#251: The Everything Crisis



Even the most cursory glance at economic and financial history will reveal a litany of bubbles and booms, crashes and crises. We’ve seen numerous instances of speculative manias, real estate bubbles, market collapses and banking crises. Even the dot-com bubble of 1995-2000 wasn’t really ‘a first’, since there’s at least one previous instance – the Railway Mania of the 1840s – of the public being blinded to reality by the glittering allure of the latest vogue in technology.

You’d be wrong, though, if you concluded that “there’s nothing new under the Sun” about what we’re experiencing now. The coming crunch – for which the best shorthand term might be ‘the everything crisis’ – sets new precedents in at least two ways.

First, it’s unusual for all of the various forms of financial crises to happen at the same time. Even the global financial crisis (GFC) of 2008-09 wasn’t an ‘everything crisis’. Now, though, it’s quite possible that we’re experiencing the start of a combined stock, property, banking, financial, economic and technological crisis, with ‘everything happening at once’.

Second, all previous crises have occurred at times when secular (non-cyclical) economic growth remained feasible. This enabled us to ‘grow out of’ these crises, much as youngsters ‘grow out of’ childhood ailments.

No such possibility now exists.

The true story of modern economic and financial history involves, on the one hand, the ending and reversal of centuries of economic expansion and, on the other, an absolute refusal to come to terms with this reality.

What follows is an attempt to tell that story as briefly as possible.

We’ve recently concluded our five-part synopsis of The Surplus Energy Economy, a series which begins here. This means that we don’t need to re-visit now a lot of detailed material that readers can access elsewhere at this site.

It starts here

One of the two core realities of our predicament is that the huge and complex modern economy was built on the abundant, low-cost energy made available by oil, natural gas and coal. Quite naturally, we have accessed lowest-cost energy sources first, leaving costlier alternatives for a ‘later’ which has now arrived. ‘Depletion’ is the term which describes this process, and you would not be far wrong if you concluded that, just as fossil fuel resources have depleted, so has the economy.

Depletion doesn’t mean that we ‘run out of’ the resource in question, but that its supply becomes progressively more expensive. The relevant metric here isn’t financial cost – because we can always create new money – but cost understood as the proportion of energy value which, being consumed in the process of accessing energy, is unavailable for any other economic purpose. This metric is known here as the Energy Cost of Energy, or ECoE.

Global trend ECoE (from all sources of primary energy) has risen from 2.0% in 1980 to almost 10% now, and is likely to reach 13% by 2030, and 17% by 2040. What this means is that, from every 100 units of accessed energy, the ‘available for use’ or surplus component has decreased from 98 units in 1980 to 90 units now, and is likely to have fallen to 83 units by 2040.

It’s important to remember that surplus energy isn’t used just to supply products and services to consumers, but to maintain and replace productive and social infrastructure as well. This means that sensitivity to rising ECoEs is an inverse function of complexity – the more complex an economy is, the greater is the surplus energy required just to sustain the system.

Complexity is highest in the Advanced Economies of the West which has meant, in practice, that prior economic growth in these countries went into reverse first, happening once their ECoEs reached about 5%, a climacteric which was traversed in the early 2000s. EM (emerging market) economies, by virtue of their lesser complexity, have been able to carry on expanding at ECoEs above 5%, but most of these countries have now hit their own inflexion-points, which occur at ECoEs of around 10%.

Accordingly, global prosperity per capita peaked in 2019, and preliminary data indicates that world aggregate prosperity may have peaked in 2022.

‘Affordability compression’ and the leverage of necessities

Any person or family whose economic resources start to decrease faces two main challenges. First, he or she has to devote an ever larger proportion of diminishing income to necessities, spending progressively less on discretionary (non-essential) purchases. Second, it becomes increasingly difficult to keep up the payments on debts and other financial commitments taken on in earlier, more affluent times.

The equivalents of both processes are occurring at the macroeconomic level, but each has a twist. First, a family experiencing a fall in income doesn’t tend to encounter a simultaneous rise in the cost of essentials, but this is happening now in the economy, because so many necessities are energy-intensive. The second twist is that, whilst individuals and households can’t conjure new money out of the ether, those managing the economy itself can do this (though they can’t, of course, create economic value by creating money).

The portmanteau term used here to describe this process is affordability compression. At its most basic, this is very simple to unpack:

  • Prosperity is deteriorating because ECoEs are rising.
  • The costs of necessities are rising because so many of them are energy-intensive.
  • The economy is experiencing relentless downwards pressure on its ability to afford discretionary products and services.
  • Prior financial commitments are proving ever harder to honour.

The great folly

    None of this is entirely new. Between 1990 and 2000, global trend ECoEs rose from 2.9% to 4.2%, the latter pretty close to the inflexion-point of 5% as it applies to the complex economies of the West. The practical consequence of this trend was growing awareness, during the 1990s, of “secular stagnation”, meaning a non-cyclical decline in the rate of growth.

    Intelligent people would have reacted to this phenomenon by enquiring into it, and responding accordingly. The concept of the economy as an energy rather than a financial system had been established well before then, and the remarkably prescient The Limits to Growth (LtG), published back in 1972, had warned us about what to expect.

    Needless to say, intelligent investigation and reasoned response wasn’t what happened back in the 1990s, which is when the story of our current problems arguably begins. The proponents of orthodox economics denied that there was anything to worry about because, according to their most cherished precepts, there was no reason why economic growth should ever come to an end. The broader perception was that LtG was wrong, not because its precepts and techniques were mistaken, but because its conclusions were unpalatable.

    The fundamental error within conventional economics is the presumption that the economy is entirely a financial system, which is not constrained by material limits and is, therefore, capable of delivering ‘infinite growth on a finite planet’. A sub-set of this folly is the belief that the ‘liberal’ process of de-regulation can boost ‘growth’, a fallacy that was particularly fashionable in the decade or so after the collapse of collectivism as represented by the USSR.

    Accordingly, the favoured response to “secular stagnation” was to make it easier to borrow than at any previous time in modern history. This was also required if globalization was to succeed in exporting the process of production to lower-cost countries whilst bolstering consumption in the West, a circle which could only be squared by making it ever easier for Westerners to borrow.

    These processes lead directly to the GFC, which was ultimately the result of reckless credit creation and shortcomings in macroprudential oversight.

    A new model idiocy

    The response to the GFC was a resort to ultra-cheap money. You could have seen this coming if in, say, 2008, you had added up the world’s debts, and then applied a normal interest rate to calculate the aggregate cost of debt service, arriving at a number that was completely unaffordable. This was why the “temporary” expedients of QE, ZIRP and NIRP became permanent fixtures of the system.

    It’s a permissible simplification to state that the general level of asset prices is the inverse of the cost of money. The more cheaply and abundantly capital is made available, the further the prices of stocks, bonds, property and other assets will rise.

    The snag, of course, is that aggregate asset prices are meaningless, because these aggregate valuations can never be turned into money. Just as asset prices soared, so debt and quasi-debt escalated. Obviously enough, we cannot sell the whole stock market – to whom? – to pay off the debts that have been taken on to inflate it. The application of marginal transaction prices to “value” aggregate units is a fallacy that convinces only those willing to be persuaded.

    All of this has left us hoping against hope that ‘something will turn up’ whilst, at the same time, dreading what that ‘something’ might turn out to be. Where sources of hope are concerned, we are really scraping the bottom of the barrel, pinning our faith on replacing dense (fossil) energy with less dense (renewable) alternatives, or backing technology to over-rule the laws of physics. We’re only now starting to discover that creating new money out of the ether is inflationary, a reality that we’ve ignored by persuading ourselves that asset price escalation ‘doesn’t count as inflation’.

    The likeliest course of events now is that the bursting of the “everything bubble” brings on an “everything crisis”. Even unsecured debt is, ultimately, backed by the ‘psychological collateral’ of the assumption that the economy will grow by enough to let us honour our collective obligations.

    To understand why we can’t ‘grow out of’ the unfolding crisis, we need to appreciate that prior economic expansion has gone into reverse. Understanding this issue isn’t difficult, but coming to terms with its implications most certainly is.

    174 thoughts on “#251: The Everything Crisis

    1. It’s time for me to put on a Haydn string quartet, methinks!

      Excellent as always, Dr Tim, but the question remains – “to where do we run”? Cash, short-term bonds, long-term equity in ‘essential’ suppliers? I know you can’t give investment advice, and nor would I here, but there are very few remaining attractive asset classes, perhaps. My advice over the last decade and more concerned with persuading clients to reduce/eliminate debt seems justified, perhaps, and those holding investment companies, with their ability to reserve 15% of annual revenue, thus supporting future dividends, seems to have been, too. Add to the mix a ‘Balanced Portfolio’ of ultra-cheap passive funds (STOXX Europe 600, for instance, can be bought for a fee of an amazing 7 bps) seems to have helped over a reasonable time-frame, too.

      Difficult times – some might be feeling like Sir Robert Arbuthnot recklessly charging into the darkness and oblivion at Jutland in 1916!

      • Thanks Mark.

        It’s hard to find attractive investments, even if that was appropriate here, but I think the ugliest ones aren’t difficult to find, if we apply the logic of “affordability compression” – on that basis, one would steer clear of anything that’s very discretionary, or very dependent on streams of income from increasingly hard-pressed households. Also, the more anything has been hyped, become “fashionable” or politicized,.the further it’s likely to fall.

      • I think the only ‘discretionary’ company stocks left to invest in might be alcoholic drinks.

      • Well, on that note, imagine you’re sitting somewhere with a nice full glass of beer in front of you, then someone opens a door letting in a breeze which blows the froth off your glass.

        That’s sort of what’s happening now. As I understand it, of the three banks which have gone down so far, two were tied to cryptos and the other to tech, the start-up and VC end of tech in particular. This stuff has always looked very frothy, to me anyway.

        So how much of what was in the glass was actual beer, and how much was froth?

      • the question remains – “to where do we run”?

        We run to assets that have intrinsic value outside the monetary system, agricultural land, and the tools needed to work that land, being the best example. The best course of investment is to actually live on that land and also invest in learning how to make it produce the most human necessities with the least amount of labor.

        But even a debt-free farm still needs a bit of money in support, if only to pay the property taxes. To preserve that money, I suggest short term inflation-protected government bonds, issued in the currency needed to pay the taxes. In the event those bonds become worthless, and they may, then there probably won’t be any need to pay taxes, except perhaps to the local warlord who will probably rather get food than money.

      • @Joe Clarkson.

        I’m with you on this one.

        “Money” as a claim on future energy/assets.

        I’d rather have the assets!!!!!

      • Whilst I appreciate your sentiments, buying land and growing stuff just isn’t realistic for 99.9% of the population, certainly here in the UK! Surely it’s sensible to own small bits of businesses that make and produce things we need, like food for instance, via long-term stock holdings?

      • @Mark Meldon.

        “Surely it’s sensible to own small bits of businesses that make and produce things we need, like food for instance, via long-term stock holdings?”

        I think the the days when people can create an income for themselves by investing their capital into other people’s labour and effort are coming to an end.

        Money as a store of value and a means of exchange are not sustainable in a de-growth economy.

        By “investing” in small bits of business will mean investing ones time, skills and energy directly.

        Those who have some practical skills to contribute will coalesce together to form collective/cooperative ventures.

        But as you say, in the UK, the population will need to shrink for this to be viable.

      • Again, I don’t disagree with your premise. In fact, I think “localism” will prevail more and more as individual’s transportation choices are much reduced. In my village in Somerset, for instance, there are already issues with installing charging points for electric cars as I understand that the local grid is stretched already. Some people who have moved to the village in recent years moan about the lack of facilities and the need to drive everywhere to ‘see a show’. We are fortunate in that some of the members of the community pooled resources to save the last shop as a community food/news store in 2019. It’s been very successful and, just like the big supermarkets, can obtain pretty much any kind of produce if asked. Just up the road are two roadside shops selling fruit and vegetables, much of which is still homegrown. We even still have a village pub – there was a well attended quiz night on Sunday. So, we have enough to keep us going on the doorstep.

        Just at the end of our road is a closed railway station, shut down in the “Beeching Cuts” in the mid-1960s as private car use soared. Were it still open today I think it would be well-used, especially as the local bus service has recently been cut back.

      • @Mark Meldon

        “We are fortunate in that some of the members of the community pooled resources to save the last shop as a community food/news store in 2019”.

        I’m very familiar with the above mentioned shop. My business card is up on the notice board inside.🙂

      • Bill Gates has gone for land: and lots of it.
        Land can grow food, which we all need.
        I have a bit of land, as it happens, to help feed my family, and this year I shall be planting lots of healthy vegetables and roots that can be used year round.
        Apart from anything else, it is therapeutic and good exercise.

      • I’ve been trying to figure this out for some time myself. It gets especially hard when you consider the political rule breaking that emergencies bring out of politicians.

        I respect Tim’s wishes not to mention specifics directly here. But I do believe linking to a forum where other people post about said things is OK?


      • Investment advice is a regulated activity. Moreover, what suits one investor might not suit another. I’ve no problem with mentioning asset classes or sectors, by the way, but can’t mention individual investments.

      • Quite right, too, Dr. Tim. I won’t do so on this forum, either, despite being an ‘authorised individual’ as one has to have a sense of propriety.

      • Thanks. As I see it, if you agree with me that discretionary affordability is in rapid contraction, whilst streams of income from households to the corporate and financial sectors are going to degrade, and ad spending is an easy reduction for businesses under pressure, you can pick the affected sectors for yourself.

      • I didn’t mean for Tim personally to post there. I know his background prevents him from making recommendations.

        Just as a place off this site where individuals w/ no Finance Industry restrictions can post. Similar to StockTwits, Yahoo Stock forums etc..

        Apologies for the confusion.

      • Looking at this as someone who has worn the strategy and head of research hats, the limit of my role is suggesting basic parameters – the macro, so to speak.

        This is tiered. Level one – strategic situation and outlook. Level two – asset allocation, asset classes and sectors. Level three – individual picks within classes and sectors.

    2. Tim, I much appreciate your writing on our way down. I rarely comment here (as I haven’t the technical knowledge) but feel I have to give you credit for your work. It’s my hope you continue this thread as it will give us facts and numbers to ponder upon and hopefully give a better understanding of how the “way down” will develop over time.

      And of course all the comments from the group hanging out here :-). A great bunch of knowledgeable people contributing to our increasing understanding of our future.

      • Thanks, and don’t let lack of technical knowledge put you off. Our knowledgable, courteous readership is a great asset, and all of us learn from their contributions.

    3. Again, well done!
      ‘Ugliest Investments’ (TM) If you were not dead serious I would find this amusing. To me that is incredibly insightful even if seemingly delivered off hand.
      “I’m more concerned about the return of my money than the return on my money” attributed to Will Rodgers but was said by Samuel Clemens aka Mark Twain. This quote erroneously assumes the value of money is constant. Dr. Morgan you have made it clear in your use of PPP – purchasing Power parity – which is the correct metric.
      Whatever looses purchasing power the slowest might become the best investment one can make right now.
      Getting ones head wrapped around this is easier said than done.

      • Thanks. We’re heading into ‘value destruction’ – and I could do a whole article about what ‘value’ means in this context – but this is going to be a relative play, the ‘winners’ being those who lose the least – re. an earlier reply, who’s got the least froth in his glass?

    4. timely recap Tim,
      America seems spooked this morning, the S&P 500 VIX is at +19% and the President has addresssed the Nation prior to leaving for California to inspect the economic disaster zone;

      in the language of the internet; it’s happening!

      • The explanations may well vary.
        “Whenever you get two people interpreting the same data in different ways,” “that’s metaphysics.”
        is a quote from an interview published in Scientific American with Thomas Khun the coiner of the term and proposer of the concept of paradigm shifts.

        “Going Direct to Backwardation.” in the language of the internet; it’s happening! ” The Going Direct Paradigm”, in duckduckgo

        The Exchanges between Kunstler and Berman on where did peak oil go from 2018, was interesting to contrast with Kunstler’s recent appearance on Geo-Politics and empire where he also professes an enduring dislike personally for Noam Chomsky. This, then contrasted with both appearing in the Nation magazines video series on Peak oil and then finally with the journey of Mike Ruppert from 9-11 truth to peak oil propagandist, which ties in also with Peak prosperity and Chris Martenson. ( And dare I say to your own Stylised Facts of Seeds Eroi’s.)

        Cognitive dissonance is a much better first explanation for contradictions in all expressed opinions in this day and age as quoted above from Jonathan Nitzan and Shimshon Bichler. The Scientist and the Church. , which commentator or blogger is not confronted with sure bet betting slips that “now hang on the thread of cognitive dissonance”.

        Always of course begging the question were they gambling with their own skin in the game. ( Hugh Hendry anyone.)

        I have not added any links,

    5. This isn’t a good omen for upcoming elections in the US. Failing economies provide lots of ammunition for challengers to use against incumbents, regardless of where the ultimate responsibility lies. The Weimar Republic comes to mind as a particularly apt example. I’m beginning to sense that in fact it *can* happen here.

      • I’m strictly neutral on party politics, or at least I try to be. What the US authorities have announced seems sensible to me. They’ve not bailed out shareholders in these banks, or kept the management in place, but they’ve protected the depositors. As I’ve said before, depositors are not investors, but customers. Even large deposits may be there because someone has just sold a house, or is a business with workers and trade creditors (suppliers) to pay. They might just be folks who think cash is a better investment than the alternatives. To repeat from an earlier discussion, a country which lets depositors – to reiterate, customers – lose money takes a huge hit to its financial credibility.

        I can’t know how this would play out politically, but Mr Biden is entitled to ask his opponents what they would have done differently – let depositors lose money, or bail out the shareholders?

        So far, this is a few small banks connected to cryptos/tech. There are two big tests which might emerge. One is what happens if a bigger bank gets into trouble, and another is the non-regulated (“shadow”) banking sector.

      • My comment was in response to your overall posting, and not to the particular SVB bank failure. The latter may or may not lead to a more widespread effect on the economy in the coming days; but the accelerating decline in prosperity, as explained in your series of SEED articles, will inevitably extend beyond the economy to affect the political and social spheres. The inability of the vast majority of the US citizenry to comprehend the actual cause of their decreasing prosperity will provide ample opportunities for modern brownshirts to gain and monopolize power. The reluctance of the current political establishment to acknowledge and propose responses to our predicament only increases the probability that our descent down the Seneca Cliff will be chaotic and violent.

      • Thanks for clarifying that.

        The onset of economic contraction, even if it were to happen in a gradual and orderly way, will have profound political and social consequences. “Growth” has become a secular article of faith, and economic crises or hard times have often been the downfall of governments and regimes. Growth is often used as justification for policies which might otherwise be unpopular. Growth is routinely used to justify inequality. The crisis of 2008-09 was profoundly political (“making Main Street bail out Wall Street”).

        A big question now is whether ‘the powers that be’ will recognize economic contraction and make a public admission of its reality. I don’t myself see how they can, at least until ‘everyone knows’ that the economy is getting smaller. Populists/’brownshirts’ can come from either side of the political spectrum. I spent one term at Cambridge studying the theory and history of revolution, and it has seldom seemed as relevant as it does now.

    6. Tim,

      The simple Reality, i.e., that the economy is an energy system rather than a money system is not even a conversation here in the Ultimately Delusional (UD) USA. The FED & Co. seem stuck in some 1980s Reagan/ Friedman mind-warp. Hearing Powell and Yellen is listening to ghosts of “days gone by.”

      The question is when will there even be a conversation about debt that cannot be repaid? There is still the consumed belief that deficits here do not matter, since growth will fix all.

      Now that today’s news means that even small banks are not going to be allowed to fail, (so says the Pres), moral hazard is running amok.

      Yes Tim, we are in an everything bubble running toward the all-crises walls, now in sight, and the momentum is too strong, but when will we see what we are doing? My prediction here is that denial rules the roost, and hitting several walls is in order.

      I wish more had the simple sight and sense you have offered over the last 251 posts,

      Michael Mielke

      • Thanks Michael.

        The reality is pretty simple, but two old saws come to mind – “there are none so blind as those who choose not to see”, and “it’s hard to get anyone to understand something when his salary depends on not understanding it”.

        In fairness to Mr Biden, he has let the banks fail – n.b. shareholders, management – but protected their customers. There was truly enormous moral hazard back in the GFC, when the over-extended, over-borrowed – individuals and corporates – were bailed out of their own follies. Whether we can avoid a repeat of that huge moral hazard when this process of bank failure gets bigger and wider is a whole other question.

      • You’re going to see, when the tide runs out, who has been swimming naked.

    7. I was going to mention when you first posted this part of your “Everything crisis” that you do not need to do any more.

      From here on in you will have many opportunities to post in reaction to major events as they unfold. You should be kept busy just by commenting on these events because they are likely to be frequent in 2023 and beyond.

      This recent bank failure is just the beginning in my opinion and it looks to me as though more banks are in just as bad positions.

      The market seems to be smelling blood on this matter going by today selling.

      You deserve praise because this is all happening after recent postings suggesting that we are on the cusp of these financial cracks beginning to appear and appear they have.

      I think you have done more than enough to show what situation the world is in.

      It’s just a case of reporting the leaks now as and when they appear.

      Last week’s events suggests we might have hit the ice berg.

      • Thanks FMT.

        There are times when I think I’ve done all I can. With the enormous help of those who contribute to our conversations here, we’ve developed and fleshed out the theory. We have a model – SEEDS – which makes sense of this, and puts numbers on it. Events are developing very much as we have been expecting. We are up against absolute denial of reality. I’m really not sure that there’s much more I or we can do – expect maybe stock up on popcorn.

      • I read somewhere a while ago, (it might be atributable to Ernest Geller) that modernism essentially allowed us to separate the political from the religious, and the economy from the social.

        If a prerequisite for modernism is low ERoE then potentially the next steps are to ask what the next paradigm might be should these spheres of separation no longer hold true (or at least no longer be practical)

        I personally believe that a return to earth-based religions or at least some form of spiritual mindset may be what is required (since that would strongly suggest a limits-to-growth based society). I also personally believe that the so-called brownshirts could easily usurp these movements.

        I don’t know enough about the collapse of Rome or other societies as to what the emergent religious beliefs of its successors/survivers was, but that could offer some ideas?

      • @Greg

        David Graeber and David Wengrow touch o. Some of this in The Dawn of Everything.

        It’s the bits between the great (authoritarian) civilizations that is the interesting bits.

        What/how did people organise themselves when central administration collapsed?

    8. It’s interesting how many of the comments revolve around the very financial system that you critique as being divorced from the energy-based real economy. Not being any sort of finance geek my response to what you have written is that if you have available funds to spend, then spend them on real, practical items that will provide long-term real, practical returns.

      • Rather than garden seeds and hand tools? You’re much more optimistic than I am.

    9. “Now, though, it’s quite possible that we’re experiencing the start of a combined stock, property, banking, financial, economic and technological crisis, with ‘everything happening at once’.

      What a fine, shuddering synchronicity that the grand prize at last night’s 2023 Oscars is Everything Everywhere All at Once! Simply too perfect.

      Thanks for your invaluable work.

    10. @Dr Tim,
      I am not about to retire anytime soon, but my parents are approaching retirement age. What does the end of growth imply for pensioners?

      • @Isaiah.

        Loss of income due to a collapse in financial institutions.

        Pension schemes rely on an ever expanding economy.

        Once the economy contracts, pension schemes are unviable.☹️

      • @Isaiah
        Not sure I can help, but I only recently retired, and despite copious advice to the contrary, I chose to place the majority of my retirement capital funding into purchasing a lifetime annuity indexed twice-yearly to CPI, rather than any ‘draw-down’ pension fund arrangement. While this is the least popular option, as it’s generally lower than expected from long-term investment of the funds, I felt that a more modest, but stable, regular income was best option for me.

        I have elder siblings, eldest of whom retired not long after the ’08 GFC, and I witnessed the stress they went through over those years in reorganising their portfolios, comparing different investment strategies, thinking through selling assets, reducing expenditures on things like insurance etc.

        I decided ‘no thanks’, my working and family-raising years were stressful enough with worrying about money, so I preferred a “set and forget” approach for my retirement years.

    11. Thank You for this update, Dr. Morgan.
      It seems that the battlefield now seeks to destroy notional-wealth without crashing the financial system. The Fed raising rates forces other central banks to also do that, and it makes all the ZIRP bnds that banks have to hold lose “value” massively, making their losses greater than their assets, and since they are taking such losses, they can’t pay depositors what they can get in treasury-bills, so deposits are withdrawn. Silicon Valley Bank was actually exemplary when audited in January.
      It seems that cooperative banks will be pulled back from the brink by the Fed, though the Fed has the most unrealized losses of all.
      We will see what notional wealth can be destroyed in what sectors before there is collapse of some part of the global financial system.
      However much can be destroyed, this is “the easy part”. It seems that the new BRICS+ global trade currency will resemble the Bancor, J.M.Keynes’ idea at Bretton Woods. It was a good idea. Keynes sought to make an even playing field. That’s not what FDR wanted. He wanted to replace the British Pund Sterling with the $US.

      • There are two distinct issues with banking – solvency and liquidity. A bank is insolvent when its liabilities exceed its assets, but illiquid when it can’t meet immediate demands for cash. Runs on banks are threats to liquidity rather than solvency, though fears (rumours) of insolvency can cause runs, creating illiquidity. A bank can be both solvent and illiquid at the same time. This is why confidence is so important, hence the interventions that we’ve witnessed.

        Banks essentially ‘lend long but borrow short’. Depositors can demand their money ‘now!’, but banks can’t demand immediate repayment of term loans from borrowers. What we should worry about is the ultra-short end of funding, which is where lenders source their capital from overnight markets which can seize up, literally, overnight. This takes us back to the NBFI or ‘shadow banking’ sector.

        As we’ve seen in previous discussions, NBFIs are unregulated, and we don’t even have full data on this sector. If anyone wants to worry – not that I recommend worrying – it should be about the linkages connecting the banking and NBFI sectors.

      • If I had over $250k in SVB I would have had much more confidence by Sunday night. (Indeed, if I had $250k I might have more confidence.)

    12. “We’ve never been here before”
      As I think about it, in the US the Confederacy was in a very similar situation as the Civil War drew to its close. After Britain decided against intervention on the side of the Confederacy, everything fell apart. They lost their currency. They lost their market (exports to Britain). They lost their sources of energy (slaves and horses and mules). They lost transportation. They lost their sense of cohesion (desertion was rampant).

      I’ve never really paid much attention to the final collapse, but perhaps it bears some study. One difference is that there was a victorious side. But that side had paid an enormous price, also. The second difference is that a “new South” was possible, and white supremacy could be restored through regaining control of the government.

      In short, it might pay to study the decline and fall.

      Don Stewart

    13. Dr Tim,

      Thank you for another incisive piece of commentary on the unfolding Omnicrisis. It’s a super follow-on from the excellent 5 part series.

      I think you’ve highlighted numerous times, that trouble is likely to start at the periphery, and then tunnel inwards to the heart of the financial system. Well, recently, we’ve had the crypto debacle, and now a bank in the tech niche, (which according to Bloomberg was actually the 16th biggest in the US).
      So where next? Your focus on the NBFI sector is probably a good bet. I see regular reminders (here in the UK) that mindless and ultra-risky lending still abounds, and that debts continue to pile up, in spite of “in your face evidence” that much of it will not be repaid.

      A prescient example just occurred. Sitting on my desk is a full page advert in our local “advertiser” magazine, for a company proclaiming themselves to be a “Bad credit car finance specialist”. In the advert they say “We can help people with a history of defaults, bankruptcy, county court judgements, living on benefits,”… etc., etc. They also mention that they have just moved to larger premises, so it looks like business is good in the world of dodgy finance for dodgy second hand cars. “Apply today and drive away” is one of the advertising straplines. It’s as easy as that in the world of shadow banking.

      Probably the thing that made me shudder most, is that this company is authorised and regulated by the Financial Conduct Authority. So, in a similar vein to SVB, they can operate in a highly risky fashion, but so long as they don’t breach the regulators guidelines, they have a clean bill of health, and they promote credentials that will reassure the masses.

      It’s not just in the UK either. I recall a few months ago, someone posted here about the accumulating risks in the USA car retailing sector, where customer who were struggling to meet current PCP payments were being persuaded to hand in the keys of their vehicle and take out a new PCP deal. The old chestnut of trying to solving a debt problem with more debt.

      I’m just focusing on one particular sector here, that being Sub-Prime car finance. Add in all the other questionable NBFI “innovations”, such as “buy now, pay later”, equity release schemes, etc., and then add-on top of this, the world of exotic financial derivatives that collateralise some of this stuff, and it looks like the biggest pile of gunpowder you’ve ever seen. It’s going to be some show!

      • Thanks Neill, much appreciated.

        I have the advantage (not that it’s an enjoyable one) of having numbers in front of me, generated by SEEDS. These show a relentless fall in prosperity and an equally relentless rise in the real cost of essentials. Surely governments, corporations and financials could arrive at similar numbers if they chose to do so? My model might, of course, be wrong, but the world is already looking a lot like the picture painted by SEEDS, and ever less like the one pictured by the orthodoxy.

        Why, then, don’t decision-makers seem to have equivalent information? With governments, I think its because they don’t tend to ask questions unless they expect to like the answers and, in any case, their horizons don’t extend beyond the next election. In non-financial corporates, I can imagine nobody wanting to “tell the chief”. In finance, though, I suspect it’s because everyone expects a bail-out if things go wrong.

        This relates to your question in that the assumption of a bail-out is one of only two ways of explaining reckless lending. The other possible explanation is ‘agency’, meaning that the people doing the lending aren’t the same people to whom the capital belongs. If that’s the case, the ‘agency’ player has the incentive to grow lending volumes, not to monitor the viability of the borrower. Put another way, there’s a disconnect between risk and return.

        This disconnect was widespread before the GFC, and only became apparent once we were picking up the pieces. Back then it was mainly about sub-prime – the ‘agency’ role was placing the loans (that’s the return bit) and selling off the book to investors (risk). Now I suspect that it’s NBFIs in the role of risk-holder.

      • In regards to who might have this information a few thoughts come to mind. I could be wrong but I can’t help making some connections. I have the impression that some governments, or parts of the state of some nations, know what the deal is, even if the markets don’t reflect this knowledge yet.

        For example, surveillance and propaganda comes to mind (as a means of controlling and gaslighting the disgruntled masses, I guess). But to be less political and conspiratorial, also the push to electrify everything and to phase out fossil fuels in the US and EU could be plausibly ascribed to this knowledge. I am not an anthropogenic climate change skeptic, I just have a hard time believing a preoccupation with climate change is the real reason for these policies.

    14. @ Dr Tim,

      “Now I suspect that it’s NBFIs in the role of risk-holder.”

      Yes, but I wonder how complicated the web of stakeholders actually is.

      When it comes to NBFIs (take my example of Car Finance), surely the liabilities of this sector must ultimately be (at least) partially borne by the regular banking system. These dodgy finance companies need to actually finance themselves, and to bank with someone, so they’re tied into the mainstream banking system somewhere along the line.

      I realise they could raise capital through share issues and bond issues, but might still use banks for other purposes such as business mortgages, short term loans/overdrafts for working capital and so on. Therefore, they could well be “net liabilities” on the books of mainstream banks.

      So ultimately, who holds the bag when the music stops?

      • Enormously complicated, and pretty opaque as well.

        If you wanted to set up a ‘dodgy’ finance company, you wouldn’t get the money from a bank, and would probably be too small to raise equity or bond capital, so you’d go to an NBFI, or somebody representing an NBFI.

        Yes, you’d probably use a bank to hold income, retained profits, wages due and so on, but that bank is unlikely to be the source of your capital.

        In terms of cross-risk, I would use MBS as an example. The lender issues the mortgage, then packages loans as MBSs to sell to investors. The lender gets the initiation (fee) income, and the risk is transferred to the investor. If things go wrong, it’s the investor who loses. But who is this investor, and where did he get his capital? Has he got debts of his own (probably)? Who loses out if the investor goes under?

      • @neill61

        “So ultimately, who holds the bag when the music stops?”

        All of us!

    15. @ Dr Tim,

      The MBS collapse during 2007-08 financial crisis is the perfect illustration of the complexity and opacity isn’t it?

      Nobody really knew the complexities of the web that had been weaved, and couldn’t differentiate between who was insolvent and who was solvent. but illiquid. That led to seizing up of liquidity throughout the entire system, and so it perpetuated from the periphery to the mainstream.

      I still remember the interview given some years later by Jamie Dimon head of JP Morgan, when recounted his weekend telephone briefing to their board, during which he told them to prepare for the possibility of every other large US bank filing for bankruptcy when business opened on Monday morning. Then the Fed came to the rescue for the “chosen ones”, while the likes of Lehman were thrown under the bus.

      Unfortunately, “too big to fail” seems to have become “too big to bail”.

      Let’s hope it’s not as wibbly-wobbly as most of us here seem to think.

      • A lot of questions were asked about this at the time, and I’m not sure all of them were answered. For instance, were MBSs all sold to third parties, or to off-balance-sheet SPVs? How did credit rating function, since it’s supposed to inform buyers, but is paid for by sellers? Should the system have allowed the separation of risk from return? To what extent were regulators aware of the risks?

        Now, though, I’m convinced that shadow banking (NBFIs) is what we need to be aware of. Ironically, tightening rules on banks may have helped boost the growth of the NBFI sector.

    16. I came across this short 80 second video explanation of the Silicon Valley Bank Collapse.


      The reporter ends by commenting that a bunch of smaller regional US banks are seeing their share price plummet. Well that was was yesterday. Since Wall Street opened today, there’s been some huge move’s in the opposite direction.

      First Republic Bank lost 62% of its value yesterday, and today it rose by 55% before dropping back a bit. Talk about volatility! This is crazy stuff.

      Even the bigger boys such as Wells Fargo and US Bancorp have been showing high volatility. Markets are in a bit of a funk for sure.

      • Ah well – dropping 62% then rising by 55% doesn’t put you back anywhere close to where you were. Say you were at 100 – dropping 62% puts you at 38, then rising by 55% puts you just to 58.9.

    17. Hi Dr Morgan,
      Great piece as usual 🙂

      Jeff Snider is suggesting that interest rate cuts are going to be imminent due to the current credit crisis.

      If this happens will this have any effect stemming the crisis, or is this the last can kick down the road?

      Regards Kevin

      • “If this happens will this have any effect stemming the crisis, or is this the last can kick down the road?”

        No. Have you ever watched the movie Groundhogs day? Where Bill Murray repeats the same day over and over until he becomes a better person? Replace that with banking crisis, wealth inequality, and woke. Nothing will change until they stop reacting the same way and let some new people within the halls of power. Everything they do is not to protect you or the “institutions”, its to protect themselves.

      • My view on rates is clear enough – they need to be above inflation. Only in this way do investors earn a real return on their capital, which is what capitalism means. It’s moot point how far above inflation rates need to be, and also about which inflation rate is used for this calculation. As you might know, I have my own inflation calculation, RRCI. I don’t expect anyone to adopt RRCI, but it enables me to measure rates against my own calculation of systemic inflation.

        Many are urging/predicting a ‘pivot’ by the Fed – they’d like lower rates, and maybe a reversion to QE from QT as well. My own view is that the Fed won’t ‘pivot’ until inflation is below the policy rate. QE is systemically inflationary, irrespective of the many claims that are made to the contrary. If you want to see the inflation caused by QE, just look at asset prices.

        It seems to me that a discussion here on monetary policy and the state of the financial system might be timely in the light of recent and on-going events.

      • Dr. Morgan,

        You keep censoring about it which shall not be named because we only speak about economics here, but what if it which shall not be named was used to stave off a banking crisis that was brewing in 2019? After all the lies you were told in 2020 and 2021, you will do them this favor and not even consider that was the case? No honor among thieves my friend and our leaders are surely thieves.

      • Many of our leaders are thieves, I’m sure, but the indictment that really worries me is that they’re not up to the job. They can’t tell the public the truth, often because they don’t know what it is, sometimes because the public couldn’t handle the truth, and sometimes because leaders or the system couldn’t handle it either.

      • “They can’t tell the public the truth, often because they don’t know what it is………”


        “A credibility trap is when the managerial functions of a society have been sufficiently compromised by corruption so that the leadership and the professional class cannot reform, or even honestly admit and address, the problems of the corrupted system without implicating a broad swath of a powerful elite, including themselves.”

    18. Credit Suisse Bank looks in real trouble. It’s shares are down about 25% today, and they really don’t have far to go before they hit zero.

      Apparently (according to Bloomberg) the bank is adequately funded and there’s no liquidity problem, but it’s bonds trading in the US are at “distressed levels” as are it’s credit default swaps. Extreme negative sentiment could finish it off, or lead to a bailout of gargantuan proportions, if the Swiss have that kind of firepower.

      This is one of top 50 banks in the world by assets and contagion is inevitable. Markets are already dumping risk, especially in the banking sector. Keep a close eye on this one, it could create havoc

    19. Tim, don’t the central banks have a stark choice: they either make serious attempts to defend the value of their currencies so as to tackle inflation or they shore up the banking system with oceans of ultra-cheap fiat money? They cannot do both…..as we are now seeing. SVB is a bail-out in all but name. And Credit Suisse is not the only major European bank which is under the microscope.

    20. A piece on monetary policy and the current predicament might be useful for many, Tim.

      Karl Denninger over at market-ticker.org has stressed the importance of positive rates very eloquently many times recently.

      If the Fed “pivots” its game over. I can’t see how everything does not descend into chaos if that happens.

      All credibility lost and the market will then know with certainty that they are going to print ad infinitum.

      It would then take even higher rates than we have to go to now to contain inflation. I am thinking 20% + rates if they “pivot” as opposed to perhaps around 10% if they stay on the current path.

      Nobody can know exactly where rates need to be or go to. That will be and needs to be set by the market.

      The UK government today is forecasting inflation will come down to under 3% by the end if 2023.

      I don’t know if they are that stupid or trying to gradually minimize the damage by putting out these over optimistic projections and re-assessing the damage as and when the numbers do not match their predictions but UK inflation is not going down to their forecasts.

      It won’t even get under 5% so this is laughable and irresponsible in my opinion.

      The rates are already negative more than 5% below official inflation figures.

      Who is buying their cheap car salesman technique?

      • “Who is buying their cheap car salesman technique?”

        Anyone who has believed anything they’ve said since 2001 or not questioned the answers they’ve been given to events after living the past few years?

      • You don’t buy the argument that the fallout from our sanctions on Russia because of Ukraine makes a difference? For example in July 31, 2020 inflation was 1%, July 31, 2021 it was 2%, July 31, 2022 it was 10.1% – what is the difference between 2021 and 2022, other than the Ukraine war and our sanctions?

        Now the war and our sanctions have not got worse, and thanks to a warmish winter we in the UK escaped power cuts, so what do you think the inflation will be on July 31, 2023? I think it will be way less than 2022s 10.1% – what else could keep inflation up higher over that time period?

        OTOH as this blog points out, ECoE is increasing and might therefore lead to inflation before curtailing of whole industries (such as optional streaming services). It would be interesting if SEEDs could help calculate an underlying inflation rate.

      • Apart from the odd mention in passing, we don’t “do” the war here because, like certain pandemic, it could drown out the critical issues of economics, energy and finance.

        But the SEEDS model does calculate the underlying inflation rate. It is known here as RRCI, or the Realised Rate of Comprehensive Inflation
        It is stated as an annual number because that’s the way SEEDS works.

      • That can be answered with simplicity.

        Because then they can’t steal from the masses.

      • So its ok to admit they intentionally steal from us, but not that they would also kill us?

      • @Mr. House, Why would they kill us? It is not in a parasite’s interest to kill its host.

      • “Isaiah
        on March 16, 2023 at 7:29 am said:
        @Mr. House, Why would they kill us? It is not in a parasite’s interest to kill its host.”

        The unwashed masses are considered to be the parasites.

      • @Red, If the unwashed masses are considered to be the parasites, Who/what is the host?

      • @Red, if the unwashed masses are considered to be the parasites, who is the host?

      • The planet. Its going to be another garden of eden! You just don’t figure into the plans.

      • @Mr. House, @Red
        During the bubonic plague, Europe lost ~40% of its population. The resulting labor shortage meant that the average surviving peasant had more land, which caused wages to rise and rents to fall. Do you think the same elite that steals from us wants wages to rise and rents to fall?

      • They don’t care about money except that it is a means to an end. They care about power and nothing else.

      • @Isaiah, @Stellarwind72 It’s the planet as @Mr. House states. As Dr. Morgan is showing with SEEDs money is merely a claim on future production. The self appointed owners think the plebs now hold too many claims on the host they own. These claims have to be shed one way or another. There are many opinions how this will be accomplished, it will be accomplished.

      • @Mr. House, @Red
        Have either of you read Overshoot: The Ecological Basis of Revolutionary Change by William Catton?

    21. Dr. Tim is spot-on with his analysis. I’m seeing a lot of people asking what types of investments are likely to generate a positive return in this environment. A few of you posted about the obvious plays such as metals, farmland, and physical goods. One guy said that alcohol consumption will likely go up and I agree that alcohol stocks may have positive returns. The stress is likely to get to people and tobacco stocks may also do better than the larger market.

      There is one asset class that I think will outperform all others in this environment; Generic pharmaceutical manufacturers. Usage of antidepressants and anti-anxiety drugs increases whenever there is a downturn in the economy. Many of these generic drugs are cheap and people feel terrible if they suddenly stop.

      • In light of recent revelations about big pharma’s manipulation of regulations I think marijuana grow-ops may fair better. It’s coming down to a “trust” thingy.

    22. Dr Morgan,
      Thank you for your work here. Quite from being absolutely fascinating you raise issues that are profoundly important for all humanity.
      I am reluctant to comment because I am no expert in economics or human society.
      However, I will jump in: That there is a huge adjustment coming seems beyond doubt, but is this situation historically unique? Well, yes and no. For example; in 1939-45 the British Govt. had to take control over the British economy, as did the govts. of the other warring nations.
      The situation looming may be similar to that, in that living standards are necessarily going to fall as economic resources (the real ones) are re-directed. I believe this (the wartime like economy) is going to happen again but this time the control will be permanent.
      The means to achieve this level of control are now, uniquely, available to govts. and bureaucrats through the computer revolution, and the continuing development of AI.
      A first step on this will be the implementation of digital currency in a cashless society. Govt. will be aware of, and potentially able to control, everything that we do through control of our financial assets.
      The era of liberal democracy and individual freedom is ending.
      Survival and prosperity for individuals will depend more than ever on learning to do something useful.
      There is an alternative future possible; endless and increasingly vicious resource wars.

      • I agree with your post except, “There is an alternative future possible”. Replace this by “Also”. I think that, sadly, there will be both.

    23. Tim you mentioned railway mania and the dotcom boom. One of my ancestors was involved in the second part of the railway mania and one of the few railways to be a success in that period. He even wrote a book about it and the line is in use as part of the SWR mainline in Dorset today.

      Both railway mania and the dotcom boom were examples of transformative technologies that have changed the way we live and both greatly overestimated the effect in the short term and underestimated it in the long term.

      Peak railway use didn’t occur for another 50 years after the mania subsided and I don’t think most people back in the year 2000 could foresee the demise of cd buying or dvd rental 20 years later. The effects of these changes are unpredictable. E.g. The railway led to the adoption of a standard time zone. I went on a rare visit to the cinema at the weekend and not only do Curzon have subscription membership but now they offer the option of viewing at home as part of it. It is going to be difficult for some of these businesses to survive based on what you have written above.

      But following on from some of the excellent comments I think we can surmise that all the incentives in the financial and political system are wrong. We have just ended up with money flowing to the top and greater concentration of wealth and power in big businesses.

      Regarding investments, one of the takeaway points of “When money dies” was the volatility that existed in the Weimar period. Hyperinflation was accompanied by bouts of deflation and leverage would have been very dangerous. Debt might become difficult to service.

    24. “The price of easy money – are the dominoes starting to fall?”

      This question is posed by Larry Fink, chairman of Blackrock, in his annual letter to shareholders.

      “We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the U.S. regional banking sector with more seizures and shutdowns coming”, he says.

      I recommend reading this, which can be found here.

      • Don’t you love people who reap all the benefits of a certain policy but when it ends poorly why gosh darn it, they always knew it was a bad thing.

    25. “Why I’m thinking about commercial real estate and not tech
      The question is this: where are the systemic vulnerabilities? I’m actually less concerned about tech, though I think the sector will likely be starved for capital. For a systemic vulnerability to exist, I believe you need assets to be backed by credit, and tech generally doesn’t have this feature. The tech bust in the early 2000 wasn’t nearly as destructive as the residential property bust later that decade. And that’s not just because of the size of the asset class. It’s also because debt created financial distress and contagion in the financial sector. As the saga at one tech company with high debt loads, Twitter, attests, debt creates financial distress that wouldn’t otherwise exist if assets were owned free and clear.

      When rates remain elevated over time – as the Fed says they will going forward – that’s a recipe for asset values remaining under pressure. Discount rates for future cash flow maintain the reduction in the value of cash-generating assets. That creates a gap between the debt incurred and the value of the asset. An owner may decide to file for bankruptcy or simply default and cede the asset to the creditors, who then must mark down the asset on their books.

      This all speaks to pressure on generic corporate real estate because the values have already started to fall and CRE owners have already begun defaulting. Moreover, it would take both a miraculous turnaround in the rate environment and in generic office space occupancy to boost asset values. So CRE is a sector with poor fundamentals that is likely to be challenged in a higher-for-longer rate environment.

      I’ll stick to my sanguine comments about CRE not being an acute crisis in the US. But the SVB collapse gives me pause about whether liquidity concerns could eventually surface somewhere in the space. Because CRE is a big asset class, it also has systemic implications.”?

    26. Our faith in the wobbling world of hyper-financialization will soon be tested.

      It’s interesting, isn’t it, that amidst a tsunami of commentary about banks, nobody mentions the proverbial elephant in the room, which is the overwhelming dominance of finance in the economy and society, a dominance which raises the big question: is the dominance of finance healthy for the economy and society?

      The reason why nobody even sees this elephant is we’ve come to believe “it’s always been this way” and “this is the natural order of things.” Both are false. Yes, debt and lending have been integral to “money,” trade and civilization from the beginning, as David Graeber so memorably detailed in his book Debt: The First 5,000 Years. But essential isn’t the same as dominant.


    27. I go round and round in endless loops trying to figure out where this all leads,
      what broke the system was repealing the Glass Steagall Act, now it’s impossible to seperate commercial banking from investment banking, to protect one you’re obliged to protect the other,

      we need a Glass Steagall like provision that creates a firewall between the real economy and the financial economy,
      we need to be able to protect the financial services that keep the real economy ticking,
      but we need to cut the financial speculation activities loose to live or die by market forces,

      until the ground rules are changed the real economy will continue to stagnate whilst the speculative side of finance continues to hyperinflate to infinity,

      currently we can’t differentiate between the baby and the bathwater,

      do nothing and we are trapped with stag-hyperinflation.

    28. For your interest in relation to discretionary activities in the UK. Figures from the UK Office for National Statistics. Released today.

      “Around a third (33%) of adults reported cutting back on non-essential journeys because of the rising cost of living, according to the latest Opinions and Lifestyle Survey.

      This is the lowest it has been since 16 to 27 February 2022 (30%) and has fallen from 51% in the period 17 to 29 August 2022.”

      The reason for the fall is probably that motor fuels inflation rates eased.

    29. “Over the past 30 years the plutocrats have used their vastly increased wealth to capture the flag and assure the government does their bidding. This marriage of money and politics has produced an America of gross inequality at the top and low social mobility at the bottom, with little but anxiety and dread in between, as middle class Americans feel the ground falling out from under their feet.

      Millions of Americans have awakened to a sobering reality: they live in a plutocracy, where they are disposable. Now we have come to another parting of the ways, and once again the fate and character of our country are up for grabs. Democracy only works when we claim it as our own.”

      Bill Moyers, last episode of Bill Moyers Journal, 30 April 2010

    30. The only way for inflation to get down to reasonable rates from reduced material and energy throughput in our society. This will require one, or both, of two things: 1) people, in aggregate, bcecoming less prosperous; 2) population reduction. The failure of critical systems due to #1 may well help along #2.

    31. re: population reduction
      The Black Rock paper referenced above lists, among the problems, the less-than-replacement ratio of children to females. China is down at 1.2, and I think that the US is still up around 1.8. Commentators in the US usually cite this as evidence that China is about to come unglued (in the US, everything that happens in China is evidence of imminent collapse). But a different way of looking at it is the amount of earnings that a family needs to devote to rearing their children. 1.2 is 50 percent less than 1.8. So if the cost of children is 100,000 dollars in the US, the cost of children in China is 50,000 dollars. In a world where family incomes are shrinking, fewer children per female must be seen as a strategic advantage.

      But, but, but…say the elderly. What about the need to support us old folks, who spent our life living in drudgery just to raise ungrateful children. Well, it turns out that there is a new technology which allows a non-invasive look at vascular health. It is a camera which is inserted into the mouth and it looks at the tongue, which is a dense mesh of blood vessels. It cleverly measures the size of something called the glycocalyx, which protects the blood vessel walls from impacts from things like cholesterol particles. Two dietary components keep that glycocalyx health: nitric oxide and hydrogen sulfide. My prediction is that testing, and the application of some thinking like the Chinese scale of behavioral quality, will be applied and those who choose to continue on toward heart disease and diabetes and strokes and so forth will be left to their own choices. Since “disease care” is 20 percent of US GDP, and the camera is cheap, the prospects for “elder care” are likely to change radically.

      Don Stewart

      • Don,

        We are biology, we are connected to the fabric of the universe through our children and our children are effectively “skin in the game.” Without children, our direct genes(not totally if there are brothers/sisters of the parents)are lost; I do not think the fabric of the universe, basically cares, its comment, “next.”

        There does not seem to be economics without biology; your thoughts.

        Dennis L.

      • The hand wringing and panicky articles of late regarding a slow down of population growth point out the disconnect and denial still holding sway in the mainstream paradigm. If we really think that the future is one of less energy and resources, population has to decline. Current world population is only far above natural carrying capacity because of fossil fuels, so decline is inevitable.

        Birth rate decline is a good trend. All the less future misery to be endured.

        The fate of the elders that will have a smaller working demographic to fund care for them may be grim, but them’s the breaks. (I’m a young sprout of 66).

    32. @Dennis L
      My answer is going to be influenced by a book I just finished reading…but not exactly understanding: The One: How an Ancient Idea Holds the Future of Physics, by Heinrich Pas. (Following will be my mangled version.). Way back in prehistory, a human looked up at the vast universe in the sky and felt deeply that (s)he was united with it in a very deep way. In Quantum Mechanics, we would call that “entanglement”. John Muir said: “I only went out for a walk, and finally concluded to stay out till sundown, for going out, I found, was really going in.”

      At the opposite extreme, particle physics tries to understand everything by looking at ever smaller objects and ever higher energies (the CERN accelerator in Geneva). There is an acknowledged feeling in the particle physics community that the CERN direction has reached a dead end, and physics is left in an unsatisfactory state.

      Pas traces the direction physics took to the decision, about a hundred years ago, to treat quantum theories as “not real world”. The saying at Los Alamos was “shut up and compute”…partly because the “everything is connected to everything else” sounded vaguely “communist” and might get an honest physicist into deep trouble…the FBI would start its dossier on potential troublemakers like Einstein.

      Just as the limits of “greed is good” are being exposed, there are desperate attempts (at least in the US) to eliminate any vestige of “socialism”. You can see that struggle as Biden casts the financial bailouts as “preserving capitalism”.

      The “ancient idea” that everything IS connected to everything else, very literally by the entanglement which is part and parcel of quantum physics, may be the way forward. The Tao symbol illustrates the philosophy. The white side and the black side are both components of the reality.

      During the Middle Ages, and right up to the Enlightenment, torturing and burning people at the stake was a common reaction to the mystics who favored the All One explanation. Right up to the 20th century, the Catholic Church held that the world was a struggle between good and evil, with evil to be ultimately destroyed by God…and heretics who didn’t espouse that truth were punished.

      If we applied holistic thinking to our current situation, we would use a sort of Taoist symbol, or folk sayings such as “there are two sides to every coin”. So, yes, humans have a deeply ingrained sense that doing right by one’s children is extremely important. But it is also a fact that children grow up and leave their parents. My wife just returned from Italy. Their gondolier turned out to be a disgruntled lawyer who couldn’t stand the divorces and arguments about inheritances and chose to take honest work rowing tourists around Venice. If we try to think of it as “just physics” we might say that particles and antiparticles go together like Good Samaritans and War Gods, or that investments of money are parts of the same reality as financial fraud and theft and inflation and panics.

      Likewise, I suggest that “taking care of the old folks” is part of the Taoist symbol, which also contains the “taking care of number one” side. Another way of looking at it holistically is “help is one side of the coin, personal responsibility is the other side”. As the idea that “it’s all in the genes” fades and we acknowledge that “one earns one’s destiny with every daily action or inaction”, then some hard realities are going to emerge from our cluttered thinking…IMHO.

      At a very practical level, we can ask ourselves “what behavior can we see that is unsustainable in the energy future we can glimpse right now?” And what sort of behavior will be necessary in that future and what dearly held attitudes and conviction will be abandoned? Seers may be able to sketch out the components of the new Taoist symbol…while most of us just stumble along in the dark.

      I’ve long defended, on this site, the key role of feedback. Change will be chaotic unless the spinmeisters are somehow circumvented.

      End of sermon. And I’m not willing to be burned at the stake to defend anything.

      Don Stewart

    33. As you were saying, Dr Tim,

      “Shares in the UK subprime lender Non-Standard Finance crashed 22% to 35p after it set out plans to recapitalise itself by raising £95m through a share sale that would wipe out existing shareholders.

      Its top shareholder is the British private equity firm Alchemy Special Opportunities with a 29.9% stake.

      The stock has lost nearly all of its value since hitting an all-time high of 108p in 2015.

      Chief executive Jono Gillespie defended the business rescue proposal.

      Whilst this is, in a sense, only the end of the beginning, and significant additional work lies ahead over the coming months, the launch of the scheme is the first key step.

      The business, which provides loans to people who are turned down by mainstream banks, plans to compensate customers to the tune of £14m.”

      Today’s Guardian business newsfeed.

    34. @Dennis L
      If all living things are connected (and, of course, tracing all the way back to the initial fluctuation in the quantum world which created the universe as we know it)….

      Then the ability of the microbes in the gut to signal to the brain is evidence of connection. How can evolution have preserved the signaling protocols over billions of years if we are fundamentally different creatures? Of course, almost everyone has a lot of trouble swallowing the explanation.

      BUT, we are eager to accept the solutions the perception offers…just so long as we don’t have to change our anthropocentric (and America First) views…

      “This is a really interesting article about a study where new microbiomes were transplanted into mice. The results offer a promising angle on the future of longevity research: The older mice that received a transplant of a “youthful” microbiome had significant improvements in muscle strength and skin quality. Grip strength increased in these mice by approximately 30–50%, and their muscle fibers grew significantly thicker. Their skin also grew thicker and retained more moisture and they had significant brain growth! Researchers found that the microbiome seems to be able to alter the expression of genes in the host, so the bacteria in the gut can influence how much our own cells are making of certain proteins. While much more research is needed in humans, it’s exciting to see how our microbiome can alter the trajectory of aging as we know it. ”

      Don Stewart

    35. In 20 years of watching and investing in gold, there has never been a 3%+ daily move in gold like today. NEVER.


      Expect the price to cool off next week, as the plans hatched over this weekend by the central banks sooth the markets next week.

      But they are simply playing “whack-a-mole” for the next few months, as more bank busts appear.

      Expect a full fledged catastrophe mid to late summer.

      What a fantastic stealth gold has it’s been for 20 years.
      Thrashed stocks, bonds and property by a county mile.


      Good luck all.

    36. One off focus, but perhaps useful, suggestion:
      *Obesity and overweight and chronic diseases are the dominant health issues across the planet
      *One contributing factor is snacking, particularly late night snacking when sedentary people are watching blue screens.
      *For a good introduction to why we are not behaving in the way our circadian rhythms want us to behave, check out the Huberman podcast with Satchin Panda
      *Think about our gut microbes. They are small creatures who want to eat about every 4 or 5 hours. If they don’t get fed, they send huger messages to the brain via the gut/brain axis.
      *So late evening and night watching of blue screens is likely to trigger the microbes, and the commercials ply us with images of food. The result is snacking, and the weight gain and chronic disease we see all around us.

      A Chinese health care worker thought about this situation and came up with what translates in English to Flexible Fasting. What it boils down to is feeding the microbes when they are hungry. The microbe food is what we call fiber. The fiber is in all plant foods, but none of it is in animal products. The fiber can be extracted and sold as powders, which have no caloric value to we humans but do feed the microbes. One western example is a product called Prebiotic Greens (I have no connection to the company, and there may well be products just as good or better. So far as I know, we cannot get the product the Chinese use in medical facilities). One can mix a little of the powder with water and drink it and the microbes are fed and stop sending the messages to the brain. Whenever one feels hunger, but doesn’t want to snack, the fiber can help.

      The fiber doesn’t stop the advertisements on television, but it tilts the odds in your favor.

      Don Stewart

      • Not an expert, so read at your own risk.

        Flax seeds seem helpful as do Chia seeds.

        Huberman has some interesting lectures, not sure about the fasting.

        One of the biggest problems is finding time for all these activities. Also, they should be habits, a daily walk no matter what(try that one in MN), workouts preferably with a trainer, a set diet of what works vs what tastes good. Walking through a grocery store is a test of self restraint; one candy bar can’t hurt, can it?

        In the US, food is too big, too cheap. Sam’s sells in quantity, some push their carts with electric carts, they can no longer walk. Essential calories made discretionary but cheap?

        So, what food is discretionary and what essential? Is filling essential? Is nutrition more essential? How much time expended in preparing food is discretionary?

        Always discretionary/essential.

        Dennis L.

    37. Thanks Tim,
      I don’t doubt that ECoE is increasing as you describe, but I’m interested: how is this measured? If we live in a culture that considers the money economy to be separate from the energy economy, how do you get the data to work this out?

    38. @Dennis L
      I won’t elaborate. Just ask yourself how someone who is carrying at least 60 days worth of fat can be hungry? (even lean people can fast for 60 days…a fat person for a year). Is the hunger coming from lack of food for the stomach? Or lack of food for the microbes which have very little storage? If you think it might be the latter, then try the Flexible Fasting.
      Don Stewart

    39. I haven’t pointed this out for some time, so I hope that it will not be received in too harsh a light.

      Doctor Morgans analysis can only be faulted in my opinion in the fact that it is wildly optimistic for these (and other) reasons:
      1. The assumption that leads to the seeds model providing a non-vertical future prosperity (a Seneca cliff) includes a very small decrease of available energy over the next 20 years. If the reduction is a little larger, the complete collapse of this civilization happens.
      2. The SEEDS model assumes that the system can continue with parts missing, or largely reduced. I think that all aspects of the world economy and society in general is very tightly related. When one industry fails the contagion will be felt throughout with a concomitant crash. (See Gail Tverberg’s stick toy analogy.)
      3. I have been following the war closely. It looks to me that as Russia continues to win, NATO/US will likely use nukes and we will all die. Call it 50/50.
      3b. The sanctions are stopping Russia from shipping fertilizer, and ammonia (nitrogen fertilizer) cannot be made without natural gas.
      3c. Russia and China are working very hard with the rest of BRICS to end the petrodollar. When they succeed, how will the west fare?
      4. One cannot grow food if the weather does not cooperate. How is the weather in Britain? Not perfect I hear. California is a major breadbasket and it is very close to a mega-flood that will allow no food production this year (wait til that 220% of average snow pack melts).


      The Po is basically dry and will remain so for the foreseeable future. The list of climate change related existential threats goes on and on.
      5. Peak phosphorous
      6. The past year was already very hot, but this summer an El Nino event is coming. More disruptions to the food system at a minimum.

      The SEEDS model gives the absolute best case upper limit to the future of this society. Knowing that upper boundary gives us a valuable tool.
      It is an brilliant accomplishment of incredible value IMO. Thank you Dr. Morgan.

      • Thanks, and your points are well made.

        Whether as individuals, or as decision-makers in government or business, there are two ways in which we can try to obtain visibility on the economic future. One of these is guess-work, sometimes informed by the false guideline of extrapolation (‘recent trends will continue indefinitely’, which is nonsense). The other is modelling, putting together what we know and can reasonably infer into a structured system. My preference is for the latter. Where SEEDS differs from orthodox models is that it recognises the importance of the material, i.e. the non-financial.

        This leads us to conclusions which can only be guidelines, in that no model can tell us how society will react to the trends thus identified. Thus, what SEEDS is telling us now is that (1) prosperity is declining, fairly gradually, (2) discretionary prosperity is falling more rapidly, because the real costs of essentials are rising, and (3) the ‘financial’ economy seriously over-states the size and value of the ‘real’ or material economy.

        On the latter, equilibrium could only be restored by an across-the-board reduction of slightly more than 40% in the value of forward financial claims. This might incline some to predict some kind of hyper-inflationary reset, bringing the monetary back into line with the material.

        SEEDS forward projections indicate a decline in fossil fuel supply, meaning a decrease in annual CO2 emissions. Whether climate harm has already gone too far is a judgment call for scientists. Disruption to the system – loss of critical mass, reversing economies of scale and so on – is incorporated into this, albeit in ways that cannot be precise.

        Please remember that, if orthodox models are taken at face value, even the total loss of all food-producing capability would only reduce world GDP by 6%. In other words, the conventional alternative to guess-work, extrapolation and wishful-thinking is nonsense-based modelling.

        Neither I nor anyone else can predict idiocy in the corridors of power – nuclear destruction has been possible since the late 1940s, didn’t happen during the Cuban missile crisis, hasn’t happened since (though we got very close to it on at least one subsequent occasion), and needn’t happen now.

      • Indeed, business as usual or a reasonable semblance thereof may continue for a long time. I just see a great many existential threats (including old age) coming closer and closer. One thing remains certain. We will find out.

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