Rentier Debt and the Collapse of Debt-Based Finance

At the Age of Limits conference near Artemis, Pennsylvania on May 25-28, I was asked to speak on rentier debt and the collapse of debt-based finance. This is a somewhat difficult subject, so I decided to talk about the subject more generally–how growing debt fits in with economic growth and growth of energy supplies, and how inability to keep increasing this debt makes any existing tendency toward collapse worse. In this post, I would like to share this presentation with readers.

Slide 1

Let’s start by talking first about a subject fairly far removed debt–the difference between the systems created by nature and systems created by humans. The reason why I bring this difference up is because if we were only dealing with natural systems, there would be no need for debt. It is only when we start dealing with man’s systems that debt becomes an issue.

Natural System vs. Humans’ Growth Based System

Slide 2 – Natural system vs humans’ system

We all know what the natural system looks like: the combination of birds, animals, trees, the sky, the many tiny organisms, the soil, rocks, and everything else in the world that is present without man’s intervention. Human systems represent things that humans make, such as trucks and roads, and cars, and buildings, and electrical transmission systems. In a way, all human systems are interconnected, so we can think of them as one big system, created by humans.

Slide 3. Natural systems don’t grow

Natural systems don’t expand in size over time. Individual plants and animals grow and mature, and in the process become larger. But then they die, their bodies decompose, and eventually different organisms grow. Rocks decompose and form soil. This soil erodes, but, in time, it is replaced with new soil through the erosion of rocks.

There can be an expansion in the number of one type of animal, but eventually these animals will tend to eat too many of their prey, and the number of predators will drop, to stay in line with the amount of their food source. There can be a shift in mix of types of plants and animals, but the change is in the mix, not a long term growth in the overall quantity of plant and animal life.

Natural systems don’t need any assistance from humans. They have been around for billions of years. There is no need to finance anything.

Outsmarting the Natural System

Slide 4. Human systems are very different

In the natural system, each type of plant or animal produces more offspring than is needed to replace itself. The normal order of the natural system is such that only the best adapted plants or animals relative to the particular surroundings will survive. Many of the offspring do not survive to maturity.

Humans, since the earliest times, have had difficulty with this arrangement. Humans, because of their intelligence, have found ways to outsmart at least part of the “survival of the fittest” arrangement that would keep our numbers similar to those of other primates, such as gorillas or chimpanzees–probably fewer than 1,000,000 humans in total in the whole world.

Well over 100,000 years ago, humans discovered the use of fire, and the fact that fire could be used in many ways–to cook food so that new types of food could be eaten, and so that more nutritional value could be extracted from food that was eaten, to keep warm, and to drive animals from one area to another, so that animals could be more easily killed and eaten. In the same time-frame, humans began using spears to better kill prey. About 35,000 to 45,000 years ago, humans learned to hunt with dogs, and thus increased the amount of prey they could kill.

This pattern of finding ways around natural limits has continued to this day. The use of farming, starting about 10,000 years ago, allowed a great expansion in population. The use of trade to import food from a distance further increased the number of humans who could live on the earth. There were numerous other discoveries, including burning peat moss, and the use of water power and wind power, before coal was brought into common use in the 18th century. In the 20th century, the petroleum use surpassed coal. There were also many other advances that helped humans avoid natural limits–for example, the discovery of antibiotics, and the widespread use of electricity.

At the bottom of Slide 4, I have represented the long-term pattern of growth by a line that gradually slopes more and more upward, as we move to later periods. Even in the earliest period, there was some upward slope, but this may have been offset by setbacks. The amount of growth gradually increased, but still was not particularly evident to those living at the time, because of inherent fluctuations. The greatest growth has come in the last 100 years.

Slide 5. Reasons human system is growth based

There are two basic reasons why human systems are growth based:

(1) Humans find ways to get around “survival of the fittest”.

(2) Entropy–Whatever humans build eventually falls apart. Humans have to keep to keep building more, just to stay even. Even advances like discovering antibiotics and herbicides have to keep being repeated, or nature finds ways around our advances.

The combination of these factors means that humans have been, and continue to be, on a constant growth tread-mill. There have been examples of small societies that have managed to keep populations flat for relatively long periods, and there have been many  societies that have collapsed while others have expanded.  The overall aggregate impact of human has been, however, has been one of gradual growth in numbers and material wealth.

Graphic Representation of Natural System and Humans’ System

Slide 6. Humans’ system started out as a tiny part of nature’s system.

Slide 6 shows my view of how very early humans fit in with the natural system, back in the days before man discovered fire and spears and learned how to hunt with dogs. Humans were part of the natural system, just like other animals. Their population was no doubt relatively low, and stayed low, perhaps varying with climate change and food availability.

Slide 7. Humans’ system grew to overwhelm nature’s system

Slide 7 shows my view of what humans’ system looks like now. It has grown in size, so that in many places it overwhelms the natural system. Humans’ system takes resources from nature, and sends its pollution back to nature. Thus it is tied to the natural system, whether we recognize the situation or not.

The Nature of Growth

Slide 8. World population growth

If we look at a graph of world population, we see that growth has been particularly evident in the last 100 or 200 years.

Slide 9. Nature of growth

It appears to me (based on GDP statistics of Angus Maddison for the last 2000 years) that prior to the use of fossil fuels, most of the growth was simply population growth, as humans were able to increase their food supply. It was not until fossil fuels were added that there was a big increase in standard of living.

Slide 10. Growth provides many benefits.

Economic growth of the type we have had since the growth in the use of fossil fuels provides many benefits. If the economy is growing fast enough, there is rising demand for homes, so home prices tend to rise. The prices of individual stocks rise, and there are more jobs available, some of which pay well. Governments find that the taxes that they collect rise, even without raising the tax rate. This helps governmental stability.

Slide 11. What is needed for a growth-based system?

How can humans’ system be made to grow? Clearly one thing that is needed is increasing amounts of materials from the natural world; another is a way of transforming these materials into goods and services that people want or need.

A less obvious thing that is needed is a way for people to be able to pay for the goods and services, in advance of the time that they earn the money to buy these things. This is where “rentiers” come into play. Rentiers provide the credit that allows people to buy goods and services that would normally require a large accumulation of wealth.

Debt was first used about 5,000 ago, back in the days of early agriculture, according to David Graeber’s Debt: The First 5,000 Years. At that time, large temples acted as purchasers and sellers of goods and services. People brought goods to the temple to sell, and also bought other goods. The temples kept running tabs. Those who bought more than they sold were in debt.

Rentiers and Debt

Slide 12. Who/ what are rentiers?

Rentiers are enablers of debt. They allow people to buy things that they couldn’t otherwise pay for. Rentiers include banks and other parts of the financial system.

There have been rentiers for 5,000 years, but the growth in rentiers has been greatest since World War II. The need for debt is greatest when one wants to increase the rate of growth.

Think of the United States after World War II. The world had come through the long economic depression, and things were finally looking better after World War II. The soldiers were coming home again, and would soon be unemployed. If only citizens could afford to buy new cars and new homes, there might be jobs for these returning soldiers.

Slide 13. Non-government debt growth after World War II.

Government debt had been ramped up prior to World War II (allowing it to buy tanks and airplanes and to employ more soldiers), and now was being paid down (not shown on Slide 13). If demand was to be kept up, and even raised, private citizens and businesses needed to be encouraged to go into debt, allowing citizens to buy things like cars, refrigerators, and new homes. Slide 13 shows that non-government debt was ramped up  after World War II. This stimulated the economy because it allowed more people to buy “big ticket” items, and helped ramp up job growth and energy use.

Slide 14. World Energy Consumption

If we look at a graph of world energy use (from my post, World Energy Consumption Since 1820 in Charts) we see that world energy consumption really began to rise after World War II–that is, the same time non-government debt was being added.

Slide 15. Per capita energy consumption since 1820

The growth in energy consumption since World War II is even larger on a per-capita basis. Most of this growth was in fossil fuels–in oil and natural gas, and, recently, in coal. Without fossil fuels, our per capita energy consumption in 2012 would be below that in 1820, and our lifestyles would be much different.

Slide 16. World population grew at the same time as non-governmental debt and energy.

Slide 16 shows that if a person looks at a graph of world population growth, there is a very distinct upward “bend” after World War II. This is precisely the time that energy use grew rapidly, and debt use grew rapidly.

How Debt Growth Works – And Eventually Doesn’t Work

Slide 17. How the debt-based system works

The basic way our financial system works is that when a person or business or government needs money, that money is loaned into existence. This allows a business to expand, or a person to afford to buy a car or home that he or she had not saved up money for.  What happens is that increasing debt allows demand to be higher than it would otherwise be, so that natural resources (including oil, gas, and coal) are extracted more rapidly than they otherwise would be. This allows what we measure as the “economic growth” rate to be higher than it would otherwise be.

There are a couple of catches with this system:

1. The money to repay the debt is not loaned into existence at the same time the principle is loaned into existence. As long as the economy is growing fast enough, this is not a problem, because economic growth allows future production to be enough higher than current production to pay back debt with interest. But if the economy ever slows down, there is a problem.

2. The process of increasing extraction of natural resources through the use of increased debt doesn’t work indefinitely, because at some point resource extraction starts getting constrained, and pollution becomes more of a problem.

Slide 18. Our debt-based system depends on growth

Slide 18 illustrates the way that a growing economy helps to make repaying debt easier. With a growing economy, the size of the “economic pie” grows pretty much every year. This growth means that even if a fixed amount of debt plus interest needs to be paid back, relative to the growing base, it is less of a problem. It is easy to see this situation for a government, but a similar situation exists for individuals. If the economy is growing, on average, people will find themselves getting promotions and will find new jobs available when they lose old ones, so that, for example, repaying home loans tends not to be a problem.

Clearly, the reverse is true if the economy is shrinking. Even if the economy shows zero growth these is a problem, because there is not enough to growth to cover the interest. If interest rates are lowered to almost zero (do very low interest rates sound at all familiar?), the inability to cover the additional cost relating to paying back interest, but even this becomes burdensome.

It might also be pointed out that with a flat or shrinking economy, it becomes more and more difficult to pay for promised social programs, such as social security retirement programs and unemployment programs. These programs become a larger portion of a stable or shrinking pie, and thus become harder and harder to fund. European countries (which have been very generous with their social programs) are having particular difficulty with these problems now, as well as difficulty with repaying their debt.

Slide 20. Humans’ system can’t keep growing forever

The reason why growth in resource extraction cannot continue forever is related to Figure 20, whch I also showed earlier. At some point, resource extraction becomes constrained. Higher demand for oil tends to lead primarily to higher prices for oil, rather than to much more oil actually coming out of the ground. Pollution of various kinds, including carbon dioxide pollution, becomes more and more of a problem.

Everything I can see says we started reaching the point where oil resources became restrained about 2004 – 2005, when oil prices started going up, and oil extraction did not rise by much. Since that time, world oil extraction has grown very slowly, constraining economic growth. The 2008-2009 recession seems to me to be very much associated with this constriction, as are the debt problems we are now seeing around the world, especially in Europe.

Slide 21. Slowdown occurs when oil prices rise

The reason why an economic slowdown occurs when oil prices rise relates to the fact that oil is used for necessities–growing food and for commuting to work. A rise in oil prices does not result in a rise in families’ incomes, especially in oil importing countries, which is what the United States and most of Europe are. A family will tend to cut back on discretionary spending, such as going out to restaurants, or buying a new car, or buying a more expensive home.

As a result, there will be layoffs in discretionary industries–for example, restaurants, car manufacture, and home building. People in these industries will be laid off from work. Some of those laid off from work will default on loans. Value of homes will tend to fall, as few people are in the market for a move-up home. Government spending on unemployment claims will increase, at the same time that tax revenue drops (or flattens) because fewer workers are employed. Governments find themselves in increasingly distressed financial condition, because they cannot afford to pay promised benefits, and their debt burden gets higher and higher. If this all sounds like the economic news of the last few years, in both Europe and the United States, it shouldn’t be too surprising, given the high price of oil, and our the dependence of our economies on oil.

Problems with the Rentier Debt System

Slide 22. Issues of the debt-based system

The biggest issue with our debt-based system is the system tends to collapse, once adequate growth to sustain the whole system occurs. We appear to be rapidly approaching this point. It will also collapse at a closely related point-—when the amount of debt becomes so high that the governments cannot afford to pay the interest on debt, and keep up other programs.

Another issue is that as the economic condition of people in oil importing counties is reduced, governments of these countries find themselves less able to collect taxes, at the same time they would like to stimulate the economy. Promised retirement programs also become harder to fund. This means that the governments of oil-importing economies will find themselves under increasing tendency to collapse, as high oil prices lead to recessionary tendencies.

Another issue of the rentier debt system is that too much money is transferred to the finance system and to those collecting interest (as opposed to paying interest). People at the bottom of the economic order find themselves barely able to make ends meet, and borrow to try to cover necessities. The interest rates these individuals are charged are far higher than the interest rates paid by borrowers who are deemed more “credit-worth”, such as governments.

Another issue is that as the price of oil rises, too much money is transferred to countries involved with oil extraction, at the expense of oil-importing countries. This transfer of funds to oil exporting nations tends to depress the economies of oil importing nations. There are theoretical ways that the funds of oil exporting nations might be recycled, but increasingly, these countries find that they need these funds to pacify the demands of their own populations, so that recycling occurs less.

What Is Ahead?

Slide 23. Some possible impacts of defaults

We have already talked about some of impacts that are already occurring–financial systems under stress, with some countries appearing to be near default. The question is what may happen next.

If there are defaults in one or two countries–say Greece and Spain–the financial problems seem likely to  spread to banks in other parts of the world, through derivatives and through banks carrying debt relating to the defaulting countries. There also seem to be any number of countries in weak condition–for example, Egypt–and the problems of these countries may worsen as well.

Another likely outcome would seem to be that new loans will become less available.  If a particular country has recently defaulted and seems to have no way of paying for new oil imports, they may have difficulty getting loans. But even those not directly involved with defaults may find it much more difficult to get loans, because the financial condition of banks will be worse, and some banks may fail. A reduction in available loans will tend to lead to economic contraction, and make any tendency toward collapse worse.

We can speculate on all kinds of other things that happen. I will not elaborate on the Items shown on Slide 23, except to say that cheap oil has enabled a lot of what we have today–an international trade system that allows the formation of large countries, and that allows large countries to interact to a much greater extent than a few hundred years ago. There would seem to be a possibility that most of the advances of the last few hundred years will disappear as the availability of cheap oil disappears.

Can we solve our problems by getting rid of rentier debt?

Unfortunately, no. We are now reaching resource limits, primarily in oil, but also in other resources, such as fresh water, and also with respect to pollution. Humans were on a growth trajectory to reach these limits, with or without rentier debt. Rentier debt allowed us to reach these limits faster than we might otherwise have reached them.

Now that the bubble has been inflated, and we seem to be near collapse, getting rid of rentier debt won’t really “fix” the situation. It is basically too late. The future direction would seem to be contraction, and this will almost certainly eliminate most rentier debt.  Our task now would seem to be to deal with all of the dislocations that occur when defaults occur and to develop new financial system(s) that can handle continued contraction.

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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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

129 thoughts on “Rentier Debt and the Collapse of Debt-Based Finance

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  3. Gail, a couple of points regarding the data presentation of natural -v- human systems.

    Human energy production/consumption is only about 1/6th that of natural systems (ie photosynthesis). With the caveat that human systems are a subset of natural systems, therefore using the term in the sense of natural systems other than human systems.

    About 35% of the terrestrial production (20% of the global production) is used for human consumption (ie … crops, grazing, hunting and fishing, lumber, fibers)

    Although I understand your point about human systems impacts on natural systems, I think your presentation of human systems triangles shown as dwarfing natural systems triangles is misleading. Consider the two charts I present here. It is the second one that shows the impact. This single species, homo sapiens, has managed to corral ~20% of the global net primary production to serve our needs. And of course, it is our ability to generate and use 17TW per year of (primarily) fossil fuels that allows us to do that.

    • “Human energy production/consumption is only about 1/6th that of natural systems (ie photosynthesis)”

      Do you have a reference and a context for this?

      I have read (I think in The Oil Drum) that humans in North America expend about 50% more energy than is collected by all the plants in North America. That made such an impression that I copied the graph accompanying the article.

      Given that Americans consume some 25% of all energy used by humans, I could see that averaging out over the entire planet to something closer to your figure, but I’d like to understand the difference.

  4. Can I pick you up on technical point. You said that interest is not created. This a common misconception. Money is not only created by a bank when it lends money but also when it pays employees, pays for goods and services or purchases assets. This money goes into general circulation which eventually comes back as “interest” money. Doesn’t invalidate the rest of your argument but will be picked up on by peak oil denyers

    • I would have to think about that. Do you have a reference to an article talking about the issue? Insurance companies pay employees all of the time (and make other similar payments), and those payments are not created by the insurance companies–they come out of the insurance companies’ profits. It seems like it would be similar when banks pay employees. The banks make money when the interest that is paid on loans is greater than their cost of making the loans, and it would seem like those profits are what are paying employees.

      • As you know, most people misunderstand the banking process. They think that money gets transferred from people who are paying back their debt to people who are taking out new debt when in fact money is actually being destroyed and created respectively. In the same way, they think that the interest that the bank receives is just transfered to shareholders(as dividends), employees, etc. when in fact this ‘interest’ money is being destroyed and created in just the same way. Originally I also thought that ‘interest’ money wasn’t created until I read otherwise. I’ll try to find a reliable reference source for you.

    • I can’t believe that this technical point is actually true in the real world. It seems as implausible as the assertion that all markets, everywhere and always, are stable, which I have also read somewhere. If this were true, why doesn’t it also apply to interest on government debt? But people worry about the government sinking under the weight of servicing the national debt. Why not “Oh, its all right. The economy is creating the money to pay the interest” ?

      • Just because it is implausible doesn’t make it not true. Interest money is created in advance in the manner I described. However you do raise the valid question as to why are people worried about paying back the interest if it has already been created. A very interesting question. The money is out there in circulation but it has not got back to people who need to pay back the interest!

        Purely an example; lets take Greece, maybe they bought something, like fighter jets or something, from a US company by borrowing the money and assumed a 2% growth rate. When they failed to grow at this rate they then struggle to pay the interest payments while US company are sitting on mountain of cash. The money is out there but just not in Greece’s hands.

        • I see your assumed 2$ growth rate as inflation that is endemic in the modern economy, not a thing that is *caused*by* fractional banking. What school of economic theory pushes this nonsense?

          Purely as an example: lets take an economy in which all money is backed 100% by Gold in bank vaults and Gold coins whose Gold content is true to their purported value. Where does the money for interest come from in such a situation? I say it doesn’t come from anywhere because what’s really happening is that some theorists lay claim to a phenomenon that already has an explanation and count it again to support their wooly headed maunderings.

          But I have little respect for any economic theorizing so don’t take offense at my lack of respect for this idea in particular. 😉

  5. Gail:

    I agree with your assessment of the origin of the current situation, and I can explain this cogently to others. However, after doing so, I hear the objection that the price of oil has been going down due to decreased demand, and that it clearly isn’t to blame for the recent stock market woes. “See?” people say to me, “Oil isn’t the problem, the [greedy 1%, tax-and-spend democrats, illuminati, space-aliens, whatever] is the problem.”

    “Sure,” I reply, “the economic impact has currently outstripped the supply problem, but that’s temporary–we’re still running out of oil.” But then people shrug and change the subject. I feel like I’m missing something here.

    Of course, I know myself well enough to see that I more than half-desire a sudden crash-event due to my own discontent with both the modern system and my inability to get out from under it–a sudden crash would solve my problems and create the kind of world I’d be better suited to living in. So the fact that I can’t convince others makes me wonder if I’m deceiving myself–not that we AREN’T running out of oil, just that I don’t understand it well enough to believe for the right reasons.

    Anything you could do to help explain the current big-picture would be of help. Thanks!

    • I’ve long held that humanity will go out with a whimper, not with a bang.

      That is not a popular nor well-liked scenario. I tend to get shouted down in doomer/prepper circles.

      We are genetically programmed to react to events, and poorly prepared for long-running processes. Army marching on your border? That’s an easy one to figure out! Temperatures going up to scalding over the next century? Hmmm… let’s commission another study…

      Preparing for a crash is simple: get through the crash with reasonable health intact, then live on dead people’s stuff. Preparing for an ongoing dilemma — now that requires some work and some tough life-style choices.

      Since getting through an ongoing predicament is the more difficult thing to do, that’s the one I’m working on. I think the preparations for a long predicament will work fairly well in a sudden crash, as well, with some reservations.

      Personal security will be more important in a crash, and American’s love affair with guns fuels enthusiasm for this scenario. In the long quandry situation, excellent relations with your greater community is going to be more useful than any number of guns.

      Assuming there is some sort of economy and government left (a big “if”), the sudden crash might at first appear to favour the debt-ridden, which might be where you are deluding yourself. Hyper-inflation wipes out debt. But be careful, lots of dead people tend to cause deflation, as there are fewer competing for resources. That land that you’re leveraged to the hilt on? Hyper-inflation could wipe out your debt, but what if dead people’s land is available for the squatting? You’ll be so far underwater you’ll have to walk away. On the other hand, a sudden crash might make the banks “forget” you owe them money — to me, that’s not very likely! Behind every mortgage are people who are counting on the income from it.

      Assuming you are preparing for a slow muddle, and are continually supplying more and more of your own food and energy, at some point, it’s going to be worth more to your neighbours and community to keep you around than to take you down. As mega-farms are less able to provide for the masses, small, low-energy productive farmland will hold its value, as long as people need food. But in the sudden crash scenario, perhaps productive farmland will be worthless, as the smaller population is able to forage.

      Big questions. No easy answers. But I still think “boiling frogs” is the scenario to prepare for — someone prepared for a slow crash will fare better in a fast-crash world than vice-versa.

    • The price of oil determined by an auction system which assures rich countries get all the oil they want, while the demand destruction hits poorer countries first. This produces rows of ambulances parked outside Pakistani hospitals that have no fuel, despite the desperate need.

      The bidding system will drive prices up in a spiral when supplies are short, and in a downward spiral when demand is failing. You won’t have much success trying to convert people to Peak Oil believers during times of falling demand, but just wait a few months and it will be back up again.

      Nobody is talking about whether pricing oil by auction is sensible. What we need is a controlled market which aims to stabilise the price, but apart from being “socialism” (i.e. fair to all), it would require the controlling agency to realistically look at future oil production in the light of Peak Oil. To do that would show that the future is going to be one of declining oil availability, and that makes economic growth impossible, which is something that the leaders cannot acknowledge under any circumstances.

      So the leaders understand Peak Oil very well, (probably better than we do, because they have access to better data) but they cannot admit it publicly.

      As a further problem, the tight energy budget means it is not going to be possible to complete a transition to renewables, due to the need for a huge energy investment in building new infrastructure at a time of energy shortage. We can make a start on the transition, but we cannot complete it. If we had started decades ago when spare oil supplies were available, we could have done it, but it wasn’t profitable, because oil was cheap, and we didn’t take the long-term view.

      This can be proved mathematically by looking at the energy budget for a renewables project (say a PV manufacturing plant) and calculating the timing of Energy Invested and Energy Returned. see This methodology can be applied to any technology, with any ERoEI, Lifetime and annual growth. All fail the test.

      • Two further questions, then: First of all, what about the claims that OPEC tries to charge enough for oil to allow the producers to grow (or stay afloat), but not so much as to bankrupt buyers (who are bidding only what they can afford)? People quote economists to me, and while that doesn’t mesh with what I know about supply and demand, I’m not sure how to refute it.

        Second, I’m also continually told that PV manufacturing processes are getting better, that the price of panels is falling, and that we’ve still got more than enough natural gas to compensate. I always retort that the problem is LIQUID fuel, not fuel generally, but this gets the objection about affordable natural gas compression stations and about diverting petroleum to where it is needed, and using other forms for stationary consumption.

        Of course, I realize that the basic question is whether or not someone is willing to believe that the world as we know it won’t just keep getting better (or isn’t already getting worse). But I know more than a few doomers who think we’ve got lots of oil, and that the national debt and the specter of inflation will be our real downfall, instead. Perhaps I shouldn’t take it so hard when people don’t get what I’m saying.

        • CNG is a low-density fuel — lighting, cooking, etc.

          My back-of-envelope calculations indicate that the energy required to compress enough to give you a couple-hundred-mile driving range is equal to the energy in the fuel itself! “Affordable natural gas compression stations?” Try “net energy loss!”

          So you’re on the right track insisting that liquid fuel is the issue. It’s not your problem that they are in denial and won’t listen!

        • OPEC are price-takers not price-makers. The only way they can manipulate the price is by how much they produce, and all but Saudi Arabia produce flat out all the time. Saudi is the swing producer, but it takes a while for the price feedback to become a production response. In the meanwhile the price fluctuates at auction.

          It is common to hear Saudi make the accusation that speculators are driving the price up. This is not the case because the speculators eventually have to sell their paper contracts for delivery to refiners or stockpilers, and no refiner is going to pay more than the spot market price, so once a month when the NYMEX Futures contract matures, the price is forced to converge on the spot market price. This may produce a profit for the speculators, or a loss, depending on their earlier gamble. There is no way the speculators can drive up the price, because they are trading in derivatives.

          The price of PV panels IS falling, but that is due to over-capacity in China, where production is subsidised. US PV manufacturers have been going out of business left , right and centre.

          US natural gas prices are currently distorted by the “boom” in gas from tight formations using fracking. This boom has been going for 3 or 4 years, and if you extrapolate that out to 3 or 4 decades, you get a completely false impression. Those that entered the boom early are now realising that tight gas needs lots of expensive drilling with a short lifetime of production, and that their business plans don’t really make sense with low prices. Some have even failed to convince their bankers they are viable and have gone out of business.

          This doesn’t stop politicians from extrapolating the impossible, because anything that sounds like good news is repeated over and over.

          There is one good point in all of this: the IPCC’s forecasts of the amount of fossil fuels that will be burned in the decades ahead must follow IEA forecasts, otherwise they would be criticised for getting their figures wrong. IEA’s forecasts, which don’t accept Peak Oil, Gas and Coal, are way too high, so predicted Global Warming in the “do nothing” scenarios is way too high. If you use peakist numbers for fossil usage, the temperature should peak in ~2045 at +1.4 C and fall slowly thereafter. This might still be catastrophic, but nowhere near as bad as IPCC predicts. Anyway, Peak Oil on its own is going to be enough to crash civilisation, so Global Warming is scarcely a problem.

        • I probably need to write more posts on some of these issues.

          It is very hard to get a sense of proportion, when people talk about these various issues. What tends to happen is that the renewables and the hoped for solutions are very small in relationship to the oil consumption, and the substitutability not very direct. There is a huge amount of investment that would be needed for making the change, but nowhere to get the investment from. So nearly all of these things will necessarily remain as ideas, rather than as solutions.

      • I think the determination of who gets the oil is a little more complicated than you say, because energy exporters with small populations can often afford to subsidize the price of oil. These countries tend to use more oil.

        Also, there are details about how oil fits in with other energy supplies. If a country can ramp up coal use (like China and India), they can stretch their oil use.

        So as a practical matter, it doesn’t necessarily follow that the “rich countries get more”. Poorer countries can use more, if it fits in with their overall energy use well. It may be easier to add a few motorcycles than more semi-trucks to an economy.

    • I need to write a post on the issue. I think the big issue is that we have a lot of weak links (banks, finances of transporting oil, perhaps derivatives markets), that tend to fail at the same time as oil prices go down. Governments are soon to topple as well, especially where they have big debt and unemployment.

      No one may see the result as being related to oil–which is frustrating for people who would like to see that “their cause” was ultimately the problem. It may all look like a financial failure.

  6. This isn’t about Republican v Democrat!! Or who is President — don’t you get it? It’s gone too far to be fixed. The nations of the world need all their tax revenues to pay interest on existing debt, and must borrow again to find the funds to run the nation.

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