Overview of Our Energy Modeling Problem

We live in a world with limits, yet our economy needs growth. How can we expect this scenario to play out? My view is that this problem will play out as a fairly near-term financial problem, with low oil prices leading to a fall in oil production. But not everyone comes to this conclusion. What were the views of early researchers? How do my views differ?

In my post today, I plan to discuss the first lecture I gave to a group of college students in Beijing. A PDF of it can be found here: 1. Overview of Energy Modeling Problem. A MP4 video is available as well on my Presentations/Podcasts Page.

Many Limits in a Finite World

We live in a world with limits. These limits are not just energy limits; they come in many different forms:

2 We are reaching limits in many ways

All these limits work together. We can work around these limits, but the workarounds are higher cost–for example, substituting less polluting energy resources for more polluting energy resources, or extracting lower grade ores instead of high-grade ores. When lower grade ores are used, we need to process more waste material, raising costs because of greater energy use. When population rises, we must change our agricultural approaches to increase food production per acre cultivated.

The problem we reach with any of these workarounds is diminishing returns. We can keep increasing output, but doing so requires disproportionately more inputs of many kinds (including human labor, mineral resources, fresh water, and energy products) to produce the same quantity of output. This creates higher costs, and can lead to financial problems. This phenomenon is one of the major things that a model of a finite world should reflect.

Economists Views

Economists developed their views of the economy long ago, when limits seemed to be far in the distance. Thus, the models they built do not reflect the expected impact of limits. They are missing variables that would be needed to adjust for changes in the economy’s behavior as limits are reached.

3 Economists put together models

4 Economy will adapt

The story in Slides 3 and 4 tends to be true if we are far from limits, but is it really true when we are close to limits? Perhaps diminishing returns as we approach limits changes the results.

5 What is the real story

World Oil Situation as We Approach Limits

Perhaps we can get some indication of how diminishing returns are affecting the economy by looking at historical oil supply and prices. Up until 1970, US oil production grew quite steadily.

6 US oil production

After 1970, oil production suddenly began to decline. Oil companies did not expect such a decline; they assumed that oil production would rise endlessly. Once oil production began to decline, oil companies quickly began trying to find ways to fix their problems. One of these approaches was quickly to ramp up production in areas that they knew contained oil, but hadn’t previously been drilled. These included Alaska (northern United States), Mexico, and the North Sea. Oil production in these areas is now in decline.

Several ways were also found to reduce oil usage. These included change from oil to alternate fuels for electricity generation and home heating, and offering smaller, more fuel-efficient cars. With this combination of approaches, oil prices were brought down, most of the way to the $20 level (Slide 7).

The inflation adjusted level of oil prices is important because oil is the single largest source of energy use in both the US and world economy. If oil prices are cheap, it easy to grow food cheaply, and manufacturing and transport can be done cheaply. Because of this, the economy tends to grow. If oil prices rise, economic growth tends to slow, because the cost of many types of goods (including oil products, food, and building new homes) tends to rise faster than wages. It becomes more expensive to replace infrastructure such as roads and pipelines as well. The higher cost of oil effectively acts as a “tax” inhibiting economic growth.

7 World oil supply

Oil prices again reached a high level in the early 200os as we again began to reach limits of the amount of oil that could be extracted at the then-available price. This time we weren’t able to cut back on world demand, so prices tended to stay high. Instead, the big change made was in oil supply, with higher oil prices enabling (after a several years time-lag) greater production both from US oil from shale formations (called “tight oil” in Slide 6 above) and from the oil sands in Canada.

The question becomes: can the economy really function adequately on $100+ barrel oil? Or do the negative feedbacks from these high oil prices have too adverse an impact on economic growth?

8 Now oil price is too low

Slide 8 shows more detail regarding production and prices for recent years. We see that oil prices were generally rising up until mid 2008, and then dropped steeply. Prices rose again after several types of economic stimulus were added. More government spending was added, interest rates were dropped to very low levels and a program called quantitative easing (QE) began.

Prices stayed at a level a little over $100 barrel from January 2011 though mid-2014. More recently, oil prices have dropped to a little more than half of their previous level. This decline in oil prices appears to correspond to a time when world debt is not rising as rapidly: the US stopped its QE program, and China’s debt no longer rising as rapidly. Thus, some of the economic stimulus that helped hold oil prices up is disappearing.

The problem we are now encountering is not the high price problem that economists thought would bring on more supply. Instead, we are encountering a problem with oil prices that are too low for oil producers to make a profit. Such low oil prices can quite possibly bring down world oil production, because investment in oil production is no longer profitable. A person might ask: Is the low price situation we saw in 2008 and are encountering again in 2014-2015 what diminishing returns really looks like? Is the problem we encounter as we reach limits one in which oil prices drop too low, rather than rise too high?

In 2008, huge stimulus efforts were required to bring oil prices were brought back up to the $100+ level. Perhaps one point raised by economists (Slide 3) was correct: Maybe there is a connection between economic growth and oil demand. Perhaps the issue as we reach limits is that world economic growth sinks too low, and it is because of this slow growth that wages stagnate, debt stops rising quickly, and oil (and other commodity) prices drop too low.

Now let’s look at what some early energy researchers have said.

M. King Hubbert 

Many believers in Peak Oil theory consider M. King Hubbert to be the originator of their theory. It seems to me, though, that Peak Oilers have inadvertently picked up some of the economists’ theories, and mixed them with Hubbert’s theories.

9. M. King Hubbert

10 M. King Hubbert Model

11 Model applies when there is perfect replacemnt12 Hubbert understood need for perfect replacment

13 Believers in peak oil

It seems to me that the only way a Hubbert Curve might happen is if oil prices stay high, as we approach limits. That way, as much oil as possible can be extracted. If oil prices fall too low, then the decline may be much quicker. If low oil prices are a problem, above ground problems such as governments of oil exporting nations collapsing, or rising debt defaults leading to bank failures, may be a problem.

Dennis Meadows and Donella Meadows

Dennis Meadows led early computer modeling efforts at MIT regarding limits of a finite world. His wife, Donella Meadows, led the write-up effort regarding this model in a 1972 book called “Limits to Growth”. The model looked at physical quantities of resources, expected amounts of pollution, and expected population trends. The base model suggested that the world would start reaching limits in roughly the current timeframe.

16 Meadows Limits to Growth

In fact, more recent analyses suggest that the base model is more or less on track.

I don’t think that we can count directly on this analysis, however.

18 How will the situation work out

Charles Hall

Prof. Charles Hall has been one of the recent thought-leaders with respect to oil limits and how they might play out. He started work in the early 1970s as an ecologist, studying the energy patterns of fish. When he read about the possibility of energy shortages that might occur in the 1972 book Limits to Growth, he tried to adapt an approach used for studying energy patterns of fish to the world of energy production. The result was new way of measuring the efficiency of a particular energy product, called Energy Return on Energy Invested (EROEI).

20 Energy Return on Energy Invested

This idea was an advance when it was first developed, but it has a number of practical difficulties. One of these difficulties is that its usefulness is tied to a particular view of how oil limits will affect us, namely that prices will rise, and this will allow a slow transition to alternative fuels that are less favorable in terms of EROEI. On Slide 21, this is Item (2).

21 Two different modelsAt this point, it is my view that the EROEI approach to analyzing energy products can be misleading and needs updating. Energy extraction is much more complicated than the energy use of fish swimming upstream. The EROEI approach, besides being tied to the Peak Oil view of how limits will occur, is difficult to calculate. Different researchers get quite different answers, when analyzing the same energy product.

Furthermore, EROEI looks at a piece of energy costs (those involved with production at the well head), but how this piece relates to the total varies from one type of energy to another. It lumps together cheap energy and expensive energy. There are several other issues as well, with the result being that in practice, low EROEI doesn’t necessarily correspond to expensive to produce, and high EROEI doesn’t necessarily correspond to low cost to produce.

I should point out that the same problem exists with a wide range of similar metrics including Life Cycle Analysis, Energy Payback Period, and Net Energy. In practice, what seems to happen is that if an energy type is high-priced, the use of one of these metrics is used to justify its production, anyhow. Low EROEI (for example, of biofuels) does not seem to be a barrier to production, even though it was the hope of Prof. Hall and other EROEI researchers that this would be the case.

My Involvement in Energy Analysis

25 What exactly is the story

26 Correctly forecast 2008 collapse

I became acquainted with Prof. Lianyong Feng in 2009, when he attended the Biophysical Economics Conference in Syracuse, New York, held by Prof. Charles Hall, and heard me speak.

27 Photo of Gail Tverberg, Charles Hall, Prof. Feng

How Do Oil Limits Really Affect the Economy?

This is the question I have been working on. I will try to explain some of my findings in the next several sessions.

Early researchers were handicapped because the issue of oil limits crosses many different fields of research. They took approaches from their own areas of study, and worked with them. These approaches offered partial insight into the problem, but didn’t completely answer what might happen in the future.

It was not obvious to early researchers which parts of economists’ theories were wrong. I have had the benefit of seeing how the system works in practice in several periods: in 1973-1974, in 2008-2009, and now in 2014-2015. I have also been fortunate enough to find a number of recent studies that add new insights as to how the system really works. So I have taken a step back and developed at the least the start of a new theory, which is different from EROEI theory. This is what I will discuss in the next few sessions.

A little explanation behind this series of lectures and my four week stay in China is perhaps in order. When I was in China, Prof. Feng discussed with me some of his intent behind asking me to give this series of lectures. Prof. Hall is now retired, and there is no obvious replacement for him. Prof. Feng would like me to take a more active role is figuring out in which direction energy research should now be headed, both for his own staff, and for others around the world. A better understanding of how the system works could theoretically help researchers everywhere.

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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589 Responses to Overview of Our Energy Modeling Problem

  1. Don Stewart says:

    Dear Gail and Finite Worlders and Climate Change Believers
    Here is a video courtesy of Marjorie Wildcraft, from central Texas. She is visiting a permaculture farm in northern New Mexico, and learns how important diverse sources of food can be in a world of unstable climate. I’ll second that motion, due to the weather in North Carolina over the last few years. The stability we had come to expect, and had adjusted to, is gone. This also pertains to what I said about Gene Logsdon and cultivation. Annuals are still pretty dependent on cultivation, for the most part. However, some people are figuring out how to make do with a lot less cultivation…Don Stewart


    • richard says:

      Thanks for the link. I was reminded my surprise on finding out how complicated houses are, and the difficuties in adapting these to zero carbon concepts. Add to that the differences in climate even in small geographical areas, and a steady flow of new solutions and new materials and it is demanding to try to keep up with the changes.

      • Don Stewart says:

        Dear Richard

        Here is a little more on the question of microbes, the health of the natural world and the humans, and the different perspectives of soil scientists such as Elaine Ingham and ‘natural’ doctors and the Big Ag companies like Monsanto and the Big Pharma companies.

        I have recently posted this link to Stanley Hazen and his work at the Cleveland Clinic. It turns out that what we eat has a profound effect on the species of bacteria which thrive in our guts. If we eat red meat, we feed some bacteria which make TMAO which prevents us from getting rid of cholesterol, which encourages heart disease.


        Here is another video of Elaine Ingham explaining how bacteria and fungi are the key to soil and plant health. This short clip is part of Elaine’s long course on what we might call ’natural’ approaches to farming.


        Everyone who is serious now knows that the gut bacteria are important and that soil microbes are important. However, those who recognize the seriousness divide into two sharply divergent camps. The ‘natural’ doctors recommend eating the food that our gut microbes need to generate good health for the host human body. Stanley Hazen, right at the end of his talk, arrives at a quite different conclusion: the gut microbes are ‘druggable’. We can kill those we don’t want and create a better Darwinian climate for those we do want. This is Big Pharma and it’s money talking.

        The Big Ag people see the undoubted importance of soil microbes, and come to similar conclusions to Big Pharma. Rather than use Elaine’s rather simple and cheap program of growing some compost from the plants in your own neighborhood to inoculate the soil, plus stopping all the destructive practices such as antibiotics and pesticides and herbicides and plowing, Big Ag concludes that we need to drug the microbes in the soil. Kill those we don’t want, to create a better Darwinian climate for those we do want. In other words, keep doing everything we are doing now, plus some more.

        The gut microbes have been ‘medicated’ by the industrial food that we eat…in ways that are profoundly harmful to humans. With the new science, Big Pharma is confident that humans can both eat harmful foods but also medicate themselves so that the harm never actually materializes…and also make bales of money for Big Pharma. Big Ag sees the same opportunity, just applied to soil microbes. The Nanotechnologists likewise see big opportunities in letting humans continue with destructive practices, but offsetting the bad effects with technology.

        I’ll let you decide whether the ‘natural’ approach or the Corporate approach is the most appropriate for a Finite World.

        Don Stewart

        • Jarvis says:

          Don why would you want to get rid of cholesterol? My brain is 80% cholesterol so I’m keeping all I can. It’s inflammation not high cholesterol that causes heart disease and yes that is controlled by the gut.

        • Of course, even if the Big Pharma approach would work, the people who have to pay big Pharma for all of their products would be worse off, because of the cost of the big Pharma products, and the fact that they have to pay those costs to maintain the status quo.

  2. Don Stewart says:

    Dear Gail and Finite Worlders
    I have mentioned the ‘one brain, two minds’ model of how humans react in the real world. Here is a 4 minute clip of Pat Ogden, PhD, talking about how the sub-cortical parts of the brain seize control in a traumatic situation. Furthermore, people suffering from Post-Traumatic Stress Disorder can reactivate the loop long after the original stimulus has disappeared. From having heard her before, I know that Pat treats patients with an integrated mind/ body therapy.

    This may be important to any of you personally, as those close to you suffer traumatic shocks as the world we have known collapses. Perhaps it is worthwhile for you to spend a little time thinking about the issues of mind/ body functioning in a post collapse world.

    (I hope the link works. These are quirky.)….Don Stewart

  3. Don Stewart says:

    Dear Gail and Finite Worlders
    We frequently have discussions about the possibilities of a collapse. Here are some thoughts from Adam Taggart (from Chris Martenson’s blog) and Charles Hugh Smith. These quotes are from Smith’s note to his subscribers. I generally don’t like to quote extensively from these notes, because Smith makes a part of his living writing things like this. I excuse myself this time because this will doubtless eventually show up on Martenson’s blog.

    The question posed by Taggart was ‘what sort of Black Swan could bring down the system?’ The first conclusion is that if the Central Banks can print a trillion dollars and force it into the system by purchasing financial assets, and solve the problem in at least the short term, then it won’t bring down the system. For example, the student loan problem will probably be resolved by the Federal Reserve purchasing the loans with money they have printed. The system continues to work.

    Then they identify things that the Federal Reserve cannot resolve in the short term by printing money and purchasing financial assets. Here is their list….Don Stewart

    Any future black swan must not be solvable by printing money and buying assets.

    Adam and I boiled down the list of problems that cannot be solved by creating money and buying assets to two classes of problems:
    1. real-world resources
    2. social/financial inequality

    Declining oil production (as a result of geopolitical turmoil, Land Model reduction of exports, marginal producers shutting down production, bankruptcies shelving development and expansion plans, etc.) is currently being matched by softening global demand as the global economy weakens.

    But eventually these declines in production will set up a massive price spike as supply falls well below demand. Once existing stocks of cheap oil are consumed, production must rise quickjly to meet demand. But raising production globally is not like turning on a light switch–it takes years and tens of billions of dollars to increase oil production on a global scale.

    Should oil drop to $30/barrel as many expect (most analysts see the rise from $43 to $59/barrel as driven by speculation rather than fundamentals), a secular decline in production will trigger a sharp rise back to the level needed to support marginal production, i.e. $90-$100/barrel.

    Central banks can print another $1 trillion, but this won’t magically increase production of oil. Price spikes in energy reliably cause recessions, and since interest rates are already near-zero and every asset class is already in a bubble, central banks will be powerless to solve a recession by printing money and buying more assets.

    Adam posited that the social pressures generated by rising wealth inequality–the direct consequence of central-bank money-printing and asset-purchase policies–are another potential black swan that the Fed and other central banks cannot resolve by printing more money and using it to buy more assets.

    As Adam mentioned, the Fed could resolve rising inequality by following Steve Keen’s plan for reducing household debt: send every household $50,000, which would have to be applied first to debt. Those households with no debt would be free to spend the $50K at their discretion.

    But central banks have no mechanisms in place to create trillions of dollars and distribute the money directly to households. Central banks exist to insure private banks have the means to continue reaping outsized profits from speculation and lending money. It would take a massive political shift for central banks to be politically empowered to “gift” households with newly issued money. It would take a crisis of immense proportions to trigger such a radical political and financial shift.

    Another candidate for a black swan that is beyond the control of central banks is a crisis in a major currency. This has the potential to disrupt the global financial system because printing $1 trillion isn’t enough to move the global currency markets if the herd is running. It could take $5 trillion or more–larger than the entire Fed balance sheet of $4.5 trillion–to control the global foreign exchange markets. And money creation on that scale might well generate fierce political resistance and unintended consequences.

    The last possibility Adam suggested is systemic complexity: the more complex the system, the greater the uncertainties and thus the risks of apparently minor events that “appear out of nowhere” triggering disruptions that quickly spread to the entire financial system.

    Right now the system is being stabilized by two very simple mechanisms: zero interest rates and central banks buying assets in astounding quantities. These brute-force methods have worked for six years, but the complexity of the global financial system opens the possibility that something somewhere will not be controllable by these simple brute-force tools.

    • Tolstoy's Degenerate Grandson says:

      How about this:

      The middle class in western countries continues to reduce spending resulting in corporate profits plunging (even though share prices remain at record highs due to buy backs).

      Corporations start to lay people off which collapses profits even further as laid off people stop spending.

      This leads to the mother of all deflationary death spirals…

      • Daddio7 says:

        The spiral starts when the better off start conserving. They don’t need all the services they get so their comfort level stays the same. Their servers on the other hand now have less to spend. People need a certain amount of food and supplies to continue. People can become more self sufficient but they need land and temporary housing. The government can pry money out of the hands of people who have extra (yes communism) or print up some until inflation gets to bad. We have a large segment of people who think they should be taken care off or at least given jobs near where they live. Most of the farm land is not where most of the people are. Promises of food, forty acres and a mule may get some moving. It ought to make a very entertaining movie.

      • Don Stewart says:

        Dear TDG
        I can’t speak for Taggart and Smith, not having been part of their conversation. However, your scenario of continued decreases in spending by the middle class seems to me to be a function of the workings of BW Hill’s model.

        To wit: the supply of work available from oil (and perhaps gas and possibly even coal) is shrinking as more of the work inherent in a unit of fossil fuels is required to produce the fossil fuel. When the work capacity declines, then production declines. As production declines, corporate revenues decline, wages paid declines, and so forth. Also at work, particularly in the West, is the fact that more of the work which is available has to be spent on maintenance of the existing infrastructure (Greer’s Catabolic Collapse). We are approaching, using Hill’s numbers just for example, the point where fossil fuels are not generating any growth effect at all. (Or maybe we have passed that point). The central question is whether we have any way to get enough energy to produce the work required for growth. The answers to the question are obscured by our focus on ‘barrels of oil’ rather than ‘work performed’, and ‘jobs’ rather than the ‘creation of new value’. Can we all take in each other’s washing and claim full employment and growth?

        A central question becomes, ‘Can the Central Banks print money and buy assets to keep the fossil fuel industries going for a decade or more, after they no longer make economic sense?’ And, ‘Can the centralized media continue to convince the investors that ‘everything is fabulous’?’ I think we are seeing a coordinated effort by the CBs and the governments and the corporations to do all that. We will also see military adventures doing the usual smash and grab in terms of getting control of the remaining fossil fuels. We are seeing the rapid socialization of asset ownership, as governments replace private capital as the source of funds for the corporations. How long can they keep it going?

        I’m not sure, but I think they are doing a pretty good job of keeping the truth from leaking through to public consciousness.

        Don Stewart

        • Don Stewart says:

          Dear TDG and Others
          Besides BW Hill’s model predicting the end of useful work from oil, and besides Gail’s many writings on the subject, I have just discovered Richard Heinberg’s essay from about a year ago:


          ‘The gross society’ is one that looks only at gross production, and not at the net. He lays out in words pretty well what Hill reduces to quite precise numbers. Much of the logic is the same.

          Don Stewart

          • Stefeun says:

            Herman E.Daly made a nice little diagram about “Uneconomic Growth” in a Sept.2005 article for Scientific American, see box titled “When Growth is Bad” on the 5th page (#103):

            The Sci-Am article was linked in this one:
            Uneconomic growth deepens depression
            by Herman Daly, originally published by The Daly News | MAR 5, 2012

            which itself was linked in Richard Heinberg’s essay “The Gross Society” you mentioned.
            I must say I found both Daly’s and Heinberg’s analysis very good and insightful, but I can’t help being disappointed when it comes to the “solutions” chapter. Maybe I’m wrong, but they seem to think that “less” would be sufficient, omitting that 1. degrowth is not an option, and 2. the decrease should be of -at least- one order of magnitude (which in my view is a little bit more than “less”). Maybe such rosy final note was required by the editors.

            Btw, I note that their proposal to cap/limit the energy input or economic throughput (e.g. “Quite simply, we must learn to be successfully and happily poorer.”) resembles very much Ivan Illitch’s thesis in Energy and Equity (1973, rev.1978) (https://www.uvm.edu/~asnider/Ivan_Illich/Ivan%20Illich_Energy%20and%20Equity.pdf)
            In theory it could (have) work(ed), but unfortunately it’s impossible to implement on a global scale, because of the Maximum Power Principle.

            • Don Stewart says:

              Dear Stefeun and Others
              First, I do agree that the German plan to make fuel for their war machine from coal was not insane. In theory, it could have worked, IF they had succeeded in capturing the oil fields in the Caucusus. But they failed in the military venture, which doomed them to spending inefficiently to get the oil.

              This is the same argument that I have used in terms of agriculture. An agricultural tool which greatly increases the harvest from photosynthesis need not be made ‘sustainably’. IF 90 percent of one’s economy is photosynthesis based, then an occasional blacksmith may be a good idea. BUT, if half of one’s economy is based on fossil fuels (as in the US), then the fossil fuels really need to be used very efficiently.

              Second, as to whether it is possible to collapse and still live a good life. Last evening I saw a movie I was not previously aware of. It is Japanese, titled Woman In The Dunes. It is available in the Criterion Collection section of Hulu Plus. A middle class male school teacher is out in the sand dunes collecting bugs. He hopes to achieve some distinction by making discoveries about bugs, getting his name printed in a field guide. He falls asleep, and is awakened by some villagers just at sunset. They offer to find lodging for him in their ‘poor village’. They lower him down into a pit where sits a house and a young widow.

              Things are pretty awful in the house, by the teacher’s standards. The woman seems cheerful enough, and goes about her work of shoveling the drifting sand away from her house, using carefully rationed water and firewood, etc. After a day or so, the man figures out that he is a captive. The woman states simply that it takes a family to survive in the dunes, and the villagers have found her a husband.

              I won’t give away too much of the plot. But as the man struggles to get back to Tokyo, the woman asks him ‘did you leave a wife behind?’ and ‘why do you want so desperately to get back to Tokyo?’. The man behaves badly toward the woman, which doesn’t prevent her pregnancy. Eventually, the woman has a complication in the pregnancy which causes the villagers to set up a rescue operation and allows the man to climb a ladder out of the pit. He looks briefly at the ocean, then goes back down into the pit to work on a water harvesting system that he has invented. His new goal is not escape but to improve the conditions for the villages using very simple mechanisms. The movie ends as the Bureau of Missing Persons closes his file and declares him dead.

              I think the movie has captured pretty well the dynamics of the End of the Age of Oil and the End of the Age of Consumerism, and the End of the Age of Bureacracy and the Reinvention of the Family and so forth. The tension between the desire to return to relative comfort and the surprising joy of dealing with the practical matters of existence is handled subtly and well.

              I think all Doomers should watch the film, as well as a broader section of Finite Worlders.

              Don Stewart

    • richard says:

      In my view, the authors are somewhat careless in their choice of words:
      The problem is debt. Increased debt makes the system less stable. That makes the effect, if not the number of black swans, greater. It seems likely that many student loans will be written off. That should improve stability, so the sooner the better.
      Creating money “pay to the bearer on demand” creates debt. There are two sorts of debt – the good kind is debt that can be extinguished (repaid.) The bad kind makes the system less stable. That is what underlies the two classes of problems.
      Excess debt depresses economic activity, a shortage of oil does not help, but at present that is more of a symptom, and in time will become the problem. For now “price spikes in energy cause recessions”. “Inflation is always and everywhere a monetary phenomenon” – Milton Friedman.
      Keen’s solution of direct payment to households is only a partial fix – a sticking plaster on a torn artery – is a gift of Government, and something Central Banks are legally prevented from implementing. The question is – Do we really want to wait until the world is on the edge of the precipice before acting?
      Complexity and complex describe different things. Replace “complex” with interconnected and “appear out of nowhere” with “emerge” and “disruptions” with catastrophes” to get the real meaning.
      Finally replace “stabilised” with “destabilised” and understand that equilibrium is not stability. A system that has the words of a central banker ( ‘I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant’ – Alan Greenspan) as a stabilising feeback mechanism seems to me to be close to instability.

      • Don Stewart says:

        Since I have already copied too much from Charles Smith, I guess I might as well give you the initial part of the post:

        Adam Taggart of PeakProsperity.com recently posed a question to me that ended up fueling an hour-long conversation: what event or dynamic could become the black swan that disrupts our central-bank dominated financial system?

        It’s relatively easy to imagine a number of potential black swans, but as the past six years have shown, the central banks have effectively defused a great many potential disruptions simply by creating money and buying assets in unprecedented quantities.

        My starting point is this: any problem that can be solved by creating $1 trillion out of thin air and using that new money to buy assets cannot disrupt the system.

        Mortgage sector going south? Solution: Create $1 trillion and use that to buy $1 trillion of troubled mortgages, effectively burying the debt in the balance sheet of the Federal Reserve. (All central banks play this same basic trick to solve any problem that arises in their economy: print money and use it to buy assets.)

        Government needs to borrow a lot more money, but there aren’t enough private investors willing to buy sovereign bonds paying almost no yield? Solution: print $1 trillion and buy up all the sovereign bonds being issued by the government. (This is called monetizing debt.)

        Stock market looking shaky? Solution: Create $1 trillion and use that to buy $1 trillion of stock indices.

        Local government bonds about to default? Solution: Create $1 trillion and use the money to buy up the iffy local-government bonds.

        We can anticipate this will be the ultimate solution to student loan debt defaults: the Fed will print another $1 trillion and use it to buy up all the student loan debt. Once this debt is buried in the Fed balance sheet, it will be forgotten.

        So if a problem can be solved by printing another $1 trillion and using it to buy assets (i.e. safely bury the troublesome debt in the central bank balance sheet), then the problem cannot destabilize the financial system.

        Back to me. I think that the question is ‘if the Central Banks are guaranteeing debts and are committed to perpetually rising equity markets and perpetual declining interest rates (even including negative interest rates), and if Central Banks are willing to loan money and buy stocks in particular companies that are distressed, and if everyone believes that they will do so, is there any financial bobble that can be considered as a Black Swan? In the near term? In the longer term?

        If you look at what the BOJ has done, it is amazing to me that Japan is still standing. I heard one guy ask ‘why are there still any yen in Japan?’ If the US and Europe follow the Japanese example, and are able to reach the heights of financial folly that the BOJ has reached, it will take some additional decades of money printing. I never thought it would work for as long as it has.

        Don Stewart

        • Tolstoy's Degenerate Grandson says:

          Don – this strategy of ‘nothing fails no matter’ what has worked so far.

          But of recent we are seeing that the even with all this stimulus, companies earnings are trending lower. The stock market can be ramped up with buy-backs but if companies are not growing their bottom lines then that will eventually lead to layoffs.

          And when that dynamic grabs the economy by the throat, I do not think anything can be done about it. This will result in unrelenting and immense deflationary pressures.

          And no amount of money printing can loosen the noose.

          I reckon this is like a strong man holding up an apple. He can do it for quite some time and defy gravity – but eventually the apple will fall.

    • These brute force methods are sort of working, but in the end, they are not working well enough. I think that is why oil and other commodity prices are so low, and wages of common workers are so low. No matter how much money is printed, in the short run, it doesn’t increase the amount of resources available to be purchased. If some get more, others will necessarily get less. So money printing, even if it goes to workers, will simply be inflationary.

      • Don Stewart says:

        Dear Gail
        I think it is instructive to figure out what was wrong with Germany’s WWII effort to use coal to gasoline technology. Overall, there was a reduction in work performed, since more work had to be expended to transform the coal into gasoline. Yes, the Nazi’s could compel the production of the gasoline, in various ways, but they could not change the laws of physics.

        That is one reason why I have mentioned the ‘less useful work’ meme in several recent posts. The Federal Reserve can keep the tight oil drillers afloat by purchasing high yield debt and driving down their costs, and perhaps even converting the short term debt to very long term debt, but they can’t create more work potential out of resources which require so much work to produce the intermediate products.

        I think your writings, Hill’s model, and Richard Heinberg’s essay all make that point pretty well. There may be others who say the same thing.

        Don Stewart

        • “Yes, the Nazi’s could compel the production of the gasoline, in various ways, but they could not change the laws of physics.”

          Try flying fighter and bomber planes using coal. Try making coal-steam powered tanks. Sometimes, the form of the energy is more valuable than the total energy content, and it is worth losing 50 to 90% to convert to the desired form.

          • VPK says:

            Just read a very good read on Nazi scientists and their invention of converting coal to Petro. The process was 10X more expensive than conventional product but kept their war effort plugging after the loss of the Romanian oil fields. A command economy will disregard financial cost and do whatever means to keep the lights on and wheels turning.

        • Thanks! You are right. We are all saying the same thing.

  4. Tolstoy's Degenerate Grandson says:

    Peak Oil is Here and Now.

    Peak Russia + Peak USA Means Peak World http://seekingalpha.com/article/3133426-peak-russia-peak-usa-means-peak-world

  5. B9K9 says:

    TSG “I seek to understand how this (cognitive dissonance) works.”

    Why do you care how it works? Why not just start with the natural advantage knowing that it DOES exist? Once you recognize that you are amongst a few elite individuals who share this unique insight about the human condition, then you can proceed to exploit it to your own advantage.

    Join the long list of religious leaders, bankers/financiers, war profiteers, military adventurists, political ‘leaders’, et al who live very comfortable lives ripping off the gullible, stupid, and dumb. The only marginal area of concern are those smart enough to question some very basic facts, but thankfully, there’s also an educational elite along with various media outlets to make sure those curious sheep don’t stray too far afield.

    It’s a very rarefied atmosphere to not only see what’s going down, but to eliminate any concern for those who can’t buy a clue. Leave them to the sharks while you sip a pina colada.

  6. Brandon says:

    Hi Gail! You might have covered this before but the food issue is not a production problem its a distribution problem. If food was grown locally there would be less waste and less carbon footprint from transportation. In many places however its against the law to grow food on your front lawn isn’t that sad!? I love your blog.

  7. Pingback: News update | Peak Oil India | Exploring the coming energy crisis and the way forward

  8. Don Stewart says:

    Dear Gail and Finite Worlders

    A few resources to use to triangulate on the question of what you intend to do after the collapse…or before the collapse just for practice…or regardless of whether we have a collapse or not just because it is a good idea.

    First up is Samuel Alexander on The Small House. This takes off on Thoreau and many others. We have even had a ‘small house’ symposium in Chapel Hill…although I think the county still won’t give you an occupancy permit. My county was the temporary home of William Powers, who lived in a Twelve By Twelve, later lived in a tiny place with his wife in Manhattan, and has now moved to Bolivia.

    Charles Hugh Smith works the numbers and finds that only about 3 percent of those who have a job are actually independent:


    When Charles uses the word ‘independent’, he neglects the fact that if you are, say, a carpenter, you must be able to attract customers. An independent carpenter is a lot more free than a cubicle rat, but ‘independence’ is the wrong word to use.

    The Japanese movie Woman In The Dunes (which I have previously recommended) gives us a harrowing scene. The man has asked to be able to visit the sea once a day. He promises that he will not attempt to escape…but he has been constantly trying to escape in the recent past. The villagers show up in costume and tell him that they will let him visit the sea, provided he and his ‘wife’ put on a public sex show for them. The man is torn, but eventually goes into the hut and drags his wife out. They struggle, both fall exhausted, and the villagers leave. This is, I think, a Biblical-like parable about selling your soul for a mess of pottage.

    In the movies finale, the man has the means to leave, but chooses to stay. A life of work and purpose has trumped the life of mindless consumption in Tokyo…with three days off to look for bugs. Is the man independent? No, the woman told him early on that a single person cannot survive in the dunes. But neither is he a slave to corporations and mindless consumption and debt.

    Finally, I recommend the final chapters of Harari’s book Sapiens: A Brief History of Humankind. Harari makes the point that modern psychology shows that history is basically irrelevant to human happiness….there is no reason to believe that 21st century Americans are any happier than medieval peasants. Harari cites evidence that a life of purpose is more important to most people than a life of comfort and distraction….with the prime evidence being motherhood. But Harari also explores the possibility that we may be on the verge of creating a new life form which will no longer be a homo sapiens. So Harari is not an ideologue like Thoreau, but he is likely to cast grave doubts in your mind about the importance of having a McMansion.

    Don Stewart

  9. Fast Eddy says:

    Praise the lord, praise the lord – hallelujah – we are saved http://www.forbes.com/sites/joelmoser/2015/05/05/when-oil-wont-rebound/

    We must welcome such ‘journalism’ because it will ensure that the sheeple remain calm as they are herded into the pens of death post-collapse.

  10. Don Stewart says:

    Dear Gail and Finite Worlders

    I listened to a talk by Fritjof Capra last evening. Message: everything is a complex adaptive system. (Long but listen if you are interested.)


    This morning, a couple of short vignettes crossed my screen which illustrate the point about life being a complex system:


    What happens when you eat a cupcake or your kid drinks a glass of chocolate milk? When the few teaspoons of sugar land on the tongue, they trigger sugar receptors in the taste buds to send a message to the brain that yells: “MORE!” That’s because the sugar receptors tell your body you’ve eaten something sweet, which activates the reward centers of the brain and produces dopamine, the brain chemical of pleasure and satisfaction. Most of life is about managing dopamine—how to make more of it and how to not become a slave to it.

    When dopamine is released, you feel happy and any tension is temporarily eased. That’s why so many women eat sugar to change their emotional state. The problem, of course, is that the benefit is short-lived, and the pattern can become addictive. Feeling happy in response to sugar makes you want more sugar so you can keep feeling good. As the sugar moves through your gastrointestinal system, the way it holds your brain hostage continues: sugar receptors in the stomach and intestines send more feel-good signals to the brain.


    Why the Body Matters When Working with Brain Science
    Why You Can’t Just Use the Left Brain to Talk Your Way Out of Trauma

    Back to me. My point is that just talking about Peak Everything is not good enough. We have to be doing things. And we have to understand, both in our brains and in our bodies, how the whole system works. For example, ask yourself ‘what is the sugar for the corporation?’. And the answer I come up with is ‘money’. If you ask ‘what is the sugar for the Mother?’, then the answer comes up ‘a growing, thriving, child’. Therein lies the distinction which makes a difference.

    Don Stewart

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