Global economics and finances - impacts

[JimD]

We have never had a topic like this on the Forum and some might think it not relevant.  But I would like to explore a bit what folks like SH and others who, beside following AGW and the issues in the Arctic, also follow the financial system.  I must admit that probably 50-70% of my research and learning time is spent on economics, finance, and geo-political strategy and tactics.  My focus in this direction is because I think that, while AGW is the greatest challenge in human history, our primary actions for some decades still will be driven by the decisions we think we are being forced into by the combined force of EFGS&T (as I internally refer to them - I have a copyright btw 

I am not interested in arguing the strengths and weaknesses of low level political economic ideology like the Repubs/Dems do here in the States.  All paths lead to chaos in my opinion so that is not an important issue. What I think though is very valid for the Forum is what the impacts on dealing with AGW, in any way whatsoever, will be given the slowly unfolding financial system and the eventual fracturing of all kinds of economic and political alliances.  And other considerations like that.  One, among many, of the reasons I am so negative on the various BAU solutions is that all of those solutions chances of success are predicated on a stable and well functioning global growth EFGS&T situation.  I don't believe that situation can any longer be depended upon and as it inevitably degrades that will make it increasingly hard to execute any measured gradual reindustrialization along the lines of Green-BAU solutions.  Degraded efficiency, recession/deflation, and lack of time do not equal successful transitions so to speak.

I read the weekly and monthly economics data and constantly monitor the financial press and a number of blogs which concentrate on the EFGS&T topics.  For some time I have thought that we are once again approaching an inflection point and believe we are once again on the cusp of major economic and financial stresses.  Recently the press and blogs have started to fill up with multitudes of articles describing problems across the world and virtually all countries.  I do not know enough to make any predictions of another 2008 crash or anything like that, though some blogs are starting to say that very thing, but no part of the world or country seems to be  in a position this time to help carry the rest and cushion any drop off.  So it certainly could get real ugly it seems.  I note that the official press has been going out of its way to sound very optimistic and  to try and talk up how the economy is improving.  That is usually a sure sign that we are at the top of the business cycle and that it is about time for the s**t to hit the fan. 

What happens in Europe for example if the slight deflation in the peripheral countries expands and more central countries like France fall into the hole?  What happens to alternative energy buildouts and climate emission efforts.   If China contracts what will be the impetus for them to actually follow through on reducing emissions.  All of the BRICS are in trouble.  Roughly 80% of the global economy is tightening.   A number of the countries have huge housing/property bubbles once again.  Debt issues, of course, never went away and many are worse now than 5 years ago.  Etc, etc.  The US and Germany are ostensibly in the best shape of anyone, but the US underneath the headlines has a lot of issues that make us unlikely to really continue on a positive path much longer I think.  And Germany is wrapped up in the mess in Europe and must give ground at some point or they will push everyone else off the cliff. 

So, do we tip or not?  If so who goes, in what way, and what impact on carbon emissions does it have?  A sinking global economy 'could' drive down energy demand and dry up exploration/production of the hard to get fossil resources, thus building in another vicious cycle in energy costs.  Would coal become very cost competitive and usage rise?  Would there be big negative impacts on alternative energy projects?   

Does anyone find this worth discussing or of concern?

[JimD]

Germany is drifting in the same direction that the US is in some respects.  What happens when the developing countries slowdown and contract to the German export market?  How does that impact dealing with carbon emissions?

http://www.nakedcapitalism.com/2014/02/wolf-richter-wonder-german-workers-drag-retail-sales-much-economy.html

[Shared Humanity]

Does anyone find this worth discussing or of concern?

Yes.

[SATire]

Does anyone find this worth discussing or of concern?

Yes - But how? From which point of view?

Is it a good thing, that consume in Germany is stable? That southern Euopean countries are forced to reduce consume?

De-growth is not a nice thing for economy numbers but a good thing to dalay collapse a bit. So - how to discuss it? Was 2008 crash a good thing (low CO2 emission, nearly no impact for the poeple on short hours here) or a bad thing because of that GDP number? Who cares about GDP if we have to take care for the planet? Let the bubbles collapse - it will not hurt much. All this cheap money pumping up the bubbles again is just telling us a fairy tale - the tale that artificial numbers are more important than our planet and about the need to keep that number happy. If this fairy tale collapses we will be disappointed - but we will not be cheated anymore. It is time to face reality and to turn away from simple-hearted belief in money. So - is deflation something to be happy about? Is lower consume giving us hope for a smooth transition? Or do we still see that stuff from the old-school perspective?

[JimD]

SATire

I must say that I see all possible developments two have both up and down sides.  For instance another financial collapse comparable to 2008 would certainly result in a lowering of carbon emissions in the developed world as it temporarily did in 2008-9.  But, especially for one of your general viewpoints on alternative energy sources, it also has a very real possibility of significantly slowing the conversion away from fossil fuel generation.  That is in times of great economic stress it is easier to continue with the current BAU of reliance on fossil fuels due to their existing infrastructure and the generally lower prices on commodities in times of economic stress.  Conversely, if the political will were present, a big if of course, it could be possible in such a time to actually use new alternative energy generation, if one could make a decision to build it, to retire an old obsolete fossil installation.  Which is, of course, difficult to accomplish at such a time because it is so cheap to operate.  It is complex to say the least.

It is my opinion that the vast majority of green technology infrastructure requirements are not going to fare all that well if global economic conditions are not following the constant growth paradigm.  And it seems pretty likely that over the next 20 years a very significant percentage of that time is going to be under a struggling global financial system.  Headwinds as the saying goes.  Performing an energy infrastructure roll over takes a long time and enormous resources even when country and global economies are booming.   I don't think boom times are going to occur much in the future.

[JimD]

For contemplation.

http://www.nakedcapitalism.com/2014/02/ilargi-debt-rattle-jan-31-2014-risk-times-risk-equals-fear.html

[AbruptSLR]

sidd wanted me to mention economic shorting opportunities caused by the economic ups and downs associated with climate change.  As I have mentioned before while many consider abrupt climate change Black Swan events that cannot be foreseen; nevertheless, what is a Black Swan event for a turkey is not a Black Swan event for his butcher.

The following link leads to a website about a book called "Windfall", about how governments, businesses and institutions stand to make "Windfall" profits from climate change opportunities (including shorting opportunities):

http://www.mckenziefunk.com/#windfall

Best,
ASLR

[JimD]

Crazy Abenomics Orgy In Japan Is Ending Already – Pounding Hangover Next

Kudos to the Bank of Japan. Its heroic campaign to water down the yen has borne fruit. The Japanese may not have noticed it because it is not indicated in bold red kanji on their bank and brokerage statements, and so they might not give their Bank of Japandemonium full credit for it, but about 20% of their magnificent wealth has gone up in smoke in 2013. And in 2014, more of it will go up in smoke – according to the plan of Abenomics.

What folks do notice is that goods and services keep getting more expensive. Inflation has become reality. The scourge that has so successfully hallowed out the American middle class has arrived in Japan. The consumer price index rose 1.6% in December from a year earlier. While prices of services edged up 0.6%, prices of goods jumped 2.6%.

It’s hitting households. In December, their average income was up 0.3% in nominal terms from a year earlier. But adjusted for inflation – this is where the full benefits of Abenomics kick in – average income dropped 1.7%. Real disposable income dropped 2.1%.

That is going to leave a mark.

Big spending slowdown coming and a drop in imports (who imports to Japan? China, US, Europe).

http://www.testosteronepit.com/home/2014/2/3/crazy-abenomics-orgy-in-japan-is-ending-already-pounding-han.html

[Shared Humanity]

China is Japan's largest trading partner, imports and exports.

Japan’s Import and Export Indicators and Statistics at a Glance (2012)

Total value of exports: US$792.9 billion

Primary exports - commodities: motor vehicles (13.6 percent); semiconductors (6.2 percent); iron and steel products (5.5 percent); auto parts (4.6 percent); plastic materials (3.5 percent); power generating machinery (3.5 percent)
 
Primary exports partners: China (19.7 percent of all exports), US (15.5 percent), South Korea (8 percent), Hong Kong (5.2 percent), Thailand (4.6 percent)

Total value of imports: US$ 856.9 billion

Primary imports - commodities: petroleum (15.5 percent of all imports); liquid natural gas (5.7 percent); clothing (3.9 percent); semiconductors (3.5 percent); coal (3.5 percent); audio and visual apparatus (2.7 percent)

Primary imports partners: China (21.5 percent of total imports), US (8.9 percent), Australia (6.6 percent), Saudi Arabia (5.9 percent), UAE (5 percent), South Korea (4.7 percent)

[sidd]

I thought I heard someone say shorting opportunity ?

Coal is vulnerable. I give example of the USA, but billiton or rio tinto coal operations have similar profile
Here is a brief of the largest 3 coal companies in the USA

Peabody   
market cap 4.38e9US$   

debt
0.65e9US$ 7.375%  2016
1.5e9US$  6%      2018
0.65e9US$ 6.5%    2020
1.35e9US$ 6.25%   2021

Arch Coal
market cap 1.01e9US$

debt
0.600e9US$ 8.75%  2016
1e9US$     7%     2019
0.375e9US$ 9.875% 2019
0.5e9US$   7.25%  2020

Alpha Natural Resources
market cap 1.4e9US$

debt
0.5e9US$   9.75%  2018
0.8e9US$   6%     2019
0.7e9US$   6.25%  2021

you will notice that NPV of debt is larger than market cap

the debt is sliced and diced, we want the principal portion

we wanna call it when it comes due or earlier if possible

we wanna make a landslide

so lets do the "you and him fight" thing

natgas has being eating coal's lunch as far as new electric install goes (great fit for intermittent power source like wind or solar, comes on in minutes)

so lets get Chesapeake and Range Resources and a buncha other gas players in on the action.

Find the debt.
Buy it.
Call it.

or do the thing with options, but then you gotto trust the market maker
they will front run you anyway, but we can be careful, spread it around ?

just a thought, i am also looking at shorts on coastal realestate, but that's a
different ball game, much longer term

vultures are gathering. unburnable reserves are being reflected every day.

sidd

[JimD]

sidd

Let's not go in that direction please.  I have no interest in speculations on how to make a profit in the market.  It really has no place here in my opinion (up to Neven of course).

The point of the topic if I was not clear is how a likely decline or stagnation in the global growth model going forward will impact the proposed green solutions and other proposals to deal with AGW.  I think it can not do anything other than make them much less likely to succeed.  Opinions for or against, evidence either way, do you think the global growth model will continue to grow, etc.

[Neven]

An interesting video just came out from the CASSE folks, two of which wrote a book a while ago called Enough is Enough. The video is a bit loud and contains fast editing between talking heads (probably to appeal to as many people as possible), but I really like how they break down the whole problem. And the speakers are good too (Tim Jackson, of course, who has an excellent book called Prosperity Without Growth, and Andrew Simms, who writes really good columns at the Guardian, and whose book Cancel the Apocalypse I bought two weeks ago (positive, but not in Matt Ridley-cornutopian-style). Here's the vid:

[sidd]

OK. Your thread, your call.

[wili]

Thanks, neven. I hope you don't mind if I posted the link on a couple other fora. I think it might be worthy of its own thread, here??

[ccgwebmaster]

Let's not go in that direction please.  I have no interest in speculations on how to make a profit in the market.  It really has no place here in my opinion (up to Neven of course).

Besides which a profit is worthless once collapse arrives. If one were going to plough it into appropriate actions for the good of future generations, fair enough - but anything else means one would just be another vulture preying on the distressed and dying carcass that is the modern world (and those people in it). Bad enough to have resources and not to be using them productively given the scope of the problem - worse still to be actively accumulating resources for immediate selfish purposes.

The point of the topic if I was not clear is how a likely decline or stagnation in the global growth model going forward will impact the proposed green solutions and other proposals to deal with AGW.  I think it can not do anything other than make them much less likely to succeed.  Opinions for or against, evidence either way, do you think the global growth model will continue to grow, etc.

I don't think global growth can continue for long. Take China for instance - GDP (and therefore a reasonable proxy for actual consumption) growth of 7%+. That means every decade they double resource consumption. There simply isn't the global resources to do that for long even without any climate change input.

As economies stutter (and later collapse), obviously there will be less money around to invest in appropriate actions for climate change (particularly in the bigger picture at the macroscopic level). It is always cheaper short term to maintain and prolong the life of existing infrastructure and so far there is no sign - even when the economic conditions were ideal - of most nations taking a long term view in responding to climate change. Indeed I note examples such as the UK government deciding to cut spending on flood defences despite flooding being identified as a key risk facing the UK as a consequence of climate change (and one that seems to be being borne out in recent years...).

The one respect in which I think action may be taken (and might increase with economic cost) is that for as long as the economic strength exists to replace infrastructure damaged by severe weather - the replacement infrastructure is likely to be better designed with climate change in mind (to a point at least).

Medium to long term one suspects investment will flow instead into managing an increasingly angry and impoverished population - that means into the military and police state apparatus.

Ultimately of course, one suspects economies will deflate to levels normally associated with failed third world economies where the vast majority of the work force are unemployed (being required only for frivolous western lifestyle jobs which are no longer affordable given high food, energy and military costs). As you approach a situation where the bulk of expenditure by nations is to simply remain in control of their subjects - the scope for climate change investment approaches nil.

Unfortunately, I would argue we have already started to travel down this road. The years in which it was possible (and easy) to start seriously investing in a future were squandered (ending ~2007 with the subprime situation). But hey - many people in my parents generation in the UK got both the free university education and the house that increased in "value" tenfold or more? I guess society already spent the money that could've assured a future on bread and circuses (so to speak)?

I find it slightly strange that an abstract idea such as the economy can have such a powerful (and in this case crippling) effect upon our species - but there you go... enslaved by our imaginary demon while the real one batters us.

[Neven]

Thanks, neven. I hope you don't mind if I posted the link on a couple other fora.

You did what?! You should be ashamed of yourself! Before linking you have to wait while I ask the producer of the video for permission. 

I think it might be worthy of its own thread, here??

I feel hesitant about opening threads I can't contribute as much to as I would like, but I have an idea for a thread: the 'what if all is not hopeless' thread.

Sorry, for the off-topic. I know that as an admin I should behave.

[Shared Humanity]

ROI is the basic calculation that drives growth in the capitalist economy. Businesses seek to maximize return on investment over the lifetime of the investment. Most trends in global growth are the result of this pursuit. Globalization since the 1970's has been fueled by western businesses seeking out the highest ROI and developing nations provided far higher ROI than continued investment in the developed world. This globalization was facilitated by a liberalization and globalization of capital markets, triggered by a decision in the early 70's by the U.S. to no longer peg the dollar to gold. Rapidly followed by the rest of the developed world, floating exchange rates allowed for the movement of capital globally.

There has been an associated trend in the developed world. The consolidation in western economies, particularly in the U.S., can be found as businesses made decisions to purchase other businesses rather than invest in new plants and equipment. The ROI for new capital in mature economies had dropped to the point that purchasing existing capital was more attractive. U.S. mergers began to grow rapidly in the early 1980's and while there has been sharp swings driven by the economy, mergers continue to be a key feature of the U.S. economy. These mergers have occurred across national boundaries as well. European companies and U.S. companies, entire industries have been linked by these mergers. GM has bought European auto companies. Fiat owns Chrysler. Multinational banks and insurance companies have grown, easing the flow of capital across the world.

http://americancenturyblog.com/2010/08/merger-and-acquisition-activity-rises/

The challenge facing capitalism is that new capital investment is absolutely dependent on ROI that justifies the expenditure of capital. No business will invest in low ROI projects because that would be economic suicide. ROI globally, even in developing economies, has been dropping. Companies, particularly in the U.S. are sitting on record quantities of cash because investment  opportunities are simply not available. The primary reason is a drop in global demand. The crisis in 2007 was a demand crisis and this crisis in demand has not disappeared.

I believe this crisis in demand has become a permanent feature in the world economy. We are rapidly running out of high ROI investments as there are fewer regions of the world that are ripe for rapid investment and growth.  Some regions are not attractive because they have bumped up against limits imposed by the biosphere, large areas of Africa for example. This could be seen as a positive thing in that it suggests that rapid growth in the global economy will slow and I think this is the case. However this slowing growth, I believe, is actually evidence of the constraints being imposed by a finite resource, the planet. We are already seeing the growth system of capitalism (always looking for that next high ROI investment) bumping up against the absolute limits of the planet and these limits will be imposed in an increasingly ruthless manner on the system of capitalism.

So what does slowing global growth mean for the emerging movement towards green energy and other efforts to mitigate serious environmental problems resulting from capitalism? The trends in the developed world since the 1980's tell us how the global economy will respond. The overwhelming response will be the preservation of capital and a reduction in new investment as the ROI for these investments drop. Any expectation that a significant movement away from fossil fuels, particularly for electric generation is misguided. Moving towards renewable energy will require efforts to be made outside of the system of capitalism and we currently do not have the political will to do this.

[wili]

Thanks for that analysis.

"preservation of capital and a reduction in new investment"

So you're not saying that there will be a big boom in new ff plants or new renewable plants, is that right? They just won't be making any such new investments much (beyond what is already on the books/in the works, presumably).

[JackTaylor]

Shared Humanity « Reply #16
"Moving towards renewable energy will require efforts to be made outside of the system of capitalism and we currently do not have the political will to do this."
-------------------------------------------------------------------------------------------------------------------
No challenge nor debate to above statement, but,

as a capitalist theory challenged individual,
any "economist" news on what Rate (percentage) of Return On Investment (ROI) (profit motive)
would make renewable's attractive enough for "wall street types" ?
8% - 10% - 12% - 20%
   

[Shared Humanity]

Shared Humanity « Reply #16
"Moving towards renewable energy will require efforts to be made outside of the system of capitalism and we currently do not have the political will to do this."
-------------------------------------------------------------------------------------------------------------------
No challenge nor debate to above statement, but,

as a capitalist theory challenged individual,
any "economist" news on what Rate (percentage) of Return On Investment (ROI) (profit motive)
would make renewable's attractive enough for "wall street types" ?
8% - 10% - 12% - 20%
 

While it is all relative as businesses will always pursue higher ROI investments over lower, traditionally (over the last several decades) an 8% ROI in the U.S. was considered acceptable. Of course ROI calculations are forward looking, based on forecasts, and the more uncertain the forecasts are, the higher the ROI must be before a company chooses to invest. In effect, there is a risk premium to capital investments that functions identically to the risk premiums associated with investing in stocks or junk bonds.

In a world where wild climate changes and the resulting impacts on consumption patterns are unpredictable, these risks can skyrocket. This will mean that the ROI for any capital investment will need to be higher than previously considered acceptable. Are risks already rising as a result of climate changes? Absolutely! You only need to look at the insurance industry to see that rates are climbing fast, a result of the uncertainty of severe weather events and their impact. Any community or region that begins to be battered by climate changes will have ROI hurdles skyrocket. We think of ROI calculations in terms of investments in plants and equipment, the industrial base of any successful economy, but these same calculations are made by fast food giants like McDonalds. Fast food chains, all types of businesses will cease or reduce investment in communities where severe weather risks climb.

[JimD]

An additional headwind is that the companies who have already made those massive capital investments in the fossil industry infrastructure are going to fight like junk yard dogs to make sure that they are getting their ROI for the full length of time they planned originally.  They want their money back with interest!  The longer they keep that coal plant operating before you build your solar plant the more money they make.  There are trillions of dollars that were invested and AGW and alternative energy systems are putting that investment at risk.  Everyone on the fossil side of the equation will fight to protect their financial interests and eventually some of them will resort to physical violence (actually this is already happening) to get their way.

I read the other day that the Koch brothers and a number of Wall Street billionaires are the main financial backers of NJ Gov Christy in his quest to win the Presidency.   

But Wall Street sees in the profane, union-busting New Jersey governor the perfect Trojan horse for unfettered corporate power. Christie, eyeing a bid for the presidency in the 2016 election, has been promised massive financial backing by the Koch brothers; hedge fund titans such as Stanley Druckenmiller, Kenneth C. Griffin, Daniel S. Loeb, Paul E. Singer, Paul Tudor Jones II and David Tepper; financiers such as Charles Schwab and Stephen A. Schwarzman; real estate magnate Mort Zuckerman; former New York Stock Exchange Chairman Richard Grasso; former AIG head Maurice “Hank” Greenberg; former Morgan Stanley CEO John J. Mack; former GE Chairman Jack Welch; and Home Depot founder Kenneth Langone. David Koch has called Christie “a true political hero” and said he is “inspired by this man.” Rupert Murdoch, whose ethics seem to align with Christie’s, is similarly besotted with the governor.

Think about that for a while. 

[JimD]

Here is a great 10 min video interview of Heiner Flassbeck

Danger of Global Recession After 30 Years of Neoliberal Counterrevolution

[He] is one of the few economists to get into positions of influence despite being firmly opposed to the prevailing doctrine of neoliberalism. He’s also direct and articulate. Among other things. Flassbeck has been a professor of economics at the University of Hamburg, a Vice Minister at the German Ministry of Finance, and a director at the United Nations Conference on Trade and Developmentt. In this Real News Network interview, he discusses why the danger of a global recession is acute and what remedies would be viable.

http://www.nakedcapitalism.com/2014/02/danger-global-recession-30-years-neoliberal-counterrevolution.html

[Shared Humanity]

JimD....

Excellent interview, short and very accurate. It really goes to the heart of my argument on the Crash on Demand thread. We are much closer to a real collapse than people realize. This collapse (something like the Great Depression) would cause a dramatic decline in the consumption of valuable resources (including fossil fuels) and could give us a window of opportunity to discuss how we move forward.

I also liked his emphasis on fiscal policy, investment in infrastructure. This infrastructure investment could help western nations really jump start things like green energy.

[JimD]

A further interesting bit about the dire situation of a number of European banks.

Giant Sucking Sound? Emerging-Markets Fiasco To Topple European Banks

It’s not like Europe is out of the woods, after years of recession, lurching from bank bailout to country bailout, and sweeping remaining fetid matters under the rug. But its banks are now sinking deeper into an even greater morass: the emerging-markets fiasco.

Turns out, these illustrious banks are stuck in the credit muck with loans totaling $3.4 trillion to the emerging markets (more than four times the exposure of US banks), according to analysts at Deutsche Bank. And $1.7 trillion of this malodorous debt is on the books of just six (mercifully unnamed) European banks. If a portion of those loans default....

“We think EM shocks are a real concern for 2014,” explained Matt Spick, analyst at Deutsche Bank – most likely the understatement of the century. “When currency combines with revenue slowdowns and rising bad debts, we see compounding threats to the exposed banks.”

http://www.testosteronepit.com/home/2014/2/4/giant-sucking-sound-emerging-markets-fiasco-to-topple-europe.html

[JimD]

The Emerging Markets Saw Their 15th Straight Week Of Investor Outflows And It Was A Monster

Emerging market funds just saw their 15th straight week of outflows, to the tune of $6.36 billion, according to Morgan Stanley.

That's the biggest exodus since August 2011, and it's the fifth largest in history. And combined with last week's $6.33 billion figure, the largest two-week outflow since January 2008.

Cumulative outflows totaled $33.3 billion over the past 15 weeks.

This has a big impact on the ability of a developing country to take any action to deal with AGW.  They are drifting into survival mode. 

http://www.businessinsider.com/emerging-markets-outflows-2014-2

[Shared Humanity]

The Emerging Markets Saw Their 15th Straight Week Of Investor Outflows And It Was A Monster

Emerging market funds just saw their 15th straight week of outflows, to the tune of $6.36 billion, according to Morgan Stanley.

That's the biggest exodus since August 2011, and it's the fifth largest in history. And combined with last week's $6.33 billion figure, the largest two-week outflow since January 2008.

Cumulative outflows totaled $33.3 billion over the past 15 weeks.

This has a big impact on the ability of a developing country to take any action to deal with AGW.  They are drifting into survival mode. 

http://www.businessinsider.com/emerging-markets-outflows-2014-2

While I don't really know what the impact of these rapidly increasing capital flows near term will be, it is capital flows that will be at the very core of the collapse of this growth system. Real impacts, driven by climate change and resource depletion, will drive dramatic flows in capital as they move quickly away from the deteriorating ROI environments to either strengthening ROI environments or safe havens where capital can be preserved. The world economic landscape is  seeing increasing frequent bubbles which inflate and collapse. The relatively long cycles of growth and contraction that were the typical behavior of capitalism from the middle of the 19th century until the latter 3rd of the 20th century have been replaced by these rapid bubbles inflating and collapsing. This new behavior is driven by shifts in capital flows seeking the kinds of ROI that capital requires to sustain system growth. Thus we have the Asian Tiger collapse in the 90's due to the dramatic collapse of unsustainable growth trends. We have the dotcom bust and the burst of the housing bubble. Financial capital flows will continue to speed up in search of returns in an increasingly frantic manner until it simply breaks down. We are now seemingly staring at the next bubble bursting in Asia as growth rates of 7% to 10% prove to be unsustainable. This bubble collapse and the resulting capital outflows will create and inflate other bubbles.

What does the individual do to protect themselves from such an economic environment? It is debt which provides the capital driving investment in search of ROI. The collapse of the growth system will cause deflation and penalize debt holders. The best thing that individuals can do to protect themselves is to eliminate debt and decouple themselves from the growth system.

[Laurent]

Agree with that Shared humanity, thinking the next step after that ( eliminate debt and decouple themselves from the growth system) would be an other good idea...

[JimD]

http://neweconomicperspectives.org/2014/02/troika-new-york-times-bury-issues-just-lead.html

Parts of the EU are truly in dire straits.  And going down still.  All polices seem to lead to ruin.  Austerity will eventually result in civil unrest and the rise of the neo-nazis and other forms of facism.  Classical economic theory requires more debt, spending and demand to grow out of the crises.  Which, of course, leads to disaster. 

I see no way out.  Does anyone?  Is this not just a symptom of the early stages of collapse as the system slowly stagnates and drops more folks into poverty and subsistence living?  Is there any way that this type of problem will not slowly spread around the world (given that there will be ups and downs due to bubbles being blown and such) over time?

[johnm33]

If you understood the vid posted by Neven you'll get that money is created out of thin air as debt, we even have to borrow the 'money' to recycle the accumulated debt as it matures. It doesn't take a leap from here to realise the money supply has to grow and that growth will be exponential. This and nothing else necessitates growth. Inflation is also inevitable.
In the UK this debt, and don't forget this was 'money' created at the flick of a pen, costs £68Billion pa. The same process occurs wherever there's a central bank. Que Bono well lots of people have opinions but in the UK it's impossible to be sure. In the US I assume it's the descendants of the bankers who set up the Fed in 1913, and associates. In the EU the ECB is own by a consortium of private banks.
Is it a good idea to have a narrow elite as the sole beneficiaries of this lets face it, bookeeping, process, or would it be more democratic for everyone to have an account, with a central bank wholly  owned by the state, where they would have limited but equal drawing rights?

[JimD]

China seems to be standing on a knife edge once again.  Will they manage to keep their balance or, liked the rest of us, fall occasionally.  If they fall we will all feel the impact.

Unless you are an aficionado of the great moments of Chinese Communist history, you probably won't have heard of Wuhan (it is the site of Chairman Mao's legendary swim across the Yangtze).

But perhaps more than any other Chinese city, it tells the story of how China's remarkable three decades of modernisation and enrichment, its economic miracle, is apparently drawing to a close, and why there is a serious risk of a calamitous crash.

In Wuhan I interviewed a mayor, Tang Liangzhi, whose funds and power would make London's mayor, Boris Johnson, feel sick with envy. He is spending £200bn over five years on a redevelopment plan whose aim is to make Wuhan - which already has a population of 10 million - into a world mega city and a serious challenger to Shanghai as China's second city.

The rate of infrastructure spending in Wuhan alone is comparable to the UK's entire expenditure on renewing and improving the fabric of the country. In this single city, hundreds of apartment blocks, ring roads, bridges, railways, a complete subway system and a second international airport are all being constructed.

And, of course, the point of my visit to Wuhan was to tell a broader story. Over the past few years, China has built a new skyscraper every five days, more than 30 airports, metros in 25 cities, the three longest bridges in the world, more than 6,000 miles of high speed railway lines, 26,000 miles of motorway, and both commercial and residential property developments on a mind-boggling scale.

Before the crash, investment was the equivalent of about 40% of GDP, around three times the rate in most developed countries and significantly greater even than what Japan invested during its development phase - which preceded its bust of the early 1990s.

After the crash, thanks to the stimulus and the unleashing of all that construction, investment surged to an unprecedented 50% of GDP, where it has more or less stayed.

"Most people are aware we've had a credit boom in China but they don't know the scale. At the beginning of all of this in 2008, the Chinese banking sector was roughly $10 trillion in size. Right now it's in the order of $24 to $25 trillion.

"That incremental increase of $14 to $15 trillion is the equivalent of the entire size of the US commercial banking sector, which took more than a century to build. So that means China will have replicated the entire US system in the span of half a decade."

The story is fundamental and basic.  Short term gain for long term problems.  As the old saying goes.  "If it can't continue, it won't."  Are we approaching that turning point?  If China finally, after all these years, actually has a recession (or what would be the equivalent in such a hot economy) the world will get the flu.  This would impact AGW in very complex ways.  The best juggler eventually drops a ball.

http://www.bbc.co.uk/news/business-26225205

[ccgwebmaster]

China seems to be standing on a knife edge once again.  Will they manage to keep their balance or, liked the rest of us, fall occasionally.  If they fall we will all feel the impact.

I think China is an interesting one because if memory serves, they need to grow something like 7% or more just to maintain employment levels (presumably a consequence of a very rapid industrial revolution and accelerating the process of replacing people with machines as compared to the timescale it had in the western world to do so). I could really do to try to find that figure as it's just a vague memory - but if it's the case...

It should also be considered the Chinese elites are rather anxious to maintain control. There's plenty of potential latent anger in China and plenty of people not reached by the surging prosperity (a betrayal of communist ideologies if you are on the losing side).

And so, I have to wonder - if it necessary for China to post what we in the west would consider a high rate of growth just to remain stable and in control? Is there a risk of spectacular social breakdown if they were to experience a technical recession where the economy actually contracts? Even just a slight drop in growth could feel like a recession in China if my premises were right.

Although it strikes me the US is quite happy to tacitly encourage problems for other would be superpowers wherever possible, the US arguably has a rather heavy dependency on China. Hence, the two headed criticism of human rights violations in China on one hand and smiling as it signs trade agreements on the other...

Although they're late to the party, and historically carry quite little culpability compared to the western nations, I can't help but feel China is capable of delivering an object lesson in many of the flaws of the modern capitalism/consumption based system.

Ah, here we are:

http://online.wsj.com/news/articles/SB10001424052702303482504579179033609323974

So where loosely speaking a western economy needs 2% growth to hold unemployment stable, China currently needs 7%. Growth figures that to a western economy would represent stability, therefore represent socioeconomic impacts headed towards those in Greece to China... (Greece has contracted 4-5% for a number of years in sequence now if memory serves).

[JimD]

China Factory Data Show Slowdown Risk as Xi Limits Credit

Ding said that the government will move to support growth if a slowdown “challenges” its bottom line of a 7 percent expansion. Last year, the economy grew 7.7 percent.

The preliminary reading of 48.3 in the manufacturing index was less than the 49.5 median estimate in a Bloomberg News survey of economists. A number below 50 indicates contraction.

Note that many analysts think the Chinese fudge growth numbers and that growth is actually a couple of percent lower than their figures.

http://www.bloomberg.com/news/2014-02-19/chinese-manufacturing-index-slides-to-lowest-level-in-7-months.html

[JimD]

China a Growing Worry Among Fund Managers, BofA Survey Finds

Global investors are increasingly worried about a sharp slowdown in China, which has eclipsed the U.S. Federal Reserve’s cutbacks in its bond-buying as the biggest perceived threat to the global economy, according to a survey of fund managers by Bank of America-Merrill Lynch.

Nearly half of those surveyed, or 46%, pointed to a hard landing for China’s economy, and an accompanying collapse in commodity prices, as the biggest risk. That’s up from up from 37% last month and 26% in December.

http://blogs.wsj.com/economics/2014/02/20/china-a-growing-worry-among-fund-managers-bofa-survey-finds/?mod=WSJBlog

[JimD]

Record Japan trade deficit highlights risk of economic stumble

(Reuters) - Japan suffered a record trade deficit in January as growth in exports spurred by a weak yen was far outstripped by a surge in import costs, raising fresh doubts about Prime Minister Shinzo Abe's strategy to spark an economic revival.

The trade numbers came on the heels of a survey showing manufacturers' sentiment worsened in February in a sign that businesses were bracing for a chill in demand after a planned sales tax increase takes effect in April.

The drumbeat of disappointing data threatens to slam the brakes on the world's third-largest economy barely a year after Abe set about recharging growth with a potent mix of fiscal and monetary stimulus.

http://www.reuters.com/article/2014/02/20/us-japan-economy-trade-idUSBREA1I2D820140220

[crandles]

While it is all relative as businesses will always pursue higher ROI investments over lower, traditionally (over the last several decades) an 8% ROI in the U.S. was considered acceptable. Of course ROI calculations are forward looking, based on forecasts, and the more uncertain the forecasts are, the higher the ROI must be before a company chooses to invest. In effect, there is a risk premium to capital investments that functions identically to the risk premiums associated with investing in stocks or junk bonds.

In a world where wild climate changes and the resulting impacts on consumption patterns are unpredictable, these risks can skyrocket. This will mean that the ROI for any capital investment will need to be higher than previously considered acceptable. Are risks already rising as a result of climate changes? Absolutely! You only need to look at the insurance industry to see that rates are climbing fast, a result of the uncertainty of severe weather events and their impact. Any community or region that begins to be battered by climate changes will have ROI hurdles skyrocket. We think of ROI calculations in terms of investments in plants and equipment, the industrial base of any successful economy, but these same calculations are made by fast food giants like McDonalds. Fast food chains, all types of businesses will cease or reduce investment in communities where severe weather risks climb.

Completely agree regarding risk premiums.

Not so sure about the 'any' in "This will mean that the ROI for any capital investment will need to be higher than previously considered acceptable. "

Is it possible that in a climate changed world, sustainable investments will get a discount relative to investments that might not be so sustainable. So building a McDonalds might face a large risk premium while solar farm might get discount because sustainable, zero marginal cost energy will always find a buyer particularly if ff use has to be cut to prevent climate change effects becoming even more extreme.

This may mean that sustainable zero marginal cost energy might be like a stock with a negative beta: highly attractive to risk averse investors or to investors who want to reduce risk on a risky portfolio without exiting that risky portfolio.

[JackTaylor]

crandles,
"Not so sure about the 'any' in "This will mean that the ROI for any capital investment will need to be higher than previously considered acceptable. "

Probably much higher.  Some what different than "investing in the market."

Recently my electric utility went before the state utility commission (price regulators)
asking for a Rate Increase in excess of 16% for Return On Equity (ROE) and was approved for 10.2% over two years.
http://www.reuters.com/article/2014/02/18/dukeenergy-results-idUSL3N0LN3SV20140218

not definitive for them
I believe their ROE (different from ROI) might be based upon first paying "preferred stock shares" then consider structures, equipment investing, debt, and then last "common stock shares."
not definitive for them

[crandles]

Probably much higher.  Some what different than "investing in the market."

Recently my electric utility went before the state utility commission (price regulators)
asking for a Rate Increase in excess of 16% for Return On Equity (ROE) and was approved for 10.2% over two years.
http://www.reuters.com/article/2014/02/18/dukeenergy-results-idUSL3N0LN3SV20140218

not definitive for them
I believe their ROE (different from ROI) might be based upon first paying "preferred stock shares" then consider structures, equipment investing, debt, and then last "common stock shares."
not definitive for them

I would suggest that power generation will get a fairly steady income flow and that can accommodate fairly high gearing. 40% equity at 10.2% and 60% debt at 6% would imply that a ROI of 7.7% is a bit marginal but it is below your suggested long term acceptable 8%.


Or maybe your ROI does mean ROE?

[JimD]

More on Japan.  It is getting ugly.

There are two areas where Abenomics, the democratically elected economic religion of Japan, has succeeded: creating inflation without causing wages to rise, thus whittling down real incomes; and devaluing  the yen by 25%, thus wiping out a quarter of the magnificent wealth of the Japanese without telling them directly. Grudging admiration is due Prime Minister Shinzo Abe for these accomplishments.

One of the goals of watering down the yen is to goose exports by making them cheaper overseas and reduce imports by making them more expensive to consumers and businesses at home. It would crank up manufacturing and lead to a glorious trade surplus that would inflate GDP, turn Abe into a hero, and save Japan. That was the plan.

That plan has gone to heck. Not in small increments over the years, but in relentless month-to-month leaps whose viciousness surprised even the deep cynic in me.

So exports in January, at ¥5.25 trillion, rose 9.5% from a year earlier, the Ministry of Finance reported. Alas, it was only about half the rate at which the yen had been devalued over the 12-month period, and so by volume, exports dropped.

But Imports, which should have dropped as they’re getting more expensive due to the watered-down yen, soared 25% to ¥8.04 trillion. Japanese businesses and consumers had gone on a buying spree of goods made in China and elsewhere.

The resulting trade deficit skyrocketed 70.8% to ¥2.79 trillion. It was the worst trade deficit ever. It was almost twice as bad as the prior “worst deficit ever,” recorded in January 2013.

Wealth disappearing, options shrinking, slowdown coming.  AGW?  What's that?

http://www.testosteronepit.com/home/2014/2/21/the-madness-of-abenomics-in-one-crazy-chart.html

[JimD]

And not to ignore the Ukrainian crisis and its fall out.

The dramatic escalation of Ukraine’s civil conflict and fears of Russian military intervention have sent financial tremors across Eastern Europe, turning the region into the new fulcrum of the emerging market crisis.

“This has suddenly gone from a domestic Ukrainian story into a geopolitical clash,” said Lars Christensen, from Danske Bank.

The Russian ruble has fallen to a record low against the euro, with contagion reaching Poland, Hungary and Romania in recent days. “The moves in Russia are very like the events during the war in Georgia in 2008. Markets are pricing in the risk of Russian intervention,” he said.

Regis Chatellier, from Societe Generale, said there is a “high risk” that Ukraine will be pushed into default on its €60bn sovereign debt, triggering a credit shock for Russian banks. Sberbank and VTB are both large holders of Ukrainian bonds. Global emerging market bond funds hold 3pc of their portfolio in Ukrainian debt. “The spillover effect of a Ukrainian default would be significant, but not systemic,” he said.

Russia is already near recession itself. Industrial output has contracted over the past year and fixed investment has fallen by 7pc. “We think Russia is the most exposed. The current account surplus has fallen very sharply,” said Liza Ermolenko, from Capital Economics.

If this drags on or really falls apart into civil war it will become very interesting.  An intriguing question would be what happens to this...

Agriculture

Ukraine is the world's largest producer of sunflower oil,[33] a major global producer of grain and sugar, and future global player on meat and dairy markets. It is also one of the largest producers of nuts. Ukraine also produces more natural honey than any other European country. Because Ukraine possesses 30% of the world's richest black soil, its agricultural industry has a huge potential. However, farmland remains the only major asset in Ukraine that is not privatized

It is hard to produce food in the middle of a civil war.

BTW one can reliably depend on the US to make life as difficult as is possible for Russia and the Ukrainian government.  We are already well into figuring out how to implement economic sanctions which will, of course, drive the regime into the arms of Russia even further.

http://www.telegraph.co.uk/finance/financialcrisis/10652767/Financial-crisis-threatens-Russia-as-Ukraine-spins-out-of-control.html

[SATire]

Is it possible that in a climate changed world, sustainable investments will get a discount relative to investments that might not be so sustainable. So building a McDonalds might face a large risk premium while solar farm might get discount because sustainable, zero marginal cost energy will always find a buyer particularly if ff use has to be cut to prevent climate change effects becoming even more extreme.

This may mean that sustainable zero marginal cost energy might be like a stock with a negative beta: highly attractive to risk averse investors or to investors who want to reduce risk on a risky portfolio without exiting that risky portfolio.

Yes CRandles, exactly that going to happen because it makes sense. As a small example: Investments and balance sheet total of GLS bank (https://www.gls.de/privatkunden/english-portrait/ ) here did skyrocket after the financial "crisis" in 2008. Just because it makes more sense to invest in long term sustainable projects than in short term high risk projects. On long term all non-sustainable investments are lost. So long-term investment must be in sustainable projects to be reasonable. On short term things are still different - but you have to face the fact that there will be a time, after which your investment is lost completely, so you have to take care and have to look daily how things work out. If you do not have the time for that or want to act reasonable, then sustainable investments are the only way to go for. That sustainable market is on the rise - even for <2% interest rate it is becoming more and more attractive. In future, it should be sufficient if you get back what you invested without any interest - that is the basis for sustainability of course. What you have you want to keep - but there is no reason why it should grow. Why to pay someone for doing nothing but having something? Makes no sense - so do not rely on that.

[SATire]

And not to ignore the Ukrainian crisis and its fall out.

JimD, we have to be very careful in this case. I know poeple from there - what they do not need is someone telling them where to go. They must decide their way to go on their own. If there is any "to do" e.g. for EU, then it is to cancel out the influence from Russia or USA or someone else. Think about Freedom - that is what poeple are going for. Ukraine poeple have to find their way. The best thing we could do for them is to fight any external forces. All external forces are not good for their freedom, of course.

[JimD]

SATire

It isn't about what you or I or they think they need or want, whether to ally themselves with the West or East.  They have no real friends here as everyone is using them for their own reasons. The EU and the US are going to push together in the same direction.  And Russia is going to push in a different one.  And no matter what the Ukrainians want on either side of their divisions they are all going to get pushed.  And make no mistake that the country is very divided.  East and west there are very opposed to each other. 

But the main story is not their freedom to go with either the West or East, or maybe partition the country and do both.  The main story is that they are in the middle of the great geo-political struggle between the US empire (along with its European partners) and the Russian Empire (greatly diminished but struggling to grow if possible and to maintain at a minimum).  So being left alone to decide things all by themselves?  Not going to happen.  Will our side prevail?  I don't know.  Putin has played his cards pretty well and he is certainly competent.  We have better cards  but we do not tend to always play them well. It will be interesting to see what happens.

That is how the real world works.  Utopia it ain't.

The really important question, however, is how the outcome will impact our ability to deal with AGW as nothing else is all that important anymore.  I would certainly prefer that the powers that run this world quit what they are doing and address our most important problems.  A foolish wish but there it is.  Back to reality.  So, is it better for the whole country to go with us, or with the Russians or maybe both?  What are the side effects, the fallout?  What is the impact on dealing with AGW?     
 

[JimD]

Re Ukraine, US/EU and Russia

From the Automatic Earth blog

There is a great graph showing the various Russian gas pipelines which transit Ukraine.  Do not think that the issue of control over these is not critical to all parties.

One great takeaway from reading this blog post and other articles is that whomever ends up in the top position in this struggle will "own" the responsibility for bailing out the Ukraine to the tune of many billions of dollars.  If the US/EU side ends up in that position it pretty much means that the EU will have to foot the bill.  And it is going to be interesting to see what happens to European gas prices.

Note that a big factor in the Russian support to Syria is to prevent new gas pipelines from supplying Europe and impacting the price they can charge the Europeans.  Conversely the US/EU support for overthrowing Assad is directly related to this very strategic need.  No one is interested in freedom, they are interested in resources.

http://www.theautomaticearth.com/debt-rattle-feb-21-2014-broke-bruised-and-battered/   

[SATire]

No one is interested in freedom, they are interested in resources.

The poeple in Ukraine are. They are not demonstrating for/against AGW. Despite that fact any actions still may have implications to AGW. E.g. a local collapse would reduce emissions. That is cynical but a known fact considering other collapses induced by foreign forces.

Other implications could be: Increased emissions, if Urkaine would turn away from Russia - they will have to burn coal instead of gas. Increased emissions, if Ukraine joins EU - increasing consumption due to economic effects could likely be stronger than efficiency gains. But those things are pure guessing as typical for economics.

Since Ukraine is not thinking of AGW these days I would rank their motivation for freedom (and unity - poeple there do not want to devide the country) higher. I hope for them that they can resist any external forces and interests, because those will not help them. At least today the news are surprisingly good for them.     

[JimD]

SATire

It is certainly a mess.

Daily news is more like weather and what happens long term is like climate.  The country has deep divisions.  Much of this comes from the fact that Ukraine consists of areas which were part of Poland, Austria and Russia.  If I understand it correctly the wealthier, more industrialized and more resource rich areas of the country are in the east and this area is much more pro-Russian and the power base for the President.  The more pro-Western areas are in the west part of the country.  A further note on the protesters seeking freedom.  This is freedom from being in the Russian sphere of influence.   It does not mean that they are pro-democracy as the more militant fractions of the protestors are pretty hard right wing in political terms (I have seen the phrase neo-nazi's used about them).   

Partitioning (still a serious possibility) would in many ways serve both the US/EU and Russian sides in strategic terms.  It would cost the US/EU huge amounts of money and likely raise emissions over time.  And default by Ukraine on its debts would hit Russian banks hardest and probably raise the prospect of Russia "suggesting" the debts be covered by assets in the eastern Ukraine.  Which could be supported by 'asking' for Russian military assistance to protect the east from the west.

So, additional stress to a system which needs to focus on more critical problems.  We are likely to see added stress to the EU in funding "democracy" in the new Ukraine.  Russia is likely to be hit financially by default on Ukrainian debt, huge costs if the country is partitioned and militaries get involved, higher emissions from various sources, likely higher gas costs to Europeans (which of course does help alternate energy competitiveness).  All of this just makes it harder to find the motivation, resources and time to work on AGW.  This process will be repeated over and over again in other parts of the world for no useful purpose.  We fiddle while Rome burns. 

   

[SATire]

JimD,

it is even more a mess than you state. Ukraine is not only devided in east and west, it is also devided in different historical backgrounds (austrian, poland, turkish and russian as well as some serious german violence) - that country was dipped in blood. It is devided in different interests - corrupt politicians (Timoshenko got very rich, too), oligarchs who got russian industries and others making money with EU. Their only chance is to get rid of some of the external influences - that is what they are fighting for. Forget the "faschists" or "neo-nazi" there - that is russian propaganda, which is not better than western propaganda. All sides have some poeple able to throw a stone or shot a bullet. Also the police has to go home and face the poeple there - the families are quite well mixed with Russian and Ukraine poeple. If Ukraine would devide, it would get very nasty there - they will try to avoid that.

We should stop looking for our interests at other places in the world - it is enough work to get sustainable at home. All the fiddeling next to burning Rome is just avoidance of the inevitable work.

Here is another economic/finances impact of AGW (http://www.zeit.de/2014/08/carbon-bubble-rohstoff-blase? ): 900 Gt may be burned until 2050 but 2.860 Gt are available - and calculated
in the balances of companies listed in London. One third of FTSE 100 is fossils and thus overrated, if someone would start to take the 2° goal seriously one day. Analysts know that - the question is when the first start to act and prick the bubble. So - everybody investing in London invests 33% in CO2 emission, which is not sustainable so the money must be lost one day. How long will poeple keep that risk? I am out already.

[wili]

A while back some were asking if Syria was going to become the 'new Serbia' (arguably the linchpin that set WWI off). Should we be asking the same thing now about Ukraine? How many other linchpins are there about to get unhitched? How wide of a conflict may ensue?

[JimD]

With his usual great timing Orlov has weighed in on the situation in Ukraine.  I note that he is even more pessimistic than I am.  And the attached letter and comments are also interesting.  In its own little way this crises is a manifestation of the early stages of collapse.  Rinse and repeat a dozen times and you are standing on a different rung of the civilizational ladder.  A lower one.

Financial reserves are down to a few days, federal structures are being dismantled throughout the country, regional governors are fleeing, and a default on some €60 billion of Ukrainian bonds, many held by Russian banks, seems likely. Could this be just the kind of financial contagion needed to finally pop the ridiculous US equities bubble? At least two Ukrainian provinces are openly talking secession; one (Crimea) wants to immediately join Russian Federation. A question for US State Dept. flunkies and EU functionaries: What does that do to your geopolitical calculus? At risk are five nuclear power plants and a lot of Russian gas that transits Ukraine on its way west. Ukraine is shaping up to be a lot like Yugoslavia, except with more than twice as many people, lots of crazed street fighters who think they now own the place, and a role critical to European energy security.

And now they are all in shock and nobody knows what to do. Except for the protesters, who do know what to do: continue to protest. Most of them don't even know what it is they are protesting, but, in essence, they are protesting the very existence of their country, which is made up of two parts: Eastern Poland, which is Ukrainian-speaking and predominantly Catholic, and Western Russia, which is Russian-speaking and predominantly Orthodox. The “Russians” outnumber the “Ukrainians” two to one. The ultimate resolution to the crisis lies in partitioning the country.

This episode in our march to collapse is not over yet and I expect a few more sudden turns and interesting events.  Russia cannot afford to lose control and the US/EU cannot afford to back down either.  A little redistribution of the global order is likely.  A little step down the civilizational ladder perhaps?

Here is a quote from the comments to Orlov's post.

My wife read up on the chaos from some Kiew blogger last night. The city is a chaos. For example the parliament who voted to get rid of janukowich did so against normal process of constitution under duress by armed dmeonstrators (100% voted for the resoltuion) and only 300 of 400 were there but enough for a 3/4 majority. People are fleeing the city.

The French/German and Polish foreign ministers who visited a few days ago had to flee or get killed by the mob.

The mob formed militia was according to this formed by ex-ukrainian israeli military types and the local synagogue has recommended all jews to abandon the city(pogrom fears by nazi right wing svoboda(freedom)-led by a man whose grandma is jewish by the way).

Russia has emergency plans to seal the border to Ukraine.

One wonders if the EU and Russia will have to move in and restore order under UN mandate. At any rate if bankruptcy ensues then cooperation fo Russia and EU must be accepted in a Greek type "EU-Troika" solution to keept the country going while they solve their problems and get a working govt. The mob wil have to go home to tend their farms in the countryside and as the stores have been all looted and destroyed in kiev the food supplies will run out there so they will have to leave. The local population will some day rise up against the west ukrainian terror and want a normal life again in the capitol.

What could go wrong?

http://cluborlov.blogspot.com/2014/02/shock-over-ukraine.html

[OldLeatherneck]

With his usual great timing Orlov has weighed in on the situation in Ukraine.  I note that he is even more pessimistic than I am.  .........

What could go wrong?.................

JimD,

Among other things that could go wrong is the impact of this current unrest on this year's wheat crop in the Ukraine.  Being that the Ukraine is one of the world's major wheat exporters, this is something that looms ominously on the horizon.   Even if weather cooperates with wheat growing in the Ukraine this year, reduced energy supplies from Russia could seriously impact the energy needs of the agricultural sector.  Also civil war will destroy some/all of the infrastructure necessary for grain storage and transport to ports of export.  We can only hope that AGW induced drought doesn't destroy the wheat crops elsewhere in the world that are needed to offset any losses from the Ukraine.

Yesterday, my wife was being interviewed by the reporter/photographer for one of our local weekly "rags" regarding a local benefit we had hosted.  This reporter who we've know for years is a first-generation American, born to Ukrainian émigrés who fled the Soviet Union in the immediate aftermath of WWII.  After the interview they had a long conversation regarding the current events in the Ukraine.  Our friend is a staunch supporter of the "pro-democracy" rebels and is very leery of Putin's intentions regarding the future of the Ukraine.  She believes, that since Putin was previously in the KGB he still is a communist at heart and has long-range intentions of restoring much of the old Soviet Empire.

Our friends personal views aside, I don't think we can't paint the picture so clearly in black & white.  Corruption seems to be endemic in the Ukraine, with strong Neo-Nazi elements within the pro-Western democracy protesters.  I wish I had the confidence the leaders of the US and the EU are capable of preventing an incident, in the Ukraine, like the assassination of Archduke Ferdinand, in Sarajevo, which triggered WWI.

[ccgwebmaster]

Among other things that could go wrong is the impact of this current unrest on this year's wheat crop in the Ukraine.  Being that the Ukraine is one of the world's major wheat exporters, this is something that looms ominously on the horizon.   Even if weather cooperates with wheat growing in the Ukraine this year, reduced energy supplies from Russia could seriously impact the energy needs of the agricultural sector.  Also civil war will destroy some/all of the infrastructure necessary for grain storage and transport to ports of export.  We can only hope that AGW induced drought doesn't destroy the wheat crops elsewhere in the world that are needed to offset any losses from the Ukraine.

These risks are pretty much a given now - faster and faster things can unfold...

Collapse isn't a linear process.