#254: A tale of two economies


After more than two centuries of expansion, the global economy has inflected into contraction, meaning that prior growth in material prosperity has gone into reverse. By 2040, aggregate prosperity is projected to be 13% lower than it was in 2019, implying that the prosperity of the world’s average person will have fallen by about 26% over that period.

Meanwhile, his or her real cost of energy-intensive essentials is likely to have risen by around 40% in real terms, except that the definition of ‘essential’ will have to have been changed in order to keep that number within the upper limit set by prosperity. Discretionary (non-essential) consumption will have collapsed.

The financial system, as it is currently understood, will have disappeared, the presumption being that a slimmed-down, more strictly-functional alternative will have taken its place. The process of financial implosion may involve runaway inflation, a cascade of defaults or, more probably, a combination of both.

What this means in social and political terms lies outside the scope of Surplus Energy Economics, but it seems unlikely that current arrangements, which combine pockets of affluence with widespread and worsening hardship, will still be in place.

It is, of course, sometimes easier to predict longer-term outcomes than more immediate events. In mid-1942, for instance, the objective observer might not have known that the Wehrmacht was going to lose the Battle of Stalingrad, but the ultimate defeat of the Axis powers was already highly probable.

As it applies to economics, this means that what will happen is a great deal clearer than when it will happen. If someone was about to take a very long holiday, not returning until 2040, he or she could work out which investments to ditch, which forms of value to accumulate, which national economies to avoid and, quite possibly, where to place a proxy vote in order to be on the winning side of elections taking place in 2040.

Since taking a seventeen-year vacation is outside the bounds of possibility for most of us, what we have to do is muddle through, but how effectively we can do this depends on how much visibility we have over the unfolding trends of the future. What we really need is a single key to unlock the mystery of forward events as their precursor trends exist in the present.

This key already exists. I first referenced it in Life After Growth, published almost ten years ago. It’s the concept of two economies.

Comes the day

If the day ever dawns when economics is taught rationally, the first item on the school or college curriculum will be the concept of ‘two economies’. One of these is the real (or ‘physical’) economy of material products and services. The other is the financial economy of money and credit.

There is an incontrovertible logic which informs this distinction. Money has no intrinsic worth, but commands value only in terms of the material things for which it can be exchanged. First-year students of the future might be taught this by being asked to picture themselves adrift in a lifeboat, or stranded in a desert. In such situations, no amount of money would be of the slightest value to them, and it wouldn’t matter if this money was fiat currency, bullion, gemstones, cryptos or even, for that matter, cowrie shells.

In other words, the financial economy is a proxy for the real economy, just as money and credit are proxies for the products and services for which they can be exchanged.

Anyone who understands the conceptual distinction between the material and the monetary is in a fair way towards knowing how the economy has evolved in the recent past, how it functions in the present, and what’s likely to happen to it in the future. Anyone who does not grasp this distinction, on the other hand, has embarked on the intellectual equivalent of G.K. Chesterton’s journey “to Birmingham by way of Beachy Head”.

The what and where of inflation

The reality of the two economies is playing out with particular force right now, and nowhere more obviously than with inflation. A ‘price’, logically considered, is ‘a financial value attached to a material product or service’. Prices, in other words, are the interface between the material and the financial economies. Accordingly, inflation or deflation – defined as rises or falls in prices – are functions of changes in the relationship between the material and the monetary economies.

This tells us something of great importance. We can understand the mechanisms of prices and inflation if we study the two economies, calibrate them separately, and examine the relationship between them. Conversely, we will never reach a full understanding of inflation unless and until we look at things in this way. It is, of course, pretty difficult to measure something, let alone manage it, if you don’t really know how it works.

Some aspects of this relationship are illustrated in the first set of charts, all of which present global numbers calculated by converting other currencies into constant dollars using the PPP (purchasing power parity) convention.

Between 2001 and 2022, reported world real GDP – a proxy for the financial economy – expanded by 109%, a compound annual rate of growth of just short of 3.6%. Material prosperity, by contrast, grew at an annual rate of just 1.2% between those years, increasing by only 30% between 2001 and 2022.

This means that underlying inflation – which the SEEDS model measures as RRCI, meaning the Realised Rate of Comprehensive Inflation – averaged 4.2% between those years, far higher than the 1.9% reported as the GDP deflator. To be clear, what SEEDS calculates as RRCI is the underlying or real rate of conversion between nominal economic transactional activity and the generation of material economic value over time.

Fig. 1

It’s probably a reasonable assumption that you wouldn’t be reading this article unless you knew, or at least suspected, that there’s something seriously amiss with the way in which issues are presented to us using the methodologies of orthodox economics. It seems an equally fair assumption that you’re interested in discovering how events are likely to develop on the basis of the system properly understood on the basis of the ‘two economies’ of the material and the monetary.

It will, no doubt, have occurred to you that, if we can calibrate the material and monetary economies as distinct entities, we can measure, not just the pricing relationship between them at any given time, but the degree of tension or stress between the two of them as well.

Likewise, the existence of ‘two economies’ makes it perfectly feasible for different people to have different experiences, depending upon which of the two economies – the monetary or the material – determines their circumstances.

This is why the same national economy can contain pockets of affluence within a broader landscape of hardship and decay.

The material economy – heading into contraction

Let’s start our analysis by looking at how the ‘two economies’ function. The ‘real’ economy is simply described – it uses energy to convert raw materials into products, and also uses energy to provide physical services to consumers. Historic analysis reveals a remarkably consistent and linear relationship between the amount of energy used in the economy and the quantity or ‘output’ of goods and services produced.

Actually, there are two dimensions to the generation of economic value using energy. One of these is output, meaning the quantitative supply of products and services into which energy is converted. The other is prosperity, and the difference between the two is the deduction of the cost of energy supply. This cost is defined here as the Energy Cost of Energy (ECoE), meaning ‘that proportion of accessed energy which, being consumed in the energy access process, is not available for any other economic purpose’.

This definition identifies a three-part equation determining the evolution of prosperity over time. To measure prosperity, we need to know (a) how much energy will be available at any given moment, (b) the rate at which this energy is converted into material economic value, and (c) the cost deduction which is the difference between output and prosperity.

Three observations assist us in this calculation. First, the conversion ratio between energy use and the value of economic output has been strikingly consistent for a very long time. Second, ECoEs evolve comparatively gradually, for reasons which are well understood. Third, the qualitative (cost) profile of energy exerts a significant influence of the quantitative availability of primary energy.

Let’s briefly review these parameters, referring to the charts shown in Fig. 2. Over a long period stretching back to 1980, the relationship between energy consumption and underlying or ‘clean’ economic output (C-GDP) has been remarkably consistent (see Figs. 2A and 2B).

Overall ECoEs have been rising relentlessly, a trend that is unlikely to change, given the lesser density of (and the associated complications with) wind and solar energy in comparison with fossil fuels (Fig. 2C).

This upwards trend in ECoEs makes it increasingly difficult to strike energy prices that meet the needs of both suppliers (whose costs are rising) and consumers (whose prosperity is decreasing). Accordingly, the likelihood is that the aggregate supply of energy to the economy will decrease, with the availability of fossil fuels falling more rapidly than the supply of renewables can be expanded to replace them.

Prior evidence suggests that there’s unlikely to be any major change in the ratio by which energy consumption is converted into economic value. Therefore, we can anticipate a relatively gradual, quantity-related decline in top-line economic output, but a more rapid contraction in the generation of prosperity, with rising ECoEs widening the gap between the two (Fig. 2D).

Fig. 2

The financial economy – scope for self-deception

As we turn from the ‘real’ economy of products and services to the ‘financial’ economy of money and credit, there are two points that we need to note. First, orthodox economics doesn’t recognize the distinction between the monetary and the material, regarding the latter as nothing more than a function of the former. Anyone finding this oversight hard to believe need only reflect on the absurdity of the promise of ‘infinite growth on a finite planet’ proclaimed by a conventional school of economic thought which dismisses the very concept of material limits.

Second, two centuries of economic expansion have been more than enough to create a culture of hubris and entitlement. We are, then, as unable to contemplate the concept of economic limits as we are, perhaps, to grasp the concept of an infinite universe.

The primary metric used in orthodox macroeconomics is gross domestic product. GDP, we are told, measures national or global economic output, and, by inference, also measures material prosperity. In fact, GDP doesn’t measure output, let alone prosperity. Rather, it measures the quantity of transactions that take place in the financial economy, which is a very different thing.

Because money can be created at will, there’s no theoretical limit to the number of transactions that can take place. This doesn’t, of course, mean that there are no limits to the supply of material products and services.

Conflating financial transactions with material output is one of the most bizarre examples of myopia in the modern world. Many people have argued, no doubt correctly, that ‘there’s more to life than money’. But few recognize the equally accurate statement that ‘there’s more to economics than money’.

Clearing up the money-output misconception is actually pretty straightforward. As we have seen, money is a human artefact, validated by exchange – money doesn’t contain value, but functions as a body of aggregated claims on the value made available by the material economy.

Whenever money changes hands – that is to say, whenever financial claims are exercised – the result is a transaction. Accordingly, it will be apparent that the value of a transaction lies, not in the transaction itself, but in the product or service that is the subject of the transaction.

GDP, being a purely financial metric, is in reality nothing more than a summation of transactions. It’s perfectly possible, indeed commonplace, for transactions to take place through which no material value is added to the economy. This is particularly true where quantities of money are interchanged without reference to material products or services, or where existing assets are the subject of transactions.

For example, person A has bought a house for $500,000. He or she now sells it to person B for $750,000. The item sold hasn’t changed – it’s the same house – but an incremental transaction has taken place, generating income for intermediaries. This income is a function of the transaction price of the asset (a stock), but is included in the aggregate flow of transactions measured and reported as GDP.

The process of divergence

In practical terms, and in part because asset prices are a function of the cost and availability of credit, this means that we can inflate transactional activity artificially by expanding the aggregate of credit. Exactly this effect is observable in the way in which, over the past two decades, each additional transactional dollar (counted as real GDP) has been accompanied by more than $3 of net new debt.

The consequence is that, if we disregard this ‘credit effect’ – and simultaneously disregard ECoE as well – we can grow reported GDP without reference to any positive or negative change in the value of the material economy. This is exactly what we’ve been doing since the 1990s, thereby driving a statistical wedge between the financial economy (of GDP) and the material economy (measured by SEEDS as prosperity). This process is illustrated in Fig. 3.

Together, the credit effect and the disregard of ECoE have created a relentless divergence between prosperity and GDP (Fig. 3A). A simultaneous consequence has been a widening gap between the flow of output (whether measured as transactional GDP or as material prosperity) and the stock of forward financial claims (Fig. 3B).

Fig. 3

When we compare the financial and the real levels of output, as in Fig. 3C, we are able to measure the relationship between the two.

Remembering that the financial economy of claims exists only as a proxy for the real economy of products and services, it becomes apparent that the eventual tendency must be towards equilibrium, where the quantity of claims matches the quantity of products and services against which these claims are, either now or in the future, capable of being validated by exchange.

Where the body of claims becomes excessive in relation to the value available for honouring them, this ‘excess claims value’ must, by definition, be destroyed, because it cannot be ‘honoured for value’.

This may seem very theoretical, but its implications are practical and its basic precepts are surely indisputable. We can create ‘claims’, primarily as credit, and we can count the transactional exchange of these claims, but we delude ourselves if we assert that the totality of claims exchanges corresponds to economic output and prosperity, which, in reality, it does not.

We can cut to the chase here by asking ourselves two questions. First, can the commercial banking system lend products, services – or their underlying energy basis – into existence? Second, can central banks create products, services or energy out of the ether? Since the answer to both questions is no, it becomes self-evident that the creation of claims does not simultaneously create the material wherewithal required to honour those claims.

Time arbitrage

There is one, and only one, area of ‘wriggle room’ in this equation, and that resides in the temporal (time-related) character of money. Monetary claims don’t have to be exercised entirely in the present – we can, instead, store (save) them for exercise in the future. This, though, buys time without changing the fundamentals, which are that monetary claims are valid to the extent (and only to the extent) that they can be honoured for value, either now or in the future.

This enables us to persuade ourselves that claims which are excessive in the present might become valid in the future, so long as the underlying wherewithal – the material economy – expands over time. We can thus convince ourselves that excessive debt and other commitments are, like childhood ailments, something we can ‘grow out of’. This, though, ceases to have any kind of validity once the material economy has ceased growing, and has started to contract, as is now the case.

The SEEDS model generates a ‘rule of thumb’ calculation for the extent of excess claims destruction embodied in the system, and this is illustrated in Fig. 3. As of 2022, the calculated flow gap (or ‘disequilibrium’) between the monetary and the material economies is put at -43% (Fig. 3C). If we apply this to outstanding debt and broader commitments (Fig. 3D), we can calculate a ready-reckoner for the extent of claims stock loss that can be anticipated as a product of the restoration of monetary-material equilibrium.

No way out?

The concepts we’ve been contemplating here – the “two economies”, material constraints, inflation as the two economies interface, and so on – have two shared characteristics. The first is that they are supported by logic and observation in ways that seem incontrovertible. The second is that they are disregarded, or indeed dismissed, both by orthodox economics and by those whose decisions and pronouncements are based on this orthodoxy.

One of the problems with orthodox economic interpretation is a refusal to contemplate even the possibility of fundamental misconception. Likewise, it seems incumbent on us to test our analysis by asking if there are any events which could change future outcomes from those projected and quantified here using the SEEDS economic model.

There are, surely, no contradictions to two of our basic precepts. We don’t need to set ourselves adrift in a lifeboat to prove to ourselves that money has no intrinsic worth. Neither do we need to shut down all supplies of energy to demonstrate that the economy is an energy system. In short, the concept of the ‘two economies’ of the material and the monetary seems to be incontrovertible.

What, then, could result in outcomes better than those with which we began this discussion? There’s a simple answer to this, which is the discovery of a fully-equivalent replacement for the energy hitherto supplied by oil, natural gas and coal. We cannot say that no such discovery will ever be made in the future. But we can conclude that any such full-value energy replacement won’t be found in a combination of solar panels, wind turbines and batteries.

The impossibility of a complete transition to a wind-and-solar version of the current economy can be explained in many ways. Building and maintaining such systems would require the use of raw materials on a vast scale, which really means that we would need correspondingly enormous amounts of energy to access these materials, convert them into products and equipment, and transport them to where they are needed. We cannot circumvent this problem by improving the conversion efficiency of wind turbines or solar panels beyond certain maxima clearly established in physics (Betz’ Law for wind power and the Shockley-Quiesser limit for solar).

Ultimately, though, the problem with renewables as currently understood is that their density is less than that of fossil fuels. Two conjoined processes define the material economy. One of these is the use of energy to convert raw materials into products. The other is the accompanying dissipative process which converts energy from a concentrated to a diffuse form. If we reduce the density of the energy input, we simultaneously truncate (shorten) the material conversion process, resulting in less output and a smaller economy.

In 1801, with Britain fearful of an invasion by Napoleon’s seemingly invincible armies, Admiral John Jervis, 1st Earl St Vincent, reassured the Admiralty in this way – “I do not say, my Lords, that the French will not come. I say only they will not come by sea”.

Likewise, it would be a step too far to assert that no complete replacement for the energy value hitherto sourced from fossil fuels will ever be found. We can only conclude that wind and solar power cannot provide this complete replacement.

This does not in any way undermine the case for maximising the potential of renewables. As the ECoEs of oil, gas and coal continue to rise, continued reliance on fossil fuels would be every bit as harmful for the economy as it is already proving to be for the environment.

We may – the jury is still out on this – be able to develop a sustainable economy on the basis of wind and solar power. What we cannot expect is that any such economy would be as large and as complex as the one we have now.

142 thoughts on “#254: A tale of two economies

  1. Re: your last paragraph. Is a “sustainable economy” compatible with a welfare state? Those who talk up ‘sustainability’ appear to think so, but…

    • I think it depends on how much we expect the welfare state to accomplish, and what means we’re prepared to use to make it possible. We should be able to ensure the basics, like housing, health care and education, plus making sure that everyone can afford sufficient food, energy and transport. This would mean setting limited objectives for the state, and implementing a lot of redistribution. Like so many other things, how well we can do this will depend in part on how soon we see this coming and start to prepare for it.

    • Whilst I disagree with your mixed economy viewpoint it might be most efficient if we do have that system for the state to issue vouchers for food where the retailers can redeem it for currency from the government.

      They could also come with conditions such as the vouchers cannot be used legally to purchase alcohol and tobacco and be strictly for food items.

      Same for energy and transport. A weekly allowance for trains and buses etc.

      This will have its problems, however.

      Retailers will probably increase prices knowing the government is picking up the tab.

      That will impact people who do not receive welfare.

      In relation to housing my view is if government subsidized rents (and they do now in the UK) then it should only be done where the tenant is in social housing only and not privately renting.

      For this to be attainable however a lot of social housing will have to be built.

      Government enriching private landlords will make rents higher and housing more expensive and make it more harder for poor people to improve their lot and will ultimately make them stuck in their homes unable to move whilst enriching the landlords.

      Could create a 2 tier society.

      True, we probably have one already but it will be very difficult for governments to adapt to what’s happening.

      Humans are not perfect and so the more they try to “help” citizens the likelihood that more problems will occur as a consequence.

    • Thanks. I think the time is coming where I need to write about future economic arrangements – if I do, I hope I’ll be able to make the case for the mixed economy!

    • I look forward to it.

      It will be a valuable exercise as assuming it has any major flaws posters here can point them out.

      That way it can get refined and improved upon although I am sure you will put much thought into it as usual.

    • @Dr Tim

      “Thanks. I think the time is coming where I need to write about future economic arrangements – if I do, I hope I’ll be able to make the case for the mixed economy!”

      I for one, would be very interested in that.

      If all our lives are dependent on energy, then a good point to start would be on the distribution of that energy.

      Should people have access to a basic minimum amount of energy as a right?

      Should energy be distributed equally?

      How to distribute that energy? At present, money is the mechanism for distribution. (You can have as much as you can afford) but I am sceptical of the ability of money to function in a de-growth economy. So what then?

      It strikes me that someone like Elon Musk with his SpaceX rockets is getting much more than his fair share of available energy!!!?
      (And also contributing more than others towards climate change!!!)

  2. Thank you Dr Tim for a very clear explanation of our predicament. I wonder if it is more than coincidence that a net zero economy would not only benefit the climate but would also result in the smaller and less complexeconomy that you envisage.

    • You are welcome. My aim here was to set out the really important parts of the situation as I see it.

      We’re likely to be using a lot less fossil fuels in the future than we are now. This is environmentally positive as well as economically negative. A lot of the most polluting activities will have contracted drastically, and some might barely exist at all. I’m wary about ‘net zero’, because of a widespread tendency to promise the ends without willing the means. We don’t have a full replacement for FF energy, but we may have a partial replacement, if we trim our coats according to our cloth, as it were.

    • I’m sorry but I do have to take issue with the idea that a Net Zero economy would benefit the climate. Yes, we are in a period of warming following on from the Little Ice Age, however this is completely unrelated to current fossi fuel consumption. All of the playing with toys allegedly representing the earth’s climate have spectacularly failed to account for past warming events (Roman and Medieval Warm Periods) with their obsession with CO2. Instead of waiting huge amounts of money on “renewables”, we should be focused on developing much higher density energy sources (nuclear), so that at least some of the fossil fuels remain available as chemical feedstocks.

  3. Thanks Dr. Tim! Your descriptions of the financial system, in this posting and others, reminds me of Arnold Toynbee’s description of social organizations. Some social instruments that perform a useful function and make a society a better place. Others, originally instruments, have evolved into institutions that exist solely to benefit themselves regardless of their effect on the society that hosts them. Ultimately, social institutions become parasites, draining energy and nutrients from the host to it’s detriment.

    The financial system is well on its way to being a social parasite.

    • Thanks Raymond, you are welcome. I wanted to set the most important issues out as clearly as possible here, that was the plan with this one.

  4. “If someone was about to take a very long holiday, not returning until 2040, he or she could work out which investments to ditch, which forms of value to accumulate, which national economies to avoid ”

    Have you enumerated this in more detail?
    I’m trying to work out whether to move back to the UK (family) or stay in Canada. Either way we need a strategy for resilience for our sons and daughters….and my instinct is to buy land

    • I have to say first that I don’t do investment specifics here – it’s a regulated activity, and the circumstances of individuals differ. I think that if you adopt the broad-brush outlook (discretionary contraction, financial risk and so on) you can apply it pretty effectively to specifics.

      There are many reasons why people move between countries. In economic terms, Canada has a better future than most, and the UK has a worse one. I’m extremely negative on the UK, in both economic and broader terms. Whilst economic contraction is likely to be experienced by most countries, I think the UK is singularly ill-equipped to cope with it.

    • Land only has asset value if it can be used to generate a decent surplus on inputs : energy, labour, seed, chemicals, costs of seeding, weeding and harvesting, then processing and transporting the crop to market. Most of the farmers I know in Scotland are reliant on subsidies and handouts – because it is cheaper to grow those crops somewhere else with lower labour costs. Or they sell bits of land off to housing developers etc.

    • Thanks Dr Morgan and other commenter. That was my feeling too. I’m glad we have Canadian passports now even if we head back for a while. The land was more a case of being able to grow food/meat/wood for heating and possibly a land based business of some sort. I’ve been writing about the degrowth scenario for years and it’s not at all rosy. I’m rather with Paul Kingsnorth these days

    • “The land was more a case of being able to grow food/meat/wood for heating and possibly a land based business of some sort.”

      Thanks for the new article!

      UK or Canada?

      Not far off. In northern Pennsylvania USA, my grandfather bought 8 acres of wooded hillside and former pasture from his brother after returning from WW2 and added another 20 acres later including a secluded patch for gardens/food plots and a 5 acre sloped hay field with full sun.

      There is plenty of ironwood, thorn apple, hickory, walnut and maple for.. wood heat, building materials, pectin for canning, foraging and sugaring.. 80-100 whitetail deer per square mile. I would suggest buying land with a mind for resources and what the locals have to offer.. belgian horse trainer and breeder for pulling and plowing, Amish sawmills and buggeys, blacksmith/farrier nurseries and maple sugar operations nearby? Good luck on your journey!

  5. “For example, person A has bought a house for $500,000. He or she now sells it to person B for $750,000. The item sold hasn’t changed – it’s the same house – but an incremental transaction has taken place, generating income for intermediaries. This income is a function of the transaction price of the asset (a stock), but is included in the aggregate flow of transactions measured and reported as GDP.”

    An increase in a house price does not affect GDP. On the other hand, residential construction counts as an investment and does figure into GDP. If one person sells and another person buys a house, the stock of investments (properly defined) is unchanged — ownership has changed hands. For example, if the buyer owns the house outright and the seller borrows the entire $750,000. The seller will have and extra $750,000 and the buyer will owe $750,000.

    • Perhaps not the best illustration, and perhaps not well expressed, but property sales do generate significant activity – real estate agents, lawyers, removal people, it all mounts up.

      What I should have emphasised is that rising property prices have a confidence and collateral effect on debt – both borrower and lender confidence are increased – and this in turn leads to more activity, i.e. transactions.

    • “An increase in a house price does not affect GDP”

      I have seen this statement in several places recently and I disagree strongly, the activity in our economy that is attached to housing in some way is significant. I feel that housing prices falling will be a headwind for the “growth at all costs” model.

      What do you think the seller will do with his $750,000? Under the mattress?

    • I think that most property gains will transfer to the next generation.
      Sure some gains might be screwed out of old people through the usual scams and frauds – of which nursing home care comes top, shortly followed by the Equity release scams that fund it. If you are unlucky enough to hire crooked care-workers, roofers, or solicitors, they will be delighted to relieve you of your cash, too.
      Now, most well-off people are having smaller families, so often one child will scoop the pot.
      This helps explain why the rich get richer, and the poor get poorer.

  6. That relationship you have found between energy and economy is very interesting.

    Let me see if i have it strait:
    1 kilo of oil equivalent produces 6 dollars (PPP)
    Which is the equivalent of saying
    1 kwh will produce ~0.52 dollars (PPP)

    Now oil is easily stored so to fairly compare it to PV (or wind) generated electricity we should include the cost of storage.
    How much does a PV system capable of generating 1 kilowatt hour on an average day and storing 1 kilowatt hour cost per day? If the cost of that system is ~5 cents per day you get a 10% energy cost of energy, which might be enough to maintain most of our current prosperity?

    If that idea is roughly correct we have a relatively strait forward way of evaluating renewable energy: it needs to cost 5 cents per stored kilowatt hour or less for us to have a chance of maintaining prosperity.

    • I’d have to go over my sums before commenting in detail, but a 10% ECoE is too high for most economies. Western prosperity stopped growing at around 5%, and some EM economies have hit the same barrier before we even got to 10%. Since we can’t expand or replace RE or storage capacity without using materials whose availability depends on the use of legacy energy from FFs, the ECoEs of REs and FFs are connected.

    • I have a 4 kWh solar rig on my roof – installed in 2013 and paid for in cash. It has cost around £12k to date, including repairs and parts.
      I guess I get paid on average around £500 a year in FIT for what I generate – say £5,000 to date. Without the FIT tariff subsidies, paid for by other users, it would not have been a viable investment, and as it stands I might be lucky to break even by the time those subsidies are terminated in 2033. However I do get quite a lot of free power – of which I use about 1500 kWh a year, and export about 1,000 kWh to the grid, so the costs and benefits are really quite hard to calculate, as retail electricity costs are so variable.
      I haven’t invested in a battery, as I try to divert surplus to my electric car, which is the same thing really.

    • Well ok then, if we need a 5% energy cost of energy the cost of generating and storing renewable electricity would need to be ~2.5 cents per kilowatt hour or less.

      What i am trying to do with this is get an idea of the technological goal that would need to be met to have a decent chance of having a renewable system of similar complexity.

      Also i have started to think about using the relationship you found to evaluate businesses (or economic activity in general). If you evaluate similar businesses by their energy use vs sales you may be able to sort winners from losers. It would also be interesting to see the how different sectors of the economy differ in their relationship between energy use and sales.

    • Here are the figures i found for storage and pv generation:
      0.18 dollars per kilowatt hour for storage
      0.03 dollars per kilowatt hour for generation
      total 0.21 dollars per stored renewable kilowatt hour
      So that works out to a ~40% Energy Cost of Energy

      That means we need an order of magnitude improvement in the cost of stored renewable energy. (and that is for a system still powered by fossil fuels, so the real situation is even tougher,)

  7. Thank you for your work. I look forward to each new post. I do question your discussion of renewables (and I have been riding an electric recumbent bike since 2001 using progressively better and lighter batteries so I am extremely conversant with the tradeoffs involved in the energy transition – though on a small scale.) Many people now prefer to describe ‘renewables’ as ‘rebuildables’ since they are entirely reliant upon fossil fuels for their construction, operation and eventual decommission. Experts like Simon Michaud claim that there are barely enough rare earth minerals to produce the first large fleet of electric cars and solar panels to generate their fuel. Others point out that warming of the climate is only one adverse consequence of our production and use of fossil fuels.
    Would you consider commenting on these matters in a future post? I would be most grateful.

    • I’m an optimist on battery storage – a sodium based battery would utilise sea salt – one of the most common minerals on earth – as opposed to lithium, which whilst hard to obtain, is also quite common. Cobalt is useful, but can be replaced too – or more ethical and less energy dense means of mining it can be found in due course.
      By way of an analogy, 200-300 years ago in the UK, small children were utilised in the UK to sort lead ore – at that time a very valuable metal. Now, we don’t use it much, and anyway, production has become far cleaner and safer.
      Progress is inevitable – but the holy grail of fusion is still a step in the clouds.

    • about battery optimism – the Edison battery seems very good but heavy so only for stationary uses. For much of my long life people have been looking into low tech ways to support some level of civilization. Until recently it was always assumed that we would have to do with less and that private automobiles were part of the problem. Suddenly the goal is to live just as we always have on intermittent renewables and to make personal EV’s the highlight of the program. This is the hubris and entitlement problem Dr. Tim describes. And we are running out of time. We could still find ways to survive on a lot less but none of it is happening now. So if we get lucky there will still be the resources and skills to make a transition to lower energy when the bosses and the masses wake up. Both of those categories are clueless right now.

    • Thanks. We did look at energy issues in #247: The Surplus Energy Economy, part 2.

      Part of the problem is that, collectively, we insist that there must be no decline in the economy, and we assume that ‘there must be’ some way of enabling things to continue as they are, with technology billed as the saviour in all predicaments.

      Wind and solar are the assumed answers. The practical problems are overlooked, and/or dismissed as things that technological progress will overcome. The hard reality is that technology operates within limits determined by physics.

  8. Is the human body an asset or a liability.
    A good essay. Now for an opinion. Unless a miracle ensues, by 2040 the survivors are likely to acutely feel the need to make their physical body into an asset. Today, the physical body is overwhelming a drag on income produced from some other source, usually involving a heavy dose of fossil fuels and technology which is dependent on fossil fuels.

    We calculate the cost of the “welfare state” and find that “prosperity” can no longer afford it. We can calculate the cost of keeping a body happy in the Hollywood Hills, or Central London, or even a slum in Mumbai, and also find that the cost is beyond the ability of the projected economy to sustain it.

    But the human body evolved to sustain itself with remarkable attributes shared by few other animals. For example, humans can run down wounded prey almost without peer in the animal kingdom. Our senses are not outstanding, but our brain power is world class.

    IMHO, the big change will be from considering the body as simply dead weight which needs to be heavily subsidized from exogenous energy sources into a marvelous producer of surplus energy, using the attributes evolution graced us with.

    It’s a revolution back toward where we came from. Granted, the world will have to turn upside down…but that will happen anyway.

    Don Stewart

  9. Many thanks for the latest article Dr Tim. It’s very clear and articulate. I suspect that even a government minister could get the message, if they so wished.

    The first few paragraphs are alarmingly clear and stark. They hit you right between the eyes, which I think is what you were after. I mused that they wouldn’t be out of place in some kind of fantasy novel about a dystopian future. Trouble is, it’s not a make believe story is it.

    On the theme of net zero, which has been mentioned in the discussions, there’s a piece in today’s Telegraph entitled ” Net zero Britain will be unable to keep the lights on, MPs warn”.
    The article relates to a report from the Business Select Committee. It comes at the same time as the government is in the process of overseeing closure of the last couple of coal fired power plants. These are the same coal fired plants that were utilised quite heavily during last winter as the “generator of last resort”.

    We know the issue with burning coal, but the obsession with ridding ourselves of the last few Gigawatts of generating capacity, while countries like China and India continue to ramp it up, is beyond me. Presumably it’s some kind of Woke self-flagellation to atone for inventing the steam engine and bringing the industrial revolution to the world.

  10. Thanks once again, Tim, for your impressive insights. Two comments on which I would welcome your views:

    1. Another climate angle, which also connects to the two above re “net zero”: Your post got me thinking about parallel duality in the “carbon economy” and that we may already (in New Zealand at any rate) be seeing a major divergence between real and fictitious roles of carbon. For example a) the behaviour of carbon pricing under our ETS (Emissions Trading Scheme) is on a roller coaster far more dependent on government settings and international agreements (or lack of) than the carbon actually stored in the trees underpinning the ETS; and b) this in turn has driven booms and busts in “carbon forestry” which further undermine the notion of “Net zero carbon,” which, until or unless someone actually produces a truly scalable carbon capture technology, is largely based around assuming permanence in afforestation that is in reality temporary (indeed increasingly temporary thanks to the impacts of climate change).

    This all becomes even more fraught if we apply the temporal dimension you reference above, as in essence offsets to achieve “net zero” are claims on future carbon (or at least on the permanence of existing carbon) which are highly vulnerable – as has recently been revealed in the Papua New Guinea debacle milling forests supposedly secured as carbon storage.

    2. Your reference to “(b) the rate at which this energy is converted into material economic value” as one of three key parameters ties back to an issue I floated at the time of your recent series (up to blog 250 I think) re the effect of widespread electrification. That raised the possibility such electrification might enable societies to succeed with a higher ECoE than has been the case in a fossil fuel dominated past (notionally by a factor of 3, being the approximate ratio of typical efficiency of electrical motors vs using FF to generate work.) This in turn ties in to the viability of 5% and 10% ECoE references in the discussion just above. (This is largely, but not completely, independent of the valid previous comments about the challenges in supplying raw materials to establish and sustain equipment needed for an electrified economy).

  11. Opps,
    In the analysis above, i was not calculating the Energy cost of Energy, i was calculating something similar, the theoretical Energetic Cost Percent of the Economy for solar + battery.

    I plugged in some values for the cost of oil to get an idea on what the Theoretical Energetic Cost Percent of the Economy for an oil only economy would be.
    (assume 136 kilograms per average barrel of oil)
    40$ barrel of oil 29.4 cents per kilo 4.9% of the total economy
    70$ barrel of oil 51.5 cents per kilo 8.6% of the total economy
    136$ barrel of oil 100 cents per kilo 16.7% of the total economy.

    This seems to indicate to me that we would want to keep the total energy cost percent to less than 10% preferably 5% or less, similar to the Energy Cost of Energy.

  12. The production of fiat funny money and back in history as the debasement of currency is how we are ruled by those of no merit those only skill is deception.
    This departure from reality has become culturally ingrained and now most people think nothing of the insanity of our leaders.

    I believe the covid/vaxx event was a contrived preemptive Malthusian event to adjust the population to the energy and wealth available after energy transition.

  13. Pingback: Das Ende des Wachstums- Zitat

  14. A short term money interruption…but noteworthy, I think

    They don’t like it when people copy and paste. So take a look at the first paragraph and you will see that the M1 money supply is still setting records. Williams thinks that it is the M1 which is fueling what Wolf Richter sees as baffling inflation. One of Wealthion’s recent experts showed some M2 graphs and proclaimed that money was now shrinking.

    Where we seem to me to be at is that people are spending money they have in hand, and they are keeping more of their money very liquid.

    The Fed likes to look at only a few charts, and those are quite rigid. Perhaps it is time they look in more detail to try to figure out why raising interest rates is not working to suppress demand.

    Don Stewart

    • I’m not sure if Wolf says that inflation is baffling, and I think he makes the connection between money-creation and inflation.

      My own take on inflation, set out in this article, is straightforward and – I hope! – persuasive. It is that prices are the point of intersection between the monetary and the material economies, that changes in prices (i.e. inflation or deflation) are functions of changes in the relationship between the two, and that we can measure it in this way as RRCI.

      I agree with you that “people are spending money they have in hand, and they are keeping more of their money very liquid”. People recognize that, at least for now, the era of “easy” or “free” money is over. Inflation isn’t being driven by wage rises, but by margin expansion, a process likely to hit affordability limits in discretionaries – but not in essentials.

    • @Dr. Morgan
      My point is that M2 is shrinking and M1 is not shrinking…in the short term. Over the long term, they will tend to move together. Those who insist that M1 is meaningless and M2 tells the entire story seems to me to be missing something.

      How can M2 be shrinking rapidly while inflation as measured by the government is not decreasing? The goal of the Fed in shrinking M2 was to control inflation as measured by the government. But it is not working. Is the lack of control of M1 part of the reason?

      Don Stewart

  15. Another Straw in the Wind on the Short Term

    John Rubino looking at M2 and not looking at M1. I’m not arguing that M2 is unimportant. A shrinking M2 can generate the problems that Rubino lists. But how to explain the continued spending of the money people have, and the fact that people are holding a record high amount of M1 as a percentage of M2?

    I sense a sort of resignation that things are about to collapse. I say that hesitantly, and admit that my own perception may be unduly colored by my own opinions. But I find it an interesting question to couple the M1 plus robust spending phenomenon with the continued Fed tightening of the M2 money supply.

    Don Stewart

    • I’ve just received a newsletter from the guys at Elliot Wave International who come to a similar conclusion to Rubino.

      They assert that when growth in M2 money supply turns negative, as it now has, a deflationary depression is what follows. They have a chart going back to 1878 showing M2 growth turning negative in 1878, 1891, 1921, & 1932. Depressions accompanied each of these events.
      The charts show a jaw dropping collapse in M2 annual growth from a record high of 25% following the pandemic, to a now negative rate. They forecast “panic and depression” will ensue. I’m not going to argue with them.

      The bond market is also signalling that all is not well. It has a habit of sniffing out trouble before the stock market does. Something known as the MOVE index which has been described as the bond markets equivalent of the VIX, has surged to levels that ring alarm bells. Trouble normally follows.

      And let’s not overlook commercial property, which has plunged at the fastest rate since the GFC. This downturn poses risks to lenders balance sheets, as commercial property mortgages account for almost 38% of the median US banks loan book, according to KBW research.

      I see that First Republic Bank looks like it’s finally about to go under, with the FDIC poised to put it into forced receivership if a buyer can’t be found more or less immediateley.

      The domino’s are all lining up, and it seems likely that when the first one goes… they all go.

      “Something wicked this way comes”

  16. Thank you for another excellent post, Dr. Morgan. Always a treat to read.

    In regards to investing and the headwinds for discretionary sectors, could it be that companies in essential sectors won’t necessarily fare comparatively better because they may be more exposed to a government effort to control the prices of essential services and goods via regulation?

    The topic of comparatively better investments brings my thoughts to what might perform not just better, but well in absolute terms in the difficult times ahead. I hope it’s not inconsiderate to share my thoughts on specific investments, as it is something that you don’t do, but if I may, my best judgement tells me that a couple of particular chemical elements that have the properties of money, but are not amenable to fiat shenanigans and silly monetary theories will do quite well.

    • I guess that depends how much of the shiny stuff is out there in storage or in homes, how many people really want to turn their house into a mini-fortress, and how much might be released – supply and demand. The problem is, unless you can afford a bank vault, where do you keep the bling?

  17. Tim,

    Yet another, again clear and specific, rendering of what’s so. Along with unarguable implications and conclusions.

    Explained at the secondary-school level, graspable by adolescents.


    • I’m interested, curious, but not yet convinced. ECE theory is all a bit Malthusian: projection model based, (you know, if human being relicate at current levels we will run out of food etc) … but Malthus was wrong in many ways: anyway if we review history we see that great disruptions frequently destroy previous assumptions.

    • ECE theory does have rings of Malthus, but to me that makes it more relevant and prescient. Malthus was indeed right, like all of the non-cornucopians, and do not wrong him for timing. Same for Ehrlich, and many of the others who understand that climate, for instance, is just one of the multitudinous symptoms of OVERSHOOT.

    • ECE seems to come to the same place as HT Odum’s eMergy analysis – and the concept of ‘transformity’ in energy accounting across trophic systems. The upshot is that any form of complexity – including even ideas or art – comes with an energy signature; greater complexity involves greater vulnerability; and that industrial society has reached overshoot …and can no longer sustain the high transformity/low entropy structures of globalization.

    • “anyway if we review history we see that great disruptions frequently destroy previous assumptions.”

      you answer your challenges

  18. Dr Tim, while you have produced another excellent piece highlighting the problems dead ahead, you seem to have a weak spot in regard to renewables.

    They are incredibly complex systems that only exist in a fossil fuel economy. I wonder if you have ever been inside a modern wind turbine, I have. It was on a tour of a nearby wind turbine installation. Each turbine needed a continuous power supply of 12kw, even when not operating to be ready to operate, such is the complexity of the internal systems. They can’t operate without external power, they are a statue without a power source. If one of the thousands of components within these fail, then they don’t operate at all. They need a constant supply of parts from distant countries to continue to operate, and heavy maintenance schedules that involve large diesel powered cranes, every 8 years in normal operating mode (not repairs).

    Likewise for solar, with intricate inverters that have multitudes of components like, different types of transistors, rectifiers, microprocessors, transformers, MOSFETS, microcontrollers etc, all from a multitude of factories from across the world. When one part fails, the system stops producing power.

    When we don’t have fossil fuels, we wont have the ability to construct such complex systems, that require such large and long supply chains, nor will we be able to maintain existing systems. Existing power grids will collapse within a decade of lack of fossil fuels, because the parts will become unobtainium.

    We only get more renewables while we have increasing fossil fuel use, just like in the last decade when total world solar and wind production has risen to a total of around 2,900Twhs in 2021, yet fossil fuel has increased by 12,000Twhs between 2011 and 2021.

    Reduction of fossil fuel use has only happened in the last 200 years during recessions and depressions, which always have stifled all investments.

    To think that renewables could have a role in a future fossil free future is an exercise in magical thinking, before we even get to the low to non existent energy return on energy invested. It’s not the density that’s the issue, it’s the complexity and lack of energy return on energy invested when counting the complete embedded energy..

    • Thanks Hideaway, and Stellarwind72 for those links, of which the Rees & Seibert paper in particular ought to be mandatory reading for decision-makers.

      This report (#254) is primarily about why we need to understand and apply the concept of the two economies of energy and money. We’ve looked at energy in more detail, most recently in #247, posted in February.

      I think I’ve been pretty clear and objective about renewable energy, stating that RE cannot provide a complete replacement for the energy hitherto sourced from fossil fuels. I have stated, first, that RE transition requires vast material inputs; second, that supplying (and replacing) these materials can only be accomplished using legacy FF energy; third, that this ties the ECoEs of REs to those of FFs; fourth, that lesser density is at the heart of the inadequacy of REs; and fifth that any RE-based economy would be a lot smaller than the economy of today. I have called attention to the way in which the laws of physics dismiss the idea of ‘transition through technology’ as it is widely assumed and accepted in the contemporary dialogue.

      Whilst dismissing “sustainable growth” as impossible, I do not rule out the possibility of a “sustainable” economy, but nowhere do I say that a sustainable economy could be powered by wind, solar and batteries. A sustainable economy would be far smaller and less complex than the economy of today, it would be post-consumerist (SEEDS shows discretionaries largely gone before 2040) and it would, by implication, require a much smaller population.

      The complexity to which you refer is a function of lesser density. Dense fuels are simple fuels – we chop wood, mine coal, extract petroleum and burn them, with a modest level of complexity introduced by converting heat into work. The lower the density of an energy source, the greater the complexity that is introduced by trying to apply it.

    • Human societies which endure have solar energy as the energy source, but the solar energy
      collectors are self replicating,and do not require mining and manufacturing for their existence . A civilisation dependent on sequestered solar energy (fossil fuels ) will inevitably fail,even if the climatic disruption associated
      with the burning of those fossil fuels did not exist. Alice Friedemann ,after decades studying
      energy, has reached the same conclusion. Biomass will be the energy source for humans when this industrial civilization has gone. The Seibert and Reese paper is about the best
      available on the human predicament. Also recommended are Craig Dilworth’s “Too Smart
      for our own Good “, and Tom Murphy’s ” Energy and Human Ambitions on a Finite Planet.”.

  19. Energy Density
    Take a look at:

    Hydrogen is the most energy dense fuel. But, as explained by others, it is very difficult to use. For one thing, it easily escapes most containers.

    The gas forms of fossil fuels are second in line in terms of energy density. But gas is not easy to use. In order to be useful for transportation, gas needs to be compressed. There is a big difference between energy per cubic meter and energy per kg of weight.

    The various forms of petroleum hit the sweet spot by being both energy dense and also easily carried in containers, such as gas tanks in cars and diesel tanks in trucks.

    Coal is transportable, but is very dirty and lower in energy density. There were steam engine automobiles and electric automobiles produced in the US during the early 20th century. But practical automobiles as we now know them only became common with petroleum. Trains, in contrast, ran on coal until the second half of the 20th century. Trains now are diesel/ electric. They have an on-board diesel driven electricity generator, which drives the wheels.

    Wood has a reasonable energy density, but is not stored in the earth in mine-friendly quantities. Therefore, it is only available in real time as the sun and rain and earth combine to produce it. Over recent millennia, humans have depleted the supply of wood. In one sense, coal supplied a much larger supply of wood-equivalent energy thanks to geological processes compressing coal into mineable chunks. Trains in the US once ran on wood, then converted to coal. The novel 100 Years of Solitude refers to the long deforestation which accompanied the burning of wood in steamships on South American rivers. Many of the historic stern-wheelers on American rivers burned wood.

    Don Stewart

    • I’d also point out that it is volumetrically NOT dense, which makes it even more problematic for storage, and especially for transport.

    • Thanks Don – I appreciate your comments. By way of corroboration of those on firewood, Roland Ennos’ book “The Age of Wood” discusses – among many things as it has a remarkable sweep – how firewood availability set limits to the size of mediaeval cities like London and Paris. Ennos didn’t discuss it in terms of ERoEI or ECoE etc. but it amounted to much the same. And the bizarre logistics of the UK’s Drax power station also call the bluff on bioenergy-to-electricity (Extrapolating the data for Drax, my sums suggest that even if the whole landmass of Britain was given over to trees it wouldn’t be able to supply enough electricity to keep Britain going as is.)

      As if that weren’t enough a 2015 World resources Institute paper (https://www.wri.org/research/avoiding-bioenergy-competition-food-crops-and-land ) found PV panels on a given Ha of land generated around an astonishing 100 times the energy that could be yielded as bioenergy by best crops available for the purpose (and that was before the efficiency downsidesof using say biodiesel in a combustion engine compared with electric motors).

  20. M1, M2, Inflation, the Fed
    Here is an interesting article from those ancient days when inflation (as measured by the US government) was supposed to be “transitory”:

    Powell denies that the amount of money has much to do with inflation. Now he is busy driving down M2, but doing nothing to curtail M1. It occurs to me that the way to bring down M1 and spending driven inflation is to increase taxes…certainly a third rail option in Washington.

    Don Stewart

  21. Energy Sources
    See Albert Bates posting on non-windmill and solar panel “solutions” to our energy cliff:

    The ultimate question is not whether we can find enough energy (after all, energy cannot be destroyed), but whether we can avoid having available energy destroy we humans:
    “The problem, in the final analysis, is not a deficit of energy. It is a deficit of wisdom.”

    As one example, consider all of the gyms which operate on the business plan of reintroducing humans to resistance training. Our distant ancestors encountered resistance every day of their lives, and our bodies evolved to deal with resistance. If we engineer resistance out of our lives, we will either be very sick or else we will have to reintroduce resistance made with exotic energy.

    Don Stewart

    • Where this all fails, rather badly, is that the industrial revolution was preceded and enabled by a massive expansion of renewable energy.
      Men dug our canals, and horses pulled the narrow boats.
      Waterwheels were driving our textile industries.
      Windmills drained our swamps, and ground our grain.
      And our boats were powered by wind, and explored the world.
      Lets stop denigrating renewable power: let us learn our history.
      The most powerful sources of power were always water, and wind. What do you think the Hoover Dam runs on? Petrol?

    • Bayrok, I don’t see that “this all fails” for the reasons you give, so much as those reasons illustrating Tim’s point that we can’t expect to replicate our present society by substituting renewable energy. Without denigrating renewables, as you suggest, pre-industrial societies under historical renewables are a far cry from present circumstances, and the physics, logistics, and sustainability of such systems trying to support present day populations and scales of consumption make it well nigh an impossibility (even if just for the firewood reason in my response to Don Stewart a few comments above).

    • Quite so, Lindsay. I don’t think I’m denigrating the renewables of the past by saying that they couldn’t support the far larger and more complex economy of the present.

      Various foundation skills made the industrial revolution possible. Organised agriculture freed up enough people to explore new possibiities, making society and education available. The textile industries were critical forerunners for industry, as was metallurgy. The Dutch, in particular, made extraordinarily effective application of wind and water.

    • @bayrock
      You don’t want to recognize, it seems, that a diesel engine runs on an extremely concentrated energy source that an ox cannot compare to. The fact that there are a few choke points like the hoover dam where energy has been corralled doesn’t change the reality that such an opportunity is rare, hard to construct, and difficult to maintain

  22. Dr. Morgan,

    I hope I am not going of your topic area but consider the following:

    In this most recent post you wrote:

    “Likewise, the existence of ‘two economies’ makes it perfectly feasible for different people to have different experiences, depending upon which of the two economies – the monetary or the material – determines their circumstances.”

    Nature has many ways of following a similar pattern.

    The concept of “two layers” of the economy also applies to the concept o hardware and software in computing. The hardware layer consists of electronic components while the software layer consists of abstract reasoning. The major difference between computing and energy is that the hardware is continuously becoming cheaper whilst the energy sources are becoming more expensive. Computing hardware has, over the last 50 years, dramatically reduced in cost. Energy is becoming more expensive.

    The idea of cheap hardware could change however if there is confrontation over Taiwan.

  23. Lets perform a mind experiment.
    If we surrounded all our northern hemisphere houses, offices, factories and shops in simple, cheap, straw bales – how much energy might we save?
    Most of it??

  24. Money actually does have intrinsic value. Real money. You however seek to setup special circumstances where for example, only food water and shade matter. That doesn’t change the intrinsic value of money it only proves that specialized circumstances can change priorities, same way water is worthless in a survival situation without a shelter in the middle of a rain storm in winter. Showing that there is a priority of needs doesn’t mean all other needs are not actual but only that their is a hierarchy based on setting. Money, real money, has attributes that are extremely rare and generally by far best served by gold and silver. No that doesn’t mean you can eat gold and silver, it means that in situations where money exists (do you plan on being where money does not exist?) money will procure your various other necessities.

    • It seems to me you are illustrating my central point, which is that money has value only in terms of the things for which it can be exchanged. The extreme examples (being in a lifeboat or a desert) are intended to illustrate money’s lack of intrinsic worth.

      The case for gold (or silver) can be made in one of two ways. The first is the investment case – that you could buy gold using dollars at point A, and get far more dollars back for it at point B, if huge amounts of dollars have been created out of the ether between A and B. The second is the ‘real money’ case – that comparative scarcity means that gold might still have value, meaning exchange value, after the value of fiat currencies has been destroyed.

      Either might be true, but the situation remains that money – any form of money – has value only through the capability for exchange.

    • Well, I thought what I was doing was defining the value of money. It has value to the extent that you can exchange it for products and services, i.e. items of utility. It has no value where an exchange cannot take place. Yes, the examples given are extremes, intentionally so as ilustrations. But the general principle is, I think, universal. Say the world lost confidence in GBP, to the point where nobody was prepared to accept it in exchange for anything. At that point it would have no value. You can’t usually use EUR in a shop in New York, but it is accepted in return for USD, thereby having value.

      I’m curious as to the utility value of gold. It’s used in jewellery, certain industrial processes, and in high-end hi-fi. Beyond this, though, are people supposed to shave a wafer off a block of gold and spend it on groceries? If not, presumably they have to sell (exchange) some of their gold for USD, etc, with which to buy food?

    • Oddly enough I did some gold-panning last summer, and came away with a few tiny little 24 carat nuggets. I have no idea what to do with them though.

    • It seems kind of like a tautology then. Thing A is only useful when it is useful. The point of real money is it has intrinsic value. It is coveted and desired as the thing it is. Money has qualities that make it intrinsically valuable (fungibility, store of value, standard weights and measures etc) , unless of course you set about hatching a situation where it is not of value. Gold and silver are both valued for the properties they have, which is what gives them value in trade and specifically in their conversion into money. To say it has no intrinsic value is to say a piece of art has no value, or even to say a computer has no value as without electricity the computer is useless; a computer is only useful in so far as one has electricity and various kinds of knowledge etc. Take away the use cases for something and surely its no longer valuable. So yes if there is nothing left of value to sustain life (read to trade for) then only about 5-10 things have any value whatsoever (bow/arrow, container, tarp, knife etc) but this is not an altogether useful way of looking at the world. However your statements about the intrinsic value of money actually do apply to currency which has no intrinsic value outside of the requirement it is accepted for trade and if printed, the caloric value of the paper. Currency roughly fits your claims about money, but money does not.

    • There are other proofs of this as well. I merely scratched the surface.

      Gold and silver both have various uses which I’ve avoided pointing out mostly because its not really necessary to see the intrinsic value of them. Perhaps for both their foremost use case is as money. But in your life raft scenario, for instance, silver can be used like a mirror for signalling. Perhaps either could be used as a lure for fishing. By a survivalist silver could be turned into a knife or arrow tip. Wiring for electronic, armor, teeth, etc the list of uses goes on. They are both intrinsically valuable

    • I like this, knowing you are hardly serious! Great fun, though. A mirror might be better for signalling, making mirrors more valuable than silver. A piece of red cloth, or a piece of bread, might be a better lure for fish.

    • A community dying of thirst or hunger might use water or food as a currency. In some war-torn countries, cigarettes have been exchanged for, e.g sex.

    • I am trying to explain what i find so faulty about your statement. Which has come down to a couple things.

      1) you are speaking about currency, which has the intrinsic value of paper as opposed to say silver which has dozens of other uses which are restricted by it’s expense/rarity which enables its use as money

      2) You have isolated out the use cases for money again confusing it with currency. The use case of silver as money is valuable in its exchange for goods, but its intrinsic value is that its not only useful as money. It is useful as money thanks to its intrinsic value, including relative scarcity.

      3) Then the only disagreement we really have is your underestimation of real money due to the confusion of it with fiat currency. The value of money, real money, is specifically intrinsically valuable because money itself is valuable as a medium of exchange that far surpasses barter in usefulness. Money is a technology and real money cant be forged.

      4) your argument reminds me of the argument people make about athletes being overpaid. Athletes are paid what they are worth to the owners of the business that hires them. The same way an athlete would have other use cases, father, plumber, whatever, the athlete is valued by what he does best and is valued based on the market for that thing even if we know he is flesh and bone like any of us. In the same way we value silver by the use case of money which it is best suited for.

      5) if say silver became as abundant as copper, then silver would be in all our walls. Its value as money would reduce to where the value of copper is. Gold would likely increase as well probably as platinum as an alternative.

      In short I think you have isolated away the usefulness of the metals because of your focus on their monetary use rather than their physical qualities. But it is exactly those physical qualities that make them intrinsically valuabl

    • Understood, but these are very limited purposes – they’re not going to feed someone, or power his car, or put a roof over his head, unless he exchanges them, i.e. uses them as currency money.

    • In the modern world Gold is Gold and Silver is Silver, both just metals. Money is money. You might be able to exchange your gold or silver at some specialist shops, set up as metal exchangers or whatever they are called, but try and pay for a bag of groceries at the local shop with either and you will be thrown out, without the goods.

      Try to buy some food from anywhere, with a lump of Gold and it will be the same everywhere in a modern developed country, people just don’t know if it’s real or not, so sorry your arguments about “real money” are not real in the ‘real world’ we all live. Really!

      Money has no intrinsic value of it’s own as it can be printed at will by a government, but governments if they want to stay in power will try to trick the populace that their currency does have the value of the embedded energy of goods and services that the money can be exchanged for. Embedded energy has intrinsic value, not money, ask any Argentinian…

    • Sorry but you haven’t addressed my points.

      You have tried to mock them but haven’t really succeeded there either.

      In fact you have proved my point when you mentioned cigarettes. Cigarettes were used because they had value. Things with intrinsic value are usable as currency. Whether that is cigarettes, aesthetically pleasing, useful for survival, culturally significant, or legally enforceable fiat requirements.

      As I said you have made a silly case that only food water and shelter have value. Just because you are at sea doesn’t mean shovels have no value it only means you have contrived a situation they have little value. If I tell you you can use it as an oar, you tell my, hyuck hyuck, a commercial oar would be more effective? Gimme a break

    • I know what you mean, in personal currency terms, and you are probably right, but I was thinking more of the idea that in future, Wars will be fought over water, not oil. Actually this is a huge issue already in countries like Israel, Jordan, Palestine, Lebanon etc.

    • @bayrock

      Um no. No thirsty man is using water as currency. I think you need to look into what money actually is and why it is what it is

    • I didn’t see your initial response… probably my fault for not confining my responses to one message.

      Gold is generally considered to valuable for everyday good and that is what silver is for.

      Again your description of value relies on the false substitution of fiat currency for money. Money is metal, gold and silver. Would you say copper has no value? I really don’t understand what the hangup here is, it doesn’t in any way harm your theories to admit that fiat currency has little to no intrinsic value, but metal does. And one of the best use cases for gold and silver is as money, since it has value, and since it can be all the things money needs to be, which is why it has been money for 5000 years or more. Just as why it is being accumulated by central banks now.

      Unless you plan on arguing copper AND art have no intrinsic value I have no idea what we’re talking about… If only food, water, and shelter have value my honest response is good for you, you get it, but thats not how 99.999% of humans live (where they only value basic necessities required to sustain life).

    • @hideaway
      you are in fact wrong. for many reasons. I’d suggest looking into it more.

    • @bayrock
      with the oil you can always go get the oil. Energy will remain the main driver. Obviously water is important as well though I agree

    • Do you mind elaborating on your skepticism about using gold in practice? Or maybe I missed your point. As far as I know it’s true that gold, as you say, has very little utility, it’s mostly jewellery and money (money by reason of: fungibility, scarcity, relatively low melting point, high density, beauty, etc) but the fact that is money is all that matters.

      Goldbacks or silver could be used instead for small transactions. Bullion coins with security features. As I see it, transacting with precious metals needn’t be cumbersome. I suppose storage services for the wider public would be created eventually.

      I asked a Venezuelan acquaintance if gold is used at all in his home country. No. Just US dollars and local currency. If dollars start to become unappealing one day because of inflation, then what to use?

      Regulation could be a hurdle though. Silver bullion is already taxed at 21% in the EU. And I don’t see governments, western governments in particular, getting more libertarian, quite the opposite.

    • The Aztecs and Incas had lots of gold and silver but neither society used it as “money”.

      Money is whatever a government, king, authority decides it’s citizens have to pay their taxes with.

      Debt. The first 5000 years by David Graeber is a good read on the subject.

    • @Raymond Flagstaff.

      I’m not clear on what you think “real money” is?

      Can you elaborate?

  25. The future of food, fuel, shelter, drinking water, etc.

    IMHO, all industrial systems dependent on a complex assemblage of parts produced using fossil fuels will not survive over the lifetime of my grandchildren. Therefore, it is useful to look at currently productive systems which are using radically different paradigms. The farmer in this case is NOT independent of the society around him, which operates with money as the grease for the wheels. He also uses fossil fuels when he needs too. But in the grand scheme of things, he is using a production system which is vastly less dependent on what we now think of as “normal”.
    Don Stewart

    • I’ve read Shepard’s book, “Restoration Agriculture”, which describes in detail his whole approach to commercial polyculture. Polycultures can produce great yields, but they make harvesting a nightmare.

      Most conventional fields are monocultures not because they can grow more food per acre, but because they can be planted, fertilized and harvested with machines. Polycultures need to be harvested mostly by hand, which may eventually become commercially viable, but it’s not now except for some specialty crops. Even then, hand harvesting is a lot easier when a field only has one crop in it.

      Shepard’s farm might be able to grow a lot of food and feed a lot of people, but those people would need to live on or near his farm and be harvesting for their own larders.

    • Mark’s farm is on the next ridge over, and he laid out the swales and planted most of the hazelnuts and chestnuts on my farm. Once the front end expense is done, and the plants are established, the ongoing input costs are quite low.

      But, Joe is quite correct, harvest ( and processing!) are where the challenge exists to provide food with no/little fossil inputs. Manual techniques are still to be refined and improved but will never match the fossil energy slaves we use today. These will not be a commodity crop that gets shipped to a city. They will stay here and feed me and a local community that we will barter with or that has helped with harvest.

      This past year, as my hazels are coming into full production, I could not get to all the bushes before nuts started falling to the ground. As things unwind, I fully expect there will be local food networks that have short and labor intense logistics chains.

      And to Don’s point down thread, polyculture/permaculture will be the last man standing. Throw in a little of Chris Smaje Small Farm Future secret sauce, and a few places might make it.

    • over a decade into this process I can confirm… Should be promoted more widely running low on time to establish perennial agriculture with excess energy

  26. OK, Let’s consider that a Government loses control of inflation and heads for uncontrollable hyperinflation. What can a Government do to maintain order and civil unrest?

    It must have some sort of plan.

  27. ugh I hate being unable to edit my comments I always post first and check it after… oh well. i meant with oil you can always go get the water

  28. @Joe Clarkson
    I agree on the industrial/ monoculture/ globalized transportation connection. I think that way of producing food has a very short half life. So my prediction is that the sort of polyculture that Shepard is using will be the “last man standing” in terms of food production. If that implies that a whole lot of things are going to have to change, or die trying, so be it.

    There is also a connection to my earlier comment about the potential rise in appreciation for the particular physical adaptations different species, including humans, contributes to the total cycle of life. Sheep and cows are not simply lumped together as “methane producers” (and therefore evil), but each species is appreciated for it’s own particular gifts. The same will apply to humans. Our ability to walk and jog long distances will again be appreciated as a gift. I am reminded that those who study hunter gatherers came up with an abbreviation for their observation logs: SW. That means “still walking”…as that is what they do most of the day, every day.

    Don Stewart

    • Yes, this all raises the question as to whether food should be seen as a commodity at all. I am pretty convinced that the left can’t really put forward a reasonable proposal because they mostly are urban people and they don’t want to face the fact that most of them will have to be involved in food production. And the rest of the population can’t be reasonable because they don’t want to face the fact that they are going to have to give up reliance on their private cars. So, in order to remain part of the “reasonable people” we have to tiptoe around the facts that are just staring us in our faces. That being said, those of us who are doing alternative agriculture with horses and mules and our own bodies are also, possibly, pretty hopeful about a more rural future, right? I really love Albert Bates.
      It is fun to have a comment section where everyone is contributing and not trolling. That is so rare!

    • Don, your comments about hunter gatherers put me in mind of an iconoclastic observation of Harari’s in “Sapiens”: that hunter gatherers likely generally had more leisure time, less stress, and more convivial societies than modern humans.
      Another similarly iconoclastic statement if his was that we humans are “ecological serial killers”. Sadly, modern behaviour aligns with historical evidence to suggest that he is right.

    • I’ve spent some time living and interacting closely with tribal hunter/gathering societies, rural herders, and subsistence farmers, on several continents.
      I’ve also spent time looking at plantation cultures, and modern western farming.
      None of them quite hit the spot: they are just different.
      If you want 50% of your children to have a chance to become teachers, doctors, and civil servants, then agricultural efficiency is crucial.
      However, as a keen gardener and forager myself, here in Scotland, I can find ways to help feed my family through for example, finding roadkill deer and local wild mushrooms, growing berries and potatoes, etc etc.
      Broadly speaking through, these are grossly inefficient, and the local crops all come in huge seasonal surges, so if I want a reliable source of varied food year round, from soured cream to lamb and beans, flour and citrus, it is obviously better to leave it to the professional farmers, supply chains, and supermarkets.

    • @bayrok
      I’ll elaborate very slightly to sketch out the challenges and the way our ancestors dealt with them.

      A famous Norwegian painter lived at sea level on the south side of a fiord…so practically no sun except for a couple of months each year. The solution was dairy cows grazed on the grass above the fiord. During the months when grass was growing, they moved the cows to the top, milked them daily, and walked the milk back to the house. Some of the family stayed on top most of the warm months. Cheese was their staple crop. I don’t remember a mention of fish, but I imagine they may have fished in the fiord and traded cheese with open ocean fishermen.

      A friend of mine in Vermont uses the long summer days to grow lots of starches, and stores them in a big root cellar.

      When I was a child in the southern plains of the US, the rural people had “storm cellars” for protection in case of tornadoes. The cellars were lined with shelves, on which they stored, in mason jars, the food they had produced and canned. So they always had a well-stocked pantry.

      A friend of mine in Texas is currently escavating a 6 foot deep hole and lining it with used tires. She will put a greenhouse on top of the hole. The temperature will stay about the same summer and winter, due to the insulation of earth and tires. Since Texas gets quite a bit of sun in the winter, this should be super-productive. Peasants in Russia used the hole in the ground method, except they just covered crops in the hole and let them go dormant, ready to produce abundantly once the worst of the winter was over.

      We have a lot to relearn…Don Stewart

    • I’m not disagreeing: I have mason jars in my basement too: I’m eating blueberries from my freezer that I picked last year, pickled wild garlic buds, pickled cep mushrooms: already planting the potatoes for this season we live well on our hobby-crops – our berries and apples, but really we are just playing at farming and gathering in our cosy suburbs, like wealthy 18th century aristocrats dressing up as shepherdesses.
      And I am getting older, more creaky, and lazier, its so easy to hire someone to go the hard digging .. but in terms of costs, it will never make sense.
      I forage and grow out of sheer vanity, and because I wish to virtue signal, but in economic terms it is just a hobby. Much like my solar panels.

    • Bayrok,
      Industrial agriculture is efficient in terms of man-hours labour per unit of food produced. (I guess every schoolchild in the world is taught how efficient it is.) The much more important fact ,though, is how grossly energy INefficient it is. David Pimental’s analysis in “Food,Energy and Society ” shows that when the energy inputs of production, transportation and processing are included, ten calories of fossil fuel energy (mainly oil and gas ) are required for every calorie of food consumed.
      The physicist Albert Bartlett correctly said that industrial agriculture is a system for using land to turn oil into food.
      We’ve exploded the human population based on that energy input, which will be ending in the latter part of this century,while the climate stability which allowed agriculture to develop
      in the first place will be increasingly disrupted due to the burning of those fossil fuels.

    • As a comparison, a New Guinea highlander growing sweet potatoes has a return of about twelve calories for each calorie of energy input (muscle power,no fossil fuels ), or about 120 times more energy efficient than the industrial average.

  29. What does SEEDS suggest about fiscal and monetary policy?
    The New York Times has been running articles pointing to the dangers to the financial system of rising interest rates. The implied message is that the Fed is pursuing a very dangerous practice which could bring down the financial system.

    I want to go back in time to the ancient days when John Kennedy was the US President. The story goes that his economic advisers pointed out that there were two ways to stimulate the “New Frontier” goals which Kennedy had used in his campaign…as a contrast to the stagnation that the public perceived. The adviser said that there were two roads to stimulus:
    *more federal spending
    *tax cuts
    Kennedy was reportedly surprised, since economic advise had usually been against a backdrop of depression and “liquidity traps”, which required more federal spending to rectify. At any rate, Kennedy chose the tax cut option.

    Fast forward a few years and Reagan saw a “supply side” solution drawn on a paper napkin and “supply side economics” was born…at least in the imagination of official Washington.

    I suggest that SEEDS tells us that supply side economics is no longer a sound basis for tax and spending policy. Instead, we need “pay as you go”. I will go a little against the grain and say that “pay as you go” is also possible with a declining gross output and a stable monetary value. Innovation and saving for the future are both still possible, as is borrowing to build new infrastructure.

    This leads me to the conclusion that the Fed probably IS making a mistake by relying solely on the increase in interest rates to control spending driven increases in prices…if the public has the money to afford luxury cruises to the Caribbean, then luxury cruises to the Caribbean will still be offered and if the cost of such cruises is increasing, then the prices will rise. SEEDS tells us that consumption needs to fall. Therefore, as one example, the goal of government policy should be to decrease the ability of the public to spend money. (e.g., reduce M1). The way to do that, going back to the time of Kennedy, is to increase taxes. Kennedy perceived that the world held lots of potential. SEEDS tells us that the world still holds some potential, but not for aggregate growth.

    So the task of government is to figure out how to allocate less money to consumption…which implies some control over who gets the money to spend. Which is the heart of tax policy. (I nod to the South Korean officials who referred to the US Congress as “f*cking idiots”.)

    It’s distasteful, but this is where the logic leads me….Don Stewart

    • I’m certainly going to have to look into some of these issues and put them up for discussion. We need to know what is affordable, and put together some scenarios without, as far as possible, letting party politics get in the way.

      If no action is taken, two things are likely to happen. First, increasing numbers of people, even in “rich” western countries, will cease to be able to afford the essentials. This is likely to create pressures for redistribution. Second, affordability is already under extreme strain. If the US carries on spending at current levels, deficits and public debt will get even further out of control. The UK has increased spending on government health services, but each increase just isn’t enough. France is raising the state pension age from 62 to 64, which is unpopular, but it’s hard to see how either can be affordable for long. And so on.

      So there are issues around public service spending, redistribution and the provision of essentials to be debated.

      Right now I’m now putting together a fiscal database, – there’s no data I can find for global government aggregates, but I have information for countries accounting for just under 80% of the global economy – data on debt, plus revenues, expenditures, interest expense, surplus/deficit, and the split of expenditures between public services and fiscal transfers (benefits, pensions and so on). There are also forecasts on most of these going out to about 2028.

      I believe we can put something together on the fiscal situation and have a debate about it here.

  30. Dr. Morgan vs. Art Laffer?
    Earlier I referred to Ronald Reagan being entranced by a curve drawn on a paper napkin, leading to “supply side economics”. Well…Art Laffer is still active and he stills thinks that embracing supply side economics is the answer:

    Don Stewart

  31. Looks Like I Screwed Up the Wealthion Link:

    If this doesn’t work, search on:
    Wealthion Art Laffer

    Don Stewart

    • Not much discussion of energy in there 😉

      I got fairly annoyed around 30:00 mark when he did a little tax rate vs. growth/prosperity through time in the US and decided to stop his response when he go to oohhh . . . the 40s.

      It has been my understanding that America did quite well while the tax rate on the wealthy was at extreme levels, during the post war era.

  32. When the Trucks Stop Running???

    I have long thought that IF hydrogen is going to work, it is likely to work in vehicles like ships and locomotives and heavy trucks. A locomotive has two sources of energy for doing work. The first is a diesel powered generator. The second is the electricity from the generator which turns the wheels. A traditional ICE car has a petroleum production system located far away which provides a high energy density fuel which can be burned and turn the wheels directly through some linkages.

    The hydrogen truck is somewhat similar to the locomotive in that a complex system exists somewhere to produce the hydrogen (perhaps the EU/ Canada/ offshore wind system???) which is then fed to the heavy truck much like the diesel fuel.

    This is complexity, which many will say is doomed. And my 51 percent vote is that “doomed” is a good description. But…it MIGHT work.

    Don Stewart

  33. @Dr Tim.

    I’m a bit behind on this blog and haven’t read all the comments.

    Apologies if this question has already been answered but….

    Doe your calculation that the financial economy has to shrink by 43% to reach equilibrium with the real economy, take into account all the money squirreled away in offshore bank accounts?

    • According to professor Richard A. Werner, ‘this’ is the aim?
      “Ultimately the central planners maximise their power by introducing CBDCs. . . .
      It is concerning that for the past decade or so central banks have steadily been working towards the introduction of CBDCs, while at the same time adopting policies that have killed thousands of small banks.
      Once CBDCs are introduced, it just takes a bit of bank run, such as in the case of Silicon Valley Bank, and all deposits will be shifted to the central bank, driving banks out of business. Then we will have arrived at the most centralised form of banking: A Soviet-style economy with only one bank.”?

    • @postkey

      I’m not too concerned by a CBDC.

      In a de-growth economy, money isn’t going to function anyway.

      And governments already have the power to deny people access to their money as the Russian oligarchs know too well.

  34. First Republic Bank died over the weekend and it’s remains have been added to JP Morgan,
    supposedly no single bank is supposed to have more than 10% of federally insured deposits on it’s books, JPM seem to have already been at 11.36% before taking on the remains of FRB,

    it’s now becoming apparent that people are shorting potentially vulnerable regional banks in the US,
    they’re starting to look rather like Silvergate and First Republic before they died,


    if you go look at the charts for;
    PACW 1 yr change -80.39%
    FRBK 1 yr change -78.9%
    WAL 1 yr change -60.25%
    ZION 1 yr change -58.04%
    CMA 1 yr change -54.78%

    huge banks getting even bigger, smaller banks going south, the federal deposit insurance fund being eaten into,

    oh, an interesting visual, kinda makes you think!


  35. more US Bank ticker codes, % is for the 1yr change;

    MCB -76.76% unusual post market activity, unusual trading volume,
    CFG -31.65%
    USB -37.3%
    TFC -40.5%
    KEY -50.13% unusual post market activity,
    VLY -39.47% unusual post market activity,
    HONE -36.87%
    HMST -83.28% unusual trading volume,

    all of them are falling after hours, I wonder what this will look like at tomorrows open?!

  36. @bayrok
    As I recall, in Edo Japan (the last advanced civilization without fossil fuels), 85 percent of the people were farmers or fishermen, 10 percent were tradespeople, and 5 percent were aristocracy. Yet Edo had a sanitation and water supply system that was better than anything in London or Paris.

    Very few people today want to guess that 85 percent of Americans might need to be growing food. But considering that there has been considerable degradation of the land and the forests and rivers as compared to Edo, that might turn out to be the truth.

    And that’s not counting hardships which might arise from climate change.

    Don Stewart

    • I agree Don.

      I guess, what the future will look like, will, depend on how much surplus energy in the form of food, a society can produce.

      The surplus food allowing some people to “dip out” of the direct production of food into other areas. Such as, Blacksmiths, Teachers, Medics, Priests, Bureaucrats, Kings, Beauticians, Double Glazing Salesmen/women. Receptionists………….

      It all comes down to Surplus Energy in the end.

    • And to add…..

      Traditionally, those who “dip out” of the food production process tend to “Lord it” over those who actually produce the surplus energy.

  37. “I have come to realize that the vast majority of decent, wonderful people, have no idea how they are being hoodwinked day in and day out by the scum of this world. We are lied to, misled, bamboozled, suckered, cheated, misrepresented, conned, manipulated and royally screwed. They take us to the cleaners day in and day out in every way possible. We, the people, pay the price of their cheating, their folly, their lying and their sheer stupidity.”

    Pierre Rinfret

    “The American economy increasingly serves only a narrow part of society, and America’s national politics has failed to put the country back on track through honest, open, and transparent problem solving. Too many of America’s elites-among the super-rich, the CEOs, and many of my colleagues in academia-have abandoned a commitment to social responsibility. They chase wealth and power, the rest of society be damned.”

    Jeffrey Sachs, The Price of Civilization, January 2012

    • Which US president said ” don’t underestimate the stupidity of the American people”?

      Here in the UK my kids are just coming through there final years of education. The education they have had hasn’t taught them to be critical thinkers. It’s just been an excercise in box ticking and jumping through hoops. Maybe that’s how the TPTB like it?

    • Meh, you have to teach her to think for herself. That is your job as the parent, not the schools or the governments, not to preach or anything, but you don’t see how government is trying to replace the family and make everyone rely on them? You might not be super popular with your kids at the time, but they’ll thank you a million times over as they get older. They can only take responsibility if you give it away.

      ” A republic, IF YOU CAN KEEP IT.”

    • @Mr House.

      Yeah. Shes good at looking at things critically. We’ve drummed it into her from a very young age!!!🤣

      But I do think that it’s the job of schools and government to give kids the education to be critical thinkers. It’s a poor society that does not.

      A generation of poorly educated kids becomes the next generation of parents.

      Parents can set the foundations of inquisitive minds but they can take it only so far.

      I am a product of my upbringing, but most of my development as a person happened after I left home and went to college.

  38. Gail Tverberg Spotlights Energy and GeoPolitical Power

    This post includes some graphs of energy consumption which I had not seen before. The rest of the world is now consuming a lot more energy than the US and its “affiliates”. Gail equates energy consumption to geopolitical power. So she is projecting a loss of hegemony for the US and its affiliates.

    A high chance of war, based on history.

    Don Stewart

  39. First Republic bank went belly up. Given that four large banks failed within the past few months, I think we are in the midst of a severe banking crisis.

  40. The “net zero economy” is a perfect oxymoron in that any economy that goes net zero will cease to exist in the way we currently conceive an economy.

    What we’re seeing is that the financialised, resource-poor and debt-ridden combined West i.e. the US and its vassals + the EU is rapidly losing its abilities to strip mine/steal from the rest of the world.

    Really, the West has financialised itself out of a viable REAL economy i.e. one that makes useful stuff.

    Russia, China, India et al will likely form the core of a new economic bloc, whilst the West falls into (relative) poverty as we watch the US Empire implode spectacularly.

    Two great articles on context and outlook:

    • I see that Jim Kunstler is emphasising the distinction between the “financial economy” and the “real economy”. This, of course, is what we’re discussing here, a concept that I set out in Life After Growth in 2013.

    • fissile material is naturally occuring, there actually is a naturally occuring fission reactor in Gabon,
      it turns out that mans invention of a nuclear fission power plant was effectively mimicking that which occured in nature under the right circumstances,
      nuclear fission is so well within the laws of physics that apply at our planetary scale that it’s just as natural as fire being a consequence of a lightning strike within an oxygen rich atmosphere and dead plants being made up of hydrogen, carbon and oxygen chains,
      wood is a hydrocarbon, just like dry grass, peat, sugar, natural gas (methane CH4), oil and coal,
      I don’t see humans as having invented fire, they merely observed it occuring naturally and then learned to master it,

      fusion is a naturally occuring phenomena in our solar system, it is quite within the realms of the laws of physics, but only at the scale of our solar system,
      it occurs at the core of our Sun, due to the heat and pressure generated by it’s immense mass, in relation to our homeworld,
      fun fact: our Sun makes up 99.84% of the mass in our solar system,
      in comparison to the Sun our planet is a mere fleck of dust caught in it’s gravitational field,

      there will only ever be one fusion reactor in our solar system, it’s almost the entire solar system,
      that’s how big fusion reactors have to be to work.
      the only reason fusion research continues is that the people who sign off on the funding haven’t got the foggiest idea what the boffins are really trying to do, basically the impossible!

  41. Tim,
    is the NBFI sector now bigger than the orthodox financial sector?

    what happens if a financial sector with little oversight and regulation decides to start predating on the transparent and regulated financial sector making raids for short term gain, such as orchestrated short selling, then doing completely the opposite the next day?

    you said the crash would likely come out of the NBFI sector, have you considered the possibility they might trigger the complete destabilisation of the financial system through reckless sharp practice?

    • Yes, NBFIs are now bigger than the orthodox banking sector. Data is neither complete nor timely, and one has to use informed estimates to fill in some gaps. On this basis, my numbers for total assets are USD 212tn for banks and USD 280tn for NBFIs.

      I take ‘sharp practice’ to mean breaking the rules, but there are very few rules where NBFIs are concerned. The system is ludicrously unregulated, and even monitoring is incomplete, despite the best efforts of the FSB.

      I think I said that we need to focus a lot of attention on the NBFI sector, but yes, that comes to the same thing. To a significant extent, NBFIs provide credit to borrowers who could not, or choose not to, obtain it from banks. But there is sizeable banking sector risk as well, of course.

  42. Wolf Richter on the facts of the US economy
    See Wolf’s latest two articles: the Fed’s balance sheet is shrinking but remains far above what it was before all the craziness, and the labor market is soaring even in sectors who proclaimed that they were laying people off.

    This argues, to me, that Fed driven money supply growth still has the capacity to get people to spend money. Since output is not expanding greatly, there is inflation. The only way to get the inflation under control is not simple Fed balance sheet reduction…but the actual reduction of the balance sheet to the level it should be at given the productive capacity of the economy. If people have M1 money, they will tend to spend it, given the zeitgeist.

    Don Stewart

    • It’s not just the zeitgeist, important though that is – it makes sense to spend money before it loses value through inflation. I doubt if people are persuaded by official inflation numbers as these apply to themselves, but act instead on their own experiences and perceptions of inflation, which are far higher. So they will spend money now rather than wait to see it lose value through inflation.

      The Fed is tightening monetary policy gradually. This necessarily leaves huge excesses in the system. This leaves the “financial economy” of transactions looking strong, and far larger than the “real economy” of products and services. These “two economies” must, ultimately, move into near-equilibrium. This is the point of “two economies” analysis, a point which I’ve been making for a very long time. When it comes to eliminating the “excess claims” in the financial economy, the options are runaway inflation or default.

    • @Dr. Morgan
      Agreed. There are lots of analysts looking at the deltas…balance sheet down by X billions. And those models probably work pretty well when the balance between the monetary and the real is reasonable. But when the monetary has been grown to grotesque size compared to the real, and especially when the monetary is held in either currency or bank deposits (the definition of M1), then we will have rising prices.

      It occurs to me that if a state is controlled by warlords, and the money is held by the warlords rather than the public in bank deposits or currency, then we will likely get more wars. I don’t know anything about the Sudan situation, but I wonder where the money is coming from to finance that debacle.

      Don Stewart

    • Thanks Don.

      It seems to me that there are three levels of perception around these issues:

      1. ‘The economy and the financial system are both in good shape’. Apart from those whose job it is to bolster confidence, I doubt if any informed person actually believes this any more.

      2. ‘The financial system is in big trouble but the economy itself is fine’. This is probably the consensus perception. If this distinction is being drawn, it would make sense for others to pick up on our theme of ‘the two economies’.

      3. ‘The financial system is in very big trouble, largely because the economy is deteriorating’. That’s my position, of course, arrived at by analysing the two economies as discrete entities.

      It seems to me that the consensus is shifting, or being shifted, from 2 towards 3. I sense the emergence of a lower-growth modified consensus, a subject I’m currently writing about. If I’m right about this modification process – a managed reduction in expectations – then the implications are profound.

    • Shadow Stats keeps saying that “the economy has now been in recession for X quarters”. While, of course, the official statistics say that we might not have had robust growth, but there has been no real recession. The difference is that Shadow Stats uses traditional measures of price inflation, which necessarily produces a lower “real” number than the heavily manipulated official numbers.

      Last evening I took my bride for dinner on the lawn at our food co-op. It has been unseasonably cold here for the last month, so spring was cold and wet. Yesterday we finally got what May is supposed to be: warm, sunshine, light winds. The lawn was packed with people, and tons of little people and puppies. A little girl near me shamelessly manipulated the old man with cuteness personified. I, of course, felt privileged to be manipulated.

      What we ate, including 2 glasses of wine, came to almost 60 dollars. It used to be that 60 dollars bought you a white tablecloth experience…not going to the self-serve hot bar and salad bar and arranging your own table and chairs on the lawn and picking up your own dirty dishes when it’s over.

      My point is that people are paying a lot more for what is very nearly the same experience as compared to 10 years ago. So the official inflation statistics are a joke. But I didn’t see any protests…nobody with placards picketing the store. The public seems to have adopted the position that “if you have it, spend it the best way you can”.

      Shadow Stats keeps talking about a “flight to liquidity”. And I saw that theme picked up by Zero Hedge. That, of course, brings Weimar to mind. And a “personal growth” guy is holding up Special Ops and CIA Operatives as role models for what we should aspire to become…assassins???

      Don Stewart

    • I, too, have a high regard for ShadowStats.

      Rising costs are a lived experience everywhere, and I’ve found that the cost of eating out has risen, though it’s still far less expensive here in Spain than I can remember it in the UK. At the same time, the costs of food for consumption at home have risen very rapidly.

      Where consumer spending is concerned, I suspect that apparent resilience is greater in the US than elsewhere, for two main reasons. First, those on lower incomes probably didn’t consume all that much in the first place. Second, the authorities have poured gargantuan amounts of liquidity into the American economy, and people are spending it rather than let it sit in the bank losing value.

  43. @Dr. Morgan
    and about the USA…
    didn’t Dwight Eisenhower, on leaving office, warn Americans about giving a blank check to the Military-Industrial complex??? And isn’t that a pretty good description of how the poseurs in Washington will handle the inevitable rebalancing of income and outgo? First, we give the military/ industrial complex more money than they asked for to build tanks…

    Don Stewart

  44. Pingback: #255: The emerging ‘modified consensus’ | Surplus Energy Economics

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