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The 1950s were a turbulent time on both sides of the Iron Curtain. With the Second World War over and the star role played by crude oil in its outcome, British and U.S. intelligence agencies wasted no time working out scenarios should the Soviets invade the Middle East.

In hindsight, especially to younger generations, this might seem eccentric, but not to those who remember the Cold War and the paranoia that raged on both sides. In the 50s, the British and U.S. intelligence services were genuinely concerned about a further Soviet expansion, into the Middle East, which at the time was the main source of crude oil for both countries. No wonder the region was a priority security issue for both countries.

The plans were first hatched by U.S. President Truman in 1949, Russian Sputnik writes, citing a number of recently declassified documents from both the UK and the United States. Dubbed “oil denial”, the plans involved oil company personnel in the Middle East sabotaging their own oilfields and refineries in case of a Soviet invasion, in hopes of restricting the invaders’ access to the precious commodity.

While sound in themselves, the denial plans of the Brits faced problems: the empire’s influence in the Middle East was in decline. Iran’s and Iraq’s governments, according to declassified documents, were believed to be particularly unlikely to cooperate with oil companies in sabotaging their own oil industry.

The reason for this was that the UK no longer had a monopolistic presence in these two, despite the U.S.-led 1953 coup in Iran, which returned the shah to power and BP to the helm of the Iranian oil industry. BP was at the helm, true, but the Iranian government controlled the refineries, and was building more. The Soviet invasion scenario involved not just oilfields but also refineries.

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

Mining CEO Warns Of Massive Deficits: “We’re At Critical Levels… Less Than 10 Days Of Supply”

January 22, 2018

Mining CEO Warns Of Massive Deficits: “We’re At Critical Levels… Less Than 10 Days Of Supply”

With much of the investment world focused on crypto currencies and blockchain, it’s no surprise that the fundamental building blocks of the physical world have been ignored for so long. The focus in recent years has been on mining digital assets, but in the real world mining companies that specialize in essential metals like silver and zinc have been warning of massive deficits that, as SGT Report notes in a recent interview with Callinex Mines CEO Max Porterfield, could easily lead to supply shortages.

With President Trump recently announcing a national infrastructure budget of over $1 trillion dollars and tensions on the Korean peninsula mounting, prices for base metals could rise sharply in coming months and years. Max Porterfield explains:

The growing conflict between North Korea and the United States continues to get stronger… North Korea doesn’t seem to be backing down at all…. This is going to potentially have a dramatic impact on the zinc market… People don’t realize that 55% of refined zinc production comes from three countries… China, Japan and South Korea…

The zinc market is already very, very tight… we’re in a supply deficit… you look at zinc inventories and those inventories are less than 10 days of zinc supply… and it has declined over 85% since 2012… we’re at critical levels.

The following chart shows just how much stockpiles are plummeting while demand continues to rise:

30-day-zinc-lme

In short, one misstep and the entire supply side could run dry. Which would mean that the prices for base metals used to manufacture most of the products and infrastructure we use on a daily basis could skyrocket:

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

The energy of Bitcoin, the information economy and the (possible) decentralization of the world

January 21, 2018

The energy of Bitcoin, the information economy and the (possible) decentralization of the world

The near vertical rise and fall in price of the cryptocurrency Bitcoin in recent months has been accompanied by reporting about the energy used to run the Bitcoin network. The amount is enormous, more than enough to supply the entire country of Ireland.

Many other cryptocurrencies operate under less energy-intensive designs. But the more than 1,000 other digital coins beyond Bitcoin certainly use a considerable amount of energy though there is no overall estimate I’m aware of. (For the technically minded, here is a discussion of two popular methods associated with validating transactions, one of which is considerably less energy-intensive.)

We’d like to think that the information economy of which these newfangled currencies are part bears lightly on the broader environment. But as I pointed out in my piece “The Unbearable Lightness of Information,” much of what happens in the information economy is simply focused on extracting more resources more quickly to create more goods and services for more customers. The physical economy isn’t disappearing. It is merely being exploited more completely using digital information.

And beyond this, “Every person who works in the so-called information sector of the economy must be housed, clothed, schooled, provided transportation, provisioned with household goods, given opportunities for entertainment and recreation, [and] supplied with a wide array of public services.”

Having said all this, I find one aspect of the blockchain technology behind the explosion in digital currencies to be promising. This technology offers a possible path for decentralizing banking and finance and myriad other Internet-related services we’ve come to rely on from big corporations.

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

Gail Tverberg: The Coming Energy Depression

January 8, 2018

Gail Tverberg: The Coming Energy Depression

The math is straightforward, but cruel

As most PeakProsperity.com readers know, we fully agree with the statement: Energy is THE master resource.

Without it, nothing can get done.

Energy analyst and professional actuary Gail Tverberg returns to the podcast this week to revisit the global energy outlook. And fair warning, Gail warns it’s quite grim.

To her, it’s a simple math problem. We have too many people placing too much demand on the world’s depleting energy resources. The cost of energy is rising, which we are compensating for in the short term by using financial gimmicks to make “affordable” — when all we’re really doing is creating future promises that cannot possibly be repaid.

The increasing cost of energy is manifesting in higher prices (for everything, not just fuels) and lower real wages, a divergence she sees only worsening from here. This path leads to another Great Depression-style crisis from which she does not see a clear path out of:

What we really live on is what we pull out of the ground each year, in terms of oil or coal or natural gas or whatever. So what we have is just what we pull out.

Now, you accurately point out that we’re making too many claims on the future using debt. We’re actually doing this via a couple of different ways, which are pretty much equivalent. One of them is by issuing equity. This has the equivalent effect as using debt because what you’re saying is I’ll pay you dividends, and you’re going to get a higher price in the future. This is simply different kind of claim on the future. Another way to borrow from the future is through government promises.

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

Human well-being, economic growth and so-called decoupling

December 3, 2017

Human well-being, economic growth and so-called decoupling

Some people claim that humans—called breatharians—can live on air alone. Others claim we can have economic growth without increasing our resource use, so-called decoupling. Neither claim withstands scrutiny though here I am only going to deal with the second one.

Hidden beneath the claim of decoupling is the assertion that human well-being and economic growth are synonymous. But, human well-being is far from a one-dimensional economic variable linked unalterably to more income and consumption. So, saying that economic growth must at some point come to an end to maintain the habitability of the planet is not the same as saying that human well-being must also stop improving.

On the contrary, a stable society in harmony with the workings of the natural world in a way that maintains the habitability of the biosphere for humans would seem to be an essential characteristic of a society which offers a high degree of well-being to humans. Destroying that habitability through endless economic growth then is contrary to human well-being in the long run.

All of this should seem obvious. But so often the advocates of growth or “sustainable” growth tell us that ending growth would destroy the chance for countless people to attain well-being in our modern industrial world. While that has some truth within the narrow context that measures well-being as a function of economic output, it misses the point above. An uninhabitable world is really, really bad for human well-being.

The answer these advocates say is economic growth decoupled from increased resource use. But as two recent papers suggest, this is an oxymoron.

As “Is Decoupling GDP Growth from Environmental Impact Possible?” explains,while society has been getting gradually more efficient at producing goods and services, we are not anywhere near economic growth without increased resource use. The apparent decoupling in Germany and some other countries is probably due to the following factors:

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

Tim Jackson: The High Price Of Growth

October 16, 2017

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 21^st 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…

This Is What Collapse Looks Like: ‘Roving Gangs Fight For Resources… Aid Workers Being Held At Gunpoint In Puerto Rico’

October 1, 2017

This Is What Collapse Looks Like: ‘Roving Gangs Fight For Resources… Aid Workers Being Held At Gunpoint In Puerto Rico’

What does it look like when the entire system around you collapses?

The fallout in Puerto Rico, which has left a devastating impact with no food on grocery store shelves or electricity to over three million people, gives us a glimpse:

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The Daily Sheeple @TheDailySheeple

#PUERTORICO: ROVING GANGS, AID WORKERS BEING HELD AT GUNPOINT DELIVERING SUPPLIES#PuertoRicoCrisis

12:32 PM – Oct 1, 2017

As Daisy Luther of The Organic Prepper recently noted in What It’s Really Like After the SHTF, the situation with essential services and supplies is desperate and untenable:

Many homes were completely destroyed.
There is hardly any potable water.
Hospitals are struggling to keep people alive.
There isn’t much food.
There is little communication.
Help has been slow to arrive

In her widely popular guide The Prepper’s Blueprint, Tess Pennington of ReadyNutrition.com explains, with countless references to real-life events, how society and the system as we have come to know it can rapidly come to a standstill. Such disastrous aftermaths are, in fact, nothing new and have been repeated time and again throughout history:

Disasters have been going on for centuries and for someone to think they are untouchable is naive. Roughly 1% of Americans are adequately prepared for a disaster. The other 99% – well it’s not so good for them. Since disasters tend to have a mind of their own and the capacity to cripple our normal way of life, we want to create a well-rounded approach to our preparedness efforts.

…Disasters do not discriminate. In the aftermath of the event, you will be on your own, left to provide for your family with the supplies and knowledge you have accrued. If you are prepared with the mental and spiritual foundation to overcome a disaster, then you will transition into survival mode more quickly.

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

Cooperation Versus Competition: An Evolutionary Perspective

September 22, 2017

COOPERATION VERSUS COMPETITION: AN EVOLUTIONARY PERSPECTIVE

Charles Darwin is credited for forming the idea of evolution. During his explorations around the world and his intimate observation of how animal and plant life evolved over time, he came to believe that everything followed one basic maxim: “the survival of the fittest.”

This theory states that organisms will inherently struggle against one another in competition for limited resources that make life possible. Following from this logic, only the strongest, most robust and most adapted species are thus able to survive the evolutionary struggle. The emergence of life, then, is based on competition alone and individualistic competitive drive is one of the most important and a necessary trait if a species wants to survive. In essence, this theory of evolution has also given justification to everything from capitalist economic theory to pathological ideas of Social Darwinism that believed that the dominance of the Caucasian race obeyed unchangeable physical laws.

But is it true? Is life simply the outcome of cutthroat competition? Elizabeth Sahtouris is an American evolutionary biologist that is most well known questioning some of Darwin´s most basic assumptions about the evolution of life. Sahtouris says that “Darwin was right about species competing for resources but he never saw beyond it as just one stage in the maturation cycle. Evolution proceeded when crises created by species forced them to go beyond “survival of the fittest” and find cooperative strategies for survival.”

The survival of the fittest competition, then, is but one stage of a larger evolutionary cycle. Sahtouris mentions the example of how the very first bacteria that began life over 4 billion years ago spent billions of years in the competitive stage of their evolution. This competitive drive allowed them to colonize large areas of the earth and advance life itself, but had they continued with their purely selfish and competitive drive, they would have eventually died out.

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

Joseph Tainter: The Collapse Of Complex Societies

June 26, 2017

Joseph Tainter: The Collapse Of Complex Societies

What history predicts about our future prospects

By popular demand, we welcome Joseph Tainter, USU professor and author of The Collapse Of Complex Societies (free book download here).

Dr. Tainter sees many of the same unsustainable risks the PeakProsperity.com audience focuses on — an overleveraged economy, declining net energy per capita, and depleting key resources.

He argues that the sustainability or collapse of a society follows from the success or failure of its problem-solving institutions. His work shows that societies collapse when their investments in social complexity and their energy subsidies reach a point of diminishing marginal returns. From Tainter’s perspective, we are likely already past the tipping point towards collapse but just don’t know it yet:

Sustainability requires that people have the ability and the inclination to think broadly in terms of time and space. In other words, to think broadly in a geographical sense about the world around them, as well as the state of the world as a whole. And also, to think broadly in time in terms of the near and distant future and what resources will be available to our children and our grandchildren and our great grandchildren.

One of the major problems in sustainability and in this whole question of resources and collapse is that we did not evolve as a species to have this ability to think broadly in time and space. Instead, our ancestors who lived as hunter-gatherers never confronted any challenges that required them to think beyond their locality and the near term(…)

We have developed the most complex society humanity has ever known. And we have maintained it up to this point. I have argued that technological innovation and other kinds of innovation evolve like any other aspect of complexity. The investments in research and development grow increasingly complex and reach diminishing returns.

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

CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry

February 25, 2017

CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry

According to Continental Resources website, it labels itself as America’s oil champion. To be a champion, one is supposed to be winner. Unfortunately for Continental, it’s taking a serious beating and is a perfect example of what is horribly wrong with the U.S. Shale Oil Industry.

During the beginning of the U.S. shale energy revolution, the industry stated it would make the United States energy independent. The mainstream media picked up this positive theme and ran with it. Americans who wanted to believe in this “Growth forever” notion, had no problem going further into debt to buy as much crap as they could to fill their homes with and additional rental storage units.

For several years, the U.S. Shale Revolution seemed like it was going to defy the laws of gravity (and finance) to provide the country with limitless oil production forever. However, something started to go seriously wrong as these shale oil companies reported their financial earnings. One by one, these oil companies financial losses and debts continued to pile up.

And a perfect example, or the “Poster child”, of what is horribly wrong with the U.S. Shale Oil Industry is none other than Continental Resources.

Again, if you go to Continental Resources website, they proudly label themselves as “America’s Champion Oil Company”:

(courtesy of Continental Resources)

Maybe Continental was America’s oil champion at one time, however if we look at their financial results, they have been receiving some serious blows to their mid section. Looking at the company’s free cash flow since 2010, it isn’t a pretty picture:

From 2010 to 2016 YTD (year to date – Q3 2016), Continental (ticker CLR) has spent a stunning $7.6 billion more on capital expenditures (CAPEX) than they made in operating cash. Of course this had a negative impact on their balance sheet.

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

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

January 23, 2017

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…

2017: The Year When the World Economy Starts Coming Apart

January 11, 2017

2017: The Year When the World Economy Starts Coming Apart

Some people would argue that 2016 was the year that the world economy started to come apart, with the passage of Brexit and the election of Donald Trump. Whether or not the “coming apart” process started in 2016, in my opinion we are going to see many more steps in this direction in 2017. Let me explain a few of the things I see.

[1] Many economies have collapsed in the past. The world economy is very close to the turning point where collapse starts in earnest.

Figure 1

The history of previous civilizations rising and eventually collapsing is well documented.(See, for example, Secular Cycles.)

To start a new cycle, a group of people would find a new way of doing things that allowed more food and energy production (for instance, they might add irrigation, or cut down trees for more land for agriculture). For a while, the economy would expand, but eventually a mismatch would arise between resources and population. Either resources would fall too low (perhaps because of erosion or salt deposits in the soil), or population would rise too high relative to resources, or both.

Even as resources per capita began falling, economies would continue to have overhead expenses, such as the need to pay high-level officials and to fund armies. These overhead costs could not easily be reduced, and might, in fact, grow as the government attempted to work around problems. Collapse occurred because, as resources per capita fell (for example, farms shrank in size), the earnings of workers tended to fall. At the same time, the need for taxes to cover what I am calling overhead expenses tended to grow. Tax rates became too high for workers to earn an adequate living, net of taxes. In some cases, workers succumbed to epidemics because of poor diets. Or governments would collapse, from lack of adequate tax revenue to support them.

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

Death to All Zombies!

July 3, 2016

Death to All Zombies!

Wait a minute. They’re already dead. Brexit just reveals that not everybody’s brains have been eaten. A viral contagion now threatens the zombified institutions of daily life, especially the workings of politics and finance. Just as zombies exist only in the collective imagination, so do these two principal activities of society operate mainly on trust, an ephemeral product of the hive-mind.

When things fall apart in stressed complex systems, they tend to fall apart fast. It’s called phase change. Too many things in 21st century life have depended on sheer trust that the people-in-charge know what they are doing. That trust has subsisted on the doling out of money-from-nothing: debt, reckless bond issuance. TARP, QEs, bailouts, bail-ins, Operation Twists, Ponzi schemes… the whole sad-ass armamentarium of banking necromancy. The politicians let it get out of hand. Things that can’t go on don’t, and now they won’t.

The politics of Great Britain are now falling apart landslide-style. Since just about everybody in or near power can be blamed for the national predicament, there’s nobody to turn to, at least not yet. The Labour party just acted out The Caine Mutiny, starring Jeremy Corbyn as Captain Queeg. The Tory Cameron gave three months notice without any plausible replacement in view. Now Cameron’s people are hinting in the media that they can just drag their feet on Brexit, that is, not do anything to enable it from actually happening for a while. Of course, that’s what the monkeyshines of banking and finance have done: postponed the inevitable reckoning with the realities of our time: growing resource scarcity, population overshoot, climate change, ecological holocaust, and the diminishing returns of technology.

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

Which Countries Will Be Tomorrow’s Winners & Losers?

May 14, 2016

Cienpies Design/Shutterstock

Which Countries Will Be Tomorrow’s Winners & Losers?

Resources, capital flows & demographics will be key

The dictum “demographics is destiny” proposes that all the complexities of finance, society and politics are ultimately guided by demographics: the relative size of each generation, birth rates, death rates, etc.

For example, an oversized generation of retirees and an undersized generation of workers to support them has far-reaching consequences that can’t be legislated away.

The influence of demographics isn’t limited to pension costs. Some analysts have made the case that oversized generations of young men align all too well with the launching of wars.

The point is that birth/death rates—low and high–have consequences that impact national destinies for decades.

Another school holds that geography is destiny: if a nation’s geography is favorable, the barriers to prosperity and stability are low, while the barrier is high for nations with unfavorable geography.

Peter Zeihan, author of the 2014 book, The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global Disorder, lists the core geographic attributes that are either favorable or unfavorable in ways that influence a nation’s long-term prosperity and built-in geopolitical challenges.

What does geography have to do with prosperity, stability and geopolitical risks?

Navigable rivers that reach deep into productive interior regions lower costs of transport dramatically, while natural harbors enable low-cost access to international markets via ships.

Natural barriers to invasion such as oceans, deserts and mountain ranges dictate whether a nation must spend heavily on military defense of the homeland or whether the cost of defense is lightened by favorable geography.

Zeihan extends geography into the political realm, noting that nations with difficult-to-defend borders require a strong central government to organize taxation and defense, while nations with few contiguous threats (for example, the U.S.) can be governed in a more decentralized fashion.

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

Corruption, resources, climate and systemic risk

April 10, 2016

Corruption, resources, climate and systemic risk

Corruption is a loaded word. One person’s corruption is another’s sound social policy. Some people believe providing unemployment benefits to laid-off workers corrupts them by making them “lazy.” Many others think such benefits are sound social policy in an economic system that is prone to major cyclical ups and downs.

Fewer people agree that bailing out major U.S. banks at taxpayer expense in the aftermath of the 2008 crash was a good use of public money. An alternative would have been for the U.S. government to seize the banks, inject funds to stabilize them, and then resell them to investors, perhaps at a profit.

Was it corruption that led to the bailout instead of a takeover? Or was it an honest difference of opinion about what would work best under emergency circumstances?

We can argue whether these examples of transfers of funds from one group to another are fair. But by themselves they do not constitute a systemic risk to the stability of the entire economic and social system. In fact, some would argue that such transfers enhance that stability. However one evaluates these transfers, I would contend that a much worse corruption is to subject our society knowingly to systemic failures such as severe climate change and widespread crop failures.

To understand this contention, we must review the material basis for our modern society. Despite all the hype about the service economy, the activities which make the service economy even possible are agriculture, fishing, forestry, mining and manufacturing. These sectors create the surplus food and fiber, the surplus energy and minerals, and the surplus goods that allow so many of us to do something other than farm, fish, log, mine or manufacture goods.

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

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