https://www.peakprosperity.com/blog/109505/looming-energy-shock
The Looming Energy Shock
The next oil crisis will arrive in 3 years or less
There will be an extremely painful oil supply shortfall sometime between 2018 and 2020. It will be highly disruptive to our over-leveraged global financial system, given how saddled it is with record debts and unfunded IOUs.
Due to a massive reduction in capital spending in the global oil business over 2014-2016 and continuing into 2017, the world will soon find less oil coming out of the ground beginning somewhere between 2018-2020.
Because oil is the lifeblood of today's economy, if there’s less oil to go around, price shocks are inevitable. It's very likely we'll see prices climb back over $100 per barrel. Possibly well over.
The only way to avoid such a supply driven price-shock is if the world economy collapses first, dragging demand downwards.
Not exactly a great "solution" to hope for.
Pick Your Poison
This is why our view is that either
the world economy outgrows available oil somewhere in the 2018 – 2020 timeframe, or
the world economy collapses first, thus pushing off an oil price shock by a few years (or longer, given the severity of the collapse)
If (1) happens, the resulting oil price spike will kneecap a world economy already weighted down by the highest levels of debt ever recorded, currently totaling some 327% of GDP:
Remember, in 2008, oil spiked to $147 a barrel. The rest is history -- a massive credit crisis ensued. While there was a mountain of dodgy debt centered around subprime loans in the US, what brought Greece to its knees wasn’t US housing debt, but its own unsustainable pile of debt coupled to a 100% dependence on imported oil -- which, figuratively and literally, broke the bank.
If (2) happens, then the price of oil declines, if not collapses. Demand withers away, the oil business cuts back on its exploration/extraction investments even further, so that much later, when the global economy is trying to recover, it then runs into an even more severe supply shortfall. It becomes extremely hard to get sustained GDP growth back online.
If you really want to understand why I hold these views, you need to fully understand and digest this next chart. It shows the amazingly tightly-coupled linear relationship between economic growth and energy consumption:
This chart above says, if you want an extra incremental unit of economic growth you're going to need to have an extra incremental unit of energy. More growth means more energy consumed.
And today, oil is still THE most important source of energy. It's the dominant energy source for transportation, by far. A global economy, after all, is nothing more than things being made and then moved, often very far distances. Despite what you might read about developments in alternative and other forms of energy, our dependency on oil is still massive.
Plunging Investment
Resulting from the start of oil's price decline in 2014, the world saw a historic plunge in oil investments (exploration, development, CAPEX, etc) as companies the world over retracted, delayed or outright canceled oil projects:
In the chart above, note the two successive drops in oil investment from 2014-2015 and then again into 2016. So far 2017 is shaping up for another successive decline, which will mark the only three-year decline in investment in oil's entire history. So what's happening here is actually quite unusual.
This isn’t just a slump. It’s an historic slump.
We don’t yet know by how much oil investment will decline in 2017, but it’s probably pretty close to the rates seen in the prior two years.
Next, take note of the dotted blue arrow in the chart. See how far oil investment climbed during the years from 2009-2014? Not quite a doubling, but not far off from one either. Remember those years, I’ll return to them in a moment.
The key question to ask about the 2009-2014 period is: How much new oil was discovered for all that spending?
Turns out: Not a lot.
Practically No Discoveries
There is one hard and fast rule in the oil business: Before you can pump it, you have to find it.
The growing problem here is that oil discoveries were horrible in 2016, really bad in 2015, and terrible in 2014. That recent three year stretch is the worst in the data series:
Again: you have to find it before you can pump it. And around the world, oil companies are just not finding as much as they used to.
Remember that blue dotted line on the oil investment chart above? Here’s its counterpart, showing discoveries over the same time frame -- it’s just a straight slump downwards:
Global oil discoveries fell to a record low in 2016 as companies continued to cut spending and conventional oil projects sanctioned were at the lowest level in more than 70 years, according to the International Energy Agency, which warned that both trends could continue this year.
Oil discoveries declined to 2.4 billion barrels in 2016, compared with an average of 9 billion barrels per year over the past 15 years. Meanwhile, the volume of conventional resources sanctioned for development last year fell to 4.7 billion barrels, 30% lower than the previous year as the number of projects that received a final investment decision dropped to the lowest level since the 1940s.
Now it's clear why the oil companies pulled back their investment dollars so rapidly when prices slumped: They were spending more and finding less throughout the 2009-2014 period, so they were already feeling the pain of diminishing returns. When the price of oil cracked below $100 a barrel, they wasted no time reining in their investment dollars.
Should we be concerned about this record lowest level of oil project funding in 70 years? Why, yes, we should. Everyone should:
"Our analysis shows we are entering a period of greater oil price volatility (partly) as a result of three years in a row of global oil investments in decline: in 2015, 2016 and most likely 2017," IEA director general Fatih Birol said, speaking at an energy conference in Tokyo.
"This is the first time in the history of oil that investments are declining three years in a row," he said, adding that this would cause "difficulties" in global oil markets in a few years.
To give you a visual of the process, here’s a chart to help you understand why it takes years between making an initial find and maximum production:
This bears repeating: Oil is the most important substance for our economy, we’re burning more of it on a yearly basis than ever before, and we just found the lowest amount since the world economy was several times smaller than it is now. And all this is happening while we're reducing our efforts to find more at an unprecedented rate.
There’s no way to speed up the process of oil discovery and extraction meaningfully, no matter how much money and manpower you throw at it. It simply requires many years to go from a positive test bore to a fully functioning extraction and distribution/transportation program operating at maximum.
Friday, June 30, 2017
SC145-10
http://kunstler.com/clusterfuck-nation/when-the-deal-goes-down/
When the Deal Goes Down
Who needs Russia when the Tweety-Bird-in-Chief is hacking his own presidency into a global joke? Or at least it might be a joke if the USA weren’t such a menace to international order, and to itself, by the way. Interestingly, the 25th amendment allows for the removal of a president from office on account of incompetence or disability, but not for being an embarrassment to the nation.
They may come after him anyway with the 25th, especially as the financial system unravels later this year, because this time, unlike 2008-9, central bank interventions will not avail to rescue the faltering money system from nine years of previous central bank interventions. All it takes is for the “liquidity” flows to seize up and before you know it, there’s no food in the supermarkets because everything in our just-in-time economy is exquisitely calibrated to the sure expectation of getting paid, and when that goes, it all goes.
Then the question arises: well, can’t you just re-start the liquidity flows? Not when the process requires another abracadabra magic act of summoning X-trillions of dollars out of absolutely nothing when the previous X-trillions created out of absolutely nothing are rushing at warp speed into the black hole of deleveraging because it has been discovered that the “loans” they were based on can never be paid back, not in this universe or any number of universes like it. In a word, they’re worthless.
Deleveraging is the polite term economists give to your net worth rapidly evaporating. Liquidity is the polite term for cash money and things denominated in them that can readily be converted into cash money. The problem with the kind of liquidity-creation solution to deleveraging is that it rapidly leads to money itself becoming worthless.
The preview of coming attractions is currently playing out in Illinois — soon to be joined by Connecticut, California, Kentucky, and many other bankrupt states. Illinois is dead broke. It can’t pay the contractors who fix things like roads and storm drains, and supply food to its prisons. It’s over $200-billion deep in pension obligations that will never be honored. Its Medicaid system is a shambles. It doesn’t even have the cash-on-hand to pay lottery winners (what happened to all the cash paid into the lottery by the suckers who didn’t win, which is supposed to pay off the winners?). The state legislature hasn’t passed a budget in three years.
The governor and the mayor of Chicago and everybody else nominally in charge have no idea what they’re going to do about it. Think the federal government is going to just step in and save the day there? They’d have to bail out every other foundering state and that’s just not going to happen, especially with that same federal government about to run out of cash money itself, with no resolution of the debt ceiling controversy that might allow it to even pretend to borrow more money by issuing treasury bonds that are instantly bought by the Federal Reserve — which, of course, is not an official government agency but a private banking consortium contracted to manage the nation’s money.
Do you begin to see the outlines of the clusterfuck rising like a bad moon over the harvest season of 2017? The American people, by and large, have no more idea how false and fragile the financial arrangements of the nation are than the average eight-year-old has about why the re-po squad is towing away Daddy’s Ford-F150. We’re just doing what we always do: gittin’ our summer on. Breaking out the potato salad and the Bud Lites — at least those who have enough mojo left in their MasterCards to charge the party supplies.
An awful lot of Americans must be maxed out, though, people who actually used to work at things and get paid for it. Each one of them is a walking Illinois now, facing each dawning day with a bigger load of problems, more things they can’t pay for, and moving closer to the dreadful day when everything is gone, every chattel, every knickknack, the very roof over their head, and most particularly the belief that they live in a fair and decent society.
So, I wonder what we’re going to do with a Tweety-Bird-in-Chief in the White House when this deal goes down. Stresses and tensions are out there a’buildin’ and the time for being a nation of feckless idiots is drawing to a close. The sad thing is: it wasn’t even fun while it lasted.
When the Deal Goes Down
Who needs Russia when the Tweety-Bird-in-Chief is hacking his own presidency into a global joke? Or at least it might be a joke if the USA weren’t such a menace to international order, and to itself, by the way. Interestingly, the 25th amendment allows for the removal of a president from office on account of incompetence or disability, but not for being an embarrassment to the nation.
They may come after him anyway with the 25th, especially as the financial system unravels later this year, because this time, unlike 2008-9, central bank interventions will not avail to rescue the faltering money system from nine years of previous central bank interventions. All it takes is for the “liquidity” flows to seize up and before you know it, there’s no food in the supermarkets because everything in our just-in-time economy is exquisitely calibrated to the sure expectation of getting paid, and when that goes, it all goes.
Then the question arises: well, can’t you just re-start the liquidity flows? Not when the process requires another abracadabra magic act of summoning X-trillions of dollars out of absolutely nothing when the previous X-trillions created out of absolutely nothing are rushing at warp speed into the black hole of deleveraging because it has been discovered that the “loans” they were based on can never be paid back, not in this universe or any number of universes like it. In a word, they’re worthless.
Deleveraging is the polite term economists give to your net worth rapidly evaporating. Liquidity is the polite term for cash money and things denominated in them that can readily be converted into cash money. The problem with the kind of liquidity-creation solution to deleveraging is that it rapidly leads to money itself becoming worthless.
The preview of coming attractions is currently playing out in Illinois — soon to be joined by Connecticut, California, Kentucky, and many other bankrupt states. Illinois is dead broke. It can’t pay the contractors who fix things like roads and storm drains, and supply food to its prisons. It’s over $200-billion deep in pension obligations that will never be honored. Its Medicaid system is a shambles. It doesn’t even have the cash-on-hand to pay lottery winners (what happened to all the cash paid into the lottery by the suckers who didn’t win, which is supposed to pay off the winners?). The state legislature hasn’t passed a budget in three years.
The governor and the mayor of Chicago and everybody else nominally in charge have no idea what they’re going to do about it. Think the federal government is going to just step in and save the day there? They’d have to bail out every other foundering state and that’s just not going to happen, especially with that same federal government about to run out of cash money itself, with no resolution of the debt ceiling controversy that might allow it to even pretend to borrow more money by issuing treasury bonds that are instantly bought by the Federal Reserve — which, of course, is not an official government agency but a private banking consortium contracted to manage the nation’s money.
Do you begin to see the outlines of the clusterfuck rising like a bad moon over the harvest season of 2017? The American people, by and large, have no more idea how false and fragile the financial arrangements of the nation are than the average eight-year-old has about why the re-po squad is towing away Daddy’s Ford-F150. We’re just doing what we always do: gittin’ our summer on. Breaking out the potato salad and the Bud Lites — at least those who have enough mojo left in their MasterCards to charge the party supplies.
An awful lot of Americans must be maxed out, though, people who actually used to work at things and get paid for it. Each one of them is a walking Illinois now, facing each dawning day with a bigger load of problems, more things they can’t pay for, and moving closer to the dreadful day when everything is gone, every chattel, every knickknack, the very roof over their head, and most particularly the belief that they live in a fair and decent society.
So, I wonder what we’re going to do with a Tweety-Bird-in-Chief in the White House when this deal goes down. Stresses and tensions are out there a’buildin’ and the time for being a nation of feckless idiots is drawing to a close. The sad thing is: it wasn’t even fun while it lasted.
Wednesday, June 28, 2017
SC145-9
http://anotherdayintheempire.com/will-blood-alexandria-shooting-civil-war-america/
There Will Be Blood: the Alexandria Shooting and Civil War in America
The state will exercise it monopoly of violence and terror. It’s the defining characteristic of the modern state. The endgame is an authoritarian police and surveillance state.
The shooting at a Republican baseball practice in Virginia shouldn’t come as a surprise. It’s the result of months of establishment agitprop. From Kathy Griffin posing with Trump’s severed head to a Trump-like Julius Caesar killed in Central Park play, the media has fixated on strife between the two establishment parties.
This isn’t an accident. It’s designed to keep Americans distracted and at each other’s throats as the economy slowly implodes and the wars expand with horrific toll.
The election of Trump provides a unique opportunity to create partisan battle lines. Social media is rife with venom and hatred as the alt-left faces off against the alt-right. Factions are established and receive support behind the scenes from George Soros, the Koch Brothers, and the Democrat “resistance,” a ludicrous moniker cooked up by the Democratic National Committee under its new chairman Tom Perez. The DNC announced it will throw a million dollars at its Summer of Resistance. This will further widen the political divide. Polarization is increasingly intense and the establishment propaganda media is fanning the flames. Violence is escalating. Antifa leftists attack Trump supporters and they respond in kind. Activists are now openly carrying weapons.
We’re in the early stages of an engineered civil war. Who benefits from this? The state. It’s a classic example of problem, reaction, solution. Create political violence, or exploit that which is already festering, and then unleash an authoritarian and militarized response.
Last year, a report by a government watchdog group tracked the weapon expenditures of the federal government and found nearly a billion and a half dollars in “military-style equipment” purchases for 67 of its non-military agencies, including the IRS and the EPA.
The federal government is preparing for civil unrest. The Pentagon is strategizing a response to large-scale civil unrest, not only in America but around the world. It began looking into this in 2008 after the engineered financial crisis. In 2013, it was reported the Department of Homeland Security engaged in a massive, covert military buildup. The DHS has purchased 1.6 billion rounds of ammunition, enough to sustain an Iraq-sized war for over twenty years. DHS has also acquired heavily armored tanks, which have been seen roaming the streets.
The state will exercise it monopoly of violence and terror. It’s the defining characteristic of the modern state. The endgame is an authoritarian police and surveillance state.
As the Nazi Hermann Goering knew, the people can always be brought to the bidding of their leaders as they respond to political violence. He said it’s always a simple matter to drag the people along whether it’s a democracy, a fascist dictatorship, or a parliament, or a communist dictatorship.
As an operative for Operation Gladio pointed out, in order to establish a police state innocent civilians must be attacked and killed to force the public to turn to the state and demand greater security.
Now that a so-called progressive, a Bernie Sanders volunteer, has shot up Republicans playing baseball, how long before Congress introduces yet another draconian law in response? Now that the political class has been targeted, it probably won’t take long.
There Will Be Blood: the Alexandria Shooting and Civil War in America
The state will exercise it monopoly of violence and terror. It’s the defining characteristic of the modern state. The endgame is an authoritarian police and surveillance state.
The shooting at a Republican baseball practice in Virginia shouldn’t come as a surprise. It’s the result of months of establishment agitprop. From Kathy Griffin posing with Trump’s severed head to a Trump-like Julius Caesar killed in Central Park play, the media has fixated on strife between the two establishment parties.
This isn’t an accident. It’s designed to keep Americans distracted and at each other’s throats as the economy slowly implodes and the wars expand with horrific toll.
The election of Trump provides a unique opportunity to create partisan battle lines. Social media is rife with venom and hatred as the alt-left faces off against the alt-right. Factions are established and receive support behind the scenes from George Soros, the Koch Brothers, and the Democrat “resistance,” a ludicrous moniker cooked up by the Democratic National Committee under its new chairman Tom Perez. The DNC announced it will throw a million dollars at its Summer of Resistance. This will further widen the political divide. Polarization is increasingly intense and the establishment propaganda media is fanning the flames. Violence is escalating. Antifa leftists attack Trump supporters and they respond in kind. Activists are now openly carrying weapons.
We’re in the early stages of an engineered civil war. Who benefits from this? The state. It’s a classic example of problem, reaction, solution. Create political violence, or exploit that which is already festering, and then unleash an authoritarian and militarized response.
Last year, a report by a government watchdog group tracked the weapon expenditures of the federal government and found nearly a billion and a half dollars in “military-style equipment” purchases for 67 of its non-military agencies, including the IRS and the EPA.
The federal government is preparing for civil unrest. The Pentagon is strategizing a response to large-scale civil unrest, not only in America but around the world. It began looking into this in 2008 after the engineered financial crisis. In 2013, it was reported the Department of Homeland Security engaged in a massive, covert military buildup. The DHS has purchased 1.6 billion rounds of ammunition, enough to sustain an Iraq-sized war for over twenty years. DHS has also acquired heavily armored tanks, which have been seen roaming the streets.
The state will exercise it monopoly of violence and terror. It’s the defining characteristic of the modern state. The endgame is an authoritarian police and surveillance state.
As the Nazi Hermann Goering knew, the people can always be brought to the bidding of their leaders as they respond to political violence. He said it’s always a simple matter to drag the people along whether it’s a democracy, a fascist dictatorship, or a parliament, or a communist dictatorship.
As an operative for Operation Gladio pointed out, in order to establish a police state innocent civilians must be attacked and killed to force the public to turn to the state and demand greater security.
Now that a so-called progressive, a Bernie Sanders volunteer, has shot up Republicans playing baseball, how long before Congress introduces yet another draconian law in response? Now that the political class has been targeted, it probably won’t take long.
SC145-8
https://www.theautomaticearth.com/2017/06/the-dynamics-of-depletion/
The Dynamics of Depletion
The Automatic Earth has written many articles on the topic of EROEI (Energy Return on Energy Invested) through the years, there’s a whole chapter on it in the Automatic Earth Primer Guide 2017 that Nicole assembled recently, which contains 17 different articles.
Still, since EROEI is the most important energy issue there is at present, and not the price of oil or some new gas find or a set of windmills or solar panels or thorium, it can’t hurt to repeat it once again, in someone else’s words and from someone else’s angle. This one comes from Brian Davey on his site CredoEconomics, part of his book “Credo”.
It can’t hurt to repeat it because not nearly enough people understand that in the end everything, the survival of our world, our way of life, is all about the ‘quality’ of energy, about what we get in return when we drill and pump and build infrastructure, what remains when we subtract all the energy used to ‘generate’ energy, from (or at) the bottom line.
Anno 2017, our overall ‘net energy’ is nowhere near where it was for the first 100 years or so after we started using oil. And there’s no energy source that comes close to -conventional- oil (and gas) when it comes to what we are left with once our efforts are discounted, in calories or Joules.
The upshot of this is that even if we can ‘gain’ 10 times more than we put in, in energy terms, that won’t save our complex societies. To achieve that, we would need at least a 15:1 ratio, a number straight from our friend Charlie Hall, which is probably still quite optimistic. And we simply don’t have it. Not anymore.
Also, not nearly enough people understand that it has absolutely nothing to do with money. That you can’t go out and buy more or better energy sources. Which is why we use EROEI instead of EROI (Energy Return on Investment), because the latter leaves some sort of financial interpretation open that doesn’t actually exist, it suggests that a financial price of energy plays a role.
First, here’s Nicole from the Automatic Earth Primer Guide 2017. Below that, Brian Davey’s article.
Nicole Foss: Energy is the master resource – the capacity to do work. Our modern society is the result of the enormous energy subsidy we have enjoyed in the form of fossil fuels, specifically fossil fuels with a very high energy profit ratio (EROEI). Energy surplus drove expansion, intensification, and the development of socioeconomic complexity, but now we stand on the edge of the net energy cliff. The surplus energy, beyond that which has to be reinvested in future energy production, is rapidly diminishing.
We would have to greatly increase gross production to make up for reduced energy profit ratio, but production is flat to falling so this is no longer an option. As both gross production and the energy profit ratio fall, the net energy available for all society’s other purposes will fall even more quickly than gross production declines would suggest. Every society rests on a minimum energy profit ratio. The implication of falling below that minimum for industrial society, as we are now poised to do, is that society will be forced to simplify.
A plethora of energy fantasies is making the rounds at the moment. Whether based on unconventional oil and gas or renewables (that are not actually renewable), these are stories we tell ourselves in order to deny that we are facing any kind of future energy scarcity, or that supply could be in any way a concern. They are an attempt to maintain the fiction that our society can continue in its current form, or even increase in complexity. This is a vain attempt to deny the existence of non-negotiable limits to growth. The touted alternatives are not energy sources for our current society, because low EROEI energy sources cannot sustain a society complex enough to produce them.
Using Energy to Extract Energy – The Dynamics of Depletion
Brian Davey: The “Limits to Growth Study” of 1972 was deeply controversial and criticised by many economists. Over 40 years later, it seems remarkably prophetic and on track in its predictions. The crucial concept of Energy Return on Energy Invested is explained and the flaws in neoclassical reasoning which EROI highlights.
The continued functioning of the energy system is a “hub interdependency” that has become essential to the management of the increasing complexity of our society. The energy input into the UK economy is about 50 to 70 times as great as what the labour force could generate if working full time only with the power of their muscles, fuelled up with food. It is fossil fuels, refined to be used in vehicles and motors or converted into electricity that have created power inputs that makes possible the multiple round- about arrangements in a high complex economy. The other “hub interdependency” is a money and transaction system for exchange which has to continue to function to make vast production and trade networks viable. Without payment systems nothing functions.
Yet, as I will show, both types of hub interdependencies could conceivably fail. The smooth running of the energy system is dependent on ample supplies of cheaply available fossil fuels. However, there has been a rising cost of extracting and refining oil, gas and coal. Quite soon there is likely to be an absolute decline in their availability. To this should be added the climatic consequences of burning more carbon based fuels. To make the situation even worse, if the economy gets into difficulty because of rising energy costs then so too will the financial system – which can then have a knock-on consequence for the money system. The two hub interdependencies could break down together.
“Solutions” put forward by the techno optimists almost always assume growing complexity and new uses for energy with an increased energy cost. But this begs the question- because the problem is the growing cost of energy and its polluting and climate changing consequences.
The “Limits to Growth” study of 1972 – and its 40 year after evaluation
It was a view similar to this that underpinned the methodology of a famous study from the early 1970s. A group called the Club of Rome decided to commission a group of system scientists at the Massachusetts Institute of Technology to explore how far economic growth would continue to be possible. Their research used a series of computer model runs based on various scenarios of the future. It was published in 1972 and produced an instant storm. Most economists were up in arms that their shibboleth, economic growth, had been challenged. (Meadows, Meadows, Randers, & BehrensIII, 1972)
This was because its message was that growth could continue for some time by running down “natural capital” (depletion) and degrading “ecological system services” (pollution) but that it could not go on forever. An analogy would be spending more than one earns. This is possible as long as one has savings to run down, or by running up debts payable in the future. However, a day of reckoning inevitably occurs. The MIT scientists ran a number of computer generated scenarios of the future including a “business as usual” projection, called the “standard run” which hit a global crisis in 2030.
It is now over 40 years since the original Limits to Growth study was published so it is legitimate to compare what was predicted in 1972 against what actually happened. This has now been done twice by Graham Turner who works at the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO). Turner did this with data for the rst 30 years and then for 40 years of data. His conclusion is as follows:
The Limits to Growth standard run scenario produced 40 years ago continues to align well with historical data that has been updated in this paper following a 30-year comparison by the author. The scenario results in collapse of the global economy and environment and subsequently, the population. Although the modelled fall in population occurs after about 2030 – with death rates reversing contemporary trends and rising from 2020 onward – the general onset of collapse first appears at about 2015 when per capita industrial output begins a sharp decline. (Turner, 2012)
So what brings about the collapse? In the Limits to Growth model there are essentially two kinds of limiting restraints. On the one hand, limitations on resource inputs (materials and energy). On the other hand, waste/pollution restraints which degrade the ecological system and human society (particularly climate change).
Turner finds that, so far it, is the former rather than the latter that is the more important. What happens is that, as resources like fossil fuels deplete, they become more expensive to extract. More industrial output has to be set aside for the extraction process and less industrial output is available for other purposes.
With signficant capital subsequently going into resource extraction, there is insufficient available to fully replace degrading capital within the industrial sector itself. Consequently, despite heightened industrial activity attempting to satisfy multiple demands from all sectors and the population, actual industrial output per capita begins to fall precipitously, from about 2015, while pollution from the industrial activity continues to grow. The reduction of inputs produced per capita. Similarly, services (e.g., health and education) are not maintained due to insufficient capital and inputs.
Diminishing per capita supply of services and food cause a rise in the death rate from about 2020 (and somewhat lower rise in the birth rate, due to reduced birth control options). The global population therefore falls, at about half a billion per decade, starting at about 2030. Following the collapse, the output of the World3 model for the standard run (figure 1 to figure 3) shows that average living standards for the aggregate population (material wealth, food and services per capita) resemble those of the early 20th century.(Turner, 2012, p. 121)
Energy Return on Energy Invested
A similar analysis has been made by Hall and Klitgaard. They argue that to run a modern society it is necessary that the energy return on energy invested must be at least 15 to 1. To understand why this should be so consider the following diagram from a lecture by Hall. (Hall, 2012)
The diagram illustrates the idea of the energy return on energy invested. For every 100 Mega Joules of energy tapped in an oil flow from a well, 10 MJ are needed to tap the well, leaving 90 MJ. A narrow measure of energy returned on energy invested at the wellhead in this example would therefore be 100 to 10 or 10 to 1.
However, to get a fuller picture we have to extend this kind of analysis. Of the net energy at the wellhead, 90 MJ, some energy has to be used to refine the oil and produce the by-products, leaving only 63 MJ.
Then, to transport the refined product to its point of use takes another 5 MJ leaving 58MJ. But of course, the infrastructure of roads and transport also requires energy for construction and maintenance before any of the refined oil can be used to power a vehicle to go from A to B. By this final stage there is only 20.5 MJ of the original 100MJ left.
We now have to take into account that depletion means that, at well heads around the world, the energy to produce energy is increasing. It takes energy to prospect for oil and gas and if the wells are smaller and more difficult to tap because, for example, they are out at sea under a huge amount of rock. Then it will take more energy to get the oil out in the first place.
So, instead of requiring 10MJ to produce the 100 MJ, let us imagine that it now takes 20 MJ. At the other end of the chain there would thus, only be 10.5MJ – a dramatic reduction in petroleum available to society.
The concept of Energy Return on Energy Invested is a ratio in physical quantities and it helps us to understand the flaw in neoclassical economic reasoning that draws on the idea of “the invisible hand” and the price mechanism. In simplistic economic thinking, markets should have no problems coping with depletion because a depleting resource will become more expensive. As its price rises, so the argument goes, the search for new sources of energy and substitutes will be incentivised while people and companies will adapt their purchases to rising prices. For example, if it is the price of energy that is rising then this will incentivise greater energy efficiency. Basta! Problem solved…
Except the problem is not solved… there are two flaws in the reasoning. Firstly, if the price of energy rises then so too does the cost of extracting energy – because energy is needed to extract energy. There will be gas and oil wells in favourable locations which are relatively cheap to tap, and the rising energy price will mean that the companies that own these wells will make a lot of money. This is what economists call “rent”. However, there will be some wells that are “marginal” because the underlying geology and location are not so favourable. If energy prices rise at these locations then rising energy prices will also put up the energy costs of production. Indeed, when the energy returned on energy invested falls as low as 1 to 1, the increase in the costs of energy inputs will cancel out any gains in revenues from higher priced energy outputs. As is clear when the EROI is less than one, energy extraction will not be profitable at any price.
Secondly, energy prices cannot in any case rise beyond a certain point without crashing the economy. The market for energy is not like the market for cans of baked beans. Energy is necessary for virtually every activity in the economy, for all production and all services. The price of energy is a big deal – energy prices going up and down have a similar significance to interest rates going up or down. There are “macro-economic” consequences for the level of activity in the economy. Thus, in the words of one analyst, Chris Skrebowski, there is a rise in the price of oil, gas and coal at which:
the cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time.(Skrebowski, 2011)
This kind of analysis has been further developed by Steven Kopits of the Douglas-Westwood consultancy. In a lecture to the Columbia University Center on Global Energy Policy in February of 2014, he explained how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in “conventional oil” production but has merely served to slow what would otherwise have been a faster decline.
More specifically, the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that amount, $3.5 trillion was spent on the “legacy” oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production, it fell by 1 million barrels a day. By way of comparison, investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.
Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.
The situation can be understood by reference to the nursery story of Goldilocks and the Three Bears. Goldilocks tries three kinds of porridge – some that is too hot, some that is too cold and some where the temperature is somewhere in the middle and therefore just right. The working assumption of mainstream economists is that there is an oil price that is not too high to undermine economic growth but also not too low so that the oil companies cannot cover their extraction costs – a price that is just right. The problem is that the Goldilocks situation no longer describes what is happening. Another story provides a better metaphor – that story is “Catch 22”. According to Kopits, the vast majority of the publically quoted oil majors require oil prices of over $100 a barrel to achieve positive cash flow and nearly a half need more than $120 a barrel.
But it is these oil prices that drag down the economies of the OECD economies. For several years, however, there have been some countries that have been able to afford the higher prices. The countries that have coped with the high energy prices best are the so called “emerging non OECD countries” and above all China. China has been bidding away an increasing part of the oil production and continuing to grow while higher energy prices have led to stagnation in the OECD economies. (Kopits, 2014)
Since the oil price is never “just right” it follows that it must oscillate between a price that is too high for macro-economic stability or too low to make it a paying proposition for high cost producers of oil (or gas) to invest in expanding production. In late 2014 we can see this drama at work. The faltering global economy has a lower demand for oil but OPEC, under the leadership of Saudi Arabia, have decided not to reduce oil production in order to keep oil prices from falling. On the contrary they want prices to fall. This is because they want to drive US shale oil and gas producers out of business.
The shale industry is described elsewhere in this book – suffice it here to refer to the claim of many commentators that the shale oil and gas boom in the United States is a bubble. A lot of money borrowed from Wall Street has been invested in the industry in anticipation of high profits but given the speed at which wells deplete it is doubtful whether many of the companies will be able to cover their debts. What has been possible so far has been largely because quantitative easing means capital for this industry has been made available with very low interest rates. There is a range of extraction production costs for different oil and gas wells and fields depending on the differing geology in different places. In some “sweet spots” the yield compared to cost is high but in a large number of cases the costs of production have been high and it is being said that it will be impossible to make money at the price to which oil has fallen ($65 in late 2014). This in turn could mean that companies funding their operations with junk bonds could find it difficult to service their debt. If interest rates rise the difficulty would become greater. Because the shale oil and gas sector has been so crucial to expansion in the USA then a large number of bankruptcies could have wider repercussions throughout the wider US and world economy.
Renewable Energy systems to the rescue?
Although it seems obvious that the depletion of fossil fuels can and should lead to the expansion of renewable energy systems like wind and solar power, we should beware of believing that renewable energy systems are a panacea that can rescue consumer society and its continued growth path. A very similar net energy analysis can, and ought to be done for the potential of renewable energy to match that already done for fossil fuels.
eroei-renewables
Before we get over-enthusiastic about the potential for renewable energy, we have to be aware of the need to subtract the energy costs particular to renewable energy systems from the gross energy that renewable energy systems generate. Not only must energy be used to manufacture and install the wind turbines, the solar panels and so on, but for a renewable based economy to be able to function, it must also devote energy to the creation of energy storage. This would allow for the fact that, when the wind and the sun are generating energy, is not necessarily the time when it is wanted.
Furthermore, the places where, for example, solar and wind potential are at this best – offshore for wind or in deserts without dust storms near the equator for solar – are usually a long distance from centres of use. Once again, a great deal of energy, materials and money must be spent getting the energy from where it is generated to where it will be used. For example, the “Energie Wende” (Energy Transformation) in Germany is involving huge effort, financial and energy costs, creating a transmission corridor to carry electricity from North Sea wind turbines down to Bavaria where the demand is greatest. Similarly, plans to develop concentrated solar power in North Africa for use in northern Europe which, if they ever come to anything, will require major investments in energy transmission. A further issue, connected to the requirement for energy storage, is the need for energy carriers which are not based on electricity. As before, conversions to put a current energy flux into a stored form, involve an energy cost.
Just as with fossil fuels, sources of renewable energy are of variable yield depending on local conditions: offshore wind is better than onshore for wind speed and wind reliability; there is more solar energy nearer the equator; some areas have less cloud cover; wave energy on the Atlantic coasts of the UK are much better than on other coastlines like those of the Irish Sea or North Sea. If we make a Ricardian assumption that best net yielding resources are developed first, then subsequent yields will be progressively inferior. In more conventional jargon – just as there are diminishing returns for fossil energy as fossil energy resources deplete, so there will eventually be diminishing returns for renewable energy systems. No doubt new technologies will partly buck this trend but the trend is there nonetheless. It is for reasons such as these that some energy experts are sceptical about the global potential of renewable energy to meet the energy demand of a growing economy. For example, two Australian academics at Monash University argue that world energy demand would grow to 1,000 EJ (EJ = 10 18 J) or more by 2050 if growth continued on the course of recent decades. Their analysis then looks at each renewable energy resource in turn, bearing in mind the energy costs of developing wind, solar, hydropower, biomass etc., taking into account diminishing returns, and bearing in mind too that climate change may limit the potential of renewable energy. (For example, river flow rates may change affecting hydropower). Their conclusion: “We nd that when the energy costs of energy are considered, it is unlikely that renewable energy can provide anywhere near a 1000 EJ by 2050.” (Moriarty & Honnery, 2012)
Now let’s put these insights back into a bigger picture of the future of the economy. In a presentation to the All Party Parliamentary Group on Peak Oil and Gas, Charles Hall showed a number of diagrams to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff. Some of the production is consumer goods, either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production i.e. investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems, more and more production must go into energy acquisition, infrastructure and maintenance. Less and less is available for consumption, and particularly for discretionary consumption.
Whether the economy would evolve in this way can be questioned. As we have seen, the increasing needs of the oil and gas sector implies a transfer of resources from elsewhere through rising prices. However, the rest of the economy cannot actually pay this extra without crashing. That is what the above diagrams show – a transfer of resources from discretionary consumption to investment in energy infrastructure. But such a transfer would be crushing for the other sectors and their decline would likely drag down the whole economy.
Over the last few years, central banks have had a policy of quantitative easing to try to keep interest rates low. The economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth, it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis and it will get a lot worse when oil production starts to fall more rapidly as a result of investment cut backs. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability, this is still a dead end and, at some point, people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why degrowth is needed.
Further ideas can be extrapolated from Hall’s way of presenting the end of the road for the growth economy. The only real option as a source for extra resources to be ploughed into changing the energy sector is from what Hall calls “discretionary consumption” aka luxury consumption. It would not be possible to take from “staples” without undermining the ability of ordinary people to survive day to day. Implicit here is a social justice agenda for the post growth – post carbon economy. Transferring resources out of the luxury consumption of the rich is a necessary part of the process of finding the wherewithal for energy conservation work and for developing renewable energy resources. These will be expensive and the resources cannot come from anywhere else than out of the consumption of the rich. It should be remembered too that the problems of depletion do not just apply to fossil energy extraction coal, oil and gas) but apply across all forms of mineral extraction. All minerals are depleted by use and that means the grade or ore declines over time. Projecting the consequences into the future ought to frighten the growth enthusiasts. To take in how industrial production can hit a brick wall of steeply rising costs, consider the following graph which shows the declining quality of ore grades mined in Australia.
As ores deplete there is a deterioration of ore grades. That means that more rock has to be shifted and processed to refine and extract the desired raw material, requiring more energy and leaving more wastes. This is occurring in parallel to the depletion in energy sources which means that more energy has to be used to extract a given quantity of energy and therefore, in turn, to extract from a given quantity of ore. Thus, the energy requirements to extract energy are rising at the very same time as the amount of energy required to extract given quantities of minerals are rising. More energy is needed just at the time that energy is itself becoming more expensive.
Now, on top of that, add to the picture the growing demand for minerals and materials if the economy is to grow.
At least there has been a recognition and acknowledgement in recent years that environmental problems exist. The problem is now somewhat different – the problem is the incredibly naive faith that markets and technology can solve all problems and keep on going....
The Dynamics of Depletion
The Automatic Earth has written many articles on the topic of EROEI (Energy Return on Energy Invested) through the years, there’s a whole chapter on it in the Automatic Earth Primer Guide 2017 that Nicole assembled recently, which contains 17 different articles.
Still, since EROEI is the most important energy issue there is at present, and not the price of oil or some new gas find or a set of windmills or solar panels or thorium, it can’t hurt to repeat it once again, in someone else’s words and from someone else’s angle. This one comes from Brian Davey on his site CredoEconomics, part of his book “Credo”.
It can’t hurt to repeat it because not nearly enough people understand that in the end everything, the survival of our world, our way of life, is all about the ‘quality’ of energy, about what we get in return when we drill and pump and build infrastructure, what remains when we subtract all the energy used to ‘generate’ energy, from (or at) the bottom line.
Anno 2017, our overall ‘net energy’ is nowhere near where it was for the first 100 years or so after we started using oil. And there’s no energy source that comes close to -conventional- oil (and gas) when it comes to what we are left with once our efforts are discounted, in calories or Joules.
The upshot of this is that even if we can ‘gain’ 10 times more than we put in, in energy terms, that won’t save our complex societies. To achieve that, we would need at least a 15:1 ratio, a number straight from our friend Charlie Hall, which is probably still quite optimistic. And we simply don’t have it. Not anymore.
Also, not nearly enough people understand that it has absolutely nothing to do with money. That you can’t go out and buy more or better energy sources. Which is why we use EROEI instead of EROI (Energy Return on Investment), because the latter leaves some sort of financial interpretation open that doesn’t actually exist, it suggests that a financial price of energy plays a role.
First, here’s Nicole from the Automatic Earth Primer Guide 2017. Below that, Brian Davey’s article.
Nicole Foss: Energy is the master resource – the capacity to do work. Our modern society is the result of the enormous energy subsidy we have enjoyed in the form of fossil fuels, specifically fossil fuels with a very high energy profit ratio (EROEI). Energy surplus drove expansion, intensification, and the development of socioeconomic complexity, but now we stand on the edge of the net energy cliff. The surplus energy, beyond that which has to be reinvested in future energy production, is rapidly diminishing.
We would have to greatly increase gross production to make up for reduced energy profit ratio, but production is flat to falling so this is no longer an option. As both gross production and the energy profit ratio fall, the net energy available for all society’s other purposes will fall even more quickly than gross production declines would suggest. Every society rests on a minimum energy profit ratio. The implication of falling below that minimum for industrial society, as we are now poised to do, is that society will be forced to simplify.
A plethora of energy fantasies is making the rounds at the moment. Whether based on unconventional oil and gas or renewables (that are not actually renewable), these are stories we tell ourselves in order to deny that we are facing any kind of future energy scarcity, or that supply could be in any way a concern. They are an attempt to maintain the fiction that our society can continue in its current form, or even increase in complexity. This is a vain attempt to deny the existence of non-negotiable limits to growth. The touted alternatives are not energy sources for our current society, because low EROEI energy sources cannot sustain a society complex enough to produce them.
Using Energy to Extract Energy – The Dynamics of Depletion
Brian Davey: The “Limits to Growth Study” of 1972 was deeply controversial and criticised by many economists. Over 40 years later, it seems remarkably prophetic and on track in its predictions. The crucial concept of Energy Return on Energy Invested is explained and the flaws in neoclassical reasoning which EROI highlights.
The continued functioning of the energy system is a “hub interdependency” that has become essential to the management of the increasing complexity of our society. The energy input into the UK economy is about 50 to 70 times as great as what the labour force could generate if working full time only with the power of their muscles, fuelled up with food. It is fossil fuels, refined to be used in vehicles and motors or converted into electricity that have created power inputs that makes possible the multiple round- about arrangements in a high complex economy. The other “hub interdependency” is a money and transaction system for exchange which has to continue to function to make vast production and trade networks viable. Without payment systems nothing functions.
Yet, as I will show, both types of hub interdependencies could conceivably fail. The smooth running of the energy system is dependent on ample supplies of cheaply available fossil fuels. However, there has been a rising cost of extracting and refining oil, gas and coal. Quite soon there is likely to be an absolute decline in their availability. To this should be added the climatic consequences of burning more carbon based fuels. To make the situation even worse, if the economy gets into difficulty because of rising energy costs then so too will the financial system – which can then have a knock-on consequence for the money system. The two hub interdependencies could break down together.
“Solutions” put forward by the techno optimists almost always assume growing complexity and new uses for energy with an increased energy cost. But this begs the question- because the problem is the growing cost of energy and its polluting and climate changing consequences.
The “Limits to Growth” study of 1972 – and its 40 year after evaluation
It was a view similar to this that underpinned the methodology of a famous study from the early 1970s. A group called the Club of Rome decided to commission a group of system scientists at the Massachusetts Institute of Technology to explore how far economic growth would continue to be possible. Their research used a series of computer model runs based on various scenarios of the future. It was published in 1972 and produced an instant storm. Most economists were up in arms that their shibboleth, economic growth, had been challenged. (Meadows, Meadows, Randers, & BehrensIII, 1972)
This was because its message was that growth could continue for some time by running down “natural capital” (depletion) and degrading “ecological system services” (pollution) but that it could not go on forever. An analogy would be spending more than one earns. This is possible as long as one has savings to run down, or by running up debts payable in the future. However, a day of reckoning inevitably occurs. The MIT scientists ran a number of computer generated scenarios of the future including a “business as usual” projection, called the “standard run” which hit a global crisis in 2030.
It is now over 40 years since the original Limits to Growth study was published so it is legitimate to compare what was predicted in 1972 against what actually happened. This has now been done twice by Graham Turner who works at the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO). Turner did this with data for the rst 30 years and then for 40 years of data. His conclusion is as follows:
The Limits to Growth standard run scenario produced 40 years ago continues to align well with historical data that has been updated in this paper following a 30-year comparison by the author. The scenario results in collapse of the global economy and environment and subsequently, the population. Although the modelled fall in population occurs after about 2030 – with death rates reversing contemporary trends and rising from 2020 onward – the general onset of collapse first appears at about 2015 when per capita industrial output begins a sharp decline. (Turner, 2012)
So what brings about the collapse? In the Limits to Growth model there are essentially two kinds of limiting restraints. On the one hand, limitations on resource inputs (materials and energy). On the other hand, waste/pollution restraints which degrade the ecological system and human society (particularly climate change).
Turner finds that, so far it, is the former rather than the latter that is the more important. What happens is that, as resources like fossil fuels deplete, they become more expensive to extract. More industrial output has to be set aside for the extraction process and less industrial output is available for other purposes.
With signficant capital subsequently going into resource extraction, there is insufficient available to fully replace degrading capital within the industrial sector itself. Consequently, despite heightened industrial activity attempting to satisfy multiple demands from all sectors and the population, actual industrial output per capita begins to fall precipitously, from about 2015, while pollution from the industrial activity continues to grow. The reduction of inputs produced per capita. Similarly, services (e.g., health and education) are not maintained due to insufficient capital and inputs.
Diminishing per capita supply of services and food cause a rise in the death rate from about 2020 (and somewhat lower rise in the birth rate, due to reduced birth control options). The global population therefore falls, at about half a billion per decade, starting at about 2030. Following the collapse, the output of the World3 model for the standard run (figure 1 to figure 3) shows that average living standards for the aggregate population (material wealth, food and services per capita) resemble those of the early 20th century.(Turner, 2012, p. 121)
Energy Return on Energy Invested
A similar analysis has been made by Hall and Klitgaard. They argue that to run a modern society it is necessary that the energy return on energy invested must be at least 15 to 1. To understand why this should be so consider the following diagram from a lecture by Hall. (Hall, 2012)
The diagram illustrates the idea of the energy return on energy invested. For every 100 Mega Joules of energy tapped in an oil flow from a well, 10 MJ are needed to tap the well, leaving 90 MJ. A narrow measure of energy returned on energy invested at the wellhead in this example would therefore be 100 to 10 or 10 to 1.
However, to get a fuller picture we have to extend this kind of analysis. Of the net energy at the wellhead, 90 MJ, some energy has to be used to refine the oil and produce the by-products, leaving only 63 MJ.
Then, to transport the refined product to its point of use takes another 5 MJ leaving 58MJ. But of course, the infrastructure of roads and transport also requires energy for construction and maintenance before any of the refined oil can be used to power a vehicle to go from A to B. By this final stage there is only 20.5 MJ of the original 100MJ left.
We now have to take into account that depletion means that, at well heads around the world, the energy to produce energy is increasing. It takes energy to prospect for oil and gas and if the wells are smaller and more difficult to tap because, for example, they are out at sea under a huge amount of rock. Then it will take more energy to get the oil out in the first place.
So, instead of requiring 10MJ to produce the 100 MJ, let us imagine that it now takes 20 MJ. At the other end of the chain there would thus, only be 10.5MJ – a dramatic reduction in petroleum available to society.
The concept of Energy Return on Energy Invested is a ratio in physical quantities and it helps us to understand the flaw in neoclassical economic reasoning that draws on the idea of “the invisible hand” and the price mechanism. In simplistic economic thinking, markets should have no problems coping with depletion because a depleting resource will become more expensive. As its price rises, so the argument goes, the search for new sources of energy and substitutes will be incentivised while people and companies will adapt their purchases to rising prices. For example, if it is the price of energy that is rising then this will incentivise greater energy efficiency. Basta! Problem solved…
Except the problem is not solved… there are two flaws in the reasoning. Firstly, if the price of energy rises then so too does the cost of extracting energy – because energy is needed to extract energy. There will be gas and oil wells in favourable locations which are relatively cheap to tap, and the rising energy price will mean that the companies that own these wells will make a lot of money. This is what economists call “rent”. However, there will be some wells that are “marginal” because the underlying geology and location are not so favourable. If energy prices rise at these locations then rising energy prices will also put up the energy costs of production. Indeed, when the energy returned on energy invested falls as low as 1 to 1, the increase in the costs of energy inputs will cancel out any gains in revenues from higher priced energy outputs. As is clear when the EROI is less than one, energy extraction will not be profitable at any price.
Secondly, energy prices cannot in any case rise beyond a certain point without crashing the economy. The market for energy is not like the market for cans of baked beans. Energy is necessary for virtually every activity in the economy, for all production and all services. The price of energy is a big deal – energy prices going up and down have a similar significance to interest rates going up or down. There are “macro-economic” consequences for the level of activity in the economy. Thus, in the words of one analyst, Chris Skrebowski, there is a rise in the price of oil, gas and coal at which:
the cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time.(Skrebowski, 2011)
This kind of analysis has been further developed by Steven Kopits of the Douglas-Westwood consultancy. In a lecture to the Columbia University Center on Global Energy Policy in February of 2014, he explained how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in “conventional oil” production but has merely served to slow what would otherwise have been a faster decline.
More specifically, the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that amount, $3.5 trillion was spent on the “legacy” oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production, it fell by 1 million barrels a day. By way of comparison, investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.
Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.
The situation can be understood by reference to the nursery story of Goldilocks and the Three Bears. Goldilocks tries three kinds of porridge – some that is too hot, some that is too cold and some where the temperature is somewhere in the middle and therefore just right. The working assumption of mainstream economists is that there is an oil price that is not too high to undermine economic growth but also not too low so that the oil companies cannot cover their extraction costs – a price that is just right. The problem is that the Goldilocks situation no longer describes what is happening. Another story provides a better metaphor – that story is “Catch 22”. According to Kopits, the vast majority of the publically quoted oil majors require oil prices of over $100 a barrel to achieve positive cash flow and nearly a half need more than $120 a barrel.
But it is these oil prices that drag down the economies of the OECD economies. For several years, however, there have been some countries that have been able to afford the higher prices. The countries that have coped with the high energy prices best are the so called “emerging non OECD countries” and above all China. China has been bidding away an increasing part of the oil production and continuing to grow while higher energy prices have led to stagnation in the OECD economies. (Kopits, 2014)
Since the oil price is never “just right” it follows that it must oscillate between a price that is too high for macro-economic stability or too low to make it a paying proposition for high cost producers of oil (or gas) to invest in expanding production. In late 2014 we can see this drama at work. The faltering global economy has a lower demand for oil but OPEC, under the leadership of Saudi Arabia, have decided not to reduce oil production in order to keep oil prices from falling. On the contrary they want prices to fall. This is because they want to drive US shale oil and gas producers out of business.
The shale industry is described elsewhere in this book – suffice it here to refer to the claim of many commentators that the shale oil and gas boom in the United States is a bubble. A lot of money borrowed from Wall Street has been invested in the industry in anticipation of high profits but given the speed at which wells deplete it is doubtful whether many of the companies will be able to cover their debts. What has been possible so far has been largely because quantitative easing means capital for this industry has been made available with very low interest rates. There is a range of extraction production costs for different oil and gas wells and fields depending on the differing geology in different places. In some “sweet spots” the yield compared to cost is high but in a large number of cases the costs of production have been high and it is being said that it will be impossible to make money at the price to which oil has fallen ($65 in late 2014). This in turn could mean that companies funding their operations with junk bonds could find it difficult to service their debt. If interest rates rise the difficulty would become greater. Because the shale oil and gas sector has been so crucial to expansion in the USA then a large number of bankruptcies could have wider repercussions throughout the wider US and world economy.
Renewable Energy systems to the rescue?
Although it seems obvious that the depletion of fossil fuels can and should lead to the expansion of renewable energy systems like wind and solar power, we should beware of believing that renewable energy systems are a panacea that can rescue consumer society and its continued growth path. A very similar net energy analysis can, and ought to be done for the potential of renewable energy to match that already done for fossil fuels.
eroei-renewables
Before we get over-enthusiastic about the potential for renewable energy, we have to be aware of the need to subtract the energy costs particular to renewable energy systems from the gross energy that renewable energy systems generate. Not only must energy be used to manufacture and install the wind turbines, the solar panels and so on, but for a renewable based economy to be able to function, it must also devote energy to the creation of energy storage. This would allow for the fact that, when the wind and the sun are generating energy, is not necessarily the time when it is wanted.
Furthermore, the places where, for example, solar and wind potential are at this best – offshore for wind or in deserts without dust storms near the equator for solar – are usually a long distance from centres of use. Once again, a great deal of energy, materials and money must be spent getting the energy from where it is generated to where it will be used. For example, the “Energie Wende” (Energy Transformation) in Germany is involving huge effort, financial and energy costs, creating a transmission corridor to carry electricity from North Sea wind turbines down to Bavaria where the demand is greatest. Similarly, plans to develop concentrated solar power in North Africa for use in northern Europe which, if they ever come to anything, will require major investments in energy transmission. A further issue, connected to the requirement for energy storage, is the need for energy carriers which are not based on electricity. As before, conversions to put a current energy flux into a stored form, involve an energy cost.
Just as with fossil fuels, sources of renewable energy are of variable yield depending on local conditions: offshore wind is better than onshore for wind speed and wind reliability; there is more solar energy nearer the equator; some areas have less cloud cover; wave energy on the Atlantic coasts of the UK are much better than on other coastlines like those of the Irish Sea or North Sea. If we make a Ricardian assumption that best net yielding resources are developed first, then subsequent yields will be progressively inferior. In more conventional jargon – just as there are diminishing returns for fossil energy as fossil energy resources deplete, so there will eventually be diminishing returns for renewable energy systems. No doubt new technologies will partly buck this trend but the trend is there nonetheless. It is for reasons such as these that some energy experts are sceptical about the global potential of renewable energy to meet the energy demand of a growing economy. For example, two Australian academics at Monash University argue that world energy demand would grow to 1,000 EJ (EJ = 10 18 J) or more by 2050 if growth continued on the course of recent decades. Their analysis then looks at each renewable energy resource in turn, bearing in mind the energy costs of developing wind, solar, hydropower, biomass etc., taking into account diminishing returns, and bearing in mind too that climate change may limit the potential of renewable energy. (For example, river flow rates may change affecting hydropower). Their conclusion: “We nd that when the energy costs of energy are considered, it is unlikely that renewable energy can provide anywhere near a 1000 EJ by 2050.” (Moriarty & Honnery, 2012)
Now let’s put these insights back into a bigger picture of the future of the economy. In a presentation to the All Party Parliamentary Group on Peak Oil and Gas, Charles Hall showed a number of diagrams to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff. Some of the production is consumer goods, either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production i.e. investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems, more and more production must go into energy acquisition, infrastructure and maintenance. Less and less is available for consumption, and particularly for discretionary consumption.
Whether the economy would evolve in this way can be questioned. As we have seen, the increasing needs of the oil and gas sector implies a transfer of resources from elsewhere through rising prices. However, the rest of the economy cannot actually pay this extra without crashing. That is what the above diagrams show – a transfer of resources from discretionary consumption to investment in energy infrastructure. But such a transfer would be crushing for the other sectors and their decline would likely drag down the whole economy.
Over the last few years, central banks have had a policy of quantitative easing to try to keep interest rates low. The economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth, it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis and it will get a lot worse when oil production starts to fall more rapidly as a result of investment cut backs. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability, this is still a dead end and, at some point, people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why degrowth is needed.
Further ideas can be extrapolated from Hall’s way of presenting the end of the road for the growth economy. The only real option as a source for extra resources to be ploughed into changing the energy sector is from what Hall calls “discretionary consumption” aka luxury consumption. It would not be possible to take from “staples” without undermining the ability of ordinary people to survive day to day. Implicit here is a social justice agenda for the post growth – post carbon economy. Transferring resources out of the luxury consumption of the rich is a necessary part of the process of finding the wherewithal for energy conservation work and for developing renewable energy resources. These will be expensive and the resources cannot come from anywhere else than out of the consumption of the rich. It should be remembered too that the problems of depletion do not just apply to fossil energy extraction coal, oil and gas) but apply across all forms of mineral extraction. All minerals are depleted by use and that means the grade or ore declines over time. Projecting the consequences into the future ought to frighten the growth enthusiasts. To take in how industrial production can hit a brick wall of steeply rising costs, consider the following graph which shows the declining quality of ore grades mined in Australia.
As ores deplete there is a deterioration of ore grades. That means that more rock has to be shifted and processed to refine and extract the desired raw material, requiring more energy and leaving more wastes. This is occurring in parallel to the depletion in energy sources which means that more energy has to be used to extract a given quantity of energy and therefore, in turn, to extract from a given quantity of ore. Thus, the energy requirements to extract energy are rising at the very same time as the amount of energy required to extract given quantities of minerals are rising. More energy is needed just at the time that energy is itself becoming more expensive.
Now, on top of that, add to the picture the growing demand for minerals and materials if the economy is to grow.
At least there has been a recognition and acknowledgement in recent years that environmental problems exist. The problem is now somewhat different – the problem is the incredibly naive faith that markets and technology can solve all problems and keep on going....
Wednesday, June 14, 2017
SC145-7
https://srsroccoreport.com/warning-the-global-oil-gas-industry-is-cannibalizing-itself-to-stay-alive/
WARNING: The Global Oil & Gas Industry Is Cannibalizing Itself To Stay Alive
While the Mainstream media continues to put out hype that technology will bring on abundant energy supplies for the foreseeable future, the global oil and gas industry is actually cannibalizing itself just to stay alive. Increased finance costs, falling capital expenditures and the downgrade of oil reserves are the factors, like flesh-eating bacteria, that are decimating the once great oil and gas industry.
This is all due to the falling EROI – Energy Returned On Investment in oil and gas industry. Unfortunately, most of the public and energy analysts still don’t understand how the Falling EROI is gutting the entire system. They don’t see it because the world has become so complex, they are unable to connect-the-dots. However, if we look past all the over-specialized data and analysis, we can see how bad things are getting in the global oil and gas industry.
Let me start by republishing this chart from my article, Future World Economic Growth In Big Trouble As Oil Discoveries Fall To Historic Lows:
The global oil industry only found 2.4 billion barrels of conventional oil in 2016, less than 10% of what it consumed (25.1 billion barrels). Conventional oil is the highly profitable, high EROI oil that should not be confused with low quality “unconventional” oil sources such as OIL SANDS or SHALE OIL. There is a good reason why we have just recently tapped in to oil sands and shale oil…. it wasn’t profitable for the past 100 years to extract it. Basically, it’s all we have left…. the bottom of the barrel, so to speak.
Now, to put the above chart into perspective, here are the annual global conventional oil discoveries since 1947:
You will notice the amount of new oil discoveries (2.4 billion barrels) for 2016 is just a mere smudge when we compare it to the precious years. Furthermore, the world has been consuming about an average of 70 million barrels per day of conventional oil production since 2000 (the total liquid production is higher, but includes oil sands, deep water, shale oil, natural gas liquids, biofuels and etc). Conventional oil production has averaged about 25 billion barrels per year.
As we can see in the chart above… we haven’t been replacing what we have been consuming for quite a long time. Except for the large orange bar in 2000 of approximately 35 billion barrels, all the years after were lower than 25 billion barrels. Thus, the global oil industry has been surviving on its past discoveries.
That being said, if we include ALL liquid oil reserves, the situation is even more alarming.
Global Oil Liquid Reserves Fall In 2015 & 2016
According to the newest data put out by the U.S. EIA, Energy Information Agency, total global oil liquid reserves fell for the past two years. The majority of negative oil reserve revisions came from the Canadian oil sands sector:
Of the 68 public traded energy companies used in this graph, total liquid oil reserves fell from 116 billion barrels in 2014 to 100 billion barrels in 2016. That’s a 14% decline in liquid oil reserves in just two years. So, not only are conventional oil discoveries falling the lowest since 1947, companies are now forced to downgrade their total liquid oil reserves due to lower oil prices.
This can be seen more clearly in the EIA chart below:
The “net proved reserves change” is shown as the black line in the chart. It takes the difference between the additions-revisions, (BLUE) and the production (BROWN). These 68 public companies have been producing between 8-9 billion barrels of oil per year.
Because of the downward revisions in 2015 and 2016, net oil reserves have fallen approximately 16 billion barrels, or nearly two years worth of these 68 companies total liquid oil production. If these oil companies don’t suffer anymore reserve downgrades, they have approximately 12 years worth of oil reserves remaining.
But… what happens if the oil price continues to decline as the global economy starts to really contract from the massive amount of debt over-hanging the system? Thus, the oil industry could likely cut more reserves, which means… the 12 years worth of reserves will fall below 10, or even lower. My intuition tells me that global liquid oil reserves will fall even lower due to the next two charts in the following section.
The Coming Energy Debt Wall & Surging Finance Cost In The Energy Industry
Over the next several years, the amount of debt that comes due in the U.S. oil industry literally skyrockets higher. In my article, THE GREAT U.S. ENERGY DEBT WALL: It’s Going To Get Very Ugly…., I posted the following chart:
The amount of debt (as outstanding bonds) that comes due in the U.S. energy industry jumps from $27 billion in 2016 to $110 billion in 2018. Furthermore, this continues higher to $260 billion in 2022. The reason the amount of debt has increased so much in the U.S. oil and gas industry is due to the HIGH COST of producing Shale oil and gas. While many companies are bragging that they can produce oil in the new Permian Region for $30-$40 a barrel, they forget to include the massive amount of debt they now have on their balance sheets.
This is quite hilarious because a lot of this debt was added when the price of oil was over $100 from 2011 to mid 2014. So, these companies actually believe they can be sustainable at $30 or $40 a barrel? This is pure nonsense. Again… most energy analysts are just looking at how a company could producing a barrel of oil that year, without regard of all other external costs and debts.
Moreover, to give the ILLUSION that shale oil and gas production is a commercially viable enterprise, these energy companies have to pay its bond (debt) holders dearly. How much? I will show you all that in a minute, however, this is called their DEBT FINANCING. Some of us may be familiar with this concept when we have maxed out our credit cards and are paying a minimum interest payment just to keep the bankers happy. And happy they are as they are making a monthly income on money that we created out of thin air… LOL.
According to the EIA, these 68 public energy companies are now spending 75% of their operating cash flow to service their debt compared to 25% just a few years ago:
We must remember, debt financing does not mean PAYING DOWN DEBT, it just means the companies are now spending 75% of their operating cash flow (as of Q3 2016) just to pay the interest on the debt. I would imagine as the oil price increased in the fourth quarter of 2016 and first quarter of 2017, this 75% debt servicing ratio has declined a bit. However, people who believe the Fed will raise interest rates, do not realize that this would totally destroy the economic and financial system that NEEDS SUPER-LOW INTEREST RATES just to service the massive amount of debt they have on the balance sheets.
As an example of rising debt service, here is a table showing Continental Resources Interest expense:
Continental Resources is one of the larger energy players in the Bakken oil shale field in North Dakota. Before tapping into that supposed “high-quality” Bakken shale oil, Continental Resources was only paying $13 million a year to finance its debt, which was only $165 million. However, we can plainly see that producing this shale oil came at a big cost. As of December 2016, Continental Resources paid $321 million that year to finance its debt…. which ballooned to $6.5 billion. In relative terms, that is one hell of a huge credit card interest payment.
The folks that are receiving a nice 4.8% interest payment (again… just a simple average) for providing Continental Resources with funds to produce this oil at a very small profit or loss… would like to receive their initial investment back at some point. However….. THERE LIES THE RUB.
With that ENERGY DEBT WALL to reach $260 billion by 2022, I highly doubt many of these energy companies will be able to repay that majority of that debt. Thus, interest rates CANNOT RISE, and will likely continue to fall or the entire financial system would collapse.
Lastly…. the global oil and gas industry is now cannibalizing itself just to stay alive. It has added a massive amount of debt to produce very low-quality Shale Oil-Gas and Oil Sands just to keep the world economies from collapsing. The falling oil price, due to a consumer unable to afford higher energy costs, is gutting the liquid oil reserves of many of the publicly trading energy companies.
At some point… the massive amount of debt will take down this system, and with it, the global oil industry. This will have an extremely negative impact on the values of most STOCKS, BONDS & REAL ESTATE. If you have well balanced portfolio in these three asset classes, then you are in serious financial trouble in the future.
WARNING: The Global Oil & Gas Industry Is Cannibalizing Itself To Stay Alive
While the Mainstream media continues to put out hype that technology will bring on abundant energy supplies for the foreseeable future, the global oil and gas industry is actually cannibalizing itself just to stay alive. Increased finance costs, falling capital expenditures and the downgrade of oil reserves are the factors, like flesh-eating bacteria, that are decimating the once great oil and gas industry.
This is all due to the falling EROI – Energy Returned On Investment in oil and gas industry. Unfortunately, most of the public and energy analysts still don’t understand how the Falling EROI is gutting the entire system. They don’t see it because the world has become so complex, they are unable to connect-the-dots. However, if we look past all the over-specialized data and analysis, we can see how bad things are getting in the global oil and gas industry.
Let me start by republishing this chart from my article, Future World Economic Growth In Big Trouble As Oil Discoveries Fall To Historic Lows:
The global oil industry only found 2.4 billion barrels of conventional oil in 2016, less than 10% of what it consumed (25.1 billion barrels). Conventional oil is the highly profitable, high EROI oil that should not be confused with low quality “unconventional” oil sources such as OIL SANDS or SHALE OIL. There is a good reason why we have just recently tapped in to oil sands and shale oil…. it wasn’t profitable for the past 100 years to extract it. Basically, it’s all we have left…. the bottom of the barrel, so to speak.
Now, to put the above chart into perspective, here are the annual global conventional oil discoveries since 1947:
You will notice the amount of new oil discoveries (2.4 billion barrels) for 2016 is just a mere smudge when we compare it to the precious years. Furthermore, the world has been consuming about an average of 70 million barrels per day of conventional oil production since 2000 (the total liquid production is higher, but includes oil sands, deep water, shale oil, natural gas liquids, biofuels and etc). Conventional oil production has averaged about 25 billion barrels per year.
As we can see in the chart above… we haven’t been replacing what we have been consuming for quite a long time. Except for the large orange bar in 2000 of approximately 35 billion barrels, all the years after were lower than 25 billion barrels. Thus, the global oil industry has been surviving on its past discoveries.
That being said, if we include ALL liquid oil reserves, the situation is even more alarming.
Global Oil Liquid Reserves Fall In 2015 & 2016
According to the newest data put out by the U.S. EIA, Energy Information Agency, total global oil liquid reserves fell for the past two years. The majority of negative oil reserve revisions came from the Canadian oil sands sector:
Of the 68 public traded energy companies used in this graph, total liquid oil reserves fell from 116 billion barrels in 2014 to 100 billion barrels in 2016. That’s a 14% decline in liquid oil reserves in just two years. So, not only are conventional oil discoveries falling the lowest since 1947, companies are now forced to downgrade their total liquid oil reserves due to lower oil prices.
This can be seen more clearly in the EIA chart below:
The “net proved reserves change” is shown as the black line in the chart. It takes the difference between the additions-revisions, (BLUE) and the production (BROWN). These 68 public companies have been producing between 8-9 billion barrels of oil per year.
Because of the downward revisions in 2015 and 2016, net oil reserves have fallen approximately 16 billion barrels, or nearly two years worth of these 68 companies total liquid oil production. If these oil companies don’t suffer anymore reserve downgrades, they have approximately 12 years worth of oil reserves remaining.
But… what happens if the oil price continues to decline as the global economy starts to really contract from the massive amount of debt over-hanging the system? Thus, the oil industry could likely cut more reserves, which means… the 12 years worth of reserves will fall below 10, or even lower. My intuition tells me that global liquid oil reserves will fall even lower due to the next two charts in the following section.
The Coming Energy Debt Wall & Surging Finance Cost In The Energy Industry
Over the next several years, the amount of debt that comes due in the U.S. oil industry literally skyrockets higher. In my article, THE GREAT U.S. ENERGY DEBT WALL: It’s Going To Get Very Ugly…., I posted the following chart:
The amount of debt (as outstanding bonds) that comes due in the U.S. energy industry jumps from $27 billion in 2016 to $110 billion in 2018. Furthermore, this continues higher to $260 billion in 2022. The reason the amount of debt has increased so much in the U.S. oil and gas industry is due to the HIGH COST of producing Shale oil and gas. While many companies are bragging that they can produce oil in the new Permian Region for $30-$40 a barrel, they forget to include the massive amount of debt they now have on their balance sheets.
This is quite hilarious because a lot of this debt was added when the price of oil was over $100 from 2011 to mid 2014. So, these companies actually believe they can be sustainable at $30 or $40 a barrel? This is pure nonsense. Again… most energy analysts are just looking at how a company could producing a barrel of oil that year, without regard of all other external costs and debts.
Moreover, to give the ILLUSION that shale oil and gas production is a commercially viable enterprise, these energy companies have to pay its bond (debt) holders dearly. How much? I will show you all that in a minute, however, this is called their DEBT FINANCING. Some of us may be familiar with this concept when we have maxed out our credit cards and are paying a minimum interest payment just to keep the bankers happy. And happy they are as they are making a monthly income on money that we created out of thin air… LOL.
According to the EIA, these 68 public energy companies are now spending 75% of their operating cash flow to service their debt compared to 25% just a few years ago:
We must remember, debt financing does not mean PAYING DOWN DEBT, it just means the companies are now spending 75% of their operating cash flow (as of Q3 2016) just to pay the interest on the debt. I would imagine as the oil price increased in the fourth quarter of 2016 and first quarter of 2017, this 75% debt servicing ratio has declined a bit. However, people who believe the Fed will raise interest rates, do not realize that this would totally destroy the economic and financial system that NEEDS SUPER-LOW INTEREST RATES just to service the massive amount of debt they have on the balance sheets.
As an example of rising debt service, here is a table showing Continental Resources Interest expense:
Continental Resources is one of the larger energy players in the Bakken oil shale field in North Dakota. Before tapping into that supposed “high-quality” Bakken shale oil, Continental Resources was only paying $13 million a year to finance its debt, which was only $165 million. However, we can plainly see that producing this shale oil came at a big cost. As of December 2016, Continental Resources paid $321 million that year to finance its debt…. which ballooned to $6.5 billion. In relative terms, that is one hell of a huge credit card interest payment.
The folks that are receiving a nice 4.8% interest payment (again… just a simple average) for providing Continental Resources with funds to produce this oil at a very small profit or loss… would like to receive their initial investment back at some point. However….. THERE LIES THE RUB.
With that ENERGY DEBT WALL to reach $260 billion by 2022, I highly doubt many of these energy companies will be able to repay that majority of that debt. Thus, interest rates CANNOT RISE, and will likely continue to fall or the entire financial system would collapse.
Lastly…. the global oil and gas industry is now cannibalizing itself just to stay alive. It has added a massive amount of debt to produce very low-quality Shale Oil-Gas and Oil Sands just to keep the world economies from collapsing. The falling oil price, due to a consumer unable to afford higher energy costs, is gutting the liquid oil reserves of many of the publicly trading energy companies.
At some point… the massive amount of debt will take down this system, and with it, the global oil industry. This will have an extremely negative impact on the values of most STOCKS, BONDS & REAL ESTATE. If you have well balanced portfolio in these three asset classes, then you are in serious financial trouble in the future.
SC145-6
http://www.oftwominds.com/blog.html
The Dead Giveaways of Imperial Decline
Identifying the tell-tale signs of Imperial decay and decline is a bit of a parlor game. The hubris of an increasingly incestuous and out-of-touch leadership, dismaying extremes of wealth inequality, self-serving, avaricious Elites, rising dependency of the lower classes on free Bread and Circuses provided by a government careening toward insolvency due to stagnating tax revenues and vast over-reach--these are par for the course of self-reinforcing Imperial decay.
Sir John Glubb listed a few others in his seminal essay on the end of empires The Fate of Empires, what might be called the dynamics of decadence:
(a) A growing love of money as an end in itself.
(b) A lengthy period of wealth and ease, which makes people complacent. They lose their edge; they forget the traits (confidence, energy, hard work) that built their civilization.
(c) Selfishness and self-absorption.
(d) Loss of any sense of duty to the common good.
Glubb included the following in his list of the characteristics of decadence:
-- an increase in frivolity, hedonism, materialism and the worship of unproductive celebrity (paging any Kardashians in the venue...)
-- a loss of social cohesion
-- willingness of an increasing number to live at the expense of a bloated bureaucratic state
Historian Peter Turchin, whom I have often excerpted here, listed three disintegrative forces that gnaw away the fibers of an Imperial economy and social order:
1. Stagnating real wages due to oversupply of labor
2. overproduction of parasitic Elites
3. Deterioration of central state finances
War and Peace and War: The Rise and Fall of Empires
To these lists I would add a few more that are especially visible in the current Global Empire of Debt that encircles the globe and encompasses nations of all sizes and political/cultural persuasions:
1. An absurdly heightened sense of refinement as the wealth of the top 5% has risen so mightily as a direct result of financialization and globalization that the top .1% has been forced to seek ever more extreme refinements to differeniate the Elite class (financial-political royalty) from financial nobility (top .5% or so), the technocrat class (top 5%), the aspirant class (next 15%) and everyone below (the bottom 80%).
Now that just about any technocrat/ member of the lower reaches of the financial nobility can afford a low-interest loan on a luxury auto, wealthy aspirants must own super-cars costing $250,000 and up.
A mere yacht no longer differeniates financial royalty from lower-caste financial Nobles, so super-yachts are de riguer, along with extremes such as private islands, private jets in the $80 million-each range, and so on.
Even mere technocrat aspirants routinely spend $150 per plate for refined dining out and take extreme vacations to ever more remote locales to advance their social status.
Examples abound of this hyper-inflation of refinement as the wealth of the top 5% has skyrocketed.
2. The belief in the permanence of the status quo has reached quasi-religious levels of faith. The possibility that the entire financialized, politicized circus of extremes might actually be nothing more than a sand castle that's dissolving in the rising tides of history is not just heresy--it doesn't enter the minds of those reveling in refinement or those demanding more Bread and Circuses (Universal Basic Income, etc.)
3. Luxury, not service, defines the financial-political Elites. As Turchin pointed out in his book on the decline of empires, in the expansionist, integrative eras of empires, Elites based their status on service to the Common Good and the defense (or expansion) of the Empire.
While there are still a few shreds of noblisse oblige in the tattered banners of the financial elites, the vast majority of the Elites classes are focused on scooping up as much wealth and power as they can in the shortest possible time, with the goal being not to serve society or the Common Good but to enter the status competition game with enough wealth to afford the refined dining, luxury travel to remote locales, second and third homes in exotic but safe hideaways, and so on.
4. An unquestioned faith in the unlimited power of the state and central bank. The idea that the mightiest governments and central banks might not be able to print their way of our harm's way, that is, create as much money and credit as is needed to paper over any spot of bother, is unthinkable for the vast majority of the populace, Elites and debt-serfs alike.
That all this newly issued currency and credit is nothing but claims on future production of goods and services and rising productivity never enters the minds of the believers in unlimited state/bank powers. We have been inculcated with the financial equivalent of the Divine Powers of the Emperor: the government and central bank possess essentially divine powers to overcome any problem, any crisis and any conflict simply by creating more money, in whatever quantities are deemed necessary.
If $1 trillion in fresh currency will do the trick--no problem! $10 trillion? No problem! $100 trillion? No problem! there is no upper limit on how much new currency/credit the government and central bank can create.
That there might be limits on the efficacy of this money-creation never enters the minds of the faithful. That pushing currency-credit creation above the limits of efficacy might actually trigger the unraveling of the state-central bank's vaunted powers never occurs to believers in the unlimited reach of central states/banks.
The possibility that the central state/bank's powers are actually quite limited is blasphemy in an era in which the majority of the Elites and commoners alike depend on the "free money" machinery of the central state/bank for their wealth and livelihoods.
It is instructive to ponder the excesses of private wealth and political dysfunction of the late Roman Empire with the present-day excesses of private wealth and political dysfunction. As Turchin and others have documented, where the average wealth of a Roman patrician in the Republic (the empire's expansionist, integrative phase) was perhaps 10-20 times the free-citizen commoner's wealth, by the disintegrative, decadent phase of imperial decay, the Elites held wealth on the scale of 10,000 times the wealth of the typical commoner. Elite villas were more like small villages centered around the excesses of luxury than mere homes for the wealthy and their household servants. Here is a commentary drawn from Turchin's work:
"An average Roman noble of senatorial class had property valued in the neighborhood of 20,000 Roman pounds of gold. There was no 'middle class' comparable to the small landholders of the third century B.C.; the huge majority of the population was made up of landless peasants working land that belonged to nobles. These peasants had hardly any property at all, but if we estimate it (very generously) at one tenth of a pound of gold, the wealth differential would be 200,000! Inequality grew both as a result of the rich getting richer (late imperial senators were 100 times wealthier than their Republican predecessors) and those of the middling wealth becoming poor."
Following in Ancient Rome's Footsteps: Moral Decay, Rising Wealth Inequality (September 30, 2015)
We can be quite confident that these powerful elites reckoned the Empire was permanent and its power to secure their wealth and power was effectively unlimited. But alas, their fantastic wealth vanished along with the rest of the centralized, over-extended, complex and costly Imperial structures.
There is a peculiarly widespread belief that Elites are so smart and powerful that they always manage to evade the collapse of the empires that created and protected their wealth. But there is essentially no evidence for this belief when eras truly change.
Yes, Elites have proven to be adept at shifting with the political winds; thus the guestbooks of French chateaux were filled with the names of Nazi dignitaries during the German occupation of France, and with the names of Allied bigwigs after the war ended the 1,000-year Reich.
But the complete collapse of the financial system and centralized power is not a war or financial crisis--these are storm waters which the Elites have the wherewithal to survive. But when a tsunami disintegrates the entire structure and carries it out to a nameless sea as flotsam and jetsam, there is no transfer of wealth from the Old to the New.
The Roman Elites did not become Barbarian elites who just so happened to own the same villas and vast estates they did when they wore togas and dined on super-refined delicacies. They were pushed aside along with everything that supported their wealth and power.
Nothing is quite as permanent as we imagine--especially super-complex, super-costly, super-asymmetric and super-debt-dependent state/financial systems....
The Dead Giveaways of Imperial Decline
Identifying the tell-tale signs of Imperial decay and decline is a bit of a parlor game. The hubris of an increasingly incestuous and out-of-touch leadership, dismaying extremes of wealth inequality, self-serving, avaricious Elites, rising dependency of the lower classes on free Bread and Circuses provided by a government careening toward insolvency due to stagnating tax revenues and vast over-reach--these are par for the course of self-reinforcing Imperial decay.
Sir John Glubb listed a few others in his seminal essay on the end of empires The Fate of Empires, what might be called the dynamics of decadence:
(a) A growing love of money as an end in itself.
(b) A lengthy period of wealth and ease, which makes people complacent. They lose their edge; they forget the traits (confidence, energy, hard work) that built their civilization.
(c) Selfishness and self-absorption.
(d) Loss of any sense of duty to the common good.
Glubb included the following in his list of the characteristics of decadence:
-- an increase in frivolity, hedonism, materialism and the worship of unproductive celebrity (paging any Kardashians in the venue...)
-- a loss of social cohesion
-- willingness of an increasing number to live at the expense of a bloated bureaucratic state
Historian Peter Turchin, whom I have often excerpted here, listed three disintegrative forces that gnaw away the fibers of an Imperial economy and social order:
1. Stagnating real wages due to oversupply of labor
2. overproduction of parasitic Elites
3. Deterioration of central state finances
War and Peace and War: The Rise and Fall of Empires
To these lists I would add a few more that are especially visible in the current Global Empire of Debt that encircles the globe and encompasses nations of all sizes and political/cultural persuasions:
1. An absurdly heightened sense of refinement as the wealth of the top 5% has risen so mightily as a direct result of financialization and globalization that the top .1% has been forced to seek ever more extreme refinements to differeniate the Elite class (financial-political royalty) from financial nobility (top .5% or so), the technocrat class (top 5%), the aspirant class (next 15%) and everyone below (the bottom 80%).
Now that just about any technocrat/ member of the lower reaches of the financial nobility can afford a low-interest loan on a luxury auto, wealthy aspirants must own super-cars costing $250,000 and up.
A mere yacht no longer differeniates financial royalty from lower-caste financial Nobles, so super-yachts are de riguer, along with extremes such as private islands, private jets in the $80 million-each range, and so on.
Even mere technocrat aspirants routinely spend $150 per plate for refined dining out and take extreme vacations to ever more remote locales to advance their social status.
Examples abound of this hyper-inflation of refinement as the wealth of the top 5% has skyrocketed.
2. The belief in the permanence of the status quo has reached quasi-religious levels of faith. The possibility that the entire financialized, politicized circus of extremes might actually be nothing more than a sand castle that's dissolving in the rising tides of history is not just heresy--it doesn't enter the minds of those reveling in refinement or those demanding more Bread and Circuses (Universal Basic Income, etc.)
3. Luxury, not service, defines the financial-political Elites. As Turchin pointed out in his book on the decline of empires, in the expansionist, integrative eras of empires, Elites based their status on service to the Common Good and the defense (or expansion) of the Empire.
While there are still a few shreds of noblisse oblige in the tattered banners of the financial elites, the vast majority of the Elites classes are focused on scooping up as much wealth and power as they can in the shortest possible time, with the goal being not to serve society or the Common Good but to enter the status competition game with enough wealth to afford the refined dining, luxury travel to remote locales, second and third homes in exotic but safe hideaways, and so on.
4. An unquestioned faith in the unlimited power of the state and central bank. The idea that the mightiest governments and central banks might not be able to print their way of our harm's way, that is, create as much money and credit as is needed to paper over any spot of bother, is unthinkable for the vast majority of the populace, Elites and debt-serfs alike.
That all this newly issued currency and credit is nothing but claims on future production of goods and services and rising productivity never enters the minds of the believers in unlimited state/bank powers. We have been inculcated with the financial equivalent of the Divine Powers of the Emperor: the government and central bank possess essentially divine powers to overcome any problem, any crisis and any conflict simply by creating more money, in whatever quantities are deemed necessary.
If $1 trillion in fresh currency will do the trick--no problem! $10 trillion? No problem! $100 trillion? No problem! there is no upper limit on how much new currency/credit the government and central bank can create.
That there might be limits on the efficacy of this money-creation never enters the minds of the faithful. That pushing currency-credit creation above the limits of efficacy might actually trigger the unraveling of the state-central bank's vaunted powers never occurs to believers in the unlimited reach of central states/banks.
The possibility that the central state/bank's powers are actually quite limited is blasphemy in an era in which the majority of the Elites and commoners alike depend on the "free money" machinery of the central state/bank for their wealth and livelihoods.
It is instructive to ponder the excesses of private wealth and political dysfunction of the late Roman Empire with the present-day excesses of private wealth and political dysfunction. As Turchin and others have documented, where the average wealth of a Roman patrician in the Republic (the empire's expansionist, integrative phase) was perhaps 10-20 times the free-citizen commoner's wealth, by the disintegrative, decadent phase of imperial decay, the Elites held wealth on the scale of 10,000 times the wealth of the typical commoner. Elite villas were more like small villages centered around the excesses of luxury than mere homes for the wealthy and their household servants. Here is a commentary drawn from Turchin's work:
"An average Roman noble of senatorial class had property valued in the neighborhood of 20,000 Roman pounds of gold. There was no 'middle class' comparable to the small landholders of the third century B.C.; the huge majority of the population was made up of landless peasants working land that belonged to nobles. These peasants had hardly any property at all, but if we estimate it (very generously) at one tenth of a pound of gold, the wealth differential would be 200,000! Inequality grew both as a result of the rich getting richer (late imperial senators were 100 times wealthier than their Republican predecessors) and those of the middling wealth becoming poor."
Following in Ancient Rome's Footsteps: Moral Decay, Rising Wealth Inequality (September 30, 2015)
We can be quite confident that these powerful elites reckoned the Empire was permanent and its power to secure their wealth and power was effectively unlimited. But alas, their fantastic wealth vanished along with the rest of the centralized, over-extended, complex and costly Imperial structures.
There is a peculiarly widespread belief that Elites are so smart and powerful that they always manage to evade the collapse of the empires that created and protected their wealth. But there is essentially no evidence for this belief when eras truly change.
Yes, Elites have proven to be adept at shifting with the political winds; thus the guestbooks of French chateaux were filled with the names of Nazi dignitaries during the German occupation of France, and with the names of Allied bigwigs after the war ended the 1,000-year Reich.
But the complete collapse of the financial system and centralized power is not a war or financial crisis--these are storm waters which the Elites have the wherewithal to survive. But when a tsunami disintegrates the entire structure and carries it out to a nameless sea as flotsam and jetsam, there is no transfer of wealth from the Old to the New.
The Roman Elites did not become Barbarian elites who just so happened to own the same villas and vast estates they did when they wore togas and dined on super-refined delicacies. They were pushed aside along with everything that supported their wealth and power.
Nothing is quite as permanent as we imagine--especially super-complex, super-costly, super-asymmetric and super-debt-dependent state/financial systems....
Monday, June 12, 2017
SC145-5
http://www.truthdig.com/report/item/the_age_of_anger_20170611
The Age of Anger
The nihilism and rage sweeping across the globe are not generated by warped ideologies or medieval religious beliefs. These destructive forces have their roots in the obliterating of social, cultural and religious traditions by modernization and the consumer society, the disastrous attempts by the United States to carry out regime change, often through coups and wars, and the utopian neoliberal ideology that has concentrated wealth in the hands of a tiny cabal of corrupt global oligarchs.
This vast, global project of social engineering during the last century persuaded hundreds of millions of people, as Pankaj Mishra writes in “The Age of Anger: A History of the Present,” “to renounce—and often scorn—a world of the past that had endured for thousands of years, and to undertake a gamble of creating modern citizens who would be secular, enlightened, cultured and heroic.” The project has been a spectacular failure.
“To destroy a people,” Alexander Solzhenitsyn noted acidly, “you must sever their roots.” The wretched of the earth, as Frantz Fanon called them, have been shorn of any ideological or cultural cohesion. They are cut off from their past. They live in crushing poverty, numbing alienation, hopelessness and often terror. Mass culture feeds them the tawdry, the violent, the salacious and the ridiculous. They are rising up against these forces of modernization, driven by an atavistic fury to destroy the technocratic world that condemns them. This rage is expressed in many forms—Hindu nationalism, protofascism, jihadism, the Christian right, anarchic violence and others. But the various forms of ressentiment spring from the same deep wells of global despair. This ressentiment “poisons civil society and undermines political liberty,” Mishra writes, and it is fueling “a global turn to authoritarianism and toxic forms of chauvinism.”
Western elites, rather than accept their responsibility for the global anarchy, self-servingly define the clash as one between the values of the enlightened West and medieval barbarians. They see in the extreme nationalists, religious fundamentalists and jihadists an inchoate and inexplicable irrationality that can be quelled only with force. They have yet to grasp that the disenfranchised do not hate us for our values; they hate us because of our duplicity, use of indiscriminate industrial violence on their nations and communities and our hypocrisy. The dispossessed grasp the true message of the West to the rest of the planet: We have everything, and if you try to take it away from us we will kill you.
The more that Western elites are attacked, the more they too retreat into a mythological past, self-glorification and willful ignorance. Mishra writes:
Thus, in the very places [in the West] where secular modernity arose, with ideas that were then universally established—individualism (against the significance of social relations), the cult of efficiency and utility (against the ethic of honour), and the normalization of self-interest—the mythic Volk has reappeared as a spur to solidarity and action against real and imagined enemies.
But nationalism is, more than ever before, a mystification, if not a dangerous fraud with its promise of making a country ‘great again’ and its demonization of the ‘other’; it conceals the real conditions of existence, and the true origins of suffering, even as it seeks to replicate the comforting balm of transcendental ideals within a bleak earthly horizon. Its political resurgence shows that ressentiment—in this case, of people who feel left behind by the globalized economy or contemptuously ignored by its slick overlords and cheerleaders in politics, business and the media—remains the default metaphysics of the modern world since [Jean-Jacques] Rousseau first defined it. And its most menacing expression in the age of individualism may well be the violent anarchism of the disinherited and the superfluous.
The proponents of globalization promised to lift workers across the planet into the middle class and instill democratic values and scientific rationalism. Religious and ethnic tensions would be alleviated or eradicated. This global marketplace would create a peaceful, prosperous community of nations. All we had to do was get government out of the way and kneel before market demands, held up as the ultimate form of progress and rationality.
Neoliberalism, in the name of this absurd utopia, stripped away government regulations and laws that once protected the citizen from the worst excesses of predatory capitalism. It created free trade agreements that allowed trillions of corporate dollars to be transferred to offshore accounts to avoid taxation and jobs to flee to sweatshops in China and the global south where workers live in conditions that replicate slavery. Social service programs and public services were slashed or privatized. Mass culture, including schools and the press, indoctrinated an increasingly desperate population to take part in the global reality show of capitalism, a “war of all against all.”
What we were never told was that the game was fixed. We were always condemned to lose. Our cities were deindustrialized and fell into decay. Wages declined. Our working class became impoverished. Endless war became, cynically, a lucrative business. And the world’s wealth was seized by a tiny group of global oligarchs. Kleptocracies, such as the one now installed in Washington, brazenly stole from the people. Democratic idealism became a joke. We are now knit together, as Mishra writes, only “by commerce and technology,” forces that Hannah Arendt called “negative solidarity.”
The backlash, Mishra writes, resembles the anarchist, fascist and communist violence and terrorism that took place at the end of the 19th century and in the early 20th century. In one of the most important parts of his brilliant and multi-layered analysis of the world around us, Mishra explains how Western ideas were adopted and mutated by ideologues in the global south, ideas that would become as destructive as the imposition of free market capitalism itself.
Ayatollah Ruhollah Khomeini’s Islamic revolution in Iran, for example, borrowed liberally from Western ideas, including representation through elections, egalitarianism and Vladimir Lenin’s revolutionary vanguard, which was adapted for a Muslim world. Nishida Kitaro and Watsuji Tetsuro of Japan’s Kyoto School, steeped in the romantic nationalism of German philosophers such as Johann Gottlieb Fichte, transformed the glorification of the German nation into a glorification of imperial Japan. They “provided the intellectual justification for Japan’s brutal assault on China in the 1930s, and then the sudden attack on its biggest trading partner in December 1941—at Pearl Harbor.” South Asia’s most important writer and scholar, Muhammad Iqbal, provided a “Nietzschean vision of Islam revivified by strong self-creating Muslims.” And the Chinese scholar Lu Xun called for Chinese to exhibit the “indomitable will exemplified by Zarathustra.” These bastard ideologies cloaked themselves in the veneer of indigenous religious traditions and beliefs. But they were new creations, born out of the schöpferische Zerstörung, or the “gale of creative destruction,” of global capitalism.
Nowhere is this more true than with the modern calls for jihad by self-styled Islamic radicals, most of whom have no religious training and who often come out of the secularized criminal underworld. The jihadist leader Abu Musab Zarqawi, nicknamed “the sheikh of slaughterers” in Iraq, had, as Mishra writes, “a long past of pimping, drug-dealing and heavy drinking.” The Afghan-American Omar Mateen reportedly was a frequenter of the nightclub in Orlando, Fla., where he massacred 49 people and had been seen there drunk. Anwar al-Awlaki, who preached jihad and was eventually assassinated by the United States, had a penchant for prostitutes. Abu Mohammed al-Adnani, a senior leader of Islamic State before he was killed, called on Muslims in the West to kill any non-Muslim they encountered. “Smash his head with a rock, or slaughter him with a knife, or run him over with your car, or throw him down from a high place, or choke him, or poison,” al-Adnani told followers.
The idea of Mikhail Bakunin’s “propaganda by deed” is, Mishra writes, “now manifest universally in video-taped, live-streamed and Facebooked massacres.” It grew, he writes, “naturally from the suspicion that only acts of extreme violence could reveal to the world a desperate social situation and the moral integrity of those determined to challenge it.” These imported ideas filled the void left by the destruction of indigenous beliefs, traditions and rituals. As Mishra says, these jihadists “represent the death of traditional Islam rather than its resurrection.”
“As it turned out,” he writes, “the autocratic modernizers failed to usher a majority of their wards into the modern world, and their abortive revolutions from above paved the way for more radical ones from below, followed, as we have seen in recent years, by anarchy.”
The terrorist attacks in Paris or London were driven by the same ressentiment, Mishra points out, as that which led Timothy McVey to bomb the Alfred P. Murrah Federal Building in Oklahoma City in 1995, killing 168, including 19 children, and injuring 684. And when the American was imprisoned in Florence, Colo., the prisoner in the adjacent cell was Ramzi Ahmed Yousef, the mastermind of the first attack on the World Trade Center, in 1993. After McVey was executed, Yousef commented, “I never have [known] anyone in my life who has so similar a personality to my own as his.”
Mishra writes, “Malignant zealots have emerged in the very heart of the democratic West after a decade of political and economic tumult; the simple explanatory paradigm set in stone soon after the attacks of 9/11—Islam-inspired terrorism versus modernity—lies in ruins.” The United States, aside from suffering periodic mass killings in schools, malls and movie theaters, has seen homegrown terrorists strike the Boston Marathon, a South Carolina church, Tennessee military facilities, a Texas Army base and elsewhere.
“The modern West can no longer be distinguished from its apparent enemies,” Mishra notes. The hagiography of the U.S. Navy sniper Chris Kyle—who had a tattoo of a red Crusader cross and called the Iraq War a battle against “savage, desperate evil”—in Clint Eastwood’s movie “American Sniper” celebrates the binary worldview adopted by jihadists who deify their suicide bombers.
“The xenophobic frenzy unleashed by Clint Eastwood’s film of Kyle’s book suggested the most vehement partisans of holy war flourish not only in the ravaged landscape of South and West Asia,” Mishra writes. “Such fanatics, who can be atheists as well as crusaders and jihadists, also lurk among America’s best and brightest, emboldened by an endless support of money, arms, and even ‘ideas’ supplied by terrorism experts and clash-of-civilization theorists.”
Donald Trump, given the political, economic and cultural destruction carried out by neoliberalism, is not an aberration. He is the result of a market society and capitalist democracy that has ceased to function. An angry and alienated underclass, now making up as much as half the population of the United States, is entranced by electronic hallucinations that take the place of literacy. These Americans take a perverse and almost diabolical delight in demagogues such as Trump that express contempt for and openly flout the traditional rules and rituals of a power structure that preys upon them.
Mishra finds a similar situation in his own country, India. “In their indifference to the common good, single-minded pursuit of private happiness, and narcissistic identification with an apparently ruthless strongman and uninhibited loudmouth, [Indian Prime Minister Narendra] Modi’s angry voters mirror many electorates around the world—people gratified rather than appalled by trash-talk and the slaughter of old conventions,” he writes. “The new horizons of individual desire and fear opened up by the neoliberal world economy do not favour democracy or human rights.”
Mishra excoriates the West’s idealized and sanitized version of history, “the simple-minded and dangerously misleading ideas and assumptions, drawn from a triumphant history of Anglo-American achievements that has long shaped the speeches of statesmen, think-tank reports, technocratic surveys, newspaper editorials, while supplying fuel to countless columnists, TV pundits and so-called terrorism experts.” The mandarins who spew this self-serving narrative are, as American theologian Reinhold Niebuhr called them and their ilk, the “bland fanatics of Western civilization” “who regard the highly contingent achievements of our culture as the final form and norm of human existence.”
The roots of modernization and colonization are, as Mishra writes, ones of “carnage and bedlam.” The rapacious appetite of capitalists and imperialists never considered “such constraining factors as finite geographical space, degradable natural resources and fragile ecosystems.” In carrying out this project of global expansion, no form of coercion or violence was off-limits. Those who opposed us simply learned to speak our language.
“The intellectual pedigree of today’s nasty atrocities is not to be found in religious scriptures,” Mishra writes. “French colonialists in Algeria had used torture techniques originally deployed by the Nazis during the occupation of France (and also were some of the first hijackers of a civilian aeroplane). Americans in the global war on terror resorted to cruel interrogation methods that the Soviet Union had patented during the Cold War. In the latest stage of this gruesome reciprocity, the heirs of Zarqawi in ISIS dress their Western hostages in Guantanamo’s orange suits, and turn on their smartphone cameras, before beheading their victims.”
The West’s dangerous faith in the inevitability of human progress is chronicled by Mishra through the dueling French intellectuals Rousseau and Voltaire, as well as Bakunin, Alexander Herzen, Karl Marx, Fichte, Giuseppe Mazzini and Michel Foucault. This intellectually nuanced and philosophically rich book shows that ideas matter.
“The Hindu, Jewish, Chinese and Islamic modernists who helped establish major nation-building ideologies were in tune with the main trends of the European fin-de-siècle, which redefined freedom beyond bourgeois self-seeking to a will to forge dynamic new societies and reshape history,” Mishra writes. “It is impossible to understand them, and the eventual product of their efforts (Islamism, Hindu nationalism, Zionism, Chinese nationalism), without grasping their European intellectual background of cultural decay and pessimism: the anxiety in the unconscious that Freud was hardly alone in sensing, or the idea of a glorious rebirth after decline and decadence, borrowed from the Christian idea of resurrection, that Mazzini had done so much to introduce into the political sphere.”
Mishra goes on:
ISIS, born during the implosion of Iraq, owes its existence more to Operation Infinite Justice and Enduring Freedom than to any Islamic theology. It is the quintessential product of a radical process of globalization in which governments, unable to protect their citizens from foreign invaders, brutal police, or economic turbulence, lose their moral and ideological legitimacy, creating a space for such non-state actors as armed gangs, mafia, vigilante groups, warlords and private revenge-seekers.
ISIS aims to create a Caliphate, but, like American regime-changers, it cannot organize a political space, as distinct from privatizing violence. Motivated by a selfie individualism, the adepts of ISIS are better at destroying Valhalla than building it. Ultimately, a passion for grand politics, manifest in ISIS’s Wagnerian-style annihilation, is what drives the Caliphate, as much as it did [Gabriele] D’Annunzio’s utopia. The will to power and craving for violence as existential experience reconciles, as [philosopher and social theorist Georges] Sorel prophesized, the varying religious and ideological commitments of its adherents. The attempts to place them in a long Islamic tradition miss how much these militants, feverishly stylizing their murders and rapes on Instagram, reflect an ultimate stage in the radicalization of the modern principle of individual autonomy and equality: a form of strenuous self-assertion that acknowledges no limits, and requires descent into a moral abyss.
Philosopher George Santayana foresaw that America’s obsessive individualistic culture of competition and mimicry would eventually incite “a lava-wave of primitive blindness and violence.” The inability to be self-critical and self-aware, coupled with the cult of the self, would lead to a collective suicide. Cultural historian Carl Schorske in “Fin-de-Siècle Vienna: Politics and Culture” wrote that Europe’s descent into fascism was inevitable once it cut the “cord of consciousness.” And, with the rise of Trump, it is clear the “cord of consciousness” has also been severed in the twilight days of the American empire. Once we no longer acknowledge or understand our own capacity for evil, once we no longer know ourselves, we become monsters who devour others and finally devour ourselves.
“Totalitarianism with its tens of millions of victims was identified as a malevolent reaction to the benevolent Enlightenment tradition of rationalism, humanism, universalism and liberal democracy—a tradition seen as an unproblematic norm,” Mishra writes. “It was clearly too disconcerting to acknowledge that totalitarian politics crystallized the ideological currents (scientific racism, jingoistic nationalism, imperialism, technicism, aestheticized politics, utopianism, social engineering and the violent struggle for existence) flowing through all of Europe in the late nineteenth century.”
Mishra knows what happens when people are discarded onto the dung heap of history. He knows what endless wars, waged in the name of democracy and Western civilization, engender among their victims. He knows what drives people, whether they are at a Trump rally or a radical mosque in Pakistan, to lust after violence. History informs the present. We are afflicted by what writer Albert Camus called “autointoxication, the malignant secretion of one’s preconceived impotence inside the enclosure of the self.” And until this “autointoxication” is addressed, the rage and violence, at home and abroad, will expand as we stumble toward a global apocalypse. The self-alienation of humankind, Walter Benjamin warned, “has reached such a degree that it can experience its own destruction as an aesthetic pleasure of the first order.”
The conflicts in Egypt, Libya, Mali, Syria and many other places, Mishra notes, are fueled by “extreme weather events, the emptying of rivers and seas of their fish stocks, or the desertification of entire regions on the planet.” The refugees being driven by their homelands’ chaos into Europe are creating political instability there. And as we sleepwalk into the future, the steady deterioration of the ecosystem will ultimately lead to total systems collapse. Mishra warns that “the two ways in which humankind can self-destruct—civil war on a global scale, or destruction of the natural environment—are rapidly converging.” Our elites, oblivious to the dangers ahead, blinded by their own hubris and greed, are ferrying us, like Charon, to the land of the dead.
The Age of Anger
The nihilism and rage sweeping across the globe are not generated by warped ideologies or medieval religious beliefs. These destructive forces have their roots in the obliterating of social, cultural and religious traditions by modernization and the consumer society, the disastrous attempts by the United States to carry out regime change, often through coups and wars, and the utopian neoliberal ideology that has concentrated wealth in the hands of a tiny cabal of corrupt global oligarchs.
This vast, global project of social engineering during the last century persuaded hundreds of millions of people, as Pankaj Mishra writes in “The Age of Anger: A History of the Present,” “to renounce—and often scorn—a world of the past that had endured for thousands of years, and to undertake a gamble of creating modern citizens who would be secular, enlightened, cultured and heroic.” The project has been a spectacular failure.
“To destroy a people,” Alexander Solzhenitsyn noted acidly, “you must sever their roots.” The wretched of the earth, as Frantz Fanon called them, have been shorn of any ideological or cultural cohesion. They are cut off from their past. They live in crushing poverty, numbing alienation, hopelessness and often terror. Mass culture feeds them the tawdry, the violent, the salacious and the ridiculous. They are rising up against these forces of modernization, driven by an atavistic fury to destroy the technocratic world that condemns them. This rage is expressed in many forms—Hindu nationalism, protofascism, jihadism, the Christian right, anarchic violence and others. But the various forms of ressentiment spring from the same deep wells of global despair. This ressentiment “poisons civil society and undermines political liberty,” Mishra writes, and it is fueling “a global turn to authoritarianism and toxic forms of chauvinism.”
Western elites, rather than accept their responsibility for the global anarchy, self-servingly define the clash as one between the values of the enlightened West and medieval barbarians. They see in the extreme nationalists, religious fundamentalists and jihadists an inchoate and inexplicable irrationality that can be quelled only with force. They have yet to grasp that the disenfranchised do not hate us for our values; they hate us because of our duplicity, use of indiscriminate industrial violence on their nations and communities and our hypocrisy. The dispossessed grasp the true message of the West to the rest of the planet: We have everything, and if you try to take it away from us we will kill you.
The more that Western elites are attacked, the more they too retreat into a mythological past, self-glorification and willful ignorance. Mishra writes:
Thus, in the very places [in the West] where secular modernity arose, with ideas that were then universally established—individualism (against the significance of social relations), the cult of efficiency and utility (against the ethic of honour), and the normalization of self-interest—the mythic Volk has reappeared as a spur to solidarity and action against real and imagined enemies.
But nationalism is, more than ever before, a mystification, if not a dangerous fraud with its promise of making a country ‘great again’ and its demonization of the ‘other’; it conceals the real conditions of existence, and the true origins of suffering, even as it seeks to replicate the comforting balm of transcendental ideals within a bleak earthly horizon. Its political resurgence shows that ressentiment—in this case, of people who feel left behind by the globalized economy or contemptuously ignored by its slick overlords and cheerleaders in politics, business and the media—remains the default metaphysics of the modern world since [Jean-Jacques] Rousseau first defined it. And its most menacing expression in the age of individualism may well be the violent anarchism of the disinherited and the superfluous.
The proponents of globalization promised to lift workers across the planet into the middle class and instill democratic values and scientific rationalism. Religious and ethnic tensions would be alleviated or eradicated. This global marketplace would create a peaceful, prosperous community of nations. All we had to do was get government out of the way and kneel before market demands, held up as the ultimate form of progress and rationality.
Neoliberalism, in the name of this absurd utopia, stripped away government regulations and laws that once protected the citizen from the worst excesses of predatory capitalism. It created free trade agreements that allowed trillions of corporate dollars to be transferred to offshore accounts to avoid taxation and jobs to flee to sweatshops in China and the global south where workers live in conditions that replicate slavery. Social service programs and public services were slashed or privatized. Mass culture, including schools and the press, indoctrinated an increasingly desperate population to take part in the global reality show of capitalism, a “war of all against all.”
What we were never told was that the game was fixed. We were always condemned to lose. Our cities were deindustrialized and fell into decay. Wages declined. Our working class became impoverished. Endless war became, cynically, a lucrative business. And the world’s wealth was seized by a tiny group of global oligarchs. Kleptocracies, such as the one now installed in Washington, brazenly stole from the people. Democratic idealism became a joke. We are now knit together, as Mishra writes, only “by commerce and technology,” forces that Hannah Arendt called “negative solidarity.”
The backlash, Mishra writes, resembles the anarchist, fascist and communist violence and terrorism that took place at the end of the 19th century and in the early 20th century. In one of the most important parts of his brilliant and multi-layered analysis of the world around us, Mishra explains how Western ideas were adopted and mutated by ideologues in the global south, ideas that would become as destructive as the imposition of free market capitalism itself.
Ayatollah Ruhollah Khomeini’s Islamic revolution in Iran, for example, borrowed liberally from Western ideas, including representation through elections, egalitarianism and Vladimir Lenin’s revolutionary vanguard, which was adapted for a Muslim world. Nishida Kitaro and Watsuji Tetsuro of Japan’s Kyoto School, steeped in the romantic nationalism of German philosophers such as Johann Gottlieb Fichte, transformed the glorification of the German nation into a glorification of imperial Japan. They “provided the intellectual justification for Japan’s brutal assault on China in the 1930s, and then the sudden attack on its biggest trading partner in December 1941—at Pearl Harbor.” South Asia’s most important writer and scholar, Muhammad Iqbal, provided a “Nietzschean vision of Islam revivified by strong self-creating Muslims.” And the Chinese scholar Lu Xun called for Chinese to exhibit the “indomitable will exemplified by Zarathustra.” These bastard ideologies cloaked themselves in the veneer of indigenous religious traditions and beliefs. But they were new creations, born out of the schöpferische Zerstörung, or the “gale of creative destruction,” of global capitalism.
Nowhere is this more true than with the modern calls for jihad by self-styled Islamic radicals, most of whom have no religious training and who often come out of the secularized criminal underworld. The jihadist leader Abu Musab Zarqawi, nicknamed “the sheikh of slaughterers” in Iraq, had, as Mishra writes, “a long past of pimping, drug-dealing and heavy drinking.” The Afghan-American Omar Mateen reportedly was a frequenter of the nightclub in Orlando, Fla., where he massacred 49 people and had been seen there drunk. Anwar al-Awlaki, who preached jihad and was eventually assassinated by the United States, had a penchant for prostitutes. Abu Mohammed al-Adnani, a senior leader of Islamic State before he was killed, called on Muslims in the West to kill any non-Muslim they encountered. “Smash his head with a rock, or slaughter him with a knife, or run him over with your car, or throw him down from a high place, or choke him, or poison,” al-Adnani told followers.
The idea of Mikhail Bakunin’s “propaganda by deed” is, Mishra writes, “now manifest universally in video-taped, live-streamed and Facebooked massacres.” It grew, he writes, “naturally from the suspicion that only acts of extreme violence could reveal to the world a desperate social situation and the moral integrity of those determined to challenge it.” These imported ideas filled the void left by the destruction of indigenous beliefs, traditions and rituals. As Mishra says, these jihadists “represent the death of traditional Islam rather than its resurrection.”
“As it turned out,” he writes, “the autocratic modernizers failed to usher a majority of their wards into the modern world, and their abortive revolutions from above paved the way for more radical ones from below, followed, as we have seen in recent years, by anarchy.”
The terrorist attacks in Paris or London were driven by the same ressentiment, Mishra points out, as that which led Timothy McVey to bomb the Alfred P. Murrah Federal Building in Oklahoma City in 1995, killing 168, including 19 children, and injuring 684. And when the American was imprisoned in Florence, Colo., the prisoner in the adjacent cell was Ramzi Ahmed Yousef, the mastermind of the first attack on the World Trade Center, in 1993. After McVey was executed, Yousef commented, “I never have [known] anyone in my life who has so similar a personality to my own as his.”
Mishra writes, “Malignant zealots have emerged in the very heart of the democratic West after a decade of political and economic tumult; the simple explanatory paradigm set in stone soon after the attacks of 9/11—Islam-inspired terrorism versus modernity—lies in ruins.” The United States, aside from suffering periodic mass killings in schools, malls and movie theaters, has seen homegrown terrorists strike the Boston Marathon, a South Carolina church, Tennessee military facilities, a Texas Army base and elsewhere.
“The modern West can no longer be distinguished from its apparent enemies,” Mishra notes. The hagiography of the U.S. Navy sniper Chris Kyle—who had a tattoo of a red Crusader cross and called the Iraq War a battle against “savage, desperate evil”—in Clint Eastwood’s movie “American Sniper” celebrates the binary worldview adopted by jihadists who deify their suicide bombers.
“The xenophobic frenzy unleashed by Clint Eastwood’s film of Kyle’s book suggested the most vehement partisans of holy war flourish not only in the ravaged landscape of South and West Asia,” Mishra writes. “Such fanatics, who can be atheists as well as crusaders and jihadists, also lurk among America’s best and brightest, emboldened by an endless support of money, arms, and even ‘ideas’ supplied by terrorism experts and clash-of-civilization theorists.”
Donald Trump, given the political, economic and cultural destruction carried out by neoliberalism, is not an aberration. He is the result of a market society and capitalist democracy that has ceased to function. An angry and alienated underclass, now making up as much as half the population of the United States, is entranced by electronic hallucinations that take the place of literacy. These Americans take a perverse and almost diabolical delight in demagogues such as Trump that express contempt for and openly flout the traditional rules and rituals of a power structure that preys upon them.
Mishra finds a similar situation in his own country, India. “In their indifference to the common good, single-minded pursuit of private happiness, and narcissistic identification with an apparently ruthless strongman and uninhibited loudmouth, [Indian Prime Minister Narendra] Modi’s angry voters mirror many electorates around the world—people gratified rather than appalled by trash-talk and the slaughter of old conventions,” he writes. “The new horizons of individual desire and fear opened up by the neoliberal world economy do not favour democracy or human rights.”
Mishra excoriates the West’s idealized and sanitized version of history, “the simple-minded and dangerously misleading ideas and assumptions, drawn from a triumphant history of Anglo-American achievements that has long shaped the speeches of statesmen, think-tank reports, technocratic surveys, newspaper editorials, while supplying fuel to countless columnists, TV pundits and so-called terrorism experts.” The mandarins who spew this self-serving narrative are, as American theologian Reinhold Niebuhr called them and their ilk, the “bland fanatics of Western civilization” “who regard the highly contingent achievements of our culture as the final form and norm of human existence.”
The roots of modernization and colonization are, as Mishra writes, ones of “carnage and bedlam.” The rapacious appetite of capitalists and imperialists never considered “such constraining factors as finite geographical space, degradable natural resources and fragile ecosystems.” In carrying out this project of global expansion, no form of coercion or violence was off-limits. Those who opposed us simply learned to speak our language.
“The intellectual pedigree of today’s nasty atrocities is not to be found in religious scriptures,” Mishra writes. “French colonialists in Algeria had used torture techniques originally deployed by the Nazis during the occupation of France (and also were some of the first hijackers of a civilian aeroplane). Americans in the global war on terror resorted to cruel interrogation methods that the Soviet Union had patented during the Cold War. In the latest stage of this gruesome reciprocity, the heirs of Zarqawi in ISIS dress their Western hostages in Guantanamo’s orange suits, and turn on their smartphone cameras, before beheading their victims.”
The West’s dangerous faith in the inevitability of human progress is chronicled by Mishra through the dueling French intellectuals Rousseau and Voltaire, as well as Bakunin, Alexander Herzen, Karl Marx, Fichte, Giuseppe Mazzini and Michel Foucault. This intellectually nuanced and philosophically rich book shows that ideas matter.
“The Hindu, Jewish, Chinese and Islamic modernists who helped establish major nation-building ideologies were in tune with the main trends of the European fin-de-siècle, which redefined freedom beyond bourgeois self-seeking to a will to forge dynamic new societies and reshape history,” Mishra writes. “It is impossible to understand them, and the eventual product of their efforts (Islamism, Hindu nationalism, Zionism, Chinese nationalism), without grasping their European intellectual background of cultural decay and pessimism: the anxiety in the unconscious that Freud was hardly alone in sensing, or the idea of a glorious rebirth after decline and decadence, borrowed from the Christian idea of resurrection, that Mazzini had done so much to introduce into the political sphere.”
Mishra goes on:
ISIS, born during the implosion of Iraq, owes its existence more to Operation Infinite Justice and Enduring Freedom than to any Islamic theology. It is the quintessential product of a radical process of globalization in which governments, unable to protect their citizens from foreign invaders, brutal police, or economic turbulence, lose their moral and ideological legitimacy, creating a space for such non-state actors as armed gangs, mafia, vigilante groups, warlords and private revenge-seekers.
ISIS aims to create a Caliphate, but, like American regime-changers, it cannot organize a political space, as distinct from privatizing violence. Motivated by a selfie individualism, the adepts of ISIS are better at destroying Valhalla than building it. Ultimately, a passion for grand politics, manifest in ISIS’s Wagnerian-style annihilation, is what drives the Caliphate, as much as it did [Gabriele] D’Annunzio’s utopia. The will to power and craving for violence as existential experience reconciles, as [philosopher and social theorist Georges] Sorel prophesized, the varying religious and ideological commitments of its adherents. The attempts to place them in a long Islamic tradition miss how much these militants, feverishly stylizing their murders and rapes on Instagram, reflect an ultimate stage in the radicalization of the modern principle of individual autonomy and equality: a form of strenuous self-assertion that acknowledges no limits, and requires descent into a moral abyss.
Philosopher George Santayana foresaw that America’s obsessive individualistic culture of competition and mimicry would eventually incite “a lava-wave of primitive blindness and violence.” The inability to be self-critical and self-aware, coupled with the cult of the self, would lead to a collective suicide. Cultural historian Carl Schorske in “Fin-de-Siècle Vienna: Politics and Culture” wrote that Europe’s descent into fascism was inevitable once it cut the “cord of consciousness.” And, with the rise of Trump, it is clear the “cord of consciousness” has also been severed in the twilight days of the American empire. Once we no longer acknowledge or understand our own capacity for evil, once we no longer know ourselves, we become monsters who devour others and finally devour ourselves.
“Totalitarianism with its tens of millions of victims was identified as a malevolent reaction to the benevolent Enlightenment tradition of rationalism, humanism, universalism and liberal democracy—a tradition seen as an unproblematic norm,” Mishra writes. “It was clearly too disconcerting to acknowledge that totalitarian politics crystallized the ideological currents (scientific racism, jingoistic nationalism, imperialism, technicism, aestheticized politics, utopianism, social engineering and the violent struggle for existence) flowing through all of Europe in the late nineteenth century.”
Mishra knows what happens when people are discarded onto the dung heap of history. He knows what endless wars, waged in the name of democracy and Western civilization, engender among their victims. He knows what drives people, whether they are at a Trump rally or a radical mosque in Pakistan, to lust after violence. History informs the present. We are afflicted by what writer Albert Camus called “autointoxication, the malignant secretion of one’s preconceived impotence inside the enclosure of the self.” And until this “autointoxication” is addressed, the rage and violence, at home and abroad, will expand as we stumble toward a global apocalypse. The self-alienation of humankind, Walter Benjamin warned, “has reached such a degree that it can experience its own destruction as an aesthetic pleasure of the first order.”
The conflicts in Egypt, Libya, Mali, Syria and many other places, Mishra notes, are fueled by “extreme weather events, the emptying of rivers and seas of their fish stocks, or the desertification of entire regions on the planet.” The refugees being driven by their homelands’ chaos into Europe are creating political instability there. And as we sleepwalk into the future, the steady deterioration of the ecosystem will ultimately lead to total systems collapse. Mishra warns that “the two ways in which humankind can self-destruct—civil war on a global scale, or destruction of the natural environment—are rapidly converging.” Our elites, oblivious to the dangers ahead, blinded by their own hubris and greed, are ferrying us, like Charon, to the land of the dead.
SC145-4
http://www.zerohedge.com/news/2017-06-12/ubs-has-some-very-bad-news-global-economy
UBS Has Some Very Bad News For The Global Economy
At the end of February we first highlighted something extremely troubling for the global "recovery" narrative: according to UBS the global credit impulse - the second derivative of credit growth and arguably the biggest driver behind economic growth and world GDP - had abruptly stalled, as a result of a sudden and unexpected collapse in said impulse.
As UBS' analyst Arend Kapteyn wrote then, the "global credit impulse (covering 77% of global GDP) has suddenly collapsed" and added that "as the chart below shows the 'global' credit impulse over the last 18 months is essentially mainly China (the green shaded bit), which even now is still creating new credit at an annualized rate of around 30pp of (Chinese) GDP. But the credit impulse is the 'change in the change' in credit and even the Chinese banks could not sustain the recent extraordinary pace of credit acceleration. As a result: whereas back in Jan '16 the global credit impulse was positive to the tune of 3.8% of global GDP (of which China comprised 3.5% of global GDP) it has now fallen back to -0.1% of global GDP (China's contribution is -0.3% of global GDP)."
As we concluded then, "absent a new, and even more gargantuan credit expansion by Beijing - which is not likely to happen at a time when every single day China warns about cutting back on shadow banking and loan growth - the so-called recovery is now assured of fading. It is just a matter of time."
Four months later, the so-called "global coordinated recovery" is on its last, shaky legs, because not only has soft data in the form of PMIs, ISMs and various other sentiment surveys peaked and is now declining, as has consumer confidence, but those all important CPI readings from around the world have posted several consecutive months of disappointing prints, and according to some are jeopardizing the Fed's rate hike intentions (especially if Wednesday's inflation print is a big dud). US GDP is likewise in "stall" territory.
In short, February's collapse in the credit impulse, duly noted here, top-ticked the recent peak of the world economy.
So, fast forwarding just over three months later, where are we now? To answer that question, overnight UBS released its much anticipated update on the current state of the global credit impulse, and it's nothing short of a disaster.
As Kapteyn writes in what may have been the most eagerly awaited report in recent UBS history, "we have been inundated with questions about the chart below, first published in March. Yes, the global credit impulse is still falling. And yes, it matters because the correlation of this global credit impulse with global domestic demand is 0.61."
But it's what follows next that should send shivers down the spine of anyone still clutching to the failed "recovery" narrative:
From peak to trough the deceleration in global credit growth is now approaching that during the global financial crisis (-6% of global GDP), even if the dispersion of the decline is much narrower. Currently 55% of the countries in our sample have experienced a -0.3 standard deviation deterioration in their credit impulse (median over 12 months) compared to 77% of countries in Dec '09 when the median decline was -1.4 stdev."
Here is what the stunning collapse in the credit impulse looks like as of today:
While we urge all readers to get in touch with their friendly UBS sales coverage for the full report, here is a quick primer from UBS on what the current data is telling us, not so much about China where the credit impulse slowdown was discussed previously, but about the world's biggest economy. From UBS:
The credit impulse in the US has also turned down, seemingly on the back of a sharp drop in demand for C&I loans. The slowdown is more visible in the bank loan data than the Flow of Funds data we are using to calculate the credit impulse (the FoF is 3x as broad and includes non-bank credit as well). But the slowdown is nonetheless at odds with confidence being expressed about investment and future borrowing plans. The US credit impulse was running at 0.7% GDP back in September 2016 and by March had fallen to -0.53% GDP (recovering somewhat in April based on bank loan data).
Why does this matter? Because as UBS shows in the chart below, in the US the correlation between activity and the impulse is very strong, and the lack of credit growth could constrain an acceleration in GDP from weak Q1 levels (the credit impulse suggests domestic demand growth should be close to 1% rather than the 2+% which consensus is currently tracking).
UBS' parting words - despite the spun attempt to deliver the gloomy news as painlessly as possible - are very concerning:
Over the last 6 months, the culprits are the US and China (given large GDP weights) but the size of the declines in, Germany, Italy, and Mexico are notable. And the message from the impulse response functions is basically that global IP and import volume growth have peaked.
That is polite way of saying the credit dynamo behind global growth has not only stopped, but is now fully in reverse mode. And, as a reminder, as UBS admitted earlier, "from peak to trough the deceleration in global credit growth is now approaching that during the global financial crisis." Only this time there is no global financial crisis.
More importantly, back in 2009, not only China, but the Fed and other central banks unleashed the biggest injection of credit, i.e. liquidity, the world has ever seen resulting in the biggest asset bubble the world has ever seen. And, this time around, the Fed is set to hike for the third time in the past year, even as the ECB and BOJ are forced to soon taper as they run out of eligible bonds to monetize. All this comes at a time when US loan growth is weeks away from turning negative.
As such, what "kickstarts" the next spike in the credit impulse is unclear. What is clear is that if the traditional 3-6 month lag between credit inflection points, i.e. impulse, and economic growth is maintained, the global economy is set for a dramatic collapse some time in the second half.
......
Vital to world economic growth resources, like hydrocarbon energy ( oil, coal, gas ) which has allowed the means to transform the other resources into the manifestation that is modern societies are mostly at peak production, or already in many cases in decline. There are many who are under the delusion that alternative energy sources combined with " technology " will come along to save our world economies from the impending massive contractions we will face in the coming years. Complex and pervasive financialization of the economy combined with endless creation of money ( tokens/digits in cyber space ) allowed the illusion that things were " OK ". They are not, and the reality is decline of the world economies is inevitable.
UBS Has Some Very Bad News For The Global Economy
At the end of February we first highlighted something extremely troubling for the global "recovery" narrative: according to UBS the global credit impulse - the second derivative of credit growth and arguably the biggest driver behind economic growth and world GDP - had abruptly stalled, as a result of a sudden and unexpected collapse in said impulse.
As UBS' analyst Arend Kapteyn wrote then, the "global credit impulse (covering 77% of global GDP) has suddenly collapsed" and added that "as the chart below shows the 'global' credit impulse over the last 18 months is essentially mainly China (the green shaded bit), which even now is still creating new credit at an annualized rate of around 30pp of (Chinese) GDP. But the credit impulse is the 'change in the change' in credit and even the Chinese banks could not sustain the recent extraordinary pace of credit acceleration. As a result: whereas back in Jan '16 the global credit impulse was positive to the tune of 3.8% of global GDP (of which China comprised 3.5% of global GDP) it has now fallen back to -0.1% of global GDP (China's contribution is -0.3% of global GDP)."
As we concluded then, "absent a new, and even more gargantuan credit expansion by Beijing - which is not likely to happen at a time when every single day China warns about cutting back on shadow banking and loan growth - the so-called recovery is now assured of fading. It is just a matter of time."
Four months later, the so-called "global coordinated recovery" is on its last, shaky legs, because not only has soft data in the form of PMIs, ISMs and various other sentiment surveys peaked and is now declining, as has consumer confidence, but those all important CPI readings from around the world have posted several consecutive months of disappointing prints, and according to some are jeopardizing the Fed's rate hike intentions (especially if Wednesday's inflation print is a big dud). US GDP is likewise in "stall" territory.
In short, February's collapse in the credit impulse, duly noted here, top-ticked the recent peak of the world economy.
So, fast forwarding just over three months later, where are we now? To answer that question, overnight UBS released its much anticipated update on the current state of the global credit impulse, and it's nothing short of a disaster.
As Kapteyn writes in what may have been the most eagerly awaited report in recent UBS history, "we have been inundated with questions about the chart below, first published in March. Yes, the global credit impulse is still falling. And yes, it matters because the correlation of this global credit impulse with global domestic demand is 0.61."
But it's what follows next that should send shivers down the spine of anyone still clutching to the failed "recovery" narrative:
From peak to trough the deceleration in global credit growth is now approaching that during the global financial crisis (-6% of global GDP), even if the dispersion of the decline is much narrower. Currently 55% of the countries in our sample have experienced a -0.3 standard deviation deterioration in their credit impulse (median over 12 months) compared to 77% of countries in Dec '09 when the median decline was -1.4 stdev."
Here is what the stunning collapse in the credit impulse looks like as of today:
While we urge all readers to get in touch with their friendly UBS sales coverage for the full report, here is a quick primer from UBS on what the current data is telling us, not so much about China where the credit impulse slowdown was discussed previously, but about the world's biggest economy. From UBS:
The credit impulse in the US has also turned down, seemingly on the back of a sharp drop in demand for C&I loans. The slowdown is more visible in the bank loan data than the Flow of Funds data we are using to calculate the credit impulse (the FoF is 3x as broad and includes non-bank credit as well). But the slowdown is nonetheless at odds with confidence being expressed about investment and future borrowing plans. The US credit impulse was running at 0.7% GDP back in September 2016 and by March had fallen to -0.53% GDP (recovering somewhat in April based on bank loan data).
Why does this matter? Because as UBS shows in the chart below, in the US the correlation between activity and the impulse is very strong, and the lack of credit growth could constrain an acceleration in GDP from weak Q1 levels (the credit impulse suggests domestic demand growth should be close to 1% rather than the 2+% which consensus is currently tracking).
UBS' parting words - despite the spun attempt to deliver the gloomy news as painlessly as possible - are very concerning:
Over the last 6 months, the culprits are the US and China (given large GDP weights) but the size of the declines in, Germany, Italy, and Mexico are notable. And the message from the impulse response functions is basically that global IP and import volume growth have peaked.
That is polite way of saying the credit dynamo behind global growth has not only stopped, but is now fully in reverse mode. And, as a reminder, as UBS admitted earlier, "from peak to trough the deceleration in global credit growth is now approaching that during the global financial crisis." Only this time there is no global financial crisis.
More importantly, back in 2009, not only China, but the Fed and other central banks unleashed the biggest injection of credit, i.e. liquidity, the world has ever seen resulting in the biggest asset bubble the world has ever seen. And, this time around, the Fed is set to hike for the third time in the past year, even as the ECB and BOJ are forced to soon taper as they run out of eligible bonds to monetize. All this comes at a time when US loan growth is weeks away from turning negative.
As such, what "kickstarts" the next spike in the credit impulse is unclear. What is clear is that if the traditional 3-6 month lag between credit inflection points, i.e. impulse, and economic growth is maintained, the global economy is set for a dramatic collapse some time in the second half.
......
Vital to world economic growth resources, like hydrocarbon energy ( oil, coal, gas ) which has allowed the means to transform the other resources into the manifestation that is modern societies are mostly at peak production, or already in many cases in decline. There are many who are under the delusion that alternative energy sources combined with " technology " will come along to save our world economies from the impending massive contractions we will face in the coming years. Complex and pervasive financialization of the economy combined with endless creation of money ( tokens/digits in cyber space ) allowed the illusion that things were " OK ". They are not, and the reality is decline of the world economies is inevitable.
SC145-3
http://kunstler.com/clusterfuck-nation/7771/
Things To Come
As our politicos creep deeper into a legalistic wilderness hunting for phantoms of Russian collusion, nobody pays attention to the most dangerous force in American life: the unraveling financialization of the economy.
Financialization is what happens when the people-in-charge “create” colossal sums of “money” out of nothing — by issuing loans, a.k.a. debt — and then cream off stupendous profits from the asset bubbles, interest rate arbitrages, and other opportunities for swindling that the artificial wealth presents. It was a kind of magic trick that produced monuments of concentrated personal wealth for a few and left the rest of the population drowning in obligations from a stolen future. The future is now upon us.
Financialization expressed itself in other interesting ways, for instance the amazing renovation of New York City (Brooklyn especially). It didn’t happen just because Generation X was repulsed by the boring suburbs it grew up in and longed for a life of artisanal cocktails. It happened because financialization concentrated immense wealth geographically in the very few places where its activities took place — not just New York but San Francisco, Washington, and Boston — and could support luxuries like craft food and brews.
Quite a bit of that wealth was extracted from asset-stripping the rest of America where financialization was absent, kind of a national distress sale of the fly-over places and the people in them. That dynamic, of course, produced the phenomenon of President Donald Trump, the distilled essence of all the economic distress “out there” and the rage it entailed. The people of Ohio, Indiana, and Wisconsin were left holding a big bag of nothing and they certainly noticed what had been done to them, though they had no idea what to do about it, except maybe try to escape the moment-by-moment pain of their ruined lives with powerful drugs.
And then, a champion presented himself, and promised to bring back the dimly remembered wonder years of post-war well-being — even though the world had changed utterly — and the poor suckers fell for it. Not to mention the fact that his opponent — the avaricious Hillary, with her hundreds of millions in ill-gotten wealth — was a very avatar of the financialization that had turned their lives to shit. And then the woman called them “a basket of deplorables” for noticing what had happened to them.
And now the rather pathetic false promises of President Trump, the whole MAGA thing, is unraveling at exactly the same time that the financialized economy is entering its moment of final catastrophic phase-change. The monuments to wealth — especially the stock and bond portfolios and the presumed value of real estate investments — will surrender to a process you might call price-discovery-from-Hell, revealing their worth to be somewhere between little and nothing. The accumulated monstrous debts of persons, corporations, and sovereign societies, will be suddenly, shockingly, absolutely, and self-evidently unpayable, and the securities represented by them will be sucked into the kind of vortices of time/space depicted in movies about mummies and astronauts. And all of a sudden the avatars of that wealth will see their lives turn to shit just like the moiling, Budweiser-gulping, oxycontin-addled deplorables in the flat, boring, parking lot wastelands of our ruined drive-in Utopia saw their lives rendered into a brown-and-yellow slurry draining clockwise down the toilet of history.
Nobody in power in this country is paying attention to how close we are to that epic moment — at least, they’re not talking about it. If the possibility of all that even occupies some remote corner of their brains, they surely don’t know how to prepare the citizenry for it, or what to do about it. The truth is that societies respond emergently to major crises like the imminent unraveling of our financialized economy, often in disorderly and surprising ways. I suppose we’ll just have to watch the nauseating spectacle play out, and in the meantime enjoy the Russian collusion melodrama for whatever it’s worth — probably more than a ticket to Wonder Woman or the new Tom Cruise Mummy movie.
Things To Come
As our politicos creep deeper into a legalistic wilderness hunting for phantoms of Russian collusion, nobody pays attention to the most dangerous force in American life: the unraveling financialization of the economy.
Financialization is what happens when the people-in-charge “create” colossal sums of “money” out of nothing — by issuing loans, a.k.a. debt — and then cream off stupendous profits from the asset bubbles, interest rate arbitrages, and other opportunities for swindling that the artificial wealth presents. It was a kind of magic trick that produced monuments of concentrated personal wealth for a few and left the rest of the population drowning in obligations from a stolen future. The future is now upon us.
Financialization expressed itself in other interesting ways, for instance the amazing renovation of New York City (Brooklyn especially). It didn’t happen just because Generation X was repulsed by the boring suburbs it grew up in and longed for a life of artisanal cocktails. It happened because financialization concentrated immense wealth geographically in the very few places where its activities took place — not just New York but San Francisco, Washington, and Boston — and could support luxuries like craft food and brews.
Quite a bit of that wealth was extracted from asset-stripping the rest of America where financialization was absent, kind of a national distress sale of the fly-over places and the people in them. That dynamic, of course, produced the phenomenon of President Donald Trump, the distilled essence of all the economic distress “out there” and the rage it entailed. The people of Ohio, Indiana, and Wisconsin were left holding a big bag of nothing and they certainly noticed what had been done to them, though they had no idea what to do about it, except maybe try to escape the moment-by-moment pain of their ruined lives with powerful drugs.
And then, a champion presented himself, and promised to bring back the dimly remembered wonder years of post-war well-being — even though the world had changed utterly — and the poor suckers fell for it. Not to mention the fact that his opponent — the avaricious Hillary, with her hundreds of millions in ill-gotten wealth — was a very avatar of the financialization that had turned their lives to shit. And then the woman called them “a basket of deplorables” for noticing what had happened to them.
And now the rather pathetic false promises of President Trump, the whole MAGA thing, is unraveling at exactly the same time that the financialized economy is entering its moment of final catastrophic phase-change. The monuments to wealth — especially the stock and bond portfolios and the presumed value of real estate investments — will surrender to a process you might call price-discovery-from-Hell, revealing their worth to be somewhere between little and nothing. The accumulated monstrous debts of persons, corporations, and sovereign societies, will be suddenly, shockingly, absolutely, and self-evidently unpayable, and the securities represented by them will be sucked into the kind of vortices of time/space depicted in movies about mummies and astronauts. And all of a sudden the avatars of that wealth will see their lives turn to shit just like the moiling, Budweiser-gulping, oxycontin-addled deplorables in the flat, boring, parking lot wastelands of our ruined drive-in Utopia saw their lives rendered into a brown-and-yellow slurry draining clockwise down the toilet of history.
Nobody in power in this country is paying attention to how close we are to that epic moment — at least, they’re not talking about it. If the possibility of all that even occupies some remote corner of their brains, they surely don’t know how to prepare the citizenry for it, or what to do about it. The truth is that societies respond emergently to major crises like the imminent unraveling of our financialized economy, often in disorderly and surprising ways. I suppose we’ll just have to watch the nauseating spectacle play out, and in the meantime enjoy the Russian collusion melodrama for whatever it’s worth — probably more than a ticket to Wonder Woman or the new Tom Cruise Mummy movie.
Sunday, June 11, 2017
SC145-2
https://theintercept.com/2017/06/10/the-worst-of-donald-trumps-toxic-agenda-is-lying-in-wait-a-major-u-s-crisis-will-unleash-it/
The Worst of Donald Trump’s Toxic Agenda Is Lying in Wait – A Major U.S. Crisis Will Unleash It
During the presidential campaign, some imagined that the more overtly racist elements of Donald Trump’s platform were just talk designed to rile up the base, not anything he seriously intended to act on. But in his first week in office, when he imposed a travel ban on seven majority-Muslim countries, that comforting illusion disappeared fast. Fortunately, the response was immediate: the marches and rallies at airports, the impromptu taxi strikes, the lawyers and local politicians intervening, the judges ruling the bans illegal.
The whole episode showed the power of resistance, and of judicial courage, and there was much to celebrate. Some have even concluded that this early slap down chastened Trump, and that he is now committed to a more reasonable, conventional course.
That is a dangerous illusion.
It is true that many of the more radical items on this administration’s wish list have yet to be realized. But make no mistake, the full agenda is still there, lying in wait. And there is one thing that could unleash it all: a large-scale crisis.
Large-scale shocks are frequently harnessed to ram through despised pro-corporate and anti-democratic policies that would never have been feasible in normal times. It’s a phenomenon I have previously called the “Shock Doctrine,” and we have seen it happen again and again over the decades, from Chile in the aftermath of Augusto Pinochet’s coup to New Orleans after Hurricane Katrina.
And we have seen it happen recently, well before Trump, in U.S. cities including Detroit and Flint, where looming municipal bankruptcy became the pretext for dissolving local democracy and appointing “emergency managers” who waged war on public services and public education. It is unfolding right now in Puerto Rico, where the ongoing debt crisis has been used to install the unaccountable “Financial Oversight and Management Board,” an enforcement mechanism for harsh austerity measures, including cuts to pensions and waves of school closures. This tactic is being deployed in Brazil, where the highly questionable impeachment of President Dilma Rousseff in 2016 was followed by the installation of an unelected, zealously pro-business regime that has frozen public spending for the next 20 years, imposed punishing austerity, and begun selling off airports, power stations, and other public assets in a frenzy of privatization.
As Milton Friedman wrote long ago, “Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.” Survivalists stockpile canned goods and water in preparation for major disasters; these guys stockpile spectacularly anti-democratic ideas.
Now, as many have observed, the pattern is repeating under Trump. On the campaign trail, he did not tell his adoring crowds that he would cut funds for meals-on-wheels, or admit that he was going to try to take health insurance away from millions of Americans, or that he planned to grant every item on Goldman Sachs’ wish list. He said the very opposite.
Since taking office, however, Donald Trump has never allowed the atmosphere of chaos and crisis to let up. Some of the chaos, like the Russia investigations, has been foisted upon him or is simply the result of incompetence, but much appears to be deliberately created. Either way, while we are distracted by (and addicted to) the Trump Show, clicking on and gasping at marital hand-slaps and mysterious orbs, the quiet, methodical work of redistributing wealth upward proceeds apace.
This is also aided by the sheer velocity of change. Witnessing the tsunami of executive orders during Trump’s first 100 days, it rapidly became clear his advisers were following Machiavelli’s advice in “The Prince”: “Injuries ought to be done all at one time, so that, being tasted less, they offend less.” The logic is straightforward enough. People can develop responses to sequential or gradual change. But if dozens of changes come from all directions at once, the hope is that populations will rapidly become exhausted and overwhelmed, and will ultimately swallow their bitter medicine.
But here’s the thing. All of this is shock doctrine lite; it’s the most that Trump can pull off under cover of the shocks he is generating himself. And as much as this needs to be exposed and resisted, we also need to focus on what this administration will do when they have a real external shock to exploit. Maybe it will be an economic crash like the 2008 subprime mortgage crisis. Maybe a natural disaster like Superstorm Sandy. Or maybe it will be a horrific terrorist attack like the Manchester bombing. Any one such crisis could trigger a very rapid shift in political conditions, making what currently seems unlikely suddenly appear inevitable.
So let’s consider a few categories of possible shocks, and how they might be harnessed to start ticking off items on Trump’s toxic to-do list.
A Terror Shock
Recent terror attacks in London, Manchester, and Paris provide some broad hints about how the administration would try to exploit a large-scale attack that took place on U.S. soil or against U.S. infrastructure abroad. After the horrific Manchester bombing last month, the governing Conservatives launched a fierce campaign against Jeremy Corbyn and the Labour Party for suggesting that the failed “war on terror” is part of what is fueling such acts, calling any such suggestion “monstrous” (a clear echo of the “with us or with the terrorists” rhetoric that descended after September 11, 2001). For his part, Trump rushed to link the attack to the “thousands and thousands of people pouring into our various countries” — never mind that the bomber, Salman Abedi, was born in the U.K.
Similarly, in the immediate aftermath of the Westminster terror attacks in London in March 2017, when a driver plowed into a crowd of pedestrians, deliberately killing four people and injuring dozens more, the Conservative government wasted no time declaring that any expectation of privacy in digital communications was now a threat to national security. Home Secretary Amber Rudd went on the BBC and declared the end-to-end encryption provided by programs like WhatsApp to be “completely unacceptable.” And she said that they were meeting with the large tech firms “to ask them to work with us” on providing backdoor access to these platforms. She made an even stronger call to crack down on internet privacy after the London Bridge attack.
More worrying, in 2015, after the coordinated attacks in Paris that killed 130 people, the government of François Hollande declared a “state of emergency” that banned political protests. I was in France a week after those horrific events and it was striking that, although the attackers had targeted a concert, a football stadium, restaurants, and other emblems of daily Parisian life, it was only outdoor political activity that was not permitted. Large concerts, Christmas markets, and sporting events — the sorts of places that were likely targets for further attacks — were all free to carry on as usual. In the months that followed, the state-of-emergency decree was extended again and again until it had been in place for well over a year. It is currently set to remain in effect until at least July 2017. In France, state-of-emergency is the new normal.
This took place under a center-left government in a country with a long tradition of disruptive strikes and protests. One would have to be naive to imagine that Donald Trump and Mike Pence wouldn’t immediately seize on any attack in the United States to go much further down that same road. In all likelihood they would do it swiftly, by declaring protests and strikes that block roads and airports (the kind that responded to the Muslim travel ban) a threat to “national security.” Protest organizers would be targeted with surveillance, arrests, and imprisonment.
Indeed we should be prepared for security shocks to be exploited as excuses to increase the rounding up and incarceration of large numbers of people from the communities this administration is already targeting: Latino immigrants, Muslims, Black Lives Matter organizers, climate activists, investigative journalists. It’s all possible. And in the name of freeing the hands of law enforcement to fight terrorism, Attorney General Jeff Sessions would have the excuse he’d been looking for to do away with federal oversight of state and local police, especially those that have been accused of systemic racial abuses.
And there is no doubt that the president would seize on any domestic terrorist attack to blame the courts. He made this perfectly clear when he tweeted, after his first travel ban was struck down: “Just cannot believe a judge would put our country in such peril. If something happens blame him and court system.” And on the night of the London Bridge attack, he went even further, tweeting: “We need the courts to give us back our rights. We need the Travel Ban as an extra level of safety!” In a context of public hysteria and recrimination that would surely follow an attack in the U.S., the kind of courage we witnessed from the courts in response to Trump’s travel bans might well be in shorter supply.
The Shock of War
The most lethal way that governments overreact to terrorist attacks is by exploiting the atmosphere of fear to embark on a full-blown foreign war (or two). It doesn’t necessarily matter if the target has no connection to the original terror attacks. Iraq wasn’t responsible for 9/11, and it was invaded anyway.
Trump’s likeliest targets are mostly in the Middle East, and they include (but are by no means limited to) Syria, Yemen, Iraq, and, most perilously, Iran. And then, of course, there’s North Korea, where Secretary of State Rex Tillerson has declared that “all options are on the table,” pointedly refusing to rule out a pre-emptive military strike.
There are many reasons why people around Trump, particularly those who came straight from the defense sector, might decide that further military escalation is in order. Trump’s April 2017 missile strike on Syria — ordered without congressional approval and therefore illegal according to some experts — won him the most positive news coverage of his presidency. His inner circle, meanwhile, immediately pointed to the attacks as proof that there was nothing untoward going on between the White House and Russia.
But there’s another, less discussed reason why this administration might rush to exploit a security crisis to start a new war or escalate an ongoing conflict: There is no faster or more effective way to drive up the price of oil, especially if the violence interferes with the supply of oil to the world market This would be great news for oil giants like Exxon Mobil, which have seen their profits drop dramatically as a result of the depressed price of oil — and Exxon, of course, is fortunate enough to have its former CEO, Tillerson, currently serving as secretary of state. (Not only was Tillerson at Exxon for 41 years, his entire working life, but Exxon Mobil has agreed to pay him a retirement package worth a staggering $180 million.)
Other than Exxon, perhaps the only entity that would have more to gain from an oil price hike fueled by global instability is Vladimir Putin’s Russia, a vast petro-state that has been in economic crisis since the price of oil collapsed. Russia is the world’s leading exporter of natural gas, and the second-largest exporter of oil (after Saudi Arabia). When the price was high, this was great news for Putin: Prior to 2014, fully 50 percent of Russia’s budget revenues came from oil and gas.
But when prices plummeted, the government was suddenly short hundreds of billions of dollars, an economic catastrophe with tremendous human costs. According to the World Bank, in 2015 real wages fell in Russia by nearly 10 percent; the Russian ruble depreciated by close to 40 percent; and the population of people classified as poor increased from 3 million to over 19 million. Putin plays the strongman, but this economic crisis makes him vulnerable at home.
We’ve also heard a lot about that massive deal between Exxon Mobil and the Russian state oil company Rosneft to drill for oil in the Arctic (Putin bragged that it was worth half a trillion dollars). That deal was derailed by U.S. sanctions against Russia and despite the posturing on both sides over Syria, it is still entirely possible that Trump will decide to lift the sanctions and clear the way for that deal to go ahead, which would quickly boost Exxon Mobil’s flagging fortunes.
But even if the sanctions are lifted, there is another factor standing in the way of the project moving forward: the depressed price of oil. Tillerson made the deal with Rosneft in 2011, when the price of oil was soaring at around $110 a barrel. Their first commitment was to explore for oil in the sea north of Siberia, under tough-to-extract, icy conditions. The break-even price for Arctic drilling is estimated to be around $100 a barrel, if not more. So even if sanctions are lifted under Trump, it won’t make sense for Exxon and Rosneft to move ahead with their project unless oil prices are high enough. Which is yet another reason why parties might embrace the kind of instability that would send oil prices shooting back up.
If the price of oil rises to $80 or more a barrel, then the scramble to dig up and burn the dirtiest fossil fuels, including those under melting ice, will be back on. A price rebound would unleash a global frenzy in new high-risk, high-carbon fossil fuel extraction, from the Arctic to the tar sands. And if that is allowed to happen, it really would rob us of our last chance of averting catastrophic climate change.
So, in a very real sense, preventing war and averting climate chaos are one and the same fight.
Economic Shocks
A centerpiece of Trump’s economic project so far has been a flurry of financial deregulation that makes economic shocks and disasters distinctly more likely. Trump has announced plans to dismantle Dodd-Frank, the most substantive piece of legislation introduced after the 2008 banking collapse. Dodd-Frank wasn’t tough enough, but its absence will liberate Wall Street to go wild blowing new bubbles, which will inevitably burst, creating new economic shocks.
Trump and his team are not unaware of this, they are simply unconcerned — the profits from those market bubbles are too tantalizing. Besides, they know that since the banks were never broken up, they are still too big to fail, which means that if it all comes crashing down, they will be bailed out again, just like in 2008. (In fact, Trump issued an executive order calling for a review of the specific part of Dodd-Frank designed to prevent taxpayers from being stuck with the bill for another such bailout — an ominous sign, especially with so many former Goldman executives making White House policy.)
Some members of the administration surely also see a few coveted policy options opening up in the wake of a good market shock or two. During the campaign, Trump courted voters by promising not to touch Social Security or Medicare. But that may well be untenable, given the deep tax cuts on the way (and the fictional math beneath the claims that they will pay for themselves). His proposed budget already begins the attack on Social Security and an economic crisis would give Trump a handy excuse to abandon those promises altogether. In the midst of a moment being sold to the public as economic Armageddon, Betsy DeVos might even have a shot at realizing her dream of replacing public schools with a system based on vouchers and charters.
Trump’s gang has a long wish list of policies that do not lend themselves to normal times. In the early days of the new administration, for instance, Mike Pence met with Wisconsin Gov. Scott Walker to hear how the governor had managed to strip public sector unions of their right to collective bargaining in 2011. (Hint: He used the cover of the state’s fiscal crisis, prompting New York Times columnist Paul Krugman to declare that in Wisconsin “the shock doctrine is on full display.”)
Taken together, the picture is clear. We will very likely not see this administration’s full economic barbarism in the first year. That will only reveal itself later, after the inevitable budget crises and market shocks kick in. Then, in the name of rescuing the government and perhaps the entire economy, the White House will start checking off the more challenging items on the corporate wish list.
Just as Trump’s national security and economic policies are sure to generate and deepen crises, the administration’s moves to ramp up fossil fuel production, dismantle large parts of the country’s environmental laws, and trash the Paris climate accord all pave the way for more large-scale industrial accidents — not to mention future climate disasters. There is a lag time of about a decade between the release of carbon dioxide into the atmosphere and the full resulting warming, so the very worst climatic effects of the administration’s policies won’t likely be felt until they’re out of office.
That said, we’ve already locked in so much warming that no president can complete a term without facing major weather-related disasters. In fact, Trump wasn’t even two months on the job before he was confronted with overwhelming wildfires on the Great Plains, which led to so many cattle deaths that one rancher described the event as “our Hurricane Katrina.”
Trump showed no great interest in the fires, not even sparing them a tweet. But when the first superstorm hits a coast, we should expect a very different reaction from a president who knows the value of oceanfront property, has open contempt for the poor, and has only ever been interested in building for the 1 percent. The worry, of course, is a repeat of Katrina’s attacks on public housing and public schools, as well as the contractor free for all that followed the disaster, especially given the central role played by Mike Pence in shaping post-Katrina policy.
The biggest Trump-era escalation, however, will most likely be in disaster response services marketed specifically toward the wealthy. When I was writing “The Shock Doctrine,” this industry was still in its infancy, and several early companies didn’t make it. I wrote, for instance, about a short-lived airline called Help Jet, based in Trump’s beloved West Palm Beach. While it lasted, Help Jet offered an array of gold-plated rescue services in exchange for a membership fee.
When a hurricane was on its way, Help Jet dispatched limousines to pick up members, booked them into five-star golf resorts and spas somewhere safe, then whisked them away on private jets. “No standing in lines, no hassle with crowds, just a first-class experience that turns a problem into a vacation,” read the company’s marketing materials. “Enjoy the feeling of avoiding the usual hurricane evacuation nightmare.” With the benefit of hindsight, it seems Help Jet, far from misjudging the market for these services, was simply ahead of its time. These days, in Silicon Valley and on Wall Street, the more serious high-end survivalists are hedging against climate disruption and social collapse by buying space in custom-built underground bunkers in Kansas (protected by heavily armed mercenaries) and building escape homes on high ground in New Zealand. It goes without saying that you need your own private jet to get there.
What is worrying about the entire top-of-the-line survivalist phenomenon (apart from its general weirdness) is that, as the wealthy create their own luxury escape hatches, there is diminishing incentive to maintain any kind of disaster response infrastructure that exists to help everyone, regardless of income — precisely the dynamic that led to enormous and unnecessary suffering in New Orleans during Katrina.
And this two-tiered disaster infrastructure is galloping ahead at alarming speed. In fire-prone states such as California and Colorado, insurance companies provide a “concierge” service to their exclusive clients: When wildfires threaten their mansions, the companies dispatch teams of private firefighters to coat them in re-retardant. The public sphere, meanwhile, is left to further decay.
California provides a glimpse of where this is all headed. For its firefighting, the state relies on upwards of 4,500 prison inmates, who are paid a dollar an hour when they’re on the fire line, putting their lives at risk battling wildfires, and about two bucks a day when they’re back at camp. By some estimates, California saves a billion dollars a year through this program — a snapshot of what happens when you mix austerity politics with mass incarceration and climate change.
The uptick in high-end disaster prep also means there is less reason for the big winners in our economy to embrace the demanding policy changes required to prevent an even warmer and more disaster-prone future. Which might help explain the Trump administration’s determination to do everything possible to accelerate the climate crisis.
So far, much of the discussion around Trump’s environmental rollbacks has focused on supposed schisms between the members of his inner circle who actively deny climate science, including EPA head Scott Pruitt and Trump himself, and those who concede that humans are indeed contributing to planetary warming, such as Rex Tillerson and Ivanka Trump. But this misses the point: What everyone who surrounds Trump shares is a confidence that they, their children, and indeed their class will be just fine, that their wealth and connections will protect them from the worst of the shocks to come. They will lose some beachfront property, sure, but nothing that can’t be replaced with a new mansion on higher ground.
This insouciance is representative of an extremely disturbing trend. In an age of ever-widening income inequality, a significant cohort of our elites are walling themselves off not just physically but also psychologically, mentally detaching themselves from the collective fate of the rest of humanity. This secessionism from the human species (if only in their own minds) liberates the rich not only to shrug off the urgent need for climate action but also to devise ever more predatory ways to profit from current and future disasters and instability. What we are hurtling toward is a world demarcated into fortified Green Zones for the super-rich, Red Zones for everyone else — and black sites for whoever doesn’t cooperate. Europe, Australia, and North America are erecting increasingly elaborate (and privatized) border fortresses to seal themselves off from people fleeing for their lives. Fleeing, quite often, as a direct result of forces unleashed primarily by those fortressed continents, whether predatory trade deals, wars, or ecological disasters intensified by climate change.
In fact, if we chart the locations of the most intense conflict spots in the world right now — from the bloodiest battlefields in Afghanistan and Pakistan, to Libya, Yemen, Somalia, and Iraq — what becomes clear is that these also happen to be some of the hottest and driest places on earth. It takes very little to push these regions into drought and famine, which frequently acts as an accelerant to conflict, which of course drives migration.
And the same capacity to discount the humanity of the “other,” which justifies civilian deaths and casualties from bombs and drones in places like Yemen and Somalia, is now being trained on the people in the boats — casting their need for security as a threat, their desperate flight as some sort of invading army. This is the context in which well over 13,000 people have drowned in the Mediterranean trying to reach European shores since 2014, many of them children, toddlers, and babies. It is the context in which the Australian government has sought to normalize the incarceration of refugees in island detention camps on Nauru and Manus, under conditions that numerous humanitarian organizations have described as tantamount to torture. This is also the context in which the massive, recently demolished migrant camp in Calais, France, was nicknamed “the jungle” — an echo of the way Katrina’s abandoned people were categorized in right-wing media as “animals.”
The dramatic rise in right-wing nationalism, anti-Black racism, Islamophobia, and straight-up white supremacy over the past decade cannot be pried apart from these larger geopolitical and ecological trends. The only way to justify such barbaric forms of exclusion is to double down on theories of racial hierarchy that tell a story about how the people being locked out of the global Green Zone deserve their fate, whether it’s Trump casting Mexicans as rapists and “bad hombres,” and Syrian refugees as closet terrorists, or prominent Conservative Canadian politician Kellie Leitch proposing that immigrants be screened for “Canadian values,” or successive Australian prime ministers justifying those sinister island detention camps as a “humanitarian” alternative to death at sea.
This is what global destabilization looks like in societies that have never redressed their foundational crimes — countries that have insisted slavery and indigenous land theft were just glitches in otherwise proud histories. After all, there is little more Green Zone/Red Zone than the economy of the slave plantation — of cotillions in the master’s house steps away from torture in the fields, all of it taking place on the violently stolen indigenous land on which North America’s wealth was built. And now the same theories of racial hierarchy that justified those violent thefts in the name of building the industrial age are surging to the surface as the system of wealth and comfort they constructed starts to unravel on multiple fronts simultaneously.
Trump is just one early and vicious manifestation of that unraveling. He is not alone. He won’t be the last....
The Worst of Donald Trump’s Toxic Agenda Is Lying in Wait – A Major U.S. Crisis Will Unleash It
During the presidential campaign, some imagined that the more overtly racist elements of Donald Trump’s platform were just talk designed to rile up the base, not anything he seriously intended to act on. But in his first week in office, when he imposed a travel ban on seven majority-Muslim countries, that comforting illusion disappeared fast. Fortunately, the response was immediate: the marches and rallies at airports, the impromptu taxi strikes, the lawyers and local politicians intervening, the judges ruling the bans illegal.
The whole episode showed the power of resistance, and of judicial courage, and there was much to celebrate. Some have even concluded that this early slap down chastened Trump, and that he is now committed to a more reasonable, conventional course.
That is a dangerous illusion.
It is true that many of the more radical items on this administration’s wish list have yet to be realized. But make no mistake, the full agenda is still there, lying in wait. And there is one thing that could unleash it all: a large-scale crisis.
Large-scale shocks are frequently harnessed to ram through despised pro-corporate and anti-democratic policies that would never have been feasible in normal times. It’s a phenomenon I have previously called the “Shock Doctrine,” and we have seen it happen again and again over the decades, from Chile in the aftermath of Augusto Pinochet’s coup to New Orleans after Hurricane Katrina.
And we have seen it happen recently, well before Trump, in U.S. cities including Detroit and Flint, where looming municipal bankruptcy became the pretext for dissolving local democracy and appointing “emergency managers” who waged war on public services and public education. It is unfolding right now in Puerto Rico, where the ongoing debt crisis has been used to install the unaccountable “Financial Oversight and Management Board,” an enforcement mechanism for harsh austerity measures, including cuts to pensions and waves of school closures. This tactic is being deployed in Brazil, where the highly questionable impeachment of President Dilma Rousseff in 2016 was followed by the installation of an unelected, zealously pro-business regime that has frozen public spending for the next 20 years, imposed punishing austerity, and begun selling off airports, power stations, and other public assets in a frenzy of privatization.
As Milton Friedman wrote long ago, “Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.” Survivalists stockpile canned goods and water in preparation for major disasters; these guys stockpile spectacularly anti-democratic ideas.
Now, as many have observed, the pattern is repeating under Trump. On the campaign trail, he did not tell his adoring crowds that he would cut funds for meals-on-wheels, or admit that he was going to try to take health insurance away from millions of Americans, or that he planned to grant every item on Goldman Sachs’ wish list. He said the very opposite.
Since taking office, however, Donald Trump has never allowed the atmosphere of chaos and crisis to let up. Some of the chaos, like the Russia investigations, has been foisted upon him or is simply the result of incompetence, but much appears to be deliberately created. Either way, while we are distracted by (and addicted to) the Trump Show, clicking on and gasping at marital hand-slaps and mysterious orbs, the quiet, methodical work of redistributing wealth upward proceeds apace.
This is also aided by the sheer velocity of change. Witnessing the tsunami of executive orders during Trump’s first 100 days, it rapidly became clear his advisers were following Machiavelli’s advice in “The Prince”: “Injuries ought to be done all at one time, so that, being tasted less, they offend less.” The logic is straightforward enough. People can develop responses to sequential or gradual change. But if dozens of changes come from all directions at once, the hope is that populations will rapidly become exhausted and overwhelmed, and will ultimately swallow their bitter medicine.
But here’s the thing. All of this is shock doctrine lite; it’s the most that Trump can pull off under cover of the shocks he is generating himself. And as much as this needs to be exposed and resisted, we also need to focus on what this administration will do when they have a real external shock to exploit. Maybe it will be an economic crash like the 2008 subprime mortgage crisis. Maybe a natural disaster like Superstorm Sandy. Or maybe it will be a horrific terrorist attack like the Manchester bombing. Any one such crisis could trigger a very rapid shift in political conditions, making what currently seems unlikely suddenly appear inevitable.
So let’s consider a few categories of possible shocks, and how they might be harnessed to start ticking off items on Trump’s toxic to-do list.
A Terror Shock
Recent terror attacks in London, Manchester, and Paris provide some broad hints about how the administration would try to exploit a large-scale attack that took place on U.S. soil or against U.S. infrastructure abroad. After the horrific Manchester bombing last month, the governing Conservatives launched a fierce campaign against Jeremy Corbyn and the Labour Party for suggesting that the failed “war on terror” is part of what is fueling such acts, calling any such suggestion “monstrous” (a clear echo of the “with us or with the terrorists” rhetoric that descended after September 11, 2001). For his part, Trump rushed to link the attack to the “thousands and thousands of people pouring into our various countries” — never mind that the bomber, Salman Abedi, was born in the U.K.
Similarly, in the immediate aftermath of the Westminster terror attacks in London in March 2017, when a driver plowed into a crowd of pedestrians, deliberately killing four people and injuring dozens more, the Conservative government wasted no time declaring that any expectation of privacy in digital communications was now a threat to national security. Home Secretary Amber Rudd went on the BBC and declared the end-to-end encryption provided by programs like WhatsApp to be “completely unacceptable.” And she said that they were meeting with the large tech firms “to ask them to work with us” on providing backdoor access to these platforms. She made an even stronger call to crack down on internet privacy after the London Bridge attack.
More worrying, in 2015, after the coordinated attacks in Paris that killed 130 people, the government of François Hollande declared a “state of emergency” that banned political protests. I was in France a week after those horrific events and it was striking that, although the attackers had targeted a concert, a football stadium, restaurants, and other emblems of daily Parisian life, it was only outdoor political activity that was not permitted. Large concerts, Christmas markets, and sporting events — the sorts of places that were likely targets for further attacks — were all free to carry on as usual. In the months that followed, the state-of-emergency decree was extended again and again until it had been in place for well over a year. It is currently set to remain in effect until at least July 2017. In France, state-of-emergency is the new normal.
This took place under a center-left government in a country with a long tradition of disruptive strikes and protests. One would have to be naive to imagine that Donald Trump and Mike Pence wouldn’t immediately seize on any attack in the United States to go much further down that same road. In all likelihood they would do it swiftly, by declaring protests and strikes that block roads and airports (the kind that responded to the Muslim travel ban) a threat to “national security.” Protest organizers would be targeted with surveillance, arrests, and imprisonment.
Indeed we should be prepared for security shocks to be exploited as excuses to increase the rounding up and incarceration of large numbers of people from the communities this administration is already targeting: Latino immigrants, Muslims, Black Lives Matter organizers, climate activists, investigative journalists. It’s all possible. And in the name of freeing the hands of law enforcement to fight terrorism, Attorney General Jeff Sessions would have the excuse he’d been looking for to do away with federal oversight of state and local police, especially those that have been accused of systemic racial abuses.
And there is no doubt that the president would seize on any domestic terrorist attack to blame the courts. He made this perfectly clear when he tweeted, after his first travel ban was struck down: “Just cannot believe a judge would put our country in such peril. If something happens blame him and court system.” And on the night of the London Bridge attack, he went even further, tweeting: “We need the courts to give us back our rights. We need the Travel Ban as an extra level of safety!” In a context of public hysteria and recrimination that would surely follow an attack in the U.S., the kind of courage we witnessed from the courts in response to Trump’s travel bans might well be in shorter supply.
The Shock of War
The most lethal way that governments overreact to terrorist attacks is by exploiting the atmosphere of fear to embark on a full-blown foreign war (or two). It doesn’t necessarily matter if the target has no connection to the original terror attacks. Iraq wasn’t responsible for 9/11, and it was invaded anyway.
Trump’s likeliest targets are mostly in the Middle East, and they include (but are by no means limited to) Syria, Yemen, Iraq, and, most perilously, Iran. And then, of course, there’s North Korea, where Secretary of State Rex Tillerson has declared that “all options are on the table,” pointedly refusing to rule out a pre-emptive military strike.
There are many reasons why people around Trump, particularly those who came straight from the defense sector, might decide that further military escalation is in order. Trump’s April 2017 missile strike on Syria — ordered without congressional approval and therefore illegal according to some experts — won him the most positive news coverage of his presidency. His inner circle, meanwhile, immediately pointed to the attacks as proof that there was nothing untoward going on between the White House and Russia.
But there’s another, less discussed reason why this administration might rush to exploit a security crisis to start a new war or escalate an ongoing conflict: There is no faster or more effective way to drive up the price of oil, especially if the violence interferes with the supply of oil to the world market This would be great news for oil giants like Exxon Mobil, which have seen their profits drop dramatically as a result of the depressed price of oil — and Exxon, of course, is fortunate enough to have its former CEO, Tillerson, currently serving as secretary of state. (Not only was Tillerson at Exxon for 41 years, his entire working life, but Exxon Mobil has agreed to pay him a retirement package worth a staggering $180 million.)
Other than Exxon, perhaps the only entity that would have more to gain from an oil price hike fueled by global instability is Vladimir Putin’s Russia, a vast petro-state that has been in economic crisis since the price of oil collapsed. Russia is the world’s leading exporter of natural gas, and the second-largest exporter of oil (after Saudi Arabia). When the price was high, this was great news for Putin: Prior to 2014, fully 50 percent of Russia’s budget revenues came from oil and gas.
But when prices plummeted, the government was suddenly short hundreds of billions of dollars, an economic catastrophe with tremendous human costs. According to the World Bank, in 2015 real wages fell in Russia by nearly 10 percent; the Russian ruble depreciated by close to 40 percent; and the population of people classified as poor increased from 3 million to over 19 million. Putin plays the strongman, but this economic crisis makes him vulnerable at home.
We’ve also heard a lot about that massive deal between Exxon Mobil and the Russian state oil company Rosneft to drill for oil in the Arctic (Putin bragged that it was worth half a trillion dollars). That deal was derailed by U.S. sanctions against Russia and despite the posturing on both sides over Syria, it is still entirely possible that Trump will decide to lift the sanctions and clear the way for that deal to go ahead, which would quickly boost Exxon Mobil’s flagging fortunes.
But even if the sanctions are lifted, there is another factor standing in the way of the project moving forward: the depressed price of oil. Tillerson made the deal with Rosneft in 2011, when the price of oil was soaring at around $110 a barrel. Their first commitment was to explore for oil in the sea north of Siberia, under tough-to-extract, icy conditions. The break-even price for Arctic drilling is estimated to be around $100 a barrel, if not more. So even if sanctions are lifted under Trump, it won’t make sense for Exxon and Rosneft to move ahead with their project unless oil prices are high enough. Which is yet another reason why parties might embrace the kind of instability that would send oil prices shooting back up.
If the price of oil rises to $80 or more a barrel, then the scramble to dig up and burn the dirtiest fossil fuels, including those under melting ice, will be back on. A price rebound would unleash a global frenzy in new high-risk, high-carbon fossil fuel extraction, from the Arctic to the tar sands. And if that is allowed to happen, it really would rob us of our last chance of averting catastrophic climate change.
So, in a very real sense, preventing war and averting climate chaos are one and the same fight.
Economic Shocks
A centerpiece of Trump’s economic project so far has been a flurry of financial deregulation that makes economic shocks and disasters distinctly more likely. Trump has announced plans to dismantle Dodd-Frank, the most substantive piece of legislation introduced after the 2008 banking collapse. Dodd-Frank wasn’t tough enough, but its absence will liberate Wall Street to go wild blowing new bubbles, which will inevitably burst, creating new economic shocks.
Trump and his team are not unaware of this, they are simply unconcerned — the profits from those market bubbles are too tantalizing. Besides, they know that since the banks were never broken up, they are still too big to fail, which means that if it all comes crashing down, they will be bailed out again, just like in 2008. (In fact, Trump issued an executive order calling for a review of the specific part of Dodd-Frank designed to prevent taxpayers from being stuck with the bill for another such bailout — an ominous sign, especially with so many former Goldman executives making White House policy.)
Some members of the administration surely also see a few coveted policy options opening up in the wake of a good market shock or two. During the campaign, Trump courted voters by promising not to touch Social Security or Medicare. But that may well be untenable, given the deep tax cuts on the way (and the fictional math beneath the claims that they will pay for themselves). His proposed budget already begins the attack on Social Security and an economic crisis would give Trump a handy excuse to abandon those promises altogether. In the midst of a moment being sold to the public as economic Armageddon, Betsy DeVos might even have a shot at realizing her dream of replacing public schools with a system based on vouchers and charters.
Trump’s gang has a long wish list of policies that do not lend themselves to normal times. In the early days of the new administration, for instance, Mike Pence met with Wisconsin Gov. Scott Walker to hear how the governor had managed to strip public sector unions of their right to collective bargaining in 2011. (Hint: He used the cover of the state’s fiscal crisis, prompting New York Times columnist Paul Krugman to declare that in Wisconsin “the shock doctrine is on full display.”)
Taken together, the picture is clear. We will very likely not see this administration’s full economic barbarism in the first year. That will only reveal itself later, after the inevitable budget crises and market shocks kick in. Then, in the name of rescuing the government and perhaps the entire economy, the White House will start checking off the more challenging items on the corporate wish list.
Just as Trump’s national security and economic policies are sure to generate and deepen crises, the administration’s moves to ramp up fossil fuel production, dismantle large parts of the country’s environmental laws, and trash the Paris climate accord all pave the way for more large-scale industrial accidents — not to mention future climate disasters. There is a lag time of about a decade between the release of carbon dioxide into the atmosphere and the full resulting warming, so the very worst climatic effects of the administration’s policies won’t likely be felt until they’re out of office.
That said, we’ve already locked in so much warming that no president can complete a term without facing major weather-related disasters. In fact, Trump wasn’t even two months on the job before he was confronted with overwhelming wildfires on the Great Plains, which led to so many cattle deaths that one rancher described the event as “our Hurricane Katrina.”
Trump showed no great interest in the fires, not even sparing them a tweet. But when the first superstorm hits a coast, we should expect a very different reaction from a president who knows the value of oceanfront property, has open contempt for the poor, and has only ever been interested in building for the 1 percent. The worry, of course, is a repeat of Katrina’s attacks on public housing and public schools, as well as the contractor free for all that followed the disaster, especially given the central role played by Mike Pence in shaping post-Katrina policy.
The biggest Trump-era escalation, however, will most likely be in disaster response services marketed specifically toward the wealthy. When I was writing “The Shock Doctrine,” this industry was still in its infancy, and several early companies didn’t make it. I wrote, for instance, about a short-lived airline called Help Jet, based in Trump’s beloved West Palm Beach. While it lasted, Help Jet offered an array of gold-plated rescue services in exchange for a membership fee.
When a hurricane was on its way, Help Jet dispatched limousines to pick up members, booked them into five-star golf resorts and spas somewhere safe, then whisked them away on private jets. “No standing in lines, no hassle with crowds, just a first-class experience that turns a problem into a vacation,” read the company’s marketing materials. “Enjoy the feeling of avoiding the usual hurricane evacuation nightmare.” With the benefit of hindsight, it seems Help Jet, far from misjudging the market for these services, was simply ahead of its time. These days, in Silicon Valley and on Wall Street, the more serious high-end survivalists are hedging against climate disruption and social collapse by buying space in custom-built underground bunkers in Kansas (protected by heavily armed mercenaries) and building escape homes on high ground in New Zealand. It goes without saying that you need your own private jet to get there.
What is worrying about the entire top-of-the-line survivalist phenomenon (apart from its general weirdness) is that, as the wealthy create their own luxury escape hatches, there is diminishing incentive to maintain any kind of disaster response infrastructure that exists to help everyone, regardless of income — precisely the dynamic that led to enormous and unnecessary suffering in New Orleans during Katrina.
And this two-tiered disaster infrastructure is galloping ahead at alarming speed. In fire-prone states such as California and Colorado, insurance companies provide a “concierge” service to their exclusive clients: When wildfires threaten their mansions, the companies dispatch teams of private firefighters to coat them in re-retardant. The public sphere, meanwhile, is left to further decay.
California provides a glimpse of where this is all headed. For its firefighting, the state relies on upwards of 4,500 prison inmates, who are paid a dollar an hour when they’re on the fire line, putting their lives at risk battling wildfires, and about two bucks a day when they’re back at camp. By some estimates, California saves a billion dollars a year through this program — a snapshot of what happens when you mix austerity politics with mass incarceration and climate change.
The uptick in high-end disaster prep also means there is less reason for the big winners in our economy to embrace the demanding policy changes required to prevent an even warmer and more disaster-prone future. Which might help explain the Trump administration’s determination to do everything possible to accelerate the climate crisis.
So far, much of the discussion around Trump’s environmental rollbacks has focused on supposed schisms between the members of his inner circle who actively deny climate science, including EPA head Scott Pruitt and Trump himself, and those who concede that humans are indeed contributing to planetary warming, such as Rex Tillerson and Ivanka Trump. But this misses the point: What everyone who surrounds Trump shares is a confidence that they, their children, and indeed their class will be just fine, that their wealth and connections will protect them from the worst of the shocks to come. They will lose some beachfront property, sure, but nothing that can’t be replaced with a new mansion on higher ground.
This insouciance is representative of an extremely disturbing trend. In an age of ever-widening income inequality, a significant cohort of our elites are walling themselves off not just physically but also psychologically, mentally detaching themselves from the collective fate of the rest of humanity. This secessionism from the human species (if only in their own minds) liberates the rich not only to shrug off the urgent need for climate action but also to devise ever more predatory ways to profit from current and future disasters and instability. What we are hurtling toward is a world demarcated into fortified Green Zones for the super-rich, Red Zones for everyone else — and black sites for whoever doesn’t cooperate. Europe, Australia, and North America are erecting increasingly elaborate (and privatized) border fortresses to seal themselves off from people fleeing for their lives. Fleeing, quite often, as a direct result of forces unleashed primarily by those fortressed continents, whether predatory trade deals, wars, or ecological disasters intensified by climate change.
In fact, if we chart the locations of the most intense conflict spots in the world right now — from the bloodiest battlefields in Afghanistan and Pakistan, to Libya, Yemen, Somalia, and Iraq — what becomes clear is that these also happen to be some of the hottest and driest places on earth. It takes very little to push these regions into drought and famine, which frequently acts as an accelerant to conflict, which of course drives migration.
And the same capacity to discount the humanity of the “other,” which justifies civilian deaths and casualties from bombs and drones in places like Yemen and Somalia, is now being trained on the people in the boats — casting their need for security as a threat, their desperate flight as some sort of invading army. This is the context in which well over 13,000 people have drowned in the Mediterranean trying to reach European shores since 2014, many of them children, toddlers, and babies. It is the context in which the Australian government has sought to normalize the incarceration of refugees in island detention camps on Nauru and Manus, under conditions that numerous humanitarian organizations have described as tantamount to torture. This is also the context in which the massive, recently demolished migrant camp in Calais, France, was nicknamed “the jungle” — an echo of the way Katrina’s abandoned people were categorized in right-wing media as “animals.”
The dramatic rise in right-wing nationalism, anti-Black racism, Islamophobia, and straight-up white supremacy over the past decade cannot be pried apart from these larger geopolitical and ecological trends. The only way to justify such barbaric forms of exclusion is to double down on theories of racial hierarchy that tell a story about how the people being locked out of the global Green Zone deserve their fate, whether it’s Trump casting Mexicans as rapists and “bad hombres,” and Syrian refugees as closet terrorists, or prominent Conservative Canadian politician Kellie Leitch proposing that immigrants be screened for “Canadian values,” or successive Australian prime ministers justifying those sinister island detention camps as a “humanitarian” alternative to death at sea.
This is what global destabilization looks like in societies that have never redressed their foundational crimes — countries that have insisted slavery and indigenous land theft were just glitches in otherwise proud histories. After all, there is little more Green Zone/Red Zone than the economy of the slave plantation — of cotillions in the master’s house steps away from torture in the fields, all of it taking place on the violently stolen indigenous land on which North America’s wealth was built. And now the same theories of racial hierarchy that justified those violent thefts in the name of building the industrial age are surging to the surface as the system of wealth and comfort they constructed starts to unravel on multiple fronts simultaneously.
Trump is just one early and vicious manifestation of that unraveling. He is not alone. He won’t be the last....
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