Category: taxation

Brexit – now what happens?

Here’s what is going to happen.

In the run-up to the EU referendum by the UK this Brit was tempted several times to offer an opinion on what I thought was the best decision. But I resisted. (I was qualified to vote as an overseas voter and had voted for Remain.)

My resistance was because it seemed inappropriate to pass any form of opinion before the die had been cast, so to speak. I hadn’t been living in the country for over eight years and, inevitably, was out of touch with feelings.

The Conversation blogsite yesterday had a series of articles on the aftermath of the Brexit decision but the one that seemed most useful to share with you all was an article by Gavin Barrett,  a Professor of European Constitutional and Economic Law at University College in Dublin. For many readers, including me, both within and without the UK this seemed a valuable primer.

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Britain votes to leave the EU, Cameron quits – here’s what happens next

June 23, 2016 11.41pm EDT

image-20160624-30267-wvhvty
Leave ahead. Anthony Devlin / PA Wire

Author

Interconnections Three

Is there a case for optimism? You bet there is!

To be honest, at a personal level I just don’t know the answer to that question. It seems to depend on the mood that Jean and I are in at any particular time. All I can fall back on is that well-used saying from me: “Never underestimate the power of unintended consequences”.

In other words, we shouldn’t underestimate the strength of millions of good people when their demands start reaching out to those in power. (And whatever your reaction to this post, please don’t miss watching the inspirational Al Gore speech towards the end of this post.)

Recently over on the Grist site there was an article about the critical changes that each and every one of us should be making. I want to share it with you in full.

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Want to fight climate change? Here are the 7 critical life changes you should make

We live in interesting times!

The impending ‘banquet of consequences’.

The Welcome page of this blog includes this:

Dogs ‘teaching’ man to be so successful a hunter enabled evolution, some 20,000 years later, to farming,  thence the long journey to modern man.  But in the last, say 100 years, that farming spirit has become corrupted to the point where we see the planet’s plant and mineral resources as infinite.  Mankind is close to the edge of extinction, literally and spiritually.

I continue that theme in Part Two of my book (Chapter 7: This Twenty-First Century)

Bad news sells! Bad news also causes stress and worry. In my previous explanation, I explained that the last thing you want is a catalogue of all the things that have that power to cause you stress and worry. However, I do see three fundamental aspects of this new century that have their roots in that loss of principles that I referred to in the previous chapter. They are

1. the global financial system,
2. the potential for social disorder, and
3. the process of government.

Because they are at the heart of how the coming years will pan out.

The first aspect, our global financial system, was selected because it underpins all our lives in so many ways. When I was living in southwest England I was a client of Kauders Portfolio Services[1]. The founder of the company, David Kauders, published[2] a book, The Greatest Crash, in 2011. It was an obvious read for me at that time and I still have the book on my shelves here in Oregon.
David explained that whether we like it or not, our lives are inextricably caught up in the twin dependencies of the global financial system: credit and debt. As he wrote in his opening chapter:

Households can barely afford their existing debts, let alone take on more. Since households now prefer not to borrow, indeed some even choose to pay back debt, it follows that those who have already borrowed, as a group, can no longer contribute to economic expansion.
People can be divided into borrowers and savers. With existing borrowers unable to afford or unwilling to take on extra debt, can new borrowers be found instead? Those who do not need to borrow are unlikely to volunteer. Except for the young wishing to buy houses, facing the reality that house prices are beyond their pockets, where are the new borrowers?
Businesses are also under pressure. There has been an inadequate recovery from recession, business prospects are poor as households cut back their spending. Lack of bank lending is a symptom rather than a cause, for if existing businesses were to be given more credit, they would probably be unlikely to find profitable growth opportunities in a world of austerity.

Later on in the book David describes this as “the financial system limit”. In other words, the period of growth and expansion, especially of financial and economic expansion, has come to an end in a structural sense. This was his perspective from 2011.

Recently, I chose to reread The Greatest Crash. What struck me forcibly, reading the book again some four years later on, was how visible this “system limit” appeared in the world today. Everywhere there are signs that the era of growth has come to an end. Many countries are now indebted to a point that reinforces the proposition of there being a financial system limit. The United States is greatly in debt[3] but the only thing mitigating that situation, for the time being anyway, is that the American dollar is the quasi dominant global currency.
The changing nature of the global population is also reinforcing the fact that this is the end of a long period of growth. Even without embracing the question of how much longer we can increase the number of people living on a finite planet, the demographics spell out a greater-than-even chance of a decline in consumption and economic activity. Simply because in all regions of the planet, except for India where there is still a growing youth element in the country, people are ageing. To state the obvious, ageing persons do not consume as much as middle-aged and younger persons.
Thus, the world’s economy that is just around the corner is certainly going to be very different to what it has been in the past. It is not being widely discussed. Worse than that, there is a widespread assumption adopted by many governments that a return to the “normal” economic growth of previous times is a given. Many do not share that assumption.

The second aspect that isn’t being spoken about is the potential for massive, widespread social disorder. All summed up in just three words: greed, inequality, and poverty. Just three words that metaphorically appear to me like a round, wooden lid hiding a very deep, dark well. That lifting this particular lid, the metaphorical one, exposes an almost endless drop into the depths of where our society appears to have fallen.
Even the slightest raising of awareness of where this modern global world is heading is scary. I have in mind the author Thomas Piketty who warned[4] that, “the inequality gap is toxic, dangerous.” Then there was the news in 2015[5] that, “Billionaires control the vast majority of the world’s wealth, 67 billionaires already own half the world’s assets; by 2100 we’ll have 11 trillionaires, while American worker income has stagnated for a generation.”

The third and final aspect that isn’t being widely discussed is the process of government. Not from the viewpoint of “left” or “right”, Labour or Conservative, Democratic or Republican (insert the labels appropriate to your own country), that is being discussed ad nauseum, but from the viewpoint of good government. It might be a terrible generalisation but it is still a fair criticism to say that many peoples of many countries have lost faith in their governments.
There appears to be a chronic absence of open debate about the need for good government, what that good government would look like, and how do societies bring it about.

If we were a dog pack, then our leader, our female mentor dog, would have moved us all to a new, pristine territory!


[1] My relationship was terminated when I became a resident of the United Staes in 2011.
[2] 2011, Sparkling Books.
[3] http://www.usgovernmentdebt.us offers on the 14th November, 2014 that the Federal Debt of the United States was about $18,006,100,032,000.
[4] In his book Capital in the Twenty-First Century (Belknap Press, 2014).
[5] http://www.marketwatch.com/story/capitalism-is-killing-americas-morals-our-future-2015-05-22.

Yes, these are indeed very interesting times!

So, dear reader, you can understand why a recent article over on Naked Capitalism spoke to me. It was penned by Satyajit Das, a former banker and the author of a number of books. Both Satyajit and Yves, of Naked Capitalism, were delighted to offer me permission to republish the full post.

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Satyajit Das: Age of Stagnation or Something Worse?

Yves here. If you’ve read Das regularly, one of the characteristics of his writing is wry detachment. The shift to a sense of foreboding is a big departure.

By Satyajit Das, a former banker and author whose latest book, The Age of Stagnation, is now available. The following is an edited excerpt from Age of Stagnation (published with the permission of Prometheus Books)

If you look for truth, you may find comfort in the end; if you look for comfort you will not get either comfort or truth, only . . . wishful thinking to begin, and in the end, despair. C.S. Lewis

The world is entering a period of stagnation, the new mediocre. The end of growth and fragile, volatile economic conditions are now the sometimes silent background to all social and political debates. For individuals, this is about the destruction of human hopes and dreams.

One Offs

For most of human history, as Thomas Hobbes recognised, life has been ‘solitary, poor, nasty, brutish, and short’. The fortunate coincidence of factors that drove the unprecedented improvement in living standards following the Industrial Revolution, and especially in the period after World War II, may have been unique, an historical aberration. Now, different influences threaten to halt further increases, and even reverse the gains.

Since the early 1980s, economic activity and growth have been increasingly driven by financialisation – the replacement of industrial activity with financial trading and increased levels of borrowing to finance consumption and investment. By 2007, US$5 of new debt was necessary to create an additional US$1 of American economic activity, a fivefold increase from the 1950s. Debt levels had risen beyond the repayment capacity of borrowers, triggering the 2008 crisis and the Great Recession that followed. But the world shows little sign of shaking off its addiction to borrowing. Ever-increasing amounts of debt now act as a brake on growth.

Growth in international trade and capital flows is slowing. Emerging markets that have benefited from and, in recent times, supported growth are slowing.

Rising inequality and economic exclusion also impacts negatively upon activity.

Financial problems are compounded by lower population growth and ageing populations; slower increases in productivity and innovation; looming shortages of critical resources, such as water, food and energy; and manmade climate change and extreme weather conditions.

The world requires an additional 64 billion cubic metres of water a year, equivalent to the annual water flow through Germany’s Rhine River. Agronomists estimate that production will need to increase by 60–100 percent by 2050 to feed the population of the world. While the world’s supply of energy will not be exhausted any time soon, the human race is on track to exhaust the energy content of hundreds of millions years’ worth of sunlight stored in the form of coal, oil and natural gas in a few hundred years. 10 tons of pre-historic buried plant and organic matter converted by pressure and heat over millennia was needed to create a single gallon (4.5 litres) of gasoline.

Europe is currently struggling to deal with a few million refugees fleeing conflicts in the Middle East. How will the world deal with hundreds of millions of people at risk of displacement as a resulting of rising sea levels?

Extend and Pretend

The official response to the 2008 crisis was a policy of ‘extend and pretend’, whereby authorities chose to ignore the underlying problem, cover it up, or devise deferral strategies to ‘kick the can down the road’. The assumption was that government spending, lower interest rates, and the supply of liquidity or cash to money markets would create growth. It would also increase inflation to help reduce the level of debt, by decreasing its value.

It was the grifter’s long con, a confidence trick with a potentially large payoff but difficult to pull off. Houses prices and stock markets have risen, but growth, employment, income and investment have barely recovered to pre-crisis levels in most advanced economies. Inflation for the most part remains stubbornly low.

In countries that have ‘recovered’, financial markets are, in many cases, at or above pre-crisis prices. But conditions in the real economy have not returned to normal. Must-have latest electronic gadgets cannot obscure the fact that living standards for most people are stagnant. Job insecurity has risen. Wages are static, where they are not falling. Accepted perquisites of life in developed countries, such as education, houses, health services, aged care, savings and retirement, are increasingly unattainable.

In more severely affected countries, conditions are worse. Despite talk of a return to growth, the Greek economy has shrunk by a quarter. Spending by Greeks has fallen by 40 percent, reflecting reduced wages and pensions. Reported unemployment is 26 percent of the labour force. Youth unemployment is over 50 percent. One commentator observed that the government could save money on education, as it was unnecessary to prepare people for jobs that did not exist.

Future generations may have fewer opportunities and lower living standards than their parents. A 2013 Pew Research Centre survey conducted in thirty-nine countries asked whether people believed that their children would enjoy better living standards: 33 percent of Americans believed so, as did 28 percent of Germans, 17 percent of British and 14 percent of Italians. Just 9 percent of French people thought their children would be better off than previous generations.

The Deadly Cure

Authorities have been increasingly forced to resort to untested policies including QE forever and negative interest rates. It was an attempt to buy time, to let economies achieve a self-sustaining recovery, as they had done before. Unfortunately the policies have not succeeded. The expensively purchased time has been wasted. The necessary changes have not been made.

There are toxic side effects. Global debt has increased, not decreased, in response to low rates and government spending. Banks, considered dangerously large after the events of 2008, have increased in size and market power since then. In the US the six largest banks now control nearly 70 percent of all the assets in the US financial system, having increased their share by around 40 percent.

Individual countries have sought to export their troubles, abandoning international cooperation for beggar-thy-neighbour strategies. Destructive retaliation, in the form of tit-for-tat interest rate cuts, currency wars, and restrictions on trade, limits the ability of any nation to gain a decisive advantage.

The policies have also set the stage for a new financial crisis. Easy money has artificially boosted prices of financial assets beyond their real value. A significant amount of this capital has flowed into and destabilised emerging markets. Addicted to government and central bank support, the world economy may not be able to survive without low rates and excessive liquidity.

Authorities increasingly find themselves trapped, with little room for manoeuvre and unable to discontinue support for the economy. Central bankers know, even if they are unwilling to publicly acknowledge it, that their tools are inadequate or exhausted, now possessing the potency of shamanic rain dances. More than two decades of trying similar measures in Japan highlight their ineffectiveness in avoiding stagnation.

Heart of the Matter

Conscious that the social compact requires growth and prosperity, politicians, irrespective of ideology, are unwilling to openly discuss the real issues. They claim crisis fatigue, arguing that the problems are too far into the future to require immediate action. Fearing electoral oblivion, they have succumbed to populist demands for faux certainty and placebo policies. But in so doing they are merely piling up the problems.

Policymakers interrogate their models and torture data, failing to grasp that ‘many of the things you can count don’t count [while] many of the things you can’t count really count’. The possibility of a historical shift does not inform current thinking.

It is not in the interest of bankers and financial advisers to tell their clients about the real outlook. Bad news is bad for business. The media and commentariat, for the most part, accentuate the positive. Facts, they argue, are too depressing. The priority is to maintain the appearance of normality, to engender confidence.

Ordinary people refuse to acknowledge that maybe you cannot have it all. But there is increasingly a visceral unease about the present and a fear of the future. Everyone senses that the ultimate cost of the inevitable adjustments will be large. It is not simply the threat of economic hardship; it is fear of a loss of dignity and pride. It is a pervasive sense of powerlessness.

For the moment, the world hopes for the best of times but is afraid of the worst. People everywhere resemble Dory, the Royal Blue Tang fish in the animated film Finding Nemo. Suffering from short-term memory loss, she just tells herself to keep on swimming. Her direction is entirely random and without purpose.

Reckoning Postponed

The world has postponed, indefinitely, dealing decisively with the challenges, choosing instead to risk stagnation or collapse. But reality cannot be deferred forever. Kicking the can down the road only shifts the responsibility for dealing with it onto others, especially future generations.

A slow, controlled correction of the financial, economic, resource and environmental excesses now would be serious but manageable. If changes are not made, then the forced correction will be dramatic and violent, with unknown consequences.

During the last half-century each successive economic crisis has increased in severity, requiring progressively larger measures to ameliorate its effects. Over time, the policies have distorted the economy. The effectiveness of instruments has diminished. With public finances weakened and interest rates at historic lows, there is now little room for manoeuvre. Geo-political risks have risen. Trust and faith in institutions and policy makers has weakened.

Economic problems are feeding social and political discontent, opening the way for extremism. In the Great Depression the fear and disaffection of ordinary people who had lost their jobs and savings gave rise to fascism. Writing of the period, historian A.J.P. Taylor noted: ‘[the] middle class, everywhere the pillar of stability and respectability . . . was now utterly destroyed . . . they became resentful . . . violent and irresponsible . . . ready to follow the first demagogic saviour . . .’

The new crisis that is now approaching or may already be with us will be like a virulent infection attacking a body whose immune system is already compromised.

As Robert Louis Stevenson knew, sooner or later we all have to sit down to a banquet of consequences.

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henrifredericamiel148210Very interesting times indeed!

In defence of sovereignty and democracy.

The challenges facing the European Union ripple out across the whole of the free world.

I note that this is the second Friday where there is an abrupt change from the run of posts during the previous few days. For last Friday I republished a George Monbiot article on Rigging the Market and today there is another Monbiot article that I want to share with you; shared with you with the kind permission of Mr. Monbiot.

Unlike last Friday’s Monbiot article that clearly had global implications, at first sight this article about the European Union has no relevance to those of us not living with EU boundaries. But that would be wrong. For the importance of protecting a country’s sovereignty and the democratic processes within that country is supreme across all democratically elected governments.

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The Lesser Evil

Oil, corruption and public money.

Nothing at all to do with dogs, or with integrity if it comes to that!

Regular followers of this place know that I am a tremendous fan of George Monbiot, the Englishman who so regularly exposes stuff that needs to be aired and discussed. As his About page explains:

Here are some of the things I love: my family and friends, salt marshes, arguments, chalk streams, Russian literature, kayaking among dolphins, diversity of all kinds, rockpools, heritage apples, woods, fishing, swimming in the sea, gazpacho, ponds and ditches, growing vegetables, insects, pruning, forgotten corners, fossils, goldfinches, etymology, Bill Hicks, ruins, Shakespeare, landscape history, palaeoecology, Gavin and Stacey and Father Ted.

Here are some of the things I try to fight: undemocratic power, corruption, deception of the public, environmental destruction, injustice, inequality and the misallocation of resources, waste, denial, the libertarianism which grants freedom to the powerful at the expense of the powerless, undisclosed interests, complacency.

Here is what I fear: other people’s cowardice.

I still see my life as a slightly unhinged adventure whose perpetuation is something of a mystery. I have no idea where it will take me, and no ambitions other than to keep doing what I do. So far it’s been gripping.

Way back in the early days of Learning from Dogs, the blog that is, not the book, George was very gracious in giving me blanket permission to republish his posts, and many of them have appeared in this place.

So now read George Monbiot’s latest Rigging the Market. It is yet another example of what is going wrong in these times.

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Rigging the Market

This interconnected world.

There is no question that we are living in interesting times!

Back in the old country there was a popular saying: “There are liars, damn liars, and politicians.” I am insufficiently aware of politics in both my new home country, the US of A, and my new home state, Oregon, to know if that saying is equally pertinent to life in America as it was in Great Britain – I suspect that it is.

So what’s getting ‘my knickers in a twist’ today? Namely the state of the world economy.

There seems to be so much spin and counter-spin that getting to the truth of what is going on, economically speaking, is not straightforward.

Which is why a recent article posted by over on The Automatic Earth jumped out at me. To my eyes, it really did cover the truth of what’s going on. And to double-check my analysis I shared it with Dan Gomez, no stranger to global finances, and he found it useful. Indeed, this was Dan’s reply: “That’s pretty much it. This should be the top of the world news every week until governments become accountable. All the other big issues of the day pale compare to the backlash from this sclerotic thinking. Good luck to all of us.”

Raúl has very kindly given me his permission to republish this. It’s not an easy read but that doesn’t detract from the value of the essay.

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 Why This Slump Has Legs

 January 18, 2016  Posted by Raúl Ilargi Meijer
Berenice Abbott Columbus Circle, Manhattan 1936
Berenice Abbott Columbus Circle, Manhattan 1936

We’ve only really been in two weeks of trading in the new year, things are looking pretty bad to say the least, so predictably the press are asking -and often answering- questions about when the slump will be over. Rebound, recovery, the usual terminology. When will we get back to growth?

For me personally, but that’s just me, that last question sounds a bit more stupid every single time I hear and read it. Just a bit, but there’s been a lot of those bits, more than I care to remember. Luckily, the answer is easy. The slump will not be over for a very long time, there will be no rebound or recovery, and please stop talking about a return to growth unless you can explain what you want to grow into.

I’m sorry, I know that’s not what you want to hear, but life’s a bitch and so’s the economy. You’ve lived on pink fumes for a long time, most of you for their whole lives, but reality dictates that real ‘growth’ stopped decades ago, and you never figured that out because, and I quote here (see below), you and the world you’re part of became “addicted to borrowing money, spending it, and passing this off as ‘growth’”.

That you believed this was actual growth, however, is on you. You fell for a scam and you’re going to have to pay the price. If there’s one single thing people are good at, it’s lying. It’s as old as human history, and it happens every day, so you’re no exception to any rule. You’re perhaps just not particularly clever.

How do we know a ‘recovery’ is so far off it’s really no use to even talk about it? As I said, it’s easy. Let me lead this in with a graph I saw just today, which deals with a topic the Automatic Earth has covered a lot: marginal debt, or more precisely, the productivity/growth gained from each additional dollar of debt.

Please note, this particular graph deals with private non-financial debt only, we’ll get to other kinds of added debt, but that restriction is actually quite illuminating.

MarginalDebtNow of course, you have to wonder about the parameters the St. Louis Fed uses for its data and graphs, and whether ‘growth’ was all that solid in the run up to 2008. There’s plenty of very valid arguments that would say growth in the 1960’s was a whole lot more solid than that in the naughties, after the Glass-Steagall repeal, and after the dot.com blubber.

However, that’s not what I want to take away from this, I use this to show what has happened since 2008, more than before, when it comes to “passing debt off as ‘growth’”.

But it’s another thing that has happened since 2008, or rather not happened, that points out to us why this slump will have legs. That is, in 2008 a behemoth bubble started bursting, and it was by no means just US housing market. That bubble should have been allowed to fully deflate, because that is the only way to allow an economy to do a viable restart.

Instead, all that has been done since 2008, QE, ZIRP, the works, has been aimed at keeping a facade ‘alive’, and aimed at protecting the interests of the bankers and other rich parties. That facade, expressed most of all in rising stock markets, has allowed for societies to be gutted while people were busy watching the S&P rise to 2,100 and the Kardashians bare 2,100 body parts.

It was all paid for, apart from western QE, with $28 trillion and change of newfangled Chinese debt. The problem with this is that if you find yourself in a bubble and you don’t go through the inevitable deleveraging process that follows said bubble in a proper fashion, you’re not only going to kill economies, you’ll destroy entire societies.

And that is not just morally repugnant, it also works as much against the rich as it does against the poor. It’s just that that is a step too far for most people to understand. That even the rich need a functioning society, and that inequality as we see it today is a real threat to everyone.

Recognizing this simple fact, and the consequences that follow from it, is nothing new. It’s why in days of old, there were debt jubilees. It’s also why we still quote the following from Marriner Eccles, chairman of the Federal Reserve under FDR and Truman from 1934-1948, in his testimony to the Senate Committee on the Investigation of Economic Problems in 1933, which prompted FDR to make him chairman in the first place.

It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they cannot save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying.

It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment.

Everything would all be so much simpler if only more people understood this, that you need a – fleeting, ever-changing equilibrium- to prosper.

Instead, we’re falling into that same trap again. Or, more precisely, we already have. We have been fighting debt with more debt and built the facade put up by the Fed, the BoJ and the ECB, central banks that all face the same problems and all take the same approach: save the rich at the cost of the poor. Something Eccles said way back when could not possibly work.

Anyway, so here are the graphs that prove to us why the slump has legs. There’s been no deleveraging, the no. 1 requirement after a bubble bursts. There’s only been more leveraging, more debt has been issued, and while households have perhaps deleveraged a little bit, though that is likely strongly influenced by losses on homes etc. plus the fact that people were simply maxed out.

First, global debt and the opposite of deleveraging:

LeverageGlobalAnd global debt from a longer, 65 year, more historical perspective:

LeverageGlobal2-500It’s a global debt graph, but it’s perhaps striking to note that big ‘growth’ spurts happened in the days when Reagan, Clinton and Obama were the respective US presidents. Not so much in the Bush era.

Next, China. What we’re looking at is what allowed the post 2008 global economic facade to have -fake- credibility, an insane rise in debt, largely spent on non-productive overinvestment, overcapacity highways to nowhere and many millions of empty apartments, in what could have been a cool story had not Beijing gone all-out on performance enhancing financial narcotics.

LeverageChina500Today, the China Ponzi is on its last legs, and so is the global one, because China was the last ‘not-yet-conquered’ market large enough to provide the facade with -fleeting- credibility. Unless Elon Musk gets us to Mars very soon, there are no more such markets.

So US debt will have to come down too, belatedly, with China, and it will have to do that now. because there are no continents to conquer and hide the debt behind. We’re all going to regret engaging in the debt game, and not letting the bubble deflate in an orderly fashion when we still could, but all those thoughts are too late now.

LeverageUS500What the facade has wrought is not just the idea that deleveraging was not needed (though it always is, after every single bubble), but that net US household worth rose by 55% in the 6-7 years since the bottom of the crisis, an artificial bottom fabricated with…more debt, with QE, and ZIRP.

USTaxesHoneyPot2Meanwhile, in today’s world, as stock markets go down at a rapid clip, China, having lost control of a market system it never had the control over that Politburos are ever willing to acknowledge they don’t have, plays a game of Ponzi whack-a-mole, with erratic ‘policies’ such as circuit breakers and CIA-style renditions of fund managers and the like.

And all the west can do is watch them fumble the ball, and another one, and another. And this whole thing is nowhere near the end.

China bad loans have now become a theme, but the theme doesn’t mean a thing without including the shadow banking system, which in China has been given the opportunity to grow like a tumor, on which Beijing’s grip is limited, and which has huge claims on local party officials forced by the Politburo to show overblown growth numbers. If you want to address bad loans, that’s where they are.

Chinese credit/debt graphs paint only a part of the picture if and when they don’t include shadow banks, but keeping their role hidden is one of Xi’s main goals, lest the people find out how bad things really are and start revolting. But they will anyway. That makes China a very unpredictable entity. And unpredictable means volatile, and that means even more money flowing out of, and being lost in, markets.

The ‘least worst’ place to be for what money will be left is US dollars, US treasuries and perhaps metals. But there’ll be a whole lot less left than just about anyone thinks. That’s the price of deleveraging.

The price of not deleveraging, on the other hand, is what we see in the markets today. And there is no cure. It must be done. The price for keeping up the facade rises sharply with each passing day, and the effort will in the end be futile. All bubbles have limited lifespans.

I’ll close this with a few recent words from Tim Morgan, who puts it so well I don’t feel the need to try and do it better.

The Ponzi Economy, Part 1

In order to set the Ponzi economy into some context, let’s put some figures on it. In the United States, total “real economy” debt (which excludes inter-bank borrowing) increased by $19.4 trillion – in real, inflation-adjusted terms – between 2000 and 2014, whilst real GDP expanded by only $3.7 trillion. Britain, meanwhile, added £1.9 trillion of new debt for less than £400bn on “growth” over the same period. I spent part of the holiday period unearthing quite how much debt countries added for each dollar of “growth” over a period starting at the end of 2000 and ending in mid-2015.

Unsurprisingly, the league is topped by Portugal ($5.65 for each $1 of growth), Ireland ($5.42) and Greece ($5.39). Britain’s ratio ($3.46) is somewhat flattering, in that the UK has used asset sales as well as borrowing to sustain its consumption. The average for the Eurozone ($3.54) covers ratios as diverse as Germany (just $1.87) and France ($4.22).

China’s $2.56 looks unexceptional until you note that the more recent (post-2007) number is much worse. Economies which seem to have been growing without too much borrowing (such as Brazil and Russia) are now experiencing dramatic worsening in their ratios, generally in the wake of tumbling commodity prices.

In the proverbial nutshell, then, the world has become addicted to borrowing money, spending it, and passing this off as “growth”. This is a copybook example of a pyramid scheme, which in turn means that the world’s most influential economic mentor is neither Keynes nor Hayek, but Charles Ponzi.

[..] How, in the absence of growth, can inflated capital values be sustained? The answer, of course, is that they can’t. Like all Ponzi schemes, this ends with a bang, not a whimper. This is why I find forecasts of a ‘big fall’ or ‘sharp correction’ in markets hard to swallow. Ponzi schemes don’t end gradually, any more than someone can fall off a cliff gradually, or be “slightly pregnant”.

The Ponzi economy simply continues for as long as irrationality prevails, and then implodes. Capital markets, though, are the symptom, not the cause. The fundamental problem is an inability to escape from an addictive practice of manufacturing supposed “growth” on the basis of borrowed money.

There may be shallow lulls in the asset markets, nothing ever only falls down in a straight line in the real world, but that debt I’ve described here will and must come down and be deleveraged.

The process will in all likelihood lead to warfare, and to refugee movements the likes of which the world has never seen just because of the sheer numbers of people added in the past 50 years.

When your children reach your age, they will not live in a world that you ever thought was possible. But they will still have to live in it, and deal with it. They will no longer have the facade you’ve been staring at for so long now, to lull them into a complacent sleep. And the Kardashians will no longer be looking so attractive either.

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If you found your mind wandering somewhat as you tried to stay focussed on the essay, just go back and read the closing two paragraphs.

The process will in all likelihood lead to warfare, and to refugee movements the likes of which the world has never seen just because of the sheer numbers of people added in the past 50 years.

When your children reach your age, they will not live in a world that you ever thought was possible. But they will still have to live in it, and deal with it. They will no longer have the facade you’ve been staring at for so long now, to lull them into a complacent sleep. And the Kardashians will no longer be looking so attractive either.

As I said at the start: we are living in interesting times!

Forgive the introspection, Part One

This is not some intellectual exercise; far from it!

As often happens, a number of seemingly disconnected articles and reports seem to have provided a common theme. A theme that has previously been aired on Learning from Dogs yet a theme that always needs to be in the front of our faces: integrity.

Here are some of those articles.

Firstly, I presented recently in this place an essay from George Monbiot that proposed (my italics):

The revelation that humanity’s dominant characteristic is, er, humanity will come as no surprise to those who have followed recent developments in behavioural and social sciences. People, these findings suggest, are basically and inherently nice.

Patrice Ayme, however, pointed out in a reply:

Saying that “people are good, while tolerating bad things” is an ineffective morality. The crux, indeed, is the moral nature of institutions, controlled by a few, not whether humans are kind or not.

That struck me as central to the theme: it is the terrible lack of integrity that we see in those who hold positions of power that totally overrides the premise that people are fundamentally good.

The next article read was an essay by Professor Michael Perelman published on Naked Capitalism. Perelman is a professor of economics at California State University. He also writes at Unsettling Economics.  Here is a little from that essay:

The architecture of inequality must be carefully constructed. As the founding fathers of the United States clearly understood, democracy must be kept in check. For this purpose, they invented the Electoral College to prevent the president from being elected by popular vote.

To ensure an effective electoral system, an obsequious media must be skilled in drowning the public with a flood of misinformation to maintain a constant level of fear to make them more likely to side with the CS (corporate system).

If there is ever one example of how that lack of integrity manifests itself in our world it is through inequality. Professor Perelman’s essay is clearly written “tongue-in-cheek” but that doesn’t lessen the impact of his essay. Try his closing paragraphs: (CES = a subset of CS; WEM = The Wondrous Efficiency of Markets)

Regulators are not the only ones to see the benefits of working with the CES. Politicians who resign or are defeated are almost inevitably destined to enjoy the benefits of their dedication to the WEM with the returns from taking a rewarding position with a major corporation, lobbying, or even a lucrative contract to write a book that virtually no one would want to read.

When done correctly, this system works magnificently, although it periodically it seems to fall apart until the detested government apparatus rescues it. In the meantime, huge amounts of wealth and income fall into the hands of the top 1%, the people of greatest importance, while the rest of the public can enjoy watching the spectacular performance of the CES, a reward worthy of their place in society especially because envy of the wealthy brethren will obviously make them work harder to succeed, adding to WEM.

All power to WEM!

Does this have anything to do with dogs?

Yes!

Let me steal a little from Chapter 16: Community from my forthcoming book:

When dogs lived in the wild, their natural pack size was about fifty animals and there were just three dogs that had pack status: the mentor, minder and nanny dogs, as described in Chapter 5. [Pharaoh: the Teaching Dog] As was explained in that chapter, all three dogs of status are born into their respective roles and their duties in their pack are instinctive. There was no such thing as competition for that role as all the other dogs in that natural pack grouping would be equal participants with no ambitions to be anything else.

Anyone who has had the privilege of living with a group of dogs will know beyond doubt that they develop a wonderful community strength. Let’s reflect on the lessons being offered for us in this regard by our dogs.

To reinforce the fact that this is not a new phenomena, at the time I was drafting my book last November, a new report was issued by the Center of Economic Policy Research (CEPR) on the latest (American) Survey of Consumer Finances. It painted a picture very familiar to many: the rich becoming richer while those with less wealth are falling further and further behind.

David Rosnick of the CEPR, and one of the report co-authors, made this important observation:

The decline in the position of typical households is even worse than the Consumer Finances survey indicates. In 1989, many workers had pensions. Far fewer do now. The value of pensions isn’t included in these surveys due to the difficulty of determining what they are worth on a current basis. But they clearly are significant assets that relatively few working age people have now.

Sharmini Peries, of The Real News Network, in an interview with David Rosnick, asked:

PERIES: David, just quickly explain to us what is the Consumer Finance Survey. I know it’s an important survey for economists, but why is it important to ordinary people? Why is it important to us?

ROSNICK: So, every three years, the Federal Reserve interviews a number of households to get an idea of what their finances are like, do they have a lot of wealth, how much are their house’s worth, how much they owe on their mortgages, how much they have in the bank account, how much stocks do wealthy people own. This gives us an idea of their situations, whether they’re going to be prepared for retirement. And we can see things like the effect of the housing and stock bubbles on people’s wealth, whether they’ve been preparing for eventual downfalls, how they’ve reacted to various economic circumstances, how they’re looking to the long term. So it’s a very useful survey in terms of finding out how households are prepared and what the distribution of wealth is like.

PERIES: So your report is an analysis of the report. And what are your key findings?

ROSNICK: So, largely over the last 24 years there’s been a considerable increase in wealth on average, but it’s been very maldistributed. Households in the bottom half of the distribution have actually seen their wealth fall, but the people at the very top have actually done very well. And so that means that a lot of people who are nearing retirement at this point in time are actually not well prepared at all for retirement and are going to be very dependent on Social Security in order to make it through their retirement years.

PERIES: So, David, address the gap. You said there’s a great gap between those that are very wealthy and those that are not. Has this gap widened over this period?

ROSNICK: It absolutely has. As, say, the top 5 percent in wealth, the average wealth for people in the top 5 percent is about 66 percent higher in 2013, the last survey that was completed, compared to 1989. By comparison, for the bottom 20 percent, their wealth has actually fallen 420 percent. They basically had very little to start with, and now they have less than little.

PERIES: So the poorer is getting poorer and the richer is getting extremely richer.

ROSNICK: Very much so.

To my way of thinking, if in the period 1989 through to 2013 “the average wealth for (American) people in the top 5 percent is about 66 percent higher” and “for the bottom 20 percent, their wealth has actually fallen 420 percent” it’s very difficult not to see the hands of greed at work and a consequential devastating increase in inequality.

In other words, the previous few paragraphs seemed to present, and present clearly, the widening gap between the ‘haves’ and the ‘have-nots’, comparatively speaking, and that it was now time for society to understand the trends, to reflect on where this is taking us, if left unchallenged, and to push back as hard as we can both politically and socially.

I wrote that shortly before another item appeared in my email ‘in-box’ in the middle of November (2014), a further report about inequality that, frankly, emotionally speaking, just smacked me in the face. It seemed a critical addition to the picture I was endeavouring to present.

Namely, on the 13th October, 2014, the US edition of The Guardian newspaper published a story entitled: US wealth inequality – top 0.1% worth as much as the bottom 90%. The sub-heading enlarged the headline: Not since the Great Depression has wealth inequality in the US been so acute, new in-depth study finds.

The study referred to was a paper released by the National Bureau of Economic Research, Cambridge, MA, based on research conducted by Emmanuel Saez and Gabriel Zucman. The paper’s bland title belied the reality of the research findings: Wealth Inequality in the United States since 1913.

As the Guardian reported:

Wealth inequality in the US is at near record levels according to a new study by academics. Over the past three decades, the share of household wealth owned by the top 0.1% has increased from 7% to 22%. For the bottom 90% of families, a combination of rising debt, the collapse of the value of their assets during the financial crisis, and stagnant real wages have led to the erosion of wealth. The share of wealth owned by the top 0.1% is almost the same as the bottom 90%.

The picture actually improved in the aftermath of the 1930s Great Depression, with wealth inequality falling through to the late 1970s. It then started to rise again, with the share of total household wealth owned by the top 0.1% rising to 22% in 2012 from 7% in the late 1970s. The top 0.1% includes 160,000 families with total net assets of more than $20m (£13m) in 2012.

In contrast, the share of total US wealth owned by the bottom 90% of families fell from a peak of 36% in the mid-1980s, to 23% in 2012 – just one percentage point above the top 0.1%.

The report was not exclusively about the USA. As the closing paragraphs in The Guardian’s article illustrated:

Among the nine G20 countries with sufficient data, the richest 1% of people (by income) have increased their income share significantly since 1980, according to Oxfam. In Australia, for example, the top 1% earned 4.8% of the country’s income in 1980. That had risen to more than 9% by 2010.

Oxfam says that in the time that Australia has held the G20 presidency (between 2013 and 2014) the total wealth in the G20 increased by $17tn but the richest 1% of people in the G20 captured $6.2tn of this wealth – 36% of the total increase.

I find it incredibly difficult to have any rational response to those figures. I am just aware that there is a flurry of mixed emotions inside me and, perhaps, that’s how I should leave it. Nonetheless, there’s one thing that I can’t keep to myself and that this isn’t the first time that such inequality has arisen; the period leading up the the Great Depression of the 1930s comes immediately to mind.

What on earth is coming down the road this time!

If only we truly could learn from our dogs!

Just a thought!

A novel Nursing Home plan.

Sent to me by dear friend, Dan Gomez, as a light-hearted diversion for the weekend. (But it did fit rather nicely as a sequel to my Lies, Damn Lies, and … from yesterday!)

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Say you are an older senior citizen and can no longer take care of yourself and the government says there is no Nursing Home care available for you. So, what do you do? You opt for Medicare Part G.

The plan gives anyone 75 or older a gun (Part G) and one bullet. You are allowed to shoot one worthless politician.

This means you will be sent to prison for the rest of your life where you will receive three meals a day, a roof over your head, central heating and air conditioning, cable TV, a library, and all the Health Care you need. Need new teeth? No problem. Need glasses? That’s great. Need a hearing aid, new hip, knees, kidney, lungs, sex change, or heart? They are all covered!

As an added bonus, your kids can come and visit you at least as often as they do now! And who will be paying for all of this? The same government that just told you they can’t afford for you to go into a nursing home. And you will get rid of a useless politician while you are at it. And now, because you are a prisoner, you don’t have to pay any more income taxes!

Is this a great country or what? Now that you have solved your senior financial plan, enjoy the rest of your week!

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I’ll leave the closing words to Dan: “Crazy world but compelling plan.​”

Have a great weekend wherever you are.

Welcome to the asylum!

Michael Klare offers convincing proof that the world is mad!

Once again, serendipity has stepped in and provided me with today’s post.

What do I mean?

Well yesterday, I republished in full a recent essay from George Monbiot.  He demonstrated that when it comes to “fiddling while Rome burns” the United Nations takes some beating. This is in the context of 23 years of UN gatherings to control the levels of CO2 in our planet’s atmosphere without attempting, in the slightest, to control the production of coal, oil and gas.  Take this excerpt as an example of our madness.

You cannot solve a problem without naming it. The absence of official recognition of the role of fossil fuel production in causing climate change – blitheringly obvious as it is – permits governments to pursue directly contradictory policies. While almost all governments claim to support the aim of preventing more than 2°C of global warming, they also seek to “maximise economic recovery” of their fossil fuel reserves. (Then they cross their fingers, walk three times widdershins around the office and pray that no one burns it). But few governments go as far as the UK has gone.

In the Infrastructure Act that received royal assent last month, maximising the economic recovery of petroleum from the UK’s continental shelf became a statutory duty. Future governments are now legally bound to squeeze every possible drop out of the ground.

The idea came from a government review conducted by Sir Ian Wood, the billionaire owner of an inherited company – the Wood Group – that provides services to the oil and gas industry. While Sir Ian says his recommendations “received overwhelming industry support”, his team interviewed no one outside either the oil business or government. It contains no sign that I can detect of any feedback from environment groups or scientists.

Then serendipitously, yesterday morning up pops an essay from Michael Klare published on Tom Dispatch that continues to underline the absence, the global absence, of any form of smart thinking.  It is republished today with the kind permission of Tom Engelhardt.

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Tomgram: Michael Klare, Is Big Oil Finally Entering a Climate Change World?

Posted by Michael Klare at 8:00am, March 12, 2015.
Follow TomDispatch on Twitter @TomDispatch.

Welcome to the asylum! I’m talking, of course, about this country, or rather the world Big Oil spent big bucks creating.You know, the one in which the obvious — climate change — is doubted and denied, and in which the new Republican Congress is actively opposed to doing anything about it. Just the other day, for instance, Senate Majority Leader Mitch McConnell wrote a column in his home state paper, the Lexington Herald-Leader, adopting the old Nancy Reagan slogan “just say no” to climate change. The senator from Coalville, smarting over the Obama administration’s attempts to reduce carbon emissions from coal-fired power plants, is urging state governors to simply ignore the Environmental Protection Agency’s proposed “landmark limits” on those plants — to hell with the law and to hell, above all, with climate change. But it’s probably no news to you that the inmates are now running the asylum.

Just weeks ago, an example of Big Energy’s largess when it comes to sowing doubt about climate change surfaced. A rare scientific researcher, Wei-Hock Soon, who has published work denying the reality of climate change — the warming of the planet, he claims, is a result of “variations in the sun’s energy” — turned out to have received $1.2 million from various fossil fuel outfits, according to recently released documents; nor did he bother to disclose such support to any of the publications using his work. “The documents,” reported the New York Times, “show that Dr. Soon, in correspondence with his corporate funders, described many of his scientific papers as ‘deliverables’ that he completed in exchange for their money. He used the same term to describe testimony he prepared for Congress.”

There’s nothing new in this. Big Energy (like Big Tobacco before it) has for years been using a tiny cadre of scientists to sow uncertainty about the reality of climate change. Naomi Oreskes and Erik Conway wrote a now-classic investigative book, Merchants of Doubt, about just how the fossil fuel companies pulled this off, creating a public sense of doubt where a scientific one didn’t exist. Now, the book has been made into a striking documentary film, which has just opened nationally. Someday, perhaps, all of this will enter a court of law where those who knowingly perpetrated fraud on the American and global publics and in the process threatened humanity with a disaster of potentially apocalyptic proportions will get their just desserts. On that distant day when those who ran the planet into the ground for corporate profits have to pay for their criminal acts, Merchants of Doubt will undoubtedly be exhibit one for the prosecution.

In the meantime, TomDispatch regular Michael Klare continues his invaluable chronicling at this site of the depredations of Big Oil on this fragile planet of ours. Tom

Big Oil’s Broken Business Model

The Real Story Behind the Oil Price Collapse
By Michael T. Klare

Many reasons have been provided for the dramatic plunge in the price of oil to about $60 per barrel (nearly half of what it was a year ago): slowing demand due to global economic stagnation; overproduction at shale fields in the United States; the decision of the Saudis and other Middle Eastern OPEC producers to maintain output at current levels (presumably to punish higher-cost producers in the U.S. and elsewhere); and the increased value of the dollar relative to other currencies. There is, however, one reason that’s not being discussed, and yet it could be the most important of all: the complete collapse of Big Oil’s production-maximizing business model.

Until last fall, when the price decline gathered momentum, the oil giants were operating at full throttle, pumping out more petroleum every day. They did so, of course, in part to profit from the high prices. For most of the previous six years, Brent crude, the international benchmark for crude oil, had been selling at $100 or higher. But Big Oil was also operating according to a business model that assumed an ever-increasing demand for its products, however costly they might be to produce and refine. This meant that no fossil fuel reserves, no potential source of supply — no matter how remote or hard to reach, how far offshore or deeply buried, how encased in rock — was deemed untouchable in the mad scramble to increase output and profits.

In recent years, this output-maximizing strategy had, in turn, generated historic wealth for the giant oil companies. Exxon, the largest U.S.-based oil firm, earned an eye-popping $32.6 billion in 2013 alone, more than any other American company except for Apple. Chevron, the second biggest oil firm, posted earnings of $21.4 billion that same year. State-owned companies like Saudi Aramco and Russia’s Rosneft also reaped mammoth profits.

How things have changed in a matter of mere months. With demand stagnant and excess production the story of the moment, the very strategy that had generated record-breaking profits has suddenly become hopelessly dysfunctional.

To fully appreciate the nature of the energy industry’s predicament, it’s necessary to go back a decade to 2005, when the production-maximizing strategy was first adopted. At that time, Big Oil faced a critical juncture. On the one hand, many existing oil fields were being depleted at a torrid pace, leading experts to predict an imminent “peak” in global oil production, followed by an irreversible decline; on the other, rapid economic growth in China, India, and other developing nations was pushing demand for fossil fuels into the stratosphere. In those same years, concern over climate change was also beginning to gather momentum, threatening the future of Big Oil and generating pressures to invest in alternative forms of energy.

A “Brave New World” of Tough Oil

No one better captured that moment than David O’Reilly, the chairman and CEO of Chevron. “Our industry is at a strategic inflection point, a unique place in our history,” he told a gathering of oil executives that February. “The most visible element of this new equation,” he explained in what some observers dubbed his “Brave New World” address, “is that relative to demand, oil is no longer in plentiful supply.” Even though China was sucking up oil, coal, and natural gas supplies at a staggering rate, he had a message for that country and the world: “The era of easy access to energy is over.”

To prosper in such an environment, O’Reilly explained, the oil industry would have to adopt a new strategy. It would have to look beyond the easy-to-reach sources that had powered it in the past and make massive investments in the extraction of what the industry calls “unconventional oil” and what I labeled at the time “tough oil”: resources located far offshore, in the threatening environments of the far north, in politically dangerous places like Iraq, or in unyielding rock formations like shale. “Increasingly,” O’Reilly insisted, “future supplies will have to be found in ultradeep water and other remote areas, development projects that will ultimately require new technology and trillions of dollars of investment in new infrastructure.”

klarepbk2012For top industry officials like O’Reilly, it seemed evident that Big Oil had no choice in the matter. It would have to invest those needed trillions in tough-oil projects or lose ground to other sources of energy, drying up its stream of profits. True, the cost of extracting unconventional oil would be much greater than from easier-to-reach conventional reserves (not to mention more environmentally hazardous), but that would be the world’s problem, not theirs. “Collectively, we are stepping up to this challenge,” O’Reilly declared. “The industry is making significant investments to build additional capacity for future production.”

On this basis, Chevron, Exxon, Royal Dutch Shell, and other major firms indeed invested enormous amounts of money and resources in a growing unconventional oil and gas race, an extraordinary saga I described in my book The Race for What’s Left. Some, including Chevron and Shell, started drilling in the deep waters of the Gulf of Mexico; others, including Exxon, commenced operations in the Arctic and eastern Siberia. Virtually every one of them began exploiting U.S. shale reserves via hydro-fracking.

Only one top executive questioned this drill-baby-drill approach: John Browne, then the chief executive of BP. Claiming that the science of climate change had become too convincing to deny, Browne argued that Big Energy would have to look “beyond petroleum” and put major resources into alternative sources of supply. “Climate change is an issue which raises fundamental questions about the relationship between companies and society as a whole, and between one generation and the next,” he had declared as early as 2002. For BP, he indicated, that meant developing wind power, solar power, and biofuels.

Browne, however, was eased out of BP in 2007 just as Big Oil’s output-maximizing business model was taking off, and his successor, Tony Hayward, quickly abandoned the “beyond petroleum” approach. “Some may question whether so much of the [world’s energy] growth needs to come from fossil fuels,” he said in 2009. “But here it is vital that we face up to the harsh reality [of energy availability].” Despite the growing emphasis on renewables, “we still foresee 80% of energy coming from fossil fuels in 2030.”

Under Hayward’s leadership, BP largely discontinued its research into alternative forms of energy and reaffirmed its commitment to the production of oil and gas, the tougher the better. Following in the footsteps of other giant firms, BP hustled into the Arctic, the deep water of the Gulf of Mexico, and Canadian tar sands, a particularly carbon-dirty and messy-to-produce form of energy. In its drive to become the leading producer in the Gulf, BP rushed the exploration of a deep offshore field it called Macondo, triggering the Deepwater Horizon blow-out of April 2010 and the devastating oil spill of monumental proportions that followed.

Over the Cliff

By the end of the first decade of this century, Big Oil was united in its embrace of its new production-maximizing, drill-baby-drill approach. It made the necessary investments, perfected new technology for extracting tough oil, and did indeed triumph over the decline of existing, “easy oil” deposits. In those years, it managed to ramp up production in remarkable ways, bringing ever more hard-to-reach oil reservoirs online.

According to the Energy Information Administration (EIA) of the U.S. Department of Energy, world oil production rose from 85.1 million barrels per day in 2005 to 92.9 million in 2014, despite the continuing decline of many legacy fields in North America and the Middle East. Claiming that industry investments in new drilling technologies had vanquished the specter of oil scarcity, BP’s latest CEO, Bob Dudley, assured the world only a year ago that Big Oil was going places and the only thing that had “peaked” was “the theory of peak oil.”

That, of course, was just before oil prices took their leap off the cliff, bringing instantly into question the wisdom of continuing to pump out record levels of petroleum. The production-maximizing strategy crafted by O’Reilly and his fellow CEOs rested on three fundamental assumptions: that, year after year, demand would keep climbing; that such rising demand would ensure prices high enough to justify costly investments in unconventional oil; and that concern over climate change would in no significant way alter the equation. Today, none of these assumptions holds true.

Demand will continue to rise — that’s undeniable, given expected growth in world income and population — but not at the pace to which Big Oil has become accustomed. Consider this: in 2005, when many of the major investments in unconventional oil were getting under way, the EIA projected that global oil demand would reach 103.2 million barrels per day in 2015; now, it’s lowered that figure for this year to only 93.1 million barrels. Those 10 million “lost” barrels per day in expected consumption may not seem like a lot, given the total figure, but keep in mind that Big Oil’s multibillion-dollar investments in tough energy were predicated on all that added demand materializing, thereby generating the kind of high prices needed to offset the increasing costs of extraction. With so much anticipated demand vanishing, however, prices were bound to collapse.

Current indications suggest that consumption will continue to fall short of expectations in the years to come. In an assessment of future trends released last month, the EIA reported that, thanks to deteriorating global economic conditions, many countries will experience either a slower rate of growth or an actual reduction in consumption. While still inching up, Chinese consumption, for instance, is expected to grow by only 0.3 million barrels per day this year and next — a far cry from the 0.5 million barrel increase it posted in 2011 and 2012 and its one million barrel increase in 2010. In Europe and Japan, meanwhile, consumption is actually expected to fall over the next two years.

And this slowdown in demand is likely to persist well beyond 2016, suggests the International Energy Agency (IEA), an arm of the Organization for Economic Cooperation and Development (the club of rich industrialized nations). While lower gasoline prices may spur increased consumption in the United States and a few other nations, it predicted, most countries will experience no such lift and so “the recent price decline is expected to have only a marginal impact on global demand growth for the remainder of the decade.”

This being the case, the IEA believes that oil prices will only average about $55 per barrel in 2015 and not reach $73 again until 2020. Such figures fall far below what would be needed to justify continued investment in and exploitation of tough-oil options like Canadian tar sands, Arctic oil, and many shale projects. Indeed, the financial press is now full of reports on stalled or cancelled mega-energy projects. Shell, for example, announced in January that it had abandoned plans for a $6.5 billion petrochemical plant in Qatar, citing “the current economic climate prevailing in the energy industry.” At the same time, Chevron shelved its plan to drill in the Arctic waters of the Beaufort Sea, while Norway’s Statoil turned its back on drilling in Greenland.

There is, as well, another factor that threatens the wellbeing of Big Oil: climate change can no longer be discounted in any future energy business model. The pressures to deal with a phenomenon that could quite literally destroy human civilization are growing. Although Big Oil has spent massive amounts of money over the years in a campaign to raise doubts about the science of climate change, more and more people globally are starting to worry about its effects — extreme weather patterns, extreme storms, extreme drought, rising sea levels, and the like — and demanding that governments take action to reduce the magnitude of the threat.

Europe has already adopted plans to lower carbon emissions by 20% from 1990 levels by 2020 and to achieve even greater reductions in the following decades. China, while still increasing its reliance on fossil fuels, has at least finally pledged to cap the growth of its carbon emissions by 2030 and to increase renewable energy sources to 20% of total energy use by then. In the United States, increasingly stringent automobile fuel-efficiency standards will require that cars sold in 2025 achieve an average of 54.5 miles per gallon, reducing U.S. oil demand by 2.2 million barrels per day. (Of course, the Republican-controlled Congress — heavily subsidized by Big Oil — will do everything it can to eradicate curbs on fossil fuel consumption.)

Still, however inadequate the response to the dangers of climate change thus far, the issue is on the energy map and its influence on policy globally can only increase. Whether Big Oil is ready to admit it or not, alternative energy is now on the planetary agenda and there’s no turning back from that. “It is a different world than it was the last time we saw an oil-price plunge,” said IEA executive director Maria van der Hoeven in February, referring to the 2008 economic meltdown. “Emerging economies, notably China, have entered less oil-intensive stages of development… On top of this, concerns about climate change are influencing energy policies [and so] renewables are increasingly pervasive.”

The oil industry is, of course, hoping that the current price plunge will soon reverse itself and that its now-crumbling maximizing-output model will make a comeback along with $100-per-barrel price levels. But these hopes for the return of “normality” are likely energy pipe dreams. As van der Hoeven suggests, the world has changed in significant ways, in the process obliterating the very foundations on which Big Oil’s production-maximizing strategy rested. The oil giants will either have to adapt to new circumstances, while scaling back their operations, or face takeover challenges from more nimble and aggressive firms.

Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.

Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Rebecca Solnit’s Men Explain Things to Me, and Tom Engelhardt’s latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

Copyright 2015 Michael T. Klare

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Both yesterday’s essay from George Monbiot and Michael Klare’s essay above are not quick reads.  But reading them thoroughly is rewarding because it underlines the degree to which the lives of millions of hard-working citizens comes to naught when big money, power and politics are involved.

Voting for hope.

Considered reflections to yesterday’s post.

Yesterday, I published Bitter Lake ripples, a post that, in turn, was my response to the fabulous comments left by readers of my earlier post Oil, money, banks, guns and blood.  The overall feeling I read in those comments was one of terrible uncertainty about these present times. Or in the words of Sue Dreamwalker in response to a comment left by Patrice Ayme.

I have to say Patrice.. I agree with your comment here… And yes people are not understanding the whole of what is going on.. The Truth of it would seem unbelievable..

Patrice, in a post published on Monday entitled Arm Ukraine, Disarm Bankers sent shivers down my spine with the suggestion, the strong suggestion, that Ukraine, if not handled properly by ‘the West’ could be a tipping point into another major war between Europe (and the USA?) and Russia.  Here’s an extract from Patrice’s post:

The way it was said, in conjunction with Putin’s recent admission that Russian “volunteers” were fighting in Ukraine, is basically a declaration of war. On top of this, the head of the Eastern Ukraine rebels declared that he was raising a 100,000 men army. This means he expect tens of thousands of Russian troops (Putin’s “volunteers”) to cross the border.

This is not contained. Putin is billowing out of control, all by himself. One has to see what the combination of Putin’s dictatorial powers, media control, psychology and sinking economy leads to. Let me spell it out.

Once Putin has conquered Ukraine, he will push for more: he is already partly occupying Moldavia, WEST of Ukraine. Putin is also messing up with Hungary: there were street demonstrations about this, just yesterday, in Budapest. Putin uses the fact that Hungary is extremely dependent upon Russia’s fossil fuels. Merkel, who desperately wants to avoid war with Putin, flew to Budapest in emergency, to sort the situation out.

Patrice continues the warning of possible terrible times ahead in a subsequent post: Mental Inertia, Evil’s Friend, published yesterday.

Just as it takes a long time to erect, or change a vast building, so it is with the brain. The brain has inertia. Thus psychological inertia.

This mental inertia is why human beings tend to go on with a task, or with an attitude, once they got launched into it (a Jihadist laden with explosives just flew by).

Once a force is applied to an object, for example a propaganda to a brain, it tends to gather momentum, and develop ever more inertia.

Putin of course creates his own propaganda, and then can listen to it, reinforcing his deviance, in a self-reflective way. It’s all the more efficient if others repeat his ideas, and he listens to them. Actually that’s not just a problem with Putin, but with all Great Leaders. (And that’s one reason why Great Leadership has to be discontinued, and replaced by Direct Democracy.)

This amplifies the inertia.

By not fiercely opposing Putin, one collaborates with him. It is not just a question of sanctions. Putin is a liar, and an aggressive one, he should be publicly called for what he is.

Thus in terms of my own personal ideas, I freely admit to struggling to see things clearly.  Simply because I find it very difficult to get to the heart of these international issues through not having access to clear, impartial commentators who know what they are speaking about. As Patrice infers much of the media is corrupted by self-serving agendas.

However, on balance, despite Patrice Ayme being a ‘nom-de-plume’ and me having no idea who the person behind the label really is, I do trust his (?) writings and believe that Patrice writes from a position of having very good access to the inner workings of the US Government. (I am not privy to anything to support my proposition; just my guess.)

The other commentator whose opinions and judgements are trusted by me in equal fashion is George Monbiot. Mr. Monbiot has been gracious to grant permission to me for his essays to be republished here on Learning from Dogs.

On the 28th January, Mr. Monbiot published an essay that in words better than I could write encapsulates my response to the comments left on my Bitter Lake ripples post. Here is that post from George Mobiot.

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The Lamps Are Coming On All Over Europe

28th January 2015

By George Monbiot, published in the Guardian 28th January 2015

Here is the first rule of politics: if you never vote for what you want, you never get it. We are told at every election to hold our noses, forget the deficiencies and betrayals and vote Labour yet again, for fear of something worse(1). And there will, of course, always be something worse. So at what point should we vote for what we want, rather than keep choosing between two versions of market fundamentalism? Sometime this century? Or in the next? Follow the advice of the noseholders and we will be lost forever in Labour’s Bermuda triangulation.

Perhaps there was a time when this counsel of despair made sense. No longer. The lamps are coming on all over Europe. As in South America, political shifts that seemed impossible a few years earlier are now shaking the continent. We knew that another world was possible. Now, it seems, another world is here: the sudden death of the neoliberal consensus. Any party that claims to belong to the left but does not grasp this is finished.

Syriza, Podemos, Sinn Fein, the SNP; now a bright light is shining in England too, as the Green party stokes the radical flame that Labour left to gutter. On Tuesday morning, its membership in England and Wales passed 50,000(2); a year ago it was less than 15,000. A survey by the website voteforpolicies.org.uk reports that in blind tests (the 500,000 people it has polled were unaware of which positions belong to which parties), the Green Party’s policies are more popular than those of any other. If people voted for what they want, the Greens would be the party of government.

There are many reasons for this surge, but one of them must be a sense of popular ownership. Green party policies are determined democratically. Emerging from debates led mostly by younger members(3), they feel made for their time, while those of the major parties appear trapped in the 1980s.

Let me give you a flavour of the political transformation the Green Party seeks. There would be no prime minister of the kind we have today, no secretaries of state. Instead, Parliament would elect policy committees which in turn appoint convenors(4). It would also elect a First Minister, to chair the convenors’ committee. Parliament, in other words, would be sovereign rather than subject to the royal prerogative prime ministers abuse, leaders would be elected by the whole body and its various parties would be obliged to work together, rather than engage in perennial willy-waving.

Local authorities would set the taxes they chose. Local currencies, which have proved elsewhere to have transformative effects in depressed areas (see Bernard Lietaer’s book The Future of Money(5)) would become legal tender(6). Private banks would no longer be permitted to create money(7) (at the moment they issue 97% of our money supply, in the form of debt). Workers in limited companies would have the legal right, following a successful ballot, to buy them out and create cooperatives(8), with funding from a national investment bank.

The hideously unfair council tax system would be replaced by land value taxation(9), through which everyone would benefit from the speculative gains now monopolised by a few. All citizens would receive, unconditionally, a basic income(10), putting an end to insecurity and fear and to the punitive conditions attached to benefits, which have reduced recipients almost to the status of slaves.

Compare this vision of hope to Labour’s politics of fear. Compare it to a party so mesmerised by the City and the Daily Mail that it has promised to sustain the Tory cuts for “decades ahead”(11) and to “finish that task on which [the Chancellor] has failed”: eradicating the deficit.

Far too late, a former Labour minister, Peter Hain, now recognises that, inasmuch as the books need balancing, it can be done through measures like a financial transaction tax and a reform of national insurance(12), rather than through endless cuts. These opportunities have been dangling in front of Labour’s nose since 2008(13), but because appeasing the banks and the corporate press was deemed more important than preventing pain and suffering for millions, they have not been taken. Hain appears belatedly to have realised that austerity is a con, a deliberate rewriting of the social contract to divert our common wealth to the elite. There’s no evidence that the frontbench is listening.

Whether it wins or loses the general election, Labour is probably finished. It would take a generation to replace the sycophants who let Blair and Brown rip their party’s values to shreds. By then it will be history. If Labour wins in May, it is likely to destroy itself faster and more surely than if it loses, through the continued implementation of austerity. That is the lesson from Europe.

Fearful voting shifts the whole polity to the right. Tony Blair’s obeisance to corporate power enabled the vicious and destructive policies the Coalition now pursues(14). The same legacy silences Labour in opposition, as it pioneered most of the policies it should oppose. It is because we held our noses before that there is a greater stink today. So do we keep voting for a diluted version of Tory politics, for fear of the concentrate? Or do we start to vote for what we want? Had the people of this nation heeded the noseholders a century ago, we would still be waiting for the Liberal Party to deliver universal healthcare and the welfare state.

Society moves from the margins, not the centre. Those who wish for change must think of themselves as the sacrificial margin: the pioneering movement that might not succeed immediately, but that will eventually deliver sweeping change. We cannot create a successful alternative to the parties that have betrayed us until we start voting for it. Do we start walking, or just keep talking about the journey we might one day take?

Power at the moment is lethal. Whichever major party wins this election, it is likely to destroy itself through the pursuit of policies that almost no one wants. Yes, it might mean five more years of pain, though I suspect in these fissiparous times it won’t last so long. And then it all opens up. This is what we must strive for; this is the process that begins in May by voting, regardless of tactical considerations, for parties offering a genuine alternative. Change arises from conviction. Stop voting in fear. Start voting for hope.

http://www.monbiot.com

References:

1. http://www.theguardian.com/commentisfree/2014/dec/09/labour-tories-vote-osborne

2. Green Party office, by email, 27th January 2015

3. http://bright-green.org/green-movement/how-the-green-party-changed-itself-to-make-the-greensurge-possible/

4. http://policy.greenparty.org.uk/pa.html

5. http://www.lietaer.com/writings/books/the-future-of-money/

6. http://policy.greenparty.org.uk/ec.html#EC678

7. http://policy.greenparty.org.uk/ec.html

8. http://policy.greenparty.org.uk/in.html

9. http://policy.greenparty.org.uk/ec.html

10. http://policy.greenparty.org.uk/ec.html

11. http://press.labour.org.uk/post/87284550049/long-termism-in-public-finance-speech-by-chris

12. http://www.theguardian.com/politics/2015/jan/22/labour-radical-counter-greens-peter-hain

13. I was not the first to propose these alternatives to austerity Peter Hain has just discovered, but even I had got there by 2011: http://www.theguardian.com/commentisfree/2011/mar/06/march-26-protest-aims-first-draft

14. http://www.monbiot.com/books/captive-state/

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I said that Mr. Monbiot’s words were much finer than my own. No better illustrated than by his closing three sentences:

“Change arises from conviction. Stop voting in fear. Start voting for hope.”