2017: The Year When The World Economy Starts Coming Apart

Tyler Durden's picture

Submitted by Gail Tverberg via Our Finite World blog,

Some people would argue that 2016 was the year that the world economy started to come apart, with the passage of Brexit and the election of Donald Trump. Whether or not the “coming apart” process started in 2016, in my opinion we are going to see many more steps in this direction in 2017. Let me explain a few of the things I see.

[1] Many economies have collapsed in the past. The world economy is very close to the turning point where collapse starts in earnest.  

Figure 1

Figure 1

The history of previous civilizations rising and eventually collapsing is well documented.(See, for example, Secular Cycles.)

To start a new cycle, a group of people would find a new way of doing things that allowed more food and energy production (for instance, they might add irrigation, or cut down trees for more land for agriculture). For a while, the economy would expand, but eventually a mismatch would arise between resources and population. Either resources would fall too low (perhaps because of erosion or salt deposits in the soil), or population would rise too high relative to resources, or both.

Even as resources per capita began falling, economies would continue to have overhead expenses, such as the need to pay high-level officials and to fund armies. These overhead costs could not easily be reduced, and might, in fact, grow as the government attempted to work around problems. Collapse occurred because, as resources per capita fell (for example, farms shrank in size), the earnings of workers tended to fall. At the same time, the need for taxes to cover what I am calling overhead expenses tended to grow. Tax rates became too high for workers to earn an adequate living, net of taxes. In some cases, workers succumbed to epidemics because of poor diets. Or governments would collapse, from lack of adequate tax revenue to support them.

Our current economy seems to be following a similar pattern. We first used fossil fuels to allow the population to expand, starting about 1800. Things went fairly well until the 1970s, when oil prices started to spike. Several workarounds (globalization, lower interest rates, and more use of debt) allowed the economy to continue to grow. The period since 1970 might be considered a period of “stagflation.” Now the world economy is growing especially slowly. At the same time, we find ourselves with “overhead” that continues to grow (for example, payments to retirees, and repayment of debt with interest). The pattern of past civilizations suggests that our civilization could also collapse.

Historically, economies have taken many years to collapse; I show a range of 20 to 50 years in Figure 1. We really don’t know if collapse would take that long now. Today, we are dependent on an international financial system, an international trade system, electricity, and the availability of oil to make our vehicles operate. It would seem as if this time collapse could come much more quickly.

With the world economy this close to collapse, some individual countries are even closer to collapse. This is why we can expect to see sharp downturns in the fortunes of some countries. If contagion is not too much of a problem, other countries may continue to do fairly well, even as individual small countries fail.

[2] Figures to be released in 2017 and future years are likely to show that the peak in world coal consumption occurred in 2014. This is important, because it means that countries that depend heavily on coal, such as China and India, can expect to see much slower economic growth, and more financial difficulties.

While reports of international coal production for 2016 are not yet available, news articles and individual country data strongly suggest that world coal production is past its peak. The IEA also reports a substantial drop in coal production for 2016.

Figure 2. World coal consumption. Information through 2015 based on BP 2016 Statistical Review of World Energy data. Estimates for China, US, and India are based on partial year data and news reports. 2016 amount for "other" estimated based on recent trends.

Figure 2. World coal consumption. Information through 2015 based on BP 2016 Statistical Review of World Energy data. Estimates for China, US, and India are based on partial year data and news reports. 2016 amount for “other” estimated based on recent trends.

The reason why coal production is dropping is because of low prices, low profitability for producers, and gluts indicating oversupply. Also, comparisons of coal prices with natural gas prices are inducing switching from coal to natural gas. The problem, as we will see later, is that natural gas prices are also artificially low, compared to the cost of production, So the switch is being made to a different type of fossil fuel, also with an unsustainably low price.

Prices for coal in China have recently risen again, thanks to the closing of a large number of unprofitable coal mines, and a mandatory reduction in hours for other coal mines. Even though prices have risen, production may not rise to match the new prices. One article reports:

. . . coal companies are reportedly reluctant to increase output as a majority of the country’s mines are still losing money and it will take time to recoup losses incurred in recent years.

Also, a person can imagine that it might be difficult to obtain financing, if coal prices have only “sort of” recovered.

I wrote last year about the possibility that coal production was peaking. This is one chart I showed, with data through 2015. Coal is the second most utilized fuel in the world. If its production begins declining, it will be difficult to offset the loss of its use with increased use of other types of fuels.

Figure 3. World per capita energy consumption by fuel, based on BP 2016 SRWE.

Figure 3. World per capita energy consumption by fuel, based on BP 2016 SRWE.

[3] If we assume that coal supplies will continue to shrink, and other production will grow moderately, we can expect total energy consumption to be approximately flat in 2017. 

Figure 5. World energy consumption forecast, based on BP Statistical Review of World Energy data through 2015, and author's estimates for 2016 and 2017.

Figure 4. World energy consumption forecast, based on BP Statistical Review of World Energy data through 2015, and author’s estimates for 2016 and 2017.

In a way, this is an optimistic assessment, because we know that efforts are underway to reduce oil production, in order to prop up prices. We are, in effect, assuming either that (a) oil prices won’t really rise, so that oil consumption will grow at a rate similar to that in the recent past or (b) while oil prices will rise significantly to help producers, consumers won’t cut back on their consumption in response to the higher prices.

[4] Because world population is rising, the forecast in Figure 4 suggests that per capita energy consumption is likely to shrink. Shrinking energy consumption per capita puts the world (or individual countries in the world) at the risk of recession.

Figure 5 shows indicated per capita energy consumption, based on Figure 4. It is clear that energy consumption per capita has already started shrinking, and is expected to shrink further. The last time that happened was in the Great Recession of 2007-2009.

Figure 5. World energy consumption per capita based on energy consumption estimates in Figure 4 and UN 2015 Medium Population Growth Forecast.

Figure 5. World energy consumption per capita based on energy consumption estimates in Figure 4 and UN 2015 Medium Population Growth Forecast.

There tends to be a strong correlation between world economic growth and world energy consumption, because energy is required to transform materials into new forms, and to transport goods from one place to another.

In the recent past, the growth in GDP has tended to be a little higher than the growth in the use of energy products. One reason why GDP growth has been a percentage point or two higher than energy consumption growth is because, as economies become richer, citizens can afford to add more services to the mix of goods and services that they purchase (fancier hair cuts and more piano lessons, for example). Production of services tends to use proportionately less energy than creating goods does; as a result, a shift toward a heavier mix of services tends to lead to GDP growth rates that are somewhat higher than the growth in energy consumption.

A second reason why GDP growth has tended to be a little higher than growth in energy consumption is because devices (such as cars, trucks, air conditioners, furnaces, factory machinery) are becoming more efficient. Growth in efficiency occurs if consumers replace old inefficient devices with new more efficient devices. If consumers become less wealthy, they are likely to replace devices less frequently, leading to slower growth in efficiency. Also, as we will discuss later in this  post, recently there has been a tendency for fossil fuel prices to remain artificially low. With low prices, there is little financial incentive to replace an old inefficient device with a new, more efficient device. As a result, new purchases may be bigger, offsetting the benefit of efficiency gains (purchasing an SUV to replace a car, for example).

Thus, we cannot expect that the past pattern of GDP growing a little faster than energy consumption will continue. In fact, it is even possible that the leveraging effect will start working the “wrong” way, as low fossil fuel prices induce more fuel use, not less. Perhaps the safest assumption we can make is that GDP growth and energy consumption growth will be equal. In other words, if world energy consumption is 0% (as in Figure 4), world GDP growth will also be 0%. This is not something that world leaders would like at all.

The situation we are encountering today seems to be very similar to the falling resources per capita problem that seemed to push early economies toward collapse in [1]. Figure 5 above suggests that, on average, the paychecks of workers in 2017 will tend to purchase fewer goods and services than they did in 2016 and 2015. If governments need higher taxes to fund rising retiree costs and rising subsidies for “renewables,” the loss in the after-tax purchasing power of workers will be even greater than Figure 5 suggests.

[5] Because countries are in this precarious position of falling resources per capita, we should expect to see a rise in protectionism, and the addition of new tariffs.

Clearly, governments do not want the problem of falling wages (or rather, falling goods that wages can buy) impacting their countries. So the new game becomes, “Push the problem elsewhere.”

In economic language, the world economy is becoming a “Zero-sum” game. Any gain in the production of goods and services by one country is a loss to another country. Thus, it is in each country’s interest to look out for itself. This is a major change from the shift toward globalization we have experienced in recent years. China, as a major exporter of goods, can expect to be especially affected by this changing view.

[6] China can no longer be expected to pull the world economy forward.

China’s economic growth rate is likely to be lower, for many reasons. One reason is the financial problems of coal mines, and the tendency of coal production to continue to shrink, once it starts shrinking. This happens for many reasons, one of them being the difficulty in obtaining loans for expansion, when prices still seem to be somewhat low, and the outlook for the further increases does not appear to be very good.

Another reason why China’s economic growth rate can be expected to fall is the current overbuilt situation with respect to apartment buildings, shopping malls, factories, and coal mines. As a result, there seems to be little need for new buildings and operations of these types. Another reason for slower economic growth is the growing protectionist stance of trade partners. A fourth reason is the fact that many potential buyers of the goods that China is producing are not doing very well economically (with the US being a major exception). These buyers cannot afford to increase their purchases of imports from China.

With these growing headwinds, it is quite possible that China’s total energy consumption in 2017 will shrink. If this happens, there will downward pressure on world fossil fuel prices. Oil prices may fall, despite production cuts by OPEC and other countries.

China’s slowing economic growth is likely to make its debt problem harder to solve. We should not be too surprised if debt defaults become a more significant problem, or if the yuan falls relative to other currencies.

India, with its recent recall of high denomination currency, as well as its problems with low coal demand, is not likely to be a great deal of help aiding the world economy to grow, either. India is also a much smaller economy than China.

[7] While Item [2] talked about peak coal, there is a very significant chance that we will be hitting peak oil and peak natural gas in 2017 or 2018, as well.  

If we look at historical prices, we see that the prices of oil, coal and natural gas tend to rise and fall together.

Figure 6. Prices of oil, call and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

Figure 6. Prices of oil, coal and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

The reason that fossil fuel prices tend to rise and fall together is because these prices are tied to “demand” for goods and services in general, such as for new homes, cars, and factories. If wages are rising rapidly, and debt is rising rapidly, it becomes easier for consumers to buy goods such as homes and cars. When this happens, there is more “demand” for the commodities used to make and operate homes and cars. Prices for commodities of many types, including fossil fuels, tend to rise, to enable more production of these items.

Of course, the reverse happens as well. If workers become poorer, or debt levels shrink, it becomes harder to buy homes and cars. In this case, commodity prices, including fossil fuel prices, tend to fall.  Thus, the problem we saw above in [2] for coal would be likely to happen for oil and natural gas, as well, because the prices of all of the fossil fuels tend to move together. In fact, we know that current oil prices are too low for oil producers. This is the reason why OPEC and other oil producers have cut back on production. Thus, the problem with overproduction for oil seems to be similar to the overproduction problem for coal, just a bit delayed in timing.

In fact, we also know that US natural gas prices have been very low for several years, suggesting another similar problem. The United States is the single largest producer of natural gas in the world. Its natural gas production hit a peak in mid 2015, and production has since begun to decline. The decline comes as a response to chronically low prices, which make it unprofitable to extract natural gas. This response sounds similar to China’s attempted solution to low coal prices.

Figure 7. US Natural Gas production based on EIA data.

Figure 7. US Natural Gas production based on EIA data.

The problem is fundamentally the fact that consumers cannot afford goods made using fossil fuels of any type, if prices actually rise to the level producers need, which tends to be at least five times the 1999 price level. (Note peak price levels compared to 1999 level on Figure 6.) Wages have not risen by a factor of five since 1999, so paying the prices that fossil fuel producers need for profitability and growing production is out of the question. No amount of added debt can hide this problem. (While this reference is to 1999 prices, the issue really goes back much farther, to prices before the price spikes of the 1970s.)

US natural gas producers also have plans to export natural gas to Europe and elsewhere, as liquefied natural gas (LNG). The hope, of course, is that a large amount of exports will raise US natural gas prices. Also, the hope is that Europeans will be able to afford the high-priced natural gas shipped to them. Unless someone can raise the wages of both Europeans and Americans, I would not count on LNG prices actually rising to the level needed for profitability, and staying at such a high level. Instead, they are likely to bounce up, and quickly drop back again.

[8] Unless oil prices rise very substantially, oil exporters will find themselves exhausting their financial reserves in a very short time (perhaps a year or two). Unfortunately, oil importers cannot withstand higher prices, without going into recession. 

We have a no win situation, no matter what happens. This is true with all fossil fuels, but especially with oil, because of its high cost and thus necessarily high price. If oil prices stay at the same level or go down, oil exporters cannot get enough tax revenue, and oil companies in general cannot obtain enough funds to finance the development of new wells and payment of dividends to shareholders. If oil prices do rise by a very large amount for very long, we are likely headed into another major recession, with many debt defaults.

[9] US interest rates are likely to rise in the next year or two, whether or not this result is intended by the Federal reserve.

This issue here is somewhat obscure. The issue has to do with whether the United States can find foreign buyers for its debt, often called US Treasuries, and the interest rates that the US needs to pay on this debt. If buyers are very plentiful, the interest rates paid by he US government can be quite low; if few buyers are available, interest rates must be higher.

Back when Saudi Arabia and other oil exporters were doing well financially, they often bought US Treasuries, as a way to retain the benefit of their new-found wealth, which they did not want to spend immediately. Similarly, when China was doing well as an exporter, it often bought US Treasuries, as a way retaining the wealth it gained from exports, but didn’t yet need for purchases.

When these countries bought US Treasuries, there were several beneficial results:

  • Interest rates on US Treasuries tended to stay artificially low, because there was a ready market for its debt.
  • The US could afford to import high-priced oil, because the additional debt needed to buy the oil could easily be sold (to Saudi Arabia and other oil producing nations, no less).
  • The US dollar tended to stay lower relative to other currencies, making oil more affordable to other countries than it otherwise might be.
  • Investment in countries outside the US was encouraged, because debt issued by these other countries tended to bear higher interest rates than US debt. Also, relatively low oil prices in these countries (because of the low level of the dollar) tended to make investment profitable in these countries.

The effect of these changes was somewhat similar to the US having its own special Quantitative Easing (QE) program, paid for by some of the counties with trade surpluses, instead of by its central bank. This QE substitute tended to encourage world economic growth, for the reasons mentioned above.

Once the fortunes of the countries that used to buy US Treasuries changes, the pattern of buying of US Treasuries tends to change to selling of US Treasuries. Even not purchasing the same quantity of US Treasuries as in the past becomes an adverse change, if the US has a need to keep issuing US Treasuries as in the past, or if it wants to keep rates low.

Unfortunately, losing this QE substitute tends to reverse the favorable effects noted above. One effect is that the dollar tends to ride higher relative to other currencies, making the US look richer, and other countries poorer. The “catch” is that as the other countries become poorer, it becomes harder for them to repay the debt that they took out earlier, which was denominated in US dollars.

Another problem, as this strange type of QE disappears, is that the interest rates that the US government needs to pay in order to issue new debt start rising. These higher rates tend to affect other rates as well, such as mortgage rates. These higher interest rates act as a drag on the economy, tending to push it toward recession.

Higher interest rates also tend to decrease the value of assets, such as homes, farms, outstanding bonds, and shares of stock. This occurs because fewer buyers can afford to buy these goods, with the new higher interest rates. As a result, stock prices can be expected to fall. Prices of homes and of commercial buildings can also be expected to fall. The value of bonds held by insurance companies and banks becomes lower, if they choose to sell these securities before maturity.

Of course, as interest rates fell after 1981, we received the benefit of falling interest rates, in the form of rising asset prices. No one ever stopped to think about how much of the gains in share prices and property values came from falling interest rates.

Figure 8. Ten year treasury interest rates, based on St. Louis Fed data.

Figure 8. Ten year treasury interest rates, based on St. Louis Fed data.

Now, as interest rates rise, we can expect asset prices of many types to start falling, because of lower affordability when monthly payments are based on higher interest rates. This situation presents another “drag” on the economy.

In Conclusion

The situation is indeed very concerning. Many things could set off a crisis:

  • Rising energy prices of any kind (hurting energy importers), or energy prices that don’t rise (leading to financial problems or collapse of exporters)
  • Rising interest rates.
  • Defaulting debt, indirectly the result of slow/negative economic growth and rising interest rates.
  • International organizations with less and less influence, or that fall apart completely.
  • Fast changes in relativities of currencies, leading to defaults on derivatives.
  • Collapsing banks, as debt defaults rise.
  • Falling asset prices (homes, farms, commercial buildings, stocks and bonds) as interest rates rise, leading to many debt defaults.

Things don’t look too bad right now, but the underlying problems are sufficiently severe that we seem to be headed for a crisis far worse than 2008. The timing is not clear. Things could start falling apart badly in 2017, or alternatively, major problems may be delayed until 2018 or 2019. I hope political leaders can find ways to keep problems away as long as possible, perhaps with more rounds of QE. Our fundamental problem is the fact that neither high nor low energy prices are now able to keep the world economy operating as we would like it to operate. Increased debt can’t seem to fix the problem either.

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omi's picture

How long before 2018 version?

Truther's picture

Coming right up. Though this is a re-run since 2009

Jimmy Jimmereeno's picture

Tverberg  is a neo-Malthusian.  Look at the verbiage in this essay.  Yet nothing has changed:  223 years since the Malthusian thesis but, lo and behold, technology keeps to its exponential up curve.

Nexus789's picture

A lot of things have changed albeit subtlety in many instances. Degregation of the environment, pollution, etc. We are building what is called 'cumulative catastrophe'. The more we use technology to shape the environment around the greater potential for a collapse and it will probably come in a rush. Paradoxically technology will probably trigger this.

stacking12321's picture

+1000. exactly!

impatient instant-gratification americans with small minds keep saying, it hasn't happened yet, so it will never happen.

they say this about the increasing world population affecting the quality of life.

they say it about oil

they say it about the financial system in the usa which is a fraud and a ponzi scheme (national debt has never mattered before, so why would it matter this year?)

keep riding that exponential curve and you will see the limits to growth in a finite world.

it might not happen today, maybe not tomorrow, but it will happen.

 

xythras's picture

Good News. For some kike stock holders the hard times already come: Walmart (insert star of David here) anyone? 

http://dailywesterner.com/news/2017-01-12/why-are-wal-mart-and-boeing-la...

Praetorian Guard's picture

I know people keep saying that a broken clock is correct twice a day, and articles like this are scare mongering. I firmly believe that this god awful shit would have burned to the ground already if it were not for sneaky Fed and Govt intervention. I believe that many were correct several years ago, it should have burned. What they failed to comprehend was that the Fed would literally pull a snow whit rabbit out of their ass and plunge us down a road of no return.

 

I do believe it's coming. I believe that the Globalists are pissed that Nationalism is on the rise. Globalism does not work with nation state centric ideologies. BLM did not work, so next stop is the third world countries in the southern hemisphere. Mexico is on the target list. Will Mexico survive? I doubt it. Islam, Cartels, poverty, corruption, etc. all make that land ripe for collapse and over throw, or at a bare minimum "non-democratic" - narco/jihadist state.

 

This year the Soros's of the world make their final stand. They had difficulty taking down the "Eagle" (US) but are now focused on cutting the limb out that the US sits on - ie, Latin America, etc. lands that are literally at our doorsteps.

 

As I have mentioned before, I have a friend that works in an agency that has indicated that Mexico IS GOING to have a civil war. The biggest concern is what happens when millions try to flee North? He believes that the trigger for the populace to lose their shit, will be a mass shooting by the police (riot control gone wrong), at that point the gloves come off.

 

Looking for contributors, mods, start a blog, etc. come join us at www.gunsgrubandgold.com

Lynx Dogood's picture

2018 things will get rockey! Till then go pound sand!

VWAndy's picture

How much of it is the result of the MOE being busted? Trade just is, it kinda goes with living and breathing. These fiat games are whats screwing everything up. Well that and all the corruption that goes with it.

Escrava Isaura's picture

Money is just a technicality. The real problem is that the resources are finite while the population and economic growth grow exponentialy.

 

 

Escrava Isaura's picture

Thanks.

The link below is also very telling.

http://dailycaller.com/2015/12/25/top-11-problems-plaguing-solar-and-wind-power/

 

HenryHall's picture

Even if we got free energy, from whatever brilliant engineering invention (road that runs downhill in both directions), that still does not solve the problem of unbounded population growth on a finite planet.

China is the only country that has seriously done anything about population growth in modern times. And they seem to be back-peddling now.

Religions that oppose controlling birth rates will destroy the earth unless they are stopped. Islam is probably the worst offender, with Christianity not too far behind.

Diatom's picture

Big oil sponsored article.

I thought you had a higher level of intelligence....

 

Twee Surgeon's picture

What ? like the native Japanese and European populations that have been shrinking for decades and the US population that has been shrinking for decades if the Jesuit inspired socialist illegal aliens are excluded. Is that the Exponential you mention ? What you really mean is African and Catholic populations, most others are in a long term decline, dig up the numbers instead of spouting off Mythologies. The Breeders might want to curtail there own activities before telling whitey how to run shit ?

Right now, whitey is leaving Earth on the instalment plan, Latinos are going to be utterly thrilled with their new Chinese overlords in 70 years. And you thought the Spanish were bastards ? you ain't seen nothin yet.

malek's picture

Well at least your stupidity is stable.

stocker84's picture

"""Money is just a technicality"""

Send me yours.

 

" The real problem is that the resources are finite while the population and economic growth grow exponentialy."

That isn't your problem...that is your kid's problem..potentially your kid's kids problem...and by the time you die, it won't be an issue for you...and you will have helped the world by having one less person it it.

 

I just solved all your problems.

Cabreado's picture

"Money is just a technicality. The real problem is that the resources are finite"

So far, you have it exactly backwards.

Seasmoke's picture

2017 is already 1/26 over. So It better hurry with the 2017 collapse. 

Cabreado's picture

Interesting...

but I submit to the author that the "world economy" has been coming apart for many decades, and it has nothing at all to do with energy prices.

Nice charts, though.

swampmanlives's picture

That 100 year cycle will be 150 year cycle, then 200, then 1000...

wow017's picture

I agree. The charts are nice and the thinking a bit squishy in that it looks back and says if that was then it must still be so.  

That is proving wrong - changes are afloat.  A few examples:

EU is finding it needs to stand up or collapse.  It's use of same standards no matter what countries need is being exposed.  UK is elaving and saying we can still stand alone. US, under Turmp, is sayign we are not the world's police nor upholder of others economies. China is making huge strides in actually using space ingenuity. It has over 100 countries already tied into their One Belt one Road. China is balancing their reliance on coal as well as creating ways for cleaner coal energy. It goes into Africa with assistance rather than food drops and sanctions.  

The world's economy is a living complexity that ravels and unravels at dazingly speeds while showing stability in it's chaos.  There has been an economy since the universe began.  To have a total collapse would be annihaion.  We may be in for a change. That is a good thing.  

 

 

chubbyjjfong's picture

Hilarious...

 

"I hope political leaders can find ways to keep problems away as long as possible, perhaps with more rounds of QE"

 

 

max2205's picture

This crap comes out every January. ...change the dates and it's new 

ronaldwilsonreagan's picture

oh please the economy has been coming apart sense 2008 here at ahe hedge. Besides Piss Clown is here to save the day we have no worries.

wisehiney's picture

Got what I got the hard way

And I'll make it better each and every day
So honey don't you fret
'Cause you ain't seen nothing yet

 

I'm a coal man

goldenrod's picture

Gail is a broken record; has been saying the same thing for years.  Yes, fossil fuels will become increasingly scarce but renewwable energy and cost of storage has been rapidly going down.  Solar is already cheaper than coal in tropical parts of the world and will be so everywhere in the world within 5 years.  In another 10 years or so, cost of storage will also be a lot lower.  Technology does not stand still.

 

OverTheHedge's picture

Have a look at the chart of energy usage - oil and coal are the bulk of it, and renewables are an irrelevant little smudge on the top. I have 10Kw solar panel array, but I don't believe that it will save the world, or me. Need lots and lots of fossil fuels.to make and transport renewables. Until we get our super free cold fusion  over-unity energy supply, we are going down. Finite energy, infinite future - we're buggered eventually (cue biotic oil myth believers). I am of the opinion that we will dig up non-renewable energy faster than we can replace it, until it runs out. Gail will be right sooner than all the nay-sayers will stop being wrong.

Commodore Decker's picture

The central banks will just print their way out of it and governments want more people in higher tax brackets anyway. Only gold and silver will save you.

swampmanlives's picture

Has zero hedge ever heard of green technology? China is going to spend trillions on it...

Consuelo's picture

 

 

"I hope political leaders can find ways to keep problems away as long as possible, perhaps with more rounds of QE. Our fundamental problem is the fact that neither high nor low energy prices are now able to keep the world economy operating as we would like it to operate. Increased debt can’t seem to fix the problem either."

 

Ok, so you're hoping for more QE.   How ----  infinite in such a 'finite world', no...?

Let's see, in 2008 if memory serves, this lady was hawking the Peak Oil circus, and that sorta ran outta gas...   Now volatility is up again and so are the energy-shortage-low-prices-high-prices-makes-no-difference-because-it's-all-$$$good-news-for-us/population-bomb/China-imploding-ad-infinitum, etc., ad-nauseam hucksters are outta their spider holes and it's a new $$day in Doomville...

TRN's picture

Yeah, no much sense in this article! We are heading for a crisis and the cure is simple: lower standard of living.

natronic's picture

FAKE NEWS!!  Did a former British intelligence officer give you this graph?

sheikurbootie's picture

NEWS FLASH:

Mexico just announced agreement to negotiate with Trump.

Mexico's government said on Wednesday it would throw its relationship with the United States wide open when it sits down for talks with the incoming U.S. administration, putting security, migration and trade on the table in search of a deal.

In other words: they WILL agree to pay for the fucking wall! 

Son of Captain Nemo's picture

"Our fundamental problem is the fact that neither high nor low energy prices are now able to keep the world economy operating as we would like it to operate."

"YES"... Well....

This is what happens when you have one Nation that has a reserve currency that forces itself on everyone else to maintain the purchases of the World's energy in a neat little arrangement that makes them instantly rich at everyone elses expense that has to convert their own currencies in order to purchase that energy.

The problem becomes apparent when those oil producing states you choose to destroy don't like being "destroyed".. raped, tortured, murdered, "looted" etc. based on some fake pretext(s) (http://www.ae911truth.org/) and decide to fight back when they have nothing else to lose after you... well... ya know... raped, tortured, murdered and looted them based on BIG LIES, and can't control the production because of "those really bad things" you did to them!!!

Then you go after the bigger holdouts that also have the energy that you no longer do... But they have a military and weapons (like yourself) with the means to resist that the other ones you really fucked over don't have!!!

Then you realize YOU CAN'T WIN AGAINST THE BIGGER GUYS THAT HAVE IT if you couldn't even make the little ones that also had it OBEY???!!!

Rex Buddy! My advice to you and Donny after today's hearing on Capital Hill?!! "Speak loudly and carry a fucking baseball bat" to any Zionist-Kikes that get in your way to tell you that if Russia doesn't "hand over what they have they will wind up like 2/3 of the Middle East, that you (as an oil man) and your government single handedly fucked to hell and bankrupted ALL your corporations and economy to the point that it will NEVER... EVER AGAIN be what it was 15 years ago thanks to what you've done!!...

You tell them you're the same greedy "Jew-motherfucker" that they are, but their are limits. And those "limits" were reached after Iraq, Afghanistan, Libya, Yemen, Syria and Ukraine were invaded with no means of control to any of them only their complete and total decimation that bankrupted you and your worthless shit paper of a currency many times over in the process!!!

It's time to settle and share the "bread on the table"!.. Either that, or you get "a mouth full of loose teeth" or much worse!!

Skiprrrdog's picture

Global debt jubilee...

Skiprrrdog's picture

Jill Stein said she would demand a re-count if she did not have to put up blinds in her new lake house...

CHoward's picture

Nope - poppycock I say.  BALDERDASH! 

 

Everything is awesome!

ThrowAwayYourTV's picture

Grandpa bouncing Jr. on his knee.

And the best part kid is that most of the stuff we wasted our important natural resources on ended up in a liner at the city dump. But it sure was fun while it lasted. Hahahahahaha!

So! Lets go build that fire barrel I was telling you about earlier. You're going to need to know this stuff.

 

JBPeebles's picture

Diminishing return on investment, energy, EROI or something like that. Concept is that as the currency gets weaker and weaker, the costs of goods as expressed in the amount of energy required to make them goes up.

As much as governments would like energy to stay cheap, their inevitable destruction of their currency is inevitable. Industrial economies need the energy to be cheap but cheap energy does not aggregate demand make.

Excessive drilling--remember "drill, baby, drill"--reduces the price of energy. But the equation has turned. As a natural gas exporter now, we gain the benefit of dollars being bought by foreigners who then spend them on our exported energy, thereby bringing it home.

BTW it figures that the Russians and Iranians tried to get their energy resources to Europe. You may have noticed that Ukraine and Syria--both nations through which proposed pipelines run--just happened to have regime change or wars there which have inconvenienced our competitors greatly.

It's not just the direction of prices. To get any meaningful analysis out of price changes, you need to factor out the impact of dollar overproduction. We know many stay overseas. Trump has a plan to bring the offshored monies back.

If you took all the Treasuries that were bought by the OPEC producers and sold them, the results would be catastrophic. So we continue to agree to support the status quo built around oil-for-dollars.

The more dollars the less each buys. The author has the gist but has mistaken recent signs of optimism in the U.S. economy. As long as demographics tap out consumer spending, future growth prospects are quite limited. Less aggregate demand means less demand for energy and thus a lower price for it.

Clearly high energy prices are a limiter on growth but the opposite isn't true if the rising cost of capital looms in the background, along with higher interest rates brought on by inflation, which isn't growth nor should it be judged not manifest purely based on domestic U.S. consumer price levels. That pull inflation is much more easily quantifiable than that of the monetary variety. Should all those dollars flood back in, then we'd have higher energy prices plus the higher inflation and rates.

The price of energy serves as a bellweather of rising prices only if growth is constant. A growth rate in the supply of money that exceeds the rate of energy production and development means the price of energy is rising but not due to supply or demand but simply because everything is more expensive in nominal (non-inflation adjusted) terms.

Number Two's picture

I wanted to come up with a 2017 forecast, so I rubbed and rubbed my crystal ball and I finally came  to the conclusion no-body can predict the future..  

Kirk2NCC1701's picture

Not actionable in any time horizon of practical use.

Hence... file under "academic speculation".

NobodyNowhere's picture

The world economy will collapse, that I already know.

But they will only tell me when AFTER it does.

Fvking astrologers.

Chipped ham's picture

Bravo Gail. Well written and thoughtfully put together. So simple a centralbankerpoliticiancnbcbabetterealworld dummy like me can understand it.

 

Let it Go's picture

Sooner or later the party always ends. Efforts to justify the most recent market melt-up following the election of Donald Trump are sometimes difficult to comprehend if you are one of those already skeptical of this market. A read of the pdf file of the 2009 bestselling book titled, "This Time Is Different" did little to convince me that this time is different.

It chronicles eight centuries of financial follies in which financial meltdowns have typically followed real-estate bubbles, rising indebtedness, and gaping deficits. More on why many of us see a strong similarity between what is happening today and prior financial meltdowns that have resulted in crisis can be found below.

 http://brucewilds.blogspot.com/2016/12/thoughts-on-this-time-is-different.html