#249: The Surplus Energy Economy, part 4



In this fourth instalment of The Surplus Energy Economy, we turn to perhaps the most complex part of the equation, which is the financial system. The connections between energy and material prosperity, though largely disregarded and dismissed by orthodox economics, are nevertheless comparatively straightforward, at least in principle.

The nearest approach to the straightforward in finance is the concept of money as claim. Once we recognize that money has no intrinsic worth – but commands value only as a ‘claim’ on the output of the material economy – two things become apparent.

The first is that the financial system consists of an aggregate ‘body of claims’ on the material economy of products and services. The second is that the viability and sustainability of the system depends on the extent to which these claims can be honoured ‘for value’ by the real economy. To be a little more specific, the system is viable as long as participants believe that these claims can be honoured.

The situation now is that financial viability depending upon accuracy of proxy has been strained to breaking-point. As we have seen, prior growth in economic prosperity has gone into reverse. At the same time, though, the financial system, as a ‘body of claims’, has carried on expanding, in part because of the fallacious assumption that the material can be driven by the monetary.

As we shall see, there are reasons to suppose that the ‘real’ economy of goods and services is now at least 40% smaller than the ‘financial’ economy of money and credit.

A simple analogy might be useful here. When people arrive at a function, they hand over their hats and coats in return for paper checks, which act as claims. During the function, the managers of the venue print a large number of additional checks. The checks alone will not, of course, keep the attendees warm and dry on their journeys home, for which only physical hats and coats will suffice.

Only at the end of the function does it become apparent that there aren’t enough hats and coats to honour every check. Neither is it clear which checks are or are not valid. The only way to stave off this denouement is to keep the function – or the party – going for as long as possible. 

This is loosely analogous to the current situation, where financial ‘claims’ far exceed the capabilities of the underlying material economy to honour them. Modest disequilibria of this kind can be mediated by inflation which, in our analogy, varies the rate of exchange between checks and coats. But the current extent of disequilibrium could only be mediated by runaway inflation.

Moreover, each person believes that every single check equates to an entitlement to a complete coat or hat. They are not going to be happy when they discover that this is not the case. The term for what ensues is value destruction, which is destined to happen in a way that is likely to be chaotic.

The unfolding squeeze

As well as noting that prior growth in material economic prosperity has gone into reverse, we have also observed that the real costs of energy-intensive necessities are on a strongly rising trajectory.

The resulting process is known here as affordability compression. It has two effects. One of these is a relentless decline in the ability to afford discretionary (non-essential) products and services. The other is that it makes it increasingly difficult for households to ‘keep up the payments’ on everything from secured and unsecured credit to subscriptions and staged-payment purchases.

This process helps us to gauge where the effects of the aforementioned process of ‘value (claims) destruction’ are likeliest to be experienced. As well as undermining sectors which depend on discretionary consumption, affordability compression poses a direct threat to the flows which inform the viability of the financial system. The world is awash with debt and quasi-debt obligations, much of which exist outside the regulated banking system, and some of which cannot even be quantified in their entirety. Many enterprises have been built on a business model which financializes, into capital value, forward income streams whose future reliability has, hitherto, been taken for granted.

Within a material economy, the effects of affordability compression cannot long be ignored. As its reality gains recognition, asset values will fall sharply, albeit more severely in some sectors and asset classes than in others. This process is likely to occur along lines that are already quite predictable. But the real danger lies less in market slumps than in a degradation of the network of inter-connected liabilities that constitute the financial system.

These problems are unlikely to be manageable, meaning that we should anticipate disorderly – and, quite possibly, chaotic – contraction in the financial system. Decision-makers seem to be woefully under-informed about these risks, even though various events, such as the recent LDI problem in the British pensions sector, should have provided clear warning.

For the most part, policy-makers, and perhaps market participants too, continue to believe in an economic orthodoxy which states that the economy can never cease to grow and is not, therefore, subject to material constraints. They also seem to believe, again fallaciously, that the authorities can overcome any and every problem using monetary tools. There is, as yet, little or no appreciation that the banking system cannot lend material resources into existence, and that central bankers cannot conjure low-cost energy out of the ether.

A few simple statistics serve to illustrate this point. Between 2002 and 2021, each dollar of reported growth in GDP was accompanied by $3.10 in incremental debt and an estimated increase of $4.75 in broader obligations. Over that same period, SEEDS calculates that fully 70% of reported “growth” was the cosmetic effect of pouring ever more liquidity into the economy, and counting the transactional use of that money as economic “activity”.

In short, the financial system has parted company with the underlying economy, and the notion that the latter can “grow” sufficiently to re-validate the former belongs in the realm of myth and fable. As will be explained here, we can reasonably conclude that each dollar-equivalent of supposed value in the global financial system is now backed by less than $0.60 in material worth.

Financialization of the economy has been an integral part of the confection created on the basis of absurdly ill-informed expectations for the economic future. Whilst the process of de-globalization is starting to gain some recognition, there is almost no appreciation of the likelihood and consequences of de-financialization.

To explain why these things are happening, we need first to revisit some basics.

Of money and matter

There are, essentially, two ways in which we can seek to understand the working of the economy. One of these is the orthodox approach, which states that the economy can be explained entirely in terms of money. If this were true, it would mean that there need never be any end to economic expansion, because the behaviour of the economy is determined, not by material resources, but by money, a human artefact wholly under our control. This would make feasible the paradox of ‘infinite economic growth on a finite planet’.

The alternative explanation, preferred here, is that the economy is a physical system for the supply of material products and services. Since none of these products and services can be made available without the use of energy, we can conclude that prosperity is a function of the supply, value and cost of energy. Instead of the limitless, immaterial potential of the economy defined as money, the surplus energy approach recognizes the existence of physical constraints to expansion. Though energy is ‘the master resource’, these limits also apply to non-energy resources, and to the finite tolerance of the environment.

Energy-based analysis draws a clear distinction between the material and the financial. The critical concept here is that of ‘two economies’. Effective interpretation of the economy requires an understanding of the difference between a ‘real’ or material economy of products and services and a ‘financial’, representational or proxy economy of money and credit. This conforms to the principle of money as claim, which recognises that “money, having no intrinsic worth, commands value only as a ‘claim’ on the output of the material or ‘real’ economy determined by energy”.

This in turn makes it perfectly possible for us to create ‘excess claims’, meaning a body of monetary claims which exceeds the delivery capability of the underlying economy. That is precisely where we are now. The financial system will be forced to renege on excess claims that the underlying economy cannot honour.

This situation arises from the operation of a fallacious precept, which is that financial expansion can drive growth in the physical economy.

This fallacy can best be explained in terms of what has actually been happening over an extended period. By the 1990s, adverse changes in the energy dynamic had created a phenomenon known as “secular stagnation”, meaning a non-cyclical decrease in economic growth. It was assumed, quite wrongly, that this material deceleration could be overcome using monetary tools.

These efforts began with rapid credit expansion, which led directly to the global financial crisis (GFC) of 2008-09. Thereafter, “credit adventurism” was compounded with “monetary adventurism”, in the form of supposedly “temporary” gimmicks including QE, ZIRP and NIRP.

These initiatives haven’t stemmed the deterioration in material economic expansion, of course, but they have had two extremely negative consequences. First, they have burdened the financial system with vast claims which cannot possibly be honoured in full.

Second, they have abrogated the principles of market capitalism, a system which requires (a) that investors must earn a positive real return on their capital, and (b) that markets should be allowed to price value and risk without undue interference.

It might be thought that repudiation of the principles of market capitalism has a broader significance. In previous generations, the public had a choice between collectivism, on the one hand, and market capitalism, on the other. The public appeal of the collectivist ideal has never recovered from the collapse of the Soviet Union, and capitalism has now been undermined by the abandonment of its central principles. There is no simple answer to the question “what economic system do we have now?”

Be that as it may, our immediate concern, in this instalment of The Surplus Energy Economy, is with the financial situation. The conclusion set out here is that, whilst the material economy might be capable of gradual and managed decline, the financial system cannot escape severe and disorderly contraction.

Questions of equilibrium

The concept of ‘two economies’ sets the context for our interpretation of financial conditions. If the financial system exists as “a body of claims on the material economy”, then its viability depends on the claim-honouring capability of the real economy. Likewise, since prices are financial notations attached to material products and services, then systemic inflation or deflation are functions of changes in the relationship between the material economy and its financial corollary.

The best ‘point of entry’ to this complex situation is the matter of economic equilibrium. Effective functioning of the ‘two economies’ dynamic requires a close relationship between the financial and the material. Put another way, the material economy must be capable of honouring the claims placed upon it by the financial economy.

Small divergences between the two are manageable, and are arbitraged by changes in the level of pricing, because prices are the point of intersection between the material and the monetary. But the emergence of severe disequilibrium means that the financial system has created a large body of claims that cannot be honoured ‘for value’.

Claims that cannot be honoured must, by definition, be repudiated. This can happen in one, or both, of two ways. The first of these is inflationary, whereby a person who is owed $1,000 is repaid in money which has lost a sizeable proportion of its purchasing power or claim value – he or she receives $1,000, but this has the purchasing power of only, say, $500 at the time that the commitment was created. This is known as ‘soft default’. The alternative is ‘hard default’, where the borrower repudiates the obligation on the basis of ‘can’t pay, won’t pay’.

The current situation is illustrated in Fig. 12, in which the ‘financial economy’ is represented by reported GDP, and the ‘real economy’ by prosperity as calculated by the SEEDS economic model. These, to be clear, are measures of flow rather than stock – but the viability of the stock of assets and liabilities depends upon the validity of forward expectations for flow.

As is shown in Fig. 12A, global debt has grown far more rapidly than GDP over an extended period, during which more than $3 of net new debt has been taken on for each $1 of reported “growth”.

As we have seen, much of the supposed “growth” of the past quarter-century has been the cosmetic effect of credit expansion. SEEDS calculates prosperity by (a) stripping out this ‘credit effect’, and (b) deducting trend ECoE – the Energy Cost of Energy – from the resulting underlying or ‘clean’ economic output.

The result, shown in Fig. 12B, is severe disequilibrium between the financial economy (represented by GDP) and the real economy (represented by prosperity). As of the end of 2021, the real economy was 40% smaller than its financial proxy. This gap will continue to widen, unless and until we cease the process of artificially inflating GDP using liability expansion.

Fig. 12

The remaining charts in Fig. 12 calibrate obligation downside by applying this 40% flow indicator to the stock aggregates of debt (Fig. 12C) and broader ‘financial assets’ (Fig. 12D). The latter, as assets of the financial sector, are the liabilities of the government, household and non-financial corporate sectors of the economy. 

The process of equilibrium analysis isn’t designed to anticipate downside in the financial system in any detailed way, and we can deem it probable that the outcome will be worse than this portrayal, not least because of liability inter-connection, and sheer panic. Rather, what is illustrated here is a broad measure of exposure to the destruction or repudiation of commitments. If it transpires that ‘the future isn’t what it used to be’, then expectations, incorporated into values, will be recalibrated accordingly.

As mentioned earlier, if the disequilibrium between ‘claim’ and ‘substance’ was small, it could be reconciled by comparatively modest inflation. But downside of 40% means that, absent hyperinflation, a cascade of hard defaults has become inescapable.

Of pricing and inflation

Before we move on to an assessment of exposure, it’s worth pausing to consider the concept of inflation. A broad definition of inflation is that it measures changes in the general level of prices – but what is meant by ‘price’?

Orthodox economics ascribes pricing to the inter-action of ‘supply and demand’, but both of these are stated entirely financially, meaning that no allowance is made for the material. The role of the material is clearly of huge importance, something which is demonstrated, for example, every time a drought or other untoward event reduces the production of grain. In this situation, the price of grain rises, not because of choices made by suppliers or consumers, but because the material parameters of supply have changed.

From the ‘two economies’ perspective, which does acknowledge the material, a very different definition of price emerges – essentially, prices are the financial notations attached to physical products and services. Two parameters are thus involved in the price equation – one of these is transactional activity, and the other is material availability.

A lack of clarity on the issues of pricing and inflation is implicit in any system of notation which concentrates entirely on the financial, and disregards the material. Thus, the headline definition of inflation as changes in retail or consumer prices disregards changes in asset prices. This has enabled advocates of QE to ignore the “everything bubble” in asset prices and assert that QE ‘isn’t inflationary’.

The reality, of course, is that QE is inflationary, but this inflation occurs at the point at which newly-created money is injected into the system. If, back in 2008-09, QE money had been handed to anglers, the prices of fishing paraphernalia would have soared. In the event, the money wasn’t given to fishermen, but to investors, so it was the prices of assets, rather than of rods, reels and lures, which took off.

By convention, asset price changes are ignored in the computation of inflation. Accordingly, QE could be regarded as non-inflationary so long as its effects were confined to the prices of assets. This changed in 2021, when pandemic responses involved directing QE to households. This, needless to say, resulted in the spread of inflation from assets, where it is disregarded, into consumer products and services, where it makes headlines.

Statisticians do not apply consumer price inflation when calculating ‘real’ economic growth, but use the broad-basis GDP deflator instead. This measure, though, has serious shortcomings of its own. In short, we cannot measure inflation effectively if we confine ourselves to measuring the financial against the financial, whilst disregarding the material.

The SEEDS concept of RRCI – the Realised Rate of Comprehensive Inflation – is designed to overcome these shortcomings, and is compared with the conventional measure of systemic inflation in Fig. 13. As you can see, historic inflation has been understated in relation to the RRCI measure, of which a corollary has been that capital has been priced even more negatively than headline data implies.

Fig. 13

Looking ahead, it seems likely that global systemic inflation will retreat from a 2022 provisional estimate of 9.3%, but is likely to remain between 5% and 6%. This projection suggests that the matrix of factors governing pricing will include (a) continuing rises in the costs of necessities, (b) falls in the prices of discretionaries, (c) asset price corrections, and (d) interest rates that remain negative in relation to RRCI.

How much exposure?

Global financial liabilities need to be understood at several different levels. One of these is conventional debt, and another comprises those broad commitments which are known as ‘financial assets’ but which, as mentioned earlier, are the liabilities of the government, household and PNFC (private non-financial corporate) sectors of the economy. Both debt and broader liabilities can be subdivided into public- and private-sector commitments.

Let’s start putting some numbers on the magnitude of global financial exposure. This is complicated, and Fig. 14 is intended to set out the broad structure of financial liabilities – at constant values – by comparing the end-of-2021 situation with the equivalent position on the eve of the global financial crisis (GFC) in 2007.

Please note that, because international obligations need to be met through market transactions, the data set out in Fig. 14 is stated in dollars converted from other currencies at market rates, rather than on the PPP (purchasing power parity) convention generally preferred in Surplus Energy Economics.

Both charts are calibrated at constant 2021 values, enabling direct comparisons to be made between the scale of liabilities at both dates. The biggest change by far has been the sharp increase in broad financial liabilities, which are estimated to have increased by 90% in real terms between 2007 and 2021, rising from $294tn to $555tn between those years.

With GDP shown for reference, Fig. 14 divides liabilities into government debt, private debt and the aggregate of estimated financial assets. Private debt is further subdivided into sums owed to banks and other lenders.

Fig. 14

Conventional debt data is available from the Bank for International Settlements. BIS data shows that, at the end of 2021, governments owed $84tn (93% of GDP) whilst, within private sector debt totalling $153tn (166% of GDP), $95tn (98% of GDP) was owed to commercial banks.

The real issue, though, isn’t debt, but broader financial exposure. These “financial assets” are reported by the Financial Stability Board.

Financial assets fall into four broad categories. Three of these – central banks, public financial institutions and commercial banks – are self-explanatory, though it’s noteworthy that the total exposure of commercial banks (estimated here at $208tn) far exceeds the conventional debt owed to them by households and PNFCs ($95tn). The fourth is NBFIs, meaning ‘non-bank financial intermediaries’.

We need to be clear that these broad liabilities are very largely unregulated. The FSB is not a regulatory authority, but works to improve transparency and encourage best practice. Individual jurisdictions are under no obligation to supply data to the FSB. As a result, available data is neither complete nor particularly timely, with information relating to the end of 2021 only published on the 22nd December 2022.

In general, commercial banks are regulated where they act as ‘deposit-taking institutions’, meaning that the aim is to protect the public as customers of the banks. This is not the same thing as macro-prudential regulation, whose effectiveness is circumscribed by the exclusion of institutions which do not accept deposits from customers. The effect of tightening regulation on retail banks can be to drive more business towards unregulated players. There is, then, a huge gap in the ability of the authorities to maintain, or even to monitor, macroeconomic stability.

This lack of regulation is particularly important when we look at NBFIs. This sector is commonly referred to as the “shadow banking system”. NBFI exposure is enormous, and can be estimated at about $275tn as of the end of 2021. This exceeds the combined total of global government and private debt ($237tn).

The NBFI sector has various components, which include pension funds, insurance corporations, financial auxiliaries and OFIs (other financial intermediaries). This latter category includes money market funds, hedge funds and REITs.

In an article published in 2021, Ann Pettifor provided a succinct description of the shadow banking system. She traces the rise of the sector to the privatisation of pension funds, which happened in 30 countries between 1981 and 2014, and which, she says, “generated vast cash pools for institutional investors”.

Shadow banking participants “exchange the savings they hold for collateral”, generally in the form of bonds, usually government bonds. Instead of charging interest, they enter into repurchase (repo) agreements whereby the borrower undertakes to buy back the bonds at a higher price.

She points out that securities “are swapped for cash over alarmingly short periods”, and that “operators in the system have the legal right to re-use a security to leverage additional borrowing. This is akin to raising money by re-mortgaging the same property several times over. Like the banks, they are effectively creating money (or shadow money, if you like), but they are doing so without any obligation to comply with the old rules and regulations that commercial banks have to follow”.


This is a good point at which to pull together some of our observations about the relationship between the economy and the financial system.

First, we have observed how the process of liability expansion has created cosmetic “growth” in GDP, which is mistakenly assumed to be a meaningful measure of economic output. Second, a large proportion of the stock of credit exists outside the envelope of banking regulation and macroprudential oversight. We can note that credit expansion, promoted by keeping the cost of capital at levels below the rate of inflation, has created a hugely over-inflated “everything bubble” in asset prices – and that all bubbles eventually burst. It’s worth remembering that the bursting of a bubble doesn’t, of itself, destroy value – rather, it reveals the value that has been destroyed during the preceding period of malinvestment.

As we have seen, the underlying dynamic of the material economy is imposing affordability compression, which is the combined effect of the erosion of prosperity and rises in the real costs of necessities.

We can trace two logical consequences of affordability compression. One of these is a decline in sectors supplying non-essential products and services to consumers. It’s reasonable inference that, as well as driving down stock prices in discretionary sectors, this will result in business failures and defaults on debt, compounded by the effects of job losses.

The second consequence will be a degradation in the flow of income streams from households to the corporate and financial sectors. This sets the scene for a second set of stock price slumps, bankruptcies, defaults and redundancies.

What these indicators suggest is rapid, largely uncontrolled and disorderly contraction in the financial system, understood as an inter-connected and overlapping network of liabilities. The system holds together only if participants have confidence in the honouring of commitments ‘for value’.

The erosion of this confidence is likely to create a domino effect, which starts at the outer perimeter of unregulated lending and then moves inwards towards the regulated banking sector, with defaults compounded by the undermining of collateral values.

It is likely to be assumed that, as in 2008-09, governments and central banks will be able to intervene to shore up the system, but it is in fact unlikely that this will be possible. Aggregate non-government financial liabilities are nearly twice as large now, in real terms, as they were back in 2007 on the eve of the GFC.

With global GDP (in market-converted dollars) standing at $97tn, it is hard to see how the authorities can bail out any sizeable proportion of an estimated $480tn in non-government liabilities without engaging in the creation of liquidity on a scale that would be certain to trigger runaway inflation. The problem is compounded by the observation that the GDP denominator, at $97tn, is itself a dramatic overstatement of underlying material prosperity, a number which SEEDS puts at only $58tn.

Surplus Energy Economics has never predicted that the economy somehow ‘must’ collapse, noting that the rate of decline in prosperity is comparatively modest, and could be manageable. Recognition of the energy dynamic of prosperity erosion does not compel anyone to join the ranks of the collapse-niks.

But the financial complex, rather than the economy itself, is where real and extreme systemic risk does exist. We might be able, to put it colloquially, to ‘get by with less’, but we cannot ‘meet our commitments with less’. Much of this is a result of ignorance (about the real workings of the economy), intentional denial and limitations in oversight.

With the idea of economic contraction deemed to be (quite literally) unthinkable, it has suited us to assume, quite wrongly, that we can energise the material economy with monetary innovations. As well as failing, this has burdened us with financial commitments that we cannot even fully quantify, let alone honour or manage. An admittedly speculative possibility is that decision-makers might, in desperation, opt for the ‘soft default’ of runaway inflation rather than the ‘hard default’ of reneging on interconnected commitments that cannot be honoured.

As we have seen, the convention of disregarding asset prices within the calibration of inflation has enabled us to operate the system on the basis that ‘QE doesn’t cause inflation’. The situation changed when, during the pandemic crisis, QE was no longer confined to investors, but was extended to consumers as well.

At this point, inflation extended from asset prices to CPI, prompting action – rate rises and QT – from central bankers. The patterns of central bank action are illustrated in Fig. 15, in which policy rates are compared with CPI inflation to calculate illustrative real (ex-inflation) interest rates, and trends in central bank assets are summarised in Fig. 15D. The surge in inflation caused real rates to plunge to extraordinarily negative levels before a combination of rate rises and retreating inflation caused a correction back towards zero.

Thus far, the central banks, led by the Federal Reserve, have shown considerable resolve in their determination to use rate increases, and QT, to tame inflation. It is likely now, though, that CPI and similar calculations of inflation will fall, less because of monetary tightening than in response to economic deterioration.

If, as is to be expected on the basis of energy-based prosperity analysis, this economic deterioration causes asset prices to fall, and drives headline inflation downwards, the ensuing hardship might create calls for monetary easing at an intensity that central bankers may be unable to resist.

Knowing that the excess claims embedded in the financial economy must, by definition, be eliminated in one of only two ways, we cannot rule out a process of inflationary ‘soft default’.

Fig. 15

60 thoughts on “#249: The Surplus Energy Economy, part 4

  1. Well, Dr Tim, I’m beginning to wish that the crash – a ‘necessary catharsis’, perhaps – had already happened. Here in Somerset, I keep meeting with people on the cusp of ‘retirement’ who have wholly inadequate defined contribution pension pots who are utterly shocked to learn that a) they will run out of money in a few short years if they rely on ‘drawdown’, or b) can only afford to purchase a fixed payment annuity that is guaranteed to rapidly lose purchasing power. The ‘retirement crisis’ is upon us, thus adding to affordability compression.

    As Bill Blain of Shard Capital recently wrote: –

    “Since 2010 the US economy has expanded from $15tn GDP to $25tn, up + 40%. The stock market, as measured by the S&P500 is up + 270%. Basically, the stock market’s value has expanded nearly seven times as fast as the underlying economy. How is that sustainable?”

    He has a good point!

    Thank you for your hard work.

    • Thanks Mark.

      Back in 2008-09, a number of very able people said that the form of intervention undertaken was a mistake, a view which, in part, was founded on the concept of moral hazard. I’d say they’ve been proved right.

      The answer to Bill Blain’s question, of course, is that it’s not sustainable.

      The retirement crisis is something we’ve discussed before, notably in the context of the WEF report on enormous pension “gaps”.

  2. Those particularly interested in the US and the recent “resumption of growth”
    Should check out the Wealthion discussion with Stephanie Pomboy, playing now. Stephanie gives some reasons why the reported acceleration in growth is not very reliable. There is also, near the end, a non-governmental data base which reflects physical goods sold, and it shows an abrupt stop in growth when the government direct payments to consumers ceased. It hasn’t declined very much as yet, but it is not growing, either.

    Don Stewart

  3. The situation as you describe it lends itself to 2 interesting and disturbing possibilities

    1. The people charged with maintaining the system of capital management, i.e. the financial industry, have acted to destroy that system by destroying its basis – capital.

    2. That point 1 was not an accident

    Thanks Dr. Morgan

    • That’s an interesting view, and one I’ll reflect on in drafting Part 5.

      My feeling is that we’ve moved into a post-capitalist situation, with the sheer weirdness of free money from central banks distorting the working of the system, resulting in a whole lot of misaligned incentives. Bad outcomes can be driven by systemic conditions as well as by combined intent.

      I’m not making excuses for the industry, because the industry is engaged in the processes by which conditions are determined – as just one example, the “taper tantrum”.

      I believe that a big shock is coming, for which we, collectively, are woefully unprepared.

    • I’m actually in agreement with you, Raymond, even though I work as a financial adviser! Back in 2005, for instance, in a book called “The Coming Generational Storm” by Laurence J. Kotlikoff and Scott Burns, the authors quite rightly identified three distinct strands of what they called “Financial Malpractice”.

      These are “False Promises”, “Wrong Targets”, and “Excessive Fees”. In brief, the argument was that the financial industry were guilty of using simple projections, offering little help with retirement spending targets, and charging far too much. My regulator, the FCA, has helped in that (meaningless) projections now discern between ‘nominal’ and ‘real’ returns more effectively, which helps. Many advisers a members of what I call the “Cashflow Modelling Cult”. This was the development of sophisticated software to ‘blind the punter with pretty charts’, none of which, in my humble opinion, are of much help in the real world.

      The fees thing is the real killer. As Kotlikoff & Burns said, “The business model for most financial services firms is to earn 2 percent return on your money. Many hope for a good deal more. That’s simply too much, yet it’s common for both accumulating and distributing portfolios.”

      I see this all the time. Right now, I’m dealing with a private pension fund where the fees being deducted added up to 2.67% p.a. I have recommended that the client moves the fund to a new contract with an “all-in” charge of 0.35% p.a. It doesn’t take a mathematical genius to work out the right choice.

      Today, thank, goodness, with the rise of index funds, it’s possible to invest at tiny cost, but few do because many seem to think that expensive products with ‘star managers’ must offer something special. They don’t.

      Alongside index funds, I prefer those Victorian & Edwardian investment trust companies. Just to cite two examples for the sake of brevity.

      The City of London Investment Trust was launched in 1891 and today stands at £2.1bn. It is a UK Equity Income fund that yields 4.80%, has an ongoing charge figure of 0.36% and has increased its dividend every year for the last 56 years.

      Alliance Trust was launched in 1888 and today stands at £3.3bn. It is a Global fund that yields 2.50%, charges 0.38% p.a. and has increased its dividend for the last 55 years.

    • Thanks Mark. Where the financial sector is concerned, one point I would make is that the views set out in this article are radically unorthodox, meaning that ‘they don’t see things the way we do’. Presumably, and despite all the accumulating evidence to the contrary, the industry still assumes a return to ‘perpetual growth’.

      This does not, in any way, justify malpractice or ethical shortcomings. One of the UK regulatory exams I had to take a few years ago was “Treating customers fairly”. That, though, has to be a mind-set, and I don’t think it is.

    • “One of the UK regulatory exams I had to take a few years ago was “Treating customers fairly”.”

      All major corporations do this. Lots of stupid “anti bullying training” and “diversity” crap. None of them actually accomplish anything, but they keep up appearances. The corporations themselves are the biggest bullies, so its rather rich when they force you to take a training on it. Which appears to be all we’ve been doing since 2008, keeping up appearances. I still disagree that those at the top “do not know” or just “misunderstand”. I don’t think you’re taking all of their actions since 2008 in conjunction. If they didn’t understand that “growth” and “prosperity” are over, why would they be screaming about a new energy source that they can control and tying that to a digital currency that they can control? It all boils down to control, but we can pretend they’re just ignorant so we can sleep better at night. Have you noticed that all of our problems are tied together at this point, but the answer we receive to the problems is always the same: Give us more control! We just don’t have enough experts yet applying enough control!

    • The question of ‘how much do they know?’ is fascinating, if unknowable.

      On the one hand, it’s perfectly possible for ‘them’ (as we’ll call them) to have worked this out, and for some research institute somewhere to have their own version of SEEDS, vastly better resourced, more sophisticated and with access to information that most of us can’t see.

      On the other hand, some of “their” actions are not consistent with such knowledge. I could – but obviously won’t – name sectors with no future, yet stock prices in these sectors haven’t crashed, whereas, if this kind of knowlege was accessible to “them”, wouldn’t they have pulled out?

      There’s another possibility, which is that “they” sense that things are going badly wrong, but without necessarily knowing or modelling ‘why’. This could explain the ever-expanding quest for control.

    • So you’re arguing in the age of QE and 0% rates to only the largest players, price discovery exists? And what do you care about losing money in an “investment” if you can just bail yourself out?

      When we transitioned from the horse to the car, did the government have to create laws that stated by the year 1900 no more horses were to be used in transportation, or did people switch because it was a vastly superior way to travel?

    • If they were simply incompetent or ignorant, the ‘mistakes’ would go both ways — but they never ever do.

  4. I am relieved by reading how this predicament does not necessarily mean general collapse in theory. However, I wonder if collapse could come from the societal unrest aspect of the decline. People are mostly oblivious to the cause of the decline of the standard of living: the end of an adequate supply of easy to extract fossil fuels and its consequences. Many also refuse to believe it believing instead in the “renewable fairy” to take us to even higher levels of prosperity.

    In the west people grow increasingly polarized, embracing populism, nationalism, wokeness, communism… looking for answers. To some is too many immigrants, to others unbridled capitalism. Seems to me it doesn’t bode too well for stability if most don’t understand the source of the problem.

    • My view is that the economy need not collapse – though it could – but it’s almost impossible to envisage an orderly, gradual contraction in the financial system.

      You are quite right about societal risk, something that’s likely to arise when we discuss Part 5. There has, I think, been a depressing decline in social cohesion in the West, something which I believe connects to declining prosperity, which had started in almost all Western countries before 2008.

    • @Dr. Tim Morgan. What are the implications of this for someone approaching retirement and has their retirement stored in a 401(k)? I fear that this means that many people will never get to retire.

  5. Hi Tim, thanks for this post i have been looking forward to it for a while.

    But as i was reading, i realized that you could use a combination of SEEDs and fossil fuel reserves to get an estimate of the total size of the remaining fossil fuel powered “prosperity” available to mankind. Then you could compare that value to the total financial liabilities. Now it is likely that the estimates will be arguable and you might have a large variation in the estimate for the total. But the estimate for how much net energy is available from fossil fuels for the next decade should be more narrow. And if you have the net energy available you have “prosperity” for then next decade and you can compare that to the financial liabilities for the next decade. Then you can do this not for the world as a whole but for each nation.

    I think having the estimate for the total amount of economic output that can be created from the remaining fossil fuels would be useful to shock the financial sector. Being able to say “we have 80-120 trillion dollars worth of economic activity that can be powered by fossil fuels, and that is it. We will have to power our current system and make a sustainable replacement system with that amount of money.”

    • Thanks, and I hope this instalment lived up to your expectations.

      There are, in fact, two ways of doing what you suggest. One would be to tot up remaining energy quantities and multiply them by unit values, though it’s not an approach that I’m altogether happy with.

      But there’s another way of getting to a similar result, which would be NPV of DCF.

      When one values, say, an oil field, it’s possible to estimate the number of recoverable barrels, and multiply it by a unit value. For various reasons, this isn’t a very professional way of going about it, not least because there are two many subjective variables (including quantities and unit values).

      The alternative is to run the model – of the field, or for that matter the system – forwards, calculating net cash flow for each future year. This cash flow is then discounted back to current value (DCF), using a discount rate which includes inflation, and may involve a time value or cost of capital discount rate. This total is expressed as a net present value (NPV). This also provides a terminal date for the oil field, which in this context is a thought to conjure with.

      This can be inter-operable with the unit approach. I don’t know if this can work, but I’ll certainly look into it – so many thanks for the suggestion.

    • In fact performing that exercise for each country might lead to a set of comparative data that could become a predictor for future geopolitical « events »…


    • I was thinking for a ~10 year forecast you could use the relationship you found between surplus energy and clean GDP, then apply it to the estimate for total surplus energy for those 10 years to give you an estimate for the size of the real economy for those 10 years. Then compare the size of the real economy to the size of the liabilities that come due in those same 10 years.

      And if you do that for each country (as John Drake noticed) you should be able to get a good idea of the stresses that each country will experience.

  6. whilst the material economy might be capable of gradual and managed decline, the financial system cannot escape severe and disorderly contraction

    Dr Morgan,

    Considering that virtually all outside-the-home material transactions are mediated by money, I fail to see how a “severe and disorderly contraction” of the financial system wouldn’t result in a similar effect on the material economy and prosperity.

    Since so much of the material economy is globalized, any disruption to the financial system cannot help but disrupt the global flows of energy and goods throughout the economy. And, while an individual country might be able to keep goods flowing to its populace without a medium of exchange (command economy, rationing, etc), I cannot imagine enough cooperation between countries to do the same globally.

    • Joe:

      I should start by saying that a lot of what we’re doing here is extensively theoretical, or perhaps I should say analytical – from that perspective, the conceptual distinction between the ‘two economies’ is vital.

      Where we could find ourselves is with a material economy, itself capable of managed decline, being thrown into chaos by a crumbling financial system. At that point, we either ‘give up’, or develop an alternative system for exchange.

  7. Firstly, huge congratulations, Tim, on an outstanding blog – an authoritative, lucid and potent analysis of a very complex situation.

    Secondly, where to start?! I’ll try to be brief (and ask you to bear in mind that climate strategies are my field, not economics).

    1. As I read the blog it occurred to me that the ECoE discussion has a disconnect to conventional financial analysis in a somewhat parallel manner to the disconnect between the financial economy and the real economy: they seem to be getting further apart when we so badly need them to be getting closer.

    2. Which jumps me to potential outcomes of your current series. You have mentioned a possible PDF compilation, and may I ask you to also seriously consider some form of “Surplus Energy Economics for Dummies”? Your work is crucially important and deserves a wide and general audience, and such a publication in turn may contribute to narrowing the “discussion gap” I just mentioned. Naturally, this does not necessarily mean that you need to write it yourself, although that would clearly be a desirable option.

    3. To reiterate a comment I made on a prior blog, and that also relates to this one: prosperity does not equal well-being (that is not to suggest you are ignoring the point but, for example, your comment quoted just below, and your reference to necessities becoming more expensive while discretionaries become less, both have a close connection with this). I look forward to your coming blogs in this regard.

    “There has, I think, been a depressing decline in social cohesion in the West, something which I believe connects to declining prosperity, which had started in almost all Western countries before 2008.”

    4. Picking up on your fascinating concept, Jim, of comparing fossil fuel reserves with future liabilities, and as if the modelling is not already complex enough, such an approach should also factor in the climate risks that go with the use of those reserves to meet such liabilities. (You do lead towards this in your closing comment re “sustainable replacement”, but that is presented more as a logistic issue than an existential one, and the latter approach would quickly point to the need to adopt a timeframe dramatically longer than the ~10 years mentioned – and so, presumably, also compound the challenges of the NPV/DCF approach you describe, Tim.

    And, to apply John Drake’s point a little differently, national or regional analysis would seem to have the potential to become a valuable input into future energy planning, and so into the levels of prosperity and social buoyancy that societies should expect to prepare for.

    Thanks again, Tim, for your insightful ongoing work on this.


    • Thanks Lindsay, and I appreciate your thoughts. This one was hard to put together, not least because we are so far outside the confines of the orthodox.

      The plan is to make PDF versions of all four instalments available, with some supplementary data. I had also thought of putting all four together as a PDF. The idea of “SEE for dummies” is a very interesting one, and I’ll certainly think about this.

    • To pick up on a separate point that you raise here, I quite agree that prosperity certainly doesn’t equate to well-being. It’s at least arguable that well-being has deteriorated even whilst prosperity has expanded. I believe that, amongst the many things required for well-being, a society needs to be ‘at ease with itself’. Travel away from this is what I mean by a depressing decline in social cohesion.

      We could make connections here with the need for greater equality, and perhaps we should; but my emphasis would be on a society whose members have, and act upon, a genuine concern for the well-being of others.

    • Good thoughts, thanks – I like the notion of a society being at ease with itself – it’s a concept I feel drawn to explore, and pointers would be welcome. It seems to me that there is likely a strong correlation between income inequality and concern for others, as the latter might be expected to make the better-off more “at ease” with measures such as tax rates and subsidies to improve the lot of those less well off.

  8. You did not directly address the question of counter-party risk, although you touched on multiple claims on the same asset. With known claims far outpacing the underlying asset base, the disorderly unwinding of additional unknown and uncounted claims would seem to guarantee a disorderly unwinding.

  9. US Tech Stocks
    A prediction that high interest rates will cause a severe repricing of the leading tech stocks, with prices falling in the order of 50 percent. Not really connected to compression of non-essentials. If these companies revenues also fall, then it might be worse. BTW, Tesla, which makes electric automobiles, is in the group. You may have noticed on Wolf Street that the expected huge increases in commodity prices as a result of the demand for electric vehicles has not materialized.

    Just a random observation from me. I am 82, and stick closer to home than I did when I was young lad of 60. Yesterday I was out and about and couldn’t help but notice that there was a lot of construction activity. Steel frame buildings and highways and housing with lots of moving of dirt and building of concrete block structures and wood and so forth. What I see is the fossil energy which is embedded in all of that. If things are supposed to be changing, it’s hard for me to see it.
    Don Stewart

    • As Wolf has reported, commodity prices have been oscillating wildly. Lithium, for instance, hit 600,000 CNY/tonne, and has now retreated to 405,000 – but it was 40,000 in November 2020. Commodities have been subject to wild gyrations – price spikes cause sharp falls in consumption, which drags down prices, which drives consumption back up, and so on.

      Re. construction, you may be seeing a lot of it, but it’s clear that America is into what Wolf calls “Housing bust 2”, and that the industry is really suffering. A lot of this is caused by rises in mortgage rates, but these are still below inflation. In his latest article, he highlights consumers “outspending even raging inflation”. What isn’t altogether clear is how they are doing this. They’ve been helped by wage rises, though this of course can feed inflation. Falling gasoline prices have helped. There seems to be a lot of pandemic era liquidity still in the system.

      What we need to do is to try to see through short- and medium-term oscillations in search of underlying trends.

  10. Creating a society being at ease with itself seems like a worthy goal. It’s probably a state-of-affairs with many antecedents (although probably none are sufficient, nor always necessary, but all useful, sometimes) and never a stable state. Being at ease in the coming decades probably will involve being part of a place that follows the well-fed-neighbor notion (where the “fed” is taken broadly).

    For me, the well-fed neighbor notion always brings up the misconceptions around self-interest. Self-interest is often ignored as a useful motive because it is equated with selfishness (Perloff, 1987). It’s easy to confuse these two concepts and misconceive that self-interest is only about attaining personal happiness, gain, or pleasure. Countering this misconception is work by Wallach & Wallach (Psychology’s Sanction for Selfishness, 1983) where they argue that our psychological well-being can depend on what happens to those things that we DECIDE to care about. They see the possibility of a disconnect between our internal feelings and the object of those feelings. The “self” has an internal motivation (innate inclination) but the object of those feelings is external to the self.

    There is probably a continuum of self-interest with one end being selfishness (i.e., extracting whatever you want without any concern whatsoever for how your actions affects others or the planet). At the other end might be Erikson’s (1958, 1963) idea of generativity. This is sometimes defined as “making your mark” on the world through creating or nurturing things that will outlast you. Once this was thought to be an innate inclination expressed only late in life when individuals experience a need to create or nurture things that will outlast them.

    Somewhere on that continuum might be taking care of yourself, SO THAT you can then go forward and do good. Self-care as a pre-condition to other-care: Burned out people cannot help save the planet.

    By combining the well-fed-neighbor notion with a continuum of self-interest, I come up with a few waypoints.

    Seeing that my neighbor is well fed:

    1. so that they don’t poach on my garden (close to being selfish);

    2. so that there forms between us a tacit contract (hoping for specific reciprocity);

    3. so that a system of mutual aid develops (immediate enlightened self-interest);

    4. enlists me in a system that may, one day, be willing to care for me (longer-term enlightened self-interest);

    5. helps fulfill an innate inclination toward generativity;

    6. because I choose to care about the well-being of my neighbors (grounded altruism).

    • Many thanks Raymond, for your reply generally and way points especially.

      By coincidence I have just finished listening to episode 188 of the excellent Podcast series Outrage and Optimism (with Christiana Figueres, Johan Rockstrom, and others): “The path to sustainability is equity”.

      Among many topics, they delve a little into the relationship between prosperity and well-being (though, Tim, they seem to bring a slightly different, if not incompatible, concept of “prosperity” to yours).

      And, Raymond, kindly forgive my temerity if I suggest another way point for your list (I hardly see it as an end point):

      7. has the potential to be part of a larger-scale proliferation of the idea. (“Multiplier effect”, “diaspora,” “chain reaction”…).

  11. @Dr Tim

    Just to continue the conversation from the previous chapter.

    What I mean by store of value is that, for ‘money” to be an effective means of exchange it also has to be a relatively stable store of value.
    That’s why we all accept it as a means of payment and store it in our bank accounts. We all accept/expect, give or take a bit of inflation, it will be able to purchase the same tomorrow as it does today.

    Once it stops doing that, (Weimar Republic, hyper inflation) then it stops being an effective means of exchange.

    In a de-growth economy, as the economy shrinks, so too must the amount of money in circulation, or constant and increasing inflation will result. Uncontrolled inflation will lead to money no longer being an effect/stable means of exchange. It’s value will be changing too quickly.

    • If you look back to the purchasing power of currencies in 1971, when the fiat system began, you’ll see an enormous loss of value. Moreover, such calculations tend to be based on official measures of inflation, which often understate what’s really happening.

      A modest amount of inflation, say 2% or even, perhaps, 5%, does no great harm, but higher rates of inflation are really damaging.

      My way of looking at this is to examine the relationship between the ‘real’ economy of goods and services and the ‘financial’ economy of money and credit. Prices, as the financial values attached to physical products and services, are the point at which these ‘two economies’ meet. This also means that changes in prices mediate changes in the relationship between the two.

      I’m firmly convinced that this is the best way to understand and predict inflation. There is, according to SEEDS, more than 40% downside between the financial and real economies. This implies the scope for much higher inflation, unless this re-adjustment takes place in other ways, including asset price slumps and a wave of defaults.

    • @Dr Tim.

      I agree with that but up until now money has been functioning in an expanding economy.

      £100 today doesn’t get you what it would 100 years ago but that’s ok because wages have also gone up in tandem. The value of money is relative to wages.

      For the last 200 years, the economy has been able to provide an ever increasing array of new products and services to spend expanding wages on. So inflation can be kept in check.

      But in a de-growth economy the availability of “stuff” will decrease. If the money supply doesn’t also decrease in tandem, then the only option is for the purchasing power of a £ to decrease rapidly and steeply. Inflation.

      Weimar Republic is an example of what happens when there is a shortage of “stuff” (due to war reparations). With hyper inflation, money stopped being an effective means of exchange. When you go and buy a coffee in a cafe and it costs more when you come to pay than when you ordered it, money no longer becomes an effective means of exchange.
      In the Weimar Republic the problem was exacerbated by printing more money.

      In a de-growth economy the the problem will be exacerbated by an ever shrinking material economy forcing up inflation.

      In this situation, I can’t see how money will function as an effective means of exchange as it’s purchasing power is eroded.

      Just to add, the first signs of the start of de-growth will be the collapse of the existing financial economy.

  12. I like much of what you say. I agree the gdp generated by the primary and secondary industry is very different from the gdp from the tertiary, quaternary and quinary sectors.
    I feel the human energy should also be included in the surplus (or not) energy calculations.
    Demographics drive the energy and demand

  13. What does the severe and disorderly contraction of the financial system imply for those about to hit retirement age (I am not about to hit retirement age anytime soon, but my parents are)?

    • for retirees without big money, it might imply moving in with one of their children.

      multi-generational households will be on the increase.

      this further implies that most people will be having less retirement funds than their parents.

      and within a few decades, very few younger adults will even know what “pension” or “401K” means.

      sorry, my crystal ball is full of pessimism tonight.

    • @Isaiah.

      I would suggest priority No.1 is not having any debts.

      When the crash comes, the bailiffs are going to be busy.

      Having money invested in a rental property may become problematic. Lots of tenants who won’t be able to pay the rent so won’t pay. They can be evicted but still need somewhere to live and any replacement tenants could well be in the same financial predicament.

      If your parents have a garden, learn to grow some veg. If not, the apply for an allotment.

      Stock up with food.

  14. Dr Tim, an interesting piece in today’s Observer about the parlous circumstances surrounding the UK’s fifth largest supermarket chain, Morrison’s. US private equity firm Clayton, Dubilier & Rice (CD&R) took it over for £7bn. Profits are down and debt up. £7.5bn of gross debt, compared to £3.2bn before CD&R took over.

    Interest payments have risen from £100m a year ago to £400m now. Morrison’s is a ‘vertically integrated business’, with farms, abattoirs, fish processing plants, and owns most of the freeholds of its 500 supermarkets. I think this is why CD&R bought – the land.

    I shop for a few items each week at a local Morrison’s; the store seems demoralised compared to a few years ago. The next Debenham’s?

    • I don’t know about this particular company, and it would be interesting to know how much cash it has now, and before the takeover, i..e. the change in net debt. It would also be interesting to know what, if any, asset sales have taken place.

      In general, though, the way in which these takeovers sometimes happen is that the buyer sets up credit lines before the acquisition, uses the borrowed funds to acquire the company, and then, if successful, transfers the debt to the acquired company. The resulting leverage can be excellent for the buyer if things go well, but bad for the company if things go badly.

    • “The problem facing supermarkets – which have already done most of the things which keep prices low – is that they cannot raise prices without losing critical mass. This can happen internally, as customers who previously bought premium range items switch to the value range, or it can result in consumers abandoning supermarkets in favour of discount retailers. And many more of us are no longer shopping for the things we like, but limiting ourselves only to the things we really need. Either way, the hidden threat is that one or more of the big four – Asda, Morrisons, Sainsbury’s and Tesco – will go bust. If that happens, the downward pressure on prices – which, even today, is holding prices lower than they would otherwise be – would be released, throwing the food industry as a whole into a death spiral, as rising prices fuel falling demand until a large part of the population is surviving on bare essentials.”

    • I also do not know what is going on with Morrisons. It was my main supermarket up to about a year ago. Always full of shoppers and a wide choice of reasonably priced food. It started to go downhill, less choice and more expensive. Then they created a big clothes section, where few people seem to buy anything. More recently they removed a large deli/fresh fish section to be replaced by hot fast foods. The actual supermarket section is smaller and worse than ever, even less choice and more expensive. And fewer people are in the shop. Symptomatic of the attitude is their local produce where you can pick local eggs and put them in egg boxes to take to the till. Often there are either eggs and no boxes or boxes and no eggs. When questioned the staff just shrug their shoulders.

    • I can only agree, Trevor. My local store, opened with much fanfare a few years ago, has become a touch shabby with poorly managed shelves (empty cardboard product trays everywhere), many products unavailable (although this is by no means exclusive to Morrison’s) and staff who seem rather demoralized.

      I think that the change to Energy costs support in April will only make matters worse as consumers further tighten their belts and spend more on cheap carbohydrates rather than fresh produce, thereby inducing a gradual spiral downwards.

    • Dr Tim, do you think that we are beginning to see the “Great Unravelling” of the fantastical debt mountains built up by businesses like Morrison’s and very many smaller enterprises? I have just been told by some new potential clients, for instance, that a business sale has fallen through at the last minute – yes, they are in the discretionary sector – wrecking the couple’s retirement plans, temporarily at least.

      I have also been speaking to couples in their 30s who have a big problem with rising mortgage costs. I met with a couple five years ago who has taken on a £935,000 capital & interest (repayment) mortgage over a 40-year term on a property costing £1.2m. They chose a relatively short fixed interest rate at 2.0%, meaning their monthly mortgage payments were just over £2,850 a month, very manageable at the time. Since then two children have arrived – hardly an inexpensive exercise! – and for reasons I can’t quite fathom, are now on their lenders Standard Variable Rate of 7.25%, meaning that their monthly mortgage payment is around £6,000 per month – yikes! Whilst this couple’s circumstances are extreme (and affected by certain confidential matters), we can see that this problem isn’t likely to go away anytime soon and, whilst the numbers are indeed (much) smaller elsewhere, the proportional effect is just as serious.

      FCA statistics: “The outstanding value of all residential mortgage loans was £1,667.1 billion at the end of 2022 Q3, 4.1% higher than a year earlier.”

      Around 5% of outstanding mortgages are 90% loan to value, but one has to remember that the vast majority of UK housing stock is unemcumbered.

    • Mark, on the general point, I don’t see how the “great unravelling” can be avoided. The authorities, including central banks as well as governments, are simply playing for time and, in fairness, it’s hard to see what else they could do at this very late stage.

      House prices are set by marginal transactions, so even a relatively modest quantitative imbalance can trigger a slump. The marginal buyer is the person who needs a mortgage before he or she can buy. Those who have no mortgage – and assuming they don’t have major other debts – are in a relatively resilient position, so long as they’re not counting on downsizing to fund their retirement.

      It’s interesting to observe that the US is now in the grip of what Wolf Richter calls “housing bust 2”. I don’t see how the UK, which has a weaker economy, and doesn’t have the world’s reserve currency, can possibly escape a similar outcome.

    • Indeed. I have to say that I have many clients at quite advance ages who have splendid guaranteed incomes with reasonable inflation protection, ample ‘cash to hand’ and, for some, long-term balanced investment portfolios (in various different ‘tax wrappers’) that have served them very well, despite 2022 being an awful year for most investments. Every cloud has a silver lining, as the old saying goes.

    • Dr. Albert A. Bartlett
      Arithmetic, Population and Energy
      Professor Emeritus
      Department of Physics
      University of Colorado, Boulder

      We just need 2% global growth for the next 35 years. Nothing crazy. All we have to do is double the amount of all the energy burned in all of human history. Then we just keep doing that.

      When human mass equals the mass of the earth 2,000 years later, it will be awesome because it will be like a giant festival.

    • Great reminder of Al Bartlett , thanks – I often quote him : ” The greatest shortcoming of the human race is its failure to understand the exponential function”.

    • I think politicians do not mention peak oil as they have a new mantra. Net Zero. Which means we will simply replace fossil fuels with renewables and economies will grow and grow. They cannot admit that renewables will never be as cheap as fossil fuels are now, can never fully replace them and economies will not grow and grow. If they did, they would not get re-elected.

    • Great article.

      I thought that this bit was telling. Can explain events in Easter Europe at the moment

      “Increasingly I am forced to conclude that the object of the game that world leaders are actually playing is not to avoid collapse; it’s simply to postpone it a while so as to be the last nation to go down, so yours can have the chance to pick the others’ carcasses before it meets the same fate.”

  15. @Lindsay Wood.

    It’s a very dynamic race, and many have, and still do, live in balance. Ironic that Albert, and me and you alike, we’re born into the category of humans ignore the functions.

  16. An embedded twitter feed in the following article from Zerohedge details the collapsing South African economy, including the failure of electric supply, sewage treatment and fresh water supply. The shape of things to come in Europe and North America, in case you’re interested in what is happening to the “real economy” even without and before a financial collapse.

  17. Pingback: #250: The Surplus Energy Economy, part 5 | Surplus Energy Economics

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