Reasons for our Energy Predicament – An Overview

Quiz: What will cause world oil supply to fall?

  1. Too little oil in the ground
  2. Oil prices are too low for oil producers
  3. Oil prices are too high for oil consumers leading to recession, debt defaults, and ultimately a cut back in credit availability and very low oil prices
  4. Oil exporters are subject to civil unrest and overthrow of governments, due to low prices and/or depleting reserves
  5. Lack of money (and physical resources that might be purchased with this money) to pull oil out of the ground.
  6. Pollution related issues–too much smog in China; too many problems with fracking; too many problems with CO2.
  7. The financial current system fails, and can only be replaced by one that allows much less debt. Oil prices remain too low under such a system. 

In my view, any answer other that the first one is likely to be at least partially right. Ultimately, the issue is that to extract oil or any fossil fuel, we have to keep the financial and political systems together. These systems can be expected to fail, far before we run out of oil in the ground. Most oil in the ground (as well as most other fossil fuels in the ground) will be left in the ground, in my view.

Basing estimates of future oil production on oil reserves is likely to give far too high an indication with respect to actual future production. Even more absurd numbers come from using “resource” numbers (which are higher than reserve numbers) to make estimates of future oil production. Coal and natural gas production is likely to fall at exactly the same time as oil, because the problems are likely to be financial and political ones, not “resources in the ground” problems.

Direct Application of M. King Hubbert Theory is Incorrect

M. King Hubbert is known for his estimates of future oil production  (195619621976) based on reserve amounts. There are two things of importance to notice about his estimates:

(a) The oil reserve estimates used are of free flowing oil reserves of the type that geologists currently were looking at. Thus, they were restricted to “cheap to extract” reserves, and

(b) When Hubbert showed graphs of world oil production following a generally symmetric curve (so downslope looks like a mirror image of upslope), Hubbert showed some other source of energy supply (nuclear in his early papers, solar in later ones) rising to high levels, before world oil production ever dropped. He even talked about making liquid fuels using a huge amount of energy plus carbon dioxide and water–in other words, reversing combustion (1962). In order to ramp nuclear or solar up to these very high levels, they would need to be  extremely cheap.

The assumptions that M. King Hubbert makes are effectively ones that would allow the economy to continue to grow and the financial system to “hang together.” If a person looks at today’s situation, it is quite different. We do not have an alternate fuel supply that will  allow the economy to continue to grow, regardless of fossil fuel consumption. The published reserves include large amounts of oil in the ground that are not of the very cheap to extract type. Extracting such oil will be impossible if oil prices are very low, or if credit availability is lacking. It is tempting for observers to look at oil reserves and assume that all is well, but this is definitely not the case.

Basic issue: Future oil extraction and future substitution is uncertain 

One basic issue is the “iffiness” of the reported reserve and resource amounts:

There is lots of oil in the ground, if we can actually get it out. Getting it out requires a combination of a financial system that allows us to do this (high enough prices for producers, adequate credit availability for producers, equity investment available if credit is not available, buyers who can afford the products) and political system that allows this to happen (citizens in countries with oil extraction not rioting for lack of food; banks open in countries trying to import oil; adequate trade connections among countries).

Likewise, substitution is possible among energy products, if it is possible to overcome the many hurdles involved in doing this. There are two cost hurdles: the higher ongoing cost of the substitute and the transition cost. The transition cost gets to be very high if there are a lot of “sunk costs” that are lost–for example, if citizens  are forced to quickly change from gasoline powered cars to electric cars, so that the resale value of their gasoline powered cars drops precipitously. There is also a technology hurdle: we need to have the technology to enable using the different energy source.

If the cost of the substitute is higher than the cost of the original energy source, a change to the substitute will tend to make the economy shrink, because wages will “go less far”. If citizens need to pay a whole lot more for new cars, or if electricity is more expensive, citizens will cut back on discretionary expenditures. This cut-back on expenditures will lead to layoffs in discretionary sectors, and will make it more difficult for the government to collect enough tax revenue.

Another basic issue: Wages don’t rise as oil (or energy) prices rise

Economists would like us to believe that we just pay each other’s wages. Wages can rise arbitrarily high independently of actually creating goods and services using energy products.

Unfortunately, this doesn’t seem to be true in practice. Based on my research, in the US high oil prices are associated with flat wages, in inflation-adjusted terms. Wages do not rise as fast as oil prices. Instead, wages tend to rise when oil prices are low, making goods and services affordable.

Part of the problem with rising oil prices is that they radiate through the economy in many ways: in higher food prices, because oil is used to produce and transport food; in higher metal prices, because oil used in metal production; and in higher finished products, such as automobiles and new homes, because they use oil in their production. With wages not rising sufficiently, as oil prices rise, workers find they need to cutback on discretionary goods. The result is recession and job layoffs. I document this issue in the article Oil Supply Limits and the Continuing Financial Crisis, published in journal Energy in 2012.

The flip side of this issue is that without wages rising as fast as the cost of oil extraction, it is hard for the selling price of oil to rise high enough to provide an adequate profit margin for oil producers. It is inadequate oil prices for oil producers that seem to be the current problem. I talk about this issue in two recent posts: What’s Ahead? Lower Oil Prices, Despite Higher Extraction Costs and Beginning of the End? Oil Companies Cut Back on Spending.

Economists don’t think that prices can remain too low for oil producers. It can happen, because their model of supply and demand is not correct in a world with energy limits. Even if prices temporarily rise again, recession hits again, and we are back to low prices again.

Another basic issue: Diminishing returns

Diminishing returns occurs when it takes more and more energy or other resources to produce the same amount of goods. In the case of oil supply, we reach diminishing returns because companies extract the easy-to-extract oil first. Thus, the price of oil rises because the oil that can be produced cheaply is mostly gone. If we want to obtain more oil, we need to extract the more expensive to extract oil.

One way to see what diminishing returns does is to think about an economy producing two kinds of goods and services:

  1. The goods and services the consumer really wants–such as food, fresh water, transportation that takes the consumer from door to door, electronic goods, and housing that meets the person’s needs.
  2. All of the intermediate “stuff” that goes into making the end products in (1).

What happens with diminishing returns is more and more of society’s physical labor and its resources go into intermediate products, leaving less and less to produce end products, and less to actually “grow” the economy. In some sense, it is as if we are becoming less and less efficient at producing final goods and services. In my view, this is a major reason why wages stop rising as oil prices rise, and as other energy prices rise.

Another basic issue: The rate of growth in energy supply is closely tied to the rate of GDP growth

We use energy to make goods and services, so it stands to reason that using more energy would lead to more GDP growth. Economists don’t necessarily agree. They are sometimes of the view that the connection has only to do with “Demand”–in other words, when the economy is growing rapidly it needs more oil and energy products to support it its growth. I discuss Steve Kopits’ talk on this subject in Beginning of the End? Oil Companies Cut Back on Spending.

Something that is perhaps not obvious is the fact that cheap energy supply tends to easier to ramp up than expensive energy supply. Cheap energy supply requires relatively less investment. Goods created using cheap energy supply tend to be inexpensive, making them easier to sell to consumers and more competitive in the world market. I talk about these issues in Oil Limits Reduce GDP Growth; Unwinding QE a Problem.  

Another basic issue: The role of debt

Long term debt plays an extremely important role in the economy, because it allows consumers to buy expensive goods like houses and automobiles that they could not otherwise afford, and because it allows businesses to invest in projects before they have saved up sufficient profits from past projects to fund the new projects. It also allows governments to spend more money than they have in tax dollars. All of this purchasing power tends to prop up the price of commodities such as oil and metals, making it feasible to extract them.

We had a chance to see how important a role debt plays in 2008, during the debt crisis in the second half of the year. During that period, the price of oil dropped from briefly hitting $147 barrel to the low $30s range. Major banks needed to be bailed out, and the insurance company AIG was taken over by the US government because of problems with derivatives.

Figure 1. Average weekly West Texas Intermediate "spot" oil price, based on EIA data.

Figure 1. Average weekly West Texas Intermediate “spot” oil price, based on EIA data.

The big drop in oil price in 2008 was due to a drop in oil demand because of lack of credit availability. I wrote an article in 2008  about the huge impact this decrease in credit availability had on energy prices of all kinds, even uranium.

A related concern relates to the fact that “borrowing from the future” — which is what we do with long-term debt, is a great deal more feasible in a growing economy than it is in a shrinking economy. There are a lot more defaults in the latter case, because people keep losing their jobs and businesses keep closing.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

The concern I have is that as economic growth slows, we will reach a point where long term debt becomes very hard to obtain. The lack of credit in 2008 has not been fully fixed. It was only with the help of Quantitative Easing (QE), which added more demand to the marketplace because of very low interest rates, that oil prices have been able to rise again after the drop in 2008. With the very slow economic growth we have been experiencing recently, it has been necessary to use QE to keep interest rates low enough that people can still afford to buy homes and cars.

If the economy shifts from adding debt to subtracting debt, we are likely to see a huge drop in oil prices, perhaps similar to the drop in oil prices in 2008 to the low $30’s range. If this should happen again, it is not clear that the Federal Reserve would be able to find a way to make the price rise again because is already using a huge amount of stimulus, and thus has fewer options left.

If oil prices drop to a low level and stay down, a large share of oil production will be discontinued. Very little new drilling will be done. Similar effects are likely to happen for other fossil fuels and for mining for metals as well. Such a drop in oil production is likely to be steep–at least as steep as when the Former Soviet Union collapsed. Oil production dropped by about 10% per year, and other energy use dropped rapidly as well. Customers such as the Ukraine and North Korea saw even steeper declines in their oil imports.

Another basic issue: Government funding

Governments are only possible because of the surpluses of an economy. Greater surpluses allow more government employees and more services. Mario Giampietro (2009) is one researcher who writes specifically about this issue. Furthermore, as an economy grows, rising tax revenue makes it is easy to add more programs and services.

As an economy reaches diminishing returns, studies of past economies show that inadequate government funding is one of the major bottlenecks. This occurs because falling resources per capita leads to increasing disparity of wages, with new workers finding it difficult to find good-paying jobs. Governments are called on to provide more programs at precisely the time when their ability to raise sufficient funds to pay for these programs is lacking. A major factor leading to collapse is the inability of governments to collect sufficient taxes from increasingly impoverished citizens.

The Two Way Escalator Problem

As I see it, the economy as it is currently constructed only gives us two options: up and down. The markers of the “up escalator” are

  1. Cheap energy
  2. Growing energy supply 
  3. GDP growth 
  4. Wage growth
  5.  Debt growth 
  6. Growing government programs 

The markers of the “down escalator” are

  1.  Expensive to produce energy supply
  2. Energy supply grows slowly
  3. GDP Growth lags or declines
  4. Wages lag
  5. Outstanding debt tends to shrink
  6. Increasing inability to fund government programs

The two deal-killers with respect to these two escalators are

  • Moving from debt supply growth to debt supply shrinkage. This is like moving from Keynesian economics to the opposite. Or from getting a credit card with a large available balance, to having to pay back old credit card debt without adding new debt.
  • Increasing inability to fund government programs

The above two reasons are why I expect financial and governmental problems to lead to the end of our current system. Diminishing returns is already leading to higher oil prices, and thus moving us from the up escalator to the down escalator.

I am doubtful we can reestablish very widespread use of long-term debt after a collapse because by that time, the economy will clearly be shrinking. A person often hears people talk about getting rid of the fractional reserve banking system because it requires growth to maintain, but in fact, having such a system has been very helpful in enabling extraction of fossil fuels and allowing the economy to use metals and concrete in quantity. The availability of bonds for financing has been helpful as well.

One essential part of today’s economy is very long supply lines. These allow very complex products to be made, using supplies from all over the world. What we found in the 2008 credit crisis is that many businesses (both large and small) in these supply chains were hit hard by lack of credit availability. I see this issue as being very difficult to solve. If it cannot be solved, we will be faced with making goods locally using smaller companies and very much shorter supply lines. It would be a different system than we have today, and would likely support a smaller world population.

A lot of “peak oilers” would like to think that somehow it is possible to “get off at the mezzanine,” and have a viable economy similar to today’s with a small amount of expensive renewables, plus a continuing supply of fossil fuels. I have a hard time seeing this actually happen. One problem is the likelihood that fossil fuel supply will decline quickly because of low price. Another potential problem is a major cutback in credit availability making transactions difficult; a third issue is governmental problems, as taxes fall short of what is needed to fund programs.

We could in theory get back on the up escalator if we find alternative fuels that meet all of the required specifications–very cheap; available in huge quantity, expanding year by year; can be transformed to a liquid fuel similar to oil; and non-polluting. This seems unlikely right now.

Otherwise, what we do have is all the “stuff” we have today, for as long as it lasts. The economy won’t stop on a dime. We also have the ability to recycle things that we can no longer use, that might be more helpful in another place. Solar panels that people currently own will continue to function for a while (especially off-grid), and the grid will probably continue for a while. We know that many people lived in local economies, before we had fossil fuels, and it is likely to be possible again. We certainly live in interesting times.

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.
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434 Responses to Reasons for our Energy Predicament – An Overview

  1. mago says:

    bassi prezzi del petrolio comportano per le big oil riduzione di investimenti nelle ricerca ed estrazione, quindi penuria. Alti prezzi contrazione economica, crisi e minore richiesta. Mi sembra non ci sia possibilità di crescita futura. E nemmeno di poter mantenere a lungo il welfare attuale.

    [Translation from Italian by Google: Low oil prices pose to the big reduction of investment in oil exploration and extraction, and shortages. High prices the economic downturn, crisis and reduced demand. It seems to me there is no possibility of future growth. And not to be able to maintain long-welfare today.]

    • Interguru says:

      Google Translation

      low oil prices pose to the big reduction of investment in oil exploration and extraction, and shortages. High prices the economic downturn, crisis and reduced demand. It seems to me there is no possibility of future growth. And not to be able to maintain long-welfare current

  2. x236k says:

    I believe points 2, 3, 5 and 7 are a bit misleading. The drivers behind all of these are capital and EROEI. “Money” as we know it is simply a distribution tool, so then any issue with it can damage our ability to get energy, but can hardly be a root cause of our energy problems.

    • The issue at hand is diminishing returns. Falling EROEI is a measure of diminishing returns.

      I am looking at how diminishing returns affect the economy. Money is more than a distribution tool; it is what allows us to have long supply chains, and to bid up the prices of some goods to high enough levels to get them out using our economy that we have put together for this purpose.

    • Niels Colding says:

      No, if you go to the root of what money is you will see that money is a claim of energy; ,money = energy

      • The view that money is a store of value then only makes sense if money can, over time, continue to be a claim on the same amount of energy. This becomes increasingly difficult in the time of energy limits.

      • I think most agree that money is power. Energy comes before money – because “money” whether paper, gold or services traded, is required to sell the energy. Money is only a liquidity conduit – to allow value to be exchanged between things and services.

  3. Dave Kimble says:

    From this nice clear explanation, it ought to be possible to construct a computer model like “Limits to Growth” (but hopefully simpler, since it’s more focussed) and prove the system must fail. Population must fall to “sustainable levels”, and will overshoot that level at first. Then we will be in a position where living sustainably will look like heaven, instead of the wretched hell it looks like now, from the peak.

    • SourabhJain says:

      Dave,

      I totally agree with you. I think the lack of mathematical models describing our dependence on oil or cheap energy is making it very difficult for many people to grasp limitations to growth. So far, on all the blogs the issues of peak oil, capital, and EROI are discussed qualitatively. Therefore, it becomes easier for people to just discredit or at least disagree with certain facts, as they consider those qualitative argument still just opinions.

      Unless we show through models that system will fail, we cannot expect any action from either people or government.

      ~SJ

      • Harry says:

        Infinite economic growth is not possible on a planet of finite resources. The fact that this ineluctable logic still flies over the heads of the vast majority leaves me with little faith that mathematical models will help. The 10.9% annual increase in the oil majors’ capex costs discussed in Gail’s previous post is clearly not sustainable. The falling profits of BP, Chevron, Shell, Exxon et al are making headlines in the business news. If TPTB haven’t joined up the dots yet I fear they never will.

        • Stilgar Wilcox says:

          “The fact that this ineluctable logic still flies over the heads of the vast majority leaves me with little faith that mathematical models will help.”

          Agree absolutely. People will listen, but the problem is they interpret information through a positive filter relative to themselves. They view their life as only getting better, not worse. If they don’t like information they simply change it. For example when my wife and I see a movie and she doesn’t like the ending, she changes it in her mind and tells me the new ending. She’s a cornucopian (bless her heart), so although I understand peak oil but I’m not allowed to talk about it because it’s too negative. This response pattern I think is the problem, not how information is provided.

          The same situation comes up in AGW discussions, suggesting if we could just present the information better maybe the deniers would understand. No, they get it completely but just filter it to meet their personal needs of a better future for themselves. It’s self-involved, narcissistic, infantile, but a lot of what occurs at the adult level is extremely immature, so it shouldn’t be a behavioral surprise.

          • Harry says:

            The denial mechanisms are powerful indeed. I keep returning to sites like Gail’s in part to remind me of the reality of our predicament. The familiarity of my workaday life always threatens to lull me back into complacency.

          • dashui says:

            On the other hand, Mr. Wilcox, if your wife was more realistic she wouldn’t be your wife, would she?
            😉

          • Paul says:

            Not many people can handle the implications – so they grasp at anything – usually the anything is that ‘technology will save us’

            I had this discussion with my brother recently and he was initially staggered when I presented the facts – I could sense that I did break through the cognitive dissonance for a moment – but he regained composure and suggested a solution would be found perhaps at the last minute.

        • Paul says:

          And even when the SHTF they will still disagree that the cause is Peak Cheap Oil (Peak Cheap Resources).

      • @SJ
        “Unless we show through models that system will fail, we cannot expect any action from either people or government. ”

        What you formulate was exactly the argument made 40+ years ago by the club of rome and the “limits to growth” studies.
        Since then, the mathematical models exist, but are ignored or denied anyway.

        • It is very hard for governments to do very much. Cutting back on energy use doesn’t work. Making plans for resettlement might be helpful.

          • Harry says:

            Gail, forgive my nosiness but have your opinions ever been solicited by anyone with the power to shape or influence government policy?

            • Not exactly. I was involved in a “Symposium” at the Naval War Academy back in December 2010. The head of the Academy was interested in Peak Oil, and wanted to know what kind of “war games” the navy should be putting together, to simulate the effects of Peak Oil and various other potential crises coming up. (I remember mentioning over dinner that budget cuts might one kind of result.) There were other experts at the Symposium–one was an expert on loss of fish in the ocean; another was on climate change.

              My recent meeting to Stockholm related to some research related to the UN Rio + 20 conference. The person who invited me was Anders Wijkman, co-president of the Club of Rome. He is a reader of Our Finite World. He is in a position to influence thinking, if not government action.

              We know of course that Robert Hirsch (author of the so called Hirsch Report) did consulting for the US Department of Energy with respect to Peak Oil back in 2005. And I have seen recent presentations that Steve Koptis has done for some government (legislative) groups.

          • Paul says:

            I think the last chance we had to ‘do something’ was prior to the green revolution. When we started growing food using oil and gas we were doomed.

            • xabier says:

              A more significant turning watershed than the Industrial revolution: our economies, and population growth disengaged completely from reality with the Green Revolution.

            • Paul says:

              Yes of course – that was the real beginning of the end.

              I point to the green revolution as the final Rubicon – before that we could have turned back because we could have more or less fed the number of people living on the planet.

              Now we may be facing an extinction event.

            • Bruce The Moose says:

              Even more disturbing than the green revolution itself, is the fact the we need another one now and the map is pointing at unwinding the first.
              I suspect that the industrialisation of farming has done so much damage that this will overshoot to a significantly lower than would have been the case with no green revolution and only good stewardship.

        • Interguru says:

          You cannot model a Black Swan, even one that you see coming. Chaos theory allow us to model the statistical behavior of many chaotic systems, but we cannot model one.

          • Bruce The Moose says:

            Very good point. Dennis Meadows says the same – the first peak event that occurs invalidates the LTG W3 model.
            Our best hope is still some form of modelling, although it may not be terribly accurate, and only provide qualitative guidance. I suspect that many of us already do this at an informal level.

        • Stilgar Wilcox says:

          And if you were a more charming person dashui you wouldn’t be alone, would you?

      • Jim King says:

        While a college student at University of Florida in 1973 I was fortunate to take H. T. Odum’s Systems Ecology course. He and his teachings profoundly influenced my life and work. The concepts of energy flows in ecological (and all other) systems have enabled me to understand amazing things that most folks miss.

        In Odum’s class we used primitive analog computers to model global oil (production, distribution, consumption, and money flows) among many other systems. My class project modeled a catfish pond with some surprising indications regarding the importance of the energy inputs provided by the invertebrates in the system.

        While adjusting the numerical inputs to the oil model changed the timing, it was intuitively clear to us as young, open minded students that global oil production would peak and decline, with direct impacts on money flows, nations’ economies, and people. We could manipulate the timing, but not the end result. Production and consumption declined.

        Forty one years later, I think most people are neither intuitive, nor open minded. Even simple models and results will be denied or ignored, especially if one thinks very much about the implications.

        I think TPTB know the score, but cannot embrace the issues because there are no apparent solutions to the predicament, and knowing the substance of what is coming (especially with timing uncertain) would likely push many people to act in ways that could fulfill the worst of prophecies. I think it is perceived better to let the masses blunder along in relative bliss, while TPTB gather as much of the masses’ wealth in the interim.

        Besides, human population is the elephant in the room, and the harder we hit the wall, the fewer survivors there will likely be, and managing the consequences may be easier with fewer people. I’m glad I was also influenced by Zero Population Growth while in college. It is a relief not to be terrified for the future of my own children, and to know that I didn’t contribute to that problem, although plenty of other folks contributed in my stead. Also, I am glad I’m nearer the end of my life than the beginning.

        Will I be a victim or survivor, a spectator or participant? It does not matter in the long view. But knowing and watching is one of the hardest things I’ve done.

        Thanks Gail for all you’ve done for all of us.

        • edpell says:

          Yes, human population is not one and only root issue.

        • You are welcome. I have visited the campus and have met Betty Odum. I expect TPTB have an inkling of the problem. A government has to save everyone, and not interfere with people’ rights to have more children, so governments are left with little they can do.

        • Paul says:

          100% agree – the fewer people that ‘get it’ the better. If too many buy into this then the hordes will be in looting the grocery stores and all hell break loose.

          • i1 says:

            Thank God for television.

          • Jim King says:

            I work in a courthouse in the US, and the multiple courts have full dockets today. The vehicles in the full parking lot include rolling wrecks, and many have piles of clothes in them, making me think too many folks are living out of their vehicles. (House rents here are generally $600 and up per month, with junky mobile homes in shabby parks starting about $400). The appearance of the people waiting to get through our airport type security this morning was shocking, and the stress apparent in the Wackenhut security people and the attending Sheriff’s deputies was striking. Few things frighten me, but looking at these people and thinking about having to deal with large numbers of them when things go bad is scary. Better they don’t know what is coming?

            I hope they DO have access to television (thanks i1 for making that excellent point). If that pablum goes away, this will be ugly quickly. I keep looking and hoping, but I can see no way this ends well.

            I try not to be a doomer, but I don’t like the reality I see right here today. Anyone who thinks this will be a smooth decline should to go to their local courthouse and observe our less fortunate citizens, and think how many more of them are out there. For many, the collapse has already occurred and as their ranks grow, they will disrupt much of society here, both economically and physically. Those of us who can quibble about numbers and timing have obviously not seen collapse yet. Locally, if you know what to look for, it is slowly and inexorably in progress.

            I’ve done what I can to prepare, but I know it won’t mean much besides making me feel a little better. Too many desperate people will overwhelm it all.

            I agree with Gail (in an earlier post) that we should enjoy what we can while it lasts, and hope for miracles.

            Be happy knowing we’ve seen the best of times.

            • Dano says:

              “Those of us who can quibble about numbers and timing have obviously not seen collapse yet. Locally, if you know what to look for, it is slowly and inexorably in progress.”

              Exactly. It seems that people, some of us even, are expecting a cataclysmic event announcing that the end is here. Something out of the bible perhaps. But it is already in full effect, working its way up from the bottom. The poor get poorer, less educated, and more isolated. They have no way out. Meanwhile politicians spin the same old rhetoric on how to get back to the American Dream, and the markets near record highs. The middle class is supporting the system for now, while they still exist. It will be interesting as the upper class becomes the only group remaining with any income and assets to tax … what then?

              In the end, on some days the sun will still shine. My friends and I discuss the predicament over beers, and becaused we do not have kids, we just pray that we will be dead before SHTF.

            • Food and water would be nice as well.

        • thestarl says:

          You know Jim i first realised something was drastically wrong after the financial meltdown in 2008.I know for a fact how misleading the MSM is and through my own basic abilities, research into the financial system and the interlocking relationship with energy its there for all to see.
          In regards to QE how on earth can one taper a ponzi scheme.The sad part about this is the human suffering and the fact that TPTB couldn’t care less.

      • Paul says:

        I would suggest the governments of the world are fully aware of the situation — and their response has been to unleash torrents of 0 interest cash into the economy to try to offset the end of growth.

        What else do you suggest they do?

        • garand555 says:

          If they are aware, they are not anything that I would want to be associated with. If they were aware and gave a damn, they would actively be working on shortening supply chains for basic necessities rather than taking campaign contributions from large companies who like having a monopoly. Instead, their acts of protecting large industrial agriculture are maintaining long supply chains if not increasing them.

        • xabier says:

          Exactly: they cannot take up, for instance, Don’s sensible plan of home economies and subsistence suburban gardening to buffer people against decline, because to do so would be to admit the growth game is over -which is Game Over.

          So, all the extra credit and fudges while we wait for a global recovery. Oh dear, what’s that? China’s exports down 20% yoy? Let’s just wait a little longer for that recovery shall we. And hum a happy little tune while we do, and…..

    • It may be possible to construct such a computer model, but the big issue is how long the current financial system can hold together. That seems hard to model, except that the distance in the future, from which it has to fail, can’t be all that far away. Estimating the ingenuity of the Federal Reserve is difficult.

      • Interguru says:

        Stein’s Law: ” Things that can’t go on forever eventually stop”
        Two lemmas ( mine — Interguru’s Lemmas )
        1) They go on a lot longer than you think they can.
        2) They stop suddenly without warning. Even those who see it coming have no idea when.

        ( repeated from an earlier discussion)

    • garand555 says:

      “From this nice clear explanation, it ought to be possible to construct a computer model like “Limits to Growth” (but hopefully simpler, since it’s more focussed) and prove the system must fail.”

      If you’re trying to predict the exact failure point, that model would require a lot of assumptions, and many would be unfounded. We can start with the ultimate failure point: EROEI=1. That’s the one that is dictated by physics, not our economy. How close we can get to that, however, depends on our economy. It depends on how much debt there is and how much we can sustain. It depends on income distributions and efficiency. (Note: I include not only the energy in to energy converted to work of a car in efficiency, but also the length of supply chains.) It also depends on how quickly we are able to make adjustments.

      The overall problem is simple: Exponential growth on a finite planet. The specific details, however, are insanely complex.

      If you want people to understand, you’ll have to make them understand exponential growth. That is a daunting task in our “math is hard” society that often fails to understand simple ratios.

      • Interguru says:

        In short. Even if you see a black swan coming, you can’t predict where and how it will land.

        • garand555 says:

          I would take it further than that. Even if you see a flock of black swans coming, you cannot tell which one will land first.

      • I disagree with respect to failure coming when is EROEI=1, or something similar. Failure comes far earlier.

        Because of the way the economy is constructed, “going backward” in net energy at all is a problem. Governments and financial systems fail. In fact, rising population together with diminishing returns in many other areas (metals extraction, fish population, extraction of sand, NPK availability, mitigation of pollution problems) means we need increasing amounts of net energy, just to stay even. Making adjustments is very difficult, when the primary areas needing adjustment are financial systems and governments.

        • garand555 says:

          I simply bring up EROEI=1 as the limit dictated by physics, i.e. it is something that we can merely asymptoticly approach. I do not think that we will ever get there. In fact, I would argue that, given how our current system works, we won’t. As oil resources need to go more and more into extracting oil, that will take a bite out of what gets allocated to things like driving to work or producing food or shipping goods. Even if we did have an economy that could potentially make it to EROEI=1, the closer we got, the less room there would be for mistakes.

  4. Patrick says:

    One might find me overly rushed, but I think that Gail pretty much nailed how diminishing returns of pretty much every resource, and oil in particular, interact with our financial system to bring about the breakdown of our highly complex societies.

    So, from my point of view, the why is understood to such an extent that the expenditure of a lot more thought energy will lead to ever diminishing returns on the knowledge front. The irony inherent in my statement on a blog such as this deserves a chuckle or two, I hope.

    The important remaining question around this topic for me is: how?

    How will the breakdown come about? Will it be fast, slow, or slow in some areas and very fast in others? Will we more trade wars and beggar thy neighbor policies? Will the frictions between major nations remain proxy wars, or are they likely to turn into a direct conflict? How will the inter elite conflicts for resources affect the equation? What are the likely courses taken by the moneyless masses?

    Alas, the answer to these questions is much more open to conjecture since we do have much less available data and it concerns the future, which is prone to crush any man-made prediction with the delight of a toddler trampling a sand castle.

    Nevertheless, I would hope that Gail and the commenting community here would start to pool their considerable brain power and knowledge to chart a couple of scenarios that might help us understand the likely ways in which the development could occur.

    However, charting these scenarios would not be complete stab in the dark. We have a thorough understanding of the nature of our conundrum and how it interacts with our financial system. We also have the works by Tainter, Turchin and Nefedov, and, providing a more historical perspective, Toynbee and Spengler.

    The issue I have with all these books is that they are much better suited at understanding and predicting the breakdown in much less complex societies than the ones we currently live in. The complexities have risen to the power of the nth degree, due to the high levels of global interaction and interdependence on social, financial, agricultural and economical dimensions. In addition, we also have much more devastatingly effective military potential in the play. Other factors also worth mentioning are the unprecedented levels of surveillance and population control available to governments worldwide, the extreme levels of population density on every continent, and the loss of non-industrial farming knowledge, especially in the industrialized countries.

    The task is quite monumental, but my perception is that it would be a more fruitful area to explore rather than devote increasing amounts of energy towards understanding the why just a tiny little bit better.

    • Doug W. says:

      It seems to be things are already unraveling. Perhaps we need to revive the domino theory. The number of countries whose crises can be traced back to energy/debt issues grows every month. At some point some large and important country would fall and that would be the tipping point. Or, perhaps the all powerful market will precipitate a crisis.
      As for the works that offer a historical perspective, THE GREAT FRONTIER by Walter Prescott Webb has worn well over the past few decades. Webb even included a few pages on Hubbert when he wrote in the 1950’s. According to Webb we are winding down on a 500 year boom that started with the Age of Discovery. Europe in 1400 had reached a subsistence balance between land, population, and resources organized through a feudal system. The discovery of the New World and other lands changed all this with more land and resources. Our ideas about the individual and democracy were one result as was the modern corporation as a means of organizing labor and capital to exploit all the new-found resources. And of course the West became far richer. Fossil fuels have extended the time frame and kept the game going. Webb would say that we are finally reaching a subsistence balance again between population, land and resources–this time on a global scale. We would need to swing another earth into our orbit and exploit its resources in order to continue on the path of the last 500 years. Webb’s account makes as much sense as anything else I have read about our current predicament.

      • I think you are right about the domino theory being important. If even a smallish country (Say Greece) fails, it puts pressure on the next bigger tier. As more countries fail, it makes it more likely that the whole system will fail

        • poverty has a nasty habit of creeping up the ladder of prosperity

        • Paul says:

          Agree re: domino theory. What kicks it off is hard to say:

          – war
          – populist gets elected in say Greece – and says ‘we are out of the EU and defaulting on all debt
          – uncontrolled riots resulting in a failed state in a key country

          Or we could have a general loss of CONfidence and QE ZIRP fail to have any further impact. That could topple all the dominoes in one go as the financial system would implode (see Lehman x 1000000)

      • louploup2 says:

        “”According to Webb we are winding down on a 500 year boom that started with the Age of Discovery.” Immanuel Wallerstein’s World Systems Analysis: An Introduction makes a similar argument grounded on neo-marxist anlysis. cf. http://www.amazon.com/World-Systems-Analysis-Introduction-Immanuel-Wallerstein/dp/0822334429

        I see that Wallerstein cites Webb in his work and both are cited in the texts on history of western civ.

    • That is probably a worthwhile suggestion. I was just trying to put the outline together in one place. We can clearly see a couple of different paths–energy exporters and energy importers, and the ways things are falling out.

      I have a hard time understanding precisely how fast the downslope will be, except that it has to be faster than natural depletion rates.

    • B9K9 says:

      Hmm, you want to know ‘how’? Are you sure you can handle the truth? If so, then try this simple experiment – in fact, it’s so easy, it’s considered recreation by a large amount of people:

      Get a backback, load it with enough food for 3-4 days, and oh, be sure to include shelter [tent/sleeping bag]; water [filter/chlorine pills]; and fuel [cooking/purification]. If you’re an expert, you can get this load down to around 20lbs. Ok, once you’re all ready to go, set out attempting to hike around 10 miles per day – extra credit if you’re out West and hiking above 10k feet.

      When you return from your 3-4 day odyssey, have someone take a picture of you. This is what humanity will look like after the easy means of washing cease, combined with the necessity of hard field labor. Next, take a mental inventory of how you feel – are you hungry, thirsty, etc. Now, consider in a return to scarcity, that even if you are exhausted, you will still need to find new sources of food, water & fuel if you want to continue living.

      This short exercise will be a lesson on what drove H Sapiens out of Africa to the far reaches of every continent, why the smart n’ savvy soon got to work inventing a social paradigm that allowed them to avoid the filth and ride on the backs of others, and why a premium was placed on the ability to inflict violence to ensure this kind of economic system.

      The last 200+ years have been the closest thing humans will ever come to experiencing heaven – and it occurred on earth. Only fools fail to recognize that these truly are the “good ‘ole days”.

      • Patrick says:

        Been there, done that. Until early adulthood I have been a member of a boy scout community that prided itself on living with the most basic means of shelter and disdaining many conveniences of modern civilization.

        The stink that came off my gear after week long treks through forests, meadows and mountains was something for the ages. I also have never lost such an amount of weight so quickly ever since. Nice were the days:)

        Thing is that the breakdown will be very different from that experience, since societies will break down, infrastructure will crumble, nations may go to war, sicknesses will abound, and there may be no hot shower waiting for me after an excursion.

        • B9K9 says:

          LOL. There’s nothing like getting in your car, turning the AC on @ full blast, driving back into town, getting a hot shower, slamming some cold beer(s), and scarfing down large, plentiful helpings of food after a trek.

          It’s almost surreal if you allow yourself to contemplate the sheer volume of ‘energy slaves’ required to deliver that kind of experience. Never mind the driving/flying to/from your destination. Absent the luxuries humanity has become accustomed to, the numbers of people who will simply sit down by the side of the road and die will sadly become an everyday experience for future generations.

          The best thing Bernanke did was extend this sucker a few more years. Sure, we screamed and yelled at the time that is was unfair – well, of course it was – but in retrospect, I’m cheering on Yellen to really get the pumps going. There’s not a day that goes by where I don’t have a momentary sense of wonder in knowing that what people take for granted as “just is” is actually coming to an end. But boy, what a ride.

      • Interguru says:

        “H Sapiens out of Africa ”

        Out of Africa we are an invasive species. We left our worst parasites and diseases behind. The mammals in Africa had time to adapt to us and our spears. In the rest of the world they were easy game.

        In Africa we could have never developed a modern civilization. Outside we could and did..

      • Interguru says:

        Two centuries ago every adult lived in constant pain, no dentistry, no anesthesia, no surgery to correct painful conditions, no pain medication. The poorest person in the US had less pain than the King of England did.

        • Bob Valiant says:

          People have lived since the beginning of time experiencing happiness and sadness, laughter and tears, pleasure and pain. I don’t think my grandfather’s life was less meaningful than mine, nor his grandfather’s life less meaningful than his, and neither would have expressed less desire to continue living than I do.

          • Christian says:

            Surely they didn’t. And they had opium as well, better than most we have today

          • Paul says:

            One difference – that generation had enough food.

            We grow most of our food using oil and gas based fertilizers and pesticides.

            Epic starvation is imminent. There is no going back.

            • Christian says:

              You right indeed, starvation seems unavoidable under the current paradigm at least. Countries as Argentina have the time to transition to organic, but it is not the case everywhere.

            • What the organic folks don’t understand is the natural phosphorus cycle and that most organic crops are based on using waste products generated by NPK production. Most scientist see a sustainable global human population of about 1-2 B people using “organic” farming techniques – but without NPK inputs.

            • louploup2 says:

              I disagree. The capacity to grow food is not going to disappear. There will certainly be lots of pain and suffering–and premature death–but there are many places where the net primary productivity will sustain significant populations without petrochemical power and fertilizer. China had a population in the hundreds of millions well before fossil fuel. I agree we are in overshoot for the amount of consumption per capita, and numbers will decrease, but transitions can occur. Look on the bright side: we won’t be emitting as many GHGs any more so AGW might not get as bad as IPCC projections.

            • Paul says:

              Right – America was able to feed many millions of people before the innovation of using oil and gas to grow crops. Likewise China – likewise most of the world.

              But forget about that now — because now that we have poured oil and gas all over the mega farms — if we stop the soil is dead – as in completely and totally unable to support the growth of any crop.

              And it would take 3 years of intensive organic inputs to get it back in shape.

              So no – there is no going back. Sadly.

              And as someone pointed out on these forums recently, only 2% of the world’s ag land is farmed organically – the rest is reliant on oil and gas. That millions of acres of dead soil post SHTF.

              The capacity to grow food is not going to disappear – but we are not going to be able to feed anywhere near 7.2 billion people. I doubt we could feed even a billion – probably not even 100 million.

              Even if everyone tried to plant their backyards it would take months before they’d have any food – that’s assuming they’d be able to get their soil in shape with composting – but even composting takes months to be ready.

              So what will those 7.2 Billion people do when the grocery stores are empty – I very much doubt they’ll be turning soil in their backyards and waiting patiently for the tomatoes to ripen – they’ll probably be killing anything the moves or grow….

              Hate to be negative on this but I see food as the biggest problem we will face — along with the 1000s of cooling ponds holding spent nuclear fuel rods – one other concern is that 7.2 billion people without a source of energy to cook or keep warm will cut down every last tree on the face of the earth.

        • damon says:

          Provided they lived beyond childhood, many people in the 18th and 19th centuries lived as long as those born in the 20th. However, as far as pain and dentistry go, I agree with you.

      • Adrienne Adams says:

        Last night I re-watched Godfrey Reggio’s “Powaqqatsi.” it is much less well known than his first work—Koyaanisqatsi—but for this discussion the second film is much more relevent. We know what’s wrong, no need to convince us, but we need to be reminded of the way humans lived pre-industrialization.

        Powaqqatsi opens with a scene in a silver mine where men carry sacks of wet ore on their backs up out of the pit. The bulk of the film shows heartbreaking and terrifying scenes of the monumental pain and effort humans have had to expend just to stay alive for the 10,000 years of our agricultural existence. This is life truly on the edge: not the kind that we can play at for a few days (with a full belly and extra pounds on our butts) using modern equipment.

        Anyhoo, if you want a powerful reminder of what life will be like post-carbon, take a look at Powaqqatsi.

      • Paul says:

        I am considering turning everything off on our property here in Bali for a weekend as a test run just to get a feel for what we are facing.

        That will also give us a better idea of things we need to add to our preparations.

      • Danny says:

        God, you are soooo dramatic!! You are like the guy on a 20 mile hike that starts complaining about his foot hurting and can’t shut up….Yes it is going to be hard but go out fighting not this constant whining about how bad it is going to be…you don’t know all the answers….

    • I have laid out my version of it in a series of novels (
      World Made By Hand (2008)
      The Witch of Hebron (2010)
      A History of the Future (coming Sept 2014)
      Published by Atlantic Monthly Press

      • Thanks for your reply, Jim. We need some folks who can interpret how the future will look.

      • Stilgar Wilcox says:

        The Long Emergency is a book I read along the path to better understanding peak oil, and highly recommend. Really like your Monday postings as well. Mostly I enjoy them for the way you run the words together, turning writing into an art-form. You are a rare talent.

      • InAlaska says:

        The Long Emergency also opened up my eyes, and now I lend my dog-eared copy out to friends. In fact, I think I never got it back the last time it was borrowed. Thank you for that gift of a book, Mr. Kunstler. Your fiction is also entrancing, but I hope that you weave more climate change into the story: an aspect of the future that is almost certain to be major factor.

      • Paul says:

        3 things lead to my epiphany on the oil issue:

        The Long Emergency (Kuntsler)
        The End of Growth (Heinberg)
        Our Finite World

  5. I expect a currency reform after the crash. Where the debt clock is reset to zero. Then there can be a fresh start, albeit at a much lower consumption level, like after WW2. That lower consumption level will reflect the much higher oil production cost.

    • The fresh start is the issue I have a problem with. Canceling all of the debt will eliminate huge numbers of jobs and bring the prices of commodities way down. Figuring out how to add new debt will be a major conundrum. Governments are likely to be overturned as a result.

      Edit: I should also add, forgiving lots of debt will make banks and insurance companies fail. It will also make pension plans fail. These issues will be extremely difficult to deal with as well.

      • Doug W. says:

        Another factor is the breakdown in trust. People loan others money with an expectation of being repaid. If there is a jubilee or debts are wiped out. Restoring trust would be crucial to any new system, and that may be a hard for the medium term.

        • Interguru says:

          Forgiveness of debt every 50 years, the Jubilee year ( Leviticus 25:10 ), seems like a piece of bronze age nonsense. Our ancestors were smarter than they seem. If you look at economic history every 50 years or so there is an economic crises which results in massive wiping out of debt. If course the problem with the biblical version is that you cannot announce it beforehand.

          • edpell says:

            In the Bible it is a forgiveness of debts every 7 years. Every seven times seven years it is a return of ancestral lands, family lands. Money debt every seven years, land “debt” every 49 years.

        • I agree, especially if the economy is shrinking. If it is shrinking, then there are a lot of business closures and worker layoffs. Even if the person means well, forces beyond his control may limit his ability to repay.

        • garand555 says:

          “Another factor is the breakdown in trust. People loan others money with an expectation of being repaid.”

          Trust is a two way street. If I’m going to borrow, I want to trust that the lender isn’t a giant parasitic entity who is out to cheat me any way it can. There is also the issue of said giant parasitic entities creating the “near money” at the time of the loan creation.

          • xabier says:

            A scandal here in Britain recently when it was shown that a major bank was deliberately forcing business customers into insolvency, in order to seize their under-valued assets and sell them a great profit. Funnily enough, that story has ‘died’…….

      • Ghung says:

        The entire global operating system is in the process of crashing under its own complexity, and, while we’re in unprecedented territory, predicting the general outcome isn’t that hard. Banks, pension plans, current production of commodities, current systems of government, current methods of maintaining infrastructure,,, all are utterly reliant upon things as they are and will be irrevocably changed. The ability to adapt is the quadrillion dollar question. I’m convinced that our ability to adapt, collectively, isn’t as good as we like to think it is; not even close. We haven’t come to terms with our level of overshoot, with the true nature of our situation.

        Those who pre-adapt to coming changes may or may not have an advantage, but at least they are less likely to be surprised. It’s about expectations and making some sort of peace with one’s own future.

        • xabier says:

          The challenge is to move from an over-complex, indeed surreally so, system to one which is, if apparently simpler and ‘basic’ , itself very complex – if it is too function effectively as a form of society.

          Reading about the late neolithic ‘Iceman’ who was found in the Austrian mountains, I realised that his society was in fact technologically sophisticated and quite complex.

          How to make such a transition?

          Peace of mind, and presence of mind, is perhaps all one can really hope to accomplish fully.

      • Danny says:

        Yes but what choice do you have? You can’t continue on this path forever and if banks fail etc…Is that not better than complete out of control collapse and WW3…in a lower tech society there might be more jobs….just not the ones people are used to….Pensions banks, insurance are all leaching the life out of economy anyway….

        • It is hard for me to know how things will work out. Dmitry Orlov writes about life after the fall of the Soviet Union. I get the impression that tearing down buildings and trading things that used to be used for some other purpose gets to be one of the major sources of livelihood. I expect it will be hard to build up much in the way of new jobs, other than trading used goods. Without banks, it would be hard to pay for such goods though, unless a business lets you bring things to trade, or lets you work for a while, to earn what you purchase. The main jobs will have to do with food and water, I expect, because these will be harder to maintain, and will take more workers.

          • InAlaska says:

            Unfortunately, for us, the Russian people entered collapse with far less expectations for the future than we Americans. Dmitry mentioned that lots of things that didn’t work well in Russia before collapse, continued not to work well after collapse. For us, lots of things work well, and we expect them to. Psychologically, most Americans are unprepared and don’t even want to be prepared. It is, somehow, un-American, to accept defeat.

            • garand555 says:

              Russians were already used to standing in line to maybe or maybe not get a loaf of bread, and learned how to cope. Shelves were already empty.

          • Paul says:

            Somalia might be a better benchmark….

    • Paulo says:

      re: “I expect a currency reform after the crash. Where the debt clock is reset to zero.”

      And what happens to those who have lived prudently and have no debt; who have refused the lure of self-indulgent consumption? Is this just another way to steal and redistribute to the connected, be they the 1% or the voting block folks on Govt. programs?

      Paulo

      • Christian says:

        Not exactly right Paulo. People not being personally indebted (as me) are indebted as citizens of a country (US citizens are on top of this). Given the magnitude of the situation, individual stories are to be mostly dismissed and could only be handled on a social basis. Regarding Mushalik’s view, we must not fail to see limited resources extraction will continually drop from now, and no plan forgetting this will work.

      • Ghung says:

        Relax, Paulo. Most of your fungible assets will likely have already been ‘appropriated’ in the “Great Bail-in” as the the PTB try to minimize their losses (for the greater good), prior to any forced debt jubilee. Greer’s essays on voluntary poverty touched on this, using monks as an historical example. Monks didn’t have much worth the trouble of taking (and they made good beer), so were often overlooked or tolerated when TSHTF.

        At least you’ll be more used to living without the debt subsidy that the rest of your society is addicted to. That’s something…. and you won’t be heading to debtor’s prison as debt slavery gets converted to the real thing.

      • InAlaska says:

        When the system collapses, there will be no reward to those of us who have been prudent and debt free. Only the satisfaction of having seen it coming. You should have gone shopping when GW urged you to.

      • garand555 says:

        Paulo, the best answer that I can give you is “Life is not fair. Get a helmet.” The only consolation that I can give you is that, if you are used to living prudently, that, in itself, may be a valuable skill.

    • Roz says:

      And much lower population …. maybe me & mine OR maybe you or yours ?
      Just a caution to us all….

  6. I very much agree that it is the economy which is likely the limiting factor here, perhaps even THE factor that ‘pushes’ us over the ‘collapse cliff’. Not being an economist but reading voraciously both Austrian and Keynesian perspectives the past couple of years, I continue to be surprised by developments, particularly how long the-powers-that-be have been able to kick-the-can-down-the-road and avoid the really big fallout that almost always seems to follow credit crises. With all the money-printing going on by the central banks, it is surprising hyperinflation has not been more widespread; although it does seem to be occurring on the periphery (emerging markets) and is possibly being held in check within the core because of widespread deflation.
    The fact that we are embedded in a centrally-controlled, fiat currency world is what worries me most. It is human hubris at its best to believe that a few people, even with good intentions, can control a dynamic, complex system when feedback is delayed, misinterpreted, and/or ignored (not to mention the corruption and malfeasance that exists in such a system). Perhaps the crash will come when all have taken the red pill and realise that their paper wealth is, in fact, worthless. Then things will get quite interesting…

    • Patrick says:

      Hello,

      The finer intricacies around monetary and financial issues are quite complex. The defining aspect of what money is, is, if you have been following Gail’s blog or Steve’s (economic-undertow) for a bit, quite easily to grasp.

      That is why I find it troubling when people refer to money printing or hyperinflation. Money printing is not what is happening, and I do not think that hyperinflation, such as in Zimbabwe, is going to manifest in the EU, the US, China or Russia.

      Money, whether fiat money or gold, is a promise of payment given physical form. This promise cannot exist without the coming into existence of debt. Debt is almost always tied to some form of valuable asset, be it the working capacity of the debtor, a piece of land, a house, a part of the company issuing shares, etc. Government debt is secured by its ability to enforce and raise taxes. Interest and compound interest just exacerbate the underlying forces and reinforce the need for growth in economies, but do not alter the underlying principle to a significant extent. A critical issue flows forth from these observations: without debt there is no credit or balance. If all debt would be erased, there would be no money left. Sure, one could use some other means as currency, but any other, and I explicitly include precious metals, would function along the same principles.

      Another more obscure issue around money is that it, to the best of my knowledge, came into existence with the advent of agriculture, because only with agriculture did the concept of property evolve. One needed to stake a claim on a piece of land that could produce surplus in a not too distant future against which on could borrow.

      Only with agriculture could states and class distinctions (warrior, farmer, administrator, etc.) emerge. Property can not exist without an executive enforcing the rights to said property against other groups or individuals coveting it and trying to take it into possession. In addition, property also needs laws encoding the boundaries and deeding the rights of using and extracting some value from the property. The laws also dictate the costs or payments that come associated with the defense of the property and the regulations with regards to the rights to use it: taxes.

      Two main deductions flow forth from this view. First, without agriculture there is no need for either state or the notion of property. There is only possession. Without statehood (whether city-state or nation) there is no material wealth and no basis for existence of, for example, corporations. This also explains why corporations cannot flourish in states with a weak executive. They need the strict enforcement of laws.

      Coming back to the notions of money printing and hyperinflation and addressing them based on the notions developed above.

      Money printing: what most people seem unable to accept is that neither the FED, nor any other central bank can just print money. They need collateral, however shady that collateral is. The FED takes de facto worthless collateral at its notional, mark-to-model value and gives in return to the banks bonds and credit of the same value. These, on the other hand, are supported by the full faith and credit of the US Government. While it is a sleight of hand, it is NOT money printing and not infinite, as the FED holds some collateral, however worthless it might be.

      Hyperinflation: Currencies, as we have them now, can only then lead to hyperinflation if they are not supported by some form of collateral, or if the trust in the currency would evaporate. Currencies today are not the Assignats of yesteryear’s France. In fact, as debt is credit is money, the diminishing returns on available resources and energy highly suggest a deflation-only future, with the possibility of hyperinflation in the major currencies only likely just prior before the issuing state collapses. How can there be inflation, if debts are rendered worthless, therefore written off and destroyed, if that causally necessitates the destruction of wealth and assets to an equal measure?

      If you think I’ve got that wrong, then I’d be happy to hear your arguments.

      • timl2k11 says:

        You’ve got it wrong. Central banks can print as much money as they’d like, without collateral. How do you think Japan and the US debase their currency? How does the federal reserve buy US debt as part of “QE3”? It prints money out of thin air! Either digitally or otherwise. The proper definition of money is “a claim on energy”. The proper definition of debt is “a claim on future money (or a claim on a future claim of energy)”. Money can be created without “being loaned into existence” and is all the time 24/7 by central banks.

        • Patrick says:

          Here is a nice wiki quote explaining what QE is:

          “A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus increasing the monetary base and lowering the yield on those financial assets”

          Incidentally, that is exactly what I described in the earlier post. Equally, as I explained earlier, US debt is backed by the USG’s ability to enforce and raise the payment of taxes.

          There is nothing coming out of “thin air”. Just because Zerohedge and other websites often peddle to their readership by publishing the scribbles of, quite often, woefully misinformed or misinforming authors, doesn’t mean that it shouldn’t be digested with a helpful grain of salt.

          With regards to the definition of money you are using. It really does matter very little what the payment consists of. Money, as we handle it today, is *the promise of payment*.

          And yes, money is created by being loaned into existence. that is the very heart of my argument. But: without loan, no debt, without debt no promise of payment. Ergo, no money.

          • Thanks, Patrick. I’m new to economics (having studied archaeology) but it seems to me the problem is the ‘promise to pay’. Once that ‘trust system’ begins crumbling, I suspect that the SHTF, as some are fond of saying.

          • timl2k11 says:

            “A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus increasing the monetary base and lowering the yield on those financial assets”
            And what do they buy those assets with? Money created out of thin air. What else would they buy the assets with?

          • timl2k11 says:

            “Money, as we handle it today, is *the promise of payment*.”
            No, money is no promise, if you use it is payment. Money is a claim, not a promise. That is why the Federal Reserve can create as much as wants. Debt is a “promise of payment”. You are really confusing money and debt. Money is not debt. They are two different things. Two types of assets. You also seem to be confusing money with he more general term “asset”.

            • Patrick says:

              I disagree.

              Arguing about claim or promise, are two sides of the same coin. For the debtor it is a promise of payment, and for the creditor it is the claim of said payment.

              The Federal can indeed create as much as it wants, but it can only sell it against (financial) assets or lend it against collateral to banks, which makes it neither infinite nor coming out of “thin air”. And there we are again. Without the creation of debt and the presentation of collateral, no money.

              I do certainly not confuse money and debt. They are the two opposite sides of the same coin, which make them look and feel different if you just happen to look at one side. However, one can not exist without the other. As such, a distinction between the two, with regards to defining what money is, is more semantics than anything else.

              Unfortunately I can’t find the graph anymore that would have made my key point much clearer than a 1000 words. It compared the total amount of global debt with the global amount of wealth. The lines depicting their values, including their growth, was virtually identical.

              For an individual, a company or a militarily weak state, being a debtor or a creditor has significant consequences indeed. But that was not the issue here.

              Also, have a read of BC’s comment below. If you accept my argument of money and debt being the same coin, the process described becomes so much more illuminating.

              As a last point. Maybe I should have been more precise with my phrasing. I should have said financial assets rather than assets although I thought the implicit meaning was clear. I understand that it was not.

            • timl2k11 says:

              I think we are talking past each other, also you did not address some of my other points. Since the closing of the gold window, Federal Reserve Notes are backed by nothing. This is inarguable, unless you just want to make stuff up. Again how is the Fed buying housing loans and US Treasuries? Do you realize they are “monetizing the debt”? That means they are taking it off bank and government balance sheets and giving them money in return. Where does this money come from? It comes from thin air. If you don’t understand that you do not understand how the Fed really operates. Ben Bernanke himself has said the US can never default “because the FED has this thing called a printing press” (his own words).

              “For the debtor it is a promise of payment, and for the creditor it is the claim of said payment.”

              If I have $10,000 US Federal Reserve notes in my hand neither a debtor or creditor need I be. If I take out $10,000 loan from a bank, the Federal Reserve Notes they give me is money not debt. I can take that money and make claims on energy (including labor). My debt is a separate instrument. That instrument is the promise to pay the debt back. If I am gifted $10,000, and I do not deposit the cash at a bank I am neither a creditor nor a debtor. To simplify when I say money I am specifically referring to Federal Reserve Notes. They are backed by nothing. There is nothing preventing the FED from printing as many of these as they want, we can have Zimbabwe style inflation here if the FED prints enough money. Government sells debt, FED buys it with money created out of thin air, rinse and repeat in dramatic fashion and you have hyper-inflation. Whatever debts go bad the fed can again just print money out of thin air and buy the bad debt (just like it has been doing). If pensions are underfunded the Fed can come to the rescue.
              Ever heard of the phrase “Neither a lender nor a borrower be?”

              You also said “Arguing about claim or promise, are two sides of the same coin. For the debtor it is a promise of payment, and for the creditor it is the claim of said payment.”
              Not true. For the creditor it is still a promise. For both the debtor and creditor it is a contract. The debtor “promises to repay”. The creditor owns that promise. The creditor has no claim on anything, only a promise. Once they are repaid, they have a claim, money!
              If I have money I can go get a haircut. I make a claim on that person’s labor with my money. If I have money I can pay for energy, I make a claim on my electric companies energy supply.

              You also said “The Federal can indeed create as much as it wants, but it can only sell it against (financial) assets or lend it against collateral to banks, which makes it neither infinite nor coming out of “thin air”.
              Wrong again. What do you mean “sell it”? The Fed right now is creating money out of thin air and buying treasury notes and housing bonds. This is clearly debt monetization. Where is the selling?
              Are we still talking semantics? Are we talking about different “kinds” of money? I think I’ve made my case pretty clearly.

          • A promise of payment does sound a lot like debt to me.

            Canceling all debt (in effect saying a government won’t make good on its promises, and doesn’t expect others to) and then wanting to start over sounds like a recipe for a problems, especially if the economy is shrinking, and banks are closed, thanks to the previous round of debt defaults.

            • Patrick says:

              True, a debt default would not make a difference with regard to dealing with diminishing returns, but create a major shock for the financial system.

              On the other hand it could stop, or at least slow down, the transfer of wealth and ownership of bound collateral from the increasingly destitute masses to the banks and their owners.

          • Stilgar Wilcox says:

            “And what do they buy those assets with? Money created out of thin air. What else would they buy the assets with?”

            Sorry Patrick, Tim’s got it right. The above sentences explains it perfectly.

          • garand555 says:

            Your argument is semantic. The Fed is using primary dealers as straw purchasers in order to monetize the debt. (Also to keep the banks afloat, but that’s another story.) The ability to raise the payment through taxes is quite obviously insufficient, ergo the partial monetization of the debt. While the Fed is not physically printing physical money, it is creating new “near money,” (i.e. the values on the ledgers are fungible with physical bills, at least until somebody big experiences a run) which is leaking slowly into the economy via deficit spending.

            • Patrick says:

              What you are saying is spot on, but what you are describing is the process of what happens after the money has come into existence. As you are partially saying yourself, that is a whole other kettle of fish.

            • garand555 says:

              The Fed still has to create that money. While I don’t know if it is still going on, the Fed was telegraphing to the primary dealers how much to buy by purchasing notes and bonds of a given maturity period from the dealers right before an auction for treasuries of the same maturity period would take place. Call it what you want, but the net effect is the same as printing money, except that this time, there is a middleman skimming. It is just a lot more obfuscated than it would be if they fired up some physical printing presses and started designing and issuing higher denomination bills.

      • Patrick,

        Thanks! You have a good way of making these points.

        • Scott says:

          Gail, Patrick might be good at making his points, but it does seem to me that he is wrong on one key point: the fed is indeed creating money “out of thin air” to pay for it’s bond purchases (I.e.,QE). Do you agree?

          • I tend to side with Patrick, although I am not sure how important it is. Money and debt are awfully closely related, as I see it. Maybe I am not one for fine distinctions.

            • Christian says:

              You right Gail, it’s a msis anyway

            • Scott says:

              I find it important in this way: I am trying to figure out if there is any limit to what the Fed is doing (limit in terms of how long this can go on, and how high the Fed “balance sheet” can get). If what they are doing is literally “creating money of of thin air” to buy bundles of worthless mortgages at full face value from the god damn banksters, then it seems it can go on for quite a while – maybe forever? However, if it is not just “creaing money out of thin air” (i.e., has some limits), then the limits will eventually be reached (soon?) . I see this as a critical issue/question – maybe my biggest question left unanswered in all my reading and study of what has gone on and what is going on in our financial/political system: How long can the Fed continue to prop up our rotting Zombie of an economy?

            • I don’t think we know for sure how long this can go on. Maybe other commenters know more on this than I do.

              One thing we know is that asset bubbles burst. Bidding up stock market prices and land prices won’t go on forever.

              We also know that there is a fixed amount of treasuries that the Federal Reserve can buy, and a (larger) amount of US mortgage securities that the Federal Reserve can buy. I suppose the Federal Reserve can change the rules to add something else to the mix as well–say student loans, except that the government already underwrites these. I believe.

              At some point, it seems like the dollar being the world’s reserve currency would become an issue as well, with continued QE.

              Even if QE doesn’t stop, the economy could still run into trouble if low oil prices lead to oil companies cutting back on drilling, and because of this, oil production going down. If oil prices spike in response, this could send the economy into recession. Or the economy could go into recession just from the lack of oil, even with QE.

            • timl2k11 says:

              “How long can the Fed continue to prop up our rotting Zombie of an economy?”
              For as long as we maintain the status as the world’s reserve currency. That is the main reason why we don’t see much inflation from all the Fed’s money printing.
              And just a clarification, QE3 is a different animal than normal Fed operations that it would use to control the Fed Funds Rate (which is also how it manages the money supply). QE3 is the outright buying of housing bonds and government bonds with nothing but money printed out of thin air. It can go on forever, but not without consequence. And there is no doubt about this. The only thing the fed has to buy government and housing debt as part of QE3 is money printed out of thin air. I am actually surprised Gail does not understand this aspect. The Fed can print extra “claims on energy” thereby devaluing the currency, as all other central banks do. Gail, can you explain to me how the cash or, say, gold I may have in my pocket has anything to do with debt?

            • You can’t eat gold. There is an implicit promise that you can exchange it for something you actually want–otherwise it would have no value. The cash in your pocket is tied to the promise of the government to back your money. The gold has value, only to the extent that there are things you can actually buy with it. The implicit government guarantee behind the cash helps enable “stuff” being made, so that there is indeed something you can buy with the gold as well as the cash.

            • Scott says:

              Thanks for the replies! (Both Gail and Tim)
              Gail, you are right – the Fed can’t print oil, nor clean water, nor topsoil, nor … One day the jig will be up … and that will be an interesting day …

              Yeah, Tim, I guess that is it: It boils down to how long the US maintains the reserve currency status – there is no vote among the global players (that I know of) on what currency has such a status – instead, one day (soon?) that status will just fall away from the dollar and shift to something else. That will be an interesting day in Washington … and actually all across this once great country. It is all but over … Brace.For.Impact

            • Eduardo Martinez says:

              Well done Patrick. It is too easy to for people to parrot the phrase ‘the FED is printing money out of thin air’. Money is created as debt and also destroyed as debt is repaid. If the rate of creation is greater than destruction you get inflation and you get deflation if it is the other way round. All money created by the FED has to be paid back (or rolled over), in the future. Hence the money is not created out of thin air to remain in circulation for ever, but as a debt to be repaid. How will the government pay it back? Through enforcement of taxes, and if need be, confiscation of financial assets to refinance the government.

      • Jeff says:

        Money is an agreed unit of value between the laborer and beneficiary of the labor. Debt is a claim on future labor.Money is a store of value. Currency is not necessarily money because it tends to lose value over time. Fiat currency obtains its perceived value through the faith and credit of the issuer.You are right that it would difficult for the United States to go the way of Zibabwe although not for lack of trying.We are the the reserve currency of the world, the fact that we have the largest military does put a lot of credibility behind our currency.Oil is one of many multipliers of labor unique in that it is very energy dense and easily transportable.Gold, silver and other precious metals make good forms of money because they store value over time and at least in the case of gold and silver are pretty much universally recognizable and valuable.
        Now here is a though concept, if an issuer of debt can make a claim on future labor to pay off the debt (debt=future labor) doesn’t it follow that their is a medium that would represent past (historical) labor . Gold and silver are representation of that past labor and not just the lucky miner that hit the jack pot but all the others that tried and failed.

      • timl2k11 says:

        Another fundamental you have totally wrong: “Money printing: what most people seem unable to accept is that neither the FED, nor any other central bank can just print money. They need collateral, ”
        Collateral hasn’t been needed since Nixon closed the “gold window”. Why did Nixon close the gold window? Because we had printed way more money than we had gold for. The value of gold immediately quadrupled in terms of US dollars. Money is now backed by nothing. It has whatever value everyone agrees it has. Any central bank can indeed “just print money”, just like Zimbabwe, and if it wasn’t for our reserve currency status, inflation would be much higher.
        You seem to be thinking of the way money worked when we were still in a gold standard. That ended in 1971.

        • Christian says:

          As Gail says it’s not easy to get it all, but I’m with Tim on this. Graeber convincingly structured all his work upon the difference between debt and cash (or money), remarking money put an end to a relationship and both parties are allowed to walk over, although debt just doesn’t and both parties remain linked.

          It is true paper money works as an IOU, referred to the State (but it seems not to be exactly that in the case of the US, where the central bank is a private entity) and that the State economic capacity is ultimately reduced to catch taxes (in our case, where it does not produces goods to sell). Also, as Aristotle noted, even gold has not a value in itself but by convention, so as a last resort everything (money and debt) are just WHAT WE WANT THEM TO BE. They have not an intrinsic nature, but a pragmatic one: they are useful in structuring society, or they are not and then must be changed.

          To be honest, I have a hard time trying to get why, in this specific moment of history, we may need more debt. Two reasons.

          One, humans geographic scope starts reducing because of the fall in transports, or if you wish globalization trend twists in localization trend, and so there is no need to look at more debt to keep relationships more open and thus embrace more (and more distant) people.

          The second, our specific financial organization, banking and thus interest centered, essentially relates debt with growth. And we know very well what is happening with growth right now. This kind of debt has become impossible to repay, and so, as I argued at some other post, has become meaningless. It is not to clear all debts and restart the banking system. It is that one of two things will happen: a) the whole system will break by its own and possibly take us down with it; or b) we can collectively realize this (upon some crash or not) and just forget it and start with another system, with no banks nor interests. A lot of people would go unemployed? They will do anyway, and it is not related to the absence of debt but of cheap oil. The only way to create jobs is people moving to the country and working on land, where they will not need cheap oil. Clear and simple as a sunny day.

          Capitalism and debt will not anymore give us our daily meal. Wich does not mean we have no way to get it.

          • Starting over without banks will means a very much more local economy, where everyone knows everyone else. The amount that will be produced will be much smaller than today.

        • Paul says:

          Zimbabwe did not have thousands of nuclear weapons as ‘collateral’ 🙂

        • Patrick says:

          The major reason why Nixon closed the gold window is, as I understand it, the curse and the blessing of issuing the global currency:

          De Gaulle insisted on gold payment, just to pester the US, and attracted a lot of imitators.

          The US, as every other issuer of the global currency before, started to get in to trade deficit territory which reduced their gold holdings. The US had the power to force others to accept these changes, so it did.

          Similar to current money, gold also just has the value everyone agrees it has. You can not eat it, burn it (like current money) or use it as a weapon because it is far too soft for it. So what? That may be exactly one of the reasons that it has been adopted as money in the first place.

          • timl2k11 says:

            “The major reason why Nixon closed the gold window is, as I understand it, the curse and the blessing of issuing the global currency:”
            Wrong again. I thought explained this. The only reason Nixon closed the gold window is because the Bretton-Woods agreement made the collateral for the US Dollar gold. A dollar was fixed at 1/35th an ounce of gold. Other countries were than fixed to the US dollar. US dollars could be converted into gold, at $35 an ounce. However the Fed created too much money (more money than we had gold collateral for) to fund are deficit spending for wars and moon landings and the great society, etc. France suspected we were printing too much money and started converting their US dollar reserves into gold. Other countries soon followed. Our gold reserves began to dwindle and Nixon quickly responded. Ever since world currencies have been backed by absolutely nothing.
            There is a very good movie “Federal Reserve: Money for Nothing” that interviews people both inside and outside the Federal Reserve System that gives great insight into how the Fed really operates. But really, all this can also be easily researched.
            Again, I think I have argued my point quite clearly. Are we still arguing semantics? (I did not see the above post before I replied to your other one).

          • Christian says:

            There is another reason to the end of Gold Standard: the US oil production peaked in 1970 and the country needed to import more oil, and so to export dollars and forget about importing more gold. Next, US and king Faisal settled the petrodollar and the new standadrd was completed. As Paul says, if there is a “collateral” it’s US Navy.

            • John Dunn says:

              @ timl2k11 and Christian
              I think tim’s explanation of the break from gold is spot on, but Christian has taken the next (and vital), step by pointing out that as the dollar disconnected from gold, it did not ‘free float’ as some suggest, but instead got pegged to crude oil.
              This pegging to cheap oil (in the 70’s), gave the world license to forward purchase billions of dollars of goods and services not yet made or provided. And it would likely have continued to work for some time to come, had it not been for the shift from cheap to expensive oil. Now we are in a position of having to pay back the global credit card using expensive oil, even though we created that global debt on the assumption of easy and cheap oil.

            • timl2k11 says:

              Very good points!

            • John says:

              Late to the party, have any of you read FOFOA on the petro dollar?

      • Paul says:

        I suppose the Fed’s collateral is a) having a good con-person at the helm and b) at the end of the day being backed by the worlds largest arsenal.

      • timl2k11 says:

        How is gold debt?!

    • That is a good point about the nature of the centrally-controlled fiat currency system.

      The dynamics are hard to understand. For example, forgiving huge amount of debt would make a lot of people much poorer and make banks fail. For that reason, it is hard to see it happening. It would also be very hard to restart the system.

      • BC says:

        Apart from $600-$700 billion the US and foreign primary dealer banks used to write down loans in 2009-10, the remainder of the “money printing” has remained circulating between the Fed’s balance sheet, primary dealers’ cash assets/reserve deposits at the Fed, and the US Treasury. Bank lending has not grown since 2007-08. Accounting for the increase in bank cash assets for the deposit base, money supply less bank cash assets is no higher than in 2007-08, and it has been contracting yoy since summer 2013, not unlike in 2009-10, 1937-42, and three times in Japan since 1998, including recently.

        Moreover, the net interest return extracted by the financial sector today exceeds yoy growth of nominal GDP. That is to say, the nominal valued-added output of the US economy, including price changes, is contracting after the financial industry extracts its take.

        Despite the unprecedented “money printing out of thin air” by the Fed, the result has been a net crediting of banks’ cash assets to shore up banks’ insolvent balance sheets without growth of loans or money supply less bank cash assets.

        Finally, the value of debt-money is the imputed compounding interest “claim” effectively at an infinite term. Thus, debt-money must grow at a minimum rate in the long run to permit sufficient debt-money supply to service the existing debt outstanding and provide funding for economic activity. Since 2007-08, US debt-money supply less bank cash assets has not grown. Therefore, there has been insufficient growth of debt-money supply to permit servicing outstanding debt AND to fund further growth of economic activity after inflation and debt service.

        Not surprisingly, then, US real final sales per capita are no higher today than in 2007-08, and real per-capita bank loans and deposits less bank cash assets are contracting yoy.

        The US since last summer-fall has been experiencing incipient debt-money deflation, whereas few appear to be aware of it. The effects will soon manifest in the form of a plunge in profits, private investment, employment, and growth of wage and salaries in 2014.

        • Thanks for all your observations. Even with ultra-low interest rates, we are still having the problems listed. This does not add to my confidence regarding how long the system can hold together.

          It seems like the financial system’s interest on the debt is another piece of our problem. If the interest rate ever goes up, the situation is completely “game over”.

          • InAlaska says:

            From what I have read and understand, it seems like our first danger will be deflation, not inflation. As the velocity of money slows down, a sure sign of sagging economic activity, there will be less and less goods and services produced. With the Fed printing too much money, we will have a whole bunch of dollars chasing relatively far fewer goods and services. When the debt bubble finally bursts, credit will dry up and then the Fed will truly go crazy printing even more dollars to get it ginned back up again. Then we’ll have Zimbabwesque hyperinflation. Then, I think it will be “game over.” This will happen so fast that it’ll be impossible to see it coming, so when we get deflationary pressures, that will be the signal to hang on tight.

            • I think the issue is mostly deflation. Money is loaned into existence. As these debts fail, there is less money. Our bank accounts may suddenly disappear, or allow us to take out, say $100 a week. People may need to sell their homes to a market with no buyers, because the sellers have no jobs and need to move in with relatives. Ultimately, the government collapses, and the money is worthless–like Confederate dollars.

      • Paul says:

        Agree – very hard to restart the system.

        Just take this one example – all government pension obligations would be discharged. Millions would lose all income.

        How do you restart a system when that happens?

        Keep in mind this would be only one of the toxic consequences that would manifest in a debt jubilee.

        • Christian says:

          Actual system is toxic, and will kill us if we insist living within

        • Danny says:

          It is already happening….why do you think they got rid of basic accounting principles….they have already bought all the toxic mortgages and they have dissipated…as far as how someone will pay there mortgage without a job—-I am shocked at how you don’t get it….who would they pay their mortgage to? If no one can pay their debts the banks will quickly collapse….in some circumstances you talk BAU as paying a bank and then in others you talk about Mad Max themes….funny I don’t remember seeing a Wells Fargo or ATM’s in that movie….

    • Stilgar Wilcox says:

      “With all the money-printing going on by the central banks, it is surprising hyperinflation has not been more widespread; although it does seem to be occurring on the periphery (emerging markets) and is possibly being held in check within the core because of widespread deflation.”

      Good point regarding the periphery – are we next? I wonder how much the accusatory manipulation of gold price has stabilized core currencies? It would seem a requirement upon so much printing.

    • InAlaska says:

      All of our worry about economics may simply be rearranging the chairs on the deck of the Titanic. On the website Nature Bats Last, the climate change summary has many interesting tidbits such as:

      “Writing for the Arctic Methane Emergency Group, John Davies concludes: “The world is probably at the start of a runaway Greenhouse Event which will end most human life on Earth before 2040.” He considers only atmospheric carbon dioxide concentration, not the many self-reinforcing feedback loops described below. Tacking on only one feedback loop, and writing on 28 November 2013 — methane release from the Arctic Ocean — Sam Carana expects up to 20 C warming by 2050.”

      There are very many other equally sobering peer-reviewed articles such as this in the summary that the mainstream media won’t touch. From this perspective, a full scale economic collapse might be the only thing that can save the future of human life on Earth. Cheery.

        • One of the articles the Mr. McPherson cites interested me greatly.

          URL: http://unews.utah.edu/news_releases/is-global-warming-unstoppable/

          Snippet:

          “Garrett says his study’s key finding “is that accumulated economic production over the course of history has been tied to the rate of energy consumption at a global level through a constant factor.”

          That “constant” is 9.7 (plus or minus 0.3) milliwatts per inflation-adjusted 1990 dollar. So if you look at economic and energy production at any specific time in history, “each inflation-adjusted 1990 dollar would be supported by 9.7 milliwatts of primary energy consumption,” Garrett says.”

          • BC says:

            The implication of this metric is profound: At the 9.7 mW/real GDP US$ at the given total global energy (potential exergetic capacity per capita), global real GDP per capita today, and 1600-2000 cal/day for subsistence/existence indefinitely, one can extrapolate a mass die-off of the human ape population of 90% by 2050-80.

            But the accelerating log-linear decline trajectory will begin no later than 2016-20.

            Thus, imagine all of the factors that will coalesce to precipitate the global systemic collapse regime in the next 2-6 years, and we will begin to witness them in numbers that accelerate.

            Egypt, North Africa, Ukraine, Thailand, Venezuela, parts of sub-Saharan Africa, and tensions between Iran and Israel and Japan and China are only the beginning.

      • Paul says:

        If we can kick the can to 2040 I would be so very pleased.

        Somehow I think something will intervene in the meantime to make life a whole lot different.

      • Think of the collapse as good news then. I can’t imagine that anything we do voluntarily, apart from collapse, will make much difference.

        • InAlaska says:

          I think you’re right, Gail. Complete collapse (soon) may be our only salvation. What a world we live in where economic catastrophe is a good thing.

  7. Pingback: Reasons for our Energy Predicament – An Overview | Our Finite World « Olduvaiblog: Musings on the coming collapse

  8. mindweapon says:

    Reblogged this on Mindweapons in Ragnarok and commented:
    TL/DR The economy may not support energy extraction. We may have large oil reserves, but they will mostly stay in the ground because our economies can’t afford the extraction.

  9. The ultimate oil supply problem will be fighting over what’s left.
    Everyone recognises that without oil we die, or revert back to such a pre-industrial condition that life will be nasty brutish and short.
    So people will fight to avoid that, even though they/we know any personal respite can only be short term.
    The unravelling of states we see happening across the world can be pinpointed to energy depletion in one form or another, and fighting over scarce resources eve though the call it politics or religion.
    Essentially we have hunter-gatherer brains trying to function in a modern society that has existed for a few centuries. We evolved to be hunter-gatherers for millions of years before that. Our minds are only attuned to short term planning in terms of resources—we consume what is here and now on the assumption that our actions will provide more tomorrow. We think like that because it has always worked for most of us for most of the time. We can only think short term even though ‘planners’ delude us otherwise.
    Unfortunately we have consumed most of what there is and refuse to believe it because evolution has conditioned us not to.

    • timl2k11 says:

      “The ultimate oil supply problem will be fighting over what’s left.”
      I agree. I see this has been already happening and will only get worse. In Ukraine, they face debt default and the east and west are fighting over whose “influence” Ukraine falls under (buying influence by buying Ukraine’s debt). Iraq was a failed grab for political stability in an oil rich country. There are so many countries dependent on monetary aid, or the free flow of debt in return for energy. What happens when that aid and debt can no longer be sustained? Then there is Egypt, Syria, Argentina, Venezuala, all countries that no longer seen to have enough energy to sustain their economies. Yemen, not enough energy to pacify it’s population.
      Japan will be the biggest dominoe to fall yet. Virtually no energy production and a policy of weakening their currency, making energy imports ever more expensive. “Abenomics” is suicide. It’s like Abe is the kamikaze pilot of Japan’s economy.
      The US with the worlds reserve currency is very “lucky” right now. Everyone seems to want our debt.

      • you should read Tim Morgan’s brilliant piece on ‘abenomics’ in Japan. http://surplusenergyeconomics.wordpress.com/
        but of course the ultimate problem will be fighting over what energy is left, not what oil is left, and it will be the most ‘civilised nations who engage in the fighting, because they have the most to lose.
        We think of resource wars as happening now, but Germany and Japan were doing it 70 years ago to keep their economies afloat. Those nations were among the most cultured and civilised, yet committed atrocities on a colossal scale in order to survive on their terms.
        We might protest that this couldn’t happen again, but since the 30s and 40s it has happened many times. Under different names perhaps, but the willingness to perpetrate evil on fellow human beings is always magnified by the means available, and willing hands are always available to carry it out.
        The USA may be enjoying short term luck, but as energy supply runs out, the same kind of unpleasantness will kick in there too. The nation is already divided by geography, race and religion, peoples who tolerate one another because there is more or less enough to go round.
        When there isn’t enough, the same primeval reflexes will kick off there, the same as in Syria, Ukraine, the Congo or anywhere else currently in meltdown

        • Thanks for the link about Japan. The increase in Sales tax from 5% to 8% on April 1st has always seemed at least somewhat suicidal to me. When paired with Japan’s other problems, things don’t sound good.

          • Politicians, like most people, can only think short term.
            If their policies deliver a year or two of upswing, then they have reasonable chance of leaving office with their heads attached to their shoulders.
            It then becomes somebody else’s problem/fault.

          • xabier says:

            Gail

            Try the levels of, -and increases in – sales taxes in Europe and Britain! Financed to a large degree by credit extended to consumers…..

            I believe Lagarde of the IMF has just said that Spain ought to increase its already very high sales taxes.

            How punishing this is for businesses they do not grasp.

            Of course, a properly telegraphed tax rise can provide a brief jump in consumption of some goods, as people attempt to pre-empt the tax rise, but often followed by a sharp crash – I believe this has happened in Japan.

            • I know that Europe and Britain get a lot of their tax revenue by sales taxes. If Spain increases its tax rate, it likely will send the economy down further. The increase in sales before the new tax goes in is a very brief surge.

        • Christian says:

          Resources wars have milleniums of history, but actual situation doesn’t necessarily will multiplie international wars. The motive of scarcity is set and working, but EROEI reality says adding the cost of war and occupation to low extraction yields makes such a kind of adventures profitable only in a very few cases, such as Iraq. A completely different equation stands for civil wars, whose costs are far less and motifs more diverse: armed conflicts are very much likely to be of this type, and to be more cruel as well. Mixed conflicts, domestic and internationals at the same time, such as Sirya and Ukraine are complex and must be considered upon their particularities. A direct war between nuclear powers is not likely to happen (although not impossible) given this would be very damaging to both contenders.

          • Civil wars tend to be about resources too.
            North v South Sudan–oil
            Syria..Farmers driven off their land because of drought, clashing with town dwellers who follow a different cult
            Central Africa…numerous factions fighting for control of copper, uranium, gold etc
            I can see South American nations dividng into factions over food supplies—Ultimately North America will do the same thing.
            The ultimate rule of warfare is that it cannot extend beyond the means of the army involved in it. The actual scale of warfare is irrelevant.

          • Christian says:

            Reply here to End. Yes “the motif of scarcity is set and working” for domestic fighting as well, mixed with diverse local issues. South American countries are generally well equiped on food, but of course in some time this will not more to be the case if nothing is done about its fossils dependence.

          • I hadn’t stopped to analyze things this way. Thanks for your views.

            Certainly, historically most wars have been local resource wars.

        • Danny says:

          Yes I agree with you there…..Most people in the U.S don’t even know what is going on in the rest of the world. And even the ones that do think they are untouchable. I was talking to someone today and she believed that nothing would happen in her lifetime…she is 38…I am not so sure….the water will be lapping up her soon.

      • InAlaska says:

        Yep, Japan is struggling under a decade of deflationary economics. When they collapse, it’ll be an object lesson in what not to do. Of course, they didn’t really have any choice given their demographics. It will be bad here, when it happens, but not as bad as everywhere else. As you say, we are very lucky. In the end, I think being in the US/Canada will be the least worst place to be.

        • garand555 says:

          Perhaps in Alaska, and parts of flyover territory, but can you imagine what NY, LA, etc… would be like if supply chains broke? Imagine 8 million people all of a sudden cut off from food in NY. Pure hell. Probably not as bad as Japan, but still pure hell.

          • InAlaska says:

            Yes, I can imagine. Not pretty. Once Fukushina starts to get away again, it’ll be even worse over there. Imagine all 400+ nuclear reactors after collapse occurs. It takes a decade of thoughtful planning to decommission a nuke plant. Talk about pure hell….

            • Paul says:

              A thought…..

              Many have commented that the global leaders surely must be aware of what we are facing — yet they are failing to act — their response is not to attempt to cushion the landing rather they ensure the landing will be like slamming a 747 into the ground as hard as possible.

              So why don’t they attempt to subtly introduce policies that allow us to prepare?

              – encourage people to grow food in their backyards
              – encourage people to learn organic farming
              – encourage community spirit
              – encourage some level of survival skills

              Surely this would be the responsible thing to do….

              So why don’t they? Could it be that they have gamed the likely scenarios and they have determined this is an extinction event?

              Could it be that they know that these thousands of nuclear fuel rod pools will ignite and explode and wipe out all life?

              Could it be that they have concluded that the situation is completely futile — run the engine as hard as possible to get a few more miles out of it — before it slams into the rock cut?

              Just a thought….

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