By Nate Hagens: Reality 101 Short Courses

 

Reality Check Ahead

Today Nate Hagens released a new series of short courses on the human predicament created for the University of Minnesota NEXUS ONE freshman program.

More information on Nate’s educational initiatives can be found at the Institute for the Study of Energy and Our Future (ISEOF).

You can also find another excellent Reality 101 course by Nate here.

 

Reality 101 Short Course #1: Metacognition in the Anthropocene

 

Reality 101 Short Course #2: The Fossils that Power the Global Economy

 

Reality 101 Short Course #3: The Real Stock Market

 

Reality 101 Short Course #4: Finding Resilience in an Age of Turbulence

Endgame

Interest Rate Response

I don’t read ZeroHedge much anymore because they don’t understand and/or deny the relationships between energy, overshoot, and the economy.

Today the US Fed lowered the interest rate so I had a peak at ZeroHedge to see what the knuckleheads were saying. It seems we’re approaching a Minsky Moment.

https://www.zerohedge.com/news/2019-07-31/endgame-starting-2024-all-us-debt-issuance-will-be-used-pay-only-interest-debt

Endgame: Starting In 2024, All US Debt Issuance Will Be Used To Pay Only For Interest On Debt

As we first pointed out back in March, when looking at the US ‘income statement’, most concerning by far is that for the first four months of fiscal year 2019, interest payments on the U.S. national debt hit $221 billion, 9% more than in the same five-month period last year, with the rate of increase breathtaking (see chart below). As a reminder, according to the Treasury’s conservative budget estimates, interest on the U.S. public debt is on track to reach a record $591 billion this fiscal year, more than the entire budget deficit in FY 2014 ($483 BN) or FY 2015 ($439 BN), and equates to almost 3% of estimated GDP, the highest percentage since 2011. In fact, as of June 30, US interest had already surpassed $600 billion.

In short: in the stylized cycle of the US “Minsky Moment”, the US will enter the penultimate, Ponzi Finance,phase – the one in which all the new debt issuance is used to fund only interest on the debt – some time around in 2024.

From that point on, every incremental increase in interest rates, which will eventually happen simply due to rising inflation expectations, will merely accelerate the ponzi process, whereby even more debt is sold just to fund the rising interest on the debt, requiring even more debt issuance, and so on, until finally the “Minsky Moment” arrives.

At that point, while we don’t know yet what the next reserve currency – either fiat, hard or digital – after the US dollar will be, we urge readers to own a whole lot of it.

In case you don’t understand any of this, let me simplify:

We are using more debt to fix too much debt, and not one of our leaders understands that fossil energy depletion is why we have to borrow $3 $4 of debt to generate $1 of growth, nor that doing so is a really bad idea.

Removing the Safety Valves

Pressure Cooker

Something big has recently changed in our culture.

We no longer accept any unpleasant reality, no matter the costs of denying it, nor the benefits it might return in the long run.

For example, parents who do not permit their children to play unsupervised for fear of a scuff. And school teachers who no longer fail anyone and mark all students as above average. And high schools that fly their students to Europe rather than make them sweat on the West Coast trail. And universities that have dumbed-down their curriculums. And citizens who refuse to accept election results and blame fictional demons rather than questioning their own beliefs. And environmentalists who promote green growth rather than austerity and population reduction.

Recessions function like the safety valves on a pressure cooker that prevent a dangerous explosion. Recessions used to be viewed as a normal event that purged malinvestments and poor performers thus allowing healthy re-growth in the next cycle.

Today we are unwilling to accept any downturn. As soon as the markets start to drop the central banks step in to prop them up. Extraordinary measures have become ordinary. The absurd has become normal.

We’ve removed most of the safety valves and the pressure is building. Soon the pressure will be so high that we’ll be forced to remove the last safety valve and start handing out printed money to citizens, thus risking a repeat of the Weimar event and its terrible consequences.

It’s not like we need to abandon capitalism and free markets. To the contrary, all we need to do is let markets function the way we pretend they function.

I understand all the thermodynamic reasons that we might not want to let a recession take root, but I ask you, how is delaying the inevitable going to make things better? It’s not. It’s going to make things much worse.

Our only choices are do we want to fall from a higher elevation later, or climb down from a lower elevation sooner?

Where are the adults?

The Fed Stops Pretending by Peter D. Schiff

The elephant in the room that no one wants to acknowledge is that the “unconventional” policies that were introduced to fight a “once in a century” crisis are now the conventional policies of choice to combat the normal fluctuations of the business cycle. But zero percent interest rates and quantitative easing only worked a decade ago because people thought they were temporary. If they knew that the policies were permanent, the dollar may have plummeted and the resulting inflation may well have overwhelmed any benefits the stimulation delivered. But the naïve belief that the Fed could reverse course, unwind its bloated balance sheet and normalize interest rates, kept the game going and kept the dollar strong. Now that the illusion may about to be shattered, the dollar may not survive the next round of enhanced QE and ZIRP.

QE4 will have to be larger than the three earlier rounds combined, as the annual Federal budget deficits could exceed 3 trillion. However, while China, Russia, and many emerging market nations were eager buyers of Treasuries during those initial rounds, they may likely be sellers of Treasuries during the next round. That means none of the inflation created to finance QE would be exported. So the big price increases next time may take place in the supermarket rather than the stock market. Americans would finally be forced to deal with the adverse effects of inflation that we have been spared for the past 10 years. It’s not going to be pretty.

https://www.fxstreet.com/analysis/the-fed-stops-pretending-201906100556

Hat tip to Panopticon for his excellent daily posts on the economy and climate.

https://climateandeconomy.com/2019/06/10/10th-june-2019-todays-round-up-of-economic-news/

Saving the World by Recycling My Garbage

 

Recylcing

A year ago I wrote an essay that tried to capture the depth and breadth of our predicament, and that offered a simple idea for increasing awareness, gratefulness, and temperance.

If you’re not an engineer the essay may be a painful read because my goal was to communicate maximum content with minimum words in a single sentence, and it thus reads like a computer program.

Nevertheless I like the essay because it touches on, and integrates, every topic that citizens should understand, but almost none do.

The essay did not get much traction when it was published, so I’m recycling it today for the pleasure and enlightenment of the millions of new readers that now follow this blog.

I make the bold claim that this essay holds the all-time world’s record for the highest number of important ideas in a single sentence, and the highest ratio of important ideas to words in any essay, with 86 important ideas and 1290 words it’s ratio is 6.6%.

I’m confident that readers will not be able to find another essay that unseats my world record, however if I’m proven wrong, I will publicly admit that I have the same denial genes as the rest of you monkeys.

Here’s the link to my world record essay….

On Burning Carbon: The Case for Renaming GDP to GDB

Mashup

Keep Calm and Carry On It's Just a Mashup Mix

 

Notice the tight correlation between CO2 emissions per person and standard of living:

That’s not a coincidence as physicist Tim Garrett has explained:

https://un-denial.com/?s=Tim+Garrett%3A

So if we ever decide to do something effective about climate change (assuming it’s not already too late due to self-reinforcing feedback loops) then that solution must include some combination of a lower standard of living and a lower population.

When was the last time you heard a leader or climate scientist speak with such clarity?

Probably never because most are in denial as explained by Ajit Varki’s theory:

https://un-denial.com/denial-2/theory-short/

Unfortunately, reducing our standard of living is not as simple as tightening our belts because of the large amount of debt we use to support our lifestyles and economy.

Contraction means a depression at best, and more likely some form of crash:

https://un-denial.com/2016/01/30/why-we-want-growth-why-we-cant-have-it-and-what-this-means/

So the choice is severe economic hardship from a voluntary contraction, or collapse and possible extinction from climate change.

But it’s not so simple.

Our lifestyle and economy is totally dependent on burning non-renewable fossil carbon and we have already depleted the best low-cost reserves:

https://un-denial.com/2018/02/08/on-burning-carbon/

The best minds predict we will have 50% less oil to burn in 10 years:

https://un-denial.com/2018/07/29/on-oil/

This means our lifestyles and economy will contract soon no matter what we choose to do.

So the real choice is do we want to try to control our decline in a civil and humane manner, or do we want to let nature force an uncivil and inhumane decline?

The correct choice seems obvious:

https://un-denial.com/2016/06/27/what-would-a-wise-society-do/

The correct choice is even more clear when you consider the many other negative side effects of human overshoot besides climate change:

https://un-denial.com/2017/01/06/you-know-you-are-in-trouble-when/

But of course there is no choice because we are collectively unable to acknowledge or discuss our predicament due to the denial of reality behavior that enabled our unique brain:

Which probably explains why we have found no other intelligent life in the universe:

https://un-denial.com/2015/03/25/are-we-experiencing-the-peak-of-what-is-possible-in-the-universe/

It’s also probable that complex multicellular life, like plants and animals, is extremely rare in the universe because it depends on a rare “accident” to create the eukaryotic cell:

https://un-denial.com/2016/03/29/book-review-the-vital-question-energy-evolution-and-the-origins-of-complex-life-by-nick-lane/

Which means our planet really is special.

And you reading and understanding this essay is a miracle, but we don’t need God to explain this miracle, just physics and biology, plus billions of years and trillions of planets to enable several low probability events to occur:

https://un-denial.com/2016/11/14/on-religion-and-denial

To sum all of this up, if you have the rare ability to break through the human tendency to deny reality, then you should be in awe of being alive to witness and understand this rare event in the universe, and you should be grateful for the good food and other comforts we enjoy.

https://un-denial.com/2015/11/12/undenial-manifesto-energy-and-denial/

By Tim Watkins: The Green Deal is Hopium

Hopium

Tim Watkins has emerged as one of the most accurate and articulate communicators of our predicament.

In today’s essay Watkins clearly explains both our problem and our options.

There isn’t a hint of denial here.  Well done!

http://consciousnessofsheep.co.uk/2019/03/06/the-green-deal-is-hopium/

 

To express our predicament as simply as I can, it is this:

  • In order to prevent environmental collapse bringing about the death of more than six in every seven humans on the planet, we (all of us) simply have to stop using fossil carbon fuels today.
  • But if we stop using the fossil carbon fuels that currently provide the world with 85 percent of its power, our highly complex and interconnected oil-dependent economy will crash; resulting in a global famine that will kill more than six in every seven humans on the planet anyway.

 

In the USA, meanwhile, what purports to be a debate about the environment has been largely co-opted on both sides of the growing political divide into a debate about the economics of public spending. The Democrat Party version of the green new deal is little more than a debt-based job-creation and public healthcare scheme with some windmills and solar panels providing a veneer of greenwash. The Republican Party – or at least the minority who don’t think climate change is a hoax – in contrast, seek to cut public spending and green energy subsidies in favour of carbon taxes and free market pseudo-solutions. Neither side inspires much confidence in addressing the full scope of the human impact crisis that is breaking over us.

 

As with any other oil-based technology, wind turbines and solar panels are subject to diminishing returns which leave green deals dead in the water. But resource depletion is an even greater problem simply because humanity consumed all of the cheap and easy fossil carbon and mineral resources in the two-decade long blowout of the post-war boom. Our problem is not just that we cannot improve the technologies we currently have, but also that we no longer have access to the resources to re-fight World War Two or to purposelessly launch humans anywhere beyond a low earth orbit.

 

The vain hope that by shovelling vast amounts of fiat currency at lithium ion batteries we will somehow transcend the laws of physics is a siren song that takes us even further away from even mitigating the crisis before us. Indeed, the ability of states and banks to continue to create fiat currency out of thin air is itself only possible because of the illusion that there will be sufficient additional energy and mineral resources available in future to repay the debt we are running up today. When that illusion is shattered – as it very nearly was a decade ago – the resulting stagflation will put paid to any chance of deploying a fraction of the windmills and solar panels required even to maintain the standard of living currently endured by a growing precariat in the developed states.

 

If we leave matters to Mother Nature – assuming no energy breakthrough arrives to save the day – then the collapse of the environment just as our critical infrastructure fails is going to result in a massive cull of the human population via some combination of war, plague and starvation. We might mitigate this, however, by embarking upon a managed de-growth that begins with a radical shrinking of our material consumption to bring us (in the developed economies) to the standard of living of sub-Saharan Africa. In the process, we will have to take some seriously unpleasant decisions in order to shrink the population back to a more sustainable level – for example, rationing healthcare to the under 50s (I’m 58 by the way) and enforcing birth controls far more draconian than China’s infamous one-child policy. I have no expectation that anyone is going to vote for this; I just put it forward as a slightly more benign alternative to sitting back and waiting for nature to put an end to most of our species.

In the end, we are going to go with Mills’ option simply because it is the only one that fits with our underlying quasi-religion of progress. If material science provides us with the hoped for technological breakthrough – most likely one that unlocks the full potential of the atom (simply because of the vast potential energy within the nucleus as opposed to that released by breaking electron bonds) – then the kind of technologies available to future humans will be about as puzzling to us as a smartphone or a GPS satellite would have been to our Neolithic ancestors. If, as is far more likely, the technological breakthrough fails to put in an appearance, then irrespective of how many windmills and solar panels we manage to erect before our resources run out, this civilisation and possibly our entire species is done.

By Tim Morgan: Primed to Detonate (O O Canada)

Maple Leaf Falling

Today’s essay by Tim Morgan is a must read.

https://surplusenergyeconomics.wordpress.com/2019/02/18/147-primed-to-detonate/

Morgan has developed new metrics for measuring the health of economies that are grounded in an understanding of the energy that drives our civilization.

Here he considers 4 risk factors:

  1. Debt: Instead of using the conventional debt to GDP ratio Morgan backs out the portion of GDP created by the spending of borrowed money to obtain a ratio of debt to prosperity that better represents the actual debt risk.
  2. Credit Dependency: This is the ratio of incremental debt to incremental growth and represents the “ponziness” of an economy.
  3. Systemic Exposure: This metric takes a broader view of risk by considering an economy’s dependence on its financial sector and is calculated as the ratio of financial assets to prosperity.
  4. Acquiescence Risk: This metric represents the change in discretionary prosperity and is a good measure of expected social unrest when the next financial crisis occurs.

Morgan compares these risk factors for various countries and concludes that Canada is among the top 6 riskiest countries on the planet.

SEEDS risk matrix, end-2018

Other observations include:

  • China is a ponzi bomb waiting to detonate.
  • Ireland, Holland, Britain, Japan and China are accidents waiting to happen.
  • Ireland is the craziest country on the planet.
  • France has the highest social unrest today for good reason.