Deflationary Collapse Ahead?

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:

Figure 1. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

Figure 1. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

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

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Our economy is a self-organized networked system that continuously dissipates energy, known in physics as a dissipative structureOther 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.
  6. 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.

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

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

Where Did Modeling of Energy and the Economy Go Wrong?

  1. 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.
  2. 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.
  3. 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.
    Figure 2. Figure from Hubbert's 1956 paper, Nuclear Energy and the Fossil Fuels.

    Figure 3. Figure from Hubbert’s 1956 paper, Nuclear Energy and the Fossil Fuels.

    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).

    Figure 3. Source: Wolfram Mathworld.

    Figure 4. Sum of sine waves converging to a square wave. Source: Wolfram Mathworld.

  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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.

Figure 5. Base scenario from 1972 Limits to Growth, printed using today's graphics by Charles Hall and John Day in "Revisiting Limits to Growth After Peak Oil"

Figure 5. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil”

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.

Figure 6. Figure 5, truncated shortly after production turns down, since modeled amounts are unreliable after that date.

Figure 6. Figure 5, truncated shortly after industrial output per capita (grey) and food per capita turns down, since modeled amounts are unreliable after that date.

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.

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About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

1,514 thoughts on “Deflationary Collapse Ahead?

  1. Thanks Gail for another very good post.
    As for the economists who are unable to take into consideration the role of energy, not that I want to advocate their (stupid) point of view, but it’s a surprising matter of fact that thermodynamics was developed very lately compared to other sciences, even ones that are far less immediate than the heat everyone can feel.
    Still today, few people grasp the concept of energy, many are thinking that it can just be “produced” at will.

    Also liked your remark that energy is consumed in real time, which means that promises on the future (debts) are becoming a bigger and bigger problem as we’re getting closer to the limits.

    • Working as an actuary in insurance, a person gets the idea of real time vs promises drilled into their heads, over and over. An insurance company sells a policy. It pays claims over a period of years. The insurance company has to keep track of those promises. It also has to figure out how much money it will need to dispense in a given calendar period (and how that might fluctuate), and it needs to be able to estimate how many claim adjustors to hire, again during calendar periods. Actuaries are the ones who figure out all of the details related to these kinds of issues.

      • Just a question. When insurance policy is priced, one has to assume a rate of return (i.e. interest rate ) on investments. Is our present low rate environment endangering the insurance industry?

        • It is the long term policies that are most affected. Pension programs have tended to use very high interest rates–at one point, as much as 10% per year, for some pension plans. I am not sure what they are now–probably 6% or something like that. Long term care insurance has been another major problem area. At one point, medical malpractice insurance was sold on an “occurrence” basis, and people with birth injuries were given until about age 23 to file claims. This created another problem area. An awfully lot of pensions are underfunded, and companies have been getting out of the long term care business.

          As long as interest rates keep going lower, the value of the debt portfolio goes up. This is a benefit to insurance companies. So the appreciation partly offsets the low irate problem. Of course, if rates go up, or there are defaults, then the opposite problem occurs.

      • Great post Gail also the one talking about Russia and Ukraine is Superb. Had I been good at math in childhood I would have become actuary, most likely I would have ended becoming and employee of a company and would be looking for managerial position, just as many people I know who live on a daily basis.
        At the begining of this year I was thinking on getting a life insurance combo with retirement and health insurance plan… now I am glad I didn´t. But certainly I am not happy with things to come.

  2. Do you think any collapse would also be accelerated, compared to the Limits to Growth predictions, by climate change issues? The LtG proxy for climate change is “pollution” which peaks later than most of the other variables, and therefore could be argued to be a consequence rather than a cause of the preceding peaks. If a collapse quickly knocks down fossil fuel use then maybe climate warming would be stopped well short of current predictions for maximum temperature rises. However events this year seem to be indicating that even small temperature rises can have highly non-linear impacts especially in areas heavily impacted by the Arctic, and we might already be approaching some important tipping points. For example how much worse would the Washington wildfires be if we were already into a financial and resource collapse – maybe the soldiers that were needed would be busy with wars or societal breakdown elsewhere, maybe there would be no way of paying for firefighters from outside of the state let alone outside the country, maybe infrastructure decay would hamper any fire fighting operations. There has also been some argument that warming has been suppressed because of sulfate aerosols from Asian coal burning power plants – if these started to be shutdown then the aerosols would decay over one or two years and warming could accelerate despite the rate of carbon dioxide build up starting to decline.

    • The forecasts we have with respect to climate change use estimates of fossil fuel availability that are vastly too high, because they do not consider the possibility of near-term collapse. Even their “peak oil” scenario has way too much in it. At the same time, climate is changing right now.

      I would take the shape of the LTG forecasts with a grain of salt, because they do not consider the possibility of a financial collapse, and the impact that this would have on the world economy. The LTG forecast looks at the situation from the point of view of an engineer. The model does not consider GDP, or debt, or much of anything else. In fact, the shape of downturns are to some extent based on assumptions similar to Hubbert’s–everything hangs together well, prices stay high enough to encourage extraction, etc.

      Given this situation, I think we are basically facing an overshoot and collapse scenario, which is not shown well in the LTG forecasts. This will likely be quite fast, with or without climate change. I am not sure that climate change will make a material difference in the whole scheme of things. For example, in the year 2050, the world might end up with a population of 100 million with climate change, but 125 million without climate change. Percentage-wise, that is a big difference, but does it really matter, if the numbers are tiny, either way?

      • Gail – thanks. Similarly to what you have said Dennis Meadows has also stated that once the first extrema in any of the LtG predictions is reached (which appears likely to be either the productivity per capita or death rate in the next couple of years) then the rest of the chart should be ignored. I think by implication he means that in the collapse phase things will happen faster and much less predictably than during the expansion phase or than their models indicated (i.e. there would be far more non-linear feed backs at play than they originally included). I’m still trying to understand how bad this might be but I guess a potential collapse to 100 million in 35 years says all that needs to be said.

      • 100 million by 2050? Ouch. This is the first time in…as long as that I can remember that I’ve felt relatively optimistic.

        Honestly, I can’t see that kind of die-off. There would have to be a lightning-fast collapse. In our nearest town, even if the power went out and the cargo trucks stopped arriving, folk would cobble something together pretty fast. We have enough food walking around (ie. livestock) or in bins (ie. grains) to give us at year to work out an alternative food system. Having said that, if the lightning-collapse hit in the dead of winter and took out the natural gas supply, decimation might happen. Disease or violence could do it too, but I don’t see those as likely. Were I in a large city, I’d be less comfortable.

          • In a way, I disagree. Optimism can give you the gumption to contribute to feeding yourself and keeping yourself warm. One’s optimism can go a long way to helping others. Defeatism, on the other hand, will make virtually ensure a bad end.

            All I’m saying is that I see a drop to 100 million by 2050 to be unlikely. Having said that, it is not something I’ve invested much study into. I would find some justification for those numbers very interesting.

            Maybe it is just that the bulk of the world’s population is in (or near) cities and therefore not in a position to make a hurried change to satisfying their basic needs without fossil fuel derived energy. If the bulk of the world’s urban population were to die-off, that might get us a long way to 100 million.

            In any case, the potential of a die-off of the proportion that Gail has mentioned, if believable, should inspire folk to action. I mean, if you believe that that kind of die-off is at all probable, you should be preparing right now. I don’t think that things will be nearly so bad, but my week will be spent working on a super-insulated home and building bonds with friends and family.

    • Nearly impossible at this point. Just look at Europe where in most EU countries runs around 50%. Look at the US where most jobs that are created are low wage, part time jobs, such as fast food workers, bartenders, food servers. You can’t expand future debt and expand the eCONomy on those types of wages. Which is why some get into the stock markets to gamble and offset their wages or incomes (Chinese workers) are a good example of this.

      • meant to say: ….. “Just look at Europe where in most EU countries youth unemployment runs around 50%

      • Moreover, everyone can notice that wealth-concentration keeps gaining momentum, and that middle-class numbers tend to disappear. We’re not increasing workers’ wages, but going in the exact opposite direction.

        Now let’s imagine, by thought experiment, that wages are significantly raised and workers recover substantial purchasing power. Would we find enough accessible resource and cheap energy to re-start the (real) economy?
        This is such lack that actually led us here in the first place. No we’re reaching the end of the extra-time provided by financial manipulations during the last 7 (or 15, maybe 40?) years.

        • That’d be a fantastic test of the, “resources are limited,” theory. I fear it would prove a most successful experiment.

          By that I mean I bet you’re right. If they essentially print money to get it into Main Street’s hands (the only way it could happen, in my view) then inflation would increase to the point that the “extra,” would only exist nominally.

          • And the dirty little secret post 2008 collapse was the Federal Reserve was paying the Too Big Too Fail Banks, not to lend the money for fear of hyperinflation in the event all of that digitized money hit the streets.

            • Hi, Rodster — in my “expert” opinion (ret. editor), it is perfectly fine to split the infinitive when necessary for greatest accuracy/clarity of meaning, as in:

              “And the dirty little secret post 2008 collapse was the Federal Reserve was paying the Too Big Too Fail Banks, [to NOT LEND] the money for fear of hyperinflation in the event all of that digitized money hit the streets.”

              Thanks for contributing that pertinent tidbit. Call me a crazy conspiracy theorist if you will, but I have never believed for a second that the “timing” of the great debacle of 2008/09 was not carefully planned to occur exactly when it did. Don’t forget that the legal groundwork is already laid for the “bail in.” They’ll just lift what they want from depositors’ accounts. In my account, the pickin’s will be slim indeed.

              Gail, love your blog — I find the view from the actuarial corner to be a very balancing input. Your efforts are so appreciated by so many — even by those of us who mostly just “lurk quietly.”


            • The big 2008 problem had already occurred earlier in 2008, when oil prices collapsed in July. Debt at that point had started shrinking. That was what had to be fixed.

        • Good stuff, one has to always include to his “personal topten doomlist” the possibility we are esentially on borrowed time since early 1970s, so hard crash after 4-5decades would be very plausible option indeed. Un/fortunately there are several competing overall scenarios, so one can’t bet 100% validity to any of them, must attempt to be ~diversified, slow/medium/fast collapse and that’s the madness proper.. lolz

        • If this were to occur — would we not realize the hyper-inflationary environment that many have been predicting since 2008?

    • Very low. With our globalized world, jobs keep getting sent to the low-wage country. I remember reading about workers in Africa being hired for $21 month.

      Many middle wage jobs have disappeared. And governments are working at getting higher tax rates, because they have so much debt already. They also have made an awfully lot of promises for pensions and healthcare. There are a lot of people now reaching the age when they would like to draw pensions.

  3. What an extremely sharp but, alas, gloomy description of what is ahead.
    As you will know I see money only as a meter of energy. Debt which plays such an important role in local, national, and not least in the global economy, is nothing but energy which we have tried to ‘borrow’. But as money meters actually consumed energy not expected energy then money and energy must always be balanced – that is in the perfect economic world. But obviously it is not so. Therefore this meter instrument ‘money’ has to lose its value (inflation) to reflect that the corresponding amount of energy still has not been produced but only hoped for – i.e. hoping that the energy production will eventually fill the gap (debt) and catch up with the existing money volume. This is ok when it is relatively easy (cheap) to pump/dig the energy out of the ground but is getting still more difficult as the low hanging energy fruits have already been consumed.

    • Niels, well said.

      To your point but put slightly differently, the value of US oil production per capita in terms of debt-money supply (M3) is where it was in the 1930s-60s, whereas US oil production per capita has fallen 45% since 1970, putting oil production at the same level as after WW II.

      This has occurred with total debt and reported GDP (high-entropy, value-added output) having grown many multiples to oil production to debt-money supply.

      Put another way, the US currently has oil production/supply to debt-money supply sufficient for no more than a value-added output per capita equivalent to 50-80 years ago.

      However, going a step further and including the imputed compounding interest cost of the debt-money to oil production and GDP in perpetuity, since 2005-08, the US has an equivalent value-added output per capita after energy and imputed debt-money interest costs of the 1880s-1900s, which was prior to the major oil field discoveries in the Middle East, Texas, and Alaska.

      IOW, the US currently has a domestic capacity for sustaining economic activity after oil and debt service costs in perpetuity that is no higher in per capita terms than a lifestyle for the masses of the late 19th century.

      This implies MASSIVE debt/asset deflation; EXTREME liquidity preference (cash and liquidity becoming exceedingly dear); a further decline in the price of oil to the $20s; a collapse in US oil production and consumption; falling nominal wages and interest rates; and the post-2007 average trend rate of nominal GDP decelerating to 2% or below hereafter.


    • Something is going wrong in the balance. Instead of the price of commodities rising to keep up with the cost of extraction, workers are having to cut back. Young people live with their parents longer, and may need to share a car with other family members. The expected inflation isn’t really there–the money isn’t coming back through the system to workers who might spend the money. The wealthy are (or were) putting money into the stock market, but that isn’t the same thing–it mostly doesn’t lead to more goods (unless a company issues new shares, and uses them for investment).

      • “Something is going wrong in the balance.”

        You are correct. It is the trade balance that is off. It leaves our country and doesn’t return. Then no one in this country has any money. So we have to take out debt to free up cashflow, which eventually leaves our economy.. rinse and repeat. It has to stop.

        While I -get- that you are all about Fossil Fuels, the importation of them is part of the problem. It by far isn’t the biggest problem, but it is the second biggest problem, and one that is more easily dealt with.

        • That’s funny when you think about it. We essentially export promises and import real “stuff.” And since those promises are all debt based, they’re based on either future versions of ourselves or our kids being able to make good on them. Thus, we in the US have constructed a promissory economy that relies in large part on promises made on behalf of future people who had absolutely no say so in making them. Think they won’t be pissed off a wee bit as the true implications of this intergenerational shell game become exposed as the tide goes out on global capitalism? It’s not going to be a good time to be an old person trying to claim and live on a pension.

          • “We essentially export promises and import real “stuff.” ”
            That is actually true for the most part. The problem is we aren’t taking on debt as an investment.
            In otherwords, all of the oil we import is being consumed like junkfood. It costs our economy 200-500B/yr. We aren’t creating value added products with it to help sustain ourselves in the long term. The Renewable program actually is an investment, and one of the first we have had in a LONG time and as much as people have complained about it. It was actually extremely cheap, and it seems to be working.

            “on behalf of future people who had absolutely no say so in making them. Think they won’t be pissed off a wee bit as the true implications of this intergenerational shell game become exposed as the tide goes out on global capitalism? It’s not going to be a good time to be an old person trying to claim and live on a pension.”

            It is actually what is going on. To add the the effect, you have lower wages, higher prices, etc.
            Anything that has been done to address the issues, have been fought by the very people the programs have been trying to help, as unnecessary government spending, because no one wants anymore debt except the Republicans unless it is spent on them of course.

          • Think they won’t be pissed off a wee bit as the true implications of this intergenerational shell game become exposed as the tide goes out on global capitalism? It’s not going to be a good time to be an old person trying to claim and live on a pension.

            Agreed! It seems as if we approach this barrier of peak debt and since our debt is promissory which implies a generational effect, the ability to accumulate wealth becomes more difficult.

            I like Gail’s analogy of cheap energy being a pump that is slowing down. The older generations are able to accumulate more over time and have a tailwind advantage with higher wages that is stored in investments. Where is the wealth stored today from yesteryear? Houses, stocks, pensions, etc and how much of that is at risk due to collapse?

            There is a relationship there between peak debt and generation wealth and wages by age cohort.

            I also like Gail’s observation about wealth that has a short time expiration: The very close relationship in time between production and consumption of energy products is in sharp contrast to the way the financial system works. and 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.

            The following chart isn’t exactly what I was looking for, but it shows the decline. What I would like to see is a normalized to age 0 on the x-axis and y-axis show wealth accumulation by age.


          • Actually, if things collapse, I don’t think it will be the kids that are affected by the debt directly. It will be the countries stuck holding the debt. (This will likely happen when the kids are still kids.) The kids will still have problems because there are too few resources for them, but they would have that problem anyhow, debt or no debt.

            An awfully lot of debt is going to end up unpaid. Some of it may simply disappear, because it is stored as pixels, and the electricity stops.

            • Hmmm time to update my checklist, I always forget about electrical grid…

              Peak Oil (Crude) [Check]
              Peak Debt [Partial Check]
              Debt Productivity Is Zero Or Negative [Check]
              Peak Energy Consumption [Partial Check]
              Financials converging to a square wave drop [Partial Check]
              Commodity Pricing Collapse (Deflation) [Check]
              Failure to Find an Oil Substitute [Check]
              Global capex collapse [Check]

              So far, so bad. Next up:
              Electrical Grid Failure [On Watch List]
              Dead economic zone in the US (see Greece) [On Watch List]

              Note to self: ask Gail if I can create and sell t-shirts with the Tverberg Estimate Of Future Energy Production…Those t-shirts might be worthless in another year!

            • How about a tshirt with the words DEFLATIONARY COLLAPSE? scrawled across the chest?

              That could elicit some interesting conversation at a dinner party….

            • Hmm that could on the back…and the graph on the front. What other charts would it need. I’m thinking smaller graph/charts surrounding her chart.

      • Maybe inflation was hidden by outsourcing which created low prices of imported goods. So it look as if there is no or little inflation. However, as you explain it, USA and Europe now witness a shortage of ordinary well paid jobs ….

  4. Hi Gail, what a great post shedding light on current events! I wanted to get your thoughts on whether you feel that simpler and less energy intensive systems will have the opportunity to develop after the coming collapse. I wonder if local leaders (warlords….looking at you FE) will arise or if you feel that the collapse will be so complete and rapid that no systems will have an opportunity to arise?
    Insofar as my business is concerned (oil, gas and energy engineering) we have seen a complete business reversal from last year, the only projects that we are seeing out there right now are government projects (the Ontario gov’t is throwing hundreds of millions at wind farms) but the private-sector projects have dried up and while there is still day to day business a lot of my biggest customers telling me that what they are seeing is basically identical to the environment of 2008-2009.

    • ” current events”

      Just having a chuckle … imagine if a kid brought this article into class to discuss as a current event… he/she’d probably be referred to the school psychologist 🙂

      • Heck my co-workers already think I’m nuts for telling them that we are running out of cheap, potable energy. On the plus side I’ve discovered that once the world falls apart my new name will be “The Skull Queen”.

    • It is interesting that you compare today to the 2008-2009 situation. We lack the tools we had at that time, to get out of the financial mess we got into.

      I really have a harder time seeing very much in the way of simpler, less energy intensive approaches being adopted. Even recycling metals will be very difficult, because this needs high temperatures, and it is hard to get high temperatures without burning an awfully lot of trees and making charcoal out of them. Even this may not be sufficient. Without being able to reuse metal in new ways, we are pretty much out of luck on what we can do, except make do with what we have. Some computers can be cannibalized to provide parts for other computers, but even this doesn’t work very well.

      The simpler and less energy intensive methods will have to be truly simple–perhaps digging with a shovel, at least until the shovel wears out. Maybe a new one can be made by heating metals. It wouldn’t have to be the whole “pan” that is metal–perhaps just the tip might be metal. Adding draft animals won’t work well, because they eat so much food.

      • Hi Gail, to clarify my statement; what a lot of people in heavy industry and energy are seeing is a drop off in sales and projects like we saw in 2008-2009. Margins everywhere are being squeezed like crazy and less and less of our customers are being considered credit-worthy. I have several customers who are having a hard time keeping the lights on because the end-users aren’t paying their bills. The other thing I am seeing is a drastic drop-off in quality as manufacturers cut corners which will probably bring about a collapse quicker. I am now seeing mining and gas companies switching to much cheaper armored cable for their primary runs which barely meets code and will probably have to be replaced in five to ten years (if we last that long) and parts like limit switches which used to last for 50-60 years (I have seen some old Honeywell limit switches built in the 50’s still working on job sites) are now being replaced by Chinese-made plastic switches which will last for 100,000 duty cycles (2-3 years in most cases). Everything is moving towards wasteful, cheap and utterly disposable as companies try to keep their short-term purchase dollars as low as possible.

        I do completely agree with you on the fact that the quiver is basically empty now unlike in 2008. I think that the Fed in the US will probably try QE4 but I don’t see anything coming from it. IMHO I see a crash followed by a plateau of a year or two as some groups/nations try to hold it together with hopium, duct tape and probably a lot of force (oil producers or those who can take over the oil producers) followed by lights out for all. I honestly hope that humanity can save enough infrastructure and decommission enough of the nuclear material to at least allow whoever survives a shot at an agrarian existence without having huge portions of the world poisoned.

        • Thanks for those datapoints! First hand observations are always the best.

          I have to agree with your analysis. Some people like to think we’ll get back to Little House on the Prairie, but I don’t think so. Even then, we had a lot of resources that were easily extracted, but now, we need 400 ton trucks to haul in order to extract which with smaller grain size requires more power draw to grind. In other words, we have dug a deeper hole that will prevent future generations from being able to mine economically. So it may also be our first and only industrial civilization. But who knows *sigh*?

          • Alturium

            Just been reading about the start of coal mining in Spain: in the 1840’s, the peasants could be sent out to dig and move coal which lay in 13ft seams, at the surface more or less. Just sweat and a wheelbarrow………

        • Thanks for the additional information, and your idea on how things will work out. You may be correct.

          I think this article called, “Falling prices, not markets, the real headache for Chinese firms,” explains a big piece of the problem. Prices have actually been falling since 2011, as measured by the Producer Price Index. Companies are forced to make cheaper and cheaper products, to try to keep their prices down low enough so customers can afford them. All of this is related to diminishing returns and “increased inefficiency” in our whole system.

  5. “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.”

    I’m really hoping to see a shift in the discussion to expanding and detailing this list of suggestions. Clearly, if a financial collapse is imminent, preparation would be a good investment of our time. So what should one do? The survivalist forums seem almost gleeful that a collapse will enable the prepared to inherit the world, but their plans seem short-term at best, and perhaps counter-productive (ie. violence). Folk here on Our Finite World seem a bit more level-headed.

    • Stock up on can goods, non perishable foods, 15-30 day supply of drinking water in 5 gallon (rule is a gallon per day per person) containers, self defense, guns and ammo.

      • The problem with all of this (and I am guilty myself of an addiction to Wally’s World) is that it assumes that something comes next…. that there is a future that to a certain extent resembles the present….

        Kinda like getting ready for a hurricane — or an earthquake — or a war…..

        There is the assumption that if one can survive the worst of the event things will return to normal…. things will get better… in a relatively short period.

        The problem here is that things will never return to normal…. because there will be no energy available….

        All that we have known — all that we have taken for granted — every convenience – every comfort — is about to come to an end.

        So what are we preparing for? A life of misery, suffering, deprivation, disease, violence….

        Take the worst slum on earth and assume 100x worse (no medicine… no food… ) and understand that this is what life will look like (assuming you are one of the unlucky ones that survive the initial calamity)

        I suspect the unlucky ones will envy those who died quickly.

        • No question but as you like to reference Human DNA. It’s in our DNA not to want to die even if we’re on our deathbed. People will try and prolong the inevitable as long as possible. There is nothing wrong with trying to prepare for what’s coming even if it’s bad.

        • Agree with everything you’ve said up to “So what are we preparing for”.
          Maybe some or all of the delightful list you present, but I have been prepping
          with a more positive expectation (possibly unrealistic of course).
          My prep location is similar to yours, a remote location on an underpopulated
          island in the Southern ocean, with a clean flowing river at my doorstep,
          forest behind populated with edible native animals and good soil around
          (and 4 years experience of growing my own food).
          So the electricity fails – minor inconvenience, no oil products – fine – I never
          like driving to town anyway. Disease less likely than now with fewer people contact.
          I don’t expect to live forever so ‘something’ will get me eventually, but in the meantime
          I will appreciate each day that I get, even if i’m cold and hungry at times.

          • Agreed.

            We may think we are better off dead — but when the time comes — we will scratch and claw and beg and kill — we will do ‘whatever it takes’ to survive… because Mr DNA demands that of us.

    • Preparing for an unknown future is full of risks. There are a number of interesting sites making recommendations based on their prediction of how systemic collapse will play out; it’s a guess as to which might be the ‘most correct’ approach for ‘success’. I like the Transition Town approach to creating a more resilient local community since it seems most likely that as systems breakdown, it will be your local situation (especially resources) that will determine how ‘painful’ the impact will be for people. I consider my family lucky in that we live within walking/biking distance of many farms (although we also live close to urban centres–Greater Toronto Area–that will be looking at our local food resources should the global food system hit a major hiccup).
      I would recommend some of the following sites to consider in a person’s search for ‘solutions’:

    • Perhaps reffer a bit to historical accounts/literature of past collapses. Generally speaking, such reset would knock on the doors of everybody at certain moment personally, it’s a gamble. Try to be practically usufull in the new arrangement where many psychos just appear from the woodwork as maniacally trying to carve the most meat of the dying system for their brand new fiefdoms. Hands on medical knowledge and craft arts/lost old technical stuff, scale animal husbandry are potential good bets..

      • Chris Martenson aka The King of Koombaya — offers salvation — from behind a paywall….

        How quaint….

        • Oh did I forget to mention how I once dipped a toe onto the Peak Prosperity blog taking a rip at some jack ass who was flogging snake oil… ahem … thorium….

          I posted commentary that demonstrated that thorium was not feasible…

          I exposed how the jack ass actually was involved in a thorium startup (not disclosed on the podcast)

          I asked The Koombaya King if he was getting paid to have this jack ass on his show….

          All comments were deleted.

          When I read the words Chris Martenson — the first thing that comes to my mind is ‘low life’ — ‘opportunist’

          He is right up there with the televangelists flogging salvation….

            • Unfortunately — even if the hail mary pass was caught — it is too late for any of these technologies…

        • Yes diversification is good:

          – dried animal dung burns quite well
          – tree bark is a good option
          – trees are also good although you have to cut and split them and let them season before they will burn
          – perhaps in some places we might be able to scoop some coal from open pits…

            • Yes — keeping the hungry (who will have weapons) away from one’s patch will be a problem….

    • Perhaps others can give some thoughts.

      The survivalists seem to think that after a temporary situation, things will get much better. Many think that small quantities of products made by our current system will continue to be made for a long time. I doubt that this will be true. Instead, those who plan to be survivors really need to start from a very basic level.

      When I read about past collapses, one issue that seems to have been a problem for those trying to re-establish themselves was lack of protection from those who want to steal crops and tools from them. For this reason, new farms tended to be placed on tops of hills, because they could more easily be defended, and the location provided a look out for those coming to harm them.

      Clearly, those setting up new agricultural areas will want to work in groups, because there are so many tasks that need to be done. Having a group also allows better sharing of food and water, as well as allowing some to specialize in defense. Somehow, the issue of clothing and building homes must also be handled. Humans need at least some of their food to be cooked, so adequate fuel supplies are important as well. The group will need to keep population down, because the carrying capacity will only be as high as that provided by minimum food and water supply over a period of years, and these will fluctuate.

      Soil erosion is likely to be a problem on top of a hill, unless primarily perennial crops are used. In fact, even on level land, soil erosion is likely to be a problem over a long period, if crops are cultivated. If irrigation is used, over a period of years salt deposits may also build up. Finding enough soil amendments to keep up fertility is likely to a problem as well. It is possible to use waste from animals for fertilizer, but this requires additional land for the food the animals eat.

      If this view is right, starting over may be a challenge.

      • “When I read about past collapses, one issue that seems to have been a problem for those trying to re-establish themselves was lack of protection from those who want to steal crops and tools from them.”

        This is an issue only because those moments of strife are the interesting parts. The small communities that lived out generations without much conflict are rarely studied or written about. Even a ravaging warlord with a lukewarm 85 IQ can tell you it’s more lucrative to get the people working for you than killing them and having those bodies stinking up the place. In a sense many people today are hampered by the over population we suffer under that makes us value life cheaply these days. It was not always so and before a collapse has run it’s course it will turn around.

        The world today is a small place. As a collapse unfolds one thing that happens is the world gets bigger and bigger once again. In any collapse situation there have always been pockets that remained basically untouched physically. The trick is picking those pockets before it all goes down.

        North America is a much safer place than many understand. The possibility of nuclear pools melting down all over the place aside, it takes real work and a highly tuned future time orientation to make it in Northern latitudes that have actual seasons without fossil fuel input. Simple looting hordes would NOT have those talents and would mostly drift South during the first Winter or starve. Yes there will be isolated homes they can loot but how many would yield a bag of chips and 6 pack in the (now dead) fridge before they found a good one? How long would it take say 20 looters to actually find enough resources in an area and move on? Without fossil fuels it would be almost impossible very few groups of warriors in the past actually managed to live off the land looting for long.

        There are survivalist, there are preppers and there are homesteader/sustainable types as well. Many will fall prey to the collapse but there will always be some who manage in isolated pockets to continue. 500 years after the collapse people will read about all the skirmishes and little wars fought over land and resources and not care a wit about the sheep industry that flourished in Oregon or where ever, or the farming communities in Northern Iowa because no marauding hordes ever went there. Perhaps the golden age of upper Michigan will spawn a new Saint Patrick to travel into savage Florida. You get the idea.

        • “it’s more lucrative to get the people working for you than killing them”

          Let’s examine this…

          So we have a community of peaceful farmers living in a remote area minding their own business.

          Then a warlord and his gang of wild dogs shows up looking for food — and women.

          So the warlord says to the leader of the community ‘hey bud — we are hungry — and we want some ass…’

          And the leader says sorry but you can’t have our women — but we will give you what we can spare….

          Of course the warlord then says ‘we will take your food and you will get out in that field and work or we will kill you — and as for the women — we have the guns — we do what we want’

          And the farmer either stands his ground – and dies — or he goes into the field and ‘works’ for his new master — and hopes for a few scraps…

          At least that is what has happened throughout history.

          • Eddy, – That sounds like a more likely outcome than the one put forward by Preppy, but it is not completely inevitable. If the warlord and his thugs can be held at bay until they run out of food, then their siege may not be successful. All the new farming community may have to find is a good way of keeping the thugs out until they run out of food and starve. Do you have any suggestions as to how the marauding hordes and looters can be kept at bay for a few weeks?

            • The actual question isn’t if the farmers can keep anyone at bay or for how long. The question is can the thugs actually find enough to eat if they keep killing all the producers they come across. The answer is ultimately NO they cannot. Continuous looting requires too much travel time and not enough capacity to carry what you need from place to place. The only large group of marauders I know who were able to pull it off were Mongols and even they had to stop from time to time, sometimes for a generation or more. They only managed because they brought their own producers (Horses) with them and they acted as a large scale unified force. A bunch of small bands 10 to 2000 strong will die out rather fast. The successful thug types always eventually stop and become landed gentry or some type of aristocracy or they end up dead and there are always areas the looting thugs never quite make it to during any given collapse. They may make it during the next one three or four or more generations down the line. Britain is a good example as it took several generations for the Saxons, Angels and Jutes. to begin raiding there after the fall of Rome.

              As for killing everyone Blah Blah Blah Examine the Saxon invasion of England or even the later Norse invasions and then the Norman invasion. Did they wipe out every man woman and child? Sometimes the Vikings did when raiding smaller towns and villages but then what happened eventually is they settled.and their tactics changed. Eventually even the Norse were using native conquered Irish and English troops in their larger raids and wars.

              North America has some newer and unique problems however as it tries to become profoundly Multi-Cultural and therefore set’s itself up for a shattering unlike any collapse that has come before. The main advantage it has is harsh seasons and size and that sheer landmass will insure that remote areas remain basically untouched by looting thugs during the short and mid term. Long term as other areas adapt and spawn off their own tribal cultures once again there maybe invasions etc. but it will take generations to get there.

              The fact is history itself shows us life goes on after every ending. Eventual cooperation between humans is ultimately necessary to make life easier and more enjoyable and it always wins out over violence and looting. Eventually.

            • Why wipe everyone out? Why move from settlement to settlement?

              All you need to do is attack one settlement and enslave the people…. establish that as your base … then expand your territory enslaving more and more people….

              Until you have what is known as an Empire.

              One way or the other — violence will always win out — if you think you are going to be able to establish some island of Koombaya in the post collapse world — and be left alone to grow your organic pumpkins…..

              You are in for a very big surprise.

              You need to read a little more history…. you are never left alone … wars were a constant…

            • Farmers generally don’t do very well against marauders… even if you have plenty of weapons … it is rather difficult to defend a large patch of ground…

              Looking at history the best choice would be to band together under what you hope will be a relatively benevolent war lord (king…) and build a castle…. and hope that he can protect you from the really nasty war lords….

              I am hoping for a Khaleesi type to establish in my area — she is very pretty… and seems sensible — I could see myself joining forces with her and her dragons….

            • I agree with you Pioneer Preppy,

              NA has a lot of advantages, post-collapse.

              It has a lower density than Asia and Europe. It has a lot of arable land, some pockets of energy (coal). I think that northern climate people have an advantage than the south. Northern climate people will have will have to cooperate at higher level to survive. They have to plan for the winter, which also knocks them down a notch for real estate value. I’m thinking of the Romans vs Barbarians too.

              And I agree with your excellent observation about survival pockets. There will be survivors, it’s just impossible to identify where those pockets will occur but we could sort of describe the ideal location.

              Many will fall prey to the collapse but there will always be some who manage in isolated pockets to continue. 500 years after the collapse people will read about all the skirmishes and little wars fought over land and resources and not care a wit about the sheep industry that flourished in Oregon…

              Was just up in Corvallis Oregon last month. Beautiful area. I have three words to describe Oregon: poor, poor, and poor :-). But I have to wonder if those areas will actually become the richest areas, post-collapse. Land, Trees. Lots of trees = energy to cook with.

            • So Fast Eddie. Name one time in the history of the world where violence and enslavement won out? One example. Just one where the people were all killed or enslaved never to assimilate or rise again. Cooperation and peace always win in the end. Even when violence, looting, theft, rape etc. win they lose. It really is that simple.

            • “Cooperation and peace always win in the end.”

              Which street do you live on in Koombaya town?

              I’ll send you hard copies of this series of books

              Like I have said (must be 8978 times now) — yes we cooperate — and cooperation will ALWAYS win in the end….

              Because an army with a nation behind it will always destroy an individual or a nation or a group of individuals who do not cooperate.

              History is one endless story of murder and mayhem…. pillage and rape….

            • That’s a very dark world you live in. Might want to reference my initial reply to Gail about it and the modern day issue of holding life in general so very cheap.

              History is filled with acts of violence and horror. No argument there but if it wasn’t filled with more acts of cooperation, sacrifice and peace we would have never evolved beyond cave dwelling hunter gatherers.

              Again please point out one time in history where an entire population was lost in one generation or less either by war, pollution, societal collapse, natural disaster or martian invasion. Just one and Atlantis doesn’t count. People always survive and in most every scenario isolated pockets have survived for generations almost intact. The only exceptions I can think of would maybe be Easter Island and the Sack of Carthage and I would rate both of those to be so small overall to not even apply to the type of collapse we are discussing here. The collapsing societies may disappear on a large scale but the remnants continue and eventually become something else or are absorbed into some other culture but that always takes generations. Even years after the fall of Rome parts of the Western Empire were left untouched, the Eastern Empire didn’t collapse for centuries.

              Societies, civilizations and Empires have risen and fallen over and over, yet part of each always survives and rebuilds. If it didn’t you wouldn’t be here looking at your monitor thinking dark thoughts of unavoidable doom today.

            • I assume you are in America?

              You are aware that you are sitting at your computer living a relatively cushy, safe existence because your country has engaged in mass murder as it pillaged the world stealing the resources of other countries?

              I don’t stand in judgment (if America were weak you’d be the one under the boot) — I am just pointing out the bigger picture to you.

              For a more in depth understanding of things…. here’s my bullet point summary…

              How the World Really Works

              – The luckiest, fittest, smartest, with the capability for ruthlessness survive – always have – always will

              – Resources are finite and therefore ownership is a zero sum game

              – The strong always take from the weak – if they do not then that is a sign of weakness and a competitor will take from the weak and will usurp the formerly strong dropping them into weakling status

              – Humans tend to group by clan or on a broader basis by nationality (strength in numbers bonded by culture) and they compete with others for resources

              – Competition has always existed (I want it all!) but it becomes fiercer when resources are not sufficient to support competing clans or nations

              – Tribal societies understand these dynamics because they cannot go to the grocery store for their food – so they are intimately aware of the daily battle to feed themselves and the competition for scare land and resources

              – Modern affluent societies do not recognize this dynamic because for them resources are not scarce – they have more than enough.

              – One of the main reasons that resources are not scarce in affluent societies is because they won the battle of the fittest (I would argue that luck is the precursor to all other advantages – affluent societies did not get that way because they started out smarter — rather they were lucky – and they parlayed that luck into advances in technology… including better war machines)

              – As we have observed throughout history the strong always trample the weak. Always. History has always been a battle to take more in the zero sum game. The goal is to take all if possible (if you end up in the gutter eating grass the response has been – better you than me – because I know you’d do the same to me)

              – And history demonstrates that the weak – given the opportunity – would turn the tables on the strong in a heartbeat. If they could they would beat the strong into submission and leave them bleeding in the streets and starving. As we see empire after empire after empire gets overthrown and a new power takes over. Was the US happy to share with Russia and vice versa? What about France and England? Nope. They wanted it all.

              – Many of us (including me) in the cushy western world appear not to understand what a villager in Somalia does – that our cushy lives are only possible because our leaders have recognized that the world is not a fair place — Koombaya Syndrome has no place in this world — Koombaya will get you a bullet in the back — or a one way trip to the slum.

              – Religious movements have attempted to change the course of human nature — telling us to share and get along — they have failed 100% – as expected. By rights we should be living in communes — Jesus was a communist was he not? We all know that this would never work. Because we want more. We want it all.

              – But in spite of our hypocrisy, we still have this mythical belief that mankind is capable of good – that we make mistakes along the way (a few genocides here, a few there… in order to steal the resources of an entire content so we can live the lives we live) — ultimately we believe we are flawed but decent. We are not. Absolutely not.

              – But our leaders — who see through this matrix of bullshit — realize that our cushy lives are based on us getting as much of the zero sum game as possible. That if they gave in to this wishy washy Koombaya BS we would all be living like Somalians.

              – Of course they cannot tell us what I am explaining here — that we must act ruthlessly because if we don’t someone else will — and that will be the end of our cushy lives. Because we are ‘moral’ — we believe we are decent – that if we could all get along and share and sing Koombaya the world would be wonderful. We do not accept their evil premises.

              – So they must lie to us. They must use propaganda to get us onside when they commit their acts of ruthlessness.

              – They cannot say: we are going to invade Iraq to ensure their oil is available so as to keep BAU operating (BAU which is our platform for global domination). The masses would rise against that making things difficult for the PTB who are only trying their best to ensure the hypocrites have their cushy lives and 3 buck gas (and of course so that the PTB continue to be able to afford their caviar and champagne) …. Because they know if the hypocrites had to pay more or took at lifestyle hit – they’d be seriously pissed off (and nobody wants to be a Somalian)

              – Which raises the question — are we fools for attacking the PTB when they attempt to throw out Putin and put in a stooge who will be willing to screw the Russian people so that we can continue to live large? When we know full well that Putin would do the same to us — and if not him someone more ruthless would come along and we’d be Somalians.

              – Should we be protesting and making it more difficult for our leaders to make sure we get to continue to lead our cushy lives? Or should we be following the example of the Spartans

              – In a nutshell are our interests as part of the western culture not completely in line with those of our leaders – i.e. if they fail we fail – if they succeed we succeed.

              – Lee Kuan Yew is famous for saying ‘yes I will eat very well but if I do so will you’ Why bite the hand that whips the weak to make sure you eat well…. If you bite it too hard it cannot whip the weak — making you the weak — meaning you get to feel the whip….

              – Nation… clan … individual…. The zero sum game plays out amongst nations first … but as resources become more scarce the battle comes closer to home with clans battling for what remains…. Eventually it is brother against brother ….

              – As the PTB run out of outsiders to whip and rob…. They turn on their own…. As we are seeing they have no problem with destroying the middle class because it means more for them… and when the weak rise against them they have no problem at all deploying the violent tactics that they have used against the weak across the world who have attempted to resist them

              – Eventually of course they will turn against each other…. Henry Kissinger and Maddy Albright bashing each other over the head with hammers fighting over a can of spam – how precious!

            • Little help from wikipedia for genocide examples:
              American Indians, Yuki, Pallawah, Herero, Daurs, Yakuts, Kamchadals, Chukchi, Itelmens, Aleuts, Dzungar, …

              Lets not forget the biblical God-approved genocide: Amalekites, Perizzites, Hivites, Jebusites, Midianites, Canaanites, Amorites…

            • In that history of the world series — there must have been 100+ incidents discussed where invaders busted through the city walls and slaughtered everyone inside… women, babies, children….. everyone… the streets ran with rivers of blood…

              Of course that could never happen in this day and age… we are superior… we are ‘civilized’

            • Btw,
              Dan Carlin’s podcast on the Wrath of Khan has an excellent counterpoint to the idea that the burning down a stagnate forest can provide new growth.


              His vivid description of the destruction wrought by the Mongols is excellent… 10 million people? Who knows!?

              But how many of those people were artisans, musicians, intellectuals…? It doesn’t matter, they were all wiped out when the Mongols came through. The point is that human history has been full of violence, probably from the very beginning. It isn’t necessarily the most advanced who survive, but the most ruthless.

            • Pretty much all of that proves my point. Not a one of any of the examples of an entire people suffering genocide were annihilated quickly nor in most cases completely. Most still continue on and those who do not it took generations to get to all of them. That is hardly the “everyone will die swiftly so we must all throw our hands up in futility” kinda scenario. Certainly smaller groups of the larger were totally wiped out, no one has said it doesn’t happen but there are always isolated groups that remain basically untouched. Almost all of your examples also resort to large scale warfare of nationality v. nationality as well which is an entirely different scenario than we are currently discussing. For that type of scenario to evolve from a world collapse it would take (again) generations for the invading groups to form. Other scenarios include mass colonization, again not what we are discussing here.

              You are in fact discussing apple trees to discredit orange fruit. Not a totally irrelevant tactic if there are some similarities but the time scales involved render the examples useless.

              The part that tears all of your examples down the furthest is the very same thing Gail mentions here about the current crisis. Every example you point to involves one group being in growth stage conflicting with another. The type of collapse scenario we are discussing here is the exact opposite of that. All groups will be in decline which leads an even greater chance of isolated pockets remaining isolated until growth picks up once again. That could be 100’s of years down the road.

              Decline changes the risk v. reward dynamic for all groups from familiar to tribal etc.

            • Maybe we are talking different scenarios, but here is how I see the near and future potential situation: the world’s capacity to feed 7.2 billion people drops to 1 billion (or lower) in a period of one or two decades. (I’m not really sure if that is worst or best case).

              This will create a scarcity and resource fight never seen before. Past collapses have all occurred in predominantly agrarian societies whereas this one will the end of global industrial civilization. It will an uneven distribution of resources of course. Some regions will be better off than others.

              Human nature being human nature, people will want to blame someone and make a scapegoat. Overall, I would say the potential for war and conflict (over the remaining resources) is great. As the years drag on during this “transformation”, people will forget the original reason for why the wars started.

              I suppose you could say that I believe that this is our nature, in our blood, and in our genes. We have been fighting for scarce resources (among other things) since the beginning of time.

              On the other hand, I’m not really qualified or versed in history to evaluate the statement that violence has only had a minor impact on the evolution on the human species.

            • Well Alturium it isn’t just history that points me to my conclusions. We are indeed talking about two very different scenarios and the one we have staring us in the face is one unlike the world has ever seen. I happen to agree with you about the resource issues but if this collapse is begun by a financial collapse then about 90% of the world’s population will find themselves resource starved almost immediately. This will create a scenario more like a fast burning virus or bacteria as opposed to a resource fight free for all. The hotspots will burn themselves out quickly which will result in the spread slowing down as the burn out catches up to itself. Indeed I figure at least 80% of the worlds population won’t even make it out of the major population centers as they prey on each other or simply lay down and die. After that the vastness of the globe becomes the best defense against the spread without fossil fuels to make all points reachable.

              A long slow decline like we have been experiencing the last five years or more is in fact more a danger than a fast one. This allows a more Tainter-eques collapse to happen that starts at the edges and works it’s way inwards. The resources keep flowing in to the center starving the isolated areas or basically enslaving and killing the innocent as FastEddy likes to describe (in this sub thread anyway).

              I cannot fully call which one is going to happen. Perhaps one of the tremors from the slow collapse will break the camel’s back so to speak and initiate a fast collapse.

              We will certainly find out I imagine all in good time.

            • I am loving the speculative narratives on this thread and, at the risk of rising at the moments passing, offer my own.

              The global deflation and Limits to Growth predicament coupled with the information revolution present humanity with the greatest learning opportunity it has had to date. Yes, it is different this time.

              The main lesson is finally grasped: That hording wealth or resources cannot be justified by “giving something back” in the autumn of the rich person’s life. Because we realize that while some parts of the body of humanity enjoyed the spoils, some extremities were underdeveloped, deprived of circulation. Organic functions necessary to the body were undernourished. The body weakened and became ill.

              As the fever passes, the brain takes note and the spirits rise. We must be vigilant in the future for signs of this same malady. But the task at hand requires immediate action.

              After the IMF stabilizes global trade through temporary monetary actions, a majority of nations ratifies the first plan to deal with population shifts brought on by resource depletion and the growing body of evidence that, rather than global warming, a sudden, and seemingly counter-intuitive surge in Laurentide glaciation nuclei portends rapid loss of grain farming regions world-wide. Models indicate the timeframe and scale of impacts for these changes are even more dire than the global warming scenarios.

              The United Nations Plan Global Carrying Capacity Plan initially garnered much criticism for the linkage of development loans to family planning efforts. But this seemingly draconian measure was balanced by something the earth had never wtinessed before: the nations of the earth created a council and a process by which dislocated populations from regions stressed by environmental and social disasters could be relocated as citizens of host nations paid to take on the added capacity.

            • “The main lesson is finally grasped: That hording wealth or resources cannot be justified by “giving something back” in the autumn of the rich person’s life. Because we realize that while some parts of the body of humanity enjoyed the spoils, some extremities were underdeveloped, deprived of circulation. Organic functions necessary to the body were undernourished. The body weakened and became ill. ”

              I love the analogy. The problem is corporations don’t die as easy as people. They do die, but a lot of them survive the death of their founders. It just isn’t a problem in the states. China and Russia both have similar issues with wealth distribution.

            • All sounds great — however a slight problem

              We are collapsing because civilization was built and maintained by using cheap to extract resources — we are no longer finding these — therefore civilization is going to collapse — billions are going to starve and perish.

              We can invent all the wonderful endings we want — but those be the facts.

            • ….It was quite a shock to the world when Nations in the Middle East and North Africa agreed to accept the millions of refugees from Canada and Eurasion Nations north of 60 degrees latitude. After the countless tribulations those formerly failing states experienced at the meddling of Western hands.

    • Thanks for the suggested reading. I’m familiar with some of the material, and have heard almost all of the recommendations before, but its still good to hear them again.

      Personally, I’m probably in a much better situation than many of the gang hear on OFW. No debt. Significant savings. Own farmland. Building off-grid. I suppose I’m looking for the magic recipe that will make me feel secure… One thing I have neglected is the community aspect, and sorely regret it. Going it alone, especially when surrounded by critics, really eats up one’s gumption.

      • “One thing I have neglected is the community aspect, and sorely regret it. Going it alone, especially when surrounded by critics, really eats up one’s gumption.”

        That is true with doing anything outside the box. Sometimes it isn’t critic it is haters, who actually want to destroy what you are doing. The negativity takes its toll.

        You shouldn’t run into too many haters, and you might find some others. It takes a while to warm up to some of the upstate NYers. They are quite leary of city folk.. I would -suggest- joining a club like a service club. Optimist club comes to mind. 🙂

      • You’ll probably want to set up a tight defensive perimeter and learn how to defend it. Quickly placed roadblocks (old vehicle?), barbed wire fences, logs to block possible off road vehicle entry points. Anything to slow people down on the way in will give you an advantage. I am starting to get excited thinking about all this stuff as we will be getting property ‘up north’ soon and will be moving our permaculture experiment up there and building this type of defensive perimeter. If we make it in time.

        Right now, on .2 acres, we could survive with no external inputs. The only loose ends we haven’t tied up are water in and sewage out. City water and city sewage. Otherwise we produce enough to dry or otherwise preserve to survive.

        What we lack is grazing land (Our chickens are feed with store bough feed), a natural water source, fuel (forest) and a humanure system which will all be covered in the move up north.

        • “I am starting to get excited thinking about all this stuff”

          How I wish I could check back with you a few months post-collapse for an update…

          Life must be pretty bad if you can’t wait for the world to end…

          • Life’s not bad, right now, where I am. I’m excited about living the way we should be living, not having to kill people to defend a spot of dirt.

            To answer others, I am not investing in any other systems where I am because we live in the shit (city) and would be quickly over run here.

        • “The only loose ends we haven’t tied up are water in and sewage out. City water and city sewage. Otherwise we produce enough to dry or otherwise preserve to survive.”
          Collect the graywater from your roof gutter system. Then you filter it through a whole house type of charcoal filter, so it is potable. You probably want a tank buried in your yard if you don’t have one already. then a pump and probably a water pressure tank to use your existing plumbing.

          For sewage, they actually make dry toilets. Or just use an outhouse

        • Defence perimeters: well, it is always useful to impede the progress of ill-wishers, common opportunistic criminals, etc, who might give up if things look to be not so easy.

          However, in Argentina, ranches in rural areas found themselves in great trouble, as the criminal gangs were substantial and prepared to lay siege to properties. One only has to think of the manpower issues around manning a perimeter effectively, and the issue of keeping watch on all access points to a main building in the face of siege….

          There was a good reason why in Europe the peasants used to abandon their villages, not attempt to defend them. I have seen abandonment of property, and making it look as though it has already been looted and trashed, recommended for certain urban/civil war situations.

          You will not be a bold knight facing down the enemy at the gate: you will be a peasant, so learn from them.

          • Most people only see bad guys on the tee vee…. but they are there — many thousands of them — in every country…. they are generally a product of poverty — lack of opportunity….

            And they will be on the loose….

            Anyone who makes it through the other end of this will need to get with the programme….. there is no room on the island for drum thumping koombaya types…. except as slaves…

            You either get mean and get ready to kill…. or you will be killed.

            We are going back to the jungle…. the primordial jungle…. a world of depravity and violence…

            When everyone is hungry there will be no room for niceties…

            What will you do when 50 chaps like this show up at the farm gate?

            • Ah, body art, how inspiring! Such vibrant souls beat beneath the rough exterior?

              I do hope they are being led off to execution.

  6. Pingback: Deflationary Collapse Ahead? |

  7. Dear Gail, I’ve read your blog for a couple of months and wanted to thank you for your analysis and insight. I think the problem we have at this point is a completely solvable economic software, number in a computer issue. The actual resources are there, even oil and gas in sufficient quantities for the foreseeable future. Deflation is occurring because of a lack of demand, well maybe this time the powers need to do quantitative easing from the bottom up instead of the top down. Automation will cause a speed up in wage deflation since a lot of companies will be fighting for survival in a deflationary environment, so for the most efficient to survive they will automate as fast as possible because they can write off automation on taxes whereas people cost them in unemployment insurance and social security. We need a socialist base economy (guaranteed minimum income worldwide) with a reach for sky capitalism layer built on top. The minimum income should start out for only people 50 and above initially so the job market can be opened up for the young to start their families and the high population growth areas of the world would probably not have as many children because they would see that in older age they would be taken care of. As far as energy goes we need a Manhattan project for nuclear fusion. There is a new design out of MIT that can supposedly almost double the magnetic containment which results in 10x power out (2X implies 2^4). Unfortunately, we don’t have functional leadership (they are more concerned with dysfunctional conflicts & unnecessary wars) so your prognosis may turn out to be the true one even though it doesn’t have to be that way.

    • The thing is….

      The PTB are aware of the causes of what we are experiencing …

      They have the brightest minds at think tanks working out how to keep BAU going as long as possible — by whatever means necessary….

      All that we are seeing — from the housing bubbles — to QE — to ZIRP — and other policies that have been in play for decades now —- have without a doubt been modeled and tested …

      I doubt there is not a single stone left unturned in the quest to keep the hamster running on the wheel…. because the PTB know full well that when the hamster stops — that is the end for them too….

      Therefore… if there were ways to extend this game longer — no matter how crazy the scheme (can anything be more crazy than printing money — or stepping in to buy the stock market to keep it from crashing…) the PTB will not hesitate to try it….

      It does indeed look as if the central banks are out of tricks…. the end game was always going to be a deflationary death spiral….

      We are going to find out if they have any more magic tricks in the very near future…. because we are now looking into the abyss…. global trade is falling — and commodity prices are crashing >>>>>> in spite of trillions of dollars of stimulus….

      If someone does come up with an idea to push the collapse out more than say one year…. that person would be a brilliant thinker indeed….

      However given that money printing has always been the last resort when faced with economic collapse…. my money is on there not being any further acts to this tragedy.

      The end is nigh…

      • I am working for a company that just announced 15% layoffs. It is amazing how motivating that has been. Everyone is now executing with a sense of urgency. That mouse on the wheel can be made it go a lot faster just need to apply a little flame. That is, I think there are still tricks to play.

        • However the 15% that were laid off will not be buying much ‘stuff’ going forward…. which is like putting a brick onto the back of the hamster….

    • I think it is a little late to get started with a big fix-it, especially on the energy side. We tried nuclear, and then solar and wind. Neither of those were great solutions. Getting nuclear fusion to work as essentially a cheap perpetual motion machine is highly unlikely, but that is what we really need.

      Maybe there is some additional QE that can be a temporary fix, but at most I expect it to be just a temporary bandaid. We have an underlying problem that is hard to fix.

      • I agree it is a little late to change course. It seems to me a choice was made years ago to power our economy with fossil fuels and not nuclear energy. I don’t think that is a reversible choice. Especially without huge inputs of additional energy to modify and or rebuild the current infrastructure to accommodate nuclear power. Not to mention the technology isn’t really there yet either. I think the best we can hope for is to extend QE and stop pursuing “alternative” energy and use the last remaining reserves of fossil fuels to power down industrial civilization more cleanly.

    • Yes, obviously there is plenty of resources in the ground, but they get still more difficult to get up. I.e. it costs more and more money to have sufficient volumes of the stuff. That means that even if we can produce more coal and oil than today the problem is that the net energy to our disposal gets smaller as money is just a meter for energy. You probably agree that every material item is a product of a certain energy consumption. What about wages? You eventually spend your money on material items! No, I place a great portion of my money in the bank! The bank knows better than you and me to lend that money out for activities that requires energy. Taxes? Governments also spend their money on more or less the same things as you do. Every dime eventually ends up in energy consumption.

    • Hi Jeffrey,

      I was about to reply to your comment about Automation leading to deflation and “so for the most efficient to survive they will automate as fast as possible” by pointing out that automation requires more complexity and more energy but then another thought came to mind.

      There seems to be a real push for self-driving cars and automation recently. Perhaps it is the hope that automation (ie. robots) will provide the slave labor of our future society that will release us poor humans to pursue more philosophical endeavors. We will all be a member of the rentier class, finally.

      Perhaps there is conspiracy element to this narrative. That the elite will inherit the Earth (post-collapse) and that robots (sans serfs) will be slave class. Kinda like Isaac Asimov’s Spacer worlds. Where a few humans lived on each planet, serviced by an planet of robots.


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