Gigadenial

It takes gigadenial to believe gigafactories will save us.

Isn’t it interesting that the only scenario that might keep us below an extinction threatening 4-6 degrees C, and the only scenario that is probable, namely economic collapse, is the only scenario that climate scientists have not studied?

Economic collapse is an important scenario to study because most people in the developed world consume far more of everything than is required to subsist and therefore could survive some level of economic collapse.

On the other hand, most people will not survive if economic growth continues as desired (or even if growth slows) because the size of our economy is creating a climate incompatible with civilization.

Economic collapse will cut CO2 emissions (good) but also sun blocking pollution (bad). It’s not clear which force is the most powerful. This means economic collapse could save us, or it could make things worse.

It would be useful to know if economic collapse is on balance good or bad when we are asked to vote for candidates that promise to continue to print money to avoid collapse.

In case you are not aware, the amount of money printed by central banks to prop up assets recently increased to about $300,000,000,000 per month worldwide. That’s about $1.50 per day for every person on the planet conjured out of thin air, and is the only reason things seem to be sort of ok, and why real estate and stocks continue to rise despite poor fundamentals.

Unfortunately the printed money is not increasing the incomes of the poor and middle class because of reasons associated with the depletion of inexpensive fossil energy that are discussed elsewhere on this blog.

Rising asset prices and stagnant incomes means the wealth gap between the rich and poor is widening which is causing social unrest to build as demonstrated by recent unexpected election and referendum outcomes around the world.

It’s an open question rooted in emotions and herd behavior as to how much longer money printing will stave off economic collapse.

On the B.C. Election

There is an election soon in my province.

I decided to get educated on the choices and read the platforms of all the parties.

Not one party mentions the only issue that matters: human overshoot.

By overshoot I mean the combined and interrelated threats of:

  • social unrest and war resulting from the end of economic growth and soon to burst debt and asset bubbles caused by the depletion of affordable fossil energy;
  • runaway climate change and resulting disruptions to food production and human habitat;
  • unprecedented species extinction and fisheries collapse caused by human overpopulation;
  • unsustainable consumption of almost every resource used by humans.

Not one party has population reduction as their top priority.

Not one party even mentions the critical need to reduce our population.

Not one party discusses the need to manage a necessary and unavoidable contraction to our economy.

Not one party mentions the need to live on nature’s interest rather than its capital.

I was planning to vote for the Green party but even they don’t have a clue.

Denial is amazing.

By Tim Morgan: Chinese Whispers

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I used to admire Chinese leadership.

Unlike our idiot lawyers and economists, the Chinese selected engineers and scientists as their leaders. I observed the Chinese tended to favor the long-term rather than the short-term, and that they made wise rather than politically correct decisions. Examples being their one child policy, low military spending, and heavy investment in hydro energy, rail, and other important infrastructure.

Now of course it is clear I was naive. The Chinese are repeating all of our mistakes, but on a larger scale. It makes no difference how leaders are educated, they will eventually succumb to the inherited behaviors common to all humans.

The main difference between us and them now is that they are “borrowing to employ” and we are “borrowing to consume”.

In his blog today Tim Morgan takes a close look at the Chinese economic miracle, or more accurately, the Chinese debt bubble.

https://surplusenergyeconomics.wordpress.com/2017/03/11/89-chinese-whispers/

Which is the world’s largest economy? Converted at market exchange rates, China ($11tn) is smaller than the United States ($18tn) but, on the PPP (purchasing power parity) basis of conversion widely regarded as superior, China (at $21tn) now takes the top spot.

In short, if the Chinese economy were to catch a cold, the world economy would be in for a bout of influenza at best, and could well face the economic equivalent of pneumonia.

The picture that emerges is quite extraordinary. Over the ten years between 2005 and 2015, GDP grew at rates of between 9% and 14% annually, not even stumbling materially during the 2009 global downturn. But debt has grown by between 17% and 35% of GDP each year, with the exception of 2009, when debt increased by 47% of GDP.

What this means is that, over a period in which reported GDP increased by RMB 40tn, debt expanded by RMB 129tn. This is a borrowing-to-growth ratio of 3.2:1, still reasonably modest by Western standards, but a far cry from past Chinese practice – back in 2005, the trailing ten-year (T10Y) ratio was only 1.67:1.

Unlike the Western economies, whose vice-of-choice is to use debt to fund consumption and inflate property markets, the Chinese bias is towards using debt for investment in capacity. In theory, capacity investment should be “self-liquidating”, because capacity increases should increase income, and thus fund the paying off of the initial debt. (This is contradistinction to consumer borrowing, which is “non-self-liquidating”).

But the self-liquidating characteristic of business investment depends on capacity expanding without depressing margins, something which happens when expansion creates major capacity surpluses. It is abundantly clear that Chinese PNFC borrowing has followed the course of excess, depressing returns in the process.

As a result, much of the Chinese business sector earns returns which appear to be well below the cost of debt capital. In this situation, an obvious remedy is to convert debt into equity. This, however, seems to have been tried, and failed, because it showed clear tendencies to crash the equity market.

The final sting in the tail of this analysis is that, if underlying GDP is a lot lower when stripped of the borrowing effect, debt ratios are correspondingly higher. On the SEEDS basis of computation, aggregate debt already stands at 385% of GDP (rather than the reported 246%), and is growing a lot more quickly than publicly available numbers indicate, adding around 43% of GDP (rather than 20%) annually.

With the export-based model faltering, and with a great deal of economic activity dependent on borrowing, China may have ceased to be the powerful engine of growth that is so customarily assumed.

Tribes Trump Reality: War is Probable

About 100,000 years ago a small tribe of hominids experienced a rare double mutation for an extended theory of mind plus denial of reality, which switched having a more powerful brain from being a reproductive fitness disadvantage into a strong advantage, thus enabling the mutations to fix in the gene pool. That species then used its unique brain to take over the planet and to grow itself into a severe state of overshoot.

This first and only extended theory of mind to emerge in a brain increased the effectiveness of social cooperation through improved morality, communication, planning, and the invention and transmission of new technologies.

The denial of reality mutation was required to mute the awareness of mortality and its negative impact on reproductive fitness that the extended theory of mind enabled. The inherited denial of mortality caused each tribe to create a life after death story. Over time these stories were elaborated into what we now call religions (and political parties) which serve to define, unite, govern, and entertain tribes.

The tribe with its story was and is central to the success of the species. For most of history it mattered not whether the story was true. Today the survival of the species has bumped up against the laws of physics and truth does matter. This is a wicked predicament because tribes can’t easily change their stories, and inherited denial of reality tends to block unpleasant truths from being added to the stories.

Today we have two angry bickering tribes within the most powerful country on earth. Each tribe comprises about 50% of the population. Neither tribe has a story grounded in reality or truth. Each thinks the other is the cause of the very real thermodynamically based pain it is experiencing. Neither understands what is going on. Inherited denial of reality blocks each from learning what is going on.

The best and perhaps only method for uniting and distracting these two tribes would be to identify a third tribe as a threat. Fighting that third tribe will unfortunately accelerate the depletion of low-cost oil which caused the pain in the first place. So it may be necessary to identify a fourth tribe as a threat. And so on.

This will probably not end well.

It’s Time to Get Real: Trump’s a Symptom, Not the Problem

I’ve lost patience with the widespread whining about Trump.

Trump’s a symptom, not the problem.

Unless we acknowledge and respond to reality there will be many more and worse Trumps to follow.

Lower and middle class citizens around the world are angry for good reasons:

  • Their incomes have been stagnant or falling despite governments telling them the economy is strong.
  • Their cost of living for things that matter has been rising despite governments telling them inflation is low.
  • They see the upper class getting richer and not being punished for crimes.
  • They carry a high debt load and see that interest rates have nowhere to go but up.
  • For the first time in a long time they worry that the future may be worse than the present.
  • They sense that something is broken and that leaders are not speaking the truth.

Their anger has resulted in:

  • Brexit
  • Trump
  • blame of others
  • extreme parties gaining power around the world
  • social unrest in many countries
  • war drums

The economic stresses experienced by many citizens (and by most countries) are real and have been caused by the depletion of low-cost oil.

The tricks of increasing debt and lowering interest rates have reached their limits and no longer work to mask the depletion of low-cost oil.

Governments have responded with reckless financial policies that guarantee a high-speed crash into a brick wall.

There is no solution to the depletion of low-cost oil.  It is not possible to operate our civilization as currently configured without low-cost oil. There is no substitute for oil.

We need to understand and accept that there will be much less of everything in the future.

We were lucky to witness the peak of human prosperity, and unlucky to witness the beginning of its decline.

No one is to blame. It’s reality.

We need a new story to unite us.

We need new government priorities focused on ensuring the necessities of life are available in the future.

We need to slow down as we approach the brick wall.

We need to stop wasting the precious oil that remains.

We need to get real and vote for wise people who understand what is going on.

We need to break through our inherited denial of reality.

By Tim Morgan: Perfect Storm Gets Nearer: Surplus Energy Economics Update

 

Here is the latest brilliant post by Dr. Tim Morgan, ex Global Head of Research at Tullett Prebon and author of the best financial research reports ever published from inside the finance industry, especially his last report from 2013 “Perfect Storm: Energy, Finance, and the End of Growth“.

https://surplusenergyeconomics.wordpress.com/2017/01/09/85-perfect-storm-gets-nearer/

What is Surplus Energy Economics?

Very briefly, SEE says that the economy is an energy system, not a monetary one. Prosperity is determined by surplus energy – that is, the energy available after the deduction of the energy which is always used up whenever we access energy.

Our entire history can be seen in this way. As hunter-gatherers, all the energy that people obtained from food was consumed obtaining that food, so there was no surplus, no economy and no society.

Agriculture was the “first great breakthrough” because it created the first energy surplus. Put simply, the greater efficiency of farming compared with hunter-gathering, plus the use of animal labour, enabled twenty people to be fed by the labour of nineteen, freeing the twentieth to do other things. This first energy surplus was small, and most people continued to undertake subsistence activities. But there was now an economy of sorts, and a society developed in parallel with it. People could now, for the first time, invest, sacrificing current consumption to create capital assets (such as barns, bridges, agricultural implements and rudimentary workshops) which would improve their lot in the future.

A vastly bigger energy surplus was created when we learned to tap fossil fuels, such as coal, oil and natural gas. This triggered two centuries of exponential growth, not just in economic output, but in population numbers and energy consumption as well. So sophisticated have economies become that, most notably in the West, very few people are engaged in producing food.

 

The end of growth?

For decades, people have speculated about the relationship between exponential growth and a finite planet. This debate rages on, but the balance is tilting, in two very obvious ways.

First, we are discovering the limitations of the earth as an ecosystem and, second, the surplus energy which has driven growth in economic output and population numbers is coming under mounting pressure.

Where fossil fuels – still well over 80% of our energy consumption – are concerned, two factors are in play. Depletion is robbing us of the gigantic, ultra-low-cost sources of energy which hitherto powered economic growth. Technology is endeavouring to offset this, both increasing the efficiency with which we access conventional fuels, and enabling us to tap energy from renewable sources.

Technology will doubtless continue to progress, but we are in danger of complacency over technological solutions. Renewables still account for barely 3% of global energy consumption, and no-one has yet worked out how to power a 747-size jet using renewables, or how to extract 1 tonne of ore from 500 tonnes of rock without using fossil fuels.

We should be optimistic about renewables, but also realistic. Renewables can supply energy more cost-effectively than fossil fuel sources discovered and brought on stream today. But my interpretation of the thermodynamic balance is that renewables are not going to take us back to an age of vast, low-cost, high-surplus energy from giant fields.

 

What next?

If the surplus energy interpretation of the economy is correct, growth should continue to prove elusive. But our system is so predicated on growth – a topic for another article – that we cannot accept even stagnation, let alone adjust to decline.

So we have been faking growth by borrowing. By 2008, the debt mountain had become so big that we could no longer afford to pay a normal rate of interest on it, so the authorities adopted ZIRP (zero interest rate policy) in order to prevent the economy being engulfed. But ZIRP, and other forms of monetary manipulation, cannot resolve the situation, and have their own costs. At zero- or near-zero rates, the economy cannot function normally, and it certainly cannot provide for the future, which is why huge deficits are now imperilling pension provision.

In theory, we might go on faking growth for many more years yet, and I’m pretty sure the authorities will be mightily tempted to try. But this would result in a further escalation of debt, which would also mean that raising interest rates significantly – let alone restoring them to something resembling normality – would become out of the question (which may already be the case). Comparing 2020 with 2015, and taking inflation out of the equation, the world seems likely to grow its GDP by close to $10tn, but to add at least $50tn to its $151tn non-financial debt mountain.

If (or, rather, when) debt escalation reaches crisis point, some kind of write-off might be tried, unless the authorities decide to unleash high inflation in an attempt to destroy the real value of debt. Inflation, which has been described as the “hard drug” of our economic system, can very rapidly get out of control.

So here we have some pointers to the future – debt escalation, and/or hyper-inflation, both of which would be insane choices, but neither of which are beyond the short-termism of the political class.

Ultimately, and whichever folly is chosen, faith in fiat currencies is likely to collapse, to which I will only add that there are already at least two major currencies that I, for one, would not want to hold. In the normal course of events, inflation strips money of its value, but this tends to be gradual – we have little widespread (though plenty of local) experience of what happens when a fiat currency falls apart.

People cannot be expected to accept any of the post-growth consequences described here with a resigned shrug. They are not doing so now – instead, and naturally, they are beginning to blame, and repudiate, established political leaderships, and this was the most significant trend to emerge in 2016.

If the economy – and, in the first instance, the financial system – does start to implode, governments are highly likely to resort to coercion, spouting precious claptrap about “the national interest” as they try to maintain their hold on power.

By Alice Friedemann: Book Review of “Failing States, Collapsing Systems: Biophysical triggers of Political Violence by Nafeez Ahmed

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Dr. Nafeez Mosaddeq Ahmed is an investigative journalist that focuses on biophysical issues like over population, resource depletion, and climate change that underlie most of the wars and social unrest around the world.

Ahmed recently published a book titled “Failing States, Collapsing Systems: Biophysical triggers of Political Violence” and Alice Friedemann has written an excellent review of the book.

http://energyskeptic.com/2017/book-review-of-failing-states-collapsing-systems-biophysical-triggers-of-political-violence-by-nafeez-ahmed/

 

Since the 2008 financial crash, there’s been an unprecedented outbreak of social protest: Occupy in the US and Western Europe, the Arab Spring, and civil unrest from Greece to Ukraine, China to Thailand, Brazil to Turkey, and elsewhere. Sometimes civil unrest has resulted in government collapse or even wars, as in Iraq-Syria and Ukraine- Crimea. The media and experts blame it on poor government, usually ignoring the real reasons because all they know is politics and economics.

In the Middle East, experts should also talk about geology.  Oil-producing nations like Syria, Yemen, Egypt, Nigeria, and Iraq have all reached peak oil and declining government revenues after that force rulers to raise the prices of food and oil.  This region was already short on water, and now climate change (from fossil fuels) is making matters much worse with drought and heat waves causing even greater water scarcity, which in turn lowers agricultural production.  Many of these nations have some of the highest rates of population growth on earth at a time when resources essential to life itself are declining.

The few nations still producing much of the oil – Russia, Saudi Arabia, and the U.S. are about to join the club and stop exporting oil so they can provide for their domestic population.

 

ahmed-2017-peak-oil-fresh-water-population

 

Ahmed says that so far after peak oil production, Middle-Eastern economies have declined as revenues declined, leading to systemic state-failure in roughly 15 years, more or less, depending on how hard hit a nation was by additional (climate-change) factors such as drought, water scarcity, food prices, and overpopulation.

Saudi Arabia, and much of the rest of Arabian Gulf peninsula, may experience state-failure well within 10 to 20 years. If forecasts of Saudi oil depletion are remotely accurate, then by 2030 the country will simply not exist as we know it. Coupled with the accelerating impacts of climate-induced water scarcity, the Kingdom is bound to begin experiencing systemic state-failure at most within 20 years, and probably much earlier.

 

It is difficult to avoid the conclusion that as we near 2045, the European and American projects will face escalating internal challenges to their internal territorial integrity, increasing the risk of systemic state-failure. Likewise, after 2030, Europe, India, China (and other Asian nations) will begin to experience symptoms of systemic state-failure.