Peak Resources: limits

Showing posts with label limits. Show all posts

Economic growth as people know it, in terms of GDP, has stagnated and started to turn negative. Most reactions to the absence of growth have consisted in trying to get it back again as fast as possible, whatever the cost, further degrading the biosphere at an accelerated rate. We have seen low interest rates, debt expansion, bank bailouts, government stimulus, land-grabs, tax havens, fiscal austerity, and stock buybacks etc. Most of these things did nothing to increase the wellbeing of ordinary people but greatly profited the richest in society. The massive debt overhang from such policies have now become a burden on the real economy. All it did was to divert people's attention from the inconvenient truth that there will be less material goods and energy flows in the future, not more.

This massive wastefulness of resources comes at a time when we could have used those means to invest in benefitting projects like affordable housing, a basic income, low carbon infrastructure, ecologically sound agriculture, adaptation to climate change etc. Instead we have chosen to let the oceans contain more plastic than fish and species go extinct a thousand times faster than any time in the last 65 million years. The central bank and governments desperate policies after the 2008 financial crisis is the biggest failure in our time. When the next crisis hits, which could be very soon, there will be neither fiscal nor monetary room for manoeuvre.

In his latest paper Tim Jackson show how declining growth in the real economy caused by resource limitations has led to increasing economic inequality. A factor that greatly increases the instability of a society. The rising inequality that has haunted advanced economies over the last decade is a direct consequence of policy decisions trying to promote growth in a dying capitalistic society that cannot be supported by underlying fundamentals. All it has done is to redistribute wealth from the bottom to the top. The growth fetish has hindered ecological investments, reinforced inequality and exacerbated financial instability. The social and ecological prosperity that once was is being undone by this allegiance to growth at all costs.

As shown in the HANDY-model (2014), overexploitation of both nature and labour leads to a fast total collapse of society. Economic stratification is a symptom often found in many past collapsed societies and is an outcome of elite overconsumption in a society overshooting its ecological carrying capacity. Such a collapse often lead to inequality-induced famine, due to widespread poverty, that causes the loss of workers rather than a collapse of the ecological base itself. Elites consumption keeps growing until the society collapses.

This is a very ugly possibility. And it shows just how important issues of ecological degradation and inequality are for social stability. The fact that we see widespread resource/economic inequality indicate that we, some societies more than other but talking globally, are far gone in the process towards collapse.

However, in another paper by Jackson, there are post-growth scenarios that dont necessarily lead to increasing inequality. Jackson claims that it depends on three structural features of the economy: elasticity of substitution between labour and capital, the dynamics of the capital-to output ratio, and the behaviour of the savings rate. Under conditions more favourable to wage labour (than capital) measures like a tax on capital and a universal basic income can decrease inequality even as growth decline. However, these measures are insufficient to reduce inequality when institutions aggressively favour capital over labour.

Charles Blomfield's painting of the 1886 eruption of Mount Tarawera based on eyewitness accounts

Are we headed for the next succession of financial destruction? It’s been ten years since the global financial crisis (GFC) of 2008 that almost ruined western industrial civilisation. And while rich people in the west, at least mainstream media, seem to have the impression that we now are “back to business” lots of people around the globe are suffering from the reality of limits to growth that struck at the heart of the global economy in 08. Even if more fortunate people, like Swedes, can go on deluding themselves (for a little while) that there’s no problem with our current perverse growth paradigm there are people who don't have that luxury. Just take a look at most of the countries in the Middle East and you will quickly understand how peak oil, water scarcity, food crises, overpopulation and climate change can trigger endless misery and suffering (read Nafeez Ahmeds excellent book on this).

Contrary to the dominant narrative of “progress” I see major systemic crises converging towards the year 2020, or sooner! Are we reaching a major tipping point or simply another wave of entropy entering the system?

The symptoms of this can be found in the global economy itself with the rate of global growth stagnating (i.e. energy and debt limits) and tensions between countries competing for limited resources increasing. We also see it in the political sphere where maniacs with empathy deficit disorder get into power as a response to people's frustrations and start talking about all kinds of warfare: cultural, economic and military. We already see social unrest, conflict and trade wars but also talk about military wars connected to resources, mainly oil. Most societies are already very vulnerable, lack resilience to withstand further shocks, so a global financial meltdown could escalate fairly rapidly into chaos and destruction. When people lose everything, and they don't know why, they tend to get angry and violent. How will the US act? Will they unwind the empire, all military bases etc., or spend every bit of their last resources to plunder the planet? The place is more like an oligarchy so the über rich might decide they want the last of the oil, not for the people but for themselves. Europe is a basket case and is likely to break down, every nation on their own eventually. If a economic collapse doesn't do it, the flood of climate refugees will.

As for Sweden, we will see our massive housing bubble pop and a deep recession meanwhile people fleeing from the middle east will want to immigrate here. With the nationalist and xenophobic party, the Sweden Democrats, now being the third largest party things could turn out to their advantage as people become poorer and are likely to blame immigration issues. Similar to what we see in the rest of Europe. There is, however, a fairly strong left still in play in Sweden and to my surprise they got 10% of the votes in this year's election. So perhaps there is still some balance left in the political system, but without any major blocs the grownups in the government has yet to come to an agreement about how to rule, so maybe not. While they argue about who get what seat the world is on fire, and so it goes with large bureaucratic structures that become incompetent. And so the likelihood of social unrest increases.

As for the UN climate targets last chance of bending the emissions curve, I'm pretty pessimistic. A global financial meltdown will put all those hopes on hold and even if action did occur its likely too late to stop the climate from going above the 2C target. Moreover, what we need is not “green growth” but actual downsizing which would happen when the economy contracts. If we won't voluntarily give up consumption, mother nature will do it for us. But of course, it won't be what most people hoped for, it likely won't be a civilised and peaceful decent.

Will there be a global financial meltdown soon? Somewhere between 2018-2020? Well, I don’t know, but what's certain is that something has to give since we live on a finite planet where endless growth is impossible. There's no negotiating with nature.

Child labourers, Macon, Georgia, 1909

A growing population and dwindling natural resources, with rapidly rising extraction costs, implies increasing poverty. And this is also what we are noticing among the general populace, a shrinking economic pie has meant smaller pieces for everyone but the super rich who can bet on government stimulated markets. According to McKinsey (2016), real incomes of some 65-70% of households in 25 advanced economies have been flat or falling between 2005-2014. Crushing the long held belief that "the next generation will be better off than their parents".

As people have started to realise that they are having a tougher time to get by economically, or simply less able to buy lots of stuff, trust in governments and social cohesion has fallen. And that is also why we see the phenomena of populist, extremist, politicians gaining more traction as ordinary people become increasingly dissatisfied with status quo.

The divide between the younger and older generation is also growing as younger people are experiencing a harder time finding good paying jobs, saddled with student debt, while expected to provide for a growing share of pensioners. This at the same time as savers, e.g. pensioners, are suffering from negative interest rates and rising living costs.

Earth Overshoot Day is tomorrow, marking the fact that humanity has used up a year's worth of natural resources in only seven months. This have been made possible only by our discovering of stored fossil hydrocarbons which have provided us with cheap and abundant energy. Up until now. As we have plundered the planet for its resources we have hit limits to what Earth's ecosystems can provide without degrading or collapsing. Transgressing those limits means that we now have less resources available every year.

It's time to wake up to the fact that the world is changing and old beliefs have to be revised. Having children while wasting the Earth's resources is hypocritical if we now claim to be a species with some skill at foresight.

We don't need more reports

I find it amazing and tragic how organisations and governments keep issuing reports that confirm the dire situation humanity is in with regards to depleting resources, climate change and economic contraction. Latest is a report Limits Revisited: a review of the limits to growth debate commissioned on behalf of British MPs written by Tim Jackson (author of Prosperity without Growth, 2009) that concludes we are headed for “an eventual collapse of production and living standards” in the next few decades, given business-as-usual.

The report makes for some interesting reading and refers to some very important studies but offers nothing new in terms of scientific insight. It simply restates what previous studies have already confirmed, the global economy is running into resource limits. Going forward we should not expect resource fuelled economic growth but rather contraction.

As for climate change, we are pretty much doomed to failure, for a 66% chance of avoiding 1.5°C warming (the “safe limit”) the world only has 6 years to decarbonise the entire economy. That seems impossible given that fossil fuels cover 80% of global energy consumption and it takes many decades to replace all the current infrastructure.

40 years of inaction

It has been more than 40 years since the Club of Rome presented the Limits to Growth report but absolutely nothing has been done to steer society onto a new “greener” path. Resource depletion and emissions have continued unabated.

Living sustainably is now impossible and instead we have to focus on bolstering our resilience to coming shocks and disturbances. While I do think we should do everything in our power (e.g. limit the destruction of ecosystems, transition from fossil fuels to renewables, go from global to local economies) to change the way we live on this planet we also have to realise that many so called “solutions” are no longer viable because we waited too long.

We could have stabilised our population at 3.84 billion in 1972, leaving more space for ecosystems and a larger per capita share of resources for people. We could have replaced much of the infrastructure needed to make a transition to alternative fuel sources by now. But we didn’t do those things. Now, instead, nature is forcing us to live within the planet's limits through the usual mechanisms (e.g. epidemics, starvation, drought).

The war torn Middle East (e.g. Syria, Iraq, Yemen) is a clear case of overpopulation, depleting resources (freshwater, oil) interacting with climate change (megadrought) and conflict over the remaining resources. These states were fragile to begin with (e.g. high inequality, lack of trust, lack of infrastructure) so even small perturbations were enough to push them over the edge.

But even countries with a higher degree of resilience from the outset have started crumbling under the pressure of entropy in form of deflation (e.g. Greece, Italy, Japan). The downward trend is global. The collapse process, i.e. reduction in socioeconomic complexity, is already underway.

Is complex life such that exists with animals on Earth rare in the Universe? If so why don't we make sure not to trash our only home? A panel of experts, including Don Brownlee, Roger Carasso, Robin Hanson, Mark Jacobson, Derrick Jensen, David Klein, Bill McKibben, Guy McPherson, Bill Patzert, Gary Snyder, Jill Stein, Peter Ward, and Josh Willis discuss these topics.

A great documentary about life on Earth and the human growth dilemma.

The Cross of the Moment from Jacob Freydont-Attie on Vimeo.

Dust storm sweeping across Syria, the Mafraq region of Jordan, and part of Turkey's Mediterranean coast (7th of September, 2015). Credit: NASA Earth Observatory- Aqua Modis

Global pressures on finite water resources have grown rapidly over the past decades as a result of population growth, increasing per capita consumption and industrial agriculture. Overexploitation of groundwater in agricultural regions of particular concern are north-western India, the north China plain, the Great Plains of North America and the Central Valley in California (Rockström et al. 2014). Climate change is already impacting the number of people living in absolute water scarcity (Schewe et al. 2013). Water scarcity is a recurrent imbalance that arises from an overuse of water resources, caused by consumption being significantly higher than the natural renewable availability. Water scarcity can be aggravated by water pollution and drought.

River basins, with withdrawals exceeding more than 40–60% of available water resources, experience severe water scarcity. Many economically important river basins around the world are suffering from unsustainable withdrawals of water that impinge on ecological needs or have surpassed ecological limits such as the Amu and Syr Darya, the Indus, the Nile, the Colorado, the Orange, the Lerma Chapala, the Murray Darling and the Yellow River basin.

Global hydroregions - population pressures on water security

Source: Meybeck et al. 2013

The map above shows a relative pressure indicator (incorporating population density and runoff) for river basins in different hydroregions of the world. We can see that dry belts (medium density and very low runoff) around the equator and northern mid-latitude (high density and medium runoff) have the highest pressure on water security, while hydroregions with minimal pressure are due to high runoff and/or low population density (e.g. Amazon and Orinoco basin, Boreal hydroregions, Northern Australia basins) (Meybeck et al. 2013). Water security pressure range from the most to the least densely populated: Asia > Europe > North America > Africa > South America > Australia. Interesting to note is the difference between the “Old World” (Asia, MENA, Europe) and the “New World” (Americas and Australia).

Overall Water Risk around the Mediterranean

Shows level of overall water risk (physical quantity, quality and access).
Source: Aqueduct-Water Risk Atlas

In the map above we see which countries and city regions around the Mediterranean that suffer most acutely from overall water risk. London, Budapest, Bucharest, Valencia, Naples, Odessa, Donetsk, Sofia, Istanbul all show signs of high overall water risk due to population pressure. Countries in the dry belt of North Africa and the Middle East (MENA) all show signs of high overall water risk, either from depletion of water resources, pollution or lack of access to clean drinking water.

Baseline Water Stress around the Mediterranean

Shows baseline water stress (the ratio of total annual withdrawals to total available renewable supply). Source: Aqueduct-Water Risk Atlas

If we look at baseline water stress defined as the ratio of total annual water withdrawals to total available renewable supply (accounting for upstream consumptive use) we find that stress is extremely high (dark red) in parts of Morocco, Tunisia, Spain, Italy, Malta, Bulgaria, Greece, Turkey, Ukraine, Israel, Syria, Iraq, Egypt, Azerbaijan, and Iran. If we compare the map above to the one below, showing population pressure in the Mediterranean region (in 2009), we find that baseline water stress occurs around many of the big cities as expected.

Population density around the Mediterranean

Source: UNEP-Grid (2009)

City regions along the Mediterranean east coast in Turkey, Syria, Lebanon, Israel and Egypt have high population density in close proximity to each other. This at the same time as they suffer from extremely high baseline water stress is like begging for a conflict. Italy, Spain, Greece and Malta will suffer in the future if they don't do something about their unsustainable water situation immediately. Morocco, north Algeria and Tunisia will also have to address their water situation.

Access to Water in Europe and MENA

Shows level of water risk related to access (% of population without access to safe drinking water). Source: Aqueduct-Water Risk Atlas

People may not perceive water stress as an issue depending on access to water defined as % of population without access to improved drinking water. Here we see the situation being severe (>20%) in countries undergoing conflict such as Iraq, Syria, Yemen, Afghanistan and large parts of North Africa. In the map below we can see that Spain, Morocco, Algeria, Tunisia, Libya, Egypt, Saudi Arabia, Israel and Cyprus all have desalination plants (red ring). This requires lots of energy, most likely from fossil fuels, that many countries can’t afford to spend and it only furthers global warming. Relying on desalinated water is a very risky strategy.

Water infrastructure around the Mediterranean Basin

Source: UNEP-Grid (2009)

From all the above pictures it is not difficult to figure out that water stress, together with climate change and peaking fossil fuels will lead to migration and conflict without any foresight or planning ahead. Water is essential for all life, without sufficient water resources people have no option but to move as ecosystems dry out. Relying on groundwater pumping and fossil aquifers with little respect for ecological limits or plans for collecting rainwater is a disaster in the making, of which we are seeing the first signs. Furthermore, explosive population growth in the MENA-region following their oil boom have lead to far more people than the arid landscape can provide for. The only reason this population increase was even possible was due to fossil aquifers now empty and massive amounts of energy from oil that has been used to desalinate water from the ocean. But these are finite resources. Thus the crisis we now see in the Middle East was foreseeable, it was only ever a question of when, not if. The German Advisory Council on Global Change reported on these risk already in 2007. Most other European countries must also have been aware of these risks. A little planning could have gone a long way but all we see now instead is chaos.

Migration pattern due to ecological degradation and climate change

Areas where drought, desertification, and other forms of water scarcity are estimated are expected to worsen and could contribute to people migrating away from these areas to secure their livelihoods. Main projected trajectories are added where climate change-related migration can be expected in the future. (Source: Bogardi and Warner, 2009).

Migration is a response to a changing environment

When soils become eroded, fresh water scarce, landscapes deforested, the air polluted and climate unstable, species either adapt, move or go extinct. Because the climate is changing so rapidly most species have a hard time adapting to new conditions. Evolution would have to occur 10,000 times faster than it typically does in order for most species to adapt and avoid extinction. And so they move instead, along with the shifting climatic zones. According to a 2011 study, species are now moving to higher elevations at a rate of 11.1 meters per decade and to higher latitudes at an average of 16.9 kilometres per decade.

Life cycle events like mating, blooming and migrating that follow seasons are also changing. Mismatches in timing of births and food availability will inevitably lower population sizes of many species while pests and pathogens thrive due to warmer temperatures. Even if some species are able to migrate there are still many hinders (cities, high-ways etc.) on their way to territories where the competition for food will be tough. Highly specialised species and those who already live in the most northern regions might go extinct. For example, many Arctic species like the caribou, arctic fox and snowy owl are losing their habitat and the food they depend on at a rapid pace.

From having been almost extinct in Sweden, some 15 years ago, the arctic fox may be on its way back, but only due to support feedings and a return of lemmings. Credit: TT

Human mobility and Conflict

Human population mobility is not that different. For many of the poorest people of the world mobility is sometimes the only adaptive strategy available. Most sub Saharan African countries are finding it difficult to cope with existing climate stress, not to mention future climate change. Extreme weather events such as floods, droughts and storms have a direct impact on human migration patterns while long-term changes such as desertification and deforestation can lead to declining living standards that indirectly pushes people to move. Already at +0.85°C warming, since pre-industrial times, we see a drastic increase in the number of displaced people.

Furthermore, when essential resources become increasingly scarce or costly tensions rise and conflict can break out. In Syria a devastating drought forced millions of farmers to abandon their fields in search of alternative livelihoods in the city. And when food prices spiked in 2008 and 2011, along with oil prices, food riots and civil unrest broke out in a number of countries where people spend a large part of their income on food. Some of these conflicts have turned into full on wars which further reinforces migration.

People on the move

According to the Internal Displacement Monitoring Centre (IDMC) some 26.4 million people have been displaced by disasters (geophysical and weather related events) every year since 2008. The likelihood of being displaced by disaster today is 60% higher than it was in the early 1970s. The number of displaced people from natural disasters spiked during the strong El Niño years of 1997/98 which does not bode well for this winter and next year, with a similarly strong El Niño now taking shape. Losses from natural disasters and conflict increasingly outpaces the adaptive capacity of a growing number of people around the globe who are forced to relocate permanently. According to UNHCR, one in every 122 humans are now either a refugee, internally displaced or seeking asylum. The number of conflicts have increased during the last decade and 15 newly erupted or reignited conflicts have broken out since 2010.

Shows total people of concern (refugees, asylum-seekers, internally displaced, returnees, stateless,
and others of concern to UNHCR) in 15 countries as of 2014.
Based on UNHCR - Global Trends 2014: World At War

The conflict in Ukraine together with 502,500 people crossing the Mediterranean and the large number of Syrians in Turkey (1.59 million) has lead to a doubling of refugees in Europe between 2013-2014, according to the UN Refugee Agency. While Germany and Sweden accepted the biggest volume of asylum seekers the largest proportion of refugees are located in Turkey and the Russian Federation.

Earth to humanity

Most people in Europe, and elsewhere, are currently focused on issues of immigration with endless political debates and moral outrage in mainstream media. People think that we are experiencing a political crisis but it's much worse than that. Migration is only a symptom of the real underlying predicament - limits to growth in a finite world. As long as society tries to grow its population and economic activity we will continue to experience mounting social and ecological stresses, for example in form of: increasing inequality, disruptive climate change, mass migrations, hunger, epidemics etc. These pressures are warning signals that indicate overshoot, this is a fact, and yet we refuse to talk about limiting population growth or downsizing our economy (i.e. lowering our energy per capita consumption).

Irreversible change in carrying capacity means that a return to their homeland will be impossible for many refugees. Since ecological deficit is a global phenomenon, millions of ecorefugees will be seeking new locations. But very few places will have the biocapacity necessary to take them in without undermining their own ecological capital. Are there any lifeboats (nations) in suitable condition to accept ecorefugees on a long-term basis?

If we have a quick look at different country's biocapacity as measured by the ecological footprint network we can see that Canada, Australia, Scandinavia, Russia, Latin America and parts of southern Africa still have (in theory) the ecological capacity to host more people. While most countries located around the equator are in serious overshoot. However, not all countries are in overshoot for the same reasons, for example, the UK is a tiny country in landmass and have to rely on imports for pure survival while the US has plenty of land and could in theory support itself but not with current per capita over consumption.

Green indicates ecological credit and red indicates ecological deficit.

Accepting limits

Eventually, resource depletion and biophysical stresses will grow so large that the economy and population will have to contract. This view is based on scientific evidence of population dynamics in a closed natural system. We can always hope for the best, but we better prepare for the worst, like any prudent risk manager would.

As most people probably have noticed by now, there is very little real wealth generation in today’s economy. Most of the economic activity these days consist of wealth transfers, from the poor and the middle class to the financial elite. This is why we see such huge and widening gaps between rich and poor (80 people own 50% of all global wealth). When the resource pie isn't growing anymore then one person's gains will always imply another ones loss, it's a zero-sum game.

Absent abundant, cheap energy (especially oil) the economy cannot grow and more people go broke and become excluded from the marketplace. Only the rich will be able to afford to keep on over consuming. Our society has tried to “paper over” this problem by piling up ever more debt (borrowing purchasing power from the future), but we have now reached a level when people cannot or are unwilling to take on more debt. And this is also why we see falling commodity prices, there just isn’t enough demand. Instead we have debt deflation. In time, depressed commodity prices could lead to falling supply which in turn could be devastating for food production and transportation. All the while pollution is growing and climate change becomes more severe.

Meanwhile, in Europe, social unrest and political extremism is on the rise once again. The so called “refugee crisis”, however, is neither temporary or political in nature. Ideologies like left or right-wing doesn’t matter anymore, only those who accept ecological limits and those who don't. We are simply too many people on a planet with a limited amount of natural resources and unstable climate. Now we have to share what’s left of the Earth’s riches, and people do not like it. Especially not the rich.

"You cannot permanently pit an absurd human convention, such as the spontaneous increment of debt [compound interest], against the natural law of the spontaneous decrement of wealth [entropy]" - F. Soddy (Cartesian Economics, p. 30).

Credit: Brocken Inaglory CC BY-SA 3.0

Currency war and deflation

The Swedish Central bank (Riksbank) have cut the repo rate to -0.35% and bought another 30 billion SEK in government bonds in the belief that this will stave off deflation (i.e. import inflation). Which it won’t, since the global economy has taken a downturn and it looks like most economies now are facing recession or depression due to the deflationary collapse of commodities, capital spending and global trade. Most intelligent people know that GDP growth is over, since we live on a finite planet, and the reason for this latest bubble had to do with private sector borrowing to inflate consumption rather than productivity increases in the real economy. What professor Didier Sornette at ETH Zurich calls “The illusion of the Perpetual Money Machine” (2012).

Original Meadows et al. (1972) modified by Ragnarsdóttir et al. (2015)

Housing bubble ponzi scheme

The Riksbanks policy will not win over deflation (there are no winners in a global currency war), however, it will fuel the already overheated housing market in Sweden, with a risk of popping this bubble. The ultra-loose monetary policy will encourage Swedish households to take on more debt, despite them being overburdened by debt already. Household debt to disposable income is currently at 172% (see diagram). One can compare this to the famously over leveraged American households before 2008 which topped out at 130% of disposable income.

Household debt to income for various countries in 2014. Source: Riksbank (2015)

There should be plenty of people around today that actually remember the devastating property crash of the early 1990s, but it seems like most people have a short memory. In the early 90s the government had to step in and nationalise the banks while increasing public spending to keep the economy alive in the midst of soaring unemployment. It took at least a decade for the economy to recover and the state to restock its finances after that.

Property price index in Sweden (1986-2014) adjusted for inflation. Country average (grey), Stockholm (black), Göteborg (red), Malmö (blue). Credit: Rika Tilsammans

Sweden’s present housing boom started right (2000) after the recovery from the crisis in the 1990s. The boom was set off by low interest rates and a massive expansion of the financial sector with increasingly lower standards for issuing credit/loans. This have driven up prices to extreme levels, mainly in Stockholm, Göteborg, and Malmö, effectively forcing more people to borrow to afford housing in the inner cities. Property prices have been rising 8-9% per year on average for almost 20 years. During the last 12 months, prices have risen by 12% (average price per m2 SEK 32,692).

Sankt Eriksområdet, Stockholm. New Urbanism. Credit: 199pema (CC-BY-SA 3.0)

Even after 28 years of queueing it is impossible to get a rental flat in Stockholm. So plenty of people, or rather their parents, take on loans of SEK 1-3 million to buy a flat as small as 20-40 m2. Of course not everyone can afford to do that, so it's mostly the rich kids that stay in the city centre, in Södermalm, where all the other hipsters are. No integration there! Most of these youngster don’t have any savings. The only thing they have is their flat, speculating that asset prices will rise, seeing it as an “investment”. But of course it’s not real wealth, it doesn’t contribute to the real economy in any way, all it does is inflate property prices further.

Now, finally, mainstream media and Swedish authorities have started issue warnings about the housing bubble and a potential crash. Of course it’s too late to avoid it now. I guess everyone just love rising housing prices, no wonder since it's private and household debt that has driven GDP growth over the last decade in Sweden. So much for Anders Borgs famous “Swedish growth miracle”! Borrowing consumer demand from the future through credit creation is not equal to creating real wealth, it just implies we will be poorer (can consume less resources) in the future. After all, we live on a finite planet.

Source: Pixabay CCO Public Domain

What about oil?

Oil is like a two edged sword. Considering climate change and ecological degradation we should stop using it tomorrow. Greenhouse gas emissions is only one of the reasons. Another is our usage of oil to make plastic products that now fill the oceans and kills marine life. On the other hand, we have made our civilisation totally dependent upon oil for transportation, food production, medicines and keeping the economy going. Economic growth is basically a function of energy (oil) per capita consumption. Also, in Sweden we import a staggering 50% of all the food we consume, while farmers go into debt or have to close down their farms (which is totally outrageous). If there is a serious oil shock we might not be able to feed our population and people would starve! One report said that we perhaps could eat more horse meat since we currently have 360 000 horses only for recreational use. That is a bizarre proposal for solution.

I wonder what will happen when credit run dry due to an economic slow down, can we still import the oil we need? Looking at the current situation of falling commodity prices one might think that this would be a good thing. But I'm afraid it could be just the opposite. First of, it is lack of demand that has caused the current falling prices, people are broke and debt saturated, not some myth about "Saudi-America". Second, falling prices means that many commodity companies will face bankruptcy which eventually would mean falling supply. And once supply falls I'm not sure it will be able to come back online again as no one will fund these expensive and risky operations in a economic downturn. So either if there is a shock or we simply cannot afford it, we are very vulnerable to a loss of oil imports.

Limits to growth

Ordinary people are not aware of how precarious our situation really is since government officials have started changing their statistics. Since 2010 they have chosen to exclude GDP per capita measures adjusted for inflation, something that almost no journalist seems to have questioned. What has been seen as a "Swedish miracle" of strong GDP growth compared to rest of Europe, since 2008, has been total fiction that mainstream media fell for without critical analysis. Looking at the numbers, GDP per capita adjusted for inflation, we can see that Sweden actually only grew by 0.3% per year between 2006-2014 (see diagram). Compared to other "developed" nations Sweden places somewhere in the middle, with Poland having strong growth (3,5%/year) while the Greeks have suffered de-growth (-3,1%/year). What also becomes evident is that most of these countries have actually been stagnant or suffered de-growth. Something that is no surprise for those who are aware of the limits to growth, the fact that we live on a finite planet with a limited amount of natural resources and dwindling energy.

Source: OECD statistics

Political theatre that serves no one

As with most things these days our politicians don't really have a plan for any of the above situations. It seems to be a rule these days that the more serious the situation gets the more they fight about inconsequential things. This becomes evident in the latest budget discussions. The conservatives don't want to raise taxes while the social democrats want to tighten finance but at the same time makes the debt problem even worse!

The central bank has adopted negative real interest rates and supported buying of securities in a desperate attempt to stimulate the economy while the government has presented a budget that is supposed to be financed by raising taxes and lowering government spending. This sends the signal of a totally incompetent government that has no clue of what its doing. These policies will only benefit the people who have financial assets, speculating on houses and stocks, while savers are being punished. Thus, making the debt crisis worse. The private sector has an enormous amount of debt (252% of GDP), way above the stagnant GDP per capita income, which according to one study makes Sweden the number one country with the largest private sector debt in the world.

Source: The Telegraph

Fictive wealth

It is no wonder that the Swedish people are growing impatient with the political elite, especially when they present a story that does not fit with reality. The self serving myth of the "Swedish miracle" only help worsen the debt crisis at the same time as politicians escape responsibility. Swedish household debt has sky rocketed and now widely exceeds disposable income. The housing bubble reaches new highs for every month. But this is not real wealth, only fictive wealth, no products or services have been created. As most people probably understand, even if they repress it, there cannot be large deviations from the real economy without an eventual correction. It is not hard to figure out how it will end, rapidly growing asset prices in a country where income is stagnant is not sustainable. The hard part is telling when the bubble will pop. So when Swedes say "the Greeks have themselves to blame" then this will surely have to apply to the Swedes also when the crisis hits. All our debt is in the private sector, which is what kills economies, while the Greek debt is in terms of government debt.

A global slowdown

Signs of deflation are now everywhere. Back in 2008 the central banks of the developed world and China decided to double down on failed policies that had promoted massive debts to accumulate in the private sector, that eventually led to a near implosion of the banking sector. Now here we are 8 years later and with $60 trillion in new debt that has not led to any significant recovery of the real economy, only asset inflation. But there is a limit to how much debt people can and are willing to take on.

Source: The Telegraph

Now we see global currency markets in disarray, for example the Swedish krona lost 2.0%. The global debt bubble could be bursting leading to tightening financial conditions and a flight to safety into the US dollar. Emerging markets are struggling due to falling commodity prices. China has stumbled and is doing all it can to prevent a stock market collapse. Manufacturing and shipping is way down. And the list goes on, something is definitely happening.

Desperate measures

Since interests rates are at zero, or negative, central banks have lost this weapon in their toolkit. All the stimulus that piled up even more debt has not led to any substantial recovery in the real economy. No monetary policy in the world can change the fact that we have reached limits. But desperate times have led to even more desperate measures. All G20 nations have put in force so called "bail-ins" which means that the big banks can take depositors savings next time there is a crisis. This is what happened in Cyprus. The EU is pushing Sweden to do the same and most likely we will go along with it, according to some sources it could come into effect by 2016. In other words, no one is safe when the next crisis hits. And all the suffering to come will be due to humanity's inability to understand that infinite growth on a finite planet is impossible and doomed to fail miserably.

From growth to inequality and collapse

The big meltdown - 2020?

Next generation will not be better off