17th October 2019 Today’s Round-Up of Economic News

Low interest rates are encouraging companies to take on a level of debt that risks becoming a $19tn (£15tn) timebomb in the event of another global recession, the International Monetary Fund has said.

In its half-yearly update on the state of the world’s financial markets, the IMF said that almost 40% of the corporate debt in eight leading countries – the US, China, Japan, Germany, Britain, France, Italy and Spain – would be impossible to service if there was a downturn half as serious as that of a decade ago…

Officials at the Washington-based organisation fear that the buildup of debt makes the global financial system highly vulnerable…

Tobias Adrian and Fabio Natalucci, two senior IMF officials responsible for the global financial stability report, said: “A sharp, sudden tightening in financial conditions could unmask these vulnerabilities and put pressures on asset price valuations.””


“U.S. retail sales fell for the first time in seven months in September, suggesting that manufacturing-led weakness could be spreading to the broader economy, keeping the door open for the Federal Reserve to cut interest rates again later this month…

“Signs of cracks in the economy’s main pillar of support, ahead of the holiday season, could further stoke financial market fears of a sharper slowdown in economic growth.”


“World trade volume, which has fallen over the past year, clearly points to the universal nature of current global downturn and the result has been a disinflationary pricing of goods…

“The global over indebtedness has clearly restrained growth, and therefore has had a profound disinflationary impact on every major economic sector of the world.”


“More than two-thirds of U.S. households say they are preparing for a possible recession.

“Some 69% of participants in a recent poll said they were taking steps to shore up their finances ahead of a possible downturn, including 44% who said they were spending less money. Some 10%, including 13% of college graduates, are looking for a better or more stable job.”


“Since the beginning of the trade war between China and the U.S., most economists have warned that rising protectionism would trigger an economic slowdown.

“A few years into this conflict, the evidence suggests that a deceleration is indeed taking place.”


“The leader of one of Hong Kong’s largest pro-democracy groups has been taken to hospital after being attacked. Photographs on social media showed Jimmy Sham of the Civil Human Rights Front lying in the street, covered in blood…

“Mass protests in support of greater democracy in the territory, which began in June, show no sign of abating.”


“The slump in demand for petroleum products in India – world’s third largest consumer after US and China – has aggravated in September, with the country’s oil import bill tumbling by over 18 percent yoy…

“…economists and industry experts are seeing the falling demand for petro products as symptomatic of the deepening of the slowdown in India’s economic growth in the recent months.”


“Norway’s krone hit the weakest on record against the euro, surpassing the previous record set during the 2008 financial crisis.

“The krone touched 10.1641 per euro at 2:45 p.m. in Oslo, according to Bloomberg data, amid pressure from global tensions and weakening oil prices.”


“Protests over Brexit have taken place at almost 40 locations along the Irish border. The demonstrations were organised by the Border Communities Against Brexit group….

“They were held as the future of a Brexit deal between the EU and the UK government hangs in the balance, with talks ongoing.”


“Germany could use emergency measures to counter any market panic from a hard Brexit, an official with direct knowledge of the matter said, such as banning bets on falling share prices, a step last used in the financial crisis…

“…the preparations underscore the continent’s heightened state of alert, with negotiations to secure Britain’s orderly departure from the European Union hanging in the balance.”


“Street violence escalated in Barcelona late on Wednesday, as protesters set cars on fire and threw acid at police officers

“…in a third night of unrest following the imprisonment this week of nine pro-independence leaders for their roles in the failed 2017 push for regional independence.”


“Companies in the European Union sharply reduced the amount of money they raised on debt markets last year, an industry report said on Wednesday, in a sign the bloc could be heading toward a recession as firms hold off investment.”


“Amid a mixed set of company results on Wednesday, a Refinitiv survey suggests the Q3 earnings season will see Europe’s corporates slip deeper into recession.”


“Lots of investors chafe at the idea of buying negative-yield bonds. Few are as repelled by the prospect as William Eigen.

“The JPMorgan Asset Management fund manager says he’d retire before buying sub-zero securities, even as some of his peers profit from the trade amid mounting fears of a global recession. He predicts negative-yielding bonds will eventually lead to “devastating” losses…”


“The trend of zero interest rates is “perverse” and can “poison” the business environment, said Yuwa Hedrick-Wong, a visiting scholar at the Lee Kuan Yew School of Public Policy.

“Low interest rates hurt lenders’ profits as they narrow the margin that banks can earn. In a negative interest rate environment, lowering rates deeper into negative territory essentially means that lenders are paying more to the central bank to keep their excess funds overnight.”


“India’s Finance Minister warned about a repeat of the 2008 financial crisis in the face of a global economic slowdown, saying that governments had yet to find a coordinated “planned” response.

“Speaking to Yahoo Finance in New York, Minister Nirmala Sitharaman called for a broader understanding of “the intensity of the problem,” adding that “everything, every way” would be at risk if world leaders failed to respond.”


“The world economy has not been in a more precarious situation in over a decade. Growth is faltering everywhere, with the Eurozone flirting with recession, while central banks have returned to monetary easing after just one year of global tightening.

“It is imperative to appreciate the exceptionality of the situation. Never before has the world gone into recession with interest rates so low and with the balance sheets of central banks so massive. This time truly is ”different”…

“No one dares to look at the facts – or if they do, they dismiss them. Denial is a powerful force.

“The fact is that monetary policy is running on empty, at least in the Eurozone, and governments can provide only limited fiscal stimulus. We’ve reached the end. There’s nothing left to do than prepare for the crisis and wait. And to be very afraid.”


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16th October 2019 Today’s Round-Up of Economic News

“Even though the S&P 500 is trading at lofty levels, skittish investors don’t believe the good times will last and instead are preparing for the worst.

“They’ve shifted $322 billion into money market funds during the past 6 months, in the biggest flight to safety since the 2008 financial crisis…

“Meanwhile, the latest release of the Global Fund Manager Survey by Bank of America Merrill Lynch reveals that leading investment managers around the world also are getting nervous, reporting that their holdings of cash, defensive stocks, and bonds are at historically high levels, with cash topping the list.

“Investors are suffering from “bearish paralysis” resulting from worries about the trade war, Brexit, the Trump impeachment investigation, and the possibility of a recession ahead, strategists at BofAML led by Michael Hartnett write in a recent note to clients, as quoted in another Bloomberg article.

“In just the 7-day period through Oct. 9, they observe that global equity funds saw $9.8 billion of net withdrawals, while bond funds recorded $11.1 billion of net inflows.


“Dealmaking world-wide is set to plunge by 25% next year as the risk of a global recession hits confidence and the upcoming US presidential election creates added uncertainty.

“The value of M&A will decline globally from $2.8tn in 2019 to $2.1tn in 2020, according to a new report by international law firm Baker McKenzie.”


“The Federal Reserve Bank of New York added $87.7 billion to the financial system Tuesday, using the market for repurchase agreements, or repo, to relieve funding pressure in money markets.

“Banks asked for $67.6 billion in overnight reserves, all of which the Fed accepted, offering collateral in the form of Treasury and mortgage securities.”


“St. Louis Federal Reserve Bank President James Bullard said global trade and other risks remain high for a U.S. economy that may slow more sharply than expected…

“Bullard also outlined the Fed’s playbook for dealing with a potential “ordinary recession”. He said the options to slash borrowing rates to zero, restart assets purchases and provide supportive policy promises, were still “state of the art”.”


“Get used to it. No peace and harmony ever when it comes to global trade, that is.

“The Bank of America Merrill Lynch’s monthly fund manager survey released Tuesday revealed 43% of investors surveyed believe the U.S.-China trade war “is the new normal versus 36% who think we will see a resolution before the 2020 U.S. Presidential election.””


“China caught traders off-guard with a surprise injection into the financial system via loans to banks, ahead of data on Friday which is expected to show a further slowdown in the domestic economy.

“The People’s Bank of China added 200 billion yuan ($28 billion) of one-year cash through the medium-term lending facility on Wednesday. It kept the interest rate steady.”


“The Bank of Korea on Wednesday cut its main policy rate by a quarter point to a record low of 1.25 per cent to shore up growth as the export-driven economy struggles with global trade frictions and weaker chip prices.

“Calls for monetary policy easing have increased recently, following the country’s first drop in consumer prices in September and 10 consecutive months of falling exports…”


“New Zealand’s central bank signaled more rate cuts, or even unconventional stimulus measures, may be needed to counter global headwinds, as figures on Wednesday showed the country’s annual inflation rate slowed in the third quarter…

“The Reserve Bank of New Zealand (RBNZ) has already cut its cash rate to a record low…”


“The downward revision of growth in Spain in the second quarter (from 0.5% to 0.4%), following that of the first quarter (from an optimistic 0.7% to 0.5%), and a slower rate of job creation, have disturbed forecasts and the economic climate…

“Without forgetting that the first test of governability will come after the sentence of the Supreme Court on the separatist prisoners, which could cause violent protests in Catalonia. Conclusion: the economy is slowing and there are too many political uncertainties over the future.”


“Scholz’s remarks that Germany would loosen the purse strings to fight any downward economic spiral came days before world financial leaders meet in Washington to discuss how best to counter a slowing world economy.

“Leading economic institutes earlier this month called on Chancellor Angela Merkel’s government to ditch its budget policy of incurring no new debt if the growth outlook deteriorates.”


“Central banks have little scope left to fight a crisis after a decade of cheap money, the International Monetary Fund warned yesterday as it downgraded world growth to its slowest rate since the 2009 recession.

“Should conditions deteriorate, “an internationally co-ordinated fiscal response” might be required, Gita Gopinath, the fund’s chief economist, said, in an echo of the response to the financial crisis in 2009.”


“There’s an “uncomfortably high” chance that a recession could hit the global economy in the next 12-18 months — and policymakers may not be able to reverse that course, an economist said on Wednesday.

““I think risks are awfully high that if something doesn’t stick to script then we do have a recession,” said Mark Zandi, chief economist of Moody’s Analytics. “I’ll say this also: Even if we don’t have a recession over the next 12-18 months, I think it’s pretty clear that we’re going to have a much weaker economy.”


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15th October 2019 Today’s Round-Up of Economic News

“The R-word, recession, is stalking the land. This is not a British thing, or a European or American one – or a Chinese or Indian threat. It is a global one…

“So what do we know? Well, on Tuesday, the IMF produces its next World Economic Outlook, its twice-a-year overview of what is happening to the world economy and its forecasts for the coming year. It is most likely to cut its previous projection for 2019 from 3.2 per cent to below 3 per cent, the slowest growth since 2009.

“I have two main worries. One is the impact of the ultra-easy money policies of the past few years. The other is a more general lack of confidence about the future across the developed world.

“An awful lot has been written about the first: the limits of monetary policy to stimulate economies, the damage done by zero (or negative) interest rates, the impact on wealth inequality, and so on. I’m not sure there is much to add on this, except to note opposition to the European Central Bank’s latest bout of QE, and its policy of negative interest rates, is mounting even within the ECB staff.

“Put crudely, if Germany is going into recession when interest rates are already negative, what makes anyone think that making them even more negative is going to help? The problem is lack of overall demand, not the cost of credit.

“So the widespread view that monetary policy cannot help much either to forestall a recession, or to help us out of it, makes sense.”


“While some analysts are eager to write off [US] manufacturing weakness as inconsequential… “there’s a reason why indices of leading economic indicators rely on manufacturing. It’s because there’s a multiplier effect from the sector that filters through to others,” Liz Ann Sonders chief investment strategist at Charles Schwab told MarketWatch.

“That manufacturing weakness has also coincided with falling business investment is also a concern. “Manufacturing weakness often tips over into the consumer side,” she said.

“There are signs that this might already be under way, she warned…”


“ProPetro Holding Corp (PUMP.N) this month cut about 150 workers, people familiar with the matter said on Monday, the latest sign of growing trouble in the oilfield services sector as U.S. shale producers reduce drilling.

“The job cuts reflect slowing shale activity due to weak prices for oil and gas, and producers exhausting their spending budgets for the year, one of the people said.”


“Freight shipments and expenditures declined on a year-over-year basis again in September according to the latest Cass Freight Index Report. According to the report, shipments declined 3.4% in September, the tenth straight month of year-over-year declines…

“With the continuation of the declines in the shipments index, Broughton said “we see a growing risk that GDP will go negative by year’s end.”


“…the Fed is being forced to again add liquidity while markets are at near-record highs and unemployment at fifty years lows is very problematic.

“A prolonged contraction in the flow of new credit in any economy or a contraction in business investment is a key factor that often leads to a recession. Much of the problem the Fed faces is that low-interest rates have not created the financial environment they had hoped it would.”


“Economic collapse, government repression, violence and U.S. sanctions are making life unbearable for ever more Venezuelans.

“Now, echoing anti-migrant rhetoric used worldwide, politicians and officials in neighboring countries have begun to portray Venezuelan migrants as a national security threat.”


“The slump in Turkey’s lira in the wake of the Turkish military advance into Syria has made it October’s worst performing major currency, a move that looks even starker considering most emerging market currencies have powered ahead…

“U.S. President Donald Trump warned on Sunday that “big sanctions on Turkey are coming” having already threatened to “obliterate” its NATO ally’s economy if Ankara’s attack on the Kurdish-led forces in northeastern Syria went too far.”


“India might have thought the worst of a bad loans crisis was past, but a severe cash crunch in the real estate industry could augur fresh strife for its banks.

“A slump in the residential property market is leaving many builders struggling to repay loans to shadow lenders – housing finance firms outside the regular banking sector that account for over half of the loans to developers.”


“The Hong Kong Monetary Authority (HKMA) has cut the amount of cash that banks must keep as reserves, releasing an extra HK$200-300 billion ($25.50-38.24 billion) into the broader economy which has been hit by months-long protests and the Sino-U.S. trade war…

““Economic indicators and other relevant evidence have signaled that the economic environment in Hong Kong has deteriorated significantly since June 2019,” HKMA chief executive Eddie Yue said in the statement.”


“China’s factory deflation deepened in September due to slowing output growth and falling raw material prices, adding to signs that China’s domestic slowdown is an increasing drag on the struggling world economy.

“The producer price index fell 1.2% from a year earlier, as forecast by economists in a Bloomberg survey. Surging pork prices [spiking 69% yoy in Sept] drove consumer inflation higher, cutting into household spending power.”


“Benchmark Dalian iron ore and coke futures slumped more than 2% in late trade on Monday following growing concerns about demand for the steelmaking raw materials, amid China’s renewed efforts to curb pollution by restricting steel mills operations.

“Adding to the worries, industry data released on Monday showed auto sales in China fell for a 15th consecutive month in September.”


“China’s biggest refiner plans to reduce operations from next month after a surge in the cost of shipping crude eroded margins, according to people with knowledge of the matter.

“Freight rates have skyrocketed since the US announced sanctions on Chinese shipowners in late-September, triggering a flight from vessels owned by affected companies and a bidding war for alternative tankers.”


“The spectacular surge in the cost of chartering oil tankers is rippling through the crude market, as fears that shipments will be constrained begin to weigh on gauges of market strength.

“The nearest WTI contract is trading at a discount to the following month — a bearish market structure known as contango — while its Brent equivalent also slumped last week. The move reflected concerns that the usual shipments of key grades of crude from the North Sea, Russia, West Africa and the U.S. will be crimped, leaving an excess of oil with nowhere to go, traders said.”


Read the previous ‘Economic’ thread here and visit my Patreon page here.

14th October 2019 Today’s Round-Up of Economic News

“The global economy has entered a period of “synchronised stagnation” with weak growth in some countries and no growth or a mild contraction in others, according to research by the Brookings Institution think-tank and the Financial Times.

“Headline economic indicators have slipped to their lowest levels since the spring of 2016, with real activity in both advanced and emerging economies losing momentum, compounded by falling economic confidence, the latest update of the tracking index has found.

“Only relatively strong performance in financial markets stopped the index from falling further into negative territory.”


“Global authorities gathering in Washington this week must stand ready to address emerging risks including a global economic downturn and Brexit, the leading body for global financial stability has warned.

“The Financial Stability Board – which was formed after the 2008 banking crisis that brought the financial system to its knees – said that while much has been achieved in the past decade, its job was “far from complete”.”


“Cuba’s President Miguel Díaz-Canel has said the island is currently operating with 62% of the petrol it needs, and announced emergency measures to “disrupt the plans of imperialism”.

“Across the island, production has been cut and stopgaps found, so that fuel can be prioritized for hospitals, schools and food distribution.”


“Huge crowds sang and danced in the streets of Port-au-Prince [Haiti] on Sunday as part of an anti-government rally organized by the art community.

“Protesters are calling for President Jovenel Moise to resign amid corruption allegations, rising inflation and food and fuel shortages. Many blame him for the economic crisis, but Moise has denied any wrongdoing.”


“Ecuador President Lenin Moreno on Saturday ordered the capital Quito and surrounding areas placed under curfew and military control, on the 11th day of deadly protests against government austerity measures.

“The order would “facilitate the work of public forces against intolerable outbreaks of violence,” he announced on Twitter.”


“A series of protests from opposition groups in recent weeks — sparked by the [Korean] president’s appointment of Cho Kuk as the justice minister tasked with carrying out the reforms…

“…have dealt the latest blow to the Moon government.

“On Monday, Mr Cho, a close aide to the president, stepped down just weeks after taking office.”


“A slide in China’s exports picked up pace in September while imports contracted for a fifth straight month, pointing to further weakness in the economy and underlining the need for more stimulus as the Sino-U.S. trade war drags on.”


“Chinese auto sales fell in September for the 15th month in 16, extending their unprecedented slump despite government efforts to support the world’s largest car market.

“Sales of sedans, sport utility vehicles, minivans and multipurpose vehicles dropped 6.6% from a year earlier to 1.81 million units, the China Passenger Car Association said in a statement Saturday.”


“…the problems aren’t just cooling global growth, but also more sluggish domestic activity, reflecting both anemic production and demand.

“This has ignited hopes for a forceful economic stimulus package from Beijing, as the world has relied on during previous periods of weakness over the past decade. But this time, it appears such hopes are in vain.”


“The World Bank joins a parade of multilateral institutions, rating firms and brokerages in cutting economic growth estimates for India, after Asia’s third-largest economy grew at the slowest pace in six years in the June quarter because of a demand slump.”


“Iran’s economy is expected to contract further by 8.7% in 2019-20 due to external shocks to oil and gas output.

“The plummeting exports comes after the expiration of US waivers to major importers of Iranian oil and tightening of banking restrictions in addition to new sanctions being imposed on the country’s petrochemical, metals, mining and maritime sectors.”


“The global economy is wobbling and whether it topples over is the big question in financial markets, executive suites and the corridors of power.”


“The world’s finance ministers and central bankers will be in Washington this week for the annual meetings of the International Monetary Fund and World Bank amid growing concerns that the global economy is heading towards stagnation.

“Predictions of a sharp downturn fill policymakers with anxiety, knowing that job losses and lower tax revenues can only lead to social unrest.”


“Investors are flocking to the relative safety of money market funds at the highest level since the financial crisis-era collapse of Lehman Brothers in 2008.

“The industry has pulled in $322 billion over the past six months, the fastest pace since the second half of 2008, bringing assets to nearly $3.5 trillion, according to data from FactSet and Bank of America Merrill Lynch.”


“Analysts at the International Monetary Fund (IMF) are comparing current global financial conditions to the types of conditions that sparked the global financial crisis of 2008 – a crisis that stemmed from the US mortgage market.

“The report shows that US-induced vulnerabilities are still present, representing a widespread economic threat.”


Read the previous ‘Economic’ thread here and visit my Patreon page here.

3rd October 2019 Today’s Round-Up of Economic News

“Markets hate uncertainty. It’s a well-worn truism that is trotted out every time the pound plunges on the latest Brexit twist or stocks swoon on another Twitter tirade from Donald Trump.

“But one index empirically shows that businesses and investors are facing a level of uncertainty never seen before and that could be hurting the world economy.

“The Global Economic Policy Uncertainty Index, devised by a trio of professors under the names Baker, Bloom & Davis, has surged to its highest level since it began in 1997.

“The policies of the US and Chinese, in particular, are at their most volatile ever while the UK gauge has been elevated since the EU referendum.”


“U.S. equity markets on Wednesday were ensnared in a two-day tailspin that has pushed the benchmark indexes to one of the worst starts to a quarter since the 2008-09 financial crisis.

“The Dow Jones Industrial Average DJIA, -1.86%, was down more than 500 points, or 1.9%, at 26,078, with a two-session skid of more than 3%, representing the worst start to a quarter since the last three months of 2008.”


“The Reis data published on Thursday, which track 77 metro areas, show 9.4 per cent of units [in US malls] were empty in the third quarter — equalling a post-financial crisis high reached in 2011…”


“The last slump in oil and gas drilling contributed to the mid-cycle economic slowdown in 2015/16, which helped fuel the political discontent that resulted in the election of populist President Donald Trump to the White House.

“Now the pattern risks being repeated as oil and gas companies cut back on new well drilling and completions in response to lower oil prices, with ripples felt throughout the entire supply chain.”


“The UK has set the EU a deadline of just two days to begin intensive talks on Boris Johnson’s new Brexit proposals, risking a new rupture in relations with Brussels.

“Stephen Barclay, the Brexit secretary, said negotiations had to “move forward at pace”, with the crucial summit at which an agreement must be reached just two weeks away.”


“The construction sector activity in the UK continued to deteriorate last month, the latest survey report from Markit Economics showed this Wednesday.

“The final Purchasing Managers’ Index (PMI) came in at 43.3 in September, down sharply from 45.0 recorded in August and missed the consensus estimates pointing to a reading of 45.0 [sub 50 denotes contraction].”


“German private sector activity shrank for the first time in 6-1/2 years in September as a manufacturing recession deepened unexpectedly and growth in the service sector lost momentum, a survey showed on Monday.”


“Euro zone business growth stalled in September as an ongoing contraction in manufacturing activity is increasingly affecting the services industry, according to a survey which showed little chance of an improvement this month.”


“Growth in the United Arab Emirates’s non-oil private sector slowed to a nine-year low in September, amid record low new orders reflecting soft demand, a survey showed on Thursday…

“New orders were at the softest they have been since the survey began more than 10 years ago, demonstrating weak demand in the country’s non-oil economy.”


“India’s banking sector has been going through a rough patch for the last five years. The number of non-performing assets (NPAs) has sky-rocketed. At its peak, the gross NPA to advances ratio exceeded 11 per cent.

“Until the NPA crisis hit, banks contributed more than 90 per cent of the economy’s commercial credit. As a result, any impairment of banking has a deep and long-lasting impact on the economy.”


“Once a poster child for China’s regional banks, Bank of Jinzhou became the centre of storm in the country’s banking industry, undermining confidence in the sector in the process.

“Beijing came swiftly to the rescue, with the asset management arm of the Industrial and Commercial Bank of China saying at the end of July it would spend up to 3 billion yuan (US$419 million) to recapitalise the lender…

“But it appears the state funds are not enough for the troubled lender.”


“One of the engines that drove a global economic recovery after the last two downdrafts in America – the relatively shallow one in 2001 and the catastrophe that began in 2007 – was China. As the financial crisis escalated, Beijing opened a floodgate of credit and cut interest rates, which stoked demand for everything from Australian coal to German cars.

“We’re unlikely to see anything like that this time. Beijing has shown little appetite for another round of massive fiscal stimulus…”


“The Reserve Bank of Australia could be forced into unconventional policy measures such as money printing to save the economy from stagnation if its latest round of interest rates cuts fail to stimulate growth, economists have warned.

“After cutting the cash rate for the third time this year on Tuesday to a fresh record low of 0.75%, the central bank warned that there could be more cuts to come…”


“Data released by the Federal Chamber of Automotive Industries (FCAI) on Thursday showed total sales for September skidded nearly 7% to 88,181 vehicles from a year earlier. For January-September were down about 8% from the same period in 2018.

“The weak data will disappoint the Reserve Bank of Australia…”


“Argentine economists forecast a deeper recession and maintained a pessimistic inflation forecast at a shade under 55% in the latest central bank monthly poll of analysts released on Wednesday.

“The prediction follows weeks of political uncertainty and a plunge in the value of the peso…”


“Fears over the world economy have sent shares around the world tumbling as the manufacturing slowdown deepened. Wall Street stocks suffered their steepest declines in almost six weeks after weak factory and employment data.

“Manufacturers around the globe are cutting back production, faced with falling orders, according to the latest batch of PMI surveys…”

Live feed for any economic news junkies wanting to follow the slowdown in real time:


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Our Energy Predicament

A friend on Facebook asked me a couple of questions: one about why wages have been stagnant for so long and one about the effects of divestment on the global economy. My response offers a brief overview of our energy-constrained economy, which perhaps adds a little to the essay in the ‘About’ section. These are huge issues and my analysis is necessarily a little trite but here it is: 

As far as I can see, the global economy has self-organised over 250 years to depend on fossil fuels, as these have been the most convenient and energy-dense fuel sources available to us, and the human collective is always going to want as much comfort, convenience, choice, novelty etc. for as little expenditure as possible.

Oil, gas and coal provide around 85% of our energy needs directly and are intrinsic to the production, maintenance etc of nuclear, hydro and renewables that make up the remaining 15%.

Since around the turn of the century, less and less ‘energy profit’ has been flowing through the system from these fossil fuels. Oil in particular has been growing more and more expensive to extract, and we can see this in the rapid fall-off in capex productivity that the major oil firms have experienced since around 2000, with each barrel of oil getting more and more expensive to produce. [The image to the left is somewhat old now. Brent has fallen substantially since, whilst costs continue to rise].

This is important because the global economy is an energy system upon which we superimpose a monetary system (and then pretend that it is the money that matters). Standard neo-classical economics completely overlooks the centrality of energy in economic growth but it is common sense if you really think about it. In the natural world, an organism needs to earn more calories than it expends in sourcing its food or it will die of starvation. Likewise, no economic activity can take place without energy and no economic exchange is worthwhile unless there is an ‘energy profit’ embedded in it.

The global economy as whole needs to be growing at a rate of around 3% per annum, and (bar the odd recession) has been doing so since around 1850. If it falls below this level of growth for too long, the financial system is likely be paralysed by loss of faith in fiat currencies and cascading defaults.

Unfortunately we are now deep into an era defined by *energy-constraints*, and indeed by a wide variety of resource-constraints and other growth-limiting factors like pollution and climate change.

“The stagnant wages you mention are a symptom of this insufficient energy-profit. So is the increasing surreality and complexity of our financial system, as it tries to compensate and maintain growth. Zero and negative interest rates are a tacit admission that some economies can no longer offer a return on investment. The political polarisation and geopolitical/trade friction we are seeing are also symptomatic of too many claims on a shrinking/degrading resource-base.

Unfortunately workers with stagnant wages find it hard to afford the goods and services into which energy products (primarily fossil fuels) go. They can add debt or buy things on long-term payment plans but sooner or later they start getting tapped out. I believe we are about at that point now. This in turn weakens demand for energy products and oil, coal and gas prices fall too low for producers. Again we are seeing this now. The danger is that we get sucked into a deflationary death-spiral.

Divestment, well intentioned though it may be, can only exacerbate this problem. Oil companies are already self-liquidating and drowning in debt. Oil producing nations are in varying degrees of pain with Venezuela being in the most notably dire straits – but even Saudi is struggling. I haven’t done any research into the figures so I can’t comment on the extent to which divestment may be harming energy companies and energy producing nations.

This is not a debate I generally get involved in because there are no good solutions. Fossil fuels are of course quickly rendering the planet non-viable for humans but if we attempt to wean ourselves off them we will ‘starve’ the global economy into a disorderly and extreme contraction, and obliterate the supply-chains that keep most of us fed, watered and warm. What can you do?