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Thursday, August 13, 2015

China Bust Is The Last Straw Of the Global Collapse

Since not a single Wall St. or Fed head will speak honestly about the troubles the economies of the world face...apparently it's up to folks without PhD's or titles to spread the gospel of reality...no matter how unpopular it may be.


In short, as population growth slowed, debt and leverage was cranked up to bridge the gap.  However, it was never going to work as population growth wasn't coming back...at least not in our lifetimes.  What was always needed and still needed is an entire economic and financial global reset (aka, bankruptcy and restructure).


Why was this post Bretton Woods model doomed?  Lets use China as the poster child why this economic model of select Keynesian thoughts was and is impossible to sustain itself.


Chinese population growth (below) was bound to peak someday...and turns out (according to likely overly optimistic #'s from the OECD) that day is about 15 years from now (chart below).

In the chart below, note the rising total population (blue columns) but the headwaters of Chinese population growth is the long declining green line representing 0-14yr old population only temporarily being offset by the lengthening of 65+yr/old lifespans (you could show the same for most advanced economies around the world with negative birthrates and greying populations).

Close-up of Chinese young (0-14yr/old total population) over a 65 year period.  From the peak in 1976, the population of Chinese young has fallen by 116 million and is presently 18 million below the number of Chinese young in 1960.
And a good look at the components of China's population growth.

Fast forward to '00 in the below chart...the implications of a long period of declining birth rates is working through the population with declining growth rates and soon outright declines in the 15-64yr/old core population.  Declining numbers of China's core (workers, consumers), increasing numbers of old, and a 14x's increase in debt over a 14 year period...not exactly how sustainable growth was described in economic textbooks.
The Chinese answer to the problem of declining consumers is exactly the same as the West, MORE DEBT!!!
Quick reminder of how similar China's breakdown is to America's in the chart below (and America's breakdown to Japan's.  Demographic breakdowns covered by leverage, debt, and QE all building a bridge to nowhere).

Let's look at this in the real world using China and oil as the viewing lens.


Global consumption of oil increased 14mbpd from '00 to '13 (77-->91mbpd) and BRICS demand was responsible for 2/3rds of that increase.  But, '07 to '13, global consumption rose 4.5mbpd and BRICS were responsible for 4.8mbpd of that increase!!!
China alone was responsible for about 60% of the BRICS increased consumption from '00 and about half of all global consumption gains from '07-->'13.  All it took was a 1,400% credit increase!?!

However, as can be seen in the above chart (or more recent collapsing economic activity in China...or Brazil,  Russia, etc. etc.), the demand increases which were premised on raging credit increases (primarily housing debt) and rising population have both ceased...what happens now?  Unfortunately for those wishing for perpetual growth, there isn't another China waiting in the wings to pick up the slack in demand.


And OECD nations (below) continue the oil consumption declines that began in '06 (again, premised on debt substituted for declining working age populations and consumer bases).

The model is broken and worldwide QE is the last ditch effort to elongate (not fix) the system.  Eventually all governments (East and West) will be buying nearly everything with phony digital money to maintain asset prices but none of the fake money will help the economies of the world or 95% of the people.


Perhaps it's time for to rethink everything.

23 comments:

  1. The OECD oil consumption decline since 2006 is because of the peak of conventional oil production in 2006 ( executive summary of the 2009 International Energy Agency World Energy Outlook).
    In a zero sum game something has to give and in this case it was the OECD oil consumption which has been declining in favour of China & India's increased consumption. But now the undulating plateau of world oil production and with it the zero sum is coming to an end.

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    1. Oil consumption is lower also due to increases in efficiency. The efficiency of engines, power plants, car MPG, etc. has all marched up. The OECD nations that bought into AGW hype have been putting in policies to move away from fossil fuels and limit consumption. These nations have also had little growth since 2006. It all adds up to lower oil use.
      We can continue to have better economies without increase in commodity use.

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  2. The expansion and growth do not have to end with demographics fall. The energy availability and energy expenditure is the main staple of any economy. If energy is available as in exergy (effectively used energy) per capita in increasing amounts the world can remain the same or grow. The growth in demographics used to mean a lot when labour energy was important. Nowdays one tractor will do what needed 100 people. Asia could probably produce enough goods for the entire world. However where people are financial vehicles who create demand and pay taxes is where demographics will be important. The expansionistic role of credit requires more people in every new generation to create demand and pay taxes which makes wealth pyramid sustainable. This change in demographics just requires some wealth leveling to retrace the growth path. Of course who of the 1% will agree to wealth leveling. Nothing a major French revolution like recession or WW3 cant solve.

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  3. Congratulations on an excellent blog. You can't blame the boomers for what is happening; the mechanisms were well in place before we were born. The result of the two world wars and the great depression was increased government centralization. If you want to find the real cause you have to go back to the protestant reformation, the emancipation of the jews and establishment of central banks and the debt based money system. If you haven't read it , Griffin's ' The Creature from Jekyll Island ' is a good overview.

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  4. As you hinted on, not all wish for perpetual growth (actually, it would be the direst of nightmares). With the right mindset*, declining or stagnant population due to raised living standards are exactly what we wish for (enough is enough, instead of ever moar), and especially with technology, we can care very well for the elderly.
    Bring on the fusion torches (internally in the heart and then maybe externally technologically)

    *(and heartset)

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  5. 'time for a re-think'. Yes, certainly. However, the necessary creative destruction of asset values won't be an answer many (boomers) will accept willingly. The necessary reduction in the size and scope of government will also be opposed, again the boomers may be the most vocal group.

    I am certainly not blaming anyone for anything but the system will be extended for as long as possible. To dismantle the system in sections won't be possible. For example, ramp interest rates up to 6% and hold them there when companies are going bust and laying off thousands. Not going to be something we do voluntarily is it?

    How about my favourite, a fixed income to everyone. In the UK, I suggest a thousand pounds a month typed into every man, woman's and child's bank account, for life. No more housing benefit, government pension or dole money. No more taxes either.

    There is next to no chance these huge ideas can be implemented without there first being a huge crisis.

    As individuals, we need to start thinking for ourselves. Janet Yellen is entitled to her opinion but why should anyone care what it is? She should not be dictating terms to three hundred million Americans, yet she is.

    Can we even agree that one problem is governments being at least ten times bigger than they should be?

    In my modest opinion, those in authority should be watched carefully by everyone else. If a president expressed an opinion that a pre-emptive strike on another sovereign nation is warranted, he or she needs to be arrested. The charge could be reckless endangerment of domestic military or even for endangering the lives of other nations. Basically, we need to hold these psychopaths to account.

    Banking also needs bringing back into the service of the people too. Again, I could waffle on suggesting solutions but how would we get people to agree that the solutions are better than 'what we have now'?

    Only 1 in 10,000 see major problems ahead. So, we must wait for the system to destroy itself. As the system crumbles, the majority will demand their government does more, that the banks more. They will, delaying the reset and increasing the damage.

    The system is also destroyed if enough people stop believing in it. So, this blog is crucial.
    Fiat currency abuse, is also a major problem few can see.

    So, build yourself a robust lifestyle. Always question authority. Think carefully about storing your surplus wealth. Think carefully about how you spend your wealth. Value your neighbours, friends and family. Most importantly, have fun and enjoy your time on this weird planet but not at the expense of others.

    Thanks to Chris for his efforts in pointing out what should be 'bloody obvious'.



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  6. Excellent blog post. I want to see more nuclear powered utilities to "elongate" the life of precious fossil fuels.

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    1. As far back as I can remember they have been warning us that fossil fuels are about to run out . I remember the oil crisis of the early seventies when we were assured that there was only enough oil to last a few years. The population of the world at the time was, I believe, about two billion and cars were only really
      generally used in the USA and Europe and many Europeans didn't have cars .
      Nearly fifty years later with a world population of seven billion and widespread car ownership in India, China, South America and the former communist countries, not only has the world NOT run out of gasoline but the Saudis have been able to jack up production to meet the geo-political goals of the USA to destroy the Russian and Venezuelan economies and in the process destroy the off- shore, shale and fracking oil producing companies and this has been done without the participation of oil from Iraq and Lybia !
      We are sitting on mountains of coal. Personally, I believe in the abiotic theory of oil production and think that ' fossil' fuels is a misnomer.

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    2. So, are the Saudis pumping lots of oil because their wells are overflowing?

      My point being that abiotic oil production is less than we are currently using. So, whether it exists or not doesn't matter.

      Lots of coal is good but burning it produces lots of problematic air pollution. The highest grade coals were burnt during the steam age. The coal we have now is of inferior quality.

      The mining and energy sectors use a great deal of energy in providing the rest of us with energy and minerals. Year on year, they are using more energy than the previous year to provide the rest of us with energy and minerals. That could prove to be quite a problem.

      What we actually need is a new source of cheap energy and plasma torches. Basically, star trek technology. Or this abiotic oil to start refilling the oil fields a great deal faster. Then hope the planet works out how to deal with any side effects of burning so much oil.

      As for technology saving the day, good luck with that. Technology uses energy and lots of it. We need a major re-think about finance, technology and how we spend our lives. Not going to happen without a major crisis, that is the human way.

      Talking nonsense, as usual, I estimate that less than 2% of the population are capable of thinking critically. The others just repeat what their peers say.

      So abiotic oil, thinking critically, it doesn't matter if it's real or not. We are burning the stuff far too quickly.

      Anyway, the Saudis have said that they will never run out of oil. This is likely to be true but understanding why needs lots of critical thought. Or you can just mouth the words abiotic oil and believe that you are correct. It is much easier than actually thinking.

      Back to cloud cuckoo land for me. As many of the non thinkers write when I attempt to push another view of the world into their inflexible minds. So, why won't Saudi run out of oil? It will take more energy retrieving it than we get out of using it. And the world economy will not be able to afford it on the massive scale needed to make oil production profitable financially. The oil age we live in now is either replaced by something magical or we go back to whatever it was before the steam age. Fortunately, we can ignore this reality for now. I wonder if Janet Yellen will increase interest rates in September or if kim Kardashian actually likes humble bees. Both equally pointless questions. Answers being no and no idea, respectively.

      I am so sorry if this has upset you. Ignoring reality is not a problem. Ignoring the consequences of ignoring reality is proving to be challenging but many are giving it a good shot. Good for you. It is a good time to be alive, the absolute peak of civilisation or the start of even better things. Exciting either way. Enjoy.

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    3. I am speaking from past experience. The prophecies of the Chicken Little propagandists who nearly 50 years ago told us that because the oil wells were drying up, the world as we knew it was going to end, did not come true. The world population was 2 billion and now it's 7 billion and industrialisation has kept pace with or even exceeded the growth in population.
      Because of the climate change idiots, consumers have to pay more for energy because governments have forced people to subsidise alternative energy sources instead of using far more efficient gas, oil and coal. That is the reality which you smugly accuse me of ignoring. Past experience has taught me to be very sceptical of anyone claiming that we are running out of oil , gas or coal. They are usually pushing an agenda which will result in higher energy costs for the average man.

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    4. You make some good points. Especially about the alternative energy sources.

      There is still lots of coal, oil and gas out there. Energy return on energy investment means that there still will be lots when extraction becomes pointless.

      I merely suggest that our way of life is unsustainable. Based on financial matters as presented by Chris and from an energy perspective as per Chris Martenson.

      I shall leave you with a quote, I am now being smug.
      Only two things are infinite. Mankind's stupidity and space. Only I am not that sure about space. Albert Einstein.

      I'd love to discuss this, face to face, I will even provide some single malts. Our views oppose quite alarmingly. Anyway, you carry on believing whatever you want. I will carry on not believing. I hope you prove to be correct, at least for another 45 years.

      I must point out that my first job paid the equivalent of 450 litres of petrol a week. 25 years later, my job pays less. At the same rate, in 25 years time, I expect to be down to 100 litres. As my pay is unlikely to change much now. My view of the world easily explains this massive change. My view of the world gives an idea of the future if nothing major happens. Unfortunately, something major has already happened and I didn't notice it. And so forth.

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    5. Hunt: "Because of the climate change idiots, consumers have to pay more for energy because governments have forced people to subsidise alternative energy sources instead of using far more efficient gas, oil and coal."

      Are you joking? Fossil fuels and other non-renewables are subsidized much more than renewables. According to a recent IMF report, over $5 TRILLION per year is spent subsidizing non-renewables:
      http://thinkprogress.org/climate/2015/05/22/3662148/we-pay-what-for-fossil-fuels/

      Time to cut the subsidies to non-renewables. Get the freeloaders OFF the welfare rolls!

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  7. The key problem is that government and corporates want consumer money, in both consumer spending and taxes..,,but increasingly not their Labor.

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  8. Hunt, from now on I will refer to fossil fuel as hydrocarbon. It may be abundant but still, it is precious. It is a crime to waste natural gas on the production of electricity.

    The point of this blog post is that oil consumption is a result of the economy. All proffered solutions to the economy leave me cold. Not that I have the answer.

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    1. If, as I believe, oil is produced abioticly, then it is plentiful. Apparently, it costs the Saudis something like 7 usd to pump it out of the ground then why shouldn't oil, gas and coal be used to produce electricity? It's far cheaper than the so- called 'renewables ' which are completely unsuitable for electricity production because of storage problems ( you can't store electricity, it has to be produced on demand) , transmission problems , space , you need enormous areas to place enough solar panels, unreliability of wind , cloud cover etc.
      I feel as though the whole world has gone mad. It's as though we invented the wheel and then deliberately decided to forget about it. Wind and water were the main power sources for mills etc.before the steam engine was invented.
      The invention of the coal fired steam engine was the beginning of the modern world. Do people want to go back to riding horses, ploughing with oxen, weaving and spinning by hand because you believe it's a crime to waste natural gas on the production of electricity?

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    2. Hey Hunt,

      thanks for the reads and appreciate you sharing your thoughts. Always like to explore all possibilities.

      I really don't have any way to "know" oil's originations and it's sustainability. What I do watch is what the folks who explore and pump it do under different circumstances. What I mean is when the price ramped from $40 to $140 and sustained $100+ for years, I would have expected producers (nations, corporations) to bring as much to market as possible to take advantage of the higher prices. However, this did not happen from '05-'14. The only nations to take advantage were the US and Canada (and to a lesser degree Russia). But the N. American oil was almost entirely fracking and tar sands...highly leveraged plays with high costs, low quality, and very short pumping durations.

      This seems to signal to me that something in the abundant oil story is off? The organization to maintain collusion on a global scale is possible but not likely when nations leaders always need more revenue and really hard for corporations always trying to hit quarterly and yoy #'s. It seems to indicate new fields are inadequate to do any better than simply replace retiring fields...and given the locations and difficulties of deep sea and fracking, artic and frozen tundras...these are very expensive and in most cases of lower quality than the retiring supply they are replacing. I believe the reason we don't see the peak oil price spikes is that the world is simultaneously hitting peak demand and rolling over...turning us from peaking oil production to serious overcapacity.

      I detailed much of this in an earlier post...

      http://econimica.blogspot.com/2015/04/how-peaking-global-crude-oil-production.html

      Cheers
      Chris

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  9. My arguments are simply based on having lived through the seventies and remembering the doom and gloom propaganda about oil wells running dry to justify the increase in oil prices that resulted from the creation of OPEC. They really laid it on thick, civilisation as we knew it was coming to an end. Those were also the days when we were being warned about an impending ice age.
    And 50 years later the oil wells haven't run dry and the world population has more than
    tripled, hence my cynicism and sceptism. Perhaps, the real reason behind the scare was to justify the construction of nuclear power plants which are expensive to build, if not to run and the costs of storing spent fuel make them very uneconomic.
    What I have noticed is that governments take advantage of these scares to increase regulatory control of every aspect of our lives and interfere industrial production with regulations about the size of car engines etc. and push uneconomic energy solutions, such as using sugar cane and corn to produce fuels to fix a problem which as far as I can see did not really exist.
    Then we had the global warming scam and the push for renewables. I was always a
    sceptic because when I went to school in the fifties we were taught that the world had warmed up and cooled down various times and that nobody knew the reason why.
    The Romans were able to grow grapes in Scotland; there were once Viking settlements on Greenland; there was the medieval warm period; the Thames has frozen over various times in history and none of this warming and freezing had anything to do with the activities of mankind. Governments took advantage of this scare to push uneconmic energy solutions paid for by taxpayers to benefit the few in the know.
    They also used it as an excuse to increase government regulations.Those awful fluorescent bulbs were foisted on us. The heat produced by incandescent bulbs is actually not wasted in cold countries. They now have rules about the limits of the power of vacuum cleaners etc.
    They did the same with the ozone layer scare when companies were forced to change the gas used in fridges and air conditioners whose patent had just run out, for a less efficient gas that had just been invented all on the pretext of a hole in the ozone layer whose existence nobody had suspected until they started using weather satellites.The hole in the ozone layer might have been there from the beginning of time for all they knew and serve a useful atmospheric or climatic function.
    http://m.spiegel.de/international/germany/a-920288.html#spRedirectedFrom=www&referrrer=http://www.zerohedge.com/news/2015-08-18/germany-struggles-too-much-renewable-energy
    An article about how Germany's push for renewables has resulted in electricty being a luxury good just like how adequately heating your home has become in England.
    But for me the purpose of all these scares is to distract people from the real problem to come which is the impending economic crisis brought on by demographic decline and the collapse of the monetary system as we know it. That is not being publicised.
    As far as I can see the simplest and easiest solution would be for each country to wrest
    control of the issuing of money from the banks just like Hitler did during the last great depression but I doubt very much if we will be allowed to do it.
    Sorry for the long post but I wanted to explain the reasons for my views. I've lived to long to believe in anything promoted by any government. Nothing they do is in our interest.
    It would be nice if you could make your comment boxes a little bit bigger so I could see more of the post and thus avoid making spelling mistakes.
    Thank you for your blog. You are educating people about the biggest problem they are going to face in a clear and accessible manner.

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  10. P.S. The article on Germany repeats the ridiculous claim that CO2 is ' climate damaging' which is the basis for all these crippling energy policies. CO2 accounts for something like 0.038% of atmospheric gases. The gas that is responsible for variations in climate is water vapour which accounts for something like 70%. From about 1940 to1970 the volume of CO2 in the atmosphere increased because of the rapid industrialisation that took place after the 2nd World War but global temperatures DECLINED steadily for 30 years and that is when climate scientists warned us that we were about to enter an Ice Age.

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  11. Thank you hunt for your round up of government meddling. We all seem to know governments lie, yet most of us simply do not think to even question what they are up to.

    From hunts brief history I see that governments use every opportunity to take wealth from their own populations. Yet we still allow them to take more.

    I believe that governments and banks are our biggest problems. I have zero confidence in either to do the right thing.

    Anyway, than you hunt for sharing your perspective with us.

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  12. Thank you David. One of the few benefits of getting old is that you have a longer perspective.

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  13. Very wise and almost all evaluations have some degree of correctness. One major condition is combined greed and fear factor. We have a graph for fear but the greed graph is or will always be very complicated. History somehow plays into this formula but supplies no answer. Even the strongest of the strong somehow always fall.

    Yes the biggest variable is undoubtedly energy! Not sounding like an expert but throughout history BC/AC many things change but every time or every hundreds or thousands of years energy takes a next step. Right now there are other energy sources besides oil that are not understood enough to get the full value and I am sure there will be another energy jump in technology but I do not see another resource like oil unless it is water/salt water, but nothing can be excavated in enough abundance that is natural so what will be the next jump. Somehow just as all the different energy sources evolved what will be next. Some say that everything is made up of energy not made from energy what will the next combustion of the brains and minds bring us next or it will be like WWI,WWII that where supposed to be the Wars of all Wars but if there is another WWIII we will probably not have to worry. I don't think but hope that there would be a WORLD TREATY and ENERGY might be the cause unless there is a new ENERGY!

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  14. your work is spot on and follows peter zeihan's book a lot..i wonder how many govt actually have a demographic department as i think the study of a country's birth / death rate greatly impacts every single aspect of each country and the world as a whole especially if you are a sizable country..people makes the world go around..and they don't grow to consumers overnite, more like 20+ years...how true and prophetic.

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