a maximum and then decline, followed by a similar trajectory for the economic output. We are already well past this point in Italy. As you can see in the figure below, from a previous post on Cassandra's legacy, Italy's consumption of hydrocarbon fuels (by far its main source of energy) peaked in 2005, followed by the peak in the GdP in 2008. Considering that the GdP is a measure of the overall economic output of a country, we can take it as proportional to the parameters that were indicated as the industrial and agricultural production in the LTG study (the data for 2015  indicate a small GdP increase for Italy, but that changes little to the overall trend).
 

So, we may say that the base case LTG scenario has been playing out in Italy in terms of the behavior of the economy of the country. But, if this is the case, at some point we should expect another curve of the scenario to peak and start declining: the population curve. And, indeed, we seem to be seeing exactly that. Here are the most recent data from the Italian statistical agency, ISTAT
 

You can see the remarkable jumping up in the mortality rate for 2015: it corresponds to 165,00 more deaths than births. Despite the influx of immigrants, Italy has lost 139,000 residents in 2015; not a large loss (0.23%) but it is significant. And it had never happened during the past few decades. Also, Italy sees for the first time in decades a reduction in the life expectancy at birth (from 80.3 years to 80.1 years for males and from 85 years to 84.7 years for females).

 

What have been the causes of this population decline? There are several, and the torrid summer of 2015 has surely played a role in killing more old people than usual, as you can see in the figure below (again from ISTAT)

 


Then, other causes have been proposed; the general aging of the population, the economic crisis, the worsening diet, pollution, the higher costs of medical care, and more. But the point, here, is not to discuss these various causes, most of which probably had a role in the decline. The model doesn't describe the details of the process, nor it is detailed to the point of considering different age cohorts. It is a quantitative description of a relatively simple phenomenon: a population under stress because of reduced resource availability and pollution will react by an increasing number of deaths in its weakest age groups: the elderly ones. And this is exactly what we are seeing in Italy: a decline in population following the decline in GdP.

Of course, we only have data for one year and we cannot say if what we are seeing is a long-term trend or just a statistical fluctuation. Yet, it is hard not to think that the degrading economic, social conditions in Italy, as well as the degradation of the ecosystem, are not taking their toll on the population. And that we are indeed seeing the LTG scenarios playing out.

 

 

 

 

 

 

 

 

Ben Franklin’s Revenge

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Published on the Economic Undertow on February 29, 2016

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The past year and a half has seen the relentless unraveling of the post-Lehman recovery, the vaudeville act duct-taped and wired together on the ruins of shadow banking … taking the place of a reflective determination why ‘shadow banking’ is necessary in the first place.

Deflation, or rather, entropy has set up shop on our doorsteps. Call it ‘capital E’ entropy: the Golem we have created by way of our blithe and dithering squanderousness. Entropy cannot be bargained with, it can’t be reasoned with; it doesn’t feel pity or remorse … etc.

Entropy has put all the countries, the regions; all the economies under siege. All are struggling with credit market distortions to some degree, from the diminution of purchasing power to the greatest degree. An important and growing fraction struggles with the consequences of pointless wars and the resulting tides of migrants, other fractions are crushed by debts that can no longer be serviced out of cash flows. There is insolvency, inter-temporal contagion and more deflation in a vicious cycle.

Screen Shot 2016-02-23 at 12.55.57 PM

Along with the cycle is the frantic scramble for the next ‘solution’ … even as the only workable response to ‘less’ is stringent conservation. Purposefully doing without is never part of any conversation, it’s unpleasant, it does not offer a fabulous future or much in the way of hope …

There are endless attempts to escape consequences: to cash in, (cash out?); cries for bank bail-ins, increased austerity or the relaxation of it, more quantitative easing or less of it, negative interest rates or higher ones; always more loans adding to what we have in monstrous proportion, a mountain of claims looming over relentlessly diminished purchasing power. We are insolvent, in that purchasing power is the ‘currency’ which we must obtain in order to retire our debts.

limits-to-growth-forecast copy

Figure 1: The long meander to oblivion, this diagram from 1972 ‘Limits to Growth’, Meadows et al, illustrates what we are up against. The best the establishment can come up with is a non-sequitur:

It’s time to kill the $100 bill

… illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds as would be the case if the $20 bill was the high denomination note. And he is equally correct in arguing that technology is obviating whatever need there may ever have been for high denomination notes in legal commerce.

Lawrence H. Summers, Washington Post

 

 

It’s hard to know whether to laugh or cry over the absurdity of it all. Absurdity of it allAbsurdity of it all.

Illegal money transfers have been made electronically, in their billion$ by HSBC and other giant banks. The largest recent single user of US currency is the US military. Summers conveniently ignores the greatest criminals are the bankers, who pay themselves, not with used, non-sequential $100 bills in brown paper bags, but with electronic bonuses.

Establishment economists such as Lawrence Summers can be excused for failing to understand ‘purchasing power’ the way it is described here at Economic Undertow. It isn’t taught at Harvard or any other school nor is it a part of an equilibrium economics curriculum. It tends to be understood as the amount of finished goods or services that can be gained in exchange for a unit of credit. More units = more goods = greater wealth. More valuable units also = more goods and wealth. The idea is to manipulate the number of units to access more goods and to prosper; manipulations haven’t been working lately and the economists have no idea why.

In Debtonomics, purchasing power is the relationship between resources and the ‘work’ needed to make them available. Because resources DO the work as well as being made available BY the work, consuming resources also consumes our purchasing power at the same time. This mirrors what is observable in the real world and explains why adding ‘money’ hasn’t accomplished anything, we keep getting poorer all the time.

Resources and purchasing power are not the same but they may as well be, their relationship is unitary. One obtains or ‘purchases’ the other by way of the application of energy to displace matter over time – ‘power’. Each fraction of purchasing power represents an equal proportion of resources — capital — available to us. As capital vanishes into our machines, our purchasing power is irretrievably extinguished. With time and industrialization there is less of it. In Debtonomics, money is a derivative claim against purchasing power; so are labor, infrastructure, industrial production even the industries themselves. Changes to the particulars of the different claims such as numbers on a paper, worker productivity or interest cost are irrelevant; when we run down our resources we are ruined regardless of how much ‘money’ … or other industrial bits and pieces … we have.

Summers’ argument is disingenuous; currency controls are not to thwart criminals but aim to prevent bank runs if- and when deposit rates turn negative. Runs destroy whatever system being run from, whether it is finance, currencies or banks. Summers’ proposal ‘works’ in the sense in that it traps depositors’ funds, but it undermines depositors’ faith in the system at the same time, it is destructively counterproductive.

The establishment’s first instinct is to punish, to lash out and destroy. Our systems are built upon continuing, exponential monetization of waste. When devastation does not produce the desired outcome, we try harder, reaching for the succession of bigger hammers. After the $100 bill is turned to gristle, the $20 then the the $5 will meet the same fate. What’s left is change hunted for beneath the seat cushions. When that time arrives a nickel will be worth today’s $100, fatally undermining the well-crafted ‘policy proposal’ of the ex-Secretary of the Treasury and Director of the Mossavar Rahmani Center for Business and Government at Harvard University!

Summers proposal would effectively shrink the supply of liquid funds, amplifying dollar preference, something else not taught at Harvard. This would rebound against the fuel supply system. Removing funds from the customer = less of a bid for fuel products and lower wellhead prices. Removing fuel from customer: eventual collapse.

Everything Has To Be Perfect Forever!

Excluding the rates paid (charged) on reserves held by central banks, negative interest rates are largely a market phenomenon, they reflect a retreat out of risk; the ‘flight to safety’. They occur when there are more loanable funds available than there are low-risk investments that can absorb them. There does not have to be much of an excess of these funds for interest to fall negative; like the price of crude oil, rates emerge at the margin. Negative rates apply to securities which are considered ‘money-like’ such as sovereign debt. It is government bonds that offer negative returns.

mzm1

Figure 2: MZM money stock, (Fred). ‘Zero-maturity’ money is liquid funds in the economy (excluding time deposits/certificates of deposit). At the same time finance lends more funds into existence there are fewer destinations for them … they migrate into safe harbors such as bank deposits or credit equivalents.

MZM Velocity

Figure 3: MZM velocity has been declining for years, the reduced flow cancels out increases in the money stock. The bankers are pushing on a string, no wonder they are desperate.

Negative rates indicate the absence of good investments in the functioning, day-to-day economy; they are the imprints of deflation. Whether or not the central banks are in control or not, promoting deflation is not the bankers’ intent. Instead, it’s an unintended consequence of efforts to bail out private finance at public expense.

Central bank manipulation gives the illusion that risk has been ‘legislated out of existence’. This is dangerously false; risk is a First-Law cost associated with the surplus of debt. Increasing the surplus of loans spreads risk around or pushes it out of sight, but only for a little while. Exponentially increasing risk lurks beneath very low/negative rates like a tiger in the jungle. The performance of the loans depends on the ability of international deadbeats such as the Italian government to borrow endlessly into the future, for everything to be perfect forever! Risk springs out of hiding when supposed pristine borrowers stumble and the loans are marked to market as junk. Under the circumstances, losses to the hapless bond speculators — and central banks — are astronomical, bankrupting the entire banking system at one go!

Risk also manifests itself as increased operating expenses for businesses that lack assets to sell to the central banks. These added costs accelerate vulnerable firms’ drift towards insolvency which in turn torpedoes the firms’ lenders, stampeding investors’ toward government bonds and (perceived) safety. All of this makes the risks worse. Surplus-related costs also discount the overall worth of commerce relative to holding currency = more dollar preference. Intervention endangers through the back door the same enterprises the bosses are desperate to support …

Bringing Excess Claims into Alignment With Purchasing Power.

As the bosses vie to increase growth they undermine themselves by destroying resources. They tilt the balance toward increasing claims while purchasing power is cannibalized. Whatever pittances are gained in the immediate-term are at risk going forward as the overhang of claims increases. Alternatively, removing claims tilts the balance the other way: borrower defaults, debt write-offs; by hoarding money or confiscation = ‘Conservation by Other MeansTM‘.

Managers want low-cost money to keep their Vaudeville act running as long as possible, even as it has exhausted itself by every reckoning including its own. Forced credit expansion no longer stimulates business expansion or growth. More costly money would accurately price in the risk that is ballooning (out of sight) within the system.

Managers want their currencies to be cheap so they might increase goods exports and gain foreign exchange. Forex becomes collateral for domestic loans leading to the mercantile increase in ‘wealth’, (China). This strategy fails when all managers strive to export at the same time. The outcome is diminished trade overall and less Forex collateral, amplifying deflation in a vicious cycle. Currency depreciation is also counterproductive for credit providers such as Japan, the US and UK. When credit is a country’s only real product, depreciation represents a reduction of the country’s output. This is also ‘Conservation by Other MeanTM‘ as the credit provider cannot finance imports by ‘borrowing’ them.

Managers also want money that is worth less than commerce so customers lack incentives to hold onto it. This is also dangerous as money can become so cheap that commerce becomes unaffordable.

Diminished finance sector returns, or Net Interest on Margin (NIM)

 

Net Interest Margin

Figure 4: Because finance creates its own funds it has no need to borrow. Interest margin represents the narrowing spread between finance returns from loans to largest- and presumably most creditworthy borrowers and returns from lending overall. NIMs have been declining for decades along with velocity and are, ironically, the consequence of increased financialization and declining customer income. Reducing interest paid by the central banks on excess reserves narrows NIMs further, undoing the bailout effects of QE.

Outcome

There is no overcoming entropy or declining purchasing power, only strategies to ameliorate the consequences and preserve resources/purchasing power for the future, along with some small component of institutional integrity. Managers fail to grasp the seriousness of our onrushing predicament: the destructive potential of declining resource availability/purchasing power is equal to- or greater than a nuclear exchange, the results are just as permanent. If managers aim to destroy this country, doing nothing- or more of the same is a good way to go about it! The establishment obsesses about money even as the real problem is a shortage of resources needed for our economy to produce the goods and services we expect. What needs to change are expectations. The money-system failures are symptoms of our resource shortfall, including declining petroleum prices and the widening circle of related industrial and finance insolvencies. Schemes that seek to maintain the status quo are certain to fail. Almost all of them are variations on the theme of bond-buying, dubious accounting and trickle down economics = robbery. Almost all of them depend upon central banks which have grounded themselves on their own policy contradictions. Absent change, financial accountability will enter through the back door … as central bankers and the their private sector clients are engulfed by the system collapse taking place under their feet. One way or the other, finance claims will be brought into alignment with purchasing power. The hardest path is the annihilation of claims along with finance at the same time.

Thinking Outside the Banking Box.

One way to start down the road to voluntary alignment is to ‘buy down’ claims. The US government has the authority to produce money by itself, without borrowing; “to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;” (the implication is that money is a tool of measurement.) Article 1, § 8, Constitution US, (Legal Information Institute, Cornell University).

US Note

— A $100 US Note, a late(st) model ‘Greenback’. Congress allowed the ‘float’ of $346,681,016 of these notes, however, they are out of circulation with the vast majority having been destroyed by the Treasury.

“If the Nation can issue a dollar bond it can issue a dollar bill.
The element that makes the bond good makes the bill good also. The
difference between the bond and the bill is that the bond lets the
money broker collect twice the amount of the bond and an additional 20%.
Whereas the currency, the honest sort provided by the Constitution pays
nobody but those who contribute in some useful way. It is absurd to say
our Country can issue bonds and cannot issue currency. Both are promises
to pay, but one fattens the usurer and the other helps the People.”

 

 

 

— Thomas Edison

 

 

Last Summer the Undertow examined the possibility of Greece issuing ‘greenback’ or non-liability fiat euro notes. Greece would use the euros to retire maturing debt and to facilitate internal exchange that was — and currently is — stifled by the overhang of debt and the accompanying demand for repayment. While note issue cannot ‘fix’ structural problems outright, it is possible to ease immediate monetary pressures and use the opportunity to put into effect a conservation plan.

As in Greece, the purpose of US notes would be reduce the overhang of debt-claims and the accompanying demand for repayment funds; to bring claims and purchasing power into better alignment. Issued notes would retire maturing debt without requiring new debt to replace it. It’s a legal ‘cheat’, Bankers will object, but creeping system insolvency leaves them in no position to do anything but complain. By way of notes, debts are ‘repaid’ rather than haircut or defaulted upon; the third alternative is a crash or for funds to be forcibly extracted from the citizens and then a crash.

– The Treasury would issue zero-liability US Notes — or ‘greenback’ dollars — as legal tender under current law or new legislation. Unlike the balance of our money supply, notes would simply be issued by the US Treasury rather than ‘borrowed into existence’ from finance.

– Government fiat has been issued for almost a millennium beginning in China. A notable example of sovereign issue money are Demand Notes first introduced during the Civil War by Edmund Dick Taylor. The notes were necessary because big Philadelphia- and New York banks would not lend the Lincoln administration gold at reasonable rates to fund the war.

– The notes would retire government obligations on a fixed schedule, for example, the current $19+ trillion$, to be retired over a period of 20 years. The notes could be applied against any liability that is a claim against circulating dollars.

– Payments would be made electronically, out of ‘thin air’, the same way loans are made by banks, as credits on borrowers’ accounts.

– Notes would be legal tender; to repay any debt, private or public everywhere dollars are made use of. Dollars are fungible: Larry Summers notwithstanding, each dollar is the same as all the others. Fiat issuance by the Treasury is the same as fiat issuance by a private sector bank. The difference is no liability to the government issue. The government can provide funds without digging itself deeper into the debt hole.

Loans are simply issued by banks as credits on a spreadsheet. ‘Bank money’ does not exist until a loan is made. The return from lending is the requirement on the part of the borrower to repay with money that is more costly to him than the loan is to the lender. Bank money costs the lender almost nothing to create as it requires only keyboard entries. The borrower must repay with circulating money; he cannot create repayment on his keyboard but must beg, steal or more likely borrow repayment- or have it borrowed by others in his name (government). Whereas interest cost tends to be a small fixed percentage of the principal payable over time, the expense of circulating money is determined by its availability in the marketplace, by supply and demand. When circulating money becomes scarce the real worth of repayment can be much greater than the nominal balance due, yet this is invariably when the demand to repay is fiercest, as during a margin call. If the loan is secured and the borrower cannot repay, he must surrender collateral along with other rights. These are always worth more than a keyboard entry.

US Notes would give the Treasury the ability to make keyboard repayments, to pay lenders ‘in kind’. By doing so the Treasury would remove the currency drain on the private sector (cash demands against depositors).

– What makes up our supply of circulating money is the unpaid debts of others, funds that are ‘temporarily’ out of circulation, overseas (petrodollars) or hoarded. Money created by lending is extinguished when the loan is repaid. The net increase in circulating funds that results from note issue is zero.

– The Treasury can recapitalize banks directly a with note issue, rather than by bailing in unsecured creditors and depositors. The Treasury could act as ‘issuer of last resort’ in place of- or alongside the central bank. The Treasury can also make up account shortfalls in accounts of deleveraging derivative accounts:

Derivatives

Figure 6: US domestic derivative exposure (dollars) is over four times GDP, (FRED). Unforeseen changes in conditions affecting holders’ collateral position could create liabilities that are too large to meet with funds in hand. Central bank funds are loans lodged against the public. Derivatives shortfall could be made up in any amount with note issue, which would then become a liability lodged against the speculators who let their derivatives positions get out of hand.

– Notes would be available in any amounts to plug liability holes until positions could be closed and accounts zeroed out.

– Note issue would re-balance the relationship between banks and sovereigns, the influence of the banking cartel would be reduced.

– Foreign exchange can be leveraged or merged with Note issue. Because the dollar is the primary reserve currency, Note issue would be very effective as a means of backup liquidity everywhere dollars are made use of.

– Lenders would not be able to hold the US or its citizens hostage by withholding funds.

– Notes would render mercantile leverage against Forex unnecessary – dollar depreciation.

– Any fiat regime would require stringent energy conservation as the external (overseas) flows of borrowed dollars to purchase fuel have bankrupted the country in the first place.

– The US and many other countries are in the same situation as hapless Greece. Our debts cannot be retired because our wasteful lifestyle does not provide the means for us to do so.

– Financialization is both incentive- and means to strip-mine our capital base. This regime falls apart under the weight of its own costs. As a necessary component of reform, financiers must be held accountable for their negligence. The present conditions cannot be endured much longer. If managers refuse to act, citizens will take matters into their own hands.

 

 

 

 

 

 

 

 

1177: The Bronze Age Collapse

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Published on the Cassandra's Legacy on December 7, 2015

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The fall of the Mediterranean society during the bronze age: why we still don't understand civilization collapse

Eric Cline  wrote an excellent book on the end of the Bronze Age in the Mediterranean region but, unfortunately, it doesn't arrive to a definite conclusion about the reasons of the collapse. Cline suggests that "several stressors" worked together to ensure the demise of this civilization. But this is very disappointing, to say the least. It is like a murder mystery where, at the end, we are told that the killer of Miss Scarlett could have been Professor Plum, Mrs. Peacock, Mrs. White, Reverend Green, or Colonel Mustard but, really, it seems that all of them simultaneously stabbed her.

Imagine a team of archaeologists living three thousand years in the future. They work at digging out the remains of an ancient civilization on the Eastern shore of the Mediterranean Sea, a region that its ancient inhabitants called "Syria." The archaeologists find clear evidence that the Syrian civilization collapsed in correspondence of a series of disasters: a severe drought, a civil war, the destruction of cities by fire, foreign invaders, a reduction in population, and more. The evidence for these event is clear, but what exactly caused them? Our future archaeologists are baffled; they suspect that there is a single reason for this coalescence of disasters, but they can't find proof of what it could have been. One of them proposes that it had to do with the fact the ancient Syrians were extracting something from underground and using it as a source of energy. But, without reliable data on the production trends, they cannot prove that oil depletion was the basic cause of the Syrian collapse.

Something similar is happening today to the archaeologists who try to understand the reasons of the collapse of the Mediterranean civilization of the end of the second millennium BCE; the end of the Bronze Age. We have archaeological evidence of a brilliant and thriving civilization: palaces, works of art, commerce, metallurgy, and more. But we have also evidence that this civilization met a violent end: there are traces of fires destroying palaces and cities, there is evidence of droughts and famine, and some of the people living in the region, the Hittites for instance, disappeared forever from history. But what caused the collapse? That's a very difficult question.

Eric Cline's book, titled "1177 BC" shines some light on the history of the Bronze Age civilization and its demise. As a book, it is well done and it summarizes very well the result of nearly two hundred years of archaeological studies. It is a fascinating story of a time that strikes our imagination as a refined and sophisticated world; not an empire, but a loose federation of peoples. Sometimes they were engaged at warring with each other, but more often in commerce and in cultural exchanges. We can't imagine that such a sophisticated civilization would collapse so fast; possibly in just a few decades. And yet, it did.

So, what caused the collapse? Cline's book is good evidence of how difficult it is to understand these phenomena. A whole chapter, the last one, is dedicated to explore the reasons for the collapse, but it doesn't arrive to any definitive conclusion. As it is almost always the case when discussing societal collapse, we see different proposed reasons piling up: some experts favor external causes: invasions, droughts, earthquakes, volcanoes, or similar. Others seek for internal causes: rebellions, institutional decline, political struggle, and more. And some, including Cline himself, favor a combination of several causes. He writes:
 

"There probably was not a single driving force or trigger, but rather a number of different stressors, each of which forced the people to react in different ways to accommodate the changing situation(s)…. a series of stressors rather than a single driver is therefore advantageous in explaining the collapse at the end of the Late Bronze Age."


Unfortunately, this is far from being satisfactory. Suppose that I were to tell you "I am suffering of a number of different stressors, including fever, throat ache, sneezing, coughing, pain at the joints, and more." Then, you would look at me, perplexed, and say,"you mean you have a flu, right?" Yes, of course, all these different "stressors" result from a single cause: a viral infection. Just like a flu is a common illness in humans, collapse is such a common feature in human societies that we can hardly imagine that it could be caused by a fortuitous combinations of stressors, all acting in the same direction.

In examining this issue, a basic point is that societies are complex systems, and need to be understood as such. Unfortunately, the knowledge about complex system has not yet permeated the study of societal collapse, as it is amply demonstrated by the discussion in the last chapter of Cline's book. Several authors have apparently tried to explain the collapse of the Bronze Age society in terms of what they call "complexity theory". But I am afraid they didn't understand the theory very well. Just as an example, in the book we read a sentence taken from the work of Ken Dark who says ""The more complex a system is, the more liable it is to collapse." Now, this is simply wrong if it is applied to human organizations as complex systems, such a companies, or civilizations. And you don't need to be an expert in complex systems to note that large and very complex systems tend to be more resilient than small ones. Compare, for instance, IBM with the large number of small upstart companies in information technologies that appear and quickly disappear. So, you just can't invoke "complexity" as a mumbo-jumbo to explain everything, as Cline correctly notes in the book.

A lot of confusion in this area has arisen from the variability of the definition of "complex system;" there is not just one kind of complex system, there are several (and that is something you would expect since they are, indeed, complex!). One kind of complex system that has had a lot of success in the popular imagination is the "sandpile", proposed by Bak, Tang, and Wissental, a model that shows a series of small and large collapses. The problem is that the sandpile model is valid for some systems, but not for others. It works nicely for those systems which have only simple, short term interactions: the financial system, for instance. But it doesn't work at all for systems which base their complexity on stabilizing feedbacks: civilizations, for instance. The difference should be clear: the financial system was never built with the idea that it should be stable. The opposite is true for a civilization or a large company, both have plenty of feedbacks designed to keep them stable or, if you prefer "resilient". Large organizations are often more resilient than small ones simply because they can afford more stabilization feedbacks.

Then, what can bring down a feedback-stabilized complex system? The answer is "a forcing that is strong enough." The term "forcing" is used in the study of system dynamics and it has the same meaning of the "stressor" employed by Cline in his discussion. A forcing is an external factor that affects the system and forces it to adapt by changing some of its parameters. If the forcing is really strong, the adaptation can take the shape of a fast and disastrous reduction in complexity; it is what we call "collapse". So, it is starting to appear clear that civilizations tend to collapse because they lose access to the resources that created them and allowed them to exist; often as the result of overexploitation. Over and over, civilizations have been brought down by soil erosion and the loss of agricultural productivity. Then, some civilizations have collapsed because of the depletion of the mineral resources that had created them, an example is the collapse of the modern Syrian state that I was describing at the beginning of this post. Another example is the collapse of the Roman Empire, It showed a lot of symptoms that we could call "stressors:" rebellions, corruption, wars, invasions, depopulation, and more. But they all originated from a single cause: the depletion of the gold mines of Spain which deprived the Imperial government of its fundamental control system: gold and silver coinage.

At this point, we can conclude that, most likely, there never were a combination of parallel stressors that brought down the Bronze Age Civilization. Rather, there was some basic factor that generated the various catastrophes that we observe today in the archaeological record. The problem is that we don't know what this forcing was. There are elements showing that climatic change played a role, but we lack sufficient evidence to be sure that it was "the" cause of the collapse. So, perhaps it was mineral depletion that brought down this civilization? Maybe, and we can note how the defining term for this age is "bronze" and in order to have bronze you need to alloy copper with tin. And we know that there was plenty of copper available from mines in the Mediterranean region, but no tin; it had to be transported from a long and probably precarious supply route from the region we call Serbia today, or maybe from the Caucasus. If the people of the Bronze Age used bronze as currency, then their commercial network would have been badly disrupted by an interruption of the supply of tin. So, they might have been destroyed by the equivalent of a financial crisis.

Even though we cannot arrive to a definitive conclusion, the story of the Bronze Age civilization is part of the fascination we feel for the subject of civilization collapse. It is a fascination that derives from the fact that we may be seeing our "Western" civilization starting right now its final phase of collapse, after having badly depleted its sources of energy and generated the disastrous disruption of the ecosystem that we call "climate change." In our case, unlike for civilizations lost long ago, we have all the data we need to understand what happening. But we still don't understand collapse.

Cassandra is Back

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Published on Cassandra's Legacy on November 16, 2015

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Rediscovering the Legacy of a Prophetess

"Cassandra's legacy" is again the name of this blog. In March 2014, I had changed it to "Resource Crisis," hoping that a more serious name would promote a rational debate on the question of mineral depletion. Unfortunately, that turned out to be a misplaced hope.

While depletion becomes progressively more and more of a burden for the economic system (and there is no way that it could be otherwise) the debate on this subject remains conspicuously absent from the media; even more so with the recent fall in oil prices. Instead of being taken for what it is, a symptom of something deeply wrong in the market of mineral commodities, it has been hailed as the definitive demonstration that "peakers" were wrong and will always be wrong. And the same is true for climate change: the recent events in Paris have totally marginalized the issue. It will take some time before we can return to a rational view of the world – if we will ever manage that.

Even in the midst of the general disaster, however, I am happy to return the name of the blog to a modest homage to the figure of Cassandra. She may never have existed but, even so, she remains for us an example of courage and of strength. And she was always right with her prophecies, even though nobody believed her – but they should have. So, welcome back, Cassandra!

I can also offer to you something that I wrote earlier this year and that I published in my "Chimeras" blog: a short story titled "An Interview with Cassandra." See? When I say that I like Cassandra and her story, I am serious!

 
 

The prophetess Cassandra was cursed to be always right in her prophecies, but never to be believed. That places her on a par with modern climate scientists. (image: Cassandra as interpreted by Marvel comics)

I don't have to tell you that this story is a work of fantasy, but several details are taken from modern historiography, for instance the character of the Hittite king Mutawalli, the possible contemporary events of the battle of Kadesh and the fall of Troy, the habits of the Babylonian temple priestesses, and more, including the fact that Hittite is a language vaguely related to English and an attempt of inventing a Sumerian root for the name "Cassandra", whose etymology is unknown. You may also like to know that this story came to my mind, nearly complete, while I was mounting some bookshelves at home; maybe I have to consider it as a gift from the Goddess Ikea.
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After that I had googled "summoning spells" on the web, I found one that I liked. I needed some peculiar stuff to perform it, including crocodile liver, platypus' whiskers, bat's earwax and more. But once I got all that (via Amazon.com), I thought I could try. And, immediately, there materialized in front of me, right in my office, a translucent image of a dark haired lady wearing gold jewels and a curious dress. No less than the ghost of Cassandra, the Trojan prophetess. And I could interview her!


Ahem….. Lady Cassandra, I humbly welcome you here….

Oh…. Where am I?

I summoned you, Lady Cassandra…. you are far in the future. More than three thousand years.

Three thousand years in the future, you say? You must have some really powerful magic, here. Where did you learn it?

Well, we have something we call the "Internet"

A library? Plenty of scrolls you must have in there.

Not exactly scrolls, lady Cassandra, but you can find a lot of things in it. But I must say that I am not a great expert at summoning ghosts; it is the first time I try.

You have to be careful with these spells, you know? It is dangerous stuff. You could have summoned some Galla demons of the underworld and they would have shred you to pieces. You are lucky that you summoned me in your first try. But the Gods of the underworld must like you – really! They even granted me the gift of being able to speak your language. A curious language, by the way; it sounds a little like Hittite, you know?

We call it 'English', lady. But you say it sounds like Hittite? I am not sure I understand….

Well, Hittite is a language that I came to learn. But never mind that; evidently the Gods like me to speak this…. this "English". But enough with this "Lady Cassandra". Why do you call me like that?

Well, after all, you are the daughter of King Priam.

The daughter of King Priam? You believe that story?

Well, it is what is said about you. Are you that Cassandra…. ?

Oh, yes, I am that Cassandra – the one they say was the daughter of King Priam of Troy. A lot of things have been said about me, I know; some are even true. But the daughter of King Priam? No, no…. It is just a legend, one of the many. Actually, I came to know Priam very well; and I was in Troy when the Achaeans destroyed it. But I am not Priam's daughter. You see, I was born in Babylon…..

Born in Babylon? Really? Lady Cassandra, this is surprising!

Well, Babylon is where I was born. And I was born as Kashanna before those silly Greeks mangled my name turning it into "Cassandra". But I wasn't born as Cassandra. Besides, I have been in the underworld long enough that I can drop all those silly titles. But, if you really like to call me Lady Cassandra, it is fine for me. So, who are you, by the way?

Oh.. you see, I am nobody of any importance. I was just reading about you, and I was curious.

Enough that you risked being shred to pieces by a Galla demon? You have to be a very curious person.

It is my job to be curious. I am called, well…. we say, "scientist"

Something like a priest? You make prophecies?

Sometimes I make prophecies….. you know, for instance how climate will change in the future.

And are you believed?

Oh… well, that's a big problem.

I know, I know! It happens all the time. Anyway, if you are so curious, I figure I could tell you a few things about me. I don't think that the demons of the underworld will leave me chatting with you for a long time. But as long as the spell lasts, why not?

Thank you, Lady Cassandra. It is an honor to be told this story

Let me see…. I have to start from the beginning. As I told you, I was born in Babylon. And I became a shamhatu of the temple of Ishtar. You probably don't know what a shamhatu is; well, in the old language she would be called a Karkid, or also a Harimtu the way we used to say. But in the end she is a hierodule of the temple. A temple girl, just that. It was my job. The job of the temple girls is to celebrate the goddess of love, Ishtar. We also call her "Inanna" in the old language, in Sumerian, that is. Actually, the work of the temple girl is not so sophisticated, normally. You do what you have to do as a service to the temple; people pay, and they go away happy. But I was, well, it seems that my Ensi,  the high priestess of the temple, thought that I was especially smart; a little more than the average girl; at least. So, I was studying to become a priestess. That meant I had to learn the old language of the Sumerians, to recite the hymns, to perform the sacrifices. It is a complicated job, you know? You have to study a lot and then, when it is time to perform the sacred marriage rite, well, as a priestess it means to have sex with the king, celebrate the sacred marriage of Tammuz and Ishtar – or, as they said in the times of our Sumerian ancestors, Dummuzi and Inanna. So, you have to look all coquettish with the king, wear jewels, sexy clothes, all that….. Ouf…. Not all kings are nice… But all kings like a lot to play the role of Dummuzi in the sacred marriage rite. And a priestess plays the role of Inanna, the goddess. In a way, it is fun.

Now, in my times, the big man, the king, was someone called Muwatalli the second, an Hittite. His father had conquered Babylon earlier on and, at that time, in Babylon we were part of the Hittite Empire. So, the king of the Hittites would come to Babylon once in a while, just to make sure that everything was quiet and that everybody pays their taxes to him. So, he came to Babylon from the capital of the Empire, from Tarhuntassa. Quite a retinue he carried with him. Soldiers, slaves, concubines, servants, cooks, all the rest. And he arrived in time for the rite of the sacred marriage. And you can imagine who was the hierodule who had the task of performing the rite that year. Just the modest me; Cassandra – or rather, as I said, Kashanna.

So, I performed this rite with King Mutawalli. Not a bad guy, I'd say, although he had this idea that everyone should call him Nergal, which means the God of War, but kings have these bizarre ideas. Anyway, he must have been impressed by our rituals. You know, in Babylon, at that time, we knew how to impress people! Fancy dresses, songs, harps playing, all the rest. But I think he was more impressed by the way the priestesses could perform divinations. Kings are always interested in divinations – they must feel very insecure all the time. Or so I think.

Anyway, King Muwatalli was impressed enough by the whole circus that he wanted to take me to Tarhuntassa. People used to say that I was a nice looking girl at that time, but I am not sure that he wanted me for my looks. I think he was thrilled by the idea of having a personal Babylonian priestess at his court – available anytime. Whatever, I had no choice. I remember that my Ensi, told me that I had to be careful, because I had learned a lot of things in the temple, even how to make prophecies, but that of prophetizing is not an easy job and that I had not learned yet how to make myself believed, and so I risked to be misunderstood all the time. She was right, of course. But I was young and I must say that I was excited at the idea to go with king Muwatalli. You know, I could have given a son to the king, then he would have married me and I would have become Queen, or Empress, or something like that. I knew that it wasn't likely that it would happen; and it didn't happen. But – you know – a girl can always dream!

So, let me keep going. I went with King Muwatalli to Tarhuntassa and I became one of his concubines; he had a lot of them, as kings use to have. He also had a wife, or perhaps more than one – I am not sure. Anyway, I was not to be his wife, just a concubine. Which is fine, after all; you know, the job of the concubine is not very difficult. You just have to be ready when the king wants you, which is not so often, because the king has a lot of concubines. It was a little boring, sure, but after a while you get used to that. After that I had learned some of the local language, Hittite, I spent my time chatting with the other concubines, eating, drinking, and laughing. So, that could have been all of my story; to get old in the king's harem; it is the lot of concubines, But, instead, my destiny was to be completely different.

As a concubine, I was a little special, because I was from Babylon, and I had been a hierodule of the temple of Ishtar and the priests and the priestesses of Babylon have this fame of being able to make prophecies. So, one day, the king summoned me, and I went to see him all dressed up nice, kohl on my eyes, good perfume all over, and gold bracelets on my wrists and my ankles. But that day I found that he didn't want to play Dummuzi and Inanna with me. I saw right away that he was worried, very worried. So, he told me that messengers had come from Egypt and had told him that the Egyptian army was marching North in full strength, toward the lands of the Hittites, led by the young Pharaoh Ramses. And, of course, he had to stop them. So, he asked me to make a prophecy for him. A prophecy about the coming battle.

What could I do? When a king asks you something, you can't refuse. So, I wore the dress of the prophetess, had a liver from a freshly killed goat brought to me and I made this prophecy for him. And it was not a good prophecy. I saw a lot of dead people, plenty of smashed chariots, and the remains of the Hittite army retreating. I told him that, and he got angry at me. He said that he was going to lick these Egyptians as they deserved. And that he would teach this stupid Ramses a good lesson. And that he didn't believe a word of my prophecy. It was what my Ensi had said. That nobody would believe my prophecies; actually she had said it was a curse, and maybe it was true. But what could I do about that? King Muwatalli assembled the army; all the chariots and the infantry, and off he went, marching south.

A few months later, we saw the king coming back. But half of the army was not there anymore. Of course, the king told everyone that it had been a big victory for him, at the city of Kadesh. But the survivors told different stories; people being hacked to pieces and drowning while trying to swim across the Orontes river, pursued by the Egyptians. Later on, there came messengers from Egypt; they said that king Ramses had come back home telling of the great victory he had won against the Hittites.

So, you can understand how things were at the court of Tarhuntassa at that time. The king was worried that the Egyptians would attack again, that the provinces would rebel, that the nobles would try to overthrow him… a mess. And about me…. ow… you can imagine that. It is no good having been right about a king's disgrace. I was afraid that King Mutawalli would kill me; he didn't, but for sure he didn't care any more for me to play Inanna and Dummuzi with him. But at this point there happened something else.

Not that I was supposed to be told about these political things, I was just a concubine. But everything becomes known in court after a while, and so I learned that there had come a messenger from the West, from king Alaksandu of Wilusa. You probably never heard these names, but you can surely understand if I say, instead, "King Priam of Troy". So let me call him Priam, even though the Hittites called him in a different way.

Now, this messenger arrived, and he said that King Priam was in trouble because there was this king Akagamunash, ruler of the Ahhiyawa, who was planning to attack the city of Troy. Even these names, you probably never heard of, unless you speak Hittite. But they are also known as king Agamemnon and the Achaeans; people living across the sea from Anatolia. So, this messenger said that King Priam had always been a faithful vassal of king Mutawalli, and that he would remain a faithful servant forever, and that his sons would be forever faithful servants of King Muwatalli, too, and he kept going like that for quite a long time. Then, while still paying homage to the victorious king of the Hittites, he – king Priam – said that he badly needed some help from King Muwatalli and that the great Hittite ruler was surely able to chase away these barbarian Achaeans with his powerful army as if they were ants pushed away by fire.

That message made king Mutawalli even angrier and more worried than before. He had no army that he could send West to defend Troy. And if he tried to defend Troy, he would have to leave the Eastern provinces unguarded, and that could have been truly the end of him. But if he did nothing, he risked the whole left flank of the Hittite Empire. So, he had this idea: to send me to king Priam.

I don't know if that was to be taken as a joke or if he really thought I could help the Trojans – maybe yes, you know, these Babylonian priestesses have strange powers. Anyway, the king had his scribes write a pompous letter to Priam, saying that because of his faithful service he wanted to reward him with a precious gift, a gift of great value. And he was sending him this wise woman, Kashanna from Babylon, prophetess of renown, and that he – king Muwatalli – was sure that King Priam would appreciate the gift for what it was worth.

All that I came to know later. What happened is that the king summoned me in front of him and he told me "Kashanna, you are going to Wilusa." And I knew nothing of that story and I said, "What?" And he laughed and he said, "Aren't you a prophetess, Kashanna? You should know!" Silly humor of kings. But let me say nothing about that.

One month later, I was there, in front of the walls of Troy, with a caravan that had traveled all the way from Tarhuntassa. And I was in front of King Priam, who came out of the door of the city to meet me. I still remember his face. He was expecting an army to help him, and all what he got was a dressed up concubine escorted by eunuchs and slaves. Oh, that he was disappointed!! But he put on a brave face, and he took me into the city with all the pomp of the occasion.

Now, King Priam was too old to be interested in playing Dummuzi and Inanna with me. But his sons were young enough, and I was the new girl in town, and I think that Priam didn't want anyone to quarrel because of me. There was a war that was going to start, and he didn't want Trojans to kill each other because they were quarreling for me. So, he placed me in the temple of the goddess with the other hierodules. In Troy, things were much different than in Babylon and the hierodules were all supposed to be virgins. Now, it is a bit strange for a hierodule of Isthar to be said to be a virgin. Curious uses they had, there. It would be like saying that Nergal, the God of War, fears blood! And, about those girls being really virgins, well, let me say nothing. But, anyway, the king placed me there, and there I had to stay. And not just that. He adopted me, telling everyone that from then on I was supposed to be his daughter and that any offense against me, any attempt to jeopardize my virginity, would be seen as an insult to the king and to the whole royal family. Well, what could I say? At least I didn't have to worry about too many things.

So, while staying in the temple, I learned a little of the local language – not so different than Hittite. It was then at that time that they started calling me "Cassandra" instead of Kashanna, apparently Cassandra sounded better in their language. Then, I learned about the city and all the buzz there was about this woman, Helen. One of the sons of King Priam, Paris, had snatched her away from her husband, a big Achaean boss called Menelaus. This Helen was supposed to be extremely beautiful, but I can tell you that she was kind of overrated. Anyway, it was none of my business whether this Paris and Helen were playing Dummuzi and Inanna together. But it didn't seem to me that it had been such a good idea to steal this woman from her husband, who was a powerful Achaean King. Now the Achaeans were buzzing like angry bees and that was the reason why Priam was expecting an invasion.

Sure enough, not long after I had arrived, there appeared on the sea a big fleet of those Achaeans, right in front of the city of Troy. They landed, and out of the ships they came with their chariots, swords, lances, and all what is needed for war. And the Trojans, including the hierodules of the temple, went up the walls and looked down to the plain in front of the city and – by the sacred name of the Goddess – there was a huge band of those Achaeans there. Truly an awful lot of them.

Later on, that day, King Priam summoned me and he asked me to perform a divination for him. And I told him, "King, I don't need to make a prophecy for you; haven't you seen how many of these Achaeans there are, out there?" And he told me not to be silly and to make this divination. So, what could I do? I got myself a goat liver and I performed the ritual and I told him what I saw. Which was a lot of blood and the city in flames. And, of course, he wasn't happy. He got angry at me and he started screaming things I didn't understand. So, I told him, "king, don't you think it was a silly idea that your son, Paris, snatched away this girl, this Helen, from her husband? Now he is here with all his friends and he wants her back. So, why don't you give her back to him, and so you save the city?" But he muttered something like "the Trojans' honor is not negotiable!" And he left, angry, saying that he didn't believe a word of my prophecies. As if that was new.

Not that King Priam was stupid, not at all. One problem was that he was old, he couldn't really tell to his people what to do. But there was this idea in Troy that the honor of the city was at stake and that they had to fight, even though they understood that they had done something wrong and that the Achaeans, after all, were right at being angry at them. I know this because I spoke with other people of the city, including one of Priam's sons, a guy called Hector. He seemed to be smarter than the average, but still he didn't budge from that position: they were fighting for the honor of Troy and that was it. So, what could I do about that? I even made a divination for him, and you can imagine what came out: more blood and disasters. And he started looking at me askance as if I was a traitor or a spy; after all I was a foreigner. Don't misunderstand me; these Trojans were not bad people – actually I liked them. But they had this idea that there is no other way to solve problems than hacking at each other with swords. I told them that swords create problems, don't solve them, but they looked at me as if I had been a Galla demon from the underworld, just materialized in front of them. Nothing to do about that.

So, there started the war. In the temple, with the other hierodules, we couldn't see anything of what was going on, out there, but, every evening, the warriors came back to the city and told stories of the battle. We heard of this guy having killed that guy, and of another guy coming up and killing the first in revenge. I figure this is the way wars are; not very interesting for a hierodule. Anyhow, I must say that the Trojans put up quite a good fight, though badly outnumbered. And they trusted their walls, they thought they were safe behind them.

There is a legend that says that the siege of Troy lasted for ten years, but it is not true, it lasted just for a season – what do you think those Achaeans would have eaten if they had to stay in the plain for ten years? But never mind that. One day, someone came up to the temple and he told me, "Cassandra, come! The Achaeans have gone!" So, they told me that the Achaeans had left in a hurry and that it was a big victory for the glorious city of Troy. Everyone was happy about that, but they were also perplexed, because the Achaeans had left something weird in front of the city walls. So, I walked up the battlements and I saw a big wooden thing right in front of the walls. And everyone was wondering about what the hell that was and they asked me because they knew I was a priestess and I had seen a lot of things. And, of course, I knew what it was, I had read about those things; not for nothing we have a big library in the temple of Babylon. So, I told them, "it is a siege engine!" And they looked at me with bovine eyes and they said, "what?" And I told them, "it is made to smash down the city walls!" They looked at each other, shaking their heads. They didn't believe me. What's so new about that?

So, they kept discussing about that big wooden thing and someone came up with this brilliant idea that it was a horse and that it was a votive offering for the God Apollon. And I told them, "Look, you idiots, you must set that thing on fire before it is too late." I was trying to do my best to help them, after all. But they just looked at me, askance and again, they started muttering that I am a foreigner and that I could be a spy and that I should not be trusted. What could I do about that?

So, I went back to the temple, and night came, and I went to sleep and I woke up when I heard a lot of noise, people screaming, and the smell of things burning. I understood immediately what was going on but, again, there was nothing I could do about that. I could only note how silly these people were. And, again, I was sorry for them, they were not bad people, these Trojans. Then, at some moment, the door of the temple was smashed open from the outside and there came inside a hirsute idiot wearing armor and carrying a sword. You can imagine that I was afraid, so I clung to the statue of the Goddess, but the idiot tried to pull me away – I mean, so stupid: if he had wanted to play Dummuzi and Inanna with me, he could have asked in the proper manner, after all I was a temple girl from Babylon, it is my job! Instead, he tried to force me away, I got even more scared and I clung to the statue more, and in the end I got a dislocated shoulder, quite some bruises, and the hirsute idiot carried me away.

You can imagine how angry I was, in addition to the dislocated shoulder, this idiot had managed to desecrate the temple of the Goddess. So I cursed him for good, using some curses that my Ensi had taught me; while telling me that I should never use them, but I did. He was cursed for good and he had lots of troubles. Later on, the Goddess had his ship sink at sea, and he drowned. When I came to know that, I was sorry for him, but that was how things went.

So, while Troy was burning, I ended up playing Inanna and Dummuzi with the king of the Achaeans, someone called Agamemnon. I said that I was a good looking girl at that time, so he took me with him on his ship, when he sailed back to his city, Mycenae. Before leaving, he asked me to make a divination for him; which I did – the usual work with a goat's liver. I told him that I saw blood and murder at his home, and he just laughed and he said that his loving wife was waiting for him and that everything would be fine. He didn't believe me. Nothing unusual.

So, we arrived in Mycenae, and Agamemnon took me with him to his palace. His wife, Clytemnestra, didn't like that — not so much because of me, but because she had a lover, and she didn't want her obnoxious husband back. So she killed Agamemnon by stabbing him while he was taking a bath – loving wife, yes! – and then she ran after me with an axe. She almost got me, but I managed to run away. Later on, the legend spread that said that she had killed me. That was not true, but I was perfectly happy with that. I had had enough troubles with all those stories and I much preferred if people thought I was dead.

That was not the end of the story, but I'll skip several details of what happened after I ran away from Mycenae, chased by a madwoman yielding a battle axe. Let me just say that I managed to meet another Achaean who was also getting back home – Odysseus his name. He took me on board of his ship and he played a little of Dummuzi and Inanna with me, then he asked me a prophecy for his return home. I don't have to tell you that I saw bad things there, but he didn't believe me – of course. But this Odysseus was nice enough to land me in Byblos, in Lebanon. There, I found a ride on a caravan that was bringing cedar wood to Babylon.

And there I was, a few years had gone by, but in the meantime my Ensi priestess had died and now they recognized me, and they wanted me to become the new Ensi of the temple. But I didn't want to – I had had enough of prophecies. I stopped being a hierodule, I stopped being a prophetess. I married a tavern keeper in Babylon, I had children and grandchildren, and I died very old. I had a happy life and now I am a ghost. And that's the end of the story of Cassandra – known as Kashanna in Babylon.

Just one more detail; I think it may interest you. One day there came someone to the tavern, an old Greek. He was blind and he had no money, but he said he could sing for me in exchange for some good beer. So, I served him some good beer, and he sang for me the story of the war of Troy. It was nice, but I told him that it was wrong in many details. I tried to tell him that Cassandra was not the daughter of King Priam, and that the siege engine was not supposed to look like a horse. But he didn't believe me – imagine that! So, I told him that he could have his beer for free, and might the Goddess bless him. And that's truly the end of this story.

….. Lady Cassandra, it is a nice story to hear. Thank you very much. So, you even meet Homer…

Yes, I remember that Homer was the name of that blind Greek. I think he became famous.

But, Lady Cassandra.. You said that your name in Babylon was…. how did you say?

My name? Kashanna…. it was my name in Babylon.

What does it mean?

Oh… it is an old Sumerian name. Kash is beer and Anna is heaven. So, Kashanna means "heavenly beer."

A very nice name.

Thank you. Do you like beer?

I do. Although sometimes it gives me headaches.

Not the beer I served in my tavern, in Babylon. I am sure that it didn't give headaches to anyone.

I don't think they make that kind of beer any more…. unfortunately. Do you like beer Lady Cassanra?

Well, I used to. But, you know, as a ghost……

Oh…. sorry, I didn't mean…

No, it is all right. It is the way the Gods have arranged things to be. Everyone has to become a ghost. Sooner or later.

But, Lady Cassandra, I was thinking that I might ask you something…..

You want a divination, don't you?

Well, if possible…. I am not sure I can find a goat liver for you, but…..

Oh… don't worry about that. As a ghost I can make divinations even without a goat liver. No problem. And what would you like the divination to be about?

That's very nice of you, Lady Cassandra. So, you know, we have plenty of problems, here. But there is this one we call "climate change"…. I am not sure you are familiar with this concept.

Ghosts have special powers, you know? So, I know what you are talking about. It is very dangerous, indeed. More dangerous than having the whole Achaean army lined up in front of the city doors. So, let me make this divination for you.

Well, maybe it takes time…

No…. as I said, we ghosts have special powers. I just have to think about the matter, and the prophecy comes. And, you know, I am sorry, I am really sorry…..

Why?

It is not a good prophecy. It is even worse than for Troy. Everything on fire. People dying, blood everywhere. But many, many more.

But am I not supposed to disbelieve you?

Oh… no, that curse was for when I was alive. Now that I am a ghost, not anymore….. I think you believe me. I can see that.

Not that I am happy about that, but….

It seems that people in your time are even more stupid than the Trojans. They just had to give back Helen to the Achaeans to save the city, and they didn't want to do that. And or you, all what you have to do is to stop burning that awful black stuff you keep burning. Is it so difficult?

Apparently, yes. It seems to be very difficult.

I see….. I am sorry that I upset you.

It is all right. I should have expected that.

I am really sorry. I see that you are very upset. I should really go back to the underworld….

No, no… there is no hurry. But, Lady Cassandra, do you really think your prophecies…. I mean, do they always come true?

The Gods send them to me.

Ah……

See, I was sorry for the people of Troy, and I am sorry for your people, too. You see, maybe you should pray to the Goddess Inanna, maybe she can help you.

I think we should try that, yes…..

Really, I guess it is time for me to go…… Ghosts are not supposed to chat with the living for such a long time. And good luck, you really need it.

Thank you, Lady Cassandra.

A Human Tsunami of Overshoot

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Aired on the Doomstead Diner on November 13, 2015

 

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By now, everyone who follows the Collapse blogs knows about the escalating Refugee crisis in Europe, as desperate Syrians and Afghanis attempt to escape War Zones for a new life in the Promised Lands of Sweden and Germany.

Already, with barely the first ripple of this wave rolling in, communities from Kos & Lesbos in the Greek Islands right up to the border between Mother Russia and Norway north of Murmansk and north of the Arctic Circle are being overwhelmed by a HUMAN WAVE.

To date, only a few hundred thousand have begun the migration to GTFO of Dodge before it is too late, but for most it is already too late.  The Borders are closing and the local populations becoming less accepting by the day of the thousands crossing their borders looking just for a meal to eat and peace in their lives.  They are sacrificing everything they have, all they have ever known for the chance to make it to the Promised Land.  They have NOTHING LEFT TO LOSE.  They know they are dead if they stay where they lay.  So move they will, en masse here.

For those on the receiving end, they have EVERYTHING TO LOSE.  Their peaceful lives to begin with, but eventually an existential battle for survival.

This year to date in the Refugee Crisis is not the End of it.  It is not even the Beginning of the End.  It is only the End of the Beginning.  Thank you once again Winston Churchill.

If you like Happy Endings, don't listen to this rant.  It will not make you happy.

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Snippet:

Even if they had food enough, they don't have the infrastructure necessary to handle so many coming in at once. The Finns are talking about using Conex shipping containers for housing refugees this witer in Finland, one hopes with some insulation added and a wood pellet stove for heating. However, what are they using for Toilet facilities in these instant ghetto communities? What is the water supply for the community? Who is hauling out the solid waste of water bottles and MRE cans and paper plates and plastic forks and spoons? Who pays for all of this and with what working money?

This crisis is already here, even without a global food deficit, and it is not going to get any better next year. Measures will be taken to try and close off borders, which will become increasingly harder to enforce and increasingly more violent. Refugee camps will be attacked and set on fire, as has already occurred in Sweden. There will be pileups of refugees in countries with very porous borders like Turkey, which again is already beyond capacity for handling the flow. It's a Human Tsunami of Overshoot, and the Wave hasn't even crested yet…

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Oops! Low oil prices are related to a debt bubble

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Published on the Our Finite World on November 3, 2015

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Why is the price of oil so low now? In fact, why are all commodity prices so low? I see the problem as being an affordability issue that has been hidden by a growing debt bubble. As this debt bubble has expanded, it has kept the sales prices of commodities up with the cost of extraction (Figure 1), even though wages have not been rising as fast as commodity prices since about the year 2000. Now many countries are cutting back on the rate of debt growth because debt/GDP ratios are becoming unreasonably high, and because the productivity of additional debt is falling.

If wages are stagnating, and debt is not growing very rapidly, the price of commodities tends to fall back to what is affordable by consumers. This is the problem we are experiencing now (Figure 1). 

Figure 1. Author's illustration of problem we are now encountering.

 

 

 

Figure 1. Author’s illustration of problem we are now encountering.

I will explain the situation more fully in the form of a presentation. It can be downloaded in PDF form: Oops! The world economy depends on an energy-related debt bubble. Let’s start with the first slide, after the title slide.

Slide 2

 

 

 

Slide 2

Growth is incredibly important to the economy (Slide 2). If the economy is growing, we keep needing to build more buildings, vehicles, and roads, leading to more jobs. Existing businesses find demand for their products rising. Because of this rising demand, profits of many businesses can be expected to rise over time, thanks to economies of scale.

Something that is not as obvious is that a growing economy enables much greater use of debt than would otherwise be the case. When an economy is growing, as illustrated by the ever-increasing sizes of circles, it is possible to “borrow from the future.” This act of borrowing gives consumers the ability to buy more things now than they would otherwise would be able to afford–more “demand” in the language of economists. Customers can thus afford cars and homes, and businesses can afford factories. Companies issuing stock can expect that price of shares will most likely rise in the future.

Without economic growth, it would be very hard to have the financial system that we have today, with its stable banks, insurance companies, and pension plans. The pattern of economic growth makes interest and dividend payments easier to make, and reduces the likelihood of debt default. It allows financial planners to set up savings plans for retirement, and gives people confidence that the system will “be there” when it is needed. Without economic growth, debt is more of a last resort–something that might land a person in debtors’ prison if things go wrong.

Slide 3

 

 

 

Slide 3

It should be obvious that the economic growth story cannot be true indefinitely. We would run short of resources, and population would grow too dense. Pollution, including CO2 pollution, would become an increasing problem.

Slide 4

 

 

 

Slide 4

The question without an obvious answer is “When does the endless economic growth story become untrue?” If we listen to the television, the answer would seem to be somewhere in the distant future, if a slowdown in economic growth happens at all.

Most of us who read financial newspapers are aware that more debt and lower interest rates are the types of stimulus provided to the economy, to try to help it grow faster. Our current “run up” in debt seems to have started about the time of World War II. This growing debt allows “demand” for goods like houses, cars, and factories to be higher. Because of this higher demand, commodity prices can be higher than they otherwise would be.

Thus, if debt is growing quickly enough, it allows the sales price of energy products and other commodities to stay as high as their cost of extraction. The problem is that debt/GDP ratios can’t rise endlessly. Once debt/GDP ratios stop rising quickly enough, commodity prices are likely to fall. In fact, the run-up in debt is a bubble, which is itself in danger of collapsing, because of too many debt defaults.

Slide 5

 

 

 

Slide 5

The economy is made up of many parts, including businesses and consumers. The consumers have a second role as well–many of them are workers, and thus get their wages from the system. Governments have many roles, including providing financial systems, building roads, and providing laws and regulations. The economy gradually grows and changes over time, as new businesses are added, and others leave, and as laws change. Consumers make their decisions based on available products in the marketplace and they amount they have to spend. Thus, the economy is a self-organized networked system–see my post Why Standard Economic Models Don’t Work–Our Economy is a Network.

One key feature of a self-organized networked system is that it tends to grow over time, as more energy becomes available. As its grows, it changes in ways that make it difficult to shrink back. For example, once cars became the predominant method of transportation, cities changed in ways that made it difficult to go back to using horses for transportation. There are now not enough horses available for this purpose, and there are no facilities for “parking” horses in cities when they are not needed. And, of course, we don’t have services in place for cleaning up the messes that horses leave.

Slide 6

 

 

 

Slide 6

When businesses start, they need capital. Very often they sell shares of stock, and they may get loans from banks. As companies grow and expand, they typically need to buy more land, buildings and equipment. Very often loans are used for this purpose.

As the economy grows, the amount of loans outstanding and the number of shares of stock outstanding tends to grow.

Slide 7

 

 

 

Slide 7

Businesses compete by trying to make goods and services more efficiently than the competition. Human labor tends to be expensive. For example, a sweater knit by hand by someone earning $10 per hour will be very expensive; a sweater knit on a machine will be much less expensive. If a company can add machines to leverage human labor, the workers using those machines become more productive. Wages rise, to reflect the greater productivity of workers, using the machines.

We often think of the technology behind the machines as being important, but technology is only part of the story. Machines reflecting the latest in technology are made using energy products (such as coal, diesel and electricity) and operated using energy products. Without the availability of affordable energy products, ideas for inventions would remain just that–simply ideas.

The other thing that is needed to make technology widely available is some form of financing–debt or equity financing. So a three-way partnership is needed for economic growth: (1) ideas for inventions, (2) inexpensive energy products and other resources to make them happen, and (3) some sort of financing (debt/equity) for the undertaking. 

Workers play two roles in the economy; besides making products and services, they are also consumers. If their wages are rising fast enough, thanks to growing efficiency feeding back as higher wages, they can buy increasing amounts of goods and services. The whole system tends to grow. I think of this as the normal “growth pump” in the economy.

If the “worker” growth pump isn’t working well enough, it can be supplemented for a time by a “more debt” growth pump. This is why debt-based stimulus tends to work, at least for a while.

Slide 8

 

 

 

Slide 8

There are really two keys to economic growth–besides technology, which many people assume is primary. One key is the rising availability of cheap energy. When cheap energy is available, businesses find it affordable to add machines and equipment such as trucks to allow workers to be more productive, and thus start the economic growth cycle.

The other key is availability of debt, to finance the operation. Businesses use debt, in combination with equity financing, to add new plants and equipment. Customers find long-term debt helpful in financing big-ticket items such as homes and cars. Governments use debt for many purposes, including “stimulating the economy”–trying to get economic growth to speed up.

Slide 9

 

 

 

Slide 9

Slide 9 illustrates how workers play a key role in the economy. If businesses can create jobs with rising wages for workers, these workers can in turn use these rising wages to buy an increasing quantity of goods and services.

It is the ability of workers to afford goods like homes, cars, motorcycles, and boats that helps the economy to grow. It also helps to keep the price of commodities up, because making these goods uses commodities like iron, steel, copper, oil, and coal.

Slide 10

 

 

 

Slide 10

In the 1900 to 1998 period, the price of electricity production fell (shown by the falling purple, red, and green lines) as the production of electricity became more efficient. At the same time, the economy used an increasing quantity of electricity (shown by the rising black line). The reason that electricity use could grow was because electricity became more affordable. This allowed businesses to use more of it to leverage human labor. Consumers could use more electricity as well, so that they could finish tasks at home more quickly, such as washing clothes, leaving more time to work outside the home.

Slide 11

 

 

 

Slide 11

If we compare (1) the amount of energy consumed worldwide (all types added together) with (2) the world GDP in inflation-adjusted dollars, we find a very high correlation.

Slide 12

 

 

 

Slide 12

In Slide 12, GDP (represented by the top line on the chart–the sum of the red and the blue areas) was growing very slowly back in the 1820 to 1870 period, at less than 1% per year. This growth rate increased to a little under 2% a year in the 1870 to 1900 and 1900 to 1950 periods. The big spurt in growth of nearly 5% per year came in the 1950 to 1965 period. After that, the GDP growth rate has gradually slowed.

On Slide 12, the blue area represents the growth rate in energy products. We can calculate this, based on the amount of energy products used. Growth in energy usage (blue) tends to be close to the total GDP growth rate (sum of red and blue), suggesting that most economic growth comes from increased energy use. The red area, which corresponds to “efficiency/technology,” is calculated by subtraction. The period of time when the efficiency/technology portion was greatest was between 1975 and 1995. This was the period when we were making major changes in the automobile fleet to make cars more fuel efficient, and we were converting home heating to more fuel-efficient heating, not using oil.

Slide 13

 

 

 

Slide 13

If we look at economic growth rates and the growth in energy use over shorter periods, we see a similar pattern. The growth in GDP is a little higher than the growth in energy consumption, similar to the pattern we saw on Slide 12.

If we look carefully at Slide 13, we see that changes in the growth rate for energy (blue line) tends to happen first and is followed by changes in the GDP growth rate (red line). This pattern of energy changes occurring first suggests that growth in the use of energy is a cause of economic growth. It also suggests that lack of growth in the use of energy is a reason for world recessions. Recently, the rate of growth in the world’s consumption of energy has dropped (Slide 13), suggesting that the world economy is heading into a new recession.

Slide 14

 

 

 

Slide 14

There is nearly always an investment of time and resources, in order to make something happen–anything from the growing of food to the mining of coal. Very often, it takes more than one person to undertake the initial steps; there needs to be a way to pay the other investors. Another issue is the guarantee of payment for resources gathered from a distance.

Slide 15

 

 

 

Slide 15

We rarely think about how all-pervasive promises are. Many customs of early tribes seem to reflect informal rules regarding the sharing of goods and services, and penalties if these rules are not followed.

Now, financial promises have to some extent replaced informal customs. The thing that we sometimes forget is that the bonds companies offer for sale, and the stock that companies issue, have no value unless the company issuing the stock or bonds is actually successful.  As a result, the many promises that are made are, in a sense, contingent promises: the bond will be repaid, if the company is still in business (or if the company is dissolved, if the amount received from the sale of assets is great enough). The future value of a company’s stock also depends on the success of the company.

Slide 16

 

 

 

Slide 16

Governments become an important part of the web of promises. Governments collect their assessments through taxes. As an economy grows, the amount of government services tends to increase, and taxes tend to increase.

The roles of governments and businesses vary somewhat depending on the type of economy of a country. In a sense, this type of variation is not important. It is the functioning of the overall networked system that is important.

Slide 17

 

 

 

Slide 17

There was a very large run up in US debt about the time of World War II, not just in the US, but also in the other countries involved in World War II.

Adding the debt for World War II helped pull the US out of the lingering effects of the Depression. Many women started working outside the home for the first time. There was a ramp-up of production, aimed especially at the war effort.

Slide 18 - From The United States' 65-Year Debt Bubble

 

 

 

Slide 18 – From The United States’ 65-Year Debt Bubble

What does a country do when a war is over? Send the soldiers back home again, without jobs, and the women who had been working to support the war effort back home again, also without jobs? This was a time period when non-government debt ramped up in the US. In fact, it seems to have ramped up elsewhere around the world as well. The new debt helped support many growing industries at the time–helping rebuild Europe, and helping build homes and cars for citizens in the US. As noted previously, both energy use and GDP soared during this time period.

Slide 19

 

 

 

Slide 19

I haven’t found very good records of debt going back very far, but what I can piece together suggests that the rate of debt growth (total debt, including both government and private debt) was similar to the rate of growth of GDP, up until about 1975. Then, debt began growing much more rapidly than GDP.

Slide 20

 

 

 

Slide 20

The big issue that led to a big increase in the need for debt in the early 1970s was an increase in the price of oil. Oil is the single largest source of energy. It is used in many important ways, including making food, transporting coal, and extracting metals. Thus, when the price of oil rises, so does the price of many other goods.

As we noted on Slides 11, 12, and 13, it is the growing quantity of energy consumption that is important in providing economic growth. The natural tendency with high energy prices is to cut back on energy-related consumption. Increasing debt, if it is at a sufficiently low interest rate, helps counteract this natural tendency toward less energy usage. For example, the availability of debt at a low interest makes it possible for more consumers to purchase big-ticket items like houses, cars, and motorcycles. These products indirectly lead to the growing consumption of energy products, because energy is used in making these big-ticket items and because they use energy in their continuing operation.

Slide 21

 

 

 

Slide 21

Many people have been concerned about what they call “peak oil”–the idea that oil supply would suddenly drop because we reach geological limits. I think that this is a backward analysis regarding how the system works. There is plenty of oil available, if only the price would rise high enough and stay high for long enough.

Much of this oil is non-conventional oil–oil that cannot be extracted using the inexpensive approaches we used in the early days of oil production. In some cases, non-conventional oil is so viscous it needs to be melted with steam, before it will flow freely. Some of the unconventional oil can only be extracted by “fracking.” Some of the unconventional oil is very deep under the ocean. Near Brazil, this oil is under a layer of salt. If prices would remain high enough, for long enough, we could get this oil out.

The problem is that in order to get this unconventional oil out, costs are higher. These higher costs are sometimes described as reflecting diminishing returns–more capital goods are needed, as are more resources and human labor, to produce additional barrels of oil. The situation is equivalent to the system of oil extraction becoming less and less efficient, because we need to add more steps to the operation, raising the cost of producing finished oil products. The higher price of oil products spills over to a higher cost for producing food, because oil is used in operating farm equipment and transporting food to market. The higher cost of oil also spills over to the cost of almost anything that is shipped long distance, because oil is used as a transportation fuel.

You will remember that increased efficiency is what makes an economy grow faster (Slide 7, also Slide 37). Diminishing returns is the opposite of increased efficiency, so it tends to push the economy toward contraction. We are running into many other forms of increased inefficiency. One such type of inefficiency involves adding devices to reduce pollution, for example in electricity production. Another type of inefficiency involves switching to higher-cost methods of generation, such as solar panels and offshore wind, to reduce pollution. No matter how beneficial these techniques may be from some perspectives, from the perspective of economic growth, they are a problem. They tend to make the economy grow more slowly, rather than faster.

The standard workaround for slow economic growth is more debt. If the interest rate is low enough and the length of the loan is long enough, consumers can “sort of” afford increasingly expensive cars and homes. Young people with barely adequate high school grades can “sort of” afford higher education. With cheap debt, businesses can afford to buy back company stock, making reported earnings per share rise–even though after the buy-back, the actual investment used to generate future earnings is lower. With sufficient cheap debt, shale companies can create models showing that even if their cash flow is negative at $100 per barrel oil prices ($2 out for $1 in) and even more negative at $50 per barrel ($4 out for $1 in), somehow, the companies will be profitable in the very long run.

The technique of adding more debt doesn’t fix the underlying problem of growing inefficiency, instead of growing efficiency. Instead, as more debt is added, the additional debt becomes increasingly unproductive. It mostly provides a temporary cover-up for economic growth problems, rather than fixing them.

Slide 22

 

 

 

Slide 22

A common belief has been that as we reach limits of a finite world, oil prices and perhaps other prices will spike. In my view, this is a wrong understanding of how things work.

What we have is a combination of rising costs of production for many kinds of goods at the same time that wages are not rising very quickly.  This problem can be temporarily hidden by a rising amount of debt at ever-lower interest rates, but this is not a long-term solution.

We end up with a conflict between the prices businesses need and the prices that workers can afford. For a while, this conflict can be resolved by a spike in prices, as we experienced in the 2005-2008 period. These spikes tend to lead to recession, for reasons shown on the next slide. Recession tends to lead to lower prices again.

Slide 26

 

 

 

Slide 26

The image on Slide 26 shows an exaggeration to make clear the shift that takes place, if the price of oil spikes. When the price of one necessary part of consumers’ budgets increases–namely the food and gasoline segment–there is a problem. Debt payments already committed to, such as those on homes and automobiles, remain constant. Consumers find that they must cut back on discretionary spending–in other words, “Everything else,” shown in green. This tends to lead to recession.

Slide 27

 

 

 

Slide 27

If we look at oil prices since 2000, we see that the period is marked by steep rises and falls in oil prices. In Slides 27 – 29, we will see that changes in the price of oil tend to correspond to changes in debt availability and cost.

In 2008, oil prices rose to a peak in July, and then dropped precipitously to under $40 per barrel in December of the same year. Slide 27 shows that the United States began its program of Quantitative Easing (QE) in late 2008. This helped to lower interest rates, especially longer-term interest rates. China and a number of other countries also raised their debt levels during this period. We would expect greater debt and lower interest rates to increase demand for commodities, and thus raise their prices, and in fact, this is what happened between December 2008 and 2011.

The drop in prices in 2014 corresponds to the time that the US phased out its program of QE, and China cut back on debt availability. Here, the economy is encountering less cheap debt availability, and the impact is in the direction expected–a drop in prices.

Slide 28 - From The United States' 65-Year Debt Bubble

 

 

 

Slide 28 – From The United States’ 65-Year Debt Bubble

If we go back to the steep drop in oil prices in July 2008, we find that the timing of the drop in prices matches the timing when US non-governmental debt started falling. In my academic article, Oil Supply Limits and the Continuing Financial Crisis, I show that this drop in debt outstanding takes place for both mortgages and credit card debt.

Slide 29

 

 

 

Slide 29

The US government, as well as other governments around the world, responded by sharply increasing their debt levels. This increase in governmental debt (known as sovereign debt) is part of what helped oil and other commodity prices to rise again after 2008.

Slide 30

 

 

 

Slide 30

We often hear about the drop in oil prices, but the drop in prices is far more widespread. Nearly all commodities have dropped in price since 2011. Today’s commodity price levels are below the cost of production for many producers, for all of these types of commodities. In fact, for oil, there is hardly any country that can produce at today’s price level, even Saudi Arabia and Iraq, when needed tax levels by governments are considered as well.

Producers don’t go out of business immediately. Instead, they tend to “hold on” as best they can, deferring new investment and trying to generate as much cash flow as possible. Because most of them have no alternative way of making a living, they often continue producing, as best they can, even with low prices, deferring the day of bankruptcy as long as possible. Thus, the glut of supply doesn’t go away quickly. Instead, low prices tend to get worse, and low prices tend to persist for a very long period.

Slide 31

 

 

 

Slide 31

In 2008, we had an illustration of what can go wrong when the economy runs into too many headwinds. In that situation, the price of oil and other commodities dropped dramatically.

Now we have a somewhat different set of headwinds, but the impact is the same–the price of commodities has dropped dramatically. Wages are not rising much, so they are not providing the necessary uplift to the economy. Without wage growth, the only other approach to growing the economy is debt, but this reaches limits as well. See my post, Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.)

There is some evidence that the Great Depression in the 1930s involved the collapse of a debt bubble. It seems to me that it may very well have also involved wages that were falling in inflation-adjusted terms for a significant number of wage-earners. I say this, because farmers were moving to the city in the early 1900s, as mechanization led to lower prices for food and less need for farmers. I haven’t seen figures on incomes of farmers, but I wouldn’t be surprised if they were dropping as well, especially for the many farmers who couldn’t afford mechanization. Wages for those who wanted to work as laborers on farms were likely also dropping, since they now needed to compete with mechanization.

In many ways, the situation that led up to the Great Depression appears to be not too different from our situation today. In the early 1900s, many farmers were being displaced by changes to agriculture. Now, wages for many are depressed, as workers in developed economies increasingly compete with workers in historically low-wage countries. Additional mechanization of manufacturing also plays a role in reducing job opportunities.

If my conjecture is right, the Great Depression may have been caused by problems similar to what we are seeing today–wages that were too low for a large segment of the economy, thus reducing economic growth, and a temporary debt bubble that tended to cover up the wage problem. Once the debt bubble collapsed, demand for commodities of all types collapsed, and prices collapsed. This problem was very difficult to fix.

Slide 32

 

 

 

Slide 32

When we add more debt to the economy, users of debt-financing find that more of their future income goes toward repaying that debt, cutting off the ability to buy other goods. For example, a young person with a large balance of student loans is unlikely to be able to afford buying a house as well.

A way of somewhat mitigating the problem of too much income going toward debt repayment is lowering interest rates. In fact, in quite a few countries, the interest rates governments pay on debt are now negative.

Slide 33

 

 

 

Slide 33

If the cost of producing commodities continues to rise, but the price that consumers can afford to pay does not rise sufficiently, at some point there is a problem. Instead of continuing to rise, prices start to fall below their cost of production. This drop can be very sharp, as it was in 2008.

The falling price of commodities is the same situation we encountered in 2008 (Slide 27); it is the same situation we reached at the beginning of the Great Depression back in 1929. It seems to happen when wage growth is inadequate, and the debt level is not growing fast enough to hide the inadequate wage growth. This time around, we are also challenged by the cost of producing commodities rising, something that was not a problem at the time of the Great Depression.

Slide 34

 

 

 

Slide 34

If we think about the situation, having prices fall behind the cost of production is a disaster. We can’t get oil out of the ground, if prices are too low. Farmers can’t afford to grow food commercially, if prices remain too low.

Prices of assets such as the value of farmland, the value of oil held by leases, and the value of metal ores in mines will fall. Assets such as these secure many loans. If an oil company has a loan secured by the value of oil held by lease, and this value falls permanently, there is a significant chance that the oil company will default on the loan.

The usual belief is, “The cure for low prices is low prices.” In other words, the situation will fix itself. What really happens, though, is that everyone is so afraid of a big crash that all parties make extreme efforts to avoid a crash. In fact, there is evidence today that banks are “looking the other way,” rather than taking steps to cut off lending to shale drillers, when current operations are clearly unprofitable.

By the time the crash does come around, it is likely to be a huge one, affecting many segments of the economy at once. Oil exporters and exporters of other commodities will be especially affected. Some of them, such as Venezuela, Yemen, and even Iraq may collapse. Financial institutions are likely to find themselves burdened with many “underwater loans.” The usual technique of lowering interest rates to try to aid the economy doesn’t look like it would work this time, because rates are already so low. Governments are not in sufficiently good financial condition to be able to bail out all of the banks and others needing assistance. In fact, governments may fail. The fall of the former Soviet Union occurred when oil prices were low.

Once there are major debt defaults, lenders will want to wait to see that prices will stay consistently high for a period (say, two or three years) before extending credit again. Thus, even if commodity prices should bounce back in 2017, it is doubtful that producers will be able to find financing at a reasonable interest rate until, say, 2020. By that time, depletion will have taken its toll. It will be impossible to make up for the many years of low investment at that time. Production is likely to continue falling, even if prices do rise.

The indirect impact of low oil and other commodity prices is likely to be a collapse in our current debt bubble. This collapsing bubble may lead to the failures of banks and even governments. It seems quite possible that these indirect impacts will affect us most, even more than the direct loss of commodities. These impacts could come quite quickly–in the next few months, in some cases.

Slide 35

 

 

 

Slide 35

Stocks, bonds, pension programs, insurance programs, bank accounts, and many other things of a financial nature seem to be very “solid” things–things that we can expect to be here and grow, for many years to come. Yet these things, directly and indirectly, depend on the ability of our system to produce goods and services. If something goes terribly wrong, we may find that financial assets have little more value than the pieces of paper that represent them.

Slide 36

 

 

 

Slide 36

I won’t try to explain Slide 36 further.

Slide 37

 

 

 

Slide 37

Slide 37 illustrates the principle of increased efficiency. If a smaller amount of resources and human labor can be used to create a larger amount of end product, this is growing efficiency. If more and more resources and labor are used to produce a smaller amount of end product, this is growing inefficiency.

The other part of the story is that simply automating processes is not enough. Instead, the economy must also produce a sufficiently large number of jobs, and these jobs must pay high enough wages that the workers can afford to buy the output of the economy. It is really the health of the whole interconnected system that is important.

Slide 38

 

 

 

Slide 38

Our low price problems are here now. That is why we need very cheap non-polluting energy products now, in large quantity, if there is any chance of fixing the system. These energy products must work in today’s devices, so we aren’t faced with the cost and delay involved with changing to new devices, such as cars and trucks that use a different fuel than petroleum.

Slide 39

 

 

 

Slide 39

Regarding Slides 39 and 40, we are sitting on the edge, waiting to see what will happen next.

The US economy temporarily seems to be in somewhat of a bubble, now that it does not have QE, while several other countries still do. This bubble is related to a “flight to quality,” and leads to a higher dollar, relative to other currencies. It also leads to high stock market valuations. As a result, the US economy seems to be doing better than much of the rest of the world.

Regardless of how well the US economy seems to be doing, the underlying problems of rising costs of producing commodities and prices that lag below the cost of production are still present, making the situation unstable. Wages continue to lag behind as well. We should not be too surprised if the economy starts taking major downward steps in the next few months.

Slide 40

 

 

 

Slide 40

Oil supply shock, food shortages, and potential starvation in Sweden?

PhoenixRisinggc2Off the keyboard of Fenixor

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Published on Peak Resources on October 8, 2015

 
Discuss this article at the Energy Table inside the Diner
 
In 2013 the Swedish Institute of Agricultural and Environmental Engineering (JTI) released a report about potential impacts on the country’s food supply from sudden oil import shocks. JTI looked at three different scenarios, where oil imports would be redistricted (-25%, -50%, -75%) for a period of 3-5 years. Not enough time to make a transition to some other fuel. 
 
In the worst case scenario, where 75% of oil imports disappear, the authors stated that the diesel price could increase to some SEK 160/litre, and we would likely experience widespread starvation! Food supplies, in stores and warehouses, would only last for 10-12 days. Swedes don’t even know that the government has said that it’s up to the citizens themself to provide for their own food needs in a crisis situation. Most people seem to believe we still live in the 1970s when Sweden was a socialist country, not any more, not since the neoliberals came into office and started dismantling healthcare, defence, education etc. There is no emergency preparedness!
 
Without fossil fuels (oil and gas) we wouldn't be able to produce enough food in Sweden. This is partly due to our high food imports (50%)​, large-scale mechanisation of farms, loss of small-scale farmers and high costs (taxes) on farming. Most farm machinery runs on diesel while oil is used for heating and transportation. Areas like Stockholm and parts of Norrland are especially dependent on food imports. For example, the Stockholm region only produces some 5% of the milk consumed and less than 10% of the meat.
 
Today there are no food or fuel reserves, instead the entire country is totally dependent on “just-in-time” supplies. Again, in the worst case scenario, there will be no cooking oil, 75% less fruits and berries, 67-70% less grains, 40% less milk, and 64% less pigs, chickens and eggs. The only thing increasing is sheep and cow meat since a lot of land only will be used for grazing. Grazing animals get their food from sunlight (grass) and contribute with manure.
 
Based on SPBI data
Swedes can be kept over the starvation line if only 25% of oil imports disappear, but we will experience food shortages and risk of starvation if a larger oil shock occurs (50-75%). Looking at the export-import data some commentators have estimated that 90% of all oil imports will be gone by 2030. And this is probably a conservative estimate since it doesn’t account for sudden shocks due to an economic crisis, conflict, and so on. 

 

In a recent opinion poll (2013) two out of every three (63%) Swedes stated that they wouldn't be able to handle a shorter crisis. People in Gotland, Öland (islands) and Småland were most worried about a future crisis (49% think they will experience a crisis). Most people (58%) can only manage for about one week but it's likely that the respondents underestimate how much resources are actually required for everyday life. For example, water (3 litres/day) and heating during the winter.

 

Sweden's food supply is in any case extremely vulnerable to a shortage in oil imports, and Swedes are not prepared despite a lacking government. Our dear politicians have absolutely no plan on changing this, instead they claim “we need to stay competitive” totally missing the point that growth is over! (0.3% per capita GDP growth the last decade). The situation is not made better by half of all our oil imports now coming from Russia that we are engaging in trade wars with (sanctions etc). 

The Refugee Tsunami

collapse-global-logo-1Off the keyboard of RE

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Published on the Doomstead Diner on August 20, 2015

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Migrants, who were found at sea on a boat, collect water during a heavy rain at a temporary refuge camp near Kanyin Chaung jetty, Myanmar, on June 4, 2015.

The Refugee problem is one of several Collapse Topics to be covered in a Live Broadcast this Sunday at High Noon Alaska Time on the Collapse Cafe You Tube Channel

Guests to include Nicole Foss, Gail Tverberg, Ugo Bardi, Steve Ludlum, Tom Lewis and Norman Pagett

(assuming everyone's plugins work right and the bandwidth is decent)

A growing problem all across the Globe is that of Refugees.  Millions of people trying to flee from one place and seek refuge in another.  The reasons appear to vary, in some cases because of ongoing conflict and war; in others due to Drought and the inability to provide enough food for the local population; other cases due to religious and ethnic differences between classes in the local society, etc.

Of course, all of these phenomena have two things in common, which are Population Overshoot and Resource Depletion.  All the conflicts stem from that, all the rest is just distraction.  If there really was plenty for everybody, if some people weren't being exploited for the benefit of others and there was an equitable distribution of the wealth, then you would have no conflict.  Everybody would be HAPPY! 🙂

http://s3.amazonaws.com/rapgenius/desert1101_428x269_to_468x312.jpgThe great surplus of energy we enjoyed globally here for the last couple of centuries allowed populations to balloon up all over the world, many of those populations in locations which have no chance of being self-sufficient at their current population size.  Saudi Arabia a prime example of this, they traded their oil for food and used it to pump up water from deep aquifers and desalinate still more water from the ocean, and blew up from 1M people to 30M people in a century.  In reality of course, Arabia is a DESERT!  The House of Saud Princes are descendents of a bunch of Bedouin Tribesmen who wandered that desert. Then with their Oil Wealth they imported in tons of people to do the scut work of the industrial society.   No way all these folks can continue to survive in Deserts of Arabia, so they will go on the MOVE.  At least if they don"t die first anyhow.

Although we have seen this for quite some time here in Amerika down on the Border with Mejico, constant bewailing of the problemof "Illegal Aliens" (as though they come from Outer Space without papers), the current really BIG problems are occuring in Southern Europe as refugees from the War Zones and progressively more desertified areas attempt to flee across the Mediterranean Sea by any thing that sort of floats, and on foot across Turkey and into Greece, all trying to get to the closest place where they think they still might carve out a life for themselves.

Boat-RefugeesSadly of course, Ground Zero for a lot of this migration is Italy where they are only doing marginally better than the folks down in MENA are doing.  At least 1000 a day currently actually arriving alive, plus they find a few bodies washing up on the beaches  in the Tourist hangouts on a daily basis as well.

Recently Jason Heppenstall from 22 Billion Energy Slaves was vacationing down in Italy and wrote this about the situation:

"[As an aside, a friend of mine got married in Sicily a couple of months ago and the wedding reception was continually interrupted by overhead helicopters coming back from sea with migrants dangling from them. Some children asked “What is going on?” and the adults comforted them by saying it was just some swimmers who had got into difficulty. When this carried on for two full days (Sicilian weddings being long affairs) the children must have concluded that practically everyone swimming needed rescuing.]"

For those that do make the crossing alive, they aren't exactly being welcome with open arms by the Italians

Italian protesters torch beds to try block migrant arrivals

http://www.barenakedislam.com/wp-content/uploads/2013/05/zx620y348_1075644.jpgRome (AFP) – Residents in a chic Rome suburb and a northern Italian village staged angry anti-immigrant protests on Friday, with villagers setting mattresses ablaze in a bid to stop authorities from housing migrants.

Authorities in the village of Quito plan to accommodate 101 immigrants in empty apartments, but several residents broke into one of the buildings, removed camp beds, mattresses and televisions intended for the newcomers and set them on fire outside.

The protesters then put up tents, with the Corriere della Sera newspaper quoting them as saying: "We aren't going home until they leave — this is an invasion."

Italy is currently hosting more than 80,000 migrants who have crossed the Mediterranean fleeing war, persecution or poverty in the Middle East and Africa. The arrivals include many Africans, particularly Eritreans, as well as Syrians.

Not very welcoming over there, obviously. Not a lot different here though, as currently leading Repub POTUS candidate The Donald not only doesn't want to let any new refugees IN, he wants to kick the ones already here OUT.

Donald Trump says illegal immigrants 'have to go' during NBC interview

Donald Trump has fired another loud shot in the battle for the Republican presidential nomination in 2016, telling NBC News’ Meet the Press illegal immigrants to the US “have to go”.

Republican presidential candidate Donald Trump said: ‘They have to go. Chuck, we either have a country, or we don’t have a country.’ Photograph: Jim Young/Reuters

The real-estate mogul and sometime reality TV star, who leads polls of the Republican field after a series of controversies stoked by abrasive remarks, made the comment during an interview with host Chuck Todd which was conducted on his private plane as it sat on a runway in Des Moines, Iowa.

The conversation covered the candidate’s determination to rescind President Barack Obama’s executive orders on immigration which, subject to court battles, would protect up to 5 million undocumented children and family members from deportation.

Now, I cannot agree with The Donald that we even could kick all the undocumented migrants out, even if he could get such legislation passed.  It's completely impractical, how would you do such a purge?  Go on a house to house search with the Gestapo asking "Let me see your papers"?

http://northamericanimmigration.org/uploads/posts/2011-02/1298837157_statue-of-liberty.jpgHowever, the idea that in an era of steady resource depletion and population overshoot all refugees can be welcome with open arms and the Torch of the Statue of Liberty serving as a Beacon of Freedom is an equally unrealistic idea.  Both here, in Europe and in Asia as well borders are going to be shut down and migration is going to become increasingly more difficult as time goes by.  If you are figuring on trying to migrate BEFORE things get that bad in your neighborhood, now would be a good time to get moving.

As with many article on the Diner, this one was inspired by a post made by one of the KollapsniksTM on the Diner Forum.  I will close with my response to that post.

Frankly, Andre, fuck charity!  These people are voting with their feet, and they're coming to America.

I believe you were trying to embed Neil Diamond's "America", but that video version has been removed.

However, I found this one heading this article with a great Slideshow presentation, worth watching. (above heading this article)
 


Now, this gives you warm and fuzzy feelings about the History of Amerika as written in the history books,  and those images of the Statue of Liberty always bring up the Patriotic feelings and belief in the Land of Liberty.

A few things to note here though.  What do you notice about all those pictures of Immigrants?  They're all WHITE people from Europe!

Then look at those wonderful pictures of Greenery, Farms, Open Spaces etc.

Is that what CA is going to look like in 10 years?  Iowa in 20?

This is nostalgia for the PAST.  Those wide open spaces and boundless opportunity are GONE now.

Let's dissect Neil's lyrics:
 

"America"

 

 

 

 

 

Far,
We've been traveling far
Without a home
But not without a star

Free,
Only want to be free

We huddle close
Hang on to a dream

On the boats and on the planes
They're coming to America
Never looking back again,
They're coming to America

Home
Don't it seem so far away
Oh, we're traveling light today
In the eye of the storm
In the eye of the storm

Home
To a new and a shiny place
Make our bed and we'll say our grace
Freedom's light burning warm
Freedom's light burning warm

Everywhere around the world
They're coming to America
Ev'ry time that flag's unfurled
They're coming to America

Got a dream to take them there
They're coming to America
Got a dream they've come to share
They're coming to America

They're coming to America
They're coming to America
They're coming to America
They're coming to America
Today, Today,
Today, Today, Today

My country 'tis of thee (today)
Sweet land of liberty (today)
Of thee I sing (today)

Of thee I sing
Today, Today, Today
Today, today, today……

Writer(s): Neil Diamond
Copyright: Stonebridge Music


Now, how realistic is this idea of "Freedom" and Liberty in the Amerika of TODAY, not your nostalgic history lessons?  Patriot Act, NDAA, TPP, Militarized Police, spying by the NSA and data mining from Google, precisely where is the FREEDOM here?  Granted it is still probably better than wherever they are coming from, but they'll be pretty disappointed in a few years, at most.

The main issue though remains the resource problem.  Half of the land mass of the FSoA west of the Mississippi River will once again be the Great Amerikan Desert soon enough.  We will have our own internal refugee problem that cannot be solved, except by Dead People.  Taking in more now just makes the problem worse here later.

The days of escaping as a refugee to freedom in less populated lands where there was still Opportunity are OVAH.  Refugees are unlikely to be welcome anywhere pretty soon.  Certainly in Europe they are not going to constantly accept Wave After Wave of boat people coming from North Africa and walking across Syria and Turkey into Greece.

For probably 2/3rds of the Global population, there is already no hope.  They cannot escape.

In the words of Hawkeye from "Last of the Mohicans"

“they’re not strangers… and they stay as they lay…”

https://cenantua.files.wordpress.com/2011/09/mohicans1.jpg

How Economic Growth Fails

Off the keyboard of Gail Tverberg

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Published on Our Finite World on August 10, 2015

Visit the COLLAPSE.GLOBAL Portal for Links & Daily Updates from around the Collapse Blogosphere

oilwell

Discuss this article at the Economics Table inside the Diner

We all know generally how today’s economy works:

Figure 1

 

 

 

Figure 1

Our economy is a networked system. I have illustrated it as being similar to a child’s building toy. Ever-larger structures can be built by adding more businesses and consumers, and by using resources of various kinds to produce an increasing quantity of goods and services.

Figure 2. Dome constructed using Leonardo Sticks

 

 

 

Figure 2. Dome constructed using Leonardo Sticks

There is no overall direction to the system, so the system is said to be “self-organizing.”

The economy operates within a finite world, so at some point, a problem of diminishing returns develops. In other words, it takes more and more effort (human labor and use of resources) to produce a given quantity of oil or food, or fresh water, or other desirable products. The problem of slowing economic growth is very closely related to the question: How can the limits we are reaching be expected to play out in a finite world? Many people imagine that we will “run out” of some necessary resource, such as oil, but I see the situation differently. Let me explain a few issues that may not be obvious.

1. Our economy is like a pump that works increasingly slowly over time, as diminishing returns and other adverse influences affect its operation. Eventually, it is likely to stop.

As nearly as I can tell, the way economic growth occurs (and stops taking place) is as summarized in Figure 3.

Figure 3. Overview of our economic predicament

 

 

 

Figure 3. Overview of our economic predicament

As long as (a) energy and other resources are cheap, (2) debt is readily available, and (3) “overhead” in the form of payments for government services, business overhead, and interest payments on debt are low, the pump can continue working as normal. As various parts of the pump “gum up,” the economic growth pump slows down. It is likely to eventually stop, once it becomes too difficult to repay debt with interest with the meager level of economic growth achieved.

Commodity prices are also likely to drop too low. This happens because the wages of workers drop so low that they cannot afford to buy expensive products such as cars and new homes. Growing purchases of products such as these are a big part of what keep the economic pump operating.

Let me explain some of the pieces of the problem that give rise to the slowing economic growth pump, and the difficulties it encounters as it slows down.

2. “Promises,” such as government pension programs for the elderly, and promises to repair existing roads, tend to get bigger and bigger over time.

We can understand how promises tend to grow by looking at an example I constructed:

Figure 4

 

 

 

Figure 4

Suppose a pension program begins in 2010 and gradually adds more retirees. Or suppose a road repair program starts out in 2010 with more roads gradually being added.

The payments made each calendar year, whether for the pensions or the road repairs, are the totals at the bottom of the column. These totals keep growing, even if each retiree gets the same amount each year, and even if each road costs the same amount to repair each year. Admittedly, using 100 for all amounts is unrealistic–this is done to keep the math simple–but regardless of what numbers are used, the sum of the payments each calendar year tends to rise.

If we look at US government expenditures as a percentage of wages, the pattern is as we might expect: government spending rises significantly faster than wages.

Figure 5

 

 

 

Figure 5

3. At least partly because of growing “promises,” it is very difficult for an economy to shrink in size without collapsing.

We can think of many kinds of promises in addition to pensions and road repairs. One such promise is the promise by banks that they will allow depositors to withdraw funds held on deposit in the bank. Another kind of promise is the promise of debtors to repay debt with interest. All of these promises tend to grow in total quantity over time, at least in part because population grows.

If an economy shrinks, all of these promises become very difficult to fulfill. This is the problem that Greece and other countries in financial difficulty are encountering. There is a need to reduce some program or to sell something so that the calendar year payments are not too high, relative to revenue for the year. These payments really represent a flow of goods and services to the individuals to whom the promises were made. “Printing money” does not really substitute for goods and services: pensioners expect that they will be able to buy food, medicine and housing with their pensions; those withdrawing money from a bank expect that the money will actually buy goods and services needed to live on.

If there is a major problem with “making good” on promises, it is difficult to have an economy. It is hard to operate an economy without functioning bank accounts. Even cutting off pensions or road repairs becomes a problem.

4. The over-arching problem as we reach diminishing returns is that workers become less and less efficient at producing desired end products.

When an economy starts hitting diminishing returns, we find that the economy produces goods less and less efficiently. It takes more worker-hours and more resources of various kinds (for example, fracking sand and deep sea drilling equipment) to produce a barrel of oil, causing the cost of producing a barrel of oil to rise. Usually this trend is expressed as a rising cost of oil production:

Figure 6

 

 

 

Figure 6

Looked at a different way, the number of barrels of oil produced per worker starts decreasing (Figure 7). It is as if the worker is becoming less efficient. His wages should be reduced, based on his new lack of productivity.

Figure 7. Wages per worker in units of oil produced, corresponding to amounts shown in Figure 6.

 

 

 

Figure 7. Wages per worker in units of oil produced, corresponding to amounts shown in Figure 6.

There are many types of diminishing returns. They tend to lead to a smaller quantity of  end product per worker. For example, if the population of a country increases, but arable land stays the same, adding more and more farmers to a plot of arable land eventually leads to less food produced on average per farmer. (Some might say that each additional farmer adds less marginal production.) Similarly, mining ores of lower and lower concentration leads to a need to separate more and more waste material from the desired mineral, leading to less mineral production per worker.

As another example, if a community finds itself short of fresh water, it may need to begin using desalination to produce water, instead of simply using relatively inexpensive wells. The result is a steep rise in the cost of water produced, not too different from the steep rise in the cost of oil in Figure 6. Viewed in terms of the amount of fresh water produced by each worker, the return per worker falls, as happens in Figure 7.

If workers get paid for their work, the logical result of diminishing returns is that after a point, workers should get paid less, because what they are producing as an end product is diminishing in quantity. Workers may be making more intermediate products (such as desalination plants or fracking sand), but these are not the end products people want (such as fresh water, electricity, or oil).

In some sense, fighting pollution leads to another form of diminishing returns with respect to human labor. In this case, increasing human effort and other resources are used to produce pollution control equipment and to produce workarounds, such as alternative higher-priced fuels. Again, wages per worker are expected to decline. This happens because, on average, each worker produces less of the desired end product, such as electricity.

Admittedly, less pollution, such as less smog, is desired as well. However, if it is necessary to pay extra for this service, the effect is recessionary because workers must cut back on purchasing discretionary goods and services in order to have sufficient funds available to purchase the higher-priced electricity. Thus, fighting pollution using approaches that raise the price of end products is part of what slows the world’s economic growth pump.

5. When civilizations collapsed in the past, a major cause was diminishing returns leading to declining wages for non-elite workers.

We know how diminishing returns played out in a number of past civilizations based on the analysis conducted by Peter Turchin and Surgey Nefedov for their book Secular Cycles. They found that typically a period of rapid population growth took place after some change occurred that increased the total amount of food an economy could provide. Perhaps trees were cut down on a large plot of land, or irrigation was introduced, or a war led to the availability of land previously farmed by others. When the original small population encountered the newly available arable land, rapid growth became possible for a while–very often, for well over 100 years.

At some point, the carrying capacity of the land was reached. Then the familiar problem of diminishing returns on human labor occurred: adding more farmers to the plot of land didn’t increase food production proportionately. Instead, the arable land needed to be subdivided into smaller plots to accommodate more farmers. Or the new farmers could only be “assistants,” without ownership of land, and received much lower wages, or went to work for the church, again at low wages. The net result was that at least part of the workers started receiving much lower wages.

One contributing factor to collapses was the fact that required tax levels tended to grow over time. Some reasons for this growth in tax levels are described in Items (2) and (3) above. Furthermore, the pressure of growing population meant that groups needed access to more arable land–a problem that might be overcome by a larger army. Paying for such an army would require higher taxes. Joseph Tainter in The Collapse of Complex Societies writes about the problem of “growing complexity,” with rising population. This, too, might give rise to the need for more government services.

Raising taxes became a problem when wages for much of the population were stagnating or falling because of diminishing returns. If taxes were raised too much, low-paid workers found themselves unable to buy enough food. In their weakened condition, they tended to succumb to epidemics. If taxes couldn’t be raised enough, governments had different problems, such as not being able to support a large enough army to fend off attacks by neighboring armies.

6. The United States now has a problem with declining wages of non-elite workers, not too different from the problem experienced by civilizations that collapsed in the past.

Figure 8 shows that on an inflation-adjusted basis, US Median Family Income has been falling in recent years. In fact, the latest value is between the 1996 and 1997 value. In a sense, this represents diminishing returns on human labor, just as has occurred with agricultural civilizations that collapsed.

Figure 8

 

 

 

Figure 8

Wages have been falling to a much greater extent among young people in the United States. Figure 9 from a report by Dettling and Hsu in the Federal Reserve Bank of St. Louis Review shows that median wages have dropped dramatically since 1989, both for young people living with parents and for young people living independently. To make matters worse, the report also indicates that the share of young people living with parents has risen during the same period.

Figure 9

 

 

 

Figure 9

In some sense, the loss of efficiency of the economy (or diminishing returns) outlined in Item 4 is making its way through to wages. The wages of young people are especially affected.

7. Demand for goods and services comes from what workers can afford. If their wages are low, demand for goods of many kinds, including commodities, is likely to fall.

There are many rich people in the world, but most of their wealth sits around in bank accounts, or in ownership of shares of stock, or in ownership of land, or in other kinds of investments. They use only a small share of their wealth to buy food, cars, and homes. Their wealth has relatively little impact on commodity prices. In contrast, the many non-elite workers in the world tend to spend a much larger share of their incomes on food, homes, and cars. When non-elite workers cut back on major purchases, it is likely to affect total purchases of goods like homes and cars. Other related goods, such as gasoline, home heating fuel, and the building of new roads, are likely to be affected as well.

When the demand for finished goods falls, the demand for the commodities to produce these finished goods falls. Because of these issues, when the wages of non-elite workers fall, we should expect downward pressure on commodity prices. Commodity prices may fall back to a more affordable range, after they have spent several years at higher levels, as has happened recently.

There is a common belief that as we approach limits, the price of oil and other commodities will spike. I doubt that this can happen for any extended period. Instead, the low wages of non-elite workers will tend to hold commodity prices down. Because of this issue, we should expect predominately low oil prices ahead, despite the continuing pressure of rising costs of production because of diminishing returns.

The mismatch between the rising cost of commodity production and continued low commodity prices is likely to lead to a sharp drop in the supply of many types of commodities. Thus, the slowing operation of our economic growth “pump” is likely to lead to a situation where the production of commodities, including oil, falls because of low prices, not high prices. 

8. What is needed to raise the productivity of workers is a rising quantity of energy to leverage human labor. Such energy supplies are affordable only if the price of energy products is very low.

The amount a person can produce reflects a combination of his own labor and the resource he has to work with. If energy products are available, they act like energy slaves. With their assistance, humans can do things that they could not do otherwise–move goods long distances, quickly; operate machines (including computers) that can help a worker do tasks better and more quickly; and communicate long distance by means of the telephone or Internet. While technology plays a major role in making energy products useful, the ultimate benefit comes from the energy products themselves.

We have been using a rising amount of energy products since our hunter-gatherer days (Figure 10). In fact, the use of energy products seems to distinguish humans from other animals.

Figure 10

 

 

 

Figure 10

Clearly, cheaper is better when it comes to the affordability of energy products since available money goes further. If gasoline costs $5 per gallon, a worker with $100 can buy 20 gallons. If gasoline costs $2 per gallon, a worker with $100 can buy 50 gallons.

In recent years, with the high prices of energy products, world growth in energy consumption has lagged. It should not be surprising that world economic growth seems to be lagging during the same period.

Figure 11. Three year average growth rate in world energy consumption and in GDP. World energy consumption based on BP Review of World Energy, 2015 data; real GDP from USDA in 2010$.

 

 

 

Figure 11. Three year average growth rate in world energy consumption and in GDP. World energy consumption based on BP Review of World Energy, 2015 data; real GDP from USDA in 2010$.

In fact, Figure 11 seems to indicate that changes in energy consumption precede changes in world economic growth, strongly suggesting that growth in energy consumption is instrumental in raising economic growth. The recent steep drop in energy consumption suggests that the world is approaching another major recession, but this has not yet been recognized in international data.

9. One way of describing our current problem is by saying that the economy cannot live with the high commodity prices we have been experiencing in recent years and is resetting to a lower level that is affordable. This reset is related to low net energy production. 

If oil and other commodities could be produced more cheaply, they would be more affordable. We would not have the economic problems we have today. Energy use in Figure 11 could be rising more quickly, and that would help GDP grow faster. If GDP were growing faster, we would have more funds available for many purposes, including funding government programs, repaying debt with interest, and paying the wages of non-elite workers. We perhaps would not have the problem of falling wages of non-elite workers.

The current “fad” for solving our energy problem is to mandate the use of intermittent renewables, such as wind and solar PV. A major problem with this approach is that such renewables make the cost of electricity production rise even faster, exacerbating our problems, instead of making them better.

Figure 12 by Euan Mearns

 

 

 

Figure 12 by Euan Means. Installed capacity is in Watts (W) per capita.

To make matters worse:

  1. The way our economy works, energy flows in a given year (not on a net present value basis) are what are important, because this is the way we use energy to make goods such as foods, metals, and homes. The energy flows of renewables are very much front ended. Thus, the disparity in energy use on an energy flow basis is likely to be greater than reflected in Figure 12.
  2. What we really need from energy products is the ability to stimulate the economy in a way that adds tax revenue. Either the energy products must produce high tax revenue directly, or they must indirectly produce high tax revenue by stimulating demand for new cheaper goods, produced with the new inexpensive form of energy. This is what I think of as “adding net energy”. Wind and solar PV clearly do the opposite. Thus, they behave like “energy sinks,” rather than as products that add net energy.
  3. Modern renewables that are connected to the grid can be expected to stop working when the grid stops working. This may not be too far in the future because we need oil to operate the trucks and helicopters that maintain the electric grid. If this problem were considered in the pricing of electricity from wind and solar PV, their required prices would be higher.

As I see it, one of the major roles of energy products is to support the growing overhead of our economy; this is what the discussion about the need for “net energy” is about. Thus, we need energy products that are cheap enough that they can be taxed heavily now, and still produce an adequate profit for those producing the energy products. If we find ourselves mostly with energy products that are producing cash flow losses for their producers, as seems to be the case today, this is an indication that we have a problem. We don’t have enough “net energy” to run our current economy.

10. Debt and other paper assets are likely to “have a problem” as the economic growth pump falters and stops.

Debt is absolutely essential to making an economy work because it allows businesses to “bring forward” future profits, so that they don’t have to accumulate a high level of savings prior to building a new factory or opening a new mine. Debt also allows potential buyers of expensive products such as homes, cars, and factories to pay for them on an affordable monthly payment plan. Because more buyers can afford finished goods with the use of debt, debt raises the demand for goods, and indirectly raises the prices of commodities. With these higher prices, a greater quantity of commodity extraction is encouraged.

At some point, it becomes very difficult to support the very large amount of debt outstanding. In part, this happens because of the large accumulated amount of debt. Falling inflation-adjusted wages of rank and file workers add to the problem. In such a situation, interest rates need to be kept very low, or it becomes impossible to repay debt with interest. Even with continued low rates, defaults can eventually be expected.

Once debt defaults begin, commodity prices are likely to drop even further. Such a drop is likely to lead to even more loan defaults, especially by commodity producers (such as oil companies) and commodity exporters. Prices of equities can be expected to drop as well, because the problems of the debt system will affect businesses of all kinds.

Once debtors start defaulting, it will become very difficult to keep financial institutions from collapsing. International trade is likely to become a problem because financial institutions are needed to provide debt-based financial guarantees for long-distance transactions.

Other Information on this Subject

I have written previously and talked about some of the issues raised in this post.

An academic article I wrote that is directly related is Oil Supply Limits and the Continuing Financial Crisis. It was published in the journal Energy in 2012. Scopus shows 30 articles citing this paper.

A series of talks and videos that I conducted in China are now available on this website. These are some links to my presentations:

1. Overview of Energy Modeling Problem

2 Importance of Energy

3 Overview of a Networked Economy

4 Economic Growth – Diminishing Returns

5 Government costs and debt

6. Competition and Resource Exhaustion

7. Twelve Principles of Energy and the Economy

8. Renewable Energy

Videos of these presentations are also available on my Presentations/Podcasts page.

The Great Oil Game: Resource Crisis in Russia?

Off the keyboard of Ugo Bardi

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Published on Resource Crisis on May 3, 2015

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Weekly pageviews of "Resource Crisis." My blog seems to be having a remarkable success in Russia, but do the Russians understand the problem of resource depletion?

 

 

 

 

Complex structures, such as states and empires, are always prone to collapse and they usually give little or no previous warnings. The collapse of the Soviet Union, indeed, had not been predicted by anyone and it came completely unexpected. In the present crisis, instead, Western analysts seem to have fallen in the opposite mistake, predicting the rapid demise of the Russian Federation. But that didn't happen. On the contrary, the Russian economic system showed a remarkable resilience and it strongly rebounded after a bad moment, last year. (image below from Bloomberg).

 

So, predicting collapses is always very difficult in a world's situation that looks more and more like a Russian Roulette (an appropriate name in this context), but played with nuclear weapons. It might well be that some states which at present look very solid could be the ones to experience a sudden and unexpected Soviet-style implosion (let me not say which ones these states could be).

Let's go more in depth in this matter. The collapse of Russia was expected in the West mainly as the result of the recent crash of the world's oil market. That repeated the situation of the late 1980s, when the old USSR was bankrupted by a similar effect: a rapid fall of oil prices which strongly reduced the revenues from oil exports. However, the present situation is not exactly the same. The main difference is related to the perspectives of the oil market. In the 1980s, low oil prices were generated by new oil fields entering the market after the first oil crisis – for instance the North Sea. The supply increased and prices collapsed around 1985 at levels that today we can't even dream any more – around 20$-30$ in current dollars – and they remained there for nearly two decades.

Today, there is no equivalent of the new resources that had entered in production in the 1980s and the price collapse has been generated mainly by a demand slump. Additionally. what we call today "low prices" are at least twice as high (in current dollars) than they were in the 1980s. And these "low" prices are bankrupting the whole US tight oil industry. That can't be without effect in bringing back oil prices to the levels which were considered "normal" up to last year. Consider also that Russian production costs are not the highest in the world, as shown in this figure
 

The values shown in the figure are very uncertain but, as long as oil prices do not fall below US 40 $, Russia should be able to survive; and they seem to be doing exactly that. In the short term, at least, the "oil weapon" that some analysts saw as unleashed against Russia, failed to obtain its purpose.

Certainly, however, the question of the long term management of the Russian mineral resources cannot be ignored. There are elements indicating that Russia's oil production is peaking this year and, according to Ron Patterson, USA and Russia may peak together. How would their respective economies react to that? More in general, how will Russia manage the unavoidable long term depletion of the country's resources? What do the Russians want to do with their mineral wealth? Who is going to use it and for what purpose? Planning on the basis of the fundamental elements of the depletion process (*) would be the best for Russia to avoid a future resource crisis.

_________________________________________________

(*) The problem of oil depletion is very poorly understood everywhere in the world, but, according to my personal experience, it may be that it is even less understood in Russia. For instance, over more than a decade of existence of the Association for the Study of Peak Oil (ASPO) there have been many national chapters (including ASPO-Italy). However, there has never been an ASPO-Russia (if you google for "ASPO Russia" you'll find the Astrakhan Shipbuilding Production Association, which is not exactly the same thing!).

 

 

 

China, Migration & Resource Depletion: Gail Tverberg, Steve Ludlum & RE

Off the cameras & microphones of Gail Tverberg, Steve Ludlum & RE

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Aired on the Doomstead Diner on May 3, 2015

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Ongoing Commodification of the Commons

Off the keyboard of Stefeun

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Published on the Doomstead Diner on April 7, 2015

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Reverse Engineer kindly invited me (1) to develop here one of the comments I posted on Gail Tverberg’s blog Our Finite World. It was a link to a very good article by Cory Morningstar on her blog “The Art of Annihilation”(2).
To summarize it, she says that the non-governmental organizations, and especially the environmental activists, are in fact working for Big Corp, voluntarily or not.
In this purpose, the capitalism is trying to find new resources, as standard/traditional ones are depleting.
Here’s an excerpt from the prologue:
“(…)
It’s ironic because the divestment campaign will result (succeed) in a colossal injection of money shifting over to the very portfolios heavily invested in, thus dependent upon, the intense commodification and privatization of Earth’s last remaining forests (via REDD), water, etc. (environmental “markets“). This tour de force will be executed with cunning precision under the guise of environmental stewardship and “internalising negative externalities through appropriate pricing.”
The commodification of the commons will represent the greatest, and most cunning, coup d’état in the history of corporate dominance – a fait accompli extraordinaire of unparalleled scale, with unparalleled repercussions for humanity and all life.
Further, it matters little whether or not the money is moved from direct investments in fossil fuel corporations to so-called “socially responsible investments.” The fact of the matter is, all corporations on the planet (thus all investments on the planet) do and will continue to require massive amounts of energies (including fossil fuels) in order to continue to grow and expand ad infinitum – as required by the industrialized capitalist economic system.
The windmills and solar panels serve as the beautiful (marketing) imagery, yet they are somewhat illusory – the veneer for the commodification of the commons, which is the fundamental objective of Wall Street, the very advisers of the divestment campaign.
(…)”
Then I started looking at it in a broader view, and realized that in fact our whole economy is actually about, and based on, Commodification of the Commons.
Indeed:
– the Primary sector (agriculture, forestry, fishing and mining) takes what is “given by Nature” (i.e. for free), and exchanges it for claims on whatever has been given a price (i.e. money).
– then the Secondary sector (manufacturing) turns it into refined or consumer goods or tools, and the Tertiary sector (services) helps dispatch the stuff and information.
The cost we take into account is only the amount of energy spent for the extraction, the transformation or the distribution(3). The “real” cost of a given product is therefore the total energy embodied in it. Apart from heating or cooling it, which obviously uses thermal energy, most of the embedded energy is mechanical energy (= Work) used to move it. Wether this work is hours of human labor or barrels of oil or kWh consumed by a machine only matters for the order of magnitude.
The material itself is counted zero (!!).
Both material and energy are considered infinite (!!!).
Each and every single operation is using energy and generating waste (entropy).
The waste isn’t taken into accout and “the economy” considers that either Nature, or the Society as a whole, should take in charge the burden of recycling it or making it disappear no matter how.
The size of the dustbin must be infinite too!.
Of course most of this waste doesn’t just disappear, as it cannot quickly reintegrate the natural cycles. It isn’t manually or mechanically recycled either, even when possible, because doing it requires energy (often more than the valuable output could buy) and therefore is accounted as a net cost nobody wants to take in charge (as an example, look how successful the carbon-tax is).
This process is transforming the Earth into a huge garbage dump.
Back to the main point, what we call “the economy” is thus a process of appropriation, which first step consists in taking hold of something that primarily doesn’t belong to anybody, for a private profit(4).
We’re stealing from our environment, and in return vomit rubbish that cannot be reused neither by humans nor by Nature, unless spending huge amounts of energy or waiting several years, if not millenia. Steve Ludlum says that what we proudly call “wealth-production” is in reality an organized destruction of our real capital, that cannot be recreated. There’s no substitute, and what is gone, … is gone forever(5). The economy is a component of the natural environment, not the other way round.
Such a “steal & waste” system can work as long as sufficient resource is available for all, and requires only a reasonable effort (i.e. low energy cost) for its extraction. Not to mention the rate of waste-production that must remain low, and with high level of recyclability. In other words, the human population density and the technological level must both be very low, in order to acheive something in which equilibriums are evolving slowly enough to resemble a “steady-state”(6).
As soon as a risk of scarcity appears, the rules of property prevail and there’s a fight over the resource (arable land, fresh water, mineral ores, fossil fuels as required in bigger quantities to compensate the depletion, etc..).
These property laws are being reinforced and are becoming overwhelmingly important as we’re approaching the limits. Once the resource is depleted in a given place, we must take over areas where it is still available.It started with “this land is mine” (colonization), continued with “this subsoil is mine” (oil-wars), “this water is mine”, etc…
By the way, the ownership is progressively shifted from public to corporate (while debt flows in opposite direction), see e.g. landgrabbing(7). Big Corp is more flexible than Nations, thus better adapted to changing environmental & economic conditions.
Then, because of diminishing returns and finiteness of the planet, it becomes increasingly difficult to find new land to conquer, good seams to work, oil-fields to take over. Therefore, in an attempt to catch up with the loss of usual resource, Big Corp is currently expanding its property claims onto patents on the living, rights on species(8), intellectual property, information (big data), etc…
All these examples of new resources, enlarging the pool of valuable ones (IOW the reckless race for privatization of whatever-can-be), are aiming to compensate the decline of traditional ones, if not feed the mandatory growth.
Beyond the likely irreversible changes triggered and the increase in savage destruction caused by this process, the main problem here is that the laws of diminishing returns also apply to the energy, most of it being fossil fuels for which we don’t have any substitute nor expandable source.
So, in the end of the day, finding new “fields to mine” is pointless (not to mention dangerous), since we won’t have the sufficient energy to exploit them.
         _____________________________
PS about the economic system: IMHO, capitalism is undeniably speeding up the whole process, especially when financialized, but I’m not sure that another system would have given a better result in the long run, unless it would have considered that a- the resource is finite (the only net input in our system is the energy from the sun, all the rest is -or should be- recycled), b- taken into account the waste management (entropy production), and c- deeply questioned the property rules (to promote cooperation and avoid wealth concentration).
Unfortunately, such a no-growth system is an utopia, because Life is a succession of unexpected shortages, and the winner is always the one who burns most energy, according to the MEP principle (Maximum Entropy Production, aka 3rd Law of Thermodynamics, acc.to F.Roddier/R.Dewar), or the simpler MPP (Maximum Power Principle, as described by Jay Hanson in http://dieoff.org/).
        ________________________________
Footnotes:
(1): I discovered Our Finite World by end of 2013, that was a few months after I decided to jump off the industrial workforce because I had less and less understanding of how it worked and what I was doing there. I had already grasped parts of the story here and there, but Gail sort of opened my eyes and helped me connect many dots by clearly explaining the interactions within our complex system, which should always be considered as a whole and not studied as independant parts.
(3): I don’t consider here the financial costs. After all, capital and debt are claims on amounts of energy that has been or will (never) be consumed elsewhere.
Note that I’m talking about cost, not price. The price is a result of power struggle, and can be lower than cost in some -temporary- cases (e.g. barrel of oil today).
(4): Michael Parenti, in “Against Empire”, states it as follows:
“The essence of capitalism is to turn nature into commodities and commodities into capital. The live green earth is transformed into dead gold bricks, with luxury items for the few and toxic slag heaps for the many. The glittering mansion overlooks a vast sprawl of shanty towns, wherein a desperate, demoralized humanity is kept in line with drugs, television, and armed force.”
See http://www.goodreads.com/work/quotes/695226-against-empire ; also quoted in Cory Morningstar’s article linked at (2)
(5): I assume that most of the DD readers know Steve Ludlum better than I do (many articles and podcasts available here on the Diner).
(6): Gail Tverberg explains why a steady state isn’t realistic: http://ourfiniteworld.com/?s=steady+state
(8): speaks for itself: http://www.speciesbanking.com/
The mother-site is… drumroll here…: http://www.ecosystemmarketplace.com/

US-Saudi Blitz in Yemen

Off the keyboard of Anthony Cartalucci

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Published on Land Destroyer on March 26, 2015

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US-Saudi Blitz in Yemen: Naked Aggression, Absolute Desperation

March 27, 2015 (Tony Cartalucci – NEO) – The “proxy war” model the US has been employing throughout the Middle East, Eastern Europe, and even in parts of Asia appears to have failed yet again, this time in the Persian Gulf state of Yemen.

Overcoming the US-Saudi backed regime in Yemen, and a coalition of sectarian extremists including Al Qaeda and its rebrand, the “Islamic State,” pro-Iranian Yemeni Houthi militias have turned the tide against American “soft power” and has necessitated a more direct military intervention. While US military forces themselves are not involved allegedly, Saudi warplanes and a possible ground force are.

Though Saudi Arabia claims “10 countries” have joined its coalition to intervene in Yemen, like the US invasion and occupation of Iraq hid behind a “coalition,” it is overwhelmingly a Saudi operation with “coalition partners” added in a vain attempt to generate diplomatic legitimacy.

The New York Times, even in the title of its report, “Saudi Arabia Begins Air Assault in Yemen,” seems not to notice these “10” other countries. It reports:

Saudi Arabia announced on Wednesday night that it had launched a military campaign in Yemen, the beginning of what a Saudi official said was an offensive to restore a Yemeni government that had collapsed after rebel forces took control of large swaths of the country. 

The air campaign began as the internal conflict in Yemen showed signs of degenerating into a proxy war between regional powers. The Saudi announcement came during a rare news conference in Washington by Adel al-Jubeir, the kingdom’s ambassador to the United States.

Proxy War Against Iran 

Indeed, the conflict in Yemen is a proxy war. Not between Iran and Saudi Arabia per say, but between Iran and the United States, with the United States electing Saudi Arabia as its unfortunate stand-in.

Iran’s interest in Yemen serves as a direct result of the US-engineered “Arab Spring” and attempts to overturn the political order of North Africa and the Middle East to create a unified sectarian front against Iran for the purpose of a direct conflict with Tehran. The war raging in Syria is one part of this greater geopolitical conspiracy, aimed at overturning one of Iran’s most important regional allies, cutting the bridge between it and another important ally, Hezbollah in Lebanon.

And while Iran’s interest in Yemen is currently portrayed as yet another example of Iranian aggression, indicative of its inability to live in peace with its neighbors, US policymakers themselves have long ago already noted that Iran’s influence throughout the region, including backing armed groups, serves a solely defensive purpose, acknowledging the West and its regional allies’ attempts to encircle, subvert, and overturn Iran’s current political order.

The US-based RAND Corporation, which describes itself as “a nonprofit institution that helps improve policy and decision making through research and analysis,” produced a report in 2009 for the US Air Force titled, “Dangerous But Not Omnipotent : Exploring the Reach and Limitations of Iranian Power in the Middle East,” examining the structure and posture of Iran’s military, including its Islamic Revolutionary Guard Corps and weapons both present, and possible future, it seeks to secure its borders and interests with against external aggression.

The report admits that:

Iran’s strategy is largely defensive, but with some offensive elements. Iran’s strategy of protecting the regime against internal threats, deterring aggression, safeguarding the homeland if aggression occurs, and extending influence is in large part a defensive one that also serves some aggressive tendencies when coupled with expressions of Iranian regional aspirations. It is in part a response to U.S. policy pronouncements and posture in the region, especially since the terrorist attacks of September 11, 2001. The Iranian leadership takes very seriously the threat of invasion given the open discussion in the United States of regime change, speeches defining Iran as part of the “axis of evil,” and efforts by U.S. forces to secure base access in states surrounding Iran.

Whatever imperative Saudi Arabia is attempting to cite in justifying its military aggression against Yemen, and whatever support the US is trying to give the Saudi regime rhetorically, diplomatically, or militarily, the legitimacy of this military operation crumbles before the words of the West’s own policymakers who admit Iran and its allies are simply reacting to a concerted campaign of encirclement, economic sanctions, covert military aggression, political subversion, and even terrorism aimed at establishing Western hegemony across the region at the expense of Iranian sovereignty.

Saudi Arabia’s Imperative Lacks Legitimacy 

The unelected hereditary regime ruling over Saudi Arabia, a nation notorious for egregious human rights abuses, and a land utterly devoid of even a semblance of what is referred to as “human rights,” is now posing as arbiter of which government in neighboring Yemen is “legitimate” and which is not, to the extent of which it is prepared to use military force to restore the former over the latter.

The United States providing support for the Saudi regime is designed to lend legitimacy to what would otherwise be a difficult narrative to sell. However, the United States itself has suffered from an increasing deficit in its own legitimacy and moral authority.

Most ironic of all, US and Saudi-backed sectarian extremists, including Al Qaeda in Yemen, had served as proxy forces meant to keep Houthi militias in check by proxy so the need for a direct military intervention such as the one now unfolding would not be necessary. This means that Saudi Arabia and the US are intervening in Yemen only after the terrorists they were supporting were overwhelmed and the regime they were propping up collapsed.

In reality, Saudi Arabia’s and the United States’ rhetoric aside, a brutal regional regime meddled in Yemen and lost, and now the aspiring global hemegon sponsoring it from abroad has ordered it to intervene directly and clean up its mess.

Saudi Arabia’s Dangerous Gamble 

The aerial assault on Yemen is meant to impress upon onlookers Saudi military might. A ground contingent might also attempt to quickly sweep in and panic Houthi fighters into folding. Barring a quick victory built on psychologically overwhelming Houthi fighters, Saudi Arabia risks enveloping itself in a conflict that could easily escape out from under the military machine the US has built for it.

It is too early to tell how the military operation will play out and how far the Saudis and their US sponsors will go to reassert themselves over Yemen. However, that the Houthis have outmatched combined US-Saudi proxy forces right on Riyadh’s doorstep indicates an operational capacity that may not only survive the current Saudi assault, but be strengthened by it.

Reports that Houthi fighters have employed captured Yemeni warplanes further bolsters this notion – revealing tactical, operational, and strategic sophistication that may well know how to weather whatever the Saudis have to throw at it, and come back stronger.

What may result is a conflict that spills over Yemen’s borders and into Saudi Arabia proper. Whatever dark secrets the Western media’s decades of self-censorship regarding the true sociopolitical nature of Saudi Arabia will become apparent when the people of the Arabian peninsula must choose to risk their lives fighting for a Western client regime, or take a piece of the peninsula for themselves.

Additionally, a transfer of resources and fighters arrayed under the flag of the so-called “Islamic State” and Al Qaeda from Syria to the Arabian Peninsula will further indicate that the US and its regional allies have been behind the chaos and atrocities carried out in the Levant for the past 4 years. Such revelations will only further undermine the moral imperative of the West and its regional allies, which in turn will further sabotage their efforts to rally support for an increasingly desperate battle they themselves conspired to start.

America’s Shrinking Legitimacy 

It was just earlier this month when the United States reminded the world of Russia’s “invasion” of Crimea. Despite having destabilized Ukraine with a violent, armed insurrection in Kiev, for the purpose of expanding NATO deeper into Eastern Europe and further encircling Russia, the West insisted that Russia had and  still has no mandate to intervene in any way in neighboring Ukraine. Ukraine’s affairs, the United States insists, are the Ukrainians’ to determine. Clearly, the US meant this only in as far as Ukrainians determined things in ways that suited US interests.

This is ever more evident now in Yemen, where the Yemeni people are not being allowed to determine their own affairs. Everything up to and including military invasion has been reserved specifically to ensure that the people of Yemen do not determine things for themselves, clearly, because it does not suit US interests.

Such naked hypocrisy will be duly noted by the global public and across diplomatic circles. The West’s inability to maintain a cohesive narrative is a growing sign of weakness. Shareholders in the global enterprise the West is engaged in may see such weakness as a cause to divest – or at the very least – a cause to diversify toward other enterprises. Such enterprises may include Russia and China’s mulipolar world. The vanishing of Western global hegemony will be done in destructive conflict waged in desperation and spite.

Today, that desperation and spite befalls Yemen.

Tony Cartalucci, Bangkok-based geopolitical researcher and writer, especially for the online magazineNew Eastern Outlook”.

Seneca’s Gamble

Off the keyboard of Ugo Bardi

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Published on Resource Crisis on February 2, 2015

Why people can so easily destroy the resources that provide their livelihood? Fishermen, for instance, have destroyed fisheries over and over, and every time they refused to take even the most elementary precautions to avoid disaster. Eventually, I came to think that it is related to a basic miswiring of the human mind: the “gambler’s fallacy“. Fishermen, it seems, see fishing as it were a lottery and they redouble their efforts thinking that, eventually, they will get lucky and strike it rich. Alas, it doesn’t work in this way and all what they obtain is to destroy the fish stocks and create a spectacular collapse of the fishing yields. This way of creating one’s own ruin could be termed “Seneca’s gamble”, from the words of the Roman philosopher Lucius Annaeus Seneca who stated that “the road to ruin is rapid”.

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Seneca’s gamble: why the road to ruin is rapid

The “Martingale” is a strategy to be played with games which have a 50% chance of winning. It consists in doubling one’s bet after every loss, believing that, eventually, a win will pay for the previous losses and provide a gain.

The Martingale is an example of the “gambler’s fallacy“. Typically, gamblers tend to think that some events – such as the numbers coming out of the wheel in the roulette game – are related to each other. So, they believe that, if the red comes up several times in a row, it is more probable that the black will come out the next spin. That’s not true, of course, and the Martingale is a surefire way to ruin oneself, and to do that very rapidly. Nevertheless, many people find the idea fascinating enough that they try to put it into practice. It is the effect of a bad miswiring of the human mind..

The gambler’s fallacy may explain some aspects of the human behavior that would be otherwise impossible to understand. For instance, in a previous post I was showing this figure, describing the yields of the UK fishing industry (from Thurstan et al.).

Compare the upper and the lower box, and you’ll see that the fishing industry was ramping up at an incredible speed their “fishing power,” just when fishing yields had started to decline. Note also how they still had a lot of fishing power when the fisheries had all but collapsed. How could it be that they kept fishing so much even when there was little or nothing left to fish?Thinking about this matter, we can only come to the conclusion that fishermen reasoned like gamblers at a betting table. In other words, they were playing a sort of “fishing Martingale”, doubling their efforts after every failure.

Gamblers know – or should know – that casino gambling is a negative sum game. Yet, the gambler’s fallacy makes them think that a streak of bad results will somehow increase the probability that the next bet will be the good one. So, they keep trying until they ruin themselves.

Now, consider fishermen: they or should know  that, at some point, the overall yield of the fishery has become negative. But, like gamblers playing roulette, they believe that a streak of bad luck will somehow increase the probability that the next fishing trip will be the good one. So, they keep trying until they ruin themselves.

The mental miswiring that gives rise to the behavior of gamblers and fishermen can create even larger disasters. With mineral resources, we are seeing something similar: operators redoubling their efforts in the face of diminishing returns of extraction; the story of “shale gas” and “shale oil” is a typical example. Maybe it is done hoping that – somehow – the destruction of one stock will increase the probability to find a new one (or to create one by some technological miracle). So, instead of trying to make mineral stocks last as long as possible, we are rushing to destroy them at the highest possible rate. But, unlike fish stocks that can replenish themselves, minerals do not reproduce. Once we’ll have destroyed the rich ores that created our civilization, there will be nothing left behind. We will have ruined ourselves forever.

In the end, the gambler’s fallacy is one of the factors that lead people, companies, and entire civilization to a rapid collapse. It is what I have called the “Seneca Cliff” from the words of the ancient Roman philosopher who first noted how “the way to ruin is rapid”. In the case described here, we might call it the “Seneca gamble” but, in all cases, it is a ruin that we create with our own hands.

Seneca again: The collapse of the UK fishing industry

Off the keyboard of Ugo Bardi

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Published on Resource Crisis on January 6, 2014

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Image from a 2010 article by Thurstan, Brockington, and Roberts. It describes the cycle of the UK fishing industry, which collapsed because of overfishing in the late 1970s.

The two graphs above (from a 2010 article by Thurstan et al.) speak by themselves. We have here a real life example of the overexploitation of natural resources; that is, of the tendency of people of destroying their own sources of wealth. Other classic examples can be found with the 19th century whaling industry and with the Canadian cod fishery.

Overexploitation typically generates the “Hubbert curve,” the name given to a bell-shaped production cycle best known for the case of crude oil, but affecting all the resources which can be exploited faster than they can reform by natural processes. This behavior can be explained by means of mathematical models, but, qualitatively, it is the result of the falling profits generated by the diminishing resource stock. In the long run, lower profits discourage investments and the result is a general production decline. A particular case of this mechanism is when the industry initially reacts to diminishing returns by aggressively increasing the amount of capital invested. In this case, the stocks of the resource are depleted very fast and the result is a crash of the production rate; we still have a bell shaped curve, but skewed forward. The rapid decline that occurs after the peak is what I called the “Seneca Cliff.”

There are several historical examples of the Seneca cliff; in the case of fisheries, it is especially evident in the case of the Canadian cod fishery and for the Caspian Sturgeon; but it is evident also in the case of the UK fishing industry. Note, in the figure above, the steep decline of the landings of the late 1970s, it is significantly steeper than the growth of the left side of the curve. This is the essence of the Seneca mechanism. And we can see very well what causes it: the start of the decline in production corresponds to a rapid growth of investments. The result is the increase of what the authors of the paper call “fishing power” – an estimate of the efficiency and size of the fishing fleet.

The results were disastrous; a textbook example of how to “push the levers in the wrong directions“, that is, of a case when the attempt to solve a problem worsens it considerably. In this case, the more efficient the fishing fleet was, the more rapidly the fish stock was destroyed. This is a classic mechanism for falling down the Seneca cliff: the more efficient you are at exploiting a non renewable (or slowly renewable) resource, the faster you deplete it. And the faster you get into trouble.

This case, as others, is such a staggering disaster that one wonders how it was possible at all. How could it be that nobody in the fishing industry or in the government realized what was happening? In their article on this subject, Thurstan and his colleagues don’t comment on this point, but we can cite an article by Hamilton et al. on the Canadian Atlantic Cod fishery, where they say “Some say they saw trouble coming, but felt powerless to halt it.That seems to be not describing not just the fishing industry, but our entire civilization.

Seneca Cliffs of the 3rd Kind

Off the keyboard of Ugo Bardi

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Published on Resource Crisis on December 15, 2014

Seneca cliffs of the third kind: how technological progress can generate a faster collapse

The image above (from Wikipedia) shows the collapse of the North Atlantic cod stocks. The fishery disaster of the early 1990s was the result of a combination of greed, incompetence, and government support for both. Unfortunately, it is just one of the many examples of how human beings tend to worsen the problems they try to solve. The philosopher Lucius Anneus Seneca had understood this problem already some 2000 years ago, when he said, “It would be some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid.”
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The collapse of the North Atlantic cod fishery industry gives us a good example of the abrupt collapse in the production of resources – even resources which are theoretically renewable. The shape of the production curve landings shows some similarity with the “Seneca curve“, a general term that I proposed to apply to all cases in which we observe a rapid decline of the production of a non renewable, or slowly renewable, resource. Here is the typical shape of the Seneca Curve:

The similarity with the cod landings curve is only approximate, but clearly, in both cases we have a very rapid decline after a slow growth that, for the cod fishery, had lasted for more than a century. What caused this behavior?

The Seneca curve is a special case of the “Hubbert Curve” which describes the exploitation of a non renewable (or slowly renewable) resource in a free market environment. The Hubbert curve is “bell shaped” and symmetric (and it is the origin of the well known concept of “peak oil). The Seneca curve is similar, but it is skewed forward. In general, the forward skewness can be explained in terms of the attempt of producers to keep producing at all costs a disappearing resource.

There are several mechanisms which can affect the curve. In my first note on this subject, I noted how the Seneca behavior could be generated by growing pollution and, later on, how it could be the result of the application of more capital resources to production as a consequence of increasing market prices. However, in the case of the cod fishery, neither factor seems to be fundamental. Pollution in the form of climate change may have played a role, but it doesn’t explain the upward spike of the 1960s in fish landings. Also, we have no evidence of cod prices increasing sharply during this phase of the production cycle. Instead, there is clear evidence that the spike and the subsequent collapse was generated by technological improvements.

The effect of new and better fishing technologies is clearly described by Hamilton et al. (2003)

Fishing changed as new technology for catching cod and shrimp developed, and boats became larger. A handful of fishermen shifted to trawling or “dragger” gear. The federal government played a decisive role introducing new technology and providing financial resources to fishermen who were willing to take the risk of investing in new gear and larger boats.

Fishermen in open boats and some long-liners continued to fish cod, lobster and seal inshore. Meanwhile draggers  and other long-liners moved onto the open ocean, pursuing cod and shrimp nearly year round. At the height of the boom, dragger captains made $350,000–600,000 a year from cod alone. … The federal government helped finance boat improvements, providing grants covering 30–40% of their cost.
….
By the late 1980s, some fishermen recognized signs of decline. Open boats and long-liners could rarely reach their quotas. To find the remaining cod, fishermen traveled farther north, deployed more gear and intensified their efforts. A few began shifting to alternative species such as crab. Cheating fisheries regulation—by selling unreported catches at night, lining nets with small mesh and dumping bycatch at sea—was said to be commonplace. Large illegal catches on top of too-high legal quotas drew down the resource. Some say they saw trouble coming, but felt powerless to halt it.

So, we don’t really need complicated models (but see below) to understand how human greed and incompetence – and help from the government – generated the cod disaster. Cods were killed faster than they could reproduce and the result was their destruction. Note also that in the case of whaling in the 19th century, the collapse of the fishery was not so abrupt as it was for cods, most likely because, in the 19th century, fishing technology could not “progress” could not be so radical as it was in the 20th century.

The Seneca collapse of the Atlantic cod fishery is just one of the many cases in which humans “push the levers in the wrong directions“, directly generating the problem they try to avoid. If there is some hope that, someday, the cod fishery may recover, the situation is even clearer with fully non-renewable resources, such as oil and most minerals. Also here, technological progress is touted as the way to solve the depletion problems. Nobody seems to worry about the fact that the faster you extract it, the faster you deplete it: that’s the whole concept of the Seneca curve.

So take care: there is a Seneca cliff ahead also for oil!

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A simple dynamic model to describe how technological progress can generate the collapse of the production of a slowly renewable resource; such as in the case of fisheries.

by Ugo Bardi

Note: this is not a formal academic paper, just a short note to sketch how a dynamic model describing overfishing can be built. See also a similar model describing the effect of prices on the production of a non renewable resource


The basics of a system dynamics model describing the exploitation of a non renewable resource in a free market are described in detail in a 2009 paper by Bardi and Lavacchi. According to the model developed in that paper, it is assumed that the non renewable resource (R) exists in the form of an initial stock of fixed extent. The resource stock is gradually transformed into a stock of capital (C) which in turn gradually declines. The behavior of the two stocks as a function of time is described by two coupled differential equations.
R’ = – k1*C*R C’ = k2*C*R – k3*C,
where R‘ and C’ indicate the flow of the stocks as a function of time (R’ is what we call “production”), while the “ks” are constants. This is a “bare bones” model which nevertheless can reproduce the “bell shaped” Hubbert curve and fit some historical cases. Adding a third stock (pollution) to the system, generates the “Seneca Curve“, that is a skewed forward production curve, with decline faster than growth.

The two stock system (i.e. without taking pollution into account) can also produce a Seneca curve if the equations above are slightly modified. In particular, we can write:
R’ = – k1*k3*C*R C’ = ko*k2*C*R – (k3+k4)*C.
Here, “k3” explicitly indicates the fraction of capital reinvested in production, while k4 which is proportional to capital depreciation (or any other non productive use). Then, we assume that production is proportional to the amount of capital invested, that is to k3*C. Note how the ratio of R’ to the flow of capital into resource creation describes the net energy production (EROI), which turns out to be equal to k1*R. Note also that “ko” is a factor that defines the efficiency of the transformation of resources into capital; it can be seen as related to technological efficiency.
The model described above is valid for a completely non-renewable resource. Dealing with a fishery, which is theoretically renewable, we should add a growth factor to R’, in the form of k5*R. Here is the model as implemented using the Vensim (TM) software for system dynamics. The “ks” have been given explicit names. I am also using the convention of “mind sized models” with higher free energy stocks appearing above lower free energy stocks

If the constants remain constant during the run, the model is the same as the well known “Lotka-Volterra” one. If the reproduction rate is set at zero, the model generates the symmetric Hubbert curve.

In order to simulate technological progress, the “production efficiency” constant is supposed to double stepwise around mid-cycle. A possible result is the following, which qualitatively reproduces the behavior of the North Atlantic cod fishery.

Among other things, this result confirms the conclusions of an early paper of mine (2003) on this subject, based on a different method of modeling.

Let me stress again that this is not an academic paper. I am just showing the results of tests performed with simple assumptions for the constants. Nevertheless, these calculations show that the Seneca cliff is a general behavior that occurs when producers stretch out their system allocating increasing fractions of capital to production. Should someone volunteer to give me a hand to make better models, I’d be happy to collaborate!

At The Edge of the Seneca Cliff

Off the keyboard of Ugo Bardi

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Published on Resource Crisis on December 7, 2014

It would be some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid.” Lucius Anneaus Seneca, Letters to Lucilius, n. 91

This observation by Seneca seems to be valid for many modern cases, including the production of a nonrenewable resource such as crude oil. Are we on the edge of the “Seneca cliff?

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Fossil fuels: are we on the edge of the Seneca cliff?

It is a well known tenet of people working in system dynamics that there exist plenty of cases of solutions worsening the problem. Often, people appear to be perfectly able to understand what the problem is, but, just as often, they tend to act on it in the wrong way. It is a concept also expressed as “pushing the lever in the wrong direction.”

With fossil fuels, we all understand that we have a depletion problem, but the solution, so far, has been to drill more, to drill deeper, and to keep drilling. Squeezing out some fuel by all possible sources, no matter how difficult and expensive, could offset the decline of conventional fields and keep production growing for the past few years. But is it a real solution? That is, won’t we pay the present growth with a faster decline in the future?

This question can be described in terms of the “Seneca Cliff“, a concept that I proposed a few years ago to describe how the production of a non renewable resource may show a rapid decline after passing its production peak. It is not just a theoretical model: there are several historical cases where the production of a resource collapsed after having reached a peak. For instance, here are the data for the Caspian sturgeon, a case that I termed “peak caviar“.

Do we risk to see something like this in the case of the world production of oil and gas? In my opinion, yes. There are some similarities; both fossil fuels and caviar are non-replaceable resources; and in both cases prices went rapidly up at and after the peak. So, if Caspian sturgeon showed such a clear Seneca cliff, oil and gas could do the same. But let me go into some details.

In the first version of my Seneca model, the fast decline of production was interpreted in terms of growing pollution, which places an extra burden on the productive system and reduces the amount of resources available for the development of new resources. However, I found that the Seneca behavior is rather robust in these systems and it appears every time people try to “stretch out” a system to force it to produce more and faster than it would naturally do.

So, in the case of the Caspian sturgeon, above, pollution cannot be the cause of the rapid collapse of production. Rather, what happened is that high prices of a rare and non replaceable resource (caviar) enticed producers to invest more and more resources in raking out of the sea as much as possible. It worked, for a while, but, in the end, you can’t fish sturgeon which isn’t there. It ended up in disaster: a classic case of a Seneca Cliff.

Can this phenomenon be modeled? Yes. Below, I describe the model for this case in some detail. The essence of the idea is that producers need to reinvest a fraction of their profits in developing new resources in order to keep producing. However, the yield of the new investments declines as time goes by because the most profitable resources (e.g. oil fields) are exploited first. As a result, less and less capital is available for new investments. Eventually production reaches a maximum, then it declines. If we assume that companies re-invest a constant fraction of their profits in new resources, the model leads to the symmetric bell shaped curve known as the “Hubbert Curve.”

However, as I describe in detail below, decline can be postponed if high prices provide extra capital for new productive developments. Unfortunately, growth is obtained at the cost of a fast burning out of capital resources. The final result is not any more the symmetric Hubbert curve, but a classic Seneca curve: decline is more rapid than growth.

Is this what we are facing for fossil fuels? Of course, we are only dealing with qualitative models, but, on the other hand, qualitative models are often robust and give us an idea of what to expect, even though they can’t tell us much in terms of predicting events on a precise time scale. The ongoing collapse of oil prices may be a symptom that we are running out of the capital resources necessary to keep developing new fields. So, what we can say is that there are some good chances of rough times ahead – actually very rough. The Seneca cliff may well be part of our near term future.

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The Seneca curve as the result of increasing fractions of profits allocated to the production of a non renewable resource

by Ugo Bardi – 07 Dec 2014

Note: this is not a formal scientific paper; it is more a rough “back of the envelope” calculation designed to show how increasing capex fractions can affect the production rate of a non renewable resource. If someone could give me a hand to make a more refined and publishable study, I would be happy to collaborate!

The basics of a system dynamics model describing the exploitation of a non renewable resource in a free market are described in detail in a 2009 paper by Bardi and Lavacchi. This paper provides a theoretical description of the Hubbert model and of the “bell shaped” production curve. In the model, it is assumed that the non renewable resource (R) exists in the form of an initial stock of fixed extent. The resource stock is gradually transformed into a stock of capital (C) which in turn gradually declines. The behavior of the two stocks as a function of time is described by two coupled differential equations.

R’ = – k1*C*R
C’ = k2*C*R – k3*C,

where R‘ and C’ indicate the flow of the stocks as a function of time (R’ is what we call “production”), while the “ks” are constants. This is a “bare bones” model which nevertheless can reproduce the Hubbert curve and fit some historical cases. Adding a third stock (pollution) to the system, generates the “Seneca Curve“, that is a skewed forward production curve, with decline faster than growth.

The two stock system can also produce a Seneca curve if the equations above are slightly modified. In particular, we can write:

R’ = – k1*k3*C*R
C’ = ko*k2*C*R – (k3+k4)*C.

Here, “k3” here explicitly indicates the fraction of capital reinvested in production, while k4 which is proportional to capital depreciation (or any other non productive use). Then, we assume that production is proportional to the amount of capital invested, that is to C*k3. Note also that “ko” is a factor that defines the efficiency of the transformation of resources into capital; it can be seen as related to technological efficiency, but this point will not be examined here.

Here is the model as implemented using the Vensim (TM) software for system dynamics. The “ks” have been given explicit names. I am also using the convention of “mind sized models” with higher free energy stocks appearing above lower free energy stocks

If the k‘s are kept constant over the production cycle, the shape of the curves generated by this model is exactly the same as with the simplified version, that is a symmetric, bell shaped production curve. Here are the results of a typical run:

Things change if we allow “k3” to vary over the simulation cycle. The characteristic that makes “k3” (productive investment fraction) somewhat different than the other parameters of the model, is that it is wholly dependent on human choice. That is, while the other ks are constrained by physical and technological factors, the fraction of the available capital re-invested into production can be chosen almost at will (of course, there remains the limit of the total amount of available capital!).

Higher prices will lead to higher profits for producers and to the tendency to increase the fraction reinvested in new developments. It is also known that in the region near the production peak prices tend to be higher – as in the historical cases of whale oil and caviar and whale oil. In the case of caviar, the price rise was nearly exponential, in the case of whale oil, more like a logistic curve. Assuming that the fraction of reinvested capital varies in proportion to prices, some modeling may be attempted. Here, let me show just the results obtained with an exponential increase.

I have also tried other functions for the rising trend of k3. The results are qualitatively the same for a linear increase and for a logistic one: The Seneca behavior appears to be robust.

Let me stress once more that these are not supposed to be complete results. These are only tests performed with somewhat arbitrary assumptions for the constants. Nevertheless, these calculations show that the Seneca behavior occurs when we assume that producers stretch out their system allocating increasing fractions of capital to production.

Collective Insanity

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Aired on the Doomstead Diner on August 13, 2014

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…I toyed with some other titles for this Rant, like “Collective Stupidity” and “Collective Ignorance” which are both in abundance these days, but as you observe the spin down progress its way around the Globe, as vast as the Stupidity and Ignorance are, both are overwhelmed by sheer INSANITY. There is insanity everywhere you look nowadays. So today’s Rant is on Collective Insanity.

Let’s start with the Stock Market. While millions more Amerikans drop out of the Labor Force every year, the Market levitates to ever more stratospheric heights. The “Smartest Guys in the Room” invest in Dogshit companies like Facepalm and PoopOn that have never turned a profit in their entire existence. Since these guys are Certified Smart with Ph.Ds from MIT, Harvard and the London School of Economics, you can’t attribute this to Stupidity, so it must be Insanity.

Where do the Smartest Guys in the Room GET the money to invest in this Dogshit? From other certified Geniuses like Helicopter Ben Bernanke and his successor, Dammit Janet Smellin Yellin, who seem to think that paying par prices for absolutely worthless collateral with freshly printed FRNs so that the Smart Guys trading have still more Funny Money to play with will somehow get the economy rolling again back to the Holy Grail of Perpetual Growth. Since you can;t have perpetual growth in a finite world, this concept is flawed from the get go, and also here since Helicopter Ben and Dammit Janet are also cetified as smart, stupidity can’t be the answer, so it must be Insanity again…

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For rest, LISTEN TO THE RANT!!!

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Dwindling Water Resources

Off the keyboard of Michael Snyder

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Published on Economic Collapse on June 18, 2014

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25 Shocking Facts About The Earth’s Dwindling Water Resources

War, famine, mass extinctions and devastating plagues – all of these are coming unless some kind of miraculous solution is found to the world’s rapidly growing water crisis.  By the year 2030, the global demand for water will exceed the global supply of water by an astounding 40 percent according to one very disturbing U.S. government report.  As you read this article, lakes, rivers, streams and aquifers are steadily drying up all over the planet.  The lack of global water could potentially be enough to bring about a worldwide economic collapse all by itself if nothing is done because no society can function without water.  Just try to live a single day without using any water some time.  You will quickly realize how difficult it is.  Fresh water is the single most important natural resource on the planet, and we are very rapidly running out of it.  The following are 25 shocking facts about the Earth’s dwindling water resources that everyone should know…

#1 Right now, 1.6 billion people live in areas of the world that are facing “absolute water scarcity“.

#2 Global water use has quadrupled over the past 100 years and continues to rise rapidly.

#3 One recent study found that a third of all global corn crops are facing “water stress“.

#4 A child dies from a water-related disease every 15 seconds.

#5 By 2025, two-thirds of the population of Earth will “be living under water stressed conditions“.

#6 Due to a lack of water, Chinese food imports now require more land than the entire state of California.

#7 At this point, the amount of water that China imports is already greater than the amount of oil that the United States imports.

#8 Approximately 80 percent of the major rivers in China have become so polluted that they no longer support any aquatic life at all.

#9 The Great Lakes hold about 21 percent of the total supply of fresh water in the entire world, but Barack Obama is allowing water from those lakes “to be drained, bottled and shipped to China” at a frightening pace.

#10 It is being projected that India will essentially “run out of water” by the year 2050.

#11 It has been estimated that 75 percent of all surface water in India has been heavily contaminated by human or agricultural waste.

#12 In the Middle East, the flow of water in the Jordan River is down to only 2 percent of its historic rate.

#13 Due to a lack of water, Saudi Arabia has essentially given up on trying to grow wheat and will be 100 percent dependent on wheat imports by the year 2016.

#14 Of the 60 million people added to the major cities of the world every year, the vast majority of them live in deeply impoverished areas that have no sanitation facilities whatsoever.

#15 Nearly the entire southwestern United States is experiencing drought conditions as you read this article.  It has been this way for most of the past several years.

#16 Thanks in part to the seemingly endless drought, the price index for meat, poultry, fish, and eggs in the U.S. just hit a new all-time high.

#17 As underground aquifers are relentlessly drained in California, some areas of the San Joaquin Valley are sinking by 11 inches a year.

#18 It is being projected that Lake Mead has a 50 percent chance of running dry by the year 2025.

#19 Most Americans don’t realize this, but the once mighty Colorado River has become so depleted that it no longer runs all the way to the ocean.

#20 According to the U.S. Geological Survey, “a volume equivalent to two-thirds of the water in Lake Erie” has been permanently drained from the Ogallala Aquifer since 1940, and it is currently being drained at a rate of approximately 800 gallons per minute.

#21 Once upon a time, the Ogallala Aquifer had an average depth of approximately 240 feet, but today the average depth is just 80 feet. In some areas of Texas, the water is already completely gone.

#22 Approximately 40 percent of all rivers and approximately 46 percent of all lakes in the United States have become so polluted that they are are no longer fit for human use.

#23 Because of the high cost and the inefficient use of energy, desalination is not considered to be a widely feasible solution to our water problems at this time…

The largest desalination plant in the Western Hemisphere is currently under construction in Carlsbad in San Diego County at great expense. The price tag: $1 billion.

Right now, San Diego is almost totally dependent on imported water from Sierra snowmelt and the Colorado River. When the desalination plant comes online in 2016, it will produce 50 million gallons per day, enough to offset just 7 percent of the county’s water usage. That’s a huge bill for not very much additional water.

#24 We have filled the North Pacific Ocean with 100 million tons of plastic, and this is starting to have a very serious affect on the marine food chain.  Ultimately, this could mean a lot less food available from the Pacific Ocean for humans.

#25 One very shocking U.S. government report concluded that the global demand for water will exceed the global supply of water by 40 percent by the year 2030.

Sadly, most Americans are not going to take this report seriously because they can still turn on their taps and get as much fresh water as they want.

For generations, we have been able to take our seemingly endless supplies of fresh water completely for granted, but things have now changed.

We are heading into a horrendous water crisis unlike anything that the world has ever experienced before, and right now there do not seem to be any large scale solutions capable of addressing this crisis.

Hundreds of millions of people living in North Africa, the Middle East, India and parts of China already deal with severe water shortages as part of their daily lives.

But this is just the beginning.

If nothing is done, the lack of fresh water will eventually be deeply felt by nearly everyone on the entire planet.

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The Illiberal Right Throws a TantrumA faction of the religious right has concluded that if liberal democracy does not g...

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Quote from: K-Dog on Today at 12:56:28 AMNot to worry, Putin can't get that upset about Trump.  Trump is a useful idiot to Putin.  Trump strengthens Putin's popularity and makes Russia more self-sufficient.  American san...

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Alternate Perspectives

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The Brainwashing of a Nation by Daniel Greenfield via Sultan Knish blog Image by ElisaRiva from Pixa [...]

A Window Into Our World By Cognitive Dissonance   Every year during the early spring awakening I qui [...]

Deaf, Dumb and Blind Who Is Better at Conceding They Are Wrong - Conservative or Liberal Extremists? [...]

The Apology: From baby boomers to the handicapped generations. by David Holmgren Re-posted from Holm [...]

Society Is Made Of Narrative. Realizing This Is Awakening From The Matrix. By Caitlin Johnstone Orig [...]

Event Update For 2019-06-15http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2019-06-14http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2019-06-13http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

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With fusion energy perpetually 20 years away we now also perpetually have [fill in the blank] years [...]

My mea culpa for having inadvertently neglected FF2F for so long, and an update on the upcoming post [...]

NYC plans to undertake the swindle of the civilisation by suing the companies that have enabled it t [...]

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Farewell to the Fishes"Ninety percent of the world’s marine fish stocks are now fully exploited, overexploited or dep [...]

Climate Change Reversal at Whole Village"During the burn people were taken around the farm to see the 40,000+ trees we have planted, ou [...]

Pitching Seaweed Straws"Kelp-based straws will beat the price of paper straw competitors later this year and could und [...]

What is your climate pawprint?"If US dogs had their own country it would be bigger than 200 other countries and likely be on [...]

The folks at Windward have been doing great work at living sustainably for many years now.  Part of [...]

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When Russians were faced by the onslaught of the Germans in WW2, they stuck with it because 1/ there [...]

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Just happened in my surroundings: the employee shot dead his foreman into forehead and himself in an [...]

"China’s total investment in thermal power construction last year fell to its lowest level sinc [...]

Hi Steve. I recently found what I believe is a little gem, and I'm quite confident you'd a [...]

The Federal Reserve is thinking about capping yields? I don't know how long TPTB can keep this [...]

As some one who has spent years trying to figure out what the limits to growth are. let me say that [...]

Peak oil definitely happened for gods sake. Just because it isn't mad max right now is no indic [...]

@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

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Technical Journals

This paper assessed the variability and projected trends of solar irradiance and temperature in the [...]

Following the impact of droughts witnessed during the last decade there is an urgent need to develop [...]

A “nadir-only” framework of the radiometric intercomparison of multispectral sensors usi [...]

A fuzzy random conditional value-at-risk-based linear programming (FCVLP) model was proposed in this [...]