Unusual uncertainty heralds an uncertain new world

Written By: - Date published: 6:55 am, July 23rd, 2010 - 42 comments
Categories: Economy, energy - Tags:

US Federal Reserve Chairman Ben Bernanke, the world’s most powerful figure in monetary policy, said the other day that the economic recovery remains ‘unusually uncertain‘ and that it’s more likely things will turn out worse than the already rather bleak forecasts he presented to Congress than that things will turn out better.

Why are things ‘unusually uncertain’? The reaction of the large governments (not ours) to the economic crisis was textbook. They moved quickly to give confidence to markets where it had failed, thereby preventing a tail-spin of falling confidence, lower asset values, institutional collapses, even lower confidence, etc. And they spent up big in the real economy, building roads and schools, to replace the failing private sector. Their stimulus packages were meant to act as starter motors to get the private economies turning over again under their own steam. This is literally all out of the textbook and has worked every time until now.

The engine has been primed but it hasn’t started ticking over on its own. The private sector is still missing in action. Confidence is still weak.

Watching the financial media it’s clear that the players don’t understand what’s wrong. They know that there ought to be a recovery as strong as the recession under way but it isn’t happening.

Step back a little, though, and it becomes clearer. All the players can’t see that the field they’re playing on is changing. They’re like beasts expecting that their waterholes will be refilled by the rains after the dry season, unaware that the climate has changed.

The reason the recovery isn’t happening, the reason that prospects for growth are ‘unusually uncertain’ is that we hit the limits to growth in 2007-08. When we hit it, we bounced off but we cannot grow much again before once again slamming into that brick wall.

If you look at all the major commodities that our world runs on – wheat, rice, coal, metals, and, of course, oil – the prices are starting to spike up again just as they did before the last crash. Why? Because a price spike is the economy’s way of saying that supply is about to fall short of demand. We have reached the point where growing supply of many of the key things we rely on for growth, most especially oil (which is about to peak), cannot continue. This is a finite world and we are hitting its limits. Already, the rising prices are constraining companies’ abilities to grow during what would usually be a strong recovery.

So, yeah the prospects for growth are ‘unusually uncertain’ because we have run out of room to grow in an economic paradigm based on burning more hydrocarbons and producing more cereal crops.

The problem (one of the problems) is that we can’t see the forest for the trees. People still think that the great recession was a problem with the finance system, triggered by a housing crash. But that’s just a proximate cause. The underlying cause was the oil crunch and the next great recession will occur within a matter of years as a result of another crunch, as the IEA, US military, and others have predicted. But the likelihood is that recession will be blamed on another proximate cause and everyone will try to carry on as if infinite growth is possible, as if the rules haven’t changed. Bernanke didn’t mention oil once in his testimony to Congress.

We are at the limits to growth within this energy economy. The sooner we realise that, the better.

42 comments on “Unusual uncertainty heralds an uncertain new world ”

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  1. A Post with Me in it 1
    23 July 2010 at 7:58 am

    And it will rain for forty days and forty nights….

    Rod Oram spoke on this and in particular to the NZ situation. He said that companies were expecting the return of cheap credit as before and it simply has not happened. Also that while the “recession is over” many companies are still reeling from it and are struggling to find their feet.
    Many still had not worked out that things are never going back to the way their were – at least not in the short term. Eventually they will go bust or realign their businesses to the new economy.
    Now factor in the recent slashing of budgets to combat sovereign debt and well I am not sure that we are going to be out of the woods any time soon.

    He expected that the the rebound will not be for some time and it will not be a rebound but a gradual increase this time.

    He said this quite a while ago. And this is pretty much what we are seeing.

    While I don’t disagree that commodity prices and food security are going to be issues in the future and are maybe contributing, I am not sure I believe that your take on things are simply resource exhaustion as you are pointing out.

    PS: You are my hero Rod…sniff

  2. Bored 2
    23 July 2010 at 8:07 am

    Marty, at long last the headline where it should be. I have bored the shit out of all and sundry by questioning the growth model of economics and the stacking up of debt on the basis of paying for it with future growth. As you say we have peaked everything and the environment shows the effects. All I can say is that the growth game is up, well said.

    The next bit is what do we do? From a political angle we face major uncertainty as we go through withdrawal symptoms. Take note Labour, time to get with the programme, brush of your copies of Schummaker and similar, take the lead. The Nats wont until the whole thing steamrollers them.

  3. Gosman 3
    23 July 2010 at 9:26 am

    Excellent. I can’t wait for the Labour party to start campaigning on a zero growth policy. Should make things a little easier as well as funnier.

    • A Post With Me In It 3.1
      23 July 2010 at 9:59 am

      I think campaigning on sustainable growth would be more likely and very sensible.

      What company does not at least pay lip service to efficiency? Why would a country not do the same?

      But of course I assume this was just a sideswipe smear with very little thought behind. But nice puff of hot air during winter…

    • Juan Manuel Santos 3.2
      23 July 2010 at 10:00 am

      Typical shallow analysis from the right. “I can’t refute this, so I’ll make some jibe about the Labour Party and hope no one notices.”

      The only person here talking about Labour is you, Gossy. Everyone else is mature enough to discuss the bigger issues.

      • Gosman 3.2.1
        23 July 2010 at 10:21 am

        “Everyone else is mature enough to discuss the bigger issues.”

        On The Standard??? I sense a Tui bill board slogan in that. 😉

        • jcuknz 3.2.1.1
          23 July 2010 at 10:33 am

          Well it wouldn’t be on Kiwiblog either …..
          Coupled with our own problems there is the problem of perswading the Chinese and Indians and third world countries that they shouldn’t expect to match whatever standard of living we manage to maintain.

        • bbfloyd 3.2.1.2
          23 July 2010 at 11:54 am

          gosman… you know you used to get help to pay for therapy for what ails you. your hero’s took the funding away tho. now you’ll just have to drink more

    • Ari 3.3
      23 July 2010 at 1:12 pm

      Labour campaigning on zero growth without being dragged into it? Don’t make me laugh. Last time I saw a Labour MP even hear about zero-growth, his reply is “but that will cost jobs!” Complete denial of reality. You can’t save jobs by growth when there’s simply nowhere left to grow into.

  4. pollywog 4
    23 July 2010 at 10:20 am

    Theres just too much crap out there being hawked and people have wizened up. I’d say we don’t need more than half of what people/companies are producing and brand loyalty doesn’t count for shit anymore.

    You can tweet and facebook, blow out your advertising budget pimping as much shit as you want about stuff, but people are realising that though we might want it, we just don’t need it.

    new cars would be a prime example.

    • Gosman 4.1
      23 July 2010 at 10:22 am

      Yes, noone needs brand new fuel efficient cars do they.

      • jcuknz 4.1.1
        23 July 2010 at 10:37 am

        Fuel efficient [petrol;/diesel] cars are a band-aid, not a solution. We need to breed more shanks ponies.

        • loota 4.1.1.1
          23 July 2010 at 4:32 pm

          One tonne of new steel goes into a new car, voila that’s 1.8 tonnes of CO2. Just to manufacture the raw steel. And we haven’t started talking about where the GJ’s of energy required to do so are coming from yet.

      • pollywog 4.1.2
        23 July 2010 at 10:47 am

        nah we don’t Gosman…

        …we need cheap electric conversion kits, longlife batteries, affordable home solar panels and wind turbines, which is what NZ should be looking at developing and mass producing !

        • felix 4.1.2.1
          23 July 2010 at 11:15 am

          But Gos doesn’t want to think about all that shit. He just wants a new frickin car you damn commie bastard. And he only wants ONE every couple of years so that’s only what? 20 cars? What frickin difference is 20 cars gonna make? You know how many cars they make in CHINA ffs?

          Just give in his frickin car.

  5. Zb 5
    23 July 2010 at 10:38 am

    Katrina, and now the gulf, for the most party the US government took
    its sweat time investing in clean up. That should tell you something, it
    was no longer cheap to clean up the mess! But its worse, not only
    do energy intense production become prohibitively expensive, hellicopters
    fighting vineyard frosts! but the whole way we trade will change. Bailing
    out the players only delays the inevitable re-balance and funds the people
    with now shrinking resources, who have most to lose when the change comes (if
    they use the bail out to shore up the present system).

    The end of cheap high dense energy is over. Density of energy will
    garner a premium for high end uses, like hellicopters over million
    dollar wine harvests, but for running down the dairy to get a litre of
    milk probably not.

    We will still have growth, its will be individuals saving any spare
    cash and trading with each other for their lifes luxuries rather than
    the big international corporates view of what luxuries are. The
    party at the big end of town is over. The days of just the few,
    a few eyes, a few signatures, and whole ecosystems are eliminated
    on the other side of the planet are over.

    Welcome to the Green Revolution. About frigging time.

    Unusually uncertain. LOL. Its been predicted for decades in the
    alternative media. Hell! Marx pointed out in fashion, that capitalism
    tends to get top heavy and collapse, this was an opportunity for workers
    to stuff their own countries up royally! Workers only in poorer agrian nations
    could not be brought off fast enough and placated by democratic power
    sharing, and so tanked their economies in a red revolution.

    Germany enter the age of oil with a fascist in power and used the
    oil advances to wage global war. Now our neo-fascist marketeers
    think they can hold on despite the inevitable end of oil, through the
    nambie pambie propaganda controls (that would make a Nazi laugh).
    Get real, Fox can’t tell us its fail and balanced when obviously its not
    anywhere close, we’re not seening any growth so we’re not placated into
    half believing that fair and balanced was taken care off. You can not
    buy us off any longer with cheap oil and cheap credit, to control
    us with our own resources and our own debt. The trick is up,
    the cheques keep bouncing, you write our cheque out for us
    with your name as the benefitary and they don’t work any longer.
    Pay neo-liberal out the sum of 100 million workers profits.
    HAHAHA. Governing neo-fascist boring bland simplistic
    neo-liberal economics is now ineffective in divorcing us from our
    cash and our world resources.

    Suks to be loser, who hold on to billions dollars of
    crazy money that is so obviously mismatched to actual real worth,
    to the real economy, the people of planet Earth.

    We the people, of the people, by the people was not, is not, a
    statement of some promise of rights in the future, its a statement
    of fact as it has always been.

    • Bored 5.1
      23 July 2010 at 11:07 am

      Zb, interesting idea that those who have now will end up holding nothing but worthless promisary notes…be careful. The buggers will try to buy / control anything that can produce and leave us a serfs, thats what the privatisation agenda of the right is all about.

      We need to now make the conceptual jump away from “money” and “finance”, these need to be reduced to mere accounting tools for real solid tangible items / resources that we actually use (as opposed to digits in a database of “future debt” held etc). If we have to be able to tie the accounted item to a real item we will have a much more tangible view of resource avilability and resultant allocation.

  6. jcuknz 6
    23 July 2010 at 10:48 am

    This ‘good news’ story from NYT seems relevant to the madness of our current position.
    http://www.nytimes.com/2010/07/22/business/global/22auto.html?th&emc=th

  7. Bill 7
    23 July 2010 at 10:50 am

    Didn’t the bail out money go to the financial sector rather than the real economy? The ‘too big to fail’ trillion $ or whatever bailout of finance, while car manufacturers were left to sink and thousands of jobs allowed to disappear?

    I’m not aware of any government investing heavily in the real economy. Haven’t they all slashed spending (massively in the UK for example) and cut taxes, thereby diminishing rather than increasing the flow of money around any real economy activities?

    Maybe I’m missing something.

    Anyway. End of growth?

    What is the limit on financial speculation? Or speculation on speculation? I can’t see that there are any. And wheat, rice etc increased in price largely because of speculation rather than just the effects of supply/demand. I remember reading somewhere that it was fuelling a shift to potatoes as they were the only basic foodstuff free (so far) from the effects of financial speculators.

    Growth isn’t based on real economy stuff any more.

    And so while there may well be a crisis for growth in the energy economy as you have termed it, that doesn’t impact on growth in the financial economy.

  8. Nick C 8
    23 July 2010 at 11:09 am

    Maybe you should apply to be Bens chief advisor and tell him exactly whats going on..

    What economic qualifications do you have again?

    • Bored 8.1
      23 July 2010 at 11:17 am

      Take along a copy of Rands minute to run pot boiler rants to the interview. Ben was apparently apprenticed to the sainted Ayn. Shrug like Atlas and magic up a few zillion conceptual dollars to be collateralised with the sweat of workers in Guatemala…its a brave new (old) world.

    • Lazy Susan 8.2
      23 July 2010 at 12:45 pm

      What particular alternate reality do you live in Nick C? The guys with all the big economic qualifications behind their names are the ones that over-leveraged the system that got us into this mess in the first place.

      As long as the system works for them and their paymasters things are sweet – sod the rest of the world. Unfortunately for them a growing number of people are waking up to the idea that the system is screwed and the so-called experts are only interested in looking after their own. Can you hear those chickens? they’re coming home to roost.

      captcha: hanging – how you might find some bankers?!

      • Bored 8.2.1
        23 July 2010 at 1:58 pm

        L Suze, I think Nicks onto it, ask the question of Bill, thats who hes taking a punt at. Nicks well and truly in touch with the reality and who is doing us over (have a gink at a few of his comments).

        • Bill 8.2.1.1
          23 July 2010 at 4:31 pm

          Eh? You sure Nick C wasn’t having a go at Marty there, Bored?

          My comment was questions. Not assertions. So if Nick C was having a go at me, it just doesn’t make sense.

          Anyway…

  9. dave brown 9
    23 July 2010 at 11:36 am

    What a bunch of Anglo/US centric comments. Peak this and peak that. Peak ideas more like.
    The ‘West’ is in decline, but Asia is not. There is real growth in China. And China’s demand for commodities is pushing real growth in Asia, Africa and Latin America. If not for that we would be in the middle of a 30s type full-on global depression.
    The problem is that the new growth is no less destructive on a global scale than the old growth. Think of China buying BP.
    If you want sustainability then you need to get onside with Chinese workers who have our fate in their hands. The shortest route to sustainability is Chinese workers socialising their state capitalist regime.

    • Draco T Bastard 9.1
      23 July 2010 at 12:40 pm

      And China’s demand for commodities is pushing real growth in Asia, Africa and Latin America.

      It can push all it likes but if there’s no resources left to supply the demand then they ain’t going to get anything.

      Growth is, like cancer, unsustainable.

    • ZB 9.2
      23 July 2010 at 8:54 pm

      China has a huge housing bubble. China trying to catchup to western consumer car culture isn’t
      going to happen! There isn’t enough room in China for the parking spaces! China is not the
      growth center of the world economy because its some shiny light of capitalist free market!
      We are not going into another 30s depression. More like the long depression in the late 19
      century. Basically market failures happen all the time, mismatches the market takes
      time to resolve. This is no different. The 30’s great depression was a mismatch of
      high density energy oil and processes that produce vast new supply without a consumer
      culture to buy the supply. Now we have the sideways depression, as deep or shallow as your elites,
      while they dither and take time to retool our economies and cultures for the new economy
      of less carbon addiction.

  10. roger nome 10
    23 July 2010 at 12:48 pm

    Marty:

    You may be interested in this movie that rently came out . Should be at the up-coming film festivals.

    http://www.youtube.com/watch?v=WAyHIOg5aHk

    • Bill 10.1
      23 July 2010 at 4:01 pm

      Not saying that he doesn’t have it more or less right on the broad brush stroke stuff.

      But he’s not very well.

      From having just watched the film, looks to me like he’s hitched his madness to some fairly uncontroversial and not uncommon economic/political viewpoints and then wrapped himself up in fluffy little blankets of half baked delusion and nonsense to justify his placing of himself slap bang at the centre of it all where he attempts to play he role of prophet, conductor and intellectual powerhouse.

      Unfortunate, because he’s a half decent communicator otherwise.

  11. randal 11
    23 July 2010 at 1:14 pm

    yes they have become like little boys whistling in the dark to keep their spirits up.
    Ben Bernanke may be an expert on the ‘great crash” but a wider view is necessary here.
    when does the fat lady stop singing?
    in the meantime they gonna grab as much real estate as they can to try and keep the wolf from the door.

    • Bored 11.1
      23 July 2010 at 2:04 pm

      Ben B should be an expert on the great crash, he’s been driving it at close range.

  12. Mark M 12
    23 July 2010 at 1:50 pm

    Agree with your comments that the “large governments” have done what was accepted orthodoxy after the crash and the Key Government was out of step.
    Now that you have seen the “large governments ” policies failing you may understand why Key didnt follow them.

    Perhaps its time to accept that someone who made a lot of money out of the finance industry knows a wee bit more about the economy than enthusaistic economic amateur bloggers.

    • loota 12.1
      23 July 2010 at 2:12 pm

      Someone who made a lot of money gaming cash out of the real productive economy using computational financial wizardry “knows a wee bit more about the economy”?

      Yes, no doubt, John Key is an expert at playing the percentages and timing the markets to game cash out of the economy as well as firing workers from his firm, but that’s neither hugely impressive nor hugely relevant in terms of building up a productive economy.

      captcha: owes

    • Draco T Bastard 12.2
      23 July 2010 at 4:04 pm

      He made a lot of money out of the finance industry by screwing over the economy.

      • loota 12.2.1
        23 July 2010 at 4:35 pm

        Damn, you make me sound verbose, Draco.

      • ZB 12.2.2
        24 July 2010 at 7:45 am

        Key didn’t set the system up that ships profit overseas, that would be the National party and its support base, aided by the Labour party compromising in order to remain politically competitive as world economies were rigged with cheap money and primed with cheap oil. Key won the speculator lottery, a process where any poor performance means immediate dismissal of said speculator, over time someone has to be the last man standing doesn’t matter what they were doing or why it was good only that they got lucky betting the right way (shear luck in my opinion given someone loses money for others to win money). So no Key didn’t trash our economy, he was a follower who never had to lead anyone anywhere, who played his cards close and never explained to anyone in depth about anything. Perfect National leader if you wanted to continue to ship profits overseas. Spent a life time doing it, guarded, unaccountable, and charmingly distractive. National are not the party you want in power in a crisis, they will stop bailing and start selling off assets at the bottom of the market, they will raise taxes saying you don’t work hard enough to give the few at the top a bonus for all their hard work overseeing a collapsing world economy. Yes, you were duped, never again. That’s why they got Key, to smoose National back in for a second term. The main stream press love Key, his handlers hand them copy and they don’t have to fact check or much of any indepth, the angles have all be analysis by a battery of thinktanks and voter panels to convince even the diehard voter that National are not as bad as all indicators show. No, you may feel the tax rises, increase levies, the ETS, the lack of work, the increasing insecurity brought on by the 90-day legislation are bad, hurting you, that the inflation caused by Key pushing up your mortgage was harsh, but mainstream media will smooth your reality away with a nice smile and wave from Mr Impenetrable money man once again saying trust him. And the polls suggest that most voters still think Labour will force them to buy lightbulbs. Geez is this anyway to run an economy, do we have to trash the economy before we raise our hackles about how National sell us cheap, insure managers their long stay while shafting the little guy again. Yes, it seems so.

  13. Ag 13
    23 July 2010 at 10:24 pm

    Nah… there are limits to growth, but they have little to do with the current crisis.

    Nothing is hidden. The reasons for the crisis are in plain view. Credit was too cheap. The reasons why credit was too cheap were political reasons, not economic reasons. The ultimate reason is that any political party promising an end to cheap credit would have made itself unelectable. Hence, parties competed to offer people more, and people voted for them.

    In the end, the democratic system is to blame. You won’t hear this in the news for the simple reason that the democratic system is sacrosanct and criticism of it is not permitted. That’s why political reporting on the grand scale tends to be rather daft. We can either keep democracy and suffer this sort of thing, or try something else.

    Ask yourself what needs to be done to fix our societies’ problems and then ask yourself how the average SUV driving suburban moron will ever be persuaded to vote for them.

  14. Chris 14
    24 July 2010 at 1:43 pm

    Technology is the most important driver of new growth. If you are suggesting more growth is not possible then to me you are saying technology has reached its limits, which is clearly false.

    GM foods; more efficinet cars, planes, trains and such; more advanced renewable energy capture; more efficient batteries and other energy storage devices; new and more advanced composite materials; nuclear fusion power? (50 + years away but still). These are some of the thinigs that will continue to drive economic growth worldwide. There will continue to be real worldwide economic growth for all of my lifetime and the forseeable future beyonod that too.

  15. Gail 15
    26 July 2010 at 5:37 am

    How long are people going to keep falling for this “confidence” nonsense? The problem is not lack of confidence – it is lack of MONEY! The bankers are intentionally crashing the economies around the world because desperate people are easy to manipulate. My comments are based on what is happening in the U.S. but I believe it applies in NZ and elsewhere too.

    With at least 20-30% of Americans unemployed or underemployed (working two or even three jobs and bringing home less than half of what they once earned) compounded by the declining purchasing power of the US dollar which will continue to slide recovery is IMPOSSIBLE. Only the naive can believe the economy can “recover”.

    The end stage of EVERY Fiat currency (money not backed by gold or anything else) is always hyperinflation – so even if Americans still made as much as they used to and still have health benefits and retirements (which they don’t) the point of no return where what they earn will not cover keeping food on the table and a roof over their heads would still be on the horizon.

    What is true in the U.S. is no doubt true in most other countries. The ONLY solution is to stop playing their game. Create small economies of your own where you support each other’s small online and local businesses. Know that fast success based on borrowing is NOT an option. Eliminate insurance and provide for each other within the community instead.

    And most importantly understand the difference between wants and necessities. Focus on what we MUST have to survive: water, food and shelter – in that order. Learn to grow your own food or source it from people who have those skills LOCALLY. Eat staples instead of convenience foods. It is possible here to eat for a dollar or two a day per person IF you can garden, cook and bake. Twenty pounds of potatoes currently costs about the same as ONE bag of potato chips.

    Use the Internet to find out what you need to know and connect with others who have skills you don’t have. SAVE the Web addresses of key sites in case they become harder and harder to find. (The same people who control banking control the major search engines and can easily censor what you can find in them.)

    Save key information in offline form (on a USB thumb drive or a CD or hard copy). Own physical books or print it in case you need it when there is no power or your batteries go dead! Power does go down for days sometimes even here and could be unavailable for an extended time due to an emergency (earthquake, hurricane, etc.).

    If you’re a blogger connect with other bloggers. We have numerous blogging groups you can use to find those in your niche or areas of interest or location. Read the post I’ve attached to this comment and don’t miss the stats in there about where the money went. It will be the same story in other countries.

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