Friday, June 19, 2015

How peak demand leads to civilizational collapse

According to Gail Tverberg,
Our problem is collapsing demand, everywhere. That is a scary story [referring to this link, which states that shipping rates are now even below the cost of fuel]–basically the same one we hear in different forms, over and over. The world cannot move from growth to shrinkage without huge overcapacity. With overcapacity comes prices that are way too low. No one will exit the market until some type of collapse occurs.
She also says,
I recently have been arguing with Chris Martenson on Facebook. Trying to explain to him that peak demand and low prices can bring down things pretty quickly–we can’t count on high prices allowing us to buy what we need forever, just more expensively.
Does this make sense?

I am afraid it does. Collapsing demand means that prices are becoming too low for suppliers of goods and services, which will force them out of business. If the problem were localized to one or just a few commodities or industries or countries, we would probably not need to worry about industrial civilization as whole collapsing. In that case it would just be another business cycle, which has happened many times in the past. But the present situation is different, because demand is dropping off in the entire world, across most industries! It is as if a bubble (made of debt) which has been propping up all prices is now deflating. We are kidding ourselves if we think only some companies will go bankrupt and then the rest can continue with higher prices. Not at this scale. When many bankruptcies happen at the same time across many industries, unemployment soars and demand drops further, leading to even lower prices. No companies will be able to cover their operating expenses. The collapse will be a total breakdown of the system, leaving us with no ability to produce the essentials of life anymore, even for the rich (who will then be formerly rich, of course).

Why does Chris Martenson not get this? Why do mainstream economists not get this? Are Gail and her followers the deluded ones, or are everyone else wrong? Methinks Gail is right.


Øyvind Holmstad said...

Takk for denne analysen!

Jeg har enda ikke lykkes med å få noen til å forstå alvoret av hva Gail forteller oss. Dette kan skyldes at jeg selv ikke forstår henne tilstrekkelig godt nok. Når de får vite at hun er ei gammel kone, bare rister de på hodet og tenker nok på gamle spåkoner.

Men det må ligge noe i genetikken her, mennesket må være evolvert med alvorlige fornektelsesmekanismer. Gail argumenterer så overbevisende at jeg kan ikke forstå annet.

Øyvind Holmstad said...

Så på forsida av Dagbladet i dag at folk kan juble over historisk lave renter. Vel, de får juble så lenge det varer!

"As far as I can see, the only way we can get fossil fuels out is through a debt based economy, because debt (1) allows prices to be high enough for those doing the extraction to do the extraction (2) makes goods affordable, and (3) makes the intermediate infrastructure, such as factories and roads, affordable.

It is a given that once our current debt bubble collapses, the fossil fuel economy needs to end. What has allowed it to go on as long as it has, is the shift toward ever-lower interest rates. It is hard to see that any upturn in interest rates can possibly work."

Eivind Berge said...

That's the way it goes. It is so final and definitive. Our civilization will end with the collapse of the current debt bubble and there is no way to rebuild anything like it.

Now I understand why a steady state or managed degrowth is impossible. When growth ends, there will be overcapacity at first just like we are already seeing, leading to too low commodity prices, and there is no way to transition from massive overcapacity to just enough capacity without breaking the system. We have no ability to operate industrial civilization aside from the current debt-based financial system, and this system cannot handle shrinkage.

The only really open question is how long the central banks can keep the debt bubble from collapsing. Will negative interest rates buy us a few more years? Maybe negative interest rates and more QE along with tight capital controls and suppression of social unrest can keep things running for a little while longer. That seems to be the plan, anyway. It is even possible to have negative interest rates on cash based on serial numbers by declaring any desired portion of the money supply worthless, so they don't even need to ban cash. Theoretically, all investments could yield a negative return, but people would still be incentivized to invest in order to lose as little as possible. If you got negative ten percent in the bank or by holding cash, for example, an investment yielding negative five percent would seem great. Maybe this could work for a while, if governments managed to suppress all the protests from frustrated people who keep getting poorer. More likely, people would refuse to give up their entitlements and the banking system would break instead, as is close to happening in Greece already. When that sort of crisis spreads, it can be game over very quickly.

Øyvind Holmstad said...

Denne muligheten har jeg virkelig ikke tenkt på. Tenk en situasjon med 10% negativ rente, hvor folk er ville etter å investere i prosjekter med 5% negativ avkastning. Helt sprøtt! Men hvis man tør å tenke etter, en logisk konsekvens av vårt finansielle system.

Vil sitere en gammel kommentar av Tverberg:

"(a) Get as much benefit of what you have now, as you can. Take a trip, or donate to charity, or buy things you really need.

(b) Diversify your investments. If things don’t collapse all at once, diversification protects you somewhat.

(c) Farmland or real estate might be helpful in some circumstances–knowing how to farm would be a requirement. You would also need luck with others (governments, those with more weapons) not taking the land, or the food you grow on the land, away from you.

(d) Silver coins might possibly work for trading for goods. I wouldn’t count on gold being worthwhile for trading for goods. The supposed value of gold is too high relative to most goods a person might want to trade for–what you will need is loaves of bread and clothing to wear. Gold is too high valued relative to these goods." - Gail Tverberg

Punkt D er særlig interessant. Det ser ut til at noe av det lureste man kan gjøre nå er å veksle inn formuen i små sølvmynter. Man kan på internettet kjøpe kanadiske sølvmynter av en verdi til 5 dollar, med 99,99% renhet.

Problemet er allikevel hvordan lagre dette på en trygg måte? Hvis man f.eks. veksler inn 10 millioner kroner i 5-dollars sølvmynter, blir dette en anseelig mengde, og et meget fristende mål for tyver og kjeltringer. Man risikerer også å bli utsatt for vold og trusler for å oppgi hvor man har gjemt bort disse verdiene.

Har du noen gode råd å gi?

Anonymous said...

Eivind, were you aware that recently Canada has implemented the "Swedish model" of prostitution laws you'd made plenty of posts about happening in Norway?

Eivind Berge said...

No, I hadn't heard, but that's not surprising. Feminism will only get worse until other (deflationary) forces destroy our hateful governments. It's fun to see what is happening in Greece at the moment, because no country is in much better shape and our feminist regimes will not afford to pay their enforcers for much longer. The cracks in the system are now visible; the powers that be don't even try to hide the inevitable debt defaults anymore. Commodity prices are now so low that nothing is profitable and everything runs on debt, which is clearly not a sustainable situation. People just don't realize we are doomed yet because they believe commodity prices will go back up, but that is not going to happen.

Anonymous said...

Eyes on the ball. Cut the depressing doomsday sillyness...

Eivind Berge said...

Notice how China is crashing now as well. The big one could be triggered at any moment. If Greek banks don't reopen next week, the resulting failed state could easily trigger it. So could the bankruptcy of Puerto Rico and its impact on the derivatives market.

And oil prices keep going down. Even Kuwait is now running a huge deficit; there is no profitability left for commodity exporters anywhere. Everything runs on debt, and the end result of debt is something like Greece. When the banks close in anything more than a small corner of the system, industrial civilization disintegrates in a matter of days.

I am all for fighting the age of consent and other hateful sex laws, but let's face it, the system does not have much time left. We are facing a systemic shock capable of ending industrial civilization. Once you realize that further growth is thermodynamically impossible and the global economy has no reverse gear either, the conclusion is obvious. After a short period of looting, which they are admittedly well positioned for, cops will starve to death along with the rest of us, so there will be no more sex law enforcement.

L said...

Hi Eivind, I am trying to get Tverberg's theory clear in my mind:

1) Oil prices are not going to go back up because zero interest rates and QE have failed to generate sufficient growth to overcome the growing inefficiencies in energy extraction which have led to diminishing marginal returns for the rest of the economy thus holding down affordibility for oil and other commodities.

2) the debt bubble deflation due to the inability of commodities prices to bounce back up to profitable levels is going to bankrupt all industries at the same time

3) because everything is going down at the same time it will be impossible to reignite any one part of the economy in order to stimulate the demand and thus organise the suppliers to get production and the economy back online.

Investors will not be willing to invest in oil companies or coal mines because their money would not get any return because of the collapsed demand. They will have sussed that demand will never again return because too much of the economy has collapsed at once?

Have I understood this correctly or have I got some things confused?

Eivind Berge said...

Yes, that is a pretty good summary which agrees with how I understand her as well. Except the last part -- investors pulling out of oil and coal and other commodities -- must operate on a sort of subconscious level because otherwise they would realize that their actions are suicidal and they would stay invested just to save their lives. I think Gail is expecting banks and governments to fail before the actors understand what is really going on, and the whole system will break down before we could take any constructive action. We can't be rational about this because there is no hope of even attempting to plan for a shrinking economy, which is a concept beyond the comprehension of any of the actors that matter.

L said...

This is just staggering. This could be the most devastating attack on free speech yet. Canada could well be about to put a man in jail simply for disagreeing with feminists on Twitter. Collapse cannot come too soon.

Øyvind Holmstad said...

En liten interessant artikkel om det store gjeldsspillet:

L said...

What do you make of this Eivind?

Ambrose Evans Pritchard:

"If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade."


"Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $300,000 a well. "We've driven down drilling costs by 50pc, and we can see another 30pc ahead," said John Hess, head of the Hess Corporation."

Of course Evans Pritchard still believes the oil price is going to go back up.

L said...

forgot to post link

Eivind Berge said...

I think deflationary collapse is still proceeding according to Gail's predictions. I am sure oil companies must be achieving some savings by all the desperate cuts they are making, but it won't be enough. Their cash flow remains negative and the oil price keeps going down. There is no way this can end well without a complete reversal of the decline in commodity prices, and I don't see that happening.

Øyvind Holmstad said...

You fully support deflationary collapse now, and have given up on catabolic collapse?

Eivind Berge said...

Hmmm. I still don't know for sure that catabolic collapse is out of the question. But it does look like Gail is getting more right every day, doesn't it?

Øyvind Holmstad said...

It's anyway pathetic with the new Disney film Wonderland, sending the message that our problems are due to that we lost our faith in technology:

L said...

Eivind, you used to be very pro bitcoin. Do you see any future for it now? If Tverberg's prediction changed your view of bitcoin? Based on the prediction is correct collapse will cut off everyone's internet connection. Have you sold your bitcoins to buy silver or something more durable?

L said...

Lol must have had a mini stroke while typing my last comment. I meant to ask Based on Tverberg's prediction is it now time to get out of bitcoin?

Eivind Berge said...

I still think Bitcoin is a wonderful technology which is well worth using until collapse, no matter when it happens. If Gail is right, then of course Bitcoin will quickly become impossible to use, but I don't feel much enthusiasm for anything at all in that case, so I don't see the point of selling bitcoins to buy silver, for example. We might as well use and promote bitcoin to the end. Personally, I just had to sell most of my bitcoins in order to pay my taxes for 2014, but I will get back into bitcoin when and if I can afford more. I also believe bitcoin could help delay collapse in some (slow) scenarios because it could facilitate trade during crises in the fiat system, so we have every reason to use it. But we really need to get rid of the ridiculous 1MB block size limit before Bitcoin can be useful for mass adoption, and that whole controversy is a big mess at the moment. I encourage everyone to run a full node using Mike Hearn's Bitcoin XT client in order to help bring about the hard fork to bigger blocks, because we are not going to get there by consensus with the core developers (who are not aware of collapse issues and mistakenly think we have all the time in the world):!topic/bitcoin-xt/8_GJXVlUHWk

Øyvind Holmstad said...

One of my favourite architects, Lloyd Kahn, is considering to stop blogging, because he thinks blogs have no future:

What is your opinion, should we all stop blogging and use alternative social media to get our message out? Which social media are in your opinion the best alternatives to blogs?

Eivind Berge said...

I like to use Twitter sometimes in addition to blogging, but I don't like to spend much time writing on other social media because we have so little control over how the content is presented, people may have to log in just to see it, and the entire thing is built around advertising. Of course they want to suck the entire content of the Internet into these closed platforms which they control completely so they can use us for advertising, but why would we go along with that?

The only thing superior to blogging at Blogspot or WordPress is to design your own site on your own domain, and I might do that the day they change the layout here or force ads on us. And writing books is still worthwhile, but I haven't gotten around to it yet. If you write good blog posts, you can always publish some of the content later in book form too, like the Archdruid is doing. The amazing popularity of his blog (and Gail's) is also proof that blogging is very much alive and well.

So just keep blogging!

Øyvind Holmstad said...

Jeg ser at Saltvedt stadig er uenig med Tverberg, og mener vi denne gang har en tilbudskrise:

"Den gang var det etterspørselen som sviktet. Nå er det tilbudssiden, påpeker Saltevdt."

Tverberg derimot mener det underliggende problemet er svikt i kjøpekraft for forbruksvarer. Rett nok har tilbudssiden blitt kraftig stimulert av kvantitative lettelser, som jeg ikke helt vet hva er, men det er vel en måte å øke gjelda på?

Saltvedt mener det må til kraftige produksjonskutt for å få opp igjen prisene. Men bør ikke lav oljepris drive opp den økonomiske veksten?

Derfor, dreier dette seg om "diminishing returns" eller om den gode, gamle overproduksjonen? Kan det hende Saltvedt ikke vet hva "diminishing returns" er?

Jeg mener minskende avkastning på alt, mineraler, mat, vann etc, slik at vi ikke lenger har råd til å betale hva det koster å betale for utvinningen av disse ressursene, slik at det derfor ikke trengs like mye energi som før, derfor faller oljeprisen. Men fordi vi har møtt en generell sviktende avkastning vil vi ikke være i stand til å betale hva det koster å utvinne ny olje, når tilbudssiden balanserer seg med etterspørselen.

Da vil veksten stoppe opp, profittratene faller og vi vil ikke bli i stand til å videreføre gjeldsøkonomien. Deretter rakner det hele.

Er jeg inne på noe? Hvordan tolker du bildet og Saltvedts analyser?

Øyvind Holmstad said...

Jeg søkte nettopp på ordet "deflasjonskollaps", og fikk kun 5 treff som alle ledet til meg. Jeg ser derfor ut til å være den første i Norge som har benyttet ordet deflasjonskollaps.

Er du og jeg de eneste her i landet som vet hva et deflasjonskollaps er, eller har jeg oversatt betegnelsen feil?

Har jeg oversatt rett er det skremmende at jeg er den eneste som benytter ordet. Hvordan kan noen vite at vi er inne i et deflasjonskollaps hvis de ikke engang kjenner til ordet? Hvis det er så at vi alle skal dø, er det jo greit å vite hva man dør av, slik at man kan ta sine forholdsregler og dempe smertene.

Hvordan kan det være mulig med alle de universitetsutdannede vi har i dette landet, at ikke en eneste ser ut til å kjenne til begrepet deflasjonskollaps? Er det da dette som skjer nå vil ikke noen ha mulighet til å forstå hva som skjer. Kanskje burde vi forsøke å skrive en artikkel om begrepet på norsk?

Eivind Berge said...

Jeg har også lurt på hvorfor det er ingen som ser ut til å vite hva deflasjonskollaps er her i landet. Det kan jo hende man heller ville kalt det "deflasjonær(t) kollaps," men det gir kun ett treff:

"Faber mener at det eneste som kan lede til en nedsmeltning i aksjemarkedene, er et deflasjonært kollaps, en minking av pengemengden."

Der er de inne på riktig betydning, men ikke på langt nær så dramatisk som det Gail snakker om. Mediene bruker jo ordet "kollaps" om enhver liten nedgang, så det er ikke så rart. Jeg må bare konkludere med at INGEN andre enn oss i Norge ser for seg en deflasjonær kollaps som vil bety slutten for hele den industrielle sivilisasjonen.

"Diminishing returns," eller minkende profittrater, ser ut til å være nesten like lite kjent i Norge. Jeg kan aldri huske å ha sett det i avisene, og jeg tviler på at Saltvedt forstår det. Hun tror jo ting bare blir bedre og bedre og at teknologien vil løse alle problemer.

Jeg er helt enig med din analyse. Det kan ikke være overproduksjon som fører til nedgang i så mange råvarepriser, og lave priser har ikke stimulert økonomien som forventet heller. Alt tyder på at vi er inne i et deflasjonskollaps.

Øyvind Holmstad said...

Her er mer om temaet.

- Approaching a Deflationary Crisis?:

Her til lands er nok du den første som har gått skikkelig inn i problematikken rundt deflasjonskrisa. Ut av 5 millioner er du den eneste, dette vil si at tilsvarende tall for USA burde vært 70-80 personer. Men det skal ikke forundre meg om det kan være så mange som 70-80000 personer der borte som har satt seg inn i problematikken. Mens vi nordmenn går rundt og gjør narr av de navlebeskuende og kunnskapsløse amerikanerne. Vi er så dumme og selvgode at det er nesten så vi fortjener å bukke under av et deflasjonskollaps.