Dark Winter

Late last year and early this year, the media in the US where talking about the coming Dark Winter with Covid-19. Sure there were the Texas power issues, and then the fuel-pipeline which shutdown whole sections of the country with no fuel.

However I don’t believe what happened last year is even going to be remotely comparable to what is going to happen this year. There are large power shortages already happening and this barely the start of the cold season.

There have been supply chain shocks, and now a financial crisis coming from China, that would send the world economy screeching to a halt.

Energon Cubes - A technocratic introduction to the economy.

The true basis of any economy is the energy that is spent, very technocratic however all our systems depend on one form of energy or another. An example is farming there are a lot processes involved which have a energy footprint just outside the use of tractors an example would be the fertilisers involved, and the supply chain to and from the farm.

Energy can be synonymous with money, a direct correlation of money equals price, is not quite appropriate. Energy is the economic output/activity of a nation or group of peoples involved, and that is linked to the money supply. The more energy is available the more money a system would have.

Money has other side-effects which can cause it to be detached from the “energy”, an example would be too much currency, however that can be more explained as money now being worth less than the supply of energy.

This leads to an interesting prediction, that the contraction of energy means the contraction of economic activity, and there by the shrinking amount of money available on the system (which can be seen as energy prices going up).

So in a world of supply chain shocks, the biggest one of all is the Energy supply choke.

China Syndrome

Our story begins in China, although actively being antagonistic I do think that a large part here is that China is trying to wag the dog. The Chinese state likes to present it self as tough, and having a unified strong central government. However that is not the case, as I mentioned on an earlier blog post - I think China is acting the way it is to keep it’s population unified for the most part.

Multiple Crises

The Chinese are being hit with multiple problems simultaneously, one being a lack of coal and thus a lack of energy, the other a financial market crisis, and a winter crises - all of these problems have analogues in the rest of the world.

However these problems are synergistic in that they accelerate problems, a lack of coal means a lack of energy, which means less production, ties that in with a cold winter which causes crop and energy demands to go up, causing more of a constriction on energy. This is something that will be hitting the world, and for the Southern Hemisphere it is something that will come in later, due to the seasonal difference but it will arrive. These problems are troubling enough by themselves, however any society hit with these all at the same time face rather troubling times and have caused societies to collapse especially the lack of food.

Keeping Warm is costly

We start with a bit of context, while here and possibly in the western world, burning stuff in a furnace to keep warm is somewhat a luxury for those living the cities. We normally heat homes with gas or with electricity however we never directly burn “coal” to warm. Not too far along ago cities such as New York and similarly in Europe had heating companies that provided steam to homes which then would heat the homes of people.

In China especially in the north the use of home furnaces to heat and cook is the norm rather than the exception. Like wise heating companies that produce steam are also fairly common, electrification has not occurred yet for most of China, except for a few major cities.

This is important to keep in mind, as most people buy coal - it is not a luxury and for the northern region to survive in Winter it is a necessity. This YouTube video describes the situation in more detail. In summary a person buying coal has a 1/3 or less the purchasing power than they did a year ago, due to the massive price increases. That means less coal for them to use during the winter months, less money for food as well as some are cutting their food expenditure.

This not only applies to people buying coal at a ton to keep warm, but also heating companies supplying steam are increasing heating costs to customers. For those with electricity it is not much better, as the prices have impacted China’s economic stability of electricity leading to power shortages, as this Economics Explained video covers this issue.

So the situation is dire, with coal shortages affecting not only the power capacity of Chinese industry, but also the way people live their lives, especially in the rural areas where crops are harvested, meaning that there is less food overall in the country.

Food shortages due to power are one thing, however food shortages due to weather is another. The weather in China has been extreme, with massive flooding happening in the southern regions. Fields of vegetable washed away, and in the north the winter crops are barely harvested as ice storms hit the farm lands causing the price of vegetables to be more expensive than Pork. This has also highlighted the failure or North-South water transfer project - with the CCP now considering adding more damns and diversions to the Yellow River which is suffering massive droughts.

With the weather being so extreme and a recent Covid-19 outbreak the CCP issued a statement for families to stock up on emergency supplies. One needs to remember that not so long ago the Chinese government started to issues fines for over eating.

Then you have the financial markets in China being hit with their version of the real-estate bubble, where Evergrand and Fantasia two of the largest property developers going broke. These two firms have large exposures internationally to large firms such as BlackRock and other merchant banks. These have caused massive problems in the bond markets, with some claiming that the damage can be 5 trillion dollars.

As the Indian news service WION points out - the sudden statement by the Chinese government is curious and can be justified by multiple reasons, however it has never issued this type of notice before as food security and famines in china are recent memory and a huge pain point to the CCP. So why risk the legitimacy of the government over this? - There are no answers to be found right now.

So China is facing a tough situation which is not entirely suffering alone, in fact the world is having these same issues, a global credit crisis is not just brewing but now happening, the Winter season this year is going to be worse than the last years and the Northern hemisphere is having its own version of the energy crisis. Which is impacting food security, along with other malaises that have hit recently. In essence this China syndrome is global.

Old Man Weather

Our global quagmire begins with Weather, when UK’s generally windy coast decided not to blow - causing a power crunch and crisis. While wind not blowing might be specific to one country, the general trends for Northern hemisphere is that this winter will be a very cold one.

In fact Antartica has recorded its coldest season yet, with Europe exiting it’s coldest Winter earlier this year with some saying that the 2021-2022 winter season might be colder still, keep in mind that on average Europe is already 0.2 degrees below average.

Russia is already expecting and suffering from a prolonged cold season to last till 2022 and might face large disruptions. China is already suffering from major chills and frost storms very early in Autumn, with sections of Mongolia reaching -10C.

The United States is already having record breaking snow falls, and with a prediction that things up north will get worse with over 100 million people affected, states like New York already having record breaking cold weather for such an early part of the year.

La Palma, Volcanoes and Clouds of Ash

In an odd there has been an uptake in volcanic activity in the world, increasing to large amounts of Ash being spewed from Volcanoes, for example like the Karymsky generating massive ash clouds that are 450x450 Kilometres squared.

It is widely known that volcanic ash activity has a “cooling” effect, but to what degree the recent activity in La Palma and other volcanoes are going to have is rather unknown. However it is known that such activity can be disruptive, in many other ways.

The above map illustrates where volcanic activity can disrupt global trade routes, and the following are the current active zones.

Should the volcanic activity increase it can jeopardise the global trade networks even further, causing further instability in the energy sector.

Iceland being an interesting example that has been erupting 4-weeks before La Palma and has a large active volcano near the capital. With Askja being one of those massive super-volcano that explode in rather catastrophic ways, and more to the point unexpectedly with no prior warning.

Unpredictable

The weather is unpredictable, and the volcanic activity that is happening potentially adding to the mix. The man-made effects of high CO2 levels might are contributing to a change in weather that is both unpredictable, and uncertain.

1.1 GIGAWATTS! Of Energy risks

Only a few months ago England was and currently is still facing a power crisis, what was interesting that this had been brought by initially through a cut in wind power output. Now to say this was localised to British isles is incorrect, as this exposed a huge problem facing Europe and in some ways the world. A global energy crunch - and by proxy through the price increases of the gas energy markets.

In fact not just gas but petrol prices have been going up with no signs of stopping, all of these adding to the energy crunch. Norway had promised to increase gas to Europe, although that is limited by the maintenance work it has yet to finish, while Russia does export to the EU it knows it can use it as a bargaining chip in trying to get Nordstream 2 approved, and is suspected of also manipulating the price of gas for its own benefit.

However its not just Norway and Russia, in general the world market demand for gas has increased as Asian countries are trying to source supply as well to power their cities as gas is seen as a clean alternative to Coal. Letting countries which switch to gas meet their climate targets.

For Europe however the situation doesn’t get any better, over the last year their reserves they generally keep have not been restored. Generally Europe stores gas in reserves for use in their Winter the surplus gas not used in summer is kept away, but the reserves are below the average levels. This possibly caused by people working from Home a lot more, although the degree of that impact has not been yet established.

So high gas, petrol and coal prices mean one thing - high electricity prices, in the UK power companies are going bankrupt as they cannot operate at a loss for extended periods of time, as the cost of electricity sold on the grid is highly regulated. This means that they cannot cover the cost of buying the fuels. However the soaring prices are not just a UK thing Europe faces the same problems and the forecasts are not getting any better.

Not just a Potato Famine

The current high prices of electricity are not just a problem for people keeping their homes running, but it has rather nasty side effects. The high price and lack of power acts as a two-combo punch to the one thing people in the past have started rebellions, food.

The price of making the ammonia has gone from $110 a ton, to $1000 a ton. That is such a high price increase that it has caused the prices of Wheat and Oats to spike. This spike is unlike the 2008 spike, has risen over several months, where as the 2008 spike was a response to the GFC.

The lack of access to Fertilisers has caused farmers in India to smuggle the stuff, or buy if from the black market. Recently the CEO of Norways biggest fertiliser firm Yara issued a stark warning that there were going to be food shortages along with price hikes, while large farms could absorb and pass to the consumer the cost. Smaller farmers might have to reduce their yields if they cannot afford the fertiliser in the first place. This might also place further strains on small farms, potentially also shutting down boutique or family owned farms further cutting food supply.

This is not a single issue happening in Norway, in the UK CO2 production has been cut this while the obvious target is carbonated beverages, the real side-effect is food packaging, where the CO2 gas is used to preserve food. They cause of CO2 production cuts is the once again the cost of energy.

I have head anecdotal reports of farmers where all their input costs of production have substantially risen. This extends to meat too, given cattle farmers have to buy fuel but also feedstock, or grow said feedstock, which requires fertilisers adding to the cost.

Now Chicken is also affected in the UK there has been a chicken shortage where KFC, and Nando’s have been forced to close due to lack of supply. Lack of food and cutting of production being caused by lack of food grown locally (again due to Covid-19 shutdowns), and the cost of importing feed-stock. Affecting the consumer directly one of the UK’s largest Chicken suppliers has issued a warning that the days of cheap chicken are over. If things with the food-supply chain where not bad enough, in England they’ve issued a call warning and declared bird flu preventions zones and the Netherlands has issued a similar warning for farmers to keep their chicken indoors to prevent the spread of the a contagious bird flu, that is highly lethal that has been spreading through Chicken farms in Europe as of late.

Now Australia is facing similar issues as well we just we are still recovering from the mice plague that hit not too long ago, affecting supply of grains here in Australia. However Australia also imports over 65% of its fertiliser supply from China, with China now cutting production due to power, and keeping its supply for securing its own food instability. Australia could be facing a massive fertiliser shortage, which might not hit the Australian public right away, but certainly jeopardises local food production. In 2020 Australia also had to cull chickens due to bird flu, I don’t know if its the same type spreading in Europe now.

Given the energy costs involved in making fertilisers, importing from the US might be an issue as well given they are having an energy crisis too, and with the now incoming snow storms it might be feasible for the US to export or if it does, it would do so at a greater cost than before.

It’s globalism stupid!

So prices of energy causes prices of energy intensive processes to go up, which in turn cause prices of items which use said processes to go up. It’s the network effect, caused by disruptive events, such as energy shortages, and pandemics, with supply chain shocks.

However food security has been an issue that most countries would always try to maintain, but recently as the commercialisation/industrialisation of food has marched it has been tied to globalism. As Sagar points out the reason food prices have gone is because of globalism. The same market players who brought over this fragile system have attempted to fix it, by introducing more globalist ideas - the idea of corporate interests of capturing the food security of nations is on full force.

Companies such as BASF, Bayer-Monsanto would love it nothing to capture the entire process from seed to grain, and milk the farming production by forcing farmers to pay for fertilisers, herbicides, insecticides and royalties for the use of their seeds. Maximising the extraction of profit via recurring rents.

If anything that the events so far have highlighted and the lesson we should take away, is that any system that is optimised for the maximising of profits, is highly fragile and prone to large amounts of disruption. Food systems and supply should be anti-fragile, and not depend on the events happening half way around the world or at least not jeopardise the food security of a nation.

Time for a garden

It’s time to plant a garden, and become less dependent on rent seeking companies that would jeopardise your health and well-being for their own profit. We need to start rethinking how we organise food, and plan with our neighbour, family and friends to make sure that food shortages do not turn to a famine.