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Musings Report #42 10-17-15 What's Ahead: 2021 - 2025
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For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
What's Ahead: 2021 - 2025
Longtime correspondent Cheryl A. asked me to elaborate on a statement made in Musings #37:
"Anything else is illusion. I also think this will become evident to all within the next decade, when all the 'sure things' melt into thin air, along with the global financial system."
I presented my near-term forecast for 2016 in Musings #40, and today I'm speculating on the longer-term, 2021-2025.
Back in 2008, I prepared a chart of four long-term cycles:
1. The four-generation (80-year) cycle outlined by Strauss and Howe in their book The Fourth Turning.
2. The credit expansion/contraction cycle--more or less the Kondratieff Cycle.
3. The price inflation-wage stagnation cycle described by David Hackett Fischer in The Great Wave.
4. The long cycle of exploiting and depleting a new energy source, in this case, oil.
Skepticism is warranted of any cycle, of course, but Strauss and Howe offer a compelling account of why American history cycles every fourth generation into an existential crisis.
This may seem farfetched until you look at the dates:
1781 -- US Constitution
1861 -- start of Civil War
1941 -- start of World War II (for the USA)
2021 -- ?
It's not difficult to conjure up multiple crises that could reach critical mass by around 2021:
1. The geopolitical rise of China and the potential for the Chinese leadership to launch a war to distract the populace from their failing economy.
2. The demographic time bomb goes off globally: as the global economy melts down, the realization that the pensions and healthcare promised to hundreds of millions of elderly cannot be funded out of tax revenues upends the social contract virtually everywhere.
3. The public health time bomb goes off: 300 million diabetics/pre-diabetics in China, a few hundred million more in India, and another few hundred million in the developed world overwhelm a global healthcare system that is already struggling to provide care for an aging population in North America, Europe, East Asia and China.
4. The food/weather/soil time bomb goes off as multiple crop failures around the world strip global grain supplies and trigger geopolitical crises.
5. The energy time bomb goes off as oil exporters consume so much of their dwindling production that there's little left to export.
I see each of these as not just likely but inevitable. The world might dodge #4, the grain/food crisis, but if we consider the dramatic consequences of drought when coupled with rising global populations and demand for grain-fed meat, long-term fresh water shortages, soil loss and the potential depletion of fertilizer resources, the assumption that the world will easily feed itself looks a bit shaky.
Yes, farmers in Japan and elsewhere are increasing vegetable yields by 10-fold using greenhouses, hydroponics and aquaponics, but these techniques are capital and energy-intensive. Can they scale up to feed billions of people? Using capital and energy from where? A healthy skepticism is in order, as all sorts of wonderful technologies that work splendidly in small-scale experiments fail to scale.
The Kondratieff cycle of credit expansion and renunciation has been skewed by unprecedented central bank credit expansion. That doesn't mean credit can continue to expand by $10 trillion every few years with no eventual end-game. It just means the eventual and unavoidable renunciation of credit has been pushed forward. How far can it be pushed forward? Shall we guess 6 to 10 years? (2021 - 2025)
The price inflation-wage stagnation cycle described by David Hackett Fischer does not follow any set pattern, but the dynamic is easily understood: when new energy sources, technologies and lands are exploited, population rises quickly along with food supply and strong demand for labor. In this boost phase, wages are rising and inflation is low.
But once production plateaus (a phenomenon I have covered many times, the S-Curve), demand continues rising but supply levels out or falters. As a result, prices rise as wages stagnate--a vise that squeezes purchasing power.
The solution is of course debt--borrowing money. But soon enough the collateral supporting the rising debt can no longer leverage any more debt, and the debt bubble bursts.
We are well into this cycle.
As for energy: the technologies of fracking have given oil/gas production in the US a mighty boost, and this may well continue increasing supply for a time.
But the larger global energy picture is dominated by the Export Land Model, which describes how oil exporting nations, which typically have rapidly rising populations and monoculture (i.e. undiversified) economies dependent on oil exports, begin consuming more of their oil domestically while production stagnates.
The net result is there may be plenty of oil still being pumped, but very little is available for export.
That leave oil importing nations without enough energy to sustain their industrial economies.
While it's possible to invest enough in alternative energy to keep some infrastructure working, globally, alternative energy is a scant few percentage points of total energy consumption.
Even if we take global leader Germany, famous for generating more electricity than it consumes from alt-energy sources--is Germany ready to replace its entire vehicle fleet with electric cars and trucks? How about building enough capacity to recharge 30 million vehicles?
That is quite an order for a wealthy industrial power. What sort of challenge awaits the 2.6 billion residents of oil importers China and India?
If these four cycles happen to align in the 2021 -2025 window, as predicted by Strauss and Howe, the existential crisis they describe seems likely.
Governments only have a few choices when debt bubbles burst, prices soar and jobs/wages are declining. They can print money like crazy (by actual printing or by monetizing government bonds), which eventually erodes the purchasing power of the currency, or they can "tighten everyone's belt" by raising taxes, slashing pensions and healthcare, etc., both of which are exceedingly unpopular.
It doesn't take much to imagine the politico who tries belt-tightening will be ejected in favor of a print-enough-for-everybody politico, who will be fantastically popular for a few months or years until hyper-inflation arises from the depths and destroys everybody's money.
Those with no debt and real-world assets such as arable land, shelter, tools, equipment, etc., will still have their possessions after currencies have been renunciated and a "system re-set" occurs.
Those expecting their money to maintain its purchasing power as "growth" turns into "degrowth" may be in for a life-changing shock by 2025.
Summary of the Blog This Past Week
The Problem Isn't Student Loans--It's Higher Education 10/16/15
Here's Why Housing Must be Propped Up 10/15/15
The Paradox of Risk: Central Planning Is Linear, Reality Is Non-Linear 10/14/15
Where Is the First Helicopter Drop of Money Likely to Land? 10/13/15
Is the Housing Bubble 2.0 About to Encounter a Pin? 10/12/15
Best Thing That Happened To Me This Week
Finally completed the edit (after the copy editor finished her job) of the first half of my next book. Over one year invested in this book, and three rewrites later... only 30,000 more words to edit....
Market Musings: US Dollar: Consolidation and Breakout, or Breakdown?
The analysts who have been calling for a collapse of the US dollar have been wrong. The USD, like most currencies, tends to make big moves fairly rarely.
The major breakout in 2014 that heralded the meltdown of emerging market stocks and currencies has settled into a long consolidation period, during which the USD has traced out a descending triangle that is similar to the one that presaged the breakout in 2014.
Most recently, price action has formed a wedge, a pattern that usually breaks big up or down.
My sense is the break will be to the upside, as dollar-denominated debts still have to be paid off--and that means continued demand for USD.
A somewhat technical explanation is given here:
Swap Spreads Implicate Huge ‘Dollar’ Divergence.
Maybe the legions calling for the collapse of the USD will finally be correct, but if we look at global capital flows, it's looking likely that they're about to be disappointed again.
From Left Field
The political economy of student loans -- good overview and history of student loans...
Many colleges are failing to prepare students for their working lives -- file under "painfully obvious"...
To Live and Die in Syria
"Russia enters with its handful of airplanes and mercenaries, bluster and threats, as if the problem is a shortage of these things.
Wars and militants are externalities of our Western lifestyle, no different from air pollution and credit exhaustion: costs are shifted to ‘others’ such as Syrians who have their own costs to shift. Westerners refuse to connect the dots between our toys, our resource waste and our conflicts."
How to make sure nothing gets done at work -- follow all the procedures...
The Assassination Complex -- the Deep State at work...
How Videogames Are Saving the Symphony Orchestra
In Philadelphia, the 80-year-old Mann Center has held videogame concerts since 2012. Representatives say the shows attract as many as many as 6,500 attendees, roughly double the average attendance at classical concerts.
In a game of wealth, fat cats who don’t share keep winning (7-min video) (via Kurt A.)
Global Wealth Databook 2015 -- Credit Suisse report, worth studying....
Central States Pension Fund Prepares To Slash Hundreds of Thousands of Workers’ Pensions (via Cheryl A.)
Norwegian blues -- when the oil money runs out...
The White Man in That Most Famous Photo from the 1968 Olympics -- the Aussie athlete who stood in solidarity with the 2 Americans--a tragic personal account of bravery...
What Killed Wolfgang Amadeus Mozart? -- fascinating speculation based on forensic medicine....
"If the highest aim of a captain was to preserve his ship, he would keep it in port forever." Thomas Aquinas
Thanks for reading--
charles |
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