The next months are set to deliver absolute economic turmoil. First quarter growth reports will reveal that major economies are starting to shrink again in the case of those that are currently growing, and in the case of those that are not, that they are shrinking faster than they were. Inflation destroys growth because higher prices reduce the amount of goods that an economy can consume. Whilst GDP may look good on paper, once you adjust the numbers for the change in the value of money, the inflation monster starts to bite.
Oil prices have leapt 15% since the uprising in Libya and will only climb further. Without disruptions to the market from the Arab world we can easily expect them to continue a trend of +8 to 10 % a month depending on how fast the world economy "overheats". This overheating has driven up prices of key commodities, feeding through to higher inflation for consumers. Experts such as Richard Heinberg, and Michael Ruppert predict that as the world economy recovers to its 2008 high, capacity limits to oil extraction will again be breached, driving up prices of consumer goods, marking a return to a state of recession. The evidence points towards this "bumpy plateau" roaring back into life around about now. The soaring oil prices of late, which have in turn driven up food prices, have certainly acted as a major catalyst to the "shock and awe" events in Egypt, Tunisia, and Libya. More will follow as the poor of the middle east become inspired to overthrow their authoritarian governments. This is not a bad thing- the people are long overdue for the type of democratic freedoms that we enjoy in the west- but in return, we are going to have to learn to share a lot more of the oil that we used to get from them, with them.
In the long term, Europe cannot rely on exports of oil from the likes of Saudi Arabia, Lybia, etc, even if stability returns. In Saudi Arabia, domestic oil consumption is growing at 10% a year, which is rapidly eating into (albeit slowly) dwindling production levels. Over the next 9 years, Saudi Arabia will actually become a net importer of oil. This "9 year" phenomenon was first identified by the developer of the Export Land Model (Dallas Geologist Jeffrey Brown), which shows exports of a commodity from a country who has declining domestic production, but rising domestic production. With oil, the time between a countries production peaking and it becoming a net importer has never exceeded 9 years. From the UK, it was 6.
Europe may be able to rely on exports of oil from Russia for a little longer however. Russia's domestic consumption of oil has not grown for a decade, and over the next five years it has a number of significant oil mega-projects to bring old Soviet era oil fields back into production. Russia's exports of oil, including natural gas liquids (of which it has extensive reserves), should grow by 1% a year over the next decade. It will be one of the few countries not to either plateau or decline over the coming years, but it will not manage to compensate for rapidly declining exports in the Arab world.
The inflation threat posed by rising oil prices will probably suppress demand again by bringing economies back into recession, but with the financial system so heavily dependent on growth, how long can this roller-coaster last before a sharp collapse like the one that we almost saw in 2008 becomes unavoidable? In 2008, collapsing real estate prices lead to a slump in investor confidence in bulk mortgage investment packages, leading to a multi billion dollar derivative meltdown. Debts which banks had previously considered to be assets became so invaluable as sub-prime lenders defaulted, driving down property prices to record lows in some US states, that packages of mortgage backed securities became liabilities, ruining the balance sheets of major banks, forcing them to brutally contract lending in order to stay afloat. Even then, some still sank.
In banking law, assets must exceed liabilities by at least the reserve requirement (a percentage excess as a sort of financial breathing room to ensure against losses). When a decline in asset values or a rise in liabilities leads to the reserve requirement being approached, a bank must find emergency cash (normally through borrowing from other banks) to fill the gap. When all banks reach this situation, central banks or governments must step in to avert bank closures. The modern economies dependence on long lines of credit from the banking system means that a real closure of any bank beyond a certain size that led to depositors loosing their money would almost certainly lead to a total economic collapse. It is likely that the powers that be would intervene to prevent this by injecting new money to prop up the system. Surprise surprise, they have already been doing this with successive waves of "quantitative easing" (money printing in normal people speak) both here in the UK, across the pond in the US, and across the channel in the EMU.
After the collapse of the housing bubble, banks have been investing in another asset bubble- commodities. Of course, just like it did in 2008, this is bound to come crashing down, just as high prices start to destroy demand; something that Michael Ruppert eloquently explains in his recent, and highly accredited film "Collapse". The world economy is in a trap, sitting at the crossroads of two potential paths. One is an inflationary rapid decline in GDP, leading to a second great depression, triggered by the ongoing commodity price "escalator". The second is that by some miracle say the Saudi's magic up a two million more barrels of light sweet crude from the desert, the oil price falls off a cliff, and other commodities fall too as the cost of extracting, processing, and distributing them come down. This will destroy the balance sheets of banks, by ruining their prized - and so far successful - commodity asset bubble. This would result in a second banking crisis, which governments might just be able to paper up, depending on how much money they are prepared to print. In turn, this will drive up inflation, eat into growth, and send us back into recession (or depression). Last year I suggested Gold as a good investment, and my hunch was right, it flew from $1100 an ounce, to over $1400. I wasn't so certain on silver, but this year either is good. Investors will look to protect what wealth they can when they realize the true severity of the situation.
Saturday, 26 February 2011
Tuesday, 8 February 2011
Wikileaks "peak oil" cables spark escalating concerns about global economy!
http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks
If you copy and paste the above link into your address bar you will find that the Guardian have obtained information that US diplomats are concerned that the Saudi's may have been overestimating their reserves- possibly by up to 50%. Obviously this comes as no surprise to anyone who has ever studied the oil industry. All OPEC members are thought to have wildly overstated their reserves due to the fact that production limits in the cartel are allocated according to stated, rather than audited reserves.
The recent instability in the Arab world, with revolutions in Tunisia and now Egypt, highlight the risk of our over dependence on oil. One of the concerns with Egypt is that the Suez canal, which acts as a vital supply route for middle eastern oil could become disrupted. Fears such as this have sent the oil price spiraling to well over $100 a barrel in recent days before falling back slightly.
Looking ahead, there are two options for the world economy. Either we will witness a slow down due to the inflationary pressures of high oil and commodity prices, or growth will continue, further accelerating prices until there is an even deeper crash, perhaps sparked by an escalation of the Eurozone Debt crisis, which for the time being seems to have gone into a state of winter hibernation.
What is certain at this point is that something will have to budge, we just don't know what. There is an outside chance that the political stalemate in America could result in Congress refusing an extension of the "debt limit", forcing the treasury to default, and sending the financial system into a crazed tailspin- but this in unlikely. The Republicans are prepared to use the "threat" of refusing to extent permission to borrow more money, but only as a political bargaining tool. It will probably remain just a threat.
Then there is the more real threat that China starts to overheat- indeed, the central bank had to raise interest rates this week in order to stem creeping inflation. If China's domestic economy stalls then industrial output may fall, affecting the wider world. The other risk with China is that they may start "dumping treasuries". What this means is selling the dollar denominated bonds they have collected during their lending binge that fueled much of the US' deficit spending over the last decade. This threat is very real, but is unlikely to materialize immediately. Inflation in the US is rising above the interest rate paid on government debt, meaning that China is making a real terms loss on some of the money it loaned to America. However, the Obama administration will have to start cutting government spending eventually, which may curb inflation and make the holding of US debt more attractive again. Then again, this would also hit the US economy. More deficit spending however will only reduce confidence in the dollar. Either way, the healthy financial marriage between US and China is doomed to break down eventually.
In Europe, we should be concerned about the surprisingly bad growth figures starting to emerge as well as government's inability to reduce the deficit as a percentage of GDP despite brutal austerity. What seems to be happening is that some European governments have caught themselves in a debt trap where debt accrued over the previous 3 years in an attempt to prop up flailing economies is starting to feed through to higher interest repayments, meaning that there is either less money in the budget to spend on public services, or even higher interest repayments further down the line where governments still stick to Keynesian style borrow and spend fiscal regimes. Yet neither option seems to be working. Economies are not growing because real GDP gains are non existent due to rising inflation. Stimulus has simply driven prices up rather than boosted GDP because supply side growth has been non-existent.
Eventually the markets (either the bond markets or the stock markets) will loose faith and the supply of paper will dry up, leaving the widening cracks in the wall of our economic castles unprotected.
If you copy and paste the above link into your address bar you will find that the Guardian have obtained information that US diplomats are concerned that the Saudi's may have been overestimating their reserves- possibly by up to 50%. Obviously this comes as no surprise to anyone who has ever studied the oil industry. All OPEC members are thought to have wildly overstated their reserves due to the fact that production limits in the cartel are allocated according to stated, rather than audited reserves.
The recent instability in the Arab world, with revolutions in Tunisia and now Egypt, highlight the risk of our over dependence on oil. One of the concerns with Egypt is that the Suez canal, which acts as a vital supply route for middle eastern oil could become disrupted. Fears such as this have sent the oil price spiraling to well over $100 a barrel in recent days before falling back slightly.
Looking ahead, there are two options for the world economy. Either we will witness a slow down due to the inflationary pressures of high oil and commodity prices, or growth will continue, further accelerating prices until there is an even deeper crash, perhaps sparked by an escalation of the Eurozone Debt crisis, which for the time being seems to have gone into a state of winter hibernation.
What is certain at this point is that something will have to budge, we just don't know what. There is an outside chance that the political stalemate in America could result in Congress refusing an extension of the "debt limit", forcing the treasury to default, and sending the financial system into a crazed tailspin- but this in unlikely. The Republicans are prepared to use the "threat" of refusing to extent permission to borrow more money, but only as a political bargaining tool. It will probably remain just a threat.
Then there is the more real threat that China starts to overheat- indeed, the central bank had to raise interest rates this week in order to stem creeping inflation. If China's domestic economy stalls then industrial output may fall, affecting the wider world. The other risk with China is that they may start "dumping treasuries". What this means is selling the dollar denominated bonds they have collected during their lending binge that fueled much of the US' deficit spending over the last decade. This threat is very real, but is unlikely to materialize immediately. Inflation in the US is rising above the interest rate paid on government debt, meaning that China is making a real terms loss on some of the money it loaned to America. However, the Obama administration will have to start cutting government spending eventually, which may curb inflation and make the holding of US debt more attractive again. Then again, this would also hit the US economy. More deficit spending however will only reduce confidence in the dollar. Either way, the healthy financial marriage between US and China is doomed to break down eventually.
In Europe, we should be concerned about the surprisingly bad growth figures starting to emerge as well as government's inability to reduce the deficit as a percentage of GDP despite brutal austerity. What seems to be happening is that some European governments have caught themselves in a debt trap where debt accrued over the previous 3 years in an attempt to prop up flailing economies is starting to feed through to higher interest repayments, meaning that there is either less money in the budget to spend on public services, or even higher interest repayments further down the line where governments still stick to Keynesian style borrow and spend fiscal regimes. Yet neither option seems to be working. Economies are not growing because real GDP gains are non existent due to rising inflation. Stimulus has simply driven prices up rather than boosted GDP because supply side growth has been non-existent.
Eventually the markets (either the bond markets or the stock markets) will loose faith and the supply of paper will dry up, leaving the widening cracks in the wall of our economic castles unprotected.
Tuesday, 25 January 2011
The collapse has started!
A few minutes ago, the latest figures on economic growth were released from the office for national statistics. Exactly on cue from my earlier predictions, the slide has begun. In the last three months of 2010 the economy contracted -0.5%. If this repeats itself in the current quarter we are back in an official recession (defined by two quarters of negative growth). The -0.5% quarter figure works out at roughly 2% over the course of the year. The petering off of the soaring oil price was last week a signal that we have again breached supply capacity limits. We have hit the next bump on the plateau of oil production. Expect the economy to undergo a strong recession, which if we recover from will resume itself once commodity prices soar again. Each time this cycle repeats the price threshold for collapse will become lower, as demand rises and supply contracts.
The BBC reports that the -0.5% figure was a shock. It certainly was to all the mainstream pundits and politicians who are clueless when it comes to the limits to growth. The worry is now that they have exhausted the monetary capacity in the economy - interest rates are still very low and inflation is high. The government will not be able to solve its deficit problems simply by cutting if this results in economic contraction, or if the economy contracts irrespective of the austerity, because tax receipts fall off. There is very little the government can now do to protect the economy from the inevitable downturn, and the fools in the city should get away from their computers are start learning about the real world. No matter how much money and entrepreneurship you can generate, these only facilitate resource extraction, but the evidence suggests that resource extraction is now being limited by oil supply constraints, which feed through to other commodities, such as food which is grown using oil, and metals which are extracted and transported using oil. I would suggest that the sudden downturn in the economy has been sparked by the sudden rise in inflation, which has reduced the purchasing power of money, and thus constrained unit consumption. Economic forecasts have been partly based on consumer spending data, but this measures only how much money is spent, not the purchasing power of that money.
I will accelerate my work on the e-book entitled "The Real Crisis" which seeks to make sense of the economic headlines of the last three years, as it seems that if I do not, then people will yet again be left to the unpredictable and foolish whims of the media barons in their understanding of the economy. Yet again, the money masters will fail to see that growth has nothing to do with pieces of paper, but everything to do with the ability to produce things that give them their value. That we can no longer do at an advancing rate. Expect the Labour party to argue for more Keynesian style investment to boost growth by stimulating the much touted "multiplier" effect, where increasing production in one sector of the economy will lead to further investment in others. This only works where firms and individuals are confident about the future performance of their investments, and at the moment they have absolutely no reason to be. What happened to Iceland in 2008, and Japan through the 90s is about to happen to the world. Expect the Coalition to cluelessly plough ahead with their austerity regime - either understanding nothing about why the economy won't bark to the same old tricks - or understanding something but not letting on for fear of damaging confidence in the markets. No politician is going to admit to the end of growth; they would crash the stock markets overnight, but to be honest, that is probably on the way irrespective of what anybody says.
It really doesn't matter if you disagree with my pessimism. I have been right so far on the economy. On oil, on gold, on pretty much everything. So quite frankly, if you disagree, go take a hike. I hope I am wrong. I hope! But to be quite honest, I'm rather looking forward to seeing the looks on the arrogant faces of Osborne and co as their house of cards tumbles into quagmire.
The BBC reports that the -0.5% figure was a shock. It certainly was to all the mainstream pundits and politicians who are clueless when it comes to the limits to growth. The worry is now that they have exhausted the monetary capacity in the economy - interest rates are still very low and inflation is high. The government will not be able to solve its deficit problems simply by cutting if this results in economic contraction, or if the economy contracts irrespective of the austerity, because tax receipts fall off. There is very little the government can now do to protect the economy from the inevitable downturn, and the fools in the city should get away from their computers are start learning about the real world. No matter how much money and entrepreneurship you can generate, these only facilitate resource extraction, but the evidence suggests that resource extraction is now being limited by oil supply constraints, which feed through to other commodities, such as food which is grown using oil, and metals which are extracted and transported using oil. I would suggest that the sudden downturn in the economy has been sparked by the sudden rise in inflation, which has reduced the purchasing power of money, and thus constrained unit consumption. Economic forecasts have been partly based on consumer spending data, but this measures only how much money is spent, not the purchasing power of that money.
I will accelerate my work on the e-book entitled "The Real Crisis" which seeks to make sense of the economic headlines of the last three years, as it seems that if I do not, then people will yet again be left to the unpredictable and foolish whims of the media barons in their understanding of the economy. Yet again, the money masters will fail to see that growth has nothing to do with pieces of paper, but everything to do with the ability to produce things that give them their value. That we can no longer do at an advancing rate. Expect the Labour party to argue for more Keynesian style investment to boost growth by stimulating the much touted "multiplier" effect, where increasing production in one sector of the economy will lead to further investment in others. This only works where firms and individuals are confident about the future performance of their investments, and at the moment they have absolutely no reason to be. What happened to Iceland in 2008, and Japan through the 90s is about to happen to the world. Expect the Coalition to cluelessly plough ahead with their austerity regime - either understanding nothing about why the economy won't bark to the same old tricks - or understanding something but not letting on for fear of damaging confidence in the markets. No politician is going to admit to the end of growth; they would crash the stock markets overnight, but to be honest, that is probably on the way irrespective of what anybody says.
It really doesn't matter if you disagree with my pessimism. I have been right so far on the economy. On oil, on gold, on pretty much everything. So quite frankly, if you disagree, go take a hike. I hope I am wrong. I hope! But to be quite honest, I'm rather looking forward to seeing the looks on the arrogant faces of Osborne and co as their house of cards tumbles into quagmire.
Monday, 24 January 2011
Go make your cuts and see if I care!
The government should protect us from each other, foster peace within society, and ensure that everybody has food to eat, that they are healthy and educated, and that they have a bed to sleep in at night and a roof over their head. Other than that, fiscal profligacy can simply no longer be justified. As long as the government provides our basic entitlements, there are few who can complain. We have a stack of crises, the ticking time bomb of debt and the lack of growth that conspire to bring us down. It is time to grin and bear it. The economy is a zero sum game, based on the exploitation of a closed ecological system- the earth. Indistinguishable politicians of left and right alike have found themselves engaged in a battle of top trumps, each trying to boast the best policies for "boosting demand" and "increasing consumption". But what is the social merit in making an already profoundly rich country more greedy than it already is. Increasing GDP is paramount to speeding up our unsustainable consumerist binge that comes at the expense of the type of investment we need to develop a steady state society. The quicker we grow our economy, the quicker the window of hope for a new world of green enterprise and sustainable industry closes. The cuts will help send a shock-wave to consumers that enough is enough. It is time for our economy to entire a state of hibernation, so as to let its immune system recover from decades of "product drugging".
I am probably going to be alive for another 50 years or so, and as such, I am concerned about what those years hold for our way of life. The government is increasing worried about blackouts this decade. We must replace 90% of our electricity generating infrastructure by 2030, and unreliable, intermittent renewable such as wind and solar cannot safely provide more than 10-20% of this. The amount of electricity produced needs to be kept within a small margin of the design capacity of the grid, otherwise the grid either overloads or collapses, resulting in blackouts. Even if we manage to bring a new generation of nuclear plants on stream, and replace our old coal and gas fired power plants as they are due for decommissioning, we face an enormous challenge. It is increasingly difficult to increase the supply of these fuels to meet demand, and the price escalator is already sinking in, exacerbating itself every-time the economy undergoes a growth spurt. And if we do manage to keep the lights on, we will miss the crucial threshold for keeping greenhouse gas emissions within 450 parts per million so as to prevent runaway, uncontrollable global warming.
I am prepared to accept the hard choice between our way of life, and our life itself, at least while we undergo a transition to some kind of more sustainable society. Is the government ready to make these difficult choices to? It seems so. They just aren't telling you why they are making the cuts.
I am probably going to be alive for another 50 years or so, and as such, I am concerned about what those years hold for our way of life. The government is increasing worried about blackouts this decade. We must replace 90% of our electricity generating infrastructure by 2030, and unreliable, intermittent renewable such as wind and solar cannot safely provide more than 10-20% of this. The amount of electricity produced needs to be kept within a small margin of the design capacity of the grid, otherwise the grid either overloads or collapses, resulting in blackouts. Even if we manage to bring a new generation of nuclear plants on stream, and replace our old coal and gas fired power plants as they are due for decommissioning, we face an enormous challenge. It is increasingly difficult to increase the supply of these fuels to meet demand, and the price escalator is already sinking in, exacerbating itself every-time the economy undergoes a growth spurt. And if we do manage to keep the lights on, we will miss the crucial threshold for keeping greenhouse gas emissions within 450 parts per million so as to prevent runaway, uncontrollable global warming.
I am prepared to accept the hard choice between our way of life, and our life itself, at least while we undergo a transition to some kind of more sustainable society. Is the government ready to make these difficult choices to? It seems so. They just aren't telling you why they are making the cuts.
Friday, 21 January 2011
Teetering on the brink?
Today I lost the last shred of confidence I had in the world economy. It started at about 1 o'clock in the afternoon, after reading Lisa O'Carrol's blog on the Guardian. She warned that unless Ireland experiences strong economic growth in 2011 then the shit will hit the fan. She also pointed out that she knew of no optimistic forecast for GDP growth in Ireland this year. Me neither.
This problem is not just repeated across on the continent with the PIGS (Portugal, Italy, Greece, and Spain) but the UK's own debt problems are spiralling out of control. According to data from the Economist, the UK's public sector deficit (the amount it borrows relative to the size of the economy) has risen from 10.1% to 13.5% since the coaltion government took office. The bond yields (the interest rate paid on new debts) has risen to a point in Greece where they are higher than when the Papandreous government when cap in hand to the IMF last year. But the government's deficit is just the tip of the iceberg. Every year, private sector corporations and individuals in the western world extent their leveraged lifestyle by securing debt on debt. The wild consumerist ponzi scheme of the 90s and 00s is coming to a brisk halt. The BBC reports today that mortgage lending fell 6% in december. The UK is paralysed by low growth and high inflation, leaving the Bank of England to choose between raising interest rates to tackle inflation, which would slow the economy and worsen the public sector debt problem, or leaving interest rates low, but further allowing inflationary pressures to force people into even more debt to get by. Commidty prices have soared in the last 3 months. Oil is up nearly 25%, many metals and foods have performed equally boyantly in the face of a burgeoning Chinese economy. Easyjets shares were down 16% yesterday, a sign of the fact that you cannot go on running budget airlines in a world of finite oil.
The flurry of news hype about "shale gas" is a ploy to alleviate fears of a major energy crunch. The energy guru's are pulling every rabbit out of every hat in an attempt to distract us from the facts. Even if shale gas will keep our homes warm in the decades to come, it will come at a significant price. The money need to make the neccecssary investments in shale gas infrastructure would be far better spent on secure renewable energy supplies. A new film "Gaslands" highlights the some of the side affects of shale gas extraction. Shale gas is extracted by conducting underground explosions in the shale beds, and pumping in chemicals (many of which are derived from oil, production of which has been flat for 6 years) to force the natural gas out of the rocks and up to the surface. This process invariably damages underground geological formations (you are setting off explosions), and in some cases the gas gets released into underground freshwater stores. Drink gas polluted water and you get very ill indeed.
A few weeks ago, I became concerned that rising oil prices and food shortages would manifest themselves with empty shelves in the near future. This is happening quicker than I could have ever imagined. I decided to select 50 food items from the Tesco UK website, and set off to see how many of these were in stock. How many? 44. So 12% were out of stock. Supermarket staff seem to have been pulling items to the front of shelves to give the impression that they are well stocked, but this is a gimmick. The shelves are far less densley stocked than in the past. This is partly due to market pressures. Supermarkets do not want to overstock. There is strong competition, and more people are ordering from home, but even so, when you find that 12% of the items on your shopping list are not avaiable, you should be concerned. Supplies of food are not low enough yet to fundamentally change the impression you get when you go shopping, yet slowly but surely we are going to see more and more of those empty shelves. It will probably take closer to 25% of shelves being empty before people take notice. The collpase is coming. Buy food. Buy oil. Sell stocks and shares and money.
This problem is not just repeated across on the continent with the PIGS (Portugal, Italy, Greece, and Spain) but the UK's own debt problems are spiralling out of control. According to data from the Economist, the UK's public sector deficit (the amount it borrows relative to the size of the economy) has risen from 10.1% to 13.5% since the coaltion government took office. The bond yields (the interest rate paid on new debts) has risen to a point in Greece where they are higher than when the Papandreous government when cap in hand to the IMF last year. But the government's deficit is just the tip of the iceberg. Every year, private sector corporations and individuals in the western world extent their leveraged lifestyle by securing debt on debt. The wild consumerist ponzi scheme of the 90s and 00s is coming to a brisk halt. The BBC reports today that mortgage lending fell 6% in december. The UK is paralysed by low growth and high inflation, leaving the Bank of England to choose between raising interest rates to tackle inflation, which would slow the economy and worsen the public sector debt problem, or leaving interest rates low, but further allowing inflationary pressures to force people into even more debt to get by. Commidty prices have soared in the last 3 months. Oil is up nearly 25%, many metals and foods have performed equally boyantly in the face of a burgeoning Chinese economy. Easyjets shares were down 16% yesterday, a sign of the fact that you cannot go on running budget airlines in a world of finite oil.
The flurry of news hype about "shale gas" is a ploy to alleviate fears of a major energy crunch. The energy guru's are pulling every rabbit out of every hat in an attempt to distract us from the facts. Even if shale gas will keep our homes warm in the decades to come, it will come at a significant price. The money need to make the neccecssary investments in shale gas infrastructure would be far better spent on secure renewable energy supplies. A new film "Gaslands" highlights the some of the side affects of shale gas extraction. Shale gas is extracted by conducting underground explosions in the shale beds, and pumping in chemicals (many of which are derived from oil, production of which has been flat for 6 years) to force the natural gas out of the rocks and up to the surface. This process invariably damages underground geological formations (you are setting off explosions), and in some cases the gas gets released into underground freshwater stores. Drink gas polluted water and you get very ill indeed.
A few weeks ago, I became concerned that rising oil prices and food shortages would manifest themselves with empty shelves in the near future. This is happening quicker than I could have ever imagined. I decided to select 50 food items from the Tesco UK website, and set off to see how many of these were in stock. How many? 44. So 12% were out of stock. Supermarket staff seem to have been pulling items to the front of shelves to give the impression that they are well stocked, but this is a gimmick. The shelves are far less densley stocked than in the past. This is partly due to market pressures. Supermarkets do not want to overstock. There is strong competition, and more people are ordering from home, but even so, when you find that 12% of the items on your shopping list are not avaiable, you should be concerned. Supplies of food are not low enough yet to fundamentally change the impression you get when you go shopping, yet slowly but surely we are going to see more and more of those empty shelves. It will probably take closer to 25% of shelves being empty before people take notice. The collpase is coming. Buy food. Buy oil. Sell stocks and shares and money.
Tuesday, 11 January 2011
Australias floods - climate change in action?
I'll keep this one short because I don't have much to say, but the Australian floods have really been getting on mind mind. Especially as none of the news coverage has even mentioned "global warming" or "climate change" so far.
What I fail to understand about Australia is that for 30 years, the Green movement told the world that rising seas levels had a "hit list" of cities. That's 30 years that these idiots have taken to still fail to believe in something that is actually happening right now in front of their face- DUH!! Surprise surprise the area underwater now in Australia was predicted as a danger zone for freak floods caused by climate change. Yet even though Australia is clearly feeling the hit of the warmer world, it's people and it's government still act as if climate change isn't a problem. Only Australia and the US failed to sign the Kyoto Protocol to cut carbon emissions back in 1997. Now you could say they are paying the price. As of March 2010 only 44% of Australian's believe in man made climate change. This particular kind of foolishness is like a 100 a day smoker with lung cancer not believing that their illness was caused by their habit. Sometimes you just have to accept that after doing something which is in the short term enjoyable, you may face undesired long term consequences. It is no good for the Australians' to simply deny the root cause of the ever more frequent freak weather events that they are experiencing. This particular kind of intellectual primacy is only going to f**k them up even more in years to come. It's not that I hold a particular grudge against Australians- in fact I feel sorry for the 44% of the who do accept reality, but I just refuse to feel sorry for the 56% of them who complain about a crisis that they are largely responsible for. At 17.9 tonnes of CO2 per capita, Australia is one of the worst global warming culprits in the the world. Only a few island states that are heavily dependent on long distance imports (like Trinidad and Tobago), oil rich middle eastern lands (like Qatar that comes in at number one), and the odd tax-haven of the super rich (like Luxembourg) beat the Aussies and the Yanks at the race to scorch the earth.
It's about time the 56% of Australian's who don't believe in climate change grew up and accept that they have misbehaved and are now paying the price. Things are only going to get a lot worse for them if they don't.
What I fail to understand about Australia is that for 30 years, the Green movement told the world that rising seas levels had a "hit list" of cities. That's 30 years that these idiots have taken to still fail to believe in something that is actually happening right now in front of their face- DUH!! Surprise surprise the area underwater now in Australia was predicted as a danger zone for freak floods caused by climate change. Yet even though Australia is clearly feeling the hit of the warmer world, it's people and it's government still act as if climate change isn't a problem. Only Australia and the US failed to sign the Kyoto Protocol to cut carbon emissions back in 1997. Now you could say they are paying the price. As of March 2010 only 44% of Australian's believe in man made climate change. This particular kind of foolishness is like a 100 a day smoker with lung cancer not believing that their illness was caused by their habit. Sometimes you just have to accept that after doing something which is in the short term enjoyable, you may face undesired long term consequences. It is no good for the Australians' to simply deny the root cause of the ever more frequent freak weather events that they are experiencing. This particular kind of intellectual primacy is only going to f**k them up even more in years to come. It's not that I hold a particular grudge against Australians- in fact I feel sorry for the 44% of the who do accept reality, but I just refuse to feel sorry for the 56% of them who complain about a crisis that they are largely responsible for. At 17.9 tonnes of CO2 per capita, Australia is one of the worst global warming culprits in the the world. Only a few island states that are heavily dependent on long distance imports (like Trinidad and Tobago), oil rich middle eastern lands (like Qatar that comes in at number one), and the odd tax-haven of the super rich (like Luxembourg) beat the Aussies and the Yanks at the race to scorch the earth.
It's about time the 56% of Australian's who don't believe in climate change grew up and accept that they have misbehaved and are now paying the price. Things are only going to get a lot worse for them if they don't.
Saturday, 8 January 2011
No more bubbles?
It is widely understood that "speculative bubbles" can bring about economic collapse. This happens when the banking system invests (lends) to fuel a booming industry/ market, such as the housing market in 2008. When the line of credit runs dry, demand plummets, and prices fall. Investors struggle to repay back debts which they used to purchase the house / stock because they could never sustainably afford to pay in the first place, and relied to some extent on simply rolling over debt instead of actually paying it down. The greater the "rollover ratio", the more unstable the market, and the greater the eventual collapse. The damage to the economy in the event of a bubble bursting is largely determined by the ability of the banking system to find a new bubble to offset the losses of the old one. Ultimately, the banking system must be supported, otherwise the entire economy collapses.
In 2008, government's became fearful that losses in the housing market that had started in 2007 were not under control, and decided that enormous bailouts would be necessary. Worryingly, we have failed to make a full "recovery" because of lackluster growth. In a letter on the 6th January, Timothy Geithner, US treasury secretary, warned that the Treasury had no further financial capacity to resort to emergency measures to avert a default on its debts if Congress did not raise the "debt limit". He also warned that even austerity could not avert a sovereign debt default at this late stage. The only way the treasury can pay their debts is to borrow more money. This is exactly the stage that both the Northern Rock bank got to in 2007, and as Gordon Brown's new book "Beyond The Crash" reveals; Lehman Brothers in 2008- as they were relying on overnight finance to remain above their reserve requirements. Obviously, this shows the stupid side of reserve requirements, because even if a bank can't use the money it has on deposits, it can simply "borrow" more!
In 2011, we look set to continue to see the upwards spiral in commodity prices, driven by profligate emerging markets in the east. Of particular concern is oil, expenditure on which already accounts for 7% of GDP. Whenever the futures price has ever gone above 5.5%, the economy slows down or enters recession. Some see the oil price spike in 2008 as a catalyst for the banking crisis. The banking system has received about as much monetary stimulus as possible, so when it faces the next bubble, there will be much less government's can do to rescue it. If the oil price does surge to high, the economy will be damaged anyway, so the banking system will find it even harder to find that elusive new "bubble" to invest in. Some are beginning to suggest that there are no more bubbles to be had.
In 2008, government's became fearful that losses in the housing market that had started in 2007 were not under control, and decided that enormous bailouts would be necessary. Worryingly, we have failed to make a full "recovery" because of lackluster growth. In a letter on the 6th January, Timothy Geithner, US treasury secretary, warned that the Treasury had no further financial capacity to resort to emergency measures to avert a default on its debts if Congress did not raise the "debt limit". He also warned that even austerity could not avert a sovereign debt default at this late stage. The only way the treasury can pay their debts is to borrow more money. This is exactly the stage that both the Northern Rock bank got to in 2007, and as Gordon Brown's new book "Beyond The Crash" reveals; Lehman Brothers in 2008- as they were relying on overnight finance to remain above their reserve requirements. Obviously, this shows the stupid side of reserve requirements, because even if a bank can't use the money it has on deposits, it can simply "borrow" more!
In 2011, we look set to continue to see the upwards spiral in commodity prices, driven by profligate emerging markets in the east. Of particular concern is oil, expenditure on which already accounts for 7% of GDP. Whenever the futures price has ever gone above 5.5%, the economy slows down or enters recession. Some see the oil price spike in 2008 as a catalyst for the banking crisis. The banking system has received about as much monetary stimulus as possible, so when it faces the next bubble, there will be much less government's can do to rescue it. If the oil price does surge to high, the economy will be damaged anyway, so the banking system will find it even harder to find that elusive new "bubble" to invest in. Some are beginning to suggest that there are no more bubbles to be had.
Subscribe to:
Posts (Atom)