#187. A new kind of New Year


“Horse-sense” has been defined as “that innate wisdom which stops horses from betting on people”.

Perhaps that’s why I’m not a betting man.

There’s a sense, though, in which we’re all involved in some pretty big wagers right now. Essentially, governments, on our behalf, are betting that vaccines will triumph over the covid coronavirus; that economies will then bounce back strongly; and that all of this will happen before the financial system buckles under the truly enormous stresses imposed by the crisis.

These bets are linked. They correspond to what afficionados of ‘the sport of kings’ call an “accumulator”, in which the punter only wins if each and every horse comes good. If we can’t defeat the coronavirus, we can’t reopen the economy – and, unless the economy bounces back, it will become increasingly difficult to resource the fight against the virus.

Behind this near-term bet, though, is another and bigger wager, albeit one of which few are aware.

It is that we can win out by backing the mystical powers of money to triumph over the physical determinants of resources and the environment.       

Reflections on a challenging year

With this preamble, I’d like to wish you all a happy and prosperous New Year, and to thank you for your interest, your support, and your many helpful, original, informed and informative contributions to our discussions. The quality of debate here has been higher than ever in 2020, and I’m pleased to record that there’s been another big increase in the number of people visiting the site.

A personal view is that we’ve accomplished a great deal here this year. Amongst many other things, we’ve put emerging trends into a logical structure (the “taxonomy of de-growth”), examined issues such as the tilt away from an energy-profligate “dissipative-landfill” economic system, and identified the importance of fast-falling “discretionary prosperity”.

The SEEDS economic model has performed remarkably well under conditions of extreme uncertainty. I’m more persuaded than ever that we are right (a) to interpret the economy as an energy system, and (b) to model it on that basis. It’s been well said that “if something isn’t measured, it isn’t managed”.  

I’m convinced, too, that the model has helped us to avoid extremes. Thanks in large part to SEEDS, we haven’t endorsed implausible theses like “a V-shaped recovery” and a “great re-set”, but neither have we been panicked into bemoaning ‘the end of the World’, or seeing conspiracies on every hand.

For me, much of 2020 has felt like walking a tightrope, with winds gusting from both sides. On the one hand there’s been what we might call the ‘conventional’ line, which is that everything is under control, and that economic growth can continue in perpetuity. On the other is the persuasion that the World economy is on the brink of collapse, and that we’re subject to nefarious plots by a cast of characters straight out of a James Bond epic.

The reality, as usual, is more prosaic. A deteriorating economic dynamic and an over-stressed environment are quite new (and very real) problems. But the basic challenge – which is to confront obstacles, and to find ways around them – is ‘as old as the hills’.   

“Do they know?”

A question which often arises is whether decision-makers in government, big business and finance either (a) don’t understand the economy as a decelerating energy system; (b) do understand it, but, having no solutions, prefer to ignore it; or (c) do understand it, but only at some esoteric level which does not inform day-to-day policy.

I’m as convinced as one can be that the answer is (a). Around the World, governments’ policies show every characteristic of being shaped by ‘conventional’ economic interpretation. On an almost daily basis, businesses undertake expansionary investments which only make sense on the basis of a firm belief in perpetual growth. The coronavirus pandemic has been treated as a temporary hiatus – albeit a bad one – rather than as the harbinger of something wholly different.

On the principle that “actions speak louder than words”, we can conclude that what we might call “the decision-makers” do subscribe to the tenets of classical economics, with its insistence that economics is ‘the study of money’, and that, in the words of Robert Solow, “[t]he world can, in effect, get along without natural resources”.

You might think, as I do, that this is a strange situation. After all, the classical interpretation of the economy can readily be de-bunked, as has been explained, with admirable clarity, here. The classical presentation of the economy as a purely financial system is, as we know, perfectly capable of assuring us, absurdly, that, because agriculture is ‘only’ about 6% of global GDP, 94% of the economy would carry on unimpaired even if some natural catastrophe destroyed our ability to produce food.

A purely personal view, offered constructively and based on best available evidence, is that governments do realise that economic events ‘aren’t going according to plan’, but don’t recognize that their economic terms of reference are mistaken.

Most politicians – and, for that matter, business leaders, too – aren’t experts on macroeconomics. Instead, they’re accustomed to taking ‘best advice’ from those ‘best qualified’ to provide it.

You and I may see it differently from this, but nowhere in the lexicon of conventional economics will you find – for example – the term “ECoE”. Ministers and officials, after all, are very busy people, tend to be generalists rather than specialists, and necessarily focus more on the immediate and the “practical” than on the longer-term and the “theoretical”.   

When we compare our energy-based perspective with the situation as it is seen conventionally – and, for purposes of comparative interpretation, SEEDS encompasses both – we have pretty good visibility on how things are likely to unfold.

Governments and central banks will continue to be persuaded that the “fix” for a struggling economy is, ‘always and everywhere’, ever-cheaper credit and ever-more stimulus. When pandemic-related bills for stimulus, deferred debt service and rents turn up, they will feel obligated to step in. They will – mistakenly, but in good faith – proclaim ultra-low bond yields as evidence for the view that government indebtedness can continue to expand almost indefinitely.

It’s probable, too, that they will continue to ignore the fact that – in asset prices – hazardous inflation has already arrived. Again, current incumbents of office cannot be blamed for a historic convention which decrees that, whilst rising food prices are evidence of inflation, rising stock or property prices are not. Logic may tell us that neither high house prices nor low wages are economically beneficial, but both fallacies are deeply embedded in established (though mistaken) lines of thinking. 

From this same logical point of view, it might seem perfectly obvious to you and I that the current uneasy economic situation can end in only one of two ways. If we’re right about deteriorating prosperity, the authorities have to either (a) recognize this, and respond accordingly, or (b) keep pulling the fiscal and monetary levers to and beyond the point of fiat credibility.   

Worth the effort?

In this context, you won’t misunderstand me, I’m sure, if I say that what we try to do here is important. I’m convinced that we need to adhere to reasoned and evidential interpretation, steering, so far as we can, a course which avoids both the complacency of ‘continuity’ and the defeatism of despair.

By way of background, it’s been my experience that no presentation of ideas – whether to colleagues, clients, officials or anyone else – will ever be persuasive unless it’s backed up by evidence, and, further, that this evidence must be statistical, and based on modelling. After all, you wouldn’t expect to convince a confectionary manufacturer to go ahead with a new line of chocolate-bars if you had nothing to say about sales, costs and market penetration.

That, essentially, was why I set out to see if it was possible to model the economy from an energy perspective, but to present its output in financial language. But there’s a big gap between modelling as an exercise – ‘to see if it could be done’ – and practical application, in the sense of contributing, constructively and persuasively, to the broader debate.          

Like it or not, we’re in a situation where our view of the economy, as an energy dynamic running out of momentum, is in stark contrast to the orthodox view, which sees it as a monetary system capable of infinite expansion. In so far as we can, we need to progress our interpretation calmly and co-operatively. To reiterate, governments do not employ philosophers and, even where they make long-range statements, they concentrate, of necessity, on the near-term.

Looking ahead, I do have some ideas for future projects, just one of which is to calibrate discretionary prosperity, an issue which seems increasingly likely to be an important lead-indicator. There’s a case for setting out the surplus energy interpretation in a form which is both accessible and comprehensive. There may well be a case for collaborative activity.

As ever, I will warmly welcome any and all suggestions, and I feel that I can, at least, wish you a constructive and progressive New Year.    

338 thoughts on “#187. A new kind of New Year

  1. Up next: Interesting times. Like they weren’t already!
    Banks to charge 35% on emergency loans: Crippling rates loom for firms as experts warn new crisis in spring will be worse than 2008

    Just read the headlines at this site, something wicked this way comes!


    • I can see that 35% might make some kind of commercial sense, but it makes no overall economic sense whatsoever – a classic instance of micro/macro divergence?

      Incidentally, isn’t the UK government funding this lending – and, if so, why aren’t they setting the rates?

  2. A First Class Conspiracy Theory
    Dmitry Orlov, behind his pay wall, explains why the Covid 19 lockdowns are a ‘corporate boardroom’ project resulting from the need for a symmetrical reduction in the demand for gasoline and diesel.
    I don’t know if it is a conspiracy or just a lucky coincidence. But I do note that the continued money printing in the US is straining the distribution networks as people spend their money on hard goods. The cost of distribution is rising very rapidly, with even a tripling of shipping rates from Asia to the US West Coast. Keeping the balance between gasoline and diesel in the midst of the whipsaw effects of the lockdowns has to be very difficult.
    Don Stewart

    • What governments are doing amounts to supporting demand without bolstering supply.

      This is implicitly inflationary. So far, this inflation is showing up in asset prices. There’s a possibility of post-covid inflation if a bout of euphoria drives up demand for consumer goods and services, directing money-creation in that direction.

      Listening to the yelps of pain – real pain, by the way – from right across the corporate sector, I find it hard to believe in a crisis somehow cooked up in boardrooms. Corporate bosses’ thinking tends to be micro (their own businesses), not macro.

    • Orlov is a professional ranter out to make $s. (author; paywall) He is full of bull about corporate boardrooms doing much else other than trying to increase profits and images. Just what he does!!

    • @Steven
      I’m not defending his thesis….just marveling that it is all holding together better than we might have predicted. His notion that gasoline and diesel demand need to move together is, I think, true. So automobile travel and airplane travel need to track together. But the growth in the purchase and transport of hard goods is resulting in price inflation in that sector…see Wolf Richter’s latest demonstration that retail sales of hard goods are still rising in response to the money printing. The beneficiaries are the distribution sector in the US and the manufacturers in Mexico and Asia. (I don’t know what is happening in Europe.)
      Don Stewart

    • Let’s remember, please, to “play the ball, not the man”. He’s entitled to find ways to be paid for what he does.

      Obviously, I’ve no opinions on material that I cannot access, but I liked Dimtry Orlov’s book on the stages of collapse.

      Incidentally, I wasn’t aware that using Patreon required a paywall – isn’t it a vehicle for voluntary financial support, or is some kind of premium content always required?

    • Yeah seconded, ignore Orlov. He drives his own agenda. He has some good high-level ideas but fails hard on some low-level concepts.There’s good stuff in between though. All needs to be taken with a grain of salt.

    • @erickhavel
      It is a commonplace in science that a new theory must be consistent with the facts. Thus, Einstein’s relativity needed to be consistent with the physics of moving objects as quantified by Newton. A new theory may be accepted if it explains more of the details than the previous theory, if it unifies science by showing that two distinct theories are in fact related, or if it enables new predictions which had not been possible before. Thus, quantum mechanics is widely accepted because it generates extremely accurate predictions, despite the fact that it is not consistent with Einstein.

      Orlov goes off on some tangents which I rather doubt that he knows what he is talking about. On the specific subject of the petroleum industry, I think he is correct to start with a ‘symmetrical degrowth trajectory’ as essential to the continued solvency of the industry. Then we come to his conjecture that the ‘boardroom’ guys perceive an opportunity to manipulate the decline using Covid 19 restrictions imposed by pliable governments. I see the conjecture as unlikely, because as many have already said ‘nobody is in control’.

      However, as conspiracy theories go, I grade it pretty high because it at least makes sense as an aspiration.

      Don Stewart
      PS. I recommend taking a look at Dave Pollard’s calculation that deaths from Covid will be about half the level they would have been under pure ‘herd immunity’ strategies. However, I do not think that Dave is counting ‘excess deaths’…just using the reported deaths…so likely he is over counting deaths. But however one goes about it, the cost of whatever deaths may have been avoided is horrendous.

    • Orlov has come up with some interesting propositions over the years but lately he’s withdrawn behind a paywall by using Patreon,
      it might be putting him in an echo chamber and also nudging him towards writing more sensational stuff to reward those that will pay to hear it,

      in trying to understand the febrile atmosphere of discourse and speculation at the moment I stumbled upon an article by Richard Hofstadter in Harpers Magazine 1964 titled; The Paranoid Style in American Politics

      download link;

      it was recognising paranoid styles in the context of the day but pointing out that they’ve existed throughout history, around the world and across the political spectrum.

      it’s quite a fun read if you want to get things in perspective!

    • > Incidentally, I wasn’t aware that using Patreon required a paywall – isn’t it a vehicle for voluntary financial support, or is some kind of premium content always required?

      That’s what it supposed to be yes, in my opinion, but he publishes some of his posts for subscribers only (like many others on Patreon or Substack). Good business I suppose. After being a subscriber myself for slightly over a month now I get the feeling that those “premium posts” are the ones where he’s really stretching reality. I’ve enjoyed his books as well (speaking of which, I’m around 70% through yours right now*) and I actually discovered him through our shared interest in sailing, but his recent COVID-skepticism and other somewhat extreme-ish views have turned me off to the point where I ended up unsubscribing. And the comment section seems to be full of crazies.

      *) it’s very interesting to see how everything is playing out here ~7 years later, the book has aged quite well!

  3. The source of the Tim Watkins’ quote is from his article, “If . . ” It appears in his final paragraph “the only people who still fall for the myth that someone is in charge.”

    I agree with Matt, also, that if the “people in charge” actually understood our predicament, they would be busy doing something far different than what they are doing for the survival of themselves and heirs. I.e., their public actions do not evince a real understanding. Blll Gates becoming the largest individual land owner in the U.S. where (if you look at his holdings) almost all of his land is suited for industrial farming and requires FF inputs in the form of fertilizer and irrigation in order to produce food does not indicate that he understands, it indicates the continuation of the old idea that absentee ownership of lots and lots of hard assets is the way to produce an income stream going forward.

    I view these oligarchs and those aspiring to be oligarchs as essentially “gamers”, not people of great wisdom and understanding. They are (i) not clouded by idealism or ideas about the way things are supposed to work, as inculcated in us at school (like almost everyone else who will spend their lifetimes trying to make politicians “do the right thing” by acting in the public interest, because that is what we were told government was for- they will just go buy political support), and (ii) understand that real wealth depends on legal control, and legal privileges and immunities, and they know how to play the system and manipulate public perception. This only works, however, when everyone else “plays by the rules,” so that the outcome can be gamed to advantage.

    • hi Taigo,
      I can empathise with much in the piece you posted a link to,

      one line that leapt out at me was… while refusing as much as possible to be complicit in the evil of the times.

      there’s little I can do to make things better but at least I can try my best to not make things worse!

    • There is a comment from somebody called James on the Ian Welsh site.
      He points to a you tube video of a SRSrocco report where a Dr Louis Arnoux is interviewed about his take on the energy v economy conundrum.
      This individual produces lots of intelligible graphs regarding the “thermodynamic cliff” we are approaching. He also offers a solution that could mitigate the problem.
      It is a long video but really is worth every minute of viewing for anyone who is interested in the Surplus Energy issues .

  4. Hey we might be saved,(sarc). 100 billion barrels oh boy. Conventional at that. So that’s like three years worth of global consumption approx. Of course the company hasn’t actually found any yet! From the article:
    “How much oil and gas is potentially in the ground at Recon Africa’s Kavango Basin?

    This year, armed with new data, noted source rock expert Dan Jarvie has estimated that the basin could be capable of generating 100 billion-plus barrels of oil.”


  5. Dr Morgan,

    Your portrayal of the the energy system driving the economy is, in my view, an accurate one. Unfortunately, most economists cannot see the relationship of energy to prosperity.

    Economists tend to focus on money matters that control our wellbeing.
    Solutions to problems, in their opinion, can only be solved by throwing cash at the problem.

    Furthermore, they think that data handling and information processing is the next “Industrial Revolution”. What they miss is that data and information processing is continually being made cheaper by modern computer systems.

    15 years ago older file-based computer systems were very inefficient, modern day databases are far cheaper and far more efficient. What this means is that if information handling is going to replace energy systems as an investment strategy then I think we will probably enter a deflationary period due to more efficient and cheaper information processing.

    Any student today has a wealth of good information, if properly used, on the Internet.

    • isn’t this obsession with big data that they hope to analyse the population and play them much in the manner that high frequency traders analyse the markets and play them?

    • The question arises, I think, of how are we going to pay for all this data handling?

      Well, not, I suspect, using revenues from advertising primarily discretionary goods and services in a context of falling discretionary prosperity.

    • quite so Tim,
      who will pay for all this data handling,

      the other concern is how will we keep the entire IT infrastructure turned on,
      I’ve seen figures suggesting the energy consumption of IT is rising 10% year on year,
      to conform with aspirations for a greener and carbon free future IT should be reducing it’s energy consumption by 6% per annum but it’s actually going in completely the opposite direction.

    • I’ve read that Bitcoin mining is a huge energy user. Humans are racing to the bottom environmentally while foaming at the mouth for fiat and cyber money.

    • Like so much else, it’s tied to creation of money and credit. As and when monetary expansion stops, discretionary consumption slumps, and so does anything ad-funded.

    • Bitcoin does have a high energy cost but when you look in detail it compares more favourably with existing financial system than first appears. There are no bank branches, head offices, no printing of currency (which also requires distribution throughout its life in trucks, cash machines) etc. And measurably more so than using gold as a store of value. It is effectively part of a de-layering process which Dr Morgan often brings up.

      This is separate from any pros and cons to owning Bitcoin btw or whether it has any real value. That is another matter.

    • At the moment, I’m looking into the future of fiat – which, it seems, may not have all that much of a future.

      Governments have an absolute (and one might say a national) interest in there being no credible (meaning ‘accepted by the public’) alternative to their own fiat currencies. They might, perhaps, think of creating their own digital currencies, but – as and when the credibility of fiat is called into question – I see little or no prospect of them tolerating ones that they cannot control.

  6. oh well, looks like I’m going to have to move again,
    I’ve just got a letter from the Landlord saying he’s got to put the rent up,

    I’ve been sitting out this recession since the GFC in 2008 hoping that the elite sentiment would change and accept that things are trending down not up,
    12 years feels like a lot of wasted time, I’m not sure I can downsize or cost cut further,
    I’m going to have to seriously consider relocating to another part of the country,

    I can only suppose that this was meant to be and some good will come of it in the long run.

    • well his explanation is “to bring this in line with other rents in your location”

      so I guess he thinks he has no other choice, if others are paying more then so must I.

      I moved to this location because my previous Landlords discovered my neighbours in an identical house were paying more than I was so were compelled to raise my rent,

      I’ve been here about 5 years, I’ve still not unpacked the majority of the stuff I brought with me because a rent hike at some point seemed likely,

      this is the wierd thing about this recession, income goes down but rents keep going up.
      even when I had a job that had annual pay rises linked to RPI the increases in community charge, utilities etc. each year were always in excess of RPI

    • It’s the so-called “K-shaped” recovery. Anyone holding any assets at all (stocks, housing, land, crypto, etc) will see their fortunes rise while most people living on wages alone will become more poor. Even if there is a recovery for wage earners later and wages rise, assets will be so highly priced by then that they will be impossible to buy anyway.

  7. Those interested in understanding conspiracy theories better may find assistance in the concept of apophenia, elaborated on in an article by a video game designer analyzing (referenced below) how QAnon works, and describing QAnon as, effectively, a game that plays people. The concept is apparently well-known to video game designers who have to take great care that they do not inadvertently create seeming clues that derail the progress of the game.

    “In one of the very first experience fictions (XF) I ever designed, the players had to explore a creepy basement looking for clues. The object they were looking for was barely hidden and the clue was easy. It was Scooby Doo easy. I definitely expected no trouble in this part of the game.
    But there was trouble. I didn’t know it then, but its name was APOPHENIA.

    “Apophenia is : “the tendency to perceive a connection or meaningful pattern between unrelated or random things (such as objects or ideas).”

    As the participants started searching for the hidden object, on the dirt floor, were little random scraps of wood. How could that be a problem!?

    It was a problem because three of the pieces made the shape of a perfect arrow pointing right at a blank wall. It was uncanny. It had to be a clue. The investigators stopped and stared at the wall and were determined to figure out what the clue meant and they were not going one step further until they did. The whole game was derailed. Then, it got worse. Since there obviously was no clue there, the group decided the clue they were looking for was IN the wall. The collection of ordinary tools they found conveniently laying around seemed to enforce their conclusion that this was the correct direction. The arrow was pointing to the clue and the tools were how they would get to it. How obvious could it be?

    I stared in horror because it all fit so well. It was better and more obvious than the clue I had hidden. I could see it. It was all random chance but I could see the connections that had been made were all completely logical. I had a crude backup plan and I used it quickly before these well-meaning players started tearing apart the basement wall with crowbars looking for clues that did not exist.

    These were normal people and their assumptions were normal and logical and completely wrong.
    In most ARG-like games apophenia is the plague of designers and players, sometimes leading participants to wander further and further away from the plot and causing designers to scramble to get them back or (better yet) incorporate their ideas. In role-playing games, ARGs, video games, and really anything where the players have agency, apophenia is going to be an issue.
    This happens because in real games there are actual solutions to actual puzzles and a real plot created by the designers. It’s easy to get off track because there is a track.

    QAnon is a mirror reflection of this dynamic. Here apophenia is the point of everything. There are no scripted plots. There are no puzzles to solve created by game designers. There are no solutions.

    QAnon grows on the wild misinterpretation of random data, presented in a suggestive fashion in a milieu designed to help the users come to the intended misunderstanding. Maybe “guided apophenia” is a better phrase. Guided because the puppet masters are directly involved in hinting about the desired conclusions. They have pre-seeded the conclusions. They are constantly getting the player lost by pointing out unrelated random events and creating a meaning for them that fits the propaganda message Q is delivering.

    There is no reality here. No actual solution in the real world. Instead, this is a breadcrumb trail AWAY from reality. Away from actual solutions and towards a dangerous psychological rush. It works very well because when you “figure it out yourself” you own it. You experience the thrill of discovery, the excitement of the rabbit hole, the acceptance of a community that loves and respects you. Because you were convinced to “connect the dots yourself” you can see the absolute logic of it. This is the conclusion you arrived at.”

    Search mediumDOT com, A Game Designer’s Analysis of QAnon

    • I’ve always thought of Q Anon as being a form of RP role playing, cos-play dressing up in costumes and roleplaying, Larping live action role playing,

      it’s a sort of dungeons and dragons that has leaked out of the basement and invaded reality when those cos-play types ‘stormed’ the capitol and started larping about,

      suddenly they are being hunted by the FBI and treated as terrorists, they must be pooping their pants at the over reaction!

  8. In Anticipation of Dr. Morgan’s Epistle on Declining Discretionary Income

    This is very US centric, but probably applies in many other OECD countries.
    Don Stewart
    PS. A theme I have reiterated: high costs generate GDP (which politicians and economists and other fools think is ‘good’) but also make it hard for people whose incomes do not increase to live comfortable lives. And we all know what the effects of scarcity are.

    • Thanks Don

      Not sure about ‘anticipation’, since my piece on deteriorating discretionary prosperity was published back in November! An interesting link, though.

      If we recognize, as I think we should, that de-growth cannot be prevented but can only be managed, then we may have a choice between entering de-growth with a functioning financial system, or without one.

  9. I really don’t have much understanding of the finer points of finance and bonds and stuff but this story looked rather ominous for Western fiat currencies,


    China seems to look like the prettiest horse in the knackers yard for investors at the moment,
    is all investment going to migrate there in the coming months?

    I’m not sure what the West has left going for it,

    no industry of significance,
    over extended fiat currencies,
    nothing that can be invested in that offers a return,

    did Western capitalism die but nobody noticed?

    • One can see why investors might take that view.

      I’ve been interested to see that China seems to have been tightening up its financial regulation recently, which can be seen as positive in terms of risk reduction. If i’m reading China’s recent actions correctly, they might have a remarkably good grip on what’s really happening.

      Specifically, China might be determined to avoid the excesses which have taken Britain – and, one suspects, America as well – ‘past the point of rescue’.Any policy stance which is crazy enough, and is persisted with for long enough, can prove disastrous.

    • If my history serves me rightly, China is the only political entity on earth that has had several discrete empire periods, spanning generations, while all others have had one if at all. This suggests they’re smart because they get things more right, more often, so we shouldn’t be too surprised.

      In hindsight, if I understood correctly, the Soviet Union imploded because they fell for the US ‘Star Wars’ arms race bait and when the oil price fell they went bust. So have the Chinese knowingly or otherwise aided and abetted the ‘Old Western’ countries’ currency debasement race to the economic cliff edge and are now braking to end up standing at the top watching us piling up on the rocks below?

      If so, I admire their wisdom, patience and skill in letting our greed and stupidity bring about our demise without a shot being fired. Not a conspiracy theory for those intolerant of anything they don’t want to hear, just a random thought.

    • As I see it, the USSR collapsed because it pushed an economic ideology much too far. The same has since been done by, most strikingly, the UK and the US.

    • again I must confess I’m confidently out of my depth when it comes to finance at these sort of international and geo-political levels,
      but I’ve often found Michael Hudson quite persuasive in his explanations,
      although it could be an unconscious bias on my part,
      he presents China as having their economic ethos and the US having it’s own economic ethos,
      the relationship between the two economies is complex and one side has different objectives and priorities than the other,
      this is a transcript of a recent webinar presentation by Michael,


    • According to my numbers, sixteen advanced economies, whose combined GDP in 2019 was $45tn, were expected (as of October last year) to run fiscal deficits of $6.65tn (15.4% of GDP) in 2020, and $3.46tn (7.4%) during 2021.

      These projections pre-date the resurgence of virus infections after October. I suspect that the out-turn for 2020 will be about $8.8tn, with at least $5.5tn in prospect for 2021 (remembering the institutions bearing the costs of debt and rent ‘holidays’). During 2020, the Fed, ECB, BoJ and BoE added $8.9tn to their combined assets (essentially QE).

      On this basis, fiscal stimulus would equate to roughly 20% of GDP, essentially matched by QE. Though interventions might be presented as both necessary and reasonable, these figures amount to excess in the context of the resilience of fiat.

    • Tim,
      explained in words that a child would understand,

      is there any conceivable way out of this?

    • As far as countries like America and Britain are concerned, no.

      We will keep on creating government (and private) debt, and creating new money, to the point at which money loses value. We’re not prepared to accept reality, or to say ‘no’ where we should be doing so. We don’t even except that bankruptcy is a normal part of the capitalist system. Our economic ideology has become absurd.

      China is acting very differently. Beijing seems quite prepared to rein in excess, and to allow bankrupticies to wipe out financial ‘value’ in ways that don’t do much harm to the underlying economy, rather than simply keep on creating debt to keep everyone ‘happy’.

    • thanks Tim,

      that’s clear and to the point,
      it’s kinda what I thought the situation was but no one usually spells it out as clearly as that!

    • Thanks, you are welcome.

      The current situation, albeit extreme, typifies long-standing states of mind, especially in the US and the UK.

      Please don’t get me wrong – households and small businesses need and should get support in these circumstances. But too much of this support is created out of thin air, and other objectives, including support for stock markets and property prices, do not meet the same criterion of ‘essential’.

  10. @Dr. Morgan
    As usual, I am confused. I was conflating ‘the end of fiat’ and ‘declining discretionary purchases’. They are both true and both threats, but not the same thing.
    My apologies.
    Don Stewart

  11. I am always pleased when I find some author who is earnestly and sincerely trying to understand the why of our predicament. I appreciate the perspective, and I think it is helpful to remind ourselves in this site of the non-economic manifestations of – not just “degrowth” (far too antiseptic a word) – but decline. There’s a good description in the article referenced below of the cultural decline and caprification of of everything that’s been going on for decades now. The author seems unaware of surplus energy decline and identifies only cultural factors but the cultural (mal)adaptations she references over the last several decades are in fact a way of responding to the declining surplus energy, resource restraints and overshoot.


    “After we ordered, I told Norman [A DOCTOR] I had a question I’d been wanting to ask—and that I wanted his honest answer to it, even if it meant that I had done something wrong. I proceeded to relay to him the entire tale, from the very beginning to that very moment, of what felt to me like our Kafkaesque medical mystery journey.

    How was it, I then asked, that it took my husband and me—both children of doctors, both people with reporting and researching backgrounds, among the lucky who have health insurance, and with access through family and friends to what is billed as the best medical care in the country—years to figure this out [THEIR SON’S MYSTERY HEALTH PROBLEM], and that in the end we only did so basically by accident?

    Norman looked at us sympathetically. “I don’t know how else to tell you this but bluntly,” he said. “There are still many good individuals involved in medicine, but the American medical system is profoundly broken. When you look at the rate of medical error—it’s now the third leading cause of death in the U.S.—the overmedication, creation of addiction, the quick-fix mentality, not funding the poor, quotas to admit from ERs, needless operations, the monetization of illness vs. health, the monetization of side effects, a peer review system run by journals paid for by Big Pharma, the destruction of the health of doctors and nurses themselves by administrators, who demand that they rush through 10-minute patient visits, when so often an hour or more is required, and which means that in order to be ‘successful,’ doctors must overlook complexity rather than search for it … Alana, the unique thing here isn’t that you fell down so many rabbit holes. What’s unique is that you found your way out at all.”

    I had barely started processing this when Norman moved to change the subject: “Now, can I ask you two something? How come so much of the journalism I read seems like garbage?”

    Oh, God.

    David and I looked at each other, simultaneously realizing that the after-school special we thought we were in was actually a horror movie. If the medical industry was comprehensively broken, as Norman said, and the media was irrevocably broken, as we knew it was … Was everything in America broken? Was education broken? Housing? Farming? Cities? Was religion broken?

    Everything is broken.”

    Search TabletDOTcom, “Everything is Broken.”

  12. As for conspiracy theories, how about this: the elites of the American Empire (that’s how I call it, you can use whatever name you prefer) lie way too much and have a lot to hide (ask Assange about it), so the peasants seek alternative explanations of events. In principle, that’s not bad. Of course, some people become overly attached to their conspiracy hypotheses, to the point of treating them as theories, which is unscientific.

  13. Avoiding the Energy Seneca Cliff, the Fiat Money Deadend, and the Sociopolitical Dysfunction Double Bind
    This is going to go beyond the boundaries laid out for this forum, but I will be as brief as possible:
    *Simon Critchley, a philosophy professor, has suggested that our current environment is similar to that of the Greeks of 2500 years ago, when Tragedies were performed by Greek citizens of Athens. The Tragedies feature Double Binds…damned if you do and damned if you don’t.
    *2500 hundred years of at least intermittent science have given us some clues about how to avoid the Double Binds. For the best advice I know about, see this discussion between Lisa Feldman Barrett and Doug Bopst:

    *Critchley gives us an extensive discussion of how Socrates thought that the Double Binds were virtually impossible to solve using Democracy. The great majority of people will fall victim…regardless of what the philosophers counsel them. I suggest you keep that thought as you listen to Lisa and Doug talk.
    *Lisa talks about Bad Things Happening: you lose twice: #something bad happened to you, and #you have to do the cleanup, because nobody else can or will. She says that skills for the cleanup CAN be learned, but it is very hard…even for experienced psychologists.
    *Practice outside the heat of momentary experience is important in order to hone skills. Don’t wait until somebody attacks you and you are filled with rage to practice calmness.
    *Accurate feedback is important (my gloss) because we need to understand that the best option may still be painful
    *Many people today feature “bankrupt body budgets”…fatigue plus sedentary behavior and resistance to learning.
    *And many other points which you can discover for yourself.

    I suggest listening to all of this through the lens which is presented by the dollars and cents predicaments that those of us living in at least Britain and US are faced with.

    Don Stewart

  14. Below is a bit of follow up to a comment I posted here a few articles back.

    I directly experienced the tech bubble bust in 2000, while working for one of the world’s premier tech companies/labs. I am not claiming to be an expert at anything because of that, just that it provided me some perspective. I am therefore following this new technology stock bubble a bit with curiosity and personal financial interest. It is quite astonishing what I am seeing.

    Feels like a speculative bubble:
    -There are a lot of people have vastly increased their personal sum of digital ones and zeros.
    -There are now Special Purpose Acquisition companies (SPACs) in the tech space that seemed designed simply to develop an idea and then get sold to another company.
    -There are people younger than 30, working independently via the internet and subscription services, offering advice/newsletters on the next “Amazon”
    -I see Tech stocks recommended by influential solo investors on Twitter will move 10, 20, 30% the next day
    -Some of these individuals have claims of 100, 200, 300% even 400% portfolio returns over the past several years, and I believe their claims are mostly true.
    -Tech stocks recommended by several investment newsletters seem to be given the halo bias effect and become winner take all in some segments
    -There is an EFT company Ark Investment that invests “Solely In Disruptive Innovation” that seems to play a large hand in driving speculation in small start ups promising to be the next Amazon. (Interestingly, Ark does not show that it has an investment segment in new energy sources….)
    -As you may have heard, Robinhood accounts allow leveraged (option) trading by the average consumer who has little wealth.

    Making the case that this time is different: it does feel like there is something different about this technology period:

    -The computational power of integrated circuits and Artificial Intelligence area like deep learning ARE resulting in breakthroughs in basic science. Breakthroughs include rapid solutions to the protein folding problem. Also advances in quantum mechanics, quantum chemistry, materials science advances based on “new” periodic tables, etc. More advances in many areas are coming.

    -The accumulated science and technology is now allowing for rapid delivery of new technology to “solve” problems. For example, drug companies used computational power advances to develop a Corona virus vaccine in less than one year.

    -There is an astonishing array of new tech starts ups in the U.S. and in China. Of course, some of these companies are directly connected to discretionary spend/consumer spending, such as: ecommerce, advertising, streaming, gaming, personal fitness, travel. But some are working to disrupt high cost consumer areas such as healthcare and education and personal transport (EVs). Then there are the start-ups that have the potential to more fundamentally impact the economy and society, such as artificial intelligence, robotics, 3D printing, space exploration, and Genomics. AI and Genomics are the biggest world changers, and also the scariest.

    -Left out of the above, energy technology to replace fossil fuels. That is most fundamental of course. That is a whole discussion, but my assumption is advances beyond solar and wind are needed, and might be provided through breakthroughs in basic science and tech as discussed above.

    So many questions, no answers expected, all things seem speculative now:
    – How much of this innovation can continue after the next financial crisis?
    – In general, how does this tech revolution play out as fossil fuel surplus energy (rapidly?) declines?
    – It has been speculated that one of the reasons the U.S. Federal Reserve engaged in monetary intervention over that last 12 years was to support the U.S. Shale production. Are the central banks engaged now in a hope and prayer strategy of funding a technology revolution? COVID complicates things, but why else allow such a speculative financial bubble to form? I know that probably just conspiracy thinking….panic and fear are simpler explanations.

    In summary, it is strange to contemplate that we are at the precipice of an energy production and consumption curve, a financial and societal crash, and at the same time be at a moment of possible fundamental new breakthroughs in science and technology. I feel like I am in the middle of science fiction novel. I wonder how it will turn out. Stranger than I can imagine, I imagine.

    • I appreciate your scenario, Shawn. I’m not a quant or techie, so your views help to fill in many gaps in my understanding.

    • Shawn

      The laws of thermodynamics stand immutable .
      This is why surplus energy economics is so important.
      Financial engineering is as defunct as the slide rule.
      Digital technologies of blockchain, AI and Bitcoin are the revolutionary concepts yet to be understood by the “powers that be . I would imagine these are the bases of some of the start-ups you referred to; At least the ones that might have any chance of survival.

    • Shawn presents the situation with admirable clarity whilst, of course, the laws of physics always win in the end. Trainee pilots are sometimes warned that “Isaac [Newton] is always waiting” (if you get it wrong, gravity will get you). With the economy, it’s thermodynamics that always waits to punish mistakes. One could take this further, remarking that, in economics as well as in aviation, mistakes are often caused by ignorance, complacency and hubris.

      I often wonder whether some sort of solution is possible, even at this very, very late stage. But this would only be the case if we (a) recognized the economic reality of surplus energy, and (b) dropped our obsession with extremes.

      The USSR was a case of extreme belief in the ability of an all-wise state to run everything. Much of what has happened since has been a consequence of the opposite extreme, i.e. a belief that unfettered greed can drive the economy. Neither has worked, because extremes almost never do.

      Even during the covid pandemic, certain countries have persisted in the belief that private incentive, asset price inflation and a monetary system put at the disposal of these articles of faith can prevail. We can see this in everything from outsourcing covid responses and keeping international travel open to propping up stock markets and property prices.

  15. The bubble is in money itself now, which was always going to be the case when the fed decided its balance sheet would pay out all bad bets in 2008. Well bad bets made by connected people anyways.

    • Back in 2008-09, the choice was between rolling back on ‘credit adventurism’, accepting the costs of that failed policy; or doubling up with ‘monetary adventurism’, doing to money what we’d previously done to debt.

    • Tim

      Doesn’t the answer you just supplied insist that they know what they’re doing?

  16. Like spoiled children are leaders decided that if they were going down, they’d take everyone with them.

    • “It might be a simpler matter of (a) not knowing what they’re doing, and (b) lacking the humility to admit it.”

      So spoiled children then?

  17. Quick summary: another superb article from Dr. Tim, and some very interesting and informed comments from posters. I’m afraid that my contribution is not going to provide much enlightenment but in reading the latest postings there are a couple of quotes that came to mind. The first, from the French moralist, Francois de la Rochefoucauld: ‘The highest offices are rarely, if ever, filled by the highest minds’. The second is attributed to Mark twain: ‘What gets us into trouble is not what we don’t know. It’s what we know for sure that just ain’t so.’ I couldn’t help but think also of J. A . K. Galbraith’s book on the Wall Street Crash of 1929 which has a chapter titled: ‘Twilight of Delusion’. At the risk of sounding trite, I think the ideas expressed in these quotes encapsulate our current predicament rather well.

  18. https://the-fifth-law.com/
    The Arrow of Energy – “Energy, like time, flows from past to future”.
    A thermodynamics thought experiment for the modern-age Physics:
    Take two backup generators of the same grade and quality – one rated at 5 kW, and the other 30 kW.

    An unlimited fuel supply is provided for both generators.

    The 5 kW generator will cease functioning well before the sum total of useful work it produces matches the total energy generated by the 30 kW unit during its lifetime.

    Why so, given the unlimited fuel supply available to both generators, which makes them truly open systems?

    It is not the fuel supplied to an energy-generating device that limits the sum useful energy produced, but rather the total energy expended in constructing it.

    As the 30 kW generator consumed more energy in its construction than the smaller 5 kW unit, the smaller generator cannot match the sum useful work of the larger device.

    No energy system can produce sum useful energy in excess of the total energy put into constructing it.

    This universal truth applies to all energy systems.

    Energy, like time, only flows from past to future.

    The Fifth Law of Thermodynamics and The Arrow of Energy, proposed 2017.

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