Wednesday, January 28, 2009

 

More on the Great Fall-Apart

Search for “great fall-apart” on this blog, and you’ll find several previous posts on the subject of America’s crumbling infrastructure. Here’s another, which relates that civil engineers give the US infrastructure a “D” grade. In case it’s a long time since you left school, that’s just above the failing grade of “F.” Further, the engineers’ statement says that even if President Obama’s stimulus plan is passed, the infrastructure will still be woefully short of investment.

So I stick by my prediction that few improvements will be made to infrastructure, as the Great Fall-Apart continues.

Monday, January 26, 2009

 

Getting Ready for Default

Need a jolt? Well, maybe you’ve had too many lately and want to give your heart a rest. But you really ought to take a look at this. This essay Global Money Supply and the Value of Gold is very informative, but even if you don’t have time to read the whole thing, the writer’s concluding observation is a real heart-stopper:
As an interesting aside, one may note that the present US debt of US$10.5 trillion easily exceeds the value of ALL circulating currencies in the world PLUS the value of all gold ever mined! A naive person may wonder just exactly how the American government ever intends to pay this debt off...
Now, unless you are a vegetable, you have probably been wondering about public debt a lot lately, since we already had plenty to begin with, and now it’s being piled on exponentially in a futile attempt to save a dying system.

The answer to the question is, of course, that this debt will never be paid back. It’s totally out of the question. The infinite growth economy is on its last leg, and industrial civilization has started to slide. Even if governments (yes, that’s plural) don’t actually default officially, all those debts will just fall by the wayside in the post-crash chaos.

That’s my prediction, anyway. If you don’t believe it, go ahead and stock up on debt.

Friday, January 23, 2009

 

Fleeing a Sinking Ship

This is pretty scary: Apparently thousands of Indians who’d been working in Dubai have fled the country. It’s the old metaphor of rats fleeing a sinking ship. Not that the workers are rats, of course. They are human beings who were trying to make a go of it in the global economy, lured to another land in the belief — promoted relentlessly by governments around the world — that globalization would mean prosperity for everyone.

But every boom has its bust, and now the biggest bust of all — the decline of industrial civilization — is upon us. UAE earns very little money from oil and gas, and now its mainstay businesses of tourism, trade, finance, and real estate are in grave danger from the worsening global economic meltdown. I wish the UAE the best, but this looks grim.

 

Downsizing the Economy

Here’s a revealing article on how failing US businesses are starting to prefer liquidation over bankruptcy. Obviously a lot of business people have just lost hope, and prefer to put their businesses out of misery fast.

But even more interesting is this passage.
Now that consumers actually have to pay cash for what they buy—rather than borrow it on credit cards or through home-equity loans—there's concern that consumer spending will settle permanently at a lower plateau. And so, the thinking goes, what's the point of keeping all those Circuit City, Whitehall Jewelers, and Steve & Barry's stores open?
This is the part that really grabbed my attention. There are two important themes here. First, people have to pay cash for their purchases. Personally I think that’s a good thing, as all that easy credit (=debt) is what got us into trouble in the first place. Second, if people have to pay cash, they’ll buy a lot less. Of course, this is real bad news for the consumer economy, and that’s the reason for the note of subdued panic here in writing “there’s concern that consumer spending will settle permanently at a lower plateau.” About that there is no question.

Since the worldwide consumer economy depends on keeping the consumers consuming at hyper-light speed, you can see the implications here. Just as, a few posts back, we saw how crimped personal consumption is putting miners out of jobs in droves, absolutely everything is going to be scaled back, and the whole world economy will be downsized.

President Obama is no doubt under tremendous pressure to do something that will prop up the current economy, but he should resist that pressure to throw good money after bad. Hyper-consumption is finished. He should take action now to preemptively downsize the economy and restructure it.

Thursday, January 22, 2009

 

Cheap Oil Is Killing Oil

This AP article, Peru oil ambitions get a reality check, is a fine illustration of how cheap crude prices are killing investment in oil infrastructure. Peru had planned to become a net oil exporter, but at these prices the investment in new pipelines and a refinery upgrade cannot be justified. Peru’s not becoming a net exporter means that much less capacity to supply the world crude oil market.

So many oil development projects are now cancelled, downsized, or on hold that oil production capacity might well have entered a death spiral. Even if an economic recovery is realized (precious little chance of that IMHO), reduced investment in infrastructure and production capacity will certainly mean another spike in crude prices as producers scramble to fill any surge in demand.

Wednesday, January 21, 2009

 

Show of Confidence, or Desperation?

Apparently Bank of America and JPMorgan CEOs, along with some BofA directors, have bought their own banks’ stock to show that they have confidence in their institutions. But considering the dire straits in which banks find themselves, it’s more likely that they’re desperate to do something which will encourage investors to follow suit.

It reminds me of a story in the local media here a few years ago. A car salesman who was having trouble selling enough vehicles for his dealer started boosting his sales by purchasing cars himself. As you might imagine, he quickly got into financial trouble and ended up turning to crime to make the ever-mounting payments.

Which is not to say that these CEOs and directors will turn to crime, but when you have to buy your own products or stock to keep the business afloat, it’s a sign of distress.

 

Bad News for Mining

I previously observed that blast furnace shutdowns were bad news for the industrial economy. Farther upstream, it is the miners who extract the iron ore fed into blast furnaces, as well as all the other minerals important to industrial civilization. But now the global business downturn has reached the miners as well, and this is starting to have a devastating effect on them and their industry. A portfolio manager specializing in mining is quoted as saying, “A lot of the communities are remote so that when (mines) do shut down, the town actually collapses.” It’s just like the post-gold rush days in the US. Apparently coal mining is suffering in the same way. So we have a situation in which a lot less coal and a lot less iron ore are being fed into fewer operating blast furnaces. And indeed, steel output is dropping all over the world. Japan, for instance, has experienced the biggest drop in 60 years. Worldwide, steel production in November 2008 had declined 19% from the same time in 2007.

As the mining industry is at the upstream end of industrial production, this shows that the implosion in consumption on the far downstream end is already having a heavy impact all the way up at the top of the chain. About the number of miners affected, the article says:
There are no reliable employment numbers available for the mining industry globally because it spans such a broad geographic, economic and political spectrum, but it is clear that the number of jobs already lost is vast.
Here is a situation that bears close scrutiny, for it is highly indicative of what’s happening to the industrial economy.

Tuesday, January 20, 2009

 

Peak Debt

Here is an article about why the US is going to have “ghost malls” all over the place, but the reasons are more noteworthy than the malls themselves.

In short, we have reached not only peak oil, but also peak debt. When you look at the way the world works, it’s readily apparent that everything depends on debt. The ordinary “consumer” (I have never liked that word) runs his or her life on debt, not only for big-ticket items like cars and homes, but even for electronics and everyday purchases with credit cards (these should rightly be called “debt cards”). And with businesses it’s the same; they borrow money to do just about everything you can imagine, and more. And finally there are governments, which sell bonds to finance their debts. So what we’ve got now is a global financial system in which all entities — from the lowly “consumer” to governments — are up to their eyeballs in debt.

The world is also overly dependent on personal consumption (here we shall set aside the fact that such consumption itself is unsustainable), and especially on consumption by Americans. So it is that, to keep Americans spending beyond their means, other countries — notably Japan and China — lent the US huge gobs of money to keep Americans spending. Now, is that insane, or what? Could you imagine the owner of a store handing out his money to people in the neighborhood so they could shop at his store? And yet such is the stupidity that fuels the “global economy.” It’s an organism that feeds on itself.

Generally, debts must be repaid with interest. So people and businesses and governments are supposed to pay back more than what they borrow. What makes this possible is the eternal-growth economy (powered by cheap, plentiful energy), which is eating the planet alive and is reportedly already consuming more than the Earth can produce.

So, that puts us in a fine pickle, which — judging from official pronouncements — the finest economic minds in the world didn’t predict.

What we need to do to get out of this crisis, we are told, is to print still more money and create still more debt. But wait — if we can’t pay back the mountain of debt already accumulated, how are we going to pay back all this new debt? The answer to anyone with a functioning brain is, of course, that it won’t be paid back. A crash and “reset” of the world economy is going to happen. In the Great Unwind a lot of phantom wealth is going to disappear, and we will be operating at a much lower energy level than before.

In the meantime, get out of debt if you can.

Monday, January 19, 2009

 

Auto Industry Hits the Skids

The auto industry is a major component of modern industrial civilization, and when the brakes are applied, the effects relentlessly ripple through the world economy. Apparently the latest Detroit Motor Show was a very quiet affair, with some major automakers not even putting in an appearance. Similarly, the Big Three will not participate in the Tokyo Motor Show. As as you might expect, unsold vehicle inventories are piling up all over the world.

The main reason, of course, is the industrial economy’s death spiral, but that’s not all. In Japan, for example, city people who don’t often need or use cars are getting sick of the expense. Some who want to occasionally use a car join car sharing groups, which have been enjoying fast growth recently. But another factor is that many young Japanese men do not lust after cars, which is an indication of Japan’s dying car culture.

It’s likely that the industry will survive for a while yet, although it will be in a considerably downsized and consolidated form. Millions of auto-related jobs are yet to be lost worldwide.

Sunday, January 11, 2009

 

Ethanol: A Bad Idea

As you can see here, ethanol and biodiesel are accomplishing nothing but absorbing subsidies. Sorry to say, the plan to free the US from foreign oil by means of biofuels was an idea whose time never came. All the program has accomplished is make money for a few people. If that was the avowed idea in the first place, we could at least be satisfied with the explanation.

But that’s not the only problem. From the very beginning, the belief that biofuels could scale up and power an oil-based industrial economy was a losing proposition. Making such quantities of biofuels requires colossal amounts of biomass, whether one uses corn or cellulose. To replace a significant amount of oil would necessitate not only building a lot more biofuel plants, but also keeping literally trainloads of feedstock coming into them. That means turning vast tracts of land into fields of corn or cellulose stock, or cutting and hauling trees at a prodigious pace. And all that would have to be done with oil, because the energy returns of biofuels are too low to power the system and leave a significant energy surplus.

Finally, the whole approach to the problem is wrong because everyone is assuming that it is possible to keep industrial society operating. In fact, the current worsening global recession is not just a recession, it’s the death knell of a system powered by plentiful fossil fuels, cheap resources, and a whole lot of debt.

Now that the Great Unwind has begun, there is a small window of opportunity left to prepare ourselves for a life with much less energy and resources, and precious little money. Instead of squandering money and energy on large-scale biofuel initiatives (I do believe biofuels have a future on a small, local scale), subsidies should be shifted to building as much renewable infrastructure as possible. That would at least help us achieve a soft landing.

Tuesday, January 06, 2009

 

The Problem of Scale

The recent coal sludge spill was more than just a disaster. It was one indication that our technologies have long since achieved a scale that is bigger than ourselves. And it shows that when such large-scale technologies go wrong, they cause catastrophic mega-accidents that are far beyond our control. The Chernobyl and Three Mile Island nuclear disasters demonstrated the incredible danger and destructive power of the “tamed atom” (although nuclear proponents argue that the new reactor designs are “safe,” it is foolhardy to believe in the possibility of 100% safety), and Bhopal illustrated the dangers of the chemical industry.

Unfortunately, Industrial Man is mired in the misguided belief that bigger, more complex technologies are the answer to our problems. So now we have more and more new big ideas, such as beaming electricity down from space. Such technologies are in scale far beyond a coal-fired power plant. They are literally on a planetary scale. Doesn’t anyone stop to think about how we would keep control of such technologies and prevent disastrous mega-accidents?

A technology may be controllable on a small scale because it is easier to cope with its problems, which are also on a small scale. But when you scale up the technology, you also scale up the problems.

Although it is heretical to suggest this, humanity and the Earth could better be served by concentrating on human-scale technologies, and by facilitating that approach through a power-down strategy. Unfortunately, it appears that our leaders are bent on squandering money, energy, and resources in a futile effort to prop up industrial civilization and the infinite-growth economy.

This page is powered by Blogger. Isn't yours?