#227. Pictures of imperfection

CHARTING THE COMING CRISIS

Jane Austen once wrote in a letter of how much she disliked “pictures of perfection” which, she said, “make me sick and wicked”.

Perfect pictures are, of course, the preserve of the artist, but the latest version of the energy-based SEEDS system does an improved job of picturing the imperfections that are driving us towards both a rapid deterioration in the economy and a severe financial crisis.

Under normal conditions, we might spend at least a little time discussing the improvements and refinements incorporated into the SEEDS 23 iteration of the model.

The harsh reality is that current conditions are very far from normal, so the priority now has to be to concentrate on what the model is telling us rather than at the way in which this is told.

Anyone new to Surplus Energy Economics and the SEEDS project can find a summary of energy economy principles here, whilst this article discusses the way in which the model generates forecasts.

Before looking at the annotated picture gallery which follows, it must first be warned that that a certain stoicism is required. If you’d prefer a happy ending, where prosperity doesn’t fall, asset prices don’t slump, liabilities aren’t repudiated through force majeure and the ‘liberal consensus’ that has ruled the roost for forty years remains intact, this isn’t the place for you.

The reality is that 2022 is the year where old illusions go to die.

Neither the long-established notion of TINA (There Is No Alternative) nor the newly-minted concept of TINAR (There Is No Acceptable Reality) can serve under conditions of rapid and adverse change.

To be clear about this, the energy dynamic which determines material prosperity is deteriorating, as indeed it has been over an extended period. Relentless rises in the ECoEs – the Energy Costs of Energy – of fossil fuels have put Western prosperity onto a declining trajectory since the early 2000s.

The average American, for instance, is now 11% poorer than he or she was back in 2000. Prosperity per capita has fallen by 13% in Britain since 2004, and by 7% in Japan since 1997.

These trends are now being replicated in less complex, more-ECoE resilient EM (emerging market) economies such as China and India. This means that global prosperity has now turned down after a long plateau in which continued (though decelerating) progress in the EM countries offset continuing deterioration in the West.

Fig. A

There can be no ‘fix’ – financial or technological – for these problems. Monetary manipulation has done no more than buy some time (at huge expense) for a failing system.

The capabilities of technology – whisper it who dares – are bounded by the laws of physics. Transition to renewable energy sources (REs), though imperative, cannot replicate the economic characteristics of fossil fuels.   

That worsening economic trends have not been evident in conventional data reflects the way in which various forms of adventurism have been used to create a simulacrum of “growth”. Pouring cheap credit and cheaper money into the system has had the effect of creating activity (as measured by GDP) even though the value of economic output has been deteriorating.

Between 1999 and pre-covid 2019, each $1 of reported “growth” was accompanied by increases of $2.70 in new debt plus an estimated $3.75 in broader financial liabilities. Were unfunded pension promises included in this calculation, it would emerge that close to $10 of forward commitments have been adopted for each “growth” dollar.

All of these numbers precede coronavirus crisis interventions, which have made all of these ratios far worse. Historians of the future are likely to characterise these gargantuan interventions as the ‘last hurrah’ of the money-for-nothing form of denial.

In practical terms, what this long era of self-delusion has accomplished is the driving of an ever-widening wedge between the ‘real’ economy of goods and services and the ‘financial’ economy of money and credit.

The operative process now is one that will forcibly restore equilibrium between the two economies of money and energy. Globally, the gap between them can be calculated at 40%, giving an approximate measure of the extent to which the financial system will be forced to contract.

Fig. B

Since money functions as an aggregate of claims on the real economy, this indicative calculation references the liabilities side of the financial equation. Asset markets will fall by more than this, reflecting the extent of leverage in the dynamic which links the pricing of assets to the underlying structure of liabilities.

This is where the need for stoicism comes in. The stark reality of the situation is that the prices of stocks, bonds and property are poised for extremely sharp falls.

The bond market situation is that the permanence of the inescapable rise in interest rates will, once recognized, drive yields sharply higher. Corporate bonds will be undermined further by a relentless deterioration in the financial conditions of the business sector.  

Just as prosperity is eroding, the real costs of essentials – many of which are energy-intensive – are rising rapidly. The SEEDS indicator termed PXE – prosperity excluding essentials – is on a sharp downwards trajectory.

Fig. C

As well as impairing the scope for investment in new and replacement productive capacity, this PXE compression will exert relentless downwards pressure on the affordability of discretionary (non-essential) goods and services.

Though there are ameliorating measures – known here collectively as the taxonomy of de-growth – which businesses can and will adopt to manage deterioration, it is clear that discretionary sectors will bear the brunt of a process by which equity markets start to price the future as it is, rather than as we would like it to be. A series of growth-predicated business models will fail, including the popular “streams of income” model which prioritises the signing up of customers over current revenues.

For property, meanwhile, the combination of deteriorating affordability and rising interest rates creates a dynamic which requires no amplification here.

Fig. D

As asset prices tumble and defaults cascade through the system, the last delusion will fail.

This delusion is that, if we engage in enough tantrums, the adults in the room – meaning central bankers – will step in to ‘kiss it better’.

The take-off in inflation – which has long been under-reported when compared with the SEEDS measure of RRCI (the Realised Rate of Comprehensive Inflation) – makes such intervention impossible.

The game-changer of systemic inflation means that the authorities can no longer, as they did in 2008-09, step in to rescue the reckless whilst penalising the prudent.

It would take a very special form of madness to invoke the supposedly “temporary” gimmicks (sorry, the “unconventional innovations”) of the GFC under conditions of rapidly accelerating inflation.

Barring surrender to a hyperinflationary destruction of the purchasing power of money, neither ZIRP nor QE can be re-invoked. The extinguishers used to fight (or at least to damp down) the fires of the global financial crisis now contain, not foam or water, but gasoline.  

“Nobody ever feels or acts, suffers or enjoys, as one expects”, wrote Jane Austen in another letter. Put another way, the era of self-delusion is over, and the stoicism involved in facing reality will now be the characteristic most required to adapt to a new era.                            

204 thoughts on “#227. Pictures of imperfection

  1. Maximum Power Principle and Biology

    I recommend (with misgivings about the length and rambling over many topics) this discussion:
    Andrew Huberman, PhD: Understanding your brain + optimising it’s function

    You should quickly find it with a search. I emphasize two points:
    *Huberman, a neuroscientist, says that we humans have the power to direct our attention
    *We consistently direct our attention at the next source of dopamine
    *Modern technology enables both new sources of dopamine but also dysfunctional ways to get dopamine

    Those are my summaries, not his. You can listen for yourself if you are interested. If one is poorly educated (either by school or experience), then one might think that planning to rob banks would furnish plenty of dopamine. But most of us know better. One example Huberman uses is social media. There is no doubt in his mind that some social media provides dopamine in anticipation of real experiences. But too many people find themselves mindlessly scrolling looking for the next hit. So part of the education process (which Huberman thinks is happening as frustrating experiences accumulate) is figuring out what are genuine ways to achieve dopamine and what are false gods.

    In a neoliberal social and political order, most all people will choose to use all of the surplus energy at their disposal in search of dopamine. But studies have also shown that the herd is smarter than the individual. We are capable, as groups, of taking actions such as discouraging drunk driving and regulating highway speeds which we could not do as individuals.

    So, in my summary, as a society we need to either provide ways to generate dopamine which involve less energy consumption in order to avoid ecological disaster, or else facilitate the adaptation to reduced surplus energy due to physics and geology. Then we rely on the ability of humans to consider alternatives and the likely feedback from each available path, and choose wisely how they are going to pursue dopamine. A key is accurate feedback…but governments do everything in their power to obscure feedback.

    In principle, I don’t think it is impossible. A huge barrier is that leaders have tended to come from the group of people who are psychos of one form or another. Another is that “for every action, there is an equal and opposite reaction”. For every truth teller, there will be an Edward Bernays spreading obfuscation for profit. But, in principle, the future of dopamine is in our hands.

    Don Stewart

  2. The comments seem to have drifted off topic with regard to the author’s energy model.

    In an earlier comment I suggested that the loss of oil and gas from Russia could be a forcing function that generates greater efficiencies in our use of energy. On the other hand it could trigger a sharp economic downturn. The forcing function might create a situation where we maintain something like our current lifestyle at lower rates of energy consumption. The analogy is with what happened in the 1970s. Following the oil shock at that time Americans switched from gas-guzzlers to more economical vehicles.

    The flow of oil and gas could be terminated, or sharply reduced, in one of three ways. The first is that the Russians close the valves at their end of the pipeline (they are doing this now with Poland and Romania). The second way is that the customers stop buying the oil and gas. This seems to be slowly happening with some of the large western economies. The third type of flow termination is caused by destruction of the pipeline infrastructure. I hear that this may have happened in Ukraine in the last few days.

    It will be interesting to see how this situation plays out in the coming months.

    • @Ian Sutton
      The free market excels at letting people with money make the decisions. If we don’t want those few individuals who control the world’s money making the decisions, then we have to abandon Neo-Liberalism…at least partially. Thus, the shortage of diesel can be lessened if trucks are restricted to 50 mph. If the trucks are restricted, then it makes sense to restrict automobiles, which greatly reduces friction from the air and thus increases gas mileage. Airline flights, which are very energy intensive, could be taxed heavily to depress demand. But such restrictions are not decisions that Neo-liberalism can make.

      It is also true that, with a fixed number of trucks (and ships and planes) operating, fewer goods can be shipped per unit of time if the speed of the fleet moving the goods declines. Which means a reduction in GDP. Which implies a reduction in wages, business incomes, and profits.

      We’ve been through this before, in the 1970s in response to the oil embargoes and other disturbances.

      If oil and gas are in terminal decline, however, the implications are systemic. We would have to re-invent our way of life. For example, if GDP is going to also be in systemic decline, what happens to Capitalism? What does money look like? Will the distribution of people across the Earth have to change radically? If both Climate Change and Fossil Fuel Depletion happen simultaneously, is our culture strong enough to re-invent itself in a constricted time frame? Or will we look like Sri Lanka?

      Don Stewart

    • Crude oil production is closer than ever to a “no spare capacity” situation.
      “No spare capacity” means demand exceeds supply, and the barrel price skyrockets to new records.
      Reduction in Russian energy exports brings that closer.

      Maybe demand is dropping slowly but surely – as a sensitive reaction to the current price level – and keeping the price at bay. Barrel prices have been mostly in the 100-110 range last couple of months.

      In any case, all roads lead to Rome (in 476AD).
      Either:
      Demand keeps dropping until recession hits and the oil price never takes off
      or
      Demand forces a new barrel record and that, as usual, triggers recession.
      Will it have time to get to $200!

    • There’s always a balance to be struck between a breadth of views and relevance to the core issues. I start from the assumption that people come to this site because they’re interested in the economy as an energy system, how it’s modelled here, and what it means, so we shoudn’t stray too far from this.

      What I think is different now is a need for immediacy, which we might call urgency. The economy is in big trouble, not ‘maybe’, not ‘perhaps’, not ‘in the future’, but NOW . We can’t explain this away in terms of covid, or the war in Ukraine.

      The unravelling of the energy dynamic is what’s really behind economic deterioration, worsening living standards and market woes.

      This isn’t a re-run of the 1970s, when oil crises created surging inflation and a severe recession. That was political, a falling out between exporters and consumers of oil. Back then, all-source ECoEs were below 2%. Now they’re close to 10%.

      There’s no technological fix for this, and no monetary policy fix either.

      The best we can do here is to explain the underlying dynamic, and use the SEEDS model to quantify what current trends mean. Right now I’m working on a unified summary of all this.

    • here in the USA, it seems clear that we are already in a recession. As Shadowstats alternate data suggests, it’s reasonable to suspect that official inflation and GDP numbers are manipulated towards making the economy look better than it is.

      the inflation number used for the GDP deflator is bogusly low.

      I suppose Europe is probably in the same scenario?

      so then current oil prices are already what they are in this recession.

      we could wonder where prices will go if and when this recession degrades into a full blown depression.

      it looks like Europe may have to halt much industrial production this coming winter, so that residences can have a bare minimum of energy resources to have some heating and lighting, and not be literally freezing in the dark.

      so in the Core, the testing ground for recession degrading into depression may be Europe.

      we’ll see.

    • David:

      CPI has long been understated, partly through hedonic adjustment, substitution and geometric weighting, innovations introduced during the 1990s.

      The strangest metric of the lot, dating back to the Nixon era, is “core inflation”, which excludes energy and food – this metric is meaningful only to people who don’t eat, and don’t use anything (meaning everything) that is a product of the use of energy.

      GDP itself is inflated using imputations, activities for which no actual money changes hands.

      Conceptually, inflation as reported is not system-wide, not least because it excludes changes in asset prices.

      The SEEDS alternative is RRCI, the Realised Rate of Comprehensive Inflation. Globally, between 1999 and 2019 (i.e. pre-covid), RRCI was consistently about 200 bps above the GDP deflator. Compounded over 20 years, this difference is enormous.

      The European economies are in big trouble – indeed, ECB rates policy has made this clear over a long period. Ironically, the supposedly weakest economies, such as Portugal and Greece, are probably in a better condition than supposedly better-placed countries like France.

      Whatever the stats might say, we’re already in recession, but this is really something different, and without precedent in modern times – the onset of economic contraction.

    • Economic deterioration is something we cannot afford anymore. That is the major problem. We go from ‘ever more’ to ‘ever less’.

      First slowly, then suddenly.

      Everything stops. The comments section, partially paid gov workers who try to undermine reality (duh) seems not to grasp reality.

      We are in the first stages of ‘everything stops’.

      The comments section seems unable to understand the urgency of the docs writings.

    • In fairness, part of any misunderstanding must be down to how I explain things – I can only do my best – and, in any case, people have a perfect right to see things differently.

      The plan now is to put together an article which summarises the whole situation from a surplus energy & SEEDS perspective.

      That’s bound to be fairly long, and to cover some things that regular readers already know. The aim is to have something that I, and anyone else, can hand to someone new to all this and say ‘it’s all in there’.

    • @Dr. Morgan
      A suggestion. This podcast poses an interesting challenge:
      https://blog.gorozen.com/blog/podcast-adam-rozencwajg-the-dark-side-of-renewable-energy?

      The first part is pretty much aligned with your thinking: we are running out of cost efficient oil and gas and wind and solar and EVs are not good replacements (maybe more negative on wind and solar than you are). But the second half veers off into nuclear. Adam visualizes a world awash in nuclear which is going to usher in a new wave of great wealth for the world, with no CO2 pollution.

      One could be cynical and think that a Wall Street investment advisor MUST come up with something to recommend to clients and lacking anything else, there is the promise of nuclear with an ECoE of 1 percent. (100 to 1). If your article is going to cover “everything”, then perhaps some attention as to why nuclear is not going to return us to exponential growth might be useful.
      Don Stewart

    • As an investment analyst myself, I have the highest regard for G & R on energy, and sometimes wonder that they don’t cover the macro, though they know best.

      I see no need to be cynical about this. In the firms I’ve worked or consulted for, people have generally ‘told it as it is’. One can be too cynical about the Street and the City, neither of which are like their movie portrayals!

      On nuclear, though, I differ from them, certainly if the basis is established technology. The required scale would be huge, as would the costs and required resources, and time presses.

      Nuclear might or might not be a good investment, but it’s not going to fix rising ECoEs and a deteriorating economy.

      To be clear about this, what I mean is that nuclear cannot fix rising overall ECoEs or prevent economic contraction.

  3. “I am a dinosaur, but I have never seen these things,” Saudi minister Prince Abdulaziz bin Salman, who’s been attending OPEC meetings since the 1980s, said Tuesday at a conference in Abu Dhabi, referring to the surge in prices for refined products. “The world needs to wake up to an existing reality. The world is running out of energy capacity at all levels.”

    https://www.bloomberg.com/news/articles/2022-05-10/saudi-oil-chief-says-all-energy-sectors-running-out-of-capacity
    ——————————————————
    Neoliberalism’s greatest success is about to be revealed as its greatest weakness. In the 1970s – the previous inflation that the central bank generals are trying to fight – the perceived threat came from over-powerful trade unions and a too-protective welfare safety net, which together, the neoliberals argued, had driven inflation out of control. Neoliberalism’s solution was to use recession to break the power of the unions and to use law to break the social security system. And it appeared to work. By the early 1990s, the economy was booming again, and the economic and political strife of the 1980s seemed to have faded into history.

    Unfortunately, this mainstream economics fable turns out to have been a myth at every turn. The true cause of inflation
    https://consciousnessofsheep.co.uk/2022/05/11/reality-bites/

    • Hi Dr. Tim, do you have a reading list of websites with alternative point of views on the economy like yours? Beside yours, I read our finite world, consciousness of sheep and energy skeptic. I’d like to read more on the topic but struggle to find more content.
      Thanks

    • Its informative, and entertaing. But mostly sad, dear doc.

      Pity human beings, in this case Western refugees no one seems to be looking after, have to flee to worhless digital assets to continue the hopium lifestyle.

      Sad, dear doc. Very sad.

      I enjoy it too, but, in reality, a young dude that loses everything in crypto is just like a black Ethiopean losing a sheep.

      Its just sad, doc.

    • I’d say there’s a clear and significant trend in this – NFTs, cryptos, tech. It looks like a row of falling dominoes.

    • Very interesting news, this wasn’t a risk I had factored (although I should have, I thought it was safer than having dozens of individual crypto wallets just waiting on the periodic HD crash…🙂), thank you very much Tim for drawing this to my attention, I’m not with Coinbase but I didn’t appreciate that ‘poor business management’ could lead to an entity confiscating all my crypto ‘lottery tickets’. Personally I very strongly dismissed crypto for too many years until the right set of circumstances manifested in my life, the bulb illuminated, and now I see a sub set of crypto very differently…

    • There’s a certain pattern developing now. First, a slump in tech, including some of the blue chips. Then, NFTs and cryptos.

      Next could be cash-burners, perennial loss-makers backed by markets because one of them might, just might, be ‘the next Amazon’.

      In this climate – with profitability further away than ever, conditions deteriorating and rates rising – why would investors or lenders back cash-burners with yet more capital – and could they even afford to service it if they got it?

  4. Diesel and the US
    Having reported a record balance of payments deficit, the US needs to sell something abroad. How about diesel, since Europe doesn’t want any diesel from Russia? And so we get:
    “Truckstop chains Loves and Pilot warning about imminent diesel shortages while U.S. diesel exports reach 2-year highs.”
    Don Stewart

  5. More on Diesel
    Trains in the US are diesel/ electric (except for some electrified commuter rail lines). That means diesel is burned to generate electricity on the locomotive, and the electricity drives the wheels. So if there is no diesel, there are no trains hauling, among other things, petroleum products.

    And where do you think New York City’s garbage goes too. Is it all “green” because it is burned to make electricity? See this:

    I’ve been in NYC during garbage men’s strikes. It’s not pretty. If garbage pickup stops permanently in NYC, I don’t think the city is still habitable.
    Don Stewart

    • Average pump price for diesel in New Zealand is presently 91% of “91 octane Petrol” (the latter is the lowest octane gasoline here).
      Until recent times that ratio was typically 60-70%.
      The present diesel price is greater than what the petrol price was 1 month ago.

    • Diesel in East Coast US (I drove from MA to Florida a month ago, so saw fuel prices) is around 20% HIGHER than medium grade gasoline. When sold as heating oil, it has fewer taxes on it and is around half a dollar cheaper. But that’s still near double what it was 18-20 months ago.

    • Steven – Yes, I guess there will be regional differences in tax.
      Diesel users here also pay per kilometre Road User Charges, presently $NZ76/1000km (about $US76/1000 miles) for a car.
      FYI average diesel price here today is $NZ2.62 ~ $US1.63 per litre = $US6.17 per US gallon.
      https://stats.gaspy.nz/

      Two months ago, the government cut NZ29 cents off petrol tax, supposedly for 3-4 months, but prices now exceed what they were without the cut.

    • @postkey
      The US government has released more oil from the Strategic Reserve than ever before in history. I don’t know if that will make a difference.
      Don Stewart

  6. stumbled upon this, it seemed to rather sum up the current zeitgeist!

    sorry, I’m having trouble taking Clown World seriously at the moment.

  7. “Further, the growth in food prices fell for the third consecutive month. All of this has nothing to do with the recent interest rises imposed on the economy by the US Federal Reserve. They were already in train and confirm the transitory nature of this period of price instability. The US Treasury Department also published its most recent fiscal statistics yesterday – Monthly Treasury Statement – for April 2022, which reports a staggering $US533,794 fiscal shift between April 2021 and April 2022 – the fiscal drag embodied in that shift is massive and calls into question the conduct of the US Federal Reserve – why did they think they needed to push the economy towards recession? Fiscal policy is already working in that direction!”
    http://bilbo.economicoutlook.net/blog/?p=49750

  8. Energy Skeptic on Freedom to Move
    In summary the authors write “The freedom to abandon one’s community, knowing one will be welcomed in faraway lands; the freedom to shift back and forth between social structures, depending on the time of year; the freedom to disobey authorities without consequence – all appear to have been simply assumed among our distant ancestors, even if most people find them barely conceivable today.”

    The Neo-Liberal idea is just about the opposite. One accumulates lots of debt which keeps one chained to the wheel of civilization’s pursuit of money. In the US, it is even very expensive to renounce one’s citizenship. One can move to Costa Rica, but one can’t avoid US taxes.
    Don Stewart

  9. This Essay is pertinent to “what next?” for a world of rising ECoes
    https://by-my-solitary-hearth.net/2022/05/13/just-stop/

    I will begin by noting that, as shown by Wolf Richter’s graphs, we are getting less transportation at higher cost. That fact is consistent with Dr. Morgan’s scientific hypothesis that ECoEs are rising relentlessly and change will be forced upon an unwilling world.

    Similar graphs support the hypothesis that our Industrial Civilization is leading to ecological disaster…whether from rising CO2, falling water in the soil, insectmageddon, loss of species in general, the rising rates of mental illness, and the growing dominance of chronic diseases.

    The essay referenced above makes a compelling case that protesting accomplishes nothing at all. Supporting that hypothesis is the current scramble by virtually all of the countries in the world to get their share of whatever fossil fuels remain…while also professing to be “green”.

    Her plea is to “do something to demonstrate a better way of living”. That makes a huge assumption: that there is an alternative world which can deliver dopamine to the brain of large numbers of people more effectively than Industrial Civilization. Today, I needed to drive to the next town to get a steel bar to poke holes in gravel. The modern version of our distant ancestors’ digging sticks. On the highway, I was promised, about every hundred yards, dopamine if I just stopped and bought something, from true religion to bacon cheeseburgers. Is anyone convinced that living in an Ecovillage has greater appeal to any but a small minority?

    If we think that urban living can indeed survive the rising ECoEs and the deteriorating environment, then people like John Michael Greer may have something to teach us. If, as one commenter here observed, he ought instead to be living on a small farm or in an eco village, then his message will be partial at best. I recently repeated Nora Bateson’s pessimistic assessment of “intentional communities”. My own idea is more along the lines of a boarding house: somebody builds the house, sets up the rules, provides the meal (with control of ‘boarding house reach’), does the laundry or manages the self-service laundry, etc. So trying to meld economical living with entrepreneurship.

    Whatever you personally think the solution is, I think that the dismissal of protest movements is not far off the mark.

    Don Stewart

  10. What we don’t have is any politicians who are trying to improve our situation. Either they’re deluded and/or insane and/or following a counter-productive agenda.

    Tom Luongo covers how he sees the EU and US are actively making the energy/oil situation worse to achieve their political objectives https://tomluongo.me/2022/05/12/real-reason-behind-eu-embargo-russia-oil/

    So having scrambled supply chains courtesy of lockdowns, stuffed a chunk of the working population with toxic jabs, now they attack energy supplies. One might begin to suspect the elites don’t have our best interests at heart /sarc off.

    Another example of depravity in the Western political system is the shenanigans with the Ukrainian biolabs, covered well here http://thesaker.is/empire-of-bioweapon-lies/

    The point is that expecting any sense or practical solutions to our predicament is almost certainly over optimistic.

    As JMG says, best collapse now and avoid the rush.

    • Fred,

      T.L. is a conspiracy theorist, and is ignoring some basic truths. The power elite (incl. the oligarchs in Russia) benefit from a well functioning economy. They own many of the large businesses, and have billions invested in stocks and bonds globally. They are losing trillions as capital markets decline. If things get much worse, they risk violent revolts, and personal safety. Several Russian oligarchs have met untimely deaths or have had villas, yachts seized and back accounts frozen.

      The global elite own a lot of Real Estate. Higher interest rates look to reverse some of the advances in prices and incomes might decrease as well as commercial rents are a large %.

      T.L. is a gold bug. I have owned physical for over two decades as a hedge against inflation. The charts are inconclusive now (short term), but in the past two months gold has declined from near $US 2100/oz to 1800, a 15% decline! The collapsing markets and economies are not supporting this centuries long inflation hedge.

    • I would add that we’re going to need a new monetary system, suited to a post-growth economy. The failure of fiat doesn’t mean a reversion to gold. Cryptos, as they currently exist, cannot meet this need.

      Money probably does need to be backed by something, anchoring money to real (material) value. This needn’t, though, be entitlement to a ‘stock’ of anything, but could be an entitlement to flow.

    • It seems to me that political leaders – and, for that matter, those in business and finance as well – do not understand the economy as we understand it here. They persist in the assumption, endorsed by orthodox economics, that economic growth can continue in perpetuity. Currently, they seek to explain economic woes as the passing consequences of the pandemic, and the war in Ukraine.

      I don’t believe that the evidence available to us can justify conclusions that go further than this. We’re stuck between a failing orthodoxy on the one hand, and conspiracy theories on the other.

      My preference is for concentrating on issues around energy, the economy and finance, and approaching these professionally, by which I mean using evidence, data, logic and modelling.

      It is regrettable that leaders do not understand the reality of post-growth economics, and are not preparing accordingly. This disconnect is having an adverse impact on the quality of leadership.

      This said, if our interpretation is correct, outcomes will conform to it, and leadership will change. My firm belief is that the system is now showing all the signs of cracking up. Inflation is closing off the road to further monetary “stimulus”, asset prices will fall, and the financial system is at serious risk.

    • It’s possible to have an economy that functions without money of any kind. I have lived in a tropical village that did have a tiny amount of money circulating, but could have easily done without it entirely. But I don’t see how a modern economy, with its supply chains having dozens, if not hundreds or thousands of intermediaries, could function without a medium of exchange.

      This means that any seizing up of monetary exchange is a seizing up of modernity itself. Indeed, David Korowicz pointed out many years ago that our industrial civilization hinges on a single point of failure, the global acceptance of letters of credit between banks representing different supply chain intermediaries. This means that a monetary crisis could transition very rapidly into a food crisis. If Egypt can’t purchase wheat on the global market and it can’t find something to barter with, its people will starve (this assuming the wheat is actually available).

      And once a monetary/banking crisis happens and we lose a global medium of exchange, it won’t be a simple or easy task to rapidly create a new one. Who would be in charge of that kind of effort? The US or China or the EU? I don’t think we should assume that a failure of fiat money will be succeeded by another kind of money. Things might just shut down forever.

      Click to access Trade_Off_Korowicz.pdf

    • “Who would be in charge of that kind of effort? The US or China or the EU?”
      It might be the WHO, papers please?

  11. It seems clear that inflation will be brought down by crushing the stock market. That’s assuming inflation is caused principally by excessive demand and not a lack of supply.? Perhaps an economy tipping into recession could disrupt the supply side disproportionattly and make the inflation problem worse.
    Seems unlikely there is any appetite for real negative rates..the FED really is ‘ a porcupine in a ballooon factory’

    • I’d say that part of what’s bringing down the market is past irrationality.

      Negative real rates, used to fabricate”growth” in a faltering economy, have created conditions where investors will buy almost anything and fall for almost everything, even putting serious money into perennial cash-burners. Debt-financed buy-backs have poured fuel on the fire.

      These have to be the most irrational markets in living memory, thanks to ZIRP and QE, amongst the most irrational policies ever pursued.

      So ‘stage I’ is really a retreat from madness. Stage II, on the other hand, is going to be something really new……..

    • I entirely agree with the rationality of Stage I and Stage II,
      the problem is we are still advancing into madness, I don’t think we’re anywhere near peak madness, it may even go as far as the ultimate folly,

  12. Dr Morgan,
    You have indicated a scepticism of crypto currencies to come to the rescue.
    There is a world of difference between the ‘centrally controlled ‘cryptos that have recently been discredited and Bitcoin which is a ‘decentralised currency’.
    As I understand it from the work of Saifedean Ammous , Michael Saylor and Jeff Booth , Bitcoin has the power to become a universal currency . The IMF , WORLD BANK and the US Fed then will be irrelevant . This seems like a good idea since they together have in the last 50 years supervised a system that clearly is now in failure mode.
    Could this be the “really new “ bit to which you refer ?
    I am awaiting delivery of a book by Jeff Booth – “The Price of Tomorrow “ ( Why deflation is the key to an abundant future). The claim sounds rather optimistic as we experience the economic outcomes predicted by your good self and several other commentators ,

  13. According to wiki the total world wheat production in ’19 was 765.8 billion metric tons, of that 311.7 is produced by the top three which are in order China, India then Russia. The rest of the world produces the remaining 454.1 metric tons. Next three in descending order US, France and Canada combined total 125.2 with the Ukraine coming in fifth at 28.4 but I believe we can scratch that from the shipping manifest for now. These numbers don’t flesh out well when you start looking into consumption globally! The coming winter is going to be something.

    • @Red
      …and India (one of the top 3 producers) just banned Wheat exports.
      https://peakoil.com/consumption/india-bans-wheat-exports
      Canada already advised that existing contracts prevent the diversion of wheat production to other buyers.
      Natural Gas, Oil, and Grains will be a very interesting study over the next six months as harvest takes place and pipeline flows dwindle (or stop) in the EU.

    • If units matter, as I believe they do, all your figures are in million metric tonnes (from the same Wikipedia entry you used). The “metric” is somewhat redundant because a tonne is 1,000 kilograms (2,204.62 lbs).

      But you’re right that wheat supplies are in turmoil. Ukraine and Russia are 25% of world wheat exports. If the world refuses Russian wheat and can’t get Ukrainian wheat, a lot of people will go hungry. India has banned wheat exports, but it was never a major exporter. If their current crop is reduced significantly by the ongoing heat wave, they may need to import wheat, too, which will make the situation even worse.

  14. I have a neighbour who is senior in the UK Border Force. He has recently spent a lot of time in Egypt, Uganda, Ethiopia, and Kenya and is very concerned about famine later in the year. Something like 60% of Egypt’s wheat needs have been met by Russia & Ukraine until now. Very bad news. Will they ‘collapse’ like Sri Lanka seems to be doing?

    • @Don .. This is for ‘subscribers’ only. Instead of linking to such sites, how about a summary of what is being said if you think it is important to this board. TIA..

    • @Hideaway
      I do subscribe, but it is free. You have to register and he sends you his posts. I am sorry I had forgotten about that.

      The gist of it is the catastrophe which has happened to Sri Lanka. He is reflecting on the Buddhist heritage in Sri Lanka, on the Buddha’s birthday, which coincides with government repression and general collapse of the society. A Buddhist believes that Siddhartha achieved release from the cycle of birth and death with suffering in the middle. The rest of us are still stuck with the suffering.

      The background for the current despondency is the short lived people’s revolt and burning some government officials houses and an official suicide, which brought on the current repression. As a side note, Charles Hugh Smith currently features an article by a CIA man who studied social media and mass movements. The CIA man says that it is very easy to start mass movements with current technology, but such movements are almost always failures because they only feature dissatisfaction…they have no coherent goals shared by all of the protestors.

      I think the relevance to this blog is:
      *what happens when a Neo-liberal system runs up against government ineptitude plus resource scarcity?
      *why DeGrowth is such a hard thing to sell (also see a link I am posting with some attempted softening of Nate Hagens communication style)
      *why mass action is seldom effective
      I would add that my hypothesis that geo-political maneuvering to avoid the chaos for one’s own particular segment of the population will be a dominant future of the near future is not inconsistent with the events in Sri Lanka.

      Don Stewart

    • a very good and reasonable summary of where the global energy-based economy stands.

      I could do without the fluff of the last two paragraphs, and without those the article would have a more precise ending:

      “We are victims of systemic dependency on depleting fuels and minerals, and an economic model founded on unsustainable growth.”

  15. Don, the events in Sri Lanka are both very sad and interesting. Apparently, the people believe that their government exists to look out for the people, use foresight and take appropriate measures. The politicians, on the other hand, appear to believe that the purpose of government is to utter platitudes, pretend to care in order to be reelected, and pursue policies and strategies – including doing nothing to disrupt the flow of funds into the coffers of multinational companies – that will line the politicians’ pockets, the people be damned.

    All fun and games until the people show up at the politicians’ homes and start burning them down and/or want to put their heads on pikes.

    And how will this play in America and Europe? Well, there are far too many people here and there who believe in “protest” which, as you noted the other day, has zero effect. So we may massive symbolic action = complete impotence here, at least for some time. We’ll see how this plays out as people start freezing and starving, and while government hands out $40 billion – supposedly to people in other countries but a circular flow of funds into the coffers of the MIC, CIA and others with campaign contribution awards to the politicians – while there is no baby formula at home.

    Meanwhile all we have is this general prediction about how things will go: “The future is already here, it’s just not very evenly distributed.”

    • It seems to me that there are two “narratives” on the current predicament.

      One of these, favoured or (for now) accepted by most, is that all hardships can be ascribed to the pandemic and the war, but for which everything would be fine.

      The other, on which I think most of us here agree, is that the issues are fundamental, are ‘happening anyway’ and have, at worst, been brought forward by these two crises.

  16. Here In England there has recently been two stories in the media that give a clue to the breadth and depth of the crisis. First, a report that pawn shops were being used by the ‘middle classes’ to pay school fees and tax bills; and secondly from the north east, a headline that a foodbank was delivering parcels to Ponteland (an exceedingly wealthy and ‘well-to-do’ suburb north west of Newcastle upon Tyne). Perhaps this is indicating that the crisis, as Dr Tim suggested some months ago, would move rapidly along the social ladder. This, I think, changes the political dynamic quite markedly. Others may disagree, but I have to confess that increasingly I see the crisis as one of failing fiat.

    • Reports from Central Pennsylvania, USA.

      My friend was the head of a county Drug and Alcohol agency in semi-rural Pennsylvania. He related that the problems of heroin were simply passed along to the criminal courts until the children of the rich started getting arrested and causing trouble. Then the crusade for recovery and rehabilitation kicked into high gear.

      I just took a tour of the local church-sponsored food bank after dropping off some items. The lady said that the organization places food banks in the areas of greatest need and that I would be surprised how many clients are currently being served from upper middle class neighborhoods. She explained that the grocery stores and food outlets are getting better at passing along food approaching it’s expiration date.

      I wonder how long surplus food and recovery resources will be available as we reach the steep part of the energy cliff. In the late 90’s, I envisioned a new economic safety network based on a labor credit and “green stamp” system for rewarding unpaid labor to improve community infrastructure including food security and refuse and recycling programs. Local businesses and farmers markets/CSAs as well as corporations donate “green stamps” as a percentage of purchases. Labor credit hours can be earned doing skilled or un-skilled work. Neighborhood Coops, food pantries and pay-as-you-can restaurants will accept the “green stamps” and labor credits in addition to cash.

      Our community has seen an influx of addiction recovery houses and support services for those suffering on the periphery. In the absence of surplus energy, I think it would be advisable to start thinking about a support system building on the success of the CCC, Americorp and Habitat for Humanity programs providing housing, food and work opportunities.

      Thanks for reading!

  17. Nate Hagens interviews Jamie Wheal, a Neuro Anthropologist

    This interview is between two people who both believe we are at the end of the road of increasing physical prosperity. Wheal leads wilderness expeditions, and promotes “expedition thinking”. References to prisoner of war camps, where those who die are the pessimists and the optimists. The ones who survive are realists. But Wheal says that his company could be 10 times as large if they joined the optimist, everything is going to get better and better, camp.

    Lots of exploration of the basic drivers of human behavior….dopamine and serotonin and all those fleeting chemicals that Hagen’s states we spend hundreds of barrels of oil trying to manipulate. (Think of the rich going into space?).

    A lot to think about, if one has the time and energy take a side excursion.

    Don Stewart

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