The G-7 Blues
What’s at stake in all these international confabs like the G-7 are the tenuous supply lines that keep the global game going. The critical ones deliver oil around the world. China imports about 10 million barrels a day to keep its operations going. It produces less than 4 million barrels a day. Only about 15 percent of its imports come from next door in Russia. The rest comes from the Middle East, Africa, and South America. Think: long lines of tanker ships traveling vast distances across the seas, navigating through narrow straits. The Chinese formula is simple: oil in, exports out. It has worked nicely for them in recent decades. Things go on until they don’t.
That game is lubricated by a fabulous stream of debt generated by Chinese banks that ultimately answer to the Communist Party. The party is the Chinese buffer between banking and reality. If the party doesn’t like the distress signals that the banks give off, it just pretends the signals are not coming through, while it does the hokey-pokey with its digital accounting, and things appear sound a while longer.
The US produces just over 12 million barrels of oil a day. About 6.5 million of our production is shale oil. We use nearly 20 million a day. (We’re not “energy independent.”) The shale oil industry is wobbling under the onerous debt load that it has racked up since 2005. About 90 percent of the companies involved in shale oil lose money. The capital costs for drilling, hauling a gazillion truckloads of water and fracking sand to the rig pads, and sucking the oil out, exceed the profit from doing all that. It’s simply all we can do to keep the game going in our corner of the planet, but it’s not a good business model. After you’ve proved conclusively that you can’t make a buck at this using borrowed money, the lenders will quit lending you more money. That’s about where we are now.
Europe is near the end of its North Sea oil bonanza and there’s nothing in the on-deck circle for them. Germany tried to prove that they could run the country on “renewables” and that experiment has flopped. They have no idea what they’re going to do to keep the game going in their patch of nations. They must be freaking out in their charming capital cities.
The next economic bust is going to amount to the crack-up of the oil age, and the “global economy” that emerged in its late stage. It was all about moving fantastic quantities of things around the planet. The movements were exquisitely tuned, along with the money flows that circulated freely, like blood carrying oxygen to each organ. All of that is coming to an end. The nations of the world must be feeling desperate, despite the appearance of good manners at meetings like the G-7. What’s at stake for everybody in the dark background is the ability to maintain high standards of living only recently attained. And the fear behind that is not knowing just how far backward these high standards of living may have to slide.
A lot of people still alive in China must remember a daily existence on par with the 12th century. In the USA, where democracy is mostly represented by low-order thinking skills, the memory of life before electricity and running water is long gone. We’ve been living in Futurama since the end of the last world war. That war, by the way, is not entirely forgotten in Europe, despite all the charm currently on display and the tourists swarming with their selfie sticks. The place was a charnel house for centuries and the Euro folk will do about anything to suppress conflict. Lately, it looks like they’re willing to give up on Western Civilization itself to keep the peace.
Lord knows what Mr. Trump’s strategy is with these so-called “trade talks.” He has explicitly enough pushed for the re-industrialization of America, and that implies — among other things — decoupling from the China’s torrential merchandise supply lines, cutting off its revenues. Closing off China’s access to US markets itself might be enough to finally blow up China’s deeply fraudulent banking system. Maybe the aim is to just disable China, derail it from its seeming aim of becoming the next world hegemon. Does Mr. Trump think he can do that without blowing up the rest of the world’s financial arrangements? The stock markets haven’t been digesting that story very well lately. Could the US government be collectively dumb enough to think that shale oil will permit this country to re-industrialize while the rest of the world stumbles back into a dark age?
More likely, all the advanced nations will make that downward journey together. The US is well on its way, despite all the MAGA bravado. The country is reeling in bad faith, delusion, official corruption, porno-pharmaceutical vice, and ethnic rancor. The people who live in FlyoverLand style themselves like Visigoths, all tatted up and armed to the teeth, moiling angrily at the edge of the Rome-like coastal enclaves. The elites want to stuff themselves inside their phones and live there. Guess what: that won’t be a “safe space.”