#236. The monetary conundrum


Following the Fed and the Bank of England, the ECB has become the latest central bank to adopt QT (quantitative tightening) and to raise interest rates, though the ECB’s 0.5% hike still leaves its deposit rate at zero. The ECB has also unveiled a mechanism – the Transmission Protection Instrument, or TPI – designed to ward off sovereign debt crises in some of the bloc’s weaker economies.

The details of these developments are set out very well in this Wolf Street article. The aim here is to discuss what policy actions – if any – make sense for the central banks.

Raising rates – and, by extension, putting prior QE into reverse – are straight out of the standard play-book for combatting inflation. It’s noticeable that central bankers are moving pretty slowly along this orthodox path, with each much-delayed rate rise far more than negated by the next surge in inflation.

But should they be tightening monetary policy at all?

The wrong response?

Some observers contend that raising rates isn’t the appropriate response under current conditions.

The argument runs that inflation isn’t being driven by internal demand excess, but by external factors over which the monetary authorities have no control. Rate rises in America won’t increase the supply of food to world markets, this argument runs, and QT in the Euro Area won’t ease shortages of oil and natural gas.

The argument against tightening monetary policy can be made either optimistically or pessimistically.

The optimistic line is that action isn’t needed, because the inflationary spike isn’t fundamental, but the product of happenstance. Given sufficient patience – and sufficiently accommodative monetary and fiscal policies – supply-lines ruptured by the pandemic will return to normality, as will the flow of energy, once the war in Ukraine reaches some kind of conclusion.

To the pessimist, the whole situation is hopeless anyway, so there’s no point in pulling forward the unavoidable crisis, or piling on the economic pain, when orthodox tightening policies cannot work.

Getting it half-right?

The view taken here is that central banks are right to pursue monetary tightening, though they might also be right in doing this fairly slowly.

Three lines of argument support this view.

First, inflation may have started with external factors, but could all too easily turn into an internal wage-and-price spiral. This kind of spiral is exactly what happened in the 1970s, even though the initial inflationary impetus came from events – the oil crises – outside the control of domestic monetary authorities.

To be sure, organised labour doesn’t have the clout that it had back then, and labour shortages aren’t likely to prove lasting. But the upwards pressure on wages remains, propelled by the need to ensure that employees can at least ‘make ends meet’.  

Second, this is a matter of degree.

Ever since ZIRP, NIRP and QE were adopted – as avowedly “temporary” and “emergency” expedients – in response to the GFC, nominal rates have been, almost always, below the rate of inflation.

But real rates, though negative, haven’t been deeply so. There’s a world of difference between rates that are negative to the tune of -2% or -3% and allowing them to fall to -8% or -10%, which could all too easily happen if central bankers don’t respond.

Negative real rates are anomalous, and harmful, and the damage is proportionate to the extent of negativity. Setting the cost of money below the rate of inflation invites debt escalation, which in turn leads to instability, such that deeply negative rates can be expected to lead to a full-blown crisis.

The market economy requires that investors earn positive returns on their capital, so an absence of these returns translates an ostensibly capitalist system into a dysfunctional hybrid. Letting real rates fall to extreme lows can only make this worse.

No good choices

Underpinning the view set out here, of course, is the understanding that prior growth in prosperity has gone into reverse because the energy equation that determines prosperity has turned against us.

This equation involves the supply of energy, its value and its cost, the latter measured, not financially, but as the proportionate Energy Cost of Energy.

Mainly because of the depletion of low-cost resources, the ECoEs of oil, gas and coal have risen relentlessly, pushing the overall ECoE of the system to levels far beyond those at which stability, let alone further economic expansion, remain possible.

You might believe that the ‘fix’ for the ECoE problem lies in transition to renewable energy sources. Even if you do believe that this is possible, though, it’s clear that it can’t happen now. The contrary point of view is that renewables can’t provide a like-for-like replacement for the energy value hitherto provided by fossil fuels.

Either way, inflation is one symptom of a divergence between the ‘real’ or material economy of goods, services and energy and the ‘financial’ or proxy economy of monetary claims on the real economy.

The further these two economies diverge, the greater the pressures become for the restoration of equilibrium between them.

The following charts summarize this dynamic. As ECoEs have risen, surplus (ex-cost) energy has contracted, and this effect is now carrying over into a decreasing total supply of energy as well.

The mistaken idea that we can boost material prosperity by stimulating financial demand has driven an ever more dangerous wedge between the financial or claims economy of money and credit and the underlying real economy of energy value.  

Fig. 1

The Fed – a shift in priorities

The third factor which helps justify conventional monetary responses to inflation is that each monetary area has its own idiosyncrasies and, where the Fed, the Bank of England and the ECB are concerned, these idiosyncrasies support the case for orthodoxy.

The Fed has, in some ways, the easier task of the three. Hitherto, rates have been kept ultra-low in the US in order to prop up and boost capital markets. Former president Donald Trump was wont to say that a high stock market was, ipso facto, indicative of a strong America. Mr Biden hasn’t repeated this nonsense – he can’t, whilst markets are correcting – but what’s really changed isn’t politics, but the context of intentions.

At times of low inflation, what monied elites fear most is a slump in asset prices. Once inflation takes off, however, this ‘elite priority’ shifts. A billionaire has a billion reasons for not wanting the purchasing power of the currency to be trashed.

This is why rate rises and QT aren’t taking America back to the “taper tantrums” of the past. The Fed might also hope that a commitment – albeit a much-delayed one – to the inflationary part of its mandate might help restore some public trust in the institution.

Britain – staving off the day

BoE priorities are different. For a start, the British fixation is with property prices rather than the stock market. Whilst the stock market “wealth effect” is an adjunct to the American economy, inflated property prices play a central role in supporting the illusion of prosperity in the United Kingdom.

The harsh reality is that the British economy is a basket-case. America might want stock market appreciation, but can get by without it. Britain needs property price inflation to keep the ship afloat.

The British economy depends on continuous credit expansion to produce the transactional activity, measured as GDP, which supports a simulacrum of ‘business as usual’. Inflated property prices play a critical role, providing both the collateral support and the consumer confidence required if credit expansion is to continue.

Fundamentally, Britain lives beyond its means, resulting in an intractable trade deficit. For a long time, this was bridged, at least in part, by income from exports of North Sea oil and gas. Once Britain became a net energy importer again, the emphasis switched with renewed force to asset sales.

Ultimately, though, this makes a bad situation worse, because each asset sale sets up a new outward flow of returns on overseas’ investors capital. These outflows are part of the broader current account deficit, which is dangerously high, and has become structural.

Former Bank chief Mark Carney warned about dependency on “the kindness of strangers”, but no realistic alternatives exist. Asset divestment – muddling through by “selling off the family silver” – is, by definition, a time-limited process.

The nightmare that must haunt the slumbers of British officials is a “Sterling crisis”. If the value of GBP were to slump, inflation would soar, vital imports could become unaffordable, and the local cost, not just of foreign currency debt but of servicing that debt as well, could soon become unsustainable.

Put simply, the BoE needs to show FX markets some resolve, even if that comes at the cost of some domestic economic pain. The Bank undoubtedly knows about – as some politicians seemingly do not – the price that could become payable for fiscal and monetary recklessness, if that recklessness were to trigger a currency crisis.

It’s a point seldom mentioned that, if a future leadership were to enact irresponsible tax cuts, the Bank might, as a compensatory measure, have no choice but to raise rates more briskly than would otherwise have been the case.

Some in Britain have dreamed, unrealistically, of turning the country into ‘Singapore on Thames’. The real and present danger is of turning into ‘Sri Lanka on Thames’, where a weak currency makes vital imports prohibitively expensive.

The prevention of a currency crisis has to be the overriding priority of responsible decision-makers. The balance of risk – no less than the balance of pain – has to be tied to the demonstration of sufficient resolve to stave off any such crisis.

The ECB’s camel

A camel was once described as “a horse designed by a committee”. A similar phrase could aptly describe the Euro system, created as a political ideal, and built on the most dubious of economic presumptions.

To work effectively, monetary policy needs to be aligned with fiscal policy. The Euro system doesn’t do this, but tries instead to combine a single monetary policy with 19 sovereign budget processes.

One of the consequences of fiscal balkanization is an absence of the ‘automatic stabilizers’ which operate in currency zones where the monetary and the fiscal are aligned.

If, for instance, Northern England was suffering a recession, whilst Southern England was prospering, less tax would be collected in the North, and more benefits would be paid there by central government, with the opposite happening in the South. Money would therefore flow, automatically, from South to North.

Critically, such regional transfers within the same currency zone are automatic, do not need to be enacted by government, and certainly do not depend on agreements between the differently-circumstanced regions.

By contrast, transferring money from, say, Germany to Greece isn’t automatic in this way, but depends on political negotiation, which is likely to be fractious, even at the best of times – which these times, of course, are not.

To be sure, Scotland and Wales have independent budgetary powers, as do American States. But there are, in both cases, over-arching sovereign budgets, set in London and Washington, which set the overall parameters. No such overarching budget exists in the Euro Area.

There are parallel problems in the Target2 clearing system. If a customer in Madrid buys a car made in Wolfsburg, Euros have to flow between countries, being debited in Spain and credited in Germany. But there are severe imbalances within the Euro clearing system.

As of May, Germany was a creditor of Target2 to the tune of €1.16 trillion, whilst Italy owed the system €597bn, and Spain €526bn. The official line is that this doesn’t really matter very much, but it’s hard to see how Germany can ever collect the sums owed to the country, via the system, by Italy and Spain.

One might argue that Target2 gives poorer EA nations rolling credit to fund imports from Germany.

The danger with a ‘one size fits all’ monetary policy, when applied in the context of a multiplicity of sovereign budgets, is that national bond yields can diverge, because each country, being responsible for its own budget, borrows individually on the markets.

Italy is a case in point. Prior to the formation of the Euro, Italy had a history of gradual devaluation of the Lira. Whilst this made Italians poorer in relative terms, it protected both employment and the competitiveness of Italian industry.

Once Italy joined the Euro at the end of 1998, this ceased to be possible.

This, in large part, is why Italian debt has increased, as the authorities have endeavoured to find other ways to deliver the support that would previously have been provided by gradual devaluation. This could, and does, make markets worry about Italian debt, putting upwards pressure on Italian bond yields.

If these yields were to blow out, Italy would encounter grave difficulties, not just in financing its fiscal deficits, but in maintaining the continuity of credit to the economy itself.

The ECB, in a rather belated effort to counter inflation, is committed to raising rates, and to letting its asset holdings unwind. This, though, could cause problems which culminate in drastically dangerous rises in bond yields in member countries such as Greece, Italy and Spain.

TPI – which the ECB must devoutly hope will never have to be put into effect – is designed to counter this process by varying the composition of QT. If rates spike in, say, Italy, the ECB could buy Italian bonds, simultaneously increasing its sales of German or Dutch bonds within the overall composition of QT.

This, though, presupposes that the Euro Area has “strong” as well as “weak” economies, a point that is now debateable.

The ultimate ‘strong economy’ in the EA has always been Germany, but the energy squeeze is putting that strength to the test. Moreover, much of Germany’s economic prowess is the trade advantage that the single currency confers on it. France has a moribund economy and elevated levels of debt, whilst Dutch financial exposure is uncomfortably high, with financial assets standing at 14.5X GDP as of the end of 2020, the most recent reporting date.  

In the final analysis

Ultimately, the challenge facing the ECB – and other central banks too – is to prevent two things from happening.

The first and most obvious is to guard against inflation taking on its own momentum, which could easily happen in a climate of apparent official indifference or resignation.

But the second is to ensure that the damage – and the crisis-risk – caused by a negative real cost of capital does not escalate, as it could if central banks allow real rates to slump into lethally deep negative territory  .

213 thoughts on “#236. The monetary conundrum

  1. Thank you again, Dr. Tim. Setting aside the current UK political situation as best I can, I have to say all this nonsense about “Thatcherism” returning does irk me. Politicians need to know their history better, methinks. One candidate for PM banging on about how we became Great Britain through free trade, liberty, etc. as Richard Murphy reminds us – more like slaves, tobacco, booze, imperialism, grinding poverty of the masses, tariff barriers, repression of women. Wait! That sound a bit like today.

    • Mrs Thatcher believed in sound money. I try to steer clear of party politics, even more so the politics of personality. But the current situation is that the NHS needs more funds, local authorities likewise, there’s a case for spending more on defence, how to fund social care for the elderly isn’t clear, the public sector wage bill is rising, state pensions are heading for a big increase, debt soared during the pandemic…………..and they talk about tax cuts!

      If they did this, the BoE would have to raise rates to show markets that they, at least, have some sense of reality.

    • I’m not sure the NHS ‘needs more funds’. How many diversity managers and inclusion awareness officers does one organisation need. The problem is reform is badly needed the bloated budget should be cut. Google Gerry Robinson ‘can the NHS be saved’..things have got a good deal worse since..

  2. There is a case for reducing the tax burden on lower earners, with higher taxes on the well-off and especially on housing wealth/capital gains. This is important from an equity perspective. However, those extra taxes alone will not fund a significant tax reduction for lower earners, especially in the short term. There are too many of them. So what is to be done? The public want better public services but will not underwrite unlimited expenditure on a less-and-less responsive NHS, local authorities, elderly social care and public sector wages, especially as much of the public sector was shielded from the pandemic and enjoys excellent pension provision. Both parties will of course resort to printing money……which makes the need to raise interest rates to sustain credibility even more important.

    • Quite so.

      Where taxes are concerned, one solution might be to reduce ‘regressive’ taxes (like VAT, and duties on fuel), and shift towards collecting more from ‘progressive’ taxes like income tax, capital gains tax and inheritance tax.

      But this would face fierce resistance from the better off, most obviously from the Tory rank-and-file. Much of the press would fight it tooth-and-nail as well.

      A big part of the problem is that the public seems to buy the ‘liberal’ economic ideology. ‘New’ Labour adopted it, Mr Starmer certainly supports it, and Mr Corbyn didn’t get far with promoting an alternative.

    • Re excellent pension provision-

      It’s a Ponzi, those who joined the scheme first will get paid but those who are younger won’t. The NHS pension for example requires the workers pension payout in their wages to pay those retired now. The money is not invested. The population is aging and birth rates declining, reducing the amount of those who will be paying any tax in the future. For younger people today there won’t be a pension as it is today, maybe not even a retirement as it is today. Retirement as it is today has only be possible with surplus energy. I have opted out of the NHS pension and so are more colleagues as the cost of living increases but I doubt it was ever likely we would get the pension we expect anyway.

    • Yes, that’s the way these things are set up. I discussed this in Life After Growth (2013).

      Back in 2016, using end-2015 numbers, the WEF calculated the pension “timebomb” – their term for it – addressing the “gap” created by unfunded pension commitments. Looking at only 8 countries – Canada, China, India, Britain, Japan, America, Netherlands and Australia – they put this “gap” at $67tn, and said it would rise to over $400tn by 2050.

      I maintain some parallel calculations for these countries. The figures are, of course, enormous.

  3. Tim,

    If I were to make two obvious points

    1. If we had a major Energy Conservation programme it might do something to mitigate the effect of rising energy prices. I would include in this reducing the speed limit as was done in the 1970’s and restrictions or prohibitions on the sale of energy inefficient products such as 4×4’s Patio Heaters, private swimming polls etc
    2. What about making more efficient use of labour, as I proposed here


    which might allow us to pay higher wages without getting into a wage/price spiral
    3. Rather than raising interest rates what about using tax instead that might be able to target inflationary pressures such as second homes and buy to lets rather than rich and poor alike
    Anyway, that’s my opener

    • I can’t see tenants appreciating more costs being passed on to them by landlords nor further increased competition for a place to live as landlords throw in the towel.

    • It always amazes me how people think that if landlords stop being landlords, the houses they owened would disappear in a puff of smoke. There would be a transition period where people might find it hard to get housing but sdoon there would be more cheaper properties for evetyone to afford.

  4. It is difficult to find healthy economies now. China is growing moderately, but the rate is continually slowing. Russia is making hay from energy, but the rest of their economy is supposedly on the rocks. For a currency crisis to start, there have to be alternatives to run to. The US has myriad problems which are not well publicized such as severe road and bridge neglect and deterioration, aquifer, reservoir, and river depletion, electric grid fragility, sewer and water system deterioration…Their debt rises incessantly like the hockey stick graphs of global warming and population growth. Their unfunded pension and insurance liabilities are huge and growing. Hard to pick a winner in the race to the bottom. Gold isn’t attracting buyers either,,, I’m stumped.

  5. The machines cannot ‘find’ this blog anymore. I use duck duck. Have to type the whole riddle after cleaning up history. An entitled overaged comments section doesn’t wake up Mata Hari either. Something is wrong Doc.

    • I use Duck too. No problem:

      Searched “surplus energy economics”

      Tim Morgan’s Surplus Energy Economics
      Welcome to Surplus Energy Economics, the web site of analyst Tim Morgan. Although I’ve spent many years as an analyst of energy, economics and strategy, I’m probably best known for my work as head of research at Tullett Prebon, a role I left in early August. Though my research covered a wide range of subjects, my main interest is in a …

    • The blog Steven. Not the website.

      Am i missing something? Yeah yeah, i mean something special.

    • Aha, not in my backyard. Att doc.

      ‘wordpress’ or ‘blogspot’ should not be a part of the ‘question’.

      It has to be part of the result.

      Thanks Steven. What about my other question? Search engines are a waste of time.

    • To be fair I found this to be true within the past month…For instance I still use references concerning the history of the City of Dayton as examples for poor development ideas or systemic racism. In the past I could type in Daytonology in the search and find it…..now I have to type in Daytonology blogspot to find it….just my experience….so its a real phenomena.

    • It tells me there’s a lot of people that just don’t get it. The vast majority believe green energy can replace fossil fuels, and we can still live like the Jetsons. I still read many articles complaining that dropping birth rates and populations is a “problem”.

      De-growth is a key point when it comes to the machinations of the ECB or the Fed in addressing issues related to the ongoing decline. With ECoE increasing and overall supplies decreasing, the economies of the globe need to switch over to contraction. For the most part, with the exception of the fringes of the internet, this is never addressed. Not one country is seriously looking at de-growth as the certainty of the future.

      Contraction on deck, and contraction is the future.

    • You’ve highlighted the critical issues, which hinge around whether we can transition to renewables as a full energy value replacement for fossil fuels.

      If this like-for-like value transition is feasible, we have to navigate our way through the ultra-difficult period before that happens. If this can’t happen, we have to adjust to economic contraction.

      Before writing this article, I had (and still have) two projects as top priorities. The first is to discuss the feasibility of transition, and the second is to set out forecasts on the meaningful basis of energy interpretation, as opposed to the woolly ‘growth in perpetuity’ assumption that informs orthodox forecasting.

      My conclusion on renewables is that we must make every effort to achieve transition, but also that there is very little chance of complete replacement of the economic value of fossil fuels.

    • Tim, could you explain how you concluded that we have to make every attempt to transition to renewables?

      Every analysis I have done comes out that it is a fancy way to go broke. Even if it were feasible,(which I don’t think it is) another problem is that the globe will not pursue the same polices uniformly, so any region or country that invests hard and fast in renewables makes themselves both uncompetitive and exposed to dependence upon technological suites that are not manufactured locally or by necessarily friendly countries. Manufacturing will always be cheaper in countries that use fossil fuels the heaviest, as any manufacturing done with renewable energy will inherently be more costly. Europe is experiencing this problem right now.

      There is no ‘we’ anymore, (there never really was) and to think otherwise is just irresponsible idealism.

    • I’ll try

      The orthodox line is that renewables are a practical replacement for fossil fuels. We can power an industrial economy with windmills, we’ll still have 1.1 billion cars, but they’ll be electric – and so on.

      Every way I look at this, it’s nonsense, and I could – and, in a future article, might – set out the many reasons why it can’t work. Like-for-like energy transition, giving us perpetual economic growth, is an extrapolation fable, borrowed from information tech (and even that’s heading into decline).

      The hard fact of the matter is that, to develop renewables, we need materials – steel, concrete, copper, cobalt, lithium – that can only be provided through the use of fossil fuels. Renewables are an extension of FFs.

      So there’s a choice about how we use legacy FF energy. We could just sit around waiting for low-cost FF energy to run out. We could throw away our remaining affordable FF energy on hedonism, squander our remaining oil driving or flying from A to B and back to A, and making gadgets that will be useless when cheap energy runs out.

      Alternatively, we could expend some of this legacy energy on an effort at transition.

      Renewables could give us some kind of a future. It’s a materially poorer future, but that could have upsides as well.

      As the line from the Eagles song goes, “we’re partying fools in the autumn of our heyday”. Is there no better choice than that?

    • Exactly Hoovesponies. Debt based fiat only works in growth. So, a new monetary regime can be expected, whether based on commodities, energy, gold or mixed. Connected real world money. Europe? What does it export? Oil, coal, gas? No. We consume. In de-growth that is not a winning game. The wests currencies robbed the planet, now the planet will rob us…. imho. So the future, if there is one, doesn’t look so bright, even after a ‘reset’ or whatever is coming. A deglobalized regional economy, if we’re (very) lucky.

    • Russia just cut off the path to a transition. Europe needs boatloads of fossil energy to keep things afloat. More for a transition. Green is a net energy sink, with the current industry, growth model that we have, financial intrests and population. Greed, entitled pensioners, selfish voters, failing fiat currencies etc etc cut off the window of opportunity many years ago.

    • Green energy is the future, I think, certainly.
      Like it’s the past before FF.
      But… before FF, it was windmills or water mills and solar dryers, made of wood and traps, and whose energy was used directly, not via electricity…

      What do you think of the idea that this will be the case again after FF?
      And that the electric generators “green” will be dead skeletons, useless?

      Sorry about my English.

  6. The Petrodollar
    The fate of western money over the next few years may be influenced by the fate of the Petrodollar. Indi in Sri Lanka offers us his uncensored view of the war in Ukraine and what it says about US military might…which underpins the Petrodollar:

    I am obviously not an expert on the subject of the US military nor of the Russian military. It is difficult to get any real data about the war. While Russia does not block western media channels (or so I am led to believe), there is almost universal blocking of Russian media by the US. (I guess the PTB in Washington don’t consider its worthwhile to block some random guy from Sri Lanka.)

    What is pretty clear to me is that things in Ukraine have not gone according to the plan in Washington. The next step is either dangerous escalation or some sort of “blame Ukraine” strategy.

    I guess the major conclusion might be that the Petrodollar may not be forever.
    Don Stewart

    • The most informative sites I have found for what is happening in UKR are The Duran and on YT, Military Summary which gives daily updates on battlefield activity. Both are exceptional.

  7. Tim, please give some examples of what ECoE would include and exclude, especially any secondary costs that may not be obvious to your readers. Thank you.

  8. Thank you for your continuing insights into our financial predicament Dr Tim.
    I came across this recently published paper by Thomas W Murphy of the Physics dept of UC San Diego. His views on the role of money and the economy as an energy system seem to align closely with yours. The maths goes over my head but his conclusions point to the urgent need to transition to a de-growth model.


  9. Economic Development Goals Financed by Debt
    It does seem likely to me that the recycling of Middle Eastern dollars and Chinese dollars and even newly minted dollars from the US to worthy projects around the world will grind to a halt. These dollars have been going into grandiose projects such as big and showy buildings in Vancouver and San Francisco and New York (and I suppose London). The Chinese especially have been big investors in capital projects through their Belt and Road initiatives. But the macro picture now looks more and more like “growth is dead in the water”. The immediate focus would seem to be avoiding risk in terms of investments which require growth in order to pay for themselves.

    The thought that occurs to me is that investments are likely to look more like “barefoot doctors” from the early history of communism in China. The Barefoot Doctors used manuals in English translation are now selling for about 50 dollars…a lot more than they cost new 50 years ago. Another practitioner of bare bones improvements were the medical people educated in Cuba who worked around Latin America and in Africa. You may remember that when Bolsonaro came to power in Brazil he expelled a raft of Cubans working in clinics in poor neighborhoods.

    If nitrogen fertilizer is now on the endangered species list, then a bunch of “barefoot agronomists” are going to be needed in order to avoid debacles like Sri Lanka.

    And if we hope to avoid the mental health problems which struck the Soviet Union countries after the collapse 30 years ago, then “barefoot counselors” are needed. Or maybe more mothers to make chicken soup for the soul?

    How do we finance all of that? Tongue in cheek, I suggest waiting until next winter and impounding all of the private jets parked in neat rows at Davos. And perhaps selling the boats tied up in Florida marinas at any given moment. The prospect that the planes and boats may be stranded investment with no buyers (like some recent real estate developments in San Francisco and Manhattan) is just a nasty rumor.

    Don Stewart

  10. For all their degrees and experience, the economists running the central banks remind me of Mickey Mouse in Disney’s “The Sorcerer’s Apprentice”.

    • Unfortunately they seem to run the world, along with the Bank for International Settlements to which they all belong and which wants central bank digital currencies:


      So far as I can see, CBDCs would mean goodbye freedom and democracy, welcome a society like China. Governments could decide to program them to reward and penalise all sorts of ‘good’ and ‘bad’ behaviours which in a free society are nothing to do with govt.

  11. I recommend checking out Gail Tverberg’s latest, “Why raising interest rates to reduce inflation may work out very badly” at OurFinteWorldDOTcom, for a good overview of the declining energy available to us. She posts some excellent graphs on declining energy per capita. Some of the more salient statements in her article, to me, were:

    “The trend in fossil fuel supplies is concerning. Both oil and coal are past peak, on a per capita basis. World coal supply has been lagging population growth since at least 2011. While natural gas production is rising, the price tends to be high and the cost of transport is very high.

    . . . . Figure 8 shows that oil consumption per capita was relatively stable up until 2019. Then, it suddenly dropped in 2020, and it has not been able to fully recover from that drop in 2021. In fact, we know that as oil production has tried to increase in 2022, its price has risen further. Of the years shown, 2004 was the year with the highest oil consumption per capita. That was back at the time that “conventional” oil production peaked.

    Figure 8 shows that the peak production of coal, relative to world population, was in the year 2011. Now, in 2022, the least expensive coal to extract has been depleted. World coal consumption has fallen far behind population growth. The big drop-off in coal availability means that countries are increasingly looking to natural gas as a flexible source of electricity generation. But natural gas has many other uses, including its use in making fertilizer and as a feedstock for many herbicides, pesticides, and insecticides. The result is that there is more demand for natural gas than can easily be supplied.”

    Gail is not someone given to overstatement. Although not discussed in her article she posts a graph of world energy consumption, 1820 – 2050, making a projection from 2020, with the peak before a Seneca Cliff rapid drop off beginning now. The graph projects that the world will be at about one-half of its current consumption level by about 2035 – a round trip back to the amount consumed in 1980 but with 1.8 x more people [4.433 billion then vs 8 billion today], and a lot more infrastructure to maintain.

    Graph: https://i0.wp.com/ourfiniteworld.com/wp-content/uploads/2020/11/world-energy-consumption-to-2050-with-caption-1.png?ssl=1

    If Gail’s projection is even 50% close to what happens, in 10 years the world as we know it will be gone. Sri Lanka is the future, and it’s coming to a lot of places much sooner than we think.

    • There seem to be two separate issues here.

      One of these is interest rates, which affect the ‘financial economy’. Here I stress the difference between real rates negative at 2 or 3% versus perhaps 8 or 10%. The latter could drive catastrophic debt escalation, as well as soaring inflation.

      The second is that available energy is decreasing. If you look at the second chart in fig. 1 in this article, you’ll see the downwards trajectory as I envisage it.

      There are many different views about this. At one extreme, the official/consensus line is that energy availability will continue to increase because of rapid expansion of renewables. That seems to me wildly implausible.

      But neither do I think that energy supply will necessarily collapse. The OFW chart, which is historic, shows continuing increases in the most recent period.

      My own data shows that energy supply per capita has turned down, as follows, in tonnes oe/capita:

      2018 – 1.860
      2019 – 1.861 (very little growth, even before covid)
      2020 – 1.768 (covid significant here)
      2021 – 1.828 (only partial recovery)

      My projections show a decline (not a “continuing recovery”) in 2022 (1.808 toe/capita), falling to 1.630 toe/capita by 2030.

      These numbers are totals, i.e. before the deduction of ECoE.

  12. Tim, Regarding your comment that for the UK there are no other alternatives and that we do need to spend more on the NHS I would beg to differ.

    Given that we more readily define in the private sector what is essential (energy/food/water/shelter) versus discretionary (everything else) because it’s more readily discernible, we should be doing the same for the public sector.

    In the NHS the clinical versus non-clinical can loosely describe the essential versus the non. This relationship is way out of kilter as evidenced by the current NHS job offerings and by the percentage split between the two parts.

    For the rest of the public sector surely the same approach should apply. Whilst fire/police/defense can readily be described as essential, anyone sat at a desk in the Civil Service cannot.

    When it comes to adjusting the tax system one way or the other, surely we need a far more holistic approach. All movement is waste and none more so than the movement of money because you need checkers at both ends. We should be reviewing and ideally dumping around 90% of the tax code, including income tax. The latter in particular makes zero sense given that 95% of the money supply is printed out of the thin air anyway and the other 5% is made out of wood and metal and oil.
    The largest consumer of energy in most western countries is surely government. Yet we all say nothing.

    • The need to cut public spending is implicit in declining prosperity.

      As you may know, I divide public spending into two categories – transfers and services. Transfers are a political/social decision of how much is taken from some and given to others and, for the economy as a whole, net out to zero.

      Services impinge on what remains for discretionary consumption, and are treated as part of “essentials” in SEEDS – they’re not “discretionary”, because the individual can’t choose whether or not to pay for them.

      Falling prosperity does require a reduction in public services. But these are tough decisions – which health services, for example, are we to retain, and which can we cut or eiminate?

    • @Mark Stallard.

      “We should be reviewing and ideally dumping around 90% of the tax code, including income tax. The latter in particular makes zero sense given that 95% of the money supply is printed out of the thin air anyway and the other 5% is made out of wood and metal and oil.”

      I think your point highlights the fundamental misunderstanding about government expenditure and tax.

      As you say “95% of money supply is printed out of thin air”. Covid/furlough has proven this to be the case even if politicians have been denying it for years. “There is no magic money tree”.

      So the role of tax is to destroy that previously created “thin air printed money” in order to keep control of inflation. If not, the money supply would outstrip the available resources.

      Tax is also a tool for “nudging” public behaviour. High taxes on cigarettes or tax breaks on electric cars etc.

      Tax is a vital part of the mix in a growth economy but NOT because it directly finances public expenditure.

      And whilst on the subject………
      Why does a government need to “borrow” the very thing that it has a monopoly on creating (currency) without limit??? “Borrowing” is not a true description of what is going on. Government offers a safe place for people/institutions to save through issuing bonds. The government doesn’t need to “borrow” this money as it can “print money out of thin air”. What the government needs to do is remove money from the economy to create the “space” allow for more spending. Hence the bond market. Government can (and did during covid) get it’s currency direct from the BoE. It doesn’t need to issue bonds, but by issuing bonds it creates stability in financial institutions. Pension funds and insurance love bonds as they give a guaranteed return on investment.

  13. Are national debts allowed to grow on the assumption of perennial growth in the stable countries of the global north? Since that will be impossible, will the house of cards eventually collapse with a string of defaults around the world? What historical lessons can be extracted from previous sovereign defaults?

    • There’s a nightmare scenario in this, which begins in the West, but with private rather than sovereign debt.

      The economy has come to rely on continuous credit expansion. People and businesses are borrowing – to sustain lifestyles, or just to keep going – and this is facilitated by debt being easily accessed and extremely cheap. With the economy clearly in big trouble, and the chances of debt repayment diminishing all the time, why don’t lenders call a halt?

      The answer is that they’re sure they’ll get bailed out, because that’s what happened during 2008-09. It’s what some people warned about back then – “moral hazard”. Remember, this isn’t just banks nowadays, it’s non-bank lending institutions as well.

      Eventually, governments or central banks have to step in, at a “too big to fail” moment. That’s when we realize that we’ve been creating debt – put another way, creating money – on a scale that can’t possibly be “honoured for value”. That’s when the sovereign debt, and/or hyperinflationary, breakdown happens. Faith in governments, and/or faith in fiat money, collapses.

      I try to monitor this, using SEEDS, in several ways. First as “flow”, by measuring the financial economy versus the ‘real’ economy of calculated prosperity. Second as “stock”, by comparing liabilities with prosperity. Third as underlying inflation (RRCI). Now I’m adding an effort at calculating “equilibrium debt” as well.

    • Isn’t it likely that the beginning of defaults on pension liabilities in the private sector causes increased demand for the ‘best’ sovereign, agency, and state/province debt? That’s the history in my experience. Too much CB printing to cover the Federal side should result is a weakening of currency value. It could another race to the bottom as beggar thy neighbor to stimulate exports kicks in too. Domestic inflation for necessities in many places is giving us a taste now of the effects of using this mechanism.

    • @Dr Morgan, a small glossary of terms would be helpful here, perhaps on a separate page on this site, under resources.

  14. The UK Government claims to guarantee all savers £85000 with accounts in FSCS saving schemes.
    Is it possible, and what are the risks, that this guarantee could fail?

    • Logically, it shouldn’t fail, and governments ought to realise that, if current account or saving customers lose money, the reputation of their banking systems is permanently impaired. I think, though I’m not sure, that one can have multiple protected accounts, with up to £85,000 in each.

      The alternative, in the UK, is NSI – that’s government debt so, if that’s ever defaulted on, or even haircut, it’s a sovereign default, i.e. the UK is bankrupt.

      There’s a slightly greater risk of bail-ins. This is where the state takes – let’s not mince words about it, steals – a percentage of customer savings above a specified threshold. The lower limit is to protect the average person, i.e. voter. There might be an upper limit as well, to protect the wealthy.

    • You’ll get your 85000 pounds, don’t worry about that, just worry if it will buy you a loaf of bread. They’ll print before they face the consequences of their stupid actions. Just look at the last 20 years.

    • Indeed.

      My next article – if I publish it – looks into how a crisis might unfold.

      I can understand people, and businesses, borrowing to stay afloat.

      What is harder to understand is lenders, issuing credit that they must surely realise may never be repaid. How is somebody, who now has to borrow to afford necessities, supposed to afford both those necessities and debt repayment at a later date?

      I think the answer is that lenders – a category which goes far beyond regulated commercial banks – simply assume a bailout. This is the “moral hazard” that some people talked about during the 2008-09 bail-outs.

      If bail-outs happen, the only way to do it would be QE – which, on that sort of scale, could lead to hyperinflation.

    • @Mr House

      You best me to it🙂.

      Printing the £85,000 isn’t the problem. The problem will be that you won’t be able to buy anything with it🤣.

    • “My next article – if I publish it – looks into how a crisis might unfold.”

      your data on the energy side (Fig. 1) forecasts a roughly 1% yearly decline at least thru 2030. This suggests that there will be no economic crisis, but rather a slight downslope throughout this decade.

      I would be interested in a fuller explanation of what you think could break into this minor energy decline, and unfold into a full blown economic crisis.

      (or is the energy decline on a worldwide scale, and the crisis potentially more likely in the UK?)

    • The explanation is to be seen in the third chart in fig. 1 – the financial economy of money and credit has become far larger than the real economy of goods, services and energy. Downside, globally, is 40% on SEEDS calculations.

      Remembering that money functions as an aggregate of claims on the energy economy, we have created a huge quantity of excess claims that cannot be honoured “for value” There’s an inevitable process of the restoration of equilibrium between the two economies of energy and money.

      What happens next is this:

      1. Households (and businesses) are relying on new credit just to stay afloat.

      2. A lot of this debt cannot possibly be repaid.

      3. Lenders presumably know this, but carry on lending.

      4. Their assumption is that, if things go wrong, they get bailed out.

      5a. If they are, it will require huge amounts of QE – inflation surges.

      5b. If they aren’t, defaults rip through the system.

    • “Downside, globally, is 40% on SEEDS calculations.”

      I suspect this might be too simplistic, but if major asset classes such as stock markets and real estate fell by 40%, and if aggregate inflation over the next few years was 40%, would that be enough to bring the “two economies” closer to a realistic equilibrium?

    • In broad terms, yes, but I need to stress that we need to start with liabilities rather than assets.

      The point that I emphasise is ‘money as claim’. When we create money, we create a claim on the real economy. When we create too many claims, we create excess claims, meaning ‘claims that the real economy cannot honour’.

      If we could, in some way, bring down debt and other commitments by 40%, that could restore equilibrium.

      Asset prices are the flip-side of ‘liabilities as claims’. They would fall too, though probably by more than the reduction in claims.

    • @Dr Tim

      “3. Lenders presumably know this, but carry on lending.

      4. Their assumption is that, if things go wrong, they get bailed out.

      5a. If they are, it will require huge amounts of QE – inflation surges”

      If the lenders are “bailed out” it doesn’t necessarily mean an “inflation surge” as long as they sit on the money and don’t spend it.

      All those billions of £$€s sitting in those “off shore” bank accounts don’t add to inflation because they aren’t being spent. It gives the owners of all that money the illusion of wealth, but they can’t all spend it at the same time because there isn’t enough “stuff” to spend it on without pushing up inflation.

    • Dr tim,
      your point of view, basically, is that “the financial economy” can reduce and “the real economy” can maintain/ reduce to the rytme of the decline of the FF.
      Is that it?

      But… Europe in particular, but England also depend on a supply of energy and raw materials from outside, and especially from Russia/ BRICS.
      What happens if the pound loses its status?
      as well as the euro and the dollar? for example, if the non-Western world turns to a BRICs currency under construction and asks to be repaid in that currency for its exports.

  15. Is ANYTHING being said about this? By our future PM, or ANY politicians?

    £500 for energy in January alone!

    I expect Kevin from Colne to comment.

    • Disastrous – and have you seen what some small businesses, not protected by the price cap, are having to pay?

      The BBC, on radio, interviewed a lady running a successful pub in Northamptonshire about soaring energy costs – the figures were frightening.

    • We we all soon get used to the phrase “Can’t pay, won’t pay”. I’m afraid that this prediction, if it comes to pass, will see mass defaults on your ‘little monthly payments’ for a multitude of things. Germany is looking especially vulnerable, but so is the UK. The very odd thing is that a lot of people I speak to are entirely oblivious to the serious problems we all face.

    • “Can’t pay, won’t pay” or… Too Poor To Care.

      Aside from the appalling effect on millions of people, the good thing is that this crisis
      highlights the direct necessity for energy – moreso than inflation on general goods and services. The world has to become fully conscious of energy supply (or lack of) before it can hone in on ECoE/EROI.

  16. I think the general public response to the onset of high energy bills in the UK this coming winter could be very disastrous for whatever UK cabinet that will be running the show come November/December.

    I am loitering around Twitter feeds and websites observing regular peoples comments regarding these oncoming energy prices and the consensus among many venting their feelings seems to be that they will refuse to pay both people who have the funds and those that won’t be able to pay due to low income etc.

    If that type of a movement gathers steam it will put the UK government’s tail in a spin and could cause massive political and economic disruption.

    My guess is the government will implement some more helpful socialised measures to the less well off to help pay these oncoming astronomical energy bills before that dangerous movement could potentially take off.

    I don’t think they will have any choice. It would be wise of them to implement these measures before any potential revolt from the public because if they refuse to pay their energy bills and the government caves in then what will be the next thing they could potentially refuse to pay for?

    We have seen the mortgage rebellion in China. I have noticed the media has done their best to keep that away from getting any attention in the west and for good reason.

    I think this winter is going to be the most vulnerable economically and politically the world has ever been in in its whole history for centuries when you look at Europe, The UK, Sri Lanka and other third world countries undergoing chaotic times with Pakistan not far behind.

    With China and the Russia/Ukraine war not forgetting the USA with the Fed raising rates and tightening it will be a miracle if we only get a few major incidences let alone avoiding any potential disasters whatsoever.

    It could make the 2008 financial crisis look like a Sunday picnic.

    I just don’t see how the last quarter of 2022 can go into 2023 not with a bang but a whimper.

    • “I think this winter is going to be the most vulnerable economically and politically the world has ever been in in its whole history for centuries when you look at Europe…”

      well, Europe did not choose wisely when they chose against their primary energy supplier, so that was an historic “own goal”.

      yes, the self harm will only be worsening thru Q4 and into 2023.

      there was an acceleration to the European decline on that Great Day of 2/24/2022.

      that day is the most significant day in the world since the end of WW2, and it is unlikely to be surpassed in our lifetimes, other than by a potential nuclear war.

      my sympathies for Europeans, as it seems the bully USA/NATZO has somehow pressured your “leaders” into making horrrific economic decisions to the detriment of the common folk.

      perhaps the oncoming crisis this winter can be avoided or at least lessened, but I don’t see how.

  17. Sometimes… !!
    Website disallowed my comment saying it was duplicate – then allowed me to accidentally post a duplicate!

  18. Is it just me or has anyone else noticed that Truss and Sunak both see GROWTH as the way out of our present predicament??????

    They are both in denial.

    • They both seem well insulated in ‘the system’.

      In order to be in denial, you need to at least have an suspicion that something is amiss.

      I haven’t seen any evidence of this with either of them.

    • The idea seems to be that ‘borrowing now creates growth in the future, and this growth pays off the debt’. This doesn’t work, and there’s abundant statistical evidence to prove it.

      I look at the UK situation with something close to disbelief – “growth”?. Motoring is hugely costly, airports are dysfunctional, rail is hit by strikes, Brexit-related issues are blocking cross-border travel. Wages are falling ever further adrift of the cost of living. The cost of public sector wages, and of pensions, is soaring. Household hardship is intense, and worsening, and household debt is excessive. Affordability is being crushed, with obvious implications for discretionary sectors, and property prices. This is an economy that’s falling to bits.

      These clowns are promising ‘growth created by borrowing’, which is where “tax cuts” have to come from. They are playing to a tiny gallery of party members. Nobody seems to be taking this seriously. Mr Starmer seems equally deluded. Nobody seems aware of currency crisis risk, though we must hope that the Bank of England sees this, and will counter “tax cuts” with rate rises.

    • M.E.T. is ‘following’ the ‘ideas’ of Professor Patrick Minford and his ‘voodoo economics’? Supply-side reforms {tax cuts} will be enough to rejuvenate the economy {increase productivity} and will reduce national debt!

    • @Very Far Frank

      Yes, perhaps denial is the wrong word.

      Dilusional is perhaps better.

  19. Looking back at Human history the shortages of resources has almost led to armed conflict. The question is whether this pattern of nature is been played out over the shortages of energy in today’s events with Russia and the West.
    If Human history is replayed we can forget about economics. Someone once wrote “Economics is war by other means”.

    • The West isn’t at war with Russia, but is emphatically ‘on the other side’. They could hardly expect Russia to carry on supplying gas to customers lined up against it, unless Russia really needs the money. At least in the short term, this isn’t so, as Russia is internally self-sufficient and can, in any case, trade with many other countries.

    • It does make me laugh when MSM commentators and politicians say that Russia is using gas as a political tool/weapon against the “West”.


      Whereas, economic sanctions , freezing assets and denying access to financial systems is not!!!!!!!!!!????????

      It’s the Emperor’s New Clothes for Europe.

      For the USA we are witnessing it’s “Singapore moment”.

      (When the fall of Singapore, showed the world that British Imperial power was all “show and no trousers”)

  20. I think Dave Pollard at ‘How to save the world’, has finally worked out it can’t be saved…
    “It’s quite simple: None of us is willing to make the sacrifices necessary to avert collapse.”

    The UK could easily get out of any potential currency and energy crisis. Just stop using foreign energy and resources. Only use what the country produces, simple, problem solved.

    Somehow though I think DPs words above will apply to Great Britain as everyone starts blaming Putin or Russia or the unemployed, immigrants and the poor (to quote The Big Short).

    Of course what Dave misses is that making sacrifices also will not avert collapse, because collapse is mathematically and physically impossible to avoid. It was always impossible to avoid since we first started making metal tools.

    • Let me try a thought with you, just as an idea.

      Let’s assume, for present purposes, that we need to develop renewables, even if they can’t fully replace the economic value of fossil fuels.

      Doing this needs steel, concrete, copper, etc etc etc.. Accessing these materials and using them for transition requires energy. We have to divert this energy from other activities.

      If we take this just as a working hypothesis, what current energy uses are we prepared to relinquish, or cut back on, to free up this energy for transition? How do people (in whichever country we choose to talk about), and how do politicians, answer that question?

      Drive less, fly less, heat our homes less, consume less? This reduction of energy use is, for quite other reasons, a live question right now in the EU.

    • I listened to a debate about the cost of living crisis/climate change, on Radio 5Live this week.

      Someone from The Institute for Fiscal Studies, or one of those other neo-liberal “think tanks” was contributing. (How/why are they given so much air time on the MSM???!!!!!)

      When asked by the host if we all need to fly/consume less the IFS rep said NO. That somehow we can meet climate change targets AND carry on as normal.

      It’s this kind of bollocks that is being promoted by the national broadcaster. There is no chance of there being a sensible debate about the current crisis if these people are being given platforms to talk such rubbish.

    • Dr Tim, I agree that we need to develop as much renewable energy as possible, from whatever source, even if ‘we’ just allowed the market to do it. Introduce a carbon tax that rises every year. The market would sort out a total renewable economy, where possible, within a decade or so.

      This would be a one off, as the minerals necessary in 30 years time to rebuild today’s renewables would be ‘on average’ much lower grades to mine, needing much more energy.

      I don’t make the mistake that because something is not possible over the longer term, that it means everything will collapse very soon. The world will go on with it’s choices, and there are plenty of fossil fuels left to burn. Australia itself could export double the current world coal use for many decades. We could turn millions of tonnes of coal into liquid fuels every day, producing millions of barrels of ‘oil’ per day. There is no current shortage of fossil fuels.

      The problem is no-one is planning anything realistic for the future, short or medium term. No-one is willing to make the decision to change from ‘type A’ energy source to ‘type-B’ energy source. We are letting the market decide with some nebulous guidelines around climate. The market will let a country like Sri Lanka or Great Britain just slide into abject poverty and starvation. More of the same is what we should expect, with more of the periphery having crashing living standards as we get to world oil production declines.
      I have no doubt that within a decade a lot more coal to liquid plants will be built around the world as ‘short term’ stop gap measures to help build renewables.

      A few years ago, I did some rough calculations on replacing all world primary energy use with electricity generated from renewables. Roughly we would need a 30% increase in primary energy use for 30 years to just build the solar and wind turbines. This allowed for the mining, processing of minerals, transport and installation of the necessary materials using fossil fuels to do it. There was no allowance for declining grades of ores, nor the extra grid infrastructure. It would take 100 pages of writing to explain it all in the simplest terms. Plus it’s only electricity, any conversion for existing processes and uses, because of efficiency losses, would mean vastly less final energy available.

      The reasoning for the increase in energy use and not taking it from an existing use, is that we have no idea all the economic implications of taking energy use away from a group of purposes that form current society especially large slabs of use. There would be so many cascades of failure in the rest of the system, unknown and unknowable in advance, that taking huge amounts of energy away from ‘use A’ to give to ‘use B’, could by itself collapse the civilization.
      Even my use of ‘just’ an increase of 30% in energy use, makes the broad assumption that civilization can continue ‘as normal’ with a constant energy use similar to now.

      Every time I go down this rabbit hole in discussion of future energy and where civilization is heading, including the extraction and use of minerals of declining ore grades, whoever I’m discussing it with eventually gets to the, ‘something will turn up’ argument, as in some type of unknown energy source will save us.

      To answer your specific questions on what to cut back on, my opinion is let the market decide over time with a carbon tax. This would work given enough time, while we still have resources of sufficient grade, as people could make their own preparatory decisions well in advance. The current problem is a shock to the system, so robbing Peter to pay Paul is just going to make Peter angry and react in some unknown way.

    • “The bad news is that British oil and gas production peaked in 1999 and had fallen 60 percent by 2010… by which time Britain had become – in 2005 – a net importer of oil and gas. This is the second thing which makes this crisis both different and so much worse. Like so many states blessed with the curse of oil, between 1979 and 2005, Britain became lazy. We escaped the consequences of government vandalising of our productive economy by squandering oil and gas revenues on unaffordable imports and corporate dividends and bonuses. If, today, we were forced to operate solely on the oil and gas that we produce domestically – perhaps because the pound had crashed against the dollar – then at today’s rates of consumption, we have somewhere between three and five years of gas and five to ten years of oil reserves remaining to us. And this is only half of the story because, unlike the oil and gas we produced prior to the 1999 peak, what remains is far more difficult – and thus much more expensive – to produce.”


  21. Politicians who expect that shelling the gas supplier with German weapons will lead to this supplier securing our gas supply are not good for Germany.

    These politicians should resign and not be replaced by those who want to continue on this course.

    We need a government that cannot be motivated to promote a sanctions policy and arms supplies that weaken Europe in the long term.
    Political forces, wherever they are, that profit from and promote war must lose influence in Europe.

    We need negotiations and peace!


    el mar

    • @el mar.

      I think that Russia, up until now, has been very restrained in its response to Western sanctions and weapons supplies (to Ukraine)

      As you point out, those weapons are killing Russian soldiers.

      Does the West realty think that Russia is just going to keep the gas flowing ??????? It feels like the leaders of the collective West are living in a parallel universe.

  22. Tim, in relation to some of your other remarks, can you help me please? Larry Elliott in today’s Guardian says that “states that can print their own currency cannot go bust”. I have a lot of respect for him but this is surely nonsense, They don’t go bust by simple non-payment, they just destroy their financial credibility by paying in worthless fiat money. It’s just a different kind of “bust” and all fiat currencies fail.

    • This is what I call “a meaningless truism”.

      A country cannot go bust in its own currency, i.e. run out of money. Argentina, for instance, can’t go bust by running out of pesos. If needs must, it can always “print” (create) some more. Britain can’t go bust by running out of GBP. Neither, for that matter, can Zimbabwe go bust in those terms.

      But the value of the currency itself can collapse, in two ways, generally related. It can fall on the FX markets, and it can lose purchasing power through inflation. What does oil cost the UK if, say, GBP drops from $1.20 to $0.90? What if nobody will even accept your currency when you need to buy oil, or food, or essential components?

    • @Michael McGowan.

      I guess it depends what you mean by “bust”.

      A sovereign government with its own currency can’t go “bust”. It can always make its payments on bond yields/interest as it can create the money without limit. (There is no limit to the amount of numbers one can type into a computer). The Weimar Republic had hyperinflation but it didn’t go “bust” as such.

      However, it doesn’t guarantee that anyone will want to invest in those government bonds or that the country will be able to purchase anything from abroad.

      Sri Lanka problem isn’t that it can’t create enough of its own currency. The problem is that it can’t create US$ which it needs to buy oil. All its export revenue is going on servicing it’s international debt obligations instead.

  23. A Companion Piece to Dave Pollard
    Nate Hagens interviewed John Gowdy, an ecological economist, a couple of months ago:

    Gowdy takes on the issue of “human nature”, about which a lot of loose opinions are flung around. Gowdy begins with the observation that there are three particularly successful evolutionary species on Earth: termites, ants, and humans. All have built super-organisms at the expense of the individuals. The super-organism becomes increasingly complex, while the individuals lose their ability to survive in the absence of the super-organism and lose brain-power. Humans now have smaller brains than hunter-gatherers had 30,000 years ago. So the scope of “human nature” is broad enough to encompass both an egalitarian society in which each individual can survive largely on their own and also a highly structured hierarchical society in which the individuals lose their ability too survive largely on their own. But the highly structured society is fragile, and resource scarcity can bring about collapse. (I should note that collapse in this sense is not like the fall of the Roman Empire, which had little effect on many rural people around the Mediterranean. )

    In terms of genetics, we should note that the discovery of epigenetics over the last couple of decades can account for the differences we see between industrial humans and humans we discover from archaeological records.

    A final note: Gowdy has expressed the view that things will be better in a couple of hundred years, as the smaller number of humans have re-adapted to the hunter-gatherer lifestyle. So expect a coolly rational take on a lot of emotional issues.

    Don Stewart

    • @Don Stewart

      “there are three particularly successful evolutionary species on Earth: termites, ants, and humans.”

      It really depends on ones definition “successful”?

      Number of individuals?
      Total biomass?
      Time on the planet in one particular form?

      It’s all subjective really.

      Bacteria, plankton, blue whale, Neanderthals (were around longer than homosapiens)??????

      I think coming up with a whole theory based around a supposition like “successful” is kinda meaningless.

  24. Tim, above, you said,

    “The idea seems to be that ‘borrowing now creates growth in the future, and this growth pays off the debt’. This doesn’t work, and there’s abundant statistical evidence to prove it.” This is a really key insight and it changes everything we think about our “economic system.”

    It’s obvious but never noticed – because industry never pays off its debt – the real goal if to borrow as long as possible and then go broke/bankrupt. Steve Ludlum at Economic Undertow brilliantly explored this idea years ago. He calls the system we have, “debtonomics,” and argues persuasively that all profits are borrowed, all wages are borrowed, etc. If an industry could ever have retired its debt from its profits, it would have done so, but none ever achieve this. This has to be true because otherwise humans would have achieved the thermodynamically impossible – the financial equivalent of a perpetual motion machine.

    “One of the many concepts economists fail to explain clearly is how people become rich. One would think in a capitalist-friendly system such as the one we live under, how wealth begets itself would be well understood. The popular narrative suggests tycoons are heroic, farsighted innovators who will into existence products and services that people don’t realize they need. They offer these in enormous quantities at a profit. which occurs when returns exceed factor expenses. Given enough profits entrepreneurs reward themselves with luxury cars, mansions, drug habits and mistresses. And pay cash. This is the narrative found in economic doctrine, outlined in excruciating detail by Adam Smith to Friedrich Hayek to John Maynard Keynes and it’s nonsense.

    At scale industrial enterprises don’t create profits because they are unable to. That this is so is self evident: if firms were productive there would be no debt because business returns would retire it. Instead, commercial expansion carries along with it an almost unimaginable accumulation of unpaid loans; a metaphoric Everest amounting to hundreds of trillions of dollars. The only thing that can even service this amount is continual additional borrowing and the reduction of debt’s burden by inflation.

    Default or repudiation does not cure indebtedness but passes repayment obligations onto third-parties as well as lenders, themselves.

    All Earthly processes produce entropy, a topic conveniently absent from mainstream economics. The real, physical sum-total of all sector inputs is always greater than the sum of outputs. Regardless of what we do, including nothing, there are losses. That economists claim the opposite is a myth, enabled the purposeful mischaracterisation- and underpricing of inputs.

    Because industrial enterprise is fundamentally unprofitable, debt is required for us to ‘fake it’. Debt is ubiquitous, it is a ‘factor in production’ along with land and labor. A gigantic, interconnected finance sector needed to create- and manage it. All money is debt, even the kind that is dug out of the ground or cryptoed into existence on a computer. Cash paid in hand is a loan made by a bank somewhere to someone which proceeds may have changed hands hundreds of times subsequently. There is no ‘investment’ that did not begin its existence as a loan.

    People become tycoons by borrowing their fortunes and having third parties service and retire the loans. The technical term for this process is ‘theft’: I buy the house, you pay for the house … you can’t live in it. This sort of thing is possible because the unremarkable taking on of debt allows entrepreneurs to divert some of it to themselves. Another reason is social orders are built around shared narrative myths that have compulsive power, such as the heroic innovator myth, the profitable large business myth or the efficacy of technology. Abandoning these narratives represents an enormous risk, after all, it’s unthinkable what might happen if people stop believing in entrepreneurs or the moral necessity of repaying debts or the ability of technology to solve our problems? (There is no debt-repaying technology in the pipeline, by the way.)”

    . . . Tycoons appear wealthy, but only in abstract. Their holdings are shares of their own businesses: Bill Gates’s fortune is his Microsoft shares, Warren Buffett owns Berkshire-Hathaway, Jeff Bezos holds Amazon, etc. Shares are a form of private money. Like ordinary currencies, they are derivative claims against purchasing power, which itself is a claim against capital, the world’s remaining non-renewable natural resources. As capital is exhausted so is the worth of claims including the physical work that purchasing power represents. Looked at this way, industry itself is a kind of ‘money’, one whose inherent wastefulness tends itself toward insolvency. Yet the myth of profitability sits at the center of economics; capitalism, even Marxism and industrialization itself.”

    – from “Bailing Out the Rich”

    I have recommended him before, he offers many valuable insights and he has a great way with words. Some places to begin: Enter Mr. Conduit, Marx to Debtonomics Parts 1 and II, The Gift that Keeps on Giving and Bailing Out the Rich.

    • I miss Steve. He keeps updating the copyright on his page but hasn’t posted anything since the beginning of it which shall not be named. Maybe he doesn’t have anything more to say.

    • Not a direct reply, but let me tell you what concerns me right now, as autumn approaches.

      An increasing number of households are borrowing now, not to pay for an exotic holiday or a new car, but just to get by. (Many businesses are in an equivalent position). If they need credit just to get by, it’s hard to picture a future situation in which they can (a) make ends meet without further credit, and (b) pay back what they’re borrowing today.

      In other words, borrower risk is rising, and this can only be made worse by rate rises.

      Lenders surely know this. Yet they continue to lend. ‘Borrow to stay afloat’ customers don’t seem to be finding credit hard to obtain. Much of this is coming, not from banks, but from non-bank lending institutions.

      Why aren’t lenders turning at least a little cautious? My guess is because, if things do go wrong, they assume they’ll be bailed out. That was the lesson of 2008-09 and “too big to fail”.

      Governments can’t do these bail-outs. Central banks might be able to do so, but only by using QE on an enormous scale.

      Is that the hyper-inflationary end-game to the coming crisis?

  25. @ Dr Tim Morgan.

    If they are non bank entities my guess is they will be left to go bankrupt.

    I don’t think it would cause much disruption.

    Are these entities pay day lenders?

    I actually assumed the banks were lending the “money” or were you referring specifically to household debt and not business debt?

    Conversely, if it is the banks on the receiving end of defaults they will be bailed out (or in) at all costs particularly here in the UK.

    It is not like the USA here. There is not a lot of competition in the banking sector so if one falls it would probably effect all others significantly and in short order.

    • Perhaps I’d better start with the structure.

      We have data for total debt, broken out as government, plus two private categories, households and private non-financial corporations. (Government debt is reported two ways – market value of government bonds, and the sum actually owed by government).

      We know the total of private sector debt – in the UK, at end-2021, £3,670bn. We know how much of this is owed to banks – £2,050bn. So £1,620bn, or 44% of private debt, is owed to non-bank lending institutions.

      But then there’s “financial assets”, which are the liabilities of the government, household and business sectors. This includes the famous “shadow banking system”, not itemised as such, though we do have access to its constituent parts. In the UK’s case, this is huge – £27.2tn, or about 12X GDP (!)

      The point is, all of this is inter-connected. If we let some non-bank lenders, or some shadow banking (etc) players go under, this would have a direct effect on banks. A lot of the trouble in 2008-09 came from non-bank sectors, including insurance companies – they underwrite a lot of financial risk, but couldn’t possibly cover their losses if too much was called in one big panic. It was this, rather than their own lending books, which was the real problem in the GFC.

      Sorry if this is too much information.

      But you can see why this point is a matter of concern?

    • Yes.

      £27tn is cataclysmic.

      Obviously it will depend on what gets defaulted on.

      If it’s connected to the banks then hyperinflation will ensue if there are no defaults and banks are bailed out.

      Without knowing the length of the repayments and the interest rates of that £27tn and what type of debt it is then it’s very difficult to predict.

      My guess is a lot of that debt has been passed on to private investors and pension funds but can’t tell for sure.

      Do you have any idea of what a lot of that debt actually is?

      I am very much intrigued.

  26. What are the possibilities of an equity market crash, collapsing businesses and a deep depression?
    To create hyperinflation would be a controlled activity which may have much opposition.
    An equity market crash would be uncontrollable.

    • The Plunge Protection Team would surely step in if a bloodbath was more than 15-20% in my opinion. Japan kept buying shares for years during the Nikkei bear market. The Fed printed to support bonds and mortgages. They’ll try to support equities too, I suspect.

  27. From the US
    The Federal Reserve blames physical factors for the inflation we are experiencing. For a contrary view, go to ShadowStats. I can’t copy and paste, but here is what you will find:
    *Physical measurements are mostly contracting, from housing starts to transportation to retail sales.
    *Money supply, particularly M1, is still increasing at a breakneck speed.

    So the Fed, or so it seems to me, thinks that raising interest rates while keeping the money supply afterburners engaged is going to solve the problem??? I guess they really have forgotten Milton Friedman.

    The only thing that makes sense to me is that they are trying to control any outflow of money to foreign countries by raising interest rates (or, alternatively, trying to attract money from foreigners), while assuring that households and businesses are able to borrow.
    Don Stewart

    • Actually, I think they really are determined to fight inflation – which frightens the wealthy – and they know that real rates that are negative to the tune of -8% or so are ultra-dangerous.

      It’s interesting that even some of America’s biggest corporates are scaling back investment plans, looking to shed property leases and reducing employment.

    • I think the Fed is also seriously trying to get this inflation down too in a managed, gradual (frog boiling) manner.

      However, the true test will be when the market actually believes them.

      Watch out below on the Nasdaq and Dow if/when that happens.

      We need to get close to a positive rate of inflation.

      The last 10 years has been insane monetary and fiscal policy.

    • @freemarketthinker
      If they are serious about restricting demand, then why are they still permitting M1 to grow so rapidly? If they think they can somehow increase supply or jawbone inflation down, then it would make sense. But it sounds to me that this is the last stop before wage and price controls…which were last implemented by Richard Nixon. Allow more debt to tide people and businesses over, but attempt to control prices with price controls. In terms of “essential” goods, I suspect agricultural products will continue to have a lot of upward pressure due to the drought, hot weather, and the collapse of southwestern irrigation from the Colorado River and groundwater. The Federal response to the continued fall in lakes Mead and Powell is due very soon. I think they have already singled out agriculture as the fall guy, with some cosmetic changes for homeowners (e.g., Las Vegas restricting the size of swimming pools.)
      Don Stewart

  28. @Stephen B Kurtz,

    “The Plunge Protect Team would step in and protect the market”

    I am Not an Equity Market Investor but if I were and knew the so-called free market was supported by illegal supporters, I would make a quick exit for the door. And I’m sure many “level-headed” and honest Investors would do the same – in droves.

    A similar process is taking place with Bitcoin.

    • Wally,
      This group has been around since 1988:

      https://www.investopedia.com › terms › p › plunge-protection-team.asp
      Plunge Protection Team (PPT) – Investopedia
      Nov 24, 2020Plunge Protection Team – PPT: A colloquial name given to the Working Group on Financial Markets. The Plunge Protection Team was created to make financial and economic recommendations to various …

      https://www.crushthestreet.com › articles › who-exactly-is-the-plunge-protection-team
      Who Exactly Is the “Plunge Protection Team”?
      The Team reports to the President, and officially includes just four members: the Chair of the Federal Reserve, the Secretary of the Treasury, the Chair of the SEC, and the Chair of the CFTC. Although this went largely unreported by the American corporate media, Treasury Secretary Steven Mnuchin has admitted that the Plunge Protection Team met …

      Jul 20, 2022The slang phrase “Plunge Protection Team” refers to the Working Group on Financial Markets, a group of economists and government officials that meet frequently to explore safeguards for the United States’ financial markets. In the late 1990s, the Washington Post popularized the phrase Plunge Protection Team, which is used by comparable …

  29. @el mar.

    I think that Russia, up until now, has been very restrained in its response to Western sanctions and weapons supplies (to Ukraine)

    As you point out, those weapons are killing Russian soldiers.

    Does the West realty think that Russia is just going to keep the gas flowing ??????? It feels like the leaders of the collective West are living in a parallel universe.

  30. On a more positive note, AEP writes in the Telegraph today that Britain will soon have a glut of cheap power and world leading batteries to store it. With 86GW of offshore in the pipeline the problem will be abundance. Maybe we will be fine after all?

  31. Meanwhile … inflation in Japan and Switzerland still appears to be modest, i.e. about 3 percent per year.

    What have they done right? I’d be interested to know why such a difference from the USA & UK, which are at 9% or worse.

  32. Best News Today
    Gail Tverberg at OurFiniteWorld says:
    “It is likely that some humans, perhaps in mutated form, will make it through the current bottleneck.

    Since I am already a mutant, my future looks bright. I don’t know about all you normal people.
    Don Stewart

    • This is one view. But David has cited another, in an earlier comment here, the AEP view that Britain will soon have ‘a glut of cheap power and world leading batteries to store it’.

      Can both be right?

      On the former opinion I have no comment to make.

      On the latter, let me quote you this from a Manhattan Institute report (2019):

      “The annual output of Tesla’s Gigafactory, the world’s largest battery factory, could store three minutes’ worth of annual U.S. electricity demand. It would require 1,000 years of production to make enough batteries for two days’ worth of U.S. electricity demand. Meanwhile, 50–100 pounds of materials are mined, moved, and processed for every pound of battery produced.”

  33. More debt news.

    • it might amuse you, there’s an editing war going on over the Wikipedia entry for “recession”


      “worried about recession? why not redefine it!”
      we can only speculate who is editing it and what their motivations are, some suggest it’s political face saving, but I couldn’t possibly comment!

    • I noticed that the biggest percentage of cutbacks were to be from the “Grocery” category, which normally would be considered “essential”, but there are obviously choices being made to select foods that provide cheaper calories. All the rest of the categories were clearly discretionary.

      The projected monetary cutbacks were pretty significant in absolute terms, but when the loss of purchasing power from inflation is added to the cutbacks, it’s clear that prosperity is rapidly declining in the UK. Are most of these cutbacks to free up money for energy purchases, do you think?

  34. Taking Tim Morgan AND John Gowdy seriously

    Let’s suppose they are both right. Surplus energy is in irreversible decline AND our social/ economic system is overly-specialized and needs to become more localized and also less specialized. What is the right form of government to facilitate that?

    Consider Germany in WWII. After the loss of North Africa, it was fighting on two fronts, the western front and the eastern front. Western histories tend to view the war predominately from their own perspective on the western front. But the bulk of the resources were deployed on the eastern front. The bulk of the destruction was on the eastern front. Did Germany seek volunteers who had relatively cushy jobs administering occupied France (and taking advantage of access to fine wines and cheeses and French girls) to go to the killing fields of the eastern front? No. There were orders from the military command.

    It seems to me that that electoral democracy dominated by Big Money is perhaps the worst political system in terms of systematically reallocating resources. Next least worst is bureaucracy like Brussels. Next least worst is the rule by local councils organized into a national government, like China. Best would be a genius dictator who is also a patriot looking out for the best interests of his country. A dictator who is going insane, like Stalin, or started out insane, like Pol Pot, is the absolute worst. A dictator who is in it to loot the country might do better than a corrupt electoral democracy dominated by money.

    And so on through your own ideas.

    Don Stewart

    • @Don Stewart.

      Hmmmmm. Good question.

      How about a centralised government like that of the UK 1939/45 to start with? Clear vision of what needs to be done with a population informed enough to be “on side”. (Don’t have to explain the “battle plan” in every detail.)
      This eventually transforming into more localized governance through local (democratic) assemblies as the “centre” is increasingly unable to run the whole show due to increasing “simplification” of the economy/society.

    • ” How about a centralised government like that of the UK 1939/45 to start with? Clear vision of what needs to be done with a population informed enough to be “on side”.

      Hey Don, if you look at climate change, then the pandemic and then the war, then these crises do seem to be a rallying cry to institute this idea, combatting an external common enemy.

      The problem may be that an increasing number of people are waking up to the enemy being inside, rather than outside, the gate.

    • orsotoro,

      Pogo had it decades ago: “We have met the enemy, and it is us.” When the scale of this enemy is grasped, it isn’t at all surprising that we are losing the battles and war. 800% increase in 2 centuries, 400% in 1, 200% in 1/2 C.

    • @Orsotoro2011

      I think that individuals acting alone are not going to be able to protect themselves from the negative effects of de-growth.
      Humans have always acted collectively.
      “The cult of the individual” is a recent phenomenon pushed to the limit by Hollywood.

      Enemies inside the gate??? Perhaps, but outside the gate isn’t going to be an option for a while yet.

  35. @Sephen B Kurtz

    “The Plunge Protection Scheme”

    Perhaps the Legality of this can be overlooked, by some, provided the economy is prosperous.

    But what happens when the average American is having trouble to survive and he/she hears that the Casino winnings are being protected and even guaranteed?

    • No answer from me, Wally. I can’t predict the future behavior of a complex species. BTW, my name is spelled with a v, not a ph.

  36. Sorry, off topic, but this is too funny to not share (IMO). I wonder who’s going to win the meme war with Russia?

    Biden, Macron, Trudeau and the like OR the Russian(s) who put this out?

    Russians are openly trolling America and Western Europe now, and America and Western Europe totally brought it on themselves. Remember when right wingers in America used to say, “America, love it or leave it!” Looks like real America (or at any rate, American conservatives’ idealized view of America) moved to Russia, guys!

    • there are some really cleverly put together memes out there, all we can do at this point is ridicule the Clownworld we are trapped in!

      it’s important to laugh, otherwise we’d go mad, like the people who are hamfistedly running this world.

  37. UK debt interest for Q1 2022 hit an all time high of £19.4bn with around a quarter of the national debt index linked:



    Seems to me that if the UK does not get this inflation down soon only the interest will be getting repaid. Forget about the principal.

    So much for inflation making it easier for governments to pay off government debt as some people say.

    Prediction: The UK government will either do one of two things.

    Change the rules whereby all Issues of future government bonds will not be linked to the inflation index and will pay a fixed rate of interest or:

    Change the way the index is calculated to bring down the “official” inflation numbers to a lower level than what they actually are in reality.

    The cold turkey method of cutting deficit spending drastically is off the table as far as I am concerned.

    It will be nice if I am proved wrong.

  38. Money and Knowledge
    I have said for some time that I think that the US Security State knows quite a lot about the real situation relative to energy, money, and political dominance. I will just say that everything I see supports my thesis. I am less sure that Europe and Britain understand the real situation.

    What does the US Security State understand? That the US must control GLOBAL energy and money in order to maintain political dominance which enables the extravagant life style of the American middle class but especially of the oligarchs. Global control of energy and money also enables careers to be built based on military dominance.

    I believe that the invasion of Ukraine resulted from a level-headed assessment by the Russian leadership that Europe and the US and Canada were determined to reduce Russia to a sort of colony which supplied raw materials and obeyed orders. I believe we are seeing the same in terms of China. I am reasonably confident that Congressional briefings by the Security State have made the real situation starkly clear to 100 out of 100 Senators. So now the US is facing the same sort of decision which the Russian leadership faced in terms of Ukraine. The US strategy of fomenting troubles for Russia and China, along with tons of propaganda, is being overshadowed by escalation to direct conflict.

    The Russian and Chinese situations are somewhat different, with Russia being more self-contained but China being the global trading leader. Traders usually try to get along with everyone…but the US turn toward confrontation is making that impossible, IMHO.

    Does the US Security State see the energy and money situation any differently than Dr. Morgan? There may be a few nuances, but I think they are very close together. What the US Security State adds is a determination that whatever the size of the eventual pie, the US will get the biggest piece. I would think that Brussels is beginning to understand the situation also…but I don’t follow events in Brussels closely.

    These considerations lead me to rate the risk of nuclear war much higher than anyone is talking about. I suspect that the expected collapse of tight oil and gas in the US over the next decade gives the Security State a sense of urgency in terms of a “resource colony” strategy. It is not clear to me how Washington thinks that US dominance of global trade can be restored, or if the US is simply aiming at enforcement of Petro Dollar dominance coupled with global currency control. to enable us to continue to live beyond our means. I doubt very seriously that the Security State believes the pie-in-the-sky economists…but they can sometimes be useful idiots.
    Don Stewart

    • “What the US Security State adds is a determination that whatever the size of the eventual pie, the US will get the biggest piece.”

      surely the US SS knows that nuclear war would mean zero pie, or at least near zero.

      the biggest piece of zero pie is…

    • @davidinamillionyears
      Three answers. First, they think they know exactly what the triggers are and how to walk right up to the line and get what they want without a nuclear war. Second, there have been some suggestions that if the US can get missiles close enough to Russia (e.g., Poland and Ukraine), then a first strike can eliminate Russia’s offensive capability. Russia might commit the world to nuclear winter by blowing huge amounts of Siberia into the atmosphere, but that is a risk worth taking. Third, some say that if there are two of us left and only one of them, we win.

      Thinking is probably different regarding China. I’m less well informed about that. Last I heard, China had not produced the surplus of nuclear weapons that the US and Russia produced. The likely explanation was they think they don’t need to. A few delivered against the US is deterrent enough.

      While all of that is baffling in terms of sanity, there is the other issue of spent fuel pools. If most are dead, who will keep them from spewing radiation all over the place?
      Don Stewart

    • In my humble opinion, Don, if the ‘US Security State’ doesn’t understand the full ramifications of the peaking of fossil fuels then they are about to get an almighty slap in the face. After all it was the commissioning, by the US Department of Energy, of the infamous Hirsch Report in 2005 that quite brutally spelled out the security risks of peaking oil production.
      Unless, of course, the report was read, understood and the conclusion being that it was too late, even in that year, to turn the behemoth around ?

    • “Joe Neubarth
      26 July at 17:42
      For those people who do not know what is going to happen in the next few years, the vast majority of filthy rich Republicans have built underground shelters stocked with food and water as well as lots of alcohol to party with. They do not intend to stay underground for long, as they plan on using Nuclear Weapons to blast Dirt, Dust and Sulfur from dormant volcanoes at high latitudes such as from the Aleutian Islands and mainland Alaska. I have never heard of any mention of Russian Volcanoes. I have been told by others that volcanos at the southern tip of South America may also be used.

      The Dirt, Dust and Sulfur will create a nuclear winter that will last 14 to 16 months, last I heard. The Rich will come out of their shelters anytime during the Nuclear Winter, though it would be best to stay underground for at least a few days after the modern Nuclear Bomb Blasts in the dormant volcanoes. Since the modern Nukes are Fusion weapons as opposed to mainly Fission weapons as tested and used during and after WWII, the radiation intensity should be abated within a week or so.

      Meanwhile, the people who do not have shelters will gradually die from the cold and the Republican goal of reducing global population to below half a billion as specified on the Georgia Guidestones (Preferably less than 300 million people as the Rich Republicans now tell me) will become a reality.

      When the Nuclear Winter wanes, green life will start growing abundantly. The tremendous Green Growth will suck a lot of CO2 out of the atmosphere. Since factories will not be in operation CO2 generation from industry will be a thing of memory. With Billions of people and animals gone, the release of CO2 from animals will also greatly decrease. The Nuclear Winter will have slowed down the release of methane from the melting permafrost. With CO2 decreasing and Methane slowing in its release rate from the permafrost, the climate will come back down to temperatures that were common 20 years ago.

      Slowly, temperatures will go down to levels from a century ago. No factories and few people and large animal herds will be gone. If you are a Rich Republican you will rejoice at your good fortune. If you are not rich but alive, the Republicans might enslave you for manual labor, but do not expect any favors. You will just be slave labor and expendable at any time.” ?

    • I have my doubts about this, preferring to see the elites as deluded and out-of-touch, rather than as Napoleons of the Nefarious. The elites of 1789 and 1917 didn’t see what was coming, and I think that’s a pattern that runs through history.

      In 1917, the Tsarist regime controlled the military and the media (such as it was then), and had a formidable security police force. Why worry about insurgents, or popular discontent? This discontent was hardly new, and the Tsars had survived it over centuries.

      I’m not sure if ‘revolution: history and theory’ is still taught in universities, as it was when I was an undergrad, but it’s certainly a fascinating and informative subject of study.

      Bunkers are of dubious worth, for several reasons. Their only chance of survival lies in complete secrecy. If their presence was suspected, opponents would eliminate the ‘geographic features’ disguising access and service inlets, plus any perimeter defences. At that point, the game is up.

      Even if this does not happen, the psychological effects of living in a bunker would quickly prove destructive. Will you ever get out? What’s happening ‘up top’? Will your companions, including your employees, remain loyal, especially as you can no longer pay them with anything material (you can’t spend money in a bunker, so it becomes worthless)?

    • @Dr Tim.

      I would add to that, that global elites are elites because of the structure of our existing society.

      If society collapses, when those elites come out of their bunkers, how are they going to coerce the remaining survivers to do their bidding?

    • Joe Neubarth is wasted on the internet.

      He should be a script writer in Hollywood.

  39. Pingback: Workers: MIA? – PM Fight Club – No-Win for Brits – GBP on the Rack? – Davos Losing – MoneyPox Scam – [07-30-22] – The Burning Platform

  40. Russian Propaganda:
    “It all has to do with energy. Not with technology—that’s incidental; not with military superiority—that’s fleeting and largely imaginary; certainly not with any sort of political or cultural self-righteousness—that’s delusional. There is no substitute for energy. If you run low, you can’t switch to running your industrial economy on fiddlesticks. It just shuts down. What’s worse, energy sources are not even particularly substitutable for each other. If you run low on gas, you can’t just switch to coal or to dried dung, even if you are up to your neck in it. Modern industry runs on oil, natural gas and coal, in that order, and they can be substituted for each other in very limited ways.

    Furthermore, energy has to be very cheap. Oil has to be about the cheapest liquid you can buy—cheaper than milk; cheaper even than bottled water. If energy isn’t cheap enough, then all the energy-hungry industry that runs on it becomes unprofitable and shuts down. That’s the stage at which we are now in much of the world.”

    From Dmitry Orlov. I would characterize what he is describing as “thermodynamic depletion”. We have built a structure which depends on very cheap liquid energy…because that was what we had when we put it all together. If we had never had it, we might still look like Adam Smith’s pin factory. Or maybe like Geoff Lawton’s Zaytuna Farm. While it is possible to run a pin factory or a subsistence farm on cheap liquid energy, it is not possible to run the modern economy on anything other than cheap liquid energy. Which implies breaking everything and putting it back together in some feasible structure that can accommodate much higher energy costs. I proposed that some relatively top-down direction, as opposed to representative democracy controlled by money, is required. A good example is the Colorado River water. It is plainly evident that the household use water and the agricultural water and the water which produces vast amounts of hydroelectricity is failing. The Secretary of the Interior made a tough speech about the States either agreeing ro some new method of allocating scarce water…or she would do it for them. From what I hear, that ultimatum is being walked back and political posturing and postponing decisions to the last possible minute is now expected. I understand a politician’s need to obscure screwing some particular interest group with a heavy smoke screen, and to solicit bribes from all concerned. I suggest that the same fundamental scarcity afflicts us in terms of liquid energy, and that, in a representative democracy controlled by money, we are likely to get the same result.

    I haven’t tried to make a statistic, but I would guess that for every line about the continuing decline in hydro produced there are 100 lines about a few human remains being discovered.
    Don Stewart

  41. More Russian Propaganda
    “Russia proposes to create a market for gold, platinum, etc., which will be regulated by countries that control the resources for these metals. This would be, simply put, a revolution. On the basis of this new market, it intends to further the system of bilateral trade in national currencies that specifically excludes dollars, euros and pounds…”

    How serious this is, I am not sure. But the hurried one hundred percent agreement in the US Senate that Russia is engaged in “state sponsored terrorism” leads me to believe somebody thinks it’s serious. The US will remind everybody that we did not construct a Maginot Line..All those guns aimed at Russia WILL swivel.

    Don Stewart

  42. I just saw two stories online that refer to the announcement from MBS of saudi arabia that SA oil production will peak in 2027 at 13 million barrels per day. this is both much less, and much sooner than was previously thought regarding saudi production. The statement did not seem to leave any room for later upward revision. Therefore it is thought to be geology driven rather than based on projections of demand and maximization of revenue. My question: will this finally get everyone’s attention and prompt a serious consideration of the consequences, or will wishful and delusional thinking reassert itself and we continue to kick the can down the road? I realize the motivation is great to invent fairy tale solutions but I am thinking that the appetite for fairy tales may be greatly diminished. Or it could mark the beginning of the last great resource war. It’s hard to see how perpetual “economic growth” is consistent with these circumstances. Let’s hope that cool heads prevail and that political leaders begin to realize their economic advisors have been misguided, and that surplus energy economics is the key to at least understanding situation.

  43. “Let’s hope that cool heads prevail and that political leaders begin to realize their economic advisors have been misguided…”

    that’s too much to reasonably hope for.

    the European winter from he!! is coming, and that will get the attention of the so-called “leaders” in Europe.

    after that, what lessons will they have learned?

    probably zilch.

  44. Measure of centralization of political control of the economy
    From Gowdy, these are the percentage government expenditures of GDP
    The highest is France at 56 percent. The other advanced economies trail down to Switzerland at 34 percent. The US is 43 percent. Mexico and India are 27 percent and China trails at 24 percent. So we might suspect that structural reform will be politically hardest to do in France and easiest to do in China. If France tries to cut expenditures to the level of China, there will likely be very strong resistance. We might guess that, if a reduction is forced by energy decline, France may collapse while China may be able to adjust with incremental changes. Of course, there are other relevant factors such as reliance on exports of imports of essential resources.

    Don Stewart

    • Two comments.

      First, the data I have on China is that govt. expenditures were 33% of GDP in 2021. This has risen very rapidly – as recently as 2007 it was only 18%. I have France at 59% last year.

      Second, a lot depends what government spends money on. Part of this is public services, and part of it is transfers, such as pensions and benefits. This nets off to zero for the country as a whole.

      The transfers part is political, i.e. how much do voters want the state ‘take from the better-off to give to the worse-off’? Services, on the other hand, are an allocation of resources (measurable as GDP, though obviously I prefer to reference prosperity).

      If, say, France wants to cut public spending, they could reduce pensions or welfare.

      Alternatively, they could cut public services. The latter is the real measure of how much of the economy is ‘allocated to’ or ‘appropriated by’ the state. This is the bit I concentrate on.

      Once we know what resources are – I measure this as prosperity rather than GDP – we have four segments of allocation:

      Household necessities
      Public services
      – these two, together, are my definition of “essentials”
      Capital investment (in adding or replacing productive capacity)
      Discretionary consumption

      The last is the residual, i.e. what’s left after the other three have been deducted from resources.

      The ones that can be cut are public services and investment.

      Nobody really seems to analyse “resource allocation” on this segmental basis. I think it’s very important.

    • @Dr. Morgan
      The way I was looking at it, and I think the way Gowdy is looking at it, is from the perspective of the difficulty of making the necessary change. Of course pensions CAN be cut, but from the perspective of a lot of voters that amounts to theft. Thus, resistance and more difficult to make the change. It is a widely accepted fact of psychology that loss is more important than any possible gain. If my pension is cut and I am told that it will lead to a stronger France…well, a psychologist can pretty well predict the reaction.

      In terms of China, I never know how the data are being presented. Many of the provinces raise and spend and borrow money independent of the central state. I think it is probably also easier for a province to have to cut back as opposed to the central government. People can vote with their feet in terms of provincial government. It gets more complicated to leave China for Canada or the US.

      Don Stewart

    • @Dr Tim Morgan, “Nobody really seems to analyse “resource allocation” on this segmental basis. I think it’s very important.”
      Who should be doing this in the UK civil service (or political parties).

    • The orthodox line, which is supplied from numerous sources, is to accept GDP is a valid measure of economic well-being, and to divide into the three sectors of government, businesses and households.

      What we need is information based on prosperity, and divided into the functional segments of essentials, investment and discretionary consumption.

  45. Indi from Sri Lanka writes history from the perspective of the global south nations which had no oil and were disadvantaged by the petrodollar. A number of factors I had never thought very much about….Don Stewart

    “We’re squabbling over fossil fuels again, Empire is trying to assert the old imperial order, but economics and politics will be beggared by biology and physics soon enough. We’re really just fighting over cigarettes at our own execution.”

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