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Abstract The human enterprise is in overshoot; we exceed the long-term carrying capacity of Earth and are degrading the biophysical basis of our own existence. Despite decades of cumulative evidence, the world community has failed dismally in efforts to address this problem. I argue that cultural evolution and global change have outpaced bio-evolution; despite millennia of evolutionary history, the human brain and associated cognitive processes are functionally obsolete to deal with the human eco-crisis. H. sapiens tends to respond to problems in simplistic, reductionist, mechanical ways. Simplistic diagnoses lead to simplistic remedies. Politically acceptable technical ‘solutions’ to global warming assume fossil fuels are the problem, require major capital investment and are promoted on the basis of profit potential, thousands of well-paying jobs and bland assurances that climate change can readily be rectified. If successful, this would merely extend overshoot. Complexity demands a systemic approach; to address overshoot requires unprecedented international cooperation in the design of coordinated policies to ensure a socially-just economic contraction, mostly in high-income countries, and significant population reductions everywhere. The ultimate goal should be a human population in the vicinity of two billion thriving more equitably in ‘steady-state’ within the biophysical means of nature.

Introduction: Evolution and humanity’s eco-predicament This article attempts a more-than-usually systemic assessment of the human eco-predicament. It is inspired by two related facts: First, the human population substantially exceeds the long-term carrying capacity of Earth even at current average material standards. We are in overshoot, a state in which excess consumption and pollution are eroding the biophysical basis of our own existence (GFN, 2022a; Rees, 2020a). Second, national government and international community responses to even the most publicised symptom of overshoot, climate change, have been dismally limited and wholly ineffective (Figure 1).

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Global Economies Suffer “Largest Drop On Record”: OECD

April 8, 2020

Global Economies Suffer “Largest Drop On Record”: OECD

In case anyone needed more proof that the entire world is sliding into recession, if not outright depression, on Wednesday morning the Organisation for Economic Cooperation and Development said that major economies are seeing the biggest monthly slump in activity ever amid the coronavirus crisis and no end is in sight without clarity about how long lockdowns will last.

The OECD said its leading indicators, which are designed to flag turning points in economic activity, suggested all major economies had plunged into a “sharp slowdown” with only India registering as being in a mere “slowdown”.

The indicators were flagging “the largest drop on record in most major economies”, the Paris-based OECD said in statement, adding that huge uncertainty over how long lockdowns would last severely muted their predictive value.

The Long-Term Impact of Coronavirus on the Global Economy

As a result, the OECD said the indicators “are not yet able to anticipate the end of the slowdown, especially as it is not yet clear how long, nor indeed severe, lockdown measures are likely to be”. Last month, the OECD estimated that each month major economies spend in lockdown knocked 2% off their annual growth.

Yet while the OECD has no idea what will happen, traders appears to be convinced that the worst is now behind us. As Rabobank wrote this morning, the stock market rallies of the past two days are despite the fact that neither economic nor earnings data have really begun to unveil the enormity of the economic crisis that the world has been plunging into in the past few weeks.

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China Is Disintegrating: Steel Demand, Property Sales, Traffic All Approaching Zero

February 14, 2020

China Is Disintegrating: Steel Demand, Property Sales, Traffic All Approaching Zero

In our ongoing attempts to glean some objective insight into what is actually happening “on the ground” in the notoriously opaque Chinese economy which has been hammered by the Coronavirus epidemic, yesterday we showed several “alternative” economic indicators such as real-time measurements of air pollution (a proxy for industrial output), daily coal consumption (a proxy for electricity usage and manufacturing) and traffic congestion levels (a proxy for commerce), before concluding that China’s economy appears to have ground to a halt.

That conclusion was cemented after looking at some other real-time charts which suggest that there is a very high probability that China’s GDP in Q1 will not only flatline, but crater deep in the red for one simple reason: there is no economic activity taking place whatsoever.

We start with China’s infrastructure and fixed asset investment, which until recently accounted for the bulk of Chinese GDP. As Goldman writes in an overnight report, in the Feb 7-13 week, steel apparent demand is down a whopping 40%, but that’s only because flat steel is down “only” 12% Y/Y as some car plants have ordered their employee to return to work (likely against their will as the epidemic still rages).

However, it is the far more important – for China’s GDP – construction steel sector where apparent demand has literally hit the bottom of the chart, down an unprecedented 88%, or as Goldman puts it, “construction steel demand is approaching zero.”

But wait, there’s more.

Courtesy of Capital Economics, which has compiled a handy breakdown of real-time China indicators, we can see the full extent of just how pervasive the crash in China’s economy has been, starting with familiar indicator, the average road congestion across 100 Chinese cities, which has collapsed into the New Year and has since failed to rebound.

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The Hidden Revelation

January 20, 2019

The Hidden Revelation

The current government shutdown (the longest in history) comes with a hidden revelation: Millions of Americans are financially unprepared for the next economic downturn. Worse, they are highly vulnerable with few protections.

10 years after the financial crisis the economic recovery has left millions behind with little to no savings and the government shutdown serves as a preview for what will happen once unemployment rises.

Within just a few weeks into the government shutdown people are struggling to cope. We hear of stories of people turning to food banks to feed their families during the shutdown. We hear stories of people who are in dire straights because they can’t get loans and of people who can’t pay their mortgages as payments come due. That’s not even a month into the shutdown.

Why do a few weeks of no pay turn into a crisis for many families? Simple: Nearly 80% of Americans live paycheck to paycheck. That’s a problem when you have little to no savings. In fact it’s akin to playing financial Russian roulette.

And the problem is terrifyingly pervasive. According to a recent GoBankingRates surveyonly 21% of Americans have more than $10,000 in savings with nearly 60% having less than $1,000 in savings:

This savings free game of complacency works as long as people have a steady paycheck coming in and as long as rates stay low. But they are not staying low even though the Fed may stay patient again this year as they have proclaimed in recent days.

As a matter of fact the cost of carrying debt, especially the revolving credit card type have exploded higher since the Fed started slowing raising rates. Think I’m exaggerating? How about this: Interest rates on credit cards by commercial banks are now as high as they were in 2000:

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2019: World Economy Is Reaching Growth Limits; Expect Low Oil Prices, Financial Turbulence

January 13, 2019

2019: World Economy Is Reaching Growth Limits; Expect Low Oil Prices, Financial Turbulence

Financial markets have been behaving in a very turbulent manner in the last couple of months. The issue, as I see it, is that the world economy is gradually changing from a growth mode to a mode of shrinkage. This is something like a ship changing course, from going in one direction to going in reverse. The system acts as if the brakes are being very forcefully applied, and reaction of the economy is to almost shake.

What seems to be happening is that the world economy is reaching Limits to Growth, as predicted in the computer simulations modeled in the 1972 book, The Limits to Growth. In fact, the base model of that set of simulations indicated that peak industrial output per capita might be reached right about now. Peak food per capitamight be reached about the same time. I have added a dotted line to the forecast from this model, indicating where the economy seems to be in 2019, relative to the base model.¹

Figure 1. Base scenario from The Limits to Growth, printed using today’s graphics by Charles Hall and John Day in Revisiting Limits to Growth After Peak Oil with dotted line at 2019 added by author. The 2019 line is drawn based on where the world economy seems to be now, rather than on precisely where the base model would put the year 2019.

The economy is a self-organizing structure that operates under the laws of physics. Many people have thought that when the world economy reaches limits, the limits would be of the form of high prices and “running out” of oil. This represents an overly simple understanding of how the system works. What we should really expect, and in fact, what we are now beginning to see, is production cuts in finished goods made by the industrial system, such as cell phones and automobiles, because of affordability issues.

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China Vows More Stimulus With Economy On Verge Of Contraction

October 31, 2018

China Vows More Stimulus With Economy On Verge Of Contraction

Overnight, China revealed the latest confirmation that its economy is slowing more conventional wisdom realizes when the National Bureau of Statistics reported that the manufacturing PMI fell to 50.2 in October – on the verge of a sub-50 contraction – down from 50.8 in September and below the 50.6 estimate. It was also the lowest number since July 2016 with almost all sub-indexes showing weaker growth momentum. The NBS non-manufacturing PMI also missed, printing at 53.9, and declining from 54.9 due to the weaker services PMI.

Commenting on the report, Goldman said that “growth faced increased downward pressures in the manufacturing sector” and highlighting the continued decline of trade-related indexes, noted that “weaker external demand has possibly weighed on activity growth in the manufacturing sector.” Meanwhile, weaker auto sales also translated into soft auto manufacturing activities and dragged on overall manufacturing growth.

Goldman also blamed “slower property transactions” for the drop in the services PMI, which was further impacted by the the drop in the stock market : the NBS observed that the October PMI reading for the securities industry was the lowest this year, excluding the Chinese New Year months.

But most importantly, Goldman – as well as most China watchers – took the report to indicate further accommodative policy would be ushered in by Beijing to support contracting economic growth (Goldman expects one more RRR cut before the end of this year).

Perhaps hearing this request, on Wednesday China’s leadership vowed that further stimulus is being planned to prevent the broad slowdown from taking hold. Admitting that Beijing’s cocktail of fiscal and monetary stimulus has been behind the curve, a Wednesday Politburo meeting chaired by the president said that “downward pressure” is increasing, and the government needs to take timely measures to counter this.

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Oil Prices At Risk Of Economic Downturn

July 19, 2018

Oil Prices At Risk Of Economic Downturn

Oil prices have retreated as disrupted supply from Libya has started to come back online, threatening the recent gains in oil prices. But a bigger threat to crude over the second half of 2018 and into 2019 is a slowdown in the global economy.

The International Monetary Fund warned in its latest World Economic Outlook that a series of threats to economic growth are brewing. The Fund maintained its projection for solid global GDP growth of 3.9 percent for both 2018 and 2019 – rather robust figures – but said that “the expansion is becoming less even, and risks to the outlook are mounting.”

“Growth generally remains strong in advanced economies, but it has slowed in many of them, including countries in the euro area, Japan, and the United Kingdom,” the IMF said.

As John Kemp of Reuters points out, these are signs that the U.S. economy is in a late stage of an economic growth cycle, with growth topping out, inflation picking up, rising interest rates and an inversion in the yield curve for U.S. treasuries, which tends to precede recessions.

As has happened in the past, the last phase of an economic expansion has often coincided with a surge in oil prices, which is then followed by both a dip in oil prices and an economic contraction. The recessions following the price spikes in 1973 and 2008 are the most obvious, but not the only examples.

Others take a different tack, arguing that rising oil prices need not be a drag on the economy. “[T]he rise in oil and commodity prices today is leading to a recovery in pricing power for commodity companies and an improvement in terms of trade for commodity-exporting nations, thus providing support to capex in these segments,” Morgan Stanley’s chief economist and global head of economics Chetan Ahya wrote in May.’

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James Howard Kunstler: The Coming Economy Of “Less”

March 12, 2018

perfectlab/Shutterstock

James Howard Kunstler: The Coming Economy Of “Less”

Society is approaching a breaking point.

In this wide-raging discussion ranging from the pervasiveness of propaganda in today’s media to the risk of nuclear war, Kunstler also re-news his warnings of a current secular economic slowdown.

After too many years of market interventions, magical thinking, racketeering, and bleeding the 99% dry, he warns that our culture and economic system will soon reach a snapping point:

The important story is what happens in the financial sector and how it effects the economy in the next twelve to eighteen months. As we know, the financial system is the most abstract and fragile of all the systems that we depend on because the other systems can’t run without it. The trucks won’t make the food deliveries to the supermarkets unless the finance system works. The gasoline won’t get to the pumps at the stations.

Nothing’s going to move if the financial system cracks up. People no longer trust each other to transact, to get paid. And so they stop transacting.

We’re talking about a falling standard of living and getting used to an economy of “less”. It sounds kind of Ebenezer Scrooge-ish to suggest that people may have to do with less rather than more, because more has always been the expectation in our lifetime. But that’s probably a fact. And as I’ve said more than once, reality has mandates of its own. Circumstances are going to inform us about how this economy is emerging and where we need to go with it. And we can either pay attention or just sit there with our fingers in our ears.

What we’re talking about here is the armature of our culture and economy that people hang their lives on. And that armature is crumbling. There are fewer things that people can hang a life on in a meaningful way, or a way that even ensures that they can have a little bit of security looking into even a short-term future.

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Why the Next Downturn “Will Not Look Like 2008”

January 25, 2018

Why the Next Downturn “Will Not Look Like 2008”

Nine years of scorched-earth monetary policies come home to roost.

There are always cycles. The current cycle started at the bottom of the Great Recession and will last “until central banks put on the brakes,” said Ray Dalio, founder of Bridgewater Associates, in an interview with Bloomberg. “We’re in a perfect situation, inflation is not a problem, growth is good, but we have to keep in mind the part of the cycle we’re in.”

We’re “in the late stage of the cycle, a period that might last two years,” he said without specifying how far we’re already into that late stage. We do know that the Fed is gingerly taking the foot off the gas though it hasn’t yet slammed on the brakes.

“When the operating rate gets high enough, when central banks think they should put on the brakes,” he said, “that’s part of the cycle.”

“From 2008 until the central banks put on the brake we have one kind of environment. So now we are closer to its capacity constraints… and we’re still going to have a lot of stimulation… in particular short-term stimulation,” and there is “a lot of cash on the sidelines” by investors, banks, consumers, and companies. “And they can feel that they’re being left out. It feels stupid to own cash in this kind of environment.”

He thinks this environment “is going to be great for earnings and great for stimulation of growth.” But “we have to look beyond that: What is monetary policy going to be in that?”

This short-term stimulus is producing a “spurt,” and this “will be a 12-to-18-month spurt,” and while that spurt is taking place, and while people feel stupid about holding cash, the central banks “will have to tighten monetary policy.”

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The causes of the recent decrease in US greenhouse gas emissions

February 10, 2017

The causes of the recent decrease in US greenhouse gas emissions

Since their peak in 2007 GHG emissions in the USA have decreased more in absolute terms than in any other country. The results of this review suggest that approximately 40% of this decrease was caused by the replacement of coal with gas in generating plants, 30% by improvements in the efficiency of internal combustion engines and 30% by growth in low-carbon renewables. Another major contributor was the 2008-9 global recession, although its impact can’t reliably be quantified. Had economic growth continued at historic rates between 2007 and the present US GHG emissions would now be substantially higher than they are.

This review was prompted by an article in Time Magazine written by Michael Bloomberg, one of the world’s richest men and also one of its leading contributors to green causes, entitled “Where Washington Fails to Drive Progress, Cities Will Act”. Bloomberg’s conclusion that the decrease in US emissions was “driven by cities, businesses and citizens”struck me as complete nonsense, and I was going to write more about it but decided it wasn’t worth the effort. But his article did get me thinking about what really did cause US emissions to fall, and in this post I document the results of my efforts to find out.

We begin with emissions. Figure 1 shows total US greenhouse gas emissions by sector between 1990 and 2014 (2015 emissions are not available but would probably be slightly lower than 2014 emissions. The data are from the EPA’s US Greenhouse Gas Inventory Report):

Figure 1: Total US greenhouse gas emissions by sector expressed as CO2 equivalents, 1990-2014. Emissions from land use changes and from US territories are not included.

Note that Figure 1 shows total greenhouse gas emissions, which include CO2 along with methane, nitrous oxide and minor GHGs expressed as CO2 equivalents, from all sectors of the economy, not just the CO2 emissions from electricity generation that we usually get to see.

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US Economy – on the Verge of Recession?

January 6, 2016

US Economy – on the Verge of Recession?

US Manufacturing Sector Weakens Further – Alea Iacta Est?

On the first trading day of the year, China’s stock market crumbled, seemingly waylaid by yet another weak manufacturing PMI report and a further slide in the yuan. On the same day, a few Fed members came out affirming that several more rate hikes would be seen in the US this year (such as SF Fed president Williams and Cleveland Fed president Loretta Mester).

dice

Image vie pixabay.com

Meanwhile here is the latest update of the Atlanta Fed’s GDP Now indicator:

A-gdpnow-forecast-evolution The GDP Now model declines to just 0.7%, once again way below the consensus range

When we last mentioned this indicator in passing, it still stood at 1.7% – and that was on December 18! Not long after that, we posted a year-end overview of US manufacturing data with updated charts from our friend Michael Pollaro. This was on December 23, but in the meantime a wealth of additional data has been released, primarily in the form of district surveys and finally the manufacturing ISM release on January 4.

Michael has provided us with a fresh set of charts, showing the evolution of the most important data points of the district surveys as an average and comparing them to the respective National ISM data. In previous updates on manufacturing data, we have mentioned that we see little reason why the trends that have been in motion since early 2015 should reverse. And indeed, they haven’t – on the contrary, they seem to be accelerating.

The most upsetting releases of late have been the Chicago ISM (which contains services as well) and the national ISM released on January 4. Both came in way below already subdued expectations, with the Chicago number falling totally out of bed, posting a headline reading of just 42.9 – well in contraction territory.

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The Baltic Dry Shipping Index Just Collapsed To An All-Time Record Low

November 20, 2015

The Baltic Dry Shipping Index Just Collapsed To An All-Time Record Low

I was absolutely stunned to learn that the Baltic Dry Shipping Index had plummeted to a new all-time record low of 504 at one point on Thursday. I have written a number of articles lately about the dramatic slowdown in global trade, but I didn’t realize that things had gotten quite this bad already. Not even during the darkest moments of the last financial crisis did the Baltic Dry Shipping Index drop this low. Something doesn’t seem to be adding up, because the mainstream media keeps telling us that the global economy is doing just fine. In fact, the Federal Reserve is so confident in our “economic recovery” that they are getting ready to raise interest rates. Of course the truth is that there is no “economic recovery” on the horizon. In fact, as I wrote about yesterday, there are signs all around us that are indicating that we are heading directly into another major economic crisis. This staggering decline of the Baltic Dry Shipping Index is just another confirmation of what is directly ahead of us.

Overall, the Baltic Dry Index is down more than 60 percent over the past 12 months. Global demand for shipping is absolutely collapsing, and yet very few “experts” seem alarmed by this. If you are not familiar with the Baltic Dry Shipping Index, the following is a pretty good definition from Investopedia…

A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed).

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Low Oil Prices – Why Worry?

September 30, 2015

Low Oil Prices – Why Worry?

Most people believe that low oil prices are good for the United States, since the discretionary income of consumers will rise. There is the added benefit that Peak Oil must be far off in the distance, since “Peak Oilers” talked about high oil prices. Thus, low oil prices are viewed as an all around benefit.

In fact, nothing could be further from the truth. The Peak Oil story we have been told is wrong. The collapse in oil production comes from oil prices that are too low, not too high. If oil prices or prices of other commodities are too low, production will slow and eventually stop. Growth in the world economy will slow, lowering inflation rates as well as economic growth rates. We encountered this kind of the problem in the 1930s. We seem to be headed in the same direction today. Figure 1, used by Janet Yellen in her September 24 speech, shows a slowing inflation rate for Personal Consumption Expenditures (PCE), thanks to lower energy prices, lower relative import prices, and general “slack” in the economy.

What Janet Yellen is seeing in Figure 1, even though she does not recognize it, is evidence of a slowing world economy. The economy can no longer support energy prices as high as they have been, and they have gradually retreated. Currency relativities have also readjusted, leading to lower prices of imported goods for the United States. Both lower energy prices and lower prices of imported goods contribute to lower inflation rates.

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GDP figures from Statistics Canada expected to show second-quarter contraction

September 1, 2015

GDP figures from Statistics Canada expected to show second-quarter contraction

Lower loonie expected to boost economy in third quarter

Economists say data out this week is likely to show that Canada slipped into a technical recession in the second quarter, but the contraction should be short-lived.

“A number of positive elements are coming through,” said TD Bank chief economist Beata Caranci. “Even if, like we’re expecting, we get a contraction in the second quarter, the consumption numbers are likely to be fairly healthy.”

According to Thomson Reuters, economists expect Statistics Canada to report that the economy contracted at an annualized rate of 1.0 per cent in the second quarter.

Among other data expected from Statistics Canada this week are July trade figures on Thursday and the jobs report for August on Friday.

The Bank of Canada cut its key interest rate by a quarter of a percentage point to 0.5 per cent in July amid concerns about the impact falling oil prices and weak exports on the economy.

In its July monetary policy report, the central bank estimated the Canadian economy contracted at an annual pace of 0.5 per cent in the second quarter, but predicted things would pick up in the second half of the year.

Caranci says the benefit of the lower loonie to Canada’s export sector should boost growth in the third quarter.

Although exports were supposed to see a boost sooner, Caranci says the sector’s sensitivity to the loonie has diminished over the past decade as the U.S. — Canada’s biggest trading partner — has been importing more from China and Mexico.

“For every percentage point of deprecation you get to the Canadian dollar you’re getting less of a lift to exporters,” Caranci said. “You’re getting not only less sensitivity but also a more delayed response, so it’s coming in much later than we had been forecasting.”

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Say Goodbye to Normal

August 31, 2015

Say Goodbye to Normal

The tremors rattling markets are not exactly what they seem to be. A meme prevails that these movements represent a kind of financial peristalsis — regular wavelike workings of eternal progress toward an epic more of everything, especially profits! You can forget the supposedly “normal” cycles of the techno-industrial arrangement, which means, in particular, the business cycle of the standard economics textbooks. Those cycle are dying.

They’re dying because there really are Limits to Growth and we are now solidly in grips of those limits. Only we can’t recognize the way it is expressing itself, especially in political terms. What’s afoot is a not “recession” but a permanent contraction of what has been normal for a little over two hundred years. There is not going to be more of everything, especially profits, and the stock buyback orgy that has animated the corporate executive suites will be recognized shortly for what it is: an assest-stripping operation.

What’s happening now is a permanent contraction. Well, of course, nothing lasts forever, and the contraction is one phase of a greater transition. The cornucopians and techno-narcissists would like to think that we are transitioning into an even more lavish era of techno-wonderama — life in a padded recliner tapping on a tablet for everything! I don’t think so. Rather, we’re going medieval, and we’re doing it the hard way because there’s just not enough to go around and the swollen populations of the world are going to be fighting over what’s left.

Actually, we’ll be lucky if we can go medieval, because there’s no guarantee that the contraction has to stop there, especially if we behave really badly about it — and based on the way we’re acting now, it’s hard to be optimistic about our behavior improving.

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