August 1, 2011

An unbalanced economic world

Posted in International Economy · 116 comments ·

One of the most fascinating pieces of news this week came from China.

On Friday, Chinese state media warned that the United States was threatening the world with a recession that could be ‘‘much nastier’’ then the 2008 downturn. It described Washington’s standoff over the ‘‘debt ceiling’’ as ‘‘dangerously irresponsible’’.

Referring prosaically to the donkey and the elephant – symbols of the Republicans and Democrats -Xinhua, the official state news service, wrote:

“The ugliest part of the saga is that the wellbeing of many other countries is also in the impact zone when the donkey and the elephant fight.”

The Chinese are right to be worried, because China is the largest foreign holder of US government debt, with an estimated 60t o 70 per cent of its $3,200 billion foreign exchange reserves invested in US assets.

And if you’ve travelled to China, you’ll know that the average man on the street is well aware of his country’s huge financial dilemma, and equally well aware that its government has made a massive bet on America.

Two years ago, I spent several weeks in China interviewing people for a documentary and we spoke about this specific issue.

The people knew what was at stake, and they were extremely sceptical about the wisdom of having all your eggs in one basket.

Yet they have no choice. The more China runs a huge current account surplus and money flows into China, the more the Chinese have to reinvest this money somewhere and the US treasury market is the biggest market in the world.

In a sense, the Chinese and the Americans are equally to blame.

The nub of the issue is global imbalances.

The US wants to shop its way out of the recession, and China wants to finance it. In contrast, the Chinese don’t want their own people to enjoy the fruits of their phenomenal exporting success – so, rather than spend the money they earn, their government recycles this money and lends it to Americans, so that Americans can buy more Chinese imports.

In addition, the money they do spend in China is going on an investment binge. But we know that countries can invest too much.

Remember the ghost estates? They were classed as an investment; now bits of them are to be flogged for half-nothing by Nama.

The perils of over-investing are there for all to see in the debris of the dotcom boom.

Only last week, we saw what sometimes happens when you invest too quickly in infrastructure: for the first time ever, two high-speed trains crashed directly into each other in China.

The government has been rolling out new infrastructure so quickly to meet its own inflated targets and things are going wrong.

Any visitor to China will see the same in the build quality of schools and hospitals.

On the other side of the world, there is the opposite problem. In Washington, the unthinkable is happening.

The Republicans and their Tea Party pals are so keen to teach Barack Obama a lesson that they are risking a default on US assets in order to prove a political point.

As man-made crises go, the debt ceiling one is hard to beat.

On Friday, for the first time in years, the British government can borrow more cheaply than the American one as US markets digest the possibility of a default, which is totally politically driven.

The financial reality is that the US has had no difficulty in financing itself in the past two years.

The so-called bond vigilantes who are supposed to rear up and discipline governments have not emerged out of the shadows in America.

But what has emerged is the political cycle and the timetable to next year’s presidential election.

However, when we pan out from Washington and gain a bit of altitude from all these issues, the reason for all these crises is because the world economy is so imbalanced.

The European Union is running a current account surplus. So too are China and India, and the other huge developing countries like Brazil.

The Brazilians are imposing taxes on money coming into the country because they can’t cope with the inflow.

Also, like China, Brazil wants to keep its currency artificially low in order to piggyback on US profligacy. No one wants to take responsibility.

The US doesn’t want to stop borrowing.

The Chinese and other emerging countries don’t want to stop saving. Europe doesn’t know what it wants.

The latest European move for austerity and tighter budget controls, which will reduce demand, prompts the question: ‘‘Who is going to buy stuff to keep the world going?” If the rich Europeans don’t want to spend – and see exporting as the key to growth – who are they going to export to? China? Obviously not, because the Chinese want to keep exporting.

To booming Brazil and Latin America? No, because Brazil and Argentina are on an export binge too.

Maybe the rest of Asia – the former Asian Tigers – might buy something? But they are export-obsessed too, as is India.

As for Russia, it is a special case, and I will consider it a ‘‘proper’’ economy the day I go to a shop and buy something with ‘‘Made in Russia’’ on it.

So we are faced with a huge global dilemma.

The world loves to point the finger at the caricature of a fat, bloated US, which is gorging itself on other people’s money and simply can’t discipline itself.

But someone else has to start buying, otherwise we will descend into a global depression. Everyone is trying to export and save; no one is prepared to import and spend.

This is what happened in the early 1930s.

It’s not just the free-spending Yanks that are the problem – the big saving nations like Germany and Japan are also to blame, not to mention China and India. If they don’t want to spend and instead prefer to save their cash and export -which is, in effect, choosing a strategy whereby someone other than your own citizens buys your own goods – they had better figure out who is going to do this buying.

Until these global imbalances are rectified, the global economy will be characterised by recurring financial crises.

This is because, if a country is not keen to buy all the goods you are producing (as is the case in China today), then the Chinese have to lend to the country that is prepared to buy the Chinese stuff. Horse sense tells you that, the more you lend to one individual or country, the less likely you are to get the money back. Thus you have periodic debt crises.

Equally, all this unwanted money sloshing around leads to all classes of bubbles in asset prices, as ‘‘flavour of the month’’ assets emerge, inflate rapidly and then deflate unexpectedly and damagingly.

Eventually, someone has to take the lead.

And while it’s all very well to get your censored official news agencies to tell the Americans to be responsible, China can’t indefinitely remain ‘‘an economic giant and a political pygmy’’, to paraphrase Willy Brandt’s memorable description of post-war Germany.

So while, this weekend, the world’s eyes will be focused on Washington, the fiscal, trade and current account positions of the US are a reflection of global imbalances, rather than the unique cause of them.

  1. Malcolm McClure

    Great international perspective article, David.
    Check out the visual impact of 15 Trillion Dollars in $100 bills at
    Look at all 15 illustrations.
    I think a billion is a trillion in German, so that’s why they got confused about how much we owed them.

  2. Excellent article. However, there is another variable DmcW should also examine, that hasn’t been harnessed down, sealed up and has been allowed to climb out of control. This is global debt. This has gotten out of control since 1970 and is making the global economy unstable. The higher the scale of debt climbs, the more unstable the global economy gets. It slid onto our books over the past decade and see where it got us. The world and us is running out of capital to spend on things, because a huge amount of its
    capital is going to service debt.

    • Future generations will look back and marvel at the technological sophistication achieved by us and equally marvel at the dumb encumbered global economic system based on fiat debt; while asking, were the politicians for real to be sold such a pup?

      A good time to fix the system would be if it blows globally into a huge recession fed by hyperinflation: Pay off all the global currency debt of fiat money in one go with gold and silver. Allow all governments to issue national currency greenbacks pegged to gold standard. Force governments to remain within a 2% balance of payments guideline.

      Unfortunately our civilisation is not sophisticated to manage a default on this global scale, so we’ll continue to make the mess bigger, until we get into a worse recession than the 1929-33 recession in the US. Instead of a manged default, seems like we’re heading for a chaotic mess of global proportions:(

      • Hi Colm, I think they will look back and wonder at how the world’s governments were hijacked by faceless powers who can transfer billions of dollars around the world at the click of a mouse determining the fate of ‘democratic’ nations

        We have all the technology, food and water required to ensure that everyone in the world lives in relative comfort. This would be the case if humans were sane, sophisticated and fair minded. Instead we have insanity, crassness and selfishness

        Last week Stacey Herbert on The Keiser Report was describing the dramatic increase in the past 20 years of anti-psychotic prescription drugs to Americans and there has been a huge increase in the numbers of children being labeled as psychotic

        You could take this as evidence that world is insane and getting worse. I probably wont be around in 30 years time to weep at the what the world has become by then

        Keep the Faith

        • @Pauldiv,

          Re “You could take this as evidence that world is insane and getting worse. I probably wont be around in 30 years time to weep at the what the world has become by then”

          Nope, you can’t do that. You might take it as evidence that the drug industry is ripping off parents and carers, that young people are not being properly cared for, but you most certainly can’t take it that children or their parents are becoming more psychotic or insane.

          So called psychotic symptoms can mostly be explained by stresses due to work, lack of work, poverty, crime, bad housing, drug exploitation and abuse, government inaction, bad advertising.

          When the above meets evil as in Oslo’s Breivik …we’re all in danger then.

          Most people are entirely sane in spite of or maybe because of their experiences in life:) Although some of us can appear to be quite weird to the untrained eye:)

          But there again I’m not a nutty psychiatrist.

          • ‘Most people are entirely sane’.
            Can you prove it?

          • Hi Paul,

            “‘Most people are entirely sane’.
            Can you prove it?”

            This is very easy to prove. Most people obey the law, follow road directions, and like turmites or marching ants are able to forage and find food. Plus if you use an aircraft and peer down as you land in a city, you can observe the order, layout, buildings; or, e.g examine sport and sporting occasions. Human behavior was once identified as uniquely human by our ability to use tools, but Jane Goodall broke that myth when she observed chimpanzees making tools to catch turmites! Skinner would have believed behaviour was copied and learned from imitating eg parents, but this was not the whole picture; Dawkins in the Selfish Gene saw behaviour as a function of passing on genetic imprints. Most behaviour is sane however stupid it may be:) “Make sense who may. I switch off.(Beckett)”

          • Malcolm McClure

            colm brazel: Nutty psychiatrist Beckett also provided David Norris with his valedictory “Fail better”.

          • You put up a good case for most people being sane Colm and I agree but stupidity is another matter. During the boom most people were certainly stupid and there is plenty of evidence to support this.

  3. NeilW

    You have the causality backwards. The Chinese are not lending to the US. They are saving in US dollars and US dollar assets.

    All the net exporting nations of the planet are using the failure of neo-classical economics to export their unemployment to other parts of the world.

    That works because neo-classical economics dictates that those with money should be paid interest so that they don’t spend it.

    There is no reason why central government should be paying interest on financial assets that remain unspent. The theories this system is based on are clearly and demonstrably wrong.

    The net-exporters suffer from a chronic lack of domestic demand, but they don’t suffer because of the way the system is set up.

    • Re “There is no reason why central government should be paying interest on financial assets that remain unspent.” Don’t fully get your point, could you elaborate a little more?

  4. paddyjones

    An interesting paradox , everyone want to export but no one wants to import. the most stand out country that does this is Saudi Arabia it exports huge quantities of oil and has trillions of dollars which they in turn invest in dollar assets.
    The most productive nation is actually the US per capita they are the most productive manufacturers on the planet.
    David doesnt specify where the dangers lie other than asset bubbles, this is my big worry….where the next crisis will come from. I dont think residential property prices in Europe or the US are a particular worry, and certainly not in Ireland. Maybe property prices in China are getting a bit toppy.
    the pressure release value is always felt in the stock market and property market. Thats where vast sums of money and wealth just vanish into thin air.
    Japan is a good example of how wealth is created and then destroyed, the stock market there was once 24000 points now its 10000 and property prices have sunk to a fraction of what they were. Japan is suffering years of deflation and low growth because of a bubble. Remind anyone of Ireland ?

  5. CurlyM

    Great article David. Keep them coming. Perhaps the world will wake up eventually. A coordinated global solution is required to balance the account and put a sustainable solution. If the US find it hard to agree with themselves it is hard to see a multi-nation strategy being agreed. The dependency on global and national growth is not sustainable and what ever happened to good aul ‘cutting your cloth to your measure?’

  6. Brilliant article David and comes at just the right time.
    Great to see you back on top form.

  7. adamabyss

    Fascinating and thought-provoking article.

  8. insider

    Thanks for the analysis. This is what I’m talking about – David is back from holidays, back from cloud cuckoo diaspora land and back with a vengeance! BTW the article a few back on the Euro cover up was excellent.

    I don’t get that the Chinese are saving. As far as I can see they own half of Australia (property and mines), Singapore and Africa. I also see a lot of Chinese in India these days – not quite sure yet what’s going on there.

    One indicator I’m looking at right now is the AUD/EUR. The AUD should be sliding in this time of increased risk and defaults but it’s holding nicely and this is with the Chinese propping up the EURO. Maybe Tull can comment on the latest AUD movements. His last forecast was a little off the mark but I always welcome his analysis. The way I see it there are very few places to run at the moment.

    I’m making a little trip home next month to get a proper taste of this “austerity” – looking forward to it and seeing you all.

    • Deco

      The Indians have a very dim few of foreigners interfering in their country – regardless of who they are, whether Western or from East Asia.

      • Deco

        Of course, we have an elite who sell us the “necessity” for outside interference – especially when that outside interference props up their mastery of us.

  9. gizzy

    A very well written article. The view of inter nation behaviour is enlightening but leaves out the significant role being played by the markets, currency speculators and short sellers in the economic breakdown.Also is the behaviour of the tea party in the States a whole lot different than that of some our Northen European allies in recent weeks.

  10. A little off topic, speaking of balance anyone made the connection between Cloyne’s Magee and David Norris letters on Seanad notepaper aimed to get his friend off the hook? We would be denouncing Magee if similar had come to light on his part. This is typical of double standards that abound, no transparency, no accountability, nobody gets fired or has to resign, the wagons circle, excuses are made….mind boggling..a bit like Croke Park wage increases and austerity, or the thought of giving the CEO of zombie AIB €500,000 + p/a, or developers owing billions getting paid 6 figure salaries to manage their toxic loan portfolios:)

    • E.G. You borrowed €8 bn. We bought it for € 3.8 bn. You were so successful on losing € 4.2 bn we had to write off, we’ve decided your the man we’ll put in charge of the €3.8 bn remaining, plus we’ll give you a six figure salary and to give you another little boost; if you sell the toxic crap for more than the € 3.8 bn we paid for it, we’ll share the difference!

    • thirdeye

      Norris link a bit of the old religious bigotry to deflect the woes of the so called catholic church off the front pages.Whatever the rights or wrongs of the letter to the a foreign court as a character witness just shows strength of the latent hidden support within the media of people like opus dei appears to be strong within the so called secular media.On the issue of the euro and on going financial problems within the USA appears to be a permanently to keep certain economies weak to increase investment in other larger countries power base.Having weak ecomonies like iRELAND,GREECE to a kind of economic slavery with the political establishment approving as it keeps them in perpetual power.

      • @thirdeye,

        On the contrary, Opus Dei I’m sure will take delight in Norris’s ‘mistakes’ pointing to the ‘forgiveness’ we should extend to Magee/brady et al.

        “Norris link a bit of the old religious bigotry”

        Call a spade a spade, sauce for the goose is sauce for the gander: if Magee or Brady or similar wrote a similar letter to a judge on crozier paper, the media would go berserk.

        The point I make is that he wrote the letter on Seanad notepaper I believe highlighting the fact he was a person of consequence and giving the appearance he was writing on behalf of the Irish government..

        We get the same muddle headedness in the banks with bankers and developers courted by the powers that be, instead of answering charges or behind bars.

        Look at the slew of resignations in the UK over their expenses scandals? We need to find similar standards here and expect those who take public office to follow them.

        Anyways, we should scrap the presidency as a waste of public money. Its become our version of the UK King/Queen. We have ministers/taoiseach/IDA et al who can lead business delegations abroad to represent our country. Its importance to the state is as overstated as the Seanad, another waste of money:)

  11. dwalsh

    With the approaching collapse of the dollar we are getting very close to the end of this crisis and the post-crisis world. This may not be it quite yet…I expect the USA will get through this impasse…but global confidence in the dollar is now shot no matter what happens tomorrow. All thinking people know the game is up. The financial sector which has been feeding on the real physical economy and on the livelihoods and lives of the people has bankrupted the nations and the entire world.
    David wrote:
    “So we are faced with a huge global dilemma.”
    ‘‘Who is going to buy stuff to keep the world going?”
    Yes. The dilemma is that current economic models and systems do not work. The turbo-capitalism and casino markets which have usurped the economic, political and social order are destroying our civilisation and our planet.
    This is an inevitable crisis that any emerging conscious species such as humanity must face and pass through as it moves towards a fully integrated planetary civilisation. At this point human agency and activity has outstripped human wisdom; and is also exceeding the capacity of the biosphere to absorb its toxicity and maintain the homeostasis that supports our life. The Biospheric crisis we are moving towards is infinitely more crucial than the financial crisis.
    In fact the financial crisis is a blessing.
    Our civilisation is massively dysfunctional because it is irrational. It is driven by economic principles of greed that have been enshrined as religious values in the temples of the Golden Calf — the markets. Presently the real wealth of the nations is being heaped onto the sacrificial pyre in a vain and insane attempt to revive the god. But the Golden Calf is dead…was in fact always dead…and will not be resurrected.
    But this is at least a crisis we can manage; and it will force humanity to grow-up and begin to become properly responsible for its life on this planet; and begin the task of creating a viable integrated global civilisation.
    The Biospheric crisis we would inevitably face if we continued with our present greed-driven and irresponsible systems would be something we could not manage. If we were to significantly shift the Biospheric homeostatic balance upon which we depend for life we would no longer be a viable species. Our civilisation and our science is nowhere near ready to deal with a planetary crisis of such enormity.
    The emergence of a species like humanity is a great cosmic event in planetary development; it would be a dreadful shame if humanity was to blow it and destroy itself. Personally I am optimistic. I hope I will be right.

    • Eireannach

      @ dwalsh

      There were 1 billion humans on the planet before the one-off “drawdown” of the non-renewable natural resources of oil and natural gas began in Pennsylvania in the 1860s, when Colonel Ed Drake drilled the first commercial oil well (not the first ever oil well, but the first systematic attempt at oil extraction as a business proposition).

      Since the oil age began, we have lived in an Age of Exuberance. We consume vastly, vastly more energy per capita than any people ever before in the history of the world. Now the Chinese and Indians are increasing their per capita energy consumption.

      We are running out of all kinds of other resources – phosphates for agriculture, copper, top soil fertility, the list is long and getting longer.

      It follows that in the coming decades, as we enter the arc of oil and natural gas depletion, the world’s population will fall back down to a manageable 1 billion or so.

      We will witness the biggest die-off of humans in the history of the world, well underway by mid-century. By the end of C21, we’ll be ready to create the civilization you are talking about.

      But there will be a die-off of homo petrolus first. Oil-based humanity will be extinct in a few decades.

      • dwalsh

        @ Eireannach

        You may be right.
        May I ask how you envisage the die-off occurring?

        My own belief is that over the next decades there will be a global decision to stop using oil as a fuel and conserve remaining reserves for materials – all of which are recyclable to some extent. In this scenario we will have ample oil until such time as our uses for it decline. We already have all the science and technology to replace it as a fuel; and this could be done relatively quickly.
        We also have the science and technology to solve the food problem. We can do it without the ridiculously expensive and environmentally destructive modern industrial methods and dependence on synthetic chemicals. For instance shifting away from beef and opening more land to proper tillage would improve food yields and health.
        For these and other reasons I believe that in future time the planet can and will sustain a higher population than it does today.
        Of course what I am saying would not be possible in our present greed-driven economic system whereby for a single human to have a meal a whole gang up-stream in the production process have to make not meerly a living but ever increasing profits.
        I think your scenario would be likely if the future of humanity is to be an extension of present systems and methods. My scenario requires a significant shift in the consciousness and mind-set of the human race.

        • Gas Production and supply will become sufficient to satisfy our needs soon by 2015 after the new secret cheap extraction technology is launched soon in the UK stock markets so watch out …it is a gamble even the best in the world have invested in it and thats a measure of how good it will be.Imagine Saudi Arabia only showing rusty iron ore in the deserts well dont imagine it …it will be a reality soon.

          • Gas resource supplies are available in EU and Poland will be a big winner .

          • Eireannach

            We’ll increase our gas production in Ireland, and we have possible wave energy, and so on, but I’m talking about the global population/energy supply equation.

            I thought Irish people understood that we don’t live in a bubble, that Ireland IS NOT (!!) different.

            We are in extremely deep trouble over energy. We are one of the most oil-dependent countries per capita in the world.

            Our car fleet will be worthless in a few years. The number of cars on the road will decrease and decrease as this crisis worsens and worsens, until we are energy independent.

            BTW we have no credible plan for energy independence.

        • Re “shift in the consciousness and mind-set of the human race”

          I suspect this is already happening and not only to persons like ourselves, but its happening at a political level also.

          I also suspect this is not only happening at US or EU level where they must be deep dismay at what is happening to project dollar/euro.

          Many dissonant voices are slowly becoming mainstream in vocal opposition to unfolding events that are perceived to make no sense. Perhaps good will come out of this.

          Now you seen the light, what yu goin to do?

        • Eireannach

          The die-off will start in the debt-based usurious Western money system.

          We reached Peak Oil in 2006 when the world produced approx. 90million barrels of oil per day. We have not increased supply since then, because we can’t. Soon decline will begin, as at the top of a bell-shaped curve. For the moment, the supply is flat at 90 million/day but demand is inccearing. Hence the price is increasing.

          The price of oil will continue to increase, basically forever, notwithstanding extraordinary periods of economic die-back as we had between late 2007-09.

          Once things get back to anything like “normal” the oil price will go through the roof and farming (which requires oil-based fertilisers, pesticides, plastic for packaging and so on) will have to increase the price of food.

          James Howard Kunstler talks about the future decline of the American cities here:

          In Ireland, the sururbs, based on oil, will lose their desirability as a place to live.
          But people will be in debt, so they’ll keep slaving away to pay their bills. So they won’t challenge the debt-based money system because they’ll be too busy paying off debt they accumulated in the Age of Exuberance (aka Celtic Tiger) when they thought Limits to Growth was just pessimistic talk trying to hold them back.

          Many bought cars and suburban houses, betting on that future. Big mistake.

          As Kunstler points out, the die-back will begin in the margins (Subsaharan Africa, etc) but work it’s way northwards.

          Bankrupt folk in Ireland will just get more bankrupt as oil and food and electricity prices increase, but they just keep on with the same mindless lifestyle until it all falls apart.

          There will be no hydrogen car “for everybody in the audience”.

          There will be no change to the current debt-based pyramid scheme, people are “too busy” trying to pay off their debt to even think about it too much.

          Finally, the coup de grace, is that folks in debt would RATHER NOT think and talk about these unpleasant matters, even as the die-back of humanities numbers begins. People will be focusing on themselves, not utopian visions of possible alternative futures.

          The big discussion of how to live differently on this planet will happen after the die-back of numbers, say around 2060. Before then, it’ll be hell for decades. I don’t like it, but I can see it. All you have to do is extrapolate forward our current lifestyles and this is the only show in town. The catastrophe show, that only people not in debt watch, the rest of the people are like hamsters on wheels trying to pay the bills.

          • dwalsh

            Kunstler’s interview is most interesting. I agree with him about skyscrapers and vertical farming and a lot of that kind of daft futurism. Doesn’t matter if some of it is produced by university professors; most economics professors did not see the financial crisis coming.

            But I think he is wrong about a lot too; for instance energy — that there will be a lack. This is not correct; there is an abundance of energy available to us in all kinds of ways; many of which we are not permitted to develop or even know about at this time. Current talk of lack is a market ploy to leverage value and profits. I heard Soros admit they were using the price of oil as a weapon against nations his gang consider to be enemies of what he referred to as “the prevailing world order”.
            The biggest economic myths today are the myth of the ‘free market’ and the myth of scarcity. There is abundance of everything in today’s world — except honesty and fair-play. The “prevailing world order” represented by the likes of Soros are self-selected gangs of criminal psychopaths. Capitalism is their ideal system.
            If human mind-sets do not change; and if gangs of elite criminals masquerading as ‘investors’ (in truth they are merely gamblers) are permitted to rule as they are now then all you say is very likely; and there will be great hardship. They will use their myths and the wealth they are plundering from the nations to impose a global debt feudalism. I hope myself there will be a gradual awakening and realisation of what is really happening by sufficient people in time to avert the worst of it.

          • Eireannach


            I place my reasons for hope on the ’100 monkeys’ or ‘Tipping Point’ idea, and the arbitrarily confine these concepts to a specific country. Some countries will wake up and change, others will stay asleep and gradually enter post-industrial decay.

            The people of Iceland woke up in the nick of time. In an instant, they were free of the control of the banking cartel. Brilliant. Of course, as an outlying island, outside the EU, it was somewhat easier for them. But we in Ireland could, in theory, bite the bullet too and default on the fraudulent debt-slavery that is planned for us.

            The problem, of course, is that if we were to do this, we would need a plan to relocalise our economy FIRST before we go renegade. But the inertia in Ireland to change means we seem to be slipping into ECB-funded dependency because taking the austerity cuts and tax increases is a more gradual change model than the chain-snapping rupture of default.

            We don’t seem emotionally suited to revolutionary change in Ireland, so I believe we’ll stay under the control of the money masters rather than go our own way.

            Michael Casey is my favourite writer on Ireland’s future BTW. He wrote an article recently for the Irish Times about how the Irish are going to stay on this path, and it was most persuasive.

            Families we go bankrupt everywhere and the suburbs will be the new slums.

          • Malcolm McClure

            The physical amount of hydrocarbons remaining to be recovered is a simple function of the global experience and confidence of the person making the estimate. In the real world, available resources have become limited by the politics and greed of governments, both those in whose territory the resources are located and the others that depend on external supplies.
            Neglecting the latter caveat, in my opinion there is sufficient world wide hydrocarbon resources to supply global needs for at least another century, even if allowance is made for additional industrialization and a major increase in population.
            Given exploration and production by competent and safety minded companies there is absolutely no cause for concern by the green movement.

          • Eireannach

            @Malcolm McClure and DWalsh

            Gentlemen, I worked in energy for years and with the greatest and most cordial respect, I think we are starting to run out of all kinds of resources, and that ecologically, we are going to experience a drop in our population as happens to any species when it runs out of critical resources.

            Water shortages, food shortages, energy shortages, metal shortages, top soil erosion – basically every critical ecosystem is being catastrophically depleted.

            I don’t believe the fairy-stories of C20-minded techno-triumphalists.

            I do believe the Limits to Growth forecasts of C21 ecologists.

            Our population is going to crash.

            I wasted my breath trying to warn friends in Ireland about the property crash – I’m not going to waste my breath again.

            It’s going to happen, because it is impossible to conclude that it is not going to happen. Therefore, it must happen. How it will pan out exactly is another matter.

            There is now a huge and growing body of publications on the subject from the perspective of retired oil industry geologists like Colin Campbell and Ken Deffeyes, human ecologists like Richard Heinberg and Dale Allen Pfeiffer, and urbanism critics like Jame Howard Kunstler.

            Peak Oil or Hubbert’s Peak is real, the price of oil indicates that, and it is later into the twilight of the oil era than most of us are aware.

          • adamabyss

            Personally I’m out of here and F**K THE BILLS. I’m back to my island in the sun where I can eat the food off my trees and drink the water in my stream, and I don’t need heating in the gaf. The Western World is screwed, I was reading about it from my hammock in the Caribbean for ten years and it didn’t seem that bad but now I’m back here my eyes have been opened, unlike the 99.99% of those hamsters you mentioned mate!

          • adamabyss

            Can anyone give me a loan for my ticket? I’ll save a bag of coconuts for you when you come visit.

          • Eireannach


            Good for you, man. I think Ireland will not be the worst hit by the coming sh*tstorm, but I agree with you, f*ck the bills and the money masters.

            I did a runner from Dubai where I owed EUR20K and they haven’t caught me. 3 years later it hasn’t appeared on my Irish Credit Bureau credit rating. It can be down and if you’re country won’t make the rupture from these slave-masters, you’ve got to do it for yourself.

            The banks are a nest of vipers. Either we kill them, or they will kill us.

            Kill them, get back to the Caribbean, and in a few years reassess. Rent and be free. If you haven’t got a girl who thinks like this, find one. Lead, man. Show others how to be free, how it CAN be done.

            Ultimately this is spiritual warfare, between the soul of humanity and Mammon, or Babylon, or whatever you want to call it. The dark side. The debt side.

          • adamabyss

            Brilliant man, brilliant, thanks. This has been one of the best debates in a long time. I hope more will contribute tomorrow. I have shared it with a few different friends in various parts of the world.

          • dwalsh

            @ Eireannach

            “I place my reasons for hope on the ’100 monkeys’ or ‘Tipping Point’ idea”

            Exactly…me too. We must hope the tipping point will come soon. Meantime we must keep saying weird stuff to the folks around us and not get upset by their reactions; just keep at it.

          • adamabyss

            I fully agree on the runner you did from Dubai, they don’t deserve to be paid back in the way they have raped and pillaged whole nations and continue to promote starvation this very hour. A number of my friends have done the same when they felt it was the right thing to do. As you say, it’s a personal weapon.

          • Deco

            Peak Oil, and Peak suburbia may well have happened in the same year.

            Basically, when suburbia peaked, then so too did the real estate market in suburbia. And the real estate market crashed. Unfortunately, it was so highly leveraged (thanks to the extremely low interest rates of the past decade in the US Fed, the ECB, the BoJ, and the BoE) that it dragged the entire banking system to the floor.

            It is one chain of events.

            No more cheap oil, and the absurdly cheap credit became unsustainable. Bang. Game over. Ponzi, no more.

            Kunstler has some very useful things to say about the US media – and by logical extension the Irish and British media.

          • Colin

            Eireannach speak the true Gospel of Common Sense. Bravo.

            The tough part is finding a girl who’s not bought into the Wisteria Lane dream. Feminism needs to have a good hard long look at herself, and ask ask a few master/slave questions. Man stopped being her master years ago, and the High Street has replaced him. Anyone remember that Littlewoods Ireland TV advert with Bertie’s girl and Hotlips Off the Rails Caronline Morahan?

          • Eireannach

            @ Colin

            In Ireland we grew up in an Age of Exuberance, unprecedented exuberance, say 1990-2007. Then there were a couple of years of confusion. With this year’s budget, 2011, we will enter the Age of Austerity or “Pressure”. It’ll be an Age, nor a brief spell or a downturn or any other soft-sounding cloud on an otherwise blue horizon. It’ll be a season, like Winter. It’ll go on and on.

            Accordingly, most Irish women want to remain in the Age of Exuberance, and they don’t want to enter the Age of Austerity. I can understand it. It’s maladjusted, however. It’ll run out of road soon, if it hasn’t already.

            I appreciate this is an epochal and traumatic reversal for us, so I’m compassionate to folks who are reluctant to change. I know the feeling. But women, and for that matter men, who won’t change need to be avoided at all costs.

      • What David means by ‘Unbalanced Economic World’ is the return to SLAVERY .What goes round comes round .Soon we will see the new Pharohs .If you can spot one close to you learn to get to know them.

      • Juanjo R

        Utter drivel!

        • Falls

          could not agree more. it like listening to an alex jones documentary. for the record and this is a record not a feeling… the following is primarily FOR THE USA and their reserves

          - 1.3 Trillion barrels of ‘proven’ oil reserves exist worldwide (EIA)
          - 1.8 to 6 Trillion barrels of oil are estimated in the U.S. Oil-Shale Reserves (DOE)
          - 986 Billion barrels of oil are estimated using Coal-to-liquids (CTL) conversion of U.S. Coal Reserves (DOE)
          - 173 to 315 Billion (1.7-2.5 Trillion potential) barrels of oil are estimated in the Oil Sands of Alberta, Canada (Alberta Department of Energy)
          - 100 Billion barrels of heavy oil are estimated in the U.S. (DOE)
          - 90 Billion barrels of oil are estimated in the Arctic (USGS)
          - 89 Billion barrels of immobile oil are estimated recoverable using CO2 injection in the U.S. (DOE)
          - 86 Billion barrels of oil are estimated in the U.S. Outer Continental Shelf (MMS)
          - 60 to 80 Billion barrels of oil are estimated in U.S. Tar Sands (DOE)
          - 32 Billion barrels of oil are estimated in ANWR, NPRA and the Central North Slope in Alaska (USGS)
          - 31.4 Billion barrels of oil are estimated in the East Greenland Rift Basins Province (USGS)
          - 7.3 Billion barrels of oil are estimated in the West Greenland—East Canada Province (USGS)
          - 4.3 Billion (167 Billion potential) barrels of oil are estimated in the U.S. Bakken shale formation in North Dakota and Montana (USGS)
          - 3.65 Billion barrels of oil are estimated in the U.S. Devonian-Mississippian Bakken Formation (USGS)
          - 1.6 Billion barrels of oil are estimated in the U.S. Eastern Great Basin Province (USGS)
          - 1.3 Billion barrels of oil are estimated in the U.S. Permian Basin Province (USGS)
          - 1.1 Billion barrels of oil are estimated in the U.S. Powder River Basin Province (USGS)
          - 990 Million barrels of oil are estimated in the U.S. Portion of the Michigan Basin (USGS)
          - 393 Million barrels of oil are estimated in the U.S. San Joaquin Basin Province of California (USGS)
          - 214 Million barrels of oil are estimated in the U.S. Illinois Basin (USGS)
          - 172 Million barrels of oil are estimated in the U.S. Yukon Flats of East-Central Alaska (USGS)
          - 131 Million barrels of oil are estimated in the U.S. Southwestern Wyoming Province (USGS)
          - 109 Million barrels of oil are estimated in the U.S. Montana Thrust Belt Province (USGS)
          - 104 Million barrels of oil are estimated in the U.S. Denver Basin Province (USGS)
          - 98.5 Million barrels of oil are estimated in the U.S. Bend Arch-Fort Worth Basin Province (USGS)
          - 94 Million barrels of oil are estimated in the U.S. Hanna, Laramie, Shirley Basins Province (USGS)

          Peak Oil is a political creation to support tax increases on YOU. there is a PEAK OIL REFINERY crisis because we have so many rules and regs no one wants to build them. That is political not business. no business is going to invest a minimum of $1 billion on a refinery when you have every half assed politician looking to get their grubby hands on it.

      • Juanjo R

        ( A clarification )

        @ Eireannach – all this above is HYSTERICAL and utter drivel.

        • Eireannach

          @Juanjo R

          Of course there is an ocean of undiscovered oil out there, and when we discover it it’ll spurt up into the sky like Jack and the Beanstalk, and we’ll climb that beanstalk of cheap energy all the way up to the Moon, which is made out of cream cheese.

          Is it any wonder absolutely nobody listens to the Irish about anything anymore?

          You big-eared dopes need to find out about Peak Oil. The real world might take you a bit more seriously if you show you’re less spoilt and more grown up than you have been these past 20 years.

    • adamabyss

      Superb writing dwalsh, thoroughly enjoyed and agreed with it, thanks. Adam.

    • More evidence that the world is insane.

  12. @ Various posters – you know who you are!

    Well my Bank Holiday took a real nose-dive when by accident I left this forum page open and my nine year old shouts out to me;

    “Dad! What’s a global biospherical die-off?”

    We were just getting used to whole austerity thing in the Moriarty household when the DMcW site delivers the news of our impending doom!

    Now austerity we could cope with – in fact we’ve rather embraced the whole thing. When my young fella shouted up the stairs to me I was in the middle of a whole self flagelation routine. I’ve devised this routine as a sort of doing my bit for the country and the diaspora as well!

    Anyway I ripped out the last off the barbs and put me track suit bottoms back on to see what the lad was talking about. As I was coming down the stairs I could see he was looking at my laptop on the kitchen table and there was a conversation about soon to be had die-offs and questions like how do you think it’ll happen?

    And while I refresh the page up appears a new John Allen comment and me young fella says
    “Ah Jaysus Da that’s yer man that sits lookin into the cauldron like some bloke from Harry Potter!”

    “Get up them stairs!” I says handing him the last of his daily rations and as a treat I gave him a teabag to suck on!

    And all I can say is “Lads there’s some weirdos posting on this site!”

    Good night!

    • Eireannach

      @Paul Moriaty

      ‘De Nile’ is a river in Ireland. It’s waters run deep!

    • dwalsh

      I can understand your concern about your child; but why on earth should what is said here be tailored to the understanding of a nine year old? And why should it be nice and safe and not weird. There’s nothing weirder than truth my friend.

  13. Eireannach

    Your comments about the reduction of world energy is the drivel written by those who are not in on the recent discovery of cheap extracting technology to harness the what was until now inaccessable new resources and in this case it is GAS .Cleaner , cheaper and locally available.
    The London Stock Exchange will reveal all in good time soon.Its Top Secret for the moment.

    • Eireannach

      We do not have infitie resources John.

      We are not moving forward to a cheap energy utopia.

      We will see natural resources wars everywhere, notable in the arc from Libya through Iraq out to Afghanistan, home of 95% of world heroin production. The Arabian penisula will see more than what recently happened in Bahrain.

      NATO is already intervening in many of these countries and it’ll continue.

      It’s all because the Western corporations know that they need to control the remaining resources before the Chinese do.

      Oil prices will keep going up, forever, and there will be no hydrogen car revolution.

      Techno-optimism belongs in the C20 dustbin of fall promises and hopes.

      As you say, all will be revealed in good time.

    • Malcolm McClure

      John ALLEN: Let’s try to be moderate in our comments about energy futures, a very serious subject that is open to many interpretations.

      Eirennach: We have been through the whole ‘peak oil’ argument back in the early 1970s when Peter Odell was crying wolf. We survived that one and we shall survive this one. Thank goodness there are plenty of practical and honest men in the hydrocarbon industry who generally make decisions based on a realistic appraisal of the facts. For most of the items you list it takes 15 or 20 years to bring new resources on stream. Governments work to a much shorter time-frame, focussed on the next election, so they prefer to support projects that can be finished while they are in office.

      Back in the 1970s decisions on North Sea development were being based on projected oil price rises to $100 per bbl during the lifetime of the fields. That then seemed rather far fetched, but look what happened.
      To some extent it is a self-fulfilling prophesy. That worries me more than the availability of recoverable resources.

      • Malcolm

        I do not subscribe to constrained historical analysis & trends especially when it restricts the opportunities for tomorrows cheap energy .The familiarity of charts and stock analysis in known areas of resource productions is what I call ‘funnell vision like a blinkered horse on a ploughing field’.What is said is true what you say but what you dont say is also true too .I prefer the Good News.The road least travelled is the one that always surprises me .Check Money Week and you will find the new top secret that the UK government is placing their bets on.

      • Eireannach

        The oil, gas and other resources wars have begun, because the Halliburtons, Exxons and BPs of this world know how late in the day it is.

        It’s the old cliché about how a new idea is first ridiculed, then rejected violently, then accepted.

        In 10 years, everyone will know that we are in a serious impasse and industrial civilization will be in full break-down due to resource scarcities and associated conflicts.

        For now, we can ridicule this idea, or deny it, or whatever. But the pressure of the truth will mount and mount over time.

  14. mcsean2163

    Hopefully somebody somwhere will see the ridiculousness of working for the sake of working.

    All people need is food, shelter and love. Anything after that is a bonus.

    The solution, half the working hours of people all over the work. Maximum 20 hour weeks, then things won’t get produced needlessly and people will have more time with their chidren, family and friends.

    The world would be a better place.

    • adamabyss

      Well said mcsean2163.

    • Deco

      The manufacturing of consent. The media manufactures the consent of the people (they are consumers first and foremost) and they live so that they can spend (and support our advertising sponsors).

      Choose a motor car. Choose a flat screen TV. Choose a house in the suburbs as per the IT Property Supplement. Choose a mortgage. Choose a lifetime in debt, running around like crazy trying to support an unattainable, unsustainable lifestyle. Choose the “way of the lemming”. Choose to impress the neighbours, and make them jealous. (if this is the case, then you probably havve disfunctional neighbours and live in a disfunctional neighbourhood – a great place to bring up the kids, eh).

      Or alternatively, opt out at every available opportunity.

      How many hours you work is your own business – I just hope that you are working for yourself and not “our advertising sponsors” – if this is the case, then society is a little bit happier.

    • Colin


      Too many people define themselves by what they work at and how long they work at it for – many in some vain hope of gaining regard in the community , sure look at yer man, he’s a great fella, works so hard. Like our friend Tim here, he’s better off on welfare or so he claims, but yet he doesn’t pack in his teaching position even though there’s hundreds of graduates willing to teach and start their career. He must see some kind of social kudos for doing what he does. Other people work, and work long hours to have a reason not to be home – maybe the missus henpecks them, or the kids pester them, or the very sight of the neighbours makes the blood pressure rise.

      But yes, your right, if we’ve unemployed teachers, we should employ them, and cut back the hours of all current teachers and their pay accordingly. And the same should apply to Nursing, Gardai etc….all overtime should be banned, and hours cut back in order to provide work for the unemployed – but that would mean taking on Unions, or Union HQ!

    • coldblow

      “”With the breakdown of the Medieval system, the gods of Chaos, Lunacy, and Bad Taste gained ascendancy… Having once been so high, humanity fell so low. What had once been dedicated to the soul was now dedicated to the sale.”

      “That is rather fine,” Ignatius said to himself and continued his hurried writing.

      “Merchants and charlatans gained control of Europe, calling their insidious gospel “The Enlightenment”… The Great Chain of Being had snapped like so many paper clips strung together by some drooling idiot; death, destruction, anarchy, progress, ambition and self-improvement were to be Piers’ [Plowman's] new fate. And a vicious fate it was to be: now he was faced with the perversion of having to GO TO WORK.”

      “His vision of history temporarily fading, Ignatius sketched a noose at the bottom of the page. Then he drew a revolver and a little box on which he neatly printed GAS CHAMBER. He scratched the side of the pencil back and forth across the paper and labeled this APOCALYPSE. When he had finished decorating the page he threw the table to the floor among many others that were scattered about. This had been a very productive morning, he thought”

      A Confederacy of Dunces

    • “All people need is food, shelter and love. Anything after that is a bonus”

      I agree with you and know others who will do as well. I am meeting more people who have drastically changed their thinking over the past three years and are getting back to basics like taking an interest in how and where to grow your own food, avoid debt and travel lightly rather than become attached to pointless material possessions

      Once you strip your life back to the basics you don’t have to work as much as you require less money to live and you don’t need to get into debt. If you avoid debt then you are helping to curtail the power of the banks and speculators

      Yet we are being told that the solution to the world’s economic problems is more debt. What an insane world!

  15. juliehogan

    Oh boo hoo to China and America.. for god sake America running out of money, China has too much and whinging about having to bail anyone out? Is this the argument here or am I completely misinformed?
    All China has ever wanted has been a shift in power and to be the dominant super power. I’m so sick of all this I feel we re still in the dark ages, world wars couldn’t ascertain who was the most powerful, let’s just use money instead.

  16. mishco

    Malcolm’s link right after the article contains a map showing the countries China imports from.

    4 out of the 5 main exporters TO China are also in the top 5 which import FROM China (as shown in the previous map).

    Sorry, but I don’t get it. Are these 4 countries importing very little from the US even though they are in the US’s top 5, simply because in absolute terms the US is exporting very little?

    Or is this importing from the US a drop in the ocean compared to the US’s overall debt and therefore of little bearing on David’s argument?

    Still, there seems to be a lot of consumption of high-end goodies by the rich in China. Is all that just froth?

    • Deco

      That is a result of the concentration of the fruits of China’s economic surge, amongst the well connected few.

      Most Chinese workers toil endlessly for a pittance. Wages are too low to have an effective consumption boom within China.

      • Colin

        Maybe someone should go and explain this to the Chinese workers, and encourage them to strive for a better work/life balance. It would be interesting to see a real labour movement take root there.

        • Malcolm McClure

          Foxcon, one of China’s largest industrial employers, which makes mobile phones etc, has had a serious problem with suicides. It has announced its intention to invest in a million robots to replace tedious repetitive tasks. Chinese workers work harder than those i have seen anywhere, but they don’t have much leverage.
          Incidentally China has become a major market for Porsches, so somebody there is making piles of yawn.

  17. Deco

    The Elephants in the room (to use the Rep. symbol) are America’s massive and out of control debt, and America’s apetite for consumerism and imperial expansion.

    And the Donkeys in the room (to use the Democrat symbol) are the media pundits and the political lackeys controlled by lobbyists, who support the set of assumptions that reckless living is reasonable, taht it can continue forever, and that everybody should keep borrowing money to buy junk that they canot afford – from the people who make the junk.

    America, has been living in increasing levels denial for a very long time – possibly since the days of LBJ, definitely from the days of Nixon, about it’s financial ability and the wasteful ways it throws it’s wealth.

    The Chinese telling the US what to do, are doing so from their own strategic interest. Basically, nobody should take advice from China seriously, without examining in a very sceptical manner the strategic intent.

    There will come a time when the US is completely hollowed out, and China will buy Euro member area government bonds in order to support employment in China, because the US will no longer suit China’s needs – with the resulting hollowing out of Euro-member area employment.

    The policy of “merchantilism” as an equation is supposed to make a country rich and powerful. This is what China is playing. In fact in 18th century Europe several countries tried it as a means of controlling the population and making them feel wealthier. But actually it also leads to internal market distortions, and resource misallocation.

    It also caused a lot of wars in the 1700s, resulting in increasing goverment debts, which completely obliterated any benefit from such policies in the first place, and punitive taxes which always avoided the aristocracy (a bit like the way that Wall Street is entertained today).

    America has been careering out of control for decades. The real time for getting upset about the national debt was in the late 1960s – but at that time the prevailing economic view was that debt was necessary. Now most Western countries are in a serious debt crisis.

  18. Back to our coming default. Our debt is slewing around in the hold and hasn’t been fastened down by the Troika.
    Plus NAMA has left our cargo bays open.

    As we wind our way to the coming default perhaps we will not only see the resignations of people like Norris, Brady, Magee; but the heads of NTMA, NAMA, bankers and politicians, who misled us all and made the mess.

    China and US have a rather preying mantis relationship. US sells its treasury bonds to China, another 2-3 trillion of debt it will shortly issue. In return, China will agree perhaps to import a little more from the US to pour into high speed trains and ghost cities as it goes through its bubble cycle.

    China’s wages will increase to stimulate demand internally as global growth slows.

    Neither will default, but we will! Hopefully it will be the end of the road for the economic wreckers and corrupt insiders who’ve made the mess we’re in!

  19. Let’s ban financial casino speculation in global money markets, return to a real free market and make pencils again!

  20. mick36

    Good article David , I would advise people out there to also read, some very interesting stuff indeed.

  21. coldblow

    Interesting article from Hutton in yesterday’s Observer:

    I put up links in recent days to articles by Hudson and Hutton about the US debt political crisis. Hutton said, I think that under the influence of the Murdoch press the Americans might, just possibly – by invoking small town virtues of cloth and its cutting for the benefit of tax exemption for the ultra-wealthy – do something really stupid. Hudson took the view that they (the US) would understand what side of their bread is buttered and reach a solution, no question of any other outcome.

    Hudson has written at length (“Super-Imperialism”) about how the US seemed to just stumble (if I have this right) over the goose that lays the golden eggs, in other words the free lunch they have been eating for the last so many decades (nearly 4?) whereby the rest of the world finances their debt through US ownership of the world economy. So is it also possible, if perhaps unlikely, that they might in a similar fashion stumble out of this profitable arrangement.

    I like the jibes in David’s article about bond vigilantes and, implicitly, moral hazard. So the US can dictate terms to the RoW under the Washington Consensus, via the IMF etc, or maybe a quick word from Geithner in Ireland’s case, while reserving the right to unilaterally default. Just like that.

    • coldblow

      “US ownership of the world currency”

    • Deco

      Now, I am really scratching my head.

      Hutton is a long time advocate of the economics of Keynes. Keynes stated that every stimulus was worthwhile, that there would be no waste, as aggregate demand would increase.

      Austrian Economic Theory he talks about a misallocation of resources. Austrian Theory is greatly concerned about the misallocation resources in a stimulus driven economy, and the theory that this always causes a crack up boom.

      And now Hutton seems to be quoting Austrian Theory regarding China. This is not what I expected from Hutton.

      The Austrian Theory on China is that the stimulus has resulted in a misallocation of money into the Chinese real estate sector.

      The number 1 victim of such a bust would be the Iron ore and Coking coal exporters in Australia.

      Another serious victim in such a crisis is a large company on the ISEQ that gets praised repeatedly on the Irish media (RTE, IT, Newstalk, etc..) as being “solid”. In fact it is probably part of your pension plan. You might want to check it out…

      • coldblow

        Keynes and the Austrians? Didn’t notice all that myself in the article. He’s repeating a point made in his (latest?) book, about China and the rest of the world, that that country will not continue to make progress unless it liberalizes. Some interesting stuff there about criticism of the regime.

        • Deco

          Criticism of the regime in China has a lot of merit, and is not done enough. Hutton, to his credit, is prepared to give a very solid and tough critique of the Chinese regime, and the serious flaws that it is creating for China. The regime itself, like any organization with a monopoly on power, can be very paranoid. Just look at the way it deals with such tricky issues as the border with India, relations with Vietnam, support for Burma, the famines in North Korea (next door to an industrial powerhouse called South Korea), Taiwan, and of course the issue of Tibet.

          Full marks to Hutton for having the courage to take on the Beijing regime in his writings.

          • coldblow

            Deco, you are right to be sceptical about his all the same. You can’t be too sure about anyone these days.

  22. Deco

    Something that nobody mentions – Ireland as a tax location and the US tax regime. Microsoft was one of the biggest backers of Bush in 2000, the second biggest after Enron.

    If the US became more effective at taxing the largest corporates in the US, the Ireland would have lower wages in the multinational sector.

    A case, of us being wise to not make too much noise about something.

    • Speaking as ‘nobody’, I’ve mentioned this before. Look at the top 10 contributors to Ireland’s GDP, then examine their manufacturing footprint in Ireland against their CT, and then understand Ireland’s reluctance to increase CT against the fear of losing their phantom contribution to our GDP. Some have a fair manufacturing and jobs footprint, some don’t. Its also ironic that the elephant wanted to increase taxes on the multinationals e.g plug the loopholes creating the above scenario – given the enthusiasm behind elephant’s recent visit to Ireland. It’s a goofy and vicarious world:)

      • Deco

        You mean the donkey ?

        • thx Deco for correction. I wasn’t aware of the symbolism until DmcW used it “donkey and the elephant — symbols of the Republicans and Democrats” and took donkey to mean Republican in the order David used the two terms.

          Looking it up, I see you are correct!

        • I think Padraic O’ Conaire must have been a Democrat .

          • a Democrat or a keen observer of the shenanigans that would turn our donkeys into Celtic tigers:)


            “Ó Conaire’s short story M’asal Beag Dubh or My little black donkey is a tale about a dishonest sales-man who works in cahoots with his wife to get an exaggerated price for a lazy donkey. It was the inspiration for an internet based satire on the football transfer market. The fictitious character Masal Bugduv was created, the name sounds just like the Gaelic pronunciation of M’asal Beag Dubh. Journalists who didn’t fact check quite as thoroughly as they should have missed the satire and told the world of the up and coming Moldovan star.”

          • Tull McAdoo

            Maybe John he got “his little black ass” from sitting in Eyre square in galway for to long. Ha ha ( mo asal beag dubh ) is right…..

  23. Philip

    Your average American is a below average paid manual worker who has benefitted from low gas prices and easy to access credit for the last few decades.

    Chinese manufacturing capacity and capability is 10-15 years ahead of the US as of today and depending on the market. We are practically at the stage of saying that asking for it to be made anywhere else other than China is the height of lunacy.

    The US is a hollowed out economy with a few city states on the east and west coasts and one or two in the middle. The rest is a desert. Even then, their infrastructure is a mess – worn down and in need of replacement. Every city state is in major debt. Basically the place is a mess. I think it sad that as a consumer, the only thing worth buying in the US are cotton sheets and good quality levis. There is nothing else.

    What amazes me most about China & the other exporting nations is that the energy needed to support the logistics is still there. Oil prices are the only thing that’ll make exports dearer and to date, there seems no stopping the fact that apples in New Zealand compete well with those in ireland. Until such remains the case, the imbalances remain and the contented will contentedly consume, while the low rights manufacturing masses will sweat.

    Great Article David. Best for many weeks now. It sets the scene for the remaining questions that impact out little part of the world. Personally, I do believe there is a serious climate event emerging and I also believe we are rapidly reaching a situation where the cost of fossil fuels will become too large a proportion of total spend to allow real growth to happen – which is what I believe is fundamentally killing the US. Half stuck in a record heatwave with aircon their only refuge. That’ll suck money out of any economy in no time flat.

    Thanks again for the article. Sustainability is being questioned at an international level. My question is what at the underlying unsustainables that could trigger a new crisis event. Hint: Finance is just the symptom.

  24. gizzy

    Wow that meandered since I last logged in. People seem to see the international business as some sort of clean trade system between the nations. The system would have a chance of working and achieving equilibrium (however slim ) if the people in the middle the market makers and speculators were not allowed to play with nations, markets and currencies for their own selfish gain. Someone will speculate on oil until the day before it runs out and the governments of the world will let them. Disappointed by Obama thought he was going to make a stance against this type of greed. Question to those of you who know better. Why is short selling allowed in the markets when in all other parts of life it is sacrosant that you must own what you sell before you sell it. What positive role does it serve?

  25. CitizenWhy

    The US has a big dilemma:

    It needs its economy to expand to gain jobs and pay off debts.

    But the US economy is now based on financial services (65% of US profits in the year before the crash), which is in the business of creating and multiplying debt. So if the US economy expands it will be because debt grows.

    US banking used to be about accumulating cash to invest in business growth. It served other industries. No more.

    Now banking serves itself, its main business “managing debt” by “distributing” (trading) it in the form of complex debt obligations/bonds. These bonds are speculative, multiplying themselves. In effect the banks have been given free rein to create currency. The collapse of these bonds moved an enormous amount of capital out of the economy. Of course they were debts, but they were used as capital, as cash equivalents. House of cards? Not if you can keep everything in motion. But is that possible?

    What is the US to do?

    P.S. About 19% of the US national debt is owed to its Social Security system (the Social Security tax revenues used as the Administration and Congress please, including for financing war)…. About 9% is owed to China. Another big percentage is owed to the UK.

  26. @CitizenWhy

    Re “What is the US to do?”

    Its in a difficult bind. In the 30′s Keynes would advocate low taxes, borrowing more and spending it on infrastructure to kickstart the economy; in good times doing the opposite.

    Friedman monetarism proposes the view the US Government should simply let things develop as they will; but make sure the money supply is kept stable.

    This would appear to be the present policy that has beaten back the elephant that advocated taxing the rich and stimulating the economy through social programmes – more Keynes than Friedman; the Friedman donkey has won.

    Raising the debt ceiling pours more spending into the economy to make up for the deflationary cost of borrowing.

    The problem is both Friedman and Keynes speak against a fairly stable monetary system that has not gone so much out of control that it will not respond to the monetary policies they imply. The problem is debt has poured into the holds since 1970′s in the US and over the past decade in Europe. Allied to a monetarist policy of simply allowing markets to regulate themselves has allowed the kettle of debt to boil over.

    It would appear we have reached the tipping point where any monetarist policy will not work as global debt dynamics has taken over and stolen the show.

    Friedman needs to be consigned to a previous era and a new global monetary policy agreed between nations.

    There is a mathematical limit to the amount of printing that can be done as it eventually devalues the dollar and euro to zero with the risk of hyperinflation. But printing more is the favorite solution at the moment in the US.

    Default is not a great option as it can destroy lending confidence and raise lending rates.

    We should go to a greenback based global money supply solution linked to a universal value such as gold.

    In an initial period of transition, we should retain and consolidate and make safer the system we have; along with a barter system and greenback system based on a fixed price of gold. To qualify for this new currency arrangement, countries would have to follow strict agreed fiscal guidelines re borrowing and investment.

    ..there’s a few thoughts for ye:) I’ve finally got a beta_01 version of ‘economie’ economics application for Android mobile such as HTC Desire or Android Nexus, later will be iPhone, Blackberry, anyone want to beta test it for fun, should contact me for download/install information. So far its got a twitter application, a sample video app, and link views to international and Irish urls of interest to economics..but needs a good deal more work but its present iteration works.

    May I be the first on the list to declare myself not a member of Opus Dei:) Having watched the excellent drama doc on RTE last evening on Brendan Smyth, can I ask for the resignation of Brady and Magee now that Norris has chosen to make the right decision?

    Have a good day y’all!

  27. Deco

    This is the Chinese official statement concerning the US Debt deal.

    To be honest it is not consistent with previous Chinese lectures on the need to do a deal. Unless the Chinese take the same perspective as the TEA party – that the only deal that can work is to stop borrowing. And I doubt this.

    China is trying to have it’s butter on both sides. It cannot be pleased, and has no intention of pleasing others.

  28. Deco

    David McW’s article last week concerning the interest rate cut for Greece and Ireland, being an attempt to contain any contagion going to Spain, Portugal and Italy – is proving correct.

    Next up, Berlosconi under pressure to resign as the real power in Italia, the Milanese banks instruct him to step down because he is damaging the country’s credibility – to a degree that they are now seriously concerned. (Not that the aging crooner will comprehend anything of what they are saying). I presume they want the Finance Minister to take charge.

    And the Spanish PM has adjusted his vacation so that he is not seen to be seen as missing when the proverbial hits the fan.

    • piombo

      Hi Deco,
      Actually the Milanese banks want the exact opposite ie., they want Berlusconi to remain and sort out the mess, as the alternatives a centre-left government or a technocrat interim government are deemed to be even more ineffectual than the current government.
      Berlusconi is due to speak at 5.30pm local time to the joint houses of parliament. The betting here is that he will announce a mini-marshall plan for the south and a more active coordination role for the Banca d’Italia.
      The momentum in the Italian press is building for a Eurobond solution from the ECB with almost total acceptance that the EFSF is a still-born.
      Rather in the same measure as Mr Kenny’s assertion of a couple of weeks ago, Johnny Foreigner is being blamed by the press, rather than the profiligate public waste, corruption and sheer inefficiencies.
      Italy does however possess a standing army and a US-sourced military capability so I don’t believe for one minute that debt default will occur.

  29. The Big Three sold debt securities to a smaller regional bank, which took these bonds to the Central Bank and borrowed against them, without having to supply further collateral; they then lent back to the initiating big bank. The bonds were called “love letters” – mere promises. By participating in this game and accepting as collateral claims on other Icelandic banks the central bank was conniving in the banks’ strategy of gambling for resurrection.

    Then the banks internationalised the process: the Big Three established subsidiaries in Luxembourg and sold love letters to them. The subsidiaries sold them on to the Central Bank of Luxembourg or the European Central Bank and received cash in return, which they could pass back to the parent bank in Iceland or use themselves. The OECD calculates that just the domestic love letters, between the CBI and the Icelandic banks, incurred losses to the CBI and the Treasury of 13% of GDP (OECD Economic Surveys: Iceland, June 2011).

  30. Colin

    AN UNBALANCED ECONOMIC WORLD – Employment Apartheid

    FAS – Unions secured conditions for staff, allowing those close to retiring an extra 7 WEEKS PAID LEAVE for the last 2 years of service. Apparently its to help staff get their affairs in order prior to retirement. Needless to say, Private Sector Employees and the Self Employed do not enjoy this perk, and are forced to manage the change to retirement on their own and in their own time.

    Stop the madness! End Employment Apartheid now!

    • Colin

      Clarification – Total of 14 weeks paid leave awarded over the 2 years prior to retirement. This is on top of Annual Leave entitlements.

      • Hi Colin, unfortunately had to do some more interior painting here so listening to Joe Duffy to distract me from the numbing impatience caused by the length of time it takes to paint:) Apparently, listeners pointed out the name Solas is robbed from a host of companies already using the name, particularly a large voluntary agency in the south east who raise money in the millions. They sent their logo’s and stationary to ‘Solas’ to no avail. Also the ‘internment’ scheme:) new internship programme, a wise gent recalled ruthless employers in the 70′s firing workers and replacing them with interns. Companies are allowed to take on up to 20% of their workforce! Students with postgrad qualifications need not apply because they must be unemployed for 3 months. Woman just on who asked if she would mind ‘packing boxes’…I think I’ll turn off the radio. I should be listening to Schubert instead:) Also Pravda RTE told me countries such as Italy and Spain with massive debt problems feared they might not be allowed to return to the bond markets. Should I have been glad Ireland was not on their list of countries with massive debt problems:)

  31. The question is, who’s going to pay for the next round? Closer fiscal union and euro bonds means Germany will foot a huge part of the bill to keep the party going. Plus this may only kick the can down the road with chaos still making the rounds. A more radical solution is required to deal with the out of control debt overhang.

    Best to declare the euro bankrupt now.

    Then institute a green back solution, or variant, new connection to the gold standard along with debt write down to support a new currency valuation exercise. But this would not be possible because of inability of nations to agree.

    So, euro breakup should be examined. One solution could be a carve up of the peripherals with the euro continuing in the core countries, but the peripherals eg Spain, Portugal and Ireland joining a Commonwealth 11 led by sterling. Perhaps the Chinese could be coaxed into supporting such a carve up?

    There are opportunities there to get things right as well as get them wrong.

    Make sure the mandarins of our Dept Fin or ‘give away’ Honahan are not placed within an asses roar of any of these negotiations:)

    • piombo

      Hi Colm,
      The Euro will stay with Germany safely within. So will Ireland, as the counterparty risk is too great and Ireland’s compliance to the program are givens. Italy, despite the clamour, will be kept in, because if not, the Italian northern industrial sector would wipe out Germany in a matter of 18 months with a LIRA NUOVA.
      Spain will be maintained under the protection of the EFSF until the Germans can offload the property in their landesbanken.
      The candidates to be thrown to the wolves (to use PIMCO’s language) are Greece, Portugal and Cyprus without a doubt. All will occur before December 31th this year as January 1 2012 is the Basel III start date. These countries will be allowed liquidity facilities under the protection of the ECB and the World Bank and will be readmitted once their national finances are back in line with the original Euro criteria.
      Finally, I would not be so confident of the fate of sterling as an alternative reserve currency as it has tracked the US$ vs Euro for almost the last two years and I am not so sure our UK neighbours would take so kindly to have all these “club med” currency companions.

      • Hi Piombo,

        Enjoyed your analysis there. But there is a big flaw in that analysis, this has to do with the markets shorting Italy and Spain at the moment. Italy and Spain are being turfed out of the markets and cannot afford to borrow against the growing spreads. EFSF is simply not big enough to step in. Basil 111 I agree is opportunity to allow selective default of Greece, but Spain/Italy are an entirely different matter that threaten the foundation of the euro. Its possible Berlusconi could agree to a selective soft default, meaning more austerity and extending loans out to 30 yrs and this would save the euro, but this is a long shot and may just kick the can down the road. My own take on this is that Germany has to decide between taking losses now or kicking the can down the road with the possibility of bigger losses further down the road. Because of the trillion + size of the debt problems effecting the eurozone, default across the eurozone on the scale of Argentina’s is out of the question because it would blow the world economy out of the water. But a carve up on the basis of protecting strong euro countries against contagion from weaker ones I agree is on the cards, though bigger than what you have in mind:) One that allowed some countries to devalue following return to their own native currency would work – take your point re Italy industrial zone competing against Germany…

    • Irish Deal:


      Negotiations take place surrounding the possibility of making a deal. When these negotiations conclude and government are satisfied a deal can be made, give a blank cheque to the other side. Sign up to anything they write on it. After all, the other party know what the best going rate for the job is:)

  32. Tom & Jerry

    I prefer to use the appropriate term as above to discribe the real truth of what is really happening.Forget your Elephants and Donkeys and your selective periferral defaulting lines castigated to the wilderness .

    Allow me to introduce you to Tom & Jerry.To most of you these are cartoon characters .Its a story of a Cat & Mouse .Its simple lets assume the Cat is the Economic Crises and the mouse is any member in the EU .

    At the moment in the Kitchen we have many mice in the fridge collecting as much cheese as possible .Many of the mice pile up a lot of cheese in their arms to take accross the floor to the hole in the wall .But there is one mouse who only will carry one piece of cheese in his arms and he is German .The other mice think he is lazy not too carry any more .
    While all the mice are walking slowley and incoherently accross the floor laddened with the pile of many cheese pieces the German mouse walks normally.

    And then .The Cat appeared .Now little children ( especially Paul Moriartys bunch ) you know the fear in the eyes of all the mice at that moment .Well . They all ran as fast as they could to get into the hole .The German mouse arrived first with his fine single piece of tasty cheese .Then all the others arrived .But little children , dont we all know they lost their cheese on the floor because the too big a load was only too much and too heavy and it all fell .

    Now the ~German Mouse was happy and fed all his family .And the other mice were sad and their families went hungry.

    The moral of the storey is that the German mouse did the right thing and was not greedy but he was careful enough not to pall with those greedy bunch of loosers .He minded his own business .

    • correction :my impulsiveness caused a few spelling mistakes.

    • gizzy

      Did he mind his own business when he needed the other mice when he pulled down the big wall to reunite with the East. Think not. Why are we so inferior to make the Germans out to be superior given all the mistakes they have made in their recent history.

  33. OrdinaryMan

    Hi David, Quick question for you as I know you are a fan of accurate numbers and not making stuff up. Just in relation to your comments on Brazil, specifically:
    “No, because Brazil and Argentina are on an export binge too”.
    According to the IMF numbers Brazil exports as a % of GDP is currently c.11%. Which is lower than the US (14%) and even Greece (22%). If you are referring to net exports, Brazil still imports more than it exports although less vs US and Greece. Even so exports at 11% of GDP could hardly be described as a “Binge”. I am not as smart as you though so my numbers are probably wrong. Could you tell me how I looking at things incorrectly? Thanks

  34. wills


    Resource is us. Humans. The oil and gas and minerals is play dough.

    I reckon, humans ought to be concentrated on and the resources will work out for everyone just fine.

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