#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. Dear Tim,

    Thank you for a most interesting analysis.

    May I suggest that you attempt to add the current geopolitical component (i.e. « Last Man Standing Scenario ») to this analysis and consider how things might then play out in the coming few months & years.

    Best regards,


    • Thank you. The politics and geopolitics of this are intriguing and important, meriting a stand-alone consideration of these issues. One point I’d make now is that China faces far bigger challenges that observers tend to recognise.

  2. Bravo, Tim. This should be sent to FT, WSJ,Forbes, etc. It is possible some editor will have the balls to run it. (& is ready to retire!)

  3. The funny thing is we wouldn’t been in this situation if we’d only taken our lumps in 2008. When a central bank takes action, just know that it is the opposite of what a free market would do. If a central bank lowers interest rates, its because a free market would be raising them. If a central bank is buying bonds, its because a free market would be selling them in a fire sale. Why would you open a business after 2008 if you knew that everything was overvalued? Don’t fight the fed and so forth and blah blah blah, but the fed is a human construction, and is therefore made to fail. That failure is much closer now then it was in 2008. Heck i’m surprised they’ve made it this far. The past 11 years i think i’ve been trying to convince myself they would not be so reckless. And though the printing after 08 worried, the printing occurring now makes me think the jig is up. I also agree that markets will crash again this fall, and the printing, my god the printing.

    • Thanks. The way I’d put it is that our belief in perpetual growth is colliding with the reality of deteriorating energy economics, and much of what passes for leadership prefers denial, and the comfort of false interpretation, to recognising reality.

  4. Keep at it Tim, there is a small fringe of fringe who really appreciate your work. But yes it need to mainstream. Frustrating indeed. I am at the stage of only being able to listen to the radio for a few minutes at a time (no TV, unless a dumb film).
    All best Richard

    • Thanks Richard, much appreciated. I think I can say, with all due modesty, that it would help if this type of interpretation did go mainstream.

  5. Thank you, Dr Tim; rather better put than my small attempts at warning clients of the value destruction and financial asset hyperinflation we have recently witnessed. EVERYTHING is too expensive, so WHERE do we run to? There can be no ‘correct’ answer to that question, of course.

    • Thanks Mark. I don’t do investment advice here, but I imagine that this article will be of greater-than-usual relevance to what you do.

  6. Even ordinary people may now sense that asset prices are being artificially inflated by the digital money creation of the 1%, for the 1%, but how much in the current inflation of essentials is simply reflecting the devaluation of currencies by diluting out the purchasing power in each individual unit?

    Simultaneously, the lockdowns are exacerbating the deflation of wages as ever more people chase fewer jobs and businesses can get away with paying less (even if they could afford to pay decently) in a desperate race to the bottom. The reset to neo-feudalism is already happening while we are being governed according to the whims of astrology.

    • Yes – and the irony is that much of the wealth of the 1% is notional (purely on paper and theoretical) anyway, and could only be monetised, if at all, through a money creation process that would destroy purchasing power. If they were smart, 1%-ers would take note of the kind of things we discuss here, and use it to plot a path to ‘solid ground’.

  7. “[T]he efficiency with which we convert energy into economic value is improving, but only very slowly”

    If we define wealth as “useful energy” and economic value as the measure of that usefulness, then we see an example of delayering of the economy in microcosm in the City of London.

    Financial Times: Coronavirus turns the City into a ghost town


    Working from home means that sandwich shops are going bust. In conventional economic terms economic activity is lost, but in Surplus Energy Economics terms the potential chemical and electric energy that was converted into low-usefulness energy (transporting a sandwich maker and the sandwich ingredients into the City of London) is now available to pay the rising ECoE.

    • Indeed. Conventional logic values things by the prices for which they sell, resulting in some bizarre conclusions about the comparative economic worth of different activities.

      I’ve just read that Google will let its employees continue to work from home until July 2021. This trend is ultra-bad for sandwich-makers, for rents and for the prices of offices and homes in affected areas.

    • I’d be interested to learn more about how the efficiency with which we convert energy into economic value is improving.

  8. “ The Fed, meanwhile, having spent $2.9tn between February and May, pulled its horns in slightly during June, reducing net purchases thus far to $2.9tn.”

    I’m not sure I follow this sentence. Are you saying that the Feds net purchases for the year through June has been 2.9tn, or that the purchases in June were 2.9tn. It must be the former.

    You seem to have forgotten or glossed over a couple problems that worry me. Perhaps you consider them outside the scope of the paper.

    1. Incompetence. I see a lot of very worrying signs in the US government’s ability to address any issue. For example, you say that, “ 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?”. Perhaps, “they” might want to rescue some landlords, but can they figure out how to help? Can they then get the money where it is supposed to go in a timely manner. So incompetence will default the response to non-action.

    The current proposal from the Senate is for a reduced amount of unemployment than was available. Which is fine (perhaps) but, they base the reduced amount on a percentage of the persons former income. The problem is, that the states cannot determine what a given persons former income was. Plus, the Democrats have not even seen the proposed bill, so the final bill may be months away. Meanwhile:

    2. People are already in the streets protesting systemic racism and police brutality. What happens when the promised “stimulus” checks and unemployment support fails to materialize, or is very late in coming?

    My apologies for not being able to create examples that are relevant to the British situation. As far as I can say from my experience, I don’t know that Britain is not well run.

    • Thanks. I’ve just altered the text to clarify about the Fed. Between the end of Feb and the end of May, the Fed bought $2.94tn of assets. They let a modest net $50bn of assets run off (expire) during June, for a running total of $2.89tn. Rounding both to $2.9tn was a bit confusing!

      Just to clarify, this is an avowedly international site, and I often use British and American examples just because I know my way around the data sources (whilst navigating Eurostat takes forever). My past experience includes long periods in US markets. From recollection, of those visiting this site last year, about 40% were from the UK and 25% from the US. Also, it so happens that the US and the UK seem to be making a bigger mess of this situation than most other countries.

      So by all means use US examples.

      We can look more at political issues in a future report. On your point (2), though, yes, this is a big looming issue, and part of the ‘vector’ that I see pointing towards a very troubled autumn.

  9. Dr. Tim – thank you for another excellent article that ‘nails it’. You lay things out very well (as usual) and I keep coming back re-reading the piece. I find the foundational logic of SEE just ‘clicked’ and events over the last seven years along with your continuing analysis and developing evaluative tools ‘chimes’ with the world that I observe and experience on a daily basis. In other words, reality has not in any way invalidated your work On the contrary, events are confirming that SEE is a more useful lens than many other schools of thought.

    • Thanks, and I greatly appreciate your kind remarks.

      The evidence does seem to be bearing out the need to understand the economy as an energy system, and to model it on that basis.

  10. Ah, but we should all be a few pounds lighter and able to outrun the eventual tsunami – shouldn’t we?

    So much to put right in the UK but so few politicians at the top with the skills or even the will to do so.

    • From a strictly non-partisan perspective, things in the UK tend to be turning into chaos. Do they have any idea about what could – if my interpretation is anywhere near right – be coming along in the autumn? I rather doubt it, though I hope I’m wrong about that, and they do.

    • I’m also non-partisan and believe that things should be judged as right or wrong, not right or left. I also believe that current-day politics is utterly toxic.

      The Nightingale hospitals showed what can be done when there’s a will to get it done and the talent to do it. Unfortunately, our lacklustre politicians seem to prefer their playground stuff and to throw a wet blanket over the super-abundance of talent in this country.

    • “The Nightingale hospitals showed what can be done when there’s a will to get it done and the talent to do it.”

      But the Nightingale Hospitals didn’t achieve anything. There were a waste of energy.

    • Let’s hope you’re right, Will. I often say something similar about last-year’s insurance premium when my renewal bill comes round.

      They did prove, though, what can be done with the right people running the show.

  11. Dr Tim,
    It seems to me that we are hopefully seeing the very slow revival of that long discredited Victorian concept of “Self-Help”. Indeed, it has been fun reading Samuel Smiles’ once-famous book of the same title. People need to take some responsibility for making sure they are prepared, as best they can be, for the coming spike in unemployment. Too many financial advisers forget the ‘basics’ of life insurance, etc. when chasing “assets under management”. Although never personally involved, it is rather ironic that all those “miss-sold” unemployment insurance policies might now have been rather useful things to have! Time to get one’s affairs in order.

    More pertinently to the financial asset situation, I was struck by the following paragraph in the 2020 annual report from Personal Assets Trust, a £1bn, conservative, investment trust that many of my clients hold (note: this is not to be seen as financial advice).

    ” Today, markets are responding in a Pavlovian manner to news flow on the reversal of lockdowns and hopes of a vaccine while ignoring the risks of a second wave and the likelihood that the recovery will be slow and fragile, especially in areas like travel and hospitality. We suspect expectations of a sharp ‘V’- shape recovery are a function of hope over experience. Resolution of this crisis is likely to be protracted, largely because the economy was so vulnerable before it struck. The Economist’s prediction of a “90% economy” may prove an accurate forecast, as some businesses will not be able to return to normal once lockdowns ease. Markets have quickly become detached from economic reality with the advent of huge monetary stimulus but that can easily reverse with a dose of reality…. we will not hold equity slivers that double or halve on the whim of investor sentiment.”

    Equity investors, used to a 30-year period of falling interest rates and declining inflation, still seem oblivious to the rising risk of inflation/stagflation, for reasons we all understand.

  12. Note from a doctor friend of mine in the US
    “The other insight I’d like to share is the idea from Stephen Covey of circles of influence and circles of concern. We have things we are concerned about and things we have influence over. The danger is when our circle of concern is much larger than our circle of influence.

    Truth be told I’ve found myself in that situation often as of late. I’d been looking at the news too much and forming opinions on all of these global events. It seems like many of them are just a simple solution away from being resolved.

    Yet they are not. We can run the risk of being ignorant but a more prevalent risk is that of being overwhelmed.

    When I find myself getting stressed about global affairs, my plan is to look around me and see what I can do to help- to realign my circle of concern with my circle of influence.

    There are so many situations that I wish I could help but I cannot. When those feelings come up, I remind myself that the best use of my time is to keep working to make the world a better place one thyroid at a time. When I’m not working on that, I try to make the world a little better by the next meal I make for my family. ”

    Don Stewart
    PS. My restricted circle of concern, at least as of this morning, is to tell people that NO was effective against SARS, that ‘dilution is the solution to pollution’, so chew some greens at every meal, and stop worrying so much about Covid-19 unless one is a medical professional who is continuously exposed or someone who likes nightclubs and crowded bars or a particularly frail person such as those in nursing homes. Get rid of the co-morbidities and eat more nitrates. Second, study John Stewart’s work on change and evolution, and reflect that by our calculations almost every species that ever evolved has gone extinct…but life soldiers on.

  13. Thanks Tim for another excellent article. Clear, to the point and as erudite as usual. I’m not sure what percentage of your readers are Irish but I’ve seen a few in the comments section over the years. Here in Dublin it’s the same news as London. The city centre is a ghost town completely bereft of the usual tourist throngs wiht many cafes and restaurants closed in many cases for good including the landmark Bewleys. The construction sites are busy though. From what I hear from colleagues there’s a rush to complete jobs before the money runs out. Reminds me of 2010, to quote Yogi Berra ‘ it’s deja vue all over again’.

    • The reason is they are all in Westport and Achill. Very busy over here. All best Richard

    • Thanks. There’s a good number of Irish visitors here, and Ireland is one of the 30 economies covered by SEEDS.

      Ireland seems to have handled the pandemic pretty well, though I understand about Dublin being quiet (it’s always been very busy whenever I’ve been there).

      Yogi Berra was brilliant – “I’m not going to buy my kids an encyclopaedia, they can walk to school like I did!”

  14. The financial trickery and almost non-existent interest rates over the last number of years leaves the even bigger problem for governments – how do they pay for all the pensions that 0% has ruined. Do they let the pensioners whistle and kiss them good bye when many or most of those pensioners have voted for right of centre parties. If they don’t support the pensioners there will be many living on the streets and not buying goods and services or they make the financial system even weaker by paying on the never-never.

    • Indeed.

      Pensions are a topic that we’ve covered here before. A World Economic Forum report, looking at eight countries, reckoned that their combined shortfall in pension provision at the end of 2015 was $67tn, and would reach $427bn (real) by 2050.

      A lot of this is down to the collapse in returns on invested capital. To put this in business-speak, the world has been ‘trashing the balance sheet to create a semblance of earnings growth’.

      The public are not going to be pleased about this when they find out.

  15. The National Institute of Economic and Social Research is now recommending extending the furlough scheme until at least June 2021 for the ‘relatively small sum’ of £10bn. It feels to me that things that would once have been unthinkable are rapidly becoming reality.

    • That would be £10bn a month (simply not possible)

      A lot of people who’ve got used to a good lifestyle are in for a shock in the next few months and there is nothing the government can do about it in reality

    • No country can realistically continue with income support schemes for more than a few months, whilst payment holidays beyond the short term have extreme implications for lenders and landlords.

      It’s interesting that, in the US and probably elsewhere, lenders are allowed to book delayed payments as ‘revenue’, even though the money isn’t actually coming in.

    • Here in the United Kingdom we are beginning to see figures relating to PH (Payment Holidays) granted by lenders, and they are revealing that the extent of the forbearance has been fairly substantial.

  16. Excellent analysis Dr Tim, thank you very much for the obvious effort and clear thinking required to describe the drastic circumstances our rulers have created for us.

    It is clear to me that TPTB know exactly what they are doing and in their desperation and panic are prepared to drive the global economy into the abyss if necessary in order to preserve their obscene power advantage and exceptional privilege. IMHO the Repo crisis on 16th September 2019 was the final nail in the coffin for the rotting economic corpus that was the engine of wealth creation ever since the 19th century’s industrial revolution..

    The ‘weaponised’ dollar is already weakening and may be portending the final curtain for fiat as finally gold rises to the occasion (as I always believed it would). An economic and /or banking collapse/crisis is inevitable and it has amazed me that the system has survived this long.

    My hope and belief is that a New Emergent Economy will arise from the ashes based on completely new parameters, where energy inputs are balanced with consumption and complexity compresses as de-growth proceeds. I have described this process in Chapter 13 of my book, 100 issues of which have now been serialised at The Burning Platform website through the gracious permission of Jim Quinn.

    I am now writing a weekly letter, mainly for the benefit of my American readers, so they may follow the progress of Great Britain as the Greatest Depression proceeds:

  17. Bravo Don and many thanks for a succinct summary of our collective plight. This is ‘The Fourth Turning’ as Strauss & Howe predicted – but this man is not for turning and will stick to the well-proven attributes I learned from my parents in more rational times.

    It’s good to be back having lost my comments link some time ago which which has now miraculously returned in time to follow our ride down the rabbit hole.

  18. Thank you Dr Morgan for a brilliant article.

    In my view the economy is a multi-variable transfer function that can can only be modelled by many, complex, interacting variables. Very much like weather forecasting.

    COVID-19 is an example of how these unexpected variables can be injected and upset the calculations.

    Your model has, however, highlighted the most important variable i(energy) in the economy and time will tell on its validity.

    • Thanks, you are too kind.

      It’s the fundamentals that interest me most, of course, but the ‘immediate’ stuff is rather important at the moment!

  19. Don,

    Seems mostly correct to me. I question this bit, though:
    “There is never time left for things that are seen as merely important. As a result, social, political and economic change happens only when the old generation dies and a new generation with different entrained beliefs and imperatives fills the power vacuum.”

    SK: Never and only are absolute terms. Probably just due to my 55+ years of reading philosophical and system stuff, but if you mean rarely and usually, then fine. There have been instances of s, p, and e change throughout history, sometimes driven by revolutions, sometimes by charismatic leaders, and sometimes by external environmental or invasive events.

    “Despite this, we have evolved to be a collaborative and caring species, and we are all doing our best — in fact we cannot do otherwise.”

    SK: As a determinist (cumulative causation, not pre-ordained) I agree there. DJT is doing his best to pump up his ego and his family’s wealth! And the bulk of us do care about our clan, tribe, region., but maybe not “all” of us. There are dysfunctional individuals who are anti-social and self-destructive.

    Please note that I support thinkers like Pollard. They are exploring and trying to explain why Homo superstitious is self-culling and destroying its nest.


    • @Steven Kurtz
      I think that a lot of these kinds of questions come down to ‘free will’…which I will suggest is a question with no significance. Consider, for example:
      “Thank you for registering for “Visualization Tool to Mimic Nature and Promote Sustainability”.
      Biomimicry is the imitation of the models, systems, and elements of nature for the purpose of solving complex human problems. Join SSF and biomimicry pioneer Hugo Araujo in a demonstration of visualization tools to empower people to learn and apply nature-inspired strategies in sustainable design. ”

      So…I signed up for this because it is free, and because I once met Janine Benyus and related to what she had to say. For whatever reasons in my history, I try to put things into a large perspective. If Nature solves a problem, then I think it is probably a good idea to examine exactly how Nature does it before trying some ‘middle class American male in the year 2020’ solution.

      So was I exercising ‘free will’ when I signed up. Will that exercise of ‘free will’ have repercussions and I will begin to use the visualization tools to make better decisions in the future? Or will the decisions I make in the future have any socially redeeming qualities or just be a DJT-like exercise in narcissism, made more efficiently narcissistic by using the tools? We can see the Black Hole looming when we go down these rabbit holes. More fundamentally, I pose the question: “Is it possible to make a decision which we consider to be ‘wrong'”? Our brains are exquisitely designed for optimization, but we are also equipped with superlative rationalizing capabilities. I am told that Hitler, in the bunker, lamented not that he had made horrible mistakes, but that ‘the German people were unwilling to sacrifice enough to gain the victory’. Hitler apparently could not, even in the bunker with the Soviet armies utterly destroying Berlin, contemplate that he had made any mistakes.

      If we cannot demonstrate that we can do something that, in our deepest thinking, we believe to be wrong, then I suggest that the question of free will has no meaning. How would we ever demonstrate that? The question of altruism is another Black Hole. It is easy to demonstrate that evolution has followed expanded synergies. The original synergy in life was less than a micron large. Now synergy can be found with global reach, facilitated by fiat money. But synergy is not, strictly speaking, about altruism…if that means ‘selfless’. Even if a soldier dies to protect his comrades, he is making a decision in his brain that he is doing the ‘right thing’. Suicides think they are making the ‘best choice’.

      Synergy, I think, is at least conceptually quantifiable. At the present time, I think we are at a fork in the road. The recent synergies have been facilitated by fiat money debt and abundant fossil fuels. If we are at the end of that road, then the question becomes one of losing synergy…or at least the material aspects of synergy. How does Nature react to a loss of energy and synergy (as in species extinctions)? That is a question I am considering, and perhaps some of the Biomimicry tools will help me think about it.

      Don Stewart

    • Interesting, but it isn’t about what I critiqued, which was linguistic accuracy.

    • @Steven Kurtz
      Sorry for my mistake. I think I was responding more to Dave’s interest in non-duality. I look at the facts in the case (about 99 percent of the enzyme activity in our body at any given time comes from the microbes, not anything distinctively human) and can’t think of any reason why non-duality is even an issue. Nor, as I indicated, is it interesting to debate about free will.
      Again, apologies….Don Stewart

  20. Dr.Tim, I have been reading your work for several years now, and I am convinced that your Seeds approach is a true and accurate reflection of our economic reality.
    As a physicist myself, I recall a quote by Lord Kelvin :
    “When you can measure what you are speaking about, and express it in numbers, you know something about it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind . .”
    This is how I see Seeds with respect to mainstream economics.
    Mainstream Economics has got more in common with Astrology than it does proper science and that is why it is breaking down.
    Of course, what we can neither measure nor predict is human nature, and this is also an important component of the real world Economy.
    However, I believe that we are now entering the End-game of our Fiat currency world, and that very soon Gold, Silver and Bitcoin will be more valuable than Dollars and Pounds.
    Alistair McLeod, ( Goldmoney.com ), has a good article on their site – he expects the US$ ( and the UKL with it ) to be toast before the end of this year.
    With Furlough payments in full swing. ( ie. free money ) and small businesses being destroyed, we are now very much into MMT territory, which I am sure will be the last grasp of the drowning economy as we know it.

    • Thank you – such commendations make the effort worthwhile, and I hope that you continue to find SEEDS analysis helpful.

      Before now I’ve likened conventional economics to ‘flat earth’ thinking, and in a way it’s worse – believing the Earth to be flat wouldn’t make much difference to anyone’s daily life, unless one happened to be a navigator or a map-maker (or an astronaut!), but getting economics so wrong harms everyone.

    • Johan,

      Bitcoin could disappear in a flash. Totally. It has happened to people already as the system claimed their password was incorrect. There is no recourse. When there are no paper back-ups, electronic only records are at risk. I’ve also read about Pulse weapons and very powerful solar radiation which can knock out computer storage.

    • Yes, Steven.
      The world is a dangerous place.
      Even we might just disappear in a flash !

    • “Mainstream Economics has got more in common with Astrology”

      I equate economists with 14th century alchemists.

  21. Regarding support and deferral schemes, the latest Republican stimulus bill contains no support for small landlords, whose rents have been deferred for various periods depending on location. Some, including me, are of the opinion that this is a deliberate plan to let the small landlords go under, for the Fed to then buy the damaged mortgage loans from the banks affected to make those banks whole, while all those real estate assets get purchased by private equity like Blackrock for pennies on the dollar Covid is being used to accomplish massive business consolidation ushering in and further institutionalizing neofeudalism. I don’t think we’re going to get Gail Tverberg’s “fast collapse,” but humanity really needs a massive collapse resulting in state failure to save itself from these predators. I say state failure because based on Scheidel’s book, “The Great Leveler,” state failure has historically been the great leveler of human inequality/power relationships. His review of the historical examples is quite eye-opening. So much of wealth depends on political and legal positions (i.e., it is not earned by providing valuable and necessary goods and services), and disappears quite quickly when the state collapses. Mass mobilization warfare and mass revolution have also done the trick but they seem to be unique products of 20th Century industrial civilization, unlikely to be repeated.

  22. Many thanks for an excellent article Tim.
    From my own point of view, I have noticed that jobs in the engineering sector seem to have become scarce. That did not happen during the 2008 crisis.
    I am due to retire around 2050. I am paying into a pension that is presently predicting a paltry return that I couldn’t possibly live on by the time I retire. I suspect that the pension fund will not exist at that point anyway. My pension, will be a vegetable plot.

    • Tony,
      The UK does not “do” engineering any more, well not on any scale that is. When the govt. talk about engineering they wheel out the only 3 companies left – The Bastions of British Industry – JCB, RR and Dyson, ( who now builds his vacuum cleaners in Singapore ) – Did I forget anybody ?
      The decline started in the 1980’s and by the time 2008 came along, most engineering jobs in the UK were already gone.
      If you graduate in any STEMS subject and if you wish to work with your degree, then you will need to move abroad.
      I suggest Germany.

  23. I agree with you Johan on Manufacturing.

    I have been a visiting lecturer to a German university for about 15 years. The emphasis on education is different and the university fees are ZERO at the university in which I teach.

    On the question of bitcoin; the thing that worries me most is accountability of the systems administration. Systems administrators are not subject to legal proceedings, unlike our Government controlled banking system.

    • True Wally, the German education system is still good and there is strong co-operation between Universities/ FH’s and Industry.
      Bitcoin, and other crypro’s have been good to me. I invested early, ( about 2014 ) then, after Bitcoin hit Eur 12.500 I sold only some of my coin to redeem not only my initial outlay, but also to make 100% profit on the deal, and I am now still sitting on $ X worth of Bitcoin that is essentially free money to me.
      I can understand that many people have misgivings about how Bitcoin works. However being de-centralised it relies on consensus among the miners, it is not controlled by any one entity per se. Agreement of the whole bitcoin community is required before any changes are effected, ( unlike the fed or the BoE, who control the supply of fiat and who are at present destroying any value that people had in their savings ). I am willing to put my trust into a bunch of geeks, more so than in any government.
      As for the government controlled banking System, you can rest assured that when the time comes, these people will screw you to the wall and steal every Pfennig that you have. Of course they will pass a law which makes it “legal” for them to do so – makes you feel better that doesn’t it ?
      I am preparing for the coming collapse of fiat currency by being heavy on Gold and Silver, and also Bitcoin.
      When the collapse does comes, we can be quite sure that Exchange Controls will be re-introduced and that I will not be able to get my Gold or Silver out of the country ( legally anyway ).
      My Bitcoin however, do not respect any borders, I can cash them in wherever I am.

    • Thanks.

      This links to the gist of what I’ve said in this article, viz. that when the financial storm hits (quite probably in the autumn), mass monetization will begin.

    • Yes, that is why i posted the article. Imo, they will push on the string until the currency dies. The masses don’t have a clue about what is really going on. GDP is falling like a rock, everywhere, the central banks will have to print boatloads of new currency, looks indeed like we will have lots of rain this autumn. Getting dangerously close to big trouble…

    • as a gesture it’s impact on total energy consumption won’t be noticable but the reasoning behind it is rational,
      it’s probably a wise move as within the new covid-19 reality people don’t want to crowd indoors and come winter businesses will be using every trick up their sleeves to attract customers,
      this move might head off an explosion in patio heater sales once cooler evenings arrive,
      I think patio heaters are a daft idea, I think pushing the sales of bigger cars is even dafter,
      but there may be the daftest possible things happening beyond our normal media horizon,


      I’m currently trying to find another source to try and corroborate this article,

    • Yes, patio heaters are pretty irrational, but big-engined cars are even more so, with far more serious environmental consequences.

      Another way to look at this is that France faces near-term problems of a severity that dwarfs the issue of patio heaters (SEEDS identifies the scale of some of these challenges), so this is no time for trivia and gestures. When there were widespread protests over hardship in general, and taxes in particular, Mr Macron set up a commission to investigate grievances, and presumably to seek common ground for reconciliation, but put in charge of it a political insider being paid (by the taxpayer, of course) well over EUR 14,000 per month. Applying the same kind of insularity and misjudgement to the impending situation hardly bears thinking about.

      The broader, pan-world issue is that, as we’ve been discussing here, we’re drawing very near to some enormous economic, financial and wider problems, meaning that we need wisdom from governing and governed alike. But we’re witnessing a descent into trivia, a frightening lack of forward thinking and a fraying of public unity that almost merit a stand-alone discussion. The handling of the coronavirus in so many countries (with a small number of honourable exceptions, such as South Korea) hardly gives much ground for optimism when it comes to tackling GFC II.

    • TIm,

      First of all, many thanks for another first class article. They just keep on coming, and the next one is always awaited with eager anticipation

      I know that you have a strong opinion on car engine size, but MPG and emissions performance is influenced by more than just the cubic capacity of the engine.

      Overall vehicle weight, power and torque curves, power to weight ratio, aerodynamic drag, gearing, and other less obvious factors such as how many gadgets and gizmo’s are fitted, all have a bearing. Some of these variables have a considerable bearing on fuel performance. An underpowered 1500cc vehicle is likely to give inferior fuel performance than a 3000cc vehicle with an engine that operates in the most efficient part of the rev range at normal driving speeds. I have a living example of this with my current vehicle being almost twice the engine size of the previous one, yet i manage a couple of extra mpg out of it. Both vehicles are turbo diesels, so the basic technology is comparable. The difference is accounted for by the quality of engineering design.

      Anyway, I’m not advocating that we should all drive large engined cars. My point is three-fold.
      Firstly, not all 1500cc engines are created equal. Secondly, the overall design package is at least equally as important as the engine’s cubic capacity. Thirdly, we should be looking at outcomes rather than specifications, and outcomes should be real world performance, not manipulated lab tests.

      As for EV’s, well I think you know my view on them.

    • Thanks, point taken and well made.

      Some years ago I became very impressed with Smart, not least because of the quality of build and the thoughtfulness of design. I’ve owned three Roadster Coupes (two of them the Brabus version), and have borrowed the standard Smart ‘city car’, and without exception I’ve found them excellent. I believe that this kind of approach, coupled with hybrid technology, makes more sense than putting huge sums of money (and enormous amounts of energy) into a wholly new system based on EVs, whose environmental credentials are borderline anyway.

      Beyond that, we really need redesign of our patterns of work, residence and travel, and one can only hope that the case for really efficient systems (like trams) doesn’t take too much of a knock from the pandemic.

  24. Another interesting post Tim.

    I just went to make a cuppa in the kitchen and turned the radio on for a short listen. The host on BBC radio 5 was talking to an accountant – he said, in his view, there would be up to 50% redundancies when the furlough scheme ended. He painted quite a bleak picture of how companies where just delaying the inevitable.

    This echoes what you are saying about September or October.

    • Yes Gordon, I agree with this assessment although a little harsh in my view. I have factored in around 20% unemployment when all is said and done by the end of autumn. There remain some 300k vacancies as at May 2020 so little to offset the projected 6M unemployed. A very sad state of affairs.

      If your accountant friend holds true then we are looking at half the 9.5M furloughed people being unemployed; added to the existing approx 3M today it becomes horrendous at around 8M unemployed – almost a third of all full-time employees (24M).

  25. Recently my thoughts have crystalized and I would like to set-out them out here with an invitation for critical analysis. I hope you will forgive the simplicity of the sketch that follows:
    As I see things SEE points to declining energy surplus, and hence prosperity.
    The structural organisation of the economy is based upon financialisation so that money is sucked from the bottom to the top.
    The Bank of England is creating new money at a prodigious rate, which means there are more monetary unit claims on a shrinking pie.
    The overall tax burden has, and is, increasing, which means further erosion of prosperity.
    Finally, policy-makers are pursuing financial repression – ‘stealing the value of money from the citizenry – with vigour, which means that virtually ALL typical forms and sources of wealth storage and/or accumulation for ordinary people have either been eroded, or in some cases destroyed.
    This seems to me to be ‘The Quintuple-Vice’ that is remorselessly closing around people.
    If the sketch outlined above is accurate (and perhaps I should have mentioned burden of debt), then the future is indeed very grim; and I fear will be made considerably worse by mainstream political parties continuing to promote the narrative of a return to the ‘sunny uplands’ of exponential economic growth.

    • I agree with all you say Kevin thank you. But my good friend Gerry Brady in Oz has another view on bond issuance which is not exactly ‘money printing’ although it is the common shorthand. His solution was described in an article last year. He is worth corresponding with and questioning his logic, as I do regularly, and point him to Dr Tim’s excellent work. I chat on Skype regularly. He is very knowledgeable and wrote the Foreword to my book:

    • Just a couple of comments.

      First, in the past the total amount of energy available has kept on increasing, so the squeeze on surplus energy has come from ECoE rising more rapidly than aggregate supply. The consensus view remains that energy supply will carry on rising. My interpretation now is that this isn’t going to happen. This is something I plan to write about here (indeed, the draft is almost finished but more pressing things keep coming along).

      What this means is that we could have static (or even falling) total energy supply at the same time that ECoEs carry on rising. The squeeze on surplus energy would then be leveraged, coming from two sides rather than just from one.

      Second, money creation (QE), as used since 2008, has been confined to asset markets. As mentioned in this article (but it merits emphasis), QE put into markets can’t be ‘taken out and spent in the wider economy, causing inflation’, because the need to match sellers with buyers prevents the general withdrawal of ‘value’ from asset markets.

      If newly-created money is used to pay for furlough schemes and general government spending, this ‘new’ money does go into the wider economy, tilting the balance between demand and supply such that inflation does take off. Some authorities do seem to be aware of this risk, though whether that awareness will restrain them in the kind of crisis that’s now on the near horizon is a moot point.

    • Quite so Tim. Do you think this is why gold is appreciating recently as the smart money has figured that inflation is in the cards? If this is a prospect, then the traditional monetary response is to increase interest rates per Volker et al but that’s not feasible now with all the immense debt, not to mention destabilising derivatives?

    • That makes sense.

      There are two main reasons why you might raise rates. One of these is to prevent your own currency falling against others. That has downsides, i.e. house prices crash, borrowers can’t afford higher rates and so on, but the downsides of the exchange rate falling are even worse, including soaring import costs and inflation, and a huge increase in the local cost of debt denominated in other currencies. Wanting to avoid this very unpleasant choice is why you might not overdo it with money creation.

      The second is to damp down inflation. That, too, could be a consideration.

      These considerations are part of the choice between going for ‘monetary stimulus’ or accepting ‘austerity’.

    • austrianpeter
      Your ‘good friend Gerry Brady in Oz’ is a ‘follower’ of prof. R. A. Werner?
      However, like most economists, he emphasises the demand side of the economy {credit should only be extended for productive and sustainable use – i.e. not for consumption and asset transactions} when it is the worsening inability of the supply side to produce ‘real’ goods and services?

    • I am of the Austrian school and follow Mises,org et al. Gerry is not in agreement with this but I guess he has some regard for Prof Werner – whose book I have read regarding the creation of money..

      I too believe that credit should be extended for productive purposes because unless the investment yields a return there can be no final settlement. It can be used for consumption under very controlled circumstances and not abused as it is now. For example, people don’t ‘buy’ cars anymore, they buy monthly payments – reduced to the minimum by balloon balances. There are some £78 Billion outstanding on this alone which covers around 90% of all purchases in UK.

      I was taught discounted cashflow projections for project assessment among other tests. I do not believe in fiat currency, Keynesian ‘voodoo’ economics nor governments other than small ones and preferably mostly localised. http://harrogateagenda.org.uk/ for our 6 demands.

      I do follow wise commentators such as David Haggith, whose recent article listed 10 reforms which might stand a chance of rectifying some of our economic ills – if implemented:

      This is generally where I stand in this almighty mess.

    • “David Haggith, whose recent article listed 10 reforms which might stand a chance of rectifying some of our economic ills – if implemented:”

      D.H. emphases demand side policies and misses the important point that the ECoE (the Energy Cost of Energy) is rising.

    • Agreed postkey, but most people miss Dr Tim’s essential work. I am even struggling to get my friend Gerry Brady in Oz to accept ECoE principles and he is well regarded in global finance circles. I don’t think it invalidates the 10 points that David makes however.

  26. austrianpeter and Dr.Tim, thank you for your replies and the clarifications that you offer. I read the article at BOOM and rather liked the phrase ‘Quantitative Boosting’ and the critique of the human element in the key thee entities. I cannot help but think that we might be better governed if a greater number of elected representatives had some meaningful economic and monetary knowledge, including history! The ingredients are a perfect mix that is producing the almost perfect storm – yet the explanatory tools of the current rulers amounts to the equivalent of making policy and prognostications on the basis of whether cows are sitting down in the fields. There are other elements in the mix, that I did not mention, many that have been discussed on SEE that make the situation of the United Kingdom especially precarious. Notably, a current economic model based upon: off-shoring manufacturing, increasing consumption using credit (debt), creating ‘wealth’ through shuffling paper, inflating asset prices (houses, and stocks and shares) and the ‘gig’ of manicures, serving lattes and delivering pizza to each other. And, the Triple Deficits (trade deficit, fiscal deficit and negative overseas income account), and more to the point we have to import huge amounts of capital, half our energy and around half of our food simply to keep the show on the road! Hardly any of this is covered or discussed with any prominence in the general mainstream media!

    • Yes Kevin – it is not discussed because IMHO there is no profit in pointing out the shortcomings of our decaying systems. The general sheeple need bread & circuses to keep them amused. A cursory reading of their ‘social media’ gives the game away.

      Unfortunately, our education system is much to blame for dumbing down our youth over these last 30 years and pandering to mindless celebrities and their doings as if they had something worthwhile to say.

      I have long ago forsaken efforts to correct the glitterati and their fans and accept that my grandchildren’s world is one I cannot recognise. Good to chat here though and learn so many new things and thanks for checking out Gerry, I have a high regard for his views.

    • @Peter and Kevin

      Largely in accord with the last posts. Omitted, though, is any mention of the deep seated corruption in most governments. Your comments make it sound as if the common good is of primary concern. My impression is that is the case in only rare exceptions. Prestige, money, and power seem to me to dominate the powers that be.

    • Oh Yes Steven, I do agree with you. It is the failings of the human condition which can only be moderated IMHO, not eliminated; power corrupts and all that. In Austrian economics emphasis is placed on ‘small government’ which implies a limitation to the power base.

      THA’s objective is to put some of this power of governance back in the hands of the people, which is of course fraught with difficulties in the end. I guess I will settle for ‘good enough’ as in good enough parenting, not impossible perfection.

  27. I came across a new online resource,

    I wasn’t even aware of this guy’s existence but he’s been at the core of ecological thinking, peak oil, post growth, transition towns etc. in Britain all along,


    his final act was to compile the entirety of his evolved thinking into a dictionary with cross references,
    apparently it’s a pretty fat book, but now someone has transposed it into an interactable website,


    I started reading some of it last night and found it quite captivating, probably most relevant to here is this entry under ‘Growth’


    it seems to cover a lot of what I’ve been thinking about plus a whole host of other points, the way he envisages degrowth is quite sophisticated,

    within the text are links to other entries within the dictionary so you can follow whatever interests you the most,
    it’s quite a rabbit hole to tumble down and when you finally emerge you might have a changed perspective.

  28. Steven and austrianpeter, It seems that national interest only rarely coincides with the aims of political parties, which perhaps goes part way to explaining our current predicament. On the matter of education I read ‘The Econocracy: On the Perils Of Leaving Economics To the Experts’ and I was astounded to learn that in many economic degrees History of [Economic] Thought (HoT) is not compulsory, and is to be found as an optional module on the final year. Forgive me, but I would have thought that HoT would be a first year compulsory module. Such a module would expose students to greater plurality of thought, and require critical faculty. During GFC1 I could not help but notice that the economists and commentators that had a better handle on the crisis appeared to be those that were well versed in economic and financial history. At the other end of the spectrum I would be surprised, if not totally astonished, to find an economics degree that covered SEE (although Tim may correct me if I am wrong). Yet, why not? Surely, SEE is an emerging and developing school of thought?

    • IMHO Kevin, a problem of economics as it is taught, is that Keynesian thought and theories overrule all other considerations, leaving no options for an alternative proposition such as Dr Tim’s SEEDs. The emphasis is on a macroeconomic approach forsaking the influence of an individual’s economic decisions on the direction of a nation’s prosperity.

      Their mathematical models are clearly flawed and much like Neil Ferguson, should be discredited and more realistic school’s of thought allowed. Regrettably only after this current unfolding disaster will we be able to overcome the entrenched teaching in our schools and universities. I find that even bankers have little knowledge about bond issuance and money creation. Most still believe that banks earn their corn by lending out their deposits and profiting from the interest rate difference.

      “On the other hand; The economic theory of the Austrian school is grounded in verbal logic, which provides relief from the technical mumbo-jumbo of mainstream economics. There are considerable differences with other schools, but by providing unique insights into some of the most complex economic issues, the Austrian school has earned a permanent place in the complex world of economic theory; [if not adopted as such]:”

    • In ‘Planet of the Apes’,

      Ceasar knew a ‘degree’ would bring you more of the same.

      Nothing wrong with ‘the same’, please don’t understand me wrong, but…

      The same just stops working with 7 billion + useless eaters in a declining environment.

      So he went to war.

      There’s just one outcome in ever less with ever more humans.

      Currencies delay, they don’t overcome.

  29. Inflation or Deflation
    From Shadowstats in the US
    June 2020 ShadowStats Alternate CPI (1980 Base) Rose to 8.3% Year-to-Year, from 7.7% in May.

    Relative to real estate assets, look at Wolf Street’s article:
    Nobody Has Any Idea How to Get Out of This Mess

    The Wolf Street article attempts to untangle all the knots of leverage entanglement for both residential and commercial real estate. I would say that the government plus the interests of the lenders are keeping the books together, despite a collapsing real situation. For example, a bank which has loaned money to someone who is not paying can be given ‘forbearance’ and the bank is able to pretend that the loan is not in default and so they are getting money on it that they are, in fact, not getting. The banks reported revenues do not decline. I wonder how cash flow is counted.

    In order for asset deflation to offset the real inflation which is happening in sectors like food, then the federal government and the regulatory agencies will have to bite some bullets. I believe the projected US government deficit is now 3.7 trillion dollars. (At least Trump is trying to save the governments some money by cancelling the November elections…every little bit helps.)
    Don Stewart

    • The Federal deficit in 2Q was almost exactly $2tn, and 2Q is normally a high quarter for tax receipts.

      For context, quarterly GDP is about $5tn. 2Q GDP is reported to have fallen by 9.5% year-on-year – but what would that fall have been without stimulus of $2tn?

      This is an extreme illustration of why SEEDS identifies underlying or ‘clean’ output (C-GDP).

      FYI, the $2tn deficit was matched almost exactly by Fed asset purchases.

    • Here: https://mv-pt.org/wp-content/uploads/2020/07/Monthly-e-mail-2007-Global-money-round-up.pdf
      is someone who is ‘predicting’ inflation.
      “A reasonable view is that reliance on banking systems to finance budget deficits will keep money growth positive, at annual rates at least in the mid- single digits %, over the next year or two. The evidence is universal and compelling, that agents’ money-holding preferences are stable in the long run. Whereas in spring and summer 2020 ratios of money to GDP (i.e., the inverse of the velocity of circulation) have climbed dramatically, in coming quarters they will drop sharply, closer to long-run averages. The rates of increase of nominal GDP and the price level will soar, probably after or in association with asset price inflation.”

  30. @Dr. Morgan
    As Wolf Richter’s article made me painfully aware, we have an enormous amount of debt in the US which is nominally issued privately but which relies on government guarantees. As the virus drags on, it seems to me that the path of least resistance is for the private parties to simply walk away and turn all the student loans and real estate loans and so forth over to the guarantee agencies. If they need legislation to do it, they have the muscle to get it through Congress. But I don’t think the government guarantee agencies have the administrative personnel and systems to actually manage the collection of so much debt which is so legally entangled. Wolf may be correct that ‘nobody knows the way out’.

    I visited the eye doctor last week and was once again forcefully made aware of how much cost push has been built into the system in the panic reactions. For example, they have strict limits on the number of people they can see at any given time, and wipe the room clean after each person is examined. I joked with the doctor (one of a handful of partners who own the practice) that ‘you would be better off working at McDonald’s’, then thought that maybe I was being insensitive, and said I was sorry. He said ‘No, you have it about right’.

    Dave Pollard has a current essay, looking at the US from the relative safety of a British Columbia island, that the US in particular is disintegrating. As I look at the US from the perspective of a really old man living on pensions and financial investments of various sorts, everything seems to be working OK, but Wolf convinces me it could all collapse before Labor Day. I don’t think the country would accept President for Life Donald Trump. I do think it might accept printing an enormous amount of money and turning everything over to the financial interests…we have seen sheep like behavior before. I think it might also accept a ‘Soviet Union’ type upheaval where private capital is simply nationalized and physical resources are allocated out to families in terms of housing and education and utilities and so forth. What I can’t see happening is continuing to pretend that all the debts are going to be repaid. Maybe I under-estimate the scale which ‘extend and pretend’ can achieve. Dmitry Orlov observed that something like ‘extend and pretend’ was the dominant order of business in the late Soviet era and then it just stopped working and quietly went away. But what greased that transition, I think, was that the government owned all the housing, and simply turned it over to the occupants. In our case, the occupants mostly don’t own anything, and are in fact deeply in debt. So we have the converse problem.

    If China really does have their economy expanding again, and if Russia benefits from exporting gold again, then I can see a hot war with Russia and China as hatred boils over. (It couldn’t possibly be screw ups in the US that are to blame). I note that Hauwei is now the largest manufacturer of smart phones in the world…using it’s own operating system.

    Don Stewart

    • There are, I gather, some people who actually believe that the 1969 Moon landing was faked.

      That is utter nonsense, of course – but it ranks for credibility right up there with current “growth” in the Chinese economy.

    • I agree with you and Orlov on the indebtedness of US consumers, and the exploding US govt debt.
      Of course the US is far from alone in this addiction, but as the Reserve Currency it is supposed to be held to a higher standard.

      The FT printed this today. Sorry for the poor formatting.

      Fitch cuts US outlook as federal deficit climbs | Financial Times 01/08/2020, 14:51

      Rating agency predicts government debt will reach
      130% of gross domestic product in 2021
      Fitch says it expects $1tn in additional stimulus to be agreed by Congress in August © REUTERS
      Fitch cut its outlook on US debt on Friday, warning that the rise in federal
      spending to deal with the coronavirus pandemic had led to a
      deterioration in public finances.
      The rating agency lowered its outlook on the US to “negative” from
      “stable”, but affirmed its triple A rating, its top grade. Fitch analysts said
      they believed there were growing risks the US would be unable to curtail
      rising deficits as policymakers seek to jump-start economic growth.
      US legislators have agreed to more than $3tn worth of relief packages
      Fitch cuts US outlook as federal deficit climbs | Financial Times 01/08/2020, 14:51
      https://www.ft.com/content/94b0bbce-8886-40cd-aa1f-c712e43f45af Page 2 of 3
      this year to limit the economic damage from the pandemic. The
      spending, which is likely to increase in the months ahead, has resulted in
      record issuance of Treasuries.
      “High fiscal deficits and debt were already on a rising medium-term path
      even before the onset of the huge economic shock precipitated by the
      coronavirus,” said Charles Seville, an analyst with Fitch. “They have
      started to erode the traditional credit strengths of the US.”
      Fitch projected US debt would reach 130 per cent of gross domestic
      product in 2021. However, it noted that the country had been able to
      secure record-low borrowing costs, further underscoring the US
      government’s “exceptional financing flexibility”.
      With benefits from earlier stimulus programmes set to elapse at the end
      of July, Congress has been working on a new stimulus bill. But
      disagreements between the White House and congressional Republicans
      have stalled progress on a deal, and Democrats and Republicans have
      yet to agree on key terms, including the size of extra unemployment
      Fitch said it expected $1tn in stimulus to be agreed by Congress in
      August. It projected the US economy would contract by 5.6 per cent this
      year even with government intervention.
      “There is a growing risk that US policymakers will not consolidate public
      finances sufficiently to stabilise public debt after the pandemic shock has
      passed,” Mr Seville said.
      The announcement had little impact on
      trading late on Friday. The yield on the
      10-year Treasury remained near a
      historic low of 0.53 per cent, while the
      dollar clung on to gains against other
      Fitch cuts US outlook as federal deficit climbs | Financial Times 01/08/2020, 14:51
      https://www.ft.com/content/94b0bbce-8886-40cd-aa1f-c712e43f45af Page 3 of 3
      currencies, including the euro.
      “It is a truism that the US government
      cannot run out of money to service its
      debts,” Mr Seville said. “However, there
      is a potential (albeit remote) risk of
      fiscal dominance if [debt-to-GDP]
      spirals, posing risks to US economic dynamism and reserve currency
      The US holds a triple A rating from Moody’s and a double-A plus rating
      from S&P Global. The downgrade of the US credit rating by S&P in 2011,
      the first ever by a leading rating agency, followed a row in Congress over
      the debt ceiling.

    • Excellent overview, thank you Don, and all bang on. When I was in Belarus in 1994, it was just after their ‘liberation’ but the people, although lovely and generous but poor, were like zombies with that 1000 yard stare that we all know about.

      Now when all I see is the terrified, saucer-like eyes, like paralysed rabbits in the headlights, staring similarly over their mandated masks here in UK – I fear for our future too. Whatever happened to the ‘can-do’ spirit that carried us through the dark war years and regenerated our great island nation post war?

      Whatever happened to those people that I remember in my youth? Full of positive energy, raring to get to work and afterwards enjoying a pint in the local, joking with our mates, and planning the next adventure? What is left is a shadow (perhaps not even that) of those Silent Generation stalwarts – all we have are snivelling, woke, social justice Millennials, whimpering in their safe spaces, forever complaining about all the things that matter not and forgetting that unless they get their isht together soon, the whole human is going to die out!

      Rant over!

  31. The eagle-eyed will have noticed that the ‘tag line’ at the top of this site has been changed from ‘How the economy really works’ to ‘The home of the SEEDS economic model‘.

    To be quite blunt about this, conventional modelling is breaking down, whilst SEEDS does work.

  32. Tim, I can’t resist a poke at your statement that there are people who don’t believe the moon landing was real. Yes there are, and there are far more who have no reason to believe it and are agnostic regarding whether it happened. Things like NASA saying its lost the moon rocks and taped over the tapes from the moon landing don’t exactly help, do they? Ha ha, bureaucratic incompetence, right? We can fly to the moon but we can’t maintain a good filing and storage system to preserve the most historic records of humanity, LOL!

    We live in an era where radical skepticism about anything the government or any corporation claims is fully justified and warranted based on their history of manipulation. You know, Iraq has WMD. A more cautious approach is to start with the assumption that it is agenda-driven manipulation all the way down, until proven otherwise without reliance upon statements from anyone in Authority. or in the press

    As I’ve said before, the actions of government and companies are pushing thoughtful people to the point where the only thing they will accept is the evidence of their own senses. Social media is the last step of mind control. If they lose that, they’ll have lost everything.

    Besides, what possible difference does it make to anyone other physicists and than those in the space industry whether it happened or not? Let’s use the standard of American Pragmatism. What difference will it actually make in your personal life if it is true or not true? How does the truth or falsity of it affect your personal action and choices? Is this something you NEED to have an opinion on? How about the alternative to this opinion – a Zen-like silence of the mind on this subject?

    The moon landing belief test seems important as a tool to brow beat people and shore up the mythos that (i) humans are awesome and (ii) we are capable of accomplishing great things together, especially with Technology. Personally, I am not vested in that, don’t believe it is true and in fact believe it is very destructive to think that way. In my book it’s right up there with we are made in God’s image and He gave us dominion over the world. Beliefs that have really helped the planet and its other living things, and created universal brotherhood because we are all God’s children, right?

  33. Another opinion, an honest one to me:


    I would like to repeat something i mentioned on this blog before. We should not underestimate the interconnectedness of our current system. Your blog, dear doc, is excellent. It won’t get traction though, because you are the enemy of ‘more’.

    You are disrupting a believe system of infinite growth, your traction will become mainstream at campfires at survivor gatherings.

    Until then: https://m.youtube.com/watch?v=W4pkPMl7TP4

    • I take your point about traction, and would agree entirely, were this blog simply about expressing opinions. Of course, the belief system around infinite growth could be said to be imploding anyway, but nobody pointing this out can expect to be thanked.

      The difference, though, is the SEEDS model.

    • Seeds. Yes, that is true. You’re putting numbers on the gap between currencies and energy. We are passed the death cross, as we know. In my opinion ‘they’ know about this gap, for many many years. Steps are in place to deal with this gap, of course i don’t know these steps, i can only guess.

      What would happen with Seeds as ‘open source’?

      Financial markets would soak it up and take advantage of it. A result could be a major collapse of fx markets because the money would flow to locations with high surplus energy, and of course get the hell out of high cost regions. Followed by capital controls etc etc.

      We’ll see what happens. If Seeds gets traction it will be accompanied by many other events.

      We cannot pull the trigger. We’ve gone too far down the rabbit hole.

      Nevertheless, you care, dear doc. We care.

    • Makes sense.

      The implication seems to be that facing reality (as it’s interpreted here) could do more harm than good?

      That does make sense though, of course, many of the things you describe might be going to happen anyway. I’ve long believed (or hoped) that if society properly understood the predicament, it would react rationally, but I’ve always been aware that this view might be unduly optimistic.

      This makes a tempting case for putting SEEDS to more self-interested uses!

  34. The article referred to below raises an interesting subset for investigation of degrowth – which assets are likely to become stranded assets, and what is the size of losses from those suddenly stranded assets. Order and timing could maybe confer some planning opportunities for those looking for them. The article is about the $50 billion of A380 airplanes that may never fly again. Obviously, this has components of loss of income, harm to the balance sheet from asset write-offs (thereby affecting future access to credit) and, to the extent these assets are still subject to debt, bank losses. See financeDOTyahooDOTcom, World’s jumbo jets heading for the boneyard.

    • ‘What this situation means for business (and finance)’ is near the top of my ‘to do’ list, along with ‘what this situation means for government’.

      A lot has been said about oil and gas assets being “stranded”, but the situation re. big jets is about assets which rely on oil and gas being “stranded”.

  35. Tim,
    My friend Gerry Brady in Oz has posted an article today about the primacy of the American dollar and the impossibility of its demise contrary to many commentators like Peter Schiff and our gold-bug friends.

    I must confess my attraction to gold (bullion) and I am stacking at present using dollar averaging. Nice gains so far!

    I would appreciate your view of comments and how it impacts SEEDs. I have spent many happy hours writing and chatting with Gerry, but still can’t get him to understand the energy economy. He is firmly rooted in finance and won’t be swayed – his article exposes his logic.


    • The belief that the economy is ‘a monetary system’ is one of those tenacious chestnuts from which many cannot be dissuaded, even by the surely unanswerable logic of the economy as an energy system.

      Perhaps you should recommend this to him?


      On dollar demise, I’ve got mixed views. First off, many people have prematurely written off the USA many times in the past. Second, and unless we postulate something like SDR, there’s no currency even remotely capable of taking over from the USD.

      As a technical point, SEEDS anaysis amd forecasts, globally, are done in PPP-converted international dollars (with parallel outputs in market dollars in sectors, such as debt, where this calibration is needed).

      This said, though, 2Q GDP was spared a 50%, $2.5tn fall (and actually fell by about $480bn) because of a net injection of $2tn of fiscal stimulus, with a matching $2tn created by the Fed in the same three months. Too much of that would put any currency at risk. But I’d still have more faith in USD than in EUR, GBP or RMB.

    • A wonderful article Tim, and thank you so very much! I realise now how little I know about the general theory of economics! I have emailed Gerry, and I hope he will take notice especially since Steve Keen is mentioned and debunks Nordhaus. Just goes to show what Gerry does say – that economists in general have it all wrong and the Nobel Prize is a fraud.

      Thank you once again. Perhaps all our team should read it as it fully explains ECoE in plain and simple terms, not saying that you don’t!

    • Thanks, you are most kind.

      In the article before this one, we used SEEDS to look at the shape of the economy during and after the crisis. This article looks at finance and near-term crisis risk. The three ‘targets’ on my ‘to do list’ now are:

      – What this means for business

      – What it means for government

      – What it means for the environment

      These seem to me to be the priorities, but that’s up for debate, of course.

    • Hi Peter,

      Gerry is plain wrong on this:
      “We live on a US Dollar Planet. All other currencies are necessary but can never dominate if this situation is to continue. This is a double edged sword for the US as it tends to relentlessly drive the US Dollar upwards.”

      Look at long term charts:

      The $US is in a century long decline just as the Br. Pound did a century ago. Human behavior determines prices (relative value) in FX as it does in nearly all markets. Gold is rising in price because of human behavior. Empires are not forever. And he fudges (or is ignorant) about crude oil sales (and other commodities) always being settled in $US. There are growing exceptions to this.


      excerpt from short 2015 article:
      “Such a moment would seem ripe for Russia and Iran to begin a gradual challenge to Saudi’s leadership of the OPEC cartel and to the dollar-denominated energy system, if enough OPEC members and other producers are prepared to rebel. Iran has been lobbying hard in this direction.”

    • Yes, I understand to what you are referring, but the argument is rather pointless because it relies on our opinions of what is likely to happen in the future and, although we can project based on historical trends, IMHO we are in a unique situation on many counts. Not least of which is the fact that economies have been voluntarily shut down – it has never happened before.

      I am a supporter of Tim’s work and have been trying to get Gerry to understand that we have an energy based economy, not a financial one, and therefore any manipulations in the finance world, like QE et al will not work. However, there is no substitute for the US$ at this time that I can see and for the moment, or for however long it takes, the dollar must prevail. That is my position – I don’t like it – but there it is a Gerry argues.

    • Not quite what you say, Peter. Gerry says the buck has been in a bull trend. The reverse is true which the charts I posted show. Also, most major economies have been put into corrective phases, not just US. You and Gerry can stay long $s rather than Euro, Yen, BP, CHF, AU, NZ, CA, etc. I humbly suggest that for US residents, around half of invested assets be in other currencies and precious metals. For those in UK, EU, JP, etc no more than 1/4 should be in $US, and that should be for strong reasons such as great belief in a security or property. Nobody knows the future with certainty, but momentum is down for the buck, and fighting that on principle is dangerous.

  36. Flat Earth?
    The Greeks knew the Earth was round because a ship leaving port disappeared. below the horizon before the mast disappeared. The big uncertainty, among the educated, was the size…would it be practical to sail the distance required to get to the Orient by setting out west from Portugal? Columbus thought it would be practical, but bumped into the Americas instead of getting to the Orient.

    I was still a student when John Kennedy came up with the New Frontier idea of going to the moon. The common belief among economists was that the poor performance of the economy in the late 1950s was due to the need for a ‘frontier’ which would focus effort and thus lead to growth. At the time, I thought the idea was ridiculous. We had other evidence that the moon had been formed from the same rocks as the Earth. Why spend a ridiculous sum of money to go to the moon to bring some Earth rocks back to Earth? But the Cobb-Douglas equations were already held to be sacrosanct in the Economics fraternity. All spending was good because it generated GDP. The same delusion is still prevalent today….in the Economics Department, in the Government, and in every Chamber of Commerce across the land. The sad thing is that people who hold the truly dangerous delusion can always get a chuckle by pointing at the Flat Earth people.
    Don Stewart

  37. I have had a ‘Jaws’ moment. I hope you will excuse my paraphrasing from the film, but: ‘We’re going to need a bigger rabbit hole’.

  38. Lots of very confused folk over on the OffGuardian site so I posted this in the comments:

    “I don’t know what any of you lot were told about Economics, but as a schoolboy in the early 60’s I noticed that as the clockwork motor in my Meccano model ran down so the model went slower and slower until it stopped. Back then Geologists were saying the clockwork motor powering the world economy i.e. fossil fuels would start to run down in about 40 years. So around 2005.

    It is easy to see how so many folk are confused though because there is this story going around that the economy runs on fiat currency when in fact it runs on energy. Though I’ve never been confused about the possibilty that your Civilisation could well end by 2030 I admit to being truely amazed that the whole thing could be powered for over a decade by nothing more than printing coloured ink onto bits of paper. Funny how this virus came along just as the bits of paper scam was coming undone. No? ”

    Born in 1947, my thoughts on starting work in 1970 (and paying into two pensions) were that by 2012 (1947+65) the chances of ever being paid a pension were vanishingly small and am astonished that the whole thing has held together this long.

    But what to do with my Meccano Economic Model?? Start a blog? No, 40 years too early. And so Dr. T we have a lot in common in that we have both given birth to an economic model. You however are able to push it out in its pram to get some sunshine (this website) and folk who are passing peer in and say all the right things “Oh what a beautiful baby” etc. etc. whereas in 1964 my child was completely ignored.

    Of course none of this matters now as it is clear to any one who is looking, and not caught up in events, that our “entropic situation” is in fact being managed worldwide as I type and “The Long Emergency” is now well underway.

    • Nice observations Paul, thank you. Is your reference to the ‘Long Emergency’ per Jim Kunstler? I am reading the book now and recommend it; excellent life histories of some American alternative folk who made good in the end.

      I am into ‘The Devil’s Chessboard’ next, recommended by a good friend who tells me that it answers a lot of questions about who exactly is driving the charabanc; and how convenient it was that the ‘scamdemic’ turned up just in time after the 16th September fiasco.

      And yes, I do read OffG – some of the articles are great but the comments often leave something to be desired as it seems you have found also.

  39. Interesting article on an achilles’ heel of the global supply chain and why we are having problems getting things. International shipping has gone supersize to achieve economies of scale, but this means there is little ability to ship small lots of goods to ports other than the deep water ports that handle the supercargo ships. It also renders global shipping extremely vulnerable to shocks, not the least because these companies incurred and have huge debt incurred to build the ships.
    H/t NakedCapitalism

  40. Maybe these supercargo ships will soon be stranded assets, along with the Airbus A380 jumbo airplanes referred to yesterday. As Lambert (who assembles the Links list on NC) remarked on NakedCapitalism today, in reference to an article from CNN about the Three Gorges Dam in China, “Personally, I always regard gigantism (the A380, Apple headquarters, Versailles) as a sign of coming decay.”

    • Quite so taglio. We had a saying in the accountancy world long ago; that the day the company moved into their new shiny building is the day it starts dying.

  41. Re: US dollar long-term decline. Steve Ludlum says that CBs do not control the price of the dollar. Instead, the dollar is priced at the millions of gas and diesel pumps around the world daily. I.e., its fate as fiat is tied to the fate of oil. Oil has been getting cheaper to the consumer because of declining demand, and more expensive for the producer to produce. Not coincidentally, the dollar’s purchasing power has also been falling. This reflects the declining supply of surplus energy, and the fact that we can do less with the small supply of surplus energy that we have left. It also reflects that real capital are natural resources, not money, which is just a claim on resources, and we waste/destroy resources so there are less and less of them, hence less capital and less purchasing power and the increasing worth-less-ness of currency. Having said all that, there are still advantages of one currency vs. another.

    • taigo, Re:
      “Re: US dollar long-term decline. Steve Ludlum says that CBs do not control the price of the dollar. Instead, the dollar is priced at the millions of gas and diesel pumps around the world daily. I.e., its fate as fiat is tied to the fate of oil.”

      I wrote that supply and demand determine FX prices. CB’s are just one of many factors influencing that. FX is the most liquid market in the world, and only currency controls by governments can peg their currency to X, Y, or Z. Black markets can then show large discrepancies in perceived value by the populace.

      IMO, oil doesn’t determine the $US value vs other currencies. Cumulative perceptions by the wealth of the world do. I’ve been involved in this market for 40 years.

  42. US dollar
    First, I make no claims about expert knowledge of FX trading. This quote is from Dmitry Orlov. I can’t vouch for his numbers….Don Stewart
    “The fact that China has cut its dependence on the US dollar in international trade by 20% over just the past year, where it now makes up barely over half of all of its international trade indicates that the US dollar’s reserve currency status is not going to last much longer. At this pace of replacement, in just two years China’s dependence on the US dollar will be down to just 10%, and given the fact that China is the main trading partner for a majority of nations this will reduce the US dollar’s role in international trade to utter insignificance.”

    • @Dr. Morgan
      One thing that occurred to me after sleeping on it. One can measure the amount of FX speculation that is occurring in the world and I would suspect that the vast majority is occurring in US dollars. Alternatively, one can look at how China is exchanging manufactured goods with some country while buying physical goods used in the manufacturing from that same country. The latter may be priced in terms of the two countries own currencies. I have repeatedly heard over the last few years that China (and Russia) are aiming at the use of local currencies in terms of actual trade.

      The volume of speculation in oil vastly exceeds the amount of physical oil traded. I wonder if this is the distinction that Dmitry has in mind? If it is, then the speculative market can collapse (as the oil market did a couple of months ago) while the physical exchange may be hampered but wouldn’t collapse. The yuan and the ruble would never become ‘reserve currencies’, but would have value as a way to buy whatever the citizens and businesses in countries need from China and Russia.
      Don Stewart

  43. The above explanation would certainly go a long way toward explaining the aggressive moves against China by the US.
    Don Stewart

    • This touches on a question I’m looking at now, viz. do we face some kind of catastrophic slump, or a more gradual deterioration?

      I know some think I’m too cautious/gradual, but I really think we have no ‘yes or no?’ answer to the ‘slump or slide?’ question – there is, as sports coaches say, “still everything to play for”.

      Part of the answer is how well things are managed, especially in business and government.

      But another part concerns how far we can protect the ‘real’ economy of goods, services and useful assets from the purely financial.

      In a long-ago oil crisis, a leading oil man was asked whether there was “case for closing paper markets in oil”? He replied that there was “always a case for closing paper markets, but never a case for re-opening them”!

    • @Dr. Morgan
      The British economist Jeavons showed a long time ago that establishing some particular country’s currency as the global reserve currency requires that the host country agree to run trade deficits in perpetuity…it has to keep flooding the world with its own currency, which is actually a promise to repay with something real in the future. Therefore, having the dollar as a reserve currency to replace the pound in 1945 gave the US command over a lot of the world’s actual assets, but at the cost of eventually having to meet a payback day. Actually, with the size of the US nuclear arsenal, I don’t think the rest of the world can impose anything like a payback day on the US. But I can see the whole paper market collapse, resulting in severe stress in the US. It’s back to your calculations of ‘tradable goods’. Dmitry talks a lot about tradable goods…he just doesn’t use that exact language. In China, the infrastructure would remain and much of it would be valuable, but there might very well be a financial reset and the assets get marked down as in a bankruptcy in the US. So the most relevant question becomes: does China have stranded assets? How many? How compared to the rest of the world?

      Dmitry makes a case that there are only two countries in the world able to make nuclear work: Russia and China. And only Russia is anywhere close to a closed cycle nuclear system. He says that Russia is willing to negotiate century long deals with countries to build closed cycle plants for them, but they have to agree with very long term contracts with Russia. He says that Western Europe and the US will never agree to such a thing with a country they either despise or see as a mortal enemy. If fossils are gradually but steadily on their way out, and if nuclear is the only realistic way forward, then I would characterize his opinion as an upending of the pattern of the last few centuries. The poor countries trading commodities and energy among themselves, with the former Masters of the Universe stewing in their juices. At the close of a recent interview, he is asked how an individual in the West should be preparing for the collapse he envisions. He replies that every Russian knows how to grow potatoes. He says that as he looks out the window at his own potato crop. He says it makes no sense to grow potatoes in terms of finance…he can easily get in the car and drive to a store and buy potatoes…but every Russian understands why one needs the skill. I’ve looked at things that way, myself.

      Don Stewart

    • Tim & Don,

      Futures and forward markets have a purpose, but the gatekeepers have abandoned rational position limit controls. For many decades farmers have pre-sold a % of crops, meats, etc. They also can pre-buy fertilizers, etc. Industries can buy raw materials ahead to lock in costs, so they can set prices for goods ahead. Mortgage originators can lock in rates for several months because they can hedge in the futures market. International trade can be priced months before goods arrive by ship by hedging currency rates. The owners of the exchanges desire maximum profits, so they continually lobby to raise position limits, and keep margin requirements low. Bank Credit Depts are pressured to OK credit lines so larger interbank trading can be accommodated. Of course eventually something blows up, and taxpayers usually bail out the big boys.

  44. Hi Tim

    Thanks for another sobering and incisive analysis, even more depressing than usual.

    Whilst your views, having an energy slant, are heterodox they are not unusual. The idea of declining prosperity has been explored in detail by such as Robert Gordon and the high probability of a second, and more serious, GFC, following the egergious level of debt accumulation since 2008, is regarded by many as alomost inevitable, and has been for some time.

    So why are we here? The slide down the MMT road is there for all to see, and has been seen, and we are now edging into that ultimate absurdity, negative interest rates. It seems to me that what has flipped is not so much the financial system as the moral one. The notion that losses can never suffered is a dangerous one for the future of capitalism but that seems to be the way we are going.

    There’s also this blurring at the edges of the difference between liquidity and solvency. Central banks are there to provide short term liquidity at a time of need, not as a guarantor of solvency and yet that is the way we seem to be heading.

    This cannot end well.

    • I agree wholeheartedly.

      My specialism is modelling the implications of the energy-driven economy, which is what I think is what this site brings to the debate. I*’ve opinions on the moral issues, of course, where I think your views and mine are likely to be aligned. Negative real interest rates are an absurdity, negative nominal rates even more so.

  45. @Steven Kurtz
    I liken the measurement issue to measuring the velocity of chips at a casino versus the cash in value of all the chips. It would be easy to come up with some arithmetic showing that it is the chips in the casino which are important. The turnover would be enormous. But all that really counts is whether the punters can buy their beans and greens at the end of the day in order to keep the biology functional. And in a casino, it is guaranteed that they will have less at the end of the day, in aggregate, than they started out with. Perhaps a little similar to ECoE…they are feeding a casino instead of oil wells.

    This is the same issue as ‘how much is the housing stock in Britain (or in Shanghai) actually worth? Is it the last marginal transaction times the tonnage of houses? Or something else completely?

    Don Stewart

    • Don,

      It would help if you quoted the relevant sentences I wrote to which you are responding. Prices of commodities are in fiat. We on this list know that. Relative prices of various fiats are ratios of one to another. Nothing I wrote was contrary to these statements. My comment was about the positive usages of futures and forwards, which are valid. Speculators are required for those markets to function. I pointed out that the gatekeepers of those markets are at fault for mismanagement of them.

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