#153. One for the sceptics


We need to be rather careful about the term “opinion is divided”.

When English league champions Manchester City were drawn to play fourth-tier minnows Newport County in the F.A. Cup, the opinions of football-watchers over the expected outcome probably were “divided” – but only in the sense that, whilst 99% expected the giants to win, only 1% hoped (in vain, as it turned out) for a miracle.

The same caution should apply to any claim that informed opinion is “divided” over the threat to the environment. Even if you’re not convinced by the concept of climate change, or of human activity as one of its main causes, you’d struggle to dismiss species extinction, water supply exhaustion, land degradation, desertification, melting glaciers or simple pollution as figments of the imagination.

We don’t, after all, have to assume that absolutely everything ever stated by ‘the establishment’ or the mainstream media is a pack of porky-pies, even if quite a lot of it is.

There’s one point, though, which really does need to be addressed. This is the widespread assumption that environmental and economic objectives are opposed, and that tackling environmental imperatives will have an economic “cost”.

This is a wholly false dichotomy. Far from ensuring ‘business as usual’, continued reliance on fossil fuel energy would have devastating economic consequences. As is explained here, the world economy is already suffering from these effects, and these have prompted the adoption of successively riskier forms of financial manipulation in a failed effort to sustain economic ‘normality’.

If you take just one point from this discussion, it should be that a transition to sustainable forms of energy is every bit as important from an economic as from an environmental imperative.

“What if?” A contrarian hypothesis

To explain this, what follows begins from a hypothetical basis that ‘there’s no truth in the story of man-made climate damage’.

Just for the moment, I’d like you to suspend your disbelief – as, writing this, I’ve had to suspend mine – and adopt the starting position that human activity, and in particular our use of energy, isn’t threatening the planet.

If they were of this persuasion, what conclusions might be reached by decision-makers in government and business?

It’s probable that, stripped of the environmental imperative, the case for transitioning our supplies of energy, away from fossil fuels and towards renewable sources such as solar and wind power, would either be dismissed altogether, or watered down to the point of irrelevance.

Even as things stand, efforts to transition to sustainable sources of energy are faltering.

Once persuaded that we could do so safely, there would be considerable support – reinforced by the human traits of self-interest, conservatism and inertia – for taking a “business as usual” approach, in which oil, gas and coal remained, as they are now, the source of fourth-fifths of the energy that we consume.

From this start-point, a great deal of inconvenience could be prevented. We wouldn’t need to change our practices, or our way of life. We could carry on travelling in gasoline- or diesel-powered vehicles. Holidaying abroad would remain an activity with a future. We needn’t expend huge sums in plastering our countryside with wind turbines and solar panels. We’d be likely to abandon vastly-expensive, technically unproven plans to switch over almost entirely to EVs (electric vehicles), confining them instead to marginal urban use. By heading off the need for drastic increases in power supply, this in turn would make it easier for industry to keep on coming up with new products and processes (like drones and robotics) which call for increases in our use of electricity.

In short, in a purely hypothetical situation in which it could be proved that the environmental activists were wrong, there’d be a huge collective sigh of relief, from government, business and the general public alike. Few people, after all, really like change and disruption.

The energy reality of the economy

What has to be emphasized – indeed, it cannot be stressed too strongly – is that, even if it were environmentally safe to carry on relying on fossil fuels, doing so could be expected to cripple the economy within, at most, twenty-five years.

Indeed, the process of economic deterioration is already well under way.

That this is not generally understood results primarily from the mistaken view that the economy is ‘a financial system’.

It has long been traditional for us to think of the economy in this way. This, in part, is a legacy of the founders of economics, men like Adam Smith, David Ricardo and James Mill. They established what are called the “laws” of economics from a financial perspective. They demonstrated the way in which the pricing process determines supply and demand. Specifically, they contended that, if there’s a shortage of something, the solution is to raise its price, thereby encouraging increased supply. All of their work, then, was expressed in the notation of money.

We should be in no doubt that these founding fathers of economic interpretation have bequeathed us invaluable lessons, of which none is more important than the role of free, fair and uncluttered competition in promoting economic progress. The successors to the early pioneers have added new economic interpretations, of course, but almost all of these are money-based theories, which perpetuate the idea that the economy is a financial system.

But the founders of classical economics lived in a world totally different to that of today. Smith died in 1790, Ricardo in 1823, and Mill in 1836, and even Mill’s son, John Stuart passed away in 1873, which was 99 years before the publication of The Limits To Growth. In their era, there was little or no reason for anyone (other than the maverick Thomas Malthus) to think about physical limitations, still less of the environmental issues that have entered our consciousness over the last twenty-five years or so.

They were right to state that higher prices can stimulate the supply of shoes or beer – but no increase in price can conjure forth new, giant and low-cost oil fields where these do not exist.

There can be few, if any, other matters of twenty-first-century importance which are tackled on the basis of eighteenth-century precepts. Neither, logically considered, is there any reason for clinging on to monetary interpretations of the economy.

If, as in fig. 1, we look at the relationship between, on the one hand, global population numbers (and related economic activity), and, on the other, the use of energy, we can see an unanswerable case for linking the two. It’s no coincidence at all that the exponential upturn in the world’s population took off at the same time that, thanks to James Watt’s 1776  invention of the first effective heat-engine, we learned how to harness the vast energy potential contained in fossil fuels.

Not just the size of the world economy, but its prosperity and complexity, too, are products of the Prometheus unleashed by Watt and his fellow inventors.

Fig. 1.

Population and energy

Moreover, observation surely tells us that literally everything that constitutes the ‘real’ economy of goods and services relies entirely on energy. Without energy supplies, the economy would grind to a halt, and the society built on it would disintegrate.

After all, if you were adrift in a lifeboat in mid-Atlantic, and a passing aircraft dropped you a huge pile of banknotes, but no water or food, you’d soon realize that money has no intrinsic worth, but commands value only in terms of the things for which it can be exchanged.

Money, then, acts simply as a claim on the products of an economy which, itself, is an energy system.

The cost component

Anyone who understands the energy basis of the economy knows that the supply of energy is never cost-free, though the relevant measure of cost needs to be stated in energy rather than financial terms. Drilling a well, digging a mine, building a refinery or laying a pipeline requires the use of energy inputs, as, for that matter, does installing a wind-turbine or a solar panel, or constructing an electricity distribution grid.

This divides the aggregate of available energy into two streams – the energy which has to be consumed in providing a continuity of energy supply, and the remaining (“surplus”) energy which powers all other economic activity.

The cost component is known here as the Energy Cost of Energy (ECoE). This is the critical determinant of the ability of surplus energy to drive economic activity. Low ECoEs provide a large surplus on which to build prosperity, but rising ECoEs erode this surplus, making us poorer.

Further investigation reveals that, where fossil fuels are concerned, four factors determine the level of ECoE.

One of these is geographic reach – by extending its operations from its origins in Pennsylvania to places as far afield as the Middle East and Alaska, the oil industry lowered ECoE by finding new, low-cost sources of supply.

A second is economies of scale – a plant handling 300,000 b/d (barrels per day) of oil is a lot more cost-efficient than one handling only 30,000 b/d.

Now, though, the maturity of the oil, gas and coal industries is such that the benefits of scale and reach have arrived at their limits. This is where the third factor steps in to determine ECoE – and that factor is depletion.

What depletion means is that the lowest-cost sources of any energy resource are used first, leaving costlier alternatives for later.

The crux of our current predicament is that ‘later’ has now arrived. There are no new huge, low-cost sources of oil, gas or coal waiting to be developed.

From here on, ECoEs rise.

To be sure, advances in technology can mitigate the rise in ECoEs, but technology is limited by the physical properties of the resource. Advances in techniques have reduced the cost of shale liquids extraction to levels well below the past cost of extracting those same resources, but have not turned America’s tight sands into the economic equivalent of Saudi Arabia’s al Ghawar, or other giant discoveries of the past.

Physics does tend to have the last word.

Unravelling economic trends

Once we understand the processes involved, we can see recent economic history in a wholly new way. The narrative since the late 1990s can be summarised, very briefly, as follows.

According to SEEDS – the Surplus Energy Economics Data System – world trend ECoE rose from 2.9% in 1990 to 4.1% in 2000. This increase was more than enough to stop Western prosperity growth in its tracks.

Unfortunately, a policy establishment accustomed to seeing all economic developments in purely financial terms was at a loss to explain this phenomenon, though it did give it a name – “secular stagnation”.

Predictably, in the absence of an understanding of the energy basis of the economy, recourse was made to financial policies in order to ‘fix’ this slowdown in growth.

The first such initiative was credit adventurism. It involved making debt easier to obtain than ever before. This approach was congenial to a contemporary mind-set which saw ‘deregulation’ as a cure for all ills.

The results, of course, were predictable enough. Expressed in PPP-converted dollars at constant 2018 values, the world economy grew by 36% between 2000 and 2008, adding $26.8 trillion to recorded GDP. Unfortunately, though, debt escalated by $61.5tn over the same period, meaning that $2.30 had been borrowed for each $1 of “growth”. At the same time, risk proliferated, and became progressively more opaque. Excessive debt and diffuse risk led directly to the 2008 global financial crisis (GFC).

With depressing inevitability, the authorities once again responded financially, this time adding monetary adventurism to the credit variety that had created the GFC. In defiance of a minority who favoured letting market forces work through to their natural conclusions (and who probably were right), the authorities opted for ZIRP (zero interest rate policy). They implemented it by slashing policy rates to all-but-zero, simultaneously driving market rates down by using newly-created money to buy up the prices of bonds.

This policy bailed out reckless borrowers and rescued imprudent lenders, but did so at a horrendous price. Since 2008, we’ve been adding debt at the rate of $3.10 for each $1 of “growth”. The proper functioning of the market economy has been crippled by the distortions of monetary manipulation. The essential regenerative process of ‘creative destruction’ has been stopped in its tracks by policies which have allowed ‘zombie’ companies to stay afloat. Asset prices have soared to stratospheric levels, supported by a tide of debt which can never be repaid, and can be serviced only on the assumption of perpetual injections of negatively-priced credit. The collapse in returns on invested capital has blown a gigantic hole in pension provision. As the Federal Reserve is in the process of discovering, no route exists for a restoration of monetary normality. We are, in short, stuck with monetary adventurism until it reaches its point of termination.

The relentless rise of ECoE   

Back in the real economy, meanwhile, ECoEs keep rising. SEEDS calculates that global trend ECoE has risen from 4.1% in 2000, and 5.6% in 2008 (the year of the GFC), to 8.1% now. Critically, the upwards trajectory of ECoE has become exponential, with each incremental increase bigger than the one before.

As this trend has progressed, prosperity has turned downwards, initially in the advanced economies of the West.

To understand this process, we need first to look behind GDP figures which have been inflated by the simple spending of borrowed money. In the decade since 2008, an increase of $34tn in world GDP has been accompanied by a $106tn surge in debt. What this means is that most of the reported “growth” in GDP has been bogus. Rates of apparent “growth” would slump to, at best, 1.5% if we stopped pouring in new credit, and would go into reverse if we ever tried to deleverage the world’s balance sheet.

Once we’ve established the underlying rate of growth – as a “clean” measure of GDP which excludes the effects of credit injection – we can apply ECoE to see what’s really been happening to prosperity.

In the West, people have been getting poorer over an extended period. Prosperity per capita has fallen by 7.2% in the United States since 2005, and by 11.3% in Britain since 2003. Deterioration in most Euro Area economies has been happening for even longer. Not even resource-rich countries like Canada or Australia have been exempt. As an aside, this process of impoverishment, often exacerbated by taxation, can be linked directly to the rise of insurgent political movements sometimes labelled “populist”.

The process which links rising ECoE to falling prosperity is illustrated in figs. 2 and 3. In America, prosperity per person turned down when ECoE hit 5.5%, whereas the weaker British economy started to deteriorate at an ECoE of just 3.4%.

Fig. 2 & 3.

EcoE & prosp US UK

World average prosperity per capita has declined only marginally since 2007, essentially because deterioration in the West has been offset by continued progress in the emerging market (EM) economies. This, though, is nearing its point of inflexion, with clear evidence now showing that the Chinese economy, in particular, is in very big trouble.

As you’d expect, these trends in underlying prosperity have started showing up in ‘real world’ indicators, with trade in goods, and sales of everything from cars and smartphones to computer chips and industrial components, now turning down. As the economy of “stuff” weakens, a logical consequence is likely to be a deterioration in demand for the energy and other commodities used in the supply of “stuff”.

Simply stated, the economy has now started to shrink, and there are limits to how long we can hide this from ourselves by spending ever larger amounts of borrowed money.

Safe to continue?

Let’s revert now to our hypothetical situation in which, unconcerned about the environment, we remain resolutely committed to an economy powered by fossil fuels.

The critical question becomes that of what then happens to the economy moving forwards.

Unfortunately, the ECoEs of fossil fuels will keep rising. SEEDS puts the combined ECoE of fossil fuels today at 10.7%, a far cry from the level in 2008 (6.5%), let alone 1998 (4.2%). Projections show fossil fuel ECoEs hitting 12.5% by 2024, and 14.5% by 2030.

For context, SEEDS studies indicate that, in the advanced economies of the West, prosperity turns down once ECoEs reach a range between 3.5% and 5.5%. Because of their lesser complexity, EM countries enjoy greater ability to cope with rising ECoEs, but even they have their limits. SEEDS analysis identifies an ECoE band of between 8% and 10% within which EM prosperity turns down. Sure enough, China’s current travails coincide with an ECoE which hit 8.7% last year, and is projected to rise from 9.0% in 2019 to 10.0% by 2025. A similar climacteric looms for South Korea  (see figs. 4 & 5).

Figs. 4 & 5

EcoE & prosp CH KOR

In short, then, continued reliance on fossil fuels would condemn the world economy to levels of ECoE which would destroy prosperity.

Hidden behind increasingly desperate (and dangerous) financial manipulation, the world as a whole has been getting poorer since ECoE hit 5.5% in 2007. As more of the EM economies hit the “downturn zone” (ECoEs of 8-10%), the so-far-gradual impoverishment of the average person worldwide can be expected to accelerate.

After that, various adverse consequences start to impact the system. The financial structure cannot be expected to cope with much more of the strain induced by denial-driven manipulation. The political and geopolitical consequences of worsening prosperity, exacerbated perhaps by competition for resources, can be left to the imagination. Economic systems dependent on high rates of capacity utilization can be expected to fail.

This, then, is the grim outlook for a world continuing to rely on fossil fuels. Even if this continued reliance on oil, gas and coal won’t destroy the environment, it can be expected, with very high levels of probability, to wreck the economy.

Even as things stand today, the energy industries seem almost to have stopped trying to keep up. Capital investment in energy, stated at constant 2018 values, was 20% lower last year (at $1.59tn) than it was back in 2014 ($2tn), and is not remotely sufficient to provide continuity of supply. Even shale investment only keeps going courtesy of investors and lenders who are prepared to support “cash-burning” companies.

Critically, what this means is that the supposed conflict between environmental imperatives, on the one hand, and economic (“cost”) considerations, on the other, is a wholly false dichotomy.

For the economy, no less than for the environment, there is a compelling case for transition. But the implications of the future trend in ECoEs go a lot further than that.

As the ECoEs of fossil fuels have risen inexorably, those of renewable alternatives have fallen steadily. It is projected by SEEDS that these will intersect within the next two to three years, after which renewables will be “cheaper” (in ECoE terms) than their fossil alternatives.

At this point, it would be comforting to assume that, as the ECoEs of renewables keep falling, and the extent of their use increases, we can make a relatively painless transition.

Unfortunately, there are at least three factors which make any such assumption dangerously complacent.

First, we need to guard against the extrapolatory fallacy which says that, because the ECoE of renewables has declined by x% over y number of years, it will fall by a further x% over the next y. The problem with this is that it ignores the limits imposed by the laws of physics.

Second, renewable sources of energy remain substantially derivative of fossil fuels inputs. At present, we can only construct wind turbines, solar panels and their associated infrastructure by using energy sourced from fossil fuels.  Until and unless this can be overcome, sources termed ‘renewable’ might better be described as ‘secondary applications of primary energy from fossil fuels’.

Third, and perhaps most disturbing of all, there can be no assurance that the ECoE of a renewables-based energy system can ever be low enough to sustain prosperity. Back in the ‘golden age’ of prosperity growth (in the decades immediately following 1945), global ECoE was between 1% and 2%. With renewables, the best that we can hope for might be an ECoE stable at perhaps 8%, far above the levels at which prosperity deteriorates in the West, and ceases growing in the emerging economies.

Policy, reality and the false dichotomy

These cautions do not, it must be stressed, undermine the case for transitioning from fossil fuels to renewables. After all, once we understand the energy processes which drive the economy, we know where continued dependency on ever-costlier fossil fuels would lead.

There can, of course, be no guarantees around a successful transition to renewable forms of energy. The slogan “sustainable development” has been adopted by the policy establishment because it seems to promise the public that we can tackle environmental risk without inflicting economic hardship, or even significant inconvenience.

It is, therefore, far more a matter of assumption than of verifiable practicality.

Even within the limited scope of declared plans for “sustainable development”, efforts at transition are faltering. Here are some examples of this disturbing insufficiency of effort:

–   According to the International Energy Agency (IEA), additions of new renewable generating capacity have stalled, with 177 GW added last year, unchanged from 2017. Moreover, the IEA has stated that additions last year needed to be at least 300 GW to stay on track with objectives set out in the Paris Agreement on climate change.

–   The IEA has also said that capital investment in renewables, expressed at constant values, was lower last year (at $304bn) than it was back in 2011 ($314bn). Even allowing for reductions in unit cost, this reinforces the observation that renewables capacity simply isn’t growing rapidly enough.

–   In 2018, output of electricity generated from renewable sources increased by 314 TWH (terawatt hours), but total energy consumption grew by 938 TWH, with 457 TWH of that increase – a bigger increment than delivered by renewables – sourced from fossil fuels.

The latter observation is perhaps the most worrying of all. Far from replacing the use of fossil fuels in electricity supply, additional output from renewables is failing even to keep pace with growth in demand. Where power generation is concerned, this has worrying implications for our ability to transition road transport to EVs without having to burn a lot more oil, gas and coal in order to do so.

The deceleration in the rate at which renewables capacity and output are being added seems to be linked to decreases in subsidies. These, though affordable enough at very low rates of take-up, have been scaled back as the magnitude of the challenge has increased.

This calls for a thoroughgoing review of energy policy, and it seems bizarre that a system which can provide financial support for the banking system cannot do the same for the far more important matter of energy. Even within the fossil fuels arena, the continued growth of American shale production has relied on cheap capital, channelled into loss-making shale producers by optimistic investors and seemingly-complacent lenders.

We need to understand that, when an individual pays for electricity, or puts fuel in a car’s tank, this represents only a small fraction of what he or she spends on energy. The vast majority of energy expenditure isn’t undertaken as direct purchasing by the consumer, but is embedded in literally all of his or her outlays on goods and services. The scope for direct purchasing is determined by the scale of embedded use.

As prosperity deteriorates, then, the ability of the consumer to purchase energy is reduced. There is every likelihood that energy suppliers could find themselves trapped between the Scylla of rising costs and the Charybdis of impoverished customers.

We should, accordingly, be prepared for the failure of a system which relies almost entirely on commercial enterprise for the supply of energy. Far from prices soaring in response to tightening supplies, it’s likely that the impoverishment of consumers keeps prices below costs, resulting in a shrinkage of energy supply as part of a broader deterioration in economic activity.

As the situation develops, we may need to think outside the “comfort zone” of current policy parameters. For instance, the promise that the public can exchange their current vehicles for EVs may prove not to be capable of fulfilment, forcing us to evaluate alternatives, including electric trams and rail.

For now, though, one imperative predominates. It is that we must stop believing in the false dichotomy in which the environmental need for a transition to renewables is “moderated” by wholly false considerations of “cost”.

Simply put, we’re likely to pay a quite extraordinarily high price for a continuation of the assumption that the economy, demonstrably an energy system, is characterised by, and can be managed using, purely financial interpretation.

= = = = =

SEEDS environment report July 2019



579 thoughts on “#153. One for the sceptics

  1. Pingback: What are we actually dealing with here? - Radix Think Tank

  2. Tealight Survivalism

    I found an excellent tea-light pierced ceramic holder, large size, in a junk shop today which seemed to have been made for a royal anniversary – anyway, a mass-produced design.

    Ideal for heating the whole family for he evening, placed under the dinner table with a cloth to the floor, as previously described. £10.00; moreover, it can’t break down and needs no servicing……

    • Yes, some prep stuff maybe is useful. I bought a two handed saw from an army dump. €16,-
      Large piece of stored fossil fuel, really big piece of steel. Next up; graveyard candles. Big pots, half litre, filled with candle wax. Remove the sticker for better feeling and we’re good to go. Many evenings with light.

      The list is endless, and maybe futile. But for not too much currency i can, and will, stock up on some stuff.

  3. @Matt
    Regarding trees and CO2, this reference was posted today by Albert Bates on his Twitter:

    The point I would make is that a comprehensive plan to address both declining fossil fuels and the need for better quality food combined with natural horticultural practices and for building materials and for electricity and for fabrics can be addressed by biochar. (But probably never in the volumes we have become accustomed to.)

    The tree side of the equation is not, in my opinion, about growing old growth forests. Instead, it is more likely to be coppice: young trees repetitively cut and turned into biochar. A coppice tree farm can survive for a thousand years, with proper care. They tend to degrade when they are not maintained by cropping.

    While there is nothing wrong with just planting trees, it would, in my opinion, make a lot more sense and impact if we have some idea about the way we want the whole system to operate.

    Don Stewart

  4. Another Albert Bates interview…good for everyone

    One of the things I like about Albert is that he describes a very clear context: It’s not about keeping the stock market elevated or the current Elites in power or protecting everyone’s pension or making sure that we can drive our cars to Wal-Mart….it’s about humans living together in a rich ecosystem and thriving in the virtual absence of fossil fuels.

    If you start out with that context, a ton of nonsense has to be dumped. And we are forced to begin to ask fundamental questions and look both for historical answers and also the best that current science and technology have to offer. We also look very carefully at the science of personal, family and social change.

    I have heard Albert talk in venues where he was actively prohibited from talking this way. The way that is done is by limiting the scope of the presentation…it becomes about biochar or permaculture or something which can be confined to a possible tweak of the current system. The same way the politicians limit the scope of the IPCC to narrow questions.

    Don Stewart

    • Of course, humans being what they are, if Albert Bates presents himself looking like that – a semi-derelict old man with a pony-tail for Gods sake – he will be dismissed by most simply on account of his appearance.

      One has to look ‘serious’ by the degraded and superficial standards of the world in order to stand any chance of getting a serious message over.

      It’ a hopeless attempt, anyway. The whole force of our civilization is against sanity.

    • You might remember that, when the boss of G4S was due to appear before a Parliamentary committee, somebody recommended that he get a haircut……

  5. France appears close to collapse. Western Socialist leaders have accomplished through mass immigration what Joseph Stalin was unable or unwilling to do: They have destroyed Western civilization.


    One wonders, looking at Macron today, what kind of brain wasting disease the man has? What kind of a man criminalizes non-violent protest from his own people, but allows invaders to vandalize, rape and murder, without resistance? Where does he think his country will be in forty years? What does he gain from watching and hastening it’s death? Is he expecting a private island in the Caribbean, courtesy of Soros or the Rothschilds, in exchange for destroying his own land?

    • Though I try to confine my interpretations here to the economic rather than the political, I cannot disguise my belief that electing M. Macron was a tragedy for France. We covered this most recently here.

      His economic thinking seems puerile in the extreme, especially about driving down wages. After all, if low wages made a country prosper, Ghana would be wealthier than Germany.

      His government has, undoubtedly, used considerable brutality in putting down the “yellow jacket” protestors. The good news, probably, is that the majority which supported the aims of the protestors will vote against him at the earliest opportunity. His actions often seem unnecessarily provocative, including tax cuts for the wealthiest, and the appointment of a political insider to run his national ‘dialogue’ on a reported monthly salary of EUR 14,666.

      The best thing that could happen for France would be to ‘rationalise’ the country’s government – by choosing somebody rational to run it.

    • Macron does seem to be a prize idiot but I guess th size of his personal bank balance is the only reason he can afford to be so stupid?

    • The ideology of Neo-liberalism – Macron’s – is actively opposed to the concept of the nation.

      As for mass, low-value, immigration we just have to live with it now in Europe (and the US/Canada), it’s a done deal, although a great error of course.

    • My feeling is that those of Macron’s ilk decide, first, what they want to do – tax cuts for the wealthiest, reductions in wages, more globalization – and only then go in search of an ideology in which to clothe it. Once upon a time it was “trickle-down economics”. Now it’s neoliberalism, which conveniently ignores that the 2008 GFC was the culminating failure of that ideology.

    • Macron is a true believer. He really thinks that using neoliberalist recipes on a historically mixed economy (France state always was an economic heavyweight creating national companies to serve French interests) will succeed.

      TBH, he did a few good things in regard of the labor laws and helping small/medium business. However cutting taxes on the uper crust while raising taxes on the poorest was maladroit to say the least.

      He is pretty clever and he’s darn good in debates (he pretty much pwed all the other contenders). However he has been living in a parallel world as far as the average frenchman is concerned, and it shows.

      Classical Versaille-Paris divide I suppose.

    • I’d say that’s a fair summary. Though I wonder whether, like King James I, he might be considered “the wisest foole in Christendome”, very clever, but not quite clever enough to understand his own limitations. Politics seems to have a particular attraction for that kind of person.

    • “the wisest foole in Christendome” is a nice way to sum it up.
      I see Macron as the very best the french ENA/grande école system can produce, someone very smart but not able to challenge the mould he’s been learning in. Or even see it.

      France is trapped. The usualy devaluation path is closed to them (as it is for Italy) with the Euro. France with deutsche mark was never going to work proper. Unless some federalist redistribution and proper fiscal policy is setup at the EU scale, I can’t see a way out.

    • To me one of the paradoxes of neoliberalism or libertarianism is that it requires a strong state.

      Even Milton Friedman admitted that only a socialist society (or what he might term socialist) would be able to create the sort of sun costs which would provide the basic functions he saw for the state.

      Furthermore, a society based on the natural rights of property and freedom is bound over a period of time to produced egregious inequalities which can only be maintained by a police state. So, another paradox: freedom can only be sustained in a police state!

      Perhaps with Macron you can see his problems as a nascent form of this paradox.

      If you read the works of libertarians like Hans Herman Hoppe they are very interesting but are far too strong meat for the vast majority. Fine of you’re one of the 0.01% but tough if you’re not. On the other hand if things got so bad the only alternative is revolution which would remove them as well!

  6. New War: Maybe cold but maybe hot
    “And quick to demonstrate his, at Aspen (after others had unveiled their masculinity on China and Iran), was the US envoy for Syria (and deputy US National Security Adviser), James Jeffrey: A US policy boiled down to one overriding component: ‘hammering Russia’. “Hammering Russia” (he insisted repeatedly), will continue until President Putin understands there is no military solution in Syria (he said with heightened verbal emphasis). Russia falsely assumes that Assad has ‘won’ war: “He hasn’t”, Jeffrey said. And the US is committed to demonstrating this fundamental ‘truth’.”

    So, rather than accept ‘reasonable’ solutions in Syria and Iran, the US is doing its usual bullying. The goal is to freeze out Russia and China. The policy has bipartisan support. I suspect two motivations:
    *Washington is beginning to realize that the ‘shale miracle’ in the US has a sell-by date. The US is unlikely to become ‘energy dominant’.
    *The threat posed by Russia and China in terms of the end of the dollar reserve currency. If the reserve currency is lost, there would have to be a gigantic reduction in the US military. At the present time, the rest of the world essentially funds the US military.

    SEEDS may have something to say about this, but I suspect that the Reserve Currency issue a risk beyond what we have usually discussed relative to SEEDS. Similarly, a global increase in military spending will take more away from consumers, heightening the loss of prosperity.

    Don Stewart

  7. Nagging Concern…now some data

    I hadn’t looked at Steve’s blog in a while. I have always wondered how much money the shale industry owed…the amount which is at risk of almost total write-off if the companies fail. Steve provides some numbers. It is incredible that competent money managers would loan so much long term money on what is essentially a 12 month cycle. Like buying a bond from someone who speculates in pork bellies.

    Don Stewart

    • More than 50% of all US shale liquids output in December 2018 came from wells completed during 2018 itself. This indicates that, during 2018, output from all wells already on stream at the start of the year declined by an average of 44%.

      These depletion rates, and the resulting “drilling treadmill”, are the critical flaw in the economics of shales.

    • Don,

      It is Q2 reporting time for Shale companies – when they announce humungous figures that have a negative sign in front of them and written in red ink!

      Nick Cunningham recently wrote about Q1 earnings, which were horrendous, pointing out the fact that the issuance of new bonds to raise finance had dried up since October last year. Given the depletion rate of shale oil – around 43% per year – it will not be too long before there will be a Wily E Coyote moment. He also pointed out that there had been 17 defaults on debt that was approximately $100 billion.

      I am expecting the Fed’s printing press to be fired up again to bail out this loss making industry

    • As I suggested back in March, the sums involved are pretty small when seen in terms of, say, the Federal budget, or Fed activity. As such, they seem massively outweighed by American national interest. So, if push comes to shove, I’d expect a bail-out, or at least lines of credit being made available to shalecos.

  8. Daniel Hannon a European MP had a dig at Harry and Meghan in the Telegraph.

    He wasn’t happy that the couple said that they were going to limit their family to two children for environmental reasons.

    He said they were talking nonsense and that we run the risk of depopulation.

    Clearly some MPs have no real idea of what is going on in the real World.

    • Daniel is not terribly bright – we have a fair amount of evidence of that.

      The party structures through which career politicians attempt to climb don’t select for ability, only sycophancy and ideological conformity to the views of one’s patrons.

      Even worse when they have no real world experience: at least the old aristocracies and plutocrats managed estates and companies, fought in wars.

      Same problems in Spain, a systemic fault.

    • Well he has written a few books on why we must leave the EU and critized Obama for trying to take the US into socialist ways although he has been heavily criticised for cherrypicking facts.

      He’s clearly not stupid but obviously has a narrow vision of the World which places him well below the best in terms of insight.

      A later article which I have already mentioned on here had somehow predicted election results if we don’t leave without a deal. The sample (no demographics mentioned) was of just 2004 people.

      We all know how inaccurate and misleading polls can be

    • The really curious thing is that the Jeremy Corbyn long familiar to us has gone missing.

      Earlier in his leadership, he was engaged in moving the party to the left in policy terms, and getting rid of those you might call “centrists” or “Blairites”. This was winning Labour a lot of support.

      Now, though, he seems to have ditched this plan, and this appears to be de-energizing the party.

  9. On the topic of Negative Interest Rates, Dr Michael Hudson was on Max and Stacey’s radio broadcast recently, arguing that the Negative Interest Rates do the same as a Debt Jubilee, only slower.

    -25% Interest \rates anyone?

    What Dr Hudson has also been discussing quite a lot recently is the fact that many countries are now actively de-dollarizing and, in the radio broadcast, says that Trump is actively pursuing this outcome. For years, we had the Petrodollar system whereby oil producing countries traded oil for dollars to “reinvest” in the US and purchase copious amounts of US armaments. Anyone who tried to bypass this system was “taken down” – Iraq with Hussein, Libya with Ghadaffi.
    It appears now, though, that this system is in its twilight. Russia and China are jettisoning it as quickly as possible. How long this twilight period lasts for is a matter for debate, but “market dislocation” culminating in a mega GFC will occur at some point down the line

  10. The Guardian has a Podcast available about the water crisis is driving a wave of migration from Central America to the US.

    Also how rising water levels have destroyed towns in Honduras- drought and famine in Guatemala – gsngs corruprtion and lack of ckean water in El Salvador is leading to a mass exodus

    • As we think about energy transition, the environment and related subjects, population numbers are a huge issue. Some have suggested that, given the energy and broader resource issues, the world is hugely over-populated. Whilst I’m not sure about some such claims, it does seem as though it would be better if population numbers decreased, not increased, from here on.

    • When I was born in 1958 there were just under 3bn people in the World.

      That sounds about the right figure although of course I added to it.

    • 1960, when population reached 3 billion, was also the year when all land suitable for farming was under cultivation. All growth in food supplies since then has been a product of energy inputs, starting when global ECoE was remarkably low.

  11. Shale Bailout
    I agree that money can be printed or bonds bought to relieve the financial distress in the shale patch. Or the companies can be bought for pennies on the dollar by the majors, who can use the positive energy from conventional fields to subsidize the negative energies from shale.

    However, it seems to me that the critical question is whether the US is thermodynamically stable. It seems to me that the US is using lots and lots of energy and not producing goods and services which are worth what they cost energetically. In other countries, that spells long term decline as existing assets are cannibalized…or else, like Puerto Rico, half the people leave. The US, with its Exorbitant Privilege, can print money which the rest of the world is still (mostly) obliged to honor and get away with the Ponzi scheme. I have come to think that the Washington Establishment is now beginning to understand the situation. Back in Obama’s administration, Joe Biden was warning Republicans about endangering the Reserve Currency status. And Hillary was always killing people and starting wars, as Michael Hudson observes. If you look at the situation, the US is deeply negative on the fruits of photosynthesis (agriculture and food and fiber and biofuels) and now probably also on fossil fuels. Nuclear has always been subsidized, and high-profile bailouts have recently happened. So where is the energy to subsidize all these losers supposed to come from. It has to be coming through the Reserve Currency. Which is why Trump is turning out to be more war prone than Obama or Bush. At least, his Neo-con advisers are acting the Bad Cop role with gusto while Trump oscillates between fig leaves of the Good Cop and ‘total destruction’.

    Don Stewart

    • Good points. I have no views on US politics, other than not sharing the elitist critical view of Mr Trump. If I’d had a vote, though, it wouldn’t have gone to Bush (II), let alone Hillary.

      What interests me right now, in the US and overseas, is the convergence of financial risk. US equities are propped up by buybacks, in the face of years of big net selling by investors. Not one major central bank now aspires to restore monetary normality (+ve real interest rates). Japan is monetizing debt, with the BoJ now owning more than half of all JGBs in issue. China is pouring in liquidity as a prop to its debt-raddled economic model. Sales of everything from cars and smartphones to chips and components are tumbling. Then there’s European banking, and “Brexit”.

      Somehow I don’t think this lasts too much longer, or ends well.

    • You may get a few politicians claiming they know the true dangers but this would only be like part of Monty Pythons ‘The Life of Brian” where a follower (who claims he was touched by Brian) exclaims – I was blind but now I can see – and promptly falls down a pit.

  12. Albert Bates and Albert Gore
    So you are suggesting that Albert Bates would get the same respect afforded his fellow Tennessean, the patrician Albert Gore, if he just looked wealthy? And had an enormous personal carbon footprint instead of being one of those rare carbon sequesterers?

    Don Stewart

    • Have to admit that I still rather like Al Gore. When his book came out, most of my friends and contacts in the US oil industry hated it.

  13. @Dr. Morgan
    Albert would be disliked even more by the oil patch. He won a legal case against fracking in the Tennessee Supreme Court many years ago….presenting evidence of aquifer pollution. So far as I know, fracking is still illegal in Tennessee. But, of course, if it ever became a political issue, we know who would win.

    Don Stewart

  14. Population and Albert Bates
    In the discussion with the Estonian interviewer, I can’t remember Albert Bates bringing this subject into the discussion. So I, (having celestial insight), will offer this Corollary:

    It takes a selection event to alter genetic expression.

    There is the saying about science changing when the old scientists die. But from all the signs, we don’t have time to wait for the old guys to die. Therefore, what we will get is a selection event. Stated crudely, some people are going to die. Lest I be tarred and feathered, people are already dying. It is widely known from isotope examination of human bodies that a high percentage of the protein in human bodies now comes from synthetic fertilizer. But those of you who listened carefully to Christine Jones talk know that our bodies (and the bodies of our livestock) never learned about the magic of Nobel winning synthetic fertilizer. They still regard it as a poison. And so proteins built with synthetic nitrogen are yet another reason for the spread of chronic disease…half our children now have a chronic disease. As rising ECoE bites, guess what will happen to people with chronic disease.

    It is also a fact that, for plants and the soil, synthetic nitrogen is superficially productive but in terms of health, counter-productive.

    There are maybe a hundred microbes in healthy soil that can create nitrogen…not just those that associate with legumes…the Amazon doesn’t have all that many legumes. So how many people can be fed if we abandon synthetic nitrogen and cultivate the microbes and the rest of the soil food web and use legacy plants not bred to look superficially healthy on synthetic nitrogen?

    That question is ill-defined. We COULD estimate some gross amount of dry-weight biomass production. But that would depend heavily on assumptions about climate change and the degree of intelligence we exhibit in terms of land-use management. And secondly, it would depend on how we allocate that dry-weight to end products. Do we put it all into food, so that we are wandering the earth naked and shoeless and without shelter? Or do we try to recreate Scarsdale or Scottsdale or LA?

    What Bates and Draper did in their book Burn: Cooling the Earth With Fire, is describe a cascade of uses for the carbon if the original fire is designed to produce biochar. So the end products span a wide variety of human uses, including food.

    I believe it would be possible to make some estimates based on the fundamentals of the biochar production and the cascade of end products, but I don’t think such an estimate exists at present.

    Conclusion: If it is the best we can do, then Nature will take care of the selection event that gets us there….unless we think we are excessively clever and don’t accept Nature’s verdict…in which case there is no depth to which we cannot fall.

    Don Stewart

  15. Importance of Gene Expression, and how individual deaths affect macro trends:
    3 minute video:

    So…assume that things get tough, and you, who have maintained a healthy lifestyle and have no chronic disease, are exhorted to pay more taxes so that governments can subsidize keeping people with chronic diseases alive a little longer. If you know that 95 percent of the diseases are caused by the daily habits of the victims, how much are you willing to pay out of your dwindling income and assets?

    I do not think American society is anywhere close to having an adult conversation about this science. We will continue to have ‘races for the cure’ and subsidies for ‘one disease, one pharmaceutical molecule research’ and ‘genetic determinism’ and so forth. But I expect the decline in ECoE to either result in a widespread awakening or else just plain greed doing its work. The result in either event is a decline in population.

    Don Stewart
    PS. Note the ‘up to 12 weeks’ for gene expression change. This is the realm of addictions such as sugar or pain killers or cocaine or alcohol. But in many bodily processes, the changes occur in seconds or less. We eat at McDonalds and our gene expression changes essentially immediately. The damage can last for 2 weeks from a single high fat/ high calorie meal.

    • Quite so, but how has the level of taxes ever depend on how much the taxed are willing to pay or think reasonable?

      Not often in the history of mankind, I would suggest.

      We are caught, as ever, in the net of vested interests, irrationality, delusion and…….. consequences.

      The greatest effort should, perhaps, be put into finding a way of staying sane despite all that.

  16. From CapX today

    Effectively they think that banks are over leveraged because they have not been calculating it in the right way.


    ‘A better measure is bank leverage. Leverage is total assets divided by (CET1) equity.

    As of the third quarter of 2018, the average leverage across the big five was 20.7. This number is book value, however, and a more accurate measure is market-value leverage, which is 34.4.

    That means the big banks have issued over £34 of debt for every £1 in equity. That is an enormous level of leverage’

    Ok so this is higher than before the last financial crisis. Worrying to say the least.

    • Debt that won’t be repaid in ppp$.

      Worrying? Not to me.

      But you’re correct. It will affect us exponentially.

  17. For the preppers

    Reminds me of a Belgian movie from a few years ago where a young woman living in the woods in a trailer with her alcoholic father walks into town, crossing a small stream. She sets traps involving plastic bottles for fish. She checks them on the way home.
    Don Stewart

  18. I’m confused.

    The USA imposes additional tariffs on China, my understanding is that “the markets” think this will result in a fall for Chinese exports to the US. If there’s a fall in demand for exports there must be a fall in demand for each countries currency to make payment.

    Now I understand that in the past the Chinese central bank, rather than letting it’s external currency float free on the markets has intervened to defend a particular level against the dollar.

    On this occasion, I understand it hasn’t done that.

    The US has officially labelled China a currency manipulator but surely the problem is that the Chinese currency has fallen because of anticipation that there will be less demand for it.

    So rather than being a currency manipulator the problem is that China is not being a currency manipulator and so the currency is falling as a result of the tariffs.

    Where am I going wrong?

    • I don’t think you’re wrong, and markets aren’t always wholly rational – and their thinking is usually short-term.

      My feeling on this is that, even without a worsening trade ‘war’ with the US, the Chinese economy is in trouble, because the credit-fueled “growth” model is failing. We covered this here not long ago. This kind of thing makes investors less willing to hold the currency in question, in this instance the RMB. It’s also quite possible that China hasn’t been able to stop the RMB sinking below 7.

    • I’d add that a preference for holding USD would be a natural choice for anyone fearing some kind of “perfect storm” this Autumn.

      What with markets looking nervy, the US-China situation, extremely inflated asset prices, signs of economic deterioration, plus “Brexit”, the ingredients are there for a pretty unpleasant cocktail. In that situation, investors might see USD as a safe haven, rightly or wrongly, and avoid weaker alternatives, which now include both GBP and RMB.

      Additionally, no major CB has any intention to raise rates, meaning that CBs are ‘aligned to the downside’ in how they interpret the economic outlook.

    • Yes which is why – as I have to look after my Mum and Step Mums savings I only keep relatively small amounts in them.

      We know the Government cannot afford another bailout despite the guarantees

  19. Confusion on My Part
    When I try to think coherently about an ‘energy based economy’, I frequently chase my tail. Take this factoid today from Art Berman:

    I have always been uncomfortable with counting the gasoline people use to drive to the mall for an afternoon of mindless entertainment and shopping as having anything to do with primary production. It seems to me that ‘real wealth’ has some other definition. So….now the thought occurs to me that what I have been struggling with is the difference between capital and current assets. The gasoline, whether it is being used to get the doctor to the operating room or to get a teenager to the mall, is really a current asset that is being used in a one way transaction which results in no capital being created. While the production of distillate (diesel) does enable the construction of capital (roads, bridges, mines, etc.). In Europe, a lot of the diesel is used similarly to the gasoline we use in the US, so things there are different.

    I think what I am struggling with is the difference between a factory or a long lasting mine or a long lasting road versus immediate consumption. Not that there is necessarily a moral difference: we all need 2000 calories per day which is metabolized in the body with, we hope, no excess fat being produced. Yet I have no problem classifying ‘knowledge’ of how to produce food as a ‘capital good’.

    Which brings me back around to the book I read a few weeks ago on the enigma of ‘information’. John Wheeler, the physicist, coined the phrase ‘its from bits’, signifying that information was what created specific configurations of matter.

    Am I just hopelessly confused, and should just count barrels and gallons and avoid further confusing myself?
    Don Stewart

    • It can be confusing, so I just count units.

      This said, there are more and less efficient ways to do the same thing. Imagine you have two cars, and want to do a 100 mile trip this morning. You could take your huge SUV, or your little Smart. Both will give the same outcome (the trip), but the energy consumed differs markedly.

      The answer to the conundrum, I think, is this. If you take the Smart instead of the SUV, the cost of your trip is less. This leaves you with more money in your pocket. You spend this money. Whatever you spend it on requires energy to be supplied.

  20. @Dr. Morgan
    After making the post, I went for my morning walk…always clears the mind. It occurred to me that our basic model is the body and its holobiome and the environment. After thousands of years of study, I listened to a doctor talk a day or two ago, and he suggested that we now can define human health in terms of the health of certain subsystems (such as metabolism or lipid regulation) and that we now have good assays for the health of each of those subsystems.

    For example, the lipid system involves the burning of stored fat and avoiding oxidized fat (such as oxidized cholesterol). We can measure those and determine pretty accurately whether the patient is doing well or poorly.

    I suspect we need to think of the economy in some of the same terms. As an example, the parallel to the lipids function might be how much pollution we generate and whether we are generating social and political function or malfunction.

    Along the way, we also involve the notions of capital and current assets. Capital is the bones and tissue and neural networks in the brain. Current consumption is the generation of energy to both enable survival but also to maintain our capital and to remove waste.

    I clearly need to do some more thinking.

    Thanks for your response….Don Stewart

  21. Liquid nitrogen / liquid air energy storage: a promising technology that appears to have received too little attention thus far.


    The technology involves using excess grid electricity to cool and liquefy air using a refrigeration plant, which can be stored and subsequently re-expanded, using either ambient heat or waste heat from an engine or some other source.


    The energy density of stored liquid nitrogen, if expanded isothermally within an engine to zero Celsius, is 97Wh/kg – which is only about 3.5% the energy density of diesel. So using liquid air as a replacement fuel would imply either shorter vehicle range or more volume devoted to fuel storage, or more probably, a compromise between the two. On the plus side, refilling would be carried out in the same way as for petrol / diesel vehicles.

    The idea is in some ways comparable to the use of liquid hydrogen as fuel, but would appear to be technically much easier, as the equipment required is a refrigeration plant producing a soft cryogen from the surrounding air via compression cycles, with no flammability issues. The round trip efficiency in isolation is similar (25%), but this roughly doubles if the cryogenic propellant is deployed as part of a hybrid engine system, in which waste heat from an IC engine is used to provide the heat needed to evaporate the liquid air or nitrogen.

    As part of a grid energy storage system, a cryogenic energy store would essentially be a stainless steel lined tank built underground. Efficiency would be enhanced if low grade waste heat could be used as part of the power generation process. This suggests to me that cryogenic energy storage is most effective if combined with a gas turbine, with waste heat from the turbine used to drive the nitrogen power recovery cycle. Alternatively, it could be coupled with a high-temperature thermal storage power plant, storing energy in hot rock say, with the liquid nitrogen cycle drawing waste heat from the condenser in the steam plant.

  22. Which way is the wind blowing?
    *Max and Stacey’s show is about the chaos in the global economy. They see the end of Neo-Liberalism and the return of ‘game-theory nation states’, each competing for advantage. They also see the continued expansion of negative yielding debt, with a concomitant rise in the price of gold and bitcoin. They also speculate about end-times strategies if one thinks that fiat currencies are dead…go deeply in debt and build infrastructure.

    *Tad Patzek warns about the risk that crude oil is about to start a 7 percent per year decline, and also the risk that governments will shift enormous amounts of investment toward new oil production, resulting in an uninhabitable Earth.

    [A sidebar on Tad’s allegations about Trump and Russia. Hillary aides who wrote Mueller’s report could find no convincing evidence of any such relationship between Putin and Trump. A federal judge found no evidence that the Kremlin was involved in the theft of the DNC emails, and no evidence that the Russian PR firm and small effort at voter indoctrination had any connection to the Kremlin. As for Putin wanting to jail opponents, you can look at RT Russian News and find that the election commission in Moscow has disqualified about a hundred candidates (but reinstated one), after having disqualified about 200 in the last election. The reason is alleged to be fraudulent signatures on the required paperwork. Some of the principal complainers are in the Communist party. My opinion is that Tad is blinded by his hatred of all things Russian or Soviet and also the present regimes in Warsaw and Washington. But his work on oil is not dependent on his perceptiveness in terms of politics.]

    Tad’s projections on oil are seconded by several of the oil companies and international agencies.

    I believe Tad assumes (as most classical Peak Oilers assumed) that when oil got scarce, society would come up with whatever was required to get more of it. Gail Tverberg and BW Hill have been the two skeptics that I know the most about. Hill’s model used two equations. One related to the cost of producing oil and the second to the value of the oil produced assuming that the current economy had to produce goods and services with it. Briefly, what Hill found was that the cost of the oil was less than the value up until about the year 2000. But in the 21st century, the cost began to exceed the value…we began to eat the seed corn. His projection also showed that about right now, the GDP value of an incremental barrel of oil would turn negative. Does this ring a bell or have anything to do with long term interest rates turning negative??? Or Art Berman pointing out that as the price of oil has increased, the volume declines. My point is that it is not a slam dunk that governments actually can subsidize oil production without gutting the economy.

    You can read Gail’s reasoning and data for yourself. You can also read Dr. Morgan’s excellent work which starts from an ECoE perspective.

    In short, we may well be at the end of an era.

    Is there any hope? Mark Waldman, a neuroscientist, was asked to list the most important discoveries of the last decade. He asked for some time to reflect on the question and came up with this:
    Life is simple, and satisfaction is easy to attain, but the human mind is blind to this fundamental truth.

    Even though we have more than 85 billion neurons constantly connecting and disconnecting in our brain each and every day, it turns out that our mind—the part of us that is aware of ourselves and the choices we make—occurs in a very tiny area of our frontal lobes. And yet our thoughts—indeed, even a single word—have the power to change the structure and functioning of many other parts of our brain.

    Back to me. So the ‘rigidity assumptions’ may not be absolute. I stick by my previous statement that it is selection that changes epigenetics….rapidly enough to survive a discontinuity. That means that a lot of people are going to die. Your best bet is to foster the flexibility and creativity which will be required to make it through the bottleneck.

    Don Stewart
    (EOFs…elderly old farts…should contemplate becoming excellent humus)

    • Don I doubt we’ve got to the stage where we’re eating the seed corn but we have got to the stage where the price of oil isn’t high enough for much needed investment including transition to alternative energy.

      As I mentioned to Tim in an earlier post if so many- even in countries like the UK and the US many are living from paycheck to paycheck which may mean that we cannot take enough resources away the general population to pay for the transition anyway.

    • Well if firing blanks gives the impression to many of the populace that they’re being saved then they’ll keep on doing it.

      By the way although I’ve seen it before many years ago- I’m just watching the film ‘The Game’ about a very wealthy yet deeply unhappy investment banker played by Michael Douglas.

      It’s an interesting film which you might enjoy if you’ve not caught up with it before.

    • Thanks. I tend not to watch such films because, from my own experience in London and NY, they’re not very realistic.

      I discussed this once with a colleague who replied that a realistic version – where everyone stood for hours nattering at the coffee machine – would do well at the box office.

      But one such film had a hot-shot commuting into the City in a seaplane! Oddly, I had two colleagues who owned amphibians – but neither commuted with them…..

    • Actually the film isn’t about finance at all – it’s simply that the main character happens to work in it.

      There are only sporadic references to anything financial as it’s a psychological thriller.

      I remember the film you’ve mention – it was called ‘Dealer’s starring Paul McCann and Rebecca De Mornay.

      One if its sets was used for the TV series Capital City.

  23. You didn’t stare long enough

    For what it’s worth, Bank of America believes “the Fed will need to step in to offset these funding market pressures through outright balance-sheet expansion or QE, potentially in 4Q.” And while the Fed could get ahead of these issues by laying out a framework around money market control before greater criticisms and questions emerge about the independence of monetary/fiscal policies or the path to MMT, it won’t do that, and instead it will wait for another, even greater “Lehman-like” crash to float the idea of imminent QE… which is precisely what Nomura warned about earlier in the day..

    Don Stewart

  24. We see several central banks reducing interest rates today, this following on from relevant comments and moves in the first half of the year suggests we’re in for interesting times during the next year or so.

    This taken together with a significant chunk of sovereign debt at negative yields and the rise in the gold price suggests to me that Tim’s suggestion that we may see the start of a loss of faith in some currencies may not be too far off.

    Does anyone know of any research that suggests something like a flow chart of how such a turn of events would play out. Not so much so that I can get out of the way of the wave, as I think that’s not likely to be possible. More to get a better understanding of how big a life-raft I need.

    • CBs are getting their responses in just before they’re needed, could be explanation.

      CNY is weak, and GBP(eso) has tumbled. EUR looks vulnerable, with EU banks, Italy and “Brexit”.

      More broadly, things are looking very, er – interesting – for October, I think.

      China is pouring liquidity into the system (and, as you know, I think their economy is in trouble).

      There’s the US-China trade row, and whatever “Brexit” might do to the UK or the EU.

      $15tn of debt now has negative yields. Debt is huge, pension provision has a huge hole in it, asset prices are ludicrously inflated, property prices have started falling in some locations, and sales of cars, trucks, smartphones, chips, components – and and and – are falling.

      What on earth could go wrong?

    • Governments and Economists are taking their cars parts to find out why they won’t move but failing to look in the petrol tank.

      Does Brexit represent the final after eight mint that was given to Mr Creosote?

    • Manythings and Nothing. We are just creeping up to the critical temperature of the Ising latice.

      I have the same itchy icky feeling that I had before 2008. The real question is what will the new configuration be once things cool back down. Japan lost decades redux at a global level ? Currency war (someone will be tempted to go down that road) ?

      This is going to be volatile. Think about trying to sell taxpayers a new banking bailout while asking them to take a haircut on pensions. I could see the chips falling down in all kind of creative manner.

    • Me too, in fact last year felt a lot like 2007, as well. Back then I was working in the business, and mid-2008 wasn’t the easiest time to take over the strategy research role.

      As JMK said, “markets can remain irrational longer than you can stay solvent”, and there was something of that about it in 07-08. It felt like anything could have happened after Northern Wreck went down.

      The psychology from then may be relevant now, too. In the autumn of ’08, many felt that the whole financial world was going to fall apart. It didn’t, of course – so how many, next time, are going to say “stay calm, remember September 08” – and then, perhaps, get proved wrong?

      The big difference, as I see it, was that it really only the banking system at risk then, because we’d had “credit adventurism” (through deregulation), but not “monetary adventurism” (ZIRP, NIRP, etc). You can always rescue banks, so long as money is trusted and solid.

      But what can you use to rescue money itself?

    • Nothing. You just debase the currency and wipe the floor with lenders and savers.

      I can’t see that happening with the level of cronyism and regulartory capture at play. I expect something more of the same : CB dubling down, states buying all the rotten apples, and try to inflate the next bubble. Maybe get a decade of japan style stagnation on life support, and only when that fail face an even larger dumpster fire with lower ERoEI and seriously creeping AGW costs.

      The alternative could be something like letting back fail, nationalize the lot for a while. Print money and invest into some kind of green new deal program while reworking the tax levels to go from New Gilded age level of inequalities to something more sensible. Chance of it happening ? Close to nil.

    • Life boats are built silently, in a shed, over many years. Not meant as life boats, but to take your grandchildren out on the lake on a sunny day. On a rainy day, when all tides are lifted, and everyone climbes on their destroyed rooftops, it may become a lifeboat.

      Did you enjoy building it?

  25. Tim,

    You ask, what could go wrong.

    I was tempted to answer, “anything” but on reflection “everything” may be better.

  26. A banking bailout (leaving aside discussions as to magnitude and whether in fact practicable, esp. in the UK as our host reminds us) and a cut in pensions, etc, can simply be imposed, and people would have to deal with it – look at Greece; remember that poor old man who tottered from bank to bank to get his little pension always to be told they had no money and then collapsed in the street crying? Ditto for drastic cuts in the NHS, etc. A new ,dismal, reality, to which one would have to adapt.

  27. A realistic film about the City might show knackered traders sneaking into the loos to get a few minutes sleep propped up against the roll holders – gripping stuff for Hollywood.

  28. Put your finger up, and despite the August sun, you will detect the chill winds of economic crisis starting to blow.

    In the superb memoir ‘Yeoman Farmer’s Son’ , the father would often observe -with good cause – in the difficult years of the 1920’s and 30’s:

    ‘If this goes on, we shall all be feeling the draught. What we need are reserves!’

    What better advice could there be, however interpreted? Physical reserves, or mental and moral.

    I’m also inclined to add the lyrics of a famous folk song:

    ‘I leaned my back up against a tree, thinking it was a sturdy oak; but first it bended, and then it broke….’

    I suspect we shall soon be finding out what is sturdy,and what is hollow and rotten, in people, things, and institutions.

    And thanks to our host, we have one of the most lucid and measured analyses of the situation to hand, which is no small help.

    • Thank you, much appreciated.

      My next piece is taking a bit longer than I’d expected. Meanwhile I’m doing a periodic review of data, and it’s looking like, in ECoE terms, very little oil will be viable ten years or so hence. This is a bit of a shocker.

  29. This new book by Simon Lamb seems very interesting indeed.

    I must stress that he uses the word “junglenomics” in a very different sense from how I use it.

    When I use that term, it refers to the near anarchy into which free-for-all, ‘caveat emptor’, ‘every man for himself’ economics can degenerate.

    Simon uses “junglenomics” to describe lessons that we can learn from the natural environment.

    My latest updates on ECoEs are suggesting that we’re going to need these sorts of insights sooner than we might previously have expected……

  30. Need these sorts of insights
    An important medical study has just been published, which I will leverage in order to make some ‘survival in a hostile world’ points:

    Note briefly a couple of points:
    *A few years ago I was growing sunchokes in my yard as a source of oligosaccharides (inulin, in their case). Start with a few and soon you will be trying to contain them. So if your goal is a healthy gut lining (as it should be), you can either rely on industrial supply or grow your own. Few people will recommend growing your own. Unfortunately, the Neighborhood Association, which is composed of the conventionally stupid, objected, and I had to remove the sunchokes. So now I am dependent on what I can buy…like the great majority of people. Nobody said society would be friendly.
    *The ‘greatest minds in the universe’ are now deemed to be AI machines. There are two very well funded ‘gut health’ companies who determine WHAT is growing in your gut, and then dictate WHAT you should be eating. Using AI machine learning. My objection is that the logic should be the other way around: what do I need to eat to grow the health promoting microbes and their specific functions in my gut? (I haven’t seen much evidence that machine learning deals well with that issue). Yet there is this groundswell of advice about getting microbe testing to determine whether you are advised to eat almonds instead of walnuts. I think such advice is a waste of time and money and distracts us from the real business at hand. But it is clearly more profitable for corporations than you growing some sunchokes in your yard.
    *There is regular bleating about ‘the impossibility of a self-sufficient homestead’. That should not be anyone’s goal, in my opinion. The goal should, again in my opinion, be a largely self-sufficient community in terms of food, with as much specialization within the community as we can afford…which depends heavily on transportation capability and the general level of useful technology.
    *It is worthwhile observing that the Mediterranean diet (but not what people customarily eat in Madrid or Rome today) from a hundred years ago is still the benchmark. The Mediterranean people operated at a pretty low level of technology. The Okinawan diet is also pointed to as very healthy. But the Okinawan diet did not become especially healthy until fruits and vegetables began to be imported from China. If you are on an island, you will need transportation and something to trade. At the present time, the Caribbean islands are not shining examples.

    In short, reverting to a healthy diet from the extraordinarily unhealthy industrial diet should be perceived as a ‘good thing’…not a threat of disaster. But I do agree that I cannot see how the bloated super-cities can every become part of anything like a self-sufficient community if oil goes away.

    Don Stewart

  31. You have my full attention, Tim. I am looking forward to your updated analysis. Ten years is a really short time to “prepare.”

  32. Hi Tim
    SEEDS on, or affecting, Russia?? And whether they are capable of living up to Putin pulling the US’s tail in Syria & Iran & China?

    “…years of economic malaise that have left average Russians feeling poorer and less confident about their future. Real incomes have fallen for five of the past six years, and are about 10 per cent lower than in 2013.”


  33. I don’t know if it is just me, but I see the US & Russia getting themselves in position to contest Middle East oil:

    “In a potentially catastrophic escalation of tensions in the Persian Gulf, Russia plans to use Iran’s ports in Bandar-e-Bushehr and Chabahar as forward military bases for warships and nuclear submarines, guarded by hundreds of Special Forces troops under the guise of ‘military advisers’, and an airbase near Bandar-e-Bushehr as a hub for 35 Sukhoi Su-57 fighter planes OilPrice.com has exclusively been told by senior sources close to the Iranian regime.”

    And China vs US, including very much the current trade war, also being about resources, especially hydrocarbons in the South China Sea:


    and: https://www.zerohedge.com/news/2019-08-07/chinas-h-6k-heavy-bomber-could-soon-air-launch-hypersonic-missiles-pre-emptive

    Kind regards and thanks for one of the best blogs on energy scarcity

    • I really hope they do not commit suicide of the Earth, as we and Life, deserves a face-to-face Darwinnowing event.

      I know we could work it out if we talked it out, but time seems to grow short…Everything Bubble is correct but I want something a little more marketable.

      Davos – “Our mistake was not replacing the Gold Standard with the Carbon Standard, when we realized what was truly the “Strength of the Earth”

    • “Davos – “Our mistake was not replacing the Gold Standard with the Carbon Standard, when we realized what was truly the “Strength of the Earth”

      Good one. But, that is why they are in Davos, brought by multiple private jets.

      Too little, too late Marie Antoinette.

  34. This article From Ellen Brown in Truth Dig puts the Chinese and US Trade war into a context, of the Japanese Crisis in 1997 ( For a full history of that Prof Richard Werenrs Film, Princes of the Yen is Essential Reading ( The Book, and the Film based upon the Book)

    Six impossible things before breakfast or, the truth? Circular Arguments or the Circular Economy. “La réforme oui, la chienlit non” DeGaulle/Macron Trump/Nixon Xi Jinping/Mao Zedong, The Exorbitant Privilege

    For a Longer View of the Neo-Liberal Ordo Liberal and https://en.wikipedia.org/wiki/Dirigisme
    Then the Review of; Globalists: The End of Empire and the Birth of Neoliberalism by Quinn Slobodian, by Alexander Zevin

    It is an often-quoted Aphorism, “Give me control of a Nations Money and I care not who makes its Laws”. The underlying battle here is for Democracy itself, which even at its best is a rather threadbare suit of emperors new clothes masking the Various Brands of Wage Slavery on offer under various Central Banking regimes.

    • Thanks for the Truth digs article. For years investment in the UK was seen as a method for earning a quick profit – the City loved it.

      This is why I worry about plans to allow US firms into the NHS. Will it be for genuine long-term investment or to make as much money as they can – while they can.

      Looking at the Chinese economic model – As Tim has made clear – it’s not without a huge amount of problems at the moment.

      Their ability to just write off debt sounds covert nice but someone somewhere must pay the cost unless it by the dilution of everybody’s wealth.

      I’ve noticed they do have a pension system in China but agricultural workers are expected to fend for themselves.

      Clearly though the financial systems in the West geared to short-termism need to change

      Just look at Fracking in the US – many investors are going to take a huge hit in the future.

      I don’t think the next decade is going to be very nice.

  35. Hi Greg Hunter,

    kinda cheeky of me but… are you the USA Watchdog.com guy or is the name just a lucky coincidence?

    • Nope I am more of the Don Quixote guy that ran against Liz Cheney for Congress in Wyoming….so lucky coincidence on the name, but that and a nickel will not get you anything.

  36. I’ve just heard the new UK chancellor saying that the economy is in fundamentally good shape. Even Tony Hancock never said anything funnier…..

    GBP is now down to EUR 1.077

    • No doubt after all this new spending Boris wants to do they’ll be after a pint of blood from all of us.

      Hancock was a genius- I’m not sure the new chancellor is.

    • Yes, I have everything he ever did on CD or DVD – the best stuff being radio, especially Series 5 in 1958.

      In fairness, Mr Javid has no choice but to try to sound positive.

      But for me, with the numbers in front of me, his script rivals anything produced by Galton and Simpson.

    • You have hours of comedy gold there.

      Javid has taken over at probably one of the most difficult times facing us.

      Goodness knows what he’ll do if GFC2 comes along.

    • There is perfect justice in this world: people naive enough to long for ‘high office’ and posts of influence often get them. Poor old Javid…..

    • It’s the job of finance ministers to talk up the economy, and it’s especially important now – looking ahead, I think we can see quite a lot of storm-clouds brewing for the early autumn in many parts of the system globally.

      I suspect a lot of this “talking up” will be the order of the day over the next few months. Given the UK’s huge exposure to the financial sector, the combination of a weakening economy and a falling exchange rate isn’t pleasant, even without “Brexit” and a global economic downtrend.

  37. In CapX today a Stephen Moore is pouring praise on Trumponomics.

    He appears to be experienced and well qualified but doesn’t seem bothered about over inflated assets and real negative interest rates.

    • He is the frontman, so to speak, of Club for Growth. What else needs to be said?

    • Perhaps his great great Grandfather worked on the Titanic reassuring everyone that there was nothing to worry about as it started to sink

  38. I wonder why the UK’s power grid went into meltdown yesterday, it doesn’t look like a random event, so a systemic incompetence threshold breached? Maintenance cut to the bone for too long?
    There’s been bad weather many times before…..

  39. ‘According to SEEDS – the Surplus Energy Economics Data System – world trend ECoE rose from 2.9% in 1990 to 4.1% in 2000. This increase was more than enough to stop Western prosperity growth in its tracks’.

    Where is the proof!
    That is a big claim and I see little to back this up – a trend line with a correlation is just one piece of the jigsaw . As I said previously there has been a whole host of changes since the turn of the millennium that could be responsible for decreasing prosperity. Third world countries have become more prosperous – is it not reasonable to assume that as wealth has been shared more equally, Western countries have become poorer ?

    We can argue that energy has been under-priced in the Uk …but in real terms is electricity and road fuels that much dearer than they were in 2000 ?. I think not. Certainly nothing of the magnitude needed to cause an 11% drop in prosperity.

    As I have said before, bad governance and high levels of immigration are to blame for falling GDP per capita. The ghastly elites that run Britain have become detached from reality and live in a world of virtue signalling. I don’t see how monetary manipulation and the selling of assets to prop up a failing economy cannot be the symptom asweall as the CAUSE of deteriorating prosperity.

    If a country sells of it’s largest steel plant to a Turkish pension fund that is another engine of prosperity gone and another national embarrassment. There have been many that have fallen since 2000..busineses that are vastly more significant to REAL prosperity than a marginal increase in the cost of energy!. Going forward I think energy costs will become more significant as pricing catches up with the real value of energy but we aren’t quite there yet in my view.

    • You’re entitled to your point of view, though I don’t share it.

      The line of thinking in reply runs like this.

      Everything that constitutes the economy – goods, services, infrastructure, factories, you name it – relies on energy. Nothing can be produced without it, and even the brief loss of all energy supply would bring the economy to a halt almost instantly, and certainly within hours.

      The economics of fossil fuels are worsening. Oil and gas discoveries keep getting smaller, technically more difficult and costlier to produce. We wouldn’t even be bothering with shales and mining oil if there were abundant alternatives. The quality of coal is degrading as the best stuff has been used up. Renewables are getting cheaper, but they’re less than 4% of the total. Growth in renewables capacity has stalled, and investment in them is falling. Moreover, renewables kit needs inputs that, up to now, can’t be provided without fossil fuels.

      From the end of the 1990s, economic “secular stagnation” set in, and the response was reckless credit creation up to 2008, with reckless interest rate policies added after then. If it wasn’t ECoE and the cost of energy, what caused “secular stagnation?”

      If all this lot are coincidences, then I’d find that very hard to believe, given the obvious linkages of cause and effect.

      Finally, putting fuel in the car or paying the electricity bill is only a small part of what a person spends on energy. The vast majority of the energy that we pay for is embedded in products and services that we pay for. So the price at the pumps, say, is determined by what the customer has left over – a diminishing amount, if the cost of all the other stuff has gone up by more than his/her wages.

    • I suggest you might care to take a look at the many articles published by Gail Tverberg on the ‘Our Finite World’, who comes at the question from a slightly different angle, but who largely converges with our host’s thesis. Quite frankly, all the most clear-sighted observers do.

      Poor governance (admitted!, the unwise sale of domestic businesses, 3rd World ‘rising prosperity’ and mass low-skilled immigration are not sufficient to account for what we see across nearly all advanced economies, not just the UK, however hot under the collar they justifiably make us.

      To some extent, we prefer moral and political narratives for decline to energy-based ones, as they imply that reforms will save the day; and also, like the fish in the proverbial tale, we cannot ‘see’ the water. we are swimming in ….. Energy flows are All.

  40. Response to Predicted Disaster
    I find this essay to be right on target (a pun, as you will find if you read the article):

    *Paul Beckwith thinks that we can get a 7 meter sea level rise by 2070. That is within the lifespan of a child born today. There won’t. be a Target store in Manhattan if that happens. In fact, there won’t be much left of Manhattan at all. A now retired professor at Duke told me years ago that a 7 meter rise in sea level was in our future. We have denied that possibility at all levels, from the United Nations to sweaty New Yorkers going to Target during a heat wave.
    *The ‘energy economists’ have consistently warned us for decades about over-reliance on oil (basically for transportation and heavy jobs such as moving dirt to extract minerals). Now, it seems that Dr. Morgan is going to make that point again with compelling urgency.
    *The ‘death by wet-bulb’ climatologists have warned us about rising global temperatures. Our response, as in the reference above, is to turn the air-conditioning up a notch.
    *The ecologists have warned us about ‘planetary boundaries’ but we continue to pursue ever greater human appropriation of the Earth resources. The Sixth great extinction looms, but the occupant in the White House thinks that a sterile golf course is highly desirable.
    *Behavioral scientists have pointed to ‘quorum sensing’ as a factor which determines behavior from bacteria through the allegedly intelligent Homo sapiens. But we continue to insist that ‘more people per square inch means ‘more human capital’ and ‘somebody to pay our pension’.

    One could go on, but enough is enough….Don Stewart

    • Hi Don as I mentioned in an earlier comment one if our politicians critisef Harry and Meghan for wanting to be environmentally aware by only havinfvtwo children because he said we’re falling below the population replacement rate.

      Well good I say regarding small families – perfect commonsense.

  41. Tim,

    Can I follow up from the discussion above and ask about the fit of the SEEDS hypothesis with energy price trends?
    I agree with your comments about the embedded energy costs in most economic activity. Presumably these would be reflected in the relative cost of oil (or other major energy sources) – which is what manufacturers and businesses have to pay. Inflation-adjusted oil started to rise significantly in the late 1990s and clearly this fits with your observation that secular stagnation seemed to set in at around that time. However since about 2016 oil and other hydrocarbons have been priced at historically low levels – why then hasn’t the world economy bounced back particularly in the context of low interest rates and economic stimulus? I apologise if I have missed previous discussion on this point in this excellent blog!

    • @David
      Not Dr. Morgan, but perhaps a useful thought: Think about asset stripping. That is what happens when leveraged buy-out artists borrow money to take over a functioning company and strip the assets. What is left is an impoverished company which frequently fails. The market value of the company declines to practically zero just before the final collapse. If the company is cheap to buy, why doesn’t someone do it?

      Charles Hugh Smith recently penned an article, available only to his subscribers at this point, which traced the asset stripping which has characterized global financial capitalism in the last decades. Charles conclusion is that the final stripping is being performed by the Tech Giants, who are basically selling us ourselves…the last asset to be stripped. My exhibit on that notion would be the absurd or tragic or comic or infuriating barrage of tweets regarding all the conspiracy theories about Jeffrey Epstein’s death. Of course the tweets are cheap…they are worth nothing to the world, yet they make a lot of money for a tight little clan of people.

      This is not organic growth. It is a sign of increasing poverty. The poverty stricken cannot afford to pay much for the products of the asset-stripped production system. Oil would be very valuable and we could afford to pay handsomely for it if The New World had just been discovered by Europeans, and lay rich with resources. Which is one contributing reason, I think, why so many people who should know better are focused on Mars.

      Don Stewart

    • Don makes some good points there.

      First off, there are two broad types of cost. One is opex and the other is capex. Capital investment in upstream oil and gas worldwide was $477bn last year, compared with $829bn (at 2018 values) back in 2014.

      Even the 2014 number was way too low for replacement purposes – in other words, the industry is running down its asset base. There’s no real choice about this – discovery quantities are too few, and too high in cost, to replace the older, more cost-efficient sources of production that are depleting.

      What the customer is getting, then, is oil ‘subsidised‘ (for want of a better word) by under-investment by the industry. There’s also government (fiscal) subsidy, and direct investor/lender subsidy, the latter most visible in shales.

      The customer himself, pressured by economic circumstances, isn’t able to pay a price that would fund reinvestment, even if investment opportunities were sufficient (which they are not) to enable the industry to reinvest in this way.

      I hope this makes sense?

      So, we’re in some senses in ‘run-off’. This enables oil to be supplied at prices which generally cover opex, but do not cover capex. It’s not unlike a declining business running on inventory for as long as it lasts.

      Obviously, a business doing this can sell its products at prices that are lower than cost – but only for as long as the inventory lasts, of course.

      This is directly ECoE related – rising ECoE is closing down reinvestment opportunities.

      Unfortunately, though, about 97% of all global transport – land, sea and air – is powered by oil. We may convert road travel to EVs, though I doubt if we can do this like-for-like, suggesting a future with fewer cars, but hopefully with more trains and trams.

      The second snag is timescales. Because of the rate of change in the ECoE of oil, the run-off of oil is set to happen more quickly than we can replace its use in transport. Aside from making like-for-like road transition implausible, this timescale issue seems to me to rule out replacing load-lifting aircraft with non-oil alternatives.

      If that’s the correct way to read it, mass aviation is dead.

    • I indeed think that air transport is dead. Keep in mind that it is heavily subsidized through zero taxes on jet fuel and infrastructure (airports) shouldered by the taxpayers (in most cases).

      Asset stripping is indeed an apt description of what is going one here. For land transportation, countries/blocks with functional train infrastructure will be in a rather good spot since electrification of trains is proven stuff and involves no battery or complicated tech really. This means that the UK/US with their rotting rail infrastructures are not going to do well in that regard.

      Triage by energy intesity is going to be the new economic driving force IMO. I expect a ton of rationalization like restoring national manufacturing and so on. Which is not a bad thing considering.

      The worry is how much of a shock the current can absorb while retaining basic functionality (i.e. food, heating, power, transport, healthcare and essential services).

    • And that is why i think Trump imposes tariffs. Crush world trade before it crushes us. So there’s time for the world to adapt, i.e. more localized economies / societies.

  42. Tim & Don Stewart: thanks for your thoughts on this. I’m still disturbed by a circularity in the argument. Yes industry is in a parlous state with asset stripping and the like which reduces their ability to afford inputs. If, however, this process was primarily driven by high energy extraction costs (which as Tim points out are likely exponential in character) and resulting higher prices, then why does not several years of what are historically relatively very low oil prices at least slow down the decline in prosperity that you have so well documented. It makes one wonder about a larger picture of a combination of contributing factors (such as population ageing, competition, market saturation etc) which have made have so weakened the system that the energy supply problem has served to push the economy over a tipping point – in effect a trigger.

    • I’ll try to get back to you on this when the heatwave here abates!

      I did, though, once try to calculate the proportion of energy use in an advanced economy that is attributable to human physical labour. It is certainly a lot less than 1%. This is necessary context for any demographic component.

    • I think that a good part of the issue is hidden from sight. Because it’s not just a matter of oil companies running on inventory.

      Let’s have a look at shales : they are uneconomic below 100-150$, yet, because of dirt cheap credit and investor extravaganza, billions poured into them.

      In effect, we are using things like pension money to fund an oil glut from companies that sell at loss. It’s a convolved case of eating the seed corn. Same goes for 0% rates : we are financing stuff at the expanse of investors/savers/and pensions. The reason why prosperity has only been slowed down a little, is because while all of this happens, ineqalities have increased such that all the surplus created and some more when to the top 10%. Aka the average Joe has only seen stagnation.

      In addition to that, our main indicator is GDP, which is only a measure of monetized activies but does not care about silly things like stocks and unpriced commons like topsoil.

  43. Hemingway: ‘So how did you become bankrupt?’ Answer: ”Gradually, then suddenly”

    For the last decade here in the UK I’ve prided myself on regularly switching energy supplier and getting a better deal almost every year, certainly never going backwards. I understand that this is only possible given the fundamental laws of physics, because those who don’t switch suppliers are charged more and so are inadvertently subsidising the likes of me.

    But, this year for the first time, I not only couldn’t get a better deal, but the increase was 40% even though I cut consumption to needs not wants (including changing a cooker to gas) and not only were unit costs up significantly, but crucially also the totally unavoidable so-called ‘standing charge’. The writing is on the wall. When I tried to explain this all to an intelligent friend who’s ready to switch now, he ignored my advice, preferring a lower, variable (teaser) rate deal, instead of one fixing for however many years allowed – in the anticipation that it will only get more expensive.

    So the ignorance on this issue is widespread and clearly education will not help, because it’s all about cognitive dissonance, who wants to accept things wont only always get better? (I claim to be no wiser on those things I do not yet see …..reality is too scary, scary for most of us to cope with)

    • It’s because the English have neglected their heritage, the Germanic and Norse legends, which are thoroughly rooted in reality: nowhere in them does one find the notion that things can only get better.

      In fact, the hero always fails, fulfilling the fate of all living men.

      And even the Classical view of human affairs would have pointed out the inevitability of cyclical decline.

  44. @David Phillips
    I tried to avoid Accounting courses in college. But I suspect that the economy is a double-entry system. We must produce and we must consume, and we have money obscuring what it is all about and we have the potential for maldistribution (e.g., those who consume don’t get the benefits of production) and so forth. Keynes analyzed the problem during the depression. Conventional economics at the time held that unemployment could be no more than a temporary imbalance…but the Depression dragged on until WWII gave us a surge of production and consumption and full employment (e.g., Rosie the Riveter). Then we have the problem of the Externalities, which Economists mostly ignore because it raises the awful prospect that ‘growth’ might be counter-productive. The ‘Nobel’ in Economics went to a professor who says that the solution to the externalities is to produce more!

    Two examples:
    *It takes 3kwh of energy to produce 1kwh of electrical output using hydrogen. So can Britain run its train system on ‘renewable hydrogen’? The just issued UN report on land use points out that land can be used for forest, or food, or human habitation, or growing fuels, or mining, or whatever…but not all at the same time in the same piece of ground. So, if we are serious, we have to begin to regard even sunshine as a limited resource.
    *It takes 10 calories of energy to produce 1 dietary calorie for people in the United States. While destroying the land and water resource. Can you imagine a ‘green’ food system to replace what we have today?

    In short, we are using energy to produce a whole lot of friction. While true believers in monetarism think that so long as the money supply grows, we can afford an infinite amount of friction. I read a headline a few days ago that said ‘the Democrats may like Modern Monetary Theory, but it is Trump who is executing it’. Current projections are that the US may be directly monetizing its deficit in the fourth quarter.

    My own opinion is that the money system has worked for some decades, but is on the verge of failure. (But I would defer to whatever Dr. Morgan has to say on that point.). Which means that friction is no longer irrelevant. Unless one can persuade someone else to trade real output for the friction we produce, it seems to me that the locomotive will grind to a halt.

    Don Stewart

    • GFC II is destined to be a monetary crisis (flowing from monetary adventurism), just as GFC I (flowing from credit adventurism) was always going to be a banking (credit) crisis. We seem now to be seeing the start of an ominous ‘race to the bottom’ in monetary politics.

    • Rosie the Riveter became Rosanne the Graduate Debt Slave; and many live well on her…….

  45. News or Friction?
    Trump Retweets Epstein Conspiracy Theory…claiming Clinton connection
    Trump shares unfounded fringe conspiracy theory about Epstein and Clintons
    Trump retweets baseless conspiracy theory tying Epstein death to Clintons

    While those in Britain who have lived through all the Brexit nonsense may get a chuckle…does this really sound like a Great Republic trying to come to grips with the fact that it is broke?

    Since politics is airy-fairy anyway, it is easy to see all the nonsense. When we get to an issue such as electrifying railroads, it is important to get the facts right on the friction. What are the losses from photoelectric capture of hydrogen through locomotives moving sand and water to a fracking field? My suspicion is that the whole thing devolves into more friction than usable output. And if externalities are counted, then it becomes disastrously counterproductive. Which implies that we have to do the hard work of imagining a very different future.

    Still, we mustn’t let it get us down. As amusement, how much money do you think the Royals would come up with to get back the photo negative of Prince Andrew with his arm around
    Virginia Roberts Giuffre with Ghislaine Maxwell looking on admiringly in 2001?

    Don Stewart

  46. David,
    I am late to this discussion but would note that, while other factors you identify (governmental incompetence, regulatory burdens, etc.) certainly play a role (and because based on human behavior, present the illusion that they are fixable because we can change) ( ha ha), it is proper to focus on the ECoE as the key causal factor (esp from the leibig’s law of the minimum perspective) because, unlike human constructs, it cannot be gamed. ECoE, like its father entropy, is the Terminator. It is out there, it cannot be bargained with or reasoned with. It doesn’t feel pity or remorse and it absolutely will not stop , ever, until we are dead.

    • Exactly, Tagio: the appeal of political, moral and religious critiques is that they hold out the implied promise that reform and purges will avert disaster.

      Likewise the belief in technological innovation without limits as the cure for all ills – including the ‘Let’s leave the Earth for Mars’ nonsense.

      But what we face is, fundamentally, inexorable, implacable, and cannot be gamed. Few would ever wish to face this hard fact, and I suspect it is politically and socially impossible to state frankly.

      Even Greta’s time limit on saving the planet offers the consoling implicit belief that decisive action is possible and wholly practicable.

    • Encouraging news especially when compared to Hinckley Point which- according to some- may not start generating until the 2030s if at all.

    • I’m conflicted about nuclear, somewhat instinctively disliking the idea but recognizing that it might be the only answer.

      I must be one of the few people here who has ever stood on top of a small nuclear reactor – on a visit to HMS Trenchant some years ago.

    • Look at Australia – they are facing a catastrophe because “climate emergency”. Utter madness!

      During 2017, Australian manufacturers were hit with increases in electricity and gas of between 200% and 300%. This is making many plants marginal, unprofitable and nonviable in the longer term. The spike in prices was caused by the closure of a number of coal fired generators and a shortage of domestic gas. Most manufacturers are hoping that in the next 12 months, prices will reduce to more manageable numbers. However, this is likely to be short lived. Another group of coal fired generators are expected to close in the early 2020’s, and this will set off another round of destructive price rises. The gas shortage has not been solved.

      Even worse than energy price rises, will be the very real prospect of energy shortages and blackouts. Five years is not long enough to plan, agree, issue permits, finance, construct and install new electricity generating capacity and gas supply. There are no publicly available plans to do so, no costings and no reports that can give industry confidence in the future. Australian industry is facing a wipeout (and that includes Die Casting companies).

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