Both the stock market and oil prices have been plunging. Is this “just another cycle,” or is it something much worse? I think it is something much worse.
Back in January, I wrote a post called Oil and the Economy: Where are We Headed in 2015-16? In it, I said that persistent very low prices could be a sign that we are reaching limits of a finite world. In fact, the scenario that is playing out matches up with what I expected to happen in my January post. In that post, I said
Needless to say, stagnating wages together with rapidly rising costs of oil production leads to a mismatch between:
- The amount consumers can afford for oil
- The cost of oil, if oil price matches the cost of production
This mismatch between rising costs of oil production and stagnating wages is what has been happening. The unaffordability problem can be hidden by a rising amount of debt for a while (since adding cheap debt helps make unaffordable big items seem affordable), but this scheme cannot go on forever.
Eventually, even at near zero interest rates, the amount of debt becomes too high, relative to income. Governments become afraid of adding more debt. Young people find student loans so burdensome that they put off buying homes and cars. The economic “pump” that used to result from rising wages and rising debt slows, slowing the growth of the world economy. With slow economic growth comes low demand for commodities that are used to make homes, cars, factories, and other goods. This slow economic growth is what brings the persistent trend toward low commodity prices experienced in recent years.
A chart I showed in my January post was this one:
The price of oil dropped dramatically in the latter half of 2008, partly because of the adverse impact high oil prices had on the economy, and partly because of a contraction in debt amounts at that time. It was only when banks were bailed out and the United States began its first round of Quantitative Easing (QE) to get longer term interest rates down even further that energy prices began to rise. Furthermore, China ramped up its debt in this time period, using its additional debt to build new homes, roads, and factories. This also helped pump energy prices back up again.
The price of oil was trending slightly downward between 2011 and 2014, suggesting that even then, prices were subject to an underlying downward trend. In mid-2014, there was a big downdraft in prices, which coincided with the end of US QE3 and with slower growth in debt in China. Prices rose for a time, but have recently dropped again, related to slowing Chinese, and thus world, economic growth. In part, China’s slowdown is occurring because it has reached limits regarding how many homes, roads and factories it needs.
I gave a list of likely changes to expect in my January post. These haven’t changed. I won’t repeat them all here. Instead, I will give an overview of what is going wrong and offer some thoughts regarding why others are not pointing out this same problem.
Overview of What is Going Wrong
- The big thing that is happening is that the world financial system is likely to collapse. Back in 2008, the world financial system almost collapsed. This time, our chances of avoiding collapse are very slim.
- Without the financial system, pretty much nothing else works: the oil extraction system, the electricity delivery system, the pension system, the ability of the stock market to hold its value. The change we are encountering is similar to losing the operating system on a computer, or unplugging a refrigerator from the wall.
- We don’t know how fast things will unravel, but things are likely to be quite different in as short a time as a year. World financial leaders are likely to “pull out the stops,” trying to keep things together. A big part of our problem is too much debt. This is hard to fix, because reducing debt reduces demand and makes commodity prices fall further. With low prices, production of commodities is likely to fall. For example, food production using fossil fuel inputs is likely to greatly decline over time, as is oil, gas, and coal production.
- The electricity system, as delivered by the grid, is likely to fail in approximately the same timeframe as our oil-based system. Nothing will fail overnight, but it seems highly unlikely that electricity will outlast oil by more than a year or two. All systems are dependent on the financial system. If the oil system cannot pay its workers and get replacement parts because of a collapse in the financial system, the same is likely to be true of the electrical grid system.
- Our economy is a self-organized networked system that continuously dissipates energy, known in physics as a dissipative structure. Other examples of dissipative structures include all plants and animals (including humans) and hurricanes. All of these grow from small beginnings, gradually plateau in size, and eventually collapse and die. We know of a huge number of prior civilizations that have collapsed. This appears to have happened when the return on human labor has fallen too low. This is much like the after-tax wages of non-elite workers falling too low. Wages reflect not only the workers’ own energy (gained from eating food), but any supplemental energy used, such as from draft animals, wind-powered boats, or electricity. Falling median wages, especially of young people, are one of the indications that our economy is headed toward collapse, just like the other economies.
- The reason that collapse happens quickly has to do with debt and derivatives. Our networked economy requires debt in order to extract fossil fuels from the ground and to create renewable energy sources, for several reasons: (a) Producers don’t have to save up as much money in advance, (b) Middle-men making products that use energy products (such cars and refrigerators) can “finance” their factories, so they don’t have to save up as much, (c) Consumers can afford to buy “big-ticket” items like homes and cars, with the use of plans that allow monthly payments, so they don’t have to save up as much, and (d) Most importantly, debt helps raise the price of commodities of all sorts (including oil and electricity), because it allows more customers to afford products that use them. The problem as the economy slows, and as we add more and more debt, is that eventually debt collapses. This happens because the economy fails to grow enough to allow the economy to generate sufficient goods and services to keep the system going–that is, pay adequate wages, even to non-elite workers; pay growing government and corporate overhead; and repay debt with interest, all at the same time. Figure 2 is an illustration of the problem with the debt component.
Where Did Modeling of Energy and the Economy Go Wrong?
- Today’s general level of understanding about how the economy works, and energy’s relationship to the economy, is dismally low. Economics has generally denied that energy has more than a very indirect relationship to the economy. Since 1800, world population has grown from 1 billion to more than 7 billion, thanks to the use of fossil fuels for increased food production and medicines, among other things. Yet environmentalists often believe that the world economy can somehow continue as today, without fossil fuels. There is a possibility that with a financial crash, we will need to start over, with new local economies based on the use of local resources. In such a scenario, it is doubtful that we can maintain a world population of even 1 billion.
- Economics modeling is based on observations of how the economy worked when we were far from limits of a finite world. The indications from this modeling are not at all generalizable to the situation when we are reaching limits of a finite world. The expectation of economists, based on past situations, is that prices will rise when there is scarcity. This expectation is completely wrong when the basic problem is lack of adequate wages for non-elite workers. When the problem is a lack of wages, workers find it impossible to purchase high-priced goods like homes, cars, and refrigerators. All of these products are created using commodities, so a lack of adequate wages tends to “feed back” through the system as low commodity prices. This is exactly the opposite of what standard economic models predict.
- M. King Hubbert’s “peak oil” analysis provided a best-case scenario that was clearly unrealistic, but it was taken literally by his followers. One of Hubbert’s sources of optimism was to assume that another energy product, such as nuclear, would arise in huge quantity, prior to the time when a decline in fossil fuels would become a problem.
The way nuclear energy operates in Figure 2 seems to me to be pretty much equivalent to the output of a perpetual motion machine, adding an endless amount of cheap energy that can be substituted for fossil fuels. A related source of optimism has to do with the shape of a curve that is created by the sum of curves of a given type. There is no reason to expect that the “total” curve will be of the same shape as the underlying curves, unless a perfect substitute (that is, having low price, unlimited quantity, and the ability to work directly in current devices) is available for what is being modeled–here fossil fuels. When the amount of extraction is determined by price, and price can quickly swing from high to low, there is good reason to believe that the shape of the sum curve will be quite pointed, rather than rounded. For example we know that a square wave can be approximated using the sum of sine functions, using Fourier Series (Figure 4).
- The world economy operates on energy flows in a given year, even though most analysts today are accustomed to thinking on a discounted cash flow basis. You and I eat food that was grown very recently. A model of food potentially available in the future is interesting, but it doesn’t satisfy our need for food when we are hungry. Similarly, our vehicles run on oil that has recently been extracted; our electrical system operates on electricity that has been produced, essentially simultaneously. The very close relationship in time between production and consumption of energy products is in sharp contrast to the way the financial system works. It makes promises, such as the availability of bank deposits, the amounts of pension payments, and the continuing value of corporate stocks, far out into the future. When these promises are made, there is no check made that goods and services will actually be available to repay these promises. We end up with a system that has promised very many more goods and services in the future than the real world will actually be able to produce. A break is inevitable; it looks like the break will be happening in the near future.
- Changes in the financial system have huge potential to disrupt the operation of the energy flow system. Demand in a given year comes from a combination of (wages and other income streams in a given year) plus the (change in debt in a given year). Historically, the (change in debt) has been positive. This has helped raise commodity prices. As soon as we start getting large defaults on debt, the (change in debt) component turns negative, and tends to bring down the price of commodities. (Note Point 6 in the previous section.) Once this happens, it is virtually impossible to keep prices up high enough to extract oil, coal and natural gas. This is a major reason why the system tends to crash.
- Researchers are expected to follow in the steps of researchers before them, rather than starting from a basic understudying of the whole problem. Trying to understand the whole problem, rather than simply trying to look at a small segment of a problem is difficult, especially if a researcher is expected to churn out a large number of peer reviewed academic articles each year. Unfortunately, there is a huge amount of research that might have seemed correct when it was written, but which is really wrong, if viewed through a broader lens. Churning out a high volume of articles based on past research tends to simply repeat past errors. This problem is hard to correct, because the field of energy and the economy cuts across many areas of study. It is hard for anyone to understand the full picture.
- In the area of energy and the economy, it is very tempting to tell people what they want to hear. If a researcher doesn’t understand how the system of energy and the economy works, and needs to guess, the guesses that are most likely to be favorably received when it comes time for publication are the ones that say, “All is well. Innovation will save the day.” Or, “Substitution will save the day.” This tends to bias research toward saying, “All is well.” The availability of financial grants on topics that appear hopeful adds to this effect.
- Energy Returned on Energy Investment (EROEI) analysis doesn’t really get to the point of today’s problems. Many people have high hopes for EROEI analysis, and indeed, it does make some progress in figuring out what is happening. But it misses many important points. One of them is that there are many different kinds of EROEI. The kind that matters, in terms of keeping the economy from collapsing, is the return on human labor. This type of EROEI is equivalent to after-tax wages of non-elite workers. This kind of return tends to drop too low if the total quantity of energy being used to leverage human labor is too low. We would expect a drop to occur in the quantity of energy used, if energy prices are too high, or if the quantity of energy products available is restricted.
- Instead of looking at wages of workers, most EROEI analyses consider returns on fossil fuel energy–something that is at least part of the puzzle, but is far from the whole picture. Returns on fossil fuel energy can be done either on a cash flow (energy flow) basis or on a “model” basis, similar to discounted cash flow. The two are not at all equivalent. What the economy needs is cash flow energy now, not modeled energy production in the future. Cash flow analyses probably need to be performed on an industry-wide basis; direct and indirect inputs in a given calendar year would be compared with energy outputs in the same calendar year. Man-made renewables will tend to do badly in such analyses, because considerable energy is used in making them, but the energy provided is primarily modeled future energy production, assuming that the current economy can continue to operate as today–something that seems increasingly unlikely.
- If we are headed for a near term sharp break in the economy, there is no point in trying to add man-made renewables to the electric grid. The whole point of adding man-made renewables is to try to keep what we have today longer. But if the system is collapsing, the whole plan is futile. We end up extracting more coal and oil today, in order to add wind or solar PV to what will soon become a useless grid electric system. The grid system will not last long, because we cannot pay workers and we cannot maintain the grid without a financial system. So if we add man-made renewables, most of what we get is their short-term disadvantages, with few of their hoped-for long-term advantages.
The analysis that comes closest to the situation we are reaching today is the 1972 analysis of limits of a finite world, published in the book “The Limits to Growth” by Donella Meadows and others. It models what can be expected to happen, if population and resource extraction grow as expected, gradually tapering off as diminishing returns are encountered. The base model seems to indicate that a collapse will happen about now.
The shape of the downturn is not likely to be correct in Figure 5. One reason is that the model was put together based on physical quantities of goods and people, without considering the role the financial system, particularly debt, plays. I expect that debt would tend to make collapse quicker. Also, the modelers had no experience with interactions in a contracting world economy, so had no idea regarding what adjustments to make. The authors have even said that the shapes of the curves, after the initial downturn, cannot be relied on. So we end up with something like Figure 6, as about all that we can rely on.
If we are indeed facing the downturn forecast by Limits to Growth modeling, we are facing a predicament that doesn’t have a real solution. We can make the best of what we have today, and we can try to strengthen bonds with family and friends. We can try to diversify our financial resources, so if one bank encounters problems early on, it won’t be a huge problem. We can perhaps keep a little food and water on hand, to tide us over a temporary shortage. We can study our religious beliefs for guidance.
Some people believe that it is possible for groups of survivalists to continue, given adequate preparation. This may or may not be true. The only kind of renewables that we can truly count on for the long term are those used by our forefathers, such as wood, draft animals, and wind-driven boats. Anyone who decides to use today’s technology, such as solar panels and a pump adapted for use with solar panels, needs to plan for the day when that technology fails. At that point, hard decisions will need to be made regarding how the group will live without the technology.
We can’t say that no one warned us about the predicament we are facing. Instead, we chose not to listen. Public officials gave a further push in this direction, by channeling research funds toward distant theoretically solvable problems, instead of understanding the true nature of what we are up against. Too many people took what Hubbert said literally, without understanding that what he offered was a best-case scenario, if we could find something equivalent to a perpetual motion machine to help us out of our predicament.
Important report from the Global Climate Change, Human Security & Democracy, Orfalea Center for Global & International Studies, University of California, Santa Barbara, California.
Titled “Peak Energy, Climate Change, and the Collapse of Industrial Civilization: The Current Peak Oil Crisis” and completed in 2010, it has just been released. (!)
The report echoes Gail’s analysis and should be required reading. Even just reading the executive summary, you’ll see how explosive this knowledge is.
the report has actually been published in Oct.2010, and was cited in some websites, such as Resilience (http://www.resilience.org/stories/2010-12-15/peak-energy-climate-change-and-collapse-global-civilization-current-peak-oil-cris).
It seems to have been slightly revised in 2012 or 2013 (se e.g. http://worldnewstrust.com/peak-energy-climate-change-and-the-collapse-of-global-civilization-tariel-morrigan), but not recently.
Would you know about any reason for it to reappear today?
(my quick research gave nothing)
“If the international community does not make a transcendent effort to cooperate to manage the transition to a non-oil based economy, it may risk a volatile, chaotic, and dangerous collapse of the global economy and world population.”
Sounds great!!! A little short on details though…..
What democracy the bought politicians of the US? EU?
Yup a good summary. Just what Gail has been saying. I do find it assuming just because some yahoo puts up a stone inn Georgia that says 0.5 billion carrying capacity it starts getting used in university papers. I go with Alpert 0.1 billion.
Thanks for the link, but googling the author name, you find plenty of links about the report/book in 2010/2011.
Message to Gail : the number of comments on your blog is impressive !
And when one wants to start reading a discussion from the last message it isn’t very easy. A suggestion : maybe you could add the standard “last comments” wordpress widget in the right column so that one can jump to the last ones directly ?
I hadn’t thought of that. There are so many comments, it hadn’t occurred to me that it would be useful.
I could add it further down on the right bar, if it is helpful. In fact, I just added it now, to show the last 15 comments, if you look way down to the right on the side bar.
Thanks a lot it will help quite a bit !
(browsing through pages of “new comments” when returning to a discussion can get heavy).
No jobs for me here in the US. Can I be a refugee to Sweden?
Watching the Walking Dead, quote, “We gotta start over, fuck the way it was.”
Europe was not able to reproduce. The Islamic nations from Indonesia to Morocco have been successful at reproduction. Many Islamic nations from Egypt to Palestine to Iraq to Syria to Iran has a history of university that predates the European university systems. How will Europe use the human resources of the Islamic nations to replenish its depleted workforce?
Europe needs to ban all forms of birth control – the battle is otherwise uneven… 🙂
I had a student from Germany here in New York for a year. Her parents were middle class to upper middle class both working. She is now about 25. She never went to university nor worked. She spends her time traveling around the 3rd world and partying with her friends in Germany. Someone has to do the work.
PV could be used as a fossil fuel extender in places that use natural gas to fire electric generation. Four the six hours a day that is bright and sunny the natural gas fired plants can be turned down to 10% saving 90% of natural gas consumption for six hours each day that is sunny. Just need to know the cost of the PV panels, stands, transmission towers, electric conditioning equipment, maintenance and compare it to the cost of saved natural gas. Even if it costs more we must add in PVs favor the benefit of extending the system.
I partly agree. I can’t see PV extending BAU because build up time is too long and collapse is too close. However I can see possibility for personal use. I’ve purchased 10 panels of 235 watts each and plan on ordering nickel iron batteries with the idea that I’ll at least have lights, pumps and use of my power tools while we transition back to a medieval existence. If we are lucky.
“However I can see possibility for personal use. I’ve purchased 10 panels of 235 watts each and plan on ordering nickel iron batteries with the idea that I’ll at least have lights, pumps and use of my power tools while we transition back to a medieval existence.”
Congrats! You won’t be living a medieval existence with that set up. You will be like the Wizard!
LED bulbs do last like 20 years. and those batteries, although not the most efficient are just awesome for longevity. You can’t kill them.
“Congrats! You won’t be living a medieval existence with that set up. You will be like the Wizard!”
yes, all lit up at night and annoucing to the neighbors and any passersby that you have electricity and perhaps other goodies of value. better have your security systems powered up as well, as we transition back toward medieval.
My worst nightmare is groups of starving children showing up.
“PV could be used as a fossil fuel extender in places that use natural gas to fire electric generation.”
That is actually the plan. The trick is to have solar and wind competitive in price so it is an investment. You also need to drive the price of storage down and the related components, and a few other things.
There isn’t an easy button. It is a lot of hard work.
“PV could be used as a fossil fuel extender in places that use natural gas to fire electric generation.” — No PV is intermittent and NG is dependable. The reverse is actually more true: that one has to add more NG fired power plants as one adds PV power to the grid to stabilize the grid as PV is not continuous power. Germany is running into this exact problem.
“Germany is running into this exact problem.”
Germany’s IS running into frequency regulation (balancing) issues. You are right. We have already started to address them in the US with multiple strategies.
As I understand it, they are replacing their old diesel peaker plants with new NG peaker plants.
Their quandry is, they have to depend on Russia for NG which they are already depending on russia for oil.
The other easy way around it would have been to upgrade their coal facilities and add storage to the grid. In fact, it wouldn’t surprise me if the storage component was taken out of the original legislation in order to handicap it, I vaguely recall that it was with the excuse of it costs too much. It probably ended up costing them more not to do it since they still haven’t fixed the problem.
Natural gas is an expensive foreign imported fuel for Germany, while coal is locally produced and usually fairly cheap. And the natural gas supplier may not be dependable, as you are aware. Germany really needs to consider the cost of the whole system; we do too.
I don’t think PV extends the system at all. The system fails when it fails–likely due to financial problems that make it impossible to get needed replacement parts for the grid, and perhaps prevent workers from being paid. There will still be lots of natural gas still in the ground when the system fails.
PV may have some use apart from the grid, but someone need to plan for this to be the case.
“PV may have some use apart from the grid, but someone need to plan for this to be the case.”
NY is planning on supporting like 83 microgrids. NY went distributed with microgrids, and California went big as Caiso is in 13 states now. India’s 175gw renewable program is mostly microgrids.
It isn’t huge in the states today, because the laws don’t support it at a state or local level.
“The growth of microgrids in North America may reach 2.8 GW within five years, enough to power about 650,000 homes, up from about 1.2 GW today. “
The US started with a system of micro grids, before someone got the idea of selling electricity from area to area. One example from the article you link to talks about using wind and solar with back up batteries. I expect this will be pretty rare for the many micro grids the article mentions. Most micro grids will be natural gas based, I expect, or perhaps wood chip burning, if they are in an area with a lot of wood chips. The problem will be keeping the whole system operating–delivering the natural gas to the micro grids; getting enough wood chips made and delivered to the wood chip burning plant; repairing the batteries of the grids using wind and solar PV; and repairing the power distribution lines of any of these systems. If the micro-grid is free standing, it has the advantage of not being affected by an overall power outage. But if the source of natural gas is lost, or if batteries can’t be repaired, it is no better off than any other type of generation.
“U.S. Solar PV Electricity: Trickle Flow”
“Interest in hybrid vehicles wanes”
““U.S. Solar PV Electricity: Trickle Flow”
The Official US government data only reports commercial installations larger then 1mw.
The solar energy industry association includes most residential:
“The U.S. installed 1,393 megawatts (MW) of solar photovoltaics (PV) in the second quarter of 2015 to reach 22.7 gigawatts (GW) of total installed capacity, enough to power 4.6 million American homes. The residential market had another record quarter, with 70 percent growth year-over-year, while the utility-scale segment dominated again with 729 megawatts (MW) of installed capacity.”
Germany installed 1,890MW for all of 2014. The US installed 1,394 mw in Q2 2015.
““Interest in hybrid vehicles wanes”
A slanted article at best, trying to hype of NG vehicles. The Hybrid/EV marketshare in the US hasn’t dipped below 2% of the marketshare, and the last 2 months has creeped to almost 3%.
And ironically enough the US isn’t the biggest market for them. China, the US, EU/UK, “rest of the world”, are all about the same, but the “rest of the world”‘s market grew by 40% last year.
BTW Wyoming is one of the top 10 natural gas-producing states in the nation. So they are really lobbying for their industry.
RE is a trickle when we need a fire hose.
There are four reasons why we are converging on collapse;
Yes, Limits to Growth is one.
‘Why are we waiting’ by Nicholas Stern, accelerating global warming.
The Technology Singularity, Strong Artificial Intelligence, Robotics and the disappearance of work.
A revolutionary situation but our elite has too many tools for the revolution to succeed. It’s a Surveillance and Security State.
What’s the time scale? I think 20 years, plus/minus ten.
If someoneone can make controlled fusion work, cheap energy would postpone the crisis.
“What’s the time scale? I think 20 years, plus/minus ten.”
That is about when the US has issues with NG production from fracked sources iirc.
I am most worried about a stable energy supply, and then global warming, the security state. The robotics and intelligence, is inevitable. I can see areas of the world crashing economically. In some cases especially dictator controlled countries, there isn’t much you can do about it.
“If someone can make controlled fusion work, cheap energy would postpone the crisis.”
Stanford supposedly got it to work so it was energy neutral. (they claimed energy positive by like .00000000000001 watt). It will be a while, and quite honestly, the cost of fusion may actually be more expensive then the alternatives. If you are worried about a police state, having government controlled fusion reactors is probably not a step you really want to take either.
Installing solar and going off-grid is probably the most sane way to do it, if you are worried about the police state or a looming crash. It is just about the only way to do it at this point.
On the bright side, we are driving the cost of batteries down, so those should be more reasonably priced in a couple of years. Both utilities and auto manufacturers are carrying the bulk of that market.
I think it depends where you live. If you are from Macedonia or Egypt, Iraq, Syria, Lybia, etc. then collapse is already here. Fusion has always been 10 years away and at this late stage of the game it really doesn’t matter. I think the USA has maybe 2 or 3 decent years (5 at the most). Everything is just maxed out right now especially the network that makes it all work: the global financial system.
That’s a link to a YouTube video ‘The Saboteurs of Telemark’ that explains the story I told above about what happened to the Nazi’s heavy water in WWII.
That story is being spun as a positive…. as in ‘because China was a communist country for so many years they had a lot of catching up to do….’
They conveniently ignore all of this http://davidstockmanscontracorner.com/the-great-china-ponzi-an-economic-and-financial-trainwreck-which-will-rattle-the-world/
Too big to fail all over again…this time it is China!
The coal isn’t surprising. But, the concrete and metal consumption is a real eye opener. Could a person say China is too big to fail?
Fail? no. They might need to reorganize though.
Now you know where bankers rule.
• UN Votes For New Debt Rules But UK, US Try To Block (Jubilee Debt Campaign)
The United Nations General Assembly has voted to accept new rules to guide sovereign debt restructurings. At a vote in New York on Thursday evening, the set of nine principles were adopted with 136 votes in favour, just 6 against and 41 abstentions. However, implementation of the principles is in doubt as the majority of international debt is governed by US or UK law. Both the US and UK were amongst the just six countries which voted against. The other four countries which voted against were Canada, Germany, Israel and Japan.
It sounds to me like the small debtor nations coming and asking to be treated better, and those holding the strings saying, “No.”
UK, US, Israel the axis of usury evil in the world with the losers of WWII the toads Germany and Japan. Canada well Jan what up with that?
Gal, so sad that you felt the need to delete all my posts. I have been all over the UK net with the new insight that it Is an act of aggression to accuse one of immorality and that it should be retaliated in kind. So sorry if that did not reflect well on you but everyone else heard it clear. So sorry for you that you personally felt the need to delete all my posts.
The following suggests the stimulus after 2008 have not worked to the extent expected due to persistent structural causes. I wonder if the people that write these type of articles will eventually realize the structural problem is due to diminishing returns.
Wolf Richter http://www.wolfstreet.com http://www.amazon.com/author/wolfrichter
“To the never-ending astonishment of our economists, global growth has been much weaker since the Financial Crisis than before it, despite enormous global stimulus from years of extreme central-bank monetary policies and record amounts of government deficit spending.
This should not have happened, according to our economists. Fiscal stimulus and expansionary monetary policies beget economic growth, which beget even more economic growth. That’s the theory. And that’s precisely what hasn’t happened. All it did was inflate asset prices. But the global economy has been a dud.
“If we calculated global growth with China’s true growth rate and not the official rate, global growth in the second quarter of 2015 would be only 2%,” figured Natixis, the investment bank of France’s second largest megabank, Groupe BPCE.
This “sluggish growth, close to a recession, is due to persistent, structural causes; we therefore use the term ‘structural recession’ to show that it does not have a cyclical origin,” the report explained. It’s not caused by normal cyclical fluctuations, but by “persistent structural problems that are specific to each region.”
The stimulus of 2008 “worked” for those who it was intended to work, which is to say those in the financial and investment community whose investments it was meant to re-inflate. There has been no “real growth” in the interim, since no “real growth” is possible in a world of diminishing energy returns. I know it’s helpful to rephrase this as we turn it over and over in our minds, but Gail has really covered all this ad infinitum.
“The following suggests the stimulus after 2008 have not worked to the extent expected due to persistent structural causes. I wonder if the people that write these type of articles will eventually realize the structural problem is due to diminishing returns.”
I agree it is diminishing returns. However, it does appear to be solvable.
If you look at California’s GDP it has grown 10% since 2009, or 5% from the peak before the dip..
They have increased manufacturing, and exports. They supposedly have a surplus in their state budget. I read somewhere it was essentially all the states who did the renewable energy were economically doing better then the ones who keep fighting it. I am not going to and poke through the data to verify it.
Perhaps the most accurate description of the current crisis over gas, oil and pipelines that is raging in Syria has been described by Dmitry Minin, writing for the Strategic Cultural Foundation in May 2013:
“A battle is raging over whether pipelines will go toward Europe from east to west, from Iran and Iraq to the Mediterranean coast of Syria, or take a more northbound route from Qatar and Saudi Arabia via Syria and Turkey. Having realized that the stalled Nabucco pipeline, and indeed the entire Southern Corridor, are backed up only by Azerbaijan’s reserves and can never equal Russian supplies to Europe or thwart the construction of the South Stream, the West is in a hurry to replace them with resources from the Persian Gulf. Syria ends up being a key link in this chain, and it leans in favor of Iran and Russia; thus it was decided in the Western capitals that its regime needs to change.
The Guardian reported in August 2013:
“Assad refused to sign a proposed agreement with Qatar and Turkey that would run a pipeline from the latter’s North field, contiguous with Iran’s South Pars field, through Saudi Arabia, Jordan, Syria and on to Turkey, with a view to supply European markets – albeit crucially bypassing Russia. Assad’s rationale was ‘to protect the interests of [his] Russian ally, which is Europe’s top supplier of natural gas.’”
Much of the strategy currently at play was described back in a 2008 U.S. Army-funded RAND report, “Unfolding the Future of the Long War”:
“The geographic area of proven oil reserves coincides with the power base of much of the Salafi-jihadist network. This creates a linkage between oil supplies and the long war that is not easily broken or simply characterized. … For the foreseeable future, world oil production growth and total output will be dominated by Persian Gulf resources. … The region will therefore remain a strategic priority, and this priority will interact strongly with that of prosecuting the long war.”
In this context, the report identifies the divide and conquer strategy while exploiting the Sunni-Shiite divide to protect Gulf oil and gas supplies while maintaining a Gulf Arab state dominance over oil markets.
“Divide and Rule focuses on exploiting fault lines between the various Salafi-jihadist groups to turn them against each other and dissipate their energy on internal conflicts. This strategy relies heavily on covert action, information operations (IO), unconventional warfare, and support to indigenous security forces. … the United States and its local allies could use the nationalist jihadists to launch proxy IO campaigns to discredit the transnational jihadists in the eyes of the local populace. … U.S. leaders could also choose to capitalize on the ‘Sustained Shia-Sunni Conflict’ trajectory by taking the side of the conservative Sunni regimes against Shiite empowerment movements in the Muslim world…. possibly supporting authoritative Sunni governments against a continuingly hostile Iran.”
Well it is indeed ‘The Long War’; it might take its place alongside the Hundred Years War, Thirty Years War, the War to End All Wars, and the Great Patriotic War……if there is anyone left to recall any of this, which one doubts.
The Long War will be fought within the context of the Long Emergency. In fact, will be a symptom of the Long Emergency. There will be no winners.
it is getting still harder to get oil and coal out of the ground. Can you with your mathematical/statistical capacity figure out how much energy is left to use for the world with low production prices (before 1972 approx, 20 USD/barrel) and how much energy is left to use with high production prices (say 80 USD/barrel)?
With net energy I mean production minus energy invested in production. Therefore, the net energy must be higher with low prices (little energy/money invested) compared to high prices (much energy/much money invested).
I am far more worried about how much debt it takes to get oil and coal out of the ground than how much energy it takes to get oil out of the ground.
The amount of oil that will be left in the ground looks like it will be virtually all of it, regardless of whether the oil price is $80 per barrel of $20 per barrel. The problem is that the system is very close to breaking.
The whole idea of net energy, and various amounts that will be available at different prices is badly flawed, in my mind. It sounds like an engineer trying to figure out what the system looks like, when the system is governed by different factors than the engineer really understands. Charlie Hall is currently quite unhappy with me, BTW.
“The problem is that the system is very close to breaking.”
“A Major Bank Just Made Global Financial “Meltdown” Its Base Case: “The Worst The World Has Ever Seen”
Thanks! The China situation is a real concern.
Charles Hugh Smith wrote an interesting blog titled: ” The Decline of Oil: Head-Fake or New Normal? When production does finally collapse, that will set up the “nobody saw this coming” ramp in the price of oil.”
Roadster, Fantastic piece of work and thank you for posting. This explains very simply and to the point. Will make copies and share this article to others so they can ignore.
Says what Gail is writing, but in a different style.
Hope others take note.
I looked at Charles Hughes Smith’s article. I agree that he makes good points about why prices will remain low for a while. I disagree with him, however, on whether prices will bounce back up, once supply drops–in other words, this is just a “head fake”. I think the economy is too much damaged, and the debt problems too severe for more than a small bounce up to occur–certainly not enough to get and hold production up. CHS also seems to have more faith in the possibility of low prices being less damaging to low prices than I think they are.
Commodity prices have been at very low levels for many months now — and in spite of that we are not seeing any stimulative effect on the global economy — in fact just the opposite — we are sinking… http://wolfstreet.com/2015/09/07/us-corporate-revenue-recession-spreads-past-dollar-energy/
Glencore is closing copper mines in an effort to reduce supply and drive prices up … clearly that will not work because the problem is primarily one of demand…. and when it comes to demand … it is all about China….
The only way I could see any sort of recovery in commodity prices would be if there were massive new stimulus initiated in China…
That does not seem likely given http://davidstockmanscontracorner.com/the-great-china-ponzi-an-economic-and-financial-trainwreck-which-will-rattle-the-world/
Commodity producers could reduce supplies across the board — but that would mean mass layoffs… which would accelerate the deflationary death spiral because layoffs further reduce demand which leads to more layoffs….
The system must grow or it will die…. cutting back on commodity production is not at all helpful.
If the fed does QE4 and commodity prices stay low then, I think the end is nigh.
The system must grow or die–that is pretty much what I am saying in my new post.
“The system must grow or die–that is pretty much what I am saying in my new post.”
Sometimes you need to prune the old growth off the bush in order to make room for new blossoms to grow.
Pruning doesn’t work with a Ponzi Scheme though. The whole system crashes.
Thanks you, Gail, on your clarification of the “details” in his writing and your position.
We are posed for interesting times.
Perhaps some major military engagement will set things back on “course”.
In Ben Roth’s account of the Depression he repeatedly brings up his amazement of the growing federal debt of about 40 billion early 1940’s and how it rose spectacularly to 54 billion due to the war with little inflation. The theme comes up again and again.
Beware of stocks and the personal accounts in his diary are riveting and the lessons he learned from its rise and fall several times in that period.
Of course, we have a whole different ball of wax today as you are stressing.
Well, investors in the world equity markets shouldn’t start doing a victory lap just yet (based on recent market upticks due to stimulus talk and or action). The Dow was up most of the day until it couldn’t remain inflated and then did a gradual swan dive, deflating -239 points. Since all the other world stock markets take their cue from the US, expect them to dump whenever they open, tonight or tomorrow.
This is typical ‘bear market’ behavior, in which after a lot of stocks get sold and the indexes are way down, investors (many with no more sophistication than a cab driver) dip back in like they have these past few days thinking there is room to make money on a the upswing. The problem with a bear market, and it hasn’t necessarily proven it is one yet, but if it is, then the recent upswing was just a temporary burst of optimism. My guess is it is definitely a bear market with lots of room to the downside.
Something to watch is the last 2 minutes of each trading day. It either goes up a lot or down a lot because those trades are made by computers that were programmed earlier in the day to make all those trades in that brief period of time. One day I checked and in the last 2 minutes the Dow dumped 50 points – in 2 minutes?!?! My theory is those are the big boys, i.e. the one’s that know where things are headed. They don’t set a computer to make x thousands of trades worth billions of dollars in those last moments of trading based on a prayer. So looking to end of day trading trend and lately it’s been bear.
Oil price on the other hand seems stable right where it is.
It didn’t take long for Madrid to hit back, this time with a barely veiled threat from the Ministry of Defense that a military intervention in Spain’s north-eastern province would not be needed “as long as everybody fulfils their duties.”
A good example of how — when BAU collapses — if there is anything left to fight over — the fight will be local — centralized control will end because ‘military intervention’ requires petrol…. and there won’t be any once strategic reserves are gone….
The Spanish Army – and the Legion with its Arab troops – did a lot with just bayonets in 1936 to 1939. No tanks needed for killing civilians and women and children, believe me.
I believe the Romans were reduced to paying soldiers in beans? So there you go: knife in hand, paid in beans: a soldier!
Every year, another threat from the Generals in Spain: pretty dumb idea to tell the soldiers they are ‘upholders of the Constitution’, rather than protectors against foreign aggression, which is their proper role in society.
Had a nice discussion along these same lines with a local acquaintance today whom I think I finally convinced that we’re about to be in some deep shit. The main question – just as it always is – is how fast does it all go down? If BAU goes down over the period of months or years locally (and we happen to inhabit a VERY strategic location), then it will be reasonable to expect some continuity in operations. If it happens much quicker than that, all bets are off of course.
My points were likewise, soldiers owe their allegiance to entities far away and in economic terms that may or may not be meaningful at the time. They can pretty much be relied upon to renege on their oaths once they realize that.
I talk to a number of people as well that feel that financially this country is in a lot of trouble. They don’t connect it to energy though. If I feel a person may be receptive to more in depth discussion I mention how energy and resources are what power the economy and they are subject to diminishing returns. Surprisingly a lot of people have an Ahhh Haaa moment. Then the next question is what is the solution. Which there really isn’t one. And that leaves them perplexed.
“Then the next question is what is the solution. Which there really isn’t one. And that leaves them perplexed.”
I think alternatives and electric cars are the answer. It is new products with new innovations that are possible, which keeps people employed, and it isn’t up against the diminishing returns wall.
The current problem as I see it, the financial markets aren’t really sure what is going on. You have China with like 10% renewable added, and they are increasing the efficiency of everything. The US, Britain, EU, all have pretty much done the same. So we are using less energy which creates a glut and drops prices, then other commodity prices drop, because the energy input costs less.
So deflation in a way.. but I am still going with a disruptive market correction, because we are still innovating and have new products that are worth buying. Not ot mention the GDP was up 2.5% in the US last quarter, mostly driven by consumer spending. Globally, it is probably more of deflation and recession. When you look at Russia, Venezuela, etc. they are all nailed because of low oil prices.
What I have shown is that alternatives need to be really cheap and essentially self-financing–the users can generate such great profits that there is no problem with maintaining the grid. The alternatives you are talking about don’t meet these requirements.
All of our economies are “nailed” because of low oil prices, and by low commodity prices in general. The US isn’t any different from anyone else. I noticed today that Iraq is planning to close down oil operations, except for maintenance, as of the beginning of 2016, because of low oil prices. The article, “Iraq Warns Oil Companies of Spending Cuts,” is behind the WSJ pay wall, but you may be able to get it by Googling the title.
The Dow seemed to have a 500 point swing today! Up 250 points early and down 250 points in afternoon because of the “employment’ picture and a possible fed rate hike! Crazy times and every financial move is on the razors edge!
Here is an interesting article about why power density matters:
In a world dominated by human density, you bet your ass that energy density matters!
Regardless of how much stimulus the East uses to juice equity markets, the oil price shown at the above link is less than needed to secure future supply. The low hanging fruit is gone and what is left is much more expensive to extract and bring to market.
It may even be that current oil prices helps the world economy to stave off collapse for a while, but it does so by sacrificing existing supply without doing the work necessary to secure future supply. What happens when supply runs short, supply & demand forces drive up oil price, but hit the consumer affordability ceiling again, and probably at a much lower than it was before? Demand drops driving price down below what is needed to get the more expensive oil sources? What happens is an acceleration of production from ‘existing’ supply… No amount of stimulus or optimism by investors in juiced equity markets will make up for the conundrum of how to run a modern, complex civilization on an energy supply increasingly dependent on ‘past’ efforts.
Correction: The sentence “Demand drops driving price down below what is needed to get the more expensive oil sources?” The ? should be replaced with a period.
Another factor deepens the eventual crisis triggered by drastically lower oil revenues. The majority of exporting nations under-invest in their oil production and exploration infrastructures, essentially guaranteeing declining production once the easy oil has been extracted.
This cycle of spending the fruits of current production while starving investment for the future is part of what is known as the resource curse: nations with an abundance of resources rely on the income generated by the sale of their resources which effectively stunts the development of a diverse economy and the institutions which such a diverse economy requires as a foundation.
The net result of the resource curse is national impoverishment as the resources are depleted. Diverting the majority of the oil revenues to support welfare states and Elites dooms the oil exporters to under-investment in future production.
In other words, the decline in the price of oil does not mean oil will remain cheap for years to come; it’s a head-fake that fools the unwary into assuming the glut is The New Normal.
The above post is from Zero Hedge. We don’t often see good insight into the oil bus. on that site, but the above pasted material is quite good. They understand this drive to sell all available oil in this market share war which is reducing funds available to secure future supply.
I agree with your analysis. The energy extraction industry is very large and it seems to me to not be very agile. It seems like it is taking many months for price signals to show up in the supply curves. I too feel that we are running on fumes of past discoveries and that we will soon run down reserves if prices do not recover. My fear is that even if prices do recover, would it not take a number of months to spin production back up? Would that interim period of shortages be filled with such chaos and violence that oil production never recovers?
Matt Simmons once spoke of panic buying of fuel; people would all top off their gas tanks. I believe he called it a run on the energy bank. I remember he was also saying how that alone would put such a burden on the fuel supply that it would take weeks to recover even under normal circumstances.
Matt Simmons was modeling the reverse problem–not enough oil, rather than not enough buyers of oil.
Our problem isn’t just oil prices; it is commodity prices in general. I can’t see that we are ever going to get them back up far enough, for long enough, to fix anything. I need to write a post on the reasons why.
“Our problem isn’t just oil prices; it is commodity prices in general.”
Because of our over dependence on oil, anything that happens in the oil market affects commodity prices as well. It is a ripple effect that spills into the grain markets as well as many others I am sure.
Oil prices are probably not going to go back up. I don’t see anyone willing to stop pumping if they are making money at it. With the hybrid/EV market solidly sitting at 2-3% of the US market share with low gas prices, and that is roughly 1/4 of the growing world market. It is a catch-22 position. If you raise oil prices, more people start to use alternatives, and you will be stuck with oil in the ground you can’t sell. I think just the confidence in EVs in the consumers eyes with the next generation coming out, is probably going to attract more customers.
Oil is also losing ground to NG in the electric sector.
“It may even be that current oil prices helps the world economy to stave off collapse for a while, but it does so by sacrificing existing supply without doing the work necessary to secure future supply.”
Technically we are working on “future supply” with renewable energy. By driving the price of renewable energy down. It becomes cost competitive with the traditional sources.
At some point, it will make little sense to invest in traditional sources.
It is a glass half empty, half full scenario. The FF people have already shifted their hard stance from it will never work to it will just prolong BAU. The glass half full people see it as we are improving to where it is possible to make a difference without breaking the bank. Over penetration of the solar market will eventually cause problems, but that is a better problem to have in most people’s mind.
The consumer market for Solar PV was up 70% in the second quarter, and we will most likely have another record year for solar installations.
Gees shills have thick skins and thin brains.
You suppose that because wind mills and solar panels are not in sight of the power station, that they are not a part of it. You are, as always wrong. Maybe if you think of the Alt-E devices with crank shafts that lead directly back to the power station, to its turbine/s. They provide assistance you see, as the power station is always turning, always on line, always providing power when the Alt-E devices cannot.
So they are similar to sails on a steam ship, unable to provide the necessary energy to move the ship but intermittently provide assistance to reduce the load, to allow the coal to last longer……..am I getting through here? No thought not, get back to being the insidious shill that you are.
“Gees shills have thick skins and thin brains..”
Well at least you are admitting it finally! We are making some progress here!!
Now, lets see if we can make some more progress.
Wind and Solar are not the only two types of renewable energy.
There is no such thing as renewable energy because it implies perpetual motion which is a physical impossibility. A person cannot create a system that provides energy without using more energy than that system produces. To do otherwise is a violation of fundamental laws of thermodynamics. It take a lot of fuel to build solar panes and more than 1/2 of all the land mass would have to be covered by them just to capture close to the amount of electricity we use now. This doesn’t even consider the battery costs, the intermittency , the sheer amount of pollution to build all these panels, the maintenance of the panels, the liquid fuel problem, the resource problem. God almighty your truly mad if you think solar and wind on the grid has any chance in hell of doing anything other than hasten the collapse.
“There is no such thing as renewable energy because it implies perpetual motion which is a physical impossibility.”
You can talk to the Fossil Fuel companies and their spam campaign about “alternative” energy, as in “there are no alternatives” from the 70s.
Technically you are correct. Solar, Wind, and biomass get their energy from the Sun. And well technically at one point oil, gas and coal were created by the sun too.
“It take a lot of fuel to build solar panes and more than 1/2 of all the land mass would have to be covered by them just to capture close to the amount of electricity ”
Last I knew, it was 100sq miles of land, and that area is shrinking because of better efficiency.
It is also pretty hard to live in a hole a mile deep that is a mile wide like the coal strip mines.
“This doesn’t even consider the battery costs, the intermittency , the sheer amount of pollution to build all these panels, the maintenance of the panels, the liquid fuel problem, the resource problem.”
It is already considered. It is like saying “hey don’t burn coal, we will run out someday!” I don’t think wind and solar can be the only two renewable sources nor do I think we will be able to get to 100% renewable without some technological innovation.
“God almighty your truly mad if you think solar and wind on the grid has any chance in hell of doing anything other than hasten the collapse..”
Got a better ideas? Just keep burning up FFs until we keel over or run out? That isn’t even working. Our economy was tanking, and if you haven’t noticed, the world is getting warmer.
“There is no such thing as renewable energy because it implies perpetual motion which is a physical impossibility. A person cannot create a system that provides energy without using more energy than that system produces.”
The physics in this posting is nonsense. Solar PV gets energy from the Sun. It doesn’t create it, it just captures already existing energy from sunlight and converts it to a more useful form, electricity. As implied by the laws of energy the Sun will not shine forever, but only for a few billion years or so. As the laws of thermodynamics will kick in, the sun will get towards the end of it’s life, At that time we, if we are still here, will have bigger problems than failure of our solar panels to work
Whether solar energy is a net plus after accounting for all the energy required to make and maintain the system is another question, but it has nothing to do with thermodynamics,
RE uses the energy of the sun as its input energy. No violation of law of thermodynamics.
I called it a system…because that what it is. Solar panels fit into our current system and take a lot of energy and resources to produce them Plus they create pollution to build them. Take away the supporting network of jobs, electric grid, resource extraction and fossil fuels and there will be no solar panels and wind turbines. They do not renew themselves! The cannot stand on their own, They are not a source of fuel. They capture energy. They don’t scale to the level we need today. Trees do renew themselves and trees can be used as a fuel source. Trees are more energy dense than solar panes but we all know they are not energy dense enough to support modern industrial civilization. So solar panels certainly are not. To think that we can sustain our modern society by having solar panels and wind turbines building solar panels and wind turbines and generating economic growth is absolutely believing in perpetual motion.
“Take away the supporting network of jobs, electric grid, resource extraction and fossil fuels and there will be no solar panels and wind turbines. ”
Instead of using FFs to create usable energy directly. We are taking FFs and creating a device that collects energy and transmits it in a usable form.
The EROI (energy returned on investment) even from the worst/oldest study is 4x. So you put in 1 unit of FF energy and get 4 units out. It is really higher now. The net effect is you need fewer fossil fuels to get the same amount of work done.
The infrastructure is also changing in a couple of different ways to make it more efficient, more manageable, more reliable and more cost effective.
I come to this site specifically because I want to avoid having to have to be exposed to such total garbage — but you are plastering this trash endlessly…
Just about every other person on this site is so far beyond being aware that ‘renewable’ energy is of any use that you are never in a billion years going to change that.
In all seriousness — you need to be removed from here.
Should we start a crow-funding initiative to pay you to stop posting this regurgitated propaganda?
“I come to this site specifically because I want to avoid having to have to be exposed to such total garbage — but you are plastering this trash endlessly… ”
Once again, you have no substance to your argument. Get one! Ignoring the real issue and resorting to personal attacks doesn’t help anything, not even the discussion. You might be able to live in a state blissful ignorance but even that has diminishing returns, pushing you closer and closer to drinking your purple kool-aid.
“Should we start a crow-funding initiative to pay you to stop posting this regurgitated propaganda?”
I will accept the winning megamillions jackpot ticket or the cash payout equivalent if it is that important to you to keep your state of ignorant bliss. In the grand scheme of things, it isn’t that much money, but it would be helpful to both of us.
Will you accept an IOU for $10M? http://www.cnsnews.com/blog/barbara-hollingsworth/man-wins-250k-illinois-lottery-all-he-gets-iou
And btw – ignorance is forgivable… provided one is willing to change one’s mind once exposed to knowledge and facts…
But when fails to acknowledge the facts — and bleats on and on with nonsense…. at best one is a fool — at worst — stupid.
“Will you accept an IOU for $10M?”
nope. I’m a cashman.
“But when fails to acknowledge the facts — and bleats on and on with nonsense…. at best one is a fool — at worst — stupid.”
You should heed your own advice.
“Should we start a crow-funding initiative …”
Since you like crowd funding and non-mainstream ideas, while you are gathering up money for buying me off. Here is another one you can donate to for something similar to a perpetual motion machine.
In theory, it actually could work to some extent.
I too once believed (15 years ago) that solar panels and wind turbines would play an increasing role in supplementing grid electricity. I have since read enough to know better. I am with Fast Eddy on this one … people who are not educated on solar and wind need to refrain from posting how they will save us.
“I too once believed (15 years ago) that solar panels and wind turbines would play an increasing role in supplementing grid electricity. ”
And they have. The US is over 5% for electric. 15 years ago, I never thought solar PV would be cost competitive. It was like 22 dollars a watt just for the cell.
“I have since read enough to know better.”
I don’t know what you read. There is a lot of misinformation to read. There is also a lot of new technology that addresses the problems of the intermittent renewable energy sources face on the grid. The kicker is it isn’t being put in because of renewable energy. It is being put in because it increases the efficiency of the overall system regardless of fuel, which is a huge cost savings measure.
If you look at Germany and even with all the mistakes they made in their design and implementation, they are going to come out of it. The problems are solvable now. They weren’t commercial solutions available even 2 years ago.
“I am with Fast Eddy on this one … people who are not educated on solar and wind need to refrain from posting how they will save us.”
I don’t think 100% wind and solar is possible at this point and remain cost effective at this point so your veiled rip on me missed, just like FE keeps trying to hit me and falls flat on his face.
However, Solar and Wind can take a huge chunk out of the market cost effectively, which is what it is being done. It will be really interesting as to what happens in NY and California over the next couple of years. California went with a large grid and a real time variable market and NY is trying microgrids. And we all win for them trying since they will drive the storage market down unless there is some delay in the market because Germany tries to snarf up all the storage capacity to fix their issues.
The ‘renewable’ energy issue is akin to the majority having thought for many years about the sum of 1 +1 … and concluded it is 2…. not 3 … or 4… or 27,000…
And those of us who have come to conclusion (having previously thought it was not 2)… are on this site in large part because we have thought these issues through thoroughly…. and we understand that ‘renewable’ energy is a non-starter… that it exists primarily to provide hopium to those who are intelligent/aware enough to understand that we must at some point replace fossil fuels with something that is both cheap and clean…. (although give the the hundreds of billions that have been poured into ‘renewable’ energy one might argue that the PTB have tried to make this work… but failed… just as alchemists have been unable to turn lead into gold)
Such people need to pin their hopes on such a saviour…. ‘renewable’ energy has been designated as the Energy Jesus….
Most people don’t do well — most will turn to despair … if they are faced with a hopeless situation….
The majority on this site are well beyond the acknowledgement and despair phases ….
We are on FW not to look for solutions….
We are here in effect… on death watch…. discussing the funeral arrangements for BAU — a terminally ill relative who is in the hospital’s death room.
Telling us that ‘renewable’ energy will save the day is like rushing into the death room with a potion from purchased from a witch doctor and urging us to inject grandma (who is 97… riddled with cancer … and suffering extreme pain…) with this ‘life-saving’ elixir….
Understandably … we find this upsetting…
I will try to respond to what little information you have tried to present ..
“although give the the hundreds of billions that have been poured into ‘renewable’ energy one might argue that the PTB have tried to make this work… but failed… ”
We spend trillions on FFs every year. Creating products that provides the same energy with the same money is bad how again?
Oh wait we aren’t doing it fast enough for you! Hurry up and send me that 200M dollars!
I (like Fast Eddy) am here to discuss the plight that faces us. I enjoy reading Gail’s perspective that debt defaults and financial system collapse will be the end of the oil age. Others believe it may be WWIII that lead to collapse and the end of the oil age. Still others believe it will be low oil prices leading to eventual supply disruptions and shortages that lead to chaos and collapse. It could be a pandemic or natural disaster that pushes over the edge. It is anyone guess. I (like FE) am well beyond solar will save us. I too am here to discuss the potential of a collapse of industrial society and get others insight on the timing of various stages of this impending collapse. It is annoying when people post on here that have not been following Gail or reading her old posts and spout off complete nonsense. I enjoy enlightened and informed discussion of our current economic and energy and resource predicament and that is why I come to this blog.
Sand-pile avalanches analogy for interconnected systems.
A very simple and clear representation of the eventual counter-productivity of our attempts to “control” the situation. Can be applied to many parts of our complex systems:
“Academics have studied failures of complex systems with interesting results. One of the experiments they did will be familiar to anyone who has ever played with sand-castles as a child. Build a sand pile by gradually adding grains of sand. After a while, avalanches start to run down your pile. Sometimes they are minor, while other times they affect the whole pile. There is seemingly no way to reliably predict the outcome.
However Per Bak, in his book “How Nature Works,” shows that there is an instructive way to look at this question.
There is a critical angle for piles of sand–a level of steepness that the slope cannot go beyond without sand starting to roll down the slope. Imagine that, as you add sand, you colour red all of the areas of the pile that achieve this critical angle (and are thus on the verge of an avalanche). You will notice that the red patches appear as tendrils running down the side of the pile. As you add sand to the pile it gets higher and wider – the pile gets steeper and more little tendrils of red appear. Eventually you will see the tendrils of red start to interconnect.
If you drop a grain of sand on a red area then you will precipitate an avalanche. If the red area is interconnected with other red areas then all these areas will be drawn into the avalanche. If the red area is isolated, then the avalanche will be confined to one red tendril running down the side of the pile.
Understanding how this happened is critically important. There are four parts to creating the complete meltdown of a network:
1. Create a network by building connections between systems.
2. When a particular part of the network approaches overload (goes red), recognise that this is happening and use the connections you have created to allow you to switch load to another part of the network.
3. Continue doing this until all areas are red.
4. Now add more load.
When we poured sand on our sand pile we allowed the sand to fall randomly, and thus the avalanches seemed random. But once we had the ability to monitor (see our potential “avalanche” areas coloured red), we were able to carefully divert the sand into other areas. This delays the avalanche, but in the long run the avalanche is going to be much worse, because it will occur when all areas are red.
In summary: The ability to measure and monitor the system gives us the capacity to avoid small avalanches in individual areas. However, if we keep adding load without adding capacity we overload the entire network and thus make an all-encompassing avalanche inevitable.
If we can’t add capacity, then it would have been better to allow a series of small avalanches.”
Above are excerpts from: “The Failure of Networked Systems: The Repercussions of Systematic Risk Revisited”,
Posted by aeldric (David Clarke) on August 16, 2010 (rev. of a Jan.2008 post) – in The Oil Drum
Gail referred to it in her famous article “Peak Oil and the Financial Markets: A Forecast for 2008”
Posted by Gail the Actuary on January 9, 2008
(which was linked to in Matthieu Auzanneau’s last post)
François Roddier also mentions Per Bak’s work and describes this 1/f power-law (f = frequency), and explains how the evolution (at large) happens by jumps from a punctuated equilibrium to another. (see also Turcotte et al. 2002, earthquakes and wildfires http://www.pnas.org/content/99/suppl_1/2530.full, Stephen Jay Gould, etc)
However, I find Clarke’s “interconnected red zones” very telling.
Then we have the time/speed parameter: the cascade hasn’t a constant speed across the whole system. It depends on the reactivity of each sub-system, and thus can lead to different scenarios accordingly (the dominos are not on a single line). It gets even more difficult to anticipate, if there are attempts to control/preserve some parts of the system, and not others. All we know is that all of the “interconnected red zones” will be eventually impacted, even if it takes a longer time for some of them.
Valuable post, and excellent imagery with which to try to explain these matters to the uninitiated.
Yes, Clarke’s metaphor is really good, because anyone can easily visualize it, and I think fundamental as well. I’m convinced that our -now widespread- tight-coupled interdependencies will cause much wider and more dire consequences than most are expecting.
Very good. It’s like the central banks are micro-managing all areas of the economy. Eventually every area is going to become a problem at once. Then what do they do?
I think the Central Bankers will continue to collude with the government, cook the statistics and keep creating money until there is an actual energy shortage. Then they run for the hills.
Thanks! I like Dave Clarke’s work. We haven’t corresponded recently.
The PNAS article reminds me that we live in a world filled with fractal distributions, with fat “power law” tails. Benoit Mandelbrot made the same point. Too bad that financial people generally haven’t figured this out.
North Sea faces £12bn investment collapse from oil price slump
Offshore industry in the UK has lost 65,000 jobs but companies now adapting to lower oil price, says Oil and Gas UK
Thanks for the link. I was reading an article about the Russian investments in the Arctic drying up as well. Seems the test wells were disappointing and the engineers fear the costs will be too high.
“companies now adapting to lower oil price, says Oil and Gas UK” –sure thing. Not a good outlook!
The Dow futures have been going up all night, currently at about +258, and I was wondering why until I read an article explaining that current consensus is the Fed will NOT raise interest rates this month after all due to negatively changing world economic conditions. Based on this widespread conjecture the Euro is improving against the dollar.
It’s kind of hilarious how much money goes this way or the other way in equity markets based on wet finger to the wind determination as to whether rates will rise or not. Why not actually wait until Yellen explains if she intends to go ahead with the rate increase or not? Oh no, investors have to guess ahead of whatever may happen. And what are we talking about here anyway, a potentially very tiny increase.
And if a rate increase does not in fact occur as planned after all this build to one and years of Zirp, then when and how could it ever go up again? We all need to look at the very real possibility that limits have been bumped up against and interest rates will always now need to be kept artificially low to try an induce lending until such time as collapse occurs.
Thanks! I hadn’t read that. I saw a chart though, showing the prices rising straight up.
I bet that they rise the interest rates by a homoeopathic dose of 0.25% so that they can announce: The economy is in a good shape, we can do this. And Wall Street basically would not even bother.
A short article about the weakness (utter wrongness?) of math-models in the economy:
“The issue at hand is the tendency of economists to cloak ideology in obscure equations to give their views a false appearance of rigor. Well, you might say, that’s what overeducated eggheads do, but seemingly practically minded business people have their own version of “mathiness.”
When managers say they are data driven and ROI focused they are usually more intent on professing a belief than delivering results. They are, essentially, accidental theorists, putting their faith in an abstract idea rather than engaging in any true analysis of cause and effect. Despite what many will tell you, numbers can lie and only fools follow them blindly.
In a sense, he (Benoit Mandelbrot) wasn’t telling anybody anything they didn’t know. Statisticians had long been aware that no model is perfect, but disregarded stray points of data as “outliers” that could be largely ignored. Yet Mandelbrot pointed out that the efficiency engineering models were failing. Outliers like market crashes happened far more often than they predicted.
So while everyone else was preaching about the wonders of “scientific management,” Mandelbrot was arguing for the mathematics of anything can happen. In his mind, it was the outliers—market crashes, innovations like electric cars and iPhones, world wars and the like—that determined the course of history.”
It was linked by Kurt Cobb in his last post:
“Stock Market Confessions, Chaos, Complexity and the Illusion of Control”
I have always like Mandelbrot’s work. It points out one of the areas where modeling goes wrong.
Norway: One of the big hydro power companies just pulled out of a major wind power project. After spending more than 100 million NOK (12 million dollars) they called it a day and said that they are going for more hydro power instead.
dolph, fascists and fascism are just a collusion of private sector and the state. we have those and that in the usa today, to be sure. however, employing violence is a tactic used by certain fascists in the past, and not nescessarily by those in the usa today, unless your referring to the state-sponsored type in use by the military and by the not-so-secret police state. come to think about it, maybe you’re correct.
Now that 495 of the S&P 500 companies have reported second quarter earnings, something has become abundantly clear: 2015 is going to be a nasty year for corporate revenues.
Blended revenue for the S&P 500 companies dropped 3.4% in Q2, according to FactSet. “Blended” because it includes estimates for the five companies that have not yet reported. This follows the first quarter, during which reported revenues also declined. The last time year-over-year revenues declined two quarters in a row was in Q2 and Q3 2009 during the Financial Crisis.
And analysts blamed energy companies whose revenues have totally collapsed. But company by company outside the energy sector reported declining, and in some cases plunging revenues, including in Big Tech and financial services.
Revenue Recession Spreads past Dollar, Energy
by Wolf Richter • September 7, 2015
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Now that 495 of the S&P 500 companies have reported second quarter earnings, something has become abundantly clear: 2015 is going to be a nasty year for corporate revenues.
Blended revenue for the S&P 500 companies dropped 3.4% in Q2, according to FactSet. “Blended” because it includes estimates for the five companies that have not yet reported. This follows the first quarter, during which reported revenues also declined. The last time year-over-year revenues declined two quarters in a row was in Q2 and Q3 2009 during the Financial Crisis.
Analysts liberally blame the strong dollar. It’s convenient. But numerous companies that mostly benefit from the strong dollar, such as GM (more on that in a second), still reported shrinking revenues in the quarter.
And analysts blamed energy companies whose revenues have totally collapsed. But company by company outside the energy sector reported declining, and in some cases plunging revenues, including in Big Tech and financial services.
Here is a sample of revenue losers:
Caterpillar (-13%), Dow Chemical (-13%), MetLife (-12%), Microsoft (-4%), Intel (-5%), International Paper (-21%), JPMorgan Chase (-3%), Johnson Controls (-11%), Oracle (-5%), PepsiCo (-6%), Pfizer (-7%), Procter & Gamble (-12%), Union Pacific (-10%)….
Wait… Union Pacific? Would it blame the strong dollar or the price of oil? Hardly. It doesn’t operate trains in Europe. It doesn’t sell oil. It buys and burns it; so cheap oil is a godsend. It’s blaming the economy, particularly the reduced number of carloads of coal and other commodities. And it’s blaming that obnoxious add-on, the fuel surcharge that has been declining with the plunging price of oil. Surcharges go straight to revenues. Competitive pressures forced it to back off. Easy come, easy go.
Then there’s former tech darling QUALCOMM (-14%), insurer ALFAC (-9%), and of course IBM, always, at least for longer than anyone can remember, well, for the thirteenth quarter in a row, strong dollar, weak dollar, hot China, cold China, nothing matters…. Its revenues decline through thick and thin, this time -15%.
Then there’s GM (-3.5%). It gets the vast majority of its revenues from its number one market, China, and its number two market, the US. Over that 12-month period through the end of June, the yuan lost less than 1% against the dollar. And GM sells practically nothing in Japan whose currency lost out against the dollar.
…… what I am wondering… is why are there not massive lay-offs being reported?
Companies with declining profits… unload employees….
Fast Eddy, I don’t believe anything that comes out of official statistics or corporations. Corporations by definition lie and lie constantly, they have to in order to attract bonds and shareholders. If business people said “don’t buy this stock, because our ideas will fail, nobody will want our products, and we are just going to pay off the top executives with bonuses before this whole thing blows up” there would literally be no stock market. So I basically assume that all public corporations have basically no real earnings and are insolvent.
All of the markets are a manipulated sham, lies on top of lies, built on the greatest lie of them all, fiat currency.
But alas, it’s the way of things. I don’t think humans could have society without lies. To a certain extent, it’s lies that drive civilization.
The problem is that this time the lies have gotten too big, and have become global, to the point of threatening the system itself. “Nobody left to lie to” is what we all face. It’s actually pretty troubling, because when the lies fall apart people tend to turn to alternative movements like fascism, because, hey, at least the fascists are calling out the liars, and ready to employ violence.
Yes – as Lizzy pointed out — they may be laying people off but we are not being told ….
Hi FE, I used to work for IBM. My former colleagues tell me there have been masses of people laid off — they just don’t announce it as such. They are still hiring, you see, in other areas.
I imagine balance sheets don’t always look as fine either. Then we have mismatches between what an asset is not held for on the books, and the amounts borrowed against that asset. Prime example, producers getting oil from shale, after the next evaluation of the worth of their properties.
If you favor RE please show the numbers. The cost for 2am on a winters night when it has been cloudy for the last two weeks. Common in early winter in New York State.
Yes very low energy density solar and wind power cannot compare to that of fossil fuels. Not to even mention the fact that solar and wind capture creates electricity which doesn’t really help with our liquid fuels problem. Yes it’s possible to reverse combustion with electricity to create liquid fuel but, it is very inefficient. Therefore, reversing combustion using solar and wind(which are already very low density) is a real looser. The intermittency makes it even worse.
Glencore first out of the traps with plan to counter ‘doomsday’ scenario
Plan to slash debt is intended to bullet-proof the mining giant’s balance sheet in the face of falling commodities prices
There go a whole lot of people into the unemployment line….