Unrest is the only Growth Industry

SUBHEAD: The entire politics-economics-media operation hasn't hidden its failed "Growth" model.

By Raul Ilargi Meijer on 1 February 2017 for the Automatic Earth -
(https://www.theautomaticearth.com/2017/02/unrest-is-the-only-growth-industry-left/)


Image above: Illustration for article on unsustainability. From (https://www.vision.org/visionmedia/social-issues-sustainable-society/50333.aspx).

Benoît Hamon won the run-off for the presidential nomination of the Socialist party in France last weekend. The party that still, lest we forget, runs the country; current president François Hollande is a Socialist, even if only in name, but he did win the previous election.

Hamon ran on a platform of shortening the workweek from 35 to 32 hours, legalizing cannabis and ‘easing’ the country into a universal basic income of €750/month per capita. He’s way left of Hollande, who has a hilariously low approval rating of 4%.

Hamon doesn’t appear to have much chance of winning the presidency in the two voting rounds taking place on April 23 and May 7, but we all know how reliable election predictions are these days, and in that regard France is as volatile as the next country.

With conservative runaway favorite François Fillon accused of having paid his wife $1 million for doing nothing and Marine Le Pen, already desperately short on funds, targeted by the EU over money, who knows what and who will decide the election?

Hamon may simply be the only one left standing on the day after the vote.

I bring up Hamon, about whom I know very little, not least because he was more or less a late minute addition to the field that was supposed to have been an easy win for his former boss Manuel Valls, I bring up Hamon because he confirms something I’ve been talking about for a while.

That is, the fact that ‘leftist France’ chooses to go even more left than expected, goes a way towards proving my ‘theory’ that voters in many if not most western countries will move away from their respective political centers, and towards extremes.

This is an inevitable consequence of traditional, less extreme, politicians and parties having all become clustered together in shapeless and colorless blobs in the center, both in the US and in most European countries, combined with the fact that all of their policies -especially economic ones- have spectacularly failed vast amounts of people (or voters, if you will).

The failure of their policies has been hidden from sight by interest rates squashed like bugs, ballooning central bank balance sheets, real estate bubbles, fabricated economic data, and fantasy stories in their media that seem(ed) to affirm the ‘recovery’ tales, but they all ‘forgot’ to -eventually- line up reality with the fantasies. They never made 99% of people actually more comfortable.

The entire politics-economics-media operation has failed because it was/is based on lies and fake news, meant to hide economic reality (i.e. negative growth), and this will have grave consequences.

People have started noticing this despite the official and media-promoted data. And they’re not going to “un-notice”. Not only don’t people -once they find out- like having been lied to for years, they dislike worsening living conditions even more.

And that’s all they get; the only people who get it better are the rich, because without that the machinery can’t continue pumping up the ‘official’ numbers.

And what do you get? People complain about Trump. And they focus on one of his -seemingly- crazy ideas: temporarily closing US borders to refugees from nations with large Muslim populations.

Which is a fine thing to resist, because yes, it’s a pretty silly idea, but why haven’t they paid similar attention to how they’ve been lied to for years on both the economy and on Syria, on how Obama became the Drone King and how many innocent people lost their lives because of that?!

To how favorite all-American gal Hillary screwed up Northern Africa when she declared "We Came We Saw He Died" and the death of Libya’s Gaddafi, who gave his country the highest living standards in the region, free education and free health care, but was murdered by Hillary’s US troops, co-created the chaos that led to so many people wanting to flee their homelands in the first place?

Why is that?

Why are there protests when people are halted at an American border crossing but not when American and British and French and Australian forces blow the very same people’s homes to smithereens?

Could that have something to do with where the protesters get their information?

With how much they know about what’s happening in the world before it reaches their doorsteps?

Yes, people are suffering, and it’s very unfair what’s happening to many caught in the Trump Ban, but does anyone really believe that that’s where it started, that this is the first time (or even a unique time) that protest is warranted, or more so? And if not, why is it happening?

Because people only notice stuff when it hits them in the face, I would presume, but who among the protesters would volunteer to agree they live their lives with blinders on?

Not many, I would venture. So why do we see what we do? Where were you when Obama ordered yet another child, a family, which hadn’t yet made it to a US airport but might as well have, to be collateral damage?

I get why you’re protesting the Trump ban, but I don’t get why that’s your prime focus. I am guessing that most of the protesters would not have voted Trump in the first place, and would have been much happier -to put it mildly- for Hillary to be president right now.

But if you would have paid attention in history class, you would know that it was Hillary who brought the refugees to your welcome mats to begin with.

Take it a step further, like to the January 21 women’s march, and you would realize that the vast majority of the refugees would have much preferred to stay where they grew up, where the women in their families, their sisters and aunts and daughters used to live.

Most of whom are gone now, they’re either dead or diaspora-ed to Jordan, Turkey, Alberta, Sweden, Greece. All on account of Obama and his crew. Who of course blamed it on Assad and Putin. “I killed 1000 children, but I had to because those guys are so dangerous….”

This generation of refugees, of the huddled masses that the Statue of Liberty is supposed to teach you about, didn’t come to America because it’s the promised land; they came because America turned their homeland into a giant pile of rubble surrounded by garbage heaps and minefields.

I don’t know if you’ve ever seen pictures of Aleppo before it was destroyed, but I dare you to tell me there is even one existing American city today that’s more beautiful than Aleppo was before Americans and their allies reduced it to dust.


Image above: This is Aleppo before America got involved in Syria. From original article.

There’s very little left of that beautiful city, with its highly educated people and their lovely happy children. And none of that has anything at all to do with Donald Trump!

I don’t want to give you pics of what Aleppo looks like now. I want you to remember how lovely it was before ‘we’ moved in, years go. Sure, what you hear and see in the west is that Assad and Putin are the bad guys in this story. But now that the US/EU supported ‘rebels’ are gone, dozens of schools are reopening, and medical centers, hospitals. Who are the bad guys now?

And yeah, Trump is an elephant, and elephants are always awkward and they’re messy and they tend to kick things over and when they make mistakes those tend to be huge, but how much valuable china does the US really have left anyway?

Isn’t it all perhaps just a sliver off target, the demos, the outrage and indignation? Is the idea that your army can destroy people’s living environments with impunity without you protesting in anything approaching a serious way, and that then you get to demand, through protest, that those same people are allowed entry into your country? That’s way too late to do the right thing.

I started out making the point that as our politico-economic systems are failing, voters will move away from the center that devised and promoted those systems, and that this will happen in many countries.

The US could have had Bernie Sanders as president, but the remaining powers in the center made that impossible. Likewise, many European countries will see a move towards either further left or further right.

Since the former is mostly dormant at best, while the latter has long been preparing for just such a moment, many nations will follow the American example and elect a right wing figurehead.

This will cause a lot of chaos, but that’s not necessarily a bad thing. People need to wake up and become active. The recent US demonstrations may be a first sign of that, even though they look largely out of focus.

More than anything else, people need a mirror, they need to acknowledge that because they’ve been in a state of mindless self-centered slumber for so long, they have work to do now.

And that work needs to consist of more than yelling at the top of your lungs that Trump and Le Pen and Wilders are such terribly bad people.

For one thing because that will only help them, for another because they were not the people who put you to sleep or were supporting mindless slaughter in faraway nations or were making up ‘official’ numbers as your economies were dumped into handbaskets on their way to hell.

So ask yourselves, why did you believe what Obama was saying, or Merkel, or Cameron, Sarkozy, Rutte, you name them, while you could have known they were just making it all up, if only you had paid attention?

Why? What happened?

Why did the term ‘fake news’ only recently become a hot potato, even though you’ve been bombarded with fake and false news for years? Is it because you were/are so eager to believe that your economy is recovering that any evidence to the contrary didn’t stand a chance?

If so, do realize that for many people that was not true; it’s why they voted for the people you now so despise. Is it perhaps also because you’re so eager to believe your ‘leaders’ do the right thing that you completely miss out on the fact that they’re not? And whose fault is that?

In yet another angle, people claim that the planet’s in great peril because Trump doesn’t ‘believe’ in climate change.

But it’s not Trump’s who’s the danger when it comes to climate change, you are, because you’re foolish enough to believe that things like last year’s infinitely bally-hood Paris Agreement (CON21) will actually ‘save’ something. That belief is more dangerous than a flat-out denial, because it lulls people into sleep, while denial keeps them awake.

It’s the idea that there’s still time to rescue the planet that’s dangerous, because it’s the perfect excuse to keep on doing what you were doing without having to feel too much guilt or remorse.

You’re not going to save a single species with your electric car or whatever next green fad there is, the only way to do that is through drastic changes to your society and your own behavior.

That’s not only true with respect to the climate, it’s just as valid with respect to the refugees on your doorstep. If you want to rescue them, and those who will come after them, the only thing that makes any difference is making sure the bombing stops, that the US and European war machines are silenced. If you don’t do that, none of these protests are of any use.

So sure, yeah, by all means, protest, but make sure you protest the real issues, not just a symptom.

That doesn’t mean you should shut the door in the face of these frail forms fainting at the door, that’s just insane, but it does mean that after welcoming your guests, you will also have to make sure what brought them there must stop.

If you stop killing and maiming these people, and help rebuild Aleppo and a thousand other places, they won’t need to come to your door anymore.

As for the political field, unrest will continue and grow because the end of economic growth means the end of centralization, and our entire world, politically, economically, what have you, is based on these two things. Today, unrest is the only growth industry left.

And it’s not going away anytime soon. It’s a new day, a new dawn, it’s just that unfortunately this is not going to be a pretty one.

Still, none of it is unexpected. The Automatic Earth has been saying for years, and with us quite a few others, that this was and is inevitable. Of course there are those who say that we cried wolf, but we’ll take that risk any day.

Saw a nice very short video of Mike Maloney saying in 2011 that Obama would have to double US debt between 2008 and 2016 just to keep the entire system from starting to collapse, running to stand still, Alice, Red Queen and all. And guess what?

There’s the recovery as it’s been sold to you. It’s all been borrowed, to the last penny. Will Donald Trump double US debt once again? Will the EU countries do the same? How about Japan and China?

And to think that federal debt isn’t even the worst threat, personal debt is, and so many of us carry so much of that, and try to pass off our mortgaged homes as assets, not debt. An increasingly desperate game on all fronts.

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Beware the great 2016 financial crisis

SUBHEAD: Sell everything except high-quality bonds. This is about return of capital, not return on capital.

By Larry Elliot on 12 January 2016 for the Guardian -
(http://www.theguardian.com/business/2016/jan/12/beware-great-2016-financial-crisis-warns-city-pessimist)


Image above: Doomster investors in Manila celebrating drop in stocks. Photo by Dennis M. Sabangan. /From original article.

The City of London’s most vocal “bear” has warned that the world is heading for a financial crisis as severe as the crash of 2008-09 that could prompt the collapse of the eurozone.

Albert Edwards, strategist at the bank Société Générale, said the west was about to be hit by a wave of deflation from emerging market economies and that central banks were unaware of the disaster about to hit them. His comments came as analysts at Royal Bank of Scotland urged investors to “sell everything” ahead of an imminent stock market crash.

“Developments in the global economy will push the US back into recession,” Edwards told an investment conference in London. “The financial crisis will reawaken. It will be every bit as bad as in 2008-09 and it will turn very ugly indeed.”

Fears of a second serious financial crisis within a decade have been heightened by the turbulence in markets since the start of the year. Share prices have fallen rapidly and a slump in the cost of oil has left Brent crude trading at barely above $30 a barrel.

“Can it get any worse? Of course it can,” said Edwards, the most prominent of the stock market bears – the terms for analysts who think shares are overvalued and will fall in price. “Emerging market currencies are still in freefall. The US corporate sector is being crushed by the appreciation of the dollar.”

The Soc Gen strategist said the US economy was in far worse shape than the country’s central bank, the US Federal Reserve, realised. “We have seen massive credit expansion in the US. This is not for real economic activity; it is borrowing to finance share buybacks.”
Edwards attacked what he said was the “incredible conceit” of central bankers, who had failed to learn the lessons of the housing bubble that led to the financial crisis and slump of 2008-09.

“They didn’t understand the system then and they don’t understand how they are screwing up again. Deflation is upon us and the central banks can’t see it.”

Edwards said the dollar had risen by as much as the Japanese yen had in the 1990s, an upwards move that pushed Japan into deflation and caused solvency problems for the Asian country’s banks. He added that a sign of the crisis to come was the collapse in demand for credit in China.
“That happens when people lose confidence that policymakers know what they are doing. This is what is going to happen in Europe and the US.”

Europe has shown tentative signs of recovery in the past year, but Edwards said the efforts of the European Central Bank to push the euro lower and growth higher would come to nothing in the event of a fresh downturn. “If the global economy goes back into recession, it is curtains for the eurozone.”
Countries such as France, Spain and Italy would not accept the rising unemployment that would be associated with another recession, he said. “What a disaster the euro has been: it is a doomsday machine in favour of the German economy.”

The warning from Edwards came as stock markets had a respite from the wave of selling seen since the start of the year. The FTSE 100 index rose by 57 points to close at 5,929, while the Dow Jones Industrial Average was up by 10 points in early trading in New York.

The mood in equity markets was helped by intervention by the People’s Bank of China overnight to support the yuan, with the Chinese currency moving higher on foreign exchange markets.

Edwards joked that after years in which he has tended to be a lone voice, other institutions were also becoming a lot gloomier about global prospects.

He was referring to the RBS advice, which warned that investors face a “cataclysmic year” where stock markets could fall by up to 20% and oil could slump to $16 a barrel.

In a note to its clients the bank said: “Sell everything except high-quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.” It said the current situation was reminiscent of 2008, when the collapse of the Lehman Brothers investment bank led to the global financial crisis. This time China could be the crisis point, RBS said.

But the slide in the oil price continued, with Brent crude falling a further 3.5% to close in London at $30.45. Oil has not been below $30 a barrel since 2003.




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The BDI can't Lie

SUBHEAD: Supply and Demand. One last look at the real economy before it implodes - Part One.

By Brandon Smith on 4 March 2015 for Alt-Market -
(http://alt-market.com/articles/2528-one-last-look-at-the-real-economy-before-it-implodes-part-1)


Image above: The largest ship breaking yard at Alang in Gujarat, India. From (http://gcaptain.com/cargo-ships-shipbreaking-environmental-impact-jacob-sterling/).

We are only two months into 2015, and it has already proven to be the most volatile year for the economic environment since 2008-2009.

We have seen oil markets collapsing by about 50 percent in the span of a few months (just as the Federal Reserve announced the end of QE3, indicating fiat money was used to hide falling demand), the Baltic Dry Index (BDI) losing 30 percent since the beginning of the year, the Swiss currency surprise, the Greeks threatening EU exit (and now Greek citizens threatening violent protests with the new four-month can-kicking deal), and the effects of the nine-month-long West Coast port strike not yet quantified.

This is not just a fleeting expression of a negative first quarter; it is a sign of things to come.

Stock markets are, of course, once again at all-time highs after a shaky start, despite nearly every single fundamental indicator flashing red.

But as Zero Hedge recently pointed out in its article on artificial juicing of equities by corporations using massive stock buybacks, this is not going to last much longer, simply because the debt companies are generating is outpacing their ability to prop up the markets.

This conundrum is also visible in central bank stimulus measures. As I have related in past articles, the ability of central banks to goose the global financial system is faltering, as bailouts and low-interest-rate capital infusions now have little to no effect on overall economic performance.

The fiat fuel is no longer enough; and when this becomes apparent in the mainstream, all hell will indeed break loose.

The argument that banks can prop up the system forever is now being debunked. In this series of articles, I will cover the core reasons why this is happening, starting with the basis of all economics: supply and demand.

The BDI has been a steadfast indicator of the REAL economy for many years. While most other indexes and measures of fiscal health are subject to direct or indirect manipulation, the BDI has no money flowing through it and, thus, offers a more honest reflection of the world around us.

In the past two months, the index measuring shipping rates and international demand for raw goods has hit all-time historical lows, plummeting 57 percent over the course of the past 12 months and 30 percent for the year to date.

The dwindling lack of demand for shipping presents obvious challenges to mainstream talking heads who contend that the overall economic picture indicates recovery. That’s because if demand for raw goods has fallen so far as to produce a 57 percent rate drop over the past year, then surely demand for the consumer goods that those raw goods are used to produce must be collapsing as well.

The establishment machine has used the same broken-record argument against this conclusion, despite being proven wrong over and over again: the lie that fleet size is the cause of falling shipping rates, rather than a lack of demand for ships.

This is the same argument used by pundits to distract from the problems inherent in the severe drop in oil prices: that oversupply is the issue, and that demand is as good as it ever was. Forbes has even attempted to outright dismiss the 29-year low of the BDI and alternative economic analysts in the same lazily written article.

First, let’s address the issue of global demand for goods. Does the BDI represent this accurately? Well, as most of you know, the real picture on manufacturing and export numbers is nearly impossible to come by considering most, if not all indexes fail to account for monetary devaluation and inflation in costs of production.

For instance, mainstream propagandists love to argue that manufacturing (like retail) generally posts at least small to modest gains every year. What they fail to mention or take into account is the added costs to the bottom line of said manufacturers and retailers, as well as the added costs to the end consumer. Such costs are often not addressed in the slightest when final numbers are tallied for the public.

In manufacturing, some numbers are outright falsified, as in the case of China, where officials are forcing plant managers to lie about output.

In my view, any decline made visible in the false numbers of the mainstream should be multiplied by a wide margin in order to approximate what is going on in the real economy.

China, the largest exporter and importer in the world, continues to suffer declines in manufacturing “expansion” as it’s PMI suggests orders remain steadily stagnant.

“Official” statistics show a 3.3 percent decline in Chinese exports in January from a year earlier, while imports slumped 19.9 percent. Exports slid 12 percent on a monthly basis while imports fell 21 percent according to the Customs Administration.

In Japan, despite the falling Yen which was expected to boost overseas demand, export growth declined for last year, certainly in terms of export volume. The recent “jump” in January does nothing to offset the steady erosion of Japanese exports over the past five years and the flat demand over the past two years.

Japan’s manufacturing expansion has slowed to the slowest pace in seven months. 

In Germany, the EU’s strongest economic center, industrial output has declined to the lowest levels since 2009, and factory orders have also plunged to levels not seen since 2009. 

Despite the assumptions in the mainstream media that lower oil prices would result in high retails sales, this fantasy refuses to materialize. Retail sales continue the dismal trend set during the Christmas season of 2014,with the largest decline in 11 months in December, and continued declines in January. 

Oil is certainly the most in-our-face undeniable indicator of imploding demand. Volatility has skyrocketed while pump prices have dropped by half in many places. One may be tempted to only see the immediate benefits of this deflation.

But they would be overlooking the bigger picture of global demand. Oil is the primary driver of economic productivity. Dwindling demand for oil means dwindling productivity which means dwindling consumption which means a dwindling economy. Period.

OPEC reports announce downgraded global demand for oil above and beyond expectations. Oil demand has fallen to levels not seen since 2002.

Beyond the issue of real global demand for raw goods, the argument that the BDI is being gutted only due to an oversupply of cargo vessels also does not take into account the fact that Shipping companies often SCRAP extra ships when demand falters.  I find it rather amusing that mainstream economists seem to think that dry bulk companies would continue a trend of fielding cargo ships they don't use causing an artificial drop in freight rates.

As far as I know, such companies are not in the habit of undermining their own profits if they can help it.  When an oversupply of ships occurs, companies remove unused vessels either through scrap or dry dock in an attempt to drive freight rates back up to profitable levels.  This often works, unless, it is DEMAND for cargo shipping that is the issue, not the supply of ships.

Ship scrapping boomed in 2013 and has not stopped since.  In fact, dry bulk mover COSCO dismantled at least 17 ships in the month of January alone and has been dismantling ships consistently since at least 2013.

The trend of scrapping is often glossed over by shippers as a "modernization effort", but the fact remains that cargo companies are always removing ships from supply in order to maximize rates and profits.

Finally, global shipping giant Maersk Line now openly admits that the primary detriment to shipping rates, the reason the BDI is falling to historic lows, is because of falling demand in nearly every market; ship supply is secondary.

Does falling demand result in a lack of fleet use and thus "oversupply"?  Of course.  However, this chicken/egg game that establishment economists play with the BDI needs to stop.  Falling demand for goods came first, the number of unused ships came second.  This is the reality.

A rather cynical person might point out that all of the stats above come from the propaganda engine that is the mainstream, so why should they count? I would suggest these people consider the fact that the propaganda engine is constantly contradicting itself, and in-between the lines, we can find a certain amount of truth.

If manufacturing is in “expansion”, even minor expansion, then why are exports around the world in decline? If the BDI is dropping off the map because of a “supply glut of ships”, then why are other demand indicators across the board also falling, and why are major shipping agencies talking about lack of demand?

You see, this is what alternative analysts mean by the “real economy”; we are talking about the disconnect within the mainstream’s own data, and we are attempting to discern what parts actually present a logical picture.

The media would prefer that you look at the economy through a keyhole rather than through a pair of binoculars.

Beyond this lay the true beneficiaries of public oblivion; international corporate moguls, banking financiers, and political despots. Corporations and governments only do two things relatively well — lying and stealing. One always enables the other.

The establishment has done everything in its power to hide the most foundational of economic realities, namely the reality of dying demand.

Why? Because the longer they can hide true demand, the more time they have to steal what little independent wealth remains within the system while positioning the populace for the next great con (the con of total globalization and centralization). I will cover the many advantages of an economic collapse for elites at the end of this series.

For now I will only say that the program of manipulation we have seen since 2008 is clearly changing. The fact of catastrophic demand loss is becoming apparent. Such a loss only ever precedes a wider fiscal event.

The BDI does not implode without a larger malfunction under the surface of the financial system. Oil and exports and manufacturing do not crumble without the weight of a greater disaster bearing down. These things do not take place in a vacuum. They are the irradiated flash preceding the deadly fallout of a financial atom bomb.

Carbon Bubble Threat

SUBHEAD: Carbon emissions limits, and moves to alternative energy pose risk to fossil fuels investment.

By Deirdre Fulton on 3 March 2015 for Common Dreams -
(http://www.commondreams.org/news/2015/03/03/bank-england-issues-warning-over-looming-carbon-bubble-threat)


Image above: Man in jumpsuit of Royal Dutch Shell Oil investigating the 2011 Bonga oil spill in Nigeria.  From (http://royaldutchshellplc.com/2012/01/30/call-for-norwegian-government-pension-fund-disinvestment-in-shell/).

The Bank of England, one of the oldest banks in the world, has joined the growing ranks of those warning of the financial risk posed by a "carbon bubble," which will occur if urgently needed climate change regulations render coal, oil, and gas assets worthless.

"One live risk right now is of insurers investing in assets that could be left 'stranded' by policy changes which limit the use of fossil fuels," Bank of England official Paul Fisher told (pdf) the Economist's Insurance Summit 2015 in London on Tuesday. "As the world increasingly limits carbon emissions, and moves to alternative energy sources, investments in fossil fuels and related technologies—a growing financial market in recent decades—may take a huge hit."

Reserves are by definition bodies of oil, gas or coal that can be drilled or mined for financial gain. Currently, regulators allow companies to book them as assets, and on the assumption that they are at zero risk of being stranded—left below ground, "value" unrealized—over the full life of their exploitation.

But several recent analyses have shown that most existing reserves of fossil fuels cannot be burned if global warming is to be limited to 2° Celsius, as the world's nations have pledged. A study in January found that to avert climate disaster, the majority of fossil fuel deposits around the world—including 92 percent of U.S. coal, all Arctic oil and gas, and a majority of Canadian tar sands—must stay in the ground.

Despite such warnings, the Guardian notes, "companies spent $670bn (£436bn) in 2013 alone searching for more fossil fuels, investments that could be worthless if action on global warming slashes allowed emissions."

The newspaper further cites former U.S. Treasury Secretary Hank Paulson, who said in 2014: "When the credit bubble burst in 2008, the damage was devastating. We’re making the same mistake today with climate change. We're staring down a climate bubble that poses enormous risks to both our environment and economy."

These economic concerns have bolstered a vibrant and growing fossil fuel divestment movement around the world. As Common Dreams reported in December, "the elite investor class and world leaders have been much slower to admit the Earth has limits to the amount of carbon and other greenhouse gases it can absorb."

However, as University of Queensland economics professor John Quiggin wrote last year:

"Leaving aside the ethics of divestment and pursuing a purely rational economic analysis, the cold hard numbers of putting money into fossil fuels don't look good."

 Since 2012, the London-based Carbon Tracker Initiative has warned of how the governing financial system—in its gross over-valuation of fossil fuel reserves—leads to "capital being wasted on carbon intensive projects that are not certain to generate value, and are not consistent with the coming carbon constrained world."

When the Bank of England announced its new research agenda last week, acknowledging for the first time systemic environmental risks such as climate change, Carbon Tracker Initiative research director James Leaton said:

"It is encouraging to see this major central bank seeing the need to move with the times and understand its role in dealing with one of the major challenges facing our economies today: climate change. We hope to see other financial regulators around the world responding in a similar fashion and collaborating on this issue."

According to the Carbon Tracker Initiative's calculations, up to 80 percent of oil, gas and coal reserves listed on stock exchanges are unburnable.

"The six trillion dollar bet is that this calculation remains entirely theoretical, and that fossil-fuel companies will be allowed to keep pumping up the carbon bubble by investing more cash to turn resources into reserves, and continue booking them at full value, assuming zero risk of devaluation," environmentalist Bill McKibben and Carbon Tracker chairman Jeremy Leggett wrote in 2013.

"It's a bet that effectively says to government: 'nah, we don’t believe a word you say. We think you’ll do nothing about climate change for decades'."

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North Dakota's radioactive waste

SUBHEAD: As oil prices collapse, North Dakota considers weakening standards on radioactive drilling waste.

By  Sharon Kelly on 25 February 2015 for DeSmogBlog -
(http://www.desmogblog.com/2015/02/25/oil-prices-collapse-north-dakota-considers-weakening-standards-radioactive-drilling-waste)


Image above: PA truck dumps what is labeled "Residual Waste" in NY. Tens of thousands of tons of radioactive drilling waste from Pennsylvania fracking sites are brought to into NY landfills, threatening public health and water quality. From (https://secure.sierraclub.org/site/Advocacy;jsessionid=73E58632AF0F8CF5A338C86053EB9F9E.app207a).

As the collapse of oil prices threatens North Dakota's shale drilling rush, state regulators are considering a move they say could save the oil industry millions of dollars: weakening the state's laws on disposing of radioactive waste.

The move has been the subject of an intensive lobbying effort by drillers, who produce up to 75 tons per day of waste currently considered too hazardous to dispose of in the state.

For every truckload of that waste, drillers could save at least $10,000 in hauling costs, they argue.

State regulators calculate that by raising the radioactive waste threshold ten-fold, the industry would shave off roughly $120 million in costs per year.

But many who live in the area say they fear the long-term consequences of loosened disposal rules combined with the state's poor track record on preventing illegal dumping.

“We don't want to have when this oil and coal is gone, to be nothing left here, a wasteland, and I'm afraid that's what might happen,” farmer Gene Wirtz of Underwood, ND told KNX News, a local TV station. “Any amount of radiation beyond what you're already getting is not a good thing.”

Environmental groups have also objected that the rule change would put private companies' profits before public health.

“The only reason we're doing this today is to cut the oil industry's costs,” Darrell Dorgan, spokesman for the North Dakota Energy Industry Waste Coalition, which opposes the move, told Reuters.

There is no question that the industry is under severe financial pressure. The same barrel of Bakken crude oil that sold for $136.29 in July 2008 was priced at $34.50 this month, putting drillers, many of whom carry high levels of debt, into a financial bind.

To make debt payments, companies need to drill and frack new wells, since shale wells deliver much of their oil in a fast burst immediately following drilling, oil industry analysts say. With prices well below the breakeven point for many operators in the state's shale field, the industry's desire to cut costs is intense.

State regulators across the U.S. are feeling the pain as well, concerned about lower revenue not only from extraction taxes, but also lost jobs and plunging property values. Although North Dakota officials predict relatively minor harm to the state's general fund, planned infrastructure improvements and road repairs might be put on hold, The New York Times reported in December.

But along with revenue from shale oil and gas, the drilling rush has brought an unprecedented amount of low-level radioactive waste to the US, fueling debates in many states about how to handle the waste in the absence of federal rules.

In North Dakota, the shale rush has already produced tens of thousands of tons of low-level radioactive waste laced with radium and uranium, including up to 169 million oil filter socks where radioactivity tends to be more heavily concentrated, per year.

“We have many more wells, producing at an accelerating rate, and for each of them there’s a higher volume of waste,” Avner Vengosh, a professor of geochemistry at Duke University in Durham, North Carolina, told Bloomberg in 2014. Unless it is well managed, he added, “we are actually building up a legacy of radioactivity in hundreds of points where people have had leaks or spills around the country.”

Under North Dakota law, drillers cannot currently dispose of waste carrying more than 5 picocuries per gram (pci/g) of radioactivity – roughly the amount found in much of the soil in the state. The proposed 50 pci/g cap, while far below the highest in the country, would make North Dakota one of the least strict states in the region.

State regulators say the higher cap would still protect human health and safety, basing their proposed new rules on a report by Argonne National Laboratory that recommended steps, included in the state's proposed rules, to protect against potential harm to workers handling the waste, including a 25,000 ton limit per licensed landfill per year and a requirement that the waste be buried at least 10 feet below ground.

To be sure, it would be far less hazardous for the radioactive waste to wind up in landfills that have better liners and controls for leachate run-off and groundwater monitoring than dumped illegally.

But some living nearby argue that adding any more radioactivity to their communities is too much.

“The Argonne Report is based on 25,000 tons per year of oilfield waste in a single landfill containing the higher levels of radioactive waste. Based on this, the study estimates people living within a 50-mile radius of a new 25,000-ton radioactive dump may be exposed to twice the normal amount of radiation,” wrote Theodora Bird Bear, chair of Dakota Resource Council. “This means our trade-off is more childhood leukemia, illness and death.”

Other advocates are skeptical that the limits in the new rules will be adequately enforced if they are adopted.

“If this administration hasn't been 'able to track low levels of radioactive and toxic waste… why would we trust them with more responsibility' on this issue,” Don Morrison, executive director of the North Dakota Resource Council, told Inside Climate News in December.

Currently, much of the waste is shipped to landfills in states like Idaho, Utah or Montana. But North Dakota regulators have no clear mechanism for tracking the waste, making illegal dumping tempting for some in the industry. In one high-profile case, an abandoned gas station was filled with roughly 200 trashbags stuffed with radioactive waste.

A 2014 Associated Press investigation found that in the span of one year, over 150 people attempted to illegally dump radioactive waste at local landfills – and state regulators never issued fines or sanctions, simply asked for a promise to lawfully dispose of the waste.

Some operators are not disposing of the waste at all. “There are operators out there who are stockpiling the stuff because either they don’t know what to do with the waste or it’s too expensive,” said Erickson, owner of Plains Energy Technical Resources. In response, state regulators issued regulations requiring drillers to store radioactive waste in leak-proof containers to prevent run-off.

Under the state's proposed new rules, 10 landfills in the state would be qualified to accept radioactive oil and gas waste, but many more have applied for approval, state regulators told Inside Climate News. The lack of federal regulations for hazardous waste from oil and gas sites has meant that state can individually set their own standards and enforcement mechanisms, and rules vary widely.

“At the federal level, radioactive oil and gas waste is exempt from nearly all the regulatory processes the general public might expect would govern it,” Environmental Health Perspectives reported last year. “State laws are a patchwork.’”

Some states already allow municipal landfills to accept waste with radioactivity as high as North Dakota's proposed limits for industrial waste landfills.

But the sheer quantity of the waste from the shale rush gives the issue new dimensions – both in terms of the potential harm from contaminated water sources and airborne dust and the costs of disposal.

The radioactive material from shale drilling naturally lies buried in the same rock formations that drillers target, and is brought to the surface both in the wastewater from drilling and fracking, and in rock fragments called cuttings. The alpha radioactivity generally associated with drilling waste cannot penetrate skin, and is only harmful if people drink water or breathe air containing the materials.

However, the radioactive materials can accumulate in trucks and pipelines, leaving regulators concerned about possible exposure threats to workers if the waste is carelessly handed.

The oil industry argues that North Dakota's current rules for handling the waste are simply too costly.
“You're talking hundreds of dollars to transport versus tens of thousands” of dollars under North Dakota's proposed looser standards, Kari Cutting, vice president of the North Dakota Petroleum Council told Reuters, adding that she had attended several public hearings on the topic. “This just shows how much of a priority we're putting on this and these costs.”

Some in the region find that logic unconvincing.

“When the Bakken oil boom started, the oil industry knew they were going to produce radioactive waste and they knew what they were required to do with it. But, they didn’t put that into their business plans,” wrote Ms. Bird Bear. “The process to increase the allowable level of radioactivity in our state began about two years ago with behind-closed-door meetings with the health department and the oil industry. The result is once again a green light to the oil industry, this time to dump more radioactive waste in our state.”
Public comment on the proposal has been extended until March 2.

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The One Way Forward

SUBHEAD: If you’ve driven down a dead end alley shouting “We can’t go back!” isn’t exactly a useful habit.

By John Michael Greer on 28 January 2015 for the Archdruid Report
(http://thearchdruidreport.blogspot.com/2015/01/the-one-way-forward.html)


Image above: "Homecoming G.I." Arriving back at home after the war. Painting creaeted May 26th, 1945 by Norman Rockwell for Saturday Evening Post. From (http://www.saturdayeveningpost.com/2013/06/11/art-entertainment/norman-rockwell-art-entertainment/rockwell-redheds.html).

All things considered, 2015 just isn’t shaping up to be a good year for believers in business as usual. Since last week’s post here on The Archdruid Report, the anti-austerity party Syriza has swept the Greek elections, to the enthusiastic cheers of similar parties all over Europe and the discomfiture of the Brussels hierarchy.

The latter have no one to blame for this turn of events but themselves; for more than a decade now, EU policies have effectively put sheltering banks and bondholders from the healthy discipline of the market ahead of all other considerations, including the economic survival of entire nations. It should be no surprise to anyone that this wasn’t an approach with a long shelf life.

Meanwhile, the fracking bust continues unabated. The number of drilling rigs at work in American oilfields continues to drop vertically from week to week, layoffs in the nation’s various oil patches are picking up speed, and the price of oil remains down at levels that make further fracking a welcome mat for the local bankruptcy judge.

Those media pundits who are still talking the fracking industry’s book keep insisting that the dropping price of oil proves that they were right and those dratted heretics who talk of peak oil must be wrong, but somehow those pundits never get around to explaining why iron ore, copper, and most other major commodities are dropping in price even faster than crude oil, nor why demand for petroleum products here in the US has been declining steadily as well.

The fact of the matter is that an industrial economy built to run on cheap conventional oil can’t run on expensive oil for long without running itself into the ground. Since 2008, the world’s industrial nations have tried to make up the difference by flooding their economies with cheap credit, in the hope that this would somehow make up for the sharply increased amounts of real wealth that have had to be diverted from other purposes into the struggle to keep liquid fuels flowing at their peak levels.

Now, though, the laws of economics have called their bluff; the wheels are coming off one national economy after another, and the price of oil (and all those other commodities) has dropped to levels that won’t cover the costs of fracked oil, tar sands, and the like, because all those frantic attempts to externalize the costs of energy production just meant that the whole global economy took the hit.

Now of course this isn’t how governments and the media are spinning the emerging crisis. For that matter, there’s no shortage of people outside the corridors of power, or for that matter of punditry, who ignore the general collapse of commodity prices, fixate on oil outside of the broader context of resource depletion in general, and insist that the change in the price of oil must be an act of economic warfare, or what have you.

It’s a logic that readers of this blog will have seen deployed many times in the past: whatever happens, it must have been decided and carried out by human beings.

An astonishing number of people these days seem unable to imagine the possibility that such wholly impersonal factors as the laws of economics, geology, and thermodynamics could make things happen all by themselves.

The problem we face now is precisely that the unimaginable is now our reality. For just that little bit too long, too many people have insisted that we didn’t need to worry about the absurdity of pursuing limitless growth on a finite and fragile planet, that “they’ll think of something,” or that chattering on internet forums about this or that or the other piece of technological vaporware was doing something concrete about our species’ imminent collision with the limits to growth.

For just that little bit too long, not enough people were willing to do anything that mattered, and now impersonal factors have climbed into the driver’s seat, having mugged all seven billion of us and shoved us into the trunk.

As I noted in last week’s post, that puts hard limits on what can be done in the short term. In all probability, at this stage of the game, each of us will be meeting the oncoming wave of crisis with whatever preparations we’ve made, however substantial or insubstantial those happen to be.

I’m aware that a certain subset of my readers are unhappy with that suggestion, but that can’t be helped; the future is under no obligation to wait patiently while we get ready for it.

A few years back, when I posted an essay here whose title sums up the strategy I’ve been proposing, I probably should have put more stress on the most important word in that slogan: now. Still, that’s gone wherever might-have-beens spend their time.

That doesn’t mean the world is about to end.

It means that in all probability, beginning at some point this year and continuing for several years after that, most of my readers will be busy coping with the multiple impacts of a thumping economic crisis on their own lives and those of their families, friends, communities, and employers, at a time when political systems over much of the industrial world have frozen up into gridlock, the simmering wars in the Middle East and much of the Third World seem more than usually likely to boil over, and the twilight of the Pax Americana is pushing both the US government and its enemies into an ever greater degree of brinksmanship.

Exactly how that’s going to play out is anyone’s guess, but no matter what happens, it’s unlikely to be pretty.

While we get ready for the first shocks to hit, though, it’s worth talking a little bit about what comes afterwards. No matter how long a train of financial dominoes the collapse of the fracking bubble sets toppling, the last one fill fall eventually, and within a few years things will have found a “new normal,” however far down the slope of contraction that turns out to be.

No matter how many proxy wars, coups d’etat, covert actions, and manufactured insurgencies get launched by the United States or its global rivals in their struggle for supremacy, most of the places touched by that conflict will see a few years at most of actual warfare or the equivalent, with periods of relative peace before and after.

The other driving forces of collapse act in much the same way; collapse is a fractal process, not a linear one.

Thus there’s something on the far side of crisis besides more of the same. The discussion I’d like to start at this point centers on what might be worth doing once the various masses of economic, political, and military rubble stops bouncing. It’s not too early to begin planning for that.

If nothing else, it will give readers of this blog something to think about while standing in bread lines or hiding in the basement while riot police and insurgents duke it out in the streets.

That benefit aside, the sooner we start thinking about the options that will be available once relative stability returns, the better chance we’ll have of being ready to implement it, in our own lives or on a broader scale, once stability returns.

One of the interesting consequences of crisis, for that matter, is that what was unthinkable before a really substantial crisis may not be unthinkable afterwards.

 Read Barbara Tuchman’s brilliant The Proud Tower and you’ll see how many of the unquestioned certainties of 1914 were rotting in history’s compost bucket by the time 1945 rolled around, and how many ideas that had been on the outermost fringes before the First World War that had become plain common sense after the Second.

It’s a common phenomenon, and I propose to get ahead of the curve here by proposing, as raw material for reflection if nothing else, something that’s utterly unthinkable today but may well be a matter of necessity ten or twenty or forty years from now.

What do I have in mind? Intentional technological regression as a matter of public policy.

Imagine, for a moment, that an industrial nation were to downshift its technological infrastructure to roughly what it was in 1950. That would involve a drastic decrease in energy consumption per capita, both directly—people used a lot less energy of all kinds in 1950—and indirectly—goods and services took much less energy to produce then, too.

It would involve equally sharp decreases in the per capita consumption of most resources. It would also involve a sharp increase in jobs for the working classes—a great many things currently done by robots were done by human beings in those days, and so there were a great many more paychecks going out of a Friday to pay for the goods and services that ordinary consumers buy.

Since a steady flow of paychecks to the working classes is one of the major things that keep an economy stable and thriving, this has certain obvious advantages, but we can leave those alone for now.

Now of course the change just proposed would involve certain changes from the way we do things. Air travel in the 1950s was extremely expensive—the well-to-do in those days were called “the jet set,” because that’s who could afford tickets—and so everyone else had to put up with fast, reliable, energy-efficient railroads when they needed to get from place to place.

Computers were rare and expensive, which meant once again that more people got hired to do jobs, and also meant that when you called a utility or a business, your chance of getting a human being who could help you with whatever problem you might have was considerably higher than it is today.

Lacking the internet, people had to make do instead with their choice of scores of AM and shortwave radio stations, thousands of general and specialized print periodicals, and full-service bookstores and local libraries bursting at the seams with books—in America, at least, the 1950s were the golden age of the public library, and most small towns had collections you can’t always find in big cities these days.

Oh, and the folks who like looking at pictures of people with their clothes off, and who play a large and usually unmentioned role in paying for the internet today, had to settle for naughty magazines, mail-order houses that shipped their products in plain brown wrappers, and tacky stores in the wrong end of town. (For what it’s worth, this didn’t seem to inconvenience them any.)

As previously noted, I’m quite aware that such a project is utterly unthinkable today, and we’ll get to the superstitious horror that lies behind that reaction in a bit. First, though, let’s talk about the obvious objections.

Would it be possible? Of course.

Much of it could be done by simple changes in the tax code. Right now, in the United States, a galaxy of perverse regulatory incentives penalize employers for hiring people and reward them for replacing employees with machines.

Change those so that spending money on wages, salaries and benefits up to a certain comfortable threshold makes more financial sense for employers than using the money to automate, and you’re halfway there already.

A revision in trade policy would do most of the rest of what’s needed. What’s jokingly called “free trade,” despite the faith-based claims of economists, benefits the rich at everyone else’s expense, and would best be replaced by sensible tariffs to support domestic production against the sort of predatory export-driven mercantilism that dominates the global economy these days.

Add to that high tariffs on technology imports, and strip any technology beyond the 1950 level of the lavish subsidies that fatten the profit margins of the welfare-queen corporations in the Fortune 500, and you’re basically there.

What makes the concept of technological regression so intriguing, and so workable, is that it doesn’t require anything new to be developed. We already know how 1950 technology worked, what its energy and resource needs are, and what the upsides and downsides of adopting it would be; abundant records and a certain fraction of the population who still remember how it worked make that easy.

Thus it would be an easy thing to pencil out exactly what would be needed, what the costs and benefits would be, and how to minimize the former and maximize the latter; the sort of blind guesses and arbitrary assumptions that have to go into deploying a brand new technology need not apply.

So much for the first objection. Would there be downsides to deliberate technological regression? Of course. Every technology and every set of policy options has its downsides.

A common delusion these days claims, in effect, that it’s unfair to take the downsides of new technologies or the corresponding upsides of old ones into consideration when deciding whether to replace an older technology with a newer one.

An even more common delusion claims that you’re not supposed to decide at all; once a new technology shows up, you’re supposed to run bleating after it like everyone else, without asking any questions at all.

Current technology has immense downsides. Future technologies are going to have them, too—it’s only in sales brochures and science fiction stories, remember, that any technology is without them. Thus the mere fact that 1950 technology has problematic features, too, is not a valid reason to dismiss technological retrogression.

The question that needs to be asked, however unthinkable it might be, is whether, all things considered, it’s wiser to accept the downsides of 1950 technology in order to have a working technological suite that can function on much smaller per capita inputs of energy and resources, and thus a much better chance to get through the age of limits ahead than today’s far more extravagant and brittle technological infrastructure.

It’s probably also necessary to talk about a particular piece of paralogic that comes up reliably any time somebody suggests technological regression: the notion that if you return to an older technology, you have to take the social practices and cultural mores of its heyday as well.

I fielded a good many such comments last year when I suggested steam-powered Victorian technology powered by solar energy as a form the ecotechnics of the future might take.

An astonishing number of people seemed unable to imagine that it was possible to have such a technology without also reintroducing Victorian habits such as child labor and sexual prudery. Silly as that claim is, it has deep roots in the modern imagination.

No doubt, as a result of those deep roots, there will be plenty of people who respond to the proposal just made by insisting that the social practices and cultural mores of 1950 were awful, and claiming that those habits can’t be separated from the technologies I’m discussing.

I could point out in response that 1950 didn’t have a single set of social practices and cultural mores; even in the United States, a drive from Greenwich Village to rural Pennsylvania in 1950 would have met with remarkable cultural diversity among people using the same technology.

The point could be made even more strongly by noting that the same technology was in use that year in Paris, Djakarta, Buenos Aires, Tokyo, Tangiers, Novosibirsk, Guadalajara, and Lagos, and the social practices and cultural mores of 1950s middle America didn’t follow the technology around to these distinctly diverse settings, you know.

Pointing that out, though, will likely be wasted breath. To true believers in the religion of progress, the past is the bubbling pit of eternal damnation from which the surrogate messiah of progress is perpetually saving us, and the future is the radiant heaven into whose portals the faithful hope to enter in good time.

Most people these days are no more willing to question those dubious classifications than a medieval peasant would be to question the miraculous powers that supposedly emanated from the bones of St. Ethelfrith.

Nothing, but nothing, stirs up shuddering superstitious horror in the minds of the cultural mainstream these days as effectively as the thought of, heaven help us, “going back.”

Even if the technology of an earlier day is better suited to a future of energy and resource scarcity than the infrastructure we’ve got now, even if the technology of an earlier day actually does a better job of many things than what we’ve got today, “we can’t go back!” is the anguished cry of the masses.

They’ve been so thoroughly bamboozled by the propagandists of progress that they never stop to think that, why, yes, they can, and there are valid reasons why they might even decide that it’s the best option open to them.

There’s a very rich irony in the fact that alternative and avant-garde circles tend to be even more obsessively fixated on the dogma of linear progress than the supposedly more conformist masses.

That’s one of the sneakiest features of the myth of progress; when people get dissatisfied with the status quo, the myth convinces them that the only option they’ve got is to do exactly what everyone else is doing, and just take it a little further than anyone else has gotten yet.

What starts off as rebellion thus gets coopted into perfect conformity, and society continues to march mindlessly along its current trajectory, like lemmings in a Disney nature film, without ever asking the obvious questions about what might be waiting at the far end.

That’s the thing about progress; all the word means is “continued movement in the same direction.” If the direction was a bad idea to start with, or if it’s passed the point at which it still made sense, continuing to trudge blindly onward into the gathering dark may not be the best idea in the world. Break out of that mental straitjacket, and the range of possible futures broadens out immeasurably.

It may be, for example, that technological regression to the level of 1950 turns out to be impossible to maintain over the long term.

If the technologies of 1920 can be supported on the modest energy supply we can count on getting from renewable sources, for example, something like a 1920 technological suite might be maintained over the long term, without further regression.

 It might turn out instead that something like the solar steampower I mentioned earlier, an ecotechnic equivalent of 1880 technology, might be the most complex technology that can be supported on a renewable basis.

It might be the case, for that matter, that something like the technological infrastructure the United States had in 1820, with windmills and water wheels as the prime movers of industry, canalboats as the core domestic transport technology, and most of the population working on small family farms to support very modest towns and cities, is the fallback level that can be sustained indefinitely.

Does that last option seem unbearably depressing? Compare it to another very likely scenario—what will happen if the world’s industrial societies gamble their survival on a great leap forward to some unproven energy source, which doesn’t live up to its billing, and leaves billions of people twisting in the wind without any working technological infrastructure at all—and you may find that it has its good points.

If you’ve driven down a dead end alley and are sitting there with the front grill hard against a brick wall, it bears remembering, shouting “We can’t go back!” isn’t exactly a useful habit.

In such a situation—and I’d like to suggest that that’s a fair metaphor for the situation we’re in right now—going back, retracing the route as far back as necessary, is the one way forward.

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Deja Vu All Over Again

SUBHEAD: Many institutions tried to bail themselves out from the real estate bust by doubling down on fracking.

By John Michael Greer on 17 December 2014 for the Archdruid Report -
(http://thearchdruidreport.blogspot.com/2014/12/deja-vu-all-over-again.html)


Image above: Illustration for "Beware of the Shale Gas Bubble" 2/20/13. From (http://priceofoil.org/2013/02/20/beware-the-shale-gas-bubble/).

Over the last few weeks, a number of regular readers of The Archdruid Report have asked me what I think about the recent plunge in the price of oil and the apparent end of the fracking bubble.

That interest seems to be fairly widespread, and has attracted many of the usual narratives; the blogosphere is full of claims that the Saudis crashed the price of oil to break the US fracking industry, or that Obama got the Saudis to crash the price of oil to punish the Russians, or what have you.

I suspect, for my part, that what’s going on is considerably more important. To start with, oil isn’t the only thing that’s in steep decline. Many other major commodities—coal, iron ore, and copper among them—have registered comparable declines over the course of the last few months.

I have no doubt that the Saudi government has its own reasons for keeping their own oil production at full tilt even though the price is crashing, but they don’t control the price of those other commodities, or the pace of commercial shipping—another thing that has dropped steeply in recent months.

What’s going on, rather, is something that a number of us in the peak oil scene have been warning about for a while now. Since most of the world’s economies run on petroleum products, the steep oil prices of the last few years have taken a hefty bite out of all economic activities.

The consequences of that were papered over for a while by frantic central bank activities, but they’ve finally begun to come home to roost in what’s politely called “demand destruction”—in less opaque terms, the process by which those who can no longer afford goods or services stop buying them.

That, in turn, reminded me of the last time prolonged demand destruction collided with a boom in high-priced oil production, and sent me chasing after a book I read almost three decades ago. A few days ago, accordingly, the excellent interlibrary loan service we have here in Maryland brought me a hefty 1985 hardback by financial journalist Philip Zweig, with the engaging title Belly Up: The Collapse of the Penn Square Bank.

PENN SQUARE
Some of my readers may never have heard of the Penn Square Bank; others may be scratching their heads, trying to figure out why the name sounds vaguely familiar. Those of my readers who belong to either category may want to listen up, because the same story seems to be repeating itself right now on an even larger scale.

The tale begins in the middle years of the 1970s, when oil prices shot up to unprecedented levels, and reserves of oil and natural gas that hadn’t been profitable before suddenly looked like winning bets.

The deep strata of Oklahoma’s Anadarko basin were ground zero for what many people thought was a new era in natural gas production, especially when a handful of deep wells started bringing in impressive volumes of gas.

The only missing ingredient was cash, and plenty of it, to pay for the drilling and hardware. That’s where the Penn Square Bank came into the picture.

The Penn Square Bank was founded in 1960. At that time, as a consequence of hard-earned suspicions about big banks dating back to the Populist era, Oklahoma state banking laws prohibited banks from owning more than one branch, and so there were hundreds of little one-branch banks scattered across the state, making a modest return from home mortgages, auto loans, and the like.

That’s what Penn Square was; it had been organized by the developer of the Penn Square shopping mall, in the northern suburbs of Oklahoma City, to provide an additional draw to retailers and customers. There it sat, in between a tobacconist and Shelley’s Tall Girl’s Shop, doing ordinary retail banking, until 1975.

In that year it was bought by a group of investors headed by B.P. “Beep” Jennings, an Oklahoma City banker who had been passed over for promotion at one of the big banks in town. Jennings pretty clearly wanted to prove that he could run with the big dogs; he was an excellent salesman, but not particularly talented at the number-crunching details that make for long-term success in banking, and he proceeded to demonstrate his strengths and weaknesses in an unforgettable manner.

He took the little shopping mall bank and transformed it into a big player in the Oklahoma oil and gas market, which was poised—or so a chorus of industry voices insisted—on the brink of one of history’s great energy booms.

Now of course this involved certain difficulties, which had to be overcome. A small shopping center bank doesn’t necessarily have the financial resources to become a big player in a major oil and gas market, for example.

Fortunately for Beep Jennings, one of the grand innovations that has made modern banking what it is today had already occurred; by his time, loans were no longer seen as money that was collected from depositors and loaned out to qualified borrowers, in the expectation that it would be repaid with interest. Rather, loans were (and are) assets, which could (and can) be sold, for cash, to other banks.

This is what Penn Square did, and since their loans charged a competitive interest rate and thus promised competitive profits, they were eagerly snapped up by Chase Manhattan, Continental Illinois, Seattle First, and a great many other large and allegedly sophisticated banks.

So Penn Square Bank started issuing loans to Oklahoma oil and gas entrepreneurs, a flotilla of other banks around the country proceeded to fund those loans, and to all intents and purposes, the energy boom began.

OIL BUBBLE
At least that’s what it looked like. There was a great deal of drilling going on, certainly; the economists insisted that the price of oil and gas would just keep on rising; the local and national media promptly started featuring giddily enthusiastic stories about the stunning upside opportunities in the booming Oklahoma oil and gas business.

What’s more, Oklahoma oil and gas entrepreneurs were spending money like nobody’s business, and not just on drilling leases, steel pipe, and the other hardware of the trade.

Lear jets, vacation condos in fashionable resorts, and such lower-priced symbols of nouveau richesse as overpriced alligator-hide cowboy boots were much in evidence; so was the kind of high-rolling crassness that only the Sunbelt seems to inspire. Habitués of the Oklahoma oilie scene used to reminisce about one party where one of the attendees stood at the door with a stack of crisp $100 bills in his hand and asked every woman who entered how much she wanted for her clothes: every stitch, then and there, piled up in the entry.

Prices varied, but apparently none of them turned down the offer.

It’s only fair to admit that there were a few small clouds marring the otherwise sunny vistas of the late 1970s Oklahoma oil scene. One of them was the difficulty the banks buying loans from Penn Square—the so-called “upstream” banks—had in getting Penn Square to forward all the necessary documents on those loans.

Since their banks were making loads of money off the transactions, the people in charge at the upstream banks were unwilling to make a fuss about it, and so their processing staff just had to put up with such minor little paperwork problems as missing or contradictory statements concerning collateral, payments of interest and principal, and so on.

Mind you, some of the people in charge at those upstream banks seem to have had distinctly personal reasons for not wanting to make a fuss about those minor little paperwork problems. They were getting very large loans from Penn Square on very good terms, entering into partnerships with Penn Square’s favorite oilmen, and in at least some cases attending the clothing-optional parties just mentioned.

No one else in the upstream banks seems to have been rude enough to ask too many questions about these activities; those who wondered aloud about them were told, hey, that’s just the way Oklahoma oilmen do business, and after all, the banks were making loads of money off the boom.

All in all, the future looked golden just then. In 1979, the Iranian revolution drove the price of oil up even further; in 1980, Jimmy Carter’s troubled presidency—with its indecisive but significant support for alternative energy and, God help us all, conservation—was steamrollered by Reagan’s massively funded and media-backed candidacy.

REAGANOMICS
As the new president took office in January of 1981, promising “morning in America,” the Penn Square bankers, their upstream counterparts, their clients in the Oklahoma oil and gas industry, and everyone else associated with the boom felt confident that happy days were there to stay.

After all, the economists insisted that the price of oil and gas would just keep rising for decades to come, the most business-friendly and environment-hostile administration in living memory was comfortably ensconced in the White House; and investors were literally begging to be allowed to get a foot in the door in the Oklahoma boom. What could possibly go wrong?

Then, in 1981, without any fuss at all, the price of oil and natural gas peaked and began to decline.

In retrospect, it’s not difficult to see what happened, though a lot of people since then have put a lot of effort into leaving the lessons of those years unlearnt. Energy is so central to a modern economy that when the price of energy goes up, every other sector of the economy ends up taking a hit. The rising price of energy functions, in effect, as a hidden tax on all economic activity outside the energy sector, and sends imbalances cascading through every part of the economy.

As a result, other economic sectors cut their expenditures on energy as far as they can, either by conservation measures or by such tried and true processes as shedding jobs, cutting production, or going out of business. All this had predictable effects on the price of oil and gas, even though very few people predicted them.

As oil and gas prices slumped, investors started backing away from fossil fuel investments, including the Oklahoma boom. Upstream banks, in turn, started to have second thoughts about the spectacular sums of money they’d poured into Penn Square Bank loans.

BOOM & BUST
For the first time since the boom began, hard questions—the sort of questions that, in theory, investors and bankers are supposed to ask as a matter of course when people ask them for money—finally got asked. That’s when the problems began in earnest, because a great many of those questions didn’t have any good answers.

It took until July 5, 1982 for the boom to turn definitively into a bust. That’s the day that federal bank regulators, after several years of inconclusive fumbling and a month or so of increasing panic, finally shut down the Penn Square Bank.

What they discovered, as they dug through the mass of fragmentary, inaccurate, and nonexistent paperwork, was that Penn Square had basically been lending money to anybody in the oil and gas industry who wanted some, without taking the trouble to find out if the borrowers would ever be able to repay it.

When payments became a problem, Penn Square obligingly loaned out the money to make their payments, and dealt with loans that went bad by loaning deadbeat borrowers even more money, so they could clear their debts and maintain their lifestyles.

The oil and gas boom had in fact been nothing of the kind, as a good many of the firms that had been out there producing oil and gas had been losing money all along. Rather, it was a Ponzi scheme facilitated by delusional lending practices.

All those Lear jets, vacation condos, alligator-skin cowboy boots, heaps of slightly used women’s clothing, and the rest of it? They were paid for by money from investors and upstream banks, some of it via the Penn Square Bank, the rest from other banks and investors.

The vast majority of the money was long gone; the resulting crash brought half a dozen major banks to their knees, and plunged Oklahoma and the rest of the US oil belt into a savage recession that gripped the region for most of a decade.

That was the story chronicled in Zweig’s book, which I reread over a few quiet evenings last week. Do any of the details seem familiar to you? If not, dear reader, you need to get out more.

DEJA VU
As far as I know, the fracking bubble that’s now well into its denouement didn’t have a single ineptly run bank at its center, as the Oklahoma oil and gas bubble did. Most of the other details of that earlier fiasco, though, were present and accounted for.

Sky-high fuel prices, check; reserves unprofitable at earlier prices that suddenly looked like a winning deal, check; a media frenzy that oversold the upside and completely ignored the possibility of a downside, check; vast torrents of money and credit from banks and investors too dazzled by the thought of easy riches to ask the obvious questions, check; a flurry of drilling companies that lost money every single quarter but managed to stay in business by heaping up mountains of unpayable debt, check.

Pretty much every square on the bingo card marked “economic debacle” has been filled in with a pen dipped in fracking fluid.

Now of course a debacle of the Penn Square variety requires at least one other thing, which is a banking industry so fixated on this quarter’s profits that it can lose track of the minor little fact that lending money to people who can’t pay it back isn’t a business strategy with a long shelf life. I hope none of my readers are under the illusion that this is lacking just now.
 
With interest rates stuck around zero and people and institutions that live off their investments frantically hunting for what used to count as a normal rate of return, the same culture of short-term thinking and financial idiocy that ran the global economy into the ground in the 2008 real estate crash remains firmly in place, glued there by the refusal of the Obama administration and its equivalents elsewhere to prosecute even the most egregious cases of fraud and malfeasance.

Now that the downturn in oil prices is under way, and panic selling of energy-related junk bonds and lower grades of unconventional crude oil has begun in earnest, it seems likely that we’ll learn just how profitable the fracking fad of the last few years actually was.

My working guess, which is admittedly an outsider’s view based on limited data and historical parallels, is that it was a money-losing operation from the beginning, and looked prosperous—as the Oklahoma boom did—only because it attracted a flood of investment money from people and institutions who were swept up in the craze.

If I’m right, the spike in domestic US oil production due to fracking was never more than an artifact of fiscal irresponsibility in the first place, and could not have been sustained no matter what. Still, we’ll see.

DAMAGE ASSESSMENT
The more immediate question is just how much damage the turmoil now under way will do to a US and global economy that have never recovered from the body blow inflicted on them by the real estate bubble that burst in 2008.

Much depends on exactly who sunk how much money into fracking-related investments, and just how catastrophically those investments come unraveled. It’s possible that the result could be just a common or garden variety recession; it’s possible that it could be quite a bit more.

When the tide goes out, as Warren Buffet has commented, you find out who’s been swimming naked, and just how far the resulting lack of coverage will extend is a question of no small importance.

At least three economic sectors outside the fossil fuel industry, as I see it, stand to suffer even if all we get is an ordinary downturn.

FIRST
 The first, of course, is the financial sector. A vast amount of money was loaned to the fracking industry; another vast amount—I don’t propose to guess how it compares to the first one—was accounted for by issuing junk bonds, and there was also plenty of ingenious financial architecture of the sort common in the housing boom. Those are going to lose most or all of their value in the months and years ahead.

No doubt the US government will bail out its pals in the really big banks again, but there’s likely to be a great deal of turmoil anyway, and midsized and smaller players may crash and burn in a big way. One way or another, it promises to be entertaining.

SECOND
The second sector I expect to take a hit is the renewable energy sector. In the 1980s, as prices of oil and natural gas plunged, they took most of the then-burgeoning solar and wind industries with them. There were major cultural shifts at the same time that helped feed the abandonment of renewable energy, but the sheer impact of cheap oil and natural gas needs to be taken into account.

If, as seems likely, we can expect several years of lower energy prices, and several years of the kind of economic downdraft that makes access to credit for renewable-energy projects a real challenge, a great many firms in the green sector will struggle for survival, and some won’t make it.

Those renewable-energy firms that pull through will find a substantial demand for their services further down the road, once the recent talk about Saudi America finds its proper home in the museum of popular delusions next to perpetual motion machines and Piltdown Man, and the US has to face a future without the imaginary hundred-year reserve of fracked natural gas politicians were gabbling about not that long ago.

Still, it’s going to take some nimble footwork to get there; my guess is that those firms that get ready to do without government subsidies and tax credits, and look for ways to sell low-cost homescale systems in an era of disintegrating energy infrastructure, will do much better than those that cling to the hope of government subsidies and big corporate contracts.

THIRD
The third sector I expect to land hard this time around is the academic sector. Yes, I know, it’s not fashionable to talk of the nation’s colleges and universities as an economic sector, but let’s please be real; in today’s economy, the academic industry functions mostly as a sales office for predatory loans, which are pushed on unwary consumers using deceptive marketing practices.

The vast majority of people who are attending US universities these days, after all, will not prosper as a result; in fact, they will never recover financially from the burden of their student loans, since the modest average increase in income that will come to those graduates who actually manage to find jobs will be dwarfed by the monthly debt service they’ll have to pay for decades after graduation.

One of the core reasons why the academic industry has become so vulnerable to a crash is that most colleges and universities rely on income from their investments to pay their operating expenses, and income from investments has taken a double hit in the last decade. First, the collapse of interest rates to near-zero (and in some cases, below-zero) levels has hammered returns across the spectrum of investment vehicles.

As a result, colleges and universities have increasingly put their money into risky investments that promise what used to be ordinary returns, and this drove the second half of the equation; in the wake of the 2008 real estate crash, many colleges and universities suffered massive losses of endowment funds, and most of these losses have never been made good.

Did the nation’s colleges and universities stay clear of the fracking bubble? That would have required, I think, far more prudence and independent thinking than the academic industry has shown of late.

Those institutions that had the common sense to get out of fossil fuels for ecological reasons may end up reaping a surprising benefit; the rest, well, here again we’ll have to wait and see.

My working guess, which is once again an outsider’s guess based on limited data and historical parallels, is that a great many institutions tried to bail themselves out from the impact of the real estate bust by doubling down on fracking.

If that’s what happened, the looming crisis in American higher education—a crisis driven partly by the predatory loan practices mentioned earlier, partly by the jawdropping inflation in the price of a college education in recent decades, and partly by rampant overbuilding of academic programs—will be hitting shortly, and some very big names in the academic industry may not survive the impact.

As Yogi Berra liked to point out, it’s hard to make predictions, especially about the future. Still, it looks as though we may be in the opening stages of a really ugly fiscal crisis, and I’d encourage my readers to take that possibility seriously and act accordingly.

See also:
Ea O KA Aina: The Oil Bubble Bursts 12/8/14
Ea O Ka Aina: Bubble About to Burst 10/22/12 

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