Danger of Collapse Contingent on Obama Policies Continuing

First of all, a healthy growing economy means increasing complexity (green curve). This means that the critical complexity (blue curve), which measures how much complexity a system can sustain without imploding, increases. Every time a system is in a state of crisis or transition both curves become bumpy (see the bump corresponding to the dot com crisis in 2000). The magnitude of the bumps indicates the severity of the crisis. What is apparent from the plot, however, is that the current crisis is the most severe in 25 years – it sets the clock back 10-12 years, when we registered similar values of complexity. However, what is more alarming is the slope of both curves – it is negative and with a value not registered before. Basically, a negative slope points to a shrinking economy.

Complexity Trends

The second alarming point is that when the complexity of a system reaches its corresponding critical threshold (critical complexity) the system in question becomes very fragile and therefore vulnerable. Its structure becomes weak and unable to absorb any increases in uncertainty, inefficiency, and especially, shocks. In the case of the US, this is precisely what is happening. If we take a closer look at the last few years, extrapolating trend, we see that the curves will meet around 2017-2018. This situation is illustrated below. _Forbes

American Collapse Under Obama Policies
There is a maximum level of complexity above which society breaks down, and there is a minimum level of complexity, below which society breaks down. If a society is designed properly it is able to increase in complexity as it grows, maintaining a safe margin between the upper and lower limits of workable complexity.

What does this mean? It means that over the next 5-6 years the complexity of the US will reach unmanageable levels and the entire system will essentially be out of control. Obviously, this statement is based on the assumption that no major adjustments and/or (extreme) events take place to change the trend line. However, it is also true that current crisis is exposing the inability of modern politics to react to disruptive events. Consequently, the assumption seems to be pretty realistic. Moreover, very large and complex economies are characterized by immense inertia, which means that changes of any nature require a very, very long time to effect.

But the most alarming point is this. In our analysis we are not looking only at the economy of the US. The analysis is holistic. It embraces also the society, environment, education, the health system, etc.—in other words, “everything.” This means we’re looking at the US as country, not just as an economy. In our previous blogs we have pointed to the fact that even though many parts of the global economy are in a state of crisis, this is not a crisis of the economy. It is a crisis of values, morals, of living beyond one’s means, and many other elements, which ultimately, are reflected in the state of the economy. In fact, the economy and the society are one and must be analyzed as such. Everything is interconnected. The economy is only one important part of a huge and dynamic network, which we understand very poorly.

Our result is most alarming due to very this fact. You can bailout a bank or a carmaker, but how can you “bail out an entire country”? _American Danger of Collapse Under Obama

Obama's policies have been based upon a radical vision of transforming America from a resilient private sector based society, to a brittle and unsustainable public sector based society. Obama's agenda is good for the few who are able to siphon away wealth and power from the contracting private sector. It is also good for the enemies of America whose global schemes had been hampered by American power.

Here is an interesting look at "what will break and what won't" from Nassim Taleb in The Economist:

The great top-down nation-state will be only cosmetically alive, weakened by deficits, politicians’ misalignment of interests and the magnification of errors by centralised systems. The pre-modernist robust model of city-states and statelings will prevail, with obsessive fiscal prudence. Currencies might still exist, but, after the disastrous experience of America’s Federal Reserve, they will peg to some currency without a government, such as gold.

...The world will face severe biological and electronic pandemics, another gift from globalisation.

Religious practice will experience a revival, seen as a conveyor of robust heuristics, cultural values and rituals. Science will produce smaller and smaller gains in the non-linear domain, in spite of the enormous resources it will consume; instead it will start focusing on what it cannot—and should not—do. Finally, what is now called academic economics will be treated with the same disrespect that rigorous (and practical) minds currently have for Derrida-style post-modernist verbiage. _Economist Taleb

There is more at the link above, but what is interesting to Al Fin analysts is how Taleb underestimates the perfidy of the current leadership of the USA, and other leading nations. Modern leaders are much like the captain of the doomed Costa Concordia. They will steer the ship onto the rocks, then take the first opportunity to abandon ship, passengers, and crew to whatever fate awaits them.

If Obama's policies can be reversed, the US private sector can likely recover in time to help bail out the other failing economies of the world. But reversing the policies of a massive and unwieldy government such as the US government, is difficult -- if not impossible -- to do over a short time period. The best we can hope for is mitigation. But will it be enough?

Wait and see. Hope for the best, but prepare for the worst.

Slow Motion Collapse of the Welfare State from the US to the EU

Walter Russell Mead has written an important essay on the collapse of the welfare state, which he refers to as "the blue model." It is worth reading in its entirety at the link after the excerpts below:

The blue model is breaking down so fast and so far that not even its supporters can ignore the disintegration and disaster it now presages. Liberal Democrats in states like Rhode Island and cities like Chicago are cutting pensions and benefits and laying off workers out of financial necessity rather than ideological zeal. The blue model can no longer pay its bills, and not even its friends can keep it alive.

...Demographic change is accelerating the crisis of the blue social model, as retirement and other social benefits come under increasing pressure. Social Security and Medicare are covering a steadily growing percentage of the population. Younger workers no longer believe these systems will be in place for their old age. They are at least partly right. Without major change, the current Medicare system cannot last. Beyond that, a general crisis of the pension system threatens to reduce the income of older people even as government is less able to take up the slack. Defined benefit retirement programs have largely disappeared in the private sector; state and municipal pensions threaten to bankrupt some cities and states, and they are forcing officials in others to choose between drastic service cuts and breaking pension commitments to retirees. _Walter Russell Mead American Interest

The welfare state contained the seeds of its own death, just as the Russian Soviet system did. As humans give up more and more of their autonomy to an ever-bloating bureaucratic system, more and more of the internal systems which made them human begin to decay and become vestigial. Eventually most citizens are unable to grow out of the dependency stage of childhood. Birth rates collapse along with family stability. The very future of the society fades away with the declining competence and courage of its citizens.

he real crisis today in the United States is the accelerating collapse of blue government, not blue private industry, which is a phenomenon largely behind us. We are witnessing a multi-dimensional meltdown that affects our lives and politics in many ways. Three elements of the blue government meltdown in particular are worth mentioning.

The first is the government’s role in providing the benefits associated with the blue system. When we talk about “runaway entitlement programs”, we are talking about commitments by the government to provide retirement and other social benefits that originated as part of the blue system social contract. Workers could retire as early as 62 with a combination of Social Security and private pensions. These costs are now exploding according to the immutable logic of demographic and actuarial facts, and it is clear that the government can’t pay them into the future.

The second crisis is that the government is now the last “true blue” employer in the country. Federal, state and local governments are often staffed by lifetime civil servants whose jobs are protected by law and by some of the last truly powerful unions in the country. All the Reagan Administration and like-minded state governments ever managed to do was to slow the growth of government, not reduce it; government at all levels today accounts for a larger share of U.S. gross national product than it did in 1981 (and that was when government did a lot more in regulating the economy). It has become incredibly expensive for governments to do anything at all, and they are poorly equipped to respond nimbly to the fast-changing conditions of America today. _American Interest WRM

Read (or at least carefully skim) the entire essay.

Having allowed governments to control the economy via monstrous budgets and central banks, the private sectors of western nations have become almost completely dependent upon government caprice. As the core populations which allowed these societies to advance slowly shrink away, so does any chance of ultimate recovery from the welfare state's collapse, when it comes.

Europe has gone through a similar process, and is somewhat advanced along the downward pathway:

Europe's demographics also aren't on the side of growth. Populations across the developed world are graying, but Europe's low productivity growth means that its future labor shortfall will be especially acute. It doesn't help that Europeans draw social security benefits earlier and more easily than their developed-world peers. Pension commitments will strain national budgets even if Angela Merkel gets her way on handcuffing euro-zone public debt.

Which brings Messrs. Gill and Raiser to the other serious drain on European growth. Big government, by their calculation, shaves about two percentage points off growth once public spending passes 40% of GDP. Some welfare states are better-run than others—think Sweden and Germany—but the World Bank report highlights a few important connections between the welfare state and growth.

Today, European governments spend more on social protection than the rest of the world combined, thereby entrenching powerful disincentives to work and enterprise. Social protections have also come at huge direct cost to taxpayers. _WSJ

And so we see European nations on the verge of economic collapse, one by one, like dominoes. The same thing is occurring in the US, but on the city and state level -- for exactly the same reasons.

The welfare state is dying, and defiantly threatening to take down the rest of the world with it. Is it any wonder that many of the less intelligent global economic analysts look to China and India as the last great hopes for the future of global civilisation?

Fragmentation is likely, widespread hardship is possible, and war is not out of the question. Hope for the best. Prepare for the worst.

The "Obama Recovery" Doesn't Look Much Like a Recovery Somehow

... the Obama Recovery stinks. Even if today’s GDP report—for the fourth quarter of 2011—shows 3 percent growth or better, it would be just the fourth time that has happened since the economy began turning up in June 2009: 3.8 percent in the fourth quarter of 2009, 3.9 percent in the first quarter of 2010, and 3.8 percent in the second quarter of 2010. But no 3 percent-plus quarters since then.

The first nine quarters of the Reagan Recovery, by contrast, looked like this: 5.1 percent, 9.3 percent, 8.1 percent, 8.5 percent, 8.0 percent, 7.1 percent, 3.9 percent, 3.3 percent, 3.8, percent, 3.4 percent. In fact, the Reagan Boom went from the first quarter of 1983 until the second quarter of 1986 without notching a sub-3 percent GDP quarter.

So, while the Reagan Recovery quickly made up for lost years of growth, not so much for the Obama Recovery, as this chart in today’s Wall Street Journal makes clear: _American

The housing market, which has historically helped lead the economy out of recession, remains deeply depressed. Many business leaders say they are also being held back by policy-related uncertainty...the threat of new regulations and higher taxes.... Recent economic research has given some weight to those complaints. A study by a trio of academic economists found that policy uncertainty has risen in recent years, and that periods of uncertainty have in the past corresponded with rising unemployment and slowing growth. _American

Everything about the Obama regime seems constructed to hamper private, voluntary economic activity. As a disciple of socialist radical Saul Alinsky, Barack Obama is something of the anti-America President. At least, he is opposed to the enlightenment principles of individual freedom embedded in the US Constitution which have allowed the US to prosper so well, for so long.

When contemplating the type of regime Obama wishes to put in place of what the US Constitution formerly permitted, it is best to hope for the best, but prepare for the worst.

China's Massive Misallocation of Resources in Building an "Infrastructure to Nowhere" Is Becoming Sadly Apparent

Despite all the denials by Chinese government officials and die-hard China bulls, it is becoming clear that China's massive infrastructure buildup is unsustainable.

Little by little the claim repeated by so many China bulls – that you can never spend too much on infrastructure – is being eroded. It is possible, it turns out, to waste a lot of money even on infrastructure, and if debt-fueled investment is being wasted in China, as I have been arguing for over half a decade, then without doubt debt must be rising at an unsustainable pace. _MPettis

Local governments nationwide have slashed infrastructure spending since last summer, and the urban rail business has slowed to a crawl after several years of rapid growth. Spending for subways was cut as central government economic planners put the brakes on rail projects and indirectly reduced local government spending power by maintaining real estate market controls designed to prevent housing price inflation. _Caixin

China's banks may be understating their exposure to runaway local borrowing that is raising fears of a government bailout, according to a Bloomberg analysis of debt disclosed by all 231 local-government financing companies that sold bonds, medium-term notes or commercial paper through Dec. 10 this year.

...“You should be more worried than you think,” he said of Bloomberg’s findings. “Certainly more worried than the banks will tell you.
“You know how this story ends -- badly,” he said. _Bloomberg

For the last few years, Al Fin economists have predicted that China's massive buildup of ghost infrastructure would eventually run out of steam, against all the contrary sentiments coming from official statistics and China advocates both inside and outside of China. How could they be so confident?

In early 2009, the newly inaugurated US President Obama began laying out his policies more clearly, in conjunction with the then all-Democratic Congress. It was clear that Mr. Obama's policies were distinctly antagonistic to private sector growth, with a strong odour of energy starvationism attached. Combined with the banking and housing crises largely created and abetted by unwise government policies related to banking and house financing, it was apparent that the US economy could not recover in a healthy manner -- no matter how many $trillions Mr. Obama squandered on his political cronies and supporters.

Likewise in Europe, it was clear that a combined crisis of debt and demographic decline had been building over a long period of time, which combined with the international banking crisis and financial collapse would not allow Europe ot bounce back this time.

Since the bulk of China's income derived from its export markets, and since its two largest customers for exports were suffering extended economic problems of their own -- and of their own making -- China could not sustain its monster growth rates in any legitimate way, over the short term.

The ad hoc strategy of attempting to build and borrow its way into sustained high growth might have worked had China been able to liberalise its markets and society while tightening restrictions on economic activity by all local and central governments. In other words, China needed to institute constitutional restrictions on government action while loosening restrictions on private action. That would have taken time, and would have been strenuously resisted by entrenched political powers inside the country.

In a society as insular as the current Chinese society, the sense of threat from real and imagined entities both inside and outside one's borders tends to be overwhelming, in times of rapid change. It was clear the CCP would only liberalise gradually, if at all.

Therefore the over-building and over-borrowing gambit could have been seen as unsustainable from the beginning -- to anyone who properly anticipated the economic effects of US President Obama's policies on the world's largest economy.

The fact that so many US economists of the highest rank failed to anticipate the tragic reality of Mr. Obama's regime and its policies, is a sad testimony to modern economics whenever it is influenced by leftist political philosophy.

16 Million Americans Who Should be Working, Aren't

Prior to the recession, nearly 65 percent of working-age Americans (not in the military or in prison) had jobs. Now it’s down to 58%. The difference is 16 million people who should be working, but aren’t — about the same as the entire working-age population of Australia. The slight increase in employment during the past few months barely tracks the natural increase in population.

...People are hurting, and badly. The official unemployment rate may have fallen, slightly, but the real unemployment rate — the number of working-age Americans who aren’t working — rose from about 12% before the 2008 crisis, to about 23%, and hasn’t come down. That includes people who have retired early because they can’t find work, spouses who used to earn a second income but have gone back to homemaking because work isn’t available, self-employed people whose businesses have collapsed, young people who live in their parents’ basement because they can’t afford tuition and can’t find work. _Spengler

The article linked above contains several informative charts that provide visual time trends.

The American skankstream media will pull out all the stops to help President Obama win re-election in November. But when the media message conflicts with the "in your face reality" which average Americans must contend with, the final outcome in the poll booth remains in doubt.

Obama will also get a lot of help from labour unions and Democratic Party election officials at the local and state levels. Help that will probably, at times, cross over the line of legality. But that's politics, the US Democratic Party way.

It is not just the future of the US that will be at stake. The global economy has scant chance of recovery as long as the US is stuck in an ongoing Obama recession.

China: Hard Landing in Real Estate Market Likely

The housing frenzy has driven prices so high, so fast, that a crash on the scale of the real estate collapse in Japan in the 1990s is a virtual certainty. And China's already exaggerated official growth rate could take a pounding, all the way to the zone of the unthinkable, into the low single-digits. _Fortune

China's government gambled that the rest of the world -- particularly Europe and the US -- would recover within a few years, allowing the rich export markets to restore a healthy income flow to the empire. But in the case of Europe, this does not seem to be happening.

The global economy faces a depression-era collapse in demand if Europe doesn't quickly act to dramatically boost the size of its debt-crisis firewall, implement pro-growth policies and further integrate the euro zone, the head of the International Monetary Fund warned Monday. _FoxBusiness

And if the US also fails to rebound from the extended economic downturn under President Obama, China's central and regional governments may be pressed for answers.

Although China emerged rapidly from the downturn of 2008-09, Edwards said the recovery had been the result of a massive reflationary package by the Chinese government. Beijing, he added, could not afford another big stimulus to offset a weakening of the economy. Falling imports have led to a widening of China's trade surplus, but Edwards said exports were set to slow and a trade deficit was looming.

He added that despite the recent run of more upbeat economic news from the United States, the risk of another recession in the world's biggest economy was "very high". _Guardian

China's building spree and commodities-buying spree was a calculated risk. At this point, it appears that the strategy may not be sustainable.

More: Local governments and land grabs against ordinary citizens....

...if grabbing land is costly, risky, and threatens the regime, why is it so commonplace? Because neither the Communist Party honchos in Beijing, nor their local minions in Wukan and Kanwu, have a choice in the matter.

...The Party’s authority and legitimacy are predicated on guaranteeing at least 8 percent GDP growth a year, and economic growth is the mandate of all Party officials. If you’re Ningbo or Yantai or any large Chinese urban center with an entrepreneurial population and large resources then that’s not a problem. But if you’re a rural township of subsistence farmers then your best shot at producing the numbers you need to win praise and promotion is to grab that worthless land and put a factory or a condo on it. The magic of economic statistics is that, even if the factory or condo is empty, the value of land shoots up, and so does your career prospects.

Land grabbing is the Chinese equivalent of alchemy, and this quick immediate economic fix is just too addictive for local officials to say no to. This is a problem not just commonplace in the villages, but everywhere in China. _Diplomat

Obama and Clinton: Friends of Thugs and Killers?

President Bill Clinton's administration acquiesced in the Taliban's ascension to power in Kabul in 1996 and turned a blind eye as that thuggish militia, in league with Pakistan's Inter-Services Intelligence, fostered narco-terrorism and swelled the ranks of the Afghan war alumni waging transnational terrorism.

...Now, U.S. policy is coming another full circle on the Taliban in its frantic search for a deal. This has been underscored by a series of secret U.S. meetings with the Taliban last year and the current moves to restart talks in Qatar by meeting the Taliban's demand for the release of five of its officials who are held at Guantánamo Bay. Mohammed Tayeb al-Agha, an aide to the one-eyed Taliban chief Mohammad Omar, has emerged as the Taliban's chief negotiator with Marc Grossman, America's Afghanistan-Pakistan (Afpak) envoy.

The Qatar-based negotiations serve as another reminder why the U.S. political leadership has refrained from decapitating the Taliban's top command-and-control. The U.S. military has had ample opportunities to eliminate the Taliban's Rahbari Shura, or leadership council...Yet, tellingly, the U.S. military has not carried out a single drone, air or ground strike against the shura. _JapanTimes

Obama's sympathies are rather unclear, whenever the Muslim world is involved. Anyone who has read the autobiographies of the former junior senator from Illinois can be forgiven for suspecting that Mr. Obama identifies more with a third world perspective, than with the perspective of a world order maintained by the first world -- specifically, by the US as the world's only superpower.

Since coming to office, President Barack Obama has pursued an Afghan war strategy summed up in just four words: "surge, bribe and run." The U.S.-led military mission has now entered the "run" part, or what euphemistically is being called the "transition to 2014" — the year Obama arbitrarily chose as the deadline to wind down all NATO combat operations....The central aim is to cut a deal with the Taliban — even if Afghanistan and the region pay a heavy price...

...Obama was right to seek an end to this protracted war. But he blundered by laying out his cards in public and emboldening the enemy....Within weeks of assuming office, Obama publicly declared his intent to exit Afghanistan, before he even asked his team to work out a strategy. _JapanTimes

Just as President Jimmy Carter facilitated the creation of the murderous Islamic government in Revolutionary Iran, and unbelievably destructive government of Robert Mugabe in the formerly prosperous nation of Zimbabwe, so did President Clinton oversee the creation of the terrorist Taliban regime of thugs and brutal fanatics in Afghanistan. One must naturally wonder what sort of bizarre and monstrous governmental abortions Mr. Obama is likely to midwife during his disastrous stay in office.

China's Regional Governments Suffer Economic Slowdown

Land sale revenues for local governments in 25 cities declined 11 percent between January and November, compared to the same period 2010, to a combined 950 billion yuan, according to the China Index Academy.

"Sharp declines in land revenues have put enormous financial pressure on local authorities," said Li. "Right now, local governments are more worried than developers."

...A source at a state-owned property firm in one provincial capital told Caixin that local agencies don't have enough money to cover basic healthcare costs or pay teachers.

"City officials are coming to us and asking us to buy land to bolster the land market," said the source, who declined to be identified because of the issue's sensitivity. He said his company in November complied with a local officials' order to buy a 900,000 square-meter site "whether we wanted to or not."

... _Caixin

The problem with this slowdown in property and housing sales, is that the repercussions tend to echo all the way down the Chinese economy. Real Estate is just the tip of the iceberg.

If investment actually declines — which is hardly unthinkable based on other property booms and busts — the picture is even worse. For instance, if property investment falls 10% (in real terms) in 2012, GDP growth drops to 5.3%. Even if investment grows at 10% (half last year’s growth rate, in real terms), GDP still drops to 7.9% — below the magic 8%. You can plug in any numbers you like, and see what you get. The point is, real estate has been a huge driver of growth, and even a modest real estate slowdown matters — it can’t just be brushed aside as though it were of minimal consequence for the broader Chinese economy.

I also want to emphasize — before we get totally preoccupied with the fate of the property bubble — that the property story is really just one aspect of a much broader investment boom that has been driving the economy. If real estate accounts for 10-13% of GDP, investment in fixed assets accounts for nearly half (the all-in sum for fixed asset investment, including inputs, that was released this week adds up to an amount equal to an astounding 64% of GDP). The health of the property sector is particularly important in China because of the pervasive role that land values play in underwriting lending, but the risks to China’s economy extend far beyond the market for homes and offices. For China, real estate is just the tip of a much larger iceberg, one that I’ll explore in my next “China data” installment. _Chovanec

It is clear that the nominal GDP numbers coming from China do not provide the substantive information one needs, to judge the health of the Chinese economies -- both regional and central. It is most unwise to take Chinese governmental figures at face value.

A Question of Human Survival vs. Human Die-Off

I think I may fairly make two postulata.

First, That food is necessary to the existence of man.

Secondly, That the passion between the sexes is necessary and will remain nearly in its present state. _Thomas Malthus Essay pub. 1798

From those postulates, Malthus argues that population grows exponentially while food production can only grow in a linear fashion.

Keith MontgomeryOur first indication that something may be wrong with Malthus' argument lies in the colours in the map above.

If population growth were necessarily exponential as Malthus argues, the colors on the map above would be uniformly pink to red, indicating high fertility and likely geometric population growth -- as in Sub Saharan Africa. The fact that several relatively prosperous countries exhibit either very low -- and even negative -- population growth suggests that the Malthusian and neo-Malthusian thesis may be in error.

Edward Morgan 5 Stage Demographic Transition
And indeed, if we look at the 5 stage demographic transition graphic above (extended from Warren Thompson's 4 stage demographic transition graphic seen below), we see what happens when Malthusian man meets post-Malthusian woman, and very low fertility rates appear to reverse the earlier Malthusian exponential growth.

Some current trends lead to some fascinating projections of the future demographic make-up of the most technologically advanced factions of our global society. The low birth rate, especially in Europe, has allowed for an empowerment of women unseen before in history. Many are essentially swapping children for careers. _NewGeography

Keith Montgomery: Warren Thompson's 4 Stage Demographic TransitionWarren Thompson's 4 stage demographic transition model, seen above, was devised in 1929 -- long before the invention of modern contraception, and the modern demographic collapse. Thompson's model suggests that as societies move through industrialisation and into a post-industrial state, that death rates and birth rates will converge, leading to a stable population.

Despite modern contraceptive methods, and the ongoing demographic collapse of Russia, Japan, and the greater part of Europe, neo-Malthusian doomsterism is alive and well. Mish's Global Economic Analysis presents an extremely coherent and up to date version of the neo-Malthusian vision only today. As you can see from Mish's piece, peak oil (and many other forms of) doomerism is closely tied to the neo-Malthusian vision.

Each of the global problems we face today is the result of too many people using too much of our planet's finite, non-renewable resources and filling its waste repositories of land, water and air to overflowing. The true danger posed by our exploding population is not our absolute numbers but the inability of our environment to cope with so many of us doing what we do... _Mish

Such thoughts must have occurred to melancholic misanthropes since the coming of Australopithecus, although not in so many words (modern human language not having originated yet).

The neo-Malthusian website of Paul Chefurka is an abbreviated version of what you can find in much more detail at dieoff.org. Wherever you look, such doomerism is solidly based upon Thomas Malthus' kindly but jaundiced vision. Such authors appear not to have noticed the rapid fall in fertility across the developed world. Not having noticed the demographic transition, they are not forced to confront the implications.

We should also mention the anti-Malthusians, who feel that the growth of human populations can be a good thing, rather than an unmitigated evil -- as the neo-Malthusians appear to view population growth.

population is not just a factor in consumption. It is the basis for “human capital.” No humans, no human capital. Humans are not just mouths, but also hands and brains. As famously noted by Julian Simon, they are the Ultimate Resource. This is something Neo-Malthusians have difficulty in comprehending. _Indur Goklany

But at this point in time, both the neo-Malthusian doomers and the anti-Malthusian cornucopians may be overlooking important details. Human populations are not uniform in their history of invention, innovative progress, and the creation of widespread health and prosperity. And judging by the map above, it is the populations that have failed most dismally to create prosperity and progress which are reproducing the most rapidly. Given the critical dependency of these rapidly reproducing populations upon the largesse and technological savvy of other populations which are in fact decreasing in fertility, some of the glow could easily pass from the anti-Malthusian rose very rapidly.

In fact, anti-Malthusian cornucopianism applies largely to higher-IQ societies which have the human capital to create prosperity in the first place. Neo-Malthusian doomerism applies largely to lower-IQ societies which are dependent upon other, higher IQ populations for their own ability to reproduce beyond their own ability to feed, energise, and otherwise support themselves.

Here is the crux of the matter: The elite within several advanced societies have uncritically adopted the dismal neo-Malthusian vision -- including peak oil doom, carbon hysteria, overpopulation doom etc. -- despite its many failings when applied to intelligent and advanced populations. The neo-Malthusian policy prescriptions which are being progressively loaded onto the backs of the citizens of these advanced societies are creating a situation of self-fulfilling doom prediction. In other words, neo-Malthusian "solutions" are worse than the original problem would have been, had it been left to human ingenuity to solve.

The anti-nuclear (and anti-coal, anti-oil, anti-oil sands, anti-shale) policies currently in vogue in much of Europe, in Japan, and popular among many pseudo-intellectuals of North America and Oceania, cause government policy-makers to pursue unreliable, exorbitantly expensive, and ultimately destructive power sources such as big wind and big solar. With government policies such as that, there is no need for actual peak oil from resource depletion. "Political peak oil" will do just as well or better in terms of destroying a society's prosperity, competitiveness, and morale, as the real thing would have done, had it existed.

When government policy is based upon models which are not good at matching the realities in the outside world, the end result is likely to be disastrous.

The map is not the territory. The model is not the reality. Your solutions are likely to be worse than the problem. Everything you think you know, just ain't so.

But there is still time for certain enclaves within the more developed world to innovate their way into long-term prosperity, riding the current wave of rapid scientific and technological advances. For these enclaves to escape the destructiveness of the more likely occurrences of neo-Malthusian doom (the coming anarchy), they will need to be areas of relatively high average population IQ and high trust among citizens, which requires relative homogeneity of culture and language. They will also need abundant reliable affordable energy supplies. And those are only a few of the crucial things to consider, if you are thinking about relocating.

Things can go very badly for most of the planet -- largely due to political ineptness and corruption -- and yet things can turn out well for humanity in the end.

Hope for the best. Plan for the worst.

Originally published on Al Fin blog

Revised 2011 China GDP Numbers Indicate Big Slowdown

There are two pieces of data I saw today, easily lost in the fine print, that I found particularly revealing. First, the NBS disclosed that real estate investment accounted for 13% of China’s GDP in 2011 (compared to Stephen Roach’s estimate of 10%), and grew at a rate of 27.9%. However, I noticed something that I admit I missed before, in my earlier calculations — that this is a nominal rate (not adjusted for inflation) whereas the GDP growth rate figures are real (they take inflation into account). The real (and therefore comparable) rate of expansion for real estate investment in 2011 was 20.0%.

So I went back and re-ran the numbers, using these more accurate figures. Given GDP growth of 9.2% (a higher starting point than I used in my initial calculations), a real growth rate of 20.0% for real estate implies a real growth rate of 7.6% for the rest of the economy. If, in 2012, real estate construction were merely to level off at zero growth, and the rest of the economy was unaffected, that would bring overall GDP down from 9.2% to 6.6%. That’s higher than the number I initially came up with, but still well into “hard landing” territory. The fall-off of 2.6% is also closer to the 3.0% drop I initially calculated than the 1% decline predicted by Stephen Roach. I errored in my back-of-the-envelope exercise, but my point remains a valid one. Keep in mind, these calculations assume no impact on dependent industries like steel and cement, no impact on the financial system, and no correlation to related risks in the Chinese economy _Patrick Chovanec

More from Chovanec at the BBC, with video

Patrick Chovanec
I suspect that Chovanec is being generous to the Chinese economy, given what we have already seen recently, of the decline in both the steel and cement industries coming hard on the heels of the real estate decline. Here is the view of a Chinese steel plant:

Notice the similarity of the empty car park above, to the many expensive -- but already crumbling -- Chinese ghost properties spread across the celestial kingdom.

In the near future, we will look at the compulsive dynamics of why regional Chinese governments continue to press ahead, building shoddy but exorbitant ghost properties, against all economic logic.

An Inside Look at China's Slowing "Situation"

So what evidence do we have that a construction slowdown may be occurring? Official data on housing starts does exist, but it’s not a reliable metric....A better approach is to look at the market for construction inputs. The clearest picture we have is for steel. According to a friend of mine who is an analyst in the steel and commodities sector, and recently completed a countrywide tour of talking to producers, sentiment in China’s steel industry is as gloomy as he has ever seen it. In November, Chinese steel output was down -8.8% month-on-month, down for the sixth month in row. More importantly, it was down -0.6% year-on-year, indicating this was more than just a seasonal or partial fall-off from the all-time highs it hit in the first half of 2011, which were driven in large part by demand for cheap rebar for construction. Apparently, the demand that drove that boom has almost entirely disappeared. Interestingly, according to one report by Shanghai Security News, steelmakers say that actual sales in 2011 failed to match official “social housing” construction data. Figures released by the China Iron and Steel Association last week indicate that steel output continued falling in December, by 3.87% month-on-month.

Not surprisingly, two things have happened. First, domestic iron ore prices have plummeted as unused stockpiles have accumulated. The China Iron and Steel Association recently announced that its iron ore price index has fallen 22% in the past four months, since the beginning of September, while iron ore inventories at Chinese ports rose to 96.8 million tons by the end of 2011, up 32% from the year before (Chinese iron ore imports were still up 10% y-on-y in December, but analysts expect buying to slow in coming months, due to flagging demand). Second, Chinese steelmakers are suffering. According to Caijing, more than 1/3 of them experienced losses in October and November, and the industry as a whole saw a net loss of RMB 920 million (US$ 146 million) excluding investment gains. The magazine said industry executives foresee an even tougher year in 2012.

Cement and glass also show a marked deceleration in growth. Cement output in November grew 11.2% y-on-y, but that represented a significant fall-off from 17.2% y-on-y expansion for the first 11 months as a whole, and the 17.3% y-on-y growth the industry saw in November 2010. Glass also saw a similar deceleration, growing 7.1% y-on-y in November, compared to 17.0% y-on-y from the first 11 months. Cement prices have been declining steadily over the past few months, a trend that Fitch projects will continue into 2012, due to overcapacity. It notes that, because of their high level of investment in building even more capacity, major Chinese cement producers are cash flow negative.

Copper presents a more unusual picture. China’s copper imports in December hit an all-time record high of 508,942 tons, up 47.7% y-on-y. However, there is little reason to believe this was driven by end user demand. Most analysts I’ve talked to believe it was primarily due to a resurgence in speculative arbitrage based on the gap between copper prices in Shanghai and London, and possibly renewed interest in using stockpiled copper as collateral for obtaining loans — both practices spurred by expectations of monetary easing. In short, the Chinese are buying copper, like homes, to trade not to use.

Of course, land is also a key construction input. I’ve already written about the dramatic fall-off in local government land sales to developers, here as well as here. Newly released year-end figures show that Beijing’s overall revenues from land sales in 2011 dropped 35.7% compared to 2010, despite robust sales in the first half of the year. Land sales revenues for residential projects plunged even more steeply, by 55.4%, while the average auction price for residential land dropped 30.5% (from RMB 7,317 per sq. meter to RMB 5,088). In Shanghai, total land sales revenues dropped 20.0% y-on-y, and average the average price of residential land plummeted 41.0%. _Patrick Chovanec

And so on . . . . A fascinating look at some of the generally unspoken numbers behind the numbers from Patrick Chovanec, Professor at Tsinghua University School of Economics and Management, in Beijing.

It is remarkable how many people continue to take official statistics seriously, without the slightest degree of scepticism. In the short term, it is probably easier to take everything on trust. In the long term, such an approach is disastrous.

The Future of Commodities: Light and Dark

Commodities Now
No one holds a crystal ball which will give the commodities investor perfect advice for maximising his return on investment. So it is a good idea to consider a range of projections, and ponder the logic behind each prognostication most carefully. Here are excerpts from two recent projections, at somewhat different ends of the investment spectrum.

What will happen over the next 10 years? I believe the supercycle of growth across emerging markets will continue with rising urbanization and income rates. This bodes well for commodities, especially copper, coal, oil and gold, and we’ll continue to focus on companies that will benefit the most from these much-needed resources.

...10 years of tremendous income growth and little household debt, make China the “world’s best consumption story, for everything from instant noodles to luxury cars” in 2012.

According to December Chinese trade figures, month-over-month and year-over-year imports of aluminum and copper increased significantly. This may be a result of China restocking ahead of Chinese New Year, but M2 money supply growth rapidly rose in recent months, a sign the government is attempting to reaccelerate the economy. Also, the urban labor market has been robust over the past two years, with an annual change just below 5 percent—a record high over the past 15 years. _CommoditiesNow

Well, it is good to put a positive face on things if you can. The author of the piece excerpted below, takes a very jaundiced view of the coming world of commodities. When reading it, try to maintain a sense of perspective, and stay away from high places, loaded guns, and prescription drugs.

I'm interested in how both shadow and dark inventory phenomena pervert their respective markets, as well as the entire free market system as a whole, where everyone is supposed to have "full access to information". Something both dark and shadow inventories make impossible. Something the 99% general public are not aware of. At all.

If you are the accumulator of dark inventory, or privy to the flow, you are able to foresee the market rallies and position yourself accordingly. This is a profitable time.
Of course, in continually oversupplied markets you will begin to suffer the costs of hedging inventory, if you are bothering to hedge, (since forward curves may eventually flatten out) as well as the burden of balance sheet expansion. Eventually it will make sense to park that inventory off-balance sheet._Dark Inventory

...I certainly recommend reading Izabella's entire piece (like all other pieces I quote from). But even from the quote above alone, you can, even if you're not familiar with the topic, still get a genuinely queasy feeling. We're talking market manipulation here, a way to influence investment decisions without anyone ever knowing they’re being manipulated. And fully legal.
Chris Cook, former compliance and market supervision director of the International Petroleum Exchange, writes this about "dark oil inventory" at Naked Capitalism:

All is not as it appears in the global oil markets, which in my view have become entirely dysfunctional and no longer fit for its purpose. I believe that the market price is about to collapse as it did in 2008 and that this will mark the end of an era in which the market has been run by and on behalf of trading and financial intermediaries.
In this post I forecast the imminent death of the crude oil market [..] _Naked Oil

...In a nutshell: Cook argues that QE measures from the Fed and BOE have caused large investors to flee from dollars into commodities.
This in turn has led to a price bubble through contango (forward prices are higher than spot prices), for which they are all positioned, but this will down the line inevitably lead to the opposite - backwardation -, and the bubble must burst. Severely, says Cook: to as low as $45 a barrel. Given how conservative Cook is in the numbers he uses, even that may be a high estimate.
In yet another article at Naked Capitalism, Irish journalist Philip Pilkington summarizes Cook’s point so well it seems pointless to try and improve on it:

...if this is a bubble of fear and it bursts – the financial sector is going to see a huge wiping out of the profits they have been reaping from it. We have no way of knowing how much profitability is tied up in these dodgy markets – but my thinking is: a lot. _Fear and Loathing Bursting Bubbles

...while I think it's important for everyone to see and understand that, and how, manipulation sets market prices for commodities (and stocks, but that's another story) on a daily basis, and not some free market principle, I started out trying to figure out what connects dark oil inventory and shadow housing inventory.
Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, has - extensively- looked at the latter:

...if shadow inventory is large, housing prices have a good bit further to go before they hit bottom, which has dire consequences for communities, homeowners, and the broader economy. _Shadow Inventory in Housing

...I think perhaps the best way to make the connection between dark inventory in commodities and shadow inventory in real estate is to look at, no surprise, what pays for it. And that leads me to what I have long since coined "zombie money".

Zombie money is the money that seems, but only seems, to exist because of unrecognized losses. QE measures, for instance, basically serve to keep those losses unrecognized. That’s what they're for. To make markets, and ordinary people, believe that banks are still solvent when in reality they're not.

Funny thing is, even with all the accounting tricks that hide those losses, the entire system is still, and already, on the verge of collapse. And when it goes, the loser will be you, not the gamblers that lost fair and square. If dark inventory shows you anything, it’s that fair and square is a thing of some mythical fairy tale past. The reality for you and me is, and this is not the first time I put it like this: heads you lose, tails you die. _The Automatic Earth

Perhaps the truth is somewhat in between these two scenarios. But it is becoming more and more difficult to trust all the "happy talk" about China coming from those who stand to profit from your investments, one way or another.

The idea that markets are being manipulated behind the scenes may seem far-fetched. And yet, wherever there are profits to be made by any means, there are those who will take the risk. It is best to remember that.

Who Needs Apocalypse When You Have Detroit?

Failure like this is not built overnight. Decades of corruption, sloth, bad hiring decisions, political cronyism and depraved indifference to the needs of the poor were required to bring things to such a pass. No doubt Detroit has a generous pension program for all the wastrels and incompetents whose combined efforts created this train wreck. These people somehow manage to protect themselves even as they blight the lives and hopes of the inner city kids they were hired to serve. _WalterRussellMead

Leftist crony policies of the US Democratic Party are on display in Detroit, Michigan. If this level of devastation were to occur almost anywhere else in the US, the place would be declared a state of emergency, placed under marshal law, and razed to the ground for reconstruction. But it is only business as usual in the poster child city of the true-blue Obamaesque world of the new US political triad: The Democratic Party, organised labour, and the mob.

It is hard to see how a city recovers when things have fallen this far. Detroit’s voters do not seem interested in good governance, either unwilling or unable to penalize incompetence at the polls; the political class spouts blue liberal slogans but appears to have the compassion and generosity of a pack of velociraptors; the city’s core institutions have been so corroded and degraded after decades of decline that there is little hope for improvement anytime soon. _WalterRussellMead

How do US Democratic Party-dominated governments respond when the going gets tough? They cut vital services.

Located [next to Detroit] in an area already plagued by high crime and widespread urban decay, Highland Park has essentially signed a proverbial death warrant by cutting public power. The city has already lost nearly half of its residents over the past two decades and is reportedly $58 million in debt -- but the elimination of its street lights basically ensures its continued downward spiral.

"How can you darken any city?" asked Victoria Dowdell, a resident of Highland Park who, along with her neighbors, must now deal with pitch-black public streets after dark. "I think that was a disgrace."

Detroit has also cut various city services over the years as it edges towards bankruptcy. Mike Shedlock from Business Insider wrote last December that "Motor City" has been headed towards financial insolvency for many years. An attempt to stave off collapse, city officials there have also cut major services like street repair, garbage collection, and police forces in some areas. _Michigan Third World America

As Michelle Obama so often tells her husband, referring to the ingrates who fail to worship the first couple of the US with sufficient adoration: let them eat cake -- if they can find it!

Okay, perhaps she only behaves as if she says such things, without actually saying them. At least in public.

Who needs apocalypse when you have Doombama?

More on turning out the lights in crime-ridden cities

More here

Naked Oil: Are Oil Markets Stripped and Readty to Be Raped?

Brian Westenhaus discussed a fascinating dissection of global oil markets recently, which deserves some comment. The article in question is written by Chris Cook, entitled "Naked Oil," published on The Oil Drum website. It is presented as an attempt at predicting the global price of oil over the next 6 to 12 months.

After explaining how the world oil markets work, Mr. Cook proceeds to make a bold prediction:

...my forecast is that the crude oil price will fall dramatically during the first half of 2012, possibly as low as $45 to $55 per barrel.

Then What?

As the price collapses we will see producer nations generally and OPEC in particular once again going into panic mode, and genuinely cutting production. We will also see the next great regulatory scandal where a legion of risk-averse retail investors who have lost most or all of their investment will not be pleased to hear that they were warned on Page 5, paragraph (b); clause (iv) of their customer agreement that markets could go down as well as up.

At this point, I hope and expect that consumer and producer nations might finally get their heads together and agree that whereas the former seeks a stable low price, and the latter a stable high price, they actually have an interest – even if intermediaries do not – in agreeing a formula for a stable fair price. _Naked Oil

It is important to read Mr. Cook's preliminary analysis and discussion in order to understand his audacity in predicting a disruptive oil price collapse in the near term.

A few days ago, Al Fin Energy presented a parallel argument for moderation of oil prices, based upon a number of current economic trends affecting global oil demand. Some readers may wish to consider the two articles as complementary and reinforcing to each other's arguments. Certainly they are both of the contrarian variety, given modern fund manager sentiment, and popular peak oil superstitions.

Al Fin economists and energy analysts have always found it more fun to be contrarian.

Mexican Drug War: Part of the Coming Anarchy

Mexican officials said Wednesday almost 13,000 people died in drug violence in the first nine months of 2011, pushing the toll since the start of a five-year military crackdown above 47,000.

Drug-related killings in 2011 were up 11% compared with the same period in 2010... _NatPost

National Post
Thanks to organised crime cartels, Mexico ranks as one of the most violent countries in the world. The only nations more violent than Mexico, are other Latin American nations caught up in drug cartel violence, or Sub Saharan African nations caught up in the perpetual tribal violence and power struggles of the dark continent.

One year ago, the government released figures showing 34,612 people had died in suspected drug violence since President Felipe Calderon started a controversial military crackdown on organized crime gangs at the end of 2006.

The latest figures were gathered from the offices of state prosecutors.

Wednesday’s statement underlined that 70% of last year’s suspected drug-related killings occurred in only eight of 31 states and the capital.

Local authorities have reported 40 gangland-style killings so far this week, including 13 bodies dumped near a gas station in the western state of Michoacan and two bodies found burned and decapitated in the capital Wednesday. _NatPost

Of course, without the rich drug markets of the US, Mexican organised crime would not be nearly so well-funded. If the US government were to discover an alternative approach to the problem of drug abuse which achieves better overall results than prohibition, a wide range of misery and violence might be mitigated in one fell swoop.

If the rich payoffs from drug crimes were suddenly taken away from the cartel jefes, they would probably feel forced into some other criminal activity such as kidnapping for ransom, or human trafficking. The general idea behind anti-crime policy-making should be to limit the extent and duration of harm that individual crime bosses can inflict, and to reduce the number of big crime bosses overall.

In low IQ societies, decapitation strikes are often quite successful against large criminal and insurgent organisations.

A Return to 2008? Speculators Banking on Ever-Rising Commodities

Money managers expanded their combined net-long positions across 18 U.S. futures and options by 25 percent to 671,915 contracts (.MMLOSH) in the week ended Jan. 3, Commodity Futures Trading Commission data show. Bullish bets on cotton rose the most since April 2009 and those on coffee doubled. Crude-oil holdings reached a three-week high. _Bloomberg

They are betting your pension and 401K money, university endowments, municipal holdings and more -- just as they did in 2008.

Commodities to be Volatile this Year
The recent history of commodity prices has not been so good, overall, and if recent unfavourable developments in China and Europe continue on their downward course, commodities prices could be subject to further significant drops.

Prices of raw materials have plunged this year. The prices of copper, coffee, aluminum, cotton, nickel, natural gas, wheat and silver are all down more than 20% since the end of April, according to Bloomberg. Gold, widely viewed as a barometer of inflation, has fallen 11% since its September high of $1,900 an ounce.

Inventories of commodities have gotten so high that metals dealers have had to buy extra warehouse space for them.

In November, copper warehouses in New Orleans were 98% full, and aluminum inventories in the U.S. are at an all-time peak, according to FastMarkets.com. _USAToday

The prices of commodities futures depend upon anticipated demand from the big consumers of commodities. That would be China, the US, and Europe. But with a turbulent decline in Chinese real estate and stock markets, and a Eurozone crisis of confidence still building, what could be boosting the confidence of hedge funders and institutional investors?

Bloomberg attributes this aggressiveness by fund money managers to recent favourable economic news from the US government, such as improved job numbers. But these job numbers have already been shown to be unreliable at best and uniformly misleading at worst. Are money managers so easily manipulated by fudged numbers?

Many funds managers are particularly excited by the prospects of a huge runup in oil prices, just as they were in 2008. Looking at current prices of oil in dollars, prices do seem to be trending upward. But look at the chart below, showing the price of oil in gold:

Source
Another aspect to consider when looking at historical price trends, is the inflation of the US dollar. One cannot compare today's prices of commodities such as oil with historical prices, unless one first adjusts for inflation.

Here is a table that shows the inflation adjusted price of oil beside the historical price of oil.

A handy US dollar inflation calculator

It is not possible to predict future prices of commodities with any great precision. But by understanding the bases of commodities demand, there are benchmarks which one can monitor.

Economic data from governments is apt to be fudged. Always confirm and corroborate.

Originally published at Al Fin Energy blog

East Asian Prosperity Slipping on Eurozone Difficulties

The eurozone’s worsening problems are affecting the export-dominated economies of East Asia hard. The 17-nation zone contracted in Q4, and it will probably shrink this quarter as well. “We expect a fall in GDP of about 1.0 per cent this year and an even sharper decline in 2013,” said Jennifer McKeown at Capital Economics. Unemployment is at a record high, retail sales are falling, and consumer and business confidence is headed in the wrong direction.

The zone’s performance will continue to fail to meet consensus estimates because there is an unreal quality to expert predictions about Europe. The eurozone’s problems, despite the serial announcements of interim solutions, remain intractable. European leaders need growth, and they are not going to get it until they either fundamentally restructure their currency or implement some sort of fiscal union. And on top of that, they need to eliminate growth-destroying regulation. _Forbes

Europe is not only suffering from growth-destroying regulation and cascading banking difficulties. On the energy front, many of Europe's governments are literally committing suicide.

And there is always the problem of Europe's demographic collapse, which is magnifying Europe's debt crisis to intractable levels.

Put simply, Europe is no longer capable of holding up its end of the tacit global trade bargain.

There’s no mystery why Singapore’s economy, a regional bellwether, is in trouble. The country’s trade is about three times its gross domestic product, and the external outlook is not favorable. Prime Minster Lee, not surprisingly, blamed the deteriorating global environment in general and Europe in particular. “As a small, open country,” he noted in his message, “Singapore will inevitably be affected.”

And so will tiny Hong Kong’s trading economy. Analysts are talking about 2% growth this year, down from a forecasted 5% for 2011. The slowdown has already started. Growth estimates for last quarter range from a relatively optimistic 3.3%, from HSBC, to a gloomy 1.5%, issued by JP Morgan.

It’s not only the small open economies that are having problems. India, which is certainly large and not considered especially trade-dependent, is also seeing the economy stumble. There, the retreat from reform is having a negative effect. Growth could drop below 6%, from 6.9% last quarter.

Japan may have actually contracted in Q4. The Tokyo-based Japan Center for Economic Research estimates that the economy shrank in both October and November, in large measure due to weak exports with Europe as the primary culprit. The weak fourth quarter is especially disheartening as it ends the recovery evident in Q3, when the economy soared 5.6% due to rebuilding from the March 11 earthquake-tsunami.

South Korea, a pillar of strength in East Asia, is also experiencing difficulties. The Bank of Korea, the central bank, is lowering forecasts for both this year and last. Nomura International sees South Korean growth slowing to 3% in 2012, due to softness in exports, off from an estimated 3.5% for 2011. If there is a risk to the Nomura estimates, it is to the downside.

The story is much the same in flood-ravaged Thailand, where there was a contraction in Q4 due to export problems; the steady Philippines, hurt by export prospects for the electronics sector; and impressive Vietnam, where analysts think that growth last year was off the 2010 pace. If you’re looking for exceptions to the downward trend, try Indonesia, where growth remained steady at 6.5% last quarter, and Malaysia, which was helped because exports held up last year. In Kuala Lumpur, however, the government is now worried about Europe. _Forbes

Europe's problems are largely of Europe's own making. But her problems do not stop at her own borders. They propagate outward, adversely impacting all the nations which depend upon trade with Europe. Long-term prospects for Europa -- given the twin curses of debt and demographic decline -- are not good, unless a miracle happens.

Focus on Debt -- One of the Twin Catastrophes of Decline

Spiegel
Two of the most important catastrophes leading to a modern collapse are debt and demographic decline. The two catastrophes are strongly interrelated. Let's look first at debt:

Old debts are paid with new ones, with borrowers giving not the slightest thought to repayment. This has been going on for a long time, far too long, in fact. It was only with the eruption of the financial crisis in 2007 and the outrageously expensive bailouts of banks and economies that many people realized that the entire world is living on credit.

"Debt is rising to points that are above anything we have seen, except during major wars," economists at the Bank for International Settlements (BIS) concluded in a recent study. "The debt problems facing advanced economies are even worse than we thought."

This is even true of seemingly rock-solid Germany. In the third quarter of 2011, German public debt amounted to €2.028 trillion, an increase of €10.8 billion over the debt level just three months earlier. Germany's public debt grew by about €120 million a day -- or more than €80,000 a minute -- between July and September.

To make matters worse, this increase occurred in a quarter marked by plentiful tax revenues and a significant decline in unemployment. But debts increase independently of whether times happen to be good or bad.

...The fact that nations are continually spending more than they take in cannot turn out well in the long run. The word "credit" comes from the Latin "credere," which means "to believe." The system will only function as long as lenders believe in borrowers. Once the belief in the creditworthiness of borrowers is destroyed, hardly anyone will be willing to buy their securities.

When that happens, the system is finished.

...The social security coffers contain absolutely no reserves for members of the baby-boomer generation. "As a result of our government's generosity, we are creating substantial financial burdens for future generations," says economist Raffelhüschen. But no one really wants to hear this. Besides, all of this will happen so far in the future that many feel it simply doesn't concern them.

Next to pensions, health insurance is the second-largest item on Raffelhüschen's list, accounting for a shortfall of €2 trillion. The inevitable aging of society will only exacerbate the problem. With age or, more precisely, with the number of old people, healthcare spending rises dramatically.

...Whatever approach the Western world uses to combat its debt crisis -- be it austerity measures, taxes, inflation or, what is most likely, a mixture of the three -- solving this problem will shape the lives and work activities of a generation.

"If history is a model, we can expect to see many years of debt repayment," the McKinsey management consulting firm predicts in a study. In other words, the debt avalanche is inevitable, and the only question is whether countries can protect themselves in time.
_Spiegel

Spiegel
Demographic decline is the other twin cause of modern collapse. Here is more on that topic:

...U.N. forecasts [show] that, by the year 2050, the whole of Europe, including Russia, will shrink by 130 million people. Decades of low birth rates have resulted in aging populations that have placed a huge strain on pensions and health care largely covered by Europe’s generous social welfare systems. These problems are now affecting many key policies. Indeed, in the current euro crisis, German government officials say their reluctance to bail out Greece, Spain, Italy and Portugal is driven largely by fears among its own taxpayers that the bill will become so onerous as to jeopardize their retirement. _WaPo

When combined, the twin catastrophes of debt and demographic decline are difficult to overcome. The post-war generations of Europeans have grown up soft, and entitled. Men are increasingly feminised, while women refuse to have children. Perhaps the answer is to transplant female uteri into the males, to allow male childbirth?

China's Collapsing Future: 1...2...3...

1. Ghost cities
The Chinese government has announced plans to build 20 cities a year for the next 20 years, but they seem to be forgetting one thing: people. According to some estimates, there are already 64 million vacant apartments across the country. One recent development, Daya Bay, is designed for 12 million people, but even the state-controlled media admits that 70% of its residential units are unoccupied. China analyst Gillem Tulloch considers it the modern equivalent of building pyramids. "It doesn't really add to the betterment of lives," he said, "but it adds to the growth of GDP."

Residential real estate construction now accounts for a tenth of China's GDP compared to just 6% in the U.S. at the peak of the housing bubble in 2005, and prices have become severely inflated. The average home price in China is about nine times the mean annual income, while the historic average in the U.S. is three, and only reached 5.1 at the peak of the housing bubble. Real estate prices have now started declining, which will have an impact on everything from prices for commodities like iron, copper, cement, and coal to a slowdown in the global credit market. A UBS analyst called the Chinese real estate market "the single most important sector in the entire global economy, in terms of its impact on the rest of the world" because of the materials needed for all that construction.

2. Cooking the books
Those falling real estate prices may cause government authorities to default on their loans. The severity of the debt underreporting uncovered by the Bloomberg report can be seen on the books of the banks financing the construction. For instance, the Industrial and Commercial Bank of China, the largest of the banks, reported loans of 931 billion yuan, but the Bloomberg survey of 2% of its borrowers found totals of about 266 billion yuan. Extrapolating those figures suggests that ICBC could hold debts of over 13 trillion yuan ($2.05 trillion), and ICBC is just one of several banks involved.

China is well known for intellectual property theft -- one consulting group called it the second most common form of fraud in a country -- and without an official governing body or accounting standards, the finance sector has fallen victim to the same kinds of wholesale lies. Activist investors like Andrew Left and Carson Block have taken the place of regulators, and the two men have called bluffs on a number of Chinese companies. Left precipitated a 17.4% drop in China MediaExpress Holdings after calling the company a "phantom" and saying it was "too good to be true." Last year, as my colleague Dan Newman described, Block published a screed against RINO International, asserting that many of its customers were fictional, which led to a total collapse of the stock and its delisting from Nasdaq.

3. Civil unrest
The Chinese government's draconian land-grab policies have become all too real in places like Wukan, in Southern China. Most rural land in China is nominally owned by village collectives, but officials can seize it by paying a (usually undervalued) fee. The townspeople in Wukan responded to the confiscation of a pig farm by destroying police vehicles and government buildings, and the protest turned into a full-on revolt earlier this month as residents set up blockades to keep the police out and armed themselves with homemade weapons. After negotiations last week, the uprising appears to have come to a resolution.

Even if the Wukan uprising turns out to be an isolated incident, it's still evidence of China's growing pains. The Asian power's transformation into a modern economy and its coming-of-age in the information era make for strange bedfellows with the regime's command economy and media and speech controls. This explosive mix can only last so long. At least one Chinese official, Zhu Mingguo, secretary of the southern Guangdong province, believes the Wukan rebellion is a sign of things to come. "In terms of society, the public's awareness of democracy, equality, and rights is constantly strengthening, and their corresponding demands are growing," he said. _MotleyFool

The overbuilding of ghost infrastructure is a catastrophic waste and misallocation of resources. A large number of these ghost buildings and structures will never be occupied or utilised because the construction was so shoddy -- they will collapse before good use can be made of them.

As for the "cooking of the books," the truth will never be fully known. Shadowy methods of funds disbursal and record-keeping go far back in Chinese history. The multi-level governance model of modern China creates plenty of secret cubby-holes and crevices where mischief and mistakes can be hidden away from prying eyes.

Civil unrest in China is largely hidden from the greater outside world -- and from most of China. Tight control of the media and the internet prevents the truth from being as widely exposed as it would otherwise have been. But new information and communication technologies are allowing Chinese activists to spread the word among themselves. Often, they are able to get the word out to collaborators on the outside for wider disbursal.

China is gradually growing old before most Chinese can enjoy the benefits of affluence. Different levels of Chinese government and state owned enterprises are full of corrupt criminals, cronies and hacks. In truth, no one -- from the top to the bottom -- actually knows what is going on, or is truly in control. All that they can do is to try to sit on any bad news as long as they can.

Wait Until He Gets Inside Before You Shoot Him

Eighteen year old Sarah McKinley was home with her infant son, when two adult male drug addicts broke into her home. The young woman's husband had died a week earlier of cancer, on Christmas day. The drug addicts wanted to steal her dead husband's prescription medicine, and perhaps commit other mischief as well.

Mrs. McKinley had other ideas, and when she asked the 911 dispatcher whether she could shoot the intruders, they told her to wait until they were inside, in order to be compliant with the law.

In a tape released to the media of the emergency 911 call, Mrs McKinley can be heard asking the operator: "I've got two guns in my hand. Is it OK to shoot him if he comes in this door?"

The operator responds: "Well you have to do whatever you can to protect yourself. I can't tell you that you can do that, but you have to do what you have to do to protect your baby".

Oklahoma law allows deadly force to be used against intruders.

... Sarah McKinley's 58 year-old husband died of cancer on Christmas Day, only a week before the incident.

The police say the two men knew about this and targeted her home hoping to find prescription drugs.

..."They said I couldn't shoot him til he was inside the house, so I waited til he got in the door and then I shot him."

"You have to make a choice, you or him and I chose my son over him," she said.

"There's nothing more dangerous than a mother with her baby."_BBC

Yes, and that is as it should be.

Russia, Iran, and Venezuela all Suffer from Underinvestment in Oil Fields

National oil companies in Russia, Iran, Venezuela, Mexico, Bolivia etc. are beginning to reap what they have sown. Their oil & gas infrastructures are beginning to show the wear and decline of underinvestment. The governments of these countries all seized many billions of dollars worth of assets from private multi-national oilcos that had developed difficult oil & gas fields, then allowed the seized assets to decline from lack of maintenance and upkeep.

Is it any surprise that foreign investors are reluctant to go back into these treacherous countries to help bring their petroleum infrastructures back up to basic standards?

Venezuela's oil industry is hampered by a lack of foreign investment, and the country will be keen to see prices high this year while output can be maintained....Iran finds it more difficult to get access to modern technology to rejuvenate its ailing production infrastructure, output is forecast to drop. The International Energy Agency says Iran's oil production could be cut by as much as 890,000 bpd to just under 3 million bpd by 2016...Russia's economy would suffer greatly from a meltdown of the European economy, losing out on both exports and investment flows. This would exacerbate a potential revenue loss from oil production, which could go into decline if investment is not stepped up sufficiently, says the International Energy Agency (IEA). _National

Oil dictatorships in Asia, MENA, SS Africa, and Latin America, are little better than organised criminal gangs -- which do not hesitate to seize valuable assets of any foreigners trusting enough to invest inside their countries.

If the energy starvationist regime of US President Obama is ever removed from office, far more North American energy assets should become available for development. Significant opportunities for multi-national oilcos would then open up in the Arctic, offshore in multiple US continental shelf areas, in coal resources, bitumen resources, kerogen resources, and eventually methane hydrate resources.

Getting rid of Obama should also allow the Nuclear Regulatory Commission to begin licensing safe new reactor designs. This would benefit the hydrocarbon markets in multiple ways besides the reliable provision of electrical power -- prolonging supplies of gas and coal for many decades. One of the most fascinating impacts on hydrocarbon markets by advanced nuclear power would be the use of nuclear process heat to develop several trillion barrels of oil equivalent liquids from coal, gas, bitumens, kerogens, methane hydrates, and biomass. That is nothing to sneeze at.

While Russia continues to bang its head against the wall trying to develop rich Arctic reserves in the face of a global cooling trend and increased Arctic sea ice, the countries of North America, Oceania, and Europe could be developing alternative and unconventional sources of liquid fuels at a price below today's inflated oil prices.

Germany, Energy Starvation, and the Collapse of the Eurozone

Up until now, Germany has been the rock of the Eurozone. Stalwart German workers and relatively responsible German bankers and governments, have prevented much of the economic disaster that has befallen southern Europe. I say "up until now," because a recent decision by the German government to expand German dependency on wind power while shutting down all German nuclear plants, has sown the seeds of future decay of the German economy. Here is Spiegel online, describing some of the early stage problems in Germany's grand plan for energy starvation:

One of the central projects of Chancellor Angela Merkel's center-right coalition government, the scrapping of atomic energy and the switch to renewable energy, has hit a major obstacle. Nine months after the disaster at the Fukushima nuclear power plant in Japan, Berlin's multi-billion-euro project is facing increasing difficulties. And the expansion of the country's offshore wind farms in particular, which Minister Röttgen considers of paramount importance, is constantly beset by new problems.

...The energy industry is currently under more stress than almost any other sector of the German economy. The country's utilities are being forced to completely change their focus: away from nuclear power; away from their centralized structure; and away from their accustomed business models. The quartet of E.on, RWE, EnBW and Vattenfall, which for so long have been spoilt by enormous profits, has had to implement tough cost-cutting measures, and countless jobs have been sacrificed. E.on alone is shedding up to 11,000 of its workers, and the industry as a whole could ax more than 20,000 jobs in all.

At the same time, the sector is forging aggressively into the business of regenerative sources of energy -- or at least that was the plan. Now it's becoming increasingly clear that the promised expansion will not progress as hoped due to a lack of the necessary conditions for its success.

...According to internal estimates, RWE alone could lose more than a hundred million euros. Delaying construction is no longer possible. The timing of shipping transports, supplies of materials and the use of specialized construction teams is simply too intricate to easily reorganize.

One particularly devastating consequence is that private investors, who only recently overcame their wariness about the technologically challenging business of offshore power generation, now have doubts once more.

...Time and again, the projects have been tested for possible weaknesses, and their funding tweaked accordingly. Teyssen finally released the money just before Christmas, but his planners estimate that the projects' start dates will be pushed back by 12 to 18 months.

The delays on the high seas are a bitter blow for the German government's sensational about-face on electricity generation. Should the expansion of the offshore wind farms be delayed further still, this could lead to not only higher prices but also bottlenecks in energy supplies.

Pressing for Damages

The utilities could presumably only alleviate such a possible shortage of electricity by importing nuclear-generated power from the Czech Republic or France. "Political blunders are carelessly threatening the hard-won faith in offshore technology," says RWE's clearly annoyed manager Vahrenholt. After all, it's the job of Germany's ministers and civil servants to guarantee the timely connection of the wind farms with the national grid.

Unfortunately both the politicians and the Federal Network Agency are ducking their responsibility. In their letter of December 6, the wind farms operators suggested offsetting the financial losses they would suffer by increasing or extending the feed-in payments for the offshore wind farms under the Federal Renewable Energy Act. They also demanded the introduction of legally binding connection deadlines for wind farms to allay investors' fears as quickly as possible.
The German government has yet to respond to the pleas. However there's little enthusiasm at the environment ministry for reopening the tough negotiations that preceded the passing of the Renewable Energy Act in the first place.

RWE's bosses say they won't be satisfied with that. If the government sticks by its hard line, the company vows to press for damages in the triple-digit millions. _Spiegel

"Damages in the triple-digit millions?" That is a rather low-ball estimate of the actual damages which the utility will suffer. The German economy as a whole is likely to suffer damages in the trillions, once the repercussions of the grand plan for energy starvation cascades down to its denouement.

Here is what intelligent people need to know about big wind power, before the energy starvationists are able to force this catastrophe down their throats more than is already the case:

Electrical Energy: Sound Scientific Solutions

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Arm yourselves with knowledge or you will have your posterior reamed in the manner of the German taxpayer, by the big-money greens and the big-wind developers. The reaming will not stop for decades after the fact, since besides paying higher prices for unreliable energy, your economies will suffer from chronic power shortages. Huge broad fields of giant rusting wind turbines will litter the landscape as a monument to the stupidity of politicians, the unscrupulous grubbing at the public trough by big wind developers and investors (such as Warren Buffett and Boone Pickens), and the thorough corruption of big money Green activism.