Neoclassical Gasbag

Posted on May 15, 2012 by

Excellent piece on Prof Michael Hudson’s blog, which shows that someone can be a Nobel prizewinner and still be a gold-plated, copper-bottomed prat.

Whom else could we be referring to but Paul Krugman?

Mr Krugman – get this – really, honestly believes that banks only lend out money against deposits that they hold.

He refuses to acknowledge that banks create money out of thin air by issuing interest-bearing debt. But that would ascribe ultimate power to the banks, whereas Mr K is a Friend of the Government and therefore in the business of maintaining the illusion that power rests in Washington rather than Wall Street.

All kinds of consequences fall out of the banks’ effective monopoly on money creation; one of the main ones being that they and their Friends in the Finance, Insurance and Real Estate business own your ass, my ass and the Government’s ass.

Because they own the Government’s ass (by making sure it can only borrow money at interest and not issue its own interest-free version), the banks effectively decide how the West’s debt deflation crisis will be resolved – i.e. that the many will be crucified to preserve the privileges of the few.

Don’t be tempted to feel sorry for George Osborne as he contemplates the impasse facing the UK Coalition. He may be powerless as Chancellor but, as a Friend of the Banks in his private capacity, he very much owns his own ass.

Getting back to Krugman, Hudson says that his:

“…failure to see today’s economic problem as one of debt deflation reflects his failure (suffered by most economists, to be sure) to recognize the need for debt writedowns, for restructuring the banking and financial system, and for shifting taxes off labor back onto property, economic rent and asset-price (‘capital’) gains.”

On tax, I’m with Prof. Mary Mellor, who sees it as the means by which Governments withdraw ‘used’ money from circulation to balance ‘new’ money issued by those same Governments to lubricate the economy for the benefit of the populace as a whole.

Hudson concludes:

“The problem with Mr. Krugman’s analysis is that bank debt creation plays no analytic role in Mr. Krugman’s proposals to rescue the economy. It is as if the economy operates without wealth or debt, simply on the basis of spending power flowing into the economy from the government, and being spent on consumer goods, investment goods and taxes – not on debt service, pension fund set-asides or asset price inflation. If the government will spend enough – run up a large enough deficit to pump money into the spending stream, Keynesian-style – the economy can revive by enough to “earn its way out of debt.”

. . . .

“In fact, how can wage earners even afford to buy what they produce? The problem interfering with the circular flow between producers and consumers . . . is debt payment. And unless debts are written down, the U.S. economy will shrink just as will the economies of Greece, Spain, Portugal, Italy, Ireland, Iceland and other countries subjected to the Washington Consensus of neoliberal austerity.”

Of course, the Washington Consensus of neoliberal austerity is exactly what Mr Osborne is prescribing for the rest of us in the UK on behalf of his Friends.

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Non-market for EVs continues non-growth

Posted on May 14, 2012 by

Electric cars are a fascinating subject.

Their existence is predicated on the eventual demise of mass-market, gasoline-engined motoring.

But since EVs cannot do the job of ICEs, they are actually proof that the car industry is nearing the end of its allotted timespan.

That isn’t me gloating, by the way. Without the automotive industry, oil would be little more than  inedible black fossil goo rather than being the basis of the bright, fun, complex existence we enjoy today.

Ordinary cars are cheap to buy, cheap to refuel, hugely practical and immensely enjoyable. They rule the world they allowed us to build.

EVs are expensive and just as energy-hungry and polluting, on a coalface-to-wheel basis, as their conventional counterparts. Their limited and unpredictable range makes them impractical to own and nerve-wracking to use.

On that basis, the fact that around 1,400 EVs have been registered in the UK since January 2011 is quite an achievement – even if nearly all of them eventually turn out to be demonstrators owned by the manufacturers.

But when you factor in the mind-blowing level of private and public investment in EV design, development, marketing, charging infrastructure and so on, the handful of genuine private sales achieved so far can only be described as super-pathetic.

Nevertheless, British Gas bravely fronted up for EVs in Fleet News this week, demanding that the Government continues to bung £5,000 incentives to EV buyers in the hope that these unwieldy and unloved solutions-in-search-of-a-problem will eventually reach some kind of critical mass.

British Gas’s pledge to run just 0.8% of its fleet on electricity by the end of next year (up from 0.04% today) won’t bring critical mass any nearer. In fact it merely illuminates the chasm between the fantasies of EV-boosters and reality.

And as Gareth Roberts’ article pointed out, BG has a vested interested in pushing batcars because it’s the preferred installer of charging points for 70% of EV suppliers.

At some point investors are going to get tired of throwing money into the black hole that is the reality of trying to make EVs into a mass market phenomenon, especially as a recent report commissioned by the Department for Transport (and stating the obvious) suggested that electric vans may never be cheaper to run than diesel versions

For the remainder of the car’s time on earth, the vast majority of people will drive on petroleum. Since the alternatives will never be as affordable or as practical, the exit from petrol-powered car-ownership will be into non-car-ownership.

Even when oil is priced out of the reach of 99% of people, it’s likely that the privileged few who still own cars will prefer to run them on gasoline rather than electricity.

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Hooked on speed

Posted on April 18, 2012 by

The Rantagon has been deprived of broadband for almost two days. It doesn’t like the experience.

All web and email activity is being carried out at mobile phone data connection speed.
That’s tedious for the business but apocalyptic for MiniQuad III, aged 13, which can’t do FaceTime, watch YouTube, lurk in the iTunes Store or connect to Xbox Live and thus feels that its teenage world is imploding to the size of a paperback book.

However hard I try to remain cool, I keep checking to see whether the broadband light on the router has changed from slow flashing to the steady green glow that says that normal 8MB service has been resumed.

Of course it’s stupid to feel somehow incapacitated just because I can’t pull up information on my PC screen in the blink of an eye.

I should be revelling in the enforced freedom to focus entirely on what I should be doing, which is writing for a living.

Instead, I waste time pining for something I rarely actually need and, most of the time, do not use constructively.

Such is life at the zenith of high tech civilisation. I’ll miss it when it’s gone.

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Blind Spot

Posted on February 10, 2012 by

Like thousands of other people, I subscribe to John Mauldin’s weekly newsletter and commentaries.

You have to admire the man. He’s an entrepreneur in the classic mould whose analysis of the world’s economic gyrations is always worth reading.

Last week he was talking to Chris Martenson over at the Crash Course (audio here and transcript here).

He’s really great on the effects of the unfolding debt collapse on Europe, and never shy about describing the ‘hard choices’ we’re facing.

But when Martenson mentions peak oil, the Mauldin shutters come down with a (polite) thump.

John Mauldin: “Well, I’m not really a believer in peak oil. I’m a believer in peak, cheap oil, which is more to what you were saying. I mean, there’s plenty of energy out there, it’s just not cheap any more.

…

“One of the things that we in the US have to do is we have to figure out how to be energy independent because we can’t deleverage our country and reduce our deficits until we become energy independent

…

“And, we can become energy independent within four to five years if we basically look around to each other and say, we’re going to punch a lot of holes in the ground.

“We’re going to do what it takes to get that energy out and we’re also going to make ourselves more efficient. We can get there.”

Mind set

Let’s leave aside the point that not ‘believing’ that oil and other finite resources will peak some day is like not believing in gravity.

It’s strange (but, I think characteristic of today’s mind set) that someone as well-connected, erudite and intelligent as Mr Mauldin is prepared to believe that unicorns can be crossed with dragons to produce angels – sorry, that US could become energy independent by the end of the next presidential term.

There’s not a cat’s chance in hell of the US finding enough oil under its own soil and territorial waters to replace the 60% of its consumption that it currently needs to import.

At the same time, it’s having to use more high-quality oil energy to maintain the necessary inputs of energy from coal, which now comes from lower-quality or less accessible stocks.

And even if the US did have 100 more years of gas – which it doesn’t – Vaclav Smil has pointed out that transitioning from coal-fired electricity generation and oil-powered transport to gas would take 40 or 50 years, not four or five.

Hard-wired

Mr Mauldin’s response to the world’s inescapable energy predicament is a fascinating case study of what happens when hard-wired certainties inculcated by three centuries of breakneck expansion run up against hard resource limits that have been easy to see coming for the last 40 years and plainly visible since the turn of the century.

Punching holes in the ground cannot be a solution because the problem is that the holes don’t work. We’re far up the net energy cul-de-sac already: vastly increased capital and resources diverted into hole-punching: relentlessly diminishing net energy returned.

I can’t believe that Mr Mauldin doesn’t understand the net energy issue. But in any case he side steps it with a petulant-sounding swipe at what he characterises as a minority of obstructionist Luddite environmentalists:

“You have to decide… a majority of the people have to override the lurch to the left and saying anything that has to do with carbon fuel is bad and we should let the civilization rot rather than use carbon based energy.”

Really? Is there any question that ‘the majority’ absolutely are burning, and will continue to burn, every last drop of fuel, lump of coal, puff of gas, leaf, twig and ball of fluff to try to keep civilisation going?

Arithmetic of net energy

Unfortunately the arithmetic of net energy makes it impossible for the endeavour to succeed – not that the maths of population growth, water scarcity, ocean acidification and all the other spin-offs of exponentially plundering finite resources add up to an especially strong case for continuing to grow civilisation anyway.

Of course, that is the whole point of the Crash Course, and at this point Martenson tactfully steers the conversation back on to common ground and the issue of the debt supercycle endgame.

If we had the means to provide ourselves with all the energy we need – now, today, from real resources and using proven, scalable technologies – we would still have many problems but, with people like John Mauldin around, no-one would bet against us solving them in a way that allowed us to maintain modern civilisation (which simply means living a highly energy-dependent lifestyle).

But we don’t have the energy. There’s less of it and it costs more. The US and Europe are using less fossil fuel and it feels bad – lost jobs, failing airlines, closing businesses, crumbling infrastructure. In other parts of the world, clean water is a luxury disappearing and electricity is ever more intermittent: they’d love to have our problems.

Predicament

As John Michael Greer says, we’re facing a predicament. Mr Mauldin gamely sticks to his assertion that there are “no easy solutions” but the truth is that a predicament has no solutions whatsoever. The structure we’ve built cannot deal with the situation it’s created: the situation is dealing with us.

Change happens. It’s how you deal with it that counts. Fossil-fuelled industrial civilisation will give way to something that runs on a lot less energy. The trick will be to get from here to there as slowly and peacefully as possible, since it’s pretty certain that post-industrial earth won’t support seven billion humans.

But the industrialisers, for whom Mr Mauldin is in many ways a leading PR guy, are a long way from accepting that a change in direction is necessary even though the ‘enabler’ of industrial growth (the energy we got from wood, then coal, then oil and gas) longer even maintains the system, let alone grows it.

The straw everyone clutches at is the ‘f’ word – fusion. Mr Mauldin cannot help it: “I mean, until somebody can you know get cold fusion to work or whatever.”

Maybe… But do read Tom Murphy’s analysis at Do the Math before you get carried away.

In fact, I heartily recommend reading all of Mr Murphy’s arithmetical dissections of the various energy pathways open to us. He’s smart. He’s practical. He’s not remotely a doom and gloom merchant.

But, unlike many of today’s political and economic leaders, there are no pies in his skies.

I bet that if he read Mr Mauldin’s columns and books, he’d fully agree with their analysis of the debt supercycle, the inevitability of the debt collapse that’s now gathering pace, and the equal inevitability that another supercycle will arise to take its place.

Exponentially bigger

But for Mr Mauldin’s view of history and progress to be vindicated, the next supercycle would have to be exponentially bigger than the current one – the one that exploded the world’s population and put most of its critical systems under enormous strain.

Do all that again? With diminishing energy and ballooning challenges? Of course! That’s what turns entrepreneurs like Mr Mauldin on. It always has done (which is why ideas, technology and well-being were improving for centuries before the process became hypertrophic during and after the industrial revolution).

Surely there’s a less mad future than re-running the last 300 years of beggar-thy-neighbour growth at any price in the hope that next time it will all work out all right for everyone?

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AllStar Gets Credit Crunched

Posted on December 27, 2011 by

“In a credit crunch, banks, hedge funds, mutual funds, and other organizations sell what they can, not what they want to.” Mike ‘Mish’ Shedlock

Of the satanic corporate mills I’ve worked in over the years, perhaps the most glowering was the dark bulk of Arval Centre; squatting atop Windmill Hill on Swindon’s westernmost fringe.

When I was there, it was called PHH Centre and its beating heart was the AllStar Fuel Card business.

A fuel card is like a credit card, except that drivers can only use it to buy petrol, diesel and lubricants. AllStar is the grand-daddy of all fuel cards, with a pedigree going back 45 years. Today, there are million AllStar users and it enjoys a billion-pound turnover.

It’s such a strong product that it dominates the UK fuel management scene even though, unlike its rivals, it doesn’t give customers volume-related discounts. And most AllStar customers also have to pay annual fees for their cards and services.

Big money

But the really big money comes from the cut that AllStar gets from filling stations. It may be only a couple of per cent of each transaction these days (it used to be more)… but just look again at that turnover.

They once reckoned that PHH’s profit margin went up by a million quid every time the price of fuel went up by a penny a litre. PHH just sat back, watched the numbers change on the garage pole signs and counted the pennies. That’s what you call a cash-cow.

AllStar was sold several times over the years. First to PHH, then, always along with the fleet management and funding side of the business, to Avis, then Cendant and then to Arval, the fleet finance arm of BNP Paribas.

The ‘ker-ching!’ noises made by this tasty little profit machine must have been music to the ears of the French bank, which is otherwise drowning in toxic instruments of financial fiendishness and bucketfuls of imploding euro sovereign debt.

But just before Christmas, Arval announced that it had sold AllStar to FleetCor Technologies, a leading US-based fleet card provider (although virtually unheard-of in the UK) for what looked like a bargain price of £192 million.

AllStar “was not central to the business,” Arval airily averred.

A spokesperson added: “The Arval Group business model allows companies of all sizes to outsource their fleet management and company fleet related risks through a comprehensive bundle of funding and fleet solutions, while the business model for AllStar is to deliver transactional services.”

Not central?

In other words, we should believe that it’s better for Arval to pin everything on the hard work, low-margin, overcrowded funding and management end of the fleet business, while it gets rid of the bit that makes the company a mint just for the effort of getting up in the morning.

Mish Shedlock sees it differently. Referring to the on-going fire sale of assets by French banks, he writes:

Banks are shedding assets, not because they want to, but rather because they have to. The reason they have to is they are over-leveraged or need to raise capital for numerous reasons including new Basel requirements.

The unfortunate irony is banks may be shedding profitable organizations simply because there is still a bid for the assets.

Credit Crunch Math

In a credit crunch, banks, hedge funds, mutual funds, and other organizations sell what that can, not what they want to. In essence, distressed sellers weaken themselves by shedding profit centers to retain assets for which there is no bid.

He’s right, of course. It’s nonsensical to suggest that fuel isn’t central to a fleet services business. Not only was AllStar an enviable profit centre for Arval but its pre-eminence in the fuel management sector also gave Arval a high level of ‘lock-in’ with its major fleet management clients, who got a great one-stop-shop service for their cars and vans.

It also gave Arval a direct channel for punting additional products to the tens of thousands of SMEs and public sector fleets that relied on its fuel cards.

It’s a sign of how bad things really are in the global economy that, after four decades of ‘standard’ recessions, and three oil-price shocks, the business has finally parted company with AllStar.

Footnote

As a footnote to the Arval story, Fleet Support Group, a UK fleet services business, was sold to another US fleet company a few days after the AllStar deal was made public. FSG is based only a few miles from Arval Centre (where AllStar will remain for the next few years), in Chippenham.

All it would take is for one of the new US parents to flip AllStar or FSG to the other for a quick profit and you’d have more or less replicated the old PHH one-stop-shop service model (less the burden of the finance risk on Arval’s 87,000 vehicles) in a brand new business.

Stranger things have happened.

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What’s wealth?

Posted on November 1, 2011 by

British financial pundits are suddenly feeling the gravitational pull of the Great European (aka Global) Black Hole of Debt.

Jeremy Warner in the Telegraph today feels the need to make brave and reassuring noises about the UK’s financial stability.

In “UK economy circles the drain moves out of intensive care” he writes:

“With household debt at an eye-popping 160pc of disposable income, surely the real adjustment hasn’t even begun? If the nation really does start doing as David Cameron suggests, and paying off credit cards, then isn’t the main part of the damage to demand yet to come?

“Not necessarily. Household debt in the UK is undoubtedly high, but not as high as some. Ireland we all know about, but in economically-stable Holland and Denmark it is also much higher. In all these countries, the growth in household debt relative to income has been caused almost entirely by house prices.”

Oh, so that’s all right then. Blowing up a massive house price bubble doesn’t matter as long as your neighbours blew up even bigger ones.

“Those coming into the housing market have had to borrow a lot more to buy their homes than previous generations. Over the past 10 to 15 years, there has been a massive redistribution of wealth through the housing market from the younger to the older generation. You might call it a scandal, but you tend not to if you are living in a £1m house you paid just £100,000 for 25 years ago.”

Did you notice where Jeremy slipped-on his beer goggles there? Technically, a mind-boggling expansion of credit is not the same as a massive redistribution of wealth. House prices went up because the UK, the US, Ireland, China and a lot of countries went on the greatest borrowing binge in history.

The younger generation didn’t suddenly decide that £100,000 houses ought to be worth £1 million in real wealth. If they had, they’d have had to gather together every last piece of string, lump of sealing wax, wrinkly conker, chipped Dinky toy, PS2 game, etc. that they could lay their hands on and pawn it to raise the missing £900,000.

Do you think they actually had that much wealth? No. But Jeremy does.

“…although debt at 160pc of income looks high, it’s dwarfed by counterbalancing levels of household assets. Savings in financial assets alone are worth 450pc of income on average. Housing equity is worth more than 400pc. Net worth per household therefore comes in at more than 700pc of income. Despite its debt, Britain is still, by any standards, an extraordinarily wealthy country.”

It’s not wealth, Jeremy, it’s debt. House prices are only where they are because the banks loaned them all the way up there. They can only stay there if people keep borrowing more and more – which as yesterday’s post pointed out, people can no longer afford to do.

Round here in Cotswoldshire we’re starting to hear stories of “£750,000” houses quietly changing hands at £500,000, as we did a couple of years ago.

Pouf! A quarter of a million pounds of Mr Warner’s “wealth” instantly vanishes into thin air. If that goes on for a while, you end up finding you were just as well off with just the conkers, stale jelly babies and pocket fluff you started out with.

And that’s why the financiers and politicos and media moguls fear deflation like nothing else. It’s why they increasingly look towards Greece and Italy with the same horrid, paralysed fascination as a rabbit looking at a stoat.

Unless someone invents a perpetual motion machine, we will be able to say with certainty that financial bubbles will always collapse. And the bigger the bubble, the louder the pop. Right now, the euro area bubble is being kept inflated by sheer willpower and breathtaking sleight of hand: it’s a marvel to behold the weekly roller coaster of despair followed by false hope followed by deeper despair.

It can go on for much longer than you’d think but it can’t go on for ever. Debt collapses unless it is fed with more borrowing. But borrowing can only be supported in the long run by work. And in our high energy intensity industrial civilisation, that work is done by fossil fuels.

For most of the last century, fossil fuels were as good as free. For every unit of fossil energy needed to find, extract, process and deliver oil or coal or gas, you got 50 or 100 units of energy to play with.  Civilisation could, and did, grow like topsy despite its own massive carelessness, wastefulness and frequent destructiveness.

We’re no smarter than the ancient Greeks but we’ve got easyJet and iPhones and family holidays in Orlando and Mauritius. Why? Because every citizen in Europe and America has several hundred ‘energy slaves’ working away for virtually nothing.

Or at least, they used to. Now the cheap oil is already gone, along with most of the best quality coal. More and more, we’re having to put our energy slaves to work just getting more energy. Net energy – what’s available to civilisation – is declining even though the gross amount of fossil fuel extracted is still marginally expanding. Forget about nuclear and renewables: they will help but they only pack a fraction of the firepower of fossil fuels.

We’re moving into an era where, whatever we do, less work will be done. The chart below is from an article by George Mobus on the Question Everything blog. I really recommend that you read it. It explains precisely why declining energy will have a profound effect on the debt-based economics that grew today’s civilisation (and which, on steroids, blew the massive bubble that’s collapsing around us).

Net Energy Chart

Graph: Assets are produced as a function of net energy according to the equation above. This graph is for the aggregate of all asset types as described above. Assets decay or are consumed at a rate less than production as long as net energy is in its pre-peak phase. Assets continue to accumulate and the peak of asset accumulation comes after net and gross have both peaked. http://questioneverything.typepad.com.

It’s not a pretty prospect and it’s a very good reason for Governments to stop throwing more debt down the rat hole in the futile hope that they can somehow re-start the system they got used to over the last 100 years despite the absence of the necessary fuels.

Back at the Telegraph, Mr Warner chooses to look no further than his beer goggles will allow. “The problem,” as he sees it:

“…occurs because those with the assets tend not to be the same as those with the debt. As a rule of thumb, it’s the young who have the debt, and the old who have the assets. Even so, in aggregate, the debt doesn’t matter, and will only begin to decline in a meaningful way once there is a significant fall in house prices.” (My emphasis)

There you go. A couple of paragraphs earlier in his piece the debt did matter enough to have to be explained away by totting up Britain’s supposedly massive and real housing “wealth.” Now, suddenly, debt doesn’t matter – and neither, remarkably enough, does the value of houses, which Mr Warner happily expects to fall in order to evaporate the wealth-that-is-only-really-debt.

The big shock will come (to many of Mr Warner’s readers although I expect not to Mr Warner) when the value of houses and all other assets carries on falling without any offsetting increase in economic activity because there’s too little surplus energy in the system to support growth.

At worst, it could be like the Great Depression without the promise of a golden age of oil-fuelled expansion at the end of it. At best, humans should be smart enough to muddle through to a post-fossil-fuel, post-debt-based-growth form of capitalism with a degree of comfort and dignity.

But that will require the establishment to abandon their pet brand of faith-based economics and reality-distorting goggles, and we’re still a long way from that point.

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Debt unlimited

Posted on October 31, 2011 by

The mainstream media is starting to face up to how deeply screwed we are by the bursting debt bubble.

Sez Jeff Randall in the Telegraph:

The debt trap time bomb

“According to [the Office for Budget Responsibility], UK personal debt will grow by nearly 50 per cent between now and the end of this parliament. Come 2015, it is forecast to reach £2.12 trillion pounds. How can this be right? The average British adult already owes £29,500, about 123 per cent of average earnings.”

“Is the OBR expecting a sudden burst in take-home pay to offset a massive expansion of household debt? No, quite the reverse.

“It explains: ‘We forecast that income growth will be constrained by a relatively weak wage response to higher-than-expected inflation. But we expect households to seek to protect their standard of living … this requires households to borrow throughout the forecast period [2011-2015]’.”

Governments have only one answer to too much debt. More debt. In fact, they depend on it because more debt is the only way to get more money, since money is loaned into existence and the banks have a de facto monopoly on money creation.

So the Office of Budget Wishful Thinking “requires” Brits to plunge themselves into 50% more debt over the next four years.

Let’s see. Which way are people going at the moment? Credit Action noted in March 2009, just as the recession was biting, that the average UK adult owed £4,870 on credit cards, motor and retail finance deals, overdrafts and unsecured personal loans. After two-and-a-half years of stagnant wages and low growth, that figure has fallen by 12% to £4,257.

So much for the Government’s hopes that Brits will immolate themselves on the altar of debt slavery merely to keep the tills ringing merrily.

Credit Action also reports:

“Figures released by the Finance & Leasing Association (FLA) show that consumer credit lending was down by 1% in July 2011, compared with last year. Retail store credit was down by 13% and credit cards and personal loans by 2% compared with July 2010.”

Millions of Brits are already struggling to service their debts. Neither they nor those who still can afford to borrow are not in any hurry to take on more. But the Government MUST HAVE MORE DEBT! What’s a poor Chancellor to do?

Well, borrowing more isn’t the only way to get people deeper into debt. Raising interest rates would have the same effect on the biggest chunk of outstanding debt, the £1.24 trillion owed on mortgages. But higher mortgage payments would finish off many of the families who are just keeping their heads above water. Perhaps George Osborne actually hopes that they will turn to extortionately-costly unsecured loans to ‘maintain their lifestyles’ (aka being able to feed and clothe themselves and their children).

The UK is not alone here. All the so-called Western economies are going along the same route of doubling down on debt. The euro zone makes up stories about a trillion euro rescue fund for itself, paid for by the Chinese (who didn’t even pretend to say ‘no’ politely).

They’re all hoping that the Growth Fairy will come back so they can pay off all this debt. Some of them are becoming dimly aware that she is never coming back – at least not without a return to energy at low, low prices that will remain a tantalising memory now that the peak of oil production is sliding by beneath us like a killer whale gliding under an ice flow.

This worries Dmitry Orlov. He’d hoped that governments would have the sense to throw in the towel and start organising an orderly retreat from dreams of endless debt-fuelled growth. But today he looks back at his Five Stages of Collapse and writes:

Stages of Collapse Revised: “Joined at the Wallet”

“I wished for an orderly cascade of collapsing institutions, with enough of a gap between them for public psychology and behavior to adjust to the new reality. But almost four lost years of both government and finance betting on a future that cannot exist, doubling down every time they lose again, have dashed those hopes. The effect, I think, will be to compress financial and political collapse into a single chaotic episode. Commercial collapse will not be far behind, because global commerce is dependent on global finance, and once international credit locks up the tankers and the container ships won’t sail. Shortly thereafter it will be lights out.”

If that sounds doomerish, just keep an eye on the euro area story as it unfolds over the coming days and weeks. Greece, Italy, Spain and Portugal all run the risk of financial or political collapse (or both) unless they receive huge additional bailouts. And no-one has any idea where the money will come from.

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