The pundits would have you believe that Italy and Spain are about to be swept into the European Debt crisis, and that this is somehow going to bring down their economies, and possibly spark enough contagion to bring down others. That's nonsense.
First, we have a commodity bubble, then we have profit warnings, then the stock market stagnates, then investors loose confidence, then the market crashes, then the economy slumps. It happened in 2008 and they blamed it on mortgages, even though mortgage debt losses and all associated debts didn't match the bursting of the commodity bubble. This time there blaming it on the European debt bubble. Bubbles always burst. The question is why.
In 2011 worldwide growth is back with a spring in its step, demand has once again outpaced supply thanks to a constrained global market for oil, and thus pretty much everything else, because it all needs transporting. The cost of running a container ship for a day at sea has doubled this year alone, from $15,000 to $30,000. That's why profits are down again this summer.
Take Italy for instance, it's government is borrowing the equivalent of only 4% of the countries GDP each year, and that doesn't take into account the balancing effect money it's creditors lend out of Italy. Interest rates on 10 year government debt have moved to just over 5%. That only applies to money being borrowed today, not to bonds that have been sold in the past. Effectively therefore, the cost of the Italian government's spending deficit comes in at 0.2% of GDP. Given that is significantly lower than the amount actually being borrowed, the deficit is financially profitable. Simple arithmetic reveals all fears of a 'debt crisis' in this case to be a bad joke at best.
More to the point, investors fear falling tax receipts, which could make the deficit balloon. This scenario is highly realistic, given the bleak outlook for stock prices whilst commodities remain high. Also, although they are high, the boom seems to be stabilizing, and hungry bulls will have to look elsewhere for food. Therefore it's only logical that yields on sovereign debt will be bid up slightly whilst commodities remain high, for both reasons.
The news pretends to mindread investors by using headlines based on this "x/y rises/falls amid fears of..." template. Just because two things are 'amid' doesn't mean they are causing each other, they are just symptoms of the wider crisis in the system. They got it wrong in 2008, and they are getting it wrong in 2011, just as I predicted, how I predicted, when I predicted. But they run the place. Oh well. Perhaps the real problem is that there is no education system for middle aged prime ministers and presidents. 'Political school'; anyone? Didn't think so...
Monday 11 July 2011
Friday 17 June 2011
That age old debate between communism and capitalism is an illusion of socio-linguistics.
This one isn't for the faint of heart.
The (perceived) conflict between capitalism and communism is littered with intellectual misappropriation. These are just labels for social relations structures, that when analyzed, are to all intents and purposes identical. When we perceive distinctiveness in one or another we are simply noting conformity with one of our mentally preconceived definition matrices. These matrices incorporate various characteristics, and the way in which we see subconsciously selected these characteristics is influenced by the social relations system in which we live. In other words, the notion that there is an intrinsic difference between the two is simply an artefact of our recognition of differences in the socio-political stratification of nations.
The debate essentially concerns the distribution of power and ownership. Since the distribution of power and ownership is often illusory in nature, it is immediately difficult to form any clear classification criteria for political systems, capitalism and communism being two examples. It is commonly held belief that ‘communism’ is some form of social relations structure that sees power and wealth in the hands of the state, on behalf of the people. ‘In capitalism’, the argument may be that hierarchy is determined according to private property, and that the state power of the otherwise ‘communist’ system is subjugated to the capitalist individual. The idea that there is some significant difference between individuals operating as the state and individuals operating as a corporation is an artefact of linguistic expediency. Our labelling of social relations system according to ownership hierarchies is done only with the intention of advancing whichever form of ownership we want to advance, otherwise, there would be no need for distinctions.
Pre-civilization living was hierarchical, but was not capitalist. Individuals contributed as component parts of whichever nomadic tribe they belonged to, and the lack of economic competition is the defining difference between pre-civilization social relations and civilization social relations. The development of hierarchical civilizations generated political conflicts, and in turn these political conflicts came to be defined by differences in opinion about how the hierarchies should be styled. In reality, all ‘politicians’ advocated hierarchy by definition, since they themselves sought to gain power, which axiomatically implies hierarchy at least in the sense of a power relativism. The descriptions of the politicians proposed tweaks to hierarchy were motivated in much the same way as modern day product marketing is. Descriptions such as ‘capitalism’ and ‘communism’ can be seen to be, by their very nature, non academic, since they did not arise of curiousness, rather out of greed and politics, money and power.
So the difference between these two systems essentially rests on the idea that power changes form according to who holds it. The ‘state’ and the ‘corporation’ are anthropogenic social constructions, and as such communism and capitalism are anthropogenic social constructs, since they derive their respective definitions from these institutions; except, the state and the corporation are not institutions in their own right, they are merely examples of many possible extensions of the economic (distributive) ‘institution’. An institution must have a responsibility unique to itself, and that is why the state and the corporation cannot be regard as whole institutions in the classic sense, because they share the purpose of distribution, albeit seeking to do so in differing ways. A corporation could well be viewed as a microcosm of a state, the only relevant difference being the cosmetic one between geographical national boundaries and social business agreements. Thus, capitalism is a form of ‘social-ism’ whereas communism is a form of ‘geographical-ism’. When we see that ‘social-ism’ is a distributive system on a geographical scale that is defined similarly to what is regarded as ‘communism’ the definitions are blurred to the point of insignificance.
The (perceived) conflict between capitalism and communism is littered with intellectual misappropriation. These are just labels for social relations structures, that when analyzed, are to all intents and purposes identical. When we perceive distinctiveness in one or another we are simply noting conformity with one of our mentally preconceived definition matrices. These matrices incorporate various characteristics, and the way in which we see subconsciously selected these characteristics is influenced by the social relations system in which we live. In other words, the notion that there is an intrinsic difference between the two is simply an artefact of our recognition of differences in the socio-political stratification of nations.
The debate essentially concerns the distribution of power and ownership. Since the distribution of power and ownership is often illusory in nature, it is immediately difficult to form any clear classification criteria for political systems, capitalism and communism being two examples. It is commonly held belief that ‘communism’ is some form of social relations structure that sees power and wealth in the hands of the state, on behalf of the people. ‘In capitalism’, the argument may be that hierarchy is determined according to private property, and that the state power of the otherwise ‘communist’ system is subjugated to the capitalist individual. The idea that there is some significant difference between individuals operating as the state and individuals operating as a corporation is an artefact of linguistic expediency. Our labelling of social relations system according to ownership hierarchies is done only with the intention of advancing whichever form of ownership we want to advance, otherwise, there would be no need for distinctions.
Pre-civilization living was hierarchical, but was not capitalist. Individuals contributed as component parts of whichever nomadic tribe they belonged to, and the lack of economic competition is the defining difference between pre-civilization social relations and civilization social relations. The development of hierarchical civilizations generated political conflicts, and in turn these political conflicts came to be defined by differences in opinion about how the hierarchies should be styled. In reality, all ‘politicians’ advocated hierarchy by definition, since they themselves sought to gain power, which axiomatically implies hierarchy at least in the sense of a power relativism. The descriptions of the politicians proposed tweaks to hierarchy were motivated in much the same way as modern day product marketing is. Descriptions such as ‘capitalism’ and ‘communism’ can be seen to be, by their very nature, non academic, since they did not arise of curiousness, rather out of greed and politics, money and power.
So the difference between these two systems essentially rests on the idea that power changes form according to who holds it. The ‘state’ and the ‘corporation’ are anthropogenic social constructions, and as such communism and capitalism are anthropogenic social constructs, since they derive their respective definitions from these institutions; except, the state and the corporation are not institutions in their own right, they are merely examples of many possible extensions of the economic (distributive) ‘institution’. An institution must have a responsibility unique to itself, and that is why the state and the corporation cannot be regard as whole institutions in the classic sense, because they share the purpose of distribution, albeit seeking to do so in differing ways. A corporation could well be viewed as a microcosm of a state, the only relevant difference being the cosmetic one between geographical national boundaries and social business agreements. Thus, capitalism is a form of ‘social-ism’ whereas communism is a form of ‘geographical-ism’. When we see that ‘social-ism’ is a distributive system on a geographical scale that is defined similarly to what is regarded as ‘communism’ the definitions are blurred to the point of insignificance.
Thursday 16 June 2011
Here we go again...
The sheer irony of the current economic outlook is simply breathtaking. In 2008, the mighty Lehman brothers, leveraged to the hilt, were knocked out of businesses by a small spike in oil prices that contributed to the bursting the hose price inflation bubble. You might not be surprised to learn that banks such as Lehman helped arrange complicated balance transactions designed to conceal the level of Greece's debt.
When you think about it, the correlation between the high point of this oil price cycle and Greece's current troubles makes perfect sense. As the cost of running public services is driven up slightly by the price of oil, the budget (arranged when the price per barrell was substantially lower) just won't make ends meet. As you may have noticed, the oil price bubble seems to have stagnated, falling from $125 p/b to $115 p/b over the last month. Those investors who were riding the gravy train upwards now need a new source of income to compensate for the declining value of their oil asset. What better than to pick on the weakest kid and sell greek debt to drive up yields (and then arrange to re purchase them at higher interest with convenient conditions attatched)...
The country is now on the brink of bankruptcy- with yields (effectively interst rates) on 2 year debt up to 28% p/a. There is simply no way the Greek government can afford to borrow any more money. The ponzi scheme is over. Greece is now living off pay day loans, and the loan shark is bringing out the baseball bat. On a back of the paper calculation, Greece would have to start growing 15% a year to possibly sustain its current debt burden without immediate assistance. They're currently in a 6% a year recession.
In the UK, figures just released show retail sales slumped 1.4% in May. Did I predict that one of the symptoms of the coming crash would be a decline in retail sale volumes? Essentially yes; I argued that one of the factors in the 2008 crash was a decline in retail shares- obviously linked to sales- in turn linked to the "credit crunch"- and most importantly, oil. None of these signs bode well for anyone. The market is more vulnerable now than it was in 2008, like a rabbit in a tiger cage, all it can hope for is that the tiger start fighting each other over it, and it can escape in the meantime. The analogy here is that the different economic jitters we face right now could to some extent offset each other. If growth stumbles, inflation will too, and so might interstest rates on European debt. However, it's almost inconveicably unlikely that the right "balance" between the different crisis will come about by chance. Investors are acting with a predator mentality with no regard for sustainability in their decision making. "Every man for himself" pretty much sums up the current situation.
A greek default could be significant enough to wipe out enough of bank balance sheets to close the gap between assets and liabilities that allow them to keep lending. That's why the debt crisis has potentially major ramifications for the entire European economy. We should be worrried; very worried.
When you think about it, the correlation between the high point of this oil price cycle and Greece's current troubles makes perfect sense. As the cost of running public services is driven up slightly by the price of oil, the budget (arranged when the price per barrell was substantially lower) just won't make ends meet. As you may have noticed, the oil price bubble seems to have stagnated, falling from $125 p/b to $115 p/b over the last month. Those investors who were riding the gravy train upwards now need a new source of income to compensate for the declining value of their oil asset. What better than to pick on the weakest kid and sell greek debt to drive up yields (and then arrange to re purchase them at higher interest with convenient conditions attatched)...
The country is now on the brink of bankruptcy- with yields (effectively interst rates) on 2 year debt up to 28% p/a. There is simply no way the Greek government can afford to borrow any more money. The ponzi scheme is over. Greece is now living off pay day loans, and the loan shark is bringing out the baseball bat. On a back of the paper calculation, Greece would have to start growing 15% a year to possibly sustain its current debt burden without immediate assistance. They're currently in a 6% a year recession.
In the UK, figures just released show retail sales slumped 1.4% in May. Did I predict that one of the symptoms of the coming crash would be a decline in retail sale volumes? Essentially yes; I argued that one of the factors in the 2008 crash was a decline in retail shares- obviously linked to sales- in turn linked to the "credit crunch"- and most importantly, oil. None of these signs bode well for anyone. The market is more vulnerable now than it was in 2008, like a rabbit in a tiger cage, all it can hope for is that the tiger start fighting each other over it, and it can escape in the meantime. The analogy here is that the different economic jitters we face right now could to some extent offset each other. If growth stumbles, inflation will too, and so might interstest rates on European debt. However, it's almost inconveicably unlikely that the right "balance" between the different crisis will come about by chance. Investors are acting with a predator mentality with no regard for sustainability in their decision making. "Every man for himself" pretty much sums up the current situation.
A greek default could be significant enough to wipe out enough of bank balance sheets to close the gap between assets and liabilities that allow them to keep lending. That's why the debt crisis has potentially major ramifications for the entire European economy. We should be worrried; very worried.
Monday 6 June 2011
Shock horror, cutting carbon could worsen global warming!
It is the exhortation of the politically correct media and left wing politicians that reducing carbon emissions will reduce the rate of average global warming. However, after much investigating I have found that this little polemic falls foul of a classic academic assumption that I detest. This is the "ceteris paribus" assumption, a Latin phrase that literally means "everything else being equal". The big black hole in the carbon myth is that everything else is not equal.
Before we delve further into the wonders of this inconvenient truth, I must declare that I am NOT a climate skeptic. The science behind the IPCC forecasts is solid, but what is not so solid is the economics behind it. The IPCC's emissions scenarios, which project future fossil fuel consumption are only made possible by the data of the International Energy Agency on reserves of these fuels. I hasten to add that countless environmentalists have poured scorn over the IEA's information, and with good reason- the IEA simply trusts declared reserves given to them by the various countries which they survey. These reserve figures are known to be a political artifact, fraudulently inflated to boost asset values (read: "investor confidence").
Now it might seem that this is irrelevant. If the IEA has exaggerated reserves, then we won't be able to emit the disastrous quantities of carbon that the IPCC's projected emissions scenarios rely on. On the other hand, if the IEA's reserves are correct, then climate change is still game on. However, things are not quite as simple as this.
The burning of fossil fuels contributes to concentrations of aerosol chemicals in the atmosphere, which have a short term cooling effect. Because they don't last long, the atmospheric concentration is highly responsive to changes in emissions. Carbon dioxide, on the other hand, has a long term heating effect, but unlike aerosol's, if you were to cease emissions, the atmospheric concentration would not rapidly plummet. The total radiative heating effect of all greenhouse gases is (2005) 2.45 W/M^2 (watts per meters squared) with a range of 2.18 to 2.7. However, this needs to be adjusted for the cooling effect of atmospheric aerosol, which gives us a figure of 1.41 W/M^2 with a range of 0.41 to 2.2. For the sake of transparency, I have calculated these from the parts per million concentrations of greenhouse gas equivalents and atmospheric aerosol's at http://www.skepticalscience.com/carbon-dioxide-equivalents.html (pro global warming site) and the IPCC's (pro global warming) formula of 5.35*log(new concentration/288)= radiative heating effect.
It is immediately apparent that drastic emission cuts would also lead to a collapse in the cooling effect of atmospheric aerosol's - to disastrous consequences- something that environmentalist James Lovelock lucidly explains in his book "The Vanishing Face of Gaia". Using the mid range figures, there would be a warming effect of 1.04 extra W/M^2, compared to today. The warming effect of the loss of atmospheric cooling aerosol's would ironically be greater than all the warming effect of greenhouse gas pollution in the last 35 years, except it would be much more sudden. It is proposed that carbon emissions are reduce by 80% on 1990 levels by 2050, although, for the sake of argument, let's say we were to eliminate them all within 10 years. The saving in terms of the prevented rise in carbon dioxide equivalents excluding aerosol would be in the order of 30 parts per million, yet the overall increase in total atmospheric forcing would be greater than the saving made by reducing greenhouse gas emissions.
According to data table 6.1 of the IPCC's most recent global warming study (2005 data), the total forcing of aerosols is -1.2, whereas the positive forcing of long lived greenhouse gases (Carbon Dioxide, Methane, Nitrous Oxide, and tropospheric Ozone) is 2.65. Halocarbons add an additional 0.34 W/M^2 but these have short term lifespans and are in any case being successfully and rapidly phases out so in the long term they are essentially an irrelevance. It is however misleading to give real figures, since what is really relevant is the change. For instance, the sun has an enormous forcing (over 1300) but the long term changes are very small. Around 1/2 of the forcing effect of the long lived greenhouse gases (LLGHGS) is of anthropogenic (man made) origin- there were lots of them there before we polluted the atmosphere with some extra. Overall, the positive forcing anthropogenic LLGHGS is balanced out by anthropogenic aerosols. The warming of the 21st century is attributable to the net difference between the two that only occurs due to short term minor greenhouse gases that are being phased out. We should, in other words, expect to see a reversal of the warming trend as the positive forcings decrease to match the level of negative forcings over the next few decades as the short term gases are phased out and disappear from the atmosphere. However, there is incessant political will to reduce LLGHG emissions, and thus stop the industrial processes associated with them that keep up the aerosol levels. The 21st century warming, of 0.8 deg C, attributable to the net forcing of 0.3-1 W/M^2 could be dwarfed if aerosol levels fell, leaving humanity, in Lovelock's words, to feel "the full force" (sic) of the anthropogenic greenhouse effect.
No matter how fast emissions cuts are carried out, the collapse of atmospheric aerosol concentrations is a long term inevitability. Interestingly, the IPCC does not give a forecast for these, even though it gives a forecast for all other radiative heating/cooling gases. Despite this being extremely mysterious, it only highlights the fact that a big jump in total CO2 equivalents from the figure including aerosol cooling to the figure excluding it. That would already put us on course for the 2 degree warming everyone is trying to avoid. Somebody has messed up big time with the plan to save the planet by reducing GHG emissions. It seems we really are stuck between a rock and a hard place.
Before we delve further into the wonders of this inconvenient truth, I must declare that I am NOT a climate skeptic. The science behind the IPCC forecasts is solid, but what is not so solid is the economics behind it. The IPCC's emissions scenarios, which project future fossil fuel consumption are only made possible by the data of the International Energy Agency on reserves of these fuels. I hasten to add that countless environmentalists have poured scorn over the IEA's information, and with good reason- the IEA simply trusts declared reserves given to them by the various countries which they survey. These reserve figures are known to be a political artifact, fraudulently inflated to boost asset values (read: "investor confidence").
Now it might seem that this is irrelevant. If the IEA has exaggerated reserves, then we won't be able to emit the disastrous quantities of carbon that the IPCC's projected emissions scenarios rely on. On the other hand, if the IEA's reserves are correct, then climate change is still game on. However, things are not quite as simple as this.
The burning of fossil fuels contributes to concentrations of aerosol chemicals in the atmosphere, which have a short term cooling effect. Because they don't last long, the atmospheric concentration is highly responsive to changes in emissions. Carbon dioxide, on the other hand, has a long term heating effect, but unlike aerosol's, if you were to cease emissions, the atmospheric concentration would not rapidly plummet. The total radiative heating effect of all greenhouse gases is (2005) 2.45 W/M^2 (watts per meters squared) with a range of 2.18 to 2.7. However, this needs to be adjusted for the cooling effect of atmospheric aerosol, which gives us a figure of 1.41 W/M^2 with a range of 0.41 to 2.2. For the sake of transparency, I have calculated these from the parts per million concentrations of greenhouse gas equivalents and atmospheric aerosol's at http://www.skepticalscience.com/carbon-dioxide-equivalents.html (pro global warming site) and the IPCC's (pro global warming) formula of 5.35*log(new concentration/288)= radiative heating effect.
It is immediately apparent that drastic emission cuts would also lead to a collapse in the cooling effect of atmospheric aerosol's - to disastrous consequences- something that environmentalist James Lovelock lucidly explains in his book "The Vanishing Face of Gaia". Using the mid range figures, there would be a warming effect of 1.04 extra W/M^2, compared to today. The warming effect of the loss of atmospheric cooling aerosol's would ironically be greater than all the warming effect of greenhouse gas pollution in the last 35 years, except it would be much more sudden. It is proposed that carbon emissions are reduce by 80% on 1990 levels by 2050, although, for the sake of argument, let's say we were to eliminate them all within 10 years. The saving in terms of the prevented rise in carbon dioxide equivalents excluding aerosol would be in the order of 30 parts per million, yet the overall increase in total atmospheric forcing would be greater than the saving made by reducing greenhouse gas emissions.
According to data table 6.1 of the IPCC's most recent global warming study (2005 data), the total forcing of aerosols is -1.2, whereas the positive forcing of long lived greenhouse gases (Carbon Dioxide, Methane, Nitrous Oxide, and tropospheric Ozone) is 2.65. Halocarbons add an additional 0.34 W/M^2 but these have short term lifespans and are in any case being successfully and rapidly phases out so in the long term they are essentially an irrelevance. It is however misleading to give real figures, since what is really relevant is the change. For instance, the sun has an enormous forcing (over 1300) but the long term changes are very small. Around 1/2 of the forcing effect of the long lived greenhouse gases (LLGHGS) is of anthropogenic (man made) origin- there were lots of them there before we polluted the atmosphere with some extra. Overall, the positive forcing anthropogenic LLGHGS is balanced out by anthropogenic aerosols. The warming of the 21st century is attributable to the net difference between the two that only occurs due to short term minor greenhouse gases that are being phased out. We should, in other words, expect to see a reversal of the warming trend as the positive forcings decrease to match the level of negative forcings over the next few decades as the short term gases are phased out and disappear from the atmosphere. However, there is incessant political will to reduce LLGHG emissions, and thus stop the industrial processes associated with them that keep up the aerosol levels. The 21st century warming, of 0.8 deg C, attributable to the net forcing of 0.3-1 W/M^2 could be dwarfed if aerosol levels fell, leaving humanity, in Lovelock's words, to feel "the full force" (sic) of the anthropogenic greenhouse effect.
No matter how fast emissions cuts are carried out, the collapse of atmospheric aerosol concentrations is a long term inevitability. Interestingly, the IPCC does not give a forecast for these, even though it gives a forecast for all other radiative heating/cooling gases. Despite this being extremely mysterious, it only highlights the fact that a big jump in total CO2 equivalents from the figure including aerosol cooling to the figure excluding it. That would already put us on course for the 2 degree warming everyone is trying to avoid. Somebody has messed up big time with the plan to save the planet by reducing GHG emissions. It seems we really are stuck between a rock and a hard place.
Friday 3 June 2011
Shale gas puts trick in magic trick.
1000 years of supply, 10000 years of supply, who knows. Some of the claims that are being banded about about the big shale gas plays would make the return of Christ seem unexciting by comparison. It is not often mentioned that the energy return on investment for shale gas is so negligibly positive at best, that you'd have to reinvest equivalent to say 95% of the resource just in getting it all out of the ground; and that's if there is any "ground" left after you have blown it to smithereens and polluted it to hell with the extraction process.
Hydraulic fracturing, the literally explosive process by which gas can be extracted from tight shale bed rock has been available since the 60s, as have all of the companies that you would regard as "big oil"- household names like BP, Exxon, Shell, Total, and so on. Proponents of shale gas claim that "new technology" has opened up shale bed gas as a new resource, which is nonsense. The big oil companies new how to do it all along, the just didn't want to do it, it doesn't make money.
The "frack job" of almost sexually inappropriate proportions by drilling company "Caudrilla" in Blackpool, England, has been revealed as the cause of two EARTHQUAKES last week, and has been put on hold (no surprise). Shale gas is already the culprit of (severe) groundwater toxic pollution- which occurs when the chemicals in the fracking solution permeate through porous rock into underground groundwater aquifiers - and is thought to cause as much as 2.5 times as much greenhouse gas pollution than coal, but now it causes earthquakes as well, whatever next! No wonder big oil has avoided it like the plague.
Shale gas "discoveries" allowed the IEA (International Energy Agency) to double it's numbers for global gas reserves, not that the shale gas had magically appeared, it had just been declared recoverable due to the entry of shale gas drilling firms into the market. To outside observers, it might have seemed as if the IEA had some sort of magic wand when it came to gas reserves, how could a finite resource always increase in size?
The oil as gas companies are responsible for the reserve growth miracle. It's not that they discover the oil/gas, it was nearly all discovered decades ago, they just keep enough of it in their back pocket to declare in the future, that way they can always (appear to) offset production with new discoveries. The word discoveries should be substituted for "revelations"; more appropriate for the conjuring trick style business they get up to with the numbers. You don't have to look far to find the oil companies boasting about the miracle of reserve growth, each year their annual reports are plastered with factoids explain that they have more than last year, despite production, without explaining how the magic trick works.
It's common sense that if shale gas was profitable, big oil would have got in the game years ago, their geologists knew about the reserves and they had the technology. The fact that the shale gas boom has minions such as Caudrilla in the UK and Chesapeak Energy in the US at the helm is testament to the equally magical nature of the modern business system. I muse that these companies only need the "prospect" that shale gas delivers to convince the gullible banksters to lend them some money. Before long, governments will hopefully make the sensible decision to ban shale gas drilling and avoid runaway climate change (if that is still possible). In doing so, they'll crash the boom and destroy a hefty chunk of those loans that Caudrilla and Chesapeak won't be able to repay, unless they really can do magic.
Hydraulic fracturing, the literally explosive process by which gas can be extracted from tight shale bed rock has been available since the 60s, as have all of the companies that you would regard as "big oil"- household names like BP, Exxon, Shell, Total, and so on. Proponents of shale gas claim that "new technology" has opened up shale bed gas as a new resource, which is nonsense. The big oil companies new how to do it all along, the just didn't want to do it, it doesn't make money.
The "frack job" of almost sexually inappropriate proportions by drilling company "Caudrilla" in Blackpool, England, has been revealed as the cause of two EARTHQUAKES last week, and has been put on hold (no surprise). Shale gas is already the culprit of (severe) groundwater toxic pollution- which occurs when the chemicals in the fracking solution permeate through porous rock into underground groundwater aquifiers - and is thought to cause as much as 2.5 times as much greenhouse gas pollution than coal, but now it causes earthquakes as well, whatever next! No wonder big oil has avoided it like the plague.
Shale gas "discoveries" allowed the IEA (International Energy Agency) to double it's numbers for global gas reserves, not that the shale gas had magically appeared, it had just been declared recoverable due to the entry of shale gas drilling firms into the market. To outside observers, it might have seemed as if the IEA had some sort of magic wand when it came to gas reserves, how could a finite resource always increase in size?
The oil as gas companies are responsible for the reserve growth miracle. It's not that they discover the oil/gas, it was nearly all discovered decades ago, they just keep enough of it in their back pocket to declare in the future, that way they can always (appear to) offset production with new discoveries. The word discoveries should be substituted for "revelations"; more appropriate for the conjuring trick style business they get up to with the numbers. You don't have to look far to find the oil companies boasting about the miracle of reserve growth, each year their annual reports are plastered with factoids explain that they have more than last year, despite production, without explaining how the magic trick works.
It's common sense that if shale gas was profitable, big oil would have got in the game years ago, their geologists knew about the reserves and they had the technology. The fact that the shale gas boom has minions such as Caudrilla in the UK and Chesapeak Energy in the US at the helm is testament to the equally magical nature of the modern business system. I muse that these companies only need the "prospect" that shale gas delivers to convince the gullible banksters to lend them some money. Before long, governments will hopefully make the sensible decision to ban shale gas drilling and avoid runaway climate change (if that is still possible). In doing so, they'll crash the boom and destroy a hefty chunk of those loans that Caudrilla and Chesapeak won't be able to repay, unless they really can do magic.
Tuesday 31 May 2011
Welcome to the climate casino! Good luck.
Everyone knows that smoking causes cancer, sure, not in all cases, and sure, it's not quite proven, but since the 1950s we've known that there is a damn good correlation between those death sticks and, well, dying. As it happens, climate change is not strictly speaking "proven", but since the world has been warming up in correlation with greenhouse gas emissions from pre-indsutrial times, you'd be pretty stupid to deny the link. The correlation could be a coincidence, sure. As could the correlation between lung cancer deaths and smokers. Big coincidence don't you think? Oh boy, looks like that link between greenhouse gases and temperature stretches back millions of years. Must be an even bigger coincidence!
This graph could define the climate change debate in the coming years, at least until the IPCC (Intergovernmental Panel on Climate Change) publishes its next assessment report, due in 2014.
It is commonly believed by those who think they know, that the concentration of Carbon Dioxide in the atmosphere is around 390 parts per million (PPM) giving us a good chance of avoiding dangerous climate change that will occur above 2-3 degrees. It is perfectly true that the concetration of CO2 in the atmosphere is about 390 PPM, but assuming that we still have time to stabilize this concetration at safe levels is based on a misinterpretation of the graph. Yesterday, the Guardian reported that even the 2 degree target that world leaders are prepared to risk is almost out of reach, with the International Energy Association's chief economist, Fatih Birol, commenting that it was a "nice utopia". In reality, the "exclusive" nature of the Guardian's report was slightly out of date.
If you look carefully at the graph, it does not actually measure CO2 at all, it measures something called "CO2 eq", which basically means all greenhouse gases, including for instance methane and CFCs. The potency of these emissions are also measured and adjusted as if they were CO2 to give a ballpark figure for the total amount of greenhouse gases in the atmosphere. The blue line on the graph shows the lowest conceivable eventual average global temperature increase for a given CO2 eq stabilization level (and were not even stable yet), the red line shows the highest, and the black line is what is expected. Given that the concentration of CO2 eq is not 390 PPM, but a frightening 470 PPM or thereabouts (the latest figures I had were two years old so I had to conservatively continue the trend to get this number but It makes little difference) you can see we have almost no chance of meeting the 2 degree target. It could even be worse than that. I collected as much information I could on previous CO2 eq calculations, and was only able to find them from 2001, 2004, 2007, and 2008. The picture is clear, the concentration is increasing exponentially. Between 01 and 04 it rose 4.33 parts per million per year, from 412 to 415, from 04 to 07 it rose 6.66 parts per million per year, from 425 to 445, from 2007 to 2008 it rose another 19 parts per million, and I have no figures after that but it could be over 500 now. Fatih Birol's "nice utopia" comment satisfies polite standards of newsprint but it would be clearer to say that we haven't got a f**k's chance in hell.
Have they, the politicians, given up? Or is the just some sort of nightmarish mistake? Furthermore, the concentration of CO2 eq is rising more than twice, possibly three times as quick as the concetration of CO2 alone. The rise cannot just be accounted for by anthropogenic (human) emissions, which indicates that natural "positive feedbacks" such as the melting of artic permafrost (which contains methane) have already begun. This is truly terrifying. As Nafeez Ahmed explains in this recent (and excellent) book - "A user's guide to the crisis of civilization" - CO2 eq concentrations rose from 425 PPM to 445 PPM from 2004 to 2007. (4.7% a year). CO2 concentrations alone rose 0.7% a year. However, human emissions of CO2 are much more significant than human emissions of the other greenhouse gases that account for the difference between CO2 alone and the CO2 eq figure, so the increased rate of change is probably driven by natural emissions of methane. Anthropogenic emissions of other greenhouse gases beyond CO2 and Methane are mostly falling, so it seems as if we have entered the era of runnaway climate change. Is that why they are not bothering to do anything about it?
Suppose we completely eliminated Carbon Dioxide emissions immediately. Of course, this is impossible, but let's be optimistic. Very optimistic. We would elimiate just 0.7% of the 4.7% a year rise in CO2 eq atmospheric concetrations, the stuff that really matters.
If I haven't made any big mistakes, then there is clearly little point in bothering about a low carbon economy any more. Even geoengineering, most viable forms of which remove only CO2, not the others, from the air, isn't going to address the problem of seemingly runaway natural methane emissions. Some clever clogs better think up a way of solving this problem or the shit is going to hit the fan big time. Be preapared. They probably won't. Firstly, hardly anybody understands the real problem, they are focusing on the out of date problem of carbon emisisons. Secondly, nobody who does understand has the money to do anything worthwhile.
So it is clear, either the people who run the world made a horrible mistake by focusing on CO2 when it wasn't the whole problem, or they knew, but couldn't be bothered to do anything about it for political reasons, in which case you can hardly blame the people who voted for them. Sure, many were gullible, but it's hardly as if they were well informed by the media. The best selling newspapers frequently run articles denying climate change. Most (in fact nearly all) of the worlds poor had never even heard of the damn thing, and it's hardly as if they were to blame anyway. Sooner or later, people are going to start getting very angry. The blame game could be nasty, but if it is direct at the right people, it serves them right.
When I was much younger, I remember my Dad once told me that we might only have 10 years to fix the climate. You can imagine why I was puzzled that as I grew up, the news continued to say that we had 10 years, for at least 10 years. Had time stopped, no, I suspect they just didn't want to admit that it was runnig out. Either that or they were just stupid. That was at least 10 years ago. I hope they were stupid; ignorance is far preferable than maliciousness, but something tells me that they thought they were trying to be kind by not telling people quite how bad it was. For years, I went along, pretending to myself that we still had time. Yet gradually I began to realise that we didn't. It seemed as if whatever anybody did or said, nobody would listen. Ok, a few did, but not enough, not nearly enough. I was astonished that the Green movement thought that just because one book had failed to bring about change, another would. Sure, climate change gained "prominence", but this didn't translate into any meaningfull action on a global scale. I guess people were niave to think that they could change the world. Despite what the globalists say, it really is much bigger than it was in the past. It's more difficult to get 7 billion people to act than 2 billion. The little people weren't to blame anyway. It was hardly as if they knew. How could they be expected to discern between the truth of the green movement and the bombardment of corporate sponsored media misinformation on climate change. Most of them weren't even literate.
In terms of who is to blame, it is the people who run the world, as well as the rich few who elect and finance them. I suppose you can't blame their "live for the moment" attitude, but you can certainly blame their ridiculous refusal to convert their lifestyle into a low carbon one, which would have been just as pleasant. Still, most of the rich few who caused the trouble didn't know. The worker zombies of the west were so overburdened with the hasseles of modern life, they were physchologically imprisoned by an elaborate daily routine predicated upon individualist economic competition. How were they supposed to learn about climate change if they didn't even have time after work to make a proper dinner, and had to have take-aways or ready meals?
The coming climate crisis brings with it many risks. We mustn't let anybody who doesn't deserve the blame recieve it, since this could lead to war, as it did in the late 1930s when the Jewish people of Germany were made scapegoats for the global economic crisis.
Far more terrifying than any political ramifications is the guarantee that exceeding the 2-3 degree tipping point means at least 4-8 degrees of warming above pre-industrial temperatures by the end of the century. Pre-industrial global temperatures averaged 13.5 degrees celcius, so average global temperature by the end of the century could exceed 20 degrees. That would burn the rainforests, melt the last remaining ice from the ice caps, and fry the planet. Forest loss could add a further 600 parts per million to the atmopshere, taking the total concentration far beyond 1000 parts per million, when all the other positive feedbacks are factored in, the planet would truly roast, and humans would die like a lobster in a bioling saucepan. Average global temperatures of 20 degrees celcius or more may not seem to bad, but when you consider that is an average, meaning that a distribution curve of days/frequency against temperature would show almost no cold days and lots of roasting hot days, there would never be enough time for water to be absorbed by the land before it evaporated, maing it near impossible to grow crops, let alone rer animals (which eat them) in almost every part of the world apart from the poles. Climate justice? You betcha!
This graph could define the climate change debate in the coming years, at least until the IPCC (Intergovernmental Panel on Climate Change) publishes its next assessment report, due in 2014.
It is commonly believed by those who think they know, that the concentration of Carbon Dioxide in the atmosphere is around 390 parts per million (PPM) giving us a good chance of avoiding dangerous climate change that will occur above 2-3 degrees. It is perfectly true that the concetration of CO2 in the atmosphere is about 390 PPM, but assuming that we still have time to stabilize this concetration at safe levels is based on a misinterpretation of the graph. Yesterday, the Guardian reported that even the 2 degree target that world leaders are prepared to risk is almost out of reach, with the International Energy Association's chief economist, Fatih Birol, commenting that it was a "nice utopia". In reality, the "exclusive" nature of the Guardian's report was slightly out of date.
If you look carefully at the graph, it does not actually measure CO2 at all, it measures something called "CO2 eq", which basically means all greenhouse gases, including for instance methane and CFCs. The potency of these emissions are also measured and adjusted as if they were CO2 to give a ballpark figure for the total amount of greenhouse gases in the atmosphere. The blue line on the graph shows the lowest conceivable eventual average global temperature increase for a given CO2 eq stabilization level (and were not even stable yet), the red line shows the highest, and the black line is what is expected. Given that the concentration of CO2 eq is not 390 PPM, but a frightening 470 PPM or thereabouts (the latest figures I had were two years old so I had to conservatively continue the trend to get this number but It makes little difference) you can see we have almost no chance of meeting the 2 degree target. It could even be worse than that. I collected as much information I could on previous CO2 eq calculations, and was only able to find them from 2001, 2004, 2007, and 2008. The picture is clear, the concentration is increasing exponentially. Between 01 and 04 it rose 4.33 parts per million per year, from 412 to 415, from 04 to 07 it rose 6.66 parts per million per year, from 425 to 445, from 2007 to 2008 it rose another 19 parts per million, and I have no figures after that but it could be over 500 now. Fatih Birol's "nice utopia" comment satisfies polite standards of newsprint but it would be clearer to say that we haven't got a f**k's chance in hell.
Have they, the politicians, given up? Or is the just some sort of nightmarish mistake? Furthermore, the concentration of CO2 eq is rising more than twice, possibly three times as quick as the concetration of CO2 alone. The rise cannot just be accounted for by anthropogenic (human) emissions, which indicates that natural "positive feedbacks" such as the melting of artic permafrost (which contains methane) have already begun. This is truly terrifying. As Nafeez Ahmed explains in this recent (and excellent) book - "A user's guide to the crisis of civilization" - CO2 eq concentrations rose from 425 PPM to 445 PPM from 2004 to 2007. (4.7% a year). CO2 concentrations alone rose 0.7% a year. However, human emissions of CO2 are much more significant than human emissions of the other greenhouse gases that account for the difference between CO2 alone and the CO2 eq figure, so the increased rate of change is probably driven by natural emissions of methane. Anthropogenic emissions of other greenhouse gases beyond CO2 and Methane are mostly falling, so it seems as if we have entered the era of runnaway climate change. Is that why they are not bothering to do anything about it?
Suppose we completely eliminated Carbon Dioxide emissions immediately. Of course, this is impossible, but let's be optimistic. Very optimistic. We would elimiate just 0.7% of the 4.7% a year rise in CO2 eq atmospheric concetrations, the stuff that really matters.
If I haven't made any big mistakes, then there is clearly little point in bothering about a low carbon economy any more. Even geoengineering, most viable forms of which remove only CO2, not the others, from the air, isn't going to address the problem of seemingly runaway natural methane emissions. Some clever clogs better think up a way of solving this problem or the shit is going to hit the fan big time. Be preapared. They probably won't. Firstly, hardly anybody understands the real problem, they are focusing on the out of date problem of carbon emisisons. Secondly, nobody who does understand has the money to do anything worthwhile.
So it is clear, either the people who run the world made a horrible mistake by focusing on CO2 when it wasn't the whole problem, or they knew, but couldn't be bothered to do anything about it for political reasons, in which case you can hardly blame the people who voted for them. Sure, many were gullible, but it's hardly as if they were well informed by the media. The best selling newspapers frequently run articles denying climate change. Most (in fact nearly all) of the worlds poor had never even heard of the damn thing, and it's hardly as if they were to blame anyway. Sooner or later, people are going to start getting very angry. The blame game could be nasty, but if it is direct at the right people, it serves them right.
When I was much younger, I remember my Dad once told me that we might only have 10 years to fix the climate. You can imagine why I was puzzled that as I grew up, the news continued to say that we had 10 years, for at least 10 years. Had time stopped, no, I suspect they just didn't want to admit that it was runnig out. Either that or they were just stupid. That was at least 10 years ago. I hope they were stupid; ignorance is far preferable than maliciousness, but something tells me that they thought they were trying to be kind by not telling people quite how bad it was. For years, I went along, pretending to myself that we still had time. Yet gradually I began to realise that we didn't. It seemed as if whatever anybody did or said, nobody would listen. Ok, a few did, but not enough, not nearly enough. I was astonished that the Green movement thought that just because one book had failed to bring about change, another would. Sure, climate change gained "prominence", but this didn't translate into any meaningfull action on a global scale. I guess people were niave to think that they could change the world. Despite what the globalists say, it really is much bigger than it was in the past. It's more difficult to get 7 billion people to act than 2 billion. The little people weren't to blame anyway. It was hardly as if they knew. How could they be expected to discern between the truth of the green movement and the bombardment of corporate sponsored media misinformation on climate change. Most of them weren't even literate.
In terms of who is to blame, it is the people who run the world, as well as the rich few who elect and finance them. I suppose you can't blame their "live for the moment" attitude, but you can certainly blame their ridiculous refusal to convert their lifestyle into a low carbon one, which would have been just as pleasant. Still, most of the rich few who caused the trouble didn't know. The worker zombies of the west were so overburdened with the hasseles of modern life, they were physchologically imprisoned by an elaborate daily routine predicated upon individualist economic competition. How were they supposed to learn about climate change if they didn't even have time after work to make a proper dinner, and had to have take-aways or ready meals?
The coming climate crisis brings with it many risks. We mustn't let anybody who doesn't deserve the blame recieve it, since this could lead to war, as it did in the late 1930s when the Jewish people of Germany were made scapegoats for the global economic crisis.
Far more terrifying than any political ramifications is the guarantee that exceeding the 2-3 degree tipping point means at least 4-8 degrees of warming above pre-industrial temperatures by the end of the century. Pre-industrial global temperatures averaged 13.5 degrees celcius, so average global temperature by the end of the century could exceed 20 degrees. That would burn the rainforests, melt the last remaining ice from the ice caps, and fry the planet. Forest loss could add a further 600 parts per million to the atmopshere, taking the total concentration far beyond 1000 parts per million, when all the other positive feedbacks are factored in, the planet would truly roast, and humans would die like a lobster in a bioling saucepan. Average global temperatures of 20 degrees celcius or more may not seem to bad, but when you consider that is an average, meaning that a distribution curve of days/frequency against temperature would show almost no cold days and lots of roasting hot days, there would never be enough time for water to be absorbed by the land before it evaporated, maing it near impossible to grow crops, let alone rer animals (which eat them) in almost every part of the world apart from the poles. Climate justice? You betcha!
Sunday 29 May 2011
Stuck between a rock and a hard place.
This is the second post I've written today; and that's the first time I've ever written two posts in a day. I have been writing about two converging crisis - peak oil and climate change - on this blog, as well as various political and economic happenings for a while now, but this evening I put two and two together and had the most horrific brainwave. I'll explain it as clear as I can.
You might have already realised part of the conundrum, that peak oil and climate change might seem mutually exclusive. If we are unprepared for the peaking of the flow of oil to world markets, the global economy could collapse. It nearly did in 2008, only just saved by emergency action by government's to bail out the banking system. That shows that when disaster looms, we can fix big shit. However, if our economy is brought down by a resource crisis of one form or another, that might save us from the impending (and to some extent arleady occuring) climate crisis, right? Wrong.
In fact, I realised, to my absolute horror, that James Lovelock is right in his book, "The Vanishing Face of Gaia", that if we stopped burning fossil fuels immediately the atmospheric aerosol that is provided as a side effect of burning fossil fuels would fall out of the atmosphere within weeks if you stopped burning them, leaving the earth exposed to the warming stored up by the emissions of the last 100 years that are still "in the system". Admittedly we wouldn't be in for any more warning after we had paid the overdue debt of past emissions, but it demonstrates what might happen if we do reduce emissions.
Suppose the "continued growth" path is the hard place. The next 100 years will see unprecedented global climate change that will obliterate much of current human civilization. Suppose the "collapse" scenario is the "rock", the next 10-20 years or sooner could see a resource crisis bring down the global economy, and carbon emissions with it, and in turn atmospheric aerosoles with it, exposing the earth to the full force of the greenhouse effect that we are actually to some extent insulated from at the moment.
It feels odd to be aware of a problem, the solution to which might make the problem worse. This paradox paralyses the mind in a strange way. Essentially the faster we reduce emissions the faster short term climate change occurs, but the less of it we have in the long term. The slower we reduce emissions the slower short term climate change occurs but the more of it happens in the long term? I'd be interested to recieve feedback from anyone who comes accross this post who knows anything about the subject. Sadly, I suspect not many of you do.
You might have already realised part of the conundrum, that peak oil and climate change might seem mutually exclusive. If we are unprepared for the peaking of the flow of oil to world markets, the global economy could collapse. It nearly did in 2008, only just saved by emergency action by government's to bail out the banking system. That shows that when disaster looms, we can fix big shit. However, if our economy is brought down by a resource crisis of one form or another, that might save us from the impending (and to some extent arleady occuring) climate crisis, right? Wrong.
In fact, I realised, to my absolute horror, that James Lovelock is right in his book, "The Vanishing Face of Gaia", that if we stopped burning fossil fuels immediately the atmospheric aerosol that is provided as a side effect of burning fossil fuels would fall out of the atmosphere within weeks if you stopped burning them, leaving the earth exposed to the warming stored up by the emissions of the last 100 years that are still "in the system". Admittedly we wouldn't be in for any more warning after we had paid the overdue debt of past emissions, but it demonstrates what might happen if we do reduce emissions.
Suppose the "continued growth" path is the hard place. The next 100 years will see unprecedented global climate change that will obliterate much of current human civilization. Suppose the "collapse" scenario is the "rock", the next 10-20 years or sooner could see a resource crisis bring down the global economy, and carbon emissions with it, and in turn atmospheric aerosoles with it, exposing the earth to the full force of the greenhouse effect that we are actually to some extent insulated from at the moment.
It feels odd to be aware of a problem, the solution to which might make the problem worse. This paradox paralyses the mind in a strange way. Essentially the faster we reduce emissions the faster short term climate change occurs, but the less of it we have in the long term. The slower we reduce emissions the slower short term climate change occurs but the more of it happens in the long term? I'd be interested to recieve feedback from anyone who comes accross this post who knows anything about the subject. Sadly, I suspect not many of you do.
Just how stupid can you get?
There has been a flurry of articles over the last week or so about "synthetic meat"- first in the BBC's flagship science and technology magazine "BBC Focus", and now in the Guardian newspaper and the Daily Mail.
An animal converts resources into meat. A factory full of petri dishes could be used as a substitute for the animal, but obviously it would be even more inefficient. To claim that synthetic meat would "offset carbon emissions" is either a lie, or it just highlights the unthinking nature of the media. Perhaps I am missing something, Is the synthetic meat frenzy a joke? It certainly isn't a very funny one.
Much funnier is the fact that synthetic meat would inevitably require more factor inputs to produce ounce for ounce than normal meat. Sure, animals are inefficient, they convert less than 10% of the food you feed them into the food you get from them. But where exactly are you going to have all these synthetic meat making machines? In a farm? I didn't think so. It requires little more than an elementary knowledge of biology to realize that cells don't just grow from thin air. You have to feed them. Synthetic meat would be machine fed, and machines require energy and maintenance. You can't just feed the synthetic meat cultures with other synthetic meat, since there is always an energy loss, so doing so would leave you with less than you started with. Clever.
You're going to have to feed the synthetic meat with some sort of vegetable matter, which can't be grown in vats because it needs to photosynthesize out in the sun, so in the end you would be using just as much land to grow the food to feed the meat. Alternatively, your "growth serum"- essentially the food you feed the synthetic meat cells could be made from mined minerals, but they are finite resources, and making our food production system reliant on such things would axiomatically make the food itself a finite resource. There are no renewable sources of food for synthetic meat that do not subtract a greater amount from the overall world food supply than the synthetic meat generates. Some have described synthetic meat as more "ethical" because it does not involve the slaughter of animals. Fair enough, but since it deprives more humans of meat, it is ridiculous to call it ethical. WOW synthetic meat avoids the slaughter of real animals so it is "ethical" but it results in the starvation of humans! OH...
You might save a bit of land because the growing of the meat itself is done in a more compact way than the conventional rearing of animals on farms, but you presumably sacrifice the extra energy that a factory uses above a farm. Then again, most modern meat farms are practically factories. Synthetic meat surely isn't worth much attention.
An animal converts resources into meat. A factory full of petri dishes could be used as a substitute for the animal, but obviously it would be even more inefficient. To claim that synthetic meat would "offset carbon emissions" is either a lie, or it just highlights the unthinking nature of the media. Perhaps I am missing something, Is the synthetic meat frenzy a joke? It certainly isn't a very funny one.
Much funnier is the fact that synthetic meat would inevitably require more factor inputs to produce ounce for ounce than normal meat. Sure, animals are inefficient, they convert less than 10% of the food you feed them into the food you get from them. But where exactly are you going to have all these synthetic meat making machines? In a farm? I didn't think so. It requires little more than an elementary knowledge of biology to realize that cells don't just grow from thin air. You have to feed them. Synthetic meat would be machine fed, and machines require energy and maintenance. You can't just feed the synthetic meat cultures with other synthetic meat, since there is always an energy loss, so doing so would leave you with less than you started with. Clever.
You're going to have to feed the synthetic meat with some sort of vegetable matter, which can't be grown in vats because it needs to photosynthesize out in the sun, so in the end you would be using just as much land to grow the food to feed the meat. Alternatively, your "growth serum"- essentially the food you feed the synthetic meat cells could be made from mined minerals, but they are finite resources, and making our food production system reliant on such things would axiomatically make the food itself a finite resource. There are no renewable sources of food for synthetic meat that do not subtract a greater amount from the overall world food supply than the synthetic meat generates. Some have described synthetic meat as more "ethical" because it does not involve the slaughter of animals. Fair enough, but since it deprives more humans of meat, it is ridiculous to call it ethical. WOW synthetic meat avoids the slaughter of real animals so it is "ethical" but it results in the starvation of humans! OH...
You might save a bit of land because the growing of the meat itself is done in a more compact way than the conventional rearing of animals on farms, but you presumably sacrifice the extra energy that a factory uses above a farm. Then again, most modern meat farms are practically factories. Synthetic meat surely isn't worth much attention.
Thursday 26 May 2011
An oil "shock" of one form or another is surely on the way.
(for economics students- otherwise you mightn't understand)
Every major world recession in the last 60 has come just after a sharp spike in the oil price. That doesn't mean to say that there is a direct causation, but clearly oil is a vital commodity, so any fluctuations in its price are bound to have a large influence on global supply chains.
The oil price is essentially a "business cost", meaning that it influences the level of aggregate supply in the short term. The strength of short run growth in the economy depends on cheap oil. In the very long run, investment in substitutes can be made, meaning that growth is more resilient to oil price spikes.
Within the last 9 months, oil has soared from $70 to $120 dollars a barrel, and growth has stagnated. Big firms such as airlines "hedge" their oil costs by purchasing annual contracts at fixed price with their fuel supplier, to the full force of the rise takes several months to feed through. The IMF regards any oil price over about $90 as dangerous, and it has been higher than that for around 6 months.
When the global economy went into free-fall in the autumn of 2008, few noticed that oil had reached an all time higher of $147 in the summer.
Oil is an example of land, a factor input including all natural resources. The operation of capital also requires energy input, a significant amount of which is oil. For instance, nearly every product or service is in some way reliant on oil for transportation, packaging, etc.
Since oil is such a significant component of the economy- the total oil "bill" of the economy is typically around 5% of GDP - it is a significant determinant of the overall price level in the economy (the rate of inflation). Upwards movements in inflation cause a contraction down the demand curve, so the combination of a shift to the left in aggregate supply and a downwards movement along aggregate demand will in the short run move equilibrium growth output far within the trend average shown by the LRAS.
In the long run higher oil prices may stimulate investment in alternative energies or further oil extraction infrastructure, which may correct the problem.
In terms of "preventing" the oil crunch problem in a pro-active manner, the government would have to ensure substitutes were made available by the market in preparation to continue upward supply of total energy when the supply declines, as it appears to be doing. Industry is almost certainly unable to predict supply issues because firms will not have perfect information about any supply issues other firms are facing.
LRAS is determined by factor inputs, and oil is not thought to be a factor input, however, the output (production of oil) is to a great extent determined by for instance the number of oil wells, which count as capital, so the argument can be made that any oil supply crisis, if prolonged would influence LRAS as well as SRAS.
Expansionary fiscal policy would only boost demand in the economy so it would not address what is essentially a supply side problem with oil. Expansionary monetary policy would have the immediate effect of boosting demand and the long or medium term effect of proving investment money to develop new capital to shift the LRAS rightwards and boost the productive potential of the economy, but the opportunity cost of this strategy of short term demand push inflation caused by the purchase of and investment in alternative energy sources would have to be considered. Another supply side policy would be cutting taxes on oil companies, but this would not certainly boost production in the long term because there are geological issues with oil production- it is finite, so tax cuts may just boost profit.
To conclude, a supply side shock resulting from an oil price spike would cause a fall in output, both because of a shift to the left in SRAS, and a higher prices causing a movement along the demand curve to lower levels of output, resulting in lower equilibrium growth than the LRAS. The negative output gap would not be good in terms of the macroeconomic objectives. Inflation would already be an issue, and the underutilized productive potential resulting from the supply side shock would cause unemployment. The only benefit may be an improvement of the balance of trade account because the higher inflation would likely cause a depreciation in the value of sterling, making our exports more competitive, although export lead demand would shift the demand curve back rightwards in the medium to long run, resulting in a worsening of inflationary pressures ceteris paribus, so the impact is undesirable with respect to macro objectives on almost all fronts.
Every major world recession in the last 60 has come just after a sharp spike in the oil price. That doesn't mean to say that there is a direct causation, but clearly oil is a vital commodity, so any fluctuations in its price are bound to have a large influence on global supply chains.
The oil price is essentially a "business cost", meaning that it influences the level of aggregate supply in the short term. The strength of short run growth in the economy depends on cheap oil. In the very long run, investment in substitutes can be made, meaning that growth is more resilient to oil price spikes.
Within the last 9 months, oil has soared from $70 to $120 dollars a barrel, and growth has stagnated. Big firms such as airlines "hedge" their oil costs by purchasing annual contracts at fixed price with their fuel supplier, to the full force of the rise takes several months to feed through. The IMF regards any oil price over about $90 as dangerous, and it has been higher than that for around 6 months.
When the global economy went into free-fall in the autumn of 2008, few noticed that oil had reached an all time higher of $147 in the summer.
Oil is an example of land, a factor input including all natural resources. The operation of capital also requires energy input, a significant amount of which is oil. For instance, nearly every product or service is in some way reliant on oil for transportation, packaging, etc.
Since oil is such a significant component of the economy- the total oil "bill" of the economy is typically around 5% of GDP - it is a significant determinant of the overall price level in the economy (the rate of inflation). Upwards movements in inflation cause a contraction down the demand curve, so the combination of a shift to the left in aggregate supply and a downwards movement along aggregate demand will in the short run move equilibrium growth output far within the trend average shown by the LRAS.
In the long run higher oil prices may stimulate investment in alternative energies or further oil extraction infrastructure, which may correct the problem.
In terms of "preventing" the oil crunch problem in a pro-active manner, the government would have to ensure substitutes were made available by the market in preparation to continue upward supply of total energy when the supply declines, as it appears to be doing. Industry is almost certainly unable to predict supply issues because firms will not have perfect information about any supply issues other firms are facing.
LRAS is determined by factor inputs, and oil is not thought to be a factor input, however, the output (production of oil) is to a great extent determined by for instance the number of oil wells, which count as capital, so the argument can be made that any oil supply crisis, if prolonged would influence LRAS as well as SRAS.
Expansionary fiscal policy would only boost demand in the economy so it would not address what is essentially a supply side problem with oil. Expansionary monetary policy would have the immediate effect of boosting demand and the long or medium term effect of proving investment money to develop new capital to shift the LRAS rightwards and boost the productive potential of the economy, but the opportunity cost of this strategy of short term demand push inflation caused by the purchase of and investment in alternative energy sources would have to be considered. Another supply side policy would be cutting taxes on oil companies, but this would not certainly boost production in the long term because there are geological issues with oil production- it is finite, so tax cuts may just boost profit.
To conclude, a supply side shock resulting from an oil price spike would cause a fall in output, both because of a shift to the left in SRAS, and a higher prices causing a movement along the demand curve to lower levels of output, resulting in lower equilibrium growth than the LRAS. The negative output gap would not be good in terms of the macroeconomic objectives. Inflation would already be an issue, and the underutilized productive potential resulting from the supply side shock would cause unemployment. The only benefit may be an improvement of the balance of trade account because the higher inflation would likely cause a depreciation in the value of sterling, making our exports more competitive, although export lead demand would shift the demand curve back rightwards in the medium to long run, resulting in a worsening of inflationary pressures ceteris paribus, so the impact is undesirable with respect to macro objectives on almost all fronts.
Wednesday 25 May 2011
Climate change will turn farmers away from the Tories and rural seats to the Greens
There was just ten millimeters of rain in the whole of the month of April in England. So much for "April Showers". The climate is changing, and the political climate is changing as well. The BBC informs us that "lack of rain is devastating farmers". Yields are down substantially, by the looks of their video, by over 50%. The farmer in their video should have his wheat up to his waist by now, but it is barely higher than his feet. LINK HERE As soon as people like him draw the link between the drought and climate change, which is going to happen sooner or later, they might start to question their own political convictions- not making any assumptions about the specific views of this farmer.
As environmentalist Paul Gilding wrote in his behemoth of a book; "The Great Disruption", people are slow, but they are not stupid. Sooner or later, the environmental crisis is going to cause an economic crisis. I've long argued that the 2008 economic crisis was caused by a resource crisis. The thing was, this was concealed beneath the commodity prices. You can't see a resource crisis, but you can see a drought.
The British Conservative Party is dependent on rural constituencies like humans are dependent on Oxygen. For hundreds of years, such seats have safely returned Tory members, and the party fell back on rural stronghold's in the dark days of 1997. For the politically unaware, a description of quite how safe such seats are is necessary.
Such seats are stalwart bastions of Toryism. The motorways and A roads that run through their length and breadth are hemmed in at election time by enormous blue billboards affixed to farm fences. Such seats have an impenetrable fortress of a Tory vote, clad with the fiercest automatic weapons on their ramparts. Such seats are so safe, that you'll be lucky to get 1/1000, yes that's "one to a thousand" not "a thousand to one" on a Tory win, at the bookies. That's if they'll give you odds at all.
But surely, if the economies of these seats get ruined by climate change, then the electorate is hardly going to sit back and continue to vote Tory. To posit a stereotype, rural folk are not stupid. They are rich. They go to top public schools. They are not stupid. They are also not going to keep voting conservative when they draw the link between the history of climate neglect that the Tory's have supported, and the collapse in their wheat yields. They are also not going to vote Labour, they seem to hate Labour. They are probably not going to vote Lib Dem, because they hate them as well, or they just see them as just like the Tories. They are not going to vote for UKIP or BNP, because these parties deny climate change. Ask yourself, might those old Tory strongholds become Green strongholds one day?
As environmentalist Paul Gilding wrote in his behemoth of a book; "The Great Disruption", people are slow, but they are not stupid. Sooner or later, the environmental crisis is going to cause an economic crisis. I've long argued that the 2008 economic crisis was caused by a resource crisis. The thing was, this was concealed beneath the commodity prices. You can't see a resource crisis, but you can see a drought.
The British Conservative Party is dependent on rural constituencies like humans are dependent on Oxygen. For hundreds of years, such seats have safely returned Tory members, and the party fell back on rural stronghold's in the dark days of 1997. For the politically unaware, a description of quite how safe such seats are is necessary.
Such seats are stalwart bastions of Toryism. The motorways and A roads that run through their length and breadth are hemmed in at election time by enormous blue billboards affixed to farm fences. Such seats have an impenetrable fortress of a Tory vote, clad with the fiercest automatic weapons on their ramparts. Such seats are so safe, that you'll be lucky to get 1/1000, yes that's "one to a thousand" not "a thousand to one" on a Tory win, at the bookies. That's if they'll give you odds at all.
But surely, if the economies of these seats get ruined by climate change, then the electorate is hardly going to sit back and continue to vote Tory. To posit a stereotype, rural folk are not stupid. They are rich. They go to top public schools. They are not stupid. They are also not going to keep voting conservative when they draw the link between the history of climate neglect that the Tory's have supported, and the collapse in their wheat yields. They are also not going to vote Labour, they seem to hate Labour. They are probably not going to vote Lib Dem, because they hate them as well, or they just see them as just like the Tories. They are not going to vote for UKIP or BNP, because these parties deny climate change. Ask yourself, might those old Tory strongholds become Green strongholds one day?
Friday 6 May 2011
Markets are collapsing right now under the weight of unsustainable oil/commodity demand.
I have been predicting for months that the oil price surge was unsustainable and would eventually crush the economy beneath it resulting in a price collapse and stock market crash. This started yesterday with Brent Crude down 15% in 18 hours. The stock markets seem to be plummetting in tandem. It's just like what happened in 2008, except it took 3 months back them for the markets and financial system to "correct" to the summers $147 barrel oil price shock.
When somebody predicts something and gets it so damn right you should probably listen to them. That's exactly what I did (see my countless blog posts from the last few months). I thought this crash wouldn't happen until later this year, mid summer at earliest, but on this point, I was too conservative.
I apologise to anyone who read this blog and thought we had longer, I should have been more dogmatic about my scare story. We're going to see a repeat of 2008 and people will draw the similarities and realise that the real trigger to that crisis was the oil price.
I'll post my thoughts on yesterday's "Super Thursday" elections in the UK later, but for now the market news is much more significant. Watch this space.
When somebody predicts something and gets it so damn right you should probably listen to them. That's exactly what I did (see my countless blog posts from the last few months). I thought this crash wouldn't happen until later this year, mid summer at earliest, but on this point, I was too conservative.
I apologise to anyone who read this blog and thought we had longer, I should have been more dogmatic about my scare story. We're going to see a repeat of 2008 and people will draw the similarities and realise that the real trigger to that crisis was the oil price.
I'll post my thoughts on yesterday's "Super Thursday" elections in the UK later, but for now the market news is much more significant. Watch this space.
Monday 25 April 2011
HOW ON EARTH did the Tories win OXWAB 2010? (Research extract from an analysis of safe seats and voter turnout... coming soon)
An example of such a seat is Oxford West and Abingdon (OXWAB), with a student population of around 8,000. In the 2005 general election, the incumbent, Dr Evan Harris (Lib Dem) retained the seat comfortably, with 24,336 votes compared to his closest rival Amanda McLean (Con) who polled 16,653. In the 2010 election, the Conservatives captured the seat narrowly, even though the final result does not fit perfectly with the changes in national support for the respective parties. In 2010 Evan Harris gained 23,730 votes- just 606 votes less than 5 years previously, but still despite the fact that nationally the Liberal Democrats polled 2% higher than in 2005. He was narrowly edged out by Nicola Blackwood (Con) who gained 23,906 votes. The Conservatives had gained an impressive 7,253 in OXWAB since 2005, despite the fact that nationally they only improved their share of the vote narrowly, up from 32.4% in 05, to 36.1%. It has to be asked where did the extra 7,253 votes come from? Given that UKIP gained 723 extra votes in 2010, many of which would come from traditional conservatives disgruntled with the Tory party’s move to the left, we could argue that the Conservatives needed to gain more like 7,750 votes.
In OXWAB in 2010, the Liberal Democrats ran a fierce campaign to encourage “progressives” – specifically supporters of the Labour Party and the Green Party (which has a potentially very high but largely unrealised level of local support given their 1st position polling at the – proportionally elected - European elections in Oxford in the year before). Despite this, the Labour Party’s only lost 2,726 votes in the constituency compared to 2005, whilst the Greens lost 907 votes. However, the Liberal Democrat’s courting of tactical “Green” votes in OXWAB could be seen as something of a mistake. Based on my experience of the Green Party in this constituency, it is certainly not the case that all of those people who backed the Greens in 2005 but did not in 2010 would have backed the Lib Dems. The Green Party has a very diverse support base, and although it is true that some of the 907 votes the Greens lost in 2010 would have gone to the Lib Dems, it is equally possible that some would have gone to the Tories, many of the Green’s supporters in this constituency being of a socially conservative background. Controversy surrounding Chris Goodall’s support of Nuclear Power may have lost him some “deep green” votes, but it is equally likely that he would have gained votes for the same reason. It would probably be safe to assume that the Conservatives would have gained between 200-300 of the lost Green votes in OXWAB, but this certainly leaves them with around 7,500 missing votes. Many of the 2,726 Labour voters would have backed the Lib Dem’s tactically, but a fair number would have simply abstained (a tradition of old Labour supporters who prefer not to betray their party). It is unreasonable to argue that more than 1,500 of the Labour votes would have backed the Tories, leaving them with another 6,000 votes or so to be found. It is possible that the Tories gained many of the 606 votes that Dr Harris lost, especially given the fact that many Lib Dem’s in the constituency voted Tory prior to 1997- as can be induced from analysis of prior results- or just generally knowing the area. Possibly 500 of these would have voted Tory- leaving them with 5,500 to find.
The turnout did increase by 3,880, but it would be very wrong to assume that all of these “new” voters voted Conservative. Indeed many would have voted because of the close nature of the campaign, whereas in 2005 the result seemed all but guaranteed for Evan Harris. However, the fact that a greater number of votes cast seems to indicate higher overall turnout is in fact an illusion, since turnout as a percentage of the electorate (which clearly grew substantially) actually fell between 2005 and 2010, down from 65.6% to 65.3%- which is very odd considering that nationally the turnout was up from 61.3% in 2005, to 65.1%- a trend which can be explained both by the close nature of the national campaign, raising the prospect of a hung parliament; and by the televised leaders debates which commentators thought significantly boosted public interest in the election.
The election of a Conservative Candidate in OXWAB (2010) is and will remain a mystery for many years to come. In the election campaign (as private sources in senior positions within all the campaigns have told me) all “progressive parties”- the Liberal Democrats, Greens, and Labour, were absolutely confident that Dr Evan Harris’ enormous majority could not possibly be fully eroded and his vote share would hold up very strongly given the inherently social-democratic nature of the Oxford electorate and the strong student population (who had until recently strongly tended to support the Liberal Democrats). Dr Harris was subject to a smear campaign by the Christian right, on his support for euthanasia and abortion, and by an Animal Rights campaigner for his support for medical research using Animals, yet these did not seem to be major factors- indeed the “Animal Protection” candidate- Keith Mann, received a paltry 143 votes, and Dr Harris vote did indeed hold up, as all the progressives had privately know it would.
The first question is where UKIP’s 723 votes came from. Oxford West and Abingdon is probably one of the most “intelligent” constituencies in the country, if not the most. It has a high population of academics, business people, professional public sector workers, and so on. What I am saying is that it is implausible to argue that UKIP’s 723 votes came from, for instance, the Greens- (UKIP deny climate change), or from Labour, or from the Lib Dems. At least 500 or these would have come from one of two sources- either the Tories, or form the 3,880 “new” voters who did not vote in 2005. Either way, less votes are available to explain where Nicola Blackwood got the extra 7,253 votes from. Less assume, just for the point of argument, no matter how ridiculous it may sound, that all of UKIP’s extra 723 votes came from the 907 votes the Green Party lost. Now obviously this assumption carries not even the shred of possibility, but I am just trying to demonstrate how odd Blackwood’s victory was. Now let’s assume that the other 184 votes the Greens lost went to the Conservatives- alternatively we would assume that the Conservatives got all of the 907 votes the Greens lost, but then we have to explain the 723 votes that UKIP gained, which would mostly come from disgruntled 2005 Tory voters, or from the 3,880 new voters, so we would be back to square one. Either way, the Conservatives would end up with 184 votes from the Greens towards there target of 7,253. Whoopee! Only 7,069 to go. It seems within the realms of possibility that the Conservatives might have gained many of the 606 votes the Liberal Democrat Dr Evan Harris lost- let’s say they got every single one. Still, 6,463 to go!
Until we proceed, let’s just take a look at the actual votes in 2005 and 2010.
2010:
Conservative – Nicola Blackwood – 23,906
Liberal Democrat – Evan Harris – 23,730
Labour – Richard Stevens – 5,999
UKIP – Paul Williams – 1,518
Green – Chris Goodall – 1,184
Animal Protection – Keith Mann – 143
(Turnout – 56,480)
2005:
Liberal Democrat – Evan Harris – 24,336
Conservative – Amanda McLean – 16,653
Labour – Antonia Bance – 8,725
Green – Tom Lines – 2,091
UKIP – Marcus Watney – 795
(Turnout – 52,600)
We can summarise the problem like this:
The Conservatives won 7,253 more votes. Where did they come from?
How many more votes were available?
1. 3,880 “new/extra” votes not cast in 2005.
2. 606 lost Liberal Democrat votes.
3. 2,726 lost Labour votes.
4. 907 lost Green votes.
5. -723 gained UKIP votes.
6. -143 gained Animal Protection votes.
7. That’s a total “pool” of extra potential Tory votes of 7,253. That’s not to say that all of the lost votes went directly to the Tories, for instance, the Greens might have gained 200 of the lost Lib Dem votes, but lost an extra 200 to the Tories. Another likely scenario is that many of the lost 2,726 Labour votes would have gone to the Lib Dems, but there would have been another 2,726 lost Lib Dem votes concealed by the tactical voting of the Labour voters for Dr Harris.
Unfortunately, the problem does not stop here. Let’s make some reasonable assumptions about how the votes might have changed hands. Assume the lost 907 Green votes went to the Lib Dems as a tactical vote to “keep the Tories out”; again, the same explanation could be applied to the 2,726 lost Labour votes, giving the Liberals an even bigger majority at the start – up from 24,336 to 27,969. As for the Animal Protection votes, I will make no assumption since it is a very specific issue, and Keith Mann only received 143 votes so I will assume these are from various sources. Now let’s assume that UKIP’s extra 723 votes came from the Tories, now all parties are dealt with and only the Liberal Democrats and the Tories are left in the race with 27,969 and 15,930 respectively. This does not seem altogether unreasonable. Sure, some Labour would have voted Tory, and some UKIP for Lib Dem, but these may cancel out. Just to be cautious, let’s say I got it wrong, and after you take out the votes transferred away from smaller parties (Labour, Green, UKIP) the Liberals have 1,969 less than expected (26,000) and the Tories have 17,899 as a result. Then you factor in the changes in the national popularity of both parties between 2005 and 2010. With the Lib Dems, they are up from 22% to 23%. The Lib Dems might be expected to get around 27,000 on a uniform swing, and the Tories are up from 32.4% to 36.1% they might be expected to win 20,000. The fact that we didn’t have the expected 7,000 majority is down to local issues (national issues being reflected in the headline national swing which I have already included). In other words around 3,500 Liberal Democrat votes must have swung to the Tories for local reasons – almost certainly as a result of the smear campaign against Dr Harris over Christian moral issues by an Anglican Bishop and Keith Mann’s leaflet brandishing him as “Dr Death” for his support of Animal research. That would pretty much fit with the end result. (Conservative – Nicola Blackwood – 23,906; Liberal Democrat – Evan Harris – 23,730)
What we have concluded is that a seemingly ultra safe seat was captured in an unexpected fashion by Nicola Blackwood (an evangelical Conservative Christian candidate), on a swing of 3,500 “moral majority” type votes. That’s truly shocking – and slightly unbelievable.
In OXWAB in 2010, the Liberal Democrats ran a fierce campaign to encourage “progressives” – specifically supporters of the Labour Party and the Green Party (which has a potentially very high but largely unrealised level of local support given their 1st position polling at the – proportionally elected - European elections in Oxford in the year before). Despite this, the Labour Party’s only lost 2,726 votes in the constituency compared to 2005, whilst the Greens lost 907 votes. However, the Liberal Democrat’s courting of tactical “Green” votes in OXWAB could be seen as something of a mistake. Based on my experience of the Green Party in this constituency, it is certainly not the case that all of those people who backed the Greens in 2005 but did not in 2010 would have backed the Lib Dems. The Green Party has a very diverse support base, and although it is true that some of the 907 votes the Greens lost in 2010 would have gone to the Lib Dems, it is equally possible that some would have gone to the Tories, many of the Green’s supporters in this constituency being of a socially conservative background. Controversy surrounding Chris Goodall’s support of Nuclear Power may have lost him some “deep green” votes, but it is equally likely that he would have gained votes for the same reason. It would probably be safe to assume that the Conservatives would have gained between 200-300 of the lost Green votes in OXWAB, but this certainly leaves them with around 7,500 missing votes. Many of the 2,726 Labour voters would have backed the Lib Dem’s tactically, but a fair number would have simply abstained (a tradition of old Labour supporters who prefer not to betray their party). It is unreasonable to argue that more than 1,500 of the Labour votes would have backed the Tories, leaving them with another 6,000 votes or so to be found. It is possible that the Tories gained many of the 606 votes that Dr Harris lost, especially given the fact that many Lib Dem’s in the constituency voted Tory prior to 1997- as can be induced from analysis of prior results- or just generally knowing the area. Possibly 500 of these would have voted Tory- leaving them with 5,500 to find.
The turnout did increase by 3,880, but it would be very wrong to assume that all of these “new” voters voted Conservative. Indeed many would have voted because of the close nature of the campaign, whereas in 2005 the result seemed all but guaranteed for Evan Harris. However, the fact that a greater number of votes cast seems to indicate higher overall turnout is in fact an illusion, since turnout as a percentage of the electorate (which clearly grew substantially) actually fell between 2005 and 2010, down from 65.6% to 65.3%- which is very odd considering that nationally the turnout was up from 61.3% in 2005, to 65.1%- a trend which can be explained both by the close nature of the national campaign, raising the prospect of a hung parliament; and by the televised leaders debates which commentators thought significantly boosted public interest in the election.
The election of a Conservative Candidate in OXWAB (2010) is and will remain a mystery for many years to come. In the election campaign (as private sources in senior positions within all the campaigns have told me) all “progressive parties”- the Liberal Democrats, Greens, and Labour, were absolutely confident that Dr Evan Harris’ enormous majority could not possibly be fully eroded and his vote share would hold up very strongly given the inherently social-democratic nature of the Oxford electorate and the strong student population (who had until recently strongly tended to support the Liberal Democrats). Dr Harris was subject to a smear campaign by the Christian right, on his support for euthanasia and abortion, and by an Animal Rights campaigner for his support for medical research using Animals, yet these did not seem to be major factors- indeed the “Animal Protection” candidate- Keith Mann, received a paltry 143 votes, and Dr Harris vote did indeed hold up, as all the progressives had privately know it would.
The first question is where UKIP’s 723 votes came from. Oxford West and Abingdon is probably one of the most “intelligent” constituencies in the country, if not the most. It has a high population of academics, business people, professional public sector workers, and so on. What I am saying is that it is implausible to argue that UKIP’s 723 votes came from, for instance, the Greens- (UKIP deny climate change), or from Labour, or from the Lib Dems. At least 500 or these would have come from one of two sources- either the Tories, or form the 3,880 “new” voters who did not vote in 2005. Either way, less votes are available to explain where Nicola Blackwood got the extra 7,253 votes from. Less assume, just for the point of argument, no matter how ridiculous it may sound, that all of UKIP’s extra 723 votes came from the 907 votes the Green Party lost. Now obviously this assumption carries not even the shred of possibility, but I am just trying to demonstrate how odd Blackwood’s victory was. Now let’s assume that the other 184 votes the Greens lost went to the Conservatives- alternatively we would assume that the Conservatives got all of the 907 votes the Greens lost, but then we have to explain the 723 votes that UKIP gained, which would mostly come from disgruntled 2005 Tory voters, or from the 3,880 new voters, so we would be back to square one. Either way, the Conservatives would end up with 184 votes from the Greens towards there target of 7,253. Whoopee! Only 7,069 to go. It seems within the realms of possibility that the Conservatives might have gained many of the 606 votes the Liberal Democrat Dr Evan Harris lost- let’s say they got every single one. Still, 6,463 to go!
Until we proceed, let’s just take a look at the actual votes in 2005 and 2010.
2010:
Conservative – Nicola Blackwood – 23,906
Liberal Democrat – Evan Harris – 23,730
Labour – Richard Stevens – 5,999
UKIP – Paul Williams – 1,518
Green – Chris Goodall – 1,184
Animal Protection – Keith Mann – 143
(Turnout – 56,480)
2005:
Liberal Democrat – Evan Harris – 24,336
Conservative – Amanda McLean – 16,653
Labour – Antonia Bance – 8,725
Green – Tom Lines – 2,091
UKIP – Marcus Watney – 795
(Turnout – 52,600)
We can summarise the problem like this:
The Conservatives won 7,253 more votes. Where did they come from?
How many more votes were available?
1. 3,880 “new/extra” votes not cast in 2005.
2. 606 lost Liberal Democrat votes.
3. 2,726 lost Labour votes.
4. 907 lost Green votes.
5. -723 gained UKIP votes.
6. -143 gained Animal Protection votes.
7. That’s a total “pool” of extra potential Tory votes of 7,253. That’s not to say that all of the lost votes went directly to the Tories, for instance, the Greens might have gained 200 of the lost Lib Dem votes, but lost an extra 200 to the Tories. Another likely scenario is that many of the lost 2,726 Labour votes would have gone to the Lib Dems, but there would have been another 2,726 lost Lib Dem votes concealed by the tactical voting of the Labour voters for Dr Harris.
Unfortunately, the problem does not stop here. Let’s make some reasonable assumptions about how the votes might have changed hands. Assume the lost 907 Green votes went to the Lib Dems as a tactical vote to “keep the Tories out”; again, the same explanation could be applied to the 2,726 lost Labour votes, giving the Liberals an even bigger majority at the start – up from 24,336 to 27,969. As for the Animal Protection votes, I will make no assumption since it is a very specific issue, and Keith Mann only received 143 votes so I will assume these are from various sources. Now let’s assume that UKIP’s extra 723 votes came from the Tories, now all parties are dealt with and only the Liberal Democrats and the Tories are left in the race with 27,969 and 15,930 respectively. This does not seem altogether unreasonable. Sure, some Labour would have voted Tory, and some UKIP for Lib Dem, but these may cancel out. Just to be cautious, let’s say I got it wrong, and after you take out the votes transferred away from smaller parties (Labour, Green, UKIP) the Liberals have 1,969 less than expected (26,000) and the Tories have 17,899 as a result. Then you factor in the changes in the national popularity of both parties between 2005 and 2010. With the Lib Dems, they are up from 22% to 23%. The Lib Dems might be expected to get around 27,000 on a uniform swing, and the Tories are up from 32.4% to 36.1% they might be expected to win 20,000. The fact that we didn’t have the expected 7,000 majority is down to local issues (national issues being reflected in the headline national swing which I have already included). In other words around 3,500 Liberal Democrat votes must have swung to the Tories for local reasons – almost certainly as a result of the smear campaign against Dr Harris over Christian moral issues by an Anglican Bishop and Keith Mann’s leaflet brandishing him as “Dr Death” for his support of Animal research. That would pretty much fit with the end result. (Conservative – Nicola Blackwood – 23,906; Liberal Democrat – Evan Harris – 23,730)
What we have concluded is that a seemingly ultra safe seat was captured in an unexpected fashion by Nicola Blackwood (an evangelical Conservative Christian candidate), on a swing of 3,500 “moral majority” type votes. That’s truly shocking – and slightly unbelievable.
Monday 11 April 2011
IMF cuts UK growth forecast to 1.75%, but...
Why do we need "growth" anyway?
Growth in the current economic climate will inevitably be counter productive.
Soaring commodity prices show excess demand, and growth is only going to drive that up and bring the economy down with it just like 2008 only worse.
In order to get jobs, we need to redistribute wealth through progressive tax and welfare policy.
The current "recovery" is both jobless and unsustainable. Supply of core materials- oil, metals, food, is inadequate to satisfy future growth for the time being.
We need investment in renewable energy and Green jobs, not manufacturing intensive, commodity intensive GDP growth, which at the moment is weighed down by the inflation it itself is causing.
Don't you think oil prices are high for a reason? Arab revolts.
Don't you think Arab revolts happened for a reason? High food prices.
Don't you think high food prices happened for a reason? High oil prices (lots of oil used in the production / distribution / packaging of food).
It's time to join up the dots and change track.
Growth in the current economic climate will inevitably be counter productive.
Soaring commodity prices show excess demand, and growth is only going to drive that up and bring the economy down with it just like 2008 only worse.
In order to get jobs, we need to redistribute wealth through progressive tax and welfare policy.
The current "recovery" is both jobless and unsustainable. Supply of core materials- oil, metals, food, is inadequate to satisfy future growth for the time being.
We need investment in renewable energy and Green jobs, not manufacturing intensive, commodity intensive GDP growth, which at the moment is weighed down by the inflation it itself is causing.
Don't you think oil prices are high for a reason? Arab revolts.
Don't you think Arab revolts happened for a reason? High food prices.
Don't you think high food prices happened for a reason? High oil prices (lots of oil used in the production / distribution / packaging of food).
It's time to join up the dots and change track.
EXCLUSIVE: UK COALITION GOVT ON BRINK OF BREAKDOWN
Tensions within the Liberal Democratic party are beginning to emerge - first with news that Nick Clegg's senior health advisor's insistence on changes to Conservative minister Andrew Landsley's controversial health bill were met with flat refusal, and now grass-roots members are informing me that the party has obsessed itself with winning the AV referendum because the party's actions in government are "too awful to bear". Now a senior Liberal Democrat councillor has asked Clegg to abandon the coalition as soon as possible to save the party from collapse at future elections.
The damp squib of a compromise regarding AV (a barely rehashed version of the current First Past The Post system that eliminates some wasted votes but is still disproportional on a nationwide basis) was one of the few redeeming qualities of the coalition agreement from the perspective of the Liberals. The Tories pointed out that since they had 5 times more seats, they deserved the bulk of "power", but this ignores the fact that in terms of actual votes, the ratio was more like 3:2 than 5:1. Now canvassing data suggests that the Liberals will loose the AV referendum, and the party is failing to get to grips with the idea that it wasn't much of a compromise after all. The Liberals risk being electorally disintegrated in May when voters select representatives in the Welsh Assembly and Scottish Parliament. Polls suggest that the Greens, historically much smaller, will comfortably beat the Liberals in both elections.
Reliable sources have informed me that the Liberals are on the brink of internal meltdown if the coalition is not abandoned very soon. The next few weeks should be politically exciting, with the prospect of another election in the summer or autumn certainly on the cards. If the national electorate witnesses the Liberals slump behind the Greens in May's regional elections, they may abandon the Liberals rank and file and recourse to a new protest vote option in the next general election.
The damp squib of a compromise regarding AV (a barely rehashed version of the current First Past The Post system that eliminates some wasted votes but is still disproportional on a nationwide basis) was one of the few redeeming qualities of the coalition agreement from the perspective of the Liberals. The Tories pointed out that since they had 5 times more seats, they deserved the bulk of "power", but this ignores the fact that in terms of actual votes, the ratio was more like 3:2 than 5:1. Now canvassing data suggests that the Liberals will loose the AV referendum, and the party is failing to get to grips with the idea that it wasn't much of a compromise after all. The Liberals risk being electorally disintegrated in May when voters select representatives in the Welsh Assembly and Scottish Parliament. Polls suggest that the Greens, historically much smaller, will comfortably beat the Liberals in both elections.
Reliable sources have informed me that the Liberals are on the brink of internal meltdown if the coalition is not abandoned very soon. The next few weeks should be politically exciting, with the prospect of another election in the summer or autumn certainly on the cards. If the national electorate witnesses the Liberals slump behind the Greens in May's regional elections, they may abandon the Liberals rank and file and recourse to a new protest vote option in the next general election.
Sunday 10 April 2011
Introduction
Draft Introduction to "The End of Greed"...
When it came to it, I realised that it had taken me an embarrassingly long time to realise what had really happened. I remember the news in 2008 about the mortgage meltdown and how the banking system had suddenly become overwhelmed by "toxic assets". In shock, I failed to join together the dots. The mainstream media told everyone that the whole economy had nearly collapsed, and had only been saved by massive government funded bailouts of the biggest global corporations in Banking and the Automotive industry- which is tightly linked to banking given that most Auto sales are financed by in house loans and the Auto companies make more money on the loans than on selling the vehicles themselves.
Then, 2 years later, I started to study economics, and began to realise that the simplistic story that we had been fed was certainly inadequate, and possibly even false. The idea that sub-prime mortgages had just "gone bad" and the shit hit the fan just didn't add up. Mortgages don't just "go bad", somebody has to stop paying. Sure, they might be more risky, but that wasn't the point, people had clearly been paying them for a while, the mortgage market had been growing smoothly for many years. Yes, it was a bubble. Bubbles burst, and if we are running a primary/elementary school science class it might be satisfactory to say that it just burst. But if we are running a global economy (which I'm not but other people do), then we have to ask why it burst. Why did so many working class Americans suddenly struggle to pay their mortgages?
All bubbles burst, but that's because something makes them pop. What was the pin that the housing market flew into in the year spanning 2007-2008? Why when the market started to collapse could banks not inflate a new bubble, as they had always done in the past to replace the old one? There were many unanswered questions which it seemed that absolutely nobody had addressed. I read many books in finance and economics, but it seemed as though they all gave the same monotonous commentary on what happened, not why it happened? It was as though the economists thought it was adequate to simply say that the banks hit a storm because of the mortgage meltdown, but not explain why the mortgages defaulted in the first place. Excuses such as that the mortgages were somehow exorbitant, even though they had been "exorbitant" for years and the sub-prime debtors had never had too much difficulty paying them. Nothing had changed in the market itself to explain away the crisis of 2008, so I had to start looking in other places.
In late 2010 I looked back at news stories on the internet from the time of crisis, and the years running up to it, and started to realise that the real picture was quite substantially different than the simplified story we had been told. There are no secrets in this book, although there are probably things which many people would rather you didn't know. The first thing that became clear to me was that it was not at all possible that the stock market crash and global recession that came after the mortgage meltdown were because of the mortgage issues alone. A series of other crises were going on at the same time, but the media either lost track of them or wilfully ignored them. The crisis did not result only from the stream of mortgage defaults and in any respect, if the powers that be had been paying attention to issues in the rest of the economy they would have been able to prepare in advance, and likely "smooth out" the crash by pursuing radically different policies long in advance.
In professional reports, an "executive summary", or something of that nature, to summarise the main findings, are always given at the beginning, before the evidence is given. In the case of a book, it would usually spoil things to reveal the plot in advance, but given the controversial nature of some of my evidence, it is necessary to present the findings in advance in order to justify the following chapters. Firstly, I am going to establish the view right now that we are heading right back to where we were in 2008, secondly, this has nothing to do with finance, but finance does help us to visualise the real issues which underpin today's economic predicament, and that the idea of a "financial crisis", or any kind of "debt crisis" is purely an excuse for a deeper crisis that the political elite refuse to admit.
> Current "austerity" measures have nothing to do with excessive debt, but inadequate prospects for the kind of future economic growth necessary to pay that debt.
> Growth is being threatened by a breakdown of the profit structure in our economy, resulting in low levels of investment. In a sense, this is a "crisis of capitalism".
> Cyclical commodity price "mountains" will repeatedly destroy demand in the economy, before soaring again as the economy recovers slightly.
> The most important of these commodities- oil- either cannot be produced at a faster rate (in other words it has "peaked") due to declines in old fields not being offset by new discoveries OR if it has not peaked then it has certainly peaked relative to demand.
> We are entering several years of soaring commodity prices which will lead to political unrest around the world, first in the poorest countries. NOTE: after I wrote this introduction, revolutions sparked off all across the Arab world.
> Commodity prices will eat so severely into business profits that many of the worlds biggest firms will become bankrupt, leading to a complete breakdown in the supply chains that globalization depends on.
> That in 2008 these trends occurred, with businesses posting profit warnings and in some cases declaring bankruptcy. At the same time, commodities were soaring.
> That in 2011/2012 this is repeating itself and each "repeat" will herald a more brutal crash because there will be less financial capacity to fund bailouts. Bailouts themselves are financed either directly or indirectly by borrowed money, and as inflation worsens due to the widening gap between demand and supply for crucial commodities, central banks will be forced to increase interest rates.
> That in several countries in Europe, and the US itself, the governments and central banks have run out of financial capacity to prevent another crisis at the end of this year or sometime next year.
When it came to it, I realised that it had taken me an embarrassingly long time to realise what had really happened. I remember the news in 2008 about the mortgage meltdown and how the banking system had suddenly become overwhelmed by "toxic assets". In shock, I failed to join together the dots. The mainstream media told everyone that the whole economy had nearly collapsed, and had only been saved by massive government funded bailouts of the biggest global corporations in Banking and the Automotive industry- which is tightly linked to banking given that most Auto sales are financed by in house loans and the Auto companies make more money on the loans than on selling the vehicles themselves.
Then, 2 years later, I started to study economics, and began to realise that the simplistic story that we had been fed was certainly inadequate, and possibly even false. The idea that sub-prime mortgages had just "gone bad" and the shit hit the fan just didn't add up. Mortgages don't just "go bad", somebody has to stop paying. Sure, they might be more risky, but that wasn't the point, people had clearly been paying them for a while, the mortgage market had been growing smoothly for many years. Yes, it was a bubble. Bubbles burst, and if we are running a primary/elementary school science class it might be satisfactory to say that it just burst. But if we are running a global economy (which I'm not but other people do), then we have to ask why it burst. Why did so many working class Americans suddenly struggle to pay their mortgages?
All bubbles burst, but that's because something makes them pop. What was the pin that the housing market flew into in the year spanning 2007-2008? Why when the market started to collapse could banks not inflate a new bubble, as they had always done in the past to replace the old one? There were many unanswered questions which it seemed that absolutely nobody had addressed. I read many books in finance and economics, but it seemed as though they all gave the same monotonous commentary on what happened, not why it happened? It was as though the economists thought it was adequate to simply say that the banks hit a storm because of the mortgage meltdown, but not explain why the mortgages defaulted in the first place. Excuses such as that the mortgages were somehow exorbitant, even though they had been "exorbitant" for years and the sub-prime debtors had never had too much difficulty paying them. Nothing had changed in the market itself to explain away the crisis of 2008, so I had to start looking in other places.
In late 2010 I looked back at news stories on the internet from the time of crisis, and the years running up to it, and started to realise that the real picture was quite substantially different than the simplified story we had been told. There are no secrets in this book, although there are probably things which many people would rather you didn't know. The first thing that became clear to me was that it was not at all possible that the stock market crash and global recession that came after the mortgage meltdown were because of the mortgage issues alone. A series of other crises were going on at the same time, but the media either lost track of them or wilfully ignored them. The crisis did not result only from the stream of mortgage defaults and in any respect, if the powers that be had been paying attention to issues in the rest of the economy they would have been able to prepare in advance, and likely "smooth out" the crash by pursuing radically different policies long in advance.
In professional reports, an "executive summary", or something of that nature, to summarise the main findings, are always given at the beginning, before the evidence is given. In the case of a book, it would usually spoil things to reveal the plot in advance, but given the controversial nature of some of my evidence, it is necessary to present the findings in advance in order to justify the following chapters. Firstly, I am going to establish the view right now that we are heading right back to where we were in 2008, secondly, this has nothing to do with finance, but finance does help us to visualise the real issues which underpin today's economic predicament, and that the idea of a "financial crisis", or any kind of "debt crisis" is purely an excuse for a deeper crisis that the political elite refuse to admit.
> Current "austerity" measures have nothing to do with excessive debt, but inadequate prospects for the kind of future economic growth necessary to pay that debt.
> Growth is being threatened by a breakdown of the profit structure in our economy, resulting in low levels of investment. In a sense, this is a "crisis of capitalism".
> Cyclical commodity price "mountains" will repeatedly destroy demand in the economy, before soaring again as the economy recovers slightly.
> The most important of these commodities- oil- either cannot be produced at a faster rate (in other words it has "peaked") due to declines in old fields not being offset by new discoveries OR if it has not peaked then it has certainly peaked relative to demand.
> We are entering several years of soaring commodity prices which will lead to political unrest around the world, first in the poorest countries. NOTE: after I wrote this introduction, revolutions sparked off all across the Arab world.
> Commodity prices will eat so severely into business profits that many of the worlds biggest firms will become bankrupt, leading to a complete breakdown in the supply chains that globalization depends on.
> That in 2008 these trends occurred, with businesses posting profit warnings and in some cases declaring bankruptcy. At the same time, commodities were soaring.
> That in 2011/2012 this is repeating itself and each "repeat" will herald a more brutal crash because there will be less financial capacity to fund bailouts. Bailouts themselves are financed either directly or indirectly by borrowed money, and as inflation worsens due to the widening gap between demand and supply for crucial commodities, central banks will be forced to increase interest rates.
> That in several countries in Europe, and the US itself, the governments and central banks have run out of financial capacity to prevent another crisis at the end of this year or sometime next year.
Friday 8 April 2011
US heads towards meltdown (again).
Treasury Secretary Timothy Geithner warned it would happen. The Republicans warned it would happen. Obama warned of a shutdown, hoping that the media would just about buy it because that's what happened last time the Debt Limit expired amid the dispute between Clinton and Gingrich in 1995... but the US government could be about to default as well as shutdown.
Firstly, the reason why a shutdown is neccessary because it is the only way to service the treasuries interest burden without issuing new bonds- given that this is prohibited since their is no more headroom under the legally defined debt ceiling that Congress has failed to raise. In other words, all "deficit" spending- which accounts for about half of the US government's $4trn budget, will have to be eliminated immediately, by temporarily laying off staff and suspending less than vital services.
This will in effect remove 20% of the economy overnight. Whilst workers and benefit claimaints will still receive their checks, if the government stops spending money in the economy, the banks will run out of money to cash these with so they will in a sense become worthless. Inflation could jump significantly if workers and welfare receipients panick, especially if the shutdown is prolonged.
However, shutdown can only solve the problem temporarily. The treasury still relies on emergency financial measures, such as unsustainably raiding state pension schemes and cash reserves. They are quickly running out of emergency measures, and given the current state of Impasse in Washington they are quickly running out of schemes to prop up the debt. Up to this point Quantative Easing - financed by newly created money from the Federal Reserve bank - and organised by Goldman Sachs - has propped up the monster $2trn deficit. However, this has been done by using the new money to buy government debt. The only reason why the Fed is prepared to do this is because they receive an interest return. If the Treasury is prohibited from further borrowing then it follows that there can be no more QE, and stocks could start to plummet. The only alternative is a new type of "direct-QE" where the newly printed money is used to pay up front for government services, instead of buying long term debt. This choice would be rapidly inflationary, as the money would leak much faster into the economy. This would greatly disturb the global financial markets and herald a second coming of the Financial Crisis of 2008 that was only stopped from complete meltdownb by the intervention of government borrowing. That wont happen again in the current situation.
Firstly, the reason why a shutdown is neccessary because it is the only way to service the treasuries interest burden without issuing new bonds- given that this is prohibited since their is no more headroom under the legally defined debt ceiling that Congress has failed to raise. In other words, all "deficit" spending- which accounts for about half of the US government's $4trn budget, will have to be eliminated immediately, by temporarily laying off staff and suspending less than vital services.
This will in effect remove 20% of the economy overnight. Whilst workers and benefit claimaints will still receive their checks, if the government stops spending money in the economy, the banks will run out of money to cash these with so they will in a sense become worthless. Inflation could jump significantly if workers and welfare receipients panick, especially if the shutdown is prolonged.
However, shutdown can only solve the problem temporarily. The treasury still relies on emergency financial measures, such as unsustainably raiding state pension schemes and cash reserves. They are quickly running out of emergency measures, and given the current state of Impasse in Washington they are quickly running out of schemes to prop up the debt. Up to this point Quantative Easing - financed by newly created money from the Federal Reserve bank - and organised by Goldman Sachs - has propped up the monster $2trn deficit. However, this has been done by using the new money to buy government debt. The only reason why the Fed is prepared to do this is because they receive an interest return. If the Treasury is prohibited from further borrowing then it follows that there can be no more QE, and stocks could start to plummet. The only alternative is a new type of "direct-QE" where the newly printed money is used to pay up front for government services, instead of buying long term debt. This choice would be rapidly inflationary, as the money would leak much faster into the economy. This would greatly disturb the global financial markets and herald a second coming of the Financial Crisis of 2008 that was only stopped from complete meltdownb by the intervention of government borrowing. That wont happen again in the current situation.
Sunday 3 April 2011
OBR admits government debt slowdown must be met by faster private sector debt growth.
This appeared as an extended response to the Guardian's article which can be found at http://www.guardian.co.uk/politics/2011/apr/02/family-debt-burden-government-figures?commentpage=last#end-of-comments.
What people don't realise is that the total level of debt, including state debt and private debt must always grow quick enough to pay the interest to service it.
The fractional reserve monetary system is essentially a giant-Ponzi scheme because it requires infinite growth. All money is deposited and then constantly re loaned at interest to cover the risk that it wont be repaid.
However, the charging of interest means that there is always more debt that money, because "money" comprises only of the "principle" or what is loaned, but the interest owed has to be leached off to pay the debt, this requires a constant expansion of the money system.
All money is debt, and all of the money the government has ever spent and will ever spend is borrowed, just not all of it directly by the government, most of it is borrowed by somebody else first. This ignores that fact that until they started Quantitative Easing, about 97% of all money was created as debt.
Now that the economy has faltered, the necessary expansion of the money supply to pay old debts has become unsustainable, causing inflation, and bankruptcies.
Our economic system is designed on the premise of constant monetary growth supported by constant consumption growth (to give the money value). As we saw in 2008, this can quickly stumble towards collapse if it cannot be sustained.
Every deficit reducing policy the government has concocted will only boost debt in other parts of the economy. When preaching that their debt was too high, they forgot to tell you that private debt, in the other half of the economy, was about 12 times greater!
When they cut spending on universities to slow the growth of government debt, student debt must grow quicker. When they cut spending on the NHS and outsource to private providers, the private providers take on more debt to grow their businesses. When they reduce spending on welfare, consumers must either take on more debt, or the businesses that loose their custom must borrow more to compensate for lost sales revenues. This government wont reduce debt at all (although it doesn't actually plan to- it just wants to reduce the deficit, the rate at which the debt grows). It will just widen the gap between state debt and private debt. This is so foolish because it is absolutely clear that when borrowing is organised by the government, is costs much less than when it is done by for example students, or businesses, or pretty anyone other than the government for that matter.
When you hear about the risk of sovereign debt defaults, this is not because the bond markets are running out of money. They can't, because they just create it at the point that the loan is issued. What is happening is that the whole system has become unsustainable, and the evidence cannot be clearer than rocketing commodity prices- which as it happens is exactly what happened in the run up to the 2008 crisis. Our growth dependant financial system is finally running up against the real world constraints of scarce resources. For years, economists arrogantly assumed that the basic contradiction between infinite human wants and finite resources could ingeniously be solved by financial wizardry. You can create money, but you cant create commodities.
What people don't realise is that the total level of debt, including state debt and private debt must always grow quick enough to pay the interest to service it.
The fractional reserve monetary system is essentially a giant-Ponzi scheme because it requires infinite growth. All money is deposited and then constantly re loaned at interest to cover the risk that it wont be repaid.
However, the charging of interest means that there is always more debt that money, because "money" comprises only of the "principle" or what is loaned, but the interest owed has to be leached off to pay the debt, this requires a constant expansion of the money system.
All money is debt, and all of the money the government has ever spent and will ever spend is borrowed, just not all of it directly by the government, most of it is borrowed by somebody else first. This ignores that fact that until they started Quantitative Easing, about 97% of all money was created as debt.
Now that the economy has faltered, the necessary expansion of the money supply to pay old debts has become unsustainable, causing inflation, and bankruptcies.
Our economic system is designed on the premise of constant monetary growth supported by constant consumption growth (to give the money value). As we saw in 2008, this can quickly stumble towards collapse if it cannot be sustained.
Every deficit reducing policy the government has concocted will only boost debt in other parts of the economy. When preaching that their debt was too high, they forgot to tell you that private debt, in the other half of the economy, was about 12 times greater!
When they cut spending on universities to slow the growth of government debt, student debt must grow quicker. When they cut spending on the NHS and outsource to private providers, the private providers take on more debt to grow their businesses. When they reduce spending on welfare, consumers must either take on more debt, or the businesses that loose their custom must borrow more to compensate for lost sales revenues. This government wont reduce debt at all (although it doesn't actually plan to- it just wants to reduce the deficit, the rate at which the debt grows). It will just widen the gap between state debt and private debt. This is so foolish because it is absolutely clear that when borrowing is organised by the government, is costs much less than when it is done by for example students, or businesses, or pretty anyone other than the government for that matter.
When you hear about the risk of sovereign debt defaults, this is not because the bond markets are running out of money. They can't, because they just create it at the point that the loan is issued. What is happening is that the whole system has become unsustainable, and the evidence cannot be clearer than rocketing commodity prices- which as it happens is exactly what happened in the run up to the 2008 crisis. Our growth dependant financial system is finally running up against the real world constraints of scarce resources. For years, economists arrogantly assumed that the basic contradiction between infinite human wants and finite resources could ingeniously be solved by financial wizardry. You can create money, but you cant create commodities.
Thursday 31 March 2011
This time we are in for the real deal.
Most people just don't understand how bad it nearly got. Whilst everyone who has been paying any attention to the news over the last 3 years is perfectly well aware that the banking system crashed in 2008, most think of it as significant, but not earth shattering.
Once it is understood how bad it could have got, why it needed rescuing, and why it wont be possible to rescue it next time, it only requires one last ingredient- the understanding that there will be a "next time" and that it is coming very soon, to start up a cauldron of real fear.
I'll try and make it as clear as possible. For many years the world economy had been in a state of deep sleep on a runaway train, being kept alive through a drip feed of "credit", but so subdued by its own apparent success that it arrogantly behaved as if there was no danger. The problem was that it became hungrier and hungrier, polluting the planet faster and faster, and using finite resources and land faster and faster. As supply shot up and demand faltered, we saw the oil price spike, the food price spike, the price of metals spike, you name it, it spiked. What happened is that all of these made the production of others that were related to them grow even faster. As the commodity crisis of 2007 spiralled out of control, some of the worlds biggest firms issues profit warnings, which led to jitters in the stock and equity markets. As commodity inflation eroded profits, firms laid off workers, who were already struggling to pay higher living costs. Then, everybody stopped paying their debts, and the economy sank into recession, and this rest is history.
We must be clear that the recession certainly can not have been caused by the banking crisis. In America for instance, the first declines in GDP figures were posted in the summer of 2008, just as the oil price reached an all time high of $150 dollars. The American "commuter" way of life was hit hard, and this only worsened the situation with the sub prime credit markets. The banking crisis actually happened in the Autumn, so it is simply false to argue that it caused the decline in GDP, since it actually happened after this had started. The banking crisis occurred because banks balance sheets became corrupted by asset write off (they had to write off bad debt that had defaulted) meaning that they had less money left over to lend. What's more; many banks were operating on the fringe of financial viability, preferring to lend borrowed money rather than use their own cash. This was an inherently risky strategy that only worked as long as there was growth. The problem was, growth stopped. Many banks completely ran out of money and had to be saved by emergency government loans. In the UK, Royal Bank of Scotland was 2 hours away from having empty cash points. As desperate depositors would have rushed from bank to bank, the "contagion" would have spread like some sort of super-virus, and we would have seen society descend into mob-rule within days.
As the recession clamped down, demand fell back within the supply capacity of vital commodities, and consumers were temporarily relieved by the crashing price and could afford to buy more again. So what happened is commodity prices started to soar yet again and have followed the recovery upwards through 2009, 2010, and now the early part of 2011. It is becoming obvious that these prices have got too high again, and companies (and now the indebted public sector) are laying off workers and posting profit warnings (such as the electronics retailer Dixons/Currys did in the UK three days ago). This is just the start of a near repeat of the 2008 near miss, but but this time, the collapse will be the real deal, because governments are not in a position to provide more bailout money. Debt is now a problem in every sector of the economy, firstly because it is now much larger, and secondly there is extremely little prospect of the economy growing fast enough to pay the debt. For instance, the UK's already austere public spending plans for the next 4 years are based on the assumption of 3% a year GDP growth- something that looks increasingly unlikely. When the next financial crisis hits (be it another banking crisis, or a sovereign debt crisis in Europe) everybody will be so overwhelmed by debt, there will be practically nobody left to go to for a bailout, and the global economic and financial system will just start to rapidly shut down. It's likely to occur later this year or next. Prepare.
Once it is understood how bad it could have got, why it needed rescuing, and why it wont be possible to rescue it next time, it only requires one last ingredient- the understanding that there will be a "next time" and that it is coming very soon, to start up a cauldron of real fear.
I'll try and make it as clear as possible. For many years the world economy had been in a state of deep sleep on a runaway train, being kept alive through a drip feed of "credit", but so subdued by its own apparent success that it arrogantly behaved as if there was no danger. The problem was that it became hungrier and hungrier, polluting the planet faster and faster, and using finite resources and land faster and faster. As supply shot up and demand faltered, we saw the oil price spike, the food price spike, the price of metals spike, you name it, it spiked. What happened is that all of these made the production of others that were related to them grow even faster. As the commodity crisis of 2007 spiralled out of control, some of the worlds biggest firms issues profit warnings, which led to jitters in the stock and equity markets. As commodity inflation eroded profits, firms laid off workers, who were already struggling to pay higher living costs. Then, everybody stopped paying their debts, and the economy sank into recession, and this rest is history.
We must be clear that the recession certainly can not have been caused by the banking crisis. In America for instance, the first declines in GDP figures were posted in the summer of 2008, just as the oil price reached an all time high of $150 dollars. The American "commuter" way of life was hit hard, and this only worsened the situation with the sub prime credit markets. The banking crisis actually happened in the Autumn, so it is simply false to argue that it caused the decline in GDP, since it actually happened after this had started. The banking crisis occurred because banks balance sheets became corrupted by asset write off (they had to write off bad debt that had defaulted) meaning that they had less money left over to lend. What's more; many banks were operating on the fringe of financial viability, preferring to lend borrowed money rather than use their own cash. This was an inherently risky strategy that only worked as long as there was growth. The problem was, growth stopped. Many banks completely ran out of money and had to be saved by emergency government loans. In the UK, Royal Bank of Scotland was 2 hours away from having empty cash points. As desperate depositors would have rushed from bank to bank, the "contagion" would have spread like some sort of super-virus, and we would have seen society descend into mob-rule within days.
As the recession clamped down, demand fell back within the supply capacity of vital commodities, and consumers were temporarily relieved by the crashing price and could afford to buy more again. So what happened is commodity prices started to soar yet again and have followed the recovery upwards through 2009, 2010, and now the early part of 2011. It is becoming obvious that these prices have got too high again, and companies (and now the indebted public sector) are laying off workers and posting profit warnings (such as the electronics retailer Dixons/Currys did in the UK three days ago). This is just the start of a near repeat of the 2008 near miss, but but this time, the collapse will be the real deal, because governments are not in a position to provide more bailout money. Debt is now a problem in every sector of the economy, firstly because it is now much larger, and secondly there is extremely little prospect of the economy growing fast enough to pay the debt. For instance, the UK's already austere public spending plans for the next 4 years are based on the assumption of 3% a year GDP growth- something that looks increasingly unlikely. When the next financial crisis hits (be it another banking crisis, or a sovereign debt crisis in Europe) everybody will be so overwhelmed by debt, there will be practically nobody left to go to for a bailout, and the global economic and financial system will just start to rapidly shut down. It's likely to occur later this year or next. Prepare.
Saturday 19 March 2011
"Computational capitalism" on the brink as Japan meltdown threatens supply chains already weakened by sky-high oil costs.
The news last week of the ongoing meltdown at the toxic fuel-rod infested Fukushima complex in Japan shook world markets to their core, and G7 leaders raced to fight off Yen surge as currency jitters hit the banking system like a ton of dynamite.
And now, as the Fukushima situation seems to have gone into an eerie sort of nuclear coma, where nobody really knows what is going on, but we hear that traces of radiation now contaminate Tokyo water supply, that Spinach from 100km away from the plant was also affected, and that life in Tokyo, home to 35 million, is expected to be crippled by massive blackouts any day now; we hear that "Operation Odyssey Dawn" is underway in Libya to help the people fight off Qaddafi's crazed onslaught.
If either of these little issues gets resolved; (and I'll come back to why they probably will not in another post) we have a host of other crisis that brew in the background, playing a sneaky sort of waiting game until space in the news to start covering them again, and until the politicians and the movers and shakers and spivs and bankers and fund managers in the financial centers of the world start to get bored again.
To quickly reel them off; there is the European debt crisis- the fact that Greece and Portugal's debt has been downgraded again and Greece now pays just as much for its debt as it did when it was bailed out last year. Then there is an oil crunch, which could happen any week, any month now. The rising oil price posed a threat to the global economy, much like 2008, and that was before the trouble in the Middle East kicked off. Any further disruptions, or any intensification of Saudi unrest could unleash the price volcano needed to cripple economies left, right and center.
And then there is America. The ever obstructive Republicans are pushing the economy to the brink of disaster by refusing to approve more borrowing until April 15th, right when the Treasury is going to run out of money. Timothy Geithner, the Treasury Secretary has warned John Boehner, Republican House Leader, that the US would default if more debt is not quickly approved by congress. In the long term, the US debt needs to be brought down to prevent interest costs swelling to overwhelm the Federal budget- but there is no need to play cards with the economy like the GOP are doing right now. The "red threat" from the Republican's also manifests itself in a nasty piece of legislative work sponsored by presidential hopeful Newt Gingrich, that would allow states to go bankrupt. It is predicted by many, if not the majority, of financial analysts, that within days of this bill passing (and it could well pass) we would see a wave of individual states declaring bankruptcy, immediately wiping out millions of jobs, pensions, and welfare funds. The dramatic scenes in Wisconsin's state capital, where even the Police force joined in "on the side" of the protesters, could repeat themselves in a host of other states within the coming weeks and months.
But right now, there are more pressing concerns. Firstly, the finer details of the situation in Japan are at least hazy, but we can be absolutely certain of a few things; that the rebuilding efforts will require hundreds of billions if not trillions of foreign assets that Japanese insurers are required to hold abroad to be liquidated (sold to raise cash). It is no longer cheap to rebuild entire countries, an Japan's extra demand for oil which stems from it's nuclear crisis will only worsen the cost of rebuilding. Repairing Japan to it's former glory, will if it ever happens, require an enormous amount of money. If Japan is not fixed up quickly, and global supply chains continue to feel the loss of Japan's big industries, then the Japan situation could wipe out investments in the West. On the other hand, if Japan repatriates its foreign investments too quickly, this will also wipe out investments in the West. The threat to bank equity resulting from Japan's 9.0 earthquake could not have come at a worse time. Indeed, the FSA (Financial Services Authority) in the UK last week announced a series of "stress tests" to investigate whether banks would be able to withstand a further collapse in property values resulting from a double dip recession. My research suggests that banks will both fail this stress test, and that the Japan situation could quickly drain nearly all of their equity (the differences between assets and liabilities that allows banks to survive). The equity of Britain's greatest banks such as Lloyds TSB, Barclays, and RBS, is wafer thin.
In their latest annual report; RBS, the bank that told Chancellor Alistair Darling in 2008 that they were within hours of running out of cash, which could have brought the entire world to its knees, published it's annual report at the end of December last year. Their equity is just under 5.3% (the gap between assets and liabilities), meaning that any fall in the value of their assets, or increase in the value of their liabilities, or a combination, of this magnitude, would force them to shut both their doors and their cash-points. Also, the ratio between their cash reserves and the money value of customer accounts is about 1:9. A run on the banks is unlikely, but as George Osborne's fiscal axe sharpens by the day, this ratio could be pushed to breaking point, as public sector workers are laid off in the hundreds of thousands, many with little more than a months salary in savings, who would be forced to go to the bank to get by. If this ratio got much worse, it is highly likely that RBS, and other banks in a similar situation, would have to rapidly tighten lending, leading to a downward spiral the likes of which we saw in 2008.
In this case, the Bank of England could not, and would not, simply print the money to bail them out. "Quantitative easing", as it is called, has not resulted in skyrocketing inflation up to now, because it has mostly involved the flooding of new money "non liquid" assets such as property, meaning that the money only permeates through to consumer spending very slowly. The true scale of all of these problems will only become clearer in the current weeks and months, because the world leaders have run out of schemes to prop up the global house of cards. The game is pretty much up; we are truly out of time.
And now, as the Fukushima situation seems to have gone into an eerie sort of nuclear coma, where nobody really knows what is going on, but we hear that traces of radiation now contaminate Tokyo water supply, that Spinach from 100km away from the plant was also affected, and that life in Tokyo, home to 35 million, is expected to be crippled by massive blackouts any day now; we hear that "Operation Odyssey Dawn" is underway in Libya to help the people fight off Qaddafi's crazed onslaught.
If either of these little issues gets resolved; (and I'll come back to why they probably will not in another post) we have a host of other crisis that brew in the background, playing a sneaky sort of waiting game until space in the news to start covering them again, and until the politicians and the movers and shakers and spivs and bankers and fund managers in the financial centers of the world start to get bored again.
To quickly reel them off; there is the European debt crisis- the fact that Greece and Portugal's debt has been downgraded again and Greece now pays just as much for its debt as it did when it was bailed out last year. Then there is an oil crunch, which could happen any week, any month now. The rising oil price posed a threat to the global economy, much like 2008, and that was before the trouble in the Middle East kicked off. Any further disruptions, or any intensification of Saudi unrest could unleash the price volcano needed to cripple economies left, right and center.
And then there is America. The ever obstructive Republicans are pushing the economy to the brink of disaster by refusing to approve more borrowing until April 15th, right when the Treasury is going to run out of money. Timothy Geithner, the Treasury Secretary has warned John Boehner, Republican House Leader, that the US would default if more debt is not quickly approved by congress. In the long term, the US debt needs to be brought down to prevent interest costs swelling to overwhelm the Federal budget- but there is no need to play cards with the economy like the GOP are doing right now. The "red threat" from the Republican's also manifests itself in a nasty piece of legislative work sponsored by presidential hopeful Newt Gingrich, that would allow states to go bankrupt. It is predicted by many, if not the majority, of financial analysts, that within days of this bill passing (and it could well pass) we would see a wave of individual states declaring bankruptcy, immediately wiping out millions of jobs, pensions, and welfare funds. The dramatic scenes in Wisconsin's state capital, where even the Police force joined in "on the side" of the protesters, could repeat themselves in a host of other states within the coming weeks and months.
But right now, there are more pressing concerns. Firstly, the finer details of the situation in Japan are at least hazy, but we can be absolutely certain of a few things; that the rebuilding efforts will require hundreds of billions if not trillions of foreign assets that Japanese insurers are required to hold abroad to be liquidated (sold to raise cash). It is no longer cheap to rebuild entire countries, an Japan's extra demand for oil which stems from it's nuclear crisis will only worsen the cost of rebuilding. Repairing Japan to it's former glory, will if it ever happens, require an enormous amount of money. If Japan is not fixed up quickly, and global supply chains continue to feel the loss of Japan's big industries, then the Japan situation could wipe out investments in the West. On the other hand, if Japan repatriates its foreign investments too quickly, this will also wipe out investments in the West. The threat to bank equity resulting from Japan's 9.0 earthquake could not have come at a worse time. Indeed, the FSA (Financial Services Authority) in the UK last week announced a series of "stress tests" to investigate whether banks would be able to withstand a further collapse in property values resulting from a double dip recession. My research suggests that banks will both fail this stress test, and that the Japan situation could quickly drain nearly all of their equity (the differences between assets and liabilities that allows banks to survive). The equity of Britain's greatest banks such as Lloyds TSB, Barclays, and RBS, is wafer thin.
In their latest annual report; RBS, the bank that told Chancellor Alistair Darling in 2008 that they were within hours of running out of cash, which could have brought the entire world to its knees, published it's annual report at the end of December last year. Their equity is just under 5.3% (the gap between assets and liabilities), meaning that any fall in the value of their assets, or increase in the value of their liabilities, or a combination, of this magnitude, would force them to shut both their doors and their cash-points. Also, the ratio between their cash reserves and the money value of customer accounts is about 1:9. A run on the banks is unlikely, but as George Osborne's fiscal axe sharpens by the day, this ratio could be pushed to breaking point, as public sector workers are laid off in the hundreds of thousands, many with little more than a months salary in savings, who would be forced to go to the bank to get by. If this ratio got much worse, it is highly likely that RBS, and other banks in a similar situation, would have to rapidly tighten lending, leading to a downward spiral the likes of which we saw in 2008.
In this case, the Bank of England could not, and would not, simply print the money to bail them out. "Quantitative easing", as it is called, has not resulted in skyrocketing inflation up to now, because it has mostly involved the flooding of new money "non liquid" assets such as property, meaning that the money only permeates through to consumer spending very slowly. The true scale of all of these problems will only become clearer in the current weeks and months, because the world leaders have run out of schemes to prop up the global house of cards. The game is pretty much up; we are truly out of time.
Monday 7 March 2011
BREIFING: "The timebomb with multiple fuses."
As a quick update to all readers (the last time I checked there are only 23 unique hits for the average day and still only 1 subscriber, come on guys)...
We are at the moment playing a waiting game, as any one of several "sticks of dynamite" could ignite world events at any time. These "sticks of dynamite" are countries that are in a potentially very vulnerable ECONOMIC situation, or a potentially very vulnerable POLITICAL situation.
They can be identified as:
> Saudi Arabia (political unrest)
> Greece & the other PIGS (debt crisis brewing after credit rating downgrade)
> China (political unrest)
Saudi Arabia
Tensions in the desert land's eastern Provence, where lies the crown jewel of Saudi Oil, the 5.7 million barrel a day Ghawar field, are running high. Growing unrest amongst the countries Shia majority has manifested itself over the last few days in protests in several small towns. The House of Saud has mustered tens of thousands of Aramco (state oil company) militia men to guard the oil industry, particularly the Ras Tanura facility which processes 10% of the world's crude. Any disruption here, or to any of the major oil rigs in the stalwart Ghawar and Shedgum reserves would send oil markets spiraling in what could be described as an inflationary "volcano". The Saud's and the Aramco oil company are right to be concerned, for a "day of rage" has been called by anti government protesters for the 11th of March, inspired by action taken by complainants in other parts of the Arab world. Any significant political disruption in Saudi Arabia will not only panic the speculators (who are simply making guesses about the future), but may well spark the introduction of oil rationing. Nearly all of the world's spare production capacity is controlled by the Saudi's, who might be able to boost production for up to 2 years from the current 8-9.5 million barrels a day to 10-11.5 million barrels a day. After then, the decline rates in other fields will have canceled out the spare capacity in the small pockets of oil that they have spent the last 5 years bringing on stream.
Greece and the other PIGS
Greece's debt matures more quickly than most other European countries, because it has found it difficult recently (no wonder) to borrow long term. The news comes today that the credit rating agency Moodys have downgraded Greece's sovereign debt again from Ba1 to B1, placing them further in the "junk" investment zone, and suggesting that a some sort of default within the coming years is likely. The situation could rapidly spiral out of control if the interest rate that the Greek government must pay on the debt that it must both frequently renew, and frequently add to given it's enormous fiscal deficit, shoots up again. Investors might react to Moodys credit signal by rushing to sell off Greek debt, resulting in a collapse in confidence in the Greek government, causing higher, more punishing demands for interest. According to The Economist newspaper, the average maturity length of Greek debt is 7.7 years. Ignoring the deficit (the amount of money Greece borrows in addition to its outstanding debt- which it can only afford to renew "rollover" rather than repay) Greece's national debt stands at roughly 110% of GDP. Greece must "rollover" debt equivalent to 14% of it's GDP every year, and this "maintenance cost" is rising by the day. The Greek government is still borrowing close to half of every euro it spends. The economy is also crashing fast, with the latest figures indicating an annual decline rate of 6.6%. This of course expands the relationship between debt and GDP. Even though the Greek government is paying a fat load of interest for it's debt, it is still borrowing more than it pays to maintain the debt. Investors may soon become dissatisfied with Greece's unsatisfactory attempts to trim their ballooning deficit. Interest repayments alone could quickly exceed more than 10% of Greece's GDP, acting as an even greater drain on the money Greece could be investing domestically. If the Greek debt crisis worsens- or more likely "when" the Greek debt crisis worsens, other highly indebted countries- Portugal, Italy and Spain better watch their backs. There is only so much money in the bailout fund, and if contagion spread to these, the Europe could rapidly topple into a deep depression.
China
If anything materializes of the apparently brewing "Jasmine Revolt", the whole world will find itself in a great deal of mess. China has been the great miracle of the last decade, enjoying miraculously rapid GDP growth. Some have started to doubt the figures that the government are putting out, and there are growing complaints about food price inflation- partly driven by oil- partly by the population boom- and secondly, environmental concerns are growing, as China's highways clog to the point where it is said that insects walk faster than motorcars. China is probably unlikely to go first, but if Saudi Arabia does, then you never now...
We are at the moment playing a waiting game, as any one of several "sticks of dynamite" could ignite world events at any time. These "sticks of dynamite" are countries that are in a potentially very vulnerable ECONOMIC situation, or a potentially very vulnerable POLITICAL situation.
They can be identified as:
> Saudi Arabia (political unrest)
> Greece & the other PIGS (debt crisis brewing after credit rating downgrade)
> China (political unrest)
Saudi Arabia
Tensions in the desert land's eastern Provence, where lies the crown jewel of Saudi Oil, the 5.7 million barrel a day Ghawar field, are running high. Growing unrest amongst the countries Shia majority has manifested itself over the last few days in protests in several small towns. The House of Saud has mustered tens of thousands of Aramco (state oil company) militia men to guard the oil industry, particularly the Ras Tanura facility which processes 10% of the world's crude. Any disruption here, or to any of the major oil rigs in the stalwart Ghawar and Shedgum reserves would send oil markets spiraling in what could be described as an inflationary "volcano". The Saud's and the Aramco oil company are right to be concerned, for a "day of rage" has been called by anti government protesters for the 11th of March, inspired by action taken by complainants in other parts of the Arab world. Any significant political disruption in Saudi Arabia will not only panic the speculators (who are simply making guesses about the future), but may well spark the introduction of oil rationing. Nearly all of the world's spare production capacity is controlled by the Saudi's, who might be able to boost production for up to 2 years from the current 8-9.5 million barrels a day to 10-11.5 million barrels a day. After then, the decline rates in other fields will have canceled out the spare capacity in the small pockets of oil that they have spent the last 5 years bringing on stream.
Greece and the other PIGS
Greece's debt matures more quickly than most other European countries, because it has found it difficult recently (no wonder) to borrow long term. The news comes today that the credit rating agency Moodys have downgraded Greece's sovereign debt again from Ba1 to B1, placing them further in the "junk" investment zone, and suggesting that a some sort of default within the coming years is likely. The situation could rapidly spiral out of control if the interest rate that the Greek government must pay on the debt that it must both frequently renew, and frequently add to given it's enormous fiscal deficit, shoots up again. Investors might react to Moodys credit signal by rushing to sell off Greek debt, resulting in a collapse in confidence in the Greek government, causing higher, more punishing demands for interest. According to The Economist newspaper, the average maturity length of Greek debt is 7.7 years. Ignoring the deficit (the amount of money Greece borrows in addition to its outstanding debt- which it can only afford to renew "rollover" rather than repay) Greece's national debt stands at roughly 110% of GDP. Greece must "rollover" debt equivalent to 14% of it's GDP every year, and this "maintenance cost" is rising by the day. The Greek government is still borrowing close to half of every euro it spends. The economy is also crashing fast, with the latest figures indicating an annual decline rate of 6.6%. This of course expands the relationship between debt and GDP. Even though the Greek government is paying a fat load of interest for it's debt, it is still borrowing more than it pays to maintain the debt. Investors may soon become dissatisfied with Greece's unsatisfactory attempts to trim their ballooning deficit. Interest repayments alone could quickly exceed more than 10% of Greece's GDP, acting as an even greater drain on the money Greece could be investing domestically. If the Greek debt crisis worsens- or more likely "when" the Greek debt crisis worsens, other highly indebted countries- Portugal, Italy and Spain better watch their backs. There is only so much money in the bailout fund, and if contagion spread to these, the Europe could rapidly topple into a deep depression.
China
If anything materializes of the apparently brewing "Jasmine Revolt", the whole world will find itself in a great deal of mess. China has been the great miracle of the last decade, enjoying miraculously rapid GDP growth. Some have started to doubt the figures that the government are putting out, and there are growing complaints about food price inflation- partly driven by oil- partly by the population boom- and secondly, environmental concerns are growing, as China's highways clog to the point where it is said that insects walk faster than motorcars. China is probably unlikely to go first, but if Saudi Arabia does, then you never now...
Sunday 6 March 2011
The "Old People Politics" and the fickle Liberal Democrats.
It has become blatantly obvious in recent years that an increasing majority of people share a general dissatisfaction with politics. The tendency has been for this section of society; mostly lower-middle/working class individuals, to back increasingly populist and nationalistic campaigns in a strange sway towards a more extreme form of the conservatism they hate. At the end of the 90s, with the landslide election of Labour Prime Minister Tony Blair, it was perfectly clear to many within the political class that the British Conservative Party was a dead duck. Indeed, in Peter Hitchens' "The Broken Compass", updated as "The Cameron Delusion", he describes the Conservative Party- perfectly rightly- as a "ghost brand"; something that continues to attract a certain section of support from a slowly dying section of society. It seems rare these days to find young people who support the Tories. That is, apart from a certain type of public school boy or businessman's son. The Tory's certainly have an electoral niche, but it is a declining one. The party is now viciously divided over issues such as Climate Change and the European Union. The section of the party that takes a progressive view towards these issues has failed to compete with other parties which frankly take a more progressive approach towards them. On the other hand, the section of the Tory party that takes a more traditional approach has and is ever rapidly losing ground particularly to the United Kingdom Independence Party- a strange mix of right wing think tank managers, regressive aristocrats, climate change deniers, and other cranks of one persuasion of another.
The miracle of the Conservative party, it seems, is that it is run by and for the interests of the rich business classes, but at least traditionally attracted a large slice of the working class population at elections. What is strange is that these individuals who have deserted and are deserting the Conservative party, are not doing so for warmer climbs, but for the populist anti-immigration, economically illiterate, and morally bankrupt negativity of UKIP and the BNP. In some cases they abstain from voting altogether, even though more favorable options may well be available to them.
Political discussion amongst "ordinary people" has become dominated by phrases such as "they are all a bunch of liar's and cheats",and whilst this s sort of understandable, given that it is what they are fed by the toilet paper press every day, an proper response such as "no, just all the ones you know about" is necessary to defeat lazy ideas such as this. It is strange for instance that Liberal Democrat defects have flocked to Labour in the wake of the cuts, when it was both Labour's fundamentally misguided economic strategy that had caused many of the problems we had. They, the Labour Party, did not even have a plan to sort out the mess they had caused. The Lib Dem defects seemed to have been suffering from some sort of political amnesia. At least the Green Party for example suggested a way to reduce the deficit, based on eliminating pointless items of military spending such as the renewal of trident- something which they the Liberal's had long been against. And at least the Green Party opposed tuition fees, whereas Labour actually introduced, and then tripled them. At least the Green Party recognized some of the truths about wasteful public spending, but had rational and progressive solutions to them. If it wasn't for the selective straight jacket of the media classes, perhaps coverage would be given to parties with sensible policies, rather than healthy campaign treasure chests. Of course, we are forgetting that this is the "corporate" media, who are really all for the dominance of money, rather than the dominance of argument. Whilst we can place some blame on the media, some must also go to the fickle Liberal Democrats yet again.
Now it is time to return to the issue of the Tory party. It seems that those who have floated away from the left of the party have typically been middle to upper class woolly liberal types, who were attracted to either to a once burgeoning Liberal Democrat Party, which grew from 20 to over 60 parliamentary seats during the last two decades, or to the ever more center-right aligned "New Labour". As I have said, those who continue to float away from the right of the party have selected UKIP, and in some cases the neo-Nazi British National Party as their new political home.
The common problem from all of these different groups of defectors, as well as those who stick like rotten glue to their old party- which whatever it is will have failed miserably in some respect or another- is that they have mostly forgotten what they believe in. Most of those who have not forgotten, seem to have contracted a peculiar case of political amnesia, for they routinely fail to make any link between party policy and party ACTION, when placing a cross in the ballot box. This could, I muse, be a problem of old age. Electoral turnout amongst the older age groups are certain much higher than in the young ones, but in a political scene where it is old people who routinely fail to live up to their promises, and other old people who routinely vote for parties and their representatives on local councils and in general elections up and down the country. Such as the Liberal Democrats and Tories who vote routinely vote against planning permissions for Wind Farms, despite their respective parties alleged "environmental" credentials. Such as the stealth cuts and wasteful bureaucracy of one local Labour regime after another. Then there is the Oxfordshire county council's description of student's as "ugly and badly dressed"- something which was even reported in the New York Times; and the very man- Keith Mitchell, could very well be described as an "old" person himself. The list of political failure's goes on and on, and we all know of a few anecdotes and horror stories, wherever we live.
The case for lowering the voting age to 16 or perhaps younger is a strong one. For the sake of arguement, I will make the case that the voting age should be lowered to 16. This seems a reasonable starting point, given that at 16 you can get married, leave home, leave school, becoming employed, pay taxes, etcetera etcetera etcetera. Firstly, it is hard to argue that people under 18 are somehow incapable of making sensible voting decisions, since this requires comparison with people who do vote, who seem to routinely choose rubbish government's who they are quickly dissatisfied with. If it is the case that 16 and 17 year olds should not be allowed to vote because they lack the ability to make the "right" decisions, then why is it the case that we call ourselves a democracy. Isn't a democracy where there is no such thing as a "right" decision, and wouldn't their extra difficulty in a making voting decisions c actually motivate them to be more interested in politics. If 16 and 17 year old are just "too young" to vote, then surely there must be some people who are too "old" to vote. Most people over say 85, are likely to be less able to make informed voting decisions compared to 16 and 17 year olds. Unlike the youngsters, they probably lack access to, or understanding of the internet. They may also be in the advanced stages of dementia. This is perfectly natural and excusable, but since the slight immaturity of 16 and 17 year olds is also "perfectly natural", so why should it warrant their utter alienation from the political system? Obviously there would be some people over a certain age, over an "upper voting age limit" who are perfectly capable of making properly reasoned decisioned, but this is not the point. There are arguably many 16 and 17 year olds who SHOULD be able to vote, but you have to have a general rule. Obviously I am just being difficult, but if you are a person of the "ageist persuasion", surely an upper voting limit is also desirable?
It is time people saw past the popularity contest which modern politics in Britain has become, and reflected on their mistaken voting decisions of the past. There are positive voting decisions that can be made that do not involve "giving second chances" or "making protest votes". Change which people are satisfied with is only going to happen if they pay attention to both policies and actions, and take responsibility for their failed voting experiences of the past.
Economic growth has become the addiction of modern society, and underpins most of the policy assumptions that the old parties make. The increased competition of distributive growth that has resulted from the breakdown in the wider economy is leading to an unpleasant struggle for more generous political treatment of the different warring sectors of the economy, the public sector and the business sector. Because of important long term constrains in the market, what cannot be done is "growth" in the whole economy, so what has happened is this conflict for growth WITHIN the economy. The failure of growth manifests itself in the volatile oil prices, and the semi-political, semi oil shortage motivated unrest in the Arab world, a feedback loop which is now rapidly worsening the problem that caused it. Another failure of growth is the climate change issue; something that their remains a lack of real political will to tackle without taking an enormous gamble with the futures of the younger generations. The biggest failure of growth is that people have not become more happy, despite becoming much much richer in recent years. In the first decade of the 21st century, the GDP of the UK roughly doubled. At the same time, many social problem became worse, and many people reported becoming more unhappy, and inequality worsened, despite the fact that the country actually became twice as rich. Yet people still want growth. It is a mystery.
People are also repeatedly dissatisfied with the political outcomes of their ballot box behaviors, but seem confused about what kind of change they want. In this book I have argued that what is needed is a proper diagnosis of the real problems that society faces, otherwise a false prescription will be made. It is this false prescription that manifests itself in the electorates uncertain election of the current Tory-Lib Dem coalition government, and their failed attempts to restart economic growth. The failure is because of a fundamental breakdown in the supply side of market economics, and a failure of faith in the old oxymoron of "sustainable" economic growth. It is time for a new kind of "change".
The miracle of the Conservative party, it seems, is that it is run by and for the interests of the rich business classes, but at least traditionally attracted a large slice of the working class population at elections. What is strange is that these individuals who have deserted and are deserting the Conservative party, are not doing so for warmer climbs, but for the populist anti-immigration, economically illiterate, and morally bankrupt negativity of UKIP and the BNP. In some cases they abstain from voting altogether, even though more favorable options may well be available to them.
Political discussion amongst "ordinary people" has become dominated by phrases such as "they are all a bunch of liar's and cheats",and whilst this s sort of understandable, given that it is what they are fed by the toilet paper press every day, an proper response such as "no, just all the ones you know about" is necessary to defeat lazy ideas such as this. It is strange for instance that Liberal Democrat defects have flocked to Labour in the wake of the cuts, when it was both Labour's fundamentally misguided economic strategy that had caused many of the problems we had. They, the Labour Party, did not even have a plan to sort out the mess they had caused. The Lib Dem defects seemed to have been suffering from some sort of political amnesia. At least the Green Party for example suggested a way to reduce the deficit, based on eliminating pointless items of military spending such as the renewal of trident- something which they the Liberal's had long been against. And at least the Green Party opposed tuition fees, whereas Labour actually introduced, and then tripled them. At least the Green Party recognized some of the truths about wasteful public spending, but had rational and progressive solutions to them. If it wasn't for the selective straight jacket of the media classes, perhaps coverage would be given to parties with sensible policies, rather than healthy campaign treasure chests. Of course, we are forgetting that this is the "corporate" media, who are really all for the dominance of money, rather than the dominance of argument. Whilst we can place some blame on the media, some must also go to the fickle Liberal Democrats yet again.
Now it is time to return to the issue of the Tory party. It seems that those who have floated away from the left of the party have typically been middle to upper class woolly liberal types, who were attracted to either to a once burgeoning Liberal Democrat Party, which grew from 20 to over 60 parliamentary seats during the last two decades, or to the ever more center-right aligned "New Labour". As I have said, those who continue to float away from the right of the party have selected UKIP, and in some cases the neo-Nazi British National Party as their new political home.
The common problem from all of these different groups of defectors, as well as those who stick like rotten glue to their old party- which whatever it is will have failed miserably in some respect or another- is that they have mostly forgotten what they believe in. Most of those who have not forgotten, seem to have contracted a peculiar case of political amnesia, for they routinely fail to make any link between party policy and party ACTION, when placing a cross in the ballot box. This could, I muse, be a problem of old age. Electoral turnout amongst the older age groups are certain much higher than in the young ones, but in a political scene where it is old people who routinely fail to live up to their promises, and other old people who routinely vote for parties and their representatives on local councils and in general elections up and down the country. Such as the Liberal Democrats and Tories who vote routinely vote against planning permissions for Wind Farms, despite their respective parties alleged "environmental" credentials. Such as the stealth cuts and wasteful bureaucracy of one local Labour regime after another. Then there is the Oxfordshire county council's description of student's as "ugly and badly dressed"- something which was even reported in the New York Times; and the very man- Keith Mitchell, could very well be described as an "old" person himself. The list of political failure's goes on and on, and we all know of a few anecdotes and horror stories, wherever we live.
The case for lowering the voting age to 16 or perhaps younger is a strong one. For the sake of arguement, I will make the case that the voting age should be lowered to 16. This seems a reasonable starting point, given that at 16 you can get married, leave home, leave school, becoming employed, pay taxes, etcetera etcetera etcetera. Firstly, it is hard to argue that people under 18 are somehow incapable of making sensible voting decisions, since this requires comparison with people who do vote, who seem to routinely choose rubbish government's who they are quickly dissatisfied with. If it is the case that 16 and 17 year olds should not be allowed to vote because they lack the ability to make the "right" decisions, then why is it the case that we call ourselves a democracy. Isn't a democracy where there is no such thing as a "right" decision, and wouldn't their extra difficulty in a making voting decisions c actually motivate them to be more interested in politics. If 16 and 17 year old are just "too young" to vote, then surely there must be some people who are too "old" to vote. Most people over say 85, are likely to be less able to make informed voting decisions compared to 16 and 17 year olds. Unlike the youngsters, they probably lack access to, or understanding of the internet. They may also be in the advanced stages of dementia. This is perfectly natural and excusable, but since the slight immaturity of 16 and 17 year olds is also "perfectly natural", so why should it warrant their utter alienation from the political system? Obviously there would be some people over a certain age, over an "upper voting age limit" who are perfectly capable of making properly reasoned decisioned, but this is not the point. There are arguably many 16 and 17 year olds who SHOULD be able to vote, but you have to have a general rule. Obviously I am just being difficult, but if you are a person of the "ageist persuasion", surely an upper voting limit is also desirable?
It is time people saw past the popularity contest which modern politics in Britain has become, and reflected on their mistaken voting decisions of the past. There are positive voting decisions that can be made that do not involve "giving second chances" or "making protest votes". Change which people are satisfied with is only going to happen if they pay attention to both policies and actions, and take responsibility for their failed voting experiences of the past.
Economic growth has become the addiction of modern society, and underpins most of the policy assumptions that the old parties make. The increased competition of distributive growth that has resulted from the breakdown in the wider economy is leading to an unpleasant struggle for more generous political treatment of the different warring sectors of the economy, the public sector and the business sector. Because of important long term constrains in the market, what cannot be done is "growth" in the whole economy, so what has happened is this conflict for growth WITHIN the economy. The failure of growth manifests itself in the volatile oil prices, and the semi-political, semi oil shortage motivated unrest in the Arab world, a feedback loop which is now rapidly worsening the problem that caused it. Another failure of growth is the climate change issue; something that their remains a lack of real political will to tackle without taking an enormous gamble with the futures of the younger generations. The biggest failure of growth is that people have not become more happy, despite becoming much much richer in recent years. In the first decade of the 21st century, the GDP of the UK roughly doubled. At the same time, many social problem became worse, and many people reported becoming more unhappy, and inequality worsened, despite the fact that the country actually became twice as rich. Yet people still want growth. It is a mystery.
People are also repeatedly dissatisfied with the political outcomes of their ballot box behaviors, but seem confused about what kind of change they want. In this book I have argued that what is needed is a proper diagnosis of the real problems that society faces, otherwise a false prescription will be made. It is this false prescription that manifests itself in the electorates uncertain election of the current Tory-Lib Dem coalition government, and their failed attempts to restart economic growth. The failure is because of a fundamental breakdown in the supply side of market economics, and a failure of faith in the old oxymoron of "sustainable" economic growth. It is time for a new kind of "change".
Friday 4 March 2011
The debt threat, and Tory nonsense.
Considering that the UK's total indebtedness, which is what really matters, since it includes debt held by financial and non-financial businesses, and households, in addition to the government itself, actually stands at an almighty £12 trillion, it seems completely disproportionate that the government is worried about holding a mere £1 trillion of this, especially when they have guaranteed revenue streams that businesses do not. Government's can "force" revenue through taxation, and although there is a slight issue of tax avoidance through legal means or not, ultimately the state has much more control over its revenue than businesses do. Whatever the advertising prowess of a business, its revenue is ultimately subject to the performance of the market. Whilst it is true that individual businesses compete for market share (penetration), the total revenue of all businesses in the economy is largely a function of consumer confidence.
The real problem is not Government debt, which stands at about 45% of GDP, and is on average owed over a term length of 14 years at an interest rate of about 5%, meaning that only 4% of GDP must be found each year to meet the government's debt bill. The real problem is that total debt now comes in at approximately 500% of GDP. Because they are generally regarded at less creditworthy than the government, businesses and consumers find it more difficult to aquire long term debt at low interest rates. When we take into account debt that is not held by the government, the nation may well be approaching a strain of nearly 50% of its gross domestic product to foot the mounting bill of debt.
In order to understand why the UK's economy - and most others for that matter - have reached this stage, we only need to consider some basic facts about the banking system. Roughly a decade ago, the UK abolished its banking reserve requirement in order to let the banking system lend more freely, partly as a political strategy pulled in order to fuel New Labour's housing bubble. The reserve requirement is the amount of money that banks must keep in "reserve" from each deposit. Since it does not matter where the deposit came from - i.e. it is likely to have come from another bank - this in effect allows banks to constantly re-distribute money through lending it, and then re-lending it as it is redeposited in the system. Of course, all money works it way in and out of the system, so as long as the banks can maintain asset sheets that exceed liabilities, they always have enough money to satisfy demand for withdrawrals. With the fast transition away from the use of paper money, banks have been subject to less and less risk regarding the threat of excess demand for cash withdrawrals. In turn, this has fuelled the rapid expansion in credit.
In the late summer of 2008 we found out that this was unsustainable, as the banks could no longer manage to keep the balance between healthy assets and minimal liabilities in place. As the economy faltered due to the effect of consumers and firms of high commodity prices, their ability to repay debts, which was in turn predicated on non-inflationary GDP growth, stopped, and bankruptcies destroyed the asset sheets of some major banks, slashing the gap between assets and liabilities and drainig "reserves". Because the amount of outstanding debt includes both principal and interest, wheras the money that has been loaned into circulation is only the principal, in order to provide the interest, there must be constant monetary expansion. If this montary expansion is not backed up by real growth in GDP, the inflationary effect will render the ability to repay debt's increasingly difficult, as profits and revenues in the economy collapse. Because the trend of debt always needs to grow in order to stave off a collapse in the system, it is particuarly dangerous that the economy has not resumed strong GDP growth.
Instead, what has happened is that now that a small amount of growth is back, the economy seems to be overheating, wherby excess aggregate demand again manifests itself in soaring commodity costs. For instance, pretty much every time in history that the oil bill has exceeded five and a half percent of GDP, the economy has shrunk. Right on que, the UK has recently experienced a "shock" contraction in GDP, arguably caused more by the oil price than the snow. Osborne's blaming of this slip on leaves on the track is immature, and incorrect, and he probabaly knows it. In normal economic circumstances, there would be nothing wrong with borrowing lots of money to fuel the economy. Of course, they know that the overheating trap of 2008 is now returning, but they are too timid to admit it, for fear of panicking the markets, so they simply blame the austerity on the debt itself. These are difficult times indeed, and the government are correct when they say so, but their excuse is profoundly incorrect.
The real problem is not Government debt, which stands at about 45% of GDP, and is on average owed over a term length of 14 years at an interest rate of about 5%, meaning that only 4% of GDP must be found each year to meet the government's debt bill. The real problem is that total debt now comes in at approximately 500% of GDP. Because they are generally regarded at less creditworthy than the government, businesses and consumers find it more difficult to aquire long term debt at low interest rates. When we take into account debt that is not held by the government, the nation may well be approaching a strain of nearly 50% of its gross domestic product to foot the mounting bill of debt.
In order to understand why the UK's economy - and most others for that matter - have reached this stage, we only need to consider some basic facts about the banking system. Roughly a decade ago, the UK abolished its banking reserve requirement in order to let the banking system lend more freely, partly as a political strategy pulled in order to fuel New Labour's housing bubble. The reserve requirement is the amount of money that banks must keep in "reserve" from each deposit. Since it does not matter where the deposit came from - i.e. it is likely to have come from another bank - this in effect allows banks to constantly re-distribute money through lending it, and then re-lending it as it is redeposited in the system. Of course, all money works it way in and out of the system, so as long as the banks can maintain asset sheets that exceed liabilities, they always have enough money to satisfy demand for withdrawrals. With the fast transition away from the use of paper money, banks have been subject to less and less risk regarding the threat of excess demand for cash withdrawrals. In turn, this has fuelled the rapid expansion in credit.
In the late summer of 2008 we found out that this was unsustainable, as the banks could no longer manage to keep the balance between healthy assets and minimal liabilities in place. As the economy faltered due to the effect of consumers and firms of high commodity prices, their ability to repay debts, which was in turn predicated on non-inflationary GDP growth, stopped, and bankruptcies destroyed the asset sheets of some major banks, slashing the gap between assets and liabilities and drainig "reserves". Because the amount of outstanding debt includes both principal and interest, wheras the money that has been loaned into circulation is only the principal, in order to provide the interest, there must be constant monetary expansion. If this montary expansion is not backed up by real growth in GDP, the inflationary effect will render the ability to repay debt's increasingly difficult, as profits and revenues in the economy collapse. Because the trend of debt always needs to grow in order to stave off a collapse in the system, it is particuarly dangerous that the economy has not resumed strong GDP growth.
Instead, what has happened is that now that a small amount of growth is back, the economy seems to be overheating, wherby excess aggregate demand again manifests itself in soaring commodity costs. For instance, pretty much every time in history that the oil bill has exceeded five and a half percent of GDP, the economy has shrunk. Right on que, the UK has recently experienced a "shock" contraction in GDP, arguably caused more by the oil price than the snow. Osborne's blaming of this slip on leaves on the track is immature, and incorrect, and he probabaly knows it. In normal economic circumstances, there would be nothing wrong with borrowing lots of money to fuel the economy. Of course, they know that the overheating trap of 2008 is now returning, but they are too timid to admit it, for fear of panicking the markets, so they simply blame the austerity on the debt itself. These are difficult times indeed, and the government are correct when they say so, but their excuse is profoundly incorrect.
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