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Wednesday, January 16 , 2019, 3:01 pm | Overcast 61º


The Daily Capitalist: Worldwide Energy Consumption Declines

Turn out the lights, the party appears to be over

I have long stated that this economic crisis is the biggest the world has ever seen, including the 1930s. I say that because this crisis has penetrated every corner of the globe. American bankers weren’t the only ones securitizing debt at a record pace; many other countries adopted these innovative financial products. They also committed many of the same errors underwriting such debt as did American banks. Also many of their central banks followed similar easy money policies as did our Fed.

I have heard many statistics about how much wealth was wiped out by this crash; $25 trillion for just the United States is one number, but whatever the number is, it’s big. I stand by my statement that every country in the world has suffered a loss of wealth related to U.S. or domestic debt. One of the reasons things haven’t gotten as bad as the Great Depression is that government policy makers around the world are smart enough to not throw up trade barriers to kill international trade. They are familiar with the lessons of the 1930s when countries tried, in vain, to protect domestic industry by limiting imports. That plan backfired and international trade collapsed, and only then did politicians realize how foreign trade benefited their countries. Besides, this recession/depression is doing enough on its own to kill international trade as domestic consumer consumption has declined rather dramatically worldwide.

Politicians are still doing stupid things that are causing the crisis to lengthen and worsen. I have discussed the fallacies and negative impacts of Keynesian economics and fiscal stimulus that most countries are now pursuing. It isn’t enough for economies to stop declining; most depressions/recessions eventually bottom out on their own. What we need in order to recover is to have new growth. That isn’t happening and I will blame most of the cause on government intervention. But, of course, as a reader of The Daily Capitalist, you are aware of that.

I recently came across a stunning statistic that exemplifies the global nature and breadth of the crash. According to the International Energy Agency:

We estimate that global electricity consumption could drop by as much as 3.5 percent in 2009 — the first annual contraction since the end of World War II. In the Organization for Economic Co-operation and Development (OECD), electricity demand in the first quarter of 2009 fell by 4.9 percent on a year-on-year basis. Non-OECD regions have also seen weaker demand: in China, for example, demand fell by 7.1 percent in the fourth quarter of 2008 and by a further 4 percent in the first quarter of 2009. (Source: The Impact of the Financial and Economic Crisis on Global Energy Investment, IEA, May 2009)

Since this is the first time this drop has occurred worldwide since the end of WWII, you can correctly assume it is significant.

Think about this statistic for a minute. Electricity is what drives our world and, for the last 64 years, its usage has grown unabated. With all the economic crises since WWII, with all the ups and downs of GDP and markets, with the Cold War and all the hot wars and conflicts, electricity consumption grew steadily ... until now. It is as if some great machine was turned off and went cold. That machine drove the production and consumption of goods and services that we all used.

What can you compare this to? If you look at U.S. electricity consumption during the Great Depression, when much of America was still being electrified, you will find that it declined in 1929 by 2.9 percent, in 1934 by 5.5 percent, and in 1937 by 6.4 percent. These were the worst years of the Great Depression.

We are witnessing a phenomenon not seen since the Great Depression.

— Jeff Harding is a principal of Montecito Realty Investors LLC. A student of economics, he has a strong affinity for free-market economics. This commentary originally appeared on his blog, The Daily Capitalist.

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