Being Certain About Uncertainty
On our brittle, anxious, non-linear, incomprehensible world going nuts
This week I set out to write an essay about uncertainty, but I began to feel less certain what to write about exactly. Everything is up in the air. It feels like we have passed that ominous point I talked about a few weeks back: a tipping point marking a definitive end to a major phase in the human saga with the beginning of the next still out of clear sight.
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Just like with any complex adaptive system — from living organisms to Earth’s climate or the global economy — things get increasingly wobbly at the turning point from growth to decline. The end of growth in such systems is much like leaning back in your chair: on the rising side of the action things are fully under your control, setbacks can quickly recovered from and even a total reset (back to a fully upright position) can be managed easily. However, when the tipping point is getting closer, it’s harder and harder to maintain balance, recovery takes much longer and your future prospects look riskier than ever… By pushing things just a little too far you risk an unstoppable fall. By not doing anything, on the other hand, you also risk falling over from a momentary loss of balance. Doing the right thing (reducing the stress on the system) might seem a logical thing to do, but when was the last time you saw a complex system act rationally…?
Tipping points cannot be linked to a certain time and date in your calendar. It’s not something which can be easily recognized, let alone predicted accurately. Tipping in a complex system is much like a phase shift… Back and forth, back and forth… Then all of a sudden the roller coaster ride begins and people begin to scream. I believe, and perhaps I’m not alone with that, the screaming part has just begun. Future historians will most likely tie the onset of the downhill ride to the 2nd of April, 2025 referred to as Liberation Day. But there is much-much more to the topic then the announcement of a hitherto unprecedented tariff regime. It’s perhaps no exaggeration to say that an era in human history has ended, and that Mr. Trump was only the harbinger of that phase shift in the making since 2008 at least.
Globalization, the main target of sanctions and tariffs, was not invented in the 1980’s and it’s certainly not ending this year either. It was here with us since the ancient times: Rome famously traded goods with China via the Silk Road just like with India via maritime trade through the Red and the Arabian Seas. Back in the pre-historic era, well before the first kings and emperors, jewelry traveled tens of thousands of miles across the continents. Globalization’s recent uptick — led by liberal trade policies — has hit a plateau in the wake of the 2008/9 financial crisis and failed to recover ever since. The 2020 pandemic and the ensuing lock downs have delivered another blow, and now with the onset of open trade wars a decline in globalization seems all but inevitable. If history is any guide as to what comes next, we are about to enter yet another era of protectionism, and quite possibly, global warfare.
Before we go on, I must refer to a footnote I wrote two weeks ago at the onset of Trump’s trade war. In order to have a chance at making a guess as to where we are headed, we must understand the underlying dynamics first:
Tariffs, if they are here to stay long enough, could very well induce a global recession. The world (outside the US) obtains its dollars from its trade surplus with America. Since tariffs are essentially a tax paid by importing companies, their imposition will immediately translate into higher inflation in the US and thus lower consumption. That means a thinning out of order books in countries producing those goods, and a sudden drop in dollar revenue to them. Poorer nations, as a result, could suddenly encounter enormous difficulties paying back their debts denominated in dollars, while richer ones will stop reinvesting their dollars into stocks and bonds in the US… They will need all the USD they obtain to pay their suppliers who are also desperate to get a hold of some greenbacks. This sudden lack of dollars could simultaneously result in a bank-run on the stock and bond market and a frenzied search for a replacement. (BRICS trading units, perhaps? Bitcoin is nowhere scalable enough to take the dollar’s place…) Needless to say, with the imposition of such a high tariff regime all production growth plans of manufacturing companies have gone south, even in the US (as they source most of their components from outside their borders). Hence the demand for oil can be expected to drop, further reducing futures prices on commodity markets. And if oil prices stay low thanks to subdued demand across the world, then global oil production could turn into an irreversible decline even sooner than expected.
Lo and behold… Oil prices have fallen off the cliff — and stayed down despite a 90 day pause in customs duties for most countries except China — reflecting a deeply depressed market sentiment.
However, it worth zooming out a little. Oil prices were already on the decline since their 2022 peak, which was caused by an unprecedented sanctions war in the wake of the Russian invasion. Looking at the past ten years of data, the oil market simply can’t seem to afford much more than 60 dollars a barrel for crude oil. In the grand scheme of things, the return to this price range was to be expected. This, however, is a major problem, for oil producers (especially in the Permian Basin), who can no longer operate profitably at such “low” prices. Simply put, as they run out of sweet spots where oil flows more easily, they have increasingly become unable to replace their rapidly depleting wells with new ones at the same cost.
You see, this is how the energy industry cannibalizes itself. As drilling for (and refining) oil takes up more and more energy per barrel of gasoline, jet and diesel fuel returned year after year, so does the cost imposed on the entire economy continues to mount. Depletion doesn’t mean that we run out of oil or other minerals one day to the next. It manifests in ever increasing energy costs, as the best locations with the highest grade stuff run out one after the other. Replacing these once rich resources with poorer quality, harder-to-reach, faster and faster depleting, increasingly smaller locations is a losing proposition — not just in America, but worldwide. As the energy costs of extracting Earth’s riches continue to rise, and as the returns per barrels and kilowatts invested keep falling, more and more projects will be cancelled. Eventually, natural depletion will become prominent and global oil output will begin to fall.
Added on top of this purely geology-driven phenomena is the increased cost of borrowing as central banks continue fighting windmills by raising interest rates. They do this ostensibly to arrest inflation, but in effect all they achieve is the immiseration of the average worker through higher banking costs and increased mortgage payments. This in effect simultaneously reduces demand for oil (as the consumption of goods made and transported by it fall) and increases the cost of drilling replacement wells. Now, adding tariffs on steel — used in huge quantities for casing freshly drilled wells — could literally be the straw that broke the camel’s back, raising costs just above the point of economic return.
The International Energy Agency has already cut its 2025 oil demand growth forecast as a result. Major banks also lowered their forecasts of oil prices for the foreseeable future. Again, with a constantly rising energy, material and monetary cost of replacing depleted wells, we have just got a lot closer to a permanent decline in oil production. World crude oil output has already peaked in November, 2018 and at such low prices it looks increasingly unlikely that we will reach that level again. While this is certainly good news from a climate perspective, it is less so from the viewpoint of our diesel powered civilization… So far we were unable to shift our consumption to another energy resource, as all proposed alternatives depend on the high heat, the high energy density and low energy cost of these polluting fuels. Or at least, what used to be low energy costs.
It’s no wonder then, that economic forecasters, completely blind to these processes and mired in their fantasy world of dollars yens and euros, are struggling to create accurate predictions. For them, and company CEO’s alike, this trade madness has threw the monkey wrench into the system. Sure enough, no responsible company manager would allow investments to happen in a country which could raise or drop tariffs one day to the next, making assumptions needed to start a two to three year undertaking impossible to make.
These tariffs are not the root cause, however, but a sign of extreme desperation in the face of global decline. We are facing a terminal crisis of the oil based economy, and not just in the US. The 1970’s oil shock, gave us a forewarning what to expect should oil production began to decline again (as it did back then). Rising prices. Stagnating economic output. Shortages. This time, however, there is no gold standard to leave behind, no country with a vast resource base and cheap labor left to outsource production into, and no trade left to liberalize. Quite to the contrary.
The western ruling elite has realized this instinctively, but failed to understand the root causes. Instead, they see the rise of China as a threat, not as a symptom of an incomprehensibly complex system self-adjusting. Not realizing that we are operating in a non-linear system with seemingly random emergent features (black swans) everywhere can only make things worse. Tariffs are thus acting as a hammer finishing off the dying old world order and leveling the playing field in hope of a revival afterwards. As Thomas Ferguson, Professor Emeritus, University of Massachusetts, Boston observed:
This time, the aim is to terminate a system that allows countries like China and Germany to accumulate large trade surpluses year after year, while the U.S. runs persistent deficits to support global demand. The administration believes that this dynamic has benefited surplus countries at the expense of American manufacturing and workers, hollowing out industries and increasing reliance on debt. As the system unravels, the U.S. risks losing economic leverage and faces rising pressure to rebalance without the global structures that once cushioned the blow. Trump believes domestic dissatisfaction arising from these imbalances was the primary reason he came to power. Objections about how the administration arrived at the various tariff levels it proposed miss the key point: the tariffs are really the first stage of a broader realignment of the whole international monetary system.
Bloomberg goes one step further still, implying that tariffs are in fact a dress-rehearsal for a war with China. A fight which “nobody” wants — except for the entirety of the US congress, the Department of War (ahem, “Defense”), not to mention think tanks founded by rich oligarchs, hoping to earn a fortune on it (1). From this perspective tariffs look like an attempt to simulate the effect of a major war between the two superpowers in preparation for the real one. Other “benefits” include a leverage over allies and large corporations — motivating them to impose their own sanctions on China in return for tariff relief and exemptions — not to mention the fantastic opportunity they provide for insider trading.
Have no illusions: there is no “good side” or “bad side” to this emerging world conflict. The Chinese are ruthless industrialists, demanding crazy working hours, exploiting nations and their resources alike. They are not evil, they just simply do not care. From an ecological and planetary perspective they are just as bad as the capitalist “free-trade” regime they aim to replace. They provide no true alternative to the growth-is-good race to the bottom, they offer only another communication style and packaging to it. In this sense, conflict between the two systems looks inevitable, as both are contending for the same set of finite resources on the same planet, polluting the same atmosphere and ruining the same climate. Sure, the Chinese economy might be less polluting or consume less energy on a per capita level, but that doesn’t make them more sustainable. And you know the rest: that which is unsustainable, will not be sustained.
World trade and the global economy has become brittle as it slowly approached then surpassed planetary limits. It has now reached its tipping point, generating a ton of anxiety and prompting world leaders to break the system which has ceased to function for them. In their folly they failed to realize that it really doesn’t matter who wins, as resource depletion, climate change, growing wealth inequality, falling living standards, plummeting birth rates, disintegrating societies and the failure of technology and science cannot be stopped by waging wars. The only difference politicians could make so late in the game is to prepare their constituents for a long decline, spending resources and energy wisely with an aim to soften the landing at least by a little. And while some certainly will try to achieve this goal, it will not come to pass until all other options are exhausted.
Until next time,
B
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Notes:
(1) All this despite numerous admissions that the US would lose in a direct confrontation with China. Insufficient industry, readiness, innovation, and funding hampers the military’s ability to prevail in conflict. Brian Berletic does a great job (again) explaining all this and motives behind.
UK, USA, China... who cares?
The thing "we" were all immersed in since birth - was/is based on artificially imposed hierarchies, laws, experts, institutions etc etc. It's all, and always has been, fake.
All the 'progress', all the technology - none of it was a good idea. Who did it benefit, really? What was the point of having machines do things quicker? Who gained from it? Answer: profit, for the owners of the machines (also the owners of the system).
'Civilization' itself is fraudulent.
Understandably, that is very hard for many to accept. But true, nevertheless.
Once such a system was in place, what could "we" do? It's impossible to escape it, for the vast majority.
Where did it all go wrong? Maybe from the accumulation of surplus via agriculture, leading to wealth (and the flip side, poverty) idk.
All the 'good bits' - the healthcare, the pampered existence, the gadgets etc, are completely outweighed by the bad bit: being governed by parasitic psychos.
'Entertainment' and 'leisure' exist to distract the masses from this invisible prison - but just like food, shelter etc, those are things that people evolved to provide for themselves and each other, not things that inhuman, or anti-human, corporations ought to provide.
The only time humans were ever free was when they were responsible for their own fate. In other words, sans governments, nation states, police, courts, schools, hospitals etc etc etc...
When there were no hierarchies to enable/protect the psychopaths.
"prepare their constituents for a long decline"
Yes, indeed. And this preparation would be a concerted effort to move as many people out of cities as possible. They would create small farms where those ex-urbanites could provide for themselves using the low-energy techniques that are eventually going to be the only techniques possible.
But asking the governments of modern countries to overtly disavow modernity and prepare for the post-modern era is a big ask. No one, not the politicians nor their constituents want to do it. Only a tiny trickle of doomer-preppers are getting ready (in modern countries). I suspect this will never change and that modern industrialized economies will rapidly disintegrate without any real preparation for what comes after.
Fortunately, there are millions of small subsistence farms in the Global South already supporting millions of people in the style to which everyone will need to become accustomed. They were left behind by modernity but are soon to be the vanguard of humanity.