#192. The Great Dilemma


Governments in general – and finance ministries in particular – face a tricky dilemma.

Simply stated, the dilemma runs like this. If governments don’t keep pouring liquidity into the economy, activity will slump, numerous businesses will collapse and voters will face extreme hardship.

But if they do carry on with gargantuan financial largesse they risk, not just a surge in inflation but, quite possibly, an associated rise in interest rates.

The only practicable line for finance ministers (and central bankers) to try to walk is a “Goldilocks” one, avoiding the extremes both of an overheating financial system and of an excessive cooling of the economy.

The theory is that, if they can tread this course adroitly, economies will enjoy the benefits of a return to growth, with inflation in due course falling back into a preferred range somewhere between 1% and 2%. If achieved, this would amount to a return to what was, in the 1990s, sometimes called “the great moderation”, describing a combination of solid growth and subdued inflation.

If conventional, ‘money-only’ economic interpretations were valid, it might just about be possible for them to walk this line – in reality more like a tightrope – and find solid ground on the other side of the crevasse opened up by the coronavirus crisis.

But energy-based interpretation reveals that no such solid ground exists. Rather, something not unlike stagflation has long been hard-wired into the system. Whilst global GDP expanded at a trend rate of 3.4% between 1999 and 2019, growth in underlying prosperity trended at only 1.25%, and has now ceased to grow at all. This disparity of itself suggests that broad inflation has long been far higher than reported levels. 

None of this should really come as too much of a surprise. After all, pouring cheap credit and cheaper money into the system has been going on for more than twenty-five years, and energy-referenced analysis, as provided by the SEEDS model, reveals that this has done no more than disguise the reality that relentless rises in ECoEs (the Energy Costs of Energy) have put prior growth in material prosperity into reverse.

The aim here is to start by explaining the fiscal and monetary dilemma as it appears on the surface before moving on to use SEEDS analysis to explain why the problems are in fact both structural and insurmountable. In doing so, we need to refer to market expectations, which makes it appropriate to remind readers that this site does not provide investment advice, and must not be used for this purpose     

Loaded for inflation

We should be clear that the balance right now is heavily tilted towards inflation. Throughout the coronavirus crisis, governments have been able to replace the incomes but not the output of idled workers and businesses.

This amounts to supporting demand at a time of extreme contraction in supply.

This is why we’re already seeing inflation spiking in a number of categories, affecting anything that might be in short supply during a vaccine-driven economic rebound. We can infer that official expectations are that this is a transitional effect, likely to ease as capacity is restored, and demand-side stimulus fades. Be that as it may, significant inflationary pressures are showing up across the board.

This perception may have influenced asset market participants, who have bought in to the “Goldilocks” plan but with a distinct bias towards the inflationary side of the equation.

If investors were to factor higher inflation into their calculations, we would expect them to favour those asset classes (such as equities and property) which could be counted on to – at the least – ride the rising inflationary tide. They would steer clear of cash, and be wary of bonds, because, in an inflationary climate, interest rates might rise enough to drive bond yields upwards (though not by enough to make cash a viable preference). They might look favourably on assets such as cryptocurrencies and precious metals which could be perceived as hedges against inflation.  

This, by and large, is what has been happening. Markets, it seems, are expecting policymakers to ‘talk hard and act soft’, combining hawkish homilies about debt and inflation with a continuation of generous support for households and businesses.

This stance echoes the prayer of St. Augustine, who called on the deity to make him virtuous – “but not yet”.

Furthermore, investors, no less than the authorities, must be aware of the delayed price-tags attached to some of governments’ covid response initiatives. For instance, granting interest and rent “holidays” has inflicted substantial losses on counterparties such as lenders and landlords, and these costs must in due course be made good, unless we’re prepared to accept failures in counterparty sectors.

We should, then, anticipate some virtue-signalling tax rises which, in sum, amount to little more than small down-payments on the enormous costs of combating the pandemic.  Not for nothing has inflation been called “the hard drug of the capitalist system” – it offers a beguiling short-term alternative to painful and unpopular adjustment to economic stresses.

The energy point meets the expectation bubble

Guided by conventional interpretation – whose faith in ‘perpetual growth’ is, as yet, unshaken by events or anomalies – governments and investors alike believe that there exists a ‘promised land’ which, if we can once reach it, combines real growth of at least 3% with inflation of less than 2%.

The fatal error on which this supposed nirvana is based is the belief that economics is nothing more than ‘the study of money’, such that energy and broader resource limits to material prosperity do not exist.

The reality, of course, is that everything (including other natural resources) which constitutes economic output is a product of the use of energy, whilst money is nothing more than a medium for the exchange of energy-enabled economic goods and services. The fly in this ointment isn’t that we might ‘run out of’ any form of primary energy, but that energy supply costs (measured as ECoEs) might undermine the dynamic by which energy is translated into economic value. 

As regular readers know, the undermining of this energy dynamic is exactly what we’ve been experiencing over a protracted period. Global trend ECoE has risen from 2.6% in 1990 to 9.2% now. Along the way, this pushed prior prosperity growth in the advanced economies of the West into reverse from 2006 (at an ECoE of 5.7%), and is now doing the same to less complex, less ECoE-sensitive EM countries. There’s a whole raft of flaws in the thesis that we can transition, seamlessly and painlessly, from increasingly costly (and climate-harming) fossil fuels to renewable sources of energy.   

The weakening energy dynamic is precisely why, globally, we’ve spent two decades borrowing $3 in order to deliver $1 of “growth”, and why the ratio of borrowing to GDP has averaged 9.6% to support “growth” of just over 3%.

We’re at the point now where, if they wish to sustain a simulacrum of ‘growth as usual’, the authorities will find it necessary to pour ever-increasing amounts of liquidity into the system. In so doing, they will be creating financial ‘claims’ on economic output that the economy of the future will be unable to meet at value.

At the point at which the ‘real’ economy of energy can no longer support even the illusory sustainability of the ‘financial’ economy of money and credit, the value supposedly contained in these financial “excess claims” will have to be destroyed. Whilst “hard” defaults cannot be ruled out, the balance of probability favours the “soft” default of rampant inflation.

Optimistic investors might, if they were aware of this, think that ‘real’ assets, like equities and property, can still maintain their real value by rising by at least as rapidly as inflation destroys the purchasing power of money.

This, though, is to ignore the effects of the involuntary de-growth induced by the decay of the energy dynamic. As prosperity recedes, consumers will be forced to choose between sinking into a quagmire of debt or adapting to the rising real cost of necessities by cutting back on discretionary purchases.

Whole sectors will suffer utilization rate erosion as prior gains from economies of scale go into reverse. De-complexification of the system will strip some sectors of critical mass, whilst simplification of products and processes will de-layer entire sub-sectors out of existence. Even the Fed cannot sustain the stock prices of businesses whose profitability has ebbed away

It was once famously said that inflation is “always and everywhere a monetary phenomenon”. In our current situation, inflation is likelier to be a ‘denial phenomenon’, if we insist on trying, financially, to engineer “growth” when the critical energy equation is heading in the opposite direction.     


140 thoughts on “#192. The Great Dilemma

  1. Many thanks for this additional analysis. You write, “this would amount to a return to what was, in the 1990s, sometimes called “the great moderation”, describing a combination of solid growth and subdued inflation.” In line with this way of thinking, there are now many prognoses of new growth after the “interruption” by the coronavirus. Wouldn’t this new growth require a lot of additional energy? Over the last decades, global GDP growth has always required additional energy input. According to Gail Tverberg, it has even been associated with a growth in *per-capita* energy consumption. Are the amounts of fossil fuels with sufficiently low ECoE available for this? Probably not. And if not, when/how will the world come to understand what is going on?

    • Thanks. After the sheer extent and detail of the previous article, I wanted to concentrate on something of immediate relevance.

      Yes, it would need more energy – moreover, it would need more energy per capita, if only to offset continuing rises in ECoE. In fact, energy supply per capita is poised to fall, just as ECoEs carry on rising.

      We’re a long way down the rabbit-hole of worsening energy economics and accelerating delusion, the latter through financial “innovation”.

  2. Ah, today is a good day. A new budget and a new SEEDs blog post.

    Penny for your thoughts on the former, Doc?

  3. Re:
    “Whilst global GDP expanded at a trend rate of 3.4% between 1999 and 2019, growth in underlying prosperity trended at only 1.25%, and has now ceased to grow at all.”

    I’m unclear how GDP growth, normally a gross number, compares with prosperity- normally a p/capita one. Have you averaged both with population growth? In the 20 years, nearly 2 B net additional humans joined the economy, which obviously boosted global GDP.

    • The reference here is to global aggregate prosperity, which from here on is now essentially flat-lining.

      The per capita number is falling, in line with continuing increases in population numbers. The latter may level off, or indeed fall, but by then the aggregate number will be trending downwards.

      The numbers around trend growth in GDP and prosperity – and, indeed, what I’m planning to call “comprehensive inflation” – might be something we can discuss in more detail at a later date.

  4. Currency debasement it is!

    I do wonder if, 12 months hence, a penny may drop on a lot of what is being touted as a jab in the arm for the economy (to echo what is literally happening to workers).

    For example, the energy problem will potentially be more evident if what the KSA is presently doing is due to no recourse, rather than voluntary. If they’re having issues raising output, as the shale industry is in the States due to indebtedness, that would put a major brake on any supposed recovery.

    • Thanks – on debasement, what I set out here isn’t a new interpretation on my part, but I wanted to explain my thinking in the current climate of debate.

      I’m quite sure that KSA will have problems raising production.

  5. Thank you, Dr Tim.
    We have just had the UK Budget announcement – much of which was announced in advance (not like in Chancellor Dalton’s day when an aside to a journalist led to a prompt resignation). I was, however, slightly surprised by the introduction of “fiscal drag”, meaning that many personal tax allowances (including things like pension contribution allowance and inheritance tax thresholds) are being frozen for five years. This may well lead to a reduction in consumption on the part of some in society, thus potentially defeating the stimulus package for the broad economy.

    Although you argue, with clarity, for higher inflation and longer-term “stagflation”, my hunch, for what it is worth, is that the costs of essentials are indeed rising and (setting aside post-Brexit import costs) those of many discretionaries reducing. Maybe we will still see a strong debt/deflation effect?

    Also, fiscal drag will magnify the change I have found among my clients in that they seem less concerned about going out to spend money on “stuff” than they might have been in 2019. Increasing local taxes and, yes, the cost of energy are a big part of the reason, I feel.

    • Thanks Mark. Actually, a disparity in the inflation of essentials and discretionaries is wholly logical, and perhaps should have been mentioned in the article. Essentials are more exposed to supply shortfalls, whilst discretionaries have [already] benefited from income support.

      On the UK budget, which I’ve only seen in outline, fiscal drag is a stealth tax, and will be understood by experts as a nod towards higher taxation in the future, but the general public (i.e. voters) might not know “fiscal drag” from drag-racing, so to speak. It brings in and embeds higher taxation in the future, but won’t, in the short term, do much to decrease debt and deficits.

      I’m sure you’re right about local taxes and the cost of energy affecting your clients’ thinking. But might your clients not be representative of a larger, perhaps younger demographic that’s itching to spend on trips to the pub, a holiday in Benidorm and the latest gadgets?

  6. Dr. Morgan

    Asking, for clarity. Have always been a bit perplexed by deflation/inflation. Maybe I am confused because these terms generally refer to things that happen in a growth economy.

    If prosperity is declining due to net energy decline, would not the broadest overall trend be one of deflation? The air coming out of the balloon is the analogy in my head. Maybe there should be a new word for “terminal economic contraction due to net energy decline” I guess that word is “degrowth” but maybe your German readers can manufacture a useful new word. (I see now in your article you said “involuntary de-growth induced by the decay of the energy dynamic.”)

    Within this net surplus energy decline environment, as you have pointed out, there will be cost increases, particularly in non-discretionary items, due to the loss of economies of scale, etc. Also from the long term trend of rising costs of extraction of natural resources (diminishing ore quality for example). These cost increases would happen even if there were no monetary inflation produced by central banks? I am thinking these cost increases are not “inflation” per se because they are not a monetary phenomenon?

    In addition, near to mid-term, it seems that central banks and governments can distort (inflate) all prices for some time with liquidity measures and deficit spending. But isn’t most money created as “credit money” by commercial banks et. al when they lend to businesses and consumers? Is there a point where commercial banks stop lending and the money supply rapidly contracts beyond the central banks capacity to manage?

    Had lunch at one of my favorite fast good food spots yesterday. Meal prices had been raised by $1 USD. I thought to myself, if prices go up another $1dollar, I will just eat lunch at home. Many items in a typical family budget would have a similar kind of price/affordability ceiling.


    • Thanks Shawn.

      The inflation issue, now and for the foreseeable future, is monetary policy – do the authorities keep believing in ‘stimulus can fix anything’, even when it’s clear that they are, so to speak, ‘pushing on a string’?

      I think they will ‘keep the faith’ on stimulus, well beyond the point of diminishing returns, and even if/when the penny drops that it’s not working…..

      After all, what else can they do?

  7. Wall Street REITS own most of the rental property in Hicksville, where I live. I suspect a big gov bailout coming.

    • I’m sure you’re right – rent and debt ‘holiday’ costs must have been huge, adverse resets to future rents are likely, and lenders/landlords, collectively, must surely be regarded by the authorities as TBTF.

  8. Dr Tim,

    I’m sure you are right in that most of my clients are not missing holidays at Butlins! I have discerned, however, a subtle shift in the way that many people I meet think about their relationship with financial matters; something I find encouraging.

    For instance, a larger element of “self-reliance” has been noticed as those who have reasonable incomes and larger liabilities than they would like (mainly big mortgages due to grossly inflated UK residential property prices) are thinking more about and indeed arranging financial insurances such as life, health and disability cover. Rarely have I experienced new enquires regarding these from the client rather than from me, if you understand my point.

    Those with fully invested pension funds are now reconsidering the relative merits of annuities (in my opinion, the optimum retirement income product). Historically low interest rates are often used as a reason to avoid purchasing an annuity right now and forever locking in current interest rates. The logic is that interest rates could increase in the future, which would help support a higher subsequent payout rate from annuities if one waits. This isn’t correct in the context of a full retirement plan. We have to remember mortality credits implicit in annuity rates, thus making annuities a better choice for retirees than bonds, for instance. While waiting for annuity rate to “go up”, individual retirees might be at significant risk of spending their principal when spending exceeds interest and dividends. The likelihood of having to dip into the principal increases.

    Other with investment portfolios are commonly eschewing ETFs and mutual funds for that wonderful Victorian invention, the investment trust. Several have a track record of increasing their dividend every year for 40-50 years, which is rather impressive. Cheap to keep, too.

    So, am I witnessing a very slow return to more traditional ways of investing and allocating capital? I think I am, and this is very encouraging.

    None of the above should be taken as investment advice, of course!

    • I have no experience in investments .My immediate reaction to your statement is that over the last “40-50 years “ any dividends have been the result of the “cheap “ energy model that has been followed. Clearly that trajectory will not be continuing due to decreasing EROEI.

  9. Marc,

    My problem with annuities is that, while the idea is great, by taking an annuity one assumes the credit risk and solvency risk of the issuer (a private company, not a government that can print its money), which has to invest the funds somewhere to deliver the promised returns and cash stream. The issuer’s investment options aren’t really that more extensive than than the buyer’s options, but presumably the issuer is better able to employ leverage for investing ( a pro and a con) and a is a better money manager and more informed investor. In an era of degrowth, however, investment is going to be quite dicey. My fear is that the security of annuity is largely quite illusory – in this new environment.

    Since returns are largely gone in the ZIRP and NIRP world, retirement is now a game of amassing sufficient principal in the form of cash or other assets (some income producing, and some inflation hedges like PMs) to cover approximately 20 years of living expenses, in a currency-debasing, declining purchase-power world. Ugh! Worse, since this has only become apparent since the 2008 financial crisis, if you were in your 50s when that happened, you haven’t had a lot of time to ramp up the savings. A real nightmare scenario for a LOT of people.

    Pardon the personal account, but I am fortunate to have had a job that enabled me to save some funds for retirement. I could buy an annuity. However, my current Plan A, such as it is (and not being offered as investment advice, everyone must find what works for them), is to keep my modest Boston (mortgage-free) condo as a rental property when/if my wife and I move out, acquire 4 – 6 acres, at least 2 acres of which is field for gardening and for fruit bushes and trees, in – LOL! – a Goldilocks rural area that doesn’t have high property taxes (central Massachusetts) put up a 30′ diameter high quality, “arctic insulated” Yurt such as those made by Shelter Designs in Montana, which will be very low maintenance, and very able to handle heavy snow loads and extreme weather including winds up to 100mph, with a well, electricity, gas/propane appliances and a good wood burning stove, and be able to grow a lot of our own food and supply our own water and heating needs from trees on the property. I am still working on details but I believe I can do this for around US$200,000. I’ll still have some savings left, will have whatever rental income I can get from the condo and social security benefits for as long as they last or as long as dollars are worth anything, so I believe this will provide better peace of mind and security than an annuity.

    I grew up in a small town in rural Pennsylvania northeast of Harrisburg, so rural life is good with me. It has its joys not the least of which is just being in or closer to the natural world.

    • Tagio,

      I raised the credit issue several months ago. Someone responded that the UK government guarantees annuities underwritten by private companies. Canada too I think. No such luck in the US with its corporate socialism.

    • As Mr Kurtz says, tagio, in the UK, annuities are the only financial product that are 100% guaranteed by the government. The last time a UK Life Office ran into serious solvency issues in the 1980s (UK Provident), it was swiftly merged into a larger firm. All annuities were honoured. The last time an annuity actually failed was when Henry VIII was the king, when he abolished the monasteries, some of whom offered prototype annuity contracts, called Corrides, I believe.

      Mr. Ralph Bagshawe and his wife Agnes came from Devon. According to records held in the National Archives in London, they paid Forde Abbey a lump-sum of £20 in 1533. In exchange, they were promised the following benefits per week: (i) eight wagonloads of firewood, (ii) four loaves of conventional bread, (iii) three loaves of wholemeal bread, (iv) five gallons of regular beer, and (v) two gallons of small beer. In addition, Ralph and Agnes were to receive two measures of fish and meat, per week, and a cash allowance of approximately £5 10s per year, for life. As Moshe Milevsky, for whom I thank for noting this, said “Nice retirement for 1533!”

      The other thing worth thinking about is underestimating your life expectancy. An annuity is a form of “longevity insurance”, and have been around for centuries. It isn’t true that everyone in the past died young – the figures are distorted by the horrific child mortality rate. In the 18th century, if you hit 70, you would very likely live to 80. Look at your Presidents. Although George Washington died at 67, the second president John Adams lived to 90, Thomas Jefferson lived to 83, James Madison lived to 85, James Monroe lived to 73, John Quincy Adams lived to 80 and Andrew Jackson lived to 78. As a matter of fact, the average age at death of the first seven U.S. presidents was 80. Oh, and the great Benjamin Franklin made it to 84. (Milevsky, again).

      Today, the picture isn’t so very different, excepting, thank goodness, vastly more children do not die (at least in the developed world) compared to 100 and more years ago.

      Draw too much from your investments and you will run out of money. This is a fascinating subject, but, as I am sure Dr Morgan will agree, this is not the place to go into any more detail.

    • Marc, that is an amazing history and I see it may make a difference to people in the UK. Here in the U.S. I would never trust any government guaranty. Here, as soon as it was apparent that Social Security would, because of demographics, become a net drain from, instead of a net inflow of revenue into, the Treasury, the politicians have been itching to make cut backs. The current letters that the SSA sends out notifying people like me of their benefits warn that the fund will run out of money by a certain date (early 2030s, if I recall correctly) and that benefits will then be reduced to reflect what is coming in – despite the “promises” that have been made. So that’s the way we roll here. The Supreme Court has ruled that “entitlements” are not vested rights, so legally the rug can be pulled from under your feet at any time.

      But yeah, off topic here.

    • People fret so, understandably, over providing for their retirement in so hostile an environment.

      But might it not, for peace of mind, be far better to recognise that there is no security at the end not just of life, but of a civilisation – which is clearly where we now are – and recall that when cash or health run out, suicide has always been regarded as honourable in sane non Judaeo-Christian societies?

      There is, quite simply, no need to live in dire poverty. As conditions worsen – as they must – there can be little doubt that euthanasia will become common and an accepted custom, as in past times. Although, hopefully, old men will not be finished off by their young wives impatient to be rid of them, as Jared Diamond described in tribal New Guinea But who knows?

      Experience also shows that those who think they have heaps of guaranteed savings/ income still fuss about potential poverty in their last years. There is never any real peace of mind.

      It is also quite likely, being realistic, that antibiotics will fail us in the near future due to past abuse, and most will in fact exit stage left on their 50’s or even far earlier, and quite suddenly.

    • @The Laughing Philosopher
      “But might it not, for peace of mind, be far better to recognise that there is no security at the end not just of life, but of a civilisation – which is clearly where we now are – and recall that when cash or health run out, suicide has always been regarded as honourable in sane non Judaeo-Christian societies?

      There is, quite simply, no need to live in dire poverty. As conditions worsen – as they must – there can be little doubt that euthanasia will become common and an accepted custom, as in past times.”

      Thank you for your whole comment here. I agree with you 100%. After all, one of my most favorite movies is Harold and Maude in which Maude has decided years ago that she’s going to take her life at age 80. And when this whole ridiculous “civilization” crashes before too long I’ll be following her guidance and your words. Why try to survive in a Mad Max world? When there won’t be any rebuilding from the ashes. Plus all that CO2 in the atmosphere is going to keep things warming and tipping more tipping points and the heat and extreme weather will wipe out any segments of remaining agricultural efforts. So yeah, although I do have “retirement investments,” (that, yes, I fret about, even though I’m not yet retired and never will be ), my best one cost $40: a cheap charcoal grill, charcoal, lighter fluid, matches. Fire that baby up, bring it inside, go to sleep forever. The main point for me being to live life now. Be grateful for every single little thing.

  10. Many of my favorite Macro thinkers are talking about Mises Crack-up boom. But many of these thinkers come at the system from a finance first perspective. Do you see any corollaries with Mises’ theory and the inflation you see coming?

    • A crack up boom is pure Austrian economics. The theory is that as people realise that fiat currency is declining and eventually disappearing in value there is a rush to hard assets which causes a brief upsurge in the prices of those things

      Interestingly a sort of crack up boom was observed in 2012 in Greece. People thought that there was a serious chance of being dumped out of the Eurozone and reverting to the Drachma (which would have promptly crashed). People rushed to buy cars jewellery in fact anything with perceived physical value to try and protect their wealth

  11. “explaining the fiscal and monetary dilemma as it appears on the surface before moving on to use SEEDS analysis to explain why the problems are in fact both structural and insurmountable.”

    I suggest that if we keep our framing from the point of view of the central banks, the problems are indeed insurmountable. But the problems are NOT insurmountable if we widen our perspective to be quality of life for the citizenry. Painful transitions but not insurmountable over the coming decades. (In the very long terms, perhaps insurmountable.)

    If we look at the U.S., we see that we are spending 3 times as much on health care as we spend on energy. In terms of quality of life, if we can reduce health care by 1 percent we offset a 3 percent increase in energy cost.

    Is it possible to reduce health care costs without a loss in quality of life? Yes, in fact we can increase quality of life if we reduce health care costs intelligently. Chronic disease is now dominant in terms for the composition of health care expenditures. And almost all chronic disease is caused by low grade chronic inflammation in the body, from severe Covid 19 to heart disease and cancer. We can measure the inflammation with relatively cheap lab tests. For example, vascular disease inflammation is detected by hsCRP, fasting insulin, fasting glucose, fibrinogen, and homocysteine. Increases in the production of cholesterol are also indicative of underlying problems…why is the body increasing production of cholesterol? The current cure-all in standard of care is to prescribe statin drugs, which cripple certain cholesterol producing pathways in the body. But all that does is obscure the signal, lulling us into a belief that the drug has cured the disease. But we know that half of heart attack victims have normal cholesterol…so hammering the cholesterol level with drugs causes severe side effects and is not eliminating the problem.

    The tests listed above can be done routinely. Leaving aside environmental toxins (which are a direct effect of government inaction), all of the risk factors can be changed through lifestyle modification. Leading that change will be overhaul of the diet, but also including factors such as moving the body (preferably purposely rather than body building in a gym) and getting good sleep. In order to effect change, we have to eliminate government subsidy for chronic disease treatment. The public needs accurate feedback and they need to feel pain if they do not respond appropriately.

    In short we would be eliminating a raft of GDP which consumes a lot of energy to free up energy to use to produce goods and services much more productive of quality of life. Such a restructuring would be painful…but I would suggest that the data you present argues that it is essential. In the last reference I made to Dmitry Orlov’s take on the current global economic situation, he said that deep restructuring is required everywhere…but that China and Russia are better off than most. I won’t speculate about whether one country is better than some other country, but I do agree with Dmitry that deep restructuring is required in the US. Can a central bank make that happen? Yes, but only by letting the money supply contract….and we had experience with that from 1929 to 1933. Ray Dalio has argued that the hyperinflation in Germany after WWI cleared the decks and allowed for restructuring which led to a renaissance. Hyperinflation kills the currency, effectively becoming a much more severe case of monetary shrinkage. It may be too much to hope that we will have a renaissance, but it may very well be possible to have some increase in quality of life by tackling some of the dysfunction which fossil fuels and credit expansion have facilitated. Accurate feedback is the sine qua non.

    Don Stewart

  12. A couple of points from the last post on Louis Arnoux and Albert Bates and village scale technology. Albert in discussion with Daniel Christian Wahl…look at the 35 minute mark and listen for 15 or 20 minutes for Albert’s proposal for a village scale Cool Lab in a poverty stricken part of Belize:

    Louis Arnoux also has had a village scale perspective:

    I suggest that both of them are promoting technologies which are consistent with Degrowth, but are not interesting to people like President Biden (who Albert predicts will waste a lot of money).

    Don Stewart

  13. with the prospect of significant inflation becoming more likely I find myself bewildered by the lack of a credible measure for inflation,
    currently CPI lacks credibility, should we just guess, estimate or crowd source the input data and calculate our own rate?
    I know John Williams addresses US CPI but I can’t find a UK equivalent.

    • John Williams’ stats are excellent, but only cover the US, as far as I know.

      I’ve been thinking about the precise same question as you, and using SEEDS to try to calibrate it. There are various ways of trying to work this out, but a general problem is that indices tend to cover only consumer spending, and exclude asset prices. You might know that I devised the UK Essentials Price Index when I was head of research at TP.

      The name I’ve given to my investigation project is ‘reconciled rate of comprehensive inflation’ (‘RRCI’). I won’t go detail about it, as it’s still just experimental, ‘work in progress’. But, applied globally, it appears to indicate that broad inflation (the ‘GDP deflator’ as used to calculate ‘real’ growth) between 1999 and 2019 was 4.1%, rather than 1.9%. Compounded, such a difference is very significant.

  14. The other Tim chiming in on inflation possibilities and tentative predictions: https://consciousnessofsheep.co.uk/2021/03/03/what-if-growth-cannot-return/

    He reminded me of a couple of thoughts I had with relevance to our future prospects. Once people are released from lockdowns, a significant % will find their job-costs-of jobs (paralleling the eCoE concept) rising, so reducing their income and savings. Many had moved to cheaper places once not needing proximity to their workplaces when allowed to work from home, others moved in with relatives, they also no longer had to pay for work-related transport, food, clothing, events etc., etc. Those expenses are a tax on having a job and can be considerable as anyone who has worked knows.

    Also, the only significant global population growth now predicted is almost all in Africa, which is relatively isolated from world energy use already, so probably won’t affect total demand much in that they mostly can’t afford it anyway, even now. So if that demand is ebbing away due to demographics as well as spending power, inflation in non-essentials at least should follow.

  15. “What If” indeed. I’m unsure how to pingback.

    “As regular readers will be aware, the fundamental crisis is the growing divergence between the “real” – energy-based – economy and the magic money tree financial economy where fiat currency is literally spirited into existence at the stroke of a keyboard. The rise in the energy cost of energy in the past four decades has caused ever more energy – and ultimately wealth – to be focused on securing energy (extracting fossil fuels, generating electricity, growing food, etc.). “

  16. There are some lonely voices even in the MSM warning that the current system is unsustainable, they’re just drowned out: https://www.theguardian.com/uk-news/2021/mar/04/uk-living-standards-to-stagnate-even-after-covid-crisis-fades-warns-thinktank

    Anecdotally, looking at food staples in my local shop, they’ve increased significantly in price, with the most globally important alone (rice) averaging 20%. If I recall correctly, the main reason the Arab spring kicked off around a decade ago was sharply rising food costs, whereby the poor then had nothing to lose. Another canary in the mine keeling over?

  17. Congrats, Tim, you’ve garnered a notable mention in CHS latest, “When Does This Travesty of a Mockery of a Sham Finally Implode?” Obviously he is now a reader, which is fantastic. It’s a really good article.

    • we all seem to be following a similar list of commentators and analysts,
      I think I’ve noticed a trend over the last few years of a converging of viewpoints and we might be approaching the point of reaching a prevailing consensus,

      I wonder if there is mileage in staging an alternative Davos forum which could present an energy based interpretation that would counter and refute the WEF’s Great Reset proposition,

      I think we could nominate a pretty impressive panel of delegates from both sides of the Atlantic and some from Europe, Russia and Oceania,

      it could be done online as Davos was this year and the covid restrictions still dictate,
      if it was publicised and promoted competently it could possibly pierce the MSM bubble and enter the mainstream,
      even if that wasn’t achievable it could make a big splash online with the alt media,

      maybe with the world building up to emerging from lockdown, the new American Presidency still being in it’s infancy and the Great Reset still in the idea format and not yet an active policy it might be a good time to make a media splash and throw a big fat gnarly idea cat amongst the rather bewildered consensus pigeons?

      does this sound viable, worthwhile and deliciously disruptive?
      and who might reader want to nominate as discussion panel members?

      I can think of some media savvy candidates in the alt sphere that might anchor such an event.

    • It’s certainly a very interesting idea (and I really like your gnarly cat and consensus pigeons!)

      As for the mainstream, that tends to change over time, as participants see competitive advantages in being aware of, and informed about, alternative lines of thinking and interpretation. For instance, governments and politicians may see advantages in being more prepared (better informed) than other governments or parties, and commercial organisations may see competitive advantages in being better informed than their rivals.

      All that I can do, as I see it, is to model the economic situation from an energy perspective, and present the results as neutrally and impartially as possible.

    • That is a link to your personal email inbox – not something the public can see.

    • @gbell12
      Thanks for pointing out my mistake. The reference is to a report by a Wall Street company. I’ll quote some of the content….Don Stewart
      “The IEA’s World Energy Outlook generated a lot of attention when it was released. Upon closer inspection, we believe the report makes two critical mistakes. While [the report projects] CO2 emissions fall to 15 bn tonnes by 2040, the drivers of the reduction seem questionable. For emissions to fall 60% over the next twenty years, the IEA assumes per capita energy demand will fall by 25% while CO2 per unit of energy drops by 50%, offset by population growth of 20%. Together, these factors equate to a 60% reduction in total carbon emissions and keep atmospheric CO2 to within 450 ppm. Unfortunately, neither energy intensity nor carbon intensity are likely to fall anywhere near the amount predicted by the IEA.

      “Few people are aware that most climate proposals are based on consuming 25% less energy. According to the BP statistical review, there has not been a single 20-year period since their data begins in 1965 where per capita demand has fallen by more than 0.1%, making this assumption untenable.

      “We have spent years studying energy trends in emerging markets. Over that time, non-OECD countries have gone from consuming 40% of all primary energy to 60%. As an emerging market gets richer, it reaches a tipping point and starts to consume more energy. Once an economy is developed, it reaches a saturation point and energy demand moderates. Since 2000, non-OECD countries have grown their primary energy demand per capita by 65% compared with a reduction of 10% in the OECD world. Even following two decades of strong growth, non-OECD demand is still 70% below OECD levels suggesting more growth is yet to come. Non-OECD real GDP per capita is expected to double over the next 20 years, suggesting these trends will continue. Instead, the IEA projects emerging market per capita energy demand will fall by 20%. Simply put, this is impossible. Over the last two decades, real GDP doubled, and energy demand rose 60%. Even if this relationship is cut in half, the next doubling on GDP would result in energy demand growing by 30% by 2040, not falling by 20% …

      “Unfortunately, carbon intensity per unit of energy consumed is unlikely to fall by the 50% assumed in the IEA’s proposal either. It is widely believed the reduction will be based upon the widespread adoption of wind, solar, electric vehicles, and hydrogen fuel cells, but our research suggests these technologies will fail to deliver the expected results. There are several real-world examples that confirm our suspicions. Over the past two decades, Germany has aggressively pursued its renewable-centric “Energiewende” plan, taking renewables from 2% of all German electricity to nearly 40%—by far the most aggressive renewable push in the world. Over the same period, carbon emissions per unit of energy fell by only 12%. Not only is this reduction a far cry from the projected 50% reduction in most energy transition plans, but it is also no better than those countries that did not adopt a renewable energy push. Between 2000 and 2019, the US and France went from 1% renewable electricity to 10%, or less than one-third of Germany’s penetration. Despite this lack of renewable adoption, US carbon intensity fell by 13% while France’s intensity fell by 10%, ahead of and only slightly behind Germany, respectively.”
      For more on our dissection of the IEA projection, or our own thinking on what a feasible carbon emission reduction plan must entail, we encourage you to read our Q4 2020 commentary, available below.

  18. https://www.statesman.com/story/opinion/columns/your-voice/2021/02/27/economic-theories-influence-energy-policy-and-livelihoods/6825700002/

    Carey King on lessons from the Texas debacle:
    “Simply put, more of us need to think about the broader relationship between energy and economic theory….The full sequence is from energy to economics to policy, and then back to energy (and other) investment. People think that economic models are explaining the economic impacts of a changing energy system, but in reality, they can’t do this because they assume there is no direct role of energy in economic growth. ..The most common theory of economic growth put into practice for making policy, such as assessing the cost of carbon, assumes no specific relationship to the physical principles of energy or efficiency. Technology is either some unknown process that occurs no matter what we choose to do, or it is in the human mind. ..This limitation is critical to understand because research indicates that “technological change” is best explained as increasing energy conversion efficiency. This finding is absent from most economic models that inform energy policy, but it is critical we integrate it.”

    As I was reading this, it occurred to me that King is missing a step in his cascade from energy to policy. That missing step is what Kate Raworth would call Doughnut Economics and other scientists might call complex adaptive systems. King identifies ‘technological change’ with increasing energy efficiency. Which raises the specter of the Jeavon Paradox…the more efficiently we use energy, the more energy we will use. In the current energy system, that means more CO2 in the atmosphere and oceans.

    In terms of a doughnut, we would put a limit on CO2 and probably pay people like Albert Bates if they sequester CO2. We would also put a lower limit on how much energy we strove to get to the poorest people on the planet. For example, the 3 rock stove people living in poverty in Belize would get special attention so that they can have efficient stoves and probably refrigeration.

    In short, we require some method of rationing and also development. The net result has to locate us in Raworth’s Doughnut. It is pretty easy to implement policies…Germany implemented an energy policy. But their outcomes are not materially different from France and the US. Which suggests to me that, in terms of the upper bound of the Doughnut, there must be hard limits imposed and rationing to insure enough is available to the lower bound of the Doughnut.

    I don’t have to explain how difficult it would be to accomplish this.
    Don Stewart

    • Don,
      I am aware of Kate Raworth’s work. However, in my view ,the location of energy in her models is incorrect.
      Regarding changes to the economic models pursued by governments , Mariana
      Mazzucato has just published a new tome(“ Mission Economy”). However, despite some highly pertinent ideas, energy (as understood by members of this forum ) is not part of her discourse.

    • @jomelco
      I’m not thinking about the way Raworth treats energy…just the idea of the doughnut. That is, there is a certain minimum and a certain maximum of resource use which is required. The refugees living in the dump in Belize (described by Albert Bates) are clearly below the minimum. The dozen trillionaires who control the world are clearly above the maximum. With energy availability per capita declining, we are faced with a problem similar to the biblical story of the camel going through the eye of the needle.

      One could also approach it from the standpoint of a complex system, where a multiple of interacting conditions must be balanced in order for the organism to flourish. Like a human body or an ecosystem. It’s just that Raworth hit upon a very simple visual, which I think is enough to convey the problem to those who don’t think graciously in systems.
      Don Stewart

    • Thanks, it’s very interesting.

      I particularly like the emphasis on narratives, something I often mention here. A subject that I’ve been thinking of writing about is the difference between the popular narrative (growth, technology, REs, EVs, continuation of current systems, etc) and the SEEDS-based ‘real’ narrative (deteriorating prosperity, monetary degradation and so on).

  19. Thank yo for yet another stimulating essay.

    I’d very much appreciate – if possible – an economist’s view of the statement by Stanley Johnson, ( the Green guru and father of Boris) that the population of a country like the UK could be reduced from the current level down to about 15 million, which he estimates as the true carrying capacity consistent with environmental restoration and protection,’while maintaining the same or even higher per capita income.’

    Utter nonsense? This sort of thinking seems to be doing the rounds in influential circles, along with the patently absurd notion that GDP growth can be de-coupled from energy use, and above all fossil fuels – now orthodox thinking in the Brussels. Many thanks in advance.

  20. An Alternative Davos, or shadow WEF, as suggested above, would be good -intellectually, and I am sure very fertile in ideas and rich in understanding. .

    Alas, none of the participants would be people of wealth and influence, and the message would be such that they do not wish to hear, so it would be quite futile.

    People, life teaches us again and again, are not rational, and on the whole do not look for truth, but for the comforting, convenient and immediately profitable.

    The Great Re-set programme promises those who hold the reins of power that they can continue to hold them as our old model crumbles,and remain – at least – just as rich.

    That is all that these ‘philanthropists’ and ‘visionaries’ care about. Worse luck for us, we are entirely in their corrupt little hands, as the last year has shown……

  21. I’ve often wondered about this little “bitcoin” gem thing. It too is fiat. A fixed amount, (21 million) of imaginary money? Sound familiar? Dividing it into tiny little parts slowly making it worth more, with ever increasing amounts of electricity…. hmm? It requires a steadily climbing feedstock of electricity! Just look at these numbers in the links and think about it. This is looking more and more like a very complicated pyramid scheme. The part that exposes this thought for me is in the increasing amount of energy it will require to keep on functioning. All that energy and no physical improvement for anything in the real world, just more processing of the natural world to be traded for imaginary electronic digits. Same long term outcome for what we call paper money and the biosphere. Mining bitcoin/drill baby drill! I’ve never believed in the “markets” as they appeared to be places were you go to lose your wealth. At least that’s the experience most of the folks I know had over the last 40 years or so. Long term a few winners but mostly lost imaginary wealth for the majority.


    • I don’t see Bitcoin as a pyramid scheme. What Bitcoin has been doing for the past decade is establishing itself as the ‘hardest’ form of money. It’s stock to flow ratio is higher than gold which has been the most successful store of value over centuries. The future of Bitcoin will be the applications that sit on top providing more efficient layer 2 payments and smart contracts. It’s likely we will see entire industries fall by the wayside (e.g. banking, gambling, media). Software will replace middlemen, part of the de-layering process that Dr Morgan often refers to in his blog. It might not be Bitcoin that does this mind you, could be something else.

      Regarding energy use there is quite a lot of incorrect assumptions made. Statements like it will one day consume half the worlds energy are just nonsense. This blog by Dan Held gives a bit more on proof of work and power consumption, but a bit scant in some details I think. Bitcoin has very measurable power use unlike the existing financial system; anyone worked out just how much power is used in building and maintaining the existing bank branch network I wonder? Printing notes, coins and moving these around the system has huge hidden energy costs.


    • My view on bitcoin is that it’s an investment instrument, not money. If you want to buy groceries, you first have to convert (sell) bitcoin into dollars, pounds, euros or yen. The more important cryptos become, the greater the likelihood that governments will seek to regulate them.

      About de-layering and industries falling by the wayside, SEEDS mapping suggests that the challenges facing business are even more daunting than those facing government.

    • If there are no paper records (hard copies) of ownership of bitcoin, then it is possible that much, most, or even all records could disappear. This is not just theoretical. Severe solar pulses can knock out digital data, as can EMP weapons. (electromagnetic pulse) These weapons have existed for some years. The US Air Force confirmed that in 2015.

      “A solar flare EMP may also be referred to as a Coronal Mass Ejection (CME) or a geomagnetic storm. Solar flares vary widely in intensity from simply causing bright “northern lights” to potentially destroying some or all of the power grid. Smaller EMPs may cause power grid blackouts. Solar flares can last much longer than nuclear EMPs.”

    • @Red
      The technology behind Bitcoin , the blockchain “system” ,is the more important feature of this new approach to implementing the exchange of value that any civilisation is based upon.

      @David R
      You are right David R , the pervasiveness of the blockchain will swallow up the “work” not just of bankers but also lawyers and many of the vast array of intermediaries in the business of drawing up contracts.

      Like yourself I have always wondered about the consumption of vast quantities of energy in the pursuit of commercial advantage. I puzzle particularly at the situation
      In UK where we have a plethora of energy suppliers all vying for customers/consumers , financial “gurus” telling us to shift to the cheapest supplier and all this accompanied with vast advertising from the various suppliers.
      Also, the poor pay even more for their energy in this system through lack of
      credit worthiness while the SUV owners finance their gas guzzlers from their reduced energy prices and cheap credit .

      As I mentioned in an earlier post the book “The Truth Machine” by Michael Casey and Paul Vigna gives a wide -ranging resume of the development of blockchain;
      its earliest appearance in the Bitcoin “world” and its predicted incursion into many other fields as yet unappreciated by many. Just as the internet was completely misjudged on its arrival.

    • @jomelco I think much of what you are saying is basically down to cheap credit causing increased inequality. And it shows in access to credit and a distorted energy market that the government is trying to keep under control.

      @Stephen I can’t really comment but if what you say we happens then we are all in trouble I suspect! At least with a decentralised system it just needs 1 record of the ledger to survive in one part of the world and this is more likely than with a centralised one.

      @Tim I agree that Bitcoin is not really a currency and probably never will be. But as an investment it is possible to get risk free returns of I believe about 10% borrowing fiat and selling Bitcoin futures; more like 16% via peer to peer lending with more risk. Could this be the ‘real’ market rate for interest rates?

      Last week Square, who have been buying Bitcoin as have EBay and others, applied for a US banking license. It’s not hard to see these tech companies offering guaranteed returns (deposit government backed) well above traditional banking rates using such methods. For example I’ve just come off a 1.5% cash ISA fixed rate and the are only offering 0.35%.

      Bonds yields would need to rise massively to compete with Defi and there is talk of yield control when the US 10 year is at 1.5%! Given the BoE couldn’t match George Soros in manipulating the exchange rate they will have no chance of preventing bond prices collapsing. The best they can do I suspect is to delay the Inevitable for as long as possible.

  22. Recommended Reading

    A review of a monograph from Australia describing the asset inflation economy. The review considers the novel insights in the monograph and also expresses some reservations…it’s a piece of the puzzle but not the whole picture.

    I have pretty consistently agreed that printing money does not create wealth, but I have also maintained that whoever gets the printed money gets the lion’s share of whatever IS produced.

    I suggest that the complicated world we are looking at in 2021 reflects all these cross-currents. I suspect that the asset-inflation strategy will work only so long as fiat money works. When fiat money stops working, the survivors will be forced to reassemble piece parts which actually work.

    Just as a teaser on that subject, I suggest taking a look at this map of the world according to food:
    You can look at the various maps and get an idea which countries face the biggest restructure hurdles. For example, there are maps showing how much of the grain is fed to animals (a horrendously damaging and wasteful practice). Pass your pointer over the US and you get a very high percentage. Pass your pointer over Chad or other African countries and you get a very low number. Is that glass half-full or half-empty? The US could, if it stopped feeding animals, feed an enormous number of humans with grain. But the economy of the Midwest would be destroyed. Chad wouldn’t miss a beat. On the other hand, Omaha, Nebraska might no longer be the fattest city in the world. Looking at our dysfunctional politics, I doubt that any ‘national strategy’ can be developed.

    Don Stewart

  23. Re: the possibility of Change. One of the very few good reads on the libertarian claptrap, rich people are great Zerohedge is Michael Every of Rabobanks’s daily letter. Today’s letter highlights a U.S. National Security Council report that I wasn’t aware of and, per Dr. Tim, it’s an indication that some people in government realize that there needs to be more structural redistribution and support for all Americans. It’s in the context that America needs this to maintain hegemony, but still —

    Quoting Every:
    “The interim National Security Strategy [link to it in the article] underlines US priorities: Defend and nurture underlying sources of American strength; promote a favourable distribution of power; and lead and sustain a stable and open international system. The details make it clear whom this is aimed at (China and Russia). They also make clear what will need to be done about it – the all- caps pledge that “OUR TRADE AND INTERNATIONAL ECONOMIC POLICIES MUST SERVE ALL AMERICANS, NOT JUST THE PRIVILEGED FEW.” That is *really* going to throw a spanner of current global trading patterns if it’s actual US policy now if you understand the implications. Despite claims to the contrary, this pledge is only being included as national security because no US trade deal has done anything other than benefit the top income decile at the expense of most of the lower, and this has both undermined US economic and social strength, as the world can see: yet rectifying that is logically going to imply on-shoring and/or US mercantilism, not free trade, which does not sit alongside pledges of building alliances.

    Meanwhile, the world watched as Fed Chair Powell had the opportunity to put to rest concerns he is losing control of the yield curve: he didn’t. The rhetoric was that he hasn’t seen anything to worry him yet in markets; that the policy focus has to be on those who are left behind; and that he sees no inflation threats. Technically, Powell is right on inflation. We have long lived in a global lowflationary environment because labor has no power vs. capital; and despite all the capital the Fed is pumping out, and even USD1,400 stimulus checks, nothing is going to change on that front. Unless, that is, the National Security Strategy is now the economic policy document we should all be listening to. (And I suspect it eventually will be.) Near-term, however, pretending ultra-loose monetary policy helps deal with structural inequality is guaranteed to see said liquidity flow into whatever hedge against inflation presents itself: commodities, perhaps, which will push inflation higher – hurting billions globally.”

  24. BAU – there’s no meaningful penetration of the message in daily life, for most people they haven’t even realised the concept of the inter-relationship between finite resources, energy and diminishing returns. As this article shows, ( https://www.theguardian.com/environment/2021/mar/06/ireland-to-jet-calves-to-europe-to-cut-travel-time ) every stakeholder whether businness, consumers, govt., etc., etc., just keeps calm and carries on wasting. Can’t use up the remaining precious airline fuel? No worries, try flying livestock around needlessly purely to be killed elsewhere, as dictated by razor-thin margins of profit. Effectively this is choosing to immolate our future for illusory wealth.

  25. @Joe Clarkson and Dr. Morgan

    Check out the two Donald Hoffman interviews. We MAY be on the verge of a major scientific revolution…the concepts of space and time and the physics which describes what happens in space and time may not be a complete description of reality. They may be the equivalent of a computer game. (I am completely unprepared to engage in any debates on this subject.)

    I only want to point out that a human evolved to take an enormous amount of sensory information and run it through an enormous number of layered neurons which prune and compress that information and present it to the brain in highly compressed formats such as mood. The brain attempts to predict what physical response is appropriate to that highly compressed experience and prepares our body to to make that response. Sometimes the brain chooses to make an emotion, which affects many parts of the body in particular ways. The brain may also construct a ‘reason’ why it has already given the instructions to the body. If the ensuing experience in the body deviates sharply from the prediction, then the brain is prompted to learn, to revisit how it might have gone wrong.

    The preceding paragraph is my amateur’s summation of what Lisa Feldman Barrett describes. Her favorite examples come from baseball. As a Canadian, she paid little attention to baseball until she moved to Boston. There she became fascinated by watching the game from the standpoint of a neuro-scientist. It is physically impossible for a batter to hit a ball launched by a pitcher at 96 miles per hour by first observing where the ball is heading. The batter has to predict where the pitcher is likely to place the ball and begin his swing, relying on micro adjustments as he perceives where the ball is actually going. Outfielders catching fly balls are a little more relaxed, but again relies on prediction.

    As an hourly example, consider drinking water because one is thirsty. We drink, and the thirst goes away. But, physiologically, it takes 30 minutes for the water to get into the blood circulation. The brain is predicting that the water will quench the thirst, and so we experience the quenching of the thirst.

    This all has to do with narratives. Humans literally can’t function without narratives. Many people in the social sciences understand that point. So do people in the physical sciences. It may be that the young physicists described by Hoffman are eager to get beyond the physics of their grandfathers and unify relativity and quantum mechanics in a realm beyond space and time…but may continue to use space and time as narrative devices when it is convenient. Barrett points out that we have known for decades that the ‘lizard brain’ was a mistaken analogy…but sometimes it is useful to summarize an otherwise hard to understand result of the brain’s processes.

    I want to emphasize one point which I think sheds some light on the cluelessness of many social sciences. Barrett’s cycle requires accurate feedback. The batter needs to comprehend where the pitcher put the ball accurately. If some benevolent government agreed to pay the batter whether he hits the ball or not, then the system falls apart. My favorite whipping boy is Health Care. We agree to pay enormous amounts in taxes (spend scarce energy) to do sick care for people with chronic diseases that are the result of living in ways their physiology is not designed for. The fiction is that genes are responsible for the disease. That is true in rare cases, but the overwhelming truth is that people are getting what they deserve.

    Think about how the surveillance economy and free enterprise in the form of insurance companies coupled with a modest amount of laws could solve that problem. Yet there is precious little ability to even discuss such a thing. It will take some shocking feedback such as a collapse to change that narrative (IMHO).

    Don Stewart

  26. “Whole sectors will suffer utilization rate erosion as prior gains from economies of scale go into reverse. De-complexification of the system will strip some sectors of critical mass, whilst simplification of products and processes will de-layer entire sub-sectors out of existence.”

    It would be nice to see a post on this subject.

    Dennis L.

  27. I came across this quote from Nate Hagens and felt it worth sharing with this forum ——


  28. ‘Short term’ oil dynamics?
    “Art Berman
    If the past is any guide to the future, WTI price could reach $68 or slightly more before equilibrating back into the mid-$50 range toward the end of 2021.”

  29. Ok, here’s an example of what’s going to happen because, despite the ability to print infinite money, exponentially rising ECoE and mining constraints render real world infrastructure projects, practically speaking, impossible.

    “A March 6, 2020 Nuclear Regulatory Commission (NRC) proposal would allow for the disposal of some nuclear waste in municipal landfills, rather than a licensed facility.

    “What they’re trying to do is prop up a failing industry so that the cost of decommissioning these [nuclear] reactors is reduced so you don’t have to send it to a place that is expensive because it’s designed to safely handle it,” said Dan Hirsch, the former director of the University of California, Santa Cruz’s Program on Environmental and Nuclear Policy. . . . . .

    The proposal would grant some exceptions to this regulation for waste with a cumulative radiation dose level of up to 25 millirem.”

    How much you think that will be closely implemented, monitored and enforced?

    See latest post at energyskepticDOT

  30. It turns out that the knowledge that GDP growth was effectively a function of energy use per capita was once well known in the US. Erasmus Peshine Smith, one of the first American protectionist economists was very big on this notion and taught many of the luminaries of American political economy in the second half of the 19th century. He declared energy to be a peer factor of production to labour and capital. He was also the first foreigner hired by the Meiji Japanese government and the key foreign advisor which helped them start their rapid economic development. He even helped introduce into economics the notion of the disutility of agricultural monocultures due to soil erosion.

    This, coupled with the Physiocrat’s emphasis on solar energy being the fount of wealth in an agricultural society, suggests to me that this blog’s consensus of the basis of the economy being energy is wholly intuitive. In fact, it should be unremarkable. This leads me to suspect two things:
    1) Professional education nowadays is inimical to truly innovative thought. It has to be so profoundly stunting that those graduated in a discipline (like economics) are wholly blind to very simple axioms simply because they were not taught it in university.
    2) The importance of energy use per capita increase in economic development was allowed to be forgotten to hobble future rising powers.

    • Thanks, that’s interesting, and I wasn’t aware of that historical background.

      The energy basis of the economy should indeed be obvious. I would add that few of the conclusions of the SEEDS model seem contrary to observable effects, and that it’s the conventional interpretation, rather than the energy one, that doesn’t fit with so much that we see around us.

      On your first point, I wonder whether, as a profession, conventional economics nurses a suspicion that its whole basis, in money-only interpretation, might be wrong, but daren’t even peek under the lid of that Pandora’s box. Additionally, some societies seem to have become increasingly intolerant of all ideas contrary to the ‘official’ or ‘establishment’ line.

    • @Dr. Morgan
      For a very hard line energy and Darwinism approach to human biology and society, take a peek at Professor Herman Pontzer’s book Burn: How We Really Burn Calories. The big innovations in the efficiency of energy use are what has made us what we are:
      *Mitochondria colonizing our cells
      *Moving beyond ape metabolism to a much more rapid metabolism (maximum power principle?)
      *Mobility (hunter gatherers walk 4 times as far as a gorilla; humans can run marathons faster than a horse)
      *Occupational specialization (women gather, men hunt)
      *Sharing (the small group eats by rights…the Hadza have no words for ‘thank you for the food’…no gorilla has ever been observed sharing food; in a world of ups and downs, the sharers win).

      Put all that together and you have one of the most spectacularly successful species the Earth has ever seen. The lens is the use (and misuse) of energy. The final chapter gets into the threats posed by civilization’s use of energy. I would give a little more attention to the role of memes such as status, but that does not detract from the energy-centric message…one book can’t cover everything. (Fiat money may ultimately depend on status, which, in a pinch, is a lot less useful than food.)
      Don Stewart

    • Jackson
      In retrospect, I can say that by the late ’60s I was standing on the “Shoulders of Giants” with a degree in Structural Engineering. The shoulders of men from Euclid and Fourier to Carnot, Laplace, Newton and Maxwell. From up there I could see a very long way, and it has always looked like collapse around 2010.
      The thing is no one told me that there were all these boxes I was meant to think within. [Think outside the box -when did folk start saying that?]

      It is easy to forget that knowledge is tribal, many would die of thirst in the Outback within a few feet of plants that the locals could use to sustain them for weeks.

      Anyway, anyone interested enough to look would have come to the same conclusions, maths and physics are a bit like that!! No real room for opinions, at least not at that very basic level.

  31. Tim, some interesting thoughts by Michael Every at his latest post on Z/H today regarding Chinese and US currencies

    [snippet] “So China and the US both converge and diverge. Indeed, it is clear which one of the two is more pedal to the metal in current stimulus, and which is, and which is suddenly trying to be prudent. Just before publication today the PBOC announced it will keep growth of both money supply and aggregate financing broadly in line with that of nominal GDP. This is **STAGGERINGLY** contractionary given the last 12-month rolling aggregate financing figure was 35% y/y, the series average back to 2004 is 15%, and the most optimistic nominal GDP print one could expect would be 9% – and even that only for 2021, with something far lower further out. It seems there is going to be an aggressive crackdown on leverage – and growth will follow. And then so will global growth with a lag. And so will the likes of AUD, etc.

    Of course, something needed to be done as China’s consolidated fiscal deficit is a staggering 18% according to the IMF, far worse than Brazil, and debt is skyrocketing in all sectors. But this is likely to have severe consequences – unless the PBOC fails to match deed with word. On which note, the PBOC is also saying it will not allow competitive CNY depreciation – but it will push ahead with further convertibility and opening up at a time when US yields are surging. Do the math yourself there, folks: you think CNH is moving now? The US is playing fiscal catch-up and markets have been blind-sided for the nth time in that this pushes up US yields, and that pushes up the USD rather than squashing it. Just imagine how high the USD could get if such fiscal stimulus were being spent on things that were long-term productive and not short-term sugary!”

    • Thanks, I’ll look at that.

      My feeling is that, under president Xi, China has turned a lot more cautious where financialization, risk and Western-style financial ‘innovation’ are concerned. The best reference points for Chinese economic activity tend to be physical metrics, such as electrity consumption per capita.

      SEEDS shows Chinese C-GDP and prosperity down slightly last year, a far better outcome than in most other countries.

  32. TINA
    Is it even possible for humans alive today in Western countries to conceive of a different zeitgeist, much less achieve it in a political democracy or authoritarian rule? Here is an essay which concludes that we need to get beyond the John Locke version of individual liberty (at least liberty for wealthy white males)

    Complicating the picture further is the relatively recent discovery that there is no such thing as an independent human. None of us could survive a day without the cooperation of the microbes who account for the great majority of the genetic activity which keeps us alive. We call the totality of what we see when we observe a human a ‘holobiont’.

    The closest political system that most of us have seen which accords with our new scientific understanding is English Common Law: one is free to pursue one’s own self interest, but also responsible for any damage done. The rejection of the Common Law in favor of lobbyist law is now almost complete…corporations are no longer responsible for the damage they do.

    Some people hold up indigenous cultures as offering a way out. However, there is a telling anecdote in Herman Pontzer’s book Burn. The researchers are showing the Hadza hunter-gatherers a ‘nature’ program on their laptops. A group of lions are hunting elephants. The lions select a baby elephant as their victim. The Hadza cheer when the lions manage to kill the baby elephant. The Hadza are all too familiar with the destruction that adult elephants can wreak.

    My point is that it is a tricky path for any culture which controls fossil fuels to imagine and navigate toward a truly life enhancing ecosystem. Most of us are familiar with the notion of invasive species, which is usually something brought to a new ecosystem where the system of checks and balances has not had time to emerge from slow Darwinian processes. And persuading a weasel that if it kills more chickens than it can eat, then the ecology will degrade and there won’t be any more chickens has, thus far, evaded neuroscience.

    We can see the trade-offs involved in our current political system as the glyphosate trials went forward. The people who filed suit were able to convince jurors that Monsanto (now Bayer) did harm. They also made a pretty convincing case that Monsanto knew what it was doing. But the political powers are unwilling to simply ban glyphosate (and other antimicrobials) because they do damage to humans and the larger ecosystem. And so some system of limits in terms of compensatory damages and toothless regulations are adopted.

    Meanwhile, each and every farmer in the American Midwest is assumed to have a Lockean right to use any combination of pesticides and herbicides and synthetic fertilizers on their property and to permit drift to the neighbors and drainage into waterways without liability.

    If there is a solution to this dilemma, I don’t know what it is….Don Stewart

  33. Absolute sterling commentary from Michael Every of Rabobank on Zerohedge today, querying whether inflation is intentionally being hidden, and whether GDP, productivity, bond prices and equity prices are just being made up, the problem being, unless it is all internally consistent, the whole thing collapses from disbelief.

    “Of course, philosophically, everything is made up. The point is, if you want people to go along with a particular version of reality it needs to be internally consistent, otherwise the whole thing rapidly collapses under its own contradictions.

    Even in movies this is true. A perfect example is the contrast between ‘The Lord of The Rings’ and ‘The Hobbit’ trilogies. The former, while having its share of tooth-grinding bathos for a Tolkien fan (“Nobody tosses a dwarf!”) works because its fantasy world feels real: a single arrow can kill a hero. The Hobbit films look like the world’s most expensive school play due to the 48FPS format, and are so filled with computer-game action sequences that we immediately disengage: the most egregious examples are Legolas running up a collapsing stone bridge faster than gravity (“because Elves”); and the pointless baddie floating on his back underwater below inches-thick ice, then leaping vertically out of the water through the ice like a geyser (“because Orcs”).

    The point here is that our authorities have the power to make things up: they can target bond yields if they want; they can target equities; they can tweak inflation data – and what are you going to do about it? However, they also have to maintain the appearance of consistent internal rules to suspend our collective disbelief – and they can’t do both for long. Nobody wants to watch “The Hid-it” (Inflation, that is).

    We can already see that belief in our whole fantasy system is collapsing for the young, who don’t want to be told things must be the way they are “because markets”.

    • Michael Every is excellent, and I read his articles whenever I come across them.

      The fundamental issue here is the divergence between what, in Life After Growth, I called the ‘financial’ and the ‘real’ economies. This divergence really began to matter once ECoE became big enough to matter, a point which I locate in the 1990s. After then, we had to either (a) accept that “secular stagnation” was the forerunner of “de-growth”, or (b) push the gap between the ‘financial’ and the ‘real’ economic situations ever wider. We opted for (b).

      It’s a moot point as to why this choice was made. But the result is that our financially-denominated economy now bears no resemblance to the real dynamic which determines the supply of goods and ssrvices.

      To a certain extent, this means that everything financial is fake, not necesssarily ‘fake’ as in ‘deliberately falsified’ (though it might be), but as in ‘bearing no resemblance to reality’.

      One of the problems here is that – if I say it myself – most economic models are based on purely financial numbers, so cannot see through to the underlying reality. This is why the SEEDS measure of prosperity diverges so far (and ever further) from GDP as a measure of economic output.

      Markets work on the information available to participants, but are now in an ’emperor’s new clothes’ situation. As the gap gets wider, anomalies increase, which is why policies like ZIRP/NIRP, QE and endless stimulus have become inescapable.

      Ultimately, there’s a corresponding gap between ‘hard facts’ and ‘soft facts’, the latter eventually having to accommodate themselves to the former.

  34. Dr Tim, I think I might have mentioned the rapidly changing demographic situation before, but, according to a piece in, I believe, The Times yesterday, there has not been a “lockdown baby boom”. Data from Spain, France and Italy shows births were down 20.4%, 13.5% and 21% respectively in December 2020 – the first month we might have expected to see “pandemic births”. Italian research suggests women have postponed planned pregnancies because of the virus. The result is 200,000 fewer Italians in a single year as deaths outpace births.

    This might mean a 2% reduction in births globally; dwarfing the global Covid-19 deaths. My kids will have fewer and fewer workers to support their retirement.

    Apparently, here in the UK, as many as 1.3 million migrant EU workers may have permanently left after Brexit. This month’s Census should also confirm a decline of 773,000 in the population of Greater London.

    And with poor investment returns on “safe-haven” assets backing “Final Salary” pensions and annuities, pensions are being crushed really rather quickly, further increasing the strain on the battered UK economy.

    • in all fairness the demographic situation you highlight sounds like good news to me,
      I’d much rather people voluntarily reduced population size than wait for the four horsemen to arrive,
      we who congregate here understand that growth has ended and why,
      I think the general public sense the mood even if they don’t understand the details,

      with respect to pensions, wages, etc. we’d be in a compleely different situation if CPI hadn’t been rigged since the 1980’s and interest rates hadn’t been artificially suppressed since before the GFC,

      Tim has mentioned before a rationale for calculating an appropriate interest rate;

      CPI + 2% = interest rate,

      he recently spoke of an inflation estimation that he’s working on referred to as RRCI, he suggested a figure of 4.1% as appearing to be current inflation,

      RRCI + 2% = an interest rate of 6.1%

      imagine if we’d been running accurate inflation and interest rates over the last 40 years,
      the energy base would still have stopped growing, ECoE would still be rising and growth would have still plateau’d, prosperity would probably be declining too,

      but wages, state pensions and benefits, savings etc. would have kept up a lot better over recent decades,
      we wouldn’t have been able to afford to run up the vast debts we currently face and we couldn’t have borrowed so easily enabling us to over bid house prices into a bubble,
      there would have been a lot less borrowing for share buyback schemes and speculative investment,

      it’s true growth is over and we are facing an energy bottleneck, population ought to peak and start to drop gently in line with surplus energy,

      but if it wasn’t for the financial mismanagement and poor choices of economic policy we wouldn’t have such a stinking financial situation to compound our other very real problems,

      neo-liberalism has dug us a hole that’s going to be very difficult to get back out of.

    • Matt, I didn’t say it was a bad thing, a reducing global population; quite the reverse. But there are many unforeseen and perhaps insurmountable consequences!

    • Thanks Matt

      RRCI is still a development project, but the inferences you draw from it are logical. Your comments make me think that I ought to push RRCI up the priority list.

    • Here are some preliminary RRCI numbers, starting with 2019. In each case, the ‘official’ number is the broad basis inflation number used when measuring real versus nominal growth in GDP.

      Official: 1.8%
      RRCI: 3.1%
      Official: 1.9%
      RRCI: 3.1%
      Official: 3.1%
      RRCI: 4.4%
      Official: 2.4%
      RRCI: 5.5%
      Official: 1.8%
      RRCI: 3.7%

      Of course, all data for 2020 is provisional, but RRCI is showing significant upturns, with the World number at 4.5%, the US at 4.6% and the UK at 6.3%. These can be expected to change as final data arrives.

    • I know you didn’t say it was a bad thing,

      when the media run a piece on falling population or fertility they give it a negative spin which really irritates me,
      I’m probably a bit oversensitive,

      there will be unforseen circumstances but by looking for them and exploring possible scenarios you can identify and surmount quite a few,

      I’ve been suggesting people consider multi generational households or trying to get their immediate family living fairly locally,
      as the state becomes less able to offer support and services people will likely have to become more family centric and self supporting,

      the multi generational household is already starting to happen from the bottom up with kids not being able to afford to leave home and establish their own household,

    • At the moment, all three of our adult children live with us, and I have had a client or two pool resources to set up multi-generational homes (the classic granny annexe included) which I think an excellent idea.

  35. Inflation
    Inflation is a tricky idea, particularly in a world full of debt. For example, there are two very recent articles at Wolf Street showing the Case-Schiller home price index as compared to the official US measurement of ‘rent equivalents’ used in the official inflation measurements. The difference is profound. Similarly, there is another recent article showing the price of actual used automobiles and the prices for some selected new automobile models in the US. Again, the data are profoundly different from the official numbers. I find the data for a Ford pickup truck to be informative. While the price for the Ford XLT has increased from 17,000 to almost 40,000 over the course of the chart, the price of a Toyota Camry has risen more slowly. In terms of consumer hedonics, pickups were once work vehicles which tended to be driven hundreds of thousands of miles and only discarded when they were rusty hulks. Now they are luxury vehicles with a large amount of conspicuous consumption…even among the working class. One of the things I have seen over the last 10 years has been the wholesale replacement of business vehicles with shinier models. Delivery trucks which used to be very workaday and not in the best of shape have morphed into sleek, shiny vehicles used by Amazon delivery personnel.

    I think that the impetus for the changes is, first, the human tendency to value status…everybody wants a vehicle which gives the image of success. But second, and important for our purposes here, is the role of debt. I know a 50 year old who is considering getting a new car. The man frets about his inability to save money for retirement, and is deeply in debt. But he is considering buying a 40K dollar pickup truck to commute to work. The pickup will not provide any income (such as would be the case for a farmer or repair technician), and thus is purely consumption if it costs more than a cheaper car. I attribute the increase in the relative prices of pickup trucks to the Federal Reserve driving down the cost of debt and thus increasing the dependence on debt, and, the other side of that coin, debasing the currency and reducing the return on savings and destabilizing the financial system and household budgets.

    As Wolf concludes, the Fed is getting what it says it wants…while we wait for the bombs to explode.
    Don Stewart

    • Don, anecdotally from here in Colne (small, former mill town now de-industrialised, some 35 miles north east of Manchester, in northern England) the average wages are well below the county, regional and national averages. We have some of the most deprived electoral wards in the country, yet newly registered top-of-the-range cars and SUVs are sitting on driveways across the town. Part of the explanation is that most of them are effectively leased through PCP (Personal Contract Plans), which has morphed the idea of vehicle ownership into vehicle usage, rather like having the latest mobile ‘phone. As a previous commentator noted, the juxtaposition of the top of the range cars on the car park at the local low-cost supermarket is glaring. The length of the queues to buy National Lottery tickets rather suggests that despite all the evidence to the contrary, the idea that one can gamble your way to riches remains widespread.

    • Kevin in Colne
      Your anecdotal tale certainly rings a chord here in the supposedly more affluent South as well. My sister works in a large retailer that does The Lottery and is always bemoaning what she describes as The Lottery Brigade. Officially shopping should be for “essentials only” yet the numbers coming in to do lotto are constant. They say their same mindless “You’ve got to be in it to win it!” and “can you draw me the winning numbers!” cliches with monotonous regularity. They have got more chance of being hit by a bus on the way to or from the shops than they have of winning the big lottery prize.
      The new cars being leased out on tic is another telltale sign – quite a large number of which can be found in council estates.
      One thing that also should be mentioned is that there is an insane and irrational infatuation with house prices which is extremely acute in the South. It is all part of what is dubbed “The Aspirational Class” although having had neighbours who fitted this category “The Delusional Class” seems more apt.

    • The world economy has been living ‘on tic’ ever since “secular stagnation” set in back in the 1990s. Without continuous borrowing – by government, businesses and households – both GDP and incomes would fall sharply. Asset prices, including property, are an inverse function of the cost of money. If someone has a house with a large nominal value, it’s a function of lucky timing, and monetary policy, rather than personal achievement – after all, what would house prices be if interest rates hadn’t been slashed to almost zero back in 2008-09?

      The UK, like the US, has followed damagingly extreme economic ideas over an extended period, and this has had adverse social as well as economic consequences.

      This leaves Britain and America with two particular problems. One of these, obviously enough, is systemic financial risk. But the other is the predicament of ‘ordinary’ people, once called ‘JAMs’ – ‘just about managing’. – as the cost of essentials rises whilst incomes are hostage to credit expansion.

  36. Absurdity of Automobiles
    A good retrospective on Ivan Illich from decades ago and the delusion of horsepower:

    Perhaps my deeply indebted acquaintance contemplating the 40K truck for commuting should read this? But I think it would just prompt the invention of more evasion and assembly of reasons why he really NEEDS that truck.
    Don Stewart
    PS. We know exactly what most governments are going to conclude: if it’s big it pays more taxes.

  37. Don, re: the Fed getting what it wants – the Fed is getting stagflation, not inflation – rises in prices outside of asset prices but no to little relative wage growth. Sorry to repeat myself but the short version is that consumers service and retire the debts of businesses by paying for goods and services and/or going into debt themselves to purchase them (the latter is, effectively, debt shifting — servicing or retiring business debt by incurring personal debt with which to make payment to the business). You cannot “inflate debts away” by inflation unless wages also grow close to or faster than the general level of inflation AND you do not have massive numbers of unemployed or partially unemployed.

    What the Fed is doing is protecting the collateral value of bank debt by maintaining or increasing asset prices and keeping the interest income stream flowing from the government money is privately issued debt system, the other consequences be damned. The Fed does not “manage” the economy, it looks out for banks.

    • @Jeffrey R Snyder
      The Fed (in the US) has effectively printed the money that the US government is distributing directly to citizens. Some of that money has been used to pay down credit card debt (see Wolf Street for details). Since credit card balances are among the most profitable things a bank can do, the Fed and US government, at this point, are taking money away from banks and giving it to citizens who are spending a lot of it on durable goods which are imported. Just as the Fed, by driving down interest rates to less than true inflation, have taken money from savers and given it to spenders…with dire effects on pensions. Printing money doesn’t create more stuff unless the economy has spare capacity…in which case printing money may restore circulation of the economic metabolism. (That was what Keynes and many others thought about the Depression of the 1930s…just use the capacity already in existence to it’s fullest extent, facilitated by easy money. Herbert Hoover: “let’s have another cup of coffee, and let’s have another piece of pie.”)

      Charles Hugh Smith thinks that the zombie corporation situation results from surplus capacity everywhere. If that were really true, then perhaps the Keynesian solution might work. The fact that it isn’t working tells me that there are deeper thermodynamic issues in play. I won’t belabor those here. Suffice to say that deep re-organization is probably required…not just propping up BAU.
      Don Stewart

  38. For Those Seeking Conscious Choice of a Degrowth Path
    This is a deep excursion into biology. So I won’t try to describe the message, other than to say that the doctor draws the conclusion that feelings are everything…it’s not about the cortex.

    Don Stewart

    • Dear Don,

      In a debate about the stagflation trap that discuses how finance ministers and central bankers will need to try to walk a “Goldilocks” path avoiding the extremes of an overheating financial system and of an excessive cooling of the economy, I’m having trouble understanding where your “deep excursion into biology” fits in?

      I’m sorry if I’m being a bit thick here.

    • @ladydog
      IF you think that human biology has anything at all to do with the economy and energy and the prospects for surviving Degrowth, then you might like to take a look at the science surrounding consciousness. If you do, you will find that the same thermodynamic processes which underly the use of fossil fuels to create almost all of our current economy are the same thermodynamic processes involved in the human biology. If the thermodynamic processes underlying the fossil fuel economy are deteriorating, and if there are no equivalent substitutes (such as fusion or ‘renewables’), then it will be necessary to reverse the centuries of substituting fossil fuel thermodynamics for human thermodynamics. It is conceivable you might get a few hints from the science.
      Don Stewart

    • Hi ladydog,

      you need to follow the vid to the very end,

      it essentially validates Nate Hagens take on what motivates us,

      well done for finding that Don!

    • Thanks for raising awareness of this video. It is excellent although maybe a little outwith the scope of this blog. Might also mention here another blog by Tim Watkins – just released. “ The slow burning fuse”.

  39. @Don,

    Good points above re: stagflation. Stimulus payments can to some extent achieve the same as wage inflation, and of course, uniform basic income will be even better for this purpose, so that the CB is monetizing both the deficit and the “incomes” of the plebs with which to pay their personal debt. What a circle jerk, but it maintains the illusion that there is a functioning monetary system, for a time at least.

    It looks like the CBs are fast approaching a major conflict between their dual purpose of supporting banks and maintenance of a private debt-based money system for funding government though, because the more they finance huge government deficits, the lower the interest rates go and the less vig for banks, and the less faith there is in their credit. I guess this is the real hard limit on using MMT to fund a comprehensive social safety net

  40. @Jomelco and Matt
    If you ever get a chance to look at the book, you will see (page 176) that his model of consciousness unites Gibbs and Helmholtz minimization of free energy with the minimization of Friston free energy (dependent on Shannon information). It is quite a beautiful idea, IMHO.

    His conception suggests very many ways to think about our predicament. For example, as I interpret him, his conception of work is ‘useful’ work. So what about wasted energy spent. My supposition is that if it’s wasted work, it is free energy, which needs to be minimized. He also discusses the many parameters which must be optimized for the ranges which evolution has dealt us, such as narrow ranges of body temperature. He tells us that the body deals with all of these limitations simultaneously. My presumption is that a collapse creates a lot of problems all at once, which would lead to early deaths, as we saw in the collapse of the Soviet Union.

    Much more to ponder….Don Stewart

    • Good article, but the author, as ever, fails to get a lot of things.

      For example:

      1/ The destruction of the high street is one of the principle aims of the lock-downs.

      The drive to a’ maximally-digitised’ economy , as outlined by Klaus Schwab, and the destruction of ‘legacy’ businesses and ways of life.


      2/ The creation of mass permanent unemployment -guess what? The unemployed – in the UK at least – are being told by their ‘advisors’ that ’employers only want vaccinated candidates’. Just as employers are bullying people into being injected.

      Has the penny dropped yet?

      It should, above all if you are enjoying a ‘legacy’ lifestyle: because there is a list, and you are on it for elimination.

    • Lockdowns
      A new study using detailed comparisons of places which did keep people at home and places which did not keep people at home shows that only 2 percent of the variation in infections are due to the restrictions with 98 percent not explained by keeping people at home. (There is some Google data on people’s mobility…the surveillance economy, anyone?). So my condolences for the re-institution of lockdowns in some European countries.
      Don Stewart

    • Vaccine bandwagon companies have fought their way to the front of the corporate welfare gravy train, in this, our hour of need and a deeply kleptocratic system:

    • F1 – Just and FYI, the continued waging of the wasteful Drug War indicates that Big Pharma is a much larger force in defining American and ultimately world decisions than one wants to admit.

      Keeping people believing that white pills issued by people in white coats is “good” for them is their prime reason for existence.

  41. A Way to Think About Regrowth???
    Mark Solms quotes the Friston Law:
    “All the quantities in a self-organizing system that can change, will change to minimize free energy.” That is, in my words, to use as much of the energy available to do useful work as the technology permits.

    I’d like to draw a parallel to the work of Adrian Bejan at Duke, with his Constructal Law: Every animate and inanimate process seeks to increase access. So a root system of a plant seeks to design itself to maximize access to soil nutrients and water, and the airline industry seeks to get the maximum passenger load out of a given quantity of jet fuel. In terms of airplanes, the planes have gotten bigger and faster up to some limits posed by the speed of sound and the volume which can be attracted on specific routes, and are using less fuel per passenger mile.

    I think the Friston Law is a more complete explanation than the Constructal Law, because the Friston Law recognizes that the organism is juggling multiple goals. Thus, wild animals carry just the right amount of fat to survive AND procreate.

    Obese humans eating obese animals and giving birth to overweight infants are, obviously, not minimizing free energy. Which gives us a hint that fossil fuels and other factors are permitting humans and our domesticated livestock to operate at a point which does not minimize free energy. We might also cite the fact that we waste 50 percent of the food we buy, at least in the ‘Advanced’ societies. As Degrowth becomes the essential program, we have to look at how we can best permit those quantities which need to change to actually change with as little trauma as possible.

    Succinctly, I think governments are going to have to get out of the way on a lot of fronts. The Fed and the Treasury are going to have to stop monetizing debt so that people get accurate feedback, Consumers and governments are going to have to learn to live on cash flow, waste will have to be systematically eliminated, and societal restrictions on what is ‘acceptable’ have to change. Because humans are social animals, the Friston Law operates through tricky ’tribal minimization of free energy’ mechanisms.
    Don Stewart

    • I can type Degrowth (with a D) on my computer, but when it gets printed here, it magically turns into Regrowth.
      Don Stewart

  42. On top of the above description of how a lot of our economic activity is a list of unskilled tasks we all could be doing for ourselves that people exchange between themselves, (driving junk food from a takeaway place to individual homes, or the latest plastic toy for any ages manufactured in poor countries, domestic services) here is where it’ll all end up: https://www.oftwominds.com/blog.html

    CHS on how you can’t taper the debt ponzi scheme we’re all caught up in, on this, our finite planet.

  43. I’m watching a lot of documentary at the moment and past events can give an insight into how humans en masse behave in real time contributing to a growing catastrophe that then engulfs them,
    Ken Burns two part film The Dust Bowl is fascinating, the first film shows the build up with the rush to settle the land, the land speculation and the rush to participate in the bonanza of growing huge amounts of grain, the motivations and thinking that led to and accelerated what became a huge disaster.


    another film that both fascinated and simultaneously infuriated me is Taken for a Ride – The U.S. History of the Assault on Public Transport in the Last Century, the story of GM and an assortment of auto related industries clubbing together to destroy the electric streetcar system and replace it with buses and cars,

    by looking at what private citizens and large corporations have done in the past gives you a good indication of how they might behave in the present,
    both films above leave me with a deep sense of foreboding about how we might collectively behave now and in the near future,

    although a Goldilocks path may always exist, to some extent, humans seem incapable of sticking to it and tend to wander off and get themselves in a terrible mess,
    we just aren’t as rational as we’d like to believe.

    • To documentary fans I highly recommend Cadillac Desert – You can find this four part documentary free on Youtube. It’s about our modern sordid history with water. It starts with California, then covers dam building. Highest possible recommendation!

  44. the latest Jimmy Dore episode on Youtube is Jimmy interviewing Max Keiser,

    it’s ostensibly about Bitcoin but they go into how inflation is inaccurately calculated and interest rates are artificially low for the guys at the top of the Ponzi pyramid but still nosebleed high for us much further down,

    it’s good to see inflation and interest rates being discussed openly in a forum that is aimed at the average guy on the street,

    at one point Max comes close to explaining my understanding of Bitcoin, for the dollar, most of it is digitised these days and only a tiny amount is in the form of banknotes and coinage,
    Bitcoin is an alternative to the digitised Dollar which is a fiat currency that can be inflated away and all Dollar transactions have to go through the banking system and can be blocked or hijacked by sanctions imposed by the State Dept.
    Bitcoin is finite, only so many Bitcoins can ever be mined, it has a limit so it can’t be inflated endlessly till it has no value,
    you and I could conduct business doing our financial transactions in Bitcoin and completely bypass the Banking system exchanging directly over the internet in real time relying on the security of Bitcoins encryption,
    if the internet and electricity grids go down then Bitcoin is toast but so is the digitised Dollar,
    the only advantage of the Dollar after grid failure is that at least you could wipe your butt with $1 bills,
    all the Dollar inflation of the past 20 years has gone into assets as all the stimulus, QE and easy credit has been targeted at the top of the pyramid,
    maybe todays price for Bitcoin isn’t showing an increase in Bitcoins value, it’s still just a string of computer code, the apparent value of Bitcoin today is actually a representation of the reduced buying power of the Dollar as it has been inflated away by excessive printing.

    gold and silver are good hedges against inflation but paper markets for gold exist and they are used to manipulate it’s price and artificially inflate the amount of gold by printing more paper than physical gold exists,
    gold is risky to hold privately as it’s a magnet for thieves and it could be siezed by govt. in an emergency as FDR did in the 1930’s,
    when FDR siezed gold from private holders he was able to use that gold, if a current govt. siezed Bitcoin they could do nothing with it without access to the passwords and encryption that identify the Bitcoin, validate it and assign it’s ownership to any given holder at any given time,
    siezed Bitcoin would be worthless to govt. and they could only ban it, not take it over.

    when inflation and interest rates are discussed as openly as this in a forum aimed at everyday folk on the street it’s a bit like a shoe shine boy moment,
    once insider knowledge becomes part of the public narrative attitude changes can potentially happen very fast.

    I don’t think Bitcoin is the answer to life, the universe and everything, but it is something that can grow and threaten and intimidate the fiat Banking system,
    it’s a tool, a social construct, a virtual tool, but hey.. fiat Dollars are only a social construct too.

    • All I would say about cryptos is that no government could tolerate the existence of a rival to its sovereign fiat, the principle being that of ‘seigneurage’. Put another way, government needs a monopoly over money in general circulation. If there are two currencies in circulation, and one is less prone to inflation than the other, then people will opt for the former and shun the latter. So long as cryptos remain investments – which have to be turned into fiat before they can be spent – then there isn’t a problem. If they ever start to function as rival forms of money, there is.

      It seems to me that to regulate (or shut down) cryptos, governments wouldn’t need to get past passwords and so on, just as FDR in 1933 didn’t need to track down every ounce of gold in private hands. In both cases, all they’d need to do would be to declare ownership illegal. At that point there would be no utility in cryptos, because you couldn’t buy or sell them, or even prove ownership.

      I can well understand why people would seek alternatives to fiats. Ever since we started growing the financial system at a rate faster than the physical or energy economy could expand, some form of value destruction has been inevitable.

      Money, ultimately, is simply a claim on goods and services so, if claims exceed what can be delivered, some of the ‘value’ contained in financial claims has to be destroyed. Formal (‘hard’) defaults are possible, of course, but inflationary (‘soft’) default seems likelier.

    • “I don’t think Bitcoin is the answer to life . . . ”
      Nor gold?
      ‘“Now Herman Kahn and I on another occasion went to the Treasury Department, and we talked about what the world would look like on a gold standard. I said, “Gold is a peaceful metal. If you have to pay in gold, no country with a gold standard can afford to go to war anymore. Because a war would entail a foreign exchange payment, and you’d have to pay this foreign exchange in gold, not IOUs, and you would end up going broke pretty quickly.”
      Needless to say, someone from the Defense Department said, “That’s why we’re not going to do it.” ‘

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