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Tim Jackson: The High Price Of Growth

Tim Jackson: The High Price Of Growth

A finite planet cannot sustain infinite economic growth

Modern society is addicted to and engineered for perpetual economic growth.

Now, a fourth-grader can tell you that nothing can grow forever, especially if you have finite resources. But that simple realization is eluding today’s central planners, despite multiplying evidence that growth is becoming harder and harder to come by.

This week’s podcast guest is Professor Tim Jackson, sustainability advisor for the UK government, professor of sustainable development at the University of Surrey and Director of CUSP. Tim is also a full member of the Club of Rome.

He explains why the exponential growth rates of today’s economies, and their associated rates of resource extraction/consumption, will not be able to continue for much longer — and why a pursuit of “prosperity” (defined much more broadly than simple consumerism) is a much healthier goal for humanity.

Anyone who thinks that exponential growth can go on forever on a finite planet is either a madman or an economist.

Those very steep lines that rise very sharply as we approach the 21st century and show us that we are exceeding our carrying capacity in all sorts of ways are quite compelling. I think people actually feel this to some extent, that having more and more ‘stuff’ going through the system is somehow unsustainable. And not just in environmental ways, but even in social ways.

It’s the classic challenge of the irresistible force meeting the unmovable object. This pervasive idea of prosperity consisting of exponential growth, while the planet is not getting any bigger, is putting ecosystems under lots of stress. The pressures that human society puts on our environment is increasingly obvious.

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

China’s economic boom is about to be cut short by peak oil, warns state-funded study 

A new scientific study led by the China University of Petroleum in Beijing, funded by the Chinese government, concludes that China is about to experience a peak in its total oil production as early as next year.

Without finding an alternative source of “new abundant energy resources”, the study warns, the 2018 peak in China’s combined conventional and unconventional oil will undermine continuing economic growth and “challenge the sustainable development of Chinese society.”

This also has major implications for the prospect of a 2018 oil squeeze — as China scales its domestic oil peak, rising demand will impact world oil markets in a way most forecasters aren’t anticipating, contributing to a potential supply squeeze. That could happen in 2018 proper, or in the early years that follow.

There are various scenarios that follow from here — China could: shift to reducing its massive demand for energy, a tall order in itself given population growth projections and rising consumption; accelerate a renewable energy transition; or militarise the South China Sea for more deepwater oil and gas.

Right now, China appears to be incoherently pursuing all three strategies, with varying rates of success. But one thing is clear — China’s decisions on how it addresses its coming post-peak future will impact regional and global political and energy security for the foreseeable future.

Fossil fuelled-growth

The study was published on 19 September by Springer’s peer-reviewed Petroleum Science journal, which is supported by China’s three major oil corporations, the China National Petroleum Corporation (CNPC), China Petroleum Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC).

Since 1978, China has experienced an average annual economic growth rate of 9.8%, and is now the world’s second largest economy after the United States.

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

Investment as a Commitment. Tim Jackson at the Summer School of the Club of Rome in Florence

Investment as a Commitment. Tim Jackson at the Summer School of the Club of Rome in Florence

Tim Jackson speaks at the 1st Summer School of the Club of Rome in Florence, Sep, 2017 (image courtesy Daniel Reinhardt)
There have been several interesting talks at the Summer School on Sustainability in Florence, but the one by Tim Jackson has been among the most focused and relevant ones. Jackson is the author of the book “Prosperity Without Growth”  (2009) and he goes straight to the core of the problem, which lies in our financial system. We are geared for growth, everything in the system pushes for growth, all the financial structures are rewarding growth. And, as Jay Forrester was perhaps the first to note, economic growth is what’ leading us straight to the Seneca Cliff.
So, we need to re-examine the basics of our economic system and propose ways to defuse the ticking bomb that we ourselves have created. There is much to be discussed about Jackson’s proposals, but one that I noted, in particular, was the concept of “investment as a commitment.” I asked Jackson how this is supposed to be different than the current way of investing, and his answer was that, today, investors tend to see the market as a “gamble” in which they may gain or lose; but their main motivation is for big, short-term gains. Clearly, this is not the way that will take us to a saner and safer world.
The key point of the whole thing, as I see the situation, is in the financial system. If we found a way to divest from fossil fuels and to move financial resources to the transition in the form of renewable energy and the related infrastructure, then there is still hope to avoid the Seneca Cliff, at least in its most brutal form.

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

The Cardinal Sin Of Investing: Permanent Impairment Of Capital

Victor Moussa/Shutterstock

The Cardinal Sin Of Investing: Permanent Impairment Of Capital

How to avoid making it
Last week we presented a parade of indicators published by Grant Williams and Lance Roberts that warned of an approaching market correction as well as a coming economic recession.

The key message was: When smart analysts independently find the same patterns in the data, it’s time to take notice.

Well, many of you did, by participating in this week’s Dangerous Markets webinar, which featured Grant and Lance.

In it, both went much deeper into the structural fragility of today’s financial markets and the many reasons why economic growth will remain constrained for years to come.

The excessive build-up of debt in the system — and the absolute dependence on its continued expansion to keep the economy from imploding — is, of course, seen as the prime risk to future growth.

As Lance demonstrates here with several of his excellent charts, so much leverage has been taken on that its servicing is increasingly stealing capital that would otherwise go to savings, consumption and productive investment. Going forward, the demands of the debt service will simply result in less and less capital available left over to grow the economy:

As financial assets are (supposed to be) valued on future growth prospects, lower forecasted growth demands lower valuations. Grant calculates that, should the US see another decade of 2% average annual GDP growth (and it has averaged less than that over the past decade), stock prices should be roughly half of what they are today to be considered fairly valued:

And Lance builds further on this, explaining how this moribund growth, coupled with America’s aging demographic trend, will simply savage the nation’s (already troublesomely underfunded) pension and entitlement systems:

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

Can economic growth continue without fossil fuels? The IPCC thinks so — here’s why its decarbonisation models are broken

(Source: VICE)

Published by INSURGE INTELLIGENCE, a crowdfunded investigative journalism project for people and planet. Support us to keep digging where others fear to tread.

In this third contribution to our symposium, ‘Pathways to the Post-Carbon Economy’, biophysical economist Graham Palmer assesses the plausibility of conventional economic forecasts of a global energy transition away from fossil fuels.

Most forecasts paint a rosy picture of continued, unimpeded economic growth, even as the world weans itself entirely off carbon-intensive energy sources. But are such scenarios really possible?

Palmer argues that they aren’t — not when we consider how the economy is fundamentally embedded in its biophysical environment. And if it isn’t, then we need a new approach to modelling, which pays greater attention the intimate relationship between energy, our societies, and their economies.


Climate change discourse is structured around competing narratives — degrowth, pro-renewables, pro-nuclear, localism, green business, techno-optimism, and so on. The energy scenario modelling by the UN’s Intergovernmental Panel on Climate Change (IPCC) provides a foundation for much of the discourse.

Integrated models are connected with socioeconomic and technological storylines to forecast a picture of key characteristics of future transformation pathways.

When we look at models from the most recent IPCC report (AR5), we see that that baseline scenarios project a 300% to 800% increase in GDP-per-capita by 2100. In these scenarios, strong mitigation is achieved with global consumption losses of only between 3 to 11% relative to baseline. Hence, the net-cost of decarbonising seems trivial over the long run.

From this perspective, the solution that follows is to put in place appropriate policies, support technology, remove fossil fuel subsidies and apply a modest but comprehensive carbon price.

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

Saving and Money–What is the Relationship?

Conventional wisdom says that savings is the amount of money left after monetary income was used for consumer outlays, implying that saving is synonymous with money. Hence, for a given consumer outlays an increase in money income implies more saving and thus more funding for investment. This in turn sets the platform for higher economic growth.

Following this logic, one could also establish that increases in money supply are beneficial to the entire process of capital formation and economic growth. (Note increases in money supply result in increases in monetary income and this in turn for a given consumer outlays implies an increase in savings).

Relation between saving and money

Saving as such has nothing to do with money. It is the amount of final consumer goods produced in excess of present consumption.

The producers of final consumer goods can trade saved goods with each other or for intermediate goods such as raw materials and services.  Observe that the saved goods support all the stages of production, from the producers of final consumer goods down to the producers of raw materials, services and all other intermediate stages.

Support means that these savings enable all these producers to maintain their lives and wellbeing whilst they are busy producing things. Also, note that if the production of final consumer goods were to rise, all other things being equal, this would expand the pool of real savings and would increase the ability to further produce a greater variety of consumer goods i.e. wealth.

Note that people do not want various means as such but rather final consumer goods. This means that in order to maintain their life people require an access to consumer goods.

 

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

Yuan Tumbles As Moody’s Cuts China’s Credit Rating To A1, Warns “Financial Strength Will Worsen”

Yuan Tumbles As Moody’s Cuts China’s Credit Rating To A1, Warns “Financial Strength Will Worsen”

Offshore Yuan tumbled as Moody’s cut China’s credit rating to A1 from Aa3, saying that the outlook for the country’s financial strength will worsen, with debt rising and economic growth slowing. This leaves the world’s hoped-for reflation engine rated below Estonia, Qatar, and South Korea and on par with Slovakia and Japan.
 “While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government,” the ratings company said in a statement Wednesday.

And the most obvious reaction was Yuan selling…

Full Statement: Moody’s Investors Service has today downgraded China’s long-term local currency and foreign currency issuer ratings to A1 from Aa3 and changed the outlook to stable from negative.

The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows. While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government.

The stable outlook reflects our assessment that, at the A1 rating level, risks are balanced. The erosion in China’s credit profile will be gradual and, we expect, eventually contained as reforms deepen. The strengths of its credit profile will allow the sovereign to remain resilient to negative shocks, with GDP growth likely to stay strong compared to other sovereigns, still considerable scope for policy to adapt to support the economy, and a largely closed capital account.

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

Where There’s Smoke…

Where There’s Smoke…

…There’s central bank manipulation

Central banks around the world have colluded, if not conspired, to elevate and prop up financial asset prices.  Here we’ll present the data and evidence that they’ve not only done so, but gone too far.

When wee discuss elevated financial asset prices we really are talking about everything.

we’re talking not just about the sky-high prices of stocks and bonds, but also of the trillions of dollars’ worth of derivatives that are linked to them, as well as real estate in dozens of countries and locations.  All are intricately linked together. For instance, stocks are elevated, in part, because bond yields are so low.  Sam for real estate.

Here are three questions most alert investors are asking:

  • Question #1: When will financial assets ever ‘correct’ and fall in price?
  • Question #2: How much does overt propping by the central banks have to do with today’s elevated prices?
  • Question #3: How much does covert propping by central banks play a role in these inflated markets?

These are important questions to consider because if central banks have been too involved and gotten themselves mixed up in trying to ‘wag the dog’ by using elevated financial asset prices as a means to drive economic expansion — then the risk is a big implosion in financial asset prices if their efforts fail.

The difficulty, as always, is that you can’t print your way to prosperity.  It’s never worked in history and it won’t work this time either.  You can, however, print (or borrow) to delay a correction, after which a boost in real economic growth (or additional income) had better materialize to save your bacon.   But if enough growth does not emerge to both pay back all the old outstanding loans plus all the newly created debt and currency, then you’re going to experience a worse correction than if you had not tried to print/borrow your way to prosperity.

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

The Mystery Behind Economic Growth

With sound money and free markets, the evolving production of businesses increases the purchasing power of money over time.

We learn, out of the blue, that “the Eurozone is performing well, but with opinions divided on the causes, doubts linger over whether it is a sustainable recovery” (Daily Telegraph, 19 April). We are also told that economic growth in the US is stalling, as evidenced by downward revisions by the Atlanta Fed, and the fact that the rate of increase in Loans and Leases by commercial banks is also stalling. The Bank of England was unable to forecast the strength of the UK economy in the wake of Brexit.

This article explains why this confusion occurs. It is clear the economics profession is ill-informed about the one thing it is paid to know about, and the commentary that trickles down to the ordinary person is accordingly incorrect. State-educated and paid-for economists always assume the private sector is the problem, when it is the burden of the state, and the state’s futile attempts to manage the consequences of its actions through the corruption of money.

By misdirecting their attention to the private sector in the search for solutions, economists confuse growth in gross domestic product with progress. Growth is the expansion of a balance sheet total, reflecting an increase in the amount of money spent in the economy between two dates. Progress, on the other hand, is the improvement in living standards we get from more efficient production and technology.

Take Italy as an example. The chart below is of quarterly real GDP. Bear in mind the annualised rate is four times the quarterly figure.

Italy Real GDP

GDP is today’s standard measure of economic performance, and it shows that the volume of consumer transactions in Italy today is well below the record achieved in 2008, before the financial crisis. That’s still down over 7% after eight years.

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

The Economy Is Like a Circus

The Economy Is Like a Circus

The reason the circus stays in town is because the economy stays in sufficient balance that the economy can go on. This is much like the way many other self-organized systems function. For example, our bodies continue to function as long as there are suitable balances in many different areas (oxygen, food, water, air pressure). Ecosystems continue to function as long as there is sufficient rain, adequate temperatures, and enough sunlight.

There are many different views as to what limits we reach in a finite world. Some people think we will “run out” of oil, or of energy products. Some think that the energy return will fall too low, as measured in some manner. I see the adequacy of the energy return as being very much tied to the financial system. Thus, the forecast by US Atlanta Fed GDPNow indicating that first quarter 2017 US GDP growth will only be 0.5% is likely to be a problem, assuming it is correct.

Our economy operates on economies of scale. Once we get too close to shrinking, or actually start shrinking, we reach a point where the economic circus starts to leave town. At some point, we will discover the circus is gone. The economy we thought we had, will have left us. If some people are survivors, they will need to pick up the pieces and start over with an entirely new system.

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

Contemplations for a Sunday (unless you can’t get around to it til Monday)

Contemplations for a Sunday (unless you can’t get around to it til Monday)

Some simple themes today…

Population growth, economic growth, and resultant energy consumption are inexorably slowing.  The Federal Reserve knows it can not stop this and is simply slowing the inevitable with interest rate cuts to incent greater consumption via skyrocketing credit/debt (particularly government debt….debt that is undertaken with no intent of ever repaying it and is really just pure monetization).
The chart below highlights that employment among 25-54yr/olds (the foundation of US consumption) ceased growing in ’00.  Once employment among this group ceased growing, total US energy consumption also ceased growing, and accelerating debt was substituted to maintain growth thanks to nearly 40yrs of interest rate cuts.
The impact of the declining rates and rising debt can be seen in the Wilshire 5000 (chart below).  The Wilshire represents all publicly traded US equities radically moving upward with surging US federal debt but inverse to US total energy consumption, jobs creation, and economic activity since ’00.
The driver of the Fed’s federal funds rate was and continues to be the rate of population growth and the growing demand this population growth represents.  The adult population growth rate peaked in ’79 and the federal funds rate peaked in ’80…rates plus population growth have been decelerating/declining together since.
The chart below showing the 0-64yr/old population growth vs. 65+yr/old growth.  The demographic and population situation only continues to get worse.  In fact, it’s unlikely the 0-64yr/old population growth will hit the already low estimates from 2017–>2030 due to the ongoing decline in birth rates and slowing immigration.
What about employment?  Chart below shows total full time jobs growth has slowed to a trickle (net basis from peak to peak) and total energy consumption growth likewise decelerating, peaking in ’05, and now declining.  Federal funds rate moving inversely, all the way to zero.  Finally, Public US Federal debt (w/out Intra-governmental holdings) skyrocketing.
…click on the above link to read the rest of the article…

Conference Board sees modest economic growth in 2017

Conference Board sees modest economic growth in 2017

Alberta expected to lead all provinces in economic growth this year

Retail sales activity is expected to cool this year and next, the Conference Board of Canada says.

Retail sales activity is expected to cool this year and next, the Conference Board of Canada says. (Chris Wattie/Reuters)

The national economy should see a slight pick-up this year, the Conference Board of Canada said in a new report out Thursday.

The independent research group said it sees overall growth of 1.9 per cent this year, up from the 1.3 per cent it expects will be reported for last year.

“The plunge in energy investment is expected to slow and we should finally see a resurgence in non-energy investment,” the Conference Board said.

“Canadian exports are also expected to fare a little better as the U.S. economy picks up speed and the Canadian dollar remains weak,” the group said, but added that exports levels will still remain low by historical standards.

Federal stimulus spending is expected to give a boost to national economic growth, although provincial belt-tightening is forecast to offset some of that.

Looking ahead to 2018, “dismal” business investment levels and slowing labour force growth mean it is unlikely there will be any acceleration in GDP growth, they said.

Retail sector seen cooling

The group said that consumer spending has been a “bright spot” in the economy, seeing increases in recent years despite weak job growth in some provinces and  soft wage gain.

“However, the ability to sustain these increases will be limited by the run-up in household debt over the last several years,” they said.

The Conference Board sees retail sales growth cooling from 3.8 per cent in 2016 to 2.9 per cent this year and down to 1.9 per cent in 2018.

The soft economic growth expected for this year and next mean the Bank of Canada is expected to hold off boosting interest rates until 2018.

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

Opinion: Inside the global elite’s bag of financial tricks

Easy money masks global economy’s precarious health

Shutterstock

Too much of economic growth and the accompanying bull market in stocks is the result of financial engineering. Increasingly, companies seek to improve earnings or increase their share price by means that are not necessarily directly linked to their actual business.

Companies have increased the use of lower-cost debt financing, taking advantage of the tax deductibility of interest. In private equity transactions, the level of debt is especially high. Complex securities have been used to arbitrage ratings and tax rules to lower the cost of capital.

Major benefits appear to have accrued financially to corporate insiders, bankers, and consultants.

Mergers and acquisitions as well as various types of corporate restructurings (such as spin-offs and carve-outs) have been used to create “value.” Given the indifferent results of many such transactions, the major benefits appear to have accrued financially to corporate insiders, bankers, and consultants.Share buybacks and capital returns, sometimes funded by debt, have been used to support share prices. In January 2008, prior to the global financial crisis, U.S. companies were using almost 40% of their cashflow to repurchase their own shares. Ominously, that position is similar today.

Tax arbitrage, especially by international companies operating in multiple jurisdictions, has increased post tax earnings. The use by many companies of special vehicles in low tax jurisdictions, like Ireland, evidences this trend.

Some companies have used trading to increase earnings. Oil companies can make money from trading or speculating in oil, for example. Accordingly, they can make money irrespective of whether the oil business is good or bad or the price of crude is high or low, profiting from uncertainty and volatility. It is not even necessary to produce, refine, or consume oil to benefit from its price fluctuations.

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

 

James Howard Kunstler: The World’s Greatest Misallocation Of Resources

James Howard Kunstler: The World’s Greatest Misallocation Of Resources

And why we appear poised to repeat it 
James Howard Kunstler returns to the podcast this week, observing that despite the baton being handed to a new American president, the massive predicaments we face as a society remain the same. And it seems the incoming administration is just as in denial of them as the old.

Kunstler adds fresh critique to his now decades-old warning that we are sleepwalking our way deep into the Long Emergency. The longer we delude ourselves and waste our energies in pursuit of reviving the failed “endless growth” model, the farther our journey back to a sustainable way of living will be when our current system collapses:

I don’t think there is any sense that they really know where we’re headed, what our destination is, and what the imperatives are and what the future is actually telling us that we need to do. Don’t forget that the so-called psychology of previous investment is a very powerful force in American life and it’s prompting us to do everything we can to maintain the investments we’ve already made. Those investments are the ones I have already mentioned: the freeways, the suburban housing developments, the strip malls.

A lot of the hope pinned on Trump is based on the idea that he’s assembling this team of mega-competent capitalist movers and shakers who know how to make deals — the Wilbur Rosses and Rex Tillersons of the world — and that they are going to conjure up a tremendous surge of economic activity that will be majorly fruitful going forward in the future and produce a tremendous amount of new wealth. Of course the stock market has been pricing that in.

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

Could the elimination of cash prevent an economic crisis?

Given the still subdued economic growth many experts are of the view that the presence of cash has constrained central banks from setting negative rates to stimulate a subdued economic activity. In a future economic or financial crisis, current low rates would restrict the effectiveness of monetary policy, so it is held.

The presence of cash it is argued prevents the central banks from lowering policy rates to a level, which is going to meaningfully revive economic activity. What prevents the dramatic lowering of rates is that this is going to severely hurt savers who keep their cash in various bank accounts and this is seen as politically unacceptable.

The abolishment of cash it is held is going to enhance the ability of the central banks to use negative rates (perhaps as low as minus 5 per cent per year) and this would provide central banks with additional flexibility and tools to deal with a slowdown.

Would the abolishing of cash promote economic growth?

By advocating the abolishment of cash, many experts are implying that cash can be replaced by electronic money. We hold that electronic money can function only as long as individuals know that they can convert it into fiat money, i.e. cash on demand (see, e.g., Lawrence H. White “The Technology Revolution and Monetary Evolution,” Cato Institute’s 14th annual monetary conference, May 23, 1996).

Without a frame of reference or a yardstick, the introduction of new forms of settling transactions is not possible.

Money emerged out of barter conditions to permit more complex forms of trade and economic calculation. The distinguishing characteristic of money is that it is the general medium of exchange, evolved from private enterprise from the most marketable commodity. On this Mises wrote,

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

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