The Chinese military, especially the navy, made great strides last year in improving its combat capabilities, enabling it to better defend the nation against threats to its sovereignty, according to analysts. As China Daily reports, less than a month after being named the head of China’s Central Military Commission, President Xi Jinping asked PLA officers to adopt realistic combat criteria in military training. “It is the top priority for the military to be able to fight and win battles,” he said during an inspection to the Guangzhou military theater of operations in December 2012. While some have suggested the rapidly expanding PLA navy is driving a seismic shift in Asia’s military balance, Chinese experts have refuted such rhetoric, saying military moves by China are only aimed at creating improved self-defense by providing capabilities to match the other parties in the region.
There’s no question that the consumer has been leveraged up,’ Royal Bank CEO says
The Canadian Press Posted: Jan 14, 2014 2:08 PM ET Last Updated: Jan 14, 2014 2:08 PM ET
Canada’s biggest banks say consumers are reaching the limit on how much they can afford to borrow, and that’s likely to slow loan growth this year.
Royal Bank chief executive Gord Nixon said Tuesday he expects Canadian households will begin to show more restraint.
“In terms of pure consumer lending (growth), we’ll probably be operating at a much lower rate than we have been over the last few years,” he told a bank industry conference.
“There’s no question that the consumer has been leveraged up.”
Low rates will end
Canadians have taken advantage of low interest rates for years, borrowing record amounts, but leaving them vulnerable.
Policy-makers have expressed concern that a sudden rise in interest rates would leave many consumers unable to meet their payments, potentially causing a fallout that ripples through the housing market and consumer spending.
Statistics Canada reported last month that household debt touched an all-time high during the third-quarter of 2013, inching up 0.6 percentage points to 163.7 per cent over the summer months. The increase means Canadians owe nearly $1.64 for every $1 in disposable income they earn in a year.
Nixon said he expects consumer lending growth to remain tight, rising by mid single-digit levels, for “an extended period of time.”
“What would be the most healthy outcome for the marketplace is for there to be a steady, orderly increase in interest rates to a reasonable level,” he said.
Focus away from consumer loans
Bank of Montreal chief executive Bill Downe said a slower increase in the debt levels of Canadians would help shift away from a dependence on the consumer for overall economic growth.
He expects U.S. business loans will become a more dominant force in the banking industry this year.
“We’re going to benefit from continued strong commercial and industrial loan growth and I think that’s going to spill over into Canada,” he said.
Downe said as consumers borrow less they will focus more on saving, which will benefit the wealth management business.
Scotiabank chief executive Brian Porter said he’s comfortable with the credit quality from its customers and doesn’t see any major concerns developing in the real estate market either.
“We would view supply and demand relatively in check across the country,” he said.
Activist Post: Enjoy The Radioactive Fish: Tests Show Fukushima Fish Are Up To 124X Above Safe Level
Are you purchasing radioactive fish at the grocery store? Are you absolutely certain that you know the answer to that question? You are about to read about a test that discovered that a fish recently caught off the coast of the Fukushima prefecture was found to have 12,400 becquerels per kilogram of radioactive cesium. That is 124 times above the level that is considered to be safe.
But it is not just fish caught off the coast of Japan that you need to be concerned about. In this article I will also discuss a report by the National Academy of Sciences which states unequivocally that Pacific Bluefin tuna have “transported Fukushima-derived radionuclides across the entire North Pacific Ocean”. In fact, if you just had a tuna sandwich for lunch you may have ingested radioactive material without even knowing it.
Each day, another 300 tons of highly radioactive water is released into the Pacific Ocean at Fukushima, and that means that the total amount of radioactive material that is getting into our food chain is constantly increasing. And since some of these radioactive elements have a half-life of about 30 years, that means that our food chain is going to be contaminated for a very, very long time.
Strangely, the mainstream media in the United States has been extremely quiet about all of this. The following is an article from a Russian news source about this highly radioactive fish that was just caught off the coast of the Fukushima prefecture…
Fish with deadly levels of radioactive cesium have been caught just off the coast of Fukushima prefecture, as scientists continue to assess the damage caused to the marine food chain by the 2011 nuclear disaster.
One of the samples of the 37 black sea bream specimens caught some 37 kilometers south of the crippled power plant tested at 12,400 becquerels per kilogram of radioactive cesium, making it 124 times deadlier than the threshold considered safe for human consumption, Japan’s Fisheries Research Agency announced.
That same article also noted that a fish that was caught last year near Fukushima contained a level of cesium that was actually far greater…
The record cesium reading was recorded last year when a fish caught near the plant carried 740,000 becquerels of cesium per kilogram.
Would you eat such a fish?
The truth is that there might be one in your freezer right now.
According to an absolutely shocking report put out by the National Academy of Sciences, it has been proven that Pacific Bluefin tuna have transported highly radioactive material “across the entire North Pacific Ocean”…
“We report unequivocal evidence that Pacific Bluefin tuna, Thunnus orientalis, transported Fukushima-derived radionuclides across the entire North Pacific Ocean.”
Do you buy a lot of tuna?
If so, you might want to start asking some questions.
And there is a lot of other evidence that the food chain in the Pacific Ocean is becoming highly contaminated. The following are just a few facts from one of my previous articles entitled “36 Signs The Media Is Lying To You About How Radiation From Fukushima Is Affecting The West Coast“…
–The population of sockeye salmon along the coastlines of Alaska is at a “historic low”.
–Something is causing Pacific herring to bleed from their gills, bellies and eyeballs.
–Experts have found very high levels of cesium-137 in plankton living in the waters of the Pacific Ocean between Hawaii and the west coast.
–One test in California found that 15 out of 15 Bluefin tuna were contaminated with radiation from Fukushima.
–Back in 2012, the Vancouver Sun reported that cesium-137 was being found in a very high percentage of the fish that Japan was selling to Canada…
- 73 percent of the mackerel
- 91 percent of the halibut
- 92 percent of the sardines
- 93 percent of the tuna and eel
- 94 percent of the cod and anchovies
- 100 percent of the carp, seaweed, shark and monkfish
But the government also promised the sailors on the USS Ronald Reagan that they would be safe when they went over to provide assistance in the aftermath of the Japanese earthquake back in 2011. It turns out that was a lie too…
So many have come forward that the progress of their federal class action lawsuit has been delayed.
Bay area lawyer Charles Bonner says a re-filing will wait until early February to accommodate a constant influx of sailors from the aircraft carrier USS Ronald Reagan and other American ships.
More than 70 sailors from that aircraft carrier have reported that they have developed conditions such as testicular cancer, thyroid cancer, Leukemia, “unremitting gynecological bleeding” and brain tumors. Their lives have been ruined, and nobody wants to step forward and take responsibility.
So are you going to just blindly trust that the government is telling you the truth about all of this?
Out in California, one team of researchers from California State University is so concerned that they are going to start monitoring California’s kelp forest for signs of radiation…
Researchers from California State University, Long Beach (CSULB) and the Lawrence Berkeley National Laboratory have launched “Kelp Watch 2014,” a scientific campaign designed to determine the extent of radioactive contamination of the state’s kelp forest from Japan’s damaged Fukushima nuclear power plant following the March 11, 2011, earthquake and tsunami.
Initiated by CSULB Biology Professor Steven L. Manley and the Berkeley Lab’s Head of Applied Nuclear Physics Kai Vetter, the project will rely on samples of Giant Kelp and Bull Kelp from along the California coast.
“The California kelp forest is a highly productive and complex ecosystem and a valuable state resource. It is imperative that we monitor this coastal forest for any radioactive contaminants that will be arriving this year in the ocean currents from Fukushima disaster,” said Manley, an expert in marine algae and kelp.
And as I noted the other day, one independent researcher recently discovered radiation levels near the water at Pacifica State Beach that were up to five times higher than normal background radiation.
The evidence is piling up, and it is becoming clear that the Japanese government and the U.S. government are not telling us the truth. Of course governments all over the world have not been telling us the truth about a lot of things for a very long time. This is a theme that I explored extensively in my new novel. In this day and age, it is imperative that we all learn to break out of “the matrix” and learn to think for ourselves.
Sadly, most Americans choose not to do that. In the video posted below, activist Mark Dice asks average Americans to sign a petition to repeal the 3rd Amendment and allow U.S. soldiers to commandeer anyone’s home and live there for free. As you can see, many of the “sheeple” were quite happy to sign the petition without asking any questions…
So what do you believe?
Are the fish that you are purchasing at the grocery store safe to eat?
Please feel free to share your thoughts by posting a comment below…
With Islamic extremists raising their ominous-looking flags over Falluja and Ramadi again, it’s not looking too good in Iraq (or the rest of the Middle East). Sure, Mark Firoe notes, Iraqi government forces may take back some territory they lost, but it’s never a good sign when you have to shell your own country to maintain order. Confused at the proxy-wars, terrorists, statists, and just who the US is friends with? Have no fear, the following brief clip will explain it all…
What is correct way to model the future course of energy and the economy? There are clearly huge amounts of oil, coal, and natural gas in the ground. With different approaches, researchers can obtain vastly different indications. I will show that the real issue is most researchers are modeling the wrong limit.
Most researchers assume that the limit that they should be concerned with is the amount of oil, coal, and natural gas in the ground. This is the wrong limit. While in theory we will eventually hit this limit, because of the way fossil fuels are integrated into the rest of the economy, we hit financial limits much earlier. These financial limits include lack of investment capital, inability of governments to collect enough taxes to fund their programs, and widespread debt defaults.
One of the things I show in this post is that Economic Growth is a positive feedback loop that is enabled by cheap energy sources. (Economists have postulated that Economic Growth is permanent, and has no connection to energy sources.) Economic Growth turns to economic contraction as the cost of energy extraction (broadly defined) rises. It is the change in this feedback loop that leads to the financial problems mentioned above. These effects tend to lead to collapse over a period of years (perhaps 10 or 20, we really don’t know), rather than a slow decline which is easily mitigated.
If, indeed, most analysts are concerned about the wrong limit, this has huge implications for energy policy:
1. Climate change models include way too much CO2 from fossil fuels. Lack of investment capital will bring down production of all fossil fuels in only a few years. The amounts of fossil fuels included in climate change models are based on “Demand Model” and “Hubbert Peak Model” estimates of fossil fuel consumption (described in this post), both of which tend to be far too high. This is not to say that the climate isn’t changing, and won’t continue to change. It is just that excessive fossil fuel consumption needs to move much farther down our list of problems contributing to future climate change.
2. It becomes much less clear whether high-priced replacements for fossil fuels are worthwhile. In theory, they might allow a particular economy to have electricity for a while longer after collapse, if the whole system can be kept properly repaired. Offsetting this potential benefit are several drawbacks: (a) they make the economy with the high-priced replacements less competitive in the world marketplace, (b) they tend to run up debt, increase government spending, and decrease discretionary income of citizens, all limits we are reaching, and (c) they tend to push the economic cycle more quickly toward contraction for the country purchasing the high-priced renewables.
3. A large share of academic writing is premised on a wrong understanding of the real limits we are reaching. Since writers base their analyses on the wrong analyses of previous writers, this leads to a nearly endless supply of misleading or wrong academic papers.
This post is related to a recent post I wrote, The Real Oil Extraction Limit, and How It Affects the Downslope.
Types of Forecasting Models
There are three basic ways of making forecasts regarding future energy supply and related economic growth:
1. “Demand Based” Approaches. In this method, the analyst first decides what future GDP will be, and uses that estimate, together with past relationships, to “work backwards” to figure out how much energy supply will be needed in the future. The expected needed future energy supply is then divided up among various types of fuels, giving more of the growth to types that are favored, and less to other types. Very often, estimates of growth in energy efficiency, growth in “renewables,” and growth in the amount of GDP that can be generated with a given amount of energy supply are included in the model as well.
This method is by far the most common approach for forecasting expected future energy supply, especially at high levels of aggregation. One advantage of this method is that can provide almost any answer the analyst wants. Governments are paying for reports such as the EIA and IEA forecasts, and oil companies are paying for forecasts such as those by BP,Shell, and Exxon-Mobil. Both governments and oil companies prefer reports that say that everything will be fine for the foreseeable future. Demand Based approaches are good for producing such reports.
Another advantage of this approach is that the analysts don’t have to think about pesky details like where all of the investment capital will come from, or how large an improvement in the ratio of GDP to energy consumption can actually occur. They can simply make assumptions and point out that the forecast won’t come true if the assumptions don’t hold.
2. “Hubbert Peak Model”. This model is based on an interpretation of what M. King Hubbert wrote (for example, Nuclear Energy and the Fossil Fuels, 1956) . The basic premise of this model is that future supply of oil, coal, or gas will tend to drop slowly after 50% (or somewhat more) of the fuel supply potentially available with current technology has been extracted.
In fact, we don’t really know how much oil or coal or natural gas will be extracted in the future–we just know how much looks like it might be extracted, if everything goes well–if there is plenty of investment capital, if the credit system works as planned, and if the government is able to collect enough tax revenue to fund all of its promises, including maintaining roads and offering benefits to the unemployed.
What most people miss is the fact that the world economy is a Complex Adaptive System, and energy supply is part of this system. If there are diminishing returns with respect to energy supply–evidenced by the rising cost of extraction and distribution–then this will affect the economy in many ways simultaneously. The limit we are reaching is not that oil (or coal or natural gas) extraction will run out; it is that economic system will at some point seize up, and rapidly contract. The Hubbert Peak Method shows how much fuel might be extracted in each future year if the economy doesn’t seize up because of financial problems. The estimate produced by the Hubbert Peak Method removes some of the upward bias of the Demand Model approach, but it still tends to give forecasts that are higher than we can really expect.
3. Modeling How the Economy Actually Works. This approach is much more labor-intensive than the other two approaches, but is the only one that can be expected to give an answer that is in the right ballpark of being correct with respect to future economic growth and energy consumption. Of course, observing signs of oncoming collapse can also give an indication that we are nearing collapse.
The only study to date modeling how long the economy can grow without seizing up is the one documented in the 1972 book The Limits to Growth, by D. Meadows et al. This analysis has proven to be surprisingly predictive. Several analyses, including this one by Charles Hall and John Day, have shown that the world economy is fairly close to “on track” with the base scenario shown in that book (Figure 1). If the world economy continues to follow this course shown, collapse would appear to be not more than 10 or 20 years away, as can be seen from Figure 1, below.
Figure 1. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil”http://www.esf.edu/efb/hall/2009-05Hall0327.pdf
One of the findings of the 1972 Limits to Growth analysis is that lack of investment capital is expected to be a significant part of what brings the system down. (There are other issues as well, including excessive pollution and ultimately lack of food.) According to the book (p. 125):
The industrial capital stock grows to a level that requires an enormous input of resources. In the very process of that growth it depletes a large fraction of the resource reserves available. As resource prices rise and mines are depleted, more and more capital must be used for obtaining resources, leaving less to be invested for future growth. Finally investment cannot keep up with depreciation, and the industrial base collapses, taking with it the service and agricultural systems, which have become dependent on industrial inputs (such as fertilizers, pesticides, hospital laboratories, computers, and especially energy for mechanization).
Jorgen Randers’ 2052: A Global Forecast for the Next Forty Years
In 2012, the same organization that sponsored the original Limits to Growth study sponsored a new study, commemorating the 40th anniversary of the original report. A person might expect that the new study would follow similar or updated methodology to the 1972 report, but the approach is in fact quite different. (See my post, Why I Don’t Believe Randers’ Limits to Growth Forecast to 2052.)
The model in Jorgen Randers’ 2052: A Global Forecast for the Next Forty Yearsappears to be a Demand Based approach that perhaps uses a Hubbert Peak Model on the fossil fuel portion of the analysis. One telling detail is the fact that Randers mentions in the Acknowledgements Section only one person who worked on the model (apart from himself). There he thanks “My old friend Ulrich Goluke, for creating the quantitative foundation (statistical data, spreadsheets, and other models) for this forecast.” Ulrich Goluke’s biography suggests that he is able to prepare a Demand Model spreadsheet. It would be hard to believe that he that he could have substituted for the team of 17 researchers who put together the original Limits to Growth analysis.
The Need to Add to the Original Limits to Growth Analysis
The original Limits to Growth analysis was primarily concerned with quantities of items such as resources, pollution, population, and food. It did not get into financial aspects to any significant extent, except where flows of resources indicated a problem–namely in providing investment capital. One thing the model did not include at all was debt.
In the sections that follow, I show a model of how some parts of the economy that weren’t specifically modeled in the 1972 study work. If the economy works in the way described, it gives some insights as to why collapse may be ahead.
Economic Growth Arises from a Favorable Feedback Loop
Economic growth seems to arise from a favorable feedback loop, as shown in Figure 2, below.
Figure 2. Author’s representation of how economic growth occurs in today’s economy.
This model above is intended to reflect the situation from, say, 1800 to 2000. The situation was somewhat different before the use of fossil fuels, when far less economic growth took place. Furthermore, as we will see later in this post, the model changes again to reflect the impact of diminishing returns as the cost of energy production increases in recent years and in the future.
The critical variables that allow economic growth to take place are (1) cheap energy available from the ground, such as coal, oil, or natural gas–if cheap renewables were available, these would work as well (2) technology that allows us to put this cheap energy to work to make goods and services, and (3) a way to pay for the new goods and services.
Debt. In this model, debt plays a significant role. This happens because fossil fuels allow a huge “step up” in the quality of goods and services, and debt provides a way to bridge this gap. For example, with fossil fuels, we have electric light bulbs, metal machines in factories, and farm machinery, all of which vastly improve efficiency. The ability to pay for the new fuel and the new devices using the fuel, is much greater after the new devices using the fuel are put in place. The way around this problem is simple: debt.
The use of debt becomes important at many points in the economy. Increased debt can theoretically help (a) the companies doing the energy extraction, (b) the companies building factories to create the new goods and services, and (c) the end consumers, since all of these benefit greatly from the services that cheap fossil fuels provide, and can better pay afterward than before.
Government debt, such as debt used to finance World War II, can also be used to start and maintain the cycle. John Maynard Keynes noticed this phenomenon, and recommended using an increase in government debt to stimulate the economy, if it was not growing adequately. The detail he was unaware of is the fact that the debt only works in the context of cheap energy supplies being available to make use of this debt, enabling growth.
How the Feedback Loop Works. The loop starts with the combination of a cheap-to-exploit energy resource, technology that would use this resource, and debt that allows those would like to gain access to the resources to have the benefit of them, before they are actually able to pay cash for them.
This combination allows goods to be produced which initially may not be very cheap. Over time, new methods are tried, allowing technology to improve. Consumers are able to buy increasing amounts of goods and services, both because of their own increased productivity (enabled by fossil fuels and new technology) tends to raise their wages, and because the improving technology lowers the cost of goods. Government services are expanded as tax revenue per capita increases. Infrastructure such as roads are expanded making the economy more efficient.
In this context, profits of companies grow, allowing reinvestment. Investment is also enabled by increasing debt. This allows the cycle to start over again, with better technology and more infrastructure in place. The economy tends to grow, and the standard of living tends to rise.
Overview. One way of explaining the tendency toward economic growth is that a cheap-to-extract fossil rule has an extremely high return on investment. This very high return enables benefits to all: workers receive higher wages; businesses receive higher profits; and governments receive both higher tax revenue and the ability to build new roads and other infrastructure cheaply.
Another way of describing the tendency toward economic growth is to say that the value to society of the (cheap) energy product is far greater than its cost of extraction. This difference provides a benefit which flows through to many parts of the economy. Economists do not recognize that this situation can happen, but it seems to be a major source of economic growth.
The Spoiler: Diminishing Returns
The problem with energy extraction is that we extract the inexpensive-to-extract energy sources first. Eventually these sources get depleted, and we need to move on to more expensive-to-extract energy sources. I illustrate this situation with a triangle that has a dotted line at the bottom.
Figure 3. Resource triangle, with dotted line indicating uncertain financial cut-off.
Businesses start by extracting the cheapest to extract resources, found at the top of the triangle. As these resources deplete, they move on to the more expensive to extract resources, further down in the triangle. Looking downward, it always looks like there are more resources available–it is just that they are more expensive to extract. This is why reported reserves tend to increase over time, even as supplies are depleted. The limit is a financial limit, illustrated by a dotted line, which is why virtually no one can figure out when the limit will actually arrive.
One somewhat minor point: When I say, “Cheapest to extract resources,” I am referring to broadly defined costs. What businesses want is resources that produce goods and services most cheaply for the consumer. Thus, they are really concerned about cheapesttotal cost, considering the entire chain that goes all the way to the consumer, including refining and transportation. The costs would include energy used in extraction, labor costs, transportation costs, taxes, and the cost of debt. It probably should include the cost of mitigating pollution effects as well.
A major problem is that as the cost of energy extraction grows, the favorable gap between the cost of extraction and the benefit to society (as mentioned in the previous section) shrinks. There are many ways that this problem manifests itself in the economy. Figure 4 shows a list of such problem with respect to higher oil prices:
Figure 4. Image by author listing some of the problems created by rising oil prices.
One indirect impact of these issues is that there are more layoffs and fewer new job opportunities. If we calculate average wages by taking (total US wages) and dividing by (total US population), we see that during periods of high oil prices, wages tend not to grow, as they had in periods when oil prices were lower–just as we would expect (Figure 5, below).
Figure 5. Average US wages compared to oil price, both in 2012$. US Wages are from Bureau of Labor Statistics Table 2.1, adjusted to 2012 using CPI-Urban inflation. Oil prices are Brent equivalent in 2012$, from BP’s 2013 Statistical Review of World Energy.
Another issue is that it is not just the price of oil that rises. The price of natural gas rises as well. We have not felt this in the United States, because demand has kept the price down below the price of shale gas extraction. The cost of coal, delivered to its destination, has risen because transport uses oil, and transport costs are a significant share of total costs. The cost of base metals has also risen since 2002, because oil is used in metal extraction. Food prices in general have tended to rise as well, because oil is used in production and transport of food. When wages are close to flat, and the cost of many goods are rising, workers find that their paychecks are increasingly squeezed.
While costs of making goods in the US are rising, and paychecks are stagnating, an increasing amount of goods are imported from areas around the world where energy costs and wage costs are lower. This helps keep the cost of consumer goods down, but it makes the problem of lack of jobs for US workers worse.
With all of these things happening, the government has more and more problems with its funding. Expenditures continue to rise, but taxes flatten, as the government tries to help the economy grow by not raising taxes to match expenditures (Figure 5, below).
Figure 6. Based on Table 2.1 and Table 3.1 of Bureau of Economic Analysis data. Government spending includes Federal, State, and Local programs.
Government expenditures can be thought of as expenditures out of the surpluses of the economy. As indicated previously, these are to a significant extent possible because of the favorable difference between the cost of extracting fossil fuels and the benefit those fossil fuels provide to the economy. As the use of fossil fuels has grown over the years, these government services have grown. In recent years, the presence of more unemployed workers has driven a need for more government services.
Since the early 2000s, government revenues have flattened. The lack of revenue, together with the ever-rising government spending, is what is driving continued big deficits. The danger is that this difference cannot be fixed, without huge cuts to programs that people are depending on, like unemployment insurance, Social Security and Medicare.
How the Economic Growth Loop Changes to Contraction
In my view, what causes a shift to contraction is a shift to higher energy costs. With higher energy costs, there is less surplus between the cost of extraction (broadly defined) and the benefit to society. Because of the smaller surplus, the parts of the economy that use this surplus, such as government spending, must shrink.
Figure 7. Higher energy cost leads to unfavorable feedback loop. (Illustration by author.)
We gradually find that all the great things we had learned to enjoy–inexpensive roads and other infrastructure, cheap goods, rising wages, and rising government serves–start going away. We increasingly find consumers maxed out on debt. We also find companies (especially energy companies) reporting lower profits, so they have more trouble investing in new energy extraction. The government cannot collect enough taxes for all of its services, so finds itself needing to keep raising its own debt levels.
The government can kind of “paper over” its difficulties with growing debt levels for a while, by using Quantitative Easing (QE). QE has the effect of making the interest the US must pay on its own debt lower. It makes the cost of business investment in new plants and equipment (including shale oil drilling) cheaper. It also helps stretch the incomes of increasingly impoverished workers by allowing monthly payments on homes and cars to be lower than they would otherwise would be.
The Party Ends With a Thud
Most readers can deduce that a shift from a growing economy to a shrinking economy is not a pleasant situation. It has all of the makings of collapse.
One of the big problems is debt defaults, as it becomes increasingly impossible to repay debt with interest. This creates conflict between borrowers and lenders. Debt defaults are also likely to cause huge problems for banks, insurance companies, and pension plans, because of the impact on their balance sheets. Some institutions may close.
To the extent new credit is cut off, the lack of credit cuts off new investment in energy extraction, in buying new cars and trucks, and in almost everything else. Such a cut-off in credit is likely to increase job layoffs and to lead to yet more defaults. Lack of investment in new energy extraction causes oil supply to fall quickly–far more quickly than standard “decline” models would suggest.
Businesses that in the past found that they could benefit from “economies of scale” as they grew find that fixed costs stay the same, even as sales shrink. This means that they either need to raise prices to cover their higher per-unit costs, or lose money.
Governments find that they need to cut government services to balance their budgets. Discontent grows among citizens as those who lose their benefits become very unhappy. Discord grows among political parties, because no one can agree how to cut programs equitably.
We don’t know how this will end, but we do know that the Former Soviet Union collapsed into its constituent parts when fossil fuel surpluses were reduced, prior to 1991. Egypt and Syria both have had civil unrest as their oil exports ended. Clearly very large government changes are possible, as surpluses disappear.
This list of potential impacts could be expanded endlessly, but I will spare readers from a more comprehensive list.
The Canadian government says Young should remember that oil extraction drives economic growth [Reuters]
|Musician Neil Young kicked off his Honor the Treaties tour Sunday in Canada to raise money for a First Nations’ legal battle against a tar sands project activists say would violate treaty and constitutional rights of indigenous communities.
“We are killing these people,” Young told a crowd gathered at Toronto’s Massey Hall. “The blood of these people are on modern Canada’s hands.”
The tour began in Toronto, where Young spoke at a news conference along with Athabasca Chipewyan First Nation (ACFN) Chief Allen Adam and environmentalist David Suzuki before performing in front of a sold-out crowd.
The week-long tour will visit Winnipeg, Regina and Calgary. Proceeds from the shows will be donated to the legal-defense fund of the northern Alberta-based Athabasca tribal government challenging new tar sands projects.
During a news conference, Young, who visited a tar sands site near Fort McMurray, Alberta, called the industry “the greediest, most destructive and most disrespectful demonstration of something just run amok.” The rock legend said what he saw was a “devastating environmental catastrophe” that could only be compared to Hiroshima.
“We went to the homes of First Nations people and I met them,” Young told concert attendees at Massey Hall. “While I was there, I drove around the tar sands in my electric car and experienced this unbelievable smell and toxicity. My throat and eyes were burning, and this was about 25 miles away from the actual site at Fort (McMurray).”
‘Rigorous’ environmental laws
Calls by Al Jazeera to Alberta’s government representatives were not returned in time for publication. According to the Oil Sands Division of the Alberta Department of Energy website, the tar sands industry provides significant economic benefits to Albertans. The energy sector accounted for over 22 percent of Alberta’s GDP in 2012, according to the Alberta Department of Energy.
Alberta, furthermore, can expect $350bn in royalties and $122bn in total tax revenue from work at the tar sands over the next 25 years, according to the Canadian Energy Research Institute (CERI).
Development of tar sands involves the extraction of heavy crude oil called bitumen from underneath the wilderness. Critics have warned of potentially catastrophic environmental consequences.
Fort McMurray lies on the outskirts of Jackpine Mine, which was approved for expansion by the government in July, 2013. That order convinced the Athabasca they had no choice but to fight the move in court for violating treaty agreements, which prohibit any activity that interferes with Athabasca’s ability to survive by hunting, fishing and trapping on their territory.
Jason MacDonald, a spokesman for Prime Minister Stephen Harper, told CBC Canada Monday that the natural resource sector is a fundamental part of the country’s economy.
“Even the lifestyle of a rock star relies, to some degree, on the resources developed by thousands of hard-working Canadians,” MacDonald said in a statement. He added the government would “continue to ensure that Canada’s environmental laws and regulations are rigorous.”
Suzuki, who introduced Young in Toronto, said that the First Nation is simply asking the government to respect an agreement that it signed.
“These are some of the poorest people in Canada, and they’re telling us there’s more important things than money — like the air, the water and all the other living organisms on the planet,” Suzuki said.
‘David and Goliath’
The 1,200-member Athabasca tribe has asked Canada’s federal court to review Ottawa’s decision to allow the expansion, which would encroach on Athabasca land.
“It’s a David and Goliath story,” Eriel Deranger, communications coordinator for the Athabasca First Nation, told Al Jazeera. The expansion could also violate federal laws covering fisheries and species at risk, Deranger said.
Deranger, an Athabasca tribe member, said the Jackpine Mine expansion would contribute to cumulative impacts that would break the treaty. She added that the government knew that when it was approved.
“The decision released in July made major admissions,” she said. “The panel admitted that the project would have significant adverse effects on the environment and in some cases even cause irreversible damage.”
David Schindler, professor emeritus at the University of Alberta, testified at the Jackpine Mine hearings. He said the area had already seen severe environmental impacts by previous mines in the area.
“They’re talking about destroying 20 kilometers of the Athabasca River – that’s a fairly big body of water,” Schindler told Al Jazeera. “There are about 10,000 or more fish that go up and down that river, and it’s being treated as if it was a sewer.”
Deranger said the project would impact species like wood bison, caribou and other at-risk species as well as fisheries and waterways – with no proven method of reclamation afterward.
Schindler, a member of the US National Academy of Sciences, said no real assessment process can be done by “a few government appointees known to favor the oil and gas industry.”
He said his 2008 study on the environmental impact of industry pollutants was at first discounted by the government, but was later confirmed by their own studies. In the end, tougher monitoring standards were recommended, but Schindler said the monitoring program is still controlled by the government.
“There has never been a mine turned down, despite thousands of pages of risks being presented to these panels,” Schindler said. “It makes you feel creepy having your government make a treaty and then violate it at every turn.”
The Athabasca First Nation says Shell, which operates the Jackpine Mine, breached its duties to “meaningfully consult” with the tribal council – a First Nation right across Canada in cases where energy industry activities could impact their territory.
A spokesman from Shell Canada told CBC Canada that company staff and senior leaders meet regularly to deal with aboriginal communities to discuss projects, training, business opportunities and cultural activities.
However, Deranger contested the seriousness of those meetings.
“We found our concerns are largely unaddressed … our rights left at the wayside in the development of these projects are either negated or ignored,” she said.
Tax burdens are so high that it might not be possible to pay off the high levels of indebtedness in most of the Western world. At least, that is the conclusion of a new IMF paper from Carmen Reinhart and Kenneth Rogoff.
Reinhart and Rogoff gained recent fame for their book “This Time It’s Different”, in whichthey argued that high levels of public debt have historically been associated with reduced growth opportunities.
As they now note, “The size of the problem suggests that restructurings will be needed, for example, in the periphery of Europe, far beyond anything discussed in public to this point.” Up to this point in the Eurocrisis the primary tools used to rescue profligate countries have included increased taxes, EU and IMF bailouts, and haircuts on government debt.
These bailouts have largely exacerbated the debt problems that existed five short years ago. Indeed, as Reinhart and Rogoff well note, the once fiscally sound North of Europe is now increasingly unable to continue shouldering the debts of its Southern neighbours.
General government debt (% GDP)
Source: Eurostat (2012)
Six European countries currently have a government debt to GDP ratio – a metric popularlised by Reinhart and Rogoff to signal reduced growth prospects – of over 90%. Countries that were relatively debt-free just five short years ago are now encumbered by the debt repayments necessitated by bailouts. Ireland is a case in point – as recently as 2007 its government debt to GDP ratio was below 25%. Six years later that figure stands north of 120%! “Fiscally secure” Scandinavia should keep in mind that fortunes can change quickly, as happened to the luck of the Irish.
The debt crisis to date has been mitigated in large part by tax increases and transfers from the wealthy “core” of Europe to the periphery. The problem with tax increases is that they cannot continue unabated.
Total government tax revenue (% GDP)
Source: Eurostat (2012)
Already in Europe there are seven countries where tax revenues are greater than 48% of GDP. There once was a time when only Scandinavia was chided for its high tax regimes and large public sectors. Today both Austria and France have more than half of their economies involved in the public sector and financed through taxes. (Note also that as they both run government budget deficits the actual size of their governments is greater yet.)
With high unemployment in Europe (and especially in its periphery), governments cannot raise much revenue by raising taxes – who would pay it? With already high levels of debt it is questionable how much revenue can be raised by further debt issuances, at least without increasing interest rates and imperiling already fragile government finances with higher interest charges.
Instead, Reinhart and Rogoff see two facts of life for Europe’s future: financial repression through higher inflation rates and taxes levied on savings and wealth. This time is no different than other cases of highly indebted countries in Europe’s history – just look to the post-War examples as similar cases in point. Don’t say you haven’t been warned.
David Howden is Chair of the Department of Business and Economics, and professor of economics at St. Louis University, at its Madrid Campus, Academic Vice President of the Ludwig von Mises Institute of Canada, and winner of the Mises Institute’s Douglas E. French Prize. Send him mail.
Canada Job Grant ad 0:34
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The federal government blanketed the internet with ads and bought pricey TV spots during playoff hockey as part a $2.5-million publicity blitz to promote a skills training program that doesn’t yet exist, CBC News has learned.
TV commercials for the Canada Job Grant often ran twice per game last May during the widely watched Hockey Night in Canada NHL playoff broadcasts on CBC. There were ads on radio, as well.
“The Canada Job Grant will result in one important thing – a new or better job,” said the reassuring voice-over in the TV ads.
The problem: The program was never launched and is still on hold. The job grants were announced in the 2013 federal budget, but it called for an agreement with the provinces, which have so far refused to buy in.
Employment and Social Development Canada spent between $2.5 million and $2.6 million on the ad campaign. That figure excludes radio ads funded by the Finance Department.
“Spending millions of dollars to advertise a program that doesn’t even exist is like flushing tax dollars down the toilet,” Liberal finance critic Scott Brison said.
$11-million publicity push
CBC News has also learned that that advertising cash came from an $11-million fund set aside last year for Employment and Social Development Canada to promote the government as a job creator.
Before the Canada Job Grant TV ad went to air, the government paidEnvironics Research Group almost $70,000 to conduct market research. Focus groups saw a near-final version of the commercial.
Environics concluded: “The main message was consistently seen as positive and one that inspired hope…. In light of seeing the new ad for the Canada Job Grant, most now believe the Government of Canada is on the right track regarding skills training and the job market in Canada.”
- Government ad spending on economy balloons under Tories
- Oil and gas ad campaign cost feds $40M at home and abroad
- Conservatives overspent government ad budgets by 37%
“Their own research suggests that people get a positive impression of the ads,” Queens University political science professor, Jonathan Rose said. “Whether that means they convey accurate information is another story.”
A government commissioned survey done post-campaign showed only two per cent of the 292 people polled who saw or heard the ad also caught the disclaimer that the program didn’t yet exist. It also found only 18 per cent of viewers understood tax dollars paid for the advertising.
Ads ruled misleading
After receiving numerous viewer complaints, Advertising Standards Canada, the advertising industry’s self-regulating body, ruled the TV commercial was misleading because the job grant program hadn’t been approved.
“The commercial omitted relevant information,” ASC concluded in a report. The report didn’t name the government because the ad campaign was already over.
The proposed job grants would give workers $15,000 each for training, with the provinces kicking in one-third of the cost. But provinces have yet to sign on, complaining the proposed program claws back $300 million in federal funds now used to help disadvantaged workers.
“We do not believe, the way the program is designed, that it will work,” Ontario’s Kathleen Wynne said at a premiers meeting last July.
Quebec threatened to opt out. There’s no word yet on when an agreement might be reached.
Asked to comment on the ad campaign, a spokesperson for Employment and Social Development Canada said, “The government of Canada’s top priorities are creating jobs, economic growth and long-term prosperity.”
Harper blasted Liberals over ads
In his first question as opposition leader, in 2002, Stephen Harper took the then Liberal government to task over their advertising spending and the emerging sponsorship scandal.
“Will the prime minister stop the waste and abuse right now and order a freeze of all discretionary government advertising?” he asked in the House of Commons on May 21, 2002.
During its peak, the Liberal government spent $111 million on advertising, in 2002-2003. Harper’s current Conservatives doled out $136.3 million in 2009-2010, their biggest advertising budget yet on record.
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Can we cool down the Earth? Don’t count on it, say scientists. Photo: KristinaDragana.
In September, the Intergovernmental Panel on Climate Change (IPCC), among the most conservative scientific organizations on Earth, issued a report concluding that global warming is irreversible without geo-engineering.
Meanwhile, in December, the U.S. National Academy of Sciences announced that gradual change of the climate is not guaranteed: “The history of climate on the planet — as read in archives such as tree rings, ocean sediments, and ice cores — is punctuated with large changes that occurred rapidly, over the course of decades to as little as a few years.”
Indeed, Earth has witnessed a five-degree Celsius rise in global-average temperature during a span of 13 years.
Writing for the Arctic Methane Emergency Group, John Davies concludes: “The world is probably at the start of a runaway Greenhouse Event which will end most human life on Earth before 2040.” Davies considers only atmospheric carbon dioxide concentration, not the abundant self-reinforcing feedback loops triggered on the climate-change front.
Considering only one feedback loop among many, methane release from the Arctic Ocean is expected to increase global-average temperature by more than 4°C by 2030 and 10°C by 2040, according to Sam Carana’s research (see especially Image 24).
Humans have not occupied Earth at 3.5°C above baseline. If this seems problematic to you, I believe you’re paying attention.
– Guy McPherson, Transition Voice