Posted on 09/30/2022 5:53:47 PM PDT by Mount Athos
The rapid economic collapse that Britain is facing is simply an accelerated version of what the whole of Europe is about to go through; unsustainable borrowing to fund the gap between high energy prices and what households can actually afford. With the sabotage of the Nord Stream pipeline, there is now no feasible way back. Europe can no longer physically import Russian gas – prices will remain high until Europe builds more energy capacity, which could take years.
What is likely to come of this? High energy prices will render European manufacturing uncompetitive. European manufacturers will be forced to pass through the higher energy costs in the form of higher prices and consumers will find it cheaper to buy products from countries with normal energy prices. The only logical European response to the threat of widespread deindustrialisation is to raise tariffs. This is the only way to equalise prices between more expensive European goods and cheaper foreign goods, therefore artificially supporting European manufacturing. This strategy will lower living standards, depriving Europeans of cheaper goods, but it will at least preserve some manufacturing jobs.
This process looks remarkably like the start of the Great Depression. In the 1920s, due to lopsided financial arrangements initiated in the Treaty of Versailles, western economies accumulated enormous amounts of debt. In 1929, the collapse of the American stock market removed one of the key remaining props and the western economies collapsed. Europe went first and, as trade dried up, America followed it down the hole.
Modern western economies have been accumulating debt for decades. But since the lockdowns in early 2020, this debt accumulation has gone into overdrive. In 2019, Eurozone government debt-to-GDP was 83.8 per cent. In 2020, after the lockdown bailouts were unveiled it shot up to 97.2 per cent. In the same period, Britain’s debt-to-GDP ratio went from 83.8 per cent to 93.9 per cent. These are the largest single increases in history. The run-up in debt during the lockdown was probably unavoidable. But it certainly triggered the beginning of the inflationary pressures we now see everywhere, especially because the lockdowns themselves completely demolished supply chains. So, more money chasing fewer goods. But what has happened since the start of this year is something else entirely.
The Russian invasion of Ukraine has triggered an energy price war in Europe that is forcing even higher levels of government borrowing to cover energy costs. Unlike the lockdowns, these energy price increases are putting direct pressure on both prices and the trade balance between countries. Higher energy prices mean that Europe must send more euros and pounds abroad to get energy and so the value of imports rises and these higher import costs are fed through to consumers as businesses try to offset rising energy costs by raising prices. The situation is no longer remotely sustainable. This is almost certainly our 1929 moment.
In the 1930s, Europe fell into an economic black hole. Its economy collapsed and so all the trade that it did with the rest of the world was sucked down the hole with it. Europe then turned in on itself and started raising trade barriers to eke out some semblance of economic normality. This was a classic case of what economists called the ‘fallacy of composition’: what was good for Europe in particular, was bad for the world economy and since Europe was part of the world economy, it turned out to be bad for Europe too. The world slipped into depression.
Could the same thing happen today? The Office of the United States Trade Representative estimates that the United States engaged in over $5.6 trillion of trade – roughly 26 per cent of GDP – in 2019. In the same year, trade with the European Union was estimated at $1.1 trillion – that is approximately 20 per cent of total trade. As European falls into the hole, this trade will fall with it. The American economy, already frail, will likely fall too.
One key difference this time around is that there is a rival economic bloc that could be insulated from these dynamics, the emerging Brics+: Brazil, Russia, India, China, South Africa and Argentina – with Iran, Turkey, Egypt, Indonesia, and Saudi Arabia also joining the queue. Since the start of the war in Ukraine, the Brics countries have been solidifying trade and financial ties and adding new members. It appears that the goal is for these economies to decouple as much as possible from the West. If they are successful in doing that – and it looks like they may be – they may avoid the depression. The Nord Stream sabotage could be the point at which future historians mark the end of western dominance.
The goal of most of Europe (including the UK) was to make Greta Thunberg happy. The goal of the United States was to make Al Gore happy.
Europe and the United States are now in an energy crisis. So I suppose Greta and Al are both happy. Is anybody else happy?
Thanks Joe.
The developing world will continue clambering aboard the BRICS bandwagon. The third world already knows what the west is headed for. The third world has already had enough of that action.
The Budenstang or whatever Germany calls their Parliament vote three to one AGAINST sending any more weapons to Ukraine.
They are starting to wake up there and are figuring out that their real enemy is to the West (the guys who bombed their energy lifeline), not to the East, but it’s probably too late.
This is what I’ve been saying too. It’s simple math. The oil and LNG need to flow at a certain rate to allow businesses to continue manufacturing.
From what I read, if it’s correct, the Polish LNG pipeline has a 10 BT capacity while the Nord Stream 1&2 had a 105 BT capacity. Math tells us the priority will be for keeping people alive; not manufacturing. It takes a lot of LNG to make fertilizer so none of that.
Ergo the EU will be plunged into a pre-industrial age unless other means can be found to deliver the needed oil and LNG products. I’m guessing trains and ships will be used. Both add risk to transporting over the pipeline method. We learned that with the Keystone pipeline Bumblin’ Xiden cancelled so trains must be used instead. Stupid and unnecessary but it was always about who stood to make the most money; not what was safest and best for the environment.
It’s almost like the goal is to kill off all the white people... oh gosh. You don’t think.............
What would Kondratiev do?
This has been happening for years. Britain became a ‘service industry’ years ago when I lived there. And brought in foreigners to the factories years before that.
And the Yurps still haven’t shaken off their irresistible urge to bow down and sacrifice to Gaia.
It was like pulling teeth to get Britain to lift the ban on fracking.
The Germans agreed to not shut down their last 3 remaining nuclear power plants immediately. Instead they’ve planned that for a few months from now.
Nobody is mining coal. Nobody in Europe is fracking. No new nuclear power plants are being built. They have the technology to generate the energy they need. They just don’t want to - even though they know their economies and their standards of living are staring into the abyss.
I guess they just haven’t felt enough pain yet.
Their real enemy isn’t to the West. Their real enemy is in their own heads. They could fix this problem. They could have kept themselves from ever becoming so utterly dependent on Russian gas in the first place.
they promise the jetsons
you get the flintstones
“Their real enemy isn’t to the West. Their real enemy is in their own heads.”
Very true...if they don’t figure that out, then they’ll keep finding new ways to commit suicide.
The simple fact is that economies run on cheap energy, and when the Neocons blew up those pipelines, they consigned Europe to a third world economic status. When they finally wake up and see what the US lead them into they will not be happy. They should have listened to Henry Kissinger who once said: “To be an enemy of the US is dangerous, but to be its friend is fatal.” They are about to find out exactly what that means.
Really?
70% of the people who live in the Less Developed World want to emigrate to the USA, Europe, or Can-Aus-NZ.
On the flip side - almost no working age person in the USA, Europe, or Can-Aus-NZ wants to emigrate to a Second or Third World country.
Untrue. Here in the UK the construction of Hinkley C is well advanced, Sizewell C about to start, and a programme of 'mini' reactors for decommissioned former nuclear sites currently under development.
I was unaware. That’s a good start. Take that and multiply it X10 and you might have something.
The US led them into utter dependence on Russia for their energy?....or was it idiotic Gaia worship led them into that?
Sure you could say that Europe’s own domestic energy policies contributed to the situation, but that doesn’t excuse the US blowing up a gas pipeline that leaves them in a seriously vulnerable position. That is normally something you would consider an act of war, not the action of a “friendly” nation.
Now of course the US is forced to lie about it, but it’s unlikely those Euro countries will believe such a flimsy lie. It was strictly a self serving action by the US, intentionally severing their ability to access cheap energy from Russia and forcing them to become dependent on the much more expensive LNG from the US.
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