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https://kunstler.com/clusterfuck-nation/forecast-2021-chinese-fire-drills-with-a-side-of-french-fries-jacobin-style-and-russian-dressing/

Forecast 2021 — Chinese Fire Drills with a side of French Fries (Jacobin-style) and Russian Dressing

....The Covid Crisis and Economic Meltdown   

I won’t have a whole lot to say about the Covid-19 virus that others have probably analyzed better elsewhere, so I’ll make it short. In the fog of pandemic, it’s hard to know who or what to believe. The outbreak in early 2020 induced similar official responses and social changes in many other nations, raising the question: did the whole world get played? If so, it was quite a stunt. Was it intended as a cover to enable the much blabbed-about “Great Reset?” More on that below.

One big mystery is how, in China, the disease seemed mostly contained within Wuhan and its Hubei province, and how rapidly that country got over it compared to so many other places around the world where the illness lingered and got a second wind in the fall. All that said, it’s apparent that, in America, the virus was gamed opportunistically by the Resistance and its news media handmaidens, first to make Mr. Trump look as bad as possible, then to promote the mail-in ballot scheme that led to a fraud-riddled election.

Much of the confusion about the disease itself — ventilators or not… masks or no masks… hydroxychloroquine or not… lockdowns or not — ended up damaging the authority of the medical and scientific experts like Dr. Anthony Fauci, Deborah Birx, Surgeon General Adams, the NIH and the FDA, and is still not settled to many people’s satisfaction. And, as if we didn’t already have a big enough problem with failing institutional authority, that scientific failure added to our already acute cultural corrosion. I’m suspicious of the statistics regarding true case numbers and the official spinning of Covid-19 deaths actually from other causes, as well as the tests that produced so many false conclusions. It seems pretty obvious in these tense weeks post-election that The New York Times, CNN, and other media have worked to ramp up the Covid hysteria to distract the public from emerging news about the contested election.

What’s quite clear about the whole Covid-19 episode to date is how badly the states’ government response harmed the small businesses of America that make up at least 40 percent of the economy. According to Bloomberg News, more than 110,000 restaurants shut down, 17 percent of them permanently out-of-business, surely with more to come with the winter lockdowns. More than three million employees lost their jobs in that industry alone. Data from the University of California Santa Cruz indicates that nearly 317,000 small businesses closed between February and September, 60 percent for good.

The nation’s economic affairs were in considerable disorder before the Covid-19 virus threw things into more desperate disarray. Decades of off-shoring industry decimated the working class. In much of Flyover Country, the working class has been reduced to a demoralized idle-and-addicted class with a strikingly high suicide rate, especially for men. The situation only improved marginally under President Trump, who, after all, was bucking practically all of corporate America, which liked the benefits of off-shoring just fine.

I believe that working class will return to laboring, and not in the giant American factories of the kind we had in the 1960s, but because the government social safety nets will be running out of financial mojo in the coming decade. So, they will have no choice but to labor — at the same time that many automated activities we’ve enjoyed will not be running much longer. A lot of that automation has been applied, for instance, in agriculture, where one person could plow or harvest hundreds of acres a day riding in the air-conditioned cab of a multi-million-dollar rig guided by GPS, allowing the driver to watch movies while he “worked.” Well, that agri-business model is about to fail. The scale is all wrong and the capital requirements are too exorbitant. Bottom line: many idle working-class folk have a future in agricultural work. They don’t know it yet. Expect, also, more opportunities as household servants as American society becomes more distinctly hierarchical, and in more fine-grained strata than merely the rich and the poor. Far from being an evil outcome, consider how important to human psychology it is to have a place in this world, both in terms of purpose and a physical place to call home. And, anyway, how wonderful is the former working-class’s current plight as drug-addled, often homeless, and suicidal? Would you want things to stay that way, or can you imagine new social arrangements to meet new economic realities?

The consolidation of commerce into a few giant companies such as Walmart, Target, Amazon had reached a deadly and tragic pitch before Covid-19, destroying all lesser organisms in the business ecosystem, and thousands of local Main Streets in the process. With the Covid lockdowns, the big boxes were somehow exempted from closure. Though they seem to be triumphing for the moment, these giant national chain merchandising outfits are in their sunset phase headed for twilight. As I’ll surely state again in this forecast, the macro-trend is for downscaling and re-localizing in everything, all activities. The chain-stores and big boxes depend on systems and arrangements that won’t persist, for instance, the long supply lines from the factories of Asia. The end of mass motoring will also prove problematical for commerce at the giant scale smeared all over suburban landscapes. And, of course, Amazon’s business model of home delivery for absolutely anything and everything, was perfectly suited to the Covid-19 crisis — though in the longer term its model will prove fatally flawed, since it depends on trucking every single item to its customers, and the reason will become evident further down.

The catastrophic failure of so much small business in America through 2020 will provide the seeds for a rebirth of small businesses when the giants fall. A lot of equipment will be available at dimes on the dollar. Rents will be cheap. Enterprising people will have to be careful about where they decide to set up for new businesses: better Main Street than out on some empty strip-mall. Consolidation will be working in a different way — not to make companies bigger, but to bring many small businesses closer together in places people can get to without a car (what used to be known as a business district or downtown or Main Street). America is not going to need nearly as much shopping infrastructure as we had before 2020, and also not nearly as many restaurants. But we’re going to need some of these things and done in a new way. I can also imagine new businesses that would have been unthinkable a year ago. At some point when Covid-19 exits the scene, people will want to get together with other people very badly. Think about opening a dance hall or a nightclub with live music, even a life performance theater.

The American economy had already entered a zone of dangerous structural fragility before Covid-19 stepped onstage. As Tim Morgan and Gail Tverberg argue so well in their respective blogs, the economy is an energy system that, in the advanced techno-industrial form, depends absolutely on fossil fuels, which have become a problem the past two decades, leading to the present inflection point bringing on de-growth, the onset of a long emergency, and what others call a fourth turning. Same things, really. We’ve entered a state of contraction, and it’s in the nature of large economic organisms to move from contraction to collapse fairly quickly, because the complex interconnections in their systems ramify and amplify each other’s failures. The virus has made it all worse, and faster.

Oil

Hardly anyone paid any attention to the oil story this year with all the frightful distractions of Covid-19, the economic havoc of lockdowns, and the janky election. The oil story is probably more important than any other single factor in the current situation, and is largely responsible for America’s economic mess. Everything in the USA runs on oil and our business model for doing that is broken. De-growth changes everything.

From 2000 to 2008, we were on a downward slide with our conventional oil supply — the kind of oil where you just drill a pipe into the ground and the oil flows out, or, at worst, gets sucked out by a pump-jack — all-in-all, a simple procedure. In 2008, total US oil production was under 5-million barrels-a-day, down from the old production peak of just under 10-milliion b/d in 1970. And of course, our consumption kept going up to about 20-million b/d by 2008. So, we were importing most of our oil then.

That created terrible problems for our balance-of-payments in international trade, but we fudged that by pretending for decades that deficits don’t matter, as Veep Dick Cheney famously put it. The result, via the recondite and pernicious operations of financialization — that is, replacing a production economy with one based on the sheer manipulation of money and its derivatives — was the 2008-9 Great Financial Crisis. The GFC was presaged in the summer of 2008 by the price of a barrel of oil reaching just under $150 — which badly strained what remained of real productive industry. The dynamic in play induced political authorities to quit regulating wild misconduct in finance and banking, as they attempted to replace productive industry with money games. These malfeasances played out most vividly in real estate and the “innovative” securitized mortgage bonds that were gamed to a fare-the-well by the banks. The abstruse crimes have been chronicled widely elsewhere (e.g., my 2012 book Too Much Magic). But consider, also, that all the mortgage fraud of the early 2000s was based on the last gasp of the suburban expansion, and understand that suburbia was entirely at the mercy of mass motoring, which depended on affordable oil.

So, oil shot up to just under $150, the economy wobbled, the banks and the automobile companies had to be bailed out and central bank interventions became normalized, including zero interest Federal Reserve policy, a desperate legerdemain to keep up the appearance of a sound economic-financial gestalt. And that led to the “shale oil miracle.”

It was more a stunt than a miracle, really. First, you had this suite of techniques that could be employed to goose the last bit of oil from otherwise unproductive source rock. These included computerized horizontal drilling and the injection of fluids plus chemicals to fracture the impermeable rock and release the oil. This was “fracking.”  It was not new but had not been scaled up into a major activity while the easier pickings were good. It was way different from the old simple method of drilling a pipe in the ground and letting it flow out of permeable rock. The old simple method cost about a half million dollars (in current dollars) per well to drill and start the oil flowing. Shale oil, with all its complications, cost between $6-12 million per well. The old 1960s conventional oil wells produced thousands of barrels a day for decades. The new shale wells produced maybe 100-odd barrels a day for the first year and they were done after four years. The depletion rate was horrendous.

Shale oil was made possible by the Federal Reserve’s ultra-low-interest, easy lending policies. They made a lot of cheap capital available, and hundreds of billions migrated to the new shale oil plays in expectation that they would produce excellent steady revenues. Big institutional investors like pension funds and insurance companies especially were looking for reliable revenue with bond interest rates so low due to Fed policy. They thought they’d be swimming in shale oil company dividends and revenue streams from loans to shale drillers that paid better than US treasury bonds. One thing for sure, they thought: America wasn’t going to stop needing lots of oil. So, shale oil seemed like a sure thing. Except that after a few years, it turned out that nobody was making any money producing shale oil.

It just cost so damn much to get that stuff out of the ground. And the depletion rate was so savage that you had to drill and re-drill incessantly. And what was worse, the economy had evolved to the stage where there was no sweet spot for oil prices. Oil over $75 destroyed the business model for productive industrial activities that relied on cheap oil; while oil under $75 destroyed oil companies because they couldn’t make a profit at the well head. The melodrama played out over ten years through several rounds of Fed Quantitative Easing (money creation from nowhere) and relentless run-ups of government deficits. The oil companies themselves were caught in a “Red Queen syndrome” (ref.: Alice Through the Looking Glass) in which they were producing as much and as fast as they could just to keep up their cash flow to make loan repayments, without generating any profits — and quite a few companies couldn’t even keep up with their loan repayments, so shale was a total bust for them and they went bankrupt. It all came to a head in early 2020.

Just before the Covid-19 virus hit, shale oil production stood at over 9 million barrels a day, with another roughly 4 million from conventional oil, offshore oil, and natural gas liquids, for a grand total of nearly 13 million barrels a day in US oil production, a new record! That was 3 million b/d higher than the previous peak of 1970, at just under 10 million b/d. Quite a feat! Added to that was just under 5 million b/d in natural gas liquids. Daily US consumption was around 20 million b/d heading into 2020. It fell briefly during the initial Covid panic to around 15 million b/d and bounced back a little to around 18 million b/d in the fall of 2020. So, production appeared to be basically equal to our consumption.

However, the quality of the oil skewed the equation of “oil independence.” Shale oil tended to be ultra-light oil, composed mostly of gasoline-grade distillates. Fine, America uses a lot of gasoline because we drive everywhere and incessantly so. The trouble is, shale oil contains little of the crucial heavier distillates: diesel fuel, which the trucking industry and heavy machinery depends on, aviation fuel (basically kerosene), and bunker fuel, a heavy oil fuel for home heating and ships’ engines. Neither did those nearly 5 million barrels a day of natural gas liquids, which were really only used for cutting heavy oil, which was mostly what the USA did not produce and was not well-equipped to refine. The bottom line was that the US had to swap a lot of gasoline to other countries to get heavier distillates to keep the economy going. It worked, but it was awkward and involved a tremendous amount of transport. So, America’s oil situation coming out of 2019 was superficially stabile but fragile.

But entering 2020, shale oil production was in collapse. The lack of profitability finally caught up with the industry. Investors finally noticed that the shale oil producers couldn’t make money. At one flukey point in the Covid-19 spring of 2020, the oil markets became so disordered by collapsing demand that oil on the futures market cratered to a surreal negative-$40 a barrel. It soon corrected to the positive-$30-40 range, which was not nearly enough for the shale oil business to turn a profit. Consequently, the companies could not get new financing to continue their “Red Queen” operations, and without new financing they could not keep up cash flow… and they crapped out. Thirty-six producers filed for bankruptcy in 2020, including Chesapeake, Oasis, Lonestar, Ultra, Whiting, and Chaparral. Oil field service companies that are subcontracted to perform the drilling and fracking have also gone bust.

Shale oil production fell by roughly 2.7 million b/d from March to May 2020, recovered a little at mid-year and stumbled again with the winter wave of the virus. Oil analyst Steve St. Angelo predicts that total US oil production (shale and everything else) will fall to between 9.5 and 10 million b/d in 2021, which would put us back to 1970 levels when the nation’s population was just 205 million (compared to 330+ million today). So, that’s a lot less oil-per-capita, to view it from another angle.  Independent oil analyst Art Berman is predicting a more severe production crash by midyear 2021 to roughly half what it was at year-end 2019. Nafeez Ahmed, Director Institute for Policy Research & Development, is simply calling this the end of the oil age. Ahmed says it “will begin over the next 30 years, and continue through to the next century.”

I believe it will go down much quicker than that because falling production is so destructive to the business model of industrial society that it will induce gross economic, social, and political disorder. All that disorder will generate self-reinforcing feedback loops making a return to previous levels of comfort, convenience, prosperity, and order much less likely. The net effect will be a much lower standard-of-living among formerly “advanced” nations, and also falling populations. We’re just experiencing the beginning of that process with the destruction of America’s middle-class. It is the essence of the long emergency. We just can’t tell right now how far down these dynamics will drive us, and how fast. 2021 is likely to manifest intense disorder in the USA as people reel from the loss of small businesses, economic conditions deteriorate further, and political grievance gets amped up by institutional failure to resolve, or even address, our many problems and quandaries.

As for transitioning into a “sustainable economy” powered by “renewables” such as solar and wind power, that just ain’t going to happen — unless you’re talking about oxen and firewood, and a human population about ten percent of what the planet currently carries. All our fantasies about a high-tech utopia driven by wind and sun depend on a fossil fuel economy to produce the hardware for it and then the replacement parts for the hardware, ad infinitum....