Why Italy’s economy is stagnating

Leading economists tell the FT why the government’s budget is not the solution

Why is Italy’s economy so sickly and has the country’s new government found the cure for its economic ills? 

As Rome locks horns with Brussels over a draft Italian budget that the European Commission has rejected for breaching EU rules, the Financial Times has consulted leading economists, academics and industrialists about the root causes of the country’s sluggish growth. 

The experts’ answers, ranging from corporate culture to public debt, provide little backing for the Italian government’s case that its plans to increase the fiscal deficit to up to 2.4 per cent of gross domestic product will kick-start growth after years of poor performance. 

THE DEPTHS OF ITALY’S PROBLEM 

The challenge facing the Italian government is to get Italy out of the slow or no-growth trap it has been caught in throughout this century. 

Growth has stalled, leaving the country’s economic output still 5 per cent below its pre-crisis peak of 2008. 

Italy and Greece are now the only EU countries that have failed to recover to the levels of 10 years ago. 

But Rome’s problems go even deeper than this: 

GDP per capita is today, when adjusted for inflation, less than in 2000. 

The data highlight the country’s mediocre economic performance since the introduction of the euro in 1999-2002. 

Eurosceptics, some of whom are close to Italy’s populist coalition government, often blame the single currency for the economy’s ills, arguing that devaluation could kick-start exports. 

But the broad consensus among economists is that the country’s problems are due to structural weaknesses, rather than the euro. 

So why has economic performance been so poor? 

Here are the findings of the experts consulted by the FT, beginning with the most frequently mentioned possible causes.

INDUSTRIAL MODERNISATION — OR LACK OF IT 

Italy’s economic model is very dependent on family-owned companies that are typically smaller and less productive than their equivalents elsewhere. 

This problem has grown worse in recent decades. “In the 1970s and early 1980s, the Italian business model of small and medium-sized enterprises drove growth,” Silvia Ardagna, economist at Goldman Sachs, said. 

But, she added, many of those companies “did not invest in R&D and lacked the management capabilities and human capital to allow them to compete on a global scale”. 

According to the European Commission’s SME tracker, 95 per cent of Italy’s businesses have fewer than 10 employees. 

OECD data show Italian companies of that size have lower levels of labour productivity than their peers.

Bigger companies also fail to innovate, whether because of traditional, change-resistant, family ownership or difficulty obtaining credit. 

The latest OECD economic survey of Italy showed that contrary to the experience of most of the organisation’s member states, productivity among the most efficient companies in Italy is declining even faster than among the least productive ones. 

Despite a government initiative in 2016 to encourage companies to increase their digital presence, fewer than one in 10 non-financial businesses in Italy sells online. 

This is the third-lowest share in the EU after Romania and Bulgaria, according to Eurostat, the bloc’s statistical agency. 

The Italian government’s draft budget allocates very limited resources for dealing with such issues, planning no increase in the funds available to help companies with digital transformation for 2019 and only a minimal rise in 2020.  

POOR EDUCATION SYSTEM 

The experts cited Italy’s dysfunctional educational system as second only to the problems with business culture and industrial modernisation. 

“The highly centralised and unionised educational system delivers poor results in terms of actual skills,” said Massimo Bassetti, an economist at FocusEconomics.  

Fewer than one in three 25-34-year-old Italians has a university degree, well below the 44 per cent OECD average. 

Italian 15-year-olds have lower maths, science and reading performances than most of their peers, according to the OECD PISA report. 

Italy also has one of the highest student dropout rates in the OECD, and about one in four Italians aged 15-34 are neither in work nor education, the largest proportion in the EU. 

Italy’s budget plan contains reforms such as expanding pre-school education, changing teacher recruitment and reducing dropouts from school, but they are not among measures receiving significant additional funds.

UNFRIENDLY BUSINESS ENVIRONMENT 

Italy scores poorly on most measures of government efficiency and satisfaction with public services.  

The country ranks 111th out of 190 countries globally for ease of enforcing contracts, according to the World Bank ease-of-doing-business index. 

Italy scores just as poorly on bureaucracy for resolving insolvencies, paying taxes and dealing with construction permits. 

The country’s civil justice system is also ranked second to last among 35 high-income countries as measured by the World Justice Project.

“In Italy it takes far longer than in other developed countries to conclude civil and criminal trials,” with consequence for the business environment, said Mauro Pisu, senior economist at the OECD. 

“Inefficient public administration effectively acts as an additional cost on businesses, holding back investment and growth,” said Ms Ardagna. “Italy’s complex tax code, Byzantine regulation and inefficient public administration” are a “handicap”, said Mr Bassetti. 

They also prevent foreign companies from investing in Italy, said Andrea Colli, professor of business history at Bocconi University. Italy is a larger economy than Spain but has received less than half the level of foreign greenfield investment since 2003, according to fDi Markets.

In his letter to Brussels, Giovanni Tria, Italy’s minister of finance, wrote that future structural reforms, including the reform of the Civil Code, would “stimulate economic growth, ensuring the long-term sustainability of Italy’s public finances”.  

HIGH PUBLIC DEBT 

Italy’s coalition government argues that its spending plans will help fuel growth. 

But many of the experts consulted by the FT argue the contrary: that high debt levels already crowd out growth by attracting funds for government paper that would otherwise go towards more productive investments. 

“High public debt has limited the resources that have been devoted to the productive sector of the economy,” said Ms Ardagna.  

With the EU’s second-highest debt-to-GDP ratio, Italy spent 3.7 per cent of its GDP on debt interest, double the average of the EU. 

The European Commission’s latest forecast expects this to rise to 3.9 per cent by 2020 as a result of higher bond yields and interest rates.  

“Italy’s debt burden absorbs substantial financing resources, reducing funds for infrastructure investment and crowding out business investment,” said Mr Bassetti. 

While under the draft budget Italy will allocate additional funding of 0.2 per cent of GDP to public investment in 2019 and 0.3 per cent in 2020, analysts are not expecting significant improvement in its overall structural weaknesses. 

“Our baseline scenario remains that the new government won’t give the economy the needed reform push to jolt productivity,” Nicola Nobile, economist at Oxford Economics, said.

Fonte: qui

Peter Schiff: "The Truth Is We Don't Have A Booming Economy"

Peter Schiff doesn’t mince words when he declared the precarious state the United States economy has found itself in. As SHTFplan.com's Mac Slavo notes, Schiff says “the truth is we don’t have a booming economy,” and he’s not the only one who has noticed.

October was the worst month for global equities in more than six years. Globally, stock markets lost 7.5%, their worst month since May 2012. Even with the late rally, it was the biggest monthly decline in the Nasdaq since 2008.

“All of the bulls were out in force on the financial networks claiming that the correction is over. Everybody was confident that the lows are in, that the big back-to-back rally is proof and you better buy now, otherwise you’re going to miss the rally, and this is the typical correction and now it has run its course. And you know what? If this really was the end of the correction, most likely there wouldn’t be so many people that were so confident that it’s over. You’d have a lot more fear, especially on Halloween. The fact that there is no fear, to me, shows that it’s more likely that this is not the end of the correction, but the beginning of the bear market and that this rally is a correction.” –Peter Schiff via Seeking Alpha

Schiff is well-known for predicting the 2008 financial crisis, but that becomes slightly more real when hearing him say that the job market if a gigantic bubble. Schiff says that jobs are just one more bubble that’s about to burst.

Two hundred thousand jobs a month in an economy the size of ours, especially given how few people, or what a large percentage of the workforce is not working, we should be creating a lot more than 200,000 jobs per month. But we’re not.”

Even though wages are rising for people that have jobs, the cost of living is rising faster. But the cost of servicing their debt is rising even faster than that.”

As far as the job growth goes, the mainstream keeps pointing to it as a sign of a booming economy. But as Peter pointed out, we’re borrowing a tremendous amount of money to get this jobs growth.

Clearly, if we’re running record budget deficits, and record trade deficits, and everybody is levered up, you know, spending all of that borrowed money creates some jobs. But those jobs are not sustainable because the debt is not sustainable. The consumption based on debt is not sustainable.”

Increasing prices is a direct result of a decade of Federal Reserve easy money policy, Schiff accurately says. Over the last 10 years, the Fed has printed trillions of dollars out of thin air.

The point is we’re running record trade deficits. We’re running huge government budget deficits. The GOP cut income taxes. We’re giving everybody money to spend, so people are spending.

And in the short-run, yes, you can goose up the economy and you can create some unsustainable jobs. But just because we have these jobs today doesn’t mean these jobs are going to be here tomorrow.”

And remember, Schiff concludes: "that every boom has been followed by a bust.”

Fonte: qui

How The Corporate Debt Bubble Will Destroy The Economy

The stock market is soaring and the economy, even though we are in the midst of one of the longest expansions on record, continues to chug along. This might lead you to think that all is fine with the world and the growth will continue for years to come.

Scratch below the surface and there are several reasons to be worried. These include threats of a global trade war, rising energy prices and interest rates, and debt – a whole mountain of debt which thanks to the free money have gotten significantly larger since the financial crisis 10 years ago.

To put it in perspective, the U.S. stock market is currently valued at $30 trillion dollars, while the bond market alone was priced at more than $40 trillion. Now, if this was the balance sheet of your business and you went to the bank for a loan, you probably would not get approved.

[REITs]

Q2 hedge fund letters, conference, scoops etc

However, money keeps flowing into high-yield bonds including the corporate debt markets.This means that investors (i.e. pension funds, universities, and even retirees) are taking on riskier investments in the search for returns. If this doesn’t scare you, then read on as we explore how the corporate debt bubble could destroy the economy.

As you probably know a stock is a bet on a company, while a bond is an obligation to repay debt. As such the bondissuer is expected to repay the bondholder the principal as well as making regular interest payments. In addition, bondholders are usually the first to get paid when, or if, a company files for bankruptcy.

But, some observers have noted that over the last decade bonds have become mispriced. This means that investors are underestimating the risk they are taking on when purchasing these instruments. In many ways, this is just as bad as what happened during the financial crisis as investors bought into mortgage-backed securities which they mistakenly thought were backed by high-quality loans instead of riskier subprime loans.

While the impact isn’t really felt when times are good, mispricing bonds can have catastrophic consequences when the defaults start to pile up. If you are a small business owner, then think of it this way; you are in the market for bookkeeping services for small businesses but instead, you end up engaging a Big Four auditor to look at your books.

Not only will they not understand the nature and scale of your business, but you will end up being out a lot of money. Now, let’s look at what this means for the broader economy.

According to a recent report from the International Monetary Fund, the current run-up in corporate debt is “fueled by excessive optimism among investors”. Sound familiar? This is a classic sign of a bubble and it is a reason why many are beginning to sound alarm bells.This includes William D. Cohan, a former investment who was recently interviewed by Knowledge@Wharton and Warren Buffett.

If they are correct, then investors large and small could be big losers as much of what they have invested could evaporate. While you might be thinking that this won’t impact you because you are not investing in corporate bonds you could be wrong.

Here’s why. First, the companies under the most risk could be your employer or a key customer. In this case, you could lose your job and that would have a direct impact on both you and your family.

Second, pension funds are big investors in corporate bonds and this could be putting how you plan to pay for your retirement at risk without even knowing it. The reason why these funds invest in corporate debt is simple – the returns compared to the “risks”.

When priced correctly bonds are a low-risk investment, even corporate bonds. Add to this the higher interest rates they pay to attract investors and one cansee why they would choose to make these investments.

Third, the mutual fund you have invested in as part of your 401(k) could be investing in corporate bonds. This is especially true if it is a bond fund and as such, you might want to check the investment documents of your mutual fund to see where your money is going.

What does this mean for the broader economy? As mentioned, the bond market (i.e. debt) is larger than the stock market, which by the way is larger than the economy. If the bond market were to drop by ½ percent, then would be equal to a roughly 1 percent drop in the economy.

While this is small compared to how much GDP declined in the fourth quarter of 2008, it would be enough to trigger a recession and possible broader losses in the bond market. As such, the corporate bond market bubble could destroy the economy and bring an end to 10 years of growth.

The post How The Corporate Debt Bubble Will Destroy The Economy appeared first on ValueWalk.

Why The Coming Oil Crunch Will Shock The World

My years working in corporate strategy taught me that every strategic framework, no matter how complex (some I worked on were hundreds of pages long), boils down to just two things:

1. Where do you want to go? (Vision)
2. How are you going to get there? (Resources)

Vision is the easier one by far. You just dream up a grand idea about where you want the company to be at some target future date, Yes, there’s work in assuring that everybody on the management team truly shares and believes in the vision, but that’s a pretty stratightforward sales job for the CEO.

By the way, this same process applies at the individual level, too, for anyone who wants to achieve a major goal by some point in the future. The easy part of the strategy is deciding you want to be thinner, healthier, richer, or more famous.

But the much harder part, for companies and individuals alike, is figuring out 'How to get there'. There are always fewer resources than one would prefer.

Corporate strategists always wish for more employees to implement the vision, with better training with better skills. Budgets and useful data are always scarcer than desired, as well.

Similar constraints apply to us individuals. Who couldn't use more motivation, time and money to pursue their goals?

Put together, the right Vision coupled to a reasonably mapped set of Resources can deliver amazing results. Think of the Apollo Moon missions. You have to know where you're going and how you're going to get there to succeed. That’s pretty straightforward, right?

So, it should be little surprise that the opposite, a lack of Vision and/or Resources, leads to underperformance -- and, eventually, decline. Think Kodak or Xerox. Or third-generation family wealth that has dwindled away to nothing. In a changing world, refusing to change with it is a losing strategy.

A great strategy aligns people’s interests and motivations with the available resources. More importantly, it provides a meaningful framework for action, one that gives a sense of purpose that will motivate everyone through difficult or trying times.

The grand goal of defeating the Nazis provided sufficient motivation for people to buy war bonds, scrimp on consumption, plant victory gardens, and go without nylon. A large part of our national resources were dedicated to the larger strategy of winning the war. Because of the strategy everyone shared, practically nobody complained of this repurposing as a 'time of sacrifice’ or as an imposed burden.

Given the right framework and the means to achieve it, people will literally crawl through mud in freezing temperatures -- and find it deeply satisfying. But given zero context or insufficient resources, people quickly become demoralized or rebellious (just observe how quickly most folks get royally pissed off at having to sit on the tarmac for a few extra minutes before their airplane takes off.)

Strategy matters. A lot.

A Nation Adrift, A World In Denial

Here's why I'm harping so much on strategy: the US is operating without a viable one.

We neither have a compelling Vision of where we want to go, nor any sense of the Resources required to change with the many transitions underway around us.

The current ‘strategy' (if we can be so generous as to call it that), is nothing more than "business-as-usual" (BAU).

The US is assuming it is always going to have more cars and trucks on the road this year than last year, more goods sold, a larger economy, more jobs, and the world’s most powerful military. That’s the BAU model. And it has largely worked for the past century.

But it can't work going forward. And the longer we pursue it, the more of our future prosperity we ruin.

Why? Because the future of everything is dependent on energy. More specifically: net energy.

Having a powerful military consumes a tremendous annual quantity of energy. The US military eats up 100 million barrels of oil each year. By itself, America's Department of Defense is the 34^th largest consumer of oil in the world.

In total, the US consumes over 7 billion barrels of oil each year. And that represents only 37% of the nearly 100 quadrillion of BTUs of America's annual energy consumption (the rest coming from natural gas, coal, and other sources). For comparisons sake, the rest of the world consumes another 450 quadrillion BTUs.

And world energy demand just keeps on insatiably growing year over year. The (notoriously conservative) EIA predicts it will jump by 28% over the next two decades.

Will our energy production be able to keep up? As I've been warning for years, it will be very challenged to do so -- or, to do so at prices anywhere near as low as today's.

Putting Our Plight Into Concrete Terms

Putting those staggering figures aside for a moment, let's focus on one -- just one! -- of the crises ahead of us when it comes to our future energy needs.

The nations of the world have made the truly regrettable decision to build so much of their infrastructure using concrete reinforced with steel (re-bar, mesh, etc.). As I've explained in detail in previous articles, because the steel rusts over time, the concrete is busy being destroyed from the inside out -- something we can detect easily enough by the cracks and spalling (sheets flaking off) so readily apparent on every bridge that’s more than a couple of decades old.

This has created a ticking time bomb. The world's crumbling concrete buildings, bridges and roadways will have to be entirely replaced in just 40 to 100 years of their original construction dates. Where will all of the energy come from for that?

Also, note that China has poured more steel-reinforced concrete over just the past few years than the US did in the entire 20^th century(!). All of this, too, will need to be replaced later this century.

Given that the sand required for all of the world's *current* concrete projects is now in very short supply, where all the sand will come from for all that future concrete and cement work? Who ever thought we could run out of sand?

But such are the unpleasant surprises that crop up during the late stages when running an exponential economic paradigm (i.e., "Growth forever!").

Fooling Oursevles

And it certainly doesn't help that we're remaining willfully blind to our situation.

It’s probably safe to say that the majority of the population in the US is confident that the "shale revolution" has assured America's energy security for a long time to come. Heck, the governor of Texas recently tweeted this to the world:

This is wrong on so many levels.

Yes, Texas produces oil and natural gas. But the US is still a net oil importer to the tune of about 3 million barrels per day. The US is not independent with respect to oil. And it won’t be until it produces another 3 million barrels per day (and that's making the generous assumption that consumption remains flat).

Further, to claim that the US will NEVER AGAIN depend on foreign oil is beyond bizarre. As I've been explaining for years, shale fields deplete and decline ferociously. Even the hyper-bullish EIA thinks that the shale fields will peak out in 2025 (I think earlier) and then go into permanent decline.

In my world, NEVER AGAIN is a lot farther out into the future than 2025. But Mr. Abbott has apparently ingested one too many petroleum sales pitches and received a terribly inaccurate impression about the true state of the US' energy predicament.

Much more likely is that US shale production does not EVER exceed US consumption before peaking out. So it would be more accurate to tweet the US is now and will ALWAYS AND FOREVER be dependent on foreign oil.

Finally, even if the US were a net oil exporter (highly unlikely), we’d still be tied to the world price for oil. Should foreign cartels decided to limit production and spike the price, that would still effect the US. So we still wouldn't be "independent" of their influence.

But sadly, Mr. Abbott speaks for the nation in that tweet. We're "swimming in energy" and need not have any worries. The drum of our chest-thumping will scare them away.

In other word:, there’s no strategy beyond BAU.

There's no acknowledgement of the challenges we face in the coming decades, of declining net energy per capita. Of greater competition between the developed and developing nations for the remaining BTUs. 

There's no compelling Vision to marshall the public towards that fits the realities of the future. We could, and should, be working on solutions for entering a "post-growth" era with grace. Or at a minimum, aggressively using today's Resources to create a new energy infrastructure that plans for the inevitable decline of fossil fuels.

We could be doing so much better than this.

Getting Our Priorities Straight

What if we started by embracing these three facts?

1. Fossil fuels have provided a supernova of surplus energy. One that has enabled literally everything and everyone you see around you to spring into existence.
2. Fossil fuels are a very recent discovery for humans (barely 150-years-old). Half of our consumption of them has happened in just the last 25 years alone (due to exponentially increasing use).
3. Fossil fuels will not last forever. They are finite and will someday peak and then decline, representing a once-in-a-species bonanza never to be repeated.

It's beyond dispute that fossil fuels are 4/5ths of the current total global energy mix, that our use and dependence on them has grown exponentially over time, and that they are a non-rewable resource.

Among the fossil fuels, oil is, by far, the most critically-important to sustaining both our current level of technology and the human population. It's how we move virtually everything from point A to point B and it’s a critical element for food production and distribution. It also remains absolutely essential to the manufacture and installation of alt-energy systems, like wind and solar.

Given the three facts above, it only makes sense that a responsible global society should have a credible and very publicly-stated energy strategy providing a road map for weaning itself from fossil fuels before they become prohibitively expensive/scarce.

But since we don't have one, the alternative path we're taking is to sleepwalk into the future with no plan for feeding 9 billion people or re-building a crumbled global infrastructure -- let alone facing the additional challenges of running out of critical minerals, dealing with destroyed ecosystems, and being unable to field the necessary fuel and economic complexity to install a brand-new energy infrastructure measuring in the hundreds of quadrillions of BTUs. This BAU path will be marked by the three D’s: despair, demoralization, and death. (Is it any wonder that young people aren't as inspired by BAU as their parents' generation?)

So if instead we want a future that’s prosperous, regenerative and abundant, then we have to begin doing things very differently from BAU. And fast. (The best time to have started on this was decades ago.)

For example, if we decide we want electric transportation powered by wind and solar to be anything more than a meaningless tiny percentage of the total BTU mix, then we’re going to have to use a lot of fossil fuels to make that happen. It takes an enormous amount of fossil fuels to manufacture, install, maintain and repair/replace every single alt-energy component.

The question then becomes: Where do we want to be when that future arrives? If we want to have livable cities and towns with nearby greenbelts and an alt-energy infrastructure delivering clean energy sustainably forever into the future, then an enormous amount of planning and building is going to be required to get anywhere near close to that.

It all comes back to strategy. We need a compelling Vision of this future to inspire society, and then dedicate the appropriate Resources to make it happen.

With an appropriate energy strategy that matches reality, we can engineer a reasonably bright future. Without one, we’ll just pursue BAU until it literally destroys us as well as the ecosystems we depend on.

An New Energy Strategy

So here’s one way to go about doing that.

First, identify all the energy demands that absolutely have to happen just to maintain systemic integrity. The DoD has needs, the current fleets of emergency vehicles and school busses have needs, as does maintaining the existing stock of bridges, roads, and buildings. This exercise will reveal to all that simply maintaining 'the way things are' is extraordinarily energy-expensive. But it has to be done if we want to avoid economic collapse and massive joblessness. It also bears mentioning that the energy required to keep things going is energy that cannot be dedicated to building the new future. It’s a sunk-cost of prior decisions.

Second, make a credible list of energy needs for building the future we want. How many solar panels will that be? How many wind farms? How many miles of electrified train track? How many fully-electric vehicles will have to be built? How many charging stations with the nationwide road system need? What sorts of improvements and modifications to existing cities and towns will have to be made? This is the Vision. It answers the question Where are we going?

Of course, these sorts of new activities and building projects will be very energy expensive. If we want them to happen, then we have to consciously budget an appropriate amount of energy to accomplish the Vision.

Next, develop the very best possible estimate of total economically recoverable fossil fuels. Do this by finally measuring the full-cycle energy returned on energy invested (EROEI) for the remaining deposits. After all, we’re going to build out the future with the surplus energy extraced, not the gross (surplus = Total BTUs extracted - BTUs expended during extraction). This estimate will represent the total principal balance of our national energy bank account.

Last, calculate if there will be any energy left over. If so, save it for future generations. They'll have their own sets of needs and desires that we can't possible know today. (Sadly, I'm willing to wager that there won’t be any excess fossil energy to pass along).

A Sample Scenario

By way of example, suppose that the US undergoes a thorough, exhaustive, peer-reviewed and thoroughly debated examination of all known remaining fossil fuel resources – coal, natural gas and oil – using the very best and well-funded EROEI methodologies (yet to be developed, by the way). If we arbitrarily say that there are “100 units” of net energy left, we might discover this:

• 25 units will be required to simply maintain the economic system so it doesn’t crash and can support the build-out of the new Vision for the future.
• 60 units will be required to build that future out.
• 15 units are not yet assigned. We might decide to leave those to future generations because that would be conscientious and prudent. Or perhaps we discover that they shouldn’t be burned because of the environmental impact.

Results such as these yield important insights.

First, we’d understand that if we accidentally burned through, say, 45 units blindly pursuing BAU, that would steal 25 units from building out the future we want.

Next, we'd realize better that our chances of manifesting the Vision are improved by limiting the amount we spend on maintenance. That insight would help to spur better decisions around conservation and efficiencies -- such as not driving 6,000 pound private SUV/Truck vehicles to transport a single passenger to a desk job, or building homes with inadequate insulation to save a few thousand dollars on the front end of a 100-year capital investment.

Finally, we’d appreciate how our energy resources are finite and limited, and that how we choose to utilize them is quite possibly the single most important decision society can possibly make. Leaving the fate of our precious energy resources to the short-term interests of the markets and politicians would suddenly look too risky and nonsensical. We'd agitate for greater stewardship of them.

Were I in charge, the most well-funded institution in the land would be the Energy Institute. Our very best and brightest minds would be heavily incentivized to work there, applying their considerable gifts at science and mathematics towards matching our energy resources with our shared national goals. Gone would be the days of our top talent working for Wall Street and private money funds to move electronic abstractions of wealth hither and yon, skimming money while creating absolutely nothing of lasting value for their country or the world.

The Coming Oil Crunch Will Shock The World

However, we both know that no such strategic energy plan is forthcoming. There’s no strategy in the US (or Japan or Europe or China, or anywhere) that aligns finite resources with a well-defined, sustainable vision of the future.

BAU rules the roost.

It’s so powerfully embedded that Ford Motor Company recently decided to scrap selling sedans and small cars in America. It will only manufacture SUVs, trucks and commercial vehicles. You know when Ford will no longer make cars, you’ve got to have really chugged the shale oil Kool-Aid to make that decision.

Concrete is still poured with steel rebar every day. New homes and commercial buildings are built with expected lifetimes of only several decades and little attention to insulation. And the Federal Reserve focuses with manic precision on assuring that the credit markets continue to grow exponentially.

Each of these and a million other activities consumes finite, irreplaceable energy at the expense of a sustainable future. At some point, perhaps already passed us, that goal becomes no longer possible.

My point is we don’t know where that line in the sand is. We haven’t done the work, made the plans, and performed the necessary visioning to know one way or the other.

But what we can be sure of is that BAU is headed in the wrong direction and it has no long term future. One way or the other, endless growth on a finite planet will run its course and end. The only remaining question left to answer is: How painful will the reckoning be?

None of us know what will finally break the largest and most destructive credit cycle ever unleashed on the world (thanks central banks!) but we all know that The Everything Bubble has a bitter end. All self-destructive delusions do.

Our analysis concludes that the hard-stop for this credit bubble is resource-based. And I predict it will be a sudden spike in the price of oil that will be the pin that the central bank enabled bubbles absolutely cannot grow beyond.

They will encounter this pin and burst.

There will be plenty of time for tears and regrets then. But right now? You need to get ready.

In Part 2: How The Coming Oil Shock Will Impact Absolutely Everything we go deep into the data showing why a global oil supply shortfall is unavoidable by or before 2020. That's less than two years away.

If gas prices at today's $70/barrel price bother you, you ain't seen nothing yet. The spike in oil's price that will result from the coming crunch will shock the world.

As an increase in the price of oil feeds into the cost of everything, it acts like an interest rate increase in terms of depressing economic growth. If we haven't already entered one yet, this coming shock will absolutely throw the global economy into recession. And if we're already in one when it hits, heaven help us.

Fonte: qui

Executive Summary

• The Inevitable Supply Crunch
• Why The Central Planners Are Making This Worse
• Why The US Shale Industry Will Implode (And Soon)
• The Growing Geopolitical Risks To Oil Supply
• The Shock Felt Round The World

If you have not yet read Part 1: Why The Coming Oil Crunch Will Shock The World available free to all readers, please click here to read it first.

As I’ve written extensively in the past, there are four entire years of missing upstream oil and gas investment (2014—2017) that will lead to an equivalent period of missing oil and gas supply sometime in the future. With the usual 5-7-year lag between discovery and production, my time frame for that was somewhere between the end of 2018 and 2022.

When -- not if -- that supply shock hits, there is no amount of fresh investment money that can rapidly bring new supply on line. Doing so just takes time -- measured in quarters or years:

As we enter into the second half of 2018, the supply/demand balance has already tipped into a slight deficit. I am clearly predicting that:

1. this supply imbalance will only get worse, and that
2. oil prices will have to rise to compensate.

The only development that could possibly prevent this from happening would be a rip-roaring recession, as only economic decline has proven to be able to reduce demand by as much as will needed to avoid this supply crunch.

As we can see from the below chart, the world has been...

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)