#182. The castaway’s dilemma, part two


As we enter an Autumn which many of us have all along expected to be ‘fraught with interest’, one question, above all others, dominates the economic and financial debate.

Are the authorities going to try to monetize their (meaning our) way out of the extreme difficulties exacerbated and catalyzed by the Wuhan coronavirus pandemic?

Or are they going to adhere to a form of monetary rectitude that was so conspicuously abandoned during the 2008 global financial crisis (GFC)?

The central conclusion reached here is that we have exhausted the scope for short-term, ‘band-aid’ fixes for a fundamental imbalance between (1) a growth-predicated financial system and (2) an underlying economy that is tipping over into “de-growth”. We simply cannot reconcile a ‘financial’ economy of money and credit that keeps getting bigger with a ‘real’ economy of goods and services that has reached the end of growth.

This has both near-term and longer-term implications. Longer-term, we need to find ways of rebalancing the economy towards quality rather than quantity, and shrinking the financial system back to a sustainable scale.

Why ‘2008 revisited’ won’t work

More immediately, we need to recognize that the stop-gap ‘fixes’ used during the GFC won’t work this time. 

Back in 2008, it was just about possible for the authorities to bail out the financial system whilst leaving the economy to its fate, an approach lambasted by critics at the time as ‘rescuing Wall Street at the expense of Main Street’.

This time around, no such possibility exists. On the one hand, the process of financialization has advanced to the point where credit has been inserted into virtually all economic transactions. On the other, forward income streams have been incorporated into financial instruments to such an extent that the financial system could not withstand any significant and prolonged interruption to underlying economic activity. Large swathes of the financial system have become hostages to the continuity of interest, rent and earnings streams from households and from private non-financial corporations (PNFCs).

What this means is that, if it were ever really perceived that economic deterioration is going to undermine the ability of households and businesses to maintain such payment streams, the financial system would fall apart.

We cannot know, of course, whether the authorities actually understand that they can’t repeat the tactic of rescuing the financial system whilst leaving the ‘real’ economy to its fate. Some policymakers, at least, might labour under the delusion that the prices of securities, and the validity of collateral, can be shored up even if the underlying entities (businesses, borrowers, tenants) go to the wall. Delusions undoubtedly still exist at the policy level, as evidenced by the wholly fallacious faith that some still seem to place in the ability of negative interest rates to ‘stimulate’ the economy, and to ‘support’ financial valuations.

The view taken here, though, is that most policy-makers, if they don’t already understand this point, will very soon have its reality imposed upon them. This means that, even where propping up the financial system remains their first priority, they will come to recognize that the only way to do this is to support the underlying economy.

This in turn means that even those governments currently proclaiming fiscal rectitude are likely to be pushed into larger (and longer) support programmes, running ultra-large deficits whose additions to public debt will, in due course and to a very large extent, be monetized by central banks. This points to a scenario in which initial deflation (imposed by sagging economies) is likely to be followed by soaring inflation (as the authorities try to force a quart of monetary stimulus into a pint-pot of economic capability).  

Under starter’s orders   

On the question of “monetize or not?”, participants in capital markets have already placed their bets – if they thought for one moment that governments and central banks were not going to intervene, the prices of equities (and, very probably, the prices of property and of a very high proportion of bonds, too) would already have crashed.

The clear message from the markets is that, faced with a worsening economic and financial crisis, governments are going to turn to full-bore fiscal support, with the highly probable corollary that central banks will create (in an earlier idiom, ‘print’) enough new money to monetize the gargantuan debts thus created. If it’s objected that huge monetization might trigger high inflation, markets would doubtless retort that, if this were indeed to happen, investors would be better off holding almost any form of asset in preference to cash.

If the markets are right, a large proportion of everything – from wages, debt service costs and rents to the purchasing of goods and services – will be propped up by government largesse. Taking equities as an example, high prices indicate, not only that capital isn’t expected to flow out of markets, but also that most of the businesses in which capital is invested will be kept viable – after all, no amount of market liquidity can attach much value to the stock of a company which has gone bust. So market thinking is certainly consistent – governments and central banks will prop up both the financial system and the economy itself.

The contrary argument begins with the observation that some governments seem already to have committed themselves to fiscal rectitude. More fundamentally, it’s argued that monetization could not, this time around, be ‘neutralized’ within the boundaries of capital markets, but would have to happen at such a scale, and in such a way, that faith in fiat currencies would be placed at grave risk.

There’s a strong body of opinion, then, to the effect that the authorities won’t take what could be existential risks with the monetary system. There’s a seldom-made argument, too, that no amount of monetary tinkering can save businesses, or indeed whole sectors, whose viability is gone, and which could continue to exist only, if at all, on the basis of perpetual financial life-support.   

The view taken here – which is that the authorities are likely to succumb to calls for expanded fiscal support, much of which will then be monetized by central banks – is based on a reading of the fundamentals which is informed by the understanding that the economy is an energy system, and is not wholly (or even largely) a financial one.

From this perspective, how did we get ourselves into a situation in which a single crisis (admittedly a severe one, compounded by inept responses) could put the whole system at risk?

The Great Divergence

The background to the current crisis is that the ‘financial’ economy of money and credit has far out-grown the ‘real’ economy of goods and services.

The ‘claim for the defence’ in this situation is that the real economy, whilst it may lag the process of financial expansion, remains capable of pretty decent rates of “growth”.

This statement, though, is only true if you ignore the way in which we’ve been using the financial system to ‘buy’ growth, using $3 of new net debt (plus a lot of other deferred commitments) to create $1 of “growth”. Also, of course, conventional presentation ignores an escalating energy cost of energy (ECoE), and makes no effort to internalise the costs of environmental degradation.

For the purposes of this discussion, it’s going to be assumed that readers are familiar with the principles of Surplus Energy Economics (SEE), and know how this interpretation is put into practice using the SEEDS economic model.

Simply put, there are two ways in which the economy can be understood. One of these, favoured here but very much a minority view, is that the economy is an energy system, and that prosperity is a product of the economic value that we obtain from the use of energy.

The other – the established or ‘conventional’ orthodoxy – is that the economy is a financial system, a persuasion that has sometimes portrayed natural resources in general (and energy in particular) as little more than incidental contributors to economic activity.

The energy view of economics accepts – as conventional interpretation does not – that resources (which for this purpose include the environment) set limits to the scope for expansion in prosperity.

Though all of this sounds theoretical, it is in fact central to an appreciation of our current circumstances. Over time, the physical or ‘real’ economy of goods and services, and the immaterial or ‘financial’ economy of money and credit, have diverged relentlessly.

Between 1999 and 2019, the official (financial) calibration of World economic output (GDP) grew at an annual average rate of 3.6%, whereas SEEDS measurement indicates that underlying or ‘clean’ output (in SEEDS terminology, C-GDP) has grown at an annual average rate of only 1.8%. Because, of course, these are compounding rates, a huge gulf now divides GDP from C-GDP.

For practical purposes, what this means is that conventional statements, both of output (a measure of flow) and of wealth (a related measure of stock, but in reality linked to flow), are dramatically exaggerated in relation to the underlying reality of economic value.

One illustration of this is provided by the ‘values’ conventionally imputed to assets. Asset prices have come to represent not, as logic says they should, discounted forward streams of underlying income, but current and anticipated monetary conditions.

If, for instance, we multiply the average price of a house by a country’s total number of houses, we can arrive at a pretty impressive ‘valuation’ of the national housing stock. A moment’s reflection, however, tells us that this valuation could never be realised (monetized), because the only people to whom all of these houses could be sold are the same people to whom they already belong.

This process – which uses marginal transaction prices to value the aggregate of an asset category – applies just as much to stocks and bonds as to property. When we read, for instance, that billions have been “wiped off” (or added to) the value of the stock market, it’s easy to forget that all of this is purely notional, because the market as a whole couldn’t have been turned into cash at any point in this process.

What this in turn means is that we’ve become accustomed to believing in aggregate valuations which are, in fact, purely notional. Just as we couldn’t turn the whole of the national housing stock, or the entirety of the equity market, into cash, the same applies individually to large corporations, and to the housing stock of, say, a town or a city.

The distorting effects of ‘notional value’

This concept of notional valuation extends in very important ways into everyday economic activity. Here’s an example.

If interest rates are 5%, a person who can afford $10,000 a year in mortgage payments can buy a house for $200,000 but, if rates now fall to 2%, his or her affordability rises to $500,000. Because the same applies to every other potential buyer, properties in general are re-priced accordingly. Because they can be pushed out almost indefinitely into the future, capital repayment considerations play an almost negligible role in such calculations.

A real estate agent, charging an unchanged rate of commission of 2%, earns $4,000 on the first transaction, but $10,000 on the second, even though the work done, or the real value added by that work, haven’t changed.

Meanwhile, the homeowner who bought at the earlier price-point has seen a big (though a paper) increase in his or her equity, making him relaxed about borrowing to finance a holiday, or the purchase of a new car. Unless he or she intends to cash out (monetize) the supporting equity – which is possible for some by trading down, but isn’t possible for everyone – then these debts, ultimately, remain tied to the future incomes of the borrowers.

This monetary inflation of asset prices – a process excluded, by the way, from conventional statements of inflation – needs to be considered in tandem with the broader financialization of the economy, a topic on which Charles Hugh Smith is particularly perceptive.

Historically, a car would have been made by a vehicle manufacturer and its employees, and bought by a motorist using his or her savings, which are in turn the product of his or her labour. Now, though, financial institutions have routinely been inserted into this transaction in a way which, from a purist point of view, might be regarded as unnecessary. The car is bought on the basis, not on saved income from the past, but of assumed income in the future

The packaging and sale of forward payment streams (as exemplified by mortgage-backed securities, but in reality a very widespread, almost universal practice) dominates the financialized system. This has had the adverse effect of driving a wedge between risk (offloaded onto the purchaser of the security) and return (of which a significant part is retained by the initiator of the transaction). This is an example of quite how distorted the relationship between the financial and the real economies has been allowed to become.

Critically, this entire financialized process is wholly dependent on continuity, which in this sense is coterminous with growth. If the earnings of a mortgage-payer or a car-purchaser fall, he or she may not be able to keep up with committed payments, just as a business whose income deteriorates may no longer be able to afford scheduled debt payments. The same applies to rent (whether household or commercial), because the assumed forward stream of these payments is likely to have been packaged and sold on, often to somebody who, in turn, relies upon this income to service the debt that he used to finance the purchase.

Before turning to practicalities, let’s state what this means in the starkest possible terms. The real economy, and the people who comprise it, can tolerate stagnation, or a modest decline in output – but the financial economy relies absolutely on continuity and growth.

Most ordinary people, if they were unencumbered by debt, could certainly cope if their real (inflation-adjusted) incomes stopped growing, and could probably manage reasonably well if that income dropped by a relatively modest amount. By extension, if we imagined a debt-free economy, it, too, could probably adjust to, say, a 5% or a 10% fall in income, which in this context means a decrease in the quantity of goods and services that are produced. Its citizens wouldn’t like this, of course – but they could survive it.    

All of this changes when you introduce the futurity of leverage into the equation. Whether it’s a household, a business or an economy, a significant part of future income is now earmarked for debt service. In this way, financialization of the economy takes away resilience.  A person or a business with debt to service loses the ability to cope with static or declining income, primarily because the financial system discounts a future wholly predicated on the assumption of perpetual expansion.

A dangerous asymmetry

What this interpretation also tells us is that, whilst the ‘real’ and the ‘financial’ economies are interdependent, this dependency is asymmetric. The economy of goods and services, though it would be greatly disrupted, might well survive a slump in the financial economy, but the reverse proposition is not the case. For the financial system to survive at all, the real economy must carry on growing, and the absolute, irreducible minimum is that it must not contract, other than by a very small extent, and for a very limited period.

The more financialized an economy (or a household, or a business) becomes, the more its resilience is undermined.

From where we are now, the critical point is that the financial economy, though it might just about weather another modest recession, would be destroyed by “de-growth”. Moreover, the advance of financialization suggests that even something well short of de-growth – for instance, a severe and prolonged recession, well short of what was experienced in the 1930s – would bring down the financial system.

For policymakers, this means, as mentioned earlier, that a “Wall Street versus Main Street?” choice no longer exists. If they were to intervene to rescue the financial system, whilst leaving the ‘real’ economy to its own devices, the financial system would collapse anyway.

We need to be absolutely clear that the Wuhan coronavirus pandemic, though it has appeared to many to be a ‘bolt from the blue’, has in reality catalysed and accelerated trends that were going to happen anyway. Since 2008 – and, arguably, for a lot longer than that – a reversal of growth has been inevitable. It has already started in the advanced economies of the West, and was always going to pose an existential threat to a financialized money and credit system wholly predicated on perpetual growth.

Let’s look at what this means at the present juncture. Long before the pandemic, people in the West were already getting poorer, and a similar climacteric was imminent for the EM (emerging market) countries. Worldwide, growth in aggregate prosperity has now fallen to levels which are lower than rates of increase in population numbers. Thus far, we’ve blinded ourselves to this by using credit to sustain consumption in excess of real value output. As well as encouraging consumers to do this, the corporate sector has added top-spin to this process by using debt to buy back stock, essentially replacing shock-absorbing equity with inflexible debt (which is another example of how financialization takes away resilience). Critically, buy-backs add debt without adding to productive capacity.

Whether we borrow as individuals to increase our consumption, or as corporations to boost stock prices through repurchases, the common result is that we mortgage the future in order to inflate apparent prosperity and value in the present. Because we’ve used debt to try to mask the trend towards deteriorating prosperity (a trend that we can neither stop nor reverse), the imbalances between the real and the financial economies have grown steadily more extreme.

Our situation has become one in which monetary manipulation has created value which only really ‘exists’ if we can carry on sustaining illusory levels of output. The only comfort that can be offered to those who’ve mishandled the coronavirus crisis is that this crunch point, if it hadn’t been precipitated now, would in due course have happened anyway – indeed, SEEDS has long identified 2020-22 as the period in which equilibrium would bite back.

At the end of gimmickry and denial

The immediate conclusion has to be that the authorities can no longer sustain a semblance of sustainability through monetary manipulation (though they are highly likely to try).

If they decide to prop up the financial system whilst leaving the economy itself to its own devices, the financial system could not escape the consequences of slumps in ‘real-world’ income streams (which would show up in bankruptcies and defaults).

If, recognizing this, they decided to prop up the real economy as well, using fiscal and monetary intervention, this, too would fail, both because the ability to ‘stimulate’ the real economy is circumscribed, and because action on the required scale would undermine monetary credibility.

This leaves us with the question of whether fundamental reform is possible. In purely practical terms, it probably is, but the likelihood of it actually happening – let alone of it happening in time – seems remote.

In the economy itself, we could adapt to the implications of worsening imbalances between energy ECoEs, labour availability and the environment, opting for what might best be termed “craft” solutions for our profligacy with energy and broader resources.

Financially, shrinking the system back into a sustainable relationship with the real economy is by no means an impossibility.

But the processes of decision-making, the myriad self-interests in play, and sheer ignorance about financial, economic and environmental realities, makes the voluntary adoption of such courses of action look depressingly unlikely.   

461 thoughts on “#182. The castaway’s dilemma, part two

  1. Along those lines, please note the following Z/H post:
    Acc. to the article, while unsecured creditors will be fighting to recover a few pennies on each dollar, even secured creditors “could find themselves losing 40 to 45 cents on the dollar, compared with historical averages of 30 to 35 cents, according to Barclays. This is an optimistic take by Barclays, especially if the covid crisis drags on. Here, too, the preponderance of covenant-lite deals means that creditors are about to experienced unprecedented pain.”

  2. Very sobering analysis of the American situation:
    Each quarter, the Federal Reserve Bank of New York releases its quarterly consumer debt composition and balances survey. (Note that consumers are at near-record debt levels and roughly $1.5 Trillion more than in 2008.)

    “The idea of “maintaining a certain standard of living” has become a foundation in society currently. The average American believes they are “entitled” to a specific type of house, car, and general lifestyle. Such includes living necessities such as food, running water, electricity, and the latest mobile phone, computer, and high-speed internet connection. (Really, what would be the point of living if you didn’t have access to Facebook every two minutes?)

    The average American has $90,460 in debt. A recent CNBC article broke down how much debt Americans have at every age.

    “Here’s the average debt balances by age group:
    Gen Z (ages 18 to 23): $9,593
    Millennials (ages 24 to 39): $78,396
    Gen X (ages 40 to 55): $135,841
    Baby boomers (ages 56 to 74): $96,984
    Silent generation (ages 75 and above): $40,925.”

    This and great charts at https://www.zerohedge.com/personal-finance/why-debt-income-ratios-are-worse-they-appear

  3. I have been thinking about the ramifications of degrowth on individual countries and I think that there is a case to be made that there is a weak negative correlation between the degree of degrowth a nation state can withstand and the extent to which it is willing to go to maintain a monopoly of force (if it even tries).

    I would just like to make the point first that the modern state is a historically contingent phenomenon which arose in Europe between 1450 and 1650 (an time period which is generally the scholarship consensus – feel free to quibble the exact bounds). One of its unique features, unique as previous forms of political communities throughout the world did not exhibit this to this extent, is its insistence on maintaining a monopoly of force within the territory it claims. As degrowth progresses through the following decades, the ability of states to maintain this monopoly of force will degrade (due to increasing impoverishment of its populace) whilst at the same time states are increasing tax burdens to expand its security apparati to cope with increased civil strife: further exacerbating civil strife in the process.

    What novel insight I contribute on the basis of this thesis is that a tacit acceptance of the state’s non-monopoly of violence is a potential stabilising factor that will be seen best within societies that do not possess truly modern states and possess coexisting political communities (tribal networks being a major one). Avoiding the need for the state to continually repress other force wielding institutions and groups within society to maintain a monopoly should be a major societal resilience boost in the coming decades.

    One example I proffer as evidence is Somalia. As everyone well knows, the state finally gave way in Somalia in 1991 in an example of social collapse which has no peer in the 20th century. What people don’t often know is that lawlessness was swiftly extinguished and public order and (very) basic goods restored in within weeks in 28% of the country simply through tribal agreements and religious leader intermediation. No major coercive force required.

    Dare I say, being a mature advanced state may be a hindrance in the coming decades in more ways than one.

    • Jackson
      I happen to be reading The Discovery of France by Graham Robb. The book includes a detailed description of daily life far from Paris during the time before and after the French Revolution and with vestiges even up to the present day. Among the points he makes is that most people did not identify with ‘France’…they identified very much with themselves as individuals, to a weak extent with the family, pretty strongly with the village, detested taxes and tithes imposed from above, and lived with very rudimentary technology. The strongest ‘religious’ impulses were directed at local gods, goddesses, sprites, fairies, and magical rocks. The people had very confused ideas about what was happening in Paris during the Revolution. In a village, there might be only a few people who could actually speak Parisian French.

      As I read the details of village life in this pre-fossil fuel era, I am left to wonder if we 21st Century sophisticates are looking at this in our future?

      Don Stewart
      PS. I also compare the village life in France to the life of those who emigrated to the US (Canada I know nothing about). While much of the jockeying for position in France involved trying to consolidate land which had been subdivided through inheritance into tiny parcels (through things like marriage), in the US land was essentially free. Wealth in the US did not consist of land…but it did consist of slaves. A very high percentage of wealth, especially in the Southern colonies, was slaves. Since land was free and slaves were expensive, agricultural land was abused and abandoned and the enterprise, including the slaves, was moved to virgin land farther west…which contributed to the Civil War as the faction led by Lincoln were resolved to limit the expansion of slave territory. Your namesake Andrew Jackson, of course, was determined to keep expanding slavery to the west.

  4. Tim, I wonder whether I might be permitted to offer a tentative framework that puts together a number of the many ideas and pieces that constitute the context and themes of the current situation? I’ve titled the grid:

    The Four Great Horsemen Of The Twenty-First Century

    The Great Convergence: Environmental Degradation, Global Warming, Declining ERoEI (Energy Return on Energy Invested)
    Melting glaciers, ocean acidification, soil erosion and depletion, increasing resource scarcity, changing weather pattern, rising cost of energy (price is too low for producers, yet too high for consumers)

    The Great Looting: Hyper-Consumerism, Financialisation, Neo-Feudalism
    Parasitic financial system (contributing little real economic value) extracting wealth upwards, static/declining real wages, ever greater reliance on debt

    The Great Unravelling: De-Growth, Declining Prosperity, Fracturing Elite, Breaking Social Contract
    Collapse of trend growth despite unprecedented fiscal and monetary stimulus, profound political discord, curtailment and reneging of welfare, shattering of citizen expectations and growing resentment

    The Great Delusion: Political Denial, Money Printing, Democratic Fracture
    Increasingly unrealistic political prospecti and absurd claims, frantic search for ‘Big Ideas’ with strengthening of complexity and ‘Top Down’ “solutions”, infantalised ‘consumerised’ citizenry, rising populism and erosion of trust in democratic system and institutions, failing fiat

  5. @Jackson
    To expand on the previous note, see Chris Smaje’s current post relative to his new book:

    We are in a situation in the US where both political parties are aligned along the axis of ‘Mars and beyond’. There is really no political choice which even proposes a modest sort of Degrowth. My fear is that we won’t be able to even move in the direction Smaje describes, much less contemplate life in rural France 250 years ago.

    Don Stewart

    • @Don Stewart. Thanks for the reference, I’ve ordered a copy of the book you mentioned by Graham Robb. Having spent the last 12 years living in the (very) rural south west of France some of the things you describe in your brief summary are still true, especially in the older generation. Looking forward to it.

      I don’t comment often so whilst I’m here a big thanks to Dr Tim for the great articles on here, massively helped me join up some of the dots that have puzzled me over recent years.

    • Dear Don,

      I share your sentiment. The climacteric which humanity has entered is so radical, many of the core assumptions that make up modernity will be shown to be without utility or foundation.

      The degree of remodelling that societies will have to go through to survive will be very extreme. This is why I believe, in the long run, societies that are less developed now will be by and large (climate change and any wildcards notwithstanding) the societies most able to adapt simply because they are less path dependent than advanced societies.

      A critical look at human history in the modern age vis à vis the premodern age is necessary in order to determine what elements of society people could realistically keep as a subset of those elements of society people want to keep. For example, it may be that democratic mechanisms could potentially be retained but the modality of such mechanisms would have to dramatically change as the bureaucratic machinery ceases to be able to be supported by the local tax base.

    • I sense you really enjoyed writing that, Tim. It is so good. It needs to be said over and over again

    • Thanks Barry, good to hear from you.

      I’m not sure about ‘enjoyed’, but I do think someone needed to say it.

      Lockdowns did bring down infections, but would destroy the economy. I can’t see regional lockdowns working – these have already turned into a national lockdown in France, and indeed in Wales, and the same process seems inevitable elsewhere.

      My suggested alternative (for anyone who hasn’t seen the Radix piece) is that we look at partial lockdown, but based on sectors, not localities. There are no ‘good’ choices from where we are, but this might be a ‘less bad’ approach.

      My other aim was to clarify the financial side of things. Governments can only make furlough payments for a short period, and we can’t expect lenders and landlords to let interest and rent ‘holidays’ run for more than a few months. QE isn’t a magic bullet.

      If we shut down certain activities, we could afford to support these sectors financially, in ways that cannot be afforded for entire economies, or for large regions.

    • For Those Criticizing Richard Heinberg
      See his interview: “we have built a society which hasn’t got a future”
      contrast with Michael Mann: “of course we can do it”
      and a few random mentions of “UN Developmental Goals”
      Nate say just about what Dr. Morgan has said recently: “no choice but to throw lifelines to people…take on (in the US) 10 trillion more in debt.

      Don Stewart

    • Perhaps Dr. Tim can explain why the world is ignoring the purchase of national debt (bonds, notes, bills) by CBs. I’ll ask Nate as well. It’s really MMT as I view it. The debt will probably never be repaid as it grows daily! Recall Weimar Germany? It looks like printing in disguise.

    • @Steven Kurtz
      In the series of interviews I linked to, Nate Hagens says the debt will never be repaid. I assume he thinks it will be retired by inflation.
      Don Stewart

    • Just heard from Nate. Thinks the printing/debt game has a few years, but expects a blow up at some point.

      (start from the bottom)

      On Oct 29, 2020, at 3:00 PM, Nathan Hagens wrote:

      Not publicly

      On Thu, Oct 29, 2020 at 1:53 PM Steve Kurtz wrote:

      Have you written anything specifically about that?

      On Oct 29, 2020, at 2:41 PM, Nathan Hagens wrote:

      They’re not ignoring it they’re depending on it

      In short term it looks like MMT yes. But that only buys us a few years until financial reset

      Most ppl don’t see this yet but some are starting to question

      On Thu, Oct 29, 2020 at 1:38 PM Steve Kurtz wrote:
      Hi Nate,

      Long time no chat. Perhaps you have a thought on my question to the group, just posted.

      “Perhaps Dr. Tim can explain why the world is ignoring the purchase of national debt (bonds, notes, bills) by CBs. I’ll ask Nate as well. It’s really MMT as I view it. The debt will probably never be repaid as it grows daily! Recall Weimar Germany? It looks like printing in disguise.”

      Cheers on the downslope,


  6. Limits to Growth…Back From Presumed Death
    Julia Steinberger delivers a very interesting talk on the Postcarbon series:

    As she goes through her talk, you will see some very familiar definitions and dynamics to the original Limits to Growth models from 50 years ago. Her talk emphasizes that simply growing the economy is NOT going to produce the outcomes we want, because growth tends to give the biggest gains to the already rich, leaving the desperate still desperate. This is a direct shot across the bow of the good ship Conventional Nobel Prize Economics. So what we need is a new system that directs consumption toward sufficiency for all and surplus is controlled in order to limit pollution. It is interesting to put her talk next to Richard Heinberg’s talk which refers to the physical limits of what we can do with renewables.

    Don Stewart

  7. Summary of a talk on Covid 19
    ‘A factoid that I had not known is that 35,000 Americans die annually from antibiotic resistant pathogens. The efficacy of antibiotics is fading, thanks to overuse and misuse in treating both humans and animals. The little critters rapidly mutate; the same trait that lets viruses interacting in a big, variegated stew of them now and then spew a mutant that spreads as a deadly pathogen. The SARS CoV-2 virus for Covid-19 is known to jump from humans to animals; it might jump back but no case of this is known — yet.

    Late in the discussion, we got into bioethical values and why response to Covid-19 has been so bad. Besides inept political interference, many of the problems stem from human foibles among researchers and public health officials, reductionism (fragmented perspectives — magic bullets), seeking money (grants), or seeking notoriety, rather than uniting around a common goal to safeguard public health. This behavior does not build the trust necessary for good public health leadership.

    Public knowledge about epidemiology is limited. Media coverage doesn’t help. Misunderstandings are dangerous. Among them is that a vaccine is a magic bullet that will make Covid-19 go away. No vaccine is effective on 100% of all people. Covid-19 will likely trail off into an endemic that we just have to live with.”

    I would add the comment that we have known that feeding 90 percent of the antibiotics we produce to livestock to make them fat and keep them alive in CAFO’s is a truly stupid thing to do for decades. But that hasn’t stopped the ‘search for yield’ and, apparently, the British thirst for some of that good chlorinated chicken from the US.

    I have noticed a few people who don’t want me to pet their dogs…the virus is breeding isolation. It is also creating cognitive dissonance in all those of us who look forward to picking up health-promoting microbes from pets. And the UNC hospital has had 3 small children in the intensive care unit. So now I can’t flirt with the babies. I don’t mind being refused entrance to nursing homes, but putting babies off-limits is cruel and unusual punishment.

    Don Stewart

  8. Some time ago we talked about France. The energy supply there seems to be decreasing (https://cnpp.iaea.org/countryprofiles/France/France.htm), the prosperity is also decreasing (according to SEEDS), while the population is growing. So now new terrorist attacks are happening, perpetrated by those at the bottom of the French society.
    I visited Paris in 2012. Among other things I noticed that Black Africans and Arabs (I suppose, Muslims) were indeed at the bottom, economically speaking; many of them were hanging around on the streets, doing nothing in particular and looking pretty dangerous, and the others performed what seemed to me like the worst, lowest paying tasks (mostly menial labor).
    I wonder what this all is heading to… In an ideal world, the population growth would be stopped and the supply of energy and material goods increased (and distributed in a reasonable manner). However, we are not living in this world, so something else will happen.

    • Indeed. I’m concerned about what’s been happening in France. As well as a particularly severe “second wave” of infections, France has suffered shockingly badly from terrorist violence.

      SEEDS data shows that, between 2009 and 2019, prosperity per capita in France decreased by 4.1%. The deterioration in many comparable economies has been worse.

      But taxation per person, already high, has risen, worsening the fall in disposable, ‘left-in-your-pocket’ prosperity, which has fallen by 29% since 2009, and by 35% since 2003. This helps explain the sort of popular discontent reflected in, most obviously, the gilets jaunes protests.

      Mr Macron’s government has, unfortunately, cut taxes for the wealthiest, which creates an adverse impression. A ‘prescription’ for France right now would combine cuts in taxation with substantial redistribution, demands for both of which are likely, increasingly, to become ‘facts of political life’ in many Western countries going forward.

  9. Current Z/H article re: oil price decline following Lagarde’s remarks about the Eurozone: “The last three days have seen a total bloodbath in black gold as WTI plunges to a $34 handle and Brent drops below $37.”
    Getting pretty serious.

    • Indeed. These falls in oil prices are a consequence of slack demand, but they also reflect diminishing affordability as prosperity – and especially disposable, post-tax prosperity – deteriorates.

      I’m planning to include some updated numbers on prosperity trends in the next article. They’re likely to make grim reading, especially as the likelihood of a ‘v-shaped recovery’, never all that convincing as I see it, diminishes still further.

  10. Julia Steinberger, Gunnar Rundgren, David Attenborough
    I previously recommended that people watch the Steinberger interview and examine her ‘modern Limits to Growth’ model. If you want to look at some specifics relative to land use, I recommend:

    Rundgren highlights all the fallacies in Attenborough’s recommendations. His analysis owes a lot to the kind of thinking that Steinberger uses. Briefly, we have to reduce consumption if we want to live within planetary boundaries (and we very likely have to reduce consumption anyway because of hard resource limits). This will inevitably result in lower economic activity…which has the potential to create a lot of pain, particularly for debtors. Therefore, a realistic description of what has to, somehow, be accomplished in the political arena (or else in the halls of Revolution or Collapse) including a description of how the pain can be ameliorated. Steinberger gives the most realistic scenarios I have seen which don’t involve Revolution or Collapse.

    Don Stewart

  11. The hollowing out of major oil cos is well underway. Current article at Z/H noting that Exxon has just announced it is cutting 15% of its workforce which will enable it to – keep paying its dividend! What kind of moron doesn’t see that, based on this alone, the end is nigh?
    From the article,

    “It may sound unbelievable that just seven years ago Exxon was the world’s largest company.

    Of course, all that changed with the advent of the FAAMGs and the Fed blowing the biggest tech bubble in history which together with the plunge in the price of oil, meant the market cap of Exxon has tumbled to just $136BN, below that of Zoom.”

    IOW, as long as we can live in the internet virtual world, we’ll all be fine! Upload your consciousness now, avoid the rush!

  12. Larry Wilkerson on the Military and Climate Change
    Wilkerson was Colin Powell’s Chief of Staff. He is on the panel discussion of our situation that I previously linked to. He gives a vivid and chilling representation of a multinational group of experts who ‘war game’ the increasing flood of refugees. He says that the outcome was decisive: all of the relatively rich countries in the north erect military barriers including machine guns at their southern borders. He also says that Jim Mattis, the Secretary of Defense, reaffirmed the military’s judgment of the risks of climate change. I suppose that is why Trump fired him. Wilkerson describes the loss of expensive military installations to rising sea levels and melting permafrost and the looming loss of the Norfolk, Virginia complex.

    If you put it all together, you can see in the various presentations some who predict looming disaster (Heinberg, Hagens, Wilkerson) and those who insist that ‘it is never to late to change course’ (Mann, the interviewer Layburn-Langton). It is interesting to note that Layburn-Langton continually ties everything to climate change, while Hagens says that out of all the political types he has talked to lately, zero mentioned climate change…they are entirely focused on trying to muddle through in terms of the virus and the economy and preventing a recurrence of 1933.

    I suggest that one contemplate the cognitive dissonance that is likely to emerge in many people in the North as they think about machine guns to kill the masses of refugees. Some fundamentalist Christian leaders in the US have predicted a Trump victory in the election followed by the ‘end days’. Is that just a mental way to avoid the cognitive dissonance?…we aren’t really bad people and there are no limits to growth and MMT can fix all our money problems and it isn’t socialism and climate change is a Chinese hoax and Jesus is coming back tomorrow if not sooner?

    Don Stewart

  13. There’s been a temporary hiatus here, caused not so much by delay in completing the next article, but by refining the SEEDS model during a period of rapidly-changing circumstances.

    The economic and financial outlook seems to be clarifying to some extent – the model doesn’t show ‘collapse’, but neither does it validate any kind of return to ‘normality’.

    Accordingly, the period for commenting on this article has been extended.

    • Recommended Reading
      This suggestion will take you somewhat afield, and is metabolically costly (you will learn the significance of that phrase if you persevere). Lisa Feldman Barrett, neuroscientist, explains that our actions and feelings are heavily influenced by whether one is adding to one’s metabolic resources or drawing down those resources. Not surprisingly, one feels bad and the other feels good. When one feels bad, one’s ability to feel empathy for others constricts, and one’s ability to think about novel ways to satisfy needs constricts. Our current environment, at least in the United States, is a perfect storm arising from the contribution of many aspects of the troubled economy and social disintegration creating social divisions and great anxiety. The rise of oligarchy is a signal of impending collapse.

      This is all brilliant, but for a short course in the things most relevant to this blog, start at 1:19. At 2:05 she says that it is an oversimplification to say that ‘all mental life is reducible to metabolism’…but there is an element of truth in that assumption. Very similar to ’the economy is an energy system’.

      The solution is to invest more of one’s metabolic reserves in learning. It reminds me of Thoreau’s claim that he ’traveled widely in Concord’. So rather than take a vacation in a place which is just like your accustomed place, but where the sun is shining, is not a learning experience. Befriending someone who has experienced a collapse in income, but has somehow managed to avoid total dysfunction, would likely pay much better dividends.

      Lisa Feldman Barrett: Counterintuitive Ideas About How the Brain Works | Lex Fridman Podcast #129

      Don Stewart

    • Are we likely to see a collapse in the value of fiat currencies (£, $, €, etc) in the next 12 months? How about UK House prices? I realise that no one can know what is going to happen or when, but are there any thoughts on the relative liklihood?

    • These things are indeed especially difficult to predict at this moment, but here are some thoughts.

      With the pandemic crisis into a second wave, we’re now into wholly uncharted territory – many Western governments have bungled this situation and are, frankly, ‘making it up as they go along’. They are pretty much out of ammunition. They cannot return to/continue providing income support, or underwriting interest and rent ‘holidays’, without breaking their budgets wide open. Even the US cannot monetise their way out of this. Trying this would put fiat currencies at risk.

      Any recovery is likely to be pedestrian, impaired by losses of capacity. Consumers will be poorer, especially on a post-tax basis, and less inclined (or less able) to use credit to boost non-essential purchasing. Discretionary sectors will be under the cosh.

      Reflecting this, capital markets, including property, look extremely overvalued. The US, with stock markets, and the UK, with property, seem to regard supporting prices as the equivalent of Holy Writ. It would be far better to manage prices downwards rather than defy gravity, thereby risking dramatic falls.

    • @TonyH,
      Alistair McLeod over on goldmoney.com has just published an interesting article on Fiat currency Today’s article is on GBP and what is in store for it.
      This is his third article on this subject, last week he looked at the Euro and the week before, the US$.
      I found it an interesting read.

  14. @ TonyH

    Here’s a somewhat terrifying discusssion of the impending currency collapse you ask about.
    Dare I say – “Enjoy” ?!

    “Finnish economist Tuomas Malinen explains the nature and severity of the historic global financial crash underway. He foresees worst-case scenarios which can even include “widespread hunger and rationing in the western world for the first time since the 19th century.” As the Eurozone risks disintegration and China fakes its recovery, he worries about the real possibility of global hyperinflation and monetary destruction.”

  15. Well, the UK economy was already crippled, but the looming nation-wide lockdown should now finish off most surviving businesses, (except of course the protected too-big-to-fail-or-jail, global corporates) so that would be the vast majority of jobs still theoretically clinging on. It’ll all be over by Xmas will have a different, unwelcome connotation. I really wonder why the rulers here are torpedoing the economy, how they think they’ll pay for everyone to live at home permanently waiting to die, turning the whole country into a retirement home. Will there be a point at which people realise supposed safety imprisoned at home is useless if you’re soon destitute and homeless because you have no income any more.

    • I’ve said all along that governments needed to avoid a ‘second wave’ at all costs. I reiterated this view at another site last week. After furlough payments, and ‘holidays’ from rent and interest payments, the resources of many states are exhausted, and no, QE can’t get us around this. The UK isn’t alone in this, of course, but has made a worse mess of it than most.

      The SEEDS model has long identified the onset of de-growth, a trend confirmed by the increasingly extreme and desperate financial gimmickry that has been necessary in order to maintain a semblance of ‘normality’. But I’ve always believed that this is manageable, i.e. I’ve never believed in the inevitability of ‘collapse’. The economic fundamentals haven’t changed during 2020. Gradual, managed de-growth remains possible – but not unless the right decisions are made.

      During and after the first lockdown, governments needed to keep international travel locked down, and restrict internal travel on the basis of necessity. Regrettably, we needed to keep most of the leisure and hospitality sectors closed as well. Limited scope for financial support needed to be concentrated on the affected sectors. Testing and tracing needed to work efficiently, not outsourced, and not undermined by trying to include tracking. Beaches and similar needed to be closed, and all mass gatherings prohibited. Regulations needed to be enforced ‘without fear or favour’.

      Governments are indeed acting now in the hope that ‘it’ll all be over by Christmas’. It won’t be – especially if they keep making the same mistakes.

  16. A snapshot of the UK economy just before the viral drama kicked off would have maybe 5 sectors actually generating income to pay for essentials for the country to pay its way in the world. Mainly the finance industry in the city of London, laundering money for anyone on the planet, relatively cheap semi-skilled labour for the foreign-owned car assembly industry wanting to position themselves at an entry point to the European market, the higher education industry, (rich foreigners still believing in the quality of brand-name universities here) the property market for investors worldwide wanting a safe place to park their savings and finally miscellaneous businesses. The last category would be like small specialist companies making something innovative, desirable and still of good quality, brompton folding bikes for example.

    Whatever brexit wont kill off in that list, endless self-harming lockdowns will. Who needs a car when most people are confined to their homes? The knock-on effects of that, kick off a toppling of a chain of dominoes, millions of vehicles redundant mean insurance companies, garages, fuel stations, spares manufacturers etc., etc., go bust. (Definitely good for the environment, no argument there) Property prices in expensive cities should tank, taking down that industry’s whole support infrastructures and while it’s hard to feel for estate agents, where will the earnings come from to pay essential bills, especially given the UK is an extreme example of a rentier economy? People are going to have to learn how to be really poor again, what with no empire left to exploit.

    • The situation for the UK isn’t quite hopeless, though I was shaken to hear a Tory MP, interviewed about some aspect of the coronavirus crisis, say that “we are not bankrupt yet” (my emphasis).

      The underlying problem isn’t that solutions can’t be found, but that they cannot be implemented. Since Labour made itself “new”, there’s been no real opposition to “liberal” economics, support for globalization, and the influence both of prejudices and of vested interests. The shambolic response to the pandemic reflects, in part, a governing cadre that has become an echo-chamber.

      I don’t think they’ve thought this through yet – I mean the economic outlook, not just the current crisis. It wouldn’t be impossible to do this, but it reminds me of the old Spanish proverb that “he who washes his ass’s ears loses both his time and his soap”.

  17. Perversely, though, ‘Old Labour’ who are certainly alive and kicking seem to be quite keen on the lock-downs, as they open the way to legitimise once more extensive state support for sectors and working class jobs, and the ever-hopeless poorer regions of the UK; punitive taxation on higher incomes and estates; the Green New Deal (which seems to be mostly about installing house insulation, solar panels, etc, and the creation of unionised jobs in this sector); and perhaps UBI and nationalisation.

    So it can hardly be said that they bring anything really new to the table, just the same old recipe of over-mighty unions and high taxes: a mid-20th c solution (and look at what irresponsible union power did to Britain in the 1950’s-1970’s! There is far too much sentimentality about Pre-Thatcher Britain, it was hopeless and in steep decline) for the problems of the 21st century.

    This is not surprising, as the union leaders are not the brightest screws in the box, and never have been. Just another variation on vested interests, albeit of a different kind, and stale ideology, failing to grasp the implications of the energy/environmental predicament.

    • Just to clarify, I believe that what works best is a ‘mixed economy’, of optimised private and public provision. Since ‘New’ took over Labour, the voters no longer have a choice, and there is no creative tension between ‘liberal’ and ‘collectivist’ positions, where each keeps the other in check. New Labour took privatisation, outsourcing, globalisation and deregulation to new extremes.

      I’m influenced, too, by what the SEEDS model says about the Blair-Brown years – in economic terms, disastrous.

      Between 2002 (when internationally comparable data begins) and 2008, the UK ratio of financial assets to GDP – a key measure of systemic exposure – rose from 590% to 1,583%.

  18. Having said that, ‘Left-sounding’ policies which would be of use in a permanently impoverished and greatly damaged economy might be:

    1/ Legislation to ensure that all have access to adequate electricity, water, etc, and cannot be cut off by private suppliers if their means are truly inadequate to pay. This will be vitally important for public health as society grows poorer.

    2/ Drastic reduction of the bloated university sector, eliminating many inferior institutions ad useless courses, with full state grants for poorer but bright students so that they incur no student debt. An end to academics and administrators living off the indebtedness of the young as at present.

    3/ Reform of labour relations, perhaps on the German model which seems rational and successful. Cultural problems and historic legacies and antagonisms might frustrate this, however.

    4/ Reform of the welfare system, so that the unemployed and sick are not treated like dirt and unfairly cut off or penalised for minor infractions, as at present. Greatly increased benefits.

    5/ Recognition of the value and strengths of a Mixed Economy; but not an ideological rampage against Capitalism and the bourgeoisie as favoured by the unions leaders and the radical Left.

    Above all, it needs to be recognised that we are in new age of great difficulties, not necessarily insuperable, and that pain and struggle will be inevitable, there being no easy panaceas, the old ideologies being bankrupt.

    Now what chance is there of any of that

    • Indeed!

      Something else, which I’m trying to think through, is this – if people go into business in order to grow (and there’s not much point otherwise), what happens to private enterprise in generalised de-growth?

      We’re already seeing this question posed in microcosm in energy – how can we be supplied with oil (for instance) if oil companies are loss-making?

    • Critical sectors – such as oil – that can not operate profitably will almost certainly end up being nationalised.

    • “Now what chance is there of any of that”. None at all is the answer. Our politicians and institutions never learn from their mistakes and never learn from the successes of other countries. They always wish to be seen as “world leaders” in reinventing the wheel, and when it goes wrong – as it usually does – move on to to something else. I think its called hubris. The default position of our politicians.

    • They were certainly quick enough to abdicate from economic policy, and from responsibility – dropping the whole mess into the laps of the central bankers – back in ’08…………….

    • Very small chance in my opinion, Cynic. An overshot species competes harder each day as ~230,000 net more humans are added. The natural ‘pie’ shrinks daily as well. Emotions rule. And Nature doesn’t permit an inadequate pie to be divided equally for *any* species. Maximum die-off would be the result. According to gobalfootprintDOTnet, 170% of planetary output is currently used (by borrowing from the future, drawing down reserves, and depleting renewable stocks.) Simplicity is 99% INvoluntary.

    • Re: Tim’s remark: “Something else, which I’m trying to think through, is this – if people go into business in order to grow (and there’s not much point otherwise), what happens to private enterprise in generalised de-growth?”

      There are two responses to that according to degrowth theory:
      1/ The biophysical necessity regards a degrowth in the use of energy and throughput of materials. Therefore there must be degrowth in some sectors (e.g. airlines, production of yachts and private jets, private transport, advertising) but also growth of other sectors (e.g. agroecology which means non-mechanised agriculture, education, healthcare, in general sectors linked to public goods). The idea is less private luxury and more public luxury. See some arguments on these lines here: https://www.jasonhickel.org/blog/2017/11/19/why-branko-milanovic-is-wrong-about-de-growth

      2/ Entrepreneurship can be redefined away from shareholder value, and therefore profit, to prioritise social objectives. An example in the tech sector is this company: https://puri.sm/ Its founder and CEO is a big advocate for the concept of a social enterprise and you can find interviews of him on youtube. I know of start-ups whose founders or employees would have been content to keep the company steady in its niche without aiming for exponential growth, and were rather pulled into the grind by investors. At company level you could envisage companies that, like small businesses, are content to provide a salary for their owners/employees for a lifetime, rather than feeding the profit machine.

  19. It would be very interesting and very important to learn more about this question of “how can we be supplied with oil (for instance) if oil companies are loss-making?” It may indeed be one of the key questions for the years to come (in addition to the prospects for fiat currencies).

  20. “if people go into business in order to grow (and there’s not much point otherwise), what happens to private enterprise in generalised de-growth?”

    May I suggest that the answer, if there is one, lies in the disconnect between a barrel of oil which can do 300,000 dollars worth of human labor for which our current system can’t afford to pay 50 dollars wholesale. If there is an answer to that conundrum, then it will of necessity involve a thorough retooling of the way we do business. I think we will be forced back into looking at the details of what it means to be a human and what we really need to do to thrive on a healthy planet. The retooling MIGHT permit us to pay 200 dollars to get that Siberian oil on the shelf in the Arctic. But we can probably never again squander oil heedlessly.

    Don Stewart

    • Steve Ludlum has an elegant proposal along these lines, that is very simple. Get rid of all of the cars, except like taxi services.

      Most driving in cars is nonremunerative/nonproductive. Driving doesn’t produce a return with which to pay for the costs of driving – the car, the gas, the roads. It’s pure waste. If we limit oil use to remunerative uses as much as possible, it might be possible to reprice oil high enough to support some further extraction and processing. But the prices of everything, food and heating, taxi and bus rides included, would go up. Of course, everyone who has a car or two would save the cost of the car(s). This from Investopedia:
      “According to AAA, the average person spends $8,849 per year for the privilege of driving.”

    • Of course, it’s not quite that simple. Gasoline, a leftover after obtaining the more productive diesel, would no longer have a market and oilcos would then not only lose the cash flow from selling gas, but would a huge cost associated with disposal.

      Short answer, nothing will be done.

    • Maybe we should think of de-growth as a disaggregated process. As an example, when the Welsh slate industry collapsed, after WW2, what was left behind was hundreds, maybe thousands, of empty cottages. Many of which collapsed and their slate recycled elsewhere in the UK.
      In due course, in the 1960s, those cottages which remained began to be purchased as second homes. We bought a cottage made entirely of slate in 1968 for £120, the same year we bought a new estate house in Southampton for £5,000.
      The local economies then grew, energised by the discretionary purchases made by people like us living in “better off” areas. The cottages were then improved, using local labour and this, and the regular visits by the second-homers, and then holiday lettings, grew the local economy.
      So, maybe private enterprise exists in a general climate of de-growth, as a diverse mixture of decentralised, self-supporting local economies. A bottom-up process.

  21. Details
    *The Wall Street Journal is featuring a story about why East Asia (China, Korea, Japan, Singapore, Viet Nam) are doing so well minimizing the virus while the West is doing so poorly.
    *Meanwhile, Britain and much of Europe lock-down again. The US just completed a week with a new record number of Covid 19 cases.
    *There is apparently a giant conventional oil field on the North Slope of Alaska.

    It seems to me that execution of the details is necessary. Exactly why the East Asian governments were successful with Covid while Western governments apparently failed miserably should be a subject for robust discussion. There should also be a robust discussion about how we might go about using the new Alaska oil in the most productive way…e.g., continue business as usual or build a new infrastructure consistent with a new economy?

    Don Stewart

  22. Johan, thanks for the heads up on Mcleod’s articles on hyperinflation. Just read the first one about the dollar, really quite good.

  23. An interesting reflection on the evil mind by Ugo Bardi …

    He recounts an entry from the Italian diarist Galeazzo Ciano, foreign minister of the Mussolini government in Italy from 1937 to 1943. He was not only a close collaborator of the Duce but also a close relative – since he had married his daughter!

    ” … It’s snowing. The Duce looks out of the window and is happy that it snows: “This snow and this cold are fine” he says “so the pipsqueaks die: and this mediocre Italian breed is improved. One of the main reasons why I wanted the reforestation of the Apennines it was to make Italy colder and snowier “.

    Makes me wonder about those Etonians currently ruling the roost in the UK, and what they’re thinking as UK ‘pipsqueaks’ go hungry:

    “Food aid charities have identified the emergence of the UK’s “newly hungry”, a growing cohort of people previously in good jobs and enjoying comfortable incomes who have been forced to use food banks and claim welfare benefits for the first time during the pandemic.
    The Feeding Britain network said its members were providing food support to a new influx of middle-income families.”

    The net draws tighter.

  24. Can gasoline be used for heavy transport?
    I have mindlessly repeated what I had heard on this. Then, today, I saw a picture of a new Russian crude oil tanker which is powered by natural gas. Natural gas (in the form of LNG) has a lower energy density than gasoline.

    I think we need to carefully define the problem we are trying to solve. If we can move a heavy ship with NG, then we can probably move a heavy ship with gasoline. Can we move a freight train with NG or gasoline?

    In the past, the only relevant question was ‘which is the most profitable segmentation of the uses of a barrel of crude oil?’. But in the future, the most relevant questions may be ‘how can we get the advantages of the energy in a barrel of oil while adjusting to lower volumes and higher costs and also not polluting the planet beyond redemption?’.

    ANY change will result in a lot of stranded assets and capital expenditures. But then, if we had acted when Bob Hirsch warned us, we wouldn’t have stranded so many assets and our incremental capital expenditures would have been lower. Is it time to bite the bullet?

    Don Stewart

    Don Stewart

  25. Alister Macleod on China and the US Reserve Currency
    A commenter on Art Berman’s site posted a picture of all the oil tankers on their way to China. There are articles noting that China is buying lots of US oil. Macleod predicts in his talks that China will dump the US dollar assets it holds and trade them for real assets…such as crude oil??? The articles usually say that China is trying to appease the US to avoid a conflict. But Macleod’s alternative explanation is not without some credence, and is scary if it is true (from the standpoint of the US).

    China’s actions (if Macleod is correct) are perhaps the first evidence that the flight from fiat currencies is beginning? Will people be unwilling to accept US dollars except in exchange for a real asset such as crude oil? If so we are cannibalizing our material basis of well-being.

    Don Stewart

  26. Pingback: #183. A new stark clarity | Surplus Energy Economics

Comments are closed.