#242. The dynamics of global re-pricing



There is a growing acknowledgement that the World economy has entered a new era. We know that the cost of capital is trending upwards, with adverse consequences for asset prices. But there’s been remarkably little inclination to examine the underlying processes that are causing this to happen. Neither is there much in the way of recognition that entire sectors could be crushed, or even eliminated altogether, as re-pricing becomes more selective.

We need to dismiss any idea that this is temporary. There are some linkages connecting the resurgence of inflation with pandemic-era QE, and with the war in Ukraine, but these are little more than symptoms.

The underlying dynamic is that the economic driver of the industrial era – the supply of low-cost energy from oil, natural gas and coal – is winding down, and there is no assured replacement at hand. Transition to renewables is imperative, but there’s no guarantee that an economy based on wind-turbines, solar panels and batteries can be as large as the fossil-based economy of today. The probabilities are that it will be smaller.

Had we been prepared to do so, we could have seen this coming. The chain of causation starts in the 1990s, when the authorities responded to “secular stagnation” with deregulation programmes that made credit easier to obtain. The subsequent financial crisis forced the adoption of QE, initially to prop up the banking system, and latterly as a self-standing form of stimulus. We were assured, quite wrongly, that QE would not be inflationary, but it has created a systemically-dangerous “everything bubble” in assets.

The fundamental issue is that the material costs of energy supply have been rising relentlessly. We cannot “de-couple” the economy from energy use, and this report describes a remarkable linearity between the quantity of energy that is used and the economic output that ensues. Meanwhile, and whilst economic output is poised to contract, material prosperity will be further impaired by rises in the Energy Cost of Energy (ECoE).

The true cause of inflation is the worsening disequilibrium between the ‘real’ economy of products and services and the ‘financial’ economy of money and credit. The only way to tame inflation is to eliminate the anomaly of negative real costs of capital. Combined with deterioration in material prosperity, this points towards a fundamental re-pricing of the economy.

With the real costs of energy-intensive necessities continuing to rise, two parts of the economy are at particularly elevated risk. One of these is the supply of discretionary products and services to consumers. The other is those parts of the corporate and financial system which rely on flows of income from the household sector.


The global economy is heading for re-pricing, which means a fundamental change in the relationship between economic flow (including output, incomes and expenditures) and financial stock (the valuations of assets, collateral and liabilities). This process has already commenced – and is going to be chaotic – but its real causation has yet to gain recognition.

As we shall see, there is no non-inflationary way in which economic flow can be increased. This means that, as dynamics of this relationship change, stock valuation must fall.

The reduction of the global balances of assets and liabilities will be an uneven process, both geographically and between sectors, but the generality of financial stock degradation is likely to be of the order of 40-50%, measured from the start of 2022. Sectors providing necessities to consumers will fare better than those supplying discretionaries, for whom the outlook is grim.

The ‘why?’ of re-pricing is simple to describe, but making sense of it requires a major change in how we think about the economy. We need to move away from the economic orthodoxy which continues to assert that the economy is entirely a financial system, not subject to material limitations.

As well as meaning that there need never be any end to growth, the classical conception also asks us to believe that the flow of economic output can be measured by counting financial transactional activity. But transactional activity can be inflated using monetary policies, and it’s perfectly possible for transactions to take place which add no economic value at all. This makes GDP a particularly poor metric for the measurement of prosperity in the economy.

The prerequisite for effective interpretation is recognition that the economy is a system which supplies material goods and services to consumers. The provision of these products and services is a function of the use of energy.

Once this is understood, we need to draw a distinction between economic output and prosperity. Output is analogous to the income of a household, whilst prosperity corresponds to how much of that income remains after the costs of necessities have been met.

The economic output side of the equation involves the conversion of primary energy into economic value. This energy conversion ratio is remarkably static, hardly varying at all over the past forty years. Globally, economic output rises or falls in accordance with increases or decreases in the availability of energy.

The prosperity dimension of the equation is determined by the Energy Cost of Energy. This has been rising relentlessly over a very long period, and there are no realistic grounds for expecting it not to carry on doing so.

The pricing of assets is a function of a process of the futurity which links current prices with forward value expectations. The consensus forward projection has been, and remains, one of continued economic expansion, albeit with minor setbacks along the way.

But material trends are invalidating the money-only notation of classical economics. As this reality sinks in, the consensus futurity will be degraded, introducing a wholly new dimension into equations linking current pricing and forward expectations.

This is going to induce the equivalent of vertigo, as market participants realise that we’ve been pricing a future that cannot happen. The degradation of futurity will trigger chain reactions right across the interconnected, collateralized World financial system.


How can we know that this is going to happen? The answers lie, not in the ebb and flow of market sentiment or, for that matter, of policy, but in the fundamentals.

The effective interpretation of economic processes requires some straightforward foundation principles.

The first of these is that the economy is an energy system, because nothing that has any economic utility whatsoever can be supplied without the use of energy. This applies, not just to products and services, but to the entirety of the economy. The creation and maintenance of infrastructure and capacity is entirely reliant on the availability of energy. Access to raw materials – ranging from minerals, chemicals and plastics to food, fertilizers and water – is a function of the energy required to supply them.

The second principle is that energy is never ‘free’. Whenever energy is accessed for our use, some of that energy is always consumed in the access process. This ‘consumed in access’ component is known here as the Energy Cost of Energy. This is the principle of ECoE.

Oil isn’t ‘free’ because it exists beneath your land – you still need wells, pipelines, refineries and the rest of the supply system. Solar and wind power aren’t ‘free’ just because the sun shines and the wind blows – we still need solar panels, wind turbines and distribution systems, with the added complication of storage capacity to offset intermittency. None of this infrastructure can be built or maintained without the use of energy.

The third foundation principle is that money has no intrinsic worth. Rather, it commands value only as a ‘claim’ on the output of the material economy. This is the principle of money as claim.

From these principles, two conclusions naturally follow.

First, material prosperity is a function of the surplus energy which remains after ECoE has been deducted from total supply.

Second, the economy, as presented financially, is a representation or proxy of the underlying material economy determined by the supply, value and cost of energy.

This wouldn’t be a problem if conventional financial notation was an accurate representation of the material economy.

Unfortunately, though, it is not. We have to take a brief journey into history to see why.


The widening gap between material fact and financial representation can be traced all the way back to 1776. The huge, complex and energy-intensive economy of today began when James Watt unveiled the first really efficient device for converting heat into work, giving us access to the vast energy resources contained in fossil fuels.

Adam Smith’s The Wealth of Nations, published in that same year, was the foundation treatise for a school of economics which seeks to explain everything in terms, not of energy, but of money alone.

Writing as he was in an agrarian, low-energy economy, Smith cannot be blamed for not anticipating the transformation that would result from work that his fellow Scot was at that moment completing just a few miles away. But his successors can, and should, be criticized for a blind adherence to precepts which, by insisting on the financial, rigorously exclude the material.

With material factors disregarded, it becomes perfectly possible to predict infinite economic growth on a finite planet, a proposition which no sensible person should accept. Perhaps Kenneth Boulding, co-founder of general systems theory, put it best, when he said that “[a]nyone who believes exponential growth can go on forever in a finite world is either a madman or an economist”.

On the flimsy foundation of immaterial, money-only interpretation, classical economics has erected what its adherents are pleased to call the “laws” of economics. These, of course, are simply behavioural observations about the human artefact of money, and are in no way analogous to the laws of science.

One example is the assertion that price is the outcome of the interaction of demand and supply, both of which are, of course, stated financially. The inference is that price movements create an automatic adjustment whereby supply increases in accordance with rises in demand.

If demand increases, this logic runs, prices rise such that producers have sufficient incentive to deliver a corresponding increase in supply. Higher prices also reduce demand, but the assumption remains that rising prices create additional supply. Supply is thus a function of demand, mediated by price.

But this could only work if the possibility of unlimited expansion of monetary demand was matched by a correspondingly infinite potential for material supply.

The reality, of course, is that no increase in demand, and no rise in price, can supply anything which does not exist in nature. The banking system cannot lend low-cost energy into existence, any more than central bankers can conjure it ex nihilo from the ether.

Instead of the outcome of some theoretical equation involving financial supply and financial demand, prices should be defined as the monetary values assigned to material products or services. If the balance between the financial and the material changes, prices change with it.

This should be obvious, even to those who insist that QE ‘doesn’t cause inflation’. To be clear about this, the use of QE during and after the GFC (global financial crisis) of 2008-09 may not have caused consumer price inflation, but it most certainly triggered harmful asset price escalation. When, during the pandemic, QE was aimed directly at households rather than, as hitherto, at asset markets, consumer price inflation necessarily ensued.

The mythology of economic infinity remains tenacious, and is evidenced whenever political leaders offer assurances of economic “growth” to the public. The problem at the heart of the ongoing fiscal fiasco in Britain has been the insistence that growth can be manufactured through a carrot-and-stick blend of incentive and need – if the financial framework is right, the argument runs, the better-off will have the incentive to invest, and everyone else will be compelled to work harder, thereby improving productivity. At no point has it been considered that, with global material conditions as they are, meaningful economic “growth” cannot be delivered at all.

Even the conventional calibration of productivity is misleading – dividing economic output by the quantity of human labour is of little real relevance, given that labour is a truly tiny component of the energy used in the modern economy.


Until comparatively recently, the divergence between the material and the classical-financial hasn’t been readily apparent. The heirs to Watt have carried on growing the economy, and the heirs to Smith have carried on representing this growth as the product of financial rather than thermodynamic processes.

Now, though, the energy dynamic is winding down. The supply costs of oil, natural gas and coal are rising through the effects of depletion. There is no assured, like-for-like replacement for the energy value sourced from fossil fuels. Prior growth in material prosperity has gone into reverse.

This is not reflected in financial calibration of economic flow. This calibration will become mistrusted before a new system of economic interpretation and quantification arrives to replace it.

Simply stated, market participants will suffer a loss of faith in what they’re being told about the economy. This will result in downwards revisions of ‘futurity’, a term describing those perceptions of the future that are priced in to the valuation of financial stock. Rising risk premia will be the first manifestation of a much more fundamental realignment between the financial and the material.

We have a choice between getting ahead of the curve on material recognition, or hewing to the tried-and-failing notions of wholly immaterial – financial – causation and explanation.

Based on the principles outlined earlier, there are three things that we need to know. First, how much energy supply can we expect in the future?

Second, how does the use of energy translate into economic value? Third, to what extent will cost trends cause prosperity to deviate from output thus calibrated?

These are complex issues, made more so by orthodox economic conventions which, as exemplified by GDP, conflate transactional activity with material economic output.

A relatively brief set of answers to these questions requires the use of no less than three sets of charts (Figs. 1, 2 and 3), sourced from SEEDS (the Surplus Energy Economics Data System).

The measurement unit used here for energy is the tonne of oil-equivalent (toe). Financial numbers are stated in international dollars, converted from other currencies, not at market rates, but on the more representative basis of purchasing power parity (PPP), which is the convention used for measuring and forecasting global growth. Unless otherwise stated, financial numbers are expressed at constant 2021 values, so the notation is $PPP 2021.


Historically, we can observe that, whilst global real GDP almost quadrupled (+292%) between 1980 and 2021, World consumption of energy slightly more than doubled (Fig. 1A). The implication is that the efficiency with which energy is converted into economic output improved by 85% between those years (Fig. 1B). This makes it easy to understand the popularity of the mistaken notion that we can somehow “de-couple” the economy from the use of energy.

Accepting this at face value, though, would involve disregarding the rapid build-up of debt. Whilst energy use rose by 112% between 1980 and 2021, and GDP expanded by 292%, debt exploded, increasing by about 925% (Fig. 1C). (Comprehensive data for global debt gets hard to find as we scroll backwards from the 1990s, but the estimates used in Fig. 1C are intended to be consistent with subsequent trends – and, in any case, of the additional debt incurred between 1980 and 2021 [estimated here at $323bn], almost three-quarters [$239bn] has been taken on since 2000).

We may have increased GDP per toe of energy consumption by 85% since 1980, then, but the quantity of debt carried per toe of energy use expanded by 380% over that same period (Fig. 1D).

Fig. 1

The fact of the matter is that GDP and debt are not discrete series, because increasing debt boosts the transactional activity measured as GDP. If we reined in credit growth, GDP would, at best, stop growing and, if we tried to reduce outstanding debt, it would slump.

What we have witnessed in modern times is that reported GDP has been inflated artificially by super-rapid debt expansion.

It’s worth reflecting that, if this were not the case, we could reach a point of complete absurdity – the economy would become both extraordinarily wealthy (in terms of GDP), but also bankrupt (through the sheer weight of liabilities which the system couldn’t possibly honour).

The ratio between borrowing and growth has averaged slightly less than 3:1 since 1980, meaning that almost $3 of debt has been added for each $1 of reported growth in GDP. There has been an upwards tendency in this global trend, and the ratios in many of the advanced economies of the West have been appreciably higher than World averages.

This relationship is pictured in Fig. 2A, which compares GDP growth with debt expansion, the latter expressed as a percentage of GDP. Between 1980 and 2021, real GDP expanded at a compound annual rate of slightly less than 3.4%, but the real rate at which debt increased exceeded 5.8%. Reported “growth” of 3.4% was achieved by borrowing at an average annual rate of 10% of GDP.

The SEEDS economic model strips out this ‘credit effect’ to calibrate underlying or ‘clean’ economic output, known here as C-GDP. The annual rate of growth on this basis was materially lower between 1980 and 2021, at slightly less than 1.9%, rather than 3.4% (Fig. 2B). Accordingly, underlying output increased by only 114% – rather than the reported 292% – over that period (Fig. 2C).

Critically, the calculated expansion in C-GDP (of 114%) tallies almost exactly with the increase in energy consumption (112%) over this forty-year period. Put another way, the relationship between underlying economic output and the use of energy is linear.

This was not an anticipated finding during the financial calibration of C-GDP back to 1980 from its previous start-date in 2000. But it reinforces the view, which has been demonstrated in various financial and non-financial ways, that “de-coupling” the economy from the use of energy cannot happen. The European Environmental Bureau reached this conclusion in 2019, describing the case for de-coupling as “a haystack without a needle”.

In short, if we consume less energy, the economy gets smaller. Likewise, if we use less energy per capita, the average person gets poorer.

This doesn’t necessarily describe individual national economies because, just as primary energy is traded between countries, so are energy-containing products. A country can, for example, consume less energy simply by importing cars and computers – or, for that matter, food – rather than producing these items at home.

Looking ahead, though, such trades are likely to be moderated by arbitrage, to the detriment of economies which rely heavily on the import of energy-intensive commodities and products.

The overall situation is what matters, and this is that reductions in global energy supply lead to a shrinking of the World economy.

Fig. 2


SEEDS projections for World energy use are illustrated in Fig. 3A. Essentially, supply is expected to be 10% lower in 2050 than it was in pre-pandemic 2019.

Within these totals, it’s estimated that fossil fuel production will decline by 26%, a decrease of rather more than 3.0 bn toe. Though rapid, growth in output from renewable energy sources (REs) is likely to make up less than 1.2 bn toe of this shortfall. The combined contributions of nuclear and hydroelectric power are projected to increase by 28%, but these are too small a share of the energy slate to offset the decline driven by the falling availability of energy from oil, gas and coal.

As can be seen in Fig. 3B, there may be a very slight, and probably temporary, improvement in the conversion ratio between energy and economic value expressed as C-GDP. The assumption involved here is that a significant proportion of energy-intensive, non-essential economic activities will contract rapidly through decreases in affordability. But it’s extremely unlikely that there will be material or lasting deviation from the linear relationship between energy use and economic output.

Accordingly, C-GDP is projected to be 8% lower in 2040 than it was in 2021 (the grey line in Fig. 3D), matching the expected decline in primary energy supply over that same period.

As we have seen, though, output isn’t the same thing as prosperity, the difference between the two being the prior claim on resources made by the Energy Cost of Energy.

Fig. 3C shows the projected continuing rate of increase in overall global trend ECoE. The rates of decrease in the ECoEs of renewables are expected to slow, and may then start to rise. There are physical limits to the potential efficiencies of both wind (the Betz Limit) and solar power (the Shockley-Queisser Limit), limits which are well explained here. It’s extraordinarily unlikely that the storage cost-efficiency and flexibility provided by a simple fuel tank are ever going to be replicated by batteries. Moreover, fossil fuels are not subject to the burdens of intermittency.

Critically, the vast material inputs required for RE expansion can only be provided through the use of legacy energy from fossil fuels. This creates a linkage between the ECoEs of fossil fuels and the ECoEs of renewables.

It should never be forgotten – though it almost routinely is – that the potential capabilities of technology are limited by the laws of physics.

These are important points, because it’s all too easy to assume that the economy can transition, seamlessly, from fossil fuels to renewables. This mistaken assumption – and it’s no more than that – informs vast swathes of corporate, financial and government planning.

The application of ECoE to the projected outlook for C-GDP reveals that economic prosperity – shown in blue in Fig. 3D – is set to fall a lot more rapidly than material output itself. By 2040, global prosperity is projected to be 16% lower than it was in 2021. If population numbers continue to rise, albeit at historically low rates, prosperity per capita could decrease by 27% between 2021 and 2040.

At no point since 1776 – not even during the Great Depression between the wars, which caused severe hardship, but was temporary – have we ever had to confront anything even remotely comparable.

None of this, of course, is yet incorporated into the futurity currently priced by the markets. But the unfolding deterioration in underlying economic conditions can be expected to compress the gap between financial expectation and material economic reality.

Fig. 3


The foregoing should have made it clear that two diverging trends have shaped the economy over an extended period. On the one hand, the material economy of products and services, determined by energy, has been decelerating towards involuntary de-growth.

On the other, extraordinary levels of financial commitments have been taken on in an ultimately-futile effort to counteract or deny this tendency. These trends, and some of their future implications, are illustrated in Fig. 4.

Since the late 1990s, the financial economy, measured as GDP, has diverged from the material or ‘real’ economy to the point where the downside between the two has widened to 40% (Fig. 4A). There can be no indefinite prevention of the restoration of equilibrium between the material and the financial, and this has direct read-across implications for the levels of liabilities depicted in Fig. 4B.

Though the global debt mountain is serious, real exposure needs to be referenced to those broader ‘financial assets’ which are the liabilities of the government, household and business sectors of the economy. These broader liabilities include the NBFI (non-bank financial intermediary) sector, sometimes called the “shadow banking system”.

As we saw in a recent article, available data is incomplete, accounting for 85% of the global economy, but quite possibly excluding major asset exposure in specialist financial centres not included in reported numbers. A best estimate is that total financial exposure stands at about 575% of World GDP, but 925% of global prosperity.

Perhaps the single most disturbing aspect of worsening imbalances is the extent of leverage embodied in the economy and the financial system.

As we have seen, a projected decrease of 8% in energy supply between now and 2040 produces a corresponding decrease in real global economic output. But rises in ECoEs leverage this into a 16% fall in aggregate prosperity.

This implies that prosperity per capita will be about 27% lower in 2040 than it was in 2021. But the cost of energy-intensive necessities will carry on rising markedly, in response to increases in ECoE. This is illustrated in Fig. 4C. This implies a near-50% fall in the affordability of discretionary (non-essential) products and services, even though top-line economic output is only projected to fall by 8%.

Fig. 4


This leverage is critical, because the affordability connection ties the sustainability of financial liabilities, not to top-line output, but to PXE, the SEEDS term for “prosperity excluding essentials”. When we consider, for example, the affordability of mortgage payments, it’s clear that this affordability must be related, not to total household incomes, but to household disposable incomes, and much the same applies at macroeconomic level.

This is why, where the business and broader economic outlook is concerned, we have entered an affordability crisis. This has two implications.

First, and most obviously, consumers whose disposable resources are being compressed between falling incomes and the rising costs of necessities experience a leveraged reduction in what they can afford to spend on discretionary purchases.

Second, it becomes ever harder for households to sustain payments on everything from secured and unsecured credit to subscriptions and staged-payment purchases.

In short, not only will sectors supplying discretionary products and services to consumers experience a relentless deterioration in volumes and profitability, but the same thing will happen to those parts of the corporate and financial ecosphere which rely on streams of income from the household sector.

Where segmental projections are concerned, it should be noted that the data in Figs. 4C and 4D is harmonized. This means that, whilst GDP in 2021 is accepted as the baseline – enabling comparison with other sources of forecasts – prior and future trends are restated in accordance with energy-based calculations of output and prosperity. The segmental balance illustrated in Fig. 4D shows that the affordability, not just of discretionary purchases but of capital investment as well faces severe compression.


The final set of charts – Fig. 5 – looks at the broad economic structure, inflation, and the critical divergence between expectations and probable outcomes.

Fig. 5A provides an at-a-glance view of the five core components of the economy. One of these is C-GDP output, which correlates closely with energy availability. The second is ECoE, a deduction which itemises the difference between output and prosperity. Next, in this leveraged equation, comes the estimated cost of essentials. The remaining components are discretionary consumption and capital investment, which are the residuals in this leveraged situation.

RRCI – the Realized Rate of Comprehensive Inflation – is the SEEDS tool for measuring systemic price change. Historically, this has been materially understated by the GDP deflator measure used to calculate ‘real’ economic output and growth (Fig. 5B).

Barring outbreaks of monetary policy derangement, the outlook is for RRCI to trend downwards, though remaining above officially-acknowledged rates of broad inflation. Though the costs of essentials will continue to rise, we should anticipate severe and worsening deflation across the discretionary and ‘stream-of-income’ sectors of the economy.

Comparing probable outcomes with expectations is a critical component of planning and strategy – essentially, good decisions can be made by those who understand why consensus expectations are mistaken.

As shown in Fig. 5C, past misstatement of the financial equivalent of material economic performance leads to over-optimistic expectations for the future of the economy. This applies even more strongly to the affordability of discretionary products and services (Fig. 5D), where past trends provide no effective guidance at all to the impending rapid decline of discretionary consumption.

Fig. 5

492 thoughts on “#242. The dynamics of global re-pricing

    • The issue with bail-ins is the solvency of commercial banks. Simply stated, what do we do if banks have lent to people who cannot repay?

      On a sufficient scale, this can exceed a bank’s capital reserves, making the bank insolvent. In the GFC, this was made good by the government, which took on large amounts of additional debt for this purpose. Bail-ins, as an alternative, restore solvency by confiscating funds that banks owe to creditors.

      There are huge issues around this. For a start, are deposit-holders investors in the bank, or are they customers? In general, I would say the latter, though the issue is blurred with some savings products. Should reckless borrowers (i.e. those who cannot repay) be rescued by penalising the prudent (savers)?

      My view is that, if customers lose their money in any of a country’s ‘high street’ banks, that country’s reputation for financial reliability takes a permanent hit. It would be better to use QE to prop up the banks than to let this happen.

    • “ . . .Credit Swiss
      25:34 or Barclays in 2008 well how they got out of the crisis . . . they created their own capital out of nothing . . . “ ?

    • I think you’re referring to the UK, and to “Brexit”.

      In economic terms, there were two ways of arguing for “Brexit”. The first is ‘Brexit will boost the economy’. That never made sense, because you cannot boost an economy by severing links with your biggest trading partner, and promoting dis-economies of scale.

      The more realistic version was ‘Brexit will make us poorer, but that’s a price worth paying for taking back control’. That’s a lot more honest, but the problem with it is that there are limits to how much control any nation can have in the modern hyper-interconnected global economy.

    • Maybe the UK is an early adopter of things to come.

      And you know what they say about early adopters.

      Without surplus energy, you’re just another chimp, lost in the woods. The EU is the gorilla without the room.

    • Doc, don’t underestimate the situation. There’s no economy in the way we think of it. There’s only de-growth, managed by lies and currency printing. Tectonic plates are moving for the human species. What i mean is; the UK left a building that is already on fire. Kick out your migrants and become self sufficient asap. All hands on deck. Prepare for very hard times. Do NOT think we can manage de-growth with 8 billion people in a JIT economy. People start poking eyes over a flatscreen on black friday.

      I bought several wool blankets from a army surplus about 12 years ago. And after that some more stuff. Not much, not expensive. Stopped paying off my mortgage. Having fun with my family. Watch out for government overreach. Ask mr Molotov how to not comply. Be gray, be careful. Be brave, be respectful. Chimps start killing neighbors when they run out of food. It really is that simple.

  1. The gathering storm?

    “Made.com’s collapse is likely to be the first of many, with online retailers experiencing the perfect storm of supply chain pressures and a looming recession,” warned Sean Moran, insolvency partner at law firm, Shakespeare Martineau.

    With the company warning of job losses as early as July this year, it is clear that the business has been struggling for some time.

    Brand reputation and customer service are integral to the success of any business, particularly in the current climate. Operating in such a fiercely competitive space as homewares provides additional challenges. After increasingly lengthy delivery times caused by supply chain and logistic issues, it appears that many customers began to cancel orders and seek refunds.

    With a business like Made.com much of the value lies in its intellectual property, technology, and branding. The administrators have maximised that value by way of a sale. Popular high street retailer Next has bought the brand, websites and intellectual property after the company’s co-founder and former boss’s offer to purchase was rejected.

    Economic pressure continues to mount for the e-commerce sector, with the share price of online fashion giant ASOS also reportedly falling by more than 80% earlier this year, as well as the recent demise of online mattress retailer Eve Sleep. As consumers continue to tighten their belts due to of the cost-of-living crisis, retailers will have to work harder to entice purchasers, particularly for luxury or high-value items.

    • Judging by the number discount emails I receive on a regular basis, Asos being one of them, some other companies are unlikely to be far behind Made.com. A lot of companies that have done incredibly well during the Covid pandemic are now failing. Perhaps there will be some good things to come out of it like less crazy, instant consumption and reduced rubbish in landfills.

  2. The morning after . . .

    Here in the U.S. politicians from both parties have now conclusively proven that it is possible to run on the basis of nothing, and get elected. With the previous achievement of the complete divorce of law- and policy-making from the interests of the people, well established in the September 2014 Princeton University study, “Testing Theories of American Politics,”* this second achievement — marking a new, beatific state of being for politicians — now marks the goal of complete divorce of “governance” (more accurately, ruling) from (i) the people, in favor of corporations, and (ii) the constraints and conditions of physical reality, the only measure of action now being whether or not the corporations want it and the only measure of success being whether they are satisfied with, and yet satiated in, their goals.

    *”Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial
    independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no
    independent influence. . . . . The failure of theories of Majoritarian Electoral Democracy is all the more striking because it goes against
    the likely effects of the limitations of our data. The
    preferences of ordinary citizens were measured more
    directly than our other independent variables, yet they
    are estimated to have the least effect.”

    • Ilargi at The Automatic Earth put this up yesterday, quite apropos of our current predicaments:

    • have you watched any of Gonzo Lira’s roundtables?
      some of them have been pretty insightful, it’s time consuming but can be quite informative,


      #5 with Theodore Postal was eye opening, the latest one, #33, looks at international finance and what the hell is really going on,

      Alex Krainer has just published a book on Bill Browder and that is a fascinating story in itself,

    • @Matt

      Thank you for the recommendation to watch round table #33. This has helped to make sense of the past six years for me and somewhat the past 14 then i’ve heard anywhere else. I highly recommend people listen to the entire thing.

  3. Pingback: #242. The dynamics of global re-pricing – Olduvai.ca

  4. Hagens and Berman
    I don’t think I have seen this scenario which Hagens and Berman develop described as I will describe it here.

    The column of crude oil must be fractioned in a refinery. Suppose we want only the heavy fractions to power trucks, ships, trains, and airplanes. We still have to do something with the light fractions. For example, if we don’t burn the gasoline fraction in automobiles, we have to burn it as waste. A small amount of gasoline could be devoted to building EVs, but the bulk of the EV will require the heavy fractions. Thus, the demand for the heavy fractions will increase significantly if we both maintain the existing consumer economy and also build a new infrastructure which will ultimately run on electricity. Plus, the new infrastructure will likely still require heavy fractions to do the mining and heating required to provide the materials.

    In short, investing in EVs will increase the consumption of crude oil AND ALSO require a lot more electrical generating capacity. The electrical generating capacity will likewise require more of the heavy fractions.

    Somebody clever with numbers could approximate the increased cost, with worse environmental impacts.

    In short, unless we can somehow figure out how to handle the movement of heavy weights without heavy crude oil fractions, the Green plan is hopeless. The most likely course is simply a reduction in standard of living. Since half the people in the world are living on very little, we can expect the standard of living in the rich half to decline precipitously. Whether we squander a lot of the heavy fractions pursing options which cannot work remains to be seen.

    Don Stewart

    • “… the Green plan is hopeless.”


      “The most likely course is simply a reduction in standard of living. Since half the people in the world are living on very little, we can expect the standard of living in the rich half to decline precipitously.”


      “Whether we squander a lot of the heavy fractions pursing options which cannot work remains to be seen.”

      “squander” is what humans do, so it is very very likely to continue.

      que sera sera.

  5. Extract from Ambrose in the Telegraph.

    IThe imponderable is Vladimir Putin’s war, but ultimately energy supply shocks are not fundamentally inflationary. They are a change in relative prices, with deflationary effects for the rest of the economy unless accommodated by monetary stimulus’

    So energy supply shocks are not inflationary?

    If he means that we all adjust our demand and all industry becomes as energy efficient as possible then perhaps.

    But if we decrease demand he then speaks about monetary stimulus which would surely increase demand.

    I’ve obviously missed something here


    • It’s the sign of the times of the intellectual standard of the West.

      Many so called economists like him that give the field a bad name.

      Absolutely clueless.

    • We must be reaching the end of the road as the ‘magical thinking’ Jim Kunstler always talked about is becoming increasing prevalent among the managerial classes.
      If we just believe hard enough ‘progress’ will rescue us!

    • Yes, this is Jim’s magical thinking, but it’s also tied up with assumed cyclicality around a trend-line that is always positive.

      The general mindset is that every recession is followed by a recovery, and every market slump by a rebound. In a recession, the task is thus framed as making the best of things until the inevitable recovery arrives.

      Looking objectively, we can see economies whose recessions won’t end., and market sectors that won’t recover. But the concept of trend inflexion is neither understood nor discussed.

    • I think that it will eventually dawn in people that the ‘everlasting party’ we’ve enjoyed since the 1950s is over – at least until we get our energy problems sorted out.

      There was a great article written about renewables in the Spectator this week by Ross Clark called – The true cost of renewables.

      It’s the age old problem of the high cost of storage and how much we have to pay for emergency back up of extra power generation.

      It’s a pity the so called Global stilling has arrived affecting our turbines – perhaps we should have invested in tidal power – but no doubt the Moon would have been blown out of orbit.

    • It certainly hasn’t dawned yet.

      In the markets, every bit of positive news, however minor or unrepresentative, is seized upon with glee. There are equally strong assumptions that every recession-hit economy, even the UK, just has to muddle through to the next recovery. Yet evidence to the contrary is all around us. No alternative source of energy is going to give us a complete, like-for-like replacement for fossil fuels.

      I’m getting ever more convinced about trend inflexion.

  6. Indeed – I remember the period well especially when the cost of a pint of lager shot up from 15p to an unthinkable 20p in a very short space of time.

    As a pint of lager approaches £10 in some parts of London, it makes you wonder what sort of economic training current financial journalists have had.

  7. @ postkey

    I stopped listening to your link when, at 36.39, the guest speaker states ‘….. there is almost no limit to growth….’

    I don’t know he expands on the ‘almost’ later in the talk but alluding to human ingenuity and technology always providing growth, I switch off.

    • I find this very interesting indeed.

      The speaker is extremely good on the banking and money creation equation, which he explains very well, up until your 36.39 moment. But then he says that ‘there is almost no limit to growth’, which makes no sense at all, for reasons that we here understand.

      This exemplifies a complete disconnect between monetary and material economics. My advice to anyone thinking about this is to understand the linkages between the two.

      Monetary and banking theory has been dominant in policy and investment for a very long time. But this approach disregards, or does not accept the existence of, material limits to economic expansion.

      Ideally, investors would ride the monetary bubble but with one eye always on the material – that tells them when to pull out, and where to store their gains.

      I should add that I agree with him on the concept of ‘credit control’. The idea, in principle, is that it should be easy to obtain credit for ‘productive purposes’, but much harder when the intended use is speculative rather than productive.

  8. Reminder
    The big jump in the stock markets in the US over the last few days should remind us that when the financial system creates enough money, it’s going to go somewhere.
    Don Stewart

  9. Here is a claim that RE have higher an EROI – lower ECoE – than fossil fuels:
    A quote: “Not only do renewables have sufficiently high EROIs to power our society, they are much higher than the EROIs of the fossil fuels they are replacing! In fact, these results suggest that only through the energy transition can we maintain a functioning society.” Creative accounting, magical thinking or physical breakthrough?

    • I don’t think (unless I missed it) that there are any claims of physical breakthrough. It’s more about commonality of comparisons. I’m interested, but not convinced.

      The materials question seems critical. A single 1.5 MW wind turbine requires 600 tonnes of concrete, 190 tonnes of steel and 9 tonnes of copper. This is just generation, without transmission or storage. Each 1 lb of finished battery requires 50-100 lbs of raw materials. How much energy is required to produce these inputs, do these materials exist at the requisite scale for global transition, and can they be supplied with only RE energy? How much environmental damage is associated with material extraction and processing?

      I think that anyone interested in this should also read this article by the Manhattan Institute.

    • “Creative accounting, magical thinking or physical breakthrough?”

      Not really any of those, but magical thinking comes closest. What has really screwed industrial civilization is a failure to imagine what would happen when fossil fuels run out. We built a whole industrial and civilian infrastructure on an finite supply of energy that was rapidly being depleted.

      The problem is not that an industrial civilization could never be (or have been) powered by renewable technologies, solar thermal systems virtually identical to those in use now were developed before WW1, it’s that the transition away from fossil fuels was not attempted until far too late for the transition to be completed.

      Electrifying transport and most other industrial processes would have to accompany a renewable energy system, so not only would we need a massive buildout of renewables to supply the energy, we need a complete redo of our transport, space heating, and industrial processing infrastructure, too.

      It’s now much too late to do it. It would have been tough to do even starting in the 1970s after the first energy crises, but waiting until recently to just dabble in a transition is not going to cut it. It takes energy to build a new energy system and the new infrastructure to use that energy. Where’s the energy going to come from now?

    • I think when major Governments wake up to the full reality if this there will be an – every man for himself – hydrocarbons grab to power the transition.

      I suspect wars will break out in any oil / gas rich country.

      Russia could well get invaded by China who will be hungry for their energy wealth.

    • The numbers on any renewables or nuclear for that matter can be, and are made to look good by a lot of fudging only. All EROI numbers are provided we use fossil fuel inputs for the energy invested part.

      If we were to use electricity generated by solar, wind and nuclear, to make these man made energy sources, via a lot of conversion processes to make it possible, as in hydrogen and synthetic fuels, synthetic plastics (for insulation on copper wires for example), then they turn very negative because of the huge inefficiencies in using electricity to mine, make and build things.

      Electricity is great for operating things already built. It’s why renewables seem so ‘good’ to most households, as people don’t make things in houses, we use electricity to run things.

      None of these professors ever want to discuss a realistic like for like example, they always fudge here and there to prove a point while missing the overall picture. Solar and wind are great providing the cost of the grid is born by ‘other’ energy sources, and they get to go first, and they don’t have to provide reliable power or back-up.

      Fossil fuels throw off such huge excess energy, they pay for these necessary extras, solar and wind advocates never want to account for it as the grid already exists. The grid is built and maintained by fossil fuels, all parts of it were manufactured by fossil fuels and that is just the start. The roads the maintenance crews for grid repairs travel on were built with fossil fuels, the parts needed are made and transported across oceans by fossil fuels in fossil fuel built ships.

      The truth will unfold about renewables when they are required to make things, instead of just running things all without subsidy because of falling FF availability. That’s when collapse accelerates. Some countries are starting to undergo the process of collapse. As FFs become less available more countries will follow into the initial stages of collapse.

    • The schadenfreude we common folk might feel when seeing the “technocracy” about to be brought low by energy decline is misplaced. The collapse of energy availability will be a calamity for everyone in the developed world, whether their wealth is nominal or they have no wealth at all.

      As Watkins notes, some people may want to opt out of the economy that the elites have created, and it may work for a short while, but when modern civilization begins to fall apart for lack of energy, opting out of going hungry won’t be an option. The best we can hope for is that rationing will even out the distribution of hunger, but nothing will make it go away.

      Energy may be at the root of nominal wealth, so too bad for the wealthy, but it’s also at the root of real food supplies, so too bad for everyone.

    • This puts me in mind of an article I drafted some time back, but didn’t publish – it’s entitled Bunker mentality.

      This wasn’t really about whether it made sense for a wealthy person to hide in a literal bunker, which, of course, would be futile at best, and very probably a lot worse than futile.

      Rather, can a rich person put his or her wealth into any form that could survive, not simply catastrophe, but something far short of that. There are few workable solutions. Most billionaires’ wealth is in stocks – this is valid only until the market crashes. Cash is only safe for as long as banks are and, even if banks survive, the value of cash could be overwhelmed by inflation. It’s likely that anyone who is a billionaire wants to live like one, which in turn, given low returns on assets, suggests using them as collateral for borrowing – in other words, one could get wiped out with stock prices still well above zero.

      This tells us two things about money. First, and as I put it in Life After Growth, money is a claim on energy, and debt (and assets), as ‘claims on future money’, are claims on future energy.

      Second, money is, ultimately, flow, not stock, making hoarding it very difficult. Many writers, well outside economics, have discussed this. The one I’d mention is Kipling, where he says that the real wealth of Medieval bankers wasn’t what they had in their vaults, but their ability to divine (as water-diviners supposedly do) the “subterranean river of gold”. I quote from fallible memory, but what he meant was that true wealth resides in knowledge of the flow of money. A theologian wrote (in the 1950s) that hoarding money is actually counter-productive, as the reality of money is inflow and outflow, and hoarding can block this flow.

    • Yes.

      If you know where the money is going to flow to you will be the richest man or woman on Earth.

      Take Bitcoin as an example. If you purchased it at $1 and sold it for $50,000.

      It’s not important if it is worthless or not. Value is subjective and humans are stupid especially when it comes to greed (FTX anyone?). It’s taking advantage of the flow of money.

      Where can/will it go when the world is collapsing?

      In my opinion precious metals at some point will get a massive inflow of “money” or currency going into the space. The stampede will be something to behold.

      I don’t know when this will happen. Could be 1 year, 10 years or longer. Perhaps it could even be gradual at 10% per year.

      Not investment advice but a conclusion I have come to after trying to think where people are going to put their money when chaos in markets becomes a regular occurrence and the market cannot function with the volatility and unpredictability of price fluctuations and companies making losses etc.

    • Well the World will be better without crypto currencies as it will stop criminals demanding payment in them, plus save a huge amount of energy.

    • If I recall correctly from my early days in the City, a very wise man told me about the subterranean River of Gold idea before I read about it in Kipling. Water-divining – but for money, not water – is as good an analogy as any.

      The alternative, if we want to know where money is flowing, is analysis. This has never been easier than it is now. Energy-based analysis is telling us things that are crystal clear, but that the generality refuses to accept.

  10. When crypto has collapsed (Work In Progress- watch this space), and fiat money has been inflated until it’s worthless (also WIP), what’s left? It’s the same stuff that’s been around since ancient times. Precious metals.

    • Yes, crypto is heading towards its intrinsic worth, which is zero. But what do we do with PMs? We can’t eat them, or fuel our cars with them.

      Any form of money is a human artefact, validated by exchange.

      Dollars in your pocket have no intrinsic worth, but command value only in terms of the products and services for which they can be exchanged. PMs may be a better option than fiat – I’m not expressing an opinion on that – whilst anything (maybe a collection of stamps or baseball cards*) is better than crypto. But any form of money, including PMs, requires the capability of exchange if it’s to command any value at all.

      *There’s a marvellously entertaining novel about these cards – The Burglar Who Traded Ted Williams, by Lawrence Block. (The Bernie Rhodenbarr series, which starts with Burglars Can’t Be Choosers)

    • I looked up the etymology of ‘currency’


      currency (n.)

      1650s, “condition of flowing,” a sense now rare or obsolete, from Latin currens, present participle of currere “to run” (from PIE root *kers- “to run”). The notion of “state or fact of flowing from person to person” led to the senses “continuity in public knowledge” (1722) and “that which is current as a medium of exchange, money” (1729).

      what would happen if people adopted copper as an unofficial currency and began using it for informal transactions,
      could it become the glue that holds an emergent shadow economy together?

      it’s an interesting thought experiment, it’s more tangible than crypto’s and official fiat currencies, it’s much more accessable than gold for the common man, it could start off local and eventually become an international phenomena,
      one only need ‘mine’ the refuse streams of our landfill economy to obtain it.

      it’s a simple idea but becomes rather subversive as you take it to it’s logical conclusion.

    • Maybe the BRICs countries developing a rival to the petrodollar based on commodities, is a taste of things to come?

      It will be things that have utility that will become “precious”. Necessities (food),
      materials that have practical uses, knowledge and skills. Each exchanged for the other. “Money”, as such, may not be on the list. Ultimately, you can’t eat money or gold.

      As the only truly renewable energy source is photosynthesis, I think access to land will be desired above all else.

      Those with the land, allowing access to others in exchange for their labour. It’s how it used to work before the age of fossil fuels.

      My top tip. If you are looking for something to convert your money into, then land is tops.
      You’ll still need to figure out a way of holding onto it though, if The State can’t guarantee protecting your “right” to it.

    • It’s important to separate crypto and Bitcoin. Most crypto is no better than fiat currency and in most cases worse. But Bitcoin has no central issuing authority. It is an internet protocol based on maths. Open source and permission-less with the ability to transact with no counter party risk. It is probably the most important monetary phenomenon in the past couple of thousand years.

    • @David

      Your summary of the ‘properties’ of Bitcoin is excellent.

      Clearly (like 99% of the rest of the world ) many on this blog do not appear to appreciate the distinction between crypto and Bitcoin .I think this is because the matters covered here are mainly viewed through an analogue lens.

      Jeff Booth ( “The price of tomorrow”) and Saifedean Ammous (“The Bitcoin Standard”) and
      Michael Saylor are useful references for those who might wish to understand the difference.
      (There are lots of YouTube videos which are highly informative for those who wish to follow
      these individuals.)

    • #David and jomelco.

      But Bitcoin is totally reliant on energy. Probably the most energy intensive of all monies???? At least cash can circulate without much energy inputs after its initial creation/minting/printing.

      And there is a finite “amount” of it. Which makes it more of a “commodity” than an effective means of exchange. Hence the wild fluctuations in its value.

    • I think it’s also important to distinguish between the monetary and technology aspects of Bitcoin. Bitcoin is a monetary token priced against USD. I use the term money in the loosest sense, because actually it’s so volatile, that it isn’t really fit for purpose as a currency. That leads to the conclusion that it’s simply a highly speculative investment. One that’s been well and truly manipulated for sure.

      The technology (i.e. blockchain) is something that’s used for the creation and transaction of bitcoin, but in my view, stands alone as an entity in its own right. It may or may not prove to be a worthwhile innovation.

      In my experience the whole arena of bitcoin, blockchain, and the wider sphere of crypto are very divisive. You either love ’em or loathe ’em. There seems to be no middle ground. Personally I think it’s all deeply flawed, and see the vast amounts of energy that’s been used in the Bitcoin project as being a shocking waste of resources. Investment wise, I wouldn’t touch the crypto scene with a barge pole. I even shun it for short-term trading.

      I realise these views won’t sit well with everyone.

  11. Re:Conversation with Prof Richard Werner

    He lost me at ‘quantitative easing for more babies’. Doesn’t he understand there are limits to growth imposed by the laws of physics and the supply of affordable energy and resources ?

    36.38..’there is almost no limit to growth’. …despair but this seems to be the mainstream view…

    • Mainstream economics doesn’t allow for that possibility. The economy is entirely a financial system. Money is a human artefact, created and controlled by us. So the ability to promote growth is in our own hands. Why would we ever put an end to growth?

      Seriously, this inability (on the part of the consensus or ‘generality’) to comprehend the limitations imposed by the material on the financial is a huge gap in consensus understanding of the economy.

      Knowledge of this weakness should, therefore, be the basis of major competitive advantage, both in politics and in investment, for those who do understand it. I’m actively thinking through the implications, especially in the investment context.

  12. The BBC reports today that world population has now hit 8 billion. The UN projection is for a population peak of 10.4 billion in the 2080’s. That would be a reduction in available energy per capita of almost a third, if energy supplies remained constant at today’s level.

    However, we know the (real) outlook is for diminishing net energy availability, so it’s going to be a much worse reduction in energy per capita. Now there’s a social and environmental catastrophe that’s worth shouting about.

    Will this be on the table at the G20? I doubt it. Will any of the green protest groups bother to kick up a fuss about it? Almost certainly not.

    Every time I see the vandals from “just stop oil” carrying out their acts of social disorder, it strikes me that they would do us all a favour by morphing into “Just stop population growth”.


    • I’ll just throw this in, that I think population will decline very much sooner than the 2080s, and most probably in this decade or next.

      that being said, to me the probability of which year exactly would lean towards sooner rather than later.

      so I will guess 2023, though I will likely be wrong (but I don’t care).

  13. “major competitive advantage”
    or…maybe a handicap?
    I knew in 1964 that this is where the world would get to. I didn’t know how long it would take, but the outcome was as clear as crystal. Background: my job was to do some forecasting in the Permian Basin. At that time, the biggest roadblock to further growth in the Permian was the Texas Railroad Commission restrictions on oil output. While I was trying to put the bits and pieces together, Uncle Sam intervened and sent me to Fort Bliss, Texas for some R and R. I had plenty of time to study in the base library. I concluded that the world would run out of oil, and that our way of life would become impossible.

    So far, so good. But did I have an edge in terms of investing dollars? The answer turned out to be a resounding “no”. I bought some Standard of New Jersey (now Exxon Mobil) stock and watched it do absolutely nothing for a long time. Similarly, I thought that politicians and the public would come to understand the connection between the energy, and particularly its cost…about that time some people drilled 30,000 feet into west Texas and didn’t even find water…and the economy and way of life.

    So here we are decades later and the stock market elevated companies who made little to nothing. And debt was “free money”. And warehouses were moved from railroad sidings to land accessible only with diesel trucks. The security state seems to have understood it all, as the US has steadily pursued resource wars…but they have yielded little. It seems that cooperating with suppliers might have been a better strategy than trying to bomb them into submission. To even suggest that last sentence in Washington DC will make you a pariah.

    Is there anyone who thinks that our current crop of political leaders can find some way out of the swamp? And could a military coup lead us to any good solutions? I hope you young people can find a way out of this.

    Don Stewart

    Given our understanding of the actual condition of the world economy

    • Good points (and interestingly made), but things are different now, in two ways. The first is knowledge, and the second is timing.

      It seems to me that we now know a very great deal about how the economy really works. In this latest article, for instance, we’ve discussed the remarkably consistent relationship between energy use and C-GDP, and the further connections between C-GDP, GDP and debt. We know a lot about ECoE, and that – with the energy-conversion ratio – tells us a lot about the calibration of prosperity. We know that REs are unlikely to fix this, and certainly can’t ride to the rescue in time. We’re fully au fait with the relationship between the ‘two economies’ of money and energy.

      But that’s not enough in itself. If we’d worked this out in, say, 1964, or 1984 – or 1972, as per LtG – it would have been interesting, intellectually, but not immediately pertinent. What’s different now, in timing terms, is that we’re at – actually some way beyond – the point of trend inflexion.

      Put the two together – knowledge and timing – and it becomes significant, especially given that this interpretation is still, at least for now, denied by consensus thinking. I use the term “competitive advantage” in the sense of knowing, at the right time, things that ‘the market’ (meaning the generality) does not.

      Governments and investors are still trapped in the mindset of cyclicality around a positive trend. ‘Anything that goes down must eventually go back up’. On that basis, every recession is followed by a recovery, and generally to a new high. Every market slump is followed by a rebound.

      If the interpretation we’re discussing is correct, that guideline has gone. Economies and markets can go down without then going back up. One example – the UK’s anticipated long recession won’t end, in any meaningful sense. Another – discretionary sectors, as a whole, are only going one way from here.

    • @ Dr Morgan

      Latching on to your point about the UK, the mighty London stock exchange now comes second to Paris as Europe’s most valuable stock market. A report by Investment Week attributes the situation partly to wealthy Chinese pushing up the demand for French Luxury goods. How long can that trend last?
      There’s a lot of ironies in this particular situation, not least that as I write this, the UK is currently exporting 8% of its electricity output to france via the interconnector, because France has insufficient juice to power its own economy.


      Assuming we are now on a continuous downtrend trend for both the material economy and the financial economy, there will still be cyclicality, with bursts of momentum carrying above the downward trend-line. The difference being that we will experience lower highs and lower lows, i.e. the definition of a downward trend. If it doesn’t turn out like that and there’s just an unrelenting downward plunge, that would indicate some kind of catastrophic cascading failure sequence, and we’re going to hell in a hand cart.

    • If you go to the Resources page, you’ll see that I’ve just posted a set of charts on cyclicality and trend inflexion.

      The danger for markets is following a “ghost trend”, a mistakenly-assumed continuity of previous positive trends.

    • I agree completely that the ongoing downward surplus energy trend must bring with it a downward economic trend.

      but markets?

      perhaps too simplistic, but with high inflation, couldn’t markets continue upward, though at a level lower than the inflation rate?

      so markets might continue up, even in the guaranteed downward energy trend.

      real energy decline, and fake market growth?

      some persons have suggested that markets will be at all time highs when IC collapses.

      who knows?

    • Ultimately, markets place a value on the future, i.e. where investors think stocks, property and so on will be at some point in the future. I refer to this process as ‘futurity’.

      Where households are concerned – because this is critical – inflation of incomes won’t be able to out-run inflation in the costs of essentials. So inflation isn’t a fix for compression of affordability. Discretionary consumption will trend downwards, as will the affordability of outgoings, including payments on mortgages, credit, subscriptions and staged-payment purchases.

      So huge swathes of the markets face compression effects even if inflation runs hot. Non-discretionaries can be supported by inflation, but discretionaries, and stream-of-income plays, must trend downwards.

  14. @Dr. Morgan
    I think you have just proven that any knowledge in a scientist’s head about where the Earth climate may be in 2100 is irrelevant. The discount factor dominates anything not working on short term feedback. Just as the US destroyed its rail system in favor of trucks, it is likely to destroy its climate in favor of something which may be only a dream…such as many renewable energy visions which will take us to Mars.

    Don Stewart

    • Not sure about that, as I thought we were discussing competitive advantage, rather than knowledge for its own sake.

      If a scientist knows where global temperatures will be in 2100, that’s interesting, but it’s only of practical use if actions can be based on it. I believe in the purity of knowledge for the sake of knowledge – I did spend six years at Cambridge, after all! – but application matters too.

      In our context here, we began, in 2013, discussing ideas that, though interesting or indeed fascinating then, and therefore well worth discussing back then, have taken on a new significance in 2022, with trend inflexion happening.

      If you know where the market or the price of a stock is likely to be in 2100, that’s of no interest at all (as well as being unknowable). But if you know where it will be in six days, six months or a year from now, that’s valuable (again assuming the information is accurate).

    • what I meant was “has little to no effect on human behavior”. Thus, not a royal road to getting rich…or saving the world.
      Don Stewart

  15. I have a question for Dr. Tim and other folks on the blog more knowledgeable than me. If the analysis provided here is correct (and I certainly believe it is and like Don Stewart have thought so for more decades than I want to admit) what are the implications in terms of inflation vs deflation and then for the resulting impact on interest rates?

    • Apologies if this sounds a bit pedantic, but we have to start by defining “inflation”, which means defining prices. As I definite it, a “price” is a financial value ascribed to a material product or service. Within the concept of two economies, pricing is the relationship between the ‘financial’ economy of money and credit and the ‘real’ economy of goods and services. Changes in prices reflect changes in this relationship.

      Over an extended period, the real economy has flat-lined ahead of turning down, whilst the financial economy has expanded dramatically. This has been most apparent with QE, though ZIRP and NIRP have had equivalent importance. It is often claimed that, before 2021, QE ‘didn’t cause inflation’, but this assertion conveniently ignores the “everything bubble” in asset prices. My interest is in systemic inflation, which I measure using my own metric, RRCI.

      On this basis, I expect systemic inflation to fall back to about 4-5% in the coming five years or so. On the one hand, the real costs of essentials will carry on rising. On the other, there will be severe deflationary pressures in the supply of discretionaries. Asset prices can be expected to fall, and certainly to underperform systemic inflation.

      Conventional debate centres on consumer prices alone. Here I think we’ll see a retreat to about 4%, perhaps lower, unless the authorities engage in reckless stimulation (which of course they might). Within the consumer ‘basket’, this expectation reflects inflation in essentials and deflation in discretionaries.

      In a stable capitalist economy, investors need to earn positive real returns on their capital, meaning that stability requires that rates exceed inflation. On this basis, rates could be 5-6%, a narrow real margin (1-2%), but probably the highest that is achievable under current conditions.

    • Thanks Ed.

      The use of numbers and projections seems to me imperative. My background is in investment banking, where one would never try to make a case to clients or colleagues without backing it up with model-based projections. I don’t see why people interested in the themes we discuss here shouldn’t expect the same.

  16. I wonder what the politicians will be selling in 2030. Are pensions (federal, military, state, county, town) essential? Is welfare (food and housing) essential? It social security and medicare essential?

  17. @Mike Day
    Inflation or Deflation (or something else entirely)?

    I wanted to let Dr. Morgan post his answer before I put in my two cents worth. So here it is:
    *Thermodynamics requires that as the work value of our principle industrial energy sources declines, the work done by the economy must decline
    *Please note that the sun will continue to shine, thus contributing far more energy to Earth than the industrial energy sources. So we are not looking at snowball Earth.
    *If we start looking for industrial sectors which are energy hogs, we can get some ideas about economic shrinkage.

    Different people will parse the question in different ways. The Devoutly Religious will be enthusiastic about the return of monasticism. Advocates for gender equality will bemoan the “new peonage” for wives. The Global South will likely bear a grudge which will be hard to shake. Etc.

    *I look at it as people making everyday decisions and choosing how best to invest the industrial energy and muscle energy they do have. We won’t be able to describe whatever happens as a historian might, finding threads of meaning amidst the chaos, until it’s over.
    *But I will make a very few predictions.
    #A huge change will occur in agriculture and food. We currently spend about 10 calories to get one edible calorie. That ratio will likely reverse. So we are looking at spending one percent as much industrial energy on food as we currently spend. Does that make us hunters and gatherers again…a band of a few hundred thousand wandering the Earth? I don’t know. While we wait for the ultimate denouement, I will make a few predictions: more kitchen gardens; the rediscovery of heirloom plants using rhizophagy to fix nitrogen; reliance on the soil food web to bring minerals to the plants; home cooking using simple fuels (possibly solar cookers)
    #A collapse of much of the “health care” industry. The latest shot across the bow is the book published a day or two ago in the US by the Harvard psychiatrist Christopher Palmer, MD: Brain Energy: A Revolutionary Breakthrough in Understanding Mental Health. The title is misleading in that mental health and physical health are one and the same thing, as Palmer explains. The key is the restoration of mitochondrial health. The collapse of the industrial food system will assist us in achieving that goal.
    #A collapse of much of the financial system. I see debt as trending toward the Amish system. The parents own the farm and raise the children. In their mid 40s, the parents auction off much of their belongings, move upstairs in the farmhouse and turn the operation of the farm over to their children. So the “retirement” of the parents is the non-legal agreement which binds the generations together.

    While such an outcome will clearly be a reduction in standard of living as conventionally measured today, it may be very good for everyone when looked at through Christopher Palmer’s lens. The amount of mental illness, especially in the US, is staggering.

    Don Stewart

  18. I want to reflect a little more on Ed’s comment, viz. “I am enjoying your use of modelling to give numbers and dates”.

    As I said in reply to Ed, I think readers interested in our subjects of energy, the economy and finance are right if they want numbers and dates put on projections. This is routine for everything from investment analysis to government economic and fiscal statements, so why not in our specialist field?

    You won’t misunderstand me if I suggest that the SEEDS project has now taken us quite a long way towards energy-based calibration and projection. Specifically, we can now calculate how much economic output we get per unit of energy consumed.

    By doing this, and applying ECoE, we can measure prosperity, and we can divide it into its main uses, i.e. the provision of essentials, capital investment and discretionary consumption.

    In parallel, we can use prosperity as a denominator for financial commitments, including debt. We can calculate disequilibrium stresses in the system by comparing prosperity with GDP, and we can measure systemic (rather than consumer price) inflation as RRCI.

    For a long time now, I’ve been looking for a way to make some of this stats data available to you. Part of what has held me up has been developing a downloadable dataset for each of the 29 countries modelled by SEEDS.

    My thinking now is to concentrate on providing data on the global economy. If you think this makes sense, or have any other ideas about how data can made available to readers, do please comment here.

    Any such project is likely to be dual-use, setting SEEDS data alongside the conventional and consensus stuff – so you would see GDP as well as prosperity, for example.

    • Tim,

      I think you have made some great progress this year with the SEED’s project, and I’m enthusiastically looking forward to future developments.

      I might be different to other contributors within your cohort of followers, in that I’m striving to apply your work to the world of business.

      In particular I’m trying to reach the minds of leaders in the SME community who are suffering enormously under the current harsh economic conditions, and looking forward to getting back to normal. Well, trying to explain that maybe this is the new normal isn’t usually well received. There are some tentative signs of being willing to sit up and listen, but it’s no easy task.
      To promulgate the SEED’s message , I think the analysis of both the Macro and the micro are important. By micro, I mean a sectoral analysis. My approach is always to base argument on facts and data, so the more that comes out of SEED’s, the more chance there is of planting the seed’s (pardon the pun) of acceptance.

      I’ve always felt that your work is too important to be a well respected academic exercise. I would hope that it can be used as a stimulus for change.

    • “My thinking now is to concentrate on providing data on the global economy.”

      just a thought: if you aggregate global data, could you then subtract the 29 country SEEDS data to arrive at the status of the rest-of-the-world?

    • Actually, though I don’t think I’ve said so, SEEDS does that. It covers the global economy, and deducts the 29 individually-covered countries to show Rest of World. The 29 countries covered would be 30, but I can’t get all the necessary data for Iran.

    • does the Rest of World data give any particular insights into what’s going on?

    • The way this works is that 29 countries are covered – 16 advanced economies, and 13 EM countries. The global economy is modelled as well.

      So we can split most metrics into these components – AE16 + EM13 + OTHERS = World total

      These group totals are expressed in dollars, either on the PPP or the market basis of currency conversion.

      Unfortunately, South Africa is the only African country covered by the model. I would have liked to have added others, but cannot get the data.

  19. I just came across the latest from the Club of Rome, Earth for All:a survival guide for humanity, a book and earth4all.life a website. Their method is to state a narrative and assume it will come true, pure magical thinking. They offer no references, no calculations, no models. In the long run reality will cause the magical thinkers to wither away but I worry about the damage they will cause with their false hope in the short run.

    • a case for food inflation, and commodities and assets deflation.

      not unreasonable.

    • Definition(s) of Inflation and Deflation
      Suppose that we revert to a system whereby most people are engaged in unpaid work growing their own food. From the standpoint of the food industry, that is a massive deflation. From the standpoint of the Bureau of Labor Statistics, it is a massive increase in employment, but a huge reduction in wages. From the standpoint of Economists, it is unthinkable.

      Another example, which is happening right now. I live in a college town. A growing percentage of people are moving around town on battery assisted bicycles and scooters. If the previous transportation involved two ton pickup trucks, it’s deflation. But if he previous transportation involved plain bicycles or walking, it’s inflation???

      In short, I suggest that our definitions don’t make much sense.

      What might make more sense would be to talk about the paid and unpaid labor hours and the expected changes in their relationship. Are you familiar with the Italian movie The Tree of Clogs? A peasant finds a corner in which he can grow tomatoes. He knows how to get ripe tomatoes 2 weeks before anyone else. He takes his ripe tomatoes to the market and gets what to him is a princely sum of money for them. While it is easy to describe the event in words, it is hard to describe it in the abstract language of economics.
      Don Stewart

    • Here’s how I define inflation in SEEDS. The aim is to capture systemic rather than simply consumer price changes. The obvious gap in the latter is asset prices. I think we need to calculate whole economy inflation.

      My approach is that prices are financial values attached to material products or services. SEEDS measures both the financial and the real (material) economies. Comparing the two gives a pricing equation. Changes in this equation constitute inflation or deflation. The result is expressed as RRCI – the Realised Rate of Comprehensive Inflation.

      This is calculated both nationally and globally.

    • @Dr. Morgan
      I think your system works well so long as stable or increasing monetization is the rule, along with stable or increasing free energy per capita. If those two conditions fail to materialize, I suspect that some other framework will be necessary to make sense of what is happening.

      Because it is such a large amount of money, and because the WEF idea of “owning nothing” is not really new, the “rent equivalent” of home ownership is what goes into US computations of GDP. But the “wage equivalent” of care of sick family members (esp things like Alzheimer’s) or domestic chores are ignored. The inclusion or exclusion tells us more about mindset than reality on the ground.

      Don Stewart

    • @Dr. Morgan
      What label do we use when something which was monetized drops out of the money economy? E.g., the State stops subsidizing care of the elderly, and families pick up the work for no compensation? Or (don’t hold your breath) people take health seriously and chronic disease begins to decline and is no longer monetized to the same extent?
      Don Stewart

  20. 2yrs ago at the Edinburgh COP we saw the WEF GND rolled out with various funds lining up to finance huge green mega projects, to me it looked like saving the planet had morphed into a pseudo QE and saving finance and big corporations,

    now, 2yrs later, interest rates are going up, on the surface the excuse is to quell inflation, but it seems more aimed at propping up bond markets to avoid a fiat currency crisis developing,

    do you think higher interest rates are going to make a lot of the grand green projects financially unviable, the contracting real (material) economies won’t be able to afford to service the costs of the proposed capital required to fund them?

    just at the point all the Western govt’s had become delirious with the idea of unlimited spending funded by ultra low interest rates, “free money!” that cheap money window has closed?

    now we really are looking at involuntary contraction of the real (material) economy, falling consumption, abatement of the landfill economy and a reduction in demand for energy that is too expensive when supplied?

    transition to renewables might well be settling into a longer arc, the rising cost of manufacturing renewable energy harvesting machines putting a brake on ambitions to roll them out rapidly in great volume?

    even though orthodox economic thought still believes infinite growth is possible, we are in reality seeing economic contraction?

    we’ve passed peak oil, we’re at peak growth, we may be around peak population, as decline gains pace we might even see we’ve hit peak CO2 emissions?

    this really is the grand inflexion and we are now heading into what John Michael Greer calls The Long Descent and Jim Kunstler calls The Long Emergency?

    the low tax, low interest rate phenomena of the last 30 years was only possible because the real economy still had some momentum as it was plateauing, it took a while to reach peak debt,
    now we’re on the downhill stretch we need high interest rates to prop up bond markets, we need higher taxes to service our massive debts, overinflated assets will deflate, corporations delivering discretionaries will fail and be broken up into smaller operations, a steady trickle of unpayable debts will be defaulted upon, lenders will become more cautious and risk averse,
    some debt will be paid off, some will default, but less new debt will be issued,
    we might well be at peak finance too,

    as the FTX debacle is illustrating, light touch regulation has left us vulnerable in the face of failures, it may now be impossible to ignore the corruption that light touch regulation engenders, our contracting real economies can’t absorb the losses of reckless schemes, another example being the use of derivatives in pension funds, great on the way up, a weapon of mass destruction once the tide turns and you’re going down.

    neo-liberalism has engenderd the greatest hubris and the least foresight, we can no longer afford the luxury of reckless behaviour and pragmatism may be returning even though no one is promoting it.

    the grand inflexion changes everything?

    • @Matt – what an excellent summary!
      Expressed in monetary terms, I think. If Simon Micheaux’s analysis of physical resource constraints are added, and decreasing returns to mineral energy resources as expressed by Dr Tim’s SEEDS are included, then your comments provide a pretty succinct prospect of our future.
      Next task – how about a time line?
      Many thanks.

    • Yes, a first-class summary of the situation.

      Repeating my earlier point about the Great Inflexion – and agreeing with JMG about “The Long Descent” and JHK about “The Long Emergency” – I think we need to add, The Long Delusion. We’re now near the end of a lengthy period in which we’ve been able to delude ourselves that none of this was really happening.

      Much of that delusion has been enacted through ZIRP, NIRP and QE. Negative real rates have been delusional, because positive real returns on capital pretty much define the ‘capitalist’ system, yet we’ve been pretending to ourselves that we still have capitalism, even though real returns on capital have ceased to exist.

      QE has been an even more textbook example of self-delusion. It’s routinely stated that QE doesn’t cause inflation. But pouring QE into capital markets (from 2008) created the “everything bubble”, and, latterly, using QE to support households during the pandemic led straight to a surge in consumer prices.

      Where renewables are concerned, we need to recognize that developers of REs are buyers of everything from steel and concrete to copper and other minerals. If we try to fund RE transition using QE, what happens is that the prices of all these materials rise.

      SEEDS can provide time-lines on some of this, using various measures – segmental analysis, equilibrium, affordability compression and RRCI inflation. With one proviso, this happens now. Sales of discretionaries contract, the stock prices of discretionary suppliers slump, and closures and defaults cascade through discretionary sectors. Streams of income from the household to the corporate and financial sectors degrade, with corresponding consequences. Affordability compression causes a slump in property prices.

      The one proviso is monetary policy – governments and CBs might try to buy just a little more time by re-loosening policy. But doing do would simply add a lot more inflation into the mix without changing the outcome.

    • So effectively the Government who gains – or stays – in power is going to be the one who can tell the truth in the most palatable way.

      Currently there is no other option but the redistribution of wealth and getting people to accept less.

      I would say that bringing in immigrants to do the jobs at British people don’t want to do in – picking vegetables for example – is just going to put extra pressure on our hospitals, dentists, social services, etc.

      The government bringing in highly qualified immigrants to stimulate growth, is highly dubious because they can be no growth at the moment.

      However, speaking to a group of friends at a lunch last week, there seems to be a general acceptance amongst them that we are going to get poorer and that the party really is over.

    • The official forecasts for the UK economy, I think, are that growth does not return until 2024. I have seen no plausible reasons why growth should resume at that point.

      Bear in mind, though, that these forecasts are issued every six months. So there is plenty of time to extend that target. For meaningful purposes, growth in the UK has been replaced by contraction – there may be the odd ‘up’ quarter, but even then I’d need to look at the figures pretty closely.

      Much of this applies to other economies, it’s just that the UK is handling it particularly badly.

    • surely this is the timeline?


      In 2020, an analysis by Gaya Herrington, then Director of Sustainability Services of KPMG US,[51] was published in Yale University’s Journal of Industrial Ecology.[52] The study assessed whether, given key data known in 2020 about factors important for the “Limits to Growth” report, the original report’s conclusions are supported. In particular, the 2020 study examined updated quantitative information about ten factors, namely population, fertility rates, mortality rates, industrial output, food production, services, non-renewable resources, persistent pollution, human welfare, and ecological footprint, and concluded that the “Limits to Growth” prediction is essentially correct in that continued economic growth is unsustainable under a “business as usual” model.[52] The study found that current empirical data is broadly consistent with the 1972 projections and that if major changes to the consumption of resources are not undertaken, economic growth will peak and then rapidly decline by around 2040

    • @Matt – agree with both Tim & Pozzi.

      However, could you expand on ‘ … but it ( rising interest rates ) seems more aimed at propping up bond markets…) ?

      I was under the impression that the bond rate was set by the buyers of bonds, at auction, in the primary market. Now that QT has started the BofE is no longer in the buyers’ market and so does not influence that interest rate.

      Sorry if this indicates that I have no clue as to what is going. I am just a layman trying to expand my understanding.

    • hi corro,

      I’ll defer to Tim’s analysis of bonds, it’s probably the aspect I struggle the most to understand,

    • I’m not a bonds specialist, but raising rates pushes bond yields up, and their prices down. QE makes central banks buyers, pushing prices up and yields down. QT does the reverse, with CBs as sellers into the market.

      QE has been used to lower market rates, and QT to raise them. Bonds are priced not just at auctions, but minute-by-minute (actually fractions of a second) by the markets. The coupon (equivalent of a dividend) is fixed, so price changes alter yields.

      This is hugely important, and remember there are many kinds of bond, not just sovereigns. Somebody – I forget who – said that if there was reincarnation, he’d like to come back as the bond market, so he could push everyone around

  21. with declining surplus energy undermining our ability to support complexity there is a need to simplify things,

    but maybe first we ought to define complexity, it’s an intricate web of interconnected things,
    which brings me to the difference between clever and wise,

    it’s the story of two engineers, one old and one young, who enter a room and see a crookedly hung picture on the wall,
    the young engineer’s mind is set afire with ingenious ideas and he disappears off to design a solar powered, laser picture frame levelling device,
    meanwhile the old engineer reaches out and aligns the picture by eye and then gets on with the task he intended when he entered the room,

    in engineering there is a maxim: KISS, keep it simple stupid!

    you can make something very complex but a very well thought out solution can be elegant in it’s simplicity,
    a well thought out solution can be both sophisticated yet simple at the same time,
    so in reducing complexity to save energy you need to inject an element of sophistication so as to still achieve the same desired end result with a lot less effort and hence energy,

    when we transport ourselves to the low energy economy of 1776 world we see complexity lacking because there isn’t the energy to support it, but we do see elegantly simple, therefore sophisticated solutions to problems,

    the post mill used to mill flour is an example, made by human hand, materials gathered by animal muscle power, from naturally occuring materials and a bare minimum of man made materials that need synthesising through the application of energy, such as brick, tile, metals, glass, etc.
    it captures the energy of the wind turning it into mechanical energy and transmits it through a simple crown wheel and pinion directly to the mill stone shaft,
    it’s actually an elegantly simple solution to powering a desired task, a labour saving device,
    it’s sophisticated but not uneccessarily complex, Spartan if you will.
    once a sophisticated solution is arrived at you can refine it, you might add complexity but you don’t change the underlying solution, you might add an overspeed regulating device, an automated way of steering it into the wind,
    but you don’t change the underlying concept by turning it into an electrical generator, creating a power grid and remotely locating an electric flour milling device for convenience,
    that would add expensive complexity you must build and maintain, inefficient energy conversions and a whole host of subsidiary manufacturing process, cable, generators, motors, switchgear, utility poles, etc.

    I don’t think 1776 world was backward, it was a world running on renewable energy, a power source harnessed from the dawn of history, refined over millennia and by 1776 you were presented with the most sophisticated system possible for squeezing as much useful work out of a fickle and intermittent power source,
    any time during the develoment arc, if a solution became too complex to afford on that energy budget a more elegant yet simple solution would win out,
    1776 world had all the elements of industrialisation, division of labour, rudimentary production lines, transportation, trade, commerce, finance, mechanisation, the beginnings of automation and programmable machines like the Jaquard loom,
    so why didn’t this renewable powered world evolve into the industrial revolution and scale up to a global phenomena?

    they simply didn’t have the surplus energy to scale up, renewables erect a glass ceiling, a prohibitively high ECoE that thwarts further complexity and scaling,
    there weren’t enough natural materials to build everyone a post mill to mechanically power their homes,
    there wasn’t enough timber available to make charcoal and smelt metals and fire brick to build post mills from man made, synthesised materials,

    I don’t think a renewable powered world generates enough surplus energy to advance onto an industrial world,
    ergo, an industrial world cannot be maintained on a renewable energy base,
    that a post industrial, post fossil fuelled world has to completely reorient it’s thinking and organisation to work on a much smaller energy budget,

    that 2176 will be much more familiar, to 1776 man, than 1976,

    we need to look at the past, when they had a much smaller energy budget to work with, to see how they achieved the desired results, what compromises they were forced to make, to get inside their heads and understand why they approached things the way they did,

    we don’t need to decarbonise the economy, it’s rapidly doing that via depletion,
    we really need to decarbonise our minds, stop thinking like Homo Fossil Fuelus,
    we must reconfigure today to run on the energy base of tomorrow, to design and build the most fantastically elegant and sophisticated steam punk version of 1776 imaginable, knowing that we will be constrained at all times by the limitations of renewable energy and renewable resources.

    sorry for the length, it’s a thought train that has been nagging at me, I provisionally entitle it: looking Back To get to The Future.

    • hi Ed,
      you know, if internet censorship gets much worse I might give it up and go to ham radio,
      -… -.– . !

    • I think you are exactly right, Matt. There are some things from the modern world that we can use to ease the transition to our low-energy future, like off-grid solar, but every technology we use will eventually revert to something like those used in the pre-fossil-fuel era. Preppers can use a garden tiller while fuel lasts, but they should also have a broadfork and shovel standing by as backup.

  22. I’ve not read all of the comments on this essay, so forgive me if this was mentioned. Steve Keen, who has been mentioned on and off here over the years, has a recent short statement about the impossibility of continued economic growth due to overpopulation. I fed him that meme a few times over the past decade, and along with others chiming in it seems to have had an effect. Important to keep pounding away at people resistant to this. Monbiot admitted in a BBC panel discussion that there are limits. (another of my targets) Johan Rockstrom has been bombarded by me and others for a decade +, but hasn’t softened yet as far as I can see.

    • Sorry, this is the Steve Keen link, and it’s 5 days old:

      Economist Steve Keen says the planet cannot sustain 8 billion people | The Business | ABC News

    • for me an important limiting factor on population is psychological, John Calhoun did ‘Mouse Utopia’ experiments, they had unlimited resources, food, water, bedding, but finite space, once population density reached a critical level their interpersonal behaviour changed and after a while the population crashed because they stopped reproducing,
      Desmond Morris the anthropologist looked at how our fundamentally tribal species tried to adapt to civilisation and large cities, again, in city environments adaptions become extreme by neccessity and people become more impersonal, callous and lacking in empathy,

      so it is possible to keep cramming more people into a confined space, but it isn’t a pleasant experience,
      maybe this is a factor in increased reporting of mental health problems in advanced economies,
      I really enjoyed spending some time in New Zealand, 4 million people in a country 10% bigger than Britain meant encountering people was a pleasant experience, not a chore, people were actually glad to meet you!

      it’s the quality over quantity argument,
      we might be able to juggle 10 billion people on the planet at a squeeze, but everyone would be happier if there were 5 billion.
      I recommend a documentary by Mike Freedman called; Critical Mass.

      so over crowding plus supply problems becomes a very fraught and stressful situation.
      do we really want to put ourselves through that?

    • According to many physical scientists who are system thinkers, ecologists, hydrologists, agriculturists, toxicologists, public health experts, geologists, etc. Overshoot of carrying capacity (estimated at 1-2 billion) is catastrophic. Nature will put us back into balance. See new paper by William Rees:

    • I saw a bizarre clip of Chuck Shumer saying Americans aren’t having babies like they used to, so we must have immigration,
      this is from a party that also is very pro abortion,
      it seems somewhat schizophrenic and also simplistic, my immediate reaction was well why aren’t Americans having babies at atleast replacement levels, could it be something to do with economic stresses?
      the powers that be seem to want endless people to fluff up GDP and consumption, even though human labour doesn’t add much to productivity,
      but they don’t care who the people are or where they come from, they’ll just grab whatever is available,
      isn’t this extreme landfill economy thinking, you don’t have the time or the money to invest in having babies and letting them grow up and educating them, so we’ll just be “import dependent” upon grown adults and then thrust them into the sausage machine of the work and consumption treadmill?

      you might notice I’m becoming quite polarised on this issue! sorry about that.

  23. From Steven B Kurtz ABC news link above, Economist Steve Keen
    states that the data showing “Gross World Product” from 1960 to 2017 and data for “Energy Consumption” (from a completely different source) plotted together result in a straight line.
    If I recall correctly, Dr. Morgan stated recently that he was surprised how straight this line was, so their findings do seem to tally.
    With this in mind, I wonder whether the use of so called “renewables” will ever do enough to distort that relationship in any meaningful way?

    • To summarise my analysis, GDP is distorted by credit expansion, which boosts transactional activity (measured as GDP) without adding value. Stripping out the ‘credit effect’ calibrates underlying or ‘clean’ output, which is termed here C-GDP. Ever since 1980, this has correlated remarkably well with energy consumption, with no annual variation (in 42 years) greater than +/- 4%.

      This defines output, but not prosperity. Some proportion of output has to be expended on energy supply itself, so is not available for any other economic purpose. This is ECoE. So output minus ECoE equals prosperity. Prosperity per unit of energy used has been falling as ECoE has risen.

      The modern economy is a dissipative landfill system. It uses energy to turn raw materials into products which are then disposed of (mostly into landfill). This is a process of converting dense (concentrated) energy into diffuse energy. Renewables are a less dense form of energy than fossil fuels, so the dissipative process is truncated.

  24. There’s been a number of reports over the last couple of days highlighting the Confederation of British Industry (CBI) being alarmed that labour shortages are holding back growth.

    Here’s a quote from the head of the CBI who represents 190,000 UK businesses, as it appeared on BBC’s news website. “Growth is a precondition to a stable society. Without growth the NHS gets worse not better. People’s lives get worse not better. And we lack the resources we need to transform ourselves to a zero-carbon world,”
    “Yet Britain’s had 15 years of low growth and flatlining productivity. We can’t afford a repeat.”

    He also commented that immigration is the only thing that’s increased the potential growth of our economy since March.

    He does have a point about skilled labour shortages in the UK, but it’s too big a leap to claim that immigration will boost growth and productivity. He seems to have completely overlooked the surplus energy equation., and Britain’s precarious energy supply situation.

    He also seems to criticise the chancellor’s autumn statement for prioritising stability over growth. Look what happened when the last chancellor gave us a radical budget for growth. That didn’t end well for any of us.

    It sure is going to be difficult to penetrate the perpetual growth paradigm, but one day the penny will drop.


    • I saw that. The essential point is that neither the government nor the CBI understands the energy basis of the global economy, as we understand it here. Another point to be made is that physical labour makes a tiny contribution to economic activity, so measuring productivity on the basis of hours worked is not helpful. Immigration increases the aggregate costs of supplying both household necessities and public services.

      Mr Hunt is bound to have been influenced by the September fiasco, and will be aware of the extreme threats posed by a weakening currency and a loss of investor confidence. What we further know, and Mr Hunt presumably does not, is that nobody, anywhere, can deliver growth now that the global energy dynamic has turned against us.

      It’s interesting to look at official projections which, in the UK, state that recovery won’t happen until 2024. That’s a sort of ‘moveable feast’, a date which can keep being pushed outwards at six-monthly intervals when the recovery doesn’t turn up. What is lacking is any explanation of why and how a recovery will happen, beyond the assumption that ‘it always does’.

      The realities are that living standards are falling along the trajectory of prosperity long indicated by SEEDS. The implications are severe contraction in discretionary sectors, and worsening stress on the flows of income from households to the corporate and financial sectors.

    • Mr Hunt might be aware of some of the implications of the reduction of cheap available energy as he is is reducing everyone’s capacity to buy things.

      There maybe further energy efficiency gains by manufacturers in an attempt to stabilise costs – but obviously these can’t go on forever.

    • has anyone ever actually specified where these labour shortages are occuring and what sort of job roles are involved?
      these details are always absent, there certainly aren’t any vacancies around my area,
      Tim Watson makes the point that many of these job vacancies are low paid and in the most expensive places to live, i.e. London,


      it also makes you wonder if these are service jobs in discretionary sectors that are on the verge of failing,
      the MSM never reveals enough details to make their reporting of any practical use, I thought that was the BBC’s mandate, to inform and educate, not to confuse and obfuscate?

    • Also, I don’t think anyone is yet prepared for how bad things are going to be for discretionary sectors – not just the authorities, but investors as well.

    • a market economy, maybe we need to define that and then see if the British economy stands up to scrutiny?
      I always thought it involved a level playing field, inviolable ground rules and an impartial referee?

    • Immigration may have increased GDP but it has reduced GDP per capita. The flatlining economy since 2008 has coincided with very high levels of immigration so why would more of the same make a difference? The real reason business wants more immigration is to suppress wages, with the social costs (in-work benefits) dumped on the taxpayer.

      By the way, it has been pointed out in the Washington Post that the real cause of the gilt crisis in September was not Liz Truss but the BOE’s poor inflation management (ongoing) and especially its hands-off attitude to pension funds using massive leverage backed by gilts to juice returns. That too continues as far as I know.

  25. With regard to “Prosperity per unit of energy used has been falling as ECoE has risen”, I am really surprised that the technological efficiencies introduced in Manufacturing, Agriculture etc. have not lead to gains, in output per unit of energy, that would counteract ECoE to a greater extent than they have.

    I can see that switching from 100% fossil fuel energy to “renewables” (with only a partial fossil input, in their manufacture and maintenance) will *slow* the rate of increase in ECoE but that’s about it.

    It does not look hopeful if we are left with a “a less dense form of energy” (renewables) and ECoE still rising, albeit at a slower rate and with less pollution.

    It’s hard to see technological efficiency saving us from a harsher reality, going forward.

    • a longer form answer:

      “I am really surprised that the technological efficiencies introduced in Manufacturing, Agriculture etc. have not lead to gains, in output per unit of energy, that would counteract ECoE to a greater extent than they have.”

      industries have had numerous decades to increase efficiency, and we can be sure that most of the gains were in higher growth decades. Now, like in much human endeavor, diminishing returns have almost completely set in and ended efficiency gains in industry.

      almost all resource extraction now requires more energy in per unit out. This equates to a decrease in efficiency.

      ECoE measures a small subset of resource extraction, although certainly the most important subset by far.

      so rising ECoE is actually a decreasing efficiency in FF extraction (REs are a much smaller factor).

      it’s going to be decreasing efficiency in IC all the way down to the end.

  26. “Here in the UK we could revert to coal if things got really bad”

    It doesn’t seem that long ago (1984) that the Miners were fighting with the Police, trying to defend their jobs in the Coal industry.
    How thing’s have changed. Can you imagine what it is like working in those conditions for the whole of your working life, never mind fighting to be able to continue doing so?

    How soon people forget the working conditions (mines and foundries etc.) of recent times and the efforts taken to provide for family. It’s almost been reframed that men were hogging the delights of work for themselves which was really not the case for the majority.

    Who in this Country would want to work down a mine nowadays? I strongly suspect there will be no “Diversity” quotas applied in such a case!

    • I doubt if the UK could resurrect its coal industry, even if it wanted to – and doing so would throw claims of environmental responsibility out of the window.

    • I appreciate this – but a desperate society might resort to desperate measures.

      Basically, I can’t see either China or India towing the line if their own economies start to collapse through lack of available energy.

    • I know this isn’t a consensus view, but SEEDS is portraying significant deterioration in the Chinese economy, and a lot of what I’m seeing seems to confirm this.

    • Yes – in fact there are a lot of videos on YouTube stating what terrible shape the Chinese economy is in.

      It could even bring down the CCP , but no doubt they’ll do more sabre rattling over Taiwan to distract attention away from the mess they’ve made of their economy.

      Just think 1000s upon 1000s of empty homes which nobody wants – or can buy.

      That said I might not mind living in one of their ghost cities with a whole airport nearly to myself.


  27. It seems the sooner they expand renewables and find their true limitations, the better. Only then might they realize that economies/debts/populations built on the premise of continual growth are doomed and try steer a less disastrous course.

    Everything is set up bad for this, nowadays. Children go off to Uni and often settle miles away necessitating high mileage for those regular visits. I even wanted to try a small (highly fuel efficient) car this time, when replacing my (very) old one, but they have taken a lot of the Motorway “Emergency lanes” out where I travel and the thought of a breakdown in a tiny car with nowhere to escape to really put me off!

    And if (for travel) I try the alternatives “Privatised” railway travel is has turned out to be more disaster than panacea!

  28. UN Proposal for Climate Change and Energy

    It seems to me that IF this becomes law, the money supply (which is a claim on future energy) will contract sharply, and bring about a deep depression. It seems to me that a deep depression is the only thing which is going to change the direction the markets are pursuing.

    I’m not arguing for or against it…just observing the outcome if it should be adopted.

    Don Stewart

    • Yes, far too revealing – Net zero accounting!
      Made me wonder whether the Nordstream pipeline ‘disassembly’ could be set against the development of new LNG facilities…

  29. Dr Tim: “Also, I don’t think anyone is yet prepared for how bad things are going to be for discretionary sectors – not just the authorities, but investors as well.”

    How bad?

    “UK restaurants going bankrupt at faster rate than during Covid”


    Just think of those vacant, rotting buildings and lost tax revenue – staff taxes, business taxes, VAT etc. etc.

    • Indeed so. The evidence for trend inflexion – the central direction of travel inverting – is everywhere, and not just in Britain. It’ll be interesting to see when markets take note of the relentlessly donwards trend in many sectors.

      I intend to look at some of this in the next article here.

  30. Pingback: #243. The Great Inflexion | Surplus Energy Economics

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