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http://www.informationclearinghouse.info/article44293.htm

The Evil Empire Has The World In A Death Grip

In my archives there is a column or two that introduces the reader to John Perkins’ important book, Confessions of an Economic Hit Man. An EHM is an operative who sells the leadership of a developing country on an economic plan or massive development project. The Hit Man convinces a country’s government that borrowing large sums of money from US financial institutions in order to finance the project will raise the country’s living standards. The borrower is assured that the project will increase Gross Domestic Product and tax revenues and that these increases will allow the loan to be repaid.

However, the plan is designed to over-estimate the benefits so that the indebted country cannot pay the principal and interest. As Perkins’ puts it, the plans are based on “distorted financial analyses, inflated projections, and rigged accounting,” and if the deception doesn’t work, “threats and bribes” are used to close the deal.

The next step in the deception is the appearance of the International Monetary Fund. The IMF tells the indebted country that the IMF will save its credit rating by lending the money with which to repay the country’s creditors. The IMF loan is not a form of aid. It merely replaces the country’s indebtedness to banks with indebtedness to the IMF.

To repay the IMF, the country has to accept an austerity plan and agree to sell national assets to private investors. Austerity means cuts in social pensions, social services, employment and wages, and the budget savings are used to repay the IMF. Privatization means selling oil, mineral and public infrastructure in order to repay the IMF. The deal usually imposes an agreement to vote with the US in the UN and to accept US military bases.

Occasionally a country’s leader refuses the plan or the austerity and privatization. If bribes don’t work, the US sends in the jackals—assassins who remove the obstacle to the looting process.

Perkins’ book caused a sensation. It showed that the United States’ attitude of helpfulness toward poorer countries was only a pretext for schemes to loot the countries. Perkins’ book sold more than a million copies and stayed on the New York Times bestseller list for 73 weeks.

Now the book has been reissued with the addition of 14 new chapters and a 30-page listing of Hit Man activity during the years 2004-2015.

Perkins shows that despite his revelations, the situation is worse than ever and has spread into the West itself. The populations of Ireland, Greece, Portugal, Spain, Italy, and the United States itself are now being looted by Hit Man activity. Perkins’ book shows that the US is “exceptional” only in the unbridled violence it applies to others who get in its way. One of the new chapters tells the story of France-Albert Rene, president of Seychelles, who threatened to reveal the illegal and inhumane eviction of the residents of Diego Garcia by Britain and Washington so that the island could be converted into an air base from which Washington could bomb noncompliant countries in the Middle East, Asia, and Africa. Washington sent in a team of jackels to murder the president of Seychelles, but the assassins were foiled. All but one were captured, tried and sentenced to execution or prison, but a multi-million dollar bribe to Rene freed them. Rene got the message and became compliant.

In the original printing of his book, Perkins tells the stories of how jackals arranged airplane crashes to get rid of Panama’s non-compliant president, Omar Torrijos, and Ecuador’s non-compliant president, Jaime Roldos. When Rafael Correa became president of Ecuador, he refused to pay some of the illegitimate debts that had been piled on Ecuador, closed the United States’ largest military base in Latin America, forced the renegotiation of exploitative oil contracts, ordered the central bank to use funds deposited in US banks for domestic projects, and consistently opposed Washington’s hegemonic control over Latin America.

Correa had marked himself for overthrow or assassination. However, Washington had just overthrown in a military coup the democratically elected Honduran president, Manuel Zelaya, whose policies favored the people of Honduras over those of foreign interests. Concerned that two military coups in succession against reformist presidents would be noticed, to get rid of Correa the CIA turned to the Ecuadoran police. Led by a graduate of Washington’s School of the Americas, the police moved to overthrow Correa but were overpowered by the Ecuadoran military. However, Correa got the message. He reversed his policies toward American oil companies and announced that he would auction off huge blocks of Eucador’s rain forests to the oil companies. He closed down, Fundacion Pachamama, an organization with which a reformed Perkins was associated that worked to preserve Ecuador’s rain forests and indigenous populations.

Western banks backed up by the World Bank are even worse looters than the oil and timber companies. Perkins writes: “Over the past three decades, sixty of the world’s poorest countries have paid $550 billion in principal and interest on loans of $540 billion, yet they still owe a whopping $523 billion on those same loans. The cost of servicing that debt is more than these countries spend on health or education and is twenty times the amount they receive annually in foreign aid. In addition, World Bank projects have brought untold suffering to some of the planet’s poorest people. In the past ten years alone, such projects have forced an estimated 3.4 million people out of their homes; the governments in these countries have beaten, tortured, and killed opponents of World Bank projects.”

Perkins describes how Boeing plundered Washington state taxpayers. Using lobbyists, bribes, and blackmail threats to move production facilities to another state, Boeing succeeded in having the Washington state legislature give the corporation a tax break that diverted $8.7 billion into Boeings’ coffers from health care, education and other social services. The massive subsidies legislated for the benefit of corporations are another form of rent extraction and Hit Man activity.

Perkins has a guilty conscience and still suffers from his role as a Hit Man for the evil empire, which has now turned to the plunder of American citizens. He has done everything he can to make amends, but he reports that the system of exploitation has multiplied many times and is now so commonplace that it no longer has to be hidden. Perkins writes:

“A major change is that this EHM system, today, is also at work in the United States and other economically developed countries. It is everywhere. And there are many more variations on each of these tools. There are hundreds of thousands more EHMs spread around the world. They have created a truly global empire. They are working in the open as well as in the shadows. This system has become so widely and deeply entrenched that it is the normal way of doing business and therefore is not alarming to most people.”

People have been so badly plundered by jobs offshoring and indebtedness that consumer demand cannot support profits. Consequently, capitalism has turned to exploiting the West itself. Faced with rising resistance, the EHM system has armed itself with “the PATRIOT Act, the militarization of police forces, a vast array of new surveillance technologies, the infiltration and sabotage of the Occupy movement, and the dramatic expansion of privatized prisons.” The democratic process has been subverted by the Supreme Court’s Citizens United ruling and other court decisions, by corporate-funded political action committees, and by organizations such as the American Legislative Exchange Council financed by the One Percent. Cadres of lawyers, lobbyists, and strategists are hired to legalize corruption, and presstitutes work overtime to convince gullible Americans that elections are real and represent the workings of democracy.

In a February 19, 2016 article in OpEdNews, Matt Peppe reports that the American colony of Puerto Rico is being driven into the ground in order to satisfy foreign creditors. http://www.opednews.com/articles/Puerto-Ricans-Suffer-as-Cr-by-Matt-Peppe-160219-676.html

The airport has been privatized, and the main highways have been privatized in a 40-year lease owned by a consortium formed by a Goldman Sachs infrastructure investment fund. Puerto Ricans now pay private corporations for the use of infrastructure that tax dollars built. Recently Puerto Rico’s sales tax was raised 64% to 11.5%. A sales tax increase is equivalent to a rise in inflation and results in a decline in real incomes.

Today the only difference between capitalism and gangsterism is that capitalism has succeeded in legalizing its gangsterism and, thus, can strike a harder bargain than can the Mafia.

Perkins shows that the evil empire has the world in the grip of a “death economy.” He concludes that “we need a revolution” in order “to bury the death economy and birth the life economy.” Don’t look to politicians, neoliberal economists, and presstitutes for any help.

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http://peakoil.com/publicpolicy/opec-boxes-itself-into-a-corner

In the comments section:

Davy on Mon, 29th Feb 2016 6:46 am

“This risk was highlighted by the IEA: “While oil prices should start to rise gradually once the market begins rebalancing….” “SHOULD” is not a scientific principal. The IEA “SHOULD” is really nothing more than the attitude that what happened in the past will happen again as if human economics is scientific truth. Rebalanced markets because of supply and demand does not have to happen with prices rising they could be dropping also.

There is no mention that an earlier supply and demand economic range may have already broke to a lower range and will never recover to previous levels. Absolute quantities do not matter here it is the combinations that yield healthy economics. We probably hit peak oil around now because we hit a combination of peak supply and peak demand.

The peak supply was oil that is affordable per the diverse requirements of the global economy. For some that means covering government budgets. For others it means market fundamentals of return on investment. For the global system as a whole it means high quality economic oil to power us through limits and diminishing returns that is approaching and or is here. The lack of this economic oil is causing the global system to degrade.

The peak demand is really just the huge global deflationary debt overhang. We have large global macro unfunded liabilities of expectations both social and economic. Socially we have a growing population of peoples wanting a better life and not getting it. Financially we have markets that have valuations that have no relation to reality. We see markets with expectations of future growth and returns that are just not real. In other words demand expectations are greatly inflated and the reality of demand is deflated.

Real productive activity has been greatly reduced. We have huge malinvestment, unprofitable development, nonperforming financial activity, and overcapacity of production. All of this “non-growth” growth is overhanging our global system as debt. This is not debt daddy knew. This is debt that is up against limits and diminishing returns of debt itself. This is debt that has become a drag on growth by being bad debt.

If you invest in something and it cost more to make than it gives you back you will go broke or starve if you are an animal. Society has gotten around this by various moral hazards of disregard for normal fundamentals of price discovery markets are so good at. Manipulation and corruption were used to obtain abstract results and now the system itself is systematically corrupted.

This demand that IEA thinks will come back is likely over at the level that will rebalance the markets as was once the case. Supply is there but not profitable supply that powers the global economy. If we are in a macro demand destruction process the rebalance the IEA should talk about is an economics of descent where decay, dysfunction and abandonment are the market principals.

....

shortonoil on Mon, 29th Feb 2016 8:13 am

“There is no sense in wasting our time seeking production cuts,” Naimi said, adding that OPEC and non-OPEC producers would likely “not deliver” if asked to cut production.

No one is going to cut because if they did they would end up with less revenue than they had before they cut. Naimi babbles on, and on, over and over again about no one wants to cut. No one is cutting because they can’t; it would merely move their upcoming insolvency to an earlier date. It is the one thing that no one in OPEC, or any where else wants to admit.

No one wants to admit that the world of oil is not what it used to be, and never will be what it was again. Depletion has reduced oil’s ability to power economies, and as a result its price has gone down. “The price of oil depends on the strength of the economy, and the strength of the economy depends on oil’s ability to power it.” Reducing the supply of it, when it can no longer do what it previously did, is not going to solve the problem? Cutting production will only result in less oil, not more economy to provide a demand for it!

This is the quagmire the oil industry now must deal with; they must keep producing to stay alive as long as possible, and at the same time hide their dilemma from the world. Blaming the other guy is almost working; shale is dying because the Saudis won’t cut, and Venezuela is dying because shale won’t die! It has become a multi $trillion circle jerk. But, beating up on a straw man has its limits; eventually he loses his stuffing.

The world of oil is in serous trouble, and no one wants to admit it. The industry has been pumping the best it could find for the last 150 years, and now the best is not very good. As a matter of fact most of it is not worth pumping at all. It will never be able to sustain an economy that can supply a demand for it. In the mean time the Saudis will blame Shale, Shale will blame the Russians, and the Russians will tell stories about pumping oil out of the Arctic at $30/ barrel. No one is going to admit that it is over; because when they do – it will be over!

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http://robertscribbler.com/2016/02/18/no-winter-for-the-arctic-in-2016-nasa-marks-hottest-january-ever-recorded/

Robert Scribbler: No winter for the Arctic in 2016 – NASA marks hottest January ever recorded

The Scientists are floored and we should be too. The global heat and especially the extremely high temperature departures we’ve seen in the Arctic over the past month are flat-out unprecedented. It’s freakish-strange. And what it looks like, to this particular observer, is that the seasonality of our world is changing. What we’re witnessing, at this time — it looks like the beginning of the end for Winter as we know it.

Hottest January on Record — But the Arctic is Just Outlandish

Anyone who observes the Arctic — from scientists, to environmentalists, to emerging threats specialists, to weather and climate enthusiasts, to just regular people unsettled by the rapidly unraveling state of our global climate system — should be very, very concerned. The human greenhouse gas emission — now pushing CO2 levels to above 405 parts per million and adding in a host of additional heat trapping gasses — appears to be rapidly forcing our world to warm. To warm most swiftly in one of the absolute worst places imaginable — the Arctic.

Not only was January of 2016 the hottest such month ever recorded in the 136 year NASA global climate record. Not only did January show the highest temperature departure from average for a single month — at +1.13 C above NASA’s 20th Century base-line and about +1.38 C above 1880s averages (just 0.12 C shy of the dangerous 1.5 C mark). But what we observed in the global distribution of those record hot temperatures was both odd and disturbing.

Though the world was hot as a whole — with El Niño heat dominating the tropical zones — the furthest above average temperature extremes concentrated at the very roof of our world. There, in the Arctic lands of now-thawing glacial ice and permafrost — over Siberia, over Northern Canada, over Northern Greenland and all throughout the Arctic Ocean zone above 70 North Latitude — temperatures averaged between 4 and 13 degrees Celsius above normal. That’s between 7 and 23 degrees Fahrenheit hotter than usual for the extraordinary period of an entire month.

And the further north you went, the more heat you ended up with. Above the 80 North Latitude line, temperature averages for the entire region spiked to around 7.4 degrees C (13 degrees F) warmer than normal. For this area of the Arctic, that’s about equal to the typical difference between January and April (April is about 8 C warmer than January during a normal year). So what we’ve seen is absolutely unprecedented — for the entire month of January of 2016, temperatures were those of Springtime in the Arctic....

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http://peakoil.com/consumption/the-global-economy-echoes-1930s-great-depression

The global economy echoes 1930s Great Depression

In the comments:

" Davy on Sat, 20th Feb 2016 7:30 am

Trying to understand the global problems today in relation to the 20th century is not valid anymore except with some of the lessor details. Looking at today’s issues with 20th century economic analysis is just inviting us to continue with the same irrational policies that are creating more dysfunction. Global central banker’s decisions to take the global economy into Zirp, Nirp and QE is an example. China’s huge credit and physical development growth is another.

What is happening now is much more in a world that is vastly different at almost every level. We are now a complex global world at limits of growth with a population in overshoot. That population in overshoot is in over shoot for quantitative reasons of numbers but also just as dangerous with qualitative reasons from consumption requirements for support. Too many people along with a significant amount of those “too many people” relying on our complex global world for the basics of survival.

We now have a complex global world economy along with its absolutely vital “foundational commodity” oil both in demand destruction. This is an economic compression destroying demand which will destroy supply and economic networks. The supply of high quality oil has declined. Our 20th century way of life was built on the economics of plentiful higher quality oil. Our 20th century civilization is increasingly unworkable in the 21st century because of demand compression. Our wants of developing a 21century world is likewise confronted by limits. An energy transition is likely not possible in scale of time nor economics. On the economy side of the equation our financial system has grown outsized and has become parasitic. That financial system has become a bubble in a global economy that is itself a bubble. That bubble with all its malinvestment, overcapacity, and irrational development is now surfacing as nonperforming loans and assets. This is a huge deflationary event that is compressing the rate of growth which is all important to our hyper complex and dynamic global economy.

This is deeper than economics with symptoms of existential collapse with limits restricting our growth and our ability to solve macro problems. It is deeper because of a population many times past normal carrying capacity even in relation to the 1930’s. This is deeper than economics because it is about demand destruction of not only from economic problems but also resource problems. High quality resources are in decline. The ecosystem and waste stream is dangerously destabilized now. This ecological factor is not yet extreme but it is certainly close.

It is the combination of so many problems converging in negative reinforcement that is driving us into dangerous territory. We are in territory like man has never been in with global locals delocalized from decades of efficiency efforts of globalization. This globalization was economic and partly social but on the political side we are still stuck in an earlier time. We have a vacuum from the rapid decline of American dominance. We have a dangerous multipolar world polarizing under the stress of global problems armed to the teeth with sophisticate weapons with global reach. Globalism is polarizing at a time of vital need for cooperation because we can no longer decouple economically without collapsing.

The 1930’s was an economic event without the delocalization of globalism and overpopulation of 21st century. We survived demand destruction without much trouble then. We will likely not survive such a drop this time and remain as we are now with globalism intact. Without globalism there is no way we can feed almost 7BIL people. Our food system has been globalized just like the rest of the edifice.

Death at a macro level with all its disruptive qualities is very disruptive to complexity and growth. Death at a macro level with its corresponding declining population is by definition not growth. You cannot grow our type of global system while people are dying more than are being born. This is existential demand destruction with a corresponding decay of all aspects of our global system both hard assets and soft assets like vital knowledge that supports vital complexity.

This can’t end well. We are not there yet. We are still in aggregate growth maybe not healthy but still satisfactory to avoid collapse. This predicament is subtle. Globalism is all or nothing which makes it very dangerous because the whole high performance machine could size up at any time for multiple diverse reasons. We have no plan B’s especially for delivery of vital food and fuel. Cities are too large with many poorly placed geographically for sustainability. We have a macro situation of multiple predicaments in a fog of catch 22’s. In such a systematic situation we must break to a lower level by definition. The problem for all of us is when and how hard. There is no way to know these answers. "

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http://cluborlov.blogspot.com/2015/02/extinctextincterextinctest.html

Extinct—Extincter—Extinctest

This blog is dedicated to the idea of presenting the big picture—the biggest possible—of what is going on in the world. The abiding areas of interest that make up the big picture have included the following:

1. The terminal decay and eventual collapse of industrial civilization as the fossil fuels that power it become more and more expensive to produce in the needed quantities, of lower and lower resource quality and net energy and, eventually, in ever-shorter supply.

The first guess by Hubbert that the all-time peak of oil production in the US would be back in the 1970s was accurate, but later prediction of a global peak, followed by a swift collapse, around the year 2000 was rather off, because here we are 15 years later and global oil production has never been higher. Oil prices, which were high for a time, have temporarily moderated. However, zooming in on the oil picture just a little bit, we see that conventional oil production peaked in 2005—just 5 years late—and has been declining ever since, and the shortfall has been made up by oil that is difficult and expensive to get at (deep offshore, fracking) and by things that aren't exactly oil (tar sands).

The current low prices are not high enough to sustain this new, expensive production for much longer, and the current glut is starting to look like a feast to be followed by famine. The direct cause of this famine will not be energy but debt, but it can still be traced back to energy: a successful, growing industrial economy requires cheap energy; expensive energy causes it to stop growing and to become mired in debt that can never be repaid. Once the debt bubble pops, there isn't enough capital to invest in another round of expensive energy production, and terminal decay sets in.

2. The very interesting process of the USA becoming its own nemesis: the USSR 2.0, or, as some are calling, the USSA.

The USA is best characterized as a decomposing corpse of a nation lorded over by a tiny clique of oligarchs who control the herd by wielding Orwellian methods of mind control. So far gone is the populace that most of them think that things are just peachy—there is an economic recovery, don't you know—but a few of them do realize that they all have lots of personal issues with things like violence, drug and alcohol abuse, and gluttony. But don't call them a nation of violent, drug-abusing gluttons, because that would be insulting. In any case, you can't call them anything, because they aren't listening, for they are too busy fiddling with their electronic life support units to which they have become addicted. Thanks to Facebook and the like they are now so far inside Plato's cave that even the shadows they see aren't real: they are computer simulations of shadows of other computer simulations.

The signs of this advanced state of decomposition are now unmistakable everywhere you look, be it education, medicine, culture or the general state of American society, where now fully half the working-age men is impaired in their ability to earn a decent living. But it is now particularly obvious in the endless compounding of errors that is the essence of American foreign policy. Some have started calling it “the empire of chaos,” neglecting to mention the fact that an empire of chaos is by definition ungovernable.

A particularly compelling example of failure is the Islamic Caliphate, which now rules large parts of Syria and Iraq. It was initially organized with American help to topple the Syrian government, but now threatens the stability of Saudi Arabia instead. This problem was made much worse by alienating Russia, which, with its long Central Asian border, is the one major nation that is interested in fighting Islamic extremism. The best the Americans have been able to do against the Caliphate is an expensive and ineffectual bombing campaign. Previous ineffectual and expensive bombing campaigns, such as the one in Cambodia, have produced unintended consequences such as the genocidal regime of Pol Pot, but why bother learning from mistakes when you can endlessly compound them?

Another example is the militarized mayhem and full-blown economic collapse that has engulfed the Ukraine in the wake of American-organized violent overthrow of its last-ever constitutional government a year ago. The destruction of the Ukraine was motivated by Zbigniew Brzezinski's simplistic calculus that turning the Ukraine into an anti-Russian NATO-occupied zone would effectively thwart Russian imperial ambitions. A major problem with this calculus is that Russia has no imperial ambitions: Russia has all the territory it could ever want, but to develop it it needs peace and free trade. Another slight problem with Zbiggy's “chessboard” is that Russia does have an overriding concern with protecting the interests of Russians wherever they may live and, for internal political reasons, will always act to protect them, even if such actions are illegal and carry the risk of a larger military conflict. Thus, the American destabilization of the Ukraine has accomplished nothing positive, but did increase the odds of nuclear self-annihilation. But if the USA manages to disappear from the world's political map without triggering a nuclear holocaust, we will still have a problem, which is that...

3. The climate of Earth, our home planet, is, to put it as politely as possible, completely fucked. Now, there are quite a few people who think that radically altering the planet's atmospheric and ocean chemistry and physics by burning just over half the fossilized hydrocarbons that could possibly be dug up using industrial methods means nothing, and that what we are observing is just natural climate variability. These people are morons. I will delete every single one of the comments they submit in response to this post, but in spite of my promise to do so, I assure you that they will still submit them... because they are morons. [Update: Yes indeed they have, QED.]

What we are looking at is a human-triggered extinction episode that will certainly be beyond anything in human experience, and which may rival the great Permian-Triassic extinction event of 252 million years ago. There is even the possibility of Earth becoming completely sterilized, with an atmosphere as overheated and toxic as that of Venus. That these changes are happening does not require prediction, just observation. The only parameters that remain to be determined are these:

1. How far will this process run?

Will there still be a habitat where humans can survive? Humans cannot survive without plenty of fresh water and sources of carbohydrates, proteins and fats, all of which require functioning ecosystems. Humans can survive on almost any kind of diet—even tree bark and insects—but if all vegetation is dead, then so are we. Also, we cannot survive in an environment where the wet bulb temperature (which takes into account our ability to cool ourselves by sweating) exceeds our body temperature: whenever that happens, we die of heat stroke. Lastly, we need air that we can actually breathe: if the atmosphere becomes too low in oxygen (because the vegetation has died out) and too high in carbon dioxide and methane (because the dead vegetation has burned off, the permafrost has melted, and the methane currently trapped in oceanic clathrates has been released) then we all die.

We already know that the increase in average global temperature has exceeded 1C since pre-industrial times, and, based on the altered atmospheric chemistry, is predicted to eventually exceed 2C. We also know that industrial activity, thanks to the aerosols it puts into the atmosphere, produces an effect known as global dimming. Once it's gone, the average temperature will jump by at least another 1.1C. This would put us within striking range of 3.5C, and no humans have ever been alive with Earth more than 3.5C above baseline. But, you know, there is a first time for everything. Maybe we can invent some gizmo... Maybe if we all put on air-conditioned sombreros or something... (Design contest, anyone?)

2. How fast will this process happen?

The thermal mass of the planet is such that there is a 40-year lag between when atmospheric chemistry is changed and its effects on average temperature are felt. So far we have been shielded from some of the effects by two things: the melting of Arctic and Antarctic ice and permafrost, and the ocean's ability to absorb heat. Your iced drink remains pleasant until the last ice cube is gone, but then it becomes tepid and distasteful rather quickly. Some scientists say that, on the outside, it will take 5000 years for us to run out of ice cubes, causing the party to end, but then the dynamics of the huge glaciers that supply the ice cubes are not understood all that well, and there have been constant surprises in terms of how quickly they can slough off icebergs, which then drift into warmer waters and melt quickly.

But the biggest surprise of the last few years has been the rate of arctic methane release. Perhaps you haven't, but I've found it impossible to ignore all the scientists who have been ringing alarm bells on Arctic methane release. What they are calling the clathrate gun—which can release some 50 gigatons of methane in as little as a couple of decades—appears to have been fired in 2007 and now, just a few years later, the trend line in Arctic methane concentrations has become alarming. But we will need to wait for at least another two years to get an authoritative answer. Overall, the methane held in the clathrates is enough to exceed the global warming potential of all fossil fuels burned to date by a factor of between 4 and 40. The upper end of that range does seem to put us quite far towards a Venus-type atmosphere, and the surviving species may be limited to exotic thermophilic bacteria, if that, and certainly will not include any of the species we like to eat, nor any of us.

Looking at such numbers has caused quite a few researchers to propose the possibility of near-term human extinction. Estimates vary, but, in general, if the clathrate gun has indeed gone off, then most of us shouldn't be planning to be around beyond mid-century. But the funny thing is (humor is never in poor taste, no matter how dire the situation) that most of us shouldn't be planning on sticking around beyond mid-century in any case. The current oversized human population is a product of fossil fuel-burning, and once that's over, human population will crash. This is called a die-off, and it's something that happens all the time: a population (say, of yeast in a vat of sugary liquid) consumes its food, and then dies off. A few hardy individuals linger on, and if you throw in a lump of sugar, they spring to life, start reproducing and the process takes off again.

Another funny aspect of near-term human extinction is that it can never be observable, because no scientist will ever be around to observe it, and therefore it is a non-scientific concept. Since it cannot be used to do science, the scientists who throw it around must be aiming for an emotional effect. This is quite uncharacteristic of scientists, who generally pride themselves on being cool-headed and prefer to deal in the observable and the measurable. So, why would scientists go for emotional effect? Clearly, it is because they feel that something must be done. And to feel that something must be done, they must also feel that something can be done. But, if so, what is it?

Always first on the list is the effort to lobby governments to limit carbon emissions. This has not been a success; as to one of the many reasons why, consider point 2 above: the USA is one of the biggest offenders when it comes to carbon emissions, but the rotting corpse of America's political system is incapable of any constructive action. It is too busy destroying countries: Iraq, Libya, Syria, Ukraine...

Second on the list is something called geoengineering. If you don't know what it is, don't worry; it's largely a synonym for mental masturbation. The idea is that you fix things you don't understand by using technologies that don't exist. But given many humans' irrational belief that every problem must have a technological solution, there is always some fool willing to throw money at it. Previous efforts along these lines involved the idea of seeding the oceans with iron to promote plankton growth, or putting bits of tin foil in orbit to reflect some of the sunlight, or painting the Sahara white. These are all fun projects to think about. How about using nuclear weapons to put dust into the atmosphere, to block out some of the sunlight? Or how about nuking a few big volcanos, for the same effect? If that's politically difficult, how about something politically easy: a limited nuclear exchange? That will darken the skies, bringing on a mini nuclar winter, and also reduce the population, which will cut down on industrial activity. There are enough nuclear weapons to keep the planet cool for as long as it takes us all to die of radiation poisoning. This geoengineering solution, along with all the others, is in line with the popular dictum “If you can't solve a problem, enlarge it.”....

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http://www.informationclearinghouse.info/article44227.html

U.S. Foreign Policy Flies Under Banner ‘American Exceptionalism’

The modus operandi of the multi-trillion dollar military-industrial-terrorism complex (MITC) is as transparent as is Donald Trump's narcissism. The MITC manufactures conflicts by gratuitous interventions abroad. Then it demands trillions of dollars and limitless time to defeat the monsters it created.

The MITC bonanza never ends. What stuns is not the modus operandi. All organizations covet expansion for the sake of expansion.

What amazes is the willingness of the President, Congress, and the American people to feed a failed enterprise.

Russia, China, Libya, Iraq, Afghanistan, and ISIS are six current examples. The Cold War ended with the disintegration of the Soviet Union in 1991. The United States then confronted no existential threats. Our military power dwarfed rivals as an oak dwarfs an acorn. We should have dissolved NATO, ended our troop presence in Europe, and embraced a foreign policy worthy of our democratic dispensation and the sacrifices of Valley Forge: "HUNDREDS OF BILLIONS FOR SELF-DEFENSE, BUT NOT ONE CENT FOR EMPIRE.

The MITC trembled at the thought. It wept at the prospect of losing gold-plated cost-plus contracts, multi-million dollar executive salaries, rich consulting fees, and the status and celebrity that constant conflict or warfare bring. Thus was born a new and counter-constitutional conception of foreign policy. The United States must bestride the world like a colossus to ensure that no other nation or non-state actor attains the capability of doing anything we oppose. As others had sallied forth under a banner of "master race," we must march under a banner of "American exceptionalism."

Instead of dissolving, NATO expanded cheek by jowl to the edges of Russia's borders. It now sports 28 nations, and occupies Russia's traditional sphere of influence in the Baltic States and Eastern Europe. The Russian sphere is a mirror image of our own sphere of influence. It begot the Monroe Doctrine, Dollar Diplomacy, and interventions in Mexico, Cuba, Haiti, the Dominican Republic, Nicaragua, Chile, El Salvador, Guatemala, Grenada, and Panama.

As the United States went to the brink over the Cuban Missile Crisis, President Vladimir Putin has predictably responded to our encroachments on Russia's sphere of influence with the conquest of Crimea, destabilization of Ukraine, and saber rattling on its eastern borders.

The MITC silently rejoiced. NATO expansion had worked perfectly. It had created conflict with Russia, which provided cover to maintain troops in Europe and to enhance military sales to nations vulnerable to Russia's ambitions. Most recently, the Pentagon announced plans to increase the deployment of heavy weapons, armored vehicles and other equipment to NATO members in Central and Eastern Europe. The White House contemplates paying for the anti-Putin gambit with a budget request exceeding $3.4 billion to support military spending in Europe for 2017. The weapons and equipment will be used to insure that a full armored combat brigade can be fielded in the region by American and NATO forces at all times.

China has never attacked the United States. We intervened militarily to quell the Boxer Rebellion. We assisted Chiang Kai- shek over Mao Zedong in the Chinese civil war. We contemplated nuclear weapons against China in the Korean War. We sell weapons to Taiwan. We have defense treaties with Japan, South Korea, and the Philippines fortified with military bases and troops. We contemplate extending our defense commitment to shoals and islands claimed by the Philippines in the disputed South China Sea. The United States Marines have a training base in Darwin, Australia.

Despite this encirclement strengthened by the U.S. Pacific Command, the MITC has championed a "pivot to Asia" to confront China in its traditional sphere of influence. It summons the specter of China to justify a hike in defense spending.

The MITC created a dystopia in Libya featuring an ISIS auxiliary by overthrowing Muammar Gaddafi after he abandoned WMD. Now the MITC is poised to re-engage militarily to attack the ISIS presence that it created.

The MITC turned Iraq into a sectarian and tribal nightmare dominated by Iran and threatened by ISIS with its 2003 invasion to overthrow President Saddam Hussein. Thirteen years later, the MITC is enhancing its presence In Iraq to contain the threats that it created.

The MITC has occupied Afghanistan for more than fifteen years following the 9/11 abominations. It has supported corrupt, inept, tribal, unpopular governments that have presided over record levels of opium production. Combined with our predator drone attacks that have killed civilians, our support for the Afghan government has fueled a revival of Taliban and the birth of ISIS there. The MITC is now insisting that we remain militarily engaged in Afghanistan for decades while it nurses a Neanderthal political culture into the Age of Enlightenment with bayonets and bombs.

After giving birth to ISIS through the pulverization of Iraq and support for repressive Middle East states and statelets, the MITC bugled for military force to degrade and destroy its own malevolent offspring in Iraq, Syria, and anywhere on the globe. To rally popular support and spiraling congressional funding, the MITC inflated the danger of radical Islam to an existential threat. More than 9,000 airstrikes against ISIS have accomplished nothing militarily significant. The MITC is now clamoring for boots on the ground in Syria or Iraq indefinitely, a throwback to General William Westmoreland's demand for 200,000 more troops in Vietnam after the1968 Tet Offensive.

What explains the seeming inexplicability of the MITC's success in turning failures into organizational triumphs?

The mindless human lust for power and domination that crushes everything in its path, including reason, justice, and moderation alike.

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http://www.globalresearch.ca/central-banks-are-trojan-horses-looting-their-host-nations/5507301

Central Banks Are Trojan Horses, Looting Their Host Nations

A Nobel prize winning economist, former chief economist and senior vice president of the World Bank, and chairman of the President’s council of economic advisers (Joseph Stiglitz) says that the International Monetary Fund and World Bank loan money to third world countries as a way to force them to open up their markets and resources for looting by the West.

Do central banks do something similar?

Economics professor Richard Werner – who created the concept of quantitative easing – has documented that central banks intentionally impoverish their host countries to justify economic and legal changes which allow looting by foreign interests.

He focuses mainly on the Bank of Japan, which induced a huge bubble and then deflated it – crushing Japan’s economy in the process – as a way to promote and justify structural “reforms”.

The Bank of Japan has used a heavy hand on Japanese economy for many decades, but Japan is stuck in a horrible slump.

But Werner says the same thing about the European Central Bank (ECB). The ECB has used loans and liquidity as a weapon to loot European nations.

Indeed, Greece (more), Italy, Ireland (and here) and other European countries have all lost their national sovereignty to the ECB and the other members of the Troika.

ECB head Mario Draghi said in 2012:

The EU should have the power to police and interfere in member states’ national budgets.

***

I am certain, if we want to restore confidence in the eurozone, countries will have to transfer part of their sovereignty to the European level.

***

Several governments have not yet understood that they lost their national sovereignty long ago. Because they ran up huge debts in the past, they are now dependent on the goodwill of the financial markets.

And yet Europe has been stuck in a depression worse than the Great Depression, largely due to the ECB’s actions.

What about America’s central bank … the Federal Reserve?

Initially – contrary to what many Americans believe – the Federal Reserve had admitted that it is not really federal (more).

But – even if it’s not part of the government – hasn’t the Fed acted in America’s interest?

Let’s have a look …

The Fed:

◾Bailed out foreign banks … more than Main Street or the American people. The foreign banks bailed out by the Fed include Gaddafi’s Libyan bank, the Arab Banking Corp. of Bahrain, and the Banks of Bavaria and Korea

◾Offered to bail out Mexico, if it would agree to join the North American Free Trade Agreement (NAFTA)

◾Threw money at “several billionaires and tens of multi-millionaires”, including billionaire businessman H. Wayne Huizenga, billionaire Michael Dell of Dell computer, billionaire hedge fund manager John Paulson, billionaire private equity honcho J. Christopher Flowers, and the wife of Morgan Stanley CEO John Mack

◾Bailed out wealthy corporations, including hedge funds, McDonald’s and Harley-Davidson

◾Artificially “front-loaded an enormous [stock] market rally”. Professor G. William Domhoff demonstrated that the richest 10% own 81% of all stocks and mutual funds (the top 1% own 35%). The great majority of Americans – the bottom 90% – own less than 20% of all stocks and mutual funds. So the Fed’s effort overwhelmingly benefits the wealthiest Americans … and wealthy foreigninvestors

◾Is largely responsible for creating the worst inequality in world history

◾Turned its cheek and allowed massive fraud (which is destroying the economy). Fed chair Greenspan took the position that fraud could never happen. Fed chair Bernanke also falsely stated that the big banks receiving Tarp money were healthy when they were not

◾Acted as cheerleader in chief for unregulated use of derivatives at least as far back as 1999 (see thisand this), and is now backstopping derivatives loss

◾And for subprime loans

◾Allowed the giant banks to grow into mega-banks, even though most independent economists and financial experts say that the economy will not recover until the giant banks are broken up. For example, Citigroup’s former chief executive says that when Citigroup was formed in 1998 out of the merger of banking and insurance giants, Greenspan told him, “I have nothing against size. It doesn’t bother me at all”

◾Argued that economists had conquered the business cycle, and that modern, technologically advanced financial markets are best left to police themselves

◾Preached that a new bubble be blown every time the last one bursts

◾Had a hand in Watergate and arming Saddam Hussein, according to an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and subsequently Professor of Public Affairs at the University of Texas at Austin. See this and this

◾Intentionally discouraged banks from lending to Main Street, which has increased unemployment and stalled out the economy

Moreover, the Fed’s main program for dealing with the financial crisis – quantitative easing – benefits the rich and hurts the little guy, as confirmed by former high-level Fed officials, the architect of Japan’s quantitative easing program and several academic economists. Indeed, a high-level Federal Reserve official says quantitative easing is “the greatest backdoor Wall Street bailout of all time”. And see this.

Some economists called the bank bailouts which the Fed helped engineer the greatest redistribution of wealth in history.

Tim Geithner – as head of the Federal Reserve Bank of New York – was complicit in Lehman’s accounting fraud, (and see this), and pushed to pay AIG’s CDS counterparties at full value, and then to keep the deal secret. And as Robert Reich notes, Geithner was “very much in the center of the action” regarding the secret bail out of Bear Stearns without Congressional approval. William Black points out: “Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth”

Indeed, the non-partisan Government Accountability Office calls the Fed corrupt and riddled with conflicts of interest. Nobel prize-winning economist Joe Stiglitz says the World Bank would view any country which had a banking structure like the Fed as being corrupt and untrustworthy. The former vice president at the Federal Reserve Bank of Dallas said said he worried that the failure of the government to provide more information about its rescue spending could signal corruption. “Nontransparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here,” he said.

But aren’t the Fed and other central banks crucial to stabilize the economy?

Not necessarily … the Fed caused the Great Depression and the current economic crisis, and many economists – including several Nobel prize winning economists – say that we should end the Fed in its current form.

They also say that the Fed does not help stabilize the economy. For example:

Thomas Sargent, the New York University professor who was announced Monday as a winner of the Nobel in economics … cites Walter Bagehot, who “said that what he called a ‘natural’ competitive banking system without a ‘central’ bank would be better…. ‘nothing can be more surely established by a larger experience than that a Government which interferes with any trade injures that trade. The best thing undeniably that a Government can do with the Money Market is to let it take care of itself.’”

Earlier U.S. central banks caused mischief, as well. For example, Austrian economist Murray Rothbard wrote:

The panics of 1837 and 1839 … were the consequence of a massive inflationary boom fueled by the Whig-run Second Bank of the United States.

Indeed, the Revolutionary War was largely due to the actions of the world’s first central bank, the Bank of England. Specifically, when Benjamin Franklin went to London in 1764, this is what he observed:

When he arrived, he was surprised to find rampant unemployment and poverty among the British working classes… Franklin was then asked how the American colonies managed to collect enough money to support their poor houses. He reportedly replied:

“We have no poor houses in the Colonies; and if we had some, there would be nobody to put in them, since there is, in the Colonies, not a single unemployed person, neither beggars nor tramps.”

In 1764, the Bank of England used its influence on Parliament to get a Currency Act passed that made it illegal for any of the colonies to print their own money. The colonists were forced to pay all future taxes to Britain in silver or gold. Anyone lacking in those precious metals had to borrow them at interest from the banks.

Only a year later, Franklin said, the streets of the colonies were filled with unemployed beggars, just as they were in England. The money supply had suddenly been reduced by half, leaving insufficient funds to pay for the goods and services these workers could have provided. He maintained that it was “the poverty caused by the bad influence of the English bankers on the Parliament which has caused in the colonies hatred of the English and . . . the Revolutionary War.” This, he said, was the real reason for the Revolution: “the colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction.”

And things are getting worse … rather than better. As Professor Werner tells Washington’s Blog:

Central banks have legally become more and more powerful in the past 30 years across the globe, yet they have become de facto less and less accountable. In fact, as I warned in my book New Paradigm in Macroeconomics in 2005, after each of the ‘recurring banking crises’, central banks are usually handed even more powers. This also happened after the 2008 crisis. [Background here and here.] So it is clear we have a regulatory moral hazard problem: central banks seem to benefit from crises. No wonder the rise of central banks to ever larger legal powers has been accompanied not by fewer and smaller business cycles and crises, but more crises and of larger amplitude.

Georgetown University historian Professor Carroll Quigley argued that the aim of the powers-that-be is “nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.” This system is to be controlled “in a feudalist fashion by the central banks of the world acting in concert by secret agreements,” central banks that “were themselves private corporations.”

Given the facts set forth above, this may be yet another conspiracy theory confirmed as conspiracy fact.

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http://www.truthdig.com/report/item/bernie_sanders_phantom_movement_20160214

Bernie Sanders’ Phantom Movement

Bernie Sanders, who has attracted numerous young, white, college-educated supporters in his bid for the presidency, says he is creating a movement and promises a political revolution. This rhetoric is an updated version of the “change” promised by the 2008 campaign of Barack Obama and by Jesse Jackson’s earlier National Rainbow Coalition. Such Democratic electoral campaigns, at best, raise political consciousness. But they do not become movements or engender revolutions. They exist as long as election campaigns endure and then they vanish. Sanders’ campaign will be no different.

No movement or political revolution will ever be built within the confines of the Democratic Party. And the repeated failure of the American left to grasp the duplicitous game being played by the political elites has effectively neutered it as a political force. History, after all, should count for something.

The Democrats, like the Republicans, have no interest in genuine reform. They are wedded to corporate power. They are about appearance, not substance. They speak in the language of democracy, even liberal reform and populism, but doggedly block campaign finance reform and promote an array of policies, including new trade agreements, that disempower workers. They rig the elections, not only with money but also with so-called superdelegates—more than 700 delegates who are unbound among a total of more than 4,700 at the Democratic convention. Sanders may have received 60 percent of the vote in New Hampshire, but he came away with fewer of the state’s delegates than Clinton. This is a harbinger of the campaign to come.

If Sanders is denied the nomination—the Clinton machine and the Democratic Party establishment, along with their corporate puppet masters, will use every dirty trick to ensure he loses—his so-called movement and political revolution will evaporate. His mobilized base, as was true with the Obama campaign, will be fossilized into donor and volunteer lists. The curtain will come down with a thunderclap until the next election carnival.

The Democratic Party is a full partner in the corporate state. Yet Sanders, while critical of Hillary Clinton’s exorbitant speaking fees from firms such as Goldman Sachs, refuses to call out the party and—as Robert Scheer pointed out in a column in October—the Clintons for their role as handmaidens of Wall Street. For Sanders, it is a lie of omission, which is still a lie. And it is a lie that makes the Vermont senator complicit in the con game being played on the American electorate by the Democratic Party establishment.

Do Sanders’ supporters believe they can wrest power from the Democratic establishment and transform the party? Do they think the forces where real power lies—the military-industrial complex, Wall Street, corporations, the security and surveillance state—can be toppled by a Sanders campaign? Do they think the Democratic Party will allow itself to be ruled by democratic procedures? Do they not accept that with the destruction of organized labor and anti-war, civil rights and progressive movements—a destruction often orchestrated by security organs such as the FBI—the party has lurched so far to the right that it has remade itself into the old Republican Party?

The elites use money, along with their control of the media, the courts and legislatures, their armies of lobbyists and “think tanks,” to invalidate the vote. We have undergone, as John Ralston Saul has written, a corporate coup d’état. There are no institutions left within civil society that can be accurately described as democratic. We do not live in a capitalist democracy. We live in what the political philosopher Sheldon Wolin calls a system of “inverted totalitarianism.”

In Europe, America’s Democratic Party would be a far-right party. The Republican Party would be extremist. There is no liberal—much less left or progressive—organized political class in the United States. The growth of protofascists will be halted only when a movement on the left embraces an unequivocal militancy to defend the rights of workers and move toward the destruction of corporate power. As long as the left keeps surrendering to a Democratic Party that mouths liberal values while serving corporate interests, it will destroy itself and the values it claims to represent. It will stoke the justifiable rage of the underclass, especially the white underclass, and empower the most racist and retrograde political forces in the country. Fascism thrives not only on despair, betrayal and anger but a bankrupt liberalism.

The political system, as many Sanders supporters are about to discover, is immune to reform. The only effective resistance will be achieved through acts of sustained, mass civil disobedience. The Democrats, like the Republicans, have no intention of halting the assault on our civil liberties, the expansion of imperial wars, the coddling of Wall Street, the destruction of the ecosystem by the fossil fuel industry and the impoverishment of workers. As long as the Democrats and the Republicans remain in power we are doomed.

The Democratic establishment’s response to any internal insurgency is to crush it, co-opt it and rewrite the rules to make a future insurgency impossible. This was true in 1948 with Henry Wallace and in 1972 with George McGovern—two politicians who, unlike Sanders, took on the war industry—and in the 1984 and 1988 insurgencies led by Jackson.

Corey Robin in Salon explained how the Clintons rose to power on this reactionary agenda. The Clintons, and the Democratic establishment, he wrote, repudiated the progressive agenda of the Jackson campaign and used coded language, especially regarding law and order, to appeal to the racism of white voters. The Clintons and the party mandarins ruthlessly disenfranchised those Jackson had mobilized.

Sanders’ supporters can expect a similar reception. That Hillary Clinton can run a campaign that defies her long and sordid political record is one of the miracles of modern mass propaganda and a testament to the effectiveness of our political theater.

Sanders said that if he does not receive the nomination he will support the party nominee; he will not be a “spoiler.” If that happens, Sanders will become an obstacle to change. He will recite the mantra of the “least worst.” He will become part of the Democratic establishment’s campaign to neutralize the left.

Sanders is, in all but title, a Democrat. He is a member of the Democratic caucus. He votes 98 percent of the time with the Democrats. He routinely backs appropriations for imperial wars, the corporate scam of Obamacare, wholesale surveillance and bloated defense budgets. He campaigned for Bill Clinton in the 1992 presidential race and again in 1996—after Clinton had rammed through the North American Free Trade Agreement (NAFTA), vastly expanded the system of mass incarceration and destroyed welfare—and for John Kerry in 2004. He called on Ralph Nader in 2004 to abandon his presidential campaign. The Democrats recognize his value. They have long rewarded Sanders for his role as a sheepherder.

Kshama Sawant and I privately asked Sanders at a New York City event where we appeared with him the night before the 2014 climate march why he would not run for president as an independent. “I don’t want to end up like Ralph Nader,” he told us.

Sanders had a point. The Democratic power structure made a quid pro quo arrangement with Sanders. It does not run a serious candidate against him in Vermont for his U.S. Senate seat. Sanders, as part of this Faustian deal, serves one of the main impediments to building a viable third party in Vermont. If Sanders defies the Democratic Party he will be stripped of his seniority in the Senate. He will lose his committee chairmanships. The party machine will turn him, as it did Nader, into a pariah. It will push him outside the political establishment. Sanders probably saw his answer as a practical response to political reality. But it was also an admission of cowardice. Nader paid a heavy price for his courage and his honesty, but he was not a failure.

Sanders, I suspect, is acutely aware that the left is broken and disorganized. The two parties have created innumerable obstacles to third parties, from locking them out of the debates to challenging voter lists and keeping them off the ballot. The Green Party is internally crippled by endemic factionalism and dysfunction. It is dominated in many states by an older, white demographic that is trapped in the nostalgia of the 1960s and narcissistically self-referential.

I spoke three years ago to the sparsely attended state gathering of the Green Party in New Jersey. I felt as if I was a character in Mario Vargas Llosa’s novel “The Real Life of Alejandro Mayta.” In the novel, Mayta, a naive idealist, endures the indignities of the tiny and irrelevant warring sects of the Peruvian left. He is reduced to meeting in a garage with seven self-described revolutionaries who make up the RWP(T)—the Revolutionary Workers’ Party (Trotskyist)—a splinter group of the marginal Revolutionary Worker’s Party. “Stacked against the walls,” Llosa writes, “were piles of Workers Voice and handbills, manifestos and statements favoring strikes or denouncing them which they had never got around to handing out.”

I am all for a revolution, a word Sanders likes to throw around, but one that is truly socialist and destroys the corporate establishment, including the Democratic Party. I am for a revolution that demands the return of the rule of law, and not just for Wall Street, but those who wage pre-emptive war, order the assassination of U.S. citizens, allow the military to carry out domestic policing and then indefinitely hold citizens without due process, who empower the wholesale surveillance of the citizenry by the government. I am for a revolution that brings under strict civilian control the military, the security and surveillance apparatus including the CIA, the FBI, Homeland Security and police and drastically reduces their budgets and power. I am for a revolution that abandons imperial expansion, especially in the Middle East, and makes it impossible to profit from war. I am for a revolution that nationalizes banks, the arms industry, energy companies and utilities, breaks up monopolies, destroys the fossil fuel industry, funds the arts and public broadcasting, provides full employment and free education including university education, forgives all student debt, blocks bank repossessions and foreclosures of homes, guarantees universal and free health care and provides a living wage to those unable to work, especially single parents, the disabled and the elderly. Half the country, after all, now lives in poverty. None of us live in freedom.

This will be a long and desperate struggle. It will require open confrontation. The billionaire class and corporate oligarchs cannot be tamed. They must be overthrown. They will be overthrown in the streets, not in a convention hall. Convention halls are where the left goes to die.

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http://www.resilience.org/stories/2016-02-12/the-return-of-crisis

The Return of Crisis

Financial markets the world over are increasingly chaotic; either retreating or plunging. Our view remains that there’s a gigantic market crash in the coming future -- one that has possibly started now.

Our reason for expecting a market crash is simple: Bubbles always burst.

Bubbles arise when asset prices inflate above what underlying incomes can sustain. Centuries ago, the Dutch woke up one morning and discovered that tulips were simply just flowers after all. But today, the public has yet to wake up to the mathematical reality that over $200 trillion in debt and perhaps another $500 trillion of un(der)funded liabilities really cannot ever be paid back under current terms. However, this fact is dawning within the minds of more and more critical thinkers with each passing day.

In order for these obligations to be reset to a reality-based level, something has to give. The central banks have tried to modify the phrase “under current terms” by debasing the currency these obligations are written in via inflation. Try as they have, though, they’ve been unable to create the sort of "goldilocks" low-level inflation that would slowly sublimate that massive pile of debt into something more manageable.

Wide-spread inflation has not happened. Why not? Because they've failed to note that plan of handing all of their newly printed money to a very wealthy elite -- while a socially popular thing to do among the cocktail party set -- simply has concentrated the inflation to the sorts of assets the monied set buys: private jets, penthouse apartments, fine art, large gemstones, etc. So yes, their efforts produced price inflation; just of the wrong sort.

Even worse, all the central banks have really accomplished is to assure that when the deflation monster finally arrives it will be gigantic, highly damaging and possibly uncontrollable. I'll admit to being worried about this next crash/crisis because I imagine it will involve record-setting losses, human misery due to lost jobs and dashed dreams, and possibly even the prospect of wars and serious social unrest.

Let me be blunt: this next crash will be far worse and more dramatic than any that has come before. Literally, the world has never seen anything like the situation we collectively find ourselves in today. The so-called Great Depression happened for purely monetary reasons. Before, during and after the Great Depression, abundant resources, spare capacity and willing workers existed in sufficient quantities to get things moving along smartly again once the financial system had been reset.

This time there’s something different in the story line: the absence of abundant and high-net energy oil. Many of you might be thinking “Hey, the price of oil is low!” which is true, but only momentarily. Remember that price is not the same thing as net energy, which is what's left over after you expend energy to get a fossil fuel like oil out of the ground. As soon as the world economy tries to grow rapidly again, we’ll discover that oil will quickly go through two to possibly three complete doublings in price due to supply issues. And those oil price spikes will collide into that tower of outstanding debt, making the economic growth required to inflate them away a lot more expensive (both cost-wise and energetically) to come by.

With every passing moment, the world has slightly less high-net energy conventional oil and is replacing that with low-net energy oil. Consider how we're producing less barrels of production in the North Sea while coaxing more out of the tar sands. From a volume or a price standpoint right now, the casual observer would notice nothing. But it takes a lot more energy to get a barrel of oil from tar sands. So there's less net energy which can be used to grow the world economy after that substitution.

Purely from a price standpoint, our model at Peak Prosperity includes the idea that there’s a price of oil that’s too high for the economy to sustain (the ceiling) and a price that’s too low for the oil companies to remain financially solvent (the floor). That ceiling and that floor are drawing ever closer. When we reach the point at which there’s not enough of a gap between them to sustainably power the growth our economy currently is depending on, there’s nothing left but to adjust our economic hopes and dreams to more realistic -- and far lower -- levels.

When this happens most folks will undergo a "forced simplification" of their lifestyles (as well as their financial portfolios), which they will experience as disruptive and emotionally difficult. That's not fear-mongering; it's just math. (And it's the reason why we encourage developing a resilient lifestyle today, to insulate yourself from this disruption, as well as be able to enter the future with optimism.)

Too Much Debt

Our diagnosis of the fatal flaw facing the global economy and its financial systems has remained unchanged since before 2008. We can sum it up with these three simple words: Too much debt.

The chart below visualizes our predicament plainly. It has always been mathematically impossible (not to mention intellectually bankrupt) to expect to grow one's debt at twice the rate of one's income in perpetuity:

All but the most blinkered can rapidly work out the fallacy captured in the above chart. Sooner or later, borrowing at a faster rate than income growth was going to end because it has to. Again, it's just math. Math that our central planners seem blind to, by the way -- all of whom embrace "More debt!" as a solution, not a problem.

Despite being given the opportunity to re-think their strategy in the wake of the 2008 credit crisis, the world’s central banks instead did everything in their considerable power to create conditions for the most rapid period of credit accumulation in all of history:

Lesson not learned!

The chart's global debt number is only larger now, somewhere well north of $200 trillion here in Q1 2016. But consider, if you will, that entire world had ‘only’ managed to accumulate $87 trillion in total debt by 2000 (this is just debt, mind you, it does not include the larger amount of unfunded liabilities). Yet governments then managed to pour on an additional $57 trillion just between the end of 2007 and the half way point of 2014, just seven and half short years later.

Was this a good idea? Or monumental stupidity? We’re about to find out.

My vote is on stupidity.

Banks In Trouble

In just the first few weeks of 2016, the prices of many bank stocks have suddenly dropped to deeply distressed territory. And the price of insurance against default on the bonds of those banks is now spiking.

While we don't know exactly what ails these banks -- and, if history is any guide, we probably won’t find out until after this next crisis is well underway -- but we can tell from the outside looking in that something is very wrong.

In today’s hyper-interconnected world of global banking, if one domino falls, it will topple any number of others. The points of connectivity are so numerous and tangled that literally no human is able to predict with certainty what will happen. Which is why the action now occurring in the banking sector is beginning to smell like 2008 all over again:

Gundlach Says 'Frightening' Seeing Financial Stocks Below Crisis

Feb 5, 2016

DoubleLine Capital’s Jeffrey Gundlach said it’s “frightening” to see major financial stocks trading at prices below their financial crisis levels.

He cited Deutsche Bank AG and Credit Suisse Group AG as examples in a talk outlining bearish views at a conference in Beverly Hills, California, on Friday. Both banks fell this week to their lowest levels since the early 1990s in European trading.

“We see the price of major financial stocks, particularly in Europe, which are truly frightening,” Gundlach said. “Do you know that Credit Suisse, which is a powerhouse bank, their stock price is lower than it was in the depths of the financial crisis in 2009? Do you know that Deutsche Bank is at a lower price today than it was in 2009 when we were talking about the potential implosion of the entire global banking system?”

This time it looks like the trouble is likely to begin in Europe, where we’ve been tracking the woes of Deutsche Bank (DB) for a while. But in Italy, banks are carrying 18% non-performing loans and an additional double digit percentage of ‘marginally performing' or impaired loans. Taken together, these loans represent more than 20% of Italy's GDP, which is hugely problematic.

The Italian banking sector may have upwards of 25% to 30% bad or impaired loans on the books. That means the entire banking sector is kaput. Finis. Insolvent and ready for the restructuring vultures to take over.

On average, in a fractional reserve banking system operating at a 10% reserve ratio, when a bank's bad loans approach its reserve ratio, it's pretty much toast. By 15% that's pretty much a certainty. By 20% you just need to figure out which resolution specialist to call. At 25% or 30%, you probably should pack a bag and skip town in the dead of night.

This handy chart provides some of the context for Europe more broadly. I’ve highlighted everything from Europe in yellow, showing how the banks there currently top the list of awfulness:

The extreme weakness in European financial shares, combined with other factors, is dragging down Europe’s stock market dramatically. The decline has now wiped out all of 2015’s market gains and has broken convincingly below the neckline (yellow line, below) of a typical “Head & Shoulders” formation:

Since the beginning of the year, the stock prices of these select banks are down (as of COB Friday 2/5/16):
•DB -28.3%
•Credit Swiss -29.9%
•MS -22.6%
•C -22.0%
•Barclays -21.7%
•BAC -21.2%
•UBS -20.3%
•RBS -19.6%

Those are pretty hefty losses over a short period of time, and that’s meaningful. While the headline equity indexes are managing to keep their losses minimized, these bellwether stocks from the critical finance sector are stampeding out the back door.

And when I say ‘critical’, I mean in the sense that a hefty amount of the overall earnings within the S&P 500 and other major stock indexes were fraudulent profits were derived from the banks feeding on central bank thin-air money and front-running central bank policy.

What's there to worry about? Well, just pick something. It could be a combination of headwinds conspiring to drag down bank earnings from here. Take your pick: reduced trading and M&A revenue, and lower profits from ridiculously flat yield curves and negative interest rates.

However, we have to include the possibility that No more bailouts are coming. Why not? Mainly because it would be politically incendiary at this moment to even try such a thing. Public resentment of the banks is high all over the world, and in the US specifically, there’s an election primary that is hinging for the Democrats on Wall Street coziness. Maybe the markets are pricing that in?

Or it could be that these banks have been playing with fire (again) and got burned (again). We know for sure that a number hold a boatload of junk debt from the energy sector that will need to be written off. And we suspect many are staring at losses from writing too many derivative contracts that have turned against them.

But It Gets Worse; A Lot Worse

If only the greatest near-term risks were limited to the bad actions of the banks. But that's sadly not the case.

The collapse in the price of oil has been vicious, but it's likely not done. The oil patch has morphed into a capital-destruction zone for many drillers and as we have been warning all last year, the fallout is going to be worse than we can imagine. And it's just getting underway...

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http://thearchdruidreport.blogspot.com/

Renewables: The Next Fracking?

I'd meant this week’s Archdruid Report post to return to Retrotopia, my quirky narrative exploration of ways in which going backward might actually be a step forward, and next week’s post to turn a critical eye on a common but dysfunctional habit of thinking that explains an astonishing number of the avoidable disasters of contemporary life, from anthropogenic climate change all the way to Hillary Clinton’s presidential campaign.

Still, those entertaining topics will have to wait, because something else requires a bit of immediate attention. In my new year’s predictions a little over a month ago, as my regular readers will recall, I suggested that photovoltaic solar energy would be the focus of the next big energy bubble. The first signs of that process have now begun to surface in a big way, and the sign I have in mind—the same marker that provided the first warning of previous energy bubbles—is a shift in the rhetoric surrounding renewable energy sources.

Broadly speaking, there are two groups of people who talk about renewable energy these days. The first group consists of those people who believe that of course sun and wind can replace fossil fuels and enable modern industrial society to keep on going into the far future. The second group consists of people who actually live with renewable energy on a daily basis. It’s been my repeated experience for years now that people belong to one of these groups or the other, but not to both.

As a general rule, in fact, the less direct experience a given person has living with solar and wind power, the more likely that person is to buy into the sort of green cornucopianism that insists that sun, wind, and other renewable resources can provide everyone on the planet with a middle class American lifestyle. Conversely, those people who have the most direct knowledge of the strengths and limitations of renewable energy—those, for example, who live in homes powered by sunlight and wind, without a fossil fuel-powered grid to cover up the intermittency problems—generally have no time for the claims of green cornucopianism, and are the first to point out that relying on renewable energy means giving up a great many extravagant habits that most people in today’s industrial societies consider normal.

Debates between members of these two groups have enlivened quite a few comment pages here on The Archdruid Report. Of late, though—more specifically, since the COP-21 summit last December came out with yet another round of toothless posturing masquerading as a climate agreement—the language used by the first of the two groups has taken on a new and unsettling tone.

Climate activist Naomi Oreskes helped launch that new tone with a diatribe in the mass media insisting that questioning whether renewable energy sources can power industrial society amounts to “a new form of climate denialism.” The same sort of rhetoric has begun to percolate all through the greenward end of things: an increasingly angry insistence that renewable energy sources are by definition the planet’s only hope, that of course the necessary buildout can be accomplished fast enough and on a large enough scale to matter, and that no one ought to be allowed to question these articles of faith.

There are plenty of points worth making about what this sort of rhetoric implies about the current state of the green movement, and I’ll get to some of those shortly, but the issue that comes first to mind—typically enough for this blog—is a historical one: we’ve been here before.

When this blog first got going, back in 2006, the energy resource that was sure to save industrial civilization from the consequences of its own bad decisions was biofuels. Those of my readers who were paying attention to the peak oil scene in those days will remember the grandiose and constantly reiterated pronouncements about the oceans of ethanol from American corn and the torrents of biodiesel from algae that were going to sweep away the petroleum age and replace fossil fuels with all the cheap, abundant, carbon-neutral liquid fuel anyone could want. Those who raised annoying questions—and yes, I was one of them—got reactions that swung across a narrow spectrum from patronizing putdowns to furious denunciation.

As it turned out, of course, the critics were right and the people who insisted that biofuels were going to replace petroleum and other fossil fuels were dead wrong. There were at least two problems, and both of them could have been identified—and in fact were identified—well in advance, by that minority who were willing to take a close look at the underlying data.

The first problem was that the numbers simply didn’t work out. It so happens, for example, that if you grow corn using standard American agricultural methods, and convert that corn into ethanol using state of the art industrial fermenters and the like, the amount of energy you have to put into that whole process is more than you get by burning the resulting ethanol. Equally, it so happens that if you were to put every square inch of arable farmland in the world into biofuel crops, leaving none for such trivial uses as feeding the seven billion human beings on this planet, you still wouldn’t get enough biofuel to replace the world’s annual consumption of transportation fuels. Neither of these points were hard to figure out, and the second one was well known in the appropriate tech scene of the 1970s—you’ll find it, for example, in the pages of William Catton’s must-read book Overshoot—but somehow the proponents of ethanol and biodiesel missed it.

The second problem was a little more complex, but not enough so to make it impossible to figure out in advance. This was that the process of biofuel production and consumption had impacts of its own. Divert a significant fraction of the world’s food supply into the fuel tanks of people in a handful of rich countries—and of course this is what all that rhetoric about fueling the world amounted to in practice—and the resulting spikes in food prices had disastrous impacts across the Third World, triggering riots and quite a number of countries and outright revolutions in more than one.

Meanwhile rain forests in southeast Asia got clearcut so that palm oil plantations could supply the upper middle classes of Europe and America with supposedly sustainable biodiesel. It could have gotten much worse, except that the underlying economics were so bad that not that many years into the biofuels boom, companies started going broke at such a rate that banks stopped lending money for biofuel projects; some of the most highly ballyhooed algal biodiesel projects turned out to be, in effect, pond scum ponzi schemes; and except for those enterprises that managed to get themselves a cozy spot as taxpayer-supported subsidy dumpsters, the biofuel boom went away.

It was promptly replaced by another energy resource that was sure to save industrial civilization. Yes, that would be hydrofracturing of oil- and gas-bearing shales, or to give it its popular moniker, fracking. For quite a while there, you couldn’t click through to an energy-related website without being assailed with any number of grandiose diatribes glorifying fracking as a revolutionary new technology that, once it was applied to vast, newly discovered shale fields all over North America, was going to usher in a new era of US energy independence. Remember the phrase “Saudi America”? I certainly do.

Here again, there were two little problems with these claims, and the first was that once again the numbers didn’t work out. Fracking wasn’t a new technological breakthrough—it’s been used on oil fields since the 1940s—and the “newly discovered” oil fields in North Dakota and elsewhere were nothing of the kind; they were found decades ago and the amount of oil in them, which was well known to petroleum geologists, did not justify the wildly overinflated claims made for them. There were plenty of other difficulties with the so-called “fracking revolution,” including the same net energy issue that ultimately doomed the “biodiesel revolution,” but we can leave those for now, and go on to the second little problem with fracking.

This was the awkward fact that the fracking industry, like the biodiesel industry, had impacts of its own that weren’t limited to the torrents of new energy it was supposed to provide. All across the more heavily fracked parts of the United States, homeowners discovered that their tap water was so full of methane that they could ignite it with a match, while some had to deal with the rather more troubling consequences of earthquake swarms and miles-long trains of fracked fuels rolling across America’s poorly maintained railroad network. Then there was the methane leakage into the atmosphere—I don’t know that anybody’s been able to quantify that, but I suspect it’s had more than a little to do with the abrupt spike in global temperatures and extreme weather events over the last decade.

Things might have gotten much worse, except here again the underlying economics of fracking were so bad that not that many years into the fracking boom, companies have started going broke at such a rate that banks are cutting back sharply on lending for fracking projects. As I write this, rumors are flying in the petroleum industry that Chesapeake Petroleum, the biggest of the early players in the US fracking scene, is on the brink of declaring bankruptcy, and quite a few very large banks that lent recklessly to prop up the fracking boom are loudly proclaiming that everything is just fine while their stock values plunge in panic selling and the rates other banks charge them for overnight loans spike upwards.

Unless some enterprising fracking promoter figures out how to elbow his way to the government feed trough, it’s pretty much a given that fracking will shortly turn back into what it was before the current boom: one of several humdrum technologies used to scrape a little extra oil out from mostly depleted oil fields. That, in turn, leaves the field clear for the next overblown “energy revolution” to be rolled out—and my working ghess is that the focus of this upcoming round of energy hype will be renewable energy resources: specifically, attempts to power the electrical grid with sun and wind.

In a way, that’s convenient, because we don’t have to wonder whether the two little problems with biofuels and fracking also apply to this application of solar and wind power. That’s already been settled; the research was done quite a while ago, and the answer is yes.

To begin with, the numbers are just as problematic for solar and wind power as they were for biofuels and fracking. Examples abound: real world experience with large-scale solar electrical generation systems, for example, show dismal net energy returns; the calculations of how much energy can be extracted from wind that have been used to prop up windpower are up to two orders of magnitude too high; more generally, those researchers who have taken the time to crunch the numbers—I’m thinking here especially, though not only, of Tom Murphy’s excellent site Do The Math—have shown over and over again that for reasons rooted in the hardest of hard physics, renewable energy as a source of grid power can’t live up to the sweeping promises made on its behalf.

Equally, renewables are by no means as environmentally benign as their more enthusiastic promoters claim. It’s true that they don’t dump as much carbon dioxide into the atmosphere as burning fossil fuels do—and my more perceptive readers may already have noted, by the way, the extent to which talk about the very broad range of environmental blowbacks from modern industrial technologies has been supplanted by a much narrower focus on greenhouse gas-induced anthropogenic global warming, as though this is the only issue that matters—but the technologies needed to turn sun and wind into grid electricity involve very large volumes of rare metals, solvents, plastics, and other industrial products that have substantial carbon footprints of their own.

And of course there are other problems of the same kind, some of which are already painfully clear. A number of those rare metals are sourced from open-pit mines in the Third World worked by slave labor; the manufacture of most solvents and plastics involves the generation of a great deal of toxic waste, most of which inevitably finds its way into the biosphere; wind turbines are already racking up an impressive death toll among birds and bats—well, I could go on. Nearly all of modern industrial society’s complex technologies are ecocidal to one fairly significant degree or another, and the fact that a few of them extract energy from sunlight or wind doesn’t keep them from having a galaxy of nasty indirect environmental costs.

Thus the approaching boom in renewable energy will inevitably bring with it a rising tide of ghastly news stories, as corners get cut and protections overwhelmed by whatever degree of massive buildout gets funded before the dismal economics of renewable energy finally take their inevitable toll. To judge by what’s happened in the past, I expect to see plenty of people who claim to be concerned about the environment angrily dismissing any suggestion that the renewable energy industry has anything to do with, say, soaring cancer rates around solar panel manufacturing plants, or whatever other form the inevitable ecological blowback takes. The all-or-nothing logic of George Orwell’s invented language Newspeak is astonishingly common these days: that which is good (because it doesn’t burn fossil fuels) can’t possibly be ungood (because it isn’t economically viable and also has environmental problems of its own), and to doubt the universal goodness of what’s doubleplusgood—why, that’s thoughtcrime...

Things might get very ugly indeed, all things considered, except that the underlying economics of renewable energy as a source of grid electricity aren’t noticeably better than those of fracking or corn ethanol. Six to ten years down the road, as a result, the bankruptcies and defaults will begin, banks will start backing away from the formerly booming renewables industry, and the whole thing will come crashing down, the way ethanol did and fracking is doing right now. That will clear the way, in turn, for whatever the next energy boom will be—my guess is that it’ll be nuclear power, though that’s such a spectacular money-loser that any future attempt to slap shock paddles on the comatose body of the nuclear power industry may not get far.

It probably needs to be said at this point that one blog post by an archdruid isn’t going to do anything to derail the trajectory just sketched out. Ten thousand blog posts by Gaia herself, cosigned by the Pope, the Dalai Lama, and Captain Planet and the Planeteers probably wouldn’t do the trick either. I confidently expect this post to be denounced furiously straight across the green blogosphere over the next couple of weeks, and at intervals thereafter; a few years from now, when dozens of hot new renewable-energy startups are sucking up million-dollar investments from venture capitalists and planning their initial IPOs, such few references as this and similar posts field will be dripping with patronizing contempt; then, when reality sets in, the defaults begin and the banks start backing away, nobody will want to talk about this essay at all.

It probably also needs to be pointed out that I’m actually very much in favor of renewable energy technologies, and have discussed their importance repeatedly on this blog. The question I’ve been trying to raise, here and elsewhere, isn’t whether or not sun and wind are useful power sources; the question is whether it’s possible to power industrial civilization with them, and the answer is no.

That doesn’t mean, in turn, that we’ll just keep powering industrial civilization with fossil fuels, or nuclear power, or what have you. Fossil fuels are running short—as oilmen like to say, depletion never sleeps—and nuclear power is a hopelessly uneconomical white-elephant technology that has never been viable anywhere in the world without massive ongoing government subsidies. Other options? They’ve all been tried, and they don’t work either.

The point that nearly everyone in the debate is trying to evade is that the collection of extravagant energy-wasting habits that pass for a normal middle class lifestyle these days is, in James Howard Kunstler’s useful phrase, an arrangement without a future. Those habits only became possible in the first place because our species broke into the planet’s supply of stored carbon and burnt through half a billion years of fossil sunlight in a wild three-century-long joyride. Now the needle on the gas gauge is moving inexorably toward that threatening letter E, and the joyride is over. It really is as simple as that.

Thus the conversation that needs to happen now isn’t about how to keep power flowing to the grid; it’s about how to reduce our energy consumption so that we can get by without grid power, using local microgrids and home-generated power to meet sharply reduced needs.We don’t need more energy; we need much, much less, and that implies in turn that we—meaning here especially the five per cent of our species who live within the borders of the United States, who use so disproportionately large a fraction of the planet’s energy and resources, and who produce a comparably huge fraction of the carbon dioxide that’s driving global warming—need to retool our lives and our lifestyles to get by with the sort of energy consumption that most other human beings consider normal.

Unfortunately that’s not a conversation that most people in America are willing to have these days. The point that’s being ignored here, though, is that if something’s unsustainable, sooner or later it will not be sustained. We can—each of us, individually—let go of the absurd extravagances of the industrial age deliberately, while there’s still time to do it with some measure of grace, or we can wait until they’re pried from our cold and stiffening fingers, but one way or another, we’re going to let go of them. The question is simply how many excuses for delay will be trotted out, and how many of the remaining opportunities for constructive change will go whistling down the wind, before that happens.

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http://www.carolynbaker.net/2016/02/11/why-the-wild-descent-of-oil-is-cause-for-concern-by-andrew-nikiforuk/

Why The Wild Descent Of Oil Is Cause For Concern

The signs of oil’s madcap price collapse are everywhere.

Global markets now behave like digital roller-coasters from China to Europe.

Schlumberger, the largest oil field service firm, cut 10,000 jobs in 2016 and another 20,000 jobs last year. The champion of hydraulic fracturing posted a loss of $1 billion, too.

Throughout the world’s financial pages, economists have adopted a new noun: stagnation, stagnation and stagnation.

In Aberdeen, Scotland, former oil workers line up at food banks.

In Fort McMurray, Canada’s oilsands mining centre, Nexen shut down a 50,000 barrel a day facility — a dramatic first. Dogged by wonky technology and a recent explosion, the Long Lake steam plant consistently failed to reach production targets (70,000 a day). It extracted some of the world’s dirtiest oil.

Walmart, a conglomerate founded on the assumption that cheap energy will last forever, is closing more than 200 stores in the United States and Brazil, where the economy has gone south.

In the U.S., scores of energy companies dependent on fracking have gone bankrupt.

Every continental petro-state — Alaska, Alberta, Colorado, Wyoming, Texas and Louisiana, North Dakota and many others — has now declared extreme budgetary shortfalls due to huge drops in oil and gas revenue.

The International Energy Agency predicts “the oil market could drown in oversupply” in 2016.

And so, the descent of oil has become a sort of Sherman’s March on globalization.

The status-quo pundits say don’t worry. The world is awash in oil due to the brute force of fracking and Alberta’s faltering bitumen boom.

Markets are just experiencing another wacky correction in supply and demand, and business as usual will continue. Relax, add the pundits — lower energy prices tend to revive economies by putting more money in the hands of consumers, and all will be well.

But the global economy is now confounding academic theorists. Falling gasoline prices haven’t propped up the economy, or stimulated growth for that matter. In fact, global finance appears to be driving into another recession while debt grows, innovation disappears, capital investment recedes and wages stagnate.

So there must be another story.

A monster called ‘diminishing returns’

There is, and it’s a rather grim energy fairy tale. This one shows how the world’s economy depends on the quality of energy burned, and not the amount of money spent. When economies spend cheap oil, GDP rises; when they switch to costly and unconventional stuff, growth comes to a screeching halt.

In this unfolding story, cheap credit played a big role. It allowed an industry to carelessly borrow trillions to chase ultra-expensive and risky resources such as bitumen and shale oil.

An energy industry laden with toxic debt is now earning less money than what it costs to shovel bitumen or frack shale. And this kind of debt is not going to end well for financial markets. Or for ordinary people.

But the darkest character in this fairy tale is the monster called diminishing returns.

On a diet of cheap oil, the world financial system grew on energy surpluses like a wildfire dines on trees in a forest.

But no more. The cheap stuff is gone, and companies are now frantically fracking North Dakota at a cost of $60 a barrel or mining northern Alberta’s heavy bitumen at costs as high as $80 a barrel. With oil at $30 a barrel, many companies are, as respected Houston analyst Art Berman recently put it, “losing their asses.”

Diminishing returns explain why. Imagine a 20-year-old vehicle that now costs more money to maintain than it does to drive. Every time the owner pours more cash and energy into the clunker, the benefits and rewards keep shrinking. An old car can be a treadmill into poverty.

In a 2014 paper for the Philosophical Transactions of the Royal Society, David Murphy, an energy expert at St. Lawrence University, chronicles what diminishing returns really mean in energy terms.

For every barrel of energy invested in global oil production, 17 are now extracted and turned into wealth. (Nearly 100 years ago, one barrel of investment yielded 100 barrels more, a cornucopia that built the global economy.)

But the industry must now drill deeper and deeper into ugly reservoirs and then fracture them apart to capture molecules of gas or oil. As a consequence, U.S. oil production yields only 11 barrels for every barrel invested, and that number is fast declining. Ultra-heavy bitumen and other unconventional hydrocarbons capture returns of less than 10 and in many cases as low as three.

Energy resources that deliver such paltry returns are civilization shrinkers. They cannibalize other resources and offer no energy surplus.

An investor’s nightmare

As Murphy notes, and as The Tyee has documented over the years, unconventional hydrocarbons require more capital, water and energy to extract. They destroy more land and deliver poorer energy returns. They are an investor’s nightmare and represent the end of business as usual.

Take fracking for example. The unpredictable technology now accounts for 25 to 50 per cent of a well’s drilling costs. It requires extensive real estate and lots of fresh water. Injecting fluids to crack rock underground not only creates earthquake hazards but also aggravates the billion-dollar liability of leaky wellbores. Furthermore, the industry admits that frack jobs don’t even work or hit the target zone about 60 per cent of the time.

One analyst recently noted that “this method of extracting petroleum is like grocery shopping in the supermarket with a backhoe. Yes, you did indeed scoop a lot of eggs into your cart, but look behind you. It’s a totally ham-fisted way to extract finite resources, unless the only goal is short-term maximization of production.”

Diminishing returns also dog forms of renewable energy. You can only build so many wind farms, for example, before those turbines remove more and more of the energy from atmospheric motion and eventually reduce wind speeds. At that point, wind energy becomes a model of inefficiency, looking more like an Alberta steam injection well where industry boils water with methane to melt cold bitumen out of the ground.

The implications of diminishing returns for oil are stark: the more society invests in unconventional hydrocarbons, warns Murphy, the more “growth will become harder to achieve and come at an increasingly higher financial, energetic and environmental cost.”

As society switches to energy resources of lower and lower quality, simply maintaining the flow of net energy to society will require that companies and nations accrue more debt to spend a proportionally larger amount of capital on gross energy extraction that comes with dirtier environmental impacts, such as carbon-spewing bitumen.

Diminishing returns from oil production “indicate that we should expect the economic growth rates of the next 100 years to look nothing like those of the last 100 years,” writes Murphy.

Growing toxic debt load

That reality now seems to be unfolding on a global scale. The trouble really became apparent when oil prices leapt beyond $90 a barrel in 2010 and remained at unprecedented highs for four years. These high prices, in turn, put recessionary pressures on the global economy. Costly oil forced people, nations and firms to scale back and put on the brakes.

Meanwhile, Big Oil continued to borrow billions to extract difficult and unconventional hydrocarbons such as deep-sea oil, bitumen and shale oil. All required more capital and more energy to pull out of the ground.

In 2000, companies spent $400 billion a year chasing hydrocarbons. But by 2013 they were spending nearly $900 billion with little change in production.

The lenders and banks ignored the toxic debt and pretended it was business as usual. They poured money into shale gas and bitumen mining like gamblers at a casino.

Goldman Sachs now reckons more than half of the oil companies listed on the stock market spend five times more than what they did a decade ago chasing extreme hydrocarbons. As a consequence, they need an oil price of $120 a barrel to remain cash neutral in the future. In the process, they drove down the price of oil to $30.

In 2014, federal energy bean counters in the U.S. revealed that the energy industry was actually spending more than it was earning. The U.S. Energy Administration reported 127 of the largest oil and gas firms generated $568 billion in cash from their operations during 2013-2014, while their expenses totaled $677 billion. To cover the difference of $110 billion, the energy giants increased their debt load or sold off assets.

Given that the gap between earned cash and spending stood at a modest $10 billion in 2010, that’s a significant change for the industry as well as the global economy it fuels. Since then, the toxic debt load has grown larger.

Wood Mackenzie, an oil consultancy, now estimates that 2.2 million barrels a day of Canadian production is unprofitable with oil at US$35 a barrel, and most of that debt-inviting extraction is coming from the high cost and complex oilsands.

According to Berman, a consummate oilman and analyst, the shale and bitumen fairy tale is ending badly: “Cheap stupid money, because of artificially low interest rates, resulted in over-investment in oil as well as lots of other commodities.

“Over-investment led to over-production and eventually over-production swamped the market with too much supply and the price has to go down until we work our way through the excess supply.”

Today, the majority of shale oil extractors in the U.S. and bitumen miners in Alberta are losing money. “Nobody can break even at less than about $45 a barrel, and that’s just reality,” Berman says. “But everyone keeps on producing to generate some income to pay back their lenders.”

And so oil prices stay in the doldrums, as companies pump costly, unconventional oil to service their debt.

‘All economies have finite lifetimes’

The recent collapse of oil prices has also turned economic theory on its head. After oil prices rise, economies tend to shrink and go into recession. But when they fall, economies are supposed to roar again as things get cheaper and wages go farther.

That’s not happening this time. The global economy is stagnating or shrinking, and energy demand, a big determinant of commerce and GDP, is slowing or going nowhere. In previous price downfalls, cheap oil has pumped up demand. That’s not happening now.

Gail Tverberg, an accountant and energy blogger, has an interesting theory about all this.

She believes that “all economies have finite lifetimes, just as humans, animals, plants and hurricanes do.” She thinks that we may be “in the unfortunate position of observing the end of our economy’s lifetime.”

A senior Ikea executive, Steve Howard, recently acknowledged the possibility: “If we look on a global basis, in the West we have probably hit peak stuff. We talk about peak oil. I’d say we’ve hit peak red meat, peak sugar, peak stuff… peak home furnishings.”

Economists used to believe that when societies peaked, prices would rise, and energy products would become scarce. But Tverberg reckons the networked economy won’t necessarily behave that way. “High energy prices tend to lead to recession, bringing down prices. Low wages and slow growth in debt also tend to bring down prices. A networked economy can work in ways that does not match our intuition; this is why many researchers fail to understand the nature of the problem we are facing.”

She adds that high oil prices expertly disguised the brutal reality of diminishing returns. Whenever an industry or society blows up the principles of efficiency by getting on a treadmill with no efficiency or gain in energy returns, there is no growth. But there is stagnation and political unrest.

Tverberg worries about toxic debt loads, too. As energy gets more expensive (and renewables are expensive and fossil fuel dependent, too), society has to borrow more money to keep a global clunker on the road. Tverberg notes that you can only dial up the debt for so long before you “discover that debt growth has a lot of adverse effects. And one of the big ones is that it tends to funnel money to the wealthier class and take money away from the poor members of society.”

A peak world and complex society faces a conundrum: high oil prices shrink the economy while low oil prices destabilize it due to diminishing energy returns.

There may be some temporary solutions, but they involve ending cheap credit, shutting in at least a million barrels of oil, and regulating the price of oil as the Railroad Commission did in the 1930s. But our politicians cling to the myth of constant growth and have no idea what the real problem is.

“Things aren’t working out the way we had hoped,” explains Tverberg in one of her insightful blogs. “We can’t seem to get oil supply and demand in balance. If prices are high, oil companies can extract a lot of oil, but consumers can’t afford the products that use it, such as homes and cars; if oil prices are low, oil companies try to continue to extract oil, but soon develop financial problems.” The lesson? Expect more volatility not just in oil prices, but financial markets and political institutions. Expect more debt and economic contraction. The commodity that destabilized the climate will not let go of its grip on the global economy without many convulsions. We are in full energy transition without a guide.

Diminishing returns, just like rising expectations, do not bring out the best in people: expect violent reactions and revolutions in petro-states and indebted nations. Expect the unexpected and a narrative of volatility.

“Unfortunately, what we are facing now is a predicament, rather than a problem,” reflects Tverberg. “There is quite likely no good solution. This is a worry.”