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Nine Percent
Submitted by Richard Heinberg on October 29, 2008 - 10:55am.
The Financial Times has leaked the results of the International Energy Agency's long-awaited study of the depletion profiles of the world's 400 largest oilfields, indicating that, "Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent."
This is a stunning figure.
Considering regular crude oil only, this means that 6.825 million barrels a day of new production capacity must come on line each year just to keep up with the aggregate natural decline rate in existing oilfields. That's a new Saudi Arabia every 18 months.
The Financial Times story goes on:
Inter alia, the IEA takes the requisite swat at "peak oil theorists," who, the agency somehow still believes, are saying that the world is "running out of oil." Of course that's NOT what peak oil theorists say, but a correct summation of their position would have to be followed with a statement to the effect that, "Our research supports their position," which would be just too embarrassing.
Sadly, the IEA feels it must pull its punch even further.
With adequate investment in new small oilfields and unconventional sources like tarsands, it insists, the world can still achieve higher levels of production. In other words, if the $12 trillion that vanished from the world stock markets last week were invested in new tarsands projects, then theoretically a few more years of total oil production growth could be eked out (not growth in net energy production, mind you, but in the gross—and I do mean gross—production of exotic, very expensive stuff that it's physically possible to run your car on, assuming you could afford to do so).
Of course, any realistic assessment either of the likelihood of that level of investment appearing, or of the ability of new projects to really produce a sufficient rate of flow regardless of the size of the cash infusion, would end merely in a hearty belly-laugh.
Evidently peeved about being scooped on its planned November 12 press conference roll-out of the study, the IEA has disavowed the Financial Times story. But if nine percent is even close to being the final figure, then it's absolutely clear: July 2008 was the all-time peak in world oil production. Don't expect anyone at the IEA to officially admit that fact until 2025 or so. But among those who pay attention to the evidence and the terms of the debate, further ink need not be spilled in speculation.
Peak oil is history.
______________
And here's the ever stylish DR. DOOM, who may need to get out academia a bit to see just how petroleum and resources are going to trump this deflation story with some of the diametric opposite influence - soon! The more I read of Roubini the more I feel unconvinced of his arguments. He will likely get his "deflation" for a while but he seems to envision this global "deflationary vacuum of demand" as though it existed sealed away from any other developing global sub-plots while in fact there are some enormous sub-plots percolating, hinting at just the opposite of his globally deflated conclusions.
Get Ready For 'Stag-Deflation'
Nouriel Roubini 10.30.08, 12:01 AM ET
Back in January, I argued that four major forces would lead to a risk of deflation-- or "stag-deflation," where a recession would be associated with deflationary forces--rather than the inflation that mainstream analysts have worried about.
They were: (1) a slack in goods markets, (2) a re-coupling of the rest of the world with the U.S. recession, (3) a slack in labor markets, and (4) a sharp fall in commodity prices following such U.S. and global contraction, which would reduce inflationary forces and lead to deflationary forces in the global economy.
How has such argument fared over time? And will the U.S. and global economies soon face sharp deflationary pressures? The answer: Deflation and stag-deflation will, in six months, become the main concern of policy authorities.
Why?
First, the U.S. has entered a severe recession that is already leading to deflationary forces in sectors where supply vastly exceeds demand (housing, consumer durables, motor vehicles, etc.). Aggregate demand is falling sharply below aggregate supply. The unemployment rate is up sharply, while employment has been falling for 10 months in a row.
And commodity prices are sharply down--about 30% from their July peak--in the last three months, and are likely to fall much more in the next few months as the advanced economies' recession goes global. So both in the U.S. and in other advanced economies we are clearly headed toward a collapse of headline and core inflation.
Is there any doubt about this ongoing inflation capitulation and the beginning of sharp deflationary forces? Take the current views of the economic research group at JPMorgan Chase. This group was, in 2007-08, the leading voice arguing about the risks of rising global inflation and the associated risks of a global growth reflation, and that policy rates would be sharply increased in 2008-09.
This week, however, the JPMorgan research group published its latest global economic outlook, arguing that we are headed toward a global recession, negative global inflation and sharply lower policy rates in the U.S. and advanced economies--a 180-degree turn from its previous position. What a difference a year makes!
Do you have any further doubt that we're headed toward a global deflation or--better--a global stag-deflation? Read on: Aggregate demand is now collapsing in the U.S. and advanced economies, and sharply decelerating in emerging markets. There is a huge excess capacity for the production of manufactured goods in the global economy, as the massive, and excessive, capital expenditure in China and Asia (Chinese real investment is now close to 50% of gross domestic product) has created an excess supply of goods that will remain unsold as global aggregate demand falls.
Commodity prices are in free fall, with oil prices alone down over 50% from their July peak (and the Baltic Freight Index--the best measure of international shipping costs--is 90% down from its peak in May). Finally, labor market slack is sharply rising in the U.S., and rising, as well, in Europe and other advanced economies.
Next question: What are financial markets telling us about the risks of stag-deflation?
First, yields on 10-year Treasury bonds have fallen by about 50 basis points since Oct. 14, getting close to their previous 2008 lows. Also, the two-year Treasury yield has fallen by about 150 basis points in the last month.
Second, gold prices--a typical hedge against rising global inflation--are now sharply falling.
Finally, and more important, yields on Treasury Inflation-Protected Securities (TIPS) due in five years or less have now become higher than yields on conventional Treasuries of similar maturity. The difference between yields on five-year Treasuries and five-year TIPS, known as the break-even rate, fell to minus 0.43 percentage points.
This is a record. Since the difference between the conventional Treasuries and TIPS is a proxy for expected inflation, the TIPS market is now signaling that investors expect inflation to be negative over the next five years, as a severe recession is ahead of us.
So goods, labor, commodity, financial and bond markets are all sending the same message: Stagnation/recession and deflation (or stag-deflation) is ahead of us. Don't be surprised, then, if six months from now the Fed and other central banks in advanced economies will start to worry--as they did in 2002-03 after the 2001 recession--about deflation rather than inflation.
In those years, when the U.S. experienced a deflation scare, Fed Chairman Ben Bernanke wrote several pieces explaining how the U.S. could resort to very unorthodox policy actions to prevent a deflation and a liquidity trap like the one experienced by Japan in the 1990s. Those writings may, very soon, have to be carefully read and studied again.
Finally, while in the short run a global recession will be associated with deflationary forces, some ask whether we should worry about rising inflation in the middle run? This argument--that the financial crisis will eventually lead to inflation--is based on the view that governments will be tempted to monetize the fiscal costs of bailing out the financial system, and that this sharp growth in the monetary base will eventually cause high inflation.
In a variant of the same argument, some posit that--as the U.S. and other economies face debt deflation--it would make sense to reduce the debt burden of borrowers (households and, now, governments taking on their balance sheets the losses of the private sector) by wiping out the real value of such nominal debt with inflation.
So should we worry that this financial crisis and its fiscal costs will eventually lead to higher inflation? The answer to this complex question: likely not.
First, the massive injection of liquidity in the financial system--literally trillions of dollars in the last few months--is not inflationary, as it accommodates the demand for liquidity that the current financial crisis and investors' panic have triggered. Thus, once the panic recedes and this excess demand for liquidity shrinks, central banks can and will mop up all this excess liquidity.
Second, the fiscal costs of bailing out financial institutions would eventually lead to inflation if the increased budget deficits associated with this bailout were to be monetized, as opposed to financed with a larger stock of public debt. As long as such deficits are financed with debt--rather than by the printing presses--such fiscal costs will not be inflationary, as taxes will have to be increased over the next few decades and/or government spending reduced to service this large increase in the stock of public debt.
Third, to the question raised earlier: Wouldn't central banks be tempted to monetize these fiscal costs--rather than allow a mushrooming of public debt--and thus wipe out with inflation these fiscal costs of bailing out lenders/investors and borrowers? Not likely in my view. Even a relatively dovish Bernanke Fed cannot afford to let the inflation-expectations genie out of the bottle via a monetization of the fiscal bailout costs. It cannot afford to do that because a rise in inflation expectations will eventually force a nasty and severely recessionary Volcker-style monetary-policy tightening to get the genie back into its bottle.
[ :eek: Anyone doubting we have a stalwart Volcker in our near future must be ingenuous!! :rolleyes: ].
Fourth, inflation can reduce the real value of debts as long as it is unexpected, and as long as debt is in the form of long-term nominal fixed-rate liabilities. An attempt to increase inflation would not be unexpected: Investors would write debt contracts to hedge against such a risk if monetization of the fiscal deficits does occur.
Also, in the U.S. economy, a lot of debts--of the government, of the banks, of the households--are not long-term nominal fixed-rate liabilities. They are, rather, shorter-term variable-rate debts. Thus, a rise in inflation in an attempt to wipe out debt liabilities would lead to a rapid repricing of such shorter term, variable-rate debt. And thus expected inflation would not succeed in reducing the part of the debts that are now of the long-term nominal fixed-rate form--i.e., you can fool all of the people some of the time (unexpected inflation) and some of the people all of the time (those with long-term nominal fixed-rate claims), but you cannot fool all of the people all of the time.
In conclusion, a sharp slack in goods, labor and commodity markets will lead to global deflationary trends over the next year. And the fiscal costs of bailing out borrowers and/or lenders/investors will not be inflationary, as central banks will not be willing to incur the costs of very high inflation as a way to reduce the real value of the debt burdens of governments and distressed borrowers. The costs of rising expected inflation will be much higher than the benefits of using the inflation tax to pay for the fiscal costs of cleaning up the mess that this most severe financial crisis has created.
Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.com.
I THINK ROUBINI'S FORMERLY MODULATED ASSERTIONS ON THE INFLATIONARY RISKS ARE BECOMING LESS MODULATED (HE'S NOW OUTRIGHT DISMISSING IT), WHICH MAKES HIM LESS PLAUSIBILE.
TREASURY SETTLEMENT FAILURES.png
_____________
THIS IS WHAT PERCOLATES OUTSIDE OF HIS FINANCIALIZED DEFLATIONARY WORLD. THIS IS WHAT WILL BE THE BIG STORY, AND IT IS PERMANENTLY INFLATIONARY.
[ $15.00 per gallon gasoline, and $10 heads of cabbage at the supermarket? ]
World is facing a natural resources crisis worse than the financial crunch.
• Two planets worth more resources - needed by 2030 at this rate, warns report
• Humans using 30% more resources than sustainable
Comments (82)
The UK "imports" more than half the water it uses, if you include water used to produce imported goods – including wheat. Photograph: Cotton Coulson/Getty
The world is heading for an "ecological credit crunch" far worse than the current financial crisis because humans are over-using the natural resources of the planet, an international study warns today.
The Living Planet report calculates that humans are using 30% more resources than the Earth can replenish each year, which is leading to deforestation, degraded soils, polluted air and water, and dramatic declines in numbers of fish and other species. As a result, we are running up an ecological debt of $4tr (£2.5tr) to $4.5tr every year - double the estimated losses made by the world's financial institutions as a result of the credit crisis - say the report's authors, led by the conservation group WWF, formerly the World Wildlife Fund.
The figure is based on a UN report which calculated the economic value of services provided by ecosystems destroyed annually, such as diminished rainfall for crops or reduced flood protection.
The problem is also getting worse as populations and consumption keep growing faster than technology finds new ways of expanding what can be produced from the natural world. This had led the report to predict that by 2030, if nothing changes, mankind would need two planets to sustain its lifestyle. "The recent downturn in the global economy is a stark reminder of the consequences of living beyond our means," says James Leape, WWF International's director general. "But the possibility of financial recession pales in comparison to the looming ecological credit crunch."
The report continues: "We have only one planet. Its capacity to support a thriving diversity of species, humans included, is large but fundamentally limited. When human demand on this capacity exceeds what is available - when we surpass ecological limits - we erode the health of the Earth's living systems. Ultimately this loss threatens human well-being." Speaking yesterday in London, the report's authors also called for politicians to mount a huge international response in line with the multibillion-dollar rescue plan for the economy. "They now need to turn their collective action to a far more pressing concern and that's the survival of all life on planet Earth," said Chief Emeka Anyaoku, the president of WWF International.
Sir David King, the British government's former chief scientific adviser, said: "We all need to agree that there's a crisis of understanding, that we're removing the planet's biodiverse resources at a rate which is as fast if not faster than the world's last great extinction."
At the heart of the Living Planet report is an index of the health of the world's natural systems, produced by the Zoological Society of London and based on 5,000 populations of more than 1,600 species, and on an "ecological footprint" of human demands for goods and services.
For the first time the report also contains detailed information on the "water footprint" of every country, and claims 50 countries are already experiencing "moderate to severe water stress on a year-round basis". It also shows that 27 countries are "importing" more than half the water they consume - in the form of water used to produce goods from wheat to cotton - including the UK, Switzerland, Austria, Norway and the Netherlands.
Based on figures from 2005, the index indicates global biodiversity has declined by nearly a third since 1970. Breakdowns of the overall figure show the tropical species index fell by half and the temperate index remained stable but at historically low levels. Divided up another way, indices for terrestrial, freshwater and marine species, and for tropical forests, drylands and grasslands all showed significant declines. Of the main geographic regions, only the Nearctic zone around the Arctic sea and covering much of North America showed no overall change.
Over the same period the ecological footprint of the human population has nearly doubled, says the report.
At that rate humans would need two planets to provide for their wants in the 2030s, two decades earlier than the previous Living Planet report forecast just two years ago. This figure is "conservative" as it does not include the risk of a sudden shock or "feedback loop" such as an acceleration of climate change, says the report. But it warns: "The longer that overshoot persists, the greater the pressure on ecological services, increasing the risk of ecosystem collapse, with potentially permanent losses of productivity."
In the 1960s most countries lived within their ecological resources. But the latest figures show that today three-quarters of the world's population live in countries which consume more than they can replenish.
Addressing concerns that national boundaries are an artificial way of dividing up the world's resources, Leape says: "It's another way of reminding ourselves we're living beyond our means."
The US and China account for more than two-fifths of the planet's ecological footprint, with 21% each.
A person's footprint ranges vastly across the globe, from eight or more "global hectares" (20 acres or more) for the biggest consumers in the United Arab Emirates, the US, Kuwait and Denmark, to half a hectare in the Democratic Republic of Congo, Haiti, Afghanistan and Malawi. The global average consumption was 2.7 hectares a person, compared with a notional sustainable capacity of 2.1 hectares.
The UK, with an average footprint of about 5.5 hectares, ranks 15th in the world, just below Uruguay and the Czech Republic, and ahead of Finland and Belgium.
__________
CONCLUSION: ROUBINI'S SOMBER SOUNDING GLOBAL DEFLATION SEEMS MINOR, COMPARED TO THE INFLATIONARY PROBLEMS LOOMING FROM THE RESOURCES VS. POPULATION OVERSHOOT ISSUES DESCRIBED ABOVE. THESE ISSUES ARE SCHEDULED TO BE SLAMMING INTO US IN THE NEXT TEN YEARS. AND WITH REGARD TO AMERICA'S "FLIRT" WITH POTENTIALLY SERIOUS MONETARILY INDUCED INFLATION, HE SEEMS CURIOUSLY COMPLACENT OF THE RISK.
Submitted by Richard Heinberg on October 29, 2008 - 10:55am.
The Financial Times has leaked the results of the International Energy Agency's long-awaited study of the depletion profiles of the world's 400 largest oilfields, indicating that, "Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent."
This is a stunning figure.
Considering regular crude oil only, this means that 6.825 million barrels a day of new production capacity must come on line each year just to keep up with the aggregate natural decline rate in existing oilfields. That's a new Saudi Arabia every 18 months.
The Financial Times story goes on:
The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term demand. The effort will become even more acute as [oil] prices fall and investment decisions are delayed.
This is putting it mildly. Investment capital is being vaporized almost daily in a global deflationary bonfire of unprecedented ferocity. Oil production projects are being mothballed left and right. Inter alia, the IEA takes the requisite swat at "peak oil theorists," who, the agency somehow still believes, are saying that the world is "running out of oil." Of course that's NOT what peak oil theorists say, but a correct summation of their position would have to be followed with a statement to the effect that, "Our research supports their position," which would be just too embarrassing.
Sadly, the IEA feels it must pull its punch even further.
With adequate investment in new small oilfields and unconventional sources like tarsands, it insists, the world can still achieve higher levels of production. In other words, if the $12 trillion that vanished from the world stock markets last week were invested in new tarsands projects, then theoretically a few more years of total oil production growth could be eked out (not growth in net energy production, mind you, but in the gross—and I do mean gross—production of exotic, very expensive stuff that it's physically possible to run your car on, assuming you could afford to do so).
Of course, any realistic assessment either of the likelihood of that level of investment appearing, or of the ability of new projects to really produce a sufficient rate of flow regardless of the size of the cash infusion, would end merely in a hearty belly-laugh.
Evidently peeved about being scooped on its planned November 12 press conference roll-out of the study, the IEA has disavowed the Financial Times story. But if nine percent is even close to being the final figure, then it's absolutely clear: July 2008 was the all-time peak in world oil production. Don't expect anyone at the IEA to officially admit that fact until 2025 or so. But among those who pay attention to the evidence and the terms of the debate, further ink need not be spilled in speculation.
Peak oil is history.
______________
And here's the ever stylish DR. DOOM, who may need to get out academia a bit to see just how petroleum and resources are going to trump this deflation story with some of the diametric opposite influence - soon! The more I read of Roubini the more I feel unconvinced of his arguments. He will likely get his "deflation" for a while but he seems to envision this global "deflationary vacuum of demand" as though it existed sealed away from any other developing global sub-plots while in fact there are some enormous sub-plots percolating, hinting at just the opposite of his globally deflated conclusions.
Get Ready For 'Stag-Deflation'
Nouriel Roubini 10.30.08, 12:01 AM ET
|  | |
| ||
Back in January, I argued that four major forces would lead to a risk of deflation-- or "stag-deflation," where a recession would be associated with deflationary forces--rather than the inflation that mainstream analysts have worried about.
They were: (1) a slack in goods markets, (2) a re-coupling of the rest of the world with the U.S. recession, (3) a slack in labor markets, and (4) a sharp fall in commodity prices following such U.S. and global contraction, which would reduce inflationary forces and lead to deflationary forces in the global economy.
How has such argument fared over time? And will the U.S. and global economies soon face sharp deflationary pressures? The answer: Deflation and stag-deflation will, in six months, become the main concern of policy authorities.
Why?
First, the U.S. has entered a severe recession that is already leading to deflationary forces in sectors where supply vastly exceeds demand (housing, consumer durables, motor vehicles, etc.). Aggregate demand is falling sharply below aggregate supply. The unemployment rate is up sharply, while employment has been falling for 10 months in a row.
And commodity prices are sharply down--about 30% from their July peak--in the last three months, and are likely to fall much more in the next few months as the advanced economies' recession goes global. So both in the U.S. and in other advanced economies we are clearly headed toward a collapse of headline and core inflation.
Is there any doubt about this ongoing inflation capitulation and the beginning of sharp deflationary forces? Take the current views of the economic research group at JPMorgan Chase. This group was, in 2007-08, the leading voice arguing about the risks of rising global inflation and the associated risks of a global growth reflation, and that policy rates would be sharply increased in 2008-09.
This week, however, the JPMorgan research group published its latest global economic outlook, arguing that we are headed toward a global recession, negative global inflation and sharply lower policy rates in the U.S. and advanced economies--a 180-degree turn from its previous position. What a difference a year makes!
Do you have any further doubt that we're headed toward a global deflation or--better--a global stag-deflation? Read on: Aggregate demand is now collapsing in the U.S. and advanced economies, and sharply decelerating in emerging markets. There is a huge excess capacity for the production of manufactured goods in the global economy, as the massive, and excessive, capital expenditure in China and Asia (Chinese real investment is now close to 50% of gross domestic product) has created an excess supply of goods that will remain unsold as global aggregate demand falls.
Commodity prices are in free fall, with oil prices alone down over 50% from their July peak (and the Baltic Freight Index--the best measure of international shipping costs--is 90% down from its peak in May). Finally, labor market slack is sharply rising in the U.S., and rising, as well, in Europe and other advanced economies.
Next question: What are financial markets telling us about the risks of stag-deflation?
First, yields on 10-year Treasury bonds have fallen by about 50 basis points since Oct. 14, getting close to their previous 2008 lows. Also, the two-year Treasury yield has fallen by about 150 basis points in the last month.
Second, gold prices--a typical hedge against rising global inflation--are now sharply falling.
Finally, and more important, yields on Treasury Inflation-Protected Securities (TIPS) due in five years or less have now become higher than yields on conventional Treasuries of similar maturity. The difference between yields on five-year Treasuries and five-year TIPS, known as the break-even rate, fell to minus 0.43 percentage points.
This is a record. Since the difference between the conventional Treasuries and TIPS is a proxy for expected inflation, the TIPS market is now signaling that investors expect inflation to be negative over the next five years, as a severe recession is ahead of us.
So goods, labor, commodity, financial and bond markets are all sending the same message: Stagnation/recession and deflation (or stag-deflation) is ahead of us. Don't be surprised, then, if six months from now the Fed and other central banks in advanced economies will start to worry--as they did in 2002-03 after the 2001 recession--about deflation rather than inflation.
In those years, when the U.S. experienced a deflation scare, Fed Chairman Ben Bernanke wrote several pieces explaining how the U.S. could resort to very unorthodox policy actions to prevent a deflation and a liquidity trap like the one experienced by Japan in the 1990s. Those writings may, very soon, have to be carefully read and studied again.
Finally, while in the short run a global recession will be associated with deflationary forces, some ask whether we should worry about rising inflation in the middle run? This argument--that the financial crisis will eventually lead to inflation--is based on the view that governments will be tempted to monetize the fiscal costs of bailing out the financial system, and that this sharp growth in the monetary base will eventually cause high inflation.
In a variant of the same argument, some posit that--as the U.S. and other economies face debt deflation--it would make sense to reduce the debt burden of borrowers (households and, now, governments taking on their balance sheets the losses of the private sector) by wiping out the real value of such nominal debt with inflation.
So should we worry that this financial crisis and its fiscal costs will eventually lead to higher inflation? The answer to this complex question: likely not.
First, the massive injection of liquidity in the financial system--literally trillions of dollars in the last few months--is not inflationary, as it accommodates the demand for liquidity that the current financial crisis and investors' panic have triggered. Thus, once the panic recedes and this excess demand for liquidity shrinks, central banks can and will mop up all this excess liquidity.
Second, the fiscal costs of bailing out financial institutions would eventually lead to inflation if the increased budget deficits associated with this bailout were to be monetized, as opposed to financed with a larger stock of public debt. As long as such deficits are financed with debt--rather than by the printing presses--such fiscal costs will not be inflationary, as taxes will have to be increased over the next few decades and/or government spending reduced to service this large increase in the stock of public debt.
Third, to the question raised earlier: Wouldn't central banks be tempted to monetize these fiscal costs--rather than allow a mushrooming of public debt--and thus wipe out with inflation these fiscal costs of bailing out lenders/investors and borrowers? Not likely in my view. Even a relatively dovish Bernanke Fed cannot afford to let the inflation-expectations genie out of the bottle via a monetization of the fiscal bailout costs. It cannot afford to do that because a rise in inflation expectations will eventually force a nasty and severely recessionary Volcker-style monetary-policy tightening to get the genie back into its bottle.
[ :eek: Anyone doubting we have a stalwart Volcker in our near future must be ingenuous!! :rolleyes: ].
Fourth, inflation can reduce the real value of debts as long as it is unexpected, and as long as debt is in the form of long-term nominal fixed-rate liabilities. An attempt to increase inflation would not be unexpected: Investors would write debt contracts to hedge against such a risk if monetization of the fiscal deficits does occur.
Also, in the U.S. economy, a lot of debts--of the government, of the banks, of the households--are not long-term nominal fixed-rate liabilities. They are, rather, shorter-term variable-rate debts. Thus, a rise in inflation in an attempt to wipe out debt liabilities would lead to a rapid repricing of such shorter term, variable-rate debt. And thus expected inflation would not succeed in reducing the part of the debts that are now of the long-term nominal fixed-rate form--i.e., you can fool all of the people some of the time (unexpected inflation) and some of the people all of the time (those with long-term nominal fixed-rate claims), but you cannot fool all of the people all of the time.
In conclusion, a sharp slack in goods, labor and commodity markets will lead to global deflationary trends over the next year. And the fiscal costs of bailing out borrowers and/or lenders/investors will not be inflationary, as central banks will not be willing to incur the costs of very high inflation as a way to reduce the real value of the debt burdens of governments and distressed borrowers. The costs of rising expected inflation will be much higher than the benefits of using the inflation tax to pay for the fiscal costs of cleaning up the mess that this most severe financial crisis has created.
Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.com.
I THINK ROUBINI'S FORMERLY MODULATED ASSERTIONS ON THE INFLATIONARY RISKS ARE BECOMING LESS MODULATED (HE'S NOW OUTRIGHT DISMISSING IT), WHICH MAKES HIM LESS PLAUSIBILE.
TREASURY SETTLEMENT FAILURES.png
_____________
THIS IS WHAT PERCOLATES OUTSIDE OF HIS FINANCIALIZED DEFLATIONARY WORLD. THIS IS WHAT WILL BE THE BIG STORY, AND IT IS PERMANENTLY INFLATIONARY.
[ $15.00 per gallon gasoline, and $10 heads of cabbage at the supermarket? ]
World is facing a natural resources crisis worse than the financial crunch.
• Two planets worth more resources - needed by 2030 at this rate, warns report
• Humans using 30% more resources than sustainable
Comments (82)
- The Guardian,
- Wednesday October 29 2008
- Article history
The UK "imports" more than half the water it uses, if you include water used to produce imported goods – including wheat. Photograph: Cotton Coulson/Getty
The world is heading for an "ecological credit crunch" far worse than the current financial crisis because humans are over-using the natural resources of the planet, an international study warns today.
The Living Planet report calculates that humans are using 30% more resources than the Earth can replenish each year, which is leading to deforestation, degraded soils, polluted air and water, and dramatic declines in numbers of fish and other species. As a result, we are running up an ecological debt of $4tr (£2.5tr) to $4.5tr every year - double the estimated losses made by the world's financial institutions as a result of the credit crisis - say the report's authors, led by the conservation group WWF, formerly the World Wildlife Fund.
The figure is based on a UN report which calculated the economic value of services provided by ecosystems destroyed annually, such as diminished rainfall for crops or reduced flood protection.
The problem is also getting worse as populations and consumption keep growing faster than technology finds new ways of expanding what can be produced from the natural world. This had led the report to predict that by 2030, if nothing changes, mankind would need two planets to sustain its lifestyle. "The recent downturn in the global economy is a stark reminder of the consequences of living beyond our means," says James Leape, WWF International's director general. "But the possibility of financial recession pales in comparison to the looming ecological credit crunch."
The report continues: "We have only one planet. Its capacity to support a thriving diversity of species, humans included, is large but fundamentally limited. When human demand on this capacity exceeds what is available - when we surpass ecological limits - we erode the health of the Earth's living systems. Ultimately this loss threatens human well-being." Speaking yesterday in London, the report's authors also called for politicians to mount a huge international response in line with the multibillion-dollar rescue plan for the economy. "They now need to turn their collective action to a far more pressing concern and that's the survival of all life on planet Earth," said Chief Emeka Anyaoku, the president of WWF International.
Sir David King, the British government's former chief scientific adviser, said: "We all need to agree that there's a crisis of understanding, that we're removing the planet's biodiverse resources at a rate which is as fast if not faster than the world's last great extinction."
At the heart of the Living Planet report is an index of the health of the world's natural systems, produced by the Zoological Society of London and based on 5,000 populations of more than 1,600 species, and on an "ecological footprint" of human demands for goods and services.
For the first time the report also contains detailed information on the "water footprint" of every country, and claims 50 countries are already experiencing "moderate to severe water stress on a year-round basis". It also shows that 27 countries are "importing" more than half the water they consume - in the form of water used to produce goods from wheat to cotton - including the UK, Switzerland, Austria, Norway and the Netherlands.
Based on figures from 2005, the index indicates global biodiversity has declined by nearly a third since 1970. Breakdowns of the overall figure show the tropical species index fell by half and the temperate index remained stable but at historically low levels. Divided up another way, indices for terrestrial, freshwater and marine species, and for tropical forests, drylands and grasslands all showed significant declines. Of the main geographic regions, only the Nearctic zone around the Arctic sea and covering much of North America showed no overall change.
Over the same period the ecological footprint of the human population has nearly doubled, says the report.
At that rate humans would need two planets to provide for their wants in the 2030s, two decades earlier than the previous Living Planet report forecast just two years ago. This figure is "conservative" as it does not include the risk of a sudden shock or "feedback loop" such as an acceleration of climate change, says the report. But it warns: "The longer that overshoot persists, the greater the pressure on ecological services, increasing the risk of ecosystem collapse, with potentially permanent losses of productivity."
In the 1960s most countries lived within their ecological resources. But the latest figures show that today three-quarters of the world's population live in countries which consume more than they can replenish.
Addressing concerns that national boundaries are an artificial way of dividing up the world's resources, Leape says: "It's another way of reminding ourselves we're living beyond our means."
The US and China account for more than two-fifths of the planet's ecological footprint, with 21% each.
A person's footprint ranges vastly across the globe, from eight or more "global hectares" (20 acres or more) for the biggest consumers in the United Arab Emirates, the US, Kuwait and Denmark, to half a hectare in the Democratic Republic of Congo, Haiti, Afghanistan and Malawi. The global average consumption was 2.7 hectares a person, compared with a notional sustainable capacity of 2.1 hectares.
The UK, with an average footprint of about 5.5 hectares, ranks 15th in the world, just below Uruguay and the Czech Republic, and ahead of Finland and Belgium.
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CONCLUSION: ROUBINI'S SOMBER SOUNDING GLOBAL DEFLATION SEEMS MINOR, COMPARED TO THE INFLATIONARY PROBLEMS LOOMING FROM THE RESOURCES VS. POPULATION OVERSHOOT ISSUES DESCRIBED ABOVE. THESE ISSUES ARE SCHEDULED TO BE SLAMMING INTO US IN THE NEXT TEN YEARS. AND WITH REGARD TO AMERICA'S "FLIRT" WITH POTENTIALLY SERIOUS MONETARILY INDUCED INFLATION, HE SEEMS CURIOUSLY COMPLACENT OF THE RISK.
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