The end of Civilization and buying gold and silver
Posted on 23 April 2011 with 5 comments from readers
The final chapter of Niall Ferguson’s new book and TV series entitled ‘Civilization: The West and the Rest’ was a disappointing conclusion to this masterly survey of world history and what it might have to teach us about the future.
Perhaps it fell short because at the end of the road ‘Civilization’ lapses into a state-of-denial, and that is odd because Professor Ferguson is quick to criticise others for this failing (click here). You also see it everywhere among commentators at the moment. They really want to believe the future looks bright, even when it does not.
Professor Ferguson’s research team examine the rise of the West and decline of the East over the past 500 years. Then in the past few decades the East plays catch up and in places like Singapore and Hong Kong per capita is now ahead of the US.
China crisis?
Mainland China still lags a long way behind but if you extrapolate its recent growth rates then it catches up pretty soon. That may just not happen. Japan was an overtaking candidate until 1990 when its economy blew up. China might well also reach its limits. Indeed, the bursting of its real estate bubble may have just started (click here).
The final chapter of ‘Civilization’ was written at the end of 2010 when the strong medicine administered after the global financial crisis was believed by the consensus to be working. Perhaps that is why it shies away from earlier more apocalytic warnings from the prolific professor in his commentary articles.
Then he looked hard at the global bond market, of which he is something of an expert as the historian of the Rothschild dynasty, the original bond kings. His conclusion was that bond bubbles invariably burst with spectacular consequences and from an investment perspective a rush into gold and silver which soars in price as a consequence.
And what are we seeing in 2011 but a weakening of global bond markets. The modern bond king Bill Gross is shorting them (click here). And hedge funds and canny smaller investors all over the world are buying gold, and seem to have just discovered silver.
Silver shines
As an aside on silver it looks as though the ratio of gold to silver is being compressed as the metal quickly reverts to its historic role as a money that cannot be printed (although it can be laboriously dug out of the ground). That ratio is down from over 80 just a year ago to around 30 now.
Maybe gold will be held back as the flow of money into precious metals is temporarily tilted in favor of silver. Only once silver gets to its centuries’ old ratio of 12-16 to gold will the yellow metal then be a target for investors, and after that both metals will move up in lock-step to the tune of global monetary inflation.
But back to ‘Civilization’ and the reader can only wonder why the final chapter seems to miss this conclusion. It must be the timing of publication at the end of 2010.
New black swans
After the flock of proverbially discolored swans that have taken off in 2011 the last chapter might be a bit different if written today. That is the danger with trying to bring history into the present, the picture is constantly changing, and can fall victim to the latest Wall Street spin.
For we have two entirely new mega-economic events so far this year. First the Arab Uprisings with their long-term implication for the price of oil; and secondly the Japanese earthquake and nuclear disaster with its impact on the world’s third largest economy.
Meanwhile, the global debt problem that brought us the subprime crisis and global financial crisis has only gotten bigger. Professor Ferguson’s earlier warnings about bonds and precious metals not only still stand, they are about to be proven prophetic.
Of course, civilization will not end, particularly for investors in gold and silver. The next edition of the ArabianMoney newsletter will present some ideas on how best to jump on the silver train, concepts that this free website will have to wait for while our subscribers cash in first (click here).
5 Comments posted by readers:
Professor Ferguson’s commentaries and books are always a great read.
As to why his last chapter falls short of the mark, this is tough to say. Perhaps, as Peter has stated above, “the strong medicine administered after the global financial crisis was believed by the consensus to be working.” Perhaps!
But There’s Another Possibility:
It’s possible that his team, like most people on this planet, “wanted to believe” the medicine was working. If it is not working, then the pandora’s box is opened, and this then presents too many potential, and difficult-to-explain scenarios, none of which would be pleasant.
. . . then again, maybe the “window” presented by his publisher was closing.
Earth is finite. If you pull up a graph of population, it will become obvious that civilization will eventually face big problems, as the ever increasing population runs out of food for one reason or another. Yes, population growth will slow, but I doubt whether it will slow in time to prevent mass starvation. But if we could hold other factors constant, the population bomb wouldn’t explode until the second half of this century.The learned professor Ferguson has not discussed the most immediate problem we will face, the supply of affordable energy. As President Kennedy said, the problems of man are man made, and they can be solved by man. Finance is man made. Fuel is not.
Consider why civilization has made such rapid progress during the last 300 years. We went to ever more concentrated sources of energy. We went from burning wood, to coal, to gas and oil. Technology played a large part, but most of it is useless without affordable fuel to operate it. Thankfully, we are nowhere near running out of fuel. The remaining reserves of coal and natural gas are sufficient for the rest of this century. Yet if you pull up a graph of total energy use by fuel type, you will see that oil represents nearly a third of all energy consumed. The problem is that oil is responsible for transporting just about everything we grow, produce, and consume, at least in the developed economies. At present, there is no substitute for oil products that can be produced on a scale to replace it. More and more experts are concluding that world oil production will begin to decline within the next 20 years. Quite a few are claiming that this will happen within this decade. The head of Total, the French oil giant, has said that he doubts that the world could produce more than 90 million barrels a day for long. Since no one has access to all the geologic data of all of the private and government oil companies, it is impossible to know when production will begin to decline. I think we will start to see it around 2016, with Iraq possibly being able to push the date back into the next decade, if they attain their stated goal of pumping 6 million barrels a day within 5 years.
As soon as the supply of cheap oil begins to decline, the world will stop getting richer. The increase in the standard of living during the last 100 years has been largely dependent on increasingly cheap transportation of everything. Consider global trade that has exploded during the last 50 years. Diesel or fuel oil powered tankers transport the crude oil to China. It is transformed into plastic and fabrics. Trucks and trains (some electric) move the finished products to the diesel powered container ship. The ship pulls into port, and the shipping container is put on a diesel truck or train and moved to a central distribution facility. Diesel trucks move it to the store that you drive your gasoline powered car to. You think the cost of every part of that chain going way up, as oil output begins to decline, won’t cause BIG problems? Yes, natural gas can be substituted for oil, but it will take decades and cost an enormous amount of money. We can’t replace trillions of dollars of infrastructure overnight. Nor can we find the money to do it fast enough. Especially, as it now seems, nothing substantial will be done until the crisis is upon us.
So while the professor has missed our biggest coming problem, and while Peter is correct that civilization will not end, we will experience a significant decrease in our standard of living. And unless you are over 50 years old, you may be around to experience it. I can guarantee, in the vast majority of countries, it won’t be a pleasant experience. Yet, you will probably still be living far better than nearly all of the people who have ever lived on Earth. Since they have found a way to get the huge quantity of natural gas out of the shale 3 km under Northern Louisiana, I guess my air conditioner will stay on. I’ll need it, since it has been running 3 degrees C above normal. It is already a VERY humid 29 C today. IN APRIL !!! So far, the new scroll compressor unit has proven more than adequate. Who would ever think that 2 scrolls could work as an efficient compressor.
I pity the people who don’t have access to the Donald Trump potential candidacy circus. You are missing some of the funniest entertainment around.
And how about the US Coast Guard finding that Transocean was at fault in the Gulf oil spill. BP stockholders should love that. Right now, some idiot on Fox Noise is lamenting that Obama didn’t get as much bad publicity from the spill as a Republican President would have gotten. They have some geniuses on Fox.
CNN is showing a company in Atlanta called Podponics that is growing vegetables inside shipping containers using grow lights. Since the containers can be put anywhere, they claim it will save energy because of the reduction in shipping cost. So I could have been proven wrong already.
Ed Note: Malthus lives! But mankind proved him wrong…
Ed., I don’t think that mankind has proven Malthus wrong yet! I agree that Malthus lives, and he lives in the mathematics of his proposition.
In fact, I don’t believe that mankind will ever prove Malthus wrong. All they can do is to go on postponing the accuracy of his prediction until they can do so no more. Then, our ancestors will say, “Malthus was right!”
The brilliance of Malthus’s idea is in its simplicity. He simply compared two types of growth rate, and predicted that it was inevitable that, at some time in the future, those two rates of growth would part company at such a rate that there would not be enough food to feed the population at that time.
He said that mankind’s population grows exponentially. He said that mankind’s food supply grow linearly.
Whilst population growth is little more than linear, then we all feel that we can feed everyone if we get our agriculture scientific and democratised. But there will come a time when the exponential growth of population will rocket upwards and leave the linear growth of food production plodding wearily on.
So, “Malthus lives! But mankind is deluded in thinking that it has or ever can prove him wrong!”
The best video for the neo-Malthusian argument:
http://www.youtube.com/watch?v=F-QA2rkpBSY&playnext=1&list=PLD443635FA5F476E8
Some old codger rambles on about basic arithmetic principles to an audience of bemused students. Then just as you are about to switch to another site, he sweeps away all your comfortable assumptions about the world today, with breathtakingly simple logic. The old codger is Professor Albert Bartlett. A deceptively brilliant man.
considering peak oil,we are already overpopulated…….it will take the efficient breaking of water into hydrogen n oxygen to reach malthus’ conclusion…..may not happen.
oil will probly limit population(albeit thru some starving) not food.