Lucky vs. Good

 

Once upon a time, Economic Undertow was concerned about becoming a cliché. Those were the good old days. Now we are diving head first into chaos. What’s going to break, today? Instead of irrelevance, we’re concerned about complete organ collapse and a hideous, stinky death on a (presumably haunted) cruise ship, “I’ve fallen and I can’t get up.”

The loud wind never reached the ship,
Yet now the ship moved on!
Beneath the lightning and the Moon
The dead men gave a groan.

They groaned, they stirred, they all uprose,
Nor spake, nor moved their eyes;
It had been strange, even in a dream,
To have seen those dead men rise.

The helmsman steered, the ship moved on;
Yet never a breeze up-blew;
The mariners all ‘gan work the ropes,
Where they were wont to do;
They raised their limbs like lifeless tools—
We were a ghastly crew.

Ghastly, indeed. Confronted with mortality, one escapes into the abstract complaining: ” … it is impossible for anyone to take me seriously. I am beating my head against the wall, others laugh at me or they hate me because I am exposed and easy ‘hate target’. I cannot accomplish anything, I am a boat beating against the current … borne back ceaselessly into ridicule, I am spitting into the wind, up a creek without a paddle, betting the wrong horse. Think of the others who have been pounding that same wall for decades … Nothing changes … the speculators always win, I am a muppet.”

Well … maybe not. How do the markets function when the doors of the cruise ship and everything else are welded shut? Quis weldodiet ipsos weldodes? Who welds the welders? Don’t look at me! I know how to bolt and screw but that’s as far as it goes, I don’t want to be accused of racism! Just let me beat against the current in peace whilst I hide out in this basement. There is enough ‘Made in China’ powdered dog food in here to last for a long, long time.

Trump cheers as Dow breaks 25,000 — for the third time

Trump grew concerned an extended slide could damage his political prospects. He lashed out at Federal Reserve chairman Jerome Powell. And he kept vigilant watch on the markets, using the chart as a barometer of his own standing.

This chart?

For an instant, the precious Dow reached 26,000. Can ‘Dow 36,000’ be far off? How about ‘Dow 36 million’? The Dow at 3,600 seems just as likely with market prices built on foundations of sand (and bank loans). It’s hard to tell right now whether we’ll have the energy available to run our economy going forward or whether the economy will die a hideous, stinky death all by itself, leaving all that energy tantalizingly out of reach. It’s a race, neck and neck, collapsing supply vs constipating demand, winner loser to be determined.

Economists are puzzled! Oh, for the good ol’ days!” they lament:

Doom

The calendar is not your friend: if trends hold, in five years the deflationary trigger will be less than the 2009 post-crisis low. The oil economy we have become accustomed to since the Roaring Twenties will be kaput. (Macrotrends, click for big).

Note the names across the bottom of this graphic; Bush, Obama, Trump. Bush’s presidency was undone by steadily rising crude prices. World conventional output slowed in 2005 during the middle of his term and spare capacity evaporated. The US invasion of Iraq and that country’s loss of output amplified the price increase. This was good for the drilling industry which needed revenue to invest in developing new reserves; at the same time, rising prices crushed credit. Indeed, banking excesses and fraud were a critical factor causing the 2008 recession but +$4/gallon gasoline prices took the hammer to consumer spending, which accounts for 70% of US GDP.

Obama struggled with high oil prices early on but was assisted by the central bank(s) and longest period of negative real interest rates in US history. During the 2014 ‘Summer of ISIS’, crude prices declined sharply which further boosted the Obama recovery. Trump has been successful insofar as oil prices have remained reasonably low, largely due to the success of the fracking industry. Costly crude would have triggered a recession which would have stranded Trump’s presidency. At $60 and below, Trump, along with Obama, are two of America’s luckiest leaders.

This will not last. The spread between today’s $60 and the $70+ price that upsets credit markets is uncomfortably narrow. Onrushing resource depletion and accompanying pauperization reduces the consumers’ ability to meet higher prices: $75 per barrel is too high today, next year $65 will be too high. The following year the too-high price will be $50-55. As the deflationary trigger price declines, it reaches the level where there is little or no crude: we’ve burned through the $20-40 stuff already. Meanwhile the fracking industry struggles with extreme depletion rates and the high cost of new wells, completions and connectivity. Long past the chance of customer revenue supporting them, frackers at this moment are entirely at the mercy of the banks.

What comes after the price allocation regime breaks down? It’s hard to say because there are too many contrary trends and feedback loops. Price allocation functions because both drillers and customers use the same dollar (euro, whatever). Driller cost and customer price are always measured on the same scale. Differences between monies of drillers and customers in international trade are ironed out by arbitrage in foreign exchange markets so the real prices wind up on the same scale. Money is an analog for the work done by both drillers and customers, the kinds of work, the per-unit intensity of it are also the same for both. The market allocates the work of the drillers vs. that of consumers by price (access to credit). Allocation choices are decentralized and granular. One way or the other markets run themselves without obvious preferences. Low prices trigger oilfield investment as prices can only go up. High prices trigger profit taking and setting aside further investment as margins shrink.

Low fuel prices are an incentive for consumers to buy bigger vehicles and drive more, to import more goods from overseas, to borrow and spend on houses, vacations and other ‘goods and services’. High oil prices ripple though the entire oil dependent supply chain as a kind of tax; business activity slows and consumers hold onto dear money rather than spending it. Price allocation malfunctions because fuel shortages do not make anyone richer; breakdown occurs when even the lowest fuel price triggers a crisis. The endgame is a kind of recessionary black hole: with no price that allows industrial activity at all … including drilling for oil.

The current approach is to flood drillers with loans and hope for the best. Repayment obligations are hived off onto third parties if they can be found. The entire enterprise is lavished with lies and wishful thinking. Bankers providing the loans are starting to have second thoughts which puts limits on the process. A strategy underway right now in many places is to eliminate direct and indirect subsidies for consumption which generally means taking (unpopular) steps to reduce driving. A more abstract approach would be to somehow modify the ‘same dollar’ concept, to have one form of currency for drillers and another for consumers. Yet another plan would nationalize the industry with allocation of product by government committee … as was done in the Soviet Union. This last would insure some petroleum is available, nationalization would keep drillers functioning if not solvent. None of the above can change geology as drillers cannot extract oil from places where it is not, or extract oil easily from where it can only be had with difficulty. No form of intervention can create solvency or recover spent resources. Where everything depends on everything else, struggles in the energy sector will have knock on effects in employment and business generally. Propping/rescuing drillers is pointless when the economy does not gain from the use/waste of the fuel; this is the situation we enjoy today, a universe of increasingly self-bankrupting customers.

The dual currency approach is an interesting thought experiment. There are in effect multiple, dollar-denominated ‘currencies’ in circulation within the US today, with one being national currency (those numbers in your bank account) and others including bonds (IOUs) and shares of companies. Both are forms of private money, conceptually at odds with actual ‘money’ as both shares and bonds are assets from the standpoint of their owners whereas money itself is a liability. Today’s asset inflation vs the dollar would be the model for drillers going forward … provided that instruments they would be paid with were also liabilities, issued by some third party beside the government* or the drillers themselves and separated somehow from dollar credit, what all US assets are a proxy for.

Perhaps a commodity exchange could produce a (crypto-) currency that would denominate drilling activity independent of dollar pricing. The work represented by the driller money would be different (worth more) than the work of consumers. Even if the drillers are underwater in dollar terms, they would be solvent in their own currency.

This seems simple enough …

The incentives to run a carry trade — to arbitrage between the driller money and the consumer dollars — would be overpowering and contradictory. Arbitrageurs could simultaneously sell the expensive ‘driller money’ and buy the cheaper dollars to bring the two in line with each other (to reflect reality). The arbitrage process could also run in reverse, traders swapping (cheaper) dollars at whatever price to capture driller-money value (in petroleum). Driller money would have to be worth more than ordinary dollars or the scheme would be pointless. Arbitrage or not, the economy would soon be confronted with the same black hole outcome as doing nothing. Drillers currently offer both shares and IOUs: these offerings reflect (presence or absence of) economic efficiency: many are unfortunate companies poised at the edge of default, whose shares are worth little and whose bonds are junk. Third party offerings along the same line could reflect the same economic dis-efficiencies otherwise they would be fraudulent. Frauds or not, they would be subject to speculative attack. Keep in mind, overseas exporters with their own currencies are also subject to the same black hole outcome. The problem is the customers are broke, their ‘broke-ness’ is ruinous to the drillers regardless of what the drillers do or how solvent they appear out of context.

Any inflationary outcome would be energy starvation as in ‘Brand X’ countries Venezuela or Argentina as the dollar would be worth little, constraining imports. There would be the contagion effects on world trade as an inflationary dollar would hammer business and finance activity, unravel carry trades and upend swaps markets: ironically, inflation itself would become deflationary.

Deflation would see the dollar throwing off its function as a unit- or measure of worth and becoming a thing of value in and of itself; a proxy for increasingly scarce non-renewable capital. This differs from today’s dollar as proxy for the capital destruction process. The tendency is always to hoard value (dollars) and turn away from what is valueless (industrial goods and services). Gaining and holding money would become the business of the country as it was in the West in the 1930s under the gold standard, hard currency being seen as more valuable than any bit of manufactured junk that could be had for it. The Great Depression only retreated when countries abandoned gold, when money shed its value and became a liability relative to manufactured goods, something to be gotten rid of as fast as possible..

Direct government intervention would be the least popular but is actually most likely. Price allocation breakdown means we are too poor to afford oil at any price. Allocation will take place directly without markets. In the drilling industry, nationalization is the rule rather than the exception, the bulk of the world’s petroleum resources are owned- and extracted by governments rather than by private firms. Nationalization in the United States would likely occur after the breakdown of price allocation although some other external trigger such as a pandemic is possible. Nationalization would be accompanied by hard rationing. Being too poor to import and with money dear, Americans would be limited to reserves found within our own borders. To make these last, output could only be a fraction of what is available, today. This would be the end of happy motoring, perhaps all motoring along with the reduction of overseas shipping and air travel. If authorities are wise, agriculture, emergency services, some military and rail transport would have access to fuel. More likely, fuel would be allocated to the well-connected supporters of newly empowered political bosses to sell on black markets. Other claims would follow along as best they could, to be entertained or not arbitrarily, in- or out of some order, then chaotic and violent disorder.

The underlying problem has rarely been inadequate supply, instead, it is consumption does not offer returns to consumers themselves, only pleasure-seeking ‘utility’. We have nothing to show for the resources already squandered but enormous debts, a despoiled landscape and polluting gases circling overhead like angry gods looking to smash us.

And smashing they are. We never were as good as we thought we were, we know enough to get ourselves into trouble but not enough to escape it. Luck is elusive: fires and floods, and the inevitability of greater floods, heat waves and droughts, war and the threats of war, Out of China comes the Coronavirus of which there are as many (frightening) rumors as (also frightening) facts. Beyond argument is the likelihood a large and critical fraction of world business activity will be quarantined by panicked authorities along with human sufferers. There are also the plagues of swine- and avian respiratory illnesses that has killed millions of livestock. There is more, always more: famines and genocides. Our governments are flailing under the strain of resource depletion with uprisings everywhere and a widespread inability of our betters to understand what sort of brain fever has its grip on us. It is us; our prosperity we’ve forged into an armor suit of arrogance and insufferability. Here is only the beginning of the beginning, our dance with fate is at the first turning. We’ve made a stupendous mess of everything in the most frightful and thoughtless manner. Now we are living out our handiwork …

‘God save thee, ancient Mariner!
From the fiends, that plague thee thus!—
Why look’st thou so?- ‘With my cross-bow
I shot the albatross.’

“What did you do that for?”

“I dunno … it seemed like a good idea at the time.”

 

* The government issuing any kind of driller money would in effect nationalize the industry.

50 thoughts on “Lucky vs. Good

  1. Ken Barrows

    A message to the capitalists: Your ideology is dead. Without the Federal Reserve, contraction would be clear. Now, you can still have a society with mostly private ownership, but you have to put that growth dream in the trash bin. K?

    1. sp gp

      That’s all very fine and good, but how are you going to change things? What power do you have? What about Steve?

      A single music video gets a million more views than the entirety of this blog. A tv show? 10 million. A movie? 100 million. A sports game? A billion.

      You are where I was 5 years ago. I’ve since given up. It’s hopeless, and it always was. Yes, I will give up posting here as well eventually, it’s just a curiosity really. You can still live a life, but you can’t change the present system. It will just peak sometime and collapse, and nobody will care.

      Just like nobody cares about 9/11, the financial crisis, etc. We’ve already moved into a nihilistic world. It’s already a done deal. Nobody cares about anything, and there’s no way to stop or control it. The screens, including the screen you are looking at right now, is the final solution to the human question. We’ll all just die somewhere, sometime, looking at a screen.

      1. Ken Barrows

        It is a done deal. It’s just silly when a Wall Street “capitalist” (e.g. Lloyd Blankfein’s twitter feed) screams “socialism.” That’s chutzpah. Many traders are right to complain about the Federal Reserve, but they think they are “wealth creators.” No, you’re debt creators. (And debt is wealth.) As Tim Morgan (surplusenergyeconomics.wordpress.com) points out and Steve does, too, the economy is a surplus energy equation.

        So, we have competing socialisms. As least with ol’ Bernie, the have nots get a little something before the crash and burn. If you don’t like the status quo, you wait for the fall. Half of Democrats or more and all Republicans (including never Trumpers) are for the status quo.

      2. steve from virginia Post author

        It’s hard to figure out what to do in the face of all of our self-created problems. I have the same bafflement, when the scale of things appears to be outside our ability to do anything about it. Scale … we don’t understand (probably because we have to choose not to and as a result lack the training).

        I recall a long-ago conversation w/ James Kunstler saying, there are seven big problems hanging over us, or rather six big ones and one gigantic one. The three ‘supply side’ issues are Peak Oil, Climate Change (diminished nature-provided services) and peak credit. The three ‘demand side’ problems are too many people, too many cars and too many cows. The giant problem that unites all of these is our refusal to talk about these problems! Ironically, we could solve all of them in about 15 minutes, it would require the honest discussion.

        Cutting our numbers and our waste. That’s a matter of incentives. Getting rid of the cars — also with incentives — would be the harder because they are so important to our self-image. But we had only a handful of cars before 1908. We’ve lived without cars for the bulk of our existence, fighting World War Two was much harder than going car-free. But the cars represent 20 billion additional (artificial) humans. That’s a large component of our supply/demand issues right there. Get rid of them, we have a fighting chance w/ the ‘other stuff’.

        Bottom line, is there are things that can be done, we aren’t really desperate enough to do them, yet. But, we’re close. A breakdown of West Antarctic ice sheet will put New York, London, Shanghai underwater in a big hurry. That will get everyone’s attention.

        We tend to look at our lives, our success (and failure) in purely economic terms. GDP/capita, output/worker, money wealth, access to ‘x’ amount of consumption goods and services (or the lack of these things). Poverty is considered a money issue rather than a ‘values’ issue, so we have no civilization which also means we have no real human, non-counting ways to distinguish between success and failure. This is the great stain or blot on the economic discipline: it presides over the annihilation of everything that supports us and which gives our lives meaning. Economists and businessmen call this ‘progress’ with a straight face. This ‘presiding problem’ and inability to grasp scale appear to be insurmountable, but it’s not.

        Because of the obligations and promises our debts represent, we have a growing interest is keeping alive the hope we all will be repaid; that we will become rich as long as we keep to the status quo a little while longer. The new promise is our debts will be repaid by by robots and AI. But we owe everything to ourselves; rather, our children owe themselves to the dead. This process has taken on a life of its own. We’re really bankrupt to the point where even the most clever robots can’t pay … if they’re smart enough to be given the task they would reject it, “These are your debts not ours! Go fuck yourselves.” We would become slaves to our own slaves (to some degree we already have).

        Scale: humans are tough and adaptable. Hominids and humans have been around for 3-6 million years. Agricultural humans have been here about 10,000. (There may have been some during prior inter-glacial periods that we don’t know about). 10,000 years means we haven’t had enough time to figure out how to manage ourselves, to adapt to our ‘new’ ways of doing things. We’re learning a very hard and contradictory lesson on the fly. Right now I actually think we’re doing pretty well. We could have blown ourselves up with our atom bombs.

        The consequence of our collective ignorance and lack of learning will be a struggle against resource limits until the next ice age which may be 50- 100 thousand years from now. The amount of carbon in the atmosphere and oceans is the wild card. There will be a population bottleneck which will affect much of the rest of nature. We humans have endured it before. Over that multi-million year interval, there have been a dozen or so glacial periods and the contraction of habitable ground on Planet Earth. It’s part of the life process. The post-glacial outcome is likely greater species variability and adaptability to small niches. Next go around — after our re-introduction to thermodynamic realities — we won’t have cars or other toys because we won’t have enough petroleum or coal, only our wits and maybe some important lessons learned. All that is for the better.

      3. Volvo740...

        The collapse of bio diversity is also hard to estimate. There must be a myriad small things, like certain insects, that we depend on but don’t know it. Toxins release also seem to work with delay. Then of course, it’s possible that we’ve already lost control of the ice sheets and it sounds like there is methane coming out of both oceans as well as permafrost. The scale of these problems are indeed daunting, but in some sense it would be a relief to have an event that makes it obvious to everyone.

  2. ellenanderson

    Do you wish you had been more careful about your wishes? Are you really suggesting the beginning of the beginning of the end?
    That was a great post back in 2013. Both the post and the comments are worth re-reading. Where is everybody who was commenting back then? Time to come out of the basement and watch the show as the elites begin to face facts and each other. Hopefully some sort of conservation but anti-austerity movement will begin to grow out of the people pushing for change all over the world and be seen as reasonable by people who are so attached to their carz and consumer lifestyles. Wonder what the Dork of Cork is thinking about Ireland just about now.
    Thanks Steve for doing this writing.

    1. sp gp

      We’ve already crossed the threshold. There is no going back, but there is no going forward either. Either you made millions of bucks or you didn’t.

      So, you disagree that this is important? What about the fact that women choose to mate and have kids with men with money? Poor men are being selected out of existence, right here and right now. So future people will in fact be the descendants of today’s successful.

      Capitalism morphs into feudalism as complex society collapses. Everybody retreats into a pod, a shell. There’s no society, there’s no world.

      It’s already over! Think on that until you get. Really get it into your mind that all of you reading this post, all 3 of you, are like 90 year olds in a nursing home. There’s nothing you can do…nothing.

    2. ellenanderson

      “Poverty is considered a money issue rather than a ‘values’ issue, so we have no civilization which also means we have no real human, non-counting ways to distinguish between success and failure.”
      Turning everything into a commodity leaves no room for discussion of values. The only value that is considered worthy of discussion is ‘market value.’ Any other discussion of value is derided. Trolls come out of the woodwork if you dare to try. I suspect that is one reason that so few women participate in discussions on financial sites. (Thank you on this site for not feeding them.)
      For those of you interested in light entertainment I suggest the following:
      https://www.texasmonthly.com/boomtown/

  3. Volvo740...

    Thanks Steve! Out here in the techno future of Bellevue WA people are going about business as usual hoping that any disruptions to flights will be minimal and that Amazon shipments will come as usual.

    I’d say 1% or less have any idea of what risks there are out there.

    Maybe everyone (with money) will rush to get an electric car one day, but somehow I doubt it. Where would they drive to? Leaving your home could be dangerous anyway.

  4. sp gp

    I can report the same thing here in DFW. Nobody gets it. None of my family do, so if they are any indication of the general populace, the level of awareness is zero.
    Nobody really feels it, or tries to understand, that all resources are finite. I’m telling you, there might very well be a general defect in the American mind. It’s a combination of three things: massive suburbia stretching in all directions, cars going everywhere at high speed, and the media/entertainment complex. The tv shows and movies mostly, but sports, video games, etc. can be grouped here.

    America, whatever it is, is not what you guys think it is. Good or bad. It’s not an enlightenment republic defending itself against evil terrorists and saving the world. America is a ….multiracial empire of infinite consumption of its domestic and international resources. That’s the reality of what America is.

    In a strange way, even though America thinks of itself as a savior, it is itself beyond saving, and nobody either inside or outside it can anymore analyze or control it. The system is beyond us all. To say nothing of the 8, soon to be 9, 10 billion souls worldwide.

    Why doesn’t anyone in Europe or China do anything? Because they can’t! They are as powerless as you and I.

    Hopeless. Utterly hopeless.

  5. Volvo740...

    As a pure personal goal I think it’s valuable to try to stay happy. I find that studying peak oil and trying to understand how this is all going to play out is useful (for me) in that regard.
    Similarly I think “preppers” get personal satisfaction from trying to prepare. But most people definitely think that worrying about this is not helpful, and I think there is something to that. There is nothing wrong with just living life at its fullest every day and not worrying about CC PeakOil or anything.

  6. sp gp

    Yes, my point is that at most we can make an individual response. There isn’t going to be a systemic response.

    My evidence…we had enough information in the 2010s to make a systemic response, and didn’t, other than bailing out the cronies at the top. Is this now enough to declare, there will be no systemic response in the 2020s, 2030s, 2040s, or 2050s?

    Yes, in my opinion. The game is too late. I believe we passed the point of no return sometime in the mid 2010s, let’s say 2015 just to split the difference. Menopause. Terminal cancer in the ICU. Use whatever analogy you want that makes you really get it that it’s too late now. The combination of population growth, car growth (but also planes, trucks, ships), resource decline, exponential currency derivates, and so on cannot be put back in. There is no getting rid of it. Really understand…every last drop is going to be burnt as the central banks transfer all debts onto their balance sheets, inject liquidity, and we go to 8,9,10 billion people while using up every last barrel of oil that can be extracted. That’s actually going to happen, it’s baked in, no stopping it now.

    So live your life! Just live an individual life the best you can. Do not worry about the system. Steve disagrees, but I politely refer you to my argument above. I’m getting old, I’m actually dying you know, regardless of what the system does. So I can’t wait anymore. You have to move quickly. You really have to run now. Think…some of us, and maybe our kids, will see a world with 10 billion people and no usable oil left. As in…no usable oil left for the remainder of our life as a species. Really, really think on that. Not a pretty picture, guys.

    1. steve from virginia Post author

      Whatever happened to Rosie Scenario when we need her?

      Moonlighting at the Department of Easy Solutions!

  7. ellenanderson

    That is a lovely video. I will pass it along.

    Quote on current political situation from John E. via Counterpunch and found today found on ZH. “So I find myself wondering how those voters will respond to the brazen theft that we’re about to witness. “What happens to a dream deferred?” asked the poet Langston Hughes. How will the young people of America—-the idealistic anti-Carvilles among us-—react on that day, when they see the last pretense of American democracy stripped away to reveal the huge and reeking meat factory that’s owned and operated by the Mike Bloombergs of this world? What about the older ones among us, lying dormant in cynicism for decades, who’ve dared to awaken to at least a flicker of hope?”

    I guess that I am one of those semi dormant older ones who still feels a flicker of hope…. for the planet at least.

  8. Volvo740...

    The question of whether there is hope is tricky. Some even argue that as long as we talk about hope, we don’t spring into action.

    I tend to side with Tim Garrett – who looks at our society as a dissipative system (as does Gail). It was taming fire that took us to where we are, and it will be extremely hard to leave our fuels untapped. Tim argues that even if some individuals refrain, others won’t. He continues: by ceasing all combustion we collapse, but by continuing to burn we delay collapse a little further. Other interesting arguments: efficiency improvements are not a panacea. In fact, we have been getting a lot more efficient over the last 100 years. It only made the fuels more attractive – Jevon’s paradox. Tim also observes that we have tended to only add new energy sources, not replace. And finally – renewables are detrimental – in that they enable us to grow, and when we get bigger we become more hungry – for everything, including fossil fuels.

    In summary: There is no way out.

    https://www.youtube.com/watch?v=ekuRvsoZyNI

  9. ellenanderson

    Agreed. Certainly no way out under waste-based industrial capitalism. It is all about scale . If we stop growing now capitalism will collapse and we may limit the damage to the planet. How can we stop now? Maybe nature is giving us a clue and we will get good and lucky. Why do we spend so much time predicting the future when we will likely be wrong?

  10. Volvo740...

    Right. There is the question of whether we could go back to a much simpler setup. At a minimum we would still need: Food, Shelter, Clothing. I’m not really an expert at this, but my guess is that we couldn’t put all the people we have to use in agriculture with primitive tools, work cotton fields for fiber, rubber plantations for shoe soles, ….

    Meanwhile we have also destroyed much of our ecosystems. Soils are in poor shape. Bees dying. And we have shifting climate zones. New, changing weather patterns and more frequent crop failures. Methane is starting to just “come up” on its own.

    One challenge with going in that direction is that very few people want that. And lots of people want what we have today. Very few own land, and most of the land owned is not useful for growing stuff. The truth is, that in today’s world, if you’re down on your luck, the best thing you can do is to get a job… Ideally one that pays well. Or build a business of your own, selling art, repairing houses, mowing lawns, growing food, … It is very hard to “check out” of the system we have, and I’m talking about getting by without major “wealth” already “saved” up.

    I don’t see a story where we go there voluntarily. There has to be a forcing function.

    1. steve from virginia Post author

      Maybe, maybe not.

      Bonds are saying the world is in a depression.

      So is copper, heavy trucks, gold, maybe petroleum.

  11. Volvo740...

    It seems like we’re reaching the end of the plateau (for oil), and once we start the descent it will be unstoppable. This was always the classic peak oil thesis, and I don’t see why that wouldn’t still be the case. Some argue that the “peak oilers” were too optimistic, and that the descent would be even faster than 4% per year, but I think 4% per year is plenty fast. That’s 15% decline per 4 year initially… Who wants to be president under those circumstances?

  12. ellenanderson

    @volvo “I don’t see a story where we go there voluntarily. There has to be a forcing function.”
    I couldn’t agree more. The Dirtbag Left, the DSA, the Trotskyites and Leninites and Marxists of all flavors are waking up on the morning of March 4th to face the reality that most Americans like things the way they are.
    Personally, I think that the “far left,” where I have always been, still can’t get the story right. Nobody in the modern world can face giving up the amazing wealth and mobility and personal freedom that we have had since WWll.
    I really hate pontificating about “human nature” but here goes: we really are happiest when we are in our tribes. Face to fact communication is best, equality is best. How can we take the best part of what we now know (organic small scale farming, public health, nutrition, electricity, appropriate technology) and get rid of the worst which is waste-based, usurious, military industrial capitalism? I have absolutely no idea but it will probably involve a decentralizing movement that will probably follow a forcing function. Notice how state governments are popping up in the face of the federal government’s especially incompetent response to the virus problem. Will that convince some people that central control will not “keep us safe?”

  13. Volvo740...

    Hi Ellen.
    “Most Americans” is key here. Those that have like things the way they are. Those that don’t have don’t really have a voice. Or “weren’t good enough” to get a job or make a living. That group may be set to grow as the elite continues to steal in various ways.

    It’s really amazing how corporations are continuously looking to remove even the entry level jobs. (Burger flipping). Perhaps they are worried that paying their staff enough to survive will eventually be too much?

    Then what happens? A big fear is a world where nothing is profitable.

    Thanks for posting!

  14. Bachs_bitch

    Dammit Steve I leave for a couple of months thinking your next article will be post-Trump II and you post 2 more in rapid succession like you’re a twitter influencer or something! Seriously though, appreciate it. Anyway, here’s a few thoughts.

    Imperialism and advanced civilisation are inseparable. People have to be forced to extract resources and build the fancy ziggurats, triumphal arches, cathedrals, factories and fulfilment centres of your febrile wet-dreams, and they aren’t going to be happy about it. But everyone can’t be unhappy, there need to be some loyal folks who both do the work of enforcing imperialist rent for you, as well as expand the empire in your name. So you start sharing some of the rent, or loot. This is where consumption comes in.

    The history of the ‘capitalist’ European empires is a history of the forced transfer of land and resources from ‘unworthy’ consumers to ‘worthy’ ones. The heart of America is the heart of an English husbandman’s good-for-nothing second son, kicked out of his home at 20 and determined to prove daddy wrong via heroic colonial entrepreneurship i.e. murder, invasion and slavery. Europe could always export its class struggles to its colonies, and without them the N European incarnation of capitalism would likely go the way of the 2nd c Roman and 11th c Chinese ones. The original worthy consumers were WASPs, and everyone else was some variant of filthy savage. Even the English masses back home were but the discarded pupae of the true children of Albion. Then coal-driven industrial civ happened and Euro immigrants started flooding in, to fill the burgeoning need for more land and resources, and for more worthy consumers to have a stake in developing and defending them. Time and necessity would conspire to induct them into the ubermensch club. The planter exarchs of the south didn’t like that at all. All those poor people from across the pond were stinking up their promised land! They thought nothing could topple their vast slave empire, that medicinal and alchemical innovations patronised by their idle lucre would turn them into Greek demigods while in the north the teeming white trash and their bourgeois leaders looked on with impotent envy. Such is the blindness of doomed classes. Slavery became obsolete, black people went from being slaves to being ‘free’ citizens given no other choice but to continue doing work nobody else wanted and being despised for it.

    When oil entered the stage, imperialism expanded at dizzying speed and enveloped nearly everything and everyone. As the surplus value produced by the periphery exploded, so did the need to put it to ‘good use’. The foundation of the pampered, consumeristic labour aristocracies of the 1st world lies in the ashes of the second 30 years war, fought between competing imperial powers for aut caesar aut nihil. The white proletariat of the USA were bribed into loyalty and compliance. Union thugs dragged bosses from their offices so they could have nice little chats with the boys. National Guard divisions loyal to Augustus Roosevelt protected sit-down strikers from local sheriffs and other assorted fascist thugs on company pay. The capitalists who didn’t get the memo tried to get FDR to recognise and put a stop to that open communist revolution, but all he recognised was his own picture hanging on every CIO office wall in the country.

    The western left became ideologically and spiritually bankrupt the moment it turned away from the great oppressed masses of the Global South. Calling its own enrichment at their expense, over their corpses and broken dreams, “progress”. So here we are. Now is the time of wolves. And we are alone because we happily chose to leave everyone else behind.

    It’s been fashionable since 2008 to view finance as a sort of tumor that can be excised so we can go back to the “good”, “productive” capitalism from the old days, when the reality is it has always been a vital part of capitalism. Take the UK for example. In some ways London combined with other overseas territories is (soon to be was) a greater financial power than the US. It’s international banking system acts as the financial go-between for other OECD countries. In other words, it helps fund the balance of payments of the rich countries, even if only by recycling funds back to them that were previously sent to the UK from the same countries.

    Capitalism would be long dead if it weren’t able to selectively alter conditions of price discovery and labour negotiation in flagrant defiance of its own first principles. Once you acknowledge that though there’s just a long list of questions with tentative answers at best, e.g. ‘why is it called capitalism?’ and ‘why are trillions of lines of source code available for free yet not billions of cheap, durable hardware on which the children of Ghanaian cocoa farmers can learn how to write software?’. The answer to the second one is – free frappuccino with your starbucks gift card. Can’t argue with that!

  15. Bill Sodomsky

    Steve, where are you? We need your insights. Oil is crashing. The last time I checked it was at $32!!! Likely heading lower and this to me portends the official beginning of the end, not that we haven’t been in the slow burn stage for a very long time. Now however, I detect real panic. The virus event was the trigger and I can see no possible way that this can reverse. The horrific underlying fundamentals, papered over for so long, now will surface and the rot will be seen by even the most naive and bullheaded. I don’t drink, but there is some alcohol in the house and I may just need a stiff one to process what’s ahead of us.
    Very much looking forward to your thoughts.

    1. steve from virginia Post author

      All of the above is underway during an awkward time period as I am now in the middle of a ‘home improvement project’ that will take another two weeks to finish.

      Indeed, the background for the panic has been painted in over the past 20 years. Nobody should be surprised (but they are). The outlines of consequences are starting to heave into view: entire industries are teetering on the edge of collapse (air travel, shale drilling, finance, insurance, hospital care; perhaps post-modern robber capitalism). A lot of our ‘stuff’ is complex and busy-looking but useless except for narrative purposes.

  16. ellenanderson

    Busy in the kitchen whipping up a weeks worth of liposomal vitamin C in the blender. Finished the last of the gin.

    1. steve from virginia Post author

      I’m stocking up on everything, particularly food. I want enough basics to keep myself comfortable for 5 weeks – 2 months. Don’t expect the worst but it’s good to prepare for it.

  17. Bachs_bitch

    Everyone is blaming the simultaneous detonation of every inflated bubble of the past decade on a virus. I feel bad because lately Trump is becoming funnier and funnier to me. Everything he tweets or says has me cackling my head off. I can’t help myself, it’s awkward when people tell me about something he did or said and they expect angry tutting in response. Btw did anyone see that video of Trump saying he misses his face because he hasn’t touched it for a week?

    To paraphrase a French infectious diseases specialist whom I was talking to last week – “frack you it’s a normal coronavirus like the 4 that typically already circulate in a flu season, how about you pay attention to those deaths too, oh right it’s not Chinese and scary. Well you know what I’m going to follow Chinese advice and you should too. This is going to not even be a blip compared to typical over-winter death rates due to typical infectious diseases like flu and the above-mentioned non-new coronaviruses. This insane fear mongering is so much worse than the virus itself. PS – again, frack you.”

    1. Bachs_bitch

      Also this virus hysteria made me look up a list of countries with no national health care and no plans to set one up.

      – The Democratic Republic of Congo
      – Ethiopia
      – Jordan
      – Paraguay
      – a few emirates of the United Arab Emirates
      – The United States of America
      * India, Egypt, and Indonesia are the three countries without national healthcare but are supposedly in the process of creating them.

      Though to be fair the wiki lists didn’t include countries whose health care systems have been destroyed by American bombing and occupation.

  18. Bachs_bitch

    Holy crab sticks dow’s in freefall! Everyone form up in an orderly line and start placing bets on which godforsaken hellhole is about to get liberated by the space marines.

  19. Bill Sodomsky

    You have been hard on yourself of late Steve, but today is official vindication as the Fed’s last ditch desperate attempt to stave off the inevitable has remarkably failed. We now officially stare into the abyss perched on the edge of the Black Hole’s event horizon.
    All of us who followed and participated in this very important venue knew this day would come. I think I can safely say Steve that we trusted your foresight and wisdom and in my case, you kept me sane through a very difficult 10 years. That of course will seem like a walk in the park compared to what now imminently lies ahead.
    I wish everyone all the very best. We will need a lot of care and comfort through these trying times. Take care and please keep in touch Steve.
    Sincerely,
    Bill Sodomsky

  20. ellenanderson

    I echo Bill’s sentiments. Back in 2009 I never thought business as usual would continue for ten years. Here we are. The whole world is out sick. Stay in touch if you can, Steve, and thanks for everything. May you stay safe at home surrounded by orchids.

  21. new paradigm

    I’ve been following Steve’s excellent writing and other web appearances since 2015; I’m a diligent student of screwed-up world affairs since at least the late 90s.

    I’ve been lurking and reading – but I have to speak up – and I too want to thank you Steve for bringing together all the ideas in your writing that help us see a precious image of reality. And thank you for your personal style / humor / drama / panache you bring to your reasoned and scholarly writing. I set out steering to “succeed” – or, missing that goal by some degree, to at least know the truth – and Steve, you really helped.

    Please keep writing, Steve, and I will do my best to contribute to the group discourse. Thank you to all who have contributed to the comments! Great bunch of thinkers here – a one-of-a-kind group.

  22. Volvo740...

    Btw, is it just me who thinks its a very strange that we have this aggressive response to this virus, causing massive fuel conservation at precisely the time when we are going through peak oil.

    Bird flu:21000 deaths in US. Business as usual.

    Just sayin

  23. Bachs_bitch

    There’s more news that chloroquine seems to be working, if you want to get someone to bring you a raft of bottles of tonic water tears, it might make you feel better; by putting gin in it, but also maybe killing the virus!

    https://www.lemonde.fr/sciences/article/2020/03/17/la-chloroquine-une-piste-pour-lutter-contre-le-sars-cov-2_6033364_1650684.html
    En France, une étude clinique vient d’être lancée par le professeur Didier Raoult, directeur de l’IHU Méditerranée Infection (Marseille). Evoqués lundi 16 mars dans une vidéo par ce dernier, les résultats préliminaires semblent spectaculaires : au bout de six jours de traitement par Plaquenil, 25 % seulement des patients seraient encore porteurs du virus, la proportion étant de 90 % chez ceux ne recevant pas le traitement. La charge virale à J + 6 serait encore plus basse chez les malades traités en plus par un antibiotique, l’azithromycine.

    “… the preliminary results seem to be spectacular: at the end of 6 days of treatment with Plaquenil , only 25% of patients were still carriers, compared to 90% of those who did not receive the treatment. The viral load at D+6 was even lower in patients who were also treated with an antibiotic, azithromycin.”

    The UK govt silently put it on the list of drugs you can’t export to the EU on March 14th. https://www.pharmaceutical-technology.com/comment/parallel-export-covid-19/

  24. sp gp

    Here is my best guess for near term, like 1-2 years, not that anybody is asking:
    -coronavirus spreads, shuts down economy, but minimal deaths, mostly ill/elderly
    -economic recession reduces demand for oil, price stays low, combined with politically driven high output from saudi arabia, russia, etc., begins to destroy u.s. shale, but impact on world oil markets will not be devastating, and u.s. still has import options
    -central banks will coordinate action to keep markets afloat – basically new rounds of qe and zero/negative rates; volatile but sideways action in the markets will be the result
    -trump wins re-election narrowly based on base still being more motivated than the now completely demoralized left; in second term, trump will morph into lame duck just like bush and obama; there will be no completion of mexican wall, immigration will continue, economy will generally do poorly

    Intermediate term, I think the system is done in late 2020s, as demographics and energy depletion finally dooms it; look for widespread defaults and inflationary depression to really kick in then

  25. Being Frank

    Steve,
    For many years I’ve been a student of stupid which I feel puts me in a good position to comment. So with that qualification may I offer the following observations?

    It is all too easy to forget how terrified people can be when confronted with something they don’t understand.

    An illustration from my own life which I suspect is not that unusual. In the 1970’s the only language I was comfortable in, or had any real use for, was Maths but in my mid 20’s (the early 1970’s) and with hem lines rising every week (the mini-skirt), I thought I should ask a girl out. The only problem being that I knew they would want to talk in a language that was, more or less, completely closed off to me. I obviously couldn’t stay celibate yet to hold a conversation with someone, anyone,what on earth was that all about? And what did all those words people had such easy access to really mean? It took some years and a great number of girl-friends to really understand that none of them were at all interested in the contents of my extraordinary mind and talking was really the last thing they were interested in anyway.

    But while all that was going on, during the day, I was modelling proposed motorways for HMG, looking up to 40 years ahead, and using my slide-rule and the back of an envelope it seemed clear, if the geologists were even half right, that the world economy would fall apart within 40 years, so 2010.

    My contention is that every single one of our 650 MPs is as terrified of the world of maths/physics, ( it is no more than ‘O’ level (exam taken at 16 in the UK ) when all is said and done), as I was back in 1972 when I plucked up the courage to ask that first girl out. The terror of the unknown. Put another way, every one enjoys sex and so we are all driven to seek it and it causes us to overcome our fears and embarrassment but the sheer beauty of maths and physics, not so much.

    So I have had 50 years to mull all this over. Your situation is analogous to the chap in the office who is being cuckolded. The whole office knows, but he doesn’t, in fact the whole firm knows. He is very gregarious, Golf Club, Rugby Club, Conservative Assoc. so more than likely half the town knows that another man is enjoying his wife. Does he not have a single friend to take him to one side to tell him that he is a laughing-stock? One, he would never believe it, two, he is a big bloke and you could see yourself in a hospital bed all too easily. So he lives in total ignorance.

    So there you have the heart of the predicament. For the last 50,000 years “work” has mostly involved sweat and aching muscles and for the last 50 years not so much, and yet 99.999% continue to use the same word, “work”, when they are paid to push a mouse over a mouse-mat. They are in total ignorance of the fact that the “work” is in fact being performed by a, mostly fossil fuelled, motor in some distant place. And the fact that the fossil fuel used requires more and more fossil fuel to obtain it? Well that is someone else’s problem, right?

    So now you hear, if you listen really hard, millions and millions of people saying something along the lines of “I worked really hard for that holiday/new car/pension” , will no-one tell them the truth that according to the laws of Physics they have never done a stroke of work their whole lives and that the “work” they do is in fact no more than a social construct. Well don’t look at me! One, they would never believe it and two I could see myself in a hospital bed all too easily. My discovery of anthropology (I was very lucky as I grew up in a house without any books) in the early 80’s meant I could finally find a use for the English language. I had no idea up until then that it was even possible to study the human condition or even that there was a “human condition “ to study but finally the penny dropped and I realised I was in fact looking at a civilisation approaching a state of entropic collapse.

    All anyone really needs to do to fully understand their predicament is of course to ask themselves can the fish see the water they are swimming through, it is that easy and at the same time very, very difficult.

    People reading this will think that to call the 2008 crash back in 1972 must make me some kind of genius when all it took was a bit of curiosity and a 1st degree involving lots of Soil Mechanics i.e. Foundation Engineering, you lot don’t need me to join those dots do you?

    Very best wishes to you all, a long time reader

  26. Volvo740...

    Being Frank. Very well said, and thanks for making me laugh today! So now, when someone is looking at their retirement account or dashed new car hopes, we know the answer. And no, it’s not declining EROI, collapsing fish stocks or soil degradation. It is only one thing. Virus.

    1. Being Frank

      Yes. Folk here on this precious site live in a world of isness. They well know how the world “is”. And the 99.999%? Well this is where I get to use one of my favourite words! The masses live completely in a world of oughtness. A world where countless millions are working so hard to transform the world ( their world?) in to how it ought to be. Of course they are all about to be overtaken by events.

      1. Bachs_bitch

        It’s not even about wanting to change the world per se. We have the resources as a species to provide adequate food, healthcare and happiness to the entire human population, all 8 billion of them. But not remotely enough to sustain the relentless industrial reproduction of the middle class lifestyle. Subtract cars, the majority of transport trade & communications infrastructure, private electricity consumption, virtually all consumer tech, and the meat/dairy based diet, and you have a fairly sustainable global economy. At least, you have an economy incomparably more receptive to steps towards genuine sustainability than the current one.

  27. sp gp

    Oil is being decimated. We desperately need a new post by Steve to analyze this. Very tempting to get into oil futures at this point. No way it stays this low. The most valuable commodity in existence, priced at 25 bucks, in a fiat currency that can be printed to infinity?

    I say oil is more valuable than dollars.

    1. steve from virginia Post author

      Oil price drops = dollar worth increases. In other words, fewer dollars are needed to gain more crude.

      The current low price is a marginal market phenomenon. The refiners hold a surplus of some few million barrels plus more supply waiting at the wellhead. The oil at the refiners represents a small fraction of the world total consumption but that small fraction sets/determines the price of the rest. If the refiners don’t buy drillers have few alternatives: don’t pump, put oil into storage or find a buyer at a knock-down price.

      If enough persons lose their jobs due to the virus and economic unraveling, oil will become very cheap. Alternatively, the markets could fail along with many banks in a deflationary spiral. Oil = cheap. But there are a lot of complicating factors but the collapse of credit suggests prices will remain low.

      Inflation is an outside possibility but if oil prices jump the economy will crash some more putting an end to that.

  28. Being Frank

    Bachs bitch
    It sounds to me you are lost in a world of oughtness. You do know civilisations collapse don’t you? For me it helped to travel through Mali and Niger as a young man, a foolproof (?) way to gain a good perspective on the UK. You do know the fish can’t see the water right?

    1. Bachs_bitch

      I think you’re misreading me. Firstly human perception of reality doesn’t come down to is vs ought so much as a chaotic intermeshing blob of knowledge, half-knowledge, oblivion, desire, action and vast natural events and phenomena which may or may not be clearly understood or acknowledged (though usually not). Anyway, I wasn’t saying collapse can be abated, I was pointing out that it’s not merely a question of physical limits but how they interact with the functioning of human economies, which in turn are partly a product of human decisions and values. There is no single, iron law of nature that is making collapse happen, it’s a combination of many factors.

      Speaking of Mali btw, it’s one of 15 African countries that still have their currency directly synced to the value of the franc (now euro) through the West & Central African CFA franc, & their national reserves are obliged to be held in the French central bank. So when France buys resources (like uranium from chad) no money is actually paid, instead France issues a note of credit at the central bank of France which holds that money. Additionally, and crucially, these countries are forbidden from accessing more than 15% of their reserve in any given year. If they need more they have to borrow a limited amount from the French central bank at very high interest. French board members are required to be on the board of these African banks too, so all public spending projects etc essentially need French approval to be carried out.

      So what happens to all that wealth? France invests in its public services and buys the debt of Portugal/Spain/etc, improving conditions for locals. Ironically the people of Mali are somewhat more entitled to benefit from state support such as healthcare, good jobs or housing than the French protestors angry about not having enough of those things, as well as the presence of the people whose superexploited labour supports those things to begin with. Around 34 bn yearly on military operations and an enshrined legal requirement for a French standing army on its former African colonies ensures the interests of the “rebellious” Frenchmen are protected.

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