Reaching Debt Limits: With or without China’s problems, we have a problem

Credit Problems are a Very Current Issue

In the past several years, the engine of world’s growth has been China. China’s growth has been fueled by debt. China now seems to be running into difficulties with its industrial growth, and its difficulty with industrial growth indirectly leads to debt problems. A Platt’s video talks about China’s demand for oil increasing by only 2.5% in 2013, but this increase being driven by rising gasoline demand. Diesel use, which tracks with industrial use, seems to be approximately flat.

The UK Telegraph reports, “Markets hold breath as China’s shadow banking grinds to a halt.” According to that article,

A slew of shockingly weak data from China and Japan has led to a sharp sell-off in Asian stock markets and the biggest one-day crash in iron ore prices since the Lehman crisis, calling into question the strength of the global recovery.

The Shanghai Composite index of stocks fell below the key level of 2,000 after investors reacted with shock to an 18pc slump in Chinese exports in February and to signs that credit is wilting again. Iron ore fell 8.3pc.

Fresh loans in China’s shadow banking system evaporated to almost nothing from $160bn in January, suggesting the clampdown on the $8 trillion sector is biting hard.

Many recent reports have talked about the huge growth in China’s debt in recent years, much of it outside usual banking channels. One such report is this video called How China Fooled the World with Robert Peston.

Why Promises (and Debt) are Critical to the Economy

Without promises, it is hard to get anyone to do anything that they really don’t want to do. Think about training your dog. The way you usually do this training is with “doggie treats” to reward good behavior. Rewards for desired behavior are equally critical to the economy. An employer pays wages to an employee (a promise of pay for work performed).

It is possible to build a house or a store, stick by stick, as a person accumulates enough funds from other endeavors, but the process is very slow. Usually, if this approach is used, those building homes or stores will provide all of the labor themselves, to try to match outgo with income. If debt were used, it might be possible to use skilled craftsmen. It might even be possible to take advantage of economies of scale and build several homes together in the same neighborhood, and sell them to individuals who could buy the homes using debt.

Adding debt has many advantages to an economy. With debt, a person can buy a new car or house without needing to save up funds. These purchases lead to additional workers being employed in building these new cars and homes, adding jobs. The value of existing homes tends to rise, if other people are available to afford them, thanks to cheap debt availability. Rising home prices allow citizens to take out home equity loans and buy something else, adding further possibility of more jobs. Availability of cheap debt also tends to make business activity that would otherwise be barely profitable, more profitable, encouraging more investment. GDP measures business activity, not whether the activity is paid for with debt, so rising debt levels tend to lead to more GDP.

Webs of Promises and Debt

As economies expand, they add more and more promises, and more and more formal debt. In high tech industries, supply lines using materials from around the world are needed. The promise made, formally or informally, is that if more of a supply is needed, it will be available, at the same or a similar price, in the quantity needed and in the timeframe needed. In order for this to happen, each supplier needs to have made many promises to many employees and many suppliers, so as to meet its commitments.

Governments are part of this web of promises and debt. Some of the promises made by governments constitute formal debt; some of the promises are guarantees relating to debt of other parties (such as nuclear power plants), or of the finances of banks or pensions plans. Some of a government’s promises are only implied promises, yet people depend on these implied promises. For example, there is an expectation that the government will continue to provide paved roads, and that it will continue to provide programs such as Social Security and Medicare. Because of the latter programs, citizens assume that they don’t need to save very much or have many children–the government will provide funding sufficient for their basic needs in later years, without additional action on their part.

What is the Limit to Debt? 

While our system of debt has gone on for a very long time, we can’t expect it to continue in its current form forever. One thing that we don’t often think about is that our system or promises isn’t really backed by the way natural system we live in works. Our system of promises has a hidden agenda of growth. Nature doesn’t  have a similar agenda of growth. In the natural order, the amount of fresh water stays pretty much the same. In fact, aquifers may deplete if we over-use them. The amount of topsoil stays pretty much the same, unless we damage it or make it subject to erosion. The amount of wood available stays pretty constant, unless we over-use it. 

Nature, instead of having an agenda of growth, operates with an agenda of diminishing returns with respect to many types of resources. As we attempt to produce more of a resource, the cost tends to rise. For example, we can extract more fresh water, if we will go to the expense of drilling deeper wells or using desalination, either of which is more expensive. We can extract more metals, if we use as our source lower grade ores, perhaps with more surface material covering the ore. We can get extract more oil, if we will go to the expense of digging deeper wells is less hospitable parts of the world. We can even use substitution, but that will likely be more expensive yet.

A major issue that most economists have missed is the fact that wages don’t rise in response to this higher cost of resource extraction. (I have shown a chart illustrating that this is true for oil prices.) If the higher cost simply arises from the fact that nature is putting more obstacles in our way, we end up spending more for, say, desalinated water than water from a local well, or more for gasoline than previously. Much of the cost goes into fuel that is burned, or building special purpose equipment (such as a desalination plant or offshore drilling rigs) that will degrade over time. Our system is, in effect, becoming less and less efficient, as it takes more resources and more of people’s time, to produce the same end product, measured in terms of barrels of oil or gallons of water. Even if there are additional salaries, they are often in a different country, around the globe.

At some point, the amount of products we can actually produce starts shrinking, because workers cannot afford the ever-more-expensive products or because some essential “ingredient” (such as fresh water, or oil, or an imported metal) is not available. Since we live in a finite world, we know that at some point such a situation must occur, even if  the shrinkage isn’t as soon as I show it in Figure 2 below.

Figure 1. Author's image of an expanding economy.

Figure 1. Author’s image of an expanding economy.

Figure 2. Author's image of declining economy.

Figure 2. Author’s image of declining economy.

The “catch” with debt is that we are in effect borrowing from the future. It is much easier to pay back debt with interest when the economy is growing than when the economy is shrinking.  When the economy is shrinking, there is less in the future to begin with. Repaying debt from this shrinking amount becomes a problem. Even promises that aren’t formally debt, such as most Social Security payments, Medicare, and future road maintenance become a problem. With fewer goods available in total, citizens on average become poorer.

Governments depend on tax revenue from citizens, so they become poorer as well–perhaps even more quickly than the individual citizens who live in their country. It is in situations like this that richer parts of countries decide to secede, leading to country break-ups. Or the central government may fail, as in the Former Soviet Union.

Which Promises are Least Affected?

Some promises are very close in time; others involve many years of delay. For example, if I bring food I grew to a farmers’ market, and the operator of the market gives me credit that allows me to take home some other goods that someone else has brought, there are some aspects of credit involved, but it is very short term credit. I am being allowed to “run a tab” with credit for things I brought, and this payment is being used to purchase other goods, or perhaps even services. Perhaps someone else would offer some of their labor in putting together the farmers’ market, or in working in a garden, in return for getting some of the produce.

As I see it, such short term promises are not really a problem. Such credit arrangements have been used for thousands of years (Graeber, 2012). They don’t depend on long supply lines, around the world, that are subject to disruption. They also don’t depend on future events–for example, they don’t depend on buyers being available to purchase goods from a factory five or ten years from now. Thus, local supply chains among people in close proximity seem likely to be available for the long term.

Long-Term Debt is Harder to Maintain

Debt which is long-term in nature, or provides promises extending into the future (even if they aren’t formally debt) are much harder to maintain. For example, if governments are poorer, they may need to cut back on programs citizens expect, such as paving roads, and funding for Social Security and Medicare.

Governments and economies are already being affected by the difficulty in maintaining long term debt. This is a big reasons why Quantitative Easing (QE) is being used to keep interest rates artificially low in the United States, Europe (including the UK and Switzerland), and Japan. If interest rates should rise, it seems likely that there would be far more defaults on bonds, and far more programs would need to be cut. Even with these measures, some borrowers near the bottom are already being adversely affected–for example, subprime loans were problems during the Great Recession. Also, many of the poorer countries, for example, Greece, Egypt, and the Ukraine, are already having debt problems.

Indirect Casualties of the Long-Term Debt Implosion

The problem with debt defaults is that they tend to spread. If one major country has difficulty, banks of  many other countries are likely be to affected, because many banks will hold the debt of the defaulting country. (This may not be as true with China, but there are no doubt indirect links to other economies.) Banks are thinly capitalized. If a government tries to prop up the banks in its country, it is likely to be drawn into the debt default mess. Insurance companies and pension plans may also be affected by the debt defaults.

In such a situation of debt defaults spreading from country to country, interest rates can be expected to shift suddenly, causing financial difficulty for those issuing derivatives. There may also be liquidity problems in dealing with these sudden changes. As a result, banks issuing derivatives may need to be bailed out.

There may also be a sudden loss of credit availability, or much higher interest rates, as banks issuing loans become more cautious. In fact, if problems are severe enough, some banks may be closed altogether.

With less credit available, prices of commodities can be expected to drop dramatically. For example, during the credit crisis in the second half of 2008, oil prices dropped to the low $30s per barrel. It was not until after  QE was started in November 2008 that oil prices started to rise again. This time, central banks are already using QE to try to fix the situation. It is not clear that they can do much more, so the situation would seem to have the potential to spiral out of control.

Without credit availability, the prices of most stocks are likely to drop dramatically. In part, this is because without credit availability, it is not clear that the companies listed in the stock market can actually produce very much. Even if the particular company does not need credit, it is likely that some of the businesses on which it depends for supplies will have credit problems, and not be able to provide needed supplies. Also, with less credit availability, potential buyers of shares of stock may not be about to get the credit they need to purchase shares of stock. As a result of the credit problems in 2008, the Dow Jones Industrial Average dropped to $6,547 on March 9, 2009.

Furthermore, lack of credit availability tends to lead to low selling prices for commodities, making production of these commodities unprofitable. Production of these commodities may not drop off immediately, but will in time unless the credit situation is quickly turned around.

Can’t governments simply declare a debt jubilee for all debt, and start over again?

Not that I can see. Declaring a debt jubilee is, in effect, saying, “We have decided to renege on our past promises. In fact, we are letting others renege on their promises as well.” This means that insurance companies, pension plans, and banks will all be in very poor financial situation. Many who depend on pensions will find their monthly checks cut off as well. In fact, businesses without credit availability are likely to lay off workers.

If it is possible to start over, it will need to be on a much more restricted basis. Everyone will be poorer, so there won’t be much of a market for expensive new cars and homes. Instead, most demand will be for will be the basics–food, water, clothing, and fuel for heat. Unfortunately, it is doubtful that prices will be high enough, or the chains of supply robust enough, to again produce fossil fuels in quantity. Without fossil fuels, what we think of as renewables will disappear from availability quickly as well. For example, hydroelectric, wind and solar PV all work as parts of a system. If the billing system is unavailable because banks are closed, or if the transmission system is in need of repair because lines are down and the diesel fuel needed to make repairs is unavailable, electricity may not be available.

As indicated above, demand will be primarily for basics such as food, water, clothing, and fuel for cooking and heating. It will still be possible to use local supply chains, even if long distance supply chains don’t really work well. The challenge will be trying to shift modes of production to new approaches in which goods can be made locally. A major challenge will be training potential farmers, getting needed equipment for them, and transferring land ownership in ways that will allow food to be produced in ways that do not depend on fossil fuels.

Belief in credit will be severely damaged by a debt jubilee. The place where credit will be easy to reestablish will be in places where everyone knows everyone else, and supply lines are short. Debt will mostly be of the nature of “running a tab” when one type of good is exchanged for another. Over time, there may be some long-term trade re-established, but it is likely to be much more limited in scope than what we know today.

Conclusion

Long-term debt tends to work much better in a period of economic growth, than in a period of contraction. Reinhart and Rogoff unexpectedly discovered this point in their 2008 paper “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises.” They remark “It is notable that the non-defaulters, by and large, are all hugely successful growth stories.”

Slowing growth in China is likely to mean that world economic growth is slowing. This will add to stresses, making failure of the system more likely than it otherwise would be. We can cross our fingers and hope that Janet Yellen and other central bankers can figure out yet other ways to keep the system together for a while longer.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
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621 Responses to Reaching Debt Limits: With or without China’s problems, we have a problem

  1. BC says:

    China’s credit and fixed investment bubbles as a share of GDP are the largest in world history, surpassing those of Japan in the 1980s and the US in the 1990s-2000s.

    Possible historical exceptions are the Egyptian pyramids and China’s Great Wall. ;-)

    Irrespective, suffice it to say that the greatest credit bubbles in history are followed by the largest busts, and the current bubble is global and at an unprecedented scale to wages, GDP, and per capita.

    Forgive me, but the global system is bloody bleeping doomed to a debt-deflationary collapse on a planetary scale.

    • MJ says:

      The New York Times ran a series of articles on this great transformation, Here is a link to one:

      http://www.nytimes.com/2013/06/16/world/asia/chinas-great-uprooting-moving-250-million-into-cities.html?pagewanted=all&_r=0

      • Paul says:

        There has indeed been a mass influx of people into the cities in China — but almost all of these people are non-skilled labourers who have been attracted by stories of streets paved with gold.

        Of course they are not – and for every success story there are 20 million who live in conditions approaching utter destitution (save the hassle – stay on the farm – and buy lottery tickets – the odds of striking it rich are surely higher)

        I believe the average annual wage in Shanghai is USD4000 – Shanghai is not a cheap place to live.

        There are millions of empty apartments in Shanghai – they will remain empty – because most people do not have the means to rent them. This is a total mismatch.

        Maybe the owners should bust the apartments into workers dorms jamming bunks in the rooms and filling them with dozens of manual labourers each paying 30 bucks a month….

    • Ghung says:

      Everything not very local shuts down. The last one to leave won’t need to turn off the lights.

  2. Paul says:

    Sobering…. many suggest that we will be unable to maintain nuclear plants and cooling pools when the global economy collapses.

    Ex-Japanese PM on How Fukushima Meltdown was Worse Than Chernobyl & Why He Now Opposes Nuclear Power

    http://www.democracynow.org/2014/3/11/ex_japanese_pm_on_how_fukushima

    • MJ says:

      So, what are they going to do, import more oil?

      • Paul says:

        They are between a rock and a hard place – they are importing a whole lot more oil since shuttering their nuclear stations – and that is absolutely eviscerating their economy because concurrently Abe has increased QE dramatically and weakened the Yen vs the USD. Of course when you have to buy oil in USD that crushes your balance of trade.

        Kuntsler suggests that Japan may be the first to throw in the towel and revert to an agrarian society. I think that would be a better option that restarting their nukes particularly because when the SHTF maintaining nuclear facilities will be a massive challenge.

        Perhaps Fukushima has been a good omen in that it gave the government an excuse to phase out nuclear energy while it still can be done in a safe manner. There is of course the issue of all those spent fuel ponds that need to be kept cool for a hundred years or so…..

        • Jan Steinman says:

          “phase out nuclear energy while it still can be done in a safe manner”

          Sorta like closing the barn door after the horse has escaped?

          “Turn ’till it strips, then back off a quarter-turn.”

          • Paul says:

            Yes – that is true – nuclear energy is the ‘gift’ that just keeps on giving… and giving… and giving…

            Could be another reason governments are throwing gasoline in the inferno – they know that we are already dead?

            I am just re-reading the Feasta paper — here’s the intro from p.56 – you can read more here (it gets worse….) http://www.feasta.org/wp-content/uploads/2012/06/Trade-Off1.pdf

            And thinking about the implications for maintaining nuclear plants and waste. Not sure how this could be done when we have not a failed state but a failed world.

            Possible extinction event?

            Trade-Off
            Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse.
            David Korowicz

            Something sets off an interrelated Eurozone crisis and banking crisis, a Spanish default say, which spreads panic and fear across other vulnerable Eurozone countries. This sets off a Minsky moment when overleveraged speculators in the banking and shadow banking system are forced to unwind positions into a one-sided (sellers only) market. The financial system contagion passes a tipping point where governments and central banks start to lose control and panic drives a (p
            ositive feedback) deepening and widening of the impact globally. In our tropic model of the globalised economy , the banking and monetary system keystone-hub comes out of its equilibrium range, crosses a tipping point , and is driven away by positive feedbacks to some new state.

            This directly links to another keystone-hub, production flows. Failing banks, fears of currency re-issue, fears of further default, collapse in Letters of Credit, and growing panic directly quickly shut down trade in the most affected countries. As the week progresses factories close, communications are impaired, social stress and government panic increases. After a week almost
            all businesses are closed, there is a rising risk to critical infrastructure.

            Almost immediately internal trade and imports stops in the most affected countries, and there is impairment in a growing number of other countries. Trade is impaired globally via a credit crunch. This undermines exports from some of the most trade-central countries, with some of the most efficient JIT dependencies in the world. This cuts inputs into the production and trade into
            countries that were initially weakly affected by direct financial contagion. Globally, the spread of trade contagion depends on complexity, centrality, and inventory times and once a critical threshold is passed spreads exponentially until the effect is damped by a large-scale global production collapse (implying another keys tone-hub, economies of scale is driven out of
            equilibrium).

            Trade contagion and its implications feed back into financial system contagion, helping drive further disintegration. The interacting and mutually destabilising effects of keystone-hubs coming out of equilibrium destroy the equilibrium of the globalised economy initiating a systemic collapse.

            Growing risk displacement in an increasingly vulnerable system is increasing the risk of system failure. Once the financial system contagion crosses a particular threshold the de-stabilisation of the globalised economy will be exceedingly difficult to arrest; this point may be in as little as ten days.

            Once a major system collapse occurs, scale, hysteresis, entropy, loss of critical functions, recursion failure, and resource diversion is likely to ensure that the features associated with the previous dynamic state of the globalised economy can never be recovered.

            More http://www.feasta.org/wp-content/uploads/2012/06/Trade-Off1.pdf

      • Importing gas from Australia, for example, with the result that there will be gas shortages in NSW

        March 15, 2014
        Western Sydney suburbs to feel the chill over 21 day period in winter 2016 warns AGL
        http://www.dailytelegraph.com.au/news/nsw/western-sydney-suburbs-to-feel-the-chill-over-21-day-period-in-winter-2016-warns-agl/story-fni0cx12-1226855203449

        I did this research:

        9/5/2012
        Queensland plans to export more than 10 times the gas NSW needs (part 3)
        http://crudeoilpeak.info/queensland-plans-to-export-more-than-10-times-the-gas-nsw-needs-part-3

        That in turn leads to conflicts:

        Farmers and environmentalists want the CSG project in the north-west of New South Wales to be suspended after Santos was fined $1,500 over a leaking wastewater pond at Bibblewindi Water Treatment Plant.
        http://www.abc.net.au/news/2014-03-10/coal-seam-gas-opponents-27scaremongering27-over-groundwater-c/5310972

        • The “game” is where can a company get most money for its natural gas–or at least enough to justify extracting it. I don’t know the details in this case–distances, regulations on prices, or what went on before this. The gas companies in the United States want to export natural gas, to get the prices up higher. They can’t afford to produce shale gas for today’s US prices. Is some of the same kind of thing happening in NSW?

    • The logistics of moving huge numbers of people make it very hard to do much of anything, even if it does look like an evacuation is needed.

  3. Interguru says:

    Gail

    I appreciate all the time you spend on these posts and on replying to these comments. What is your day job? How do you get time for it?

    • MJ says:

      Gail may answer herself, but if not, she is retired from her career as an actuary.

    • My day job is looking after my husband, an adult son with Aspergers’ syndrome, and a garden. Earlier, we were looking after my husband’s parents at an assisted living center near us as well, but they have passed on. My mother is living in Minnesota, and I try to visit her from time to time.

      I took early retirement in 2007, so I could work on this project. I still am active in actuarial organizations, and speak on this topic from time to time. If I were working full time outside the home, I would not have time for this project. My husband teaches at Kennesaw State University, and we don’t really need two incomes.

      • Ghung says:

        Take 575/515 north about two hours. We’ll keep the coffee hot.
        Maybe your husband should apply at Young Harris (they became a four year college last year- now hiring). Great college (I’m admittedly biased ), and a great little town; our liberal bastion, here in the mountains.

        • Yes, I have heard of Young Harris. Not too far away.

          • Ghung says:

            Home of my favorite turncoat; Zell Miller. It’s really undergoing a transition. The college is buying up old buildings and fallow properties to expand their facilities, and faculty members now pretty much run the town council. It’s been the center of continuing education for the area and they’re expanding on that as well. Strong community involvement in decision making. It’ll probably continue to be an area hub as things get more local,, and everyone isn’t required to have a gun, unlike Kennesaw.

            We took a trip for our grand-daughter’s 5th birthday in Kennesaw last Sunday. Went to Costco afterwards. OMG! Zombies looking right through each other (never looking each other in the eye) and running one another over with shopping carts. An overall lack of situational awareness, and they all looked worried. I would be too if I still lived down there. People used to look happy while shopping. I think many folks sense a gathering storm, even if they can’t quite get their heads around it.

            One’s perspective really changes once one makes one’s escape.

        • BrianA says:

          Funny… I was born in Young Harris and lived during elementary school but my grandparents lived there until they died. Lots of great memories…

  4. Jan Steinman says:

    “if I bring food I grew to a farmers’ market, and the operator of the market gives me credit that allows me to take home some other goods that someone else has brought, there are some aspects of credit involved, but it is very short term credit… As I see it, such short term promises are not really a problem.”

    This is a feature, not a bug!

    This sort of inter-dependence is the glue of small communities. It’s what keep people working together, what Mike Nickerson calls “mutual provision,” which he claims is the underlying human-based need from an “economy.”

    It is an escape from the trap of thinking that little bits of coloured paper get together in dark bank vaults, copulate, and produce more little bits of coloured paper.

    • This is why local currencies really aren’t essential. All a person needs is a piece of paper and pen, or a clay tablet and stylus, and a way of converting goods to some common basis, such as “bushels of wheat equivalent” or “hours of labor equivalent.”

      Even “gift societies” are based on promises. If I share food which I am able to produce or meat I am able to kill, there is a strong expectation that you will do likewise. If you don’t keep this promise, you will likely be ostracized.

  5. Ikonoclast says:

    The problem has two components. These are (a) limits to growth and (b) the attempt to grow past limits to growth. Debt is an integral part of our systemic economic attempt to grow past limits. So it is clearly an important problem. Gail’s argument has been a bit more subtle than I realised. I am now coming to understand it better I think. (I have always been a resource limits to growth fundamentalist.)

    As I now understand Gail’s argument, approaching towards resource limits starts to constrain the economic system. The economic drag begins to appear earlier than outright and obvious scarcity and this drag permeates our whole economy. This causes a slowdown earlier than might otherwise have been expected. This slowdown constricts the rate of resource extraction and the rate of supply of commodities to our economy. Thus the slowdown compounds at a rate higher than the simple approaching resource constraints would suggest.

    I can think of a rough analogy. Imagine a car has a slightly leaky radiator and we have no coolant to re-charge it (a depleting limited resource.) We might calculate the rate of leakage and find it will be all gone in 2 hours. We have just more than 2 hours petrol left for our ideal cruising speed of 50 mph so we assume we will cover 100 miles before the engine seizes and we stop. However, before the engine seizes it will get too hot and run less efficiently. Our assumption that fuel too is not going to be a limiting factor is now in doubt. In addition, the engine may progessively tighten before it seizes outright (more internal drag in the engine). So we might not even be able to do 50 mph for the last several miles.

    Back to the economy, constriction of oil supply (flow rates) will slow our economy. The slowing economy will encounter all sorts of exploration, exploitation and production problems. These feed back into oil discovery and recovery. So it’s a positive feedback loop of worsening problems (or a vicious circle as oppossed to a virtuous circle.)

    However, part of my thinking is that there will be regional and national differences. In the collapse from complexity back to some simpler level, historical development processes will go into reverse. Thus globalism will collapse first, then regionalism, then nationalism. This will be the broad trend. Very weak nations which are close to being failed states right now will collapse with globalism at the outset. Only aid and other transfers are keeping them going anyway. But strong, well-resourced nations will survive, for some time at least, the collapses of globalism and regionalism.

    Thus there will be a hiatus or interregnum period where some regions / nations will persist as relatively integral whilst others are collapsing. The candidates to persist longest will need to be not currently in ecological overshoot (or not too severely) and to have a wide variety of resources so as to be able to function in an autarkic (self-supplying) manner. They will need good scale (size), governmental coherence and stability (stronf central government) and significant military power (or good alliances) to survive this very anarchic period.

    As I have said before, the nations best positioned to survive longest on this basis are Russia, USA/Canada (as a bloc), Brazil or Brazil-Argentina and Australia or Australia-New Zealand. The rest of the world is badly doomed by biocapacity overshoot already.

    • Paul says:

      I fully agree that debt/finance will slam us into the wall well before scarcity of oil or other resources.

      It is already happening — I posted articles the other day that indicate that Exxon and Chevron are cutting back on exploration because they are unable to turn a profit even with oil at 100+ — these companies need to do this in order to continue to pay expected dividends.

      BP is taking actually selling off assets so as to be able to pay dividends.

      Of course this is an issue related to the financing of new exploration and extraction – effectively debt (investment) is required — if institutional money does not think they are going to get paid back then they will exit – and these companies stagnate and die.

      Where I think I disagree is that some resource richer countries will stumble on — when the global economy unravels — how do oil companies (including national oil companies) in a place like Texas or Iran or Qatar find the capital to extract what remains?

      Surely most people would not have jobs rather they would be starving. Surely there would be serious chaos – at best martial law.

      I struggle to understand a market mechanism that would allow the continued flow of oil in any country when nobody has the means to pay for what comes out of the ground – and there is at best organized chaos (i.e. martial law)

      Where does all the machinery and spare parts required to operate the complex drilling and refining operations?

      I think we might be looking at the end game with rose coloured glasses… I am going to have a re-read of this as there is a thought through example of what is likely to happen if a major ‘hub’ blows out from p.56 onwards…. http://www.feasta.org/wp-content/uploads/2012/06/Trade-Off1.pdf

      • For what it is worth, the WSJ is reporting, “Saudi Arabia Intensifies Security Crackdown.”

        Also, Saudi Arabia recently publicly split with Qatar, withdrawing its envoy, to protest Qatar’s support of groups Saudi Arabia considers extremist. So more cracks in the Middle East.

        • Ghung says:

          Meanwhile, the House of Suad is pushing Wahhabism; a more puritanical form of Islam, ‘discouraging’ more secular growth in the Muslim community. Divisions seem to be growing all over. OPEC has been divided for years, to be expected as more oil exporters approach limits to net exports. I’m sure that the Saudis have done the oil math and are getting nervous, especially as the US reduces its presence in the Middle East and appears to be trying to reduce tensions with Iran. With Iraq buddying up to the Ayatollahs, things could get even more interesting. At least the US is having its shale oil revolution ;-) Israel is ending exemptions from military service for ultra-Orthodox Jewish seminary students after 66 years.

          Will all-out regional war in the Gulf be the black swan that pushes global finance/energy off of its knife’s edge?

          My nephew is back in Afghanistan after being home for a couple of years. He says things there have changed a lot,, for the worse. Said to send coffee.

        • yt75 says:

          The split between Qatar and Saudi Arabia is very related to Qatar having supported the Muslim brotherhood in Egypt (Morsi), when Saudi Arabia(or let’s say the Saud family) sees the Muslim brotherhood as a major threat for their own domestic security (and challengers to their wahhabism “brand” of islam …), plus Qatar is home to Al Jazeerah, which can have a rather critical line towards KSA.

        • Peter S says:

          That’s interesting, about the Middle East and Saudi Arabia’s “growing threats”.

    • Thanks for your explanation of what is happening. As I see it, it is not the physical shortage that stops our current system. The shortage slows economic growth, and the slowed economic growth makes debt less possible. It is the turn around in the debt situation that makes the downturn much more severe than it otherwise would be. Thus, Hubbert Curve is not the right model–the correct model is overshoot and collapse, although not necessarily all at once.

      Exactly how this plays out is not entirely clear (fortunately!). I agree that heavily populated areas seem to be more of a problem than less heavily populated areas, but I am not sure how important this is in the final analysis. If we cannot transition to actually using these resources, given the financial and political problems we encounter, then we still have a problem. I would not volunteer to move to London at this point, though.

  6. Ikonoclast says:

    I wonder if Gail and others have seen this paper?

    Trade-Off – Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse.
    - David Korowicz

    http://www.feasta.org/wp-content/uploads/2012/06/Trade-Off1.pdf

    Korowicz sees global systemic collapse as a real danger. I see it as a crisis period phenomenon that some regions or nations could recover from and survive after at least for a time. However, I could also see matters going the way Korowicz suggests. It all depends on what levels of national resilience and autarkic self-sufficiency exist in certain nations after the global system collapses.

    • Paul says:

      I’ve seen this and posted it on a few articles here — for those without the time to read it all the most disturbing part is p.56 onwards…. it details what a collapse is likely to look like.

      • Degar7 says:

        Nice last sentence:

        “Finally, neither wealth nor geography is a protection. Our evolved co-dependencies mean
        that we are all in this together.”

        I fear that message will never sink in.

        • Interguru says:

          “I fear that message will never sink in.

          It will sink in, too late, after it happens.

          • Chris Johnson says:

            From a purely logical perspective, with no criticism of human foibles intended, even if that message — that we are all in this together — did ‘sink in’ and ring a bell with the vast majority of surviving humans, will any of them (enough of them) know what to do and how to do it? Will they be willing to take risks and make sacrifices? It would appear that there might need to be a little educating to do…

            • Degar7 says:

              Don’t get me wrong, this part of the experiment is over. All that’s left is the timing. My point was that wandering down the path with blinders on – even after the next nasty steps happen – is far different than seeing we are all on one big boat. Maybe (here’s my optimistic side showing) if we collectively wake up there might be some sort of leader or leaders who have some sense about them and can direct the herd to at least a less destructive path.

              It’s kind of already happening. Why do you and I and everybody keep coming here? Gail is leading us to continue the conversation. It’s a start. And it’s our last best shot. Don’t think we have a prayer, but it’s better than playing candy crush all day.

    • The problem, when the crisis hits, will be the collective assertion that there is no problem, or if there is, that somehow ‘they’ will fix it and everything will go back to ‘normal’
      We see this already in the assertion that there is no problem with population, energy shortage or climate change

      • Ghung says:

        The problem, when the crisis hits, will be the collective blame when the realization sets in that things will never go back to ‘normal’. Unfortunately, it’s a necessary process before cooperation and solutions begin to occur; the “Great Adjustment”, AKA: society venting its anger upon itself.

        • BrianA says:

          The interesting part will be watching business leaders and politicians continue to throw “more of the same” at a problem that represents a paradigm shift. I doubt their ability to recognize the change until way beyond the point of doing anything about it. QE is financially acknowledging that there is a problem but they have to kick the can down the road long enough for growth to resume and things to improve…because growth always resumes…right?

    • Yes, I have seen that paper. I also have met Dave Korowicz, and think highly of his work. The first paper of his that I ran across was Tipping Point, which I helped serialize on The Oil Drum.

    • InAlaska says:

      Iconoklast,

      I just finished reading this article in full. Pretty grim, but very methodically researched. Surely, many folks in governments around the world have seen this or worse and know what is coming.

      • Paul says:

        That is indeed a brilliant bit of research.

        If we have access to something like this then 1000% the elites are aware of this + far, far more.

        The fact that their only response is more of the same (more debt – more printing – more low interest rates) to me indicates that they are fully aware that the global economy and civilization is going to collapse and b) that there is absolutely nothing they can do to prevent it or even soften the landing.

        • i1 says:

          Coupon and dividend payments are non negotiable.

        • Lulu Pequena Ardilla says:

          The elites are clearly aware of the situation. Growth and debt are interlinked. The elites have a backup plan. There is no need to alarm the masses. When the masses will be aware, it will be game over.

          • Calista says:

            A little tidbit I meant to mention earlier. A large supermarket company with a cold chain that criss crosses the U.S. had a friend of mine working for them. He said that peak oil was in their 5 year planning documents. The goal was to obtain more local sources of food to sell and that was clearly part of their planning and goals.

            • InAlaska says:

              Calista,
              I think that your point is a very important point to keep in mind. The big business folks (as opposed to governments) are the ones with a lot of skin in the game. A successful business model is the only benchmark for achieving their goals. Their success is always predicated on taking a hard look at reality and planning for it. For example, the big oil companies cutting capex. Corporate executives look at decision points through a very clear set of glasses, and so there is no reason why they wouldn’t acknowledge the reality of peak oil, include peak oil into various business strategies, and strategize how their particular business can bake peak oil into the cake.

      • Lulu Pequena Ardilla says:

        They know full well.

  7. timl2k11 says:

    “An employer pays wages to an employee (a promise of pay for work performed).”
    I simply do not understand this line of thinking and encourage you to re-think this. If I work for an employer, yes, they promise to pay me, but they don’t pay me with a promise. They pay me with currency, currency which I can use essentially to barter with others in the real world. Currency just makes bartering easier (as a “claim on energy” which may be any goods or services).
    You give another example of a farmers market. I disagree any debt is involved here, it’s simply bartering. If I go to get a haircut, yes there is an implicit promise I will pay before I leave. Likewise if I pay first there is an implicit promise that the barber will then go ahead and cut my hair. It is wrong to call this “debt” or a promise in any way. It is a confusing of things very fundamental. Money allows us to barter with much greater convenience.
    As to your other points to what we both agree is debt, interest definitely presumes growth of some sort, or else a transfer of wealth from the debtor to the creditor.

    • I suggest you go talk to David Graeber, the author of “Debt: The First 5000 Years.” Your debt definition is different from other people’s. I don’t understand why this is so important to you.

      If there were not a promise behind the currency, it would not be worth anything.

    • Paulo says:

      @Tim,
      Respectfully…obviously you have never worked for a contractor that went broke, but still tried to eke out survival by continuing on. Ultimately, we workers got the ‘insufficient funds’ message when their pay cheques failed to clear. Of course the owners stayed scarce as we would kick their ass for stiffing us.

      Locally, a logging contractor just went belly up and owed millions to local suppliers. As far as I know the patriarch still has his big assed house on the ridge….you know, the one with the tennis court and swimming pool.

      Paulo

  8. Gail, your clear insights and dedication to your writing gives us reason to believe that there is indeed something special in our species that deserves our personal best preservation efforts.

  9. Dean F. says:

    Dear Gail

    the problem of a debt jubilee are well known. This is why prof. Steve Keen is proposing a “Modern debt jubilee”:

    http://www.debtdeflation.com/blogs/manifesto/

    Regards, Dean

    • Having waded through Keen’s paper on finance and debt—(admittedly speeding up for the latter half of it), I found no reference at all to energy input.
      Keen appears to have a theory that money creates itself, from itself. Or at least his economic theories have no connection to the real world of what creates an ‘economy’ in the first place.
      No awareness that our current ‘money’ is entirely dependent on continual increase in oil input to the industrial system, or that our failing system is due to falling input of cheap oil

    • Thanks for the link.

      Steve Keen doesn’t talk about the energy’s link to our current problems, so has clearly missed an important part of the story.

      His modern jubilee is described as follows:

      A Mod­ern Jubilee would cre­ate fiat money in the same way as with Quan­ti­ta­tive Eas­ing, but would direct that money to the bank accounts of the pub­lic with the require­ment that the first use of this money would be to reduce debt. Debtors whose debt exceeded their injec­tion would have their debt reduced but not elim­i­nated, while at the other extreme, recip­i­ents with no debt would receive a cash injec­tion into their deposit accounts.

      The broad effects of a Mod­ern Jubilee would be:

      Debtors would have their debt level reduced;

      Non-debtors would receive a cash injection;

      The value of bank assets would remain con­stant, but the dis­tri­b­u­tion would alter with debt-instruments declin­ing in value and cash assets rising;

      Bank income would fall, since debt is an income-earning asset for a bank while cash reserves are not;

      The income flows to asset-backed secu­ri­ties would fall, since a sub­stan­tial pro­por­tion of the debt back­ing such secu­ri­ties would be paid off; and

      Mem­bers of the pub­lic (both indi­vid­u­als and cor­po­ra­tions) who owned asset-backed-securities would have increased cash hold­ings out of which they could spend in lieu of the income stream from ABS’s on which they were pre­vi­ously dependent.

      So debt is replaced with yet more government promises, which it will not be able to make good on. I am not sure that gets us anywhere, except governments even further mired in promises that they cannot keep. I suppose it changes a lot of little bankruptcies into one big bankruptcy. One of his points was that courts would be tied up for years with all of the bankruptcies, so that in itself could be a goal. But it doesn’t fix the underlying problem of shrinking resources, making it hard to keep promises.

      • any bets on Keen getting a Nobel prize for economics?

        • Paul says:

          My vote for the Nobel Prize for Economics would be for Gail (even though she is not an economist).

          Most if not all economists are unable to see — or refuse to see — what is happening. They remain mired in their models of infinite growth and substitution. Just like donkeys bumping their heads against walls.

          • Paulo says:

            Quoting a business man I very much respect, “It’s not what you own, it’s what you already have paid for”. This is the crux of economics that people have forgotten. Anyone remember the ‘layaway plan’? Since the acceptance of debt as normal, we have been going downhill ever since as far as I am concerned.

            Paulo

            • xabier says:

              Paulo

              Whereas the British government – referring to rising property prices in its pre-election campaign – seeks to persuade the electorate that:

              ‘The more you owe the richer you are, and the more you should be borrowing to kick-start the consumer-led recovery!’

          • Thanks. I have a hard time seeing how economists (including Keen) can continually overlook the role of cheap energy, or the right kind.

            • seems to me their jobs depend on overlooking it

            • Christian says:

              You right End, that’s why they only can stand as an obstacle

            • yt75 says:

              I attended a seminar a few days ago where Gaël Giraud had a presentation about the link energy/GDP, and also about why economists overlook it (himself being a reknown economist knowing all about their “classic” theories).
              In particular, as “economists” consider only price, there is the “cost share theorem”, that says that the elasticity of a production function with respect to one of its input is equal to the cost share of the said input. So if you consider GDP as a production function of K(capital), L(labor), and E(energy), in most countries the E part is currently around 5 or 6%.
              However they made some empirical studies (based on some analysis principle I still didn’t get completeley) with real data on several countries, and they end up with around 60% for the elasticity of energy into GDP.
              (similar to Kummel approach I think).
              He should have a paper out soon on this I think.
              You can see the video and slides below (but its in french), 5th in the list :
              http://theshiftproject.org/fr/cette-page/ateliers-du-shift-du-6-mars-2014

            • Thanks! Actually, the slides are available separately, and are almost entirely in English.

              I have been aware of the “cost share theorem.” It seems like it is about time someone looks at how absurd the assumption is. It will be good if a respected economist writes a paper on the subject. (There was a joke in the Buttonwood column of the Economist magazine this week: “As the old joke goes, the questions in economics exams are the same every year; only the answers change.”)

              The issue I see with trying to model the effects of oil on the economy is that there are multiple effects coming from different directions. For example, if oil supply is high priced, part of the problem is a competitive problem in the world economy. Countries that use less oil in their energy mix will have a competitive advantage. Part of the problem is that high oil prices lead to lower prices of re-sale homes, particularly in distant suburbs. There will be debt defaults as well, and follow on effects for governments. Trying to model the situation using the Cobb-Douglas Function (even with energy as one of the variables) doesn’t get at all of these nuances.

            • yt75 says:

              In fact below another presentation from him in English, but targeted towards a more scientific public, and not exactly the same subject.

              Slides available on this page :
              http://science-and-energy.org/?page_id=298
              (number 27)

            • I noticed that on the last slide he mentions that natural resources should be modeled as having finite stocks (crediting Meadows, 1972). Not something that you expect to see. Presumably he understands that diminishing returns hits before supplies run out.

            • Christian says:

              YT75, vous avez trouvé un économiste intelligent! Bravo! He concludes very clearly that the part of energy in producing GDP is far greater than capital’s part, which is the exact opposite of orthodoxy’s view. I wonder if he found capital’s contribution had even decreased since 2008.

            • InAlaska says:

              End of More,

              You are exactly right. To admit that their economic models are more akin to a Ponzi Scheme shows their science to be a fraudulent science. Widespread recognition of economic models based on unlimited growth would turn economics into something like astrology.

            • yt75 says:

              Gail, Christian,
              Yes, Giraud is perfectly aware of the basic physical constraints and associated diminishing returns (slide 26 in the second presentation for instance).
              And yes, the analysis in the first presentation shows the importance of capital being much less than expected in growth elasticity (the way the numbers are presented does not make it very clear), which is also an “uncorfortable” result with respect to current common understanding.
              Overall for me I see current economics as a kind of side effect of the explosive growth we have been through since the industrial revolution (fed or made possible by cheap fossil fuels), and also a self reinforcing or driving “force” for this explosive growth : when taken into their last resort, somehow most economists end up as being the “cheerleaders” of “technological progress” or “human ingenuity”.
              So that current “theories” might not be completely wrong –when there is potential growth–, and this potential growth is in fact taken as a premise by these theories, the whole point being to maximize its speed in a way.
              But of course all this falls completely flat when the potential growth isn’t there anymore.
              I asked him something like “Ok but economists still use the term “oil shocks” to refer to the seventies crisis (and associated beginning of “structural unemployement”), right ? So is this a contradiction, or do they also think that these crisis had nothing to do with oil (or let’s say oil price), are these crisis interpreted as end of reconstruction period or something like that ?”, his answer was that “yes, basically oil isn’t considered as a major factor there either, and for instance Blanchard (head economist at the IMF) argument for that (written in his annual paper) is that we went through a third oil shock from 2000 to 2007 (don’t remember exact period given), which didn’t lead to a similar crisis (!! adding something like “I’m not joking, it’s written this way”), so that Blanchard conclusion remains “oil is really not a major factor, no need to look that much into that”, and the reason provided for not having had a similar crisis (I’m not sure on which planet they are living), being that the labor maket is now more “flexible”. And he pointed out that somehow it is normal that they reach such conclusion, as the way their models are written, it is always the factor that appears as the key one in the end with respect to crisis (or growth ).
              Strange times.

            • Thanks! And as I noted in response to another comment, the IEA apparently put a model together in 2004, showing the expected adverse impact of a $10 increase in the price of oil on oil importing countries.

            • yt75 says:

              Thanks a lot for the link, didn’t read it in detail yet, but “The adverse economic impact of higher oil prices on oil-importing developing
              countries is generally even more severe than for OECD countries. This is because
              their economies are more dependent on imported oil and more energy-intensive,
              and because energy is used less efficiently. On average, oil-importing developing
              countries use more than twice as much oil
              to produce a unit of economic output as
              do OECD countries.”
              is wrong I think, as in fact developing countries make “better use” of the additional barrels they put in their economy (and I seem to remember you explaining this argument in some of your post), which would also explain for instance China keeping its growth (both in GDP and barrel terms) over the period.

            • I agree that generally developing countries make better use of oil. They may use coal and hydroelectric electricity inefficiently, but what little oil they use is put to use in making and transporting goods, not for their citizens to have big cars, and use the cars for non-essential purposes.

            • Christian says:

              YT75 You are completely right about rich and emerging countries. So, IMF and the economists establishment just don’t want to see it, completely unable to do it. It seems that if one of them would get the point he would not aknowledge it. Do you know Auzanneau’s Blog at Le Monde, Oil Man? There is another french economist aknowledging oil basis, it’s former IEA’s staff Olivier Rech. Perhaps Giraud and Rech should meet and work together. It’s striking IEA was able to assess the impact of oil price in GDP in 2004 and later forgot it. I believe Rech was fired in 2009 or 2010.

            • One of the older IEA reports talks about peak oil. I would have to do some looking to figure out what year. I think it was in the 1990s.

  10. Eivind Berge says:

    Is all debt really a claim on future production/energy, as is frequently claimed? I am beginning to suspect that this might be a flawed view, since we haven’t collapsed yet despite clearly unsustainable debt. Perhaps it is better to regard debt, and especially this mysterious shadow banking system, as a different kind of construct. I don’t know what exactly, but it doesn’t seem to represent future industrial production. Perhaps a lot of debt is merely the means by which bankers make money, and then they consume a small fraction as real wealth, but no one really takes the rest seriously. One day all this imaginary wealth appears to exist and the next day much of it might not, but it doesn’t have to bring the whole system down. I mean, does anybody truly believe that all these shadow banking trillions really represent future industrial production anyway? And if not, why can’t we get along without it until we hit real, physical limits?

    • B9K9 says:

      Eivind, you’re close to hitting the truth; what you are sensing with regard to ongoing faith in the existing system is referred to as “suspension of disbelief”.

      Just a quick primer – central banks “print” money out of thin air by “purchasing” (through bank proxies) sovereign debt ie bills/bonds. For bookkeeping purposes, these assets are offset by a credit to liabilities, which represents credit/currency. Where the magic happens is when banks and/or central banks credit their accounts – actual “money” is never lent, rather it’s merely an entry to balance the books. Question: where do they get the right to “lend” something that doesn’t exist? Ah, that’s the beauty of banking, central or otherwise.

      So, back to your original point – is it actually a real claim? And the answer is, of course not. In the olden days, say 10 years ago, when the fiction of upholding common, civil, criminal, contract, etc laws were still maintained, there was some sense that indeed debts would be repaid. Now, of course, it’s simply a bookkeeping entry so that sovereigns & CBs don’t appear to be merely “printing money out of thin air”.

      Do you see the difference – sure, it might be pure semantics – but it lends itself to the global psychology that everything is still OK. Likewise, it’s why deflation and the very real reality of defaults cannot be allowed to happen, because it too would force people to confront the actual circumstance of our situation, which in a nutshell that this whole thing is running on nothing but delusion.

      Once the magic is gone and the mobs realize they been fleeced, bad things tend to happen to “leaders”. That’s why the fear of default, deflation, etc is misplaced – these guys are going to ramp up this sucker up until it blows due to sheer physics. In the meantime, everyone gets to ride for free another day.

      As I’ve noted elsewhere/before, I’ve become a huge Bernanke/Yellen fanboi. They are literally allowing us (ie anyone who has a clue) to enjoy yet another day of ATMs working, food & gas available at stores/stations, and potentially angry mobs sequestered away happily drinking their 40oz and playing video games all day. For me, that is priceless; it’s literally is like a death sentence reprieved. When the shit goes down, we’re all going to look back on this period as one that was truly blessed.

    • BC says:

      Eivind, in the US private debt is at a record to GDP and 8-9 times private wages. Net interest claims by the financial sector on wages, profits, and gov’t receipts now exceed the annual growth of GDP. By this metric, real final sales per capita have been contracting since 2008.

      The associated log-linear decline trajectory to date implies no later than 2016-17 for the system to reach the point of no return of systemic exergetic decline per capita, at which point debt service, gov’t taxes, “health care” costs, and oil consumption as a share of wages and GDP will preclude growth of even nominal private GDP (absent accelerating price inflation) per capita.

      Moreover, the value of debt-money to the creator and owner (private banks and the top 0.01-0.1% who own controlling interest in the largest banks) is its imputed compounding interest at effective infinite term. Bank reserves’ effective discount rate is 0% today, implying infinite maturity, whereas bank lending has not grown since 2008. Adjust money supply for bank cash assets, and money supply has not grown since 2008 and is contracting yoy since summer 2013, consistent with no lending growth and the 0% discount in perpetuity.

      That is, debt-money is no longer growing after growth of reserve/monetary base and bank cash assets, which is coinciding with contracting real wages yoy after debt service, taxes, and “health care” costs.

      The US economy is already in a collapse trajectory in real terms after debt service and taxes; however, it is very early in the log-linear trajectory, having yet reached the critical mass of cumulative acceleration of decline.

      • edpell says:

        At which point young people either demand a debt cancellation (social security, medicare, etc) or they leave for better places in the world. p.s. My son works in China. He was unable to find a job in the U.S..

      • Collapse starts out slowly, and picks up speed as it goes along, I expect.

      • marmico says:

        Nonfinancial debt (households, government, nonfinancial firms) relative to GDP is not at record highs relative to GDP. It is essentially flat for almost 5 years. Be cautious in using financial firm debt and debt levels (stocks) relative to debt service (flows). For instance, household debt service flows are at 30 year lows.

        Real final sales of domestic product are at record highs, $49,516 per capita.

        • Paul says:

          Debt Exceeds $100 Trillion as Governments Binge

          The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates.

          The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion, according to the Bank for International Settlements and data compiled by Bloomberg. The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the U.S. economy.

          More http://www.bloomberg.com/news/2014-03-10/debt-exceeds-100-trillion-as-governments-binge.html

          • marmico says:

            $100 trillion is scary. Not. It’s a 40% rise What’s the percentage rise in and levels of global nominal GDP at PPP$ since 2007?

            It’s not so scary now, is it?

            • If economic growth could be expected to continue to 5% a year or so, perhaps not so scary. If economic growth is slowing down because of diminishing return, we cannot afford the debt we have.

            • Paul says:

              The old game of inflating away debt is not working this time – that can only happen if there is growth – there is no growth – because it is impossible to grow with oil over $100.

              From Bloomberg – every $10 increase in the price of oil inflation adjusted reduces growth in a developed economy by 0.5%

              Oil was $12 in 1998 – inflation adjusted using CPI it should be under $35 – it’s $110 – it was $147. Assume CPI is bs so let’s say it should be $60.

              $80 x .5 = 4.0% > that’s why we imploded in 08

              $50 x .5% = 2.5% > that’s why growth is stagnant at best

              There is no growth – there will be no growth – there is only money printing creating a facade of growth

              “If something cannot go on forever, it will stop.”

            • I found this 2004 IEA document that may explain the background for the Bloomberg statement.

              Oil prices still matter to the health of the world economy. Higher oil prices since 1999 – partly the result of OPEC supply-management policies – contributed to the global economic downturn in 2000-2001 and are dampening the current cyclical upturn: world GDP growth may have been at least half a percentage point higher in the last two or three years had prices remained at mid-2001 levels. Fears of OPEC supply cuts, political tensions in Venezuela and tight stocks have driven up international crude oil and product prices even further in recent weeks. By March 2004, crude prices were well over $10 per barrel higher than three years before.

              . . .

              According to the results of a quantitative exercise carried out by the IEA in collaboration with the OECD Economics Department and with the assistance of the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. Inflation would rise by half a percentage point and unemployment would also increase. The OECD imported more than half its oil needs in 2003 at a cost of over $260 billion – 20% more than in 2001. Euro-zone countries, which are highly dependent on oil imports, would suffer most in the short term, their GDP dropping by 0.5% and inflation rising by 0.5% in 2004. The United States would suffer the least, with GDP falling by 0.3%, largely because indigenous production meets a bigger share of its oil needs. Japan’s GDP would fall 0.4%, with its relatively low oil intensity compensating to some extent for its almost total dependence on imported oil. In all OECD regions, these losses start to diminish in the following three years as global trade in non-oil goods and services recovers. This analysis assumes constant exchange rates.

              The adverse economic impact of higher oil prices on oil-importing developing countries is generally even more severe than for OECD countries. This is because their economies are more dependent on imported oil and more energy-intensive, and because energy is used less efficiently. On average, oil-importing developing countries use more than twice as much oil to produce a unit of economic output as do OECD countries. Developing countries are also less able to weather the financial turmoil wrought by higher oil-import costs. India spent $15 billion, equivalent to 3% of its GDP, on oil imports in 2003. This is 16% higher than its 2001 oil-import bill. It is estimated that the loss of GDP averages 0.8% in Asia and 1.6% in very poor highly indebted countries in the year following a $10 oil-price increase. The loss of GDP in the Sub-Saharan African countries would be more than 3%.

              World GDP would be at least half of one percent lower – equivalent to $255 billion – in the year following a $10 oil price increase. This is because the economic stimulus provided by higher oil-export earnings in OPEC and other exporting countries would be more than outweighed by the depressive effect of higher prices on economic activity in the importing countries. The transfer of income from oil importers to oil exporters in the year following the price increase would alone amount to roughly $150 billion. A loss of business and consumer confidence, inappropriate policy responses and higher gas prices would amplify these economic effects in the medium term. For as long as oil prices remain high and unstable, the economic prosperity of oil-importing countries – especially the poorest developing countries – will remain at risk.

            • Paul says:

              Super find! I will bookmark that

        • Isn’t the fact that non-financial debt is flat part of the problem, in keeping oil prices high enough? The federal government portion is rising, meaning that the rest is declining. Household debt flows are at 30 year lows, partly because more people are renting rather than buying, partly because interest rates are so low, and partly because terms of debt (such as for cars) have been extended.

          I am not sure exactly how “real final sales of domestic product” is defined. Presumably it includes new cars, new homes, new buildings of other types, new roads, food, clothing made in the US, sales of health care services, sales of financial services, and a bunch of other things. I am not sure about farmland, and its improvements–presumably it is just the improvements that are included. One thing that comes to mind is the fact that corporate profits have been doing well, even though wages of the common worker have not been doing well. The final sales of domestic product could increasingly be to corporate purchasers. I would be interested in a breakdown to understand exactly what this means.

      • Calista says:

        I wonder how much of a shift to the gray market we will see before we start seeing the damage on the books. I know the last few years has seen my electrician asking to be paid in cash. Hair salon, cash. I’m going to bet dollars to donuts that those cash payments aren’t being reported. I know a lot of small stuff is also returning to barter. Stuff that wouldn’t have been considered worth bartering over 5 years ago.

    • Eivind—use my patented money production test
      Stand 100 men in a circle, each with a shovel and an unlimited amount of money—gold–dollars, doesn’t matter
      Each man is instructed to dig a hole, and sell the dirt he digs up to the man on his left, while buying dirt from the man on his right.
      Each man can buy and sell dirt at whatever price he likes, thus creating and endless circle of spending and debt. All you have to do to make money is sell dirt and buy dirt.
      You owe money to the man on your right in exchange for the energy he used to dig up his dirt and throw in in your hole. The man on your left owes you money in exchange for your hole digging efforts. All digging activity thus becomes a call on future production/energy. In theory you end up with 100 billionaires.
      Simple huh?
      ‘Cept for one teensy problem—If anyone drops out of the digging circle, for any reason whatsoever, he loses everything. So no digger can stop to eat (external energy input). He can of course eat as much money as he likes–thats being printed while he digs, and supplied by the truckload, but somehow paper or gold never supplies enough fuel to use a shovel.
      If external energy input stops, so does everything else. Literally

    • The reason these debts and other promises are important is because they help channel investment in the direction where it allows oil, coal, and gas to be extracted, as well as other metals. If the price is not pumped up high enough, production stops. Debt is part of our economic web that holds the whole system together. If debt goes away, so does our ability to extract fossil fuels, because it is these promises that keep the whole system together. Along the way, debt does make bankers more money. When economic growth slows down, both history and theory says that default rates skyrocket.

  11. momist says:

    “if I bring food I grew to a farmers’ market, and the operator of the market gives me credit that allows me to take home some other goods that someone else has brought”

    The credit you are allowed will be proportional to the expectation of the operator that the food you grew CAN be sold. If everyone is getting poorer, then that expectation declines and therefore the credit you may be given also declines. Although this short-term debt arrangement is supportable, it still reflects the overall world financial system to some extent, and the effects of the world economy cannot be ignored.

    • That is true. But at least when the decision is made, it is based on near-term considerations, not guesses as to what will be the case a few years from now.

  12. John Drake says:

    One way to default on debt in an “acceptable” way is in a war type situation. For example, if your creditor becomes your enemy then you can acceptably write off the debt that you have with him.

    I would suggest that you look more into this issue as it may be one method used by TPTB to prolong the agony of the current financial system in an increasingly energy starved economy.

    • I suppose that we need to make everyone our enemy, to get maximum benefit from such an approach. Or perhaps this is ultimately what is behind reduced trade–countries stop being trading parters with countries that have recently defaulted on debt that they are owed.

      • John Drake says:

        You only need to declare as enemy the foreigners to whom you owe a lot of money, preferably by order of financial importance but starting with the ones that are the least likely or able to retaliate militarily or otherwise…

  13. I first encountered discussions of debt in junior high civics class during WWII. The teacher said “don’t worry we only owe it to ourselves”. No longer true! I loaned the government money 10 cents at a time – stamps to fill a book for a $25 war bond. I recall being irritated when the price of a coke increased from 5 to 10 cents. During the 60′s when my friends and associates would complain about the national debt my stock and somewhat cynical answer was ” don’t worry, they will inflate it away”. They are still trying though it seems to have become more difficult.

  14. edpell says:

    Gail, I agree with what you are saying about debt. I would say it is a game of chicken. As long as the players believe they can get value for the currency the game goes on. When players see the end coming and believe they will not get value for the currency the exchanges stop. Better to keep one’s oil, coal, nat gas for future private use then to exchange it for currency that will be worthless. This is even worse for food. Food production is a real flow business. Sales of today’s produce allows purchase of fertilizer and seed for tomorrows production. With oil a government can force an oil well owner to produce even if it is not in their best interest. Yes, just for awhile, there will be no exploration the flow will die but on a longer time scale. Food stops on a one year time scale.

    For an individual exchanging labor for currency (food, shelter, heat, car, medical) wages go down relative to the cost of needs. This causes people who have to commute in a car or heat a large house to drop out. That is find a substitute job/living arrangement that does not require a car or large amounts of heat (move to Georgia?). Lifestyle adjustment continues until people choose to substitute taking other peoples stuff by violence, even if there is a high risk of death in the process, in place of oppressive labor for less than susistance compensation.

    As a physicist and engineer I really want a computer model.

    • “Better to keep one’s oil, coal, nat gas for future private use then to exchange it for currency that will be worthless.”

      The catch is that the oil, coal or natural gas will be worthless as well. It doesn’t “work” without processing (except for a little coal, near the surface in some remote locations). Without the system of refineries and pipelines and engineers and replacement parts in place, it will be very hard to make use of fossil fuels in the ground. They will just stay there. This is a big reason why your money will be worthless.

      You really need things that don’t need a chain of people to make the whole process work. Perhaps a woods for wood for fuel, and a plot of land to raise food.

      • Don Stewart says:

        Dear Gail

        ‘You really need things that don’t need a chain of people to make the whole process work. Perhaps a woods for wood for fuel, and a plot of land to raise food.’

        You might be interested in a couple of recent observations:
        1. See Albert Bates current blog post:
        http://peaksurfer.blogspot.com/2014/03/sunblock.html
        Albert now thinks that industrial scale wind and solar will never happen on a large scale. Because they require a chain of people to make it happen and a stable financial system.

        2. At the Organic Growers School in Asheville last weekend, I found a renewed interest in solutions which do not require a chain of people. Some examples:
        a. Seed saving and trading
        b. No till, no pesticides, no herbicides
        c. Use of scavenged items, such as plastic buckets, to grow plants in pots
        d. More use of bamboo (a weed around here) for building
        e. Living fences…resurrecting ancient practices to use trees and shrubs as fencing
        f. Coppice for firewood and building
        g. Foraging
        h. More use of kudzu (a prolific weed with a huge, edible root)
        i. More discussion about the enormous difficulty encountered in trying to shift food supplies to local sources, even in a foodie town like Asheville.
        j. The School is doing a one day session around Labor Day which will prominently feature ‘putting food by’.

        There was also a lot of interest in ‘capital improvements’ which involve the use of currently available fossil fuels and equipment to prepare for a time when neither may be available. For example, remineralizing garden beds and building hugelkultur beds (tree limbs buried in the ground and covered with soil…provides carbon and water to roots). This sounds like building life boats.

        Don Stewart

        • Paul says:

          I like the idea of using discarded plastic buckets etc for planting vessels. I bet if one went to the dump there would be thousands of these laying about.

          Here in Bali we make pretty much everything out of bamboo – our chicken and duck houses are mostly bamboo – we used plastic for the roof but could revert to alang alang (straw) if need be – the problem with alang alang these days is it is grown using chemical inputs and it doesn’t last as long as it used to :(

          We don’t use any pvc piping in the garden – for the most part bamboo is used to move water and to support climbing plants.

          When we put fish in a pond we toss in a bucket of dead bamboo leaves – our permaculture guy says this is a good disinfectant to rid the pond of disease.

          Bamboo truly is one of the most versatile grasses on the planet!

          • Don Stewart says:

            Dear Paul
            The plastic bucket system (2 plastic buckets to provide a water reservoir on the bottom, a drain hole drilled into the outer bucket, a hole cut in the bottom of the inner bucket with a yogurt cup punched full of holes pushed down into the hold in the inner bucket and stuffed with organic rich soil to provide wicking for the water) was invented by a man who does a lot of work in Jamaica. He said his Jamaican hosts were very excited about the bucket idea, because they could see lots of unemployed young people in Kingston growing plants for sale in the buckets from the trash heap.

            Don Stewart

        • Those sound like good ideas. I am glad, too, that Al Bates has figured out the industrial scale wind and solar won’t happen.

      • Don Stewart says:

        Dear Gail
        Two more closely related posts by other commentators:
        1. Charles Hugh Smith has written a guest article on Chris Martenson’s site explaining how Federal Reserve provided liquidity does not solve a valuation problem. For example, no amount of QE can make a defaulted student loan or a Greek bond or a deteriorating Spanish housing unit worth anything. The same might be said of petroleum reserves which may have no value because the public will never be able to afford to pay the price required to develop them. When the market realizes that there is a valuation crisis, the rush from the crowded ballroom floor to the single exit door creates the usualy disaster. I believe the article is behind a pay wall.

        2. Paul Wheaton continues his interview with Geoff Lawton
        http://www.richsoil.com/permaculture/76030-281-geoff-lawton-qa-round-2-part-2/

        The first question submitted by a listener relates to making a productive homestead in the Rocky Mountains at 7500 feet elevation with 3 to 8 inches of rain each year. Geoff remarks that he is getting a lot of these questions recently, particularly from the US. Listen as much as you like to the very hard work which is required to turn this high, cold desert into anything productive.

        The point here, I think, is that young people are being pushed into extreme situations. Part of the blame must rest squarely on the Fed, which is printing money and giving it to rich people who now own the more desirable land. If you want to reflect on something sad, recall that in 1870 a young war veteran and his new bride could claim a quarter of a section in Iowa, with 5 feet of topsoil, essentially for free. (It wasn’t fair to the Native Americans, but when has life ever been fair?)

        Beginning at 38 minutes, Geoff answers the question ‘how much land do I need to feed myself?’. Geoff and Paul talk about this with some specificity, assuming ‘average’ land. They cover topics such as gardening with external inputs, gardening with very few external inputs, small animals, and larger animals. Geoff also remarks that there are plenty of surplus resources available in urban areas…at least at the present time. This discussion will give you a pretty good basis for thinking about the collapse of long supply chains involving lots of people. (Zone 1 is immediately around your house, Zone 2 is a little further away, etc.)

        Don Stewart

        • Calista says:

          Permaculture zones are very confusing for beginners. I wish they’d choose a different system from the gardening zones gardeners or farmers discuss in relation to how frozen your soil is!

          • Don Stewart says:

            Dear Calista
            I don’t know what ‘frozen soil’ means.

            In Permaculture lingo, Zone 1 is something you visit every day. It may be an herb garden or a little garden tucked in beside the path you walk to get into your house. The idea is that Zone 1 is intensively managed. Zone 2 is somewhere you go less frequently, so is less intensively manged. And so on and so forth out to ‘wilderness’ which isn’t managed at all. Just enjoyed.

            When two permaculture practioners talk about ‘zone 2′, that carries meaning in terms of the intensity of the management, the frequency of intervention, and often the value of what is produced. So a kitchen garden right outside the door is managed intensively, at least once a day, and produces more value than an orchard which functions without human intervention over long periods of time.

            Don Stewart

            • Calista says:

              Right as opposed to the long-used, much longer used zone system of the USDA. Most people who actually landscape have discussions around hardiness zones. They relate to cold or heat tolerance of certain plants, whether or not they’re perennial and belong in Permaculture’s “zone 2″ or somewhere else. ie Permaculture really does manage to make a mess of terminology by re-using terminology well established elsewhere. That was the point. I’m all too familiar with permaculture, most people from a farm kind of laugh and think it’s a pretty fancy way of teaching things. http://www.usna.usda.gov/Hardzone/ushzmap.html

    • Interguru says:

      Computer models are useless for “Black Swan” discontinuities. The best they can do is give probabilities of something happening. Even with something as well understood as a bridge, they cannot tell when if will collapse. With poorly understood social sciences ( and for all the mathematical mumbo-jumbo economics is a social science, not a hard science ) modeling is worst than useless. I give you a remembered quote from the head of an economics department. All my faculty are trying to explain what happened ( in 2008 ) but none of them saw it coming.

  15. Shamba Trego says:

    Gail, I have been reading your blog for at least 5 years now and I enjoy? it for all the information you have here. I’ve been reading about climate change, finiancial things and rousource depletion for almost 10 years now. Your blog explains thing in such a way I think I can comprehend what is happening to us these days since it is such a different world from the economic outlook Ive had most of my life–I am retired, early 60′s and working parttime for fun rather than money, fortunately.
    Maybe its’ just my age, or the fact that I have no children or grandchildren that makes it easier for me to deal with this stuff than others.

    Blessings on you for this informative blog and for your family,

    shamba

  16. B9K9 says:

    Gail, further upstream you mentioned your “project”. By this, I assume you’re referring to your ongoing analysis and reporting. Question: what if someone in a position to know sat down with you and stated that everything you’ve written about is true, including the expected outcomes and projections. What would you then do? I mean, there would no longer be any reason to research, think and write, right?

    The reason I bring this up is because I believe the ongoing events in Syria, Russia, Iran, et al are all indicators that the jig is indeed up, and it’s ending sooner than many people were expecting. Years ago, when ZH first got started, I used to mention that the Fed/Bernanke was pursuing their self-destructive policies (ZIRP, QE, etc) with the hope of buying time for some kind of miracle(s).

    That miracle, of course, was either developing technology to economically extract tight reserves, stumbling across another Ghawar, Cantarell, etc, and/or somehow, someway, figuring out a safe/effective means of generating nuclear energy. Sadly, none of those miracles have come to pass, which is why time has indeed run out.

    Now, the question for the PTB, is what do they do to maintain control in the face of these facts. Well, the first thing you do is attempt to simultaneously acquire & deny access to precious proven (economical) reserves. As one would guess given the current state of affairs, the remaining major resources happen to be sitting within Russian borders/spheres of influence. So, not only must we somehow figure out how to acquire ‘their’ resources, but we must actively pursue means of also denying them the same. A two-fer as it were.

    Secondly, and I’ve stated this before, we need to reset the dollar system on something like a 10:1 basis to get our balance sheet back in order. A devaluation of that magnitude would be a monumental shock to the system, which is why it really couldn’t be pulled off without some kind of emergency powers in place to manage price controls, rationing, etc.

    And numbers 1 and 2, and you get war. Years ago, someone quite naive asked, “war, what is it good for?” Obviously, if you have to ask the question, then you don’t have a clue about how the world works.

    So, for all of those who are citing reduced capex, or projecting 20015-2017 when it becomes obvious that the tight resource plays are quickly plateauing or are no longer economically viable, I think all you have to do is observe global events **today** and realize they are basically telling you you are RIGHT. But they aren’t going to wait that long to where it becomes obvious to every Tom, Dick & Harry; they need to act soon in order to have everything in place when the hammer drops.

    That being said, what use is there for speculation, analysis, etc? Consider how appropriate the old adage of ‘it’s the journey, not the destination’ is. It means, if everything you suspected is true, then nothing more need be discussed; it’s simply settled, and now we have to live with it.

    • Ikonoclast says:

      “According to the Federation of American Scientists, an organization that assesses nuclear weapon stockpiles, in 2013, Russia possessed an estimated 8,500 total nuclear warheads of which 1,800 were strategically operational.[2] The organization also claims that the U.S. had an estimated total 7,700 nuclear warheads of which 1,950 were strategically operational.” – Wikipedia.

      Russia is untouchable. Attacking Russia leads to a full nuclear exchange and the end of world civilization immediately (as opposed to it ending some time later by collapse).

      • B9K9 says:

        Ikon, there’s a very good reason why the US/NATO needs to have core offensive capabilities as close as possible to mother Russia eg Ukraine, Poland, etc: to initiate a de-capitation strike. With a first option strike only 30-60 seconds away on the table, then the US/NATO would be in position to utilize its extensive ant-ballistic missile defensive shield to catch any stragglers that Russia might be able to launch against the West.

        Once it was fait accompli, it wouldn’t matter how many people might be appalled, aghast or generally opposed. It happened, and now it’s over. The deal would be done, and the West would get their resources, just as Mein Kampf outlined.

    • I suppose the issue is getting the story figured out, and documenting it. It is not like I have terribly good solutions–it is not clear they exist. But if I get the story figured out, then others can at least work at solutions for the real problem, not some make-believe or misunderstood version of the problem.

      At this point, I have written a fair amount about the story on Our Finite World. It would be nice to get the pieces of the story documented in a book, and I am working in that direction.

      I have certainly met a lot of interesting people along the way. It seems like as I go along, if one door closes, another opens. I suppose some people would want to set up a consulting practice, talking about the issues for example.

      • B9K9 says:

        I guess my point could be made clearer by way of analogy: let us assume you were a Japanese blogger in 1941 by the name of Gail-yu. You had correctly analyzed the situation whereby Japan expansion was being severely resource constrained due to the US oil embargo (as a result of Manchuria), and had basically one remaining option, which was to shoot for Indonesian oil supplies.

        However, again as you had correctly surmised, there were a couple of problems inherent in this “solution”. One, the British would have to be neutralized in Singapore; and two, the US navy would need to be eliminated from the western Pacific. Well, as fate would have it, you, Gail-yu, nailed it spot on for your blogger community: a dual strike would be necessary.

        Attaboys & a round of congratulations all around. But wait, the day after Dec 7th happens, your blog is turned off, you’re isolated and sent off to an internment camp, and all your followers who were critical of this potential policy are quickly rounded up and given two options: joint the fight or take a bullet right then & there.

        I think you can see where this is headed. I put it to you this way: you’ve correctly figured it out, but what does it gain you? My dad, the agency guy, had two great lines, both of which I frequently reference:
        1. The prize for intelligence is the booby prize; and
        2. He who complains has already lost

        #1 makes sense with respect to the analogy I presented above: what does it gain you to be right? To become a target?

        • Paul says:

          Not sure what it gains Gail being right (she can answer for herself) but as for me being right – or being aware of what is coming gains me the following:

          - knowing what I know has freed me to a certain extent – my wife and I have been traveling as frequently as we can afford to – I have personally gone into some places that I might never have gone to in the last couple of years – kinda like an accelerated bucket list

          - also because we know what we know we have attempted to prepare as best we can for what is coming – we have our small farm up and running and continue to make improvements – we have stores of emergency food and have stockpiled a lot of the tools we expect to need or barter – sure it may be futile but better to do what one can within one’s means

          - on a more existential basis…. to me ignorance is not bliss – I have spent my life trying to understand and learn – I read – I travel to very off-the-beaten-path locations – I sometimes write – hopefully I have improved as I grow older because of all of this. So I have gained intellectually by understanding what is happening – the alternative is to spend my life in a suburbic stupor seeing how many new ‘friends’ I have on facebook and twitter and watching re-runs of dancing with stars and american idol while shoveling a super sized pizza down my hole, then retiring to my basement to play video games awaiting the start of the NFL season

          “The prize for intelligence is the booby prize”

          That pretty much sums up why we are in the predicament we are in. I may print that and frame it.

          Followed by:

          “Apathy, ignorance, greed and stupidity rule. While the wise are mocked, ridiculed and/or ignored.”

          • xabier says:

            The question of gain is irrelevant here, surely?

            One could also say, quite often accurately, that ‘The prize for doing the right thing is…the booby prize.’ (Quite witty the original, in a limited gallows-humour sort of way).

            What does anyone gain from doing the right thing? Very often: nothing, loss, or death.

            The action and the growth of human dignity and nobility that comes with it, is in itself ‘the gain’.

            The gain in understanding is…..understanding. All higher animals seek to understand their environment.

          • B9K9 says:

            Like others, I do wish there was an edit function. Before it’s released to the wild, the correct phrase is:

            “The reward for intelligence is the booby prize.”

            Also, just to be clear, the question of ‘what does it gain you’ is partly rhetorical, but also somewhat practical. That is, what does one do with knowledge? Spread the word to those who can neither comprehend nor act? Take advantage of others’ ignorance in order to advance one’s own position? Or just keep quiet and live like you’ve got a limited amount of time left, which in actuality, is the reality each of us face.

        • I know that Dmitry Orlov has make a similar remark–collapse forecasters don’t come out ahead. I forget his exact words.

          In fact, no one wants to publish a book about the subject unless they can “pretty up” the result. This is why nearly all the books that are published come to some conclusion like “we should try renewables” or “we can all adapt to using less.” The issue isn’t that renewables have more than .00001% chance of working or that anyone has stopped to figure out how much less people would actually have to get along with. It is just that authors have to have some way around the problem.

          Actuaries are in some sense the “policemen” of the insurance world. They are the people who need to tell it like it is to management. They are not supposed to sign off on reserves (and thus profits) unless the numbers are right. They are supposed to tell management that a rate increase is needed, even when this is an unpopular decision. Thus, we have been trained to “tell it like it is,” even if the result is unpopular.

          • Christian says:

            A friend told me to write half a book and he would show it to editors. If somebody likes, I write the other half. It’s not so easy indeed. I suppose the first half would be on limits to growth and indicating that’s where we are, while the second would address some kind of proposal. I suppose diagnose will be accepted, but I’m not sure about the indicated course of action. Last chapter could be called “Organic Iron”, which is the only possible civilization in the future, if any. I’m tempted to frame all the work on civilization change, but I’m afraid this would not be published.

  17. OrdinaryJoe says:

    Gail I would also like to thank you for your efforts. Yours is the only explanation for what is occuring (Deflation with massive money printing) that I have found. The way that you tie together energy and econony is exceptional. Your writing is concise and appears to be without agenda. Your writings have the ability to have people come to a understanding of our species situation. My belief is the planets only chance is divine intervention or an evolutionary event. I am thankful that I have an appreciation of where our species is at with a mininum of delusions and I thank you for that. I try to consume less and spend time in meditation every day asking that our species somhow come into balance with nature. It may be pollyannaish but at this point I do not see a solution outside of an intervention greater than ourselves. It is sad, we have the capabilty to experience beauty as expressed in nature yet we are numb to its destruction.

    • You are welcome. Glad you think my writings are helpful.

    • xabier says:

      Yes, we do seem to be the animal that seeks to build beautiful palaces, and creates mostly cess-pits.

      Meditation seems to be a sensible response these days. At least one can find peace and balance within oneself if not in the outer world, in which the madmen are in control (or believe themselves to be).

  18. Stilgar Wilcox says:

    Gail, you wrote: “Slowing growth in China is likely to mean that world economic growth is slowing. This will add to stresses, making failure of the system more likely than it otherwise would be. We can cross our fingers and hope that Janet Yellen and other central bankers can figure out yet other ways to keep the system together for a while longer.”

    Along with the rest of this latest article/post, it sounds like a cliff’s edge is eminently close. Not sure how to read it any other way. However QE is still being pushed at 65b (or is it 55b now?) a month with another Fed meeting in a few days to determine if tapering should continue by 10b increments. I keep thinking some kind of stock market correction or other negatively changing financial data will take place to dissuade Yellen from continuing to taper before getting to zero. But even if they decide to continue QE, like you write in so many words, QE can only hold interest rates low for so long.

    • Paul says:

      What I wonder is if the Fed is not secretly supporting the stock market with outright purchases of equities.

      During past iterations of QE whenever it was scheduled to end the stock market immediately started to tank – and of course new rounds of QE were announced soothing the markets.

      Not this time – they have tapered and the markets keep hitting new highs.

      Strange.

      There is precedent for this – in 1998 during the Asian Financial Crisis Hong Kong’s bow-tie Donald Tsang engaged in outright government purchasing of stocks in a successful attempt to prevent HK from joining Indonesia and Thailand in the gutter.

      That was not done in secret though – as Jean Claude Juncker famously said a couple years ago “when it gets bad enough – you have to lie”

      I’d take that a step further – you lie and you do absolutely anything that delays the collapse.

      • Stilgar Wilcox says:

        Interesting observations Paul. I have been perplexed by the buoyancy of the stock market in spite of initial tapering, so you may have something there. Of course the question then becomes where did the money come from to buy stocks and how long can they keep it up? I also wonder if the dollar has remained as strong as it has in spite of so much QE, by manipulating the price of gold. There are rumors of manipulation by central banks and if they are willing to pump the stock market while tapering, I suppose any strategy has credibility in these desperate times of peak plateau.

        • Interguru says:

          “I have been perplexed by the buoyancy of the stock market “.

          QE is producing tons of unemployed money with nothing to do except to inflate asset bubbles. The stock market is just one of the many bubbles happening. The art market, New York and London real estate are others.

          • Paul says:

            The big banks are able to access massive amounts of money from the Fed at Zirp – we are told they are parking it back at the Treasury and make a bit of interest — how far fetched would this conversation be:

            Bernanke: Hey Jamie, Lloyd etc… we are going to give you guys a lot of free money hot off the printing press

            Jamie/Lloyd etc – yippee – we love free money!!!

            Bernanke – but one condition – I want to you to use that cash to ramp the stock market – no matter what happens you buy that market – I want to see record highs on a regular basis

            Jamie/Lloyd etc – yippee – can we pay ourselves big bonuses and eat truckloads of caviar and drink kegs of the best champagne????

            Bernanke – yes – of course – you can also hire $1000 call girls and purchase sacks of the finest colombian blow. One other condition – I get to come to all the parties and I get first choice on the call girls

            Jamie/Lloyd – yippee — um hang — what happens if the market crashes —- we could lose everything!!!

            Bernanke – now that’s a stupid question fellas – you know I’ve got your back — I’ll simply screw the pensioners and savers — and the taxpayers — and you’ll get bailed out again.

            Jamie/Lloyd – yipppee – this is so totally awesome — we truly are masters of the universe – we are just so &^^%% smart — congratulations Lloyd – no – congratulations to you Jamie — no to you Lloyd – you are the smartest man in the room —- no, no – you are Jamie — nooooo everyone says you are Lloyd —- ya I know but really we both know you are Jamie….

            And the moral of the story is DON’T FIGHT THE FED!

          • Stilgar Wilcox says:

            “I have been perplexed by the buoyancy of the stock market “. Interguru, you took my sentence out of context by splitting it in half. The full sentence reads, “I have been perplexed by the buoyancy of the stock market IN SPITE OF INITIAL TAPERING, so you may have something there.” The point was in spite of tapering, and I am fully aware of the other the many asset bubbles generated by QE. Taking a sentence and splitting it is something politicians do to each other, but we don’t need to do that here on this message board.

            • Interguru says:

              Sorry. I did it inadvertently, not to troll. This is one the few blogs where the discussion is serious and worth reading, and I want to keep it that way.

    • It is hard to know how this will play out. It is really a combination of QE around the world and Chinese debt creation at play. So it is possible that the US can temporarily cut back in its buying of debt, if there is enough debt creation elsewhere–for example, if China debt creation keeps increasing. Of course, is business is slowing down, this doesn’t work so well.

      You are right though–credit problems don’t seem too far away. I know the yesterday’s chart of the day shows stock market margin debt up at new highs. If interest rates start rising, this could turn around quickly.

  19. Paul says:

    Another idiotic story (top headline of course) on alternative energy…. and we wonder why most are nonchalant about the end of cheap oil…

    Is pee-power really possible?

    Could the answer to future electricity demand be right under our noses? Jonathan Kalan looks at the new research behind urine-generated power.

    http://www.bbc.com/future/story/20140312-is-pee-power-really-possible

    • There doesn’t seem to be much real understanding of what we need, in terms of (1) liquid fuel that operates today’s equipment, (2) timing, (3) price, and (4) quantity. If you take the simple view of, “It’s all good,” then everything blurs together.

      • Paul says:

        Pee is good for compost – perhaps the BBC might do a story on that – it is at least useful knowledge :)

  20. Ikonoclast says:

    I am in two minds about David Korowicz’s paper “Trade-Off” which I have read through once. I understand his points and I agree that systemic global collapse is a certainty given the inter-connectedness of the system. However, I am not sure if I see the collapse operating with one smooth “shark fin” curve on the way down to zero where zero means no civilization. “No civilization” literally means no cities, just hunter-gatherers and maybe some subsistence settlements at stone age level. We might well get there but not via one single plummeting “shark fin” curve from summit to zero.

    I think an alternative possibility is a collapse with punctuated equilibria. My proposition is that when a system like the global economic system collapses or reduces complexity it will proceed in reverse order to the build up. Furthermore, whilst the build-up was smooth, more or less, the collapse will be composed of sudden, very nasty drops and then periods of relative equilibria where a modified system functions passably well, more or less, for a brief time historically speaking.

    Collapse will reverse the order of development of complexity. As globalisation was the final, highest stage of complexity, it will be the first level to collapse. Korowicz’s model seems to propose that collapse from that point will be a “shark fin” curve collapse. That is, no lower level of complexity will survive, even briefly, the collapse of higher level complexity. There is I admit considerable force to his argument here. Even at one’s local level, one depends on a supermarket using a JIT (Just in Time) inventory system to draw goods from distant points; points which are often overseas. Transport fuel from oil is a vital part of that system. Thus it seems feasible that a world-wide fuel shortage leads to a cascading collapse in all kinds systems at all levels.

    This cascading collapse theory of Korowicz’s seems to imply that there is no adaptive resilience in our entire social, governmental and economic system or that it will be totally overwhelmed. It seems to imply that once collapse starts there will be no effective adaptive reactions at all and that no secondary or ancillary systems or methods can be commenced or pursued to halt (even for a while) the collapse. While positing total interconnectedness he is also positing zero effective reactivity and adaptiveness. If complex human systems were that un-reactive and un-adaptive, one might think they would immediately collapse in any conditions of total war.

    On the other hand (I am arguing Korowicz’s case here), our historical position is unique now. At the time of the last total war (WW 2), the world was a long way from resource exhaustion and limits to growth. We could afford, as it were, to destroy a lot of capital goods and people because much more and many more of both could be re-generated from a still large bank of natural capital; forests, fisheries, wells, mines etc. The Americas and Australasia remained largely productive and undevastated by war and could produce for the allies. American men, materiel and resources kept Britain and Russia in the war (Lend Lease, Atlantic and Murmansk convoys and so on). Now, we can afford no great losses because they can never be made up again. Thus Korowicz’s total systemic collapse thesis does carry considerable weight.

    Nevertheless, I see global collapse initially carrying with it “only” those countries which are not still substantially self-sufficient. Phase one, which has already commenced, is a differential resource shortage. Resources are tight (like peaked conventional oil) but the “big gorillas” (Russia, China and USA) are still getting enough or almost enough. The “little yapping allies” like Australia and UK ride on the coat-tails of a big Gorilla (US in their case) and so get enough for the time being. Medium, small, backward and peripheral countries without enough allies or on empire fault lines start to experience problems; Tunisia, Syria, Egypt, Yemen, Syria, Iraq, Afghanistan, Ukraine, Venzuela and so on. This is phase one.

    Phase two will see global trade in key commodities collapse, especially and first in oil and food. More nations will fall into the “export land” category as Egypt has for example. They will use all domestic oil and gas and food and have none to spare for export. Of the big gorillas, Russia will be self-sufficient in oil for quite a while yet, China will buy as much oil as it can (from those who are still trading like Russia and Saudi Arabia) and the US will survive on a mix of US, Canadian, Meso-American, South American and Saudi oil. Countries like Japan and Sth Korea will struggle to secure oil in phase 2. The EU likewise will struggle, though Germany may well do deals with Russia for oil.

    With the collapse of globalism, regionalism will take hold with regional hegemons controlling matters. The US will continue to dominate the Americas and two oceans (Atlantic and Pacific). Russia will become the central Asian-European hegemon excepting China. Australasia will likely find a way to survive as a US ally in the Western South Pacific. Australasia holds the southern flank of the western Pacific just as China and Japan hold and contest the northern flank. It will eventually be in the USA’s interests to blockade sea routes to China and limit its access to oil (to keep remaining Arabian oil for itself. Russia may well judge the weakening of China as being in its interests too and limit its oil exports to China. China will collapse without access to resources from the rest of the world as China is in severe ecological and resource consumption overshoot.

    Russia, USA, Brazil and Australia have enough resources or access to enough resources to decline in a managed way IF they apply the right policies and build workable regional systems. The rest of the world will collapse very badly at this point (phase 2) there is little doubt about that. Eventually, Russia, USA, Brazil and Australia may well collapse totally too (phase 3). Each phase could last 10 to 20 years or maybe as little as 5 to 10 years from now. I suspect the shorter time spans are more likely.

    Punctuated equilibria for Russia, USA, Brazil and Australia will mean collapse via a series of new, semi-permanent stable system states, each state lasting as little as 5 to 10 years. Then there will be another crash to a lower state. In each semi-permanent stable state, the politicans and citizens will claim or believe that the national crisis is over and things will continue OK or even get better again. Then, another crisis will hit and batter people (and populations) down to a lower level again.
    The end-point is difficult to predict.

    • Stilgar Wilcox says:

      I think you are probably correct Ikonoclast, the collapse will be in fits and starts with varying degrees dependent on locale. I’m also of a mind there may be step down that will be a sizable shark fin drop that gets caught by a concerted response. The problem ultimately is the extent of complexity coupled with 7.2 billion people. What goes up must come down.

      • CTG says:

        Hi to all and many thanks to Gail, Jan, Ikonoclast, Paul, et al for the information posts. This is probably one of the best forums without any “uninformed comments”. I have followed the peak resources forums since 2004 but I did not participate in any discussions until now as I believe there are many points that I can contribute. I work in a semiconductor factory in South East Asia and I can give you some points from the perspective of an engineer working in a factory.

        In the financial crisis of 2008 (post Lehman), our factory was nearly shutdown for the very simple fact that we cannot get our spare parts and supplies. The reason – letter of credits are not acceptable as banks do not trust each other. In our factory, if we miss any process steps, the product will not function and there are hundreds of steps in it (high complexity). The spares for the high tech machines comes from every part of the world – China, USA, France, Japan, Korea, etc. So, when any of the parts were out of order (which is quite frequent due to the complexity of the machine) and we cannot get it, it was bad news for the factory.

        It was because of the Central Bank printing (Fed, BOJ, etc) that managed to instill the trust back and credit was given again and commerce flowed again. Now, I am not too sure if this will work again as Central Banks have been printing like crazy. Basically, a lot of manufacturing, be it simple ones like making shirts (I have seen a few high tech laser cutter in that factory), toothbrush, paper to the high tech ones like semiconductors and cars is highly complex and a single problem will bring the entire production line down.

        There are points that I would like to bring out for discussion, especially when it comes to “catabolic collapse” (small step wise collapse) which I feel will not happen

        1. Supply chain and JIT. Our factory is a prime example where a simple part shortage will bring the entire factory down. In the 1940s, 1950s, you can still buy a “Made in Australia” t-shirt or a “Made in UK” toothbrush. Everything is localized. So, even if UK or Japan disappears, the people of 1940s may not be even aware of and it does not matter as life goes on. Now, not a country, be it developing like Thailand or UK/Germany can survive alone. Close the borders and see what happens. Globalization has painted human civilization to the corner and there is no resilience. Do you still produce your own toothpaste, wires, transistors, dresses, fertilizers, paper or any mundane and simple stuff?

        2. Skills – We are too specialized. As an example, our machines are designed by a company but the expertise is scatter everywhere. Motors are designed in Japan, robot in Germany and assembled in China. If you have a problem with the robot, the Japanese guy will help you (via conference call to Japan). Scaling up, I would say that after a collapse, all equipment, be it wind turbines, solar cells, hydroelectric generators, water turbines, etc would be useless. because no one knows how to repair or even operate it. It requires special skills. If there is a die off and the only person in town pass is not available, then all is lost. In my factory, I don’t even know how to operate other department’s machine due to the complexity of the machines and process. There is no way you are going to call up GE Japan for the spoil water turbine in the hydroelectric bank. Even if you can them up, you don’t even know how to start or repair it.

        3. Complex supply chain – I would pin point globalization as one of the greatest “hidden threat” to civilization. Our machine requires parts that is made in Japan and in that plan in Japan, they use machines that is designed in Singapore and parts sourced from Canada, etc. Everything is interlocked and a cog out of this massive supply chain wheel will ensure that everything is down. In a post collapse world, you may have a shoe factory in town but do they have the raw materials like rubber? How about the machine parts? Can they get the spares from the suppliers who are also in need of spares for their machines? This is a never ending chain and if one part is not available, the whole chain collapses. Even if Russia has lots of natural resources, do they have the skills (if many engineers, geologists and other skilled people died off) and the machine/tools to extract the resources? We don’t even need to look at complex industries like petrochemical or pharmaceuticals. Just look at making nails, cloth, paper, hand tools. Do we have the expertise, materials, skills, knowledge and machines to produce them. In developed countries, all these are exported to China, Vietnam, Thailand, etc and probably none available locally (or for that matter in the country).

        For developing countries, they too are dependent on other countries. Due to mass production, simple items like plates, toothbrushes are produced by high-speed, high volume machines and when the parts spoil (which can be frequent), then all will be lost as no one knows how to make a toothbrush without using machines.

        4. Speed of information dissemination – in 1900, during the Tunguska comet crash, no one knows and everyone carried on with their lives. Now, with internet, a bank problem in India or the Crimean war (looks like potentially may set off WWIII) may cause the whole world to crash financially. Information spreads too fast for humans to comprehend. People may take drastic actions due to this extremely fast “speed of information spread”. Our brains are still wired for hunter-gatherers’ lifestyle.

        4. Interconnectedness – this is also a killer. Imagine if there is a large asteroid crashing to earth in 1 month’s time and it was leaked out. People would stop working as they want to spend the last days with their loved ones. The truck driver stops, the bank teller stops, the cashier at the supermarket just took unpaid leave, the engineer at the power plant stops working. Guess what – the whole society collapse in 3 days – no food (no supermarket), no water, no money, no electricity, no public transport, etc. The same does for “deadly virus” attack – no one wants to get infected and stays at home. Before long, all will be dead due to starvation. This will not happen in 1900 as “information dissemination is slow’”, products/food are locally sourced/made (no globalization), mass public transport (cars, planes, etc) is not very good and interconnectedness is low. Some are may collapse faster and some are not.

        5. Electricity/internet – everything requires electricity. If it is out, then everything is out. Fuel pumps, water pumps, refineries, supermarkets, banks require electricity to operate. In 1960s, we still have banks that use paper and pen and it takes days to get the cheques cleared. Now, we depend on electricity to operate ATMs and internet to have instantaneous money transfer halfway across the world. If there is a Carrington event or EMP attack and the transformers or electricity production facilities are damaged, then we are in deep depp trouble. The “speed of information dissemination”, “interconnectedness”, “specilaized skills”, supply chains, JITs, globalization will work together to ensure that die-offs will be fast.

        We are too globalized and interconnected. We need others and just a small cog out of the wheel will cause disaster. We are not as resilient as we were in the 1950s. I would say that if collapse happen in 1950s, then we will have uneven collapse where some areas will collapse and some areas not. Now, every part of the world, be it is small village in India (their farmers depends on the local grocery stores for some of the food and fertilizers, their motorcycles requires oil and parts from China or Japan) or a large city like London, we need a complete chain of supports for out daily lives and if any parts are taken away, it will fall apart rapidly.

        2008 Lehman Brothers’ collapse was a wakeup call but unfortunately, no one took heed. The printing goes on and yes, it buys us another day. I am grateful to be alive every day and treat every day with joy and live life the fullest. I had many different opinions and outlook for diminishing resources until today where I feel – are we alone in the universe? If alien lifeforms follows out style (greed, short-termism), then it is unlikely that we have an advanced alien life form in the universe. Indeed intelligence is a lethal mutation.

        • Steve Rodriguez says:

          I hold hope (cannot we exist without it?) that our intelligence lags our full potential. We have much to learn from collapse. And yes, I suspect you are right, the bottom will drop out on globalism. But that does not equate with a complete loss of knowledge or failure to adapt in all regions. The size and location of these regions is what we hope to know. But where this potential to grow and learn persists within those regions will be randomized and difficult to predict. The value of individuals will increase as the value of the network, even if temporary, decreases.

        • Thanks for your “boots on the ground” post. You can give kinds of real life examples that it is hard for David Korowicz and others writing about the interconnectedness of our society to tell about. I am afraid you are right. As an engineer, you see things as they really are.

          Nearly everything we have is so complex, and requires so many inputs from elsewhere that without a very interconnected world, we would lose essentially all fuels, all electricity, and all manufactured goods in not very long. Even recycling would likely be beyond us, because it usually requires heat and transport. We certainly couldn’t repair a modern wind turbine or a failing inverter for a Solar PV system. The question is how much people can do without much in the way of inputs–Can people use what they still have that is working (shovel, wheel barrow, seeds) to grow some food? How about finding and boiling water? Can they supplement what they grow with wild food? It looks like a challenge, most everywhere.

          • Paul says:

            Those are logical conclusions.

            In terms of preparing for what is coming I think Jan mentioned stocking up on tools and other things that we take for granted.

            I am trying to put myself in that mindset and imagine what I might need when the shops are empty. And I am buying multiples of everything – saws, hammers, chisels, shovels, picks, axes, pots, pans, large water containers, tarps, loads of books, extra canned foods, jars, etc…

            I still think it is useful to have some physical gold – it may prove useless but perhaps not – certainly more useful than owning stocks or bonds… which are definitely going to be worthless (but can be used as wall or toilet paper in a pinch)

          • CTG says:

            Gail, I fully agreed with you on the fact that “debt” will be critical. Without any credits, suppliers will not supply anything and the supply chain will be broken as what I have experienced in 2008.

            As engineers, we can be resourceful and improvise but there are many things we cannot do as it is way too complicated and at times “proprietary” and you have no idea how it works. Gone were the days when people can just open up something and reverse engineer. It is far too complicated now.

        • xabier says:

          CTG

          Your experiences and examples from industry show that Korowicz is far from being an alarmist.

          Not only has globalisation reached a pitch of dangerous fragility, but most developed regions are now unable to manufacture even the most basic goods, let alone the whole of more complex machinery and devices.

          This is a key feature distinguishing this epoch from any other that has gone before. When Rome collapsed, most basic items could still be made – not in the old slave factories but by rural people themselves, smiths, tanners and woodworkers. Urban centres decayed or vanished at different times in various locations, the arts mostly disappeared and communications were disrupted, but the solid base of an agrarian civilisation endured.

          The hollowing-out of manufacturing capacity which has taken place post-WW2, and in fact mostly over the last few decades with transfers of production to developing Asia and the poor regions of Eastern Europe is something that the proponents of industrial civilisation in the 19th century would never have envisaged. Nor would the ruling elites have permitted it, given the intense armed rivalry of national states each requiring its own industrial independence to survive.

          • CTG says:

            Xabier, enjoyed all your posts and comments. It is almost possible to share this kind of information with others. Even my wife finds that I am “pessimistic” and things will work out well. We are just too dependent on others for our lives and the dependency can stretch across the other side of the globe….

            • Interguru says:

              I was just talking to a friend who is quite up on all the issues we are talking about, but he feels that the world financial confidence game ( in both senses of the word ) can go on forever.

            • xabier says:

              CTG

              If people in general really understood what was going on in that 2007 -2008 period they would be pessimists too, I dare say. So effective and prompt was the action taken to ensure that credit lines remained open and goods continued to move internationally, that, ironically, the crisis itself passed almost unnoticed by the general public – only the side effects (not wishing to minimise them!) have registered: loss of employment, destruction of savings, etc.

              Maybe it is the case, too, that some matters are so fundamental they can’t readily be discussed: difficult to raise and too worrying to contemplate. And we are now most of us removed from the realities of production in a way inconceivable before, except to the very highest elites: how do you take note of the fact that an industry has vanished from your country, or couldn’t function without the global supply chain if you are not actually in it?

    • Paul says:

      I see your point however what I always get stuck on when I find myself being optimistic is the food issue.

      How do you feed 7.2 billion people when you do not have cheap oil and gas (or perhaps any oil and gas because exploration and extraction stops because nobody can afford to buy and there is no capital to invest) to continue to industrial farm?

      Combine that with total chaos as the global financial system and supply chains crash — and I can see how Korowicz is likely to be correct that we go off a cliff rather than tumble down a hill — hit a flat spot – then tumble again.

      It would be nice to be wrong.

      • Ikonoclast says:

        Well, I am still saying 4/5 ths will go off the cliff. The remaining 1/5th might last a while declining all the while, up to 50 years for the luckiest. That hardly makes me an optimist.

        As I say, I believe Russians, Nth Americans, Brazilians and Australians can hang on for some time. That is due to the remaining distribution of resources coupled with not too high populations in those zones relative to those zones’ resources. It also takes into account military power. Remember, collapsing slowest in a collapsing world makes you relatively more powerful as time goes on. Russia and USA will become relatively more powerful simply by having the capability to collapse slower.

        Russia will enough resources for itself for another 50 years at least. USA will need considerable resource help from Canada, Brazil and Australia to do the same. There will be alliance benefits for these nations in standing by the USA.

        I don’t believe the whole world will go in the first collapse. That’s like believing all humans will die in a single great epidemic. That is never the case. There are always resistant pockets of population. With civilization, the resistant pockets will be the currently strongest with the greatest reserves; large regions still well resourced internally across the spectrum of all major resources, thus capable of regional autarky, for a time.

        At the same time there might be a kind of bifurcation in survival. The resource rich regions which are not too over-populated will survive with some civilization intact. But people is some very poor areas of the world may survive too where there are basic resources. For example, some survival of the poorest will likely occur in tropical Africa by going back to a jungle tribal existence. Or in Java by going back to 19th C techniques. However, the poor in ruined countries like say Syria or Haiti have no hope. In Haiti, their half of the whole island is so denuded and eroded you see the spot difference between it and the Dominican Republic in satellite photos and see exactly where the border is from space.

        • Paul says:

          There is also the issue of the thousands of hot nuclear ponds around the world that need cooling… I have read that if the pools in Fukushima along overheated and exploded that would have 100x the impact of Chernobyl…

          One would hope that the ‘Plan B’ involves somehow prioritizing the maintenance of the nuclear swimming pools….

    • One way I see the downslope as different from you is that I see the collapse of central governments occurring after not too many years, because it will be too difficult to cut back benefits and costs of the current system sufficiently. Thus we can’t talk about the US, and Russia, or perhaps even China. Instead, there will be many smaller units, with varying kinds of local warlords or other inexpensive governance. Different countries may have financial systems, but they won’t necessarily be interchangeable. After several years, electricity and oil won’t generally be available. The question is what types of agriculture and water delivery systems can up developed and maintained under such conditions? We won’t have enough draft animals or acreage for draft animals, among other problems.

      Other details may include nuclear power plants that have stopped operating but have lots of spent fuel in ponds that are not being tended. And local fighting over resources that seem to be available.

      I have a hard time seeing these kinds of conditions supporting a world population of 1 billion. But will population drop all the way down? It is hard to know. There may various groups that succeed in local areas, using different models, depending on the particular area.

      • John Drake says:

        At page 11 of his 2005 “Long Emergency” JHK indicates that a potential Plan B might involve the deployment of “designer” viruses against “superflous masses” after having inoculated an elite of select survivors.

        That “methodology” might allow a rapid and relatively controlled planetary population drop to a level where a high tech civilization would be sustainable for a relatively long period of time using the remaining positive EROEI fossil fuel reserves. It would also allow the survival of a high tech elite capable of taking care of the currently existing +400 nuclear fission power plants and +1000 cooling ponds for highly radioactive spent fuel.

        The objective would essentially be to enable high tech human civilization to survive until aneutronic controlled thermonuclear fusion is achieved and able to take over from fossil fuels to power electricity generation and transportation. A longer term objective would be to identify one or more virgin “other Earths” circling around nearby stars (the Kepler satellite or a more sophisticated military version has probably already done that) and finding a way to rapidly send exploratory crews followed in short order by colonists. The physics of faster than light space travel is also being currently looked into in some discrete “black labs”.

        Of course, there is always the possibility that the implementation of the above mentioned experimental population reduction biotechnology might backfire and result in the creation of a global zombieland…

        • Jan Steinman says:

          “survival of a high tech elite”

          Yea, but who would clean the toilets? Who would sew the cheap clothing? Who would grow the food?

          It’s typical of elitists to dismiss the value of the vast pyramid of humanity, upon the apex of which they sit.

          Every such person should be require to read Yertle the Turtle.

        • Ann says:

          Yes, this idea has been explored in Oryx & Crake, by Margaret Atwood. Worth reading.

        • This line of thought is getting into the over-the-top area. I expect there is a real possibility of any kind of bacteria morphing in an unintended way, and making the situation come out much worse than planned.

          Getting an economy “restart” with a much smaller population would seem pretty difficult. The population would be widely scattered, but the number of roads and electrical transmission lines wouldn’t go down proportionately (or at all). Oil pipeless would remain as long as in the past, and would need repair because most were installed years ago. (In fact, all of these things would need repair.) We would need to ramp up debt again, to get the system going well enough to extract what would now be considered sufficiently high EROEI reserves. It would be hard to get the economy to “grow” because so much would be needed for maintenance (assuming other hurdles could be overcome).

          • Christian says:

            Have to selectively immunize a precise amount of people according to each profession, task or job, not to be missing something important the day after. It’s to save a sample of general population and all TPTB. People as me and Gail, who are doing nothing upon capitalist standards, would be among the casualties, of course. After this, and to help people forgetting their pain for relatives lost and such, babies, growth and consumption are decreed untrammeled. The system continues for a couple of extra decades and then another population crash. In time, they would abandon some areas, countries and finally entire continents. This until TPTB must finally clean their toilet.

          • John Drake says:

            The implementation of a Plan B à la JHK would of course require some detailed preparatory thinking and most likely a new “war type” of leadership and economy…

            In order to be able to maintain a functioning coherent society, most presently occupied cities and large parts of the planet would need to be deserted so that you can concentrate the remaining resources in some well selected areas. Of course, you would need to have a full spectrum of skills assembled and in particular sufficient specialized resouces to safely take care of the current +400 nuclear fission plants and +1000 cooling ponds for highly radioactive spent fuel rods to avoid blowups and widespread radioactive planetary contamination.

            After “D Day” only clearly defined previously identified strategic planetary assets would need to be maintained (for example key oil fields, mines, pipelines, ports, roads and airports). Outside specifically designated living, producing and agriculture areas, the natural forces of Gaia would be free again to slowly make a grab back.

            All the available remaining human, technical and energy resources would then be focussed on developing a high EROEI energy source to substitute for the remaining but now more slowly declining fossil fuel reserves. Hopefully, controlled aneutroninc thermonuclear fusion reactors would be developed before the remaining high enough EROEI fossil fuel reserves are exhausted.

            Once this objective had been achieved, human population would be allowed to once again expand. But relatively rapidly, on a historical scale, the fundamental limits to growth
            issue would confront human civilization if it limits itself to Earth based resouces.

            Hence, the need to eventually spread human civilization to the resource rich “oher Earths” circling around other stars throughout the known Universe.

            As strategic Earth based resources irremediably vanish, the objective of finding a way to colonize “other Earths” will become more pressing. This issue is already being considered in discrete groups and methodologies to reach the new “high frontier” are currently being looked into.

            Humans are Gaia’s children. She would be most pround to see her childs one day freely walking among the stars

            • Paul says:

              I don’t see this happening

            • You may think all of these things can happen for high EROEI energy sources, but it really depends on how long we can keep the financial system and other critical parts of today’s economic system working. If we can’t keep things working together, it doesn’t matter how high the EROEI is. EROEI is simply a measure of how things work today. I think of them as being similar to taking measurements of today’s sofas and chairs. If you have to move, and can’t take today’s sofas and chairs with you, then today’s measurements don’t really matter.

              I have been saying that they only things that continue to work after a crash have very short supply chains–for example, cutting down a tree for fuel with an ax. EROEI doesn’t measure length of supply chain.

              I don’t think we are going to have to worry about populating other earths. Instead, we will need to worry about walking to the nearest stream for water.

  21. Christian says:

    Gail, you do great things.

    A friend worked all his life on steel design. Meanwhile, he built up a good collection of knifes, both of his invention and others. It was mainly composed of survival knives, and the group’s jewel was an impressive piece of steel holding thirty features, tools and weapons alike. The handle housed a fishing set, needles and so on; and in case all this was to be proven insufficient, a cyanide pill was packed at the end of the slot. I wonder where that knife happens to be right now, it would be good to have such a magic pill at reach.

    Remember Soylent Green movie? In real life Soylent has become the trade mark for a “food substitute”, and raised some millions last year heading industrial scale. In their site, they ask “What if you never had to worry about food again?” Rosa Labs, the company owning the brand, said the first shipment of US based orders would occur this month.

    Site: https://campaign.soylent.me/soylent-free-your-body

    • Jeremy890 says:

      And to think I’ve been living solely on Eggos all these years!
      Great idea and having a supply of Soylent might come in handy, but to depend on the post office supply chain?
      Oh, In Florida there was an article about alternatives to a cyanide pill. Appears the latest fad is buying a clear plastic head hood and going to one of the chain stores and buying a small container of helium. Anyway, why worry? I am amazed at the lack of concern of fellow co workers, especially the young. Better let me be free of anxiety and stress and enjoy the few youthful free years. Like Gail stated, everything is baked in the cake and we are waiting for it to come out of the oven.

    • That is pretty bizarre with respect to naming a food substitute “Soylent.”

      And I appreciate your compliment.

  22. Stilgar Wilcox says:

    I think you are probably correct Ikonoclast, the collapse will be in fits and starts with varying degrees dependent on locale. I’m also of a mind there may be step down that will be a sizable shark fin drop that gets caught by a concerted response. The problem ultimately is the extent of complexity coupled with 7.2 billion people. What goes up must come down.

    • Stilgar Wilcox says:

      Sorry, this got posted in the wrong location, so I reposted it higher up the thread.

    • InAlaska says:

      I really don’t see how collapse can happen in “fits and starts”. Either we are interconnected or we are not. In the case of our global civilization, everybody needs everybody else to make the system work. Globalization was the death knell of civilization and we won’t know it until its upon us. Contagion in one part of the globe will spread rapidly to all parts. Or as Billy Joel once wrote, “and we’ll all go down together…!”

  23. VPK says:

    Another breakthrough coming in oil technology that will reduce exploratory costs by 90%!
    Maybe a FEW MORE years to go as we squeeze the well a bit more:
    http://oilprice.com/Energy/Energy-General/New-Spy-Technology-to-Spawn-Oil-Revolution.html

    Wouldn’t that be good news for us old timers, but not for the climate

    • Our problem is that we need improvements that could be made immediately (or sooner). Even new technologies are now too late. The American Petroleum Institute estimated a few years back that the average new innovation took 17 years before it was used widely. It takes a while to “get the bugs out,” train enough people to use the new technology, and all of the other details involved.

      • garand555 says:

        Our problem is that improvements needed are a cheap energy source that we can use to manufacture viable liquid fuels without using so much of our economic input that we cannot afford basic necessities. While it may be possible to adapt some of our knowledge towards this, I see nothing that would work for 7.2 billion people. However, if it came down to “do or die,” I suspect that all sorts of red tape would get cut, attitudes would change towards new technology, and 17 years would seem like an eternity. But that still doesn’t deal with 7.2 billion people, and it still doesn’t deal with all of the other problems for the environment that our civilization creates.

        • Jan Steinman says:

          “Our problem is that improvements needed are a cheap energy source that we can use to manufacture viable liquid fuels without using so much of our economic input that we cannot afford basic necessities.”

          The present exponential growth can not continue for the next millennium. By the year 2600 the world’s population would be standing shoulder to shoulder and the electricity consumption would make the Earth glow red hot. — Steven Hawking

          Given an infinite source of energy, population growth still produces an inescapable problem. The problem of the acquisition of energy is replaced by the problem of its dissipation. — Garrett Hardin

          We don’t need “cheap energy.” We need fewer people. And energy causes people, not the other way ’round!

          • garand555 says:

            And while I didn’t directly address that, I did allude to it:

            “But that still doesn’t deal with 7.2 billion people, and it still doesn’t deal with all of the other problems for the environment that our civilization creates.”

            And I will also state that we don’t need industrial civilization for humans to wreak havoc on the environment. With or without industrial civilization, there are just too many of us. The problem with this issue is the simple fact that bringing it up brings up images of things like eugenics and dystopian fiction such as Logan’s Run. If we want to have a sustainable future, industrialized with some new form of energy or not, we will have to get over these biases and realize that some form population control is necessary. Otherwise, the population control mechanism is going to be mother nature, and she is ruthless.

          • garand555 says:

            RE: “Energy causes people and not the other way around.”

            That got me to thinking about a lecture that I attended several years ago. I cannot remember the name of the woman who gave the talk, but she was a CS professor at UNM. She had been modeling biological systems, and one of the things that she stumbled upon was a relationship between energy usage and reproduction rates. Specifically, she found an inverse (and non-linear) relationship between energy consumption of animals and reproduction rates.

            IIRC, she was looking at something to do with size when she started on her trek down this road, but it is been long enough that I may not recall correctly. Nonetheless, when looking at an individual animal, size is generally proportional to that individual’s energy consumption. An elephant eats a lot more than an ant, for an extreme contrast. She was also very clear that this was based on population averages, and individuals within a population could vary widely from the average. However, she showed the data, and the conclusion was sound, IMO, that the more energy consumed on a per capita basis, the fewer offspring on average on a species wide level.

            She didn’t stop with wild animals. She also did a comparison among various human populations. I’m sure that you’d agree that Zimbabwe and Bangladesh have very different energy consumption rates on a per capita basis than the US and Europe. She found that the exact same relationship between per capita energy consumption and reproduction rates fit when comparing various human populations. Americans, consuming energy as though they were bigger than King Kong, on average, reproduce less than people in Bangladesh. In fact, if you get population growth data that is disaggregated to exclude immigration, you would find that places such as the US, much of Europe and Japan actually have declining populations sans immigration.

            We have thrown things further out of a natural balance by providing some of the benefits of high energy use populations to the lower energy use populations. Shipping food to starving populations is one example. Providing modern medical technology, and thus extending lifespans is another. I’m not making any sort of moral judgment on that either, I’m just trying to state what is.

            My point here is that energy consumption and population growth is a lot more complex than “energy causes people, not the other way ’round!” Energy *allows* more people, but it does not *cause* them. I cannot deny that with increased energy use came increased population, but there is more to the picture than just using energy to drive cars, produce food and refine metals. It is the role that energy has played in extending our lifespans and reducing infant mortality that we also need to turn an eye to. For the past 100-200 years, energy use has reduced our birth rates more slowly than it has decreased our death rates.

            But, again, I must stress that energy use and population is not as simple as more energy causing more people.

            • Paul says:

              Someone posted this the other day:

              Food availability and population growth

              The people of our culture take food so much for granted that they often have a hard time seeing that there is a necessary connection between the availability of food and population growth. For them, I’ve found it necessary to construct a small illustrative experiment with laboratory mice.

              Imagine if you will a cage with movable sides, so that it can be enlarged to any desired size. We begin by putting ten healthy mice of both sexes into the cage, along with plenty of food and water. In just a few days there will of course be twenty mice, and we accordingly increase the amount of food we’re putting in the cage. In a few weeks, as we steadily increase the amount of available food, there will be forty, then fifty, then sixty, and so on, until one day there is a hundred. And let’s say that we’ve decided to stop the growth of the colony at a hundred. I’m sure you realize that we don’t need to pass out little condoms or birth-control pills to achieve this effect. All we have to do is stop increasing the amount of food that goes into the cage. Every day we put in an amount that we know is sufficient to sustain a hundred mice and no more. This is the part that many find hard to believe, but, trust me, it’s the truth: The growth of the community stops dead. Not overnight, of course, but in very short order. Putting in an amount of food sufficient for one hundred mice, we will find — every single time that the population of the cage soon stabilizes at one hundred. Of course I don’t mean one hundred precisely. It will fluctuate between ninety and a hundred ten but never go much beyond those limits. On the average, day after day, year after year, decade after decade, the population inside the cage will be one hundred.

              Now if we should decide to have a population of two hundred mice instead of one hundred, we won’t have to add aphrodisiacs to their diets or play erotic mouse movies for them. We’ll just have to increase the amount of food we put in the cage. If we put in enough food for two hundred, we’ll soon have two hundred. If we put in enough for three hundred, we’ll soon have three hundred. If we put in enough for four hundred, we’ll soon have four hundred. If we put in enough for five hundred, we’ll soon have five hundred. This isn’t a guess, my friends. This isn’t a conjecture. This is a certainty.

              Of course, you understand that there’s nothing special about mice in this regard. The same will happen with crickets or trout or badgers or sparrows. But I fear that many people bridle at the idea that humans might be included in this list. Because as individuals we’re able to govern our reproductive capacities, they imagine our growth as a species should be unresponsive to the mere availability of food.

              Luckily for the point I’m trying to make here, I have considerable data showing that, as a species, we’re as responsive as any other to the availability of food — three million years of data, in fact. For all but the last ten thousand years of that period, the human species was a very minor member of the world ecosystem. Imagine it — three million years and the human race did not overrun the earth! There was some growth, of course, through simple migration from continent to continent, but this growth was proceeding at a glacial rate. It’s estimated that the human population at the beginning of the Neolithic was around ten million — ten million, if you can imagine that! After three million years!

              Then, very suddenly, things began to change. And the change was that the people of one culture, in one corner of the world, developed a peculiar form of agriculture that made food available to people in unprecedented quantities. Following this, in this corner of the world, the population doubled in a scant three thousand years. It doubled again, this time in only two thousand years. In an eye blink of time on the geologic scale, the human population jumped from ten million to fifty million probably eighty percent of them being practitioners of totalitarian agriculture: members of our culture, East and West.

              The water in the cauldron was getting warm, and signs of distress were beginning to appear.

              More http://www.oilcrash.com/articles/frog.htm

            • garand555 says:

              I suspect that there is some relationship between what the woman I was talking about found and food consumption. Like I say, we made up for lower birth rates by lower infant mortality and increased life spans, but with fossil fuels, we’ve added an extra dynamic to the picture.

              “But I fear that many people bridle at the idea that humans might be included in this list. Because as individuals we’re able to govern our reproductive capacities, they imagine our growth as a species should be unresponsive to the mere availability of food.”

              I suspect you’re right about that. People want to believe that we’re extra super special because we’re human. I also suspect that we’d behave the same way the rest of the animal kingdom does. Somebody on this blog mentioned the Edo period of Japan a few articles ago, so I looked into it. It seems as though they had sound agricultural practices, and once their food production quit growing, so did their population. They comfortably supported 25-30 million people for quite some time. They also had some aspects to their society that are generally associated with the excesses generated by industrial society. It wasn’t until Japan started to modernize that this changed. That tends to support that humans will act like animals under those circumstances.

              It seems that one way to achieve population control is by making it exceedingly costly to get food that is not grown locally in conjunction with intelligent resource management. That ties into what Mark Boslough thinks: It is exceedingly stupid to tax labor (income,) and we should instead be taxing waste.

              Unfortunately, IMO, we are already in a state of population overshoot even without worrying about oil running out and global warming.

            • Jan Steinman says:

              “when looking at an individual animal, size is generally proportional to that individual’s energy consumption. An elephant eats a lot more than an ant”

              No, it’s a second-order relationship, not proportional.

              While it’s true that elephants eat more than ants, if they ate proportionately more, they’d denude Africa and India in a matter of days!

              “a CS professor at UNM… found an inverse (and non-linear) relationship between energy consumption of animals and reproduction rates.”

              I’d like to see that replicated by an ecologist. My experience with CS people (well, “experts” in general) is that they tend to think they know a lot about other fields, simply because they know how to manipulate abstract information.

              But sure, I agree that it is somewhat more nuanced in the case of individual populations, but in the aggregate, you can’t argue that increasing availability of energy has not correlated with more human biomass!

              Part of this is that, as you’ve pointed out, the death rate has decreased faster than births have decreased. That’s still energy causing more human biomass, no?

              So I’m not necessarily conflating energy with birth rate, just with the sheer number of people. Sorry that wasn’t more clear.

              In particular, the WORLD3 models used in Limits To Growth show birth rates actually increasing as resources (energy) and total population decline.

              Traditionally, reproduction was both a slave labour force and an old-age pension. If you replace those with fossil sunlight, it makes sense that birth rate would decline, even as overall population increased.

              So somewhat paradoxically, if the decline of fossil sunlight means we don’t have 200 energy slaves following us around — nor the failure of pension funds, due to reversal of economic growth — we may find the age-old reasons for reproduction re-asserting themselves, even as overall population declines.

            • garand555 says:

              “I’d like to see that replicated by an ecologist. My experience with CS people (well, “experts” in general) is that they tend to think they know a lot about other fields, simply because they know how to manipulate abstract information.”

              That would be poisoning the well. It was interdisciplinary research that included not only CS people, but physicists, biologists, etc… She happened to be the one presenting it. I tracked her down. Her name is Melanie Moses, and here is a paper in Ecology Letters, which while is not hers per se, she is listed as having corresponded on:

              http://cs.unm.edu/%7Emelaniem/pdfs/MosesBrownEcolLet2003.pdf

              (I haven’t read the entire paper yet.)

              The fact that it was interdisciplinary research gets into Tainter’s ideas about why technological innovation won’t stop us from suffering a complexity collapse, but that’s another topic.

              “In particular, the WORLD3 models used in Limits To Growth show birth rates actually increasing as resources (energy) and total population decline.”

              Which is 100% consistent with the research that she presented. Part of my point was that population growth and energy consumption are more complex than it looks on the surface. We see the increase in population corresponding with the increase in energy, and rightfully so, but the relation is more subtle than a simple linear more energy = more people.

              The next question is, now that this relationship that has been observed, under what conditions does it hold true? For example, if we found an alternative to oil, but there were only 250,000,000 on the planet, would other factors, such as a greater per capita availability of food, or a simple greater availability of space override this relationship? What about going the full imaginative extreme and thinking about if we wound up with energy sources ala Star Trek? We’ll likely never know the answers, but it is fun to ponder, and it is also worth noting that if the relationship holds true even in some of the more extreme scenarios, it would be possible to have a stable population at much less than 7 billion if energy use were high enough. Or low enough to bring death rates up. I would say “take your pick,” but that choice may be made for us.

          • Tom Murphy makes some of those same points on his blog.

  24. Paul says:

    I’ve seen a few comments about a debt jubilee — and that perhaps debt does not matter.

    Letting Lehman go could be considered a dry run for a debt jubilee – that was like Bernanke taking a peak behind the current and the vicious beast slashed half his face off. He quickly put the lock back on the curtain and meekly scampered off for some sutures.

    I think it is simply ludicrous to suggest that we’d come out the other end of a mega-Lehman event smelling like roses.

    Debt matters. More so in a complex globalized economy.

    • Quitollis says:

      By the way, usury, money lending for interest was always seen as fudamentally unjust and as a great moral evil and Christians were banned from practicing it (see the Summa Theologica). The Roman church and state gradually introduced theoretical distinctions to allow for money lending (see the texts of the ecumenical councils.) AB Welby still complains about the worst excesses.

      Usury capitalism has given us a good run for our money but ultimately it is the mechanism that has destroyed our civilization. Just saying.

      • Ellen Anderson says:

        This is so true and I am surprised more people aren’t saying it. When I get one of those cold calls trying to persuade me to get a credit card I always give them a good lecture on the evils of usury. Wonder why those cold calls are declining?

        • Christian says:

          As every social construction, debt has its goods and bads. Quillotlis is right, our society finally granted too much to finances: people understood finances were leading nature and resources exploitation and came to believe giving them more freedom and power would multiplie the output. It was not, nature has it’s own rules.

      • p01 says:

        Civilization is impossible without usury, sorry. Capitalism does not exist n real life, it’s just bubble-buzzword. Capital is always destroyed, and even the raging high priests of capitalism admit deflation is the natural order of things, without realizing the logical conclusion of this affirmation, because dogma is always more powerful than arithmetic.
        More precisely, usury is the very foundation of civilization. What is this foundation made of, you ask? It’s made by changing human food to something else, and putting it under lock and key.
        Now it’s true that producing food for profit from pure-debt money made the population graph is exponential on a logarithmic scale, which is quite a testament of the power of
        fooling each other with promises, but, admit it, it was fun while it lasted.
        If there are humans left, they will make such stories about this, as were never told about other bubble-times of the past.
        I’m sure they’ll use bubble-words such as we use today, and even have traditional 4-year celebrations were they invoke the gods of democracy, offer prayers to the gods of capitalism and other such customs.

        • Ellen Anderson says:

          I am pretty sure that islamic civilizations existed without usury.

          • They do have work-arounds, though. Wikipedia talks a little about them. For example,

            Applying interest was acceptable under some circumstances. Currencies that were based on guarantees by a government to honor the stated value (i.e. fiat currency) or based on other materials such as paper or base metals were allowed to have interest applied to them. When base metal currencies were first introduced in the Islamic world, the question of “paying a debt in a higher number of units of this fiat money being riba” was not relevant as the jurists only needed to be concerned with the real value of money (determined by weight only) rather than the numerical value. For example, it was acceptable for a loan of 1000 gold dinars to be paid back as 1050 dinars of equal aggregate weight (i.e., the value in terms of weight had to be same because all makes of coins did not carry exactly similar weight).

            • InAlaska says:

              And perhaps this is why the very earliest Christian writings taught that money was the root of all evil. First Epistle to Timothy in the New Testament (1 Timothy 6:10a, NIV): “For the love of money is a root of all kinds of evil.”

              So now, our civilization gets to taste the bitter fruit of 2000 years of money worship.

            • That is a good way of putting it.

              Also, humans can withstand more and more crowding; they just need more and more energy to do so. At some point, a limit is reached. Not enough energy to keep the crowding up. An elaboration on Daniel Quinn’s view.

            • Jan Steinman says:

              “the very earliest Christian writings taught that money was the root of all evil”

              Oft misconstrued, as you yourself note in the following paragraph: it is the love of money that is the root of all evil.

              Money itself is just a tool, which can be misused like any tool.

          • Christian says:

            Just a little usury in the most famous trading civilization of middle ages. A ten thousand kilometers trading line without capitalism, just moving things and keeping some. This is what hypothetical survivors of this miss could get. Would it be a 10 km line…

          • p01 says:

            It certainly did not exist without usury, because it could have not. It is a requirement.

            I’m sorry Ellen, but mathematically debts cannot ever be repaid and civilizations cannot exist without it, because, as Gail has often repeated, interest can never be issued, and such does not exist, only principal can be issued.
            This is an exponential function, so it must implode, mathematically.
            No debt can ever be repaid, ever, no matter the amount of interest charged. The lower the interest, the longer it lasts, and more damage it does when it collapses.
            Ask any 5-th grade student, and s/he will tell you debt is impossible to pay. Use apples as an example: Only Ann has the apple trees, and she lends apples with interest. Can anyone who borrow apples from Ann return the apples that only Ann can grow?
            Ask any high school student, and s/he will tell you so without the apple example, and s/he will be able to demonstrate the debt’s exponential nature as a bonus.
            However, ask a (under) graduate about this, and s/he will insist the impossible is possible, and offer empty words to back that up.

  25. Quitollis says:

    Late summer afternoon session, Mozart Gran Partita for 13 wind instruments, 178X, pre-oil. We can do this again, aristocratic feudalism, refinement, good taste, good manners and high art. Of course nearly everyone is going to die first but we could not have done it otherwise anyway. !! It looks worthwhile, life should be lived in a charming aesthetic ecstasy, sun over green and pleasant rural bliss. Perhaps there is no obvious reason why tomorrow should not be better than today (nueclar containment aside) any more than that today should have been better than yesterday. (Capitalism was always a deeply subversive movement, we should have stopped it way back.) Chin up, good things come to those who wait. “All manner of things will be well!” I am grateful for those best times that have helped to sustain me through the harsh decades. I give thanks to Eternal Nature for my life even so and I am willing to live it just the same again over and over to eternity.

    FROM you, Beethoven, Bach, Mozart,
    The substance of my dreams took fire.
    You built cathedrals in my heart,
    And lit my pinnacled desire.
    You were the ardour and the bright
    Procession of my thoughts toward prayer.
    You were the wrath of storm, the light
    On distant citadels aflare. (from Sassoon, Dead Musicians)

    (Still, are a million of us worth a single Mozart, a single afternoon spent in pure summer bliss? Does any goodness remain in man?)

    • Telegraph road of MARK KNOPFLER capture really well the human industrial evolution.

      All the way down the telegraph road = Down the time line of human industrial revolution.

      A long time ago came a man on a track
      Walking thirty miles with a pack on his back
      And he put down his load where he thought it was the best
      Made a home in the wilderness
      He built a cabin and a winter store
      And he ploughed up the ground by the cold lake shore
      And the other travellers came riding down the track
      And they never went further, no, they never went back
      Then came the churches then came the schools
      Then came the lawyers then came the rules
      Then came the trains and the trucks with their loads
      And the dirty old track was the telegraph road
      Then came the mines – then came the ore
      Then there was the hard times then there was a war
      Telegraph sang a song about the world outside
      Telegraph road got so deep and so wide
      Like a rolling river. . .
      And my radio says tonight it’s gonna freeze
      People driving home from the factories
      There’s six lanes of traffic
      Three lanes moving slow. . .
      I used to like to go to work but they shut it down
      I got a right to go to work but there’s no work here to be found
      Yes and they say we’re gonna have to pay what’s owed
      We’re gonna have to reap from some seed that’s been sowed
      And the birds up on the wires and the telegraph poles
      They can always fly away from this rain and this cold
      You can hear them singing out their telegraph code
      All the way down the telegraph road
      You know I’d sooner forget but I remember those nights
      When life was just a bet on a race between the lights
      You had your head on my shoulder you had your hand in my hair
      Now you act a little colder like you don’t seem to care
      But believe in me baby and I’ll take you away
      From out of this darkness and into the day
      From these rivers of headlights these rivers of rain
      From the anger that lives on the streets with these names
      ‘cos I’ve run every red light on memory lane
      I’ve seen desperation explode into flames
      And I don’t want to see it again. . .
      From all of these signs saying sorry but we’re closed
      All the way down the telegraph road

      • Paul says:

        Superb.

        This is what passes for great lyrics these days…. :(

        Yeah, huh
        Yeah, baby baby
        Yeah, baby baby
        Hey, hey

        [Robin Thicke:]
        Girl give it to me
        Girl you know what it do, girl give it to me
        I got somethin brand new, girl give it to me
        I’ll put it all on you, girl give it to me
        Wooo! I got a gift for ya
        I got this for ya, a little Thicke for ya
        A big kiss for ya, I got a hit for ya
        Big dick for ya, let me give it to ya
        Baby baby, I got a call for ya
        I got a whip for ya, black car for ya
        Ball hard for ya, I know you wanna get fancy
        I know you wanna start dancin

        Hey… girl
        You know you’re lookin so damn fly
        You’re lookin like you fell from the sky
        You know you make a grown man cry

        I wanna give it to you, tonight
        And make everything you fantasize
        Come true, ooh baby
        I’ll make you so so so amazing
        I’ll give it to you

        Girl give it to me [x4]

        Ooh! What’s that girl?
        What’s that baby? I like that girl
        I like that baby, on your back girl
        On your back, yeah shake it like that girl
        Baby baby, I got an eye for ya
        Got an eye for ya, I got a smile for ya
        Cheese, let me put it on your face for ya
        Please, I got a taste for ya
        Tasty, I bought lace for ya
        Freaky, I’ll put it on ya
        Yeah, so I can come and take it off ya
        Yeah, and get off to ya

        Uh, you’re like a needle in a haystack
        Uh, I wanna sit you where my face at
        Uh, lunch with a few Mai-Tais
        Uh, purple kisses on my tie
        Uh, life give leave a dick loved
        Uh, now you gettin this dick, love
        Uh, I’m lookin for you with a flashlight
        I wanna feel what a real fat ass like
        No injection, I learned my lesson
        I walk it like I talk it, baby this pedestrian
        Runnin through your mind like Jackie Joyner
        Pussy like pop like “DO!” Go get me a burner
        Got shot like “DO!” This can be detrimental
        T-shirt and panties, that’s your credential
        You’re cotton candy, I need a fistful
        I’m often antsy, hope that convince you

        • Harry says:

          Chris Rea:

          “And all the roads jam up with credit
          And there’s nothing you can do
          It’s all just pieces of paper flying away from you
          Oh look out world, take a good look
          What comes down here
          You must learn this lesson fast and learn it well
          This ain’t no upwardly mobile freeway
          Oh no, this is the road
          Said this is the road
          This is the road to hell”

          • Paul says:

            Oh Neil…. what have we done……

            Oh, to live on Sugar Mountain
            With the barkers and the colored balloons,
            You can’t be twenty on Sugar Mountain
            Though you’re thinking that
            You’re leaving there too soon,
            You’re leaving there too soon.

            It’s so noisy at the fair
            But all your friends are there
            And the candy floss you had
            And your mother and your dad.

            Oh, to live on Sugar Mountain
            With the barkers and the colored balloons,
            You can’t be twenty on Sugar Mountain
            Though you’re thinking that
            You’re leaving there too soon,
            You’re leaving there too soon.

            There’s a girl just down the aisle,
            Oh, to turn and see her smile.
            You can hear the words she wrote
            As you read the hidden note.

            Oh, to live on Sugar Mountain
            With the barkers and the colored balloons,
            You can’t be twenty on Sugar Mountain
            Though you’re thinking that
            You’re leaving there too soon,
            You’re leaving there too soon.

            Now you’re underneath the stairs
            And you’re givin’ back some glares
            To the people who you met
            And it’s your first cigarette.

            Oh, to live on Sugar Mountain
            With the barkers and the colored balloons,
            You can’t be twenty on Sugar Mountain
            Though you’re thinking that
            You’re leaving there too soon,
            You’re leaving there too soon.

            Now you say you’re leavin’ home
            ‘Cause you want to be alone.
            Ain’t it funny how you feel
            When you’re findin’ out it’s real?

            Oh, to live on Sugar Mountain
            With the barkers and the colored balloons,
            You can’t be twenty on Sugar Mountain
            Though you’re thinking that
            You’re leaving there too soon,
            You’re leaving there too soon.

            Oh, to live on Sugar Mountain
            With the barkers and the colored balloons,
            You can’t be twenty on Sugar Mountain
            Though you’re thinking that
            You’re leaving there too soon,
            You’re leaving there too soon.

    • xabier says:

      In Tolkein, this is how the Elves (apart from those who were tempted by machines and scientific invention) tried to live: elegantly and aesthetically in a world turned into a pleasure garden.

      Wasn’t this – in a popularised form – what was promised to us by visionaries in the 1940′s and 50′s? Technology making man free to enjoy the fruits of the earth and cultured leisure?

      However, Reality caught up with Elves, and as for the promises of Modernity…….

      • Lizzy says:

        I read a brilliant book, Feral by George Monbiot about rewilding. I am not a hippy, but you know, sometimes… Anyway. All this talk about getting back to nature and de-complicating our lives: I read in Feral that during the “Indian” wars in North America, both the French and English governors wrote home to their countries’ leaders in complete disgust. They reported that children stolen from the Indians and those stolen by the Indians, later rescued, did everything they could to return to live with the savages. So, ten-year-old white kids abducted for a year or so, then retaken by their European families, did everything in their power to go back to their native American homes and families. Even with their ‘real’ mothers crying and begging them to stay. And those “poor little natives” who had been clothed and fed and had all the (then) mod cons available, fled back, even after years of the more civilised way of life.

        There were more examples of this sort of thing, feeling more alive and happier when exposed to mortal danger (chased by lions), and having to dig for your food.

        • xabier says:

          Lizzy

          In contrast there is the sad story, in Herodotus I think, about the barbarian chief who got to like the life of the Greek traders and settlers by the Black Sea, and when he went to ‘negotiate’ with them got dressed up in Greek clothes and minced about the town enjoying its luxuries, drinking wine and enjoying music and theatre.

          When his tribe got to hear about this, they killed him as a traitor!

          Maybe with the stolen children the old Jesuit saying applies: ‘Give me the child until he is 7 and he’ll be ours for life’?

        • dashui says:

          Thats because eating peyote with the Commanche was a lot more fun than listening to Jonathan Edward’s 6 hour sermons…

        • Christian says:

          Can see La Belle Verte movie, don’t know how it was translated into English.

        • InAlaska says:

          Yes, this story is true. I’ve read of many instances on the western frontier where “rescued” children ran away again to return to their Indian families. Some of those who were forced to remain with their original families committed suicide or were abandoned by their parents as too feral.

      • InAlaska says:

        xabier,

        Thank you. By referencing Tolkein you have again proven yourself to be an erudite man. If only we could go back and live in Middle Earth…I dreamed of it as a boy, and still do, sometimes.

        • xabier says:

          Thanks InAlaska

          Actually I must admit that I’ve never read a word of LOTR, only Tolkein’s letters explaining his books, which are fascinating – he was something of a philosopher as well as a spinner of tales. Elves, Goblins, Orcs and Men all represented to him aspects of the human spirit, in which he never lost faith.

          Middle Earth was it seems his version of the English shire he grew up in just before WW1, on the border with Wales.

          That is still quite a lovely part of the country, although parts of that area have, of course, been ruined by industrial and urban development since WW2, and worth a visit – above all Shropshire. Similarly, Cumbria in the north is unspoiled still, although the British governments seem to do everything they can to ruin the lives of the hill farmers there.

          Tolkein is a suitable patron saint for OFT-ers, as he hated the ugliness of industrialism and the will to power and domination which lies behind it, and always as a matter of principle rode a bicycle never learning to drive a car. And he was a brave man who came through the horrors of the trenches in WW1.

          • InAlaska says:

            xabier,

            You really should read him soon. I’ve been reading all his works since I was 9 (now I’m 50), and the LOTR trilogy is one of the literary works I will take with me when its time to go hide from what’s coming. Tolkien was quite ahead of his time in terms of environmentalism. For JRR, every tree was an object of veneration. The sad thing, is that our earth could have been, and should have been, middle-earth, magic and all…

    • Ellen Anderson says:

      18th Century may have been pre-oil but it was post usury. First comes the borrowing, then come the coal and oil. In fact, does anyone else think that the Renaissance was enabled by usury?

      • edpell says:

        I think just the opposite. The massive free time enjoyed in the middle ages was due to the lack of usury. Allowing simple people to do things like build massive public projects i.e. cathedrals.

        • Part of what building cathedrals (and pyramids, and the Great Wall of China) is “sop up” extra labor, so it didn’t go into building yet more intense agriculture, leading to yet more people. One analysis says that it was about the amount of excess labor that got sopped up, IIRC. Mario Giampietro quoted this in his book on Biofuels.

      • From what wonders debt works now for economies, I wouldn’t be surprised if increased debt underlay the Renaissance as well.

    • With respect to classical music, I am partial to Bach. It seems like every culture has its traditional form of music.

      • St. Roy says:

        Gail: For some unusual Bach you might enjoy, try Don Dorsey’s Bachbusters Album. The music is one of my favorite diversions from all the blogs I follow daily on TEOTWAWKI. Your last four posts have been especially good. I would summarize them as the “The Net Energy Rewind” or “The Great Kilocalorie Contraction”. Much of what you have explained in these posts are the ramifications.

    • p01 says:

      Sigh: http://www.oilcrash.com/articles/frog.htm
      This is your “aristocratic feudalism, refinement, good taste, good manners and high art” in real life, AKA meatspace.Your chances of joining the high art party at birth in that period? Less than 0.01%.

      Your post is exactly the reason why, if there are any humans left, they will worship the highest peak of civilization and make pinata bat-fests out of capitalist donkeys, worship democracy and/or capitalist gods and stand in dumb idolatry at the sight of a dusted functional Ipod.
      The ultimate irony is that those striking the pinatas will also long for the long lost golden age, which was only made possible by issuing debt ad-libitum by the very banks and bankers they will turn their bats upon, just as they are doing today.

      “are a million of us worth a single Mozart, a single afternoon spent in pure summer bliss?” Really? No, I mean REALLY?! I don’t get offended much about what people post on blogs or even in reply to my comments, but this is so smugly over the top deluded “I have a superior DNA than anyone else” that I cannot ignore it. Not even Kunstler goes this far.

      • Paul says:

        Thanks – that is one of the best things I have read in some time.

        It really gives a big picture perspective of what we are facing – we never really had a chance of ending up anywhere but where we are – it is sheer ignorance to think that any action we take now will make a difference. It’s like believing one can save the a person riddled with cancer, AIDS, TB, heart disease, with a major heroin drug addiction.

      • Calista says:

        I disagree. If there are any humans left they will discuss the magic of our technology they no longer have. However, beyond the fast transport and fast communication most of them will get on with enjoying their lives as they have a life. They will have watched too many people die to not cherish every last moment they have. As a thought experiment you should track down the children of the hippies and the children of the back to the landers. Most are old enough to have their own children now. Ask them how they are living their lives. Ask them if they too like the children of yore rescued from the “natives” would return to where they were brought up even if it meant poverty. I know all too many of them and more than I ever thought possible have moved back to the land or purchased their own land. They are your organic farmers. They have a very different political philosophy than you might expect.

        • InAlaska says:

          That was me. A child of back-to-the-landers hippy artists. I fought against that heritage through my late 20s, but now: My sister lives in Manhattan and I live on a subsistence farm in rural Alaska. So my family is batting .500.

          • Calista says:

            Indeed. That might explain your common sense attitude towards much of what is coming. Getting a handle on it and getting on with life depends upon understanding lots of moving parts to a very complex puzzle. Gail is kind enough to donate her thoughts and time to helping us look at a few pieces of the puzzle. I think she does an excellent job and offers me a way to help others discuss what needs discussing. It is a slow process but she has helped a great deal. For that and for the very thoughtful comments here I’m liking this spot better than Orlov, Archdruid or any of the straight up finance people.

            • Paul says:

              Agree – this is the best site with both the best articles + the best contributors. I do read Zero Hedge (more finance/politics) but the quality of the forum posts is brutal and generally not worth sifting through the rubbish for the few enlightened posts.

              Great work Gail!

      • Quitollis says:

        Dear P01,

        Your chances of joining the high art party at birth in that period? Less than 0.01%.

        And yet there were aristocratic, then feudal societies since classical times — Greece, Rome and for a thousand years after Rome in Europe. Western culture mainly developed in the context of aristocracy. Capitalism is just a brief period of environmental, human and cultural destruction and collapse. Communism was an even briefer, if similar industrial experiment. Figures aside, I do not see the force of your objection to feudalism. The survivors will have to live some how, whether it is feudal or hunter-gatherer and it will be for them to decide in accordance with their situation and their ideas. I do not make predictions about future civilizations but I would not think that they will attempt to address organisational questions by waving pinatas to capitalism.

        Your post is exactly the reason why, if there are any humans left, they will worship the highest peak of civilization

        The humans of the future will adapt and evolve in very different circumstances to us. It would seem perhaps maladaptive and therefore unlikely that they would totemically worship the brief financial industrialism that trashed our civilization and that left them with a depleted, toxic, trashed landscape. I would guess that they will try to learn some lessons from us about how not to do things and that they will not, for instance, try to produce and to consume as much as possible as some sort of measure of the good life or as some “sacred” mission to which they commit all of their efforts. Likely those who do not so learn will in any case die, like most of us. I guess that too would be natural selection.

        They will have to decide for themselves what is the “peak of civilization” but I hope and trust that a love of Nature, simplicity, music, art, philosophy and yes summer bliss will continue to nourish human souls and that it will help them to survive, prosper and to enjoy life. Perhaps people will have more time to enjoy the higher things in life once we have finished our attempt to destroy our civilization and the planet in the name of capitalism and mass consumerism.

        but this is so smugly over the top deluded “I have a superior DNA than anyone else”“”

        Lets try not to put imaginary words into the mouth of one another and lets try to keep it civil. :)

        Pax

  26. Pingback: evolveSUSTAIN: The latest in global sustainability & resilient systems development.

  27. xabier says:

    End

    We need to go a bit off-topic, sometimes, or go mad.

    I’m proud to have got a mention of Elves into OFW. But don’t worry, I haven’t met any yet at the bottom of my garden. Or is that fairies?

    • Jan Steinman says:

      “I’m proud to have got a mention of Elves into OFW.”

      That reminds me, Elvis was spotted on BC ferries the other day.

      (Now can someone compare someone else to Hitler, so we’ll have this OT stuff fully out of our system? :-)

    • edpell says:

      But Elves have very low reproductive rates. This is critical. :)

      • xabier says:

        Whereas Goblins, Orcs and maybe even Trolls breed like rabbits, -Tolkein hit a lot of nails on the head!

        (Apologies, Gail, for the sheer irrelevance of this ).

        • InAlaska says:

          We will all be living like Dwarves in the end, underground. They too, had a low reproductive rate, although I understand that you couldn’t tell the dwarf women from the the dwarf men. Again, apologies!

      • Ed sayd :
        hope this forum isn’t going too wackily off topic

        Follow your own advise before giving some.

        • justeunperdant says:

          Sorry Ed, I meant End_of_More (@End_of_More). There is so a thing as too much of that same

  28. Doug W. says:

    Gail, what trends, statistics, or indicators are you watching most closely these day, and which ones do you find most concerning?

    • I suppose my big concern now is that the financial system will come “unwound.” So I watch to see if there are indications in that direction. So far, it doesn’t look that way. Right now, the stock market is still staying high even though reduction in QE has started. Five and ten year treasury yields are higher (less low) than they were a year ago, but not higher than they were at the first of the year.

      Housing prices/sales are doing less well than in the recent past, but each month there is an excuse, but so far this hasn’t few through to general concerns about contraction. Now we are hearing more about China’s debt problems, and drops in iron and copper prices. I keep my eyes and ears open for whether we are moving into another global contraction. Right now I am watching to see what happens in China and Japan, because a contraction there could spread around the world.

      • Paul says:

        The problem with watching is that everything can seem stable one day (overall not sustainable — but stable as per the ‘new abnormal’ ) but then virtually overnight the Titanic that we are on can turn on a dime (and I don’t mean turn as in avoid the berg)

        I have a few long haul trips planned away from my Bali refuge in the next 6 months – one of the fears I have is that I will be caught stranded and unable to get back to the farm.

        I suspect (hope) that when this hits there will be a period of inertia (perhaps weeks) — where central banks hose everything with unlimited money. The masses no matter how obviously dire things are, will believe the BS that comes out of the central banks and politicians mouths so I suspect that will give people a period to make final preparations.

        Perhaps they will announce a debt jubilee and the headlines will scream ‘Green Shoots – Green Shoots – all debts are wiped – get the credit cards out! And the masses will rejoice and sing Happy Days are Here (but at some point they will realize there are no jobs, nobody has a pension cheque coming etc etc etc… but they are pretty thick — so that might take a while)

        When I see the central banks go whole hog then I will limit my travel and ensconce myself in my jungle retreat in the mountains of Bali – I’ll hit the shops and get a few last massive purchases of emergency foods and gear in place (probably just blow out the credit card – assuming I won’t be paying that bill) – and wait.

        For those who know what is imminent I think the trigger will be fairly easy to identify – I do not think the central banks can kick the can very far when the next shoe drops – we’ll have weeks – perhaps months at most — from the time the SHTF to when it starts flying all over the place.

        I plan as if tomorrow morning I will wake up – open a few browsers – and find that the catalyzing event has struck. I put nothing off until tomorrow because I might not be able to do what I need to do tomorrow.

        • InAlaska says:

          I think you’ll have days to a week. Not weeks to a month. Once the runs on the banks start, thinks will catalyze quite quickly. People will stop coming to work. Airlines will be quickly effected. Going away from home is a big risk. I’m sending a boy to a private school half a continent away for a year this coming year and it WORRIES me. Good luck to one and all of you.

          • Paul says:

            You may be correct – I expect the central banks will open up the spigot in a last ditch kick at the can but at that point the game may be up – the markets don’t bite – and instead they flee for the perceived safety of the USD — or gold and guns.

        • dashui says:

          Well I know where i’m going to….
          Have some of that Balinese cat crap coffee ready for me, i’ll bring my own hammock….

          • Paul says:

            Done! We are a bit too low to be able to grow coffee though… so will have to make do with Italian roast…

            • dashui says:

              It might b awhile, because I’ll b taking a boat, SEA airlines seem to b going through some problems at the moment….

      • InAlaska says:

        Who knows, the Black Swan could be war in the Crimea, the West steps in somehow, natural gas to Europe is cut off. Dominoes start to fall without an overt financial warning.

        • You are right. Everything is so interconnected that dominoes begin to fall from one direction or another.

          • Calista says:

            I’ve bets on the last part of April 2014 when we see true outlines of our food issues for the coming growing season. Watch the farm reports I do, I do.

        • Lizzy says:

          There was a BBC radio drama a couple of years ago about the outcome of the sudden, complete disruption of the oil supply. A coup in Saudi, I think. It seemed quite plausible and frightening. Within two days there was terror and mayhem: murders, thefts, kidnappings, and it disintegrated from there. Thing is, with all this going on in Crimea, the international money system just might stop. Then there is no credit to pay for oil and oil tankers, oil distilleries and all the rest. We could say that money (or credit) = energy, don’t you think?
          I’m really interested by what Calista said earlier about the sons and daughters of hippies.

      • SG says:

        China is about to buy a large copper mine in Peru – Las Bambas – from Glencore.
        It may be they plan to hoard the stuff to maintain its price and its value as collateral for Chinese domestic debt.
        http://www.independent.co.uk/news/business/sme/market-report-glencore-is-close-to-selling-las-bambas-copper-mine-to-the-chinese-9198276.html

  29. birder2600 says:

    I am archiving your, JMG, JHK, Christ Martenson, Richard Heinberg, The Oil Drum key, Nate Hagens and others’ posts onto acid-free paper in a dry cave on my property…. People will know that some knew

    • Christian says:

      If they can read

    • Thanks! I will tell my descendants where to look.

    • Stilgar Wilcox says:

      Great work birder2600! Stuff always gets found later, so I’m sure it will act as a repository for post oil age analysis. Nothing like marking history for future generations to learn from, and best of all it won’t be the MSM sell the trinkets, BAU to infinity propaganda dribble. At least some will know there was a minority that understood, openly exchanging information.

    • xabier says:

      birder2600

      These mysterious and most probably incomprehensible documents will, if they survive, probably become the sacred foundation texts of a post-apocalypse religion……

      • newyorker says:

        Like…”a canticle for leibowitz”.?

        • Paul says:

          :) great book – just finished it the other day

          • Interguru says:

            Now read The Windup Girl by Paolo Bacigalupi . It is in the near future, peak everything, You’ll never be able walk into a supermarket without muttering “The Expansion”, which is the name the book gives our present era.

            • Paul says:

              I read that the week before – also excellent

              Currently reading This Life is in Your Hands after having seen it referenced here.

            • InAlaska says:

              I just received The Windup Girl today in the post from Amazon. Bought it after seeing it referenced on this post. Started it today and haven’t put it down except to read this post. Thanks to whoever of you recommended it.

            • Calista says:

              I’m the one who recommended it. I’m glad you guys enjoy. Paolo is a gen Xer and lives and works a day job in Colorado. I’m glad to see someone supporting him. Visions of the futures that are possible help us make decisions that either gain us that future or push away to a different future. I enjoy that he gives us such awful and wonderful visions at once. Something to chew upon.

            • CTG says:

              Interguru, this is my comment to your post as there is no reply button anymore. Your posts are always spot on. You friend may be correct in the sense that it (the financial Ponzi scheme) can go on forever but it will be up till one point where someone makes a mistake (like letting Lehman go) or some natural events happen (earthquake in Tokyo, water shortage in California?) or some planned event went awry (Ukraine/Crimea?) and the whole facade will collapse rapidly. Referring to the 1987 Abelian sandpile model, where just a single grain of sand can cause the entire sandpile to collapse in a big avalanche. Therefore, unassuming event in real like may trigger a total collapse in the system. I am pretty sure you can only “control a system” so much before it goes out of your control.

  30. MG says:

    When I summarize the history of my country (Slovakia) in the 20th century, I come to this historical line:

    1. Fall of the Austro-Hungarian Empire in 1918. Smaller states like Czechoslovakia emerged in Central Europe.
    2. Agrarian refrom in Czechoslovakia- feudal and church land was redistributed among the people in the 20s.
    3. WWII – cannibalism starts: Jews driven away (into concentration camps and killed in them) and their properties were taken over and redistributed
    4. After WWII German minority driven away and their property was redistributed, left unoccupied.
    5. Communists came into power in 1948: creation of big collectivized farms in 50s and 60s.
    6. Roma population growing, taking over the unoccupied land and creating illegal settlements in specific areas, where industry is in decline.
    7. Druzhba pipeline (http://en.wikipedia.org/wiki/Druzhba_pipeline) from Soviet union brings oil in big quantities into Czechoslovakia. The economic situation quickly starts to improve, the country starts to look like the West. Democratization of the communist party.
    8.1968: Soviets see that they lose the influence over Czechoslovakia and come to stop the democratization.
    9. 1972: First nuclear power plant put into operation (ratio of the nuclear energy in the electricity production: in 2014 about 50%, 3rd place in the world)
    10. 70s: big concrete residential areas (panelák buildings) are created (http://pete-teaches-in-bratislava.blogspot.sk/2011_07_01_archive.html). Highest consumption of the oil in the history.
    11. 80s: heavy industry (production of weapons for the Soviet allies in the frame of Cold War) booms.
    12. End of the 80s: ecological problems, economy declines (Cold War and weapons production is ending), fall of the Soviet empire.
    13. Beginning of the 90s: Heavy industry is declining, as cheap energy inputs are being limited
    14. 1993: Division of Czechoslovakia.
    15. 90s: Czech republic has large deposits of coal and uranium, Slovakia is dependent on imports = Slovakia continues to decline, the economy in the Czech republic is improving.
    16. After 2000: relocation of the car productiona capacities from the West to Central Europe: Slovakia becomes the biggest car producer in the world per capita (http://www.thedaily.sk/slovakia-is-world-no-1-car-producer-per-capita/). Also production of electronics sector (mainly Samsung) is ramping up. Construction boom (until 2008) and bust (after 2009).
    17. 2014: The debt continually rises:

    http://finweb.hnonline.sk/komentare-a-analyzy-123/slovensko-sa-stava-krajinou-rekordov-komentar-dna-542625

    Explanation:
    Red bars: in millions of EUR
    Blue line: as percentage of GDP

    The deflation is here:

    http://en.cihan.com.tr/news/Slovakia-records-deflation-in-Feb-_9008-CHMTM3OTAwOC8z

    Conclusion: Slovakia is 50:50 rural and urbanized country. “Japanization” (and the population decline connected with it) comes, but it does not have to be as severe due to its lower population. Although the climate change can make food production more difficult. Despite the booming car industry sector the general population faces low wages, low pensions, declining ability to pay houshold expenditures, rising debt on housing and consumer goods etc. Many people see the foreign investment as exploitation. And I believe it, too. Because energy matters. (E.g. I have heard a story about the production line moving faster here in Slovakia than in Germany in one of the companies, but when the delagation from German headquarters came to see the production, the production line was slowed down. That was 2 years ago. Now the production of this company was relocated to a cheaper Balkan country).

    • MG says:

      Not to mention the dependence on the EU subsidies and EU financed projects, which is seen as the salvation (but, in fact, a source of corruption). After 2008 crash, the high unemployment is here again and now it is seen as something that is almost impossible to fight (some groups of the unemployed are simply left out of the statistics, so that these look better):

      http://www.tradingeconomics.com/slovakia/unemployment-rate

      • Timothy says:

        I particularly enjoyed the comments on this article so far. Elves, Children going back to the natives, etc. Good stuff and a nice reprieve.

        • xabier says:

          Thanks to a very tolerant Gail. The Archdruid would not permit such digressions.

          • I figure pixels are cheap, and the number of open discussion forums is down.

          • InAlaska says:

            Yes, Gail, thank you for your tolerance. It occasionally helps the spirit to go off-track. Too much doom can really bring a guy down.

            • xabier says:

              InAlaska

              There’s doom and gloom, and then there are crises one can react to:

              Churchill and a colleague received some very bad news during the war: his colleague said, ‘Awful news: I feel about twenty years older now!’ and Churchill: ‘Yes, quite awful, dreadful! I feel twenty years younger!’

    • Thanks for your summary of the situation in Slovakia.

      My observation is that debt levels in communist influenced countries have tended to be lower than historically capitalistic countries, especially until recently. Even at 50% of GDP, Slovakia is doing much better than many countries around the world. It started later in ramping up debt, though. From what little I have seen, individual households and businesses were not encouraged to ramp up debt as much either, under communist regimes. It was when capitalism came along that resource extraction (and pollution, and exploitation in general) could go into overdrive, with more and more debt.

      • MG says:

        Yes, going into debt is a recent phenomenom. Communist countries were a relatively closed system. They did not import much during the history, as they did not have colonies like Great Britain. Their access to world trade was also limited by the infrastructure constraints. That is why they reached a resource peak in 80s.

        The phenomenon of depletion of resources is an integral part of Slovak history, as the golden, silver and iron ores and also lignite, oil and gas were exhausted mostly in the past. The most renown Slovak director Juraj Jakubisko comes from such a post-peak mining region of Slovakia and the post-peak (even apocalyptic) visions are deeply present in his movies. E.g. this movie from 1980, situated in the native post mining native region of the director:

        http://www.jakubiskofilm.com/en/movies/12-build-a-house-plant-a-tree/?PHPSESSID=6583e6164bbb40c154d193026cb2dfa7

        I can now fully understand his work and the past of my country,when considering the impacts of resource depletion. And what is happening now, too. The way the oil prices make the people recede from the central mountains into the valleys, the indebted collectivized farms, the rising debt levels of ordinary people, need of higher taxation from the side of the state, aging population, high unemployment that can not be solved as before via emmigration. (Every family here has some distant relatives in the USA, my family in the Milwaukee area). One of them, a woman working in the real estate, came to visit Slovakia shortly before the 2008 crash after decades of no conntact. (Made possible by the internet…)

        I can see a big parallel between the boom of the reinforced concrete buildings in the 70s (80s) here and what is happening now in China or somewhere else, too. In the former Eastern Germany, they are already tearing down and cleaning such residential areas and turning them into parks. The story of the reuinification of the Germany is an interesting example of post peak impacts, where the newly accessible resources from other parts of the world are trying to revive the regions that have already peaked: the Eastern Germany can not catch up with the West… LIke other post-communist countries, too. How could they, when the West is more and more indebted and the West is now coming closer to what the East has already experienced?

        • I hadn’t realized the extent to which Slovakia and the rest of the East had already used their resources. I thought that they were importing some oil and gas from the Soviet Union. I hadn’t focused on to what extent they had already exhausted their own resources.

    • VPK says:

      Thank you for the overview of your nation. I have relatives that live there myself (Bratislava). Both my Mother and Father side. Highly educated and modern. Many young leave for employment in the West and try to stich opportunities. Years ago I warned them not to “develop” in the manner of “America” and my cousin was sympathetic to my reasons.
      Yes, Slovakia is a car manufacturing center. One thing going for it is the strong agricultural culture. Nice people and I hope they will weather the storm ahead

    • Interguru says:

      MG

      Perhaps you can answer a question for me. Why did Slovakia choose to break off of and leave Czechoslovakia in 1992? It seems to their advantage to be linked up to a richer area, rather than break away.

      • MG says:

        I would interpret the division of Czechoslovakia in 1992 based on the available energy resources: the situation of Slovakia and the Czech republic was completely different at that time. The people did not understand the energy situation then. It is true that the industry in the Slovakia and in the Czech republic started with mining of the big hard coal deposits in Silesia, on the border of Czech and Poland in the midst of the 19. century and building of the corresponding railways. The separatistic tendencies often do not have any rational cause, they are often based on some unique historical event, in the case of Slovakia and its separation from the Czech republic in 1992 it were the memories of the Nazis puppet state o Slovak republic during the WWII. The division of the Czechoslovakia in 1992 was better for the Czechs, as they really did not have to carry the burden of restructuring the post-Soviet declining heavy industry in Slovakia. The debt levels in Slovakia, immediatelly after the break-up of Czechoslovakia, soared. In the end of the 90s, the banking sector of Slovakia had to be saved in a simmilar way the USA or some other European countries are doing now, after 2008.

        • Christian says:

          Half people living in the country, that sounds good. We are on 90% here. Have a good look in Slovakia.

          I read the book of this Lisandro I mentioned. It’s about his work as a member of the argentinean Parliament, and the set of law projects he presented between 2007 and 2011. He was backed by agrarian organizations, university folks and a couple of small parties, but not a single project passed into law because of Kirchners opposition (somebody asked what I think of the K couple, you can imagine). All four projects did certainly gone in the right direction addressing land renting, agroexport taxes or wathever. In the book, he mentions the Club of Rome and Limits to Growth. I wonder if it would have gone better if he (or they, given he did not worked alone) have insisted more on this point. We just met, and when I told him I was doing some research on international resources and finances he put an ugly face and changed topic. I can’t imagine how does he manages to smile all time, as his profession requires.

          • Christian says:

            Edit function… 90% in cities, of course. And good luck to all of you. We should meet for a party once at least

          • MG says:

            I am completely sure that choosing the new pope Francis from Argentina was made based on his experience of the situation during the Argentinas financial crisis in a highly urbanized country after its peak oil. I am wondering what experts proposed him as the best candidate for the Catholic Church in the era of deepening debt and resource depletion? There could not be a better person. But I am not sure, if the Catholic Church realizes the impacts of the current world situation and if the pope itself understands all the implications…

            • Christian says:

              Good choice indeed. Given Europe’s, and Italy’s, economic downturn I’ve always believed Francis election was based upon his frugality, which enabled the Church to get closer to the people. Europeans having become very atheistic, economical proximity looked a good idea and is clearly helping to improve the Church’s reinsertion in society. This is reinforced by the name he chooses. I am not sure if Vatican gets the whole thing neither. Besides, the Pope has very strong anticapitalist speeches, poorly replicated by MSM (remark “anticapitalist” is not on MS Word thesaurus). I’ve just read a couple of paragraphs, but found nothing about limits to growth, peak oil or such. May be a good search could find something like that. Finally, I can’t imagine how Argentinean debt experience could help the Church, unless they’d working along with governments, the Italian being the first.

              In the 90s Argentina supported a 1 peso to 1 dollar parity. This was initially possible by the selling of State’s enterprises. Telephones, railways, the oil company (YPF), some industries, water and energy distribution were privatized and paid in dollars. Argentinean positive energy balance period started in 91 or so and finished in 2011, oil production peaking in 1998 (lowest oil price year, bad luck). I am not sure how much oil (not NG) exports contributed to sustain the parity, because I could not find export taxes figures in the net. Oil was very cheap on that time, and peak year half a Mbd were exported.

              Whatever happens to be oil taxes story, I guess debt was also to sustain the parity. Sadly, I don’t know very much about our debt history. What I know is that in the last half of the 70s the military government ramped up very much the debt, using YPF as the security. In the 80s debt was very problematic and after the selling of the State’s jewels debt was contracted again. In 2001 parity was impossible to sustain anymore, but the government did not found a way to leave it. Central Bank reserves were falling, slowly at the beginning and at some moment they did it exponentially. In three or four exponential weeks reserves completely disappeared. Then, you know, banks were closed a couple of days until the government announced people will get 1.40 peso (now 0.6 USD) for each peso or dollar they had in their bank account. This was also the rate at which all previous contracts were updated. At this very moment, black market rate was 3, and even 4 to 1. There were a lot of protests and attacks against the banks and the government. The president run away in a helicopter after the police killed some 30 people who wanted to get in the Presidential Office (Casa Rosada) and we had 3 other presidents in 10 days and then the fourth managed to stay in. This was a clever man. People got very angry with the guys who implemented parity as well, and even today they cannot go peacefully in the street.

              The guy who stayed as president was a Senator, chosen by the Parliament, and as his attributions were unconstitutional he stayed just a year and resigned after we had new national elections. Meanwhile, he devaluated once again to 3-1. So, when Kirchner got the power in 2003 he has a very competitive exchange rate, and increasing commodity prices boosted the economy in a way we have not seen since WWII. One of the few things I do acknowledge Kirchner did well is debt management. They cancelled all debt with IMF, so they could say nothing about us anymore. Also they renegotiated with other creditors and framed a simple and degrowing payments scheme which is working very well (until now, at least). Two big creditors remained in default, and that is why we are not allowed credit anymore: the Paris Club and the “vulture funds”. It seems Paris Club will not sue us, I suppose because of systemic risk. Vulture’s claims were heard at a court and they almost get our instruction frigate in Ghana, but sailors resisted and came back with this very symbolic ship. Now they are behind our bank accounts in NY, which we use for international trade. A court of New York ruled in their favor too, but now it seems Obama started supporting our position. Systemic risk, I guess.

            • Quitollis says:

              There could not be a better person.

              “Who am I to judge?”

              Bye bye, papacy.

            • Quitollis says:

              I’ve always believed Francis election was based upon his frugality

              “Everyone, look at how humble I am. You can call me “the humble pope”, you can call me Francis.”

              Yeah right, the PC consultancies earned their money with that one.

            • Quitollis says:

              looked a good idea and is clearly helping to improve the Church’s reinsertion in society. This is reinforced by the name he chooses

              Bergoglio is totally irrelevant, the same as Ratzinger and Woitila.

              Let him go ahead and get played for a fool by the liberal secular media. “Who am I to judge?”

            • Quitollis says:

              Who needs Humble Frank anyway? We already have the songs of Schubert.

    • InAlaska says:

      Thanks, Calista. A good read. You are right, it is a vision of the future both hopeful and horrible. I think we will be lucky to wrench such a future from our present predicament. Paolo B. is a gifted writer/thinker.

      • Calista says:

        Indeed, wrenching a future out of our present predicament, in which humans have a semblance of anything, would be lucky.

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