#178. The Ides of Autumn


For anyone involved in economic interpretation, these are hectic times. They’re frustrating times, too, for those of us who understand that the economy is an energy system, but have to watch from the sidelines as huge mistakes are made on the false premise that economics is ‘the study of money’, and that energy is ‘just another input’.

Latest developments with the SEEDS model add to this frustration, because it’s becoming clear that energy-based interpretation can identify definite trends in the relationships between energy use, economic output, ECoE (the energy cost of energy), prosperity and climate-harming emissions. Cutting to the chase on this, the efficiency with which we convert energy into economic value is improving, but only very slowly, whilst the countervailing, adverse trend in ECoEs (which determine the relationship between output and prosperity) is developing more rapidly.

Where observing our decision-makers and their advisers is concerned, we’re in much the same position as the soldiers who “would follow their commanding officer anywhere, but only out of a sense of morbid curiosity”. Essentially, policy-makers who’ve long been following the false cartography of ‘conventional’ economics have now encountered a huge hazard that simply isn’t depicted on their maps.

Having used SEEDS to scope out the general shape of the economy during and (hopefully) after the Wuhan coronavirus pandemic, there seem to be two questions of highest immediate priority. The first is whether the crisis will usher in an era of recessionary deflation or monetarily-triggered inflation, and the second concerns the likelihood of a near-term ‘GFC II’ sequel to the global financial crisis (GFC) of 2008.

On the latter, it’s becoming ever harder to see any way in which a crash (which has been long in the making anyway) can be averted. Indeed, it could be upon us within months. The ‘inflation or deflation?’ question is more complicated, because it needs to be seen within drastic structural changes now taking place in the economy.

Let’s start with how governments have responded to the economic effects of the pandemic. The ‘standard model’ has involved a two-pronged response, because the crisis has posed two classes of threat to the system. The first is an interruption to the incomes of people and businesses idled by lockdowns, and the second is that households could be rendered homeless, and otherwise-viable enterprises put out of business, by a temporary inability to keep up with payment of interest and rent.

Accordingly, governments have responded with policies which are termed here support and deferral. ‘Support’ has meant replacing incomes, albeit in part, by running enormous fiscal deficits, which, in the jargon, means injecting fiscal stimulus on an unprecedented scale. ‘Deferral’ has been carried out by providing payment ‘holidays’ for borrowers and tenants.

Neither of these responses is remotely sustainable for more than a few months, but there’s a difference between them in terms of timescales. Whereas support has to be (and has been) provided now, deferral pushes problems forward to that point in the near future at which lenders and landlords can no longer survive the effects of the payment ‘holidays’ granted to household and business borrowers and tenants.

The most pressing risk now is that the need to exit ‘deferral’ will arrive before the provision of ‘support’ has ceased to be necessary. We can think of this as a vector pointing towards the near future.

In the United States, for example, unemployment payments are being reduced, and payment ‘holidays’ are being terminated, precisely because of the vector which these converging policy responses create. Simply put, government cannot afford to continue income support indefinitely, whilst payment ‘holidays’ are already posing grave risks to the survival of counterparties (lenders and landlords) – and this triangulation is just as much of a problem in other countries as it is in America.

Unfortunately, the gobbledegook of ‘conventional’ economics acts to disguise how serious our economic plight really is. For example, British GDP was reported to have deteriorated by ‘only’ (in the circumstances) 20% in April, because an underlying deterioration (of close to 50%) was offset by the injection of £48bn borrowed by the government. Whilst a further £55bn borrowed in May took the total increase in government debt to £103bn, the Bank of England, in parallel, created a very similar (and by no means coincidentally so) £100bn of new money with which to purchase pre-existing government debt.

In other words – and across much of the world, not just in Britain – central banks are monetising the stimulus being injected into the economy by governments. All other things being equal, too much of this would pose a threat to the credibility and the purchasing power of fiat currencies. It’s not quite that simple, of course – and all other things aren’t equal – but it would be folly to dismiss this very real potential hazard.

The effects of these processes on the ‘real’ economy of goods and services are instructive. Where household essentials are concerned, demand has been sustained (by income support), but supply has been reduced by lockdowns. What this has meant is that the prices of household essentials have started moving up, at rates that would appear to have annualised equivalents of roughly 8%. This, incidentally, has been happening even though energy prices have slumped. What’s driving inflation in the ‘essentials’ category is the divergence between supply (impacted by lockdowns) and demand (supported by governments).

Where discretionary (non-essential) purchases are concerned, an opposite trend has set in. Consumers’ incomes, though supported by governments, are nevertheless lower than they were before the crisis, meaning that demand for discretionaries has fallen. This has been compounded by consumer caution, caused in part by fear and uncertainty, but also by impaired incomes, rising debts and diminished savings. Similar trends are visible amongst businesses which, much like consumers, are continuing to spend on things that they must have, but are slashing their expenditures (including their investment) on anything discretionary or, to put it colloquially, ‘optional’.

These trends are going to have profound consequences, not just for the economy, but for businesses in the favoured and unfavoured sectors, a theme to which we might return at a later time, because it also feeds into the broader issue of what “de-growth” is going to mean for business.

With the cost of essentials rising whilst the prices of discretionaries are falling, broad inflation has remained at or close to zero, but these are early days in a fast-changing situation. Whilst the statisticians are still-playing catch-up, the ordinary person probably already knows that the cost of essentials is rising, whilst his or her reduced spending on discretionaries might serve to disguise the countervailing falls in their prices.

Where the slightly longer-term is concerned, one school of thought contends that prolonged recession will induce deflation, whilst another states that monetary intervention is likely, on the contrary, to trigger rising inflation.

Those who are dovish on the issue point out that the extensive use of newly-created QE money back in 2008-09 did not promote inflation, though that argument is weakened if we include asset prices, and not just consumer purchases, in our definition of inflation.

The essence of the dovish case is that money injected into asset markets can be ‘sanitised’, such that it doesn’t ‘leak’ into the broader economy.  There is some justification for this view, because asset aggregates are purely notional values – whilst the investor can sell his stock portfolio, or the homeowner his house, the entirety of these asset classes can never be monetised, because the only potential buyers of, say, a nation’s housing stock are the same people to whom that stock already belongs. When ‘valuations’ are placed on the entirety of an asset class, what’s really happening is that marginal transaction prices are being applied to produce an aggregate valuation, even though the asset class could never be sold in its entirety.

In practical terms, this limits the ability of investors to ‘pull their money out’, because they can only do this by finding other investors willing to buy. It also leverages intervention, such that, for instance, the value of an asset class may be increased by a large amount (or a fall of that magnitude prevented) by a comparatively small intervention at the margin, especially where the psychology of intervention has deterred potential sellers.

Where inflationary consequences are concerned, though, these are matters of degree. Back in the GFC, the four main Western central banks (the Fed, the ECB, the BoJ and the BoE) increased their assets by $3.2tn between July 2007 ($3.55tn) and December 2008 ($6.73tn). In the space of just four months between February and June this year, these central banks spent $5.6tn, a larger sum even when allowance is made for the changing values of money.

To be clear, asset purchases thus far have not been enough to shake confidence in currencies. Neither $230bn of purchases by the Bank of England, $590bn spent by the Bank of Japan, or even the $1.85 tn injected by the European Central Bank, is a large enough sum to put currency credibility at risk. The Fed, meanwhile, having spent $2.94tn between February and May, pulled its horns in slightly during June, reducing net purchases thus far to $2.89tn.

To draw comfort from these numbers, though, would be to reckon without a number of other significant factors. One of these is that economic activity is falling much more rapidly now than it did back in the GFC, even though the extent of this fall is being disguised by the effects of fiscal stimulus. Whilst reported global GDP might decrease by about 11% this year, SEEDS calculations suggest that the slump in underlying or ‘clean’ economic output (C-GDP) is likely to be around 17%, and could be worse than that.

Secondly, and more significantly, there is a clear danger that the monetisation of borrowing may come to be seen as a ‘new normal’ (though, of course, a new abnormal would describe it better). If the running of fiscal deficits, which are then monetised, ceases to be regarded as a temporary and emergency measure, and comes instead to be seen as standard practice, a very hefty knock will have been dealt to faith in currencies.

The third (and still worse) risk is something that we might term ‘the Ides of Autumn’. If governments have to keep on running deficits, and are still doing this at a point where deferral ‘holidays’ force them to bail out lenders and landlords, then we could enter wholly uncharted territory. Additionally, the Fed has taken upon itself the task of propping up asset markets, in theory just in the US but, in practice, around the world.

To put this in context, we need to think ahead to some future point, quite possibly in September or October, when things could well start to go horribly wrong. Governments and central banks, still supporting incomes through stimulus programmes, now have a choice to make. Do they stand back and watch lenders and landlords fail, accept a wave of massive defaults on household and business debt, and allow a crash in the prices of (for example) stocks and property?

The strong probability has to be that they would not sit back and just let these things happen. If to this is added the likelihood of permanent (or, at least, very long-lasting) falls in productive capacity, we have the ingredients for monetary intervention on a scale quite without precedent. To be sure, the Fed has pulled back from intervention in recent weeks, but we can by no means assume a continuation of such insouciance in a situation where banks are on the brink of failure, Wall Street is tumbling, property prices are slumping and borrowers are on the edge of mass default.

There are, then, very good reasons for drawing at least two inferences from the current situation. The first is that, in a reversal of what happened in 2008-09, a financial crash might very well follow (rather than precede) an economic slump. The second is that, faced with the frightening alternatives, central banks might decide that massive monetisation is ‘the lesser of two [very nasty] evils’.

To return to where we started, energy-driven interpretation reveals that the financial system, and policy more broadly, has been building a monster for at least twenty years. It is indeed ludicrous that people and businesses have been paid to borrow, by negative real rates, and by the narrative that the Fed and others will never let anyone pay the price of recklessness.  As ECoEs have risen, and prosperity growth has ceased and then started to go into reverse, policymakers have persuaded themselves that ‘growth in perpetuity’ can be sustained by ever-greater credit and monetary activism, and by an implicit declaration that the whole system is ‘too big to fail’. That trying to fix the ‘real’ economy with monetary gimmickry is akin to ‘trying to cure an ailing house-plant with a spanner’ seems never to have occurred to them. We may be very close to learning the price of ignorance and hubris.



299 thoughts on “#178. The Ides of Autumn

  1. Steven Kurtz
    Consider it a example of “Yes…And”. You stimulated an analogy that I find illuminating.
    Don Stewart

  2. America is Back?
    Trump went to Midland, TX to tell the oil people that, thanks to his calls to Saudi and Putin, OPEC+ cut production which allows the US to be labeled ‘Back!’. Here is Art Berman’s tweet, citing an article in the WSJ today:
    “Schlumberger…drilled 1,250 wells with support from 250 remote engineers in the second quarter. At the same time, it is cutting 21,000 jobs and is shutting down 150 operational sites.”

    Art has consistently pointed out that there are simply not enough rigs working in the US shale patches to offset the ferocious decline rates in shale wells…so production is going to decline. So if jobs are in decline and barrels are in decline, what is ‘back’? I spoke earlier of ‘stranded assets’. My guess is that commercial office space may be one of the larger ‘stranded assets’. And a lot of white collar jobs may be ‘stranded occupations’.
    Don Stewart

    • This is the process of ‘de-complexification’, ‘up close and personal’.

      I wouldn’t single out Mr Trump for particular attention, though, as few decision-makers in government, business and finance really understand the nature or the scale of the issues. Observations that US economic activity in 2Q declined by ‘only’ 9.5% year on year – and that everything is looking good for the “tech” sector – are just two of the more glaring examples of mistaken interpretation.

  3. Good analysis as always Tim. I’ve enjoyed your posts over the last few months – its been refreshing to get an alternative perspective of events compared to the narratives being pushed by the usual suspects.

    I’ve been fairly bearish over the past couple of years, but starting to think that we may not even have a second crash now. The Fed will do everything they can to keep the markets up. With many Boomers shortly retiring, the US cannot afford to see their retirement pots slashed by market falls, as it will transfer a significant chunk of the post-retirement burden from private pension provisions to the State. As long as QE doesn’t cause inflation to spill over from asset prices to the real economy, then I think they’ll see it as fair gain, even if it does inevitably lead to greater inequality.

    GIve it a another decade or two and maybe ‘infinite QE’ will even be taught in schools as a conventional monetary tool? I don’t think many of us here necessarily agree with it, but maybe this is now the reality that faces us. Its an easier (short term at least) way out of managing a declining prosperity and dwindling finite resources, than tackling the root causes.

    Here’s to Dow 40k by the end of next year!

    • The risk of QE spilling over into the real economy seems to me the crux of the inflation question. The fact that investors can only sell if they can find buyers reduces the risk of monetary inflation of stocks and bonds – and to a certain extent property – crossing into the real economy. This said, of course, there is the ‘wealth effect’, albeit often over-stated, and the effect of asset prices on incomes in a large number of sectors (commissions, insurance, rents and so on).

      In Q2, the US deficit of $2tn was almost exactly matched (to within a few billions) by Fed asset purchases. Of course, it’s to be hoped that the required amount of stimulus will be tapered off if the virus crisis diminishes – but then we hit the issue of lenders and landlords who can no longer afford (if they can even afford now) to grant borrower and tenant ‘holidays’.

      Market sentiment, too, might turn, forcing more intervention from the Fed, especially if certain narratives – ‘V-shaped recovery’, ‘tech is doing great’, ‘there’s no limit to corporate borrowing’, ‘buy-backs will return’, and so on – are discredited (as, I think, most of them should be, BTW).

      Ultimately, will politicians let markets fall, and households and businesses fold, or will they push the QE button, using, no doubt, glib phrases such as ‘MMT’, ‘people’s QE’, etc. to ‘justify’ such action? Historically, soft (inflationary) default has generally been preferred to any kind of reset imposed by reality.

      Finally, and as I’ve sought to explain, the models that decision-makers use, though they appeared to work back when ECoE was small enough to fit within acceptable margins of error, no longer function. You’ll understand that I prefer to trust SEE principles and SEEDS, on which basis prior growth has gone into reverse, making the financial system ‘too big to survive’.

    • Thanks Tim. Yes I think the MMT era may now be upon us, which seems somewhat ironic given its happened under conservative governments (in UK and US). I wouldn’t be surprised if Rishi Sunak caves into pressure and keeps the furlough scheme running into next year, and it looks like the US will do similar, especially with elections not far off.

      I still think deflation is a far bigger (and perhaps likelier) risk than inflation right now, even with all the QE/fiscal stimulus. Personal savings rates are at record highs and I don’t think this will be unwound unless there is a vaccine found or established treatment with a high success rate, I also feel we may be past peak property prices in the UK now, and to some extent in N. America (where markets were more localised anyway).

      If this episode doesn’t lead to runaway inflation, then I suspect calls UBI will gain increasing traction from even the centrists parties. And if we do see inflation, I suspect that rather than widespread, it will be contained to certain sections of the economy (medical costs and elderly care for example)


  4. If “prior growth has gone into reverse, making the financial system ‘too big to survive”, does it make sense to talk in standard economic terms, like inflation or deflation for example?

    Does the current financial, economic and social system gradually transition over the coming years to a new system, or is there a kind of boundary that is crossed when growth goes into permanent reverse that results in a rapid and maybe disorderly transition to a new state/phase/system?

    The above are sort of rhetorical questions, I suspect know one really has a model of how things work in degrowth. We are just going to find out over the coming years…

    Just a few questions to highlight my points above. In permanent degrowth/energy descent:

    Would Fiat currencies be accepted for international trade?
    Could governments effectively issue debt instruments like 5, 10 and 30 year bonds?
    How does one perform a discounted cash flow analysis on expected future cash flows from an investment? What future, and at what interest rates?
    What are personal or corporate “savings” in such a degrowth environment?

    Thanks as always Dr. Morgan for your essays and insights.

    • Shawn
      I’m obviously not Dr. Morgan. But you might like to take a look at Dave Pollard’s current essay on the collapse and replacement of complex systems:
      Like Dmitry Orlov, he is giving quite a bit of weight to social collapse, as opposed to the traditional focus on financial collapse as the first step. But Dave is a ‘peak oil’ guy from way back, and I think it would be fair to say that he thinks the collapse will be multi-factorial. He quotes Dmitry’s story about the flock of blackbirds when their tree is cut down, but he is skeptical about overly-civilized humans being able to reform their society as quickly as the birds. I would make the analogy that Blackbirds are about 10 feet from equilibrium, while industrial humans are 10 miles from equilibrium…so the adjustment to collapse may be much, much more severe for humans. Whether you read Orlov or Pollard, you will detect a large component of Anarchist thought.

      Don Stewart

    • Don

      Thanks. I am aware of those writers and have pinged their blogs in the past. I will take a look at Dave’s latest.

      Above, I said, “No one really has a model of how things work in degrowth.” I was assuming that SEEDS would not provide specific insight to the rhetorical questions in my comment. But maybe I am wrong about that. I think I was channeling a memory of Dennis Meadows saying that the Limits to Growth World3 Model really does not give specific guidance about how collapse takes place, that it only provides the broad parameters of industrial output decline and then eventually population decline etc.

      Adding to my comment above, I was thinking later that at least two things suggest the transition to a new system could be more gradual than some assume. One is the vast built infrastructure and capital, and the energy embedded in those physical structures. This includes the built human capital. The second thing is vast amount of energy that will still be available from fossil fuels, even as they decline.

      Still, I cannot quite wrap my head around how I do a discounted cash flow model on an capital investment project, or a stream of dividends from a stock, if I know and believe the overall economy will be 10 or 20% or 30% smaller in 10 years’ time. And if I was an exporter of goods, why would I sell and export my goods to a country that is increasing that total stock of its fiat money without some kind of tether to “real” value or future economic output?

      Maybe the sharp dividing line between the current system and a new one will come at this point of the world knowing and believing with some certainty that economic growth has ended. Until then, the invisible hand of rising ECoE will continue to move currencies, economies, governments, societies, towards that point of rapid transition.

    • Shawn, Re:
      ” if I was an exporter of goods, why would I sell and export my goods to a country that is increasing that total stock of its fiat money without some kind of tether to “real” value or future economic output?”

      If you are assuming that you’d be stuck with a currency that was in a weakening trend, the FX market (for most currencies) is the most liquid in the world. You’d simply exchange it for your preferred one, or gold, or??

    • Shawn
      I’m not necessarily agreeing with everything Dave says. But his opinion is that what will happen is essentially unpredictable, and the response will be different in different industries, different countries, etc. Some new organizations will succeed, and some will fail. If one believes that the Central Banks will succeed in igniting inflation, while limiting returns on capital to negative real interest rates, then avoiding making investments at all is the right thing to do. Sell for cash, particularly across monetary boundaries. I would make the general observation that building a toll bridge and retaining the right to collect the tolls is a better option than financing a toll bridge in a world of rampant inflation….10 million dollars invested now may return 100 million, which are only worth 20 million deflated. So I suggest looking to structural solutions rather than financial solutions.
      Don Stewart

    • Thanks Shawn.

      First, on monetary terminology, with the economy understood and modelled from an energy basis, it would in some ways be better to use, not financial, but energy calibration. There are two main reasons for not doing so.

      The first is that part of the aim with SEEDS is to create objective benchmarks for financial issues. Conventional economics has no such benchmarking, as it simply compares monetary amounts with other monetary amounts. This is a complex topic, but perhaps one that we can explore at a later date.

      The second is that the debate isn’t conducted in terms of how many exajoules of debt we have, how many BTUs a person earns, what government can afford to spend in TWh, or share prices expressed in bn tonnes of oil-equivalent. We can only contribute to the debate by using the ‘language’ (money) in which the debate is conducted. If a debate was being conducted in French, we could not make our ideas heard if we expressed them in German.

      On the latter, the debate needs our input. Conventional economic interpretation and modelling is failing. I’m working on ways of increasing our leverage, or, put simply, ‘getting heard’.

      In terms of sudden collapse or gradual decline, it’s been said that I’m too cautious, or too moderate. If so, fine. I’ve been in both Wall St and the City during crises, with everyone running around in a panic. Granted, this crisis ‘is different’, but people usually say that – 2008 ‘was different’, but what has happened since has been evolutionary, not revolutionary.

      My belief is that the hotter the situation becomes, the cooler our responses need to be.

    • Quite so Tim, and “If you can keep your head, whilst everyone else is losing theirs – you’ve probably misread the situation” (Mad Magazine, sometime in the 1960s).

  5. A very damning, detailed analysis of the crashing airline industry. The article points to a fundamental structural flaw leading to mismanagement of degrowth. Management’s compensation is based on stock options so it does everything possible to delay stockholders taking a loss making the inevitable crash much worse. Note the implications in the article for employee pensions.


  6. @Shawn
    The Way Down in the US
    The maneuvering in Washington right now gives us some clues about how collapse might occur. Trump and some ‘conservative’ commentators have come out in favor of tax holidays and bans on evictions. Let’s look more carefully at the tax holiday idea. Trump says he can do it under his Emergency Powers. Specifically, the government would stop collecting social security taxes. Now social security was instituted back in the 1930s as a ‘pay as you go’ system with taxes on individuals and on their employers. Republicans have not liked it ever, but it has been popular and they never could figure out a way to just shut it down. Plus, it generated surpluses for years and so helped conceal deficits. Along the way, social security benefits became indexed to the government calculated cost of living. Which led to some ‘creative accounting’ which understates the increase in the cost of living so that government expenditures on the program could be reduced.

    So what I suggest is in the mill right now is to do some structural damage to the ‘pay as you go’ idea and substitute a ‘government will give you some money, and you should be grateful for whatever you get’. This is similar to the Roman Empire distributing largesse to its citizens or King George in England doling out vast properties in the American colonies to his favorites. This is just about diametrically opposite of the traditional American concept of government as enunciated in the Declaration of Independence and on through the Populism of the late 19th and early 20th centuries. Will the ploy work? Well….Trump says “of course you shouldn’t have to be evicted or pay the taxes…it’s not your fault…it’s China’s fault”. And, after all, we aren’t talking about permanently reducing Social Security.

    But we can see where this is headed. There won’t be any ‘inflation’ once the hedonic adjustment guys get a swing at it. So people drawing Social Security will become impoverished, young people and employers won’t be taxed (which will please them) and things will drift along toward collapse down the road. But my prediction is that those with money will be the big winners (as they have won bigly during the Virus) and everyone else will lose. So my thought is that investing fiat money into anything that the Federal Reserve is supporting is likely to still be a good idea for some time into the future.

    As for social collapse, the conversion of Americans from stubbornly independent people who just needed a little help from the government to deal with railroads and Wall Street into wards of the state will lead to continued social dysfunction. Ultimately, things will fall apart…but probably not next year. The reserve currency problem could be a sleeper…so I could be dreadfully wrong.

    Don Stewart

  7. @Shawn
    I read that the Federal Reserve is preparing the system to directly inject per capita money into the system. Similar to the 1200 dollar checks that were issued rather clumsily, but very streamlined and efficient. Their goal is to create enough inflation to bring debt levels down in real terms. If that is the plan, and if Dr. Morgan’s assessment of their inability to create organic growth by doing that is correct, then preservation of capital becomes paramount. I would conjecture that ownership of some business able to ride the inflation bubble is probably the best strategy…rather than holding purely financial assets. Gold might be another solution…although they might just seize it.

    Wolf Street has a nice article on the effects that the virus induced depression is having on low income families….a huge percentage are losing money while the rich are largely immune. I think that the Federal Reserve now understands that giving more money to rich bankers isn’t solving the problem. We could end up with financial assets losing their real, and perhaps nominal, value and bankrupting pension plans, while creating inflation, which will be hedonically adjusted away in calculating social security payments, leaving older people and younger people both dependent on government largesse. In short, what I suggest is the end of the Populist dream about what the US was supposed to be.

    Thomas Frank writes eloquently about Populism in Mid-America and Middle America:
    I was raised in the Midwest Populist tradition, so my biases may be on display…and you should be warned accordingly.

    Don Stewart

    • PS. Bizarre statistics come out of the Bureau of Labor Statistics showing strong recovery in terms of unemployment while the Census which is based on direct telephone interviews shows increasing stress in the labor market. The only segment showing any improvement has been teenagers, who traditionally get summer jobs. It’s like the BLS is under orders to generate statistics which indicate that ‘America is Back’….Don Stewart

    • Thanks Dr. Morgan, Don, Steven B Kurtz for your responses to my comments above.

      Don, Steven, I will take the capital preservation ideas. I do want to eat and clothe myself for a good while longer. However, my interest in coming to this site and a few others is more about understanding what is happening in the world in general, what happens when economic growth “goes in reverse” and how we can live going forward. My economic and investing questions in my comments above were meant to highlight just some issues of adjusting to shrinking energy and economic output. I still wonder if a very different economic and social order is coming our way post-energy peak and financial crisis, and whether we can shape that, or not. Time will tell.

      Ok, I have talked enough and will be quite for a while. I am off this morning to do a little preparation for a potential crisis this fall. 😊 Cheers.

    • “Thank you for your recent correspondence in which you asked whether or not the Federal Reserve “gives” money to financial institutions.

      The Federal Reserve lends to banks and other depository institutions–so-called discount window lending–to address temporary problems they may have in obtaining funding.

      Those problems can range from garden-variety issues, such as funding pressures associated with unexpected changes in a bank’s loans and deposits, to extraordinary events, such as those that occurred after the September 11, 2001, terrorist attacks or during the financial crisis in 2008 and 2009. In all of these cases, the Federal Reserve provides loans when normal market funding cannot meet banks’ funding needs; while the discount window is not intended for ongoing use in normal market conditions, it is available to cover unexpected developments.
      To encourage banks to first seek funding from market sources, the Federal Reserve lends at a rate that is higher, and thus more expensive, than the short-term rates that banks could obtain in the market under usual circumstances. To minimize the risk that the Federal Reserve will incur losses from lending, borrowers must pledge collateral, such as loans and securities. Since 1913 when the Federal Reserve was established, it has never lost a cent on its discount window loans to banks.
      The Federal Reserve does not give money to financial institutions. For more in-depth information regarding the responsibilities of the Federal Reserve, you may wish to review our publication “The Federal Reserve System: Purposes and Functions,” available online at https://www.federalreserve.gov/aboutthefed/pf.htm

      I hope this information is helpful.

      Board Staff “

    • @James Charles
      What is now being prepared, according to ‘normally reliable sources’ is helicopter money directly to individuals, bypassing the banks except for distribution (which of course provides plenty of leeway to give them fees). In the meantime, financial institutions are allowed to show earnings AS IF loans were being repaid on schedule…when, in fact, they are not. Which led to my question about cash flow statements…I don’t know if they are permitted to show ‘imaginary cash’.
      Don Stewart

  8. China Could Have Stopped it in Wuhan (Trump)
    The combination of all the bad trends identified by SEEDS and the acute distress brought on by incoherent policies relevant to Covid 19 are a deadly combination for the US, as illustrated by the continuing claims for unemployment and the Census data on suffering by age and income group. We also find almost unimaginable ignorance on the part of the press and politicians. An example is this rant about the debacle of testing:

    “At the moment, the United States has no semblance of public-health testing for the coronavirus, ”

    Don Stewart

    • Shale oil was a response to Peak Oil 1 in 2005. It never made any money and was kept afloat by loans that will never be repaid, just like the loans being handed out now.

      As a strategy it worked. Print money to keep oil production and BAU going for another 10 years.

      An interesting question about the free money everywhere now is that normally if one country tries it, the result is bankruptcy and/or hyperinflation. However most countries are doing it, so does that mitigate the negative effects, or perhaps everybody goes backward at the same rate?

      Anyway COVID has done a great job of reducing consumption, so hopefully the oil we do have will last longer. Maybe we’ll get tolerable pain for a longer period, bit like a toothache, rather than all out chaos due to ‘proper’ collapse.

    • There’s some logic in the idea that energy not used now is saved for later, but the impact of this delay on the finances of producers will take its toll. Also, using less energy now worsens, or at least anticipates, the ongoing decline in prosperity.

      Hitherto, the consensus has been that energy supply will carry on increasing, as part of a broader belief in the perpetual ‘economy of more’ – this consensus states that, by 2040, we’ll be using 10-12% more oil, and 30-32% more gas, as well as big increases in RE.

      But I’m not convinced that this is any more credible than the rest of the ‘more’ thesis – 1bn more vehicles by 2040, 90% more flights, 85-100% more economic output, and so on. The forward energy supply scenario that I’m finalising now, and which is likely to be the basis of an article here, looks very different.

      The other issue is financial. In broad terms, US GDP in 2Q was $4.5tn, but that included $2tn of government debt spending, duly monetised (almost exactly) by the Fed. Even if the cost of furlough and other income support schemes tapers off – a pretty big IF – then we will soon face the price-tag for interest and rent ‘holidays’.

  9. Thanks for the insights Tim. There’s no doubt we’re going backwards and in theory the economy only works one way – growth.

    Other commentators talk about the money being printed disappearing into a black hole via wealth destruction, almost as if it never existed, so perhaps the printing doesn’t matter as long as people get used to making do with less. There’s no way most of us are going to get more.

    Unfortunately less prosperity normally = more wars.

    Maybe things lurch along in a self-organising march towards less of everything, except corruption and wealth disparity. That’s what’s been happening in the Third World for decades and yet the populations there survive and are still growing.

    The money for Shale oil came from the Fed’s press via the banks. How long can that go on for and in how many places at once? Looks like we’re going to find out.

    I bet on collapse in 2008 by selling property in Oz, which promptly more than doubled over the next 10 years – bugger! So now I try to be more philosophical about the process.

    BTW the theory that COVID was the camouflage for a necessary stepdown makes more sense to me than the nonsensical responses to it..

    • I don’t buy the conspiracy theory of Covid-19 being a construct of the elites to mask their mounting economic problems. Elites tend to look after themselves, and at least two G20 leaders (that I can think of) have been infected. Boris was so ill that he nearly checked out.

      Regarding US shale oil production; if Biden wins and has a strong socialist contingent in government, might we see nationalisation of shale oil as a strategic asset?

      In a future with declining surplus energy, it seems to me that future nationalisation and subsidisation of energy sources is almost inevitable. I’ve never been a big fan of nationalisation, but that was during the era of low ECOE, when real growth allowed private energy companies to function effectively in a competitive market.

      I would now argue that energy is the most strategically important resource (yes, ahead of water, because water supply is a big energy user) and failing companies can’t be allowed to compromise uninterrupted access to it. Stability of energy supply requires a different approach in future. Effective nationalisation seems to be the only answer. The keyword here is “effective”.

      Of course, nationalisation and subsidisation could be done in a stealthier way than outright ownership by the state. You might argue this has already happened in the US shale patch with all the QE money that found its way there. However, the current bust in the shale patch will probably see the economic destruction of otherwise recoverable assets. That’s not a particularly stable model for the future.

      I suspect that the other side of the coin is the socialisation of debts incurred in the already de-facto nationalisation/subsidisation of shale. Is this (nationalisation of assets/ socialisation of debt) the future model for the world at large? Ugly as it may seem, is it the only civilised and equitable way to manage an energy descent on a national basis? I’m assuming there isn’t a cat in hell’s chance of some kind of global agreement and cooperation on this subject.

    • Neil, you say :
      “I would now argue that energy is the most strategically important resource”.

      I must agree with you, and to put my money where my mouth is, I am now going to jump onto a jet as soon as possible and take what few £ and $ I have left, over to Russia and trade them in for Ruble.

    • As I understand it, the Ruble is freely traded now at forex brokers. No need to travel. As to bullion, I have 12% (given price rise) in it now. But it generates no income, so sovereign(non US) and State of MA bonds help me there. Not much return now, though. State bonds are the best tax free around 1.5%. ( 3-5 yrs)

    • Yes, Agreed Steven – bullion is for insurance and the general advice is to have around 10% of a portfolio in precious metals under the bed. Ever since I spent 10 years in Cape Town in the noughties I have been a sucker for gold! :-)))

    • Interesting comment Fred. Thanks.

      My mortgage, the Netherlands, is purely debt. No money down, only intrest. That is my bet. Today that doesn’t go anymore. I had to buy an insurance with it, in the form of some kind of ETF to pay off the mortgage after 20 or 30 years. Due to regulations (tax related) i could have attached it to my mortgage, but i didn’t. The choice between paying down the mortgage or free to spend…. i choose being free.

      Why? This system needs debt. A circle jerk doomed to fail. As we speak there’s a push for double income households to be able to add more debt to buy a house. Because ‘housing’ is on hold over here. No one can afford it anymore, so they change the rules.

      Still have one patent left with a house free of mortgage though, that is my insurance. As soon as the insurance fails, the system is down for good.

      Keep playing. Own some debt. Not too much. And make sure you have a backdoor, known or unknown.

      Or both.

      Let them suffer in their own game. Sit down and watch what they do. Currently they are working on ‘equality’, because they know we all have to love eachother before the big downturn, and they ran out of ‘money’ to make everybody happy.

    • @ Steven & AustrianPeter,
      Thank you both.
      Yes, I’ve got Gold. Is it enough ? I don’t know – I’m planning on 1oz/month to spend on pretty girls and beer for for the next 25yrs.
      I already have some Ruble on term Deposit in Russia getting 7%pa.
      So that is why I need to physically go there to deposit more money into my term deposits.
      Sure, the Ruble can go down some more, but my point is that out of all fiat currencies, $, £, Euro and Yen, I see the Ruble as being the ‘last man standing’.
      Russia has amazing Energy resources, as well as a large stockpile of central bank gold. So by my metric, by investing in Russia I am investing in future Energy supplies and also in Gold.

    • Johan,

      “I already have some Ruble on term Deposit in Russia getting 7%pa.
      So that is why I need to physically go there to deposit more money into my term deposits.”

      Is this due to their laws? Banking can be done electronically in many countries.

      Also, your risks include a renewed severe cold war in which foreign owned assets are frozen or confiscated.


    • Your strategy, Johan, IMHO sounds very sensible as a medium term counter to the madness of the USA as they battle to hold on to their special privileges.

    • Steven,
      1). Banking is difficult these days. Yes, it’s your money, but banks are notoriously difficult to deal with when it comes to getting your own money out of them. As for electronic banking that is a joke. For example, I have a US bank account from which I have been trying to withdraw funds. It is not possible to do a wire transfer out , without physically being present in the US. I signed up for e-banking, jumping thru’ all the hoops in the process, only to find out the max I can transfer is $1,000 with a fee of wait for it — $55.- !!! and limited to 1 transaction per week.
      If I want to transfer more I need to get verified, but I can only get verified if I have a US based smartphone. – which I do not have. You try as a foreigner outside of the USA to get hold of a US SIM card !
      OK, there may also be another cold war, and all my money might be confiscated. However, I do believe that my money is in greater danger of being confiscated by the authorities in the UK or in Germany or in the US.
      I trust the Russians more than I trust any of these countries, and if it does come to a hot war, and my money is confiscated, then I will be quite happy for Vladimir Putin to use my money to buy a few missiles to lob back at the UK, to the US or to Europe.

    • Johan,

      Have you checked Interactive Brokers? See:

      Interactive Brokers Search
      Use up and down arrows to select available result. Press enter to go to selected search result. Touch device users can use touch and swipe gestures.Search suggestions are hidden

      FAQ: What currencies can I hold in my account?
      Clients can hold multiple currencies in their IBKR account. Clients can generally deposit and withdraw funds in the currency of their residential country, the base currency of their account, or a common currency (USD, EUR, HKD, GBP, AUD, SGD, CHF, CAD or JPY). Please note that IBKR will not automatically convert currency when placing a withdrawal. The currencies that can be held are:

      Australian Dollar (AUD)
      British Pound (GBP)
      Canadian Dollar (CAD)
      Chinese Offshore Yuan (CNH)
      Czech Koruna (CZK)
      Danish Krone (DKK)
      Euro (EUR)
      Hong Kong Dollar (HKD)
      Hungarian Forint (HUF)
      Israeli Shekel (ISL)
      Japanese Yen (JPY)
      Korean Won (KRW)
      Mexican Peso (MXN)
      New Zealand Dollar (NZD)
      Norwegian Krone (NOK)
      Polish Zloty (PLN)
      Russian Ruble (RUB)
      Singapore Dollar (SGD)
      South African Rand (ZAR)
      Swedish Krone (SEK)
      Swiss Franc (CHF)
      Turkish Lira (TRY)
      United States Dollar (USD)
      Our trading platforms allow clients to execute currency conversion and cash Forex orders with low commissions. You can see your cash balances in your Activity Statements available via Client Portal/Account Management.

      As part of its anti-money laundering efforts, IBKR implements restrictions on certain client deposits and withdrawals. Find out more about Funds Transfer Restrictions in the IBKR Knowledge Base.

      Find out more about funding your account on the funding reference page of the IBKR website.

      Additional Information:

      How do I transfer funds to IBKR?
      How can I check my cash balances in the activity statements?
      How can I convert currency at IBKR?
      FAQ Home / Funds & Banking / Cash Deposits / Deposit Currencies

    • Steven, I know you are trying to help, but believe me, I have explored many such options.
      As it says above in the passage that you pasted in:
      “Clients can generally deposit and withdraw funds in the currency of their residential country, the base currency of their account..” , Do you see the problem ?
      I live in the UK, so they will not let me deposit US $.
      The basic problem here is the system. All these KYC regulations etc. are not there to prevent real money laundering and large scale fraud, they are there to control people like you and I. Real fraudsters- Russian oligarchs with their stolen Millions and death dealing Mexican drug cartels, – they walk in through the front door of these banks and are offered a glass of champagne as they conduct business.
      I have a simpler solution to my situation.
      Once this Covid insanity is over and I can enter the US, then I get a cheap flight over. I wire t/f my funds back to the UK or to Germany, I eat a few burgers and hotdogs, sink a few Sam Adams, spend a few nights in a hotel and get a flight back after a few days shopping.
      For me this is the best way of dealing with the archaic US banking system. Doing an international transfer is about on the limit of what these institutions are capable of.
      The only danger is that my few US$’s might be worthless by the time I get over there.

    • Johan,
      This is my last post to try to help. You have not shown any reason that you cannot use Interactive Brokers. If you are in the US or EU or UK, they have e- based branches. You can deposit your home currency, and convert and invest at will. If you prefer to fly to Russia, that is your choice. Your money is safer at IBKR than at a bank in Russia in my opinion. IBKR was started by a Russian I think.

    • If you don’t hold it, you don’t own it.

      And if you hold it, they can tax it.

      Between that, the grey man tries to live.

      isms? Give me a f*cking brake

  10. Don, thanks for the heads up on Dave Pollard’s latest. I was surprised it was about self-organization vs. hierarchy. A very thought-provoking post by Dave. Dave makes the point I think that a lot of our thoughts about hierarchy are illusory – or at least that the ideas we have about the power of those at the top to control events or cause things to happen is illusory, at any event.

    Unless I missed it, I am surprised no one here (other than a brief mention of it by Don) has referred to the interview of Two Fed officials published by Bloomberg last Saturday titled “Two Ex-Fed Officials Have a Faster Way to Distribute Money in Recession” The article was discussed at Zerohedge here, https://www.zerohedge.com/markets/fed-planning-send-money-directly-americans-next-crisis, which links to the Bloomberg interview.

    The proposal is one of the more alarming things I’ve read recently. The Fed seems to at last understand that it has to have a direct way of interjecting money into the hands of those who spend it. QE only creates bank reserves, which don’t find their way to the general economy unless the banks use them to make loans. But, (i) banks don’t want to make loans, too risky, and (ii) there is limited capacity or willingness even at reduced interest rates for borrowers to continue taking on debt.

    Two jokers at the Fed propose creating a digital currency funded by zero coupon recession bonds that the Fed can deposit directly into accounts of those who need the funds. I.e., those who will promptly spend it instead of using it to buy stocks. They are excited about the prospect that this will create the long-desired inflation they need.

    The article raises more questions than it answers. For one, since I don’t understand Fed-speak, can anyone tell if the funds provided to the “needy” would be loans or outright grants? Being a CB, I assume that the funds have to be loaned, even if at zero interest. That would mean they have to be repaid.

    The Fed-heads talk about a digital currency to do this. This sounds like some sort of blockchain currency, whose flow can be tracked and recorded. How will these digital currency dollars relate to bank credit/actual dollars? The blockchain dollars can be limited to authorized uses, as many have pointed out. There will then be two dollar flows in the economy consisting of two currencies. Will the currencies have a 1:1 exchange rate mandated by law or will “market” forces eventually create an internal exchange rate, and what will be the effects of that? Can the CB loans be repaid with dollars or only with digital currency? How will those who have to repay in digital currency earn that digital currency. Akin to other countries having to earn dollars to buy oil. A problem for the borrowers, the CBs will have them by the proverbial b**ls.

    As far as I can gather, an end user will have to have two linked bank accounts – one for dollars and one for the digital currency, and the Fed will rely on banks to administer this (and make fees of course).

    Can the “loans” be rejected? The two Fed-heads blithely speak of putting money into peoples’ accounts. Do people have to ask for it first or can it be force-fed?

    Two things are evident from this: 1) the Fed is moving to creating currency to replace lost income flows. This is a new phase of money creation, potentially far more sweeping than bailing out losses by buying the damaged securities.

    2) This is a complete desperation and short-term move. These guys have no plan for any kind of transition. They really seem to think that they can get away with having a complete Potemkin economy, where printed money is stuffed foie-gras style into borrowers / consumers and then just flows through the system without any underlying real economy, still propping up asset values. It’s absolutely unbelievable. Replacing income flows with printed money is the absolute last move, even worse if it is more debt on borrowers who will never be able to pay. (Good for creating feudalism though. All that they will need is for the debts to be forced upon the heirs.) It cannot possibly buy much time, before the whole thing implodes fantastically.

    I would suggest that the horrible explosion at the port in Beirut is an apt metaphor for what is coming to the rest of us. Officials consider their job to be lining their pockets, and have neither the competence nor desire to deal with real-world problems, even those that are really horribly lethal and destructive on a massive scale, like 2700+ tons of unstable bomb material at their port that can explode any minute. 7 years at the port. 40 + years not doing anything to figure out what to do with nuclear waste. Almost 50 years from the Limits to Growth.

    • As I understand it from my friend Gerry Brady in Oz, who is very well informed on these matters, the Fed doesn’t create dollars directly, it borrows the funds from the primary dealer commercial banks (JPM et al) using treasury bonds as security (QE). They have recently extended their operations now into all sorts of funding vehicles like special purpose vehicles (SPVs) etc.

      If you want to know more, check out Gerry’s blog at: http://boomfinanceandeconomics.com/#/

      Gerry has been an immense help for me when I wrote my book explaining all this and how the global financial system works. https://www.theburningplatform.com/author/austrian-peter/

    • This sounds like Sci-Fi. Seems to me the US can’t have two currencies. Digital-electronic is what most $US s are right now.

    • Tagio,

      Humans, that is the well fed part of it that determins the mindset occupied by fiat currencies, are not capable to face degrowth.

      Look at it this way; what would happen without ‘money’?

      Or, more understandable, what would happen if the $ buys you nothing?

      The Fed tries to feed its children rotten flesh. And daddy slams the table, again and again.

      The smell though smashes the appetite.

      While credit suffers.

      That’s not a good sign within the mantra of ‘Full Faith & Credit’

      A famous hyena once said: as soon as the lion leaves, we need to act before the birds arrive.

  11. @Tagio
    A good headline from David Stockman:
    Washington’s Transfer Payment Bacchanalia
    Don Stewart

  12. Tagio
    From Wolf Street:
    “Think about this: The government is issuing an enormous amount of new debt to fund the stimulus spending, such as the stimulus payments to consumers and the large-scale unemployment insurance payments. Much of this stimulus money is spent by consumers which supports the economy. When the Fed buys Treasury securities as the government issues them, it in essence sends its funds on a circuitous route via those Treasuries and the government stimulus into consumption. This mechanism is shifting part of the impact from asset prices to consumer prices.”

    My gloss is that, having failed (according to their hedonically adjusted inflation numbers) to generate the desired inflation so that debts are inflated away, the Fed is now taking a direct route to consumers hoping to generate a lot more inflation. If you look at ShadowStats, you see that the official statistics have been understating inflation for decades now. Personally, I believe Charles Smith’s ‘Taco Truck Index’, which pretty much tracks Shadow Stats on the real consumer price inflation.
    Don Stewart

  13. Unemployment, Government Finances, Money Printing, and the Virus
    While almost everyone here agrees that governments and societies around the world were headed for trouble long before anyone was concerned about what was happening in a strange city in China…there is also no doubt that the Virus is making everything much harder. I will note one factoid, give a reference to public health ruminations which ignore the factoid, and also give a reference to the pain being inflicted as indicated by new claims for unemployment in the US:
    *Factoid. A study in San Diego showed that 40 to 60 percent of Americans in that city have T cells which are adapted to fighting ANY coronavirus, after experiencing exposure to previous corona viruses. If that is a true statement, then we are much closer to herd immunity that most people think we are. But sick people may not have very effective T cells…almost half of Americans are significantly overweight, for example. It is worth remembering that when the German army took a considerable amount of meat away from the Low Countries during WWII to feed their own army, death rates plummeted.
    *Dave Pollard gives us his thoughts on the virus, from a public health standpoint:
    Click through to the article in the New Yorker that he references. A ‘from the trenches’ report on how the Public Health establishment got to this point (including the fecklessness of the Trump Administration) by focusing on influenza and not paying adequate attention to RNA viruses. A poignant comment by the writer:
    “In late February, my eighty-three-year-old mother, who suffered from a neurodegenerative illness and resided in an assisted-living facility, caught the virus, sickened, and died within a day.”
    *I briefly referenced a statement that ‘the US has no public health testing policy or capacity’ a day or two ago. The New Yorker article mentions the test strips developed at Rutgers University. The point is that the test strips are cheap and fast. Yet policy and practice have been cool to them, because they can give false readings. But if what we need is speed and universal access instead of high accuracy, then they make a lot of sense in terms of the social response. We have not so far, as a society, managed to think clearly.
    *Wolf Street recounts the latest new claims for unemployment. The stress is severe.
    *And, finally, just to add on all the financial gimcrackery being pursued by the federal government trying to keep the wheels from falling off.
    *From Art Berman, quoting somebody else:

    “We live in a time of emboldened, self-confident stupidity.”

    Don Stewart

    • Don, re focusing on influenza vs RNA viruses

      Science and business and government insofar as it has been made an arm of business focus on what has the potential to generate large cash flows and profits – or money to put it succinctly

      Its easy to generate projections that capture the imagination with the flu

      X number of cases per year times $Y per vaccine dose = $Z in revenues less cost of goods sold = amazing profits year after year

      Until covid 19 no one could see massive revenue and profit opportunities in an RNA vaccine

      The money economy and incentive structure diverts all meaningful efforts away from life-saving measures that are about sustainable life.

      It explains why no one can be motivated to deal withe the highly toxic nuclear waste now stored at the nuclear plants susceptible of any fukushima type event or terrorist attack

      The other day i linked to an article about the airline business that pointed to executive compensation incentives as the reason the airlines were not going directly into bankruptcy providing themselves with the best opportunity to restructure some viable business and meet their pension obligations

      The money incentive structure of our economy renders planned degrowth relatively impossible on any large scale.

      We need a value and social status structure not measured by money. That will be forced on us by circumstances I think. We are not wise enough as a species to adopt it voluntarily

    • @ Tagio and Everyone Interested in Surviving the Pandemic

      This is a replay of part of a webinar last evening with Dr. Michael Murray. I think you will find it interesting in that it pulls together facts into what looks to me like a coherent story. This is not the story that the drug companies or governments or even people who have been invested in the policies which were imposed want us to hear.

      I do want to expand a little on the ‘Wuhan Laboratory’ part of the story. There is almost universal condemnation of the notion that this virus is a result of ‘gain of function’ research which escaped the laboratory. Why? In the United States, ‘gain of function’ was briefly illegal, but the Trump administration ended the ban in 2017. Now any laboratory anywhere in the world can do ‘gain of function’…just as any laboratory anywhere in the world can genetically engineer soybeans. Blaming some technician in the Wuhan laboratory for breaking some rule and taking the virus home with him doesn’t really solve the problem. The issue with genetically engineering. virus are similar to the issues with fossil fuels and nuclear: all can be powerful and all can be extremely dangerous. Humanity is playing with matches with the brains of two year olds (IMHO). You will see the Naturopath come through when Dr. Murray says that selling drugs for headaches and stomach acid which are doing damage to the system and making the person more susceptible to Covid 19 and other threats is simply stupid…note the 3 and 4 X risk. Saying things like that gets your website hacked….and I doubt that it is the evil Vladimir Putin who is personally sitting at his PC doing the hacking.

      Don Stewart
      PS. The webinar ended with some technical difficulties. Maybe I will post the second half which features ‘what you can do yourself’ to gain some protection next week.

  14. Unemployment and Debts

    I wonder if the financial whizzes on Wall Street are coming up with assessments based on real cash, or if they figure that real cash is simply no longer an issue and the Fed and the Government will make it all good? My little Credit Union has a lot of mortgages on hold. But they expect to report ‘break even’ financial results this year. I’m really curious how they might report cash and cash equivalents on the balance sheet. I would not be surprised if we ‘break even’ and suffer a large cash drain…which will obviously have to be disguised.
    Don Stewart

  15. Extreme, or merely Realistic, Scenarios
    From Charles Hugh Smith’s weekend note to his subscribers:
    “Rather than inflation, we might first get extreme asset deflation as everything gets sold to pay down debt and huge swaths of collateralized assets are repriced at zero. To cover all the losses, the Fed would have to print (by one estimate) an astronomical $100 trillion. I don’t think it could do even a fifth of that without fatally disrupting the financial system via unintended consequences.

    Global debts may well exceed global assets, if we include shadow banking debts and other off-balance sheet debt. A great deal of that debt–whether it’s “only” $250 trillion or $350 trillion doesn’t change things–will have to go through the door of the USD.”

    I’ll characterize this viewpoint as:
    *The financial economy is broken and cannot be mended
    *TPTB will destroy the real economy trying to save the financial economy

    I have had the suspicion for some time that we are at the end of ‘growth’, so any debts incurred in the expectation that ‘growth’ would provide the currency to pay off the debts was simply a bad bet. In the future, we are likely to see very much more hard-headed calculations before current consumption is curtailed so that infrastructure can be built. For example, a community may tax current consumption to build a bridge across a river, which bridge is thought to enable increases in future production and therefore consumption. But the 350 trillion dollar speculation in financial instruments industry is just toast. So ‘money’ get’s redefined as the ability to produce what people need and are willing to work for and delay current consumption to fund. I also suspect that old people will be expected to earn their keep by doing domestic work around the house and tending children of the younger people who are working…which largely makes pensions a relic. Multi-generational families become important, again. Saving for old age is replaced by maintaining one’s health so that one is useful in old age…long health span.

    I suggest taking a look at this blog post:

    The post suggests that few of us truly understand how thoroughly fossil fuels enable our current way of living…the good and the bad. He examines the ‘natural’ life of people living in a hard desert landscape, and how modernity upset that natural life. I suggest that we all sold our freedom to move to get what we need from the natural landscape for a ‘mess of pottage’ in the cities. I do think (or maybe hope) that we can use small farms as a way to provide a good life (albeit with some hard labor) for a much larger number of people than the Namibian example of simply harvesting from Nature. See Chris Smaje’s Small Farms Future blog. But that small farm scenario is certainly not a slam-dunk and TPTB may prefer to go down in flames like Hitler in the bunker.

    Don Stewart

    • It’s hard to overstate the extent to which the authorities are already resorting to sleight-of-hand and ‘make it up as you go along’:

      – In Europe, people who are not working, and are in receipt of government furlough payments, are not counted as ‘unemployed’

      – In the US, those given debt and rent payment ‘holidays’ are not counted as being ‘in arrears’.

      – The payments that people are not making on their mortgages and loans are being booked by banks as ‘revenue’.

      – In the second quarter, US GDP fell by ‘only’ (in the circumstances) 9.5% year-on-year, equivalent to a decline of about $480bn – but this is after government pumped in $2tn in deficit stimulus.

      It would not surprise me at all if, within a relatively short time, lenders (in particular) aren’t allowed to issue new bonds which are bought directly by central banks using newly-created money.

      The Bank of England has stated that, subject to certain caveats, British economic output will have staged a full recovery by the end of 2021 – despite business closures, job losses and other indicators of extreme damage to the ‘real’ economy.

  16. The deteriorating tunnel that could break NY

    “Could” should be “will”
    I predict that NYC will be one of the earliest abandoned large cities.
    Covid is already prompting moving financial services to move out of NY.

  17. Someone is optimistic?
    “If Goldman is right (and they’ve been pretty damn good so far) then prepare yourself for a lot of “V-Shaped Recovery” discussions in 2021. “

    • Plenty of discussions, yes – but not an actual ‘V-shaped recovery’, unless we accept a cosmetic ‘rebound’ engineered by massive monetary gimmickry.

    • Overlooking that immunity has been shown to be fleeting…months at most for many. Will we need a shot every 3-4 months? Pie in the sky so far.

    • And, given governments’ various agendas – and their perceived levels of competence – would the public actually trust a vaccine anyway?

  18. A Good Interview with Orlov
    Orlov has published a new book in German. He was interviewed here in English:

    I don’t think he is saying anything that he hasn’t said before, but the current clash between a money-printed V shaped recovery and the Degrowth perspectives sharpen his message. Also, the political dysfunction in the US and Europe and Japan sharpens his attention to the work of Kropotkin from a long time ago. The heirs of Kropotkin are various complex systems and evolutionary selection theorists working today.
    Don Stewart

    • Don,
      Thank you for the link. For those of us familiar with Orlov’s way of thinking, much of it was not new. However, I do believe that he has some good insights, and his first hand experience of watching the collapse of the ussr, does give his argument some credibility. What is interesting, but he did not elaborate on very much, was just at the end, when he mentioned that in future Welfare would disappear. It is a point that I myself ponder over quite a lot. In the de-layering of our economy, and the return to some semblance of sound money and balanced budgets, then State Welfare will effectively be replaced by personal Charity.
      In countries like the UK where a great percentage of people are Welfare dependent, there will be great hardship and suffering once this “safety net” is removed.
      In the UK, if we add in racial tensions, ( – Brexit was the direct result of fear of excessive immigration ), together with now mass unemployment – the UK has no industry to speak of -, then increasing poverty will cause the fabric of society to disintegrate completely.
      The more I think about it I always come to the same conclusion, that the outlook for the UK is exceptionally bleak.

  19. Vaccine?
    Approval of the Russian vaccine has been expected today. Initial recipients to be health care workers and old people. Mass inoculations in October. Entirely state funded. It looks like we are on the way to finding out.

  20. I love that Goldman refers to consumers’ spending returning, without ever mentioning jobs returning. Totally in keeping with ponziworld’s remarks about globalism’s myth of the jobless consumer. (As in, yes, you can offshore my job, but you’ll still be able to sell your products to me.)

    Currently there are over 30 million people receiving unemployment benefits in America. Do they really think all those jobs are coming back too? Saw an article on Bloomberg opinion yesterday that mentioned that 1 in 10 ppl owed their jobs to the travel business, directly or indirectly. The opinion piece begrudgingly admitted that maybe travel would never be the same. Does Goldman think they are coming back, or that all those people have jobs waiting for them in coding?

    I never trust a damn thing that Goldman says.

    • I am not sure I understand your question. Alternative to what, raising the drawbridges? Do I need to have an alternative proposed “solution” to Chicago’s problem, which is just a fractal of America’s problem, which is just a fractal of the West’s problem, and which is a feature, not a bug, of the civilization model for human existence? I am simply noting that Chicago is now literally raising its draw bridges to the center city, home of the “Golden Mile” luxury shopping district. It’s positively medieval. I am simply noting that this does not appear to be factored into the Goldman world-view that the “economy” will soon be doing great again, even if huge swathes of actual humanity will not be doing great, again or ever.

    • On the economy, GDP can be pretty much whatever you want it to be, insofar as you can inject stimulus.

      In the US in 2Q, reported GDP fell by 9.5% year on year. That’s about -$480bn. But the deficit was $2tn, without which the decrease would have been $2.48tn, about -46%. All of that stimulus was monetised.

      What official GDP projections are telling us isn’t about the economy, but about anticipated stimulus and monetisation.

    • It was just a question. Thank you for your reply, i’m just interested in ones opinion.

  21. “Foreman said these jobs are going, boys, and they ain’t coming back to your hometown”

  22. The next phase in monetary madness. BOJ beings paying banks to lend.
    “After more than half a decade of disastrous monetary policy which not only failed to stimulate inflation, boost exports or crush the yen, but has brought Japan’s banks to near disaster, the Bank of Japan has come up with an “ingenious” new plan to flood the system with liquidity: it is paying banks hundreds of millions of dollars in bonuses to boost lending, a move analysts say is aimed at easing the side-effects of its negative interest rate policy.”

    See today’s Zerohedge, “In Transformational Shift, The BOJ Gives Up On Negative Rates As It Now Pays Banks To Lend.”

    The CBs need banks to lend, i.e., create money, else the system crashes. The CBs can’t be the only ones printing money out of nothing, it doesn’t look good for the “soundness” of the system. Better to get the banks to create the money giving the illusion that there is still a functioning actual economy, not a Potemkin economy of CB printed money from start to finish. Better to then buy up the bad debt in bailouts and make the banks whole.

    Per usual, the BOJ is field testing the new idea for the Fed. I wonder if there is a legal basis for the Fed (or other CBs) to pay banks to lend is. I wouldn’t think it exists, but then that is usually not a problem these days.

  23. V shaped recovery? I can’t help laughing even as I type that.

    This guy regularly nails our predicament with his articles and this one about energy is succinct and on the money: https://consciousnessofsheep.co.uk/2020/07/20/the-symptom-of-our-disease/

    Rural property around here is being snapped up, so presumably more Sydney dwellers are making a run for the hills, just like the Manhattan crowd.

    Watching the central banks poof money in and out of existence is the latest spectator sport. I saw a video of a Zimbabwean 100 trillion dollar note the other day. I got the impression it might buy a loaf of bread.

    Who knows quite how and when this will all break down. With GDPs crushed, at least oil supply won’t be a short term problem – good news!

    • A small rebound is likely, but any sizeable “recovery” from here would have to be cosmetic, engineered by monetary policy. Over the past 20 years, as the energy cost equation has tightened, underlying growth has petered out. Reported GDP “growth” of 3.5% has been based on annual net borrowing averaging 9.4% of GDP.

      Rationally, we would adapt to this situation, but rationality seems to be in short supply at the moment. Too many political leaders are promising “growth” that cannot be delivered, and too many governments are planning levels of future expenditure that their economies will not be able to afford.

      If there’s good news to be found, it’s that the implications of “de-growth” for the environment are positive.

    • I so entirely agree with your comments Tim, but Gerry at the BOOM blog is convinced that printing money via his unique QB will solve the situation although he does acknowledge that energy is a key element in any growth story. I have emailed you his views and his QB proposition can be viewed and reviewed by the team here. I would love to have yours and their feedback:

      I remain open to arguments as to where all this is likely to end up but for myself, I concur with the de-growth and dis-complexity theory for a new economy far removed from the mad consumption-based activities of the past.

    • Thanks Peter.

      Where this situation goes next is money creation on a gargantuan scale, which either goes horribly wrong, or buys a few more years of delusion. The really interesting question is what happens after that?

      The predicament itself is easily stated – an economy based on energy is suffering from a run-down in its dynamic.

      Again, what’s perhaps more interesting is how we handle it. Our collective responses to the coronavirus are not encouraging when it comes to responding intelligently and rationally to the new reality of deteriorating prosperity. The virus is, after all, a relatively straightforward challenge compared to, say, ‘de-growth’, or the environmental challenge.

    • Many thanks Tim, I have passed on your comments to Gerry and I am sure we all agree that everything about the future is very much unknown – but I do feel QB would help.

  24. @Austrian Peter
    Bottom Line: We have to let the current system fail…
    *See this article by an Organization specialist:
    The gist of his observation is that everyone who briefly thought that everything needed to change is now back to BAU. My addendum is that people only change when they can see no alternative…unless there is some promising new alternative (e.g., a new energy source or a new technology or a new opportunity for conquest).

    *So I suggest that if the Best Minds think that some fundamental changes MUST be made, then they need to collapse the current system one way or the other. The brutal and most destructive way to collapse the system is to let monetary dysfunction do its destructive work. The less destructive way is to prune it: e.g. lop off airlines and bloated medical expenses and industrial food. Some of the pruning can be done by simply ending subsidies.

    *Since either financial collapse or pruning creates a lot of frictional job losses, then government needs to step in to redistribute wealth. This can be done with your friend’s mechanism, and should be aimed at a per capita effect rather than a ‘more money to the already rich’ strategy.

    *The primary driver of evolution, from microbes to economies, is symbiosis. That is, two (and perhaps many more) entities figure out how to make 1 plus 1 equal 3 or 4 or 10. Government needs to get out of the way and let that happen…it cannot be ‘managed’ in any productive sense. So it sounds a lot like Anarchism. For example, consider the agonizing over school re-opening in the US. The urgency for getting the children back in the classroom is because the school is performing a baby-sitting function…parents can’t figure out how to go back to work unless the school babysits for them. Yet there are lots of unemployed people in all neighborhoods who could watch the children during the day while the parents are working. A tangle of laws and regulations prevents that from happening at a large scale. What government needs to do is GET OUT OF THE WAY. The evolutionary solution which our society arrives at won’t look like the current energy dense system. We don’t know exactly what it will look like, but it will be adapted to an ECoE of perhaps 12 percent.

    *Deregulation and pruning need to be simultaneously. The pruning is primarily aimed at government supported sectors of the economy while the deregulation is getting the government regulations out of the way of the search for new symbioses.

    Don Stewart

    • Excellent synopsis Don, thank you and I do agree that government MUST get out of the way and Gerry does add an addendum to QB that this must be the case – he calls is a tripartite agreement. WE of the Austrian school always seek small government and in this I am supportive of my colleague, Niall Warry, at: http://harrogateagenda.org.uk/

      His short video explains this solution about small government which we define as localised government and local economies: https://www.youtube.com/watch?v=nvJAmkSOuck&feature=youtu.be

      Not sure how this would work in USA but in UK it is eminently feasible if TPTB are prepared to give up some of their power – which of course is unlikely: QED:

      Many thanks for your input.:

    • It gets a lot right. I commented on the site:


      While Biden is slipping, at least he isn’t dead set on removing all regulations which attempt to protect the environment and consumers. Harris is strong and sharp. The powers that be will pull strings, but I suspect Harris will counterbalance that to a degree. To opt for four more years of DJT-Pence is to guarantee that the Supreme Court will be set to let Pence & Co. create a Theocracy in the US, with continued Corporate Welfare.

  25. Tim, you state: ‘A small rebound is likely, but any sizeable “recovery” from here would have to be cosmetic, engineered by monetary policy … Too many political leaders are promising “growth” that cannot be delivered, and too many governments are planning levels of future expenditure that their economies will not be able to afford.’
    That in a nutshell is, I fear, a fair summary of where the United Kingdom is headed. Thus, delusion and disappointment among both the governors and the governed is all but guaranteed. Increasingly, the governors are behaving erratically and frantically as they seek the ‘magic medicine’ to restore growth, while a majority of the governed experience declining or stalling prosperity.
    In other words, are we once again headed into a situation where the governors and mainstream economists will be talking about an economic recovery that most people will find to be completely alien to them? If you recall during one memorable debate during the Brexit Referendum a questioner in the audience retorted to one of the panelists: ‘That’s your bl**dy GDP, not ours’.
    Such a situation presages further serious political and social upheaval
    I hold the view that the purchasing power of fiat currencies will continue depreciating against real goods and services, that the forces driving separation and fragmentation of the four nations are becoming stronger; and at almost every level we are very poorly equipped to navigate such terrain.

    • The UK situation now is very nearly hopeless, and those running the show either (a) don’t know this, or, and perhaps more likely, (b) do know it, and are playing for time.

      The central risk factor is the currency, because the UK depends on essential imports and is hugely exposed to the global financial system.

    • Dr Tim
      “The UK situation now is very nearly hopeless……….”

      I am not sure what you mean by this. Whilst I realise it is not possible to be precise, is it possible to be just a little more quantitative please? For example:

      (i) We are going to be noticeably worse off as individuals, say, a 10% decline in cash for non-essentials.
      (ii) We are going to be dramatically worse off as individuals, say, a 50% or more decline or even no cash at all for non-essentials.
      (iii) The whole system is likely to break down completely with destruction of bank deposits, starvation being commonplace and a near total breakdown in law and order, not unlike early 1930’s Germany.

      And do you see an abrupt change or a decline occurring over a few years?

      Kind regards,

    • Your questions, Ian, are so typical of many people who are confused and fearful for the future. I have spent many years studying the global financial system and I have written a book about it and the likely scenarios which might unfold. I also write a weekly ‘Letter from Great Britain’ for the benefit of my American readers which you may view here:
      https://www.theburningplatform.com/author/austrian-peter/ It might answer some of your queries. Dr. Tim has contributed generously towards my book as well as us agreeing on so much of the detail.

    • Thanks.

      It’s not all about numbers, of course, but here are some which might answer your questions. All are stated in GBP at constant 2018 values.

      – Prosperity per person – this peaked back in 2004, at £25,510, and by 2019 it had fallen to £22,270. This year it’s projected at £17,730, with little or no meaningful recovery in sight.

      – Between 2004 and 2019, prosperity after tax fell from £15,540 to £10,910, and is projected at £8,360 this year.

      Government spending, and apparent spending plans, are unaffordable, unless the aim is to crush the ex-tax prosperity of the average person.

      The B o E’s recent forecasts looked like efforts to talk up the situation – if they’re worried about the FX markets, I’d say they have reason.

      The central answer is ‘relentless decline, but critical failure is possible at very short notice’.

    • Kevin,
      I think your option (iii) is realistic.
      The UK does not produce very much – nowhere near enough to be self-sustaining.
      Whole swathes of the population are welfare dependent.
      When welfare ends, – and it will end -, then absolute poverty is going to explode.
      There will ultimately be a return to sound monetary policies worldwide, the GBP will be wet toilet paper ie. totally useless.
      Due to its reserve status, the US$ may hang on in some form or other, but the GBP has got nothing going for it.

  26. “From CDC data, 2020 has the lowest weekly death rate in a decade – so far. ”

    I suggest that this result illustrates the danger from considering phenomena in isolation. When a pandemic shuts down an economy and kills people from a combination of causes which include a novel virus…it also shuts down the fast food drive through. The first effect is an increase in deaths, but the second effect is a reduction in deaths. The net effect in the US seems to be a reduction in deaths…but achieved at an enormous economic penalty.

    I suggest a couple of conclusions:
    *Systems thinking is essential if we want to move from analysis to synthesis: from mechanisms to prescription for action.
    *It is impossible to micro-manage. The most basic thing we can do is provide accurate feedback and let people as individuals and synergistic groups adjust to reality as best they can. In addition, we need to carefully pick and choose government actions which have leverage on critical factors such as perceived equity and honorable governance.

    Don Stewart

  27. Tim, thank you for providing the SEE figures for the UK. They make for truly sobering, and alarming, reading.
    There’s no doubt in my mind that we’re in a proper pickle. I’ve been ‘stacking’ since 2005, much to the amusement of relatives; although they are not laughing now.
    In autumn 2017 I wrote to my local Member of Parliament urging him to press the Chancellor of the Exchequer to instruct H.M Treasury to mandate the Bank of England to bolster the national strategic gold reserve. At that time gold was priced around £957oz, which I thought represented a decent price at which the country could replenish the reserve.
    I received a reply informing me that the reserve was determined by people who understood economics and finance, and that they used sophisticated techniques that were beyond the grasp of ordinary people to determine the optimal reserve. In other words our elders and betters were incredibly well-qualified and proper smart, but as best I could judge they were totally ignorant of history.
    I don’t mind admitting that I felt a proper country-bumpkin, but the signal that this conveyed to me was that some, and quite possibly a great many, elected party representatives across the political spectrum are little short of clueless. Frankly, that should alarm anyone capable of thinking independently.

    • I understand how you feel, but you are dealing with some truly brilliant people – the same ones who thought up PFI, PPP, ‘light-touch regulation’. outsourcing, selling the nation’s gold reserves at an all-time low price, and all those other strokes of genius which have made the UK a by-word for prosperity, resilience and wisdom.

      According to SEEDS, UK official growth has averaged 1.7% over twenty years in which annual borrowing has averaged 7.6% of GDP. Clean growth, stripped of this ‘credit effect’, averaged 0.6% per year which, from recollection, is lower than the rate of growth in population numbers. This is even before we factor ECoE into the equation.

    • I might have posted this story many months ago. In 2000, after around a year living in Ottawa Ontario, I was introduced to a senior executive of the Bank of Canada at a party given by a recently retired diplomat-arms negotiator friend. I had retired in 1990 at 45 (currency derivatives were my specialty) but was still doing a bit of consulting. I was able to secure a meeting with the director of trading at the BoC. He invited me to lunch at the Chateau Laurier (why not, he gets a nice free meal).

      After some preliminary chit-chat, I informed him that I was on the first panel on FX Options at The NY Fed. I was at Merrill Lynch International Bank, and people from Salomon Bros. and Citibank were also on the panel. (I was then a legal landed immigrant, and eventually got dual citizenship.) I offered to consult for the BoC for $1 a year, a traditional way of doing Pro Bono work.

      My two recommendations to him were to use options (sell naked puts) as a way to intervene to support the $C in addition to just selling $US for $C, and to sell naked puts on gold vs $US (they had a reserve of foreign currencies) Gold was under US$300. His response was: we are authorized to only sell gold, not buy it!

      Needless to say, they did not pursue a relationship. The main reason I suspect is that he didn’t
      t know much about options strategies, and was fearful of anything happening which might risk his longevity and pension.

  28. Dr Tim (and Peter). Thanks; it is the critical failure at short notice that is most frightening and I guess with fiat currencies and high-speed electronic trading that this is quite likely. Even storing physical gold would seem not much use in this case if the whole system broke down. I guess that the cities are the place to avoid. Kind regards, Ian

    • Dear doc,

      Indeed. It is when critical failure exceeds critical mass, as tought as ‘momentum’ within our education systems, it would be too little, too late.

      The question could have been; ‘if i pay for my education in currency, do i get proper education’?

    • The critical issue in the UK situation is the exchange rate. If GBP were to slump, the cost of importing food, energy, components and so on would soar, as would the local equivalent of debt denominated in foreign currencies. Attempting to stem this by putting rates up could be equally damaging.

      One way of thinking about this is to compare FX rates to a country’s stock price – in these terms, the questions are: ‘how robust are current operations (the economy)?’; ‘what’s the state of the balance sheet?’; and ‘how competent are the management?’

    • So true Tim, thank you. This is what scares me most – GBP. As a pensioner on relatively fixed income, we are vulnerable to inflation. I remember what happened during the seventies when retirees were living on cat food!

      I realised what was going on during 2003-06 as house prices went crazy. I was living in Cape Town then and followed the UK markets, among others, because that was where the bulk of my pension pot was located.

      By 2007 I saw the writing on the wall, and jumped into an annuity with 75% of my pot at 7.69% (by memory) and therefore locked in a reasonable return – but compared with today – an amazing one! My children are using other methods to secure a modest retirement, which is all they have left under such trying circumstances we find in UK at present.

      I have no confidence at all in UK macro-management. To have screwed things up so badly in a flawed response to the virus has me believing that they can’t be this stupid – to totally wreck what was a struggling economy anyway. There has to be another agenda and I am spending many hours trying to track it down!

      This, from the Mises Institute (which I support), gives me more than a clue:

      “The lockdown, in the wake of the coronavirus pandemic, has accelerated the implementation of long-held plans to establish a so-called new world order. Under the auspices of the World Economic Forum (WEF) [aka Davos Man], global policymakers are advocating for a “Great Reset” with the intent of creating a global technocracy. It is not by coincidence that on October 18, 2019, in New York City the WEF participated in “Event 201” at the “high-level” pandemic exercise organized by the John Hopkins Center for Health Security.” Read on:

      I guess it will be labelled as ‘conspiracy theory’ by TPTB, although they have NOT been too secretive about their agenda.

    • Indeed so. All I would add is that, in addition to issues of statistics and competence, the UK has some huge ethical handicaps as well. Unless something can be done about that, any other measures would not succeed.

  29. I’m always interested in what Warren Buffett decides to do in a given situation,


    a pertinent point within this small article is the paragraph:

    “Large investors must disclose long stock positions held at the end of a quarter 45 days later in a 13-F filing with the SEC, which means such filings are merely a snapshot of an investor’s holdings at a given point.”

    I take that to mean that at this point we can see that Mr Buffett has shed a portion of his stakes in banks and transferred it to gold related stuff but it won’t be until the next quarterly disclosure that we can tell if he’s continued to shed further stakes in banking,

    this is all far from my sphere of competence, maybe Dr Tim can explain any significance?

    • I rarely read this blog without being left to ponder the question of how the UK has ended up in such a precarious position. It really does look like a slow motion train wreck. How on earth has the UK ended up in such a relatively weak position?

      It’s possible to identify some key events that help explain it in part, but not in full.

      For example, in my lifetime I can identify the conscious decisions of policy makers to favour financial services industries (and services in general) over engineering and manufacturing. I can also point to the squandering of our oil and gas reserves. From my own data analysis, this had a major impact on our balance of trade/balance of payments, and the national debt.

      I would also point to the foolish and damaging military adventurism in the so called war on terror. Wars are expensive.

      Going back before my days, it seems the UK has never fully got over the economic damage caused by two world wars. As a nation that was on the so called winning side of WW2, we seem to have fared much worse than Germany and Japan.

      I guess one unifying theme that comes through, is that we have impoverished ourselves partly through a readiness to jump into war. But I don’t think that’s the whole story, nor is it just the fact that we industrialised first and used up our economically viable coal reserves before most other nations.

      Beyond these events, I can’t help wondering whether there’s an underlying issue in our national psyche, whereby we haven’t been able to move on from our imperial past. For centuries vast amounts of wealth were generated from the trappings of empire, and we didn’t have to worry about the constraints of being a geographically small nation.

      I’m always fascinated to compare and contrast the UK situation with Japan. The Japanese have the same issue of having a relatively small geographical footprint and high population density. There’s a huge contrast in natural resource availability. Japan never had the fossil fuel reserves that we had in the UK, and yet managed to become an economic powerhouse. Their currency is regarded as a safe haven in difficult times, while the once mighty GBP has become one of the weakest currencies in the G7.
      Now, I realise that Japan has its own mounting list of issues, but I can’t help feeling that they made a far better job of it (the economy) in the post war era, than the UK did. Their national psyche is very different to that of the UK. Is that enough to explain it?

      I guess a whole book could be dedicated to exploring this why’s and how’s of this theme (the relative demise of the UK), and quite possibly it already has. The reason it’s such an important theme, is because we have to learn from our mistakes, and we must learn quickly.

      It seems that the UK needs to re-invent itself in the face of de-growth, and it needs to do so rather rapidly. Time is running out for the UK, and I suspect that sadly, the day is approaching when we will no longer have a United Kingdom of Great Britain and Northern Ireland.

      Does anyone have inspirational thoughts on this whole subject area?

    • There are a lot of factors involved. A big part of it, obviously, is poor quality leadership. But more than anything else I’d pin it on the adoption of crack-brained economics, something which has had adverse social as well as economic consequences.

    • “I rarely read this blog without being left to ponder the question of how the UK has ended up in such a precarious position. It really does look like a slow motion train wreck. How on earth has the UK ended up in such a relatively weak position?”

      The Spider’s Web: Britain’s Second Empire is a documentary about Britain’s transition from an imperial power to a financial power.


      It is available on YouTube.

    • Hi Neill,
      This short video might offer some explanations for you. Our wealth was generated by exploiting the colonies and creating an efficient manufacturing base which have now lost – down hill after that as nothing to replace it except selling houses to each other and the robber barons scooping up what wealth was left. Cynical I know and it is only my opinion.

      My book (free PDF) might explain the details – maybe:

    • As an outsider, perhaps this, so far unmentioned driver is involved: vast land and building ownership over centuries by “nobility.” War Lords became Lords of the Manor, and eventually landlords. As the Empire began declining last century, and the BP its decline from $US 5 to 1, the powers that be were selling off prime real estate to foreigners, many of which were gangsters. Productive use of capital was replaced by continuing extravagant consumption by the elite selling and renting property.

      The energy and manufacturing declines were real as well in my view.

  30. A little gallows humor from California…the Golden State:
    “California: It’s Covid, so stay inside.
    Me: Ok
    CA: Except if there’s an earthquake, then get out
    Me: Ok
    CA: Unless there’s a heatwave, then stay in
    Me: o…k…
    CA: Unless the fire tornado is headed your way
    Me: …k
    CA: The flash flood might fix that
    Me: …
    CA The power is out”

    You can find a lot of tweets about the “first ever” fire tornado warning, with some pretty scary pictures of it in Lassen County, CA. California is a geographically big state, and all the disasters listed above have probably not happened to a single person, but our super-efficient news media get the images out very rapidly. And since our ‘reality’ is what we see in the images, it all seems to be happening everywhere simultaneously.

    Incidentally, my new favorite film-maker is Mia Hansen-Løve, from France. A young woman with a very distinctive style and a superlative sense of directing/ editing. Two films are particularly relevant to this audience. One is The Father of My Children, and the second is Things to Come. Both films trace a collapse of a world…a small film production company and a philosophy professor at a university. One difference is that in the films, the bustling street life in Paris continues even as the world of the small group or the individual collapse….whereas what we anticipate in this group is more like California.

    Don Stewart

  31. Consumer Reaction Times

    One of my main points is that people need accurate information and then they will adapt to the situation as best they can. The charts from Wolf Street illustrate whip-saw reactions to what people could perceive. The changes can happen very quickly.

    Of course, underlying all this is the fact that money was falling into their pockets from the Magic Money Tree. People are NOT (IMHO) taking into account that the bill collector will eventually have to be paid. Most people are living paycheck to paycheck, and they just happened to get an unusually large paycheck…money fell from the sky.

    However, my main point is that, given accurate information, people may be more flexible than a certain way of thinking about collapse would have us believe. But the long term consequences may more resemble the Opioid crisis than anyone cares to think about. Opioids WERE an adaptation…not a perversion.

    Don Stewart

    • Hi MM,

      that’s an interesting artifact you’ve found on archive.org!

      M King Hubbert is the Shell geologist that proposed the idea of peak oil,
      he was also a co-founder of Technocracy Inc.



      I’d not heard of it till I saw it mentioned in an Adam Curtis film about Atomic Energy,


      if you want to see some old film clips of them with a brief explanation fast forward to 5:30 minutes, actually the whole film is fascinating and worth a watch.

      as a movement it was very much a creature of it’s time, betwixt the two world wars, and the nation it occurred in, The United States,
      it was a uniquely American organisation, there were various emergent movements at the time such as Fascism in Italy and Communism in the USSR, I suppose Technocracy was another angle being explored.

      I’ll have a read of Hubberts book/study course, it must be a snap shot in time of how rational people of the time were grappling with realities,

    • MM and Matt and I would argue he figured it “peak oil” correctly….he just did not see that people would abandon economic principles to keep the party going….The hangover is just starting.

  32. Neil,
    This really isn’t an explanation just a snide comment on the “nature” of UK, American and Western man in general. Everyone wants more money because life as it is apart from money and the things it can buy gives no satisfaction. Everyone wants growth because only the hope of growing prosperity saves them from despair over their current “lot in life,” much like the afterlife helped medieval Christian serfs stay in their channels.

    Humans are like bears looking for and gorging on one beehive (honey pot) after another with zero impulse control and no other way to live. Treasure trove of oil . . . Oh, boy, nyum, nyum, nyum! Chance to substantially reduce labor costs by outsourcing jobs . . . Oh, boy! Nyum, nyum! The only question is whether we will stop before there’s nothing left.

    • My own view is that we pursue a combination of material and non-material aims (or ‘sources of satisfaction’). Yes, we want more of what money can buy for us, but most of us also want to live in a civilised, ‘safe’ and decent society. To be personally wealthy, but to be indifferent about, say, poverty on our streets, or about the hardship of others, argues for what Glenn Frey (in the song ‘I’ve got mine’) called “a moral malnutrition/that only rich men know”.

      This is part of the problem with extremes of ‘liberal’ economics, viz. that they over-emphasise material greed. That can easily lead to very unpleasant societies, functioning on the basis of ‘carrot and stick’, and with weak ethics and a lack of social cohesion. We can end up knowing ‘the price of everything and the value of nothing’, as Wilde put it.

      Economic principles based on ‘ever more’ purely material satisfaction aren’t going to work in an economy of de-growth, and haven’t been working too well in economies in which real growth in prosperity ceased a long time ago.

    • All so true Tim. Only when I extreme-downsized from a 5 bed house with 2 acres to a 12m yacht in 2000 did I learn very quickly that “less is more”. Only those that have experienced the camaraderie at sea will understand the joy, safety and pure morality to be found there among many other benefits of healthy living both physical and mental.

    • I agree.

      You might enjoy the autobiographies by famous disabled yachtsman Tristan Jones. The first, “A Steady Trade”, covers his boyhood as an apprentice in a small sail trader in the 1930s, and “Heart of Oak” is a no-holds-barred description of his time in the RN during the Second World War. The latter doesn’t try to disguise the language used by the lower deck, and includes the lyrics of many of their songs (so it’s not for the prudish!).

    • Yes, quite so Tim and a most remarkable man. I have read several of his books and he holds the record for sailing the highest (lake Titicaca) and the lowest (the Dead Sea) waters in the world. His book of this remarkable feat is quite unforgettable!

  33. Tim, I’d like to set-out some thoughts that are in my mind for your consideration and analysis. Some time ago you observed that politics used to be about distributing the rewards of growth, and now it was about allocating privation (or words to that effect). That struck a chord with me as a very profound observation.
    Some years ago I read Anthony King and Ivor Crewe’s book ‘The Blunders of our Government’ and the idea that I took away from that tome and connected to SEE was that as a nation we can no longer ‘afford’ the economic and financial damage of the historical or traditional level of political bungling and policy error.
    In other words leading politicians – and the civil service – need to raise their game, either through better key actors or improved decision-making processes.
    Yet when I look at the front-bench of H.M. Government, the Official Opposition and other parties there seems to be an absence of ‘big hitters’ – in other words talent looks to be in short supply.
    That thought led me to wonder why that might be so?
    At that point, I stumbled across a polemic where the writer made the argument that the contraction of membership of political parties impairs not just the quantity of the talent pool from which parties can draw, but the quality pool also in as much as membership is tending to be more radical – polarised ideologically – and less stratified in terms of a fuller representation of society.
    Furthermore, it has been argued elsewhere that financialisation of the economy has resulted in the best talent gravitating towards activities other than public service. Then when one considers the process by which parties select parliamentary candidates, which is explored in Isabel Hardman’s book ‘Why we get the wrong politicians’ – I came to a rather startling and alarming realisation.
    We’ve moved from growth to de-growth with an entire system that is, for want of a better phrase, ‘facing the wrong way’ and with a body politic that is ill-suited and badly equipped for the new circumstances.
    I accept that I am generalising, yet in a way the situation and process represent the structural drivers that determine outcomes.
    I fear very much that the blunders are going to become more frequent, and even greater.
    Very great turmoil lays ahead.

    • As part of the process of incorporating ‘the Wuhan effect’ into SEEDS, I’ve been drawing up detailed tables for a number of countries, essentially creating the charts and tables for ‘articles that are not going to be written’. The UK is one of those, and one of the things that strikes me is the incompetence, indeed the sheer idiocy of economic policy over an extended period of time. Your remark that Britain can no longer ‘afford’ this much bungling and policy error is a thought that had come to me, independently. Indeed, only a great deal of wisdom and a great deal of luck could retrieve the situation from here.

      One of the ironies is that successive governments have cast themselves as ‘pro business’, with policies such as ‘light touch regulation’, PFI, outsourcing and so on. One study showed that more public money is spent on ‘corporate welfare’ than on unemployment. Taxation is low on corporate profits, and loaded instead into regressive taxes such as VAT. Protections for consumers and workers alike are inadequate. All of this, if it doesn’t make for a contented society, should at least favour growth – or so governments would assert.

      But what is the result? Well, reported growth has averaged just 1.7% over twenty years, with annual borrowing averaging 7.6% of GDP over that period. Stripped of the credit effect of all this borrowing, underlying or ‘clean’ output (in SEEDS terminology, C-GDP) has grown at only 0.6% since 1999, barely keeping pace with increases in population numbers. The UK is now in the highly dangerous position of having financial exposure at 11.4 x GDP, a stumbling economy and a lack of forward planning beyond ‘more of the same, even though it hasn’t worked’.

      The impression one gets is that, from a country racked by strikes and excessive taxation in the 1970s, Mrs Thatcher came up with some good corrective fixes, but these have been followed – slavishly, inappropriately and to excess – by the muppets who have followed her, and who seem unable to change course even when things go horribly wrong.

      With no party political slant intended, the UK has now reached ‘peak incompetence’. Its handling of the coronavirus has given new meaning to the term ‘inept’, particularly over reluctance to shut down international travel, and its grotesque handling of testing and tracing.

      I’ve been truly shocked by a number of things, such as hailiing NHS workers as ‘heroes’ (which they are) and then going straight back to charging them up to £3.50 per hour to park at their place of work. People with long-standing reservations for self-catering holidays within the UK have had these cancelled as ‘unavailable’, only to see these same holidays re-advertised at much higher prices. These things are only vignettes, as it were, but they typify a state of affairs which governments seem to think is acceptable.

    • Thanks, yes, good stuff.

      Though I, for one, wouldn’t have the temerity to do so, it should be possible for someone to draw up a workable plan, even for a country which, like the UK, is now so close to the precipice. It’s once you start mentally sketching such a thing that you realise why it won’t happen, which is because of how many prejudices and self-interests it would offend.

    • Tim, thank you for your fulsome reply. I appreciate very much the time and effort that you devote to engaging in discussion. I note your comment that the United Kingdom is at a ‘peak incompetence’, but alas more peaks lay ahead! I am led to believe that some of the current members of the cabinet played a role or are supporters of a report ‘Britannia Unleashed’. I have to confess that a better title might be ‘Britannia Unhinged’.

    • Peter, thank you. I read your blog and was much impressed. Last year I read ‘Where Does Money Come From? A Guide To The UK Monetary And Banking System’ by Charles Goodhart. The book was, as they say, a good read! The mantra of the moment seems to be ‘Print! Borrow! Be Happy!’ But an additional observation comes to mind (paraphrasing from the film ‘Jaws’): “We’re going to need a bigger rabbit hole”.

    • It is a truth yet to be universally acknowledged that a prime minister in possession of a large majority is in want of a minister for the application of common sense to government decisions.

      If we had a minister for common sense we could have avoided:
      Hinckley Point
      The obsession with unreliables
      The response to the Wuhan virus

    • I seem to recall, at a fairly early stage in the crisis, the Commons accepting, seemingly without demur, that there was no need to impose travel restrictions, because air travel wasn’t one of the major means of virus transmission (!) If they could swallow that, they could probably believe anything. The latest health reorganisation, meanwhile, suggests that no vestige of sanity remains in Westminster.

    • Yes Tim – it is astounding that we have placed these people in charge and clearly there is a gaping hole in the fabric of our ‘democracy’. Only major reforms will save us now IMO but how this might come about is shrouded in mystery and as such is an enigma of indescribable proportions: viz: http://harrogateagenda.org.uk/

  34. What Britain Could Learn from It’s Bastard Child in North America
    While Britain is a classic case of what can go wrong with a failed Empire, the US continues to forge ahead into the bright future in the Stars (you might find my tongue in my cheek):
    *From the dorms at North Carolina to the halls of Notre Dame, officials at universities around the US scrambled on Monday to deal with new Covid-19 clusters at the start of the fall semester, some of them linked to off-campus parties and packed clubs. North Carolina’s flagship university cancelled in-person classes for undergraduates just a week into the fall semester Monday. The University of North Carolina at Chapel Hill said it will switch to remote learning on Wednesday and make arrangements for students who want to leave campus housing. “We have emphasised that if we were faced with the need to change plans – take an off-ramp – we would not hesitate to do so, but we have not taken this decision lightly,” it said in a statement after reporting 130 confirmed infections among students and five among employees over the past week.

    UNC said the clusters were discovered in dorms, a fraternity house and other student housing. Before the decision came down, the student newspaper, The Daily Tar Heel, ran an editorial headlined “UNC has a clusterf*** on its hands”. The paper said that the parties that took place over the weekend were no surprise and that administrators should have begun the semester with online-only instruction at the university, which has 19,000 undergraduates. “We all saw this coming,” the editorial said. Outbreaks earlier this summer at fraternities in Washington state, California and Mississippi provided a glimpse of the challenges school officials face in keeping the virus from spreading on campuses where young people eat, live, study – and party – in close quarters.

    And, relative to health care:
    *A substantial “public option” plan — which polls show is wildly popular — was the centerpiece of recent policy negotiations between supporters of former vice president Joe Biden and progressive Vermont senator Bernie Sanders, who had been pushing for a more expansive Medicare for All program. A draft of the party platform, approved by DNC members late last month, includes a pledge to pass a public option, or a government-run health insurance plan that would compete with private insurers.

    Within twenty-four hours of the launch of the industry’s new ads, however, anonymous Democratic congressional sources were telling the Hill that Democrats likely won’t bother with the public option fight next year if Biden wins the election. Instead, they said, the party will work to tweak its 2010 health care law, the Affordable Care Act (ACA), which has done little to limit insurance or hospital costs and has failed to ensure universal coverage. To justify the preemptive retreat, Democratic congressional aides told the newspaper that the party’s moderate crop of 2020 Senate challenger candidates could make it harder to pass a public option. That assertion comes even though every single one of those candidates is currently campaigning in support of a public option, according to a TMI review of campaign statements.

    And we know that MMT in the US is working splendidly:
    *The Oligarchic Dozen are Jeff Bezos ($189.4b), Bill Gates ($114b), Mark Zuckerberg ($95.5b), Warren Buffett ($80b), Elon Musk ($73b), Steve Ballmer ($71b), Larry Ellison ($70.9b), Larry Page ($67.4b), Sergey Brin ($65.6b), Alice Walton ($62.5b), Jim Walton ($62.3b) and Rob Walton ($62b).

    So we cancel classes because the first ‘hook up weekend’ led to a lot of infections, the Democrats run on a platform which they promise not to implement, because the people with the money, over a Trillion collectively, still run the show and they have unlimited support from the Federal Reserve. Britain could learn a thing or two.

    Don Stewart

    • Don, I wouldn’t say Britain failed at the empire game, after all we still have the Commonwealth:
      “The Commonwealth of Nations, generally known simply as the Commonwealth, is a political association of 54 member states, nearly all former territories of the British Empire.”

      And I am sure you have seen this one?

      Our second empire?

    • Thanks.

      One thing that occurs to me is that your list of people have, between them, over a trillion reasons for not wanting to see the dollar lose its purchasing power…..

    • It is money printing that has given them a huge boost, along with the peculiarities of the way Covid-19 responses were crafted. The Walton family has done well because Wal-Mart, which also sells food, was able to sell general merchandise while their competitors were locked down. Similarly, Amazon has seen double digit growth as its local competitors were locked down or subjected to onerous restrictions. And, of course, social media has done well because of the lockdowns. If the money had not been printed, then these individuals might have done a little better than Main Street, but it surely would have been simply ‘less negative’. So they have everything to gain from QE and plain money printing along with continued fear of Covid 19. So long as there is something left to plunder, they will benefit from monetary practices which redistribute up the triangle the allocation of available resources.

      Don Stewart

    • “What Britain Could Learn from It’s Bastard Child in North America“

      We’re all bastards, dear Don.

      A beautiful remark from your keyboard, quoted, but still.

      I smell some Marxism in your breath though.

      4 more years.

  35. Unfortunately for them Tim, they cannot prevent the loss of purchasing power. As dollars are only claims against capital, capital being natural resources that we destroy, PP can only decline.
    I recommend Steve Ludlum’s really excellent essay on the subject: https://www.economic-undertow.com/2014/09/18/thoughts-on-purchasing-power/ .

    “[Excluded Chart by St. Louis Fed (FRED) on the declining purchasing power of the consumer dollar since 1900] Citizens wish to reclaim 1950’s purchasing power of the dollar-claim so that they might be able to purchase gasoline and other goods at 1950’s prices, not realizing that burning gasoline since the 1950s has eroded purchasing power … even as the worth of each claims against purchasing power has likewise been diluted. Even if the number of claims can be reduced, the purchasing power cannot be increased except by conserving capital, making gasoline unavailable. Purchasing power can never exceed underlying capital: think of it as the collateral component of purchasing power. . . . .

    Purchasing power itself exists outside the reach of governments but derivative claims in the form of currency or binding contractual obligations exist to serve the interests of the state, the same way religion exists to serve the state. By use of these claims, authorities are able to ‘sell’ or cause to be sold ‘goods’ that cost nothing to make yet are able, due to the citizens’ evolving dependency upon them, to bring the greatest part of the public into a form of uninformed, semi-voluntary servitude/slavery.

    The actions of finance and monetary authorities aim to increase claims against purchasing power; by doing so they seek to increase capital. Yet the multiplicity of claims is perverse; capital is not increased but exhausted more rapidly. As capital vanishes into furnaces and then the atmosphere, so does purchasing power: at the end of the day capital is gone, leaving behind fragments of purchasing power alongside mountains of worthless claims.”

  36. E Commerce and the Pandemic in the US
    See the impressive charts from Wolf Street:

    My opinion: the massive money printing plus the fear fostered in part by the government changed habits, but also demonstrated the (short term) power of printing money and distributing it to the bottom rather than force feeding it into the top. And the ‘trillionaire mafia’ I listed earlier were very well positioned to harvest the bounty. Meanwhile. traditional retail is dying.

    Don Stewart

  37. Posted by Ilargi on today’s AutomaticEarth, a snippet of an interview with Carl Jung.

    Things like this fill me with sadness. There have always been a few people in every generation who understood, who saw the human pattern. Almost no one ever, first, listens, and second, acts on anything they say. Even understanding, understanding ≠ motivation.

    “The only real danger that exists is man himself…. We are the origin of all coming evil.”

  38. Don,

    I prefer organic produce and would eat organic produce 100% of the time if
    1. It was always available
    2. It was affordable

    In the UK, affordability is more of an issue than availability. Organic fruit and veg (and poultry & meat) tend to be anywhere between 30%-500% more expensive than non-organic. This suggests to me that the energy inputs are much higher, and therefore the Ecoe is higher. If that’s so, how could the world feed itself on organic produce with a background of rising Ecoe and population growth?

  39. Hi Tim,

    Does SEEDS give indicative inflation figures for essentials in the UK over say the next few years?

  40. Pingback: #179. Penny plain, tuppence coloured | Surplus Energy Economics

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