#233. Understanding inflation


Inflation isn’t like other economic problems.

It impacts the general public, immediately, and painfully. It feeds on itself, once wages start chasing surging prices.

It can’t be denied and, once it takes off, there are limits to how far it can be under-reported. It can’t be fixed – or, rather, it can’t be ‘kicked down the road’ – using any form of ‘magic money’ gimmickry.

Inflation is the brutal exposer of failure. It is already exposing, for example, the weaknesses of a British economic model built on perpetual credit expansion, and the contradictions in a European monetary system which tries to combine a single monetary policy with nineteen sovereign budgetary processes.

Small wonder, then, that soaring inflation induces panic, desperation and sometimes outright idiocy in the corridors of power.

On the basis of principle

Those of us who understand the economy as an energy system, rather than a wholly financial one, have a unique insight into inflation.

Because we recognize that the ‘real’ economy of goods and services is shaped by energy rather than by money, we also recognize the existence of the ‘financial’ economy as a monetary proxy to the energy dynamic which determines prosperity.

Prices are where the material and the monetary intersect. Prices are the financial values that are attached to physical goods or services. Inflation is a product of changes in the relationship between the ‘real’ economy of energy and the ‘financial’ economy of money and credit.  

To paraphrase Milton Friedman, inflation is always and everywhere a two economies phenomenon.

Because of the immediacy of soaring inflation, and because of the panic it induces in decision-makers, current events might seem to add credence to the “collapse” prophecies of modern-day Cassandras.

In fact, inflation can be interpreted rationally, and that’s the single aim of this discussion.

In search of reason

The basic principles of the energy interpretation are quickly stated.

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

Energy is never ‘free’, but comes at cost measurable as the proportion of energy that is consumed in the access process whenever energy is accessed for our use. This ‘consumed in access’ component is known here as ECoE (the Energy Cost of Energy).

Money has no intrinsic worth but commands value only as a ‘claim’ on the material goods and services supplied by the energy economy.

These principles lead inescapably to the concept of the ‘two economies’ of energy and money. Inflation – and, for that matter, currency crises, market falls and severe defaults – are products of imbalances between the ‘real’ and the ‘financial’ economies.

Until some point in the 1990s, the real and the financial economies expanded more or less in tandem.

The most notable previous disequilibrium between the two economies of energy and money happened in the 1970s, and was characterized by runaway inflation. Though energy remained cheap and abundant in those years, political divisions between the biggest producers and the main consumers of oil triggered a sharp rise in the cost of energy to Western consumers.

The situation righted itself, because there remained substantial reserves of relatively low-cost oil in places – most notably the North Sea and Alaska – that were outside the control of OPEC.

The robust growth of the 1980s owed everything to a ‘catch-up’ from the politically-induced energy shortfalls of the 1970s, and almost nothing to the ‘liberal’ economic ideologies which happened to supplant the Keynesian orthodoxy at that same time.

The road to here

By the 1990s, the fundamentals had started to deteriorate. ECoEs were rising at rates which were taking away the potential for further growth in the material economy. This was happening because of depletion, a process whereby lowest-cost energy resources are used first, leaving costlier alternatives for a ‘later’ which had now arrived.

What we have experienced since then has been a worsening process of self-delusion, based on the false proposition that we can increase material supply by stimulating financial demand.

The facts of the matter, of course, are that no amount of financial stimulus, and no increase in prices, can produce anything – in this instance, low-cost energy – which does not exist in nature.

What we can do is to create a simulacrum of “growth” by creating monetary ‘claims’ on the future which increase transactional activity in the present.

We’re at liberty to count these increases in transactional activity as ‘growth’, and to ignore the inability of the real economy to honour these forward commitments when they fall due.

This is what’s been happening through an era of collective self-delusion that began in the second half of the 1990s.

Between 1999 and pre-pandemic 2019, reported global GDP increased by $74 trillion in real terms, but debt escalated by $204tn between those years, and we can estimate that broader ‘financial assets’ – which are the liabilities of the household, government and corporate sectors of the economy – soared by about $480tn. Even this number excludes the creation of enormous pension promises which a faltering ‘real’ economy will be unable to honour.

The reported “growth” in the economy measured financially as GDP through this period was starkly at odds with what was happening in the real economy of energy. Whilst reported GDP slightly more than doubled (+110%) between 1999 and 2019, the total supply of energy increased by only 54%, a number that falls to 47% at the critically-important level of ex-ECoE surplus energy.

Reflecting this, aggregate prosperity, measured financially by the SEEDS economic model, expanded by only 34% worldwide over a period in which economic activity, recorded as the transactional use of money, rose by 110%. The 34% increase in money-equivalent prosperity was lower than the 47% rise in surplus energy, a differential reflecting deterioration in the efficiency rate at which surplus energy is converted into economic value.

The dynamics of disequilibrium

We need to be absolutely clear about what this means. Stimulation of transactional activity to levels far above underlying prosperity as determined by energy has created an enormous disequilibrium between the ‘real economy’ of goods and services and the ‘financial economy’ of money and credit.

Globally, the downside between the ‘two economies’ can be calculated, as of the end of last year, at 40% (see fig. 1). The equivalent numbers for the United States and China, respectively, are 32% and 54%.

Fig. 1

The inevitable restoration of equilibrium between the ‘two economies’ is readily explained, because it happens when the owners of financial ‘claims’ realize that the aggregate of these claims cannot be honoured ‘for value’ by the real economy of goods and services.

This enforced restoration of equilibrium is mediated through prices, which are best understood as the rate of exchange between the monetary and the material economies.

The result is experienced as accelerating inflation, a process which everyone understands can only be worsened by stimulus, and which we further understand must continue until something much closer to equilibrium has been restored.

It also follows, from this, that inflation will be most acute in those energy-intensive product categories which are ‘essential’, which means that consumers cannot choose not to buy them because their prices have increased.

Conversely, inflationary pressures will be less pronounced in those discretionary (non-essential) goods and services of which consumers will reduce their purchases as their ex-essentials prosperity (known in SEEDS as PXE) deteriorates.

Taking stock

This explanation, though, refers primarily to the flows of money and material prosperity. There are also ‘stock’ issues around the forward commitments created through the same process of stimulus which has driven the observable wedge between the ‘real economy’ of goods and services and the ‘financial economy’ of money and credit.

This is summarised in the flow-and-stock analysis produced by the SEEDS economic model.

In fig. 2, the flow distortion, seen earlier, is compared with two measures of ‘stock’ exposure. One of these is debt, which now stands at 4.1X underlying prosperity. The other relates to estimated broader financial assets, now at a multiple of 9.3X prosperity.

Neither of these ratios is sustainable, and a best estimate has to be that forward excess claims will be eliminated at a percentage rate broadly equivalent to the equilibrium downside measured as the flow relationship between the monetary and the material economies.    

Fig. 2

Inflation does, of course, reduce forward claims by impairing their real value.

Even so, the balance of segmental alignments – between essentials, discretionaries and capital investment – suggests that the elimination of excess claims cannot occur through inflation alone. Suppliers of essentials probably will be able to honour most of their forward commitments, whilst many discretionary sectors will not.

Since our focus here is on inflation rather than on economic activity and prosperity, we need, for now, only glance – as in fig. 3 – at the future prospects for an economy in which prosperity has stopped expanding and started to contract, whilst the real costs of essentials carry on rising.

Discretionary activities will shrink, whilst capital investment can be expected to diminish in a process that demands ever greater returns on capital.

On inflation, our conclusion needs to be that pressures will continue for as long as it takes for the restoration of equilibrium between the ‘real economy’ of energy, goods and services and the ‘financial economy’ of asset values, money and credit.

Within this overall trend, the prices of essentials will continue to out-pace those of discretionaries as the segmental mix of consumption and investment realigns.

For the authorities, this poses a difficult challenge, because many emerging trends will be unpalatable to a public which has been sold the myth of ‘growth in perpetuity’.

Whilst we can – perhaps – assume that no government or central bank would be so unwise as to try to use stimulus to counter inflation, there are two ways in which the authorities could make this worse.

One way would be to carry on trying to ignore, or unintentionally misunderstand, the forces that are manifesting as inflation.

The other would be to try to favour some interest groups over others.

Fig. 3

143 thoughts on “#233. Understanding inflation

  1. Well, Dr Tim, here in the brow-beaten UK, I sense that the ‘precariat’ are beginning to realise that what you have been consistently saying is becoming very true. We can see that by the increase in positive strike ballots and in the by-election results from yesterday, especially just down the road from me in Tiverton & Honiton (the new unitary authority of Somerset, where I live, was recently lost by the incumbent Tories to the Liberal Democrats).

    I met with my accountant yesterday and he is based in the seemingly prosperous city of Bath. “Don’t believe what you see on the surface” he said, “60%+ of the population are in serious financial difficulties – the fault of too much debt”. Some people that I deal with are ‘running for the hills’ and disinvesting from the asset markets, clearing all debts, and purchasing guaranteed index-linked income streams in the form of annuities. Those ‘new enquiriers’ basing their income prosperity in retirement on ever-increasing property, equity and bond valuations have been very unnerved by the recent declines in the value of their portfolios – but don’t know what to do about it. Financial disaster looms for millions, and our government is bereft of any kind of plan, similarly the case at the Bank of England.

    A country that imports inflation and that suffers a serious drop-off in exports to our former friends in the EU (leaving aside the EU’s problems for now), lacks heavy oil, and is a leading exponent of ’embargoing ourselves’ is going to have a lot of problems, probably for many years.

    This time, it really is different.

    • Nice anecdotes but the typical anti-Brexit swipe is lazy and ignorant. Cribbing from AEP’s article today: The BoE’s Sterling trade-weighted index shows sterling has risen over the last five years with the pound and the EU mostly in tandem since 2017. The relative performance since the referending in annual growth using IMF data shows growth rates as UK (6.8pc), France (6.2pc), Germany (5.5pc), Spain (5pc), and Italy (2.1pc) – in the IMF tables Brexit doesn’t even register whereas the eurozone debt crisis had calamitous losses. All Project Fear predictions have been embarrasingly wrong and the doomongering about growth by the OECD is nothing short of manipulation – last time they predicted the UK would trail last in the G7 for developed world recovery in 2021 yet the UK was actually the G7’s star performer with growth of 7.4pc, viz 2.8pc in Germany and 1.6pc in Japan. Naturally you will be too prejudiced to deal with the facts but in short order you will get to see the realities. When the next leg of the EU bond crisis kicks off, the value of the UK’s political and economic sovereignty will become very apparent.

    • I’m not sure I read it as anti-Brexit.

      For the record, I have always been neutral on the Brexit decision itself, though the implementation, on both sides, has been lamentable. The EU side were determined to punish the UK to discourage voters in other EU countries from seeking an exit. The UK side was hampered by MPs trying to cripple the government’s negotiating position, in hopes that the voters’ decision would not be implemented. The whole affair, in UK political terms, was nasty, and a distraction.

      Accordingly, I don’t try to assess what role Brexit might have played in getting the UK economy to where it is now.

      The UK is enormously at risk, and a “sterling crisis” appears highly likely.

      By the way, comparative changes in GDP are all but meaningless, and are really measures of how much additional liquidity countries can get away with pouring into the system.

    • Your assessment is fine Tim. There is currently, however, a coordinated campaign to talk down the UK’s performance and outlook, all aided and abetted by vested pro-EU interests. The real situation is very different to being portrayed.

      The threats of a ‘sterling crisis’ has not shown in the actual relative sterling performance to-date and predictions of its demise are purely speculative narrative. Moreover, the politically loaded predictions fail to take account of the range of policy responses out our disposal.

      Notably in the markets, Bridgewater have made a $10.5 billion bearish hedge against EU equities (https://www.euronews.com/next/2022/06/24/bridgewater-europe) indicating expectations for a sharp slow-down in the EU. If that bet was against UK equities then the usual suspects would be crowing from the rooftops. Funny that.

      The coming EU bond crisis is a far larger and more insidious problem that that faced by the BoE who can employ a range of measures to counter any attack on sterling and do what is in our best interests. That is a far better position to be in rather than lashed to the mast as the EU experiment sinks or, as may be the objective, is the crisis that some are seeking for their United States of Europe vision to be finally realised.

      Your point about relative GDP is correct, so why do the anti-Brexit camp try to flawed models that use relative GDP predictions to talk down UK prospects? If GDP relates to the power of free liquidity then let’s see how that looks when the EU has bailed out the southern states.

    • The Euro Area has serious problems, in large part because the euro is a political currency. Trying to combine a single monetary policy with nineteen sovereign budget processes is economically illiterate. Currently, Germany is owed over 1.1 tn EUR through the Target2 system, the debtors being Italy and Spain.

      But I don’t see UK vs EU as ‘either-or’. Both can be – and are – in trouble at the same time. Problems in the Euro Area don’t, for me, change the fact that the British economy is in a dire state. The UK runs perpetual trade deficits, financed by asset sales. Each £1 of “growth” between 1999 and 2019 – i.e., before covid – was accompanied by £4 in net new debt. The scale of indebtedness is such that trying to defend GBP using rate rises could crash the economy. Exposure to the broader (debt+) global financial system is dangerously extreme.

    • Hi Mark,
      I always love reading your insights 🙂
      One thing that confuses me is while i understand why people would buy an annuity, if we have a financial reset brought about by the energy crisis would the annuities not be affected also?

      Regards Kevin

  2. Great analysis as always. It appears that at least in the US, supply of oil and natural gas, while somewhat affected, is not necessarily the binding constraint. For the fake economy to come down to reality with the real economy – for the game of musical chairs to end – it would appear there needs to be something more powerful to cause this. Otherwise, it would more or less be business as usual.

    Do you think the main pin to burst this bubble for the US then is primarily a psychological one? The mass realization of the people that the music is about to end?

  3. In addition, Dr Tim, I have just been reading the latest annual report issued by Personal Assets Trust (in the interests of full disclosure, I own 30 shares in the Company) and was struck by two paragraphs written by the investment manager, Sebastian Lyon.

    “The situation today is different to the tech bubble. In 1999 the overvaluation was concentrated in a smaller number of stocks (Dotcoms, Cisco, Microsoft, and Juniper Networks). Value was on offer elsewhere. Thanks to the prevalence of cheap and plentiful capital over the last decade, the overvaluation is far more evenly spread today, giving fewer places to hide from a de-rating of equities. We are sceptical of those who advocate equities as a good defence against inflation. Historically, stocks love disinflation, not inflation. Stock market returns in inflationary periods have been volatile and poor in real terms, despite growing profits – such is the corrosive effect of inflation. From current starting valuations we suspect returns will be modest and we await lower equity valuations before putting shareholder’s savings to work.”

    More importantly, in my experience, is: –

    “Investors are warned that ‘past performance is no guide to the future’. The biggest mistake investors can make is to extrapolate historic earnings, share prices, or valuations. Money illusion, the tendency for people to view their wealth and income in nominal terms rather than recognise the real value adjusted for inflation, is hard to resist. This is the mirage between the nominal and the real and will be the enemy of investors seeking returns ahead of inflation. We will endeavour to continue to preserve and grow shareholders’ funds in real terms, but we are under no illusion as to the scale of the challenge ahead.”

    I’m sure that you, and hopefully others, will understand and agree with Mr Lyons’ sentiments.

    Oh, and giving UK state pensioners a ‘triple lock’ while increasing the tax burden and student loan liabilities on those of working age will not end well as the UK’ terrible demographics start to bite.

    • The triple lock was ‘suspended’ ages ago. A euphemism for ended, I think, unless a group of very poor people make a huge fuss or riot near Downing St. … seems unlikely. If the 40% of over-65s who only have a state pension to live on had the bargaining power of ASLEF, the NUR or RMT then the pension might be on a level with say the minimum wage for a person working 40 h/wk. But the distribution of pensioner incomes seems incredibly skewed, with most receiving £10,000s per year and not £7,000-9,000.

      You might like to stop implicitly attacking a large group of people on the poverty line and ask why the UK still has higher-rate pension tax relief. Last time I looked, private pension tax relief cost the UK ~£55 bn per year. I don’t know what the split was between relief at the three income tax rates but I suggest that all relief above the basic tax rate be abolished immediately and some of it used to restore the triple lock.

  4. Thank you Tim and Mark for honing in on the noose by which imprudent borrowers and lenders will both feel tightening. Borrowers by defaults and loss of property. Lenders if there is no collateral. This is why the safest credits and physicals like gold are likely to continue to be seen as safe havens in my opinion.

  5. “Whilst we can – perhaps – assume that no government or central bank would be so unwise as to try to use stimulus to counter inflation, there are two ways in which the authorities could make this worse.”



    I know most here think its a conspiracy that they’re trying to blow this sucker up intentionally, but you can’t deny that most of the actions they take seem to be in that direction.

  6. Take this for example:


    Why now? People are so divided and thing are at such loggerheads you would have to be an idiot to rule on something like this. The time to have done this would have been in the 90’s or 80’s when society still had some breathing room and people were acting a bit more “rational”.

    Many of the actions taken by .gov and other “institutions” seems like they’re trying to pick a fight with someone, anyone really.

  7. Which leads to the question, are we ruled by idiots? Occam’s Razor and all 😉

    • I don’t buy conspiracy theories – I’m more incllined towards complacency theories – but I do think that we’re run by idiots.

      Most political leaders tend to have alpha-plus egos, and beta-minus abilities.

      They get by when they can “go by the book”. When events tear up the book, as is happening now, they’re stuck. Permanent officials are promoted on the basis, not of brilliance or originality, but of seniority and ‘conservatism’, meaning ‘adherence to how things have always been done’. Again, this works in ‘normal’ times, but not when serious change strikes the system.

      Britain is a case in point. It might be said that the current government are ‘a bunch of idiots’. Replace them with Labour (the official opposition), though, and it would simply be a case of ‘a different bunch of idiots’.

      Around the World, and certainly in the West, most politicians are in the same fix. Things are going wrong. They want quick and popular fixes, but there aren’t any. They want their officials to supply answers but, again, there aren’t any.

      All that we can do is think things out for ourselves, try to work out what happens next, and stay at least once step ahead of the process.

    • Thank you for the reply Dr Morgan, i mostly agree with it. You have to admit that they do everything in their power to keep anyone “new” and with different “ideas” from coming anywhere close to power. Have you heard of “Bail ins” and what is your opinion on them? First i heard of them was early 2010’s with Cyprus, but from my understanding they’ve been passed as law in most EU countries and perhaps the US.

  8. Tim, I completely agree with you about the UK’s predicament. It is in fact very concerning and the Government is clueless…..as is the Opposition. Both are firm believers in printing fiat money to oblivion. However, I also agree with the comments that the usual vested interests (not least in the Tory Party) are trying to use the situation to reverse Brexit. Project Fear II (or is it III, IV or V?) is going full throttle and even George Osborne has been pressed into service. I agree that the risk of using interest rates to defend Sterling carries great risk but exactly the same is true, if not more so, in relation to the Euro. Hence the ECB is doing nothing to reverse negative interest rates. Christine Lagarde makes Andrew Bailey look like Paul Volcker. Am I correct in saying that the most overleveraged very large banks in the world are in the Eurozone? Alastair Macleod certainly seems to think so.

    • Thanks.

      The UK and EA situations are subjects that we could discuss, perhaps in new articles, but my belief is that right now we need to be absolutely clear about inflation as a ‘material and money’, ‘two economies’ issue.

      The Euro is politically idealist but functionally illiterate. I could do a whole article about this. There are no ‘automatic stabilisers’ of the kind that operate in ‘normal’ monetary zones like USD, JPY and GBP. As things stand, Italy owes about EUR 575bn, and Spain EUR 505bn, to the Target2 system, of which Germay (EUR 1.1 tn) is the major creditor.

      The ECB can’t raise rates because of what this would do to heavily indebted and credit-dependent economies. Discretionary contraction is going to hit Club Med countries very badly (if you can only just afford fuel and food, you can’t also afford a holiday).

      Britain couldn’t fix its problems by rejoining the EU, but it can avoid making them even worse by not going back on its treaty commitments. It’s by no means clear that the UK can fix its problems at all. But it is clear that neither the current government nor Labour can fix them. The sheer scale of debt – and, again, of credit dependency – ties the hands of the BoE.

    • Dr Morgan,

      Many thanks for a timely article again, which is welcome by me as always.
      Given your intent to maybe do an article on issues facing the EU/EA, which I happen to think are dire, I’d be much obliged if maybe you could expand on China also, given as far as disequilibrium is concerned its the leader of the pack.
      I’m in no doubt your figures are correct, however, when I look at the UK, USA and China it does seem to me at least China has something to show for money spent/borrowed in a massive infrastructure build up, where none has happened in the USA, UK or for that matter Germany, i.e., much infrastructures is now crumbling – basically funds have gone into existing structures, equities or daft bets such as Bitcoin.
      Please note I am HKSAR based, hence my personal interest in Asia.

    • Thank you, Christopher

      I’m not sure I can undertake a comprehensive study of China here, but the situation certainly is extraordinary. The downside between the financial and the energy economies is -54%, worse than anywhere else except Ireland.

      As you will know, but others may not, policy is determined by a ‘grand bargain’ – citizens go without some rights enjoyed elsewhere, but in return the state delivers prosperity. The government has, up to now, kept its side of the bargain. Annual GDP growth (of 8.65%) between 2001 and 2021 is, as elsewhere, an overstatement, but Chinese aggregate prosperity, as I measure it, did grow at a compound rate of just over 5% between those years, which is remarkable.

      The primary objective, fully in keeping with communist analysis, is the maintenance and expansion of urban employment.

      This puts a distinctive slant on investment. A factory or a road might or might not turn out to be a profitable investment once completed, but it creates jobs whilst it’s being built. This is partly why real estate activity – rather than simply speculative investment – has been so important.

      The obvious problem now is the debt – and the broader financial exposure, measured as financial assets – associated with this programme. Additionally, sourcing energy supplies, and coping with rising ECoEs, are challenges. It would be no surprise at all if China struck deals to buy Russian energy supplies now sanctioned – unwisely, in my opinion – by the West.

      Built capacity can be a plus, and can be better in that sense than so much speculative ‘investment’ (!) in the West. But this is less of a positive in two ways. First, a lot of it is excess capacity, to produce things for which demand is insufficient, which drives returns on investment below the cost of capital. Second, all physical capacity, infrastructure and so on comes with maintenance costs, unless you scrap and replace it.

      China now needs to manage its enormous debt, which I think Beijing can do, allowing failures to happen in ways that do not undermine stability. A cooling-off period – less growth, traded for greater stability – will be helpful, and China can act in ways which cushion the pressures which the rising costs of essentials impose on households.

  9. Just to answer Kevin’s question about annuities. Remember, these are not investments, per se, they are insurance contracts. Thus, here in the UK, they fall under the Financial Services Compensation Scheme (FSCS – into which the ‘good’ pay to compensate for the ‘bad’). They are, however, the ONLY financial product with a 100% guarantee in the the government would be the payer of last resort. The last time an annuity (although the arrangement was different from the purely financial contract we know today) failed was when Henry VIII abolished the monasteries.

    • Many thanks Mark 🙂
      That makes sense, so they’d be the last domino to fall.

  10. What concerns me as a Brit is the psychological assumption that things always go up.

    Haven’t we here in the UK and elsewhere in the West had perpetual inflation for centuries?

    For example, price UK homes and food and everything else over the last 200 years.

    Prices are a lot higher.

    Population dynamics play a part and obviously energy use and extraction has changed significantly.

    But my worry is the natural reaction to this high inflation.

    Government workers and council workers never get pay cuts do they?

    Their salaries just go higher and higher.

    As do the pension promises and payments.

    We currently have rail strikes along with British Airways in the summer to come.

    Royal Mail staff were on strike recently.

    And so on.

    Everyone will be demanding pay rises.

    Thus has always been the way in the west.

    How does that 50 year, 100 year trend reverse?

    We are in very unstable times and trying to lower this high inflationary environment looks close to impossible to my eyes.

    Excellent article as always, Tim.

    • @freemarketthinker

      In the past, increases in inflation have been “absorbed” by growth.

      Growth has always been the thing that has kept the “show on the road”.

      It is a decline in growth that is bringing the whole system down.

      Growth is central to “capitalism” and there is no solution (to maintain the system) when the economy stops growing.

  11. “Inflation is the brutal exposer of failure.”

    And failure is the brutal exposer of fiat currencies.

    • @houtskool.

      The idea of Infinite growth on a finite planet is the ultimate brutal “exposer”.

    • Dear John, correct. My personal mantra is; Brain quantity is no guarantee for succes.

  12. More of Luke Gromen Interview:

    In Gromen’s opinion, the Federal Reserve will be forced back into money printing by sometime in the third quarter. They really have no choice but to inflate away the sovereign debts and the entitlements. If Gromen and Taggart were Powell at the Fed, they would resign. Gromen thinks that hard assets such as bitcoin and gold will perform the best, with commodities next best, then the ruble, then the dollar, followed by relative disasters in the energy poor countries such as the Euro, sterling, the yen, the yuan, and the rest. (I hope I got that right…check for yourself.). As a context, Gromen looks at the whipsawing which happened a number of times in Weimar Germany before the final collapse.

    One thought has occurred to me as I listen to this persuasive story. In terms of trying to preserve one’s modest amount of savings, the best thing to do in the US is to look for companies which provide essentials, and which are not much respected in terms of stock market value versus earnings or revenues. I think of a company supplying water to households. While the great majority of water in the US is municipal, if it were private it might be a poster child for capital preservation. I think I will pursue that line of thought.

    Don Stewart

    • Same stupid problem trying to link to the You Tubes. Go to the Wealthion You Tube channel and you should see a list of the recent broadcasts. What you are looking for is the second part of the Gromen interview.
      Don Stewart

    • My own view, where the US is concerned, is that we’re seeing a rare instance of rational markets, something we’ve not seen since the GFC and the start of massive interference.

      Markets are declining fairly gradually, so far, rather than collapsing. Thus far, the loss-making and the over-hyped are being taken down. Next come the discretionaries, especially where heavily-leveraged. Property is obviously amongst the next in line for correction. I suspect that cryptos will trend towards their intrinsic value, and I think you’ll know what I mean by that……

      This rationality might actually help the Fed stay the course, remembering that real rates are at record negatives. Nobody, however wealthy or influential, wins from hyper-inflation. A rational policy might be to change the target from the unattainable 2%, which has no credibility at all, to a manageable 5% or so. Rising unemployment is likely to help the management of inflation.

    • @Dr. Morgan
      One of the main reasons why Gromen thinks that higher interest rates are not tolerable is that they increase the cost of servicing the federal debt. If inflation is at 5 percent and the bond market is in rebellion, as he thinks it is rapidly becoming, then the cost of government debt might approach 8 or 9 percent. Gromen ticks off the reasons why there is very little wiggle room in cutting the Federal budget…e.g., closing down the national parks saves little to nothing.

      Have you done any arithmetic on that subject?
      Don Stewart
      PS If the ability to service debt IS a limiting factor, then what impact does that have on government funded subsidies to enact Green New Deal policies, such as greatly expanding investments in wind and solar?

    • Don,

      The only thing I can envision is that printing begins anew. Fed returns to buying Treasuries big-time.

    • ‘Someone’ is optimistic?
      “We’re past the liquidity drain period. Flows are positive. Market headed higher.”?

    • @postkey
      I pointed to the Gromen interview especially because there are a lot of similarities between his view and Dr. Morgan’s view (in my opinion). I did not watch all of the video you posted. What I heard sounded like a monetarist view…just keep pumping in more money until the patient revives…deficits don’t matters…material depletion doesn’t matter, etc.

      I will just give you my overall take on monetarism. I think that really became persuasive when Milton Friedman and Anna Schwartz developed the statistics for the book The Monetary History of the United States. They showed that during the early years of the Depression the money supply was contracting steadily, which led to a fall in expenditures and a fall in the stock market. They argued that the Fed COULD have easily increased the money supply, but instead followed a contractionary policy. Looking back, one of the main differences between the 1930s and today is that in the 1930s oil and natural gas and coal were all readily available. The Hoover Dam was being completed which brought enormous hydroelectric power to the southwestern US. Dr. Morgan’s work on oil and gas and coal indicates that we are now in a fundamentally different situation than we were in the 1930s. And now we have the prospect that the falling levels of Lakes Mead and Powell have begun to shrink the hydroelectric power and could plausibly fail completely in the next few years. I don’t follow hydro closely, but I did note an article which stated that the quality of the hydro resource is declining in most of the world.

      So I think it is plausible that printing more money can no longer be counted on to increase material wellbeing. It may very well still have the ability to generate inflation…and that seems to be happening. But inflation is just a transfer from the savers to the borrowers and recipients of entitlements. Driving up the price of Apple stock in a world where wages are not keeping up with the price of the stock means that young people are less able to become owners of Apple. In short, I think that the physical viewpoint taken by Morgan and Gromen is the most relevant way to look at our situation today. We should not ignore the monetary, but we should also not let it blind us to the underlying physical reality.

      The speaker noted the Social Security payment as a positive for the stock market. But much of the Social Security payment goes for food and rent, and the inflation rate in both greatly exceeds the growth in the SS payments. So the SS crowd are steadily becoming poorer.

      Don Stewart

    • For much of the market, attempting monetary support could be like pushing on a string.

      Right now we’re in a situation where excuses remain plausible, but their credibility is fading fast.

      The authorities, etc, can still – just about – get away with saying ‘everything would have been fine, had it not been for covid and Russia’. It’s easier to make such claims when your hearers want to believe them.

      But changes are happening in full view. It’s not, any more, “just theory” that discretionaries are getting crushed. How long will investors wait for the ‘post-covid, post-Russia nirvana’? to turn up, and how many bad sets of numbers do they need to see, before they turn sour on discretionaries? By ‘they’, I don’t just mean investors, but lenders, too.

      Other myths are unravelling. For example, in the US, the raw material costs of making an average EV have, this year, risen from $3,300 to $8,300. EV prices are being hiked by $6,000. In the UK, the cost of filling up a tank of gasoline is up 40% but the cost of charging an EV has risen by 80%.

      How’s that “green growth” myth looking now?

      A personal opinion – with which you’re entitled to disagree! – is that this article (#233) is one of the most important that I’ve posted here. Reason is, if we’re clear about the monetary-material dynamic that shapes inflation, we’re also aware of things that might be worked out by investors, lenders and others in the coming months.

      The implications for discretionaries – and for property – seem obvious, once the “suspension of disbelief” (as novelists call it) ceases.

    • The social sciences are pushing a monetary solution for poverty reduction. Here is a short article from Nature (AAAS):
      How to lift millions out of dire poverty
      Randomized trials are changing the way governments and aid organizations study — and deliver — measures to reduce inequality and poverty. Meticulously planned and carefully delivered trials are showing the benefits of early-childhood intervention and empowering women. Perhaps the biggest lesson is that the easiest and cheapest programme to administer, unconditional cash transfers, can transform lives. Researchers continue to push for improvements to their techniques to ensure that solutions can be scaled up and reach the people who need them most.


    • @Steven Kurtz
      I think there are two fundamentally different issues around money: macro and micro. The macro issue is that there may be too much or too little money in circulation to grease whatever economic activity the physical economy is capable of producing. During the Depression, Friedman and Schwartz argued that the Fed had allowed and to some extent encouraged a decline in the money supply below what was required for the functioning of the physical economy. Roosevelt: “the only thing we have to fear is fear itself”.

      The social science issue is micro. Whether there is too much or too little money in circulation, the claim on the physical output is a direct function of how much money one has (or can borrow). The “trickle down” economics in the US since the Reagan years has given more and more money to the already rich. It might have worked if there was lots of room for growth, but when there is little room for growth, it just generates more abject poverty among those who have little.

      Since, the conventional wisdom claims, governments have unlimited access to more borrowing, they can simply print the money and give it away to the needy. That will work in terms of the micro. But it may do nothing to increase the macro output of the economy if resources are scarce. Eventually, all the “good” reasons governments have for spending money they don’t have come down to the predicament described by Gromen and Morgan and others. We used to have a Senator Dirksen from Illinois: “a billion here and a billion there and pretty soon you are talking about real money”.

      Don Stewart

    • Your analysis only works if redistribution is involved. Scarce physical resources only decline, no matter how much money is doled out. Well-to-do consumption must decline as the needy increases, or increased inflation is the result.

    • @postkey. Switzerland derives circa 75% of its energy from a combination of hydro and nuclear. Given that inflation is being largely driven by increasing energy costs, I believe that their energy mix is a key reason for their inflation experience to differ from much of the rest of the West. The strength of the currency obviously also helps.

  13. Conspiracy theory of the day:
    the PTB don’t want me to be able to figure out how to link to this. what is usually a no-brainer has suddenly become hard to do….Don Stewart
    alternative explanation is loss of mental faculties due to decrepitude…but that’s ridiculous!

    • Interesting. It’s noteworthy that, shortly after giving Mr Macron another term, French voters effectively tied his hands by voting for left- and right-leaning groups in parliamentary elections, making it difficult for his government to enact legislation.

      Whereas Mr M wants to raise the pension age from 62 to 65, the left group want it lowered to 60. They are miles apart on numerous other issues. The left’s programme has been costed, and is huge. French debt is enormous. I believe that mortgage rates have been as low as 1%.

      Things look very difficult for France, but that doesn’t make things less bad in Britain. Any serious fall in the UK property sector could, so to speak, ‘blow the house down’. If we take into account falling affordability, rising rates and fading confidence, that seems likelier to happen than not.

  14. @Dr. Morgan
    ShadowStats puts current unemployment in the US at 25 percent. That contrasts with the official level of around 5 percent. I can’t dissect Williams’ numbers, but my impression is that the labor participation rate has fallen, which leads to people without work but not being counted as “unemployed”. As one piece of evidence, the number of homeless people has exploded. Cities like Denver, Colorado which were pristine now have homeless camps which have resisted all government efforts to “solve the problem”. So social dysfunction is high on the list of problems, but politically driven solutions seem scarce.

    Gromen dismisses cuts to the military budget, citing Ukraine. But the relevant question there is why Russia, which spends a minuscule amount compared to the US, can simply defy US wishes and simultaneously enjoy a rising ruble? If military budget is not the answer, then what sort of fundamental reform is called for, and how much money could that save?

    In terms of health (20 percent of US GDP), we have unprecedented advances in measuring the factors which cause chronic disease. While there is fierce debate over precisely what needs to be done (e.g., carnivores vs. vegans), there are plenty of examples of other societies which have very little chronic disease with none of the diagnostic tools at our disposal. What would a thoroughly reformed health system look like. What my grand-daughter was taught in nursing school is that there is simply not enough money to engage in health protection, so we are stuck with dealing with disease symptoms. That can’t be the right answer. Suppose we got that right?

    My conclusion is that what makes sense is to systematically dismember the current dysfunctional system. But we seem nowhere near any political recognition of the problems, much less willingness to address them.

    Don Stewart

    • It’s all about money, Don. TPTB continually jigger tax policies, business rules, and entitlements in ways that direct flows to the largest lobbyist employers, and indirectly to politicians getting millions in political donations. It been this way for many decades, and quite similar for centuries.

    • Yup. Lets spend more words on it than currency. That’ll do the job. A good job too, compliments!

      Btw, how is your grand grand grand child doing?

    • @houtskool
      Grandchild seems to be doing well. She is now an unsupervised nurse (they start out with pretty strict supervision). She knows what she wants, and she is taking the steps to get it, professionally. Much more mature than a year or two ago. She has been shocked by the price of rentals. She shares an old house with 3 other people. She recently commented that she doesn’t think she will ever be able to afford her own house. Since she is already better paid than most jobs, that is a sad commentary.
      Don Stewart

    • Thanks for reply. But, as ever, there’s no explanation. Just a poor and underfunded sad way of more. Or less. What is it? More or less? There’s no more Don.

      Ever less. Stop whining about the past. Tectonic plates are acting NOW, posting crap with crap avatars is a shame to our children. We did that for 70+ years.

      Cut the crap.

  15. I’ve seen multi faceted explanations to inflation as a self fulfilling psychological phenomenon, rising wages being concomitant to inflation, or considering the velocity of money along with money supply.

    I see this post as a reminder to not getting caught up in these fancy theories. It’s much simpler. By understanding the inexorable rise of ECoE, the impossibility of seamlessly transitioning to renewables maintaining the same living standards and the many planetary limits we are hitting it’s clear that the deterioration of the real economy will propel inflation in the long term (at the very least, in the long term).

  16. From the final paragraph of yesterday’s Tim Watkin’s post:

    “Of course, real wealth can outlive an economic crash. A factory, a power station or a railway still exists after the company which owns it goes bust. The question is whether neoliberal governments can be persuaded to intervene to recapitalise them before someone else turns them into scrap. But this requires a degree of intervention that conservatives tend to reject and a type of intervention that socialists tend to oppose. Because the issue at hand is about determining which infrastructure is critical and which we can allow to fail. And this, in turn, requires a degree of hard-headedness that few politicians are capable of deploying.”

    Triage of the kind Watkins describes is going to be very difficult to pull off. The basic problem is the dependency of modern infrastructure the world over on the services of a freely functioning global market economy.

    As Peter Zeihan describes in his recent book, “The End of the World Is Just the Beginning”, virtually everyone has become dependent on global trade, from the commodity base suppliers to the makers of finished products that are purchased by consumers everywhere. Only a very few regions have even a slim potential for navigating the end of globalization. Europe is not one of them.

    Europe is very much like China, importing raw materials and intermediate goods, turning them into finished products and exporting them to places where demographic trends are still suitable for mass consumption. If global trade, which for the last 70 years has depended on hassle-free shipping from anywhere to everywhere, falters due to geopolitical tension (or the Americans taking their navy and going home), there may be very little of modern infrastructure to survive, especially in places that built their economies on import/export.

    Triage is about dividing a problem into three parts: 1) the part that can take care of itself, 2) the part that can’t be saved no matter how much you try, and 3) the part that depends on your intervention for saving. The main problem is that the vast bulk of modernity is basket 2. No politician can ever admit it, because it would be an admission of helpless failure. Unfortunately, we will have increasing amounts of helpless failure to deal with in the near future. People are going to have to get used to the idea of fending for themselves.

    • @Joe Clarkson
      I suggest that the problems run very deep. For example, do we assume:
      1. Power tools used to produce food will still be available, just not in the size they are now
      2. Power tools will not be available, but sharp metal cutting tools will still be available and we will have ways to keep them sharp and not letting them rust.
      4. Sharp metal cutting tools will not be available, but flaked rocks can be used for cutting. A handful of survivalists practice flaking today, and their knowledge will spread among the survivors.
      5. The collapse will be so complete that only a handful of very primitive people will survive. So humanity will essentially start over. The good news is that green plants will rule again, and global warming won’t be a problem anymore as the green plants soak up atmospheric carbon.
      6. There may be a global cooling, which will drive most humans back to the tropics, where this story all began.

      This is just one, highly speculative, way to unravel a small part of what humans do today using powered equipment. We know from Liebig’s Law of the Minimum, and from current experience with supply chain disruption, that a single missing part can sink an automobile or a battleship. And the missing part may be due to inability to have a virtually fail-proof electrical system.

      I think the problems, if understood, should motivate humans to do their utmost to achieve a managed decline. But if we do what we usually do, we will believe that fighting over the scraps is the most promising way forward.

      Don Stewart

    • Don,

      You persist in believing that cognition and logic can outgun instincts wired in us for many millennia. I’d bet against that. Small groups have shown throughout history to be capable of cooperation as that enables survival. Once Dunbar’s number is exceeded, the success of than diminishes, with predation and competition between in-groups taking over. Too bad for our grandchildren…

    • @Steve B Kurtz

      Hi Steve.

      Have you read

      The Dawn of Everything by David Graeber and David We grow?

      On my second reading. (lots to take in).

      It challenges some of the assumptions about “pre-history” human behaviour and “human nature”.

      Well worth a read, if you can spare the time. Gets the old “grey matter” going.

  17. @Steven Kurtz
    If we allow ourselves to get outside the usual boundaries which models assume either explicitly or implicitly, things get more indeterminate. For example, there has been ample evidence for decades that early childhood adverse events damage that child for life…unless some unusual interventions occur later in life. So taking some money from Bill Gates and spending it on early childhood care may increase the productive capacity of the economy 25 years later. It can be seen as an investment, even if it has no immediate return.

    We can also examine reproduction of little humans with a calculating eye. First up, studies show that half of the pregnancies in the Western nations are unplanned. That is down from near 100 percent before the widespread adoption of birth control, but is still a drag on real standards of living. Of course, the US is again shooting itself in the foot by a religious system run amuck in terms of abortion rights. A related issue is the long term decline in the quality of sperm and eggs. We now have a proliferation of “fertility” clinics. My wife produced 3 children out of 6 possible cycles…but that record may never be approached again. Our choice may be between continued massive use of toxins vs. quality of humans produced.

    Don Stewart

    • Don,

      Hard to argue with your points, except for one:
      “may increase the productive capacity of the economy 25 years later. ”

      Ceteris paribus? 😉

      Unless I’ve read you wrong for the past couple of years, you are, like Dr. Morgan and I am , a believer in unavoidable contraction of the economy (real throughput) in a quarter century.

      Aside from that, the rest of your post is reasonable despite it being a non sequitur to mine!

    • @Steven Kurtz
      The economy in 25 years is likely to be more productive than it otherwise would be if we invest more in early childhood care. It’s always about what one is comparing. The economy may be smaller, but not as small as it will be if we continue to raise dysfunctional children in the proportion we are doing so now.

      One can make the same argument about the decline in reading and math skills.

      Don Stewart

    • What people find disgusting is the idea of abortion being used as a form of contraception. It is hard to justify this as anything other than the murder of babies, simply because they happen to be inconvenient. I can certainly understand people who find this morally unacceptable.

      But people tend to react against such obvious abuses and start believing in moral absolutes. The catholic edicts against contraception are a clear example of how ridiculous judgements become when guided by moral absolutes. Ethics always must be a balance of factors. There are no absolutes, only different shades of grey. If a woman’s health is in danger, most sensible people would say that she must have the option of termination. But pregnancy always carries health risks for a woman. Is there a certain magnitude of risk that makes termination acceptable? What if she has been raped? Should she be required to carry the rapist’s baby to term under such conditions? What if scans reveal a child to be disabled in ways that preclude any normal life?

      Pretending that there can ever be moral absolutes is foolishly naive. Pretending that these decisions are easy is stupidly naive. Blaming and threatening violence against the supreme court for voting a particular way on such a difficult topic, is hardly responsible. Basically, one group of absolutists threatening another, because their final decision happens to be inconvenient to them. They presumably had to come down onmone side or the other. I bet it wasn’t an easy decision for any of them.

    • #Tony H

      All the women I know who have had terminations/abortions have not done so not “as a form of contraception” and would be deeply offended if accused so. It has been a difficult and traumatic experience for all.

      For all the points you make, I still think that individual women should ultimately be deciding if they want to go through with a pregnancy or not.

  18. @Don Stewart.

    Without diving into Roe v Wade, I have often wondered about the long term effects of a ban on abortions in the US.

    Without investment to give those unwanted pregnancies/children, a good chance in life, they will potentially become a big burden on the rest of society in later life.

    Are the “pro- lifers” also proposing a rise in taxes to fund the interventions required to support those children and “reluctant” mother’s through to adulthood?

    If the “State” is passing the laws to protect the lives of the unborn, then should the “State” not also be responsible for the child’s development/welfare into adulthood?

    • @John Adams
      ….while also staunchly denying in court that the government has any responsibility whatsoever to deliver a livable planet to the young….

      Don Stewart

    • @Don Stewart

      “……while also staunchly denying in court that the government has any responsibility whatsoever to deliver a livable planet to the young….”


  19. Zero Hedge replaying the Luke Gromen interview, states:
    “The US is facing insolvency. QT cannot endure for long…”
    which, of course, doesn’t mean a string of other countries are facing insolvency.
    Don Stewart

  20. If ECOE were the only problem, it would be severe enough. Europe and East Asia are facing a demographic collapse as well. Chinese demographics are so bad that their population could halve in thirty years. South Korea is as bad, if not worse. These countries have to export, because they simply don’t have sufficient consumer base at home. They are past the point of no return and it will be impossible now for declining numbers to be reversed. Chinese working age population is now ageing into retirement. Peter Zeihan believes that China has at most a decade before some sort of deindustrialisation occurs and China collapses as a unified nation state.

    Unfortunately, Europe’s demographics are ageing as well. And the US is developing an american supply base and are no longer interesting in policing the sea lanes. So the Chinese are losing their customer base, their supply lines, their working age population and their coal supply is heavily depleted. If trouble erupts in the Persian gulf and oil supply is cut off, their agricultural system will halt.

    The globalised system of manufacturing and distribution is breaking down. But the effects will differ depending on location. The US will be relatively uneffected. China will collapse entirely. Europe is going to suffer badly as its markets dry up, its consumer base continues to shrink and oil and gas supplies diminish. The Germans are really going to regret allowing idiot green politicians to ruin their energy system.

    • I just finished Zeihan’s book, too. It’s pretty convincing, but I am not yet persuaded that the US and the rest of North America can re-shore enough manufacturing in time to avoid extreme disruption of critical supply chains. I think there is a real chance that a supply chain or supply-chain-finance tipping point could be reached where gobalization rapidly collapses before North America has a chance to retrench. “For want of a nail …”

      Germany may look like idiots now for having dismantled their nuclear fleet, but the situation in France shows how expensive and difficult it can be to keep a lot of nuclear plants going for long periods of time. Right now, France has 12 plants shut down due to stress corrosion concerns. Just like other power plants, nuclear plants get old and have to be replaced sometime. Perhaps the Germans just didn’t want to rebuild or replace their aging plants, a decision that didn’t look too bad with a lot more gas scheduled to come from Russia. You could equally say that Germany was foolish to allow their idiot politicians to increase their dependence on Russian gas (and Putin’s mood).

    • @Joe Clarkson,
      Would you care to elucidate on your “Putin’s mood” comment, which does not seem to be underscored by any known facts, namely, the Russian Federation has not refused to export anything to the West, rather the West has imposed the most stringent sanctions on any nation in history and then gripes when the chickens of their crass stupidity come home to roost.

      I’m based in Asia and trade with Russia is increasing dramatically, particularly in fossil fuels, fossils fuels the West imported and has now sanctioned. So, when it comes to moods, maybe focus on the hysteria of Western leaders and not the Russian Federation and those who choose to ignore crass sanctions.

    • @christopher rogers

      Putin has shown that if he is in the mood to invade a foreign country he may also be in the mood to use gas exports to punish those who resist. As for who is hysterical and what is crass, I’ll leave to another time or venue. I only mentioned Putin and Russia as it pertained to energy flows and energy dependency, something that is pertinent to Dr Morgan’s site.

      And speaking of energy dependency, if you are in Asia you are in the heart of the most energy-import dependent and finished-product-export dependent region in the world. China, Japan and Korea need globalization far more than most other nations (except, perhaps, for Germany). You may be interested in the Global Oil Exports and Future Risks map here: https://zeihan.com/end-of-the-world-maps/

      Many of the other maps are scary for Asia, too, especially those related to transport risk and food import dependency. Without globalization, Asian prosperity would plummet. If China builds pipelines and railroads fast enough, it may be able to use Russian exports of energy and food to slake it’s huge thirst for resources, but it will still have to find a way to pay Russia for them and Russia can absorb only a tiny fraction of China’s exports. From an economic perspective, I think China picked the wrong side, but perhaps other considerations came first for them.

    • @Joe Clarkson,

      Yes Joe, I’m aware of the work of Zeihan, however, when it comes to matters Asia and de-dollarisation, which is now a reality in my neck of the woods, I fall in with the MMT crowd, particularly Michael Hudson.
      If its Russia related, its Stephen Cohen nowadays, whose work is most insightful.

      As for China and Russia, well, living in the South China Sea and personally witnessing the US Naval build up in my region since Obama’s Pacific tilt, and the fact China has been designated enemy number one, one rather likes pacific relations between China, Russia and indeed India, which now all seem to have more in common with each other than the West.

      Ultimately, if persons think the Ukraine is an issue, wait till they check out China/Taiwan and, based by location, I’m actually in the potential battle zone, so, like many others, one prefers peace to War,War.

    • Funny that MMT advocates I’ve read ignore resource bottlenecks, biodiversity decline, waste sink overloads,…and still believe growth is the solution. Their wake up call is coming soon. Note that Asia is far from self-sufficient in energy and food. Potable water is getting dicey too. It contains around 1/3 of our plague species. Good luck!

    • @Mr Kurtz,

      I take it you don’t read Bill Mitchell’s MMT Blog much, for, and rather strangely, not only does he consult on environmental issues, he’s actually working on a sustainable economic project in cooperation with indiginous peoples who’s resources are in much demand.

      Further, although not technically part of the MMT mob, Prof. Steve Keen has been focusing extensively on environmental/ecological issues, limits of growth and demolishing Economists who discount global warming and its economic impact.

      Helps to look around shall we say.

      As for wonderful virus’s, you are indeed on the money, South East Asia is full of potential harmful virus’s waiting to break out, my own region, namely Guangdong, is ground zero for avian flu – its expected the next major flu epidemic will come out of the region and the WHO Asian HQ for Influenza is down in Manila.

      In 26 years living in the HKSAR we’ve had four big virus scares, two influenza and two SARS, the first SARS outbreak in 2003 had a 14% mortality rate in Hong Kong, that Sir was a frightner. Further, all poultry and pigs on my own little island were exterminated in the late 90s due to a dangerous avian flu outbreak, one that infected humans also, the lung damage was massive – its now illegal to own or rear them.

      All I can add is that I’m thankful I live very, very close to the government health centre.

    • Why would I read a MMT blog? 🤨 It is akin to a religious text. Can’t eat money. Won’t shelter you or keep you warm. Won’t chill your food nor cook it.

      Your remedial health center is near useless without electricity. Good luck on the downslope!

      Sent from my iPhone


    • The problem with MMT is that, even if it could explain the behaviour of money, it can’t explain the economy. They are not the same thing. It shares this problem with many – arguably most – economic theories.

      I’ve heard it argued that, if QE could be used to ‘save the banking system’, it should be used to fund transition to renewables. This is about as daft as it gets.

      So central banks agree to create money for this purpose. Huge sums are handed to government or private institutions to deliver transition. All of them go into the markets trying to buy steel, cement, copper, cobalt, lithium and other materials. The prices of these materials soar.

      This, we’re then told, has a positive, in that it stimulates producers of these materials to invest in capacity expansion. Producing more of some of these materials might be possible. But doing so requires using more energy. Most of this has to come from oil, gas and coal, whose prices rise.

  21. Why are we debating abortion? Seems totally off topic…..although I did notice that many of those who are most militant about a woman’s absolute right to choose had few qualms about supporting mandatory Covid vaccinations with experimental vaccines.

  22. In the Guardian today an article stating that Russia has failed in a debt repayment of 40 billion dollars.
    With the supplies of gas, oil and wheat at their disposal surely this claim merely indicates the fact that the energy basis of world economics is not grasped by our financial ‘masters’ .

  23. A couple of random observations.
    1) The US has finally succeeded in manufacturing a Russian default on payment of its sovereign bonds. The default occurs not because Russia doesn’t have the money, but because the U.S Treasury has prohibited payment.

    So, the U.S. has just basically eliminated Russia’s debt to foreigners supposedly because Russia’s default will increase its borrowing costs in the future (aka, “ratcheting up the pain”). I expect that the U.S. pension funds, family offices and hedge funds who hold Russian bonds will next commence lawsuit against the U.S. government under the takings clause of the Fifth Amendment to the U.S. Constitution (“Nor shall private property be taken for public use, without just compensation.”). If the FedGov wants to pursue such a policy for geopolitical strategic purposes, all well and good, but it has to pay for the private wealth it is destroying in the process. If memory serves, the precedent already exists that rendering private property worthless without actually taking ownership of it constitutes a “taking.” So not only does Russia get off the hook, the U.S. taxpayer or more accurately the U.S. money printer will now have to pay Russia’s debt to the U.S. citizens who hold it.

    Since the Fifth Amendment like the other amendments applies to “persons,” and is not expressly limited to citizens, I expect that many foreign holders of Russian bonds including European banks and sovereign wealth funds, will also bring lawsuit under the takings clause. It will be a good time for Constitutional lawyers.

    We really have the largest, most delusional imbeciles in American history “governing” us right now. If you are expecting rationality, Tim, it ain’t gonna happen. Here in the US, people have already lost their minds, and the real pain hasn’t even started.

    2) At dinner with our son on Friday, who is unmarried and has no children nor plans to have them, he remarked that everywhere that has industrialized eventually achieves less than replacement population growth, not only the West, but now China, and recently, this is happening in the still developing economies of family-friendly Latin America. Proof positive based on the evidence that the modern “way of life” is anti-human and a slow motion suicide pact.

    Pretty well sums it up in a nutshell.

    • you and your son ought to sit down and watch Mike Freedmans 2012 documentary “Critical Mass” 1hr 42mins runtime,
      it’s got some really good interviews in it.

  24. Wolf Richter on Why the US Government is Not Bankrupt (yet)

    In summary, Wolf thinks that the increasing load of interest payments will force the “drunken party” to stop, after a lot of public hand-wringing and collection of contributions from interested parties.

    My concern is nuclear war. I see the current global situation as a struggle between the historically rich (the US, Europe, Canada, Australia) and those who make (Asia) and those with resources (Russia, most notably, but also many smaller countries such as Chile with copper.). The historically rich countries need to maintain a colonial system, where there are subordinate countries who are doing what they are told to do…either directly or indirectly through various controls such as reserve currencies.

    Here is a table which shows “fair shares” of carbon emissions:
    Top 1 %. down 97 %
    Next 10 %. down 91 %
    Everybody else. up 300%

    While the UN can have conferences without limit, I don’t see any possibility that the rich (which includes most of the people reading this) are ever going to agree to live with a “fair share”. There will be a lot of blather about “net zero”, but the goal in reality will be to enforce a colonial system which subsidizes the historically rich. Since some of the potential colonials have nuclear weapons, and since humans frequently do not behave rationally, I suspect that nuclear war is a bigger risk than financial collapse. but either is a distinct possibility. Perhaps even both at once?

    Ecological collapse is another distinct possibility. Anyone following the news from the Colorado River and California can understand that the southwestern US may revert to a thinly settled desert, creating tens of millions of climate refugees (desperately trying to get into Mexico???). Insectmageddon is happening in plain sight. Toxic chemicals are accumulating in our children. Etc., etc.
    Don Stewart

  25. What’s wrong with MMT; politics; economics; public health policy; climate change; ecological collapse; and etc.???

    This is from Microbiome Labs. It’s a statement of one of their 5 pillars on which they have built a successful company in an industry (dietary supplements) riddled with fraud:

    “Root Cause Healthcare Focus: Root Cause Focus is entrenched at the core of Functional Medicine. Rather than the traditional Western model of focusing on alleviating symptoms, we seek to address the underlying causes of illnesses, imbalances, and dysfunctions. By targeting the root causes, we allow the body to reinstate and rebuild its own recovery mechanisms and address problematic issues in the process”

    Practically none of the issues I identified in the first paragraph engage in root cause analysis. The basic assumption is that things are the way they are for a reason which no mortal or company can do anything to change, but there is a lot of milk in the big breast, so suck away. It is embarrassing to see very fundamental questions which have not been answered…not because they are impossible, but because nobody can figure out a way to make more money by solving them. Two that come to mind are carbon dioxide emissions vs. water in the soil and water vapor in the air, and cholesterol as a cause of the leading killer (vascular disease) vs. dysfunctional epithelium in the vasculature. The targets chosen have a lot more to do with seizing on something which is a superficial target and perhaps we have a drug which hammers it vs. really delving into the root causes.

    Don Stewart

  26. Tim, sorry to use your website as an email service to Don in particular, but others here might find this interesting as well.

    Don and others here – you might find the youtube channel “Doomer Optimism” to be really interesting and helpful. It focuses on people – young people by your and my standards – who are engaged in experiments in new ways of living, focusing on the local level. In one episode one of the participants states that they aren’t focused on [large] scale solutions because [large] scale is the problem. I started with and enjoyed episode 32, an interview with author Morris Berman. Slow start but then really gets interesting.

    • @Tagio
      Thanks for the tip. I checked the web site and the current discussion involves Joe Brewer, Kate Raworth, Daniel Christian Wahl, and Nora Bateson. I find the underlying unity (things are rapidly headed toward collapse) but with a lot of divergence about details (Nora’s attempt to keep all the balls in the air all of the time vs. Kate’s need to tell the mayor who had called her for help SOMETHING useful). There is also the notion that in order to regenerate, something has to collapse. With the shadow from some thinkers decades ago that we only had 20 years to change course and now it’s 40 years later and so it’s now “buckle the seat belts and assume crash position”.

      I have spent a lot of time over the last few years watching children at my food co-op. I observe the principle of “measurement” from quantum physics and Nora’s very similar notion that it takes at least two people to make a mind on exhibition as the kids find their way in the world.

      We do live in interesting times.
      Thanks again….Don Stewart

  27. In reply to my tweet re ‘growth’

    “Professor Richard A. Werner
    Feb 5
    High growth is possible for all countries, even at full employment. Professor Richard A. Werner”
    ·Feb 5
    Replying to
    Is possible. Now. Remember, growth and sustainability are not contradictory, precisely because growth is not a real concept from physics or even engineering. It’s a statistical artifact. There is no growth in the physics sense. So no problem for the environment & resources.”

    Does anyone know ‘what he is talking about’?

    • @Postkey
      I don’t know what he means, but I will speculate.
      Consider a man living alone and a woman living alone. They are doing all they can for themselves to save money instead of paying someone else to do it. They decide to get married and move in together. Now specialization becomes possible. The man can do the “manly” work while the woman does the “womanly” work. There is still no payment to outsiders to get things done, but the specialization allows for increased productivity…the combination will be more efficient than each working alone. They also conserve resources by sharing.

      Now consider a neighborhood. Everyone cooks their own meals. Then someone reads about how they did it in Edo, Japan (which had no fossil fuels at all). There were fast food kitchens all over the place in the cities. People routinely paid money to a neighbor who fixed meals for quite a number of people. So it is now an economy. But it also means that each family can invest very little in terms of a kitchen. So specialization plus minimization of resources, greased by money.

      If an economist thinks about more and more specialization and resource sharing, they need more and more money in circulation. But the result in terms of hours of labor and resource requirements may actually decline. However, there are limiting factors, such as the ever present temptation to cheat, any government regulations in terms of public health, bank control over the currency which introduces overheads, etc.

      In Edo, the lack of fossil fuels was a result of the Emperor’s decision to have very little to do with the outside world, and Japan had no fossil fuel resources. So it is one of the best examples I know anything about which was both a pretty “advanced” civilization but also functioning without fossil fuels. Can we mimic that in the modern world? The Covid experience indicates that printing lots of money has the effect of ballooning the purchase of physical goods. If fossil fuels were taxed heavily, so that people were forced to live more like Edo, what would happen? I don’t know.

      Don Stewart

    • Obviously there are limits to Don’s examples. Liebig’s Law of the Minimum comes to mind. The single weakest link in the mix of required inputs limits growth. Not mentioned in the Edo example is the increased waste produced by the ‘growth’ of the economy. Sanitation, fresh potable water, basic foods/crops/fish/game, fuel…etc. The one in shortest supply is the limiter to the growth abetted by ingenuity. Money is simply a tool facilitating exchange here.

    • @Steven Kurtz
      Edo, in the cities, had remarkably good water and sanitation…far better than London or Paris. They were also able to reforest Japan and triple the population from the depressed levels of the civil war years. Agricultural productivity was supported by moving human manure from the cities to the countryside. So lot’s of human labor. Also infanticide to keep the numbers down to what the physical economy could support. Not that it was perfect, by a long shot. While the Emperor did gradually impoverish the Samurai, his own court was very opulent. While ordinary people could not use wheeled vehicles on the highways (in order to prevent ruts and erosion), the royalty was allowed to use wheeled vehicles. Europe and the US frequently had simply impassable roads in the winters.
      Don Stewart

    • Not arguing about water and sanitation there/then, Don. I wrote the “weakest link”, giving examples, not specifying which limited growth in your depiction.
      “They were also able to reforest Japan and triple the population from the depressed levels of the civil war years.”

      Population rises naturally from depressed levels ceteris paribus. Ditto forest growth when human population has diminished. Liebig’s Law is hard to rebut!

    • Steven Kurtz
      The reforestation resulted when the death penalty for cutting down trees was enacted. People were allowed to gather “dead and down” firewood, but could not cut down healthy trees.

      My point is that social regulation actually CAN result in a better quality of life with less consumption of physical resources. The better the regulation, the better the quality of life can be. Bad regulation, and the worse quality of life will be.

      Liebig’s Law is important, but it also has flaws. If one is looking at a wheat plant in a certain climate and soil, then Liebig’s Law is helpful to understand growth potential. But if we relax the assumptions and allow for breeding of, for example, shorter plants, then Liebig’s Law gives misleading results. For example, it is competition for sunlight that leads trees to grow so tall. Breeding or managing for shorter trees can result in increased productivity using coppice. Most science is conducted using the reductionist paradigm that the context cannot be changed. The dream of Silicon Valley was to relax all of the assumptions and “break things”. Some things can be broken and reassembled in more productive ways…but some cannot.
      Don Stewart

    • Re: “Breeding or managing for shorter trees can result in increased productivity using coppice” Define “productivity.” More rooted trees? More total wood? Multigenerational forest soil health yielding more wood over centuries? Not so simple indeed!

      Re: “Some things can be broken and reassembled in more productive ways…but some cannot.” Similar question arises here. Define “productive ways.” One cycle, multiple, long term…

      The death penalty for cutting live trees was ingenious! Thanks for that information. I wish sport hunting of endangered and threatened species, deliberate dumping of toxic waste, trapping, poisoning, or hunting raptors to protect “game” species, etc. were controlled with similar legislation now.

    • Steven Kurtz
      This is not the place to write an epistle on coppice. Just to say that much of Europe’s firewood was once produced by coppice. Which could not have been accomplished by using mature, century old trees.
      Don Stewart

    • I knew that, Don. What is your point? Liebig’s Law limits growth. Are you disputing that?


      Sent from my iPhone


    • Steven
      To restate: Leibig’s law limits growth when everything else remains constant. Once we relax the “everything else remains constant” assumption, it becomes less relevant. Leibig’s law works one way in an old growth forest and a different way in a coppice. Similarly, it works one way in a crop of industrial corn, and a different way in a crop of heritage corn in a field rich with microbes. The point is that when Kate Raworth starts talking about design choices as enabling factors in terms of human flourishing, Liebig’s Law is not the most important thing on the table. Liebig’s Law is most applicable when one is trying to grow a specific seed in a barren industrial setting.
      Don Stewart

    • I first stated ceteris parings, if you recheck my post. No need to repeat. Physical limits trump all ingenuity efforts. Raworth ignores overpopulation, and resource constraints are not her focus. I communicated with her years ago. If you or anyone cares to wager me for charity on longbets DOT org, on outcomes, I stand ready as I’ve posted several times in the past. All optimists are welcome!
      Now please don’t lecture me on Leibig’s Law. Bill Rees backs everything I’ve stated on this topic.

  28. Let me belabor the issue of Leibig’s Law, because I think it is important to make a distinction between what is possible under the present paradigm and what may be possible under a different paradigm….when we relax the assumption that all else is equal. This is a quote from a book written by the physicist Andrew Thomas:

    Hidden in Plain Sight 9: The Physics of Consciousness

    Page 183: “This emphasis on information represents something of a departure in Physics, because Physics is about physical things and information is not physical.”
    This has nothing to do with Sky Gods or Woo-Woo. It’s just realism, to our best approximation of it.

    It is now clear that Biology is driven in large part by information. The body is a huge signaling system.

    Now let’s contrast that statement with the chemist Justus von Liebig working in his lab with chemicals and test tubes. It is true that if one has a chemical reaction one is trying to achieve, any missing chemicals may be fatal to the experiment. But what does that have to do with biology. Biology usually has a lot of redundancy. There is more than one way to skin a rabbit. Von Liebig thought of agricultural products as chemical experiments….which led him to NPK fertilizers. But the “organic” pioneers in India and England knew that there was more to fertility than the chemicals N, P, and K. And so they continued to use crop rotations and manure. They didn’t really understand what they were doing, but they could recognize results when they saw them. We now have a vastly better understanding of the signaling that goes on between, for example, plants and fungi. We understand why plants use a third of the sugar they make to feed the fungi in a biological farming system.

    What does this have to do with Kate Raworth and other people interviewed on Doomer Optimism. The bulk of the optimism does not spring from magical elixirs in test tubes, but in a rearrangement of information in the individual and collective human mind. Whether that rearrangement will succeed or fail is a very good question…but it has little to do with von Liebig. Von Liebig can show us what is impossible, but cannot shed much light on what is possible by rearranging information.

    Don Stewart

    • Information is considered physical by most scientists I’ve read. One opinion doesn’t prove diddly.

      Let Raworth and other optimists provide evidence of non-physical reality, and a Nobel Prize is likely!

      Labor all you like, but it doesn’t prove a thing.


      Sent from my iPhone


    • Not sure but to my knowledge the Tories closed down all our storage facilities over the last 10 years because it was “too expensive”.

      Yes. Really. The leaders of the UK really are that stupid and incompetent.

      It would not surprise me if what you mention is actually happening. Nothing can surprise me anymore with these degenerates in power. Just when you think we have reached peak stupidity you see something new that trumps anything you have seen before.

    • the title says it all and it’s very appropriate,
      I used to hold the Research Dept. of Royal Dutch Shell in high esteem, they did some convincing projections, in 2008 their scenario’s to 2050 offered two options; ‘Blueprints’, one of collaboration and management of decline, and ‘Scramble’, the one I think we are in now if you look at geo-politics,

      Click to access shell-energy-scenarios2050.pdf

      you might be tickled to see th acronym TANIA in the preamble; there are no ideal answers!

      the closer we’ve got to the Perfect Storm the more reticent people have become about pointing out the elephants in the room, solutions have become more fanciful and unrealistic, it’s like it’s all too terrible to really contemplate.
      note that apart from a brief burst of publicity Gaya Herrington’s reappraisal of LtG seems to have been lost down the memory hole, being a bearer of bad tidings isn’t a recipe for popularity or public acclaim is it!

      but Arthur Schopenhauer is credited with saying: “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”

      hopefully we’re moving into the third stage at this point,

    • Matt,

      I try and share a great deal of information with others on the state we are actually in, most, regardless of their political identities seem incapable of grappling with what is actually happening – indeed, the opinion I get from many is Brexit is a disaster and as soon as the UK is back within the confines of the EU all will be just dandy. To say most are blind is an understatement, on the one hand they claim they are eco-friendly, on the other, they want business as usual, namely growth will cure all, although where this eco-friendly growth will come from is never explained. In a nutshell, its like a religion with many and that frightens.

    • The British economy is set up to fail, and the moment of failure may now be close. I’ve several times thought of doing an article about this, before deciding not to do so.

      The UK economy runs on the basis of incremental credit. Inflated property prices are pivotal to this, as they provide both the confidence and the collateral for continuous debt expansion. Together, dependency on incremental credit, and the role played by inflated property prices, create a reliance on ultra-low rates. This is a problem in a world in which the rate cycle has turned upwards.

      Britain consumes more than it produces. Not just trade deficits but, more importantly, current account deficits, are perpetual. These are funded by asset sales, particularly since the UK ceased to be a net exporter of oil and gas. Asset sales create outflows in returns on investment, so this problem worsens over time, even before the point at which there’s nothing meaningful left to sell. Very little – major companies, utilities, even football teams (!) – remains in British hands.

      The big danger is a currency crisis. There are several reasons why this could happen. (1) Investors might see that the structure of the UK economy precludes rate rises sufficient to stem inflation and prop up GBP. (2) They might anticipate further worsening in the C/A deficit, to the point where the UK cannot ‘pay its way’. (3) They might forsee chaos as the govt. fails to manage an equitable distribution of recessionary hardship – if, for example, pensioners are given a 10% rise, but essential workers are asked to accept 2-3%, chaos could ensue.

      For an economy so heavily indebted, and so dependent on inflated asset prices, a currency crisis could be end-game. The prices of essential imports would soar, non-Sterling debt would become impossible to service, and rate rises would crash asset prices.

    • Dr Tim – your comment this morning in relation to the UK ‘nails it’. I would welcome very much you writing a piece on the UK, although I appreciate that may be of little relevance to readers from other countries. The situation here is truly terrifying. The denial among all three mainstream political parties and most of the national commentariat is truly alarming, and astonishing. I fear very much that the reconnection with reality is going to be exceedingly disorderly – chaotic.

    • Relevance to other countries
      My experience is that learning from other’s experiences is vastly cheaper than learning from one’s own mistakes.
      Don Stewart

    • You, too, have nailed it by citing the political angle. I’m a supporter of free markets, but ‘liberalism’ taken to the British extremes is deranged. The Conservatives promote it, of course, but Labour either agrees with it or sees no electoral potential in opposing it. The voters may actually be persuaded by it.

      If no opposition party sees where things are heading, and might not be elected even if they did, then the situation becomes hopeless.

      This is why I question the merit in writing it up.

    • @Dr Tim

      I’ve given up on a political solution to the impending crisis. There is nothing (or very little) that any political party can practically do. Who in their right mind is going to stick their neck out and explain to the public that what is about to happen?????!!!!!! And who is even going to believe them!!!!!!!!!????????

      Any kind of systemic change will only happen AFTER things have gone “tits up”.

      What that “systemic change” is going to look like is anyone’s guess. I think the existing constructs of “the free market”, “Capitalism”, “Socialism”, “debt based monetary system”, will all be redundant.

      We are heading into uncharted territory.

    • @TimMorgan-I would also be interested to read an article about the UK economy. I agree that there is no short term prospect of a change of political direction at all. Unfortunately, the political system is set up to make it impossible for a new party to start up and gain any significant proportion of the vote. It is also very much stacked against people who aren’t wealthy. It seems to me that we need a lot more people in politics who can understand the challenges that are faced by large proportions of the electorate. Perhaps if things really collapse, it may be an impetus for real change. Whether it is positive change or not will depend on whether people can find some sort of cohesion en mass or whether they just continue to blame someone else. That would require a significant shift in mindset but perhaps it would be possible in a crisis.

    • Thank you – I note this, and am thinking about whether to write this.

      This problem has been building over decades. Any economic ideology taken to extremes is dangerous – I consider myself pro-market, but regard the British economic model as extremism carried to the point of madness. This isn’t about the current government, appalling though I think it is, but has developed over very many years.

      It’s possible that a real shock might create a change of heart, but that might be too late.

      Part of the problem is that many voters – not necessarily a majority, but certainly a very vocal and influential minority – actually seem to like things the way they are.

      The crises of the 1970s live on in folk-memory. Those events were caused by the global oil shocks, of course, but propaganda has created a narrative blaming them on “the unions” and “the left”.

    • I have been following Radix since it started. This piece by Tim has received by far the largest response of any I have seen.

    • Can you elaborate on “current account deficits”?

      Is it just basically the government spending more than it receives?

      I always wondered about Britain selling off everything to foreigners.

      I have read a little about it and apparently a lot of qataris own a lot of property in London which I believe is their trade off for selling gas to the UK.

      Is this the kind of thing you was alluding to?

      I have also been paying attention to foreign ownership of football teams especially as I am a football fan.

      I knew there was some political/economical reason for it but was not sure exactly.

      Also, from what I have read this all keeps the pound higher than what it is actually worth (asset sales to foreigners).

      I would also appreciate it if you could do an piece on the UK.

      You seem to have a good grasp of things here beyond what I have figured out.

    • The current account is similar to the surplus or deficit on trade in goods and services, but broader – it includes, for example, international payments of interest, and dividends.

  29. Max Tegmark, page 187: “I have long contended that consciousness is the way information FEELS.”

    I would never spend another minute trying to convince Steven Kurtz of the utility of dividing real things into the physical and non-physical (e.g., information). I will just point out that this short, and cheap, little kindle book pulls together a lot of strands of thought from eminent physicists. While information ALWAYS requires a physical substrate, the information itself is real but not physical. The mind requires the substrate of a “rice pudding” brain, but the rice pudding is not the mind.

    Since the distinction made by Andrew Thomas (while drawing on the work of many other physicists) is important in terms of defining what is possible in a world where physical substrates are changing, I encourage each of you to ignore the shouting and make up your own minds.

    Don Stewart

  30. Elephants In the Room
    Our Non-Material Future?
    There is a group of young people in Japan who have become recluses, seldom interacting with society. (This is my understanding…I don’t have any physical interaction with that world.). They are lost in the world of computer games. They don’t pursue the opposite sex, and they don’t spend money on cars and clothes. They probably don’t even eat very much food. My first confusing interaction with that tendency in today’s young people came about 5 years ago, when I was encouraged to spend some time with an extended family member who spent all his spare time immersed in computer games. I tried, but I found it completely boring and pointless. I, of course, grew up interacting with biological creatures, each of which had its own agenda and thus needed to be dealt with in complex ways.

    I saw a headline a few days ago that “Apple to introduce headset”…which is a sign, I suppose, of the continued migration away from physical things to non-physical stimuli for the brain. The “non-physical” means that certain complex concepts are being conveyed using a physical substrate consisting of electronics…which involves nebulous “real” things such as electromagnetic “fields” and electricity which really does not “flow”.

    Ben Bernanke said, back during the GFC, that “housing IS the American economy”. Now let me pose the question: how much housing does a gamer require? If I were writing futuristic sci-fi, I would feature a world of extreme weather where “whole house heating and cooling” is simply no longer available and people retreat to “tiny houses” to stay in their virtual gaming world when it is too hot or too cold for humans. Instead of the “conspicuous consumption” which characterized especially the 20th century, people’s reputations will be gained by achievements manipulating virtual objects.

    There is no measurement, so far as I know, of stimuli reaching the brain. My feeling is that it has become impoverished since my childhood by departing from the real world of biology to the simplified world of images…but the images are coming a lot faster and don’t linger very long. The frantic cutting of MTV images was a sign of the future.

    Whether you see such a scenario as dystopian, or hopeful, because it evades the worst effects of the multiple physical challenges, is dependent on how your mind operates. What does that have to do with how my generation (which is currently shrinking at about 6 percent per year, I believe) should invest its trillions? My guess is that basic resources plus a stake in the world created by Apple’s headset are the best we can do. But nobody should be fooled into believing that “the economy” is going to expand exponentially. The future may be foreshadowed by the young people in Japan and, increasingly, everywhere.

    Don Stewart

  31. And the hits keep coming:
    German Energy Giant Crashes On Russian NatGas Supply Crunch, Triggering Bailout Talks

    • That doesn’t surprise me at all.

      I have already mentioned that here in the UK the energy companies will eventually get nationalised.

      It’s all they know. Print, print and print some more.

      Not sure when the penny will drop but perhaps when there are blackouts and major shortages of energy for the production of electricity this madness will stop.

  32. Steve Hanke on Inflation

    I will interject my two cents. I think that the fiscal interpretation has some truth in terms of the functioning of the economy, and that the monetarist theory has a lot of truth because it is an identity. If the money supply is controlled (as Milton Friedman and Anna Schwartz believed), then the identity must be true. The evidence from Switzerland and China and Japan indicates that the absence of the bubble in money supply CAN yield low inflation in an environment where energy costs are increasing. If the capacity of the economy to produce real output is declining, because of increased ECoE, and if the central banks reduce the money supply in line with the reduced productive capacity, then there will not be monetary inflation. Living standards will simply decline.

    There are always some wild cards. The insane sanctions on Russia, which Hanke describes, are reducing the capacity of the world to produce real goods and services. When real effects are observed by the public, then the search for the guilty and the punishment of the innocent is likely. Another wild card is the velocity of money. Velocity is partly a function how people perceive the prospects for the economy. So that term, which is necessary for the identity to work, is not as fixed as monetarists frequently assume.

    So far as the ideological swipes, it is worth noting that Friedman and Schwartz were essentially saying that MMT should have been applied during the depression of the early 1930s. The private economy was generating hugely negative monetary growth, so the Federal Government should have created the money one way or the other. Instead, the Federal Reserve tried to behave like a private bank and cut their losses. The difference now is that there is no real slack in the economy…because, I think, we are bumping against the Limits to Growth.

    Don Stewart

  33. Indi.ca is giving us a really good picture of what energy collapse looks like. This article is very good and I recommend everyone read it. Note in particular how the massive malinvestment due to the assumption that fossil fuel energy will always be available quickly becomes obvious once the prolonged fuel shortage appears.


  34. Dr Tim mentioned that the UK has few assets left to sell to fund the trade gap. A decade ago around the time that I read Tim’s book on ‘Life After Growth’, I read Dr Stephen King’s book ‘When The Money Runs Out: The End of Western Affluence’. One paragraph in that book really struck home. I labelled it a Prophecy:
    ‘Today, Western nations are facing the same dilemmas that confronted the 9th Duke (of Marlborough) at the end of the nineteenth century. Heading for bankruptcy, what can they do to entice foreign money to their shores? If government bonds are no longer to be treated with confidence, other options will come to the fore. Modern-day Vanderbilts – hailing from China, Russia and Saudi Arabia rather than the US – will buy the best properties in the most cosmopolitan parts of the Western world, forcing up London and Manhattan house prices in particular and, via a trickle-down effect, making it near enough impossible for marginal first-time buyers to gain a foot on the property ladder: major international cities will become the ghettos of the wealthy. Companies, and their bespoke technologies, will slowly fall under foreign ownership, turning the US and the UK into nations of worker bees where the profits of their endeavours head overseas. And, with uncertainty about the implications of continuous money printing, commodity prices will rise even as Western currencies fall in value, reducing real incomes.
    Such are the costs of trying to keep a country’s creditors happy. If they no longer trust governments and the myopic taxpayers who vote for those governments, the creditors will ‘asset strip’ Western nations, leaving generations to come without assets – including real estate and companies – that nurtured and sustained previous generations. It is hardly an appealing prospect. It’s what happens when you continuously try to live beyond your means.’
    I’m afraid that Dr King’s prophecy has come true.
    As a result of Dr King’s prophecy I began writing a story – ‘The Story of Tommy Atkins’. The story describes Tommy’s day of a journey across the Borough of Pendle and the inter-action with entities and their ownership. It’s a tale where very little is now UK owned.
    I update the story regularly and send a copy to the local Conservative MP, who described the first edition as ‘amusing’. Lord Greaves asked my permission to use ‘The Story’ for a speech in the Upper House (House of Lords), but sadly he passed away before he could do so.

    • Why not post your tale of Tommy Atkins here, Kevin? I for one would like to read it!

  35. US Strategic Oil Reserve

    If the US and its allies intend to attack Russia, now is the time. We can expect a lot of damage to Russian production capacity in any attack, so crushing demand somewhere in the world becomes essential. The current attempt to have both guns and butter is out of runway. Sri Lanka on a much larger scale???? Strategically, it seems to me that keeping Asia supplied with oil so that global manufacturing doesn’t collapse is more important than keeping the SUV’s running in the US and Europe…but politically, what Bubba cares about and votes for is cheap gas for his vehicles. A big mess.
    Don Stewart

    • Kunstler:
      “Instead, it’s America and our NATO allies who are circling the drain. ”
      (Kunstler thought like I did about Ukraine…it was an attempt to get Russia bogged down. His opinion is that the reverse happened. I don’t have any firm opinion on that. But it is just a little more evidence that it is put up or shut up time in NATO land.)

  36. The Impending World Energy Mess
    Trying to organize my pile of books yesterday, I ran across the book by Robert Hirsch. James Schlesinger wrote the foreword. I think we have arrived.
    Don Stewart

  37. Printing money can replace energy 🙂
    In Canada the provinces of Alberta and Ontario are subsidizing fuel prices by dropping some of the taxes on gasoline. A small example of what may follow on a larger scale in other countries.
    Alberta is also giving retroactive subsidy payments for electricity and gas due to higher heating/lighting costs. (Approx $50 per month for 3 moths).
    Dropping taxes or printing money to subsidize higher priced energy is a slippery slope.
    At some point the free money (energy tokens) must be withdrawn and the system has to stand on it’s own… or not.

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