In Part 1, I talked about how there is a close tie between the amount of oil consumed and the number of people employed. US oil imports have been dropping, and there are strong indications that they may continue dropping–world supply is flat, and China, India, and oil exporter are taking a larger share of the total. It appears to be almost impossible to ramp up US oil production by a very large amount, so with smaller and smaller imports, it is likely that US oil consumption will continue to decline, and with it the number of people employed in the US.
The problem is that our financial system cannot stand a very high unemployment rate–perhaps double today’s unemployment rate, or greater. If there is very high unemployment, people will default on their debt, and banks and insurance companies will fail. There appears to be a very high probability that the financial system as a whole may fail.
Some of you may have seen the show Prophets of Doom on the History Channel (Wednesday, Jan. 4). What I am talking about is very much related to the collapse scenarios discussed on that show, although I would not necessarily describe things exactly the same way that participants on that show described things. Also, the ideas I am presenting are my own. Presenters on that program would likely have somewhat different ideas.
Let’s go back to the last chart I showed in Part 1, showing my idea of how I expect employment to change in the future.
In this slide, I show my estimate of job counts divided by population, based partly on relationships I develop in Part 1, and partly on my view of how things might work out. The number of people with non-farm jobs drops as a percentage of the population, until it reaches an equilibrium low level, in about 2030. I would expect that virtually no fossil fuels would be used at that time, nor would uranium be used. Society would exist without electricity, and without the conveniences we are used to today. Local farming jobs and goods produced by local craft jobs would grow, but would not be included in these employment counts.
The reason my forecast is so dire is the fact that all of our systems are highly networked – our transportation system, our financial system, our international trade system, our internet system, our electrical system, our food system, our federal, state and local governments, and many other systems. If one system fails, it is likely to bring down other systems as well, and eventually the overall system. This is very much related to the point I made in Part 1, that if oil use declines, the use of other fuels is likely to decline as well (as it did in 2009) because the decline in oil use causes recession and decline in demand for other fuels.
A big question is to what extent our financial system fails and cannot immediately be replaced. If there are huge amounts of unpaid debts (say 20% of mortgages, and 20% of municipal bonds, and 20% of commercial loans), it will become apparent that many countries will be unlikely to pay their international debts. The International Monetary Fund will likely be overwhelmed by the size of the problem, and trust in the whole system may rapidly decline.
One question is whether banks and insurance companies can be propped up. We have seen how banks and insurance companies could be propped up in 2008, and I expect that countries will try to do more of the same. But eventually, major cracks are going to develop in the system. Interest rates are likely to rise to 20% or more, because of the high default rates on loans. The value of some currencies is likely to drop to close to $0 for use in international trade, if prospective sellers don’t think they have sufficient chance of getting adequate goods in return for the goods (perhaps oil) that they are selling.
The problem is a likely to be a growing mismatch between what money is supposedly worth, and the amount of goods and services the economy is actually producing. The purported value of money will rise over time, as money is loaned into existence, and borrowers at least try to pay pack their loans, plus interest. (In Prophets of Doom, Nate Hagens refers to this growing monetary amount as a “Ponzi Scheme”.) But the real value of goods and services made is likely to decline in the future, as the amount of oil and other inputs declines. How fast this occurs is not entirely clear, but Slide 18 gives an idea. As the amount of oil consumed falls, the number of people with jobs declines, and the amount of goods those employees can make or obtain through trade with other economies declines. Eventually, the amount of goods and services the world can support with only natural inputs will drop to a much lower level than what we are producing today.
With this mismatch between the purported value of money and much lower value of goods and services actually being produced, the financial system will run into all kinds of issues. As mentioned previously, there will be many debt defaults. There is likely to be a question as to who gets collateral on defaulted loans. Those selling internationally may be hesitant to sell to those with poor credit. With fewer people employed, governments will have more and more difficulty collecting taxes, and more and more trouble providing promised services.
It seems to me that to some extent the unraveling of the financial system (and related systems like food and transportation) will be gradual. We saw the beginning of this unravelling in 2008, and we can expect to see more over time. Most of the unsustainablity of our current system has been temporarily hidden by stimulus payments that federal governments around the world are making, but are not collecting adequate taxes for. As legislatures refuse to authorize more spending and as taxes are raised, the real problems will become more apparent–more people will be laid off from work, and nations will sink further and further into recession. I showed in Is it possible to raise taxes enough to fix the deficit? that it appears that taxes would need to be raised by about 40% to match current spending levels–something that seems highly unlikely. It seems to me that big cuts in programs will be needed to bring spending down to what the country can afford.
Getting back to Slide 18, above, it seems to me that we will see a slide in conventional employment over a period of years, which I have shown as about 20 years. Part of what will hold things up is the fact that we currently have homes and cars and computers and machinery for planting corn and other crops, and much other built infrastructure. Even if we start getting some interferences with trade, we can still use the machinery that we already have. But over a period of time, this ability is likely to seriously deteriorate. I estimate it will be about 20 years before the deterioration we will be so great that we will need to transition to a new system without fossil fuels, if we are to continue producing things. I see the biggest problems in making high tech equipment, like computers and wind turbine gear boxes, because they require materials meeting very stringent specifications. We will likely be able to make low tech equipment (like wheelbarrows) out of recycled material from cars and buildings for many years.
In my view, the maintenance of almost universal electricity is extremely important. This, too, is likely to unravel, partly from lack of replacement parts, and partly because of financial problems of the electric utilities (because their customers cannot pay their bills). There may be other issues as well–lack of ability to maintain the transmission lines, and lack of internet access for functions associated with transmission regulation. Lack of fuel may play a role as well, if transportation systems are in poor repair, or banks are closed, and cannot facilitate transactions (buying coal from Wyoming for use in Georgia, for example). I expect wind turbines will stop functioning about the same time as everything else–perhaps sooner, if getting replacement parts is a problem.
In Slide 18, I show the first three or four years as perhaps the period when there is a pretense that this is just a temporary aberration, with most believing that Business as Usual is just around the corner. Most people will believe that the world will soon return to growth, and all that needs to happen is for lenders to extend the terms of loans a bit, and maybe raise interest rates a bit.
But as more and more countries default on their debt, and the situation gets worse and worse, this belief in an underlying BAU situation will be less and less tenable. It is possible that quite a few governments will be overthrown, country boundaries will be redrawn, and new leaders will step in. There may be both international and local fighting for resources. All of this will tend to speed up the rate of economic decline.
I suppose that this might theoretically be prevented, if it is possible to invent–quickly–a new financial system that will contract as the amount of goods and services available contracts, and that will allow trade to go on as usual. The problem I see, though, is that many potential buyers of goods really will have little to trade in return; changing the financial system does not change this reality, and the decline in raw materials will tend to make the situation worse and worse over time. It will be only the parts of the world that are able to continue to grow food or manufacture goods or extract minerals that will have much to trade.
Eventually, as electricity is completely lost, and as world trade deteriorates to a much lower level, I expect that the world will return to a situation where most of the population will make a living by local agriculture or by local crafts. This is the equilibrium stage that I show being reached around 2030. I see this rapid deterioration because I do not see substitution as being very possible in the short-term, and because I see the various systems (oil, financial, food, etc.) as so closely linked.
Most of these things I mentioned above. I should point out that if we lose electricity, we lose a lot of other things. Our fresh water systems depends on electricity. Our sewage treatment plants run on electricity. Nearly all of our medical treatments require electricity, and more and more of our health records are stored online. Gasoline pumps use electricity, and most heating systems use electricity at some point in their operation. If heating systems allow homes to drop below freezing, pipes will freeze, and severe damage is likely to take place.
One thing I didn’t mention previously is the fact that the death rate is likely to rise, as problems start occurring with food, water, health care, and other services. It is not clear how quickly this will happen. It will really depend on how well we can keep systems for essential services (food, fresh water, cooking fuel) in place. If the current system stops functioning, we will need to be able to transition to a replacement system using only local inputs quickly.
The big issue I see is we have very little time for mitigation, because our major financial problems seem to be coming very soon. I say two or three years in the slide, but we have so many hidden debt problems already in existence that we may see major financial problems much sooner–say six months.
This is my summary of the major steps I see needed. I have a separate slide on each.
As I discussed above, our current financial system needs to be replaced. It may be that we really need two systems–a rapidly contracting one for the downslide period, which I have hypothesized to be 20 years, followed by a much simpler one for that equilibrium period that follows. It is possible that a metal coin system will work for the equilibrium period, since by then, even making paper money may be difficult.
Population is really the number one problem we are facing. Without fossil fuels, the world will only be able to support a much lower population than what we have today, because our current systems for growing and transporting food are heavily dependent on fossil fuels. We can look at past population levels to get an idea of the population that perhaps can be supported. If we can develop sustainable farming without fossil fuels, then perhaps the drop in world population can be stopped at, say, a level of 1 billion, compared to today’s population of 6.9 billion. But if we can’t figure sustainable farming out, population could drop even further–theoretically to the level of the population of hunters and gatherers in times past–maybe less than 100 million.
I suggest encouraging smaller families, but this is likely to make only the tiniest dent in the problem. Our increasing population will make the problem worse.
There are a number of people who talk about “steady state” or “no growth” economies. I see these economies as only possible with a population that is very much lower than the world’s population today. I do not think most current transition agriculture (using organic methods or permaculture) is sustainable at today’s yield levels without oil and electricity. Current approaches get indirect help from our fossil fuel system–transportation of soil amendments to the farm, refrigeration for produce (so less is lost after harvest), electric fences, oil to run tractors, electricity for water pumps. Once help from fossil fuel is lost, farming methods will need to be simplified even further, resulting in lower food production per acre and per farmer.
I don’t see that many of the proposed add ons to the current system (such as wind turbines, solar PV, and electric cars) will do much to sustain the economy for the long term, so it seems to me that we need to at least hold off the collapse as best we can in the near term, and try to keep things together. It is popular to bash the oil and gas industry, but we really very much need them, if we are to keep our systems together, for even the very near term. As I noted in Part 1, our oil imports are likely to keep dropping because world oil supplies are at best level, and countries like China and India are outbidding us on the demand side. If we do not want our total oil consumption to drop too dramatically, we need to maintain US production as best we can.
There are people who talk romantically about being about to “walk away from fossil fuels” or voluntarily do without. I don’t see this as possible or useful. If some countries voluntarily reduce consumption, it will increase oil available to other countries, and help them live better, but I don’t think it will have any impact on the long term. To the extent that a voluntary reduction in fuel use disrupts current systems (for example, causes utility companies to go bankrupt), it is possible that it will bring earlier collapse to the system, and a steeper overall decline, both in employment and population.
Everything I see suggests that population and oil and other fossil fuel consumption will drop very quickly, regardless of what we do. So trying to hold up oil production in the short term will have little impact on long term CO2 levels. In the scenario I envision in Slide 18, the amount of new manmade CO2 emitted will drop very rapidly, effectively reaching zero by 2030, whether or not we try to keep US oil production up in the near term. This drop to effectively zero by 2030 is a much more rapid reduction than climate change activists are asking for.
I think we need to get started preparing for a post fossil-fuel era right now, because it is such a huge undertaking. Even if I am wrong as to the speed with which fossil fuels will leave us, and we can continue fossil fuel consumption until say, 2050 or 2080, instead of 2030, I still think we need to start preparing for the change now.
I list several transition needs in my list. Some of these are law changes. There are many others. For example, economics theory will need to be completely rethought. Political systems will likely need to change greatly as well.
I see inexpensive fixes as being the ones to pursue–partly because they are the ones that are most likely to be sustainable for the long run, and partly because they will be most easy to finance with our current financial problems.
I see most of the high priced fixes that are being touted today as being simply add-ons to our current fossil fuel powered system. Without fossil fuels, we will not be able to manufacture any more wind turbines, or solar PV panels, or electric cars, and we won’t be able to service the ones we have. Bio-digesters will have much less fuel, and will be difficult to keep in repair. So I don’t see much point in building more of them–especially if doing so requires a subsidy, or if their usefulness depends on maintenance of the electrical grid. There may be some that are temporarily helpful though–solar panels to power irrigation equipment, or wind to power ammonia generation.
I mentioned most of these issues before, but I think they bear repeating. Even voluntary reduction of fossil fuels is likely to result in more and more job loss. With less and less in the way of government safety nets, marginalized people will find themselves unable to maintain even basic food supply. So what sounds good in theory in saving CO2 is not likely to work out well in practice.
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Folks curious about some of the issues involved in planning for emergency degrowth at the state level may be interested in my attempt to sketch out such a plan in Maine. The discussion thus far on this thread has given me much to think about as I move forward.
Chilling articles, Gail; and equally chilling conversation following.
I am curious what you think about preparation for this scenario on an individual level–specifically, whether and/or how one might take steps to preserve one’s financial reserves. Your story includes, I suspect, non-functioning banks or at least long bank holidays and perhaps the loss of savings kept in traditional bank accounts. Where would you want your cash reserves to be when the financial system implodes? If your scenario plays out and this is immanent (2-5 years), it would seem now is a good time to be asking this question and making appropriate moves.
Thanks for your work.
I am not entirely certain that one can protect one’s financial reserves, especially if they are paper. If you diversify, you are at least no worse off than others. Gold coins and silver coins may make sense, but we really don’t know. You can’t eat coins.
Hand tools and knowledge are probably good investments.
To some extent, helping other people here and now with the resources you have may not be a bad idea. If you can’t take it with you, you might be better off spending at least some of it. I am sure that there are charities that need help. But there may also be family members who need help now, but who may be helpful to you later.
Gail, I couldn’t agree with you more. Creating networks by helping others is a great step, through church/synagogue/etc. and clubs (Lions,VFW,etc) or just one by one. And there is nothing better than helping them by doing (more than donating), building networks through splitting wood together, making hooch in the basement, gardening together, fixing things, whatever. Last year when people came to my house I’d say let’s go to my garden, and told them to pick arugala, beets, tomatos, (all heirloom organic) and take them home for their table.
You definitely can’t eat silver and gold coins, but they just might be useful for trade, who knows. I’d also like to believe being highly skilled in more simple crafts is useful.
There was an amazing insight made by a design group in Africa last year – universally there is enough knowledge everywhere to keep cars going so what can you build out of car components?
Shouldn’t the word “Chanel” in “History Chanel” have two n’s? “History Channel”? Or are we talking perfume here? Sorry, couldn’t resist.
Spelling isn’t my strong point. I guess I should fix that.
I realized that the misspelling is in the title link, so I may be stuck with it in the title.
Thanks for the time and study you put into this essay. As you probably recall, my concern is with the definition of the problem and the potential for the general acceptance of this definition. Let’s look at one of your key predictions:
Whether the date is 2030 or 2060, I believe it is safe to say that you expect general household electricity, at its current level of availability, to be greatly reduced during this timeframe. And, I think we can agree, such a substantially reduced level of such electricity would have profound effects on Life-As-We-Know-It here in the USA.
I’ll wager that only a tiny fraction of the US population would agree with you – and please note that I’m not suggesting that I disagree with you. If I’m correct, then this begs two questions: why is your view considered so extremely pessimistic and what (if anything) would change the general perception of what is most likely to happen in the next 20-50 years?
When I was a business consultant, there were two popular litmus tests for any innovative proposal: The elevator test and the grandmother test. Could you convey the essential, compelling aspects of the proposal to a CEO if you had his/her attention on a 20 floor elevator ride? If the proposal was technical in nature, could you explain the most basic concepts to your grandmother before she lost all interest? Obviously, not all problems/opportunities can be dealt with in such simplistic terms. However, when you suggest that the average person will need to adapt, in 20 years of so, to a life with little availability of electricity, then it seems that the essence of this prediction needs to be distilled into this kind of messaging.
It seems to me that there are a few fundamental components of this argument that need refinement for any kind of general acceptance:
– The rate of depletion of fossil fuels, especially liquid fuels, needs both clarification of the most likely depletion rates (coupled with consumption rates) and to be presented with unquestionable authenticity. Right now, I don’t see that IEA/EIA either support your prediction nor do they have the necessary credibility even if they did. Organizations such as the ASPO are too marginalized to fulfill this need.
– The potential for technology (renewables, nuclear, nano, etc) to ramp up and replace fossil fuels as they deplete, needs to have its limitations clearly demonstrated. Gail, I know that you personally make compelling arguments in this regard. But, I don’t see your arguments alone as being sufficient to sway the general public. Again, some highly credible and visible entity needs to champion the scientific realities of trying to replace today’s liquid fuels with alternatives. I see no evidence of such an entity today.
– Political champions are desperately needed to address a wide variety of partisan/self-serving interests and biases. Currently, I see precious few notables that serve this need.
In coffee shop conversations, I often float the idea that the average person might suffer a significant reduction of home electricity supply in 20 years. I find it very difficult to provide the kind of credible evidence needed to support this prediction. Indeed, most people seem more inclined to accept the prediction that, in 20 years, automobile accidents will be a thing of the past because cars will all be automated with artificial intelligence and “smart” roadways – we will just sit back and enjoy the view as we zip around in safety and luxury. Sound nuts? I just listened to an hour long program on Wisconsin Public Radio that espoused this vision – no one questioned the issue of where the energy will come from to support this nonsense.
I appreciate your insight, but I wish your thoughts could, somehow, work their way into the greater public consciousness.
I will have to write some more on the subject.
The difference between my views and those of quite a few others is that I think Lieblig’s Law of the Minimum will be what defines the future, while others think that we can go sailing along, even if this and that and the other thing have problems – the financial system, international trade, the Internet, the political system, electricity, etc.
If each one makes projections, assuming BAU except for their own sector, they are almost certain to be wrong, in my opinion. We are facing a very unusual situation, where we cannot assume substitution will solve all problems.
The dire implications of exponential growth in a finite world with finite resources have been obvious for many decades. I am not surprised that the political system did not properly prepare us for overshoot, but I am surprised that there has not been much more attention payed by academia and non-profit research institutions. Where are the detailed contingency plans from these folks? And I find it hard to believe that economists wouldn’t be intrigued enough by the concept of resource limitations forcing de-growth to create a whole panoply of de-growth theory. Maybe these plans and theories do exist, but if so, they are quite well hidden.
I believe people are better off to read “collapse” fiction rather than waiting for academics to come up with proposals. I certainly grant that some are totally off the wall. On the other hand, they present an intellectual jumping off point – right now. The good ones present realistic scenarios, even if extreme in some cases. There are many, many available on the Internet.
I get the impression that academia just builds on each other’s articles. An idea started by one is cited by others, and floats around endlessly. I am sure you have run into CASSE, Center for the Advancement of a Steady State Economy. There are plenty of smart folks involved, who should have thought through what they are saying. If you have exponential growth in a finite world, how are you going to continue to extract a constant amount of resources each year? Or perhaps they are imaging that somehow the economy can continue at a steady state, even though resources decline.
I think a big issue is grant money. I know Charlie Hall quite well. He complains about lack of funding for what he is doing, and it is mostly energy return on energy invested.
Another issue is publication. University professors have to “publish or perish”. Nobody wants an article that differs too much from what has been published before. Even web sites mostly don’t like gloomy stories. They would like happy stories, that folks would like to talk to their friends about.
The big difference, as I see it, between now and the US during the Great Depression is that we had enormous amounts of yet untapped natural resources. Mountains of coal and lakes of oil have been extracted and squandered over the decades. Without these resources, stabilizing the domestic economy is going to be, um, difficult. I wonder what the energy return is on a trade of wheat for oil. With regards to domestic rare earth minerals, my guess is that these will be prioritized for the US military applications and not for hybrid cars. Hybrid APCs maybe.
I was listening to an interview with Colin Campbell on Puplava today for the second time. In it, he mentions the oil derivitives market. I think Steve Ludlum has also talked about this on his blog. Anyway, I started to wonder if this is like the silver market which is paper leveraged 100:1. Would discovering the truth about the supply and price of oil would bring the whole house of cards down in a flash? How many jobs would disappear overnight?
Thank you, Ms Tverberg, for two fascinating (albeit disturbing) essays.
Back in the late 1950’s, I was sailing with my parents and two kid brothers aboard a 46′ schooner in northern Lake Huron, in moderately heavy weather. We hit an unmarked rocky reef (turned out it was on the chart; we had neglected to notice that). We got off the reef via unimaginable heroics; we made it to a boatyard, through more heroics. My dear Mom kept my Dad and me supplied with tobacco-filled pipes and coffee through that cloudless, sunny and horrifying afternoon. What most I remember was our conversation: things seldom work out as well as they might (as we wish they would) or as badly as they might (as we fear they might)… although they might well go to either extreme.
Most of all this is conjecture, based on experience, study, and attitude. And I have a visceral suspicion that Ms Tverberg’s musings lie more toward the pessimistic end. Their undeniable value lies in the naming and describing of the fearsome monsters that await us, not in specifying the shoe sizes of said monsters.
One observation on how the unexpected happens. Think of fluid flow emerging from a smooth-bore pipe. As the Reynolds number rises, approaching ≈2000, the fluid emerges smooth, glassy: laminar flow. At some point around 2000, there is a shock, like everything got hit hard by Thor’s hammer. The fluid flow rate immediately drops spectacularly, the fluid emerges all rough and burbly: turbulent flow. Or think of leaning on a yardstick, pressing harder and harder. All fine, until all of a sudden, it bows and snaps.
Both the yardstick and the pipe flow illustrate the end of a stable condition. In general, that’s the way stability ends, not with a whimper but a bang. Myself, I fear the bang… and I fear there will be several of them, in Ms Tverberg’s scenario.
There are a lot of things we don’t know. It seems to me that some scenarios we see are way too short (store up food for a few months, and it will get you through the crisis), and some are way too long. I think the general belief is that the downslide will be very, very long–oil production goes down by a few percent a year, and we more or less adapt. I have a hard time believing this, because there are too many pieces of our current system that are likely to “break” – in particular the financial system, and those breaks will tend to give rise to Liebig’s Law of the Minimum situations–if we don’t have electricity, or fresh water, or some other essential item, then systems we would normally expect to work won’t. Hopefully, I ‘m wrong, but we seem to run into something of this type, every time a big hurricane comes through.
In a way, we would be better off if some plague came through, and reduced population early on. Then the remaining population would have a reasonable chance of establishing a decent life for themselves. But we don’t know how it will really turn out. Perhaps that is for the best.
We have two ways to respond to financial collapse–markets and governmental action. During the Great Depression, for example, there was a great increase in governmental action to deal with the financial and economic crises; most of this action was constructive. There was a breakdown in international trade during the Great Depression, and markets responded quickly to much lower levels of imports and exports. I suspect that the U.S. would survive a collapse in international finance and international trade better than would most countries. We have large supluses of grain that we could barter for oil. We have many thousands of small businesses that could rapidly gear up and ramp up to make spare parts that might not be available from overseas anymore. Much of what the U.S. imports is luxury consumer goods–items that we can do without or manufacture again in the U.S. For example, we import huge quantities of cheap shoes from China, but we can live without these, and if necessary make more expensive (and much better) shoes in the U.S.
In regard to the system of electrical generation and distribution, the only thing we really have to import is copper. Spare parts for transformers, for example, could all be manufactured in the U.S. within a matter of months if they became unavailable from abroad. The market will not solve all our problems, but I do think it can and will solve almost all problems relating to spare parts. We import uranium only because it is cheaper to do so than to mine uranium in the U.S. The same is true for rare earths: In case of necessity the mining of rare earths could be ramped up in the U.S. quite quickly, in a matter of months, if we could no longer import cheap rare earths from China.
Note that during World War II we could not import rubber, so the government imposed gasoline rationing and made synthetic rubber for the military–all done in a matter of months. Civilians had to go without tires, but the military and other essential government functions rolled on synthetic rubber, which had been a miniscule industry in the U.S. prior to Peral Harbor.
I wish I understood the WWII situation better. I suspect things have changed a fair amount since then.
It would seem like processes now have more computerized controls, require more specific materials and have closer tolerances. It seems like setting things back up would be that a fair amount more complex than in WWII. The pre WWII processes had used mostly US inputs; now more changes would be required. And of course, oil would be required in quite a bit of this, and it can be expected to be in short supply.
When it comes to things like uranium, there is a fairly long time-line with getting a mine up and running. If we are dealing with locally produced goods made with local materials, it will be longer still.
Addendum to the previous post: The argument given explains why inflation is a necessary feature of every monetary system. It also explains why a gold standard would not solve our financial problems. Society can survive long term only if it lives in harmony with the laws of thermodynamics. Our monetary system is condemned to collapse because its design contradicts the laws of thermodynamics.
There is indeed a fundamental problem with money, a problem which goes beyond the usual objections against debt based money created out of thin air and the fractional reserve banking system.
That problem has to do with thermodynamics. Money is the compensation for work. The amount of the money received roughly corresponds to the value of the product created or service provided. The problem is that these products and services decay in time: A car even if not used at all will become obsolete in time due to technical progress, change in fashion, aging of materials (rubber and plastics decay in time even if not used) etc etc. Houses if not constantly maintained fall apart within less than 50 years due to the effects of weather. Food, even if properly stored, will expire in time. Even gasoline, if not used within a few months will change chemically and become unusable. This disintegration of products is simply the consequence of the second law of thermodynamics. But even services become obsolete in time. Take research efforts. These efforts become obsolete in time either by being disproved or made obsolete by further scientific progress.
Now take a look at the money earned by producing these products and services. That money does not expire in time. To the contrary, if invested properly, it grows in value over time. The fundamental question is: why should the money earned last forever while the product for which the money was paid for disintegrates within a few years?
Thinking along these lines, one arrives at the conclusion that a precondition for a sustainable monetary system is the feature that money like everything else in the economy must have an expiration time. In other words, each Dollar circulating in the economy must decay in value every year. That decay could be linear, say 2% every year such that the Dollar would be worthless after 50 years. One benefit of such a monetary system would be that debts would expire worthless within 50 years without the debtor having to repay the loan. Moreover, the accumulation of large amounts of money for the purpose of financial speculation would be made extremely difficult. Such a financial system would give preference to the real economy versus the financial industry which prospers from the fact that money is exempt from the laws of thermodynamics while everything is subject to the laws of entropy.
Historically, money was commodity based (coins and paper notes). Today, money is in essence a piece of data in a computer. Since storing information on a computer system comes essentially at a zero cost, the nominal amount of money can therefore be easily made to be a function of time. Every day, the balance on a checking account would fall be a tiny fraction of a percent. Money would be something which nobody wants to hoard and everybody wants to spend. In such a system, the real economy would be on a equal footing as the virtual economy (financial service industry).
Unfortunately, the chances of introducing such a monetary system are almost zero. The public simply does not understand arguments based on thermodynamics. Moreover, the most outspoken and influential parts of society are those who could be classified as “parasites”. The truth is that the present monetary system does promote the spreading of parasites.
In human history, periodic societal collapses are necessary in order to get rid of too many parasites. It is not necessarily the lack of resources which leads to a collapse. Societies need to collapse occasionally in order to get rid of societal parasites. Examples: The French revolution in 1848 and the Russian revolution in 1917. The great American revolution of 20??.
That is an interesting observation.
It seems to me that the idea that the idea of growth must have come because, in the aggregate, the amount of goods and services produced each year was growing. So the expectation was that money stored up would buy more of those goods and services. Also, even if individual items are decaying, enough new product is being added each year to hopefully offset the decline, so that the accumulated amount for society as well.
But this is changing, with reduced resources. If we start producing less and less goods and services in the aggregate, because of declining inputs, then the financial system will be dividing up less and less goods. We will either have to have inflation, or a different way of reducing the value of money, like you say. So one way or another we get to a system like you are proposing.
Thanks for these excellent articles Gail. I think it is fantastic that you are making this effort to discuss our predicament in the context of the entire system, including energy, economic and environmental.
Unfortunately far too many people will dismiss it as “doom mongering”. Even those who have some understanding will far too often get fixated on just one aspect of it, peak oil as just an energy problem for example, and fail to see it in the greater context of our global ecological overshoot.
From that ecological perspective it’s not all that hard to understand what’s happening in the world, any system that overshoots the long term carrying capacity of its environment is unsustainable by definition and will eventually experience some level of collapse. The greater the overshoot the more likely that carrying capacity will be degraded resulting in a lower population or lower standard of living (or both) than might have other wise been possible.
The financial system is very much a part of that dynamic, when debt based money makes too great a demand on real physical wealth then those debts must eventually be repudiated. Something we have seen repeatedly in the various “bubbles” over the last decade. An excellent discussion here:
The Financial Crisis Is the Environmental Crisis
Keep up the great work!
Thanks for your comments. I was looking at The Financial Crisis Is the Environmental Crisisand it starts out very well. Near the end, it gets to the 100% money system, and suggests that it would solve our problems. I am not so sure about this.
For one thing, our problem now is the huge amount of debt outstanding. What would become of all that debt, if we go to a system (the proposed 100% system) with much less debt? That is the big problem, no matter what the new monetary system.
A second issue is that most of the “investment” done today is financed by debt. Pretty clearly investment would drop to very rapidly, except where prices are high enough to generate adequate margins to facility reinvestment. Prices for many things (oil, gas, coal, food, etc) would have to rise to facilitate this, and standards of living would be cut back greatly to facility this. (Our overshoot in this area would be identified.) It is not clear that we would able to afford the oil and gas that are being drilled today, for example.
The third issue I see is that the supply of goods and services is likely to be dropping over the next several years. It will be very difficult for borrowers to pay back debt with interest, even on the small amount of loans that would be possible under the proposed system.
A fourth issue is that as I see the future, the amount of money supply should be declining. I don’t see how that would be built into the system.
So I don’t think the change is really feasible, because of all of our problems, which are already “baked into the cake”.
I read Eric Zencey’s article on “The Financial Crisis is the Environmental Crisis” referenced above. My impression is that he is not suggesting 100% reserve requirements in itself would solve all problems but is a necessary condition of a sustainable economy. How we get there is basically a political question.
Eric also says (and I believe this is a necessary corollary) that the government should have seigniorage, that is, the right to print money and benefit from the proceeds. Let’s suppose that you put into effect 100% reserve requirement. My guess is that the effect will be massive defaults, and there will be a lot of debtors who are bankrupt and a lot of lenders who will be left holding a mostly empty bag. It would be sort of like the 2008 crisis being allowed to play itself out without government intervention. With seigniorage, the government itself won’t be out of business (not due to finances anyway!).
The government could print money and save those elements of the economy that were most essential to U. S. citizens — I’d suggest food, clothing, and shelter. There are other policies which would be put into place as well, like a minimum and maximum income level, progressive income tax, etc.
There is a political problem with this, though. It’s obviously not going to work in the current political environment. If Obama were to implement a 100% reserve requirement tomorrow (I don’t think he has the authority to do this, but suppose that he did) we’d instantly be thrown into a Great Depression. He would be blamed for the results and would be defeated in 2012 (if, in fact, he weren’t impeached first).
It would be politically smarter, in the current environment, to let the system fail of its own accord later, when (hopefully) someone else is in office. Of course, the results would be somewhat messier and people might still believe a return to business as usual was possible. This experience might need to be repeated several times before they would understand “our finite world.”
These kinds of calculations, though, are political, not financial. I think that in principle a 100% reserve requirement could be implemented tomorrow. To do it right we would need the next steps carefully planned out — what elements of the economy are we going to save? How do we insure that everyone has adequate food, clothing, and shelter? (Other questions would need to be addressed too.)
If this were politically possible — that is, if everyone understood the environmental problems facing the U. S. and were willing to cooperate — then 100% reserve requirement would be a good policy.
I think it would be a lot more feasible to implement if the United States were the only country in the world. If we were to implement it, and others didn’t, we would be in terrible shape. We would probably lose imports.
One of the things we really need besides food and clothing is sufficient funds to invest in energy sources. I think the use of financing for most of our investments today has been hiding the fact that our current system is not giving a high enough true return to make this investment possible. I am afraid once we decided to implement it, we would discover we were really farther along on a limits to growth curve than most people realized.
Letting something fail and restructuring requires leadership that is hard to generate inside the political class, one has to go outside of the class. Hence, in my mind the current governor of NJ.
As an engineer I’d like to take large subsystems offline and do some PM, or do a complete replacement of the subsystem (i’m not an anarchist so i’m a little concerned with “complete failure”). Let’s take pensions at the state and local level in IL.
The legislature last year passed a law that has to be implemented such that Chicago must increase their local taxes by 75% to meet pension requirements. They are very unhappy. And according to the press the state for its overall budget is now talking about a 75% increase in state taxes (pensions are a large part of this, but not all).
For the state this is just simply business as usual, no PM here, in fact they are simply going to increase the pressure of the system. I guess they are assuming that their system has no feedback loop. No one is going to leave the state, individual or business, no one is going to reconsider risking their capital to start a new hot dog stand, or modem company (dating myself). But the state continues to be lead by members of the political class, so what should one suspect.
Here in PA, with a flip flop from democrats to republicans, but all still from the political class, maybe there is a chance to fix the pension subsystem. I’m somewhat skeptical.
I think radical change requires leadership outside of the political classes, O’bama was part of the political class and will operate within its rule base. I am very skeptical about the US’s ability to change, I suspect that some form of dieoff is the more realistic scenario.
I have to admit that this post confuses me as I can’t tell whether the critique is what you think will happen or the worst case scenario. I also can’t tell whether you believe it is an outcome that would be socially driven (we don’t respond to the challenges and instead squabble while things fall apart) or fundamentally driven (it is a surety due to basic laws of energy and the environment). If it is the latter then this is way too pessimistic as there are many adjustments that can be made to make sure we have enough energy for basic transportation, refrigeration, important industry, medical care and the like. I do worry about social feedbacks causing such fast collapse that we don’t see it coming until it’s too late to transition though.
Very sobering. Being a student of human nature, however, I reach a somewhat different conclusion.
Who was it who said something along the lines of, “Give me the all the money and I will have all the power?” In recent history we have been watching this principal work at a redoubled rate. Our society, societal discourse and our social privileges are increasingly controlled by the interests of a monied few. And the concentration of wealth in our society continues to increase.
When uncontrolled collapse is imminent, remaining resources will be used to secure the welfare of a privileged few. I think we are closer to this possibility than many suspect.
Once control is secured, the remaining population will suffer physical serfdom or starvation. Remaining power and resource will be used ensure that the peasants are barred from poaching the King’s deer or timber. There will be no “growth” or “recovery”, only greater consolidation of what little remains. Unfortunately, this period will tend to extend the life of remaining resources far beyond the twenty years you suggest. Only after the carrion of the former society is exhausted can something new arise.
Another source of power is social extremism. Prejudice, anger and fervor powerfully unite disorganized groups into legions strong enough to resist organized control. Unfortunately, these groups typically survive by cannibalizing the resources of more stable groups, making a bad social environment even worse.
Read history. Read studies of human nature like “Crowds and Power” by Elias Cannetti, or “The Prince” by Machiavelli. Read really insightful fiction, another form for studying human nature.
Look at the twenty-somethings today who will be at their prime when all of this emerges. Young people today are not especially capable of critical reasoning, independent thought, or self sufficiency. They are literally in thrall to technological convenience and diversion. Can they respond effectively to the demand of a harsh transition?
Hopefully, this is all just a dysphoric afternoon rambling on my part.
I have problems in relating some of your ‘examples’ for the USA with the extremely short time-scales you propose. Any issue, for example, of US external Aid focussed on ‘birth control’ seems likely irrelevant in the face of a rapidly collapsing financial US trading system. Indeed, it seems extremely unlikely that US will change its own demographics (and rapid population increase by advanced country standards) over a period of the next 20 years. Even in deep economic depression?
Why US oil production let alone all domestic fossil fuel extraction should fall to anthing like zero over next 20 years is beyond me, even in the face of a seriously impoverished economy.
What happens to the wider world in the event of the great consumer (and still a major per head producer of many things) going into spiral decline is anybody’s guess of course. Who knows what benefits as well as losses, accrue if the USA can not suck in the world resources (25%?) at the rate it does now?
‘They’ could well invent financial systems that to a degree get round a dysfunctional and shrinking US and perhaps maintain some of their own industrial growth? Or alternatively their dependence on global trade as well as their own ‘growth’ problems could cause their own irreversible collapse. Eventually, the world in general must adapt to limited fossil fuel and other resources, even if these have been conserved for a while, perhaps for many decades, by savage serial economic depressions across present industrialized populations.
Not going to be smooth, I agree with you there.
If our current problems could be solved over 100 years, then birth control and concern about GHG would be at the top of my agenda, and most people’s agendas.
The reason I am worried about things going quickly is because our systems are so networked–if something goes wrong with one system, then other systems that depend on that system will fail. For example, when both the 2005 and 2008 hurricanes hit the Gulf coast, people in Atlanta (where I live) found themselves without gasoline, because we depend on gasoline from Gulf refineries, and there were pipeline problems. In 2005, the problem was an electrical outage along the way, so the pipeline couldn’t be used until someone was able to set up diesel powered generators to get the pipelines operating again. In 2008, the problem was not enough refined product going into the pipelines (partly because the electricity was out for the refineries that should have been refining the fuel), and Atlanta was far enough away that there was little left when the gasoline got to us.
We all have computers. We know how lost we feel when they become unplugged, or even lose access to the Internet for a few hours. Back in the days when most people were farmers or trades-people, if there was a plague or a weather problem, perhaps part of the population would die off, but the remainder could generally pick up and carry on. Now, all systems are “optimized” for the way things are now – just in time delivery; electricity used in practically everything; debt financing to be able to build as much as possible; manufacturing done using in people and parts from around the world; even oil production done using experts from around the world, replacement parts from around the world, and connected to local electricity supply.
I don’t know that things will go down this quickly, but I am concerned that they may, because we are so dependent on international supply lines and on maintenance of electricity. When it comes to oil production, manufacturing of high-tech equipment is done around the world, using inputs from around the world. Experts fly around the world to consult on how to use the latest techniques to get oil from ever-more-difficult reservoirs. A reduction (or cut-off) in aspects of international trade could very much interfere with these functions. After hurricanes, refineries have to wait until local electrical supplies get back up. I would suspect that would be the case if there were some other kind of interruption to electric production–perhaps the utility went bankrupt, or it is unable to pay its workers because of a problem with the banking system. Eventually, there might be a way that the refinery could be modified to generate its own electric power (assuming parts could be found, to set this up), but one would still have the challenge of sending the oil by pipeline, if the electricity was out for any significant portion of the pipeline route. Once a person gets to the gasoline station, there again needs to be electricity for the pumps to operate–at least the way things are set up now.
We have huge numbers of peak oil people who believe that somehow things will continue in the future, as they have in the past, because peak oil models seem to suggest that declines hit when 50% of the oil is gone, etc, and the declines are likely to be relatively slow, so substitution can be done. I think these models are too simplistic. Everything I have seen says that the absence of oil tends to have the kind of effects one would expect under Liebig’s Law of the minimum. If you don’t have oil, it cuts back on many other things–I have pointed out reduced oil seems to be associated with recession and reduced credit, cutting back in the demand for other types of fuels. Electricity, international trade, and many other things also tend to act as one might expect under Liebig’s Law of the Minimum. Because of these things, I think the decline could take place under a span of only a relatively few years.
Because of the short timiing, perhaps I should take birth control out. It really doesn’t do anything in such a short time frame.
I got to New Orleans on Katrina+3 and stayed for a month working on telecom stuff for various NGO’s. Perfect cell towers effectively didn’t work because the tech blocked on incoming and egress due to load, same with the switches and the copper land lines. it was great fun.
imagine trying to coordinate various activities only through face to face meetings! Just like everyone did basically in the 30’s and prior. i learned from that. came home built a tower on a mountain, installed a gmrs repeater and handed out $35 walkies to all my friends and family. solar powered very low tech. totally local communications.
If you look at a new equilibrium world population without fossil fuels (e.g. 1 billion), then every pregnancy avoided means one person less to die off. So birth control does make sense whatever time horizon for decline you consider.
That is a very important point to me. My grown up children are not having children of their own yet. But they are thinking of it. To me, I urgently want to talk to them about not having children, for the sake of the unborn and themselves as well. As people are so uninformed over here -Europe, I’ m still so afraid of telling what is about to happen.
I think you have a valid option not to tell your adult children what is ahead. Different people have different abilities to respond to worrisome news like this, and I think that there are quite a few people who will have a very hard time accepting the possibility of difficult time ahead. I expect many people will want to have children (but perhaps not so many) regardless.
If there were some easy things we could do, then it would be a no brainer as to what to tell them. If there are some things we can do (relocalize, etc.), but it is hard for them to work unless everyone does, and it looks like they are not likely to produce enough food in total, then it gets very discouraging.
Perhaps one option is to tell them the story one piece at a time. Don’t hit them with more than they can handle, unless things are getting so evident that is all you can say.
I believe people will find the old pre-Y2K essays by Infomagic (Charlotte’s Web, Set Recovery On) useful in deciding how bad collapse might by. In essence, given the interlinking nature of those things that make society function and each having its own probability of failure, the overall system’s probable failure rate becomes extremely high. http://www.oocities.com/wallstreet/2314/Infomagic.html
I’d also suggest Ugo Bardi’s current essay, Peak Civilization, a http://www.finacialsense.com/coontributors/ugo-bardi/peak-civilization
My own expectation is for a series of cascading and self-reinforcing collapses to occur resulting in a fairly rapid collapse. Given that collapse has already been underway for over five years, I anticipate serious trouble in 5, or at most, 10 years. I’m expecting a shark fin collapse. I do not expect a series of steps down as Andre’ of TOD anticipates.
Telling them one piece at the time, I’ve started this already.
Thank you Gail for answering, it is essential to me now to actually be careful what to say to people, family, friends, etc. – a strong feeling that they should be informed on one hand and knowing at the other hand, that the information could hit them too hard.
Just an example here of exponential growth in industrial society and how it affects the our finite planet:
Salt on the roads: Good for safety, bad for environment
In 1940, an estimated 149,000 tons of rock salt were sold in the United States for highway use. Now, we’re up to about 18 million tons in a bad winter.
PennDot statistics for the southeastern region show that in the 1980s, annual salt use never topped 43,000 tons. But in the last decade, half the winters have led to the use of 80,000 tons or more. Last year was a record-breaker – 142,738 tons.
Meanwhile, study after study has found that from the Great Lakes to mountain streams, salinity in water bodies has been rising. In isolated cases, municipal water wells have had to be shut down because of contamination from road salt.
Wetlands have been affected. Salt-tolerant species have become more common along highways with high salt use.
In 2009, a U.S. Geological Survey study found that 40 percent of streams in and around Northern U.S. cities underlain by certain kinds of aquifers – Philadelphia is not among them – had salt levels high enough to damage aquatic life.
Fantastic series, Gail. I’ve posted a rather long technical assistance request from my blog to yours, which is also a response to your series and I hope a contribution that moves this excellent dialogue forward. I would be grateful for your observations in whatever forum you wish to share them.
We could have a long discussion about climate change. I would say that if you are talking to a climate change crowd, and you want to get them up to speed on peak oil, you need to speak to them in climate change language. And if you are talking to a peak oiler, you need to do likewise. But ultimately, we are talking about the same problem. Accelerated contraction and convergence to a post hydrocarbon economy, with a need for the best possible global, national, state, and local planning we can muster.
If you are talking to someone who doesn’t get EITHER peak oil or climate change without too much resistance, that’s a different problem that may not have anything to do with either peak oil OR climate change.
Thanks so much, again, for the great insights.
I will take a look, but probably not tonight.
No rush. I won’t get back around to another post on that level of my blog until next Wednesday/Thursday. Thanks!
The First World tomorrow is the Third World today. Look to them to see how life will be like. For example, they heat and cook by burning plastic, shit and refuse. That is how we will live too soon. Start collecting plastic now for cooking, heating and water sterilization. Plastic doesn’t rot like wood and lasts indefinitely provided it’s not exposed to UV light. It will burn under almost any conditions too.
The Nation has run a series of interviews with Orlov, Stoneleigh et al. on climate change. It is worth the time spent.
The Keiser Report on Russia Today informed me about an experiment on hamsters in Russia, where it was shown that hamsters fed Roundup ready cannola were sterile in three generations.
Perhaps this should be thrown into the mix when considering population growth and industrial agriculture.
Further, when humans (and other organisms) are stressed, the respond with frenetic fecundity.
This will be a symptom to look for in coming days.
Gail, you drew a straight line descending in slide 18. For purposes of clarity, this has merit.
Chaos Theory shows that the transition between two steady states “flickers” between the two states before settling into the new conditions.
This can be seen if you zoom in on one of the boundaries of the target=”blank”>Mandelbrodt set
This will make the transition interesting.
The endpoint is the same, but the journey is a far richer experience.
Unfortunately Prof James Lovelock, in one of his merciful moments, believes that we may be reduced to a few breeding pairs in the high arctic by the end of this century. ( He is after all, a kind man)
Thanks for your comments.
I listened to The Nation video. I have read a lot of climate change material, including some by James Lovelock. My feeling is that it is already too late to improve CO2 levels enough to make much of a difference. Whatever change is happening, is already happening, regardless of what we do. Furthermore, everything else is so messed up, climate change problems, when added to the others, do not necessarily make the result all that much worse. Oil use is likely going down quite soon (regardless of what we do), and will bring coal, natural gas, and nuclear with it. This result is likely to bring fossil fuel use down more quickly than climate change folks have proposed. I think trying to move people away from fossil fuels any faster will just kill off people more quickly, and not provide any real benefit for the planet.
Furthermore, if we can discuss peak oil without dragging climate change issues into the discussion, I think we have a chance of reaching more people with the peak oil story. When climate change is automatically part of the story, it becomes a “liberal” cause, that no one else would want to think about.
I agree that the Roundup ready canola results are concerning. We are dumping an awfully lot of things into the environment today that are problems, and we can see problems, as with the decline in honey bee population.
I agree with you that oscillation is probably more likely than a straight line, with respect to the path of change. I am a fan of Mandelbrot.
Predictions about the future of the grid should not be made by amateurs. Such predictions make sense only if made by engineers who understand precisely how many resources and how much energy it takes to maintain the system. Let’s also not forget that the electrical grid was invented and created long before the oil age.
The existence of the grid can not be completely separated from the cost of energy. For political reasons, electricity is very cheap and available widely. If electricity is made more costly and less widely available, the question of maintaining the grid may become trivial. One example: The grid could last much longer if it would be buried underground instead of being exposed to the weather. Again, this is a question of how much energy should cost ultimately. If something is as inexpensive as possible, it
will not last for a very long time. The art of engineering is to find the best compromise under the given cost constraints.
To sum up, the questions raised are extremely important. However, that does not mean that our thinking about these questions should be dominated by fears and doomsday phantasies. We need to know much much more before we can make informed predictions.
I have done a fair amount of research on the US Electric Grid and have attended many conferences where grid issues are discussed. This is a link to one article I wrote called The US Electric Grid: Will it be our undoing? To me, the US electric grid is a worry even without peak oil. When one adds the problem with having to get imported replacement parts when there are financial issues involved, the worry is that much greater.
The long distance transmission and local distribution systems will not be the problem with the delivery of electricity. As electricity consumption falls, they will be taxed even less by the lower current levels through them. And they are so important that even though most other aircraft may be grounded, helicopters will still fly maintenance and inspection runs along high voltage transmission lines.
The real problem will be lack of spare parts for generation facilities. Modern power plants are very highly automated. I last worked at a small combined-cycle plant that operated through the night with two people on site. Some peaking plants have no one on site. A plant supervisory control and data acquisition system (SCADA) is what makes this all possible. Modern power plants can be run only as long as their SCADA systems are functional, but that functionality depends on the continuous supply of high-tech spare parts, some of which (for master control systems) may be available from only one company in the world. If any part of the supply and manufacturing chain for those spares fails, then the spares will not be available to keep the SCADA system going.
It is possible to operate modern power plants without SCADA systems, but it would take extensive retrofitting with low-tech instrumentation and huge increases in the number of skilled operators. If the economic deterioration we find on the down-slope of the oil production curve is slow enough, it may be possible to adapt. Even with dramatic systemic shocks to our economic system, every resource left to government will be engaged to keep our power plants operating.
All of these problems with the grid could be made easier if we started the transition right away, but de-automating a generation facility will dramatically increase labor costs at that facility. Together with the costs of hardware, these retrofit costs would make the facility run huge operating loses. No electric company would even consider such a thing, so I doubt that anyone will attempt the transition.
Interesting. What you say is a little worrisome, since it is fairly clearly a weak link in keeping natural gas capacity available.
I imagine that there are other weak links elsewhere – for example, the software etc. governing electricity transmission; the operating system involved in processing nuclear fuel; the systems involved in shipping coal; the automated devices involved with making hybrid seed; parts for the oil and gas transmission lines. When a person doesn’t work in an area, it is hard to know exactly what the weak links are. It is possible that it something a person wouldn’t think of at all–a special lubricating fluid, or something.
We really can’t go back and build redundancy into our systems now, as you point out. There may be some partial work-arounds. If one unit goes down, I expect we will try to use parts from the broken system to keep other systems going–so we don’t lose any more units than necessary. But long term we will lose some units that can no longer be repaired.
One way of preparing for the future would be to use the tax system to empower individuals, through tax credits such as this one:
The Local Food Security and Production Tax Credit
The Local Food Production and Security Tax Credit creates a tax credit of up to $500 a year to individuals and families for garden-related and home food production expenses. Garden expenses include but are not limited to seeds, fertilizers, hand tools, garden fence, paying for garden tilling, tomatoes cages, and cold frames. Home food production equipment such as, but not limited to, canning equipment, canning jars, food production processors, food dehydrators, and pressure canners also qualify for this tax credit.
Small businesses and corporations may also qualify for a tax credit of up to $2000 per year under this program for their contributions to the creation, maintenance, and continuation of community gardens.
Please feel free to share and circulate.
The current financial system seems to be headed for a major disintegration. Fiat money not linked to any real source of underlying wealth such as resources cannot last much longer. Massive debt at all levels which is now basically un- payable will precipitate significant change (or collapse if you like) in the financial system in the not too distant future. (For the best analysis of this possibility read The Automatic Earth blog site).
However, the energy system is so vital to everything, that governments will go to extraordinary lengths to keep the electric power on. I think the 2030 timeline for no electricity is way too short & that there will be various local electricity generation for many years to come.
The interesting thing is that the United States is the world’s highest consumer of energy. The US has further to fall in energy use than any other country. Yet, the US seems to be taking the path of BAU instead of preparing for a FF constrained future like Germany or Sweden for instance.
In general, I agree with this posts future scenarios of declining energy & economic systems but I think the down slope will take longer. Unless of course future acts of war or terrorism precipitate rapid decline & collapse (like Berlin between 1941 & 1945).
We are watching the obvious steps of the USA decline to 3rd world status. I have just returned to Baltimore for a conference from 3 weeks in Nicaragua & Honduras. Outright begging in Nicaragua & Honduras was very rare. In cities in the US it is now very common. Makes you wonder which are the poorest countries?
I think the Automatic Earth is quite wrong in predicting debt deflation. What seems much more likely to me is fairly rapidly increasing rates of inflation that will reduce the dollar to the status of the Mexican peso. American money can still function as a medium of exchange (as the Mexican peso has through more than sixty years of inflation), but it will no longer be a store of value. Owners of bonds and mortgages will be wiped out, but the debtors will get the relief that is so politically popular.
My guess for 2011 is a stock market crash (of 30% or more) by the middle of the year along with rising interest rates to compensate for increasing expectations of inflation. It is pretty clear that the federal deficit is going to increase substantially this year, and to finance this increasing deficit the Fed will proceed with QE2 and then QE3. The increasing deficits and increased monetary easing will increase expectations of inflation and hence also increase nominal interest rates. Real interest rates may go negative; the Fed would like that to happen to stimulate the economy.
A surprise increase in the rate of inflation will temporarily stimulate the economy and may get unemployment rates down for a while. This stimulus is only temporary: In the long-run there is no tradeoff between inflation and unemployment. In other words, the long-run Phillips Curve is vertical.
Will the U.S. have a recession this year? I put the chances at fifty-fifty: We’ll have a recession if the stock market crashes down sufficiently and if nominal interest rates rise by a couple of percentage points or more. Higher oil prices would also create a recession; we might have a rerun of 2008.
It is pretty clear to me that there will be much less in the way of goods and services to buy five or ten years from now. If we hypothesize that the money in our bank accounts stays there (and perhaps even accrues interest), then those dollars will buy less and less, given a comparison of money to goods available to buy. This sounds like inflation to me. Obviously TPTB would like this as well. I suppose that Stoneleigh is hypothesizing that the debt defaults will be of sufficient quantity to reduce the money supply, but I am not certain that she is making the comparison to the quantity of goods available for sale (which will be declining, perhaps even more).
Between debt defaults and rising expectations of inflation, one would think interest rates would rise, but I have not been good on guessing interest rate trends in the past.
I am not sure how much rising a stimulated world economy (which goes with rising inflation) will have on US employment. Inflation goes with more world oil supply, but I am not sure that we will get much more of it–we will likely continue to be outbid by China and others, and that situation doesn’t seem to be good for US employment. There is a lot of hidden unemployment now (people working part time instead of full time, or going to school, or temporarily out of the job market). Any increase in demand for employees will bring some of these people back and keep reported unemployment rates high.
I read TAE frequently but have never left comments.
I have always wanted to ask Ilargi or Stoneleigh if it is possible to have debt deflation AND systemic inflation concurrently.
Sounds dumb I know but if the debt bubble causes deflation of big ticket items that require debt to buy, such as houses & stocks, then these items will decrease in value because no debt then no purchase. This is happening right now in the housing market. At the same time inflating oil & other energy sources lead to inflation of low price goods including food & transport.
End result —deflation of housing & big ticket items (probably including cars) & inflation in the cost of living.
I am probably showing massive ignorance in asking this so please be kind when shooting me down.
I haven’t been following TAE that closely, but I think you are right that Stoneleigh has discussed deflation in big ticket items and in the stock market and inflation in little items.
Actually, the things I was thinking about as being in shorter supply and being subject to inflation are “the little things”- food, and manufactured goods, and other things we buy every day. And on those things, we can agree that inflation is the right answer. (Assuming banks are open, and other details. I still worry about banks not being open, or bank withdrawals being limited.)
Stocks represent an evaluation of future earnings potential, and I would agree that these will tend to go down in value, as more evidence of our current predicament gradually works its way into current events. Don Millman was saying he thinks stock prices will drop by 30% this year. This would bring stocks down to something like prices were at the end of 2008. This doesn’t sound all that unreasonable, if we have another unfavorable year like 2008.
There is a big oversupply of houses, and this is likely to get worse over time, if people have even more problems with getting jobs. So price on these houses will tend to go down. But if a person needs a new home, say in a rural area where there are not currently any homes, the cost of having one built may be high.
So maybe I need to amend what I said in response to Don Millman a bit.
Yes. That’s the way I see it too. Many thanks for your views. Makes sense. Cheers.
Hi Gail, regarding the interest rates (and GDP) growth, see the graphs in my post – 12. nd graph shows long term interest rates and HDP growth. Hope it helps,
I don’t think you understand Permaculture. To say Permaculture isn’t sustainable, is to say sustainable is not sustainable. Unsustainable Permaculture is not Permaculture. If we are going to be doing less than Permaculture then we aren’t going to be doing anything, but not eating at all. The whole idea is about planning to recycle all nutrients possible back into the system, while creating as much output as possible. If that is not a sound idea, then what is? Should we not design plant systems that catch as much solar energy as possible or not shy away from as many outside inputs as possible? My personal feelings about the subject is that if you are right, people won’t use Permaculture and we will degrade our ecosystems beyond repair. If oil and natural gas become unobtainable, I don’t see our forests lasting very long, nor the white tailed deer on the East Coast, which barely escaped extension in the 1800s but will find itself there in a minute if your prognostication is true.
Maybe what I should say is, “I don’t think that current permaculture production levels will necessarily be indicative of future permaculture production levels, because those practicing permaculture in the future will have less help from fossil fuels.” What happens is that permaculture as practiced today fits in with all of the “help” we get from today’s fossil fuel system–we have antibiotics to fight infections, car rides to town to get more soil amendments, a refrigerator to store produce so it doesn’t spoil as quickly (so we don’t need to produce as much of it, to compensate for spoilage), jars and lids for canning, and a computer to store records and search for helpful information. We don’t think of our system of doing permaculture as depending on fossil fuels, but we didn’t have all of our little “fossil fuel energy slaves,” we would spend a huge amount of our time walking to town to trade produce, gathering fuel for cooking, and obtaining fresh water. All of the little energy saving tools we have today translate into far more time for permaculture, better crop results because of access to better inputs, and many other helps.
I think if your scenario were to play out of a 3% economy, you massively underestimate the end game. I think it would make Mad Max look like a walk in the park. At least they had cars that could still drive. I just see in your scenario no way for us to stop at almost anything less than zero and a few thousand people left in the former USA. I have heard some people who think Peak Oil will solve our Global Warming problems, but I think they miss the fact that 7 billion people without government would create Haiti everywhere (imagine ecological disaster everywhere, especially where it is cold) and Haiti is only as “good” as it is because of outside help and relatively warm climate. I differ in thinking that we can and will adjust to less oil, we still produce 8 million barrels of oil and liquid condensates a year. The government in WWII was able to get the American people to ration goods. We had regional/local power grids in the past and we could certainly go back there with people huddling in places where the infrastructure can be serviced and we are already seeing this happen in places like Detroit. If I were to ask you a question it would be, do you see any negative feed back loops (as in good for humanity, so maybe it could be called a positive feedback loop)? I have a PhD in Biology and while I do agree with most of what you say, I have always seen both in almost every system. People only mention positive feedback loops, but it would seem there would have to be negative feedback loops.
Frankly I see dieoff under this scenario, large percentages in say the US, slightly less in say Swaziland (where I also farm) which has already adapted to much of this.
Interestingly the longevity in the US has already declined by .1 years for men as reported by the government. Stress kills, as does permanent “camping” eating poorly with no medical attention.
As a former math/engineer/internet person I think supply chain a lot farming amongst the Amish. They are all relying on Monsanto for their corn. I would not want to try to take my 5lbs of heirloom lancaster sure crop corn and work up to enough seeds for 110 acres. How many years would that take? My neighbors don’t even have five lbs of it.
I’m not especially worried about burning all the trees in the north which I think you are suggesting, food goes first due to supply chain and other factors. That gives you dieoff and consolidation of housing for the living. My catalytic woodstove in the farm managers 1200 sq ft house needs trivial amounts of wood or other biomass.
I slightly disagree with gail on nuke power nuiance, given refueling every 10 years based on 100% duty cycle,
i’m guessing that local power could be maintained in PA for a long time due to lots of nukes and lots of coal. The NewEngland states ARE probably done.