#215. The price of equilibrium

FUTURITY, REALITY AND THE COMING FINANCIAL CORRECTION

The simplest way to define the current economic and broader situation is that consensus expectations and realistically probable outcomes have become polar opposites.

One of the most predictable consequences of this disparity is a sharp fall, both in asset pricing and in the viability of forward financial commitments.

Shared by governments, businesses, the mainstream media and a large proportion of the general public, the consensus line is cornucopian, picturing a future of abundance characterised by continuing economic growth, exponential technological progress and a seamless transition from climate-harming fossil fuels to renewable energy sources (REs) such as wind and solar power.

This essentially optimistic narrative is based on a series of compounding fallacies, which we might summarise as misconceptions of capability.

Three critical realities are ignored. One of these is that the economy is an energy system, which cannot be propelled to infinite expansion by means of the human artefact of money.

A second is that the scope for technology is bounded by the laws of physics.

The third – and arguably the most important – reality ignored by the consensus narrative is that REs are unlikely to replicate the characteristics and economic value historically provided by energy from oil, natural gas and coal.  

Those of us who understand the economy in energy terms have to weigh two possible courses of action. These are not mutually exclusive, but a balance does need to be found. One of these is the advocacy of reality. The other is analysis, which involves working out the probable series of events, and providing information which will be of value once the failure of the consensus narrative ushers in a new pragmatism.

The recent emphasis here has been on the fallacies which inform the current narrative. We’ve looked at why the credibility of conventional, money-based economics is waning rapidly, and at the hierarchy of challenges which make seamless, ‘growth-intact’ transition from fossil fuels to REs improbable.

The aim now is to formulate a realistic projection of what a less-than-cornucopian future might look like. In doing this, we need to refer to critical principles, and look at what these critical principles can tell us when translated into interpretation and projection.

Regular readers, to whom the central principles of the surplus energy economy are familiar, might welcome the fact that these principles, of which there are three, can be expressed with brevity.

The first is that the economy is an energy system, because nothing that has any economic utility at all can be supplied without the use of energy.

The second is that, whenever energy is accessed for our use, some of this energy is always consumed in the access process. This ‘consumed in access’ component is known here as the Energy Cost of Energy, abbreviated ‘ECoE’.  

The third critical principle is that money has no intrinsic worth, but commands value only as a ‘claim’ on the goods and services made available by the use of energy.

These principles immediately set up a distinction between a ‘real’ economy of energy, labour and resources and a ‘financial’ economy of money and credit.

The central fallacy of orthodox economics is that it places the ‘real’ economy of energy and resources in a subsidiary relationship to the ‘financial’ economy of money.

It asserts, for example, that demand (expressed as money) creates supply (of the goods and services produced using resources). The reality is the other way around – that the financial system is a proxy and an operating mechanism for the all-important economy of energy.   

These principles should inform our understanding of the industrial era which can be dated to 1776, when James Watt completed the first efficient heat-engine, giving us access to the vast amounts of energy contained in coal, oil and natural gas.

Through much of the subsequent two centuries, the ECoEs of fossil fuels declined, reflecting widening geographic reach, rising economies of scale and improvements in the technology of energy access and application. This meant that surplus (ex-ECoE) energy expanded more rapidly than aggregate energy supply, such that prosperity out-grew increases in the amount of energy available to the economy.

Latterly, when the scope of reach and scale had been maximised, ECoEs started to rise through the mechanism of depletion. By the 1990s, fossil fuel ECoEs were rising exponentially, more than offsetting volumetric expansion, and creating the phenomenon described at the time as “secular stagnation”.

Our subsequent economic history has been characterised by failed efforts to use financial tools to cancel out this adverse ECoE effect. We began this process of denial and misconception in the 1990s, by making debt ever more readily available. This process of credit adventurism was compounded, after the 2008-09 GFC (global financial crisis), by the adoption of monetary adventurism, characterised by supposedly “temporary” expedients such as QE and ZIRP.

The result has been a widening gap between the ‘real’ and the ‘financial’ economies. Barring some kind of ‘energy miracle’ (which isn’t going to happen), this gap has to be narrowed, and equilibrium restored, by a sharp contraction in the financial system which, as we’ve seen, is a proxy for the real economy of energy.   

This contraction in the financial system is our first clear projection for the future.

As we’ve seen, the real value of money resides in its function as a ‘claim’ on the output of the economy determined by energy. This means that it’s perfectly possible – indeed, under certain circumstances almost inevitable – for us to create claims on the real economy that exceed anything that that real economy can deliver. In Surplus Energy Economics, these are known as excess claims.

One of the mechanisms instrumental to the creation of excess claims is the operation of ‘futurity’. As distinct from the everyday meaning of ‘future’, the term futurity references the forward expectations that inform decisions taken in the present.

Whether it’s borrowing and lending, investing or fiscal planning, financial decisions are based on individual assumptions of what the future is likely to hold. Together, these expectations form a futurity consensus, and one of our biggest problems now is the sheer improbability of a futurity consensus based on a mistaken narrative of infinite growth and extrapolated technological advancement.

The most obvious example of futurity is debt. As a ‘claim on future money’, debt really functions as a ‘claim on future energy’. Expressed in international dollars – converted from other currencies using the PPP (purchasing power parity) convention – and stated at constant (2020) values, aggregate global debt has expanded from $127 trillion in 2002 to $330tn at the end of last year.

Debt, of course, is by no means the entirety of financial ‘claims on the future’. The shadow banking system, which has expanded particularly rapidly since the GFC, forms part of a broader category of financial assets which, for the most part, are the liabilities of the three non-financial sectors of the economy, which are households, governments and private non-financial corporations (PNFCs).

Data exists for countries equating to 75% of the global economy. On this basis, world financial assets can be estimated at $650tn – up from less than $220tn in real terms back in 2002 – which includes the previously-mentioned debt aggregates.   

Meanwhile, there has been a super-rapid expansion in unfunded pension commitments. These commitments are often implicit rather than contractual, but rank as commitments because they cannot easily be repudiated by the governments which are the principle debtors in the situation (and neither, unlike debts, can they be ‘inflated away’).

We have data for pension ‘gaps’ for countries accounting for about half of the world economy. On this basis, it’s reasonable to infer that the global aggregate of unfunded pension promises stands at about $235tn, up from about $115tn (in real terms) back in 2002.

On this basis, we can estimate that the world owes – to its own future – financial claims totalling $890tn, and comprising debt (of $330tn), other financial liabilities ($320tn) and unfunded pension commitments ($240tn).

This total compares with a real-terms equivalent of $330tn back in 2002. Each of these numbers would be smaller if we used market rather than PPP conversion to dollars but, by the same token, so would any calibration of affordability used as a benchmark.

The conventionally-used benchmark is GDP which, since 2002, has increased by $60tn (84%) over a period in which financial claims have grown by an estimated $560tn (+170%). As a rule-of-thumb, we can infer that claims on the future have increased by $9.30 for each incremental dollar of reported GDP.

This calculation, though, assumes that GDP is a reliable indicator of the ability to meet forward claims. In fact, though, GDP is a measure of activity, not of value, which means that it is inflated artificially by the creation of debt and other forward commitments.

Though we can go into this issue in more detail on a later occasion, the energy-based SEEDS economic model indicates that prosperity has expanded by only $18.7tn (29%) over a period in which reported GDP has increased by $60tn.

Part of the difference lies in the inflationary effect of credit expansion. By excluding this, we can calculate growth in underlying or ‘clean’ output (in SEEDS terminology, C-GDP) at $23.9tn (+35%) rather than the reported $60tn. Also excluded from conventional measurement is the financial equivalent of the rise in ECoEs between 2002 and 2020, a number which SEEDS puts at $5.2tn.

As measured by SEEDS, then, global prosperity increased by only $18.7tn over an eighteen-year period in which we can estimate that the broad commitments of futurity have escalated by almost $560tn.     

What this in turn means is that we have been engaged, on a massive scale, in the creation of excess claims, meaning financial commitments which far exceed anything that the real economy of goods, services and energy can ever hope to honour in the future.

The flip-side of this escalation in commitments has been massive inflation in the supposed ‘value’ of assets such as stocks, bonds and property.   

There are all sorts of technical debates that can be had around these calibrations, but there are abundant sources of corroboration for the case that the system has created forward commitments far in excess of any realistic ability to meet those commitments out of future prosperity.

For a start, negative real interest rates are an anomaly, and a direct contradiction of the tenet that a capitalist economy is founded on the ability to earn real returns on capital. Asset prices stand at absurd ratios to any realistic benchmark, and have been inflated massively by the negative real pricing of capital.

From this situation of massively-inflated asset prices – and a correspondingly unsustainable increase in liabilities – only two routes back to equilibrium exist. One of these is the ‘hard default’ route of repudiation, and the other is the ‘soft default’ process of inflationary devaluation.

It can be no surprise whatsoever that inflation has started to rise, a phenomenon that would be even more apparent if we included rises in asset prices within a broad definition of inflationary processes.     

This kind of broad inflationary definition is being developed within the SEEDS model, where it is known as RRCI (the Realised Rate of Comprehensive Inflation).

We can further use SEEDS to identify which sectors (governments, businesses and households), and which segments (investment, discretionary consumption and the provision of essentials) are most exposed to the twinned phenomena of deteriorating prosperity and the restoration of claims equilibrium.

For now, though, we can conclude that the divergence between the consensus and the realistic views of the future has created the scope for an enormous (and by no means pro rata) destruction of value within the financial system.

117 thoughts on “#215. The price of equilibrium

  1. Thank you, Dr Tim. Facetiously, if you can give me a date for what seems an inevitable sharp correction, I’ll liquidate my client’s positions in advance! Seriously, therein lies the rub. The obvious rise in the belief of “There is no alternative (TINA)” to investing in stocks has cause hugely disproportionate increases in the ‘face value’ of most mixed portfolios of, say, mutual funds. If one were to sell up now, one loses all dividend income of, say 3% per annum (so zero referenced to inflation) and, instead, were you to buy short-dated gilts as a ‘proxy for cash’, one will achieve a negative return, post inflation of c.3%. Talk about the devil and the deep blue sea!
    I’m presently dealing with several individuals who are having a very ‘rude awakening’ as far as their retirement income is concerned – with a veritable tsunami of ‘baby boomers’ retiring in the next 5-10 years where, exactly, will they source income? From non-guaranteed withdrawals from an investment pot, pension-wrapped or otherwise? Here they face ‘sequence of returns risk’, where if the (optimistic) ‘probability assumptions’ made at outset are not met in the early years, they will simply stand a good chance or running out of capital. Annuities? Well, whilst I freely admit that I believe that these insurance contracts remain the optimal retirement income product, ‘rates’ are still not far off record lows. You need a vast pension fund to achieve a reasonable annuity income, in short.
    And I have not even mentioned those over-extended individuals who have borrowed to excess and are staring insolvency in the face in old age. Perhaps taking the Mr McCawber approach that ‘something will turn up’ will inevitably fail.

  2. Thank you Dr Tim for your latest analysis. There’s some jaw dropping numbers in there, and they really should make the world pause for thought.

    Meanwhile, the world of finance carries on as if the party will last forever. Last week, American stock markets closed at all-time highs, and this week the German DAX is going parabolic to all-time highs. It’s a very long way down (to some kind of normality) from these giddy heights.

    Most of mainstream media continue to cheer the rise, mindlessly regurgitating the financial industries prophecies of even giddier heights.

    There are exceptions in the media though. Did you know that you were featured in the main editorial article of MoneyWeek Magazine recently? In the article from the 5th November issue, Merryn Somerset Webb spends a couple of paragraphs discussing some of the key points emerging from your “Life after Growth” book. She ends the editorial by stating that a market correction is a “tad overdue”. Journalistic understatement there I think. I’m not sure that the folks at MoneyWeek Magazine would classify themselves as MSM. They like to think of themselves as contrarian, even a bit maverick at times. They have a circulation of about 30,000, so it’s niche publication, but I think it probably lands on a few influential desks. At least it’s a foot in the door.

    • Cor! Merryn Somerset Webb reading Tim’s book and mentioning it in an editorial leapt out at me from your post!
      I thought Gaya Herrington looking at the Limits to Growth was pretty unusual,

      maybe pennies are starting to drop?

  3. Thank you Tim for another great post as per. @Mark I was able to “see” the future of pension schemes forty years ago and decided at the time to stop working “full time”. Expecting to work at least part time till I am no longer physically or mentally no longer able to. I’ve spent the intervening years setting our household up to run on very little fiat. As such we have not done much in the line of payed work over the last two years due to the virus situation. No adverse affects to this point! “Something will turn up” has already failed, it just takes a longer time to become apparent in a system that is global in coverage. The great depression took about four years to reach the ground, i.e. the common folk. It was a much smaller system and way less complicated in comparison. The difference in size between then and now is likely to have a lot to do with what seems to be a slow descent. However descend we must! Looking for a soft landing at this point doesn’t seem to be very hopeful. We’ve been falling for so long now most don’t realize we’re in free fall and have been since a least the ’90’s. The reality of what Mr. Morgan is pointing out is only obvious to those that haven’t trusted the system from the beginning of their “age of reasoning”. Which for some is never reached.

  4. Tim
    Arithmetic says that 890 Trillion-330 Trillion=560 Trillion over 18 years.
    Conversely “….the broad commitments to futurity have escalated TO $890 Trillion.
    But hey, as the late Senator Everett Dirksen put it back in the 1950s, “a billion here, a billion there-pretty soon you’re talking about real money.
    All that aside, as a guide to the future the SEEDS model offers the best interpretation of the trends that lurk unspoken in the narrative that drives markets. When phrases like “Lower your expectations “ show up in the evening news commentary, coupled with the inflationary trends generated by non sterilized monetary expansion, one can see the outline of one escape plan.
    Since encountering ‘Perfect Storm’ back in ~2014, I have been whispering in many ears of the conundrum coming into view. As well as asking: Is it a Problem or is it a Predicament?
    Thanks for being willing to be the nail that stands up.

    • Thank you, and welcome, as I think this is your first comment here. Thanks, also, for spotting the typo – now corrected (the increase has been just short of $560tn, whereas $890tn is the total).

      I think the SEEDS model does have market implications, my view being coloured, of course, by having been an equities analyst, and latterly head of research.

      It would be interesting to discuss the outlines of an escape plan, remembering that moments of highest risk can also be those of greatest opportunity.

  5. I like the rehabilitation of the term Cornucopian, it encapsulates all the aspects of hubristic optimism which look likely to be undermined by reality, physics and simple math,

    after putting a name to our problem we can try and find it’s antithesis and see if it carries aspects of a solution,
    I don’t like Malthusian because it’s too closely associated with population and food, much like neo-liberalism only captures the economic ethos of our problem,

    as an overarching term Autarky points to living within the constraints of reality, post WW2 the French adopted what they referred to as Dirigisme, a directed economy,

    maybe after the fall of financialisation we will have to think in a more Autarkic way and use a Dirigiste approach to reorder the ruins into a smaller, simpler, more efficient economy.

    these are just broad outlines with a mass of detail to be filled in.

    a point worth noting,
    when Deng Xiaoping’s critics pointed out his ideas were capitalistic his response was; “it doesn’t matter if a cat is black or white, so long as it can catch mice, it is a good cat.”

    such pragmatism has served China well.

    • Thanks. It’s a great quotation from Deng, who also, if memory serves, said something along the lines of ‘allowing capitalism to serve China, not allowing China to serve capitalism’.

      Where we’re going, I think, is towards a ‘new pragmatism’. SEEDS analysis suggests that, whilst the resources available to the state will contract, they will shrink less than those available to the market sector. Some governments and some central banks have become more activist, albeit without actually proclaiming any such intent.

  6. A Good Post!
    A suggestion. Taking off from:
    “On this basis, we can estimate that the world owes – to its own future – financial claims totalling $890tn, and comprising debt (of $330tn), other financial liabilities ($320tn) and unfunded pension commitments ($240tn).”

    Climate scientists frequently quote the figure for the CO2 in our remaining budget. Can you use SEEDS to calculate how much burning that remaining budget would likely generate in economic activity? My guess is that it is less than the amount the world owes to its own future.

    If, in addition, you can readily calculate the impact of building out renewables using the current energy mix in the global economy but scaling down to the CO2 budget, then we might get a ballpark estimate of the challenge. In other words, if building the wind and solar economy will require us to increase ECoE from 10 percent to 40 percent (counting the cost of building the renewables as a cost of energy), then we can see the impact on prosperity.

    Thanks…Don Stewart

    • Thanks Don.

      SEEDS can pretty certainly do those calculations – good suggestions. The model does have an environment module, which projects future CO2 emissions.

  7. Very interesting analysis as ever. To help me get my head around the indebtedness, if you drew up a balance sheet for the whole world who or where are the creditors to balance the debtors? Or am I being naive?

    • It would be hugely complicated, but yes, we could in theory draw up a list of creditors to whom debt is owed. For most countries, including ‘offshore financial centres’, this information does exist.

      The important point, though, is that debt really IS owed – it’s not some kind of theoretical concept that can be written off ‘with nobody losing out’.

    • I think I was trying to understand a worry that as debt is purely in the “monetary economy” to what extent can it be regarded as a promissory note against future energy. For example when the Uk government issue a bond and the BOE buys it (which is increasingly happening), increasing it’s capital, and then the government fails to honour that debt all that happens is the BOE writes off the debt and reduces it capital. As both sides of the transaction – govt and BOE – are essentially the same nothing has happened other that the amount in circulation has been increased and then decreased. So the original debt has disappeared – the magic money in reverse – with no one losing out and no impact on the energy demand. There would be other consequences such as loss of confidence in the Uk etc.
      The point I am trying to make, in my laboured way, that not all debt is equally a promissory note on energy. The impact of the increase in debt is mainly to increase asset prices, or stop them reducing, and secondarily to stimulate the economy. In doing this debt provides both the wherewithal and incentive to grow the economy and thereby increase the use the energy in not only essential activities but also discretionary activities. The danger in debt is now as it is increasingly the mechanism being used to avoid the future – the restraint of debt would be the first step to a recognition of reality.
      Hope that makes some sense.

    • Central bank activities obviously lie outside normal debt and monetary relations, in that central banks can ‘create’ base money and write off debt owed to them by the state. Ultimately, though, this is the creation of money for government to spend, and money creation, in excess of underlying economic (energy) activity, is implicitly inflationary.

      By way of example, it’s been suggested that we use QE to finance transition to REs. This has been costed at upwards of $100tn, so why not simply create (‘print’) this money to get it done? Well, if we created, say, $10tn annually, and handed it to the appropriate bodies, they would all set out trying to buy steel, plastics, concrete, copper, cobalt, lithium and so on. This would massively drive up the cost of these materials, and of the energy used to make them available. This in turn would drive up the costs of anything else produced using energy (that is to say, of everything).

      The myth is that monetary demand somehow ‘creates’ the supply of whatever it is that we need, but this doesn’t work where finite resources and the laws of physics set limits.

      It’s also been said that, if we could use QE to rescue the banking system, and latterly to get us through covid, why not use it to combat climate change? The implication is that these uses of QE have been ‘harmless’. In fact, both previous uses were harmful, creating inflation. This was largely confined to asset prices, so doesn’t show up in indices such as CPI, but it’s ‘real’ inflation nonetheless.

      Where the real economy of goods, services, labour and – ultimately – energy is concerned, money creation, in any form, doesn’t get us ‘something for nothing’.

    • Is debt really owed? As you point out, money is a human construct unrelated to physical reality. Imagine all the money (and knowledge of money) disappearing overnight. The factories, farms, tvs, cars, oil fields, wind farms, etc would still all exist and still all work. Where then is the debt?

      What if a Government decided to take the future prognosis you outline seriously, and switch to a rationing system – would there be any debt then? Ultimately, isn’t debt just a human construct and we can make it disappear if we chose to do so. Obviously we would need some mechanism then to allocate resources – which is really what the economy does. It doesn’t necessarily have to be money though does it?

    • Debt is a matter of time-phasing, much as money is a matter of exchange and distribution.

      If we accepted widescale default, factories, farms and so on wouldn’t vanish. But their ownership would change. A’s mortgage or credit card debt might disappear, but so would B’s savings, investments and pension assets.

      Rationing might be seen as an implicit consequence of the ‘new pragmatism’, but there are different forms of rationing, and which type is adopted makes very significant distributive differences.

    • “But their ownership would change.”

      And that’s all you need to know why we are on the path that we are on. Everything done since 2008 has been because “But their ownership would change.”

      Some things may have also been done that weren’t monetary because “But their ownership would change.”

      😉

    • In fact, the Great Reset is admission that the “elites” recognize what Dr. Morgan talks about in his articles. And hence the clamor for a new kind of “shareholder” capitalism where you will own nothing and like it, all because “But their ownership would change.” It’s what the WEF types fear the most

    • These are issues that, perhaps, should be addressed here, though – as ever – I don’t think politics, still less personalities, are helpful. Power and money have always been linked, and probably always will be.

      Where the ‘elites’ are concerned, I think we need to be clear about what extreme weath really means. If you own 50% of a company valued by the market at $10bn, then you’re worth $5bn. But that’s a paper valuation. If you’re the CEO, you probably get a hefty salary. If the company has positive cash flow, you might get dividends as well. But neither will run into billions. On paper, you get wealthier if the stock price rises, but that’s not ‘money in your pocket’. You can borrow – and cheaply – against your stockholding, but that could be risky if the market slumps.

      The media likes to tell us that ‘Mr Y is worth X billion’. The public response might be admiration or envy – probably both – and maybe Mr Y likes to hear how many billions he’s ‘worth’. But this paper value is hard to monetize and, at the extremes, impossible to turn into cash.

      The issue thus becomes control, and perhaps status and influence, rather than paper wealth.

      Being extraordinarily wealthy – but knowing you could lose much of this paper wealth under a number of possible scenarios – must shape your thinking. When we grasp that, we probably get nearer to understanding what ‘the elites’ are ‘up to’.

    • “You can borrow – and cheaply – against your stockholding, but that could be risky if the market slumps.”

      Indeed and that is why the first thing that was done in early 2020 was the CARES ACT, which really didn’t have much to do with health. Like in 2008 certain “personalities” decided to bail themselves out again. Funny how we never let the stock market correct, and everytime a bump in the road appears its interest rates to 0 and QE for mega corporations. MUST KEEP THE PAPER WEALTH INFLATED. In the United States, hospitals are not being built currently, in fact they’re being closed. Do you fire nurses during a pandemic or do you quickly train anyone willing to risk their lives for the benefit of public health? What actions have TPTB taken? Are they closing hospitals and firing nurses or scrambling to save society?

      “The issue thus becomes control, and perhaps status and influence, rather than paper wealth. ”

      REPO crisis 2019 thru early 2020, infact right up until the CARES ACT went into effect in March. Small and medium sized business destroyed by lockdowns while mega corps get to stay open. Isolating people and forcing all conversation onto the internet. And now we move onto “vaccine passports” which in my view have very little to do with health and much more to do with “The issue thus becomes control, and perhaps status and influence, rather than paper wealth. “. If you were one of those people obsessed with status and wealth and CONTROL and you knew the system was failing. Would you try to get in front of that so that you remain in CONTROL? Or would you let the cards fall where they may or as the Romans once said “Fiat justitia ruat caelum”? If you rob a bank, do you just go in guns blazing or do you create a large fire a few blocks away and then while everyone is worried about the blaze consuming city blocks, you rob the bank? Most of 2020 if you tried to point any of this out, you were censored. In prior times people would just laugh at you and say poor crank. Why the need to censor now? Perhaps because the B-17’s are getting closer to the target they’re getting so much flak? Anyways, i’m just some Average Joe not watching the TV and creating what i think to be the proper narrative based on observed actions by TPTB since 2008 and prior. Thank you again for taking the time to reply to my comment and i would love for you to “wargame” this theory of mine in an article if you ever find the time.

  8. Tim, once again, a great piece. I do truly appreciate the concise text of the three central principles. I can already see how I will use these to introduce people to your work. And I like the direction you are taking; Prospecting the future — to help people and institutions navigate it better than they otherwise would be able to — is worthy work.

    • Thank you.

      When false narratives collapse, the result is either chaos or a ‘new pragmatism’.

      I’m switching the focus here slightly, towards ‘what happens next?’,a set of questions which energy analysis, and SEEDS, can go a fair way towards answering.

  9. Dr Tim,
    In the previous blog one of the contributors mentioned the Bell video of 1958 ,”The Unchained Goddess”. Clearly this was an educational video explaining matters meteorological as controllled by the rules of physics and not by supernatural forces under the control of the goddess Meteora and her minions.
    It reminded me of the cognitive dissonance and hubris of the central bankers in matters financial and their relationship to energy and ecology.
    An analogous presentation of your model of the economy as an energy system could be just the mode of enlightenment that is so badly required.
    Ms Yellen, Mr Schwab , Mr Carney might even be convinced. Would not all participants on this blog love to watch as the scales fall from their eyes.?

    • What we might call ‘the establishment’ has numerous reasons for wanting the present situation to continue. As second-best, they might settle for ‘to continue for as long as possible’.

      It’s a moot point as to how much they know about the interpretaton as set out here. As a general rule, people tend to see only what they want to see.

  10. Interesting and insightful, many thanks!

    This forced state of equilibrium has to revert to a true state, or phase shift to a new state? Just becoming acquainted with complex systems theory, so bear with me . The longer they attempt to force a desired state the more intense the unintended consequences? This is going back to 2008, perhaps back to the 1980s?,

    Hopefully you’ll discuss this at a later date, however Inflation, increased supply chain disruption, shock /crash of resource prices, hoarding of resources (eg OPEC refusal/inability to increase supply) etc feels like the beginning of the transitory period?

    It seems that this is unsustainable for an extended period, although I struggle to gage the time period. Geopolitically this has immense ramifications. Essentially the more resources you have within your borders and the ability to process them, the more your able to weather the chaos… So Russian is looking in a very favourable position. Love to hear your thoughts

    • Thanks John.

      A little while ago we looked here at how the interpretation set out in The Limits to Growth back in 1972 is in the process of being vindicated, suggesting that we’ve been living in a transitory “precursor zone” since as far back as the 1990s. That was when we started the process of ‘denial and gimmickry’ by making debt ever easier to obtain, the theory being that this would invigorate the economy and overcome the “secular stagnation” that was causing concern at that time.

      We’re now into the final stage of this phase, and I’m now concentrating on what this is going to mean in practical terms.

      This article is intended to set the scene, so to speak, by highlighting the enormous overhang of financial commitments that cannot possibly be met.

  11. For the past several month I’ve been thinking that all these lockdowns, QR codes and other corona-related things have the effect of considerably reducing material consumption, and that might be one of their main intended effects. I suspect many politicians realize it and are motivated by it.
    Among other things, the suppression of consumption should make it possible to create more “free money” than would’ve been possible otherwise.
    Even then, we hear news about empty shelves, energy crises, riots, escalating geopolitical tensions – presumably the can can’t be kicked down the road for very much longer.

    • Vic,
      I am in agreement with you. Lockdowns are serving a purpose other than Public Health. So much is obvious to anybody who looks and who wants to see.
      I have come to the conclusion that politicians worldwide, are simple self-serving egotists with absolutely no intention of serving the public good.
      What we are witnessing right now, are these thieves breaking into the passenger cabins of the Titanic, and stealing whatever possessions were left behind by those fleeing. Hell knows what they intend to do with this money, because as we here all know, money is not wealth.
      Dr. Tim’s very fine analysis here maps out our situation in a very deliberate and Matter of Fact way. What however must be considered parallel to this analysis is the human aspect, and in particular the geopolitical landscape.
      At present we have a circle of the US Fed, the BoE, the ECB and the JCB, all buying up each others debt, and pretending that each of these institutions is actually creditworthy. We are rapidly approaching a point at which the Russians and the Chinese will not want to be paid in Confetti and will demand settlement in Gold. ( Physical delivered ).
      As the western world can no longer make anything for itself, and has essentially run out of physical resources it is highly dependent of Russia for Energy, and on China for manufactured goods.
      When these countries no longer accept western currencies in payment, then their true value will become clear to everyone.
      Once a us$ is worth zero, then the $560Trillion debt burden does not become a problem any more.
      Of course, the debt problem goes away, but is replaced by the problem of feeding your population, and trying to stop people killing each other over the head of a tin of beans.

    • @ Johan

      In the most Oliver Twist – Food, Glorious Food is what America produces and our Electoral College ensures it.

      Let me know when the USA will be bypassed by China and/or Russia, then maybe they would create this tension.

    • @Asmith

      Excellent phrase. I was going to say “ epigram “ but apparently that has amusing
      or witty connotations and as all contributors here are aware the situation is far from amusing.

      Albert Einstein is reputed to have said “ compound interest is the eighth wonder of the world”. Since most of the other seven have crumbled to dust are we witnessing this one suffering the same fate?

  12. Trillions? For the casual reader and most of the public it’s an abstract number at best. For their sake I’ll try to make it at least a bit more visual. You pick the currency: 3600.00 per hr 24/7/365 x approximately 33,000 years = 1trillion x 890. Resources to cover that debt virtually zero. Think about it, the earth itself has only been around about four billion years. Human hubris knows no bounds and is itself limitless.

    • I struggle with the size of the numbers these days,
      if we had a global whip round for a GND, if each of our 8 billion put $1,000 in the hat we’d only have $8 trillion,
      yet there is talk of $100-150 trillion being needed,
      $160 trillion would be $20,000 for each of the 8 billion alive today,

      well if you look at World Bank GDP per capita figures….

      https://data.worldbank.org/indicator/NY.GDP.PCAP.CD

      the average world GDP per capita is only $11,000, it’s pretty obvious that only maybe 1 billion people are in position to come up with that sort of money,

      if 1 billion have to cover for the other 7 billion they’ll need to put $160,000 in the hat,
      can everyone in the Western advanced economies afford to take out a second mortgage to cover a GND?

      this is a fancilul analogy but it illustrates the scale of spending proposed.

    • If you had spent $1M per day since Jesus walked the earth, you still wouldn’t have spent $1T by now.

  13. RE: Treasury Bonds sold to the Central Bank
    Wolf Richter, at Wolf Street, has written recently about inflation and how the situation now is not like what Paul Volcker faced in the 1980s in the US. Volcker at one point had interest rates up around 20 percent, which crushed inflation for decades. However, his Federal Reserve held little in the way of Treasury bonds. The current Fed holds trillion of Treasury Bonds. Thus, if they wanted to do so, they could stop buying bonds on the open market and also start selling their Treasuries. The result would be a contraction in money supply, with no need to resort to super-high interest rates.

    I’m no financial genius, so I just noodle around with the implications of doing that:
    Stock market crash
    Bond yields rise for solvent companies, and savers are rewarded
    Consumer prices fall
    Consumption falls as incomes decline
    Cost of Living adjustments to tax rates decline so taxes increase as a percent of income
    Social security payments decline as consumer price indices fall
    Therefore, government wins and most people lose.

    That might be very attractive if the political situation can be gamed….e.g., blame it on your predecessor or the Russians and OPEC Plus.

    Don Stewart

  14. @Matt It isn’t the “monies” that really matter they can be created out of thin air with a couple of key strokes. It’s the natural resources and what they’re turned into that doesn’t line up with the monetary math. Being an very amateur astronomer for many years made me think up different
    analogies to try and grasp the speed of light over the vastness of the galaxy and ultimately the known universe. I’m not so full of myself as to think I’ve any real comprehension of these distances! But I am at least trying to create am awareness for myself of the meaning of these numbers.

    • You’re right, though the only way we’re going to get a real understanding of the economy is by analysis of the physical economy of energy and resources, and the financial economy of money and credit, and – above all – the dynamic relationship between them.

      There are two ways in which we could ‘do’ economics, but neither is sufficient on its own.

      The conventional approach looks only at money, thereby ignoring the realities of resource (and environmental) limitations, and wishing them away with statements such as ‘demand creates supply’. Many of the ‘laws’ of economics seem to work until resource constraints intervene. Hitherto, we’ve ‘got away with’ this, because it’s only in recent times that resource constraints have started to bite.

      Second, we could calibrate economics entirely in energy units, ignoring money. This approach has its merits, and is a lot nearer to reality than the classical approach based on money.

      However, this physical approach to economics excludes the element of transactions, which are important even in a purely material understanding of the economy.

      What I’m endeavouring to unravel is the inter-relationship between the material economy of energy and the transactional economy conducted using the mechanism of money.

      This is why this article starts the process by setting out the scale and implications of financial commitments.

  15. Don Steward, as far as our carbon budget goes, it’s gone. The Arctic methane is out gassing all over. Siberia, of all places is burning up. The maximum negative effect of greenhouse gases takes from 10 to 30 years to reach and we have produced more than 50% of all the ghg in the last 30 years. We have exponentiality knocking at our door. Only carbon removal from the atmosphere can prevent our extinction but that tech is in its infancy and too late to scale up. Brace for impact.

    • Too true Richard, sad as that is.
      Tipping points have long been passed.
      Problems have solutions, predicaments don’t.
      It really is that simple.
      Brace for impact indeed.

  16. The truth is out there, this interesting short talk is effectively a good introduction for the average person to the message on this site, simple and clear. So there are enough voices warning, that is not the problem. The reason the signal is not getting any traction with the masses is due to control of the levers of state jamming it with the control of MSM (through ownership by billionaires) and autocratic controls over daily life via laws and enforcement:

    • The reason the signal is not getting any traction with the masses… is that they don’t want to hear it. It doesn’t require the domination of the media by anti-reality operatives (though there is that) to keep the fantasy going.

      That the future will be grim unless we sacrifice mightily today has been obvious since the 1970’s. The reason no politician can get elected on a platform of sacrifice is not that media downplays its necessity, but that whenever anyone raises the subject in the political world, it ends their career (eg Jimmy Carter).

      From “Morning in America” to “Make America Great Again”, we’ve seen politicians pollyanna their way into power with promises of prosperity (with a big dollop of “blame the victim” thrown in as a ballot box motivator).

      The reality is that overshoot has no upside. The only way to keep bad things from being inevitable is to keep overshoot from happening in the first place. But that requires sacrifice for the common good, something most people are loathe to do. Imagining that the default reaction to social stressors is a widespread impetus toward cooperation (that is only being prevented by media propaganda) is just that, imaginary. A casual look at the litany of violent conflicts in human history should be an instant reality-check.

      Even as rich-world economies crumble from inevitable resource depletion, ordinary citizenry will think that easy solutions exist and blame the administration in power for not using those ‘easy solutions’ to restore prosperity. Frustration and blame will rise to a fever pitch, making realistic political administration impossible.

      As continuous recession deepens, government by revolving door will become standard all over the rich world. Civil disorder will become widespread. It’s easily possible that things will get so bad that present-day Ethiopia will look like paradise by comparison. “I won’t let it get as bad as Ethiopia” will never be a winning platform, no matter what the media might say. People just don’t want to hear it.

    • You are quite right, of course.

      Our predicament reminds me of the person who jumps from the top of a fifty-storey building and, as he passes the second floor, is heard to shout “no problems so far!”

      In other words, there comes a point where reality bites – where resources decrease, where ‘stimulus’ translates directly into inflation, and where the massive accumulation of forward commitments turns into default.

      Explaining and projecting this as an energy process is – comparatively – straightforward. The hard part is translating it into dollars and cents

    • True, most voters are just children in adult bodies giving Santa their wish list every election day and then repeating that throughout their lives, despite knowing after a couple of electoral cycles that it doesn’t work.

  17. Re: Transactions
    Unfortunately, the way the real world works, from quantum effects up to world wars, is also dependent on some basic human biology. Here is a just published book, which is the dissertation of a Stanford student:
    “Priya Fielding-Singh
    @priyafsingh
    ·
    Nov 16
    My book HOW THE OTHER HALF EATS is out today. The book takes readers to the frontlines of America’s nutritional crisis on my quest to understand: what is causing the growing nutritional gap between rich and poor in America?”

    One section of the book follows a mother and daughter who are deeply in the financial hole as they drive around doing essential errands. The mother is so desperate to save gas that she cuts the engine off and coasts whenever she can. BUT THEN they see a Starbucks and stop for two Frapuccinos. The author observes the delight of the daughter, and the beaming mother who is so happy to see her delighted daughter….the rent will have to wait.

    I suggest that the model which best describes what is happening in terms of transactions will involve a predator (a corporation) and prey (humans who are wired to seek certain outcomes…happy children…but are not nearly as smart nor have the resources of the predator). The corporation acts rationally in terms of money, while the prey acts trying to achieve certain biological feelings. The result is obvious in the deteriorating health of poor people.

    Neoliberalism assumes as an axiom that the Frappucinos were the best possible choice.
    Don Stewart

  18. Pingback: #215. The price of equilibrium – Olduvai.ca

  19. Pingback: Perpetual Growth? | ORCOP.COM

  20. Regarding the consensus narrative of the green transition to a carbon free future that looks like the present.

    Why are green politicians in particular but also investment fund management and the renewables industry all buying in to it when they must also know that it’s flawed. Aren’t the public going to be mightily upset when they discover they’ve been deceived and their pension’s not what they hopped.

    • I’m afraid, for the majority of us, we are but small stones, ground to dust under the wheel of history,

      I got off the wagon, I’m trying to keep out of it’s path and I’m waiting for it to go over the cliff.

    • Being idealistic is a common trait in the Young. That is why they all buy into the “Climate Change” narrative. The people leading them on know that they do not have to deliver on anything they claim or anything that they have to deliver. By the time the Young risen up to the realities of life, it will be late.

  21. Rachel Donald interviews Ugo Bardi
    https://www.planetcritical.com/p/confronting-the-crisis-systems-solutions?

    They have a very frank conversation about limits. Rachel recalls talking to people who see disaster right ahead. Bardi thinks that leaders must talk, instead, about possibilities. He ticks off some technological innovations which are on the cusp of mass adoption. He identifies agriculture as a critical industry, being as dependent on fossil fuels as the Irish were on potatoes. The solution is microbe based food, bypassing plants and animals.

    The straw man Ugo sets up is our utter dependence on industrial products such as synthetic nitrogen and mined phosphorus. Just a small increase in energy costs makes food unaffordable to a huge percentage of the world population.

    My own opinion takes a different and more conservative path. The different path is laid out by Andre Leu, an Australian farmer, who is the author of Growing Life: Regenerating Farming and Ranching. Leu points out that crops can be grown with 2 percent of the current use of industrial inputs, provided we optimize what nature already knows how to do. (That is ‘on the farm’…cooking and transportation and storage are different problems). What my conservative mind observes is that human biology has outsourced many essential life functions to the bacteria in our guts, the bacteria we eat on unprocessed plants, the bacteria and fungi which feed the plant, and the plants and animals we eat. It is possible that we can outsource everything all the way back to bacteria…but I haven’t seen any convincing evidence. We know from experience that things like pills and potions do not work with the same efficacy as real plants.

    In fact, if we optimize photosynthesis, we don’t need industrial chemicals at all. We still need tools, and some fossil fueled transportation would be extremely useful, but kitchen gardens are going to be a feature of my conservative future.

    Don Stewart

    • Antidote to Ugo’s Sunny Optimism
      See Dave Pollard’s review of the current issue of The New Yorker at
      http://howtosavetheworld.ca

      “So it’s only fitting, I suppose, that the magazine’s cover, by Eric Drooker, reproduced above, would depict a dejected Don Quixote facing a modern windmill farm against a blood red background, in a work brilliantly titled The Impossible Dream. We are finally coming to grips, it seems, with the symptoms and consequences of collapse, and the realization that no god, no government, no humanist enlightenment, and most certainly no technology, is going to prevent it.”

      Don Stewart

  22. In today’s Guardian a leading light in the BOE has stated that regarding inflation and interest rate rises “there is no quick fix and patience will be required”.
    WOW! Quite profound .

    These remarks were apparently made during an address to two groups of ‘cognoscenti’
    a) The Economic Observatory
    b) The Festival of Economics.

    Instead of struggling hard to grasp the reality (as all contributors to this blog do) would our understanding be improved if
    a) we did some star gazing in the Economic Observatory?
    b) some beer drinking at the Festival of Economics ?

  23. Dr Tim , thanks for another article that makes a lot of sense. I always learn something new, not just from your writings but from commentators too.
    I would like to offer a comment that links something that you said and the observation by Joe Clarkson.
    A long, long time ago in a comment section far, far away, you said that politics used to be about sharing the bounty of growth and was now shifting to allocating the pain of de-growth. Joe suggested that government by revolving door will become standard across the developed world.
    I think that the two thoughts come together rather well, but there’s another two factors at work.
    The first is the idea of grandiosity as set out by Prof. Mats Alvesson. Politicians have always ‘gilded the lily’, but gilding is going into over- if not hyper-drive – and that’s a sign of political desperation. In other words politicians are likely to make grander promises that they cannot fill – in short, their adherence to conventional economics almost guarantees that in many areas pf public policy they will be selling a false prospectus.
    The second factor is that one can discern a shortening in what may might be termed the time expectation of results – a general trend, I think, for the electorate to expect improvements either instantly, or very quickly.
    In short, false prospects alongside reduced time expectations is a mixture that is likely to result in increasing political instability.
    In regard to the latter, I have been struck over the last ten or twelve years by way the rapidity and regularity with which all of the mainstream political parties in the UK have changed leaders. That’s a very different situation from the days of my youth forty or fifty years ago, and I think that it’s another signal that fits with the idea that we’re in the precusor zone.

    • Kevin,
      Your “second factor” relates to the culture of instant gratification, and to the infantilisation of the populace. (“If I don’t get what I want, right now, I shall throw a tantrum!”) These unwelcome developments are sometimes linked to the rise of the internet, but in fact they have come to prominence over a period of several decades.
      Job security, for leaders of political parties and managers of football clubs, is not what it used to be.

  24. Alexander Mercouris latest video, about the spiraling costs of energy and its geopolitical implications between the U.S on the one hand and the Russian/Chinese on the other, echoes your sentiment Dr Tim.
    https://www.bitchute.com/video/20S2ryiYbTQ/
    In short, Mercouris highlights the delusions that the U.S had WRT fracking is now being shown up as exactly that. It has been known for a while that Shale Oil is too light for U.S. refineries to process on their own – they need heavy oil which, since the U.S embargoed Venezuela, has been importing oil from Russia. What was eye opening was Mercouris’s statement that it wasn’t just crude oil that was being shipped from Russia to the U.S. – it was refined products, namely diesel as well. This raises some serious questions about U.S. refinery operations.
    Europe, as a resource depleted Continent, makes only brief appearances – his dismissive appraisal of small scale modular nuclear reactors will certainly irk some on this board and I’m unconvinced on. However, the context in which European Energy Markets operate currently – which is laissez-faire – is not particularly conducive to nuclear to put it mildly.

    • @Tel
      I have frankly been mystified by the European energy strategy:
      *Their treatment of Russia seems suicidal. Diversifying suppliers yes, but insulting and threatening a major supplier?
      *Pretending that wind and solar can supplant fossil fuels in the short term.
      *Making the world difficult for Iran, when Iran is sitting on vitally important gas fields.

      The US strategy is similarly mystifying. While I’m no refinery operations expert, I have understood from the beginning that shale is ‘Light, Tight Oil’. Which means it is not ideally suited for making the hardest working products such as diesel. The dumbbell crudes which involved mixing Venezuelan or Canadan heavy oils with the LTO have been upset by the cancellation of pipelines to Canada and the attacks on Venezuela. And, as noted, the forcing of Exxon out of the Siberian oil developments seemed to me to make no sense. Who can now even remember what were the alleged crimes the Russians committed which prompted the sanctions. But we can all remember when Senators were fond of saying that Russia was just a gas station with an embassy in Washington, and Obama said that Russia was ‘just a pimple on a gnat’s ass’.

      The big question for me is that if Europe and the US think they are cornered, will they launch WWIII?

      Don Stewart

  25. @DON
    I don’t think a hot war is even possible at this point. First off there is MAD, mutually assured destruction. Even ignoring that, the fuel to run a global hot war probably won’t last more than a few weeks at best. Between what it takes to move modern warfare around and the fact that both sides would be looking to eliminate the others fuel supply rapidly would sharply reduce movement. I don’t see the animals around required tho move armies the “old way”. The only war now possible is being fought right now.

    • Despite Mutually Assured Destruction, some kind of nuclear exchange is probably inevitable. It may be accidental (there are many scary examples of close calls) or it may be deliberate, but as long as nuclear bombs exist the cumulative chance of their being detonated destructively increases every year. A good Geiger counter should be on everyone’s Christmas list.

  26. Another powerful corporate quietly benefitting from the pandemic drama, as well as the various politicos, ‘experts’ and other sales people enabling it:

    https://www.theguardian.com/world/2021/apr/02/seeing-stones-pandemic-reveals-palantirs-troubling-reach-in-europe

    Ordinary people get ever more controlled and their privacy violated too, by the people they elect. So today’s conspiracy theory is often tomorrow’s fact, like when disbelieving ‘invading Iraq was to stamp out terrorism and gift democracy to its people’, was called ‘crazy’ by the MSM at the time.

    • I’m normally pretty immune to conspiracy theories but what’s happening at the moment is giving me the creeps,

    • A great deal of what’s happening now is indeed disturbing. The logical explanation behind a lot of it is the movement of de-growth to a stage beyond the capability for further denial and self-delusion.

    • There were plenty of people and entities in the main stream media against the invasion of Iraq.

      The Iraq Resolution (to authorize military force against Iraq) was hotly debated in Congress, too. In the House a solid majority of Democrats voted against the resolution and in the Senate 42% of the Democrats voted against it (Biden and Clinton not among them). Only one Republican senator and a handful of Republican representatives voted against it.

      It was pretty clear at the time that the pretext for war was fabricated by the Bush administration and their Republican supporters in Congress because of their desire to be seen as “doing something” after 9/11. If it was a “conspiracy”, it was hatched in plain sight.

  27. Tim, you have said surplus energy per capita has peaked.
    To bear down more on that metric:
    Which countries might not have peaked yet?
    Is the global post-peak period much of a plateau?

    Growth in total surplus energy must be slow relative to population growth, and presumably slowing as it nears its own peak?

    • I have the data for that, but there are two reasons why I only emphasise the global position.

      First, a great deal of energy is traded. Unless we see this breaking down, we cannot draw useful inferences from a comparison between, say, Saudi and Japan. If trade did break down, then energy-rich countries might not be able to replicate at home the uses currently made of their exported energy abroad.

      Second, a lot of energy use is offshored, as when manufactured goods are imported by Advanced from EM economies. This enables some Western nations to claim that their energy us and dependency are falling when, in meaningful terms, this is not the case.

  28. I see that the 84m Turkish people are having a very tough time right now, with inflation around 20%, the Lira in freefall against the US$, and Erdogan still insists that the bank rate is cut further. Goodness knows what domestic energy prices are! This perhaps underlines the importance of an ‘independent’ central bank and the dangers of electing ‘populist’ leaders. It is hard to see a way out for Turkey, and this might just be the sort of thing to give global markets the jitters, as if we aren’t all jittery enough as the ‘fourth wave’ rips through Europe!

    • Jittery indeed. I saw the headline the Biden administration announces coordinated release of 50 million barrels of oil from strategic reserve in an attempt to lower prices. I thought it meant per day but that’s the entirety, one half of one days supply (global). Like firing air gun pellets at a T Rex.
      And more in your jurisdiction – 40 year mortgages launched in the UK!

    • Jittery is right. We’ve most of us spent a lot of time theorizing, generally to good effect, but my feeling is that the crunch has started happening now.

  29. I think you may well be right, Dr Tim. On Thursday, I have to present to the Board of Trustees for a village charity (300 years old). The charity awards grants to “those in want, and the infirm, of the parish”. For the very first time, EVER, the amount of money needed for grants applied for exceeds the income from the financial assets, these being farmland, cash and a stock and bond portfolio. I help with the latter, and some capital will need to be spent. With below inflation yields available, we are in trouble.

    Hard times are here now.

    • My interpretation is based on a combination of analysis and past experience in the financial markets. The question now is how best to respond to this, avoiding alarmism but emphasising no-holds-barred analysis.

      Basically, I think the system is cracking up.

  30. From a comment in today’s The Guardian business section:

    ‘Imagine being a driver or a company transporting goods from the EU to the U.K. and being held solely responsible for the goods on board..and responsible for any duties or vat on those goods . Would you risk carrying them ? I wouldn’t .. brexit 01/01/22 it’s coming

    Imagine being an EU haulier with 40 pallets of mixed consignments .. a few incorrect declarations and that’s it your stuffed . Your liable for any monies due . Goods and vehicle don’t leave .

    Imagine if your carrying a high value consignment for a customer you haven’t worked for before .. and it’s been incorrectly declared . Bang – your liable . But you haven’t played any part in the customs process . How on earth should you know the correct value . It’s bonkers’

    ***
    ‘Ciaran the Euro Courier’ on Twitter is flagging up an absolutely massive change announced by HMRC. Couriers will be liable for customs declarations, Vat and any duties from 01/01/2022. Good luck getting any goods into UK from January! If there is a supply chain crisis now, you ain’t seen nothing yet…

  31. On the theme of the system cracking up, US stock markets have been displaying some rather erratic and unusual behaviour in the last few weeks.

    There’s been considerable divergence between the various major markets, i.e. the Dow Jones Industrial average, the NASDAQ, and the S&P 500.

    The Dow Jones has been declining since November 8th, while the NASDAQ & S&P marched upward. However, when looking at internal strength of the NASDAQ, some remarkable facts pop out. At the same time as the NASDAQ has been hitting all time highs, there’s been a record number of individual stocks within the index hitting new lows.

    The gist of it is, that it’s not a broad based rally, but rather the upward momentum is being driven by a relatively small number of big hitters, such as Apple (which has gone ballistic since earnings were reported).

    Such a bifurcated market is not a healthy market. It looks like something nasty lurks underneath the shiny veneer. As I speak, the NASDAQ 100 is down almost 1.5% on the day. Could this be the turning point? Fed speak and funny money will not propel these markets upwards for ever.

  32. Here’s a thought-provokingly interesting interview that shows how the inescapable end-point of neoliberalism was always a civilisational crash, due to unsustainability in total, not just in energy:

    So though energy alone was going to take us out in the end, effectively the neoliberal system accelerated it. Theoretically, there could be some unexpected help here, if the pain of neoliberalism for the vast majority of losers in this system caused them to force change before the remaining energy (needed for transition to a sustainable lifestyle) is wasted, we may be able to avoid the hard landing. I hope so, but feel humans are always more likely to rescue defeat from the jaws of victory.

  33. Looks like loss of discretionary prosperity is being managed already very well under the guise of covid management. See this example, of how Melbourne life is a mere shadow of its former self.

    • People have no idea how easy it is to drift into autocracy. In apartheid South Africa non-whites (the non-elite vast majority of the populace) had to have a passbook and show it at checkpoints and to police patrols or authority figures acting as gatekeepers. This little booklet you had to keep on you at all times if out in public showed whether you were allowed to be there or not and permission was stamped through it, serving the ruling class the function of absolute control via movement.

      If I remember correctly, the USSR also used to have something similar and maybe China, even today between rural and urban areas, ostensibly to solve crowding in cities. The reasons for introducing infringements of rights can always be made to sound good for you initially, but even so, in today’s world I’m surprised how people are submitting so unquestioningly. (So is this the war on terror reloaded ?)

    • This might be a way to manage the consumer, denying him or her things that the economy is struggling to afford in any case, as discretionary prosperity erodes. What I struggle with, though, is how this could manage suppliers.

      So, for instance, a prolonged crisis might accustom people to not travelling very much. But what does it do to the travel industry?

    • As a more general point, we don’t “do” covid here, for two main reasons.

      1. Our ‘specialist subjects’ – energy, the economy and closely related issues – are so important, and so insufficiently understood, that we can’t afford to be distracted from them. Put another way, there’s more than enough debate out there about covid, and nowhere near enough informed debate about a deteriorating energy economy.

      2. We “add value” by discussing things that we know about, not by discussing things about which we have no specialist knowledge.

    • Mr House thank you for the link to the articles by Fabio Vighi. They make sense when you realize that the distress of the financial world is because “they” realize, and cannot talk about, is what we recognize in this blog.

    • Hey, wait a minute!

      That article in Philosophical Salon isn’t a COVID article. It’s a description of purposeful controlled degrowth – well, at least for the plebs.

      And I thought it would never happen, silly me.

    • Mr. Vighi makes some very interesting, and (I think) valuable points. I’m sure that many people would agree with everything that he pointed out, but for me, his piece seems a little oversuspicious. Notice that his conclusions are reasonable and that his analysis works if rather than claiming that COVID is meaningless, or created from whole cloth, one assumes that it is real and just happened at a very fortuitous time.

      So, the central banks needed to do some major stimulus and they wanted it to go straight to their friends. They printed the money, and started giving it away in a very inflationary manner, but along comes COVID (for whatever reason and however it actually worked) which turned out to be highly deflationary. Hurray, balance!

      Unfortunately, there are new problems. I refer you to:
      https://climateandeconomy.com/2021/11/26/26th-november-2021-todays-round-up-of-economic-news/
      (Please send this guy some money. He has just a few paying subscribers, needs food money, and provides a wonderful service. I can only afford to send $5 per month, and that is a tremendous bargain.)

      and to,
      https://zensecondlife.blogspot.com

      The world is facing massive inflationary pressures – petroleum costs, food costs, etc – and deflationary pressures – continuing lockdowns, shipping issues, etc. . It seems that whatever the central banks do, it will be wrong.

    • @Matt
      I watch the markets daily too, and trade them some days. Sometimes markets are looking for a reason to sell-off when they are overstretched, and in normal times such a correction can be part of a normal and healthy process.

      However, these are not normal times. Many stock markets have been very overstretched for prolonged periods, flying high as a kite on the regular injections of dope provided by central banks. I commented on this blog on the remarkably unhealthy “real state” of the US stock markets on 23rd November, and I also commented about the German DAX on 16th November.

      It seems that the proximate cause of the big overnight sell-off is worries over this new South African Covid-19 variant. I’m sure there’s something in that, but for me, many of the key markets have been a “bug in search of a windscreen” for the past year. Maybe the “splat” has just occurred, and it was destined to be the Covid bug.

      Key levels to watch in the market (my analysis/opinion) are 4631 In the S&P 500, 33855 in the DOW 30, and around 15350 in DAX 40. A solid close below those levels on a daily basis would look very bearish indeed. A bounce off those levels would suggest it was a nasty sharp correction, but not the big crash that many of us are expecting.

    • I appreciate that markets are jittery and there’s plenty for them to be jittery about,

      but it’s this overnight trading thing, that a +200 point shift can happen overnight, out of sight,
      are these overnight shifts getting bigger, are we going to wake up one morning and find there has been some kind of overnight ‘flash crash’?

  34. The official explanation is that it is concern about the effects of the nu variant. Pfizer stock is up the ceo has said they can develop a new vaccine in 100 days

    • I see blaming the public health crisis, as the media apparently are, as a shallow scapegoating, part of a manufactured narrative,

      I think Tim is quite right to say we are actually within the cracking up/collapse window now,

      the public health issue of the last couple of years has been handled ineptly using wrongheaded thinking led by clinging to an illusiory version of reality,

      but just about every aspect of governance is currently being ineptly mishandled as the same wrongheaded and illusiory framing of reality is applied across the board,
      until the powers that be start to frame reality in a more realistic manner their solutions are just going to add to the existing problems,

      it’s all looking very Ernest Benn;
      “Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedies.”

  35. @Matt

    It’s difficult to say in simple terms if the overnight gaps are getting bigger. It depends how you look at it. If you consider the gaps from a points perspective, then a Dow Jones at 36000 will give a much bigger points fall for a 1% overnight gap than it would have done when it less than 20,000 (not that long ago). It’s easy to lose track of that kind of change.

    A flash crash can happen at any time, not just overnight. If it news driven, it all depends when and where the news emerges.

    My concern isn’t so much a flash crash, as they usually resolve themselves quickly. My concern is for a lasting crash that heralds a once in a lifetime secular bear market, the likes of which hasn’t been seen before. The guys at Elliott wave international have already called it today. If they are correct, it marks the end of a bull market Supercycle that’s lasted over 200 years.

    It isn’t lost on me, that the start of this long bull market Supercycle, coincided with (fossil fuelled) industrialisation really starting to ramp up in the late 1700’s. It’s logical to think that the end of the Supercycle should coincide with industrialisation starting to sputter, due to the energy cost of energy rising sharply.

    Whether this is the “big one” remains to be seen, but I will be watching those key levels I mentioned very closely. When it does arrive, we will struggle to wrap our heads around the sheer brutality of the price action, even those of us who anticipate such an event. It will seem surreal.

    • it’s a useful interview, it helps get Nate’s message out, Rachel seems to be successfully connecting with the right sort of people, I hope it continues,

      I’m not sure Nate is being pessimistic saying that politicians and decision makers are unlikely to articulate his/our viewpoint,
      he’s actually being realistic, it’s one of those inconvenient truths we need to come to terms with,

      following a career path is like wearing a status quo straight jacket, break out of the straight jacket and you blow your career path,
      once people retire from their career path they are liberated and able to speak their mind without fear of consequences,

      there could be an upside to traditional political parties fracturing and breaking up, to major corporations having a Kodak moment and rapidly unravelling,

      in a great simplification the possibility of flitting from one corporate position to another may dry up, more high flyers may find themselves in the wilderness, unconstrained, able to use their previous insider experience to speak out,

      there’s much to be said for the creative destruction aspect of capitalism, the releasing of people from career straight jackets and allowing them the freedom to become disruptors,

      we shouldn’t look at ‘collapse’ as being doom and gloom, it’s not the end, it’s just a stage in the Phoenix cycle.

      https://en.wikipedia.org/wiki/Phoenix_(mythology)

    • Since Thatcherism and Reaganomics broke the (excessive?) power of organised labour at the end of 1970s, corporations have enjoyed a forty-year Golden Age. This era is now drawing to a close.

    • one could argue that Labour had become intractable by the 70’s, but one could also argue that Capital had been stubbornly intractable all along,

      but the obvious conclusion has to be that neither should have been allowed dominance and mutual co-operation with ‘one hand washing the other’ would have borne productive results,

      I’ve always been aware that German industrial relations have been much better at merging the needs of Capital and Labour into workable solutions,

      whilst Britain squabbled Germany took the lead,
      now it’s apparent that while the USA squabbled China has taken the lead,

      Michael Hudson talks of the parasite killing the host, if this is too unpleasant a metaphor for corporations to engage with they ought to think in terms of killing the goose that laid the golden egg,

      if we can’t get our act together and do it pretty sharpish we’ll all be deep in the ‘manure’ and none of us will be a winner.

      there was a time when America was lauded for it’s ‘can do’ ethos, those laurels are now being displayed by China.
      maybe it’s time for a bit more humility and a bit less aggression?

  36. Thanks Don for mentioning the Naten Hagens podcast. Very good.
    I have just finished listening to a podcast in which Jordan Peterson is in discussion with Dr Saifedean Ammous on the subject of Bitcoin . Dr Ammous is exceptional at explaining the basis of Bitcoin . Not the pseudo derivatives.The discussion ranges widely on economics , energy (and the associated greenwashing ) and the bombshell that is about to disrupt the over-populated academic world – on-line learning. It is interesting to watch the light dawning on Jordan Peterson.
    I am sure that many followers here would find it worthwhile viewing all or part of the 2 hours

  37. anyone fancy taking a WAG (wild-assed guess) at what the markets will do when they open tomorrow?
    I wonder if there’s been a lot of feverish shuffling around over the weekend and there might be a big scary drop as they open tomorrow,
    just a WAG though,
    anyone fancy pitching in?
    we can have a tally up after tomorrow arrives, my chance to make an ass of myself and eat crow!

    • @Matt
      I still believe that the Central Banks can drive prices higher if they wish to do so. And I believe that they want prices to stabilize at worst and increase at best.

      I was walking around the neighborhood over the Thanksgiving weekend. Lots of young people visiting us old people who live here. On one block, I counted 9 shiny new SUVs parked, plus one Prius. What is supposed to be the problem?

      It’s true that rents are at nose-bleed levels, as my granddaughter is finding out. And it is true that student loans are now afflicting those in their late 50s. But all this will fade into a bad dream once we mine the riches on Mars.

      Don Stewart

    • Nope, Matt, it will go up. Whoever it is that does these things (Central banks, i dunno) will be buying securities with both hands to keep the bubble from bursting, plus the algorithms just buy dips – big dip Friday, big buying opportunity.

      (Every time i make a poor prediction, its because I am caught not being cynical enough.)

      So, yes, I’m in. We will see in a few hours.

      BTW: Everything is up in the after hours trading data, if I’m reading this right. https://money.cnn.com/data/afterhours/

    • thanks guys,
      funny old world isn’t it?!
      Pintada,
      that’s interesting, I didn’t know you could watch what was happening out of hours, I’ll never understand this stuff, maybe because it doesn’t make a lot of sense?

  38. This may have been posted here already.
    https://blog.gorozen.com/blog/running-out-of-spare-capacity-global-oil-markets

    Goehring & Rozencwajg predict that by Q4 2022, global oil demand will exceed total pumping capacity for the first time in history. The reason? Deteriorating supply and robust demand growth from non-OECD consumers. US shale sector is struggling to reach it’s previous production levels due to depletion in producing basins. Demand did not exceed pumping capacity in 2007, despite the closing gap between supply and demand that triggered high prices and, indirectly, the global financial crisis. This will be an unprecedented event. A huge inflationary response in the price of real goods would appear to be inevitable.

    The everything bubble has been looking for a pin for several years now. Economic bubbles usually burst as a result of energy constraints. This constraint would appear to be worse than anything experienced up to this point. Will this be the key event that causes fiat currencies to unravel in the OECD?

    • Oh goody, a doom-y prediction about the future! If I hadn’t fallen for those every time for the last 20 years, *this* one I’d follow…
      Says the guy who lives on a rural property, left his career, and sold his shares in ’09.

  39. Excellent piece Tim that is bringing us ever closer to a systems view of how humans will live in a post growth future.

    Certainly what has been at the forefront of my recent thinking is how QE, credit and immigration are effectively causing a futurity negative lag between the material economy and the financial economy which as you’ve repeatedly pointed out is in reality living on borrowed time from the future.

    On another level however, it is hard to imagine an economy that isn’t reliant on QE, credit and immigration for the foreseeable future, up to the point that ecological/material limits are breached.

    In this respect, one level of my thinking is grounded in the current reality of post growth (I prefer not to use degrowth as this is term is already used to describe a well defined set of economic policies) and another level of my thinking is making sense of a lagged/delayed post growth world.

    From my point of view, the difference between the two is not only in terms of the futurity of material constraints (which I think is what this article predominantly focuses on) but also political in terms of economically and financially accessing the critical materials to proceed with Net Zero.

    From the latter point of view, money is bridging the transition from the old energy system to the new energy system in terms of investment and manufactured demand. Thus the futurity of financial demand is compelling the futurity of material supply leading to ‘managed inflation’, increased competition as old system material flows compete against new system material flows.

    This makes me think that the financial demand material supply equation is operating as a double feed mechanisms with need, want and desire in a double feedback relationship with affordability, availability and satisfaction.

    Hence little wonder that it is difficult to unravel the inter-relationship between the material economy of energy and the transactional economy conducted using the mechanism of money.

    I imagine this will become even more difficult when the commodication of mind experiences within virtual realities takes hold which will act as a form of relative decoupling. In this respect, is it conceivable that the financial economy could relatively decouple from the material economy in a permanent kind of way, considering virtual realities, deravative markets, cryptos and the shadow banking sector.

    In a way, it is as if the mind is relatively decoupling from the body. What next, hibernation technologies with drip feed nutrients.

    Alas I digress. However on another note we have this recent Foreign Affairs article explicitly acknowledging our first principle, albeit missing out the futurity of material constraints.

    https://www.foreignaffairs.com/articles/world/2021-11-30/geopolitics-energy-green-upheaval?utm_medium=promo_email&utm_source=pre_release&utm_campaign=mktg_sub_&utm_content=20211130&utm_term=promo-email-prospects

    Green Upheaval

    The New Geopolitics of Energy

    By Jason Bordoff and Meghan L. O’Sullivan

    The energy system “is the lifeblood of the global economy and underpins the geopolitical order.” Now, to curb the damaging effects of climate change, the entire system must be remade. Yet “talk of a smooth transition to clean energy is fanciful,” Jason Bordoff and Meghan L. O’Sullivan warn in a new essay. “The process will be messy at best. And far from fostering comity and cooperation, it will likely produce new forms of competition and confrontation.”

    How will the energy transformation reconfigure international politics? Who will win and who will lose? The stakes are high: “a failure to appreciate the unintended consequences of various efforts to reach net zero will not only have security and economic implications,” Bordoff and O’Sullivan write. Ignoring the geopolitical risks could “undermine the energy transition itself.”

  40. Another observation that results from my analysis above is that future claims on energy within a new energy constrained system will put more emphasis on the use of energy in relation to material impacts.

    Thus future claims on energy might not necessarily be directly related to the quantity of energy used but more about how energy is used.

    Thus energy used which is associated with relatively decoupled material impacts, such as the use of deep virtual reality platforms, highlights how the energy functioning of an energy ecosystem might adapt in relation to the rate of energy transfer, the route of energy transfer and the efficiency of energy transfer.

    The potential relative decoupling of ‘low impact’ virtual consumption highlights how delayed post growth as a result of QE, credit and immigration may well be taking the species in a ‘synthetic’ future as opposed to a nondelayed post growth reality in which the delaying impacts of QE, credit and immigration are removed. This I suggest would take the species towards an ‘organic’ future.

  41. Pingback: Tim Morgan: Afnemende meeropbrengsten bij de wereldwijde energievoorziening | Paradoxnl's Blog

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