European debt crisis and oil affordability

Well it looks as though it wouldn’t be much fun being the next Prime Minister of either Greece or Italy right now. It is a poisoned chalice. Who wants to introduce austerity measures and remain electable? Any concerned citizen can see what is coming for New Zealand when our trading partners are in this sort of trouble.

Richard Douthwaite, the green economist from Ireland, has written the most amazing chapter in FEASTA’s book Fleeing Vesuvius. He explains the connection between declining oil supplies and the trend of rich countries to run deficits. Taking Ireland as an example, he lists the cost of mineral fuel imports, the value of exports and then works out the fuel cost as a percentage of export earnings. It rose from 2.4% in 2001 to 7.6% in 2008. Exports are the only means by which the country can earn the money it needs to pay the interest on its overseas borrowings.

He explains that a country that runs a deficit on its trade in goods and services for several years will find that its firms and people get heavily in debt because a dense web of debt has to be created within that country to get the purchasing power, lost as a result of the deficit, back into everyone’s hands.

After a careful explanation, one of his conclusions is that it is dangerous and destabilising for any country, firm or individual to borrow overseas and net capital movements between countries should be prohibited. This is rather startling, but when you think about it foreign capital creates problems when it enters a country and when it leaves the country. When it comes in it boosts the exchange rate, thus hurting firms producing for the home market by making imports cheaper. It also hurts the exporters, reducing their overseas earnings when they convert them into national currency. As a result, when the loan has to be repaid, the country is in a weaker position to do so than it was when it took the loan on.  And managing borders obeys one of the laws of Nature.

The late Rod Donald, former co-leader of the Greens, used to go on and on about the balance of payments in New Zealand and I can see why. Both the National Party and the Labour Party seem to be taking our country into more and more debt. We have borrowed around $40 billion in the last three years.

Someone should work out our trend over the last few years. We need to find a list of the fuel cost as a percentage of export earnings and the ratio of total external debt to exports.


What are the real political issues this election?

Well I sat through The Nation this morning on television, really had to hold myself in the seat because I was so bored. Reflections on the leaders, the campaigns really had little to offer other than saying Labour was on the front foot because they were realistic enough to tell us they would raise the pension age to 67.

So what are the real election issues? In my view they are the Greek bailout with a further loan, the Occupy Wall Street international movement, our borrowing of $300m a week so we can pretend all is well and we can maintain our lifestyle for ever, the Thailand floods and the price of food.

So why on earth would I pick those issues? I pick Occupy Wall Street because the world is waking up to the fact that our banks have been allowed to get so big and deal in such crazy sums of their exotic ‘financial instruments’ that Governments deem them too big to fail. People are waking up that the banks rule the world, particularly Goldmann Sachs, JP Morgan, Barclays and Bank of America.

Secondly I pick the Greek bailout because it is only going to last for six months and each time there is a bailout the politicians in France and Germany become less and less re-electable.  You can’t solve a debt problem with more debt. The relevance for NZ is that we are going further and further into debt with our borrowing programme and we just might end up like Greece ourselves.

I picked the Thailand floods because of the relevance for our rice prices and the critical nature of climate change in the future of our economy. Yes I am not just talking about more extreme weather events for our grandchildren to suffer, but I am talking here and now there is damage to our economy. Import costs rise every time there is a crop failure somewhere in the world. And climate change is going to affect the income we get from our agricultural exports too.

Why is the price of food so critical? Because whether or not people link it with crop failure or with rising prices of oil which affects the price of fertilisers, pesticides, agricultural practice and transportation they sure know when food prices rise. A professor at New England Complex Systems Institute Yaneer Bar-Yam is working on the relationship between food prices and political uprising and maintains the relationship is strong.

There is another issue and that is the sale of state assets. I will deal with the relationship between that and our policies in another blog entry some time soon.

New Zealand as a Republic

Why we need a republic

New Zealand should be a republic

All of these proposals for change would of course be squashed by the Crown under the current system.

A republic is a country where the supreme power of the state is dependent on the consent of the citizens it governs. In a republic it is commonly said that political power operates only with the ongoing consent of the people. This is usually expressed through elections. The citizens elect representatives who are in turn responsible to the citizens who have elected them.

The majority of the world’s nations are republics. Not all of them are fully democratic, although two-thirds of fully democratic countries are republics. In a republic the head of state is not a hereditary leader. The head of state is either directly elected or is appointed by an elected assembly. They are most often called the president.

The arguments for a republic fall into three categories:


An elected New Zealander should be head of state

New Zealand will not be fully independent until we have a New Zealander as head of state. New Zealand likes to think of itself as an independent country. However, it cannot objectively be argued New Zealand’s current head of state represents this.


Democracy. New Zealand’s Head of state is our Governor General. This person has considerable powers and should be elected rather than appointed by a monarch on the recommendation of a Prime Minister.

This is in line with the principle that all systems with integrity must have semi-permeable borders.

A Perfect Storm of Crises


Resource Depletion:
The world’s rapidly growing and modernising population is consuming the earth’s limited natural resources at an ever-increasing and unsustainable rate. Here are some major concerns:

Peak Oil production

Peak oil production brings the end of economic growth

Energy is the resource that powers all human and economic activity and oil is the energy source we depend upon most. Global production of conventional crude oil peaked in 2005 and unconventional oil from oil shale, (and) tar sands and cropping is barely making up the shortfall while creating new problems for water, land, food systems, wildlife and the atmosphere.

Peak Coal and Natural Gas

Coal fracking uses too much water

Coal and natural gas reserves are extensive, but as more accessible, higher quality sources are depleted, growing practices like mountaintop removal for “dirtier” coal and hydraulic rock fracturing (“fracking”) for shale oil and natural gas carry high capital and environmental costs which limit their future viability.

Peak Everything Else
Population pressure and modernisation is rapidly depleting many, if not most, of the resources we use to sustain civilisation. Fresh water, arable land, phosphorus for fertilizer, seafood stocks, lithium, gold, rare earth metals, rainforest products and other resources are close to, or already past, peak production. When the easiest and cheapest resource stocks are gone, the rest become more expensive and generally come at a higher environmental cost.

Climate Change:

Climate change is nonnegotiable and if we get it wrong this time there is no second chance. The critical threshold of the ratio of greenhouse gases in the atmosphere has been reached, and only drastic measure to reduce this ratio will avert a perilous future.

Increasing high levels of carbon dioxide and other gases in the atmosphere have trapped more of the sun’s energy over the past century and have warmed the earth’s oceans, landmasses and atmosphere. The warmer atmosphere can hold more moisture and has more energy to drive mass air movements and power more frequent and violent tornados, hurricanes, floods, droughts, snowstorms, heat waves, dangerous hail and lightning storms, and record rainfalls.

Flooding in Bangkok 2011

We can expect:
Increasing crop failures like those  in Russia due to extreme heat and drought; in Pakistan due to extreme flooding; and in Australia due to extreme heat, drought, and floods.
Increasing death, destruction and economic devastation as more powerful tornadoes, floods and hurricanes afflict larger areas of the planet.

2.     More forest fires and wild fires as droughts become longer and more severe.
3.     Greater damage from pathogens and insects as naturally balanced ecosystems begin to break down.

Drought affecting crops in New Zealand

Economic Turmoil
The global financial system is currently in a state of terminal breakdown. It’s been on life support for the better part of half a decade, and the costs of keeping it on life support are spiralling out of control. While most agree that the global economy nearly collapsed in the spring of 2008, few acknowledge that nothing has fundamentally changed to prevent this from happening again. Recent bailouts of fragile European economies like Greece, Ireland and Portugal (like the bailouts of American financial institutions) increased the debt that first caused the defaults and likely set the stage for more economic chaos not far down the road. The IMF is warning of a dangerous new phase but as expected their prescription is “repair” when it should be “redesign”.

We can expect:
·       High inflation or deflation, both harmful
·       Scarce capital or credit for job creation or infrastructure projects
·       Dramatic cuts in government services as debt liabilities grow and tax revenue shrinks.
·       Growing ranks of unemployed as families sink into poverty and unemployment
·       Possible or even inevitable global economic collapse.

Also, the bewildering array of derivatives – exotic financial instruments that create money but not real wealth, – are now monetarily valued to far exceed the value of all real goods and services on the planet. As the hard physical limits to growth begin to appear in the forms noted above, the entire growth-dependent financial system may be headed for a very hard landing.

Economists are part of the problem

The remedies advocated by economists are at best suspect.. The New York Times Magazine headlined “How Did Economists Get It So Wrong?” while Business Week featured “Why Economics is Bankrupt” and “What Good Are Economists Anyway?” The Guardian talks of “Rescuing economics from its own crisis” and Atlantic Magazine headlines were “Will Economists Escape a Whipping?” “Why Economics Failed” and “Have economists gone mad?”

Infinite growth is not possible on a finite planet

The mechanistic approach to economics sees the rights of the individual as paramount and the sustainability problem as simply a matter of balancing competing economic, social and ecological considerations. On the other hand, a systems perspective suggests things are not quite this simple.

Solutions where the government pumps money into the system, will not solve our economic woes. As United States has recently discovered it only increases the debt and extends the suffering. As Europe is about to discover, you can’t solve a debt problem with more debt.

How come economists get it so wrong?

Because of increased trade, technological innovation and our ability to exploit the cheap, abundant energy of fossil fuels, New Zealand has had a prolonged period of economic growth with more production, more food, more people and more income. But energy is a prerequisite for all economic activity.

At the core of many of our problems is our monetary and taxation system.  Any economic system must include an accurate accounting of its environmental and social effects.

Our monetary and banking system runs on interest bearing debt. Without increasing debt it is hard to “grow the economy.” Economist Ken Boulding once said “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist”.

The worst thing that could have been done in 2008 was for the National Government to borrow money ($300m a week) from private banks at interest. It is only going to cause more debt., increasing a debt burden currently $102,000 for each man, woman and child. Unfortunately there is no magic solution that will turn back the clock to an era of abundant resources and easy growth.

It doesn’t take a genius to understand there is something very wrong at the heart of the global economic system. We have a parasitic investment banking class sucking at the heart of main street business and at ordinary people.  The system’s dependence on exponential growth also causes environmental harm and unsustainable demand on natural resources.

Globalisation and the harshest form of capitalism have eroded the bonds of community, created vast gaps of wealth between the richest and the poorest, and impoverished the natural environment.  In New Zealand twenty percent of our children live in homes of beneficiaries. Too many of our youth are unemployed and not being effectively educated or trained.. Maori suffer most from all this.