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Why economic growth is not compatible with environmental sustainability

Why economic growth is not compatible with environmental sustainability

Man walking with factory in background

Academic FEDERICO DEMARIA will be addressing staff at the European Commission today in a keynote speech about the crucial issues of economic growth and environmental degradation. He asks, is the well-being of the individual, societies and nations possible beyond economic growth? 

‘Growth for the sake of growth’ remains the credo of all governments and international institutions, including the European Commission.

Economic growth is presented as the panacea that can solve any of the world’s problems: poverty, inequality, sustainability, you name it. Left-wing and right-wing policies only differ on how to achieve it.

However, there is an uncomfortable scientific truth that has to be faced: economic growth is environmentally unsustainable. Moreover, beyond a certain threshold already surpassed by EU countries, socially it isn’t necessary. The central question then becomes: how can we manage an economy without growth? 

Enough is enough

Kenneth Boulding, the economist,  famously said that: “Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist”.  

Ecological economists argue that the economy is physical, while mainstream economists seem to believe it is metaphysical.

Social metabolism is the study of material and energy flows within the economy. On the input side of the economy, key material resources are limited, and many are peaking including oil and phosphorus. On the output side, humanity is trespassing planetary boundaries.

Climate change is the evidence of the limited assimilative capacity of ecosystems. It is the planet saying: ‘Enough is enough!’. 

Mainstream economists – finally convinced by the existence of biophysical limits – have started to argue that economic growth can be decoupled from the consumption of energy and materials.

 …click on the above link to read the rest of the article…

A World With no Debt and no Bankruptcies: How About Social Credit as Money?

A World With no Debt and no Bankruptcies: How About Social Credit as Money?

Mark Twain had a genial idea with his story “The One Million Pound Bank Note” published in 1853. It was such a huge amount of money that it couldn’t be exchanged, yet it gave its owner all sorts of perks and goods. It was, in a certain way, an anticipation of what we call today the “social credit score” obtained on the various social media services on the Web. It is a form of money that can be owned, but cannot be exchanged — in most cases, you can’t even go negative with your social credit. So, no debt, no bankruptcy. Would it be possible to build a financial system based on this concept? Not easy, but also an idea being examined nowadays, especially in China with their state-owned social credit system (shèhuì xìnyòng tǐxì). The text below is derived from the chapter on financial collapses of my new book “The Seneca Strategy,” to be published in later 2019.

The whole problem of financial collapses is the result of the existence of money. But what is money exactly? Without going into the various theories of money that economists are still discussing, we can say that once, money was something that everybody agreed on: a weight of precious metals. After all, the British currency is still defined in units of weight, even though one pound (in monetary terms) does not weigh a pound (in physical terms). Still, up to not too long ago, money was simply a token representing a physical entity, typically a certain weight of gold and silver. But things changed a lot with time and, with the 20th century, the convertibility of the dollar into precious metals was more theoretical than real. In 1971 president Nixon formally canceled it.

 …click on the above link to read the rest of the article…

Blain’s Morning Porridge – May 21st 2019

Blain’s Morning Porridge – May 21st 2019


“He knew everything about literature, except how to enjoy it…”

Waves of negative news headlines battering markets. Might have to wear a hat..

Huawei – Trade War Threat Level Rises

The Huawei embargo raises the trade war threat from undeclared to imminent shooting match. While it’s not quite “bullets fired at Archduke’s car”, it’s getting close. It feels like there is something of a tedious inevitability developing – a bellicose Trump realises his political future depends on winning, and the Chinese refuse to lose face. Is it already too late to rein back?  

Huawei being effectively barred from Occidental markets has triggered all kinds of market fears: a “digital iron-curtain”, the threat of an economic cold tech war, broken global supply chains, and knock-on effects we can only begin to imagine. It’s the End of Globalisation – scream the media. The Chinese hint at reprisals. The “temporary exemptions” granted last night by the US are just that – temporary: they won’t undo the sudden need of millennials to dump their Huawei phones. The damage has been done.  Who will the Chinese punish in return? 

Markets are now rife with speculation about “ripple” effects damaging tech dependent initiatives from autonomous cars, streaming, digitisation, and booking apps, triggering all kinds of real-world economic pain in sectors like tourism and luxury goods. While the market is fretting about how America will shod itself as tariffs are slammed on shoes made in China, it might be time to reassess market sectors where we expected long-term and ongoing China expansion, rising domestic consumption and demand to drive growth – I’m think areas from aviation, autos, machinery and plant, and energy. And, what are the implications for the UK – where the Chinese are building our nuclear power stations? 

This doesn’t end well…

 …click on the above link to read the rest of the article…

China’s Nuclear Option to Sell US Treasurys, Report 19 May

China’s Nuclear Option to Sell US Treasurys, Report 19 May

There is a drumbeat pounding on a monetary issue, which is now rising into a crescendo. The issue is: China might sell its holdings of Treasury bonds—well over $1 trillion—and crash the Treasury bond market. Since the interest rate is inverse to the bond price, a crash of the price would be a skyrocket of the rate. The US government would face spiraling costs of servicing its debt, and quickly collapse into bankruptcy. America could follow the path taken by Venezuela or Zimbabwe.

How serious is this threat?

The Independent Institute wrote (replete with a graphic purportedly showing a “nuclear bomb”) about it:

What would happen if the Chinese government were to weaponize its holdings of U.S. Treasury bonds by suddenly selling off all of them?
That’s an option that has been suggested by Hu Xijin, the editor of the government-controlled Global Times.
Dumping its U.S. national debt holdings is considered to be China’s “nuclear option” for retaliating against the U.S. government in the trade war…

The Financial Time headline says it all: “China dumps US Treasuries at fastest pace in two years”. The body of the article uses that word “weaponise” (British spelling).

Bloomberg warns that, “Trade Feud Has Treasury Investors Eyeing China’s Holdings at Fed”. At least their article does not reiterate “weaponized”.

CNBC adds a new element, that in killing America, China would be destroying itself too. The article uses the word “weapon”, as well as calling it the “nuclear option.”

Capital Outflows

Ambrose Evans-Pritchard at the Telegraph is one of the few voices looking at the “accelerating pace of capital outflows from China”. He provides lots of good analysis that we would say is common sense, except it is presently uncommon (yes, yes, we know that common, here, refers to base logic not ubiquity).

 …click on the above link to read the rest of the article…

How Central-Bank Interest-Rate Policy Is Destabilizing Banks

How Central-Bank Interest-Rate Policy Is Destabilizing Banks

Broadly speaking, banks operate under the concept of maturity transformation. Banks take short-term – less than one year – financing vehicles, such as customer deposits, and use that to finance long-term – more than one year – returns. These returns range from the most commonly understood loans, such as auto loans and mortgages, to investments in equity, bonds and public debt. Banks make money on the interest spread between what they pay to the owners of the money and what is earned from the operations. Banks also make money on other services, such as wealth management and account fees, though these are relatively small compared to the maturity transformation business.

In terms of assets, the primary asset a bank holds is the demand deposit, also referred to as the core deposit. These are your everyday savings and checking accounts. Banks also sell Wholesale Deposits, such as CDs, have shareholder equity and also can take out debt, such as interbank lending. As these assets are owned by someone else, each of them demands a return for the use of those assets. These are part of the costs of operation for a bank. There are also more fixed operating costs, such as employees, buildings and equipment that must also be financed.

So, a bank will take assets and formulate loans on them. Like most of the world, the US operates on a fractional reserve system, one where banks originate loans in excess of the deposits on-hand. Take a look at the balance sheet of a large regional bank, 5/3 Bank, for example. For the 2018 fiscal year, 5/3 reported non-capital assets of $94 billion and a deposit base of $108 billion. However, the cash and cash equivalent component of these assets stood at $4.4 billion, or just 4% of demand deposits.

 …click on the above link to read the rest of the article…

The Most Splendid Housing Bubbles in Canada Deflate Further

The Most Splendid Housing Bubbles in Canada Deflate Further

Vancouver prices drop. Toronto down 3.7% from peak, flat for 10 months. Winnipeg plunges most since at least 1990. Quebec City flat for 6 years.

In Greater Vancouver, BC, Canada, house prices fell 0.4% in April from March, the ninth month in a row of month-to-month declines, according to the Teranet-National Bank House Price Index. The index is down 4.7% from the peak in July 2018, the sharpest nine-month decline since July 2009. And it’s down 2.8% from April last year. One of the most splendid housing bubbles in the world is now deflating before our very eyes, after prices had skyrocketed 316% from January 2002 to the peak in July 2018 – meaning prices had more than quadrupled in 16 years:

The Teranet-National Bank House Price Index tracks single-family house prices, based on “sales pairs,” comparing the sales price of a house in the current month to the last sale of the same house years earlier (methodology). Using “sales pairs” eliminates the issues that affect median and average price indices but has its own limitations. These median and average house prices, which are much more volatile, are now showing much sharper price declines for Vancouver.

Because the Teranet index uses a similar methodology of “sales pairs” as the S&P CoreLogic Case Shiller index for US housing markets, the indices produce comparable metrics. So let’s compare Vancouver’s housing bubble to the also deflating housing bubble in the San Francisco Bay Area. Splendid v. Splendid. The chart below shows the data of Vancouver (black columns) and San Francisco (red columns), with both indices converted into “percent change from January 2002.”

As the chart above shows, Vancouver’s housing market dipped briefly during the Financial Crisis while San Francisco’s market went into a hard four-year downturn, as the US housing bust morphed into the Mortgage Crisis that contributed to the Financial Crisis.

 …click on the above link to read the rest of the article…

Liquidity Stress Fractures Begin to Show in the Federal Reserve System

Liquidity Stress Fractures Begin to Show in the Federal Reserve System 

The Fed's great recovery rewind is rapidly depleting the very bank reserves the were built up to protect from bank runs like those in the Great Depression.

In my January Premium Post, “An Interesting Interest Conundrum,” I laid out how the Federal Reserve was losing control over the Fed funds rate — a loss of control over its bedrock interest rate that indicates financial stresses are building in the banking system that increase the risks from runs on the banks:

After the financial crisis, when there was a risk of runs on banks, the Fed … require[d] the banks to hold more money in reserves … as a regulation safeguard when the Fed was trying to avoid total economic collapse. Deposits, after all, are liabilities because depositors are guaranteed they can demand instant cash at will. Depositors get extremely unhappy if this guarantee is not fulfilled. That looks something like this:

Federal Reserve's Great Recovery Rewind is reducing reserves banks hold as protection against runs.

And you don’t want that.

The Fed funds rate is the Fed’s target rate for the amount of interest banks charge each other to make overnight loans to each other from their reserves. In a crisis, when banks need their reserves, the interest they charge each other will naturally skyrocket. To keep the monetary system from freezing up because banks won’t loan to each other, the Fed tries to push that rate down.

During the Fed’s Great-Recovery bond-buying program (quantitative easing), aimed at pushing that rate down, the Fed deposited huge amounts of money created out of thin air into bank reserve accounts to make sure they remained flush so there would be no panic runs on banks, but banks don’t like just sitting on huge piles of money, instead of making even more loans with those piles, especially after the crisis abates. The Fed, however, wanted them to continue to maintain those reserves in case crisis returned.

 …click on the above link to read the rest of the article…

Not Just a Trade War, But a Shooting War With China

Not Just a Trade War, But a Shooting War With China

The Chinese came from nothing; only 40 years ago, they had nothing but a billion impoverished peasants. No money. No technology. No power. Today, they’re on par with the United States. But, if this trend continues – which it will – their economy will be triple the size of the US economy in 20 years.

Not just a trade war, but a shooting war with the Chinese seems inevitable. Because when tensions build up between states they eventually fight with each other. China is the major rising power. It’s got four times the US population, it’s soon going to be more economically powerful, and it’s going to reach military parity. It’s of a different culture than the US. The US government may figure it’s best to take them out while the balance still favors them. It’s a bit like the situation was with the USSR in the ’80s. They could see they were going into decline, and some Soviet generals figured it was “now or never” for a successful war. Fortunately they collapsed first.

The Chinese don’t like seeing US aircraft carriers off their coast any more than we would like to see Chinese aircraft carriers in the Gulf of Mexico or off Santa Catalina Island.

The last thing that we need is a war with the Chinese. But if something that’s been called the Thucydides Trap is valid – and I think it is – then it’s highly likely. It refers to the Peloponnesian War between Athens and Sparta, at the end of 5th century BC. The Trap is sprung when a reigning power strikes out at the advancing power while they still have a chance of winning.

 …click on the above link to read the rest of the article…

The Pivot Point

The Pivot Point 


The massive economic shock following the banking collapse of 2007–8 is the direct cause of the crisis of confidence which is affecting almost all the institutions of western representative democracy. The banking collapse was not a natural event, like a tsunami. It was a direct result of man-made systems and artifices which permitted wealth to be generated and hoarded primarily through multiple financial transactions rather than by the actual production and sale of concrete goods, and which then disproportionately funnelled wealth to those engaged in the mechanics of the transactions.

It was a rotten system, bound to collapse. But unfortunately, it was a system in which the political elite were so financially bound that the consequences of collapse threatened their place in the social order. So collapse was prevented, by the use of the systems of government to effect the largest ever single event transfer of wealth from the poor to the rich in the course of human history. Politicians bailed out the bankers by using the bankers’ own systems, and even permitted the bankers to charge the public for administering their own bailout, and charge massive interest on the money they were giving to themselves. This method meant that the ordinary people did not immediately feel all the pain, but they certainly felt it over the following decade of austerity as the massive burden of public debt that had been loaded on the populace and simply handed to the bankers, crippled the public finances.

The mechanisms of state and corporate propaganda kicked in to ensure that the ordinary people were told that rather than having been robbed, they had been saved. In the ensuing decade the wealth disparity between rich and poor has ever widened, to the extent that this week the BBC announced the UK now has 151 billionaires, in a land where working people resort to foodbanks and millions of children are growing up in poverty.

 …click on the above link to read the rest of the article…

The Income Tax is Destroying the World Economy

The Income Tax is Destroying the World Economy 

It is imperative that we MUST eliminate the income tax. It is a purely a Marxist development that is destroying the world economy. The income tax has become such a tyranny that our liberty, freedom of movement, and world economic growth are all at great risk. Never before in the history of human civilization do we find an income tax. It is true that Ben Franklin once said that the two certainties in life were death and taxes. It is equally true that taxes, in general, have been around since the beginning of civilization. We do know that the earliest recorded tax was implemented in Mesopotamia over 4500 years ago, where people paid taxes throughout the year in the form of livestock, which was the preferred currency at the time. The ancient world also had inheritance taxes, also known as estate taxes or death taxes. The earliest recorded evidence of a death tax came from ancient Egypt (700 BC), where they charged a 10% tax on property transferred at the time of death.

The most serious crisis we face is that with the dawn of Marxism (Communism/Socialism) the way we pay taxes has changed significantly. Yet, one for the record took place in 2006 when China eliminated what was the oldest existing tax in history. The agricultural tax was created 2,600 years ago and was eliminated in 2006 to help improve the well-being of rural farmers in China.

Taxation in the United States can be traced to the colonists when they were heavily taxed by Great Britain on many things from tea to newspapers. Legal and business documents were required to display a Stamp Tax. Most colonists objected to this form of taxation, since they had no political input about the creation of new taxes, giving rise to the term “taxation without representation.”

 …click on the above link to read the rest of the article…

Post-tariff considerations

Post-tariff considerations 

President Trump has declared he will extend tariffs of 25% on all America’s imports of Chinese goods. China is responding with tariff increases of its own. The consequences of this action and reaction will be to kick-start higher monetary inflation in America and an economic slump. This article explains how an overdue credit crisis will be made considerably worse by trade protectionism. It could become the credit crisis to end all credit crises and undermine the whole fiat currency system.

Introduction

Following President Trump’s imposition of 25% tariffs on all Chinese imports, it is time to assesses the consequences. Already, we have seen a contraction in US-China trade of 20% in the first three months of 2019 compared with the same quarter last year, and also compared with the average outturn for the whole of 2018.[i] This contraction was worse than that which followed the Lehman crisis.

In assessing the extent of the impact of Trump’s tariffs on the US economy, we must take into account a number of inter-related factors. Clearly, higher prices to US consumers will hit Chinese imports, which explains why they have dropped 20% so far, and why they will likely drop even more. Interestingly, US exports to China fell by the same percentage, though they are about one quarter of China’s exports to the US. 

These inter-related factors are, but not limited to:

  • The effect of the new tariff increases on trade volumes
  • The effect on US consumer prices
  • The effect on US production costs of tariffs on imported Chinese components
  • The consequences of retaliatory action on US exports to China
  • The recessionary impact of all the above on GDP
  • The consequences for the US budget deficit, allowing for likely tariff income to the US Treasury.

These are only first-order effects in what becomes an iterative process, and will be accompanied and followed by:

 …click on the above link to read the rest of the article…

Prepare for Trench Warfare

Prepare for Trench Warfare

Prepare for Trench Warfare

What if China isn’t half so desperate for a deal as the president believes?

Are we in for an extended siege of economic trench warfare?

Today we explore possibilities… and their implications.

We first direct our gaze to Wall Street.

Investors came crouching from their shelters this morning… as if expecting an aftershock to the quake that drove them underground yesterday.

With Monday’s 617-point battering — piling atop last week’s losses — three months of stock market gains have vanished into the ether.

The S&P 500 endured its 15th-largest decline in history yesterday. It has shed $1.1 trillion since May 5 alone.

Markets Bounce Back

But the Earth held today. And investors cleared away some of yesterday’s wreckage.

The Dow Jones rebounded 207 points.

The S&P reclaimed 23 of the 70 points it lost yesterday. The Nasdaq gained 87.

Markets were encouraged by President Trump’s comments that he will strike a deal with China “when the time is right.”

He will have an opportunity at the G20 summit in late June. There he will meet China’s Xi Jinping, for whom his “respect and friendship is unlimited.”

But is China sweating dreadfully for a trade deal as Trump assumes?

China Braces for Escalation

China does — after all — ship some $500 billion of products to these shores each year.

It cannot afford to sit on them like a broody hen.

But you might have another guess, says the director of monetary policy at the People’s Bank of China:

As for the change in the domestic and external economic environment, China has sufficient leeway and a deep monetary policy toolkit, and so has full ability to deal with [economic] uncertainties.

But here we cite a government mouthpiece, a marionette in human form. You no more trust his word than you would trust a dog with your dinner.

 …click on the above link to read the rest of the article…

Total Catastrophe For U.S. Corn Production: Only 30% Of U.S. Corn Fields Have Been Planted – 5 Year Average Is 66%

Total Catastrophe For U.S. Corn Production: Only 30% Of U.S. Corn Fields Have Been Planted – 5 Year Average Is 66%

2019 is turning out to be a nightmare that never ends for the agriculture industry.  Thanks to endless rain and unprecedented flooding, fields all over the middle part of the country are absolutely soaked right now, and this has prevented many farmers from getting their crops in the ground.  I knew that this was a problem, but when I heard that only 30 percent of U.S. corn fields had been planted as of Sunday, I had a really hard time believing it.  But it turns out that number is 100 percent accurate.  And at this point corn farmers are up against a wall because crop insurance final planting dates have either already passed or are coming up very quickly.  In addition, for every day after May 15th that corn is not in the ground, farmers lose approximately 2 percent of their yield.  Unfortunately, more rain is on the way, and it looks like thousands of corn farmers will not be able to plant corn at all this year.  It is no exaggeration to say that what we are facing is a true national catastrophe.

According to the Department of Agriculture, over the past five years an average of 66 percent of all corn fields were already planted by now…

U.S. farmers seeded 30% of the U.S. 2019 corn crop by Sunday, the government said, lagging the five-year average of 66%. The soybean crop was 9% planted, behind the five-year average of 29%.

Soybean farmers have more time to recover, but they are facing a unique problem of their own which we will talk about later in the article.

 …click on the above link to read the rest of the article…

“Significant Slowdown” Spooks Maersk At Mediterranean’s Third Largest Port

“Significant Slowdown” Spooks Maersk At Mediterranean’s Third Largest Port

Malta Freeport, the third largest transshipment port in the Mediterranean region and located on the island of Malta, has seen a “significant slowdown in business activity” since 2H18.

One of its major clients, Maersk, the largest container ship and supply vessel operator in the world, has decided to move its operations from Malta to other ports in North Africa after Mediterranean shipping routes have been severely affected by the synchronized global slowdown.

The Times of Malta reported that Freeport’s management notified unions and other clients that Maersk and Mediterranean Shipping Company (MSC) will be shifting operations from Malta to other African ports, is expected to reduce business at Malta’s container terminal by 35% next month.

Last year’s figures show the port handled 3.3 million containers in its transshipment activities, but with Maersk and MSC halting operations, that number is expected to be dramatically less.

A spokesman for Freeport confirmed to the Times of Malta that Maersk and MSC have departed.

“Maersk recently informed us that it will be shifting some of the services that are being carried out through Malta Freeport to a new fully-automated facility in Tangier Med, Morocco, and to Port Said in Egypt.”

Maersk has been operating from Malta for at least a decade, handling import shipping routes to and from China.

Industry sources said shipping volumes have already decreased at Freeport, as a severe economic slowdown in Europe and Asia have sent container rates between both regions into a tailspin in the last several quarters.

“The slowdown can already be felt and there are already fewer people working, particularly on overtime,” the source said. 

Last month, data from the CPB Netherlands Bureau for Economic Policy Analysis revealed world trade volume fell 1.8% in the three months to January compared to the preceding three months as a global slowdown gained momentum.

 …click on the above link to read the rest of the article…

Global Trade Collapsing To Depression Levels

Global Trade Collapsing To Depression Levels

With the trade war between the US and China re-escalating once more, investors are again casting frightened glances at declining global trade volumes, which as Bloomberg writes today, “threaten to upend the global economy’s much-anticipated rebound and could even throw its decade-long expansion into doubt if the conflict spirals out of control.”

“Just as tentative signs appeared that a recovery is taking hold, trade tensions have re-emerged as a credible and significant threat to the business cycle,” said Morgan Stanley’s chief economist, Chetan Ahya, highlighting a “serious impact on corporate confidence” from the tariff feud.

To be sure, even before the latest trade war round, global growth and trade were already suffering, confirmed most recently by last night’s dismal China economic data, which showed industrial output, retail sales and investment all sliding in April by more than economists forecast.

A similar deterioration was observed in the US, where retail sales unexpectedly declined in April while factory production fell for the third time in four months. Meanwhile, over in Europe even though Germany’s economy emerged from stagnation to grow by 0.4% in the first quarter, “the outlook remains fragile amid a manufacturing slump that will be challenged anew by the trade war.” As a result, investor confidence in Europe’s largest economy unexpectedly weakened this month for the first time since October.

Framing the threat, a study by Bloomberg Economics calculated that about 1% of global economic activity is at stake in goods and services traded between the US and China. Almost 4% of Chinese output is exported to the U.S. and any hit to its manufacturers would reverberate through regional supply chains with Taiwan and South Korea among those at risk.
U.S. shipments to China are more limited, though 5.1% of its agricultural production heads there as does 3.3% of its manufactured goods.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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