Saturday, June 27, 2009

 

Don’t save! Spend!

A couple of articles in the Globe and Mail show just how far out of touch with reality some people can be. One of them, titled “Whither the Consumer,” meaning in particular the American consumer, laments that while American consumption once powered the world economy, the new found penchant of Americans to save instead of spend as though the world were ending tomorrow threatens the world economy. You sometimes have to wonder if these pundits are living on the same planet as we are. Debt-fueled spending is what got American consumers into this mess in the first place. In case the writer hadn’t noticed, Americans are in hock up to their eyeballs. At last they are coming to their senses, and see that they must save and whittle down their debt. But the “experts” condemn consumers for doing so, claiming this will derail the recovery.

Two points here. First, there will be no recovery that will restore the golden age of consumption and fast-paced economic growth. We may see growth in certain places at certain times — for example, countries like China may still enjoy some growth — but overall the world is headed toward a long decline characterized primarily by economic contraction. The order of the day for industrial society is more rust. So, trying to revive and sustain that system by inducing people to spend is wasted effort. People should not be blamed for ruining our chances for “recovery” because they are trying to put their financial houses in order and shed the debt that is strangling and imprisoning them.

Second, the debt that fueled all that consumer spending is but a part of the whole debt-based economic system in which anticipated future economic growth is the ultimate collateral for the massive debt incurred by consumers, businesses, municipalities, and governments. Because we are not going back to those days of economic growth, most of all that whopping debt is bad debt, and the world is just starting down the road to a string of massive defaults that will devastate the debt-based economic system.

The second article, “The consumer paradox,” looks at the situation from China. Not surprisingly, economic gurus contend that if thrifty Chinese would just stop saving so much and instead spend as Americans have been doing, China could do much to pull the world economy out of the sand trap and back onto the green. But of course! It’s that old chestnut about how one could get rich just by getting every Chinese to buy a pill. But we could get them to buy so much more by issuing them all credit cards and getting them to take on lots of debt, just as Americans have done.

Ultimately, we little people — Chinese, Americans, or whatever — have to watch out for ourselves, and that means we have to save most of what little wealth that comes our way instead of spending with abandon and getting ourselves into debt.

Tuesday, June 23, 2009

 

Aging Capital

When a large accident occurs it sometimes awakens us to the aging and crumbling state of infrastructure and real capital. When a bridge in the US state of Minnesota collapsed, for example, the public suddenly found out that many bridges and roads throughout the US are in decrepit condition. So it is with the latest train accident, after which we find that much rolling stock is similarly aged and in need of replacement. Each new such revelation further underscores the quickly deteriorating condition of the capital stock that was made possible by cheap fossil fuels, and which underpinned decades of economic expansion.

Monday, June 22, 2009

 

Californian Nightmare

California’s grim fiscal situation is of course not news to anyone, and the media are now filled with reports about the state’s problems. But make no mistake about it — this is not a passing crisis. Take a look at California Collapsing for some hard data and facts that will make your hair stand on end. The sheer size of California’s collapsing economy means that it is turning into a black hole that threatens to drag the whole US economy into itself. Other states will find their abilities taxed just to avoid its event horizon. What’s more, the Los Angeles area is vulnerable to power outages (see the PDF report in the previous post).

Here is another situation that bears close monitoring. California’s collapse could easily have global impacts and repercussions. Get ready for the shock waves.

 

Heat Waves and the US Grid

Power shortages, brownouts, load-shedding, and similar problems are nothing new, and indeed routine, for many countries of the world, but how about in developed countries like the US? A study released last September, “Lights Out In 2009?” [PDF], rang the warning bells on the state of the US grid and the distinct possibility of brownouts and blackouts, especially due to the heavy demand for electricity in very hot weather.

It’s still only June, but already the US is experiencing very hot weather. Watch this situation carefully, and if you live in the US, plan accordingly. The loss of electric power, even for a short time, is catastrophic for modern societies and economies.

Friday, June 19, 2009

 

Natural Gas and Motor Vehicles

R-Squared Energy Blog (a thoughtful and informative blog if you are interested in following energy issues) has a post on the possibility of replacing gasoline with natural gas for transportation. This topic was bound to get more attention because of the increase in natural gas realized by new drilling technologies. No matter what happens, having more natural gas available will at least help stave off the inevitable “freezing in the dark” for some of the population a little longer. As such, I certainly welcome this news (even though I myself do not use any natural gas).

But how easy would it be to convert a significant portion of the US vehicle fleet to natural gas? Some problems are mentioned in the blog post, such as cost. In view of the deteriorating economic situation and the debt implosion — which appears to be just getting started, even large corporations with fleets of vehicles might not be able to field enough capital to convert many existing vehicles, or acquire new ones.

A second problem is that of course not all fossil fuel reserves are economically recoverable. How much of all this new natural gas will actually be produced? Remember, the numbers include “probable, possible and speculative reserves.” Some of those might not even exist.

Third, natural gas production, as well as the manufacturing of natural gas vehicles, are dependent on oil and coal.

Fourth, a great deal of new infrastructure will be needed because vehicles would require a far-flung and reliable fueling network, just like our present ubiquitous gas stations. How many gas stations also have natural gas on tap? And you would need a fleet of tank trucks to service the network. That should give you an idea of the magnitude of such an undertaking.

Fifth, building and maintaining that infrastructure will generate more competition for the funds (read: energy and resources) that are badly needed for maintaining and replacing our existing infrastructure, which is already crumbling, and for all the other new infrastructure, such as renewable-energy equipment (wind turbines, solar panels, etc.) and the “smart grid,” which alone could easily cost a trillion dollars.

And sixth, the rising cost of energy is putting the kibosh on “economic growth,” which in itself means that progressively less money will be available for everything.

So, we need to at least look at this realistically and realize that there is a great distance between having lots of natural gas in the ground and using it to fuel vast fleets of vehicles. Instead, I think it would make more sense to use the gas for space heating, electricity generation, and fertilizer manufacturing, and concentrate on economic re-localization that would substantially reduce vehicular traffic. Using large natural gas reserves as an excuse to perpetuate an economy heavily dependent on long-distance shipping and the general overuse of motor vehicles would only aggravate the situation and make it all the worse in the long run.

Wednesday, June 17, 2009

 

The Great Debt Unwind

Plenty has been said about how the enormous amount of debt around the world will have to unwind. Remember, along with cheap fossil fuel energy, debt has been the lifeblood of the modern economy. Consumers, businesses, local governments, and national governments all borrow money to finance purchases and operations. Without debt, very little would be happening, especially not on the large scale of the global economy, which is why there is so much fuss about unfreezing credit (a fancy word for debt). It’s also worthwhile to remember that cheap and plentiful fossil fuel energy ultimately underwrites all this debt, as everyone assumes that continuing economic growth — which is made possible by that energy — will enable borrowers to pay back their loans, with interest.

So it is that, with cheap, plentiful, high-quality oil now being a thing of the past, the global economic engine is running below capacity, and indeed is starting to sputter alarmingly. As you might guess, the Great Debt Unwind has begun. For details on the shocking truth, I invite you to read this article, New, Hard Evidence of Continuing Debt Collapse!, which analyzes the figures in the US government’s Flow of Funds Report. It’s clear that instead of achieving a recovery, the situation is actually getting worse, and at a hair-raisingly fast pace.

Now is the time to prepare for inevitable economic contraction sparked by shrinking credit and energy.

Monday, June 15, 2009

 

Saving Seeds

If you’re wondering where the best place to save your precious seed varieties is, the answer is simple: That place is your garden. Plant those seeds every year and save the best for the following year’s planting.

Of course there is the Svalbard Global Seed Vault, but access to the seeds deposited there is tightly controlled.

So it is that there is another very sensible development: A global fund which pays poor farmers to preserve crop varieties by maintaining their cultivation. This not only benefits these well-deserving poor farmers economically, but keeps crop varieties in the hands of the farmers, where they belong.

One hopes that the participating nations in the program — especially those with the means — will come to the realization that there is nothing more important than food, and cough up more funding.

Sunday, June 14, 2009

 

Downsizing Cities to Save Them

Plenty of attention has been focused on the fact that urban infrastructure is starting to crumble, and that some urban areas, most notably suburbs, are being depopulated. Supplying urban services to abandoned areas and maintaining infrastructure (tap water, sewage lines, power lines, roads, trash collection, and the like) is a huge drain because, of course, there aren’t any taxpayers there to fund services and maintenance. So now comes one of the most sensible ideas I have heard in a long time: bulldozing such areas and returning them to nature. It is hoped that all cities with this problem — and there will be many more as industrial civilization declines — see the light and pull back to scales that their shrunken finances can manage. Further, just imagine the ecological bonus this will bring as blighted ecosystems recover and wildlife has more room to live.

Just one suggestion: Cities that initiate such programs should not just send in the bulldozers and trash everything. They should instead invite house-stripping companies to come first and take everything of value. That will make subsequent demolition a much easier job, and create far less waste. In addition, this up-and-coming industry will get a significant boost.

Wednesday, June 10, 2009

 

Energy, Not Money, Makes the World Go Around

Governments are further putting themselves in debt and debasing their currencies for the purpose of economic stimuli that will supposedly pull the world out of the recession and set us back on the track to “sustained economic growth.” Any economic stimulus achieved in this manner is what the president of the World Bank referred to as a “sugar high” (although he was wrong in saying that getting credit markets going again will solve the problem), which will last only as long as all that borrowed money is churning through the economy. The thinking behind the stimulus plans, and behind the belief that unfreezing credit markets will fix the economy, is that money is the prime mover. As long as lots of money is sloshing around, the economy will hum, people will find jobs, and economic growth is assured. And up until now it certainly looked that way.

But as a growing shadow is cast across the world’s energy supply, and as we observe with horror and fascination the end of the cheap energy that has fueled 20th-century economic growth and globalization, it’s more apparent day by day that energy, not money, makes the world go around.

Let’s consider a hypothetical situation in which I have a large expanse of forest, and I want you to cut all the trees and haul them to a lumber mill. I hand you a huge wad of money as payment. So, what are you going to do with that money? Are you going to buy a hand saw, walk into the forest, and set to work? Of course not. You would be at it for years and get nowhere. What you would do with the money is hire men with chainsaws and diesel-powered logging machinery, and then bring in trucks to haul off the logs. So it’s obvious that the money itself doesn’t do the work, it just buys you access to the energy that actually does the work. If the energy isn’t there in the first place, all the money in the world won’t be enough to log that forest.

So the reason that all this stimulus spending will ultimately not solve any problems is because our energy supply is now on the decline. We developed our economies, built vast infrastructure, created whole industries possible only with plentiful energy (such as the airlines), globalized the world economy, and energized the development of high technology with a bonanza of cheap, high-quality energy. Now that both quality and quantity are beginning to decline, the same amount of money is able to mobilize progressively less energy. That is why infrastructure is crumbling worldwide, why governments and financial experts are admitting that we have to redefine “full employment,” why globalization is starting to reverse, why pensions are disappearing, why economic growth is stagnating, why the automotive industry and airlines are on the ropes, and why a whole host of other disruptive changes are setting in.

History has always been about who has the resources, which of course translate into energy. It’s surprising that anyone would think differently.

 

Peak Oil Now Official?

An organization which may be considered one of the last major holdouts on peak oil, CERA, seems to have finally come around, as peak oil has been publicly acknowledged by one of its officials. So, there you have it.

In related news, the relentless rise in crude prices is again pressuring the airlines, which are still in fragile condition from the shock of last year’s $147 spike. Although this article is quick to point the finger at “speculators,” it does admit that producers need at least $75/bbl to make money, which in itself is an indication that cheap crude is a thing of the past. It’s hard to say how long the airlines can be buffeted by crude price turbulence before crashing, so if you’re planning to fly somewhere, better do it in the near future just to be sure.

Friday, June 05, 2009

 

Green Energy Investment: Things to Consider

An article in the Guardian, Green energy overtakes fossil fuel investment, says UN, trumpets the large amount of money being pumped into renewable energy. Of course, building plenty of renewable-energy infrastructure now, while we have the opportunity, is a good thing. But it’s not necessarily the case that the more money invested in renewables, the better, and dirty old fossil fuels be damned. Let’s consider why.

First, we need fossil fuels to manufacture renewable energy infrastructure (just try manufacturing and installing a wind turbine with electricity and ethanol!), and indeed to maintain all the infrastructure we already have. Since last year’s crude price crash, there has been woefully insufficient investment in finding and developing new oil fields. Unless a lot more money is pumped into oil, that lack of investment is going to come back to haunt us. As noted in previous posts, infrastructure in developed nations is already crumbling and in urgent need of repair and replacement. That repair and replacement would have to be done with coal and oil, not with electricity and biofuels provided by renewables. This of course reveals dark clouds on the horizon for renewables because if we cannot maintain existing infrastructure, how will we build and maintain more?

A second problem to consider is where all this money is coming from. Of course, it’s debt. But there is already far too much debt in the world — let’s get real, much of it is already bad debt — and adding more is just aggravating the situation. And the money invested in renewables is not being invested in oil.

So in this light, we shouldn’t be unreservedly celebrating the fact that investment in renewables has outstripped that in fossil fuels. As oil has likely already peaked, and coal will peak far sooner than previously anticipated, the world ought to be investing more in fossil fuels if people expect to maintain their industrial lifestyles and help developing countries to achieve the same.

So far we are on course toward a world in which fossil fuel energy becomes too expensive to use in the near future because of insufficient investment, where infrastructure further crumbles, and where the boom in renewables fizzles for lack of fossil fuel energy to bootstrap them.

Tuesday, June 02, 2009

 

Peak Capital

In several previous posts I discussed what I inelegantly call the “Great Fall-Apart,” meaning that the physical infrastructure of industrial civilization is beginning to crumble, and all our efforts to maintain and replace it will be unable to keep up with the growing pace of deterioration.

In this connection The Oil Drum: Europe has published a piece titled The Fifth Problem: Peak Capital, which I urge you to read. The infrastructure of developed countries has grown to such immense proportions that large amounts of energy and resources are needed just to maintain what has already been built. And anyone who reads the newspapers knows that roads, bridges, schools, electrical grids, pipelines, and all the other infrastructural elements upon which our societies and economies are built are in serious need of repair and replacement, yet we are falling behind.

And as I noted previously, plans to run industrial society on renewables call for the construction of a great deal of new infrastructure that would also need repair and replacement, an obvious impossibility.

Certainly it’s a grim situation, as this means we’re sliding inexorably back toward a pre-modern existence (note I say “pre-modern,” not “Stone Age”). But I want to emphasize here, as I have before, that I am in favor of a crash program to build all the renewable infrastructure we can while it’s still possible, because that will help us achieve a soft landing. Instead of wasting more money, energy, and resources on airports and superhighways, which will become worthless sooner rather than later, we should be investing them in expanding rail systems, and building renewable energy infrastructure.

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