My unpublished (100,000 word) book “The Financial Jigsaw”, is being serialised here weekly in 100 Issues by Peter J Underwood, author
Quote of the Week: “The only time you have too much fuel is when you’re on fire.” – United States Air Force
We have now ended Chapter 11 and move on to Chapter 12 – The End of Growth. Here we will look at how the global economic system is slowing down even in the face of all the actors trying to pursue perpetual ‘growth’. It is not happening, we have run out of road and Chris Martenson has a great article explaining the crazy situation that central banks and governments around the world have created:
https://www.peakprosperity.com/overdosing-on-crazy-pills/
Here is the link to last week: Issue 62
Now that Brexit will not be coming to a final conclusion yet, I will continue to provide weekly updates as events progress:
Brexit Update – 2nd August 2019
The Brexit deadline remains 31st October 2019 and stays in place unless Boris can get Parliament to agree a new exit plan.
The next issue to consider is whether a general election will be called and when. ‘Mish’ has an excellent article explaining all the options and choices. He says:
“All things considered, the best policy choice (least risky) for Johnson is to postpone the election until it is certain that Brexit is delivered, but no longer. If my analysis is correct, it implies a mid-September or later call for elections, but no later than the end of this year.”
Blain’s Brexit Watch
As Boris plans to pour billions into No-Deal Preparations, the Irish accuse him of Bullying tactics, and Labour gets ready to offer a second referendum as their response, it’s all got terribly exciting. (It also deeply depressing – just writing this makes me wonder if I am suffering PTSD?) The feel-good Boris engendered just a week ago is already wearing thin. All the bluff and bluster needs balanced by something tangible. As yet, we aren’t seeing it. This is leading to lots of questions – does Boris need to engage with Brussels and go visit.
The Answer from Downing Street will be no. Dominic Cummings will insist. Let others respond to the challenge of an agreement that Boris has laid down. No Engagement. Europe will come to us. (Seriously?) The result is going to be further uncertainty, confusion and opportunities for Project Fear Remoaners to snipe and moan.
Pundits now see the likelihood of a No-Deal at 30% and rising, with Sterling heading lower to $1.15. Hold onto your seats boys and girls. This is going to get rough before we land.
Parliament will be in recess now until September. Details of Parliament’s deliberations can be found here:
CHAPTER 12
The End of Growth
“It has been more profitable for us to bind together in the wrong direction than to be alone in the right one.” Nassim Nicholas Taleb: ‘The Black Swan: The Impact of the Highly Improbable’
“It’s tough to make predictions, especially about the future.” Yogi Berra
The foregoing Chapters have set the scene for us to draw conclusions about the nature of economic growth and the likely rates of growth over the coming years. This Chapter identifies key variables which are affecting growth or the lack of it in the world today (2017).
We have learned that Gross Domestic Product (GDP) is at the heart of economists’ measurement of the health of the global economy and taken in aggregate results in a global growth measure upon which economists rely when setting economic policy.
We have also seen that these GDP statistics are likely to be invalid and overstated due to politicised manipulation. In the decades up to the year 2000 growth in developed nations of the West has average around 3% per annum.
However in the 21st century growth has slowed significantly even allowing for the emerging markets, and especially China, having added substantially to global GDP. Wikipedia has a useful chart which demonstrates how global GDP (as measured by government standards) in all areas is gradually slowing down:
|
Gross Domestic Product growth rate by region (%) |
|||||||||||||
| Region | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
| World average | 5.5 | 5.7 | 3.0 | -0.1 | 5.4 | 4.2 | 3.5 | 3.3 | 3.4 | 3.2 | 3.1 | 3.4 | 3.6 |
| Advanced economies | 3.0 | 2.7 | 0.1 | -3.4 | 3.1 | 1.7 | 1.2 | 1.2 | 1.9 | 2.1 | 1.6 | 1.8 | 1.8 |
| Eurozone | 3.2 | 3.0 | 0.4 | -4.5 | 2.1 | 1.5 | -0.9 | -0.3 | 1.1 | 2.0 | 1.7 | 1.5 | 1.6 |
| Developing countries | 8.1 | 8.6 | 5.8 | 2.9 | 7.5 | 6.3 | 5.3 | 5.0 | 4.6 | 4.0 | 4.2 | 4.6 | 4.8 |
The important point to note above is that the developed world is losing growth fast and the emerging world, although slowing down at present, is hardly off-setting this loss. There are many reasons which can be identified to account for this significant fall in growth rates and we will review some of them in turn in the following pages.
But first we must ask why growth is necessary in the first place. After all, the history of human societies indicates that as nation states and empires arise from time to time, economic growth proceeds naturally in a cycle in much the same way that a product or company undergoes a natural growth and decay cycle to eventually end either to re-invent itself or die.
In fact, as we have noted previously, societies seem to follow the physical laws of natural systems where growth is dependent on the availability of resources chiefly energy (food in nature) and credit (oxygen in nature).
During the period of the industrial revolution, some 200 years ago, to the end of the 20th century an extraordinary rate of economic growth was achieved measured against any previous period. This was caused by the abundance of cheap energy, mainly coal and oil, which fuelled economic growth rates and lulled generations into expecting that this would continue indefinitely.
Our debt-funded financial systems were formed around this belief and the economics profession emerged to explain it all and advance policies based on continual growth-based models. Again as we have discussed in previous Chapters there is a need for debt to enable economic growth to take place and this has been an all-pervasive ingredient of the economists’ formula for maintaining growth into the future.
The proposition is that with infinite debt we can achieve growth indefinitely; but we live on a planet with finite resources and there must come a time when constraints of resource availability and extraction economics will limit growth rates. There are also many other factors which impact growth rates as well as resource limitations.
Population levels are an important factor and it is clear that current demographics will have a serious impact on growth rates going forward. Although economists are aware of these limitations it seems that their projections have been overly optimistic in the past and do not take sufficient account of the prevailing constraints.
You will have noticed that over the past decades the velocity of economic activity has increased exponentially (but not the overall growth rate) driven by technological innovations and improvements in transport and communications. This has raised even further doubts about the robustness of our economic models going forward.
From a global macroeconomic perspective the world is experiencing an extended, rolling process of disinflation and low growth rates. A strong indicator of the future rates of global growth is the Baltic Dry Index (BDI). This measures the daily price of shipping bulk goods across the world and is currently showing a very low index (2017 = average 1,000 and falling).
Japan started deflating their credit bubble in the early 1990s, and since then has experienced more than 20 years of deflation and very little growth. The USA began this process in 2008 and after ten years has seen no appreciable true economic recovery. The euro zone too has entered this process starting in 2011 and is still struggling after eight years of minimal growth. China is now entering the early stages of this process as recorded by economic indicators in 2019.
Vulnerability of highly optimized supply chains in a low growth environment
People are generally unaware of the frangibility of the supply chains that transport raw materials, food, fuel and all the other commodities of industrialisation to our conurbations.
As a general rule, there are only a few days of food and fuel in a typical city, and any disruption quickly exhausts existing stocks. This is the result of ‘Just-in-Time’ management and logistics systems which have significantly compressed distribution cycles of the past.
In order to reduce costs, supply chains and other essential systems have been stripped of redundancies; any break in the optimized flow has the potential to cripple the entire system. Since these highly optimized systems work so well most of the time we are not usually aware of their vulnerabilities until something goes wrong or a natural catastrophe occurs often referred to as a ‘Black Swan’ event.
In addition to supply chain vulnerability we must include that of the electricity grid, which being centralised, is at risk of major failure through sudden changes, for example, to the solar wind from the sun or terrorist attack.
A failure of the electricity grid for a week or two would see our societies under immense strain to continue any semblance of normal life. In summary we should acknowledge that the extremely sophisticated civilisation we have built over these last two centuries rests upon a few, very fragile structures which might collapse at the slightest perturbation not least of which is an economic crisis caused by the abject failure of the debt-based, credit cycle and supply chain to invoke economic growth.
Perpetual economic growth is essential to sustain our current lifestyles in today’s debt-driven economic paradigm. Any slight disruption as experienced in 2008 seriously impacts the lives of billions of people the world over because of the high degree of connectivity of global economic and financial systems.
For the next 15 years China is forecast to remain stagnant and will not grow; failing this engine of past growth the global economy is set to begin an indefinite period of contraction. China has ceased to accumulate US Treasury debt as of July of 2011 and continues to sell US Treasury bonds whilst accumulating gold. Unfortunately, neither quasi-democracies nor quasi-communist states have any politically acceptable solutions to this problem of structural decelerating growth and eventual outright contraction.
To be continued next Saturday
The Democrats don’t understand any of this Economics or the Science of the Grand Solar Minimum (GSM). The Useful Idiots will continue dipping from the government punch bowl until it goes empty and then raise hell for more. Unfortunately for them, the people that have been laboring to make all the punch for decades are tired of scofflaws and conflict is ahead. Plus Global Cooling from the GSM is starting to reduce farm production. Not going to be a good time to be a Welfare Maggot.
I totally agree Robert, thank you and it is sad to note that generally people do not want to know anything about all this and live day-to-day. We are due a nasty wake-up call soon.