By Tim Watkins: The Three Vortices of Doom (energy, debt, state)

The Net Energy Cliff

 

Tim Watkins today published a superb big picture essay explaining the troubling trends in our economy that everyone sees but few understand.

It’s a great primer for anyone curious why the stories they hear from their leaders and news media don’t make sense.

If you’re the kind of person that needs hope, Watkins advises to pray for a very large discovery of low-cost oil or a breakthrough in nuclear energy.

Or, if you’re the kind of person that likes to know the most probable outcome they should prepare for, Watkins advises to get used to living with less in a more local economy.

http://consciousnessofsheep.co.uk/2018/09/13/the-three-vortices-of-doom/

Despite the cheerleading efforts of the legacy media, the economic storm clouds are growing on the horizon.  Oil – the economic “master resource” – passed $80 per barrel yesterday.  Meanwhile, central banks around the world have begun to unwind the stimulus packages used to bail out the economy in the aftermath of the 2008 crash.  And all the while, governments are struggling to balance the need to manage their borrowing while maintaining the value of their currencies.  Add to that the politics of the new nationalism and you have a recipe for turbulent economic times in the very near future.

By far the biggest blind spot in economics, however, is its treatment of energy as just another cheap resource to be exploited.  In fact, energy should be treated as a separate category alongside capital, labour and resources in any model that seeks to explain the way the real world works.  This is because energy is the transformative force that allows us to (temporarily) defy the second law of thermodynamics, which says that things move from order to chaos; they break down not up.  As Steve Keen puts it:

“Capital without energy is a statue; labour without energy is a corpse.”

Another way of understanding this is to see that for a mere $80 dollars we get more than $350,000 worth of work (if we had to pay a human the average wage to do it).  This also explains why relatively small changes in the price of energy (particularly oil because its use is ubiquitous) have such a dramatic impact on the monetary economy.  Just three years ago, for every $40 spent on oil, companies were returning $350,000 worth of productive work.  Today, the same $40 is returning just $175,000 of productive work; something that largely explains the so-called “productivity puzzle,” as well accounting for why ten of last eleven recessions were preceded by a spike in the price of oil.

Without the net energy to allow for genuine economic growth, sovereign debt becomes as unpayable as consumer and corporate debt.  It can be defaulted or it can be inflated away; but it can never be repaid in real terms.  States, however, are unlikely to concede this point until it is too late. To put it another way, states will use all of the power at their disposal to maintain the exchange rate of their currencies even if this results in economic ruin for their national economies and their citizens.

These, then are the three vortices which (in the absence of some new high-EROEI energy source) are gradually choking the life out of our global industrial civilisation.  As the net energy remaining to us declines, an ever greater proportion of our currency and useable energy will be sucked into them until such time as our economy consists of nothing else but the growing of food and the generation of energy in the service of an ever more capricious state.  This process will inevitably involve the acceleration of the decline in living standards that those at the bottom of the income ladder have been experiencing since the 1970s.  It will also result in a re-localising of economies as the energy required to maintain global supply chains disappears.  In this respect, the conservative nationalism of Brexit and Trump may simply be the relatively benign early manifestation of the politics of our energy-starved future.

By James Kunstler: The Uncomfortable Hiatus

The Next Financial Crisis Lurks Underground

I haven’t posted anything by Kunstler for a while. When he’s occasionally good, he’s really good, like today.

http://kunstler.com/clusterfuck-nation/the-uncomfortable-hiatus/

And so the sun seems to stand still this last day before the resumption of business-as-usual, and whatever remains of labor in this sclerotic republic takes its ease in the ominous late summer heat, and the people across this land marinate in anxious uncertainty. What can be done?

Some kind of epic national restructuring is in the works. It will either happen consciously and deliberately or it will be forced on us by circumstance. One side wants to magically reenact the 1950s; the other wants a Gnostic transhuman utopia. Neither of these is a plausible outcome. Most of the arguments ranging around them are what Jordan Peterson calls “pseudo issues.” Let’s try to take stock of what the real issues might be.

Energy: The shale oil “miracle” was a stunt enabled by supernaturally low interest rates, i.e. Federal Reserve policy. Even The New York Times said so yesterday (The Next Financial Crisis Lurks Underground). For all that, the shale oil producers still couldn’t make money at it. If interest rates go up, the industry will choke on the debt it has already accumulated and lose access to new loans. If the Fed reverses its current course —say, to rescue the stock and bond markets — then the shale oil industry has perhaps three more years before it collapses on a geological basis, maybe less. After that, we’re out of tricks. It will affect everything.

The perceived solution is to run all our stuff on electricity, with the electricity produced by other means than fossil fuels, so-called alt energy. This will only happen on the most limited basis and perhaps not at all. (And it is apart from the question of the decrepit electric grid itself.) What’s required is a political conversation about how we inhabit the landscape, how we do business, and what kind of business we do. The prospect of dismantling suburbia — or at least moving out of it — is evidently unthinkable. But it’s going to happen whether we make plans and policies, or we’re dragged kicking and screaming away from it.

Corporate tyranny: The nation is groaning under despotic corporate rule. The fragility of these operations is moving toward criticality. As with shale oil, they depend largely on dishonest financial legerdemain. They are also threatened by the crack-up of globalism, and its 12,000-mile supply lines, now well underway. Get ready for business at a much smaller scale.

Hard as this sounds, it presents great opportunities for making Americans useful again, that is, giving them something to do, a meaningful place in society, and livelihoods. The implosion of national chain retail is already underway. Amazon is not the answer, because each Amazon sales item requires a separate truck trip to its destination, and that just doesn’t square with our energy predicament. We’ve got to rebuild main street economies and the layers of local and regional distribution that support them. That’s where many jobs and careers are.

Climate change is most immediately affecting farming. 2018 will be a year of bad harvests in many parts of the world. Agri-biz style farming, based on oil-and-gas plus bank loans is a ruinous practice, and will not continue in any case. Can we make choices and policies to promote a return to smaller scale farming with intelligent methods rather than just brute industrial force plus debt? If we don’t, a lot of people will starve to death. By the way, here is the useful work for a large number of citizens currently regarded as unemployable for one reason or another.

Pervasive racketeering rules because we allow it to, especially in education and medicine. Both are self-destructing under the weight of their own money-grubbing schemes. Both are destined to be severely downscaled. A lot of colleges will go out of business. Most college loans will never be paid back (and the derivatives based on them will blow up). We need millions of small farmers more than we need millions of communications majors with a public relations minor. It may be too late for a single-payer medical system. A collapsing oil-based industrial economy means a lack of capital, and fiscal hocus-pocus is just another form of racketeering. Medicine will have to get smaller and less complex and that means local clinic-based health care. Lots of careers there, and that is where things are going, so get ready.

Government over-reach: the leviathan state is too large, too reckless, and too corrupt. Insolvency will eventually reduce its scope and scale. Most immediately, the giant matrix of domestic spying agencies has turned on American citizens. It will resist at all costs being dismantled or even reigned in. One task at hand is to prosecute the people in the Department of Justice and the FBI who ran illegal political operations in and around the 2016 election. These are agencies which use their considerable power to destroy the lives of individual citizens. Their officers must answer to grand juries.

As with everything else on the table for debate, the reach and scope of US imperial arrangements has to be reduced. It’s happening already, whether we like it or not, as geopolitical relations shift drastically and the other nations on the planet scramble for survival in a post-industrial world that will be a good deal harsher than the robotic paradise of digitally “creative” economies that the credulous expect. This country has enough to do within its own boundaries to prepare for survival without making extra trouble for itself and other people around the world. As a practical matter, this means close as many overseas bases as possible, as soon as possible.

As we get back to business tomorrow, ask yourself where you stand in the blather-storm of false issues and foolish ideas, in contrast to the things that actually matter.

By Norman Pagett: The oilparty is over (and so is our food party)

oilparty is over

With denial of reality, we excavate the foundation of the cliff that we continue to climb.

With acceptance of reality (and wisdom), we would climb down while building a softer landing zone.

 

Our oil age will not end through lack of it, but by fighting over what’s left.

The critical nature of oil made WWII inevitable. To sustain their empires, the Germans and Japanese slaughtered their way across Europe and Asia in a grab for resources, primarily oil. They promised infinite prosperity and their peoples cheered them on while deaths elsewhere were being counted in millions. With most of the world’s known oil supplies in the hands of his enemies, Adolf Hitler knew he had to have the oilfields of southern Russia and the Middle East to sustain his war machine.

He failed, and his dream of a ‘Greater Germany’ collapsed not because of inferior soldiers but because there was insufficient energy input to sustain his plan for world domination.

We now have maybe 20 years worth of usable oil left. There are certainly no more than 30, perhaps as little as 10. If one of the crazy sects running loose in the Middle East managed to get hold of a nuclear device, setting it off on the Gharwar oilfield of Saudi Arabia would end our industrialised infrastructure overnight. That is perhaps too bleak a prospect, but we should not discount that notion entirely.

No one dares to stand up and make the rather obvious point that we are not going to reach 9 billion. Something has to give, and that giving is going to be very unpleasant.

For the moment, nature keeps us supplied with oil, and we’ve pulled off the neat trick of converting it directly into food. Not knowing when our oil is finished and our food supply will run out is the little teaser for the early 21st century. Right now, most people think that food comes from supermarket shelves and freezers, which is just as well. The food trucks moving around the country are basically mobile warehouses, delivering food just in time for it to be consumed. When the realization dawns that the food trucks have stopped, the food held in stock by retailers will be stripped bare in hours. The oil age for everyone will have come to an end.

The link between oil and the ability to eat is clear. The UK has to import 40% of its food, and much of the rest depends on oil to produce it, which also has to be imported. It is the end of the UK’s oil age, but few admit to it being the end of a food age as well.

As the UK detaches itself from Europe, under the delusion that the ‘great’ will be put back into Britain, the reality will hit home that without oil surplus, the UK will be reduced to a third world country at starvation level. British farms cannot feed 65 million people.

The same problem is being revealed in the current fiasco of the rest of the European union, Oil-fueled prosperity is falling dramatically in the poorer southern countries. Greece, Spain, Italy and Portugal and a swathe of smaller nations have to import all their oil which only worked when oil was cheap. Now it’s expensive, and they are facing bankruptcy. 50 years of ‘unity’ is dissolving like a mirage in the face of the difficulties that smaller states are suffering. Without cheap oil, their economies cannot function, and so are disintegrating.

https://medium.com/@End_of_More/the-oilparty-is-over-c06d3c723655

h/t Derek Peter Carne

On the Trans Mountain Pipeline

Trans Mountain pipeline

Many environmental groups in my province of B.C. oppose construction of a new pipeline from Alberta to the west coast. The motives of these groups include:

  • preventing dirty oil from contributing to climate change;
  • preventing environmental damage from pipeline and oil tanker spills;
  • concern for First Nation rights.

While these motives are admirable, all of the groups lack an understanding of, and/or deny, the laws of thermodynamics that govern our economy, and our overshoot predicament.

It’s true that climate change is a serious threat. In fact it’s much more serious than most environmental groups acknowledge. We are already locked into a dangerous 2C higher climate with 10m of sea level rise no matter what we do. There are no actions we can take today to solve the climate problem and avoid future suffering. Our choices today are to try to maintain our current lifestyle and increase future suffering, or reduce our population and consumption, and constrain future suffering.

It’s also true that the pipeline will create some new risks for environmental damage, but these risks pale in comparison to the damage the human footprint is already causing. Habitat loss, species extinction, soil depletion, nitrogen imbalance, pollution, deforestation, overfishing, and non-renewable resource depletion are the real threats environmental groups should focus on. As with climate change, nothing can be done about these threats unless we reduce human population and consumption.

In addition, if you want to maintain our current lifestyle, and you are concerned about the risk of oil spills, then there is a good argument to build the pipeline.

With regard to First Nations rights, all 7.6 billion humans descended from one small tribe in Africa about 100,000 years ago, meaning we’re all basically the same. Environmentalists should focus on the rights of all future generations, including First Nations.

Our standard of living is completely dependent on the burning of fossil energy, especially oil. We have already burned most of the cleaner and cheaper oil. That’s why we are mining dirty expensive oil sands, and fracking. To reduce our use of fossil energy we must reduce our standard living and our population.

Put another way, new pipelines will be built for another decade or so, until even the dirty oil is gone, unless we reduce our consumption of oil, and the only way to accomplish that is to shrink our economy, standard of living, and population.

If environmental groups want to make a difference on the issues that matter, as well as lesser issues like preventing new pipelines, they must:

  • set good examples in their personal lives (no more than one child, no long distance travel, reduced consumption of everything);
  • advocate for a global one child policy;
  • advocate for austerity, conservation, and a smaller economy (the simplest and most effective way to accomplish this would be to implement a higher interest rate).

It’s true that our choices are unpalatable, but they are reality, and there is a key point that must be understood when weighing what to do. The remaining affordable fossil energy is depleting quickly. Extraction will, in a decade or so, become too expensive for us to afford, meaning fossil energy will be gone for all intents and purposes. When this happens, our lifestyles and population will collapse, thanks to the laws of thermodynamics, no matter what we choose to do.

The advantages of choosing to voluntarily contract today are threefold. First, we would constrain future suffering caused by climate change. Second, we could use some of our remaining wealth to prepare a softer landing zone and to orchestrate a fairer and more humane descent. Third, we might leave some oil in the ground for our grandchildren so they can enjoy some of the comforts we take for granted. The alternative of doing nothing until thermodynamics forces the issue is chaos, war, and much more suffering for all species, including humans.

This article today suggests that environmental groups may have succeeded in preventing construction of the Trans Mountain pipeline:

https://oilprice.com/Energy/Crude-Oil/Disaster-Hits-Canadas-Oil-Sands.html

Kinder Morgan said it would halt nearly all work on a pipeline project that is crucial to the entire Canadian oil sands industry, representing a huge blow to Alberta’s efforts to move oil to market.

Here is what I predict will happen:

  1. Environmentalists will continue to deny reality and focus on the wrong things.
  2. We will not voluntarily contract the economy.
  3. We will not implement a one child policy.
  4. The Trans Mountain pipeline will be built, provided that our luck persists at avoiding an accidental crash caused by the instability we have created by using extreme debt to maintain an illusion of economic growth.

Let’s check back in a year to see if I am correct.

Dam Denial

Site C Dam Contruction aerial.

The Site C dam in my province of British Columbia has been approved and our leaders who approved it are not even aware of the issues they should have weighed in the decision.

The effect of this decision will be to keep our planet destroying population and lifestyles going for a little longer, as other non-renewable energy resources deplete.

I do not know if the dam will be good or bad for climate change, but I suspect bad given the CO2 that will be released building it, and its short (20-30 year) operating life due to the need for diesel to maintain it and the grid.

No consideration was given to the correct policies of population reduction, austerity, and conservation.

Denial is amazing!

By Richard Heinberg: Saudis and Trump: Gambling Bigly

If you’re like me, you find the Middle East difficult to understand with its many tribal, religious, energy, and geopolitical themes.

This essay by Richard Heinberg does a nice job of explaining what’s going on in the Middle East today. Because our civilization depends on Middle East oil, it is an important topic worth understanding.

http://www.postcarbon.org/saudis-and-trump-gambling-bigly/

Imagine a hypothetical Middle Eastern monarchy in which:

  • Virtually all wealth comes from the extraction and sale of depleting, non-renewable, climate changing petroleum;
  • Domestic oil consumption is rising rapidly, which means that, as long as this trend continues and overall oil production doesn’t rise to compensate, the country’s net oil exports are destined to decline year by year;
  • The state has a history of supporting a radical version of Sunni Islam, but the people who live near its oilfields are mostly Shiite Muslims;
  • Power and income have been shared by direct descendants of the royal founder of the state for the past 80 years, but the thousands of princes on the take don’t always get along well;
  • Many of the princes have expatriated the wealth of the country overseas;
  • Population is growing at well over two percent annually (doubling in size every 30 years), and, as a result, 70 percent of the country is under age 30 with increasing numbers in need of a job;
  • Roughly 30 percent of the population consists of immigrants—many of whom are treated terribly—who have been brought into the country to perform labor that nationals don’t want to do;
  • A sizeable portion of the nation’s enormous wealth has been spent on elaborate weapons systems and on fighting foreign wars;
  • A powerful Shia Muslim nation located just a couple of hundred miles away has gained geopolitical advantage in recent years; and,
  • For the past three years oil prices have been too low to enable the kingdom to meet its obligations, so it has rapidly been spending down its cash reserves.

Now, ask yourself: What could possibly go wrong here?

We are, of course, discussing Saudi Arabia, which has been much in the news lately.

 

The centerpiece of “Vision 2030” is the proposal for a purpose-built city, Neom, that would be powered by solar panels and busied by cutting-edge industries like artificial intelligence, biotechnology, IoT, and robotics; its water would be supplied by desalination plants and its food grown hydroponically. Neom, if ever actually built, would most likely either be an enormous waste of billions of dollars and untold amounts of natural resources that can never be used for better purposes (as in hundreds of Chinese “ghost cities”), or would lead to an even uglier and more extreme version of haves vs. have-nots than already exists in Saudi Arabia. Add continued rapid population growth and the whole exercise becomes transparently futile.

A cheaper and more sensible plan (though likely not as popular) would be to end population growth, slash overall consumption, reduce economic inequality, make peace in the region, and aim for home-grown development of intermediate technology. Not as glamorous, not as attractive to an ambitious risk taker. But practical nonetheless.

However, even this plan comes with substantial risks, as climate change could foreclose on any progress by 2100 with deadly high temperatures that make much of the Middle East uninhabitable by humans. If the region still has a window for peaceful adaptation, it is small and quickly narrowing.

By JT Roberts: On Resources and How the World Really Works

I don’t know who JT Roberts is but he is very bright and is an excellent writer. I stumbled on some comments she made in a recent post by Tim Morgan and I thought they were so good I’ve copied them here.

https://surplusenergyeconomics.wordpress.com/2017/10/27/111-a-spike-to-puncture-the-bubble/

In the 70s just as US domestic oil production peaked Nixon made some unusual but very interesting moves.

  • Opened China for trade
  • Established the EPA
  • Created a Petro-Dollar deal with Saudi’s
  • Took the Dollar off Gold

I have a very difficult time believing that he, or his cabinet, or congress had any clue of the significance of those particular moves. I think that in particular they would not have understood the Limits to Growth reality, since they decided not to give ear to the findings by Meadows and Forester. US wealth had been built on abundant easily accessible energy and mineral resources. The US was the manufacturer to the world up until 1970 not because of innovation but because the world couldn’t compete on price. ( The Battle of Somme was the effective killing machine it was because of the cheap steel rails that had been supplied by the US, these latter became the light gauge system in the UK ) No other country had the combination of resources at the volumes that the US had. As these became depleted it hampered growth because of affordability. Had it only been a matter of raising the price to meet increased cost of production why didn’t that happen? Affordability is the real driver of growth not supply and demand.

By opening China it gave the US access to offshore its energy intensive industries like steel production, and mining. As well as labor intensive industries like clothing. ( A population living on rice is far less costly in energy terms then one living on hamburgers) Establishing the EPA created additional pressure to move manufacturing elsewhere. The suspension of Dollar-Gold convertibility was a necessity as there wasn’t enough gold to cover the dollars in circulation. It also hampered the ability to create currency. The risk was that dollar demand would collapse but that was countered with the Petro-Dollar arraignment effectively giving the currency a place to go rather than returning to the US to be inflated away. That move calmed the markets, because they felt that at least their dollars could now be converted to oil, which is of higher value than Gold.

Saddam Hussein, and Qaddafi threatened the stability of that system. Saddam had boycotted sales of crude to the US in 2002 and started selling his oil in Euros. For 30 days he stopped all exports in a show of force that he had control of their national petroleum system. What he didn’t understand was he was threatening to limit access to what the US needs most, energy and resources. The war was the answer to that threat. Now Iraqi oil is safely in the control of the international oil majors. Qaddafi had made a similar error since his interest wasn’t to allow the state owned system to be controlled by the oil majors. He also threatened the the Petro-Dollar by creating a competing gold currency that was being used in Africa. The French were particularly at risk as it was replacing the Franc still in use in there former colonies.

If we look closely at NAFTA we see that much of it revolves around access to resources. In exchange for easier economic trade with the US, both Canada and Mexico have agreed to unlimited access to their oil and other resources. When the USSR fell we saw the same pattern. Anglo-US corporations rushed in to gain access to whatever resources they could. Putin the patriot didn’t play ball like Yeltsin. So now he is vilified. Canada and Mexico have peaked in oil production, and now NAFTA is at risk. The UK joined the EU just as it had oil to sell and promptly left when it didn’t.

What we see is a common pattern that is larger then any political system.

Capitalism is a dissipative system out of equilibrium, as all dissipative system are. Like hurricanes Capitalism requires energy input to exist, anything that threatens that will collapse the system. It must grow or die. Within the structure, like hurricanes, there can be self organized subsystems. Tornado’s, Micro-bursts, and other elements that feed off the core. With Capitalism these are corporations and governments. In order for the core to survive the entire system must grow in aggregate. As the net energy driving the system declines the structure weakens, like a hurricane on land or cold water.

Not only is it impossible to return to a local agricultural existence. It is also impossible to decouple the elements of the system. We see that with Trump. His platform was isolation, and now its war. He has no choice he’ll make similar moves as Nixon did, but it can’t work because there is no more sweet spots to exploit.

Just as the shale play is a high cost desperate act of a dying industry. (Shale was well know in the 70s but as uneconomical as it remains today) The US will attempt to turn back time with it’s military machine as it has in the past. The problem is they can’t return affordability so the system will simply grind to a halt.

I guess Adam Smith was right about an Invisible Hand.

 

Without energy to drive real growth all you have left is moving money around. I think most mistake the symptom for the cause. The lax regulations are needed to increase debt which increases money supply. So strangely the corruption is part of the system.

For example it has been documented that the primary money laundering economies are US and U.K. So for all their show as the bastions of freedom and democracy the reality is they benefit from corrupt dictators that stuff their ill gotten gains in the western banking and real estate system.

With Trump it’s just irrelevant he’s neither good or bad. He is no different then any other elected president. He is limited to the resources at his disposal and won’t accomplish anything beyond that. Basically a symptom not a cause.

The Appolo success if we so call it really needs to be considered in context. If you compare the energy production of the US with the USSR it becomes clear that technology wasn’t the key to the space race. In actuality the Soviet rocket engines were 20% more efficient and more powerful. They dared to pipe oxygen rich exhaust from the turbos into the primary engine. But it was done because of necessity they couldn’t afford to waste the fuel. It also constrained their ability to test run the engines. Instead they choose to test them at launch.

The arrow all points in the same direction. Without the resources that the US had access to the USSR could not compete. But it had nothing to do with technology because they were winners with technology.

AK 47 is another example.

I sum it up this way. If you have wood you cook with wood. If you have coal you cook with coal. If you have oil you cook with oil. If you have gas you cook with gas. If you have a lot of it you have trains, planes, and automobiles. I might add rockets. With a little of it you cook.

Technology is a function of abundance not the cause of it.

It’s interesting to note the Roman Empire grew in wealth through military conquest. Then it started developing schools of higher learning in imitation of the Greeks.

Education has never preceded empire. So the thought that education or technology are the source of wealth is false. It has always been resources. It will always be. So in that regard it is no coincidence that the US military is larger then the next 10 militaries combined. So the military industrial complex was also a necessity.

Ironically the competitive economic system, communism thought that they could only find success within a highly educated society. Lenin targeted Germany for that reason. But educated people make poor soldiers. Ignorant religious zealots make far better soldiers. Which system promoted religious freedom and zealotry? For God and Country. God save the Queen. In God we trust. One nation under God.

So in many places Americans are hated because of their ignorance. But perhaps their ignorance has been their strength all along. In this regard we might want to watch closely the current US administration.

War is Peace
Freedom is Slavery
Ignorance is Strength