#222. The Forecast Project


In the Western world, at least, there’s an almost palpable sense of public uncertainty, anxiety and discontent which might be attributed to a variety of causes.

Some ascribe it to specific issues, some to the over-reach and incompetence (or worse) of governments, and others to widening inequality between “the elites” and everyone else.

The view taken here is that the deteriorating public mood has a more straightforward explanation, which is that prior growth in economic prosperity has gone into reverse.

The cessation of growth and the onset of involuntary economic contraction are, of course, denied by governments, but this makes popular dissatisfaction worse.

If the economy as a whole is supposed to be growing, but the individual finds that his or her economic circumstances are deteriorating, it’s easy to assume that there must be some kind of bias in the system.

In fact, we don’t need to posit conspiracy theories, or look to ‘the machinations of the mighty’, to explain worsening hardship.

The simpler reality, hidden in plain sight, is that the prosperity of the average person is eroding and so, at the same time, is his or her sense of economic security. Efforts to use financial innovation at the macroeconomic level to stave off this trend have failed, driving people ever deeper into the coils of debt and other financial commitments. 

In short, the average person is getting poorer, and feeling less secure. He or she doesn’t like it, and is baffled and suspicious over official assurances that it isn’t happening at all.

Projection – the land of hazard

Forecasting involves entering territory ‘where angels fear to tread’. But the publication of projections has now become imperative, made so (a) by the rapid worsening in the public mood, and (b) by the incomprehension that continues to inform policy decisions.

The projections that interest us come in two main forms. The first category, covering the economic and the financial, is addressed here. The plan is that broader forecasts, which necessarily include the political, will be tackled in a subsequent article.

To ‘cut to the chase’, analysis undertaken using the energy-based SEEDS economic model reaches two principle conclusions.

The first is that the ‘financial economy’ – the monetary counterpart of the ‘real economy’ of material goods and services – will contract by between 35% and 40%, in real terms, and on a global basis.

This is a process to which asset-prices are over-leveraged, so overall falls in the equity, bond and property markets are likely to be a great deal more severe. In parallel with tumbling asset prices, downsizing of financial commitments can be expected to involve both the ‘soft default’ of inflation and the ‘hard default’ of failure.

Second, economic prosperity will continue to deteriorate, whilst the real cost of essentials will carry on rising.

Reflecting this, the scope for the consumption of discretionary (non-essential) goods and services will shrink rapidly, as will the capability for investment in new and replacement productive capacity.  

Country-specific analysis suggests that, in comparison with pre-pandemic 2019, discretionary consumption in the United States will have declined by 14% by 2030, and by a further 41% by 2040. In Britain, discretionary consumption is projected to be 57% lower in 2040 than it was in 2019.  

Projected trends in discretionary consumption in America, Britain and France are illustrated in the first set of charts, which compare conventional measurement (in black) with SEEDS analyses of underlying trends (blue).

As we shall see, conventional interpretation of past trends has been extremely misleading, conveying the idea that discretionary consumption has continued to grow, from which the inference is that further expansion in discretionary consumption can be expected.

SEEDS modelling shows that the affordability of non-essential goods and services has (at best) plateaued in the United States, and has been trending downwards, over a lengthy period, in most other Western economies.    

Two observations are pertinent here.

First, and obviously, the scope for the discretionary consumption of goods and services that people might want, but don’t need, is poised to fall rapidly.

Less obviously, this deterioration is sharply at odds with what might be expected, based on the misleading prior trajectories shown in black.

A critical point to emerge from SEEDS-based analysis is that these prior trajectories have been distorted, such that false interpretations of the past and present have created gravely mistaken expectations for the future.   

Fig. A

Principles of analysis

The basis on which prior trends are analysed here, and forward projections are made, has conceptual complications.

In principle, the process of interpretation has to move forwards from the past to evaluate financial risk, but backwards from the present to create the preconditions for effective forecasting.

It’s hoped that this apparent contradiction will be clarified by the description that follows.

Let’s start with GDP. This measure, central to conventional economics, is generally assumed to quantify material prosperity but, in reality, it does no such thing.

Rather, GDP is a measure of activity, which is by no means coterminous with prosperity. If liquidity is injected into the system, the resulting use of that liquidity can create activity that has very little material value.

This is exactly what’s been happening over a period stretching back to the 1990s, when governments and their advisers first noticed the phenomenon of “secular stagnation”, wholly failed to understand its causes, and sought in vain to ‘fix’ it with various forms of financial gimmickry.

This started with ‘credit adventurism’ before, in response to the 2008-09 GFC (global financial crisis), ‘monetary adventurism’ was added to the mix.

As well as over-inflating asset prices, this process has created activity without adding value, and has injected unproductive complexity into the economy. It has also led to chronic and cumulative understatement of inflation, properly understood as the rate at which money loses purchasing power.

On this basis, GDP has become increasingly misleading, a confection inflated by the injection of low- or even nil-value activity into the system.

By analysing trends forwards from the past, we can plot the divergence between activity (measured as GDP) and prosperity (calculated using the energy-based SEEDS economic model).

Conversely, though, current GDP is where everyone thinks we’re starting from.

This sets contemporary GDP as the logical point from which forecasts need to begin. This is where analysis needs to reason backwards from the present to reveal the prior trends that will shape future developments.

In other words, we need to think of current GDP both as a polite fiction and as a baseline for forecasts.

Benchmarking the economy

Putting this into practice requires a benchmark, and the reference-point used here is prosperity.

This is calculated, using SEEDS, on the basis of principles familiar to regular readers. The first of these principles is that material prosperity is a function of the use of energy. This is an obvious truism, given that literally nothing that has any economic utility at all can be provided without the use of energy.

The second principle is that, whenever energy is accessed for our use, some of that energy is always consumed in the access process, meaning that it is not available for any other economic purpose. With the ‘consumed in access’ component known here as the Energy Cost of Energy, this is ‘the principle of ECoE’.

In short, prosperity can be calibrated as a function of the supply, value and cost of energy.

On this basis, SEEDS calculates that global prosperity increased by 31% between 2000 and 2020. Allowing for a 25% rise in population numbers between those years, the world’s average person was just 4.8% more prosperous in 2020 than he or she had been back in 2000.

The third principle of surplus energy interpretation is that money has no intrinsic worth, but commands value only as a ‘claim’ on the goods and services provided by the energy economy.

Taken together, these principles point towards the need to draw a conceptual distinction between a ‘real’ economy of goods and services (though ultimately of energy) and a ‘financial’ economy of money and credit.

These ‘two economies’ are perfectly capable of diverging from each other, if we create financial ‘claims’ in excess of the material output of the ‘real’ economy.

This, since the 1990s, is exactly what’s been happening.

Since prices are the point of intersection between the financial and the real economies, inflation ought to reconcile any divergence between the real and the financial economies.

It can only do this, though, if inflation is measured accurately, which hasn’t been the case.       

Forward from the past

The official line, of course, is that material hardship cannot explain popular discontent because, with the exception of the coronavirus crisis of 2020, economic output (measured as GDP) has, with remarkable consistency, grown much more rapidly than population numbers, making people successively better off.

Stated at constant 2020 values, and calculated in international dollars converted from other currencies using the PPP (purchasing power parity) convention, world GDP grew by 94% between 2000 ($68 trillion) and 2020 ($132tn). The global population increased by 25% over that same period, so the world’s average person became 55% more prosperous between those years. 

Bearing in mind that GDP measures activity – and the use of money – rather than prosperity, this claim of rapid improvement in material well-being is easily demolished.

For a start, reported “growth” of +94% ($64tn) between 2000 and 2020 was accompanied by an increase of +190% ($216tn) in debt, meaning that each dollar of “growth” came at a cost of $3.40 in net new borrowing.

Using estimates for broader financial exposure (including the shadow banking system), this ratio rises to $7.20 of incremental commitments for each “growth” dollar. If we further include escalation in the shortfalls (“gaps”) in pension provision, we can arrive at incremental ‘hostages to the future’ of close to $10 for each dollar of reported economic expansion.

In short, since the 1990s, we’ve been inflating GDP artificially by injecting liquidity into the system, and counting the use of that liquidity as ‘activity’ for the purposes of measuring GDP.

The alternative calculation of prosperity is undertaken in two stages. First, the model normalises reported output for the effects of credit expansion.

Second, trend ECoE is deducted from the resulting underlying or ‘clean’ output number (C-GDP), because ECoE, as the first and inescapable call on resources, is the difference between output and prosperity.

The next charts show, for the United States and the global economy, the widening divergence between GDP and prosperity.

It’s worth reminding ourselves that, in a twenty-year period in which GDP reportedly rose by 94% worldwide, prosperity increased by only 31% whilst, for context, debt escalated by 190%, and estimated broader commitments (excluding pension provision shortfalls) rose by close to 250%. 

These broader global trends are illustrated in the right-hand chart. The gap between GDP as reported, and prosperity as calculated by SEEDS, is shown in solid red, and is far smaller than the enormous ‘wedge’ (shown in outline) that has been inserted between debt, broader liabilities, and either calibration of economic output.         

Fig. B

Backwards – and forwards – from the present

As we’ve seen, then, recorded GDP has been inflated artificially by massive credit and liquidity injection. By examining trends over a period going back to the 1990s, we can calculate that 2020 GDP of $132tn drastically overstates underlying prosperity of only $87tn.

The ratio between these numbers provides a measure of the extent to which the financial system, including asset prices and liabilities, will need to contract to restore equilibrium between the financial and the real economies.

Where forecasting forward trends is concerned, however, we are faced with a conundrum. Current GDP may be an extremely misleading number but, for most observers, it’s the point from which forward projections need to commence.

The solution is to use today’s GDP as the basis for forecasts, but to apply our knowledge of underlying dynamics to re-state the way in which that number arrived at where it is.

We can – and, for forecasting purposes, we must – use a base-year (2020) world GDP number of $132tn, but we don’t for one moment have to swallow the fiction that this figure has grown by 94%, in real terms, since, 2000.

In other words, we must use our knowledge to recalibrate the past – not just in total, but in component form as well.

In fact, conventional economics routinely re-states the past for purposes of comparison. When calculating “growth”, economists compare current year GDP, not with its nominal (‘money-of-the-day’) equivalent in previous years, but with those prior numbers restated to a constant, inflation-adjusted basis.

For example, a direct comparison between American GDP in 2020 ($20.9tn) and 2000 ($10.3tn) might suggest growth of 104%, but everyone knows that this number has been distorted by inflation between those years.

The application of the GDP deflator raises the 2000 number to $14.9tn at 2020 values, from which growth over that period is then calculated at a ‘real’ (ex-inflation) 40%.

This is where the SEEDS concept of the Realised Rate of Comprehensive Inflation comes into the equation. What RRCI says is that, whilst the nominal GDP figures for each year might be accepted as an accurate measurement of activity, calculation of ‘real’ change over time has been distorted by a severe underestimation of intervening inflation.

Put another way, the purchasing power of money has declined far more rapidly than official data suggests.

It should, of course, come as no surprise to anyone that inflation has, routinely and to a large extent, been under-reported over time. The conventional measurement of inflation uses a number of questionable assumptions, and very largely excludes changes in the prices of assets.  

Globally, and on the PPP currency convention, nominal GDP was $50.3tn in 2000, and $132tn in 2020. Official data converts the earlier number to $68tn at 2020 values, resulting in the assertion that the world economy has grown by 94%. The official rebasing calculation infers that broad inflation averaged 1.5% between 2000 and 2020.

RRCI analysis indicates that systemic inflation actually averaged 3.5% annually, not 1.5%, over that period. Accordingly, GDP in 2000 is restated to 2020 values, not at $68tn, but at $100tn. This in turn indicates that ‘real’ growth between 2000 and 2020 was 31%, not 94%.

This is very far from being a purely theoretical point, because working out how far GDP has really travelled over the past twenty years also reveals trends in its components.

It’s almost inevitable that past trends act as the basis of forward expectations.

Accordingly, misunderstanding of the past leads naturally to mistaken expectations for the future.   

These components can be stated as “sectors”, which are government, households, financial businesses (such as banks and insurers), and PNFCs (private non-financial corporations). 

For our purposes, though, a more useful analysis is one which divides the economy into three segments, which are capital investment (in new and replacement productive capacity), the provision of essentials, and the supply of discretionary (non-essential) goods and services to the consumer.

Interpretation and projection

Again using the United States as an example, the next charts show three alternative interpretations of the evolution of essentials, capital investment and discretionary consumption, within overall economic output, over time.

The first chart shows nominal GDP, not adjusted for inflation, whilst the second translates everything to 2020 values based on official inflation data.

As you can see in the second chart, economic output, and each of the three segments within it, is supposed to have carried on increasing, even in the recent period in which debt and other financial commitments have been accelerating unsustainably.

On this basis, it might seem reasonable to infer, not just that aggregate economic output will continue to expand, but also that the future expansion of capital investment and discretionary consumption is assured.

The right-hand chart, whilst accepting 2020 GDP as a point-of-arrival for analysis and a point-of-departure for forecasting, uses RRCI analysis to recast the way in which that point has been reached.

The clear message to be taken from this analysis is that both capital investment and discretionary consumption have flat-lined, with the latter already starting to turn downwards.      

Fig. C

The next charts use SEEDS economic projections to carry the RRCI-referenced interpretation of the American situation forwards, and to do the same for the British and the global economies.

For Britain and America, the implications are that, whilst further rises in ECoEs and deterioration in broader resource supply are going to drive economic output downwards, the real costs of energy-intensive essentials will continue to rise.

This means that, looking ahead, both capital investment and discretionary consumption are set to be compressed in ways that interpretations based on mistaken analysis of past trends are incapable of anticipating.

Where global projections are concerned, we’re still in the process of learning the severity of the effect that Western deterioration is going to have on economic performance in EM (emerging market) economies such as China and India. Current indications are that projections for EM prosperity may need to be revised downwards, showing earlier and more pronounced contraction.        

Fig. D 

This dynamic can be expressed using the SEEDS metric of prosperity excluding essentials (PXE).

The next charts illustrate this metric, showing top-line prosperity as a thin blue line, and PXE as a thicker one. The gap between these lines represents the real cost of essentials, but it should be remembered that PXE states the scope, not just for discretionary consumption, but for capital investment as well.

What is revealed here, where America and Britain are concerned, is pre-existing stagnation, followed by impending rapid deterioration, in PXE.

Global calibration seems to show that PXE might not – quite – have peaked yet, but this projection is subject to the previously-mentioned variable about Western effects on the performance of the EM economies.  

Fig. E

Finally, where charts are concerned, the experience and prospects of the average person can be set out by illustrating prosperity and the cost of essentials on a per capita basis. Because population numbers have continued to increase, the per-capita equivalents of the compression of PXE aggregates are more pronounced than the same metrics expressed as aggregates.

In America and Britain, whilst top-line prosperity per person has been trending downwards over an extended period, the real cost of essentials has been rising inexorably.

You’ll notice that, in each of these charts, projection of the per capita cost of essentials ceases in 2030, before the future point at which the lines cross over, and essentials cease to be affordable at all for the average person.

The reason for this is that, long before 2040 – and probably much sooner than that – we’re going to have to re-define what we mean by “essential”.     

Fig. F


Lengthy though this discussion has been, the focus has necessarily been confined to an overview of trends, with selected economies used as illustrative examples.

Our first conclusion, which ought to come as no real surprise at all, is that the ‘financial’ economy of assets and liabilities has become grotesquely over-inflated. This informs us that – because of the dynamic that links the financial and the material – it’s only a matter of time before an inescapable process trending towards equilibrium triggers a correction.

SEEDS analysis cannot, of course, tell us when this will happen, but it can indicate a magnitude, varying between economies but, in overall terms, implying a contraction of 35% to 40% in the financial system as a whole.

The leverage within the equation suggests that the repudiation of liabilities at this scale will translate into markedly more severe falls in asset prices.

It should be remembered that aggregate asset pricing is no more than notional, in the sense that totals thus calculated can never be monetised. If, say, asset values fall by $50 trillion, it doesn’t make the economy “poorer” by that amount. In reality, the aggregate ‘valuation’ of asset classes amounts to nothing more than what we – collectively, and through marginal pricing – choose to tell ourselves that our assets are “worth”.

The second and third conclusions are (a) that both discretionary consumption and capital investment are poised to fall very sharply, and (b) that these contractions aren’t “priced in” to collective expectations for the future, because these expectations are based on severely misleading interpretations of recent trends.       



385 thoughts on “#222. The Forecast Project

  1. Dr Tim

    Just a quick technical question about the blog.

    I keep clicking the box “notify me of new comment via email.” but never get any notifications.

    Does this function actually work and am I not doing it right??????🤔

  2. It’s Not a Conspiracy, But, Instead, a Desperate Plan

    Recommend reading. My summary:
    *Russia might be near collapse because the price of raw materials has been too low for too long
    *If Europe and the US can be eliminated from the picture, then Russia and China might make a very good pair, able to tolerate higher prices for raw materials.
    *If Russia and China succeed, Europe will disintegrate and the US will decline, particularly as the Petro Dollar ceases to function.

    My two cents:
    The thermodynamic models of the economy that I am familiar with have said that the world does, in fact, present the kind of dilemma Gail outlines: prices too low for producers, too high for consumers, disastrous for governments. What she adds in this note is the notion that all of us are in a lifeboat together, which is taking on water. Two of the major players have decided to throw some of the other passengers overboard.

    Whether you agree or disagree, it is at least provocative.

    Don Stewart

    • Very interesting analysis from Gail which I presume is touching on dependency theory https://en.m.wikipedia.org/wiki/Periphery_countries#:~:text=In%20world%20systems%20theory%2C%20the,small%20share%20of%20global%20wealth.

      Controlling Ukraine regarding gas siphoning and the desire to destabilise the global economy towards higher prices might well being accompanied with the desire to control Ukrainian wheat leading to higher global grain prices. Especially if Putin’s aim is partition between the north and the south.

      Maybe what is missing from the Sino-Russian Pact theory is the dependency on Europe and the US for Chinese exports and foreign investment. Pricing out European consumers will directly immiserate both China and Russia no matter how much Putin wishes otherwise.

      Regarding Western sanctions, I’m wondering the extent to which a run on the rouble will translate as even lower oil and gas revenues for Russia. Similarly OPEC+ could make life very difficult for Russia as was the case before COVID when there was an oil price war mediated by intentional excessive supply.

      Most interesting was Gail’s turn towards surplus energy dynamics with multiple comments reiterating peak per capita production in oil, gas and even coal.

      The Energy Charter Treaty

      clearly needs to incorporate surplus energy thinking as well as the energy export model because bad faith wars over energy prices as a result of peak per capita production within the context of uneven development paths probably does mean the need for unprecedented global cooperation regarding a sustainable, resilient and sufficient future.

    • @Steve Gwynne
      I think Gail is visualizing a smaller, more efficient economy, with the high cost parts (US and Europe and probably Australia in there as well) simply being written off. In terms of “Surplus Energy” theory, neither the US nor Europe produce any surplus energy…so they have nothing to invest and have little with which to pay for imports except debt. China doesn’t produce much surplus energy anymore either. But a partnership between an energy producer and a highly efficient product production country might be a good match (or so it seems to Gail). Even if that is true, it leaves out a lot. For example, what will happen to Africa and India? Will the US and Europe just disappear gracefully, or will it be really ugly?

      Whatever misgivings I have about her article, I do think she is stating correctly the “peak surplus energy” and the “export land model dilemma”.

      Don Stewart

    • I think Gail’s thesis that Russia invaded Ukraine so that the West would sanction Russian oil and gas exports and thereby raise oil and gas prices is … silly.

      If Russia wanted to raise oil and gas prices they could simply cut back on exports. And even if her thesis made sense, what about the timing? Oil and gas prices were already at their highest levels in many years. Why invade now?

      And even with the low prices previously, Russia had accumulated far more cash from fuel exports than it wanted to spend. These are the $600+ billion in Russian central bank reserves that are now being withheld from Russia. Russia was rolling in cash, it didn’t need even higher prices.

      The self-contained Russia-China axis is problematic, too. China will need Russian fuels, but China’s economy is gigantic compared with Russia’s and China needs a world full of eager customers to buy their prodigious output. Russia can’t absorb it all. Destroying US and European economies by starving them of fuel is not in China’s interest, even if Russia wanted to go that route.

      Russia was well on it’s way to becoming a luxury petro-state, able to lavish its people with goods from around the world, all paid for with high-priced fuel exports. Why in the world Putin would want to risk that comfortable future is beyond me.

  3. More on Gail Tverberg
    Warning: Completely Unauthorized
    If you were in a lifeboat which was taking on water, you would begin to think about survival with more focus than usual. If you had a couple of morbidly obese passengers, it might finally dawn on you that pitching them overboard might be a good idea. The morbidly obese are, first, the US, and, second, Europe. China is the strongest in terms of producing forward motion by using the oars. Russia is the best equipped with the natural resources that keep one alive: water and food.

    I suggest that is a succinct statement of the issue, as posed by Ms. Tverberg. I make no predictions, myself, nor do I represent the lifeboat analogy as actually existing in the minds of the Russian and Chinese leadership. They may be thrashing about like everyone else, for all I know.

    Don Stewart

    • can I suggest listening to John Mearsheimer in 2015,

      this realist geo-political analysis has been completely excluded from the public narrative in the US, hence people are coming up with some understandably confused conclusions,

      I don’t want to get embroiled in any of this Ukraine stuff,
      please give Mearsheimer the chance to explain his perspective, it may well clear a lot of the fog.

    • Matt,

      I watched the Mearsheimer talk a couple of weeks ago. As I remember it, he was certain that Putin would never invade Ukraine and that the best thing the West could do to defeat Putin would be to entice him to invade. His predictive credibility is marginal.

    • Realpolitik?
      “don’t you understand
      38:39 John that Ukraine is a sovereign state
      38:42 and it could choose its own foreign
      38:43 policy switch my response is that’s a
      38:46 foolish way of thinking about
      38:48 international politics if you’re a small
      38:50 state and you live next door to a
      38:52 gorilla you have to be really very
      38:54 careful what you do because if you make
      38:56 that gorilla angry that gorilla is going
      38:58 to do all sorts of horrible things to
      38:59 you and we basically probably
      39:03 unintentionally encouraged Ukraine to
      39:07 pursue policies that got into a heap of
      39:09 trouble and then when they got into a
      39:11 heap of trouble what did we do nothing
      39:14 we led them down the primrose path and
      39:17 we did the same thing with Georgia the
      39:19 Georgians were expecting us to come to
      39:21 the rescue
      39:22 they’re expecting the seventh Cavalry
      39:24 cavalry to arrive it didn’t happen
      39:26 surprise of surprises but anyway all I’d
      39:30 say is you got to understand basic
      39:32 realpolitik here . . . “

    • Unintentionally? Just read the books ?
      “07:51 to see how the the CIA has relationships
      07:55 with the security services in Ukraine
      07:57 and as soon as the coup was launched it
      08:00 took over control of those security
      08:03 services and it started drawing of the
      08:05 hit lists that of targeting people that
      08:08 it could go after and the reason it’s
      08:10 targeting the people that target targets
      08:13 most highly or the people that are
      08:14 sitting on natural resources that
      08:18 American businessmen want . . . “ ?

    • It is odd that as far as I am aware, Putin hasn’t said anything about being poked. He has raised concerns about NATO operating on his doorstep but has repeatedly framed his war as the correction of a historical mistake that brought about Ukraine’s existence.

      On this pretext he invaded Ukraine in the same way he invaded Georgia and the Crimea.

      The question to you John is where is your empirical evidence that Putin specifically invaded Ukraine because he was poked. Or is this another conspiracy.

    • Steve Gwynne.

      You ask.
      “The question to you John is where is your empirical evidence that Putin specifically invaded Ukraine because he was poked. Or is this another conspiracy”.

      I can’t speak for Putin. My comment was a reflection on John Mearsheimer’s talk that Postkey linked to above.🙂

    • John and all,

      Finland has been a liberal democracy for many decades, and has a long border with Russia. They have tried to stay neutral to avoid angering Russia. Now they have begun giving military aid to Ukraine due to the invasion, and are considering financial aid as well.

      Other Eastern bloc countries are helping, plus many others in Europe including formerly neutral Sweden whose island Gotland is around 200 miles from Russia. They, Finland, and several other nations are now expressing a desire to join NATO. They have every right to do so. No bully should be able to tell you who your friends can and can’t be. The west better get their act together fast. There was rent talk of Poland supplying jets to Ukraine and Blinken said the US would supply jets to Poland to fill up the slack. This week could be dicey indeed.

    • Fair enough John.

      I found this to be the most credible explanation I’ve read.

      Protecting Russian society from liberal democracy enables the Russian elites to preserve their immense wealth and inequality.


      From this point of view, Ukraine is targeted and the invasion justified (on the basis of manipulating the past and the present) because of the preponderance of russian speakers in Ukraine. In other words, Putin fears a cultural liberal contamination from Ukraine to Russia which questions Russian elitism, cronyism and corruption.

    • Steve B Kurtz

      Ultimately, what you or I think matters not, but what Russia thinks really does.

      I just hope that the West listens. It, for whatever reason, hasn’t up till now.

      The best outcome I can see, is a swift Russian victory followed by a negotiated peace with Ukraine security being guarantee by both sides provided it remains neutral and independent (Finland style, post 1945)

      I really fear for Ukraine if the West gives them military support. Ukraine can not win. It will just prolong the bloodshed and destruction. Russia will just bomb them into submission. (Grozny). It will be a wasteland.

      The only way to defeat Russia militarily, is if NATO sends troops in to support Ukraine.

      God…..please don’t let that happen!!!!!!! It’s never happened before, two nuclear powers in direct conflict with eachother. Things could spiral out of control very fast☹️.

  4. @Steve Gwynne
    I also think Gail is stating correctly the problem with thermodynamic depletion. As surplus energy falls, then the energy cost of running the rest of the economy has to fall. Otherwise, we end up with prices too low for producers and too high for consumers. As I look at the US, I see a lot of structural reasons why the US cannot dramatically reduce energy costs without triggering a collapse. As one example, we have destroyed the infrastructure in which manufacturing plants and distribution centers were located on rail or water transport pathways. Now almost everything moves by truck…which fact led to the book When the Trucks Stop Running. And long distance travel in the US is now overwhelmingly dependent on planes and the entire infrastructure centers around airports.

    If the high energy cost countries cannot significantly reduce their energy usage, then the resource producing countries which are being squeezed by the thermodynamic depletion mechanism either have to get free of the Petro Dollar and Debt, or they will be bankrupt.

    I have looked, over the years, for ways that the US could significantly reduce energy costs. I keep coming back to two very unpopular projects:
    *focus government medical assistance on prevention of disease. radically privatize medical insurance and provide open records for the insurance companies rather than hiding everything by law. which has the effect of destroying Big Pharma and the ultra-processed food companies.
    *regenerative agriculture. Stop the synthetic fertilizers and the poisons and the plowing. Move people back to the land.

    There are lots of smaller projects, but many of them just don’t pencil out. For example, there was a recent article pointing to the fact that insulating buildings has never worked when careful assessments were made. Part of the problem is that traditional buildings used a lot of mass in the walls, while modern buildings are built with much more flimsy materials. As for more efficient cars, I think the only solution is “less travel by car” using “fewer cars”. Which implies a sort of 3rd world informal taxi service for the infrequent trips to town. Not a popular political slogan.

    Don Stewart

  5. @Matt
    I hadn’t seen the Meashimer video before, but what he says is almost exactly what I would say.
    Thanks for link….Don Stewart

  6. Division of Ukraine
    Some people say Russia will divide Ukraine into North and South. The two regions have voted distinctly differently the past. So, for the sake of argument, assume Russia uses that knife following voting patterns. Ukraine is dissolved and two new republics emerge. What happens to the debt. Suppose Russia, the godparent, divides it according to population but says that the new Republic is not obligated by the debts run up by the previous dastardly crooks (who may be descendants of George III)?

    Would the new Republics man up and assume their rightful burden? Will bondholders go berserk? Will the US Army intervene to stop “socialism”?
    If all this does happen, following whatever script, I think we may get some indication of what the DeGrowth future holds for bondholders.

    Don Stewart

  7. @Joe Clarkson
    Is Gail’s theory silly? I suggest that it only makes sense if Russia believes that their own production of oil and gas is peaking and is headed for decline…as some of their energy executives have predicted. AND ALSO that global oil and gas production is in decline. AND that mineral resources are not adequate to replace any very large fraction of the energy losses with wind and solar. I think Gail believes that, and perhaps she wrongly imputes that belief to Russian and perhaps Chinese leadership.

    But if it is true, then Russia needs to find a customer for increasingly high priced oil in dwindling quantities. It probably can’t be the whole world, and Europe likely wouldn’t make the cut. They probably think that the US will decline along with their own domestic production, but Gail seems to anticipate a Seneca Cliff in the US because she is convinced that shale is essentially dead. We could have a long conversation about that, but I wouldn’t have much wisdom to contribute.

    So while I think the timing of the invasion of Ukraine had a lot to do with the failure of the Minsk Agreement and continued Kiev aggressive moves against Donbass and the perceived threat to Russia from NATO forces in Kiev’s territory, Gail still might be correct about the larger picture.

    So I don’t think her theory is silly. But it is still exotic enough to cause one to view it with skepticism. Her reading of the next couple of decades for oil and gas is along the same lines as mine. So unless the world suddenly finds it really can afford oil at 200 or 300 dollars per barrel, the problem of oil which is priced too low for producers will stick around. Keep in mind Dr. Morgan’s prediction of exponentially increasing energy cost of energy.

    Don Stewart

    • “Under competition, the price results from endless struggle between depletion and
      increasing knowledge. But sellers may try to control the market in order to offer
      less and charge more. The political results may feed back upon market behavior.
      These factors—depletion, knowledge, monopoly, and politics—must be analyzed
      separately before being put together to capture a slice of a changing history.”
      M. A. Adelman
      Massachusetts Institute of Technology (MIT)
      Date Written: November 1997
      A very big question is the differential accumulation of and implementation of geopolitical power over time.
      There are questions of Access to energy feedstocks that are not determined by the availability of energy resources and arguments deployed to restrict access fall into various further categories with different worldview justifications. Such as; Peak oil, Overshoot, human rights, and a whole host of ideological positions.
      This is a very good Peak Oil paper available on the UK government web site.

      Click to access 1791-uk-erc-report-global-oil-depletion.pdf

      Published in August 2009 the report can be checked against its conclusions and a progress report concluded.
      Adelman’s insights into the valuation of proven reserves based upon market transactions are interesting, Of course, BP disinvesting its Russian Holdings presents a useful vignette of the political dimensions, the Oligarchical and Monopoly dimensions of the energy business.

      This scene form the International is about controlling debt and controlling conflict referring to Arms , it applies equally well to access to energy.

  8. Any thoughts on the efficiency of this process please…

    CH4 — which would be produced by combining captured CO2 with low-cost renewable hydrogen using the well-established Sabatier methanisation process — would then be converted back to H2 or, in some cases, used as methane with carbon capture.


    • capturing CO2 requires energy expenditure,
      hydrolising water to make hydrogen requires energy, more than the potential energy in the hydrogen you end up with,
      the Sabatier process is carried out a temperatures of 300-400*C, this is another energy input,

      the whole process probably requires you to put in 3 units of energy to get one unit of energy out.

    • CO + 3H2 = CH4 + H2O.
      By using a different catalyst:
      CO + 2H2 = CH3OH
      Methanol. A storable liquid fuel at standard conditions.
      The problem is that to produce methanol at price comparable to petrol before tax, the primary energy must be very cheap. The process is not efficient. And burning the fuel to produce mechanical or electrical power is 20-50% efficient depending upon the conversion device used.

    • what all these synth fuel ideas have in common is a desperate attempt to reconfigure harvested renewable energy, predominantly delivered in the format of electricity, to be compatible with an industrial society built on the technological foundation of liquid fossil fuels,

      but the real objective ought to be to reconfigure our technology & society to suit the format of energy we produce when harvesting renewable energy,

      all these schemes become massively more efficient if you just use the electricity generated to perform the essential tasks required,
      instead we try to convert the electricity into liquid fuels so we can perpetuate the happy motoring experience of the 20th century.

      again we arrive at that Churchillian maxim ” you can rely on (insert people here) to do the right thing, after exhausting every possible alternative”

  9. .A Few More Thoughts on Gail Tverberg’s Post
    We have seen this scenario in US real estate:
    *Small business signs a lease
    *Every year, building owner raises rent by X percent
    *It costs money to move
    This situation creates a squeeze on the small business. They either have to raise their prices or economize somehow or just accept less for their own work.

    An oil and gas exporting country faces a somewhat similar future.
    *The cost of extracting oil and gas is rising exponentially.
    *They have limited methods for increasing the efficiency of the extraction process
    (Note: the shale phenomenon in the US has increased the RATE at which a given amount of oil can be pumped, but it hasn’t changed the AMOUNT very much. In fact, pumping more faster may reduce the ultimately recoverable.)
    So the oil and gas country faces a situation much like the small business owner.
    *They can in theory get into some other business, but other businesses are being squeezed also and will defend their turf.
    *They can just accept less, which is painful
    *They can raise prices and seek out markets where oil is a necessity and the customers can afford to pay
    *Many countries which use oil inefficiently may believe that oil is essential, but they will not be able to generate the money necessary to buy it, and so will revert to a pre-fossil fuel economy and society
    *A country which uses oil efficiently may be willing to pay more for it, measured in units of manufactured products paid in return for the oil
    But due to the necessity for oil, in a heavily armed world, violence is always a threat.
    Summary: There is a real potential for the “price too low for producers and too high for consumers” scenario to make both the producers and consumers poorer. Having oil which is stuck at the price consumers can pay is not necessarily a way to become a wealthy petro state.

    Don Stewart

    • Thanks for this excellent piece. I note, though, that there is no mention of how the war will be resolved. Ned’s was out a couple off days ago about mercenaries sent by Putin to assassinate Zelensky, with several attempts failing due to informants inside Russian intelligence. One would think that there are some insiders who would like Putin dead. He is severely harming the future for the progeny of all Russians. That would be the easiest way to end the war in my opinion.

  10. can I proffer this tweet for consideration?

    “Most fascinating thing about the Ukraine war is the sheer number of top strategic thinkers who warned for years that it was coming if we continued down the same path.

    No-one listened to them and here we are.”

    George Kennan, Henry Kissinger, John Mearsheimer, Jack F Matlock Jr, William Perry, Noam Chomsky, Stephen Cohen, Vladimir Pozner, Jeffrey Sachs, Bill Burns, Malcolm Fraser, Paul Keating, Robert Gates, Sir Roderic Lyne, Pat Buchanan,

    Comment; I think it important to take all perspectives into account in this worrying situation.

  11. Pingback: #223. Trading with the (common) enemy | Surplus Energy Economics

  12. “all these schemes become massively more efficient if you just use the electricity generated to perform the essential tasks required,
    instead we try to convert the electricity into liquid fuels so we can perpetuate the happy motoring experience of the 20th century.”

    Agreed. In some cases it may even make sense to skip conversion into electricity and use the kinetic energy of wind, say, to raise direct mechanical power. Doing so removes a lot of complexity from the process. Early in the industrial revolution, water wheels powered line shafts, which powered entire factories. We could do a similar thing with wind energy today. We have hydraulic drives now, which are less bulky and more flexible.

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