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Belgian PM Warns “Next 5-10 Winters Will Be Difficult” As Energy Crisis Worsens

Belgian PM Warns “Next 5-10 Winters Will Be Difficult” As Energy Crisis Worsens

Belgian Prime Minister Alexander De Croo might have spilled the beans about the duration of Europe’s energy crisis. He told reporters Monday, “the next 5 to 10 winters will be difficult.” 

“The development of the situation is very difficult throughout Europe,” De Croo told Belgium broadcaster VRT.

“In a number of sectors, it is really difficult to deal with those high energy prices. We are monitoring this closely, but we must be transparent: the coming months will be difficult, the coming winters will be difficult,” he said. 

The prime minister’s comments suggest replacing Russian natural gas imports could take years, exerting further economic doom on the region’s economy in the form of energy hyperinflation.

Europe faces a historic energy crisis exacerbated by Russia’s war in Ukraine (and Western sanctions that have backfired). The continent heavily relies on Russia for its energy needs, importing about 40% of NatGas. At just 20% capacity with risks of going to zero next month, Russian supplies via Gazprom’s Nord Stream 1 have sent NatGas and power prices to record highs this week.

European NatGas prices soared to a record high of 277 euros per megawatt-hour on Monday, about 15 times the average summertime price. Leon Izbicki, a commodity analyst at Energy Aspects Ltd., told Bloomberg if NS1 flows come to a halt in September, prices could rise to 400 euros per megawatt-hour.

Bloomberg’s commodities reporter Javier Blas tweeted a map of day-ahead electricity prices across Europe. He called the prices “eye-watering, with lots of countries setting record highs for today.”

The shift from Russian NatGas supplies has backfired for the 19-nation eurozone. Germany, Europe’s largest economy, could be headed for a recession that will bring down the rest of the continent.

De Croo said Belgium and the eurozone must “support each other in these difficult times.”

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

The Pause…

I have frequently described “Project Zimbabwe” as a highly inflationary cycle where both fiscal and monetary stimulus go into insanity mode. While I sincerely hope we don’t go hyperinflationary like Zimbabwe, I certainly think we see an elongated period of substantial and debilitating inflation. When this cycle finally ends, society and our financial system will have been irreparably changed. For those who are aware of where we’re heading, this is going to be the golden age of inflection and Event-Driven investing. For everyone else, it will be absolutely miserable.

One point that I made last year, was that “Project Zimbabwe” will be a process. It will not be linear. Look back at old charts of Weimar Germany, they all look like parabolas, however that is quite deceptive—there was actually a whole lot of volatility. There were multiple deep pullbacks that bankrupted speculators who knew what was coming on the inflationary side but got over-levered or overstayed their welcome in the various rolling bubbles of the period. Looking into the weeds and ignoring the parabolas; there were frequent sector rotations, speculative bubbles that crested and collapsed, and multiple 50% or greater pullbacks. As I have said many times, the trick to managing “Project Zimbabwe” is to be as long as possible, without getting taken out during one of these pullbacks—especially as the increased level of stimulus warps the market’s ability to price securities, leading to violent and often arbitrary movements.

Let’s go back a century to Weimar. Most speculators knew that the government had lost control and that the only path forward was to print money. However, occasionally the politicians would try and arrest the inflation—as inflation crushes voters. Sometimes, it was an offhand quote from a government official, sometimes it was concrete action…

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

Winter is Coming for the UK

Winter is Coming for the UK

The outlook for the UK looks increasingly grim. There are few reasons to hope a new government can reverse the mounting consumer fears, stagflation and the growing sense of decline.

“Tell them the North remembers. Tell them Winter is Coming.”

This morning. The outlook for the UK looks increasingly grim. There are few reasons to hope a new government can reverse the mounting consumer fears, stagflation and the growing sense of decline.

Yesterday was cold, wet and grey. The sudden end of the glorious summer highlights how dark and bleak the mood in the UK has become. UK Consumer confidence has collapsed to levels not seen since the 1970s. London has ground to a halt with tube and rail strikes. Its not just the cost of living crisis – which, to be blunt, has only just begun and will get much, much worse as winter deepens– but folk are losing confidence in the broken mechanics of the economy, the absence of leadership and a growing sense things won’t get any better.

The country feels like its sinking into a treacle of energy-sucking, suffocating despond. Everything in Britain feels broken: the NHS is too crowded to treat patients, excess death rates show untreated cancers, heart-disease and stokes from lockdown now far outnumber Covid deaths, the police are so overloaded they have stopped even bothering to investigate crime, while airports are blocked, trains don’t work, and it really doesn’t matter because you can’t get a passport or driving licence renewed. As the rains come down, we’re under threat of dire authoritarian punishment if we dare use a garden hose – although to be fair, who is going to arrest you?

Thank heaven we’re about to get a new prime minister – SARCASM ALERT.

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

It’s Game Over for the Fed—Expect a Monetary “Rug Pull” Soon…

It’s Game Over for the Fed—Expect a Monetary “Rug Pull” Soon…

a Monetary “Rug Pull”

You often hear the media, politicians, and financial analysts casually toss around the word “trillion” without appreciating what it means.

A trillion is a massive, almost unfathomable number.

The human brain has trouble understanding something so huge. So let me try to put it into perspective.

If you earned $1 per second, it would take 11 days to make a million dollars.

If you earned $1 per second, it would take 31 and a half years to make a billion dollars.

And if you earned $1 per second, it would take 31,688 years to make a trillion dollars.

So that’s how enormous a trillion is.

When politicians carelessly spend and print money measured in the trillions, you are in dangerous territory.

And that is precisely what the Federal Reserve and the central banking system have enabled the US government to do.

From the start of the Covid hysteria until today, the Federal Reserve has printed more money than it has for the entire existence of the US.

For example, from the founding of the US, it took over 227 years to print its first $6 trillion. But in just a matter of months recently, the US government printed more than $6 trillion.

During that period, the US money supply increased by a whopping 41%.

In short, the Fed’s actions amounted to the biggest monetary explosion that has ever occurred in the US.

Initially, the Fed and its apologists in the media assured the American people its actions wouldn’t cause severe price increases. But unfortunately, it didn’t take long to prove that absurd assertion false.

As soon as rising prices became apparent, the mainstream media and Fed claimed that the inflation was only “transitory” and that there was nothing to be worried about. Then, when the inflation was obviously not “transitory,” they told us “inflation was actually a good thing.”

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

“Revolution Has Begun”: 75,000 Brits To Stop Paying Power Bills Amid Inflation Storm

“Revolution Has Begun”: 75,000 Brits To Stop Paying Power Bills Amid Inflation Storm

The resistance is growing as more than 75,000 irritated people in the UK have pledged not to pay their electricity bill this fall when prices jump again.

“75,000 people have pledged to strike on October 1st! If the government & energy companies refuse to act then ordinary people will! Together we can enforce a fair price and affordable energy for all,” tweeted “Don’t Pay UK,” an anonymous group spearheading the effort to have more than one million Brits boycott paying their power bill by Oct. 1.

The strike comes as an inflation storm of high energy prices has obliterated household incomes. Brits are the most miserable in three decades as inflation is expected to hit 13%. And while Bank of England (BoE) Governor Andrew Bailey hiked interest rates the most in 27 years to tame inflation, risks are mounting of a recession.

On Oct. 1, the average household will pay almost £300 a month for power, the BoE warned. Couple surging power costs with negative real wage growth, and it becomes apparent households are being squeezed. This excludes soaring prices for shelter, food, and petrol at the pump — this trend is unsustainable and could result in social instabilities.

British news outlet Glasgow Live said the strike is similar to the “action in the late 1980s and ’90s to fight against the poll tax brought in by PM Margaret Thatcher. In protest, 17 million people refused to pay.”

UK financial journalist and broadcaster Martin Lewis said this about the strike:

“I think I can categorise it more accurately now, the big movement that I am seeing is an increase of growth in people calling for a non-payment of energy bills, mass non-payment. Effectively a consumer strike on energy bills and getting rid of the legitimacy of paying that.

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

“Widespread Civil Unrest” Looming in UK Over Cost of Living Crisis

“Widespread Civil Unrest” Looming in UK Over Cost of Living Crisis

Movement to stop paying bills snowballs.

SOPA Images via Getty Images

The chance of “widespread civil unrest” occurring in the UK as a result of people being unable to afford to pay their bills due to the cost of living crisis is “inevitable,” according to one campaigner.

With energy prices set to soar even higher in October as a result of the sanctions on Russia, many Brits have resolved to refuse to pay their bills as part of a growing backlash some are comparing to the poll tax riots.

London was hit with violent riots back in 1990 in response to the government’s efforts to introduce the poll tax, and the new levy was eventually scrapped after a coalition of interest groups amongst both the working class and the middle class combined to defeat it.

A similar movement under the umbrella of the Don’t Pay organization is now urging people to cancel their direct debits in October if energy prices continue to rise.

Average energy bills in the UK for dual fuel are expected to rise to £3,615 by January 2023, an increase of 283 per cent on March levels.

“Millions of us won’t be able to afford food and bills this winter,” asserts the Don’t Pay manifesto. “We cannot afford to let that happen. We demand a reduction of bills to an affordable level. We will cancel our direct debits from October 1st if we are ignored.”

However, others have warned that a mass refusal to pay bills will only result in energy prices soaring even higher because more companies will leave the market, allowing fewer corporations to create pricing monopolies.

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

Fed Chairman Paul Volcker’s Thoughts On Goverance

Fed Chairman Paul Volcker’s Thoughts On Goverance

For many people, former Fed Chairman Paul Volcker’s relevance today is rooted in how he broke the back of surging inflation in 1980. He is widely credited with employing the harsh policies that ended the high levels of inflation seen in the United States during the 1970s and early 1980s. back then few people realized his brave and bold move would shape the economic system for decades.
Paul Volcker served two terms as the 12th Chair of the Federal Reserve from 1979 to 1987. He was nominated to the position by President Jimmy Carter and renominated by President Ronald Reagan. Paul Volcker died on December 8, 2019. Before his death, Volcker participated in an interview with Ray Dalio. I recently stumbled upon this video from February 2019 on YouTube. (https://www.youtube.com/watch?v=mMN17uBzCw4)

Paul Volcker was a firm believer in good governance and felt it is a key factor in keeping the nation healthy. Even back in early 2019, Volcker was unhappy with the efficiency of government management. Since then it could be argued the government has performed even more poorly. He voiced concern over how it seems today that working in government has become a revolving door where people go into a job just long enough to make contacts they can exploit when they return to the private sector.

If Volcker were alive today, it is likely he would be appalled at the current state of affairs considering the role he felt government should play in our lives. One similarity the late 70s and early 80s have in common with today is that many special situations exist that scream huge risk ahead. When we look closely at current trends, it is difficult to ignore the numbers simply do not work going forward.…click on the above link to read the rest of the article…

#228. In the eye of the Perfect Storm

#228. In the eye of the Perfect Storm

A GUIDE TO THE SURPLUS ENERGY ECONOMY

FOREWORD

The title of this report makes intentional reference to the Perfect Storm paper published by Tullett Prebon back in 2013, when I was head of research at that organization.

Since then, my efforts have been concentrated on (a) promoting discussion (at Surplus Energy Economics) about the energy basis of the economy, and on (b) building an economic model (SEEDS) founded on these principles.

Whilst theoretical debate will continue, and models can always be further refined, time has run out for the purely intellectual contest between conventional and energy-based interpretations of the economy.

Accordingly – and with due apology to those to whom much of this is already familiar – what follows is a comprehensive summary of what we know about the economy as an energy system, and what we can reasonably infer about the future based on this understanding.

INTRODUCTION

Faced with rising inflation, worsening pressure on living standards and significant nervousness in the markets, we’re at liberty – if we so choose – to ascribe all of these problems to the combined effects of the coronavirus crisis and the war in Eastern Europe, and to assure ourselves that the ‘normality’ of never-ending economic growth will return once these temporary vicissitudes are behind us.

The alternative is to face facts.

These are that prior growth in material prosperity has gone into reverse, and that a financial system erected on the mistaken presumption of ‘infinite growth on a finite planet’ faces challenges of a magnitude which eclipse all past experience.

Understood as a system supplying the goods and services which constitute material prosperity, the economy is a dynamic propelled by the supply, value and cost of energy.

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

We Are Going To See Energy Prices Go Absolutely Nuts This Winter Just As We Plunge Into A Horrifying Global Economic Crisis

We Are Going To See Energy Prices Go Absolutely Nuts This Winter Just As We Plunge Into A Horrifying Global Economic Crisis


How would you feel if your power bill went up by 50 percent this winter?  How about 100 percent?  Unfortunately, these kinds of price increases are already being announced.  The world was heading into a major energy crisis even before the war in Ukraine started, and now that conflict threatens to create an extremely severe energy crunch that would have been unimaginable just a couple of years ago.  If some sort of a miracle doesn’t happen, it is going to be a really, really cold winter for countless people in the western world.

The Russians have been trying to use energy as leverage, and on Monday they announced that the amount of natural gas flowing through the Nord Stream 1 pipeline will be reduced “to just 20% of its capacity”

The Biden administration is working furiously behind the scenes to keep European allies united against Russia as Moscow further cuts its energy supplies to the European Union, prompting panic on both sides of the Atlantic over potentially severe gas shortages heading into winter, US officials say.

On Monday, Russia’s state-owned gas company Gazprom said it would cut flows through the Nord Stream 1 pipeline to Germany in half, to just 20% of its capacity. A US official said the move was retaliation for western sanctions, and that it put the West in “unchartered territory” when it comes to whether Europe will have enough gas to get through the winter.

In essence, Vladimir Putin is “turning the screws”, and it may just be a matter of time before he cuts off the gas completely.

The Europeans never should have allowed themselves to become so dependent on Russian energy, and now a major crisis is staring them in the face.

Last Wednesday, a modest rationing plan for the member states of the EU was introduced

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

Why expensive gasoline is here to stay

Why expensive gasoline is here to stay

“Future presidents and administrations are going to be absolutely bedeviled by high gasoline prices.”

A gasoline price board is shown at a gas station.
In the short term, expectations for a drop in gasoline demand have yet to emerge. | Jeff Chiu/AP Photo

The political pain that high gasoline prices have inflicted on President Joe Biden offers a potential warning to future presidents: It’s likely to happen to you, too.

The reason: The United States’ capacity for refining oil into gasoline is declining, a trend that appears irreversible — for reasons that include climate change. But the nation’s appetite for fuel is holding firm, no matter all the predictions of a future filled with electric cars.

The result is a domestic gasoline supply on a hair trigger, making the nation more vulnerable to fuel panics that would resemble last year’s hacker-driven shutdown of the Colonial Pipeline, while feeding inflation and angering voters. Since early 2020, the United States’ fuel-producing capacity has fallen by nearly 1 million barrels per day, or about 5 percent.

“We are going to be operating a shrunken, old and in-need-of-repair refining system a lot harder,” said Bob McNally, head of consulting firm Rapidan Energy and former senior director for international energy on the National Security Council in the George W. Bush administration. “Future presidents and administrations are going to be absolutely bedeviled by high gasoline prices.”

Republicans have pummeled the Biden administration for record high gasoline prices, blaming the jump on the president’s focus on climate change and his promises to reduce the nation’s reliance on fossil fuels. But instead of being a modern outlier, the high prices may signal a new norm that future residents of the White House of either party will have to face down.

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

The world’s self-organizing economy can be expected to act strangely, as energy supplies deplete

The world’s self-organizing economy can be expected to act strangely, as energy supplies deplete

Figure 1. Chart showing average annual Brent-equivalent oil prices in 2021$ based on data from BP’s 2022 Statistical Review of World Energy, together with bars showing periods when prices seemed to be favorable to producers.

We are now in a period of price conflict. Oil and other energy prices have remained too low for producers since at least mid-2014. At the same time, depletion of fossil fuels has led to higher costs of extraction. Often, the tax needs of governments of oil exporting countries are higher as well, leading to even higher required prices for producers if they are to continue to produce oil and raise their production. Thus, producers truly require higher prices.

Governments of countries affected by this inflation in price are quite disturbed: Higher prices for energy products mean higher prices for all goods and services. This makes citizens very unhappy because wages do not rise to compensate for this inflation. Prices today are high enough to cause significant inflation (about $107 per barrel for Brent oil (Europe) and $97 for WTI (US)), but still not high enough to satisfy the high-price needs of energy producers.

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

#235. The affordability crisis

#235. The affordability crisis

What might be called the ‘consensus narrative of the moment’ is that our near-term economic prospects depend on the ability of central banks to tame inflation without tipping the economy into a severe recession. There are numerous complications, of course, but this is the gist of the story.

What these officials need to find, we’re told, are Goldilocks interest rates (‘not too hot, not too cold’), and all will be well if they succeed. If they err too far in one direction, inflation will run higher, and for longer, than is comfortable. If they lean too far the other way, a serious (though, by definition, a time-limited) recession will ensue.

Inflation itself, the narrative runs, has been the product of bad luck. First came the pandemic crisis, which impaired production capacity and severed supply-chains. Before we’d finished dealing with this, along came the war in Ukraine, disrupting supplies of energy, food and other commodities. There are some who add, sotto voce, that we might have overdone pandemic-era stimulus somewhat.

Our hardships, then, can be put down to a run of bad luck. Those in charge know what they’re doing.

It’s conceded, in some quarters, that we might face some sort of crisis if these challenges aren’t managed adroitly. This, though, shouldn’t be as bad as the GFC of 2008-09, and certainly won’t be existential.

We’re navigating choppy waters, then – not going over Niagara in a barrel.

The affordability reality

There is some truth in each of these propositions, but explanation in none.

What we’re really encountering now is an affordability crisis. The aim here is to explain this, without going into too much detail, and with data confined to two sets of SEEDS-derived charts at the end of this discussion.

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

Bigger than you can imagine

Bigger than you can imagine

What I “remember” of the 1970s is actually very limited.  Most of what I think of as “my memories” have, in fact, been generated by various retrospective media coverage of the period which provide the framework into which my scraps of memory have been slotted.  And the younger someone is, the more their view of the 1970s will have been shaped by media rather than memory.  And so, it has been all too easy for today’s lazy news coverage to frame our current woes through the lens of an imaginary 1970s.

The crisis now unfolding, however, is entirely different to the 1970s in one crucial respect… The 1970s crisis was largely artificial.  When all is said and done, the oil shock was nothing more than the emerging OPEC cartel asserting its newfound leverage following the peak of continental US oil production…

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

US Consumer Prices Soared In June, Americans’ Real Wages Fall For 15th Straight Month

US Consumer Prices Soared In June, Americans’ Real Wages Fall For 15th Straight Month

With The White House having desperately tried to front-run this morning’s inflation print, analysts were expecting a jump higher led by food and energy costs. They were right in direction but it was way worse as the headline CPI soared 9.1% YoY (vs 8.8% exp and 8.6% prior)…

Source: Bloomberg

The 1.3% MoM rise is the hottest since 2005…

Source: Bloomberg

…and the 9.1% YoY is the hottest since 1981.

Source: Bloomberg

Goods inflation is slowing but services costs are soaring at their fastest since 1991…

Source: Bloomberg

Under the hood, energy costs dominated the rise, but the rent index rose 0.8 percent over the month, the largest monthly increase since April 1986.

The motor vehicle maintenance and repair index increased 2.0 percent in June, its largest increase since September 1974.

The index for dental services increased 1.9 percent in June, the largest monthly change ever recorded for that series, which dates to 1995.

Focusing on the roof over your head factor, shelter inflation +5.61%, up from 5.61%, highest since 1992, and rent inflation +5.78%, up from 5.22%, highest since 1986

Real wages fell for the 15th month in a row… (Americans’ purchasing power domestically fell by a record 3.6% YoY in June)

Developing…

Finally, the S&P has ended the day lower on 5 of the last 6 CPI days…

Trade accordingly.

Pulling Back The Curtain On The ‘Real’ US Economy

Pulling Back The Curtain On The ‘Real’ US Economy

Revised numbers on US GDP from the Bureau Of Economic Analysis indicate that the economy faces a deeper contraction than originally reported.  GDP shrank in the first quarter of 2022 by 1.6%; this is an impressive and sharp reversal from the fourth quarter of last year, which saw GDP grow by 6.9% due primarily to the continued circulation of covid stimulus dollars and consumer credit spending.

It’s important to keep in mind that this plunge in GDP occurred BEFORE the Federal Reserve started raising interest rates.  Meaning, the Fed did in fact raise rates into economic weakness, much like they did during the onset of the Great Depression, causing even more damage to the economy in the process and prolonging the effects of the crisis.  The difference this time is that we do not face a standard deflationary threat, but a stagflationary one.  It’s a completely different ballgame.

Calls for recession are ample from the mainstream financial media and many alternative analysts, though the assumption among many is that price inflation will track down as the recession pressures grow.  This may not be the case.

Loss of buying power in the dollar due to central bank stimulus and numerous supply chain issues indicate an extended period of price inflation well into next year.  Furthermore, with foreign central banks now incrementally dropping the dollar as the world reserve currency, there will be even more dollars flooding into the US from overseas. That’s too many dollars chasing too few goods and services.

…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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